diff --git a/GraphRAG/.gitignore b/GraphRAG/.gitignore
new file mode 100644
index 0000000000..805fd67140
--- /dev/null
+++ b/GraphRAG/.gitignore
@@ -0,0 +1,3 @@
+.env
+**/__pycache__/
+**/.venv/
diff --git a/GraphRAG/README.md b/GraphRAG/README.md
new file mode 100644
index 0000000000..232496ea88
--- /dev/null
+++ b/GraphRAG/README.md
@@ -0,0 +1,180 @@
+# GraphRAG for Question Answering
+
+## Overview
+
+A modified example of AgentQnA using GraphRAG tools.
+
+This example showcases a hierarchical multi-agent system for question-answering applications. The architecture diagram is shown below. The supervisor agent interfaces with the user and dispatch tasks to the worker agent and other tools to gather information and come up with answers. The worker agent uses the retrieval tool to generate answers to the queries posted by the supervisor agent. Other tools used by the supervisor agent may include APIs to interface knowledge graphs, SQL databases, external knowledge bases, etc.
+![Architecture Overview](assets/agent_qna_arch.png)
+
+The AgentQnA example is implemented using the component-level microservices defined in [GenAIComps](https://github.com/opea-project/GenAIComps). The flow chart below shows the information flow between different microservices for this example.
+
+```mermaid
+---
+config:
+  flowchart:
+    nodeSpacing: 400
+    rankSpacing: 100
+    curve: linear
+  themeVariables:
+    fontSize: 50px
+---
+flowchart LR
+    %% Colors %%
+    classDef blue fill:#ADD8E6,stroke:#ADD8E6,stroke-width:2px,fill-opacity:0.5
+    classDef orange fill:#FBAA60,stroke:#ADD8E6,stroke-width:2px,fill-opacity:0.5
+    classDef orchid fill:#C26DBC,stroke:#ADD8E6,stroke-width:2px,fill-opacity:0.5
+    classDef invisible fill:transparent,stroke:transparent;
+
+    %% Subgraphs %%
+    subgraph DocIndexRetriever-MegaService["DocIndexRetriever MegaService "]
+        direction LR
+        EM([Embedding MicroService]):::blue
+        RET([Retrieval MicroService]):::blue
+        RER([Rerank MicroService]):::blue
+    end
+    subgraph UserInput[" User Input "]
+        direction LR
+        a([User Input Query]):::orchid
+        Ingest([Ingest data]):::orchid
+    end
+    AG_REACT([Agent MicroService - react]):::blue
+    AG_RAG([Agent MicroService - rag]):::blue
+    LLM_gen{{LLM Service <br>}}
+    DP([Data Preparation MicroService]):::blue
+    TEI_RER{{Reranking service<br>}}
+    TEI_EM{{Embedding service <br>}}
+    VDB{{Vector DB<br><br>}}
+    R_RET{{Retriever service <br>}}
+
+
+
+    %% Questions interaction
+    direction LR
+    a[User Input Query] --> AG_REACT
+    AG_REACT --> AG_RAG
+    AG_RAG --> DocIndexRetriever-MegaService
+    EM ==> RET
+    RET ==> RER
+    Ingest[Ingest data] --> DP
+
+    %% Embedding service flow
+    direction LR
+    AG_RAG <-.-> LLM_gen
+    AG_REACT <-.-> LLM_gen
+    EM <-.-> TEI_EM
+    RET <-.-> R_RET
+    RER <-.-> TEI_RER
+
+    direction TB
+    %% Vector DB interaction
+    R_RET <-.-> VDB
+    DP <-.-> VDB
+
+
+```
+
+### Why Agent for question answering?
+
+1. Improve relevancy of retrieved context.
+   Agent can rephrase user queries, decompose user queries, and iterate to get the most relevant context for answering user's questions. Compared to conventional RAG, RAG agent can significantly improve the correctness and relevancy of the answer.
+2. Use tools to get additional knowledge.
+   For example, knowledge graphs and SQL databases can be exposed as APIs for Agents to gather knowledge that may be missing in the retrieval vector database.
+3. Hierarchical agent can further improve performance.
+   Expert worker agents, such as retrieval agent, knowledge graph agent, SQL agent, etc., can provide high-quality output for different aspects of a complex query, and the supervisor agent can aggregate the information together to provide a comprehensive answer.
+
+### Roadmap
+
+- v0.9: Worker agent uses open-source websearch tool (duckduckgo), agents use OpenAI GPT-4o-mini as llm backend.
+- v1.0: Worker agent uses OPEA retrieval megaservice as tool.
+- v1.0 or later: agents use open-source llm backend.
+- v1.1 or later: add safeguards
+
+## Getting started - standalone
+
+For rapid prototyping, the `standalone` directory contains a monolithic front-end/back-end example
+and some exploratory python notebooks.
+
+## Getting started - microservices
+
+1. Build agent docker image </br>
+   First, clone the opea GenAIComps repo
+
+   ```
+   export WORKDIR=<your-work-directory>
+   cd $WORKDIR
+   git clone https://github.com/opea-project/GenAIComps.git
+   ```
+
+   Then build the agent docker image. Both the supervisor agent and the worker agent will use the same docker image, but when we launch the two agents we will specify different strategies and register different tools.
+
+   ```
+   cd GenAIComps
+   docker build -t opea/agent-langchain:latest --build-arg https_proxy=$https_proxy --build-arg http_proxy=$http_proxy -f comps/agent/langchain/Dockerfile .
+   ```
+
+2. Launch tool services </br>
+   In this example, we will use some of the mock APIs provided in the Meta CRAG KDD Challenge to demonstrate the benefits of gaining additional context from mock knowledge graphs.
+
+   ```
+   docker run -d -p=8080:8000 docker.io/aicrowd/kdd-cup-24-crag-mock-api:v0
+   ```
+
+3. Set up environment for this example </br>
+   First, clone this repo
+
+   ```
+   cd $WORKDIR
+   git clone https://github.com/opea-project/GenAIExamples.git
+   ```
+
+   Second, set up env vars
+
+   ```
+   export TOOLSET_PATH=$WORKDIR/GenAIExamples/AgentQnA/tools/
+   # optional: OPANAI_API_KEY
+   export OPENAI_API_KEY=<your-openai-key>
+   ```
+
+4. Launch agent services</br>
+   The configurations of the supervisor agent and the worker agent are defined in the docker-compose yaml file. We currently use openAI GPT-4o-mini as LLM, and we plan to add support for llama3.1-70B-instruct (served by TGI-Gaudi) in a subsequent release.
+   To use openai llm, run command below.
+
+   ```
+   cd docker_compose/intel/cpu/xeon
+   bash launch_agent_service_openai.sh
+   ```
+
+## Validate services
+
+First look at logs of the agent docker containers:
+
+```
+docker logs docgrader-agent-endpoint
+```
+
+```
+docker logs react-agent-endpoint
+```
+
+You should see something like "HTTP server setup successful" if the docker containers are started successfully.</p>
+
+Second, validate worker agent:
+
+```
+curl http://${ip_address}:9095/v1/chat/completions -X POST -H "Content-Type: application/json" -d '{
+     "query": "Most recent album by Taylor Swift"
+    }'
+```
+
+Third, validate supervisor agent:
+
+```
+curl http://${ip_address}:9090/v1/chat/completions -X POST -H "Content-Type: application/json" -d '{
+     "query": "Most recent album by Taylor Swift"
+    }'
+```
+
+## How to register your own tools with agent
+
+You can take a look at the tools yaml and python files in this example. For more details, please refer to the "Provide your own tools" section in the instructions [here](https://github.com/opea-project/GenAIComps/tree/main/comps/agent/langchain/README.md#5-customize-agent-strategy).
diff --git a/GraphRAG/assets/agent_qna_arch.png b/GraphRAG/assets/agent_qna_arch.png
new file mode 100644
index 0000000000..3bebb1d997
Binary files /dev/null and b/GraphRAG/assets/agent_qna_arch.png differ
diff --git a/GraphRAG/docker_compose/intel/cpu/xeon/compose_openai.yaml b/GraphRAG/docker_compose/intel/cpu/xeon/compose_openai.yaml
new file mode 100644
index 0000000000..bac5bbc627
--- /dev/null
+++ b/GraphRAG/docker_compose/intel/cpu/xeon/compose_openai.yaml
@@ -0,0 +1,65 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+services:
+  worker-docgrader-agent:
+    image: opea/agent-langchain:latest
+    container_name: docgrader-agent-endpoint
+    volumes:
+      - ${WORKDIR}/GenAIComps/comps/agent/langchain/:/home/user/comps/agent/langchain/
+      - ${TOOLSET_PATH}:/home/user/tools/
+    ports:
+      - "9095:9095"
+    ipc: host
+    environment:
+      ip_address: ${ip_address}
+      strategy: rag_agent
+      recursion_limit: ${recursion_limit_worker}
+      llm_engine: openai
+      OPENAI_API_KEY: ${OPENAI_API_KEY}
+      model: ${model}
+      temperature: ${temperature}
+      max_new_tokens: ${max_new_tokens}
+      streaming: false
+      tools: /home/user/tools/worker_agent_tools.yaml
+      require_human_feedback: false
+      RETRIEVAL_TOOL_URL: ${RETRIEVAL_TOOL_URL}
+      no_proxy: ${no_proxy}
+      http_proxy: ${http_proxy}
+      https_proxy: ${https_proxy}
+      LANGCHAIN_API_KEY: ${LANGCHAIN_API_KEY}
+      LANGCHAIN_TRACING_V2: ${LANGCHAIN_TRACING_V2}
+      LANGCHAIN_PROJECT: "opea-worker-agent-service"
+      port: 9095
+
+
+  supervisor-react-agent:
+    image: opea/agent-langchain:latest
+    container_name: react-agent-endpoint
+    volumes:
+      - ${WORKDIR}/GenAIComps/comps/agent/langchain/:/home/user/comps/agent/langchain/
+      - ${TOOLSET_PATH}:/home/user/tools/
+    ports:
+      - "9090:9090"
+    ipc: host
+    environment:
+      ip_address: ${ip_address}
+      strategy: react_langgraph
+      recursion_limit: ${recursion_limit_supervisor}
+      llm_engine: openai
+      OPENAI_API_KEY: ${OPENAI_API_KEY}
+      model: ${model}
+      temperature: ${temperature}
+      max_new_tokens: ${max_new_tokens}
+      streaming: false
+      tools: /home/user/tools/supervisor_agent_tools.yaml
+      require_human_feedback: false
+      no_proxy: ${no_proxy}
+      http_proxy: ${http_proxy}
+      https_proxy: ${https_proxy}
+      LANGCHAIN_API_KEY: ${LANGCHAIN_API_KEY}
+      LANGCHAIN_TRACING_V2: ${LANGCHAIN_TRACING_V2}
+      LANGCHAIN_PROJECT: "opea-supervisor-agent-service"
+      CRAG_SERVER: $CRAG_SERVER
+      WORKER_AGENT_URL: $WORKER_AGENT_URL
+      port: 9090
diff --git a/GraphRAG/docker_compose/intel/cpu/xeon/launch_agent_service_openai.sh b/GraphRAG/docker_compose/intel/cpu/xeon/launch_agent_service_openai.sh
new file mode 100644
index 0000000000..6c2094cc8e
--- /dev/null
+++ b/GraphRAG/docker_compose/intel/cpu/xeon/launch_agent_service_openai.sh
@@ -0,0 +1,16 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+export TOOLSET_PATH=$WORKDIR/GenAIExamples/AgentQnA/tools/
+export ip_address=$(hostname -I | awk '{print $1}')
+export recursion_limit_worker=12
+export recursion_limit_supervisor=10
+export model="gpt-4o-mini-2024-07-18"
+export temperature=0
+export max_new_tokens=512
+export OPENAI_API_KEY=${OPENAI_API_KEY}
+export WORKER_AGENT_URL="http://${ip_address}:9095/v1/chat/completions"
+export RETRIEVAL_TOOL_URL="http://${ip_address}:8889/v1/retrievaltool"
+export CRAG_SERVER=http://${ip_address}:8080
+
+docker compose -f compose_openai.yaml up -d
diff --git a/GraphRAG/docker_compose/intel/hpu/gaudi/compose.yaml b/GraphRAG/docker_compose/intel/hpu/gaudi/compose.yaml
new file mode 100644
index 0000000000..5200f757e3
--- /dev/null
+++ b/GraphRAG/docker_compose/intel/hpu/gaudi/compose.yaml
@@ -0,0 +1,98 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+services:
+  tgi-server:
+    image: ghcr.io/huggingface/tgi-gaudi:2.0.5
+    container_name: tgi-server
+    ports:
+      - "8085:80"
+    volumes:
+      - ${HF_CACHE_DIR}:/data
+    environment:
+      no_proxy: ${no_proxy}
+      http_proxy: ${http_proxy}
+      https_proxy: ${https_proxy}
+      HUGGING_FACE_HUB_TOKEN: ${HUGGINGFACEHUB_API_TOKEN}
+      HF_HUB_DISABLE_PROGRESS_BARS: 1
+      HF_HUB_ENABLE_HF_TRANSFER: 0
+      HABANA_VISIBLE_DEVICES: all
+      OMPI_MCA_btl_vader_single_copy_mechanism: none
+      PT_HPU_ENABLE_LAZY_COLLECTIVES: true
+      ENABLE_HPU_GRAPH: true
+      LIMIT_HPU_GRAPH: true
+      USE_FLASH_ATTENTION: true
+      FLASH_ATTENTION_RECOMPUTE: true
+    runtime: habana
+    cap_add:
+      - SYS_NICE
+    ipc: host
+    command: --model-id ${LLM_MODEL_ID} --max-input-length 4096 --max-total-tokens 8192 --sharded true --num-shard ${NUM_SHARDS}
+  worker-docgrader-agent:
+    image: opea/agent-langchain:latest
+    container_name: docgrader-agent-endpoint
+    depends_on:
+      - tgi-server
+    volumes:
+      # - ${WORKDIR}/GenAIExamples/AgentQnA/docker_image_build/GenAIComps/comps/agent/langchain/:/home/user/comps/agent/langchain/
+      - ${TOOLSET_PATH}:/home/user/tools/
+    ports:
+      - "9095:9095"
+    ipc: host
+    environment:
+      ip_address: ${ip_address}
+      strategy: rag_agent
+      recursion_limit: ${recursion_limit_worker}
+      llm_engine: tgi
+      HUGGINGFACEHUB_API_TOKEN: ${HUGGINGFACEHUB_API_TOKEN}
+      llm_endpoint_url: ${LLM_ENDPOINT_URL}
+      model: ${LLM_MODEL_ID}
+      temperature: ${temperature}
+      max_new_tokens: ${max_new_tokens}
+      streaming: false
+      tools: /home/user/tools/worker_agent_tools.yaml
+      require_human_feedback: false
+      RETRIEVAL_TOOL_URL: ${RETRIEVAL_TOOL_URL}
+      no_proxy: ${no_proxy}
+      http_proxy: ${http_proxy}
+      https_proxy: ${https_proxy}
+      LANGCHAIN_API_KEY: ${LANGCHAIN_API_KEY}
+      LANGCHAIN_TRACING_V2: ${LANGCHAIN_TRACING_V2}
+      LANGCHAIN_PROJECT: "opea-worker-agent-service"
+      port: 9095
+
+
+  supervisor-react-agent:
+    image: opea/agent-langchain:latest
+    container_name: react-agent-endpoint
+    depends_on:
+      - tgi-server
+      - worker-docgrader-agent
+    volumes:
+      # - ${WORKDIR}/GenAIExamples/AgentQnA/docker_image_build/GenAIComps/comps/agent/langchain/:/home/user/comps/agent/langchain/
+      - ${TOOLSET_PATH}:/home/user/tools/
+    ports:
+      - "9090:9090"
+    ipc: host
+    environment:
+      ip_address: ${ip_address}
+      strategy: react_langgraph
+      recursion_limit: ${recursion_limit_supervisor}
+      llm_engine: tgi
+      HUGGINGFACEHUB_API_TOKEN: ${HUGGINGFACEHUB_API_TOKEN}
+      llm_endpoint_url: ${LLM_ENDPOINT_URL}
+      model: ${LLM_MODEL_ID}
+      temperature: ${temperature}
+      max_new_tokens: ${max_new_tokens}
+      streaming: false
+      tools: /home/user/tools/supervisor_agent_tools.yaml
+      require_human_feedback: false
+      no_proxy: ${no_proxy}
+      http_proxy: ${http_proxy}
+      https_proxy: ${https_proxy}
+      LANGCHAIN_API_KEY: ${LANGCHAIN_API_KEY}
+      LANGCHAIN_TRACING_V2: ${LANGCHAIN_TRACING_V2}
+      LANGCHAIN_PROJECT: "opea-supervisor-agent-service"
+      CRAG_SERVER: $CRAG_SERVER
+      WORKER_AGENT_URL: $WORKER_AGENT_URL
+      port: 9090
diff --git a/GraphRAG/docker_compose/intel/hpu/gaudi/launch_agent_service_tgi_gaudi.sh b/GraphRAG/docker_compose/intel/hpu/gaudi/launch_agent_service_tgi_gaudi.sh
new file mode 100644
index 0000000000..f4154fb229
--- /dev/null
+++ b/GraphRAG/docker_compose/intel/hpu/gaudi/launch_agent_service_tgi_gaudi.sh
@@ -0,0 +1,43 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+WORKPATH=$(dirname "$PWD")/..
+# export WORKDIR=$WORKPATH/../../
+echo "WORKDIR=${WORKDIR}"
+export ip_address=$(hostname -I | awk '{print $1}')
+export HUGGINGFACEHUB_API_TOKEN=${HUGGINGFACEHUB_API_TOKEN}
+
+# LLM related environment variables
+export HF_CACHE_DIR=${HF_CACHE_DIR}
+ls $HF_CACHE_DIR
+export HUGGINGFACEHUB_API_TOKEN=${HUGGINGFACEHUB_API_TOKEN}
+export LLM_MODEL_ID="meta-llama/Meta-Llama-3.1-70B-Instruct"
+export NUM_SHARDS=4
+export LLM_ENDPOINT_URL="http://${ip_address}:8085"
+export temperature=0.01
+export max_new_tokens=512
+
+# agent related environment variables
+export TOOLSET_PATH=$WORKDIR/GenAIExamples/AgentQnA/tools/
+echo "TOOLSET_PATH=${TOOLSET_PATH}"
+export recursion_limit_worker=12
+export recursion_limit_supervisor=10
+export WORKER_AGENT_URL="http://${ip_address}:9095/v1/chat/completions"
+export RETRIEVAL_TOOL_URL="http://${ip_address}:8889/v1/retrievaltool"
+export CRAG_SERVER=http://${ip_address}:8080
+
+docker compose -f compose.yaml up -d
+
+sleep 5s
+echo "Waiting tgi gaudi ready"
+n=0
+until [[ "$n" -ge 100 ]] || [[ $ready == true ]]; do
+    docker logs tgi-server &> tgi-gaudi-service.log
+    n=$((n+1))
+    if grep -q Connected tgi-gaudi-service.log; then
+        break
+    fi
+    sleep 5s
+done
+sleep 5s
+echo "Service started successfully"
diff --git a/GraphRAG/docker_image_build/.README b/GraphRAG/docker_image_build/.README
new file mode 100644
index 0000000000..e69de29bb2
diff --git a/GraphRAG/docker_image_build/build.yaml b/GraphRAG/docker_image_build/build.yaml
new file mode 100644
index 0000000000..e2a778b9aa
--- /dev/null
+++ b/GraphRAG/docker_image_build/build.yaml
@@ -0,0 +1,13 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+services:
+  agent-langchain:
+    build:
+      context: GenAIComps
+      dockerfile: comps/agent/langchain/Dockerfile
+      args:
+        http_proxy: ${http_proxy}
+        https_proxy: ${https_proxy}
+        no_proxy: ${no_proxy}
+    image: ${REGISTRY:-opea}/agent-langchain:${TAG:-latest}
diff --git a/GraphRAG/example_data/test_docs_music.jsonl b/GraphRAG/example_data/test_docs_music.jsonl
new file mode 100644
index 0000000000..2a20895152
--- /dev/null
+++ b/GraphRAG/example_data/test_docs_music.jsonl
@@ -0,0 +1,27 @@
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "Thriller (song) - Wikipedia\nJump to content\nMain menu\nMain menu\nmove to sidebar\nhide\nNavigation\nMain pageContentsCurrent eventsRandom articleAbout WikipediaContact usDonate\nContribute\nHelpLearn to editCommunity portalRecent changesUpload file\nSearch\nSearch\nCreate account\nLog in\nPersonal tools\nCreate account Log in\nPages for logged out editors learn more\nContributionsTalk\nContents\nmove to sidebar\nhide\n(Top)\n1Composition\n2Writing\n3Recording\n4Release\n5Music video\n6Chart performance\n7Critical reception\n8Personnel\n9Charts\nToggle Charts subsection\n9.1Weekly charts\n9.2Year-end charts\n10Certifications\n11See also\n12References\nToggle the table of contents\nThriller (song)\n33 languages\n\u0627\u0644\u0639\u0631\u0628\u064a\u0629Az\u0259rbaycancaDanskDeutsch\u0395\u03bb\u03bb\u03b7\u03bd\u03b9\u03ba\u03acEspa\u00f1ol\u0641\u0627\u0631\u0633\u06ccFran\u00e7aisGalego\ud55c\uad6d\uc5b4HrvatskiItaliano\u05e2\u05d1\u05e8\u05d9\u05ea\u10e5\u10d0\u10e0\u10d7\u10e3\u10da\u10d8KiswahiliMagyar\u0d2e\u0d32\u0d2f\u0d3e\u0d33\u0d02Nederlands\u65e5\u672c\u8a9eNorsk bokm\u00e5lPolskiPortugu\u00eas\u0420\u0443\u0441\u0441\u043a\u0438\u0439ShqipSimple English\u0421\u0440\u043f\u0441\u043a\u0438 / srpskiSuomiSvenska\u0ba4\u0bae\u0bbf\u0bb4\u0bcd\u0e44\u0e17\u0e22T\u00fcrk\u00e7e\u0423\u043a\u0440\u0430\u0457\u043d\u0441\u044c\u043a\u0430Ti\u1ebfng Vi\u1ec7t\nEdit links\nArticleTalk\nEnglish\nReadEditView history\nTools\nTools\nmove to sidebar\nhide\nActions\nReadEditView history\nGeneral\nWhat links hereRelated changesUpload fileSpecial pagesPermanent linkPage informationCite this pageGet shortened URLDownload QR codeWikidata item\nPrint/export\nDownload as PDFPrintable version\nFrom Wikipedia, the free encyclopedia\n1983 single by Michael Jackson\nFor other songs, see Thriller (disambiguation) \u00a7\u00a0Music.\n\"Thriller\"US 12-inch singleSingle by Michael Jacksonfrom the album\nThriller B-side\"Things I Do for You\"Released\nNovember\u00a01983\u00a0(1983-11) (UK)[1]\nJanuary\u00a023,\u00a01984\u00a0(1984-01-23) (US)[2]\nRecorded1982StudioWestlake (Los Angeles, California)Genre\nDisco\nfunk\nLength\n5:57 (album version)\n4:37 (special edit)\n4:05 (remixed short version)\n5:04 (\"Starlight\" version)\nLabelEpicSongwriter(s)Rod TempertonProducer(s)Quincy JonesMichael Jackson singles chronology\n\"Say Say Say\" (1983)\n\"Thriller\" (1983)\n\"Farewell My Summer Love\" (1984)\nMusic video\"Thriller\" on YouTube"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "Recorded1982StudioWestlake (Los Angeles, California)Genre\nDisco\nfunk\nLength\n5:57 (album version)\n4:37 (special edit)\n4:05 (remixed short version)\n5:04 (\"Starlight\" version)\nLabelEpicSongwriter(s)Rod TempertonProducer(s)Quincy JonesMichael Jackson singles chronology\n\"Say Say Say\" (1983)\n\"Thriller\" (1983)\n\"Farewell My Summer Love\" (1984)\nMusic video\"Thriller\" on YouTube\n\"Thriller\" is a song by the American singer Michael Jackson. It was released by Epic Records in November 1983 in the UK and on January 23, 1984, in the US, as the seventh and final single from his sixth studio album, Thriller.[3]\n\"Thriller\" is a funk song featuring a repeating synthesizer bassline and lyrics and sound effects evoking horror films. It ends with a spoken-word sequence performed by the horror actor Vincent Price. It was produced by Quincy Jones and written by Rod Temperton, who wanted to write a theatrical song to suit Jackson's love of film.\nJackson decided to release \"Thriller\" as a single after Thriller left the top of the Billboard 200 chart. The\n\"Thriller\" music video, directed by John Landis, has Jackson dancing with a horde of zombies. It has been named the greatest music video of all time by various publications and readers' polls, and doubled sales of Thriller, helping it become the best-selling album in history."}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "Jackson decided to release \"Thriller\" as a single after Thriller left the top of the Billboard 200 chart. The\n\"Thriller\" music video, directed by John Landis, has Jackson dancing with a horde of zombies. It has been named the greatest music video of all time by various publications and readers' polls, and doubled sales of Thriller, helping it become the best-selling album in history.\nIt was the album's seventh top-ten single on the Billboard Hot 100, reaching number four. It reached number one in Belgium, France and Spain, and the top ten in many other countries. In the week of Jackson's death in 2009, it was Jackson's bestselling track in the US, with sales of 167,000 copies on the Billboard Hot Digital Tracks chart. It entered the Billboard Hot Digital Singles Chart at number two, and remained in the charts' top ten for three consecutive weeks. \"Thriller\" is certified Diamond by the Recording Industry Association of America. It appears on several of Jackson's greatest-hits albums and has been covered by numerous artists. The song has returned to the Billboard Hot 100 chart multiple times due to its popularity around Halloween.\nComposition[edit]\n\"Thriller\"\nJackson's song \"Thriller\", released as a single in 1984; Nelson George wrote that it uses cinematic sound effects, horror film motifs, and vocal trickery to convey a sense of danger.[4]\nProblems playing this file? See media help.\n\"Thriller\" is a disco-funk song[5] The introduction features sound effects such as a creaking door, thunder, feet walking on wooden planks, winds and howling wolves.[6]\nWriting[edit]\nHorror actor Vincent Price provided the spoken-word sequence at the end of \"Thriller\"."}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "Problems playing this file? See media help.\n\"Thriller\" is a disco-funk song[5] The introduction features sound effects such as a creaking door, thunder, feet walking on wooden planks, winds and howling wolves.[6]\nWriting[edit]\nHorror actor Vincent Price provided the spoken-word sequence at the end of \"Thriller\".\n\"Thriller\" was written by the English songwriter Rod Temperton, who had previously written \"Rock with You\" and \"Off the Wall\" for Jackson's 1979 album Off the Wall.[7] Temperton wanted to write something theatrical to suit Jackson's love of film.[8] He improvised with bass and drum patterns until he developed the bassline that runs through the song, then wrote a chord progression that built to a climax.[8] He recalled: \"I wanted it to build and build \u2013 a bit like stretching an elastic band throughout the tune to heighten suspense.\"[8]\nTemperton's first version was titled \"Starlight\", with the chorus lyric: \"Give me some starlight / Starlight sun\".[9] The production team, led by Quincy Jones, felt the song should be the title track, but that \"Starlight\" was not a strong album title. Instead, they wanted something \"mysterious\" to match Jackson's \"evolving persona\".[8] Temperton considered several titles, including \"Midnight Man\", which Jones felt was \"going in the right direction\". Finally, he conceived \"Thriller\", but worried that it was \"a crap word to sing ... It sounded terrible! However, we got Michael to spit it into the microphone a few times and it worked.\"[8]\nWith the title decided, Temperton wrote lyrics within \"a couple of hours\".[8] He envisioned a spoken-word sequence for the ending, but did not know what form it should take. It was decided to have a famous voice from the horror genre perform it, and Jones' then-wife, Peggy Lipton, suggested her friend Vincent Price.[6] Temperton composed the words for Price's part in a taxi on the way to the studio on the day of recording.[6]\nRecording[edit]\nQuincy Jones produced \"Thriller\"."}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "Recording[edit]\nQuincy Jones produced \"Thriller\".\nAlong with the rest of the album, \"Thriller\" was recorded over eight weeks in 1982.[10] It was recorded at Westlake Recording Studios on Santa Monica Boulevard in Los Angeles, California.[6] The engineer Bruce Swedien had Jackson record his vocals in different approaches, doubling takes and recording at different distances from the microphone. Some background vocals were recorded in the Westlake shower stall.[6]\nThe bassline was performed on an ARP 2600 synthesizer, and the verse pads were performed on a Roland Jupiter-8 layered with a Sequential Circuits Prophet 5 and a Yamaha CS-80.[11] The percussion was created with a LinnDrum drum machine modified with sound chips from two other drum machines: a snare hi-hat and congas from an LM-1 and a clap from a TR-808. \"Thriller\" also features Rhodes piano performed by Greg Phillinganes and guitar performed by David Williams.[12]\nTo record the wolf howls, Swedien set up tape recorders up around his Great Dane in a barn overnight, but the dog never howled. Instead, Jackson recorded the howls himself.[13] For the creaking doors, Swedien rented doors designed for sound effects from the Universal Studios Lot and recorded the hinges.[13] Price recorded his part in two takes; Jones, acknowledging that doing a voice-over for a song is difficult, praised Price and described his takes as \"fabulous\".[6]\nRelease[edit]\nThe album Thriller was released in November 1982 on Epic Records and spent months at the top of the Billboard 200.[14] \"Thriller\" was not initially planned for release as a single, as Epic saw it as a novelty song.[15] The Epic executive Walter Yetnikoff asked: \"Who wants a single about monsters?\"[14]"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "Release[edit]\nThe album Thriller was released in November 1982 on Epic Records and spent months at the top of the Billboard 200.[14] \"Thriller\" was not initially planned for release as a single, as Epic saw it as a novelty song.[15] The Epic executive Walter Yetnikoff asked: \"Who wants a single about monsters?\"[14]\nBy mid-1983, sales of the album had begun to decline. Jackson, who was \"obsessive\" about his sales figures,[14] urged Yetnikoff and another Epic executive, Larry Stessel, to help conceive a plan to return the album to the top of the charts. Jackson's manager Frank DiLeo suggested releasing \"Thriller\", backed by a new music video.[14][16] It was the final single from the album, released in January 1984.[15]\nAlternative versions of \"Thriller\", including the \"Starlight\" demo, were released on the anniversary reissue Thriller 40 (2022).[17]\nMusic video[edit]\nMain article: Michael Jackson's Thriller (music video)\nThe music video for \"Thriller\" references numerous horror films,[14] and stars Jackson performing a dance routine with a horde of the undead.[14] It was directed by the horror director John Landis and written by Landis and Jackson. Jackson contacted Landis after seeing his film An American Werewolf in London. The pair conceived a 13-minute short film with a budget much larger than previous music videos. Jackson's record company refused to finance it, believing Thriller had peaked, so a making-of documentary, Making Michael Jackson's Thriller, was produced to receive financing from television networks.[14]\nMichael Jackson's Thriller premiered on MTV on December 2, 1983.[18] It was launched to great anticipation and played regularly on MTV.[18]\nIt doubled sales of Thriller, and the documentary sold over a million copies, becoming the best-selling videotape at the time.[14] It is credited for transforming music videos into a serious art form, breaking down racial barriers in popular entertainment, and popularizing the making-of documentary format.[19]"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "It doubled sales of Thriller, and the documentary sold over a million copies, becoming the best-selling videotape at the time.[14] It is credited for transforming music videos into a serious art form, breaking down racial barriers in popular entertainment, and popularizing the making-of documentary format.[19]\nMany elements have had a lasting impact on popular culture, such as the zombie dance and Jackson's red jacket, designed by Landis' wife Deborah Nadoolman.[19] Fans worldwide re-enact its zombie dance and it remains popular on YouTube. The Library of Congress described it as \"the most famous music video of all time\". In 2009, it became the first music video inducted into the National Film Registry as \"culturally, historically or aesthetically\" significant.[14]\nChart performance[edit]\n\"Thriller\" entered the Billboard Hot 100 charts at number 20.[20] It reached number seven the following week,[21] number five the next, and peaked the next week at number four, where it stayed for two weeks.[22][23] It finished as the #78 single on Billboard's Hot 100 for the 1984.[24]\n\"Thriller\" charted at number 19 on the Hot R&B/Hip-Hop Songs Chart.[25] On March 10, 1984, it reached its peak at number 3.[26] \"Thriller\" debuted on the UK Singles Chart on November 19, 1983, at number 24, and the following week peaked at number ten; it appeared on the chart for 52 weeks.[27] Beginning on February 5, 1984, \"Thriller\" peaked on the French Singles Chart at number one and topped the chart for four consecutive weeks.[28] \"Thriller\" also topped the Belgian VRT Top 30 Chart for two weeks in January 1984.[29]"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "Following Jackson's death in 2009, his music surged in popularity.[30] In the week of his death, \"Thriller\" was Jackson's best-selling track in the US, with sales of 167,000 copies on the Billboard Hot Digital Singles Chart.[30] On July 11, 2009, \"Thriller\" charted on the Billboard Hot Digital Singles Chart at number two (its peak), and the song remained in the charts' top ten for three consecutive weeks.[31] In the United Kingdom, the song charted at number 23 the week of Jackson's death.[32] The following week, the song reached its peak at number 12 on the UK Single Chart.[27] On July 12, 2009, \"Thriller\" peaked at number two on the Italian Singles Chart[33] and was later certified gold by the Federation of the Italian Music Industry.[34] \"Thriller\" reached at number three on the Australian ARIA Chart and Swiss Singles Chart and topped the Spanish Singles Charts for one week.[35] The song also placed within the top ten on the German Singles Chart, Norwegian Singles Chart and Irish Singles Chart, at number nine, number seven and number eight respectively.[35] \"Thriller\" also landed at number 25 on the Danish Singles Chart.[36] In the third week of July \"Thriller\" peaked at number 11 in Finland.[37]\n\"Thriller\"\nhas returned to the Billboard Hot 100 chart multiple times due to its popularity around Halloween. It re-entered the Billboard Hot 100 in October 2013 at number 42,[38] number 31 in November 2018,[39] and number 19 in November 2021, its highest placement since 1984.[40] This gave Jackson at least one top-20 hit across seven consecutive decades from 1969 on the Billboard Hot 100.[40]"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "\"Thriller\"\nhas returned to the Billboard Hot 100 chart multiple times due to its popularity around Halloween. It re-entered the Billboard Hot 100 in October 2013 at number 42,[38] number 31 in November 2018,[39] and number 19 in November 2021, its highest placement since 1984.[40] This gave Jackson at least one top-20 hit across seven consecutive decades from 1969 on the Billboard Hot 100.[40]\n\"Thriller\" was certified platinum by the Recording Industry Association of America on December 4, 1989, for sales of over one million physical units in the US[41][42] As of August 2016, the song had sold 4,024,398 copies in the US.[43] The song was later certified Diamond by RIAA for sales over 10 million equivalent-units.[44][45] \"Thriller\" reached number one on three different Billboard charts the week of November 8, 2023, more than a decade after Jackson's death. Those charts included: R&B/Hip-Hop Streaming Songs, R&B Streaming Songs and R&B Digital Song Sales charts.[46]\nCritical reception[edit]\nAshley Lasimone, of AOL's Spinner.com, noted that it \"became a signature for Jackson\" and described \"the groove of its bassline, paired with Michael's killer vocals and sleek moves\" as having \"produced a frighteningly great single.\"[47] Jon Pareles of The New York Times noted that \"'Billie Jean', 'Beat It', 'Wanna Be Startin' Somethin' ' and \"the movie in the song 'Thriller'\", were the songs, unlike the \"fluff\" \"P.Y.T.\", that were \"the hits that made Thriller a world-beater; along with Mr. Jackson's stage and video presence, listeners must have identified with his willingness to admit terror.\"[48] Ann Powers of the Los Angeles Times described \"Thriller\" as \"adequately groovy\" with a \"funked-out beat\" and lyrics \"seemingly lifted from some little kid's 'scary storybook'\".[49][50]\nPersonnel[edit]\nWritten and composed by Rod Temperton\nProduced by Quincy Jones\nMichael Jackson: lead and background vocals, LinnDrum drum machine\nRod Temperton and Brian Banks: synthesizers"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "Personnel[edit]\nWritten and composed by Rod Temperton\nProduced by Quincy Jones\nMichael Jackson: lead and background vocals, LinnDrum drum machine\nRod Temperton and Brian Banks: synthesizers\nGreg Phillinganes: synthesizers, Rhodes piano\nAnthony Marinelli: synthesizer programming\nDavid Williams: guitar\nJerry Hey, Gary Grant: trumpets, flugelhorns\nLarry Williams: saxophone, flute\nBill Reichenbach: trombone\nVocal, rhythm and synthesizer arrangement by Rod Temperton\nHorn arrangement by Jerry Hey\nEffects by Bruce Cannon and Bruce Swedien\nFeaturing: Narration by Vincent Price (Not featured on original edited single version)\nCharts[edit]\nWeekly charts[edit]\nChart (1983\u20131985)\nPeakposition\nAustralia (Kent Music Report)[51]\n4\nBelgium (Ultratop 50 Flanders)[52]\n1\nCanadian RPM Top Singles[53]\n3\nFinland (Suomen virallinen singlelista)[54]\n7\nFinland Jukebox (Suomen virallinen singlelista)[54]\n3\nFrance (SNEP)[28]\n1\nIreland (IRMA)[55]\n4\nNetherlands (Dutch Top 40)[56]\n3\nNetherlands (Single Top 100)[57]\n4\nNew Zealand (Recorded Music NZ)[58]\n6\nPortugal (AFP)[59]\n1\nSouth Africa (Springbok)[60]\n26\nSpain (AFYVE)[61]\n1\nUK Singles (OCC)[27]\n10\nUS Cashbox[62]\n4\nUS Billboard Hot 100[63]\n4\nUS Billboard Hot Black Singles[64][26]\n3\nUS Billboard Adult Contemporary[65]\n24\nUS Billboard Album Rock Tracks[64][26]\n42\nUS Radio & Records CHR/Pop Airplay Chart[66]\n1\nWest Germany (Official German Charts)[67]\n9\nChart (2006)\nPeakposition\nFrance (SNEP)[68]\n35\nGermany (Media Control Charts)[35]\n9\nIreland (IRMA)[55]\n8\nItaly (FIMI)[69]\n5\nNetherlands (Single Top 100)[57]\n34\nSpain (PROMUSICAE)[35]\n1\nSwitzerland (Schweizer Hitparade)[35]\n3\nChart (2007)\nPeakposition\nSpain (PROMUSICAE)[70]\n20\nUK Singles (OCC)[27]\n57\nChart (2008)\nPeakposition\nAustria (\u00d63 Austria Top 40)[71]\n55\nNorway (VG-lista)[72]\n13\nSwitzerland (Schweizer Hitparade)[73]\n53\nUK Singles (OCC)[27]\n35\nChart (2009)\nPeakposition\nAustralia (ARIA)[74]\n3\nAustria (\u00d63 Austria Top 40)[71]\n5\nBelgium (Ultratop 50 Back Catalogue Singles Flanders)[75]\n3"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "3\nChart (2007)\nPeakposition\nSpain (PROMUSICAE)[70]\n20\nUK Singles (OCC)[27]\n57\nChart (2008)\nPeakposition\nAustria (\u00d63 Austria Top 40)[71]\n55\nNorway (VG-lista)[72]\n13\nSwitzerland (Schweizer Hitparade)[73]\n53\nUK Singles (OCC)[27]\n35\nChart (2009)\nPeakposition\nAustralia (ARIA)[74]\n3\nAustria (\u00d63 Austria Top 40)[71]\n5\nBelgium (Ultratop 50 Back Catalogue Singles Flanders)[75]\n3\nBelgium (Ultratop 30 Back Catalogue Singles Wallonia)[76]\n2\nDenmark (Tracklisten)[36]\n25\nEurope (European Hot 100 Singles)[77]\n16\nFinland (Suomen virallinen lista)[78]\n11\nFrance (SNEP)[79]\n3\nIreland (IRMA)[35]\n8\nItaly (FIMI)[69]\n2\nJapan Singles Top 100 (Oricon)[35]\n41\nNetherlands (Single Top 100)[57]\n9\nNew Zealand (RIANZ)[35]\n12\nNorway (VG-lista)[72]\n7\nSpain (PROMUSICAE)[70]\n1\nSweden (Sverigetopplistan)[80]\n10\nSwitzerland (Schweizer Hitparade)[73]\n3\nUK Singles (OCC)[27]\n12\nUS Digital Song Sales (Billboard)[81]\n2\nChart (2010)\nPeakposition\nSpain (PROMUSICAE)[70]\n12\nSwitzerland (Schweizer Hitparade)[73]\n68\nUK Singles (OCC)[27]\n68\nChart (2012)\nPeakposition\nFrance (SNEP)[68]\n143\nIreland (IRMA)[55]\n30\nUK Singles (OCC)[27]\n49\nChart (2013)\nPeakposition\nFrance (SNEP)[68]\n159\nUK Singles (OCC)[27]\n48\nUS Billboard Hot 100[82]\n42\nChart (2014)\nPeakposition\nFrance (SNEP)[68]\n152\nSpain (PROMUSICAE)[70]\n38\nUK Singles (OCC)[27]\n57\nUS Billboard Hot 100[83]\n35\nChart (2015)\nPeakposition\nFrance (SNEP)[68]\n145\nSpain (PROMUSICAE)[70]\n48\nUK Singles (OCC)[27]\n61\nUS Billboard Hot 100[84]\n45\nChart (2016)\nPeakposition\nFrance (SNEP)[68]\n164\nUK Singles (OCC)[27]\n62\nChart (2017)\nPeakposition\nFrance (SNEP)[68]\n46\nSpain (PROMUSICAE)[70]\n32\nUK Singles (OCC)[27]\n34\nChart (2018)\nPeakposition\nCanada (Canadian Hot 100)[85]\n25\nUK Singles (OCC)[27]\n63\nUS Billboard Hot 100[86][87]\n31\nChart (2019)\nPeakposition\nUS Billboard Hot 100[88]\n44\nChart (2020)\nPeakposition\nGlobal 200[89]\n51\nUK Singles (OCC)[27]\n57\nUS Billboard Hot 100[90]\n48\nChart (2021)\nPeakposition\nCanada (Canadian Hot 100)[91]\n16\nGlobal 200 (Billboard)[92]\n28\nUK Singles (OCC)[93]\n40"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "34\nChart (2018)\nPeakposition\nCanada (Canadian Hot 100)[85]\n25\nUK Singles (OCC)[27]\n63\nUS Billboard Hot 100[86][87]\n31\nChart (2019)\nPeakposition\nUS Billboard Hot 100[88]\n44\nChart (2020)\nPeakposition\nGlobal 200[89]\n51\nUK Singles (OCC)[27]\n57\nUS Billboard Hot 100[90]\n48\nChart (2021)\nPeakposition\nCanada (Canadian Hot 100)[91]\n16\nGlobal 200 (Billboard)[92]\n28\nUK Singles (OCC)[93]\n40\nUK Hip Hop/R&B (OCC)[94]\n3\nUS Billboard Hot 100[95][96]\n19\nUS Billboard Digital Songs Sales[97]\n9\nChart (2022)\nPeakposition\nCanada (Canadian Hot 100)[98]\n25\nGlobal 200[99]\n37\nUK Singles (OCC)[27]\n41\nUS Billboard Hot 100[100]\n26\nChart (2023)\nPeakposition\nCanada (Canadian Hot 100)[101]\n22\nGlobal 200[102]\n39\nUK Singles (OCC)[103]\n20\nUS Billboard Hot 100[104]\n21\nYear-end charts[edit]\nChart (1984)\nPosition\nAustralia (Kent Music Report)[105]\n17\nBelgium (Ultratop Flanders)[106]\n26\nUS Billboard Hot 100[24]\n78\nChart (2009)\nPosition\nSweden (Sverigetopplistan)[107]\n88\nSwitzerland (Schweizer Hitparade)[108]\n81\nUK Singles (Official Charts Company)[109]\n143\nCertifications[edit]\nRegion\nCertification\nCertified units/sales\nAustralia (ARIA)[110]\n6\u00d7 Platinum\n420,000\u2021\nDenmark (IFPI Danmark)[111]\nPlatinum\n90,000\u2021\nFrance (SNEP)[112]\nPlatinum\n1,000,000*\nGermany (BVMI)[113]\nGold\n250,000\u2021\nItaly (FIMI)[114]\nPlatinum\n30,000\u2021\nJapan (RIAJ)[115] Full-length ringtone\nPlatinum\n250,000*\nMexico (AMPROFON)[116]\n4\u00d7 Platinum+Gold\n270,000\u2021\nSpain (PROMUSICAE)[117]\n2\u00d7 Platinum\n100,000*\nUnited Kingdom (BPI)[118] Digital sales since 2004\n2\u00d7 Platinum\n1,200,000\u2021\nUnited Kingdom (BPI)[119] other release\nGold\n500,000\u2021\nUnited States (RIAA)[120]\nDiamond\n10,000,000\u2021\nUnited States (RIAA)[121] Mastertone\nGold\n500,000*\n* Sales figures based on certification alone.\u2021 Sales+streaming figures based on certification alone.\nSee also[edit]\nList of best-selling singles\nList of best-selling singles in the United States\nList of most expensive music videos\nMichael Jackson's Thriller\nThriller (viral video)\nThrill the World\nReferences[edit]"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "Diamond\n10,000,000\u2021\nUnited States (RIAA)[121] Mastertone\nGold\n500,000*\n* Sales figures based on certification alone.\u2021 Sales+streaming figures based on certification alone.\nSee also[edit]\nList of best-selling singles\nList of best-selling singles in the United States\nList of most expensive music videos\nMichael Jackson's Thriller\nThriller (viral video)\nThrill the World\nReferences[edit]\n^ \"New Singles (for the week ending November 11, 1983)\" (PDF). Music Week: 30. November 5, 1983.\n^ Semigran, Aly (February 7, 2011). \"Michael Jackson's 'Thriller': Story Behind the 'Glee' Cover\". MTV. Retrieved September 17, 2023.\n^ McPhate, Tim (November 2, 2017). \"Michael Jackson's \"Thriller\": For The Record\". The Recording Academy. Retrieved November 17, 2019.\n^ George 2004, p.\u00a023.\n^ Jones, Jel D. Lewis (2005). Michael Jackson, the King of Pop: The Big Picture \u2013 The Music! The Man! The Legend! The Interviews: An Anthology. Amber Books Publishing. p.\u00a06. ISBN\u00a00-9749779-0-X. Retrieved July 22, 2010.\n^ a b c d e f Lyle, Peter (November 25, 2007). \"Michael Jackson's monster smash\". The Daily Telegraph. Archived from the original on January 12, 2022. Retrieved January 24, 2010.\n^ Kreps, Daniel (October 5, 2016). \"Rod Temperton, 'Thriller' songwriter, dead at 66\". Rolling Stone. Retrieved July 25, 2022.\n^ a b c d e f \"Revealed: the story behind Jacko's Thriller\". M magazine. October 31, 2012. Archived from the original on November 3, 2012. Retrieved October 24, 2018.\n^ Glazer, Eliot (September 25, 2009). \"Top 1984 Songs\". AOLRadioBlog.com. AOL Inc. Retrieved January 24, 2010.\n^ Vozick-Levinson, Simon (February 18, 2008). \"Quincy Jones' 'Thriller' Memories\". EW.com. Retrieved January 24, 2010.\n^ Carr, Dan (November 30, 2022). \"The synth sounds of Michael Jackson's Thriller (and how to recreate them in your DAW)\". MusicRadar. Retrieved March 19, 2023."}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "^ Glazer, Eliot (September 25, 2009). \"Top 1984 Songs\". AOLRadioBlog.com. AOL Inc. Retrieved January 24, 2010.\n^ Vozick-Levinson, Simon (February 18, 2008). \"Quincy Jones' 'Thriller' Memories\". EW.com. Retrieved January 24, 2010.\n^ Carr, Dan (November 30, 2022). \"The synth sounds of Michael Jackson's Thriller (and how to recreate them in your DAW)\". MusicRadar. Retrieved March 19, 2023.\n^ Rogerson, Ben (February 10, 2023). \"Watch Greg Phillinganes recreate Michael Jackson's Thriller using the original synths\". MusicRadar. Retrieved March 27, 2023.\n^ a b \"The making of Michael Jackson's Thriller\". MusicRadar. Retrieved October 25, 2018.\n^ a b c d e f g h i Griffin, Nancy (July 2010). \"The \"Thriller\" Diaries\". Vanity Fair. Retrieved January 2, 2011.\n^ a b Romano, Aja (October 31, 2018). \"Michael Jackson's \"Thriller\" is the eternal Halloween bop \u2014 and so much more\". Vox. Retrieved October 25, 2021.\n^ Eagan, Daniel (November 24, 2011). America's Film Legacy, 2009\u20132010: A Viewer's Guide to the 50 Landmark Movies Added To The National Film Registry in 2009\u201310. Bloomsbury Publishing. p.\u00a0175. ISBN\u00a0978-1-4411-9328-5. Retrieved May 14, 2016.\n^ Miles Marshall Lewis (November 30, 2022). \"#Thriller40: Cultural Critics Celebrate Michael Jackson's Impact\". BET.\n^ a b Richin, Leslie (December 2, 2014). \"On This Day In 1983, Michael Jackson's 'Thriller' Premiered On MTV\". Billboard.\n^ a b Hebblethwaite, Phil (November 21, 2013). \"How Michael Jackson's Thriller changed music videos for ever\". The Guardian. Retrieved October 29, 2018.\n^ \"Week of February 11, 1984\". Billboard. Nielsen Business Media, Inc. Retrieved October 10, 2015.\n^ \"Week of February 18, 1984\". Billboard. Nielsen Business Media, Inc. January 2, 2013. Retrieved October 10, 2015.\n^ \"Week of March 3, 1984\". Billboard. Nielsen Business Media, Inc. January 2, 2013. Retrieved October 10, 2015.\n^ \"Week of March 10, 1984\". Billboard. Nielsen Business Media, Inc. Retrieved October 10, 2015."}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "^ \"Week of February 18, 1984\". Billboard. Nielsen Business Media, Inc. January 2, 2013. Retrieved October 10, 2015.\n^ \"Week of March 3, 1984\". Billboard. Nielsen Business Media, Inc. January 2, 2013. Retrieved October 10, 2015.\n^ \"Week of March 10, 1984\". Billboard. Nielsen Business Media, Inc. Retrieved October 10, 2015.\n^ a b \"Billboard Top 100 \u2013 1984\". billboard. Retrieved March 29, 2020.\n^ \"Week of March 3, 1984\". Billboard. Nielsen Business Media, Inc. Archived from the original on January 21, 2010. Retrieved January 23, 2010.\n^ a b c \"Week of March 10, 1984\". Billboard. Nielsen Business Media, Inc. Retrieved January 23, 2010.\n^ a b c d e f g h i j k l m n o p \"Michael Jackson\". Official Charts Company. Retrieved October 10, 2015.\n^ a b \"Toutes les Chansons N\u00b0 1 des Ann\u00e9es 80\". Infodisc.fr. Dominic Durand / InfoDisc. Archived from the original on November 20, 2012. Retrieved January 23, 2010.\n^ \"Michael Jackson \u2013 Thriller\". Top30-3.radio2.be (in Dutch). VRT \u2013 Auguste Reyerslaan. Archived from the original on February 22, 2012. Retrieved January 24, 2010.\n^ a b Ed Christman, Antony Bruno (July 2, 2009). \"Michael Jackson Music Sales Surge Could Last For Months\". Billboard. Nielsen Business Media, Inc. Retrieved January 23, 2010.\n^ \"July 11, 2009\". Billboard. Nielsen Business Media. Retrieved January 23, 2010.\n^ \"Chart For Week Up To 04/07/2009\". Official Charts Company. Retrieved January 23, 2010.\n^ \"Thriller in Italian Chart\". Hung Medien. Retrieved June 21, 2013.\n^ \"Certificazioni Download FIMI\" (PDF) (in Italian). Federation of the Italian Music Industry. Archived from the original (PDF) on June 5, 2012. Retrieved January 2, 2012.\n^ a b c d e f g h \"Michael Jackson \u2013 Thriller \u2013 Music Charts\". Acharts.us. Retrieved January 23, 2010.\n^ a b \"Track Top 40 \u2013 July 10, 2009\". Hitlisterne.dk. IFPI Danmark & Nielsen Music Control. Archived from the original on September 30, 2011. Retrieved January 23, 2010."}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "^ a b c d e f g h \"Michael Jackson \u2013 Thriller \u2013 Music Charts\". Acharts.us. Retrieved January 23, 2010.\n^ a b \"Track Top 40 \u2013 July 10, 2009\". Hitlisterne.dk. IFPI Danmark & Nielsen Music Control. Archived from the original on September 30, 2011. Retrieved January 23, 2010.\n^ \"Thriller in Finnish Chart\". Hung Medien. Retrieved January 23, 2010.\n^ \"Eminem Debuts at No. 1 on Hot R&B/Hip-Hop Songs Chart; Michael Jackson's 'Thriller' Returns\". Billboard. November 8, 2013. Retrieved October 2, 2016.\n^ \"Top 100 Songs | Billboard Hot 100 Chart\". Billboard. Retrieved November 11, 2018.\n^ a b \"Michael Jackson's 'Thriller' Leads Halloween Treats on Billboard Hot 100\". Billboard. Retrieved November 9, 2021.\n^ \"American\nsingle\ncertifications \u2013 Michael Jackson \u2013 Thriller\". Recording Industry Association of America.\n^ \"Rock Music, etc., Terms\". Georgetown College. October 26, 1999. Archived from the original on May 18, 2011. Retrieved January 8, 2010.\n^ \"Hip Hop Single Sales: The Weeknd, Zay Hilfigerrr & Drake\". Hip Hop DX. November 13, 2016. Retrieved November 14, 2016.\n^ \"Michael Jackson's Catalogue Garners Major New Gold & Platinum Awards\". RIAA. August 23, 2018. Retrieved December 21, 2018.\n^ Appel, Rich (October 30, 2014). \"Revisionist History, Part 3: Michael Jackson Gets Revenge on Prince! Year-End Hits of the Past, Re-Analyzed\". Billboard. Prometheus Global Media. Retrieved October 30, 2014.\n^ \"Michael Jackson Scores Three No. 1 Hits On The Billboard Charts This Week\". Forbes. Retrieved November 10, 2023.\n^ Lasimone, Ashley (October 28, 2009). \"Clash of the Cover Songs: Michael Jackson vs. Imogen Heap\". Spinner.com. AOL Inc. Retrieved January 23, 2010.\n^ Pareles, Jon (September 3, 1987). \"Critic's Notebook; How Good Is Jackson's 'Bad'?\". The New York Times. Retrieved January 25, 2010.\n^ Powers, Ann (February 15, 2008). \"Nine reasons why Jackson masterpiece remains a 'Thriller'\". SouthCoastToday.com. Dow Jones Local Media Group. Retrieved February 6, 2010."}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "^ Pareles, Jon (September 3, 1987). \"Critic's Notebook; How Good Is Jackson's 'Bad'?\". The New York Times. Retrieved January 25, 2010.\n^ Powers, Ann (February 15, 2008). \"Nine reasons why Jackson masterpiece remains a 'Thriller'\". SouthCoastToday.com. Dow Jones Local Media Group. Retrieved February 6, 2010.\n^ Comstock, Miriam Marcus and Courtney. \"Thriller Chiller For Jackson\". Forbes. Retrieved November 4, 2019.\n^ Kent, David (2003). Australian Chart Book 1970\u20131992. Australian Chart Book. ISBN\u00a00-646-11917-6.\n^ \"Michael Jackson \u2013 Thriller\" (in Dutch). Ultratop 50.\nRetrieved December 14, 2021.\n^ \"Top Singles \u2013 Volume 40, No. 1, March 10, 1984\". RPM. Archived from the original on October 17, 2012. Retrieved August 3, 2010.\n^ a b Pennanen, Timo (2021). \"Michael Jackson\". Sis\u00e4lt\u00e4\u00e4 hitin - 2. laitos Levyt ja esitt\u00e4j\u00e4t Suomen musiikkilistoilla 1.1.1960\u201330.6.2021 (PDF). Helsinki: Kustannusosakeyhti\u00f6 Otava. p.\u00a0113. Retrieved May 29, 2022.\n^ a b c \"Search Results: Thriller\". IrishCharts.ie. Irish Recorded Music Association. Retrieved January 25, 2010.\n^\n\"Nederlandse Top 40 \u2013 week 2, 1984\" (in Dutch). Dutch Top 40.\n^ a b c \"Michael Jackson \u2013 Thriller\" (in Dutch). Single Top 100.\n^ \"Michael Jackson \u2013 Thriller\". Top 40 Singles.\n^ \"Top 3 in Europe\" (PDF). Music & Media. May 14, 1984. p.\u00a012. Retrieved October 29, 2021.\n^ \"SA Charts 1965\u2013March 1989\". Retrieved September 5, 2018.\n^ Salaverri, Fernando (September 2005). S\u00f3lo \u00e9xitos: a\u00f1o a a\u00f1o, 1959\u20132002 (in Spanish) (1st\u00a0ed.). Spain: Fundaci\u00f3n Autor-SGAE. ISBN\u00a084-8048-639-2.\n^ Whitburn, Joel (2014). Cash Box Pop Hits 1952-1996. Sheridan Books, Inc. ISBN\u00a0978-0-89820-209-0.\n^ \"Michael Jackson Chart History (Hot 100)\". Billboard. September 9, 2021. Retrieved September 9, 2021.\n^ a b \"Allmusic (Thriller > Charts & Awards > Billboard Singles)\". Allmusic.com. Rovi Corporation. Retrieved January 23, 2010.\n^ Whitburn, Joel (1993). Top Adult Contemporary: 1961\u20131993. Record Research. p.\u00a0118.\n^ \"Michael Jackson\"."}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "^ \"Michael Jackson Chart History (Hot 100)\". Billboard. September 9, 2021. Retrieved September 9, 2021.\n^ a b \"Allmusic (Thriller > Charts & Awards > Billboard Singles)\". Allmusic.com. Rovi Corporation. Retrieved January 23, 2010.\n^ Whitburn, Joel (1993). Top Adult Contemporary: 1961\u20131993. Record Research. p.\u00a0118.\n^ \"Michael Jackson\".\n^ \"Offiziellecharts.de \u2013 Michael Jackson \u2013 Thriller\" (in German). GfK Entertainment charts.\nRetrieved March 18, 2019.\n^ a b c d e f g \"Michael Jackson \u2013 Thriller\" (in French). Les classement single.\n^ a b \"Michael Jackson \u2013 Thriller\". Top Digital Download.\n^ a b c d e f \"Michael Jackson \u2013 Thriller\" Canciones Top 50.\n^ a b \"Michael Jackson \u2013 Thriller\" (in German). \u00d63 Austria Top 40.\n^ a b \"Michael Jackson \u2013 Thriller\". VG-lista.\n^ a b c \"Michael Jackson \u2013 Thriller\". Swiss Singles Chart.\n^ \"Michael Jackson \u2013 Thriller\". ARIA Top 50 Singles.\n^ \"30 Back Catalogue Singles \u2013 July 18, 2009\". UltraTop.be. Hung Medien. Retrieved January 24, 2010.\n^ \"30 Back Catalogue Singles \u2013 July 4, 2009\". UltraTop.be. Hung Medien. Retrieved January 24, 2010.\n^ \"Michael Jackson Album & Song Chart History\". Billboard.com. Nielsen Business Media. Retrieved October 29, 2011.\n^ \"Michael Jackson: Thriller\" (in Finnish). Musiikkituottajat.\n^ \"Download Single Top 50 \u2013 04/07/2009\". Lescharts.com. Hung Medien. Retrieved January 23, 2010.\n^ \"Michael Jackson \u2013 Thriller\". Singles Top 100.\n^ \"Michael Jackson Chart History (Digital Song Sales)\". Billboard.\n^ \"The Hot 100, Week of November 16, 2013\". Billboard. Prometheus Global Media. Retrieved November 12, 2015.\n^ \"The Hot 100, Week of November 15, 2014\". Billboard. Prometheus Global Media.\n^ \"The Hot 100, Week of November 21, 2015\". Billboard. Prometheus Global Media. Retrieved November 12, 2015.\n^ \"Michael Jackson Chart History (Canadian Hot 100)\". Billboard.\nRetrieved November 6, 2018.\n^ Zellner, Xander. \"Michael Jackson's 'Thriller' Returns to Hot 100, Thanks to Halloween Gains\". Billboard. Retrieved November 6, 2018."}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "^ \"The Hot 100, Week of November 21, 2015\". Billboard. Prometheus Global Media. Retrieved November 12, 2015.\n^ \"Michael Jackson Chart History (Canadian Hot 100)\". Billboard.\nRetrieved November 6, 2018.\n^ Zellner, Xander. \"Michael Jackson's 'Thriller' Returns to Hot 100, Thanks to Halloween Gains\". Billboard. Retrieved November 6, 2018.\n^ \"The Hot 100, Week of November 10, 2018\". Billboard. Retrieved September 9, 2021.\n^ \"The Hot 100, Week of November 9, 2019\". Billboard. Retrieved March 20, 2021.\n^ \"The Global 200, Week of November 14, 2020\". Billboard. Retrieved November 8, 2023.\n^ \"The Hot 100, Week of November 14, 2020\". Billboard. Retrieved November 14, 2020.\n^ \"Canadian Hot 100, Week of November 13, 2021\". Billboard. Retrieved November 23, 2021.\n^ \"Michael Jackson Chart History (Global 200)\". Billboard.\nRetrieved November 9, 2021.\n^ \"Official Singles Chart Top 100\". Official Charts Company.\nRetrieved November 8, 2023.\n^ \"Official Hip Hop and R&B Singles Chart Top 40\". Official Charts Company.\nRetrieved November 5, 2021.\n^ \"Michael Jackson's 'Thriller' Leads Halloween Treats on Billboard Hot 100\". Billboard. Retrieved November 8, 2021.\n^ \"The Hot 100, Week of November 13, 2021\". Billboard. Retrieved November 5, 2022.\n^ \"Digital Song Sales Chart, Week of November 13, 2021\". Billboard. Retrieved November 11, 2021.\n^ \"Canadian Hot 100, Week of November 12, 2022\". Billboard. Retrieved November 8, 2022.\n^ \"The Global 200, Week of November 12, 2022\". Billboard. Retrieved November 8, 2022.\n^ \"The Hot 100, Week of November 12, 2022\". Billboard. Retrieved November 8, 2022.\n^ \"Canadian Hot 100, Week of November 11, 2023\". Billboard. Retrieved November 8, 2023.\n^ \"The Global 200, Week of November 11, 2023\". Billboard. Retrieved November 8, 2023.\n^ \"Official Singles Chart Top 100\". Official Charts Company.\nRetrieved November 8, 2023.\n^ \"The Hot 100, Week of November 11, 2023\". Billboard. Retrieved November 8, 2023."}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "^ \"Canadian Hot 100, Week of November 11, 2023\". Billboard. Retrieved November 8, 2023.\n^ \"The Global 200, Week of November 11, 2023\". Billboard. Retrieved November 8, 2023.\n^ \"Official Singles Chart Top 100\". Official Charts Company.\nRetrieved November 8, 2023.\n^ \"The Hot 100, Week of November 11, 2023\". Billboard. Retrieved November 8, 2023.\n^ \"Kent Music Report No 548 \u2013 31 December 1984 > National Top 100 Singles for 1984\". Kent Music Report. Retrieved January 23, 2023 \u2013 via Imgur.com.\n^ \"Jaaroverzichten 1984\". Ultratop. Retrieved December 14, 2021.\n^ \"\u00c5rslista Singular \u2013 \u00c5r 2009\" (in Swedish). Sverigetopplistan. Retrieved March 29, 2020.\n^ \"Schweizer Jahreshitparade 2009 \u2013 hitparade.ch\". Hung Medien. Retrieved March 29, 2020.\n^ \"Charts Plus Year end 2009\" (PDF). Charts Plus. Retrieved May 16, 2020.\n^ \"ARIA Charts \u2013 Accreditations \u2013 2021 Singles\" (PDF). Australian Recording Industry Association.\n^ \"Danish\nsingle\ncertifications \u2013 Michael Jackson \u2013 Thriller\". IFPI Danmark. Retrieved July 2, 2023.\n^ \"French\nsingle\ncertifications \u2013 Michael Jackson \u2013 Thriller\" (in French). InfoDisc. Retrieved November 28, 2022. Select MICHAEL JACKSON and click OK.\n^ \"Gold-/Platin-Datenbank (Michael Jackson;\u00a0'Thriller')\" (in German). Bundesverband Musikindustrie. Retrieved February 18, 2023.\n^ \"Italian\nsingle\ncertifications \u2013 Michael Jackson \u2013 Thriller\" (in Italian). Federazione Industria Musicale Italiana. Select \"2014\" in the \"Anno\" drop-down menu. Select \"Thriller\" in the \"Filtra\" field. Select \"Singoli\" under \"Sezione\".\n^ \"Japanese\nringtone\ncertifications \u2013 Michael Jackson \u2013 Thriller\" (in Japanese). Recording Industry Association of Japan. Retrieved December 30, 2020. Select 2009\u5e7411\u6708 on the drop-down menu\n^ \"Certificaciones\" (in Spanish). Asociaci\u00f3n Mexicana de Productores de Fonogramas y Videogramas. Retrieved November 28, 2022. Type Michael Jackson in the box under the ARTISTA column heading\u00a0and Thriller in the box under the T\u00cdTULO column heading.\n^ \"Spanish\nsingle"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "^ \"Certificaciones\" (in Spanish). Asociaci\u00f3n Mexicana de Productores de Fonogramas y Videogramas. Retrieved November 28, 2022. Type Michael Jackson in the box under the ARTISTA column heading\u00a0and Thriller in the box under the T\u00cdTULO column heading.\n^ \"Spanish\nsingle\ncertifications \u2013 Michael Jackson \u2013 Thriller\". El portal de M\u00fasica. Productores de M\u00fasica de Espa\u00f1a.\n^ \"British\nsingle\ncertifications \u2013 Michael Jackson \u2013 Thriller\". British Phonographic Industry. Retrieved March 17, 2023.\n^ \"British\nsingle\ncertifications \u2013 Michael Jackson \u2013 Thriller\". British Phonographic Industry. Retrieved March 17, 2023.\n^ \"American\nsingle\ncertifications \u2013 Michael Jackson \u2013 Thriller\". Recording Industry Association of America. Retrieved August 29, 2022.\n^ \"American\nringtone\ncertifications \u2013 Michael Jackson \u2013 Thriller\". Recording Industry Association of America.\nBibliography\nBrooks, Darren (2002). Michael Jackson: An Exceptional Journey. Chrome Dreams. ISBN\u00a01-84240-178-5.\nGeorge, Nelson (2004). Michael Jackson: The Ultimate Collection (booklet). Sony BMG.\nGrant, Adrian (2009). Michael Jackson: The Visual Documentary. Omnibus Press. ISBN\u00a0978-1-84938-261-8.\nJones, Jel (2005). Michael Jackson, the King of Pop: The Big Picture: the Music! the Man! the Legend! the Interviews!. Amber Books Publishing. ISBN\u00a00-9749779-0-X.\nTaraborrelli, J. Randy (2004). The Magic and the Madness. Terra Alta, WV: Headline. ISBN\u00a00-330-42005-4.\nHalstead, Craig (2003). Michael Jackson The Solo Years. On-Line Ltd. ISBN\u00a0978-0-7552-0091-7.\nvteMichael Jackson: ThrillerSide one\n\"Wanna Be Startin' Somethin'\"\n\"Baby Be Mine\"\n\"The Girl Is Mine\"\n\"Thriller\"\nSide two\n\"Beat It\"\n\"Billie Jean\"\n\"Human Nature\"\n\"P.Y.T. (Pretty Young Thing)\"\n\"The Lady in My Life\"\nRelated articles\nE.T. the Extra-Terrestrial (audiobook)\nFarewell My Summer Love\nVictory\nVictory Tour\nMichael Jackson's Thriller\nThriller jacket\nThriller 25\nThriller 40\nThriller 40 (film)\nThrill the World\nThriller viral video\nDonga\nThriller \u2013 Live"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "\"Baby Be Mine\"\n\"The Girl Is Mine\"\n\"Thriller\"\nSide two\n\"Beat It\"\n\"Billie Jean\"\n\"Human Nature\"\n\"P.Y.T. (Pretty Young Thing)\"\n\"The Lady in My Life\"\nRelated articles\nE.T. the Extra-Terrestrial (audiobook)\nFarewell My Summer Love\nVictory\nVictory Tour\nMichael Jackson's Thriller\nThriller jacket\nThriller 25\nThriller 40\nThriller 40 (film)\nThrill the World\nThriller viral video\nDonga\nThriller \u2013 Live\nMichael Jackson albums discography\nvteMichael Jackson songs\nSingles\nSongs\nUnreleased songs\n1970s\n\"Got to Be There\"\n\"Ain't No Sunshine\"\n\"I Wanna Be Where You Are\"\n\"Rockin' Robin\"\n\"Love Is Here and Now You're Gone\"\n\"You've Got a Friend\"\n\"Ben\"\n\"Everybody's Somebody's Fool\"\n\"My Girl\"\n\"Shoo-Be-Doo-Be-Doo-Da-Day\"\n\"We've Got a Good Thing Going\"\n\"With a Child's Heart\"\n\"Morning Glow\"\n\"All the Things You Are\"\n\"Happy\"\n\"Too Young\"\n\"Music and Me\"\n\"We're Almost There\"\n\"Just a Little Bit of You\"\n\"You Can't Win\"\n\"Don't Stop 'Til You Get Enough\"\n\"Rock with You\"\n\"Working Day and Night\"\n\"It's the Falling in Love\"\n1980s\n\"Off the Wall\"\n\"Girlfriend\"\n\"She's Out of My Life\"\n\"One Day in Your Life\"\n\"The Girl Is Mine\"\n\"Billie Jean\"\n\"Beat It\"\n\"Wanna Be Startin' Somethin'\"\n\"Human Nature\"\n\"P.Y.T. (Pretty Young Thing)\"\n\"Thriller\"\n\"You've Really Got a Hold on Me\"\n\"Here I Am (Come and Take Me)\"\n\"Lonely Teardrops\"\n\"That's What Love Is Made Of\"\n\"Farewell My Summer Love\"\n\"Girl You're So Together\"\n\"I Just Can't Stop Loving You\"\n\"Bad\"\n\"The Way You Make Me Feel\"\n\"Speed Demon\"\n\"Liberian Girl\"\n\"Just Good Friends\"\n\"Another Part of Me\"\n\"Man in the Mirror\"\n\"Dirty Diana\"\n\"Smooth Criminal\"\n\"Leave Me Alone\"\n\"Twenty-Five Miles\"\n1990s\n\"Black or White\"\n\"Jam\"\n\"In the Closet\"\n\"Remember the Time\"\n\"Heal the World\"\n\"Who Is It\"\n\"Give In to Me\"\n\"Will You Be There\"\n\"Gone Too Soon\"\n\"Dangerous\"\n\"Come Together\"\n\"Scream\"\n\"Childhood\"\n\"They Don't Care About Us\"\n\"Stranger in Moscow\"\n\"This Time Around\"\n\"Earth Song\"\n\"D.S.\"\n\"You Are Not Alone\"\n\"Tabloid Junkie\"\n\"HIStory\"\n\"Smile\"\n\"Blood on the Dance Floor\"\n\"Ghosts\"\n\"Is It Scary\"\n\"On the Line\"\n2000s"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "\"Jam\"\n\"In the Closet\"\n\"Remember the Time\"\n\"Heal the World\"\n\"Who Is It\"\n\"Give In to Me\"\n\"Will You Be There\"\n\"Gone Too Soon\"\n\"Dangerous\"\n\"Come Together\"\n\"Scream\"\n\"Childhood\"\n\"They Don't Care About Us\"\n\"Stranger in Moscow\"\n\"This Time Around\"\n\"Earth Song\"\n\"D.S.\"\n\"You Are Not Alone\"\n\"Tabloid Junkie\"\n\"HIStory\"\n\"Smile\"\n\"Blood on the Dance Floor\"\n\"Ghosts\"\n\"Is It Scary\"\n\"On the Line\"\n2000s\n\"Speechless\"\n\"You Rock My World\"\n\"Heaven Can Wait\"\n\"Butterflies\"\n\"Cry\"\n\"One More Chance\"\n\"Cheater\"\n\"(I Like) The Way You Love Me\"\n\"Fall Again\"\n\"This Is It\"\n2010s\n\"Hold My Hand\"\n\"Hollywood Tonight\"\n\"(I Can't Make It) Another Day\"\n\"Behind the Mask\"\n\"Don't Be Messin' 'Round\"\n\"I'm So Blue\"\n\"Price of Fame\"\n\"Love Never Felt So Good\"\n\"Chicago\"\n\"Loving You\"\n\"A Place with No Name\"\n\"Slave to the Rhythm\"\n\"Blue Gangsta\"\n2020s\n\"She's Trouble\"\nOther\n\"We Are the World\"\n\"Mind Is the Magic\"\n\"What More Can I Give\"\n\"We Are the World 25 for Haiti\"\n\"Blood on the Dance Floor x Dangerous\"\n\"Diamonds Are Invincible\"\nFeatured\n\"Ease on Down the Road\"\n\"A Brand New Day\"\n\"Night Time Lover\"\n\"Papa Was a Rollin' Stone\"\n\"State of Independence\"\n\"Muscles\"\n\"Say Say Say\"\n\"Somebody's Watching Me\"\n\"Don't Stand Another Chance\"\n\"Centipede\"\n\"Tell Me I'm Not Dreamin' (Too Good to Be True)\"\n\"Eaten Alive\"\n\"Get It\"\n\"2300 Jackson Street\"\n\"Do the Bartman\"\n\"Whatzupwitu\"\n\"Why\"\n\"I Need You\"\n\"We Be Ballin'\"\n\"Girls, Girls, Girls\"\n\"All in Your Name\"\n\"There Must Be More to Life Than This\"\n\"Low\"\n\"Don't Matter to Me\"\nCategory\nAuthority control databases\nMusicBrainz work\nRetrieved from \"https://en.wikipedia.org/w/index.php?title=Thriller_(song)&oldid=1212467768\""}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "\nCategories: 1982 songs1983 singles1984 singlesCBS Records singlesColumbia Records singlesCompositions with a narratorEpic Records singlesHalloween songsMichael Jackson songsNumber-one singles in SpainSNEP Top Singles number-one singlesSong recordings produced by Quincy JonesSongs about monstersSongs written by Rod TempertonHidden categories: CS1 Dutch-language sources (nl)CS1 Italian-language sources (it)CS1 Spanish-language sources (es)Articles with German-language sources (de)CS1 Swedish-language sources (sv)CS1 French-language sources (fr)CS1 German-language sources (de)Cite certification used for Italy without IDCS1 Japanese-language sources (ja)Articles with short descriptionShort description is different from WikidataGood articlesUse American English from November 2021All Wikipedia articles written in American EnglishUse mdy dates from November 2014Articles with hAudio microformatsCertification Cite Ref usages outside Certification Table EntrySingle chart usages for FlandersSingle chart usages for Dutch40Single chart called without artistSingle chart called without songSingle chart usages for Dutch100Single chart usages for New ZealandSingle chart usages for West GermanySingle chart usages for FranceSingle chart usages for ItalySingle chart making named refSingle chart usages for SpainSingle chart usages for AustriaSingle chart usages for NorwaySingle chart usages for SwissSingle chart usages for AustraliaSingle chart usages for FinlandSingle chart usages for SwedenSingle chart usages for BillboarddigitalsongsSingle chart usages for CanadaSingle chart usages for Billboardglobal200Single chart usages for UKSingle chart usages for UKrandbCertification Table Entry usages for AustraliaPages using certification Table Entry with streaming figuresCertification Table Entry usages for DenmarkCertification Table Entry usages for FrancePages using certification Table Entry with sales figuresCertification Table Entry usages for GermanyCertification Table Entry usages for ItalyCertification Table Entry usages for JapanCertification Table Entry usages for MexicoCertification Table Entry usages for SpainCertification Table Entry usages for United KingdomCertification Table Entry usages for United StatesPages using certification Table Entry with sales footnotePages using certification Table Entry with streaming footnoteArticles with MusicBrainz work identifiers"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "This page was last edited on 8 March 2024, at 01:12\u00a0(UTC).\nText is available under the Creative Commons Attribution-ShareAlike License 4.0;\nadditional terms may apply. By using this site, you agree to the Terms of Use and Privacy Policy. Wikipedia\u00ae is a registered trademark of the Wikimedia Foundation, Inc., a non-profit organization.\nPrivacy policy\nAbout Wikipedia\nDisclaimers\nContact Wikipedia\nCode of Conduct\nDevelopers\nStatistics\nCookie statement\nMobile view\nToggle limited content width"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": "Jon Pareles of The New York Times noted that &quot;&#x27;Billie Jean&#x27;, &#x27;Beat It&#x27;, &#x27;Wanna Be Starting&#x27; Something&#x27; &#x27; and &quot;the movie in the song &#x27;Thriller&#x27;&quot;, were the songs, unlike the &quot;fluff&quot; &quot;P.Y.T.&quot;, that were &quot;the hits that made Thriller a world-beater; along with Mr. Jackson&#x27;s stage and video presence, ...Jon Pareles of The New York Times noted that \"'Billie Jean', 'Beat It', 'Wanna Be Starting' Something' ' and \"the movie in the song 'Thriller'\", were the songs, unlike the \"fluff\" \"P.Y.T.\", that were \"the hits that made Thriller a world-beater; along with Mr. Jackson's stage and video presence, listeners must have identified with his willingness to admit terror.\" It appears on several of Jackson's greatest-hits albums and has been covered by numerous artists. The song has returned to the Billboard Hot 100 chart multiple times due to its popularity around Halloween. \"Thriller\" is a disco-funk song The introduction features sound effects such as a creaking door, thunder, feet walking on wooden planks, winds and howling wolves. This gave Jackson at least one top-20 hit across seven consecutive decades from 1969 on the Billboard Hot 100. \"Thriller\" was certified platinum by the Recording Industry Association of America on December 4, 1989, for sales of over one million physical units in the US As of August 2016, the song had sold 4,024,398 copies in the US. \"Thriller\" is certified Diamond by the Recording Industry Association of America. It appears on several of Jackson's greatest-hits albums and has been covered by numerous artists. The song has returned to the Billboard Hot 100 chart multiple times due to its popularity around Halloween. \"Thriller\" has returned to the Billboard Hot 100 chart multiple times due to its popularity around Halloween"}
+{"query": "who sang the hit song \"thriller\"?", "domain": "music", "doc": ". \"Thriller\" is certified Diamond by the Recording Industry Association of America. It appears on several of Jackson's greatest-hits albums and has been covered by numerous artists. The song has returned to the Billboard Hot 100 chart multiple times due to its popularity around Halloween. \"Thriller\" has returned to the Billboard Hot 100 chart multiple times due to its popularity around Halloween. It re-entered the Billboard Hot 100 in October 2013 at number 42, number 31 in November 2018, and number 19 in November 2021, its highest placement since 1984. This gave Jackson at least one top-20 hit across seven consecutive decades from 1969 on the Billboard Hot 100."}
diff --git a/GraphRAG/retrieval_tool/README.md b/GraphRAG/retrieval_tool/README.md
new file mode 100644
index 0000000000..fc5a2da43c
--- /dev/null
+++ b/GraphRAG/retrieval_tool/README.md
@@ -0,0 +1,37 @@
+# Retrieval tool for agent
+
+The retrieval tool in this example is an OPEA megaservice that is comprised of a query embedder, a document retriever and a document reranker.
+
+## Launch microservices
+
+```
+bash launch_retrieval_tool.sh
+```
+
+## Index data into vector database
+
+In this example, we use an example jsonl file to ingest example documents into the vector database. For more ways to ingest data and the type of documents supported by OPEA dataprep microservices, please refer to the documentation in the opea-project/GenAIComps repo.
+
+1. create a conda env
+2. Run commands below
+
+```
+bash run_ingest_data.sh
+```
+
+## Validate services
+
+```
+export ip_address=$(hostname -I | awk '{print $1}')
+curl http://${ip_address}:8889/v1/retrievaltool -X POST -H "Content-Type: application/json" -d '{
+     "text": "Taylor Swift hometown"
+    }'
+```
+
+## Consume retrieval tool
+
+The endpoint for the retrieval tool is
+
+```
+http://${ip_address}:8889/v1/retrievaltool
+```
diff --git a/GraphRAG/retrieval_tool/index_data.py b/GraphRAG/retrieval_tool/index_data.py
new file mode 100644
index 0000000000..410a83cfb1
--- /dev/null
+++ b/GraphRAG/retrieval_tool/index_data.py
@@ -0,0 +1,77 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+import argparse
+import json
+import os
+
+import requests
+import tqdm
+
+
+def get_args():
+    parser = argparse.ArgumentParser(description="Index data")
+    parser.add_argument("--host_ip", type=str, default="localhost", help="Host IP")
+    parser.add_argument("--port", type=int, default=6007, help="Port")
+    parser.add_argument("--filedir", type=str, default=None, help="file directory")
+    parser.add_argument("--filename", type=str, default=None, help="file name")
+    parser.add_argument("--chunk_size", type=int, default=10000, help="Chunk size")
+    parser.add_argument("--chunk_overlap", type=int, default=0, help="Chunk overlap")
+    args = parser.parse_args()
+    return args
+
+
+def split_jsonl_into_txts(jsonl_file):
+    docs = []
+    n = 0
+    with open(jsonl_file, "r") as f:
+        for line in f:
+            data = json.loads(line)
+            docs.append(data["doc"])
+    return docs
+
+
+def write_docs_to_disk(docs, output_folder):
+    output_files = []
+    for i, text in enumerate(docs):
+        output = os.path.join(output_folder, str(i) + ".txt")
+        output_files.append(output)
+        with open(output, "w") as f:
+            f.write(text)
+    return output_files
+
+
+def delete_files(files):
+    for file in files:
+        os.remove(file)
+
+
+def main():
+    args = get_args()
+    print(args)
+
+    host_ip = args.host_ip
+    port = args.port
+    proxies = {"http": ""}
+    url = "http://{host_ip}:{port}/v1/dataprep".format(host_ip=host_ip, port=port)
+
+    # Split jsonl file into json files
+    files = split_jsonl_into_txts(os.path.join(args.filedir, args.filename))
+    file_list = write_docs_to_disk(files, args.filedir)
+
+    print(file_list)
+
+    for file in tqdm.tqdm(file_list):
+        print("Indexing file: ", file)
+        files = [("files", (f, open(f, "rb"))) for f in [file]]
+        payload = {"chunk_size": args.chunk_size, "chunk_overlap": args.chunk_overlap}
+        resp = requests.request("POST", url=url, headers={}, files=files, data=payload, proxies=proxies)
+        print(resp.text)
+
+    print("Removing temp files....")
+    delete_files(file_list)
+    print("ALL DONE!")
+
+
+if __name__ == "__main__":
+    main()
diff --git a/GraphRAG/retrieval_tool/launch_retrieval_tool.sh b/GraphRAG/retrieval_tool/launch_retrieval_tool.sh
new file mode 100644
index 0000000000..1a142abf8e
--- /dev/null
+++ b/GraphRAG/retrieval_tool/launch_retrieval_tool.sh
@@ -0,0 +1,25 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+host_ip=$(hostname -I | awk '{print $1}')
+export HF_CACHE_DIR=${HF_CACHE_DIR}
+export HUGGINGFACEHUB_API_TOKEN=${HUGGINGFACEHUB_API_TOKEN}
+export no_proxy=${no_proxy}
+export http_proxy=${http_proxy}
+export https_proxy=${https_proxy}
+export EMBEDDING_MODEL_ID="BAAI/bge-base-en-v1.5"
+export RERANK_MODEL_ID="BAAI/bge-reranker-base"
+export TEI_EMBEDDING_ENDPOINT="http://${host_ip}:6006"
+export TEI_RERANKING_ENDPOINT="http://${host_ip}:8808"
+export REDIS_URL="redis://${host_ip}:6379"
+export INDEX_NAME="rag-redis"
+export MEGA_SERVICE_HOST_IP=${host_ip}
+export EMBEDDING_SERVICE_HOST_IP=${host_ip}
+export RETRIEVER_SERVICE_HOST_IP=${host_ip}
+export RERANK_SERVICE_HOST_IP=${host_ip}
+export BACKEND_SERVICE_ENDPOINT="http://${host_ip}:8889/v1/retrievaltool"
+export DATAPREP_SERVICE_ENDPOINT="http://${host_ip}:6007/v1/dataprep"
+export DATAPREP_GET_FILE_ENDPOINT="http://${host_ip}:6008/v1/dataprep/get_file"
+export DATAPREP_DELETE_FILE_ENDPOINT="http://${host_ip}:6009/v1/dataprep/delete_file"
+
+docker compose -f $WORKDIR/GenAIExamples/DocIndexRetriever/docker_compose/intel/cpu/xeon/compose.yaml up -d
diff --git a/GraphRAG/retrieval_tool/run_ingest_data.sh b/GraphRAG/retrieval_tool/run_ingest_data.sh
new file mode 100644
index 0000000000..c82769c84f
--- /dev/null
+++ b/GraphRAG/retrieval_tool/run_ingest_data.sh
@@ -0,0 +1,7 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+FILEDIR=${WORKDIR}/GenAIExamples/AgentQnA/example_data/
+FILENAME=test_docs_music.jsonl
+
+python3 index_data.py --filedir ${FILEDIR} --filename ${FILENAME} --host_ip $host_ip
diff --git a/GraphRAG/standalone/.tool-versions b/GraphRAG/standalone/.tool-versions
new file mode 100644
index 0000000000..a79d3526a1
--- /dev/null
+++ b/GraphRAG/standalone/.tool-versions
@@ -0,0 +1 @@
+python 3.12.7
diff --git a/GraphRAG/standalone/README.md b/GraphRAG/standalone/README.md
new file mode 100644
index 0000000000..32cac58d57
--- /dev/null
+++ b/GraphRAG/standalone/README.md
@@ -0,0 +1,34 @@
+# GraphRAG Standalone
+
+Monolithic front-end/back-end example of GraphRAG using the SEC Edgar sample dataset.
+
+## Getting started - non-container development
+
+There are two services:
+
+1. api - using langserve
+2. ui - streamlit app
+
+### Configure environment
+
+1. Make a copy of the example env file: `cp env-example .env`
+2. Modify the dot env with Neo4j credentials and OpenAI API key
+
+- the `GOOGLE_MAPS_API_KEY` is only needed during data preparation
+
+### Start API
+
+- `cd api`
+- ..?
+
+## Data Preparation
+
+Data preparation is a manual process, directly creating a knowledge graph from example structured
+and unstructured data contained in the `data` directory.
+
+See the `notebooks/data-prep.ipynb` for data preparation.
+
+_NOTE_: The data has a quality issue, where Apple Inc has been misidentified by the identity mapping!
+
+This is great! The data quality issue is easy to notice and fix within a knowledge graph, because the
+structured and unstructured data are all connected, making it easy to explore, debug and curate.
diff --git a/GraphRAG/standalone/api/Dockerfile b/GraphRAG/standalone/api/Dockerfile
new file mode 100644
index 0000000000..b72362f620
--- /dev/null
+++ b/GraphRAG/standalone/api/Dockerfile
@@ -0,0 +1,24 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+FROM python:3.11-slim
+
+RUN pip install poetry==1.6.1
+
+RUN poetry config virtualenvs.create false
+
+WORKDIR /code
+
+COPY ./pyproject.toml ./README.md ./poetry.lock* ./ingest.py ./
+
+COPY ./packages ./packages
+
+RUN poetry install  --no-interaction --no-ansi --no-root
+
+COPY ./app ./app
+
+RUN poetry install --no-interaction --no-ansi
+
+EXPOSE 8080
+
+CMD exec uvicorn app.server:app --host 0.0.0.0 --port 8080
diff --git a/GraphRAG/standalone/api/README.md b/GraphRAG/standalone/api/README.md
new file mode 100644
index 0000000000..295c16dd28
--- /dev/null
+++ b/GraphRAG/standalone/api/README.md
@@ -0,0 +1,46 @@
+# GraphRAG Edgar API
+
+## Installation
+
+This sub-project uses `poetry` for virtual env management.
+
+```bash
+poetry shell
+poetry install
+```
+
+## Launch LangServe
+
+```bash
+langchain serve --port 8000
+```
+
+## Running in Docker
+
+This project folder includes a Dockerfile that allows you to easily build and host your LangServe app.
+
+### Building the Image
+
+To build the image, you simply:
+
+```shell
+docker build . -t langserve-edgar-api
+```
+
+If you tag your image with something other than `my-langserve-app`,
+note it for use in the next step.
+
+### Running the Image Locally
+
+To run the image, you'll need to include any environment variables
+necessary for your application.
+
+In the below example, we inject the `OPENAI_API_KEY` environment
+variable with the value set in my local environment
+(`$OPENAI_API_KEY`)
+
+We also expose port 8080 with the `-p 8080:8080` option.
+
+```shell
+docker run -e OPENAI_API_KEY=$OPENAI_API_KEY -p 8080:8080 my-langserve-app
+```
diff --git a/GraphRAG/standalone/api/app/__init__.py b/GraphRAG/standalone/api/app/__init__.py
new file mode 100644
index 0000000000..916f3a44b2
--- /dev/null
+++ b/GraphRAG/standalone/api/app/__init__.py
@@ -0,0 +1,2 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
diff --git a/GraphRAG/standalone/api/app/server.py b/GraphRAG/standalone/api/app/server.py
new file mode 100644
index 0000000000..e99154ba27
--- /dev/null
+++ b/GraphRAG/standalone/api/app/server.py
@@ -0,0 +1,27 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+from dotenv import load_dotenv
+
+load_dotenv()
+
+from fastapi import FastAPI
+from fastapi.responses import RedirectResponse
+from langserve import add_routes
+from neo4j_semantic_layer import agent_executor as neo4j_edgar_agent
+
+app = FastAPI()
+
+
+@app.get("/")
+async def redirect_root_to_docs():
+    return RedirectResponse("/docs")
+
+
+# Edit this to add the chain you want to add
+add_routes(app, neo4j_edgar_agent, path="/edgar-agent")
+
+if __name__ == "__main__":
+    import uvicorn
+
+    uvicorn.run(app, host="0.0.0.0", port=8000)
diff --git a/GraphRAG/standalone/api/packages/neo4j-semantic-layer/README.md b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/README.md
new file mode 100644
index 0000000000..a34c75f017
--- /dev/null
+++ b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/README.md
@@ -0,0 +1,23 @@
+# neo4j-semantic-layer for SEC Edgar
+
+The semantic layer equips the agent with a suite of robust tools, allowing it to interact with the graph database based on the user's intent.
+
+## Tools
+
+The agent utilizes several tools to interact with the Neo4j graph database effectively:
+
+1. **Company tool**:
+   - Retrieves information about a company based on their 10-K, ensuring the agent has access to the latest and most relevant information.
+2. **Cypher Tool**:
+   - Provides movie recommendations based upon user preferences and input.
+
+## Environment Setup
+
+You need to define the following environment variables
+
+```
+OPENAI_API_KEY=<YOUR_OPENAI_API_KEY>
+NEO4J_URI=<YOUR_NEO4J_URI>
+NEO4J_USERNAME=<YOUR_NEO4J_USERNAME>
+NEO4J_PASSWORD=<YOUR_NEO4J_PASSWORD>
+```
diff --git a/GraphRAG/standalone/api/packages/neo4j-semantic-layer/main.py b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/main.py
new file mode 100644
index 0000000000..449a0f1a56
--- /dev/null
+++ b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/main.py
@@ -0,0 +1,18 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+from neo4j_semantic_layer import agent_executor
+
+if __name__ == "__main__":
+    original_query = "What do you know about person John?"
+    followup_query = "John Travolta"
+    chat_history = [
+        (
+            "What do you know about person John?",
+            "I found multiple people named John. Could you please specify "
+            "which one you are interested in? Here are some options:"
+            "\n\n1. John Travolta\n2. John McDonough",
+        )
+    ]
+    print(agent_executor.invoke({"input": original_query}))
+    print(agent_executor.invoke({"input": followup_query, "chat_history": chat_history}))
diff --git a/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/__init__.py b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/__init__.py
new file mode 100644
index 0000000000..625d65f85b
--- /dev/null
+++ b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/__init__.py
@@ -0,0 +1,6 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+from neo4j_semantic_layer.agent import agent_executor
+
+__all__ = ["agent_executor"]
diff --git a/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/agent.py b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/agent.py
new file mode 100644
index 0000000000..a6a6871731
--- /dev/null
+++ b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/agent.py
@@ -0,0 +1,29 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+from typing import Any, List, Tuple
+
+from langchain.agents import AgentExecutor
+from langchain.agents.format_scratchpad import format_to_openai_function_messages
+from langchain.agents.output_parsers import OpenAIFunctionsAgentOutputParser
+from langchain.prompts import ChatPromptTemplate, MessagesPlaceholder
+
+# from langchain.pydantic_v1 import BaseModel, Field
+from langchain.schema import AIMessage, HumanMessage
+from langchain.tools.render import format_tool_to_openai_function
+
+# from langchain_community.chat_models import ChatOpenAI
+from langchain_openai import ChatOpenAI
+from neo4j_semantic_layer.company_tool import company_tool
+from neo4j_semantic_layer.cypher_tool import cypher_tool
+from pydantic import BaseModel, Field
+
+llm = ChatOpenAI(temperature=0, model="gpt-4", streaming=True)
+
+tools = [company_tool, cypher_tool]
+
+llm_with_tools = llm.bind_tools(tools)
+
+from langchain.agents import AgentType, initialize_agent
+
+agent_executor = initialize_agent(tools, llm, agent=AgentType.STRUCTURED_CHAT_ZERO_SHOT_REACT_DESCRIPTION)
diff --git a/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/company_tool.py b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/company_tool.py
new file mode 100644
index 0000000000..2b81543728
--- /dev/null
+++ b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/company_tool.py
@@ -0,0 +1,58 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+import os
+
+from langchain_community.vectorstores import Neo4jVector
+from langchain_core.tools import create_retriever_tool
+from langchain_openai import OpenAIEmbeddings
+
+NEO4J_URI = os.getenv("NEO4J_URI")
+NEO4J_USERNAME = os.getenv("NEO4J_USERNAME")
+NEO4J_PASSWORD = os.getenv("NEO4J_PASSWORD")
+NEO4J_DATABASE = os.getenv("NEO4J_DATABASE") or "neo4j"
+
+
+company_info_cypher = """
+MATCH (node)-[:PART_OF]->(f:Form),
+    (f)<-[:FILED]-(com:Company),
+    (com)<-[owns:OWNS_STOCK_IN]-(mgr:Manager)
+WITH node, score, mgr, owns, com
+    ORDER BY owns.shares DESC LIMIT 10
+WITH collect (
+    mgr.name +
+    " owns " + owns.shares + " of " + com.name +
+    " at a value of $" + apoc.number.format(owns.value) + "."
+) AS investment_statements, com, node, score
+RETURN
+    "Investors in " + com.name + " include...\n" +
+    apoc.text.join(investment_statements, "\n") +
+    "\n" +
+    "Information about " + com.name + " that is relevant to the user question...\n" + node.text AS text,
+    score,
+    {
+      source: node.source
+    } as metadata
+"""
+
+embeddings_api = OpenAIEmbeddings()
+
+neo4j_vector_store = Neo4jVector.from_existing_graph(
+    embedding=embeddings_api,
+    url=NEO4J_URI,
+    username=NEO4J_USERNAME,
+    password=NEO4J_PASSWORD,
+    index_name="form_10k_chunks",
+    node_label="Chunk",
+    text_node_properties=["text"],
+    embedding_node_property="textEmbedding",
+    retrieval_query=company_info_cypher,
+)
+# Create a retriever from the vector store
+company_retriever = neo4j_vector_store.as_retriever()
+
+company_tool = create_retriever_tool(
+    name="company_retriever",
+    retriever=company_retriever,
+    description="Search and return information about something....",
+)
diff --git a/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/cypher_tool.py b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/cypher_tool.py
new file mode 100644
index 0000000000..52d5338222
--- /dev/null
+++ b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/cypher_tool.py
@@ -0,0 +1,76 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+from langchain.chains import GraphCypherQAChain
+from langchain.prompts.prompt import PromptTemplate
+from langchain.tools import Tool
+from langchain_community.graphs import Neo4jGraph
+from langchain_openai import ChatOpenAI
+
+llm = ChatOpenAI(model="gpt-4o-mini")
+
+import os
+
+NEO4J_URI = os.getenv("NEO4J_URI")
+NEO4J_USERNAME = os.getenv("NEO4J_USERNAME")
+NEO4J_PASSWORD = os.getenv("NEO4J_PASSWORD")
+NEO4J_DATABASE = os.getenv("NEO4J_DATABASE") or "neo4j"
+
+CYPHER_GENERATION_TEMPLATE = """Task:Generate Cypher statement to query a graph database.
+Instructions:
+Use only the provided relationship types and properties in the schema.
+Do not use any other relationship types or properties that are not provided.
+Schema:
+{schema}
+Note: Do not include any explanations or apologies in your responses.
+Do not respond to any questions that might ask anything else than for you to construct a Cypher statement.
+Do not include any text except the generated Cypher statement.
+Examples: Here are a few examples of generated Cypher statements for particular questions:
+
+# What are the top investment firms in San Francisco?
+MATCH (mgr:Manager)-[:LOCATED_AT]->(mgrAddress:Address)
+    WHERE mgrAddress.city = 'San Francisco'
+RETURN mgr.managerName
+
+# What companies are in Santa Clara?
+MATCH (com:Company)-[:LOCATED_AT]->(comAddress:Address)
+    WHERE comAddress.city = 'Santa Clara'
+RETURN com.companyName
+
+# What investment firms are near Santa Clara?
+  MATCH (address:Address)
+    WHERE address.city = "Santa Clara"
+  MATCH (mgr:Manager)-[:LOCATED_AT]->(managerAddress:Address)
+    WHERE point.distance(address.location, managerAddress.location) < 20 * 1000
+  RETURN mgr.managerName, mgr.managerAddress
+
+# Which investment firms are near Palo Aalto Networks?
+  CALL db.index.fulltext.queryNodes(
+         "fullTextCompanyNames",
+         "Palo Aalto Networks"
+         ) YIELD node, score
+  WITH node as com
+  MATCH (com)-[:LOCATED_AT]->(comAddress:Address),
+    (mgr:Manager)-[:LOCATED_AT]->(mgrAddress:Address)
+    WHERE point.distance(comAddress.location, mgrAddress.location) < 20 * 1000
+  RETURN mgr,
+    toInteger(point.distance(comAddress.location, mgrAddress.location) / 1000) as distanceKm
+    ORDER BY distanceKm ASC
+    LIMIT 10
+
+The question is:
+{question}"""
+
+CYPHER_GENERATION_PROMPT = PromptTemplate(input_variables=["schema", "question"], template=CYPHER_GENERATION_TEMPLATE)
+
+kg = Neo4jGraph(url=NEO4J_URI, username=NEO4J_USERNAME, password=NEO4J_PASSWORD, database=NEO4J_DATABASE)
+cypher_chain = GraphCypherQAChain.from_llm(
+    llm, graph=kg, verbose=True, cypher_prompt=CYPHER_GENERATION_PROMPT, allow_dangerous_requests=True
+)
+
+cypher_tool = Tool.from_function(
+    name="GraphCypherQAChain",
+    description="Use Cypher to generate information about companies and investors",
+    func=cypher_chain.run,
+    return_direct=True,
+)
diff --git a/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/utils.py b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/utils.py
new file mode 100644
index 0000000000..dc55bd69d8
--- /dev/null
+++ b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/neo4j_semantic_layer/utils.py
@@ -0,0 +1,91 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
+
+import os
+from typing import Dict, List
+
+from langchain_community.graphs import Neo4jGraph
+
+NEO4J_URI = os.getenv("NEO4J_URI")
+NEO4J_USERNAME = os.getenv("NEO4J_USERNAME")
+NEO4J_PASSWORD = os.getenv("NEO4J_PASSWORD")
+NEO4J_DATABASE = os.getenv("NEO4J_DATABASE")
+OPENAI_API_KEY = os.getenv("OPENAI_API_KEY")
+
+print(f"Connect to Neo4j: {NEO4J_USERNAME}@{NEO4J_URI}/{NEO4J_DATABASE}")
+
+# graph = Neo4jGraph()
+graph = Neo4jGraph(url=NEO4J_URI, username=NEO4J_USERNAME, password=NEO4J_PASSWORD, database=NEO4J_DATABASE)
+
+
+def get_user_id() -> int:
+    """Placeholder for a function that would normally retrieve
+    a user's ID."""
+    return 1
+
+
+def remove_lucene_chars(text: str) -> str:
+    """Remove Lucene special characters."""
+    special_chars = [
+        "+",
+        "-",
+        "&",
+        "|",
+        "!",
+        "(",
+        ")",
+        "{",
+        "}",
+        "[",
+        "]",
+        "^",
+        '"',
+        "~",
+        "*",
+        "?",
+        ":",
+        "\\",
+    ]
+    for char in special_chars:
+        if char in text:
+            text = text.replace(char, " ")
+    return text.strip()
+
+
+def generate_full_text_query(input: str) -> str:
+    """Generate a full-text search query for a given input string.
+
+    This function constructs a query string suitable for a full-text search.
+    It processes the input string by splitting it into words and appending a
+    similarity threshold (~0.8) to each word, then combines them using the AND
+    operator. Useful for mapping movies and people from user questions
+    to database values, and allows for some misspellings.
+    """
+    full_text_query = ""
+    words = [el for el in remove_lucene_chars(input).split() if el]
+    for word in words[:-1]:
+        full_text_query += f" {word}~0.8 AND"
+    full_text_query += f" {words[-1]}~0.8"
+    return full_text_query.strip()
+
+
+candidate_query = """
+CALL db.index.fulltext.queryNodes($index, $fulltextQuery, {limit: $limit})
+YIELD node
+RETURN coalesce(node.name, node.title) AS candidate,
+       [el in labels(node) WHERE el IN ['Person', 'Movie'] | el][0] AS label
+"""
+
+
+def get_candidates(input: str, type: str, limit: int = 3) -> List[Dict[str, str]]:
+    """Retrieve a list of candidate entities from database based on the input string.
+
+    This function queries the Neo4j database using a full-text search. It takes the
+    input string, generates a full-text query, and executes this query against the
+    specified index in the database. The function returns a list of candidates
+    matching the query, with each candidate being a dictionary containing their name
+    (or title) and label (either 'Person' or 'Movie').
+    """
+    ft_query = generate_full_text_query(input)
+    candidates = graph.query(candidate_query, {"fulltextQuery": ft_query, "index": type, "limit": limit})
+    return candidates
diff --git a/GraphRAG/standalone/api/packages/neo4j-semantic-layer/pyproject.toml b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/pyproject.toml
new file mode 100644
index 0000000000..68f51e9037
--- /dev/null
+++ b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/pyproject.toml
@@ -0,0 +1,29 @@
+[tool.poetry]
+name = "neo4j-semantic-layer"
+version = "0.1.0"
+description = "Build a semantic layer to allow an agent to interact with a graph database in consistent and robust way."
+authors = [
+    "Tomaz Bratanic <tomaz.bratanic@neo4j.com>",
+]
+readme = "README.md"
+
+[tool.poetry.dependencies]
+python = ">=3.8.1,<4.0"
+openai = "<2"
+neo4j = "^5.25.0"
+
+[tool.langserve]
+export_module = "neo4j_semantic_layer"
+export_attr = "agent_executor"
+
+[tool.templates-hub]
+use-case = "semantic_layer"
+author = "Neo4j"
+integrations = ["Neo4j", "OpenAI"]
+tags = ["search", "graph-database", "function-calling"]
+
+[build-system]
+requires = [
+    "poetry-core",
+]
+build-backend = "poetry.core.masonry.api"
diff --git a/GraphRAG/standalone/api/packages/neo4j-semantic-layer/tests/__init__.py b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/tests/__init__.py
new file mode 100644
index 0000000000..916f3a44b2
--- /dev/null
+++ b/GraphRAG/standalone/api/packages/neo4j-semantic-layer/tests/__init__.py
@@ -0,0 +1,2 @@
+# Copyright (C) 2024 Intel Corporation
+# SPDX-License-Identifier: Apache-2.0
diff --git a/GraphRAG/standalone/api/poetry.lock b/GraphRAG/standalone/api/poetry.lock
new file mode 100644
index 0000000000..22fb9e58d4
--- /dev/null
+++ b/GraphRAG/standalone/api/poetry.lock
@@ -0,0 +1,2259 @@
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+
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+
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+
+[package.dependencies]
+idna = ">=2.0"
+multidict = ">=4.0"
+propcache = ">=0.2.0"
+
+[metadata]
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diff --git a/GraphRAG/standalone/api/pyproject.toml b/GraphRAG/standalone/api/pyproject.toml
new file mode 100644
index 0000000000..40f669a723
--- /dev/null
+++ b/GraphRAG/standalone/api/pyproject.toml
@@ -0,0 +1,29 @@
+[tool.poetry]
+name = "edgar-api"
+version = "0.1.0"
+description = ""
+authors = ["Andreas Kollegger <andreas.kollegger@neo4j.com>"]
+readme = "README.md"
+packages = [
+    { include = "app" },
+]
+
+[tool.poetry.dependencies]
+python = "~3.12"
+uvicorn = "^0.23.2"
+langserve = {extras = ["server"], version = ">=0.0.30"}
+neo4j-semantic-layer = {path = "packages/neo4j-semantic-layer", develop = true}
+python-dotenv = "^1.0.1"
+pydantic = "^2.9.2"
+langchain = "^0.3.4"
+langchain-openai = "^0.2.3"
+pyyaml = "^6.0.2"
+langchain-community = "^0.3.3"
+
+
+[tool.poetry.group.dev.dependencies]
+langchain-cli = ">=0.0.15"
+
+[build-system]
+requires = ["poetry-core"]
+build-backend = "poetry.core.masonry.api"
diff --git a/GraphRAG/standalone/data/all/form10k/0000004457-23-000052.json b/GraphRAG/standalone/data/all/form10k/0000004457-23-000052.json
new file mode 100644
index 0000000000..1d53f679f7
--- /dev/null
+++ b/GraphRAG/standalone/data/all/form10k/0000004457-23-000052.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. Business\n      \n\n\n\n\nCompany Overview\n\n\n\n\n\n\nWe are North America\u2019s largest \u201cdo-it-yourself\u201d moving and storage operator through our subsidiary U-Haul International, Inc. (\u201cU-Haul\u201d). U-Haul is synonymous with \u201cdo-it-yourself\u201d moving and storage and is a leader in supplying products and services to help people move and store their household and commercial goods. Our primary service objective is to \u201cprovide a better and better product and service to more and more people at a lower and lower cost.\u201d Unless the context otherwise requires, the terms \u201cU-Haul Holding Company,\u201d \u201cCompany,\u201d \u201cwe,\u201d \u201cus,\u201d or \u201cour\u201d refer to U-Haul Holding Company, a Nevada corporation, and all of its legal subsidiaries, on a consolidated basis. \n\n\n\n\n\n\nWe were founded in 1945 as a sole proprietorship under the name \"U-Haul Trailer Rental Company\" and have rented trailers ever since. Starting in 1959, we rented trucks on a one-way and in-town basis exclusively through independent U-Haul\n\n\n\u00ae\n\n\n dealers. In 1973, we began developing our network of U-Haul\n\n\n\u00ae\n\n\n managed retail stores, through which we rent our trucks and trailers, self-storage units and portable moving and storage units and sell moving and self-storage products and services to complement our independent dealer network.\n\n\n\n\n\n\nWe rent our distinctive orange and white U-Haul\n\n\n\u00ae\n\n\n trucks and trailers as well as offer self-storage units through a network of over 2,200 Company-operated retail moving stores and nearly 21,300 independent U-Haul\n\n\n\u00ae\n\n\n dealers. We also sell U-Haul\n\n\n\u00ae\n\n\n brand boxes, tape and other moving and self-storage products and services to \u201cdo-it-yourself\u201d moving and storage customers at all of our distribution outlets and through our uhaul.com\n\n\n\u00ae\n\n\n website and mobile app.\n\n\n\n\n\n\nWe believe U-Haul\n\n\n\u00ae\n\n\n is the most convenient supplier of products and services addressing the needs of the United States and Canada\u2019s \u201cdo-it-yourself\u201d moving and storage markets. Our broad geographic coverage throughout the United States and Canada and our extensive selection of U-Haul\n\n\n\u00ae\n\n\n brand moving equipment rentals, self-storage units, portable moving and storage units and related moving and storage products and services provide our customers with convenient \u201cone-stop\u201d shopping.\n\n\n\n\n\n\nSince 1945, U-Haul\n\n\n\u00ae\n\n\n has incorporated sustainable practices into its everyday operations. We believe that our basic business premise of equipment sharing helps reduce greenhouse gas emissions and reduces the inventory of total large capacity vehicles. We continue to look for ways to reduce waste within our business and are dedicated to manufacturing reusable components and recyclable products. We believe that our commitment to sustainability, through our products and services and everyday operations has helped us to reduce our impact on the environment.\n\n\n\n\n\n\nThrough Repwest Insurance Company (\u201cRepwest\u201d) and ARCOA Risk Retention Group (\"ARCOA\"), our property and casualty insurance subsidiaries, we manage the property, liability and related insurance claims processing for U-Haul\n\n\n\u00ae\n\n\n. Oxford Life Insurance Company (\u201cOxford\u201d), our life insurance subsidiary, sells life insurance, Medicare supplement insurance, annuities and other related products to the senior market.\n\n\n\n\n\n\nAvailable Information\n\n\n\n\nU-Haul Holding Company\nSM \nand U-Haul\n\u00ae\n are each incorporated in Nevada. The internet address for U-Haul is uhaul.com. On U-Haul Holding Company\u2019s investor relations website, investors.uhaul.com, we post the following filings as soon as practicable after they are electronically filed with or furnished to the United States Securities and Exchange Commission (\u201cSEC\u201d): our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, proxy statements related to meetings of our stockholders, and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d). We also use our investor relations website as a means of disclosing material information and for complying with our disclosure obligations under Regulation FD. All such filings on our website are available free of charge. Additionally, you will find these materials on the SEC\u2019s website at sec.gov.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n1\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nProducts and Rental Equipment\n\n\n\n\n\n\nOur customers are primarily \u201cdo-it-yourself\u201d household movers. U-Haul\n\n\n\u00ae\n\n\n moving equipment is specifically designed, engineered and manufactured for the \u201cdo-it-yourself\u201d household mover. These \u201cdo-it-yourself\u201d movers include individuals and families moving their belongings from one home to another, college students moving their belongings, vacationers and sports enthusiasts needing extra space or having special towing needs, people trying to save on home furniture and home appliance delivery costs, and \u201cdo-it-yourself\u201d home remodeling and gardening enthusiasts who need to transport materials.\n\n\n\n\n\n\nAs of March 31, 2023, our rental fleet consisted of approximately 192,200 trucks, 138,500 trailers and 44,500 towing devices. This equipment and our U-Haul\n\n\n\u00ae\n\n\n brand of self-moving products and services are available through our network of managed retail moving stores and independent U-Haul dealers. Independent U-Haul\n\n\n\u00ae\n\n\n dealers receive rental equipment from the Company, act as rental agents and are paid a commission based on gross revenues generated from their U-Haul\n\n\n\u00ae\n\n\n rentals.\n\n\n\n\n\n\nOur rental truck chassis are engineered by domestic truck manufacturers. These chassis are joined with the U-Haul\n\n\n\u00ae\n\n\n designed and manufactured van boxes primarily at U-Haul\n\n\n\u00ae\n\n\n operated manufacturing and assembly facilities strategically located throughout the United States. U-Haul\n\n\n\u00ae\n\n\n rental trucks feature our proprietary Lowest Deck\n\n\nSM\n\n\n, which provides our customers with extra ease of loading. The loading ramps on our trucks are the widest in the industry, which reduces the effort needed to move belongings. Our trucks are fitted with convenient rub rails with tie downs on every interior wall. Our Gentle Ride Suspension\n\n\nSM\n\n\n helps our customers safely move delicate and prized possessions. Also, the engineers at our U-Haul Technical Center determined that the softest ride in our trucks was at the front of the van box. Consequently, we designed the part of the van box that hangs over the front cab of the truck to be the location for our customers to place their most fragile items during their move. We call this area Mom\u2019s Attic\n\n\n\u00ae\n\n\n.\n\n\n\n\n\n\nOur distinctive trailers are also manufactured at these same U-Haul\n\n\n\u00ae\n\n\n operated manufacturing and assembly facilities. These trailers are well suited to the low profile of many of today\u2019s newly manufactured automobiles including electric vehicles. Our engineering staff is committed to making our trailers easy to tow, safe, aerodynamic and fuel efficient.\n\n\n\n\n\n\nTo provide our self-move customers with added value, our rental trucks and trailers are designed with fuel efficiency in mind. Many of our trucks are equipped with fuel economy gauges, another tool that assists our customers in conserving fuel. To help make our rental equipment more reliable, we routinely perform extensive preventive maintenance and repairs.\n\n\n\n\n\n\nWe also provide customers with equipment to transport their vehicles. We provide two towing options: auto transport, in which all four wheels are off the ground, and a tow dolly, in which the front wheels of the towed vehicle are off the ground.\n\n\n\n\n\n\nTo help our customers load their boxes and larger household appliances and furniture, we offer several accessory rental items. Our utility dolly has a lightweight design and is easy to maneuver. Another rental accessory is our four wheel dolly, which provides a large, flat surface for moving dressers, wall units, pianos and other large household items. U-Haul\n\n\n\u00ae\n\n\n appliance dollies provide the leverage needed to move refrigerators, freezers, washers and dryers easily and safely. These utility, furniture and appliance dollies, along with the low decks and the wide loading ramps on U-Haul\n\n\n\u00ae\n\n\n trucks and trailers, are designed for easy loading and unloading of our customers\u2019 belongings.\n\n\n\n\n\n\nThe total package U-Haul\n\n\n\u00ae\n\n\n offers to the \u201cdo-it-yourself\u201d household mover doesn\u2019t end with trucks, trailers and accessory rental items. Our moving supplies include a wide array of affordably priced U-Haul\n\n\n\u00ae\n\n\n brand boxes, tape and packing materials. We also provide specialty boxes for dishes, computers, flat screen television and sensitive electronic equipment, as well as tape, security locks, and packing supplies. U-Haul\n\n\n\u00ae\n\n\n brand boxes are specifically sized to make loading easier.\n\n\n\n\n\n\nWe estimate that U-Haul\n\n\n\u00ae\n\n\n is North America\u2019s largest seller and installer of hitches and towing systems. In addition to towing U-Haul\n\n\n\u00ae\n\n\n equipment, these hitching and towing systems can tow jet skis, motorcycles, boats, campers and toy haulers. Each year, millions of customers visit our locations for expertise on complete towing systems, trailer rentals and the latest in towing accessories.\n\n\n\n\nU-Haul\n\u00ae\n has one of North America\u2019s largest propane refilling networks, with nearly 1,200 locations providing this convenient service. We employ trained, certified personnel to refill propane cylinders and alternative fuel vehicles. Our network of propane dispensing locations is one of the largest automobile alternative refueling networks in North America.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n2\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nOur self-storage business was a natural outgrowth of our self-moving operations. Conveniently located U-Haul\n\n\n\u00ae\n\n\n self-storage rental facilities provide clean, dry and secure space for storage of household and commercial goods. Storage units range in size from 6 square feet to over 1,000 square feet. As of March 31, 2023, we operate 1,904 self-storage locations in the United States and Canada, with nearly 949,000 rentable storage units comprising 81.2 million square feet of rentable storage space. Our self-storage centers feature a wide array of security measures, ranging from electronic property access control gates to individually alarmed storage units. At many centers, we offer climate-controlled storage units to protect temperature sensitive goods.\n\n\n\n\n\n\nAnother extension of our strategy to make \u201cdo-it-yourself\u201d moving and storage easier is our U-Box\n\n\n\u00ae\n\n\n program.\n\n\n\u00a0 \n\n\nA U-Box\n\n\n\u00ae\n\n\n portable moving and storage unit is delivered to a location of our customer\u2019s choosing either by the customers themselves through the use of a U-Box\n\n\n\u00ae\n\n\n trailer, with the assistance of our Moving Help\n\n\n\u00ae\n\n\n program, or by Company personnel. Once the U-Box\n\n\n\u00ae\n\n\n portable moving and storage unit is filled, it can be stored at the customer\u2019s location, or taken to one of our Company operated locations, a participating independent dealer, or moved to a location of the customer\u2019s choice.\n\n\n\n\n\n\nAdditionally, we offer moving and storage protection packages such as Safemove\n\n\n\u00ae\n\n\n and Safetow\n\n\n\u00ae\n\n\n. These programs provide moving and towing customers with a damage waiver, cargo protection and medical and life insurance coverage. Safestor\n\n\n\u00ae\n\n\n provides protection for storage customers from loss on their goods in storage. Safestor Mobile\n\n\n\u00ae\n\n\n provides protection for customers\u2019 stored belongings when using our U-Box\n\n\n\u00ae\n\n\n portable moving and storage units. For our customers who desire additional coverage over and above the standard Safemove\n\n\n\u00ae\n\n\n protection, we also offer our Safemove Plus\n\n\n\u00ae\n\n\n product. This package provides the rental customer with a layer of primary liability protection. \n\n\n\n\n\n\nWe believe that through our website, uhaul.com, and the U-Haul\n\n\n\u00ae\n\n\n app, we have aggregated the largest network of customers and independent businesses in the self-moving and self-storage industry. In particular, our Moving Help\n\n\n\u00ae\n\n\n program connects \u201cdo-it-yourself\u201d movers with thousands of independent service providers in the United States and Canada to assist our customers in packing, loading, unloading, cleaning and performing other services. \n\n\n\n\n\n\nThrough the U-Haul Storage Affiliates\n\n\n\u00ae\n\n\n program, independent storage businesses can join one of the world\u2019s largest self-storage reservation systems. Self-storage customers making a reservation through uhaul.com\n\n\n\u00ae\n\n\n or the U-Haul app can access all of the U-Haul\n\n\n\u00ae\n\n\n self-storage centers and all of our independent storage affiliate partners for even greater convenience to meet their self-storage needs. For the independent storage operator, our network gives them access to products and services allowing them to compete with larger operators more cost effectively.\n\n\n\n\n\n\nWe own numerous trademarks and service marks that contribute to the identity and recognition of our Company and its products and services. Certain of these marks are integral to the conduct of our business, a loss of any of which could have a material adverse affect on our business. We consider the trademark \u201cU-Haul\n\n\n\u00ae\n\n\n\u201d to be of material importance to our business in addition, but not limited to, the U.S. trademarks and service marks \u201cAMERCO\n\n\n\u00ae\n\n\n\u201d, \u201cU-Haul Holding Company\n\n\nSM\n\n\n\u201d, \u201ceMove\n\n\n\u00ae\n\n\n\u201d, \u201cGentle Ride Suspension\n\n\nSM\n\n\n\u201d, \u201cIn-Town\n\n\n\u00ae\n\n\n\u201d, \u201cLowest Decks\n\n\nSM\n\n\n\u201d, \u201cMoving made Easier\n\n\n\u00ae\n\n\n\u201d, \u201cMake Moving Easier\n\n\n\u00ae\n\n\n\u201d, \u201cMom\u2019s Attic\n\n\n\u00ae\n\n\n\u201d, \u201cMoving Help\n\n\n\u00ae\n\n\n\u201d, \u201cMoving Helper\n\n\n\u00ae\n\n\n\u201d, \u201cSafemove\n\n\n\u00ae\n\n\n\u201d, \u201cSafemove Plus\n\n\n\u00ae\n\n\n\u201d, \u201cSafestor\n\n\n\u00ae\n\n\n\u201d, \u201cSafestor Mobile\n\n\n\u00ae\n\n\n\u201d,\n\n\n \u201cSafetow\n\n\n\u00ae\n\n\n\u201d,\n\n\n\u00a0 \n\n\n\u201cU-Box\n\n\n\u00ae\n\n\n\u201d, \u201cuhaul.com\n\n\n\u00ae\n\n\n\u201d, \u201cU-Haul Investors Club\n\n\n\u00ae\n\n\n\u201d, \u201cU-Haul Truck Share\n\n\n\u00ae\n\n\n\u201d, \u201cU-Haul Truck Share 24/7\n\n\n\u00ae\n\n\n\u201c, \u201cU-Note\n\n\n\u00ae\n\n\n\u201d, \u201cWebSelfStorage\n\n\n\u00ae\n\n\n\u201d, and \u201cU-Haul SmartMobilityCenter\n\n\n\u00ae\u201d\n\n\n, among others, for use in connection with the moving and storage business. \n\n\n\n\n\n\nDescription of Operating Segments\n\n\n\n\n\n\nU-Haul Holding Company\u2019s three reportable segments are:\n\n\n\n\n\n\n\n\nMoving and Storage, comprised of U-Haul Holding Company\n\n\nSM\n\n\n, U-Haul\n\n\n\u00ae\n\n\n, and Amerco Real Estate Company (\u201cReal Estate\u201d), and the subsidiaries of U-Haul\n\n\n\u00ae\n\n\n and Real Estate,\n\n\n\n\n\n\nProperty and Casualty Insurance, comprised of Repwest and its subsidiaries and ARCOA, and\n\n\n\n\n\n\nLife Insurance, comprised of Oxford and its subsidiaries.\n\n\n\n\n\n\nFinancial information for each of our operating segments is included in the Notes to Consolidated Financial Statements as part of Item 8: Financial Statements and Supplementary Data of this Annual Report on Form 10-K.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n3\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nMoving and Storage Operating Segment\n\n\n\n\n\n\nOur Moving and Storage operating segment (\u201cMoving and Storage\u201d) consists of the rental of trucks, trailers, portable moving and storage units, specialty rental items and self-storage spaces primarily to the household mover as well as sales of moving supplies, towing accessories and propane. Operations are conducted under the registered trade name U-Haul\n\n\n\u00ae\n\n\n throughout the United States and Canada.\n\n\n\n\n\n\nNet revenue from Moving and Storage was approximately 94.9%, 94.0% and 93.1% of consolidated net revenue in fiscal 2023, 2022 and 2021, respectively.\n\n\n\n\n\n\nThe total number of rental trucks in the fleet increased from fiscal 2023. However, continuing supply issues with our equipment manufacturers have slowed the number of new trucks we have been able to acquire this last year. In response, we slowed the sale of trucks from our existing fleet.\n\n\n\n\n\n\nWithin our truck and trailer rental operation, we are focused on expanding our independent dealer network to provide added convenience for our customers. U-Haul\n\n\n\u00ae\n\n\n maximizes vehicle utilization by managing distribution of the truck and trailer fleets among the over 2,200 Company-operated stores and nearly 21,300 independent dealers. Utilizing its proprietary reservations management system, our centers and dealers electronically report their inventory in real-time, which facilitates matching equipment to customer demand. Over half of all U-Move\n\n\n\u00ae\n\n\n rental revenue originated from our Company operated centers.\n\n\n\n\n\n\nAt our owned and operated retail stores, we are implementing new initiatives to improve customer service. These initiatives include expanding the capabilities of our U-Haul\n\n\n\u00ae\n\n\n app, improving management of our rental equipment to provide our retail centers with the right type of rental equipment, at the right time and at the most convenient location for our customers, effectively marketing our broad line of self-moving related products and services, expanding accessibility to provide more convenience to our customers, and enhancing our ability to properly staff locations during our peak hours of operations by attracting and retaining \u201cmoonlighters\u201d (part-time U-Haul\n\n\n\u00ae\n\n\n system members with full-time jobs elsewhere) during our peak hours of operation. \n\n\nU-Haul offers U-Haul Truck Share 24/7\n\n\n\u00ae\n\n\n to our entire network in the United States and Canada. This technological advancement allows our customers to rent equipment through a mobile device any time of the day without having to visit the counter. U-Haul currently has several U.S. and Canadian Patents granted or pending on its U-Haul Truck Share 24/7\n\n\n\u00ae\n\n\n system.\n\n\n\n\n\n\nOur self-moving related products and services, such as boxes, pads and insurance, help our customers have a better moving experience and help them to protect their belongings from potential damage during the moving process. We are committed to providing a complete line of products selected with the \u201cdo-it-yourself\u201d moving and storage customer in mind. \n\n\n\n\n\n\nOur self-storage business operations consist of the rental of\n\n\n \n\n\nself-storage units, portable moving and storage units, sales of self-storage related products, the facilitation of sales of services, and the management of self-storage facilities owned by others.\n\n\n\n\n\n\nU-Haul\n\n\n\u00ae\n\n\n \n\n\nis one of the largest North American operators of self-storage and has been a leader in the self-storage industry since 1974. U-Haul\n\n\n\u00ae\n\n\n \n\n\noperates nearly 949,000 rentable storage units, comprising 81.2 million square feet of rentable storage space with locations in 50 states and 10 Canadian provinces. Our owned and managed self-storage facility locations range in size up to 309,000 square feet of storage space, with individual storage units in sizes ranging from 6 square feet to over 1,000 square feet.\n\n\n\n\n\n\nThe primary market for storage units is the storage of household goods. We believe that our self-storage services provide a competitive advantage through such things as Max Security, an electronic system that monitors the storage facility 24 hours a day, climate control in select units, individually alarmed units, extended hours access, interior load and unload at selected locations, mobile device enabled rentals and an internet-based customer reservation and account management system.\n\n\n\n\nMoving Help\n\u00ae\n and U-Haul Storage Affiliates\n\u00ae\n on uhaul.com are online marketplaces that connect consumers to independent Moving Help\n\u00ae\n service providers and thousands of independent Self-Storage Affiliates. Our network of customer-rated Moving Help\n\u00ae\n and storage affiliates provide pack and load help, cleaning help, self-storage and similar services all over the United States and Canada. Our goal is to further utilize our web-based technology platform, including our U-Haul\n\u00ae\n app, to increase service to consumers and businesses in the moving and storage market. \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n4\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nCompliance with environmental requirements of federal, state, provincial and local governments affects our business. Our truck and trailer rental business is subject to regulation by various federal, state, provincial and local regulations in the United States and Canada. Specifically, the U.S. Department of Transportation and various state, federal and Canadian agencies exercise broad powers over our motor carrier operations, safety, and the generation, handling, storage, treatment and disposal of waste materials. In addition, our storage business is also subject to federal, state, provincial and local laws and regulations relating to environmental protection and human health and safety. Environmental laws and regulations are complex, change frequently and could become more stringent in the future.\n\n\n\n\n\n\nMoving and Storage business is seasonal and our results of operations and cash flows fluctuate significantly from quarter to quarter. Historically, revenues have been stronger in the first and second fiscal quarters due to the overall increase in moving activity during the spring and summer months. The fourth fiscal quarter is generally our weakest.\n\n\n\n\n\n\nProperty and Casualty Insurance Operating Segment\n\n\n\n\n\n\nOur Property and Casualty Insurance operating segment (\u201cProperty and Casualty Insurance\u201d) provides loss adjusting and claims handling for U-Haul through regional offices across the United States and Canada. Property and Casualty Insurance also underwrites components of the Safemove\n\n\n\u00ae\n\n\n, Safetow\n\n\n\u00ae\n\n\n, Safemove Plus\n\n\n\u00ae\n\n\n, Safestor Mobile\n\n\n\u00ae\n\n\n and Safestor\n\n\n\u00ae\n\n\n protection packages to U-Haul customers. We attempt to price our products to be a good value to our customers. The business plan for Property and Casualty Insurance includes offering property and casualty products in other U-Haul related programs.\n\n\n\n\n\n\nNet revenue from Property and Casualty Insurance was approximately 1.7%, 1.9% and 1.9% of consolidated net revenue in fiscal 2023, 2022 and 2021, respectively.\n\n\n\n\n\n\nLife Insurance Operating Segment\n\n\n\n\n\n\nLife Insurance provides life and health insurance products primarily to the senior market through the direct writing and reinsuring of life insurance, Medicare supplement and annuity policies. \n\n\n\n\n\n\nNet revenue from Life Insurance was approximately 3.4%, 4.1% and 5.0% of consolidated net revenue in fiscal 2023, 2022 and 2021, respectively.\n\n\n\n\n\n\nHuman Capital\n\n\n\u00a0\n\n\n\n\n\n\nWe work at never forgetting that our quality self-move, self-storage, and closely related services and products are meant to improve human lives and serve the do-it-yourself moving public.\n\n\n\u00a0 \n\n\nWe believe our workforce is a reflection of, and as diverse as the customers we serve.\n\n\n\u00a0 \n\n\nDiscrimination based on race, gender, religion, age, ethnicity, disability familial status or any other form of discrimination prohibited by applicable law in the acquisition, promotion, compensation, management or retention of talent is not accepted.\n\n\n\u00a0 \n\n\nWe do not use a single or fixed set of measures or objectives as part of our recruitment and talent acquisition process or human resource management.\n\n\n\u00a0 \n\n\n\u00a0\n\n\n\n\n\n\nSystem Members\n\n\n\u00a0\n\n\n\n\n\n\nAs of March 31, 2023, we employed approximately 33,100 people in the United States and approximately 2,000 in Canada with approximately 99% of these system members working within Moving and Storage and approximately 51% of these system members working on a full-time basis.\n\n\n\u00a0 \n\n\n\u00a0\n\n\n\n\n\n\nThe Company operates over 2,200 retail locations, 11 manufacturing and assembly facilities, 151 fixed-site repair facilities, a distribution center and our corporate offices.\n\n\n\u00a0 \n\n\nWe hire system members from the communities in which we are located and prefer to promote from within our team. \n\n\n\u00a0\n\n\n\n\n\n\nBenefits\n\n\n\u00a0\n\n\n\n\n\n\nWe focus on our system members\u2019 wellness over the course of their life, from physical and emotional to financial. \n\n\n\u00a0\n\n\n\n\nOur health benefit program provides medical, dental and vision benefits.\n\u00a0 \nParticipation in the health benefit program also includes access to our Healthier You wellness program that offers system members tools to enable them to live a healthier lifestyle.\n\u00a0 \nThis wellness program encompasses nutritional guidance, smoking cessation and fitness alternatives.\n\u00a0 \nWe also make available a system members assistance program focusing on mental health called You Matter, which offers counseling, work-life solutions and legal guidance.\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n5\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nWe encourage a work-life balance for our system members and their families through paid time off and various leave options as well as special benefits including a healthy pregnancy program and a 24/7 doctor-on-call program for their children.\n\n\n\u00a0\n\n\n\n\n\n\nFinancial benefits are a critical component of our system members\u2019 wellness.\n\n\n\u00a0 \n\n\nThese benefits include competitive salaries, participation in our Employee Stock Ownership Plan (\u201cESOP\u201d) and 401(k) plan, life and disability insurance, health savings accounts, and the SmartDollar\n\n\n\u00ae\n\n\n financial literacy program.\n\n\n\u00a0 \n\n\n\u00a0\n\n\n\n\n\n\nEducation and Development\n\n\n\u00a0\n\n\n\n\n\n\nThe Company encourages life-long personal and professional development for our system members.\n\n\n\u00a0 \n\n\nWe do this by offering our system members and our independent dealers free access to our on-line U-Haul University courses that are critical for the development of specialized industry knowledge and to the safety of our team.\n\n\n\u00a0 \n\n\nTo support more generalized education for our system members, we also provide a tuition reimbursement program.\n\n\n\u00a0\n\n\n\n\n\n\nCommunity\n\n\n\u00a0\n\n\n\n\n\n\nWe value our relationship with the communities in which we do business. We offer community outreach through volunteer opportunities for our system members, as well as in-kind donations of equipment, products, and services. We are a strong supporter of military members and their families by way of employment opportunities as well as partnering with military and veteran organizations to support and honor those who have served.\n\n\n\u00a0\n\n\n\n\n\n\nSales and Marketing\n\n\n\n\n\n\nWe promote U-Haul\n\n\n\u00ae\n\n\n brand awareness through direct and co-marketing arrangements. Our direct marketing activities consist of web-based initiatives, print and social media as well as trade events, movie and television cameos of our rental fleet and boxes, television commercials, and industry and consumer communications. We believe that our rental equipment is our best form of advertisement. We support our independent U-Haul\n\n\n\u00ae\n\n\n dealers through marketing U-Haul\n\n\n\u00ae\n\n\n moving and self-storage rentals, products and services.\n\n\n\n\n\n\nOur marketing plan focuses on maintaining our leadership position in the \u201cdo-it-yourself\u201d moving and storage industry by continually improving the ease of use and economy of our rental equipment, by providing added convenience to our retail centers, through independent U-Haul dealers, and by expanding the capabilities of our U-Haul\n\n\n\u00ae\n\n\n websites and U-Haul\n\n\n\u00ae\n\n\n app. \n\n\n\n\n\n\nA significant driver of rental transaction volume is our utilization of an online reservation and sales system, through uhaul.com\n\n\n\u00ae\n\n\n and our 24-hour 1-800-GO-U-HAUL telephone reservations system. These points of contact are prominently featured and are a major driver of customer lead sources.\n\n\n\n\n\n\nCompetition\n\n\n\n\n\n\nMoving and Storage Operating Segment\n\n\n\n\n\n\nThe truck rental industry is highly competitive and includes a number of significant national, regional and local competitors. Generally speaking, we consider there to be two distinct users of rental trucks: commercial and \u201cdo-it-yourself\u201d residential users. We primarily focus on the \u201cdo-it-yourself\u201d residential user. Within this segment, we believe the principal competitive factors are convenience of rental locations, availability of quality rental moving equipment, breadth of essential products and services, and total cost to the user. Our major national competitors in both the in-town and one-way moving equipment rental market include Avis Budget Group, Inc. and Penske Truck Leasing. We have numerous competitors throughout the United States and Canada who compete with us in the in-town market.\n\n\n\n\nThe self-storage market is large and fragmented. We believe the principal competitive factors in this industry are convenience of storage rental locations, cleanliness, security and price. Our largest competitors in the self-storage market are Public Storage Inc., CubeSmart, Extra Space Storage, Inc., and Life Storage, Inc.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n6\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nInsurance Operating Segments\n\n\n\n\n\n\nThe insurance industry is highly competitive. In addition, the marketplace includes financial services firms offering both insurance and financial products. Some of the insurance companies are owned by stockholders and others are owned by policyholders. Many competitors have been in business for a longer period of time or possess substantially greater financial resources and broader product portfolios than our insurance companies. We compete in the insurance business based upon price, product design, and services rendered to agents and policyholders. \n\n\n\n\n\n\nFinancial Data of Segment and Geographic Areas\n\n\n\n\n\n\nFor financial data of our segments and geographic areas please see Note 22, Financial Information by Geographic Area, and Note 22A, Consolidating Financial Information by Industry Segment, of our Notes to Consolidated Financial Statements. \n\n\n\n\n\n\nCautionary Statement Regarding Forward-Looking Statements\n\n\n\n\n\n\nThis Annual Report on Form 10-K (\u201cAnnual Report\u201d), contains \u201cforward-looking statements\u201d regarding future events and our future results of operations. We may make additional written or oral forward-looking statements from time to time in filings with the SEC or otherwise. We believe such forward-looking statements are within the meaning of the safe-harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Such statements may include, but are not limited to, the risk associated with COVID-19 or similar events on system members or customers; the impact of the economic environment on demand for our products and the cost and availability of debt and capital; estimates of capital expenditures; plans for future operations, products or services, financing needs, and strategies; our perceptions of our legal positions and anticipated outcomes of government investigations and pending litigation against us; liquidity and the availability of financial resources to meet our needs, goals and strategies; plans for new business, storage occupancy, growth rate assumptions, pricing, costs, and access to capital and leasing markets; the impact of our compliance with environmental laws and cleanup costs; our beliefs regarding our sustainability practices; our used vehicle disposition strategy; the sources and availability of funds for our rental equipment and self-storage expansion and replacement strategies and plans; our plan to expand our U-Haul\n\n\n\u00ae\n\n\n storage affiliate program; that additional leverage can be supported by our operations and business; the availability of alternative vehicle manufacturers; the availability and economics of electric vehicles for our rental fleet; our estimates of the residual values of our equipment fleet; our plans with respect to off-balance sheet arrangements; our plans to continue to invest in the U-Box\n\n\n\u00ae\n\n\n program; the impact of interest rate and foreign currency exchange rate changes on our operations; the sufficiency of our capital resources; the sufficiency of capital of our insurance subsidiaries; inflationary pressures that may challenge our ability to maintain or improve upon our operating margin; and expectations regarding the potential impact to our information technology infrastructure and on our financial performance and business operations of technology, cybersecurity or data security breaches, including any related costs, fines or lawsuits, and our ability to continue ongoing operations and safeguard the integrity of our information technology infrastructure, data, and employee, customer and vendor information, as well as assumptions relating to the foregoing. The words \u201cbelieve,\u201d \u201cexpect,\u201d \u201canticipate,\u201d \u201cplan,\u201d \u201cmay,\u201d \u201cwill,\u201d \u201ccould,\u201d \u201cestimate,\u201d \u201cproject\u201d and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. \n\n\n\n\nForward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Factors that could significantly affect results include, without limitation, the risk factors enumerated below under the heading \u201cRisk Factors\u201d and other factors described in this Annual Report or the other documents we file with the SEC. These factors, the following disclosures, as well as other statements in this Annual Report and in the Notes to Consolidated Financial Statements, could contribute to or cause such risks or uncertainties, or could cause our stock price to fluctuate dramatically. Consequently, the forward-looking statements should not be regarded as representations or warranties by us that such matters will be realized. We assume no obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise, except as required by law.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n7\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n",
+  "item1a": ">Item 1A. Risk Factors\n      \n\n\n\n\nThe following important risk factors, and those risk factors described elsewhere in this Annual Report or in our other filings with the SEC, could materially affect our business, financial condition and future results. We also refer you to the factors and cautionary language set forth in the section entitled \u201cCautionary Statements Regarding Forward-Looking Statements,\u201d above. All of the other information set forth in this Annual Report, including Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (\u201cMD&A\u201d) and the consolidated financial statements and related notes, should be read in conjunction with the discussion of such risks, cautionary statements and other factors for a full understanding of our operations and financial conditions. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. The following risks are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.\n\n\n\n\n\n\nRisks Related to our Business and Operations\n\n\n\n\n\n\nOur fleet rotation program can be adversely affected by financial market conditions.\n\n\n\n\n\n\nTo meet the needs of our customers, U-Haul maintains a large fleet of rental equipment. Our rental truck fleet rotation program is funded internally through operations and externally from debt and lease financing. Our ability to fund our routine fleet rotation program could be adversely affected if financial market conditions limit the general availability of external financing. This could lead us to operate trucks longer than initially planned and/or reduce the size of the fleet, either of which could materially and negatively affect our results of operations.\n\n\n\n\n\n\nAnother important aspect of our fleet rotation program is the sale of used rental equipment. The sale of used equipment provides us with funds that can be used to purchase new equipment. Conditions may arise that could lead to the decrease in demand and/or resale values for our used equipment. This could have a material adverse effect on our financial results, which could result in substantial losses on the sale of equipment and decreases in cash flows from the sales of equipment.\n\n\n\n\n\n\nWe obtain our rental trucks from a limited number of manufacturers.\n\n\n\n\n\n\nOver the last twenty years, we have purchased the majority of our rental trucks from Ford Motor Company and General Motors Corporation. Our fleet can be negatively affected by issues our manufacturers may face within their own supply chains. Also, it is possible that our suppliers may face financial difficulties, government regulations or organizational changes which could negatively impact their ability to accept future orders from U-Haul or fulfill existing orders. \n\n\n\n\n\n\nIn addition, the cost of acquiring new rental trucks could increase materially and negatively affect our ability to rotate new equipment into the fleet. Although we believe that we could contract with alternative manufacturers for our rental trucks, we cannot guarantee or predict how long that would take. In addition, termination of our existing relationship with these suppliers could have a material adverse effect on our business, financial condition or results of operations for an indefinite period of time.\n\n\n\n\n\n\nA significant portion of our revenues are generated through third-parties.\n\n\n\n\n\n\nOur business plan relies upon a network of independent dealers strategically located throughout the United States and Canada.\n\n\n\u00a0 \n\n\nAs of March 31, 2023 we had nearly 21,300 independent equipment rental dealers.\n\n\n\u00a0 \n\n\nIn fiscal 2023, just under half of all U-Move\n\n\n\u00ae\n\n\n rental revenue originated through this network.\n\n\n\n\n\n\nOur inability to maintain this network or its current cost structure could inhibit our ability to adequately serve our customers and could negatively affect our results of operations and financial position.\n\n\n\n\n\n\nThe introduction or expansion of laws or regulations favoring electric, autonomous, connected and shared vehicles may negatively impact our business and results of operations.\n\n\n\n\nRegulatory pressure in connection with the introduction and expansion of electric, autonomous and connected rental vehicles could negatively impact our ability to acquire, or our cost of acquisition for rental trucks and require infrastructure improvements that could inhibit our current business model.\n\u00a0\n Our Company-operated locations and independent dealer network may require physical upgrades to accommodate these types of vehicles that are uneconomical and/or unachievable.\n\u00a0\n Our one-way rental business would depend on an in-transit recharging network throughout the United States and Canada that simply does not exist today, and that, if and when completed, may be so costly or require so much charging time as to substantially limit our ability to serve customers needing to move long distances.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n8\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nWe cooperate with original equipment manufacturers (\u201cOEM\u201cs), maintain and train our own technical experts and operate an equipment Technical Center that has positioned us as an industry leader in innovation for over fifty years.\n\n\n\u00a0\n\n\n However, the proposed changes to electric, autonomous and connected vehicles raises challenges of enormous scale.\n\n\n\u00a0\n\n\nOur repair and maintenance infrastructures, including both physical plants as well as personnel, may be inappropriate for these new types of vehicles.\n\n\n\u00a0\n\n\n Without such repair and maintenance capabilities it could compromise our ability to operate a fleet of such vehicles.\n\n\n\u00a0 \n\n\nWe may also need to depend upon third party providers for some of those services, and they may not be able to provide workable solutions. There is a risk that we may not be able to adequately prepare for these possibilities. In addition, even if we successfully adapt to any such changes, there can be no guarantee that our fleet or services as adapted would meet the needs of our \u201cdo-it-yourself\u201c moving and storage customers, or that we would be able to offer our products and services at prices our customers would be willing or able to pay.\n\n\n\n\n\n\nThe growing insistence that the future of the economy will be based on an all-electric solution instead of a hybrid version or other alternative fuels may create an infrastructure in which personal interstate travel will be uneconomical or severely regulated.\n\n\n\u00a0\n\n\n This would impact the moving business.\n\n\n\u00a0\n\n\n There may be areas of North America where a charging grid with adequate capacity for our customers may not exist.\n\n\n\n\n\n\nU-Haul has already made significant progress on several initiatives aimed at these future possibilities including: TruckShare 24/7\n\n\n\u00ae\n\n\n, contactless rentals, a North American propane alternative fuel network, alternative fuel test vehicles and close OEM working relationships. However, these initiatives may not enable us to successfully adapt to the requirements of a changed regulatory environment favoring or requiring all-electric or specific alternative fuel solutions. Government regulators may knowingly or unknowingly choose the winners and losers in this evolving transportation environment.\n\n\n\u00a0\n\n\n There remains a possibility that governments may not select U-Haul customers and U-Haul to be among the winners.\n\n\n\n\n\n\nWe face liability risks associated with the operation of our rental fleet, sales of our products and operation of our locations.\n\n\n\u00a0 \n\n\n\n\n\n\nThe business of renting moving and storage equipment to customers exposes us to liability claims including property damage, personal injury and even death. Likewise, the operation of our moving and storage centers along with the sale of our related moving supplies, towing accessories and installation, and refilling of propane tanks may subject us to liability claims.\n\n\n\u00a0 \n\n\nWe seek to limit the occurrence of such events through the design of our equipment, communication of its proper use, exhaustive repair and maintenance schedules, extensive training of our personnel, proactive risk management assessments and by providing our customers with online resources for the proper use of products and services.\n\n\n\u00a0 \n\n\nRegardless, accidents still occur and we manage the financial risk of these events through third party insurance carriers. While these excess loss and property insurance policies are available today at reasonable costs, this could change and could negatively affect our results of operations and financial position.\n\n\n\n\n\n\nWe are highly dependent upon our automated systems and the Internet for managing our business.\n\n\n\n\n\n\nOur information systems are largely Internet-based, including our point-of-sale reservation system, payment processing and telephone systems.\n\n\n\u00a0 \n\n\nWhile our reliance on this technology lowers our cost of providing service and expands our abilities to better serve customers, it exposes us to various risks including natural and man-made disasters, terrorist attacks and cyber-attacks.\n\n\n\u00a0 \n\n\nWe have put into place extensive security protocols, backup systems and alternative procedures to mitigate these risks.\n\n\n\u00a0 \n\n\nHowever, disruptions or breaches, detected or undetected by us, for any period of time in any portion of these systems could adversely affect our results of operations and financial condition and inflict reputational damage. \n\n\n\n\nIn addition, the provision of service to our customers and the operation of our networks and systems involve the storage and transmission of proprietary information and sensitive or confidential data, including personal information of customers, system members and others. Our information technology systems may be susceptible to computer viruses, attacks by computer hackers, malicious insiders, or catastrophic events. Hackers, acting individually or in coordinated groups, may also launch distributed denial of service attacks or ransom or other coordinated attacks that may cause service outages or other interruptions in our business and access to our data.\n\u00a0\n In addition, breaches in security could expose us, our customers, or the individuals affected, to a risk of loss or misuse of proprietary information and sensitive or confidential data. The techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, may be difficult to detect for a long time and often are not\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n9\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nrecognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures. \n\n\n\n\n\n\nAny of these occurrences could result in disruptions in our operations, the loss of existing or potential customers, damage to our brand and reputation, and litigation and potential liability for the Company. In addition, the cost and operational consequences of implementing further data or system protection measures could be significant and our efforts to deter, identify, mitigate and/or eliminate any security breaches may not be successful.\n\n\n\n\n\n\nIn 2022 and 2021, we experienced a cybersecurity incident which is described in this Annual Report under the headings \u201cItem 7 Management\u2019s Discussion and Analysis of Financial Condition and Results of Operation \u2013 Cybersecurity Incident\u201d.\n\n\n\n\n\n\nWe may incur losses due to our reinsurers\u2019 or counterparties\u2019 failure to perform under existing contracts or we may be unable to secure sufficient reinsurance or hedging protection in the future.\n\n\n\n\n\n\nWe use reinsurance and derivative contracts to mitigate our risk of loss in various circumstances. These agreements do not release us from our primary obligations and therefore we remain ultimately responsible for these potential costs. We cannot provide assurance that these reinsurers or counterparties will fulfill their obligations. Their inability or unwillingness to make payments to us under the terms of the contracts may have a material adverse effect on our financial condition and results of operations.\n\n\n\n\n\n\nAs of December 31, 2022, Repwest reported $0.4 million of reinsurance recoverables, net of allowances and $41.3 million of reserves and liabilities ceded to reinsurers. Of this, Repwest\u2019s largest exposure to a single reinsurer was $26.3 million.\n\n\n\n\n\n\nRisks Related to our Industry\n\n\n\n\n\n\nWe operate in a highly competitive industry.\n\n\n\n\n\n\nThe truck rental industry is highly competitive and includes a number of significant national, regional and local competitors, many of which are several times larger than U-Haul. We believe the principal competitive factors in this industry are convenience of rental locations, availability of quality rental moving equipment, breadth of essential services and products and total cost. Financial results for the Company can be adversely impacted by aggressive pricing from our competitors. Some of our competitors may have greater financial resources than we have. We cannot assure you that we will be able to maintain existing rental prices or implement price increases. Moreover, if our competitors reduce prices and we are not able or willing to do so as well, we may lose rental volume, which would likely have a materially adverse effect on our results of operations. Numerous potential competitors are working to establish paradigm shifting technologies from self-driving vehicles to ride-hailing services and other technologies that connect riders with vehicles.\n\n\n\n\nThe self-storage industry is large and highly fragmented. We believe the principal competitive factors in this industry are convenience of storage rental locations, cleanliness, security and price. Competition in the market areas in which we operate is significant and affects the occupancy levels, rental rates and operating expenses of our facilities. Competition might cause us to experience a decrease in occupancy levels, limit our ability to raise rental rates or require us to offer discounted rates that would have a material effect on results of operations and financial condition. Entry into the self-storage business may be accomplished through the acquisition of existing facilities by persons or institutions with the required initial capital. Development of new self-storage facilities is more difficult however, due to land use, zoning, environmental and other regulatory requirements. The self-storage industry has in the past experienced overbuilding in response to perceived increases in demand. Consolidation of ownership is taking place with certain owners of self-storage. We cannot assure you that we will be able to successfully compete in existing markets or expand into new markets. \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n10\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nEconomic conditions, including those related to the credit markets, interest rates and inflation, may adversely affect our industry, business and results of operations.\n\n\n\n\n\n\nConsumer and commercial spending is generally affected by the health of the economy, which places some of the factors affecting the success of our business beyond our control. Our businesses, although not as traditionally cyclical as some, could experience significant downturns in connection with or in anticipation of, declines in general economic conditions. In times of declining consumer spending we may be driven, along with our competitors, to reduce pricing, which would have a negative impact on gross profit.\n\n\n\u00a0 \n\n\nWe cannot predict if another downturn in the economy will occur, which could result in reduced revenues and working capital.\n\n\n\n\n\n\nTrends in the economy are resulting in inflationary pressures leading to an increase in our cost of doing business. We cannot guarantee that we can manage the costs lower or pass them along in the form of higher prices to our customers.\n\n\n\n\n\n\nShould credit markets in the United States tighten or if interest rates increase significantly, we may not be able to refinance existing debt or find additional financing on favorable terms, if at all.\n\n\n\u00a0 \n\n\nIf one or more of the financial institutions that support our existing credit facilities fails or opts not to continue to lend to us, we may not be able to find a replacement, which would negatively impact our ability to borrow under credit facilities.\n\n\n\u00a0 \n\n\nIf our operating results were to worsen significantly and our cash flows or capital resources prove inadequate, or if interest rates increase significantly, we could face liquidity problems that could materially and adversely affect our results of operations and financial condition.\n\n\n\n\n\n\nA.M. Best financial strength ratings are crucial to our life insurance business.\n\n\n\n\n\n\nIn August 2022, A.M. Best affirmed the financial strength rating (\u201cFSR\u201d) for Oxford and Christian Fidelity Life Insurance Company (\u201cCFLIC\u201d) of A. The FSR outlook remains stable. In addition, A.M. Best affirmed the long-term issuer credit rating (\u201cLTICR\u201d) of \u201ca\u201d. The LTICR outlook of these ratings is stable. Financial strength ratings are important external factors that can affect the success of Oxford\u2019s business plans. Accordingly, if Oxford\u2019s ratings, relative to its competitors, are not maintained or do not continue to improve, Oxford may not be able to retain and attract business as currently planned, which could adversely affect our results of operations and financial condition.\n\n\n\n\n\n\nRisks Related to our Financings\n\n\n\n\n\n\nWe are highly leveraged.\n\n\n\n\n\n\nAs of March 31, 2023, we had total debt outstanding of $6,143.4 million and operating lease liabilities of $58.4 million. Although we believe, based on existing information, that additional leverage can be supported by our operations and revenues, our existing debt could impact us in the following ways among other considerations: \n\n\n\n\n\n\n\n\nrequire us to allocate a considerable portion of cash flows from operations to debt service and lease payments;\n\n\n\n\n\n\nlimit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;\n\n\n\n\n\n\nlimit our ability to obtain additional financing; and\n\n\n\n\n\n\nplace us at a disadvantage compared to our competitors who may have less debt.\n\n\n\n\n\n\nOur ability to make payments on our debt and leases depends upon our ability to maintain and improve our operating performance and generate cash flow. To some extent, this is subject to prevailing economic and competitive conditions and to certain financial, business and other factors, some of which are beyond our control. If we are unable to generate sufficient cash flow from operations to service our debt and meet our other cash needs, including our leases, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness and leases. If we must sell our assets, it may negatively affect our ability to generate revenue. In addition, we may incur additional debt or leases that would exacerbate the risks associated with our indebtedness.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n11\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nRisks Related to our Organization\n\n\n\n\n\n\nA majority of our Voting Common Stock is owned by a small contingent of stockholders.\n\n\n\n\n\n\nWillow Grove Holdings LP, directly and through controlled entities (\u201cWGHLP\u201d), owns 9,791,911 shares of our common stock, $0.25 par value per share (\u201cVoting Common Stock\u201d), and together with Edward J. Shoen and Mark V. Shoen, owns 9,828,542 shares (approximately 50.1%) of Voting Common Stock. The general partner of WGHLP controls the voting and disposition decisions with respect to the Voting Common Stock owned by WGHLP, and is managed by Edward J. Shoen (the Chairman of the Board of Directors and Chief Executive Officer of U-Haul Holding Company) and his brother, Mark V. Shoen. Accordingly, Edward J. Shoen and Mark V. Shoen are in a position to significantly influence our business and policies, including the approval of certain significant transactions, the election of the members of our board of directors (the \u201cBoard\u201d) and other matters submitted to our stockholders. There can be no assurance that their interests will not conflict with the interests of our other stockholders. \n\n\n\n\n\n\nFurthermore, we are a \u201ccontrolled company\u201d within the meaning of the New York Stock Exchange corporate governance standards. \n\n\nUnder these corporate governance standards, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a \u201c\n\n\n\u00a0\n\n\ncontrolled company\n\n\n\u00a0\n\n\n\u201d and may elect not to comply with certain corporate governance standards, including the requirements (1) that a majority of our Board consist of independent directors, (2) that our Board have a compensation committee that consists entirely of independent directors with a written charter addressing the committee\u2019s purpose and responsibilities, and (3) that our director nominations be made, or recommended to our full Board, by our independent directors or by a nominations committee that consists entirely of independent directors and that we adopt a written charter or board resolution addressing the nomination process. The Company has not made any election relating to compliance with any of these corporate governance standards.\n\n\n \n\n\n\n\n\n\nIn addition, 836,228 shares (approximately 4.3%) of our Voting Common Stock are owned under our ESOP.\n\n\n\u00a0 \n\n\nEach ESOP participant is entitled to vote the shares allocated to himself or herself in their discretion.\n\n\n\u00a0 \n\n\nIn the event an ESOP participant does not vote his or her shares, such shares shall be voted by the ESOP trustee, in the ESOP trustee\u2019s discretion.\n\n\n\u00a0 \n\n\n\n\n\n\nThe trading price for our outstanding Voting Common Stock may continue to be volatile and the trading price for our newly distributed Series N Non-Voting Common Stock may also be volatile.\n\n\n\n\n\n\nAn Independent Special Committee of the Board authorized the creation of a new Series of Common Stock, designated as Series N Non-Voting Common Stock, par value of $0.001 per share (the \u201cNon-Voting Common Stock\u201d). This series of stock is in addition to our pre-existing class of Voting Common Stock. On November 9, 2022, each holder of our Voting Common Stock as of November 3, 2022 received nine shares of Non-Voting Common Stock for every outstanding share of Voting Common Stock through a stock dividend.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nThe Non-Voting Common Stock is listed on the New York Stock Exchange, and we cannot predict whether, or to what extent, a liquid trading market will develop long-term for the Non-Voting Common Stock. If a liquid trading market does not develop or if the Non-Voting Common Stock is not attractive to retail investors, including team members and customers of the Company, we may not achieve our objectives in creating this new class.\n\n\n\n\n\n\nThe trading price of our stock has at times experienced substantial price volatility and may continue to be volatile, including as a result of the distribution of shares of Non-Voting Common Stock. The market prices of our two series of stock and the allocation of value between the two may be volatile and their respective values may decline. The trading price of our Voting Common Stock and Non-Voting Common Stock may fluctuate widely in response to various factors, some of which are beyond our control. These factors include, among others:\n\n\n\n\n\n\n\n\n\u2022\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \n\n\n\n\nQuarterly variations in our results of operations or those of our competitors.\n\n\n\n\n\n\n\n\n\u2022\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \n\n\n\n\nAnnouncements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships, or capital commitments.\n\n\n\n\n\n\n\n\n\u2022\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \n\n\n\n\nRecommendations by securities analysts or changes in earnings estimates.\n\n\n\n\n\n\n\n\n\u2022\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \n\n\n\n\nAnnouncements about our earnings that are not in line with analyst expectations.\n\n\n\n\n\n\n\n\n\u2022\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \n\n\nAnnouncements by our competitors of their earnings that are not in line with analyst expectations.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n12\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \n\n\n\n\nCommentary by industry and market professionals about our products, strategies, and other matters affecting our business and results, regardless of its accuracy.\n\n\n\n\n\n\n\n\n\u2022\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \n\n\n\n\nThe volume of shares of Voting Common Stock and Non-Voting Common Stock available for public sale.\n\n\n\n\n\n\n\n\n\u2022\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \n\n\n\n\nSales of Voting Common Stock and Non-Voting Common Stock by us or by our stockholders (including sales by our directors, executive officers, and other employees).\n\n\n\n\n\n\n\n\n\u2022\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \n\n\n\n\nShort sales, hedging, and other derivative transactions on shares of our Voting Common Stock and Non-Voting Common Stock.\n\n\n\n\n\n\n\n\n\u2022\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \n\n\n\n\nThe perceived values of Voting Common Stock and Non-Voting Common Stock relative to one another.\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nRisks Related to Legal, Regulatory and Compliance\n\n\n\n\n\n\nOur operations subject us to numerous environmental laws and regulations and the possibility that environmental liability in the future could adversely affect our operations.\n\n\n\n\n\n\nCompliance with environmental requirements of federal, state, provincial and local governments in the United States and Canada affects our business. Among other things, these requirements regulate the discharge of materials into the air, land and water and govern the use and disposal of hazardous substances. Under environmental laws or common law principles, we can be held liable for hazardous substances that are found on real property we have owned or operated. We are aware of issues regarding hazardous substances on some of our real estate and we have put in place a remediation plan at each site where we believe such a plan is necessary. See Note 19, Contingencies, of the Notes to Consolidated Financial Statements. We regularly make capital and operating expenditures to stay in compliance with environmental laws. In particular, we have managed a testing and removal program since 1988 for our underground storage tanks.\n\n\n\u00a0 \n\n\nDespite these compliance efforts, the risk of environmental liability is part of the nature of our business. \n\n\n\n\n\n\nEnvironmental laws and regulations are complex, change frequently and could become more stringent in the future. We cannot assure you that future compliance with these laws and regulations, future environmental liabilities, the cost of defending environmental claims, conducting any environmental remediation or generally resolving liabilities caused by us or related third parties will not have a material adverse effect on our business, financial condition or results of operations.\n\n\n\n\n\n\nWe operate in a highly regulated industry and changes in existing laws and regulations or violations of existing or future laws and regulations could have a material adverse effect on our operations and profitability.\n\n\n\n\n\n\nOur truck, trailer and U-Box rental business is subject to regulation by various federal, state and provincial governmental entities in the United States and Canada. Specifically, the U.S. Department of Transportation and various state, federal and Canadian agencies exercise broad powers over our motor carrier operations, safety, and the generation, handling, storage, treatment and disposal of waste materials. In addition, our storage business is also subject to federal, state, provincial and local laws and regulations relating to environmental protection and human health and safety, among other matters. The failure to comply with these laws and regulations may adversely affect our ability to sell or rent such property or to use the property as collateral for future borrowings. Compliance with changing laws and regulations could substantially impair real property and equipment productivity and increase our costs. \n\n\n\n\n\n\nIn addition, the federal government may institute some regulation that limits carbon emissions by setting a maximum amount of carbon individual entities can emit without penalty. This would likely affect everyone who uses fossil fuels and would disproportionately affect users in the highway transportation industries. While there are too many variables at this time to assess the impact of the various proposed federal and state regulations that could affect carbon emissions, many experts believe these proposed rules could significantly affect the way companies operate in their businesses.\n\n\n\n\nThe Biden administration has also communicated its willingness to consider the imposition of carbon-based taxes.\n\u00a0\n Our truck rental fleet burns gasoline, a carbon intensive fuel.\n\u00a0\n Where in the supply chain and in what amount these taxes could arise is uncertain.\n\u00a0\n We have no evidence to support a belief that \u201cdo-it-yourself\u201d moving customers are willing to accept these additional costs.\n\u00a0\n Should such a tax be enacted, we could see an increase in expenses, including compliance costs and a negative effect on our operating margin.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n13\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nOur operations can be limited by land-use regulations. Zoning choices enacted by individual municipalities in the United States and Canada may limit our ability to serve certain markets with our products and services.\n\n\n\n\n\n\nOur insurance companies are heavily regulated by state insurance departments and the National Association of Insurance Commissioners. These insurance regulations are primarily in place to protect the interests of our policyholders and not our investors. Changes in these laws and regulations could increase our costs, inhibit new sales, or limit our ability to implement rate increases.\n\n\n\n\n\n\nRecent changes to U.S. tax laws may adversely affect our financial condition or results of operations and create the risk that we may need to adjust our accounting for these changes.\n\n\n\n\n\n\nThe Tax Cuts and Jobs Act (\u201cTax Reform Act\u201d) and the Coronavirus Aid, Relief and Economic Security Act (\u201cCARES Act\u201d) made significant changes to U.S. tax laws and includes numerous provisions that affect businesses, including ours.\n\n\n\u00a0 \n\n\nFor instance, as a result of lower corporate tax rates, the Tax Reform Act tends to reduce both the value of deferred tax assets and the amount of deferred tax liabilities.\n\n\n\u00a0 \n\n\nIt also limits interest expense deductions and the amount of net operating losses that can be used each year and alters the expensing of capital expenditures. Other provisions have international tax consequences for businesses like ours that operate internationally. The CARES Act allows for the carryback of certain net operating losses. The Tax Reform Act is unclear in certain respects and will require interpretations and implementing regulations by the Internal Revenue Service (\u201cIRS\u201d), as well as state tax authorities, and the Tax Reform Act and CARES Act could be subject to amendments and technical corrections, any of which could lessen or increase the adverse (and positive) impacts of these acts. The Tax Reform Act put into place 100% first year bonus depreciation. This decreased to 80% starting in 2023 and will continue to gradually decrease in future years and will impact our tax liability. The accounting treatment of these tax law changes was complex, and some of the changes affected both current and future periods.\n\n\n\u00a0 \n\n\nOthers primarily affected future periods.\n\n\n\u00a0 \n\n\nAdditional changes to the U.S. tax code could negatively offset operating cashflows.\n\n\n\n\n\n\nChanges to tax policy, corporate tax rates or interpretations of existing tax law could change our effective tax rate, reduce future expected tax deductions and increase current and future federal income tax payments.\n\n\n\u00a0 \n\n\nCongress and the Biden administration have proposed increases to the current U.S. corporate income tax rate of 21%.\n\n\n\u00a0 \n\n\nAny such changes could adversely impact our financial position and results of operations.\n\n\n\n\n\n\nGeneral Risk Factors\n\n\n\n\n\n\nTerrorist attacks could negatively impact our operations and profitability and may expose us to liability and reputational damage.\n\n\n\n\n\n\nTerrorist attacks may negatively affect our operations and profitability.\n\n\n\u00a0 \n\n\nSuch attacks may damage our facilities and it is also possible that our rental equipment could be involved in a terrorist attack.\n\n\n\u00a0 \n\n\nAlthough we carry excess of loss insurance coverage, it may prove to be insufficient to cover us for acts of terror using our rental equipment.\n\n\n\u00a0 \n\n\nMoreover, we may suffer reputational damage that could arise from a terrorist attack which utilizes our rental equipment. The consequences of any terrorist attacks or hostilities are unpredictable and difficult to quantify.\n\n\n\u00a0 \n\n\nWe seek to minimize these risks through our operational processes and procedures; however, we may not be able to foresee events that could have an adverse effect on our operations.\n\n\n\n\n\n",
+  "item7": ">Item 7.Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n      \n\n\n\n\nWe begin this MD&A with the overall strategy of U-Haul Holding Company, followed by a description of, and strategy related to, our operating segments to give the reader an overview of the goals of our businesses and the direction in which our businesses and products are moving. We then discuss our critical accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. Next, we discuss our results of operations for fiscal 2023 compared with fiscal 2022, which are followed by an analysis of liquidity changes in our balance sheets and cash flows, and a discussion of our financial commitments in the sections entitled Liquidity and Capital Resources and Disclosures about Contractual Obligations and Commercial Commitments. The discussion of our financial condition and results of operations for the year ended March 31, 2021 included in Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2022 is incorporated by reference into this MD&A. We conclude this MD&A by discussing our outlook for fiscal 2024.\n\n\n\n\n\n\nThis MD&A should be read in conjunction with the other sections of this Annual Report, including Item 1: Business and Item 8: Financial Statements and Supplementary Data. The various sections of this MD&A contain a number of forward-looking statements, as discussed under the caption, Cautionary Statements Regarding Forward-Looking Statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report and particularly under the section Item 1A: Risk Factors. Our actual results may differ materially from these forward-looking statements.\n\n\n\n\n\n\nU-Haul Holding Company has a fiscal year that ends on the 31\n\n\nst\n\n\n of March for each year that is referenced. Our insurance company subsidiaries have fiscal years that end on the 31\n\n\nst\n\n\n of December for each year that is referenced. They have been consolidated on that basis. Our insurance companies\u2019 financial reporting processes conform to calendar year reporting as required by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the presentation of financial position or results of operations. We disclose all material events, if any, occurring during the intervening period. Consequently, all references to our insurance subsidiaries\u2019 years 2022, 2021 and 2020 correspond to fiscal 2023, 2022 and 2021 for U-Haul Holding Company. \n\n\n\n\n\n\nOverall Strategy\n\n\n\n\n\n\nOur overall strategy is to maintain our leadership position in the North American \u201cdo-it-yourself\u201d moving and storage industry. We accomplish this by providing a seamless and integrated supply chain to the \u201cdo-it-yourself\u201d moving and storage market. As part of executing this strategy, we leverage the brand recognition of U-Haul\n\n\n \n\n\nwith our full line of moving and self-storage related products and services and the convenience of our broad geographic presence.\n\n\n\n\n\n\nOur primary focus is to provide our customers with a wide selection of moving rental equipment, convenient self-storage rental facilities and portable moving and storage units and related moving and self-storage products and services. We are able to expand our distribution and improve customer service by increasing the amount of moving equipment and storage units and portable moving and storage units available for rent, expanding the number of independent dealers in our network and expanding and taking advantage of our Storage Affiliate and Moving Help\n\n\n\u00ae\n\n\n capabilities.\n\n\n\n\n\n\nProperty and Casualty Insurance is focused on providing and administering property and casualty insurance to U-Haul and its customers, its independent dealers and affiliates.\n\n\n\u00a0 \n\n\n\n\n\n\nLife Insurance is focused on long-term capital growth through direct writing and reinsuring of life, Medicare supplement and annuity products in the senior marketplace. \n\n\n\n\n\n\nDescription of Operating Segments\n\n\n\n\n\n\nU-Haul Holding Company\u2019s three reportable segments are:\n\n\n\n\n\n\n\n\nMoving and Storage, comprised of U-Haul Holding Company, U-Haul, and Real Estate and the subsidiaries of U-Haul and Real Estate;\n\n\n\n\n\n\nProperty and Casualty Insurance, comprised of Repwest and its subsidiaries and ARCOA; and\n\n\n\n\nLife Insurance, comprised of Oxford and its subsidiaries.\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n17\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nSee Note 1, Basis of Presentation, Note 22, Financial Information by Geographic Area, and Note 22A, Consolidating Financial Information by Industry Segment, of the Notes to Consolidated Financial Statements included in Item 8: Financial Statements and Supplementary Data, of this Annual Report.\n\n\n\n\n\n\nMoving and Storage Operating Segment\n\n\n\n\n\n\nMoving and Storage consists of the rental of trucks, trailers, portable moving and storage units, specialty rental items and self-storage spaces primarily to the household mover as well as sales of moving supplies, towing accessories and propane. Operations are conducted under the registered trade name U-Haul\n\n\n\u00ae\n\n\n throughout the United States and Canada.\n\n\n\n\n\n\nWith respect to our truck, trailer, specialty rental items and self-storage rental business, we are focused on expanding our dealer network, which provides added convenience for our customers and expanding the selection and availability of rental equipment to satisfy the needs of our customers.\n\n\n\n\n\n\nU-Haul\n\n\n\u00ae\n\n\n branded self-moving related products and services, such as boxes, pads and tape allow our customers to, among other things, protect their belongings from potential damage during the moving process. We are committed to providing a complete line of products selected with the \u201cdo-it-yourself\u201d moving and storage customer in mind.\n\n\n\n\n\n\nuhaul.com\n\n\n\u00ae\n\n\n is an online marketplace that connects consumers to our operations as well as independent Moving Help\n\n\n\u00ae\n\n\n service providers and thousands of independent Self-Storage Affiliates. Our network of customer-rated affiliates and service providers furnish pack and load help, cleaning help, self-storage and similar services throughout the United States and Canada. Our goal is to further utilize our web-based technology platform to increase service to consumers and businesses in the moving and storage market.\n\n\n\n\n\n\nU-Haul\u2019s mobile app, Truck Share 24/7, Skip-the-Counter Self-Storage rentals and Self-checkout for moving supplies provide our customers methods for conducting business with us directly via their mobile devices and also limiting physical exposure.\n\n\n\n\n\n\nSince 1945, U-Haul has incorporated sustainable practices into its everyday operations. We believe that our basic business premise of equipment sharing helps reduce greenhouse gas emissions and reduces the inventory of total large capacity vehicles. We continue to look for ways to reduce waste within our business and are dedicated to manufacturing reusable components and recyclable products. We believe that our commitment to sustainability, through our products and services and everyday operations has helped us to reduce our impact on the environment.\n\n\n\n\n\n\nProperty and Casualty Insurance Operating Segment\n\n\n\n\n\n\nProperty and Casualty Insurance provides loss adjusting and claims handling for U-Haul through regional offices in the United States and Canada. Property and Casualty Insurance also underwrites components of the Safemove\n\n\n\u00ae\n\n\n, Safetow\n\n\n\u00ae\n\n\n, Safemove Plus\n\n\n\u00ae\n\n\n,\n\n\n \n\n\nSafestor\n\n\n\u00ae\n\n\n and Safestor Mobile\n\n\n\u00ae\n\n\n \n\n\nprotection packages to U-Haul\n\n\n\u00ae\n\n\n customers. We continue to focus on increasing the penetration of these products into the moving and storage market. The business plan for Property and Casualty Insurance includes offering property and casualty products in other U-Haul\n\n\n\u00ae\n\n\n \n\n\nrelated programs. \n\n\n\n\n\n\nLife Insurance Operating Segment\n\n\n\n\n\n\nLife Insurance provides life and health insurance products primarily to the senior market through the direct writing and reinsuring of life insurance, Medicare supplement and annuity policies. \n\n\n\n\n\n\nCybersecurity Incident\n\n\n\n\nOn September 9, 2022, we announced that the Company was made aware of a data security incident involving U-Haul\u2018s information technology network. U-Haul detected a compromise of two unique passwords used to access U-Haul customers information. U-Haul took immediate steps to contain the incident and promptly enhanced its security measures to prevent any further unauthorized access. U-Haul retained cybersecurity experts and incident response counsel to investigate the incident and implement additional security safeguards. The investigation determined that between November 5, 2021 and April 8, 2022, the threat actor accessed customer contracts containing customers\u2019 names, dates of birth, and driver\u2019s license or state identification numbers. None of U-Haul\u2019s financial, payment processing or email systems were involved. U-Haul has notified impacted customers and relevant governmental authorities. \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n18\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nSeveral class action lawsuits related to the incident have been filed against U-Haul. The lawsuits have been consolidated into one action in the U.S. District Court for the District of Arizona and will be vigorously defended by the Company; however the outcome of such lawsuits cannot be predicted or guaranteed with any certainty.\n\n\n\n\n\n\nCritical Accounting Estimates\n\n\n\n\n\n\nOur financial statements have been prepared in accordance with the generally accepted accounting principles (\u201cGAAP\u201d) in the United States. The methods, estimates and judgments we use in applying our accounting policies can have a significant impact on the results we report in our financial statements. Note 3, Accounting Policies, of the Notes to Consolidated Financial Statements in Item 8: Financial Statements and Supplementary Data, in this Annual Report summarizes the significant accounting policies and methods used in the preparation of our consolidated financial statements and related disclosures. Certain accounting policies require us to make difficult and subjective judgments and assumptions, often as a result of the need to estimate matters that are inherently uncertain.\n\n\n\n\n\n\nFollowing is a detailed description of the accounting estimates that we deem most critical to us and that require management\u2019s most difficult and subjective judgments. These estimates are based on historical experience, observance of trends in particular areas, information and valuations available from outside sources and on various other assumptions that are believed to be reasonable under the circumstances and which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions and conditions, and such differences may be material.\n\n\n\n\n\n\nWe also have other policies that we consider key accounting policies, such as revenue recognition; however, these policies do not meet the definition of critical accounting estimates, because they do not generally require us to make estimates or judgments that are difficult or subjective. The accounting estimates that we deem most critical to us, and involve the most difficult, subjective or complex judgments include the following:\n\n\n\n\n\n\nRecoverability of Property, Plant and Equipment\n\n\n\n\n\n\nOur property, plant and equipment is stated at cost. We regularly perform reviews to determine whether facts and circumstances exist, which indicate that the carrying amount of assets, including estimates of residual value, may not be recoverable or that the useful life of assets are shorter or longer than originally estimated. Reductions in residual values (i.e., the price at which we ultimately expect to dispose of revenue earning equipment) or useful lives will result in an increase in depreciation expense over the remaining life of the equipment. Reviews are performed based on vehicle class, generally subcategories of trucks and trailers. We assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining lives against their respective carrying amounts. We consider factors such as current and expected future market price trends on used vehicles and the expected life of vehicles included in the fleet. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. If asset residual values are determined to be recoverable, but the useful lives are shorter or longer than originally estimated, then the net book value of the assets is depreciated over the newly determined remaining useful lives.\n\n\n\n\n\n\nInsurance Reserves\n\n\n\n\nLiabilities for future policy benefits related to life insurance, Medicare supplement insurance, and deferred annuities are determined by management utilizing the net premium valuation methodology and are accrued when premium revenue is recognized. The liability, which represents the present value of future benefits to be paid to policyholders and related expenses less the present value of future net premiums, is estimated using assumptions applicable at the time the insurance contracts are written, with provisions for the risk of adverse deviation, as appropriate. Assumptions include expected mortality and morbidity experience, policy lapses and surrenders, current asset yields and expenses, and expected interest rate yields. The Company periodically performs a gross premium valuation and reviews original assumptions, including capitalized expenses which reduce the gross premium valuation, to evaluate whether the assets and liabilities are adequate and whether a loss reserve should be recognized.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n19\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nInsurance reserves for Property and Casualty Insurance and U-Haul take into account losses incurred based upon actuarial estimates and are management\u2019s best approximation of future payments.\n\n\n\u00a0 \n\n\nThese estimates are based upon past claims experience and current claim trends as well as social and economic conditions such as changes in legal theories and inflation.\n\n\n\u00a0 \n\n\nThese reserves consist of case reserves for reported losses and a provision for incurred but not reported (\u201cIBNR\u201d) losses, both reduced by applicable reinsurance recoverables, resulting in a net liability.\n\n\n\n\n\n\nDue to the nature of the underlying risks and high degree of uncertainty associated with the determination of the liability for future policy benefits and claims, the amounts to be ultimately paid to settle these liabilities cannot be precisely determined and may vary significantly from the estimated liability, especially for long-tailed casualty lines of business such as excess workers\u2019 compensation.\n\n\n\u00a0 \n\n\nAs a result of the long-tailed nature of the excess workers\u2019 compensation policies written by Repwest from 1983 through 2001, it may take a number of years for claims to be fully reported and finally settled.\n\n\n\n\n\n\nOn a regular basis, insurance reserve adequacy is reviewed by management to determine if existing assumptions need to be updated. In determining the assumptions for calculating workers\u2019 compensation reserves, management considers multiple factors including the following:\n\n\n\n\n\n\n\n\nClaimant longevity,\n\n\n\n\n\n\nCost trends associated with claimant treatments,\n\n\n\n\n\n\nChanges in ceding entity and third party administrator reporting practices,\n\n\n\n\n\n\nChanges in environmental factors, including legal and regulatory,\n\n\n\n\n\n\nCurrent conditions affecting claim settlements, and\n\n\n\n\n\n\nFuture economic conditions, including inflation.\n\n\n\n\n\n\n\n\nWe have reserved each claim based upon the accumulation of current claim costs projected through each claimant\u2019s life expectancy, and then adjusted for applicable reinsurance arrangements.\n\n\n\u00a0 \n\n\nManagement reviews each claim bi-annually or more frequently, if there are changes in facts or circumstances to determine if the estimated life-time claim costs have increased and then adjusts the reserve estimate accordingly at that time.\n\n\n\u00a0 \n\n\nWe have factored in an estimate of what the potential cost increases could be in our IBNR liability.\n\n\n\u00a0 \n\n\nWe have not assumed settlement of the existing claims in calculating the reserve amount, unless it is in the final stages of completion.\n\n\n\n\n\n\nContinued increases in claim costs, including medical inflation and new treatments and medications could lead to future adverse development resulting in additional reserve strengthening.\n\n\n\u00a0 \n\n\nConversely, settlement of existing claims or if injured workers return to work or expire prematurely, could lead to future positive development.\n\n\n\n\n\n\nImpairment of Investments\n\n\n\n\n\n\nUnder the current expected credit loss model, a valuation allowance is recognized in earnings for credit losses. If we intend to sell a debt security, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, the debt security is written down to its fair value and the write down is charged against the allowance for credit losses, with any incremental impairment reported in\n\n\n \n\n\nearnings. Reversals of the allowance for credit losses are\n\n\n \n\n\npermitted and should not exceed the allowance amount initially recognized.\n\n\n\n\n\n\nThere was a $2.0 million net impairment charge recorded in fiscal 2023.\n\n\n\n\n\n\nIncome Taxes\n\n\n\n\n\n\nWe file a consolidated tax return with all of our legal subsidiaries.\n\n\n\n\n\n\nOur tax returns are periodically reviewed by various taxing authorities. The final outcome of these audits may cause changes that could materially impact our financial results. Please see Note 14, Provision for Taxes, of the Notes to Consolidated Financial Statements included in Item 8: Financial Statements and Supplementary Data, of this Annual Report for more information.\n\n\n\n\n\n\nRecent Accounting Pronouncements\n\n\n\n\nPlease see Note 3, Accounting Policies, of the Notes to Consolidated Financial Statements included in Item 8: Financial Statements and Supplementary Data, of this Annual Report for more information.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n20\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nResults of Operations\n\n\n\n\n\n\nU-Haul Holding Company and Consolidated Subsidiaries\n\n\n\n\n\n\nFiscal 2023 Compared with Fiscal 2022\n\n\n\n\n\n\nListed below, on a consolidated basis, are revenues for our major product lines for fiscal 2023 and fiscal 2022:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nYear Ended March 31,\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2023\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2022\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(In thousands)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSelf-moving equipment rentals\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n3,877,917\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n3,958,807\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSelf-storage revenues\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n744,492\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n617,120\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSelf-moving and self-storage products and service sales\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n357,286\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n351,447\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nProperty management fees\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n37,073\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n35,194\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nLife insurance premiums\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n99,149\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n111,027\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nProperty and casualty insurance premiums\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n93,209\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n86,518\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet investment and interest income\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n176,679\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n148,261\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nOther revenue\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n478,886\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n431,373\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nConsolidated revenue\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n5,864,691\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n5,739,747\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSelf-moving equipment rental revenues decreased $80.9 million during fiscal 2023, compared with fiscal 2022. Transactions, revenue and average miles driven per transaction decreased.\n\n\n\u00a0 \n\n\nThese declines were more pronounced in our one-way markets.\n\n\n\u00a0 \n\n\nCompared to the same period last year, we increased the number of retail locations, independent dealers, trucks, and trailers in the rental fleet.\n\n\n\n\n\n\nSelf-storage revenues increased $127.4 million during fiscal 2023, compared with fiscal 2022.\n\n\n\u00a0 \n\n\nThe average monthly number of occupied units increased by 14%, or 63,800 units during fiscal 2023 compared with the same period last year.\n\n\n\u00a0 \n\n\nOver the course of the fiscal year our average revenue per occupied square foot increased 9%.\n\n\n\u00a0 \n\n\nDuring fiscal 2023, we added approximately 6.0 million net rentable square feet, a 13% increase compared to fiscal 2022 additions.\n\n\n\u00a0 \n\n\nThis additional capacity consisted of approximately 1.1 million square feet of existing self-storage acquired along with 4.9 million square feet of new development.\n\n\n\n\n\n\nSales of self-moving and self-storage products and services increased $5.8 million during fiscal 2023, compared with fiscal 2022, primarily due to increased hitch and propane sales partially offset by a 1% decrease in the sales of moving supplies.\n\n\n\n\n\n\nLife insurance premiums decreased $11.9 million during fiscal 2023, compared with fiscal 2022 primarily due to decreased sales of single premium life products and policy decrements in Medicare supplement.\n\n\n\n\n\n\nProperty and casualty insurance premiums increased $6.7 million during fiscal 2023, compared with fiscal 2022. A significant portion of Repwest\u2019s premiums are from policies sold in conjunction with U-Haul moving and storage transactions and generally correspond to the related activity at U-Haul during the same period.\n\n\n\n\n\n\nNet investment and interest income increased $28.4 million during fiscal 2023, compared with fiscal 2022. Moving and Storage accounted for a $67.9 million increase due to higher yields on our short-term cash balances which are primarily invested in United States government securities. Changes in the market value of unaffiliated common stocks held at our Property and Casualty Insurance subsidiary resulted in a $16.6 million decrease. Life Insurance experienced a net decrease of $21.4 million.\n\n\n\n\nOther revenue increased $47.5 million during fiscal 2023, compared with fiscal 2022, caused primarily by growth in our U-Box\n\u00ae\n program.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n21\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nListed below are revenues and earnings from operations at each of our operating segments for fiscal 2023 and 2022. The insurance companies\u2019 years ended December 31, 2022 and 2021.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nYear Ended March 31,\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2023\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2022\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(In thousands)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nMoving and storage\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nRevenues\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n5,567,714\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n5,398,267\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nEarnings from operations before equity in earnings of subsidiaries\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,396,122\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,577,226\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nProperty and casualty insurance\n\n\n\u00a0 \n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nRevenues\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n103,512\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n115,043\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nEarnings from operations\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n36,570\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n49,780\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nLife insurance\n\n\n\u00a0\u00a0 \n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nRevenues\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n206,100\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n238,812\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nEarnings from operations\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n12,935\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n19,538\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nEliminations\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nRevenues\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(12,635)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(12,375)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nEarnings from operations before equity in earnings of subsidiaries\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(1,521)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(1,547)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nConsolidated Results\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nRevenues\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n5,864,691\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n5,739,747\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nEarnings from operations\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,444,106\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,644,997\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTotal costs and expenses increased $325.8 million during fiscal 2023, compared with fiscal 2022. Operating expenses for Moving and Storage increased $345.7 million.\n\n\n\u00a0 \n\n\nRepair costs associated with the rental fleet experienced a $132.9 million increase during fiscal year 2023 and personnel costs increased $97.8 million.\n\n\n\u00a0 \n\n\nThe increases in fleet repair costs are primarily due to additional preventative maintenance resulting from higher fleet activity over the last several years.\n\n\n\u00a0 \n\n\nAlso, the slower rotation of new equipment into the fleet and older equipment out of the fleet has added to the amount of preventative maintenance needed.\n\n\n\u00a0 \n\n\nPersonnel cost increases stem from a 12% increase in headcount on average throughout the year; the headcount variance narrowed towards the end of the year.\n\n\n\u00a0 \n\n\nOther expense increases included liability costs, utilities, property taxes, non-rental equipment and building maintenance and shipping associated with U-Box transactions. \n\n\n\n\n\n\nDepreciation expense associated with our rental fleet was $520.5 million and $504.2 million for fiscal 2023 and 2022, respectively.\n\n\n\u00a0 \n\n\nNet gains from the disposal of rental equipment increased $32.9 million from an increase in resale values combined with additional units sold.\n\n\n\u00a0 \n\n\nDepreciation expense on all other assets, largely from buildings and improvements, increased $20.6 million to $213.4 million. Net losses on the disposal or retirement of land and buildings increased $9.7 million as fiscal 2022 included a condemnation gain of $4.9 million.\n\n\n\u00a0\u00a0 \n\n\n\n\n\n\nAs a result of the above-mentioned changes in revenues and expenses, earnings from operations decreased to $1,444.1 million for fiscal 2023, compared with $1,645.0 million for fiscal 2022.\n\n\n\n\n\n\nInterest expense for fiscal 2023 was $224.0 million, compared with $167.4 million for fiscal 2022 due to an increase in our average outstanding debt of $871.6 million in fiscal 2023 compared with fiscal 2022 combined with a higher average cost of debt.\n\n\n\u00a0 \n\n\n\n\n\n\nIncome tax expense was $294.9 million for fiscal 2023, compared with $352.2 million for fiscal 2022. See Note 14, Provision for Taxes, of the Notes to Consolidated Financial Statements included in Item 8: Financial Statements and Supplementary Data, of this Annual Report for more information on income taxes.\n\n\n\n\n\n\nBasic and diluted earnings per share of Voting Common Stock for fiscal 2023 was $5.54, compared with $7.08 for fiscal 2022. \n\n\n\n\n\n\nThe weighted average shares outstanding basic and diluted for Voting Common Stock were 19,607,788 for both fiscal 2023 and 2022. \n\n\n\n\nBasic and diluted earnings per share of Non-Voting Common Stock for fiscal 2023 were $4.62, compared with $5.58 for fiscal 2022. \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n22\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nThe weighted average shares outstanding basic and diluted for Non-Voting Common Stock were 176,470,092 for both fiscal 2023 and 2022.\n\n\n\n\n\n\nMoving and Storage\n\n\n\n\n\n\nFiscal 2023 Compared with Fiscal 2022\n\n\n\n\n\n\nListed below are revenues for the major product lines at Moving and Storage for fiscal 2023 and fiscal 2022: \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nYear Ended March 31,\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2023\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2022\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(In thousands)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSelf-moving equipment rentals\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n3,882,620\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n3,963,535\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSelf-storage revenues\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n744,492\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n617,120\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSelf-moving and self-storage products and service sales\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n357,286\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n351,447\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nProperty management fees\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n37,073\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n35,194\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet investment and interest income\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n70,992\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n3,135\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nOther revenue\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n475,251\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n427,836\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nMoving and Storage revenue\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n5,567,714\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n5,398,267\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSelf-moving equipment rental revenues decreased $80.9 million during fiscal 2023, compared with fiscal 2022\n\n\n.\n\n\n\u00a0 \n\n\nTransactions, revenue and average miles driven per transaction decreased.\n\n\n\u00a0 \n\n\nThese declines were more pronounced in our one-way markets.\n\n\n\u00a0 \n\n\nCompared to the same period last year, we increased the number of retail locations, independent dealers, trucks, and trailers in the rental fleet.\n\n\n\n\n\n\nSelf-storage revenues increased $127.4 million during fiscal 2023, compared with fiscal 2022.\n\n\n\u00a0 \n\n\nThe average monthly number of occupied units increased by 14%, or 63,800 units during fiscal 2023 compared with the same period last year.\n\n\n\u00a0 \n\n\nOver the course of the fiscal year our average revenue per occupied square foot increased 9%.\n\n\n\n\n\n\nThe Company owns and manages self-storage facilities. Self-storage revenues reported in the consolidated financial statements represent Company-owned locations only. Self-storage data for our owned storage locations follows:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nYear Ended March 31,\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2023\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2022\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(In thousands, except occupancy rate)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nUnit count as of March 31\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n673\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n601\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSquare footage as of March 31\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n56,382\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n50,366\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nAverage monthly number of units occupied\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n535\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n471\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nAverage monthly occupancy rate based on unit count\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n83.4%\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n82.6%\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nAverage monthly square footage occupied\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n46,257\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n41,379\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nDuring fiscal 2023, we added approximately 6.0 million net rentable square feet, a 13% increase compared to fiscal 2022 additions.\n\n\n\u00a0 \n\n\nThis additional capacity consisted of approximately 1.1 million square feet of existing self-storage acquired along with 4.9 million square feet of new development. \n\n\n\n\n\n\nSales of self-moving and self-storage products and services increased $5.8 million during fiscal 2023, compared with fiscal 2022, primarily due to increased hitch and propane sales partially offset by a 1% decrease in the sales of moving supplies.\n\n\n\n\n\n\nNet investment and interest income increased $67.9 million during fiscal 2023, compared with fiscal 2022, due to higher yields on our short-term cash balances which are primarily invested in United States government securities.\n\n\n\n\nOther revenue increased $47.4 million during fiscal 2023, compared with fiscal 2022, caused primarily by growth in our U-Box\n\u00ae\n program.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n23\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nTotal costs and expenses increased $350.6 million during fiscal 2023, compared with fiscal 2022. Operating expenses increased $345.7 million.\n\n\n\u00a0 \n\n\nRepair costs associated with the rental fleet experienced a $132.9 million increase during fiscal year 2023 and personnel costs increased $97.8 million.\n\n\n\u00a0 \n\n\nThe increases in fleet repair costs are primarily due to additional preventative maintenance resulting from higher fleet activity over the last several years.\n\n\n\u00a0 \n\n\nAlso, the slower rotation of new equipment into the fleet and older equipment out of the fleet has added to the amount of preventative maintenance needed.\n\n\n\u00a0 \n\n\nPersonnel cost increases stem from a 12% increase in headcount on average throughout the year; the headcount variance narrowed towards the end of the year.\n\n\n\u00a0 \n\n\nOther expense increases included liability costs, utilities, property taxes, non-rental equipment and building maintenance and shipping associated with U-Box transactions. \n\n\n\n\n\n\nDepreciation expense associated with our rental fleet was $520.5 million and $504.2 million.\n\n\n\u00a0 \n\n\nNet gains from the disposal of rental equipment increased $32.9 million from an increase in resale values combined with additional units sold.\n\n\n\u00a0 \n\n\nDepreciation expense on all other assets, largely from buildings and improvements, increased $20.6 million to $213.4 million. Net losses on the disposal or retirement of land and buildings increased $9.7 million as fiscal 2022 included a condemnation gain of $4.9 million.\n\n\n\u00a0 \n\n\n\n\n\n\nProperty and Casualty Insurance\n\n\n\n\n\n\n2022 Compared with 2021\n\n\n\n\n\n\nNet premiums were $96.2 million and $89.7 million for the years ended December 31, 2022 and 2021, respectively. A significant portion of Repwest\u2019s premiums are from policies sold in conjunction with U-Haul moving and storage transactions and generally correspond to the related activity at U-Haul during the same period.\n\n\n\n\n\n\nNet investment and interest income were $7.3 million and $25.4 million for the years ended December 31, 2022 and 2021, respectively. The main driver of the change in net investment income was the decrease in valuation of unaffiliated common stock of $16.6 million; these stocks were not sold and no actual economic losses have been recognized.\n\n\n\n\n\n\nNet operating expenses were $45.0 million and $42.5 million for the years ended December 31, 2022 and 2021, respectively. The change was primarily due to an increase in commissions from higher premiums.\n\n\n\n\n\n\nBenefits and losses expenses were $21.5 million and $22.4 million for the years\n\n\n \n\n\nended December 31, 2022 and 2021, respectively. The decrease was due to favorable loss experience.\n\n\n\n\n\n\nAs a result of the above-mentioned changes in revenues and expenses, pretax earnings from operations were $36.6 million and $49.8 million for the twelve months ended December 31, 2022 and 2021, respectively.\n\n\n\n\n\n\nLife Insurance\n\n\n\n\n\n\n2022 Compared with 2021\n\n\n\n\n\n\nNet premiums were $99.1 million and $111.0 million for the years ended December 31, 2022 and 2021, respectively. Medicare Supplement premiums decreased $7.2 million from policy decrements offset by premium rate increases. Life insurance premiums decreased $4.4 million. Premiums on annuity supplemental contracts decreased $0.3 million from fewer annuitizations. Deferred annuity deposits were $326.5 million or $6.0 million below the prior year and are accounted for on the balance sheet as deposits rather than premiums. The decrease in deferred annuity deposits is a result of low sales at the beginning of the year improving as the year progressed.\n\n\n\n\nNet investment income was $102.4 million and $123.8 million for the years ended December 31, 2022 and 2021, respectively.\n\u00a0 \nThe realized loss on derivatives used as hedges to fixed indexed annuities was $12.6 million. The realized loss on bonds was $6.5 million. The change in the provision for expected credit losses resulted in a $2.9 million additional decrease to the investment income. Mortgage loan interest decreased $0.9 million from the decreased prepayment penalties. The interest on the remaining assets also decreased by $0.6 million. This was offset by a $2.1 million increase in the investment income from fixed maturities on higher asset base despite lower investment yields.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n24\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nBenefits and losses incurred were $144.0 million and $164.2 million for the years ended December 31, 2022 and 2021, respectively. Interest credited to policyholders decreased $8.6 million due to a reduction in the interest credited rates on fixed indexed annuities driven by stock market fluctuations. Life benefits decreased $8.2 million due to lower death claims related to COVID-19 and lower sales due to premium adjustments that took place in late 2021. Medicare supplement benefits decreased by $3.2 million from fewer policies in force. Benefits on the annuity supplemental contracts decreased $0.2 million.\n\n\n\n\n\n\nAmortization of deferred acquisition costs (\u201cDAC\u201d), sales inducement asset (\u201cSIA\u201c) and the value of business acquired (\u201cVOBA\u201d) was $27.9 million and $33.9 million for the years ended December 31, 2022 and 2021, respectively. The annuity related DAC amortization decreased $4.3 million due to realized investment gains and a completion of the amortization period on certain fixed indexed and multi-year guaranteed annuities in 2021. The decrease of $1.2 million on Life Insurance segment is from reduced policy lapses and death benefits. Medicare supplement related DAC amortization decreased $0.5 million and will continue to decrease due to a decline in the number of policies remaining in-force.\n\n\n\n\n\n\nAs a result of the above-mentioned changes in revenues and expenses, pretax earnings from operations were $12.5 million and $19.1 million for the years ended December 31, 2022 and 2021, respectively.\n\n\n\n\n\n\nLiquidity and Capital Resources\n\n\n\n\n\n\nWe believe our current capital structure is a positive factor that will enable us to pursue our operational plans and goals and provide us with sufficient liquidity for the foreseeable future. There are many factors which could affect our liquidity, including some which are beyond our control, and there is no assurance that future cash flows and liquidity resources will be sufficient to meet our outstanding debt obligations and our other future capital needs.\n\n\n\n\n\n\nAs of March 31, 2023, cash and cash equivalents totaled $2,060.5 million, compared with $2,704.1 million as of March 31, 2022. The assets of our insurance subsidiaries are generally unavailable to fulfill the obligations of non-insurance operations (U-Haul Holding Company, U-Haul and Real Estate). As of March 31, 2023 (or as otherwise indicated), cash and cash equivalents, other financial assets (receivables, short-term investments, other investments, fixed maturities, and related party assets) and debt obligations of each operating segment were:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nMoving & Storage\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nProperty and Casualty Insurance (a)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nLife Insurance (a)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(In thousands)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nCash and cash equivalents\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n2,034,242\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n11,276\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n15,006\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nOther financial assets\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n428,018\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n446,977\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,744,196\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nDebt obligations (b)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n6,143,350\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2013\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2013\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(a) As of December 31, 2022\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(b) Excludes ($35,308) of debt issuance costs\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\nAs of March 31, 2023, Moving and Storage had available borrowing capacity under existing credit facilities of $465.0 million.\n\u00a0 \nThe majority of invested cash at the Moving and Storage segment is held in government money market funds.\n\u00a0 \nOur current forecasted debt payments for fiscal 2024 on all borrowings are $563.2 million. For detailed information regarding our debt obligations, please see Note 9, Borrowings, of the Notes to Consolidated Financial Statements.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n25\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nA summary of our consolidated cash flows for fiscal 2023, 2022 and 2021 is shown in the table below:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nYears Ended March 31,\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2023\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2022\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2021\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(In thousands)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet cash provided by operating activities\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n1,729,610\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n1,946,235\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n1,535,395\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet cash used by investing activities\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(2,421,385)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(1,867,176)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(1,129,529)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet cash provided by financing activities\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n59,795\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,433,155\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n287,353\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nEffects of exchange rate on cash\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(11,633)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(2,089)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n6,441\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet increase (decrease) in cash flow\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(643,613)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,510,125\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n699,660\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nCash at the beginning of the period\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,704,137\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,194,012\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n494,352\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nCash at the end of the period\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n2,060,524\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n2,704,137\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n1,194,012\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet cash provided by operating activities decreased $216.6 million in fiscal 2023, compared with fiscal 2022.\n\n\n\u00a0 \n\n\nThe decrease was primarily due to reduced net earnings of $200.2 million and the payment of $106.0 million in federal income tax in fiscal 2023 compared with the receipt of $243.0 million of federal income tax refunds in fiscal 2022. Partially offsetting this was a decrease in inventory and an increase in the collection of corporate receivables. \n\n\n\n\n\n\nNet cash used in investing activities increased $554.2 million in fiscal 2023, compared with fiscal 2022. Purchases of property, plant and equipment increased $587.4 million. Reinvestment in the rental fleet was less than our projection due to delays in receiving new equipment from our original equipment manufacturers during fiscal 2023; however, the level of reinvestment in the rental fleet has increased in comparison to fiscal 2022.\n\n\n\u00a0 \n\n\nCash from the sales of property, plant and equipment increased $78.1 million largely due to fleet sales. For our insurance subsidiaries, net cash used in investing activities decreased $167.2 million due to a decrease in purchases in fixed maturity investments, which was offset by a $225.0\n\n\n \n\n\nmillion increase in purchases of short-term Treasury notes by Moving and Storage.\n\n\n\n\n\n\nNet cash provided by financing activities decreased $1,373.4 million in fiscal 2023, as compared with fiscal 2022.\n\n\n\u00a0 \n\n\nFiscal 2022 included the borrowing of $1,200.0 million through our two private placement offerings.\n\n\n\u00a0 \n\n\nAdditionally, debt payments increased $364.5 million, finance lease repayments decreased $42.1 million, and dividends paid increased $4.3 million.\n\n\n\u00a0 \n\n\nFor Life Insurance, net annuity deposits declined $103.2 million.\n\n\n\u00a0 \n\n\n\n\n\n\nLiquidity and Capital Resources and Requirements of Our Operating Segments\n\n\n\n\n\n\nMoving and Storage\n\n\n\n\nTo meet the needs of our customers, U-Haul maintains a large fleet of rental equipment. Capital expenditures have primarily consisted of new rental equipment acquisitions and the buyouts of existing fleet from leases. The capital to fund these expenditures has historically been obtained internally from operations and the sale of used equipment and externally from debt and lease financing. In the future, we anticipate that our internally generated funds will be used to service the existing debt and fund operations. U-Haul estimates that during fiscal 2024 the Company will reinvest in its rental equipment fleet approximately $685 million, net of equipment sales and excluding any lease buyouts. For fiscal 2023, the Company invested, net of sales, approximately $611 million before any lease buyouts in its rental equipment fleet. Fleet investments in fiscal 2024 and beyond will be dependent upon several factors including the availability of capital, the truck rental environment, the availability of equipment from manufacturers and the used-truck sales market. We anticipate that the fiscal 2024 investments will be funded largely through debt financing, external lease financing and cash from operations. Management considers several factors including cost and tax consequences when selecting a method to fund capital expenditures. Our allocation between debt and lease financing can change from year to year based upon financial market conditions which may alter the cost or availability of financing options. \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n26\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nThe Company has traditionally funded the acquisition of self-storage properties to support U-Haul's growth through debt financing and funds from operations. The Company\u2019s plan for the expansion of owned storage properties includes the acquisition of existing self-storage locations from third parties, the acquisition and development of bare land, and the acquisition and redevelopment of existing buildings not currently used for self-storage. The Company expects to fund these development projects through a combination of internally generated funds, corporate debt and with borrowings against existing properties as they operationally mature. For fiscal 2023, the Company invested $1,341.4 million in real estate acquisitions, new construction and renovation and repair compared to $1,004.2 million in fiscal 2022.\n\n\n\u00a0 \n\n\nFor fiscal 2024, the timing of new projects will be dependent upon several factors, including the entitlement process, availability of capital, weather, the identification and successful acquisition of target properties and the availability of labor and materials.\n\n\n\u00a0 \n\n\nWe are likely to maintain a high level of real estate capital expenditures in fiscal 2024.\n\n\n\u00a0 \n\n\nU-Haul's growth plan in self-storage also includes the expansion of the U-Haul Storage Affiliate program, which does not require significant capital.\n\n\n\n\n\n\nNet capital expenditures (purchases of property, plant and equipment less proceeds from the sale of property, plant and equipment and lease proceeds) at Moving and Storage were $2,025.6 million, $1,513.3 million and $904.0 million for fiscal 2023, 2022 and 2021, respectively. The components of our net capital expenditures are provided in the following table:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nYears Ended March 31,\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2023\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2022\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2021\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(In thousands)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nPurchases of rental equipment\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n1,298,955\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n1,061,439\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n870,106\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nEquipment lease buyouts\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2013\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2013\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n11,477\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nPurchases of real estate, construction and renovations\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,341,417\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,004,192\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n505,112\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nOther capital expenditures\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n86,595\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n70,906\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n54,780\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nGross capital expenditures\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,726,967\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,136,537\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,441,475\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nLess: Sales of property, plant and equipment\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(701,331)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(623,235)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(537,484)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet capital expenditures\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n2,025,636\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n1,513,302\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n903,991\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nMoving and Storage continues to hold significant cash and we believe has access to additional liquidity. Management may invest these funds in our existing operations, expand our product lines or pursue external opportunities in the self-moving and storage marketplace, pay dividends or reduce existing indebtedness where possible.\n\n\n\n\n\n\nProperty and Casualty Insurance\n\n\n\n\n\n\nState insurance regulations may restrict the amount of dividends that can be paid to stockholders of insurance companies.\n\n\n As a result, Property and Casualty Insurance's assets are generally not available to satisfy the claims of U-Haul Holding Company, or its legal subsidiaries. For calendar year 2023, the ordinary dividend available to be paid to U-Haul Holding Company is $29.5 million. For more information, please see Note 21, Statutory Financial Information of Insurance Subsidiaries, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. We believe that stockholders\u2019 equity at the Property and Casualty operating segment remains sufficient and we do not believe that its ability to pay ordinary dividends to U-Haul Holding Company will be restricted per state regulations.\n\n\n\n\n\n\nOur Property and Casualty operating segment stockholders\u2019 equity was $294.5 million and $296.1 million as of December 31, 2022 and 2021, respectively. The decrease in 2022 compared with 2021 resulted from net earnings of $29.8 million and a decrease in accumulated other comprehensive income of $31.4 million.\n\n\n\u00a0 \n\n\nProperty and Casualty Insurance does not use debt or equity issues to increase capital and therefore has no direct exposure to capital market conditions other than through its investment portfolio. \n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n27\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nLife Insurance\n\n\n\n\n\n\nLife Insurance manages its financial assets to meet policyholder and other obligations including investment contract withdrawals and deposits. Life Insurance's net deposits for the year ended December 31, 2022 were $6.8 million. State insurance regulations may restrict the amount of dividends that can be paid to stockholders of insurance companies.\n\n\n As a result, Life Insurance's assets are generally not available to satisfy the claims of U-Haul Holding Company or its legal subsidiaries. Oxford had a statutory net loss as of December 31, 2022, so no dividends can be distributed in calendar year 2023. For more information, please see Note 21, Statutory Financial Information of Insurance Subsidiaries, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.\n\n\n\n\n\n\nOur Life Insurance operating segment stockholders\u2019 equity was $156.4 million and $440.9 million as of December 31, 2022 and 2021, respectively. The decrease in 2022 compared with 2021 resulted from earnings of $10.0 million and a decrease in accumulated other comprehensive income of $294.5 million primarily due to the effect of interest rate changes on the fixed maturity portion of the investment portfolio.\n\n\n\u00a0 \n\n\nLife Insurance has not historically used debt or equity issues to increase capital and therefore has not had any significant direct exposure to capital market conditions other than through its investment portfolio. However, as of December 31, 2022, Oxford had outstanding advances of $60.0 million through its membership in the Federal Home Loan Bank (\u201cFHLB\u201d). For a more detailed discussion of these advances, please see Note 9, Borrowings, of the Notes to Consolidated Financial Statements.\n\n\n\u00a0 \n\n\n\n\n\n\nCash Provided from Operating Activities by Operating Segments\n\n\n\n\n\n\nMoving and Storage\n\n\n\n\n\n\nNet cash provided by operating activities was $1,593.7 million, $1,823.3 million and $1,428.9 million in fiscal 2023, 2022 and 2021, respectively. \n\n\nThe decrease was primarily due to reduced net earnings of $200.2 million and the payment of $106.0 million in federal income tax in fiscal 2023 compared with the receipt of $243.0 million of federal income tax refunds in fiscal 2022. Partially offsetting this was a decrease in inventory and an increase in the collection of corporate receivables.\n\n\n\n\n\n\nProperty and Casualty Insurance\n\n\n\n\n\n\nNet cash provided by operating activities was $36.2 million, $31.2 million, and $19.4 million for the years ended December 31, 2022, 2021, and 2020, respectively. The increase was the result of changes in intercompany balances and the timing of payables activity.\n\n\n\n\n\n\nProperty and Casualty Insurance\u2019s cash and cash equivalents and short-term investment portfolios amounted to $27.2 million, $41.7 million, and $12.9 million as of December 31, 2022, 2021, and 2020, respectively. These balances reflect funds in transition from maturity proceeds to long-term investments. Management believes this level of liquid assets, combined with budgeted cash flow, is adequate to meet foreseeable cash needs. Capital and operating budgets allow Property and Casualty Insurance to schedule cash needs in accordance with investment and underwriting proceeds.\n\n\n\n\n\n\nLife Insurance\n\n\n\n\n\n\nNet cash provided by operating activities was $99.8 million, $91.8 million and $87.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. The increase in operating cash flows was primarily due to an increase in accounts payable due to the timing of settlements. This was offset by a decrease in investment and premium income.\n\n\n\n\n\n\nIn addition to cash flows from operating activities and financing activities, a substantial amount of liquid funds are available through Life Insurance's short-term portfolio and its membership in the FHLB. As of December 31, 2022, 2021 and 2020, cash and cash equivalents and short-term investments amounted to $15.0 million, $50.1 million and $178.1 million, respectively. Management believes that the overall sources of liquidity are adequate to meet foreseeable cash needs.\n\n\n\n\n\n\nLiquidity and Capital Resources - Summary\n\n\n\n\nWe believe we have the financial resources needed to meet our business plans including our working capital needs. We continue to hold significant cash and have access to additional liquidity to meet our anticipated capital expenditure requirements for investment in our rental fleet, rental equipment and storage acquisitions and build outs. \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n28\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nAs a result of the federal income tax provisions of the CARES Act we have filed applicable forms with the IRS to carryback net operating losses. These refund claims total approximately $366 million, of which we have already received approximately $243 million, with the remaining amount reflected in prepaid expenses. These amounts are expected to provide us additional liquidity whenever received. It is possible future legislation could negatively impact our ability to receive these tax refunds.\n\n\n\n\n\n\nOur borrowing strategy has primarily focused on asset-backed financing and rental equipment leases. As part of this strategy, we seek to ladder maturities and fix interest rates. While each of these loans typically contains provisions governing the amount that can be borrowed in relation to specific assets, the overall structure is flexible with no limits on overall Company borrowings. Management believes it has adequate liquidity between cash and cash equivalents and unused borrowing capacity in existing credit facilities to meet the current and expected needs of the Company over the next several years. As of March 31, 2023, we had available borrowing capacity under existing credit facilities of $465.0 million.\n\n\n\u00a0 \n\n\nWhile it is possible that circumstances beyond our control could alter the ability of the financial institutions to lend us the unused lines of credit, we believe that there are additional opportunities for leverage in our existing capital structure. For a more detailed discussion of our long-term debt and borrowing capacity, please see Note 9, Borrowings, of the Notes to Consolidated Financial Statements included in Item 8: Financial Statements and Supplementary Data, of this Annual Report. \n\n\n\n\n\n\nHistorically, we used certain off-balance sheet arrangements in connection with the expansion of our self-storage business. For more information, please see Note 20, Related Party Transactions, of the Notes to Consolidated Financial Statements included in Item 8: Financial Statements and Supplementary Data, of this Annual Report. These arrangements were primarily used when our overall borrowing structure was more limited. We do not face similar limitations currently and off-balance sheet arrangements have not been utilized in our self-storage expansion in recent years. In the future, we will continue to identify and consider off-balance sheet opportunities to the extent such arrangements would be economically advantageous to us and our stockholders. \n\n\n\n\n\n\nContractual Obligations and Commercial Commitments\n\n\n\n\n\n\nFor contractual obligations for material cash requirements from known contractual and other obligations as part of liquidity and capital resources discussion, please see Notes 9, 10, 11, 15, 17, 18 and 19\n\n\n \n\n\nof the Notes to Consolidated Financial Statements.\n\n\n\u00a0 \n\n\nThe following table provides additional detail for contractual commitments and contingencies as of March 31, 2023.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nPayment due by Period (as of March 31, 2023)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nContractual Obligations\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nTotal\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n04/01/23 - 03/31/24\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n04/01/24 - 03/31/26\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n04/01/26 - 03/31/28\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nThereafter\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(In thousands)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNotes and loans payable - Principal\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n4,049,382\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n226,105\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n466,487\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n842,847\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n2,513,943\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNotes and loans payable - Interest\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,387,115\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n178,530\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n326,733\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n275,149\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n606,703\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nRevolving credit agreements - Principal\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n615,000\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2013\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n370,556\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n244,444\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2013\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nRevolving credit agreements - Interest\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n102,175\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n36,228\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n54,875\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n11,072\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2013\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nFinance leases - Principal\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n223,205\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n103,780\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n119,425\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2013\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2013\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nFinance leases - Interest\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n11,991\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n7,032\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n4,959\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2013\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2013\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nFinance liability - Principal\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,255,763\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n233,268\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n409,323\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n379,271\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n233,901\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nFinance liability - Interest\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n158,493\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n45,093\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n65,750\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n35,427\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n12,223\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nOperating lease liabilities\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n103,956\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n24,338\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n16,497\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n6,506\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n56,615\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nProperty and casualty obligations (a)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n110,545\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n23,986\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n23,974\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n10,084\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n52,501\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nLife, health and annuity obligations (b)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n3,624,456\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n683,685\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n846,007\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n507,084\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,587,680\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSelf-insurance accruals (c) \n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n335,227\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n95,321\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n127,755\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n65,527\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n46,624\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nPost-retirement benefit liability\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n23,428\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,546\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n3,789\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n4,802\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n13,291\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \n\n\nTotal contractual obligations\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n12,000,736\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n1,658,912\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n2,836,130\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n2,382,213\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n5,123,481\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(a) These estimated obligations for unpaid losses and loss adjustment expenses include case reserves for reported claims and estimates of IBNR claims and are net of expected reinsurance recoveries. The ultimate amount to settle both the case reserves and IBNR is an estimate based upon historical experience and current trends and such estimates could materially differ from actual results. The assumptions do not include future premiums. Due to the significant assumptions employed in this model, the amounts shown could materially differ from actual results.\n\n\n\n\n(b) These estimated obligations are based on mortality, morbidity, withdrawal and lapse assumptions drawn from our historical experience and adjusted for any known trends. These obligations include expected interest crediting but no amounts for future annuity deposits or premiums for life and Medicare supplement policies. \n\u00a0\nThe cash flows shown above are undiscounted for interest and as a result total outflows for all years shown significantly exceed the corresponding liabilities of $2,785.3 million included in our\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n29\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nconsolidated balance sheet as of March 31, 2023. Life Insurance expects to fully fund these obligations from their invested asset portfolio. Due to the significant assumptions employed in this model, the amounts shown could materially differ from actual results. \n\n\n\u00a0\n\n\n\n\n\n\n(c) These estimated obligations are primarily the Company\u2019s self insurance accruals for portions of the liability coverage for our rental equipment. The estimates for future settlement are based upon historical experience and current trends. Due to the significant assumptions employed in this model, the amounts shown could materially differ from actual results.\n\n\n\n\n\n\nAs presented above, contractual obligations on debt and guarantees represent principal payments while contractual obligations for operating leases represent the notional payments under the lease arrangements. \n\n\n\n\n\n\nASC 740 - \n\n\nIncome Taxes\n\n\n liabilities and interest of $75.8 million is not included above due to uncertainty surrounding ultimate settlements, if any. \n\n\n\n\n\n\nFiscal 2024 Outlook \n\n\n\n\n\n\nWe will continue to focus our attention on increasing transaction volume and improving pricing, product and utilization for self-moving equipment rentals.\n\n\n\u00a0 \n\n\nMaintaining an adequate level of new investment in our truck fleet is an important component of our plan to meet our operational goals and is likely to increase in fiscal 2024. Revenue in the U-Move\n\n\n\u00ae\n\n\n program could be adversely impacted should we fail to execute in any of these areas. Even if we execute our plans, we could see declines in revenues primarily due to unforeseen events including adverse economic conditions or heightened competition that is beyond our control.\n\n\n\n\n\n\nWith respect to our storage business, we have added new locations and expanded existing locations. In fiscal 2024, we are actively looking to complete current projects, increase occupancy in our existing portfolio of locations and acquire new locations. New projects and acquisitions will be considered and pursued if they fit our long-term plans and meet our financial objectives. It is likely spending on acquisitions and new development will increase in fiscal 2024. We will continue to invest capital and resources in the U-Box\n\n\n\u00ae\n\n\n program throughout fiscal 2024.\n\n\n\n\n\n\nInflationary pressures may challenge our ability to maintain or improve upon our operating margin.\n\n\n\n\n\n\nProperty and Casualty Insurance will continue to provide loss adjusting and claims handling for U-Haul and underwrite components of the Safemove\n\n\n\u00ae\n\n\n, Safetow\n\n\n\u00ae\n\n\n, Safemove Plus\n\n\n\u00ae\n\n\n, Safestor\n\n\n\u00ae\n\n\n, and Safestor Mobile\n\n\n\u00ae\n\n\n protection packages to U-Haul customers.\n\n\n\n\n\n\nLife Insurance is pursuing its goal of expanding its presence in the senior market through the sales of its Medicare supplement, life and annuity policies. This strategy includes growing its agency force, expanding its new product offerings, and pursuing business acquisition opportunities.\n\n\n\n\n\n",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk\n      \n\n\n\n\nWe are exposed to financial market risks, including changes in interest rates and currency exchange rates. To mitigate these risks, we may utilize derivative financial instruments, among other strategies. We do not use derivative financial instruments for speculative purposes.\n\n\n\u00a0 \n\n\n\n\n\n\nInterest Rate Risk\n\n\n\n\n\n\nThe exposure to market risk for changes in interest rates relates primarily to our variable rate debt obligations and one variable rate operating lease. We have used interest rate swap agreements and forward swaps to reduce our exposure to changes in interest rates. We enter into these arrangements with counterparties that are significant financial institutions with whom we generally have other financial arrangements. We are exposed to credit risk should these counterparties not be able to perform on their obligations. Following is a summary of our interest rate swaps agreements at March 31, 2023:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nNotional Amount\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nFair Value\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nEffective Date\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nExpiration Date\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nFixed Rate\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nFloating Rate\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(In thousands)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n60,347\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n1,501\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n7/15/2022\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n7/15/2032\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2.86%\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1 Month SOFR\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n73,250\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,945\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n8/1/2022\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n8/1/2026\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2.72%\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1 Month SOFR\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n72,750\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1,865\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n8/1/2022\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n8/31/2026\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2.75%\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n1 Month SOFR\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n30\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nAs of March 31, 2023, we had $821.3 million of variable rate debt obligations. Of this amount, $615.0 million is not fixed through interest rate swaps. If the Secured Overnight Funding Rate (\u201cSOFR\u201d) were to increase 100 basis points, the increase in interest expense on the variable rate debt would decrease future earnings and cash flows by $6.2 million annually (after consideration of the effect of the above derivative contracts). Certain senior mortgages have an anticipated repayment date and a maturity date. If these senior mortgages are not repaid by the anticipated repayment date the interest rate on these mortgages would increase from the current fixed rate. We are using the anticipated repayment date for our maturity schedule.\n\n\n\n\n\n\nAdditionally, our insurance subsidiaries\u2019 fixed income investment portfolios expose us to interest rate risk. This interest rate risk is the price sensitivity of a fixed income security to changes in interest rates. As part of our insurance companies\u2019 asset and liability management, actuaries estimate the cash flow patterns of our existing liabilities to determine their duration. These outcomes are compared to the characteristics of the assets that are currently supporting these liabilities assisting management in determining an asset allocation strategy for future investments that management believes will mitigate the overall effect of interest rates.\n\n\n\n\n\n\nThe following table illustrates the interest rate risk sensitivity of our fixed maturity portfolio as of March 31, 2023 and 2022. This table measures the effect of a parallel shift in interest rates (as represented by the U.S. Treasury curve) on the fair value of the fixed maturity portfolio. The data measures the change in fair value arising from an immediate and sustained change in interest rates in increments of 100 basis points.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nMarket Value of Mixed Maturity Portfolio\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\nAs of March 31, \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nChange in Interest Rates (a)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2023\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2022\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n(In thousands)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n-300bps\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n3,100,972\n\n\n\n\n\n\n\n\n\n\n$\n\n\n\n\n\n\n\n\n\n\n3,262,844\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n-200bps\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,970,228\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n3,153,114\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n-100bps\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,839,624\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,992,011\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNo change\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,709,037\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,821,092\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n+100bps\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,578,654\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,650,410\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n+200bps\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,448,348\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,479,737\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n+300bps\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,318,149\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2,309,224\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(a) In basis points\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nWe use derivatives to hedge our equity market exposure to indexed annuity products sold by our Life Insurance company. These contracts earn a return for the contractholder based on the change in the value of the S&P 500 index between annual index point dates. We buy and sell listed equity and index call options and call option spreads. The credit risk is with the party in which the options are written. The net option price is paid up front and there are no additional cash requirements or additional contingent liabilities. These contracts are held at fair market value on our balance sheet. At December 31, 2022 and 2021, these derivative hedges had a net market value of $4.3 million and $7.5 million, with notional amounts of $465.7 million and $416.7\n\n\n\u00a0\n\n\nmillion, respectively. These derivative instruments are included in Investments, other; on the consolidated balance sheets.\n\n\n\n\nAlthough the call options are employed to be effective hedges against our policyholder obligations from an economic standpoint, they do not meet the requirements for hedge accounting under GAAP. Accordingly, the call options are marked to fair value on each reporting date with the change in fair value included as a component of net investment and interest income. The change in fair value of the call options includes the gains or losses recognized at the expiration of the option term and the changes in fair value for open contracts.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n31\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nForeign Currency Exchange Rate Risk\n\n\n\n\n\n\nThe exposure to market risk for changes in foreign currency exchange rates relates primarily to our Canadian business. Approximately 5.0%, 5.0% and 4.6% of our revenue was generated in Canada in fiscal 2023, 2022 and 2021, respectively. The result of a 10% change in the value of the U.S. dollar relative to the Canadian dollar would not be material to net income. We typically do not hedge any foreign currency risk since the exposure is not considered material.\n\n\n\n\n\n",
+  "cik": "4457",
+  "cusip6": "023586",
+  "cusip": ["023586506", "023586100", "023586900", "023586950"],
+  "names": ["U HAUL HOLDING COMPANY", "U-Haul Holding Co."],
+  "source": "https://www.sec.gov/Archives/edgar/data/4457/000000445723000052/0000004457-23-000052-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. Business\nCORPORATE BACKGROUND\nGeneral\nIn 1949, our founders established ADP to shape the world of work with a simple, innovative idea: help clients focus on their business by solving their payroll challenges. Today, we are one of the world\u2019s leading global technology companies providing comprehensive cloud-based human capital management (HCM) solutions that unite HR, payroll, talent, time, tax and benefits administration. Our unmatched experience, expertise, insights and cutting-edge technology have transformed HCM from an administrative challenge to a strategic business advantage. Tailored to meet the needs of businesses of all sizes, we help them work smarter today so they can have more success tomorrow. We serve over 1 million clients and pay over 41 million workers in 140 countries and territories. Our common stock is listed on the NASDAQ Global Select Market\u00ae under the symbol \u201cADP.\u201d\nWhen we refer to \u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d \u201cADP,\u201d or the \u201cCompany\u201d in this Annual Report on Form 10-K, we mean Automatic Data Processing, Inc. and its consolidated subsidiaries.\n3\nBUSINESS OVERVIEW\nADP\u2019s Mission\nOur mission is to power organizations with insightful Human Capital Management (HCM) solutions that meet the changing needs of our clients and their workers. \nData, digital technology, artificial intelligence, globalization, new business models and other significant events and disruptions continuously reshape the way people work. Our HCM technology, industry and compliance expertise and data insights deliver measurable results and peace-of-mind, and contribute to an engaged, productive workforce. Our leading technology and commitment to service excellence are at the core of our relationship with each one of our clients, whether it's a small, mid-sized or large organization operating in one or multiple countries around the world. We are always designing better ways to work through cutting-edge products, premium services and exceptional experiences that enable people to reach their full potential.\nADP's Business Pillars\nOur business is organized around three pillars which represent our core growth areas. \nU.S. HCM Solutions\n: In the United States, we provide cloud-based HCM software with supporting service and expertise that assists employers of all types and sizes in managing the entire worker spectrum and employment cycle \u2013 from full-time to freelancer and from hire to retire.\nU.S. HR Outsourcing (HRO) Solutions\n: In the United States, we offer comprehensive HRO solutions in which we provide complete management solutions for HR \nadministration, payroll administration, talent management, employee benefits, benefits administration, employer liability management, and other HCM and employee benefits functions.\nGlobal Solutions\n: We offer international HCM and HRO solutions, comprised of both local, in-country solutions and cloud-based multi-country solutions, to clients wherever they do business around the world.\nADP\u2019s Strategy\nOur business strategy has three key priorities: \nWith a large and growing addressable market, we are focused on our core growth areas and further enhancing our market position by executing on our Strategy:\n\u2022 Lead with Best-in-Class HCM Technology. \nWe design and develop world-class HCM platforms that simplify work and utilize enabling technologies like artificial intelligence and modern cloud architecture. We aim to solve the needs of our clients and their workers today by making HCM transactions effortless and compliant, while anticipating their needs of tomorrow by incorporating valuable data insights and guidance into our solutions to help them better understand their workforce and how they compare to industry peers, and position them to make better decisions.\n\u2022 Provide Unmatched Expertise and Outsourcing Solutions.\n Our clients look to us as a source of expertise to understand key HR trends and best practices, employment and related legislation, and to offer thoughtful strategies to utilize HCM technology to achieve their business objectives and support their workforce. Many of our clients also look to us to take on responsibility for a portion or all of their HCM workflow via one of our HRO solutions. We intend to continue to build on our deep expertise and make it readily available to our clients through a variety of channels, ranging from traditional call and chat options to self-guided and AI-powered options. We will continue to leverage our decades of experience, our significant data insights, and investments in AI and other enabling \n4\ntechnologies to help our clients and their workers navigate the ever-changing world of work.\n\u2022 Benefit our Clients with Our Global Scale. \nOur clients benefit from our unmatched global footprint and scale in the HCM industry. We will continue to build on these  strengths to further improve our client experience, and to add to our global footprint to further meet our clients where they choose to do business and address their needs for a distributed and flexible workforce. We intend to build more relationships with partners, such as through the ADP Marketplace, in order to provide clients with seamless integrations and customizations that simplify their HR processes and help them meet their needs. And we will grow our sales organization and continue to invest in best-in-class sales technology to not only make the purchase experience seamless but to also empower our sellers to provide the deep expertise and insights our clients, partners and influencers require to ensure they have the right HCM solutions to help them achieve their objectives and make a meaningful impact for their employees. \nAs we continue to invest in and execute on our Strategy, we intend to continue to exceed the expectations of our clients and enable them and their people to reach their full potential.\nInnovation at ADP\nInnovation is in our DNA. For over 70 years, we have proven that actively listening and responding to what clients and their employees need and want keeps the world of work progressing forward. We pioneered HCM automation, HCM in the cloud, mobile HCM and a digital HCM marketplace. This spirit of innovation remains a steady guide as we continue to listen and respond to emerging needs. As the business, data and digital technology landscape continues to rapidly evolve, what \u201cwork\u201d means, how and where it gets done, and how workers are paid is changing as well. \nLeveraging the power of data, we innovate by anticipating the future of work, the future of HCM and the future of pay to help our clients transform their businesses, simplify work and empower their workers.\nThe size and breadth of ADP gives us a unique opportunity, especially in the era of data and data-driven products, to test innovative ideas, validate hypotheses and refine solutions before we bring them to the market. This happens through our \u201cclient-zero\u201d program, which forges a direct connection point between our internal HR practitioners and our technologists. A key area of focus is using data and feedback from front-line practitioners to build products that improve the employee experience and make HR technology more intentional and in the moment. By innovating with a client-centric mindset, we continue to transform work. \nIn today\u2019s world of work, people-data has never been more important. It gives companies the information they need to identify the depth and scope of people issues, anticipate and solve challenges, foster connections across their workforce and drive business outcomes. Sitting at the center of workforce data, we leverage the unrivaled scale, breadth, and depth of our data to provide the insights businesses need to create a better world of work. Our data is also the basis for our renowned ADP National Employment Report, which the ADP Research Institute (ADPRI) and the Stanford Digital Economy Lab recently retooled to provide a more robust, independent high-frequency view of the labor market and trajectory of economic growth in the United States.\nThe scale and scope of our client base provides us an unrivaled HCM dataset, and we are focused on converting our data advantage into our client\u2019s data advantage. We are doing this by differentiating our HCM solutions and providing our clients with insights that can help drive better decisions, and by continuing to identify and pursue new and additional data-as-a-service opportunities. We are leading this innovation effort with ADP\u00ae DataCloud, our award-winning machine learning (ML) and workforce analytics platform which is the largest private repository of payroll information available. DataCloud analyzes aggregated, anonymized and timely HCM and compensation data from more than 1 million\u00a0\u00a0\u00a0\u00a0 organizations across the U.S., powering solutions that provide clients with in-depth workforce and business insights that enable critical HR decisions. \nArtificial intelligence (AI) drives many of the key features of ADP\u2019s data products. In the U.S., ADP DataCloud's Skills Graph, our\n \nproprietary data structure, is based on more than 43 million employee records, 95 million resumes and 9 million job postings across more than 20 industries and 500 geographic areas, and uses large language models to extract, align and normalize key information such as skills, job titles and levels, education and qualifications from non-structured data and infers missing skills and qualifications from context. Skills Graph powers ADP\u2019s Candidate Profile Relevancy tool to help score, assess and predict candidates who are the best fit for a job opening and is designed to minimize the introduction of bias by, among other things, focusing on the skills, education, and experience of an applicant. Skills Graph also powers our new Organizational Benchmarking Dashboard, which enables companies to decide how best to deploy their workers by comparing organizational metrics like headcount, labor costs and turnover against other similar businesses, as well as Talent Market Insights where organizations can explore jobs and locations to understand talent availability, skills, wages, turnover and time to fill. ADP\u2019s Model-Based Benchmarks, powered by Skills Graph, also extend benchmarks to include compensation for up to 160 million workers. Model-Based Benchmarks are driven by a set of deep learning models that extract \n5\npatterns and knowledge from millions of payroll records and job profiles to provide accurate information that reflects the reality of the position being researched. We offer similar tools to clients outside the United States, including through our ADP GlobalView\u00ae and ADP iHCM solutions.\nWe are also using AI to respond to the needs of HR practitioners. ADP\u2019s data-driven Intelligent Self-Service solution uses predictive analytics and machine learning to proactively address common employee HR challenges before the need to contact their HR departments arises, freeing HR practitioners to focus on higher value initiatives. It was named a \u201cTop HR Product\u201d at the 2022 HR Technology Conference, marking the 8th consecutive year we have received this award for continued product innovation. \nADP\u2019s Pay Equity Storyboard combines analytics and benchmarking to help employers better understand potential pay gaps and provide them with real, up-to-date, aggregated and anonymized market data to understand how their compensation for a particular job compares to other similar employers. Insights powered by DataCloud are particularly important with respect to diversity, equity and inclusion (DEI) and, as part of our commitment to DEI, we introduced the first-of-its-kind, award-winning DEI benchmark to help companies assess DEI gaps, track their progress and achieve their goals, bolstering ADP\u2019s suite of DEI offerings. It also earned acclaim in Fast Company\u2019s first-ever list of the \u201cNext Big Things in Tech,\u201d which \nhighlights tech breakthroughs that promise to define the future of their industries. \nIn harnessing the power of data through ML, ADP recognizes the importance of accountability, transparency, privacy, explainability and governance, and in furtherance of those goals has established an active AI & Data Ethics Committee, comprised of both industry leaders and ADP experts, which advises on emerging industry trends and concerns and provides guidance with respect to compliance with the principles that ADP should follow while developing products, systems and applications that involve AI, ML and data.\nAs we continue to explore the potential that new technologies like generative AI can provide as we design and develop innovative solutions, we understand the great responsibility we have to approach these innovations in a way that is ethical, secure, and compliant for our business and the clients and workers we serve around the world. This led to our establishment of an interdisciplinary working group across ADP to determine governance for use cases and adoption of a set of principles and processes to govern the use of these newer technologies, including operational monitoring of recommendations made by AI/ML technologies.\nBuilt to be as dynamic as the world of work today, our next-gen platforms are designed for adaptability. Built from the ground up to be cloud-native, global, scalable and secure, our next-gen platforms are designed to provide our clients with the flexibility they need to address today\u2019s and tomorrow\u2019s workplace challenges, and to personalize the experience based on their needs. Built for dynamic teams, our next-gen HCM platform provides our clients with visibility into where work happens rather than into rigid organizational hierarchies and worker types. And, by deploying low-code applications, clients can easily tailor the solution to their needs. \nOur next-gen payroll platform is a global solution that supports workers of all types and enables real-time, transparent, continuous payroll calculations. This next-gen payroll platform also unlocks flexible pay choices for our clients so they can provide the best pay experience for their workers. As the regulatory environment rapidly changes, making it harder for companies to navigate the complexities of payroll, our next-gen payroll platform\u2019s built-in compliance capabilities enable our clients to focus on managing their business.\nAdditionally, we launched the \u201cRoll\u2122 by ADP\u201d mobile-first solution \u2013 reimagining how small businesses do payroll. This groundbreaking payroll solution utilizes an AI-powered chat interface to turn traditional payroll management into an intuitive conversation that can complete payroll in under a minute. Leveraging ADP\u2019s long-standing payroll expertise and data security, small \n6\nbusiness owners can download and self-purchase Roll and run payroll anywhere, anytime, quickly and compliantly, with no experience or training needed. The conversational experience runs off simple chat prompts such as \u201cRun my payroll,\u201d offering a frictionless experience that also allows clients to confidently handle compliance matters like tax filing and deposits.\nOur innovative Wisely\u00ae payment and financial wellness offering includes a suite of personalized banking-alternative solutions designed to give employees fast and flexible choices to access their pay and other sources of income. Wisely\u00ae Pay is a network-branded paycard with a digital account, through which\n \nemployees can access their pay, make purchases online and in store, deposit checks, load additional funds onto the card, and transfer funds to a bank account in the United States. Wisely also enables advanced capabilities and innovative features such as Earned Wage Access (EWA), automatic savings options, cash back rewards and bill pay that help employees take even more control of their finances.\n \nWisely\u00ae Direct, a network-branded general purpose reloadable card that comes with a digital account, provides similar features and functionality but is offered directly to consumers. Our digital card offerings are banking alternatives that afford \nfinancial wellness tools designed to help members realize a better financial path forward.\n\u2018Always Designing for People\u2019 isn\u2019t just a tag line \n\u2013\n innovation is also about putting our clients first by giving them and their workers a faster, smarter and easier user experience (UX) that was designed with and for them.\n \nWith a modern look and feel based on our  new design system, our new UX is powered by data and ML and provides intuitive workflows that are available when and where our clients and their workers need it. We are investing in UX alignment and simplification across our strategic products and solutions, with new UX releases for RUN Powered by ADP\u00ae, MyADP, ADP\u00ae Mobile Solutions and, most recently, ADP Workforce Now\u00ae.\nIn addition, our ADP Mobile app simplifies how work gets done by enabling clients to process their payroll anywhere, and giving millions of their employees worldwide convenient access to their payroll and HR information in 32 languages. We expanded employee self-service via our app by incorporating ML-based recommendations for employees to better find information, correct missing information, and complete tasks more efficiently.\nReportable Segments\nOur two reportable business segments are Employer Services and Professional Employer Organization (\u201cPEO\u201d), and are based on the way that management reviews the performance of, and makes decisions about, our business. For financial data by segment and by geographic area, see Note 14 to the \u201cConsolidated Financial Statements\u201d contained in this Annual Report on Form 10-K.\nEmployer Services\n.  Our Employer Services segment serves clients ranging from single-employee small businesses to large enterprises with tens of thousands of employees around the world, offering a comprehensive range of technology-based HCM solutions, including our strategic, cloud-based platforms, and HRO (other than PEO) solutions. These solutions address critical client needs and include: Payroll Services, Benefits Administration, Talent Management, HR Management, Workforce Management, Compliance Services, Insurance Services and Retirement Services.\nProfessional Employer Organization\n.  Our PEO business, called ADP TotalSource\u00ae, provides clients with comprehensive employment administration outsourcing solutions through a relationship in which employees who work for a client (referred to as \u201cworksite employees\u201d) are co-employed by us and the client.\n7\nPRODUCTS AND SOLUTIONS\nIn order to serve the unique needs of our clients and their diverse types of businesses and workforce models, we provide a range of solutions which businesses of all types and sizes and across geographies can use to recruit, pay, manage, and retain their workforce. We address these broad market needs with our cloud-based strategic platforms: RUN Powered by ADP\u00ae, serving over 850,000 small businesses; ADP Workforce Now\u00ae, serving over 80,000 mid-sized and large businesses across our strategic pillars; and ADP Vantage HCM\u00ae and our next-gen HCM platform, serving large enterprise businesses. All of these solutions can be combined with ADP SmartCompliance\u00ae to address the increasingly broad and complex needs of employers. Outside the United States, we address the needs of over 65,000 clients with premier global solutions consisting of in-country solutions and multinational offerings, including ADP GlobalView\u00ae, ADP Celergo\u00ae/Streamline\u00ae and ADP iHCM.\nStrategic Cloud-based Products and Solutions Across Client Size and Geography\nHCM Solutions\nIntegrated HCM Solutions.\n \n \nOur premier suite of HCM products offers complete solutions that assist employers of all types and sizes in all stages of the employment cycle, from recruitment to retirement.\nOur suite of HCM solutions are powered by our strategic, cloud-based, award-winning platforms, including:\n\u2022 RUN Powered by ADP combines a software platform for small business payroll, HR management and tax compliance administration, with 24/7 service and support from our team of small business experts. RUN Powered by ADP also integrates with other ADP solutions, such as workforce management, workers\u2019 compensation insurance premium payment plans, and retirement plan administration systems.\n\u2022 ADP Workforce Now is a flexible HCM solution used across mid-sized and large businesses in North America to manage their employees. \nMore businesses use ADP Workforce Now in North America\n than any other HCM solution designed for both mid-sized and large businesses.\n\u2022 ADP Vantage HCM is a solution for large enterprises in the United States. It offers a comprehensive set of HCM capabilities within a single solution that unifies the five major areas of HCM: HR management, benefits administration, payroll services, time and attendance management, and talent management.\nPayroll\u00a0Services\n.  \nWe pay over 25 million (approximately 1 out of every 6) workers in the United States. We offer flexible payroll services to employers of all sizes, including the preparation of employee paychecks, pay statements, supporting journals, summaries, and management reports. \n8\nWe provide employers with a wide range of payroll options, including using mobile technology, connecting their major enterprise resource planning (\u201cERP\u201d) applications with ADP\u2019s payroll services or outsourcing their entire payroll process to us. Employers can choose a variety of payroll payment options including ADP\u2019s electronic wage payment and, in the United States, payroll card solutions and digital accounts. On behalf of our clients in the United States, we prepare and file federal, state and local payroll tax returns, and quarterly and annual Social Security, Medicare, and federal, state and local income tax withholding reports. \nBenefits Administration.\n \n In the United States, we provide powerful and agile solutions for employee benefits administration. These options include health and welfare administration services, leave administration services, insurance carrier enrollment services, employee communication services, and dependent verification services. In addition, ADP benefits administration solutions offer employers a simple and flexible cloud-based eligibility and enrollment system that provides their employees with tools, communications, and other resources they need to understand their benefits options and make informed choices.\nTalent\u00a0Management.\n \nADP\u2019s Talent Management solutions simplify and improve the talent acquisition, management and activation process, from recruitment to ongoing employee engagement and development. Employers can also outsource their internal recruitment function to ADP. Our solutions provide performance, learning, succession and compensation management tools that help employers align goals to outcomes, and enable managers to identify and mitigate potential retention risks. Our talent activation solutions include \nStandOut\n\u00ae powered by ADP, which provides team leaders with data and insights to drive employee engagement and leadership development, which in turn help drive employee performance.\nWorkforce\u00a0Management.\n \n ADP\u2019s Workforce Management offers a range of solutions to over 120,000 employers of all sizes, including time and attendance, absence management \nand scheduling tools. Time and attendance solutions include time capture via online timesheets, timeclocks with badge readers, biometrics and touch-screens, telephone/interactive voice response, and mobile smartphones and tablets. These tools automate the calculation and reporting of hours worked, helping employers prepare payroll, control costs and overtime, and manage compliance with wage and hour regulations. Absence management tools include accrued time off, attendance policy and leave case management modules. Our employee scheduling tools simplify visibility, offer shift-swapping capabilities and can assist managers with optimizing schedules to boost productivity and minimize under- and over-staffing. We also offer data analytics and reporting tools that provide clients with insights, benchmarks and performance metrics so they can better manage their workforce. In addition, industry-specific modules are available for labor forecasting, budgeting, activity and task management, grant and project tracking, and tips management.\nCompliance\u00a0Solutions.\n \n ADP\u2019s Compliance Solutions provides industry-leading expertise in payment compliance and employment-related tax matters that complement the payroll, HR and ERP systems of our clients. In our fiscal year ended June\u00a030, 2023, in the United States, we processed and delivered more than 79 million employee year-end tax statements and moved more than $3.1 trillion in client funds to taxing and other agencies, our clients\u2019 employees and other payees.\n\u2022 \nADP SmartCompliance.\n  In the United States, ADP SmartCompliance integrates client data delivered from our integrated HCM platforms or third-party payroll, HR and financial systems into a single, cloud-based solution. Our specialized teams use the data to work with clients to help them manage changing and complex regulatory landscapes and improve business processes. ADP SmartCompliance includes HCM-related compliance solutions such as Employment Tax and Wage Payments, as well as Tax Credits, Health Compliance, Wage Garnishments, Employment Verifications, Unemployment Claims and W-2 Management.\n\u2022 \nADP\u00a0SmartCompliance\u00a0Employment\u00a0Tax.  \nAs part of our full-service employment tax services in the United States, we prepare and file employment tax returns on our clients\u2019 behalf and, in connection with these stand-alone services, collect employment taxes from clients and remit these taxes to more than 8,000 federal, state and local tax agencies. \n9\n\u2022 \nADP\u00a0SmartCompliance\u00a0Wage\u00a0Payments.  \nIn the United States, we offer compliant pay solutions for today's workforce, including electronic payroll disbursement options such as payroll cards, digital accounts and direct deposit, as well as traditional payroll checks, which can be integrated with clients\u2019 ERP and payroll systems.\nHuman Resources Management.\n \nCommonly referred to as Human Resource Information Systems, ADP\u2019s Human Resources Management Solutions provide employers with a single system of record to support the entry, validation, maintenance, and reporting of data required for effective HR management, including employee names, addresses, job types, salary grades, employment history, and educational background. \nInsurance\u00a0Services.\n \nADP\u2019s Insurance Services business, in conjunction with our licensed insurance agency, Automatic Data Processing Insurance Agency, Inc., facilitates access in the United States to workers\u2019 compensation and group health insurance for small and mid-sized clients through a variety of insurance carriers. \nOur automated Pay-by-Pay\u00ae\u00a0premium payment program calculates and collects workers\u2019 compensation premium payments each pay period, simplifying this task for employers.\nRetirement\u00a0Services.\n  ADP Retirement Services helps employers in the United States administer various types of retirement plans, such as traditional and Roth 401(k)s, profit sharing (including new comparability), SIMPLE and SEP IRAs, and executive deferred compensation plans. ADP Retirement Services offers a full service 401(k) plan program which provides recordkeeping and administrative services, combined with an investment platform offered through ADP Broker-Dealer, Inc. that gives our clients\u2019 employees access to a wide range of non-proprietary investment options and online tools to monitor the performance of their investments. In addition, ADP Retirement Services offers investment management services to retirement plans through ADP Strategic Plan Services, LLC, an SEC registered investment adviser under the Investment Advisers Act of 1940. ADP Retirement Services also offers trustee services through a third party.\nHRO Solutions\nAs a leader in the growing HR Outsourcing market, we partner with our clients to offer a full range of seamless technology and service solutions for HR administration, workforce management, payroll services, benefits administration and talent management. From small businesses to enterprises with thousands of employees, our clients gain proven technology and processes and robust service and support. Whether a client chooses our PEO or other HR Outsourcing solutions, we offer solutions tailored to a client\u2019s specific needs and preferences \n\u2013\n designed to meet the client\u2019s needs today, and as its business and needs evolve.\nProfessional Employer Organization.\n ADP TotalSource is enabled by ADP Workforce Now and offers small and mid-sized businesses a comprehensive HR outsourcing solution through a co-employment model. With a PEO, both ADP and the client have a co-employment relationship with the client\u2019s employees. We assume certain employer responsibilities such as payroll processing and tax filings, and the client maintains control of its business and all management responsibilities. ADP TotalSource clients are able to offer their employees services and benefits on par with those of much larger enterprises, without the need to staff a full HR department. With our cloud-based HCM software at the core, we serve more than 16,000 clients and \n10\nmore than 725,000 worksite employees in all 50 U.S. states. ADP TotalSource is the largest PEO certified by the Internal Revenue Service as meeting the requirements to operate as a Certified Professional Employer Organization under the Internal Revenue Code. As a full-service PEO, ADP TotalSource provides a broad range of HR administrative services, including payroll and payroll tax, employer compliance, HR guidance, employee benefits and benefit administration, talent strategies, and workers\u2019 compensation insurance including risk and claims management. Some of the rich offerings available through ADP TotalSource to address today\u2019s workplace challenges include:\n\u2022 Better Employee Benefits:  Through our PEO, many of our clients discover that they can offer a richer overall benefits package than they could afford to offer on their own. We give clients access to a patented approach to help them target the best benefit plan offerings for their employees. They can compare plan options and make more educated decisions about what plan offering is best for their company and budget. In addition, ADP TotalSource integrates with our award-winning ADP Marketplace to further tailor offerings, such as helping employees pay off student loans with payroll contributions and integrating a client\u2019s U.S. PEO population with its global workforce\u2019s HR system of record.\n\u2022 Protection and Compliance:  ADP TotalSource HR experts help clients manage the risks of being an employer by advising how to handle properly a range of issues \n\u2013\n from HR and safety compliance to employee-relations. This includes access to workers' compensation coverage and expertise designed to help them handle both routine and unexpected incidents, including discrimination and harassment claims. \n\u2022 Talent Engagement:  Featuring a talent blueprint, ADP TotalSource HR experts work with clients to help them better engage and retain their workforce through solutions that support the core needs of an employee at work. In addition, our full-service recruitment team is dedicated to helping our clients find and hire new talent, while reducing the stress of uncovering top talent.\n\u2022 Expertise:  Each client is assigned a designated HR specialist for day-to-day and strategic guidance. Clients can also access data-driven benchmarks in areas such as turnover and overtime, staffing and understanding profit leaks, and have their ADP HR expert help tailor recommendations to continue to drive their business forward. A payroll specialist is also available to clients to help them ensure their workers are paid correctly, on time and in compliance.\nADP Comprehensive Services. \n Leveraging our market-leading ADP Workforce Now platform, ADP Comprehensive Services partners with clients of all types \nand sizes to tackle their HR, talent, benefits administration and pay challenges with help from our proven expertise, deep experience and best practices. ADP Comprehensive Services is flexible \n\u2013\n enabling clients to partner with us for managed services for one, some or all areas across HR, talent, benefits administration and pay. We provide outsourced execution that combines processes, technology and a robust service and support team that acts as an extension of our client\u2019s in-house resources \n\u2013\n so their HCM and pay operations are executed with confidence.\nADP Comprehensive Outsourcing Services (ADP COS).\n  ADP COS is designed for large business outsourcing for payroll, HR administration, workforce management, benefits administration and talent management. With ADP COS, the day-to-day payroll process becomes our responsibility, freeing up clients to address critical issues like employee engagement and retention. The combination of technology, deep expertise and data-driven insights that ADP COS offers is powerful, allowing clients to focus on strategy and results.\nADP Recruitment Process Outsourcing Services (ADP RPO\n\u00ae\n). \n ADP RPO provides deep talent insights to help drive targeted recruitment strategies for attracting top talent. With global, customizable recruitment services, ADP RPO enables organizations to find and hire the best candidates for hourly, professional or executive positions. In addition, we also deliver market analytics, sourcing strategies, candidate screening, selection and on-boarding solutions to help organizations connect their talent strategy to their business's priorities.\nGlobal Solutions\nOur premier global solutions consist of multi-country and local in-country solutions for employers of any type or size. We partner with clients to help them navigate the most complex HR and payroll scenarios using tailored and scalable technology supported by our deep compliance expertise.\nADP Global Payroll is a solution for multinational organizations of all sizes, empowering them to harmonize \n11\nHCM strategies in 140 countries globally. This improves visibility, control and operational efficiency, giving organizations the insight and confidence to adapt to changing local needs, while helping to drive overall organizational agility and engagement.\nWe also offer comprehensive, country-specific HCM solutions that combine innovative technology with deep local expertise. By operating a flexible service model, we help clients manage various combinations of payroll services, HR management, time and attendance management, talent management and benefits management, depending on the country in which the solution is provided.\nWe pay over 15 million workers outside the United States with our in-country solutions and with ADP GlobalView, ADP Celergo/Streamline and ADP iHCM \n\u2013\n our simplified and intuitive multi-country solutions. As part of our global payroll services, we supply year-end regulatory and legislative tax statements and other forms to our clients\u2019 employees. Our global talent management solutions elevate the employee experience, from recruitment to ongoing employee engagement and development. Our comprehensive HR solutions combined with our deep expertise make our clients\u2019 global HR management strategies a reality. Our configurable, automated time and attendance tools help global clients understand the work being performed and the resources being used, and help ensure the right people are in the right place at the right time.\nMARKETS AND SALES\nOur HCM solutions are offered in 140 countries and territories across North America, Latin America, Europe, Asia and Africa. The most material markets for HCM Solutions, Global Solutions and HRO Solutions (other than PEO) are the United States, Canada and Europe. In each market, we have both country-specific solutions and multi-country solutions, for employers of all sizes and complexities. The major components of our offerings throughout these geographies are payroll, HR outsourcing and time and attendance management. In addition, we offer wage and tax collection and/or remittance services in the United States, Canada, the United Kingdom, Australia, India and China. Our PEO business offers services exclusively in the United States.\nWe market our solutions primarily through our direct sales force. We also market HCM Solutions, Global Solutions and HRO Solutions through indirect sales channels, such as marketing relationships with certified public accountants and banks, among others. None of our major business units has a single homogeneous client base or market. While concentrations of clients exist in specific industries, no one client, industry or industry group is material to our overall revenues. We are a leader in each of our major service \nofferings and do not believe any of our major services or business units is subject to unique market risk.\nCOMPETITION\nThe industries in which we operate are highly competitive. We know of no reliable statistics by which we can determine the number of our competitors, but we believe that we are one of the largest providers of HCM solutions in the world. HCM Solutions, Global Solutions and HRO Solutions (other than PEO) compete with other business outsourcing companies, companies providing ERP services, providers of cloud-based HCM solutions and financial institutions. Our PEO business competes with other PEOs providing similar services, as well as business outsourcing companies, companies providing ERP services and providers of cloud-based HCM solutions. Other competitive factors include a company\u2019s in-house function, whereby a company installs and operates its own HCM system.\nCompetition for business outsourcing solutions is primarily based on product and service quality, reputation, ease of use and accessibility of technology, breadth of offerings, and price. We believe that we are competitive in each of these areas and that our leading-edge technology (together with our data) and commitment to service excellence, distinguishes us from our competitors.\nINDUSTRY REGULATION\nOur business is subject to a wide range of complex U.S. and foreign laws and regulations. In addition, many of our solutions are designed to assist clients with their compliance with certain U.S. and foreign laws and regulations that apply to them. We have, and continue to enhance, compliance programs and policies to monitor and address the legal and regulatory requirements applicable to our operations and client solutions, including dedicated compliance personnel and training programs.\nAs one of the world\u2019s largest providers of HCM solutions, our systems contain a significant amount of sensitive data \n12\nrelated to clients, employees of our clients, vendors and our employees. We are, therefore, subject to compliance obligations under federal, state and foreign privacy, data protection, artificial intelligence (AI) and cybersecurity-related laws, including federal, state and foreign security breach notification laws with respect to both client employee data and our own employee data. The changing nature of these comprehensive laws in the United States, Europe and elsewhere, including the European Union\u2019s (the \u201cEU\u201d) General Data Protection Regulation (the \u201cGDPR\u201d) and the California Privacy Rights Act of 2020 (the \u201cCPRA\u201d), impact our processing of personal information of our employees and on behalf of our clients. The GDPR imposes strict and comprehensive requirements on us as both a data controller and a data processor. As part of our overall data protection compliance program, including with respect to data protection laws in the EU, we are one of the few companies in the world to have implemented Binding Corporate Rules (\u201cBCRs\u201d). Compliance with our BCRs permits us to process and transfer personal data across borders in accordance with the GDPR and other data protection laws in the EU. The\n \nCPRA requires companies to provide data disclosure, access, deletion and opt-out rights to consumers in California. In the area of artificial intelligence, some states and localities in the U.S. have proposed or already enacted legislation and proposals are pending in the European Union and elsewhere that would impose obligations on how we develop and market AI-based products and solutions. Additionally, self-regulatory frameworks like the National Institute of Standards and Technology AI Risk Management Framework are being promulgated and adherence to these may become an industry standard or client expectation. In the United States, the Health Insurance Portability and Accountability Act of 1996 applies to our insurance services businesses and ADP TotalSource.\nAs part of our payroll and payroll tax management services, we move client funds to taxing authorities, our clients\u2019 employees and other payees via electronic transfer, direct deposit, prepaid access and ADPCheck. In 2019, the Office of the Comptroller of Currency (the \u201cOCC\u201d) authorized us to open ADP Trust Company, National Association (the \u201cADP Trust Bank\u201d), via a national trust bank charter pursuant to the National Bank Act. The ADP Trust Bank is the sole trustee of ADP Client Trust, our grantor trust which holds U.S. client funds, and is responsible for the oversight and management of those client funds. The ADP Trust Bank, and all of its fiduciary activities including the U.S. money movement it oversees and manages via ADP Client Trust, is subject to comprehensive ongoing oversight and regulation by the OCC. In addition, our U.S. money movement managed by the ADP Trust Bank and our U.S. prepaid access offering are subject to the anti-money laundering and reporting provisions of The Bank Secrecy Act of 1970, as amended by the USA PATRIOT Act of 2001 (the \u201cBSA\u201d). Elements \nof our money movement activities outside of the United States are subject to licensing and similar anti-money laundering and reporting laws and requirements in certain countries in which we provide such services. Our employee background screening services business offers background checking services that are subject to the Fair Credit Reporting Act. ADP TotalSource is subject to various state licensing requirements and, as a Certified PEO, maintains certifications with the Internal Revenue Service. Because ADP TotalSource is a co-employer with respect to its clients\u2019 worksite employees, we may be subject to certain obligations and responsibilities of an employer under federal and state tax, insurance and employment laws, including worksite employee payroll obligations and with respect to claimed employee retention and other tax credits. ADP Strategic Plan Services, LLC, our registered investment adviser, provides certain investment management and advisory services to retirement plan administrators under a heightened \u201cfiduciary\u201d standard and is regulated by the SEC and the U.S. Department of Labor. ADP Broker-Dealer, Inc., which supports our Retirement Services business, is a registered broker-dealer regulated by the SEC and the Financial Industry Regulatory Authority (FINRA).\nOur current and future offerings in the payments and/or consumer space may also subject us to additional laws and regulations, which could also require corresponding compliance programs and policies and dedicated resources.\nIn addition, many of our businesses offer solutions that assist our clients in complying with certain U.S. and foreign laws and regulations that apply to them. Although these laws and regulations apply to our clients and not to ADP, changes in such laws or regulations may affect our operations, products and services. For example, our payroll services are designed to facilitate compliance with state laws and regulations applicable to the payment of wages. In addition, our HCM solutions help clients manage their compliance with certain requirements of the Affordable Care Act in the United States. Similarly, our Tax Credit Services business, which helps clients in the United States take advantage of tax credit opportunities in connection with the hiring of new employees and certain other activities, is based on federal, state or local tax laws and regulations allowing for tax credits, which are subject to renewal, amendment or rescission.\nWe believe that key components of our compliance programs provide real competitive differentiators. For instance, our BCRs have enabled ADP to apply a global standard of data protection, simplifying data transfer processes and assisting our clients in meeting the demanding standards of data protection expected in Europe \u2013 a solution that most competitors cannot provide. Similarly, the ADP Client Trust and ADP Trust Bank provide client funds with a level of protection that most competitors cannot offer. We continue to expand our \n13\napproach to compliance and are adopting \u201cCompliance by design\u201d as a tenet that prioritizes compliance in designing and developing new solutions to support our clients.\nThe foregoing description does not include an exhaustive list of the laws and regulations governing or impacting our business. See the discussion contained in the \u201cRisk Factors\u201d section in Part I, Item 1A of this Annual Report on Form 10-K for information regarding changes in laws and regulations that could have a materially adverse effect on our reputation, results of operations or financial condition or have other adverse consequences.\nCLIENTS AND CLIENT CONTRACTS\nWe provide services to more than 1 million clients. In fiscal 2023, no single client or group of affiliated clients accounted for revenues in excess of 2% of our annual consolidated revenues.\nWe are continuously in the process of performing implementation services for new clients. Depending on the service agreement and/or the size of the client, the installation or conversion period for new clients can vary from a short period of time for a small Employer Services client (as little as 24 hours) to a longer period for a large Employer Services client with multiple deliverables (generally six to nine months). In some cases, based on a client's timeline, the period may exceed two years for a large, multi-country GlobalView client or other large, multi-phase implementation. Although we monitor sales that have not yet been installed, we do not view this metric as material to an understanding of our overall business in light of the recurring nature of our business. This metric is not a reported number, but it is used by management as a planning tool to allocate resources needed to install services, and as a means of assessing our performance against the expectations of our clients. In addition, some of our products and services are sold under longer-term contracts with initial terms ranging from two to seven years. However, this anticipated future revenue under contract is not a significant portion of our expected future revenue, is not a meaningful indicator of our future performance and is not material to management's estimate of our future revenue.\nOur business is typically characterized by long-term client relationships that result in recurring revenue. Our services are provided under written price quotations or service agreements having varying terms and conditions. No one price quotation or service agreement is material to us. Based on our retention levels in fiscal 2023, our client retention is estimated at approximately \n13 years\n in Employer Services, and approximately \n6 years\n in PEO.  \nPRODUCT DEVELOPMENT\nWe continually upgrade, enhance, and expand our solutions and services. In general, new solutions and services supplement rather than replace our existing solutions and services and, given our recurring revenue model, do not have a material and immediate effect on our revenues. We believe that our strategic solutions and services have significant remaining life cycles.\nSYSTEMS DEVELOPMENT AND PROGRAMMING\nDuring the fiscal years ended June\u00a030, 2023, 2022 and 2021, we invested approximately $1.195 billion, $1.210 billion and $1.016 billion, respectively, in systems development and programming. These investments include expenses for activities such as the development of new products, maintenance expenses associated with our existing technologies, purchases of new software and software licenses, and additions to software resulting from business combinations.\nLICENSES\nWe are the licensee under a number of agreements for computer programs and databases. Our business is not dependent upon a single license or group of licenses. Third-party licenses, patents, trademarks, and franchises are not material to our business as a whole.\nOUR HCM STRATEGY \nOur Human Capital Management (HCM) strategy is simple, our people are one of our most valuable assets and we are committed to valuing, developing and engaging them. \nOur Chief Human Resources Officer (CHRO), together with our Executive Leadership Team, manages our HCM strategy and related programs and initiatives, as well as our talent strategy. Our CHRO, along with our CEO, as \n14\nappropriate, regularly updates and supports our Compensation and Management Development Committee of the Board (\u201cCMDC\u201d) as well as the Board of Directors on HCM matters, including culture, engagement, and diversity, equity, inclusion and belonging. The CMDC is responsible for these matters, as well as our executive compensation program, management succession planning and talent development, and company-wide equity-based plans.\n \nOur Associates and Demographics\nAs of \nJune\u00a030, 2023\n, our global team of associates consisted of approximately 63,000 persons. We track certain gender and racial demographics of our workforce and share them in our annual Global Corporate Social Responsibility (\u201cCSR\u201d) Report, which is available on our website. \nNothing in our CSR Report shall be deemed incorporated by reference into this Annual Report on Form 10-K.\nOur Culture and Values\nMore than 70 years ago, our founders established the values that guide us today. \nThese values have helped shape our one-of-a-kind culture, which embraces diversity, equity, inclusiveness and belonging.\nOur long-term business success is closely linked to our commitment to creating an environment in which our associates thrive, and that means we have to listen to and engage our associates. We conduct an annual culture survey, myVoice, where our associates can share their opinions on important topics, including client service, diversity, social responsibility, ethics, innovation and leadership. Along with many of our world-class clients, we leverage our innovative StandOut\u00ae powered by ADP platform, to drive talent engagement, performance management and activation. We issue quarterly global \nStandOut\u00ae Engagement Pulse\u00ae and Performance Pulse\u00ae surveys to ensure that all associates can share with their leaders how they feel about their work and their colleagues, and for us to get a snapshot of engagement across the globe.  \nThe strength of our ADP team comes from what each one of us offers each other, our clients and our community. Through our myMoment Recognition Program, we give our associates the opportunity to recognize and celebrate each other when they demonstrate our values, drive our goals and go above and beyond in contributing to our collective success. Our global ADP Cares program, which is funded by the Company, the ADP Foundation and our generous associates, helps members of our team get through difficult, unforeseen events such as natural disasters and major illnesses. We also proudly support our associates that give back to our communities through paid volunteer time off and our donation matching program.\nDiversity, equity and inclusion are a cornerstone of our one-of-a-kind culture. We value diverse perspectives and believe that our associates and their best ideas thrive in a diverse and inclusive environment. We strive to reflect the diversity of the communities and clients we serve and are firmly focused on ensuring that all our associates are welcomed and enjoy a deep sense of belonging.\nWe have a number of initiatives to strengthen and further cultivate our inclusive and diverse culture, starting with our Talent Task Force for all of our people leaders, which includes diversity goals for our senior leaders that are tied to their compensation as an incentive to diversify our leadership ranks. Our Workforce Diversity Initiative uses data analysis to identify and focus on opportunities to increase the number of underrepresented associates in our workforce to better reflect the communities we serve. Our voluntary business resource groups (BRGs), which cover a broad array of diverse associates that share common interests and experiences, make us stronger by promoting diversity and cultural awareness, accelerating associate engagement, retention and career development, helping build relationships with diverse markets in our communities, and promoting the conservation and restoration of natural resources.  \nWe have undertaken and implemented several initiatives that underpin our culture, values and talent practices, including:\n\u2022  Continuing to eliminate a college degree requirement to expand the applicant pool for non-specialized roles, such as those in our sales, service and implementation and technology organizations;\n\u2022 Launching ADP\u2019s Impact Council, activating top executives to align their business unit practices and \n15\noutcomes with our diversity, equity and inclusion strategy; and\n\u2022  Establishing partnerships with the National Black MBA Association, the United Negro College Fund, Prospanica, the Anita Borg Institute for Women and Technology and Disability:IN to further diversify our talent pipeline and educate and develop their members.\nIn addition, we are deeply committed to fair and equitable pay, which is critical to creating a diverse, inclusive and engaging culture. We make pay decisions based on skills, job-related experience, the market value of the job and performance, and in the U.S. and Canada do not ask candidates for prior pay history, whether or not we are required to do so.\nOur commitment to building a better world of work and creating a workplace where everyone can thrive has led to recognition across the globe, including Fortune\u2019s World\u2019s Most Admired Companies (17 consecutive years); Best Place to Work for LGBTQ+ Equality (13 consecutive perfect scores on the Human Rights Campaign Foundation\u2019s Corporate Equality Index); DiversityInc Top 50 Companies for Diversity; Seramount\u2019s Best Companies. for Multicultural Women; Barron\u2019s 100 Most Sustainable Companies; and Newsweek\u2019s America\u2019s Most Responsible Companies.\nOur Talent Strategy\nOur talent strategy is simple \u2013 we aim to attract, develop and retain ambitious, passionate and overall top talent by offering a place where our people can grow their careers, challenge themselves, share generously, take risks, and create positive change. This has allowed us to be consistently recognized by esteemed organizations as an employer of choice year after year.\nWe invest in our team members so that they have the skills necessary to succeed and grow their careers. The ADP talent journey begins with an innovative, engaging and comprehensive onboarding process followed by extensive \ntraining and mentorship. Thereafter, our associates can access a wide range of professional and functional skills training to further continue and enhance performance and career development. Our professional skills program provides on-demand and self-paced learning paths on key topics such as business acumen, client service, time management, teamwork and collaboration, communication and career management. Our leadership program is designed to help leaders build self-awareness, cultivate strong internal relationships, establish a leadership model that is unique to their strengths and achieve better decision-making using systems thinking.\nOur Benefits and Health and Wellness Programs\nThe wide range of benefits and health and wellness programs we offer contribute to an environment where all our associates add to our success. Our associates receive a competitive benefits package, intended to help them enjoy physical, emotional and financial well-being and be productive members of their teams. While exact benefits vary by associate and region, they typically include health care coverage, a 401(k) plan with company matching contributions for U.S. associates, life insurance, paid time off and tuition reimbursement. We particularly emphasize benefits that support individual and family needs (parental leave, adoption/fertility benefits and caregiver support), and constantly update our programs according to our associates\u2019 needs.\nWe offer physical and mental wellness programs that help our team pursue a healthy lifestyle and reduce absenteeism and lost time due to injuries. Our efforts include a company-wide health and safety manual and website, safety education and training, and a wellness program that rewards associates for completing wellness activities. Physical and mental health initiatives vary across regions, but can include personal health checks, nutrition and fitness expert visits offering free consultation and programs, employee mental wellness assistance programs, free counseling and mental health therapy assistance for associates, and mindfulness classes.  \nAvailable Information\nOur corporate website, \nwww.adp.com\n, provides materials for investors and information about our solutions and services. ADP\u2019s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, and the Proxy Statements for our Annual Meetings of Stockholders are made available, free of charge, on our corporate website as soon as reasonably practicable after such reports have been filed with or furnished to the Securities and Exchange Commission (\u201cSEC\u201d), and are also available on the SEC\u2019s website at \nwww.sec.gov\n. The content on any website referenced in this filing is not incorporated by reference into this filing unless expressly noted otherwise.\n16",
+  "item1a": ">Item 1A. Risk Factors\nOur businesses routinely encounter and address risks, some of which may cause our future results to be different than we currently anticipate. The risk factors described below represent our current view of some of the most important risks facing our businesses and are important to understanding our business. The following information should be read in conjunction with Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures About Market Risk and the consolidated financial statements and related notes included in this Annual Report on Form 10-K. This discussion includes a number of forward-looking statements. You should refer to the description of the qualifications and limitations on forward-looking statements in the first paragraph under Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report on Form 10-K. See \"Item 1. Business\u2014Competition\" of this Form 10-K for a discussion of the competitive environment in the markets in which we operate. Many risks affect more than one category, and the risks are not in order of significance or probability of occurrence because they have been grouped by categories. The risks described below are not the only risks we face and the occurrence of any of the following risks or other risks not presently known to us or that we currently believe to be immaterial could\n \nhave a materially adverse effect on our business, results of operations, financial condition or reputation.\nLEGAL AND COMPLIANCE RISKS\nFailure to comply with, compliance with or changes in, laws and regulations applicable to our businesses could have a materially adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences\nOur business is subject to a wide range of complex U.S. and foreign laws and regulations, including, but not limited to, the laws and regulations described in the \u201cIndustry Regulation\u201d section in Part I, Item 1 of this Annual Report on Form 10-K. Failure to comply with laws and regulations applicable to our operations or client solutions and services could cause us to incur substantial costs or could result in the suspension or revocation of licenses or registrations, the limitation, suspension or termination of services, the imposition of consent orders or civil and criminal penalties, including fines, and lawsuits, including class actions, that could damage our reputation and have a materially adverse effect on our results of operation or financial condition.\nIn addition, changes in laws or regulations, or changes in the interpretation of laws or regulations by a regulatory authority, may decrease our revenues and earnings and may require us to change the manner in which we conduct some aspects of our business. For example, a change in regulations either decreasing the amount of taxes to be \nwithheld or allowing less time to remit taxes to government authorities would adversely impact average client balances and, thereby, adversely impact interest income from investing client funds before such funds are remitted to the applicable taxing authorities. Changes in U.S. or foreign tax laws, regulations or rulings or the interpretation thereof could adversely affect our effective tax rate and our net income. Changes in laws, or interpretations thereof, that govern the co-employment arrangement between a professional employer organization and its worksite employees may require us to change the manner in which we conduct some aspects of our PEO business. In addition, changes in the manner in which health and welfare plans sponsored by PEOs or the TotalSource Health and Welfare Plan, in particular, are regulated could adversely impact the demand for our PEO offering. \nBecause our PEO is a co-employer with our PEO clients and a Certified PEO by the Internal Revenue Service, we may be subject to certain obligations, responsibilities and liabilities of an employer with respect to Worksite Employees (WSE), including with respect to their wages and the payment thereof, the payment of certain taxes with respect to WSE wages and employee benefits provided to the WSEs. Even though PEO clients are contractually responsible for the timely remittance of such costs, it is possible that our clients will not remit such payments despite their contractual obligations. The risk of failing to receive such payments from PEO clients could be magnified during significant financial or other disruptions or catastrophic events, such as the failure of a bank, like that of Signature Bank or Silicon Valley Bank, with whom a significant number of PEO clients may bank at the time, or more widespread stress or failure within the U.S. banking system. Any such event could prevent or materially delay the recovery of any payments not timely remitted and could have an adverse impact on our financial results and liquidity.\nOur Wisely offerings and potentially other future offerings in the payments and/or consumer space may subject us to additional laws and regulations, some of which may not be uniform and may require us to modify or restrict our offerings and decrease our potential revenue and earnings. \nFailure to comply with anti-corruption laws and regulations, economic and trade sanctions, anti-money laundering laws and regulations, and similar laws could have a materially adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences\nRegulators worldwide continue to exercise a high level of scrutiny with respect to anti-corruption, economic and trade sanctions, and anti-money laundering laws and regulations. Such scrutiny has resulted in aggressive investigations and enforcement of such laws and burdensome regulations, any of which could materially adversely impact our business. We operate our business around the world, including in numerous developing economies where companies and government officials are more likely to engage in business practices that are \n17\nprohibited by domestic and foreign laws and regulations, including the United States Foreign Corrupt Practices Act and the U.K. Bribery Act 2010. Such laws generally prohibit improper payments or offers of payments to foreign government officials and leaders of political parties and, in some cases, to other persons, for the purpose of obtaining or retaining business. We are also subject to economic and trade sanctions programs, including those administered by the U.S. Treasury Department\u2019s Office of Foreign Assets Control, which prohibit or restrict transactions or dealings with specified countries, their governments and, in certain circumstances, their nationals, and with individuals and entities that are specially designated, including narcotics traffickers and terrorists or terrorist organizations, among others. In addition, some of our businesses and entities in the U.S. and a number of other countries in which we operate are subject to anti-money laundering laws and regulations, including, for example, The Bank Secrecy Act of 1970, as amended by the USA PATRIOT Act of 2001 (the \u201cBSA\u201d). Among other things, the BSA requires certain financial institutions, including banks and money services businesses (such as national trust banks and providers of prepaid access like us), to develop and implement risk-based anti-money laundering programs, report large cash transactions and suspicious activity, and maintain transaction records. We have registered our payroll card business as a provider of prepaid access, and registered our ADP Trust Bank with the Treasury Department\u2019s Financial Crimes Enforcement Network (FinCEN).\nWe have implemented policies and procedures to monitor and address compliance with applicable anti-corruption, economic and trade sanctions and anti-money laundering laws and regulations, and we regularly review, upgrade and enhance our policies and procedures. However, there can be no assurance that our employees, consultants or agents will not take actions in violation of our policies for which we may be ultimately responsible, or that our policies and procedures will be adequate or will be determined to be adequate by regulators. Any violations of applicable anti-corruption, economic and trade sanctions or anti-money laundering laws or regulations could limit certain of our business activities until they are satisfactorily remediated and could result in civil and criminal penalties, including fines, which could damage our reputation and have a materially adverse effect on our results of operation or financial condition. Further, bank regulators continue to impose additional and stricter requirements on banks to ensure they are meeting their BSA obligations, and banks are increasingly viewing money services businesses and third-party senders to be higher risk customers for money laundering. As a result, our banking partners that assist in processing our money movement transactions may limit the scope of services they provide to us or may impose additional material requirements on us. These regulatory restrictions on banks and changes to banks\u2019 internal risk-based policies and procedures may result in a decrease in \nthe number of banks that may do business with us, may require us to materially change the manner in which we conduct some aspects of our business, may decrease our revenues and earnings and could have a materially adverse effect on our results of operations or financial condition.\nFailure to comply with privacy, data protection, artificial intelligence and cyber security laws and regulations could have a materially adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences\nThe collection, storage, hosting, transfer, processing, disclosure, use, security and retention and destruction of personal information required to provide our services is subject to federal, state and foreign privacy, data protection and cyber security laws. These laws, which are not uniform, generally do one or more of the following: regulate the collection, storage, hosting, transfer (including in some cases, the transfer outside the country of collection), processing, disclosure, use, security and retention and destruction of personal information; require notice to individuals of privacy practices; give individuals certain access and correction rights with respect to their personal information; and regulate the use or disclosure of personal information for secondary purposes such as marketing. Under certain circumstances, some of these laws require us to provide notification to affected individuals, clients, data protection authorities and/or other regulators in the event of a data breach. In many cases, these laws apply not only to third-party transactions, but also to transfers of information among the Company and its subsidiaries. The European Union (the \u201cEU\u201d) General Data Protection Regulation (the \u201cGDPR\u201d), and state consumer privacy laws like the California Privacy Rights Act of 2020 (the \u201cCPRA\u201d), are among the most comprehensive of these laws, and more and more jurisdictions are adopting similarly comprehensive laws that impose new data privacy protection requirements and restrictions. As part of our overall data protection compliance program in connection with the GDPR, we implemented Binding Corporate Rules (\u201cBCRs\u201d) as both a data processor and data controller, which permits us to process and transfer personal data across borders in compliance with EU data protection laws.\nWe believe that providing insights and content from data, including via artificial intelligence (AI) and machine learning (ML), will become increasingly important to the \nvalue\n that our solutions and services deliver to our clients. We are increasingly leveraging AI and ML in our solutions and service delivery and are exploring how best to integrate generative AI technologies and develop and deploy capabilities that are beneficial to our clients and their employees. However, legislation that would govern the development and/or use of AI is under consideration in the U.S. at the state and local level, as well as abroad. In \naddition\n, self-regulatory frameworks like the National \n18\nInstitute of Standards and Technology AI Risk Management Framework are being promulgated and adherence to these may become an industry standard or a client expectation. As a result, the ability to provide data-driven insights and otherwise leverage AI and ML may be constrained by current or future laws, regulatory or self-regulatory requirements or ethical considerations, including our own published, guiding ethical principles regarding AI and ML, that could restrict or impose burdensome and costly requirements on our ability to leverage data and/or these technologies in innovative ways.\nComplying with privacy, data protection, AI and cyber security laws and requirements, including the enhanced obligations imposed by the GDPR, our BCRs and the CPRA, may result in significant costs to our business and require us to amend certain of our business practices. Further, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase. The future enactment of more restrictive laws, rules or regulations and/or future enforcement actions or investigations could have a materially adverse impact on us through increased costs or restrictions on our businesses and noncompliance could result in significant regulatory penalties and legal liability and damage our reputation. In addition, data security events, concerns about privacy abuses by other companies and increased awareness of the potential (positive and negative) of AI are changing consumer and social expectations for enhanced protections (including with respect to bias and potential discrimination). As a result, noncompliance, the failure to meet such expectations or the perception of noncompliance or such failure, whether or not valid, may damage our reputation.\nIf we fail to protect our intellectual property rights, it could materially adversely affect our business and our brand\nOur ability to compete and our success depend, in part, upon our intellectual property. We rely on patent, copyright, trade secret and trademark laws, and confidentiality or license agreements with our employees, clients, vendors, partners and others to protect our intellectual property rights. We may need to devote significant resources, including cybersecurity resources, to monitoring our intellectual property rights. In addition, the steps we take to protect our intellectual property rights may be inadequate or ineffective, or may not provide us with a significant competitive advantage. Our intellectual property could be wrongfully acquired as a result of a cyber-attack or other wrongful conduct by third parties or our personnel. Litigation brought to protect and enforce our intellectual property rights could be costly and time-consuming. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights, which \nmay be successful. In addition, use of AI tools may result in the release of confidential or proprietary information which could limit our ability to protect, or prevent us from protecting, our intellectual property rights.\nWe may be sued by third parties for infringement of their proprietary rights, which could have a materially adverse effect on our business, financial condition or results of operations\nThere is considerable intellectual property development activity in our industry. Third parties, including our competitors, may own or claim to own intellectual property relating to our products or services and may claim that we are infringing their intellectual property rights. Additionally, as we expand our use of AI, there is uncertainty regarding intellectual property ownership and license rights of AI algorithms and content generated by AI and we may become subject to similar claims of infringement. We may be found to be infringing upon third party intellectual property rights, even if we are unaware of their intellectual property rights. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us or if we decide to settle, could require that we pay substantial damages or ongoing royalty payments, obtain licenses, modify applications, prevent us from offering our services, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our clients, vendors or partners in connection with any such claim or litigation. Even if we were to prevail in such a dispute, any litigation could be costly and time-consuming.\nSECURITY AND TECHNOLOGY RISKS\nOur businesses collect, host, store, transfer, process, disclose, use, secure and retain and dispose of personal and business information, and collect, hold and transmit client funds, and a security or privacy breach may damage or disrupt our businesses, result in the disclosure of confidential information, damage our reputation, increase our costs, cause losses and materially adversely affect our results of operations\nIn connection with our business, we collect, host, store, transfer, process, disclose, use, secure and retain and dispose of large amounts of personal and business information about our clients, employees of our clients, our vendors and our employees, contractors and temporary staff, including payroll information, health care information, personal and business financial data, social security numbers and their foreign equivalents, bank account numbers, tax information and other sensitive personal and business information. We also collect significant amounts of funds from the accounts of our clients and transmit them to their employees, taxing authorities and other third parties.\n19\nWe are focused on ensuring that we safeguard and protect personal and business information and client funds, and we devote significant resources to maintain and regularly update our systems and processes. Nonetheless, the global environment continues to grow increasingly hostile as attacks on information technology systems continue to grow in frequency, complexity and sophistication, and we are regularly targeted by unauthorized parties using malicious tactics, code and viruses. Certain of these malicious parties may be state-sponsored and/or supported by significant financial and technological resources. Although this is a global problem, it may affect our businesses more than other businesses because malevolent parties (including our personnel) may focus on the amount and type of personal and business information that our businesses collect, host, store, transfer, process, disclose, use, secure and retain and dispose of, and the client funds that we collect and transmit.\nWe have programs and processes in place to prevent, detect and respond to data or cybersecurity incidents. However, as a result of the complexity of our operating environment, the period over which hardware and software has been acquired or other reasons, our programs and processes may not be sufficient or adequate or may fail to prevent, detect or respond to a cybersecurity incident or identify and/or remediate a security vulnerability in our operating environment. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, are increasingly more complex and sophisticated (including due to the use of AI). We may fail to anticipate or detect these techniques and/or incidents for long periods of time and, even when we do so, we may be unable or fail to implement adequate or timely preventive or responsive measures. Our ability to address data or cybersecurity incidents may also depend on the timing and nature of assistance that may be provided from relevant governmental or law enforcement agencies. Hardware, software, applications or services that we develop or procure from third parties, or are required by third parties such as foreign governments to install on our systems, may contain defects in design or manufacture or other problems that could (or, in respect of third-party software, may be designed to) compromise the confidentiality, integrity or availability of data or our systems. Unauthorized parties also attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud, trickery, or other methods of deceiving these third parties or our personnel, including phishing and other social engineering techniques whereby attackers use end-user behaviors to distribute computer viruses and malware into our systems or otherwise compromise the confidentiality, integrity or availability of data or our systems. As these threats continue to evolve and increase (including due to the use of AI), we continue to invest significant resources, and may be required to invest significant additional resources, to modify and enhance our information security and controls \nand to investigate and remediate any security vulnerabilities. In addition, while our operating environments are designed to safeguard and protect confidential personal and business information, we may not have the ability to monitor the implementation or effectiveness of any safeguards by our clients, vendors or partners and, in any event, third parties may be able to circumvent those security measures. Information obtained by malevolent parties (including our personnel) resulting from successful attacks against our clients, vendors, partners or other third parties may, in turn, be used to attack our information technology systems.\nA cyberattack, unauthorized intrusion, malicious software infiltration, network disruption, denial of service, corruption of data, ransomware attack, theft of non-public or other sensitive information, or similar act by a malevolent party (including our personnel), or inadvertent acts or inactions by our vendors, partners or personnel, could result in the loss, disclosure or misuse of confidential personal or business information or the theft of client or ADP funds, which could have a materially adverse effect on our business or results of operations or that of our clients, result in liability, litigation, regulatory investigations and sanctions or a loss of confidence in our ability to serve clients, or cause current or potential clients to choose another service provider. As the global environment continues to grow increasingly hostile, the security of our operating environment is ever more important to our clients and potential clients. As a result, the breach or perceived breach of our security systems could result in a loss of confidence by our clients or potential clients and cause them to choose another service provider, which could have a materially adverse effect on our business.\nAlthough we believe that we maintain a robust program of information security and controls and none of the data or cybersecurity incidents that we have encountered to date have materially impacted us, a data or cyber security incident could have a materially adverse effect on our business, results of operations, financial condition and reputation. While ADP maintains insurance coverage that, subject to policy terms and conditions and a significant self-insured retention, is designed to address losses or claims that may arise in connection with certain aspects of data and cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the continually evolving area of data and cyber risk.\nOur systems, applications, solutions and services may be subject to disruptions that could have a materially adverse effect on our business and reputation\nMany of our businesses are highly dependent on our ability to process, on a daily basis, a large number of complicated transactions. We rely heavily on our payroll, financial, \n20\naccounting, and other data processing systems. We need to properly manage our systems, applications and solutions, and any upgrades, enhancements and expansions we may undertake from time to time, in order to ensure they properly support our businesses. From time to time, these systems, applications or solutions fail to operate properly or become disabled. Any such failure or disablement, even for a brief period of time, whether due to malevolent acts, errors, defects or any other factor(s), could result in financial loss, a disruption of our businesses, liability to clients, loss of clients, regulatory intervention or damage to our reputation, any of which could have a materially adverse effect on our results of operation or financial condition. We have disaster recovery, business continuity, and crisis management plans and procedures designed to protect our businesses against a multitude of events, including natural disasters, military or terrorist actions, power or communication failures, or similar events. Despite our preparations, our plans and procedures may not be successful in preventing or mitigating the loss of client data or funds, service interruptions, disruptions to our operations, or damage to our important facilities.\n \nIn addition, the severity of the failure or disablement may require us to replace or rebuild the affected system(s), application(s) or solution(s) and we may be unable to do so before it materially adversely affects our business.\nA disruption of the data centers or cloud-computing or other technology services or systems that we utilize could have a materially adverse effect on our business\nWe host our applications and serve our clients with data centers that we operate, and with data centers that are operated, and cloud-computing and other technology services and systems that are provided, by third-party vendors. These data centers or cloud-computing and other technology services and systems have (and, in the future, may) failed, become disabled or been disrupted. Any failure, disablement or disruption, even for a limited period of time, could disrupt our businesses and we could suffer financial loss, liability to clients, loss of clients, regulatory intervention or damage to our reputation, any of which could have a material adverse effect on our results of operation or financial condition. In addition, our third-party vendors may cease providing data center facilities or cloud-computing or other technology services or systems, elect to not renew their agreements with us on commercially reasonable terms or at all, breach their agreements with us or fail to satisfy our expectations, which could disrupt our operations and require us to incur costs which could materially adversely affect our results of operation or financial condition.\nBUSINESS AND INDUSTRY RISKS\nOur industry is subject to rapid technological change, including as a result of AI, and if we fail to upgrade, enhance and expand our technology and services to meet client needs and preferences, the demand for our solutions and services may materially diminish\nOur businesses operate in industries that are subject to rapid technological advances (such as AI) and changing client needs and preferences. In order to remain competitive and responsive to client demands, we continually upgrade, enhance, and expand our technology, solutions and services, including by leveraging AI in our solutions. If we fail to respond successfully to technology challenges and client needs and preferences or our competitors or other third parties respond to such challenges more quickly or successfully than us, the demand for our solutions and services may diminish. As new technologies (such as AI) continue to emerge, they may be disruptive to the HCM industry. These technologies could result in new and innovative HCM products and solutions that could increase competition, place us at a competitive disadvantage or even render obsolete our technology, products and solutions. In addition, investment in product development and new technologies often involves a long return on investment cycle. We have made and expect to continue to make significant investments in product development and new technologies. We must continue to dedicate a significant amount of resources to our development efforts before knowing to what extent our investments will result in products the market will accept. In addition, our business could be adversely affected in periods surrounding our new product introductions if clients delay purchasing decisions to evaluate the new product offerings. Furthermore, we may not execute successfully on our product development strategy, including because of challenges with regard to product planning and timing and technical hurdles that we fail to overcome in a timely fashion. We may fail to realize all the economic benefit of our investment in the development of a product which could cause an impairment of goodwill or intangibles and result in a significant charge to earnings.\nWe may not realize or sustain the expected benefits from our business transformation initiatives, and these efforts could have a materially adverse effect on our business, operations, financial condition, results of operations and competitive position\nWe have been and will be undertaking certain transformation initiatives, which are designed to streamline our organization, extend our world-class distribution and strengthen our talent and culture, while supporting our revenue growth, margin improvement and productivity. If we do not successfully manage and execute these initiatives, or if they are inadequate or ineffective, we may fail to meet our financial goals and achieve anticipated benefits, improvements may be delayed, not sustained or not realized and our business, operations and competitive position could be adversely affected. These initiatives, or our failure to successfully manage them, could result in unintended consequences or unforeseen costs, including distraction of our management and employees, attrition, inability to attract or retain key personnel, and reduced employee productivity, which could adversely affect our business, financial condition, and results of operations.\n21\nA major natural disaster or catastrophic event could have a materially adverse effect on our business, operations, financial condition and results of operations, or have other adverse consequences\nOur business, operations, financial condition, results of operations, access to capital markets and borrowing costs may be adversely affected by a major natural disaster or catastrophic event, including civil unrest, geopolitical instability, war, terrorist attack, pandemics or other (actual or threatened) public health emergencies, extreme weather, such as droughts, hurricanes, flooding and wildfires (including as a result of climate change), or other events beyond our control, and measures taken in response thereto.\nThe COVID-19 outbreak created, and such other events may create, significant volatility and uncertainty and economic and financial market disruption. The extent of any such impact depends on developments which are highly uncertain and cannot be predicted, including the duration and scope of the event; the governmental and business actions taken in response thereto; actions taken by the Company in response thereto and the related costs; the impact on economic activity and employment levels; the effect on our clients, prospects, suppliers and partners; our ability to sell and provide our solutions and services, including due to travel restrictions, business and facility closures, and employee remote working arrangements; the ability of our clients or prospects to pay for our services and solutions; and how quickly and to what extent normal economic and operating conditions can resume. In addition, clients or prospects may delay decision making, demand pricing and other concessions, reduce the value or duration of their orders, delay planned work or seek to terminate existing agreements. Our business is also impacted by employment levels across our clients, as we have varied contracts throughout our business that blend base fees and per-employee fees. \nPolitical, economic \nand social\n factors may materially adversely affect our business and financial results\nTrade, monetary and fiscal policies, and political and economic conditions may substantially change, and credit markets may experience periods of constriction and volatility. A slowdown in the economy or other negative changes, including in employment levels, the level of interest rates or the level of inflation, may have a negative impact on our businesses. In addition, as our operating costs increase due to inflationary pressure or otherwise, we may not be able to offset these increases by corresponding price increases for our products and solutions. Clients may react to worsening conditions by reducing their spending on HCM services or renegotiating their contracts with us, which may adversely affect our business and financial results.\nWe invest our funds held for clients in liquid, investment-grade marketable securities, money market securities, and other cash equivalents. Nevertheless, such investments are subject to general market, interest rate, credit and liquidity risks. These risks may be exacerbated, individually or together, during periods of unusual financial market volatility.\nIn addition, as part of our client funds investment strategy, we extend the maturities of our investment portfolio for client funds and utilize short-term financing arrangements to satisfy our short-term funding requirements related to client funds obligations. In order to satisfy these short-term funding requirements, we maintain access to various sources of liquidity, including borrowings under our commercial paper program and our committed credit facilities, our ability to execute reverse repurchase transactions and corporate cash balances. A reduction in the availability of any such financing during periods of disruption in the financial markets or otherwise may increase our borrowing costs and/or require us to sell available-for-sale securities in our funds held for clients to satisfy our short-term funding requirements. When there is a reduction in employment levels due to a slowdown in the economy, the Company may experience a decline in client fund obligations and may also sell available-for-sale securities in our funds held for clients in order to reduce the size of the funds held for clients to correspond to client fund obligations. A sale of such available-for-sale securities may result in the recognition of losses and reduce the interest income earned on funds held for clients, either or both of which may adversely impact our results of operations, financial condition and cash flow.\nIn connection with our client funds assets investment strategy, we attempt to minimize the risk of not having funds collected from a client available at the time such client\u2019s obligation becomes due by generally impounding the client\u2019s funds at the time of payment of such client\u2019s obligation. When we don\u2019t impound client funds by the time we pay such client obligations (including for PEO clients with respect to which we are legally obligated for payroll and tax obligations in respect of WSEs as a Certified PEO), we are at risk of not recovering such funds or a material delay in such recovery. Such risk could be magnified during significant financial or other disruptions or catastrophic events, such as the failure of a bank with whom a significant number of clients may bank at the time or more widespread stress or failure within the U.S. banking system.\n \nAny such event could prevent or materially delay the recovery of any funds from clients and could have an adverse impact on our financial results and liquidity.\nWe are dependent upon various large banks to execute electronic payments and wire transfers as part of our client payroll, tax and other money movement services. While we have contingency plans in place for bank failures, a \n22\nsystemic shutdown of the banking industry would impede our ability to process funds on behalf of our payroll, tax and other money movement services clients and could have an adverse impact on our financial results and liquidity.\nWe derive a significant portion of our revenues and operating income outside of the United States and, as a result, we are exposed to market risk from changes in foreign currency exchange rates that could impact our results of operations, financial position and cash flows.\nWe publicly share certain information about our environmental, social and governance (\u201cESG\u201d) initiatives, including our net zero greenhouse gas emissions pledge. We may face increased scrutiny related to our ESG initiatives and any related targets, including from the investment community. In addition, our ability to achieve certain ESG initiatives and targets may depend on the actions or continuing requirements of governmental entities (e.g., our paperless initiatives may depend on whether certain states continue to require employers to offer employees to be paid via paper check or to obtain employee consent to be paid electronically instead of via paper check). Our failure to achieve progress in these and other ESG areas on a timely basis, or at all, could impact our reputation, business, including employee retention, and growth.\nChange in our credit ratings could adversely impact our operations and lower our profitability\nThe major credit rating agencies periodically evaluate our creditworthiness and have given us strong, investment-grade long-term debt ratings and high commercial paper ratings. Failure to maintain high credit ratings on long-term and short-term debt could increase our cost of borrowing, reduce our ability to obtain intra-day borrowing required by our Employer Services business, and adversely impact our results of operations.\nOur business could be negatively impacted as a result of actions by activist stockholders or others\nWe may be subject to actions or proposals from activist stockholders or others that may not align with our business strategies or the interests of our other stockholders. Responding to such actions could be costly and time-consuming, disrupt our business and operations, and divert the attention of our Board of Directors and senior management from the pursuit of our business strategies. Activist stockholders may create perceived uncertainties as to the future direction of our business or strategy, including with respect to our ESG efforts, which may be exploited by our competitors and may make it more difficult to attract and retain qualified personnel, potential clients and business partners and may affect our relationships with current clients, vendors, investors and other third parties. In addition, actions of activist stockholders may cause periods of fluctuation in our stock price based on temporary or \nspeculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.\nWe may be unable to attract and retain qualified personnel\nOur ability to grow and provide our clients with competitive services is, to an important degree, dependent on our ability to attract and retain highly skilled and motivated people reflecting diverse perspectives and the diversity of our communities and clients. Competition for skilled employees in the outsourcing and other markets in which we operate is increasingly intense, making it more difficult and expensive to attract and retain highly skilled, motivated and diverse personnel. If we are unable to attract and retain highly skilled, motivated and diverse personnel, results of our operations and culture may suffer.\nIn addition, the nature of the office environment and remote or hybrid working is changing, which may make it more difficult to attract and retain personnel. It may also present operational and workplace culture challenges that may adversely affect our business.\n23",
+  "item7": ">Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations\nTabular dollars are presented in millions, except per share amounts\nThe following section discusses our year ended June 30, 2023 (\u201cfiscal 2023\u201d), as compared to year ended June 30, 2022 (\u201cfiscal 2022\u201d). A detailed review of our fiscal 2022 performance compared to our fiscal 2021 performance is set forth in Part II, Item 7 of our Form 10-K for the fiscal year ended June 30, 2022. \nFORWARD-LOOKING STATEMENTS\nThis document and other written or oral statements made from time to time by ADP may contain \u201cforward-looking statements\u201d within the meaning of the Private Securities Litigation Reform Act of 1995.  Statements that are not historical in nature and which may be identified by the use of words like \u201cexpects,\u201d \u201cassumes,\u201d \u201cprojects,\u201d \u201canticipates,\u201d \u201cestimates,\u201d \u201cwe believe,\u201d \u201ccould\u201d \u201cis designed to\u201d and other words of similar meaning, are forward-looking statements.  These statements are based on management\u2019s expectations and assumptions and depend upon or refer to future events or conditions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed.  Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements or that could contribute to such difference include: ADP's success in obtaining and retaining clients, and selling additional services to clients; the pricing of products and services; the success of our new solutions; our ability to respond successfully to changes in technology, including artificial intelligence; compliance with existing or new legislation or regulations; changes in, or interpretations of, existing legislation or \n26\nregulations; overall market, political and economic conditions, including interest rate and foreign currency trends and inflation; competitive conditions; our ability to maintain our current credit ratings and the impact on our funding costs and profitability; security or cyber breaches, fraudulent acts, and system interruptions and failures; employment and wage levels; availability of skilled associates; the impact of new acquisitions and divestitures; the adequacy, effectiveness and success of our business transformation initiatives; the impact of any uncertainties related to major natural disasters or catastrophic events; and supply-chain disruptions. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.  These risks and uncertainties, along with the risk factors discussed under \u201cItem 1A.  Risk Factors,\u201d and in other written or oral statements made from time to time by ADP, should be considered in evaluating any forward-looking statements contained herein.\nNON-GAAP FINANCIAL MEASURES\nIn addition to our U.S. GAAP results, we use adjusted results and other non-GAAP metrics to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods. Adjusted EBIT, adjusted EBIT margin, adjusted net earnings, adjusted diluted earnings per share, adjusted effective tax rate and organic constant currency are all non-GAAP financial measures. Please refer to the accompanying financial tables in the \u201cNon-GAAP Financial Measures\u201d section for a discussion of why ADP believes these measures are important and for a reconciliation of non-GAAP financial measures to their comparable GAAP financial measures.\nEXECUTIVE OVERVIEW \nHighlights from the year ended June 30, 2023 include:\n9%\n160 \nbasis points\n17%\nRevenue Growth\nEarnings Before Income Taxes Margin Expansion\nDiluted EPS Growth\n10%\n130 \nbasis points\n17%\nOrganic Constant Currency\nRevenue Growth\nAdjusted EBIT Margin Expansion\nAdjusted Diluted EPS Growth\n \n \n10%\nEmployer Services\nNew Business Bookings Growth \n6%\nPEO Services\nAverage Worksite Employee Growth\n$3.0B\nCash Returned via Shareholder Friendly Actions\n$1.9B\n Dividends | \n$1.1B\n Share Repurchases\nWe are a leading global provider of cloud-based Human Capital Management (\u201cHCM\u201d) technology solutions to employers around the world. Our HCM solutions, which include both software and outsourcing services, are designed to help our clients manage their workforce through a dynamic business and regulatory landscape and the changing world of work. We continuously seek to enhance our leading HCM solutions to further support our clients.  We see tremendous growth opportunity ahead as we focus on our three key Strategic Priorities: leading with best-in-class HCM technology, providing unparalleled expertise and outsourcing, and leveraging our global scale for the benefit of our clients.  Executing on our Strategic Priorities will be critical to enabling our growth in the years ahead.\nDuring the fiscal year we drove strong progress across a number of key measures and in support of our overall Strategic Priorities. We crossed a major milestone, surpassing the 1 million client mark, driven by continued enhancements to our key solutions like RUN and Workforce Now. We continued the deployment of our unified User Experience to key portions of our portfolio such as the RUN mobile app. We were awarded Top HR Product for the 8\nth\n consecutive year at the annual HR Tech Conference, in recognition for our recently launched Intelligent Self Service Solution. And our HR Outsourcing businesses continued to grow, now with over 3 million worksite employees served. \n27\nFor fiscal 2023, we delivered solid revenue growth of 9%, 10% organic constant currency. Our pays per control metric, which represents the number of employees on ADP clients' payrolls in the United States when measured on a same-store-sales basis for a subset of clients ranging from small to large businesses, grew 4.7% for the year ended June\u00a030, 2023 as compared to the year ended June\u00a030, 2022. PEO average worksite employees increased 6% for the year ended June\u00a030, 2023, as compared to the year ended June\u00a030, 2022.  Additionally, our strong ES new business bookings performance resulted in full year fiscal 2023 growth of 10%, and client satisfaction gains resulted in a full year ES client revenue retention rate of 92.2%, equal to the highest level we have ever reported. We believe these results are largely attributable to improvements made to our platforms and service over multiple years.\nWe have a strong business model, generating significant cash flows with low capital intensity, and offer a suite of products that provide critical support to our clients\u2019 HCM functions. We generate sufficient free cash flow to satisfy our cash dividend and our modest debt obligations, which enables us to absorb the impact of downturns and remain steadfast in our re-investments, longer term strategy, and commitments to shareholder friendly actions. We are committed to building upon our past successes by investing in our business through enhancements in research and development and by driving meaningful transformation in the way we operate.\n Our financial condition remains solid at June 30, 2023 and we remain well positioned to support our associates and our clients.\nRESULTS AND ANALYSIS OF CONSOLIDATED OPERATIONS\nTotal Revenues\nFor the year ended June 30, respectively:\nYears Ended\nJune 30,\n2023\n2022\nTotal Revenues\n18,012.2\u00a0\n16,498.3\u00a0\n\u00a0\u00a0YoY Growth\n9\u00a0\n%\n10\u00a0\n%\n\u00a0\u00a0YoY Growth, Organic Constant Currency\n10\u00a0\n%\n10\u00a0\n%\nRevenues in fiscal 2023 increased due to new business started from New Business Bookings, an increase in zero-margin benefits pass-throughs, an increase in our pays per control, continued strong client retention, an increase in interest on funds held for clients, and an increase in pricing, partially offset by an unfavorable impact of one percentage point from foreign currency. Refer to \u201cAnalysis of Reportable Segments\u201d for additional discussion of the changes in revenue for each of our reportable segments, Employer Services and Professional Employer Organization (\u201cPEO\u201d) Services. \nTotal revenues in fiscal 2023 include interest on funds held for clients of $813.4 million, as compared to $451.8 million in fiscal 2022.\u00a0The increase in interest earned on funds held for clients resulted from an  increase in our average interest rate earned to 2.4% in fiscal 2023, as compared to 1.4% in fiscal 2022, coupled with an increase in our average client funds balances of 5.1% to $34.1 billion in fiscal 2023 as compared to fiscal 2022. \n28\nTotal Expenses\nYears Ended\nJune 30,\n\u00a0\n2023\n2022\n%\nChange\nCosts of revenues:\n\u00a0\n\u00a0\nOperating expenses\n$\n8,657.4\u00a0\n$\n8,252.6\u00a0\n5\u00a0\n%\nSystems development and programming costs\n844.8\u00a0\n798.6\u00a0\n6\u00a0\n%\nDepreciation and amortization\n451.2\u00a0\n410.7\u00a0\n10\u00a0\n%\nTotal costs of revenues\n9,953.4\u00a0\n9,461.9\u00a0\n5\u00a0\n%\nSelling, general and administrative expenses\n3,551.4\u00a0\n3,233.2\u00a0\n10\u00a0\n%\nInterest expense\n253.3\u00a0\n81.9\u00a0\n209\u00a0\n%\nTotal expenses\n$\n13,758.1\u00a0\n$\n12,777.0\u00a0\n8\u00a0\n%\nFor the year ended June 30:\nOperating expenses increased due to an increase in our PEO Services zero-margin benefits pass-through costs to $3,800.9 million from $3,514.4 million for the years ended June\u00a030, 2023 and 2022, respectively. Additionally, operating expenses increased due to increased costs to service our client base in support of our growing revenue, partially offset by the impact of foreign currency and a net reduction of $12.3 million in our estimated losses related to ADP Indemnity.  \nSystems development and programming costs increased for fiscal 2023 due to increased investments and costs to develop, support, and maintain our new and existing products.  \nDepreciation and amortization expenses increased due to the amortization of internally developed software products and new investments in purchased software.  \nSelling, general and administrative expenses increased due to increased selling expenses as a result of investments in our sales organization, increased marketing expenses, and a reversal of COVID-19 credit loss reserves of  $26.0 million in 2022, partially offset by the impact of foreign currency. \nInterest expense increased due to the increase i\nn average interest rates on commercial paper issuances and reverse repurchases \nto 3.7% and 4.3% for the year ended June\u00a030, 2023, as compared to 0.4% and 0.7% for the year ended June\u00a030, 2022, respectively, also\n coupled with a\n higher volume\n of average commercial paper and reverse repurchase borrowings, as compared to the \nyear ended\n \nJune\u00a030, 2022\n. \nOther (Income)/Expense, net\nYears ended June 30,\n2023\n2022\n$ Change\nInterest income on corporate funds\n$\n(149.5)\n$\n(41.0)\n$\n108.5\u00a0\nRealized losses/(gains) on available-for-sale securities, net\n14.7\u00a0\n4.4\u00a0\n(10.3)\nImpairment of assets\n2.1\u00a0\n23.0\u00a0\n20.9\u00a0\nGain on sale of assets\n\u2014\u00a0\n(7.5)\n(7.5)\nNon-service components of pension income, net\n(50.8)\n(61.7)\n(10.9)\nOther (income)/expense, net\n$\n(183.5)\n$\n(82.8)\n$\n100.7\u00a0\nInterest income on corporate funds increased in fiscal 2023, as compared to fiscal 2022, due to higher average interest rates of 2.4% for the year ended June\u00a030, 2023, as compared to 1.0% for the year ended June\u00a030, 2022, coupled with higher average investment balances for the year ended June 30, 2023 as compared to the year ended June 30, 2022. See Note 10 of our Consolidated Financial Statements for further details on non-service components of pension income, net.\n29\nIn fiscal 2022, the Company recorded impairment charges of $23.0 million, which is comprised of $12.1 million related to software and customer lists which were determined to have no future use and impairment charges of $10.9 million related to operating right-of-use assets associated with exiting certain leases early. \nEarnings Before Income Taxes (\"EBIT\") and Adjusted EBIT\n \nFor the year ended June 30, respectively:\nYears Ended\nJune 30,\n2023\n2022\nYoY Growth\nEBIT\n$\n4,437.6\u00a0\n$\n3,804.1\u00a0\n17\u00a0\n%\n\u00a0\u00a0EBIT Margin\n24.6\u00a0\n%\n23.1\u00a0\n%\n160 bps\nAdjusted EBIT\n$\n4,467.9\u00a0\n$\n3,871.8\u00a0\n15\u00a0\n%\n\u00a0\u00a0Adjusted EBIT Margin\n24.8\u00a0\n%\n23.5\u00a0\n%\n130 bps\nEarnings before income taxes increased due to the increases in revenues partially offset by the increases in expenses discussed above.  \nOverall margin increased due to increases in revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increased selling expenses, increased interest expense, and increases in zero-margin pass through costs.  \nAdjusted EBIT and Adjusted EBIT margin exclude interest income and interest expense that are not related to our client funds\nextended investment strategy, and net charges, including gain on sale of assets related to our broad-based transformation\ninitiatives and the impact of net severance charges relating to these initiatives, as applicable, in the respective periods. \nProvision for Income Taxes\nThe \neffective tax rate in fiscal 2023 and 2022 was \n23.1%\n and 22.5%, respectively. The \nincrease\n in t\nhe effective tax rate is primarily due to an intercompany transfer of certain assets that resulted in a lower effective tax rate in fiscal 2022 and higher reserves for uncertain tax positions in fiscal 2023. \nRefer t\no Note 11, Income Taxes, within the Notes to the Consolidated Financial Statements for further discussion.\nAdjusted Provision for Income Taxe\ns\nThe adjusted effective tax rate in fiscal 2023 and 2022 was 23.1% and 22.5%, respectively. The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.\nNet Earnings and Diluted EPS, Unadjusted and Adjusted\nFor the year ended June 30, respectively:\nYears Ended\nJune 30,\n2023\n2022\nYoY Growth\nNet earnings  \n$\n3,412.0\u00a0\n$\n2,948.9\u00a0\n16\u00a0\n%\nDiluted EPS  \n$\n8.21\u00a0\n$\n7.00\u00a0\n17\u00a0\n%\nAdjusted net earnings\n$\n3,419.5\u00a0\n$\n2,951.6\u00a0\n16\u00a0\n%\nAdjusted diluted EPS\n$\n8.23\u00a0\n$\n7.01\u00a0\n17\u00a0\n%\n30\nAdjusted net earnings and adjusted diluted EPS reflect the changes in components described above.\nDiluted EPS increased as a result of the increase in net earnings and the impact of fewer shares outstanding resulting from the repurchase of approximately 4.9 million shares during fiscal 2023 and 9.2 million shares during fiscal 2022, partially offset by the issuances of shares under our employee benefit plans.\nFor fiscal 2023, adjusted net earnings and adjusted diluted EPS reflect the changes in components described above.\nANALYSIS OF REPORTABLE SEGMENTS\nRevenues\nYears Ended\nJune 30,\n% Change\n\u00a0\n2023\n2022\nAs Reported\nOrganic Constant Currency\nEmployer Services\n$\n12,042.6\u00a0\n$\n10,967.7\u00a0\n10\u00a0\n%\n11\u00a0\n%\nPEO Services\n5,984.2\u00a0\n5,545.7\u00a0\n8\u00a0\n%\n8\u00a0\n%\nOther\n(14.6)\n(15.1)\nn/m\nn/m\n$\n18,012.2\u00a0\n$\n16,498.3\u00a0\n9\u00a0\n%\n10\u00a0\n%\nEarnings before Income Taxes\nYears Ended\nJune 30,\n% Change\n\u00a0\n2023\n2022\nAs Reported\nEmployer Services\n$\n3,974.2\u00a0\n$\n3,406.3\u00a0\n17\u00a0\n%\nPEO Services \n977.3\u00a0\n871.2\u00a0\n12\u00a0\n%\nOther\n(513.9)\n(473.4)\nn/m\n$\n4,437.6\u00a0\n$\n3,804.1\u00a0\n17\u00a0\n%\nMargin\nYears Ended\nJune 30,\n\u00a0\n2023\n2022\nYoY Growth\nEmployer Services\n33.0\u00a0\n%\n31.1\u00a0\n%\n190 bps\nPEO Services\n16.3\u00a0\n%\n15.7\u00a0\n%\n60 bps\nn/m - not meaningful\n31\nEmployer Services\nRevenues\nRevenues increased due to new business started from New Business Bookings, an increase in our pays per control of 5%, continued strong client retention, an increase in interest earned on funds held for clients, and an increase in pricing, partially offset by an unfavorable impact of one percentage point from foreign currency.\nEarnings before Income Taxes\nEmployer Services' earnings before income taxes increased in fiscal 2023 due to increased revenues discussed above, partially offset by increases in expenses. The increases in expenses were due to increased costs to service our client base in support of our growing revenue, increases in selling expenses, and investments and costs to develop, support, and maintain our new and existing products. \nMargin\nEmployer Services' margin increased due to increases in revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by an increase in selling expenses.\nPEO Services\nRevenues\nPEO Revenues\nYears Ended\nChange\nJune 30,\n\u00a0\n2023\n2022\n$\n%\nPEO Services' revenues\n$\n5,984.2\u00a0\n$\n5,545.7\u00a0\n$\n438.5\u00a0\n8\u00a0\n%\nLess: PEO zero-margin benefits pass-throughs\n3,800.9\u00a0\n3,514.4\u00a0\n286.5\u00a0\n8\u00a0\n%\nPEO Services' revenues excluding zero-margin benefits pass-throughs\n$\n2,183.3\u00a0\n$\n2,031.3\u00a0\n$\n152.0\u00a0\n7\u00a0\n%\nPEO Services' revenues increased 8% for fiscal 2023 due to increases in average worksite employees of 6% for fiscal 2023, as compared to fiscal 2022, and due to an increase in zero-margin benefits pass-throughs.\nEarnings before Income Taxes\nPEO Services\u2019 earnings before income taxes increased 12% in fiscal 2023 due to increases in revenues discussed above and a net reduction of $12.3 million in our estimated losses related to ADP Indemnity, partially offset by the increases in zero-margin benefits pass-throughs of $286.5 million for fiscal 2023.\nMargin\nPEO Services' overall margin increased for fiscal 2023 due to increases in revenues discussed above, lower state unemployment and workers compensation insurance costs, and changes in our estimated losses related to ADP Indemnity, partially offset by increases in selling expenses.  \n32\nADP Indemnity provides workers\u2019 compensation and employer\u2019s liability deductible reimbursement insurance protection for PEO Services\u2019 worksite employees up to $1 million per occurrence.\u00a0PEO Services has secured a workers\u2019 compensation and employer\u2019s liability insurance policy that caps the exposure for each claim at $1 million per occurrence and has also secured  aggregate stop loss insurance that caps aggregate losses at a certain level in fiscal years 2012 and prior from an admitted and licensed insurance company of AIG.\u00a0We utilize historical loss experience and actuarial judgment to determine the estimated claim liability, and changes in estimated ultimate incurred losses are included in the PEO segment.\u00a0\nAdditionally, starting in fiscal year 2013, ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company, a wholly-owned subsidiary of Chubb Limited (\u201cChubb\u201d), to cover substantially all losses incurred by the Company up to the \n$1 million per occurrence related to the workers' compensation and employer's liability deductible reimbursement insurance protection for PEO Services' worksite employees. \nEach of these reinsurance arrangements limits our overall exposure incurred up to a certain limit. The Company believes the likelihood of ultimate losses exceeding this limit is remote. \nDuring fiscal 2023, \nADP Indemnity paid a premium of $284 million to enter into a reinsurance arrangement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2023 policy year up to $1 million per occurrence. ADP Indemnity recorded a pre-tax benefit of approximately $73 million in fiscal 2023 and a pre-tax benefit of approximately $61 million in fiscal 2022, which were primarily a result of changes in our estimated actuarial losses. ADP Indemnity paid a premium of $269 million in July 2023, to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for fiscal 2024 policy year on terms substantially similar to the fiscal 2023 reinsurance policy.\nOther\nThe primary components of \u201cOther\u201d are certain corporate overhead charges and expenses that have not been allocated to the reportable segments, including corporate functions, costs related to our transformation office, severance costs, non-recurring gains and losses, the elimination of intercompany transactions, and all other interest income and expense.\nNon-GAAP Financial Measures\nIn addition to our GAAP results, we use the adjusted results and other non-GAAP metrics set forth in the table below to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods: \nAdjusted Financial Measures\nU.S. GAAP Measures\nAdjusted EBIT\nNet earnings  \nAdjusted provision for income taxes \nProvision for income taxes\nAdjusted net earnings  \nNet earnings  \nAdjusted diluted earnings per share  \nDiluted earnings per share\nAdjusted effective tax rate \nEffective tax rate\nOrganic constant currency\nRevenues\nWe believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and analyze results against our expectations and against prior periods, and to plan for future periods by focusing on our underlying operations.\u00a0We believe that the adjusted results provide relevant and useful information for investors because it allows investors to view performance in a manner similar to the method used by management and improves their ability to understand and assess our operating performance.\u00a0 The nature of these exclusions is for specific items that are not fundamental to our underlying business operations.\u00a0 Since these adjusted financial measures and other non-GAAP metrics are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation from, as a substitute for, or superior to their corresponding U.S. GAAP measures, and they may not be comparable to similarly titled measures at other companies.\n33\nYears Ended\nJune 30,\n% Change\n2023\n2022\nAs Reported\nNet earnings\n$\n3,412.0\u00a0\n$\n2,948.9\u00a0\n16\u00a0\n%\nAdjustments:\nProvision for income taxes\n1,025.6\u00a0\n855.2\u00a0\nAll other interest expense (a)\n70.9\u00a0\n71.3\u00a0\nAll other interest income (a)\n(50.5)\n(7.1)\nTransformation initiatives (b)\n8.7\u00a0\n3.5\u00a0\nLegal settlements (c)\n1.2\u00a0\n\u2014\u00a0\nAdjusted EBIT\n$\n4,467.9\u00a0\n$\n3,871.8\u00a0\n15\u00a0\n%\nAdjusted EBIT Margin\n24.8\u00a0\n%\n23.5\u00a0\n%\nProvision for income taxes\n$\n1,025.6\u00a0\n$\n855.2\u00a0\n20\u00a0\n%\nAdjustments:\nTransformation initiatives (d)\n2.2\u00a0\n0.8\u00a0\nLegal settlements\n0.2\u00a0\n\u2014\u00a0\nAdjusted provision for income taxes\n$\n1,028.0\u00a0\n$\n856.0\u00a0\n20\u00a0\n%\nAdjusted effective tax rate (e)\n23.1\u00a0\n%\n22.5\u00a0\n%\nNet earnings\n$\n3,412.0\u00a0\n$\n2,948.9\u00a0\n16\u00a0\n%\nAdjustments:\nTransformation initiatives (b)\n8.7\u00a0\n3.5\u00a0\nIncome tax (benefit)/provision for transformation initiatives (d)\n(2.2)\n(0.8)\nLegal settlements (c)\n1.2\u00a0\n\u2014\u00a0\nIncome tax (benefit)/provision for legal settlements (d)\n(0.2)\n\u2014\u00a0\nAdjusted net earnings\n$\n3,419.5\u00a0\n$\n2,951.6\u00a0\n16\u00a0\n%\nDiluted EPS\n$\n8.21\u00a0\n$\n7.00\u00a0\n17\u00a0\n%\nAdjustments:\nTransformation initiatives (b) (d)\n0.02\u00a0\n0.01\u00a0\nLegal settlements (c) (d)\n\u2014\u00a0\n\u2014\u00a0\nAdjusted diluted EPS\n$\n8.23\u00a0\n$\n7.01\u00a0\n17\u00a0\n%\n(a) In adjusted EBIT, we include the interest income earned on investments associated with our client funds extended investment strategy and interest expense on borrowings related to our client funds extended investment strategy as we believe these amounts to be fundamental to the underlying operations of our business model. The adjustments in the table above represent the interest income and interest expense that are not related to our client funds extended investment strategy and are labeled as \u201cAll other interest expense\u201d and \u201cAll other interest income.\u201d\n(b) In fiscal 2023, the charges include consulting costs relating to our company-wide transformation initiatives, partially offset by net reversals relating to severance. Unlike other severance charges which are not included as an adjustment to get to adjusted results, these specific charges relate to actions taken as part of our broad-based, company-wide transformation initiatives.\n(c) Represents net charges (reserves and insurance recovery) from legal matters during fiscal 2023.\n(d) The income tax (benefit)/provision was calculated based on the marginal rate in effect for the year ended June\u00a030, 2023.\n(e) The Adjusted effective tax rate is calculated as our Adjusted provision for income taxes divided by the sum of our Adjusted net earnings plus our Adjusted provision for income taxes.\nThe following table reconciles our reported growth rates to the non-GAAP measure of organic constant currency, which excludes the impact of acquisitions, the impact of dispositions, and the impact of foreign currency. The impact of acquisitions and dispositions is calculated by excluding the current year revenues of acquisitions until the one-year anniversary of the transaction and by excluding the prior year revenues of divestitures for the one-year period preceding the transaction.  The impact of foreign currency is determined by calculating the current year results using foreign exchange rates consistent with the \n34\nprior year. The PEO segment is not impacted by acquisitions, dispositions or foreign currency. \nYear Ended\nJune 30,\n2023\nConsolidated revenue growth as reported\n9\u00a0\n%\nAdjustments:\nImpact of acquisitions\n\u2014\u00a0\n%\nImpact of foreign currency\n1\u00a0\n%\nConsolidated revenue growth, organic constant currency\n10\n\u00a0\n%\nEmployer Services revenue growth as reported\n10\u00a0\n%\nAdjustments:\nImpact of acquisitions\n\u2014\u00a0\n%\nImpact of foreign currency\n1\u00a0\n%\nEmployer Services revenue growth, organic constant currency\n11\n\u00a0\n%\nFINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES\nAs of June\u00a030, 2023, cash and cash equivalent\ns\n were $2.1 billion, which were primarily invested in time deposits and money market funds.\nFor corporate liquidity, we expect existing cash, cash equivalents, short-term and long-term marketable securities, cash flow from operations together with our \n$9.7 billion\n of committed credit facilities and our ability to access both long-term and short-term debt financing from the capital markets will be adequate to meet our operating, investing, and financing activities such as regular quarterly dividends, share repurchases, and capital expenditures for the foreseeable future. Our financial condition remains solid at June 30, 2023 and we have sufficient liquidity.\nFor client funds liquidity, we have the ability to borrow through our financing arrangements under our U.S. short-term commercial paper program and our U.S., Canadian and United Kingdom short-term reverse repurchase agreements, together with our \n$9.7 billion\n of comm\nitted credit facilities and our ability to use corporate liquidity when necessary to meet short-term funding requirements related to client funds obligations.  Please see \u201cQuantitative and Qualitative Disclosures about Market Risk\u201d for a further discussion of the risks related to our client funds extended investment strategy. See Note 8 of our Consolidated Financial Statements for a description of our short-term financing including commercial paper. \nOperating, Investing and Financing Cash Flow\ns\nOur cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows are summarized as follows: \nYears ended June 30,\n2023\n2022\n$ Change\nCash provided by (used in):\nOperating activities\n$\n4,207.6\u00a0\n$\n3,099.5\u00a0\n$\n1,108.1\u00a0\nInvesting activities\n(2,517.3)\n(7,014.4)\n4,497.1\u00a0\nFinancing activities\n(15,680.7)\n13,653.4\u00a0\n(29,334.1)\nEffect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents\n(21.1)\n(98.7)\n77.6\u00a0\nNet change in cash, cash equivalents, restricted cash, and restricted cash equivalents\n$\n(14,011.5)\n$\n9,639.8\u00a0\n$\n(23,651.3)\n35\nNet cash flows provided by operating activities increased due to growth in our underlying business (net income adjusted for non-cash adjustments), and a net favorable change in the components of operating assets and liabilities primarily due to timing on collections of accounts receivable, and a decrease in incentive compensation payments, as compared to the year ended June\u00a030, 2022\n.\nNet cash flows used in investing activities changed due to the timing of proceeds and purchases of corporate and client funds marketable securities of $4,570.2 million, offset by higher payments for capital expenditures in fiscal 2023, and the sale of property, plant, and equipment in fiscal 2022.\nNet cash flows used in financing activities changed due to a net decrease in the cash flow from client funds obligations of $29,759.5 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, an increase in dividends paid, and a net decrease in reverse repurchase agreements borrowing, offset by a decrease in repurchases of common stock in fiscal 2023.\nWe purchased approximately 4.9 million shares of our common stock at an average price per share of $227.30 during fiscal 2023, as compared to purchases of 9.2 million shares at an average price per share of $214.40 during fiscal 2022. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase program. The Company considers several factors in determining when to execute share repurchases, including, among other things, actual and potential acquisition activity, cash balances and cash flows, issuances due to employee benefit plan activity, and market conditions.\n \nCapital Resources and Client Fund Obligations\nWe have \n$3.0 billion of senior unsecured notes with maturity dates in 2025, 2028, and 2030. We may from time to time revisit the long-t\nerm debt market to refinance existing debt, finance investments including acquisitions for our growth, and maintain the appropriate capital structure. However, there can be no assurance that volatility in the global capital and credit markets would not impair our ability to access these markets on terms acceptable to us, or at all.\n See Note 9 of our Consolidated Financial Statements for a description of our notes.\nOur U.S. short-term funding requirements related to client funds are sometimes obtained on an unsecured basis through the issuance of commercial paper, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securiti\nes. \nThis commercial paper program provides for the issuance of up to $9.7 billion in aggregate maturity value\n. Our c\nommercial paper program is rated A-1+ by Standard and Poor\u2019s, Prime-1 (\u201cP-1\u201d) by Moody\u2019s and F1+ by Fitch. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days.\u00a0At June\u00a030, 2023 and 2022, we had no commercial paper borrowing outstanding. Details of the borrowings under the commercial paper program are as follows:\nYears ended June 30,\n2023\n2022\nAverage daily borrowings (in billions)\n$\n3.4\u00a0\n$\n2.0\u00a0\nWeighted average interest rates\n3.7\u00a0\n%\n0.4\u00a0\n%\nWeighted average maturity (approximately in days)\n2 days\n1 day\nOur U.S., Canadian, and United Kingdom short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. These agreements generally have terms ranging from overnight to up to five business days.\u00a0We have successfully borrowed through the use of reverse repurchase agreements on an as-needed basis to meet short-term funding requirements related to client funds obligations. At June\u00a030, 2023 and 2022, there were $105.4 million and $136.4 million, respectively, of outstanding obligations related to the reverse repurchase agreements. Details of the reverse repurchase agreements are as follows: \nYears ended June 30,\n2023\n2022\nAverage outstanding balances\n$\n1,279.9\u00a0\n$\n299.6\u00a0\nWeighted average interest rates\n4.3\u00a0\n%\n0.7\u00a0\n%\nWe vary the maturities of our committed credit facilities to limit the refinancing risk of any one facility. We have a $4.25 billion, 364-day credit agreement that matures in June 2024 with a one year term-out option. In addition, we have a five-year $3.2 billion credit facility and a five-year $2.25 billion credit facility maturing in June 2026 and June 2028, respectively, each with an accordion feature under which the aggregate com\nmitment can be increased by $\n500 million\n, subject to the availability \n36\nof additional commitments.  The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary.\u00a0We had no borrowings through June\u00a030, 2023 under the credit facilities. We believe that we currently meet all conditions set forth in the revolving credit agreements to borrow thereunder, and we are not aware of any conditions that would prevent us from borrowing part or all of the \n$9.7 billion\n a\nvailable to us under the revolving credit agreements. See Note 8 of our Consolidated Financial Statements for a description of our short-term financing including credit facilities.\nOur investment portfolio does not contain any asset-backed securities with underlying collateral of sub-prime mortgages, alternative-A mortgages, sub-prime auto loans or sub-prime home equity loans, collateralized debt obligations, collateralized loan obligations, credit default swaps, derivatives, auction rate securities, structured investment vehicles or non-investment grade fixed-income securities. We own AAA-rated senior tranches of primarily fixed rate auto loan, credit card, and equipment lease receivables, secured predominantly by prime collateral.\u00a0All collateral on asset-backed securities is performing as expected through June 30, 2023.\u00a0In addition, we own U.S. government securities which primarily include debt directly issued by Federal Farm Credit Banks and Federal Home Loan Banks. Our client funds investment strategy is structured to allow us to average our way through an interest rate cycle by laddering the maturities of our investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long portfolio).\u00a0This investment strategy is supported by our short-term financing arrangements necessary to satisfy short-term funding requirements relating to client funds obligations. See Note 4 of our Consolidated Financial Statements for a description of our corporate investments and funds held for clients.\nCapital expenditures for fiscal 2023 were $206.0 million, as compared to $177.1 million for fiscal 2022. We expect capital expenditures in fiscal 2024 to be between $200 million and $225 million.\nContractual Obligations\nOur contractual obligations at June\u00a030, 2023 relate primarily to operating leases (Note 6) and other arrangements recorded in our balance sheet or disclosed in the notes to our financial statements, including benefit plan obligations (Note 10), liabilities for uncertain tax positions (Note 11), purchase obligations (Note 12), debt obligations (Note 9) and $263.5 million of interest payments of our debt, of which $64.3 million is expected to be paid within one year. \nIn addition to the obligations described above, we had obligations for the remittance of funds relating to our payroll and payroll tax filing services. As of June\u00a030, 2023, the obligations relating to these matters, which are expected to be paid in fiscal 2024,\n \ntotal $38,538.6 million and were recorded in client funds obligations on our Consolidated Balance Sheets. We had $36,333.6 million of cas\nh and cash e\nquivalents and marketable securities that were impounded from our clients to satisfy such obligations recorded in funds held for clients on our Consolidated Balance Sheets as of June\u00a030, 2023.\nSeparately, ADP Indemnity paid a p\nremium of \n$269 million\n in July\n 2023 to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2024 policy year. At June\u00a030, 2023, ADP Indemnity had total assets of $660.8\u00a0million to satisfy the actuarially estimated unpaid losses of $552.3\u00a0million for the policy years since July 1, 2003. ADP Indemnity paid claims of $0.8\u00a0million and $1.8\u00a0million, net of insurance recoveries, in fiscal 2023 and 2022, respectively. Refer to the \u201cAnalysis of Reportable Segments - PEO Services\u201d above for additional information regarding ADP Indemnity.  \nIn the normal course of business, we also enter into contracts in which we make representations and warranties that relate to the performance of our services and products. We do not expect any material losses related to such representations and warranties.  \nQuantitative and Qualitative Disclosures about Market Risk\nOur overall investment portfolio is comprised of corporate investments (cash and cash equivalents, short-term and long-term marketable securities) and client funds assets (funds that have been collected from clients but have not yet been remitted to the applicable tax authorities, client employees or other payees).\nOur corporate investments are invested in cash and cash equivalents and highly liquid, investment-grade marketable securities.\u00a0These assets are available for our regular quarterly dividends, share repurchases, capital expenditures and/or acquisitions, as well as other corporate operating purposes.\u00a0All of our short-term and long-term fixed-income securities are classified as available-for-sale securities.\nOur client funds assets are invested with safety of principal, liquidity, and diversification as the primary objectives. Consistent with those objectives, we also seek to maximize interest income and to minimize the volatility of interest income.\u00a0\u00a0Client funds \n37\nassets are invested in highly liquid, investment-grade marketable securities, with a maximum maturity of 10 years at the time of purchase, and money market securities and other cash equivalents.\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\nWe utilize a strategy by which we extend the maturities of our investment portfolio for funds held for clients and employ short-term financing arrangements to satisfy our short-term funding requirements related to client funds obligations.\u00a0Our client funds investment strategy is structured to allow us to average our way through an interest rate cycle by laddering the maturities of our investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long portfolio).\u00a0As part of our client funds investment strategy, we use the daily collection of funds from our clients to satisfy other unrelated client funds obligations, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities.\u00a0In circumstances where we experience a reduction in employment levels due to a slowdown in the economy, we may make tactical decisions to sell certain securities in order to reduce the size of the funds held for clients to correspond to client funds obligations. We attempt to minimize the risk of not having funds collected from a client available at the time such client\u2019s obligation becomes due by generally impounding the client\u2019s funds by the time we pay such client\u2019s obligation.\u00a0When we don\u2019t impound client funds in advance of paying such client obligations, we are at risk of not recovering such funds or a material delay in such recovery. \u00a0Through our clients funds investment strategy and client impounding processes, we have consistently maintained the required level of liquidity to satisfy all of our obligations.\nThere are inherent risks and uncertainties involving our investment strategy relating to our client funds assets.\u00a0Such risks include liquidity risk, including the risk associated with our ability to liquidate, if necessary, our available-for-sale securities in a timely manner in order to satisfy our client funds obligations.\u00a0However, our investments are made with the safety of principal, liquidity, and diversification as the primary goals to minimize the risk of not having sufficient funds to satisfy all of our client funds obligations.\u00a0We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our client funds obligations by consistently maintaining access to other sources of liquidity, including our corporate cash balances, available borrowings under o\nur $9.7 billion commercial paper program (rated A-1+ by Standard and Poor\u2019s, P-1 by Moody\u2019s, and F1+ by Fitch, the highest possible short-term credit ratings), our ability to engage in reverse repurchase agreement transactions and available borrowings under our $9.7 billion committe\nd credit facilities. The reduced availability of financing during periods of economic turmoil, even to borrowers with the highest credit ratings, may limit our ability to access short-term debt markets to meet the liquidity needs of our business.\u00a0In addition to liquidity risk, our investments are subject to interest rate risk and credit risk, as discussed below.\nWe have established credit quality, maturity, and exposure limits for our investments.\u00a0The minimum allowed credit rating at time of purchase for corporate, Canadian government agency and Canadian provincial bonds is BBB, for asset-backed securities is AAA, and for municipal bonds is A.\u00a0The maximum maturity at time of purchase for BBB-rated securities is 5 years, and for single A rated, AA-rated and AAA-rated securities it is 10 years. Time deposits and commercial paper must be rated A-1 and/or P-1. Money market funds must be rated AAA/Aaa-mf.\nDetails regarding our overall investment portfolio are as follows:\nYears ended June 30, \n2023\n2022\nAverage investment balances at cost:\n\u00a0\n\u00a0\nCorporate investments\n$\n6,293.9\u00a0\n$\n4,241.3\u00a0\nFunds held for clients\n34,142.8\u00a0\n32,480.3\u00a0\nTotal\n$\n40,436.7\u00a0\n$\n36,721.6\u00a0\n\u00a0\n\u00a0\nAverage interest rates earned exclusive of realized\n\u00a0\u00a0\u00a0losses/(gains) on:\n\u00a0\n\u00a0\nCorporate investments\n2.4\u00a0\n%\n1.0\u00a0\n%\nFunds held for clients\n2.4\u00a0\n%\n1.4\u00a0\n%\nTotal\n2.4\u00a0\n%\n1.3\u00a0\n%\nNet realized losses/(gains) on available-for-sale securities\n14.7\u00a0\n4.4\u00a0\n38\n\u00a0\nAs of June 30:\nNet unrealized pre-tax (losses)/gains on available-for-sale securities\n$\n(2,206.9)\n$\n(1,721.4)\nTotal available-for-sale securities at fair value\n$\n29,764.9\u00a0\n$\n28,391.6\u00a0\nWe are exposed to interest rate risk in relation to securities that mature, as the proceeds from maturing securities are reinvested.\u00a0Factors that influence the earnings impact of interest rate changes include, among others, the amount of invested funds and the overall portfolio mix between short-term and long-term investments.\u00a0This mix varies during the fiscal year and is impacted by daily interest rate changes.\u00a0The annualized interest rate earned on our entire portfolio increased from 1.3% for fiscal 2022 to 2.4% for fiscal 2023.\u00a0A hy\npothetical chan\nge in both short-term interest rates (e.g., overnight interest rates or the federal funds rate) and intermediate-term interest rates of 25 basis points applied to the estimated average investment balances and any related short-term borrowings would result in approximately an $14 million impact to earnings before income taxes over the ensuing twelve-month period ending June\u00a030, 2024. A hypothetical change in only short-term interest rates of 25 basis points applied to the estimated average short-term investment balances and any related short-term borrowings would result in approximately an $5 million impact to earnings before income taxes over the ensuing twelve-month period ending June\u00a030, 2024.\nWe are exposed to credit risk in connection with our available-for-sale securities through the possible inability of the borrowers to meet the terms of the securities.\u00a0We limit credit risk by investing in investment-grade securities, primarily AAA-rated and AA- rated securities, as rated by Moody\u2019s, Standard & Poor\u2019s, DBRS for Canadian dollar denominated securities, and Fitch for asset-backed and commercial-mortgage-backed securities.\u00a0In addition, we limit amounts that can be invested in any security other than U.S. government and government agency, Canadian government, and United Kingdom government securities.\nWe operate and transact business in various foreign jurisdictions and are therefore exposed to market risk from changes in foreign currency exchange rates that could impact our consolidated results of operations, financial position, or cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We may use derivative financial instruments as risk management tools and not for trading purposes.\nRECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS\nSee Note 1, Recently Issued Accounting Pronouncements, of Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.\nCRITICAL ACCOUNTING ESTIMATES\nOur Consolidated Financial Statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues, expenses and other comprehensive income. We continually evaluate the accounting policies and estimates used to prepare the Consolidated Financial Statements. See Note 1 - Summary of Significant Accounting Policies for additional information.  \nThe estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. These estimates require levels of subjectivity and judgment, which could result in actual results differing from our estimates. The Company believes the following are its critical accounting estimates:\nDeferred Costs - Assets Recognized from the Costs to Obtain and Fulfill Contracts\nDescription\nIncremental costs of obtaining a contract (e.g., sales commissions) and cost incurred to implement clients on our solutions (e.g., direct labor) that are expected to be recovered are capitalized and amortized on a straight-line basis over the client retention period, depending on the business unit.\nJudgments and Uncertainties\nThe Company has estimated the amortization periods for deferred costs by using its historical retention rates by business unit to estimate the pattern during which the service transfers. The expected client relationship period ranges from three to eight years.\n39\nSensitivity of Estimate to Change\nAs the assumptions used to estimate the amortization period of the deferred costs could have a material impact on timing of recognition, we assess the amortization periods annually using historical retention rates. Actual retention rates were not materially different than those used in our calculation to determine the amortization period.  We regularly review our deferred costs for impairment. There were no impairment losses incurred during the fiscal years ended June\u00a030, 2023, June 30, 2022, or June 30, 2021.\nGoodwill.\n \nDescription\nGoodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Goodwill is tested annually for impairment or more frequently when an event or circumstance indicates that goodwill might be impaired.\nJudgments and Uncertainties\nThe Company\u2019s annual goodwill impairment assessment as of June\u00a030, 2023 was performed for all reporting units using a quantitative approach by comparing the fair value of each reporting unit to its carrying value.  We estimated the fair value of each reporting unit using, as appropriate, the income approach, which is derived using the present value of future cash flows discounted at a risk-adjusted weighted-average cost of capital, and the market approach, which is based upon using market multiples of companies in similar lines of business.  Significant assumptions used in determining the fair value of our reporting units include projected revenue growth rates, profitability projections, working capital assumptions, the weighted average cost of capital, the determination of appropriate market comparison companies, and terminal growth rates.  Several of these assumptions including projected revenue growth rates and profitability projections are dependent on our ability to upgrade, enhance, and expand our technology and services to meet client needs and preferences.   \nSensitivity of Estimate to Change\nSome of the inherent estimates and assumptions used in determining the fair value of the reporting units are outside the control of management including the weighted-average cost of capital, tax rates, market comparisons, and terminal growth rates. While we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units, it is possible a material change could occur. If our actual results are not consistent with our estimates and assumptions used to calculate fair value, it could result in material impairments of our goodwill. The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with the Company\u2019s operating strategy. Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses.\nWe completed our annual assessment of goodwill as of June\u00a030, 2023 and determined that there was no impairment of goodwill. We performed a sensitivity analysis and determined that a one percentage point increase in the weighted-average cost of capital would not result in an impairment of goodwill for all reporting units and their fair values substantially exceeded their carrying values.  \n \nIncome Taxes\nDescription\nJudgment is required in addressing the future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws or interpretations thereof).  A change in the assessment of the outcomes of such matters could materially impact our Consolidated Financial Statements.  \nJudgments and Uncertainties\nThe Company computes its provision for income taxes based on the statutory tax rates in the various jurisdictions in which it operates. Assumptions, judgment, and the use of estimates are required in determining if the \u201cmore likely than not\u201d standard has been met when computing the provision for income taxes, deferred tax assets and liabilities, and uncertain tax positions.  \nSensitivity of Estimate to Change\nWhile the Company considers all of its tax positions fully supportable, the Company is occasionally challenged by various tax authorities regarding the amount of taxes due. If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions. As of June\u00a030, 2023 and 2022, the Company's liabilities for unrecognized tax benefits, \nwhich include interest and penalti\nes, were $116.9 million and $98.1 million, respectively.\n40",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk\nThe information called for by this item is provided under the caption \u201cQuantitative and Qualitative Disclosures About Market Risk\u201d under \u201cItem 7 - Management\u2019s Discussion and Analysis of Financial Condition and Results of Operation.\u201d\n41",
+  "cik": "8670",
+  "cusip6": "053015",
+  "cusip": ["053015103", "053015953", "053015903"],
+  "names": ["Automatic Data Processing", "AUTOMATIC DATA PROCESSING IN"],
+  "source": "https://www.sec.gov/Archives/edgar/data/8670/000000867023000030/0000008670-23-000030-index.htm"
+}
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+{
+  "item1": ">Item\u00a01. Business\nAvnet, Inc. and its consolidated subsidiaries (collectively, the \u201cCompany\u201d or \u201cAvnet\u201d), is a leading global electronic component technology distributor and solutions provider that has served customers\u2019 evolving needs for more than a century. Founded in 1921, the Company works with suppliers in every major technology segment to serve customers in more than 140 countries.\nAvnet serves a wide range of customers: from startups and mid-sized businesses to enterprise-level original equipment manufacturers (\u201cOEMs\u201d), electronic manufacturing services (\u201cEMS\u201d) providers, and original design manufacturers (\u201cODMs\u201d). \nOrganizational Structure\nAvnet has two primary operating groups \u2014 Electronic Components (\u201cEC\u201d) and Farnell (\u201cFarnell\u201d). Both operating groups have operations in each of the three major economic regions of the world: (i) the Americas, (ii) Europe, Middle East, and Africa (\u201cEMEA\u201d) and (iii) Asia/Pacific (\u201cAsia\u201d). Each operating group has its own management team, who manage various functions within each operating group. Each operating group also has distinct financial reporting to the executive level, which informs operating decisions, strategic planning and resource allocation for the Company as a whole. Regional divisions (\u201cbusiness units\u201d) within each operating group serve primarily as sales and marketing units to streamline sales efforts and enhance each operating group\u2019s ability to work with its customers and suppliers, generally along more specific geographies or product lines. However, each business unit relies heavily on support services from the operating groups, as well as centralized support at the corporate level. \nA description of each operating group is presented below. Further financial information by operating group is provided in Note 16 \u201cSegment information\u201d to the consolidated financial statements appearing in Item\u00a08 of this Annual Report on Form 10-K.\nElectronic Components\nAvnet\u2019s EC operating group primarily supports high and medium-volume customers. It markets, sells, and distributes electronic components from the world\u2019s leading electronic component manufacturers, including semiconductors, IP&E components (interconnect, passive and electromechanical components), and other integrated and embedded components.\nEC serves a variety of markets ranging from industrial to automotive to defense and aerospace. It offers an array of customer support options throughout the entire product lifecycle, including both turnkey and customized design, supply chain, new product introduction, programming, logistics and post-sales services.\nWithin the EC operating group for 2023, net sales of approximately 85% consist of semiconductor products, approximately 13% consist of interconnect, passive, and electromechanical components, and approximately 2% consist of computers.\n\u200b\n3\n\n\nTable of Contents\nDesign Chain Solutions\nEC offers design chain support that provides engineers with a host of technical design solutions, which helps EC support a broad range of customers seeking complex products and technologies. With access to a suite of design tools and engineering support, customers can get product specifications along with evaluation kits and reference designs that enable a broad range of applications from any point in the design cycle. EC also offers engineering and technical resources deployed globally to support product design, bill of materials development, and technical education and training. By utilizing EC\u2019s design chain support, customers can optimize their component selection and accelerate their time to market. EC\u2019s extensive product line card provides customers access to a diverse range of products from a complete spectrum of electronic component manufacturers.\nSupply Chain Solutions\nEC\u2019s supply chain solutions provide support and logistics services to OEMs, EMS providers, and electronic component manufacturers, enabling them to optimize supply chains on a local, regional or global basis. EC\u2019s internal competencies in global warehousing and logistics, information technology, and asset management, combined with its global footprint and extensive supplier relationships, allows EC to develop supply chain solutions that provide for a deeper level of engagement with its customers. These customers can manage their supply chains to meet the demands of a competitive global environment without a commensurate investment in physical assets, systems, and personnel. With supply chain planning tools and a variety of inventory management solutions, EC provides solutions that meet a customer\u2019s requirements and minimize supply chain risk in a variety of scenarios.\nEmbedded and Integrated Solutions\nEC provides embedded solutions including technical design, integration and assembly of embedded products, systems, and solutions primarily for industrial applications. EC also provides embedded display solutions, including touch and passive displays. In addition, EC develops and produces standard board and industrial subsystems and application-specific devices that enable it to produce specialized systems tailored to specific customer requirements. EC serves OEMs that require embedded systems and solutions, including engineering, product prototyping, integration, and other value-added services in the medical, telecommunications, industrial, and digital editing markets. \nEC also provides integrated solutions and services for software companies that bring their intellectual property to market via hardware solutions, including custom-built servers.\nFarnell\nAvnet\u2019s Farnell operating group primarily supports lower-volume customers that need electronic components quickly to develop, prototype, and test their products. It distributes a comprehensive portfolio of kits, tools, electronic components, industrial automation components, and test and measurement products to both engineers and entrepreneurs, primarily through an e-commerce channel. Farnell brings the latest products, services, and development trends all together in element14, an industry-leading online community where engineers collaborate to solve one another\u2019s design challenges.\n4\n\n\nTable of Contents\nWithin the Farnell operating group for 2023, net sales of approximately 21% consist of semiconductor products, approximately 48% consist of interconnect, passive, and electromechanical components, approximately 6% consist of computers, and approximately 25% consist of other products and services including test and measurement and maintenance, repair and operations products.\nMajor Products\nOne of Avnet\u2019s competitive strengths is the breadth and quality of the suppliers whose products it distributes. Products from one single supplier was approximately 10% of consolidated sales during fiscal 2023, and no single supplier exceeded 10% of consolidated sales during fiscal years 2022, and 2021. Listed in the table below are the major product categories and the Company\u2019s approximate sales of each during the past three fiscal years. \u201cOther\u201d consists primarily of test and measurement and maintenance, repair and operations (MRO) products.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears\u00a0Ended\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nJuly\u00a01,\n\u00a0\u00a0\u00a0\u00a0\nJuly\u00a02,\n\u00a0\u00a0\u00a0\u00a0\nJuly\u00a03,\n\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\n\u200b\n\u200b\n\u200b\n(Millions)\n\u200b\nSemiconductors\n\u200b\n$\n 21,366.5\n\u200b\n$\n 18,380.2\n\u200b\n$\n 14,722.8\n\u200b\nInterconnect, passive & electromechanical (IP&E)\n\u200b\n\u00a0\n 4,150.6\n\u200b\n\u00a0\n 4,639.1\n\u200b\n\u00a0\n 3,649.0\n\u200b\nComputers\n\u200b\n\u200b\n 520.8\n\u200b\n\u200b\n 663.2\n\u200b\n\u200b\n 640.6\n\u200b\nOther\n\u200b\n\u00a0\n 499.0\n\u200b\n\u00a0\n 628.2\n\u200b\n\u00a0\n 522.3\n\u200b\nSales\n\u200b\n$\n 26,536.9\n\u200b\n$\n 24,310.7\n\u200b\n$\n 19,534.7\n\u200b\nCompetition & Markets\nThe electronic components industry is highly competitive. The Company\u2019s major competitors include: Arrow Electronics, Inc., Future Electronics, World Peace Group, and WT Microelectronics for EC; Mouser Electronics, Digi-Key Electronics and RS Components for Farnell. There are also certain smaller, specialized competitors who generally focus on particular sectors or on narrower geographic locations, markets, or products. As a result of these factors, Avnet\u2019s pricing and product availability must remain competitive.\nA key competitive factor in the electronic component distribution industry is the need to carry a sufficient amount and selection of inventory to meet customers\u2019 demand and rapid delivery requirements. To minimize its exposure related to inventory on hand, the Company purchases a majority of its products pursuant to franchised distribution agreements, which typically provide certain protections for product obsolescence and price erosion. These agreements are generally cancelable upon 30 to 180\u00a0days\u2019 notice and, in most cases, provide for or require inventory return privileges upon cancellation. In addition, the Company enhances its competitive position by offering a variety of value-added services, which are tailored to individual customer specifications and business needs, such as point of use replenishment, testing, assembly, programming, supply chain management, and materials management.\nA competitive advantage is the breadth of the Company\u2019s supplier product line card. Because of the number of Avnet\u2019s suppliers, many customers can simplify their procurement process and make all of their required purchases from Avnet, rather than purchasing from several different parties.\nSeasonality\nHistorically, Avnet\u2019s business has not been materially impacted by seasonality, with the exception of an impact on consolidated results from shifts in geographic sales trends from Asia in the first half of a fiscal year to the Americas and EMEA regions in the second half of a fiscal year, which impact gross profit and operating income margins as a result of \n5\n\n\nTable of Contents\nsuch seasonal geographic sales mix changes.\nHuman Capital \nThe Company values its employees, and recognizes their significant contributions to the success of the Company. The Company invests in its global workforce to drive diversity and inclusion; provide fair and market-competitive pay and benefits; foster employee development for future opportunities within the company; promote employees health and safety; and obtain employees\u2019 feedback to better understand employees\u2019 experiences and identify opportunities to improve. Its core values of integrity, customer focus, ownership, teamwork and inclusiveness establish the foundation on which its culture is built and are key expectations of its employees. The Company believes that its culture and commitment to its employees are vital in its ability to attract, motivate and retain exceptional talent. \nAdditional information regarding the Company\u2019s Human Capital programs, initiatives, and metrics can be found on its website as well as in its Sustainability Reports accessible on its website. The Sustainability Reports and other information contained on the Company\u2019s website are neither part of nor incorporated by reference into this Annual Report.\nNumber of Employees\nAs of July 1, 2023, the Company\u2019s global workforce totaled approximately 15,800 employees across 48 countries. Broken down by geographic region, approximately 4,700 employees are in the Americas, 6,800 employees are in EMEA, and 4,300 employees are in Asia.\nDiversity, Equity and Inclusion (\u201cDEI\u201d)\nThe Company\u2019s DEI vision is (i) an employee population that reflects the diverse communities in which they live, work, and do business, and (ii) an organizational culture which seeks out varying perspectives that allow the best ideas to come to light. The Company is committed to ensuring equal employment opportunities for all applicants and employees regardless of race, gender, national origin, or other protected characteristic, with employment decisions and people practices based on merit and the needs of the Company\u2019s business. To oversee inclusion efforts, the Company created the Global DEI Council, a global cross-functioning team of leaders who represent various business units and corporate functions. The council meets regularly and engages with colleagues across the Company to connect DEI initiatives to the Company\u2019s broader business strategy. \nThe Company\u2019s Equal Opportunity, Diversity and Inclusion Policy actively promotes DEI in the Company\u2019s talent management practices. The Company\u2019s commitment to diversity is evidenced by the makeup of its Board of Directors, which as of July 1, 2023, was 30% women and 50% racially and ethnically diverse (including Middle Eastern origin). In addition, for fiscal years 2021 through 2023, executive\u2019s annual incentive compensation included ESG non-financial performance goals.\nThe Company\u2019s employee-led Employee Resource Groups (ERGs) are open to all employees and provide a forum for employees to communicate and exchange ideas, build a network of relationships across the Company, and support each other in personal and career development. The Company\u2019s eight ERGs support the following communities: women, Asian and Pacific Islanders, Blacks, Hispanic and Latinos, U.S. veterans, LGBTQ+, later career employees; and environmental and sustainability causes. In partnership with the ERGs, the Company conducts listen-and-learn sessions on a variety of DEI topics, which promote meaningful discussions and allow employees to better understand and support each other. These group conversations are open to the entire Company, and are regularly attended by senior leaders, including the CEO. During fiscal 2023, sessions were conducted covering Black History Month, Women and Bias, \n6\n\n\nTable of Contents\nGender Inclusivity, Environment Sustainability and LGBTQ+ topics. DEI education topics are regularly presented at company-wide quarterly town hall, team, and leadership meetings, and through internal webinars and podcasts open to all employees. Additionally, the Company maintains an official culture and diversity calendar and publishes articles on its intranet to celebrate events and holidays around the world. Since 2020, Juneteenth, which commemorates the official end of slavery in the United States and the emancipation of Black slaves, has been an official company-paid holiday for employees in the United States, a year before the federal government recognized it officially.\nPay Equity, Benefits and Wellness\nThe Company strives to pay all its employees fairly, without regard to gender, race, or other personal characteristics, and competitively to attract, retain and incentivize talent. The Company sets pay ranges based on market data and considers factors, such as an employee\u2019s role, experience, tenure, job location, and job performance. The Company periodically reviews its compensation practices, both in terms of its overall workforce and individual employees, to help ensure that pay remains fair and equitable. \nThe Company offers a wide array of benefits that support employees\u2019 physical, financial, and emotional well-being. Through its THRIVE program, the Company offers resources and benefits to support overall health and well-being covering (1) physical and mental health, fitness, and well-being; (2) professional growth, skills, and development; (3) total rewards, retirement planning and money management; and (4) community connections, networks, and social interests. The health and well-being benefits are managed within the Total Rewards Center of Excellence in the Human Resources organization (\u201cHR\u201d). The global HR leadership team meets regularly to assist in reviewing benefit offerings and aligning global programs to remain market competitive and meet the needs of employees.\nDevelopment and Training \nThe Company provides development opportunities and career development training to empower employees to reach their career potential. The performance management process provides ongoing performance, goals, and development discussions between employees and their leaders. The Company\u2019s learning and development resources include mentoring programs and LinkedIn Learning and Business Book Summaries, which cover a variety of technical, business, interpersonal, and leadership topics. Lead2Achieve and InsideOut Coaching are available for leaders to develop skills in effective goal setting, coaching, feedback, and development. In Canada, United States and Mexico, the Company provides education financial assistance for employees who pursue undergraduate or graduate education to further their career development. Talent and succession planning activities are conducted for the Company\u2019s executive officers at least annually and periodically for other senior leaders.\nHealth and Safety\nThe Company strives to create workspaces and practices that foster a safe and secure work environment. The Company\u2019s Global Director of Environment, Health, and Safety (\u201cDirector\u201d) helps to define and execute a compliance strategy across all regions, business units, and subsidiaries. In fiscal 2023, the Director began implementing a multi-year plan to improve alignment and consistency of management systems, policies, and procedures; provide comprehensive health and safety training to employees relevant to their specific work functions; drive continual improvement processes with a focus on identified risks; and increase ISO certifications at operational sites. During fiscal 2023, the Company also launched a Global Environment, Health, and Safety site on its intranet, where articles and other health and safety information are posted.\n7\n\n\nTable of Contents\nAs of July 1, 2023, the Company has 10 operational sites that are certified to ISO 45001, an increase from 8 in the prior fiscal year, and 18 that are certified to ISO 14001. In the past four years, the Company had less than 75 total injuries that required medical treatment and reported no fatalities at Avnet global facilities in accordance to the OSHA/local industrial injuring reporting requirements.\nEmployee Engagement\nThe Company engages with its employees and encourages open and direct feedback through employee engagement surveys. Through such surveys, the Company regularly collects feedback to better understand its employees\u2019 experiences and identify opportunities to improve the work environment, increase employee satisfaction, and strengthen its culture. In fiscal 2023, the Company conducted its regular global employee engagement survey and achieved a participation rate of 71.4%, an increase over fiscal 2022.\nAvailable Information\nThe Company files its annual report on Form 10-K, quarterly reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and other documents (including registration statements) with the U.S. Securities and Exchange Commission (\u201cSEC\u201d) under the Securities Exchange Act of 1934 or the Securities Act of 1933, as applicable. The Company\u2019s SEC filings are available to the public on the SEC\u2019s website at http://www.sec.gov and through The Nasdaq Global Select Market (\u201cNasdaq\u201d), 165 Broadway, New York, New York 10006, on which the Company\u2019s common stock is listed.\nA copy of any of the Company\u2019s filings with the SEC, or any of the agreements or other documents that constitute exhibits to those filings, can be obtained by request directed to the Company at the following address and telephone number:\nAvnet, Inc.\n2211 South 47\nth\n Street\nPhoenix, Arizona 85034\n(480)\u00a0643-2000\nAttention: Corporate Secretary\nThe Company also makes these filings available, free of charge, through its website (see \u201cAvnet Website\u201d below).\nAvnet Website\nIn addition to the information about the Company contained in this Report, extensive information about the Company can be found at \nhttp://www.avnet.com\n, including information about its management team, products and services, and corporate governance practices.\n8\n\n\nTable of Contents\nThe corporate governance information on the Company\u2019s website includes the Company\u2019s Corporate Governance Guidelines, the Code of Conduct and the charters for each of the committees of its Board of Directors. In addition, amendments to these documents and waivers granted to directors and executive officers under the Code of Conduct, if any, will be posted in this area of the website. These documents can be accessed at \nir.avnet.com/documents-charters\n. Printed versions can be obtained, free of charge, by writing to the Company at the address listed above in \u201cAvailable Information.\u201d\nIn addition, the Company\u2019s filings with the SEC, as well as Section 16 filings made by any of the Company\u2019s executive officers or directors with respect to the Company\u2019s common stock, are available on the Company\u2019s website (\nir.avnet.com/financial-information/sec-filings\n) as soon as reasonably practicable after the filing is electronically filed with, or furnished to, the SEC.\nThese details about the Company\u2019s website and its content are only for information. The contents of the Company\u2019s website are not, nor shall they be deemed to be, incorporated by reference in this Report.\n\u200b",
+  "item1a": ">Item\u00a01A. Risk Factors\nForward-Looking Statements and Risk Factors\nThis Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (\u201cSecurities Act\u201d), and Section 21E of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d) with respect to the financial condition, results of operations, and business of Avnet. These statements are generally identified by words like \u201cbelieves,\u201d \u201cplans,\u201d \u201cprojects,\u201d \u201cexpects,\u201d \u201canticipates,\u201d \u201cshould,\u201d \u201cwill,\u201d \u201cmay,\u201d \u201cestimates,\u201d or similar expressions. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results and other outcomes could differ materially from those expressed or implied in the forward-looking statements. Any forward-looking statement speaks only as of the date on which that statement is made. Except as required by law, the Company does not undertake any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date on which the statement is made.\nRisks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements include the risk factors discussed below as well as risks and uncertainties not presently known to the Company or that management does not currently consider material. Such factors make the Company\u2019s operating results for future periods difficult to predict and, therefore, prior results do not necessarily indicate results in future periods. Some of the risks disclosed below may have already occurred, but not to a degree that management considers material unless otherwise noted. Any of the below factors, or any other factors discussed elsewhere in this Report, may have an adverse effect on the Company\u2019s financial condition, operating results, prospects, and liquidity. Similarly, the price of the Company\u2019s common stock is subject to volatility due to fluctuations in general market conditions; actual financial results that do not meet the Company\u2019s or the investment community\u2019s expectations; changes in the Company\u2019s or the investment community\u2019s expectations for the Company\u2019s future results, dividends or share repurchases; and other factors, many of which are beyond the Company\u2019s control.\n \nBusiness and Operations Risks\nChanges in customer needs and consumption models\nChanges in customer product demands and consumption models may cause a decline in the Company\u2019s billings, which would have a negative impact on the Company\u2019s financial results. Changes in technology (such as artificial intelligence) could reduce the types or quantity of services that customers require from the Company. While the Company attempts to identify changes in market conditions as soon as possible, the dynamics of the industries in which \n9\n\n\nTable of Contents\nit operates make it difficult to predict and timely react to such changes, including those relating to product capacity and lead times. Also, future downturns, inflation, or supply chain challenges, including in the semiconductor and embedded solutions industries, could adversely affect the Company\u2019s relationships with its customers, operating results, and profitability. \nSpecifically, the semiconductor industry experiences periodic fluctuations in product supply and demand (often associated with changes in economic conditions, technology, and manufacturing capacity) and suppliers may not adequately predict or meet customer demand. Geopolitical uncertainty (including from military conflicts; health-related crises; and international trade disputes) have led, and may continue to lead, to shortages, extended lead times, and unpredictability in the supply of certain semiconductors and other electronic components. In reaction, customers may over order to ensure sufficient inventory, which, when the shortage lessens, may result in order cancellations and decreases. In cases where customers have entered into non-cancellable/ non-returnable orders, customers may not be able or willing to carry out the terms of the orders. The Company\u2019s prices to customers depend on many factors, including product availability, supplier costs, and competitive pressures. In fiscal 2022 and 2023, pricing to customers increased due to higher costs from suppliers, as well as higher freight and other costs. However, the Company may not be able to maintain higher prices to customers in the future. As product becomes more available, customer and competitive pressures may lower prices to customers, which could reduce the Company\u2019s margins. In addition, the Company may be unable to increase prices to customers to offset higher internal costs, which could also reduce margins. During fiscal 2023, 2022, and 2021, sales of semiconductors represented approximately 81%, 76%, and 75% of the Company\u2019s consolidated sales, respectively, and the Company\u2019s sales closely follow the strength or weakness of the semiconductor industry. These conditions make it more difficult to manage the Company\u2019s business and predict future performance.\nDisruptions to key supplier and customer relationships\nOne of the Company\u2019s competitive strengths is the breadth and quality of the suppliers whose products the Company distributes. For fiscal 2023, there was one of the Company\u2019s suppliers that accounted for 10% or more of the Company\u2019s consolidated billings. The Company\u2019s contracts with its suppliers vary in duration and are generally terminable by either party at will upon notice. The Company\u2019s suppliers may terminate or significantly reduce their volume of business with the Company because of a product shortage, an unwillingness to do business with the Company, changes in strategy, or otherwise. \nShortages of products or loss of a supplier may negatively affect the Company\u2019s business and relationships with its customers, as customers depend on the Company\u2019s timely delivery of technology hardware and software from the industry\u2019s leading suppliers. In addition, shifts in suppliers\u2019 strategies, or performance and delivery issues, may negatively affect the Company\u2019s financial results. These conditions make it more difficult to manage the Company\u2019s business and predict future performance. The competitive landscape has also experienced a consolidation among suppliers and capacity constraints, which could negatively impact the Company\u2019s profitability and customer base.\nFurther, if key suppliers modify the terms of their contracts (including, without limitation, terms regarding price protection, rights of return, order cancellation rights, delivery commitments, rebates, or other terms that protect or enhance the Company\u2019s gross margins), it could negatively affect the Company\u2019s results of operations, financial condition, or liquidity. Due to recent global shortages of semiconductors, some suppliers have increased the amount of non-cancellable/ non-returnable orders, which limited the Company\u2019s ability to adjust down its inventory levels. The Company may attempt to limit associated risks by passing such terms on to its customers, but this may not be possible.\n10\n\n\nTable of Contents\nRisks related to international operations\nDuring fiscal 2023, 2022, and 2021 approximately 76%, 77% and 78%, respectively, of the Company\u2019s sales came from its operations outside the United States. The Company\u2019s operations are subject to a variety of risks that are specific to international operations, including, but not limited to, the following:\n\u25cf\npotential restrictions on the Company\u2019s ability to repatriate funds from its foreign subsidiaries;\n\u25cf\nforeign currency and interest rate fluctuations;\n\u25cf\nnon-compliance with foreign and domestic data privacy regulations, business licensing requirements, environmental regulations, and anti-corruption laws, the failure of which could result in severe penalties including monetary fines and criminal proceedings;\n\u25cf\nnon-compliance with foreign and domestic import and export regulations and adoption or expansion of trade restrictions, including technology transfer restrictions, additional license, permit or authorization requirements for shipments, specific company sanctions, new and higher duties, tariffs or surcharges, or other import/export controls;\n\u25cf\ncomplex and changing tax laws and regulations; \n\u25cf\nregulatory requirements and prohibitions that differ between jurisdictions; \n\u25cf\neconomic and political instability, terrorism, military conflicts (including the Russia-Ukraine conflict), or civilian unrest;\n\u25cf\nfluctuations in freight costs (both inbound and outbound), limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure;\n\u25cf\nnatural disasters (including as a result of climate change), pandemics, and other public health crises; \n\u25cf\ndiffering employment practices and labor issues; and\n\u25cf\nnon-compliance with local laws.\nIn addition to the cost of compliance, the potential criminal penalties for violations of import or export regulations and anti-corruption laws, by the Company or its third-party agents, create heightened risks for the Company\u2019s international operations. If a regulatory body determines that the Company has violated such laws, the Company could be fined significant sums, incur sizable legal defense costs, have its import or export capabilities restricted or denied, or have its inventories seized, which could have a material and adverse effect on the Company\u2019s business. Additionally, allegations that the Company has violated any such regulations may negatively impact the Company\u2019s reputation, which may result in customers or suppliers being unwilling to do business with the Company. While the Company has adopted measures and controls designed to ensure compliance with these laws, these measures may not be adequate, and the Company may be materially and adversely impacted in the event of an actual or alleged violation.\nTariffs, trade restrictions, and sanctions resulting from international trade disputes, changes in trade policies, or military conflicts may adversely affect the Company\u2019s sales and profitability. For example, the U.S. government imposed several trade policies, rules, and restrictions applicable to China and Hong Kong. In addition, in response to the Russian-Ukraine conflict, the United States, the European Union, the United Kingdom, and numerous other countries initiated a variety of sanctions, export restrictions, currency controls and other restrictions against Russia. The Chinese and Russian governments have responded in kind with restrictions, sanctions, and other measures. These actions have resulted in losses; increased costs, including increased costs of procuring certain products the Company purchases from its suppliers; shortages of materials and electronic components; increased expenses such as energy, fuel, and freight costs, which may not \n11\n\n\nTable of Contents\nbe possible to pass on to customers; increased cyber security attacks; credit market disruptions; and inflation, which may impact the Company\u2019s sales, customer demand for certain products, access to certain markets, and profits. In addition, increased operational expenses incurred in minimizing the number of products subject to the tariffs could adversely affect the Company\u2019s operating profits. Neither U.S. tariffs nor any retaliatory tariffs imposed by other countries on U.S. goods have yet had a material impact, but any future actions or escalations that affect trade relations could materially affect the Company\u2019s sales and results of operations. \nThe Company transacts sales, pays expenses, owns assets, and incurs liabilities in countries using currencies other than the U.S. Dollar. Because the Company\u2019s consolidated financial statements are presented in U.S. Dollars, the Company must translate such activities and amounts into U.S. Dollars at exchange rates in effect during each reporting period. Therefore, increases or decreases in the exchange rates between the U.S. Dollar and other currencies affect the Company\u2019s reported amounts of sales, operating income, and assets and liabilities denominated in foreign currencies. In addition, unexpected and dramatic changes in foreign currency exchange rates may negatively affect the Company\u2019s earnings from those markets. While the Company may use derivative financial instruments to reduce its net exposure, foreign currency exchange rate fluctuations may materially affect the Company\u2019s financial results. Further, foreign currency instability and disruptions in the credit and capital markets may increase credit risks for some of the Company\u2019s customers and may impair its customers\u2019 ability to repay existing obligations.\nInternal information systems failures\nThe Company depends on its information systems to facilitate its day-to-day operations and to produce timely, accurate, and reliable information on financial and operational results. Currently, the Company\u2019s global operations are tracked with multiple information systems, including systems from acquired businesses, some of which are subject to ongoing IT projects designed to streamline or optimize the Company\u2019s systems. These IT projects are extremely complex, in part because of wide ranging processes, use of on-premise and cloud environments, the Company\u2019s business operations, and changes in information technology (including artificial intelligence). The Company may not always succeed at these efforts. Implementation or integration difficulties may adversely affect the Company\u2019s ability to complete business transactions and ensure accurate recording and reporting of financial data. In addition, IT projects may not achieve the expected efficiencies and cost savings, which could negatively impact the Company\u2019s financial results. A failure of any of these information systems (including due to power losses, computer and telecommunications failures, cyber security incidents, or manmade or natural disasters), or material difficulties in upgrading these information systems, could have an adverse effect on the Company\u2019s business, internal controls, and reporting obligations under federal securities laws.\nDue to the Company\u2019s increased online sales, system interruptions and delays that make its websites and services unavailable or slow to respond may reduce the attractiveness of its products and services to its customers. If the Company is unable to continually improve the efficiency of its systems, it could cause systems interruptions or delays and adversely affect the Company\u2019s operating results.\nLogistics disruptions\nThe Company\u2019s global logistics services are operated through specialized and centralized distribution centers around the globe, some of which are outsourced. The Company also depends almost entirely on third-party transportation service providers to deliver products to its customers. A major interruption or disruption in service at one or more of its distribution centers for any reason or significant disruptions of services from the Company\u2019s third-party transportation providers could cause a delay in expected cost savings or an increase in expenses, which may not be possible to pass on to customers. Such disruptions could result from risks related to information technology, data security, or any of the General Risk Factors, as discussed herein. In addition, as the Company continues to increase capacity at various distribution centers, it may experience operational challenges, increased costs, decreased efficiency, \n12\n\n\nTable of Contents\nand customer delivery delays and failures. Such operational challenges could have an adverse impact on the Company\u2019s business partners, and on the Company\u2019s business, operations, financial performance, and reputation.\nData security and privacy threats\nThreats to the Company\u2019s data and information technology systems (including cyber security attacks such as phishing and ransomware) are becoming more frequent and sophisticated. Threat actors have successfully breached the Company\u2019s systems and processes in various ways, and such cyber security breaches expose the Company to significant potential liability and reputational harm. Cyber security attacks have not yet materially impacted the Company\u2019s data (including data about customers, suppliers, and employees) or the Company\u2019s operations, financial condition, or data security, but future attacks could have a material impact. Threat actors seek unauthorized access to intellectual property, or confidential or proprietary information regarding the Company, its customers, its business partners, or its employees. They deploy malicious software programs that exploit security vulnerabilities, including ransomware designed to encrypt the Company\u2019s files so an attacker may demand a ransom for restored access. They also seek to misdirect money, sabotage data and systems, takeover internal processes, and induce employees or other system users to disclose sensitive information, including login credentials. In addition, some Company employees continue to work from home on a full-time or hybrid basis, which increases the Company\u2019s vulnerability to cyber and other information technology risks. Further, the Company\u2019s business partners and service providers, such as suppliers, customers, and hosted solution providers, pose a security risk because their own security systems or infrastructure may become compromised. \nThe Company seeks to protect and secure its systems and information, prevent and detect evolving threats, and respond to threats as they occur. Measures taken include implementing and enhancing information security controls such as enterprise-wide firewalls, intrusion detection, endpoint protection, email security, disaster recovery, vulnerability management, and cyber security training for employees to enhance awareness of general security best practices, financial fraud, and phishing. Despite these efforts, the Company may not always be successful. Threat actors frequently change their techniques and, consequently, the Company may not always promptly detect the existence or scope of a security breach. As these types of threats grow and evolve, the Company may make further investments to protect its data and information technology infrastructure, which may impact the Company\u2019s profitability. The Company\u2019s insurance coverage for protecting against cyber-attacks may not be sufficient to cover all possible claims, and the Company may suffer losses that could have a material adverse effect on its business. As a global enterprise, the Company may be negatively impacted by existing and proposed laws and regulations, as well as government policies and practices, related to cybersecurity, data privacy, data localization, and data protection. Failure to comply with such requirements could have an adverse effect on the Company\u2019s reputation, business, financial condition, and results of operations, as well as subject the Company to significant fines, litigation losses, third-party damages, and other liabilities.\nFinancial Risks\nInventory value decline\nThe electronic components and integrated products industries are subject to technological change, new and enhanced products, changes in customer needs, and changes in industry standards and regulatory requirements, which can cause the Company\u2019s inventory to decline in value or become obsolete. Regardless of the general economic environment, prices may decline due to a decrease in demand or an oversupply of products, which may increase the risk of declines in inventory value. Many of the Company\u2019s suppliers offer certain protections from the loss in value of inventory (such as price protection and limited rights of return), but such policies may not fully compensate for the loss. Also, suppliers may not honor such agreements, some of which are subject to the supplier discretion. In addition, most Company sales are made pursuant to individual purchase orders, rather than through long-term sales contracts. Where there are contracts, such contracts are generally terminable at will upon notice. Unforeseen product developments, \n13\n\n\nTable of Contents\ninventory value declines, or customer cancellations may adversely affect the Company\u2019s business, results of operations, financial condition, or liquidity.\nAccounts receivable defaults\nAccounts receivable are a significant portion of the Company\u2019s working capital. If entities responsible for a significant amount of accounts receivable cease doing business, direct their business elsewhere, fail to pay, or delay payment, the Company\u2019s business, results of operations, financial condition, or liquidity could be adversely affected. An economic or industry downturn could adversely affect the Company\u2019s ability to collect receivables, which could result in longer payment cycles, increased collection costs, and defaults exceeding management\u2019s expectations. A significant deterioration in the Company\u2019s ability to collect accounts receivable in the United States could impact the cost or availability of financing under its accounts receivable securitization program. \nLiquidity and capital resources constraints\nThe Company\u2019s ability to satisfy its cash needs and implement its capital allocation strategy depends on its ability to generate cash from operations and to access the financial markets, both of which are subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond the Company\u2019s control. In addition to cash on hand, the Company relies on external financing to help satisfy its cash needs. However, various factors affect external financing, including general market conditions, interest rate fluctuations, and the Company\u2019s debt ratings and operating results. Consequently, external financing may not be available on acceptable terms or at all. An increase in the Company\u2019s debt or deterioration of its operating results may cause a reduction in its debt ratings. Any such reduction could negatively impact the Company\u2019s ability to obtain additional financing or renew existing financing, and could result in reduced credit limits, increased financing expenses, and additional restrictions and covenants. A reduction in its current debt rating may also negatively impact the Company\u2019s working capital and impair its relationship with its customers and suppliers.\nAs of July 1, 2023, the Company had debt outstanding with financial institutions under various notes, secured borrowings, and committed and uncommitted lines of credit. The Company needs cash to pay debt principal and interest, and for general corporate purposes, such as funding its ongoing working capital and capital expenditure needs. Under certain of its credit facilities, the applicable interest rate and costs are based in part on the Company\u2019s current debt rating. If its debt rating is reduced, higher interest rates and increased costs would result. Any material increase in the Company\u2019s financing costs or loss of access to cost-effective financing could have an adverse effect on its profitability, results of operations, and cash flows. \nUnder some of its credit facilities, the Company is required to maintain a maximum leverage ratio and pass certain financial tests. If the Company increases its level of debt or its operating results deteriorate, it may fail to meet this financial ratio or pass these tests, which may result in an event of default. In such an event, lenders may accelerate payment and the Company may be unable to continue to utilize these facilities. If the Company is unable to utilize these facilities or is required to repay debt earlier than management expected, it may not have sufficient cash available to make interest payments, to repay indebtedness, or for general corporate needs. \nGeneral economic or business conditions, both domestic and foreign, may be less favorable than management expects and could adversely impact the Company\u2019s sales or its ability to collect receivables from its customers, which may impact access to the Company\u2019s accounts receivable securitization program.\nFinancing covenants and restrictions may limit management discretion\nThe agreements governing the Company\u2019s financing, including its credit facility, accounts receivable securitization program, and the indentures governing the Company\u2019s outstanding notes, contain various covenants and restrictions that, \n14\n\n\nTable of Contents\nin certain circumstances, limit the Company\u2019s ability, and the ability of certain subsidiaries, to:\n\u25cf\ngrant liens on assets;\n\u25cf\nmake restricted payments (including, under certain circumstances, paying dividends on, redeeming or repurchasing common stock);\n\u25cf\nmake certain investments;\n\u25cf\nmerge, consolidate, or transfer all, or substantially all, of the Company\u2019s assets;\n\u25cf\nincur additional debt; or\n\u25cf\nengage in certain transactions with affiliates.\nAs a result of these covenants and restrictions, the Company may be limited in the future in how it conducts its business and may be unable to raise additional debt, repurchase common stock, pay a dividend, compete effectively, or make further investments.\nTax law changes and compliance\nAs a multinational corporation, the Company is subject to the tax laws and regulations of the United States and many foreign jurisdictions. From time to time, governments enact or revise tax laws and regulations, which are further subject to interpretations, guidance, amendments, and technical corrections from international, federal, and state tax authorities. Such changes to tax law may adversely affect the Company\u2019s cash flow, costs of share buybacks, and effective tax rate, including through decreases in allowable deductions and higher tax rates. \nMany countries are adopting provisions to align their international tax rules with the Base Erosion and Profit Shifting Project, led by the Organisation for Economic Co-operation and Development (\u201cOECD\u201d) and supported by the United States. The project aims to standardize and modernize global corporate tax policy, including tax rate increases and a global minimum tax. In October 2021, a substantial majority of the OECD\u2019s participating countries and jurisdictions agreed to introduce a 15% global minimum corporate tax rate that would apply to companies with revenue over a set threshold. Furthermore, many countries are independently evaluating their corporate tax policy, which could result in tax legislation and enforcement that adversely impacts the Company\u2019s tax provision and value of deferred assets and liabilities. These provisions, if enacted, individually or as a whole, may negatively impact taxation of international business.\nThe tax laws and regulations of the various countries where the Company has operations are extremely complex and subject to varying interpretations. The Company believes that its historical tax positions are sound and consistent with applicable law, and that it has adequately reserved for income taxes. However, taxing authorities may challenge such positions and the Company may not be successful in defending against any such challenges. The Company\u2019s future income tax expense could be favorably or adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets, and liabilities and changes to its operating structure.\nConstraints on internal controls\nEffective internal controls are necessary for the Company to provide reliable financial reports, safeguard its assets, and prevent and detect fraud. If the Company cannot do so, its brand and operating results could be harmed. Internal controls over financial reporting are intended to prevent and detect material misstatements in its financial reporting and material fraudulent activity, but are limited by human error, circumventing or overriding controls, and fraud. As a result, the Company may not identify all material activity or all immaterial activity that could aggregate into a material \n15\n\n\nTable of Contents\nmisstatement. Therefore, even effective internal controls cannot guarantee that financial statements are wholly accurate or prevent all fraud and loss of assets. Management continually evaluates the effectiveness of the design and operation of the Company\u2019s internal controls. However, if the Company fails to maintain the adequacy of its internal controls, including any failure to implement required new or improved internal controls, or if the Company experiences difficulties in their implementation, the Company\u2019s business and operating results could be harmed. Additionally, the Company may be subject to sanctions or investigations by regulatory authorities, or the Company could fail to meet its reporting obligations, all of which could have an adverse effect on its business or the market price of the Company\u2019s securities.\nAcquisition expected benefits shortfall\nThe Company has made, and expects to make, strategic acquisitions or investments globally to further its strategic objectives and support key business initiatives. Acquisitions and investments involve risks and uncertainties, some of which may differ from those associated with the Company\u2019s historical operations. Such risks include, but are not limited to, risks relating to expanding into emerging markets and business areas, adding additional product lines and services, impacting existing customer and supplier relationships, incurring costs or liabilities associated with the companies acquired, incurring potential impairment charges on acquired goodwill and other intangible assets, and diverting management\u2019s attention from existing operations and initiatives. As a result, the Company\u2019s profitability may be negatively impacted. In addition, the Company may not successfully integrate the acquired businesses, or the integration may be more difficult, costly, or time-consuming than anticipated. Further, any litigation involving the potential acquisition or acquired entity will increase expenses associated with the acquisition, cause a delay in completing the acquisition, impact the ability to integrate the acquired entity, which may impact the Company\u2019s profitability. The Company may experience disruptions that could, depending on the size of the acquisition, have an adverse effect on its business, especially where an acquisition target may have pre-existing regulatory issues or deficiencies, or material weaknesses in internal controls over financial reporting. Furthermore, the Company may not realize all benefits anticipated from its acquisitions, which could adversely affect the Company\u2019s financial performance.\nLegal and Regulatory Risks\nLegal proceedings\n \ncosts and damages\nFrom time to time, the Company may become involved in legal proceedings, including government investigations, that arise out of the ordinary conduct of the Company\u2019s business, including matters involving intellectual property rights, commercial matters, merger-related matters, product liability, and other actions. Legal proceedings could result in substantial costs and diversion of management\u2019s efforts and other resources, and could have an adverse effect on the Company\u2019s operations and business reputation. The Company may be obligated to indemnify and defend its customers if the products or services that the Company sells are alleged to infringe any third party\u2019s intellectual property rights. The Company may not be able to obtain supplier indemnification for itself and its customers against such claims, or such indemnification may not fully protect the Company and its customers against such claims. Also, the Company is exposed to potential liability for technology and products that it develops for which it has no indemnification protections. If an infringement claim against the Company is successful, the Company may be required to pay damages or seek royalty or license arrangements, which may not be available on commercially reasonable terms. The Company may have to stop selling certain products or services, which could affect its ability to compete effectively. In addition, the Company\u2019s expanding business activities may include the assembly or manufacture of electronic component products and systems. Product defects, whether caused by a design, assembly, manufacture or component failure or error, or manufacturing processes not in compliance with applicable statutory and regulatory requirements, may result in product liability claims, product recalls, fines, and penalties. Product liability risks could be particularly significant with respect to aerospace, \n16\n\n\nTable of Contents\nautomotive, and medical applications because of the risk of serious harm to users of such products. \nEnvironmental regulations\n \nnon-compliance\nThe Company is subject to various federal, state, local, and foreign laws and regulations addressing environmental and other impacts from industrial processes, waste disposal, carbon emissions, use of hazardous materials in products and operations, recycling products, and other related matters. While the Company strives to fully comply with all applicable regulations, certain of these regulations impose liability without fault. Additionally, the Company may be held responsible for the prior activities of an entity it acquired.\nFailure to comply with these regulations could result in substantial costs, fines, and civil or criminal sanctions, as well as third-party claims for property damage or personal injury. Future environmental laws and regulations, including disclosure requirements, may become more stringent over time, imposing greater compliance costs, and increasing risks, penalties and reputational harm associated with violations.\nCustomers, suppliers, investors, and regulatory agencies in various jurisdictions globally are increasingly requesting or requiring disclosure and action regarding the Company\u2019s supply chain due-diligence and environmental, social, and governance practices. Such increased expectations and regulations may increase compliance costs and result in reputational damage and loss of business if the Company is perceived to have not met such expectations.\nGeneral Risk Factors\nNegative impacts of economic or geopolitical uncertainty, or a health crisis, on operations and financial results\nEconomic weakness and geopolitical uncertainty (including from military conflicts and international trade disputes), as well as health-related crises (including pandemics and epidemics), have resulted, and may result in the future, in a variety of adverse impacts on the Company and its customers and suppliers. Such adverse impacts include decreased sales, margins, and earnings; increased logistics costs; demand uncertainty; constrained workforce participation; global supply chain disruptions; and logistics and distribution system disruptions. Such crises and uncertainties could also result in, or heighten the risks of, customer bankruptcies, customer delayed or defaulted payments, delays in product deliveries, financial market disruption and volatility, and other risk factors described in the Company\u2019s Annual Report. As a result, the Company may need to impair assets (including goodwill, intangible assets, and other long-lived assets), implement restructuring actions, and reduce expenses in response to decreased sales or margins.\nThe Company may not be able to adequately adjust its cost structure in a timely fashion, which may adversely impact its profitability. Uncertainty about economic conditions may increase foreign currency volatility, which may negatively impact the Company\u2019s results. Economic weakness and geopolitical uncertainty also make it more difficult for the Company to manage inventory levels (including when customers decrease orders, cancel existing orders, or are unable to fulfill their obligations under non-cancelable/ non-return orders) and collect customer receivables, which may result in provisions to create reserves, write-offs, reduced access to liquidity, higher financing costs, and increased pressure on cash flows.\nAn increase in or prolonged period of inflation could affect the Company\u2019s profitability and cash flows, due to higher wages, higher operating expenses, higher financing costs, and higher supplier prices. Inflation may also adversely affect foreign exchange rates. The Company may be unable to pass along such higher costs to its customers, which may result in lower gross profit margins. In addition, inflation may adversely affect customers\u2019 financing costs, cash flows, and profitability, which could adversely impact their operations and the Company\u2019s ability to offer credit and collect receivables.\n17\n\n\nTable of Contents\nCompetition\nThe market for the Company\u2019s products and services is very competitive and subject to technological advances (including artificial intelligence), new competitors, non-traditional competitors, and changes in industry standards. The Company competes with other global and regional distributors, as well as some of the Company\u2019s own suppliers that maintain direct sales efforts. In addition, as the Company expands its offerings and geographies, the Company may encounter increased competition from current or new competitors. The Company\u2019s failure to maintain and enhance its competitive position could adversely affect its business and prospects. Furthermore, the Company\u2019s efforts to compete in the marketplace could cause deterioration of gross profit margins and, thus, overall profitability.\nThe size of the Company\u2019s competitors varies across market sectors, as do the resources the Company has allocated to the sectors and geographic areas in which it does business. Therefore, some competitors may have greater resources or a more extensive customer or supplier base in some market sectors and geographic areas. As a result, the Company may not be able to effectively compete in certain markets, which could impact the Company\u2019s profitability and prospects.\nEmployee retention and hiring constraints\nIdentifying, hiring, training, developing, and retaining qualified and engaged employees is critical to the Company\u2019s success, and competition for experienced employees in the Company\u2019s industry can be intense. Restrictions on immigration or changes in immigration laws, including visa restrictions, may limit the Company\u2019s acquisition of key talent, including talent with diverse experience, background, ability, and perspectives. Changing demographics and labor work force trends may result in a loss of knowledge and skills as experienced workers leave the Company. In addition, as global opportunities and industry demands shift, and as the Company expands its offerings, the Company may encounter challenges in realigning, training, and hiring skilled personnel. Through organizational design activities, the Company periodically eliminates positions due to restructurings or other reasons, which may risk the Company\u2019s brand reputation as an employer of choice and negatively impact the Company\u2019s ability to hire and retain qualified personnel. Also, position eliminations may negatively impact the morale of employees who are not terminated, which could result in work stoppages or slowdowns, particularly where employees are represented by unions or works councils. If these circumstances occur, the Company\u2019s business, financial condition, and results of operations could be seriously harmed.\n\u200b",
+  "item7": ">Item\u00a07. \nManagement\u2019s Discussion and Analysis of Financial Condition and\n Results of Operations\nFor a description of the Company\u2019s critical accounting policies and an understanding of Avnet and the significant factors that influenced the Company\u2019s performance during the past three fiscal years, the following discussion should be read in conjunction with the description of the business appearing in Item\u00a01 of this Report and the consolidated financial statements, including the related notes and schedule, and other information appearing in Item\u00a08 of this Report. The Company operates on a \u201c52/53\u00a0week\u201d fiscal year. Fiscal 2023 and fiscal 2022 contain 52 weeks compared to 53 weeks in fiscal 2021.\nThe discussion of the Company\u2019s results of operations includes references to the impact of foreign currency translation. When the U.S. Dollar strengthens and the stronger exchange rates are used to translate the results of operations of Avnet\u2019s subsidiaries denominated in foreign currencies, the result is a decrease in U.S. Dollars of reported results. Conversely, when the U.S. Dollar weakens, the weaker exchange rates result in an increase in U.S. Dollars of reported results. In the discussion that follows, results excluding this impact, primarily for subsidiaries in EMEA and Asia, are referred to as \u201cconstant currency.\u201d\nIn addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the U.S. (\u201cGAAP\u201d), the Company also discloses certain non-GAAP financial information, including:\n\u25cf\nOperating income excluding (i) restructuring, integration and other expenses (see Restructuring, Integration and Other Expenses in this MD&A), (ii) Russian-Ukraine conflict related expenses (see Russian-Ukraine conflict related expenses in this MD&A), and (iii) amortization of acquired intangible assets is referred to as \u201cadjusted operating income.\u201d \n22\n\n\nTable of Contents\nThe reconciliation of operating income to adjusted operating income is presented in the following table:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears\u00a0Ended\n\u200b\n\u00a0\nJuly\u00a01,\n\u00a0\u00a0\u00a0\u00a0\nJuly\u00a02,\n\u00a0\u00a0\u00a0\u00a0\nJuly\u00a03,\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\n\u200b\n\u200b\n(Thousands)\nOperating income\n\u200b\n$\n 1,186,800\n\u200b\n$\n 939,011\n\u200b\n$\n 281,408\nRestructuring, integration and other expenses\n\u200b\n\u00a0\n 28,038\n\u200b\n\u00a0\n 5,272\n\u200b\n\u00a0\n 84,391\nRussian-Ukraine conflict related expenses\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 26,261\n\u200b\n\u200b\n \u2014\nAmortization of acquired intangible assets and other\n\u200b\n\u00a0\n 6,053\n\u200b\n\u00a0\n 15,038\n\u200b\n\u00a0\n 41,245\nAdjusted operating income \n\u200b\n$\n 1,220,891\n\u200b\n$\n 985,582\n\u200b\n$\n 407,044\n\u200b\nManagement believes that providing this additional information is useful to financial statement users to better assess and understand operating performance, especially when comparing results with prior periods or forecasting performance for future periods, primarily because management typically monitors the business both including and excluding these adjustments to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in many cases, for measuring performance for compensation purposes. However, any analysis of results on a non-GAAP basis should be used as a complement to, and in conjunction with, results presented in accordance with GAAP.\n\u200b\nResults of Operations\nExecutive Summary\nSales for fiscal 2023 were $26.54 billion, an increase of 9.2% from fiscal 2022 sales of $24.31 billion. Excluding the impact of changes in foreign currency, sales increased 13.4% as compared to sales in the prior year. This increase in sales was predominately driven by sales growth in both operating groups across all regions driven by strong global demand and to a lesser extent pricing for electronic components.\nGross profit increased $216.8 million or 7.3% from fiscal 2022 gross profit due primarily to increases in sales.  Gross profit margin of 12.0% decreased 21 basis points compared to 12.2% in fiscal 2022. This decrease is primarily driven by the unwinding of certain pricing premiums in the Farnell business.\nOperating income of $1.19 billion was $247.8 million or 26.4% higher than fiscal 2022. Operating income margin was 4.5% in fiscal 2023, as compared to 3.9% in fiscal 2022. The increase in operating income margin is primarily the result of increases in sales and the operating leverage created by the additional gross profit dollars without any meaningful increase in selling, general and administrative expenses. Adjusted operating income margin was 4.6% in fiscal 2023 as compared to 4.1% in fiscal 2022, an increase of 55 basis points. This increase in adjusted operating income margin is primarily due to increases in sales and the operating leverage created by the additional gross profit dollars.\n23\n\n\nTable of Contents\nSales\nThree-Year Analysis of Sales: By Operating Group and Geography\nThe table below provides a year-over-year summary of sales for the Company and its operating groups.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears\u00a0Ended\n\u200b\nPercent\u00a0Change\n\u200b\n\u00a0\u00a0\nJuly\u00a01,\n\u00a0\u00a0\u00a0\n%\u00a0of\n\u200b\nJuly\u00a02,\n\u00a0\u00a0\u00a0\n%\u00a0of\n\u200b\nJuly\u00a03,\n\u00a0\u00a0\u00a0\n%\u00a0of\n\u200b\n2023\u00a0to\u00a0\n\u200b\n2022\u00a0to\u00a0\n\u200b\n\u200b\n2023\n\u00a0\u00a0\u00a0\u00a0\nTotal\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u200b\nTotal\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\nTotal\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n(Dollars\u00a0in\u00a0millions)\n\u00a0\nSales by Operating Group:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nEC\n\u200b\n$\n 24,802.6\n\u200b\n 93.5\n%\u00a0\n\u200b\n$\n 22,503.3\n\u200b\n 92.6\n%\u00a0\n\u200b\n$\n 18,030.5\n\u200b\n 92.3\n%\u00a0\n\u200b\n 10.2\n%\u00a0\n\u200b\n 24.8\n%\u00a0\u00a0\nFarnell\n\u200b\n\u200b\n 1,734.3\n\u200b\n 6.5\n\u200b\n\u200b\n\u200b\n 1,807.4\n\u200b\n 7.4\n\u200b\n\u200b\n\u200b\n 1,504.2\n\u200b\n 7.7\n\u200b\n\u200b\n (4.0)\n\u200b\n\u200b\n 20.2\n\u200b\n\u200b\n\u200b\n$\n 26,536.9\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 24,310.7\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 19,534.7\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nSales by Geographic Region:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAmericas\n\u200b\n$\n 6,807.7\n\u00a0\n 25.7\n%\u00a0\n\u200b\n$\n 5,896.0\n\u00a0\n 24.3\n%\u00a0\n\u200b\n$\n 4,662.5\n\u00a0\n 23.9\n%\u00a0\n\u200b\n 15.5\n%\u00a0\n\u200b\n 26.5\n%\nEMEA\n\u200b\n\u00a0\n 9,229.4\n\u00a0\n 34.8\n\u200b\n\u200b\n\u00a0\n 7,838.1\n\u00a0\n 32.2\n\u200b\n\u200b\n\u00a0\n 6,149.9\n\u00a0\n 31.5\n\u200b\n\u200b\n 17.8\n\u200b\n\u200b\n 27.5\n\u200b\nAsia\n\u200b\n\u00a0\n 10,499.8\n\u00a0\n 39.5\n\u200b\n\u200b\n\u00a0\n 10,576.6\n\u00a0\n 43.5\n\u200b\n\u200b\n\u00a0\n 8,722.3\n\u00a0\n 44.6\n\u200b\n\u200b\n (0.7)\n\u200b\n\u200b\n 21.3\n\u200b\nTotal Avnet\n\u200b\n$\n 26,536.9\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 24,310.7\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 19,534.7\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nThe table below provides reported and organic sales growth rates for fiscal 2023 as compared to fiscal 2022 by geographic region and operating group.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nSales\n\u200b\n\u200b\n\u200b\n\u200b\nYear-Year %\n\u200b\n\u200b\nSales\n\u200b\nChange in\n\u200b\n\u200b\nYear-Year\n\u200b\nConstant\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n%\u00a0Change\n\u00a0\u00a0\u00a0\u00a0\nCurrency\nAvnet\n\u200b\n 9.2\n%\n\u00a0\n 13.4\n%\nAvnet by region\n\u200b\n\u200b\n\u200b\n\u200b\nAmericas\n\u200b\n 15.5\n%\n\u00a0\n 15.5\n%\nEMEA\n\u200b\n 17.8\n\u200b\n\u00a0\n 27.0\n\u200b\nAsia\n\u200b\n (0.7)\n\u200b\n\u00a0\n 1.9\n\u200b\nAvnet by operating group\n\u200b\n\u200b\n\u200b\n\u200b\nEC\n\u200b\n 10.2\n%\n\u00a0\n 14.4\n%\nFarnell\n\u200b\n (4.0)\n\u200b\n\u200b\n 0.9\n\u200b\n\u200b\n\u200b\nAvnet\u2019s sales for fiscal 2023 were $26.54 billion, an increase of $2.23 billion, or 9.2%, from fiscal 2022 sales of $24.31 billion. Sales in constant currency increased 13.4% year over year, reflecting sales growth in both operating groups across all regions driven by strong global demand and to a lesser extent pricing for electronic components. \nEC sales in fiscal 2023 were $24.80 billion, representing a 10.2% increase over fiscal 2022 sales of $22.50 billion. EC sales increased 14.4% year over year in constant currency. The increase in EC sales is primarily due to double-digit growth in the Americas and EMEA regions driven primarily by strong demand in the industrial, transportation, and aerospace and defense sectors.\nFarnell sales in fiscal 2023 were $1.73 billion, a decrease of $73.0 million or 4.0%, from fiscal 2022 sales of $1.81 billion. The year-over-year decrease in sales was primarily a result of foreign currency translation from a strengthening U.S. Dollar. Farnell sales in constant currency increased 0.9% year over year as sales growth in the Americas was offset by sales declines in the EMEA and Asia regions.\n24\n\n\nTable of Contents\nGross Profit \nGross profit in fiscal 2023 was $3.18 billion, an increase of $216.8 million, or 7.3%, from fiscal 2022 gross profit of $2.97 billion. Gross profit margin decreased to 12.0% in fiscal 2023 or 21 basis points from fiscal 2022 gross profit margin of 12.2%. EC gross profit margin increased year over year primarily due to a higher percentage of sales coming from the higher-margin western regions. Sales in the higher margin western regions represented approximately 60% of sales in fiscal 2023 as compared to 56% during fiscal 2022. Farnell gross profit margin decreased year over year primarily driven by the unwinding of certain component pricing premiums during fiscal 2023 and from unfavorable sales mix of lower margin products.\nSelling, General and Administrative Expenses\nSelling, general and administrative expenses (\u201cSG&A expenses\u201d) in fiscal 2023 were $1.97 billion, a decrease of $27.5 million, or 1.4%, from fiscal 2022. The year-over-year decrease in SG&A expenses was primarily a result of foreign currency translation from a strengthening U.S. Dollar.\nMetrics that management monitors with respect to its operating expenses are SG&A expenses as a percentage of sales and as a percentage of gross profit. In fiscal 2023, SG&A expenses as a percentage of sales were 7.4% and as a percentage of gross profit were 61.8%, as compared with 8.2% and 67.3%, respectively, in fiscal 2022. The decreases in SG&A expenses as a percentage of sales and gross profit resulted primarily from the operating leverage realized with higher sales, and lower amortization expenses, partially offset by increases in SG&A expenses to support sales volumes. \nRussian-Ukraine Conflict Related Expenses\nDuring fiscal 2022, the Company incurred $26.3 million of costs associated with the Russian-Ukraine conflict, primarily comprised of $17.2 million of expense for credit loss reserves for trade accounts receivable from Russian customers that are no longer considered collectible. The remaining expense is related to product write-downs for Russia based customers and other Russian business operation wind-down costs.\nRestructuring, Integration and Other Expenses\nDuring fiscal 2023, the Company incurred restructuring, integration and other expenses primarily related to the planned closure of a distribution center. In addition, the Company increased its estimated environmental remediation reserves associated with certain legacy manufacturing operations that were divested several decades ago. As a result, during fiscal 2023 the Company recorded restructuring, integration, and other expenses of $28.0 million. The Company recorded $17.4 million for restructuring costs consisting of $16.1 million for severance, $0.5 million for facility exit costs and $0.8 million for asset impairments. The Company expects to realize approximately $16.0 million in incremental annualized operating costs savings as a result of such restructuring actions once completed. Integration and other costs were $2.6 million associated with incremental costs incurred as a result of the planned distribution center closure and $8.0 million related to the Company\u2019s estimated environmental remediation obligations, respectively. The after-tax impact of restructuring, integration and other expenses was $22.0 million and $0.24 per share on a diluted basis.\nDuring fiscal 2022, the Company recorded restructuring, integration and other expenses of $5.3 million, substantially all of which was related to integration costs.\nSee Note 17, \u201cRestructuring expenses\u201d to the Company\u2019s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information related to restructuring expenses. \n25\n\n\nTable of Contents\nOperating Income \nOperating income for fiscal 2023 was $1.19 billion, an increase of $247.8 million or 26.4%, from fiscal 2022 operating income of $939.0 million. The year-over-year increase in operating income is primarily driven by the increase in sales and lower SG&A expenses, partially offset by a lower gross profit margin.\nOperating income margin was 4.5% in fiscal 2023 compared to 3.9% in fiscal 2022. Adjusted operating income for fiscal 2023 was $1.22 billion, an increase of $235.3 million or 23.9%, from fiscal 2022. Adjusted operating income margin was 4.6% in fiscal 2023 compared to 4.1% in fiscal 2022. EC operating income margin was 4.8% in fiscal 2023 compared to 3.9% in fiscal 2022. Farnell operating income margin was 9.5% in fiscal 2023 compared to 13.4% in fiscal 2022.\nInterest and Other Financing Expenses, Net\n \nInterest and other financing expenses for fiscal 2023 was $250.9 million, an increase of $150.5 million, or 149.9%, compared with interest and other financing expenses of $100.4 million in fiscal 2022. The increase in interest and other financing expenses in fiscal 2023 compared to fiscal 2022 is a result of higher outstanding borrowings and increases in average borrowing rates during fiscal 2023 as compared to fiscal 2022.\nGain on Legal Settlements and Other\nDuring fiscal 2023, the Company recorded a gain on legal settlements of $74.4 million before tax, $56.9 million after tax, and $0.61 per share on a diluted basis, in connection with the settlement of claims filed against certain manufacturers of capacitors. See Note 13, \u201cCommitments and contingencies\u201d to the Company\u2019s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information related to the gain on legal settlements.\nIn June 2023, the Company settled a portion of its pension liability related to certain retirees and terminated vested employees in the Company\u2019s U.S. pension plan as part of a de-risking strategy. This strategy triggered settlement accounting which required immediate recognition of a portion of the accumulated losses associated with the plan. Consequently, the Company recognized non-cash settlement expense of $37.4 million in fiscal 2023.\nIncome Tax \nThe below discussion of the effective tax rate for the periods presented in the statements of operations is in comparison to the 21% U.S. statutory federal income tax rate.\nAvnet\u2019s effective tax rate on its income before income taxes was 21.6% in fiscal 2023. The effective tax rate for fiscal 2023 was unfavorably impacted primarily by (i) U.S. state taxes, (ii) increases to valuation allowances against deferred tax assets, and (iii) the mix of income in higher income tax jurisdictions, partially offset by (iv) the impact of foreign currency translation loss.\nFor fiscal 2022, the Company\u2019s effective tax rate on its income before income taxes was 16.9%. The effective tax rate for fiscal 2022 was favorably impacted primarily by decreases to valuation allowances against deferred tax assets.\nSee Note 9, \u201cIncome taxes\u201d to the Company\u2019s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion on the effective tax rate.\n26\n\n\nTable of Contents\nNet Income\nAs a result of the factors described in the preceding sections of this MD&A, the Company\u2019s net income in fiscal 2023 was $770.8 million, or earnings per share on a diluted basis of $8.26, compared with fiscal 2022 net income of $692.4 million, or earnings per share on a diluted basis of $6.94.\nLiquidity and Capital Resources\nCash Flows\nCash Flows from Operating Activities\nThe Company used $713.7 million of cash from its operating activities in fiscal 2023 as compared to $219.3 million of cash used in fiscal 2022. These operating cash flows are comprised of: (i) cash flows generated from net income, adjusted for the impact of non-cash and other items, which includes depreciation and amortization expense, deferred income taxes, stock-based compensation expense, amortization of operating lease assets and other non-cash items, and (ii) cash flows used for, or generated from, working capital and other, excluding cash and cash equivalents. Cash used for working capital and other to support sales growth was $1.68 billion during fiscal 2023, including increases in accounts receivable of $461.1 million and inventories of $1.17 billion, and a decrease in accounts payable of $75.9 million, offset by an increase in accrued expenses and other of $28.8 million. Comparatively, cash used for working capital and other was $1.09 billion during fiscal 2022, including increases in accounts receivable of $1.13 billion and inventories of $1.22 billion, offset by increases in accounts payable of $1.13 billion, and accrued expenses and other of $134.4 million.\nCash Flows from Financing Activities\nDuring fiscal 2023, the Company received net proceeds of $498.6 million as a result of the issuance of $500.0 million of 6.25% Notes due March 2028, $728.2 million under the Credit Facility, and $258.0 million under the Securitization Program, and repaid $96.2 million under other short-term debt. During fiscal 2023, the Company paid dividends on common stock of $106.3 million, and repurchased $221.7 million of common stock. \nDuring fiscal 2022, the Company received net proceeds of $300.0 million as a result of the issuance of $300.0 million of 5.50% Notes due May 2032, $274.9 million under the Securitization Program, and $235.0 million from borrowings of various bank credit facilities. During fiscal 2022, the Company repaid $354.3 million of notes, paid dividends on common stock of $98.5 million, and repurchased $184.4 million of common stock.\nCash Flows from Investing Activities\nDuring fiscal 2023, the Company used $194.7 million for capital expenditures compared to $48.9 million in fiscal 2022. The increase in capital expenditures year over year was primarily related to expenditures for a new distribution center being built in EMEA to support the future growth of the EC EMEA business. During fiscal 2023, the Company used $16.9 million for other investing activities. During fiscal 2022, the Company received $90.4 million from investing activities related to the liquidation of Company owned life insurance policies. \nFinancing Transactions\nThe Company uses a variety of financing arrangements, both short-term and long-term, to fund its operations in addition to historical cash generated from operating activities. The Company also uses several funding sources to avoid becoming overly dependent on one financing source, and to lower overall funding costs. These financing arrangements \n27\n\n\nTable of Contents\ninclude public debt (\u201cNotes\u201d), short-term and long-term bank loans, a revolving credit facility (the \u201cCredit Facility\u201d), and an accounts receivable securitization program (the \u201cSecuritization Program\u201d).\nThe Company has various lines of credit, financing arrangements, and other forms of bank debt in the U.S. and various foreign locations to fund the short-term working capital, foreign exchange, overdraft, and letter of credit needs of its wholly owned subsidiaries. Outstanding borrowings under such forms of debt at the end of fiscal 2023 was $70.6 million. \nAs an alternative form of liquidity outside of the United States, the Company sells certain of its trade accounts receivable on a non-recourse basis to financial institutions pursuant to factoring agreements. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the consolidated statements of cash flows. Factoring fees for the sales of trade accounts receivable are recorded within \u201cInterest and other financing expenses, net\u201d and were not material to the consolidated financial statements.\nSee Note 7, \u201cDebt\u201d to the Company\u2019s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information on financing transactions including the Credit Facility, the Securitization Program and the outstanding Notes as of July 1, 2023.\nCovenants and Conditions\nThe Company\u2019s Credit Facility contains certain covenants with various limitations on debt incurrence, share repurchases, dividends, investments and capital expenditures, and also includes financial covenant requiring the Company to maintain a leverage ratio below a certain threshold. The Company was in compliance with all such covenants as of July 1, 2023.\nThe Company\u2019s Securitization Program contains certain covenants relating to the quality of the receivables sold. If these conditions are not met, the Company may not be able to borrow any additional funds and the financial institutions may consider this an amortization event, as defined in the Securitization Program agreements, which would permit the financial institutions to liquidate the accounts receivables sold to cover any outstanding borrowings. Circumstances that could affect the Company\u2019s ability to meet the required covenants and conditions of the Securitization Program include the Company\u2019s ongoing profitability and various other economic, market, and industry factors. The Company was in compliance with all such covenants as of July 1, 2023.\nManagement does not believe that the covenants under the Credit Facility or Securitization Program limit the Company\u2019s ability to pursue its intended business strategy or its future financing needs.\nSee \nLiquidity\n below for further discussion of the Company\u2019s availability under these various facilities.\nLiquidity\nThe Company had cash and cash equivalents of $288.2 million as of July 1, 2023, of which $194.5 million was held outside the United States. As of July 2, 2022, the Company had cash and cash equivalents of $153.7 million, of which $60.4 million was held outside of the United States.\nDuring periods of weakening demand in the electronic components industry, the Company typically generates cash from operating activities. Conversely, the Company will use cash for working capital requirements during periods of higher growth. The Company used $713.7 million in cash flows for operating activities during the fiscal year ended July 1, 2023, to support the fiscal 2023 sales growth.\n28\n\n\nTable of Contents\nLiquidity is subject to many factors, such as normal business operations and general economic, financial, competitive, legislative, and regulatory factors that are beyond the Company\u2019s control. To the extent the cash balances held in foreign locations cannot be remitted back to the U.S. in a tax efficient manner, those cash balances are generally used for ongoing working capital, including the need to purchase inventories, capital expenditures and other foreign business needs. In addition, local government regulations may restrict the Company\u2019s ability to move funds among various locations under certain circumstances. Management does not believe such restrictions would limit the Company\u2019s ability to pursue its intended business strategy. \nAs of July 1, 2023, there were $796.6 million of borrowings outstanding under the Credit Facility and $0.9 million in letters of credit issued, and $555.8 million outstanding under the Securitization Program. During fiscal 2023, the Company had an average daily balance outstanding under the Credit Facility of approximately $1.13 billion and $549.1 million under the Securitization Program. As of July 1, 2023, the combined availability under the Credit Facility and the Securitization Program was $846.7 million. Availability under the Securitization Program is subject to the Company having sufficient eligible trade accounts receivable in the United States to support desired borrowings. \nThe Company has the following contractual obligations outstanding as of July 1, 2023 (in millions):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nPayments due by period\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nLess than\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMore than\n\u200b\nContractual Obligations\n\u200b\nTotal\n\u200b\n1\u00a0year\n\u200b\n1-3\u00a0years\n\u200b\n3-5\u00a0years\n\u200b\n5\u00a0years\n\u00a0\nLong-term debt obligations\n(1)\n\u200b\n$\n 3,073.0\n\u200b\n$\n 70.6\n\u200b\n$\n 1,105.8\n\u200b\n$\n 1,296.6\n\u200b\n$\n 600.0\n\u200b\nInterest expense on long-term debt obligations\n(2)\n\u200b\n\u200b\n 699.5\n\u200b\n\u200b\n 157.7\n\u200b\n\u200b\n 269.6\n\u200b\n\u200b\n 181.4\n\u200b\n\u200b\n 90.8\n\u200b\nOperating lease obligations\n(3)\n\u200b\n\u200b\n 287.5\n\u200b\n\u200b\n 58.1\n\u200b\n\u200b\n 86.2\n\u200b\n\u200b\n 44.4\n\u200b\n\u200b\n 98.8\n\u200b\n\u200b\n(1)\nIncludes amounts due within one year and excludes unamortized discount and issuance costs on debt.\n(2)\nRepresents interest expense due on debt by using fixed interest rates for fixed rate debt and assuming the same interest rate at the end of fiscal 2023 for variable rate debt.\n(3)\nExcludes imputed interest on operating lease liabilities.\nThe Company purchases inventories in the normal course of business throughout the year through the issuance of purchase orders to suppliers. During fiscal 2023, the Company\u2019s cost of sales, substantially all of which related to the underlying purchase of inventories was $23.4 billion and the Company had $5.5 billion of inventories as of July 1, 2023. The Company expects to continue to purchase sufficient inventory to meet its customers\u2019 demands in fiscal year 2024, some of which relates to outstanding purchase orders at the end of fiscal 2023. Outstanding purchase orders with suppliers may be non-cancellable/non-returnable at the point such orders are issued, or may become non-cancellable at some point in the future, typically within 30 days to 90 days from the requested delivery date of inventories.\nAt July 1, 2023, the Company had an estimated liability for income tax contingencies of $130.5 million, which is not included in the above table. Cash payments associated with the settlement of these liabilities that are expected to be paid within the next 12 months is $1.0 million.\u00a0The settlement period for the remaining amount of the unrecognized tax benefits, including related accrued interest and penalties, cannot be determined, and therefore was not included in the table. \n29\n\n\nTable of Contents\nAs of July 1, 2023, the Company may repurchase up to an aggregate of $318.5 million of shares of the Company\u2019s common stock through the share repurchase program approved by the Board of Directors. The Company may repurchase stock from time to time at the discretion of management, subject to strategic considerations, market conditions including share price and other factors. The Company may terminate or limit the share repurchase program at any time without prior notice. During fiscal 2023, the Company repurchased $212.8 million of common stock.\nThe Company has historically paid quarterly cash dividends on shares of its common stock, and future dividends are subject to approval by the Board of Directors. During the fourth quarter of fiscal 2023, the Board of Directors approved a dividend of $0.29 per share, which resulted in $26.5 million of dividend payments during the quarter. \nThe Company continually monitors and reviews its liquidity position and funding needs. Management believes that the Company\u2019s ability to generate operating cash flows through the liquidation of working capital in the future and available borrowing capacity, including capacity for the non-recourse sale of trade accounts receivable, will be sufficient to meet its future liquidity needs. Additionally, the Company believes that it has sufficient access to additional liquidity from the capital markets if necessary.\nCritical Accounting Policies\nThe Company\u2019s consolidated financial statements have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses. These estimates and assumptions are based upon the Company\u2019s continual evaluation of available information, including historical results and anticipated future events. Actual results may differ materially from these estimates.\nThe Securities and Exchange Commission defines critical accounting policies as those that are, in management\u2019s view, most important to the portrayal of the Company\u2019s financial condition and results of operations and that require significant judgments and estimates. Management believes the Company\u2019s most critical accounting policies at the end of fiscal 2023 relate to:\nValuation of Inventories\nInventories are recorded at the lower of cost or estimated net realizable value. Inventory cost includes the purchase price of finished goods and any freight cost incurred to receive the inventory into the Company\u2019s distribution centers. The Company\u2019s inventories include electronic components sold into changing, cyclical, and competitive markets, so inventories may decline in market value or become obsolete.\nThe Company regularly evaluates inventories for expected customer demand, obsolescence, current market prices, and other factors that may render inventories less marketable. Write-downs are recorded so that inventories reflect the estimated net realizable value and take into account the Company\u2019s contractual provisions with its suppliers, which may provide certain protections to the Company for product obsolescence and price erosion in the form of rights of return, stock rotation rights, obsolescence allowances, industry specific supplier rebate programs and price protections. Because of the large number of products and suppliers and the complexity of managing the process around price protections, supplier rebate programs and stock rotations, estimates are made regarding the net realizable value of inventories. Additionally, assumptions about future demand and market conditions, as well as decisions to discontinue certain product lines, impact the evaluation of whether to write-down inventories. If future demand changes or actual market conditions are less favorable than assumed, then management evaluates whether additional write-downs of inventories are required. In any case, actual net realizable values could be different from those currently estimated.\n30\n\n\nTable of Contents\nAccounting for Income Taxes\nManagement\u2019s judgment is required in determining income tax expense, unrecognized tax benefit liabilities , deferred tax assets and liabilities, and valuation allowances recorded against net deferred tax assets. Recovering net deferred tax assets depends on the Company\u2019s ability to generate sufficient future taxable income in certain jurisdictions. In addition, when assessing the need for valuation allowances, the Company considers historic levels and types of income, expectations and risk associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies. If the Company determines that it cannot realize all or part of its deferred tax assets in the future, it may record additional valuation allowances against the deferred tax assets with a corresponding increase to income tax expense in the period such determination is made. Similarly, if the Company determines that it can realize all or part of its deferred tax assets that have an associated valuation allowance established, the Company may release a valuation allowance with a corresponding benefit to income tax expense in the period such determination is made.\nThe Company establishes contingent liabilities for potentially unfavorable outcomes of positions taken on certain tax matters. These liabilities are based on management\u2019s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The anticipated and actual outcomes of these matters may differ, which may result in changes in estimates to such unrecognized tax benefit liabilities. To the extent such changes in estimates are necessary, the Company\u2019s effective tax rate may fluctuate. In accordance with the Company\u2019s accounting policy, accrued interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense.\nIn determining the Company\u2019s income tax expense, management considers current tax regulations in the numerous jurisdictions in which it operates, including the impact of tax law and regulation changes in the jurisdictions the Company operates in. The Company exercises judgment for interpretation and application of such current tax regulations. Changes to such tax regulations or disagreements with the Company\u2019s interpretation or application by tax authorities in any of the Company\u2019s major jurisdictions may have a significant impact on the Company\u2019s income tax expense. \nSee Note 9, \u201cIncome taxes\u201d to the Company\u2019s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion on income tax expense, valuation allowances and unrecognized tax benefits. \n\u200b\nRecently Issued Accounting Pronouncements\nIn September 2022, the FASB issued ASU No. 2022-04, Liabilities (subtopic 405-50): Supplier Finance Programs (\u201cASU No. 2022-04\u201d) to enhance the transparency of certain supplier finance programs to allow financial statement users to understand the effect on working capital, liquidity and cash flows. The new pronouncement requires qualitative and quantitative disclosure sufficient to enable users of the financial statements to understand the nature, activity during the period, changes from period to period and potential magnitude of such programs. The Company plans to adopt this guidance in the first quarter of fiscal 2024, except for the amendment on roll-forward information, which is effective in fiscal 2025. The Company\u2019s planned adoption of ASU No. 2022-04 is not expected to have a material impact on the Company\u2019s consolidated financial statements.\n\u200b\n31\n\n\nTable of Contents",
+  "item7a": ">Item\u00a07A. Quantitative and Qualitative Disclosures About Market Risk\nThe Company seeks to reduce earnings and cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into financial arrangements, from time to time, which are intended to provide an economic hedge against all, or a portion of the risks associated with such volatility. The Company continues to have exposure to such risks to the extent they are not economically hedged.\nThe following table sets forth the scheduled maturities of the Company\u2019s debt outstanding at July 1, 2023 (dollars in millions):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal\u00a0Year\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2024\n\u00a0\u00a0\u00a0\u00a0\n2025\n\u00a0\u00a0\u00a0\u00a0\n2026\n\u00a0\u00a0\u00a0\u00a0\n2027\n\u00a0\u00a0\u00a0\u00a0\n2028\n\u00a0\u00a0\u00a0\u00a0\nThereafter\n\u00a0\u00a0\u00a0\u00a0\nTotal\n\u00a0\nLiabilities:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFixed rate debt\n(1)\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\n$\n 550.0\n\u200b\n$\n \u2014\n\u200b\n$\n 500.0\n\u200b\n$\n 600.0\n\u200b\n$\n 1,650.0\n\u200b\nFloating rate debt\n\u200b\n$\n 70.6\n\u200b\n$\n 555.8\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\n$\n 796.6\n\u200b\n$\n \u2014\n\u200b\n$\n 1,423.0\n\u200b\n(1)\nExcludes unamortized discounts and issuance costs.\nThe following table sets forth the carrying value and fair value of the Company\u2019s debt and the average interest rates at July 1, 2023, and July 2, 2022 (dollars in millions):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCarrying\u00a0Value\n\u00a0\u00a0\u00a0\u00a0\nFair\u00a0Value\u00a0at\n\u200b\nCarrying\u00a0Value\n\u00a0\u00a0\u00a0\u00a0\nFair\u00a0Value\u00a0at\n\u00a0\n\u200b\n\u200b\nat\u00a0July\u00a01,\u00a02023\n\u200b\nat\u00a0July\u00a01,\u00a02023\n\u00a0\u00a0\u00a0\u00a0\u00a0\nat July\u00a02, 2022\n\u200b\nJuly\u00a02, 2022\n\u00a0\nLiabilities:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFixed rate debt\n(1)\n\u200b\n$\n 1,650.0\n\u200b\n\u200b\n$\n 1,567.5\n\u200b\n$\n 1,324.6\n\u200b\n\u200b\n$\n 1,265.8\n\u200b\nAverage interest rate\n\u200b\n\u00a0\n 5.0\n%\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 4.1\n%\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\nFloating rate debt\n\u200b\n$\n 1,423.0\n\u200b\n\u200b\n$\n 1,423.0\n\u200b\n$\n 297.8\n\u200b\n\u200b\n$\n 297.8\n\u200b\nAverage interest rate\n\u200b\n\u00a0\n 5.3\n%\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 2.6\n%\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n(1)\nExcludes unamortized discounts and issuance costs. Fair value was estimated primarily based upon quoted market prices for the Company\u2019s public long-term notes.\nMany of the Company\u2019s subsidiaries purchase and sell products in currencies other than their functional currencies, which subjects the Company to the risks associated with fluctuations in currency exchange rates. The Company uses economic hedges to reduce this risk utilizing natural hedging (i.e., offsetting receivables and payables in the same foreign currency) and creating offsetting positions through the use of derivative financial instruments (primarily forward foreign currency exchange contracts typically with maturities of less than 60 days, but no longer than one year). The Company continues to have exposure to foreign currency risks to the extent they are not economically hedged. The Company adjusts any economic hedges to fair value within the same line item in the consolidated statements of operations as the remeasurement of the underlying assets or liabilities being economically hedged. Therefore, the changes in valuation of the underlying items being economically hedged are offset by the changes in fair value of the forward foreign exchange contracts. A hypothetical 10% change in foreign currency exchange rates under the forward foreign currency exchange contracts outstanding at July 1, 2023, would result in an increase or decrease of approximately $80.0 million to the fair value of the forward foreign exchange contracts, which would generally be offset by an opposite effect on the underlying exposure being economically hedged. See Note 2, \u201cDerivative financial instruments\u201d to the Company\u2019s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion on derivative financial instruments.\n\u200b\n32\n\n\nTable of Contents",
+  "cik": "8858",
+  "cusip6": "053807",
+  "cusip": ["053807103", "053807953", "053807903"],
+  "names": ["AVNET INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/8858/000000885823000029/0000008858-23-000029-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item\u00a01. \nBusiness\nOverview\nBrown-Forman Corporation (the \u201cCompany,\u201d \u201cBrown-Forman,\u201d \u201cwe,\u201d \u201cus,\u201d or \u201cour\u201d below) was incorporated under the laws of the State of Delaware in 1933, successor to a business founded in 1870 as a partnership and later incorporated under the laws of the Commonwealth of Kentucky in 1901. We primarily manufacture, distill, bottle, import, export, market, and sell a wide variety of beverage alcohol products under recognized brands. We employ approximately 5,600 people (excluding individuals who work on a part-time or temporary basis) on six continents, including approximately 2,700 people in the United States (approximately 14% of whom are represented by a union) and 1,200 people in Louisville, Kentucky, USA, home of our world headquarters. According to International Wine\u00a0& Spirit Research (IWSR), we are the largest American-owned spirits and wine company with global reach. We are a \u201ccontrolled company\u201d under New York Stock Exchange rules because the Brown family owns more than 50% of our voting stock. Taking into account ownership of shares of our non-voting stock, the Brown family also controls more than 50% of the economic ownership in Brown-Forman.\nFor a discussion of recent developments, see \u201cItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations \u2013 Executive Summary.\u201d\nBrands\nBeginning in 1870 with Old Forester Kentucky Straight Bourbon Whisky \u2013 our founding brand \u2013 and spanning the generations since, we have built a portfolio of more than 40 spirit, ready-to-drink (RTD) cocktail, and wine brands that includes some of the best-known and most loved trademarks in our industry. The most important and iconic brand in our portfolio is Jack Daniel\u2019s Tennessee Whiskey, the #1 selling American whiskey in the world.\n1\n Jack Daniel\u2019s Tennessee Whiskey was recently named the most valuable spirits brand in the world in the 2022 Interbrand \u201cBest Global Brands\u201d rankings, and the newly released Jack Daniel's Bonded Tennessee Whiskey was named the \"2022 Whisky of the Year\" by \nWhisky Advocate\n. Our premium bourbons, Woodford Reserve and Old Forester, were once again selected for the Impact \u201cHot Brands\u201d\n2\n list, marking ten and five consecutive years on the list, respectively, as were Jack Daniel's RTDs. Our super premium tequila, Herradura, received two Gold medals at the San Francisco World Spirits competition in 2023, one for Reposado and the one for Legend, as well as three Gold medals for the brand's core expressions at the Tequila and Mezcal Masters competition from \nThe Spirits Business\n.\n4\nPrincipal Brands\nJack Daniel's Tennessee Whiskey\n\u00a0\nel Jimador Tequilas\n5\nJack Daniel's RTD\n3\nel Jimador New Mix RTD\nJack Daniel's Tennessee Honey\nHerradura Tequilas\n6\nGentleman Jack Rare Tennessee Whiskey\n\u00a0\nKorbel California Champagnes\n7\nJack Daniel's Tennessee Fire\nKorbel California Brandy\n7\nJack Daniel's Tennessee Apple\nFinlandia Vodkas\nJack Daniel's Single Barrel Collection\n4\nSonoma-Cutrer California Wines\nJack Daniel's Bonded Tennessee Whiskey\nOld Forester Whiskey Row Series\nJack Daniel's Sinatra Select\nOld Forester Kentucky Straight Bourbon Whisky\nJack Daniel's Tennessee Rye\nOld Forester Kentucky Straight Rye Whisky\nJack Daniel\u2019s Winter Jack\nGlenDronach Single Malt Scotch Whiskies\n8\nJack Daniel's Bottled-in-Bond\nBenriach Single Malt Scotch Whiskies\n9\nJack Daniel's Triple Mash Blended Straight Whiskey\nGlenglassaugh Single Malt Scotch Whiskies\n10\nJack Daniel's No. 27 Gold Tennessee Whiskey\nChambord Liqueur\nJack Daniel\u2019s 10 Year Old\nGin Mare\nJack Daniel\u2019s 12 Year Old\nGin Mare Capri\nWoodford Reserve Kentucky Bourbon\nDiplom\u00e1tico Rums\n11\nWoodford Reserve Double Oaked\nFords Gin\nWoodford Reserve Kentucky Rye Whiskey\nSlane Irish Whiskey\nWoodford Reserve Kentucky Straight Wheat Whiskey\nCoopers' Craft Kentucky Bourbon\nWoodford Reserve Kentucky Straight Malt Whiskey\nPart Time Rangers RTDs\n1\nIWSR, 2023.\n2\nImpact Databank, March 2023.\n3\nJack Daniel's RTD includes Jack\u00a0Daniel's\u00a0& Cola, Jack Daniel's Country Cocktails, Jack Daniel's Double Jack, Jack Daniel\u2019s & Coca-Cola RTD, and other malt- and spirit-based Jack Daniel\u2019s RTDs.\n4\nThe Jack Daniel's Single Barrel Collection includes Jack Daniel's Single Barrel Select, Jack Daniel's Single Barrel Barrel Proof, Jack Daniel's Single Barrel Rye, Jack Daniel's Single Barrel 100 Proof, and other Jack Daniel\u2019s Single Barrel special-release expressions.\n5\nel Jimador Tequilas comprise all full-strength expressions of el Jimador.\n6\nHerradura Tequilas comprise all expressions of Herradura.\n7\nKorbel is not an owned brand. We sell Korbel products under contract in the United States and other select markets. \n8\nGlenDronach Single Malt Scotch Whiskies comprise all expressions of GlenDronach.\n9\nBenriach Single Malt Scotch Whiskies comprise all expressions of Benriach.\n10\nGlenglassaugh Single Malt Scotch Whiskies comprise all expressions of Glenglassaugh.\n11\nDiplom\u00e1tico Rums comprise all expressions of Diplom\u00e1tico.\nSee \u201cItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations \u2013 Results of Operations \u2013 Fiscal 2023 Brand Highlights\u201d for brand performance details.\nOur vision in marketing is to be the best brand-builder in the industry. We build our brands by investing in platforms that we believe create enduring connections with our consumers. These platforms cover a wide spectrum of activities, including media advertising (TV, radio, print, outdoor, digital, and social), consumer and trade promotions, sponsorships, and visitors' center programs at our distilleries and our winery. We expect to grow our sales and profits by consistently delivering creative, responsible marketing programs that drive brand recognition, brand trial, brand loyalty, and ultimately, consumer demand around the world.\n5\nMarkets\nWe sell our products in over 170 countries around the world. The United States, our most important market, accounted for 47% of our net sales in fiscal 2023 and the other 53% were outside of the United States. The table below shows the percentage of total net sales for our top markets in our three most recent fiscal years:\nPercentage of Total Net Sales by Geographic Area\nYear ended April 30\n2021\n2022\n2023\nUnited States\n50\n\u00a0\n%\n49\n\u00a0\n%\n47\n\u00a0\n%\nMexico\n4\n\u00a0\n%\n5\n\u00a0\n%\n6\n\u00a0\n%\nGermany\n6\n\u00a0\n%\n6\n\u00a0\n%\n6\n\u00a0\n%\nAustralia\n6\n\u00a0\n%\n6\n\u00a0\n%\n5\n\u00a0\n%\nUnited Kingdom\n6\n\u00a0\n%\n6\n\u00a0\n%\n5\n\u00a0\n%\nOther\n28\n\u00a0\n%\n28\n\u00a0\n%\n31\n\u00a0\n%\nTOTAL\n100\n\u00a0\n%\n100\n\u00a0\n%\n100\n\u00a0\n%\nNote: Totals may differ due to rounding\nFor details about net sales in our top markets, see \u201cItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations \u2013 Results of Operations \u2013 Fiscal 2023 Market Highlights.\u201d For details about our reportable segment and for additional geographic information about net sales and long-lived assets, see Note 17 to the Consolidated Financial Statements in \u201cItem\u00a08. Financial Statements and Supplementary Data.\u201d For details on risks related to our global operations, see \u201cItem 1A. Risk Factors.\u201d\nDistribution Network and Customers\nOur distribution network, or our \u201croute to consumer\u201d (RTC), varies depending on (a) the laws and regulatory framework for trade in beverage alcohol by market, (b)\u00a0our assessment of a market's long-term attractiveness and competitive dynamics, (c)\u00a0the relative profitability of distribution options available to us, (d) the structure of the retail and wholesale trade in a market, and (e) our portfolio's development stage in a market. As these factors change, we evaluate our RTC strategy and, from time to time, adapt our model.\nIn the United States, which generally prohibits spirits and wine manufacturers from selling their products directly to consumers, we sell our brands either to distributors or to state governments (in states that directly control alcohol sales) that then sell to retail customers and consumers.\nOutside the United States, we use a variety of RTC models, which can be grouped into three categories: owned distribution, partner, and government-controlled markets. We own and operate distribution companies for Australia, Belgium and Luxembourg, Brazil, Czechia, France, Germany, Korea, Mexico, Poland, Spain, Taiwan, Thailand, T\u00fcrkiye, and the United Kingdom. In these owned-distribution markets, and in a large portion of the Travel Retail channel, we sell our products directly to retailers or wholesalers. In many other markets, including Italy and South Africa, we rely on third parties to distribute our brands, generally under fixed-term distribution contracts. In Canada, we sell our products to provincial governments.\nWe believe that our customer relationships are good and that our exposure to concentrations of credit risk is limited due to the diverse geographic areas covered by our operations and our thorough evaluation of each customer. In fiscal 2023, our two largest customers accounted for approximately 14% and 12% of consolidated net sales, respectively. No other customer accounted for 10% or more of our consolidated net sales in fiscal 2023.\nSeasonality\nHoliday buying makes the fourth calendar quarter the peak season for our business. Approximately 31%, 29%, and 27% of our reported net sales for fiscal 2021, fiscal 2022, and fiscal 2023, respectively, were in the fourth calendar quarter.\n6\nCompetition\nTrade information indicates that we are one of the largest global suppliers of premium spirits. According to IWSR, for calendar year 2022, the ten largest global spirits companies controlled over 20% of the total spirits volume sold around the world.\n \nWhile we believe that the overall market environment offers considerable growth opportunities for us, our industry is, and will remain, highly competitive. We compete against many global, regional, and local brands in a variety of categories of beverage alcohol, but our brands compete primarily in the industry's premium-and-above price points. Our competitors include major global spirits and wine companies, such as Bacardi Limited, Beam Suntory Inc., Becle S.A.B. de C.V., Davide Campari-Milano N.V., Diageo PLC, LVMH Mo\u00ebt Hennessy Louis Vuitton SE, Pernod Ricard SA, and R\u00e9my Cointreau. In addition, particularly in the United States, we compete with national companies and craft spirit brands, many of which entered the market in the last few years.\nBrand recognition, brand provenance, quality of product and packaging, availability, flavor profile, and price affect consumers' choices among competing brands in our industry. Other factors also influence consumers, including advertising, promotions, merchandising at the point of sale, expert or celebrity endorsement, social media and word of mouth, and the timing and relevance of new product introductions. Although some competitors have substantially greater resources than we do, we believe that our competitive position is strong, particularly as it relates to brand awareness, quality, availability, and relevance of new product introductions.\nIngredients and Other Supplies\nThe principal raw materials used in manufacturing and packaging our distilled spirits, liqueurs, RTD products, and wines are shown in the table below. \nPrincipal Raw Materials\nDistilled Spirits\nLiqueurs\nRTD Products\nWines\nPackaging\nAgave\nFlavorings\nCarbon dioxide\nGrapes\nAluminum cans\nBarley\nNeutral spirits\nFlavorings\nWood\nCartons\nCorn\nSugar\nMalt\nClosures\nMalted barley\nWater\nNeutral spirits\nGlass bottles\nMolasses\nWhiskey\nSugar\nLabels\nRye\nWine\nTequila\nPET\n1 \nbottles\nSugar\nWater\nWater\nWhiskey\nWood\n1\nPolyethylene terephthalate (PET) is a polymer used in non-glass containers.\nNone of these raw materials are in short supply, but shortages could occur in the future. From time to time, our agricultural ingredients (agave, barley, corn, grapes, malted barley, molasses, rye, sugar, and wood) could be adversely affected by weather and other forces out of our control that might constrain supply or reduce our inventory below desired levels for optimum production.\nWhiskeys and certain tequilas and other distilled spirits must be aged. Because we must produce these distilled spirits years in advance to meet projected future demand, our inventories of these products may be larger in relation to sales and total assets than in many other businesses.\nFor details on risks related to the unavailability of raw materials and the inherent uncertainty in forecasting supply and demand, see \u201cItem 1A. Risk Factors.\u201d\nIntellectual Property\nOur intellectual property includes trademarks, copyrights, proprietary packaging and trade dress, proprietary manufacturing technologies, know-how, and patents. Our intellectual property, especially our trademarks, is essential to our business. We register our trademarks broadly around the world, focusing primarily on where we sell or expect to sell our products. We protect our intellectual property rights vigorously but fairly. We have licensed some of our trademarks to third parties for use with services or on products other than alcoholic beverages, which enhances the awareness and protection of our brands. Depending on the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained. We also have various licenses and distribution agreements for the production, sale, and marketing of our products, and for the sale and marketing of products of others. These licenses and distribution agreements have varying terms and durations.\n7\nFor details on risks related to the protection of our intellectual property, see \u201cItem 1A. Risk Factors.\u201d For details on our most important brands, see \u201cItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations \u2013 Results of Operations \u2013 Fiscal 2023 Brand Highlights.\u201d\nRegulatory Environment\nFederal, state, local, and foreign authorities regulate how we produce, store, transport, distribute, market, and sell our products. Some countries and local jurisdictions prohibit or restrict the marketing or sale of distilled spirits in whole or in\u00a0part.\nIn the United States, at the federal level, the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury regulates the spirits and wine industry with respect to the production, blending, bottling, labeling, advertising, sales, and transportation of beverage alcohol. Similar regulatory regimes exist at the state level and in most non-U.S. jurisdictions where we sell our products. In addition, beverage alcohol products are subject to customs duties, excise taxes, and/or sales taxes in many countries, including taxation at the federal, state, and local level in the United States.\nMany countries set their own distilling and maturation requirements. For example, under U.S. federal and state regulations, bourbon and Tennessee whiskeys must be aged in new, charred oak barrels; we typically age our whiskeys at least three years. Mexican authorities regulate the production and bottling of tequilas; they mandate minimum aging periods for \nextra\n \na\u00f1ejo\n (three years), \na\u00f1ejo\n (one year), and \nreposado\n (two months). Irish whiskey must be matured at least three years in a wood cask, such as oak, on the island of Ireland.\u00a0Scotch whisky must be matured in oak casks for at least three years in Scotland. We comply with all of the applicable laws and regulations.\nOur operations are also subject to various environmental protection statutes and regulations, and our policy is to comply with them. Complying with these statutes and regulations has not materially impacted our capital expenditures, earnings or competitive position, and is not expected to have a material impact during fiscal 2024.\n8\nIntegrated Strategy and Performance\nFor more than 150 years, Brown-Forman and the Brown family have been committed to driving sustainable growth and preserving Brown-Forman as a thriving, family-controlled, independent company. The image on the left illustrates our core purpose, \u201cEnriching Life,\u201d and our highest ambition, \u201cNothing Better in the Market,\u201d surrounded by the values that have guided us for decades: integrity, respect, trust, teamwork, and excellence. In addition to these guiding principles, our success depends on several strategic priorities, as illustrated in the image on the right: the quality of our brands within our portfolio, our geographic reach, the talent and diversity of our people, and the return on our investments. Moreover, taking an integrated approach means that many aspects of our company contribute to this value creation and are fundamental to our strategy, including our commitment to environmental sustainability, alcohol and marketing responsibility, diversity and inclusion, and to building communities in which we live and work.\nOver the past three fiscal years, we faced a challenging, volatile environment, including supply chain disruptions and a global pandemic. Our employees' unique mix of agility, resilience, energy, and collaboration enabled us to succeed despite these challenges. Our values drive decisions, and our core purpose and our highest ambition continue to guide us as we move forward to a reimagined future with a renewed sense of opportunity for what lies ahead. We believe we are well positioned to navigate the ever-changing landscape. We will make bold moves with a commitment to improve continuously as we work together to deliver sustained long-term growth. \nThis Integrated Annual Report on Form 10-K for the fiscal year ended April 30, 2023, presents not only our financial performance but also our environmental, social, and governance (\u201cESG\u201d) strategies, commitments, and results. It provides a more holistic view of Brown-Forman, our culture, our strategic approach to our business, and how we achieve results.\nPortfolio and Responsibility\nWe seek to build brands and create stockholder value responsibly by delivering strong, sustainable growth, solid margins, and high returns on invested capital. We focus on building brands that can be meaningful for our company and our consumers over the longer term. We aim to grow our premium spirits portfolio both organically and through innovation. Opportunistically and thoughtfully, we also consider acquisitions and partnerships that will enhance our capacity to deliver meaningful growth, improve margins, and increase stockholder returns.\nWe strive to grow our brands and enhance consumers' experience with them. Even as we do so, we remain committed to marketing our brands responsibly and promoting responsible drinking. Regulation of our industry is not new, and external interest from the World Health Organization and other health bodies has grown over time. We uphold high standards of self-regulation by adhering to industry guidelines on responsible marketing and advertising. We promote alcohol responsibility both independently and with industry organizations, such as the International Alliance for Responsible Drinking, the Foundation for Advancing Alcohol Responsibility (responsibility.org) in the United States, The Portman Group in the United Kingdom, DrinkWise in Australia, and FISAC in Mexico.\n9\nThe Jack Daniel's family of brands, led by Jack Daniel's Tennessee Whiskey (JDTW), is our most valuable asset \u2013 the engine of our overall financial performance and the foundation of our leadership position in the American whiskey category.\n1\n We strive to strengthen the brand's leadership position continually, and will work steadfastly to keep JDTW relevant to consumers worldwide. We will also pursue opportunities to grow the Jack Daniel's family of brands across markets, premium-and-above price points, channels, and consumer groups. Product innovation continues to contribute meaningfully to our performance. Different Jack Daniel's expressions have brought new consumers to the franchise, including Jack Daniel's Tennessee Honey (2011), Jack Daniel's Tennessee Fire (2015), Jack Daniel's Tennessee Rye (2017), Jack Daniel's Tennessee Apple (2019), and our most recent launches, Jack Daniel's Bonded Tennessee Whiskey and Triple Mash Blended Straight Whiskey (2022), which individually and collectively add great value to the company and to our consumers the world over.\nIn addition to the leadership of our Jack Daniel's family of brands, we expect strong worldwide growth from our other whiskey brands, particularly Woodford Reserve and Old Forester. Woodford Reserve is the leading super-premium American whiskey globally,\n1\n growing volumes at a strong double-digit compound annual growth rate since the brand was introduced over 25 years ago. Woodford Reserve surpassed 1.7 million nine-liter cases of annual volume as of April 30, 2023. We believe the brand is poised for continued growth as the bourbon category continues to grow around the world. Old Forester has continued its return to prominence in the United States and in select international markets. Innovation has played an important role in the premiumization of both of these brands, including the success of high-end expressions such as Woodford Reserve Double Oaked, and the Old Forester Whiskey Row Series.\nOutside of our American whiskey brands, we believe our portfolio remains well positioned in other high-growth categories, with meaningful premium brands and a focus on accelerating our super-premium portfolio. Our tequila portfolio is led by two brands steeped in Mexican heritage, Herradura and el Jimador. Despite the cyclical cost pressures resulting from the unprecedented cost of agave, we remain committed to the growth of our tequila business in the United States and the long-term growth prospects of this business globally. We believe that our Scotch whiskies GlenDronach, Benriach, and Glenglassaugh, and our Irish whiskey Slane, are well-positioned in their respective categories. We expect them all to become meaningful contributors over the longer term. Lastly, the recent acquisitions of Gin Mare (2022) and Diplom\u00e1tico (2023) provide us with leadership positions in the super-premium-and-above gin and rum categories, respectively, and we look to grow these brands globally.\nFiscal 2023 was another year of growth for our ready-to-drink (RTD) portfolio. Jack Daniel's RTDs are now more than 14 million nine-liter cases globally. In Mexico, our el Jimador tequila-based RTD, New Mix, grew to nearly 10 million nine-liter cases. In June 2022, we jointly announced a global relationship with The Coca-Cola Company to introduce the iconic Jack & Coke cocktail as a branded, ready-to-drink pre-mixed cocktail. Since the announcement, we have launched the product in  Mexico, the United States, Japan, the Philippines, the United Kingdom, Poland, Hungary, the Netherlands, and Ireland with more markets to follow. Jack Daniel's Country Cocktails in the United States continues to be sold and distributed under our relationship with the Pabst Brewing Company.\nWe appreciate the power of our brands to enrich the experience of life, and we believe it is our duty to ensure that our products are marketed with deep respect for our consumers. Our mission for alcohol responsibility is to empower mindful choices around beverage alcohol. We launched the Pause campaign in 2019. Pause is Brown-Forman\u2019s driving effort to encourage mindful choices. In 2022, we launched our 2030 Alcohol Responsibility strategy to prioritize strategic programs and partnerships, in-market tools and resources, and to continue empowering our employees and business partners. We execute our 2030 Alcohol Responsibility strategy through the lens of our Pause campaign to showcase the importance of alcohol responsibility and inspire action among our consumers, colleagues, and business partners.\nGeography\nThe United States remains our largest market, and continued growth there is important to our long-term success. We expect to foster this growth by emphasizing fast-growing spirits categories, continued product and packaging innovation, and brand building within growing consumer segments. This includes increasing emphasis on inclusive, digital, and integrated marketing and the growth of our e-commerce capabilities to better connect and engage with consumers where they are.\nOutside the United States, we continue to increase our competitiveness through improved routes to consumers. In fiscal 2022, we established our owned-distribution organizations for Belgium and Luxembourg and Taiwan. More direct connection with customers and consumers enabled through owned distribution is an important part of our strategic growth.\n1\n IWSR, 2023\n10\nPeople, Diversity & Inclusion, and Ethics & Compliance\nAs we work to increase our brands' relevance and appeal to diverse consumer groups around the world, we believe a diversity of experiences and mindsets within our own workforce is essential. In the summer of 2019, we unveiled Many Spirits, One Brown-Forman: Gender and Race Edition, our 2030 Diversity & Inclusion Strategy aimed at creating a foundation for building a more diverse workforce and inclusive culture. In the summer of 2020, we developed and published commitments to be better and do better \u2013 commitments that amplified our initiatives in the areas of representation, development, and accountability. We also extended our commitment more deeply in our communities, especially our hometown of Louisville, Kentucky. We believe these actions will help us continue to build an inclusive culture at Brown-Forman.\nOur vision is to create an environment where leveraging diversity and inclusion occurs naturally, giving us a sustainable marketplace advantage. We have set race and gender ambitions to have at least 50% women in professional- and leader-level roles globally, 40% women in senior leadership positions globally, and 25% people of color in our United States workforce by 2030. In June 2022, we published the Many Spirits, One Brown-Forman LGBTQ+ edition and set a 2030 ambition of 6% self-identified LGBTQ+ employees in our United States workforce. We have also set a goal to reach 16% of our supplier spend in locations such as the United States, the United Kingdom, and Australia, with businesses that are woman- or minority-owned by 2030. For more than a decade, we have earned a perfect score in the Corporate Equality Index, a national benchmarking survey and report on corporate policies and practices related to LGBTQ+ workplace equality administered by the Human Rights Campaign Foundation.\nOne of the main drivers of our inclusive culture is the continued growth and leadership of our nine Employee Resource Groups (ERGs). We believe ERGs are instrumental in enriching our company's culture, and our employees experience this by supporting development and engagement of our diverse workforce, driving cultural awareness and competency across the organization, and enabling authentic engagement with our consumers. Our ERGs also create spaces for our employees and their allies to connect with, support, and advocate for one another.\nOur core values of integrity, respect, trust, teamwork, and excellence form the foundation of our ethics and compliance program. \u201cValues Drive Decisions\u201d is the key theme of this program, and we use it to teach our employees to rely on our values when faced with a difficult decision and to \u201cspeak up\u201d if they believe they, a colleague, or a business partner may have violated the law, our Code of Conduct, or company policy. In 45 countries, we offer a third-party service to employees and others who choose to \u201cspeak up\u201d anonymously. We deliver training to managers reinforcing our commitment to non-retaliation and maintaining a \u201cspeak up\u201d culture. \nWe convey our compliance expectations to employees via our Code of Conduct, and our employees certify annually that they will comply with the Code of Conduct and report potential violations. The Code of Conduct is a toolkit for employees, as it details expectations for 20 different risks, includes links to Q&A, policies, training, and the ability to contact a subject-matter expert. We refresh our Code of Conduct and certification annually and make them available in 13 languages. \nInvestment and Sustainability\nFor over a century and a half, we have learned that long-term success requires investment and a mindset of sustainability. We understand the need to invest in our brands, global supply chain facilities, homeplace and visitor centers, and aging inventory. For example, in May 2023, we announced a $200 million capital investment to expand our Casa Herradura tequila distillery to meet future consumer demand. Additionally, during fiscal 2023, we announced a \u00a330 million expansion of our GlenDronach distillery to meet strong demand. We also understand the importance of investing in our people, communities, and the environment. We recognize that climate change is a business issue with risks and opportunities. As such, we are committed to actions that will ensure the long-term health of the planet and our business. In fiscal 2021, we established a new 2030 Sustainability Strategy to align our efforts with industry best practices and the most current climate science. Our goals broaden our focus beyond business operations to include our supply chain, where the majority of our environmental footprint resides. With this evolving strategy, we have a roadmap for continued progress over the next quarter-century.\n11\nOur continued investments in renewable energy and resource stewardship underscore our long-term focus: \n\u2022\nRenewable Electricity: \nIn fiscal 2023, we installed a rooftop solar system at our Slane Castle distillery, and in fiscal 2024 we plan to install a rooftop solar system at our Newbridge bottling plant in Edinburgh, Scotland.\n\u2022\nByproducts to Energy: \nJack Daniel's announced a project to develop an anaerobic digester that will convert a portion of the distillery byproducts, also known as stillage, to renewable energy and fertilizer. The project broke ground in fiscal 2023.\n\u2022\nWater Stewardship: \nIn fiscal 2023, we partnered with Waterplan to improve the measurement of water related risk at two of our facilities and to identify opportunities for water reuse at our Casa Herradura facility. We will expand this partnership in fiscal 2024 to further enhance our water stewardship program.\n\u2022\nSustainable Forestry: \nIn April 2023, we completed the third planting at the Old Forester Tree Nursery, a 15-year white oak genetic improvement project in partnership with the University of Kentucky. In June 2023, our Jack Daniel Seed Orchard will celebrate its 25th anniversary and our continued partnership with the University of Tennessee. \nWe believe we are well positioned to deliver exceptional, high-quality products to our consumers around the world. We have a highly capable and engaged workforce. We have developed brand-building capabilities by equipping our teams with the training and tools necessary for an increasingly data-driven digital global marketplace. Among other trends, the expansion of the digital economy accelerated significantly as consumers, businesses, and communities adapted to the challenges brought on by the COVID-19 pandemic. To continue our success in how we market and sell our brands, we announced in fiscal 2021 an investment in a new Integrated Marketing Communications organization that we believe is further enhancing our ability to win in the digital economy. \nCommunity\nWe are a responsible and caring corporate citizen and invest in the communities where employees live and work. We encourage employees to participate in philanthropic outreach efforts by giving their time and talents to support those non-profit organizations most meaningful to them. This civic engagement, as well as our corporate contributions, further promotes Brown-Forman\u2019s caring culture and supports our purpose to enrich life.\nWe also continue to expand our civic engagement into Brown-Forman global office locations, allowing those employees closest to the needs of their communities to decide how to invest their charitable-giving resources. We leverage our key community relations partners to stay informed of collaborative opportunities in the communities where we work and live, and to shape our charitable-giving strategy to meet the essential needs of the communities that sustain us. We provide charitable donations and our employees volunteer throughout our communities, including approximately 120 serving on 200 nonprofit boards in the United States. We created the Brown-Forman Foundation (the Foundation) in fiscal 2018 to help fund our ongoing philanthropic endeavors. The Foundation's earnings provide a consistent source of revenue for charitable giving independent of our annual earnings. We work to partner with organizations that support our key focus areas: empowering responsible and sustainable living, ensuring essential living standards, and enhancing arts and cultural living. As part of our commitment to be better and do better as neighbors and as corporate citizens, the Brown-Forman Foundation made a 10-year, $50 million \n12\ncommitment to five organizations in west Louisville in 2022, which is the largest investment in its history. Our partner organizations include AMPED, the Louisville Central Community Center, the Louisville Urban League, Simmons College of Kentucky, and the West End School. Together, these organizations will advance educational opportunities in west Louisville, from early childhood through adult learning.\nWe believe that having a long-term-focused, committed, and engaged stockholder base, anchored by the Brown Family, gives us a distinct strategic advantage, particularly in a business with multi-generational brands and products that must be aged. We are committed to continually improving our environmental, social, and governance performance and acting upon our deeply held values. Recognizing the strong cash-generating capacity and the capital efficiency of our business, we will continue to pursue top-tier stockholder return through stockholder-friendly capital allocation and socially and environmentally conscious investments to fuel long-term growth.\nHuman Capital Resources\nOverview\n \nWe put our values at the forefront of all our decisions and actions, in an effort to make our employees feel respected, safe, and supported so they can make, market, and sell our products with the finest craftsmanship, quality, and care. What enables our success are the approximately 5,600 people (excluding individuals that work on a part-time or temporary basis) we employ in 47 countries around the world. This includes approximately 3,500 salaried employees and 2,100 hourly employees, with the largest percentage of our employees residing within the United States, Mexico, and the United Kingdom. We believe our employee relations are good and our turnover rate is low.\nTotal Rewards\nIt is our intent to pay our employees fairly and competitively. Over the last fiscal year, we completed a process to review the compensation for every salaried role both internally and externally, ensuring that every employee is paid fairly compared to each other and competitively against the market. All roles are priced based on compensation survey data for the market where the employee resides. We will continue to refresh our data and monitor pay equity annually.\nTalent Development\nWe continually seek opportunities to develop our employees to ensure that we have the capabilities to grow our business. We do this through a combination of succession planning, planned learning, short-term assignments, international opportunities, and thoughtful talent management. Given our low turnover, we are particularly thoughtful about rotating employees through new roles, ensuring that everyone has the opportunity to grow and develop. We recently began tracking all internal movement and are comfortable that we are providing an appropriate level of growth and development for our employees.\nDiversity & Inclusion \nWe are continuing to pursue our 2030 Diversity & Inclusion strategy, as outlined in Many Spirits, One Brown-Forman: Gender and Race Edition. This year, we continued to increase the number of women in senior leadership globally and people of color in the United States through both internal promotions and external hiring. We have also added an ambition to increase the number of LGBTQ+ salaried employees in the United States to 6% by 2030.\nWe track promotion and lateral movement by gender (globally) and ethnicity (in the United States) and, based on that data, we can confirm that our growth opportunities for women and people of color are proportional to our salaried employee population.\nTo support our culture of inclusion, all business leaders participated in our six-month Inclusive Leadership Program. This group completed the program at the end of the calendar year, and we have recently begun cascading it down to our front-line managers.\n Workforce Stability\nWe must remain focused on winning the war for talent in a marketplace where opportunities abound and highly skilled knowledge workers can work from anywhere. While we have historically enjoyed low turnover among our salaried population, we have continued to track our departures carefully over the last fiscal year, given the acceleration of the job market over the last two years. We have analyzed our data quarterly by gender, ethnicity, function, location, age, management level, etc. in addition to qualitative exit interview data. Turnover related to retirements increased in fiscal 2023, which we believe was related to the impact of interest rate movement on some of our defined benefit pension plans. Excluding retirements, our \n13\nvoluntary turnover among salaried employees remains consistent with our pre-pandemic levels. We will continue to monitor our data carefully. \nExecutive Officers\nInformation about Our Executive Officers\nThe following persons served as executive officers as of June 16, 2023:\nName\nAge\nPrincipal Occupation and Business Experience\nLawson E. Whiting\n54\nPresident and Chief Executive Officer since 2019. Executive Vice President and Chief Operating Officer from October 2017 to December 2018. Executive Vice President and Chief Brands and Strategy Officer from 2015 to 2017. Senior Vice President and Chief Brands Officer from 2013 to 2015.\nMatias Bentel\n48\nExecutive Vice President and Chief Brands Officer since March 2023. Senior Vice President and Chief Brands Officer from January 2020 to March 2023. Senior Vice President and Managing Director of Jack Daniel\u2019s Family of Brands from August 2018 to January 2020. Vice President and General Manager of Mexico from January 2016 to August 2018. Vice President Latin America Marketing and Chief of Staff from October 2009 to January 2016.\nLeanne D. Cunningham\n53\nExecutive Vice President and Chief Financial Officer since March 2023. Senior Vice President and Chief Financial Officer from July 2021 to March 2023. Senior Vice President, Shareholder Relations Officer, Global Commercial Finance, and Financial Planning and Analysis from August 2020 to July 2021. Senior Vice President, Shareholder Relations Officer from August 2019 to July 2020. Senior Vice President, and General Manager - Brown-Forman Brands from May 2015 to July 2019. Vice President, Director of Finance Global Production from October 2013 to April 2015.\nMarshall B. Farrer\n52\nExecutive Vice President, Chief Strategic Growth Officer and President Europe since January 2023. Senior Vice President, President Europe from August 2020 to January 2023. Senior Vice President, Managing Director, Global Travel Retail and Developed APAC Region from August 2018 to July 2020. Senior Vice President, Managing Director, Global Travel Retail from July 2018 to May 2015. Vice President, Managing Director, Jack Daniel\u2019s Tennessee Honey from January 2014 to April 2015.\nMatthew E. Hamel\n63\nExecutive Vice President and General Counsel since 2021. Executive Vice President, General Counsel and Secretary from 2007 to 2021.\nKirsten M. Hawley\n53\nExecutive Vice President, Chief People, Places, and Communications Officer since March 2023. Senior Vice President, Chief People, Places, and Communications Officer from May 2021 to March 2023. Senior Vice President, Chief Human Resources and Corporate Communications Officer from March 2019 to April 2021. Senior Vice President and Chief Human Resources Officer from February 2015 to February 2019. Senior Vice President and Director of Human Resources Business Partnerships from 2013 to 2015.\nThomas W. Hinrichs\n61\nExecutive Vice President, President Emerging International since March 2023. Senior Vice President, President Emerging International from August 2020 to March 2023. Senior Vice President, President, International Division from June 2018 to July 2020. Senior Vice President and President for Europe, North Asia, and ANZSEA from February 2015 to June 2018. Senior Vice President and Managing Director for Europe from 2013 to 2015.\nTimothy M. Nall\n52\nExecutive Vice President, Chief Global Supply Chain and Technology Officer since March 2023.  Senior Vice President, Chief Global Supply Chain and Technology Officer from March 2022 to March 2023. Senior Vice President, Chief Information and Advanced Analytics Officer from January 2015 to February 2022. Vice President Director Technical Services from May 2013 to December 2014.\nCrystal L. Peterson\n52\nExecutive Vice President, Chief Inclusion and Global Community Relations Officer since March 2023.  Senior Vice President, Chief Inclusion and Global Community Relations Officer from June 2022 to March 2023. Vice President and Chief Diversity Officer from February 2022 to June 2022. Vice President and Human Resources Director - Global Production, Diversity and Inclusion from March 2021 to January 2022. Vice President and Human Resources Director - Global Production from August 2017 to February 2021. Vice President and Human Resources Director - North America Region from May 2015 to July 2017. Human Resources Director - North America Region and Latin America Region from May 2013 to April 2015. \n14\nName\nAge\nPrincipal Occupation and Business Experience\nJeremy J. Shepherd\n48\nExecutive Vice President, President USA & Canada since March 2023. Senior Vice President, President USA & Canada from July 2022 to March 2023. Vice President, General Manager for the United Kingdom & Ireland from January 2018 to July 2022. Vice President Director Midwest Division from May 2015 to December 2017. Portfolio Integration Director from September 2014 to May 2015.\nKelli N. Brown\n53\nSenior Vice President and Chief Accounting Officer since August 2018. Vice President and Director Finance (North America Region) from 2015 to August 2018. Director NAR Division Finance (North America Region) from 2013 to 2015.\nAvailable Information\nOur website address is www.brown-forman.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports are available free of charge on our website as soon as reasonably practicable after we electronically file those reports with the Securities and Exchange Commission (SEC). The information provided on our website, and any other website referenced herein, is not part of this report, and is therefore not incorporated by reference into this report or any other filing we make with the SEC, unless that information is otherwise specifically incorporated by reference.\nOn our website, we have posted our Code of Conduct that applies to all our directors and employees, and our Code of Ethics that applies specifically to our senior financial officers. If we amend or waive any of the provisions of our Code of Conduct or our Code of Ethics applicable to our principal executive officer, principal financial officer, or principal accounting officer that relates to any element of the definition of \u201ccode of ethics\u201d enumerated in Item 406(b) of Regulation S-K under the Securities Exchange Act of 1934 Act, as amended, we intend to disclose these actions on our website. We have also posted on our website our Corporate Governance Guidelines and the charters of our Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee, and Executive Committee of our Board of Directors. Copies of these materials are also available free of charge by writing to our Secretary at 850 Dixie Highway, Louisville, Kentucky 40210 or emailing Secretary@b-f.com.",
+  "item1a": ">Item\u00a01A. \nRisk Factors\nWe believe the following discussion identifies the material risks and uncertainties that could adversely affect our business. If any of the following risks were actually to occur, our business, results of operations, cash flows, or financial condition could be materially and adversely affected. Additional risks not currently known to us, or that we currently deem to be immaterial, could also materially and adversely affect our business, results of operations, cash flows, or financial condition.\nRisks Related to Our Business and Operations\nOur business performance depends substantially on the continued health of the Jack Daniel's family of brands.\nThe Jack Daniel's family of brands is the primary driver of our revenue and growth. Jack Daniel's is an iconic global trademark with a loyal consumer fan base, and we invest much effort and many resources to protect and preserve the brand's reputation for authenticity, craftsmanship, and quality. A brand's reputational value is based in large part on consumer perceptions, and even an isolated incident that causes harm \u2013 particularly one resulting in widespread negative publicity \u2013 could adversely influence these perceptions and erode consumer trust and confidence in the brand. Significant damage to the brand equity of the Jack Daniel's family of brands would adversely affect our business. Given the importance of Jack Daniel's to our overall success, a significant or sustained decline in volume or selling price of our Jack Daniel's products, as a result of negative publicity or otherwise, would have a negative effect on our financial results. Additionally, if we are not successful in our efforts to maintain or increase the relevance of the Jack Daniel's brand to current and future consumers, our business and operating results could suffer. For details on the importance of the Jack Daniel's family of brands to our business, see \u201cItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Fiscal 2023 Brand Highlights.\u201d\nChanges to our route-to-consumer models and consolidation among beverage alcohol producers, distributors, wholesalers, suppliers, and retailers, could hinder the marketing, sale, or distribution of our products. \nWe use various business models to market and distribute our products in different countries around the world. In the United States, we sell our products either to distributors for resale to retail outlets or e-commerce retailers or, in those states that control alcohol sales, to state governments who then sell them to retail customers and consumers. In our non-U.S. markets, we use a variety of route-to-consumer models \u2013 including, in many markets, reliance on third parties to distribute, market, and sell our products. We own and operate distribution companies for 14 international markets. Transitioning from a third-party \n15\ndistribution model to an owned distribution model involves a significant undertaking, and subjects us to risks associated with that geographic region. If we are unsuccessful in our route-to-consumer strategies, including any transition to owned distribution, the sale and marketing of our products could be disrupted.\nChanges to any of our route-to-consumer models or partners in important markets could result in temporary or longer-term sales disruption, higher costs, and harm to other business relationships we might have with that partner. Disruption of our distribution network or fluctuations in our product inventory levels at distributors, wholesalers, or retailers could negatively affect our results for a particular period. Moreover, other suppliers, as well as wholesalers and retailers of our brands, offer products that compete directly with ours for shelf space, promotional displays, and consumer purchases. Pricing (including price promotions, discounting, couponing, and free goods), marketing, new product introductions, entry into our distribution networks, and other competitive behavior by other suppliers, and by wholesalers and traditional and e-commerce retailers, could adversely affect our growth, business, and financial results. While we seek to take advantage of the efficiencies and opportunities that large retail customers can offer, they often seek lower pricing and increased purchase volume flexibility, offer competing private label products, and represent a large number of other competing products. If the buying power of these large retail customers continues to increase, it could negatively affect our financial results. Further, while we believe we have sufficient scale to succeed relative to our major competitors, we nevertheless face a risk that continuing consolidation of large beverage alcohol companies could put us at a competitive disadvantage.\nConsolidation, whether domestically or internationally, among spirits producers, distributors, wholesalers, suppliers, or retailers and the increased growth of the e-commerce environment across the consumer product goods market has created and could continue in the future to create a more challenging competitive landscape for our products. Consolidation at any level could hinder the distribution and sale of our products as a result of reduced attention and resources allocated to our brands both during and after transition periods, because our brands might represent a smaller portion of the new business portfolio. Furthermore, consolidation of distributors may lead to the erosion of margins. Changes in distributors' strategies, including a reduction in the number of brands they carry, the allocation of shelf space for our competitors' brands, or private label products, may adversely affect our growth, business, financial results, and market share. Furthermore, e-commerce distribution grew dramatically during the COVID-19 pandemic and is likely to continue growing in the future. Our competitors may respond to industry and economic conditions and shifts in consumer behaviors more rapidly or effectively than we do. To remain competitive, we must be agile and efficient in adopting digital technologies and building analytical capabilities, which our competitors may be able to achieve with more agility and resources.\nChanges in consumer preferences and purchases, any decline in the social acceptability of our products, or governmental adoption of policies disadvantageous to beverage alcohol could negatively affect our business results.\nWe are a branded consumer products company in a highly competitive market, and our success depends substantially on our continued ability to offer consumers appealing, high-quality products. Consumer preferences and purchases may shift, often in unpredictable ways, as a result of a variety of factors, including health and wellness trends; changes in economic conditions, demographic, and social trends; public health policies and initiatives; changes in government regulation of beverage alcohol products; concerns or regulations related to product safety; legalization of cannabis and its use on a more widespread basis within the United States, Canada, or elsewhere; and changes in trends related to travel, leisure, dining, gifting, entertaining, and beverage consumption trends. As a result, consumers may begin to shift their consumption and purchases from our premium and super-premium products, or away from alcoholic beverages entirely. This shift includes consumption at home as a result of various factors, including shifts in social trends, and shifts in the channels for the purchases of our products. These shifts in consumption and purchasing channels could adversely impact our profitability. Consumers also may begin to prefer the products of competitors or may generally reduce their demand for brands produced by larger companies. Over the past several decades, the number of small, local distilleries in the United States has grown significantly. This growth is being driven by a trend of consumers showing increasing interest in locally produced, regionally sourced products. As more brands enter the market, increased competition could negatively affect demand for our premium and super-premium American whiskey brands, including Jack Daniel\u2019s. In addition, we could experience unfavorable business results if we fail to attract consumers from diverse backgrounds and ethnicities in all markets where we sell our products. \nExpansion into new product categories by other suppliers, or innovation by new entrants into the market, could increase competition in our product categories. For example, we have observed an increase in diversification by various consumer goods companies such as the entrance of both traditional beer and soft drink companies into the ready-to-drink market and the entrance of both beer and spirits companies into the cannabis market \u2013 expanding the potential for competition in the spirits market from various sectors of the consumer goods industry. Increased competition may, among other things, negatively impact our ability to maintain or gain market share; increase pricing pressure, which inhibits our ability to adequately respond to inflationary changes in commodities used in making our products; require increases in marketing and promotional activities; and negatively impact the market for our premium and super-premium products. To continue to succeed, we must anticipate or \n16\nreact effectively to shifts in demographics, our competition, consumer behavior, consumer preferences, drinking tastes, and drinking occasions.\nOur long-term plans call for the continued growth of the Jack Daniel's family of brands. If these plans do not succeed, or if we otherwise fail to develop or implement effective business, portfolio, and brand strategies, our growth, business, or financial results could suffer. More broadly, if consumers shift away from spirits (particularly brown spirits such as American whiskey and bourbon), our premium-priced brands, or our ready-to-drink products, our financial results could be adversely affected.\nWe believe that new products, line extensions, label and bottle changes, product reformulations, and similar product innovations by both our competitors and us will increase competition in our industry. Product innovation, particularly for our core brands, is a significant element of our growth strategy; however, there can be no assurance that we will continue to develop and implement successful line extensions, packaging, formulation or flavor changes, or new products.\nUnsuccessful implementation or short-lived popularity of our product innovations could result in inventory write-offs and other costs, could reduce profits from one year to the next, and could also damage consumers' perception of our brands. Our inability to attract consumers to our product innovations relative to our competitors' products \u2013 especially over time \u2013 could negatively affect our growth, business, and financial results.\nProduction facility disruption could adversely affect our business.\nSome of our largest brands, including Jack Daniel's and our tequilas, are distilled at single locations. A catastrophic event causing physical damage, disruption, or failure at any one of our major distillation or bottling facilities, including facilities that support the production of our premium brands such as Woodford Reserve and Old Forester, could adversely affect our business. Further, because whiskeys, rums and some tequilas are aged for various periods, we maintain a substantial inventory of aged and maturing products in warehouses at a number of different sites. The loss of a substantial amount of aged inventory \u2013 through fire, other natural or man-made disaster, contamination, or otherwise \u2013 could significantly reduce the supply of the affected product or products. These and other supply (or supply chain) disruptions could prevent us from meeting consumer demand for the affected products in the short and medium term. In addition to catastrophic events identified above, supply disruptions could include the temporary inability to make our products at normal levels or at all. We could also experience disruptions if our suppliers are unable to deliver supplies. Our business continuity plans may not prevent business disruption, and reconstruction of any damaged facilities could require a significant amount of time and resources.\nThe inherent uncertainty in supply/demand forecasting could adversely affect our business, particularly with respect to our aged products.\nThere is an inherent risk of forecasting imprecision in determining the quantity of aged and maturing products to produce and hold in inventory in a given year for future sale. The forecasting strategies we use to balance product supply with fluctuations in consumer demand may not be effective for particular years or products. For example, in addition to our American and Irish whiskeys, rums, and some tequilas, which are aged for various periods, our Scotch whisky brands require long-term maturation \u2013 an average of 12 years with limited releases of 30 years or more \u2013 making forecasts of demand for such products in future periods subject to significant uncertainty. Our tequila supply also depends on the growth cycle of agave plants, which take approximately seven years to reach full maturity, requiring us to make forecasts of demand for our tequilas over a long-time horizon to determine in advance how much agave to plant or otherwise source. Factors that affect our ability to forecast accurately include changes in business strategy, market demand, consumer preferences, macroeconomic conditions, introductions of competing products, and other changes in market conditions. Additionally, our supply of aged products can deviate from expectations due to changes in forecasted maturation loss. Such forecasting errors could lead to our inability to meet the objectives of our business strategy, failure to meet future demand, or a future surplus of inventory and consequent write-down in value of such inventory. A failure to accurately forecast demand for our products or efficiently manage inventory, could have a material adverse effect on our business and financial results. Further, we cannot be certain that we will be successful in using various levers, such as pricing changes, to create the desired balance of available supply and consumer demand for particular years or products. As a consequence, we may be unable to meet consumer demand for the affected products for a period of time. Furthermore, not having our products in the market consistently may adversely affect our brand equity and future sales.\nHigher costs or unavailability of water, raw materials, product ingredients, or labor could adversely affect our financial results.\nOur products use materials and ingredients that we purchase from suppliers. Our ability to make and sell our products depends on the availability of the raw materials, product ingredients, finished products, wood, glass and PET bottles, cans, bottle closures, packaging, and other materials used to produce and package them. Without sufficient quantities of one or more \n17\nkey materials, our business and financial results could suffer. For instance, only a few glass producers make bottles on a scale sufficient for our requirements, and a single producer supplied most of our glass requirements. During the COVID-19 pandemic, as a result of global supply chain challenges, our primary glass provider could not produce sufficient quantities to meet our needs, which increased our cost to produce and supply some of our products and adversely affected our financial results. In response to these events, we took action to diversify suppliers of our raw materials, including glass. While our glass supply has stabilized and we continue to see improvements in supply chain logistics and transportation, our route-to-market costs and lead times continue to be impacted. We project that some logistics and transport constraints may persist through the remainder of calendar 2023. Similar new supply chain challenges may occur in the future, making it difficult and more expensive to produce and deliver our products. For example, if we were to experience a disruption in the supply of American white oak logs or steel to produce the new charred oak barrels in which we age our whiskeys, our production capabilities could be compromised. If any of our key suppliers were no longer able to meet our timing, quality, or capacity requirements, ceased doing business with us, or significantly raised prices, and we could not promptly develop alternative cost-effective sources of supply or production, our operations and financial results could suffer.\nHigher costs or insufficient availability of suitable grain, agave, water, grapes, molasses (for rum production), wood, glass, closures, and other input materials, or higher associated labor costs or insufficient availability of labor, may adversely affect our financial results. Similarly, when energy costs rise, our transportation, freight, and other operating costs, such as distilling and bottling expenses, also may increase. Our freight cost and the timely delivery of our products could be adversely affected by a number of factors, including driver or equipment shortages, higher fuel costs, weather conditions, traffic congestion, shipment container availability, rail shut down, increased government regulation, and other matters that could reduce the profitability of our operations. Our financial results may be adversely affected if we cannot pass along energy, freight, or other input cost increases through higher prices to our customers without reducing demand or sales. For example, during the recent COVID-19 pandemic and subsequent economic recovery, we experienced supply chain disruptions in connection with the availability of timely modes of transportation to ship our products globally, which resulted in higher costs and delays in supplying some of our products.\nInternational or domestic geopolitical or other events, including the imposition of any tariffs or quotas by governmental authorities on any raw materials that we use in the production of our products, could adversely affect the supply and cost of these raw materials to us. For example, the global economy has been negatively impacted by Russia\u2019s invasion of Ukraine. Global grain and energy markets have become increasingly volatile as sanctions have been imposed on Russia by other countries, including the United States and the European Union, in response to the invasion. We suspended our operations in Russia, and it is not clear if, or when, we will resume doing business in Russia. While we do not currently expect our production operations to be directly impacted by the conflict, changes in global grain and commodity pricing and availability may impact the markets in which we operate. If we cannot offset higher raw material costs with higher selling prices, increased sales volume, or reductions in other costs, our profitability could be adversely affected.\nWeather, the effects of climate change, fires, diseases, and other agricultural uncertainties that affect the health, yield, quality, or price of the various raw materials used in our products also present risks for our business, including in some cases potential impairment in the recorded value of our inventory. Climate change could also affect the maturation and yield of our aged inventory over time. Changes in weather patterns or intensity can disrupt our supply chain as well, which may affect production operations, insurance costs and coverage, and the timely delivery of our products.\nWater is an essential component of our products, so the quality and quantity of available water is important to our ability to operate our business. If extended droughts become more common or severe, or if our water supply were interrupted for other reasons, high-quality water could become scarce in some key production regions for our products,which in turn could adversely affect our business and financial results.\nWe might not succeed in our strategies for investments, acquisitions, dispositions, and other strategic transactions.\nFrom time to time, we acquire or invest in additional brands or businesses. We expect to continue to seek acquisition and investment opportunities that we believe will increase long-term stockholder value, but we may not be able to find investment opportunities, or purchase brands or businesses, at acceptable prices and terms. Acquisitions and investments involve risks and uncertainties, including paying more than a brand or business is ultimately determined to be worth; potential difficulties integrating acquired brands and personnel; the possible loss of key customers or employees most knowledgeable about the acquired business; implementing and maintaining consistent U.S. public company standards, controls, procedures, policies, and information systems; exposure to unknown liabilities; business disruption; and management distraction or departure. We could incur future restructuring charges or record impairment losses on the value of goodwill or other intangible assets resulting from previous acquisitions, which may also negatively affect our financial results.\n18\nFrom time to time, we also consider disposing of assets or businesses that may no longer meet our financial or strategic objectives. In selling assets or businesses, we may not get prices or terms as favorable as we anticipated. We could also encounter difficulty in finding buyers on acceptable terms in a timely manner, which could delay our accomplishment of strategic objectives. Expected cost savings from reduced overhead, relating to the sold assets, may not materialize. The overhead reductions could temporarily disrupt our other business operations. Any of these outcomes could negatively affect our financial results.\nOur business faces various risks related to health epidemics and pandemics, including the COVID-19 pandemic and similar outbreaks, that could materially and adversely affect our business, our operations, our cash flows, and our financial results.\nOur business, operations, cash flows, and financial results have been impacted and could be impacted in the future by health epidemics, pandemics, and similar outbreaks, such as the COVID-19 pandemic. Any future epidemic, pandemic, or other outbreak could cause negative impacts, such as (a) a global or U.S. recession or other economic crisis; (b) credit and capital markets volatility (and access to these markets, including by our suppliers and customers); (c) volatility in demand for our products; (d) changes in accessibility to our products due to illness, quarantines, \u201cstay at home\u201d orders, travel restrictions, retail, restaurant, bar, and hotel closures, social distancing requirements, and other government action; (e) changes in consumer behavior and preferences; and (f) disruptions in raw material supply, our manufacturing operations, or in our distribution and supply chain. In addition, we may incur increased costs and otherwise be negatively affected if a significant portion of our workforce (or the workforces within our distribution or supply chain) cannot work or work effectively, including because of illness, quarantines, \u201cstay at home\u201d orders, social distancing requirements, other government action, facility closures, or other restrictions. Accordingly, a future widespread health epidemic or pandemic could materially and adversely affect our business, our operations, our cash flows, and our financial results.\nUnfavorable economic conditions could negatively affect our operations and results.\nUnfavorable global or regional economic conditions may be triggered by numerous developments beyond our control, including geopolitical events, health crises, and other events that trigger economic volatility on a global or regional basis. Those types of unfavorable economic conditions could adversely affect our business and financial results. In particular, a significant deterioration in economic conditions, including economic slowdowns or recessions, increased unemployment levels, inflationary pressures or disruptions to credit and capital markets, could lead to decreased consumer confidence in certain countries and consumer spending more generally, thus reducing consumer demand for our products. For example, since 2021, the United States and European Union have experienced a rapid increase in inflation levels. Such heightened inflationary levels may negatively impact consumer disposable income and discretionary spending and, in turn, reduce consumer demand for our premium products and increase our costs. Unfavorable economic conditions could also cause governments to increase taxes on beverage alcohol to attempt to raise revenue, reducing consumers' willingness to make discretionary purchases of beverage alcohol products or pay for premium brands such as ours.\nUnfavorable economic conditions could also adversely affect our suppliers, distributors, customers, and retailers, who in turn could experience cash flow challenges, more costly or unavailable financing, credit defaults, and other financial hardships. Such financial hardships could lead to distributor or retailer destocking, disruption in raw material supply, increase in bad debt expense, or increased levels of unsecured credit that we may need to provide to customers. Other potential negative consequences to our business from unfavorable economic conditions include higher interest rates, an increase in the rate of inflation, deflation, exchange rate fluctuations, credit or capital market instability, or lower returns on pension assets or lower discount rates for pension obligations (possibly requiring higher contributions to our pension plans).\nProduct recalls or other product liability claims could materially and adversely affect our sales.\nThe success of our brands depends on the positive image that consumers have of them. We could decide to or be required to recall products due to suspected or confirmed product contamination, product tampering, spoilage, regulatory non-compliance, food safety issues, or other quality issues. Any of these events could adversely affect our financial results. Actual contamination, whether deliberate or accidental, could lead to inferior product quality and even illness, injury, or death of consumers, potential liability claims, and material loss. Should a product recall become necessary, or we voluntarily recall a product in the event of contamination, damage, or other quality issue, sales of the affected product or our broader portfolio of brands could be adversely affected. A significant product liability judgment or widespread product recall may negatively impact sales and our business and financial results. Even if a product liability claim is unsuccessful or is not fully pursued, resulting negative publicity could adversely affect our reputation with existing and potential customers and our corporate and brand image.\n19\nNegative publicity could affect our business performance.\nUnfavorable publicity, whether accurate or not, related to our industry or to us or our products, brands, marketing, executive leadership, employees, Board of Directors, family stockholders, operations, current or anticipated business performance, or environmental or social efforts could negatively affect our corporate reputation, stock price, ability to attract and retain high-quality talent, or the performance of our brands and business. Adverse publicity or negative commentary on social media, whether accurate or not, particularly any that go \u201cviral,\u201d could cause consumers or other stakeholders to react by disparaging or avoiding our brands or company, which could materially negatively affect our financial results. Additionally, investor advocacy groups, institutional investors, other market participants, stockholders, employees, consumers, customers, influencers, and policymakers have focused increasingly on the environmental, social, and governance (\u201cESG\u201d) or \u201csustainability\u201d positions and practices of companies. If our ESG positions or practices do not meet investor or other stakeholder expectations and standards, which continue to evolve, our corporate reputation, stock price, ability to attract and retain high-quality talent, and the performance of our brands and business may be negatively affected. Stakeholders and others who disagree with our company's actions, positions, or statements may speak negatively or advocate against the company, with the potential to harm our reputation or business through negative publicity, adverse government treatment, or other means.\nOur failure to attract or retain key talent could adversely affect our business.\nOur success depends on the efforts and abilities of our senior management team, other key employees, and our high-quality employee base, as well as our ability to attract, motivate, reward, develop, and retain them. Difficulties in hiring or retaining key executive or other employee talent, or the unexpected loss of experienced employees resulting in the depletion of our institutional knowledge base, could have an adverse impact on our business performance, reputation, financial condition, or results of operations. Given changing demographics, immigration laws and policies, remote working trends, and demand for talent globally, we may not be able to find the people with the right skills, at the right time, and in the right location, to achieve our business objectives.\nRisks Related to Our Global Operations\nOur global business is subject to commercial, political, and financial risks.\nOur products are sold in more than 170 countries; accordingly, we are subject to risks associated with doing business globally, including commercial, political, and financial risks. In addition, we are subject to potential business disruption caused by military conflicts; potentially unstable governments or legal systems; social, racial, civil, or political upheaval or unrest; local labor policies and conditions; possible expropriation, nationalization, or confiscation of assets; problems with repatriation of foreign earnings; economic or trade sanctions; closure of markets to imports; anti-American sentiment; terrorism, kidnapping, extortion, or other types of violence in or outside the United States; and health crises. Violent crime is increasing in markets around the globe, including the United States. If a violent event should occur at one of our sites, it could disrupt business operations, impair brand reputation, increase insurance and security expenses, and adversely affect the price of our stock. \nAdditionally, we may be subject to tariffs imposed on our products by other countries, such as the tariffs imposed in 2018 following the United States tariffs on steel and aluminum. In response to these U.S. tariffs, a number of countries imposed retaliatory tariffs on U.S. imports, including on American whiskey products, which negatively affected our business until they were removed in late fiscal 2022 and early fiscal 2023. The imposition of tariffs, custom duties, or other restrictions or barriers on imports and exports, or the deterioration of economic relations between the United States and other countries could increase the cost of our products and, to the extent that we absorb the costs of tariffs, result in higher cost of goods sold and lower gross profit and margins. They could also limit the availability of our products and prompt consumers to seek alternative products. Our success will depend, in part, on our ability to overcome the challenges we encounter with respect to these risks and other factors affecting U.S. export companies with a global business.\nA failure to comply with anti-corruption laws, trade sanctions and restrictions, or similar laws or regulations may have a material adverse effect on our business and financial results.\nSome of the countries where we do business have a higher risk of corruption than others. While we are committed to doing business in accordance with all applicable laws, including anti-corruption laws and global trade restrictions, we remain subject to the risk that an employee, or one of our many direct or indirect business partners, may take action determined to be in violation of international trade, money laundering, anti-corruption, or other laws, sanctions, or regulations, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010, or equivalent local laws. Any determination that our operations or activities are not in compliance with applicable laws or regulations, particularly those related to anti-corruption and international economic or trade sanctions, could result in investigations, interruption of business, loss of business partner relationships, suspension or termination of credit agreements, licenses, and permits (our own or those of our partners), \n20\nimposition of fines, legal or equitable sanctions, negative publicity, and management distraction or departure. Further, our obligation to comply with applicable anti-corruption, economic and trade sanctions, or other laws or regulations, our Code of Conduct, Code of Ethics for Senior Financial Officers, and our other policies could result in higher operating costs, delays, or even competitive disadvantages as compared to competitors based in different parts of the world.\nFluctuations in foreign currency exchange rates relative to the U.S. dollar could have a material adverse effect on our financial results.\nThe global scope of our business means that foreign currency exchange rate fluctuations relative to the U.S. dollar influence our financial results. In many markets outside the United States, we sell our products and pay for some goods, services, and labor costs primarily in local currencies. Because our foreign currency revenues exceed our foreign currency expense, we have a net exposure to changes in the value of the U.S. dollar relative to those currencies. Over time, our reported financial results will be hurt by a stronger U.S. dollar and will be benefited by a weaker one. We attempt to hedge some of our foreign currency exposure through the use of foreign currency derivatives or other means. However, even in those cases, we do not fully eliminate our foreign currency exposure. For details on how foreign exchange affects our business, see \u201cItem 7A. Quantitative and Qualitative Disclosures about Market Risk - Foreign currency exchange rate risk.\u201d\nLegal and Regulatory Risks\nNational and local governments may adopt regulations or undertake investigations that could limit our business activities or increase our costs.\nOur business is subject to extensive regulatory requirements regarding production, exportation, importation, marketing and promotion, labeling, distribution, pricing, and trade practices, among others. Changes in laws, regulatory measures, or governmental policies, or the manner in which current ones are interpreted, could subject us to governmental investigations, cause us to incur material additional costs or liabilities, and jeopardize the growth of our business in the affected market. Specifically, governments could prohibit, impose, or increase limitations on advertising and promotional activities, or times or locations where beverage alcohol may be sold or consumed, or adopt other measures that could limit our opportunities to reach consumers or sell our products. Certain countries historically have banned all television, newspaper, magazine, and digital commerce/advertising for beverage alcohol products. Additional regulation of this nature could substantially reduce consumer awareness of our products in the affected markets and make the introduction of new products more challenging.\nAdditional regulation in the United States and other countries addressing climate change, use of water, and other environmental issues could increase our operating costs. Increasing regulation of CO2 emissions could increase the cost of energy, including fuel, required to operate our facilities or transport and distribute our products, thereby substantially increasing the production, distribution, and supply chain costs associated with our products.\nTax increases and changes in tax rules could adversely affect our financial results.\nOur business is sensitive to changes in both direct and indirect taxes. New tax rules, accounting standards or pronouncements, and changes in interpretation of existing rules, standards, or pronouncements could have a material adverse effect on our business and financial results. As a multinational company based in the United States, we are more exposed to the impact of changes in U.S. tax legislation and regulations than most of our major competitors, especially changes that affect the effective corporate income tax rate. In August 2022, the U.S. enacted the Inflation Reduction Act of 2022 (\u201cIRA\u201d) which, among other provisions, implemented a 15% minimum tax on book income of certain large corporations. We continue to evaluate the various provisions of the IRA and currently anticipate that its impact, if any, will not be material to our operating results or cash flows. Additional tax proposals sponsored by the current U.S. presidential administration could lead to U.S. tax changes, including significant increases to the U.S. corporate income tax rate and the minimum tax rate on certain earnings of foreign subsidiaries. While we are unable to predict whether any of these changes will ultimately be enacted, if these or similar proposals are enacted into law, they could negatively impact our effective tax rate and reduce net earnings.\nAt the global level, potential changes in tax rules or the interpretation of tax rules arising out of the Base Erosion and Profit Shifting project initiated by the Organization for Economic Co-operation and Development (OECD) include increased residual profit allocations to market jurisdictions and the implementation of a global minimum tax rate. On October 8, 2021, the OECD announced an accord endorsing and providing an implementation plan for the two-pillar plan agreed upon by 136 nations. On December 15, 2022, the European Council formally adopted a European Union directive on the implementation of the plan by January 1, 2024. We are evaluating the potential impact of the developments on our consolidated financial statements and related disclosures. The adoption of these or other proposals could have a material adverse impact on our net income and cash flows. Furthermore, changes in the earnings mix or applicable foreign tax laws could also negatively impact our net income and tax flows.\n21\nOur business operations are also subject to numerous duties or taxes not based on income, sometimes referred to as \u201cindirect taxes.\u201d These indirect taxes include excise taxes, sales or value-added taxes, property taxes, payroll taxes, import and export duties, and tariffs. Increases in or the imposition of new indirect taxes on our operations or products would increase the cost of our products or materials used to produce our products or, to the extent levied directly on consumers, make our products less affordable, which could negatively affect our financial results by reducing purchases of our products and encouraging consumers to switch to lower-priced or lower-taxed product categories. As governmental entities look for increased sources of revenue, they may increase taxes on beverage alcohol products. In fiscal 2023, we have observed excise tax increases in T\u00fcrkiye and Romania, and annual increases in France and Australia tied to the consumer price index. Additionally, during fiscal 2023, Australia is considering proposals to change the country\u2019s overall beverage alcohol tax policies.\nOur ability to market and sell our products depends heavily on societal attitudes toward drinking and governmental policies that both flow from and affect those attitudes.\nIncreased social and political attention has been directed at the beverage alcohol industry. For example, there remains continued attention focused largely on public health concerns related to alcohol abuse, including drunk driving, underage drinking, and the negative health impacts of the abuse and misuse of beverage alcohol. While most people who drink alcoholic beverages do so in moderation, it is commonly known and well reported that excessive levels or inappropriate patterns of drinking can lead to increased risk of a range of health conditions and, for certain people, can result in alcohol dependence. Some academics, public health officials, and critics of the alcohol industry in the United States, Europe, and other parts of the world continue to seek governmental measures to make beverage alcohol more expensive, less available, or more difficult to advertise and promote. If future scientific research indicates more widespread serious health risks associated with alcohol consumption \u2013 particularly with moderate consumption \u2013 or if for any reason the social acceptability of beverage alcohol declines significantly, sales of our products could be adversely affected.\nSignificant additional labeling or warning requirements or limitations on the availability of our products could inhibit sales of affected products.\nVarious jurisdictions have adopted or may seek to adopt significant additional product labeling or warning requirements or impose limitations on the availability of our products relating to the content or perceived adverse health consequences of some of our products. Several such labeling regulations or laws require warnings on any product with substances that the jurisdiction lists as potentially associated with cancer or birth defects. Our products already raise health and safety concerns for some regulators, and heightened requirements could be imposed. For example, in February 2021, the European Union published its Europe Beating Cancer Plan. As part of the plan, by the end of 2023, the European Union will issue a proposal for mandatory health warnings on beverage alcohol product labels. Such campaigns could result in additional governmental regulations concerning the production, marketing, labeling, or availability of our products, any of which could damage our reputation, make our premium brands unrecognizable, or reduce demand for our products, which could adversely affect our profitability. If additional or more severe requirements of this type are imposed on one or more of our major products under current or future health, environmental, or other laws or regulations, they could inhibit sales of such products. Further, we cannot predict whether our products will become subject to increased rules and regulations, which, if enacted, could increase our costs or adversely impact sales.\nCounterfeiting or inadequate protection of our intellectual property rights could adversely affect our business prospects.\nOur brand names, trademarks, and related intellectual property rights are critical assets, and our business depends on protecting them online and in the countries where we do business. We may not succeed in protecting our intellectual property rights in a given market or in challenging those who infringe our rights or imitate or counterfeit our products. Although we believe that our intellectual property rights are legally protected in the markets where we do business, the ability to register and enforce intellectual property rights varies from country to country. In some countries, for example, it may be more difficult to successfully stop counterfeiting or look-alike products, either because the law is inadequate or, even though satisfactory legal options may exist, it may be difficult to obtain and enforce sanctions against counterfeiters. We may not be able to register our trademarks in every country where we want to sell a particular product, and we may not obtain favorable decisions by courts or trademark offices.\nMany global spirits brands, including some of our brands, experience problems with product counterfeiting and other forms of trademark infringement. We combat counterfeiting by working with other companies in the spirits industry through our membership in the Alliance Against Counterfeit Spirits (AACS) and with brand owners in other industries via our membership in React, an anti-counterfeiting network organization. While we believe AACS and React are effective organizations, they are not active in every market, and their efforts are subject to obtaining the cooperation of local authorities and courts in the markets where they are active. Despite the efforts of AACS, React, and our own teams, lower-quality and counterfeit products that could be harmful to consumers could reach the market and adversely affect our intellectual property \n22\nrights, brand equity, corporate reputation, and financial results. In addition, the industry as a whole could suffer negative effects related to the manufacture, sale, and consumption of illegally produced beverage alcohol. \nLitigation and legal disputes could expose our business to financial and reputational risk.\nMajor private or governmental litigation challenging the production, marketing, promotion, distribution, or sale of beverage alcohol or specific brands could affect our ability to sell our products. Because litigation and other legal proceedings can be costly to defend, even actions that are ultimately decided in our favor could have a negative impact on our business reputation or financial results. Lawsuits have been brought against beverage alcohol companies alleging problems related to alcohol abuse, negative health consequences from drinking, problems from alleged marketing or sales practices, and underage drinking. While these lawsuits have been largely unsuccessful in the past, others may succeed in the future. We could also experience employment-related or cybersecurity-related class actions, environmental claims, commercial disputes, product liability actions stemming from a beverage or container production defect, a whistleblower suit, or other major litigation that could adversely affect our business results, particularly if there is negative publicity.\nAs discussed throughout these risk factors, governmental actions around the world are a continuing compliance risk for global companies such as ours. In addition, as a U.S. public company, we are exposed to the risk of securities-related class action suits, particularly following a precipitous drop in the share price of our stock. Adverse developments in major lawsuits concerning these or other matters could result in management distraction and have a material adverse effect on our business.\nRisks Related to Cybersecurity and Data Privacy\nA cyber breach, a failure or corruption of one or more of our key information technology systems, networks, processes, associated sites, or service providers, or a failure to comply with personal data protection laws could have a material adverse impact on our business.\nWe rely on information technology (IT) systems, networks, and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices), software, and technical applications and platforms, some of which are managed, hosted, provided, or used by third parties or their vendors, to help us manage our business. The various uses of these IT systems, networks, and services include: hosting our internal network and communication systems; ordering and managing materials from suppliers; billing and collecting cash from our customers; supply/demand planning; inventory planning; production; shipping products to customers; paying our employees; hosting corporate strategic plans and employee data; hosting our branded websites and marketing products to consumers; collecting and storing data on suppliers, customers, consumers, stockholders, employees, former employees, and beneficiaries of employees or former employees; processing transactions; summarizing and reporting results of operations; hosting, processing, and sharing confidential and proprietary research, business plans, and financial reporting and information; complying with regulatory, legal, or tax requirements; providing data security; and handling other processes necessary to manage our business.\nAs a company with complex IT systems, we have been a target of cyberattacks and other hacking activities in the past, and we expect to continue to be a target in the future. Increased IT security threats and more sophisticated cybercrimes and cyberattacks, including computer viruses and other malicious codes, ransomware, unauthorized access attempts, denial-of-service attacks, phishing, social engineering, hacking, and other types of attacks, pose a risk to the security and availability of our IT systems, networks, and services, including those that are managed, hosted, provided, or used by third parties, as well as the confidentiality, availability, and integrity of our data and the data of our customers, partners, consumers, employees, stockholders, suppliers, and others. As a result of the COVID-19 pandemic, a greater number of our employees are working remotely and accessing our technology infrastructure remotely, which further increases our attack surface.\nUnauthorized access to our IT network or that of our service providers could result in failure of our IT systems, networks, or services to function properly. This could lead to the loss or unauthorized disclosure of our business strategy or other sensitive information; interruptions in our ability to manage operations; and reputational, competitive, or business harm, which may adversely affect our business operations or financial results. In addition, such IT disruptions could result in unauthorized disclosure of material confidential information, resulting in financial and reputational damage because of lost or misappropriated confidential information belonging to us or to our partners, customers, consumers, employees, or former employees and their beneficiaries, stockholders, suppliers, or others.\nAs a result of any cyber breach or IT disruption, we could also be required to spend significant financial and other resources to remedy the damage. Those expenditures could include repairing or replacing networks and IT systems, which could require a significant amount of time and financial investment; responding to claims from employees, former employees, stockholders, suppliers, customers, consumers, or others; handling related litigation or governmental inquiries; or paying significant fines to regulatory agencies. Furthermore, a cyber breach at any one of our suppliers, customers, or other direct or \n23\nindirect business partners could have similar impacts. Any cyber breach or IT disruption could have a material adverse effect on our business.\nIn the ordinary course of our business, we receive, process, transmit, and store information relating to identifiable individuals (personal data), primarily employees and former employees, but also relating to beneficiaries of employees or former employees, customers, and consumers. As a result, we are subject to various U.S. federal and state and foreign laws and regulations relating to personal data. These laws change frequently, and new legislation in this area may be enacted at any time. Such laws and regulations include the California Consumer Protection Act, the California Privacy Rights Act, which took effect on January 1, 2023, and the European Union General Data Protection Regulation (GDPR). These types of laws and regulations subject us to, among other things, additional costs and expenses and may require costly changes to our business practices and security systems, policies, procedures, and practices. Improper disclosure of personal data in violation of personal data protection laws, including the GDPR, could harm our reputation, cause loss of consumer confidence, subject us to government enforcement actions (including fines), or result in private litigation against us, which could result in loss of revenue, increased costs, liability for monetary damages, fines, or criminal prosecution, all of which could negatively affect our business and operating results.\nRisks Related to Our Ownership and Corporate Governance Structure\nThe Brown family has the ability to control the outcome of matters submitted for stockholder approval.\nWe are a \u201ccontrolled company\u201d under New York Stock Exchange rules. Controlled companies are exempt from New York Stock Exchange listing standards that require a board composed of a majority of independent directors, a fully independent nominating/corporate governance committee, and a fully independent compensation committee. We may avail ourselves of the exemption from having a board composed of a majority of independent directors, and we utilize the exemption from having a fully independent nominating/corporate governance committee. Notwithstanding the available exemption, our Compensation Committee is composed exclusively of independent directors. As a result of our use of some \u201ccontrolled company\u201d exemptions, our corporate governance practices differ from those of non-controlled companies, which are subject to all of the New York Stock Exchange corporate governance requirements.\nWe have two classes of common stock. Our Class A common stock is entitled to full voting powers, including in the elections of directors, while our Class B common stock may not vote except as provided by the laws of Delaware. We have had two classes of common stock since 1959, when our stockholders approved the issuance of two shares of Class B non-voting common stock to every holder of our voting common stock. Dual-class share structures have increasingly come under the scrutiny of major indices, institutional investors, and proxy advisory firms, with some calling for the reclassification of non-voting common stock.\nA majority of our voting stock is controlled by members of the Brown family, and, collectively, they have the ability to control the outcome of stockholder votes, including the election of all of our directors and the approval or rejection of any merger, change of control, or other significant corporate transactions. We believe that having a long-term-focused, committed, and engaged stockholder base provides us with a distinct strategic advantage, particularly in a business with aged products and multi-generational brands. This advantage could be eroded or lost, however, should Brown family members cease, collectively, to be controlling stockholders of the Company.\nWe believe that it is in the interests of all stockholders that we remain independent and family-controlled, and we believe the Brown family stockholders share these interests. Thus, our common stock dual-class share structure, as it has existed since 1959, is perpetual, and we do not have a sunset provision in our Restated Certificate of Incorporation or By-laws that provides for the eventual reclassification of the non-voting common stock to voting common stock. However, the Brown family's interests may not always be aligned with other stockholders' interests. By exercising their control, the Brown family could cause the Company to take actions that are at odds with the investment goals or interests of institutional, short-term, non-voting, or other non-controlling investors, or that have a negative effect on our stock price. Further, because the Brown family controls the majority of our voting stock, Brown-Forman might be a less attractive takeover target, which could adversely affect the market price of both our voting and our non-voting common stock. And the difference in voting rights for our common stock could also adversely and disproportionately affect the value of our Class B non-voting common stock to the extent that investors view, or any potential future purchaser of our Company views, the superior voting rights and control represented by the Class A common stock to have value.",
+  "item7": ">Item\u00a07. \nManagement\n'\ns Discussion and Analysis of Financial Condition and Results of Operations\nIntroduction\nThis Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader better understand Brown-Forman, our operations, our financial results, and our current business environment. Please read this MD&A in conjunction with our Consolidated Financial Statements and the accompanying Notes contained in \u201cItem 8. Financial Statements and Supplementary Data\u201d (Consolidated Financial Statements). \nOur MD&A is organized as follows:\nTable of Contents\nPage\nPresentation basis \n28\nSignificant developments \n32\nExecutive summary \n34\nResults of operations\n36\nLiquidity and capital resources\n42\nCritical accounting policies and estimates\n44\nPresentation Basis\nNon-GAAP Financial Measures\nWe use some financial measures in this report that are not measures of financial performance under U.S. generally accepted accounting principles (GAAP).\u00a0These non-GAAP measures, defined below, should be viewed as supplements to (not substitutes for) our results of operations and other measures reported under GAAP. Other companies may not define or calculate these non-GAAP measures in the same way.\n\u201cOrganic change\u201d in measures of statements of operations\n.\n \nWe present changes in certain measures, or line items, of the statements of operations that are adjusted to an \u201corganic\u201d basis. We use \u201corganic change\u201d for the following measures of the statements of operations: (a) organic net sales; (b) organic cost of sales; (c) organic gross profit; (d) organic advertising expenses; (e) organic selling, general, and administrative (SG&A) expenses; (f) organic other expense (income) net; (g) organic operating expenses\n1\n; and (h) organic operating income. To calculate these measures, we adjust, as applicable, for (1) acquisitions and divestitures, (2) foreign exchange, and (3) impairment charges. We explain these adjustments below.\n\u2022\n\u201cAcquisitions and divestitures.\u201d\n This adjustment removes (a) the gain or loss recognized on sale of divested brands, (b) any non-recurring effects related to our acquisitions and divestitures (e.g., transaction, transition, and integration costs or income), and (c) the effects of operating activity related to acquired and divested brands for periods not comparable year over year (non-comparable periods). Excluding non-comparable periods allows us to include the effects of acquired and divested brands only to the extent that results are comparable year over year.\nDuring fiscal 2021, we sold our Early Times, Canadian Mist, and Collingwood brands and related assets, and entered into a related transition services agreement (TSA) for these brands. During the third quarter of fiscal 2023, we acquired Gin Mare Brand, S.L.U. and Mareliquid Vantguard, S.L.U., which own the Gin Mare brand (Gin Mare). Also, during the third quarter of fiscal 2023, we acquired (a) International Rum and Spirits Distributors Unipessoal, Lda., (b) Diplom\u00e1tico Branding Unipessoal Lda., (c) International Bottling Services, S.A., (d) International Rum & Spirits Marketing Solutions, S.L., and (e) certain assets of Destilerias Unidas Corp., which collectively own the Diplom\u00e1tico Rum brand and related assets (Diplom\u00e1tico). See Note 12 to the Consolidated Financial Statements for more information.\nThis adjustment removes (a) the net sales and operating expenses recognized pursuant to the TSA related to the divestiture of Early Times, Canadian Mist, and Collingwood brands and related assets for the non-comparable period, which is activity during the first quarter of fiscal 2022; (b) transaction, transition, and integration costs related to the acquisitions; (c) operating activity for Gin Mare for the non-comparable period, which is activity in the third and fourth quarters of fiscal 2023; and (d) operating activity for Diplom\u00e1tico for the non-comparable period, which is activity in the third and fourth quarters of fiscal 2023. We believe that these adjustments allow for us to understand our organic results on a comparable basis.\n1\n \nOperating expenses include advertising expense, SG&A expense, and other expense (income), net.\n28\n\u2022\n\u201cForeign exchange.\u201d\n We calculate the percentage change in certain line items of the statements of operations in accordance with GAAP and adjust to exclude the cost or benefit of currency fluctuations. Adjusting for foreign exchange allows us to understand our business on a constant-dollar basis, as fluctuations in exchange rates can distort the organic trend both positively and negatively. (In this report, \u201cdollar\u201d always means the U.S. dollar unless stated otherwise.) To eliminate the effect of foreign exchange fluctuations when comparing across periods, we translate current-year results at prior-year rates and remove transactional and hedging foreign exchange gains and losses from current- and prior-year periods. \n\u2022\n\u201cImpairment Charges.\u201d\n This adjustment removes the impact of impairment charges from our results of operations. \nDuring the first three quarters of fiscal 2022, we recognized non-cash impairment charges of $9 million for certain fixed assets. During the fourth quarter of fiscal 2022, we recognized a non-cash impairment charge of $52 million for our Finlandia brand name. During the third quarter of fiscal 2023, we recognized an additional non-cash impairment charge of $96 million for the Finlandia brand name. See \u201cCritical Accounting Policies and Estimates\u201d below and Note 14 to the Consolidated Financial Statements for more information. We believe that these adjustments allow for us to understand our organic results on a comparable basis.\nWe use the non-GAAP measure \u201corganic change\u201d, along with other metrics, to: (a) understand our performance from period to period on a consistent basis; (b) compare our performance to that of our competitors; (c) calculate components of management incentive compensation; (d) plan and forecast; and (e) communicate our financial performance to the Board of Directors, stockholders, and investment community. We provide reconciliations of the \u201corganic change\u201d in certain line items of the statements of operations to their nearest GAAP measures in the tables under \u201cResults of Operations - Fiscal 2023 Highlights\u201d and \u201cResults of Operations - Year-Over-Year Comparisons.\u201d We have consistently applied the adjustments within our reconciliations in arriving at each non-GAAP measure. We believe these non-GAAP measures are useful to readers and investors because they enhance the understanding of our historical financial performance by improving comparability across periods.\n\u201cReturn on average invested capital\n.\u201d This measure refers to the sum of net income and after-tax interest expense, divided by average invested capital. Average invested capital equals assets less liabilities, excluding interest-bearing debt, and is calculated using the average of the most recent five quarter-end balances. After-tax interest expense equals interest expense multiplied by one minus our effective tax rate. We use this non-GAAP measure because we consider it to be a meaningful indicator of how effectively and efficiently we invest capital in our business.\nIn fiscal 2023, we changed the methodology used to determine average invested capital. Previously, average invested capital was computed using the average of the most recent 13 month-end balances. Average invested capital is now calculated using the average of the most recent five quarter-end balances, which are disclosed in the relevant quarterly reports on Form 10-Q and Annual Reports on Form 10-K. Return on average invested capital computed using the new methodology does not materially differ from the total computed using the previous methodology for fiscal 2023. The new methodology was consistently applied to return on average invested capital for each period presented.\nDefinitions\nAggregations\n.\nFrom time to time, to explain our results of operations or to highlight trends and uncertainties affecting our business, we aggregate markets according to stage of economic development as defined by the International Monetary Fund (IMF), and we aggregate brands by beverage alcohol category. Below, we define the geographic and brand aggregations used in this report.\nGeographic Aggregations.\nIn \u201cResults of Operations - Fiscal 2023 Market Highlights,\u201d we provide supplemental information for our top markets ranked by percentage of reported net sales. In addition to markets listed by country name, we include the following aggregations:\n\u2022\n\u201cDeveloped International\u201d \nmarkets are \u201cadvanced economies\u201d as defined by the IMF, excluding the United States. Our top developed international markets were Germany, Australia, the United Kingdom, France, Canada, and Japan. This aggregation represents our net sales of branded products to these markets.\n\u2022\n\u201cEmerging\u201d \nmarkets are \u201cemerging and developing economies\u201d as defined by the IMF. Our top emerging markets were Mexico, Poland, and Brazil. This aggregation represents our net sales of branded products to these markets.\n\u2022\n\u201cTravel Retail\u201d\n represents our net sales of branded products to global duty-free customers, other travel retail customers, and the U.S. military, regardless of customer location.\n29\n\u2022\n\u201cNon-branded and bulk\u201d\n includes net sales of used barrels, contract bottling services, and non-branded bulk whiskey and wine, regardless of customer location.\nBrand Aggregations.\nIn \u201cResults of Operations - Fiscal 2023 Brand Highlights,\u201d we provide supplemental information for our top brands ranked by percentage of reported net sales. In addition to brands listed by name, we include the following aggregations outlined below. \nBeginning in fiscal 2023, we began presenting \u201cReady-to-Drink\u201d products as a separate aggregation due to its increased significance in its contribution to our growth in recent years and industry-wide category growth trends. \u201cWhiskey\u201d no longer contains Jack Daniel\u2019s ready-to-drink (RTD) and ready-to-pour (RTP), and \u201cTequila\u201d no longer includes New Mix. These brands are now included in the \u201cReady-to-Drink\u201d brand aggregation.\n\u2022\n\u201cWhiskey\u201d\n includes all whiskey spirits and whiskey-based flavored liqueurs. The brands included in this category are the Jack Daniel\u2019s family of brands (excluding the \u201cReady-to-Drink\u201d products defined below), the Woodford Reserve family of brands (Woodford Reserve), the Old Forester family of brands (Old Forester), GlenDronach, Benriach, Glenglassaugh, Slane Irish Whiskey, and Coopers\u2019 Craft. \n\u2022\n\u201cAmerican whiskey\u201d\n includes the Jack Daniel\u2019s family of brands (excluding the \u201cReady-to-Drink\u201d products defined below) and premium bourbons (defined below).\n\u2022\n\u201cPremium bourbons\u201d\n includes Woodford Reserve, Old Forester, and Coopers\u2019 Craft.\n\u2022\n\u201cSuper-premium American whiskey\u201d\n\u00a0includes Woodford Reserve, Gentleman Jack, and other super-premium Jack Daniel's expressions.\n\u2022\n\u201cReady-to-Drink\u201d\n includes all ready-to-drink (RTD) and ready-to-pour (RTP) products. The brands included in this category are Jack Daniel\u2019s RTD and RTP products (JD RTD/RTP), New Mix, and other RTD/RTP products.\n\u2022\n\u201cJack Daniel\u2019s RTD/RTP\u201d\n products include all RTD line extensions of Jack Daniel\u2019s, such as Jack\u00a0Daniel\u2019s\u00a0& Cola, Jack Daniel\u2019s Country Cocktails, Jack Daniel\u2019s Double Jack, Jack Daniel\u2019s & Coca-Cola RTD, and other malt- and spirit-based Jack Daniel\u2019s RTDs, along with Jack Daniel\u2019s Winter Jack RTP.\n\u2022\n\u201cJack Daniel\u2019s & Coca-Cola RTD\u201d\n includes all Jack Daniel\u2019s and Coca-Cola RTD products and Jack Daniel\u2019s bulk whiskey shipments for the production of this product.\n\u2022\n\u201cTequila\u201d\n includes the Herradura family of brands (Herradura), el Jimador, and other tequilas. \n\u2022\n\u201cWine\u201d\n includes Korbel California Champagnes and Sonoma-Cutrer wines. \n\u2022\n\u201cVodka\u201d\n includes Finlandia.\n\u2022\n\u201cRest of Portfolio\u201d\n includes Chambord, Gin Mare, Korbel Brandy, Diplom\u00e1tico, and Fords Gin.\n\u2022\n\u201cNon-branded and bulk\u201d\n includes net sales of used barrels, contract bottling services, and non-branded bulk whiskey and wine.\n\u2022\n\u201cJack Daniel\u2019s family of brands\u201d\n includes Jack Daniel\u2019s Tennessee Whiskey (JDTW), JD RTD/RTP, Jack Daniel\u2019s Tennessee Honey (JDTH), Gentleman Jack, Jack Daniel\u2019s Tennessee Fire (JDTF), Jack Daniel\u2019s Tennessee Apple (JDTA), Jack Daniel\u2019s Single Barrel Collection (JDSB), Jack Daniel\u2019s Bonded Tennessee Whiskey, Jack Daniel\u2019s Sinatra Select, Jack Daniel\u2019s Tennessee Rye Whiskey (JDTR), Jack Daniel\u2019s Bottled-in-Bond, Jack Daniel\u2019s Triple Mash Blended Straight Whiskey, Jack Daniel\u2019s No. 27 Gold Tennessee Whiskey, Jack Daniel\u2019s 10 Years Old, and Jack Daniel\u2019s 12 Years Old.\nOther Metrics\n.\n\u2022\n\u201cShipments.\u201d \nWe generally record revenues when we ship or deliver our products to our customers. In this report, unless otherwise specified, we refer to shipments when discussing volume.\n\u2022\n\u201cDepletions.\u201d \nThis is a term commonly used in the beverage alcohol industry to describe volume. Depending on the context, depletions usually means either (a) where Brown-Forman is the distributor, shipments directly to retail or wholesale customers or (b) where Brown-Forman is not the distributor, shipments from distributor customers to retailers \n30\nand wholesalers. We believe that depletions measure volume in a way that more closely reflects consumer demand than our shipments to distributor customers do.\n\u2022\n\u201cConsumer takeaway.\u201d\n When discussing trends in the market, we refer to consumer takeaway, a term commonly used in the beverage alcohol industry that refers to the purchase of product by consumers from retail outlets, including products purchased through e-commerce channels, as measured by volume or retail sales value. This information is provided by third parties, such as Nielsen and the National Alcohol Beverage Control Association (NABCA). Our estimates of market share or changes in market share are derived from consumer takeaway data using the retail sales value metric. We believe consumer takeaway is a leading indicator of consumer demand trends.\n\u2022\n\u201cEstimated net change in distributor inventories.\u201d\n We generally recognize revenue when our products are shipped or delivered to customers. In the United States and certain other markets, our customers are distributors that sell downstream to retailers and consumers. We believe that our distributors\u2019 downstream sales more closely reflect actual consumer demand than do our shipments to distributors. Our shipments increase distributors\u2019 inventories, while distributors\u2019 depletions (as described above) reduce their inventories. Therefore, it is possible that our shipments do not coincide with distributors\u2019 downstream depletions and merely reflect changes in distributors\u2019 inventories. Because changes in distributors\u2019 inventories could affect our trends, we believe it is useful for investors to understand those changes in the context of our operating results. \nWe perform the following calculation to determine the \u201cestimated net change in distributor inventories\u201d:\n\u2022\nFor both the current-year period and the comparable prior-year period, we calculate a \u201cdepletion-based\u201d amount by (a) dividing the organic dollar amount (e.g. organic net sales) by the corresponding shipment volumes to arrive at a shipment per case amount, and (b) multiplying the resulting shipment per case amount by the corresponding depletion volumes. We subtract the year-over-year percentage change of the \u201cdepletion-based\u201d amount from the year-over-year percentage change of the organic amount to calculate the \u201cestimated net change in distributor inventories.\u201d\n\u2022\nA positive difference is interpreted as a net increase in distributors\u2019 inventories, which implies that organic trends could decrease as distributors reduce inventories; whereas, a negative difference is interpreted as a net decrease in distributors\u2019 inventories, which implies that organic trends could increase as distributors rebuild inventories.\n31\nSignificant Developments\nBelow we discuss the significant developments in our business during fiscal 2022 and fiscal 2023. These developments relate to Finlandia brand name impairments, tariffs, acquisitions, Russia\u2019s invasion of Ukraine, supply chain disruptions, innovation, and capital deployment.\nFinlandia Impairments\nDuring the fourth quarter of fiscal 2022, we recognized a non-cash impairment charge of $52 million for the Finlandia brand name, reflecting a decline in our long-term outlook for Finlandia due to our suspension of operations in Russia, a key market for the brand. During the third quarter of fiscal 2023, we recognized a non-cash impairment charge of $96 million for the Finlandia brand name, largely due to macroeconomic conditions including rising interest rates and increasing costs. See \u201cCritical Accounting Policies and Estimates\u201d below and Note 14 to the Consolidated Financial Statements for more information.  \nTariffs\nThe removal of the European Union and United Kingdom tariffs on American whiskey (tariffs) positively affected our results during fiscal 2023.\n \nTariffs include the combined effect of tariff-related costs, whether arising as a reduction of reported net sales or as an increase in reported cost of sales. We estimate that lower costs associated with tariffs (a) reduced our reported cost of sales growth by approximately four percentage points, and (b) increased gross margin by approximately one and a half percentage points. \nAcquisitions\nDuring the third quarter of fiscal 2023, we acquired the Gin Mare brand and the Diplom\u00e1tico brand and related assets. Operating activity for these acquired brands increased reported net sales growth by approximately half a percentage point and decreased reported operating income growth by approximately four percentage points during fiscal 2023. The negative effect on reported operating income was largely driven by transaction expenses of $44 million related to the termination of certain distribution contracts (certain post-closing costs and expenses). \n \nRussia\u2019s Invasion of Ukraine\nDue to Russia\u2019s invasion of Ukraine in February 2022, reported net sales were negatively affected by the suspension of our commercial operations in Russia and our diminished ability to conduct business in Ukraine.  \nSupply Chain Disruptions\nSupply chain disruptions continued to affect our business during fiscal 2023. Our glass supply position improved, while global logistics and transportation challenges constrained product movement and increased transportation costs. \nWe further discuss the effects of these developments on our results where relevant below.\nInnovation\n\u2022\nJack Daniel\u2019s family of brands\n. Innovation within the Jack Daniel\u2019s family of brands has contributed to our growth in the last two fiscal years as described below.\n\u25e6\nIn fiscal 2022 and fiscal 2023, we continued the international launch of Jack Daniel\u2019s Tennessee Apple, expanding to certain developed international and emerging markets. \n\u25e6\nIn fiscal 2022, we launched Jack Daniel\u2019s 10 Year Old in the United States.\n\u25e6\nIn fiscal 2023, we announced our global relationship with The Coca-Cola Company to introduce the Jack Daniel's & Coca-Cola RTD to select markets around the world. We discuss the impact of this product launch on our fiscal 2023 results where relevant below.\n\u25e6\nIn fiscal 2023, we launched Jack Daniel\u2019s Bonded Tennessee Whiskey and Jack Daniel\u2019s Triple Mash Blended Straight Whiskey in the United States and certain developed international and emerging markets. \n\u25e6\nIn fiscal 2023, we launched Jack Daniel\u2019s 12 Year Old in the United States.\n\u25e6\nIn fiscal 2023, we launched Jack Daniel's Tennessee Travelers Whiskey in Travel Retail.\n32\nCapital Deployment\nWe have focused our capital deployment initiatives on (a) fully investing in our existing business, (b) continued execution of our acquisitions and divestitures strategy, and (c) returning cash to our stockholders through regular and special dividends.\n\u2022\nInvestments\n. During fiscal 2022 and fiscal 2023, our capital expenditures totaled $321 million and focused on enabling the growth of our premium whiskey and tequila brands:\n\u25e6\nDuring fiscal 2021, our Board of Directors approved a $125 million capital investment to expand our bourbon-making capacity in Kentucky. We expect to complete this project in fiscal 2024. \n\u25e6\nDuring fiscal 2022, our Board of Directors approved a $50 million capital investment to expand our scotch-making capacity in Scotland. We also built an additional barrel warehouse at our GlenDronach distillery during fiscal 2023 to support the continued growth of GlenDronach. \n\u25e6\nDuring fiscal 2023, our Board of Directors approved an $85 million capital investment to expand our JDTW capacity in Tennessee. We also built three additional barrel warehouses at our Jack Daniel\u2019s distillery during fiscal 2022 and fiscal 2023 to support the continued growth of JDTW.\n\u25e6\nWe recently announced a $200 million capital investment to expand our tequila-making capacity in Mexico.\n\u2022\nAcquisitions and divestitures\n. During fiscal 2023, we acquired the Gin Mare brand and the Diplom\u00e1tico brand and related assets. See Note 12 to the Consolidated Financial Statements for more information.\n\u2022\nCash returned to stockholders\n. During fiscal 2022 and fiscal 2023, we returned $1.2 billion to our stockholders through regular and special dividends.\n33\nExecutive Summary\nFiscal 2023 Highlights\n\u2022\nWe delivered reported net sales of $4.2 billion, an increase of 8% compared to fiscal 2022. Reported net sales growth was driven by higher volumes and favorable price/mix, partially offset by the negative effect of foreign exchange. Organic net sales increased 10% compared to fiscal 2022.\n\u25e6\nFrom a brand perspective, reported net sales growth was driven by premium bourbons, Ready-to-Drinks, our tequilas, and JDTW.\n\u25e6\nFrom a geographic perspective, emerging markets, the United States, developed international markets, and the Travel Retail channel all contributed significantly to reported net sales growth. \n\u2022\nWe delivered reported operating income of $1.1 billion, a decrease of 6% compared to fiscal 2022, reflecting lower gross margin, higher non-cash impairment charges (largely related to the Finlandia brand name), and higher operating expenses (including certain post-closing costs and expenses in connection with the acquisitions of Diplom\u00e1tico and Gin Mare). Organic operating income increased 8% compared to fiscal 2022.\n\u2022\nWe delivered diluted earnings per share of $1.63, a decrease of 7% compared to fiscal 2022, due to the decrease in reported operating income, partially offset by the benefit of a lower effective tax rate. \n\u2022\nOur return on average invested capital decreased to 15.3% in fiscal 2023, compared to 17.6% in fiscal 2022. This decrease was driven by higher invested capital and lower reported operating income, partially offset by the benefit of a lower effective tax rate. \n34\nSummary of Operating Performance Fiscal 2022 and Fiscal 2023\n2022 vs. 2023\nFiscal year ended April 30\n2022\n2023\nReported Change\nOrganic Change\n1\nNet sales\n$\n3,933\u00a0\n$\n4,228\u00a0\n8\u00a0\n%\n10\u00a0\n%\nCost of sales\n$\n1,542\u00a0\n$\n1,734\u00a0\n12\u00a0\n%\n13\u00a0\n%\nGross profit\n$\n2,391\u00a0\n$\n2,494\u00a0\n4\u00a0\n%\n9\u00a0\n%\nAdvertising\n$\n438\u00a0\n$\n506\u00a0\n15\u00a0\n%\n18\u00a0\n%\nSG&A\n$\n690\u00a0\n$\n742\u00a0\n8\u00a0\n%\n9\u00a0\n%\nOther expense (income), net\n$\n59\u00a0\n$\n119\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0nm\n4\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0nm\n4\nOperating income\n$\n1,204\u00a0\n$\n1,127\u00a0\n(6\u00a0\n%)\n8\u00a0\n%\nTotal operating expenses\n2\n$\n1,187\u00a0\n$\n1,367\u00a0\n15\u00a0\n%\n11\u00a0\n%\nAs a percentage of net sales\n3\nGross profit\n60.8\u00a0\n%\n59.0\u00a0\n%\n(1.8\u00a0\npp)\nOperating income\n30.6\u00a0\n%\n26.7\u00a0\n%\n(3.9\u00a0\npp)\nInterest expense, net\n$\n77\u00a0\n$\n81\u00a0\n6\u00a0\n%\nEffective tax rate\n24.8\u00a0\n%\n23.0\u00a0\n%\n(1.8\u00a0\npp)\nDiluted earnings per share\n$\n1.74\u00a0\n$\n1.63\u00a0\n(7\u00a0\n%)\nReturn on average invested capital\n1\n17.6\u00a0\n%\n15.3\u00a0\n%\n(2.3\u00a0\npp)\n1\nSee \u201cNon-GAAP Financial Measures\u201d above for details on our use of \u201corganic change\u201d and \u201creturn on average invested capital,\u201d including how we calculate these measures and why we think this information is useful to readers.\n2\nOperating expenses include advertising expense, SG&A expense, and other expense (income), net.\n3\nYear-over-year changes in percentages are reported in percentage points (pp).\n4\nPercentage change is not meaningful.\n35\nResults of Operations\nFiscal 2023 Market Highlights\nThe following table shows net sales results for our top markets, summarized by geographic area, for fiscal 2023 compared to fiscal 2022. We discuss results of the markets most affecting our performance below the table.\nTop Markets\nNet Sales\n \n% Change vs. 2022\nGeographic area\n1\n% of Fiscal 2023 Net Sales\nReported\nAcquisitions and Divestitures\nForeign Exchange\nOrganic\n2\nUnited States\n47\n\u00a0\n%\n3\n\u00a0\n%\n\u2014\n\u00a0\n%\n\u2014\n\u00a0\n%\n3\n\u00a0\n%\nDeveloped International\n28\n\u00a0\n%\n4\n\u00a0\n%\n(1\n\u00a0\n%)\n7\n\u00a0\n%\n10\n\u00a0\n%\nGermany\n6\u00a0\n%\n5\u00a0\n%\n(1\u00a0\n%)\n8\u00a0\n%\n12\u00a0\n%\nAustralia\n5\u00a0\n%\n1\u00a0\n%\n\u2014\u00a0\n%\n5\u00a0\n%\n6\u00a0\n%\nUnited Kingdom\n5\u00a0\n%\n(5\u00a0\n%)\n\u2014\u00a0\n%\n7\u00a0\n%\n1\u00a0\n%\nFrance\n3\u00a0\n%\n(18\u00a0\n%)\n\u2014\u00a0\n%\n6\u00a0\n%\n(13\u00a0\n%)\nCanada\n1\u00a0\n%\n22\u00a0\n%\n\u2014\u00a0\n%\n5\u00a0\n%\n27\u00a0\n%\nJapan\n1\u00a0\n%\n28\u00a0\n%\n\u2014\u00a0\n%\n18\u00a0\n%\n45\u00a0\n%\nRest of Developed International\n7\u00a0\n%\n21\u00a0\n%\n(5\u00a0\n%)\n10\u00a0\n%\n26\u00a0\n%\nEmerging\n20\n\u00a0\n%\n18\n\u00a0\n%\n\u2014\n\u00a0\n%\n6\n\u00a0\n%\n24\n\u00a0\n%\nMexico\n6\u00a0\n%\n37\u00a0\n%\n\u2014\u00a0\n%\n(7\u00a0\n%)\n30\u00a0\n%\nPoland\n3\u00a0\n%\n(1\u00a0\n%)\n\u2014\u00a0\n%\n14\u00a0\n%\n13\u00a0\n%\nBrazil\n2\u00a0\n%\n45\u00a0\n%\n\u2014\u00a0\n%\n2\u00a0\n%\n48\u00a0\n%\nRest of Emerging\n9\u00a0\n%\n9\u00a0\n%\n\u2014\u00a0\n%\n11\u00a0\n%\n20\u00a0\n%\nTravel Retail\n3\n\u00a0\n%\n41\n\u00a0\n%\n(2\n\u00a0\n%)\n4\n\u00a0\n%\n43\n\u00a0\n%\nNon-branded and bulk\n2\n\u00a0\n%\n44\n\u00a0\n%\n8\n\u00a0\n%\n1\n\u00a0\n%\n53\n\u00a0\n%\nTotal\n100\n\u00a0\n%\n8\n\u00a0\n%\n\u2014\n\u00a0\n%\n3\n\u00a0\n%\n10\n\u00a0\n%\nNote: Results may differ due to rounding\n1\nSee \u201cDefinitions\u201d above for definitions of market aggregations presented here.\n2\nSee \u201cNon-GAAP Financial Measures\u201d above for details on our use of \u201corganic change\u201d in net sales, including how we calculate this measure and why we believe this information is useful to readers.\nThe\n United States\n, our most important market, grew reported net sales 3% driven by (a) higher volumes of Woodford Reserve, partially reflecting an estimated net increase in distributor inventories; (b) higher prices across our portfolio, led by the Jack Daniel\u2019s family of brands; and (c) growth of JD RTDs, fueled by the launch of the Jack Daniel\u2019s & Coca-Cola RTD. This growth was partially offset by lower volumes of JDTW and Korbel California Champagne, largely driven by an estimated net decrease in distributor inventories.\nDeveloped International\n \n\u2022\nGermany\u2019s\n reported net sales increased 5% driven by (a) volumetric gains of JDTW and JD RTDs, and (b) Diplom\u00e1tico and Gin Mare, which were both acquired during the third quarter of fiscal 2023, partially offset by the negative effect of foreign exchange.\n\u2022\nAustralia\u2019s\n reported net sales increased 1% led by growth of JD RTDs, partially offset by the negative effect of foreign exchange.\n\u2022\nThe \nUnited Kingdom\u2019s\n reported net sales declined 5% due to the negative effect of foreign exchange, partially offset by higher prices of JDTW.\n\u2022\nFrance\u2019s \nreported net sales declined 18% due to lower volumes of JDTW and JDTH, driven by whiskey category declines and higher promotional pricing along with the negative effect of foreign exchange.\n36\n\u2022\nCanada\u2019s\n reported net sales increased 22%, led by higher JDTW volumes, partially due to an estimated net increase in distributor inventories. This growth was partially offset by the negative effect of foreign exchange.\n\u2022\nJapan\u2019s \nreported net sales increased 28%, fueled by volumetric growth of JDTW, partially reflecting an estimated net increase in distributor inventories. This growth was partially offset by the negative effect of foreign exchange.\n\u2022\nReported net sales in the\n Rest of Developed International\n increased 21%, primarily driven by (a) JDTW gains, led by Belgium, Spain, and Italy, and (b) Gin Mare and Diplom\u00e1tico, which were both acquired during the third quarter of fiscal 2023; partially offset by the negative effect of foreign exchange. An estimated net increase in distributor inventories positively impacted reported net sales.\nEmerging\n \n\u2022\nMexico\u2019s\n reported net sales increased 37%, fueled by higher volumes and prices of New Mix, which gained market share in the RTD category, along with the positive effect of foreign exchange. \n\u2022\nPoland\u2019s\n reported net sales declined 1% due to the negative effect of foreign exchange, partially offset by growth across our portfolio led by JDTW.\n\u2022\nBrazil\u2019s\n reported net sales increased 45%, driven by growth of JDTW, JDTH, and JDTA. An estimated net increase in distributor inventories positively impacted reported net sales.\n\u2022\nReported net sales in the \nRest of Emerging\n increased 9%, led by JDTW growth in the United Arab Emirates, T\u00fcrkiye, and Sub-Saharan Africa, largely offset by declines in Russia and the negative effect of foreign exchange (reflecting the strengthening of the dollar primarily against the Turkish lira). An estimated net increase in distributor inventories positively impacted reported net sales.\nTravel Retail \nreported net sales increased 41%, driven primarily by higher volumes across much of our portfolio, led by JDTW, as travel continued to rebound from the COVID-19-related travel restrictions.\nNon-branded and bulk\n reported net sales increased 44%, driven by higher prices for used barrels.\n37\nFiscal 2023 Brand Highlights\nThe following table highlights the global results of our top brands for fiscal 2023 compared to fiscal 2022. We discuss results of the brands most affecting our performance below the table.\nTop Brands\nNet Sales\n \n% Change vs. 2022\nProduct category / brand family / brand\n1\nReported\nAcquisitions & Divestitures\nForeign Exchange\nOrganic\n2\nWhiskey\n6\n\u00a0\n%\n\u2014\n\u00a0\n%\n4\n\u00a0\n%\n10\n\u00a0\n%\nJDTW\n3\u00a0\n%\n\u2014\u00a0\n%\n5\u00a0\n%\n8\u00a0\n%\nJDTH\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n3\u00a0\n%\n3\u00a0\n%\nGentleman Jack\n10\u00a0\n%\n\u2014\u00a0\n%\n4\u00a0\n%\n14\u00a0\n%\nJDTF\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n6\u00a0\n%\n7\u00a0\n%\nJDTA\n(7\u00a0\n%)\n\u2014\u00a0\n%\n6\u00a0\n%\n(1\u00a0\n%)\nWoodford Reserve\n26\u00a0\n%\n\u2014\u00a0\n%\n1\u00a0\n%\n27\u00a0\n%\nOld Forester\n14\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n14\u00a0\n%\nRest of Whiskey\n10\u00a0\n%\n\u2014\u00a0\n%\n5\u00a0\n%\n15\u00a0\n%\nReady-to-Drink\n18\n\u00a0\n%\n\u2014\n\u00a0\n%\n2\n\u00a0\n%\n20\n\u00a0\n%\nJD RTD/RTP\n11\u00a0\n%\n\u2014\u00a0\n%\n4\u00a0\n%\n16\u00a0\n%\nNew Mix\n53\u00a0\n%\n\u2014\u00a0\n%\n(8\u00a0\n%)\n45\u00a0\n%\nTequila\n10\n\u00a0\n%\n\u2014\n\u00a0\n%\n(1\n\u00a0\n%)\n10\n\u00a0\n%\nHerradura\n11\u00a0\n%\n\u2014\u00a0\n%\n(1\u00a0\n%)\n10\u00a0\n%\nel Jimador\n13\u00a0\n%\n\u2014\u00a0\n%\n1\u00a0\n%\n14\u00a0\n%\nWine\n(6\n\u00a0\n%)\n\u2014\n\u00a0\n%\n\u2014\n\u00a0\n%\n(6\n\u00a0\n%)\nVodka (Finlandia)\n(9\n\u00a0\n%)\n\u2014\n\u00a0\n%\n9\n\u00a0\n%\n\u2014\n\u00a0\n%\nRest of Portfolio\n35\n\u00a0\n%\n(34\n\u00a0\n%)\n6\n\u00a0\n%\n7\n\u00a0\n%\nNon-branded and bulk\n44\n\u00a0\n%\n8\n\u00a0\n%\n1\n\u00a0\n%\n53\n\u00a0\n%\nNote: Results may differ due to rounding\n1\nSee \u201cDefinitions\u201d above for definitions of brand aggregations presented here.\n2\nSee \u201cNon-GAAP Financial Measures\u201d above for details on our use of \u201corganic change\u201d in net sales, including how we calculate this measure and why we believe this information is useful to readers.\nWhiskey\n \n\u2022\nJDTW\n generates a significant percentage of our total net sales and is our top priority. Reported net sales increased 3%, driven by (a) higher volumes in developed international markets and emerging markets, partially reflecting an estimated net increase in distributor inventories; and (b) higher prices. This growth was partially offset by lower volumes in the United States, largely due to an estimated net decrease in distributor inventories, and the negative effect of foreign exchange.\n\u2022\nReported net sales for \nJDTH \nwere flat, as growth in the United States (reflecting an estimated net increase in distributor inventories) and Brazil was offset by (a) the negative effect of foreign exchange and (b) lower volumes in Chile (due to an estimated net decrease in distributor inventories) and France.\n\u2022\nReported net sales for \nGentleman Jack\n increased 10%, led by growth in emerging markets, partially offset by the negative effect of foreign exchange.\n\u2022\nReported net sales for \nJDTF \nwere flat as higher volumes and prices in the United States were offset by the negative effect of foreign exchange.\n\u2022\nReported net sales for \nJDTA\n declined 7%, largely reflecting a net decrease in distributor inventory along with the negative effect of foreign exchange, partially offset by higher prices. \n38\n\u2022\nWoodford Reserve \nreported net sales increased 26%,\n \ndriven by higher volumes in the United States, partially due to an estimated net increase in distributor inventories.\n\u2022\nOld Forester\n reported net sales increased 14%, driven by higher volumes and prices in the United States.\n\u2022\nReported net sales for \nRest of Whiskey\n increased 10%, led by the continued launch of Jack Daniel\u2019s Bonded Tennessee Whiskey in the United States and higher volumes of GlenDronach, partially offset by the negative effect of foreign exchange.\nReady-to-Drink\n\u2022\nThe\n JD RTD/RTP \nbrands reported net sales grew 11%, driven by growth in the United States, Germany, and Australia, partially offset by the negative effect of foreign exchange. The United States growth was fueled by the launch of the Jack Daniel\u2019s & Coca-Cola RTD.\n\u2022\nNew Mix \ngrew reported net sales 53% fueled by higher volumes and prices in Mexico with market share gains.\nTequila\n\u2022\nHerradura\n reported net sales increased 11% driven by higher prices and volumes in Mexico along with volumetric growth in the United States, partially due to an estimated net increase in distributor inventories.\n\u2022\nel Jimador\u2019s \nreported net sales increased 13% driven by broad-based growth across all geographic clusters, led by the United States and emerging markets. \nWine \nreported net sales declined 6% due to lower volumes of Korbel California Champagne, partially due to an estimated net decrease in distributor inventories. These declines were partially offset by Sonoma-Cutrer gains and higher prices of Korbel California Champagne in the United States.\nVodka (Finlandia) \nreported net sales declined 9% reflecting the impact of the suspension of our commercial operations in Russia and the negative effect of foreign exchange. These declines were partially offset by growth across other international markets.\nRest of Portfolio \nreported net sales increased 35% driven by Gin Mare and Diplom\u00e1tico which were both acquired during the third quarter of fiscal 2023.\nNon-branded and bulk \nreported net sales increased 44% driven by higher prices for used barrels.\nYear-Over-Year Comparisons\nCommentary below compares fiscal 2023 to fiscal 2022 results. A comparison of fiscal 2022 to fiscal 2021 results may be found in \u201cPart II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Annual Report on Form 10-K for the fiscal year ended April\u00a030, 2022 (2022 Form 10-K).\nNet Sales\n2023\nPercentage change versus the prior fiscal year ended April 30\nVolume\nPrice/mix\nTotal\nChange in reported net sales\n8\u00a0\n%\n\u2014\u00a0\n%\n8\u00a0\n%\nForeign exchange\n\u2014\u00a0\n%\n3\u00a0\n%\n3\u00a0\n%\nChange in organic net sales\n8\u00a0\n%\n3\u00a0\n%\n10\u00a0\n%\nNote: Results may differ due to rounding\n \n39\nReported net sales\n of $4.2 billion increased 8%, or $295 million, in fiscal 2023 compared to fiscal 2022 driven by higher volumes of New Mix, JD RTDs, and JDTW. Price/mix reflects higher prices across much of our portfolio, led by JDTW, offset by the negative effect of foreign exchange and a portfolio mix shift toward our lower-priced brands. See \u201cResults of Operations - Fiscal 2023 Market Highlights\u201d and \u201cResults of Operations - Fiscal 2023 Brand Highlights\u201d above for details on the factors contributing to the change in reported net sales for fiscal\u00a02023.\nCost of Sales\n2023\nPercentage change versus the prior fiscal year ended April 30\nVolume\nCost/mix\nTotal\nChange in reported cost of sales\n8\u00a0\n%\n4\u00a0\n%\n12\u00a0\n%\nForeign exchange\n\u2014\u00a0\n%\n1\u00a0\n%\n1\u00a0\n%\nChange in organic cost of sales\n8\u00a0\n%\n5\u00a0\n%\n13\u00a0\n%\nNote: Results may differ due to rounding\nReported cost of sales\n of $1.7 billion increased $192 million, or 12%, in fiscal 2023 compared to fiscal 2022 largely driven by higher volumes of New Mix, JD RTDs, and JDTW. Cost/mix reflects inflation on input costs and supply chain disruptions. These factors were partially offset by the removal of tariffs and a shift in portfolio mix toward our lower-cost brands.\nGross Profit\nPercentage change versus the prior fiscal year ended April 30\n2023\nChange in reported gross profit\n4\u00a0\n%\nAcquisitions and divestitures\n(1\u00a0\n%)\nForeign exchange\n5\u00a0\n%\nChange in organic gross profit\n9\u00a0\n%\nNote: Results may differ due to rounding\nGross Margin\nFiscal year ended April 30\n2023\nPrior year gross margin\n60.8\u00a0\n%\nPrice/mix\n1.8\u00a0\n%\nCost (excluding tariffs)\n(4.1\u00a0\n%)\nTariffs\n1\n1.4\u00a0\n%\nForeign exchange\n(1.0\u00a0\n%)\nChange in gross margin\n(1.8\u00a0\n%)\nCurrent year gross margin\n59.0\u00a0\n%\nNote: Results may differ due to rounding\n1\n\u201cTariffs\u201d include the combined effect of tariff-related costs, whether arising as a reduction of reported net sales or as an increase in reported cost of sales.\nReported gross profit\n of $2.5 billion increased $103 million, or 4%, in fiscal 2023 compared to fiscal 2022. Gross margin decreased to 59.0% in fiscal 2023, down 1.8 percentage points from 60.8% in fiscal 2022. The decrease in gross margin was driven by (a) inflation on input costs, (b) higher cost related to supply chain disruptions, and (c) the negative effect of foreign exchange, partially offset by favorable price/mix and the removal of tariffs.\n40\nOperating Expenses\nPercentage change versus the prior fiscal year ended April 30\n2023\nReported\nAcquisitions & Divestitures\n\u00a0Impairment\nForeign Exchange\nOrganic\nAdvertising\n15\u00a0\n%\n(1\u00a0\n%)\n\u2014\u00a0\n%\n4\u00a0\n%\n18\u00a0\n%\nSG&A\n8\u00a0\n%\n(2\u00a0\n%)\n\u2014\u00a0\n%\n3\u00a0\n%\n9\u00a0\n%\nTotal operating expenses\n1\n15\n\u00a0\n%\n(5\n\u00a0\n%)\n(3\n\u00a0\n%)\n3\n\u00a0\n%\n11\n\u00a0\n%\nNote: Results may differ due to rounding\n1\nOperating expenses include advertising expense, SG&A expense, and other expense (income), net.\nReported operating expenses\n totaled $1.4 billion and increased $180 million, or 15%, in fiscal 2023 compared to fiscal 2022. The increase in reported operating expenses was driven by (a) higher reported advertising expense; (b) higher reported SG&A expense; (c) certain post-closing costs and expenses in connection with the acquisitions of Diplom\u00e1tico and Gin Mare; and (d) higher non-cash impairment charges, largely related to the Finlandia brand name, partially offset by the positive effect of foreign exchange.\n\u2022\nReported advertising expenses increased 15% in fiscal 2023, driven by (a) increased investment for JDTW and Herradura, primarily in the United States; and (b) the launch of Jack Daniel\u2019s Bonded Tennessee Whiskey  and the Jack Daniel\u2019s & Coca-Cola RTD in the United States. This increase was partially offset by the positive effect of foreign exchange.\n\u2022\nReported SG&A expenses increased 8% in fiscal 2023, driven primarily by (a) higher compensation-related expenses, (b) higher discretionary spend, and (c) costs related to the transaction, transition, and integration of the Gin Mare and Diplom\u00e1tico brands, which were acquired during the third quarter of fiscal 2023, partially offset by the positive effect of foreign exchange. \nOperating Income\nPercentage change versus the prior fiscal year ended April 30\n2023\nChange in reported operating income\n(6\u00a0\n%)\nAcquisitions and divestitures\n4\u00a0\n%\nImpairment charges\n3\u00a0\n%\nForeign exchange\n7\u00a0\n%\nChange in organic operating income\n8\u00a0\n%\nNote: Results may differ due to rounding\nReported operating income\n was $1.1 billion in fiscal 2023, a decrease of $77 million, or 6%, compared to fiscal 2022. Operating margin declined 3.9 percentage points to 26.7% in fiscal 2023 from 30.6% in fiscal 2022 driven by (a) unfavorable cost/mix; (b) certain post-closing costs and expenses in connection with the acquisitions of Diplom\u00e1tico and Gin Mare; (c) the negative effect of foreign exchange; (d) higher investment in reported advertising expense; and (e) higher non-cash impairment charges, largely related to the Finlandia brand name. This decline was partially offset by favorable price/mix and the removal of tariffs.\nInterest expense (net)\n increased $4 million, or 6%, in fiscal 2023 compared to fiscal 2022, due to a higher average short-term debt balance and a higher interest rate on our short-term borrowings.\nOur \neffective tax rate \nfor fiscal 2023 was 23.0% compared to 24.8% in fiscal 2022. The decrease in our effective tax rate was driven primarily by the reversal of valuation allowances in the current year, the beneficial impact of prior fiscal year true-ups, and increased U.S. tax benefit for foreign derived sales, which is partially offset by increased tax on foreign operations and increased state taxes. See Note 11 to the Consolidated Financial Statements for details.\nDiluted earnings per share\n were $1.63 in fiscal 2023, a decrease of 7% compared to fiscal 2022, due to the decrease in reported operating income, partially offset by the benefit of a lower effective tax rate.\n41\nFiscal 2024 Outlook\nBelow we discuss our outlook for fiscal 2024, which reflects the trends, developments, and uncertainties (including those described above) that we expect to affect our business. When we provide guidance for organic change in certain measures of the statements of operations we do not provide guidance for the corresponding GAAP change, as the GAAP measure will include items that are difficult to quantify or predict with reasonable certainty, such as foreign exchange, which could have a significant impact to our GAAP income statement measures.\nWe are optimistic about our prospects for growth of organic net sales and organic operating income in fiscal 2024. We believe trends will normalize after two consecutive years of double-digit organic net sales growth. Accordingly, we expect the following in fiscal 2024:\n\u2022\nReflecting the strength of our portfolio of brands, our pricing strategy, and strong consumer demand, we expect organic net sales growth in the 5% to 7% range.\n\u2022\nBased on the above organic net sales growth outlook, and our expectation that continued input cost pressures will be partially offset by lower supply chain disruption costs, we anticipate organic operating income growth in the 6% to 8% range.\n\u2022\nWe expect our fiscal 2024 effective tax rate to be in the range of approximately 21% to 23%.\n\u2022\nCapital expenditures are planned to be in the range of $250 to $270 million.\nLiquidity and Capital Resources\nWe generate strong cash flows from operations, which enable us to meet current obligations, fund capital expenditures, and return cash to our stockholders through regular dividends and, from time to time, through share repurchases and special dividends. We believe our investment-grade credit ratings (A1 by Moody's and A- by Standard\u00a0& Poor's) provide us with financial flexibility when accessing global debt capital markets and allow us to reserve adequate debt capacity for investment opportunities and unforeseen events.\nOur operating cash flows are supplemented by cash and cash equivalent balances, as well as access to other liquidity sources. Cash and cash equivalents were $868 million at April\u00a030, 2022, and $374 million at April\u00a030, 2023. As of April\u00a030, 2023, approximately 52% of our cash and cash equivalents were held by our foreign subsidiaries whose earnings we expect to reinvest indefinitely outside of the United States. We continue to evaluate our future cash deployment and may decide to repatriate additional cash held by our foreign subsidiaries. This may require us to provide for and pay additional taxes.\nWe have an $800 million commercial paper program that we use, together with our cash flow from operations, to fund our short-term operational needs. See Note 6 to the Consolidated Financial Statements for outstanding commercial paper balances, interest rates, and days to maturity at April\u00a030, 2022 and April\u00a030, 2023. The average balances, interest rates, and original maturities during 2022 and 2023 are presented below.\n(Dollars in millions)\n2022\n2023\nAverage commercial paper\n$\n59\u00a0\n$\n158\u00a0\nAverage interest rate\n0.16\u00a0\n%\n4.69\u00a0\n%\nAverage days to maturity at issuance\n32\u00a0\n41\u00a0\nOur commercial paper program is supported by available commitments under our undrawn $800 million bank credit facility. The credit facility was scheduled to expire in November 2024. On May 26, 2023, we entered into an amended and restated five-year credit agreement with various U.S. and international banks that provides for a $900 million unsecured revolving credit commitment and expires on May 26, 2028. This agreement amended and restated our previous credit agreement. The new agreement contains no financial covenants. Although unlikely, under extreme market conditions, one or more participating banks may not be able to fund its commitments under our new credit facility. To manage this counterparty credit risk, we partner with banks that have investment grade credit ratings, limit the amount of exposure we have with each bank, and monitor each bank\u2019s financial conditions.\nOn January 3, 2023, we entered into a $600 million senior unsecured 364-day term loan credit agreement with various U.S. and international banks. We used borrowings from the term loan to repay the $250 million principal amount of 2.25% senior unsecured notes on their maturity date of January 15, 2023, and for working capital and general corporate purposes.\n42\nOn March 23, 2023, we issued senior unsecured notes with an aggregate principal of $650 million. Interest on these notes will accrue at a rate of 4.75% and be paid semi-annually. These notes will mature on April 15, 2033. We used the net proceeds from the issuance to repay $600 million of outstanding indebtedness under the unsecured 364-day term loan agreement.\nOur most significant short-term cash requirements relate primarily to funding our operations (such as expenditures for raw materials, production and distribution, advertising and promotion, and current taxes) and capital investments. Our most significant longer-term cash requirements primarily include payments related to our long-term debt, employee benefit obligations, and deferred tax liabilities (see Notes 6, 9 and 11 to the Consolidated Financial Statements).\nWhile we expect to meet our planned short-term liquidity needs largely through cash generated from operations and borrowings under our commercial paper program, a sustained market deterioration resulting in declines in net sales and profit could require us to evaluate alternative sources of liquidity. If we have additional liquidity needs, we believe that we could access financing in the debt capital markets.\nWe believe our current liquidity position, supplemented by our ability to generate positive cash flows from operations in the future, and our ample debt capacity enabled by our strong short-term and long-term credit ratings, will be sufficient to meet all of our future financial commitments.\nCash Flow Summary\nThe following table summarizes our cash flows for each of the last fiscal two years:\n(Dollars in millions)\n2022\n2023\nCash flows from operating activities\n$\n936\u00a0\n$\n640\u00a0\nInvesting activities:\nAcquisition of business\n$\n\u2014\u00a0\n$\n(1,195)\nAdditions to property, plant, and equipment\n(138)\n(183)\nOther\n11\u00a0\n23\u00a0\nNet cash flows from investing activities\n$\n(127)\n$\n(1,355)\nFinancing activities:\nNet change in short-term borrowings\n$\n(196)\n$\n234\u00a0\nNet proceeds from long-term debt\n\u2014\u00a0\n398\u00a0\nRegular dividend payments\n(352)\n(378)\nSpecial dividend payment\n(479)\n\u2014\u00a0\nOther\n(11)\n(15)\nNet cash flows from financing activities\n$\n(1,038)\n$\n239\u00a0\nCash provided by operations of $640 million during fiscal 2023 declined $296 million from fiscal 2022, primarily reflecting increased working capital. The increase in working capital was primarily attributable to higher levels of inventory, which were affected by significantly higher input costs and other effects of supply chain disruptions. The decline in cash from operations also reflects $55 million of transaction costs related to our acquisitions of Gin Mare and Diplom\u00e1tico, and a $52 million increase in cash paid for income taxes, primarily reflecting the timing of U.S. federal estimated tax payments.\nCash used for investing activities was $1,355 million during fiscal 2023, compared to $127 million during the prior year. The $1,228 million increase largely reflects our acquisitions of Gin Mare ($468 million) and Diplom\u00e1tico ($727 million) during fiscal 2023. The increase in cash used for investing activities also includes a $45 million increase in capital expenditures, largely reflecting additional spending on projects to expand the capacity of our whiskey and tequila production facilities.\nCash provided by financing activities was $239 million during fiscal 2023, compared to $1,038 million in cash used for financing activities during fiscal 2022. The $1,277 million change largely reflects: (a) proceeds of $648 million from the issuance of 4.75% notes in March 2023; (b) a $430 million increase in net proceeds from short-term borrowings; and (c) a $453 million decline in dividend payments (largely reflecting the $479 million special dividend paid in December 2021); partially offset by (d) our repayment of the $250 million principal amount of 2.25% notes that matured in January 2023.\nA discussion of our cash flows for fiscal 2022 compared to fiscal 2021 may be found in \u201cPart II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations,\u201d of our 2022 Form 10-K.\n43\nDividends\nAs announced in November 2022, our Board of Directors approved a 9% increase in the quarterly cash dividend on our Class A and Class B common stock from $0.1885 per share to $0.2055 per share, effective with the regular quarterly dividend paid on January 3, 2023. As a result, the indicated annual cash dividend increased from $0.7540 per share to $0.8220 per share.\nAs announced on May 25, 2023, our Board of Directors declared a regular quarterly cash dividend on our Class A and Class B common stock of $0.2055 per share. The dividend is payable on July 3, 2023, to stockholders of record on June 8, 2023.\nCritical Accounting Policies and Estimates\nOur financial statements reflect some estimates involved in applying the following critical accounting policies that entail uncertainties and subjectivity. Using different estimates or policies could have a material effect on our operating results and financial condition.\nGoodwill and Other Intangible Assets \nWhen we acquire a business, we first allocate the purchase price to identifiable assets and liabilities, including intangible brand names and trademarks (\u201cbrand names\u201d), based on estimated fair value. We then record any remaining purchase price as goodwill. We do not amortize goodwill or other intangible assets with indefinite lives. We consider all of our brand names to have indefinite lives.\nThe Gin Mare and Diplom\u00e1tico acquisitions during fiscal 2023 have been accounted for as business combinations under the acquisition method of accounting. On the acquisition dates, we recognized the separately identifiable intangible assets based on the preliminary purchase price allocations. The excess of the consideration transferred over the fair values assigned to the net identifiable assets and liabilities of the acquired businesses were recognized as goodwill. For additional information, see Notes 12 and 14 to the Consolidated Financial Statements.\nWe assess our goodwill and other indefinite-lived intangible assets for impairment at least annually, or more frequently if circumstances indicate the carrying amount may be impaired. Goodwill is impaired when the carrying amount of the related reporting unit exceeds its estimated fair value, in which case we write down the goodwill by the amount of the excess (limited to the carrying amount of the goodwill). We estimate the reporting unit's fair value using discounted estimated future cash flows or market information. Similarly, a brand name is impaired when its carrying amount exceeds its estimated fair value, in which case we write down the brand name to its estimated fair value. We estimate the fair value of a brand name using the relief-from-royalty method. We also consider market values for similar assets when available. Considerable management judgment is necessary to estimate fair value, including making assumptions about future cash flows, net sales, discount rates, and royalty rates.\nWe have the option, before quantifying the fair value of a reporting unit or brand name, to evaluate qualitative factors to assess whether it is more likely than not that our goodwill or brand names are impaired. If we determine that is not the case, then we are not required to quantify the fair value. That assessment also takes considerable management judgment.\nBased on our assumptions, we believe none of our goodwill or other intangibles are impaired as of April 30, 2023. The Gin Mare and Diplom\u00e1tico brand names are recorded at their current estimated fair values, as discussed in Notes 12 and 14 to the Consolidated Financial Statements. The Finlandia brand name\u2019s carrying amount of $91 million approximates its fair value, based on the relief-from-royalty method, using current assumptions. Reasonably possible changes in those assumptions could result in future impairment of the Finlandia brand name. For example, we estimate that, all else equal, (a) a 15% decline in projected future net sales would result in an impairment charge of approximately $23 million or (b) a 1 percentage point increase in the discount rate would result in an impairment charge of approximately $13 million. We estimate the fair values of goodwill and other brand names substantially exceed their carrying amounts. \nPension and Other Postretirement Benefits \nWe sponsor various defined benefit pension plans and postretirement plans providing retiree health care and retiree life insurance benefits. Benefits are based on factors such as years of service and compensation level during employment. We expense the benefits expected to be paid over employees' expected service. This requires us to make assumptions to determine the net benefit costs and obligations, such as discount rates, return on plan assets, the rate of salary increases, expected service, and health care cost trend rates. We review these assumptions annually and modify them based on current rates and trends when appropriate. The assumptions also reflect our historical experience and management's best judgment regarding future expectations. We believe the discount rates and expected return on plan assets are the most significant assumptions.\n44\nThe discount rate used to measure the benefit obligations is determined at the beginning of each fiscal year using a yield curve based on the interest rates of high-quality debt securities with maturities corresponding to the expected timing of our benefit payments. The service cost and interest cost components are measured by applying the specific spot rates along that yield curve. The expected return on pension plan assets reflects expected capital market returns for each asset class that are based on historical returns, adjusted for the expected effects of diversification.\nThe following table compares the assumed discount rates and expected return on assets used in determining net periodic benefit cost for fiscal 2023 to those to be used in determining that cost for fiscal 2024.\n\u00a0\nPension Benefits\nMedical and Life\nInsurance Benefits\n\u00a0\n2023\n2024\n2023\n2024\nDiscount rate for service cost\n4.44\u00a0\n%\n4.98\u00a0\n%\n4.50\u00a0\n%\n5.02\u00a0\n%\nDiscount rate for interest cost\n3.97\u00a0\n%\n4.79\u00a0\n%\n3.96\u00a0\n%\n4.78\u00a0\n%\nExpected return on plan assets\n6.25\u00a0\n%\n6.50\u00a0\n%\nn/a\nn/a\nUsing these assumptions, we estimate our pension and other postretirement benefit cost for fiscal 2024 will be approximately $21 million, unchanged from the amount (excluding settlement charges) for fiscal 2023. Decreasing/increasing the assumed discount rates by 50 basis points would increase/decrease the total fiscal 2024 cost by approximately $4 million. Decreasing/increasing the assumed return on plan assets by 50 basis points would increase/decrease the total fiscal 2024 cost by approximately $3 million.\nIncome Taxes\nSignificant judgment is required in evaluating our tax positions. We establish liabilities when some positions are likely to be challenged and may not succeed, despite our belief that our tax return positions are fully supportable. We adjust these liabilities in light of changing circumstances, such as the progress of a tax audit. We believe current liabilities are appropriate for all known contingencies, but this situation could change.\nYears can elapse before we can resolve a particular matter for which we may have established a tax liability. Although predicting the final outcome or the timing of resolution of any particular tax matter can be difficult, we believe our liabilities reflect the likely outcome of known tax contingencies. Unfavorable settlement of any particular issue could require use of our cash and increase our effective tax rate. Conversely, a favorable resolution could result in reduced cash tax payments, the reversal of previously established liabilities, or some combination of these results, which could reduce our effective tax rate.\n45",
+  "item7a": ">Item\u00a07A.\n Quantitative and Qualitative Disclosures about Market Risk\nMarket risks\nOur enterprise risk management process is intended to ensure that we take risks knowingly and thoughtfully and that we balance potential risks and rewards. Our integrated enterprise risk management framework is designed to identify, evaluate, communicate, and appropriately mitigate risks across our operations.\nWe face market risks arising from changes in foreign currency exchange rates, commodity prices, and interest rates. We manage market risks through procurement strategies as well as the use of derivative and other financial instruments. Our risk management program is governed by policies that authorize and control the nature and scope of transactions that we use to mitigate market risks. Our policy permits the use of derivative financial instruments to mitigate market risks but prohibits their use for speculative purposes.\nForeign currency exchange rate risk.\n Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign currency-denominated cash flows. In general, we expect our cash flows to be negatively affected by a stronger dollar and positively affected by a weaker dollar. Our most significant foreign currency exposures include the euro, the British pound, and the Australian dollar. We manage our foreign currency exposures through derivative financial instruments, principally foreign currency forward contracts, and debt denominated in foreign currency. We had outstanding currency derivatives with notional amounts totaling $801 million and $747 million at April\u00a030, 2022 and 2023, respectively.\nWe estimate that a hypothetical 10% weakening of the dollar compared to exchange rates of hedged currencies as of April\u00a030, 2023, would decrease the fair value of our then-existing foreign currency derivative contracts by approximately $52 million. This hypothetical change in fair value does not consider the expected inverse change in the underlying foreign currency exposures.\nCommodity price risk.\n Commodity price changes can affect our production and supply chain costs. Our most significant commodities exposures include wood, corn, agave, malted barley, rye, and natural gas. We manage certain exposures through forward purchase contracts.\nInterest rate risk.\n Interest rate changes affect (a) the fair value of our fixed-rate debt, and (b) cash flows and earnings related to our variable-rate debt and interest-bearing investments. In addition to currently outstanding debt, any potential future debt offerings would be subject to interest rate risk.\nAs of April\u00a030, 2023, our cash and cash equivalents ($374 million) and short-term commercial paper borrowings ($235 million) were exposed to interest rate changes. Based on the then-existing balances of our variable-rate debt and interest-bearing investments, a hypothetical one percentage point increase in interest rates would result in a negligible change in net interest expense.\nSee Notes 13 and 14 to the Consolidated Financial Statements for details on our foreign currency exchange rate risk. See \u201cCritical Accounting Policies and Estimates\u201d in \u201cItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations\u201d for a discussion of our pension and other postretirement plans' exposure to interest rate risks. Also see \u201cItem 1A. Risk Factors\u201d for details on how economic conditions affecting market risks also affect the demand for and pricing of our products and how we are affected by exchange rate fluctuations.\n46",
+  "cik": "14693",
+  "cusip6": "115637",
+  "cusip": ["115637100", "115637909", "115637209"],
+  "names": ["BROWN FORMAN CORP CLASS A", "BROWN FORMAN CORP CLASS B", "BROWN FORMAN CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/14693/000001469323000074/0000014693-23-000074-index.htm"
+}
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+{
+  "item1": ">Item 1. Business\nOverview\nCACI International Inc (\u201cCACI\u201d), a Delaware corporation, is a holding company whose operations are conducted through subsidiaries primarily located in the United States and Europe. CACI was founded in 1962 as a simulation technology company and has grown into a leading provider of Expertise and Technology to Enterprise and Mission customers, supporting national security missions and government modernization/transformation in the intelligence, defense, and federal civilian sectors, both domestically and internationally. Unless the context indicates otherwise, the terms \u201cwe\u201d, \u201cour\u201d, \u201cthe Company\u201d and \u201cCACI\u201d refer to CACI International Inc and its subsidiaries and ventures that are majority-owned or otherwise controlled by it. The term \u201cthe Registrant\u201d  refers to CACI International Inc only.\n \n\u2022\nEnterprise\n \u2013 CACI provides capabilities that enable the internal operations of a government agency. \n\u2022\nMission\n \u2013 CACI provides capabilities that enable the execution of a government agency\u2019s primary function, or \u201cmission\u201d. \n\u2022\nExpertise\n \u2013 CACI provides Expertise to both Enterprise and Mission customers. For Enterprise customers, we deliver talent with the specific technical and functional knowledge to support internal agency operations. Examples include functional software development expertise, data and business analysis, and IT operations support. For Mission customers, we deliver talent with technical and domain knowledge to support the execution of an agency\u2019s mission. Examples include engineering expertise such as naval architecture, marine engineering, and life cycle support; and mission support expertise such as intelligence and special operations support. \n\u2022\nTechnology\n \u2013 CACI delivers Technology to both Enterprise and Mission customers. For both Enterprise and Mission, CACI provides: Software development at scale using open modern architectures, DevSecOps, and agile methodologies; and advanced data platforms, data operations and analyst-centric analytics including application of Artificial Intelligence and multi-source analysis. Additional examples of Enterprise technology include: Network and IT modernization; the customization, implementation, and maintenance of commercial-off-the-shelf (COTS) and enterprise resource planning (ERP) systems including financial, human capital, and supply chain management systems; and cyber security active defense and zero trust architectures. Additional examples of Mission technology include: Developing and deploying multi-domain offerings for signals intelligence (SIGINT) and electronic warfare (EW) including Counter-UAS, cyber operations, and Radio Frequency (RF) spectrum awareness, agility and usage;\n \nphotonics technology including free space optical communications; and resilient communications. CACI invests ahead of customer need with research and development to generate unique intellectual property and differentiated technology addressing critical national security and government modernization needs. \nOur proven Expertise and Technology and strong record of program delivery have enabled us to compete for and secure new customers and contracts, win repeat business, and build and maintain long-term customer relationships. We seek competitive business opportunities and have built our operations to support major programs through a market-focused business development organization.\nOur customers are primarily agencies and departments of the U.S. government as well as foreign governments and commercial enterprises. The demand for our Expertise and Technology, in large measure, is created by the increasingly complex network, systems, and information environments in which governments and businesses operate, and by the need to stay current with emerging technology while increasing productivity, enhancing security, and, ultimately, improving performance.\nFor additional discussion and analysis on recent business developments, see \u201cManagement\u2019s Discussion and Analysis of Financial Condition & Results of Operations\u201d in Part II of this Annual Report on Form 10-K.\nOur Markets\nDomestic Operations\nWe provide our Expertise and Technology to our domestic customers in the following market areas:\n\u2022\nDigital Solutions\n \u2013 CACI transforms how government does business. Using our Agile-at-scale method and business process automation tools, we modernize enterprise and agency-unique applications, enterprise infrastructure, and business processes to enhance productivity and increase user satisfaction. We use data analytics and visualization to provide insights and outcomes that optimize our customer\u2019s operations.\n\u2022\nC4ISR, Cyber & Space\n \u2013 CACI teams ensure information superiority by delivering multi-domain command, control, communications, and computer (C4) technology and networks. Our software-defined, full-spectrum cyber, electronic warfare, and counter-unmanned aircraft system (C-UAS) solutions provide electromagnetic spectrum advantage and deliver precision effects against national security threats. We are at the forefront of developing technologies that meet the challenges of 5G wireless communications both on and off the battlefield, mmWave, and the use of lasers for free space optical communications and long-range sensing.\n4\n\u2022\nEngineering Services\n \u2013 CACI provides platform integration and modernization and sustainment, system engineering, naval architecture, training and simulation services, and logistics engineering to help our customer achieve a decisive tactical edge. We enhance platforms to improve situational awareness, mobility, interoperability, lethality, and survivability. We conduct software vulnerability analysis and harden technology to protect against malicious actors. Our platform-agnostic, mission-first approach ensures optimal performance, so our nation\u2019s forces can overmatch our adversaries.\n\u2022\nEnterprise IT\n \u2013 CACI amplifies efficiency with unmatched expertise and next-generation technology. We pioneered secure, enterprise cloud solutions for classified and unclassified networks. We design, implement, protect, and manage secure enterprise IT solutions for approximately 50 federal agencies to optimize efficiency, enhance performance, and ensure end-user satisfaction. \n\u2022\nMission Support\n \u2013 CACI\u2019s intelligence support ensures continuous advances in collection, analysis, and dissemination to optimize decision-making. We provide analytic services in approximately 50 languages, as well as scenario-based instruction across the spectrum of intelligence processing, collection, and products. Our investigation and litigation experts support the U.S. government on thousands of cases, saving taxpayers billions of dollars. And CACI facilitates the secure flow of supplies across the globe.\nDomestic Operations represented 97.2%, 96.9%, and 97.1% of our total revenues for the fiscal year ended June\u00a030, 2023 (\u201cfiscal 2023\u201d), June\u00a030, 2022 (\u201cfiscal 2022\u201d) and June\u00a030, 2021 (\u201cfiscal 2021\u201d), respectively.\nInternational Operations\nOur international operations are conducted primarily through our operating subsidiaries in Europe, CACI Limited and CACI BV, and account for substantially all revenues generated from international customers. Headquartered in London, our international operations provide a diverse mix of IT services and proprietary data and software products, serving commercial and government customers throughout the United Kingdom (U.K.), continental Europe and around the world. \nInternational Operations represented 2.8%, 3.1%, and 2.9% of our total revenues for fiscal 2023, 2022, and 2021, respectively. \nCompetition\nWe operate in a highly competitive industry that includes many firms, some of which are larger in size and have greater financial resources than we do. We obtain much of our business on the basis of proposals submitted in response to requests from potential and current customers, who may also receive proposals from other firms. Non-traditional players have entered the market and have established positions related to such areas as cloud computing, cyber, satellite operations, and business systems. Additionally, we face indirect competition from certain government agencies that perform services for themselves similar to those marketed by us. We know of no single competitor that is dominant in our fields of technology. We have a relatively small share of the addressable market for our solutions and services and intend to achieve growth and increase market share both organically and through strategic acquisitions.\nStrengths and Strategy\nWe primarily offer our entire range of Expertise and Technology to defense, intelligence and civilian agencies of the U.S. government. Our work for U.S. government agencies may combine a wide range of skills drawn from our Expertise and Technology. We also contract through our international operations to provide our offerings to governments of other nations. As with other government contractors, our business is subject to government customer funding decisions and actions that are beyond our control.\nOur international commercial customer base consists primarily of large commercial and government enterprises in the U.K. This market is the primary target of a diverse mix of IT consultancy services and proprietary data and software products. Commercial bids are frequently negotiated as to terms and conditions for schedule, specifications, delivery and payment.\nIn order to effectively perform on our existing customer contracts and secure new customer contracts within the U.S. government, we must maintain expert knowledge of agency policies, operations and challenges. We combine this comprehensive knowledge with Expertise and Technology for our Enterprise and Mission customers. Our capabilities provide us with opportunities either to compete directly for, or to support other bidders in competition for multi-million dollar and multi-year award contracts from the U.S. government.\nWe have strategic business relationships with a number of companies associated with the information technology industry. These strategic partners have business objectives compatible with ours and offer Expertise and Technology that complement ours. We intend to continue development of these kinds of relationships wherever they support our growth objectives.\nOur marketing and new business development is conducted by many of our officers and managers including the Chief Executive Officer, executive officers, vice presidents and division managers. We employ marketing professionals who identify and qualify major contract opportunities, primarily in the federal government market.\n5\nMuch of our business is won through submission of formal competitive bids. Government and commercial customers typically base their decisions regarding contract awards on their assessment of the quality of past performance, responsiveness to proposal requirements, price, and other factors. The terms, conditions and form of contract of government bids, however, are in most cases specified by the customer. In situations in which the customer-imposed contract type and/or terms appear to expose us to inappropriate risk or do not offer us a sufficient financial return, we may seek alternate arrangements or opt not to bid for the work. Essentially all contracts with the U.S. government, and many contracts with other government entities, permit the government customer to terminate the contract at any time for the convenience of the government or for default by the contractor. Although we operate under the risk that such terminations may occur and have a material impact on operations, such terminations have been rare and, generally, have not materially affected operations.\nOur contracts and subcontracts are composed of a wide range of contract types, including fixed-price, cost reimbursement, time-and-materials, indefinite delivery/indefinite quantity (IDIQ) and government wide acquisition contracts (known as GWACS) such as General Services Administration (GSA) schedule contracts. By company policy, significant fixed-price contracts require the approval of at least two of our senior officers.\nFor fiscal 2023, the top ten revenue-producing contracts, many of which consist of many task orders, accounted for 38.3% of our revenues, or $2.6 billion.\nRecent Acquisitions\nDuring the past three fiscal years, we completed a total of six acquisitions, including:\n\u2022\nDuring fiscal 2023, CACI Limited completed one acquisition of a business in the U.K. that provides software engineering, data analysis and cyber services to the national security sector.\n\u2022\nDuring fiscal 2022, CACI completed four acquisitions that provide mission and enterprise technology to sensitive government customers. Their capabilities include open source intelligence solutions, specialized cyber, satellite communications, multi-domain photonics technologies for free-space optical (FSO) communications, and commercial solutions for classified (CSfC) security technologies.\n\u2022\nDuring fiscal 2021, CACI completed the acquisition of Ascent Vision Technologies (AVT). AVT specializes in Electro-Optical Infrared payloads, On-Board Computer Vision Processing and C-UAS solutions.\nSeasonal Nature of Business\nOur business in general is not seasonal, although the summer and holiday seasons affect our revenues because of the impact of holidays and vacations on our labor. Variations in our business also may occur at the expiration of major contracts until such contracts are renewed or new business is obtained.\nThe U.S. government\u2019s fiscal year ends on September 30 of each year. It is not uncommon for government agencies to award extra tasks or complete other contract actions in the weeks before the end of a fiscal year in order to avoid the loss of unexpended funds. Moreover, in years when the U.S. government does not complete the budget process for the next fiscal year before the end of September, government operations whose appropriations legislation has not been signed into law are funded under a continuing resolution that authorizes them to continue to operate but traditionally does not authorize new spending initiatives.\nHuman Capital\nOur People\nOur employees are our most valuable resource. We are in continuing competition for highly skilled professionals in virtually all of our market areas. The success and growth of our business is significantly correlated with our ability to recruit, train, promote and retain high quality people at all levels of the organization. As of June\u00a030, 2023, we employed approximately 23,000\n ta\nlented full and part-time employees that help make CACI a respected and recognized industry leader.\nOur Culture\nOur culture defines who we are, how we act, and what we believe is the right way to conduct business and is the driving force behind our success. Our culture unifies us as a company and strengthens our resolve to meet our customers\u2019 \u2013 and our country\u2019s \u2013 most critical missions.\nWe believe that there are two pillars to our culture: Character and Innovation. Character is demonstrated in our commitment to ethics and integrity as we expect all of our employees and independent contractors to comply with our high standards for the conduct of our business that are reflected in our policies and practices. We require all of our employees, independent contractors working on customer engagements, officers, and directors annually to execute and affirm to the code of ethics applicable to their activities. In addition, we require annual ethics and compliance training for all of our employees to provide them with the knowledge necessary to maintain our high standards of ethics and compliance.\nInnovation is demonstrated in our dedication to advancement and excellence. Our Center for Research, Application, Development, Learning, and Engagement (CRADLE\u2120) is a state-of-the-art collaboration facility that provides customers with an enhanced engagement experience, built to foster innovation, creative designs, and unique solutions. The CRADLE brings together customers, industry partners, academia, and CACI personnel to explore and discover new ways to solve complex problems and challenges.\n6\nDiversity, Equity, and Inclusion\nWe embrace diversity, equity, and inclusion as core values and seek to ensure that all our employees experience a highly inclusive working environment. Diversity, equity, and inclusion are woven into the fabric of CACI\u2019s culture where people bring their genuine selves to work, feel inspired about CACI\u2019s mission, and are passionate about making a difference for our people, customers, and the community.  Equity is defined as opportunities for development, growth, and advancement for all of our employees.\nOffering opportunities for employees to engage in allyship (advocating for individuals from marginalized groups with the goal of advancing inclusion), highlight successes, champion initiatives, discuss concerns, and much more is core to CACI\u2019s commitment to a diverse, equitable, and inclusive work environment.  We created Employee Resource Groups (ERGs) to provide a safe space for group member engagement, while offering mentorship, networking, professional development, and leadership opportunities.\nWe also focus on creating an environment where our people feel passionate and inspired about their careers and embrace and celebrate differences.  We achieve this by raising cultural awareness across the organization through our Path to Inclusion movement.  In our efforts to build inclusive teams, our Path to Inclusion campaign cultivates cultural intelligence (CQ) across CACI.  CQ is an essential skill that consists of being aware of our own cultural identity, understanding the cultural identities of others, and bridging the gap to embrace and appreciate the differences.  This enables us to work collaboratively across teams and the organization in ways that ensure everyone is valued.\nTalent Acquisition, Development and Retention\nOur industry is ever-evolving, and those who are most successful evolve with it, continually learning and growing throughout their careers. To ensure we have the talent to meet the needs of our customers, we employ broad recruiting and outreach efforts, including partnerships with universities, the military, and professional organizations, resulting in an inclusive pool of the most qualified candidates. \nWe are able to retain our employees through our career mobility corporate culture, where we believe in growth at all levels. We encourage all employees to embrace a career growth mindset at CACI and strive to provide our employees with long-term professional advancement and a great workplace experience through professional development and a culture of mobility because our people drive our company. \nCACI has conducted employee engagement surveys and we rank above external benchmark companies in the areas of sustainable engagement, inclusion, teamwork, supervision and empowerment. Specifically, our employees report that they have a personal sense of accomplishment in their work, they feel safe to speak up, and they have pride in CACI. These indicators of an exceptionally strong culture and work environment puts CACI in an extremely competitive position to attract and retain talent and reach our organizational growth objectives. We continue to invest in the areas that produce such high engagement \u2013 leadership education, career resources for employees, comprehensive onboarding for new employees, and formal and informal communications that create a two-way dialogue among employees and leaders. \nWe have a multilevel approach to developing our leaders, with cohort-style programs for first-line, mid-level and executive leaders. These programs focus on leadership capabilities unique to each level of leadership, and serve to increase self-awareness, strengthen skills and expand networking for our leaders. Furthermore, we have a robust talent planning approach to identify potential future leaders, conduct rigorous assessments and create actionable development plans to advance their readiness to take on our most senior roles as they evolve in our future.\nEmployee Wellbeing\nWe value the social, physical, financial, and emotional well-being of our employees.  We believe in curating environments and providing resources that support the CACI community\u2019s well-being.  We cultivate a culture that prioritizes wellness and encourages a healthy, balanced, and thriving lifestyle.  It is our desire to provide our employees innovative and accessible resources that support them on their well-being journey to become their best selves.  Our mission is to educate, support, and empower employees through the delivery of a comprehensive well-being program.  Our well-being program includes Flexible Time Off (FTO), which allows employees to better balance their work and personal commitments by providing them the opportunity to take time off as needed without a set number of maximum days per year.  In addition, CACI supports the financial wellness of our employees by providing unlimited access to fiduciary advice at no cost to the employee, as well as a full suite of tools and educational opportunities to enable our employees to meet their financial goals.\nPatents, Trademarks, Trade Secrets and Licenses\nGenerally, our solutions and services are not substantially dependent upon obtaining or maintaining intellectual property protections, although our operations make use of such protections and benefit from them as discriminators in competition. The Company owns patents and claims copyright, trademark and other proprietary rights in a variety of intellectual property. We also maintain a number of trade secrets that contribute to our success and competitive distinction and endeavor to accord such trade secrets protection adequate to ensure their continuing availability to us.\nOur proprietary information is protected through a combination of contractual arrangements with our employees and third parties and intellectual property laws. From time to time, we are required to assert our rights against former employees or other third parties who attempt to misappropriate our proprietary and confidential information. Although we are not materially dependent on the protection of our intellectual property, we take such matters seriously and pursue claims against such individuals to the extent necessary to adequately protect our rights.\n7\nAs a systems integrator, it is important that we maintain access to software, data and technology supplied by third parties and we continue to enter into agreements that give us the right to distribute and receive income from third party software, data and technology that serve our customers. The durations of such agreements are negotiated and vary according to the terms of the agreements.\nBusiness Segments, Foreign Operations, and Major Customers\nThe Company reports operating results and financial data in two segments: Domestic Operations and International Operations. See \u201cNote 18 \u2013 Business Segments\u201d in Part II of this Annual Report on Form 10-K for additional information.\nAvailable Information\nOur telephone number is (703) 841-7800 and our website can be accessed at www.caci.com. We make our web site content available for information purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into this Annual Report on Form 10-K.\nOur Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are made available free of charge on our website at www.caci.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Documents filed by us with the SEC can also be viewed at www.sec.gov.",
+  "item1a": ">Item 1A. Risk Factors\nYou should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this Annual Report on Form 10-K and other documents we file with the SEC. The risks and uncertainties described below are those that we have identified as material but are not the only risks and uncertainties that we face. Our business is also subject to general risks and uncertainties, such as overall U.S. and non-U.S. economic and industry conditions including a global economic slowdown, geopolitical events, changes in laws or accounting rules, fluctuations in interest and exchange rates, terrorism, international conflicts, major health concerns including global pandemics like COVID-19, natural disasters or other disruptions of expected economic and business conditions, that affect many other companies. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impact our business operations and liquidity. \nRisks Related to our Business and Industry\nWe generate substantially all of our revenues from contracts with the federal government. If the federal government significantly decreased or ceased doing business with us, our business, prospects, financial condition and operating results would be materially and adversely affected.\nThe federal government is our primary customer, with revenues from federal government contracts, either as a prime contractor or a subcontractor, accounting for 94.8% and 94.8% of our total revenues in fiscal 2023 and 2022, respectively. Specifically, we generated 71.9% and 69.8% of our total revenues in fiscal 2023 and 2022, respectively, from contracts with agencies of the DoD. We expect that federal government contracts will continue to be the primary source of our revenues for the foreseeable future. If we were suspended or debarred from contracting with the federal government or any significant agency in the intelligence community or the DoD, if our reputation or relationship with government agencies was impaired, or if the government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our business, prospects, financial condition and operating results would be materially and adversely affected.\nOur business could be adversely affected by delays caused by our competitors protesting major contract awards received by us, resulting in the delay of the initiation of work. \nThe number of bid protests of contract awards by unsuccessful bidders is increasing and the U.S. government is taking longer to resolve such protests. Bid protests may result in an increase in expenses related to obtaining contract awards or an unfavorable modification or loss of an award. In the event a bid protest is unsuccessful, the resulting delay in the startup and funding of the work under these contracts may cause our actual results to differ materially and adversely from those anticipated.\nOur business could be adversely affected by changes in spending levels or budgetary priorities of the federal government.\nBecause we derive substantially all of our revenues from contracts with the federal government, we believe that the success and development of our business will continue to depend on our successful participation in federal government contract programs. Changes in federal government budgetary priorities, such as for homeland security or to address global pandemics like COVID-19, or actions taken to address government budget deficits, the national debt, and/or prevailing economic conditions, could directly affect our financial performance. A significant decline in government expenditures, a shift of expenditures away from programs that we support or a change in federal government contracting policies could cause federal government agencies to reduce their purchases under contracts, to exercise their right to terminate contracts at any time without penalty or not to exercise options to renew contracts. For further discussion, refer to \u201cManagement\u2019s Discussion and Analysis of Financial Condition & Results of Operations\u201d in Part II of this Annual Report on Form 10-K.\n8\nAt times, we may continue to work without funding, and use our own internal funds in order to meet our customer\u2019s desired delivery dates for Expertise or Technology. It is uncertain at this time which of our programs\u2019 funding could be reduced in future years or whether new legislation will be passed by Congress in the next fiscal year that could result in additional or alternative funding cuts.\nAdditionally, our business could be affected if we experience an increase in set-asides for small businesses that could result in our inability to compete directly for prime contracts.\nOur federal government contracts may be terminated by the government at any time and may contain other provisions permitting the government not to continue with contract performance, and if lost contracts are not replaced, our operating results may differ materially and adversely from those anticipated.\nWe generate substantially all of our revenues from federal government contracts that typically include a base period and discrete option periods. The option periods typically cover more than half of the contract\u2019s potential duration. Federal government agencies generally have the right not to exercise these option periods. In addition, our contracts typically also contain provisions permitting a government customer to terminate the contract for its convenience. A decision not to exercise option periods or to terminate contracts for convenience could result in significant revenue shortfalls from those anticipated.\nFederal government contracts contain numerous provisions that are unfavorable to us.\nFederal government contracts contain provisions and are subject to laws and regulations that give the government rights and remedies, some of which are not typically found in commercial contracts, including allowing the government to:\n\u2022\ncancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;\n\u2022\nclaim rights in systems and software developed by us;\n\u2022\nsuspend or debar us from doing business with the federal government or with a governmental agency;\n\u2022\nimpose fines and penalties and subject us to criminal prosecution; and\n\u2022\ncontrol or prohibit the export of our data and technology. \nIf the government terminates a contract for convenience, we may recover only our incurred or committed costs, settlement expenses and profit on work completed prior to the termination. If the government terminates a contract for default, we may be unable to recover even those amounts and instead may be liable for excess costs incurred by the government in procuring undelivered items and services from another source. Depending on the value of a contract, such termination could cause our actual results to differ materially and adversely from those anticipated. Certain contracts also contain organizational conflict of interest (OCI) clauses that limit our ability to compete for or perform certain other contracts. OCIs arise any time we engage in activities that (i) make us unable or potentially unable to render impartial assistance or advice to the government; (ii) impair or might impair our objectivity in performing contract work; or (iii) provide us with an unfair competitive advantage. For example, when we work on the design of a particular system, we may be precluded from competing for the contract to develop and install that system. Depending upon the value of the matters affected, an OCI issue that precludes our participation in or performance of a program or contract could cause our actual results to differ materially and adversely from those anticipated.\nAs is common with government contractors, we have experienced and continue to experience occasional performance issues under certain of our contracts. Depending upon the value of the matters affected, a performance problem that impacts our performance of a program or contract could cause our actual results to differ materially and adversely from those anticipated.\nIf we fail to establish and maintain important relationships with government entities and agencies, our ability to successfully bid for new business may be adversely affected.\nTo facilitate our ability to prepare bids for new business, we rely in part on establishing and maintaining relationships with officials of various government entities and agencies. These relationships enable us to provide informal input and advice to government entities and agencies prior to the development of a formal bid. We may be unable to successfully maintain our relationships with government entities and agencies, and any failure to do so may adversely affect our ability to bid successfully for new business and could cause our actual results to differ materially and adversely from those anticipated. \nWe derive significant revenues from contracts and task orders awarded through a competitive bidding process. If we are unable to consistently win new awards over any extended period, our business and prospects will be adversely affected.\nOur contracts and task orders with the federal government are typically awarded through a competitive bidding process. We expect that much of the business that we will seek in the foreseeable future will continue to be awarded through competitive bidding. Budgetary pressures and changes in the procurement process have caused many government customers to increasingly purchase goods and services through IDIQ contracts, GSA schedule contracts and other government-wide acquisition contracts. These contracts, some of which are awarded to multiple contractors, have increased competition and pricing pressure, requiring that we make sustained post-award efforts to realize revenues under each such contract. In addition, in consideration of the practice of agencies awarding work under such contracts that is arguably outside the intended scope of the contracts, both the GSA and the DoD have initiated programs aimed to ensure that all work fits properly within the scope of the contract under which it is awarded. The net effect of such programs may reduce the number of bidding opportunities available to us. Moreover, even if we are highly qualified to work on a particular new contract, we might not be awarded business because of the federal government\u2019s policy and practice of maintaining a diverse contracting base.\n9\nThis competitive bidding process presents a number of risks, including the following:\n\u2022\nwe bid on programs before the completion of their design, which may result in unforeseen technological difficulties and cost overruns;\n\u2022\nwe expend substantial cost and managerial time and effort to prepare bids and proposals for contracts that we may not win;\n\u2022\nwe may be unable to estimate accurately the resources and cost structure that will be required to service any contract we win; and\n\u2022\nwe may encounter expense and delay if our competitors protest or challenge awards of contracts to us in competitive bidding, and any such protest or challenge could result in the resubmission of bids on modified specifications, or in the termination, reduction or modification of the awarded contract.\nIf we are unable to win particular contracts, we may be prevented from providing to customers services that are purchased under those contracts for a number of years. If we are unable to consistently win new contract awards over any extended period, our business and prospects will be adversely affected and that could cause our actual results to differ materially and adversely from those anticipated. In addition, upon the expiration of a contract, if the customer requires further services of the type provided by the contract, there is frequently a competitive rebidding process. There can be no assurance that we will win any particular bid, or that we will be able to replace business lost upon expiration or completion of a contract, and the termination or non-renewal of any of our significant contracts could cause our actual results to differ materially and adversely from those anticipated.\nOur business may suffer if we or our employees are unable to obtain the security clearances or other qualifications we and they need to perform services for our customers.\nMany of our federal government contracts require us to have security clearances and employ personnel with specified levels of education, work experience and security clearances. Depending on the level of clearance, security clearances can be difficult and time-consuming to obtain. If we or our employees lose or are unable to obtain necessary security clearances, we may not be able to win new business and our existing customers could terminate their contracts with us or decide not to renew them. To the extent we cannot obtain or maintain the required security clearances for our employees working on a particular contract, we may not generate the revenues anticipated from the contract which could cause our results to differ materially and adversely from those anticipated. \nIf our subcontractors fail to perform their contractual obligations, our performance as a prime contractor and our ability to obtain future business could be materially and adversely impacted and our actual results could differ materially and adversely from those anticipated.\nOur performance of government contracts may involve the issuance of subcontracts to other companies upon which we rely to perform all or a portion of the work we are obligated to deliver to our customers. A failure by one or more of our subcontractors to satisfactorily deliver on a timely basis the agreed-upon supplies, perform the agreed-upon services, or appropriately manage their vendors may materially and adversely impact our ability to perform our obligations as a prime contractor. \nA subcontractor\u2019s performance deficiency could result in the government terminating our contract for default. A default termination could expose us to liability for excess costs of reprocurement by the government and have a material adverse effect on our ability to compete for future contracts and task orders. Depending upon the level of problem experienced, such problems with subcontractors could cause our actual results to differ materially and adversely from those anticipated.\nThe federal government\u2019s appropriation process and other factors may delay the collection of our receivables, and our business may be adversely affected if we cannot collect our receivables in a timely manner.\nWe depend on the collection of our receivables to generate cash flow, provide working capital, pay debt and continue our business operations. If the federal government, any of our other customers or any prime contractor for whom we are a subcontractor fails to pay or delays the payment of their outstanding invoices for any reason, our business and financial condition may be materially and adversely affected. The government may fail to pay outstanding invoices for a number of reasons, including lack of appropriated funds or lack of an approved budget. In addition, the Defense Contract Audit Agency (DCAA) may revoke our direct billing privileges, which would adversely affect our ability to collect our receivables in a timely manner. Contracting officers have the authority to impose contractual withholdings, which can also adversely affect our ability to collect timely. The Defense Federal Acquisition Regulations require DoD contracting officers to impose contractual withholdings at no less than certain minimum levels if a contracting officer determines that one or more of a contractor\u2019s business systems have one or more significant deficiencies. Some prime contractors for whom we are a subcontractor have significantly less financial resources than we do, which may increase the risk that we may not be paid in full or payment may be delayed. If we experience difficulties collecting receivables, it could cause our actual results to differ materially and adversely from those anticipated. \nThe federal government may change its procurement or other practices in a manner adverse to us.\nThe federal government may change its procurement practices, or adopt new contracting rules and regulations, such as those related to cost accounting standards. It could also adopt new contracting methods relating to GSA contracts or other government-wide contracts, adopt new socio-economic requirements, or change the basis upon which it reimburses our compensation and other expenses or otherwise limit such reimbursements. In all such cases, there is uncertainty surrounding the changes and what actual impacts they may have on contractors. These changes could impair our ability to obtain new contracts or win re-competed contracts or adversely affect our future profit margin. Any new contracting methods could be costly or administratively difficult for us to satisfy and, as a result, could cause actual results to differ materially and adversely from those anticipated.\n10\nRestrictions on or other changes to the federal government\u2019s use of service contracts may harm our operating results.\nWe derive a significant amount of revenues from service contracts with the federal government. The government may face restrictions from new legislation, regulations or government union pressures, on the nature and amount of services the government may obtain from private contractors (i.e., insourcing versus outsourcing). Any reduction in the government\u2019s use of private contractors to provide federal services could cause our actual results to differ materially and adversely from those anticipated.\nOur contracts and administrative processes and systems are subject to audits and cost adjustments by the federal government, which could reduce our revenues, disrupt our business, or otherwise adversely affect our operating results.\nFederal government agencies, including the DCAA and the Defense Contract Management Agency (DCMA), routinely audit and investigate government contracts and government contractors\u2019 administrative processes and systems. These agencies review our performance on contracts, pricing practices, cost structure and compliance with applicable laws, regulations and standards. They also evaluate the adequacy of internal controls over our business systems, including our purchasing, accounting, estimating, earned value management, and government property systems. Any costs found to be improperly allocated or assigned to contracts will not be reimbursed, and any such costs already reimbursed must be refunded and certain penalties may be imposed. Moreover, if any of the administrative processes and systems are found not to comply with requirements, we may be subjected to increased government scrutiny and approval that could delay or otherwise adversely affect our ability to compete for or perform contracts or collect our revenues in a timely manner. Therefore, an unfavorable outcome of an audit by the DCAA or another government agency could cause actual results to differ materially and adversely from those anticipated. If a government investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeitures of profits, suspension of payments, fines and suspension or debarment from doing business with the federal government. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Each of these results could cause actual results to differ materially and adversely from those anticipated. \nFailure to maintain strong relationships with other contractors could result in a decline in our revenues.\nWe derive substantial revenues from contracts in which we act as a subcontractor or from teaming arrangements in which we and other contractors bid on particular contracts or programs. As a subcontractor or teammate, we often lack control over fulfillment of a contract, and poor performance on the contract could impact our customer relationship, even when we perform as required. We expect to continue to depend on relationships with other contractors for a portion of our revenues in the foreseeable future. Moreover, our revenues and operating results could differ materially and adversely from those anticipated if any prime contractor or teammate chose to offer directly to the customer services of the type that we provide or if they team with other companies to provide those services.\nWe may not receive the full amounts authorized under the contracts included in our backlog, which could reduce our revenues in future periods below the levels anticipated.\nOur total backlog consists of funded and unfunded amounts. Funded backlog represents contract value for which funding has been appropriated less revenues previously recognized on these contracts. Unfunded backlog represents estimated values that have the potential to be recognized into revenue from executed contracts for which funding has not been appropriated and unexercised contract options. Our backlog may not result in actual revenues in any particular period, or at all, which could cause our actual results to differ materially and adversely from those anticipated.\nThe maximum contract value specified under a government contract or task order awarded to us is not necessarily indicative of the revenues that we will realize under that contract. For example, we generate a substantial portion of our revenues from government contracts in which we are not the sole provider, meaning that the government could turn to other companies to fulfill the contract. We also generate revenues from IDIQ contracts, which do not require the government to purchase a pre-determined amount of goods or services under the contract. Action by the government to obtain support from other contractors or failure of the government to order the quantity of work anticipated could cause our actual results to differ materially and adversely from those anticipated. \nWithout additional Congressional appropriations, some of the contracts included in our backlog will remain unfunded, which could materially and adversely affect our future operating results.\nMany of our federal government contracts include multi-year performance periods in which Congress appropriates funds on an annual basis. As a result, a majority of our contracts are only partially funded at any point during their full performance period and unfunded contract work is subject to future appropriations by Congress. As a result of a lack of appropriated funds or efforts to reduce federal government spending, our backlog may not result in revenues or may be delayed. We calculate our unfunded backlog based on the aggregate contract revenues that we have the potential to realize. If our backlog estimate is inaccurate and we fail to realize those amounts as revenues, our future operating results could be materially and adversely affected. \n11\nEmployee misconduct, including security breaches, could result in the loss of customers and our suspension or debarment from contracting with the federal government.\nWe may be unable to prevent our employees from engaging in misconduct, fraud or other improper activities that could adversely affect our business and reputation. Misconduct could include the failure to comply with federal government procurement regulations, regulations regarding the protection of classified information and legislation regarding the pricing of labor and other costs in government contracts. Many of the systems we develop involve managing and protecting information involved in national security and other sensitive government functions. A security breach in one of these systems could prevent us from having access to such critically sensitive systems. Other examples of employee misconduct could include timecard fraud and violations of the Anti-Kickback Act. The precautions we take to prevent and detect this activity may not be effective, and we could face unknown risks or losses. As a result of employee misconduct, we could face fines and penalties, loss of security clearance and suspension or debarment from contracting with the federal government, which could cause our actual results to differ materially and adversely from those anticipated.\nOur failure to attract and retain qualified employees, including our senior management team, could adversely affect our business.\nOur continued success depends to a substantial degree on our ability to recruit and retain the technically skilled personnel we need to serve our customers effectively. Our business involves the development of tailored solutions for our customers, a process that relies heavily upon the expertise and services of our employees. Accordingly, our employees are our most valuable resource. Competition for skilled personnel in the information technology services industry is intense, and technology service companies often experience high attrition among their skilled employees. There is a shortage of people capable of filling these positions and they are likely to remain a limited resource for the foreseeable future. Recruiting and training these personnel require substantial resources. Our failure to attract and retain technical personnel could increase our costs of performing our contractual obligations, reduce our ability to efficiently satisfy our customers\u2019 needs, limit our ability to win new business and cause our actual results to differ materially and adversely from those anticipated.\nIn addition to attracting and retaining qualified technical personnel, we believe that our success will depend on the continued employment of our senior management team and its ability to generate new business and execute projects successfully. Our senior management team is very important to our business because personal reputations and individual business relationships are a critical element of obtaining and maintaining customer engagements in our industry, particularly with agencies performing classified operations. The loss of any of our senior executives could cause us to lose customer relationships or new business opportunities, which could cause actual results to differ materially and adversely from those anticipated.\nOur markets are highly competitive, and many of the companies we compete against have substantially greater resources.\nThe markets in which we operate include a large number of participants and are highly competitive. Many of our competitors may compete more effectively than we can because they are larger, better financed and better known companies than we are. In order to stay competitive in our industry, we must also keep pace with changing technologies and customer preferences. If we are unable to differentiate our services from those of our competitors, our revenues may decline. In addition, our competitors have established relationships among themselves or with third parties to increase their ability to address customer needs. As a result, new competitors or alliances among competitors may emerge and compete more effectively than we can. There is also a significant industry trend towards consolidation, which may result in the emergence of companies which are better able to compete against us. The results of these competitive pressures could cause our actual results to differ materially and adversely from those anticipated.\nOur quarterly revenues and operating results could be volatile due to the unpredictability of the federal government\u2019s budgeting process and policy priorities.\nOur quarterly revenues and operating results may fluctuate significantly and unpredictably in the future. In particular, if the federal government does not adopt, or delays adoption of, a budget for each fiscal year beginning on October 1, or fails to pass a continuing resolution, federal agencies may be forced to suspend our contracts and delay the award of new and follow-on contracts and orders due to a lack of funding. Further, the rate at which the federal government procures technology may be negatively affected following changes in presidential administrations and senior government officials. Therefore, period-to-period comparisons of our operating results may not be a good indication of our future performance. \nOur quarterly operating results may not meet the expectations of securities analysts or investors, which in turn may have an adverse effect on the market price of our common stock. \nAn increase in the prices of goods and services could raise the costs associated with providing our services, diminish our ability to compete for new contracts or task orders and/or reduce customer buying power.\nWe may experience an increase in the costs in our supply and labor markets due to global inflationary pressures and other various geopolitical factors. We generate a portion of our revenues through various fixed-price and multi-year government contracts which anticipate moderate increases in costs over the term of the contract. With the current pace of inflation our standard approach to moderate annual price escalations in our bids for multi-year work may be insufficient to counter inflationary cost pressures. This could result in reduced profits, or even losses, as inflation increases, particularly for fixed-priced contracts and our longer-term multi-year contracts. In the competitive environment in which we operate as a government contractor, the lack of pricing leverage and ability to renegotiate long-term, multi-year contracts, could reduce our profits, disrupt our business, or otherwise materially adversely affect our results of operations.\n12\nWe may lose money or generate less than anticipated profits if we do not accurately estimate the cost of an engagement which is conducted on a fixed-price basis.\nWe generated 30.2% and 29.4% of our total revenues in fiscal 2023 and 2022, respectively, from fixed-price contracts. Fixed-price contracts require us to price our contracts by predicting our expenditures in advance. In addition, some of our engagements obligate us to provide ongoing maintenance and other supporting or ancillary services on a fixed-price basis or with limitations on our ability to increase prices. Many of our engagements are also on a time-and-materials basis. While these types of contracts are generally subject to less uncertainty than fixed-price contracts, to the extent that our actual labor costs are higher than the contract rates, our actual results could differ materially and adversely from those anticipated.\nWhen making proposals for engagements on a fixed-price basis, we rely on our estimates of costs and timing for completing the projects. These estimates reflect our best judgment regarding our capability to complete the task efficiently. Any increased or unexpected costs or unanticipated delays in connection with the performance of fixed-price contracts, including delays caused by factors outside of our control, could make these contracts less profitable or unprofitable. From time to time, unexpected costs and unanticipated delays have caused us to incur losses on fixed-price contracts, primarily in connection with state government customers. On rare occasions, these losses have been significant. In the event that we encounter such problems in the future, our actual results could differ materially and adversely from those anticipated.\nOur earnings and margins may vary based on the mix of our contracts and programs.\nAt June\u00a030, 2023, our backlog included cost reimbursable, time-and-materials and fixed-price contracts. Cost reimbursable and time-and-materials contracts generally have lower profit margins than fixed-price contracts. Our earnings and margins may therefore vary materially and adversely depending on the relative mix of contract types, the costs incurred in their performance, the achievement of other performance objectives and the stage of performance at which the right to receive fees, particularly under incentive and award fee contracts, is finally determined.\nRisks Related to our Acquisitions\nWe may have difficulty identifying and executing acquisitions on favorable terms and therefore may grow at a slower rate than we historically have grown.\nOne of our key growth strategies has been to selectively pursue acquisitions. Through acquisitions, we have expanded our base of federal government customers, increased the range of solutions we offer to our customers and deepened our penetration of existing markets and customers. We may encounter difficulty identifying and executing suitable acquisitions. To the extent that management is involved in identifying acquisition opportunities or integrating new acquisitions into our business, our management may be diverted from operating our core business. Without acquisitions, we may not grow as rapidly as we historically have grown, which could cause our actual results to differ materially and adversely from those anticipated. We may encounter other risks in executing our acquisition strategy, including:\n\u2022\nincreased competition for acquisitions may increase the costs of our acquisitions;\n\u2022\nour failure to discover material liabilities during the due diligence process, including the failure of prior owners of any acquired businesses or their employees to comply with applicable laws or regulations, such as the Federal Acquisition Regulation and health, safety and environmental laws, or their failure to fulfill their contractual obligations to the federal government or other customers; and\n\u2022\nacquisition financing may not be available on reasonable terms or at all.\nEach of these types of risks could cause our actual results to differ materially and adversely from those anticipated.\nWe may have difficulty integrating the operations of any companies we acquire, which could cause actual results to differ materially and adversely from what we anticipated.\nThe success of our acquisition strategy will depend upon our ability to continue to successfully integrate any businesses we may acquire in the future. The integration of these businesses into our operations may result in unforeseen operating difficulties, absorb significant management attention and require significant financial resources that would otherwise be available for the ongoing development of our business. These integration difficulties include the integration of personnel with disparate business backgrounds, the transition to new information systems, coordination of geographically dispersed organizations, loss of key employees of acquired companies, and reconciliation of different corporate cultures. For these or other reasons, we may be unable to retain key customers of acquired companies. Moreover, any acquired business may fail to generate the revenues or net income we expected or produce the efficiencies or cost-savings we anticipated. Any of these outcomes could cause our actual results to differ materially and adversely from those anticipated.\nWe have substantial investments in recorded goodwill as a result of prior acquisitions, and changes in future business conditions could cause these investments to become impaired, requiring substantial write-downs that would reduce our operating income.\nAs of June\u00a030, 2023, goodwill accounts for $4.1 billion of our recorded total assets. We evaluate the recoverability of recorded goodwill amounts annually or when evidence of potential impairment exists. The annual impairment test is based on several factors requiring judgment. Principally, a decrease in expected reporting unit cash flows or changes in market conditions may indicate potential impairment of recorded goodwill. If there is an impairment, we would be required to write down the recorded amount of goodwill, which would be reflected as a charge against operating income. \n13\nRisks Related to our Indebtedness\nOur senior secured credit facility (the Credit Facility) imposes certain restrictions on our ability to take certain actions which may have an impact on our business, operating results and financial condition.\nThe Credit Facility imposes certain operating and financial restrictions on us and requires us to meet certain financial covenants. These restrictions may significantly limit or prohibit us from engaging in certain transactions, and include the following:\n\u2022\nincurring or guaranteeing certain amounts of additional debt;\n\u2022\npaying dividends or other distributions to our stockholders or redeeming, repurchasing or retiring our capital stock in excess of specific limits;\n\u2022\nmaking certain investments, loans and advances;\n\u2022\nexceeding specific levels of liens on our assets;\n\u2022\nissuing or selling equity in our subsidiaries;\n\u2022\ntransforming or selling certain assets currently held by us, including certain sale and lease-back transactions;\n\u2022\namending or modifying certain agreements, including those related to indebtedness; and\n\u2022\nengaging in certain mergers, consolidations or acquisitions.\nThe failure to comply with any covenants in the Credit Facility would cause a default under the Credit Facility. A default, if not waived, could cause our debt to become immediately due and payable. In such situations, we may not be able to repay our debt or borrow sufficient funds to refinance it, and even if new financing is available, it may not contain terms that are acceptable to us.\nDespite our outstanding debt, we may incur additional indebtedness.\nThe Credit Facility consists of a $1,975.0\u00a0million revolving credit facility (the Revolving Facility) and a $1,225.0\u00a0million term loan facility (the Term Loan). The Revolving Facility has sub-facilities of $100.0\u00a0million for same-day swing line loan borrowings and $25.0\u00a0million for stand-by letters of credit. At any time and so long as no default has occurred, the Company has the right to increase the Revolving Facility or the Term Loan in an aggregate principal amount of up to the greater of $500.0 million and 75% of the Company\u2019s EBITDA plus an unlimited amount of indebtedness subject to \n3.75\n times, calculated assuming the revolving Facility is fully drawn, with applicable lender approvals. As of June\u00a030, 2023, $525.0 million was outstanding under the Revolving Facility and $1,179.1 million was outstanding under the Term Loan. In addition, the terms of the Credit Facility allow us to incur additional indebtedness from other sources so long as we satisfy the covenants in the agreement governing the Credit Facility. If new debt is added to our current debt levels, the risks related to our ability to service that debt could increase.\nServicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.\nThe Credit Facility matures on December\u00a013, 2026. Principal payments under the term loan are due in quarterly installments. Our business may not generate cash flow from operations sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive.\nA change in control or fundamental change may adversely affect us.\nThe Credit Facility provides that certain change in control events will constitute a default.\nRisks Related to our Operations\nWe must comply with a variety of laws and regulations, and our failure to comply could cause our actual results to differ materially from those anticipated.\nWe must observe laws and regulations relating to the formation, administration and performance of federal government contracts which affect how we do business with our customers and may impose added costs on our business. For example, the Federal Acquisition Regulation and the industrial security regulations of the DoD and related laws include provisions that:\n\u2022\nallow our federal government customers to terminate or not renew our contracts if we come under foreign ownership, control or influence;\n\u2022\nrequire us to divest work if an OCI related to such work cannot be mitigated to the government\u2019s satisfaction;\n\u2022\nrequire us to disclose and certify cost and pricing data in connection with contract negotiations; and\n\u2022\nrequire us to prevent unauthorized access to classified information, covered defense information, and controlled unclassified information.\nOur failure to comply with these or other laws and regulations could result in contract termination, loss of security clearances, suspension or debarment from contracting with the federal government, civil fines and damages and criminal prosecution and penalties, any of which could cause our actual results to differ materially and adversely from those anticipated.\n14\nSystems failures may disrupt our business and have an adverse effect on our operating results.\nAny systems failures, including network, software or hardware failures, whether caused by us, a third party service provider, unauthorized intruders and hackers, computer viruses, natural disasters, power shortages or terrorist attacks, could cause loss of data or interruptions or delays in our business or that of our customers. Like other global companies, we have experienced cyber security threats to our data and systems, our company sensitive information, and our information technology infrastructure, including malware and computer virus attacks, unauthorized access, systems failures and temporary disruptions. Prior cyber attacks directed at us have not had a material adverse impact on our business or our financial results, and we believe that our continuing commitment toward threat detection and mitigation processes and procedures will reduce such impact in the future. Due to the evolving nature of these security threats, however, the impact of any future incident cannot be predicted. In addition, the failure or disruption of our mail, communications or utilities could cause us to interrupt or suspend our operations or otherwise harm our business. Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, our actual results could differ materially and adversely from those anticipated.\nThe systems and networks that we maintain for our customers, although highly redundant in their design, could also fail. If a system or network we maintain were to fail or experience service interruptions, we might experience loss of revenues or face claims for damages or contract termination. Our errors and omissions liability insurance may be inadequate to compensate us for all the damages that we might incur and, as a result, our actual results could differ materially and adversely from those anticipated. \nCustomer systems failures could damage our reputation and adversely affect our operating results.\nMany of the systems that we develop, integrate, maintain, otherwise support or use involve managing and protecting intelligence, national security, and other sensitive government information. While we have programs designed to protect such information and comply with all relevant privacy and security requirements, the threats that our clients face have grown more frequent and sophisticated. A security breach or system failure in a system that we develop, integrate, maintain or otherwise support could result in a loss of revenues, remediation costs, claims for damages or contract termination and our errors and omissions liability insurance may be inadequate to compensate us for all the damages that we might incur. Any such event could also cause serious damage to our reputation and prevent us from having access to or being eligible for further work on such sensitive systems for U.S. government customers.\nIn addition, in order to provide services to our customers, we often depend upon or use customer systems that are supported by the customer or third parties. Any security breach or system failure in such systems could result in an interruption of our customer\u2019s operations, significant delays under a contract, and a material adverse effect on our results of operations.\nOur operations involve several risks and hazards, including potential dangers to our employees and to third parties that are inherent in aspects of our federal business (e.g., counterterrorism training services). If these risks and hazards are not adequately insured, it could adversely affect our operating results.\nOur federal business includes the maintenance of global networks and the provision of special operations services (e.g., counterterrorism training) that require us to dispatch employees to various countries around the world. These countries may be experiencing political upheaval or unrest, and in some cases war or terrorism. It is possible that certain of our employees or executives will suffer injury or bodily harm, or be killed or kidnapped in the course of these deployments. We could also encounter unexpected costs for reasons beyond our control in connection with the repatriation of our employees or executives. Any of these types of accidents or other incidents could involve significant potential claims of employees, executives and/or third parties who are injured or killed or who may have wrongful death or similar claims against us.\nWe maintain insurance policies that mitigate against risk and potential liabilities related to our operations. This insurance is maintained in amounts that we believe are reasonable. However, our insurance coverage may not be adequate to cover those claims or liabilities, and we may be forced to bear significant costs from an accident or incident. Substantial claims in excess of our related insurance coverage could cause our actual results to differ materially and adversely from those anticipated. \nOur failure to adequately protect our confidential information and proprietary rights may harm our competitive position.\nOur success depends, in part, upon our ability to protect our proprietary information. Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter misappropriation of our proprietary information. In addition, we may be unable to detect unauthorized use of our proprietary information in order to take appropriate steps to enforce our rights. If we are unable to prevent third parties from infringing or misappropriating our proprietary information, our competitive position could be harmed and our actual results could differ materially and adversely from those anticipated.\nWe face additional risks which could harm our business because we have international operations.\nWe conduct the majority of our international operations in the U.K. and the Netherlands. As a percentage of our total revenues, our international operations generated 2.8% and 3.1% in fiscal 2023 and 2022, respectively. Our international operations are subject to risks associated with operating in a foreign country. These risks include fluctuations in the value of the British pound and the Euro, longer payment cycles, changes in foreign tax laws and regulations and unexpected legislative, regulatory, economic or political changes. \n15\nThe effects of health epidemics, pandemics and similar outbreaks may have material adverse effects on our business, financial position, results of operations and/or cash flows.\nWe face various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19. The COVID-19 pandemic and the mitigation efforts to control its spread have adversely impacted the U.S. and global economies, leading to disruptions and volatility in global capital markets. While we have taken steps to mitigate the impact of the COVID-19 pandemic on our employees and our business, the continued spread of COVID-19 may have a material adverse effect on our business, financial position, results of operations and/or cash flows as the result of significant portions of our workforce being unable to work due to illness, quarantines, government actions, facility closures, vaccination status, or other restrictions; the inability for us to fully perform on our contracts as a result of government actions or reduction in personnel due to the federal vaccine mandate which requires all federal contractors to be vaccinated; delays or limits to the ability of the U.S. Government or other customers to make timely payments; incurrence of increased costs which may not be recoverable; adverse impacts on our access to capital; or other unpredictable events. We continue to monitor the effect of COVID-19 on our business, but we cannot predict the full impact of COVID-19 as the extent of the impact will depend on the duration and spread of the pandemic and the actions taken by federal, state, local and foreign governments to prevent the spread of COVID-19.",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of Financial Condition & Results of Operations\nThe following discussion and analysis of our financial condition and results of operations is provided to enhance the understanding of, and should be read together with, our consolidated financial statements and the Notes to those statements that appear elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Unless otherwise specifically noted, all years refer to our fiscal year which ends on June 30.\nIn this section, we discuss our financial condition, changes in financial condition and results of our operations for fiscal 2023 compared to fiscal 2022. For a discussion and analysis comparing our results for fiscal 2022 to fiscal 2021, see our Annual Report on Form 10-K for fiscal 2022, filed with the SEC on August 11, 2022, under Part II, Item 7 \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\u201d\nOverview\nWe are a leading provider of Expertise and Technology to Enterprise and Mission customers, supporting national security missions and government modernization/transformation in the intelligence, defense, and federal civilian sectors, both domestically and internationally. The demand for our Expertise and Technology, in large measure, is created by the increasingly complex network, systems, and information environments in which governments and businesses operate, and by the need to stay current with emerging technology while increasing productivity, enhancing security, and, ultimately, improving performance.\nSome of our key initiatives include the following:\n\u2022\nContinue to grow organic revenues across our large, addressable market;\n\u2022\nDeliver strong profitability and robust cash flow;\n\u2022\nDifferentiate ourselves through our investments, including our strategic mergers and acquisition program, allowing us to enhance our current capabilities and create new customer access points; \n\u2022\nRecruit, hire, train, and retain a world class workforce to execute on our growing backlog; and\n\u2022\nContinue our unwavering commitment to our customers while supporting the communities in which we work and live.\nBudgetary Environment\nWe carefully follow federal budget, legislative and contracting trends and activities and evolve our strategies to take these into consideration. On December 29, 2022, the President signed into law the omnibus appropriations bill that provided full-year funding for the government fiscal year (GFY) ending September 30, 2023 (GFY23). Of the total approximately $1.7 trillion in discretionary funding, approximately $858 billion was for national defense and approximately $773 billion was for nondefense, as well as an additional $47 billion of supplemental funding for Ukraine. The defense and nondefense funding levels represent increases of approximately 10% and 6%, respectively, over GFY22 enacted levels, which themselves were increases of approximately 6% and 7%, respectively, over GFY21. On March 9, 2023, the President released his budget request for GFY24, which called for an increase in defense spending of approximately 3% and an increase in nondefense spending of approximately 8% over GFY23 levels.  On June 3, 2023, the President signed into law legislation that suspends the federal debt limit until January 2025 and caps discretionary spending in GFY24 and GFY25. Specifically, GFY24 defense spending is capped at $886 billion, an increase of 3% and in-line with the President\u2019s budget request, and GFY24 nondefense spending is capped at levels similar to GFY22 (though after various adjustments may be essentially flat with GFY23 levels). For GFY25, discretionary spending growth (both defense and nondefense) is capped at 1%. While future levels of defense and nondefense spending may vary and are difficult to project, we believe that there continues to be bipartisan support for defense and national security-related spending, particularly given the heightened current global threat environment, including the conflict in Ukraine.\nWhile we view the budget environment as constructive and believe there is bipartisan support for continued investment in the areas of defense and national security, it is uncertain when in any particular GFY that appropriations bills will be passed. During those periods of time when appropriations bills have not been passed and signed into law, government agencies operate under a continuing resolution (CR), a temporary measure allowing the government to continue operations at prior year funding levels.\n21\nDepending on their scope, duration, and other factors, CRs can negatively impact our business due to delays in new program starts, delays in contract award decisions, and other factors. When a CR expires, unless appropriations bills have been passed by Congress and signed by the President, or a new CR is passed and signed into law, the government must cease operations, or shutdown, except in certain emergency situations or when the law authorizes continued activity. We continuously review our operations in an attempt to identify programs potentially at risk from CRs so that we can consider appropriate contingency plans. \nMarket Environment\nWe provide Expertise and Technology to government enterprise and mission customers. We believe that the total addressable market for our offerings is sufficient to support the Company's plans and is expected to continue to grow over the next several years. Approximately 70% of our revenue comes from defense-related customers, including those in the Intelligence Community (IC), with additional revenue coming from non-defense IC, homeland security, and other federal civilian customers.\nWe continue to align the Company\u2019s capabilities with well-funded budget priorities and take steps to maintain a competitive cost structure in line with our expectations of future business opportunities. In light of these actions, as well as the budgetary environment discussed above, we believe we are well positioned to continue to win new business in our large addressable market. We believe that the following trends will influence the USG\u2019s spending in our addressable market:\n\u2022\nA stable-to-higher USG budget environment, particularly in defense and intelligence-related areas;\n\u2022\nIncreased focus on cyber, space, and the electromagnetic spectrum as key domains for National Security;\n\u2022\nIncreased spend on network and application modernization and enhancements to cyber security posture; \n\u2022\nIncreased investments in advanced technologies (e.g., Artificial Intelligence, 5G), particularly software-based technologies;\n\u2022\nIncreasing focus on near-peer competitors and other nation state threats;\n\u2022\nContinued focus on counterterrorism, counterintelligence, and counter proliferation as key U.S. security concerns; and\n\u2022\nIncreased demand for innovation and speed of delivery.\nWe believe that our customers\n\u2019\n use of lowest price/technically acceptable (LPTA) procurements, which contributed to pricing pressures in past years, has moderated, though price still remains an important factor in procurements. We also continue to see protests of major contract awards and delays in USG procurement activities. In addition, many of our federal government contracts require us to employ personnel with security clearances, specific levels of education and specific past work experience. Depending on the level of clearance, security clearances can be difficult and time-consuming to obtain and competition for skilled personnel in the information technology services industry is intense. Additional factors that could affect USG spending in our addressable market include changes in set-asides for small businesses, changes in budget priorities, and budgetary priorities limiting or delaying federal government spending in general.\nResults of Operations\nOur results of operations were as follows:\nYear Ended June 30,\nYear to Year Change\n2023\n2022\n2022 to 2023\nDollars\nDollars\nPercent\n(dollar in thousands)\nRevenues\n$\n6,702,546\u00a0\n$\n6,202,917\u00a0\n$\n499,629\u00a0\n8.1\u00a0\n%\nCosts of revenues:\nDirect costs\n4,402,728\u00a0\n4,051,188\u00a0\n351,540\u00a0\n8.7\u00a0\nIndirect costs and selling expenses\n1,590,754\u00a0\n1,520,719\u00a0\n70,035\u00a0\n4.6\u00a0\nDepreciation and amortization\n141,564\u00a0\n134,681\u00a0\n6,883\u00a0\n5.1\u00a0\nTotal costs of revenues\n6,135,046\u00a0\n5,706,588\u00a0\n428,458\u00a0\n7.5\u00a0\nIncome from operations\n567,500\u00a0\n496,329\u00a0\n71,171\u00a0\n14.3\u00a0\nInterest expense and other, net\n83,861\u00a0\n41,757\u00a0\n42,104\u00a0\n100.8\u00a0\nIncome before income taxes\n483,639\u00a0\n454,572\u00a0\n29,067\u00a0\n6.4\u00a0\nIncome taxes\n98,904\u00a0\n87,778\u00a0\n11,126\u00a0\n12.7\u00a0\nNet income\n$\n384,735\u00a0\n$\n366,794\u00a0\n$\n17,941\u00a0\n4.9\u00a0\nRevenues\n. The increase in revenues was primarily attributable to organic growth of 6.1% and revenues from the acquisitions completed in fiscal 2022.\n22\nRevenues by customer type with related percentages of revenues were as follows:\nYear Ended June 30,\n2023\n2022\nDollars\nPercent\nDollars\nPercent\n(dollars in thousands)\nDepartment of Defense\n$\n4,817,470\u00a0\n71.9\u00a0\n%\n$\n4,331,327\u00a0\n69.8\u00a0\n%\nFederal Civilian Agencies\n1,533,295\u00a0\n22.9\u00a0\n1,549,791\u00a0\n25.0\u00a0\nCommercial and other\n351,781\u00a0\n5.2\u00a0\n321,799\u00a0\n5.2\u00a0\nTotal\n$\n6,702,546\u00a0\n100.0\u00a0\n%\n$\n6,202,917\u00a0\n100.0\u00a0\n%\n\u2022\nDoD revenues include Expertise and Technology provided to various Department of Defense customers.\n\u2022\nFederal civilian agencies\u2019 revenues primarily include Expertise and Technology provided to non-DoD agencies and departments of the U.S. federal government, including intelligence agencies and Departments of Justice, Agriculture, Health and Human Services, and State. \n\u2022\nCommercial and other revenues primarily include Expertise and Technology provided to U.S. state and local governments, commercial customers, and certain foreign governments and agencies through our International reportable segment.\nDirect Costs\n. The increase in direct costs was primarily attributable to direct labor costs from organic growth on existing programs and higher materials and other direct costs. As a percentage of revenues, total direct costs were 65.7% and 65.3% for fiscal 2023 and 2022, respectively. Direct costs include direct labor, subcontractor costs, materials, and other direct costs. \nIndirect Costs and Selling Expenses\n. The increase in indirect costs was primarily attributable to the incremental costs of running the businesses acquired in fiscal year 2022 and an increase in fringe benefit expenses on a higher labor base. As a percentage of revenues, total indirect costs were 23.7% and 24.5% for fiscal 2023 and 2022, respectively.\nDepreciation and Amortization\n. The increase in depreciation and amortization was primarily attributable to depreciation from the Company\u2019s higher average property and equipment and intangible amortization from the acquisitions completed in fiscal 2022.\nInterest Expense and Other, Net\n. The increase in interest expense and other, net was primarily attributable to higher interest rates on outstanding debt.\nIncome Taxes\n. The Company\n\u2019\ns effective income tax rate was 20.4% and 19.3% for fiscal 2023 and 2022, respectively.  The effective tax rate for fiscal 2023 was favorably impacted by research and development tax credits and the remeasurement of state deferred taxes.  The effective tax rate for fiscal 2022 was favorably impacted primarily by federal research tax credits and the remeasurement of state deferred taxes. See \u201cNote 16 \u2013 Income Taxes\u201d in Part II of this Annual Report on Form 10-K for additional information.\nContract Backlog\nThe Company\u2019s backlog represents value on existing contracts that has the potential to be recognized into revenues as work is performed. The Company includes unexercised option years in its backlog and excludes the value of task orders that may be awarded under multiple award IDIQ vehicles until such task orders are issued. \nThe Company\u2019s backlog as of period end is either funded or unfunded:\n\u2022\nFunded backlog represents contract value for which funding has been appropriated less revenues previously recognized on these contracts.\n\u2022\nUnfunded backlog represents estimated values that have the potential to be recognized into revenue from executed contracts for which funding has not been appropriated and unexercised contract options. \nAs of June\u00a030, 2023, the Company had total backlog of $25.8 billion, compared with $23.3 billion a year ago, an increase of 10.7%. Funded backlog as of June\u00a030, 2023 was $3.7 billion. The total backlog consists of remaining performance obligations plus unexercised options. See \u201cNote 5 \u2013 Revenues\u201d in Part II of this Annual Report on Form 10-K for additional information related to remaining performance obligations.\nThere is no assurance that all funded or potential contract value will result in revenues being recognized. The Company continues to monitor backlog as it is subject to change from execution of new contracts, contract modifications or extensions, government deobligations, early terminations, or other factors. Based on this analysis, an adjustment to the period end balance may be required.\n23\nRevenues by Contract Type\nThe Company generates revenues under three basic contract types:\n\u2022\nCost-plus-fee contracts\n: This contract type provides for reimbursement of allowable direct expenses and allocable indirect expenses plus an additional negotiated fee. The fee component of the contract may include fixed fees, award fees and incentive fees. Fixed fees are fees that are negotiated and fixed at the inception of the contract. In general, award fees are more subjective in performance criteria and are earned based on overall cost, schedule, and technical performance as measured against contractual requirements. Incentive fees have more objective cost or performance criteria and generally contain a formula based on the relationship of actual costs incurred to target costs.\n\u2022\nFixed-price contracts\n: This contract type provides for a fixed-price for specified Expertise and Technology and is often used when there is more certainty regarding the estimated costs to complete the contractual statement of work. Since the contractor bears the risk of cost overruns, there is higher risk and potential profit associated with this contract type.\n\u2022\nTime-and-materials contracts: \nThis contract type provides for a fixed hourly rate for defined contractual labor categories, with reimbursement of billable material and other direct costs. For this contract type, the contractor bears the risk that its labor costs and allocable indirect expenses are greater than the fixed hourly rate defined within the contract. \nAs discussed further within Item 1A, Risk Factors in this Annual Report on Form 10-K, our earnings and margins may vary based on the mix of our contract types. We generated the following revenues by contract type for the periods presented:\nYear Ended June 30,\n2023\n2022\nDollars\nPercent\nDollars\nPercent\n(dollars in thousands)\nCost-plus-fee\n$\n3,896,725\u00a0\n58.1\u00a0\n%\n$\n3,632,359\u00a0\n58.6\u00a0\n%\nFixed-price\n2,023,968\u00a0\n30.2\u00a0\n1,823,221\u00a0\n29.4\u00a0\nTime-and-materials\n781,853\u00a0\n11.7\u00a0\n747,337\u00a0\n12.0\u00a0\nTotal\n$\n6,702,546\u00a0\n100.0\u00a0\n%\n$\n6,202,917\u00a0\n100.0\u00a0\n%\nEffects of Inflation\nDuring fiscal 2023, 58.1% of our revenues were generated under cost-reimbursable contracts which automatically adjust revenues to cover costs that are affected by inflation. 11.7% of our revenues were generated under time-and-materials contracts where we adjust labor rates periodically, as permitted. The remaining portion of our business is fixed-price and may span multiple years. We generally have been able to price our time-and-materials and fixed-price contracts in a manner that accommodates the rates of inflation experienced in recent years.\nLiquidity and Capital Resources\nExisting cash and cash equivalents and cash generated by operations are our primary sources of liquidity, as well as sales of receivables under our Master Accounts Receivable Purchase Agreement (MARPA) and available borrowings under our Credit Facility. As of June\u00a030, 2023, we had $115.8 million in cash and cash equivalents. \nThe Company has a $3,200.0 million Credit Facility, which consists of an $1,975.0\u00a0million Revolving Facility and a $1,225.0\u00a0million Term Loan. The Revolving Facility is a secured facility that permits continuously renewable borrowings and has subfacilities of $100.0\u00a0million for same-day swing line borrowings and $25.0\u00a0million for stand-by letters of credit. As of June\u00a030, 2023, $1,179.1 million was outstanding under the Term Loan, $525.0 million was outstanding under the Revolving Facility and no borrowings on the swing line.\nThe Term Loan is a five-year secured facility under which principal payments are due in quarterly installments of $7.7 million through December 31, 2023 and $15.3 million thereafter until the balance is due in full on December\u00a013, 2026. The Credit Facility contains customary financial and restrictive covenants which we have been in compliance with since inception.\nInterest rates applicable to loans under the Credit Facility are floating interest rates that, at our option, equal a base rate or a Secured Overnight Financing Rate (SOFR) rate, plus in each case, an applicable margin based upon our consolidated total net leverage ratio.\nDuring fiscal year 2023, a provision of the Tax Cuts and Jobs Act of 2017 (TCJA) went into effect which eliminated the option to deduct domestic research and development costs in the year incurred and instead requires taxpayers to capitalize and amortize such costs over five years. This provision decreased fiscal year 2023 cash flows from operations by $95.0 million and increased net deferred tax assets by a similar amount. Although it is possible that Congress amends this provision, potentially with retroactive effect, we have no assurance that Congress will take any action with respect to this provision. The future impact of this provision will depend on if and when this provision is deferred, modified, or repealed by Congress, including if retroactively, any guidance issued by the Treasury Department regarding the identification of appropriate costs for capitalization, and the amount of future research and development expenses paid or incurred (among other factors).\nSee \u201cNote 6 \u2013 Sales of Receivables\u201d and \u201cNote 12 \u2013 Debt\u201d in Part II of this Annual Report on Form 10-K for additional information.\n24\nA summary of cash flow information is presented below:\nYear Ended June 30,\n2023\n2022\n(dollar in thousands)\nNet cash provided by operating activities\n$\n388,056\u00a0\n$\n745,554\u00a0\nNet cash used in investing activities\n(75,717)\n(689,149)\nNet cash used in financing activities\n(316,108)\n(21,209)\nEffect of exchange rate changes on cash and cash equivalents\n4,741\u00a0\n(8,423)\nNet change in cash and cash equivalents\n972\u00a0\n26,773\u00a0\nNet cash provided by operating activities decreased $357.5 million primarily as a result of \na $341.3 million increase in cash paid for income taxes, higher interest payments and net unfavorable changes in operating assets and liabilities driven by the timing of vendor payments, partially offset by higher cash received from the Company\n\u2019\ns MARPA.\nNet cash used in investing activities decreased $613.4 million primarily as a result of a $601.0 million decrease in cash used in acquisitions of businesses and a $10.8 million decrease in capital expenditures.\nNet cash used in financing activities increased $294.9 million primarily as a result of a $263.5 million increase in repurchases of common stock, and a $38.7 million increase in net repayments under our Credit Facility.\nWe believe that the combination of internally generated funds, available bank borrowings, and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund on-going operations, customary capital expenditures, debt service obligations, and other working capital requirements over the next twelve months. We may in the future seek to borrow additional amounts under a long-term debt security. Over the longer term, our ability to generate sufficient cash flows from operations necessary to fulfill the obligations under the Credit Facility and any other indebtedness we may incur will depend on our future financial performance which will be affected by many factors outside of our control, including current worldwide economic conditions and financial market conditions.\nContractual Obligations\nFor a description of the Company\u2019s contractual obligations related to debt, leases, and retirement plans refer to \u201cNote 10 \u2013 Leases\u201d, \u201cNote 12 \u2013 Debt\u201d, and \u201cNote 17 \u2013 Retirement Plans\u201d in Part II of this Annual Report on Form 10-K. \nCommitments and Contingencies\nWe are subject to a number of reviews, investigations, claims, lawsuits, other uncertainties and future obligations related to our business. For a discussion of these items, see \u201cNote 19 \u2013 Commitments and Contingencies\u201d in Part II of this Annual Report on Form 10-K.\nCritical Accounting Policies\nThe preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. We consider the accounting policies and estimates addressed below to be the most important to our financial position and results of operations, either because of the significance of the financial statement item or because they require the exercise of significant judgment and/or use of significant estimates. Although we believe that the estimates are reasonable based on reasonably available facts, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods may differ.\nWe believe the following accounting policies require significant judgment due to the complex nature of the underlying transactions: \nRevenue Recognition\nThe Company generates almost all of our revenues from three different types of contractual arrangements with the U.S. government: cost-plus-fee, fixed-price, and time-and-materials contracts. Our contracts with the U.S. government are generally subject to the Federal Acquisition Regulation (FAR) and are competitively priced based on estimated costs of providing the contractual goods or services. \nWe account for a contract when the parties have approved the contract and are committed to perform on it, the rights of each party and the payment terms are identified, the contract has commercial substance, and collectability is probable. At contract inception, the Company determines whether the goods or services to be provided are to be accounted for as a single performance obligation or as multiple performance obligations. This evaluation requires professional judgment as it may impact the timing and pattern of revenue recognition. If multiple performance obligations are identified, we generally use the cost plus a margin approach to determine the relative standalone selling price of each performance obligation. \n25\nWhen determining the total transaction price, the Company identifies both fixed and variable consideration elements within the contract. Variable consideration includes any amount within the transaction price that is not fixed, such as: award or incentive fees; performance penalties; unfunded contract value; or other similar items. For our contracts with award or incentive fees, the Company estimates the total amount of award or incentive fee expected to be recognized into revenue. Throughout the performance period, we recognize as revenue a constrained amount of variable consideration only to the extent that it is probable that a significant reversal of the cumulative amount recognized to date will not be required in a subsequent period. Our estimate of variable consideration is periodically adjusted based on significant changes in relevant facts and circumstances. In the period in which we can calculate the final amount of award or incentive fee earned - based on the receipt of the customer\u2019s final performance score or determining that more objective, contractually-defined criteria have been fully satisfied - the Company will adjust our cumulative revenue recognized to date on the contract. \nWe generally recognize revenues over time throughout the performance period as the customer simultaneously receives and consumes the benefits provided on our services-type revenue arrangements. This continuous transfer of control for our U.S. government contracts is supported by the unilateral right of our customer to terminate the contract for a variety of reasons without having to provide justification for its decision. For our services-type revenue arrangements in which there are a repetitive amount of services that are substantially the same from one month to the next, the Company applies the series guidance. We use a variety of input and output methods that approximate the progress towards complete satisfaction of the performance obligation, including: costs incurred, labor hours expended, and time-elapsed measures for our fixed-price stand ready obligations. For certain contracts, primarily our cost-plus and time-and-materials services-type revenue arrangements, we apply the right-to-invoice practical expedient in which revenues are recognized in direct proportion to our present right to consideration for progress towards the complete satisfaction of the performance obligation. \nWhen a performance obligation has a significant degree of interrelation or interdependence between one month\u2019s deliverables and the next, when there is an award or incentive fee, or when there is a significant degree of customization or modification, the Company generally records revenue using a percentage of completion method. For these revenue arrangements, substantially all revenues are recognized over time using a cost-to-cost input method based on the ratio of costs incurred to date to total estimated costs at completion. When estimates of total costs to be incurred on a contract exceed total revenues, a provision for the entire loss on the contract is recorded in the period in which the loss is determined.\nContract modifications are reviewed to determine whether they should be accounted for as part of the original performance obligation or as a separate contract. When contract modifications add distinct goods or services and increase the contract value by an amount that reflects the standalone selling price, those modifications are accounted for as separate contracts. When contract modifications include goods or services that are not distinct from those already provided, the Company records a cumulative adjustment to revenues based on a remeasurement of progress towards the complete satisfaction of the not yet fully delivered performance obligation.\nBased on the critical nature of our contractual performance obligations, the Company may proceed with work based on customer direction prior to the completion and signing of formal contract documents. The Company has a formal review process for approving any such work that considers previous experiences with the customer, communications with the customer regarding funding status, and our knowledge of available funding for the contract or program.\nBusiness Combinations \nWe record all tangible and intangible assets acquired and liabilities assumed in a business combination at fair value as of the acquisition date, with any excess purchase consideration recorded as goodwill. Determining the fair value of acquired assets and liabilities assumed, including intangible assets, requires management to make significant judgments about expected future cash flows, weighted-average cost of capital, discount rates, and expected long-term growth rates. During the measurement period, not to exceed one year from the acquisition date, we may adjust provisional amounts recorded to reflect new information subsequently obtained regarding facts and circumstances that existed as of the acquisition date.\n \nGoodwill and Intangible Assets\nGoodwill represents the excess of the fair value of consideration paid for an acquisition over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. We recognize purchased intangible assets in connection with our business acquisitions at fair value on the acquisition date. Goodwill and intangible assets, net represent 69.6% and 70.0% of our total assets as of June\u00a030, 2023 and June\u00a030, 2022, respectively.\nWe evaluate goodwill for both of our reporting units for impairment at least annually on the first day of the fiscal fourth quarter, or whenever events or circumstances indicate that the carrying value may not be recoverable. The evaluation includes comparing the fair value of the relevant reporting unit to its respective carrying value, including goodwill, and utilizes both income and market approaches. The analysis relies on significant judgements and assumptions about expected future cash flows, weighted-average cost of capital, discount rates, expected long-term growth rates, and financial measures derived from observable market data of comparable public companies. During the fourth quarter of fiscal 2023, we completed our annual goodwill assessment and determined that each reporting unit\u2019s fair value significantly exceeded its carrying value.\nIntangible assets with finite lives are amortized using the method that best reflects how their economic benefits are utilized or, if a pattern of economic benefits cannot be reliably determined, on a straight-line basis over their estimated useful lives, which is generally over periods ranging from one to twenty years. Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. \n26\nRecently Adopted and Issued Accounting Pronouncements\nSee \u201cNote 3 \u2013 Recent Accounting Pronouncements\u201d in Part II of this Annual Report on Form 10-K for additional information.",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosure About Market Risk\nThe interest rates on both the Term Loan and the Revolving Facility are affected by changes in market interest rates. We have the ability to manage these fluctuations in part through interest rate hedging alternatives in the form of interest rate swaps. We have entered into floating-to-fixed interest rate swap agreements for an aggregate notional amount of $1,200.0\u00a0million related to a portion of our floating rate indebtedness. All remaining balances under our Term Loan, and any additional amounts that may be borrowed under our Revolving Facility, are currently subject to interest rate fluctuations. With every one percent fluctuation in the applicable interest rate, interest expense on our variable rate debt for the twelve months ended June\u00a030, 2023 would have fluctuated by approximately $9.8 million.\nApproximately 2.8% and 3.1% of our total revenues in fiscal 2023 and 2022, respectively, were generated from our international operations headquartered in the U.K. Our practice in our international operations is to negotiate contracts in the same currency in which the predominant expenses are incurred, thereby mitigating the exposure to foreign currency exchange rate fluctuations. To the extent that it is not possible to do so, there is some risk that profits will be affected by foreign currency exchange rate fluctuations. As of June\u00a030, 2023, we held a combination of euros and pounds sterling in the U.K. and in the Netherlands equivalent to approximately $65.7 million. Although these balances are generally available to fund ordinary business operations without legal or other restrictions, a significant portion is not immediately available to fund U.S. operations unless repatriated. Our intention is to reinvest earnings from our foreign subsidiaries. This allows us to better utilize our cash resources on behalf of our foreign subsidiaries, thereby mitigating foreign currency conversion risks.",
+  "cik": "16058",
+  "cusip6": "127190",
+  "cusip": ["127190304", "127190954"],
+  "names": ["CACI INTL INC", "CACI International Inc."],
+  "source": "https://www.sec.gov/Archives/edgar/data/16058/000001605823000086/0000016058-23-000086-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\u00a0 Business\n\u00a0\n(a)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nGeneral Development of Business:\n\u00a0\nCarpenter Technology Corporation, founded in 1889, is engaged in the manufacturing, fabrication and distribution of specialty metals. As used throughout this report, unless the context requires otherwise, the terms \"Carpenter,\" \"Carpenter Technology,\" \"Company,\" \"Registrant,\" \"Issuer,\" \"we\" and \"our\" refer to Carpenter Technology Corporation.\n\u00a0\n(b)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nFinancial Information About Segments:\n\u00a0\nWe are organized in two reportable business segments: Specialty Alloys Operations (\"SAO\") and Performance Engineered Products (\"PEP\").\u00a0See Note 19 to our consolidated financial statements included in Item 8. \"Financial Statements and Supplementary Data\" for additional segment reporting information. \n\u00a0\n(c)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nNarrative Description of Business:\n\u00a0\n(1)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nGeneral:\n\u00a0\nWe are a producer and distributor of premium specialty alloys, including titanium alloys, powder metals, stainless steels, alloy steels, and tool steels. We are a recognized leader in high-performance specialty alloy-based materials and process solutions for critical applications in the aerospace, defense, medical, transportation, energy, industrial and consumer markets. We have evolved to become a pioneer in premium specialty alloys, including titanium, nickel, and cobalt, as well as alloys specifically engineered for additive manufacturing (\"AM\") processes and soft magnetics applications.\nReportable Segments\n\u00a0\nThe SAO segment is comprised of the Company's major premium alloy and stainless steel manufacturing operations. This includes operations performed at mills primarily in Reading and Latrobe, Pennsylvania and surrounding areas as well as South Carolina and Alabama. The combined assets of the SAO segment are managed in an integrated manner to optimize efficiency and profitability across the total system. \n\u00a0\nThe PEP segment is comprised of the Company's differentiated operations. This segment includes the Dynamet titanium business, the Carpenter Additive business and the Latrobe and Mexico distribution businesses. The Amega West business was also part of the PEP segment, however, it was divested during the first quarter of fiscal year 2021. The businesses in the PEP segment are managed with an entrepreneurial structure to promote flexibility and agility to quickly respond to market dynamics. \n(2)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nRaw Materials:\n\u00a0\nOur business depends on continued receipt of critical raw materials for our day to day operations. These raw materials include nickel, cobalt, chromium, manganese, molybdenum, titanium, iron and scrap containing the named alloys.\u00a0Some of the sources of these raw materials, many of which are international, could be subject to potential interruptions of supply as a result of political events, labor unrest or other reasons. These potential interruptions could cause material shortages and affect availability and price. We have arrangements with certain vendors to provide consigned materials at our manufacturing facilities available for our consumption as necessary. \n\u00a0\nWe have long-term relationships with major suppliers who provide availability of material at competitive prices.\u00a0Purchase prices of certain raw materials have historically been volatile.\u00a0We use pricing surcharges, indexing mechanisms, base price adjustments and raw material forward contracts to reduce the impact on our business of changing prices for the most significant of these materials. There can be delays between the time of the increase in the price of raw materials and the realization of the benefits of such mechanisms or actions that could have a short-term impact on our results and could affect the comparability of our results from period to period. \n\u00a0\n2\nTable of Contents\n(3)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nPatents and Licenses:\n\u00a0\nWe own a number of United States and international patents and have granted licenses under some of them.\u00a0In addition, certain products that we produce are covered by patents held or owned by other companies from whom licenses have been obtained.\u00a0The duration of a patent issued in the United States is between 14 and 20 years from the date of filing a patent application or issuance of the patent.\u00a0The duration of a patent issued outside of the United States varies from country to country. Generally, patent licenses are structured to match the duration of the underlying patent.\u00a0Although these patents and licenses are believed to be of value, we do not consider our business to be materially dependent upon any single such item or related group of such items.\n\u00a0\n(4)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nSeasonality of Business:\n\u00a0\nOur sales can be influenced by seasonal factors with the first six months of the fiscal year typically being lower, principally because of annual plant vacation and maintenance shutdowns by us, as well as by many of our customers. However, the timing of major changes in the general economy or the markets for certain products can alter this pattern.\n\u00a0\n(\n5)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nCustomers:\n\u00a0\nOn a consolidated basis, we are not dependent upon a single customer, or very few customers, such that the loss of any one or more particular customers would have a materially adverse effect on our consolidated statement of operations. No single customer accounted for 10 percent or more of total net sales for the years ended June\u00a030, 2023, June\u00a030, 2022 and June 30, 2021. No single customer accounted for 10 percent or more of the accounts receivable outstanding at June\u00a030, 2023 or June\u00a030, 2022. See Note 19 to our consolidated financial statements included in Item 8. \"Financial Statements and Supplementary Data\" for additional information. \n\u00a0\n(6)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nBacklog:\n\u00a0\nAs of June\u00a030, 2023, we had a sales backlog of orders excluding surcharge, believed to be firm, of approximately $2,123.3 million, significantly all of which is expected to be shipped within fiscal years 2024 and 2025. Our backlog of orders excluding surcharge as of June\u00a030, 2022, was approximately $1,539.3\u00a0million.\n(7)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nCompetition:\n\u00a0\nWe are leaders in specialty materials for critical applications with over 130 years of metallurgical and manufacturing expertise. Our business is highly competitive.\u00a0We manufacture and supply materials to a variety of end-use market sectors and compete with various companies depending on the end-use market, product or geography.\u00a0A significant portion of the products we produce are highly engineered materials for demanding applications. There are less than ten companies producing one or more similar products that we consider our major competitors for our high-value products used in demanding applications, particularly in our Aerospace and Defense and Energy end-use markets.\u00a0These products are generally required to meet complex customer product specifications and often require the materials to be qualified prior to supplying the customer. Our experience, technical capabilities, product offerings and research and development efforts represent barriers to existing and potential competitors. \n\u00a0\nFor other products, there are several dozen smaller producing companies and converting companies that are also competitors, as well as several hundred independent distributors of products similar to those distributed by us.\u00a0Additionally, numerous foreign companies produce various specialty metal products similar to those produced by us.\u00a0Furthermore, a number of different products may, in certain instances, be substituted for our finished products. \n3\nTable of Contents\n(8)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nResearch, Product and Process Development:\n\u00a0\nOur expenditures for Company-sponsored research and development were $24.4 million, $20.4 million and $19.7 million in fiscal years 2023, 2022 and 2021, respectively. We believe that our ability to be an innovator in special material development and manufacturing processes has been and will continue to be an important factor in the success of the Company.\u00a0Our worldwide staff of expert metallurgists, research and development scientists, engineers and service professionals work closely with our customers to identify and provide innovative solutions to specific product requirements. \n(9)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nEnvironmental Regulations:\n\u00a0\nWe are subject to various stringent federal, state, local and international environmental laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health.\u00a0Management evaluates the liability for future environmental remediation costs on a quarterly basis.\u00a0We accrue amounts for environmental remediation costs representing management's best estimate of the probable and reasonably estimable costs relating to environmental remediation.\u00a0For further information on environmental remediation, see the Contingencies section included in Item 7. \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" and the notes to our consolidated financial statements included in Item 8. \"Financial Statements and Supplementary Data.\" \n\u00a0\nOur costs of maintaining and operating environmental control equipment were $15.7\u00a0million, $14.8\u00a0million and $14.9\u00a0million for fiscal years 2023, 2022 and 2021, respectively.\u00a0The capital expenditures for environmental control equipment were $0.3 million, $1.1 million and $1.3 million for fiscal years 2023, 2022 and 2021, respectively.\u00a0We anticipate spending approximately $3.3\u00a0million on domestic environmental capital projects over the next five fiscal years.\u00a0This includes approximately $2.2\u00a0million in fiscal year 2024.\u00a0Due to the possibility of future regulatory developments, the amount of future capital expenditures may vary from these estimates. \n4\nTable of Contents\n(10)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nHuman Capital Resources:\n\u00a0\nWe maintain a high-performance work environment that is required to deliver mission-critical materials to our customers and an organizational culture that is devoted to exceptional customer service. We value our employees and help them build careers that are as resilient, innovative, and valuable as our work for our customers. We are committed to increasing employee engagement by leveraging the diversity and drive of our people, maximizing their talents, empowering them and supporting their career aspirations. \nHealth and Safety: Safety is our number one Core Value. We believe that a Zero Injury workplace is achievable and relentlessly pursue measures to increase safety and accountability for our employees. We are proactive in our approach to safety, working to eliminate hazards before causing injury or harm. We invest in our employees, supervisors and managers and engage them in finding workable solutions to achieve a Zero Injury Workplace. \nTalent Acquisition: We are always looking for nimble, smart, growth-minded people \u2013 regardless of background \u2013 to help our organization continue to succeed. We are an employer of choice. We strive for our culture to be transparent, supportive of work/life balance, welcoming of diverse viewpoints, treating all with dignity and respect and supporting each individuals' needs for professional growth and development. \nPerformance Management: Our formalized bi-annual performance review process accelerates employee growth and development at every stage of the process: (1) objectives and goal setting, (2) ongoing performance check-ins and coaching, as well as (3) performance evaluation and review. We also have Structured Individual Development Plans to assist managers in effectively setting targeted development activities for their direct reports and aligning those activities with business priorities. \nEngagement: We regularly conduct a company-wide Employee Engagement Survey to collect tangible data to make our Company even better. To ensure anonymity, we partner with an outside firm to collect and analyze the results. We make the survey available electronically and in hard copy format to make it as easy as possible for all our employees to participate, particularly our manufacturing teams. Our questions cover a wide variety of topics, including safety, culture, diversity, inclusion and belonging, work/life balance and leadership and career development.\nProfessional Development: Our employees enjoy a wide variety of rewards that assist with engagement and development. From traditional items such as compensation to less traditional aspects such as work-life balance, hybrid and remote work arrangements, future career opportunities, and innovative work.\nDiversity and Inclusion: We have a culture that blends our different backgrounds, experiences and perspectives from all employees. Our commitment to diversity, inclusion, and belonging is real. We want all to feel welcomed. Everyone is treated equally with dignity and respect regardless of their race, age, gender identity, or sexual orientation. Our Diversity, Inclusion and Belonging Committee plays a critical role in advancing us to the next level of awareness and engagement. \nGovernance: Our policy is to comply with the letter and spirit of all laws that govern our operations and to adhere to the highest standards of business ethics. We implemented general legal and ethical guidelines in our \"Code of Conduct.\" The guidelines apply to all employees and majority-owned affiliates, including subsidiaries, both in the United States and other countries. \nAs of June\u00a030, 2023, our total workforce consisted of approximately 4,500 employees, which included 182 production employees in Washington, Pennsylvania, who are covered under a collective bargaining agreement which expires on August 31, 2025, and 393 employees in Latrobe, Pennsylvania who are covered under a collective bargaining agreement which has been extended to August 14, 2023. Negotiations with union representatives are currently in process. We believe our relations with our employees are generally good.\n\u00a0\n(d)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nFinancial information about foreign and domestic operations and export sales:\n\u00a0\nSales outside of the United States, including export sales, were $994.1 million, $656.4 million and $549.0 million in fiscal years 2023, 2022 and 2021, respectively. Long-lived assets held outside of the United States were $15.7 million and $15.7 million as of June\u00a030, 2023 and 2022, respectively. For further information on domestic and international sales, see Note 4 to our consolidated financial statements included in Item 8. \"Financial Statements and Supplementary Data.\"\n\u00a0\n5\nTable of Contents\n(e)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nAvailable Information:\n\u00a0\nOur Board of Directors has adopted a Code of Ethics for the Chief Executive Officer and Chief Financial Officer of Carpenter Technology Corporation, which is also applicable to our other executive officers.\u00a0There were no waivers of the Code of Ethics in fiscal year 2023.\u00a0The Code of Ethics and any information regarding any waivers of the Code of Ethics are disclosed on Carpenter's website at www.carpentertechnology.com.\u00a0Our annual reports on Form\u00a010-K, quarterly reports on Form\u00a010-Q and current reports on Form\u00a08-K, filed or furnished pursuant to Section\u00a013(a)\u00a0or 15(d)\u00a0of the Securities Exchange Act of 1934, are available free of charge through our website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (\"SEC\").\u00a0Our website and the content contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form\u00a010-K. \nThe SEC maintains an Internet site that contains reports, proxy and other information regarding issuers that file electronically.\u00a0Such information can be accessed through the Internet at www.sec.gov.",
+  "item1a": ">Item 1A.\u00a0 Risk Factors\n\u00a0\nThere are inherent risks and uncertainties associated with all businesses that could adversely affect operating performances or financial conditions. The following discussion outlines the risks and uncertainties that management believes are the most material to our business. However, these are not the only risks or uncertainties that could affect our business. Certain risks are associated specifically with our business, industry or customer base, while others have a broader effect. \n\u00a0\nThe demand for certain products we produce may be cyclical.\n\u00a0\nDemand in our end-use markets can be cyclical in nature and sensitive to general economic conditions, competitive influences and fluctuations in inventory levels throughout the supply chain. As such, our results of operations, financial condition, cash flows and availability of credit could fluctuate significantly from period to period. \n\u00a0\nA significant portion of our sales represents products sold to customers in the commercial aerospace and defense and energy markets. The cyclicality of those markets can adversely affect our current business and our expansion objectives.\n\u00a0\nThe commercial aerospace and defense market is historically cyclical due to both external and internal market factors. These factors include general economic conditions, airline profitability, consumer demand for air travel, varying fuel and labor costs, price competition and international and domestic political conditions such as military conflict and the threat of terrorism. The length and degree of cyclical fluctuation can be influenced by any one or combination of these factors and therefore are difficult to predict with certainty. A downturn in the commercial aerospace and defense industry would adversely affect the demand for our products and/or the prices at which we are able to sell our products; our results of operations and financial condition could be materially adversely affected. \n\u00a0\nThe energy market has also been historically cyclical, principally as a result of volatile oil prices that impact demand for our products. Our future success requires us to, among other things, expand in key international energy markets by successfully adding to our customer base, distribution channels and product portfolio. The volatility of oil prices and other factors that contribute to the cyclicality of the energy market will impact our ability to expand successfully in this area and may adversely affect our results of operations and financial condition. \nAny significant delay or inability to successfully expand our operations in a timely and cost-effective manner could materially adversely affect our business, financial condition and results of operations. \n\u00a0\nOver the last few years, we have undertaken capital projects associated with expanding our production capacity and capability.\u00a0These projects place a significant demand on management and operational resources. Our success in expanding our operations in a cost-effective manner depends upon numerous factors including the ability of management to ensure the necessary resources are in place to properly execute these projects, our ability to obtain the necessary internal and customer qualifications to produce material from the facilities and our ability to operate the facilities to maximize the potential opportunities with minimal impacts to our existing operations. If we are not able to achieve the anticipated results from our capital expansion projects, or if we incur unanticipated delays, or excess costs, our results of operations and financial position may be materially adversely affected. \n\u00a0\n6\nTable of Contents\nPeriods of reduced demand and excess supply as well as the availability of substitute lower cost materials can adversely affect our ability to price and sell our products at the profitability levels we require to be successful.\n\u00a0\nAdditional worldwide capacity and reduced demand for our products could significantly impact future worldwide pricing which would adversely impact our results of operations and financial condition. In addition, continued availability of lower cost, substitute materials may cause significant fluctuations in future results as our customers opt for a lower cost alternative. \n\u00a0\nWe change prices on our products as we deem necessary. In addition to the above general competitive impact, other market conditions and various economic factors beyond our control can adversely affect the timing of our pricing actions. The effects of any pricing actions may be delayed due to long manufacturing lead times or the terms of existing contracts. There is no guarantee that the pricing actions we implement will be effective in maintaining the Company's profit margin levels. \n\u00a0\nWe rely on third parties to supply certain raw materials and supplies that are critical to the manufacture of our products and we may not be able to access alternative sources of these raw materials if the suppliers are unwilling or unable to meet our demand.\n\u00a0\nCosts of certain critical raw materials, such as nickel, cobalt, chromium, manganese, molybdenum, titanium, iron and scrap containing these alloys have been volatile due to factors beyond our control. We expect to mitigate most of the adverse impact of rising raw material costs through raw material surcharges, indices to customers and raw material forward contracts, but changes in business conditions could adversely affect our ability to recover rapid increases in raw material costs and may adversely affect our results of operations. \n\u00a0\nIn addition, the availability of critical raw materials and supplies is subject to factors that are not in our control. In some cases, these critical raw materials and supplies are purchased from suppliers operating in countries that may be subject to unstable political and economic conditions.\u00a0At any given time, we may be unable to obtain an adequate supply of these critical raw materials and supplies on a timely basis, at prices and other terms acceptable to us, or at all. \n\u00a0\nIf suppliers increase the price of critical raw materials or are unwilling or unable to meet our demand, we may not have alternative sources of supply. In addition, to the extent that we have quoted prices to customers and accepted customer orders for products prior to purchasing necessary raw materials, or have existing contracts, we may be unable to raise the price of products to cover all or part of the increased cost of the raw materials to our customers.\nThe manufacture of some of our products is a complex process and requires long lead times. As a result, we may experience delays or shortages in the supply of raw materials. If unable to obtain adequate and timely receipts of required raw materials, we may be unable to timely manufacture sufficient quantities of products. This could cause us to lose sales, incur additional costs, delay new product introductions or suffer harm to our reputation. \nWe provide benefits to active and retired employees throughout most of our Company, most of which are not covered by insurance; and thus, our financial condition can be adversely affected if our investment returns are insufficient to meet these obligations. \n\u00a0\nWe have obligations to provide substantial benefits to active and retired employees, and most of the associated costs are paid by the Company and are not covered by insurance. In addition, certain employees are covered by defined benefit pension plans, with the majority of our plans covering employees in the United States. Benefits accrued to eligible participants of our largest qualified defined benefit pension plan and certain non-qualified pension plans were frozen effective\u00a0December 31, 2016. Many domestic and international competitors do not provide defined benefit plans and/or retiree health care plans, and other international competitors operate in jurisdictions with government sponsored health care plans that may offer them a cost advantage.\u00a0A decline in the value of plan investments in the future, an increase in costs or liabilities or unfavorable changes in laws or regulations that govern pension plan funding could materially change the timing and amount of required pension funding. A requirement to accelerate or increase pension contributions in the future could have a material adverse effect on our results of operations, cash flows and financial condition.\n\u00a0\n7\nTable of Contents\nThe extensive environmental, health and safety regulatory regimes applicable to our manufacturing operations create potential exposure to significant liabilities.\n\u00a0\nThe nature of our manufacturing business subjects our operations to numerous and varied federal, state, local and international laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health. We have used, and currently use and manufacture, substantial quantities of substances that are considered hazardous, extremely hazardous or toxic under worker safety and health laws and regulations. Although we implement controls and procedures designed to reduce continuing risk of adverse impacts and health and safety issues, we could incur substantial cleanup costs, fines and civil or criminal sanctions, third party property damage or personal injury claims as a result of violations, non-compliance or liabilities under these regulatory regimes required at our facilities. \nWe have environmental remediation liabilities at some of our owned operating facilities and have been designated as a potentially responsible party (\"PRP\") with respect to certain third party Superfund or similar waste disposal sites and other third party owned sites. Additionally, we have been notified that we may be a PRP with respect to other Superfund sites as to which no proceedings have been instituted against us. From time to time, we are a party to lawsuits and other proceedings involving alleged violations of, or liabilities arising from, environmental laws. \n\u00a0\nWhen our liability is probable and we can reasonably estimate our costs, we record environmental liabilities in our financial statements. However, in many cases, we are not able to determine whether we are liable, or if liability is probable, in order to reasonably estimate the loss or range of loss which could result from such environmental liabilities. Estimates of our liability remain subject to additional uncertainties, including the nature and extent of site contamination, available remediation alternatives, the extent of corrective actions that may be required, and the number and financial condition of other PRPs, as well as the extent of their responsibility for the remediation. We adjust our accruals to reflect new information as appropriate. Future adjustments could have a material adverse effect on our results of operations in a given period, but we cannot reliably predict the amounts of such future adjustments. Future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on our financial condition, cash flows or results of operations. \n\u00a0\nOur manufacturing processes, and the manufacturing processes of many of our suppliers and customers, are energy intensive and generate carbon dioxide and other \"Greenhouse Gases,\" and pending legislation or regulation of Greenhouse Gases, if enacted or adopted in an onerous form, could have a material adverse impact on our results of operations, financial condition and cash flows. \n\u00a0\nPolitical and scientific debates related to the impacts of greenhouse gas emissions on the global climate are prevalent. Regulation or some form of legislation aimed at reducing the greenhouse gas emissions is currently being considered both in the United States and globally. As a specialty alloy manufacturer, we will be affected, both directly and indirectly, if climate change legislation, such as use of a \"cap and trade\" system, is enacted and implemented. Such legislation could have a material adverse impact on our results of operations, financial condition and cash flows.\n\u00a0\nProduct liability and product quality claims could adversely affect our operating results.\n\u00a0\nWe produce ultra high strength, high temperature and corrosion-resistant alloys designed for our customers' demanding applications particularly in our Aerospace and Defense, Medical and Energy end-use markets. Failure of the materials that are included in our customers' applications could give rise to substantial product liability claims. There can be no assurance that our insurance coverage will be adequate or continue to be available on terms acceptable to us.\u00a0We have a complex manufacturing process necessary to meet our customers' stringent product specifications. We are also required to adhere to various third party quality certifications and perform sufficient internal quality reviews to ensure compliance with established standards. If we fail to meet the customer specifications for their products, we may be subject to product quality costs and claims. These costs are generally not insured. The impacts of product liability and quality claims could have a material adverse impact on our results of operations, financial condition and cash flows.\n \n8\nTable of Contents\nOur business subjects us to risks of litigation claims, as a routine matter, and this risk increases the potential for a loss that might not be covered by insurance.\n\u00a0\nLitigation claims relate to the conduct of our currently and formerly owned businesses, including claims pertaining to product liability, commercial disputes, employment actions, employee benefits, compliance with domestic and international laws and regulations, personal injury, patent infringement and tax issues. Due to the uncertainties of litigation, we can give no assurance that we will prevail on claims made against us in the lawsuits that we currently face or that additional claims will not be made against us in the future. The outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to us.\u00a0The resolution in any reporting period of one or more of these matters could have a material adverse effect on our results of operations for that period. We can give no assurance that any other matters brought in the future will not have a material adverse effect on our results of operations, financial condition and cash flows.\n\u00a0\nA portion of our workforce is covered by collective bargaining agreements and union attempts to organize our other employees may cause work interruptions or stoppages.\n\u00a0\nApproximately 182 production employees at our Dynamet business unit located in Washington, Pennsylvania are covered by a collective bargaining agreement.\u00a0This agreement expires August\u00a031, 2025.\u00a0Approximately 393 production employees at our Latrobe business unit located in Latrobe, Pennsylvania are covered by a collective bargaining agreement which has been extended to August\u00a014, 2023. Negotiations with union representatives are currently in process. There can be no assurance that we will succeed in concluding collective bargaining agreements with the unions to replace those that expire which could result in work interruptions and stoppages. From time to time, the employees at our manufacturing facility in Reading, Pennsylvania, participate in election campaigns or union organizing attempts. There is no guarantee that future organization attempts will not result in union representation.\n\u00a0\nOur manufacturing processes are complex and depend upon critical, high cost equipment for which there may be only limited or no production alternatives. \n\u00a0\nIt is possible that we could experience prolonged periods of reduced production due to unplanned equipment failures, and we could incur significant repair or replacement costs in the event of those failures.\u00a0It is also possible that operations could be disrupted due to other unforeseen circumstances such as power outages, explosions, fires, floods, accidents and severe weather conditions. We must make regular, substantial capital investments and changes to our manufacturing processes to lower production costs, improve productivity, manufacture new or improved products and remain competitive. We may not be in a position to take advantage of business opportunities or respond to competitive pressures if we fail to update, replace or make additions to our equipment or our manufacturing processes in a timely manner.\u00a0The cost to repair or replace much of our equipment or facilities would be significant.\u00a0We cannot be certain that we will have sufficient internally generated cash or acceptable external financing to make necessary capital expenditures in the future.\n\u00a0\nA significant portion of our manufacturing and production facilities are located in Reading and Latrobe, Pennsylvania and Athens, Alabama, which increases our exposure to significant disruption to our business as a result of unforeseeable developments in these geographic areas.\n\u00a0\nIt is possible that we could experience prolonged periods of reduced production due to unforeseen catastrophic events occurring in or around our manufacturing facilities in Reading and Latrobe, Pennsylvania and Athens, Alabama. As a result, we may be unable to shift manufacturing capabilities to alternate locations, accept materials from suppliers, meet customer shipment needs or address other severe consequences that may be encountered.\u00a0Our financial condition, cash flows and results of operations could be materially adversely affected.\nWe rely on third parties to supply energy consumed at each of our energy-intensive production facilities.\n\u00a0\nThe prices for and availability of electricity, natural gas, oil and other energy resources are subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond our control. Disruptions or lack of availability in the supply of energy resources could temporarily impair the ability to operate our production facilities. Further, increases in energy costs, or changes in costs relative to energy costs paid by competitors, have affected and may continue to adversely affect our profitability. To the extent that these uncertainties cause suppliers and customers to be more cost sensitive, increased energy prices may have an adverse effect on our results of operations, financial condition and cash flows.\n\u00a0\n9\nTable of Contents\nWe consider acquisitions, joint ventures and other business combination opportunities, as well as possible business unit dispositions, as part of our overall business strategy, that involve uncertainties and potential risks that we cannot predict or anticipate fully.\n\u00a0\nFrom time to time, management holds discussions with management of other companies to explore such aforementioned opportunities. As a result, the relative makeup of the businesses comprising our Company is subject to change. Acquisitions, joint ventures and other business combinations involve various inherent risks. Such risks include difficulties in integrating the operations, technologies, products and personnel of the acquired companies, diversion of management's attention from existing operations, difficulties in entering markets in which we have limited or no direct prior experience, dependence on unfamiliar supply chains, insufficient revenues to offset increased expenses associated with acquisitions, loss of key employees of the acquired companies, inaccurate assessment of undisclosed liabilities, difficulties in realizing projected efficiencies, synergies and cost savings, and increases in our debt or limitation on our ability to access additional capital when needed.\n\u00a0\nRegulations related to conflict minerals could adversely impact our business.\nThe SEC has promulgated final rules\u00a0mandated by the Dodd-Frank Act regarding disclosure of the use of tin, tantalum, tungsten and gold, known as conflict minerals, in products manufactured by public companies. These rules\u00a0require due diligence to determine whether such minerals originated from the Democratic Republic of the Congo (the \"DRC\") or an adjoining country and whether such minerals helped finance the armed conflict in the DRC.\u00a0The Company timely filed its latest annual conflict minerals report required by the rules\u00a0on May 26, 2023. There are costs associated with complying with these disclosure requirements going forward, including costs to determine the origin of conflict minerals used in our products. In addition, the implementation of these rules\u00a0could adversely affect the sourcing, supply and pricing of materials used in our products.\u00a0Also, we may face disqualification as a supplier for customers and reputational challenges if the due diligence procedures we continue to implement do not enable us to verify the origins for all conflict minerals or to determine that such minerals are DRC conflict-free.\nOur business may be impacted by external factors that we may not be able to control.\n\u00a0\nWar (such as the current war in Ukraine), civil conflict, terrorism, other geopolitical and diplomatic tensions, natural disasters, climate change and public health issues including domestic or international pandemics, other outbreaks of contagious diseases (such as the COVID-19 pandemic) and other adverse public health developments have caused or could cause damage or disruption to domestic or international commerce by creating economic or political uncertainties. Additionally, the volatility in the financial markets could negatively impact our business. These events could result in a decrease in demand for our products, affect the availability of credit facilities to us, our customers or other members of the supply chain necessary to transact business, make it difficult or impossible to deliver orders to customers or receive materials from suppliers, affect the availability or pricing of energy sources or result in other severe consequences that may or may not be predictable. As a result, our business, financial condition and results of operations could be materially adversely affected. \n\u00a0\nOur international operations and global sales expose us to various risks including the impact of tariffs, which may adversely affect our business.\n\u00a0\nRisks associated with international operations include without limitation: political and economic instability, including weak conditions in the world's economies; difficulty in collecting accounts receivable; unstable or unenforced export controls; changes in legal and regulatory requirements; policy changes affecting the markets for our products; changes in duties, quotas, tariffs and taxes; changes in taxation including the ability to repatriate earnings; and exchange rate fluctuations (which may affect sales to international customers and the value of profits earned on international sales when converted into U.S. dollars). In addition, we will need to invest in building our capabilities and infrastructure to meet our international growth goals. Any of these factors could materially adversely affect our results for the period in which they occur.\nSignificant changes to United States and international trade policies continue to emerge and activity levels have increased with regard to new import and export tariffs, retaliatory tariffs, and quotas; modifications to international trade policy; the withdrawal from or renegotiation of certain trade agreements; and other changes. These changes, including any implementation of or changes in trade sanctions, tariffs and embargoes, could materially adversely impact our business or require us to make changes to our current business practices or supply chain. \n10\nTable of Contents\nWe value most of our inventory using the LIFO method, which could be repealed resulting in adverse effects on our cash flows and financial condition.\n\u00a0\nThe cost of our inventories is primarily determined using the Last-In, First-Out (\"LIFO\") method. Under the LIFO inventory valuation method, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials and other costs may have been incurred at significantly different values due to the length of time of our production cycle. Generally, in a period of rising prices, LIFO recognizes higher costs of goods sold, which both reduces current income and assigns a lower value to the year-end inventory.\u00a0From time to time, there have been proposals aimed at repealing the election to use the LIFO method for income tax purposes. According to these proposals, generally taxpayers that currently use the LIFO method would be required to revalue their LIFO inventory to its First-In, First-Out (\"FIFO\") value. As of June\u00a030, 2023, if the FIFO method of inventory had been used instead of the LIFO method, our inventories would have been approximately $517.2 million higher. This increase in inventory would result in a one-time increase in taxable income which may be taken into account over the following several taxable years. The repeal of the LIFO method could result in a substantial tax liability which could adversely impact our cash flows and financial condition.\n\u00a0\nWe depend on the ability to hire and retain a qualified workforce and key personnel.\n\u00a0\nMuch of our future success depends on the continued service and availability of skilled personnel, including members of our executive management team, management, metallurgists and production positions. Failure to attract, hire, develop, motivate, and retain highly qualified employee talent, or failure to develop and implement an adequate succession plan for the management team, could disrupt our operations and adversely affect our business and our future success.\nCybersecurity attacks and other security breaches or failures in functionality of our information technology (\"IT\") and computer systems could adversely impact our financial condition and results of operations and compromise the integrity of confidential data. \n\u00a0\nManagement relies extensively on IT infrastructure, including hardware, networks, software, people and processes, to provide useful information to conduct our business and support assessments and conclusions about operating performance. Our inability to produce relevant and/or reliable measures of operating performance in an efficient, cost-effective and well-controlled fashion may have significant negative impacts on our future operations. In addition, any material failure, interruption of service, or compromised data security could adversely affect our operations. Security breaches in our IT could result in theft, destruction, loss, misappropriation or release of confidential data or intellectual property which could adversely impact our future results.\nWe are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our IT networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. Cybersecurity attacks are evolving in both frequency and sophistication and could be made by both internal and external individuals or groups with an extensive range of motives. If we are unable to prevent cybersecurity attacks and other information security breaches, we may encounter significant disruptions in our operations which could adversely impact our business, financial condition and results of operations or result in the unauthorized disclosure of confidential information. Such breaches may also harm our reputation, result in financial losses or subject us to litigation or other costs or penalties.\n11\nTable of Contents\nThe carrying value of goodwill and other long-lived assets may not be recoverable.\n\u00a0\nGoodwill and other long-lived assets including property, plant and equipment, software and other intangible assets are recorded at fair value on the date of acquisition. We review these assets at least annually for impairment. Impairment may result from, among other things, deterioration in performance, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other factors. Any future impairment of goodwill or other long-lived assets could have a material adverse effect on our results of operations.\nOur ability to produce timely and accurate financial statements may be impacted if we fail to maintain an effective system of disclosure controls and internal control over financial reporting. \nWe are subject to the reporting requirements of the Sarbanes-Oxley Act of 2002 (\"Sarbanes-Oxley\"). Sarbanes-Oxley requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are also required to make a formal assessment and provide an annual management report on the effectiveness of our internal control over financial reporting, which must be attested to by our independent registered public accounting firm. In order to maintain the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, resources, including accounting-related costs and management oversight.",
+  "item7": ">Item 7.\u00a0 Management's Discussion and Analysis of Financial Condition and Results of Operations\nBackground and General\n\u00a0\nOur discussions below in this Item 7 should be read in conjunction with our consolidated financial statements, including the notes thereto, included in this annual report on Form\u00a010-K. \n\u00a0\nWe are a producer and distributor of premium specialty alloys, including titanium alloys, powder metals, stainless steels, alloy steels, and tool steels. We are a recognized leader in high-performance specialty alloy-based materials and process solutions for critical applications in the aerospace, defense, medical, transportation, energy, industrial and consumer markets. We have evolved to become a pioneer in premium specialty alloys, including titanium, nickel, and cobalt, as well as alloys specifically engineered for additive manufacturing processes and soft magnetics applications. We primarily process basic raw materials such as nickel, cobalt, titanium, manganese, chromium, molybdenum, iron scrap and other metal alloying elements through various melting, hot forming and cold working facilities to produce finished products in the form of billet, bar, rod, wire and narrow strip in many sizes and finishes. We also produce certain metal powders and parts. Our sales are distributed directly from our production plants and distribution network as well as through independent distributors. Unlike many other specialty steel producers, we operate our own worldwide network of service and distribution centers. These service centers, located in the United States, Canada, Mexico, Europe and Asia allow us to work more closely with customers and to offer various just-in-time stocking programs.  \n\u00a0\u00a0\u00a0\u00a0\nAs part of our overall business strategy, we have sought out and considered opportunities related to strategic acquisitions and joint collaborations as well as possible business unit dispositions aimed at broadening our offering to the marketplace. We have participated with other companies to explore potential terms and structures of such opportunities and expect that we will continue to evaluate these opportunities.  \nWhile we prepare our financial statements in accordance with U.S. generally accepted accounting principles (\"U.S. GAAP\"), we also utilize and present certain financial measures that are not based on or included in U.S. GAAP (we refer to these as \"Non-GAAP financial measures\"). Please see the section \"Non-GAAP Financial Measures\" below for further discussion of these financial measures, including the reasons why we use such financial measures and reconciliations of such financial measures to the nearest U.S. GAAP financial measures. \n\u00a0\n17\nTable of Contents\nBusiness Trends\n\u00a0\nSelected financial results for the past three fiscal years are summarized below:\n\u00a0\nYears Ended June 30,\n($\u00a0in\u00a0millions,\u00a0except\u00a0per\u00a0share\u00a0data)\n2023\n2022\n2021\nNet sales\n$\n2,550.3\u00a0\n$\n1,836.3\u00a0\n$\n1,475.6\u00a0\nNet sales excluding surcharge revenue (1)\n$\n1,848.0\u00a0\n$\n1,400.0\u00a0\n$\n1,252.8\u00a0\nOperating income (loss)\n$\n133.1\u00a0\n$\n(24.9)\n$\n(248.6)\nAdjusted operating income (loss) (1)\n$\n133.1\u00a0\n$\n(34.0)\n$\n(105.5)\nNet income (loss)\n$\n56.4\u00a0\n$\n(49.1)\n$\n(229.6)\nDiluted earnings (loss) per share\n$\n1.14\u00a0\n$\n(1.01)\n$\n(4.76)\nAdjusted diluted earnings (loss) per share (1)\n$\n1.14\u00a0\n$\n(1.06)\n$\n(2.01)\nPurchases of property, plant, equipment and software\n$\n82.3\u00a0\n$\n91.3\u00a0\n$\n100.5\u00a0\nAdjusted free cash flow (1)\n$\n(67.6)\n$\n(83.1)\n$\n171.1\u00a0\nPounds sold (in thousands) (2)\n214,122\u00a0\n188,112\u00a0\n169,706\u00a0\n(1)\u00a0 See the section \"Non-GAAP Financial Measures\" below for further discussion of these financial measures.\n\u00a0\n(2)\u00a0 Pounds sold data includes Specialty Alloys Operations segment and Dynamet and Additive businesses from the Performance Engineered Products segment.\nOur sales are across diverse end-use markets. The table below summarizes our sales by end-use market over the past three fiscal years: \n\u00a0\n\u00a0\nYears Ended June 30,\n\u00a0\n2023\n2022\n2021\n($\u00a0in\u00a0millions)\nDollars\n%\u00a0of\nTotal\nDollars\n%\u00a0of\nTotal\nDollars\n%\u00a0of\nTotal\nAerospace and Defense\n$\n1,290.7\u00a0\n51\u00a0\n%\n$\n790.2\u00a0\n43\u00a0\n%\n$\n710.9\u00a0\n48\u00a0\n%\nMedical\n301.6\u00a0\n12\u00a0\n%\n212.3\u00a0\n12\u00a0\n%\n143.5\u00a0\n10\u00a0\n%\nTransportation\n185.0\u00a0\n7\u00a0\n%\n178.3\u00a0\n10\u00a0\n%\n144.5\u00a0\n10\u00a0\n%\nEnergy\n163.3\u00a0\n6\u00a0\n%\n113.0\u00a0\n6\u00a0\n%\n87.8\u00a0\n6\u00a0\n%\nIndustrial and Consumer\n487.2\u00a0\n19\u00a0\n%\n417.2\u00a0\n23\u00a0\n%\n292.1\u00a0\n20\u00a0\n%\nDistribution\n122.5\u00a0\n5\u00a0\n%\n125.3\u00a0\n6\u00a0\n%\n96.8\u00a0\n6\u00a0\n%\nTotal net sales\n$\n2,550.3\u00a0\n100\u00a0\n%\n$\n1,836.3\u00a0\n100\u00a0\n%\n$\n1,475.6\u00a0\n100\u00a0\n%\n18\nTable of Contents\nImpact of Raw Material Prices and Product Mix\n\u00a0\nWe value most of our inventory utilizing the LIFO inventory costing methodology. Under the LIFO inventory costing method, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may have been acquired at potentially significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers. In a period of rising raw material costs, the LIFO inventory valuation normally results in higher cost of sales. Conversely, in a period of decreasing raw material costs, the LIFO inventory valuation normally results in lower cost of sales. \nThe volatility of the costs of raw materials has impacted our operations over the past several years. We, and others in our industry, generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs.\u00a0Generally, the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases. However, a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order, which creates a lag between surcharge revenue and corresponding raw material costs recognized in cost of sales. The surcharge mechanism protects our net income on such sales except for the lag effect discussed above. However, surcharges have had a dilutive effect on our gross margin and operating margin percentages as described later in this report. \n\u00a0\nApproximately 45 percent of our net sales are sales to customers under firm price sales arrangements. Firm price sales arrangements involve a risk of profit margin fluctuations, particularly when raw material prices are volatile. In order to reduce the risk of fluctuating profit margins on these sales, we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the related products sold.\u00a0Firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established. If a customer fails to meet the volume commitments (or the consumption schedule deviates from the agreed-upon terms of the firm price sales arrangements), we may need to absorb the gains or losses associated with the commodity forward contracts on a temporary basis. Gains or losses associated with commodity forward contracts are reclassified to earnings/loss when earnings are impacted by the hedged transaction. Because we value most of our inventory under the LIFO costing methodology, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period attempting to match the most recently incurred costs with revenues. Gains and/or losses on the commodity forward contracts are reclassified from accumulated other comprehensive income (loss) (\"AOCI\") together with the actual purchase price of the underlying commodities when the underlying commodities are purchased and recorded in inventory. To the extent that the total purchase price of the commodities, inclusive of the gains or losses on the commodity forward contracts, are higher or lower relative to the beginning of year costs, our cost of goods sold reflects such amounts. Accordingly, the gains and/or losses associated with commodity forward contracts may not impact the same period that the firm price sales arrangements revenue is recognized, and comparisons of gross profit from period to period may be impacted. These firm price sales arrangements are expected to continue as we look to strengthen our long-term customer relationships by expanding, renewing and, in certain cases, extending to a longer term, our customer long-term arrangements.\n\u00a0\nWe produce hundreds of grades of materials, with a wide range of pricing and profit levels depending on the grade. In addition, our product mix within a period is subject to the fluctuating order patterns of our customers as well as decisions we may make on participation in certain products based on available capacity including the impacts of capacity commitments we may have under existing customer agreements. While we expect to see positive contribution from a more favorable product mix in our margin performance over time, the impact by period may fluctuate, and period to period comparisons may vary.\nImpact of Inflation and Supply Chain Disruption\nRecent inflationary pressures affecting the general economy have impacted our operating costs including increased costs for raw materials, energy, key operating supplies and labor. \nAdditionally, global supply chain disruptions have affected our operations, including the availability and cost of labor, as well as the supply of industrial goods. As a result, we are experiencing higher labor rates, extended lead times for supplies, as well as delayed capital expenditures due to the availability of equipment and outside contractors. These disruptions have resulted in increased direct costs and certain inefficiencies in our operations. \n19\nTable of Contents\nWe have taken steps that we believe are necessary to mitigate inflationary pressures and supply chain disruptions. As discussed above, we have certain mechanisms in place to reduce the impact for the most significant of these items and have been able to recover these increases through our raw material surcharge and other pricing strategies. We have long-term relationships with major suppliers who provide availability of material at competitive prices along with arrangements with certain vendors to provide consigned materials at our manufacturing facilities available for our consumption as necessary. We also continue to execute on targeted initiatives to maximize productivity and achieve capacity gains.\nWhile these inflation and supply chain factors could negatively impact our business in the near-term, we do not currently expect them to materially impact our business outlook or operational goals over the long-term.\nNet Pension Expense (Benefit)\n\u00a0\nNet pension expense (benefit), as we define it below, includes the net periodic benefit costs related to both our pension and other postretirement plans. The net periodic benefit costs are determined annually based on beginning of year balances and are recorded ratably throughout the fiscal year, unless a significant re-measurement event occurs. \nDuring the fiscal year ended June\u00a030, 2021, we evaluated the need for settlement accounting under Accounting Standards Codification (\"ASC\") 715-30-35-82 based on the higher than normal lump-sum payments made during fiscal year 2021 in our largest defined benefit plan. We determined that the lump-sum payments exceeded the threshold of service cost and interest cost components and settlement accounting was required. We recorded settlement charges of $11.4 million in the year ended June\u00a030, 2021, within other expense (income), net.\nThe following is a summary of the net pension expense (income) for the years ended June\u00a030, 2023, 2022 and 2021:\n\u00a0\nYears\u00a0Ended\u00a0June\u00a030,\n($\u00a0in\u00a0millions)\n2023\n2022\n2021\nPension plans\n$\n20.6\u00a0\n$\n(4.2)\n$\n21.3\u00a0\nOther postretirement plans\n(0.7)\n(3.1)\n3.3\u00a0\nNet pension expense (income) \n$\n19.9\u00a0\n$\n(7.3)\n$\n24.6\u00a0\n\u00a0\nThe service cost component of net pension expense (income) represents the estimated cost of future pension liabilities earned associated with active employees. The pension earnings, interest and deferrals is comprised of the expected return on plan assets, interest costs on the projected benefit obligations of the plans and amortization of actuarial gains and losses and prior service costs and benefits. \nNet periodic expense (income) is recorded in accounts that are included in both the cost of sales and selling, general and administrative expenses based on the function of the associated employees and in other expense (income), net.\u00a0The following is a summary of the classification of net pension expense (income) for the years ended June\u00a030, 2023, 2022 and 2021:\n\u00a0\n\u00a0\nYears\u00a0Ended\u00a0June\u00a030,\n($\u00a0in\u00a0millions)\n2023\n2022\n2021\nService cost included in Cost of sales\n$\n8.6\u00a0\n$\n9.6\u00a0\n$\n10.8\u00a0\nService cost included in Selling, general and administrative expenses\n1.3\u00a0\n1.4\u00a0\n1.5\u00a0\nPension earnings, interest and deferrals included in Other expense (income), net\n10.0\u00a0\n(18.3)\n0.9\u00a0\nSettlement charge included in Other expense (income), net\n\u2014\u00a0\n\u2014\u00a0\n11.4\u00a0\nNet pension expense (income) \n$\n19.9\u00a0\n$\n(7.3)\n$\n24.6\u00a0\n\u00a0\nAs of June\u00a030, 2023 and 2022, amounts capitalized in gross inventory were $2.8 million and $1.7 million, respectively.\n20\nTable of Contents\nOperating Performance Overview\n\u00a0\nMore than a year ago, we set the goal to return to pre-pandemic (fiscal year 2019) profitability on a run-rate basis by the end of fiscal year 2023. We exceeded that goal in the fourth quarter of fiscal year 2023. Our performance was driven by increased productivity at our facilities, improved product mix and realized price increases. Notably, the Specialty Alloys Operations segment demonstrated significant improvement, reaching $179.1 million of operating income, or 8.1 percent of net sales (11.6 percent of net sales excluding surcharge revenue), compared to operating income of $9.6 million, or 0.6 percent of net sales (0.8 percent of net sales excluding surcharge revenue), for fiscal year 2022.\nReturning to our pre-pandemic profitability is an important milestone on our journey to doubling our operating income by fiscal year 2027 (versus fiscal year 2019), and we expect to continue our momentum into fiscal year 2024. We believe that we are well-positioned to realize our target: we are operating in a strong demand environment in which our customers want more material, sooner, resulting in record backlogs. We are increasing our productivity across facilities, as evidenced by our performance in the fourth quarter of fiscal year 2023, and we are actively managing our preventive maintenance schedules to protect our unique assets, serve our customers and maximize shipments. Macro trends are increasing demand across our end-use markets for our broad portfolio of specialized solutions. We have leading capabilities and capacity with a difficult-to-replicate system of assets, and we continue to drive improved productivity to capture the demand.\nResults of Operations \u2014 Fiscal Year 2023 Compared to Fiscal Year 2022\n\u00a0\nFor fiscal year 2023, we reported net income of $56.4 million, or $1.14 earnings per diluted share. This compares with net loss of $49.1 million, or $1.01 loss per diluted share, in fiscal year 2022. There were no reported special items for fiscal year 2023. Excluding special items for fiscal year 2022, loss per diluted share would have been $1.06. The results for fiscal year 2023 compared to fiscal year 2022 were driven by growing demand across all our end-use markets, increased productivity at our facilities, improved product mix and realized price increases. \nSpecial items included in our fiscal year 2022 results included negative impacts from COVID-19 charges of $5.9 million, a historical environmental site charge of $2.4 million and debt extinguishment losses, net of $6.0 million. These charges were offset by benefits related to COVID-19 employee retention credits of $12.7 million and an acquisition-related contingent liability release of $4.7 million.\nNet Sales\n\u00a0\nNet sales for fiscal year 2023 were $2,550.3 million, which represents a 39 percent increase from fiscal year 2022. Excluding surcharge revenue, sales were 32 percent higher than fiscal year 2022 on 14 percent higher volume.\u00a0The results reflect double-digit sales growth across Aerospace and Defense, Medical, Energy and Industrial and Consumer end-use markets versus the prior year period. \n\u00a0\nGeographically, sales outside the United States increased 51 percent from fiscal year 2022 to $994.1 million. The increase was due to higher product demand in all regions and in all end-use markets except Distribution. In particular, Aerospace and Defense outside the United States increased 89 percent. A portion of our sales outside the United States are denominated in foreign currencies. The impact of fluctuations in foreign currency exchange rates resulted in a $5.8 million decrease in sales during fiscal year 2023 compared to fiscal year 2022. International sales as a percentage of our total net sales represented 39 percent and 36 percent for fiscal year 2023 and fiscal year 2022, respectively.\n\u00a0\n21\nTable of Contents\nSales by End-Use Markets\nWe sell to customers across diversified end-use markets.\u00a0The following table includes comparative information for our net sales, which includes surcharge revenue, by principal end-use markets. We believe this is helpful supplemental information in analyzing the performance of the business from period to period.\n\u00a0\n\u00a0\nFiscal\u00a0Year\n$\nIncrease\n(Decrease)\n%\nIncrease\n(Decrease)\n($\u00a0in\u00a0millions)\n2023\n2022\nAerospace and Defense\n$\n1,290.7\u00a0\n$\n790.2\u00a0\n$\n500.5\u00a0\n63\u00a0\n%\nMedical\n301.6\u00a0\n212.3\u00a0\n89.3\u00a0\n42\u00a0\n%\nTransportation\n185.0\u00a0\n178.3\u00a0\n6.7\u00a0\n4\u00a0\n%\nEnergy\n163.3\u00a0\n113.0\u00a0\n50.3\u00a0\n45\u00a0\n%\nIndustrial and Consumer\n487.2\u00a0\n417.2\u00a0\n70.0\u00a0\n17\u00a0\n%\nDistribution\n122.5\u00a0\n125.3\u00a0\n(2.8)\n(2)\n%\nTotal net sales\n$\n2,550.3\u00a0\n$\n1,836.3\u00a0\n$\n714.0\u00a0\n39\u00a0\n%\nThe following table includes comparative information for our net sales by the same principal end-use markets, but excluding surcharge revenue:\n\u00a0\n\u00a0\nFiscal\u00a0Year\n$\nIncrease\n(Decrease)\n%\nIncrease\n(Decrease)\n($\u00a0in\u00a0millions)\n2023\n2022\nAerospace and Defense\n$\n919.5\u00a0\n$\n599.6\u00a0\n$\n319.9\u00a0\n53\u00a0\n%\nMedical\n241.3\u00a0\n177.2\u00a0\n64.1\u00a0\n36\u00a0\n%\nTransportation\n121.8\u00a0\n125.2\u00a0\n(3.4)\n(3)\n%\nEnergy\n104.3\u00a0\n76.3\u00a0\n28.0\u00a0\n37\u00a0\n%\nIndustrial and Consumer\n339.4\u00a0\n297.2\u00a0\n42.2\u00a0\n14\u00a0\n%\nDistribution\n121.7\u00a0\n124.5\u00a0\n(2.8)\n(2)\n%\nTotal net sales excluding surcharge revenue\n$\n1,848.0\u00a0\n$\n1,400.0\u00a0\n$\n448.0\u00a0\n32\u00a0\n%\n\u00a0\nSales to the Aerospace and Defense end-use market increased 63 percent from fiscal year 2022 to $1,290.7 million. Excluding surcharge revenue, sales increased 53 percent on 34 percent higher shipment volume. The fiscal year 2023 results reflect increases across all Aerospace end-use sub-markets. This was driven by ramping activity levels across the aerospace supply chain due to higher aircraft build rates to replace aging fleets and meet increasing passenger travel demand. The fiscal year 2022 results reflected short-term operational challenges associated with the Reading press outage and labor shortages. \n\u00a0\u00a0\nSales to the Medical end-use market increased 42 percent to $301.6 million from fiscal year 2022. Excluding surcharge revenue, sales increased 36 percent on 30 percent higher shipment volume. The fiscal year 2023 results reflect higher demand across all applications as the medical supply chain replenishes inventory levels to meet higher patient demand for elective medical procedures. \nTransportation end-use market sales of $185.0 million reflected a 4 percent increase from fiscal year 2022. Excluding surcharge revenue, sales decreased 3 percent on 20 percent lower shipment volume. The fiscal year 2023 results reflect an improved mix from recent price increases, particularly in light-duty vehicle applications, offset by reduced medium and heavy-duty build rates compared to fiscal year 2022. \nSales to the Energy end-use market of $163.3 million reflected a 45 percent increase from fiscal year 2022. Excluding surcharge revenue, sales increased 37 percent on 35 percent higher shipment volume. The fiscal year 2023 results reflect increasing global rig counts and higher oil prices benefiting the oil and gas sub-market along with slightly higher demand for power generation materials compared to fiscal year 2022. \nIndustrial and Consumer end-use market sales of $487.2 million increased 17 percent from 2022. Excluding surcharge revenue, sales increased 14 percent on 1 percent lower shipment volume. The fiscal year 2023 results reflect stronger product mix, higher demand for semiconductor materials and increased sales in the electronic sub-market.\n22\nTable of Contents\nGross Profit\n\u00a0\nGross profit in fiscal year 2023 increased to $337.3 million, or 13.2 percent of net sales, from $149.8 million, or 8.2 percent of net sales for fiscal year 2022. The fiscal year 2023 results reflect the impact of higher volumes across key end-use markets with 39 percent increased net sales, a stronger product mix, higher prices and improved operational efficiencies, partially offset by inflationary cost increases compared to fiscal year 2022. Excluding the impact of surcharge revenue, our adjusted gross margin in fiscal year 2023 was 18.3 percent. This compares to adjusted gross margin of 9.9 percent in fiscal year 2022 after excluding the impact of surcharge revenue and COVID-19 employee retention credits of $11.9 million.\nOur surcharge mechanism is structured to recover increases in raw material costs, although in certain cases with a lag effect as discussed above. While the surcharge generally protects the absolute gross profit dollars, it does have a dilutive effect on gross margin as a percent of sales. The following represents a summary of the dilutive impact of the surcharge on gross margin excluding the impact of the special items. We present and discuss these financial measures because management believes removing the impact of these items provides a more consistent and meaningful basis for comparing results of operations from period to period. See the section \"Non-GAAP Financial Measures\" below for further discussion of these financial measures. \u00a0\n\u00a0\nFiscal\u00a0Year\n($\u00a0in\u00a0millions)\n2023\n2022\nNet sales\n$\n2,550.3\u00a0\n$\n1,836.3\u00a0\nLess: surcharge revenue\n702.3\u00a0\n436.3\u00a0\nNet sales excluding surcharge revenue\n$\n1,848.0\u00a0\n$\n1,400.0\u00a0\nGross profit:\n$\n337.3\u00a0\n$\n149.8\u00a0\nCOVID-19 employee retention credits\n\u2014\u00a0\n(11.9)\nGross profit excluding special item\n$\n337.3\u00a0\n$\n137.9\u00a0\nGross margin\n13.2\u00a0\n%\n8.2\u00a0\n%\nGross margin excluding surcharge revenue and special item\n18.3\u00a0\n%\n9.9\u00a0\n%\nSelling, General and Administrative Expenses\n\u00a0\nSelling, general and administrative expenses in fiscal year 2023 were $204.2 million, or 8.0 percent of net sales (11.0 percent of net sales excluding surcharge revenue), compared to $174.7 million, or 9.5 percent of net sales (12.5 percent of net sales excluding surcharge revenue), in fiscal year 2022. The higher selling, general and administrative expenses in fiscal year 2023 reflect higher variable compensation charges compared to fiscal year 2022. Fiscal year 2022 included a noncash benefit of $4.7 million from the reversal of a contingent liability associated with a historical acquisition for which the time period expired. Partially offsetting this benefit in fiscal year 2022 was an environmental charge of $2.4 million which represents a historical environmental site liability.\n23\nTable of Contents\nOperating Income (Loss)\n\u00a0\nOur operating income in fiscal year 2023 was $133.1 million, or 5.2 percent of net sales, as compared with $24.9 million of operating loss, or negative 1.4 percent of net sales, in fiscal year 2022. Excluding surcharge revenue and special items, adjusted operating margin was 7.2 percent for fiscal year 2023 and negative 2.4 percent for fiscal year 2022. Results for fiscal year 2023 reflect higher sales in key end-use markets compared to fiscal year 2022, increased productivity at our facilities, improved product mix and realized price increases. Our fiscal year 2022 operating results were negatively impacted by COVID-19 charges of $5.9 million and a historical environmental site charge of $2.4 million, offset by COVID-19 employee retention credits of $12.7 million and an acquisition-related contingent liability release of $4.7 million. \nThe following presents our operating income (loss) and operating margin, in each case excluding the impact of surcharge on net sales and special items. We present and discuss these financial measures because management believes removing the impact of these items provides a more consistent and meaningful basis for comparing results of operations from period to period. See the section \"Non-GAAP Financial Measures\" below for further discussion of these financial measures.  \u00a0 \n\u00a0\nFiscal\u00a0Year\n($\u00a0in\u00a0millions)\n2023\n2022\nNet sales\n$\n2,550.3\u00a0\n$\n1,836.3\u00a0\nLess: surcharge revenue\n702.3\u00a0\n436.3\u00a0\nNet sales excluding surcharge revenue\n$\n1,848.0\u00a0\n$\n1,400.0\u00a0\nOperating income (loss)\n$\n133.1\u00a0\n$\n(24.9)\nSpecial items:\nCOVID-19 costs\n\u2014\u00a0\n5.9\u00a0\nCOVID-19 employee retention credits\n\u2014\u00a0\n(12.7)\nAcquisition-related contingent liability release\n\u2014\u00a0\n(4.7)\nEnvironmental site charge\n\u2014\u00a0\n2.4\u00a0\nAdjusted operating income (loss) excluding special items\n$\n133.1\u00a0\n$\n(34.0)\nOperating margin\n5.2\u00a0\n%\n(1.4)\n%\nAdjusted operating margin excluding surcharge revenue and special items\n7.2\u00a0\n%\n(2.4)\n%\nInterest Expense, Net and Debt Extinguishment Losses, Net\n\u00a0\nFiscal year 2023 interest expense, net was $54.1 million compared to $44.9 million in fiscal year 2022. Capitalized interest reduced interest expense by $1.5 million for fiscal year 2023 and by $0.8 million in fiscal year 2022. Debt extinguishment losses, net in fiscal year 2023 were $0.0 million. Debt extinguishment losses, net in fiscal year 2022 were $6.0 million due to debt prepayment costs made in connection with the notes due March 2023. The higher interest expense in fiscal year 2023 is largely due to higher interest rates on debt that was refinanced and short-term borrowings under our Credit Facility.\nOther Expense (Income), Net\n\u00a0\nOther expense, net for fiscal year 2023 was $6.5 million compared with other income, net of $12.7 million in fiscal year 2022. The fiscal year 2023 reflects expense from pension earnings, interest and deferrals compared to income from pension earnings, interest and deferrals from favorable returns on plan assets in fiscal year 2022. \n24\nTable of \nContents\nIncome Taxes\n\u00a0\nOur effective tax rate (income tax expense (benefit) as a percent of income (loss) before taxes) for fiscal year 2023 was 22.2 percent which was the same as 22.2 percent for fiscal year 2022. The fiscal year 2023 tax expense includes the unfavorable impacts of losses in certain foreign jurisdictions for which no tax benefit can be recognized as well as tax charges of $0.3 million for the impact of a state tax legislative change and $0.4 million resulting from changes in our prior year tax positions. Also included are tax benefits of $1.0 million for anticipated interest on Internal Revenue Service (\"IRS\") income tax refund claims and $0.9 million for decreases in state valuation allowances for deferred tax assets resulting from changes in our ability to utilize certain state net operating loss carryforwards. The fiscal year 2022 tax benefit included the unfavorable impacts of losses in certain foreign jurisdictions for which no tax benefit can be recognized. \nOn October 8, 2021, the Organization for Economic Co-operation and Development (\"OECD\") released a statement on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which agreed to a two-pillar solution to address tax challenges of the digital economy. On December 20, 2021, the OECD released Pillar Two model rules defining a 15 percent global minimum tax rate for large multinational corporations. The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Pillar Two Framework expected by calendar year 2024. We are continuing to evaluate the Pillar Two Framework and its potential impact on future periods.\nThe Inflation Reduction Act of 2022 (the \"IRA\") was enacted on August 16, 2022. The IRA includes climate and energy provisions, extends the Affordable Care Act subsidies, increases Internal Revenue Enforcement funding and allows Medicare to negotiate prescription drug prices. The IRA creates a 15 percent corporate alternative minimum tax on profits of corporations whose average annual adjusted financial statement income for any consecutive three-tax -year period preceding the tax year exceeds $1.0 billion and is effective for tax years beginning after December 31, 2022. The IRA also creates an excise tax of 1 percent on stock repurchases by publicly traded U.S. corporations, effective for repurchases after December 31, 2022. The provisions of the IRA are not expected to have a significant impact on our financial position, results of operations or cash flows.\nWe assert that substantially all undistributed earnings from foreign subsidiaries are not considered permanently reinvested. The potential tax implications from the distribution of these earnings are expected to be limited to withholding taxes in certain foreign jurisdictions and are not expected to materially impact the consolidated financial statements. \nSee Note 17 to the consolidated financial statements in Item 8. \"Financial Statements and Supplementary Data\" for a full reconciliation of the statutory federal tax rate to the effective tax rates.\nBusiness Segment Results\n\u00a0\nSummary information about our operating results on a segment basis is set forth below. For more detailed segment information, see Note 19 to the consolidated financial statements included in Item 8. \"Financial Statements and Supplementary Data.\"\nThe following table includes comparative information for volumes by business segment:\n\u00a0\n\u00a0\nFiscal\u00a0Year\nIncrease\n%\nIncrease\n(Pounds\u00a0sold,\u00a0in\u00a0thousands)\u00a0\n2023\n2022\nSpecialty Alloys Operations\n212,050\u00a0\n187,754\u00a0\n24,296\u00a0\n13\u00a0\n%\nPerformance Engineered Products *\n11,864\u00a0\n10,662\u00a0\n1,202\u00a0\n11\u00a0\n%\nIntersegment\n(9,792)\n(10,304)\n512\u00a0\n5\u00a0\n%\nTotal pounds sold\n214,122\u00a0\n188,112\u00a0\n26,010\u00a0\n14\u00a0\n%\n* Pounds sold data for PEP segment includes Dynamet and Additive businesses only. \n25\nTable of \nContents\nThe following table includes comparative information for net sales by business segment:\n\u00a0\nFiscal\u00a0Year\n$\nIncrease\n(Decrease)\n%\nIncrease\n(Decrease)\n($\u00a0in\u00a0millions)\u00a0\n2023\n2022\nSpecialty Alloys Operations\n$\n2,213.6\u00a0\n$\n1,565.6\u00a0\n$\n648.0\u00a0\n41\u00a0\n%\nPerformance Engineered Products\n433.7\u00a0\n344.5\u00a0\n89.2\u00a0\n26\u00a0\n%\nIntersegment\n(97.0)\n(73.8)\n(23.2)\n(31)\n%\nTotal net sales\n$\n2,550.3\u00a0\n$\n1,836.3\u00a0\n$\n714.0\u00a0\n39\u00a0\n%\nThe following table includes comparative information for our net sales by business segment, but excluding surcharge revenue:\n\u00a0\nFiscal\u00a0Year\n$\nIncrease\n(Decrease)\n%\nIncrease\n(Decrease)\n($\u00a0in\u00a0millions)\u00a0\n2023\n2022\nSpecialty Alloys Operations\n$\n1,540.6\u00a0\n$\n1,137.1\u00a0\n$\n403.5\u00a0\n35\u00a0\n%\nPerformance Engineered Products\n397.1\u00a0\n336.7\u00a0\n60.4\u00a0\n18\u00a0\n%\nIntersegment\n(89.7)\n(73.8)\n(15.9)\n(22)\n%\nTotal net sales excluding surcharge revenue\n$\n1,848.0\u00a0\n$\n1,400.0\u00a0\n$\n448.0\u00a0\n32\u00a0\n%\nSpecialty Alloys Operations Segment\n\u00a0\nNet sales in fiscal year 2023 for the SAO segment increased 41 percent to $2,213.6 million, as compared with $1,565.6 million in fiscal year 2022. Excluding surcharge revenue, net sales increased 35 percent from fiscal year 2022 on 13 percent higher shipment volume as compared to fiscal year 2022. The SAO segment results reflect higher sales in all end-use markets except Transportation compared to fiscal year 2022. In particular, Aerospace and Defense sales excluding surcharge increased 54 percent as compared to fiscal year 2022.\n\u00a0\nOperating income for the SAO segment in fiscal year 2023 was $179.1 million, or 8.1 percent of net sales (11.6 percent of net sales excluding surcharge revenue), compared to operating income of $9.6 million, or 0.6 percent of net sales (0.8 percent of net sales excluding surcharge revenue), for fiscal year 2022. Fiscal year 2023 reflects increased productivity, improved product mix and realized price increases. Fiscal year 2022 included a benefit of $10.6 million related to COVID-19 employee retention credits offset by COVID-19 related costs of $5.2 million.\nPerformance Engineered Products Segment\n\u00a0\nNet sales for fiscal year 2023 for the PEP segment were $433.7 million as compared with $344.5 million for fiscal year 2022. Excluding surcharge revenue, net sales increased 18 percent from a year ago on 11 percent higher shipment volume. The fiscal year 2023 net sales reflect 11 percent higher shipment volume as compared to fiscal year 2022. The results reflect higher sales in all end-use markets except Distribution. In particular, Medical end-use market sales excluding surcharge increased 32 percent.\n\u00a0\nOperating income for the PEP segment for fiscal year 2023 was $31.8 million, or 7.3 percent of net sales (8.0 percent of net sales excluding surcharge revenue), as compared with operating income of $18.1 million, or 5.3 percent of net sales for fiscal year 2022. Fiscal year 2023 results reflect stronger demand conditions compared to fiscal year 2022. Fiscal year 2022 included a benefit of $2.1 million related to COVID-19 employee retention credits offset by COVID-19 related costs of $0.7 million.\nResults of Operations \u2014 Fiscal Year 2022 Compared to Fiscal Year 2021\n\u00a0\nFor fiscal year 2022, we reported net loss of $49.1 million, or $1.01 loss per diluted share. Excluding special items, loss per diluted share would have been $1.06 for fiscal year 2022. This compares with net loss of $229.6 million, or $4.76 loss per diluted share in fiscal year 2021. Excluding special items, loss per share would have been $2.01 per diluted share for fiscal year 2021. The results for fiscal year 2022 compared to fiscal year 2021 were driven by growing demand across all our end-use markets. \n26\nTable of \nContents\nBoth periods were impacted by special items. Our fiscal year 2022 results were negatively impacted by COVID-19 charges of $5.9 million, a historical environmental site charge of $2.4 million and debt extinguishment losses, net of $6.0 million. These charges were offset by COVID-19 employee retention credits of $12.7 million and an acquisition-related contingent liability release of $4.7\u00a0million. Our fiscal year 2021 results were negatively impacted by a goodwill impairment charge of $52.8 million, LIFO decrement charges of $52.2 million, inventory write-downs from restructuring of $4.2 million, COVID-19 charges of $17.3 million, noncash restructuring and asset impairment charges of $16.6 million, pension settlement charges of $11.4 million, and debt extinguishment losses, net of $8.2 million. The LIFO decrement charges were noncash charges associated with reducing inventory and liquidating LIFO layers that had historical costs in excess of the fiscal year 2021 inventory costs. \nNet Sales\n\u00a0\nNet sales for fiscal year 2022 were $1,836.3 million, which was a 24 percent increase from fiscal year 2021. Excluding surcharge revenue, sales were 12 percent higher than fiscal year 2021 on 11 percent higher volume. The results reflect double-digit sales growth across all end-use markets versus the prior year period. \nGeographically, sales outside the United States increased 20 percent from fiscal year 2021 to $656.4 million. The increase was primarily due to higher product demand in the Medical end-use markets in all regions, higher sales in Aerospace and Defense in the South America region, and stronger demand in the Energy end-use market in the Asia Pacific and Canada regions. A portion of our sales outside the United States are denominated in foreign currencies. The impact of fluctuations in foreign currency exchange rates resulted in a $0.7 million decrease in sales during fiscal year 2022 compared to fiscal year 2021. International sales as a percentage of our total net sales represented 36 percent and 37 percent for fiscal year 2022 and fiscal year 2021, respectively.\n\u00a0\nSales by End-Use Markets\n\u00a0\nWe sell to customers across diversified end-use markets. The following table includes comparative information for our net sales, which includes surcharge revenue, by principal end-use markets. We believe this is helpful supplemental information in analyzing performance of the business from period to period. \n\u00a0\nFiscal\u00a0Year\n$\nIncrease\n%\nIncrease\n($\u00a0in\u00a0millions)\n2022\n2021\nAerospace and Defense\n$\n790.2\u00a0\n$\n710.9\u00a0\n$\n79.3\u00a0\n11\u00a0\n%\nMedical\n212.3\u00a0\n143.5\u00a0\n68.8\u00a0\n48\u00a0\n%\nTransportation\n178.3\u00a0\n144.5\u00a0\n33.8\u00a0\n23\u00a0\n%\nEnergy\n113.0\u00a0\n87.8\u00a0\n25.2\u00a0\n29\u00a0\n%\nIndustrial and Consumer\n417.2\u00a0\n292.1\u00a0\n125.1\u00a0\n43\u00a0\n%\nDistribution\n125.3\u00a0\n96.8\u00a0\n28.5\u00a0\n29\u00a0\n%\nTotal net sales\n$\n1,836.3\u00a0\n$\n1,475.6\u00a0\n$\n360.7\u00a0\n24\u00a0\n%\nThe following table includes comparative information for our net sales by the same principal end-use markets, but excluding surcharge revenue:\n\u00a0\n\u00a0\nFiscal\u00a0Year\n$\nIncrease\n%\nIncrease\n($\u00a0in\u00a0millions)\n2022\n2021\nAerospace and Defense\n$\n599.6\u00a0\n$\n598.8\u00a0\n$\n0.8\u00a0\n\u2014\u00a0\n%\nMedical\n177.2\u00a0\n128.2\u00a0\n49.0\u00a0\n38\u00a0\n%\nTransportation\n125.2\u00a0\n115.9\u00a0\n9.3\u00a0\n8\u00a0\n%\nEnergy\n76.3\u00a0\n70.5\u00a0\n5.8\u00a0\n8\u00a0\n%\nIndustrial and Consumer\n297.2\u00a0\n243.1\u00a0\n54.1\u00a0\n22\u00a0\n%\nDistribution\n124.5\u00a0\n96.3\u00a0\n28.2\u00a0\n29\u00a0\n%\nTotal net sales excluding surcharge revenue\n$\n1,400.0\u00a0\n$\n1,252.8\u00a0\n$\n147.2\u00a0\n12\u00a0\n%\n\u00a0\n27\nTable of \nContents\nSales to the Aerospace and Defense end-use market\u00a0increased 11 percent from fiscal year\u00a02021\u00a0to\u00a0$790.2 million. Excluding surcharge revenue, sales were flat on\u00a04 percent\u00a0higher\u00a0shipment volume. The results reflect higher year-over-year demand as COVID-19 travel restrictions eased and the aircraft OEM build rates increased.\n\u00a0\u00a0\u00a0\u00a0\nSales to the Medical end-use market\u00a0increased\u00a048 percent to\u00a0212.3 million\u00a0from fiscal year\u00a02021. Excluding surcharge revenue, sales\u00a0increased\u00a038 percent on\u00a035 percent\u00a0higher\u00a0shipment volume. The results reflect higher demand from the ongoing recovery in elective surgeries, with our customers focused on increasing stock levels to meet demand. \nTransportation end-use market sales of 178.3 million reflected a 23 percent increase from fiscal year 2021. Excluding surcharge revenue, sales\u00a0increased\u00a08 percent on\u00a09\u00a0percent higher\u00a0shipment volume. The results reflect higher demand in all sub-markets but was muted from the continuing chip shortage compared to fiscal year\u00a02021.\nSales to the Energy end-use market of\u00a0113.0 million\u00a0reflected a\u00a029 percent\u00a0increase\u00a0from fiscal year\u00a02021. Excluding surcharge revenue, sales\u00a0increased\u00a08 percent. The results reflect increasing global rig counts and higher oil prices benefiting the oil and gas sub-market. This was partially offset by lower sales for power generation materials compared to fiscal year\u00a02021. Fiscal year 2021 results also include one quarter of the Amega West business, which was divested on September 30, 2020. \nIndustrial and Consumer end-use market sales\u00a0of 417.2 million increased 43 percent from fiscal year 2021. Excluding surcharge revenue, sales\u00a0increased\u00a022 percent on\u00a018 percent\u00a0higher\u00a0shipment volume. The results reflect the impact of stronger demand for materials used across all Consumer and Industrial sub-markets. \nGross Profit\n\u00a0\nGross profit in fiscal year\u00a02022 increased\u00a0to\u00a0$149.8 million, or\u00a08.2\u00a0percent of net sales, from\u00a0$1.0 million, or\u00a00.1\u00a0percent of net sales for fiscal year\u00a02021. Fiscal year 2022 results reflect the impact of higher volumes across all end-use markets, an improving product mix and increased pricing, partially offset by the ongoing inflationary pressures on operating costs related to critical production supplies, freight and labor compared to fiscal year 2021. Excluding the impact of surcharge revenue and $11.9 million of COVID-19 employee retention credits, our adjusted gross margin in fiscal year 2022 was 9.9 percent compared to adjusted gross margin of 4.6 percent in fiscal year 2021.\nOur surcharge mechanism is structured to recover increases in raw material costs, although in certain cases with a lag effect as discussed above. While the surcharge generally protects the absolute gross profit dollars, it does have a dilutive effect on gross margin as a percent of sales. The following represents a summary of the dilutive impact of the surcharge on gross margin excluding the impact of the special items. We present and discuss these financial measures because management believes removing the impact of these items provides a more consistent and meaningful basis for comparing results of operations from period to period. See the section \"Non-GAAP Financial Measures\" below for further discussion of these financial measures.\u00a0 \n\u00a0\nFiscal\u00a0Year\n($\u00a0in\u00a0millions)\n2022\n2021\nNet sales\n$\n1,836.3\u00a0\n$\n1,475.6\u00a0\nLess: surcharge revenue\n436.3\u00a0\n222.8\u00a0\nNet sales excluding surcharge revenue\n$\n1,400.0\u00a0\n$\n1,252.8\u00a0\nGross profit:\n$\n149.8\u00a0\n$\n1.0\u00a0\nLIFO decrement\n\u2014\u00a0\n52.2\u00a0\nInventory write-downs from restructuring\n\u2014\u00a0\n4.2\u00a0\nCOVID-19 employee retention credits\n(11.9)\n\u2014\u00a0\nGross profit excluding special items\n$\n137.9\u00a0\n$\n57.4\u00a0\nGross margin\n8.2\u00a0\n%\n0.1\u00a0\n%\nGross margin excluding surcharge revenue and special items\n9.9\u00a0\n%\n4.6\u00a0\n%\n28\nTable of \nContents\nSelling, General and Administrative Expenses\n\u00a0\nSelling, general and administrative expenses in fiscal year\u00a02022\u00a0were\u00a0$174.7 million, or\u00a09.5\u00a0percent of net sales (12.5\u00a0percent of net sales excluding surcharge revenue), compared to\u00a0$180.2 million, or\u00a012.2 percent of net sales (14.4\u00a0percent of net sales excluding surcharge revenue), in fiscal year\u00a02021. The lower selling, general and administrative expenses in fiscal year 2022 include a noncash benefit of $4.7 million from the reversal of a contingent liability associated with a historical acquisition for which the time period expired and lower variable compensation charges compared to the same period a year ago. Partially offsetting these benefits in fiscal year 2022 is an environmental charge of $2.4 million which represents a prior period liability related to a third party Superfund waste-disposal site. \n\u00a0\u00a0\u00a0\u00a0\nRestructuring and Asset Impairment Charges\nDuring fiscal year 2022, we had no restructuring and asset impairment charges compared to $16.6 million in fiscal year 2021. Additional restructuring activities were executed in our Additive business in the PEP segment during fiscal year 2021. This included $14.2 million of noncash pre-tax impairment charges consisting of $8.2 million of property, plant and equipment, $4.3 million associated with certain definite lived intangible assets, $1.3 million related to a lease right of use asset and $0.4 million of other noncash charges. We also recognized $0.4 million for facility shut-down costs and various personnel costs for severance payments, medical coverage and related items.\nIn fiscal year 2021, we recorded $2.0 million of noncash impairment pre-tax charges as a result of the Amega West business exit primarily related to accounts receivable determined to be uncollectible.\nActivities undertaken in connection with the fiscal year 2021 Additive restructuring plan were substantially complete in the first quarter of fiscal year 2022. \nGoodwill Impairment Charge\nIn preparing the financial statements for the fiscal year ended June 30, 2021, we identified an impairment triggering event related to the Additive reporting unit within the PEP segment. This reporting unit had experienced slower than expected growth due to customers shifting their near-term focus away from this emerging area as a result of the continuing impacts of the COVID-19 pandemic. During the year ended June 30, 2021, we also made strategic decisions to reduce resources allocated to the Additive reporting unit to concentrate on the essential manufacturing business. In light of these decisions and market conditions at that time, the pace of growth in the future projections for the Additive reporting unit were lowered. As a result, during the year ended June 30, 2021, we recorded an impairment charge of $52.8 million, which represented the entire balance of goodwill for this reporting unit. No goodwill impairment charges were recognized during the fiscal year ended June 30, 2022. \n29\nTable of \nContents\nOperating Loss\nOur operating loss in fiscal year\u00a02022\u00a0was\u00a0$24.9 million, or negative 1.4\u00a0percent of net sales as compared with\u00a0$248.6 million of operating loss, or\u00a0negative 16.8\u00a0percent of net sales in fiscal year\u00a02021. Excluding surcharge revenue and special items, adjusted operating margin was\u00a0negative 2.4\u00a0percent for fiscal year 2022 and\u00a0negative 8.4\u00a0percent for fiscal year 2021. The results for fiscal year 2022 reflect higher sales in all end-use markets compared to fiscal year\u00a02021 as well as the full recognition of various cost saving actions taken in fiscal year 2021 and the fourth quarter of fiscal year 2020. Negatively impacting results for fiscal year 2022 were near-term operational challenges resulting from Reading press outage, labor shortages and supply chain disruptions as well as the ongoing inflationary pressures on operating costs related to critical production supplies, freight and labor. Our fiscal year 2022 operating results were negatively impacted by COVID-19 charges of $5.9 million and a historical environmental site charge of $2.4 million, offset by COVID-19 employee retention credits of $12.7 million and an acquisition-related contingent liability release of $4.7 million. Our fiscal year 2021 results were negatively impacted by a goodwill impairment charge of $52.8 million, LIFO decrement charges of $52.2 million, inventory write-downs from restructuring of $4.2 million, COVID-19 charges of $17.3 million and noncash restructuring and asset impairment charges of $16.6 million. \nThe LIFO decrement charges were noncash charges associated with reducing inventory and liquidating LIFO layers that had historical costs in excess of the fiscal year 2021 inventory costs. More specifically we significantly reduced inventory in fiscal year 2021 due largely to unprecedented impacts of COVID-19 on end-use market demand for our products. The significant reduction in inventory coupled with a substantial differential in historical costs between the current and historical years resulted in a significant noncash LIFO decrement charge. Because of its significance in fiscal year 2021, we considered the LIFO decrement charge unusual and infrequent in nature and believe excluding the LIFO decrement charge from our GAAP performance measures is appropriate.\nThe following presents our operating loss and operating margin, in each case excluding the impact of surcharge on net sales and special items. We present and discuss these financial measures because management believes removing the impact of these items provides a more consistent and meaningful basis for comparing results of operations from period to period. See the section \"Non-GAAP Financial Measures\" below for further discussion of these financial measures.\n\u00a0\nFiscal\u00a0Year\n($\u00a0in\u00a0millions)\n2022\n2021\nNet sales\n$\n1,836.3\u00a0\n$\n1,475.6\u00a0\nLess: surcharge revenue\n436.3\u00a0\n222.8\u00a0\nNet sales excluding surcharge revenue\n$\n1,400.0\u00a0\n$\n1,252.8\u00a0\nOperating loss\n$\n(24.9)\n$\n(248.6)\nSpecial items:\nLIFO decrement\n\u2014\u00a0\n52.2\u00a0\nCOVID-19 costs\n5.9\u00a0\n17.3\u00a0\nCOVID-19 employee retention credits\n(12.7)\n\u2014\u00a0\n\u00a0\u00a0Inventory write-downs from restructuring \n\u2014\u00a0\n4.2\u00a0\nAcquisition-related contingent liability release\n(4.7)\n\u2014\u00a0\nEnvironmental site charge\n2.4\u00a0\n\u2014\u00a0\n\u00a0\u00a0Restructuring and asset impairment charges \n\u2014\u00a0\n16.6\u00a0\n\u00a0\u00a0Goodwill impairment \n\u2014\u00a0\n52.8\u00a0\nAdjusted operating loss excluding special items\n$\n(34.0)\n$\n(105.5)\nOperating margin\n(1.4)\n%\n(16.8)\n%\nAdjusted operating margin excluding surcharge revenue and special items\n(2.4)\n%\n(8.4)\n%\n30\nTable of \nContents\nInterest Expense, Net and Debt Extinguishment Losses, Net\nFiscal year\u00a02022\u00a0interest expense, net was $44.9 million\u00a0compared to\u00a0$32.7 million\u00a0in fiscal year\u00a02021. Capitalized interest reduced interest expense by $0.8 million for fiscal year 2022 and by $8.1 million in fiscal year 2021. We have historically used interest rate swaps to achieve a level of floating rate debt to fixed rate debt where appropriate; all interest rate swaps were terminated as of September 30, 2020, in connection with the prepayment of the related $250.0 million notes. Interest expense, net for fiscal year 2022 included no net gains or losses from interest rate swaps compared with $0.4 million of net gains from interest rate swaps for fiscal year 2021. Debt extinguishment losses, net in fiscal year 2022 were $6.0 million of debt prepayment costs made in connection with the prepayment of notes due March 2023. Debt extinguishment losses, net in fiscal year 2021 totaled $8.2 million and included $10.5 million of debt prepayment costs on the notes due July 2021 partially offset by gains of $2.3 million on the related interest rate swaps that were terminated in connection with the prepayments.  \nOther (Income) Expense, Net\nOther income, net for fiscal year\u00a02022\u00a0was\u00a0$12.7 million\u00a0compared with other expense, net of $8.4 million in fiscal year\u00a02021. Fiscal year 2022 reflects income from pension earnings, interest and deferrals from favorable returns on plan assets compared to expense in in fiscal year\u00a02021. The fiscal year 2021 expense was primarily due to pension settlement charges of $11.4 million. \nIncome Taxes\n\u00a0\nOur effective tax rate (income tax (benefit) expense as a percent of (loss) income before taxes) for fiscal year 2022 was 22.2 percent as compared to 22.9 percent for fiscal year 2021. The fiscal year 2022 tax benefit includes the unfavorable impacts of losses in certain foreign justifications for which no tax benefit can be recognized. The fiscal year 2021 tax benefit included the unfavorable impacts of the $52.8 million non-deductible goodwill impairment charge and losses in certain foreign jurisdictions for which no tax benefit can be recognized, as well as, tax benefits of $2.8 million associated with pension settlement charges, $2.0 million associated with debt extinguishment losses, net, $5.0 million for the impact of restructuring and asset impairment charges and $0.7 million as a result of changes in our prior year tax positions. Additionally, the anticipated benefit for the carryback of the fiscal year 2021 net operating loss to fiscal years with higher tax rates was included in fiscal year 2021. Also included is a tax charge of $1.4 million attributable to employee share-based compensation. Excluding the tax impact of the non-deductible goodwill impairment charge, pension settlement charges, debt extinguishment losses, net, restructuring and asset impairment charges and changes in our prior year tax positions, the tax rate for fiscal year 2021 would have been 28.2 percent. \nThe Coronavirus Aid, Relief and Economic Security ACT (the \"CARES Act\") was enacted on March 27, 2020. The CARES Act established new provisions, including but not limited to, expanded deduction of certain qualified capital expenditures, delayed payment of certain employment taxes, expanded use of net operating losses, reduced limitations on deductions of interest expense and extension of funding for defined benefit plans. The net operating loss provision provided incremental tax benefits of approximately $7.0 million, which were recognized in fiscal year 2021, due to higher tax rates in the expanded carryback period. The other provisions in the CARES Act are not expected to have a significant impact on our financial position, results of operation or cash flows. \nDuring the quarter ended March 31, 2022, we changed our assertion regarding undistributed earnings from foreign subsidiaries. We assert that substantially all undistributed earnings from foreign subsidiaries are not considered permanently reinvested. The potential tax implications from the distribution of these earnings are expected to be limited to withholding taxes in certain foreign jurisdictions and are not expected to materially impact the consolidated financial statements. \nSee Note 17 to the consolidated financial statements in Item 8. \"Financial Statements and Supplementary Data\" for a full reconciliation of the statutory federal tax rate to the effective tax rates.\n31\nTable of \nContents\nBusiness Segment Results\n\u00a0\nSummary information about our operating results on a segment basis is set forth below. For more detailed segment information, see Note 19 to the consolidated financial statements included in Item 8. \"Financial Statements and Supplementary Data.\"\n\u00a0\n\u00a0The following table includes comparative information for volumes by business segment:\n\u00a0\n\u00a0\nFiscal\u00a0Year\nIncrease\n(Decrease) \n%\nIncrease\n(Decrease) \n(Pounds\u00a0sold,\u00a0in\u00a0thousands)\u00a0\n2022\n2021\nSpecialty Alloys Operations\n187,754\u00a0\n166,942\u00a0\n20,812\u00a0\n12\u00a0\n%\nPerformance Engineered Products *\n10,662\u00a0\n7,936\u00a0\n2,726\u00a0\n34\u00a0\n%\nIntersegment\n(10,304)\n(5,172)\n(5,132)\n(99)\n%\nTotal pounds sold\n188,112\u00a0\n169,706\u00a0\n18,406\u00a0\n11\u00a0\n%\n* Pounds sold data for PEP segment includes Dynamet and Additive businesses only. \nThe following table includes comparative information for net sales by business segment:\n\u00a0\nFiscal\u00a0Year\n$\nIncrease\n(Decrease)\n%\nIncrease\n(Decrease)\n($\u00a0in\u00a0millions)\u00a0\n2022\n2021\nSpecialty Alloys Operations\n$\n1,565.6\u00a0\n$\n1,262.2\u00a0\n$\n303.4\u00a0\n24\u00a0\n%\nPerformance Engineered Products\n344.5\u00a0\n259.8\u00a0\n84.7\u00a0\n33\u00a0\n%\nIntersegment\n(73.8)\n(46.4)\n(27.4)\n(59)\n%\nTotal net sales\n$\n1,836.3\u00a0\n$\n1,475.6\u00a0\n$\n360.7\u00a0\n24\u00a0\n%\nThe following table includes comparative information for our net sales by business segment, but excluding surcharge revenue:\n\u00a0\nFiscal\u00a0Year\n$\nIncrease\n(Decrease)\n%\nIncrease\n(Decrease)\n($\u00a0in\u00a0millions)\u00a0\n2022\n2021\nSpecialty Alloys Operations\n$\n1,137.1\u00a0\n$\n1,042.8\u00a0\n$\n94.3\u00a0\n9\u00a0\n%\nPerformance Engineered Products\n336.7\u00a0\n255.9\u00a0\n80.8\u00a0\n32\u00a0\n%\nIntersegment\n(73.8)\n(45.9)\n(27.9)\n(61)\n%\nTotal net sales excluding surcharge revenue\n$\n1,400.0\u00a0\n$\n1,252.8\u00a0\n$\n147.2\u00a0\n12\u00a0\n%\n32\nTable of \nContents\nSpecialty Alloys Operations Segment\n\u00a0\nNet sales in fiscal year\u00a02022\u00a0for the SAO segment increased\u00a024 percent to $1,565.6 million, as compared with\u00a0$1,262.2 million\u00a0in fiscal year\u00a02021. Excluding surcharge revenue, net sales\u00a0increased\u00a09 percent from fiscal year 2021. The fiscal year 2022 net sales reflected 12 percent higher shipment volume as compared to fiscal year 2021. The SAO segment results reflect higher sales in all end-use markets except Aerospace and Defense which were flat compared to fiscal year 2021. \nOperating income for the SAO segment in fiscal year\u00a02022\u00a0was\u00a0$9.6 million, or 0.6\u00a0percent of net sales (0.8\u00a0percent of net sales excluding surcharge revenue), compared to\u00a0operating loss of $87.4 million, or\u00a0negative 6.9\u00a0percent of net sales (negative 0.8\u00a0percent of net sales excluding surcharge revenue), for fiscal year\u00a02021. Fiscal year 2022 reflects higher volume in all end-use markets partially offset by the near-term operational challenges resulting from labor shortages, supply chain disruptions and the unplanned Reading press outage which was returned to service in the third quarter. Fiscal year 2022 also included a benefit of $10.6 million related to COVID-19 employee retention credits. Fiscal year 2021 included negative impacts from targeted inventory reductions and LIFO decrement charges of $47.9 million. The LIFO decrement charges are noncash charges associated with reducing inventory and liquidating LIFO layers that had historical costs in excess of the fiscal year 2021 inventory costs. The fiscal year 2022 results also include $5.2 million of COVID-19 related costs compared to $14.6 million in fiscal year 2021. \nPerformance Engineered Products Segment\n\u00a0\nNet sales for fiscal year\u00a02022\u00a0for the PEP segment were\u00a0344.5 million\u00a0as compared with\u00a0$259.8 million\u00a0for fiscal year\u00a02021. Excluding surcharge revenue, net sales\u00a0increased\u00a032 percent from fiscal year 2021. The results reflect higher sales in all end-use markets including Energy when excluding the fiscal year 2021 net sales of the Amega West business which was divested on September 30, 2020. \nOperating income for the PEP segment for fiscal year\u00a02022 was $18.1 million, or 5.3\u00a0percent of net sales, as compared with operating loss of $16.5 million, or\u00a0negative 6.4\u00a0percent of net sales for fiscal year\u00a02021. Fiscal year 2022 results reflect higher sales in all end-use markets and cost savings in the current fiscal year from the restructuring actions taken in fiscal year 2021. Fiscal year 2022 also included a benefit of $2.1 million related to COVID-19 employee retention credits. Fiscal year 2021 included LIFO decrement charges of $4.3 million. The LIFO decrement charges are noncash charges associated with reducing inventory and liquidating LIFO layers that had historical costs in excess of the fiscal year 2021 inventory costs. The fiscal year 2022 results also included $0.7 million of COVID-19 related costs compared to $2.7 million in fiscal year 2021.\nLiquidity and Financial Resources\n\u00a0\nDuring fiscal year 2023, we generated cash from operating activities of $14.7 million as compared with $6.0 million in fiscal year 2022. Our adjusted free cash flow, which we define under \"Non-GAAP Financial Measures\" below, was negative $67.6 million as compared to negative $83.1 million for the same period a year ago. The change in operating cash flow primarily reflects the impact of higher earnings after noncash adjustments to net income in fiscal year 2023 offset by higher cash used for inventory compared to a year ago. The current year reflects cash used to build inventory of $140.3 million compared to $71.9 million in fiscal year 2022. The adjusted free cash flow results reflect lower capital spending levels in the current period as compared to the prior year period. Capital expenditures for property, plant, equipment and software were $82.3 million for fiscal year 2023 as compared to $91.3 million for fiscal year 2022. In fiscal year 2024, we expect capital expenditures to be approximately $125 million to $130\u00a0million.\nWe evaluate liquidity needs for alternative uses including funding external growth opportunities, share repurchases as well as funding consistent dividend payments to stockholders. Dividends for fiscal year 2023 were $39.4 million, as compared to $39.2 million in the prior year period. In fiscal years 2023, 2022 and 2021 we declared and paid quarterly cash dividends of $0.20 per share. \nDuring fiscal year 2023, we made no pension contributions to our qualified defined benefit pension plans. We were not required to make cash contributions to our domestic qualified pension plans during fiscal year 2023. Over the next five years, current estimates indicate that we will be required to make approximately $153.5 million of cash contributions to our domestic qualified defined benefit pension plans, based on the laws in effect for pension funding as of June\u00a030, 2023, and subject to market returns and interest rate assumptions.\n33\nTable of \nContents\nWe have demonstrated the ability to generate cash to meet our needs through cash flows from operations, management of working capital and the ability to access capital markets to supplement internally generated funds. We target minimum liquidity of $150 million, consisting of cash and cash equivalents added to available borrowing capacity under our Credit Facility.\nOn April 14, 2023, we entered into a Second Amended and Restated Credit Agreement with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer and the other lenders, agents and arrangers party thereto (the \"Credit Facility\"). The Credit facility amended and restated our existing Amended and Restated Credit Agreement dated as of March 26, 2021 (the \"Prior Credit Agreement\") which had been set to expire on March 31, 2024. The Credit Facility is a secured revolving credit facility with a commitment of $350.0 million subject to our right, from time to time, to request an increase of the commitment by the greater of (i) $300.0 million or (ii) an amount equal to our consolidated EBITDA; and provides for the issuance of letters of credit subject to a $40.0 million sub-limit. The Credit Facility extends the maturity to April 12, 2028. We have the right to voluntarily prepay and re-borrow loans, to terminate or reduce the commitments under the Credit Facility, and, subject to certain lender approvals, to join subsidiaries as subsidiary borrowers.\nOn February 14, 2022, we entered into an amendment (the \"Amendment\") to the Prior Credit Agreement. The Amendment revised the interest coverage ratio covenant under the Prior Credit Agreement so that the first test date was June 30, 2022, and required a minimum interest coverage ratio of 2.00 to 1.00 at June 30, 2022 (calculated for the two fiscal quarters then ended), 3.00 to 1.00 at September 30, 2022 (calculated for the three fiscal quarters then ended) and 3.50 to 1.00 at December 31, 2022 and March 31, 2023 (calculated for the four fiscal quarters then ended). The Amendment revised the restricted period under the Prior Credit Agreement to expire on September\u00a030, 2022, during which we were prohibited from incurring any secured debt other than purchase money financing for new equipment and were subject to additional restrictions on our ability to make dividends or distributions or to make certain investments.\nOn March 26, 2021, we entered the Prior Credit Agreement which consisted of a $300.0 million secured revolving credit facility. The Prior Credit Agreement amended and restated our previous revolving credit facility, dated March 31, 2017, which had been set to expire in March 2022. The Prior Credit Agreement extended the maturity to March 31, 2024, subject to a springing maturity of November 30, 2022. If, by November 30, 2022, our outstanding $300.0 million 4.45% Senior Notes due in March 2023 were not redeemed, repurchased or refinanced with indebtedness having a maturity date of October 1, 2024 or later, all indebtedness under the Prior Credit Agreement would have been due. The springing maturity clause has been satisfied with the issuance of the 2030 Notes and subsequent payment in full of the 4.45% Senior Notes, as discussed in Note 10, Debt.\nOn March\u00a016, 2022, we completed our offering and sale of $300.0\u00a0million in aggregate principal amount of 7.625% Senior Notes due 2030 (the \"2030 Notes\"). The 2030 Notes accrue interest at the rate of 7.625% per annum, with interest payable in cash semi-annually in arrears on March 15 and September 15, commencing September 15, 2022. The 2030 Notes will mature on March\u00a015, 2030. The 2030 Notes are senior unsecured indebtedness, ranking equally in right of payment with all its existing and future senior unsecured indebtedness and senior to its future subordinated indebtedness. We used the net proceeds from the issuance of the 2030 Notes to repay, in April 2022, in full $300.0\u00a0million in principal of our 4.45% senior unsecured notes due March 2023, including any interest and premium due thereon.\nFor the fiscal years ended June\u00a030, 2023, 2022 and 2021, interest costs totaled $55.6 million, $45.7 million and $40.8 million, respectively, of which $1.5 million, $0.8 million and $8.1 million, respectively, were capitalized as part of the cost of property, plant, equipment and software. Debt extinguishment losses, net for the fiscal year ended June\u00a030, 2023 were $0.0 million as compared with $6.0 million of debt extinguishment losses, net for the fiscal year ended June\u00a030, 2022. For the fiscal year ended June 30, 2021 debt extinguishment losses net, were $8.2 million which included $10.5\u00a0million of debt prepayment costs on notes due July 2021, offset by gains of $2.3\u00a0million on related interest rate swaps that were terminated in connection with the prepayment.\nAs of June\u00a030, 2023, we had $1.7 million of issued letters of credit and no short-term borrowings under the Credit Facility. The balance of the Credit Facility, $348.3 million, remains available to us. From time to time during the fiscal year ended June 30, 2023, we borrowed under our Credit Facility. The weighted average daily borrowing under the Credit Facility during the fiscal year ended June 30, 2023 was approximately $61.9 million with daily outstanding borrowings ranging from $0.0 million to $166.0 million. As of June 30, 2023, the borrowing rate for the Credit Facility was 7.64%. \nWe believe that our total liquidity of $392.8\u00a0million, as of June\u00a030, 2023, which includes cash and cash equivalents of $44.5 million and available borrowing capacity of $348.3 million under the Credit Facility, will be sufficient to fund our cash needs over the foreseeable future. \n34\nTable of \nContents\nAs of June\u00a030, 2023, we had cash and cash equivalents of approximately $21.2 million held at various foreign subsidiaries. Our global cash deployment considers, among other things, the geographic location of our subsidiaries' cash balances, the locations of our anticipated liquidity needs and the cost to access international cash balances, as necessary. During the fiscal year ended June 30, 2023, we repatriated cash of $8.3\u00a0million from foreign jurisdictions.\nWe are subject to certain financial and restrictive covenants under the Credit Facility, which, among other things, require the maintenance of a minimum interest coverage ratio and a maximum consolidated net leverage ratio. The Credit Facility requires a minimum interest coverage ratio of 3.00 to 1.00 and a consolidated net leverage ratio of no more than 4.00 to 1.00 with a first test date at June 30, 2023, for each. As of June\u00a030, 2023, we were in compliance with all of the covenants of the Credit Facility.\nThe following table shows our actual ratio performance with respect to the financial covenants, as of June\u00a030, 2023:\n\u00a0\nCovenant\nCovenant\u00a0Requirement\nActual\nRatio\nConsolidated interest coverage ratio\n3.00 to 1.00 (minimum)\n5.35 to 1.00\nConsolidated net leverage ratio\n4.00 to 1.00 (maximum)\n2.25 to 1.00\nTo the extent that we do not comply with the current or modified covenants under the Credit Facility, this could reduce our liquidity and flexibility due to potential restrictions on borrowings available to us unless we are able to obtain waivers or modifications of the covenants.\nNon-GAAP Financial Measures\n\u00a0\nThe following provides additional information regarding certain non-GAAP financial measures that we use in this report. Our definitions and calculations of these items may not necessarily be the same as those used by other companies. \n\u00a0\nNet Sales and Gross Margin Excluding Surcharge Revenue and Special Items\n\u00a0\nThis report includes discussions of net sales as adjusted to exclude the impact of raw material surcharge and special items and the resulting impact on gross margins, which represent financial measures that have not been determined in accordance with accounting principles generally accepted in the United States of America (\"U.S. GAAP\"). We present and discuss these financial measures because management believes removing the impact of raw material surcharge from net sales provides a more consistent basis for comparing results of operations from period to period for the reasons discussed earlier in this report. \nIn addition, management believes that excluding special items from gross profit and gross margin is helpful in analyzing our operating performance as the special items are not indicative of ongoing operating performance. \nManagement uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, our board of directors and others. See our earlier discussion of \"Gross Profit\" for a reconciliation of net sales and gross margin, excluding surcharge revenue and special items, to net sales as determined in accordance with U.S. GAAP. Net sales and gross margin excluding surcharge revenue and special items is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, net sales and gross margin calculated in accordance with U.S. GAAP. \nAdjusted Operating Income (Loss) and Adjusted Operating Margin Excluding Surcharge Revenue and Special Items\n\u00a0\nThis report includes discussions of operating income (loss) and operating margin as adjusted to exclude the impact of raw material surcharge revenue and special items which represent financial measures that have not been determined in accordance with U.S. GAAP. We present and discuss these financial measures because management believes removing the impact of raw material surcharge from net sales provides a more consistent and meaningful basis for comparing results of operations from period to period for the reasons discussed earlier in this report. In addition, management believes that excluding special items from operating margin is helpful in analyzing our operating performance, as these items are not indicative of ongoing operating performance. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, our board of directors and others. See our earlier discussion of operating income (loss) for a reconciliation of adjusted operating income (loss) and adjusted operating margin excluding special items to operating income (loss) and operating margin determined in accordance with U.S. GAAP. Adjusted operating income (loss) and adjusted operating margin excluding surcharge revenue and special items is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, operating income (loss) and operating margin calculated in accordance with U.S. GAAP. \n35\nTable of \nContents\nAdjusted Earnings (Loss) Per Share\n\u00a0\nThe following provides a reconciliation of adjusted earnings (loss) per share, to its most directly comparable U.S. GAAP financial measures:\n($ in millions, except per share data)\nEarnings Before Income Taxes\nIncome Tax Expense\nNet Income\nEarnings Per Diluted Share*\nYear ended June 30, 2023, as reported\n$\n72.5\u00a0\n$\n(16.1)\n$\n56.4\u00a0\n$\n1.14\u00a0\nSpecial item:\nNone reported\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTotal impact of special item\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nYear ended June 30, 2023, as adjusted\n$\n72.5\u00a0\n$\n(16.1)\n$\n56.4\u00a0\n$\n1.14\u00a0\n* Impact per diluted share calculated using weighted average common shares outstanding of 49.2 million for the fiscal year ended June 30, 2023. \n($ in millions, except per share data)\nLoss Before Income Taxes\nIncome Tax Benefit\nNet Loss\nLoss Per Diluted Share*\nYear ended June 30, 2022, as reported\n$\n(63.1)\n$\n14.0\u00a0\n$\n(49.1)\n$\n(1.01)\nSpecial items:\nCOVID-19 costs\n5.9\u00a0\n(1.3)\n4.6\u00a0\n0.08\u00a0\nCOVID-19 employee retention credits\n(12.7)\n2.8\u00a0\n(9.9)\n(0.20)\nAcquisition-related contingent liability release\n(4.7)\n1.1\u00a0\n(3.6)\n(0.07)\nEnvironmental site charge\n2.4\u00a0\n(0.5)\n1.9\u00a0\n0.04\u00a0\nDebt extinguishment losses, net\n6.0\u00a0\n(1.3)\n4.7\u00a0\n0.10\u00a0\nTotal impact of special items\n(3.1)\n0.8\u00a0\n(2.3)\n(0.05)\nYear ended June 30, 2022, as adjusted\n$\n(66.2)\n$\n14.8\u00a0\n$\n(51.4)\n$\n(1.06)\n* Impact per diluted share calculated using weighted average common shares outstanding of 48.5 million for the fiscal year ended June 30, 2022.\nManagement believes that the presentation of earnings (loss) per share adjusted to exclude the impact of special items is helpful in analyzing the operating performance of the Company, as these items are not indicative of ongoing operating performance. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company's board of directors and others. Our definitions and calculations of these items may not necessarily be the same as those used by other companies. Adjusted earnings (loss) per share is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, earnings (loss) per share calculated in accordance with U.S. GAAP. \n36\nTable of \nContents\nAdjusted Free Cash Flow\nThis report includes discussions of adjusted free cash flow which is a non-GAAP financial measure and may not be comparable to adjusted free cash flow reported by other companies. Historically, this non-GAAP financial measure included cash used for dividends paid on outstanding common stock and participating securities. Management believes that excluding cash dividends paid from adjusted free cash flow will provide a more direct comparison to operating cash flow, a GAAP-defined financial measure. Fiscal years 2022 and 2021 have been updated to conform to the current presentation. The following provides a reconciliation of adjusted free cash flow, as used in this annual report, to its most directly comparable U.S. GAAP financial measures: \n\u00a0\nFiscal\u00a0Year\n($\u00a0in\u00a0millions)\n2023\n2022\n2021\nNet cash provided from operating activities\n$\n14.7\u00a0\n$\n6.0\u00a0\n$\n250.0\u00a0\nPurchases of property, plant, equipment and software\n(82.3)\n(91.3)\n(100.5)\nProceeds from disposals of property, plant and equipment and assets held for sale\n\u2014\u00a0\n2.2\u00a0\n1.6\u00a0\nProceeds from divestiture of business\n\u2014\u00a0\n\u2014\u00a0\n20.0\u00a0\nAdjusted free cash flow\n$\n(67.6)\n$\n(83.1)\n$\n171.1\u00a0\nManagement believes that the presentation of adjusted free cash flow provides useful information to investors regarding our financial condition because it is a measure of cash generated which management evaluates for alternative uses. It is management's current intention to use excess cash to fund investments in capital equipment, acquisition opportunities and consistent dividend payments. Adjusted free cash flow is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, cash flows calculated in accordance with U.S. GAAP.\nCritical Accounting Policies and Estimates\n\u00a0\nThe preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.\u00a0Actual results could differ from those estimates. On an on-going basis, we evaluate our estimates, including those related to bad debts, customer claims, inventories, pensions and other postretirement benefits, intangible assets, goodwill, leases, environmental liabilities, income taxes, derivative instruments and hedging activities and contingencies and litigation.\n\u00a0\nWe believe the following are the critical accounting policies and areas affected by significant judgments and estimates impacting the preparation of our consolidated financial statements.\n\u00a0\nAllowance for Doubtful Accounts\n\u00a0\nWe maintain an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments.\u00a0We perform ongoing credit evaluations of our customers and monitor their payment patterns. Should the financial condition of our customers deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. \n\u00a0\nInventories\n\u00a0\nInventories are valued at the lower of cost or market for those inventories determined by the LIFO method. We value other inventory at the lower of cost or net realizable value, determined by the FIFO and average cost methods. As of June\u00a030, 2023 and 2022, $133.2 million and $122.9 million of inventory, respectively, was accounted for using a method other than the LIFO method. If the FIFO method of inventory had been used instead of the LIFO method, inventories would have been $517.2 million and $427.2 million higher as of June\u00a030, 2023 and 2022, respectively.\n37\nTable of \nContents\nCosts include direct materials, direct labor, applicable manufacturing overhead and other direct costs. Under the LIFO inventory valuation method, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials and other costs may have been incurred at significantly different values due to the length of time of our production cycle. The prices for many of the raw materials we use have been volatile. Since we value most of our inventory utilizing the LIFO inventory costing methodology, rapid changes in raw material costs have an impact on our operating results. In a period of rising prices, cost of sales expense recognized under LIFO is generally higher than the cash costs incurred to acquire the inventory sold. Conversely, in a period of declining raw material prices, cost of sales expense recognized under LIFO is generally lower than the cash costs incurred to acquire the inventory sold.\n\u00a0\nSince the LIFO inventory valuation methodology is designed for annual determination, interim estimates of the annual LIFO valuation are required. We evaluate the effects of the LIFO inventory valuation method on an interim basis by estimating the expected annual LIFO cost based on cost changes to date and recognize effects that are not expected to be replaced by year-end in the interim period in which the liquidation occurs. These projections of annual LIFO inventory valuation reserve changes are updated quarterly and are evaluated based upon material, labor and overhead costs.\nPension and Other Postretirement Benefits\n\u00a0\nThe amount of net pension expense (income), which is determined annually, or upon remeasurement, is based upon the value of the assets in the pension trusts at the beginning of the fiscal year as well as actuarial assumptions, such as the discount rate and the expected long-term rate of return on plan assets.\u00a0The assumed long-term rate of return on pension plan assets is reviewed at each year-end based on the plan's investment policies, an analysis of the historical returns of the capital markets and current interest rates.\u00a0Based on the current funding level, the benchmark allocation policy for the Company's largest pension plan assets is to have approximately 75 percent in return seeking assets and 25 percent in liability-hedging assets. Return seeking assets include global equities, diversified credit and real assets. Liability-hedging assets include bond funds and cash. When the funding level of the plan reaches 95 percent and improves to fully or over-funded status in increments of 5 percent, assets will be shifted from return seeking to liability-hedging assets in accordance with the glidepath policy outlined in the pension plan's Investment Policy Statement. The plan discount rate is determined by reference to the BondLink interest rate model based upon a portfolio of highly rated U.S. corporate bonds with individual bonds that are theoretically purchased to settle the plan's anticipated cash outflows.\u00a0The fluctuations in stock and bond markets could cause actual investment results to be significantly different from those assumed, and therefore, significantly impact the valuation of the assets in our pension trusts.\u00a0Changes in actuarial assumptions could significantly impact the accounting for the pension assets and liabilities.\u00a0If the assumed long-term rate of return on plan assets was changed by 0.25 percent, the net pension expense (income) would change by $1.9\u00a0million. If the discount rate was changed by 0.25 percent, the net pension expense (income) would change by $0.1\u00a0million.\n\u00a0\nLong-Lived Assets\n\u00a0\nLong-lived assets are reviewed for impairment and written down to fair value whenever events or changes in circumstances indicate that the carrying value may not be recoverable through estimated future undiscounted cash flows.\u00a0The amount of the impairment loss is the excess of the carrying amount of the impaired assets over the fair value of the assets based upon estimated future discounted cash flows.\u00a0We evaluate long-lived assets for impairment by individual business unit. Changes in estimated cash flows could have a significant impact on whether or not an asset is impaired and the amount of the impairment.\n\u00a0\n38\nTable of \nContents\nGoodwill\n\u00a0\nGoodwill is not amortized but instead is tested at least annually for impairment as of June 1, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. Effective in fiscal year 2022 and prospectively, we will perform the required annual goodwill impairment test as of June 1 rather than on June 30 which was our previous practice. We believe this change is preferable as it more closely aligns with the timing of our annual budgeting process. We do not believe this change resulted in any delay, acceleration or avoidance of impairment. Furthermore, a retrospective application to prior periods is impracticable as we are unable to objectively determine, without the use of hindsight, the assumptions which would be used in earlier periods.\nPotential impairment is identified by comparing the fair value of a reporting unit to its carrying value. If the carrying value of the reporting unit exceeds its fair value, any impairment loss is measured by the difference between the carrying value of the reporting unit and its fair value, not to exceed the carrying amount of goodwill. The discounted cash flow analysis for each reporting unit tested requires significant estimates and assumptions related to cash flow forecasts, discount rates, terminal values and income tax rates. The cash flow forecasts include significant judgments and assumptions related to revenue growth rates, which include perpetual growth rates, gross margin and weighted average cost of capital. The cash flow forecasts are developed based on assumptions about each reporting unit's markets, product offerings, pricing, capital expenditure and working capital requirements as well as cost performance.\nThe discount rates used in the discounted cash flow are estimated based on a market participant's perspective of each reporting unit's weighted average cost of capital. The terminal value, which represents the value attributed to the reporting unit beyond the forecast period, is estimated using a perpetuity growth rate assumption. The income tax rates used in the discounted cash flow analysis represent estimates of the long-term statutory income tax rates for each reporting unit based on the jurisdictions in which the reporting units operate.\nAs of June\u00a030, 2023, we have three reporting units with goodwill recorded. Goodwill associated with the SAO reporting unit as of June\u00a030, 2023, was $195.5 million and represents approximately 81 percent of total goodwill as of June\u00a030, 2023. The remaining goodwill is associated with the PEP segment, which includes two reporting units, Dynamet and Latrobe Distribution, with goodwill recorded as of June\u00a030, 2023, of $31.9\u00a0million and $14.0\u00a0million, respectively. The fair value for all three reporting units is estimated using a weighting of discounted cash flows and the use of market multiples valuation techniques.\nGoodwill associated with the SAO reporting unit is tested at the SAO segment level. As of June 1, 2023, the fair value of the SAO reporting unit exceeded the carrying value by approximately 60 percent. The discounted cash flows analysis for the SAO reporting unit includes assumptions related to our ability to increase volume, improve mix, expand product offerings and continue to implement opportunities to reduce costs over the next several years. For purposes of the discounted cash flow analysis for SAO's fair value, a weighted average cost capital of 11.0 percent and a terminal growth rate assumption of 2.5 percent were used. If the long-term growth rate for this reporting unit had been hypothetically reduced by 0.5 percent at June 1, 2023, the SAO reporting unit would have a fair value that exceeded the carrying value by approximately 57 percent.\nGoodwill associated with the PEP segment is tested at the Dynamet and Latrobe Distribution reporting unit level. As of June 1, 2023, the fair value of the Dynamet reporting unit exceeded the carrying value by approximately 106 percent. For purposes of the discounted cash flow analysis for Dynamet's fair value, a weighted average cost capital of 14.0 percent and a terminal growth rate assumption of 2.5 percent were used. If the long-term growth rate for this reporting unit had been hypothetically reduced by 0.5 percent at June 1, 2023, the Dynamet reporting unit would have a fair value that exceeded the carrying value by approximately 104 percent. As of June 1, 2023, the fair value of the Latrobe Distribution reporting unit exceeded the carrying value by approximately 11 percent. For purposes of the discounted cash flow analysis for Latrobe Distribution's fair value, a weighted average cost capital of 13.0 percent and a terminal growth rate assumption of 2.5 percent were used. If the long-term growth rate for this reporting unit had been hypothetically reduced by 0.5 percent at June 1, 2023, the Latrobe Distribution reporting unit would have a fair value that exceeded the carrying value by approximately 10 percent.\n39\nTable of \nContents\nIn preparing the financial statements for the quarter ended December 31, 2020, we identified an impairment triggering event related to the Additive reporting unit within the PEP segment. This reporting unit has experienced slower than expected growth due to customers shifting their near-term focus away from this emerging area as a result of the impacts of the COVID-19 pandemic. During the quarter ended December 31, 2020 we also made strategic decisions to reduce resources allocated to the Additive reporting unit to concentrate on the essential manufacturing business. In light of these decisions and market conditions at the time, the pace of growth in the future projections for the Additive reporting unit were lowered. We determined the goodwill associated with this reporting unit was impaired and recorded an impairment charge of $52.8 million during the quarter ended December 31, 2020, which represented the entire balance of goodwill for this reporting unit. No other asset impairment was identified at the impairment testing date. The carrying value of the Additive reporting unit was greater than the fair value by approximately 37.7 percent. For purposes of the discounted cash flow technique for Additive's fair value, we used a weighted average cost of capital of 15.5 percent and a terminal growth rate assumption of 3.0 percent. If a terminal growth rate of 4.0 percent was used the Additive reporting unit would have had a carrying value in excess of fair value of approximately 34.2 percent, still resulting in a full impairment.\nThe estimate of fair value requires significant judgment. We based our fair value estimates on assumptions that we believe to be reasonable but that are unpredictable and inherently uncertain, including estimates of future growth rates and operating margins and assumptions about the overall economic climate and the competitive environment for our business units. There can be no assurance that our estimates and assumptions made for purposes of our goodwill and identifiable intangible asset testing as of the time of testing will prove to be accurate predictions of the future. If our assumptions regarding business projections, competitive environments or anticipated growth rates are not correct, we may be required to record goodwill and/or intangible asset impairment charges in future periods, whether in connection with our next annual impairment testing or earlier, if an indicator of an impairment is present before our next annual evaluation. We continuously monitor for events and circumstances that could negatively impact the key assumptions in determining fair value of the reporting units. \nLeases\nDetermination of whether a contract is or contains a lease at contract inception is based on the presence of identified assets and the right to obtain substantially all of the economic benefit from or to direct the use of such assets. When it is determined a lease exists, a right-of-use (\"ROU\") asset and corresponding lease liability are recorded on the consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term. Lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets are recognized at commencement date at the value of the lease liability and are adjusted for any prepayments, lease incentives received, and initial direct costs incurred. Lease liabilities are recognized at lease commencement date based on the present value of remaining lease payments over the lease term. As the discount rate implicit in the lease is not readily determinable in most leases, an incremental borrowing rate is used. Lease terms include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease contracts with a term of 12 months or less are not recorded in the consolidated balance sheets. Fixed lease expense is recognized for operating leases on a straight-line basis over the lease term. Lease agreements with lease and non-lease components, are accounted for as a single lease component for all underlying asset classes. Accordingly, all costs associated with a lease contract are accounted for as lease costs. Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable lease payments are not presented as part of the ROU asset or lease liability. \nEnvironmental Expenditures\n\u00a0\nEnvironmental expenditures that pertain to current operations or to future revenues are expensed or capitalized consistent with the Company's capitalization policy for property, plant and equipment.\u00a0Expenditures that result from the remediation of an existing condition caused by past operations and that do not contribute to current or future revenues are expensed. Liabilities are recognized for remedial activities when the remediation is probable and the cost can be reasonably estimated. Most estimated liabilities are not discounted to present value due to the uncertainty as to the timing and duration of expected costs. For one former operating facility site, due to the routine nature of the expected costs, the liability for future costs is discounted to present value over 20 years with a discount rate of approximately 5 percent as of June 30, 2023 and 3 percent as of June 30, 2022.\n\u00a0\n40\nTable of \nContents\nIncome Taxes\n\u00a0\nDeferred income taxes result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes, or differences between the fair value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. Deferred income taxes represent future tax benefits (assets) or costs (liabilities) to be recognized when those temporary differences reverse. We evaluate on a quarterly basis whether, based on all available evidence, we believe that our deferred income tax assets will be realizable. Valuation allowances are established when it is estimated that it is more likely than not that the tax benefit of the deferred tax assets will not be realized. The evaluation includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. Future realization of deferred income tax assets ultimately depends upon the existence of sufficient taxable income within the carryback or carryforward period available under tax law.\nManagement determines whether a tax position should be recognized in the financial statements by evaluating whether it is more likely than not that the tax position will be sustained upon examination by the tax authorities based upon the technical merits of the position. For those tax positions which should be recognized, the measurement of a tax position is determined as being the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Interest and penalties on estimated liabilities for uncertain tax positions are recorded as components of the provision for income taxes.\nDerivative Financial Instruments\n\u00a0\nOur current risk management strategies include the use of derivative instruments to reduce certain risks.\u00a0The critical strategies include:\u00a0(1)\u00a0the use of commodity forward contracts to fix the price of a portion of anticipated future purchases of certain raw materials and energy to offset the effects of changes in the costs of those commodities; and (2)\u00a0the use of foreign currency forward contracts to hedge a portion of anticipated future sales denominated in foreign currencies, principally the Euro and Pound Sterling, in order to offset the effect of changes in exchange rates. The commodity forwards and foreign currency forwards have been designated as cash flow hedges and unrealized net gains and losses are recorded in the accumulated other comprehensive loss component of stockholders' equity.\u00a0The unrealized gains or losses are reclassified to the statement of operations when the hedged transaction affects earnings or if the anticipated transactions are no longer expected to occur. We may use interest rate swaps to maintain a certain level of floating rate debt relative to fixed rate debt.\u00a0Interest rate swaps have been designated as fair value hedges. Accordingly, the mark-to-market values of both the interest rate swap and the underlying debt obligations are recorded as equal and offsetting gains and losses in the interest expense component of the consolidated statement of operations. We have also used forward interest rate swaps to manage the risk of cash flow variability associated with fixed interest debt expected to be issued. We also use foreign currency forward contracts to protect certain short-term asset or liability positions denominated in foreign currencies against the effect of changes in exchange rates. These positions do not qualify for hedge accounting and accordingly are marked-to-market at each reporting date through charges to other income and expense.\n\u00a0\nNew Accounting Pronouncements\n\u00a0\nFor information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 3 to Notes to Consolidated Financial Statements included in Item 8. \"Financial Statements and Supplementary Data.\"\nOff Balance Sheet Arrangements\n\u00a0\nWe had no off balance sheet arrangements during the periods presented.\nMarket Sensitive Instruments and Risk Management\n\u00a0\nSee \"Item 7A. Quantitative and Qualitative Disclosures About Market Risk\" for discussion of market sensitive instruments and associated market risk for Carpenter.\n41\nTable of Contents\nContingencies\n\u00a0\nEnvironmental\n\u00a0\nWe are subject to various federal, state, local and international environmental laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health. Although compliance with these laws and regulations may affect the costs of our operations, compliance costs to date have not been material. We have environmental remediation liabilities at some of our owned operating facilities and have been designated as a potentially responsible party (\"PRP\") with respect to certain third party Superfund waste-disposal sites and other third party-owned sites. We accrue amounts for environmental remediation costs that represent our best estimate of the probable and reasonably estimable future costs related to environmental remediation. Additionally, we have been notified that we may be a PRP with respect to other Superfund sites as to which no proceedings have been instituted against us. Neither the exact amount of remediation costs nor the final method of their allocation among all designated PRPs at these Superfund sites have been determined.\u00a0Accordingly, at this time, we cannot reasonably estimate expected costs for such matters. The liability for future environmental remediation costs that can be reasonably estimated is evaluated on a quarterly basis.\u00a0The liabilities recorded for environmental remediation costs at Superfund sites, other third party-owned sites and Carpenter-owned current or former operating facilities remaining at June\u00a030, 2023 and 2022 were $16.5 million and $18.3 million, respectively.\nIn December 1997, we were named as a party in a Landfill Settlement Agreement related to a third-party Superfund waste-disposal site. As a result of this Agreement, we were obligated to reimburse the settling work defendants for capital expenditure costs as they were incurred, which was prior to fiscal year 2022. During fiscal year 2022, we recorded a $2.4 million liability related to these costs. During fiscal year 2023, we paid the liability related to the prior capital expenditure costs and incurred minimal additional costs related to ongoing studies. We expect to incur additional claims as a result of this ongoing study that cannot be quantified at this time.\n\u00a0\nEstimates of the amount and timing of future costs of environmental remediation requirements are inherently imprecise because of the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the identification of currently unknown remediation sites and the allocation of costs among the PRPs. Based upon information currently available, such future costs are not expected to have a material effect on our financial position, results of operations or cash flows over the long-term. However, such costs could be material to our financial position, results of operations or cash flows in a particular future quarter or year.\n\u00a0\nOther\n\u00a0\nWe are defending various routine claims and legal actions that are incidental to our business, and that are common to our operations, including those pertaining to product claims, commercial disputes, patent infringement, employment actions, employee benefits, compliance with domestic and foreign laws and regulations, personal injury claims and tax issues. Like many other manufacturing companies in recent years we, from time to time, have been named as a defendant in lawsuits alleging personal injury as a result of exposure to chemicals and substances in the workplace such as asbestos. We provide for costs relating to these matters when a loss is probable and the amount of the loss is reasonably estimable. The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount and timing (both as to recording future charges to operations and cash expenditures) of the resolution of such matters. While it is not feasible to determine the outcome of these matters, we believe that the total liability from these matters will not have a material effect on our financial position, results of operations or cash flows over the long-term. However, there can be no assurance that an increase in the scope of pending matters or that any future lawsuits, claims, proceedings or investigations will not be material to our financial position, results of operations or cash flows in a particular future quarter or year.\n42\nTable of Contents\nForward-Looking Statements\n\u00a0\nThis Annual Report on Form\u00a010-K contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995.\u00a0These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected, anticipated or implied.\u00a0The most significant of these uncertainties are described in this Form\u00a010-K. They include but are not limited to: (1) the cyclical nature of the specialty materials business and certain end-use markets, including aerospace, defense, medical, transportation, energy, industrial and consumer, or other influences on Carpenter Technology's business such as new competitors, the consolidation of competitors, customers, and suppliers or the transfer of manufacturing capacity from the United States to foreign countries; (2) the ability of Carpenter Technology to achieve cash generation, growth, earnings, profitability, operating income, cost savings and reductions, qualifications, productivity improvements or process changes; (3) the ability to recoup increases in the cost of energy, raw materials, freight or other factors; (4) domestic and foreign excess manufacturing capacity for certain metals; (5) fluctuations in currency exchange rates; (6) the effect of government trade actions; (7) the valuation of the assets and liabilities in Carpenter Technology's pension trusts and the accounting for pension plans; (8) possible labor disputes or work stoppages; (9) the potential that our customers may substitute alternate materials or adopt different manufacturing practices that replace or limit the suitability of our products; (10) the ability to successfully acquire and integrate acquisitions; (11) the availability of credit facilities to Carpenter Technology, its customers or other members of the supply chain; (12) the ability to obtain energy or raw materials, especially from suppliers located in countries that may be subject to unstable political or economic conditions; (13) Carpenter Technology's manufacturing processes are dependent upon highly specialized equipment located primarily in facilities in Reading and Latrobe, Pennsylvania and Athens, Alabama for which there may be limited alternatives if there are significant equipment failures or a catastrophic event; (14) the ability to hire and retain a qualified workforce and key personnel, including members of the executive management team, management, metallurgists and other skilled personnel; (15) fluctuations in oil and gas prices and production; (16) the impact of potential cyber attacks and information technology or data security breaches; (17) inability of suppliers to meet obligations due to supply chain disruptions or otherwise; (18) inability to meet increased demand, production targets or commitments; (19) the ability to manage the impacts of natural disasters, climate change, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as the COVID-19 pandemic; and (20) geopolitical, economic, and regulatory risks relating to our global business, including geopolitical and diplomatic tensions, instabilities and conflicts, such as the war in Ukraine, as well as compliance with U.S. and foreign trade and tax laws, sanctions, embargoes and other regulations. Any of these factors could have an adverse and/or fluctuating effect on Carpenter Technology's results of operations. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended (the \"Securities Act\"), and Section 21E of the Securities Exchange Act of 1934, as amended. We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-K or as of the dates otherwise indicated in such forward-looking statements. Carpenter Technology undertakes no obligation to update or revise any forward-looking statements.\n43\nTable of Contents",
+  "item7a": ">Item 7A.\u00a0 Quantitative and Qualitative Disclosures about Market Risk\n\u00a0\nWe use derivative financial instruments to reduce certain types of financial risk.\u00a0Firm price sales arrangements involve a risk of profit margin fluctuations particularly as raw material prices have been volatile.\u00a0Firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established. As discussed in Note 16 to the consolidated financial statements included in Part\u00a0II,\u00a0Item 8. \"Financial Statements and Supplementary Data,\" in order to reduce the risk of fluctuating profit margins on these sales, we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the products sold under the firm price sales arrangements. If a customer fails to perform its obligations under the firm price sales arrangements, we may realize losses as a result of the related commodity forward contracts. As of June 30, 2023, we had approximately $2.5 million of net deferred losses related to commodity forward contracts to purchase certain raw materials. A large portion of this balance is related to commodity forward contracts to support firm price sales arrangements associated with many customers in addition to credit already extended to these customers in connection with outstanding trade receivables. Our customers have historically performed under these arrangements and we believe that they will honor such obligations in the future.\n\u00a0\nWe are actively involved in managing risks associated with energy resources. Risk containment strategies include interaction with primary and secondary energy suppliers as well as obtaining adequate insurance coverage to compensate us for potential business interruption related to lack of availability of energy resources. In addition, we have used forwards to fix the price of a portion of our anticipated future purchases of certain energy requirements to protect against the impact of significant increases in energy costs. We also use surcharge mechanisms to offset a portion of these charges where appropriate.\n\u00a0\nFluctuations in foreign currency exchange rates could subject us to risk of losses on anticipated future cash flows from our international operations or customers. Foreign currency forward contracts are used to hedge certain foreign exchange risk.\n\u00a0\nWe use interest rate swaps to achieve a level of floating rate debt relative to fixed rate debt where appropriate. Historically, we have entered into forward swap contracts to manage the risk of cash flow variability associated with fixed interest debt expected to be issued.\n\u00a0\nAll hedging strategies are reviewed and approved by senior financial management before being implemented.\u00a0Senior financial management has established policies regarding the use of derivative instruments that prohibit the use of speculative or leveraged derivatives.\nBased on the current funding level, the benchmark allocation policy for the Company's largest pension plan assets is to have approximately 75 percent in return seeking assets and 25 percent in liability-hedging assets. Return seeking assets include global equities, diversified credit and real assets. Liability-hedging assets include bond funds and cash. When the funding level of the plan reaches 95 percent and improves to fully or over-funded status in increments of 5 percent, assets will be shifted from return seeking to liability-hedging assets in accordance with the glidepath policy outlined in the pension plan's Investment Policy Statement.\n\u00a0\nThe status of our financial instruments as of June\u00a030, 2023, is provided in Note 16 to the consolidated financial statements included in Item 8. \"Financial Statements and Supplementary Data.\" Assuming on June\u00a030, 2023, (a)\u00a0an instantaneous 10 percent decrease in the price of raw materials and energy for which we have commodity forward contracts, and (b)\u00a0a 10 percent strengthening of the U.S. dollar versus foreign currencies for which foreign exchange forward contracts existed, our results of operations would not have been materially affected in either scenario.\n44\nTable of Contents",
+  "cik": "17843",
+  "cusip6": "144285",
+  "cusip": ["144285903", "144285103"],
+  "names": ["CARPENTER TECHNOLOGY CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/17843/000001784323000021/0000017843-23-000021-index.htm"
+}
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+{
+  "item1": ">Item 1.\u00a0\u00a0Business\n \nGeneral\n \nFlexsteel Industries, Inc., and Subsidiaries (the \u201cCompany\u201d) is one of the largest manufacturers, importers, and marketers of residential furniture products in the United States. Product offerings include a wide variety of furniture such as sofas, loveseats, chairs, reclining rocking chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs, kitchen storage, bedroom furniture, and outdoor furniture. A featured component in most of the upholstered furniture is a unique steel drop-in seat spring from which the name \u201cFlexsteel\u201d is derived. The Company distributes its products throughout the United States through its e-commerce channel and direct sales force.\n \nThe Company operates in one reportable segment, furniture products.  The Company\u2019s furniture products business involves the distribution of manufactured and imported products consisting of a broad line of furniture for the residential market. In fiscal 2020, the Company substantially completed its exit from the Commercial Office and custom design Hospitality product lines which served contract markets. During fiscal 2021, the Company substantially completed its restructuring activities related to the exit of its Vehicle Seating and the remainder of its Hospitality product lines, which also served contract markets. Set forth below is information for the past three fiscal years showing the Company\u2019s net sales attributable to each of the areas of application:\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nFor the years ended June\u00a030,\n(in thousands)\n \n2023\n \n2022\n \n2021\nResidential  \n \n$\n 393,692\n \n$\n 543,447\n \n$\n 476,519\nContract  \n \n \n \u2014\n \n \n 835\n \n \n 2,406\n \n \n$\n 393,692\n \n$\n 544,282\n \n$\n 478,925\n \n \n \nManufacturing and Offshore Sourcing\n \nDuring the fiscal year ended June 30, 2023, the Company operated manufacturing facilities located in Dublin, Georgia, and Juarez, Mexico.  These ongoing manufacturing operations are integral to the Company\u2019s product offerings and distribution strategy by offering smaller and more frequent product runs of a wider product selection. The Company identifies and eliminates manufacturing inefficiencies and adjusts manufacturing schedules on a daily basis to meet customer requirements.  The Company has established relationships with key suppliers to ensure prompt delivery of quality component parts.  The Company\u2019s production includes the use of selected component parts sourced offshore to enhance value in the marketplace.\n \n\n\n3\n \nTable of Contents\n \n\n\n \nThe Company integrates manufactured products with finished products acquired from offshore suppliers who can meet quality specifications and scheduling requirements. The Company will continue to pursue and refine this blended strategy, offering customers manufactured goods, products manufactured utilizing imported component parts, and ready-to-deliver imported products.  This blended focus on products allows the Company to provide a wide range of price points, styles and product categories to satisfy customer requirements. \n \nCompetition\n \nThe furniture industry is highly competitive and includes a large number of U.S. and foreign manufacturers and distributors, none of which dominate the market. The Company competes in markets with a large number of relatively small manufacturers; however, certain competitors have substantially greater sales volumes than the Company.  The Company\u2019s products compete based on style, quality, price, delivery, service and durability.  The Company believes its patented, guaranteed-for-life Blue Steel Spring, manufacturing and sourcing capabilities, facility locations, commitment to customers, product quality, delivery, service, value and experienced production, sales, marketing and management teams, are some of its competitive advantages.     \n \nSeasonality\n \nThe Company\u2019s business is not considered seasonal.  \n \nForeign Operations\n \nThe Company has minimal export sales.  On June 30, 2023, the Company had approximately 34 employees located in Asia to ensure Flexsteel\u2019s quality standards are met and to coordinate the delivery of products acquired from overseas suppliers.  The Company leases and operates three manufacturing facilities in Juarez, Mexico and leases one manufacturing facility in Mexicali, Mexico and had approximately 1,200 employees located in Mexico on June 30, 2023. The four Mexico facilities total 1,061,000 square feet. As of June 30, 2023, the Company has not begun operations in the Mexicali facility and had subleased approximately 105,000 square feet. The Company is in negotiations to sublease the remainder of the facility until such time that demand necessitates the additional capacity.  See \u201cRisk Factors\u201d in Item 1A and Note 2 \nLeases\n of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion of the leased assets. \n \nCustomer Backlog\n \nThe approximate backlog of customer orders believed to be firm as of the end of the current fiscal year and the prior two fiscal years were as follows (in thousands):\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nJune 30, 2023\n \nJune 30, 2022\n \nJune\u00a030, 2021\n$\n 49,729\n \n$\n 62,800\n \n$\n 155,325\n \nRaw Materials\n \nThe Company utilizes various types of wood, fabric, leather, filling material, high carbon spring steel, bar and wire stock, polyurethane foam and other raw materials in manufacturing furniture.  The Company purchases these materials from numerous outside suppliers, both U.S. and foreign, and is not dependent upon any single source of supply.  The costs of certain raw materials fluctuate, but all continue to be readily available within supplier lead-times; however, we could experience supply-chain disruptions at any time, which could impact the availability of materials.\n \nIndustry Factors\n \nThe Company has exposure to actions by governments, including tariffs, see \u201cRisk Factors\u201d in Item 1A of this Annual Report on Form 10-K.  \n \nGovernment Regulations\n \nThe Company is subject to various local, state, and federal laws, regulations and agencies that affect businesses generally, see \u201cRisk Factors\u201d in Item 1A of this Annual Report on Form 10-K.  Our compliance with federal, state and local laws and regulations did not have a material effect upon our capital expenditures, earnings or competitive position during the fiscal year ended June 30, 2023.\n \nEnvironmental Matters\n \nAll of Flexsteel\u2019s stakeholders have a responsibility to protect our employees and our environment. The officers of Flexsteel and its subsidiaries will use our role as business and community leaders to set the tone at the top to guide our management teams in their efforts \n\n\n4\n \nTable of Contents\n \n\n\nto improve the workplace and the environment we directly impact. Because we are committed to sustainable business practices, to our people, and to our communities, we will continue to grow and expand the scope of our dedications to the stewardship of our valued resources.  The Company is subject to environmental laws and regulations with respect to product content and industrial waste. Further discussion is included in \u201cRisk Factors\u201d in Item 1A and \u201cLegal Proceedings\u201d in Item 3 of this Annual Report on Form 10-K.  \n \nTrademarks and Patents\n \nThe Company owns the United States improvement patents to its Flexsteel guaranteed-for-life Blue Steel Spring \u2013 the all-riveted, high-carbon, steel-banded seating platform that gives upholstered and leather furniture the strength and comfort to last a lifetime, as well as patents on convertible beds.  The Company owns other patents and owns certain trademarks in connection with its furniture.\n \nIt is not common in the furniture industry to obtain a patent for a furniture design.  If a particular design of a furniture manufacturer is well accepted in the marketplace, it is common for other manufacturers to imitate the same design without recourse by the furniture manufacturer who initially introduced the design.  Furniture products are designed by the Company\u2019s own design staff and through the services of third-party designers.  New models and designs of furniture, as well as new fabrics, are introduced continuously.  \n \nEmployees\n \nThe Company had approximately 1,700 employees on June 30, 2023, including 6 employees who are covered by collective bargaining agreements.  Management believes it has good relations with employees.\n \nAvailable Information\n \nCopies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website (www.flexsteel.com) as soon as reasonably practicable after we electronically file the material with or furnish it to the U.S. Securities and Exchange Commission (SEC). Additionally, the SEC maintains an internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Information on our website or linked to our website is not incorporated by reference into this Annual Report.\n ",
+  "item1a": ">Item 1A.\u00a0\u00a0Risk Factors\n \nThe Company is subject to a variety of risks.  You should carefully consider the risk factors detailed below in conjunction with the other information contained in this Annual Report on Form 10-K.  Should any of these risks materialize the Company\u2019s business, financial condition, and future prospects could be negatively impacted.  There may be additional factors that are presently unknown to the Company or that the Company currently believes to be immaterial that could affect its business. \n \nRisks related to our operations:\n \nBusiness information systems could be impacted by disruptions and security breaches.\n \nThe Company employs information technology systems to support its global business. Security breaches and other disruptions to the Company\u2019s information technology infrastructure could interfere with operations, compromise information belonging to the Company and its customers and suppliers and expose the Company to liability which could adversely impact the Company\u2019s business and reputation. In the ordinary course of business, the Company relies on information technology networks and systems to process, transmit and store electronic information, and to manage or support a variety of business processes and activities. Additionally, the Company collects and stores certain data, including proprietary business information, and may have access to confidential or personal information in certain areas of its businesses that is subject to privacy and security laws, regulations, and customer-imposed controls.  While security breaches and other disruptions to the Company\u2019s information technology networks and infrastructure could happen, none have occurred to date that has had a material impact on the Company. Any such events could result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to the Company\u2019s reputation, which could adversely affect the Company\u2019s business.\n \nIn addition, in response to shifts in employee workplace preferences, we have allowed certain of our employees the option of a hybrid work schedule where they may choose to work partially from home. Although we continue to implement strong physical and cybersecurity measures to ensure that our business operations remain functional and to ensure uninterrupted service to our customers, our systems and our operations remain vulnerable to cyberattacks and other disruptions because a material portion of our employees work remotely either full or part-time, and we cannot be certain that our mitigation efforts will be effective.  \n \n\n\n5\n \nTable of Contents\n \n\n\n \nThe implementation of a new business information system could disrupt the business.\n \nThe Company continues to migrate business and financial processes from legacy ERP systems to SAP.  The Company takes great care in the planning and execution of these migrations, however, implementation issues related to the transition could arise and may result in the following:\n \n\uf0b7\nDisruption of the Company\u2019s domestic and international supply chain;\n\uf0b7\nInability to fill customer orders accurately and on a timely basis;\n\uf0b7\nNegative impact on financial results;\n\uf0b7\nInability to fulfill federal, state and local tax filing requirements in a timely and accurate matter; and\n\uf0b7\nIncreased demands of management and associates to the detriment of other corporate initiatives.\u00a0 \n \nThe Company\u2019s participation in a multi-employer pension plan may have exposures under those plans that could extend beyond what its obligations would be with respect to its employees.\n \nThe Company participates in, and makes periodic contributions to, one multi-employer pension plan that covers union employees. Multi-employer pension plans are managed by trustee boards comprised of participating employer and labor union representatives, and the employers participating in a multi-employer pension plan are jointly responsible for maintaining the plan\u2019s funding requirements. Based on the most recent information available to the Company, the present value of actuarially accrued liabilities of the multi-employer pension plan substantially exceeds the value of the assets held in trust to pay benefits. As a result of the Company\u2019s participation, it could experience greater volatility in the overall pension funding obligations. The Company\u2019s obligations may be impacted by the funded status of the plans, the plans\u2019 investment performance, changes in the participant demographics, financial stability of contributing employers and changes in actuarial assumptions. See Note 12 \nBenefit and Retirement Plans\n of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information.\n \nFuture results may be affected by various legal proceedings and compliance risk, including those involving product liability, environmental, or other matters.  \n \nThe Company faces the risk of exposure to product liability claims in the event the use of any of its products results in personal injury or property damage. In the event any of the Company\u2019s products prove to be defective, it may be required to recall or redesign such products. The Company is also subject to various laws and regulations relating to environmental protection and the discharge of materials into the environment. The Company could incur substantial costs, including legal expenses, as a result of the noncompliance with, or liability for cleanup or other costs or damages under, environmental laws. Given the inherent uncertainty of litigation, these various legal proceedings and compliance matters could have a material impact on the business, operating results, and financial condition. See Note 13 \nCommitments and Contingencies\n \nof Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information\n.\n \nWe may experience impairment of our long-lived assets, which would decrease our earnings and net worth.\n \nAt June 30, 2023, we had $38.7 million in property, plant and equipment and $68.3 million in right of use assets associated with leased facilities. These definite-lived assets are tested for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. The outcome of impairment testing could result in the write-down of all or a portion of the value of these assets. A write-down of our assets would, in turn, reduce our earnings and net worth. In particular, if capacity requirements do not necessitate the utilization of our leased Mexicali, Mexico facility and we are unsuccessful at subleasing the facility in the future the carrying amount of the right of use asset associated with that lease may not be recoverable.  A write-down of all or a portion of the value of the Mexicali right of use asset could have a material impact on our earnings in the period of impairment. At June 30, 2023 the Company does not believe any impairment indicators exist due to current and expected sublease tenants \nand plans for future operations \nbut impairment assessment involves the use of considerable judgement and any change in future market or economic conditions could cause actual results to differ.\n \nThe Company\u2019s success depends on its ability to recruit and retain key employees and highly skilled workers in a competitive labor market.\n \nIf the Company is not successful in recruiting and retaining key employees and highly skilled workers or experiences the unexpected loss of those employees, the operations may be negatively impacted.\n \nAdditionally, we are and will continue to be dependent upon our senior management team and other key personnel. Losing the services of one or more key members of our management team or other key personnel could adversely affect our operations. Ongoing or future communicable diseases increase the risk that certain senior executive officers or a member of the board of directors could become ill, \n\n\n6\n \nTable of Contents\n \n\n\ncausing them to be incapacitated or otherwise unable to perform their duties for an extended absence. This could negatively impact the efficiency and effectiveness of processes and internal controls throughout the Company and our ability to service customers.\n \nWe may not be able to collect amounts owed to us.\n \nWe grant payment terms between 10 and 60 days to customers, often without requiring collateral. Due to ongoing global supply chain issues and inflationary cost pressures, some customers have requested extended payment terms or informed us they will not pay amounts within agreed upon terms. Some of our customers have experienced, and may in the future experience, cash flow and credit-related issues. While we perform credit evaluations of our customers, those evaluations may not prevent uncollectible trade accounts receivable. Credit evaluations involve significant management diligence and judgment, especially in the current environment. Should more customers experience liquidity issues than we anticipate, if payment is not received on a timely basis, or if a customer declares bankruptcy or closes stores, we may have difficulty collecting amounts owed to us by these customers, which could adversely affect our sales, earnings, financial condition, and liquidity.\n \nRisks related to our industry:\n \nThe impact of COVID-19 or similar pandemics could have a materially adverse effect on our ability to operate, our ability to keep employees safe from the pandemic, our results of operations, and financial condition. \n \nDuring the initial height of the COVID-19 pandemic, purchases of home furnishings were heavily impacted as they are largely deferable and heavily influenced by consumer sentiment. Public health organizations recommended, and many governments implemented, measures from time-to-time to slow and limit the transmission of the virus, including certain business shutdowns and shelter in place and social distancing requirements. Such preventive measures, or others we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, potential border closures, and disruptions to the businesses of our selling channel partners, and others.\n \nOur suppliers and customers also face these and other challenges, which have and could continue to lead to a disruption in our supply chain, raw material inflation or the inability to get the raw materials necessary to produce our products, increased shipping, and transportation costs, as well as decreased consumer spending and decreased demand for our products. A resurgence of the COVID-19 pandemic or other public health emergency in the future could have a material adverse effect on our ability to operate, our ability to keep employees safe from the pandemic, our results of operations, and financial condition.\n \nContinuing inflation and changes in foreign currency may impact our profitability.\n \nCost inflation including significant increases in ocean container rates, raw materials prices, labor rates, and domestic transportation costs have and could continue to impact profitability.  Continued imbalances between supply and demand for these resources may continue to exert upward pressure on costs.  \n \nThe Company purchases raw materials, component parts, and certain finished goods from foreign external suppliers.  Prices for these purchases are primarily negotiated in U.S. dollars on a purchase order basis.  A negative shift in the U.S. dollar relative to the local currency of our supplier could result in price increases and negatively impact our cost structure.  In addition, the majority of our manufactured products are produced in Mexico.  The wages of our employees and certain other employee benefit and indirect costs are made in Pesos.  The Company does not employ any foreign currency hedges against this exposure. A negative shift in the value of the U.S. dollar against the Peso could increase the cost of manufacturing.\n \nOur ability to recover these cost increases through price increases may continue to lag the cost increases, resulting in downward pressure on margins. In addition, price increases to offset rising costs could negatively impact demand for our products. \n \nThe Company\u2019s products are considered deferrable purchases for consumers during economic downturns. Prolonged negative economic conditions could impact the business.\n \nEconomic downturns and prolonged negative economic conditions could affect consumer spending habits by decreasing the overall demand for home furnishing products. These events could impact retailers resulting in an impact on the Company\u2019s business. A recovery in the Company\u2019s sales could lag significantly behind a general economic recovery due to the deferrable nature and relatively significant cost of purchasing home furnishing products.\n \nFuture success depends on the Company\u2019s ability to manage its global supply chain.\n \nThe Company acquires raw materials, component parts, and certain finished products from external suppliers, both U.S. and foreign.  Many of these suppliers are dependent upon other suppliers in countries other than where they are located. This global interdependence \n\n\n7\n \nTable of Contents\n \n\n\nwithin the Company\u2019s supply chain is subject to delays in delivery, availability, quality, and pricing. Changes in international trade policies including tariffs, access to ports and border crossings, or railways could disrupt the supply chain, increase cost and reduce competitiveness. The delivery of goods from these suppliers has been and may continue to be delayed by customs, labor issues, availability of third-party transportation and equipment, geo-political pressures, changes in political, economic, and social conditions, weather, laws, and regulations. Unfavorable fluctuations in price, international trade policies, quality, delivery, and availability of these products could continue to adversely affect the Company\u2019s ability to meet demands of customers and cause negative impacts to the Company\u2019s cost structure, profitability, and its cash flow.\n \nEnacted tariffs and potential future increases in tariffs on manufactured goods imported from China or other countries could adversely affect our business. Inability to reduce acquisition costs or pass-through price increases may have an adverse impact on sales volume, earnings, and liquidity.  Similarly, increases in pricing may have an adverse impact on the competitiveness of the Company\u2019s products relative to other furniture manufacturers with less exposure to the tariff and could also lead to adverse impacts on volume, earnings, and liquidity. \n \nAdditionally, a disruption in supply from foreign countries could adversely affect our ability to timely fill customer orders for those products and decrease our sales, earnings, and liquidity. The main foreign countries we source from are Vietnam, China, Thailand, and Mexico. It is unclear how our supply chain could be further impacted by COVID-19, including the spread of new variants, and there are many unknowns including how long we could be impacted, the severity of the impacts, and the probability of a recurrence of COVID-19 or similar regional or global pandemics. If we were unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain could adversely affect our sales, earnings, financial condition, and liquidity.\n \nFinally, the Company relies on third parties to deliver customer orders. The capacity of these third parties or cost of this service could be impacted by labor disputes, cost inflation (particularly fuel), and availability of drivers which could increase cost and have negative impacts on our earnings.\n \nCompetition from U.S. and foreign finished product manufacturers may adversely affect the business, operating results or financial condition.\n \nThe furniture industry is very competitive and fragmented. The Company competes with U.S. and foreign manufacturers and distributors. As a result, the Company may not be able to maintain or raise the prices of its products in response to competitive pressures or increasing costs. Also, due to the large number of competitors and their wide range of product offerings, the Company may not be able to significantly differentiate its products (through styling, finish, and other construction techniques) from those of its competitors.\n \nAdditionally, most of our sales are to distribution channels that rely on physical stores to merchandise and sell our products and an involuntary shut down of those stores due to COVID-19 or similar pandemic or a significant shift in consumer preference toward purchasing products online could have a materially adverse impact on our sales and operating margin. \n \nThese and other competitive pressures could cause us to lose market share, revenues, and customers, increase expenditure or reduce prices, any of which could have a material adverse effect on our results of operations or liquidity.\n \nFuture costs of complying with \nvarious laws and regulations may adversely impact future operating results.\n \nThe Company\u2019s business is subject to various laws and regulations which could have a significant impact on operations and the cost to comply with such laws and regulations could adversely impact the Company\u2019s financial position, results of operations and cash flows. In addition, inadvertently failing to comply with such laws and regulations could produce negative consequences which could adversely impact the Company\u2019s operations.\n \nFailure to anticipate or respond to changes in consumer or designer tastes and fashions in a timely manner could adversely affect the Company\u2019s business and decrease sales and earnings.\n \nFurniture is a styled product and is subject to rapidly changing consumer and end-user trends and tastes and is highly fashion oriented. If the Company is not able to acquire sufficient fabric variety or if the Company is unable to predict or respond to changes in fashion trends, it may lose sales and have to sell excess inventory at reduced prices.\n \nUse of social media to disseminate negative commentary may adversely impact the Company\u2019s reputation and business.\n \nThere has been a substantial increase in the use of social media platforms, including blogs, social media websites, and other forms of internet-based communications, which allow individuals to access a broad audience of consumers and other interested persions. Negative commentary regarding the Company or its products may be posted on social media platforms at any time and may have an adverse impact on its reputation, business, or relationships with third parties, including suppliers, customers, investors, and lendors. Consumers \n\n\n8\n \nTable of Contents\n \n\n\nvalue readily available information and often act on such information without further investigation and without regard to its accuracy or context. The harm may be immediate without affording the Company an opportunity for redress or correction.\n ",
+  "item7": ">Item 7.\u00a0\u00a0\u00a0\u00a0Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n \nGeneral\n \nThe following analysis of the results of operations and financial condition of the Company should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.\n \nResults of Operations\n \nThe following table has been prepared as an aid in understanding the Company\u2019s results of operations on a comparative basis for the fiscal years ended June 30, 2023, 2022 and 2021.  Amounts presented are percentages of the Company\u2019s net sales.\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nFor the years ended June\u00a030,\n \n \n2023\n \n2022\n \n2021\nNet sales \n \n \n 100.0\n%\n \n \n 100.0\n%\n \n \n 100.0\n%\nCost of goods sold \n \n \n 82.0\n \n \n \n 86.6\n \n \n \n 79.8\n \nGross margin \n \n \n 18.0\n \n \n \n 13.4\n \n \n \n 20.2\n \nSelling, general and administrative\n \n \n 16.0\n \n \n \n 12.3\n \n \n \n 14.2\n \nRestructuring expense\n \n \n \u2014\n \n \n \n 0.1\n \n \n \n 0.7\n \nEnvironmental remediation\n \n \n (0.7)\n \n \n \n \u2014\n \n \n \n \u2014\n \n(Gain) on disposal of assets\n \n \n \u2014\n \n \n \n (0.3)\n \n \n \n (1.2)\n \nOther expense\n \n \n 0.1\n \n \n \n \u2014\n \n \n \n \u2014\n \nLitigation settlement costs\n \n \n \u2014\n \n \n \n \u2014\n \n \n \n 0.0\n \nOperating income\n \n \n 2.7\n \n \n \n 1.2\n \n \n \n 6.5\n \nOther income\n \n \n 0.0\n \n \n \n 0.0\n \n \n \n 0.1\n \nInterest (expense)\n \n \n (0.3)\n \n \n \n (0.2)\n \n \n \n (0.0)\n \nIncome before income taxes\n \n \n 2.3\n \n \n \n 1.1\n \n \n \n 6.6\n \nIncome tax (benefit) expense\n \n \n (1.4)\n \n \n \n 0.7\n \n \n \n 1.8\n \nNet income\n \n \n 3.8\n%\n \n \n 0.3\n%\n \n \n 4.8\n%\n\n\n10\n \nTable of Contents\n \n\n\n \n \n \nFiscal 2023 Compared to Fiscal 2022\n \nNet sales were $393.7 million for the year ended June 30, 2023, compared to net sales of $544.3 million in the prior year, a decrease of ($150.6) million or (27.7%). Sales of products sold through retailers declined by ($142.5) million or (29.3%) primarily driven by consumer demand returning to pre-pandemic levels and competitive pressure to lower prices.  Sales of products sold through e-commerce channels decreased by ($8.1) million, or (13.8%) due to a decrease in consumer demand.   \n \nGross margin as a percent of net sales for the year ended June 30, 2023, was 18.0%, compared to 13.4% for the prior year period, an increase of 460 basis points (\u201cbps\u201d). The 460-bps increase was primarily driven by \na 680-bps increase related to lower ancillary charges caused by domestic supply chain disruptions and higher per diem charges in the prior year, an increase of 40-bps primarily related to cost savings initiatives for materials, labor, and transportation, a decrease of 150-bps due to pricing promotions and inventory write-downs, and a decrease of 110-bps related to capacity growth \ninvestments\n in manufacturing and distribution.\n \nSelling, general, and administrative (\u201cSG&A\u201d) expenses decreased by $3.9 million in the year ended June 30, 2023, compared to the prior fiscal year. \nAs a percentage of net sales, SG&A expense was 16.0% in the fiscal year 2023 compared to 12.3% of net sales in the prior fiscal year\n.  The increase of 370-bps is primarily due to an increase of 350-bps due to deleverage on year-over-year sales decline and an increase of 20-bps due to higher incentive compensation and investment in growth initiatives.\n \nThere were no restructuring expenses in the year ended June 30, 2023, as all restructuring activities were completed in the prior fiscal year. The prior fiscal year expenses were primarily for ongoing costs associated with our facilities listed as held for sale, professional fees, and former employee expenses as part of our previously announced comprehensive restructuring plan. See Note 5, \nRestructuring\n, of the Notes to Consolidated Financial Statements, included in this \nAnnual Report on Form 10-K\n for more information. \n \nDuring the year ended June 30, 2023, the Company recorded income of $2.8 million as a result of insurance proceeds received related to the settlement of the environmental remediation liability. See Note 13 \nCommitments and Contingencies\n, of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information.\n \nIncome tax benefit was ($5.6) million, or an effective rate of (60.3%), for the year ended June 30, 2023, compared to income tax expense of $4.1 million in the prior year, or an effective tax rate of 68.6%. The effective tax rate was primarily impacted by the release of our valuation allowance on deferred tax assets. See Note 10, \nIncome Taxes\n, of the Notes to Consolidated Financial Statements, included in this \nAnnual Report on Form 10-K\n for more information.\n \nNet income was $14.8 million, or $2.74 per diluted share for the year ended June 30, 2023, compared to net income of $1.9 million, or $0.28 per diluted share in the prior year.\n \nFiscal 2022 Compared to Fiscal 2021\n \nNet sales were $544.3 million for the year ended June 30, 2022, compared to net sales of $478.9 million in the prior year, an increase of $65.4 million or 13.6%. Sales of products sold through retailers grew by $73.4 million or 17.8% primarily driven by pricing and a strong order backlog at the start of the year.  Sales of products sold through e-commerce channels decreased by ($8.0) million, or (12%) due to a decrease in consumer demand.\n \nGross margin as a percent of net sales for the year ended June 30, 2022, was 13.4%, compared to 20.2% for the prior year period, a decrease of 680-bps. The 680-bps decrease was primarily driven by \na 450-bps decrease related to ancillary charges caused by domestic supply chain disruptions and higher per diem charges, a decrease of 200-bps due to pricing promotions and inventory write-downs, a decrease of 110-bps related to capacity growth \ninvestments\n in a third additional manufacturing plant in Mexico, and a new distribution facility in Greencastle, Pennsylvania, and a decrease of 70-bps primarily related to cost inflation for materials, labor, and transportation, partially offset by an increase of 150-bps related to price realization.\n \nSG&A expenses decreased by $1.2 million in the year ended June 30, 2022, compared to the prior fiscal year. \nAs a percentage of net sales, SG&A was 12.3% in the fiscal year 2022 compared to 14.2% of net sales in the prior fiscal year.  The decrease of 190-bps is primarily due to a decrease of 170-bps due to leverage on year-over-year sales growth and a decrease of 100-bps due to lower incentive compensation and offset by an increase of 80-bps due to growth investments.\n\n\n11\n \nTable of Contents\n \n\n\n \n \nRestructuring expenses were $0.7 million during the year ended June 30, 2022, primarily for ongoing costs associated with our facilities listed as held for sale, professional fees, and former employee expenses as part of our previously announced comprehensive restructuring plan. See Note 5, \nRestructuring\n, of the Notes to Consolidated Financial Statements, included in this \nAnnual Report on Form 10-K\n for more information. \n \nDuring the year ended June 30, 2022, we completed the sale of our remaining Harrison, Arkansas facility, resulting in total net proceeds of $1.4 million, and a total gain of $1.4 million.\n \nIncome tax expense was $4.1 million, or an effective rate of 68.6%, during the year ended June 30, 2022, compared to income tax expense of $8.4 million in the prior year, or an effective tax rate of 26.8%. The effective tax rate is primarily impacted by changes in our deferred tax assets for which we do not receive the income tax benefit due to our full valuation allowance. See Note 10, \nIncome Taxes\n, of the Notes to Consolidated Financial Statements, included in this \nAnnual Report on Form 10-K\n for more information.\n \nNet income was $1.9 million, or $0.28 per diluted share for the year ended June 30, 2022, compared to net income of $23.0 million, or $3.09 per diluted share in the prior year.\n \nLiquidity and Capital Resources\n \nWorking capital (current assets less current liabilities) on June 30, 2023, was $115.5 million compared to $125.4 million on June 30, 2022.  The $9.9 million decrease in working capital was due to a decrease in inventory of $19.1 million and a decrease of $2.9 million in trade receivables offset by a decrease in accounts payable of $7.4 million, a decrease in other liabilities of $2.1 million, an increase of other current assets of $1.5 million, and an increase in cash of $1.2 million. Capital expenditures were $4.8 million for the fiscal year ended June 30, 2023.\n \nA summary of operating, investing, and financing cash flow is shown in the following table:\n \n \n \n \n \n \n \n \n \n \nFor the years ended June\u00a030,\n(in thousands)\n \n2023\n \n2022\nNet cash provided by operating activities\n \n$\n 22,989\n \n$\n 7,993\nNet cash (used in) investing activities\n \n \n (4,450)\n \n \n (1,916)\nNet cash (used in) financing activities\n \n \n (17,358)\n \n \n (5,235)\nIncrease in cash and cash equivalents\n \n$\n 1,181\n \n$\n 842\n \nNet cash provided by operating activities\n \nFor the year ended June 30, 2023, cash provided by operating activities was $23.0 million, which primarily consisted of net income of $14.8 million, adjusted for non-cash items including depreciation of $4.6 million and stock-based compensation of $3.2 million, offset by $7.2 million in deferred income taxes, accounts receivable allowance recoveries of $0.4 million, and gain from the sale of capital assets of $0.3 million. The $7.2 million change in deferred income taxes primarily relates to the release of our valuation allowance on deferred tax assets. Net cash provided by operating assets and liabilities was $8.3 million and was primarily due to a decrease in inventory of $19.1 million due to fewer purchases intended to reduce inventory, a decrease in accounts receivable of $3.3 million due to lower net sales, offset by a decrease in accounts payable of $7.3 million due to lower inventory purchases, a decrease in other assets of $5.3 million, and a decrease in other liabilities of $1.5 million.\n \nFor the year ended June 30, 2022, cash provided by operating activities was $8.0 million, which primarily consisted of net income of $1.9 million, adjusted for non-cash items including depreciation of $5.2 million, gain from the sale of capital assets of $1.8 million, stock-based compensation of $1.0 million and allowance reserve recoveries of $0.3 million. Net cash provided by operating assets and liabilities was $2.0 million and was primarily due to a decrease in accounts payable of $35.8 million due to a decrease in inventory of $19.9 million due to fewer purchases intended to reduce inventory, a decrease in accounts receivable of $15.1 million primarily due to the timing of sales and collections, a decrease in other current assets of $4.0 million and a decrease in other liabilities of $1.2 million.\n \nNet cash (used in) investing activities\n \nFor the year ended June 30, 2023, net cash used in investing activities was $4.5 million, primarily due to capital expenditures of $4.8 million partially offset by proceeds of $0.3 million from the sale of capital assets.\n \nFor the year ended June 30, 2022, net cash used in investing activities was $1.9 million, primarily due to capital expenditures of $3.8 million partially offset by proceeds of $1.9 million from the sale of our Harrison, Arkansas, facility, and the finalization of the sale of our transportation fleet equipment.\n\n\n12\n \nTable of Contents\n \n\n\n \n \nNet cash (used in) financing activities\n \nFor the year ended June 30, 2023, net cash used in financing activities was $17.4 million, primarily due to proceeds from lines of credit of $363.8 million, offset by payments on lines of credit of $373.3 million, $3.7 million for treasury stock purchases, dividends paid of $3.2 million, and $1.0 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.\n \nFor the year ended June 30, 2022, net cash used in financing activities was $5.2 million, primarily due to proceeds from lines of credit of $265.1 million, offset by payments on lines of credit of $230.9 million, $35.0 million for treasury stock purchases, dividends paid of $3.9 million, and $0.5 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.\n \nFinancing Arrangements\n \nLine of Credit\n \nOn August 28, 2020, the Company entered a two-year secured $25.0 million revolving line of credit with Dubuque Bank and Trust Company, with an interest rate of 1.50% plus LIBOR, subject to a floor of 3.00%. The revolving line of credit was secured by essentially all the Company\u2019s assets, excluding real property, and required the Company to maintain compliance with certain financial and non-financial covenants. This line of credit was subsequently canceled in the first quarter of the fiscal year 2022.\n \nOn September 8, 2021, the Company, as the borrower, entered into a credit agreement (the \u201cCredit Agreement\u201d) with Wells Fargo Bank, National Association (the \u201cLender\u201d), and the other lenders party thereto. The Credit Agreement has a five-year term and provides for up to an $85 million revolving line of credit. Subject to certain conditions, the Credit Agreement also provides for the issuance of letters of credit in an aggregate amount up to $5 million which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owed to Dubuque Bank and Trust and for working capital purposes. The Company\u2019s obligations under the Credit Agreement are secured by substantially all its assets, excluding real property. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than 1.00 to 1.00. In addition, the Loan Agreement places restrictions on the Company\u2019s ability to incur additional indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, and to merge or consolidate with other entities.\n \nOn April 18, 2022, the Company, as the borrower, entered a first amendment to the September 8, 2021, Credit Agreement (\u201cFirst Amendment to the Credit Agreement\u201d), with the Lender, and the lenders party thereto.  The first amendment to the Credit Agreement changed the definition of the term \u2018Payment Conditions\u2019 and further defines default or event of default and the calculation of the Fixed Charge Coverage Ratio.\n \nSubject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus 1.25% or 1.50% per annum. On May 24, 2023, the Company entered into a second amendment to the Credit Agreement (\u201cSecond Amendment to the Credit Agreement\u201d) with the lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate (\u201cSOFR\u201d).  Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus 1.36% to 1.61% or an effective interest rate of 6.42% on June 30, 2023\n.\n \nAs of June 30, 2023, there was $28.3 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.\n \nLetters of credit outstanding at the Lender as of June 30, 2023, totaled $1.1 million\n \nSee Note 9 \nCredit Arrangements\n of Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.\n \nContractual Obligations\n \nThe following table summarizes our contractual obligations on June 30, 2023, and the effect these obligations are expected to have on our liquidity and cash flow in the future (in thousands): \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n2-3\n \n4-5\n \nMore than\n \n \nTotal\n \n1 Year\n \nYears\n \nYears\n \n5 Years\nOperating lease obligations \n \n$\n 82,746\n \n$\n 9,391\n \n$\n 18,233\n \n$\n 18,082\n \n$\n 37,040\nWarehouse management obligation\n \n \n 4,915\n \n \n 1,512\n \n \n 3,025\n \n \n 378\n \n \n \u2014\n \n \n \n\n\n13\n \nTable of Contents\n \n\n\n \nOutlook \n \nOur focus for fiscal 2024 will be to remain financially agile with strong liquidity, continue building our foundation for profitable long-term growth in both retail and e-commerce sales channels, build global supply chain resiliency, expand sourcing, manufacturing, and distribution capacity to support future growth, strengthen digital capabilities, reimagine the customer experience, and build strong culture and talent.\nCritical Accounting Policies\n \nThe discussion and analysis of our consolidated financial statements and results of operations are based on consolidated financial statements prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America.  Preparation of these consolidated financial statements requires the use of estimates and judgments that affect the reported results.  We use estimates based on the best information available in recording transactions and balances resulting from business operations.  Estimates are used for such items as the collectability of trade accounts receivable and inventory valuation.  Ultimate results may differ from these estimates under different assumptions or conditions.\n \nAllowance for Credit Losses\n \u2013 We establish an allowance for credit losses to reduce trade accounts receivable to an amount that reasonably approximates their net realizable value. Our accounts receivable allowance consists of an allowance for expected credit losses which is established through a review of open accounts, historical collection, and historical write-off amounts. The amount ultimately realized from trade accounts receivable may differ from the amount estimated in the consolidated financial statements.\n \nInventories\n \u2013 We value inventory at the lower of cost or net realizable value.  Our inventory valuation reflects markdowns for the excess of the cost over the amount expected to be realized and considers obsolete and excess inventory. Markdowns establish a new cost basis for the Company\u2019s inventory. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in that newly established cost basis.\n \nValuation of Long-Lived Assets\n \u2013 We periodically review the carrying value of long-lived assets and estimated depreciable or amortizable lives for continued appropriateness.  This review is based upon projections of anticipated future cash flows and is performed whenever events or changes in circumstances indicate that asset carrying values may not be recoverable or that the estimated depreciable or amortizable lives may have changed. For assets held for sale, if the net book value of the asset is greater than its estimated fair value less cost to sell, an impairment is recorded for the excess of net book value over the estimated fair value less cost to sell. We recorded no impairments in the fiscal years 2023 and 2022.  \n \nRestructuring Costs\n \u2013 The Company groups exit or disposal cost obligations into three categories: Involuntary employee termination benefits, costs to terminate contracts, and other associated costs.  Involuntary employee termination benefits must be a one-time benefit, and this element of restructuring cost is recognized as incurred upon communication of the plan to the identified employees.  Costs to terminate contracts are recognized upon termination agreement with the provider.  Other associated restructuring costs are expensed as incurred.  Any inventory impairment costs as a result of restructuring activities are accounted for as costs of goods sold.\n \nIncome Taxes\n - In determining taxable income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets we consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent years, and our forecast of future taxable income. In estimating future taxable income, we develop assumptions including the amount of future pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses.\n \nAt June 30, 2023 the Company determined that based on the weight of available evidence, we will be able to recover our deferred tax assets and reversed our deferred tax valuation allowance. The realization of our remaining deferred tax assets is primarily dependent on future taxable income in the appropriate jurisdiction. Any reduction in future taxable income including but not limited to any future restructuring activities may require that we re-establish a valuation allowance against our deferred tax assets. Establishing a valuation allowance or an increase in the valuation allowance could result in additional income tax expense in such a period and could have a significant impact on our future earnings.  Refer to Note 10 \nIncome Taxes\n \nof Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information\n.\n \n\n\n14\n \nTable of Contents\n \n\n",
+  "item7a": ">Item 7A.\u00a0\u00a0Quantitative and Qualitative Disclosures About Market Risk\n \nGeneral\n \n\u2013 Market risk represents the risk of changes in the value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. As discussed below, management of the Company does not believe that changes in these factors could cause material fluctuations in the Company\u2019s results of operations or cash flows. The ability to import furniture products can be adversely affected by political issues in the countries where suppliers are located, as well as disruptions associated with shipping distances and negotiations with port employees. Other risks related to furniture product importation include government imposition of regulations and/or quotas; duties, taxes or tariffs on imports; and significant fluctuation in the value of the U.S. dollar against foreign currencies. Any of these factors could interrupt supply, increase costs, and decrease earnings. \n \nForeign Currency Risk \n\u2013 During fiscal years 2023, 2022, and 2021, the Company did not have sales but had purchases and other expenses denominated in foreign currencies, primarily the Mexican Peso. \nThe wages of our employees and certain other employee benefit and indirect costs related to our operations in Mexico are made in Pesos and subject to foreign currency fluctuation with the U.S. dollar.  The Company does not employ any foreign currency hedges against this exposure. A negative shift in the value of the U.S. dollar against the Peso could increase the cost of our manufactured product. See \u201cRisk Factors\u201d in Item 1A in this Annual Report on Form 10-K for further discussion\n. \n \nInterest Rate Risk \u2013 \nThe Company\u2019s primary market risk exposure regarding financial instruments is changes in interest rates.  On June 30, 2023, the Company had $28.3 million outstanding on its line of credit.\n\u200e\n \n\n\n15\n \nTable of Contents\n \n\n\n ",
+  "cik": "37472",
+  "cusip6": "339382",
+  "cusip": ["339382103"],
+  "names": ["FLEXSTEEL INDS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/37472/000003747223000024/0000037472-23-000024-index.htm"
+}
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+{
+  "item1": ">Item\u00a01. Business\nGENERAL\nKewaunee Scientific Corporation (the \"Company\") was founded in 1906, incorporated in Michigan in 1941, became publicly-held in 1968, and was reincorporated in Delaware in 1970. Our principal business is the design, manufacture, and installation of laboratory, healthcare, and technical furniture and infrastructure products. Our products include steel and wood casework, fume hoods, adaptable modular systems, moveable workstations, stand-alone benches, biological safety cabinets, and epoxy resin work surfaces and sinks.\nOur products are sold primarily through purchase orders and contracts submitted by customers through our dealers, our subsidiaries in Singapore and India, and a national distributor. Products are sold principally to pharmaceutical, biotechnology, industrial, chemical and commercial research laboratories, educational institutions, healthcare institutions, governmental entities, and manufacturing facilities. We consider the markets in which we compete to be highly competitive, with a significant amount of the business involving competitive public bidding.\nIt is common in the laboratory and healthcare furniture industries for customer orders to require delivery at extended future dates, as products are frequently installed in buildings yet to be constructed. Changes or delays in building construction may cause delays in delivery of the orders and our recognition of the sale. Since prices are normally quoted on a firm basis in the industry, we bear the burden of possible increases in labor and material costs between quotation of an order and delivery of the product. The impact of such possible increases is considered when determining the sales price. The primary raw materials and products manufactured by others and used by us in our products are cold-rolled carbon and stainless steel, hardwood lumber and plywood, paint, chemicals, resins, hardware, plumbing and electrical fittings. Such materials and products are purchased from multiple suppliers and are typically readily available.\nOur need for working capital and our credit practices are comparable to those of other companies manufacturing, selling and installing similar products in similar markets. Since our products are used in building construction projects, in many cases payments for our products are received over longer periods of time than payments for many other types of manufactured products, thus requiring increased working capital. In addition, payment terms associated with certain projects provide for a retention amount until final completion of the project, thus also increasing required working capital. On average, payments for our products are received during the quarter following shipment, with the exception of the retention amounts which are collected at the final completion of the project.\n3\nTable of Contents\nWe hold various patents and patent rights, but do not consider that our success or growth is dependent upon our patents or patent rights. Our business is not dependent upon licenses, franchises, concessions, trademarks, royalty agreements, or labor contracts.\nOur business is not generally cyclical, although domestic sales are sometimes lower during our third quarter because of slower construction activity in certain areas of the country during the winter months. Sales for two of the Company's domestic dealers and our national stocking distributor represented, in the aggregate, approximately 35% and 38% of the Company's sales in fiscal years 2023 and 2022, respectively. Loss of all or part of our sales to a large customer would have a material effect on our financial operations.\nOur order backlog at April\u00a030, 2023 was $147.9\u00a0million, as compared to $173.9\u00a0million at April\u00a030, 2022. Based on scheduled shipment dates and past experience, we estimate that not less than 91% of our order backlog at April\u00a030, 2023 will be shipped during fiscal year 2024. However, it may be expected that delays in shipments will occur because of customer rescheduling or delay in completion of projects which involve the installation of our products.\nSEGMENT INFORMATION\nSee \nNote 11\n, \nSegment Information\n, of the Notes to Consolidated Financial Statements included in \nItem\u00a08\n of this Annual Report on Form\u00a010-K for information concerning our Domestic and International business segments.\nCOMPETITION\nWe consider the industries in which we participate to be highly competitive and believe that the principal deciding factors are price, product performance, and customer service. A significant portion of our business is based upon competitive public bidding.\nRESEARCH AND EXPERIMENTATION EXPENDITURES\nThe amount spent and expensed by us during the fiscal year ended April\u00a030, 2023 on research and experimentation expenditures activities related to new or redesigned products was $1,012,000. The amount spent for similar purposes in the fiscal year ended April\u00a030, 2022 was $990,000.\nENVIRONMENTAL COMPLIANCE\nIn the last two fiscal years, compliance with federal, state, or local provisions enacted or adopted regulating the discharge of materials into the environment has had no material effect on us and such regulation is not expected to have a material effect on our earnings or competitive position in the future.\nCULTURE AND WORKFORCE\nWe are a company of passionate, talented, and motivated people. We embrace collaboration and creativity, and encourage the iteration of ideas to address complex challenges in technology and society.\nAt April\u00a030, 2023, the Company had 603 Domestic employees and 379 International employees. Our people are critical for our continued success, so we work hard to create an environment where employees can have fulfilling careers, and be happy, healthy, and productive. We offer competitive benefits and programs to take care of the diverse needs of our employees and their families, including opportunities for career growth and development, resources to support their financial health, and access to excellent healthcare choices and resources, including access to an onsite medical clinic and separate gym facility and regular access to onsite specialists. Our competitive compensation programs help us to attract and retain top candidates, and we will continue to invest in recruiting talented people to technical and non-technical roles, and rewarding them well.\nThe Company believes that open and honest communication among team members, managers, and leaders helps create a collaborative work environment where everyone can contribute, grow, and succeed. Team members are encouraged to come to their managers with questions, feedback, or concerns, and the Company conducts surveys that gauge employee engagement.\nWhen necessary, we contract with businesses around the world to provide specialized services where we do not have appropriate in-house expertise or resources. We also contract with temporary staffing agencies when we need to cover short-term leaves, when we have spikes in business needs, or when we need to quickly incubate special projects. We choose our partners and staffing agencies carefully and continually make improvements to promote a respectful and positive working environment for everyone - employees, vendors, and temporary staff alike.\nOTHER INFORMATION\nOur Internet address is \nwww.kewaunee.com\n. We make available, free of charge through this website, our annual report to stockholders. Our Form\u00a010-K and 10-Q financial reports may be obtained by stockholders by writing the Secretary of the \n4\nTable of Contents\nCompany, Kewaunee Scientific Corporation, P.O. Box\u00a01842, Statesville, NC 28687-1842. The public may also obtain information on our reports, proxy, and information statements at the Securities and Exchange Commission (\"SEC\") Internet site \nwww.sec.gov\n. The reference to our website does not constitute incorporation by reference of any information contained at that site.\nEXECUTIVE OFFICERS OF THE REGISTRANT\nIncluded in Part III, \nItem\u00a010(b)\n, \nDirectors, Executive Officers and Corporate Governance\n, of this Annual Report on Form 10-K.",
+  "item1a": ">Item\u00a01A. Risk Factors\nYou should carefully consider the following risks before you decide to buy shares of our common stock. If any of the following risks actually occur, our business, results of operations, or financial condition would likely suffer. In such case, the trading price of our common stock would decline, and you may lose all or part of the money you paid to buy our stock.\nThis and other public reports may contain forward-looking statements based on current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those forward-looking statements as a result of many factors, including those more fully described below and elsewhere in our public reports. We do not undertake to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.\nRisks Specific to our Company\nIf we lose a large customer, our sales and profits would decline.\nWe have substantial sales to three of our domestic channel partners. The combined sales to two dealers and our national stocking distributor accounted for approximately 35% of our sales in fiscal year 2023. Loss of all or a part of our sales to a large channel partner would have a material effect on our revenues and profits until an alternative channel partner could be developed.\nWe rely on the talents and efforts of key management and our Associates. If we are unable to retain or motivate key personnel, hire qualified personnel, or maintain and continue to adapt our corporate culture, we may not be able to grow or operate effectively.\nOur performance largely depends on the talents and efforts of our Associates. Our ability to compete effectively and our future success depends on our continuing to identify, hire, develop, motivate, and retain key management and highly skilled personnel for all areas of our organization. In addition, our total compensation program may not always be successful in attracting new employees and retaining and motivating our existing employees. Restrictive immigration policy and regulatory changes may also affect our ability to hire, mobilize, or retain some of our global talent.\nIn addition, we believe that our corporate culture fosters innovation, creativity, and teamwork. As our organization grows and evolves, we may need to implement more complex organizational management structures or adapt our corporate culture and work environments to ever-changing circumstances, such as during times of a natural disaster or pandemic, and these changes could affect our ability to compete effectively or have an adverse effect on our corporate culture. With the constant evolution of workforce dynamics, if we do not manage these changes effectively, it could materially adversely affect our culture, reputation, and operational flexibility.\nWe are subject to other risks that might also cause our actual results to vary materially from our forecasts, targets, or projections, including:\n\u2022\nFailing to anticipate the need for and appropriately invest in information technology and logistical resources necessary to support our business, including managing the costs associated with such resources;\n\u2022\nFailing to generate sufficient future positive operating cash flows and, if necessary, secure and maintain adequate external financing to fund our operations and any future growth; and\n\u2022\nInterruptions in service by common carriers that ship goods within our distribution channels.\nOur business and reputation are impacted by information technology system failures and network disruptions.\nWe, and our global supply chain, are exposed to information technology system failures or network disruptions caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins, ransomware or other cybersecurity incidents, or other events or disruptions. System redundancy and other continuity measures may be ineffective or inadequate, and our, or our vendors', business continuity and disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions can adversely impact our business by, among other things, \n5\nTable of Contents\npreventing access to our cloud-based systems, interfering with customer transactions or impeding the manufacturing and shipping of our products. These events could materially adversely affect our business, reputation, results of operations and financial condition.\nFuture cybersecurity incidents could expose us to liability and damage our reputation and our business.\nWe collect, process, store, and transmit large amounts of data, and it is critical to our business strategy that our facilities and infrastructure remain secure and are perceived by the marketplace to be secure. Our information technology systems are essential to our efforts to manufacture our products, process customer sales transactions, manage inventory levels, conduct business with our suppliers and other business partners, and record, summarize and analyze the results of our operations. These systems contain, among other things, material operational, financial and administrative information related to our business. As with most companies, there will always be some risk of physical or electronic break-ins, computer viruses, or similar disruptions.\nIn addition, we, like all entities, are the target of cybercriminals who attempt to compromise our systems. From time to time, we experience threats and intrusions that may require remediation to protect sensitive information, including our intellectual property and personal information, and our overall business. Any physical or electronic break-in, computer virus, cybersecurity attack or other security breach or compromise of the information handled by us or our service providers may jeopardize the security or integrity of information in our computer systems and networks or those of our customers and cause significant interruptions in our and our customers' operations.\nAny systems and processes that we have developed that are designed to protect customer, associate and vendor information, and intellectual property, and to prevent data loss and other security attacks, cannot provide absolute security. In addition, we may not successfully implement remediation plans to address all potential exposures. It is possible that we may have to expend additional financial and other resources to address these problems. Failure to prevent or mitigate data loss or other security incidents could expose us or our customers, associates and vendors to a risk of loss or misuse of such information, cause customers to lose confidence in our data protection measures, damage our reputation, adversely affect our operating results or result in litigation or potential liability for us.\nAdditionally, we expect to continue to make investments in our information technology infrastructure. The implementation of these investments may be more costly or take longer than we anticipate, or could otherwise adversely affect our business operations, which could negatively impact our financial position, results of operations or cash flows.\nInternal controls over financial reporting may not be effective at preventing or detecting material misstatements.\nBecause of its inherent limitations, internal controls over financial reporting may not prevent or detect material misstatements in the Company's consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\nRisks Related to Operations\nSales to customers outside the United States or with international operations expose us to risks inherent in international sales.\nDuring fiscal year 2023, 34% of our revenues were derived from sales outside of the United States. A key element of our growth strategy is to expand our worldwide customer base and our international operations. Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic and political risks that are different from those in the United States. We cannot assure you that our expansion efforts into other international markets will be successful. Our experience in the United States and other international markets in which we already have a presence may not be relevant to our ability to expand in other emerging markets. Our international expansion efforts may not be successful in creating further demand for our products outside of the United States or in effectively selling our products in the international markets we enter. \nIf we fail to compete effectively, our revenue and profit margins could decline.\nWe face a variety of competition in all of the markets in which we participate. Competitive pricing, including price competition or the introduction of new products, could have material adverse effects on our revenues and profit margins.\nOur ability to compete effectively depends to a significant extent on the specification or approval of our products by architects, engineers, and customers. If a significant segment of those communities were to decide that the design, materials, manufacturing, testing, or quality control of our products is inferior to that of any of our competitors, our sales and profits would be materially and adversely affected.\nAn increase in the price of raw materials could negatively affect our sales and profits.\n6\nTable of Contents\nIt is common in the laboratory and healthcare furniture industries for customers to require delivery at extended future dates, as products are frequently installed in buildings yet to be constructed. Since prices are normally quoted on a firm basis in the industry, we bear the burden of possible increases in labor and material costs between the quotation of an order and the delivery of the products. Our principal raw materials are steel, including stainless steel, wood and epoxy resin. Numerous factors beyond our control, such as general economic conditions, competition, worldwide demand, labor costs, energy costs, and import duties and other trade restrictions, influence prices for our raw materials. We have not always been able, and in the future we might not be able, to increase our product prices in amounts that correspond to increases in costs of raw materials. Where we are not able to increase our prices, increases in our raw material costs will adversely affect our profitability.\nEvents outside our control may affect our operating results.\nWe have little control over the timing of shipping customer orders, as customers' required delivery dates are subject to change by the customer. Construction delays and customer changes to product designs are among the factors that may delay the start of manufacturing. Weather conditions, such as unseasonably warm, cold, or wet weather, can also affect and sometimes delay projects. Political and economic events can also affect our revenues. When sales do not meet our expectations, our operating results will be reduced for the relevant quarters.\nOur principal markets are in the laboratory and healthcare building construction industry. This industry is subject to significant volatility due to various factors, none of which is within our control. Declines in construction activity or demand for our products could materially and adversely affect our business and financial condition.\nWe face numerous manufacturing and supply chain risks. In addition, our reliance upon sole or limited sources of supply for certain materials, components, and services could cause production interruptions, delays and inefficiencies.\nWe purchase materials, components, and equipment from third parties for use in our manufacturing operations. Our results of operations could be adversely impacted if we are unable to adjust our purchases to reflect changes in customer demand and market fluctuations. Suppliers may extend lead times, limit supplies, or increase prices. If we cannot purchase sufficient products at competitive prices and of sufficient quality on a timely enough basis to meet increasing demand, we may not be able to satisfy market demand, product shipments may be delayed, our costs may increase, or we may breach out contractual commitments and incur liabilities.\nIn addition, some of our businesses purchase certain required products from sole or limited source suppliers for reasons of quality assurance, regulatory requirements, cost effectiveness, availability or uniqueness of design. If these or other suppliers encounter financial, operating, or other difficulties, or if our relationship with them changes, we might not be able to quickly establish or qualify replacement sources of supply. The supply chains for our businesses were impacted in fiscal year 2023 from factors outside our control and could also be disrupted in the future for such reasons as supplier capacity constraints, supplier bankruptcy or exiting of the business for other reasons, decreased availability of key raw materials or commodities and external events such as natural disasters, pandemics or other public health problems, war, terrorist actions, governmental actions and legislative or regulatory changes. Any of these factors could result in production interruptions, delays, extended lead times and inefficiencies.\nOur revenues and other operating results depend in large part on our ability to manufacture our products in sufficient quantities and in a timely manner. Any interruptions we experience in the manufacture of our products or changes to the way we manufacture products could delay our ability to recognize revenues in a particular period. In addition, we must maintain sufficient production capacity in order to meet anticipated customer demand, which carries fixed costs that we may not be able to offset because we cannot always immediately adapt our production capacity and related cost structures to changing market conditions, which would adversely affect our operating margins. If we are unable to manufacture our products consistently, in sufficient quantities, and on a timely basis, our revenues, gross margins, and our other operating results will be materially and adversely affected.\nDisruptions in the financial markets have historically created, and may continue to create, uncertainty in economic conditions that may adversely affect our customers and our business.\nThe financial markets in the United States, Europe and Asia have in the past been, and may in the future be, volatile. The tightening of credit in financial markets, worsening of economic conditions, a prolonged global, national or regional economic recession or other similar events could have a material adverse effect on the demand for our products and on our sales, pricing and profitability. We are unable to predict the likely occurrence or duration of these adverse economic conditions and the impact these events may have on our operations and the end users who purchase our products.\nOur future growth may depend on our ability to penetrate new international markets.\nInternational laws and regulations, construction customs, standards, techniques and methods differ from those in the United States. Significant challenges of conducting business in foreign countries include, among other factors, geopolitical tensions, local \n7\nTable of Contents\nacceptance of our products, political instability, currency controls, changes in import and export regulations, changes in tariff and freight rates and fluctuations in foreign exchange rates.\nThe effects of geopolitical instability, including as a result of Russia's invasion of Ukraine, may adversely affect us and heighten significant risks and uncertainties for our business, with the ultimate impact dependent on future developments, which are highly uncertain and unpredictable.\nOngoing geopolitical instability could negatively impact the global and U.S. economies in the future, including by causing supply chain disruptions, rising energy costs, volatility in capital markets and foreign currency exchange rates, rising interest rates, and heightened cybersecurity risks. The extent to which such geopolitical instability adversely affects our business, financial condition, and results of operations, as well as our liquidity and capital profile, is highly uncertain and unpredictable. If geopolitical instability adversely affects us, it may also have the effect of heightening other risks related to our business.\nIn response to the military conflict between Russia and Ukraine that began in February 2022, the United States and other North Atlantic Treaty Organization member states, as well as non-member states, announced targeted economic sanctions on Russia. The long-term impact on our business resulting from the disruption of trade in the region caused by the conflict and associated sanctions and boycotts is uncertain at this time due to the fluid nature of the ongoing military conflict and response. The potential impacts include supply chain and logistics disruptions, financial impacts including volatility in foreign exchange and interest rates, increased inflationary pressure on raw materials and energy, and other risks, including an elevated risk of cybersecurity threats and the potential for further sanctions.\nLegal and Regulatory Compliance Risks\nChanges in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations. \nWe cannot predict the extent to which the U.S. or other countries will impose quotas, duties, tariffs, taxes or other similar restrictions upon the import or export of our products or raw materials in the future, nor can we predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business.\u00a0Changes in U.S. trade policy could result in one or more foreign governments adopting responsive trade policies making it more difficult or costly for us to import our products or raw materials from those countries. This, together with tariffs already imposed, or that may be imposed in the future, by the U.S., could require us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on products sold. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material adverse effect on our business, financial condition and results of operations. \nExpectations related to environmental, social, and governance (\"ESG\") considerations could expose us to potential liabilities, increased costs, and reputational harm.\nWe are subject to laws, regulations, and other measures that govern a wide range of topics, including those related to matters beyond our core products and services. For instance, new laws, regulations, policies, and international accords relating to ESG matters, including sustainability, climate change, human capital, and diversity, are being developed and formalized in Europe, the U.S., and elsewhere, which may entail specific, target-driven frameworks and/or disclosure requirements. The implementation of these may require considerable investments. Any failure, or perceived failure, by us to adhere to any public statements or initiatives, comply with federal, state or international environmental social and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and could materially adversely affect the Company's business reputation, results of operations, financial condition, and stock price.\nGeneral Risks\nOur stock price is likely to be volatile and could drop.\nThe trading price of our Common Stock could be subject to wide fluctuations in response to quarter-to-quarter variation in operating results, announcement of technological innovations or new products by us or our competitors, general conditions in the construction and construction materials industries, relatively low trading volume in our common stock and other events or factors. In addition, in recent years, the stock market has experienced extreme price fluctuations. This volatility has had a substantial effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of those companies. Securities market fluctuations may adversely affect the market price of our common stock.\nWe currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance Corporation (\"FDIC\"), the loss of which would have a severe negative effect on our operations and liquidity.\n8\nTable of Contents\nWe may maintain our cash assets at financial institutions in the U.S. in amounts that may be in excess of the FDIC insurance limit of $250,000. Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry of the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. In the event of a failure or liquidity issues of or at any of the financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition, and our results of operations.\nSimilarly, if our customers or partners experience liquidity issues as a result of financial institution defaults or non-performance where they hold cash assets, their ability to pay us may become impaired and could have a material adverse effect on our results of operations, including the collection of accounts receivable and cash flows.\nThe impact of investor concerns on U.S. or international financial systems could impact our ability to obtain favorable financing terms in the future.\nInvestor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on terms favorable to us, or at all, and could have material adverse impacts on our liquidity, our business, financial condition or results of operations, and our prospects.\nThe impact of future pandemics could adversely affect our business, results of operations, financial condition, and liquidity.\nWhile we believe we successfully navigated the risks associated with the recent COVID-19 pandemic and were able to successfully maintain our business operations, the extent of the impact of future COVID-19 variations or other pandemics on our business and financial results is, by nature of this type of event, highly uncertain. The sweeping nature of pandemics makes it extremely difficult to predict how and to what extent our business and operations could be affected in the long run. Our workforce, and the workforce of our vendors, service providers, and counterparties, could be affected by a pandemic, which could result in an adverse impact on our ability to conduct business. No assurance can be given that the actions we take to protect our Associates and our operations will be sufficient, nor can we predict the level of disruption that could occur to our employees' ability to provide customer support and service. New processes, procedures, and controls may be required to respond to any changes in our business environment. Further, should any key employees become ill during the course of a future health event and be unable to work, our ability to operate our internal controls may be adversely impacted.\nAdditional factors related to major public health issues that could have material and adverse effects on our ability to successfully operate include, but are not limited to, the following:\n\u2022\nThe effectiveness of any governmental and non-governmental organizations in combating the spread and severity, including any legal and regulatory responses;\n\u2022\nA general decline in business activity, especially as it relates to our customers' expansion or consolidation activities;\n\u2022\nThe destabilization of the financial markets, which could negatively impact our customer growth and access to capital, along with our customers' ability to make payments for their purchase orders; and\n\u2022\nSevere disruptions to and instability in the global financial markets, and deterioration in credit and financing conditions, which could affect our access to capital necessary to fund business operations or current investment and growth strategies.",
+  "item7": ">Item\u00a07. Management's Discussion and Analysis of Financial Condition and Results of Operations\nINTRODUCTION\nKewaunee Scientific Corporation is a recognized leader in the design, manufacture and installation of laboratory, healthcare and technical furniture products. The Company's corporate headquarters are located in Statesville, North Carolina. Sales offices are located in the United States, India, Saudi Arabia, and Singapore. Three manufacturing facilities are located in Statesville serving the domestic and international markets, and one manufacturing facility is located in Bangalore, India serving the local, Asian, and African markets. Kewaunee Scientific Corporation's website is located at \nwww.kewaunee.com\n. The reference to our website does not constitute incorporation by reference of any information contained at that site.\nOur products are sold primarily through purchase orders and contracts submitted by customers through our dealers, our subsidiaries in Singapore and India, and a national distributor. Products are sold principally to pharmaceutical, biotechnology, industrial, chemical and commercial research laboratories, educational institutions, healthcare institutions, governmental entities, manufacturing facilities and users of networking furniture. We consider the markets in which we compete to be highly competitive, with a significant amount of the market requiring competitive public bidding.\nIt is common in the laboratory and healthcare furniture industries for customer orders to require delivery at extended future dates, as products are frequently to be installed in buildings yet to be constructed. Changes or delays in building construction may cause delays in delivery of the orders and our recognition of the sale. Since prices are normally quoted on a firm basis in the industry, we bear the burden of possible increases in labor and material costs between quotation of an order and delivery of the product. The impact of such possible increases is considered when determining the sales price. The principal raw materials and products manufactured by others used in our products are cold-rolled carbon and stainless steel, hardwood lumbers and plywood, paint, chemicals, resins, hardware, plumbing and electrical fittings. Such materials and products are purchased from multiple suppliers and are typically readily available.\nCRITICAL ACCOUNTING ESTIMATES\nIn the ordinary course of business, we have made estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America. Actual results could differ significantly from those estimates. We believe that the following discussion addresses our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results of operations, and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.\nAllowance for Doubtful Accounts\nEvaluation of the allowance for doubtful accounts involves management judgments and estimates. We evaluate the collectability of our trade accounts receivable based on a number of factors. In circumstances where management is aware of a customer's inability to meet its financial obligations to us, or a project dispute makes it unlikely that the outstanding amount owed by a customer will be collected, a specific reserve for bad debts is estimated and recorded to reduce the recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, a reserve for bad debts is estimated and recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding.\nPension Benefits\nWe sponsor pension plans covering all employees who met eligibility requirements as of April\u00a030, 2005. These pension plans were amended as of April\u00a030, 2005, no further benefits have been, or will be, earned under the plans subsequent to the amendment date, and no additional participants have been, or will be, added to the plans. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the pension plans. These factors include actuarial assumptions about the discount rate used to calculate and determine benefit obligations and the expected return on plan assets within certain guidelines. The actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. These differences may significantly affect the amount of pension income or expense recorded by us in future periods.\nSelf-Insurance Reserves\nThe Company's domestic operations are self-insured for employee health care costs. The Company has purchased specific stop-loss insurance policies to limit claims above a certain amount. Estimated medical costs were accrued for claims incurred but not reported using assumptions based upon historical loss experiences. The Company's exposure reflected in the self-insurance reserves varies depending upon market conditions in the insurance industry, availability of cost-effective insurance coverage, and actual claims versus estimated future claims.\n12\nTable of Contents\nIncome Taxes\nWe are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, administrative practices, and interpretations in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. In addition, our actual and forecasted earnings are subject to change due to economic, political, and other conditions.\nOur effective tax rates could be affected by numerous factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in foreign currency exchange rates, changes to our forecasts of income and loss and the mix of jurisdictions to which they relate, changes in our deferred tax assets and liabilities and their valuation, and interpretations related to tax laws and accounting rules in various jurisdictions.\nRESULTS OF OPERATIONS\nSales for fiscal year 2023 were $219.5 million, an increase compared to fiscal year 2022 sales of $168.9 million. Domestic Segment sales for fiscal year 2023 were $146.7 million, an increase of 15.7% compared to fiscal year 2022 sales of $126.8 million. The increase in Domestic Segment sales is primarily driven by the pricing of new orders in response to higher raw material input costs. International Segment sales for fiscal year 2023 were $72.8 million, an increase of 73.2% from fiscal year 2022 sales of $42.0 million. The increase in International Segment sales in fiscal year 2023 is due to the delivery of several large projects in India, Asia, and Africa that were awarded over the course of the past eighteen months.\nOur order backlog was $147.9 million at April\u00a030, 2023, as compared to $173.9 million at April\u00a030, 2022. The decrease in backlog is primarily attributable to the substantial completion of the previously announced Dangote Oil project in Nigeria during the fiscal year and a reduction in new orders within the ASEAN marketplace. The Company's backlog for the United States and Indian markets on April 30, 2023 is similar to prior fiscal year levels as order rates in these markets remain strong.\nGross profit represented 16.2% and 14.3% of sales in fiscal years 2023 and 2022, respectively. The increase in gross profit margin percentage for fiscal year 2023 is driven by the significant increase in International Segment sales, which has a higher gross profit rate than the Domestic Segment, coupled with an increase in Domestic Segment sales that had improved pricing as noted above.\nOperating expenses were $30.2 million and $26.8 million in fiscal years 2023 and 2022, respectively, and 13.8% and 15.9% of sales, respectively. The increase in operating expense in fiscal year 2023 as compared to fiscal year 2022 was primarily due to increases in consulting and professional fees of $552,000, corporate governance expenses of $113,000, and increases in International Segment operating expenses of $2,286,000 as a result of the significant sales growth experienced. These increases were partially offset by reductions in administrative wages, benefits, and stock-based compensation of $142,000, and marketing expense of $223,000. The increase in operating expenses for fiscal year 2023 also included a one-time charge related to the write-down of a prior year insurance claim in the amount of $260,000. The increase in international operating expenses for fiscal year 2023 is related to the continued sales growth in the International operating segment.\nPension expense was $71,000 in fiscal year 2023, compared to pension income of $355,000 in fiscal year 2022. The increase in pension expense was primarily due to the lower expected return on plan assets driven by a decrease in plan assets in the prior fiscal year.\nOther income, net was $939,000 and $400,000 in fiscal years 2023 and 2022, respectively. The increase in other income in fiscal year 2023 was primarily due to interest income earned on the cash balances held by the Company's international subsidiaries and the increased interest earned on the Note Receivable related to the Sale-Leaseback financing transaction when compared to the prior fiscal year. See \nNote 5\n, \nSale-Leaseback Financing Transaction \nfor additional information on this transaction.\nInterest expense was $1,734,000 and $632,000 in fiscal years 2023 and 2022, respectively. The increase in interest expense for fiscal year 2023 was primarily due to the Sale-Leaseback financing transaction noted above, partially offset by a decrease in interest expense related to the Company's revolving credit facility.\nIncome tax expense was $3.1 million and $3.5 million for fiscal years 2023 and 2022, respectively, or 69.8% and 141.6% of pretax earnings (loss), respectively. The effective rate for fiscal year 2023 was unfavorably impacted by the increase in the valuation allowance attributable to changes to Internal Revenue Code Section 174 Research and Experimental Expenditures, which became effective in the current fiscal year. The primary impact of this change is the amortization of current year expenditures over a five year period, as compared to prior fiscal years where research expenditures were deductible in the year incurred. The effective rate change for fiscal year 2022 was also unfavorably impacted due to changes in the valuation allowance \n13\nTable of Contents\nattributable to the net increase in deferred tax assets of $4,170,000 before valuation allowance as a result of the book to tax differences primarily related to the Company's execution of a Sale-Leaseback transaction for owned real property, which was treated as a taxable sale transaction for tax purposes and a financing transaction for financial statement reporting purposes.\nNet earnings attributable to the non-controlling interest related to our subsidiaries that are not 100% owned by the Company were $621,000 and $123,000 for fiscal years 2023 and 2022, respectively. The changes in the net earnings attributable to the non-controlling interest for each year were due to changes in the levels of net income of the subsidiaries.\nNet earnings were $738,000, or $0.25 per diluted share, as compared to net loss of $6,126,000, or $2.20 per diluted share, for fiscal years ended April 30, 2023 and April 30, 2022, respectively. The increase in net earnings was attributable to the factors discussed above.\nLIQUIDITY AND CAPITAL RESOURCES\nOur principal sources of liquidity have historically been funds generated from operating activities, supplemented as needed by borrowings under our revolving credit facility. Additionally, certain machinery and equipment are financed by non-cancelable operating and financing leases. We believe that these sources of funds will be sufficient to support ongoing business requirements, including capital expenditures, through fiscal year 2024.\nAt April\u00a030, 2023, we had $3,548,000 outstanding under our $15.0 million revolving credit facility. See \nNote 4\n, \nLong-term Debt and Other Credit Arrangements\n, of the Notes to Consolidated Financial Statements included in \nItem 8\n of this Annual Report for additional information concerning our credit facility. In fiscal year 2022, we executed a Sale-Leaseback financing transaction with respect to our manufacturing and corporate facilities in Statesville, North Carolina to provide additional liquidity. See \nNote 5\n, \nSale-Leaseback Financing Transaction \nfor more information. We did not have any off balance sheet arrangements at April\u00a030, 2023 or 2022.\nThe following table summarizes the cash payment obligations for our lease and financing arrangements as of April\u00a030, 2023: \nPAYMENTS DUE BY PERIOD\n($ in thousands)\nContractual Cash Obligations\nTotal\n1 Year\n2-3\u00a0Years\n4-5\u00a0Years\nAfter\u00a05\u00a0years\nOperating Leases\n$\n10,636\u00a0\n$\n2,373\u00a0\n$\n4,095\u00a0\n$\n2,788\u00a0\n$\n1,380\u00a0\nFinancing Lease Obligations\n254\u00a0\n91\u00a0\n163\u00a0\n\u2014\u00a0\n\u2014\u00a0\nSale-Leaseback Financing Transaction\n43,917\u00a0\n1,931\u00a0\n3,979\u00a0\n4,140\u00a0\n33,867\u00a0\nTotal Contractual Cash Obligations\n$\n54,807\u00a0\n$\n4,395\u00a0\n$\n8,237\u00a0\n$\n6,928\u00a0\n$\n35,247\u00a0\nThe Company's operating activities used cash of $3,790,000 in fiscal year 2023, primarily for increases in receivables of $4,947,000 and decreases in accounts payable and accrued expenses of $5,558,000, partially offset by cash from operations, decreases in inventories of $1,907,000, and increases in deferred revenue of $568,000. Operating activities used cash of $7,885,000 in fiscal year 2022, primarily for operations, increases in inventories of $7,279,000 and receivables of $8,464,000, partially offset by increases in accounts payable and accrued expenses of $11,886,000 and a decrease in income tax receivable of $955,000.\nThe Company's financing activities provided cash of $14,931,000 during fiscal year 2023 as a result of the collection of $13,629,000 in final proceeds from the Sale-Leaseback transaction executed in the prior fiscal year and proceeds from the net increase in short-term borrowings of $1,998,000, partially offset by repayment of long-term debt of $121,000. The Company's financing activities provided cash of $11,031,000 during fiscal year 2022 from proceeds of $15,893,000 from the Sale-Leaseback transaction, including redemption of preferred shares from the buyer, net of debt issuance costs, partially offset by payments of $5,239,000 for short-term borrowings.\nThe majority of the April\u00a030, 2023 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2024, with the exception of retention amounts on fixed-price contracts which are collected when the entire construction project is completed and all retention funds are paid by the owner.\nAs discussed above, no further benefits have been, or will be, earned under our pension plans after April\u00a030, 2005, and no additional participants have been, or will be, added to the plans. In fiscal years 2023 and 2022, we made no contributions to the plans. We expect to make no contributions to the plans for fiscal year 2024. \nCapital expenditures were $4,148,000 and $1,908,000 in fiscal years 2023 and 2022, respectively. Capital expenditures in fiscal year 2023 were funded primarily from financing activities. Fiscal year 2024 capital expenditures are anticipated to be \n14\nTable of Contents\napproximately $4.4 million. The fiscal year 2024 expenditures are expected to be funded primarily by operating activities, supplemented as needed by borrowings under our revolving credit facility.\nWorking capital was $47.9 million at April\u00a030, 2023, down from $49.3 million at April\u00a030, 2022, and the ratio of current assets to current liabilities was 2.2-to-1.0 at April\u00a030, 2023 unchanged from April 30, 2022.\nNo dividends were declared or paid on the Company's common stock during the last two fiscal years. The declaration and payment of\u00a0any future dividends is at the discretion of the Board of Directors and will depend upon many factors, including the Company's earnings, capital requirements, investment and growth strategies, financial condition, the terms of the Company's indebtedness, which contains provisions that could limit the payment of dividends in certain circumstances, and other factors that the Board of Directors may deem to be relevant. \nRECENT ACCOUNTING STANDARDS \nSee \nNote 1\n, \nSummary of Significant Accounting Policies\n, to our Consolidated Financial Statements in this Form 10-K for a discussion of new accounting pronouncements, which is incorporated herein by reference.\nOUTLOOK\nFinancial Outlook\nThe Company's ability to predict future demand for its products continues to be limited given its role as subcontractor or supplier to dealers for subcontractors. Demand for the Company's products is also dependent upon the number of laboratory and healthcare construction projects planned and/or current progress in projects already under construction.\nFiscal year 2023 was a transition year for the Company as it emerged from a generally disruptive three-year period that included a global pandemic, rapid broad-based inflation, labor shortages, and supply chain disruptions. The Company believes it is well-positioned for the next fiscal year due to its strong global management team, a healthy backlog, improved manufacturing capabilities, and end-use markets that will continue to prioritize investment in projects that require the products Kewaunee designs and manufactures.",
+  "item7a": ">Item\u00a07A. Quantitative and Qualitative Disclosures About Market Risk\nInterest Rates\nWe are exposed to market risk in the area of interest rates. This exposure is associated with balances outstanding under our revolving credit facility and certain lease obligations for production machinery, all of which are priced on a floating rate basis. We had $3.5 million outstanding under our revolving credit facility at April\u00a030, 2023, bearing interest at floating rates. We believe that our current exposure to interest rate market risk is not material.\nForeign Currency Exchange Rates\nOur results of operations could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. We derive net sales in U.S. dollars and other currencies including Indian rupees, Singapore dollars, and other currencies. For\u00a0fiscal year 2023,\u00a027%\u00a0of net sales were derived in currencies other than U.S. dollars. We incur expenses in currencies other than U.S. dollars relating to specific contracts with customers and for our operations outside the U.S.\nOver the long term, net sales to international markets may increase as a percentage of total net sales and, consequently, a greater portion of our business could be denominated in foreign currencies. As a result, operating results may become more subject to fluctuations based upon changes in the exchange rates of certain currencies in relation to the U.S. dollar. To the extent we engage in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. This effect is also impacted by costs of raw materials from international sources and costs of our sales, service, and manufacturing locations outside the U.S.\nWe have foreign currency cash accounts to operate our global business. These accounts are impacted by changes in foreign currency rates. Cash balances at\u00a0April 30, 2023 of $9.4 million\u00a0were held by our foreign subsidiaries and denominated in currencies other than U.S. dollars.\n \n15\nTable of Contents\nItem\u00a08. Financial Statements and Supplementary Data\nPage\nConsolidated Financial Statements\nReport of Independent Registered Public Accounting Firm (\nFORVIS, LLP\n, \nCharlotte, NC\n, PCAOB Firm No. \n686\n)\n17\nConsolidated Statements of Operations\u2014Years ended April 30, 202\n3\n and 202\n2\n18\nConsolidated Statements of Comprehensive Income\u2014Years ended April\u00a030, 202\n3\n and 202\n2\n19\nConsolidated Statements of Stockholders' Equity\u2014Years ended April\u00a030, 202\n3\n and 202\n2\n20\nConsolidated Balance Sheets\u2014April\u00a030, 202\n3\n and 202\n2\n21\nConsolidated Statements of Cash Flows\u2014Years ended April\u00a030, 202\n3\n and 202\n2\n22\nNotes to Consolidated Financial Statements\n23\nConsent of Independent Registered Public Accounting Firm\n41\n16\nTable of Contents\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\nTo the Stockholders and the Board of Directors of Kewaunee Scientific Corporation\nOpinion on the Consolidated Financial Statements\nWe have audited the accompanying consolidated balance sheets of Kewaunee Scientific Corporation and subsidiaries (the \"Company\") as of April 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the years in the two-year period ended April 30, 2023, and the related notes (collectively referred to as the \"financial statements\"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended April 30, 2023, in conformity with principles generally accepted in the United States of America.\nBasis for Opinion\nThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (\"PCAOB\") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. \nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.\nOur audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.\nCritical Audit Matters\nCritical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.\n/s/ FORVIS, LLP \nWe have served as the Company's auditor since 2020.\nCharlotte, NC\nJune 30, 2023\n17\nTable of Contents\nCONSOLIDATED STATEMENTS OF OPERATIONS\nYears Ended April 30\nKewaunee\u00a0Scientific\u00a0Corporation\n$ and shares in thousands, except per share amounts\n2023\n2022\nNet sales\n$\n219,494\n\u00a0\n$\n168,872\n\u00a0\nCost of products sold\n183,906\n\u00a0\n144,652\n\u00a0\nGross profit\n35,588\n\u00a0\n24,220\n\u00a0\nOperating expenses\n30,224\n\u00a0\n26,828\n\u00a0\nOperating earnings (loss)\n5,364\n\u00a0\n(\n2,608\n)\nPension (expense) income\n(\n71\n)\n355\n\u00a0\nOther income, net\n939\n\u00a0\n400\n\u00a0\nInterest expense\n(\n1,734\n)\n(\n632\n)\nEarnings (Loss) before income taxes\n4,498\n\u00a0\n(\n2,485\n)\nIncome tax expense\n3,139\n\u00a0\n3,518\n\u00a0\nNet earnings (loss)\n1,359\n\u00a0\n(\n6,003\n)\nLess: net earnings attributable to the non-controlling interest\n621\n\u00a0\n123\n\u00a0\nNet earnings (loss) attributable to Kewaunee Scientific Corporation\n$\n738\n\u00a0\n$\n(\n6,126\n)\nNet earnings (loss) per share attributable to Kewaunee Scientific Corporation stockholders\nBasic\n$\n0.26\n\u00a0\n$\n(\n2.20\n)\nDiluted\n$\n0.25\n\u00a0\n$\n(\n2.20\n)\nWeighted average number of common shares outstanding\nBasic\n2,824\n\u00a0\n2,786\n\u00a0\nDiluted\n2,902\n\u00a0\n2,786\n\u00a0\nThe accompanying Notes are an integral part of these Consolidated Financial Statements.\n18\nTable of Contents\nCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME\nYears Ended April 30\nKewaunee\u00a0Scientific\u00a0Corporation\n$ in thousands\n2023\n2022\nNet earnings (loss)\n$\n1,359\n\u00a0\n$\n(\n6,003\n)\nOther comprehensive income (loss), net of tax\nForeign currency translation adjustments\n(\n290\n)\n(\n186\n)\nChange in unrecognized actuarial loss on pension obligations\n590\n\u00a0\n21\n\u00a0\nComprehensive income (loss), net of tax\n$\n1,659\n\u00a0\n$\n(\n6,168\n)\nLess comprehensive income attributable to the non-controlling interest\n621\n\u00a0\n123\n\u00a0\nTotal comprehensive income (loss) attributable to Kewaunee Scientific Corporation\n$\n1,038\n\u00a0\n$\n(\n6,291\n)\nThe accompanying Notes are an integral part of these Consolidated Financial Statements.\n19\nTable of Contents\nCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY\nKewaunee Scientific Corporation\n$ in thousands, except shares and per share amounts\nCommon\nStock\nAdditional\nPaid-in\nCapital\nTreasury\nStock\nRetained\nEarnings\nAccumulated\nOther\nComprehensive\nIncome (Loss)\nTotal\nStockholders'\nEquity\nBalance at April 30, 2021\n$\n6,915\n\u00a0\n$\n3,807\n\u00a0\n$\n(\n53\n)\n$\n34,149\n\u00a0\n$\n(\n3,577\n)\n$\n41,241\n\u00a0\nNet loss attributable to Kewaunee Scientific Corporation\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(\n6,126\n)\n\u2014\u00a0\n(\n6,126\n)\nOther comprehensive loss\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(\n165\n)\n(\n165\n)\nStock based compensation\n68\n\u00a0\n676\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n744\n\u00a0\nBalance at April 30, 2022\n6,983\n\u00a0\n4,483\n\u00a0\n(\n53\n)\n28,023\n\u00a0\n(\n3,742\n)\n35,694\n\u00a0\nNet earnings attributable to Kewaunee Scientific Corporation\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n738\n\u00a0\n\u2014\n\u00a0\n738\n\u00a0\nOther comprehensive income\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n300\n\u00a0\n300\n\u00a0\nStock based compensation\n101\n\u00a0\n576\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n677\n\u00a0\nBalance at April 30, 2023\n$\n7,084\n\u00a0\n$\n5,059\n\u00a0\n$\n(\n53\n)\n$\n28,761\n\u00a0\n$\n(\n3,442\n)\n$\n37,409\n\u00a0\nThe accompanying Notes are an integral part of these Consolidated Financial Statements.\n20\nTable of Contents\nCONSOLIDATED BALANCE SHEETS\nApril 30\nKewaunee\u00a0Scientific\u00a0Corporation\n$ and shares in thousands, except per share amounts\n2023\n2022\nASSETS\nCurrent Assets\nCash and cash equivalents\n$\n8,078\n\u00a0\n$\n4,433\n\u00a0\nRestricted cash\n5,737\n\u00a0\n2,461\n\u00a0\nReceivables, less allowance: $\n476\n (2023); $\n357\n (2022)\n46,081\n\u00a0\n41,254\n\u00a0\nInventories\n21,889\n\u00a0\n23,796\n\u00a0\nNote receivable\n\u2014\n\u00a0\n13,457\n\u00a0\nPrepaid expenses and other current assets\n6,135\n\u00a0\n6,164\n\u00a0\nTotal Current Assets\n87,920\n\u00a0\n91,565\n\u00a0\nProperty, plant and equipment, net\n16,402\n\u00a0\n15,121\n\u00a0\nRight of use assets\n9,170\n\u00a0\n7,573\n\u00a0\nOther assets\n5,406\n\u00a0\n4,514\n\u00a0\nTotal Assets\n$\n118,898\n\u00a0\n$\n118,773\n\u00a0\nLIABILITIES AND STOCKHOLDERS' EQUITY\nCurrent Liabilities\nShort-term borrowings\n$\n3,587\n\u00a0\n$\n1,588\n\u00a0\nCurrent portion of financing liability\n642\n\u00a0\n575\n\u00a0\nCurrent portion of financing lease liabilities\n85\n\u00a0\n126\n\u00a0\nCurrent portion of operating lease liabilities\n1,967\n\u00a0\n1,319\n\u00a0\nAccounts payable\n23,599\n\u00a0\n27,316\n\u00a0\nEmployee compensation and amounts withheld\n4,304\n\u00a0\n4,504\n\u00a0\nDeferred revenue\n4,097\n\u00a0\n3,529\n\u00a0\nOther accrued expenses\n1,772\n\u00a0\n3,336\n\u00a0\nTotal Current Liabilities\n40,053\n\u00a0\n42,293\n\u00a0\nLong-term portion of financing liability\n28,132\n\u00a0\n28,775\n\u00a0\nLong-term portion of financing lease liabilities\n148\n\u00a0\n228\n\u00a0\nLong-term portion of operating lease liabilities\n7,136\n\u00a0\n6,179\n\u00a0\nAccrued pension and deferred compensation costs\n3,546\n\u00a0\n4,159\n\u00a0\nDeferred income taxes\n943\n\u00a0\n428\n\u00a0\nOther non-current liabilities\n455\n\u00a0\n531\n\u00a0\nTotal Liabilities\n80,413\n\u00a0\n82,593\n\u00a0\nCommitments and Contingencies (\nNote 9\n)\nStockholders' Equity\nCommon stock, $\n2.50\n par value, Authorized\u2014\n5,000\n shares;\nIssued\u2014 \n2,833\n shares (2023); \n2,793\n shares (2022)\nOutstanding\u2014 \n2,830\n shares (2023); \n2,790\n shares (2022)\n7,084\n\u00a0\n6,983\n\u00a0\nAdditional paid-in capital\n5,059\n\u00a0\n4,483\n\u00a0\nRetained earnings\n28,761\n\u00a0\n28,023\n\u00a0\nAccumulated other comprehensive loss\n(\n3,442\n)\n(\n3,742\n)\nCommon stock in treasury, at cost: \n3\n shares\n(\n53\n)\n(\n53\n)\nTotal Kewaunee Scientific Corporation Stockholders' Equity\n37,409\n\u00a0\n35,694\n\u00a0\nNon-controlling interest\n1,076\n\u00a0\n486\n\u00a0\nTotal Stockholders' Equity\n38,485\n\u00a0\n36,180\n\u00a0\nTotal Liabilities and Stockholders' Equity\n$\n118,898\n\u00a0\n$\n118,773\n\u00a0\nThe accompanying Notes are an integral part of these Consolidated Financial Statements.\n21\nTable of Contents\nCONSOLIDATED STATEMENTS OF CASH FLOWS\nYears Ended April 30\nKewaunee\u00a0Scientific\u00a0Corporation\n$ in thousands\n2023\n2022\nCash Flows from Operating Activities\nNet earnings (loss)\n$\n1,359\n\u00a0\n$\n(\n6,003\n)\nAdjustments to reconcile net earnings (loss) to net cash used by operating activities:\nDepreciation\n2,867\n\u00a0\n2,769\n\u00a0\nBad debt provision\n120\n\u00a0\n92\n\u00a0\nStock based compensation expense\n886\n\u00a0\n729\n\u00a0\nProvision for deferred income taxes\n516\n\u00a0\n120\n\u00a0\nChange in assets and liabilities:\nReceivables\n(\n4,947\n)\n(\n8,464\n)\nInventories\n1,907\n\u00a0\n(\n7,279\n)\nIncome tax receivable\n\u2014\n\u00a0\n955\n\u00a0\nAccounts payable and other accrued expenses\n(\n5,558\n)\n11,886\n\u00a0\nDeferred revenue\n568\n\u00a0\n406\n\u00a0\nOther, net\n(\n1,508\n)\n(\n3,096\n)\nNet cash used by operating activities\n(\n3,790\n)\n(\n7,885\n)\nCash Flows from Investing Activities\nCapital expenditures\n(\n4,148\n)\n(\n1,908\n)\nNet cash used in investing activities\n(\n4,148\n)\n(\n1,908\n)\nCash Flows from Financing Activities\nProceeds from short-term borrowings\n60,599\n\u00a0\n59,359\n\u00a0\nRepayments on short-term borrowings\n(\n58,601\n)\n(\n64,598\n)\nProceeds from sale-leaseback transaction\n13,629\n\u00a0\n15,893\n\u00a0\nRepayments on financing liability\n(\n575\n)\n\u2014\n\u00a0\nProceeds from long-term debt\n\u2014\n\u00a0\n377\n\u00a0\nRepayments on long-term debt\n(\n121\n)\n\u2014\n\u00a0\nNet cash provided by financing activities\n14,931\n\u00a0\n11,031\n\u00a0\nEffect of exchange rate changes on cash, net\n(\n72\n)\n(\n75\n)\nIncrease in Cash, Cash Equivalents and Restricted Cash\n6,921\n\u00a0\n1,163\n\u00a0\nCash, Cash Equivalents and Restricted Cash at Beginning of Year\n6,894\n\u00a0\n5,731\n\u00a0\nCash, Cash Equivalents and Restricted Cash at End of Year\n$\n13,815\n\u00a0\n$\n6,894\n\u00a0\nSupplemental Disclosure of Cash Flow Information\nInterest paid\n$\n1,862\n\u00a0\n$\n480\n\u00a0\nIncome taxes paid\n$\n3,158\n\u00a0\n$\n1,006\n\u00a0\nAssets obtained under new finance or operating leases\n$\n3,902\n\u00a0\n$\n366\n\u00a0\nThe accompanying Notes are an integral part of these Consolidated Financial Statements.\n22\nTable of Contents\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNote 1\u2014\nSummary of Significant Accounting Policies\nKewaunee Scientific Corporation and subsidiaries (collectively the \"Company\") design, manufacture, and install laboratory, healthcare, and technical furniture products. The Company's products include steel and wood casework, fume hoods, adaptable modular systems, moveable workstations, stand-alone benches, biological safety cabinets, and epoxy resin work surfaces and sinks. The Company's sales are made through purchase orders and contracts submitted by customers through its dealers, its subsidiaries in Singapore and India, and a national stocking distributor. See \nNote 12\n, \nRestructuring Costs\n for details on the closure status of the Company's China operations. The majority of the Company's products are sold to customers located in North America, primarily within the United States. The Company's laboratory products are used in chemistry, physics, biology and other general science laboratories in the pharmaceutical, biotechnology, industrial, chemical, commercial, educational, government and health care markets. Technical products are used in facilities manufacturing computers and light electronics and by users of computer and networking furniture.\nPrinciples of Consolidation\n The Company's consolidated financial statements include the accounts of Kewaunee Scientific Corporation and its international subsidiaries. A brief description of each subsidiary, along with the amount of the Company's controlling financial interests, as of April\u00a030, 2023 is as follows: (1) Kewaunee Labway Asia Pte. Ltd., a commercial sales organization for the Company's products in Singapore, is \n100\n% owned by the Company; (2) Kewaunee Scientific Corporation Singapore Pte. Ltd., a holding company in Singapore, is \n100\n% owned by the Company; (3) Kewaunee Labway India Pvt. Ltd., a design, installation, manufacturing, assembly and commercial sales operation for the Company's products in Bangalore, India, is \n95\n% owned by the Company; (4) Koncepo Scientech International Pvt. Ltd., a laboratory design and strategic advisory and construction management services firm, located in Bangalore, India, is \n80\n% owned by the Company; (5) Kequip Global Lab Solutions Pvt. Ltd. is \n70\n% owned by Kewaunee Scientific Corporation Singapore Pte. Ltd. All intercompany balances, transactions, and profits have been eliminated.\n Included in the consolidated financial statements are net assets of $\n16,786,000\n and $\n13,127,000\n at April\u00a030, 2023 and 2022, respectively, of the Company's subsidiaries. Net sales by the Company's subsidiaries in the amounts of $\n72,778,000\n and $\n42,024,000\n were included in the consolidated statements of operations for fiscal years 2023 and 2022, respectively.\nCash and Cash Equivalents\n Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. During the years ended April\u00a030, 2023 and 2022, the Company had cash deposits in excess of FDIC insured limits. The Company has not experienced any losses from such deposits.\nThe Company includes restricted cash along with the cash balance for presentation in the consolidated statements of cash flows.\n \nThe reconciliation between the consolidated balance sheet and the consolidated statement of cash flows at April 30 is as follows:\n$ in thousands\n2023\n2022\nCash and cash equivalents\n$\n8,078\n\u00a0\n$\n4,433\n\u00a0\nRestricted cash\n5,737\n\u00a0\n2,461\n\u00a0\nTotal cash, cash equivalents and restricted cash\n$\n13,815\n\u00a0\n$\n6,894\n\u00a0\nRestricted Cash\n Restricted cash includes bank deposits of subsidiaries used for performance guarantees against customer orders.\nAccounts Receivable and Allowance for Doubtful Accounts\n Receivables are stated at the amount owed by the customer, net of allowances for estimated doubtful accounts. The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where management is aware of a customer's inability to meet its financial obligations to the Company, or a project dispute makes it unlikely that all of the receivable owed by a customer will be collected, a specific reserve for bad debts is estimated and recorded to reduce the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, a reserve for bad debts is estimated and recorded based on past loss history and an overall assessment of past due trade accounts receivable amounts outstanding. Accounts are written off when it is clearly established that the receivable\u00a0is a bad debt. Recoveries of receivables previously written off are recorded when received.\n \nThe activity in the allowance for doubtful accounts for each of the years ended April\u00a030 was:\n$ in thousands\n2023\n2022\nBalance at beginning of year\n$\n357\n\u00a0\n$\n636\n\u00a0\nBad debt provision\n120\n\u00a0\n92\n\u00a0\nDoubtful accounts written off (net)\n(\n1\n)\n(\n371\n)\nBalance at end of year\n$\n476\n\u00a0\n$\n357\n\u00a0\n23\nTable of Contents\nUnbilled Receivables\n Accounts receivable include unbilled receivables that represent amounts earned which have not yet been billed in accordance with contractually stated billing terms, excluding retention, which is included in other assets.\n The amount of unbilled receivables, net of unbilled retention, at April\u00a030, 2023 and 2022 was $\n13,459,000\n and $\n9,287,000\n, respectively.\nInventories\n The Company's inventories are valued at the lower of cost or net realizable value under the first-in, first-out (\"FIFO\") method.\n \nProperty, Plant and Equipment\n Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is determined for financial reporting purposes principally on the straight-line method over the estimated useful lives of the individual assets or, for leaseholds, over the terms of the related leases, if shorter.\n \nProperty, plant and equipment consisted of the following at April\u00a030:\n$ in thousands\n2023\n2022\nUseful Life\nLand\n$\n41\n\u00a0\n$\n41\n\u00a0\nN/A\nBuilding and improvements\n17,147\n\u00a0\n17,164\n\u00a0\n10\n-\n40\n\u00a0years\nMachinery and equipment\n44,180\n\u00a0\n43,121\n\u00a0\n5\n-\n10\n\u00a0years\nTotal\n61,368\n\u00a0\n60,326\n\u00a0\nLess accumulated depreciation\n(\n44,966\n)\n(\n45,205\n)\nNet property, plant and equipment\n$\n16,402\n\u00a0\n$\n15,121\n\u00a0\nThe Company reviews the carrying value of property, plant and equipment for impairment annually or whenever changes in circumstances or events indicate that such carrying value may not be recoverable. If projected undiscounted cash flows are not sufficient to recover the carrying value of the potentially impaired asset, the carrying value is reduced to estimated fair value.\n There were \nno\n impairments in fiscal years 2023 or 2022.\nOther Assets\n Other assets at April\u00a030, 2023 and 2022 included $\n1,191,000\n and $\n1,293,000\n, respectively, of unbilled retainage, $\n2,352,000\n and $\n2,480,000\n, respectively, of assets held in a trust account for non-qualified benefit plan, and $\n111,000\n and $\n110,000\n, respectively, of cash surrender values of life insurance policies. Life insurance policies are recorded at the amount that could be realized under the insurance contract as of the date of the Company's consolidated balance sheets with the change in cash surrender or contract value being recorded as income or expense during each period.\nUse of Estimates\n The presentation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Significant estimates impacting the accompanying consolidated financial statements include the allowance for uncollectible accounts receivable, self-insurance reserves, income taxes, and pension liabilities.\nVariable Interest Entity\n On December 22, 2021, the Company entered into an Agreement for Purchase and Sale of Real Property with CAI Investments Sub-Series 100 LLC (the \"Buyer\"), for the Company\u2019s headquarters and manufacturing facilities (the \"Property\") located in Statesville, North Carolina (the \"Sale Agreement\") in exchange for $\n30,275,000\n in sales proceeds, $\n14,864,000\n of which was payable in redeemable preferred shares in CAI Investments Medical Products I Parent, LLC (\"Parent\"), an affiliate of Buyer. At April 30, 2022, the carrying value of the redeemable preferred shares was $\n13.5\n\u00a0million.\nThe Sale Agreement was finalized on March 24, 2022 and coincided with a \n20-year\n lease, effective on such date between the Company and CAI Investments Medical Products I Master Lessee LLC (\"Lessor\"), an affiliate of Buyer, for the Property (the \"Lease Agreement\"). At the same time, the Buyer and its affiliates formed a new, debt-financed affiliate CAI Investments Medical Products I, DST (\"Trust\") and contributed the Property to the Trust. According to the terms of the lease, the Trust leased the Property to its affiliated Lessor, which in turn sub-leased the Property to the Company (together with the Sale Agreement, the \"Sale-Leaseback Arrangement\"). For additional information on the accounting for the Sale-Leaseback Arrangement, refer to \nNote 5\n, \nSale-Leaseback Financing Transaction\n.\nThe Company concluded as of April 30, 2022 that Parent and its direct affiliates, including the Trust, are designed primarily to acquire and manage the Property and constitute a variable interest entity because the Trust lacks sufficient equity on its own to finance its operations. The Company evaluated its lease arrangement and redeemable preferred shares in Parent as variable interests. Based on its evaluation, the Company concluded it should not consolidate Parent or its affiliates under the variable interest model or the voting interest model of ASC 810, \nConsolidation\n. \nThe Company recorded the redeemable preferred shares as a Note Receivable, classified as held to maturity at amortized cost, on its Consolidated Balance Sheet, rather than as an investment in preferred equity, due to the mandatory redemption feature of the preferred shares.\n24\nTable of Contents\nAs of June 22, 2022, the Company had fully redeemed all shares and converted the Note Receivable to cash. The Company's maximum exposure to the Buyer and its affiliates as of April 30, 2023 was limited to the Company\u2019s lease payments and right to use the Property.\n \nFair Value of Financial Instruments\n A financial instrument is defined as cash equivalents, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from another party. The Company's financial instruments consist primarily of cash and equivalents, mutual funds, cash surrender value of life insurance policies, a note receivable and corresponding sale-leaseback financing liability, term loans and short-term borrowings. The carrying value of these assets and liabilities approximate their fair value.\nFair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Expanded disclosures about instruments measured at fair value require the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. \nThe fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:\nLevel\u00a01\u00a0\u00a0\u00a0\u00a0Quoted prices in active markets for identical assets or liabilities as of the reporting date.\nLevel\u00a02\u00a0\u00a0\u00a0\u00a0Inputs other than Level\u00a01 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities as of the reporting date.\nLevel\u00a03\u00a0\u00a0\u00a0\u00a0Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.\nThe following tables summarize the Company's fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring and nonrecurring basis as of April\u00a030, 2023 and 2022 (in thousands):\n2023\nLevel\u00a01\nLevel\u00a02\nLevel\u00a03\nTotal\nFinancial Assets\nTrading securities held in non-qualified compensation plans \n(1)\n$\n1,105\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n1,105\n\u00a0\nCash surrender value of life insurance policies \n(1)\n\u2014\n\u00a0\n1,358\n\u00a0\n\u2014\n\u00a0\n1,358\n\u00a0\nTotal\n$\n1,105\n\u00a0\n$\n1,358\n\u00a0\n$\n\u2014\n\u00a0\n$\n2,463\n\u00a0\nFinancial Liabilities\nNon-qualified compensation plans \n(2)\n$\n\u2014\n\u00a0\n$\n2,910\n\u00a0\n$\n\u2014\n\u00a0\n$\n2,910\n\u00a0\nTotal\n$\n\u2014\n\u00a0\n$\n2,910\n\u00a0\n$\n\u2014\n\u00a0\n$\n2,910\n\u00a0\n2022\nLevel\u00a01\nLevel\u00a02\nLevel\u00a03\nTotal\nFinancial Assets\nTrading securities held in non-qualified compensation plans\n (1)\n$\n1,219\n\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n1,219\n\u00a0\nCash surrender value of life insurance policies\n (1)\n\u2014\u00a0\n1,371\n\u00a0\n\u2014\u00a0\n1,371\n\u00a0\nTotal\n$\n1,219\n\u00a0\n$\n1,371\n\u00a0\n$\n\u2014\u00a0\n$\n2,590\n\u00a0\nFinancial Liabilities\nNon-qualified compensation plans \n(2)\n$\n\u2014\u00a0\n$\n3,003\n\u00a0\n$\n\u2014\u00a0\n$\n3,003\n\u00a0\nTotal\n$\n\u2014\u00a0\n$\n3,003\n\u00a0\n$\n\u2014\u00a0\n$\n3,003\n\u00a0\n(1)\nThe Company maintains \ntwo\n non-qualified compensation plans which include investment assets in a rabbi trust. These assets consist of marketable securities, which are valued using quoted market prices multiplied by the number of shares owned, and life insurance policies, which are valued at their cash surrender value.\n(2)\nPlan liabilities are equal to the individual participants' account balances and other earned retirement benefits.\nRevenue Recognition\n Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. The Company recognizes revenue when control of a good or service promised in a contract (i.e., \n25\nTable of Contents\nperformance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. The majority of the Company's revenues are recognized over time as the customer receives control as the Company performs work under a contract. However, a portion of the Company's revenues are recognized at a point-in-time as control is transferred at a distinct point in time per the terms of a contract. Sales taxes that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. Certain customers' cash discounts and volume rebates are offered as sales incentives. The discounts and volume rebates are recorded as a reduction in sales at the time revenue is recognized in an amount estimated based on historical experience and contractual obligations.\nDeferred revenue consists of customer deposits and advance billings of the Company's products where sales have not yet been recognized. Accounts receivable includes retainage in the amounts of $\n235,000\n and $\n523,000\n at April\u00a030, 2023 and 2022, respectively. Shipping and handling costs are included in cost of product sales. Because of the nature and quality of the Company's products, any warranty issues are determined in a relatively short period after the sale and are infrequent in nature, and as such, warranty costs are immaterial to the Company's consolidated financial position and results of operations and are expensed as incurred.\nCredit Concentration \nThe Company performs credit evaluations of its customers.\n Revenues from three of the Company's domestic dealers represented in the aggregate approximately \n36\n% and \n38\n% of the Company's sales in fiscal years 2023 and 2022, respectively. Accounts receivable for two domestic customers represented approximately \n23\n% and \n21\n% of the Company's total accounts receivable as of April\u00a030, 2023 and 2022, respectively.\nInsurance\n The Company maintains a self-insured health-care program. The Company accrues estimated losses for claims incurred but not reported using assumptions based on historical loss experience. The Company has also purchased specific stop-loss insurance to limit claims above a certain amount. The Company adjusts insurance reserves, as needed, in the event that future loss experience differs from historical loss patterns.\nIncome Taxes\n In accordance with ASC 740, \"Income Taxes\" (\"ASC 740\"), the Company uses the liability method in measuring the provision for income taxes and recognizing deferred income tax assets and liabilities on the consolidated balance sheets. ASC\u00a0740 clarifies the financial statement recognition threshold and measurement attribute of a tax position taken or expected to be taken in a tax return. Under ASC 740, the Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC\u00a0740 only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the taxing authorities. The Company did not have any significant uncertain tax positions at April\u00a030, 2023 or 2022.\n \nResearch and Experimentation Expenditures\n Research and experimentation expenditures are charged to cost of products sold in the periods incurred.\n Expenditures for research and experimentation expenditures were $\n1,012,000\n and $\n990,000\n for the fiscal years ended April\u00a030, 2023 and 2022, respectively.\nAdvertising Costs\n Advertising costs are expensed as incurred, and include trade shows, training materials, sales, samples, and other related expenses and are included in operating expenses.\n Advertising costs for the years ended April\u00a030, 2023 and 2022 were $\n226,000\n and $\n175,000\n, respectively.\nForeign Currency Translation\n The financial statements of subsidiaries located in India and China are measured using the local currency as the functional currency. Effective May 1, 2022, Kewaunee Scientific Corporation Singapore Pte. Ltd. transitioned to using the U.S. dollar as its functional currency. The financial position and operating results of Kewaunee Labway Asia Pte. Ltd. are also measured using the U.S. dollar as its functional currency. Assets and liabilities of the Company's foreign subsidiaries using local currencies are translated into United\u00a0States dollars at fiscal year-end exchange rates. Sales, expenses, and cash flows are translated at weighted average exchange rates for each period. Net translation gains or losses are included in other comprehensive income, a separate component of stockholders' equity. Gains and losses from foreign currency transactions of these subsidiaries are included in operating expenses.\nEarnings Per Share\n Basic earnings per share is based on the weighted average number of common shares outstanding during the year. Diluted earnings per share reflects the assumed exercise of outstanding stock options and the conversion of restricted stock units (\"RSUs\") under the Company's various stock compensation plans, except when RSUs and stock options have an antidilutive effect.\n There were \n33,900\n antidilutive RSUs and stock options outstanding at April\u00a030, 2023. There were \n44,750\n antidilutive RSUs and stock options outstanding at April\u00a030, 2022. \n26\nTable of Contents\nThe following is a reconciliation of basic to diluted weighted average common shares outstanding:\nShares in thousands\n2023\n2022\nWeighted average common shares outstanding\nBasic\n2,824\n\u00a0\n2,786\n\u00a0\nDilutive effect of stock options and RSUs\n78\n\u00a0\n\u2014\n\u00a0\nWeighted average common shares outstanding\u2014diluted\n2,902\n\u00a0\n2,786\n\u00a0\nAccounting for Stock Options and Other Equity Awards\n Compensation costs related to stock options and other stock awards granted by the Company are charged against operating expenses during their vesting period, under ASC 718, \"Compensation\u2014Stock Compensation.\" Forfeitures are accounted for in the period in which the awards are forfeited.\n The Company granted \n87,969\n RSUs under the 2017 Omnibus Incentive Plan in fiscal year 2023 and \n67,750\n RSUs in fiscal year 2022. There were \nno\n stock options granted during fiscal years 2023 and 2022. (See \nNote\u00a07\n, \nStock Options and Share-Based Compensation\n)\nNew Accounting Standards \nIn June 2016, the FASB issued ASU 2016-13, \"Measurement of Credit Losses on Financial Instruments,\" which replaces the current incurred loss method used for determining credit losses on financial assets, including trade receivables, with an expected credit loss method. This guidance is effective for fiscal years, and interim periods within those years, beginning after December\u00a015, 2022. The Company will adopt this standard in fiscal year 2024. The Company does not expect the adoption of this standard to have a significant impact on the Company's consolidated financial position or results of operations.\nIn December 2019, the FASB issued\u00a0ASU No. 2019-12,\u00a0\"Income Taxes (\"Topic 740\"): Simplifying the Accounting for Income Taxes.\" This update simplifies the accounting for income taxes through certain targeted improvements to various subtopics within Topic 740. The amendments in this update are effective for fiscal years and interim periods beginning after December 15, 2020. The Company adopted this standard effective May 1, 2021. The adoption of this standard did not have a significant impact on the Company's consolidated financial position or results of operations.\nNote 2 - \nRevenue Recognition\nThe Company recognizes revenue when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. The majority of the Company's revenues are recognized over time as the customer receives control as the Company performs work under a contract. However, a portion of the Company's revenues are recognized at a point-in-time as control is transferred at a distinct point in time per the terms of a contract.\nPerformance Obligations\nA performance obligation is a distinct good or service or bundle of goods and services that is distinct or a series of distinct goods or services that are substantially the same and have the same pattern of transfer. The Company identifies performance obligations at the inception of a contract and allocates the transaction price to individual performance obligations to reasonably reflect the Company's performance in transferring control of the promised goods or services to the customer. The Company has elected to treat shipping and handling as a fulfillment activity instead of a separate performance obligation.\n27\nTable of Contents\nThe following are the primary performance obligations identified by the Company:\nLaboratory Furniture\nThe Company principally generates revenue from the manufacture of custom laboratory, healthcare, and technical furniture and infrastructure products (herein referred to as \"laboratory furniture\"). The Company's products include steel and wood casework, fume hoods, adaptable modular systems, moveable workstations, stand-alone benches, biological safety cabinets, and epoxy resin work surfaces and sinks. Customers can benefit from each piece of laboratory furniture on its own or with resources readily available in the market place such as separately purchased installation services. Each piece of laboratory furniture does not significantly modify or customize other laboratory furniture, and the pieces of laboratory furniture are not highly interdependent or interrelated with each other. The Company can, and frequently does, break portions of contracts into separate \"runs\" to meet manufacturing and construction schedules. As such, each piece of laboratory furniture is considered a separate and distinct performance obligation. The majority of the Company's products are customized to meet the specific architectural design and performance requirements of laboratory planners and end users. The finished laboratory furniture has no alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. As such, revenue from the sales of customized laboratory furniture is recognized over time once the customization process has begun, using the units-of-production output method to measure progress towards completion. There is not a material amount of work-in-process for which the customization process has begun at the end of a reporting period. The Company believes this output method most reasonably reflects the Company's performance because it directly measures the value of the goods transferred to the customer. For standardized products sold by the Company, revenue is recognized when control transfers, which is typically freight on board (\"FOB\") shipping point.\nWarranties\nAll orders contain a standard warranty that warrants that the product is free from defects in workmanship and materials under normal use and conditions for a limited period of time. Due to the nature and quality of the Company's products, any warranty issues have historically been determined in a relatively short period after the sale, have been infrequent in nature, and have been immaterial to the Company's financial position and results of operations. The Company's standard warranties are not considered a separate and distinct performance obligation as the Company does not provide a service to customers beyond assurance that the covered product is free of initial defects. Costs of providing these short term assurance warranties are immaterial and, accordingly, are expensed as incurred. Extended separately priced warranties are available which can last up to ten years. Extended warranties are considered separate performance obligations as they are individually priced options providing assurances that the products are free of defects.\nInstallation Services\nThe Company sometimes performs installation services for customers. The scope of installation services primarily relates to setting up and ensuring the proper functioning of the laboratory furniture. In certain markets, the Company may provide a broader range of installation services involving the design and installation of the laboratory's mechanical services. Installation services can be, and often are, performed by third parties and thus may be distinct from the Company's products. Installation services create or enhance assets that the customer controls as the installation services are provided. As such, revenue from installation services is recognized over time, as the installation services are performed using the cost input method, as there is a direct relationship between the Company's inputs and the transfer of control by means of the performance of installation services to the customer.\nCustodial Services\nIt is common in the laboratory and healthcare furniture industries for customers to request delivery at specific future dates, as products are often to be installed in buildings yet to be constructed. Frequently, customers will request the manufacture of these products prior to the customer's ability or readiness to receive the product due to various reasons such as changes to or delays in the construction of the building. As such, from time to time Kewaunee's customers require us to provide custodial services for their laboratory furniture. Custodial services are frequently provided by third parties and do not significantly alter the other goods or services covered by the contract and as such are considered a separate and distinct performance obligation. Custodial services are simultaneously received and consumed by the customer and as such revenue from custodial services is recognized over time using a straight-line time-based measure of progress towards completion, because the Company's services are provided evenly throughout the performance period.\n28\nTable of Contents\nPayment Terms and Transaction Prices\nThe Company's contracts with customers are generally fixed-price and do not contain variable consideration or a general right of return or refund. The Company's contracts with customers contain terms typical for Kewaunee's industry, including withholding a portion of the transaction price until after the goods or services have been transferred to the customer (i.e. \"retainage\"). The Company does not recognize this as a significant financing component because the primary purpose of retainage is to provide the customer with assurance that the Company will perform its obligations under the contract, rather than to provide financing to the customer.\nAllocation of Transaction Price\nThe Company's contracts with customers\u00a0may cover multiple goods and services, such as differing types of laboratory furniture and installation services. For these arrangements, each good or service is evaluated to determine whether it represents a distinct performance obligation. The total transaction price is then allocated to the distinct performance obligations based on their relative standalone selling price at the inception of the arrangement. If available, the Company utilizes observable prices for goods or services sold separately to similar customers in similar circumstances to determine its relative standalone selling price. Otherwise, list prices are used if they are determined to be representative of standalone selling prices. If neither of these methods are available at contract inception, such as when the Company does not sell the product or service separately, judgment may be required and the Company determines the standalone selling price using one, or a combination of, the adjusted market assessment or expected cost-plus margin approaches.\nPractical Expedients Used\nThe Company has elected the following practical expedients:\n\u2022\nThe portfolio approach was applied in evaluating the accounting for the cost of obtaining a contract.\n\u2022\nPayment terms with the Company's customers which are one year or less are not considered a significant financing component.\n\u2022\nThe Company excludes from revenues taxes it collects from customers that are assessed by a government authority. This is primarily relevant to domestic sales but also includes taxes on some international sales which are also excluded from the transaction price.\n\u2022\nThe Company's incremental cost to obtain a contract is limited to sales commissions. The Company applies the practical expedient to expense commissions as incurred for contracts having a duration of one year or less. Sales commissions related to contracts with a duration of greater than one year are immaterial to the Company's consolidated financial position and results of operations and are also expensed as incurred.\nDisaggregated Revenue\nA summary of net sales transferred to customers at a point in time and over time for the twelve months ended April 30 is as follows (in thousands): \n2023\nDomestic\nInternational\nTotal\nOver Time\n$\n141,994\n\u00a0\n$\n72,778\n\u00a0\n$\n214,772\n\u00a0\nPoint in Time\n4,722\n\u00a0\n\u2014\n\u00a0\n4,722\n\u00a0\nTotal Revenue\n$\n146,716\n\u00a0\n$\n72,778\n\u00a0\n$\n219,494\n\u00a0\n2022\nDomestic\nInternational\nTotal\nOver Time\n$\n119,989\n\u00a0\n$\n42,024\n\u00a0\n$\n162,013\n\u00a0\nPoint in Time\n6,859\n\u00a0\n\u2014\n\u00a0\n6,859\n\u00a0\nTotal Revenue\n$\n126,848\n\u00a0\n$\n42,024\n\u00a0\n$\n168,872\n\u00a0\nContract Balances\nThe closing balances of contract assets included $\n13,459,000\n in accounts receivable and $\n1,191,000\n in other current assets at April\u00a030, 2023. The opening balance of contract assets arising from contracts with customers included $\n9,287,000\n in accounts receivable and $\n1,293,000\n in other assets at April\u00a030, 2022. The closing and opening balances of contract liabilities included in deferred revenue arising from contracts with customers were $\n4,097,000\n at April\u00a030, 2023 and $\n3,529,000\n at April\u00a030, 2022. The timing of revenue recognition, billings and cash collections results in accounts receivable, unbilled receivables, and deferred \n29\nTable of Contents\nrevenue which is disclosed on the consolidated balance sheets and in the notes to the consolidated financial statements. In general, the Company receives payments from customers based on a billing schedule established in its contracts. Unbilled receivables represent amounts earned which have not yet been billed in accordance with contractually stated billing terms. Accounts receivable are recorded when the right to consideration becomes unconditional and the Company has a right to invoice the customer. Deferred revenue relates to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as the Company performs under the contract.\nDuring the fiscal year ended April\u00a030, 2023, changes in contract assets and liabilities were not materially impacted by any other factors. Approximately \n100\n% of the contract liability balance at April\u00a030, 2023 is expected to be recognized as revenue during fiscal year 2024.\nNote 3\u2014\nInventories\nInventories consisted of the following at April\u00a030:\n(in thousands)\n2023\n2022\nFinished goods\n$\n3,412\n\u00a0\n$\n4,555\n\u00a0\nWork-in-process\n2,380\n\u00a0\n2,893\n\u00a0\nMaterials and components\n16,097\n\u00a0\n16,348\n\u00a0\nTotal inventories\n$\n21,889\n\u00a0\n$\n23,796\n\u00a0\nAt April\u00a030, 2023 and 2022, the Company's international subsidiaries' inventories were $\n2,740,000\n and $\n2,811,000\n, respectively, measured using the lower of cost or net realizable value under the FIFO method and are included in the above tables.\n \nNote 4\u2014\nLong-term Debt and Other Credit Arrangements \nOn May\u00a06, 2013, the Company entered into a credit and security agreement (the \"Loan Agreement\") consisting of a $\n20\n million revolving credit facility (\"Line of Credit\") with Wells Fargo, National Bank, which originally matured in May 2018 and was extended numerous times until it was terminated in June 2022.\nOn June 19, 2019, the Company entered into a Security Agreement  with Wells Fargo, National Bank, pursuant to which the Company granted a security interest in substantially all of its assets to secure its obligations under the Loan Agreement. On December\u00a013, 2019, the Company entered into an amendment to the Loan Agreement and the Line of Credit to effect a change to an asset based lending arrangement based on eligible accounts receivable and inventory, with the available amount not to exceed $\n20\n million through January\u00a031, 2020, and with such maximum amount reduced to $\n15\n million thereafter. This amendment replaced the prior financial covenants with new financial covenants, including minimum monthly liquidity and EBITDA requirements. Additionally, a requirement for the repatriation of foreign cash and restrictions on the payment of dividends were added. The Security Agreement was amended several times during fiscal years 2022 and 2023 as the Company was finalizing the Sale-Leaseback financing transaction discussed in \nNote 5\n, \nSale-Leaseback Financing Transaction\n. These amendments were primarily driven by requirements and timing of the Company's new credit arrangement.\nOn June 27, 2022, the Company terminated the Credit Agreement with Wells Fargo, National Bank. At the time of termination, there were \nno\n borrowings under the Credit Agreement, and the Company did not incur any material termination penalties as a result of the termination. \nAt April\u00a030, 2022, there were advances of $\n1.6\n million and $\n716,000\n in letters of credit outstanding, leaving $\n2.4\n million available under the Line of Credit. The borrowing rate under the Line of Credit at that date was \n4.75\n%. Monthly interest payments under the Line of Credit were payable at the greater of the Daily One Month LIBOR interest rate, or \n0.75\n%, plus \n4.0\n%. At April\u00a030, 2022, the Company was in compliance with all the financial covenants under its revolving credit facility.\nOn December 19, 2022, the Company entered into a Credit and Security Agreement (the \"Credit Agreement\") with Mid Cap Funding IV Trust, as agent (the \"Agent\"), and the lenders from time to time party thereto (collectively, the \"Lenders\"). The Credit Agreement provides for a secured revolving line of credit initially up to $\n15.0\n\u00a0million (the \"Revolving Credit Facility\"). Availability under the Revolving Credit Facility is subject to a borrowing base calculated in accordance with the terms of the Credit Agreement and on the basis of eligible accounts and inventory and certain other reserves and adjustments. Pursuant to the Credit Agreement, the Company granted to the Agent, for itself and the Lenders, a first priority security interest in all existing and future acquired assets owned by the Company. Subject to the terms of the Credit Agreement, from time to time the Company may request that the initial revolving loan amount available under the Revolving Credit Facility be increased with additional tranches in minimum amounts of $\n1,000,000\n, up to a maximum borrowing availability of $\n30.0\n\u00a0million. The Agent and Lenders must consent to any such increase in their sole discretion. The Revolving Credit Facility matures on December 19, 2025.\n30\nTable of Contents\nExcept as set forth in the Credit Agreement, borrowings under the Revolving Credit Facility bear interest at a rate equal to Term SOFR (Secured Overnight Financing Rate) plus \n4.10\n%. The Company is required to make monthly interest payments on the Revolving Credit Facility, with the entire principal payment due at maturity.\nAt April\u00a030, 2023, there was $\n3,548,000\n outstanding under the Revolving Credit Facility, with remaining borrowing capacity under the Revolving Credit Facility of $\n10,286,000\n. The borrowing rate under the Revolving Credit Facility was \n9.02\n% as of April\u00a030, 2023. At April\u00a030, 2023, the Company was in compliance with all financial covenants under its revolving credit facility. In addition, the Company's International subsidiaries have a balance outstanding of $\n39,000\n in short-term borrowings related to overdraft protection and short-term loan arrangements.\nAt April\u00a030, 2023, there were foreign bank guarantees outstanding to customers in the amounts of $\n5.2\n\u00a0million, $\n142,000\n, $\n3,000\n, and $\n233,000\n with expiration dates in fiscal years 2024, 2025, 2026, and 2027, respectively, collateralized by certain assets of the Company's subsidiaries in India. At April 30, 2022, there were bank guarantees issued by foreign banks outstanding to customers in the amounts of $\n8.2\n\u00a0million, $\n111,000\n, $\n9,000\n, $\n3,000\n, and $\n249,000\n with expiration dates in fiscal years 2023, 2024, 2025, 2026, and 2027, respectively, collateralized by a $\n6.0\n million corporate guarantee and certain assets of the Company's subsidiaries in India.\nNote 5\u2014\nSale-Leaseback Financing Transaction\nOn December 22, 2021, the Company entered into the Sale Agreement with the Buyer for the Company\u2019s headquarters and manufacturing facilities located at 2700 West Front Street in Statesville, North Carolina.\nThe Sale Agreement was finalized on March 24, 2022 and coincided with the Company and the Buyer entering into the Lease Agreement. The Sale-Leaseback Arrangement is repayable over a \n20-year\n term, with \nfour\n renewal options of \nfive years\n each. Under the terms of the Lease Agreement, the Company\u2019s initial basic rent is approximately $\n158,000\n per month, with annual increases of approximately \n2\n% each year of the initial term.\nThe Company accounted for the Sale-Leaseback Arrangement as a financing transaction with the Buyer in accordance with ASC 842, \nLeases\n, as the Lease Agreement was determined to be a finance lease. The Company concluded the Lease Agreement met the qualifications to be classified as a finance lease due to the significance of the present value of the lease payments, using a discount rate of \n4.75\n% to reflect the Company\u2019s incremental borrowing rate, compared to the fair value of the leased property as of the lease commencement date. In measuring the lease payments for the present value analysis, the Company elected the practical expedient to combine the lease component (the leased facilities) with the non-lease component (property management provided by the Buyer/Lessor) into a single lease component. \nThe presence of a finance lease indicates that control of the Property has not transferred to the Buyer/Lessor and, as such, the transaction was deemed a failed sale-leaseback and accounted for as a financing arrangement. As a result of this determination, the Company is viewed as having received the sales proceeds from the Buyer/Lessor in the form of a hypothetical loan collateralized by its leased facilities. The hypothetical loan is payable as principal and interest in the form of \u201clease payments\u201d to the Buyer/Lessor. As such, the Company will not derecognize the Property from its books for accounting purposes until the lease ends. \nNo\n gain or loss was recognized related to the Sale-Leaseback Arrangement under U.S. GAAP.\nAs of April 30, 2023, the carrying value of the financing liability was $\n28,774,000\n, net of $\n708,000\n in debt issuance costs, of which $\n642,000\n was classified as current on the Consolidated Balance Sheet with $\n28,132,000\n classified as long-term. As of April\u00a030, 2022, the carrying value of the financing liability was $\n29,350,000\n, net of $\n768,000\n in debt issuance costs, of which $\n575,000\n was classified as current on the Consolidated Balance Sheet with $\n28,775,000\n classified as long-term. The monthly lease payments are split between a reduction of principal and interest expense using the effective interest rate method. Interest expense associated with the financing arrangement was $\n1,316,000\n and $\n147,000\n for the years ended April 30, 2023 and 2022, respectively.\nThe Company will depreciate the building down to zero over the \n20-year\n assumed economic life of the Property so that at the end of the lease term, the remaining carrying amount of the financing liability will equal the carrying amount of the land of $\n41,000\n.\nRemaining future cash payments related to the financing liability for the fiscal years ending April 30 are as follows:\n31\nTable of Contents\n($ in thousands)\n2024\n$\n1,931\n\u00a0\n2025\n1,970\n\u00a0\n2026\n2,009\n\u00a0\n2027\n2,050\n\u00a0\n2028\n2,090\n\u00a0\nThereafter\n33,867\n\u00a0\nTotal Minimum Liability Payments\n43,917\n\u00a0\nImputed Interest\n(\n15,143\n)\nTotal\n$\n28,774\n\u00a0\n \nNote 6\u2014\nIncome Taxes \nOn March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (\"CARES Act\") was signed into law, which contains several income tax provisions, as well as other measures, aimed at assisting businesses impacted by the economic effects of the COVID-19 pandemic. The CARES Act includes a broad range of tax reform provisions affecting businesses, including permissible net operating losses (\"NOLs\") carrybacks up to \nfive years\n, changes in business deductions limitations, and deferral of Social Security withholdings. The Company applied the NOL carryback provision of the CARES Act with respect to its estimated NOL for fiscal year 2021 to years that had higher enacted tax rates. The Company also applied the deferral of Social Security withholdings in accordance with the CARES Act; 50% of these deferred withholdings were due and paid by December 31, 2021, with the remainder due and paid by December 31, 2022.\nEffective August 1, 2019, the Company elected to revoke the indefinite reinvestment of foreign unremitted earnings position set forth by ASC 740-30-25-17 for multiple foreign subsidiaries. As a result of this election, the Company recorded a tax withholding expense imposed by the India Income Tax Department of $\n406,000\n and $\n240,000\n for the years ended April 30, 2023 and 2022, respectively.\nOn December 22, 2017, the Tax Cuts and Job Act amended Internal Revenue Code Section 174, effective for tax years beginning after December 31, 2021. This amendment to Section 174, effective during fiscal year 2023 for the Company, eliminated the current year deductibility of research and experimentation expenditures and required the Company to deduct these expenditures over \nfive years\n. The impact of this tax regulation required the Company to record a new deferred tax asset of $\n1,558,000\n as of April 30, 2023. \nThe Company's accounting policy with respect to the Global Intangible Low-Taxed Income (\"GILTI\") tax rules is that GILTI will be treated as a periodic charge in the year in which it arises.\nIncome tax expense consisted of the following:\n$ in thousands\n2023\n2022\nCurrent tax expense:\nFederal\n$\n691\n\u00a0\n$\n1,899\n\u00a0\nState and local\n197\n\u00a0\n490\n\u00a0\nForeign\n1,736\n\u00a0\n1,008\n\u00a0\nTotal current tax expense\n2,624\n\u00a0\n3,397\n\u00a0\nDeferred tax expense:\nFederal\n\u2014\n\u00a0\n\u2014\n\u00a0\nState and local\n\u2014\n\u00a0\n\u2014\n\u00a0\nForeign\n515\n\u00a0\n121\n\u00a0\nTotal deferred tax expense\n515\n\u00a0\n121\n\u00a0\nNet income tax expense\n$\n3,139\n\u00a0\n$\n3,518\n\u00a0\n32\nTable of Contents\nThe reasons for the differences between the above net income tax expense and the amounts computed by applying the statutory federal income tax rate to earnings before income taxes are as follows:\n$ in thousands\n2023\n2022\nIncome tax expense (benefit) at statutory rate\n$\n945\n\u00a0\n$\n(\n432\n)\nState and local taxes, net of federal income tax benefit \n(\n119\n)\n(\n29\n)\nTax credits (state, net of federal benefit)\n(\n433\n)\n(\n457\n)\nEffects of differing US and foreign tax rates\n260\n\u00a0\n22\n\u00a0\nNet operating loss adjustment\n\u2014\n\u00a0\n(\n286\n)\nReturn to provision adjustment\n413\n\u00a0\n\u2014\n\u00a0\nImpact of foreign subsidiary income to parent\n99\n\u00a0\n74\n\u00a0\nIncrease in valuation allowance\n1,667\n\u00a0\n4,170\n\u00a0\nOther items, net\n307\n\u00a0\n456\n\u00a0\nNet income tax expense\n$\n3,139\n\u00a0\n$\n3,518\n\u00a0\nSignificant items comprising deferred tax assets and liabilities as of April\u00a030 were as follows:\n$ in thousands\n2023\n2022\nDeferred tax assets:\nAccrued employee benefit expenses\n$\n153\n\u00a0\n$\n228\n\u00a0\nAllowance for doubtful accounts\n114\n\u00a0\n142\n\u00a0\nDeferred compensation\n1,156\n\u00a0\n1,196\n\u00a0\nTax credits (state, net of federal benefits)\n170\n\u00a0\n170\n\u00a0\nForeign tax credit carryforwards\n638\n\u00a0\n638\n\u00a0\nSection 174 R&E Addback\n1,558\n\u00a0\n\u2014\n\u00a0\nUnrecognized actuarial loss, defined benefit plans\n1,064\n\u00a0\n1,202\n\u00a0\nInventory reserves and capitalized costs\n201\n\u00a0\n110\n\u00a0\nNet operating loss carryforwards\n249\n\u00a0\n112\n\u00a0\nProceeds on Sale Leaseback\n6,963\n\u00a0\n7,215\n\u00a0\nOperating lease liabilities\n1,558\n\u00a0\n\u2014\n\u00a0\nOther\n254\n\u00a0\n449\n\u00a0\nTotal deferred tax assets\n14,078\n\u00a0\n11,462\n\u00a0\nDeferred tax liabilities:\nBook basis in excess of tax basis of property, plant and equipment\n(\n1,417\n)\n(\n1,758\n)\nBook basis in excess of tax basis of Sale Leaseback property\n(\n1,106\n)\n(\n1,122\n)\nPrepaid pension\n(\n919\n)\n(\n949\n)\nAPB 23 Assertion\n(\n1,318\n)\n(\n976\n)\nRight of use assets\n(\n1,526\n)\n\u2014\n\u00a0\nDebt Issuance Cost on Sale Leaseback\n(\n167\n)\n(\n184\n)\nTotal deferred tax liabilities\n(\n6,453\n)\n(\n4,989\n)\nValuation allowance\n(\n8,568\n)\n(\n6,901\n)\nNet deferred tax liabilities\n$\n(\n943\n)\n$\n(\n428\n)\nDeferred tax assets (liabilities) classified in the balance sheet:\nNon-current\n(\n943\n)\n(\n428\n)\nNet deferred tax liabilities\n$\n(\n943\n)\n$\n(\n428\n)\nThe Company is required to evaluate the realization of the deferred tax asset and any requirement for a valuation allowance in accordance with ASC 740-10-30-2(b). This guidance provides that the future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on sufficient taxable income of the appropriate character within the carryback or carryforward period available under the tax law. The Company evaluates all available evidence, both \n33\nTable of Contents\npositive and negative, to determine the amount of any required valuation allowance. The valuation allowance totaled $\n8,568,000\n and $\n6,901,000\n at April\u00a030, 2023 and 2022, respectively. \nAt April\u00a030, 2023, the Company had foreign tax credit carryforwards in the amount of $\n638,000\n, which are subject to a full valuation allowance, and which will begin to expire in 2028.\nThe Company files federal, state and local tax returns with statutes of limitation generally ranging from \n3\n to \n4\n years. The Company is generally no longer subject to federal tax examinations for years prior to fiscal year 2019 or state and local tax examinations for years prior to fiscal year 2018. Tax returns filed by the Company's significant foreign subsidiaries are generally subject to statutes of limitations of \n3\n to \n7\n years and are generally no longer subject to examination for years prior to fiscal year 2017. The Company has no unrecognized tax benefits.\nNote 7\u2014\nStock Options and Share-Based Compensation \nThe Company's stockholders approved the 2017 Omnibus Incentive Plan (\"2017 Plan\") on August\u00a030, 2017, which enables the Company to grant a broad range of equity, equity-related, and non-equity types of awards, with potential recipients including directors, consultants and employees. This plan replaced the 2010 Stock Option Plan for Directors and the 2008 Key Employee Stock Option Plan. \nNo\n new awards will be granted under the prior plans and all outstanding options granted under the prior plans will remain subject to the prior plans. At the date of approval of the 2017 Plan there were \n280,100\n shares available for issuance under the prior plans. These shares and any shares subject to outstanding awards that subsequently cease to be subject to such awards are available under the 2017 Plan. The 2017 Plan did not increase the total number of shares available for issuance under the Company's equity compensation plans. At April\u00a030, 2023 there were \n149,007\n shares available for future issuance.\nUnder the 2017 Plan, the Company recorded stock-based compensation expense of $\n845,000\n and $\n701,000\n and deferred income tax benefit of $\n199,000\n and $\n165,000\n in fiscal years 2023 and 2022, respectively. The RSUs include grants with both a service and performance component vesting over a \n3\n year period and grants with only service components vesting over \n2\n and \n3\n year periods. The recognized expense is based upon the vesting period for service criteria and estimated attainment of the performance criteria at the end of the performance period based on the ratio of cumulative days incurred to total days over the performance period. The remaining estimated compensation expense of $\n812,000\n will be recorded over the remaining vesting periods.\nThe fair value of each RSU granted to employees was estimated on the date of grant based on the weighted average price of the Company's stock reduced by the present value of the expected dividend stream during the vesting period using the risk-free interest rate. The Company issued new shares of common stock to satisfy RSUs that vested during fiscal year 2023. \nThe following table summarizes the RSU activity and weighted averages.\n2023\n2022\nNumber of RSUs\nWeighted Average Grant Date Fair Value\nNumber of RSUs\nWeighted Average Grant Date Fair Value\nOutstanding at beginning of year\n144,827\n\u00a0\n$\n12.24\n\u00a0\n125,217\n\u00a0\n$\n12.71\n\u00a0\nGranted\n87,969\n\u00a0\n$\n13.43\n\u00a0\n67,750\n\u00a0\n$\n13.74\n\u00a0\nVested\n(\n50,315\n)\n$\n13.86\n\u00a0\n(\n31,943\n)\n$\n12.44\n\u00a0\nForfeited\n(\n22,841\n)\n$\n15.37\n\u00a0\n(\n16,197\n)\n$\n21.83\n\u00a0\nOutstanding at end of year\n159,640\n\u00a0\n$\n11.94\n\u00a0\n144,827\n\u00a0\n$\n12.24\n\u00a0\nThe stockholders approved the 2008 Key Employee Stock Option Plan (\"2008 Plan\") in fiscal year 2009 which allowed the Company to grant options on an aggregate of \n300,000\n shares of the Company's common stock. On August\u00a026, 2015, the stockholders approved an amendment to this plan to increase the number of shares available under the 2008 Plan by \n300,000\n shares. Under the plan, options were granted at not less than the fair market value at the date of grant and options are exercisable in such installments, for such terms (up to \n10\n years), and at such times, as the Board of Directors determined at the time of the grant. At April\u00a030, 2023, there were \nno\n shares available for future grants under the 2008 Plan. Under the 2008 Plan, the Company recorded \nno\n compensation expense or deferred income tax benefit in fiscal year 2023 or 2022. \nIn order to determine the fair value of stock options on the date of grant, the Company applied the Black-Scholes option pricing model. Inherent in the model are assumptions related to expected stock-price volatility, option life, risk-free interest rate, and dividend yield. The stock options outstanding have the \"plain-vanilla\" characteristics as defined in SEC Staff Accounting Bulletin No.\u00a0107 (SAB 107). The Company utilized the Safe Harbor option \"Simplified Method\" to determine the expected term of these options in accordance with the guidance of SAB\u00a0107 for options outstanding. \n34\nTable of Contents\nThe Company issued new shares of common stock to satisfy options exercised during fiscal years 2023 and 2022. \nStock option activity and weighted average exercise price are summarized as follows:\n2023\n2022\nNumber\nof\u00a0Shares\nWeighted Average Exercise Price\nNumber\nof\u00a0Shares\nWeighted Average Exercise Price\nOutstanding at beginning of year\n47,400\n\u00a0\n$\n19.34\n\u00a0\n84,300\n\u00a0\n$\n18.56\n\u00a0\nCanceled\n(\n7,850\n)\n$\n20.08\n\u00a0\n(\n35,400\n)\n$\n17.94\n\u00a0\nExercised\n(\n5,650\n)\n$\n14.54\n\u00a0\n(\n1,500\n)\n$\n8.59\n\u00a0\nOutstanding at end of year\n33,900\n\u00a0\n$\n19.97\n\u00a0\n47,400\n\u00a0\n$\n19.34\n\u00a0\nExercisable at end of year\n33,900\n\u00a0\n$\n19.97\n\u00a0\n47,400\n\u00a0\n$\n19.34\n\u00a0\nThe number of options outstanding, exercisable, and their weighted average exercise prices were within the following ranges at April\u00a030, 2023:\n$\n15.85\n-$\n23.62\nOptions outstanding\n33,900\n\u00a0\nWeighted average exercise price\n$\n19.97\n\u00a0\nWeighted average remaining contractual life\n2.5\n years\nAggregate intrinsic value\n$\n1,400\n\u00a0\nOptions exercisable\n33,900\n\u00a0\nWeighted average exercise price\n$\n19.97\n\u00a0\nAggregate intrinsic value\n1,400\n\u00a0\nNote 8\u2014\nAccumulated Other Comprehensive Income (Loss)\nThe Company's other comprehensive income (loss) consists of unrealized gains and losses on the translation of the assets, liabilities, and equity of its foreign subsidiaries, and additional minimum pension liability adjustments, net of income taxes. \nThe before tax income (loss), related income tax effect, and accumulated balances are as follows:\n$ in thousands\nForeign\nCurrency\nTranslation\nAdjustment\nMinimum\nPension\nLiability\nAdjustment\nTotal\nAccumulated\nOther\nComprehensive\nIncome (Loss)\nBalance at April 30, 2021\n$\n(\n2,357\n)\n$\n(\n1,220\n)\n$\n(\n3,577\n)\nForeign currency translation adjustment\n(\n186\n)\n\u2014\u00a0\n(\n186\n)\nChange in unrecognized actuarial loss on pension obligations\n\u2014\u00a0\n21\n\u00a0\n21\n\u00a0\nBalance at April 30, 2022\n(\n2,543\n)\n(\n1,199\n)\n(\n3,742\n)\nForeign currency translation adjustment\n(\n290\n)\n\u2014\n\u00a0\n(\n290\n)\nChange in unrecognized actuarial loss on pension obligations\n\u2014\n\u00a0\n590\n\u00a0\n590\n\u00a0\nBalance at April 30, 2023\n$\n(\n2,833\n)\n$\n(\n609\n)\n$\n(\n3,442\n)\nNote 9\u2014\nLeases, Commitments and Contingencies\nThe Company recognizes lease assets and lease liabilities with respect to the rights and obligations created by leased assets previously classified as operating leases. The Company elected to:\n\u2022\nRecord the impact of adoption using a modified retrospective method with any cumulative effect as an adjustment to retained earnings (accumulated deficit) as opposed to restating comparative periods to reflect the effects of applying the new standard.\n\u2022\nElect the package of three transition practical expedients which alleviate the requirements to reassess embedded leases, lease classification and initial direct costs for leases that commenced prior to the adoption date.\n35\nTable of Contents\n\u2022\nElected to use the short-term lease recognition exemption for all asset classes. This means, for those leases that qualify, the Company will not recognize right-of-use (\"ROU\") assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets.\nThe Company has operating type leases for real estate and equipment in both the U.S. and internationally and financing leases for equipment in the United States. ROU assets totaled $\n9,170,000\n and $\n7,573,000\n at April\u00a030, 2023 and 2022, respectively. Operating cash paid to settle lease liabilities was $\n2,278,640\n and $\n2,019,000\n for the fiscal year ended April 30, 2023 and 2022, respectively. The Company's leases have remaining lease terms of up to \n8\n years. In addition, some of the leases may include options to extend the leases for up to \n5\n years or options to terminate the leases within \n1\n year. Operating lease expense was $\n3,344,000\n for the twelve months ended April 30, 2023, inclusive of period cost for short-term leases, not included in lease liabilities, of $\n1,065,000\n. Operating lease expense was $\n3,067,000\n for the fiscal year ended April 30, 2022, inclusive of period cost for short-term leases, not included in lease liabilities, of $\n1,048,000\n.\nAt April\u00a030, 2023, the weighted average remaining lease term for the capitalized operating leases was \n5.1\n years and the weighted average discount rate was \n5.0\n%. At April\u00a030, 2022, the weighted average remaining lease term for the capitalized operating leases was \n5.8\n years and the weighted average discount rate was \n4.1\n%. For the financing leases, the weighted average remaining lease term was \n3.1\n years and the weighted average discount rate was \n6.8\n% at April\u00a030, 2023 as compared to \n3.8\n years and \n6.6\n% at April\u00a030, 2022. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable.\nFuture minimum payments under the non-cancelable lease arrangements for the fiscal years ending April\u00a030 are as follows:\n($ in thousands)\nOperating\nFinancing\n2024\n$\n2,373\n\u00a0\n$\n91\n\u00a0\n2025\n2,175\n\u00a0\n91\n\u00a0\n2026\n1,920\n\u00a0\n72\n\u00a0\n2027\n1,658\n\u00a0\n\u2014\n\u00a0\n2028\n1,130\n\u00a0\n\u2014\n\u00a0\nThereafter\n1,380\n\u00a0\n\u2014\n\u00a0\nTotal Minimum Lease Payments\n10,636\n\u00a0\n254\n\u00a0\nImputed Interest\n(\n1,533\n)\n(\n21\n)\nTotal\n$\n9,103\n\u00a0\n$\n233\n\u00a0\n \n \nThe Company is involved in certain claims and legal proceedings in the normal course of business which management believes will not have a material adverse effect on the Company's consolidated financial condition or results of operations.\nNote 10\u2014\nRetirement Benefits\nDefined Benefit Plans\nThe Company has non-contributory defined benefit pension plans covering some of its domestic employees. These plans were amended as of April\u00a030, 2005, no further benefits have been, or will be, earned under the plans subsequent to the amendment date, and no additional participants will be added to the plans. The defined benefit plan for salaried employees provides pension benefits that are based on each employee's years of service and average annual compensation during the last ten consecutive calendar years of employment as of April\u00a030, 2005. The benefit plan for hourly employees provides benefits at stated amounts based on years of service as of April\u00a030, 2005. The Company uses an April\u00a030 measurement date for its defined benefit plans. \n36\nTable of Contents\nThe change in projected benefit obligations and the change in fair value of plan assets for the non-contributory defined benefit pension plans for each of the years ended April\u00a030 are summarized as follows: \n$ in thousands\n2023\n2022\nAccumulated Benefit Obligation, April 30\n$\n18,368\n\u00a0\n$\n20,022\n\u00a0\nChange in Projected Benefit Obligations\nProjected benefit obligations, beginning of year\n$\n20,022\n\u00a0\n$\n22,942\n\u00a0\nInterest cost\n845\n\u00a0\n710\n\u00a0\nActuarial loss\n(\n1,113\n)\n(\n2,218\n)\nActual benefits paid\n(\n1,386\n)\n(\n1,412\n)\nProjected benefit obligations, end of year\n$\n18,368\n\u00a0\n$\n20,022\n\u00a0\nChange in Plan Assets\nFair value of plan assets, beginning of year\n$\n18,867\n\u00a0\n$\n21,459\n\u00a0\nActual return on plan assets\n251\n\u00a0\n(\n1,180\n)\nEmployer contributions\n\u2014\n\u00a0\n\u2014\n\u00a0\nActual benefits paid\n(\n1,386\n)\n(\n1,412\n)\nFair value of plan assets, end of year\n$\n17,732\n\u00a0\n$\n18,867\n\u00a0\nFunded status\u2014under\n$\n(\n636\n)\n$\n(\n1,155\n)\nAmounts Recognized in the Consolidated Balance Sheets consist of:\nNon-current liabilities\n$\n(\n636\n)\n$\n(\n1,155\n)\nAmounts Recognized in Accumulated Other Comprehensive Income (Loss) Consist of:\nNet actual loss\n$\n4,526\n\u00a0\n$\n5,116\n\u00a0\nDeferred tax benefit\n(\n1,064\n)\n(\n1,202\n)\nAfter-tax actuarial loss\n$\n3,462\n\u00a0\n$\n3,914\n\u00a0\nWeighted-Average Assumptions Used to Determine Benefit Obligations at April 30\nDiscount rate\n5.10\n\u00a0\n%\n4.40\n\u00a0\n%\nRate of compensation increase\nN/A\nN/A\nMortality table\nPri-2012\nPri-2012\nProjection scale\nMP-2021\nMP-2020\nYear Ended April 30,\nWeighted-Average Assumptions Used to Determine Net Periodic Benefit Cost\n2023\n2022\nDiscount rate\n5.10\n\u00a0\n%\n4.40\n\u00a0\n%\nExpected long-term return on plan assets\n7.75\n\u00a0\n%\n7.75\n\u00a0\n%\nRate of compensation increase\nN/A\nN/A\nThe components of the net periodic pension (income) expense for each of the fiscal years ended April\u00a030 are as follows:\n$ in thousands\n2023\n2022\nInterest cost\n$\n845\n\u00a0\n$\n710\n\u00a0\nExpected return on plan assets\n(\n1,402\n)\n(\n1,604\n)\nRecognition of net loss\n628\n\u00a0\n539\n\u00a0\nNet periodic pension expense (income)\n$\n71\n\u00a0\n$\n(\n355\n)\nThe estimated net actuarial loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during fiscal year 2024 is $\n580,000\n.\nThe Company's funding policy is to contribute to the plans when pension laws and economics either require or encourage funding. The Company expects to make \nno\n contributions during fiscal year 2024. There were \nno\n contributions made to the plans in fiscal year 2023 or 2022.\n37\nTable of Contents\nThe following benefit payments are expected to be paid from the benefit plans in the fiscal years ending April\u00a030:\n$ in thousands\nAmount\n2024\n$\n1,640\n\u00a0\n2025\n1,620\n\u00a0\n2026\n1,600\n\u00a0\n2027\n1,560\n\u00a0\n2028\n1,540\n\u00a0\n2029- 2033\n7,030\n\u00a0\nThe expected long-term portfolio return is established via a building block approach with proper consideration of diversification and rebalancing. Historical markets are studied and long-term historical relationships between equities and fixed-income securities are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long term. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. Peer data and historical returns are also reviewed to check for reasonableness and appropriateness.\nThe Company uses a Yield Curve methodology to determine its GAAP discount rate. Under this approach, future benefit payment cash flows are projected from the pension plan on a projected benefit obligation basis. The payment stream is discounted to a present value using an interest rate applicable to the timing of each respective cash flow. The graph of these time-dependent interest rates is known as a yield curve. The interest rates comprising the Yield Curve are determined through a statistical analysis performed by the IRS and issued each month in the form of a pension discount curve. For this purpose, the universe of possible bonds consists of a set of bonds which are designated as corporate, have high quality ratings (AAA or AA) from nationally recognized statistical rating organizations, and have at least $\n250\n million in par amount outstanding on at least one day during the reporting period. A \n1\n% increase/decrease in the discount rate for fiscal years 2023 and 2022 would increase/decrease pension expense by approximately $\n231,000\n and $\n271,000\n, respectively.\nThe Company uses a total return investment approach, whereby a mix of equities and fixed-income investments are used to attempt to maximize the long-term return on plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value, and small and large capitalizations. The target allocations based on the Company's investment policy were \n75\n% in equity securities and \n25\n% in fixed-income securities at April\u00a030, 2023 and April\u00a030, 2022. A \n1\n% increase/decrease in the expected return on assets for fiscal years 2023 and 2022 would increase/decrease pension expense by approximately $\n181,000\n and $\n207,000\n, respectively.\nPlan assets by asset categories as of April\u00a030 were as follows:\n$ in thousands\n2023\n2022\nAsset Category\nAmount\n%\nAmount\n%\nEquity Securities\n$\n12,724\n\u00a0\n72\n\u00a0\n$\n13,856\n\u00a0\n73\n\u00a0\nFixed Income Securities\n4,845\n\u00a0\n27\n\u00a0\n4,703\n\u00a0\n25\n\u00a0\nCash and Cash Equivalents\n163\n\u00a0\n1\n\u00a0\n308\n\u00a0\n2\n\u00a0\nTotals\n$\n17,732\n\u00a0\n100\n\u00a0\n$\n18,867\n\u00a0\n100\n\u00a0\n38\nTable of Contents\nThe following tables present the fair value of the assets in the Company's defined benefit pension plans at April\u00a030:\n2023\nAsset Category\nLevel\u00a01\nLevel\u00a02\nLevel\u00a03\nLarge Cap\n$\n7,326\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\nSmall/Mid Cap\n2,326\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nInternational\n1,743\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nEmerging Markets\n702\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nFixed Income\n4,845\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nLiquid Alternatives\n627\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nCash and Cash Equivalents\n163\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nTotals\n$\n17,732\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n2022\nAsset Category\nLevel\u00a01\nLevel\u00a02\nLevel\u00a03\nLarge Cap\n$\n7,382\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\nSmall/Mid Cap\n2,775\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nInternational\n2,008\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nEmerging Markets\n794\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nFixed Income\n4,703\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nLiquid Alternatives\n897\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nCash and Cash Equivalents\n308\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nTotals\n$\n18,867\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\nLevel\u00a01 retirement plan assets include United States currency held by a designated trustee and equity funds of common and preferred securities issued by domestic and foreign corporations. These equity funds are traded actively on exchanges and price quotes for these shares are readily available.\nDefined Contribution Plan\nThe Company has a defined contribution plan covering substantially all domestic salaried and hourly employees. The plan provides benefits to all employees who have attained age \n21\n, completed \nthree months\n of service, and who elect to participate. The plan provides that the Company make matching contributions equal to \n100\n% of the employee's qualifying contribution up to \n3\n% of the employee's compensation, and make matching contributions equal to \n50\n% of the employee's contributions between \n3\n% and \n5\n% of the employee's compensation, resulting in a maximum employer contribution equal to \n4\n% of the employee's compensation. The Company's matching contributions were $\n932,000\n and $\n967,000\n for years ending April\u00a030, 2023 and 2022. Additionally, the plan provides that the Company may elect to make a non-matching contribution for participants employed by the Company on December\u00a031 of each year. The Company did not elect to make a non-matching contribution in fiscal years 2023 and 2022.\nNote 11\u2014\nSegment Information\nThe Company's operations are classified into \ntwo\n business segments: Domestic and International. The Domestic business segment principally designs, manufactures, and installs scientific and technical furniture, including steel and wood laboratory cabinetry, fume hoods, casework, flexible systems, worksurfaces, workstations, workbenches, and computer enclosures. The International business segment, which consists of the foreign subsidiaries identified in \nNote\u00a01\n, \nSummary of Significant Accounting Policies\n, provides the Company's products and services, including facility design, detailed engineering, construction, and project management from the planning stage through testing and commissioning of laboratories.\nIntersegment transactions are recorded at normal profit margins. All intercompany balances and transactions have been eliminated. Certain corporate expenses shown below are net of expenses that have been allocated to the business segments.\n39\nTable of Contents\nThe following table shows revenues, earnings, and other financial information by business segment and unallocated corporate expenses for each of the years ended April\u00a030: \n$ in thousands\nDomestic\nInternational\nCorporate\nTotal\nFiscal Year 2023\nRevenues from external customers\n$\n146,716\n\u00a0\n$\n72,778\n\u00a0\n$\n\u2014\n\u00a0\n$\n219,494\n\u00a0\nIntersegment revenues\n1,604\n\u00a0\n9,822\n\u00a0\n(\n11,426\n)\n\u2014\n\u00a0\nDepreciation\n2,394\n\u00a0\n282\n\u00a0\n191\n\u00a0\n2,867\n\u00a0\nEarnings (loss) before income taxes\n3,408\n\u00a0\n7,382\n\u00a0\n(\n6,292\n)\n4,498\n\u00a0\nIncome tax expense\n\u2014\n\u00a0\n2,250\n\u00a0\n889\n\u00a0\n3,139\n\u00a0\nNet earnings attributable to non-controlling interest\n\u2014\n\u00a0\n621\n\u00a0\n\u2014\n\u00a0\n621\n\u00a0\nNet earnings (loss) attributable to Kewaunee Scientific Corporation\n3,408\n\u00a0\n4,511\n\u00a0\n(\n7,181\n)\n738\n\u00a0\nSegment assets\n80,000\n\u00a0\n38,898\n\u00a0\n\u2014\n\u00a0\n118,898\n\u00a0\nExpenditures for segment assets\n2,856\n\u00a0\n1,292\n\u00a0\n\u2014\n\u00a0\n4,148\n\u00a0\nRevenues (excluding intersegment) from customers in foreign countries\n2,559\n\u00a0\n72,778\n\u00a0\n\u2014\n\u00a0\n75,337\n\u00a0\nFiscal Year 2022\nRevenues from external customers\n$\n126,848\n\u00a0\n$\n42,024\n\u00a0\n$\n\u2014\u00a0\n$\n168,872\n\u00a0\nIntersegment revenues\n882\n\u00a0\n3,519\n\u00a0\n(\n4,401\n)\n\u2014\n\u00a0\nDepreciation\n2,402\n\u00a0\n276\n\u00a0\n91\n\u00a0\n2,769\n\u00a0\nEarnings (loss) before income taxes\n(\n179\n)\n3,585\n\u00a0\n(\n5,891\n)\n(\n2,485\n)\nIncome tax expense\n50\n\u00a0\n1,129\n\u00a0\n2,339\n\u00a0\n3,518\n\u00a0\nNet earnings attributable to non-controlling interest\n\u2014\u00a0\n123\n\u00a0\n\u2014\u00a0\n123\n\u00a0\nNet earnings (loss) attributable to Kewaunee Scientific Corporation\n(\n229\n)\n2,333\n\u00a0\n(\n8,230\n)\n(\n6,126\n)\nSegment assets\n91,757\n\u00a0\n27,016\n\u00a0\n\u2014\u00a0\n118,773\n\u00a0\nExpenditures for segment assets\n1,613\n\u00a0\n295\n\u00a0\n\u2014\u00a0\n1,908\n\u00a0\nRevenues (excluding intersegment) from customers in foreign countries\n1,317\n\u00a0\n42,024\n\u00a0\n\u2014\u00a0\n43,341\n\u00a0\nNote 12\u2014\nRestructuring Costs\nIn December 2019, the Company initiated a restructuring, which included the closure of the Company's subsidiary in China, a commercial sales organization for the Company's products in China, that was completed in March 2023. The Company incurred operating expenses of $\n32,000\n in its international operations related to the closure of the China subsidiary in fiscal year 2023, offset by the recovery of bad debt collections of $\n51,000\n that were originally written off when the Company initiated the restructuring. The Company incurred operating expenses of $\n28,000\n related to the closure in the prior year period. The Company reflected all the expenses as operating expenses in the Consolidated Statement of Operations.\n40\nTable of Contents\nCONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\nWe consent to the incorporation by reference in the Registration Statements on Forms S\u20118 (Nos. 333\u2011160276, 333\u2011176447, 333\u2011213413 and 333\u2011220389) of Kewaunee Scientific Corporation of our report dated June 30, 2023, with respect to the consolidated financial statements of Kewaunee Scientific Corporation, included in this Annual Report on Form 10\u2011K for the year ended April 30, 2023.\n \n/s/ FORVIS, LLP\n \nCharlotte, North Carolina\nJune 30, 2023\nItem\u00a09. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure\nNone.\nItem\u00a09A. Controls and Procedures\nConclusion Regarding the Effectiveness of Disclosure Controls and Procedures\nWe maintain disclosure controls and procedures that are intended to ensure that the information required to be disclosed in our filings under the Securities Exchange Act of 1934 (the \"Exchange Act\") is properly and timely recorded, processed, summarized, and reported. Our management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures as of April\u00a030, 2023 pursuant to Exchange Act Rule\u00a013a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective. In designing disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives, and that management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.\nManagement's Report on Internal Control Over Financial Reporting\nManagement is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in \nInternal Control\u2014Integrated Framework (2013)\n\u00a0issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded the Company maintained effective internal control over financial reporting as of April\u00a030, 2023.\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\nThis annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report.\nChanges in Internal Control Over Financial Reporting\nThere have been no significant changes in our internal controls over financial reporting that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.\nItem\u00a09B. Other Information\nNone.\nItem\u00a09C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections\nNot Applicable.\n41\nTable of Contents\nPART III\nItem\u00a010. Directors, Executive Officers and Corporate Governance\n(a)\nThe information appearing in the sections entitled \"Election of Directors\" and \"Meetings and Committees of the Board\" included in our Proxy Statement for use in connection with our annual meeting of stockholders to be held on August\u00a023, 2023 (the \"Proxy Statement\") is incorporated herein by reference. The Proxy Statement will be filed with the SEC within 120 days of our most recently completed fiscal year.\n(b)\nThe names and ages of our executive officers as of June\u00a030, 2023 and their business experience during the past five years are set forth below: \nExecutive Officers\nName\nAge\nPosition\nThomas D. Hull III\n47\nPresident and Chief Executive Officer\nDonald T. Gardner III\n44\nVice President, Finance, Chief Financial Officer, Treasurer and Secretary\nRyan S. Noble\n45\nVice President, Sales and Marketing\u2014Americas\nElizabeth D. Phillips\n46\nVice President, Human Resources\nMandar Ranade\n49\nVice President of Information Technology and Engineering\nDouglas J. Batdorff\n50\nVice President of Manufacturing Operations\nBoopathy Sathyamurthy\n54\nVice President, Kewaunee Scientific Corporation Singapore Pte. Ltd., Managing Director, International Operations\nThomas D. Hull III\n joined the Company in November 2015 as Vice President, Finance, Chief Financial Officer, Treasurer and Secretary. Mr. Hull was elected President and Chief Executive Officer and appointed as a member of the Board of Directors in March 2019. Mr. Hull earned a Bachelor of Science degree in Accounting from LaRoche College and an MBA from the University of Pittsburgh, Joseph M. Katz School of Business. He is a certified public accountant (inactive status) and a member of the American Institute of Certified Public Accountants and the Pennsylvania Institute of Certified Public Accountants. Prior to joining the Company, Mr. Hull held several management positions with Ernst & Young, LLP in Pittsburgh, Pennsylvania from 1998 through 2011. From 2011 until joining the Company in 2015, he served as the Vice President of Finance, Accounting, and Information Technology with ATI Specialty Materials in Charlotte, North Carolina.\nDonald T. Gardner III\n joined the Company in April 2019 as Vice President of Finance and Chief Financial Officer and was also elected by the Board of Directors to the positions of Secretary and Treasurer. Mr. Gardner has a Bachelor of Science degree in Accounting from the Indiana University of Pennsylvania and a Master of Business Administration from the University of Pittsburgh, Joseph M. Katz School of Business. Prior to joining the Company, from 2017 to 2019, he served as Vice President, Financial Planning & Analysis of Victra, a privately held retailer of wireless products and services. During 2017, he served as the Chief Financial Officer of Component Sourcing International, a privately held provider of global sourcing supply chain solutions. From February 2016 to June 2017, Mr. Gardner served in various leadership roles for Dollar Express Stores, LLC, most recently as Vice President and Treasurer. Dollar Express was an operator of discount retail stores that was sold to a strategic buyer in 2017. Mr. Gardner was a key member of the leadership team that completed the transaction and full wind down of the Company. From 2012 to February 2016, he worked at ATI Specialty Materials, a manufacturer of technically advanced specialty materials and complex components, serving in various financial leadership roles.\nRyan S. Noble\n joined the Company in July 2018 as Vice President of Sales and Marketing - Americas. He has a Bachelor of Science degree in Human Ecology from the University of Tennessee. Prior to joining the Company, he was Director of Sales at Dodge Data & Analytics, a provider of analytics and software-based solutions for the construction industry, from March 2018 to July 2018. From 2014 to 2018, he was a Regional Sales Director at Wausau Window and Wall Systems, a manufacturer of metal and glass solutions for commercial buildings. From 2008 to 2014, he held several sales management positions at AGC Glass Company, a glass and high performance coatings manufacturer for architectural, residential, interior, and industrial applications.\nElizabeth D. Phillips\n joined the Company in August 2006 as Human Resources and Training Manager. She was promoted to Director of Human Resources in June 2007 and was elected Vice President of Human Resources in June 2009. Ms. Phillips has a Bachelor of Science degree in Psychology from Western Carolina University. Prior to joining the Company, she held Human Resources leadership positions at Thomasville Furniture and Hickory Chair and immediately prior to joining Kewaunee was Director of Human Resources for Vanguard Furniture Co., Inc., a manufacturer of household furniture, from April 2004 until August 2006.\n42\nTable of Contents\n\u00a0\u00a0\u00a0\u00a0\nMandar Ranade\n joined the Company in December 2019 as Vice President of Information Technology. In February 2020, Mr. Ranade's responsibilities were expanded to include Engineering and Standards oversight and he now holds the position of Vice President of Information Technology and Engineering. He has a Master of Business Administration, Finance, from the University of Leeds, Leeds, United Kingdom, and a Bachelor of Engineering, Polymers, from University of Pune, Pune, India. He also has certifications as a Project Management Professional, Certified Scrum Master, ITIL (Foundation) Certification and a Master of Oracle Applications. Prior to joining the Company, Mr. Ranade most recently held the position of Division IT Leader for EnPro Industries-Fairbanks Morse, Wisconsin from 2018 to November 2019. From 2015 to 2018, he held several Director positions, the most recent being Director of Technical Services, with Aurora Health Care, ACL Laboratories, Milwaukee, Wisconsin. Prior to these positions he was Senior Manager of IT with IMS Health, Milwaukee, Wisconsin, from 2010 to 2015, and ThermoFisher Scientific in Two Rivers, Wisconsin, from 2005 to 2010. From 1995 to 2005, he held various IT positions with GE Healthcare, Milwaukee, Wisconsin and Mumbai, India, idm Limited, in Doncaster, UK, and GREAVES Limited, Mumbai, India\n.\n \n\u00a0\u00a0\u00a0\u00a0\nDouglas J. Batdorff\n joined the Company in June 2020 as Vice President of Manufacturing Operations. He has significant experience in directing and guiding manufacturing operations, focusing on improvement of business performance, maximizing growth and profitability. Mr. Batdorff has a Bachelor of Science Degree in Mechanical Engineering from Michigan State University and a Masters in Manufacturing Operations from Kettering University. Prior to joining the Company, Mr. Batdorff was the Chief Operations Officer for Legacy Cabinets, Inc. in Eastaboga, Alabama from 2018 to 2019. From 2005 to 2018 he held various management positions with Steelcase, the most recent as Director of Manufacturing - US Operations from 2014 to 2018. He was with General Motors, Lansing, Michigan from 1998 to 2004 in many management roles, the most recent being Manufacturing Coordinator - General Assembly - Final Process.\nBhoopathy Sathyamurthy\n joined the Company in 2000 as General Manager of India Operations and Kewaunee Labway India Pvt. Ltd. He was subsequently promoted to Managing Director of Kewaunee Labway India Pvt. Ltd. He has served as Managing Director of International Operations, which includes responsibilities for all sales and operations in Asia, as well as sales efforts in the Middle East, since September 2013. Mr. Sathyamurthy was elected Vice President of Kewaunee Scientific Corporation Singapore Pte. Ltd., the holding company for Kewaunee's subsidiaries in India, Singapore, and China, in September 2014. He holds a Bachelor Degree in Mechanical Engineering from University of Madras and a Masters of Business Administration from University of Madras.\nCode of Ethics\nA copy of our code of ethics that applies to our Chief Executive Officer and Chief Financial Officer, entitled \"Ethics Obligations for Chief Executive Officer and Employees with Financial Reporting Responsibilities,\" is available free of charge through our website at \nwww.kewaunee.com\n. The reference to our website does not constitute incorporation by reference of any information contained at that site.\nAudit Committee\nThe information appearing in the section entitled \"Election of Directors \u2013 Meetings and Committees of the Board\" in our Proxy Statement is incorporated herein by reference.\nDelinquent Section 16(a) Reports\nThe information appearing in the section entitled \"Delinquent Section 16(a) Reports\" in our Proxy Statement, if applicable, is incorporated herein by reference.\nItem\u00a011. Executive Compensation\nThe information appearing in the sections entitled \"Compensation Discussion and Analysis,\" \"Compensation Tables,\" \"Agreements with Certain Executives,\" and \"Election of Directors \u2013 Compensation Committee Interlocks and Insider Participation\" in the Proxy Statement is incorporated herein by reference.\nItem\u00a012. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\nThe information appearing in the sections entitled \"Security Ownership of Directors and Executive Officers\" and \"Security Ownership of Certain Beneficial Owners\" in the Proxy Statement is incorporated herein by reference.\n43\nTable of Contents\nThe following table sets forth certain information as of April\u00a030, 2023 with respect to compensation plans under which our equity securities are authorized for issuance:\nPlan Category\nNumber of\nsecurities\u00a0to\u00a0be\nissued upon\nexercise\u00a0of\noutstanding\noptions,\u00a0warrants\nand rights\nWeighted-average\nexercise\u00a0price\u00a0of\noutstanding\u00a0options,\nwarrants and\u00a0rights\nNumber\u00a0of\u00a0securities\nremaining\u00a0available\u00a0for\nfuture issuance under\nequity\u00a0compensation\nplans\nEquity Compensation Plans approved by Security Holders:\n2008 Key Employee Stock Option Plan\n33,900\u00a0\n19.97\u00a0\n\u2014\u00a0\n2017 Omnibus Incentive Plan\n159,640\u00a0\n\u2014\u00a0\n149,007\u00a0\nEquity Compensation Plans not approved by Security Holders:\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u00a0Total Equity Compensation Plans\n193,540\u00a0\n149,007\u00a0\nRefer to\n Note 7\n, \nStock Options and Share-Based Compensation\n, of the Company's consolidated financial statements included in ",
+  "cik": "55529",
+  "cusip6": "492854",
+  "cusip": ["492854104"],
+  "names": ["KEWAUNEE SCIENTIFIC CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/55529/000005552923000013/0000055529-23-000013-index.htm"
+}
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+{
+  "item1": ">ITEM\u00a01. \u00a0\u00a0BUSINESS\n\u00a0\nGENERAL\n\u00a0\nAs used herein unless the context otherwise requires, the term \u201cCompany\u201d means Koss Corporation and its subsidiaries, Koss Corp B.V. and Koss U.K. Limited. Koss Corporation was incorporated in Delaware in 1971. It formed Koss Corp B.V. and Koss U.K. Limited to comply with certain European Union (\u201cEU\u201d) requirements. Koss U.K. Limited is maintained to comply with certain U.K. requirements. \n\u00a0\nThe Company operates in the audio/video industry segment of the home entertainment and communication industry through its design, manufacture and sale of stereo headphones and related accessory products. The Company reports its results as a single reporting segment, as the Company\u2019s only business line is the design, manufacture and sale of stereo headphones and related personal listening accessories.\n\u00a0\nThe Company\u2019s products are sold through U.S. distributors, international distributors, audio specialty stores, the internet, national retailers, grocery stores, electronics retailers, and prisons under the \u201cKoss\u201d name as well as private label. The Company also sells products to distributors for resale to school systems, and directly to other manufacturers for inclusion with their own products. International markets are served by domestic sales representatives and sales personnel in the Netherlands and the Caucasus region. The Company utilizes independent distributors in several foreign countries.\u00a0\n\u00a0\nApproximately 80%\u00a0of the Company\u2019s fiscal year 2023 sales were from stereo headphones used for listening to music. The remaining approximately 20%\u00a0of the Company\u2019s sales were from headphones used in communications, education settings, and in conjunction with metal detectors, as well as sold to original equipment manufacturers (\u201cOEM\u201d). The products are not significantly differentiated by their retail sales channel or application with the exception of products sold to school systems, prisons, and OEM customers. There are no other product line differentiations other than the quality of the sound produced by the stereo headphone itself, which is highly subjective.\n\u00a0\nThe Company sources complete stereo headphones manufactured to its specifications from various manufacturers in Asia as well as raw materials used to produce stereo headphones at its plant in Milwaukee, Wisconsin. Management believes that it has sources of complete stereo headphones and raw materials that are adequate for its needs.\n\u00a0\nThere are no employment or compensation commitments between the Company and its dealers. The Company has contracted several independent manufacturers\u2019 representatives as part of its distribution efforts. The arrangements with foreign distributors do not contemplate that the Company pays any compensation other than any profit the distributors make upon their sale of the Company\u2019s products.\n\u00a0\nINTELLECTUAL PROPERTY\n\u00a0\nJohn C. Koss is recognized for creating the personal listening industry with the first Koss SP/3 stereo headphone in 1958. The Company regularly applies for registration of its trademarks in many countries around the world, and over the years the Company has had numerous trademarks registered and patents issued in North America, South America, Asia, Europe, Africa, and Australia. As of June\u00a030, 2023, the Company had over 400\u00a0trademarks registered in approximately 90\u00a0countries around the world and over 160\u00a0patents in\u00a0approximately 25\u00a0countries.\u00a0The Company has trademarks to protect the brand name, Koss, and its logo on its products. The Company also holds many design patents that protect the unique visual appearance of some of its products. These trademarks and patents are important to differentiate the Company from its competitors. Certain of the Company\u2019s trademarks are of material value and importance to the conduct of its business. The Company considers protection of its proprietary developments important; however, the Company\u2019s business is not, in the opinion of management, materially dependent upon any single trademark or patent. \n \nGiven the significance of the Company\u2019s intellectual property to its business, in 2019 the Company launched a program to enforce its intellectual property rights and protect its patent portfolio. As part of this enforcement program, the Company has filed and pursued lawsuits against a number of companies that the Company believes have infringed or are infringing upon its patents and may enter into licensing agreements or initiate additional lawsuits. The Company considers protecting its intellectual property rights to be central to its business model and competitive position in the stereo headphone industry.\n\u00a0\n\u200e\n \n\n\n5\n \nTable of Contents\n \n\n\n \n \nSEASONALITY\n\u00a0\nAlthough retail sales of consumer electronics have historically been higher during the holiday season, sales of stereo headphones have smoothed throughout the year. Management believes that the Company\u2019s business is not seasonal as evidenced by the fact that the Company\u2019s net sales for the last three years, including the year ended June\u00a030, 2023, were almost equally split between the first and second halves of the year. Management believes that the reason for this level performance of sales to retailers and distributors is related to the fact that consumers are increasingly purchasing stereo headphones throughout the year as replacements for older or lower quality headphones to improve the quality of their listening experience as it relates to portable electronic products. Therefore, upgrades and replacements appear to have as much interest over the course of the year as gifts of stereo headphones during the holiday season.\n\u00a0\nWORKING CAPITAL AND BACKLOG\n\u00a0\nThe Company\u2019s working capital needs do not differ substantially from those of its competitors in the industry and generally reflect the need to carry sufficient amounts of inventory to meet delivery requirements of its customers. On a limited basis, the Company does offer 90-120 day payment terms to certain customers and may, on a rare occasion, extend payment terms to its customers for a special promotion.\u00a0Based on historical trends, management does not expect these practices to have a material effect on net sales or net income.\u00a0As of June\u00a030, 2023, the Company\u2019s backlog of orders was approximately $320,000, which the Company considers minimal in relation to net sales during fiscal year 2023 or projected sales for fiscal year 2024 net sales.\n\u00a0\nCUSTOMERS\n\u00a0\nThe Company markets a line of products used by consumers to listen to music, to work and study from home, and to listen to other audio-related media. The Company distributes these products through distributors and retail channels in the U.S. and independent distributors throughout the rest of the world. Additionally, the Company fills direct-to-consumer (DTC) orders on its website. The Company markets its products through many\u00a0domestic retail outlets and numerous retailers worldwide. The Company also markets products directly to several original equipment manufacturers for use in their products. In the years ended June\u00a030, 2023 and 2022, the Company\u2019s largest sales concentration was represented by its own DTC offerings via the Amazon portal and were approximately 20%\u00a0and\u00a016%\n \nof net sales\u00a0in fiscal year 2023 and 2022, respectively. \nThe Company\u2019s products have broad distribution worldwide across many channels including distributors, specialty stores, mass merchants, and electronics stores. The Company is dependent upon its ability to retain a base of retailers and distributors to sell the Company\u2019s line of products. A material loss of retailers and/or distributors could result in a loss of product placement and have an adverse effect on the Company\u2019s financial results, however, management believes that the impact of any such loss could be partially alleviated by a corresponding decrease, on a limited basis, in expenses.\n The Company\u2019s five largest customers accounted for approximately 51%\u00a0and 45% of net sales in fiscal years 2023 and 2022, respectively.\n\u00a0\nCOMPETITION\n\u00a0\nThe Company focuses on the stereo headphone industry. In the stereo headphone market, the Company competes with all major competitors, many of which are large and diversified and have greater total assets and resources than the Company. The extent to which retailers and consumers view the Company as a pioneer in the creation of the personal listening industry, an innovative vendor of high-quality stereo headphone products, and a provider of excellent after-sales customer service, is the extent to which the Company offers a competitive advantage. The Company relies upon its unique sound, quality workmanship, brand identification, engineering skills, and customer service, as well as its intellectual property portfolio, to support its competitive position.\n\u00a0\nRESEARCH AND DEVELOPMENT\n\u00a0\nThe amount expensed on engineering and research activities relating to the development of new products or the improvement of existing products was\u00a0$288,231 during fiscal year 2023. These activities were conducted by both Company personnel and outside consultants. There was\u00a0$285,244\u00a0in expenses for research and development activities during fiscal year 2022. The Company expects to incur on-going research and development costs related to its Bluetooth\u00ae and traditional wired headphones as it is planning to introduce new product offerings on a regular basis. The increasing costs related to worldwide certification of these technologies by country has increased the costs of regional compliance testing and has impacted the time to market on these wireless items.\n\u00a0\nENVIRONMENTAL MATTERS\n\u00a0\nThe Company believes that it has materially complied with all currently existing federal, state and local statutes and regulations regarding environmental standards and occupational safety and health matters to which it is subject. During\u00a0fiscal years 2023 and 2022, the amounts incurred in complying with federal, state and local statutes and regulations pertaining to environmental standards and occupational safety and health laws and regulations did not materially affect the Company\u2019s operating results or financial \n\n\n6\n \nTable of Contents\n \n\n\ncondition. The increased public awareness and concern regarding climate change has resulted in increased regulations which are rapidly evolving. The Company continues to monitor the evolving regulations, as well as related required disclosures, to ensure that we will be conformant. It is unclear as to whether any emerging and evolving regulations will have a material impact on the Company's results of operations.\n\u00a0\nEMPLOYEES\n\u00a0\nAs of June\u00a030, 2023, the Company employed 31\u00a0non-union employees, 3 of which were part-time employees.\u00a0 The Company also engaged temporary personnel at times during the year ended June\u00a030, 2023.\n \nFOREIGN SALES\n\u00a0\nThe Company\u2019s competitive position and risks relating to its business in foreign markets are comparable to those in the domestic market. In addition, the governments of the United States and foreign nations may elect to erect trade barriers on exports and/or imports, respectively. The creation of additional barriers would reduce the Company\u2019s net sales and net income. In addition, any fluctuations in currency exchange rates could affect the pricing of the Company\u2019s products and divert customers who might choose to purchase lower-priced, less profitable products, and could affect overall demand for the Company\u2019s products. For further information, see Part\u00a0II,\u00a0Item 7.\n\u00a0\nThe Company has sales personnel currently located in the Netherlands and the Caucasus region to service the international export marketplace. The loss of these personnel would result in a transfer of sales and marketing responsibility. The Company sells its products to independent distributors in countries and regions outside the United States including Europe, the Middle East, Africa, Asia, Australia, South America, Latin America, the Caribbean, Canada and Mexico. During the last two fiscal years, net sales of all Koss products were distributed as follows:\n \n \n \n \n \n \n \n \n \n \n \n \n2023\n \n2022\nUnited States\n \n$\n 9,848,521\n \n$\n 13,132,899\nCzech Republic\n \n \n 1,328,476\n \n \n 1,195,768\nSweden\n \n \n 997,058\n \n \n 1,552,559\nCanada\n \n \n 209,159\n \n \n 314,607\nKorea, Republic of\n \n \n 190,149\n \n \n 81,264\nBelgium\n \n \n 176,581\n \n \n 132,880\nMalaysia\n \n \n 122,172\n \n \n 395,914\nAll other countries\n \n \n 227,535\n \n \n 899,628\nNet sales\n \n$\n 13,099,651\n \n$\n 17,705,519\n\u00a0\nAs a result of the Russian-Ukraine conflict, the Company suspended all sales to Russia in accordance with Executive Order 14071 issued by President Biden on April\u00a06, 2022. Sales to Ukraine have also been impacted as a result of the humanitarian crisis there due to the ongoing hostilities. In the prior two fiscal years, neither Russia nor Ukraine represented a significant portion of the Company\u2019s export business and, in the aggregate, was less than 3.4% of net sales for the year ended June\u00a030, 2022. The Company is uncertain, however, how the conflict will impact future sales.\n \nOPERATIONS\n\u00a0\nThe Company has a manufacturing facility in Milwaukee, Wisconsin and uses contract manufacturing facilities in the People\u2019s Republic of China and Taiwan. A contract employee is based in China to manage supplier quality and to assist with development of new products. Since these independent suppliers are not located in the United States, the Company is at risk of business interruptions due to natural disasters, war, disease and government intervention through tariffs or trade restrictions that are of less concern domestically. The Company maintains finished goods inventory in its U.S. facility to mitigate this risk. The Company\u2019s goal is to stock finished goods inventory at an average of approximately 90 days demand per item. Recovery of a single facility through replacement of a supplier in the event of a disaster or suspension of supply could take an estimated six to twelve months, in which case the Company believes that it could restore production of its top 10\u00a0selling models (which represent approximately 57%\u00a0of the Company\u2019s 2023 net sales) within \n18-24\n\u00a0months.\u00a0Required compliance testing impacts the time it takes to bring a product to market as well as the time necessary to retool a product and re-enter the marketplace. The Company is also at risk if trade restrictions are introduced on its products based upon country of origin. In addition, the Company may not be able to pass\u00a0along most increases in tariffs and freight charges to the Company\u2019s customers, which would directly affect profits.\n\u00a0\n\u200e\n \n\n\n7\n \nTable of Contents\n \n\n\n \nCYBERSECURITY\n\u00a0\nThe Company depends on information technology as an enabler to improve the effectiveness of its operations and to interface with its customers, as well as to maintain financial accuracy and efficiency. Information technology system failures, including suppliers\u2019 or vendors\u2019 system failures, could disrupt the Company\u2019s operations by causing transaction errors, processing inefficiencies, delays or cancellation of customer orders, the loss of customers, impediments to the manufacture or shipment of products, other business disruptions, or the loss of or damage to intellectual property through a security breach. The Company\u2019s information systems, or those of its third-party service providers, could also be penetrated by outside parties\u2019 intent on extracting information, corrupting information or disrupting business processes. Such unauthorized access could disrupt the Company\u2019s business, increase costs and/or result in the loss of assets. Cybersecurity attacks are becoming more sophisticated and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, corruption or destruction of data and other manipulation or improper use of systems or networks. These events could negatively impact the Company\u2019s customers and/or reputation and lead to financial losses from remediation actions, loss of business, production downtimes, operational delays or potential liability, penalties, fines or other increases in expense, all of which may have a material adverse effect on the Company\u2019s business. In addition, as security threats and cybersecurity and data privacy and protection laws and regulations continue to evolve and increase in terms of sophistication, we may invest additional resources in the security of our systems. Any such increased level of investment could adversely affect our financial condition or results of operations. The Company has programs in place intended to address and mitigate the cybersecurity risks. These programs include regular monitoring of outside threats, continuous updating of software to mitigate risk, education of employees to the risks of external threats, and simplification of infrastructure to minimize servers. Additionally, the Company seeks to minimize its risk by keeping the number of physical servers at the HQ location and its exposure to public systems to a minimum. Additional e-commerce improvements have further mitigated exposure and business critical systems, including the Company\u2019s ERP system, have been migrated to Tier-1 cloud service providers, with more anticipated in the future. While the Company devotes resources to security measures to protect its systems and data, these measures cannot provide absolute security.\n\u00a0\nAVAILABLE INFORMATION\n\u00a0\nThe Company\u2019s internet website is https://www.koss.com. The Company makes available free of charge through its internet website the Company\u2019s annual report on Form\u00a010-K, quarterly reports on Form\u00a010-Q, current reports on Form\u00a08-K, proxy statements and all amendments to those reports as soon as reasonably practicable after they are electronically filed with (or furnished to) the Securities and Exchange Commission. These reports and other information regarding the Company are also available on the SEC\u2019s internet website at https://www.sec.gov. The information on the Company\u2019s website is not part of this or any other report the Company files with or furnishes to the Securities and Exchange Commission.\n\u00a0\n\u200e\n \n\n\n8\n \nTable of Contents\n \n\n\n \n\u00a0",
+  "item1a": "ITEM 1A.\u00a0\u00a0\u00a0\u00a0RISK FACTORS\n \nWe are subject to various risks that may materially harm our business, prospects, financial condition, and results of operations. This discussion highlights some of the risks that may affect future operating results. These are the risks and uncertainties we believe are most important for you to consider. We cannot be certain that we will successfully address these risks. If we are unable to address these risks, our business may not grow, our stock price may suffer, and we may be unable to stay in business. Additional risks and uncertainties not presently known to us, which we currently deem immaterial, or which are similar to those faced by other companies in our industry or business in general, may also impair our business, prospects, results of operations and financial condition. The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.\n \nRisks Related to Our Operations and Financial Results\n\u00a0\nThe Company is dependent on the proper functioning of our contract manufacturers in China, our supply chain, and our distribution networks. Any disruptions could adversely affect our business, financial condition or results of operations.\n \nThe Company relies on our third-party supply chain and distribution networks and the availability of necessary components to produce a significant number of our products. A reduction or interruption in supply, including interruptions due to a reoccurrence of the COVID-19 pandemic, geopolitical unrest, labor shortages or strikes, or a failure to procure adequate components, may lead to delays in manufacturing or increases in costs.\n \nThe Company uses contract manufacturing facilities in the People\u2019s Republic of China and Taiwan to produce a significant amount of our products. There has been increasing geopolitical tension between China and Taiwan that may affect future shipments from Taiwan-based suppliers. Any other adverse changes in the social, political, regulatory or economic conditions in the countries could materially increase the cost of the products we buy or delay shipments. There has also been increasing geopolitical tension between China and the United States. Sustained uncertainty about, or worsening of, economic relations and further escalation of trade tensions between the United States and China, or any other country in which the Company conducts business, could result in retaliatory trade restrictions that restrict our ability to source products from China or continue business in such other country. Any alterations \nto our  business strategy\n or operations made in order to adapt to or comply with any such changes would be time-consuming and expensive, and the Company may not be able to pass along most increases in tariffs and freight charges to the Company\u2019s customers, which would also directly affect profits.\n \nOur dependence on foreign suppliers for our products necessitates ordering products further in advance than we would if manufactured domestically, thus increasing investments in inventory. Delays in receiving and shipping products due to interruptions in its supply chain would pose a risk of lower sales to the Company and the potential for price volatility, negatively impacting profits. Recovery of a single facility through replacement of a supplier in the event of a disaster or suspension of supply could take an estimated six to twelve months.\n \nIn the past, we have experienced supply chain and shipping interruptions and constraints, volatility in demand for our products caused by sudden and significant changes in production levels by our suppliers, and disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other product components, transportation, work force, or force majeure events. \n \nIn April 2023, United Parcel Service (\u201cUPS\u201d) and the International Brotherhood of Teamsters Union (the \u201cTeamsters\u201d) started labor contract talks to negotiate better pay, no forced overtime and the elimination of a two tier pay system. On July\u00a025, 2023, UPS and the Teamsters reached a tentative five-year contract deal that would avert a nationwide strike. Also, since December 2022, when the U.S. government abated a threatened railroad strike and implemented a labor agreement that prohibited the workers from striking, some union leaders and railroad executives have voluntarily reopened the conversation around paid sick leave in hopes of negotiating an improvement. The Company continues to monitor both situations as ether strike in the U.S. could potentially exacerbate disruptions in the supply chain and impact product shipments from suppliers and to customers, resulting in increased operating costs and delays in product shipments. The Company also believes that the recent loss of Yellow freight lines to insolvency could impact carrier availability and increase freight costs. The Company had no material direct exposure to Yellow in 2023.\n \nThe current hostilities in Eastern Europe and the resulting economic sanctions imposed by the government have impacted the global economy. While we have no operations in Russia or Ukraine, we are unable to sell to certain of our customers that have been negatively impacted by this event. The continuation of the military conflict could lead to increased supply chain disruptions, inflationary pressures and volatility in global markets that could negatively impact our operations.\n \nThe Company continuously monitors its\n supply chain in order to modify business plans as may be necessary. This could include increasing the investment in inventory, being alert to potential short supply situations, assisting suppliers with acquisition of critical \n\n\n9\n \nTable of Contents\n \n\n\ncomponents and utilizing alternative sources and/or air freight\n. However, these measures may entail additional costs to the Company and cannot guarantee that the Company will not be adversely affected by supply chain disruptions.\n \nFailure to attract and retain customers to sell the Company\u2019s products could adversely affect sales volume and future profitability.\n \nThe Company markets a line of products used by consumers to listen to music. The Company distributes these products through large domestic distributors and some retail channels in the U.S. and independent distributors throughout the rest of the world. The Company is dependent upon its ability to attract and retain a base of customers to sell the Company\u2019s line of products. The Company has broad distribution across many channels including specialty stores, mass merchants, electronics stores and computer retailers. The Company may not be able to maintain customers or model selections and therefore may experience a reduction in its sales revenue until a model is restored to the mix or a lost customer is replaced by a new customer. The loss of business of one or more principal customers or a change in the sales volume from a particular customer could have a material adverse effect on the Company\u2019s sales volume and profitability.\n\u00a0\nA shift in customer specifications to lower priced items can reduce profit margins, negatively impacting profitability.\n \nThe Company sells lines of products with suggested retail prices ranging from less than $10 up to $1,000. The gross margin for each of these models varies in terms of percentages. The Company finds the low-priced portion of the market most competitive and therefore most subject to pressure on gross margin percentages, which tends to lower profit contributions. Therefore, a shift in customer specifications and preferences toward lower priced items could lead to lower gross margins and lower profit contributions per unit of sale. Due to the range of products that the Company sells, the product sales mix can produce a variation in profit margins. Some distributors sell a limited range of products that yield lower profit margins than others. Most notably, the budget-priced stereo headphone segment of the market (below $10 retail), which is distributed through mass market retailers, computer stores, and office supply stores and to school systems, tends to yield the lowest gross margins. An increase in business with these types of accounts, if coupled with a simultaneous reduction in sales to customers with higher gross margins, would reduce profit margins and profitability.\n \nIf we are unable to continue to develop innovative and popular products, our brand image may be harmed and demand for our products may decrease.\n \nConsumer electronics are subject to constantly and rapidly changing consumer preferences based on industry trends and performance features, including technological advancement. Our success depends largely on our ability to lead, anticipate, gauge and respond to these changing consumer preferences and trends in a timely manner, while preserving and strengthening the perception and authenticity of our brand. We must continue to develop high performance products that provide better design and performance attributes than the products of our competitors at similar price points. Market acceptance of new designs and products is subject to uncertainty, and we cannot assure you that our efforts will be successful. The inability of new product designs or new product lines to gain market acceptance, or our current products losing traction in the market, could adversely affect our brand image, our business and financial condition. Achieving market acceptance for new products may also require substantial marketing efforts and expenditures to increase consumer demand, which could constrain our management, financial and operational resources. If new products we introduce do not experience broad market acceptance or demand for our existing products wanes, our net sales could decline.\n\u00a0\nWe may not be able to compete effectively, which could cause our net sales and market share to decline.\n \nThe consumer electronics industry is highly competitive, and characterized by frequent introduction of new competitors, as well as increased competition from established companies expanding their product portfolio, aggressive price cutting and resulting downward pressure on gross margins and rapid consolidation of the market resulting in larger competitors. We face competition from consumer electronics brands that have historically dominated the stereo headphone market, in addition to sport brands and lifestyle companies that also produce headphone products. These competitors may have significant competitive advantages, including greater financial, distribution, marketing and other resources, longer operating histories, better brand recognition among certain groups of consumers, and greater economies of scale. In addition, these competitors have long-term relationships with many larger retailers that are potentially more important to those retailers. As a result, these competitors may be better equipped to influence consumer preferences or otherwise increase their market share by:\n\u00a0\n\uf0b7\nquickly \nadapting to changes in consumer preferences;\n\uf0b7\nreadily taking advantage of acquisition and other opportunities;\n\uf0b7\ndiscounting excess inventory;\n\uf0b7\ndevoting greater resources to the marketing and sale of their products, including significant advertising, media placement and product endorsement;\n\uf0b7\nadopting aggressive pricing policies; and\n\uf0b7\nengaging in length\ny and costly intellectual property and other legal disputes.\n \n\n\n10\n \nTable of Contents\n \n\n\n \nAdditionally, the industry in which we compete generally has low barriers to entry that allow the introduction of new products or new competitors at a fast pace. If we are unable to protect our brand image and authenticity, while carefully balancing our growth, we may be unable to effectively compete with these new market entrants or new products. The inability to compete effectively against new and existing competitors could have an adverse effect on our net sales and results of operations, preventing us from achieving future growth.\n\u00a0\nIf we are unable to obtain intellectual property rights and/or enforce those rights against third parties who are violating those rights, our business could suffer.\n \nWe rely on various intellectual property rights, including patents, trademarks, trade secrets and trade dress to protect our brand name, reputation, product appearance and technology. If we fail to obtain, maintain, or in some cases enforce our intellectual property rights, our competitors may be able to copy our designs, or use our brand name, trademarks, or technology. As a result, if we are unable to successfully protect our intellectual property rights, or resolve any conflicts effectively, our results of operations may be harmed. Regardless of the merits of the claims,\u00a0litigation\u00a0may be expensive,\u00a0time-consuming,\u00a0and disruptive to our operations and distracting to management. If resolved against us, such legal proceedings could result in excessive verdicts, injunctive relief or other equitable relief that may affect how we operate our business. Similarly, if we settle such legal proceedings, it may negatively affect how we operate our business. I\nn connection with its ongoing intellectual property enforcement program, which includes lawsuits alleging infringement of patents relating to its wireless audio technology, the Company has granted licenses covering certain Company patents. \nOther similar complaints filed remain outstanding. As all litigation is uncertain, there can be no assurance that any of this remaining or future litigation will be decided in our favor. \n \nWe may be adversely affected by the financial condition of our retailers and distributors.\n \nSome of our retailers and distributors are experiencing financial difficulties because of current adverse economic conditions. A retailer or distributor experiencing such difficulties generally will not purchase and sell as many of our products as it would under normal circumstances and may cancel orders. In addition, a retailer or distributor experiencing financial difficulties generally increases our exposure to uncollectible receivables. We extend credit to our retailers and distributors based on our assessment of their financial condition, generally without requiring collateral, and sometimes are not able to obtain information regarding their current financial status. Failure of these retailers or distributors to remain current on their obligations to us could result in losses that exceed the reserves we set aside in anticipation of this risk. We are also exposed to the risk of our customers declaring bankruptcy, exposing us to claims of preferential payment claims. Financial difficulties on the part of our retailers or distributors could have a material adverse effect on our results of operations and financial condition.\n \nDirect-to-Consumer sales through the Amazon marketplace account for a significant amount of our net sales and the loss of, or reduced purchases from, this sales channel could have a material adverse effect on our operating results.\n \nOur largest concentration of sales in fiscal year 2023 came from our DTC sales via the Amazon portal and accounted for more than 20%\u00a0and 16%\u00a0of our net sales in\u00a0fiscal years 2023\u00a0and 2022, respectively. We do not have long-term contracts to conduct sales through the Amazon portal or for sales to any of our customers, and all of our customers generally purchase from us on a purchase order basis. As a result, Amazon or any other customer generally may, with no notice or penalty, cease ordering and selling our products, or materially reduce their orders. If certain customers, individually or in aggregate, choose to no longer sell our products, slow their rate of purchase of our products or decrease the number of unique products they purchase, our results of operations would be adversely affected.\n\u00a0\nOur products may experience quality problems from time to time that can result in decreased sales and operating margin and harm to our reputation.\n \nWe offer products that can be affected by design and manufacturing defects. Defects can also exist in components used for our products. Component defects could make the Company\u2019s products unsafe and create a risk of property damage and personal injury. There can be no assurance the Company will be able to detect all issues and defects in the products it offers. Failure to do so can result in widespread technical and performance issues affecting the Company\u2019s products. In addition, the Company can be exposed to product liability claims, recalls, product replacements or modifications, write-offs of inventory, property, plant, and equipment, and/or intangible assets, and significant warranty and other expenses, including litigation costs and regulatory fines. Quality problems can also adversely affect the experience for users of the Company\u2019s products, and result in harm to the Company\u2019s reputation, loss of competitive advantage, poor market acceptance, reduced demand for products, delay in new product introductions and lost sales.\n\u00a0\n\n\n11\n \nTable of Contents\n \n\n\n \nAn information systems interruption or breach in security could adversely affect us.\n \nPrivacy, security, and compliance concerns have continued to increase as technology has evolved. We rely on accounting, financial, and operational management information systems to conduct our operations. Any disruption in these systems could adversely affect our ability to conduct our business. Furthermore, as part of our normal business activities, we collect and store common confidential information about customers, employees, vendors, and suppliers. This information is entitled to protection under a number of regulatory regimes. Any failure to maintain the security of the data, including the penetration of our network security and the misappropriation of confidential and personal information, could result in business disruption, damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs, and also result in deterioration in customers confidence in us and other competitive disadvantages, and thus could have a material adverse impact on our financial condition and results of operations.\n \nHigh-profile security breaches at other companies and in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyber-attacks targeting businesses. Cyber-attacks are becoming more sophisticated and frequent, and in some cases have caused significant harm. Computer hackers and others routinely attempt to breach the security of technology products, services, and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. While we devote resources to security measures to protect our systems and data, these measures cannot provide absolute security.\n \nChanges in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.\n \nWe are subject to income taxes in the United States. Our effective income tax rate could be adversely affected in the future by several factors, including changes in the valuation of deferred tax assets and liabilities and changes in tax laws. We regularly assess all of these matters to determine the adequacy of our tax provision. If our tax strategies are ineffective or we are not in compliance with domestic and international tax laws, our financial position, operating results, and cash flows could be adversely affected.\n \nOur business, financial condition and results of operations may be adversely impacted by the effects of inflation.\n \n \nInflation has the potential to adversely affect our business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. The Company continues to experience inflationary \ncost increases in our commodities, packaging materials, wages and higher energy and transportation costs, thus potentially impacting our ability to meet customer demand.\n \nThese increases have been partially mitigated by pricing actions implemented in the third quarter of the current fiscal year, as well as working with a dedicated freight forwarding partner to minimize freight rate increases. Inflation may impact customer demand for our products resulting from a slowdown in consumer spending as disposable income decreases due to rising interest rates, the price of essential items and dwindling savings. Other risk factors further exacerbated by inflation include\n supply chain disruptions, risks of international operations and the recruitment and retention of talent.\n \n \nRisks Related to our International Operations\n \nEconomic regulation, trade restrictions, and increasing manufacturing costs in China could adversely impact our business and results of operations.\n \nThe Company uses contract manufacturing facilities in the People\u2019s Republic of China. An increase in the cost of labor or taxes on wages in China may lead to an increase in the cost of goods manufactured in China. Significant increases in wages or wage taxes paid by contract manufacturing facilities may increase the cost of goods manufactured in China which could have a material adverse effect on the Company\u2019s profit margins and profitability. Additionally, government trade policies, including the imposition of tariffs, export restrictions, sanctions or other retaliatory measures, as described above under \u201c\nThe Company is dependent on the proper functioning of our contract manufacturers in China, our supply chain, and our distribution networks. Any disruptions could adversely affect our business, financial condition or results of operations.\n,\u201d\n could limit our ability to source materials and products from China at acceptable prices or at all. We do not currently have arrangements with contract manufacturers in other countries that may be acceptable substitutes. We cannot predict what actions may ultimately be taken with respect to tariffs, export controls, countermeasures, or other trade measures between the U.S. and China or other countries and what products may be subject to such actions. To the extent such actions inhibit our transactions with contract manufacturing facilities and suppliers in China, our business may be materially adversely affected.\n \nThe ongoing war between Russia and Ukraine could adversely affect our business, financial condition, and results of operations. \n \nFinancial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022. In\nresponse to the invasion, the United States, United Kingdom, and European Union, along with others, imposed significant sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take \n\n\n12\n \nTable of Contents\n \n\n\nfurther punitive actions in the future. In accordance with Executive Order 14071 signed on April\u00a06, 2022, the Company suspended sales to Russia. Also, as a result of the humanitarian crisis in Ukraine created by the war and the population seeking refuge in other countries, sales to Ukraine have been impacted. There have been no sales to Russia or Ukraine during the fiscal year ended June\u00a030, 2023 and such sales consisted of approximately 3.4% of net sales for the year ended June\u00a030, 2022. \n \nAlthough the length, impact and outcome of the conflict is unpredictable, the war has already contributed to market and other disruptions, including volatility in commodity prices, supply and prices of energy, disrupted supply chains, political and social instability as well as an increase in cyberattacks. We are uncertain, however, of the impact it will have on our results of operations for the future in the region. We are actively monitoring the conflict and will report on its impact on our business, financial condition, and results of operations as necessary as developments occur.\n \nWe may be subject to risks related to doing business in, and having counterparties based in, foreign countries.\n\u00a0\n \n\u00a0We engage in operations, and enter into agreements with counterparties, located outside the U.S., which exposes us to political, governmental, and economic instability and foreign currency exchange rate fluctuations. Any disruption caused by these factors could harm our business, results of operations, financial condition, liquidity, and prospects. Risks associated with potential operations, commitments, and investments outside of the U.S. include but are not limited to risks of:\n\u00a0\n\uf0b7\nglobal and local economic, social and political conditions and uncertainty;\n\uf0b7\ncurrency exchange restrictions and currency fluctuations;\n\uf0b7\nexport and import duties;\n\uf0b7\nwar, such as the invasion of Ukraine by Russia, or terrorist attack;\n\uf0b7\nlocal outbreak of disease, such as COVID-19;\n\uf0b7\nrenegotiation or nullification of existing contracts or international trade arrangements;\n\uf0b7\nlabor market conditions and workers\u2019 rights affecting our manufacturing operations or those of our customers;\n\uf0b7\nmacro-economic conditions impacting key markets and sources of supply;\n\uf0b7\nchanging laws and policies affecting trade, taxation, financial regulation, immigration, and investment;\n\uf0b7\ncompliance with laws and regulations that differ among jurisdictions, including those covering taxes, intellectual property ownership and infringement, imports and exports, anti-corruption, and anti-bribery, antitrust and competition, data privacy, and environment, health, and safety; and\n\uf0b7\ngeneral hazards associated with the assertion of sovereignty over areas in which operations are conducted, transactions occur, or counterparties are located.\n \nFluctuations in currency exchange rates could affect the Company\u2019s financial results and operations, including with respect to pricing of products and overall demand for the Company\u2019s products. \n \nThe Company receives a material portion of its sales and profits from business in Europe. To the extent that the value of the U.S. dollar increases relative to currencies in those jurisdictions, it increases the cost of the Company\u2019s products in those jurisdictions, which could create negative pressure on the foreign demand for the Company\u2019s products. The Company is paid by its international customers in U.S. dollars. To the extent that increased prices arising from currency fluctuations decrease the overall demand for the Company\u2019s products or motivate customers to purchase lower-priced, lower profit products, the Company\u2019s sales, profits, and cash flows could be adversely affected.\n \nRisks Related to our Stock\u00a0\n \nOur stock price has been, and may in the future, be subject to significant fluctuations and volatility.\n \nThe market price of our stock is subject to price volatility. Additionally, over the years, the Company, the technology industry, and the stock market as a whole have experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to companies\u2019 operating performance. Factors such as the depth and liquidity of the market for our common stock, investor perceptions of us and our business, actions by institutional shareholders, strategic actions by us, litigation, changes in accounting standards, policies, guidance, interpretations and principles, additions or departures of key personnel, a decline in demand for our products and our results of operations, financial performance and future prospects may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from realizing the liquidity of their shares. During the fiscal year ended June\u00a030, 2023, the sales price of our common stock fluctuated between a reported high sales price of $11.20 on July\u00a025, 2022 and a reported low sales price of $3.56 on June\u00a023, June\u00a026, and June\u00a027, 2023. The trading volume in shares of our common stock can also vary widely. For example, during the most recent fiscal year, daily trading volume ranged from a low of 3,200 shares on April\u00a06, 2023 to a high of 7,202,400 on July\u00a025, 2022.\n Our market capitalization, as implied by various trading prices, can reflect valuations that diverge significantly from those seen prior to volatility and, to the extent these valuations reflect trading dynamics unrelated to our financial performance or prospects, purchasers of our common stock could incur substantial losses if there \n\n\n13\n \nTable of Contents\n \n\n\nare declines in market prices driven by a return to earlier valuations. As a result of this volatility, investors may experience losses on their investment in our common stock. \n \nA \u201cshort squeeze\u201d due to a sudden increase in demand for shares of our common stock that largely exceeds supply could lead to extreme price volatility in shares of our common stock.\n \n \nIn the past, securities of certain companies have experienced significant and extreme volatility in stock price due to a sudden increase in demand for stock resulting in aggregate short positions in the stock exceeding the number of shares available for purchase, forcing investors with short exposure to pay a premium to repurchase shares for delivery to share lenders. This is known as a \u201cshort squeeze.\u201d These short squeezes can lead to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. Trading by short sellers may increase the likelihood that our common stock will be the target of a short squeeze. A short squeeze could lead to volatile price movements in shares of our common stock that are unrelated or disproportionate to our operating performance or prospects and, once investors purchase the shares of our common stock necessary to cover their short positions, the price of our common stock may rapidly decline. Stockholders that purchase shares of our common stock during a short squeeze may lose a significant portion of their investment. \n \nThe Koss family, including certain members of our management, owns a significant\u00a0percentage of our stock and, as a result, the trading price for our shares may be depressed and they can take actions that may be adverse to the interests of our stockholders.\n \nMichael Koss, our President and Chief Executive Officer, beneficially owned 4,153,410 shares of our common stock as of August\u00a01, 2023, representing 43.7% of shares outstanding on such date, including shares held by a voting trust over which Mr. Koss holds sole voting and dispositive power. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in companies with a large stockholder, since such a stockholder can significantly influence all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. In addition, due to his significant ownership stake and his service as our Principal Executive Officer and Chairman of the Board of Directors, Michael Koss directs the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to our other stockholders.\n \nFuture sales of a substantial amount of our common stock in the public markets by our insiders, or the perception that these sales may occur, may cause the market price of our common stock to decline. \n \nOur employees, directors and officers, and their affiliates collectively hold substantial amounts of shares of our common stock and have vested options for the purchase of our common stock. Sales of a substantial number of such shares by these stockholders, or the perception that such sales will occur, may cause the market price of our common stock to decline. Other than restrictions on trading that arise under securities laws (or pursuant to our securities trading policy that is intended to facilitate compliance with securities laws), including the prohibition on trading in securities by or on behalf of a person who is aware of nonpublic material information, we have no restrictions on the right of our employees, directors and officers, and their affiliates, to sell their unrestricted shares of common stock.\n\u00a0\n\u200e\n\n\n14\n \nTable of Contents\n \n\n\n ",
+  "item7": ">ITEM 7.\u00a0\u00a0\u00a0\u00a0MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.\n \nThe purpose of this discussion and analysis is to enhance the understanding and evaluation of the financial position, results of operations, cash flows, indebtedness, and other key financial information of the Company for fiscal years 2023 and 2022. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. See also the \u201cCautionary Statement Regarding Forward-Looking Statements\u201d on page 4 of this Report.\n\u00a0\u00a0\nOverview\n\u00a0\nJohn C. Koss and the Company have been recognized as the creator of the personal listening industry. The Company initially developed the first Koss SP 3 stereo headphones in 1958 and has been an innovator in the field ever since. We market a complete line of high-fidelity headphones, wireless Bluetooth\u00ae headphones, wireless Bluetooth\u00ae speakers, computer headsets, telecommunications headsets, and active noise canceling headphones. Koss operates as one business segment,\u00a0as its only business line is the design, manufacture and sale of stereo headphones and related personal listening accessories.\n\u00a0\nThe Company\u2019s products are sold domestically and internationally through a variety of retailers and distributors, as well as directly to other manufacturers to include with their own products. Changes in sales volume are driven primarily by the addition or loss of customers, a customer adding or removing a product from its inventory, or changes in economic conditions. \nSales levels are less impacted by seasonality or the traditional holiday shopping season.\n\u00a0\nAlthough certain of the Company\u2019s products could be viewed as essential by\u00a0consumers for use with mobile phones and other portable electronic devices,\u00a0many other models represent a more discretionary spend. The results of the Company\u2019s operations are therefore susceptible to consumer confidence and adverse macroeconomic factors such as inflation, slower growth or recession, higher interest rates, and wage and commodity inflation. In addition, the economic sanctions imposed as a result of the Russia/Ukraine conflict have impacted certain of our customers in those markets and the surrounding regions.\n \nThe impacts of COVID-19 have moderated since it was declared a global pandemic by the World Health Organization in March 2020. The Company continues to monitor any changes regarding the pandemic and any future impacts of COVID-19 on our business, operations, and financial results. \n\u00a0\u00a0\nFiscal Year 2023 Summary\n\u00a0\n\uf0b7\nNet sales declined 26.0% to $13,099,651 due predominantly to weaker consumer demand led by constraints on consumer spending brought on by higher inflation and, as a result, lower disposable income. Over inventory positions at some U.S. distributors also contributed to the decline. Export sales fell 29% while domestic sales fell 25%.\n \n\uf0b7\nGross profit as a percentage of sales decreased 3.9 percentage points to 34.0%. The decrease was primarily due to fixed manufacturing expenses that do not flex with the lower sales volume. The favorable mix of higher margin direct-to-consumer (\u201cDTC\u201d) sales offset the year over year decline in higher margin domestic distributors. \n \n\uf0b7\nSelling, general and administrative expenses increased significantly as a result of\n legal fees and expenses incurred in support of the Company\u2019s patent defense litigation. Excluding the effect of these legal fees and expenses, selling, general and administrative expenses increased by approximately $1.3\u00a0million, or 24.9%. \nBonus and profit-sharing expense as a consequence of the net income from licensing proceeds during the year also contributed to the increase.\n \n\uf0b7\nOther income for the year ended June\u00a030, 2023 consisted entirely of $33,000,000 in licensing proceeds received in the first quarter of the year.\n \n\uf0b7\nTax expense for the year ended June\u00a030, 2023 was $317,377 as a direct impact of the licensing income earned during the year.\n \n\u00a0\n\u200e\n\n\n17\n \nTable of Contents\n \n\n\n \nConsolidated Results\n\u00a0\nThe following table presents selected consolidated financial data for each of the past two fiscal years:\n \n \n \n \n \n \n \n \n \n \nConsolidated Performance Summary\n \n2023\n \n2022\nNet sales\n \n$\n13,099,651\n \n$\n17,705,519\nNet sales decrease\n \n \n(26.0)%\n \n \n(9.4)%\nGross profit\n \n$\n4,457,414\n \n$\n6,715,630\nGross profit as % of net sales\n \n \n34.0%\n \n \n37.9%\nSelling, general and administrative expenses\n \n$\n29,358,466\n \n$\n5,813,607\nSelling, general and administrative expenses as % of net sales\n \n \n224.1%\n \n \n32.8%\nInterest income\n \n$\n520,809\n \n$\n11,513\nOther income\n \n$\n33,000,000\n \n$\n362,390\nIncome before income tax provision\n \n$\n8,619,757\n \n$\n1,275,926\nIncome before income tax provision as % of net sales\n \n \n65.8%\n \n \n7.2%\nIncome tax provision\n \n$\n317,377\n \n$\n7,517\nIncome tax provision as % of income before taxes\n \n \n3.7%\n \n \n0.6%\n\u00a0\u00a0\n2023 Results of Operations Compared with 2022\u00a0 \n\u00a0\nNet sales for the fiscal year 2023 declined by 26.0% mainly as a result of lower sales to U.S. distributors coupled with a 28.9% drop in sales to the Company\u2019s export markets.\n\u00a0\nFor the year ended June\u00a030, 2023, domestic net sales decreased $3,284,378, or 25.0% to $9,848,521. Sales to U.S. distributors were impacted by an oversupply of inventory as a consequence of higher-level purchases during the pandemic followed by recent weakened consumer demand for our product due to inflation. While DTC sales, believed to be a significant approach to driving growth, remained stable year over year, it continued to represent the Company\u2019s largest market class, growing from approximately 19% of total net sales during the twelve months ended June\u00a030, 2022 to approximately 25% during the current fiscal year. \n \nExport net sales also saw a downturn during the current fiscal year, decreasing $1,321,490 or 28.9% to $3,251,130. The adverse impacts from the war between Russia and Ukraine, along with increasing inflation and higher energy costs, drove an approximately 27% decline in sales to export distributors in Europe by nearly $1,000,000 versus fiscal year 2022. Lost sales of approximately $600,000 to Russia and Ukraine made up the majority of the drop. A decrease in sales to distributors in Asia also contributed to the decline mainly behind a lack of sales to one of the Company\u2019s non-retail original equipment manufacturers that utilizes Koss headphones in one of their products. Sales to this market were over $350,000 during the year ended June\u00a030, 2022.\n\u00a0\nGross profit as a percentage of net sales decreased to\u00a034.0%\u00a0for the year\u00a0ended June\u00a030, 2023, compared to\u00a037.9%\u00a0for the prior fiscal year. Gross margins vary by customer, product, and markets and, as a result, any shifts in the mix can impact the overall gross margin. While the mix of higher margin DTC sales was favorable compared to the prior fiscal year, fixed manufacturing overhead expenses that don\u2019t flex with sales negatively impacted the margins for the year. And while freight costs improved during the first half of the year and then stabilized in the back half, the movement of inventory received at the higher freight costs will continue to offset the reduced shipping costs. The Company renewed its contract with the freight forwarder, stabilizing contract rates and bringing them in line with market rates. UPS reached a tentative agreement for a new five-year national contract with the Teamsters on July\u00a025, 2023, averting a potential crisis in small package shipping. The new agreement is likely to increase the Company\u2019s future freight costs.\n \nSelling, general and administrative expenses for the year ended June\u00a030, 2023 \nincreased by approximately $23,545,000 to $29,358,000 compared to the prior year period. The significant change was predominantly a result of\n the increase of approximately $22,276,000 in legal fees and expenses incurred in support of the Company\u2019s patent defense litigation. Excluding the effect of these legal fees and expenses, selling, general and administrative expenses increased by approximately $1.3\u00a0million, or 24.9%. Also, a bonus accrual of $334,000 and a second quarter profit-sharing payout of $576,000 were recorded as a result of the increased net income before income taxes for the fiscal year 2023 due mainly to the licensing proceeds received during the first quarter of 2023, partially offset by the aforementioned legal fees and expenses. During the year ended June\u00a030, 2023, deferred compensation expense of $60,000 was recorded related to the change in the net present value of the future expected payments to a current officer as a result of an additional vesting year, which increased the future annual payments. This compares to $633,000 of income recorded in the prior fiscal year as a result of income of $473,000 recognized with the reversal of the deferred compensation liability for the Company\u2019s founder who passed away in December 2021, offset by $71,250 of payments accrued and made to the former officer prior to his passing, and deferred compensation income of $231,000 recognized under the arrangement for the current officer as a result of increasing interest rates. Employer taxes on stock option exercises of approximately $28,000 were recorded in the current year compared to $134,000 in the prior year, a decrease of $106,000. \n \n\n\n18\n \nTable of Contents\n \n\n\n \nOther income for the year ended June\u00a030, 2023 consisted entirely of $33,000,000 in licensing proceeds received in the first quarter. The Company received licensing proceeds of $100,000, which was also recorded as other income, in the first quarter of the prior year. Also, in December 2021, the Company recognized other income on the proceeds from a company-owned life insurance policy on its founder, who passed away on December\u00a021, 2021. Total other income for the fiscal year 2022 was $362,390. \n \nInterest income of $520,809 was recorded during the year ended June\u00a030, 2023 for interest earned on U.S. Treasury securities that were purchased midyear to better secure the Company\u2019s excess cash while earning a return. Interest income of $11,513 was earned on a money market account in the prior fiscal year.\n \nIncome tax expense of $317,377 for the year ended June\u00a030, 2023 was comprised of the U.S. federal statutory rate of 21% and the blended state income tax rate of approximately 3.8%, offset by an adjustment to the valuation allowance for deferred tax assets. The utilization of net operating loss carryforwards significantly reduced the taxable income, resulting in federal and state tax provisions of $230,139 and $87,237, respectively. For the year ended June\u00a030, 2022, there was no federal tax provision and a state tax provision of\u00a0$7,517 was recorded. The effective tax rate was 3.7% for the fiscal year ended June\u00a030, 2023 compared to less than 1% for the previous fiscal year.\n \nDuring the twelve months ended June\u00a030, 2023, stock option exercises resulted in tax deductible compensation expense of approximately $368,000 and will offset some of the taxable income generated by the net licensing proceeds. Net operating loss carryforwards were also utilized to reduce the taxable income and, as such, th\ne remaining expected federal tax loss carryforward is expected to approximate $31,800,000 by the end of the fiscal year. The current fiscal year adjustment to the estimated tax loss carryforward decreased the deferred tax asset to approximately $8,200,000 as of June\u00a030, 2023, and the future realization of this continues to be uncertain. \nThe valuation allowance was also increased to fully offset the deferred tax asset as there is sufficient negative evidence to support the maintaining of a full valuation allowance as, excluding unusual, infrequent items, a three-year cumulative tax loss occurred. \n \nAs previously reported, the Company maintains a program focused on enforcing its intellectual property and, in particular, certain of its patent portfolio. The Company has enforced its intellectual property by filing complaints against certain parties alleging infringement on the Company\u2019s patents relating to its wireless headphone technology. The Company has recovered certain of the fees and costs that were involved with the underlying efforts to enforce this portfolio, as further described in the notes to the financial statements included in this Annual Report on Form 10-K.\u00a0Part of the litigation related to this enforcement has been recently dismissed and the Company received non-recurring net proceeds of nearly $11,000,000 from the granting of licenses to certain of its patents. If the program continues to be successful with the remaining complaints, the Company may receive additional royalties, offers to purchase its intellectual property, or other remedies advantageous to its competitive position; however, there is no guarantee of a positive outcome from these efforts, which could ultimately be time consuming and unsuccessful. Additionally, the Company may owe all or a portion of any future proceeds arising from the enforcement program to third parties.\n \nThe Company believes that its financial position remains strong. The Company had $3.1\u00a0million of cash and cash equivalents, $17.1\u00a0million of short-term investments and available credit facilities of $5.0\u00a0million on June\u00a030, 2023. \n \nDuring fiscal 2023, inflation, rising interest rates and higher energy costs have impacted consumers\u2019 discretionary spending and, as a result, the Company\u2019s sales volumes. Inflationary cost increases have also had an impact on our commodities, packaging materials, labor costs, and transportation costs. Pricing actions implemented in the third quarter of fiscal year 2023 partially mitigated these increases and working with a dedicated freight forwarding partner has helped to minimize freight rate increases.\n \nThe Company\u2019s supply chain is primarily in southern China. While some issues related to the availability of containers and routings have subsided, the Company continues to monitor the situation closely and the supply chain team will modify business plans as necessary. This could include increasing the investment in inventory, being alert to potential short supply situations, assisting suppliers with acquisition of critical components and utilizing alternative sources and/or air freight. \n \nThe invasion of Ukraine by Russia in February 2022 and the broad economic sanctions imposed in response to this conflict have increased global economic and political uncertainty. In accordance with Executive Order 14071 declared on April\u00a06, 2022, the Company suspended sales into Russia. Given the humanitarian crisis in Ukraine and the population seeking refuge in other countries as a result of the ongoing conflict, sales to Ukraine were also impacted. Prior to the war, neither Russia nor Ukraine constituted a significant portion of the business, making up less than 3.4% of total net sales of the Company for the year ended June\u00a030, 2022. There were no sales to Russia or Ukraine in the current fiscal year. We are uncertain, however, of the impact it will have on future operating results.\n\u00a0\u00a0\u00a0\n\n\n19\n \nTable of Contents\n \n\n\n \nLiquidity and Capital Resources\n\u00a0\nCash Flows\n\u00a0\nThe following table summarizes our cash flows from operating, investing and financing activities for each of the past two fiscal years:\n\u00a0\n \n \n \n \n \n \n \n \nTotal cash provided by (used in):\n \n2023\n \n2022\nOperating activities\n \n$\n10,735,649\n \n$\n(942,530)\nInvesting activities\n \n \n(17,024,107)\n \n \n1,810,139\nFinancing activities\n \n \n171,350\n \n \n1,390,346\nNet (decrease) increase in cash and cash equivalents\n \n$\n(6,117,108)\n \n$\n2,257,955\n \nOperating Activities\n\u00a0\nCash provided by operating activities of the Company during the year ended June\u00a030, 2023 was the result of the licensing proceeds received, partially offset by the payment of related legal fees and expenses, along with a second quarter profit-sharing payout. Additionally, the Company\u2019s discipline around and the management of inventory purchases has led to a continued decline in inventory balances during the year. For the year ended June\u00a030, 2022, the Company used cash of $942,530 for operating activities related to the\ndeliberate investment in inventory to ensure adequate stock levels of critical products were available in case of potential supply chain disruption and delays.\n \n \nInvesting Activities\n\u00a0\nCash used by investing activities for year ended June\u00a030, 2023 was almost entirely related to the purchase of approximately $18,860,000 of U.S. Treasury securities at a discount. Purchases of equipment and leasehold improvements by the Company during the year ended June\u00a030, 2023 was $98,441 compared to $108,158 spent for tooling and leasehold improvements in the prior year. Cash provided by investing activities for the year ended June\u00a030, 2022 was the result of proceeds of a company-owned life insurance policy on the Company\u2019s founder upon his passing on December\u00a021, 2021, slightly offset by the fixed asset purchases. Capital expenditures for fiscal year 2024 are expected to be approximately $400,000 related to leasehold improvements.\n\u00a0\nFinancing Activities\n\u00a0\nThe cash generated from financing activities in the years ended June\u00a030, 2023 and 2022 was solely driven by stock option exercises. As of June\u00a030, 2023, the Company had no outstanding borrowings on its bank line of credit facility under the Credit Agreement (described below under \u201cCredit Facility\").\u00a0\n\u00a0\nThere were no purchases of common stock in 2023 or 2022 under the stock repurchase program. In the year ended June\u00a030, 2023, there were stock option exercises of 87,000 shares generating $171,350 of cash. This compares to the exercise of 539,089 options during the year ended June\u00a030, 2022, which generated cash of $1,390,346.\n\u00a0\nShort Term Liquidity\n\u00a0\nThe Company anticipates funding its normal recurring trade payables, accrued expenses, ongoing R&D costs, and any potential interest payments, if it utilizes its line of credit facility, through existing working capital and funds provided by operating activities. The majority of the Company\u2019s purchase obligations are pursuant to funded contractual arrangements with its customers. The Company believes its existing cash, cash equivalents, investments in short-term U.S. Treasury securities, cash provided by operating activities and borrowings under its credit facility, if any, will be sufficient to meet its anticipated working capital, and capital expenditure requirements during the next twelve months. There can be no assurance, however, that the Company\u2019s business will continue to generate cash flow at current levels. If the Company is unable to generate sufficient cash flow from operations, then it may be required to sell assets, reduce capital expenditure, or draw on its credit facilities. Management is focused on increasing sales,\u00a0especially in the U.S. distributor market, DTC, and the export markets, increasing new product introductions, increasing the generation of cash from operations, and improving the Company\u2019s overall earnings to help improve the Company\u2019s liquidity. The Company regularly evaluates new product offerings, inventory levels, and capital expenditure to ensure that it is effectively allocating resources in line with current market conditions.\n\u00a0\nLong Term Liquidity\n \nThe Company\u2019s future capital requirements, to a certain extent, are also subject to general conditions in or affecting the electronics industry and are subject to general economic, political, financial, competitive, legislative, and regulatory factors that are beyond its control. Moreover, to the extent that existing cash, cash equivalents, cash from operations, and cash from its credit facilities are \n\n\n20\n \nTable of Contents\n \n\n\ninsufficient to fund its future activities, the Company may need to raise additional funds through public or private equity or debt financing, subject to the limitations specified in the Credit Agreement (as defined below). In addition, the Company may also need to seek additional equity funding or debt financing if it becomes a party to any agreement or letter of intent for potential investments in, or acquisitions of, businesses, services, or technologies.\n \nCredit Facility\n\u00a0\nOn May\u00a014, 2019, the Company entered into a secured credit facility (\u201cCredit Agreement\u201d) with Town Bank (\u201cLender\u201d). The Credit Agreement provides for a $5,000,000 revolving secured credit facility as well as letters of credit for the benefit of the Company of up to a sublimit of $1,000,000. There are no unused line fees in the credit facility. On January\u00a028, 2021, the Credit Agreement was amended to extend the expiration to October\u00a031, 2022, and to change the interest rate to Wall Street Journal Prime less 1.50%. A Third Amendment to the Credit Agreement effective October\u00a030, 2022 extends the maturity date to October\u00a031, 2024. The Company and the Lender also entered into a General Business Security Agreement dated May\u00a014, 2019 under which the Company granted the Lender a security interest in substantially all of the Company\u2019s assets in connection with the Company\u2019s obligations under the Credit Agreement. The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type. The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among other restrictions. The Company is currently in compliance with all covenants related to the Credit Agreement. As of June\u00a030, 2023, and June\u00a030, 2022, there were no outstanding borrowings on the facility.\n \n\u00a0\nStock Repurchase Program\n\u00a0\nIn April 1995, the Board of Directors approved a stock repurchase program authorizing the Company to purchase, from time to time,\u00a0up to $2,000,000\u00a0of its common stock for its own account. Subsequently, the Board of Directors periodically approved increases in the amount authorized for repurchase under the program. As of June\u00a030, 2023, the Board had authorized the repurchase of an aggregate of $45,500,000\u00a0of common stock under the stock repurchase program, of which $43,360,247\u00a0had been expended. No purchases were made during the years ended\u00a0June\u00a030, 2023\u00a0or 2022.\u00a0\n \nThere were no stock repurchases under the program in fiscal year 2023 or 2022. As such, as of\u00a0June\u00a030, 2023, the amount of common stock subject to repurchase by the Company under the Board of Director\u2019s prior authorization remained $2,139,753\u00a0at the discretion of the Chief Executive Officer of the Company. Future stock purchases under this program are dependent on management\u2019s assessment of value versus market price, may occur either on the open market or through privately negotiated transactions and may be financed through the Company\u2019s cash flow or by borrowing.\n\u00a0\nContractual Obligation\n\u00a0\nThe Company leases the 126,000 square foot facility from Koss Holdings, LLC, which is controlled by five equal ownership interests in trusts held by the five beneficiaries of the former Chairman\u2019s revocable trust and includes current stockholders of the Company. On May\u00a024, 2022, the lease was renewed for a period of five years, ending June\u00a030, 2028, and is being accounted for as an operating lease. The lease extension maintained the rent at a fixed rate of $380,000\u00a0per year. The Company has the option to renew the lease for an additional five years beginning July\u00a01, 2028 and ending June\u00a030, 2033 under the same terms and conditions except that the annual rent will increase to $397,000. The negotiated increase in rent slated for 2028 will be the first increase in rent since 1996. The Company is responsible for all property maintenance, insurance, taxes, and other normal expenses related to ownership. The facility is in good repair and, in the opinion of management, is suitable and adequate for the Company\u2019s business purposes.\n\u200e\n \n\n\n21\n \nTable of Contents\n \n\n\n \nCritical Accounting Policies\n\u00a0\nOur discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We have made estimates and we continually evaluate our estimates and judgments, including those related to doubtful accounts, product returns, excess inventories, warranties, impairment of long-lived assets, deferred compensation, income taxes and other contingencies. We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, taking into consideration certain possible adverse impacts from inflation, the economic sanctions imposed on the international community as a result of the continued conflict between Russia and Ukraine, and any changes to the global economic situation as a consequence of the COVID-19 pandemic. Actual results may differ from these estimates.\n \nBelow are the estimates that we believe are critical to the understanding of the Company\u2019s results of operations and financial condition. Other accounting policies are described in Note 1, \u201cSignificant Accounting Policies\u201d to the consolidated financial statements included in this Annual Report on Form 10-K.\n\u00a0\nRevenue Recognition\n\u00a0\nRevenues from product sales are recognized when the customer obtains control of the product, which typically occurs upon shipment from the Company\u2019s facility. There are a very limited number of customers for which control does not pass until they have received the products at their facility. Revenue from product sales is adjusted for estimated warranty obligations and variable consideration, which are detailed below. The Company uses a five-step analysis to determine how revenue is recognized. The underlying principle is to recognize revenue when promised goods or services transfer to the customer. The amount of revenue recognized is to reflect the consideration expected to be received for those goods or services. See Note 3\u00a0to the Consolidated Financial Statements for additional information on revenue recognition.\n \nAccounts Receivable\n\u00a0\nThe Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer\u2019s current credit worthiness, as determined by the review of the customer\u2019s current credit information. The Company continuously monitors collections and payments from customers and maintains an allowance for estimated credit losses. Accounts receivable are stated net of an allowance for doubtful accounts. The allowance is calculated based upon the Company\u2019s evaluation of specific customer accounts where the Company has information that the customer may have an inability to meet its financial obligations. In these cases, management uses its judgment, based on the best available facts and circumstances, and records a specific reserve for that customer against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved. However, the ultimate collectability of the unsecured receivable is dependent upon the financial condition of an individual customer, which could change rapidly and without warning.\n\u00a0\nInventories\n\u00a0\nThe Company values its inventories\u00a0using standard cost which approximates the lower of first in first out (\u201cFIFO\u201d)\u00a0cost or net realizable value.\u00a0Valuing inventories at the lower of cost or net realizable value requires the use of estimates and judgment. The Company continues to use the same techniques to value inventories that it has in the past. Our customers may cancel their orders or change purchase volumes. This, or certain additional actions or market developments, could create excess inventory levels, which would impact the valuation of our inventories. Any actions taken by our customers or market developments that could impact the value of our inventory are considered when determining the lower of cost or net realizable value valuations. The Company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on historical and projected usage and production requirements. If the Company is not able to achieve its expectations of the net realizable value of the inventory at its current value, the Company would have to adjust its reserves accordingly. When a reserve is established, it creates a new cost basis, which is not increased in the future.\n\u00a0\nProduct Warranty Obligations\n\u00a0\nThe Company offers a lifetime warranty to consumers in the United States and certain other countries.\u00a0This lifetime warranty creates a future performance obligation. There are also certain foreign distributors that receive warranty repair parts and replacement headphones to satisfy warranty obligations in those countries. The Company defers revenue to recognize the future obligations related to these warranties. The deferred revenue is based on historical analysis of warranty claims relative to sales. This deferred revenue reflects the Company\u2019s best estimates of the amount of warranty returns and repairs it will experience during those future periods. If \n\n\n22\n \nTable of Contents\n \n\n\nfuture warranty activity varies from the estimates, the Company will adjust the estimated deferred revenue, which would affect net sales and operating results in the period that such adjustment becomes known.\n\u00a0\nDeferred Compensation\n\u00a0\nThe Company\u2019s deferred compensation liability is for a current officer and is calculated based on various assumptions that may include compensation, years of service, expected retirement date, discount rates and mortality tables. The related expense is calculated using the net present value of the expected payments and is included in selling, general and administrative expenses in the Consolidated Statements of Operations. Management makes estimates of life expectancy and discount rates using information available from several sources. In addition, management estimates the expected retirement date for the current officer as that impacts the timing for expected future payments. See Note 10\u00a0for additional information on deferred compensation.\n\u00a0\nStock-Based Compensation\n\u00a0\nThe Company has a stock-based employee compensation plan, which is described more fully in Note 12 to the Consolidated Financial Statements. The Company accounts for stock-based compensation in accordance with ASC 718 \"Compensation - Stock Compensation\". Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. The expected term of the options and volatility are estimated using historical experience for the options by vesting period. The risk-free interest rate is calculated based on the expected life of the options. The Company does not estimate forfeitures as they are recognized when they occur.\n\u00a0\nIncome Taxes\n\u00a0\nWe estimate a provision for income taxes based on the effective tax rate expected to be applicable for the fiscal year. If the actual results are different from these estimates, adjustments to the effective tax rate may be required in the period such determination is made. Additionally, discrete items are treated separately from the effective rate analysis and are recorded separately as an income tax provision or benefit at the time they are recognized.\n\u00a0\nDeferred income taxes are accounted for under the asset and liability method whereby deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using statutory tax rates. Deferred income tax provisions are based on changes in the deferred tax assets and liabilities from period to period. Additionally, we analyze our ability to recognize the net deferred income tax assets created in each jurisdiction in which we operate to determine if valuation allowances are necessary based on the \u201cmore likely than not\u201d criteria.\n\u00a0\nNew Accounting Pronouncements\n\u00a0\nApplicable new accounting pronouncements are set forth under Item 15 of this Annual Report on Form 10-K and are incorporated herein by reference.\u00a0\n\u00a0\n\u200e\n \n\n\n23\n \nTable of Contents\n \n\n\n ",
+  "item7a": ">ITEM\u00a07A.\u00a0\u00a0\u00a0\u00a0QUANTITATIVE AND QU\nALITATIVE DISCLOSURES ABOUT MARKET RISK \n \nNot \napplicable\n.\n\u00a0",
+  "cik": "56701",
+  "cusip6": "500692",
+  "cusip": ["500692108"],
+  "names": ["KOSS CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/56701/000005670123000026/0000056701-23-000026-index.htm"
+}
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+{
+  "item1": ">ITEM 1.\u00a0\u00a0\u00a0\u00a0BUSINESS.\nEdward M. Knabusch and Edwin J. Shoemaker started Floral City Furniture in 1927, and in 1928 the newly formed company introduced its first recliner. In 1941, we were incorporated in the state of Michigan as La-Z-Boy Chair Company, and in 1996 we changed our name to La-Z-Boy Incorporated. Today, our La-Z-Boy brand is one of the most recognized brands in the furniture industry.\nWe are the leading global producer of reclining chairs and the second largest manufacturer/distributor of residential furniture in the United States\n.\n The La-Z-Boy Furniture Galleries\n\u00ae\n stores retail network is the third largest retailer of single-branded furniture in the United States\n.\n We manufacture, market, import, export, distribute and retail upholstery furniture products under the La-Z-Boy\n\u00ae\n, England, Kincaid\n\u00ae\n, and Joybird\n\u00ae\n tradenames. In addition, we import, distribute and retail accessories and casegoods (wood) furniture products\n\u00a0\nunder the Kincaid\n\u00ae\n, American Drew\n\u00ae\n, Hammary\n\u00ae\n, and Joybird\n\u00ae\n tradenames. \nAs of April\u00a029, 2023, our supply chain operations included the following:\n\u2022\nFive major manufacturing locations and 12 distribution centers in the United States and four facilities in Mexico to support our speed-to-market and customization strategy\n\u2022\nA logistics company that distributes a portion of our products in the United States \n\u2022\nA wholesale sales office that is responsible for distribution of our product in the United Kingdom and Ireland\n\u2022\nAn upholstery manufacturing business in the United Kingdom\n\u2022\nA global trading company in Hong Kong which helps us manage our Asian supply chain by establishing and maintaining relationships with our Asian suppliers, as well as identifying efficiencies and savings opportunities\nDuring the third quarter of fiscal 2023, we made the decision to close our manufacturing facility in Torre\u00f3n, Mexico as part of our initiative to drive improved efficiencies through optimized staffing levels within our plants. Torre\u00f3n was the last facility to begin operating as part of our broader Mexico manufacturing expansion in fiscal 2021 and 2022 to meet pandemic-related upholstery demand and accounted for approximately 3% of our La-Z-Boy branded production. As a result of this action, charges were recorded within the Wholesale segment in the third and fourth quarters of fiscal 2023 totaling $9.2 million in selling, general, and administrative expense for the impairment of various assets, primarily long-lived assets, and $1.6 million in cost of sales, primarily related to severance.\nWe also participate in two consolidated joint ventures in Thailand that support our international businesses: one that operates a manufacturing facility and another that operates a wholesale sales office. Additionally, we have contracts with several suppliers in Asia to produce products that support our pure import model for casegoods.\nWe sell our products through multiple channels: to furniture retailers or distributors in the United States, Canada, and approximately 50 other countries, including the United Kingdom, China, Australia, South Korea and New Zealand; directly to consumers through retail stores that we own and operate; and through our websites, www.la-z-boy.com and www.joybird.com. \n\u2022\nThe centerpiece of our retail distribution strategy is our network of 349 La-Z-Boy Furniture Galleries\n\u00ae\n stores and 522 La-Z-Boy Comfort Studio\n\u00ae\n locations, each dedicated to marketing our La-Z-Boy branded products. We consider this dedicated space to be \"proprietary.\" \n\u25e6\nLa-Z-Boy Furniture Galleries\n\u00ae\n stores help consumers furnish their homes by combining the style, comfort, and quality of La-Z-Boy furniture with our available design services. We own 171 of the La-Z-Boy Furniture Galleries\n\u00ae\n stores, while the remainder are independently owned and operated. \n\u25e6\nLa-Z-Boy Comfort Studio\n\u00ae\n locations are defined spaces within larger independent retailers that are dedicated to displaying and selling La-Z-Boy branded products. All 522 La-Z-Boy Comfort Studio\n\u00ae\n locations are independently owned and operated. \n\u25e6\nIn total, we have approximately 7.6 million square feet of proprietary floor space dedicated to selling La-Z-Boy branded products in North America. \n\u25e6\nWe also have approximately 2.6 million square feet of floor space outside of the United States and Canada dedicated to selling La-Z-Boy branded products.\n4\nTable of Contents\n\u2022\nOur other brands, England, American Drew, Hammary, and Kincaid enjoy distribution through many of the same outlets, with slightly over half of Hammary\u2019s sales originating through the La-Z-Boy Furniture Galleries\n\u00ae\n store network. \n\u25e6\nKincaid and England have their own dedicated proprietary in-store programs with 614 outlets and approximately 1.9 million square feet of proprietary floor space. \n\u25e6\nIn total, our proprietary floor space includes approximately 12.1 million square feet worldwide.\n \n\u2022\nJoybird sells product primarily online and has a limited amount of proprietary retail showroom floor space including ten small-format stores in key urban markets.\nPrincipal Products and Industry Segments\nOur reportable operating segments include the Wholesale segment and the Retail segment. Our Wholesale segment manufactures and imports upholstered and casegoods (wood) furniture and sells directly to La-Z-Boy Furniture Galleries\n\u00ae\n stores, operators of La-Z-Boy Comfort Studio\n\u00ae\n locations, branded space locations, England Custom Comfort Center locations, major dealers, and a wide cross-section of other independent retailers. Our Retail segment primarily sells upholstered furniture, in addition to some casegoods and other accessories, to end consumers through our company-owned La-Z-Boy Furniture Galleries\n\u00ae\n stores.\nWe have provided additional detailed information regarding our segments and their products in Note\u00a017, Segment Information, \nto our consolidated financial statements and Item 7, \"Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\" section, both of which are included in this report.\nRaw Materials and Parts\nThe principal raw materials and parts used for manufacturing that are purchased are cover (primarily fabrics and leather), polyester batting and polyurethane foam for cushioning and padding, lumber and plywood for frames, steel for motion mechanisms, electrical components for power units and various other metal components for fabrication of product. We purchase most of our polyurethane foam from two suppliers, which have several facilities across the United States that deliver to our plants. We purchase cover from a variety of sources, but we rely on a limited number of major suppliers. We purchase more than half of our cover in a raw state (fabric rolls or leather hides) primarily from suppliers in China, then cut and sew it into cover in our cut and sew facilities in Mexico. We purchase the remainder of our cut and sewn leather and fabric kits from five main suppliers primarily from China as well as Vietnam. We use these suppliers primarily for their product design capabilities and to balance our mix of in-sourced and out-sourced production. If any of these suppliers experience financial or other difficulties, we could experience temporary disruptions in our manufacturing process until we find alternative sources of supply.\nWe manage our Asian supply chain through our global trading company in Hong Kong, which works to identify efficiencies and savings opportunities, while verifying La-Z-Boy quality standards are being adhered to and managing the relationships with our Asian suppliers. \nDuring fiscal 2022 and the first half of fiscal 2023, the prices of materials we use in our upholstery manufacturing process increased, driven by supply chain challenges due to COVID-19, higher demand for raw materials in manufacturing sectors and the home furnishings industry due to an economic sector rotation, and inflationary cost pressure. During the second half of fiscal 2023, raw material prices began to decrease relative to the historic highs experienced in the prior year, but are still well above pre-pandemic levels. As we begin fiscal 2024, we anticipate that prices will remain relatively consistent with those seen at the end of fiscal 2023, with potential increases due to economic volatility and price inflation in our core materials. To the extent that we again experience incremental costs in any of these areas, as we did in fiscal 2023, we may increase our selling prices or assess material surcharges to offset the impact. However, increases in selling prices, or surcharges, may not fully mitigate the impact of raw material cost increases, which could adversely impact operating profits. \nFinished Goods Imports\nImported finished goods represented 7% and 6% of our consolidated sales in fiscal 2023 and 2022, respectively. In fiscal 2023, we purchased 74% of this imported product from five suppliers based in Asia. We use these suppliers primarily to leverage our buying power, to control quality and product flow, and because their capabilities align with our product design needs. If any of these suppliers experience financial or other difficulties, we could experience disruptions in our product flow until we obtain \n5\nTable of Contents\nalternate suppliers, which could be lengthy due to the longer lead time required for sourced wood furniture from Asian manufacturers. \nThe prices we paid for these imported products, including associated transportation costs, decreased throughout 2023 compared with fiscal 2022 when costs increased drastically due to the constrained supply chain along with the lack of shipping container availability. In fiscal 2024, we anticipate our product costs will stabilize.\nSeasonal Business\nOur business has historically displayed seasonal patterns driven by consumer behavior with demand highest in the winter months as discretionary spend tends to shift toward travel and leisure activities during the summer months. For our wholesale businesses, our fiscal fourth quarter has historically had the highest volume of delivered sales relative to other quarters. For our retail businesses, which includes our company-owned retail stores, our fiscal third quarter typically has the highest volume of delivered sales relative to other quarters.\nIn a typical year, we schedule production to maintain consistent manufacturing activity throughout the year whenever possible. During the summer months, the furniture industry generally experiences weaker demand, and as such we typically shut down our domestic plants for one week each fiscal year to perform routine maintenance on our equipment. Accordingly, for our wholesale business, the first quarter is usually the Company's weakest quarter in terms of sales and earnings. Also driven by the seasonal slowdown in the summer, each of our retail businesses typically experience their lowest sales in our fiscal first quarter.\nDuring the last three fiscal years, our sales volume and production schedule did not follow typical trends due to the impact of COVID-19. As a result of the significant backlog built in prior years driven by heightened demand during the COVID-19 pandemic, in fiscal 2023, our wholesale and retail businesses both experienced their largest sales volume in the second quarter of fiscal 2023. We anticipate that typical seasonal trends in the furniture industry will return to normal in fiscal 2024.\n \nEconomic Cycle and Purchasing Cycle\nOur sales are impacted by the overall growth of the furniture industry, which is primarily influenced by economic growth, existing and new housing activity, and consumer discretionary spending. In addition, consumer confidence, employment rates, inflation and interest rates, consumer savings levels, international trade policies, and other factors could affect demand. During fiscal 2021 and the beginning of fiscal 2022, we experienced heightened demand as more discretionary spending was allocated to the home furnishings industry due to the impact of COVID-19. However, during fiscal 2023, demand trends have returned to pre-pandemic patterns and therefore, in fiscal 2024, we anticipate furniture demand and purchasing cycles to respond to macroeconomic conditions as they historically have. \nUpholstered furniture has a shorter life cycle than casegoods furniture because upholstered furniture is typically more fashion and design-oriented and is often purchased one or two pieces at a time. Purchases and demand for consumer goods, including upholstered furniture, fluctuate based on consumer confidence. Casegoods products, in contrast, are longer-lived and frequently purchased in groupings or \"suites,\" resulting in a much larger cost to the consumer. As a result, casegoods sales are more sensitive to economic conditions, including growth or a slowdown in the housing market, whereas upholstered furniture normally exhibits\u00a0a less volatile sales pattern over an economic cycle. \nPractices Regarding Working Capital Items\nThe following describes our significant practices regarding working capital items.\nInventory: \nFor our upholstery business within our Wholesale segment, we maintain raw materials and work-in-process inventory at our manufacturing locations. Finished goods inventory is maintained at our 12 distribution centers as well as our manufacturing locations. Our distribution centers allow us to streamline the warehousing and distribution processes for our La-Z-Boy Furniture Galleries\n\u00ae\n store network, including both company-owned stores and independently-owned stores. Our distribution centers also allow us to reduce the number of individual warehouses needed to supply our retail outlets and help us reduce inventory levels at our manufacturing and retail locations.\nFor our casegoods business within our Wholesale segment, we import wood furniture from Asian vendors, resulting in long lead times on these products. To address these long lead times and meet our customers' delivery requirements, we typically maintain higher levels of finished goods inventory in our warehouses, as a percentage of sales, of our casegoods products than our upholstery products.\n6\nTable of Contents\nOur company-owned La-Z-Boy Furniture Galleries\n\u00ae\n stores have finished goods inventory at the stores for display purposes.\nOur Joybird business maintains raw materials and work-in-process inventory at its manufacturing location. Joybird finished goods inventory is maintained at our distribution centers, at its manufacturing and warehouse locations, or in-transit to the end consumer.\nOur inventory decreased $26.9 million as of year end fiscal 2023 compared with year end fiscal 2022 primarily due to higher inventory levels at the end of fiscal 2022 to support increased sales demand and manufacturing capacity and to reduce the impact associated with volatility in raw material availability. Additionally, inventory balances at the end of fiscal 2023 were lower as we have worked down our backlog toward pre-pandemic levels and aligned production with incoming order trends. We actively manage our inventory levels on an ongoing basis to ensure they are appropriate relative to our sales volume, while maintaining our focus on service to our customers.\nAccounts Receivable: \nOur accounts receivable decreased $58.2 million as of year end fiscal 2023 compared with year end fiscal 2022. The decrease in accounts receivable was primarily due to lower fourth quarter sales in fiscal 2023 compared with the same period a year ago as the prior year benefited from sales generated from the backlog built up in prior periods combined with the realization of pricing and surcharge actions taken in response to rising manufacturing costs.\nAdditionally, our allowance for receivable credit losses was $1.4 million higher at the end of fiscal 2023 compared with the end of fiscal 2022 reflecting uncertainty in the economic outlook. We monitor our customers' accounts, limit our credit exposure to certain independent dealers and strive to decrease our days' sales outstanding where possible.\nAccounts Payable: \nOur accounts payable increased $3.4 million as of year end fiscal 2023 compared with year end fiscal 2022, primarily due to higher marketing costs during the fourth quarter of fiscal 2023 compared with the fourth quarter of fiscal 2022.\nCustomer Deposits: \nWe collect a deposit from our customers at the time a customer order is placed in one of our company-owned retail stores or through our websites, www.la-z-boy.com and www.joybird.com. Customer deposits decreased $77.5 million as of fiscal year end 2023 compared with fiscal year end 2022, as we worked down our backlog toward pre-pandemic levels.\nCustomers\nOur wholesale customers are furniture retailers. While primarily located throughout the United States and Canada, we also have customers located in various other countries, including the United Kingdom, China, Australia, South Korea and New Zealand. Sales in our Wholesale segment are primarily to third-party furniture retailers, but we also sell directly to end consumers through our company-owned La-Z-Boy Furniture Galleries\n\u00ae\n stores that make up our Retail segment and through our websites, www.la-z-boy.com and www.joybird.com.\nWe have formal agreements with many furniture retailers for them to display and merchandise products from one or more of our operating units and sell them to consumers in dedicated retail space, either in stand-alone stores or dedicated proprietary galleries, studios or branded spaces within their stores. We consider this dedicated space to be \"proprietary.\" For our Wholesale segment, our fiscal 2023 customer mix based on sales was approximately 60% proprietary, 10% major dealers (large, regional retailers), and 30% other independent retailers. \nThe success of our product distribution model relies heavily on having retail floor space that is dedicated to displaying and marketing our products. The 349-store La-Z-Boy Furniture Galleries\n\u00ae\n network is central to this approach. In addition, we sell product through proprietary space within other retail furniture stores, primarily La-Z-Boy Comfort Studio\n\u00ae\n locations, branded space locations, England Custom Comfort Center locations, Kincaid Shoppes, and other international locations. Additionally, our Joybird business, which sells product primarily online to end consumers through its website, www.joybird.com, also has a limited amount of retail showroom floor space in small-format stores in key urban markets. \nMaintaining, updating, and, when appropriate, expanding our proprietary distribution network is a key part of our overall sales and marketing strategy. We intend, over the long-term, to not only increase the number of stores in the network but also to continue to improve their quality, including upgrading old-format stores to our new concept design through remodels and relocations. We continue to maintain and update our current stores to improve the quality of the network. The La-Z-Boy Furniture Galleries\n\u00ae\n store network plans to open 7 to 9 stores and relocate or remodel 20 to 25 stores during fiscal 2024, all of which will feature our latest store designs. Additionally, during fiscal 2024 we plan to open or update approximately 100 La-Z-Boy Comfort Studio\n\u00ae\n locations as well as 40 branded space locations.\n7\nTable of Contents\nIndependent dealers for our proprietary La-Z-Boy Furniture Galleries\n\u00ae\n store network were selected based on factors such as their management and financial qualifications and the potential for distribution in specific geographical areas. This proprietary distribution enables us to concentrate our marketing to a dedicated product line across the entire network benefitting La-Z-Boy, these dealers, and our consumers. It also allows dealers in this proprietary group to take advantage of best practices, with which other proprietary dealers have succeeded, and we facilitate forums for these dealers to share them. These La-Z-Boy Furniture Galleries\n\u00ae\n stores provide our consumers a full-service shopping experience with a large variety of products, knowledgeable sales associates, and design service consultants.\nOrders and Backlog\nWe typically build upholstery units based on specific orders, either for dealer stock or to fill consumers' custom orders. We import casegoods product primarily to fill our internal orders, rather than customer or consumer orders, resulting in higher finished goods inventory on hand as a percentage of sales. We define backlog as any written order that has not yet been delivered, whether to an independent furniture retailer, an independently-owned La-Z-Boy Furniture Galleries\n\u00ae\n store, or the end consumer through our company-owned La-Z-Boy Furniture Galleries\n\u00ae\n stores.\nHistorically, the size of our backlog at a given time varies and may not be indicative of our future sales and, therefore, we do not rely entirely on backlogs to predict future sales. Our wholesale backlog was $223.1\u00a0million as of April\u00a029, 2023, compared with $697.2\u00a0million as of April\u00a030, 2022. The decrease in fiscal 2023 was the result of delivering on the backlog built in prior periods, continued production and supply chain efficiencies, and a slow-down in demand relative to the peak experienced during the COVID-19 pandemic. As of the end of fiscal 2023, we believe that our backlog volume and lead times are returning to pre-pandemic levels and we anticipate that they will stabilize in fiscal 2024. \nCompetitive Conditions\nWe are the second largest manufacturer/distributor of residential (living and family room, bedroom, and dining room) furniture in the United States, as measured by annual sales volume.\nThe home furnishings industry competes primarily on the basis of product styling and quality, comfort, customer service (product availability and delivery), price, and location. We compete by emphasizing our brand and the comfort, quality, styling, customization, value of our products, and our available design services. In addition, we remain committed to innovation while striving to provide outstanding customer service, exceptional dealer support, and efficient on-time delivery. Maintaining, updating, and expanding our proprietary distribution system, including identifying desirable retail locations, is a key strategic initiative for us in striving to remain competitive. We compete in the mid to upper-mid price point, and a shift in consumer taste and trends to lower-priced products could negatively affect our competitive position. Additionally, our wholesale business faces increased market pressures from foreign manufacturers entering the United States market and increased direct purchases from foreign suppliers by large United States retailers.\nThe La-Z-Boy Furniture Galleries\n\u00ae\n stores operate in the retail furniture industry in the United States and Canada, and different stores have different competitors based on their geographic locations. In addition, alternative distribution channels have increasingly affected our retail markets. Direct-to-consumer brands bypass brick and mortar retailers entirely or in some cases have developed a product that can be shipped more easily than traditional upholstered furniture, thus increasing competition for our products. The increased ability of consumers to purchase furniture through various furniture manufacturers' and digital-only retailers' internet websites has also increased competition in the industry. Although digital retailers operate with lower overhead costs than a brick-and-mortar retailer, customer acquisition costs and advertising spend is typically much higher. Department stores and big box retailers with an online presence also offer products that compete with some of our product lines.\nTrademarks, Licenses and Patents\nWe own the La-Z-Boy trademark, which is essential to the Wholesale and Retail segments of our business. We also own the Joybird trademark, which, along with the La-Z-Boy trademark, is essential to our e-commerce business. Additionally, we own a number of other trademarks that we utilize in marketing our products. We consider our La-Z-Boy trademark to be among our most valuable assets and we have registered that trademark and others in the United States and various other countries where our products are sold. These trademarks have a perpetual life, subject to renewal. We license the use of the La-Z-Boy trademark to certain international partners and dealers outside of North America. We also license the use of the La-Z-Boy trademark on contract office furniture, outdoor furniture, and non-furniture products, as these arrangements enhance our brand awareness, broaden the perceptions of La-Z-Boy, and create visibility of the La-Z-Boy brand in channels outside of the residential furniture industry. In addition, we license to our branded dealers the right to use our La-Z-Boy trademark in connection with the sale of \n8\nTable of Contents\nour products and related services, on their signs, and in other ways, which we consider to be a key part of our marketing strategies. We provide more information about those dealers under \"Customers.\"\nWe hold a number of United States and foreign patents that we actively enforce. We have followed a policy of filing patent applications for the United States and select foreign countries on inventions, designs and improvements that we deem valuable, but these patents do expire at various times.\nWhile our intellectual property rights in the aggregate are important to the operation of our business, we do not believe that any existing patent, license, trademark or other intellectual property right (other than the La-Z-Boy trademark) is of such importance that its loss or termination would have a material adverse effect on our business taken as a whole. We vigorously protect our trademarks and patents against third-party infringement.\nCompliance with Environmental Regulations\nOur manufacturing operations involve the use and disposal of certain substances regulated under environmental protection laws and regulations and, from time to time, we may be involved in a small number of remediation actions and site investigations concerning these substances. Based on a review of all currently known facts and our experience with previous environmental matters, we currently do not believe it is probable that we will have any additional loss for environmental matters that would be material to our consolidated financial statements.\nHuman Capital\nEmployees\nWe employed approximately 10,500 full-time equivalent employees as of April\u00a029, 2023, compared with approximately 12,800 employees at the end of fiscal 2022. The decrease in headcount was primarily due to the initiative to drive improved efficiencies through optimized staffing levels within our US, Mexico and Thailand plants. As of April\u00a029, 2023, we employed approximately 8,200 employees in our Wholesale segment, 1,600 in our Retail segment, 480 in our Joybird business, with the remaining employees being corporate personnel. We employ the majority of our employees on a full-time basis. \nPurpose and Values\nAt La-Z-Boy, we believe in the transformational power of comfort. We provide an excellent consumer experience, create high quality products and empower people to transform rooms, homes and communities with comfort. Our teams are committed to our core values of Courage, Curiosity and Compassion. We are not afraid to try new things, we are relentless in our mission to understand our business and consumers, and we honor our almost 100-year legacy that was built on family.\nSustainability\nAs we build the La-Z-Boy of tomorrow, our goal is to make the world a better place through the transformational power of comfort. Aligned with our core values, we embrace curiosity for sustainable design, operate with compassion for a sustainable planet, and empower courage for a sustainable culture. \n \nSustainable Design\n. We embrace curiosity and our inquisitiveness helps us identify innovative opportunities for our products that uphold our commitment to quality, rely on sustainable materials and drive best practices in our supplier partnerships. \nSustainable Planet\n. We strive to operate La-Z-Boy with compassion for the environment. We are committed to responsible stewardship and integrate environmentally sound and sustainable practices into our daily decisions. We work to reduce emissions, increase recycling efforts, and conserve water in all areas of our business. \nSustainable Culture\n. At La-Z-Boy, we support our employees so they can make courageous choices and help our business thrive. Our people practices are linked to our sustainability initiatives. The sustainable culture we are building is designed to empower employees to do what is right in the workplace and in our communities. From supporting our employees\u2019 careers and providing a safe and ethical work environment to giving back to the communities where we live and work, people are always at the heart of our brand.\n9\nTable of Contents\nCompliance and Ethics \nLa-Z-Boy is dedicated to upholding the highest ethical standards and working with honesty and integrity in all aspects of our business operations. Our Code of Conduct provides a clear and thorough ethics standard for all employees, officers, and directors with respect to interactions with customers, vendors, and other staff. Employees also undergo annual training on ethics and the Code of Conduct. We also maintain an Ethics Hotline to make it easy for employees and suppliers to report any concerns. This line is available 24 hours a day and is operated by a third-party. Reports are taken by trained professionals and promptly forwarded to our Corporate Compliance team. Employees may also communicate any concerns through a dedicated online portal.\nDiversity, Inclusion and Belonging\nWe believe in creating and fostering a workplace in which all our employees feel valued, included, and empowered to do their best work and contribute their ideas and perspectives. Our Company is committed to recruiting and retaining diverse talent so that our workforce better reflects the communities in which we operate our business globally. We recognize that our employees\u2019 unique backgrounds, experiences and perspectives enable us to create the optimal work environment and deliver on our mission.\nAligning with our purpose and values, we intend to continue to be curious, courageous, and compassionate in our efforts to foster an environment that attracts the best talent, values diversity of life experiences and perspectives and encourages innovation to accelerate the transformational power of comfort.\nOur diversity, inclusion and belonging initiatives include:\n\u2022\nIntegrating diversity, inclusion and belonging into our overall corporate strategy and developing impactful practices and initiatives to advance our Company\u2019s diversity, inclusion and belonging journey;\n\u2022\nLeveraging our Diversity, Inclusion and Belonging Council to provide enterprise-wide leadership focused on supporting all our employees, developing training and learning opportunities for our employees on diversity, unconscious bias and other topics, and creating sustainable plans to increase diversity in talent acquisition; \n\u2022\nExpanding our support of employee resource groups (\"ERGs\"), which include groups focused on Multicultural, Pride, Working Parents & Caregivers and Women. Our ERG\u2019s provide learning and mentorship experiences for our diverse employees, supporting our objective of creating diversity awareness across our organization, and helping our employees use their collective voices to positively impact our Company and the communities in which we operate our business and live; \n\u2022\nRevisiting, assessing and implementing changes to our processes, in an effort to continue mitigating unconscious bias and enhancing our inclusion recruiting strategy;\n\u2022\nEnhancing and expanding our supplier inclusion network;\n\u2022\nExpanding inclusive leaders training throughout the organization;\n\u2022\nCreating space for individuals to share their perspective, values and voice to our global population through employee written articles, our internal podcast, and multiple video series on our internal communications platform and;\n\u2022\nDemonstrating our Company\u2019s commitment at the highest levels of leadership, including having our President and Chief Executive Officer sign the CEO Action for Diversity & Inclusion\u2122 pledge to advance diversity and inclusion in the workplace\nSafety and Health\nWe prioritize the health and safety of our employees, partners and the people in communities where we operate. \nAs the largest industrial manufacturer in many regions where we do business, we recognize our potential impact on surrounding communities. We actively partner with local agencies in these communities to build proactive emergency and contingency plans for any major incidents that may occur at our facilities and any natural disasters that may impact the region.\nWe work to forge relationships with agencies, such as the Occupational Safety and Health Administration (OSHA), to understand how we can best adhere to health and safety practices. \n10\nTable of Contents\nAdditionally, the National Safety Council (NSC) has recognized La-Z-Boy with multiple awards for safety performance and leadership throughout the Company\u2019s history. This includes our recognition as a six-time recipient of the Corporate Culture of Safety Award and our recognition as a recipient of the Green Cross for Safety Excellence Award, which recognizes only one corporation each year for outstanding achievement in safety. \nTraining and Development\nWe encourage employee growth, curiosity, and courage. We provide our workforce, in all areas of our business,\nopportunities for both personal and career advancement, such as offering on-the-job trainings to help employees be more\neffective in both current and future roles. This includes training in the operations and retail environment\nto maintain high-quality standards as we make and sell our products. We strive to promote employees internally and to provide\nnew managers with the skills necessary to succeed. Further, we have a leadership development program to train employees who are new to managing teams.\nCommunity Giving\nThroughout our 96-year history, giving back to our communities has been woven through La-Z-Boy\u2019s culture following the example set by our founders. When it comes to giving, our vision is to improve the lives of others by developing exceptional programs based on partnerships where employees feel a sense of connection and pride in their communities and our mission is to enhance the quality of life in the communities in which we live and serve through leadership, financial contributions and volunteer efforts.\nOur philanthropic initiatives include the La-Z-Boy Foundation, local community involvement, disaster relief and our signature charity, Ronald McDonald House Charities. La-Z-Boy is honored to be the official furniture provider for Ronald McDonald House Charities.\n \nThroughout fiscal 2023, La-Z-Boy has continued our support of providing furniture and financial contributions to non-profit organizations with special emphasis on arts/culture/humanities, community enrichment, education and health and human services. \nOur employees further exemplify the spirit of giving through leadership and volunteer efforts in their own communities, and for numerous non-profit organizations, which include the United Way, Relay for Life, Habitat for Humanity and others. The Company participates in the \n\"The La-Z-Boy Summer of Caring\"\n during the summer and \n\"The La-Z-Boy Season of Caring\" \nduring the winter, seasonal initiatives that encourage and support employee volunteerism. Since launching in 2018, our employees have accumulated over 35,000 hours of caring as part of these programs.\nInternet Availability\nOur Forms\u00a010-K, 10-Q, 8-K, proxy statements on Schedule\u00a014A, and amendments to those reports are available free of charge through links on our internet website, www.la-z-boy.com, as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (\"SEC\"). Copies of any materials we file or furnish to the SEC can also be obtained free of charge through the SEC's website at www.sec.gov. The information on our website is not incorporated by reference into this report or any other reports we file with, or furnish to, the SEC.",
+  "item1a": ">ITEM 1A.\u00a0\u00a0\u00a0\u00a0RISK FACTORS.\nOur business is subject to a variety of risks. Any of the following risks could materially and adversely affect our business, results of operations, financial condition, or future prospects. The risks discussed below should be carefully considered, together with the other information provided in this Annual Report on Form 10-K, including Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements, including the related notes. These risk factors do not identify all risks that we face. There may be additional risks that are presently unknown to us or that we currently believe to be immaterial that could affect us. Investors should carefully consider all risks, including those disclosed, before making an investment decision.\n11\nTable of Contents\nMacroeconomic, Market and Strategic Risk Factors\nDeclines in certain economic and market conditions that impact consumer confidence and consumer spending, or cause further disruption in our business, could negatively impact our sales, results of operations and liquidity.\nThe furniture industry and our business are particularly sensitive to cyclical variations in the general economy and to uncertainty regarding future economic conditions because our principal products are consumer goods that may be considered postponable discretionary purchases. Economic downturns and prolonged negative economic conditions have in the past affected, and could continue to affect general consumer spending, resulting in a decrease in the overall demand for such discretionary items, including home furnishings. \nFactors influencing consumer spending include, among others, \ngeneral economic conditions, consumer disposable income, recession and fears of recession, United States government default or shutdown or the risk of such default or shutdown, inflation, unemployment, war and fears of war, availability of consumer credit, consumer debt levels, consumer confidence, conditions in the housing market, fuel prices, interest rates, sales tax rates, civil disturbances and terrorist activities, natural disasters, adverse weather, and health epidemics or pandemics. \nDuring the COVID-19 pandemic, like many businesses, we experienced significant disruption in our supply chain resulting in unprecedented increases in material and freight costs, as well as significant unavailability or delay of parts or finished goods. While the pandemic-era disruptions have diminished, further significant supply chain shocks, more significant disruption of the furniture industry, disruption within our independent dealer network or third-party wholesalers, or other unusual developments could cause significant disruption to our business and negatively affect our results.\nAlso during the COVID-19 pandemic, we experienced an increase in demand, as more discretionary consumer spending was allocated to home furnishings. While we have seen a slow-down in demand relative to the COVID-19 era due to the negative impact of various cited factors and the return to more normal seasonality, we are unable to identify and predict to what extent such factors may further impact consumer spending on our products in the short and long term. \nLoss of market share and other financial or operational difficulties due to competition would likely result in a decrease in our sales, earnings, and liquidity.\nThe residential furniture industry is highly competitive and fragmented. We currently compete with many other manufacturers and retailers, including online retailers. Some of these competitors offer widely advertised products or are large retail furniture dealers offering their own store-branded products. Competition in the residential furniture industry is based on quality, style of products, perceived value, price, promotional activities, service to the customer, and advertising. Changes in pricing and promotional activities of competitors may adversely affect our performance. In addition, due to the large number of competitors and their wide range of product offerings, we may not be able to differentiate our products (through styling, finish, and other construction techniques) from those of our competitors. The highly competitive nature of the industry means we are constantly subject to the risk of losing market share, which would likely decrease our future sales, earnings, and liquidity.\nA majority of our sales are to distribution channels that rely on physical stores to merchandise and sell our products and a significant shift in consumer preference toward purchasing products online could have a material adverse effect on our sales and operating margin. Over the past several years, the furniture industry in general has experienced a shift to more online purchasing and during the COVID-19 pandemic, this shift accelerated as customer shopping patterns and behaviors changed. We are attempting to meet consumers where they prefer to shop by expanding our online capabilities and improving the user experience at www.la-z-boy.com to drive more traffic to both our online site and our physical stores. We also own Joybird, a leading e-commerce retailer and manufacturer of upholstered furniture. Joybird sells product almost exclusively online, where there is significant competition for customer attention among online and direct-to-consumer brands.\nThese and other competitive pressures could cause us to lose market share, revenue and customers, increase expenditures or reduce prices, any of which could have a material adverse effect on our results of operations or liquidity.\nOperational Risk Factors\nOur business and our reputation could be adversely affected by cybersecurity incidents and the failure to protect sensitive employee, customer, consumer, vendor or Company data.\nCyber-attacks designed to gain access to and extract sensitive information or otherwise affect or compromise the confidentially, integrity, and availability of information, including phishing attempts, denial of service attacks, and malware or ransomware incidents, have occurred over the last several years at a number of major U.S. companies and have resulted in, among other \n12\nTable of Contents\nthings, the unauthorized release of confidential information, material business disruptions, and negative brand and reputational impacts. Despite widespread recognition of the cyber-attack threat and improved data protection methods, cyber-attacks on organizations continue to be sophisticated, persistent, and ever-changing, making it difficult to prevent and detect these attacks. Similar to many other retailers, we receive and store certain personal information about our employees, wholesale customers, consumers, and vendors. Additionally, we rely on third-party service providers to execute certain business processes and maintain certain information technology systems and infrastructure, and we supply such third-party providers with the personal information required for those services.\nDuring fiscal 2023, we were subject, and in the future, we will likely continue to be subject, to attempts to breach the security of our networks and IT infrastructure through cyber-attack, malware, ransomware, computer viruses, phishing attempts, social engineering and other means of unauthorized access. To the best of our knowledge, attempts to breach our systems have not been successful to date. A breach of our systems, either internally, through potential vulnerabilities of our employees' home networks, or at our third-party technology service providers, could adversely affect our business operations and result in the loss or misappropriation of, and unauthorized access to, sensitive information. A breach that results in the unauthorized release of sensitive information could adversely affect our reputation resulting in a loss of our existing customers and potential future customers, lead to financial losses due to remedial actions or potential liability, possibly including punitive damages, or we could incur regulatory fines or penalties. An electronic security breach resulting in the unauthorized release of sensitive data from our information systems or those of our third-party service providers could also materially increase the costs we already incur to protect against these risks, including costs associated with insurance coverage and potential remediation measures. We continue to balance the additional risk with the cost to protect us against a breach and have taken steps to ensure that losses arising from a breach would be covered in part by insurance that we carry, although the costs, potential monetary damages, and operational consequences of responding to cyber incidents and implementing remediation measures may be in excess of our insurance coverage or be not covered by our insurance at all.\nWe have implemented a hybrid work approach for certain employees. Although we continue to implement strong physical and cybersecurity measures to ensure that our business operations remain functional and to ensure uninterrupted service to our customers, our systems and our operations remain vulnerable to cyberattacks and other disruptions due to the fact that a portion of our employees work remotely and we cannot be certain that our mitigation efforts will be effective.\nWe rely extensively on information technology systems to process transactions, summarize results, and manage our business and that of certain independent dealers. Disruptions in both our primary and back-up systems could adversely affect our business and results of operations.\nOur primary and back-up information technology systems are subject to damage or interruption from power outages, telecommunications failures, hardware and software failures, computer hacking, cybersecurity breaches, computer viruses, phishing attempts, cyber-attacks, malware and ransomware attacks, errors by employees, natural disasters, adverse weather, and similar events. We also rely on technology systems and infrastructure provided by third-party service providers, who are subject to these same cyber and other risks. Interruptions of our critical business information technology systems or failure of our back-up systems could result in longer production times or negatively impact customers resulting in damage to our reputation and a reduction in sales. If our critical information technology systems or back-up systems were damaged or ceased to function properly, we might have to make a significant investment to repair or replace them. If a ransomware attack or other cybersecurity breach occurs, either internally or at our third-party technology service providers, it is possible we could be prevented from accessing our data which may cause interruptions or delays in our business, cause us to incur remediation costs or require us to pay ransom to a hacker which takes over our systems, or damage our reputation. While we carry insurance that would mitigate losses from certain damage, interruption, or breach of our information technology systems, insurance may be insufficient to compensate us fully for potential significant losses.\nFurther, information systems of our suppliers or service providers may be vulnerable to attacks by hackers and other security breaches, including computer viruses and malware, through the internet, email attachments and persons with access to these information systems. If our suppliers or service providers were to experience a system disruption, attack or security breach that impacts a critical function, it could result in disruptions in our supply chain, the loss of sales and customers, potential liability for damages to our customers, reputational damage and incremental costs, which could adversely affect our business, results of operations and profitability. \nInability to maintain and enhance our brand and respond to changes in our current and potential consumers' tastes and trends in a timely manner could adversely affect our business and results of operations.\nThe success of our business depends on our ability to maintain and enhance our brands to increase our business by retaining consumers and attracting new ones. Furniture product is fashion-oriented so changes in consumers' tastes and trends and the \n13\nTable of Contents\nresultant change in our product mix, as well as failure to offer our consumers multiple avenues for purchasing our products, could adversely affect our business and results of operations. We attempt to minimize these risks by maintaining strong advertising and marketing campaigns promoting our brands. We also attempt to minimize our risk by updating our current product designs, styles, quality, prices, and options to purchase our products in-store or online. If these efforts are unsuccessful or require us to incur substantial costs, our business, results of operations and financial or competitive condition could be adversely affected.\nFluctuations in the price, availability and quality of raw materials could cause delays that could result in our inability to timely provide goods to our customers and have increased, and could continue to increase, our costs, either of which could decrease our earnings.\nIn manufacturing furniture, we use various types of wood, fabrics, leathers, upholstered filling material, including polyurethane foam, steel, and other raw materials. Additionally, our manufacturing processes and plant operations use various electrical equipment and components. Because we are dependent on outside suppliers for these items, fluctuations in their price, availability, and quality have had, and could continue to have, a negative effect on our cost of sales and our ability to meet our customers' demands. We have a higher concentration in upholstery sales, including motion furniture, than many of our competitors, and the effects of steel, polyurethane foam, wood, electrical components for power units, leather and fabric price increases or quantity shortages could have a significant negative impact to our business. Competitive and marketing pressures may prevent us from passing along price increases to our customers, and the inability to meet our customers' demands could cause us to lose sales. \nFurther, most of our polyurethane foam comes from two suppliers. These suppliers have several facilities across the United States, but adverse weather, natural disasters, or public health crises (such as pandemics or epidemics) could result in delays in shipments of polyurethane foam to our plants. Similarly, adverse weather, natural disasters, public health crises (such as pandemics or epidemics), labor disputes, possible acts of terrorism, port and canal blockages and congestion, and availability of shipping containers could result in delays in shipments or the absence of required raw materials from any of our suppliers.\nA change in the financial condition of our domestic and foreign fabric suppliers could impede their ability to provide products to us in a timely manner. Upholstered furniture is fashion oriented, and if we are unable to acquire sufficient fabric variety, or to predict or respond to changes in fashion trends, we might lose sales and have to sell excess inventory at reduced prices. Doing so would have a negative effect on our sales and earnings.\nChanges in the availability and cost of foreign sourcing and economic and political uncertainty in countries outside of the United States in which we operate or from which we purchase product, could adversely affect our business and results of operations.\nWe have operations in countries outside the United States, some of which are located in emerging markets. Long-term economic and political uncertainty in some of the countries in which we operate, such as the United Kingdom, Mexico, and Thailand, could result in the disruption of markets and negatively affect our business. Our casegoods business imports products manufactured by foreign sources, mainly in Vietnam, and our Wholesale segment purchases cut-and-sewn fabric and leather sets, electronic component parts, and some finished goods from Chinese and other foreign vendors. Our cut-and-sewn leather sets are primarily purchased from suppliers that operate in China and the majority of our fabric products are also purchased from suppliers that operate in China. One of these primary suppliers provides both cut-and-sewn leather sets and fabric products. As a result of factors outside of our control, at times our sourcing partners have not been able to, and in the future may not be able to, produce or deliver goods in a timely fashion or the quality of their product may lead us to reject it, causing disruptions in our domestic operations and delays in shipments to our customers.\nFinancial Risk Factors\nOur current retail markets and other markets that we may enter in the future may not achieve the growth and profitability we anticipate. We could incur charges for the impairment of long-lived assets, goodwill, or other intangible assets if we fail to meet our earnings expectations for these markets.\nFrom time to time we may acquire retail locations or other retail businesses, such as our acquisition of Joybird in fiscal 2019. We may also remodel and relocate existing stores, experiment with new store formats, and close underperforming stores. Our assets include goodwill and other intangible assets acquired in connection with these acquisitions. Profitability of acquired, remodeled, relocated, and new format stores will depend on lease rates (for stores we lease) and retail sales and profitability justifying the costs of acquisition, remodeling, and relocation. If we do not meet our sales or earnings expectations for these \n14\nTable of Contents\nstores or businesses, we have in the past incurred and may in the future incur charges for the impairment of long-lived assets, the impairment of right-of-use lease assets, the impairment of goodwill, or the impairment of other intangible assets.\nWe also operate a wholesale sales office that is responsible for distributing La-Z-Boy products in the United Kingdom and Ireland, as well as a manufacturing business in the United Kingdom which was acquired in the third quarter of fiscal 2022. Our assets include goodwill and other intangible assets, including acquired customer relationships, in connection with our acquisition of the wholesale business. If we do not meet our sales or earnings expectations for these operations, we may incur charges for the impairment of goodwill or the impairment of our intangible assets.\nWe may require funding from external sources, which may not be available at the levels we require or may cost more than we expect, and as a result, our expenses and results of operations could be negatively affected.\nWe regularly review and evaluate our liquidity and capital needs. We believe that our cash and cash equivalents, short-term investments, cash from operations, and amounts available under our credit facility will be sufficient to finance our operations and expected capital requirements for at least the next 12 months.\nIn the event that we draw on our credit facility, outstanding amounts may become immediately due and payable upon certain events of default, including a failure to comply with the financial covenants in the credit agreement\u2014a consolidated net lease adjusted leverage ratio requirement and a consolidated fixed-charge coverage ratio requirement\u2014or with certain other affirmative and negative covenants in the credit agreement. If we are unable to access additional credit at the levels we require, or the cost of credit is greater than expected, it could adversely affect our results of operations or financial condition.\nDue to the nature of our business and our payment terms, we may not be able to collect amounts owed to us by customers, which may adversely affect our sales, earnings, financial condition, and liquidity. \nWe grant payment terms to most wholesale customers ranging from 15 to 60 days. Some of our customers have experienced, and may in the future experience, cash flow and credit-related issues. If a major event with negative economic effects were to occur, and such effects have occurred in the past, we may not be able to collect amounts owed to us or such payment may only occur after significant delay. While we perform credit evaluations of our customers, those evaluations may not prevent uncollectible trade accounts receivable. Credit evaluations involve significant management diligence and judgment, especially in the current environment. Should more customers than we anticipate experience liquidity issues, if payment is not received on a timely basis, or if a customer declares bankruptcy or closes stores, we may have difficulty collecting amounts owed to us by these customers, which could adversely affect our sales, earnings, financial condition and liquidity.\nLegal and Regulatory Risk Factors\nOur business and our reputation could be adversely affected by the failure to comply with evolving regulations relating to our obligation to protect sensitive employee, customer, consumer, vendor or Company data.\nWe receive, process, store, use and share data, some of which contains personal information. There are numerous federal, state, local and foreign laws and regulations regarding privacy, data protection, and data security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data. These laws and regulations are regularly changing, subject to uncertain and differing interpretations and may be inconsistent among countries or conflict with other rules. For example, the European General Data Protection Regulation (\u201cGDPR\u201d) applies to us and creates a range of requirements and compliance obligations regarding the treatment of personal data, including the public disclosure of significant data breaches, and imposes significant penalties for non-compliance. The California Consumer Privacy Act (\u201cCCPA\u201d), among other things, imposes additional requirements with respect to disclosure and deletion of personal information of California residents. The CCPA provides civil penalties for violations, as well as a private right of action for data breaches. The GDPR, the CCPA, the California Privacy Rights Act, and other privacy and data protection laws may increase our costs of compliance and risks of non-compliance, which could result in substantial penalties, negative publicity and harm to our brand. It is possible that these laws may be interpreted or applied in a manner that is adverse to us, unforeseen, or otherwise inconsistent with our practices or that we may not adequately adapt our internal policies and/or procedures to evolving regulations, any of which could result in litigation, regulatory investigations and potential legal liability, require us to change our practices in a manner adverse to our business or limit access to our products and services in certain countries. As a result, our reputation and brand, which are critical to our business operations, may be harmed, we could incur substantial costs, including costs related to litigation, or we could lose both customers and revenue.\n15\nTable of Contents\nChanges in the domestic or international regulatory environment or trade policies could adversely affect our business and results of operations.\nWe are subject to numerous laws and regulations, including those relating to labor and employment, customs, sanctions, truth-in-advertising, consumer protection, e-commerce, privacy, health and safety, real estate, environmental and zoning and occupancy, intellectual property and other laws and regulations that regulate retailers, manufacturers or otherwise govern our business. \nChanges in laws and regulations in the United States or internationally may require us to modify our current business practices or otherwise increase our costs of compliance, which could adversely affect our results of operations.\nBecause we manufacture components and finished goods in Mexico, purchase components and finished goods manufactured in foreign countries, including China and Vietnam, participate in consolidated joint ventures in Thailand, and operate a wholesale and retail business in Canada, we are subject to risks relating to changes in the domestic or international regulatory environment or trade policies, including new or increased duties, tariffs, retaliatory tariffs, trade limitations and termination or renegotiation of bilateral and multilateral trade agreements impacting our business. The United States has enacted certain tariffs on many items sourced from China, including certain furniture, accessories, furniture parts, and raw materials which are imported into the United States and that we use in our domestic operations. We may not be able to fully or substantially mitigate the impact of these tariffs, pass price increases on to our customers, or secure adequate alternative sources of products or materials. The tariffs, along with any additional tariffs or retaliatory trade restrictions implemented by other countries, could negatively impact customer sales, including potential delays in product received from our vendors, our cost of goods sold and results of operations. Conversely, if certain tariffs are eliminated or reduced, we may face additional competition from foreign manufacturers entering the United States market and from domestic retailers who rely on imported goods, putting pressure on our prices and margins, which could adversely affect our results of operations. Finally, our business in the United Kingdom has been, and could further be, affected by the United Kingdom's exit from the European Union, and our sales and margins there and in other foreign countries could be adversely affected by the imposition in foreign countries of import bans, quotas, and increases in tariffs.\nChanges in regulation of our international operations, including anti-corruption laws and regulations, could adversely affect our business and results of operations.\nOur operations outside of the United States and sale of product in various countries subject us to U.S. and foreign laws and regulations, including but not limited to the UK Bribery Act 2010, the U.S. Foreign Corrupt Practices Act, the U.S. Export Administration Act, and other anti-bribery and anti-corruption statutes. These laws and regulations include prohibitions on improper payments to government officials, restrictions on where we can do business, what products we can supply to certain countries, and what information we can provide to certain governments. Violations of these laws, which are complex, frequently changing, and are often subject to varying interpretation and enforcement, may result in civil or criminal penalties or sanctions that could have a significant adverse effect on our business and results of operations. Although we have implemented policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies and procedures or otherwise comply with these laws and regulations.\nWe may be subject to product liability and other claims or undertake to recall one or more products, which could adversely affect our business, results of operations and reputation. \nMillions of our products, sold over many years, are currently used by consumers. We have voluntarily recalled products in the past, and while none of those recalls has resulted in a material expense or other significant adverse effect, a significant product recall or other product-related litigation could result in future additional expense, penalties, and injury to our brands and reputation, and adversely affect our business and results of operations. In addition, we are involved in lawsuits, claims and proceedings incident to the ordinary course of our business. Litigation is inherently unpredictable. Any claims against us, whether meritorious or not, could result in costly litigation that could adversely affect our business and results of operations.\nAlthough we maintain liability insurance in amounts that we believe are reasonable, in most cases, we are responsible for large, self-insured retentions and defense costs. We cannot provide assurance that we will be able to maintain such insurance on acceptable terms, if at all in the future, or that product liability or other claims will not exceed the amount of insurance coverage, or that all such matters would be covered by our insurance. As a result, product liability and other claims could have a material adverse effect on our business, results of operations and financial condition.\n16\nTable of Contents\nGeneral Risk Factors\nOur operations are subject to risks of unsettled political conditions, natural or man-made disasters, adverse weather, climate change, acts of war, terrorism, organized crime, pandemics and other public health concerns, any one of which could adversely affect our business and results of operations.\nOur operations are subject to risks of unsettled political conditions, natural or man-made disasters, adverse weather, climate change, acts of war, terrorism, organized crime, pandemics and other public health concerns. If any of these events cause disruptions or damage in our manufacturing plants, distribution facilities, company-owned La-Z-Boy Furniture Galleries\n\u00ae\n stores or corporate headquarters, or the facilities of our vendors, that could make servicing our customers more difficult or result in the potential loss of sales and customers. In addition, we may incur costs in repairing any damage beyond our applicable insurance coverage.\nThe COVID-19 pandemic negatively impacted the world economy, significantly impacted global supply chains, and increased volatility within financial markets, all of which negatively affected the home furnishings manufacturing and retail industry and our business. The impact of any resurgence of COVID-19 or any other pandemic on our operational and financial performance will depend on future developments, including the availability and adoption of effective vaccines, governmental orders and mitigation measures, recovery of the business environment, global supply chain conditions, economic conditions, inflationary pressures, consumer confidence, and consumer demand for our products.\nWe make certain assumptions, judgments and estimates that impact the amounts reported in our consolidated financial statements, which, if not accurate, may impact our financial results.\nCertain assumptions, judgments and estimates impact amounts reported in our consolidated financial statements, including but not limited to, inventories, goodwill, intangible assets, product warranty liabilities, insurance and legal-related liabilities, contingent consideration and income taxes. To derive our assumptions, judgments and estimates, we use historical experience and various other factors that we believe are reasonable as of the date we prepare our consolidated financial statements. Our goodwill and contingent consideration liability, resulting from certain acquisitions, are based on the expected future performance of the operations acquired. At least annually, we reassess the goodwill for impairment and quarterly, we reassess the fair value of any contingent consideration. Changes in business conditions or other events could materially change the projection of future cash flows or the discount rate we used in the fair value calculation of the goodwill and contingent consideration. Actual results could differ materially from our estimates, and such differences may impact our financial results.\nWe may not be able to recruit and retain key employees and skilled workers in a competitive labor market or we could experience continued increases in labor costs, which could adversely affect our business and results of operations. \nIf we cannot successfully recruit and retain key employees and skilled workers or we experience the unexpected loss of those employees, our operations may be negatively impacted. A shortage of qualified personnel along with continued labor cost inflation may require us to further enhance our compensation in order to compete effectively in the hiring and retention of qualified employees.\nChanges in tax policies could adversely affect our business and results of operations. \nChanges in United States or international income tax laws and regulations may have an adverse effect on our business in the future. We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective income tax rate in the future could be adversely affected by a number of factors, including changes in the mix of earnings in countries with differing statutory tax rates, changes in tax laws, the outcome of income tax audits in various jurisdictions, and any repatriation of non-U.S. earnings for which the Company has not previously provided for U.S. taxes. We regularly assess these matters to determine the adequacy of our tax provision, which is subject to significant judgement.\nOur strategy, goals and disclosures related to Environmental, Social, and Governance (\"ESG\") matters expose us to numerous risks, including risks to our reputation and stock price.\nThere has been increased focus from our stakeholders, including consumers, employees, and investors, on our ESG practices. We plan to establish and announce goals and other objectives related to ESG matters. These goal statements will reflect our current plans and are not guarantees that we will be able to achieve them. Our efforts to accomplish and accurately report on these goals and objectives present numerous operational, reputational, financial, legal, and other risks, any of which could have a material negative impact, including on our reputation, stock price, and results of operation. We could also incur additional \n17\nTable of Contents\ncosts and require additional resources to implement various ESG practices to make progress against our public goals and to monitor and track our performance with respect to such goals.\nThe standards for tracking and reporting on ESG matters are relatively new, have not been formalized and continue to evolve. Collecting, measuring, and reporting ESG information and metrics can be difficult and time consuming. Our selected disclosure framework or standards may need to be changed from time to time, which may result in a lack of consistent or meaningful comparative data from period to period. In addition, our interpretation of reporting frameworks or standards may differ from those of others and such frameworks or standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals.\nOur ability to achieve any ESG-related goal or objective is subject to numerous risks, many of which are outside of our control, including: the availability and cost of low-or non-carbon-based energy sources and technologies, evolving regulatory requirements affecting ESG standards or disclosures, the availability of vendors and suppliers that can meet our sustainability, diversity and other standards, and the availability of raw materials that meet and further our sustainability goals. If our ESG practices do not meet evolving consumer, employee, investor or other stakeholder expectations and standards or our publicly-stated goals, then our reputation, our ability to attract or retain employees and our competitiveness, including as an investment and business partner, could be negatively impacted. Furthermore, if our competitors\u2019 ESG performance is perceived to be better than ours, potential or current customers and investors may elect to do business with our competitors instead, and our ability to attract or retain employees could be negatively impacted. Our failure, or perceived failure, to pursue or fulfill our goals, targets, and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also expose us to government enforcement actions and private litigation.",
+  "item7": ">ITEM 7.\u00a0\u00a0\u00a0\u00a0MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.\nWe have prepared this Management's Discussion and Analysis as an aid to understanding our financial results. It should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes to Consolidated Financial Statements. It also includes management\u2019s analysis of past financial results and certain potential factors that may affect future results, potential future risks and approaches that may be used to manage those risks. Refer to \"Cautionary Note Regarding Forward-Looking Statements\u201d at the beginning of this report for a discussion of factors that may cause results to differ materially. Note that our 2023 and 2021 fiscal years included 52 weeks, whereas fiscal year 2022 included 53 weeks.\nIntroduction\nOur Business\nWe are the leading global producer of reclining chairs and the second largest manufacturer/distributor of residential furniture in the United States\n.\n The La-Z-Boy Furniture Galleries\n\u00ae\n stores retail network is the third largest retailer of single-branded furniture in the United States\n.\n We manufacture, market, import, export, distribute and retail upholstery furniture products under the La-Z-Boy\n\u00ae\n, England, Kincaid\n\u00ae\n, and Joybird\n\u00ae\n tradenames. In addition, we import, distribute and retail accessories and casegoods (wood) furniture products\n\u00a0\nunder the Kincaid\n\u00ae\n, American Drew\n\u00ae\n, Hammary\n\u00ae\n, and Joybird\n\u00ae\n tradenames. \nAs of April\u00a029, 2023, our supply chain operations included the following:\n\u2022\nFive major manufacturing locations and 12 distribution centers in the United States and four facilities in Mexico to support our speed-to-market and customization strategy\n\u2022\nA logistics company that distributes a portion of our products in the United States \n\u2022\nA wholesale sales office that is responsible for distribution of our product in the United Kingdom and Ireland\n\u2022\nAn upholstery manufacturing business in the United Kingdom\n\u2022\nA global trading company in Hong Kong which helps us manage our Asian supply chain by establishing and maintaining relationships with our Asian suppliers, as well as identifying efficiencies and savings opportunities\nDuring the third quarter of fiscal 2023, we made the decision to close our manufacturing facility in Torre\u00f3n, Mexico as part of our initiative to drive improved efficiencies through optimized staffing levels within our plants. Torre\u00f3n was the last facility to begin operating as part of our broader Mexico manufacturing expansion in fiscal 2021 and 2022 to meet pandemic-related upholstery demand and accounted for approximately 3% of our La-Z-Boy branded production. As a result of this action, charges were recorded within the Wholesale segment in the third and fourth quarters of fiscal 2023 totaling $9.2 million in \n21\nTable of Contents\nselling, general, and administrative expense for the impairment of various assets, primarily long-lived assets, and $1.6 million in cost of sales, primarily related to severance.\nWe also participate in two consolidated joint ventures in Thailand that support our international businesses: one that operates a manufacturing facility and another that operates a wholesale sales office. Additionally, we have contracts with several suppliers in Asia to produce products that support our pure import model for casegoods.\nWe sell our products through multiple channels: to furniture retailers or distributors in the United States, Canada, and approximately 50 other countries, including the United Kingdom, China, Australia, South Korea and New Zealand; directly to consumers through retail stores that we own and operate; and through our websites, www.la-z-boy.com and www.joybird.com. \n\u2022\nThe centerpiece of our retail distribution strategy is our network of 349 La-Z-Boy Furniture Galleries\n\u00ae\n stores and 522 La-Z-Boy Comfort Studio\n\u00ae\n locations, each dedicated to marketing our La-Z-Boy branded products. We consider this dedicated space to be \"proprietary.\" \n\u25e6\nLa-Z-Boy Furniture Galleries\n\u00ae\n stores help consumers furnish their homes by combining the style, comfort, and quality of La-Z-Boy furniture with our available design services. We own 171 of the La-Z-Boy Furniture Galleries\n\u00ae\n stores, while the remainder are independently owned and operated. \n\u25e6\nLa-Z-Boy Comfort Studio\n\u00ae\n locations are defined spaces within larger independent retailers that are dedicated to displaying and selling La-Z-Boy branded products. All 522 La-Z-Boy Comfort Studio\n\u00ae\n locations are independently owned and operated. \n\u25e6\nIn total, we have approximately 7.6 million square feet of proprietary floor space dedicated to selling La-Z-Boy branded products in North America. \n\u25e6\nWe also have approximately 2.6 million square feet of floor space outside of the United States and Canada dedicated to selling La-Z-Boy branded products.\n\u2022\nOur other brands, England, American Drew, Hammary, and Kincaid enjoy distribution through many of the same outlets, with slightly over half of Hammary\u2019s sales originating through the La-Z-Boy Furniture Galleries\n\u00ae\n store network. \n\u25e6\nKincaid and England have their own dedicated proprietary in-store programs with 614 outlets and approximately 1.9 million square feet of proprietary floor space. \n\u25e6\nIn total, our proprietary floor space includes approximately 12.1 million square feet worldwide.\n \n\u2022\nJoybird sells product primarily online and has a limited amount of proprietary retail showroom floor space including ten small-format stores in key urban markets.\nOur goal is to deliver value to our shareholders over the long term by executing our Century Vision strategic plan, in which we aim to grow sales and market share and strengthen our operating margins. The foundation of our strategic plan is to drive disproportionate growth of our two consumer brands, La-Z-Boy and Joybird, by delivering the transformational power of comfort with a consumer-first approach. We plan to drive growth in the following ways:\nExpanding the La-Z-Boy brand reach\n\u2022\nLeveraging our connection to comfort and reinvigorating our brand with a consumer focus and expanded omni-channel presence.\n Our strategic initiatives to leverage and reinvigorate our iconic La-Z-Boy brand center on a renewed focus on leveraging the compelling La-Z-Boy comfort message, accelerating our omni-channel offering, and identifying additional consumer-base growth opportunities. We are launching a new marketing platform in fiscal 2024, with compelling messaging to increase recognition and consideration of the brand. We expect this new messaging will enhance the appeal of our brand with a broader consumer base. Further, our goal is to connect with consumers along their purchase journey through multiple means, whether online or in person. We are driving change throughout our digital platforms to improve the user experience, with a specific focus on the ease with which customers browse through our broad product assortment, customize products to their liking, find stores to make a purchase, or purchase at www.la-z-boy.com.\n\u2022\nExpanding the reach of our wholesale distribution channels.\n Consumers experience the La-Z-Boy brand in many channels including the La-Z-Boy Furniture Galleries\n\u00ae\n store network and the La-Z-Boy Comfort Studio\n\u00ae \nlocations, our store-within-a-store format. While consumers increasingly interact with the brand digitally, our consumers also demonstrate an affinity for visiting our stores to shop, allowing us to frequently deliver the flagship La-Z-Boy \n22\nTable of Contents\nFurniture Galleries\n\u00ae\n store, or La-Z-Boy Comfort Studio\n\u00ae\n, experience and provide design services. In addition to our branded distribution channels, approximately 2,200 other dealers sell La-Z-Boy products, providing us the benefit of multi-channel distribution. These outlets include some of the best-known names in the industry, including Slumberland, Nebraska Furniture Mart, Mathis Brothers and Raymour & Flanagan. We believe there is significant growth potential for our consumer brands through these retail channels.\n\u2022\nGrowing our La-Z-Boy Furniture Galleries\u00ae store network\n. We expect our strategic initiatives in this area to generate growth in our Retail segment through an increased company-owned store count and in our Wholesale segment as our proprietary distribution network expands. We are not only focused on growing the number of locations, but also on upgrading existing store locations to our new concept designs. We are prioritizing growth of our company-owned Retail business by opportunistically acquiring existing La-Z-Boy Furniture Galleries\u00ae stores and opening new La-Z-Boy Furniture Galleries\u00ae stores, primarily in markets that can be serviced through our distribution centers, where we see opportunity for growth, or where we believe we have opportunities for further market penetration. Additionally, we are testing potential store formats to expand our reach to value-seeking consumers and during fiscal 2023, we opened two Outlet by La-Z-Boy stores. \nProfitably growing the Joybird brand\n\u2022\nProfitably growing the Joybird brand with a digital-first consumer experience. \nDuring fiscal 2019, we purchased Joybird, a leading e-commerce retailer and manufacturer of upholstered furniture with a direct-to-consumer model. We believe that Joybird is a brand with significant potential and our strategic initiatives in this area focus on fueling profitable growth through an increase in digital marketing spend to drive awareness and customer acquisition, ongoing investments in technology, an expansion of product assortment, and providing additional small-format stores in key urban markets to enhance our consumers' omni-channel experience.\nEnhancing our enterprise capabilities\n\u2022\nEnhancing our enterprise capabilities to support the growth of our consumer brands and enable potential acquisitions for growth.\n Key to successful growth is ensuring we have the capabilities to support that growth, including an agile supply chain, modern technology for consumers and employees, and by delivering a human-centered employee experience. Through our Century Vision plan, we have several initiatives focused on enhancing these capabilities with a consumer-first focus.\nOur reportable operating segments include the Wholesale segment and the Retail segment. \n\u2022\nWholesale Segment\n. Our Wholesale segment consists primarily of three operating segments: La-Z-Boy, our largest operating segment, our England subsidiary, and our casegoods operating segment that sells furniture under three brands: American Drew\n\u00ae\n, Hammary\n\u00ae\n and Kincaid\n\u00ae\n. The Wholesale segment also includes our international wholesale and manufacturing businesses. We aggregate these operating segments into one reportable segment because they are economically similar and meet the other aggregation criteria for determining reportable segments. Our Wholesale segment manufactures and imports upholstered furniture, such as recliners and motion furniture, sofas, loveseats, chairs, sectionals, modulars, ottomans and sleeper sofas and imports casegoods (wood) furniture such as bedroom sets, dining room sets, entertainment centers and occasional pieces. The Wholesale segment sells directly to La-Z-Boy Furniture Galleries\n\u00ae\n stores, operators of La-Z-Boy Comfort Studio\n\u00ae\n locations, England Custom Comfort Center locations, major dealers, and a wide cross-section of other independent retailers.\n\u2022\nRetail Segment\n. Our Retail segment consists of one operating segment comprised of our 171 company-owned La-Z-Boy Furniture Galleries\n\u00ae\n stores. The Retail segment sells primarily upholstered furniture, in addition to some casegoods and other accessories, to end consumers through these stores.\n\u2022\nCorporate & Other\n. Corporate & Other includes the shared costs for corporate functions, including human resources, information technology, finance and legal, in addition to revenue generated through royalty agreements with companies licensed to use the La-Z-Boy\n\u00ae\n brand name on various products. We consider our corporate functions to be other business activities and have aggregated them with our other insignificant operating segments, including our global trading company in Hong Kong and Joybird, an e-commerce retailer that manufactures upholstered furniture such as sofas, loveseats, chairs, ottomans, sleeper sofas and beds, and also imports casegoods (wood) furniture such as occasional tables and other accessories. Joybird sells to the end consumer primarily online through its website, www.joybird.com. None of the operating segments included in Corporate & Other meet the requirements of reportable segments.\n23\nTable of Contents\nResults of Operations\nThe following discussion provides an analysis of our results of operations and reasons for material changes therein for fiscal year 2023 as compared with fiscal year 2022. Refer to \"Results of Operations\" in Part II, Item 7, Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations in the Company\u2019s 2022 Annual Report on Form 10-K, filed with the SEC on June 21, 2022, for an analysis of the fiscal year 2022 results as compared to fiscal year 2021.\nImpact of COVID-19\nBeginning in the fourth quarter of fiscal 2020, we experienced significant changes in our business resulting from the COVID-19 pandemic. After temporarily closing due to state and local restrictions, when our retail and manufacturing locations reopened early in fiscal 2021, we experienced a significant surge in demand as consumers allocated more discretionary spending to home furnishings. During this time, we took several actions to increase our manufacturing capacity but due to the strong pace of incoming written orders outpacing production, combined with pricing and surcharge actions taken in response to inflationary cost pressures resulting from global supply chain challenges, our backlog increased to record levels. While sales demand trends remain strong compared to pre-pandemic levels, they have slowed relative to those experienced during the peak of the pandemic as consumer spending patterns shift and during fiscal 2023 we have worked through the majority of our backlog built in prior periods. \nFiscal Year 2023 and Fiscal Year 2022\nLa-Z-Boy Incorporated\n(52 weeks)\n(53 weeks)\n(FY23 vs FY22)\n(Amounts in thousands, except percentages)\n4/29/2023\n4/30/2022\n% Change\nSales\n$\n2,349,433\u00a0\n$\n2,356,811\u00a0\n(0.3)\n%\nOperating income\n211,439\u00a0\n206,756\u00a0\n2.3\u00a0\n%\nOperating margin\n9.0%\n8.8%\n\u00a0\nSales\nConsolidated sales in fiscal 2023 decreased $7.4 million, or 0.3%, compared with the prior year. We estimate the additional week in fiscal 2022 resulted in $48.9\u00a0million of additional sales in fiscal 2022 based on the average weekly sales for the fourth quarter of fiscal 2022. Absent the additional week, sales in fiscal 2023 increased 2% compared with the prior year, reflecting the realization of pricing surcharge actions taken to counteract rising raw material and freight costs from prior periods, along with a favorable impact from product and channel mix as sales in our Retail business grew. These benefits were essentially offset by a decline in delivered unit volume relative to the prior year in which we had built up a significant backlog as a result of the heightened demand driven by the impact of COVID-19.\nOperating Margin\nOperating margin, which is calculated as operating income as a percentage of sales, increased 20 basis points in fiscal 2023 compared with the prior year.\n\u2022\nGross margin increased 400 basis points during fiscal 2023 compared with fiscal 2022.\n\u25e6\nChanges in our consolidated mix improved gross margin by 250 basis points in fiscal 2023 driven by the growth of our Retail segment, which has a higher gross margin than our Wholesale segment.\n\u25e6\nPricing and surcharge actions taken in prior years to counteract inflationary cost pressures were fully realized in fiscal 2023 contributing to gross margin expansion.\n\u25e6\nRaw materials and freight costs decreased sequentially throughout fiscal 2023 but negatively impacted gross margin in fiscal 2023, compared with the prior year, due to global supply chain challenges experienced predominately in the first half of fiscal 2023.\n\u2022\nSelling, general, and administrative (\"SG&A\") expense as a percentage of sales increased 380 basis points during fiscal 2023 compared with fiscal 2022.\n24\nTable of Contents\n\u25e6\nChanges in our consolidated mix increased SG&A expense as a percentage of sales by 160 basis points in fiscal 2023 driven by growth of our Retail segment, which has a higher SG&A expense as a percentage of sales than our Wholesale segment.\n\u25e6\nDuring fiscal 2022, we recognized a $10.7 million gain on sale-leaseback transactions for the buildings and related fixed assets of three retail stores, the absence of which resulted in a 50 basis point increase in SG&A as a percentage of sales during fiscal 2023. \n\u25e6\nCharges related to the closure of our Torre\u00f3n, Mexico manufacturing facility in fiscal 2023 resulted in a 40 basis point increase in SG&A as a percentage of sales. \n\u25e6\nThe remaining increase in SG&A as a percentage of sales in fiscal 2023 was primarily due to increased investments in marketing, to pre-pandemic levels as a percentage of sales, to drive written sales. \nWe explain these items further when we discuss each segment's results later in this Management's Discussion and Analysis.\nRetail Segment\n(52 weeks)\n(53 weeks)\n(FY23 vs FY22)\n(Amounts in thousands, except percentages)\n4/29/2023\n4/30/2022\n% Change\nSales\n$\n982,043\u00a0\n$\n804,394\u00a0\n22.1\u00a0\n%\nOperating income\n161,571\u00a0\n109,546\u00a0\n47.5\u00a0\n%\nOperating margin\n16.5%\n13.6%\nSales\nThe Retail segment's sales increased $177.6 million, or 22%, in fiscal 2023 compared with fiscal 2022. We estimate the additional week in fiscal 2022 resulted in $16.6\u00a0million of additional sales in fiscal 2022 based on the average weekly sales for the fourth quarter of fiscal 2022. Absent the additional week, sales in fiscal 2023 increased 25% compared with the prior year. \nThe increase in the Retail segment's sales was led by a 17% increase in delivered same-stores sales, along with a $56.6\u00a0million increase in sales related to our fiscal 2023 retail store acquisitions and the full-year impact of our fiscal 2022 retail store acquisitions (refer to Note 2, Acquisitions for further information).\nWritten same-store sales decreased 6% in fiscal 2023 compared with fiscal 2022 reflecting softer demand across the industry driven by economic uncertainty and weaker consumer sentiment relative to the prior period which saw significant increases in consumer furniture demand. Despite these challenging industry trends, strong in-store execution led to positive written same-store sales in the back half of fiscal 2023 compared with the same period last year.\nSame-store sales include the sales of all currently active stores which have been open and company-owned for each comparable period.\nOperating Margin\nThe Retail segment's operating margin increased 290 basis points in fiscal 2023 compared with the prior year.\n\u2022\nGross margin increased 80 basis points during fiscal 2023 compared with fiscal 2022, primarily due to pricing actions taken by the Retail business to offset increases in product costs.\n\u2022\nSG&A expense as a percentage of sales decreased 210 basis points during fiscal 2023 compared with fiscal 2022.\n\u25e6\nHigher delivered sales relative to selling expenses and fixed costs, mainly occupancy expenses, was the primary driver of lower SG&A expense as a percentage of sales in fiscal 2023 compared with the prior year. \n\u25e6\nPartially offsetting this benefit, during the fourth quarter of fiscal 2022 we recognized a $10.7 million gain on sale-leaseback transactions for the buildings and related fixed assets of three retail stores. The absence of this gain in fiscal 2023 resulted in a 130 basis point comparative increase in SG&A expense as a percentage of sales compared with fiscal 2022. \n25\nTable of Contents\nWholesale Segment\n(52 weeks)\n(53 weeks)\n(FY23 vs FY22)\n(Amounts in thousands, except percentages)\n4/29/2023\n4/30/2022\n% Change\nSales\n$\n1,215,429\u00a0\n$\n1,371,602\u00a0\nIntersegment sales\n474,819\u00a0\n397,236\u00a0\nTotal sales\n1,690,248\u00a0\n1,768,838\u00a0\n(4.4)\n%\nOperating income\n115,215\u00a0\n134,013\u00a0\n(14.0)\n%\nOperating margin\n6.8%\n7.6%\n\u00a0\nSales\nThe Wholesale segment's sales decreased 4%, or $78.6 million, in fiscal 2023 compared with fiscal 2022. We estimate the additional week in fiscal 2022 resulted in $36.6\u00a0million of additional sales in fiscal 2022 based on the average weekly sales for the fourth quarter of fiscal 2022. Absent the additional week, sales in fiscal 2023 decreased 2% compared with the prior year. During fiscal 2023, sales benefited from the realization of pricing and surcharge actions taken in response to rising manufacturing costs from prior periods combined with favorable channel and product mix reflecting the shift to our La-Z-Boy Furniture Galleries network, as intercompany sales from our Wholesale segment to our Retail segment increased 20%. These benefits, however, only partially offset lower delivered volume in fiscal 2023 relative to fiscal 2022, due in part to the significant backlog built in prior periods to meet heightened demand.\nOperating Margin\nThe Wholesale segment's operating margin decreased 80 basis points in fiscal 2023 compared with fiscal 2022.\n\u2022\nGross margin increased 270 basis points during fiscal 2023 compared with fiscal 2022.\n\u25e6\nGross margin increased 430 basis points in fiscal 2023 from the combination of pricing and surcharge actions taken in prior periods along with favorable channel and product mix\n\u25e6\nWhile raw materials and freight costs have decreased sequentially throughout fiscal 2023, gross margin in fiscal 2023 decreased 160 basis points compared with fiscal 2022 due to higher raw materials and freight costs resulting from global supply challenges, predominately experienced in the first half of fiscal 2023.\n\u2022\nSG&A expense as a percentage of sales increased 350 basis points during fiscal 2023 compared with fiscal 2022.\n\u25e6\nReduced fixed cost leverage and an increase in marketing expense to pre-pandemic levels, as a percentage of sales, contributed to higher SG&A expense as a percentage of sales in fiscal 2023 compared with fiscal 2022.\n\u25e6\nAdditionally, charges related to the closure of our Torre\u00f3n, Mexico manufacturing facility in the third quarter of fiscal 2023 resulted in a 50 basis point increase in SG&A expense as a percentage of sales.\nCorporate and Other\n(52 weeks)\n(53 weeks)\n(FY23 vs FY22)\n(Amounts in thousands, except percentages)\n4/29/2023\n4/30/2022\n% Change\nSales\n$\n166,190\u00a0\n$\n195,959\u00a0\n(15.2)\n%\nIntercompany eliminations\n(489,048)\n(412,380)\n18.6\u00a0\n%\nOperating loss\n(65,347)\n(36,803)\n77.6\u00a0\n%\nSales\nCorporate and Other sales decreased $29.8 million in fiscal 2023 compared with fiscal 2022, primarily due to a $30.0 million, or 17% decrease from Joybird, which contributed $146.4 million in sales in fiscal 2023. We estimate the additional week in fiscal 2022 resulted in $3.8\u00a0million of additional sales in fiscal 2022 based on the average weekly sales in the fourth quarter of fiscal 2022. Joybird's overall delivered volume declined in fiscal 2023 due to slowing online traffic and demand challenges consistent with those recently experienced across the e-commerce home furnishings industry. Written sales for Joybird were down 16% in fiscal 2023 compared with fiscal 2022, reflecting the industry-wide demand challenges noted above. \n26\nTable of Contents\nIntercompany eliminations increased in fiscal 2023 compared with fiscal 2022 due to higher sales from our Wholesale segment to our Retail segment, driven by increased sales in the Retail segment. \nOperating Loss\nOur Corporate and Other operating loss was $28.5 million higher in fiscal 2023 compared with fiscal 2022.\n\u2022\nHigher operating loss was primarily due to Joybird's operating loss resulting from lower sales volume, higher input costs (mainly freight), reduced fixed cost leverage, and increased investments in marketing, as a percentage of sales, to drive customer acquisition and awareness.\n\u2022\nAdditionally, we recognized pre-tax gains of $0.8 million and $3.3 million in fiscal 2023 and fiscal 2022, respectively, to reduce the fair value of the Joybird contingent consideration liability based on our most recent projections at the time for the fiscal 2023 performance period. These actions resulted in a comparative $2.5\u00a0million increase in operating loss in fiscal 2023.\nNon-Operating Income (Expense)\nInterest Expense and Interest Income\nInterest expense was $0.4 million lower and interest income was $5.3 million higher in fiscal 2023 compared with fiscal 2022. The increase in interest income was primarily driven by higher interest rates.\nOther Income (Expense), Net\nOther income (expense), net was $11.8 million of expense in fiscal 2023 compared with $1.7 million of expense in fiscal 2022. The expense in fiscal 2023 was primarily due to a $10.3\u00a0million impairment of our investments in a privately held start-up company combined with exchange rate losses. The expense in fiscal 2022 was primarily due to unrealized losses on investments. \nIncome Taxes\nOur effective income tax rate was 26.2% for fiscal 2023 and 25.9% for fiscal 2022. Refer to Note 18, Income Taxes, for additional information.\nLiquidity and Capital Resources\nOur sources of liquidity include cash and cash equivalents, short-term and long-term investments, cash from operations, and amounts available under our credit facility. We believe these sources remain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, and fulfill other cash requirements for day-to-day operations and capital expenditures, including fiscal 2024 contractual obligations.\nWe had cash, cash equivalents and restricted cash of $346.7 million at April\u00a029, 2023, compared with $248.9 million at April\u00a030, 2022. Included in our cash, cash equivalents and restricted cash at April\u00a029, 2023, is $63.1 million held by foreign subsidiaries, the majority of which we have determined to be permanently reinvested. In addition, we had investments to enhance our returns on cash of $11.6 million at April\u00a029, 2023, compared with $27.2 million at April\u00a030, 2022.\n27\nTable of Contents\nThe following table illustrates the main components of our cash flows:\n\u00a0\nFiscal Year Ended\n(52 weeks)\n(53 weeks)\n(Amounts in thousands)\n4/29/2023\n4/30/2022\nCash Flows Provided By (Used For)\nNet cash provided by operating activities\n$\n205,167\u00a0\n$\n79,004\u00a0\nNet cash used for investing activities\n(70,120)\n(78,371)\nNet cash used for financing activities\n(37,139)\n(144,561)\nExchange rate changes\n(86)\n(1,919)\nChange in cash, cash equivalents and restricted cash\n$\n97,822\u00a0\n$\n(145,847)\nOperating Activities\nDuring fiscal 2023, net cash provided by operating activities was $205.2 million, an increase of $126.2 million compared with the prior year mainly due to favorable changes in working capital. Our cash provided by operating activities in fiscal 2023 was primarily attributable to net income, adjusted for non-cash items, a $53.7 million decrease in receivables and a $32.3 million decrease in inventory as we work down our backlog to pre-pandemic levels and align production with incoming order trends. This was partially offset by a $84.7\u00a0million decrease in customer deposits, reflecting the reduced backlog. \nInvesting Activities\nDuring fiscal 2023, net cash used for investing activities was $70.1 million, a decrease of $8.3 million compared with the prior year due to lower capital expenditures and acquisition payments and higher proceeds from investment sales, net of purchases, partially offset by less proceeds received from the sale of assets. Cash used for investing activities in fiscal 2023 included the following:\n\u2022\nCash used for capital expenditures in the period was $68.8 million, which is primarily related to La-Z-Boy Furniture Galleries\n\u00ae\n (new stores and remodels) and Joybird store projects and upgrades at our manufacturing and distribution facilities. We expect capital expenditures to be in the range of $55 to $60\u00a0million for fiscal 2024, primarily related to improvements and expansion of our Retail and Joybird stores, replacement of machinery and equipment for various manufacturing and distribution facilities, and technology upgrades. We have no material contractual commitments outstanding for future capital expenditures. \n\u2022\nCash used for acquisitions was $16.8 million, related to the acquisition of the Baton Rouge, Louisiana, Barboursville, West Virginia, Spokane, Washington and Denver, Colorado retail businesses. Refer to Note 2, Acquisitions, for additional information.\n\u2022\nProceeds from the sale of investments, net of investment purchases was $15.4 million. \nFinancing Activities\nOn October 15, 2021, we entered into a new five-year $200\u00a0million unsecured revolving credit facility (the \u201cCredit Facility\u201d). Borrowings under the Credit Facility may be used by the Company for general corporate purposes. We may increase the size of the facility, either in the form of additional revolving commitments or new term loans, subject to the discretion of each lender to participate in such increase, up to an additional amount of $100\u00a0million. The Credit Facility will mature on October 15, 2026 and provides us the ability to extend the maturity date for two additional one-year periods, subject to the satisfaction of customary conditions. As of April\u00a029, 2023, we have no borrowings outstanding under the Credit Facility.  \nThe Credit Facility contains certain restrictive loan covenants, including, among others, financial covenants requiring a maximum consolidated net lease adjusted leverage ratio and a minimum consolidated fixed charge coverage ratio, as well as customary covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, merge or consolidate, and dispose of certain assets. As of April\u00a029, 2023, we were in compliance with our financial covenants under the Credit Facility. We believe our cash and cash equivalents, short-term investments, and cash from operations, in addition to our available Credit Facility, will provide adequate liquidity for our business operations over the next 12 months.\n28\nTable of Contents\nDuring fiscal 2023, net cash used for financing activities was $37.1 million, a decrease of $107.4 million compared with prior year, primarily due to fewer share repurchases and holdback payments on prior-period acquisitions. Cash used for financing activities in fiscal 2023 included the following:\n\u2022\nOur board of directors has authorized the repurchase of Company stock and we spent $5.0 million during fiscal 2023 to repurchase 0.2 million shares. As of April\u00a029, 2023, 7.3 million shares remained available for repurchase pursuant to this authorization. With the operating cash flows we anticipate generating in fiscal 2024, we expect to continue repurchasing Company stock.\n\u2022\nCash paid to our shareholders in quarterly dividends was $29.9\u00a0million. Our board of directors has sole authority to determine if and when we will declare future dividends and on what terms. We expect the board to continue declaring regular quarterly cash dividends for the foreseeable future, but it may discontinue doing so at any time.\n\u2022\nCash paid for holdback payments made on prior-period acquisitions was $5.0 million for a guaranteed payment related to the acquisition of Joybird. \nExchange Rate Changes\nDue to changes in exchange rates, our cash, cash equivalents, and restricted cash decreased by $0.1 million from the end of fiscal year 2022 to the end of fiscal year 2023. These changes slightly impacted our cash balances held in Canada, Thailand, and the United Kingdom.\nContractual Obligations\nLease Obligations. \nWe lease real estate for retail stores, distribution centers, warehouses, plants, showrooms and office space and also have equipment leases for tractors/trailers, IT and office equipment, and vehicles. As of April\u00a029, 2023, we had operating and finance lease payment obligations of $505.0 million and $0.4 million, respectively, with $91.7 million and $0.1 million, payable within 12 months, respectively. Refer to Note 6, Leases, for additional information.\nPurchase Obligations.\n We had purchase obligations of $156.3\u00a0million, all payable within 12 months, related to open purchase orders, primarily with foreign and domestic casegoods, leather, and fabric suppliers, which are generally cancellable if production has not begun.\nAcquisition Payment Obligations.\n Consideration for prior acquisitions may include future guaranteed payments and payments contingent on future performance. As of April\u00a029, 2023, we had future guaranteed payments related to our Joybird acquisition of $5.0\u00a0million, all payable within 12 months. \nOther\n \nOur consolidated balance sheet as April\u00a029, 2023 reflected a $1.1 million net liability for uncertain income tax positions. We do not expect that the net liability for uncertain income tax positions will significantly change within the next 12\u00a0months. The remaining balance will be settled or released as tax audits are effectively settled, statutes of limitation expire, or other new information becomes available.\nWe do not expect our continuing compliance with existing federal, state and local statutes dealing with protection of the environment to have a material effect on our capital expenditures, earnings, competitive position or liquidity.\nCritical Accounting Estimates\nWe prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles (\"US GAAP\"). In some cases, these principles require management to make difficult and subjective judgments regarding uncertainties and, as a result, such estimates and assumptions may significantly impact our financial results and disclosures. We base our estimates on currently known facts and circumstances, prior experience and other assumptions we believe to be reasonable. We use our best judgment in valuing these estimates and may, as warranted, use external advice. Actual results could differ from these estimates, assumptions, and judgments and these differences could be significant. We make frequent comparisons throughout the year of actual experience to our assumptions to reduce the likelihood of significant adjustments. We record adjustments when differences are known. We consider the following accounting estimates to be critical as they require us to make assumptions that are uncertain at the time the estimate was made and changes to the estimate would have a material impact on our financial statements.  \n29\nTable of Contents\nIndefinite-Lived Intangible Assets and Goodwill\nIndefinite-lived intangible assets include our American Drew trade name and the reacquired right to own and operate La-Z-Boy Furniture Galleries\n\u00ae\n stores we have acquired. Prior to our retail acquisitions, we licensed the exclusive right to own and operate La-Z-Boy Furniture Galleries\n\u00ae\n stores (and to use the associated trademarks and trade name) in those markets to the dealers whose assets we acquired, and we reacquired these rights when we purchased the dealers' other assets. The reacquired right to own and operate La-Z-Boy Furniture Galleries\n\u00ae\n stores are indefinite-lived because our retailer agreements are perpetual agreements that have no specific expiration date and no renewal options. A retailer agreement remains in effect as long as the independent retailer is not in default under the terms of the agreement.\nOur goodwill relates to the acquisitions of La-Z-Boy Furniture Galleries\n\u00ae\n stores, the La-Z-Boy wholesale business in the United Kingdom and Ireland, the La-Z-Boy manufacturing business in the United Kingdom, and Joybird\n\u00ae\n, an e-commerce retailer and manufacturer of upholstered furniture. The reporting unit for goodwill arising from retail store acquisitions is our Retail operating segment. Goodwill arising from the acquisition of\n our wholesale business in the United Kingdom and Ireland along with goodwill arising from the acquisition of our\n manufacturing business in the United Kingdom are combined into the United Kingdom reporting. The reporting unit for goodwill arising from the acquisition of Joybird is the Joybird operating segment.\nWe test indefinite-lived intangibles and goodwill for impairment on an annual basis in the fourth quarter of our fiscal year, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. We have the option to first assess qualitative factors in order to determine if it is more likely than not that the fair value of our intangible assets or reporting units are greater than their carrying value. If the qualitative assessment leads to a determination that the intangible asset/reporting unit\u2019s fair value may be less than its carrying value, or if we elect to bypass the qualitative assessment altogether, we are required to perform a quantitative impairment test by calculating the fair value of the intangible asset/reporting unit and comparing the fair value with its associated carrying value. When we perform the quantitative test for indefinite-lived intangible assets, we establish the fair value of our indefinite-lived trade names and reacquired rights based upon the relief from royalty method, which requires the use of significant estimates and assumptions including forecasted sales growth and royalty rates. When we perform the quantitative test for goodwill, we establish the fair value for the reporting unit based on the income approach, in which we utilize a discounted cash flow model, the market approach, in which we utilize market multiples of comparable companies, or a combination of both approaches. The income approach requires the use of significant estimates and assumptions including forecasted sales growth, operating income projections, and discount rates and changes in these assumptions may materially impact our fair value assessment. Refer to Note 7, Goodwill and Other Intangible Assets, for further information regarding our fiscal 2023 impairment testing.\nProduct Warranties\nWe account for product warranties by accruing an estimated liability when we recognize revenue on the sale of warrantied product. We estimate future warranty claims on product sales based on claim experience and periodically make adjustments to reflect changes in actual experience. We incorporate repair costs in our liability estimates, including materials, labor, and overhead amounts necessary to perform repairs, and any costs associated with delivering repaired product to our customers and consumers. We use considerable judgment in making our estimates and record differences between our estimated and actual costs when the differences are known.\nStock-Based Compensation\nWe measure stock-based compensation cost for equity-based awards on the grant date based on the awards' fair value and recognize expense over the vesting period. We measure stock-based compensation cost for liability-based awards on the grant date based on the awards' fair value and recognize expense over the vesting period. We remeasure the liability for these awards and adjust their fair value at the end of each reporting period until paid. We recognize compensation cost for stock-based awards that vest based on performance conditions ratably over the vesting periods when the vesting of such awards becomes probable. Determining the probability of award vesting requires judgment, including assumptions about future operating performance. While the assumptions we use to calculate and account for stock-based compensation awards represent management's best estimates, these estimates involve inherent uncertainties and the application of our management's best judgment. As a result, if we revise our assumptions and estimates, our stock-based compensation expense could be materially different in the future.\nWe estimate the fair value of each option grant using a Black-Scholes option-pricing model. We estimate expected volatility based on the historic volatility of our common shares. We estimate the average expected life using the contractual term of the stock option and expected employee exercise and post-vesting employment termination trends. We base the risk-free rate on \n30\nTable of Contents\nU.S. Treasury issues with a term equal to the expected life assumed at the date of grant. We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur. \nWe estimate the fair value of each performance award grant that vests based on a market condition using a Monte Carlo valuation model. The Monte Carlo model incorporates more complex variables than closed-form models such as the Black-Scholes option valuation model used for option grants. The Monte Carlo valuation model simulates a distribution of stock prices to yield an expected distribution of stock prices over the remaining performance period. The stock-paths are simulated using volatilities calculated with historical information using data from a look-back period that is equal to the vesting period. The model assumes a zero-coupon, risk-free interest rate with a term equal to the vesting period. The simulations are repeated many times and the mean of the discounted values is calculated as the grant date fair value for the award. The final payout of the award as calculated by the model is then discounted back to the grant date using the risk-free interest rate.\nRecent Accounting Pronouncements\nRefer to Note\u00a01, Accounting Policies, to our consolidated financial statements for a discussion of recently adopted accounting standards and other new accounting standards.",
+  "item7a": ">ITEM 7A.\u00a0\u00a0\u00a0\u00a0QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.\nWhile we had no variable rate borrowings at April\u00a029, 2023, we could be exposed to market risk from changes in risk-free interest rates if we incur variable rate debt in the future. Based on our current and expected levels of exposed liabilities, management estimates that a one percentage point change in interest rates would not have had a material impact on our results of operations for fiscal 2023.\nWe are exposed to market risk from changes in the value of foreign currencies primarily related to our manufacturing facilities in Mexico, our wholesale and retail businesses in Canada, our wholesale and manufacturing businesses in the United Kingdom, and our majority-owned joint ventures in Thailand. In Mexico, we pay wages and other local expenses in Mexican Pesos. In our Canadian wholesale business, we pay wages and other local expenses in Canadian Dollars. We recognize sales and pay wages and other local expenses related to our wholesale and manufacturing businesses in the United Kingdom in Great British Pounds, and our Canadian retail business in Canadian Dollars. In Thailand, we pay wages and other local expenses in the Thai Baht. Nonetheless, gains and losses resulting from market changes in the value of foreign currencies have not had and are not currently expected to have a material effect on our consolidated results of operations. A decrease in the value of foreign currencies in relation to the U.S. Dollar could impact the profitability of some of our vendors and translate into higher prices from our suppliers, but we believe that, in that event, our competitors would experience a similar impact.\nWe are exposed to market risk with respect to commodity and transportation costs, principally related to commodities we use in producing our products, including steel, wood and polyurethane foam, in addition to transportation costs for delivering our products. As commodity prices and transportation costs rise, we determine whether a price increase to our customers to offset these costs is warranted. To the extent that an increase in these costs would have a material impact on our results of operations, we believe that our competitors would experience a similar impact.\nWe are exposed to market risk with respect to duties and tariffs assessed on raw materials, component parts, and finished goods we import into countries where we operate. Additionally, we are exposed to duties and tariffs on our finished goods that we export from our assembly plants to other countries. As these tariffs and duties increase, we determine whether a price increase to our customers to offset these costs is warranted. To the extent that an increase in these costs would have a material impact on our results of operations, we believe that our competitors would experience a similar impact. Conversely, if certain tariffs are eliminated or reduced, we may face additional competition from foreign manufacturers entering the United States market and from domestic retailers who rely on imported goods, which could put pressure on our prices and may adversely impact our result of operations.\n31\nTable of Contents",
+  "cik": "57131",
+  "cusip6": "505336",
+  "cusip": ["505336957", "505336107", "505336907"],
+  "names": ["LA Z BOY INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/57131/000005713123000032/0000057131-23-000032-index.htm"
+}
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+  "item1": ">Item\u00a01. \nBusiness\nGENERAL DEVELOPMENT OF BUSINESS\nCompany Overview\nLancaster Colony Corporation, an Ohio corporation, is a manufacturer and marketer of specialty food products for the retail and foodservice channels. Our principal executive offices are located at 380 Polaris Parkway, Suite 400, Westerville, Ohio 43082 and our telephone number is 614-224-7141.\nOur vision is to be \nThe Better Food Company\n \u2013 better people, driven by purpose, making better food, in a better more collaborative culture, working in unison to make the world around us a little bit better place, every day \u2013 while fulfilling our corporate purpose \nTo Nourish Growth With All That We Do\n.\nOur company goals are to bring delicious food to the table and to deliver top quartile financial performance and top quartile product quality, safety and customer satisfaction while attracting, retaining and rewarding top quartile people. To achieve these goals, we are focused on the three pillars of our strategic growth plan:\n1.\nAccelerate our base business growth;\n2.\nSimplify our supply chain to reduce our costs and grow our margins; and\n3.\nExpand our core business with our Retail licensing program and complementary mergers and acquisitions\n.\nAs used in this Annual Report on Form 10-K and except as the context otherwise may require, the terms \u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d \u201cregistrant,\u201d or \u201cthe Company\u201d mean Lancaster Colony Corporation and its consolidated subsidiaries, except where it is clear that the term only means the parent company. Unless otherwise noted, references to \u201cyear\u201d pertain to our fiscal year which ends on June\u00a030; for example, 2023 refers to fiscal 2023, which is the period from July\u00a01, 2022 to June\u00a030, 2023.\nAvailable Information\nOur Internet website address is https://www.lancastercolony.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section\u00a013(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the \u201cSEC\u201d). The information contained on our website or connected to it is not incorporated into this Annual Report on Form 10-K.\nThe SEC also maintains a website, https://www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.\nDESCRIPTION OF AND FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS\nOur financial results are presented as two reportable segments: Retail and Foodservice. Costs that are directly attributable to either Retail or Foodservice are charged directly to the appropriate segment. Costs that are deemed to be indirect, excluding corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable methodology that is consistently applied. The financial information relating to our business segments for the three years ended June\u00a030, 2023, 2022 and 2021 is included in Note 9 to the consolidated financial statements, and located in Part II, Item\u00a08 of this Annual Report on Form 10-K. Further description of each business segment within which we operate is provided below.\nRetail Segment\nThe following table presents the primary Retail products we manufacture and sell under our brand names:\nProducts\nBrand Names\nFrozen Breads\nFrozen garlic breads\nNew York \nBRAND\n Bakery\nFrozen Parkerhouse style yeast rolls and dinner rolls\nSister Schubert\u2019s\nRefrigerated Dressings and Dips\nSalad dressings\nMarzetti, Marzetti Simply\nVegetable dips and fruit dips\nMarzetti\nShelf-Stable Dressings and Croutons\nSalad dressings\nMarzetti, Cardini\u2019s, Girard\u2019s\nCroutons and salad toppings\nNew York \nBRAND\n Bakery, Chatham Village, Marzetti\n3\nTable of Contents\nWe also manufacture and sell other products pursuant to brand license agreements, including Chick-fil-A\n\u00ae\n sauces and dressings, Olive Garden\n\u00ae\n dressings and Buffalo Wild Wings\n\u00ae\n sauces. Additionally, a small portion of our Retail sales are products sold under private label to retailers.\nThe vast majority of the products we sell in the Retail segment are sold through sales personnel, food brokers and distributors in the United States. We have placement of products in grocery produce departments through our refrigerated salad dressings, vegetable dips and fruit dips. We also have products typically marketed in the shelf-stable section of the grocery store, which include salad dressings, slaw dressing, sauces and croutons. Within the frozen food section of the grocery store, we sell yeast rolls and garlic breads.\nOur top five Retail customers accounted for 59%, 57% and 55% of this segment\u2019s total net sales in 2023, 2022 and 2021, respectively.\nWe continue to rely upon our strong retail brands, innovation expertise, geographic and channel expansion and customer relationships for future growth. Our category-leading retail brands and commitment to new product development help drive increased consumer demand in our Retail segment. We have also expanded Retail segment growth by leveraging our strong Foodservice customer relationships to establish exclusive licensing agreements for the retail channel. Strategic acquisitions are also part of our future growth plans, with a focus on fit and value.\nOur quarterly Retail sales are affected by seasonal fluctuations, primarily in the fiscal second quarter and the Easter holiday season when sales of certain frozen retail products tend to be most pronounced. Our quarterly Retail sales can also be affected by the timing of seasonal shipments of certain fruit dips between the first and second quarters. The resulting impacts on working capital are not significant. We do not utilize any franchises or concessions. In addition to the owned and licensed trademarked brands discussed above, we also own and operate under innumerable other intellectual property rights, including patents, copyrights, formulas, proprietary trade secrets, technologies, know-how processes and other unregistered rights. We consider our owned and licensed intellectual property rights to be essential to our Retail business.\nFoodservice Segment\nThe majority of our Foodservice sales are products sold under private label to restaurants. We also manufacture and sell various branded Foodservice products to distributors.\nThe following table presents the primary Foodservice products we manufacture and sell under our brand names:\nProducts\nBrand Names\nDressings and Sauces\nSalad dressings\nMarzetti\nFrozen Breads and Other\nFrozen garlic breads\nNew York \nBRAND\n Bakery\nFrozen Parkerhouse style yeast rolls and dinner rolls\nSister Schubert\u2019s\nFrozen pasta\nMarzetti Frozen Pasta\nThe vast majority of the products we sell in the Foodservice segment are sold through sales personnel, food brokers and distributors in the United States. Most of the products we sell in the Foodservice segment are custom-formulated and include salad dressings, sandwich and dipping sauces, frozen breads and yeast rolls.\nOur top five Foodservice direct customers accounted for 58%, 58% and 61% of this segment\u2019s total net sales in 2023, 2022 and 2021, respectively. Within our Foodservice segment, typically our largest direct customers are distributors that distribute our products primarily to foodservice national chain restaurant accounts.\nIn the Foodservice segment, sales growth results from general volume gains or geographic expansion of our established customer base, and we also grow our business with existing and new customers by leveraging our culinary skills and experience to support the development of new products and menu offerings. Strategic acquisitions are also part of our future growth plans, with a focus on fit and value.\nThe operations of this segment are not affected to any material extent by seasonal fluctuations. We do not utilize any franchises or concessions. We own and operate under innumerable intellectual property rights, including patents, copyrights, formulas, proprietary trade secrets, technologies, know-how processes and other unregistered rights. We consider our owned intellectual property rights to be essential to our Foodservice business.\n4\nTable of Contents\nNET SALES ATTRIBUTED TO SIGNIFICANT CUSTOMER RELATIONSHIPS\nNet sales attributed to Walmart Inc. (\u201cWalmart\u201d) totaled 18% of consolidated net sales for 2023, 2022 and 2021. Net sales attributed to McLane Company, Inc. (\u201cMcLane\u201d), a wholesale distribution subsidiary of Berkshire Hathaway, Inc., totaled 11%, 11% and 13% of consolidated net sales for 2023, 2022 and 2021, respectively. McLane is a large, national distributor that sells and distributes our products to several of our foodservice national chain restaurant accounts, principally in the quick service, fast casual and casual dining channels. In general, these national chain restaurants have direct relationships with us for culinary research and development, menu development and production needs, but choose to buy our products through McLane, who acts as their distributor. McLane orders our products on behalf of these national chain restaurants, and we invoice McLane for these sales.\nOur relationship with Chick-fil-A, Inc. (\u201cChick-fil-A\u201d), one of our national chain restaurant accounts, also represents a significant portion of our consolidated net sales. In Foodservice, we primarily supply Chick-fil-A indirectly through distributors, including McLane. A portion of our Foodservice sales represent direct sales to Chick-fil-A. Chick-fil-A is also a significant contributor to our Retail sales as we sell their sauce and dressing products into the retail channel through an exclusive license agreement. Total net sales attributed to Chick-fil-A, including the Retail sales resulting from the exclusive license agreement and the Foodservice sales, totaled 26%, 24% and 21% of consolidated net sales for 2023, 2022 and 2021, respectively.\nNET SALES BY CLASS OF PRODUCTS\nThe following table sets forth business segment information with respect to the percentage of net sales contributed by our primary classes of similar products:\n2023\n2022\n2021\nRetail Segment:\nShelf-stable dressings, sauces and croutons\n23%\n22%\n21%\nFrozen breads\n19%\n20%\n21%\nRefrigerated dressings, dips and other\n11%\n13%\n15%\nFoodservice Segment:\nDressings and sauces\n35%\n34%\n32%\nFrozen breads and other\n12%\n11%\n11%\nMANUFACTURING\nAs of June\u00a030, 2023, the majority of our products were manufactured and packaged at our 15 food plants located throughout the United States. Most of these plants produce products for both the Retail and Foodservice segments. Efficient and cost-effective production remains a key focus as evidenced by our lean six sigma initiative. Certain items are also manufactured and packaged by third parties located in the United States, Canada and Europe.\nCOMPETITION\nAll of the markets in which we sell food products are highly competitive in the areas of price, quality and customer service. We face competition from a number of manufacturers of various sizes and capabilities. Our ability to compete depends upon a variety of factors, including the position of our branded goods within various categories, product quality, product innovation, promotional and marketing activity, pricing and our ability to service customers.\nGOVERNMENT REGULATION\nOur business operations are subject to regulation by various federal, state and local government entities and agencies. As a producer of food products for human consumption, our operations are subject to stringent production, packaging, quality, labeling and distribution standards, including regulations promulgated under the Federal Food, Drug and Cosmetic Act and the Food Safety Modernization Act. We are also subject to various federal, state and local environmental protection laws. Based upon available information, compliance with these laws and regulations did not have a material effect upon the level of capital expenditures, earnings or our competitive position in 2023 and is not expected to have a material impact in 2024.\nHUMAN CAPITAL\nAs of June\u00a030, 2023, we had 3,400 employees. Of those employees, 23% are represented under various collective bargaining contracts and 6% are represented under a collective bargaining contract that will expire within one year.\n5\nTable of Contents\nOur people are essential to our vision to be \nThe Better Food Company \n\u2014 better people, driven by purpose, making better food, in a better more collaborative culture, working in unison to make the world around us a little bit better place, every day. The honesty, integrity and sound judgment of our people in following our Code of Business Ethics are what enable us to be successful and live our company\u2019s purpose \nTo Nourish Growth With All That We Do\n.\nConsistent with this purpose, our human capital management strategy emphasizes six key areas of focus: Health and Safety; Talent Acquisition; Total Rewards; Employee Engagement; Diversity, Equity and Inclusion (\u201cDEI\u201d); and Community Engagement. Our Board of Directors oversees this strategy and dedicates one Board meeting each year to a full review of talent.\nHealth and Safety\nThe health and well-being of our employees is paramount to the success of our business, and we are proud to be leaders in our industry with respect to our safety record and safety initiatives. Our approach to occupational health and safety centers around three elements: training, response, and tracking. We maintain a rigorous safety training program that ensures employees throughout the organization are regularly trained in every aspect of workplace safety. Management personnel with direct responsibility for safety oversight also receive comprehensive professional training and the opportunity for certification.\nTalent Acquisition\nWe strive to attract and retain talented people by providing a great place to work. We have built a collaborative and purpose-driven culture that attracts people who share our vision to be \nThe Better Food Company\n. In addition, we are committed to nourishing the growth of our employees by providing training and development opportunities to pursue their career paths and to ensure compliance with our policies.\nTotal Rewards\nWe offer our employees competitive fixed and/or variable pay along with a Total Rewards package which typically includes medical, prescription, dental, vision and life insurance benefits, paid parental leave, adoption assistance, disability coverage, a 401(k) plan, and various employee assistance programs. We have undertaken external benchmarking to ensure our compensation and benefits offerings remain competitive.\nWe continue to work to expand our Total Rewards program to strengthen our focus on work/life effectiveness and holistic well-being, which includes physical, financial, emotional, and social well-being. We genuinely want to help our people to thrive both personally and professionally and have cultivated a high-performing workplace built on trust, accountability and growth.\nEmployee Engagement\nTo keep our employees engaged and fulfilled in their roles, we have sought to establish a continuous feedback loop between our employees and company leadership. We communicate consistently with our people via a range of channels, including town hall meetings, regular updates, and key announcements. Each year, we invite our employees to respond to our annual employee engagement survey and share their views on a range of workplace questions. Based on feedback from the survey, management develops and implements plans to address the primary areas of opportunity that have been identified by employees.\nDiversity, Equity and Inclusion\nWe foster a collaborative working environment where all our employees can thrive and feel they belong. We believe our commitment to diversity, equity, inclusion and belonging enhances our ability to attract and retain a high-performing and diverse team. We monitor the diversity of our organization to identify areas of improvement, advance our DEI strategy and measure the effectiveness of our efforts. Our goal is to establish a continuous improvement trend. In 2023, our workforce was 36% female and 44% of our employees represented minority races or ethnicities.\nIn 2020, we adopted our Diversity Hiring Statement, which sets out our pledge to include women and minorities in the pool of candidates for new leadership positions. We have already seen a positive impact with the percentage of women at levels of Vice President and above increasing by 58% from January 2020 to January 2023 and the percentages of non-white representation for positions of director and above nearly doubling in the same period.\nTo unlock opportunities for high school students from diverse backgrounds, we have committed to a work-study program that provides tuition support and work-study mentorship to high school students from low-income families.\nWe also encourage employee-led initiatives to promote diversity within the organization. Several employee resource groups (\u201cERGs\u201d) have been established in the last few years. These affinity-based groups provide a support network for colleagues from diverse backgrounds and help to raise awareness of DEI topics. Each of our ERGs is sponsored by a member of our leadership team to ensure top-down accountability for our DEI initiatives.\n6\nTable of Contents\nCommunity Engagement\nOur volunteering and philanthropic efforts align with United Nations Sustainable Development Goals, with a particular focus on reducing poverty and food insecurity while promoting good health and quality education for all. In 2023, our teams mobilized to support Pelotonia, Toys for Tots, and the United Way. We regularly donate funds and volunteer time to a range of other community organizations and foundations as well, including the Children\u2019s Hunger Alliance, National Veterans Memorial and Museum, Jobs for America\u2019s Graduates, and local food banks.\nRAW MATERIALS\nDuring 2023, we obtained adequate supplies of raw materials and packaging. We rely on a variety of raw materials and packaging for the day-to-day production of our products, including soybean oil, various sweeteners, eggs, dairy-related products, flour, various films and plastic and paper packaging materials.\nWe purchase the majority of these materials on the open market to meet current requirements, but we also have some fixed-price contracts with terms generally one year or less. See further discussion in the \u201cRisk Factors\u201d section below and the \u201cFinancial Condition\u201d section of our Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (\u201cMD&A\u201d). Although the availability and price of certain of these materials are influenced by weather, disease and the level of global demand, we anticipate that future sources of supply for 2024 will generally be available and adequate for our needs.",
+  "item1a": ">Item\u00a01A. \nRisk Factors\nAn investment in our common stock is subject to certain risks inherent in our business. Before making an investment decision, investors should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K.\nIf any of the following risks occur, our business, results of operations, financial condition and cash flows could be materially and adversely affected. These described risks are not the only risks facing us. Additional risks and uncertainties not known to us or that we deem to be immaterial also may materially adversely affect our business, results of operations, financial condition and cash flows. If any of these risks were to materialize, the value of our common stock could decline significantly.\nRISKS RELATED TO HEALTH AND FOOD SAFETY\nWe may be subject to business disruptions, product recalls or other claims for real or perceived safety issues regarding our food products.\nWe have been, and in the future may be, impacted by both real and unfounded claims regarding the safety of our operations, or concerns regarding mislabeled, adulterated, contaminated or spoiled food products. Any of these circumstances could necessitate a voluntary or mandatory recall due to a substantial product hazard, a need to change a product\u2019s labeling or other consumer safety concerns. A pervasive product recall may result in significant loss due to the costs of a recall, related legal claims, including claims arising from bodily injury or illness caused by our products, the destruction of product inventory, or lost sales due to product unavailability. A highly publicized product recall, whether involving us or any related products made by third parties, also could result in a loss of customers or an unfavorable change in consumer sentiment regarding our products or any category in which we operate. In addition, an allegation of noncompliance with federal or state food laws and regulations could force us to cease production, stop selling our products or create significant adverse publicity that could harm our credibility and decrease market acceptance of our products. Any of these events could have a material adverse effect on our business, results of operations, financial condition and cash flows. Any potential claim under our insurance policies may exceed our insurance coverage, may be subject to certain exceptions or may not be honored fully, in a timely manner, or at all.\nWe may be subject to a loss of sales or increased costs due to adverse publicity or consumer concern regarding the safety, quality or healthfulness of food products, whether with our products, competing products or other related food products.\nWe are highly dependent upon consumers\u2019 perception of the safety, quality and possible dietary attributes of our products. As a result, substantial negative publicity concerning one or more of our products, or other foods similar to or in the same food group as our products, could lead to lower demand for our products and/or reduced prices and lost sales. Substantial negative publicity, even when false or unfounded, could also hurt the image of our brands or cause consumers to choose other products or avoid categories in which we operate. Any of these events could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nCertain negative publicity regarding the food industry or our products could also increase our cost of operations. The food industry has been subject to negative publicity concerning the health implications of genetically modified organisms, added sugars, trans fat, salt, artificial growth hormones, ingredients sourced from foreign suppliers and other supply chain concerns. Consumers may increasingly require that our products and processes meet stricter standards than are required by applicable \n7\nTable of Contents\ngovernmental agencies, thereby increasing the cost of manufacturing our products. If we fail to adequately respond to any such consumer concerns, we could suffer lost sales and damage our brand image or our reputation. Any of these events could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nRISKS RELATED TO OUR OPERATIONS\nIncreases in the costs, or limitations in the availability, of raw materials, packaging and freight used to produce, package and deliver our products due to inflation, geopolitical events or otherwise could adversely affect our business by increasing our costs to produce goods.\nOur principal raw materials include soybean oil, packaging materials, flour, various sweeteners, dairy-related products and eggs. Our ability to manufacture and/or sell our products may be impaired by damage or disruption to our manufacturing or distribution capabilities, or to the capabilities of our suppliers or contract manufacturers, due to factors that are hard to predict or beyond our control, such as adverse weather conditions, natural disasters, fire, terrorism, pandemics or similar public health emergencies, strikes, geopolitical events such as the conflict between Russia and Ukraine, or other events.\nProduction of the agricultural commodities used in our business may also be adversely affected by drought, water scarcity, temperature extremes, scarcity of suitable agricultural land, worldwide demand, changes in international trade arrangements, livestock disease (for example, avian influenza), crop disease and/or crop pests.\nWe purchase a majority of our key raw materials on the open market. Our ability to avoid the adverse effects of a pronounced, sustained price increase in our raw materials is limited. We have observed increased volatility in the costs of many of these raw materials in recent years. During fiscal 2023, we faced continued industry-wide inflation for various inputs, including commodities, ingredients, packaging materials, transportation and labor. Similarly, fluctuating petroleum prices and transportation capacity have, from time to time, impacted our costs of resin-based packaging and our costs of inbound freight on all purchased materials.\nWe try to limit our exposure to price fluctuations for raw materials by periodically entering into longer-term, fixed-price contracts for certain raw materials, but we cannot ensure success in limiting our exposure. During fiscal 2022, the overall global economy experienced significant inflation in packaging materials, fuel, energy, and commodities. Inflation has and may continue to adversely affect us by increasing our costs of raw materials, packaging and freight, as well as wage and benefit costs. Any substantial change in the prices or availability of raw materials may have an adverse impact on our profitability. For example, in recent periods we have seen significant commodity inflation in soybean oil, which has impacted both of our segments because of the significant number of our products that include soybean oil. Furthermore, consumer spending patterns, which may be difficult to predict in an inflationary environment, may adversely affect demand for our products. During challenging economic times, consumers may be less willing or able to pay a price premium for our branded products and may shift purchases to lower-priced offerings, making it more difficult for us to maintain prices and/or effectively implement price increases.\nIn addition, our retail partners and retail distributors may pressure us to rescind price increases we have announced or already implemented, whether through a change in list price or increased trade and promotional activity. We may experience further increases in the costs of raw materials and our ability to maintain prices or effectively implement price increases, including our price increases effective in fiscal 2023, may be affected by several factors, including competition, effectiveness of our marketing programs, the continuing strength of our brands, market demand and general economic conditions, including broader inflationary pressures. If we cannot maintain or increase prices for our products or must increase trade and promotional activity, our margins may be adversely affected. Furthermore, price increases generally result in volume losses, as consumers tend to purchase fewer units at higher price points. If such losses are greater than expected or if we lose distribution due to price increases, our business, financial condition and results of operations may be materially and adversely affected.\nThe Russia-Ukraine conflict is fast-moving and uncertain. Global grain markets have exhibited increased volatility as sanctions have been imposed on Russia by the United States, the United Kingdom, the European Union, and others in response to Russia\u2019s invasion of Ukraine. While we do not expect our operations to be directly impacted by the conflict at this time, changes in global grain and commodity flows could impact the markets in which we operate, which may in turn negatively impact our business, results of operations, supply chain and financial condition.\nA disruption of production at certain manufacturing facilities could result in an inability to meet customer demand for certain of our products, which could also negatively impact our ability to maintain adequate levels of product placement with our customers on a long-term basis.\nBecause we source certain products from single manufacturing sites and use third-party manufacturers for portions of our production needs for certain products, it is possible that we could experience a production disruption that results in a reduction or elimination of the availability of some of our products. If we are not able to obtain alternate production capability in a timely \n8\nTable of Contents\nmanner, or on favorable terms, it could have a negative impact on our business, results of operations, financial condition and cash flows, including the potential for long-term loss of product placement with various customers.\nWe are also subject to risks of other business disruptions associated with our dependence on production facilities, distribution systems and third party staffing agencies. For example, we rely on third party temporary staffing agencies to support certain of our production operations. If, for any reason, we are unable to source sufficient resources from these staffing agencies to support our production expectations, it could result in an inability to meet consumer demand for certain of our products and have a material adverse effect on our business. In addition, pandemics and similar public health emergencies, natural disasters, terrorist activity, cyber attacks, geopolitical events or other unforeseen events could interrupt production or distribution and have a material adverse effect on our business, results of operations, financial condition and cash flows, including the potential for long-term loss of product placement with our customers.\nLabor shortages, increased labor costs, and increased labor turnover could adversely impact our business, results of operations, financial condition, and cash flows.\nWe have recently experienced labor shortages, increased labor costs and increased employee turnover, which were due in part to the COVID-19 pandemic and the related policies and mandates and exacerbated by inflationary costs. In this increasingly tight and competitive labor market, a sustained labor shortage or increased turnover rates within our workforce, or the workforce of any of our significant vendors, suppliers and other parties with which we do business, could lead to production or shipping delays and increased costs, including increased wages to attract and retain employees and increased overtime to meet demand. In addition, our ability to recruit and retain a highly skilled and diverse workforce at our corporate offices, manufacturing facilities and other work locations could be adversely impacted if we fail to respond adequately to rapidly changing employee expectations regarding fair compensation, an inclusive and diverse workplace, flexible working arrangements or other matters. These factors could have a material adverse impact on our business, results of operations, financial condition and cash flows.\nThe availability and cost of transportation for our products is vital to our success, and the loss of availability or increase in the cost of transportation could have an unfavorable impact on our business, results of operations, financial condition and cash flows.\nOur ability to obtain adequate and reasonably priced methods of transportation to distribute our products, including refrigerated trailers for many of our products, is a key factor to our success. Delays in transportation, including weather-related delays and disruptions due to a pandemic or similar public health emergency, could have a material adverse effect on our business and results of operations. Further, higher fuel costs and increased line haul costs due to industry capacity constraints, customer delivery requirements and a more restrictive regulatory environment could negatively impact our financial results. We are often required to pay fuel surcharges that fluctuate with the price of diesel fuel to third-party transporters of our products, and, during periods of fast-rising fuel prices, such surcharges can be substantial. If we were unable to pass higher freight costs to our customers in the form of price increases, those higher costs could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nIncreases in energy-related costs could negatively affect our business by increasing our costs to produce goods.\nWe are subject to volatility in energy-related costs that affect the cost of producing and distributing our products, including our petroleum-derived packaging materials. For example, the conflict in the Ukraine has resulted in and may continue to cause market disruptions, including significant volatility in the price and availability of energy. Furthermore, any sudden and dramatic increases in electricity or natural gas costs could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nWe limit our exposure to price fluctuations in energy-related costs by periodically entering into longer-term, fixed-price contracts for natural gas and electricity supply for some of our manufacturing facilities. However, due to the inherent variability of contractual terms and end dates, in addition to the extent to which the energy markets in which we operate have been deregulated to allow for contracted supply, we will retain some level of exposure to future price fluctuations for our energy-related costs.\nEpidemics, pandemics or similar widespread public health emergencies and disease outbreaks, such as COVID-19, have disrupted and may cause future disruptions to consumption, supply chains, management, operations and production processes, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nEpidemics, pandemics or similar widespread public health emergencies and disease outbreaks, such as COVID-19, as well as related government mandates, including the avoidance of gatherings, self-quarantine and the closure of a variety of businesses and restaurants, have negatively affected and may in the future negatively affect our business, results of operations, financial condition and cash flows. For example, the negative impacts of COVID-19 on our Company included higher hourly \n9\nTable of Contents\nwage rates paid to our front-line employees, increased costs for personal protective equipment, higher expenditures attributed to incremental co-manufacturing volumes, increased complexity and uncertainty in production planning and forecasting, and overall lower levels of efficiency in our production and distribution network. In addition, the impacts of a widespread public health emergency may include, but are not limited to, a shift in demand between our Retail and Foodservice segments or a significant reduction in overall demand resulting from forced or temporary curtailment of business operations; a disruption or shutdown of one or more of our manufacturing, warehousing or distribution facilities; failure of third parties on which we rely to meet their obligations to us; disruption to or loss of essential manufacturing and supply elements; and incurrence of additional labor, operating, and administrative costs, including insurance costs.\nDespite our efforts to manage and remedy these impacts, their ultimate significance depends on factors beyond our knowledge or control, including the duration and severity of any such outbreak as well as third-party actions taken to contain the spread and mitigate public health effects. As a result, such public health emergencies could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nCyber attacks, data breaches or other breaches of our information security systems have had, and in the future could have, an adverse effect on our business, results of operations, financial condition and cash flows.\nCyber attacks, data breaches or other breaches of our information security systems, as well as those of our third-party service providers, including cloud service providers, and other third parties with which we do business, may cause equipment failures or disruptions to our operations. Our inability to operate our networks and information security systems as a result of such events, even for a limited period of time, may result in significant expenses. Cyber attacks on businesses, which include the use of malware, ransomware, computer viruses and other means for disruption or unauthorized access, have increased in frequency, scope and potential harm in recent years and may remain undetected for an extended period. Additionally, as a result of state-sponsored cyber threats, including those stemming from the Russia-Ukraine war, we may face increased risks as companies based in the United States and its allied countries have become targets of malicious cyber activity.\nHardware, software or applications we utilize on our networks and work-issued devices may contain defects in design or manufacture or other problems that could unexpectedly compromise information security, potentially resulting in the unauthorized disclosure and misappropriation of sensitive data, including intellectual property, proprietary business information, and personal data. Furthermore, our increased use of mobile and cloud technologies, including as a result of our transition to our current enterprise resource planning system, has heightened these cybersecurity and privacy risks. In addition, techniques used to obtain unauthorized access to information or to sabotage information technology systems change frequently. Like most businesses, we have seen, and will likely continue to see, vulnerabilities which could affect our systems or those of our third-party service providers or other third parties with which we do business.\nWhile we have been subject to cyber attacks, none of these events has been material to our operations or financial condition. Our efforts to protect the security of our information relative to our perceived risks may be insufficient to defend against a significant cyber attack in the future. The costs associated with a significant cyber attack could include increased expenditures on cyber security measures, lost revenues from business interruption, litigation, regulatory fines and penalties and substantial damage to our reputation, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nThe cost and efforts expended in our attempts to prevent cyber security attacks and data breaches may continue to be significant, and our efforts to prevent these attacks may not be successful. New data security laws and regulations are being implemented rapidly, are evolving, and may not be compatible with our current processes. Changing our processes could be time consuming and expensive. Further, we may not be able to timely implement required changes, and failure to do so could subject us to liability for non-compliance. If we fail to prevent the theft of valuable information such as financial data, sensitive information about our Company and intellectual property, or if we fail to protect the privacy of customers\u2019, consumers\u2019 or employees\u2019 confidential data against breaches of network or information technology security, it could result in substantial damage to our reputation and an impairment of business partner confidences and brand image, which could adversely impact our employee, customer and investor relations. Further, any potential claim under our insurance policies relating to cyber events may be subject to certain exceptions or may not be honored fully, in a timely manner, or at all. We may not have purchased sufficient insurance to cover all material costs and losses, and in the future, we may not be able to obtain adequate liability insurance on commercially desirable or reasonable terms or at all. Any of these occurrences could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nOur inability to successfully renegotiate collective bargaining contracts and any prolonged work stoppages could have an adverse effect on our business, results of operations, financial condition and cash flows.\nWe believe that our labor relations with employees under collective bargaining contracts are satisfactory, but our inability to negotiate the renewal of any collective bargaining agreements, including the agreement at our Bedford Heights, Ohio facility, which is currently scheduled to expire in April 2024, or any prolonged work stoppages or other types of labor unrest could in some cases impair our ability to supply our products to customers, which could result in reduced sales and may distract our \n10\nTable of Contents\nmanagement from focusing on other aspects of our business and strategic priorities. Any of these activities could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nThe loss of the services of one or more members of our senior management team could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nOur operations and prospects depend in large part on the performance of our senior management team, several of which are long-serving employees with significant knowledge of our business model and operations. Should we not be able to find qualified replacements or successors for any of these individuals if their services were no longer available due to retirement, resignation or otherwise, our ability to manage our operations or successfully execute our business strategy may be materially and adversely affected.\nManufacturing capacity constraints may have a material adverse effect on our business, results of operations, financial condition and cash flows.\nOur current manufacturing resources may be inadequate to meet significantly increased demand for some of our food products. Our ability to increase our manufacturing capacity to satisfy demand depends on many factors, including the availability of capital, construction lead-times and delays, equipment availability and delivery lead-times, successful installation and start up, the availability of adequate skilled and unskilled labor, regulatory permitting and other regulatory requirements. Increasing capacity through the use of third-party manufacturers depends on our ability to develop and maintain such relationships and the ability of such third parties to devote additional capacity to fill our orders.\nA lack of sufficient manufacturing capacity to meet demand could cause our customer service levels to decrease, which may negatively affect customer demand for our products and customer relations generally, which in turn could have a material adverse effect on our business, results of operations, financial condition and cash flows. In addition, operating facilities at or near capacity may also increase production and distribution costs and negatively affect relations with our employees or contractors, which could result in disruptions in our operations.\nWe may require significant capital expenditures to maintain, improve or replace aging infrastructure and facilities, which could adversely affect our cash flows.\nSome of our infrastructure and facilities have been in service for many years, which may result in a higher level of future maintenance costs and unscheduled repairs. Further, a portion of our infrastructure and facilities may need to be improved or replaced to maintain or increase operational efficiency, sustain production capacity, or meet changing regulatory requirements. A significant increase in maintenance costs and capital expenditures could adversely affect our financial condition, results of operations and cash flows. In addition, a failure to operate our facilities optimally could result in declining customer service capabilities, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nWe may not be able to successfully consummate proposed acquisitions or divestitures, and integrating acquired businesses may present financial, managerial and operational challenges.\nWe continually evaluate the acquisition of other businesses that would strategically fit within our operations. If we are unable to consummate, successfully integrate and grow these acquisitions or realize contemplated revenue growth, synergies and cost savings, our financial results could be adversely affected. In addition, we may, from time to time, divest or seek to divest businesses, product lines or other operations that are less of a strategic fit within our portfolio or do not meet our growth or profitability targets, particularly as customer demands evolve in the face of inflationary and other broader market factors. We may not be able to consummate any such divestitures on favorable terms or at all, in which case we may determine to exit the business, product line or other operations. As a result, our profitability may be adversely affected by losses on the sales of divested assets or lost operating income or cash flows from those businesses. We may also incur asset impairment or restructuring charges related to acquired or divested assets, which may reduce our profitability and cash flows.\nThese potential acquisitions or divestitures present financial, managerial and operational challenges, including diversion of management attention from ongoing businesses, difficulty with integrating or separating personnel and financial and other systems, increased expenses, assumption of unknown liabilities, indemnities and potential disputes with the buyers or sellers.\nClimate change, including drought, and increasingly stringent legal and market measures to address climate change may present challenges to our business and adversely affect our business, reputation, operations and supply chain.\nThe effects of climate change expose us to physical, financial and operational risks, both directly and indirectly. Climate change may have a negative effect on agricultural productivity and subject us to decreased availability or less favorable pricing for certain raw materials that are necessary for our products, including, but not limited to, soybean oil, corn and corn syrup, sugar, and wheat (including durum wheat). In addition, we may be subject to decreased availability or less favorable pricing of soybean oil as a result of increased demand for soybean oil in the production of alternative fuels, such as biodiesel.\n11\nTable of Contents\nIncreases in the frequency and severity of extreme weather and natural disasters, such as drought, have in the past and may in the future result in material damage and disruptions to our manufacturing operations and distribution channels or our third-party manufacturers\u2019 operations, particularly where a product is primarily sourced from a single location impacted by a climate event. This may require us to make additional unplanned capital expenditures, increase the prices of our raw materials due to sourcing from other locations, increase our cost of transporting and storing raw materials, or disrupt our production schedules.\nAlso, drought or other climate events may cause unpredictable water availability or exacerbate water scarcity. Water is critical to our business, including the operations of the suppliers on whom we depend, and the lack of available water of acceptable quality may lead to, among other things, adverse effects on our operations.\nThe increasing concern over climate change and related environmental sustainability matters also has and is likely to continue to result in more federal, state, and local legal and regulatory requirements, including requirements affecting key energy inputs in the manufacturing and distribution of our products, such as natural gas, diesel fuel, and electricity. These laws and regulations may include requirements to conserve water or mitigate the effects of greenhouse gas emissions. Depending on the nature of such legal requirements, we may experience significant increases in our compliance costs, production costs, capital expenditures, and other financial obligations to adapt our business and operations to meet new laws and regulations, which could materially affect our profitability.\nFurther, our businesses could be adversely affected if we are unable to effectively address concerns from the media, shareholders, customers, and other stakeholders specific to our business regarding climate change and related environmental sustainability and governance matters.\nRISKS RELATED TO THE BRANDS WE SELL AND CUSTOMER DEMAND FOR OUR PRODUCTS\nWe rely on the value of our reputation and the value of the brands we sell, and the failure to maintain and enhance these brands, including as a result of negative publicity (whether or not warranted), could adversely affect our business.\nWe rely on the success of our well-recognized brand names. Maintaining and enhancing our brand image and recognition is essential to our long-term success. The failure to do so could have a material adverse effect on our business, financial condition and results of operations. We seek to maintain and enhance our brands through a variety of efforts, including the delivery of quality products, extending our brands into new markets and new products and investing in marketing and advertising. The costs of maintaining and enhancing our brands, including maintaining our rights to brands under license agreements, may increase. These increased costs could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nNegative publicity about our company, our brands or our products, even if inaccurate or untrue, could adversely affect our reputation and the confidence in our products, which could harm our business and operating results. For example, public allegations were recently made against several food companies, including us, regarding unlawful child labor practices. Allegations, even if untrue, that we, our suppliers, third party staffing agencies or other business partners are not complying with applicable workplace and labor laws, including child labor laws, or regarding the actual or perceived abuse or misuse of migrant workers, could negatively affect our overall reputation and brand image, which in turn could have a negative impact on our relationships with customers, consumers and our brand license partners, as well as subject us to increased regulatory and political scrutiny. Moreover, failure or perceived failure to comply with legal or regulatory requirements applicable to our business could expose us to litigation, governmental inquiries and substantial fines and penalties, as well as costs and distractions, that could adversely affect our business, results of operations, financial condition and cash flows.\nOur reputation could also be adversely impacted by a perception that we do not maintain high ethical, social or environmental standards for all of our operations and activities. Any such negative perceptions, or any negative publicity regarding our environmental, social and governance practices, could impact our reputation with customers, consumers and other constituents, which could have a material adverse effect on our business. If we fail to respect our employees\u2019 and our supply chain employees\u2019 human rights, or inadvertently discriminate against any group of employees or hiring prospects, our ability to hire and retain the best talent will be diminished, which could have a material adverse effect on our overall business.\nIn addition, we increasingly rely on electronic marketing, such as social media platforms and the use of online marketing strategies, to support and enhance our brands. This \u201ce-commerce\u201d marketplace is growing and evolving quickly and allows for the rapid dissemination of information regarding our brands by us and consumers. We may not be able to successfully adapt our marketing efforts to this rapidly changing marketplace, which could have a material adverse impact on our business, financial condition and results of operations. Further, negative opinions or commentary posted online regarding our brands, regardless of their underlying merits or accuracy, could diminish the value of our brands and have a material adverse effect on our business, results of operations, financial condition and cash flows.\n12\nTable of Contents\nWe manufacture and sell numerous products pursuant to license agreements and failure to maintain or renew these agreements could adversely affect our business.\nWe manufacture and sell numerous products pursuant to brand license agreements, including Chick-fil-A\n\u00ae\n sauces and dressings, Olive Garden\n\u00ae\n dressings and Buffalo Wild Wings\n\u00ae\n sauces. Maintaining license agreements under which we market and sell certain brands is important to our business. Our brand license agreements are typically for a fixed term with no automatic renewal options or provisions. We cannot ensure that we will maintain good relationships with our brand licensors or that we will be able to renew any of our license agreements upon expiration. Our key brand license agreements can be terminated or not renewed at the option of the licensor upon short notice to us. The termination of our brand license agreements, the failure to renew any of our significant brand license agreements or failure to renew them under terms that are similar and not materially less favorable to us, including as a result of negative publicity (whether or not warranted), adverse changes in the economic health or reputation of our brand licensors, or the impairment of our relationships with our brand licensors could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nCompetitive conditions within our Retail and Foodservice markets could impact our sales volumes and operating profits.\nCompetition within all of our markets is expected to remain intense. Numerous competitors exist, many of which are larger than us in size and are engaged in the development of food ingredients and packaged food products and frequently introduce new products into the market. These competitive conditions could lead to significant downward pressure on the prices of our products, which could have a material adverse effect on our sales and profitability.\nCompetitive considerations in the various product categories in which we sell are numerous and include price, product innovation, product quality, reputation, brand recognition and loyalty, effectiveness of marketing, promotional activity and the ability to remain relevant to consumer preferences and trends.\nIf our competitors introduce products that are more appealing to the tastes and dietary habits of consumers or considered to be of higher quality or value than our products, our sales and market share could decline, which may have a material adverse effect on our business, financial condition, and results of operations. Consumer preferences and trends may change based on a number of factors, including product taste and nutrition, food allergies, sustainability values, and animal welfare concerns. Our failure to anticipate and respond to changing consumer preferences on a timely basis or in line with our competitors could result in reduced demand and price decreases for our products, which could have a material adverse effect on our business, financial condition, and results of operations.\nIn order to maintain our existing market share or capture increased market share among our retail and foodservice channels, we may decide to increase our spending on marketing and promotional costs, advertising and new product innovation. The success of marketing, advertising and new product innovation is subject to risks, including uncertainties about trade and consumer acceptance. As a result, any such increased expenditures may not maintain or enhance our market share and could result in lower profitability.\nWalmart is our largest Retail customer. The loss of, or a significant reduction in, Walmart\u2019s business, or an adverse change in the financial condition of Walmart, could result in a material adverse effect on our business, results of operations, financial condition and cash flows.\nOur net sales to Walmart represented 18% of consolidated net sales for each of the years ended June\u00a030, 2023 and 2022. Our accounts receivable balance from Walmart as of June 30, 2023 was $33.1 million. We may not be able to maintain our relationship with Walmart, and Walmart is not contractually obligated to purchase from us. In addition, changes in Walmart\u2019s general business model, such as reducing the shelf space devoted to the branded products we market, or devoting more shelf space to competing products, could adversely affect the profitability of our business with Walmart, even if we maintain a good relationship. The loss of, or a significant reduction in, this business could have a material adverse effect on our sales and profitability. Unfavorable changes in Walmart\u2019s financial condition or other disruptions to Walmart\u2019s business, such as decreased consumer demand or stronger competition, could also have a material adverse effect on our business, results of operations, financial condition and cash flows.\nChick-fil-A represents a significant portion of our Foodservice segment sales. The loss of, or a significant reduction in, this national chain restaurant\u2019s business, or an adverse change in Chick-fil-A\u2019s financial condition, could result in a material adverse effect on our business, results of operations, financial condition and cash flows.\nSales to Chick-fil-A in our Foodservice segment, which are primarily made indirectly through several foodservice distributors including McLane, represented 20% and 18% of consolidated net sales for the years ended June\u00a030, 2023 and 2022, respectively. We cannot ensure that we will be able to maintain good relationships with key national chain restaurant accounts in the future. We do not have any long-term purchase commitments, and we may be unable to continue to sell our products in the same quantities or on the same terms as in the past. The loss of, or a significant reduction in, this business could have a material adverse effect on our sales and profitability. Further, unfavorable changes in Chick-fil-A\u2019s financial condition or other \n13\nTable of Contents\ndisruptions to its business, such as decreased consumer demand or stronger competition, could also have a material adverse effect on our business, results of operations, financial condition and cash flows.\nMcLane is our largest Foodservice customer. An adverse change in the financial condition of McLane could have a material adverse effect on our business, results of operations, financial condition and cash flows. \nOur net sales to McLane represented 11% of consolidated net sales for each of the years ended June\u00a030, 2023 and 2022. Our accounts receivable balance from McLane as of June 30, 2023 was $9.9 million. McLane is a large, national distributor that sells and distributes our products to several of our foodservice national chain restaurant accounts, principally in the quick service, fast casual and casual dining channels. In general, these national chain restaurants have direct relationships with us for culinary research and development, menu development and production needs, but choose to buy our products through McLane, who acts as their distributor. McLane orders our products on behalf of these national chain restaurants, and we invoice McLane for these sales. Thus, unfavorable changes in the financial condition of McLane could increase our credit risk and have a material adverse effect on our business, results of operations, financial condition and cash flows. In addition, the loss of, or a significant reduction in, our business with the underlying national chain restaurants, or other disruptions, such as decreased consumer demand or stronger competition, could also have a material adverse effect on our business, results of operations, financial condition and cash flows. We cannot ensure that we will be able to maintain good relationships with McLane and the underlying national chain restaurants. McLane and the underlying national chain restaurants are not typically committed to long-term contractual obligations with us, and they may switch to other suppliers that offer lower prices, differentiated products or customer service that McLane and/or the underlying national chain restaurants perceive to be more favorable. In addition, changes in the general business model of McLane, or the underlying national chain restaurants, could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nWe rely on the performance of major retailers, mass merchants, wholesalers, food brokers, distributors and foodservice customers for the success of our business and, should they perform poorly or give higher priority to other brands or products, our business could be adversely affected.\nWithin our Retail and Foodservice segments, we sell our products principally to retail and foodservice channels, including traditional supermarkets, mass merchants, warehouse clubs, specialty food distributors, foodservice distributors and national chain restaurants. Poor performance by our customers, or our inability to collect accounts receivable from our customers, could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nIn addition, our future growth and profitability may be unfavorably impacted by recent changes in the competitive landscape for our Retail segment customers. As consolidation in the retail grocery industry continues and our retail customers also grow larger and become more sophisticated, they may demand improved efficiency, lower pricing, increased promotional programs, or specifically tailored products. If we are unable to respond to these demands, our profitability or volume growth could be negatively impacted. Consolidation also increases the risk that adverse changes in our customers\u2019 business operations or financial performance will have a corresponding material adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases. Further, these customers may increase their emphasis on private label products and other products holding top market positions. If we fail to use our sales and marketing expertise to maintain our category leadership positions to respond to such events, or if we lower our prices or increase promotional support of our products and are unable to increase the volume of our products sold, our business, results of operations, financial condition and cash flows could be adversely affected.\nFurthermore, within our Retail segment, many of our customers offer competitor branded products and their own store branded products that compete directly with our products for shelf space and consumer purchases. Unattractive placement or pricing, including as a result of our recent price increases due to inflation, may put our products at a disadvantage compared to those of our competitors, including private label products. Even if we obtain shelf space or preferable shelf placement, our new and existing products may fail to achieve the sales expectations set by our retailers, potentially causing these retailers to discontinue selling our products. Additionally, an increase in the quantity and quality of private label products in the product categories in which we compete could create more pressure for shelf space and placement for branded products within each such category, which could materially and adversely affect our sales. Accordingly, there is a risk that these customers give higher priority or promotional support to their store branded products or to our competitors\u2019 products or discontinue selling our products in favor of their store branded products or other competing products. Likewise, our foodservice distributors often offer their own branded products that compete directly with our products. Failure to maintain our retail shelf space or priority with these customers and foodservice distributors could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nEmerging channels such as online retailers and home meal kit delivery services also continue to evolve and impact both the retail and foodservice industries. Our ultimate success in these channels and the resulting impacts to our financial results are uncertain.\n14\nTable of Contents\nRISKS RELATED TO INFORMATION TECHNOLOGY\nTechnology failures could disrupt our operations and negatively impact our business.\nWe increasingly rely on information technology systems to conduct and manage our business operations, including the processing, transmitting, and storing of electronic information. For example, our sales group and our production and distribution facilities utilize information technology to increase efficiencies and limit costs. Furthermore, a significant portion of the communications between our personnel, customers, and suppliers depends on information technology and an uninterrupted and functioning infrastructure, including telecommunications. Our information technology systems may be vulnerable to a variety of interruptions due to events beyond our control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, cyber attacks and other security issues. Our information technology systems could also be adversely affected by changes relating to remote work arrangements for our employees. If we are unable to adequately protect against these vulnerabilities, our operations could be disrupted, or we may suffer financial damage or loss because of lost or misappropriated information. \nFor more information about risks related to cyber attacks and data privacy, see the \u201cRisks Related To Our Operations\u201d section above and the \u201cRisks Related to Regulatory and Legal Matters\u201d section below.\nRISKS RELATED TO REGULATORY AND LEGAL MATTERS\nWe are subject to federal, state and local government regulations that could adversely affect our business and results of operations.\nOur business operations are subject to regulation by various federal, state and local government entities and agencies. As a producer of food products for human consumption, our operations are subject to stringent production, packaging, quality, labeling and distribution standards, including regulations promulgated under the Federal Food, Drug and Cosmetic Act and the Food Safety Modernization Act. We cannot predict whether future regulation by various federal, state and local government entities and agencies would adversely affect our business, results of operations, financial condition and cash flows. In recent years, our industry has been subject to increased regulatory scrutiny, including by the Federal Trade Commission and the Occupational Safety and Health Administration. We anticipate that regulators will continue to scrutinize our industry closely and that additional regulation by governmental authorities may increase compliance costs, exposure to litigation and other adverse effects to our operations.\nIn addition, our business operations and the past and present ownership and operation of our properties, including idle properties, are subject to extensive and changing federal, state and local environmental laws and regulations pertaining to the discharge of materials into the environment, the handling and disposition of wastes (including solid and hazardous wastes) or otherwise relating to protection of the environment. Although most of our properties have been subjected to periodic environmental assessments, these assessments may be limited in scope and may not include or identify all potential environmental liabilities or risks associated with any particular property. We cannot be certain that our environmental assessments have identified all potential environmental liabilities or that we will not incur material environmental liabilities in the future.\nWe cannot be certain that environmental issues relating to presently known matters or identified sites, or to other unknown matters or sites, will not require additional, currently unanticipated investigation, assessment or expenditures. If we do incur or discover any material environmental liabilities or potential environmental liabilities in the future, we may face significant remediation costs and find it difficult to sell or lease any affected properties.\nFailure to comply with current or future federal, state and foreign laws and regulations and industry standards relating to privacy and data protection could adversely affect our business and results of operations.\nWe are subject to various privacy, information security, and data protection laws, rules and regulations that present an ever-evolving regulatory landscape across multiple jurisdictions and industry sections. Federal, state, and foreign legislators and regulators are increasingly adopting or revising privacy, information security, and data protection laws, rules and regulations that could have a significant impact on our current and planned privacy, data protection, and information security-related practices, including our collection, use, storing, sharing, retention, safeguarding and other processing of certain types of consumer or employee information, which could further increase our costs of compliance and business operations and could reduce income from certain business initiatives.\nFor example, we are subject to the California Consumer Privacy Act of 2018 (\u201cCCPA\u201d). The CCPA was amended by the California Privacy Rights Act (\u201cCPRA\u201d), which went into effect on January 1, 2023. The CCPA, as amended, has required us to modify our data processing practices and policies and incur compliance-related costs and expenses. The effects of the CCPA, the CPRA, and laws, rules or regulations of other jurisdictions relating to privacy, data protection and information security that apply now or in the future, particularly any new or modified laws or regulations that require enhanced protection of certain types of data or new obligations with regard to data retention, transfer or disclosure, are significant, may require us to modify \n15\nTable of Contents\nour data processing practices and policies, and could increase our costs, require significant changes to our operations, prevent us from providing certain offerings or cause us to incur potential liability in an effort to comply with such legislation.\nThe rapidly evolving nature of state and federal privacy laws, including potential inconsistencies between such laws and uncertainty as to their application, adds additional complexity and compliance costs and increases our risk of non-compliance. While we strive to comply with such laws, we may not be in compliance at all times in all respects. Further, due to the uncertainty surrounding the interpretation and application of many privacy and data protection requirements, laws, regulations, and contractually imposed industry standards, it is possible that these requirements may be interpreted and applied in a manner that is inconsistent with our existing data management practices or business activities. If so, in addition to the possibility of substantial fines, lawsuits and other claims and penalties, we could be required to make fundamental changes to our data management practices and business activities, which could have a material adverse effect on our business. Failure to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, rules, regulations and policies could result in additional cost and liability to us, administrative actions, damage our reputation, inhibit growth, and otherwise adversely affect our business.\nWe may incur liabilities related to a multiemployer pension plan which could adversely affect our financial results.\nWe make periodic contributions to a multiemployer pension plan related to our facility in Milpitas, California under a collective bargaining contract. The multiemployer pension plan provides pension benefits to employees and retired employees participating in the plan. Our required contributions to this plan could increase; however, any increase would be dependent upon a number of factors, including our ability to renegotiate the collective bargaining contract successfully, current and future regulatory requirements, the performance of the pension plan\u2019s investments, the number of participants who are entitled to receive benefits from the plan, the contribution base as a result of the insolvency or withdrawal of other companies that currently contribute to this plan, the inability or failure of withdrawing companies to pay their withdrawal liability, low interest rates and other funding deficiencies. We may also be required to pay a withdrawal liability if we exit from this plan. While we cannot determine whether and to what extent our contributions may increase or what our withdrawal liability may be, payments related to this plan could have a material adverse effect on our business, financial condition, results of operations or cash flows.\nRISKS RELATED TO INVESTMENTS IN OUR COMMON STOCK\nMr.\u00a0Gerlach, Executive Chairman of our Board of Directors, has a significant ownership interest in our Company.\nAs of June\u00a030, 2023, Mr.\u00a0Gerlach and the Gerlach family trusts owned or controlled approximately 28% of the outstanding shares of our common stock. Accordingly, Mr.\u00a0Gerlach has significant influence on all matters submitted to a vote of the holders of our common stock, including the election of directors. Mr.\u00a0Gerlach\u2019s voting power may also have the effect of discouraging transactions involving an actual or a potential change of control of our Company, regardless of whether a premium is offered over then-current market prices.\nThe interests of Mr.\u00a0Gerlach may conflict with the interests of other holders of our common stock. This conflict of interest may have an adverse effect on the price of our common stock. For instance, sales of a substantial number of shares of our common stock into the public market, particularly shares held by Mr. Gerlach or the Gerlach family trusts, or the perception that these sales might occur in large quantities, could cause the price of our common stock to decline, even if our business is doing well.\nAnti-takeover provisions could make it more difficult for a third party to acquire our Company.\nCertain provisions of our charter documents, including provisions limiting the ability of shareholders to raise matters at a meeting of shareholders without giving advance notice and provisions classifying our Board of Directors, may make it more difficult for a third party to acquire our Company or influence our Board of Directors. This may have the effect of delaying or preventing changes of control or management, which could have an adverse effect on the market price of our stock.\nAdditionally, Ohio corporate law contains certain provisions that could have the effect of delaying or preventing a change of control. The Ohio Control Share Acquisition Act found in Chapter 1701 of the Ohio Revised Code (\u201cORC\u201d) provides that certain notice and informational filings and a special shareholder meeting and voting procedures must be followed prior to consummation of a proposed \u201ccontrol share acquisition,\u201d as defined in the ORC. Assuming compliance with the prescribed notice and information filings, a proposed control share acquisition may be accomplished only if, at a special meeting of shareholders, the acquisition is approved by both a majority of the voting power represented at the meeting and a majority of the voting power remaining after excluding the combined voting power of the \u201cinterested shares,\u201d as defined in the ORC. The Interested Shareholder Transactions Act found in Chapter 1704 of the ORC generally prohibits certain transactions, including mergers, majority share acquisitions and certain other control transactions, with an \u201cinterested shareholder,\u201d as defined in the ORC, for a three-year period after becoming an interested shareholder, unless our Board of Directors approved the initial acquisition. After the three-year waiting period, such a transaction may require additional approvals under the Interested Shareholder Transactions Act, including approval by two-thirds of our voting shares and a majority of our voting shares not \n16\nTable of Contents\nowned by the interested shareholder. The application of these provisions of the ORC, or any similar anti-takeover law adopted in Ohio, could have the effect of delaying or preventing a change of control, which could have an adverse effect on the market price of our stock.\nAlso, our Board of Directors has the authority to issue up to 1,150,000 shares of Class B Voting Preferred Stock and 1,150,000 shares of Class C Nonvoting Preferred Stock and to determine the price, rights, preferences, privileges and restrictions of those shares without any further vote or action by the shareholders. The rights of the holders of our common stock may be subject to, and may be adversely affected by, the rights of the holders of any Class B Voting Preferred Stock and Class C Nonvoting Preferred Stock that may be issued in the future. Our Company could use these rights to put in place a shareholder rights plan, or \u201cpoison pill,\u201d that could be used in connection with a bid or proposal of acquisition for an inadequate price.",
+  "item7": ">Item\u00a07. \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nOur fiscal year begins on July\u00a01 and ends on June\u00a030. Unless otherwise noted, references to \u201cyear\u201d pertain to our fiscal year; for example, 2023 refers to fiscal 2023, which is the period from July\u00a01, 2022 to June\u00a030, 2023.\nThe following discussion should be read in conjunction with our consolidated financial statements and the notes thereto in Item 8 of this Annual Report on Form 10-K. The forward-looking statements in this section and other parts of this report involve risks, uncertainties and other factors, including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption \u201cForward-Looking Statements\u201d and those set forth in Item 1A of this Annual Report on Form 10-K.\nOur discussion of results for 2023 compared to 2022 is included herein. For discussion of results for 2022 compared to 2021, see our 2022 Annual Report on Form 10-K.\nOVERVIEW\nBusiness Overview\nLancaster Colony Corporation is a manufacturer and marketer of specialty food products for the retail and foodservice channels.\nOur financial results are presented as two reportable segments: Retail and Foodservice. Costs that are directly attributable to either Retail or Foodservice are charged directly to the appropriate segment. Costs that are deemed to be indirect, excluding corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable methodology that is consistently applied.\nOver 95% of our products are sold in the United States. Foreign operations and export sales have not been significant in the past and are not expected to be significant in the future based upon existing operations. We do not have any fixed assets located outside of the United States.\nOur business has the potential to achieve future growth in sales and profitability due to attributes such as:\n\u2022\nleading Retail market positions in several product categories with a high-quality perception;\n\u2022\nrecognized innovation in Retail products;\n\u2022\na broad customer base in both Retail and Foodservice accounts;\n\u2022\nwell-regarded culinary expertise among Foodservice customers;\n\u2022\nlong-standing Foodservice customer relationships that help to support strategic licensing opportunities in Retail;\n\u2022\nrecognized leadership in Foodservice product development;\n\u2022\nexperience in integrating complementary business acquisitions; and\n\u2022\nhistorically strong cash flow generation that supports growth opportunities.\nOur goal is to grow both Retail and Foodservice segment sales over time by:\n\u2022\nintroducing new products and expanding distribution;\n\u2022\nleveraging the strength of our Retail brands to increase current product sales; \n\u2022\nexpanding Retail growth through strategic licensing agreements;\n\u2022\ncontinuing to rely upon the strength of our reputation in Foodservice product development and quality; and\n\u2022\nacquiring complementary businesses.\nWith respect to long-term growth, we continually evaluate the future opportunities and needs for our business specific to our plant infrastructure, IT platforms and other initiatives to support and strengthen our operations. Recent examples of resulting investments include:\n\u2022\na significant capacity expansion project for our Marzetti dressing and sauce facility in Horse Cave, Kentucky that reached substantial completion in March 2023;\n\u2022\na capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022;\n\u2022\na significant infrastructure improvement and capacity expansion project for our frozen pasta facility in Altoona, Iowa that was completed in March 2022; and\n\u2022\nthe establishment of a Transformation Program Office in 2019 that serves to coordinate our various capital and integration efforts, including our enterprise resource planning system (\u201cERP\u201d) project and related initiatives, Project Ascent, that is currently in the implementation phase.\n21\nTable of Contents\nProject Ascent commenced in late 2019 and entails the replacement of our primary customer and manufacturing transactional systems, warehousing systems, and financial systems with an integrated SAP S/4HANA system. Implementation of this system began in July 2022 and continued throughout fiscal 2023. Customer fulfillment levels remained strong before and after the initial system cutover with no unplanned disruptions in receiving orders, producing products or shipping orders. During fiscal 2023, we progressed through our ERP implementation with no major disruptions. We completed the final wave of the implementation phase in August 2023 as planned and will shift our focus towards leveraging the capabilities of our new ERP system in the coming year. Project Ascent will evolve into an on-going Center of Excellence that will provide oversight for all future upgrades of the S/4HANA environment, evaluation of future software needs to support the business, acquisition integration support and master data standards.\nBUSINESS TRENDS\nDating back to the onset of the COVID-19 pandemic in 2020, the effects of COVID-19 on consumer behavior have impacted the relative demand for our Retail and Foodservice products. More specifically, beginning in March 2020, consumer demand shifted towards increased at-home food consumption and away from in-restaurant dining. Over the course of the following two years, while this shift in demand was inconsistent and volatile, on balance it positively impacted our Retail segment sales volumes and negatively impacted our Foodservice segment sales volumes. From an operations standpoint, the shift in demand over the two-year period, combined with other COVID-19-related issues, unfavorably impacted the operating results of both our segments. Beginning near the end of 2022, the volatility and shifts in demand between our Retail and Foodservice products subsided and our operating environment became more predictable and stable.\nThe inflationary cost environment we experienced during 2022 resulted in significantly higher input costs for our business. During 2022, we endured unprecedented inflationary costs for commodities, particularly soybean oil and flour, in addition to notably higher costs for packaging, freight and warehousing, and labor. This cost inflation was attributed to numerous factors such as the impacts of the COVID-19 pandemic, the war in Ukraine, climate and weather conditions, supply chain disruptions, including some raw material and packaging shortages, a tight labor market, and government policy decisions. \nWe continued to experience significant cost inflation through 2023, particularly for soybean oil, eggs and flour. However, our pricing actions served to offset these inflationary costs. In addition, the operating environment stabilized as we did not experience the supply chain disruptions and demand swings of the preceding years.\nRESULTS OF CONSOLIDATED OPERATIONS\n(Dollars in thousands,\nexcept per share data)\nYears Ended June 30,\nChange\n2023\n2022\n2021\n2023 vs. 2022\n2022 vs. 2021\nNet Sales\n$\n1,822,527\n\u00a0\n$\n1,676,390\u00a0\n$\n1,467,067\u00a0\n$\n146,137\n\u00a0\n9\n\u00a0\n%\n$\n209,323\u00a0\n14\u00a0\n%\nCost of Sales\n1,433,959\n\u00a0\n1,320,671\u00a0\n1,080,344\u00a0\n113,288\n\u00a0\n9\n\u00a0\n%\n240,327\u00a0\n22\u00a0\n%\nGross Profit\n388,568\n\u00a0\n355,719\u00a0\n386,723\u00a0\n32,849\n\u00a0\n9\n\u00a0\n%\n(31,004)\n(8)\n%\nGross Margin\n21.3\n\u00a0\n%\n21.2\u00a0\n%\n26.4\u00a0\n%\nSelling, General and Administrative Expenses\n222,091\n\u00a0\n212,098\u00a0\n205,363\u00a0\n9,993\n\u00a0\n5\n\u00a0\n%\n6,735\u00a0\n3\u00a0\n%\nChange in Contingent Consideration\n\u2014\n\u00a0\n(3,470)\n(5,687)\n3,470\n\u00a0\n(100)\n%\n2,217\u00a0\n(39)\n%\nRestructuring and Impairment Charges\n24,969\n\u00a0\n35,180\u00a0\n1,195\u00a0\n(10,211)\n(29)\n%\n33,985\u00a0\nN/M\nOperating Income\n141,508\n\u00a0\n111,911\u00a0\n185,852\u00a0\n29,597\n\u00a0\n26\n\u00a0\n%\n(73,941)\n(40)\n%\nOperating Margin\n7.8\n\u00a0\n%\n6.7\u00a0\n%\n12.7\u00a0\n%\nOther, Net\n1,789\n\u00a0\n477\u00a0\n(107)\n1,312\n\u00a0\n275\n\u00a0\n%\n584\u00a0\n546\u00a0\n%\nIncome Before Income Taxes\n143,297\n\u00a0\n112,388\u00a0\n185,745\u00a0\n30,909\n\u00a0\n28\n\u00a0\n%\n(73,357)\n(39)\n%\nTaxes Based on Income\n32,011\n\u00a0\n22,802\u00a0\n43,413\u00a0\n9,209\n\u00a0\n40\n\u00a0\n%\n(20,611)\n(47)\n%\nEffective Tax Rate\n22.3\n\u00a0\n%\n20.3\u00a0\n%\n23.4\u00a0\n%\nNet Income\n$\n111,286\n\u00a0\n$\n89,586\u00a0\n$\n142,332\u00a0\n$\n21,700\n\u00a0\n24\n\u00a0\n%\n$\n(52,746)\n(37)\n%\nDiluted Net Income Per Common Share\n$\n4.04\n\u00a0\n$\n3.25\u00a0\n$\n5.16\u00a0\n$\n0.79\n\u00a0\n24\n\u00a0\n%\n$\n(1.91)\n(37)\n%\n22\nTable of Contents\nNet Sales\nConsolidated net sales for the year ended June\u00a030, 2023 increased 9% to a new record of $1,823\u00a0million from the prior-year record total of $1,676\u00a0million, reflecting higher net sales for both the Retail and Foodservice segments driven by pricing to offset inflationary costs. Sales in the current year were unfavorably impacted by approximately $25\u00a0million in incremental sales attributed to advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live that commenced on July 1. Consolidated sales volumes, measured in pounds shipped, decreased 5% in 2023. In the prior year, consolidated sales volumes increased 2%.\nThe relative proportion of sales contributed by each of our business segments can impact a year-to-year comparison of the consolidated statements of income. The following table summarizes the sales mix over each of the last three years:\n2023\n2022\n2021\nSegment Sales Mix:\nRetail\n53%\n55%\n57%\nFoodservice\n47%\n45%\n43%\nSee discussion of net sales by segment following the discussion of \u201cEarnings Per Share\u201d below.\nGross Profit\nConsolidated gross profit increased 9% to $388.6\u00a0million in 2023 compared to $355.7\u00a0million in 2022 as our pricing actions effectively offset the significant inflationary costs we have experienced for commodities, packaging, labor and warehousing. The higher gross profit also reflects the benefits of a more stable operating environment, improved manufacturing efficiencies and reduced reliance upon co-manufacturers. The current-year gross profit compares to a challenging prior-year period characterized by escalating inflationary costs across our entire supply chain, the unfavorable effects of supply chain disruptions, demand volatility and uncertainty, suboptimal capacity utilization, and overall lower productivity resulting in substantially higher costs to produce our products and service our customers. Note that last year\u2019s gross profit included an estimated $5\u00a0million impact from the advance customer orders ahead of our ERP go-live.\nSelling, General and Administrative Expenses\nYear Ended June\u00a030,\nChange\n(Dollars in thousands)\n2023\n2022\n2021\n2023 vs. 2022\n2022 vs. 2021\nSG&A Expenses - Excluding Project Ascent\n$\n192,225\n\u00a0\n$\n172,771\u00a0\n$\n167,480\u00a0\n$\n19,454\n\u00a0\n11\n\u00a0\n%\n$\n5,291\u00a0\n3\u00a0\n%\nProject Ascent Expenses\n29,866\n\u00a0\n39,327\u00a0\n37,883\u00a0\n(9,461)\n(24)\n%\n1,444\u00a0\n4\u00a0\n%\nTotal SG&A Expenses\n$\n222,091\n\u00a0\n$\n212,098\u00a0\n$\n205,363\u00a0\n$\n9,993\n\u00a0\n5\n\u00a0\n%\n$\n6,735\u00a0\n3\u00a0\n%\nSelling, general and administrative (\u201cSG&A\u201d) expenses increased 5% to $222.1\u00a0million in 2023. This increase reflects increased investments in personnel and IT; higher brokerage costs associated with the increased sales; higher travel expenses; and some nonrecurring legal charges for closed operations. Project Ascent expenses decreased $9.5\u00a0million to $29.9\u00a0million.\nProject Ascent expenses are included within Corporate Expenses. A portion of the costs that have been classified as Project Ascent expenses represent ongoing costs that will continue subsequent to the completion of our ERP implementation.\nChange in Contingent Consideration\nIn 2022, the change in contingent consideration resulted in a benefit of $3.5\u00a0million. This benefit was attributed to a reduction in the fair value of the contingent consideration liability for Bantam Bagels, LLC (\u201cBantam\u201d) based on our fair value measurements, resulting in a zero balance at March 31, 2022. We recorded $2.6\u00a0million in our Foodservice segment and $0.9\u00a0million in our Retail segment. We ultimately exited the Bantam business near the end of fiscal 2022. See further discussion in Note 2 to the consolidated financial statements.\nRestructuring and Impairment Charges\nIn 2023, we recorded impairment charges of $25.0\u00a0million related to the intangible assets of Flatout, Inc. (\u201cFlatout\u201d) due to lowered expectations for the projected sales and profitability of the Flatout business. These impairment charges were reflected in our Retail segment.\n23\nTable of Contents\nIn 2022, we recorded restructuring and impairment charges totaling $35.2\u00a0million related to the following items:\n\u2022\nour decision to explore strategic alternatives and ultimately exit the Bantam business;\n\u2022\nthe impact of a revision to the forecasted cash flows of Bantam on the intangible assets of this business;\n\u2022\nthe impact of a revision to the forecasted branded sales of Angelic Bakehouse, Inc. (\u201cAngelic\u201d) on the intangible assets of this business; and\n\u2022\nthe closure of our frozen garlic bread facility in Baldwin Park, California.\n Based on our decision to explore strategic alternatives for the Bantam business, impairment testing was triggered for the related long-lived assets of the asset group. The restructuring and impairment charges of $24.8\u00a0million included impairment charges for intangible assets, fixed assets and an operating lease right-of-use asset, as well as other closure-related costs. Due to their unusual nature, these charges were not allocated to our two reportable segments. As noted above, we ultimately exited the Bantam business near the end of fiscal 2022. The operations of this business were not classified as discontinued operations as the closure did not represent a strategic shift that would have a major effect on our operations or financial results.\nIn 2022, prior to our decision to explore strategic alternatives for the Bantam business, we also recorded an impairment charge of $0.9\u00a0million related to Bantam\u2019s Retail customer relationships intangible asset, which reflected lower projected cash flows for Bantam\u2019s Retail business. This impairment charge was reflected in our Retail segment.\nIn 2022, we also recorded an impairment charge of $8.8\u00a0million related to the tradename intangible asset of Angelic, which reflected the impact of lower projected sales for Angelic\u2019s branded Retail business. This impairment charge was reflected in our Retail segment.\nIn 2022, we committed to a plan to close our frozen garlic bread facility in Baldwin Park, California in support of our ongoing efforts to better optimize our manufacturing network. The operations of this facility were not classified as discontinued operations as the closure did not represent a strategic shift that would have a major effect on our operations or financial results. We recorded restructuring and impairment charges of $0.7\u00a0million, which consisted of one-time termination benefits and impairment charges for fixed assets and an operating lease right-of-use asset. These charges were not allocated to our two reportable segments due to their unusual nature.\nOperating Income\nOperating income increased 26% to $141.5\u00a0million in 2023 driven by the increase in gross profit as our pricing actions served to offset the significant inflationary costs we have experienced for commodities, packaging, labor and warehousing, as well as the impact of lower restructuring and impairment charges. Operating income also benefited from a more stable operating environment, improved manufacturing efficiencies and reduced reliance upon co-manufacturers. The increase in SG&A expenses partially offset these positive factors. Additionally, operating income in the current year was unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live and accounted for an estimated $5\u00a0million in operating income.\nSee discussion of operating results by segment following the discussion of \u201cEarnings Per Share\u201d below.\nTaxes Based on Income\nOur effective tax rate was 22.3% and 20.3% in 2023 and 2022, respectively. See Note 8 to the consolidated financial statements for a reconciliation of the statutory rate to the effective rate.\nWe include the tax consequences related to stock-based compensation within the computation of income tax expense. We may experience increased volatility to our income tax expense and resulting net income dependent upon, among other variables, the price of our common stock and the timing and volume of share-based payment award activity such as employee exercises of stock-settled stock appreciation rights and vesting of restricted stock awards. For 2023 and 2022, the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by 0.4% and 0.1%, respectively.\nEarnings Per Share\nAs influenced by the factors discussed above, diluted net income per share totaled $4.04 in 2023, an increase from the 2022 total of $3.25 per diluted share. Diluted weighted average common shares outstanding for each of the years ended June\u00a030, 2023 and 2022 have remained relatively stable.\nIn 2023 and 2022, expenditures for Project Ascent reduced diluted earnings per share by $0.84 and $1.09, respectively, and restructuring and impairment charges reduced diluted earnings per share by $0.70 and $0.98, respectively. In 2022, the adjustments to Bantam\u2019s contingent consideration increased diluted earnings per share by $0.10.\n24\nTable of Contents\nRESULTS OF OPERATIONS - SEGMENTS\nRetail Segment\nYear Ended June\u00a030,\nChange\n(Dollars in thousands)\n2023\n2022\n2021\n2023 vs. 2022\n2022 vs. 2021\nNet Sales\n$\n965,370\n\u00a0\n$\n915,210\u00a0\n$\n828,963\u00a0\n$\n50,160\n\u00a0\n5\n\u00a0\n%\n$\n86,247\u00a0\n10\u00a0\n%\nOperating Income\n$\n139,464\n\u00a0\n$\n151,627\u00a0\n$\n188,403\u00a0\n$\n(12,163)\n(8)\n%\n$\n(36,776)\n(20)\n%\nOperating Margin\n14.4\n\u00a0\n%\n16.6\u00a0\n%\n22.7\u00a0\n%\nIn 2023, net sales for the Retail segment reached a record $965.4\u00a0million, a 5% increase from the prior-year total of $915.2\u00a0million, including the favorable impact of our pricing actions. Sales in the current year were unfavorably impacted by advance orders accounting for an estimated $11\u00a0million in Retail net sales near the end of fiscal 2022 ahead of our ERP go-live, which commenced on July 1, 2022. Retail segment sales volumes, measured in pounds shipped, declined 4% in the current year. Sales volumes were unfavorably impacted by the advance ordering ahead of our ERP go-live, price elasticity and product line rationalizations that were implemented during fiscal 2022. In 2022, Retail sales volumes increased 2%.\nIn 2023, Retail segment operating income decreased 8% to $139.5\u00a0million, including the unfavorable impact of higher impairment charges. As referenced in the \u201cRestructuring and Impairment Charges\u201d section above, Retail segment operating income included impairment charges totaling $25.0\u00a0million and $9.7\u00a0million in 2023 and 2022, respectively. Operating income was favorably impacted by our pricing actions, which served to offset significant cost inflation. Operating income also benefited from our reduced reliance upon co-manufacturers. In the prior year, the net impact of our pricing actions lagged the extraordinary levels of cost inflation, and the segment\u2019s operating income also reflected an unstable operating environment that resulted in increased costs to manufacture products and service the business.\nFoodservice Segment\nYear Ended June\u00a030,\nChange\n(Dollars in thousands)\n2023\n2022\n2021\n2023 vs. 2022\n2022 vs. 2021\nNet Sales\n$\n857,157\n\u00a0\n$\n761,180\u00a0\n$\n638,104\u00a0\n$\n95,977\n\u00a0\n13\n\u00a0\n%\n$\n123,076\u00a0\n19\u00a0\n%\nOperating Income\n$\n106,349\n\u00a0\n$\n82,745\u00a0\n$\n89,048\u00a0\n$\n23,604\n\u00a0\n29\n\u00a0\n%\n$\n(6,303)\n(7)\n%\nOperating Margin\n12.4\n\u00a0\n%\n10.9\u00a0\n%\n14.0\u00a0\n%\nIn 2023, Foodservice segment net sales increased 13% to a record $857.2\u00a0million from the 2022 total of $761.2\u00a0million driven by inflationary pricing and volume gains from certain quick-service restaurant customers in our mix of national chain restaurant accounts. Sales in the current year were unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live, which reduced Foodservice net sales in the current year by an estimated $14\u00a0million. Foodservice segment sales volumes, measured in pounds shipped, decreased 5% in the current year. Sales volumes were unfavorably impacted by the advance ordering ahead of our ERP go-live and our decision to exit some less profitable SKUs during fiscal 2022. In 2022, Foodservice sales volumes increased 2%.\nIn 2023, Foodservice segment operating income increased 29% to $106.3\u00a0million as our pricing actions effectively offset inflationary costs. Operating income in the current year also benefited from a more stable operating environment, improved manufacturing efficiencies and our decision to discontinue some less profitable SKUs. Prior-year operating income reflected a lag in pricing relative to inflationary costs, as partially offset by the adjustments to Bantam\u2019s contingent consideration.\nCorporate Expenses\nIn 2023, corporate expenses totaled $104.3 million as compared to $97.0 million in 2022. This increase primarily reflects increased investments in personnel and IT, as well as some nonrecurring legal charges for closed operations. Lower expenditures for Project Ascent partially offset these higher expenses. Project Ascent expenses totaled $29.9\u00a0million and $39.3\u00a0million in 2023 and 2022, respectively.\nLOOKING FORWARD\nFor 2024, we anticipate Retail segment sales will benefit from volume growth led by our licensing program, including incremental growth from the new products, flavors and sizes we introduced in 2023, along with some new items we have planned for 2024. We also foresee continued positive momentum for our New York \nBRAND\n\u00ae\n Bakery frozen garlic bread products. In Foodservice, we expect sales volumes to be led by growth from select quick-service restaurant customers in our mix of national chain restaurant accounts, while external factors, including U.S. economic performance and potential changes in consumer sentiment, may impact demand. Consolidated net sales will also continue to benefit from the pricing actions taken in 2023.\n25\nTable of Contents\nWe project the impact of inflationary costs to subside notably in the coming year compared to fiscal 2023. The pricing actions we have implemented along with our cost savings initiatives will help to offset remaining inflationary costs.\nWith respect to Project Ascent, we completed the final wave of the implementation phase in August 2023 as planned and have shifted towards leveraging the capabilities of our new ERP system to improve execution in the coming year.\nWe will continue to periodically reassess our allocation of capital to ensure that we maintain adequate operating flexibility while providing appropriate levels of cash returns to our shareholders.\nFINANCIAL CONDITION\nLiquidity and Capital Resources\nWe maintain sufficient flexibility in our capital structure to ensure our capitalization is adequate to support our future internal growth prospects, acquire food businesses consistent with our strategic goals, and maintain cash returns to our shareholders through cash dividends and opportunistic share repurchases. Our balance sheet maintained fundamental financial strength during 2023 as we ended the year with $88\u00a0million in cash and equivalents, along with shareholders\u2019 equity of $862\u00a0million and no debt.\nUnder our unsecured revolving credit facility (\u201cFacility\u201d), we may borrow up to a maximum of $150\u00a0million at any one time. We had no borrowings outstanding under the Facility at June\u00a030, 2023. At June\u00a030, 2023, we had $2.8\u00a0million of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. The Facility expires in March 2025, and all outstanding amounts are then due and payable. Interest is variable based upon formulas tied to SOFR or an alternate base rate defined in the Facility. We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio. Loans may be used for general corporate purposes. Due to the nature of its terms, when we have outstanding borrowings under the Facility, they will be classified as long-term debt.\nThe Facility contains certain restrictive covenants, including limitations on indebtedness, asset sales and acquisitions, and financial covenants relating to interest coverage and leverage. At June\u00a030, 2023, we were in compliance with all applicable provisions and covenants of this facility, and we exceeded the requirements of the financial covenants by substantial margins. At June\u00a030, 2023, there were no events that would constitute a default under this facility.\nWe currently expect to remain in compliance with the Facility\u2019s covenants for the foreseeable future. However, a default under the Facility could accelerate the repayment of any then outstanding indebtedness and limit our access to $75\u00a0million of additional credit available under the Facility. Such an event could require a reduction in or curtailment of cash dividends or share repurchases, reduce or delay beneficial expansion or investment plans, or otherwise impact our ability to meet our obligations when due.\nWe believe that cash provided by operating activities and our existing balances in cash and equivalents, in addition to that available under the Facility, should be adequate to meet our liquidity needs over the next 12 months, including the projected levels of capital expenditures and dividend payments. If we were to borrow outside of the Facility under current market terms, our average interest rate may increase and have an adverse effect on our results of operations. Based on our current plans and expectations, we believe our capital expenditures for 2024 could total between $70 and $80 million.\nBeyond the next 12 months, we expect that cash provided by operating activities will be the primary source of liquidity. This source, combined with our existing balances in cash and equivalents and amounts available under the Facility, is expected to be sufficient to meet our overall cash requirements.\nWe have various contractual and other obligations that are appropriately recorded as liabilities in our consolidated financial statements, including finance lease obligations, operating lease obligations, the underfunded defined benefit pension liability, other post-employment benefit obligations, tax liabilities, noncurrent workers compensation obligations, deferred compensation and interest on deferred compensation. See Note 4 to the consolidated financial statements for further information about our lease obligations, including the maturities of minimum lease payments. It is not certain when the liabilities for the underfunded defined benefit pension liability, other post-employment benefit obligations, tax liabilities, noncurrent workers compensation obligations, deferred compensation and interest on deferred compensation will become due. See Notes 8, 11 and 12 to the consolidated financial statements for further information about these liabilities.\nCertain other contractual obligations are not recognized as liabilities in our consolidated financial statements. Examples of such obligations are commitments to purchase raw materials or packaging inventory that has not yet been received as of June 30, 2023, as well as purchase orders and longer-term purchase arrangements related to the procurement of services, including IT service agreements, and property, plant and equipment. The majority of these obligations is expected to be due within one year.\n26\nTable of Contents\nCash Flows\nYear Ended June\u00a030,\nChange\n(Dollars in thousands)\n2023\n2022\n2021\n2023 vs. 2022\n2022 vs. 2021\nProvided By Operating Activities\n$\n225,901\n\u00a0\n$\n101,813\u00a0\n$\n174,189\u00a0\n$\n124,088\n\u00a0\n122\n\u00a0\n%\n$\n(72,376)\n(42)\n%\nUsed In Investing Activities\n$\n(90,782)\n$\n(132,240)\n$\n(88,977)\n$\n41,458\n\u00a0\n31\n\u00a0\n%\n$\n(43,263)\n(49)\n%\nUsed In Financing Activities\n$\n(106,929)\n$\n(97,345)\n$\n(95,430)\n$\n(9,584)\n(10)\n%\n$\n(1,915)\n(2)\n%\nCash provided by operating activities and our existing balances in cash and equivalents remain the primary sources for funding our investing and financing activities, as well as financing our organic growth initiatives.\nCash provided by operating activities in 2023 totaled $225.9\u00a0million, an increase of 122% as compared with the 2022 total of $101.8\u00a0million. The 2023 increase was primarily due to the year-over-year changes in net working capital, particularly receivables and accrued liabilities. Receivables reflect the favorable impacts of a current-year decrease in receivables as well as a prior-year increase in receivables. These fluctuations were due in part to an elevated level of receivables at the end of fiscal 2022 resulting from the advance ordering by our customers ahead of our ERP go-live. Accrued liabilities reflect the favorable impacts of a current-year increase in the accruals for compensation and employee benefits as well as a prior-year decline in these balances. Higher net income, as partially offset by the year-over-year change in noncash restructuring and impairment charges, also contributed to the increase in cash provided by operating activities.\nCash used in investing activities totaled $90.8\u00a0million in 2023 as compared to $132.2\u00a0million in 2022. The 2023 decrease primarily reflects a lower level of payments for property additions, which totaled $90.2\u00a0million in 2023 compared to $132.0\u00a0million in 2022. Current-year capital expenditures included spending on a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky that reached substantial completion in March 2023. Notable prior-year capital expenditures included spending on: the Horse Cave capacity expansion project; a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022; and infrastructure improvements and capacity expansion investments at our frozen pasta facility in Altoona, Iowa that was completed in March 2022.\nFinancing activities used net cash totaling $106.9\u00a0million and $97.3\u00a0million in 2023 and 2022, respectively. The vast majority of the cash used in financing activities is attributed to the payment of dividends, and the 2023 increase in cash used in financing activities primarily reflects higher levels of dividend payments, tax withholdings for stock-based compensation and share repurchases. The regular dividend payout rate for 2023 was $3.35 per share, as compared to $3.15 per share in 2022. This past fiscal year marked the 60\nth\n consecutive year of increased regular cash dividends.\nFuture levels of share repurchases and declared dividends are subject to the periodic review of our Board of Directors and are generally determined after an assessment is made of various factors, such as anticipated earnings levels, cash flow requirements and general business conditions.\nOur ongoing business activities continue to be subject to compliance with various laws, rules and regulations as may be issued and enforced by various federal, state and local agencies. With respect to environmental matters, costs are incurred pertaining to regulatory compliance and, upon occasion, remediation. Such costs have not been, and are not anticipated to become, material.\nWe are contingently liable with respect to lawsuits, taxes and various other matters that routinely arise in the normal course of business. We do not have any related party transactions that materially affect our results of operations, cash flows or financial condition.\nIMPACT OF INFLATION\nOur business results can be influenced by significant changes in the costs of our raw materials, packaging and freight. We attempt to mitigate the impact of inflation on our raw-material costs via longer-term fixed-price contractual commitments for a portion of our most significant market-indexed commodities, most notably soybean oil and flour. Specific to freight costs, our transportation network includes a mix of dedicated carriers, longer-term fixed-rate contracts and a small internal fleet that serve to reduce our exposure to spot freight rates. We also have a transportation management system in place to support our freight management processes and help us to secure more competitive freight rates. Nonetheless, we are subject to events and trends in the marketplace that will impact our costs for raw materials, packaging and freight. While we attempt to pass through sustained increases in these costs, any such price adjustments can lag the changes in the related input costs.\nAlthough typically less notable, we are also exposed to the unfavorable effects of general inflation beyond material and freight costs, especially in the areas of labor rates, including annual wage adjustments and benefit costs. Over time, we attempt to minimize the exposure to such cost increases through ongoing improvements and greater efficiencies throughout our manufacturing operations, including benefits gained through our lean six sigma program and strategic investments in plant equipment.\n27\nTable of Contents\nWith regard to the impact of commodity and freight costs on Foodservice segment operating income, most of our supply contracts with national chain restaurant accounts incorporate pricing adjustments to account for changes in ingredient and freight costs. These supply contracts may vary by account specific to the time lapse between the actual change in ingredient and freight costs we incur and the effective date of the associated price increase or decrease. As a result, the reported operating margins of the Foodservice segment are subject to increased volatility during periods of rapidly rising or falling ingredient and/or freight costs because at least some portion of the change in ingredient and/or freight costs is reflected in the segment\u2019s results prior to the impact of any associated change in pricing. In addition, the Foodservice segment has an inherently higher degree of margin volatility from changes in ingredient costs when compared to the Retail segment due to its overall lower margin profile and higher ratio of ingredient pounds to net sales. In Retail, there is an opportunity to offset the impact of inflationary costs through net price realization actions including list price increases, decreased trade spending and packaging size changes. Note that all these Retail cost-recovery options entail some inherent risks and uncertainties, and the implementation timeframe can lag the input cost changes. We also implement value engineering initiatives, such as the use of lower-cost packaging materials and alternative ingredients and/or recipes, to reduce Retail and Foodservice product costs to help offset inflation.\nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\nThis MD&A discusses our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including, but not limited to, those related to accounts receivable allowances, distribution costs, asset impairments and self-insurance reserves. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a significant impact on our consolidated financial statements. While a summary of our significant accounting policies can be found in Note 1 to the consolidated financial statements, we believe the following critical accounting policies reflect those areas in which more significant judgments and estimates are used in the preparation of our consolidated financial statements.\nTrade-Related Allowances\nOur receivables balance is net of trade-related allowances, which consist of sales discounts, trade promotions and certain other sales incentives. We evaluate the adequacy of these allowances considering several factors including historical experience, specific trade programs and existing customer relationships. These allowances can fluctuate based on the level of sales and promotional programs as well as the timing of deductions.\nGoodwill and Other Intangible Assets\nGoodwill is not amortized. It is evaluated annually at April\u00a030 by applying impairment testing procedures. Other intangible assets are amortized on a straight-line basis over their estimated useful lives to Selling, General and Administrative Expenses. We evaluate the future economic benefit of the recorded goodwill and other intangible assets when events or circumstances indicate potential recoverability concerns. Carrying amounts are adjusted appropriately when determined to have been impaired.\nRECENT ACCOUNTING PRONOUNCEMENTS\nRecent accounting pronouncements and their impact on our consolidated financial statements are disclosed in Note 1 to the consolidated financial statements.\n28\nTable of Contents\nFORWARD-LOOKING STATEMENTS\nWe desire to take advantage of the \u201csafe harbor\u201d provisions of the Private Securities Litigation Reform Act of 1995 (the \u201cPSLRA\u201d). This Annual Report on Form 10-K contains various \u201cforward-looking statements\u201d within the meaning of the PSLRA and other applicable securities laws. Such statements can be identified by the use of the forward-looking words \u201canticipate,\u201d \u201cestimate,\u201d \u201cproject,\u201d \u201cbelieve,\u201d \u201cintend,\u201d \u201cplan,\u201d \u201cexpect,\u201d \u201chope\u201d or similar words. These statements discuss future expectations; contain projections regarding future developments, operations or financial conditions; or state other forward-looking information. Such statements are based upon assumptions and assessments made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These forward-looking statements involve various important risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results may differ as a result of factors over which we have no, or limited, control including, without limitation, the specific influences outlined below. Management believes these forward-looking statements to be reasonable; however, one should not place undue reliance on such statements that are based on current expectations. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update such forward-looking statements, except as required by law.\nItems which could impact these forward-looking statements include, but are not limited to, those risk factors identified in Item 1A and:\n\u2022\nefficiencies in plant operations and our overall supply chain network;\n\u2022\nthe reaction of customers or consumers to pricing actions we take to offset inflationary costs;\n\u2022\nprice and product competition;\n\u2022\nadequate supply of labor for our manufacturing facilities;\n\u2022\nthe impact of customer store brands on our branded retail volumes;\n\u2022\ninflationary pressures resulting in higher input costs;\n\u2022\nadverse changes in freight, energy or other costs of producing, distributing or transporting our products;\n\u2022\nfluctuations in the cost and availability of ingredients and packaging;\n\u2022\ndependence on contract manufacturers, distributors and freight transporters, including their operational capacity and financial strength in continuing to support our business;\n\u2022\nstability of labor relations;\n\u2022\ndependence on key personnel and changes in key personnel;\n\u2022\ncyber-security incidents, information technology disruptions, and data breaches;\n\u2022\ncapacity constraints that may affect our ability to meet demand or may increase our costs;\n\u2022\ngeopolitical events, such as Russia\u2019s invasion of Ukraine, that could create unforeseen business disruptions and impact the cost or availability of raw materials and energy;\n\u2022\nthe potential for loss of larger programs or key customer relationships;\n\u2022\nfailure to maintain or renew license agreements;\n\u2022\nsignificant shifts in consumer demand and disruptions to our employees, communities, customers, supply chains, production planning, operations, and production processes resulting from the impacts of epidemics, pandemics or similar widespread public health concerns and disease outbreaks;\n\u2022\nchanges in demand for our products, which may result from loss of brand reputation or customer goodwill;\n\u2022\nthe possible occurrence of product recalls or other defective or mislabeled product costs;\n\u2022\nthe success and cost of new product development efforts;\n\u2022\nthe lack of market acceptance of new products;\n\u2022\nthe extent to which business acquisitions are completed and acceptably integrated;\n\u2022\nthe ability to successfully grow acquired businesses;\n\u2022\nthe effect of consolidation of customers within key market channels;\n\u2022\nmaintenance of competitive position with respect to other manufacturers;\n\u2022\nthe outcome of any litigation or arbitration;\n\u2022\nchanges in estimates in critical accounting judgments;\n\u2022\nthe impact of any regulatory matters affecting our food business, including any required labeling changes and their impact on consumer demand;\n\u2022\nthe impact of fluctuations in our pension plan asset values on funding levels, contributions required and benefit costs; and\n\u2022\ncertain other risk factors, including those discussed in other filings we have submitted to the Securities and Exchange Commission.\n29\nTable of Contents",
+  "item7a": ">Item\u00a07A. \nQuantitative and Qualitative Disclosures About Market Risk\nWe have exposure to market risks primarily from changes in raw material prices. In recent years, due to the absence of any borrowings, we have not had exposure to changes in interest rates. We also have not had exposure to market risk associated with derivative financial instruments or derivative commodity instruments as we do not utilize any such instruments.\nRAW MATERIAL PRICE RISK\nWe purchase a variety of commodities and other raw materials, such as soybean oil, flour, eggs and dairy-based materials, which we use as ingredients for our products. The market prices for these commodities are subject to fluctuation based upon a number of economic factors and may become volatile at times. While we do not use any derivative commodity instruments to hedge against commodity price risk, we do actively manage a portion of the risk through a structured forward purchasing program for certain key materials such as soybean oil and flour. This program, coupled with short-term fixed price arrangements on other significant raw materials, provide us more predictable input costs, which, in addition to the supply contracts with our foodservice customers that allow us to pass along price increases for commodities, help to reduce margin volatility during periods of significant volatility in the commodity markets.",
+  "cik": "57515",
+  "cusip6": "513847",
+  "cusip": ["513847103"],
+  "names": ["LANCASTER COLONY CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/57515/000005751523000017/0000057515-23-000017-index.htm"
+}
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+{
+  "item1": ">Item 1.\nBusiness \n2\nItem 1A.\nRisk Factors\n11\nItem 1B.\nUnresolved Staff Comments\n17\nItem 1C.\nInformation about our Executive Officers\n18\nItem 2.\nProperties\n19\nItem 3.\nLegal Proceedings\n20\nItem 4.\nMine Safety Disclosures\n20\nPART II\nItem 5.\nMarket for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities\n20\nItem 6.\n[Reserved]\n20\nItem 7.\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n21\nItem 7A.\nQuantitative and Qualitative Disclosures About Market Risk \n35\nItem 8.\nFinancial Statements and Supplementary Data\n36\nItem 9.\nChanges in and Disagreements with Accountants on Accounting and Financial Disclosure\n75\nItem 9A.\nControls and Procedures \n75\nItem 9B.\nOther Information\n75\nItem 9C.\nDisclosure Regarding Foreign Jurisdictions that Prevent Inspections\n75\nPART III\nItem 10. \nDirectors, Executive Officers and Corporate Governance\n75\nItem 11.\nExecutive Compensation\n76\nItem 12.\nSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\n76\nItem 13.\nCertain Relationships and Related Transactions, and Director Independence\n76\nItem 14.\nPrincipal Accountant Fees and Services\n76\nPART IV\nItem 15.\nExhibits and Financial Statement Schedules\n77\nSignatures\n82\n1\nTable of Contents\nPARKER-HANNIFIN CORPORATION\nFORM 10-K\nFiscal Year Ended June\u00a030, 2023 \nPART I\nITEM\u00a01\n.  \nBusiness\n. \n Parker-Hannifin Corporation is a leading worldwide diversified manufacturer of motion and control technologies and systems, providing precision engineered solutions for a wide variety of mobile, industrial and aerospace markets.  The Company was incorporated in Ohio in 1938.  Our principal executive offices are located at 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141, telephone (216)\u00a0896-3000.  As used in this Annual Report on Form 10-K, unless the context otherwise requires, the terms \"Company\", \"Parker\", \"we\" or \"us\" refer to Parker-Hannifin Corporation and its subsidiaries, and the term \"year\" and references to specific years refer to the applicable fiscal year.\nOur investor relations website address is \nwww.phstock.com\n.  We make available free of charge on or through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section\u00a013(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after filing or furnishing those reports electronically with the Securities and Exchange Commission.  The information contained on or accessible through our website is not part of this Annual Report on Form 10-K.\nThe Board of Directors has adopted a written charter for each of its committees.  These charters, as well as our Global Code of Business Conduct, Corporate Governance Guidelines and Independence Standards for Directors, are posted and available on our investor relations website under the Corporate Governance page.  Shareholders may request copies of these corporate governance documents, free of charge, by writing to Parker-Hannifin Corporation, 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141, Attention: Secretary, or by calling (216)\u00a0896-3000.\nOur manufacturing, service, sales, distribution and administrative facilities are located in 39 states within the United States and in 43 other countries.  We sell our products as original and replacement equipment through sales and distribution centers worldwide.  We market our products through direct-sales employees, independent distributors, and sales representatives. We supply products to approximately 548,000 customers in virtually every significant manufacturing, transportation and processing industry.\nWe have two reporting segments: Diversified Industrial and Aerospace Systems.  During 2023, our technologies and systems were used in the products of these two reporting segments.  For 2023, the Company's net sales were $19.1 billion. Diversified Industrial Segment products accounted for 77 percent and Aerospace Systems Segment products accounted for 23 percent of those net sales.\nMarkets\nOur technologies and systems are used across industries and in various applications.  The approximately 548,000 customers who purchase Parker products are found in almost every significant manufacturing, transportation and processing industry.  No single customer accounted for more than four percent of our total net sales for the year ended June\u00a030, 2023.\n2\nTable of Contents\nDiversified Industrial Segment\n.\n  Our Diversified Industrial Segment sells products to both original equipment manufacturers (\"OEMs\") and distributors who serve the replacement markets in manufacturing, packaging, processing, transportation, mobile construction, refrigeration and air conditioning, agricultural and military machinery and equipment industries.  The major markets served by our Diversified Industrial Segment are listed below by group:\nEngineered Materials Group:\n\u2022\nAerospace\n\u2022\nAgriculture\n\u2022\nChemical processing\n\u2022\nConstruction\n\u2022\nDefense\n\u2022\nInformation technology\n\u2022\nLife sciences\n\u2022\nMicroelectronics\n\u2022\nOil & gas\n\u2022\nPower generation\n\u2022\nRenewable energy\n\u2022\nTelecommunications\n\u2022\nTransportation\n\u2022\nTruck & bus\nFiltration\nGroup:\n\u2022\nAerospace & defense\n\u2022\nAgriculture \n\u2022\nClean & Renewable Energy \n\u2022\nConstruction \n\u2022\nFood & beverage\n\u2022\nHeating, ventilation & air conditioning (HVAC) \n\u2022\nIndustrial plant & equipment \n\u2022\nLife sciences\n\u2022\nMarine\n\u2022\nMining\n\u2022\nOil & gas\n\u2022\nPower generation\n\u2022\nMedium & Heavy Duty Truck \n\u2022\nWater purification\nFluid Connectors\nGroup:\n\u2022\nAerial lift\n\u2022\nAgriculture\n\u2022\nClean & Renewable Energy \n\u2022\nConstruction \n\u2022\nFood & beverage\n\u2022\nForestry\n\u2022\nHeating, ventilation, air conditioning & refrigeration (HVACR)\n\u2022\nIndustrial machinery\n\u2022\nLife sciences\n\u2022\nMaterial handling\n\u2022\nMicroelectronics \n\u2022\nMilitary\n\u2022\nMining\n\u2022\nOil & Gas, Chemical, Petrochemical\n\u2022\nRefining\n\u2022\nRenewable energy\n\u2022\nTransportation\nMotion Systems\nGroup:\nMobile:\n\u2022\nAgriculture\n\u2022\nConstruction\n\u2022\nMarine\n\u2022\nMaterial handling\n\u2022\nMilitary\n\u2022\nTransportation\n\u2022\nTruck & bus\n\u2022\nTurf\nIndustrial:\n\u2022\nDistribution\n\u2022\nGeneral machinery\n\u00a0\n\u2022\nMachine Tool\n\u2022\nMetal Forming\n\u2022\nMining\n\u2022\nOil & gas\n\u2022\nPower generation\n\u2022\nSemiconductor\n3\nTable of Contents\nAerospace Systems Segment\n.\n  Our Aerospace Systems Segment sells products primarily in the commercial and military aerospace markets to both OEMs and to end users for spares, maintenance, repair and overhaul.  The major markets for products of the Aerospace Systems Segment are listed below:\n\u2022\nAftermarket services\n\u2022\nBusiness and general aviation\n\u2022\nCommercial transport aircraft\n\u2022\nEngines\n\u2022\nHelicopters\n\u2022\nMilitary aircraft\n\u2022\nRegional transport aircraft\nPrincipal Products and Methods of Distribution\nWe offer hundreds of thousands of individual part numbers, and no single product contributed more than one percent to our total net sales for the year ended June\u00a030, 2023.  Listed below are some of our principal products.\nDiversified Industrial Segment\n.\n  Our Diversified Industrial Segment products consist of a broad range of motion-control and fluid systems and components, which are described below by group:\nEngineered Materials Group\n: sealing, shielding, thermal products and systems, adhesives, coatings and noise vibration and harshness solutions, including:\n\u2022\nActive vibration control systems\n\u2022\nBearings & dampers\n\u2022\nCoatings\n\u2022\nComposites \n\u2022\nDynamic seals\n\u2022\nElastomeric mounts & isolators\n\u2022\nElastomeric o-rings\n\u2022\nElectromagnetic interference shielding\n\u2022\nExtrusion & fabricated seals\n\u2022\nFabric reinforced seals\n\u2022\nFuel cell sealing systems\n\u2022\nHigh-temperature metal seals\n\u2022\nHomogeneous & inserted elastomeric shapes\n\u2022\nMedical products fabrication & assembly\n\u2022\nMetal & plastic composite bonded seals\n\u2022\nPrecision-cut seals\n\u2022\nRubber-to-substrate adhesives\n\u2022\nSpecialty chemicals\u00a0\n\u2022\nStructural adhesives\n\u2022\nThermal management\n\u2022\nWireless sensing systems\n4\nTable of Contents\nFiltration Group\n: filters, systems and diagnostics solutions to ensure purity in critical process chemicals and to remove contaminants from fuel, air, oil, water and other liquids and gases, including:\n\u2022\nAerospace filters & systems\n\u2022\nAir pollution control & dust collection systems & filters\n\u2022\nCompressed air & gas treatment solutions\n\u2022\nEngine fuel, oil, air & closed crankcase ventilation filtration systems\n\u2022\nFiltration & purification systems\n\u2022\nFluid condition monitoring systems\n\u2022\nGas turbine air inlet filters\n\u2022\nHeating, ventilation & air conditioning filters\n\u2022\nHydrogen and alternative energy filters \n\u2022\nHydraulic & lubrication filters & systems\n\u2022\nIndustrial & analytical gas generators\n\u2022\nMembrane, fiber, & sintered metal filters\n\u2022\nNatural gas filters\n\u2022\nProcess liquid, air & gas filters\n\u2022\nSterile air filters\n\u2022\nThermal Management \n\u2022\nWater purification filters & systems\nFluid Connectors Group\n: high quality fluid conveyance and flow control solutions that are critical to a wide range of applications involving fluid and gas handling, process control, and climate controls:\n\u2022\nAnalytical instruments\n\u2022\nBall & check valves\n\u2022\nCompressed natural gas dispensers \n\u2022\nCryogenic valves\n\u2022\nDiagnostic and sensors\n\u2022\nDiesel exhaust treatment systems\n\u2022\nElastomeric, thermoplastic, and industrial hose & couplings\n\u2022\nElectronic valves\n\u2022\nFilter driers\n\u2022\nFluid system & control fittings, meters valves, regulators, & manifold valves\n\u2022\nFluoropolymer chemical delivery fittings, valves, & pumps\n\u2022\nHigh pressure fittings, valves, & regulators \n\u2022\nHigh purity gas delivery fittings, valves, & regulators \n\u2022\nHVACR controls & monitoring \n\u2022\nLow pressure fittings & adapters\n\u2022\nMiniature valves and pumps\n\u2022\nNatural gas on-board fuel systems\n\u2022\nPTFE hose & tubing\n\u2022\nPressure regulating valves\n\u2022\nQuick couplings\n\u2022\nSolenoid Valves \n\u2022\nTube fittings & adapters\n\u2022\nTubing & plastic fittings\n5\nTable of Contents\nMotion Systems Group\n: hydraulic, pneumatic, and electromechanical components and systems for builders and users of mobile and industrial machinery and equipment, including:\nHydraulic Actuation:\n\u2022\nAccumulators\n\u2022\nCoolers \n\u2022\nCylinders\n\u2022\nElectrohydraulic actuators\n\u2022\nHelical actuators\n\u2022\nRotary actuators\nHydraulic Pumps & Motors:\n\u2022\nDrive controlled pumps\n\u2022\nElectrohydraulic pumps (\"ePumps\")\n\u2022\nFan drives\n\u2022\nGerotor pumps & motors\n\u2022\nIntegrated hydrostatic transmissions\n\u2022\nPiston pumps & motors\n\u2022\nPower take-offs (\"PTO\")\n\u2022\nScrew pumps\n\u2022\nVane pumps & motors\nHydraulic and Electro Hydraulic Systems:\n\u2022\nCartridge valves\n\u2022\nIndustrial Hydraulic valves\n\u2022\nMobile Hydraulic valves \n\u2022\nePTO's\nPneumatics:\n\u2022\nAir preparation (FRL) & dryers\n\u2022\nGrippers\u00a0\n\u2022\nIO link controllers\n\u2022\nPneumatic cylinders\n\u2022\nPneumatic valves\nElectronics:\n\u2022\nClusters\n\u2022\nControllers & human machine interfaces (\"HMI\") \n\u2022\nDrives (AC/DC Servo)\n\u2022\nElectric actuators & positioners\n\u2022\nElectric motors & gearheads \n\u2022\nElectronic displays & HMI\n\u2022\nIoT\n\u2022\nJoysticks \n\u2022\nSensors\n\u2022\nSoftware\nDiversified Industrial Segment products include standard products, as well as custom products which are engineered and produced to OEM specifications for application to particular end products.  Standard and custom products are also used in the replacement of original products.  We market our Diversified Industrial Segment products primarily through field sales employees and independent distributors located throughout the world.\nDuring 2023, the Company consolidated the Instrumentation Group with the Fluid Connectors Group.  The consolidated group continues to service the major markets and offers the principal products provided by the former Instrumentation Group and Former Fluid Connectors Group.  The combined group is designed to leverage the strength of Parker's fluid and gas handling, process control and climate control technologies into a single organization that can better address the emerging needs of customers across common end markets and applications.  The realignment is expected to bring added growth opportunities and is a further step towards organizational simplification and alignment.\n6\nTable of Contents\nAerospace Systems Segment\n.\n  Our Aerospace Systems Segment products are used in commercial and military airframe and engine programs and include:\n\u2022\nActuation systems & components\n\u2022\nAvionics\n\u2022\nElectric power components \n\u2022\nEngine build-up ducting\n\u2022\nEngine exhaust nozzles & assemblies\n\u2022\nEngine systems & components\n\u2022\nFire detection and suppression systems and components\n\u2022\nFluid conveyance systems & components\n\u2022\nFluid metering, delivery & atomization devices\n\u2022\nFuel systems & components\n\u2022\nFuel tank inerting systems\n\u2022\nHydraulic systems & components\n\u2022\nLubrication components\n\u2022\nPneumatic control components\n\u2022\nSensors\n\u2022\nThermal management\n\u2022\nWheels, brakes and brake control systems\nWe market our Aerospace Systems Segment products through our regional sales organizations, which sell directly to OEMs and end users throughout the world.\nCompetition\nParker operates in highly competitive markets and industries.  We offer our products over numerous, varied markets through our divisions operating in 44 countries.  Our global scope means that we have hundreds of competitors across our various markets and product offerings.  Our competitors include U.S. and non-U.S. companies.  These competitors and the degree of competition vary widely by product lines, end markets, geographic scope and/or geographic locations.  Although each of our segments has numerous competitors, given our market and product breadth, no single competitor competes with the Company with respect to all the products we manufacture and sell.\nIn the Diversified Industrial Segment, Parker competes on the basis of product quality and innovation, customer experience, manufacturing and distribution capability, and price competitiveness.  We believe that we are one of the market leaders in most of the major markets for our most significant Diversified Industrial Segment products.  We have comprehensive motion and control packages for the broadest systems capabilities.  While our primary global competitors include Bosch Rexroth AG, Danaher Corporation, Danfoss A/S, Donaldson Company, Inc., Emerson Climate Technologies, Inc., Emerson/ASCO, Festo AG & Co., Freudenberg-NOK, Gates Corporation, IMI/Norgren, SMC Corporation, Swagelok Company, and Trelleborg AB, none of these businesses compete with every group or product in our Diversified Industrial Segment.\nIn the Aerospace Systems Segment, we have developed relationships with key customers based on our advanced technological and engineering capabilities, performance in quality, delivery, service, and price competitiveness.  This has enabled us to obtain significant original equipment business on new aircraft programs for our systems and components, as well as the follow-on repair and replacement business for these programs.  Further, the Aerospace Systems Segment utilizes design and manufacturing techniques as well as best cost region and supply chain management strategies to reduce cost.  Although we believe that we are one of the market leaders in most of the major markets for our most significant Aerospace Systems Segment products, primary global competitors for these products include Eaton Corporation plc, Honeywell International, Inc., Moog Inc., Triumph Group, Inc., Senior plc, Crane Co., Raytheon Collins Aerospace, Woodward, Inc. and Safran S.A.\nWe believe that our platform utilizing eight core technologies, which consist of electromechanical, filtration, fluid handling, hydraulics, pneumatics, process control, refrigeration, and sealing and shielding, is a positive factor in our ability to compete effectively with both large and small competitors.  For both of our segments, we believe that the following factors also contribute to our ability to compete effectively:\n\u2022\ndecentralized business model;\n\u2022\ntechnology breadth and interconnectivity;\n\u2022\nengineered products with intellectual property;\n\u2022\nlong product life cycles;\n\u2022\nbalanced OEM vs. aftermarket;\n\u2022\nlow capital investment requirements; and\n\u2022\ngreat generators and deployers of cash over the cycle.\n7\nTable of Contents\nPatents, Trademarks, Trade Names, Copyrights, Trade Secrets, Licenses\nWe own a number of patents, trademarks, trade names, copyrights, trade secrets and licenses related to our products.  We also have exclusive and non-exclusive rights to use patents, trademarks, trade names, copyrights and trade secrets owned by others.  In addition, patent and trademark applications are pending, although there can be no assurance that further patents and trademarks will be issued.  We do not depend on any single patent, trademark, copyright, trade secret or license or group of patents, trademarks, copyrights, trade secrets or licenses to any material extent.\nBacklog and Seasonal Nature of Business\nBacklog consists of written firm orders from a customer to deliver products and, in the case of blanket purchase orders, only includes the portion of the order for which a schedule or release date has been agreed to with the customer.  The dollar value of backlog is equal to the amount that is expected to be billed to the customer and reported as a sale.  Our backlog by business segment for the past two years is included in Part II, Item 7 of this Annual Report on Form 10-K and is incorporated herein by reference.  Our backlog was $11.0 billion at June\u00a030, 2023 and $7.9 billion at June\u00a030, 2022.  Approximately 79 percent of our backlog at June\u00a030, 2023 is scheduled for delivery in the succeeding twelve months.  Because of the breadth and global scope of our business, our overall business is generally not seasonal in nature.\nEnvironmental Regulation\nCertain of our operations require the use and handling of hazardous materials and, as a result, the Company is subject to United States federal, state, and local laws and regulations as well as non-U.S. laws and regulations designed to protect the environment and regulate the discharge of materials into the environment.  These laws impose penalties, fines and other sanctions for non-compliance and liability for response costs, property damage and personal injury resulting from past and current spills, disposals or other releases of, or exposures to, hazardous materials.  Among other environmental laws, we are subject to the United States federal \"Superfund\" law, under which we have been designated as a \"potentially responsible party\" and may be liable for cleanup costs associated with various waste sites, some of which are on the United States Environmental Protection Agency\u2019s Superfund priority list.\nAs of June\u00a030, 2023, Parker was involved in environmental remediation and litigation at various U.S. and non-U.S. manufacturing facilities presently or formerly operated by us and as a \"potentially responsible party,\" along with other companies, at off-site waste disposal facilities and regional sites.\nWe believe that our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and the consequent financial liability to the Company.  Compliance with environmental laws and regulations requires continuing management efforts and expenditures by the Company.  Compliance with environmental laws and regulations has not had in the past, and, we believe, will not have in the future, a material adverse effect on our capital expenditures, earnings, or competitive position.\nOur reserve for environmental matters is discussed in Note 17 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.\nGovernment Regulation\nIn addition to the environmental regulations discussed above, we are subject to various federal, state, local, and foreign government regulations relating to the development, manufacture, marketing, sale and distribution of our products and services in the countries where we conduct business.  Compliance with these laws and regulations often requires the dedication of time and effort of our team members, as well as financial resources.  Additional information about the impact of government regulations on our business is included in \u201cItem 1A. Risk Factors.\u201d\nEnergy Matters and Sources and Availability of Raw Materials\nOur primary energy source for both of our business segments is electric power.  While we cannot predict future costs of electric power, the primary source for production of the required electric power is expected to be coal and natural gas from coal and natural gas reserves available to electric utilities.  We are subject to governmental regulations in regard to energy supplies in the United States and elsewhere.  To date, we have not experienced any significant disruptions of our operations due to energy curtailments.\nWe primarily use steel, brass, copper, aluminum, nickel, rubber and thermoplastic materials and chemicals as the principal raw materials in our products.  We expect these materials to be available from numerous sources in quantities sufficient to meet our requirements.\n8\nTable of Contents\nAcquisitions\nThe Company completed the acquisition (the \"Acquisition\") of Meggitt plc (\"Meggitt\") in 2023.  The Acquisition is discussed in Note 3 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.\nHuman Capital Management\nAt Parker, we align employment levels with the global needs of our business and our customers.  As of June\u00a030, 2023, we employed approximately 62,730 persons that we refer to as \u201cteam members,\u201d of whom approximately 30,940 were employed by foreign subsidiaries.  \nOur talented and passionate team members are the foundation of Parker\u2019s enduring growth, bringing new ideas and perspectives to enhance our safety performance, improve productivity and inspire a diverse and inclusive culture.  We see a clear path to a brighter future, and it begins with providing our people the resources that enable them to find personal and professional satisfaction in their work, responsibly move our company forward and strengthen our communities, fulfilling our purpose of \nEnabling Engineering Breakthroughs that Lead to a Better Tomorrow\n.\nThe Win Strategy\u2122 3.0, Purpose and Values\nThe Win Strategy 3.0 is Parker\u2019s business system that defines the goals and initiatives that drive growth, transformation and success.  It works with our purpose, which is a foundational element of The Win Strategy, to engage team members and create responsible and sustainable growth.\nThe Win Strategy has four overarching goals: Engaged People, Customer Experience, Profitable Growth and Financial Performance, supported by our shared values of a Winning Culture, Passionate People, Valued Customers and Engaged Leadership.  Our shared values shape our culture and our interactions with stakeholders and the communities in which we operate and live. \nSafety\n \n \nThe safety and well-being of Parker team members is our highest priority.  Our safety goal is simple: to achieve an incident-free workplace.  Over the last five years, we have reduced our Recordable Incident Rate by 45% and our Lost Time Incident Rate by 33% from fiscal year 2019 through fiscal year 2023.  In fiscal year 2023, the recordable incident rate per 100 team members was 0.31, compared to a recordable incident rate of 0.39 in fiscal year 2022.  Our Lost Time Incident Rate in fiscal year 2023 was 0.12, compared to 0.15 per 100 team members in fiscal year 2022 (rates exclude Meggitt acquisition).\n \nBuilding on the great progress we have made, in 2021 we established long-term safety goals.  We intend to reach our goal of zero recordable incidents by 2030 through our continued focus on team member engagement and accountability, coupled with a strong framework of systems and procedures.  \nTo help support this goal we adopted eight standards aimed at preventing serious safety incidents or an environmental impact.  We also developed a new field safety program that provides guidance for team members working outside our facilities to help them identify or anticipate safety risks.  Further, for leading indicator corrective action we leverage a globally deployed Gensuite\n\u00ae\n operating platform in which proactive corrective action is managed and monitored and data analytics are employed to look for trends that can be proactively addressed to eliminate potential injury risk.\n \nWe engage team members in improving safety performance through High Performance Teams (\"HPTs\").  All Parker manufacturing locations have an active, chartered Safety HPT and every value stream has a representative who is responsible for safety within their area of the business.  This ownership culture at the manufacturing level is an integral component of our safety program.  \n9\nTable of Contents\nEngaged People\nEngagement directly influences business performance.  We strongly believe in empowering our team members to think as owners and take action to improve their areas of the business.  Engagement is deeply ingrained in our culture, and as an overarching goal of The Win Strategy it is key to achieving top quartile financial performance. \nParker activates engagement through our HPTs, which apply the expertise and perspective of team members who are closest to the product and customer to drive improvement throughout the company.  Approximately 93% of our people participate in these teams, and more than 7,116 HPTs have already been established worldwide.  We closely track our progress toward support of a high performing work environment through our Global Engagement Survey.  Our last completed survey, in fiscal year 2022, achieved a 91% response rate with an overall engagement score of 73%, a score which exceeded our key benchmarking data by 2%.\nTalent Development\nWe have a well-defined talent development program managed through our Talent Central system, which connects all business units globally on a common platform and provides team members with visibility to skill development, career planning and learning opportunities.  This shared platform is the catalyst for talent management at Parker.\nOur review process enables us to assess talent globally, from early-in-career roles through senior leaders.  This review facilitates the identification of key talent and allows us to build meaningful development plans and align career growth opportunities.  The talent process is also supported by our Integrated Career System program which illustrates career paths for various roles and the steps to advance through the organization.\nSupplementing the talent development process are Parker\u2019s learning offerings, which help team members expand their professional skills and take ownership of their learning and development.  Examples of center-led programs are our annual ethics and compliance training and cyber security training that all team members are required to complete, in addition to programs for developing supervisory and leadership skills.  Functional-specific programs include HPT training, lean bootcamps and kaizen event orientations.  Local and regional training includes site safety, equipment safety and site quality requirements. \nIn addition to formal training programs, there are a host of development tools available which include mentoring relationships, coaching and feedback, job shadowing, project bubble assignments and other stretch projects.\nDiversity, Equity and Inclusion (\"DEI\")\nAn inclusive environment is a core tenet of Parker\u2019s values and one of our key measures of success within The Win Strategy.  Throughout our history, we have been committed to building a welcoming and inclusive workplace that respects every team member\u2019s unique perspective.  Our team members come from a diverse range of personal and professional backgrounds, and their collective talent and expertise is the driving force behind the growth and success we have achieved.  \nA component of our DEI focus is to support the development and deployment of Business Resource Groups (\"BRGs\"). \nIn 2015, we launched Peer W, our first BRG focused on supporting the recruitment, development and retention of women at Parker.  Peer W has grown into a well-developed global network of over 30 chapters and established a Mentoring Circles program in 2020.  In 2021, we introduced and launched two additional BRGs which are the Nia Network, supporting the attraction, development and retention of Black team members, and Parker Next, dedicated to our team members\u2019 professional growth and personal development. \nWe have also established four global HPTs focused on Talent Attraction, Talent Development, Governance and Knowledge.  Each team is led by a senior executive and tasked with rethinking the way we attract and develop diverse team members, share knowledge and measure our progress in fostering an inclusive culture.\nCompensation and Benefits\nAs a global employer, we are committed to offering competitive compensation and benefits, tailored in form and amount to geography, industry, experience and performance.  Our programs are designed to attract team members, motivate and reward performance, drive growth and support retention.  We provide benefit programs with the goal of improving physical, mental and financial wellness of our team members throughout their lifetime.  Some examples include base and variable pay, health and insurance benefits, paid time off, and retirement saving plans.  \n10\nTable of Contents",
+  "item1a": ">ITEM\u00a01A\n.  \nRisk Factors\n.\nThe following \"risk factors\" identify what we believe to be the risks that could materially adversely affect our financial and/or operational performance.  These risk factors should be considered and evaluated together with information incorporated by reference or otherwise included elsewhere in this Annual Report on Form 10-K.  Additional risks not currently known to the Company or that the Company currently believes are immaterial also may impair the Company\u2019s business, financial condition, results of operations and cash flows.\nBusiness and Operational Risks\nRisks arising from uncertainty in worldwide and regional economic conditions may harm our business and make it difficult to project long-term performance.\nOur business is sensitive to global macro-economic conditions.  Macroeconomic downturns may have an adverse effect on our business, results of operations and financial condition, as well as our distributors, customers and suppliers, and on activity in many of the industries and markets we serve.  Among the economic factors which may have such an effect are manufacturing and other end-market activity, currency exchange rates, air travel trends, difficulties entering new markets, tariffs and governmental trade and monetary policies, global pandemics, and general economic conditions such as inflation, deflation, interest rates and credit availability.  These factors may, among other things, negatively impact our level of purchases, capital expenditures, and creditworthiness, as well as our distributors, customers and suppliers, and, therefore, the Company\u2019s revenues, operating profits, margins, and order rates.\nWe cannot predict changes in worldwide or regional economic conditions and government policies, as such conditions are highly volatile and beyond our control.  If these conditions deteriorate or remain at depressed levels for extended periods, however, our business, results of operations and financial condition could be materially adversely affected.\nAs a global business, we are exposed to economic, political and other risks in different countries in which we operate, which could materially reduce our sales, profitability or cash flows, or materially increase our liabilities.\nOur net sales derived from customers outside the United States were approximately 37 percent in 2023, 39 percent in 2022 and 40 percent in 2021.  In addition, many of our manufacturing operations and suppliers are located outside the United States.  The Company expects net sales from non-U.S. markets to continue to represent a significant portion of its total net sales.  Our non-U.S. operations are subject to risks in addition to those facing our domestic operations, including:\n\u2022\nfluctuations in currency exchange rates and/or changes in monetary policy;\n\u2022\nlimitations on ownership and on repatriation of earnings;\n\u2022\ntransportation delays and other supply chain disruptions;\n\u2022\npolitical, social and economic instability and disruptions, including armed conflicts such as the current conflict between Russia and Ukraine;\n\u2022\ngovernment embargoes, sanctions or trade restrictions;\n\u2022\nthe imposition of duties and tariffs and other trade barriers;\n\u2022\nimport and export controls;\n\u2022\nlabor unrest and current and changing regulatory environments;\n\u2022\npublic health crises, including pandemics;\n\u2022\nthe potential for nationalization of enterprises;\n\u2022\ndifficulties in staffing and managing multi-national operations;\n\u2022\nlimitations on our ability to enforce legal rights and remedies;\n\u2022\npotentially adverse tax consequences; and\n\u2022\ndifficulties in implementing restructuring actions on a timely basis.\n11\nTable of Contents\nFor example, the global nature of our business and our operations exposes us to political, economic, and other conditions in foreign countries and regions, including geopolitical risks such as the current conflict between Russia and Ukraine.  The broader consequences of this conflict, which may include further sanctions, embargoes, regional instability, and geopolitical shifts; potential retaliatory action by the Russian government against companies, including possible nationalization of foreign businesses in Russia; increased tensions between the United States and countries in which we operate; and the extent of the conflict\u2019s effect on our business and results of operations as well as the global economy, cannot be predicted.  To the extent the current conflict between Russia and Ukraine adversely affects our business, it may also have the effect of heightening many other risks, any of which could materially and adversely affect our business and results of operations.  Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation, particularly with regard to raw material, transportation and labor price fluctuations; disruptions to our information technology environment, including through cyberattack, ransom attack, or cyber-intrusion; adverse changes in international trade policies and relations; disruptions in global supply chains; and our exposure to foreign currency exchange rate changes.\nIf we are unable to successfully manage the risks associated with expanding our global business or adequately manage operational fluctuations internationally, the risks could have a material adverse effect on our business, results of operations or financial condition.\nIncreased cybersecurity threats and more sophisticated and targeted computer crime have posed and could continue to pose a risk to our information technology systems and a disruption to or breach in the security of such systems, if material, could have adverse effects on our result of operations and financial condition.\nWe rely extensively on information technology systems to manage and operate our business, some of which are managed by third parties.  The security and functionality of these information technology systems, and the processing of data by these systems, are critical to our business operations.  If these systems, or any part of the systems, are damaged, intruded upon, attacked, shutdown or cease to function properly (whether by planned upgrades, force majeure, telecommunications failures, criminal acts, including hardware or software break-ins or extortion attempts, or viruses, or other cybersecurity incidents) and we suffer any resulting interruption in our ability to manage and operate our business or if our products are affected, our results of operations and financial condition could be materially adversely affected.  Additionally, certain of our employees work remotely at times, which may increase our vulnerability to cyber and other information technology risks.  In addition to existing risks, any adoption or deployment of new technologies via acquisitions or internal initiatives may increase our exposure to risks, breaches, or failures, which could materially adversely affect our results of operations or financial condition.  Furthermore, the Company has access to sensitive, confidential, or personal data or information that is subject to privacy and security laws, regulations, or other contractually-imposed controls.  Despite our use of reasonable and appropriate controls, security breaches, theft, misplaced, lost or corrupted data, programming, or employee errors and/or malfeasance have led and could in the future lead to the compromise or improper use of such sensitive, confidential, or personal data or information.  Such events may result in possible negative consequences, such as fines, ransom demands, penalties, failure to comply with laws governing sensitive data, loss of reputation, intellectual property, competitiveness or customers, increased security and compliance costs or other negative consequences.  Further, the amount of insurance coverage that we maintain may be inadequate to cover claims or liabilities relating to a cybersecurity incident.  Depending on the nature and magnitude of these events, they may have an adverse impact on our results of operations or financial condition.\nPrice and supply fluctuations of the raw materials used in our production processes and by our suppliers of component parts could negatively impact our financial results.\nOur supply of raw materials could be interrupted for a variety of reasons, including availability and pricing.  Furthermore, changes to United States and other countries' tariff and import/export regulations have in the past and may in the future have a negative impact on the availability and pricing of raw materials.  Prices for raw materials necessary for production have fluctuated significantly in the past and significant increases could adversely affect our results of operations and profit margins.  Our efforts to manage these fluctuations by, among other things, passing along price increases to our customers, may be subject to a time delay between the increased raw material prices and our ability to increase the price of our products, or we may be unable to increase the prices of our products due to pricing pressure, contract terms or other factors.  Any such inability to manage fluctuations could adversely impact our results of operations and cash flows.\nOur suppliers of component parts may significantly and quickly increase their prices in response to increases in costs of raw materials that they use to manufacture the component parts.  As a result, we may not be able to increase our prices commensurately with our increased costs.  Consequently, our results of operations or financial condition could be materially adversely affected.\nUnexpected events may increase our cost of doing business or disrupt our operations.\n The occurrence of one or more unexpected events, including war, acts of terrorism or violence, civil unrest, fires, tornadoes, hurricanes, earthquakes, floods and other forms of severe weather in the United States or in other countries in which \n12\nTable of Contents\nwe operate or in which our suppliers are located could adversely affect our operations and financial performance.  Natural disasters, pandemics, such as the COVID-19 pandemic, equipment failures, power outages or other unexpected events could result in physical damage to and complete or partial closure of one or more of our manufacturing facilities or distribution centers, temporary or long-term disruption in the supply of component products from some local and international suppliers, and disruption and delay in the transport of our products to dealers, end-users and distribution centers.  Existing insurance coverage may not provide protection for all of the costs that may arise from such events.\nFor example, during the COVID-19 pandemic we experienced mandatory and voluntary facility closures in certain jurisdictions in which we operate.  Furthermore, several of our customers temporarily suspended their operations and we experienced less demand for our products.  Facility closures or other restrictions, as well as supply chain disruptions, did negatively impact and could in the future materially adversely affect our ability to adequately staff, supply or otherwise maintain our operations.  The impact of unexpected events such as the COVID-19 pandemic are difficult to predict, but could have a material adverse effect on our business, results of operations or financial condition. \nChanges in the demand for and supply of our products may adversely affect our financial results, financial condition and cash flow.\nDemand for and supply of our products has been and may be adversely affected by numerous factors, some of which we cannot predict or control.  Such factors include:\n\u2022\nchanges in business relationships with and purchases by or from major customers, suppliers or distributors, including delays or cancellations in shipments, disputes regarding contract terms or significant changes in financial condition, and changes in contract cost and revenue estimates for new development programs;\n\u2022\nchanges in product mix;\n\u2022\nchanges in the market acceptance of our products;\n\u2022\nincreased competition in the markets we serve;\n\u2022\ndeclines in the general level of industrial production;\n\u2022\nweakness in the end-markets we serve;\n\u2022\nfluctuations in the availability or the prices of raw materials; and\n\u2022\nfluctuations in currency exchange rates.\nIf any of these factors occur, the demand for and supply of our products could suffer, which could materially adversely affect the Company\u2019s results of operations.\nThe development of new products and technologies requires substantial investment and is required to remain competitive in the markets we serve.  If we are unable to successfully introduce new commercial products, our profitability could be adversely affected.\nThe markets we serve are characterized by rapidly changing technologies and frequent introductions of new products and services.  Our ability to develop new products based on technological innovation can affect our competitive position and often requires the investment of significant resources.  If we cannot develop, or have difficulties or delays developing new and enhanced products and services, or if we fail to gain market or regulatory acceptance of new products and technologies, our revenues may be materially reduced and our competitive position could be materially adversely affected.  In addition, we may invest in research and development of products and services, or in acquisitions or other investments, that do not lead to significant revenue, which could adversely affect our profitability.\nChanges in the competitive environment in which we operate may eliminate any competitive advantages that we currently have, which could adversely impact our business.\nOur operations are subject to competition from a wide variety of global, regional and local competitors, which could adversely affect our results of operations by creating downward pricing pressure and/or a decline in our margins or market shares.  To compete successfully, we must excel in terms of product quality and innovation, technological and engineering capability, manufacturing and distribution capability, delivery, price competitiveness, and customer experience.\n13\nTable of Contents\nWe may be required to make material expenditures in order to comply with environmental laws and regulations, to address the effects of climate change and to respond to customer needs and investor expectations regarding climate-related goals, each of which may negatively impact our business.\nOur operations necessitate the use and handling of hazardous materials and, as a result, subject us to various U.S. federal, state and local laws and regulations, as well as non-U.S. laws, designed to protect the environment and to regulate the discharge of materials into the environment.  These laws impose penalties, fines and other sanctions for non-compliance and liability for response costs, property damages and personal injury resulting from past and current spills, disposals or other releases of, or the exposure to, hazardous materials.  Among other laws, we are subject to the U.S. federal \"Superfund\" law, under which we have been designated as a \"potentially responsible party\" and may be liable for clean-up costs associated with various waste sites, some of which are on the United States Environmental Protection Agency\u2019s Superfund priority list.  We could incur substantial costs as a result of non-compliance with or liability for cleanup or other costs or damages under environmental laws, including the \"Superfund\" law. \nIn addition, increased worldwide focus on climate change issues has led to legislative and regulatory efforts to limit greenhouse gas emissions.  Increased regulation of greenhouse gas emissions and other climate change concerns could subject us to additional costs and restrictions, including increased energy and raw material costs.  We are not able to predict how such regulations would affect our business, operations or financial results, but increased regulation could have a material adverse effect on our business, operations and financial condition.\nFurther, climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present risks to our operations.  Extreme weather events linked to climate change, including hurricanes, flooding, wildfires, high heat and water scarcity, among others, create physical risks to our operating locations and supply chains.\n \nAlthough we are working towards and intend to meet our goal of making our own operations carbon neutral by 2040, we may be required to expend significant resources to do so, which could increase our operational costs.  Further, there can be no assurance of the extent to which any of our climate-related goals will be achieved, if at all, including on the timeline expected by customers or investors, or that any future investments we make in furtherance of achieving our goals will meet customer expectations and needs, investor expectations or market standards regarding sustainability, including reducing greenhouse gas emissions. Any failure, or perceived failure, by us to achieve our climate-related goals, further our initiatives, adhere to our public statements, comply with federal, state or international climate-related laws and regulations or meet evolving and varied customer and investor expectations and standards could result in legal and regulatory proceedings against us or could cause our customers to find other suppliers, each of which could adversely affect our reputation, the market price of our common shares, our results of operations, our financial condition or our cash flows.  \nWe operate in challenging markets for talent and may fail to attract, develop and retain key personnel.\nWe depend on the skills, institutional knowledge, working relationships, and continued services and contributions of key personnel, including our leadership team and others at all levels of the company, as a critical part of our human capital resources.  In addition, our ability to achieve our operating and strategic goals depends on our ability to identify, hire, train and retain qualified individuals.  We compete with other companies both within and outside of our industry for talented personnel in a highly competitive labor market, and we may lose key personnel or fail to attract other talented personnel or otherwise identify and retain suitable replacements.  Any such loss or failure could have material adverse effects on our results of operations, financial condition and cash flows.\nStrategic Transactions Risks\nWe are subject to risks relating to acquisitions and joint ventures, and risks relating to the integration of acquired companies, including risks related to the integration of Meggitt plc (\"Meggitt\").\nWe expect to continue our strategy of identifying and acquiring businesses with complementary products and services, and entering into joint ventures, which we believe will enhance our operations and profitability.  However, there can be no assurance that we will be able to continue to find suitable businesses to purchase or joint venture opportunities, or that we will be able to acquire such businesses or enter into such joint ventures on acceptable terms.  Furthermore, there are no assurances that we will be able to avoid acquiring or assuming unexpected liabilities.  If we are unable to avoid these risks, our results of operations and financial condition could be materially adversely affected.\n14\nTable of Contents\nIn addition, we may not be able to integrate successfully any businesses that we purchase into our existing business and it is possible that any acquired businesses or joint ventures may not be profitable.  For example, we have devoted significant management attention and resources to integrating the business and operations of Meggitt.  We may encounter, or have encountered, the following difficulties during the integration process:\n\u2022\nthe consequences of a change in tax treatment, including the cost of integration and compliance and the possibility that the full benefits anticipated to result from the acquisitions may not be realized;\n\u2022\ndelays in the integration of management teams, strategies, operations, products, and services;\n\u2022\ndifferences in business backgrounds, corporate cultures, and management philosophies that may delay successful integration;\n\u2022\nthe ability to retain key employees;\n\u2022\nthe ability to create and enforce uniform standards, controls, procedures, policies, and information systems;\n\u2022\nchallenges of integrating complex systems, technologies, networks, and other assets of the acquired companies in a manner that minimizes any adverse impact or disruptions to customers, suppliers, employees, and other constituencies; and\n\u2022\nunknown liabilities and unforeseen increased expenses or delays associated with the integration beyond current estimates.\nThe successful integration of new businesses and the success of joint ventures also depend on our ability to manage these new businesses and cut excess costs.  If we are unable to avoid these risks, our results of operations and financial condition could be materially adversely affected.\nOur results may be adversely affected if expanded operations from acquisitions are not effectively managed.\nOur recent acquisitions have greatly expanded the size and complexity of our business.  Our future success depends, in part, on the ability to manage this expanded business, which may pose or has posed substantial challenges for management, including challenges related to the management and monitoring of the expanded global operations and new manufacturing processes and products, and the associated costs and complexity.  There can be no assurance of successful management of these matters or that we will realize the expected benefits of the acquisitions.\nThe Company may be subject to risks relating to organizational changes.\nWe regularly execute organizational changes such as acquisitions, divestitures and realignments to support our growth and cost management strategies.  We also engage in initiatives aimed to increase productivity, efficiencies and cash flow and to reduce costs.  The Company commits significant resources to identify, develop and retain key employees to ensure uninterrupted leadership and direction.  If we are unable to successfully manage these and other organizational changes, the ability to complete such activities and realize anticipated synergies or cost savings as well as our results of operations and financial condition could be materially adversely affected.  We cannot offer assurances that any of these initiatives will be beneficial to the extent anticipated, or that the estimated efficiency improvements, incremental cost savings or cash flow improvements will be realized as anticipated or at all.\nFinancial Risks\nIncreasing costs of certain employee and retiree benefits could adversely affect our liability for such benefits.\nThe funding requirements and the amount of expenses recorded for our defined benefit pension plans are dependent on changes in market interest rates and the value of plan assets, which are dependent on actual plan asset returns.  Significant changes in market interest rates and decreases in the fair value of plan assets and investment losses on plan assets would increase funding requirements and expenses and may adversely impact our results of operations.\nThe Company absorbs a portion of healthcare costs for its employees.  If healthcare costs rise significantly and we continue to absorb the majority of these costs, these increasing costs may adversely impact our future results of operations.\n15\nTable of Contents\nAdditional liabilities relating to changes in tax rates or exposure to additional income tax liabilities could adversely impact our financial condition and cash flow.\nWe are subject to income taxes in the U.S. and various non-U.S. jurisdictions.  Our domestic and international tax liabilities are dependent upon the location of earnings among these different jurisdictions.  Our future financial condition and cash flow could be adversely affected by changes in effective tax rate as a result of changes in tax laws and judicial or regulatory interpretation thereof, the mix of earnings in countries with differing statutory tax rates, changes in overall profitability, changes in U.S. generally accepted accounting principles (\"GAAP\"), or changes in the valuation of deferred tax assets.  In addition, the amount of income taxes paid by the Company is subject to ongoing audits by non-U.S. and U.S. federal, state and local tax authorities.  If these audits result in assessments different from estimated amounts, future financial results may include unfavorable adjustments to the Company\u2019s tax liabilities, which could have a material adverse effect on the Company\u2019s financial condition and cash flow.\nOur indebtedness and restrictive covenants under our credit facilities could limit our operational and financial flexibility.\nWe have incurred significant indebtedness, and may incur additional debt for acquisitions, operations, research and development and capital expenditures, or for other reasons related to our overall capital deployment strategy.  Our ability to make interest and scheduled principal payments and meet restrictive covenants could be adversely impacted by changes in the availability, terms and cost of capital, changes in interest rates or changes in our credit ratings or our outlook.  These changes could increase our cost of financing and limit our debt capacity, thereby limiting our ability to pursue acquisition opportunities, react to market conditions and meet operational and capital needs, which may place us at a competitive disadvantage.\nWe carry goodwill on our balance sheet, which is subject to impairment testing and could subject us to significant non-cash charges to earnings in the future if impairment occurs.\nWe have goodwill recorded on our balance sheet.  Goodwill is not amortized, but is tested for impairment annually as of December 31, in the third quarter or more often if events or changes in circumstances indicate a potential impairment may exist.  Factors that could indicate that our goodwill is impaired include a decline in our stock price and market capitalization, lower than projected operating results and cash flows, and slower growth rates in our industry.  Declines in our stock price, lower operating results and any decline in industry conditions in the future could increase the risk of impairment.  Impairment testing incorporates our estimates of future operating results and cash flows, estimates of allocations of certain assets and cash flows among reporting units, estimates of future growth rates, and our judgment regarding the applicable discount rates used on estimated operating results and cash flows.  If we determine at a future time that impairment exists, it may result in a significant non-cash charge to earnings and lower stockholders\u2019 equity.\nLegal and Regulatory Risks\nAs a provider of products to the U.S. government, we are subject to additional risks related to future government spending as well as unusual performance conditions and enhanced compliance risks.\nIn addition to the risks identified herein, doing business with the U.S. government subjects us to unusual risks, including dependence on the level of government spending and compliance with and changes in governmental acquisition regulations.  Agreements relating to the sale of products to government entities may be subject to termination, reduction or modification, either at the convenience of the government or for our failure to perform, or other unsatisfactory performance under the applicable contract.  We are subject to government investigations of our business practices and compliance with government acquisition regulations.  If the Company were charged with wrongdoing as a result of any such investigation, it could be suspended from bidding on or receiving awards of new government contracts, and we could be subject to fines or penalties associated with contract non-compliance or resulting from such investigations, which could have a material adverse effect on our results of operations.\n16\nTable of Contents\nLitigation and legal and regulatory proceedings against the Company could decrease our liquidity, impair our financial condition and adversely affect our results of operations.\nFrom time to time, we are subject to litigation or other commercial disputes and other legal and regulatory proceedings relating to our business.  Due to the inherent uncertainties of any litigation, commercial disputes or other legal or regulatory proceedings, we cannot accurately predict their ultimate outcome, including the outcome of any related appeals.  An unfavorable outcome could materially adversely impact our business, financial condition and results of operations.  Furthermore, as required by U.S. GAAP, we establish reserves based on our assessment of contingencies, including contingencies related to legal claims asserted against us.  Subsequent developments in legal proceedings may affect our assessment and estimates of the loss contingency recorded as a reserve and require us to make payments in excess of our reserves, which could have an adverse effect on our results of operations.\nWe are subject to national and international laws and regulations, such as the anti-corruption laws of the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, relating to our business and our employees.  Despite our policies, procedures and compliance programs, our internal controls and compliance systems may not be able to protect the Company from prohibited acts willfully committed by our employees, agents or business partners that would violate such applicable laws and regulations.  Any such improper acts could damage the Company's reputation, subject us to civil or criminal judgments, fines or penalties, and could otherwise disrupt the Company's business, and as a result, could materially adversely impact our business, financial condition and results of operations.\nFurther, our operations are subject to certain antitrust and competition laws in the jurisdictions in which we conduct our business, in particular the United States and Europe.  These laws prohibit, among other things, anticompetitive agreements and practices.  If any of our commercial agreements or practices are found to violate or infringe such laws, we may be subject to civil and other penalties.  We may also be subject to third-party claims for damages.  Further, agreements that infringe antitrust and competition laws may be void and unenforceable, in whole or in part, or require modification in order to be lawful and enforceable.  Accordingly, any violation of these laws could harm our reputation and could have a material adverse effect on our earnings, cash flows and financial condition.\nDue to the nature of our business and products, we may be liable for damages based on product liability claims.\nOur businesses expose us to potential product liability risks that are inherent in the design, manufacture and sale of our products and the products of third-party vendors that we use or resell.  Significant product liability claims could have a material adverse effect on the Company\u2019s financial condition, liquidity and results of operations.  Although we currently maintain what we believe to be suitable and adequate product liability insurance, there can be no assurance that we will be able to maintain our insurance on acceptable terms or that our insurance will provide adequate protection against all potential significant liabilities.\nFailure to protect our intellectual property and know-how could reduce or eliminate any competitive advantage and reduce our sales and profitability, and the cost of protecting our intellectual property may be significant.\nProtecting our intellectual property is critical to our innovation efforts.  We own a number of patents, trade secrets, copyrights, trademarks, trade names and other forms of intellectual property related to our products and services throughout the world and in the operation of our business.  We also have exclusive and non-exclusive rights to intellectual property owned by others.  Our intellectual property may be challenged, stolen or otherwise infringed upon by third parties or we may be unable to maintain, renew or enter into new license agreements with third-party owners of intellectual property on reasonable terms.  In addition, the global nature of our business increases the risk that our intellectual property may be subject to infringement, theft or other unauthorized use or disclosure by others.  In some cases, our ability to protect our intellectual property rights by legal recourse or otherwise may be limited, particularly in countries where laws or enforcement practices are inadequate or undeveloped.  And the cost of enforcing our rights may be significant.  Unauthorized use or disclosure of our intellectual property rights or our inability to protect our intellectual property rights could lead to reputational harm and/or adversely impact our competitive position and results of operations.",
+  "item7": ">ITEM\u00a07\n.  \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\nForward-Looking Statements\nForward-looking statements contained in this and other written and oral reports are made based on known events and circumstances at the time of release, and as such, are subject in the future to unforeseen uncertainties and risks. Often but not always, these statements may be identified from the use of forward-looking terminology such as \u201canticipates,\u201d \u201cbelieves,\u201d \u201cmay,\u201d \u201cshould,\u201d \u201ccould,\u201d \u201cpotential,\u201d \u201ccontinues,\u201d \u201cplans,\u201d \u201cforecasts,\u201d \u201cestimates,\u201d \u201cprojects,\u201d \u201cpredicts,\u201d \u201cwould,\u201d \u201cintends,\u201d \u201cexpects,\u201d \u201ctargets,\u201d \u201cis likely,\u201d \u201cwill,\u201d or the negative of these terms and similar expressions, and include all statements regarding future performance, earnings projections, events or developments. Neither the Company nor any of its respective associates or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this document will actually occur. The Company cautions readers not to place undue reliance on these statements. It is possible that the future performance and earnings projections of the Company, including its individual segments, may differ materially from past performance or current expectations, depending on economic conditions within its mobile, industrial and aerospace markets, and the Company\u2019s ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. Additionally, the actual impact of changes in tax laws in the United States and foreign jurisdictions and any judicial or regulatory interpretation thereof on future performance and earnings projections may impact the Company\u2019s tax calculations. A change in the economic conditions in individual markets may have a particularly volatile effect on segment performance.\nAmong other factors which may affect future performance are: \n\u2022\nchanges in business relationships with and purchases by or from major customers, suppliers or distributors, including delays or cancellations in shipments; \n\u2022\ndisputes regarding contract terms or significant changes in financial condition, changes in contract cost and revenue estimates for new development programs and changes in product mix;\n\u2022\nthe impact of political, social and economic instability and disruptions, including public health crises such as the COVID-19 pandemic; \n\u2022\nability to identify acceptable strategic acquisition targets; uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions, including the integration of Meggitt; and our ability to effectively manage expanded operations from acquisitions; \n\u2022\nthe ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures;\n\u2022\nthe determination to undertake business realignment activities and the expected costs thereof and, if undertaken, the ability to complete such activities and realize the anticipated cost savings from such activities;\n\u2022\nability to implement successfully capital allocation initiatives, including timing, price and execution of share repurchases;\n\u2022\navailability, limitations or cost increases of raw materials, component products and/or commodities that cannot be recovered in product pricing;\n\u2022\nglobal economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as inflation, deflation, interest rates, credit availability and changes in consumer habits and preferences;\n\u2022\nability to manage costs related to insurance and employee retirement and health care benefits;\n\u2022\nlegal and regulatory developments and changes;\n\u2022\nadditional liabilities relating to changes in tax rates or exposure to additional income tax liabilities; \n\u2022\nability to enter into, own, renew, protect and maintain intellectual property and know-how; \n\u2022\nleverage and future debt service obligations; \n\u2022\npotential impairment of goodwill; \n\u2022\ncompliance costs associated with environmental laws and regulations;\n\u2022\npotential labor disruptions or shortages and the ability to attract and retain key personnel;\n\u2022\nuncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals;\n\u2022\nglobal competitive market conditions, including U.S. trade policies and resulting effects on sales and pricing;\n\u2022\nlocal and global political and economic conditions, including the Russia-Ukraine war and its residual effects;\n21\nTable of Contents\n\u2022\ninability to obtain, or meet conditions imposed for, required governmental and regulatory approvals;\n\u2022\ngovernment actions and natural phenomena such as pandemics, floods, earthquakes, hurricanes or other natural phenomena that may be related to climate change;\n\u2022\nincreased cyber security threats and sophisticated computer crime; and\n\u2022\nsuccess of business and operating initiatives. \nThe Company makes these statements as of the date of the filing of its Annual Report on Form 10-K for the year ended June\u00a030, 2023, and undertakes no obligation to update them unless otherwise required by law.\nOverview\nThe Company is a global leader in motion and control technologies.  For more than a century, the Company has engineered the success of its customers in a wide range of diversified industrial and aerospace markets.\nBy aligning around our purpose, Enabling Engineering Breakthroughs that Lead to a Better Tomorrow, Parker is better positioned for the challenges and opportunities of tomorrow.\nThe Win Strategy 3.0 is Parker's business system which defines the goals and initiatives that create responsible, sustainable growth and enable Parker's long-term success.  It works with our purpose, which is a foundational element of The Win Strategy, to engage team members and create responsible and sustainable growth.  Our shared values shape our culture and our interactions with stakeholders and the communities in which we operate and live.\nWe believe many opportunities for profitable growth are available.  The Company intends to focus primarily on business opportunities in the areas of energy, water, food, environment, defense, life sciences, infrastructure and transportation.  We believe we can meet our strategic objectives by:\n\u2022\nserving the customer and continuously enhancing its experience with the Company;\n\u2022\nsuccessfully executing The Win Strategy initiatives relating to engaged people, premier customer experience, profitable growth and financial performance;\n\u2022\nmaintaining a decentralized division and sales company structure;\n\u2022\nfostering a safety-first and entrepreneurial culture;\n\u2022\nengineering innovative systems and products to provide superior customer value through improved service, efficiency and productivity;\n\u2022\ndelivering products, systems and services that have demonstrable savings to customers and are priced by the value they deliver;\n\u2022\nenabling a sustainable future by providing innovative clean technology solutions that offer a positive, global environmental impact and operating responsibly by reducing our energy use and emissions;\n\u2022\nacquiring strategic businesses;\n\u2022\norganizing around targeted regions, technologies and markets; \n\u2022\ndriving efficiency by implementing lean enterprise principles; and \n\u2022\ncreating a culture of empowerment through our values, inclusion and diversity, accountability and teamwork.\nOur order rates provide a near-term perspective of the Company's outlook particularly when viewed in the context of prior and future order rates.  The Company publishes its order rates on a quarterly basis.  The lead time between the time an order is received and revenue is realized generally ranges from one day to 12 weeks for mobile and industrial orders and from one day to 18 months for aerospace orders.\nThe continuing residual effects of the Russia-Ukraine war and the COVID-19 pandemic, including the inflationary cost environment as well as disruption within the global supply chain and labor markets, have impacted our business.  We continue to manage the challenging supply chain environment through our \"local for local\" manufacturing strategy, ongoing supplier management process, and broadened supply base.  We continue to manage the impact of the inflationary cost environment through a variety of cost and pricing measures, including continuous improvement and lean initiatives.  Additionally, we strategically manage our workforce and discretionary spending.  At the same time, we are appropriately addressing the ongoing needs of our business so that we continue to serve our customers.  \nOver the long-term, the extent to which our business and results of operations will be impacted by economic and political uncertainty depends on future developments that remain uncertain.  We will continue to monitor the environment and manage our business with the goal to minimize the impact on operations and financial results.  \n22\nTable of Contents\nAs previously announced, on March 14, 2022, we detected that an unauthorized party gained access to our systems.  After securing our network and concluding our investigation, we found that the data exfiltrated during the incident included personal information of our team members.  We have notified individuals whose personal information was involved and offered them credit monitoring services.  We have also provided notification regarding the incident to the appropriate regulatory authorities. A consolidated class action lawsuit has been filed in the United States District Court for the Northern District of Ohio against the Company over the incident.  The parties have reached a settlement in principle in the lawsuit, which the district court preliminarily approved on March 14, 2023, and finally approved on August 2, 2023.  Based on our ongoing assessments, the incident has not had a significant financial or operational impact and has not had a material impact on our business, operations or financial results.\nThe discussion below is structured to separately discuss the Consolidated Statement of Income, Business Segments, and Liquidity and Capital Resources.  The term \"year\" and references to specific years refer to the applicable fiscal year.  \nCONSOLIDATED STATEMENT OF INCOME\nThe Consolidated Statement of Income summarizes the Company's operating performance.  The discussion below compares the operating performance in 2023, 2022, and 2021.\n(dollars in millions)\n2023\n2022*\n2021*\nNet sales\n$\n19,065\n\u00a0\n$\n15,862\u00a0\n$\n14,348\u00a0\nGross profit margin\n33.7\n\u00a0\n%\n33.5\u00a0\n%\n33.1\u00a0\n%\nSelling, general and administrative expenses\n$\n3,354\n\u00a0\n$\n2,504\u00a0\n$\n2,383\u00a0\nSelling, general and administrative expenses, as a percent of sales\n17.6\n\u00a0\n%\n15.8\u00a0\n%\n16.6\u00a0\n%\nInterest expense\n$\n574\n\u00a0\n$\n255\u00a0\n$\n250\u00a0\nOther expense (income), net\n184\n\u00a0\n945\u00a0\n(28)\nGain on disposal of assets\n(363)\n(7)\n(109)\nEffective tax rate\n22.2\n\u00a0\n%\n18.5\u00a0\n%\n22.3\u00a0\n%\nNet income attributable to common shareholders\n$\n2,083\n\u00a0\n$\n1,316\u00a0\n$\n1,746\u00a0\n*Years ended June 30, 2022 and 2021 amounts have been reclassified to reflect the income statement reclassification, as described in Note 1 to the Consolidated Financial Statements.\nNet sales\n \nin 2023 increased from the 2022 amount due to higher volume in both the Diversified Industrial and Aerospace Systems Segments.  The Acquisition completed within the last 12 months increased sales by approximately $2.1 billion during the current year.  The effect of currency rate changes decreased net sales in 2023 by approximately $470 million, substantially all of which is attributable to the Diversified Industrial International businesses.  Divestitures completed within the last 12 months decreased sales by approximately $69 million in 2023. \nNet sales in 2022 increased from the 2021 amount due to higher volume in both the Diversified Industrial and Aerospace Systems Segments.  The effect of currency rate changes decreased net sales in 2022 by approximately $255 million, substantially all of which is attributable to the Diversified Industrial International businesses.  \nGross profit margin \n(calculated as net sales less cost of sales, divided by net sales) increased slightly in 2023 primarily due to higher margins in both the Aerospace Systems and Diversified Industrial Segments.  The increase in gross profit margin is primarily due to higher sales volume and benefits from continuous improvement initiatives, as well as price increases.  The increase was partially offset by the step-up in inventory to fair value of $110 million, related to the Acquisition, within the Aerospace Systems Segment.  Additionally, increased freight, material and labor costs resulting from the ongoing inflationary environment and disruption within the global supply chain and labor markets impacted margin. Cost of sales also included business realignment and acquisition integration charges of $29 million in 2023 compared to $5 million in 2022.\nGross profit margin increased in 2022 primarily due to higher margins in both the Aerospace and Diversified Industrial Segments.  The increase in gross profit margin is primarily due to higher sales volume and benefits from continuous improvement initiatives, as well as price increases, partially offset by increased freight, material and labor costs resulting from ongoing inflationary environment and disruption within the global supply chain and labor markets.  Cost of sales also included business realignment and acquisition integration charges of $5 million in 2022 compared to $27 million in 2021.\n23\nTable of Contents\nSelling, general and administrative expenses \n(\"SG&A\") increased in 2023 primarily due to higher amortization expense, research and development expense, information technology charges, as well as increased general and administrative charges associated with the Acquisition.  Additionally, acquisition-related transaction costs for the year totaled $115 million.  SG&A also included business realignment and acquisition integration charges of $94 million and $14 million in 2023 and 2022, respectively.\nSG&A increased in 2022 primarily due to acquisition-related transaction costs of $44 million as well as higher net expense from the Company's deferred compensation plan and related investments and higher professional fees and related expenses.  SG&A also included business realignment and acquisition integration charges of $14 million and $31 million in 2022 and 2021, respectively. \nInterest expense \nin 2023 increased compared to 2022 primarily due to higher average interest rates and higher average debt outstanding.  Interest expense in 2022 increased compared to 2021 primarily due to higher average debt outstanding, partially offset by lower average interest rates.\nOther expense (income), net\n included the following:\n(dollars in millions)\n2023\n2022*\n2021*\nExpense (income)\nForeign currency transaction loss (gain)\n$\n46\n\u00a0\n$\n(40)\n$\n(11)\nIncome related to equity method investments\n(124)\n(76)\n(41)\nNon-service components of retirement benefit cost\n(67)\n4\u00a0\n49\u00a0\nInterest income\n(46)\n(10)\n(7)\nAcquisition-related financing fees\n\u2014\n\u00a0\n52\u00a0\n\u2014\u00a0\nLoss on deal-contingent forward contracts\n390\n\u00a0\n1,015\u00a0\n\u2014\u00a0\nRussia liquidation\n\u2014\n\u00a0\n8\u00a0\n\u2014\u00a0\nOther items, net\n(15)\n(8)\n(18)\n$\n184\n\u00a0\n$\n945\u00a0\n$\n(28)\n*Years ended June 30, 2022 and 2021 amounts have been reclassified to reflect the income statement reclassification, as described in Note 1 to the Consolidated Financial Statements.\nForeign currency transaction loss (gain) primarily relates to the impact of exchange rates on cash, forward contracts, certain cross-currency swap contracts and intercompany transactions.  During 2023, it also includes foreign currency transaction loss associated with completing the Acquisition.  \nAcquisition-related financing fees\n \nin\n \n2022 relate to the bridge credit agreement (the \"Bridge Credit Agreement\") fees associated with the Acquisition.  Refer to Note 10 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\nLoss on deal-contingent forward contracts\n \nin\n \n2023 and 2022 includes a loss on the deal-contingent forward contracts related to the Acquisition.  Refer to Note 16 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\nGain on disposal of assets \nin 2023 includes a gain on the sale of the aircraft wheel and brake business within the Aerospace Systems Segment of $374 million.  Refer to Note 3 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.  In 2021 it primarily consists of a gain of $101 million on the sale of land.\nEffective tax rate\n in 2023 was higher than 2022, primarily due to an overall decrease in discrete tax benefits along with a reduction in the benefit from the foreign derived intangible income deduction.  Effective tax rate in 2022 was lower than 2021 primarily due to an overall increase in discrete tax benefits.  \n24\nTable of Contents\nBUSINESS SEGMENT INFORMATION\nThe Business Segment information presents sales and operating income on a basis that is consistent with the manner in which the Company's various businesses are managed for internal review and decision-making.\nDiversified Industrial Segment \n(dollars in millions)\n2023\n2022\n2021\nNet Sales\nNorth America\n$\n8,916\n\u00a0\n$\n7,703\u00a0\n$\n6,676\u00a0\nInternational\n5,789\n\u00a0\n5,639\u00a0\n5,284\u00a0\nOperating income\nNorth America\n1,853\n\u00a0\n1,515\u00a0\n1,247\u00a0\nInternational\n$\n1,218\n\u00a0\n$\n1,178\u00a0\n$\n988\u00a0\nOperating income as a percent of sales\nNorth America\n20.8\n\u00a0\n%\n19.7\u00a0\n%\n18.7\u00a0\n%\nInternational\n21.0\n\u00a0\n%\n20.9\u00a0\n%\n18.7\u00a0\n%\nBacklog\n$\n4,786\n\u00a0\n$\n4,510\u00a0\n$\n3,239\u00a0\nThe Diversified Industrial Segment operations experienced the following percentage changes in net sales: \n2023\n2022\nDiversified Industrial North America \u2013 as reported\n15.7\u00a0\n%\n15.4\u00a0\n%\nAcquisitions\n4.0\u00a0\n%\n\u2014\u00a0\n%\nCurrency\n\u2014\u00a0\n%\n0.1\u00a0\n%\nDiversified Industrial North America \u2013 without acquisitions and currency\n1\n11.7\u00a0\n%\n15.3\u00a0\n%\nDiversified Industrial International \u2013 as reported\n2.7\u00a0\n%\n6.7\u00a0\n%\nAcquisitions\n2.3\u00a0\n%\n\u2014\u00a0\n%\nCurrency\n(8.3)\n%\n(4.9)\n%\nDiversified Industrial International \u2013 without acquisitions and currency\n1\n8.7\u00a0\n%\n11.6\u00a0\n%\nTotal Diversified Industrial Segment \u2013 as reported\n10.2\u00a0\n%\n11.6\u00a0\n%\nAcquisitions\n3.3\u00a0\n%\n\u2014\u00a0\n%\nCurrency\n(3.5)\n%\n(2.0)\n%\nTotal Diversified Industrial Segment \u2013 without acquisitions and currency\n1\n10.4\u00a0\n%\n13.6\u00a0\n%\n1\nThe above presentation reconciles the percentage changes in net sales of the Diversified Industrial Segment reported in accordance with U.S. generally accepted accounting principles (\"GAAP\") to percentage changes in net sales adjusted to remove the effects of the Acquisition made within the last 12 months as well as currency exchange rates (a non-GAAP measure).  The effects of the Acquisition and currency exchange rates are removed to allow investors and the Company to meaningfully evaluate the percentage changes in net sales on a comparable basis from period to period.\nNet Sales\nDiversified Industrial North America\n - Sales in 2023 for the Diversified Industrial North American businesses increased 15.7 percent from 2022.  The effect of the Acquisition increased sales by approximately $311 million.  Currency exchange rates did not materially impact sales during the year.  Excluding the effects of the Acquisition and changes in the currency exchange rates, sales in 2023 for the Diversified Industrial North American businesses increased 11.7 percent from prior-year levels reflecting higher demand from distributors and end users across most markets, including, the cars and light trucks, farm and agriculture, construction equipment, heavy-duty truck, oil and gas, lawn and turf, metal fabrication, industrial machinery, semiconductor, and material handling markets, partially offset by lower end user demand in the life sciences market.\nSales in 2022 for the Diversified Industrial North American businesses increased 15.4 percent from 2021. The effect of currency exchange rates increased sales by approximately $7 million.  Excluding the effect of currency rate changes, sales in 2022 for the Diversified Industrial North American businesses increased 15.3 percent from prior-year levels reflecting higher \n25\nTable of Contents\ndemand from distributors and end users in virtually all markets, including, the farm and agriculture, life sciences, heavy-duty truck, construction equipment, engines, refrigeration, material handling, metal fabrication, and semiconductor markets.\nDiversified Industrial International\n - Sales in the Diversified Industrial International businesses increased 2.7 percent in 2023.  The effect of the Acquisition increased sales by approximately $128 million.  Currency exchange rates decreased sales by approximately $465 million, reflecting the strengthening of the U.S. dollar primarily against currencies in the Eurozone countries, China and Japan.  Excluding the effects of the Acquisition and changes in the currency exchange rates, sales in 2023 for the Diversified Industrial International businesses increased 8.7 percent from 2022 levels.  During 2023, Europe, the Asia Pacific region, and Latin America accounted for approximately 75 percent, 10 percent, and 15 percent, respectively, of the increase in sales.\nWithin Europe, the increase in sales was primarily due to higher demand from distributors and end users in the construction equipment, cars and light trucks, heavy-duty truck, oil and gas, industrial machinery, material handling, metal fabrication, farm and agriculture, and semiconductor markets, partially offset by a decrease in end-user demand in the power generation market.\nWithin the Asia Pacific region, the increase in sales was primarily due to higher demand from distributors and end users in the construction equipment, cars and light trucks, marine, heavy-duty truck, telecommunications, engines, and mining markets, partially offset by a decrease in end-user demand in the life sciences, refrigeration, and semiconductor markets.\nWithin Latin America, the increase in sales was primarily due to higher demand from distributors and end users in the cars and light trucks, oil and gas, farm and agriculture, railroad, and metal fabrication markets, partially offset by a decrease in end-user demand in the construction equipment and industrial machinery markets.\nSales in the Diversified Industrial International businesses increased 6.7 percent in 2022. The effect of currency rate changes decreased sales by $256 million, reflecting the strengthening of the U.S. dollar primarily against currencies in the Eurozone countries, Turkey and Japan. Excluding the effect of currency rate changes, sales in 2022 for the Diversified Industrial International businesses increased 11.6 percent from 2021 levels.  During 2022, Europe, the Asia Pacific region, and Latin America accounted for approximately 70 percent, 20 percent, and 10 percent, respectively, of the increase in sales.\nWithin Europe, the increase in sales was primarily due to higher demand from distributors and end users in the construction equipment, heavy-duty truck, industrial machinery, life sciences, machine tool, mining, material handling, engines, and forestry markets, partially offset by a decrease in end-user demand in the cars and light trucks, semiconductor, telecommunications, and oil and gas markets.\nWithin the Asia Pacific region, the increase in sales was primarily due to higher demand from distributors and end users in the semiconductor, refrigeration, industrial machinery, life sciences, and machine tool markets, partially offset by a decrease in end-user demand in the engines, power generation, heavy-duty truck, railroad equipment, and material handling markets.\nWithin Latin America, the increase in sales was primarily due to higher demand from distributors and end users in the farm and agriculture, cars and light trucks, mining, heavy-duty truck, construction equipment, and industrial machinery markets, partially offset by a decrease in end-user demand in the power generation and life sciences markets.\nOperating Margin\nDiversified Industrial North America - \nOperating margins in 2023 increased from 2022 primarily due to benefits from higher sales volume, continuous improvement initiatives and price increases, partially offset by higher material and operating costs resulting from the inflationary environment, as well as unfavorable product mix.\nDiversified Industrial International - \nOperating margins in 2023 increased from 2022 primarily due to benefits from continuous improvement initiatives and price increases, partially offset by higher material and operating costs resulting from the inflationary environment, as well as unfavorable product mix.\nOperating margins in 2022 increased from 2021 in both the North American and International businesses primarily due to higher sales volume and benefits from continuous improvement initiatives, as well as price increases. These increases were partially offset by increased operating costs, including higher freight, material, and labor costs resulting from the ongoing disruption within the current supply chain environment and labor market. In addition, within the International businesses, operating margin in 2022 benefited from savings related to prior-year restructuring actions.\n26\nTable of Contents\nBusiness Realignment\nThe following business realignment and acquisition integration charges are included in Diversified Industrial North America and Diversified Industrial International operating income:\n(dollars in millions)\n2023\n2022\n2021\nDiversified Industrial North America\n$\n9\n\u00a0\n$\n4\u00a0\n$\n14\u00a0\nDiversified Industrial International\n23\n\u00a0\n14\u00a0\n36\u00a0\nBusiness realignment charges include severance costs related to actions taken under the Company's simplification initiative aimed at reducing organizational and process complexity, as well as plant closures.  Acquisition integration charges in the current year relate to the acquisition of Meggitt, and charges in both 2022 and 2021 relate to the 2020 acquisition of Lord.  During 2021, business realignment charges primarily consisted of actions taken to address the impact of the COVID-19 pandemic on our business.  Business realignment and acquisition integration charges within the Diversified Industrial International businesses were primarily incurred in Europe.\nDuring 2022, we also incurred $6 million of expense within the Diversified Industrial International businesses as a result of our exit of business operations in Russia.  These charges primarily consist of write-downs of inventory and other working capital items.\nWe anticipate that cost savings realized from the workforce reduction measures taken during 2023 will increase operating income in 2024 by approximately one percent in the Diversified Industrial International businesses and will not materially impact operating income in the Diversified Industrial North American businesses.  We expect to continue to take actions necessary to structure appropriately the operations of the Diversified Industrial Segment.  These actions are expected to result in approximately $78 million in business realignment and acquisition integration charges in 2024.  However, continually changing business conditions could impact the ultimate costs we incur.  \nBacklog\nThe increase in Diversified Industrial Segment backlog in 2023 was primarily due to the addition of Meggitt backlog, partially offset by shipments exceeding orders in both the North American and International businesses.  Excluding the addition of Meggitt backlog, North American and International businesses accounted for approximately 60 percent and 40 percent of the change, respectively.  Within the International business, the Asia Pacific region, Europe and Latin America accounted for approximately 80 percent, 15 percent, and five percent of the change, respectively.\nThe increase in Diversified Industrial Segment backlog in 2022 was primarily due to orders exceeding shipments in both the North American and International businesses. Backlog within the North American and International businesses accounted for approximately 75 percent and 25 percent of the change, respectively. Within the International business, the Asia Pacific region, Europe and Latin America accounted for approximately 60 percent, 30 percent, and 10 percent of the change, respectively.  \nBacklog consists of written firm orders from a customer to deliver products and, in the case of blanket purchase orders, only includes the portion of the order for which a schedule or release date has been agreed to with the customer.  The dollar value of backlog is equal to the amount that is expected to be billed to the customer and reported as a sale. \nAerospace Systems Segment\n \n(dollars in millions)\n2023\n2022\n2021\nSales\n$\n4,360\n\u00a0\n$\n2,520\u00a0\n$\n2,388\u00a0\nOperating income\n562\n\u00a0\n501\u00a0\n403\u00a0\nOperating income as a percent of sales\n12.9\n\u00a0\n%\n19.9\u00a0\n%\n16.9\u00a0\n%\nBacklog\n$\n6,201\n\u00a0\n$\n3,340\u00a0\n$\n3,264\u00a0\nSales\nAerospace Systems Segment sales in 2023 increased compared to prior-year primarily due to the addition of Meggitt sales of $1.6 billion.  Sales also increased compared to 2022 due to higher volume in the commercial OEM and aftermarket businesses, partially offset by lower military OEM and aftermarket volume.  The increase in sales was partially offset by divestitures during 2023.\n27\nTable of Contents\nSales in 2022 were higher than the 2021 level primarily due to higher commercial aftermarket and OEM volume, partially offset by lower military OEM and aftermarket volume.\nOperating Margin\nAerospace Systems Segment operating margin decreased in 2023 primarily due to acquisition-related expenses, including higher estimated amortization and depreciation expense associated with the preliminary fair value estimates of intangible assets, plant and equipment, and inventory, as well as acquisition integration charges. Additionally, higher commercial OEM volume, an increase in contract loss reserves related to certain commercial OEM programs, challenges created by the disruption within the supply chain and labor markets and higher engineering development expenses also contributed to the lower operating margin. These factors were partially offset by higher commercial aftermarket volume and cost containment initiatives.\nAerospace Systems Segment operating margin increased in 2022 primarily due to higher sales volume, favorable commercial aftermarket product mix, higher aftermarket profitability as well as lower unfunded engineering development expenses. These benefits were partially offset by challenges created by the ongoing inflationary environment, disruption within the supply chain and labor markets as well as unfavorable commercial OEM product mix.\nBusiness Realignment\nWithin the Aerospace Systems Segment, we incurred acquisition integration and business realignment charges of $90 million in 2023.  We expect to incur approximately $27 million in business realignment and acquisition integration charges in 2024.  However, continually changing business conditions could impact the ultimate costs we incur.\nDuring 2022, we incurred $7 million of expense within the Aerospace Systems Segment as a result of our exit of business operations in Russia.  These charges primarily consist of write-downs of inventory and other working capital items.\nBacklog\nThe increase in Aerospace Systems Segment backlog in 2023 was primarily due to the addition of Meggitt backlog as well as orders exceeding shipments in the commercial OEM and aftermarket businesses and the military OEM and aftermarket businesses.  \nThe increase in backlog in 2022 was primarily due to orders exceeding shipments in the commercial OEM and aftermarket businesses, partially offset by shipments exceeding orders in the military OEM and aftermarket businesses.\nBacklog consists of written firm orders from a customer to deliver products and, in the case of blanket purchase orders, only includes the portion of the order for which a schedule or release date has been agreed to with the customer.  The dollar value of backlog is equal to the amount that is expected to be billed to the customer and reported as a sale. \nCorporate general & administrative expenses\n(dollars in millions)\n2023\n2022\n2021\nExpense (income)\nCorporate general and administrative expense\n$\n230\n\u00a0\n$\n220\u00a0\n$\n178\u00a0\nCorporate general and administrative expense, as a percent of sales\n1.2\n\u00a0\n%\n1.4\u00a0\n%\n1.2\u00a0\n%\nCorporate general and administrative expenses increased in 2023 primarily due to higher net expense from the Company's incentive compensation programs and higher professional fees.  These expenses were partially offset by lower expenses relating to the Company's deferred compensation plan and related investments.  The increase in 2022 was primarily due to higher net expense from the Company's deferred compensation plan and related investments, higher professional fees and related expenses as well as higher incentive compensation expense. These expenses were partially offset by lower pension expense.\n28\nTable of Contents\nOther expense (income)\n \n(in Business Segments) \n(dollars in millions)\n2023\n2022\n2021\nExpense (income)\nForeign currency transaction loss (gain)\n$\n46\n\u00a0\n$\n(40)\n$\n(11)\nStock-based compensation\n78\n\u00a0\n63\u00a0\n61\u00a0\nPensions\n(67)\n(16)\n22\u00a0\nAcquisition-related expenses\n114\n\u00a0\n96\u00a0\n5\u00a0\nLoss on deal-contingent forward contracts\n390\n\u00a0\n1,015\u00a0\n\u2014\u00a0\nGain on disposal of assets\n(363)\n(7)\n(109)\nInterest income\n(46)\n(10)\n(7)\nRussia liquidation\n\u2014\n\u00a0\n7\u00a0\n\u2014\u00a0\nOther items, net\n(1)\n(2)\n2\u00a0\n$\n151\n\u00a0\n$\n1,106\u00a0\n$\n(37)\nForeign currency transaction loss (gain) primarily relates to the impact of exchange rates on cash, forward contracts, certain cross currency swap contracts and intercompany transactions.  During 2023, it also includes foreign currency transaction loss associated with completing the Acquisition.\nAcquisition-related expenses include Bridge Credit Agreement financing fees and transaction costs related to the Acquisition.  Refer to Notes 3 and 10 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\nLoss on deal-contingent forward contracts includes losses on the deal-contingent forward contracts related to the Acquisition.  Refer to Note 16 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\nGain on disposal of assets includes a gain on the sale of the aircraft wheel and brake business within the Aerospace Systems Segment of approximately $374 million in 2023 and a gain of $101 million on the sale of land in 2021.  Refer to Note 3\n \nto the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\nLIQUIDITY AND CAPITAL RESOURCES\nWe believe that we are great generators and deployers of cash.  We assess our liquidity in terms of our ability to generate cash to fund our operations and meet our strategic capital deployment objectives, which include the following:\n\u2022\nContinuing our record annual dividend increases\n\u2022\nInvesting in organic growth and productivity\n\u2022\nStrategic acquisitions that strengthen our portfolio\n\u2022\nOffset share dilution through 10b5-1 share repurchase program\nCash Flows\nA summary of cash flows follows:\n(dollars in millions)\n2023\n2022\n2021\nCash provided by (used in):\nOperating activities\n$\n2,980\n\u00a0\n$\n2,442\u00a0\n$\n2,575\u00a0\nInvesting activities\n(8,177)\n(419)\n\u2014\u00a0\nFinancing activities\n(971)\n3,916\u00a0\n(2,623)\nEffect of exchange rates\n(5)\n(24)\n96\u00a0\nNet (decrease) increase in cash and cash equivalents and restricted cash\n$\n(6,173)\n$\n5,915\u00a0\n$\n48\u00a0\n29\nTable of Contents\nCash flows from operating activities\n were $2,980 million in 2023, $2,442 million in 2022 and $2,575 million in 2021.  The increase of $538 million in 2023 and decrease of $133 million in 2022 were primarily related to net changes in cash provided by accounts receivable, inventories, and accounts payable, trade.  We continue to focus on managing inventory and other working capital requirements.  Cash flows from operating activities for 2023 were negatively impacted by acquisition-transaction expenses. \n\u2022\nDays sales outstanding relating to trade receivables for the Company was 51 days in 2023, 51 days in 2022, and 50 days in 2021.\n\u2022\nDays supply of inventory on hand was 85 days in 2023, 77 days in 2022, and 75 days in 2021.\nCash flows from investing activities\n in 2023, 2022, and 2021 were impacted by the following factors:\n\u2022\nPayment for the Acquisition, net of cash acquired, of $7.1 billion in 2023.\n\u2022\nPayments to settle the deal-contingent forward contracts of $1.4 billion in 2023.\n\u2022\nNet maturities of marketable securities of $19 million in 2023 compared to $4 million in 2022 and $45 million in 2021.\n\u2022\nCapital expenditures of $381 million in 2023 compared to $230 million in 2022 and $210 million in 2021.\n\u2022\nNet proceeds from the sale of the aircraft wheel and brake business of approximately $443 million in 2023.\n\u2022\nNet proceeds from the sale of land of approximately $111 million in 2021.\n\u2022\nCash collateral received of $250 million in 2023 that was paid in 2022 per the credit support annex (\"CSA\") attached to the deal-contingent forward contracts.  Refer to Note 16\n \nto the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion. \nCash flows from financing activities \nin 2023, 2022, and 2021 were impacted by the following factors:\n\u2022\nRepurchases of 0.7\u00a0million common shares for $200 million during 2023 compared to repurchases of 1.3 million and 0.3 million common shares for $380 million and $100 million during 2022 and 2021, respectively.\n\u2022\nProceeds of $2.0 billion from borrowings under the term loan facility (the \"Term Loan Facility\") in fiscal 2023.  Subsequently in fiscal 2023, we made payments totaling $1.1 billion towards the outstanding balance under the Term Loan Facility.  Refer to Note 10 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\n\u2022\nPayments related to maturity of $300 million aggregate principal amounts of medium term notes in 2023.\n\u2022\nPayments to retire $900 million aggregate principal amount of private placement notes assumed in the Acquisition in Fiscal 2023.  Refer to Note 3 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\n\u2022\nNet proceeds from Senior Notes issuances of $3.6 billion in 2022 compared to term loan repayments of $1.2 billion in 2021. \n\u2022\nNet commercial paper borrowings of $358 million in 2023 compared to net commercial paper borrowings of $1.4 billion in 2022 and net commercial paper repayments of $723 million in 2021.\n30\nTable of Contents\nCash Requirements\nWe are actively monitoring our liquidity position and remain focused on managing our inventory and other working capital requirements.  We are continuing to target two percent of sales for capital expenditures and are prioritizing those related to safety, strategic investments, and sustainability initiatives.  We believe that cash generated from operations and our commercial paper program will satisfy our operating needs for the foreseeable future.\nWe have committed cash outflow related to long-term debt, operating and financing lease agreements, and postretirement benefit obligations.  Refer to Notes 10, 11, and 12 respectively, of Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\nDividends\nDividends have been paid for 292 consecutive quarters, including a yearly increase in dividends for the last 67 years.  The current annual dividend rate is $5.92 per common share.\nShare Repurchases\nThe Company has a program to repurchase its common shares.  On October 22, 2014, the Board of Directors of the Company approved an increase in the overall number of shares authorized to repurchase under the program so that, beginning on such date, the aggregate number of shares authorized for repurchase was 35 million.  There is no limitation on the number of shares that can be repurchased in a year.  Repurchases may be funded primarily from operating cash flows and commercial paper borrowings and the shares are initially held as treasury shares. \n Refer to Note 13\n \nto the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\nLiquidity\nCash, comprised of cash and cash equivalents and marketable securities and other investments, includes $422 million, $465 million, and $467 million held by the Company's foreign subsidiaries at June\u00a030, 2023, 2022, and 2021, respectively.  The Company does not permanently reinvest certain foreign earnings.  The distribution of these earnings could result in non-federal U.S. or foreign taxes.  All other undistributed foreign earnings remain permanently reinvested.\nWe are currently authorized to sell up to $3.0 billion of short-term commercial paper notes.  There were $1.8 billion outstanding commercial paper notes as of June\u00a030, 2023, and the largest amount of commercial paper notes outstanding during the fourth quarter of 2023 was $2.1 billion.\nThe Company has a line of credit totaling $3.0 billion through a multi-currency revolving credit agreement with a group of banks.  As of June\u00a030, 2023, $1.2 billion was available for borrowing under the credit agreement.  Advances from the credit agreement can be used for general corporate purposes, including acquisitions, and for the refinancing of existing indebtedness.  The credit agreement supports our commercial paper program, and issuances of commercial paper reduce the amount of credit available under the agreement.  During 2023, the Company amended its credit agreement and extended the expiration to June 2028.  The Company has the right to request a one-year extension of the expiration date on an annual basis, which request may result in changes to the current terms and conditions of the credit agreement.  The credit agreement requires the payment of an annual facility fee, the amount of which is dependent upon the Company\u2019s credit ratings.  Although a lowering of the Company\u2019s credit ratings would increase the cost of future debt, it would not limit the Company\u2019s ability to use the credit agreement nor would it accelerate the repayment of any outstanding borrowings.  Refer to Note 9 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\nWe primarily utilize unsecured medium-term notes and senior notes to meet our financing needs and we expect to continue to borrow funds at reasonable rates over the long term.  During 2022, the Company issued $1.4 billion aggregate principal amount of 3.65 percent Senior Notes due June 15, 2024, $1.2 billion aggregate principal amount of 4.25 percent Senior Notes due September 15, 2027, and $1.0 billion aggregate principal amount of 4.50 percent Senior Notes due September 15, 2029 (collectively, the \"Senior Notes\").  We used proceeds of the Senior Notes to finance a portion of the Acquisition.  \nThe Company\u2019s credit agreements and indentures governing certain debt securities contain various covenants, the violation of which would limit or preclude the use of the credit agreements for future borrowings, or might accelerate the maturity of the related outstanding borrowings covered by the indentures.  Based on the Company\u2019s rating level at June\u00a030, 2023, the most restrictive financial covenant provides that the ratio of debt to debt-shareholders' equity cannot exceed 0.65 to 1.0.  At June\u00a030, 2023, the Company's debt to debt-shareholders' equity ratio was 0.55 to 1.0.  We are in compliance, and expect to remain in compliance, with all covenants set forth in the credit agreement and indentures.\n31\nTable of Contents\nOur goal is to maintain an investment-grade credit profile.  The rating agencies periodically update our credit ratings as events occur.  At June\u00a030, 2023, the long-term credit ratings assigned to the Company's senior debt securities by the credit rating agencies engaged by the Company were as follows: \nFitch Ratings\nBBB+\nMoody's Investor Services, Inc.\nBaa1\nStandard & Poor's\nBBB+\nSupply Chain Financing\nWe continue to identify opportunities to improve our liquidity and working capital efficiency, which includes the extension of payment terms with our suppliers.  We currently have supply chain financing (\"SCF\") programs with financial intermediaries, which provide certain suppliers the option to be paid by the financial intermediaries earlier than the due date on the applicable invoice.  We are not a party to the agreements between the participating financial intermediaries and the suppliers in connection with the programs.  The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the programs.  We do not reimburse suppliers for any costs they incur for participation in the programs and their participation is completely voluntary.  Amounts due to our suppliers that elected to participate in the SCF programs are included in accounts payable on the Consolidated Balance Sheet.  Accounts payable included approximately $85 million and $46 million payable to suppliers who have elected to participate in the SCF programs as of June\u00a030, 2023 and June\u00a030, 2022, respectively.  In 2023 and 2022, the amount settled through the SCF programs and paid to participating financial institutions totaled $284 million and $35 million, respectively.  The increase in the amount outstanding in the programs from the June 30, 2022 balance is primarily due to the addition of Meggitt's SCF program.  We account for payments made under the programs in the same manner as our other accounts payable, which is a reduction to our cash flows from operations.  We do not believe that changes in the availability of supply chain financing will have a significant impact on our liquidity.\nStrategic Acquisitions\nUpon announcing the Acquisition on August 2, 2021, the Company entered into the Bridge Credit Agreement where lenders committed to provide senior, unsecured financing in the aggregate principal amount of \u00a36.5 billion.  In July 2022, after consideration of an escrow balance designated for the Acquisition and funds available under the $2.0 billion Term Loan Facility, we reduced the aggregate committed principal amount of the Bridge Credit Agreement to zero, and the Bridge Credit Agreement was terminated.\nDuring September 2022, the Company fully drew against the $2.0 billion Term Loan Facility, which will mature in September 2025, to finance a portion of the Acquisition.  Subsequently, during the year we made principal payments totaling $1.1 billion related to the Term Loan Facility.  Refer to Note 10 of the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\nOn September 12, 2022, we completed the acquisition of all outstanding ordinary shares of Meggitt for 800 pence per share, resulting in an aggregate cash purchase price of  $7.2\u00a0billion, including the assumption of debt.  We funded the purchase using cash and net proceeds from the issuance of senior notes and commercial paper and the Term Loan Facility, which were accumulated in an escrow account designated for the Acquisition.  Refer to Note 3 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\nUpon closing the Acquisition, we settled the deal-contingent forward contracts entered into during October 2021 to mitigate the risk of appreciation in the GBP-denominated purchase price.  These deal-contingent forward contracts had an aggregate notional amount of \u00a36.4 billion.  Refer to the Cash Flows section above and Note 16 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\nOn April 11, 2022, the European Commission cleared the Acquisition, conditional on full compliance with commitments offered by Parker, including a commitment to divest its aircraft wheel and brake business within the Aerospace Systems Segment.  In accordance with these commitments, we sold the aircraft wheel and brake business in September 2022 for proceeds of $443 million.  Refer to Note 3 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.\nCRITICAL ACCOUNTING POLICIES\nThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  The policies discussed below are considered by management to be more critical than other policies because their application places the most significant demands on management's judgment.\n32\nTable of Contents\nRevenue Recognition\n - Revenues are recognized when control of performance obligations, which are distinct goods or services within the contract, is transferred to the customer.  Control is transferred when the customer has the ability to direct the use of and obtain the benefits from the goods or services.  A majority of our revenues are recognized at a point in time when control is transferred to the customer, which is generally at the time of shipment.  However, a portion of our revenues are recognized over time if the customer simultaneously receives control as we perform work under a contract, if the customer controls the asset as it is being produced, or if the product has no alternative use and we have a contractual right to payment.\nFor contracts where revenue is recognized over time, we use the cost-to-cost or units of delivery method depending on the nature of the contract, including length of production time.  The estimation of costs and efforts expended requires management's judgment due to the duration of the contractual agreements as well as the technical nature of the products involved.  Adjustments to these estimates are made on a consistent basis and a contract reserve is established when the estimated costs to complete a contract exceed the expected contract revenues.\nWhen there are multiple performance obligations within a contract, the transaction price is allocated to each performance obligation based on its standalone selling price.  The primary method used to estimate a standalone selling price is the price observed in standalone sales to customers for the same product or service.  Revenue is recognized when control of the individual performance obligations is transferred to the customer.\nWe consider the contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price.  Variable consideration is included in the estimated transaction price when there is a basis to reasonably estimate the amount, including whether the estimate should be constrained in order to avoid a significant reversal of revenue in a future period.  These estimates are based on historical experience, anticipated performance under the terms of the contract and our best judgment at the time.\nImpairment of Goodwill\n \nand Long-Lived Assets \n- We test goodwill for impairment at the reporting unit level on an annual basis and between annual tests whenever events or circumstances indicate the carrying value of a reporting unit may exceed its fair value.  Our five reporting units are equivalent to our operating segments.  As quoted market prices are not available for our reporting units, determining whether an impairment occurred requires the valuation of the respective reporting unit, which is estimated using both income-based and market-based valuation methods.  The income-based valuation method utilizes a discounted cash flow model which requires several assumptions, including future sales growth and operating margin levels as well as assumptions regarding future industry-specific market conditions.  Each reporting unit regularly prepares discrete operating forecasts and uses these forecasts as the basis for the assumptions in the discounted cash flow analysis.  Within the discounted cash flow models, the Company uses a discount rate, commensurate with its cost of capital but adjusted for inherent business risks, and an appropriate terminal growth factor.  The market-based valuation performed for each reporting unit includes an analysis consisting of market-adjusted multiples based on key data points for guideline public companies.  We also reconcile the estimated aggregate fair value of our reporting units resulting from these procedures to our overall market capitalization.\nAt December 31, 2022, the Company performed its annual goodwill impairment test for each of its five reporting units.  The results of this test indicated the fair value substantially exceeded carrying value for all reporting units.  We continually monitor our reporting units for impairment indicators and update assumptions used in the most recent calculation of a reporting unit's fair value as appropriate.  \nLong-lived assets held for use, which primarily includes finite-lived intangible assets and property, plant and equipment, are evaluated for impairment whenever events or circumstances indicate that the undiscounted net cash flows to be generated by their use over their expected useful lives and eventual disposition are less than their carrying value.  The long-term nature of these assets requires the estimation of their cash inflows and outflows several years into the future and only takes into consideration technological advances known at the time of the impairment test.  During 2023, the Company did not record any material impairments related to long-lived assets. \nPensions\n - The annual net periodic expense and benefit obligations related to the Company's defined benefit plans are determined on an actuarial basis.  This determination requires critical assumptions regarding the discount rate, long-term rate of return on plan assets, increases in compensation levels and amortization periods for actuarial gains and losses.  Assumptions are determined based on Company data and appropriate market indicators and are evaluated each year as of the plans' measurement date.  Changes in the assumptions to reflect actual experience as well as the amortization of actuarial gains and losses could result in a material change in the annual net periodic expense and benefit obligations reported in the financial statements. \n33\nTable of Contents\nFor the Company's domestic qualified defined benefit plan, a 50 basis point change in the assumed long-term rate of return on plan assets is estimated to have an $18 million effect on annual pension expense and a 50 basis point decrease in the discount rate is estimated to decrease annual pension expense by $3 million.  As of June\u00a030, 2023, $342 million of past years' net actuarial losses related to the Company's domestic qualified defined benefit plan are subject to amortization in the future.  These losses will generally be amortized over approximately seven years and will negatively affect earnings in the future.  Any actuarial gains experienced in future years will help offset the effect of the net actuarial loss amortization.  Further information on pensions is provided in Note 12 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.\nBusiness Combinations\n - From time to time, we may enter into business combinations.  Business acquisitions are accounted for using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. In the fair value evaluation of intangible assets acquired, there are significant estimates and assumptions, including forecasts of future cash flows, revenues; and earnings before interest, taxes, depreciation and amortization; as well as the selection of the royalty rates and discount rates.  The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.  The acquisition method of accounting also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations. \nIncome Taxes\n - Significant judgment is required in determining the Company's income tax expense and in evaluating tax positions.  Deferred income tax assets and liabilities have been recorded for the differences between the financial accounting and income tax basis of assets and liabilities.  Factors considered by the Company in determining the probability of realizing deferred income tax assets include forecasted operating earnings, available tax planning strategies and the time period over which the temporary differences will reverse.  The Company reviews its tax positions on a regular basis and adjusts the balances as new information becomes available.  For those tax positions where it is more likely than not that a tax benefit will be sustained, the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon examination by a taxing authority that has full knowledge of all relevant information will be recorded.  For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the Consolidated Financial Statements.  Further information on income taxes is provided in Note 5 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.\nLoss Contingencies\n - The Company has a number of loss exposures incurred in the ordinary course of business such as environmental claims, product liability and litigation reserves.  Establishing loss accruals for these matters requires management's estimate and judgment with regards to risk exposure and ultimate liability or realization.  We review these loss accruals periodically and make adjustments to reflect the most recent facts and circumstances.\nRECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS\nRecently issued accounting pronouncements are described in Note 1 to the Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K.\n34\nTable of Contents",
+  "item7a": ">ITEM\u00a07A\n.\n \nQuantitative and Qualitative Disclosures About Market Risk\n.\nA substantial portion of our operations are conducted by our subsidiaries outside of the U.S. in currencies other than the U.S. dollar.  Most of our non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies.  Foreign currency exposures arise from translation of foreign-denominated assets and liabilities into U.S. dollars and from transactions denominated in a currency other than the subsidiary\u2019s functional currency.  Although the amount of this activity has increased with the Acquisition, we expect to continue to manage the associated foreign currency transaction and translation risk using existing processes.\nThe Company manages foreign currency transaction and translation risk by utilizing derivative and non-derivative financial instruments, including forward exchange contracts, deal-contingent forward contracts, costless collar contracts, cross-currency swap contracts and certain foreign currency denominated debt designated as net investment hedges.  The derivative financial instrument contracts are with major investment grade financial institutions and we do not anticipate any material non-performance by any of the counterparties.  We do not hold or issue derivative financial instruments for trading purposes.\nDerivative financial instruments are recognized on the Consolidated Balance Sheet as either assets or liabilities and are measured at fair value.  Further information on the fair value of these contracts is provided in Note 16 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.  Derivatives that are not designated as hedges are adjusted to fair value by recording gains and losses through the Consolidated Statement of Income.  Derivatives that are designated as hedges are adjusted to fair value by recording gains and losses through accumulated other comprehensive (loss) in the Consolidated Balance Sheet until the hedged item is recognized in earnings.  For cross-currency swaps measured using the spot method, the periodic interest settlements are recognized directly in earnings through interest expense.  The translation of the foreign currency denominated debt that has been designated as a net investment hedge is recorded in accumulated other comprehensive (loss) and remains there until the underlying net investment is sold or substantially liquidated.\nThe Company's debt portfolio contains variable rate debt, inherently exposing the Company to interest rate risk.  The Company's objective is to maintain a 60/40 mix between fixed rate and variable rate debt thereby limiting its exposure to changes in near-term interest rates.  At June\u00a030, 2023, our debt portfolio included $875 million of variable rate debt, exclusive of commercial paper borrowings.  A 100 basis point increase in near-term interest rates would increase annual interest expense on variable rate debt, including weighted-average commercial paper borrowings during 2023, by approximately $25 million.\n35\nTable of Contents",
+  "cik": "76334",
+  "cusip6": "701094",
+  "cusip": ["701094954", "701094904", "701094104"],
+  "names": ["PARKER-HANNIFIN CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/76334/000007633423000042/0000076334-23-000042-index.htm"
+}
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+  "item1": ">Item\u00a01. \nBusiness.\nThe Procter\u00a0& Gamble Company (the Company) is focused on providing branded products of superior quality and value to improve the lives of the world's consumers, now and for generations to come. The Company was incorporated in Ohio in 1905, having first been established as a New Jersey corporation in 1890, and was built from a business founded in Cincinnati in 1837 by William Procter and James Gamble. \nAdditional information required by this item is incorporated herein by reference to Management's Discussion and Analysis (MD&A); and Notes 1 and 2 to our Consolidated Financial Statements. Unless the context indicates otherwise, the terms \"Company,\" \"P&G,\" \"we,\" \"our\" or \"us\" as used herein refer to The Procter\u00a0& Gamble Company (the registrant) and its subsidiaries. Throughout this Form 10-K, we incorporate by reference information from other documents filed with the Securities and Exchange Commission (SEC).\nThe Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments thereto, are filed electronically with the SEC. The SEC maintains an internet site that contains these reports at: www.sec.gov. Reports can also be accessed through links from our website at: www.pginvestor.com. P&G includes the website link solely as a textual reference and the information on our website is not incorporated by reference into this report.\nCopies of these reports are also available, without charge, by contacting EQ Shareowner Services, 1100 Centre Pointe Curve, Suite 101, Mendota, MN 55120-4100.\nFinancial Information about Segments\nInformation about our reportable segments can be found in the MD&A and Note 2 to our Consolidated Financial Statements.\nNarrative Description of Business\nBusiness Model\n. Our business model is built to deliver balanced top- and bottom-line growth and value creation. We rely on the continued growth and success of existing brands and products, as well as the creation of new innovative products and brands. We offer products in markets and industry segments that are highly competitive. Our products are sold in approximately 180 countries and territories through numerous channels as well as direct-to-consumer. Our growth strategy is to deliver meaningful and noticeable superiority across five key vectors of our consumer proposition - product performance, packaging, brand communication, retail execution and consumer and customer value. We use our research and development (R&D) and consumer insights to provide superior products and packaging. We utilize our marketing and online presence to deliver superior brand messaging to our consumers. We partner with our customers to deliver superior retail execution, both in-store and online. In conjunction with the above vectors, we provide superior value to consumers and our retail customers in each price tier in which we compete. Productivity improvement is also critical to delivering our objectives of balanced top- and bottom-line growth and value creation. \nKey Product Categories\n. Information on key product categories can be found in the MD&A and Note 2 to our Consolidated Financial Statements.\nKey Customers\n. Our customers include mass merchandisers, e-commerce (including social commerce) channels, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, specialty beauty stores (including airport duty-free stores), high-frequency stores, pharmacies, electronics stores and professional channels. We also sell direct to consumers. Sales to Walmart Inc. and its affiliates represent approximately 15% of our total sales in 2023, 2022 and 2021. No other customer represents more than 10% of our total sales. Our top ten customers accounted for 40% of our total net sales in 2023 and 39% in 2022 and 2021. \nSources and Availability of Materials\n. Almost all of the raw and packaging materials used by the Company are purchased from third parties, some of whom are single-source suppliers. We produce certain raw materials, primarily chemicals, for further use in the manufacturing process. In addition, fuel, natural gas and derivative products are important commodities consumed in our manufacturing processes and in the transportation of input materials and finished products. The prices we pay for materials and other commodities are subject to fluctuation. When prices for these items change, we may or may not pass the change to our customers. The Company purchases a substantial variety of other raw and packaging materials, none of which are material to our business taken as a whole.\nTrademarks and Patents\n. We own or have licenses under patents and registered trademarks, which are used in connection with our activity in all businesses. Some of these patents or licenses cover significant product formulation and processes used to manufacture our products. The trademarks are important to the overall marketing and branding of our products. All major trademarks in each business are registered. In part, our success can be attributed to the existence and continued protection of these trademarks, patents and licenses.\nCompetitive Condition\n. The markets in which our products are sold are highly competitive. Our products compete against similar products from many large and small companies, including well-known global competitors. In many of the markets and industry segments in which we sell our products, we compete against other branded products as well as retailers' private-label brands. We are well positioned in the industry segments and markets in which we operate, often holding a leadership or significant market share position. We support our products with advertising, promotions and other marketing vehicles to build awareness and trial of our brands and products in conjunction with our sales force. We believe this combination provides the \n2        The Procter & Gamble Company\nmost efficient method of marketing for these types of products. Product quality, performance, value and packaging are also important differentiating factors.\nGovernment Regulation\n. Our Company is subject to a wide variety of laws and regulations across the countries in which we do business. In the United States, many of our products and manufacturing operations are subject to one or more federal or state regulatory agencies, including the U.S. Food and Drug Administration (FDA), the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), the Federal Trade Commission (FTC) and the Consumer Product Safety Commission (CPSC). We are also subject to anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act, and antitrust and competition laws and regulations that govern our dealings with suppliers, customers, competitors and government officials. \nIn addition, many foreign jurisdictions in which we do business have regulations and regulatory bodies that govern similar aspects of our operations and products, in some cases to an even more significant degree. We are also subject to expanding laws and regulations related to environmental protection and other sustainability-related matters, non-financial reporting and diligence, labor and employment, trade, taxation and data privacy and protection, including the European Union\u2019s General Data Protection Regulation (GDPR) and similar regulations in states within the United States and in countries around the world.\nThe Company has in place compliance programs and internal and external experts to help guide our business in complying with these and other existing laws and regulations that apply to us around the globe; and we have made, and plan to continue making, necessary expenditures for compliance with these laws and regulations. We also expect that our many suppliers, consultants and other third parties working on our behalf share our commitment to compliance, and we have policies and procedures in place to manage these relationships, though they inherently involve a lesser degree of control over operations and governance. We do not expect that the Company\u2019s expenditures for compliance with current government regulations, including current environmental regulations, will have a material effect on our total capital expenditures, earnings or competitive position in fiscal year 2024 as compared to prior periods.\nHuman Capital\n. Our employees are a key source of competitive advantage. Their actions, guided by our Purpose, Values and Principles (PVPs), are critical to the long-term success of our business. We aim to retain our talented employees by offering competitive compensation and benefits, strong career development and a respectful and inclusive culture that provides equal opportunity for all. \nOur Board of Directors, through the Compensation and Leadership Development Committee (C&LD Committee), provides oversight of the Company\u2019s policies and strategy relating to talent including diversity, equality and inclusion as well as the Company\u2019s compensation principles and practices. The C&LD Committee also evaluates and approves the Company\u2019s compensation plans, policies and programs applicable to our senior executives.\nEmployees\nAs of June\u00a030, 2023, the Company had approximately 107,000 employees, an increase of 1% versus the prior year due primarily to business growth. The total number of employees is an estimate of total Company employees excluding interns, co-ops, contractors and employees of joint ventures. 49% of our employees are in manufacturing roles and 27% of our employees are located in the United States. 41% of our global employees are women and 30% of our U.S. employees identify as multicultural.\nTraining and Development\nWe focus on attracting, developing and retaining skilled and diverse talent, both from universities and the broader market. We recruit from among the best universities across markets in which we compete and are generally able to select from the top talent. We focus on developing our employees by providing a variety of job experiences, training programs and skill development opportunities. Given our develop-from-within model for staffing most of our senior leadership positions, it is particularly important for us to ensure holistic growth and full engagement of our employees. \nDiversity, Equality and Inclusion\nAs a consumer products company, we believe that it is important for our workforce to reflect the diversity of our consumers worldwide. We also seek to foster an inclusive work environment where each individual can bring their authentic self, which helps drive innovation and enables us to better serve our consumers. We aspire to achieve equal gender representation globally and at key management and leadership levels. Within the U.S. workforce, our aspiration is to achieve 40% multicultural representation overall as well as at management and leadership levels. \nCompensation and Benefits\nMarket-competitive compensation and reward programs are critical elements of our employee value equation to attract and retain the best talent. Our total rewards programs are based on the principles of paying for performance, paying competitively versus peer companies that we compete with for talent in the marketplace and focusing on long-term success through a combination of short-term and long-term incentive programs. We also offer competitive benefit programs, including retirement plans and health insurance in line with local country practices with flexibility to accommodate the needs of a diverse workforce.\nSustainability\n. Environmental sustainability is integrated into our business strategy to offer consumers irresistibly superior products that are more sustainable. Our aim is to deliver balanced top- and bottom-line growth, value creation and key sustainability objectives. In 2021, the Company announced a 2040 net zero ambition and published a Climate Transition Action \nThe Procter & Gamble Company        3\nPlan, which describes the Company\u2019s ongoing efforts toward reducing greenhouse gas emissions across scopes 1 and 2 and elements of scope 3. This includes a long-term objective of net zero emissions for scopes 1 and 2, elements of scope 3 and interim goals to help us pace our progress. The Company has also declared goals towards using renewable electricity for our operations, reducing use of virgin petroleum-based plastic in packaging, increasing the recyclability or reusability of packaging, responsible sourcing of key forest-based commodities, improving efficiency of water usage in our operations and driving a global portfolio of water restoration projects to address water scarcity. \nWe use the standards and guidelines of the Global Reporting Initiative, Sustainability Accounting Standards Board (SASB) industry specific standards and the Task Force on Climate-related Financial Disclosures (TCFD) to inform our sustainability and related disclosures included in this Annual Report, our Proxy Statement and our sustainability reports. The \u201cmateriality\u201d thresholds in those standards and guidelines may differ from the concept of \u201cmateriality\u201d for purposes of the federal securities laws and disclosures required by the Commission\u2019s rules in this Annual Report. References to our sustainability reports and website are for informational purposes only and neither the sustainability reports nor the other information on our website is incorporated by reference into this Annual Report on Form 10-K. Additional detailed information on our sustainability efforts can be found on our website at https://pginvestor.com/esg. ",
+  "item1a": ">Item\u00a01A. \nRisk Factors.\nWe discuss our expectations regarding future performance, events and outcomes, such as our business outlook and objectives in this Form 10-K, as well as in our quarterly and annual reports, current reports on Form 8-K, press releases and other written and oral communications. All statements, except for historical and present factual information, are \u201cforward-looking statements\u201d and are based on financial data and business plans available only as of the time the statements are made, which may become outdated or incomplete. We assume no obligation to update any forward-looking statements as a result of new information, future events or other factors, except to the extent required by law. Forward-looking statements are inherently uncertain, and investors must recognize that events could significantly differ from our expectations.\nThe following discussion of \u201crisk factors\u201d identifies significant factors that may adversely affect our business, operations, financial position or future financial performance. This information should be read in conjunction with Management's Discussion and Analysis and the Consolidated Financial Statements and related Notes incorporated in this report. The following discussion of risks is not all inclusive but is designed to highlight what we believe are important factors to consider when evaluating our expectations. These and other factors could cause our future results to differ from those in the forward-looking statements and from historical trends, perhaps materially.\nMACROECONOMIC CONDITIONS AND RELATED FINANCIAL RISKS\nOur business is subject to numerous risks as a result of having significant operations and sales in international markets, including foreign currency fluctuations, currency exchange or pricing controls and localized volatility.\nWe are a global company, with operations in approximately 70 countries and products sold in approximately 180 countries and territories around the world. We hold assets, incur liabilities, generate sales and pay expenses in a variety of currencies other than the U.S. dollar, and our operations outside the U.S. generate more than 50% of our annual net sales. Fluctuations in exchange rates for foreign currencies have and could continue to reduce the U.S. dollar value of sales, earnings and cash flows we receive from non-U.S. markets, increase our supply costs (as measured in U.S. dollars) in those markets, negatively impact our competitiveness in those markets or otherwise adversely impact our business results or financial condition. Further, we have a significant amount of foreign currency debt and derivatives as part of our capital markets activities. The maturity cash outflows of these instruments could be adversely impacted by significant appreciation of foreign currency exchange rates (particularly the Euro), which could adversely impact our overall cash flows. Moreover, discriminatory or conflicting fiscal or trade policies in different countries, including changes to tariffs and existing trade policies and agreements, could adversely affect our results. See also the Results of Operations and Cash Flow, Financial Condition and Liquidity sections of the MD&A and the Consolidated Financial Statements and related Notes. \nWe also have businesses and maintain local currency cash balances in a number of countries with currency exchange, import authorization, pricing or other controls or restrictions, such as Egypt, Argentina and Pakistan. Our results of operations, financial condition and cash flows could be adversely impacted if we are unable to successfully manage such controls and restrictions, continue existing business operations and repatriate earnings from overseas, or if new or increased tariffs, quotas, exchange or price controls, trade barriers or similar restrictions are imposed on our business.\nAdditionally, our business, operations or employees have been and could continue to be adversely affected (including by the need to de-consolidate or even exit certain businesses in particular countries) by geopolitical conflicts, political volatility, trade controls, labor market disruptions or other crises or vulnerabilities in individual countries or regions. This could include political instability, upheaval or acts of war (such as the Russia-Ukraine War) and the related government and other entity responses, broad economic instability or sovereign risk related to a default by or deterioration in the creditworthiness of local governments, particularly in emerging markets.\nUncertain economic or social conditions may adversely impact demand for our products or cause our customers and other business partners to suffer financial hardship, which could adversely impact our business.\nOur business could be negatively impacted by reduced demand for our products related to one or more significant local, regional or global economic or social disruptions. These disruptions have included and may in the future include: a slow-down, \n4        The Procter & Gamble Company\nrecession or inflationary pressures in the general economy; reduced market growth rates; tighter credit markets for our suppliers, vendors or customers; a significant shift in government policies; significant social unrest; the deterioration of economic relations between countries or regions; potential negative consumer sentiment toward non-local products or sources; or the inability to conduct day-to-day transactions through our financial intermediaries to pay funds to or collect funds from our customers, vendors and suppliers. Additionally, these and other economic conditions may cause our suppliers, distributors, contractors or other third-party partners to suffer financial or operational difficulties that they cannot overcome, resulting in their inability to provide us with the materials and services we need, in which case our business and results of operations could be adversely affected. Customers may also suffer financial hardships due to economic conditions such that their accounts become uncollectible or are subject to longer collection cycles. In addition, if we are unable to generate sufficient sales, income and cash flow, it could affect the Company\u2019s ability to achieve expected share repurchase and dividend payments.\nDisruptions in credit markets or to our banking partners or changes to our credit ratings may reduce our access to credit or overall liquidity.\nA disruption in the credit markets or a downgrade of our current credit rating could increase our future borrowing costs and impair our ability to access capital and credit markets on terms commercially acceptable to us, which could adversely affect our liquidity and capital resources or significantly increase our cost of capital. In addition, we rely on top-tier banking partners in key markets around the world, who themselves face economic, societal, political and other risks, for access to credit and to facilitate collection, payment and supply chain finance programs. A disruption to one or more of these top-tier partners could impact our ability to draw on existing credit facilities or otherwise adversely affect our cash flows or the cash flows of our customers and vendors.\nChanging political and geopolitical conditions could adversely impact our business and financial results.\nChanges in the political conditions in markets in which we manufacture, sell or distribute our products, as well as changing geopolitical conditions, may be difficult to predict and may adversely affect our business and financial results. Results of elections, referendums, sanctions or other political processes and pressures in certain markets in which our products are manufactured, sold or distributed could create uncertainty regarding how existing governmental policies, laws and regulations may change, including with respect to sanctions, taxes, tariffs, import and export controls and the general movement of goods, materials, services, capital, data and people between countries. The potential implications of such uncertainty, which include, among others, exchange rate fluctuations, new or increased tariffs, trade barriers and market contraction, could adversely affect the Company\u2019s results of operations and cash flows.\nThe Company operates a global business with sales, manufacturing, distribution and research and development organizations globally that contribute to our overall growth. If geopolitical tensions and trade controls were to increase or disrupt our business in markets where we have significant sales or operations, including disruptions due to governmental responses to such conflicts (such as the imposition of sanctions, retaliatory tariffs, increased business licensing requirements or limitations on profits), such disruptions could adversely impact our business, financial condition, results of operations and cash flows. \nThe war between Russia and Ukraine has adversely impacted and could continue to adversely impact our business and financial results.\nThe war between Russia and Ukraine has negatively impacted, and the situation it generates may continue to negatively impact, our operations. Beginning in March 2022, the Company reduced its product portfolio, discontinued new capital investments and suspended media, advertising and promotional activity in Russia. Future impacts to the Company are difficult to predict due to the high level of uncertainty as to how the overall situation will evolve. Within Ukraine, there is a possibility of physical damage and destruction of our two manufacturing facilities, our distribution centers or those of our customers. We may not be able to operate our manufacturing sites and source raw materials from our suppliers or ship finished products to our customers. Within Russia, we may reduce further or discontinue our operations due to sanctions and export controls and counter-sanctions, monetary, currency or payment controls, restrictions on access to financial institutions, supply and transportation challenges or other circumstances and considerations. Ultimately, these could result in loss of assets or impairments of our manufacturing plants and fixed assets or write-downs of other operating assets and working capital. \nThe war between Russia and Ukraine could also amplify or affect the other risk factors set forth in this Part I, Item 1A, including, but not limited to, foreign exchange volatility, disruptions to the financial and credit markets, energy supply and supply chain disruptions, increased risks of an information security or operational technology incident, cost fluctuations and commodity cost increases and increased costs to ensure compliance with global and local laws and regulations. The occurrence of any of these risks, combined with the increased impact from the war between Russia and Ukraine, could adversely impact our business and financial results.\nMore broadly, there could be additional negative impacts to our net sales, earnings and cash flows should the situation worsen, including, among other potential impacts, economic recessions in certain neighboring countries or globally due to inflationary pressures, energy and supply chain cost increases or the geographic proximity of the war relative to the rest of Europe.\nBUSINESS OPERATIONS RISKS\nOur business results depend on our ability to manage disruptions in our global supply chain.\nOur ability to meet our customers\u2019 needs and achieve cost targets depends on our ability to maintain key manufacturing and supply arrangements, including execution of supply chain optimizations and certain sole supplier or sole manufacturing plant \nThe Procter & Gamble Company        5\narrangements. The loss or disruption of such manufacturing and supply arrangements, including for issues such as labor disputes or controversies, loss or impairment of key manufacturing sites, discontinuity or disruptions in our internal information and data systems or those of our suppliers, cybersecurity incidents, inability to procure sufficient raw or input materials (including water, recycled materials and materials that meet our labor standards), significant changes in trade policy, natural disasters, increasing severity or frequency of extreme weather events due to climate change or otherwise, acts of war or terrorism, disease outbreaks or other external factors over which we have no control, have at times interrupted and could, in the future, interrupt product supply and, if not effectively managed and remedied, could have an adverse impact on our business, financial condition, results of operations or cash flows.\nOur businesses face cost fluctuations and pressures that could affect our business results.\nOur costs are subject to fluctuations, particularly due to changes in the prices of commodities (including certain petroleum-derived materials like resins and paper-based materials like pulp) and raw and packaging materials and the costs of labor, transportation (including trucks and containers), energy, pension and healthcare. Inflation pressures could also result in increases in these input costs. Therefore, our business results depend, in part, on our continued ability to manage these fluctuations through pricing actions, cost saving projects and sourcing decisions, while maintaining and improving margins and market share. Failure to manage these fluctuations and to anticipate consumer reaction to our management of these fluctuations could adversely impact our results of operations or cash flows.\nThe ability to achieve our business objectives depends on how well we can compete with our local and global competitors in new and existing markets and channels.\nThe consumer products industry is highly competitive. Across all of our categories, we compete against a wide variety of global and local competitors. As a result, we experience ongoing competitive pressures in the environments in which we operate, which may result in challenges in maintaining sales and profit margins. To address these challenges, we must be able to successfully respond to competitive factors and emerging retail trends, including pricing, promotional incentives, product delivery windows and trade terms. In addition, evolving sales channels and business models may affect customer and consumer preferences as well as market dynamics, which, for example, may be seen in the growing consumer preference for shopping online, ease of competitive entry into certain categories and growth in hard discounter channels. Failure to successfully respond to competitive factors and emerging retail trends and effectively compete in growing sales channels and business models, particularly e-commerce and mobile or social commerce applications, could negatively impact our results of operations or cash flows.\nA significant change in customer relationships or in customer demand for our products could have a significant impact on our business.\nWe sell most of our products via retail customers, which include mass merchandisers, e-commerce (including social commerce) channels, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, specialty beauty stores (including airport duty-free stores), high-frequency stores, pharmacies, electronics stores and professional channels. Our success depends on our ability to successfully manage relationships with our retail trade customers, which includes our ability to offer trade terms that are mutually acceptable and are aligned with our pricing and profitability targets. Continued concentration among our retail customers could create significant cost and margin pressure on our business, and our business performance could suffer if we cannot reach agreement with a key customer on trade terms and principles. Our business could also be negatively impacted if a key customer were to significantly reduce the inventory level of or shelf space allocated to our products as a result of increased offerings of other branded manufacturers, private label brands and generic non-branded products or for other reasons, significantly tighten product delivery windows or experience a significant business disruption.\nIf the reputation of the Company or one or more of our brands erodes significantly, it could have a material impact on our financial results.\nThe Company's reputation, and the reputation of our brands, form the foundation of our relationships with key stakeholders and other constituencies, including consumers, customers and suppliers. The quality and safety of our products are critical to our business. Many of our brands have worldwide recognition and our financial success directly depends on the success of our brands. The success of our brands can suffer if our marketing plans or product initiatives do not have the desired impact on a brand's image or its ability to attract consumers. Our results of operations or cash flows could also be negatively impacted if the Company or one of our brands suffers substantial harm to its reputation due to a significant product recall, product-related litigation, defects or impurities in our products, product misuse, changing consumer perceptions of certain ingredients, negative perceptions of packaging (such as plastic and other petroleum-based materials), lack of recyclability or other environmental impacts, concerns about actual or alleged labor or equality and inclusion practices, privacy lapses or data breaches, allegations of product tampering or the distribution and sale of counterfeit products. Additionally, negative or inaccurate postings or comments on social media or networking websites about the Company or one of its brands could generate adverse publicity that could damage the reputation of our brands or the Company. If we are unable to effectively manage real or perceived issues, including concerns about safety, quality, ingredients, efficacy, environmental or social impacts or similar matters, sentiments toward the Company or our products could be negatively impacted, and our results of operations or cash flows could suffer. Our Company also devotes time and resources to citizenship efforts that are consistent with our corporate values and are designed to strengthen our business and protect and preserve our reputation, including programs driving ethics and corporate responsibility, strong communities, equality and inclusion and environmental sustainability. While the Company has many programs and \n6        The Procter & Gamble Company\ninitiatives to further these goals, our ability to achieve these goals is impacted in part by the actions and efforts of third parties including local and other governmental authorities, suppliers, vendors and customers. Consumer or broader stakeholder perceptions of these programs and initiatives widely vary and could adversely affect our business. If these programs are not executed as planned or suffer negative publicity, the Company's reputation and results of operations or cash flows could be adversely impacted.\nWe rely on third parties in many aspects of our business, which creates additional risk.\nDue to the scale and scope of our business, we must rely on relationships with third parties, including our suppliers, contract manufacturers, distributors, contractors, commercial banks, joint venture partners and external business partners, for certain functions. If we are unable to effectively manage our third-party relationships and the agreements under which our third-party partners operate, our results of operations and cash flows could be adversely impacted. Further, failure of these third parties to meet their obligations to the Company or substantial disruptions in the relationships between the Company and these third parties could adversely impact our operations and financial results. Additionally, while we have policies and procedures for managing these relationships, they inherently involve a lesser degree of control over business operations, governance and compliance, thereby potentially increasing our financial, legal, reputational and operational risk.\nA significant information security or operational technology incident, including a cybersecurity breach, or the failure of one or more key information or operations technology systems, networks, hardware, processes and/or associated sites owned or operated by the Company or one of its service providers could have a material adverse impact on our business or reputation.\nWe rely extensively on information and operational technology (IT/OT) systems, networks and services, including internet and intranet sites, data hosting and processing facilities and technologies, physical security systems and other hardware, software and technical applications and platforms, many of which are managed, hosted, provided and/or used by third parties or their vendors, to assist in conducting our business. The various uses of these IT/OT systems, networks and services include, but are not limited to:\n\u2022\nordering and managing materials from suppliers;\n\u2022\nconverting materials to finished products;\n\u2022\nshipping products to customers;\n\u2022\nmarketing and selling products to consumers;\n\u2022\ncollecting, transferring, storing and/or processing customer, consumer, employee, vendor, investor and other stakeholder information and personal data, including such data from persons covered by an expanding landscape of privacy and data regulations, such as citizens of the European Union who are covered by the General Data Protection Regulation (GDPR), residents of California covered by the California Consumer Privacy Act (CCPA), citizens of China covered by the Personal Information Protection Law (PIPL) and citizens of Brazil covered by the General Personal Data Protection Law (LGPD); \n\u2022\nsummarizing and reporting results of operations, including financial reporting;\n\u2022\nmanaging our banking and other cash liquidity systems and platforms;\n\u2022\nhosting, processing and sharing, as appropriate, confidential and proprietary research, business plans and financial information;\n\u2022\ncollaborating via an online and efficient means of global business communications;\n\u2022\ncomplying with regulatory, legal and tax requirements;\n\u2022\nproviding data security; and\n\u2022\nhandling other processes necessary to manage our business.\nNumerous and evolving information security threats, including advanced persistent cybersecurity threats, pose a risk to the security of our services, systems, networks and supply chain, as well as to the confidentiality, availability and integrity of our data and of our critical business operations. In addition, because the techniques, tools and tactics used in cyber-attacks frequently change and may be difficult to detect for periods of time, we may face difficulties in anticipating and implementing adequate preventative measures or fully mitigating harms after such an attack. \nOur IT/OT databases and systems and our third-party providers\u2019 databases and systems have been, and will likely continue to be, subject to advanced computer viruses or other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, social engineering, hacking and other cyber-attacks. Such attacks may originate from outside parties, hackers, criminal organizations or other threat actors, including nation states. In addition, insider actors - malicious or otherwise - could cause technical disruptions and/or confidential data leakage. We cannot guarantee that our security efforts or the security efforts of our third-party providers will prevent material breaches, operational incidents or other breakdowns to our or our third-party providers\u2019 IT/OT databases or systems.\nA breach of our data security systems or failure of our IT/OT databases and systems may have a material adverse impact on our business operations and financial results. If the IT/OT systems, networks or service providers we rely upon fail to function properly or cause operational outages or aberrations, or if we or one of our third-party providers suffer significant unavailability of key operations, or inadvertent disclosure of, lack of integrity of, or loss of our sensitive business or stakeholder information, \nThe Procter & Gamble Company        7\nincluding personal information, due to any number of causes, including catastrophic events, natural disasters, power outages, computer and telecommunications failures, improper data handling, viruses, phishing attempts, cyber-attacks, malware and ransomware attacks, security breaches, security incidents or employee error or malfeasance, and our business continuity plans do not effectively address these failures on a timely basis, we may suffer interruptions in our ability to manage operations and be exposed to reputational, competitive, operational, financial and business harm as well as litigation and regulatory action. If our critical IT systems or back-up systems or those of our third-party vendors are damaged or cease to function properly, we may have to make a significant investment to repair or replace them.\nIn addition, if a ransomware attack or other cybersecurity incident occurs, either internally or at our third-party technology service providers, we could be prevented from accessing our data or systems, which may cause interruptions or delays in our business operations, cause us to incur remediation costs, subject us to demands to pay a ransom or damage our reputation. In addition, such events could result in unauthorized disclosure of confidential information or stakeholder information, including personal information, and we may suffer financial and reputational damage because of lost or misappropriated information belonging to us or to our partners, our employees, customers and suppliers. Additionally, we could be exposed to potential liability, litigation, governmental inquiries, investigations or regulatory enforcement actions; and we could be subject to payment of fines or other penalties, legal claims by our suppliers, customers or employees and significant remediation costs.\nPeriodically, we also upgrade our IT/OT systems or adopt new technologies. If such a new system or technology does not function properly or otherwise exposes us to increased cybersecurity breaches and failures, it could affect our ability to order materials, make and ship orders and process payments in addition to other operational and information integrity and loss issues. The costs and operational consequences of responding to the above items and implementing remediation measures could be significant and could adversely impact our results of operations and cash flows.\nWe must successfully manage the demand, supply and operational challenges associated with the effects of any future disease outbreak, including epidemics, pandemics or similar widespread public health concerns.\nOur business may be negatively impacted by the fear of exposure to or actual effects of a disease outbreak, epidemic, pandemic or similar widespread public health concern. These impacts may include, but are not limited to:\n\u2022\nSignificant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions or financial hardship, shifts in demand away from one or more of our more discretionary or higher priced products to lower priced products, or stockpiling or similar pantry-loading activity. If prolonged, such impacts can further increase the difficulty of business or operations planning and may adversely impact our results of operations and cash flows; or\n\u2022\nSignificant changes in the political conditions in markets in which we manufacture, sell or distribute our products, including quarantines, import/export restrictions, price controls, or governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees\u2019 ability to travel or perform necessary business functions, or otherwise prevent our third-party partners, suppliers or customers from sufficiently staffing operations.\nDespite efforts to manage and remedy these impacts, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of any such outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects. \nBUSINESS STRATEGY & ORGANIZATIONAL RISKS\nOur ability to meet our growth targets depends on successful product, marketing and operations innovation and successful responses to competitive innovation, evolving digital marketing and selling platforms and changing consumer habits\n.\nWe are a consumer products company that relies on continued global demand for our brands and products. Achieving our business results depends, in part, on successfully developing, introducing and marketing new products and on making significant improvements to our equipment and manufacturing processes. The success of such innovation depends on our ability to correctly anticipate customer and consumer acceptance and trends, to obtain, maintain and enforce necessary intellectual property protections and to avoid infringing upon the intellectual property rights of others and to continue to deliver efficient and effective marketing across evolving media and mobile platforms with dynamic and increasingly more restrictive privacy requirements. We must also successfully respond to technological advances made by, and intellectual property rights granted to, competitors, customers and vendors. Failure to continually innovate, improve and respond to competitive moves, platform evolution and changing consumer habits could compromise our competitive position and adversely impact our financial condition, results of operations or cash flows.\nWe must successfully manage ongoing acquisition, joint venture and divestiture activities.\nAs a company that manages a portfolio of consumer brands, our ongoing business model includes a certain level of acquisition, joint venture and divestiture activities. We must be able to successfully manage the impacts of these activities, while at the same time delivering against our business objectives. Specifically, our financial results have been, and in the future could be, adversely impacted by the dilutive impacts from the loss of earnings associated with divested brands or dissolution of joint ventures. Our results of operations and cash flows have been, and in the future could also be, impacted by acquisitions or joint \n8        The Procter & Gamble Company\nventure activities, if: 1) changes in the cash flows or other market-based assumptions cause the value of acquired assets to fall below book value, or 2) we are not able to deliver the expected cost and growth synergies associated with such acquisitions and joint ventures, including as a result of integration and collaboration challenges, which could also result in an impairment of goodwill and intangible assets.\nOur business results depend on our ability to successfully manage productivity improvements and ongoing organizational change, including attracting and retaining key talent as part of our overall succession planning.\nOur financial projections assume certain ongoing productivity improvements and cost savings, including staffing adjustments and employee departures. Failure to deliver these planned productivity improvements and cost savings, while continuing to invest in business growth, could adversely impact our results of operations and cash flows. Additionally, successfully executing organizational change, management transitions at leadership levels of the Company and motivation and retention of key employees is critical to our business success. Factors that may affect our ability to attract and retain sufficient numbers of qualified employees include employee morale, our reputation, competition from other employers and availability of qualified individuals. Our success depends on identifying, developing and retaining key employees to provide uninterrupted leadership and direction for our business. This includes developing and retaining organizational capabilities in key growth markets where the depth of skilled or experienced employees may be limited and competition for these resources is intense as well as continuing the development and execution of robust leadership succession plans.\n \nLEGAL & REGULATORY RISKS\nWe must successfully manage compliance with current and expanding laws and regulations, as well as manage new and pending legal and regulatory matters in the U.S. and abroad.\nOur business is subject to a wide variety of laws and regulations across the countries in which we do business, including those laws and regulations involving intellectual property, product liability, product composition or formulation, packaging content or corporate responsibility for packaging and product disposal, marketing, antitrust and competition, privacy, data protection, environmental (including increasing focus on the climate, water and waste impacts of consumer packaged goods companies' operations and products), employment, healthcare, anti-bribery and anti-corruption (including interactions with health care professionals and government officials as well as corresponding internal controls and record-keeping requirements), trade (including tariffs, sanctions and export controls), tax, accounting and financial reporting or other matters. In addition, increasing governmental and societal attention to environmental, social and governance (ESG) matters, including expanding mandatory and voluntary reporting, diligence and disclosure on topics such as climate change, waste production, water usage, human capital, labor and risk oversight, could expand the nature, scope and complexity of matters that we are required to control, assess and report. These and other rapidly changing laws, regulations, policies and related interpretations as well as increased enforcement actions by various governmental and regulatory agencies, create challenges for the Company, may alter the environment in which we do business, may increase the ongoing costs and complexities of compliance including by requiring investments in technology or other compliance systems, and may ultimately result in the need to cease manufacturing, sales or other business activities in certain jurisdictions, which could adversely impact our results of operations and cash flows. If we are unable to continue to meet these challenges and comply with all laws, regulations, policies and related interpretations, it could negatively impact our reputation and our business results. Additionally, we are currently, and in the future may be, subject to a number of inquiries, investigations, claims, proceedings and requests for information from governmental agencies or private parties, the adverse outcomes of which could harm our business. Failure to successfully manage these new or pending regulatory and legal matters and resolve such matters without significant liability or damage to our reputation may materially adversely impact our financial condition, results of operations and cash flows. Furthermore, if new or pending legal or regulatory matters result in fines or costs in excess of the amounts accrued to date, that may also materially impact our results of operations and financial position.\nChanges in applicable tax laws and regulations and resolutions of tax disputes could negatively affect our financial results.\nThe Company is subject to taxation in the U.S. and numerous foreign jurisdictions. Changes in the various tax laws can and do occur. For example, in December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the U.S. Tax Act). The changes included in the U.S. Tax Act were broad and complex. Under the current U.S. presidential administration, comprehensive federal income tax reform has been proposed, including an increase in the U.S. Federal corporate income tax rate, elimination of certain investment incentives and an increase in U.S. taxation of non-U.S. earnings. While these proposals are controversial, likely to change during the legislative process and may prove difficult to enact as proposed in the current closely divided U.S. Congress, their impact could nonetheless be significant.\nAdditionally, longstanding international tax norms that determine each country\u2019s jurisdiction to tax cross-border international trade are subject to potential evolution. An outgrowth of the original Base Erosion and Profit Shifting (BEPS) project is a project undertaken by the approximately 140 member countries of the expanded Organisation for Economic Co-operation and Development (OECD) Inclusive Framework focused on \"Addressing the Challenges of the Digitalization of the Economy.\" The breadth of this project extends beyond pure digital businesses and, as proposed, would likely impact a large portion of multinational businesses by potentially redefining jurisdictional taxation rights in market countries and establishing a global minimum tax. In December 2022, the European Union (EU) approved a directive requiring member states to incorporate a 15% global minimum tax into their respective domestic laws effective for fiscal years beginning on or after December 31, 2023.\n \nIn \nThe Procter & Gamble Company        9\naddition, several non-EU countries have recently proposed and/or adopted legislation consistent with the global minimum tax framework. Important details of these minimum tax developments are still to be determined and, in some cases, enactment and timing remain uncertain. \nWhile it is too early to assess the overall impact of these potential changes, as these and other tax laws and related regulations are revised, enacted and implemented, our financial condition, results of operations and cash flows could be materially impacted.\nFurthermore, we are subject to regular review and audit by both foreign and domestic tax authorities. While we believe our tax positions will be sustained, the final outcome of tax audits and related litigation, including maintaining our intended tax treatment of divestiture transactions such as the fiscal 2017 Beauty Brands transaction with Coty, may differ materially from the tax amounts recorded in our Consolidated Financial Statements, which could adversely impact our results of operations and cash flows.",
+  "item7": ">Item\u00a07. \nManagement's Discussion and Analysis of Financial Condition and Results of Operations.\nForward-Looking Statements\nCertain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are \u201cforward-looking statements\u201d within the meaning of the Private Securities Litigation Reform Act of 1995, Section\u00a027A of the Securities Act of 1933 and Section\u00a021E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including without limitation, the following sections: \u201cManagement's Discussion and Analysis,\u201d \u201cRisk Factors\u201d and \"Notes 4, 8 and 13 to the Consolidated Financial Statements.\" These forward-looking statements generally are identified by the words \u201cbelieve,\u201d \u201cproject,\u201d \u201cexpect,\u201d \u201canticipate,\u201d \u201cestimate,\u201d \u201cintend,\u201d \u201cstrategy,\u201d \u201cfuture,\u201d \u201copportunity,\u201d \u201cplan,\u201d \u201cmay,\u201d \u201cshould,\u201d \u201cwill,\u201d \u201cwould,\u201d \u201cwill be,\u201d \u201cwill continue,\u201d \u201cwill likely result\u201d and similar expressions. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, except to the extent required by law.\nThe Procter & Gamble Company        13\nRisks and uncertainties to which our forward-looking statements are subject include, without limitation: (1) the ability to successfully manage global financial risks, including foreign currency fluctuations, currency exchange or pricing controls and localized volatility; (2) the ability to successfully manage local, regional or global economic volatility, including reduced market growth rates, and to generate sufficient income and cash flow to allow the Company to effect the expected share repurchases and dividend payments; (3) the ability to manage disruptions in credit markets or to our banking partners or changes to our credit rating; (4) the ability to maintain key manufacturing and supply arrangements (including execution of supply chain optimizations and sole supplier and sole manufacturing plant arrangements) and to manage disruption of business due to various factors, including ones outside of our control, such as natural disasters, acts of war (including the Russia-Ukraine War) or terrorism or disease outbreaks; (5) the ability to successfully manage cost fluctuations and pressures, including prices of commodities and raw materials and costs of labor, transportation, energy, pension and healthcare; (6) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to changing consumer habits, evolving digital marketing and selling platform requirements and technological advances attained by, and patents granted to, competitors; (7) the ability to compete with our local and global competitors in new and existing sales channels, including by successfully responding to competitive factors such as prices, promotional incentives and trade terms for products; (8) the ability to manage and maintain key customer relationships; (9) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, ingredients, efficacy, packaging content, supply chain practices or similar matters that may arise; (10) the ability to successfully manage the financial, legal, reputational and operational risk associated with third-party relationships, such as our suppliers, contract manufacturers, distributors, contractors and external business partners; (11) the ability to rely on and maintain key company and third-party information and operational technology systems, networks and services and maintain the security and functionality of such systems, networks and services and the data contained therein; (12) the ability to successfully manage uncertainties related to changing political and geopolitical conditions and potential implications such as exchange rate fluctuations and market contraction; (13) the ability to successfully manage current and expanding regulatory and legal requirements and matters (including, without limitation, those laws and regulations involving product liability, product and packaging composition, intellectual property, labor and employment, antitrust, privacy and data protection, tax, the environment, due diligence, risk oversight, accounting and financial reporting) and to resolve new and pending matters within current estimates; (14) the ability to manage changes in applicable tax laws and regulations; (15) the ability to successfully manage our ongoing acquisition, divestiture and joint venture activities, in each case to achieve the Company\u2019s overall business strategy and financial objectives, without impacting the delivery of base business objectives; (16) the ability to successfully achieve productivity improvements and cost savings and manage ongoing organizational changes while successfully identifying, developing and retaining key employees, including in key growth markets where the availability of skilled or experienced employees may be limited; (17) the ability to successfully manage the demand, supply and operational challenges, as well as governmental responses or mandates, associated with a disease outbreak, including epidemics, pandemics or similar widespread public health concerns; (18) the ability to manage the uncertainties, sanctions and economic effects from the war between Russia and Ukraine; and (19) the ability to successfully achieve our ambition of reducing our greenhouse gas emissions and delivering progress towards our environmental sustainability priorities. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from those projected herein is included in the section titled \"Economic Conditions and Uncertainties\" and the section titled \"Risk Factors\" (Part I, Item 1A) of this Form 10-K.\nPurpose, Approach and Non-GAAP Measures\nThe purpose of Management's Discussion and Analysis (MD&A) is to provide an understanding of Procter & Gamble's financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. The MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and accompanying Notes. The MD&A is organized in the following sections:\n\u2022\nOverview\n\u2022\nSummary of 2023 Results \n\u2022\nEconomic Conditions and Uncertainties\n\u2022\nResults of Operations\n\u2022\nSegment Results\n\u2022\nCash Flow, Financial Condition and Liquidity\n\u2022\nCritical Accounting Policies and Estimates\n\u2022\nOther Information\nThroughout the MD&A we refer to measures used by management to evaluate performance, including unit volume growth, net sales, net earnings, diluted net earnings per common share (diluted EPS) and operating cash flow. We also refer to a number of financial measures that are not defined under accounting principles generally accepted in the United States of America (U.S. GAAP), consisting of organic sales growth, core earnings per share (Core EPS), adjusted free cash flow and adjusted free cash flow productivity. Organic sales growth is net sales growth excluding the impacts of acquisitions and divestitures and foreign exchange from year-over-year comparisons. Core EPS is diluted EPS excluding certain items that are not judged by management to be part of the Company's sustainable results or trends.\n Adjusted free cash flow is operating cash flow less \n14        The Procter & Gamble Company\ncapital spending and \nexcluding payments for the transitional tax resulting from\n the U.S. Tax Act. Adjusted free cash flow productivity is the ratio of adjusted free cash flow to net earnings excluding certain one-time items. We believe these m\neasures provide our investors with additional information about our underlying results and trends as well as insight to some of the metrics used to evaluate management. The explanation at the end of the MD&A provides more details on the use and the derivation of these measures as well as reconciliations to the most directly comparable U.S. GAAP measure.\nManagement also uses certain market share and market consumption estimates to evaluate performance relative to competition despite some limitations on the availability and comparability of share and consumption information. References to market share and consumption in the MD&A are based on a combination of vendor-purchased traditional brick-and-mortar and online data in key markets as well as internal estimates. All market share references represent the percentage of sales of our products in dollar terms on a constant currency basis relative to all product sales in the category. The Company measures quarter and fiscal year-to-date market shares through the most recent period for which market share data is available, which typically reflects a lag time of one or two months as compared to the end of the reporting period. Management also uses unit volume growth to evaluate drivers of changes in net sales. Organic volume growth reflects year-over-year changes in unit volume excluding the impacts of acquisitions, divestitures and certain one-time items, if applicable, and is used to explain changes in organic sales. \nOVERVIEW\nProcter & Gamble is a global leader in the fast-moving consumer goods industry, focused on providing branded consumer packaged goods of superior quality and value to our consumers around the world. Our products are sold in approximately 180 countries and territories primarily through mass merchandisers, e-commerce (including social commerce) channels, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, specialty beauty stores (including airport duty-free stores), high-frequency stores, pharmacies, electronics stores and professional channels. We also sell direct to individual consumers. We have on-the-ground operations in approximately 70 countries.\nOur market environment is highly competitive with global, regional and local competitors. In many of the markets and industry segments in which we sell our products, we compete against other branded products, as well as retailers' private-label brands. Additionally, many of the product segments in which we compete are differentiated by price tiers (referred to as super-premium, premium, mid-tier and value-tier products). We believe we are well positioned in the industry segments and markets in which we operate, often holding a leadership or significant market share position.\nOrganizational Structure\nOur organizational structure is comprised of Sector Business Units (SBUs), Enterprise Markets (EMs), Corporate Functions (CF) and Global Business Services (GBS).\nSector Business Units\nThe Company's ten product categories are organized into five SBUs and five reportable segments (under U.S. GAAP): Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. The SBUs are responsible for global brand strategy, product upgrades and innovation, marketing plans and supply chain. They have direct profit responsibility for markets (referred to as Focus Markets) representing the large majority of the Company's sales and earnings and are also responsible for innovation plans, supply plans and operating frameworks to drive growth and value creation in the remaining markets (referred to as Enterprise Markets). Throughout the MD&A, we reference business results by region, which are comprised of North America, Europe, Greater China, Latin America, Asia Pacific and India, Middle East and Africa (IMEA). \nThe Procter & Gamble Company        15\nThe following provides additional detail on our reportable segments and the ten product categories and brand composition within each segment.\nReportable Segments\n% of\nNet\u00a0Sales \n(1)\n% of Net\nEarnings \n(1)\nProduct Categories (Sub-Categories)\nMajor Brands\nBeauty\n18%\n21%\nHair Care (\nConditioners, Shampoos, Styling Aids, Treatments\n)\nHead & Shoulders, Herbal Essences, Pantene, Rejoice\nSkin and Personal Care (\nAntiperspirants and Deodorants, Personal Cleansing, Skin Care\n)\nOlay, Old Spice, Safeguard, Secret, SK-II\nGrooming \n(2)\n8%\n10%\nGrooming (\nAppliances, Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Grooming\n)\nBraun, Gillette, Venus\nHealth Care\n14%\n14%\nOral Care (\nToothbrushes, Toothpastes, Other Oral Care\n)\nCrest, Oral-B\nPersonal Health Care (\nGastrointestinal, Pain Relief, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Other Personal Health Care\n)\nMetamucil, Neurobion, Pepto-Bismol, Vicks\nFabric & Home Care\n35%\n32%\nFabric Care (\nFabric Enhancers, Laundry Additives, Laundry Detergents\n)\nAriel, Downy, Gain, Tide\nHome Care (\nAir Care, Dish Care, P&G Professional, Surface Care\n)\nCascade, Dawn, Fairy, Febreze, Mr. Clean, Swiffer\nBaby, Feminine & Family Care\n25%\n23%\nBaby Care (\nBaby Wipes, Taped Diapers and Pants\n)\nLuvs, Pampers\nFeminine Care (\nAdult Incontinence, Feminine Care\n)\nAlways, Always Discreet, Tampax\nFamily Care (\nPaper Towels, Tissues, Toilet Paper\n)\nBounty, Charmin, Puffs\n(1)\nPercent of Net sales and Net earnings for the fiscal year ended June\u00a030, 2023 (excluding results held in Corporate).\n(2)\nEffective July 1, 2022, the Grooming Sector Business Unit completed the full integration of its Shave Care and Appliances categories to cohesively serve consumers' grooming needs. This transition included the integration of the management team, strategic decision-making, innovation plans, financial targets, budgets and internal management reporting.\n \nOrganization Design:\nSector Business Units\nBeauty:\n We are a global market leader amongst the beauty categories in which we compete, including hair care and skin and personal care. We are a global market leader in the retail hair care market with nearly 20% global market share primarily behind our Pantene and Head\u00a0& Shoulders brands. In skin and personal care, we offer a wide variety of products, ranging from deodorants to personal cleansing to skin care, such as our Olay brand, which is one of the top facial skin care brands in the world with nearly 5% global market share. \nGrooming:\n We are the global market leader in the blades and razors market. Our global blades and razors market share is more than 60%, primarily behind our Gillette and Venus brands. Our appliances, such as electric shavers and epilators, are sold primarily under the Braun brand in a number of markets around the world where we compete against both global and regional competitors. We hold nearly 25% of the male electric shavers market and over 50% of the female epilators market.\nHealth Care:\n We compete in oral care and personal health care. In oral care, there are several global competitors in the market, and we have the number two market share position with nearly 20% global market share behind our Crest and Oral-B brands. In personal health care, we are a global market leader among the categories in which we compete, including respiratory treatments, digestive wellness, vitamins and analgesics behind our Vicks, Metamucil, Pepto-Bismol and Neurobion brands.\nFabric & Home Care:\n This segment is comprised of a variety of fabric care products, including laundry detergents, additives and fabric enhancers; and home care products, including dishwashing liquids and detergents, surface cleaners and air fresheners. In fabric care, we generally have the number one or number two market share position in the markets in which we compete and are the global market leader with over 35% global market share, primarily behind our Tide, Ariel and Downy brands. Our global home care market share is about 25% across the categories in which we compete, primarily behind our Cascade, Dawn, Febreze and Swiffer brands.\nBaby, Feminine & Family Care: \nIn baby care, we are a global market leader and compete mainly in taped diapers, pants and baby wipes, with more than 20% global market share. We have the number one or number two market share position in the markets in which we compete, primarily behind our Pampers brand. We are a global market leader in the feminine care category with over 25% global market share, primarily behind our Always and Tampax brands. We also compete in the adult incontinence category in certain markets behind Always Discreet, with over 10% market share in the key markets in which we compete. Our family care business is predominantly a North American business comprised primarily of the Bounty paper towel and Charmin toilet paper brands. North America market shares are over 40% for Bounty and over 25% for Charmin.\n16        The Procter & Gamble Company\nEnterprise Markets\nEnterprise Markets are responsible for sales and profit delivery in specific countries, supported by SBU-agreed innovation and supply chain plans, along with scaled services like planning, distribution and customer management.\nCorporate Functions\nCorporate Functions provides company-level strategy and portfolio analysis, corporate accounting, treasury, tax, external relations, governance, human resources, information technology and legal services.\nGlobal Business Services\nGlobal Business Services provides scaled services in technology, process and data tools to enable the SBUs, the EMs and CF to better serve consumers and customers. The GBS organization is responsible for providing world-class services and solutions that drive value for P&G.\nStrategic Focus\nProcter & Gamble aspires to serve the world\u2019s consumers better than our best competitors in every category and in every country in which we compete and, as a result, deliver total shareholder return in the top one-third of our peer group.\u00a0Delivering and sustaining leadership levels of shareholder value creation requires balanced top- and bottom-line growth and strong cash generation.\nThe Company competes in daily-use product categories where performance plays a significant role in the consumer's choice of brands, and therefore, play to P&G's strengths. Our focused portfolio of businesses consists of ten product categories where P&G has leading market positions, strong brands and consumer-meaningful product technologies.\nWithin these categories, our strategic choices are focused on delighting and winning with consumers. Our consumers are at the center of everything we do. We win with consumers by delivering irresistible superiority across five key vectors - product performance, packaging, brand communication, retail execution and value. Winning with consumers around the world and against our best competitors requires superior innovation. Innovation has always been, and continues to be, P&G\u2019s lifeblood.\u00a0Superior products delivered with superior execution drive market growth, value creation for retailers and build share growth for P&G.\nOngoing productivity improvement is crucial to delivering our balanced top- and bottom-line growth, cash generation and value creation objectives. Productivity improvement enables investments to strengthen the superiority of our brands via product and packaging innovation, more efficient and effective supply chains, equity and awareness-building brand advertising and other programs and expansion of sales coverage and R&D programs. Productivity improvements also enable us to mitigate challenging cost environments (including periods of increasing commodity and negative foreign exchange impacts). Our objective is to drive productivity improvements across all elements of the statement of earnings and balance sheet, including cost of goods sold, marketing and promotional spending, overhead costs and capital spending. \nWe act with agility and are constructively disrupting our highly competitive industry and the way we do business, including how we innovate, communicate and leverage new technologies, to create more value.\nWe are improving operational effectiveness and organizational culture through enhanced clarity of roles and responsibilities, accountability and incentive compensation programs.\nAdditionally, within this strategy of superiority, productivity, constructive disruption and organization, we have declared four focus areas to strengthen our performance going forward. These are 1) leveraging environmental sustainability as an additional driver of superior performing products and packaging innovations, 2) increasing digital acumen to drive consumer and customer preference, reduce cost and enable rapid and efficient decision making, 3) developing next-level supply chain capabilities to enable flexibility, agility, resilience and a new level of productivity and 4) delivering employee value equation for all gender identities, races, ethnicities, sexual orientations, ages and abilities for all roles to ensure we continue to attract, retain and develop the best talent.\nWe believe this strategy is right for the long-term health of the Company and our objective of delivering total shareholder return in the top one-third of our peer group.\nThe Company expects the delivery of the following long-term growth algorithm will result in total shareholder returns in the top third of the competitive, fast-moving consumer goods peer group:\n\u2022\nOrganic sales growth above market growth rates in the categories and geographies in which we compete;\n\u2022\nCore EPS growth of mid-to-high single digits; and\n\u2022\nAdjusted free cash flow productivity of 90% or greater.\nWhile periods of significant macroeconomic pressures may cause short-term results to deviate from the long-term growth algorithm, we intend to maintain a disciplined approach to investing in our business.\nThe Procter & Gamble Company        17\nSUMMARY OF 2023 RESULTS\nAmounts in millions, except per share amounts\n2023\n2022\nChange vs. Prior Year\nNet sales\n$\n82,006\n\u00a0\n$\n80,187\u00a0\n2\u00a0\n%\nOperating income\n18,134\n\u00a0\n17,813\u00a0\n2\u00a0\n%\nNet earnings\n14,738\n\u00a0\n14,793\u00a0\n\u2014\u00a0\n%\nNet earnings attributable to Procter & Gamble\n14,653\n\u00a0\n14,742\u00a0\n(1)\n%\nDiluted net earnings per common share\n5.90\n\u00a0\n5.81\u00a0\n2\u00a0\n%\nCore earnings per share\n5.90\n\u00a0\n5.81\u00a0\n2\u00a0\n%\nCash flow from operating activities\n16,848\n\u00a0\n16,723\u00a0\n1\u00a0\n%\n\u2022\nNet sales increased 2% to $82.0 billion versus the prior year. The net sales growth was driven by a mid-single-digit increase in Health Care, low single-digit increases in Fabric & Home Care, Baby, Feminine & Family Care and Beauty, partially offset by a low single-digit decrease in Grooming. Organic sales, which excludes the impact of acquisitions and divestitures and foreign exchange, increased 7%. Organic sales increased high single digits in Health Care and Fabric & Home Care and mid-single digits in Baby, Feminine & Family Care, Beauty and Grooming.\n\u2022\nOperating income increased $321 million, or 2%, to $18.1 billion versus year ago due to the increase in net sales, partially offset by a modest decrease in operating margin.\n\u2022\nNet earnings decreased modestly by $55 million to $14.7 billion versus year ago as the increase in operating income was more than fully offset by a higher effective tax rate. Foreign exchange impacts reduced net earnings by approximately $1.4 billion\n. \n\u2022\nNet earnings attributable to Procter & Gamble decreased $89 million, or 1%, to $14.7 billion versus the prior year due primarily to the decrease in net earnings.\n\u2022\nDiluted EPS increased 2% to $5.90 as the decrease in net earnings was more than offset by a reduction in shares outstanding. \n\u2022\nCash flow from operating activities was $16.8 billion.\n\u25e6\u00a0\u00a0\u00a0\u00a0Adjusted free cash flow, which is operating cash flow less capital expenditures and certain other impacts, was $14.0 billion.\n\u25e6\u00a0\u00a0\u00a0\u00a0Adjusted free cash flow productivity, which is the ratio of adjusted free cash flow to net earnings, was 95%.\nECONOMIC CONDITIONS AND UNCERTAINTIES\nWe discuss expectations regarding future performance, events and outcomes, such as our business outlook and objectives, in annual and quarterly reports, press releases and other written and oral communications. All such statements, except for historical and present factual information, are \"forward-looking statements\" and are based on financial data and our business plans available only as of the time the statements are made, which may become out-of-date or incomplete. We assume no obligation to update any forward-looking statements as a result of new information, future events or other factors, except as required by law. Forward-looking statements are inherently uncertain and investors must recognize that events could be significantly different from our expectations. For more information on risk factors that could impact our results, please refer to \u201cRisk Factors\u201d in Part I, Item 1A of this Form 10-K.\nGlobal Economic Conditions. \nOur products are sold in numerous countries across North America, Europe, Latin America, Asia, Australia and Africa, with more than half our sales generated outside the United States. Our largest international markets are Greater China, the United Kingdom, Canada, Japan and Germany and collectively comprise more than 20% of our net sales in fiscal 2023. As such, we are exposed to and impacted by global macroeconomic factors, geopolitical tensions, U.S. and foreign government policies and foreign exchange fluctuations. We are also exposed to market risks from operating in challenging environments including unstable economic, political and social conditions, civil unrest, natural disasters, debt and credit issues and currency controls or fluctuations. These risks can reduce our net sales or erode our operating margins and consequently reduce our net earnings and cash flows.\nChanges in Costs. \nOur costs are subject to fluctuations, particularly due to changes in commodity and input material prices, transportation costs, other broader inflationary impacts and our own productivity efforts. We have significant exposures to certain commodities and input materials, in particular certain oil-derived materials like resins and paper-based materials like pulp. Volatility in the market price of these commodities and input materials has a direct impact on our costs. Disruptions in our manufacturing, supply and distribution operations due to energy shortages, natural disasters, labor or freight constraints have impacted our costs and could do so in the future. New or increased legal or regulatory requirements, along with initiatives to meet our sustainability goals, could also result in increased costs due to higher material costs and investments in facilities and equipment. We strive to implement, achieve and sustain cost improvement plans, including supply chain optimization and general overhead and workforce optimization. Increased pricing in response to certain inflationary or cost increases may also offset portions of the cost impacts; however, such price increases may impact product consumption. If we are unable to manage cost impacts through pricing actions and consistent productivity improvements, it may adversely impact our net sales, gross margin, operating margin, net earnings and cash flows.\n18        The Procter & Gamble Company\nForeign Exchange. \nWe have significant translation and transaction exposure to the fluctuation of exchange rates. Translation exposures relate to exchange rate impacts of measuring income statements of foreign subsidiaries that do not use the U.S. dollar as their functional currency. Transaction exposures relate to 1) the impact from input costs that are denominated in a currency other than the local reporting currency and 2) the revaluation of transaction-related working capital balances denominated in currencies other than the functional currency. In the past three years, weakening of certain foreign currencies versus the U.S. dollar has resulted in significant foreign exchange impacts leading to lower net sales, net earnings and cash flows. Certain countries that recently had and are currently experiencing significant exchange rate fluctuations include Argentina, Brazil, the United Kingdom, Japan, Russia and Turkey. These fluctuations have significantly impacted our historical net sales, net earnings and cash flows and could do so in the future. Increased pricing in response to certain fluctuations in foreign currency exchange rates may offset portions of the currency impacts but could also have a negative impact on the consumption of our products, which would negatively affect our net sales, gross margin, operating margin, net earnings and cash flows.\nGovernment Policies. \nOur net sales, gross margin, operating margin, net earnings and cash flows could be affected by changes in U.S. or foreign government legislative, regulatory or enforcement policies. For example, our net earnings and cash flows could be affected by any future legislative or regulatory changes in U.S. or non-U.S. tax policy, including changes resulting from the current work being led by the OECD/G20 Inclusive Framework focused on \"Addressing the Challenges of the Digitalization of the Economy.\" The breadth of the OECD project extends beyond pure digital businesses and, as proposed, is likely to impact most large multinational businesses by both redefining jurisdictional taxation rights and establishing a 15% global minimum tax. Our net sales, gross margin, operating margin, net earnings and cash flows may also be impacted by changes in U.S. and foreign government policies related to environmental and climate change matters. Additionally, we attempt to carefully manage our debt, currency and other exposures in certain countries with currency exchange, import authorization and pricing controls, such as Egypt, Argentina and Pakistan. Further, our net sales, gross margin, operating margin, net earnings and cash flows could be affected by changes to international trade agreements in North America and elsewhere.\n \nChanges in government policies in the above areas might cause an increase or decrease in our net sales, gross margin, operating margin, net earnings and cash flows.\nRussia-Ukraine War\n. The war between Russia and Ukraine has negatively impacted our operations. Our Ukraine business includes two manufacturing sites and accounted for less than 1% of consolidated net sales and consolidated net earnings in the fiscal year ended June 30, 2023. Net assets of our Ukraine business accounted for less than 1% of consolidated net assets as of June 30, 2023. Our Russia business includes two manufacturing sites. Beginning in March 2022, the Company reduced its product portfolio, discontinued new capital investments and suspended media, advertising and promotional activity in Russia. The Russia business accounted for approximately 2% of consolidated net sales and consolidated net earnings in the fiscal year ended June 30, 2023. Net assets of our Russia business accounted for less than 2% of consolidated net assets as of June 30, 2023. \nFuture impacts to the Company are difficult to predict due to the high level of uncertainty related to the war's duration, evolution and ultimate resolution. Within Ukraine, there is a possibility of physical damage and destruction of our two manufacturing facilities. We may not be able to operate our manufacturing sites and source raw materials from our suppliers or ship finished products to our customers. \nWithin Russia, we may not be able to continue our reduced operations at current levels due to sanctions and counter-sanctions, monetary, currency or payment controls, legislative restrictions or policies, restrictions on access to financial institutions and supply and transportation challenges. Our suppliers, distributors and retail customers are also impacted by the war and their ability to successfully maintain their operations could also impact our operations or negatively impact the sales of our products. \nMore broadly, there could be additional negative impacts to our net sales, earnings and cash flows should the situation escalate beyond its current scope, including, among other potential impacts, economic recessions in certain neighboring countries or globally due to inflationary pressures and supply chain cost increases or the geographic proximity of the war relative to the rest of Europe. \nFor additional information on risk factors that could impact our business results, please refer to \u201cRisk Factors\u201d in Part I, Item 1A of this Form 10-K.\nRESULTS OF OPERATIONS\nThe key metrics included in the discussion of our consolidated results of operations include net sales, gross margin, selling, general and administrative costs (SG&A), operating margin, other non-operating items, income taxes and net earnings. The primary factors driving year-over-year changes in net sales include overall market growth in the categories in which we compete, product initiatives, competitive activities (the level of initiatives, pricing and other activities by competitors), marketing spending, retail executions (both in-store and online) and acquisition and divestiture activity, all of which drive changes in our underlying unit volume, as well as our pricing actions (which can also impact volume), changes in product and geographic mix and foreign exchange impacts on sales outside the U.S.\nFor most of our categories, our cost of products sold and SG&A are variable in nature to some extent. Accordingly, our discussion of these operating costs focuses primarily on relative margins rather than the absolute year-over-year changes in total costs. The primary drivers of changes in gross margin are input costs (energy and other commodities), pricing impacts, geographic mix (for example, gross margins in North America are generally higher than the Company average for similar products), product mix (for example, the Beauty segment has higher gross margins than the Company average), foreign \nThe Procter & Gamble Company        19\nexchange rate fluctuations (in situations where certain input costs may be tied to a different functional currency than the underlying sales), the impacts of manufacturing savings projects and reinvestments (for example, product or package improvements) and, to a lesser extent, scale impacts (for costs that are fixed or less variable in nature). The primary components of SG&A are marketing-related costs and non-manufacturing overhead costs. Marketing-related costs are primarily variable in nature, although we may achieve some level of scale benefit over time due to overall growth and other marketing efficiencies. While overhead costs are variable to some extent, we generally experience more scale-related impacts for these costs due to our ability to leverage our organization and systems' infrastructures to support business growth. The main drivers of changes in SG&A as a percentage of net sales are overhead and marketing cost savings, reinvestments (for example, increased advertising), inflation, foreign exchange fluctuations and scale impacts.\nFor a detailed discussion of the fiscal 2022 year-over-year changes, please refer to the MD&A in Part II, Item 7 of the Company's \nForm 10-K for the fiscal year ended June 30, 2022\n.\nNet Sales\nNet sales increased 2% to $82.0 billion in fiscal 2023. The increase in net sales was driven by higher pricing of 9% and a favorable mix of 1%, partially offset by unfavorable foreign exchange of 5% and a 3% decrease in unit volume versus the prior year. Favorable mix was driven by a higher proportion of sales in North America (with higher than Company-average selling prices) and decline in Europe (with lower than Company-average selling prices). Excluding the impacts of foreign exchange and acquisitions and divestitures, organic sales grew 7%. \nNet sales increased mid-single digits in Health Care, increased low single digits in Fabric & Home Care, Baby, Feminine & Family Care and Beauty and decreased low single digits in Grooming. On a regional basis, volume decreased double digits in Europe, mid-single digits in Greater China and low single digits in Asia Pacific, IMEA and North America. Volume increased low single digits in Latin America. \nOperating Costs\nComparisons as a percentage of net sales; fiscal years ended June 30\n2023\n2022\nBasis Point Change\nGross margin\n47.9\n\u00a0\n%\n47.4\u00a0\n%\n50 bps\nSelling, general and administrative expense\n25.7\n\u00a0\n%\n25.2\u00a0\n%\n50 bps\nOperating margin\n22.1\n\u00a0\n%\n22.2\u00a0\n%\n(10) bps\nEarnings before income taxes\n22.4\n\u00a0\n%\n22.4\u00a0\n%\n0 bps\nNet earnings\n18.0\n\u00a0\n%\n18.4\u00a0\n%\n(40) bps\nNet earnings attributable to Procter & Gamble\n17.9\n\u00a0\n%\n18.4\u00a0\n%\n(50) bps\nGross margin increased 50 basis points to 47.9% of net sales. The increase in gross margin was due to:\n\u2022\na 430 basis-point increase from higher pricing and\n\u2022\na 150 basis-point increase from manufacturing productivity savings.\nThese increases were partially offset by \n\u2022\n320 basis points of increased commodity and input material costs,\n\u2022\na 110 basis-point decline from unfavorable mix due to the launch and growth of premium products (which have lower than Company-average gross margins) and the disproportionate decline of the super-premium SK-II brand,\n\u2022\na 50 basis-point decline from unfavorable foreign exchange impacts,\n\u2022\n30 basis points due to capacity start-up costs and other manufacturing impacts and\n\u2022\n20 basis points of product and packaging investments.\nTotal SG&A increased 4% to $21.1 billion due primarily to an increase in overhead costs and other net operating \ncosts. SG&A as a percentage of net sales increased 50 basis points to 25.7% due to an increase in overhead and other net operating costs as a percentage of net sales, partially offset by a decrease in marketing spending as a percentage of net sales. \n\u2022\nMarketing spending as a percentage of net sales decreased 40 basis points due to the positive scale impacts of the net sales increase and increased productivity savings, partially offset by increased media reinvestments.\n\u2022\nOverhead costs as a percentage of net sales increased 40 basis points due to wage inflation and other cost increases, partially offset by the positive scale impacts of the net sales increase and productivity savings.\n\u2022\nOther net operating expenses as a percentage of net sales increased 60 basis points due primarily to higher foreign exchange transactional charges.\nProductivity-driven cost savings delivered 90 basis points of benefit to SG&A as a percentage of net sales.\nOperating margin decreased 10 basis points to 22.1% as the increase in gross margin was more than fully offset by the increase in SG&A as a percentage of net sales as discussed above.\n20        The Procter & Gamble Company\nNon-Operating Items\n\u2022\nInterest expense was $756\u00a0million, an increase of $317 million versus the prior year due to higher interest rates and an increase in short-term debt in the current year.\n\u2022\nInterest income was $307\u00a0million, an increase of $256 million versus the prior year due to higher interest rates.\n\u2022\nOther non-operating income increased $98 million to $668 million due primarily to a prior year unrealized loss on equity investments and a current year gain on divestiture of minor brands. \nIncome Taxes\nThe effective tax rate increased 190 basis points versus the prior year period to 19.7% d\nue to:\n\u2022\na 100 basis-point increase from lower excess tax benefits of share-based compensation,\n\u2022\na 50 basis-point increase from discrete impacts related to uncertain tax positions and\n\u2022\na 40 basis-point increase primarily from lower current year deductions for foreign-derived intangible income versus prior year.\nNet Earnings\nOperating income increased $321 million, or 2%, to $18.1 billion due to the increase in net sales, partially offset by a modest decrease in operating margin, both of which are discussed above. \nEarnings before income taxes increased $358 million, or 2%, to $18.4 billion due primarily to the increase in operating income\n. \nNet earnings declined modestly by $55 million to $14.7 billion due to the increase in earnings before income taxes, more than fully offset by the increase in the effective income tax rate discussed above. Foreign exchange impacts reduced net earnings by approximately $1.4 billion due to a weakening of certain currencies against the U.S. dollar. This impact includes both transactional charges and translational impacts from converting earnings from foreign subsidiaries to U.S. dollars.\nNet earnings attributable to Procter & Gamble decreased $89 million, or 1%, to $14.7 billion. \nDiluted EPS increased $0.09, or 2%, to $5.90 as the decrease in net earnings was more than fully offset by a reduction in shares outstanding. \nSEGMENT RESULTS\nSegment results reflect information on the same basis we use for internal management reporting and performance evaluation. The results of these reportable segments do not include certain non-business unit specific costs which are reported in our Corporate segment and are included as part of our Corporate segment discussion. Additionally, we apply blended statutory tax rates in the segments. Eliminations to adjust segment results to arrive at our consolidated effective tax rate are included in Corporate. See Note 2 to the Consolidated Financial Statements for additional information on items included in the Corporate segment.\n \nNet Sales Change Drivers 2023 vs. 2022\n (1)\nVolume with Acquisitions & Divestitures\nVolume Excluding Acquisitions & Divestitures\nForeign Exchange\nPrice\nMix\nOther \n(2)\nNet Sales Growth\nBeauty\n(1)\n%\n(2)\n%\n(5)\n%\n8\u00a0\n%\n(1)\n%\n1\u00a0\n%\n2\u00a0\n%\nGrooming\n(3)\n%\n(3)\n%\n(7)\n%\n9\u00a0\n%\n(2)\n%\n\u2014\u00a0\n%\n(3)\n%\nHealth Care\n(1)\n%\n(1)\n%\n(4)\n%\n5\u00a0\n%\n4\u00a0\n%\n\u2014\u00a0\n%\n4\u00a0\n%\nFabric & Home Care\n(4)\n%\n(4)\n%\n(5)\n%\n11\u00a0\n%\n1\u00a0\n%\n\u2014\u00a0\n%\n3\u00a0\n%\nBaby, Feminine & Family Care\n(3)\n%\n(3)\n%\n(4)\n%\n8\u00a0\n%\n1\u00a0\n%\n\u2014\u00a0\n%\n2\u00a0\n%\nTOTAL COMPANY\n(3)\n%\n(3)\n%\n(5)\n%\n9\n\u00a0\n%\n1\n\u00a0\n%\n\u2014\n\u00a0\n%\n2\n\u00a0\n%\n(1)\nNet sales percentage changes are approximations based on quantitative formulas that are consistently applied.\n(2)\nOther includes the sales mix impact from acquisitions and divestitures and rounding impacts necessary to reconcile volume to net sales.\n \nBEAUTY\n($ millions)\n2023\n2022\nChange vs. 2022\nVolume\nN/A\nN/A\n(1)%\nNet sales\n$15,008\n$14,740\n2%\nNet earnings\n$3,178\n$3,160\n1%\n% of net sales\n21.2%\n21.4%\n(20) bps\nBeauty net sales increased 2% to $15.0 billion as the positive impacts of higher pricing of 8% and benefit from acquisitions of 1% were partially offset by unfavorable foreign exchange of 5%, unfavorable mix of 1% (due primarily to the decline of the super-premium SK-II brand, which has higher than segment-average selling prices) and a 1% decrease in unit volume. \nThe Procter & Gamble Company        21\nExcluding the impact of acquisitions and divestitures and foreign exchange, organic sales increased 6%. Global market share of the Beauty segment increased 0.3 points. \n\u2022\nHair Care net sales increased low single digits. Positive impacts of higher pricing (driven by all regions) and benefit from acquisitions were partially offset by the negative impacts of unfavorable foreign exchange and a decrease in unit volume. Mix had a neutral impact on net sales. The volume decrease was driven primarily by declines in Europe (due to portfolio reduction in Russia and increased pricing), Greater China (due to market contraction and pandemic-related disruptions) and Asia Pacific (due to increased pricing). Organic sales increased high single digits driven by 20% growth in Latin America and double-digit growth in Europe and North America, partially offset by a mid-single-digit decline in Greater China. Global market share of the hair care category decreased more than half a point.\n\u2022\nSkin and Personal Care net sales increased low single digits. Positive impacts of higher pricing (across all regions), a unit volume increase and a benefit from acquisitions were partially offset by the negative impacts from unfavorable mix (due primarily to the decline of the super-premium SK-II brand) and unfavorable foreign exchange. The volume increase was driven primarily by growth in North America, Latin America and Greater China (all due to innovation), partially offset by a decline in Asia Pacific (due to the decline of the super-premium SK-II brand in the travel retail channel). Organic sales increased mid-single digits as more than 20% increases in Latin America and Europe and a double-digit increase in North America were partially offset by a double-digit decrease in Asia Pacific. Global market share of the skin and personal care category increased nearly a point.\nNet earnings increased 1% to $3.2 billion due to the increase in net sales, partially offset by a 20 basis-point decrease in net earnings margin. Net earnings margin decreased due to a reduction in gross margin, partially offset by a reduction in SG&A as a percentage of net sales. The gross margin reduction was driven by negative product mix (due to the decline of the super-premium SK-II brand), increased commodity costs and unfavorable foreign exchange, partially offset by increased pricing. SG&A as a percentage of net sales decreased primarily due to a decrease in marketing spending.\nGROOMING\n($ millions)\n2023\n2022\nChange vs. 2022\nVolume\nN/A\nN/A\n(3)%\nNet sales\n$6,419\n$6,587\n(3)%\nNet earnings\n$1,461\n$1,490\n(2)%\n% of net sales\n22.8%\n22.6%\n20 bps\nGrooming net sales decreased 3% to $6.4 billion driven by unfavorable foreign exchange of 7%, a 3% decrease in unit volume and unfavorable mix of 2% (due to decline of appliances, which have higher than segment-average selling prices), partially offset by higher pricing of 9% (driven by all regions). The volume decrease was primarily driven by decreases in Europe (due to portfolio reduction in Russia and increased pricing) and North America (due to market contraction and increased pricing). Excluding the impact of acquisitions and divestitures and foreign exchange, organic sales increased 5% driven by growth in all regions led by a more than 20% growth in Latin America and a double-digit growth in Asia Pacific. Global market share of the Grooming segment increased 1 point.\nNet earnings decreased 2% to $1.5 billion due to the decrease in net sales, partially offset by a 20 basis-point increase in net earnings margin. Net earnings margin increased as a decrease in gross margin was more than fully offset by a decrease in SG&A as a percentage of net sales. The gross margin decrease was driven by unfavorable product mix (due to a disproportionate decline of higher gross margin appliances such as premium shavers), commodity cost increases and unfavorable foreign exchange, partially offset by higher pricing and productivity savings. SG&A as a percentage of net sales decreased due primarily to a decrease in marketing spending. \nHEALTH CARE\n($ millions)\n2023\n2022\nChange vs. 2022\nVolume\nN/A\nN/A\n(1)%\nNet sales\n$11,226\n$10,824\n4%\nNet earnings\n$2,125\n$2,006\n6%\n% of net sales\n18.9%\n18.5%\n40 bps\nHealth Care net sales increased 4% to $11.2 billion driven by higher pricing of 5% and favorable mix of 4% (due to growth in North America and the Personal Health Care category, both of which have higher than segment-average selling prices), partially offset by unfavorable foreign exchange of 4% and a 1% decrease in unit volume. Excluding the impact of foreign exchange and acquisitions and divestitures, organic sales increased 8%. Global market share of the Health Care segment decreased 0.2 points.\n22        The Procter & Gamble Company\n\u2022\nOral Care net sales decreased low single digits. Negative impacts of unfavorable foreign exchange and a unit volume decrease were partially offset by increased pricing (driven primarily by North America and Europe) and favorable premium product mix. Volume decline was primarily driven by Europe (due to portfolio reduction in Russia and increased pricing), North America (due to increased pricing) and Greater China (due to market contraction, especially in the power brush market). Organic sales increased low single digits driven by a more than 20% growth in Latin America and a low single-digit growth in North America. Global market share of the oral care category was unchanged.\n\u2022\nPersonal Health Care net sales increased double digits. Positive impacts of favorable mix (due to the disproportionate growth of North America and respiratory products, both of which have higher than category-average selling prices), higher pricing (driven primarily by North America, Europe and Latin America) and a unit volume increase were partially offset by unfavorable foreign exchange. Volume increase was primarily driven by growth in North America (due to innovation and a stronger respiratory season) and Latin America, partially offset by a decline in IMEA (versus a prior year impacted by pandemic-related consumption increases in certain markets). Organic sales increased mid-teens driven by a high teens increase in North America, a mid-teens increase in Europe and a low teens increase in Latin America. Global market share of the personal health care category was unchanged.\nNet earnings increased 6% to $2.1 billion due to the increase in net sales and a 40 basis-point increase in net earnings margin. Net earnings margin increased as a decrease in gross margin was more than fully offset by a decrease in SG&A as a percentage of net sales. The decrease in gross margin was driven by unfavorable product mix (due to the growth of products such as manual brushes, which have lower gross margins) and increased commodity and input material costs, partially offset by increased pricing. SG&A as a percentage of net sales decreased due to the positive scale impacts of the net sales increase and lower marketing spending, partially offset by increased overhead spending.\nFABRIC & HOME CARE\n($ millions)\n2023\n2022\nChange vs. 2022\nVolume\nN/A\nN/A\n(4)%\nNet sales\n$28,371\n$27,556\n3%\nNet earnings\n$4,828\n$4,386\n10%\n% of net sales\n17.0%\n15.9%\n110 bps\nFabric & Home Care net sales increased 3% to $28.4 billion driven by higher pricing of 11% and favorable mix of 1% (due to a disproportionate volume decline in Europe, which has lower than segment-average selling prices), partially offset by unfavorable foreign exchange of 5% and a 4% decrease in unit volume. Excluding the impact of foreign exchange and acquisitions and divestitures, organic sales increased 8%. Global market share of the Fabric & Home Care segment was unchanged.\n\u2022\nFabric Care net sales increased low single digits. Positive impacts of higher pricing (driven by all regions) and favorable geographic mix (due to decline in Europe, which has lower than category-average selling prices) were partially offset by unfavorable foreign exchange and a decrease in unit volume. The volume decrease was primarily driven by declines in Europe (due to increased pricing and portfolio reduction in Russia), North America (due to increased pricing and market contraction) and Greater China (due to portfolio reductions and market contraction). Organic sales increased high single digits driven by more than 20% increases in Latin America and IMEA, high single-digit increases in Asia Pacific and Europe and a low single-digit increase in North America. Global market share of the fabric care category decreased nearly a point.\n\u2022\nHome Care net sales increased mid-single digits. Positive impacts of higher pricing (driven primarily by Europe and North America) and favorable product mix were partially offset by unfavorable foreign exchange and a decrease in unit volume. The volume decrease was driven by declines in Europe (due to market contraction and increased pricing) and North America (due to market contraction). Organic sales increased high single digits driven by a mid-teens growth in Europe and a high single-digit growth in North America. Global market share of the home care category increased more than a point.\nNet earnings increased 10% to $4.8 billion due to the increase in net sales and a 110 basis-point increase in net earnings margin. Net earnings margin increased due to an increase in gross margin, partially offset by an increase in SG&A as a percentage of net sales. The gross margin increase was driven by increased pricing, partially offset by an increase in commodity and input material costs, unfavorable foreign exchange and unfavorable product mix. SG&A as a percentage of net sales increased due to an increase in media spending, partially offset by the positive scale effects of the net sales increase. \nThe Procter & Gamble Company        23\nBABY, FEMININE & FAMILY CARE\n($ millions)\n2023\n2022\nChange vs. 2022\nVolume\nN/A\nN/A\n(3)%\nNet sales\n$20,217\n$19,736\n2%\nNet earnings\n$3,545\n$3,266\n9%\n% of net sales\n17.5%\n16.5%\n100 bps\nBaby, Feminine & Family Care net sales increased 2% to $20.2 billion as the positive impacts of higher pricing of 8% and favorable mix of 1% (due to a higher proportion of sales in North America, which has higher than segment-average selling prices) were partially offset by unfavorable foreign exchange of 4% and a 3% decrease in unit volume. Excluding the impact of foreign exchange and acquisitions and divestitures, organic sales increased 6%. Global market share of the Baby, Feminine & Family Care segment was unchanged. \n\u2022\nBaby Care net sales decreased low single digits. Negative impacts of a decrease in unit volume and unfavorable foreign exchange were partially offset by higher pricing (across all regions) and favorable product and geographic mix (due to a higher proportion of sales in North America). The volume decrease was driven primarily by declines in Europe (due to increased pricing and portfolio reduction in Russia), North America (due to increased pricing) and Greater China. Organic sales increased mid-single digits driven by a more than 30% growth in Latin America, high single-digit growth in IMEA and mid-single-digit growth in North America and Europe, partially offset by a double-digit decline in Greater China. Global market share of the baby care category was unchanged.\n\u2022\nFeminine Care net sales increased mid-single digits. Positive impacts of higher pricing (driven by all regions) and favorable product and geographic mix (due to a decline in Europe, which has lower than category-average selling prices) were partially offset by unfavorable foreign exchange and a decrease in unit volume. The volume decrease was driven primarily by declines in Europe (due to portfolio reduction in Russia and increased pricing) and IMEA (due to increased pricing). Organic sales increased double digits driven by growth in all regions led by a mid-teens increase in Europe and a double-digit increase in North America. Market share of the feminine care category increased nearly half a point.\n\u2022\nNet sales in Family Care, which is predominantly a North American business, increased low single digits driven by higher pricing. Unit volume had a neutral impact on net sales. Organic sales increased mid-single digits. North America's share of the family care category decreased nearly half a point.\nNet earnings increased 9% to $3.5 billion due to the increase in net sales and a 100 basis-point increase in net earnings margin. Net earnings margin increased primarily due to an increase in gross margin and a modest decrease in SG&A as a percentage of net sales. Gross margin increased due to increased pricing, partially offset by an increase in commodity and input material costs. SG&A as a percentage of net sales decreased due to the positive scale effects of the net sales increase partially offset by an increase in other operating expense.\nCORPORATE\n($ millions)\n2023\n2022\nChange vs. 2022\nNet sales\n$765\n$744\n3%\nNet earnings/(loss)\n$(399)\n$485\nN/A\nCorporate includes certain operating and non-operating activities not allocated to specific business segments. These include but are not limited to incidental businesses managed at the corporate level, gains and losses related to certain divested brands or businesses, impacts from various financing and investing activities, impacts related to employee benefits, asset impairments and restructuring activities including manufacturing and workforce optimization. Corporate also includes reconciling items to adjust the accounting policies used within the reportable segments to U.S. GAAP. The most notable ongoing reconciling item is income taxes, which adjusts the blended statutory rates that are reflected in the reportable segments to the overall Company effective tax rate.\nCorporate net sales increased 3% to $765 million due to an increase in net sales of the incidental businesses managed at the corporate level. Corporate net earnings decreased $884 million to a loss of $399 million primarily due to higher interest expense, lower excess tax benefits of share-based compensation and \nhigher foreign exchange transactional charges, partially offset by the increase in net sales of the incidental businesses and higher interest income.\nRestructuring Program to Deliver Productivity and Cost Savings\nThe Company has historically had an ongoing restructuring program with annual spending in the range of $250 to $500 million. Savings generated from the Company's restructuring program are difficult to estimate, given the nature of the activities, the timing of the execution and the degree of reinvestment. In fiscal 2023, the Company incurred before tax restructuring costs within the range of our historical annual ongoing level of $250 to $500 million.\n24        The Procter & Gamble Company\nRestructuring accruals of $174 million as of June\u00a030, 2023, are classified as current liabilities. Approximately 87% of the restructuring charges incurred in fiscal 2023 either have been or will be settled with cash. Consistent with our policies for ongoing restructuring-type activities, the resulting charges are funded by and included within Corporate for segment reporting.\nIn addition to our restructuring programs, we have additional ongoing savings efforts in our supply chain, marketing and overhead areas that yield additional benefits to our operating margins.\nCASH FLOW, FINANCIAL CONDITION AND LIQUIDITY\nWe believe our financial condition continues to be of high quality, as evidenced by our ability to generate substantial cash from operations and to readily access capital markets at competitive rates.\nOperating cash flow provides the primary source of cash to fund operating needs and capital expenditures. Excess operating cash is used first to fund shareholder dividends. Other discretionary uses include share repurchases and acquisitions to complement our portfolio of businesses, brands and geographies. As necessary, we may supplement operating cash flow with debt to fund these activities. The overall cash position of the Company reflects our strong business results and a global cash management strategy that takes into account liquidity management, economic factors and tax considerations.\nCash Flow Analysis\n($ millions)\n2023\n2022\nNet cash provided by operating activities\n$\n16,848\u00a0\n$\n16,723\u00a0\nNet cash used in investing activities\n(3,500)\n(4,424)\nNet cash used in financing activities\n(12,146)\n(14,876)\nAdjusted Free Cash Flow\n14,011\u00a0\n13,792\u00a0\nAdjusted Free Cash Flow Productivity\n95\u00a0\n%\n93\u00a0\n%\nOperating Cash Flow\nOperating cash flow was $16.8 billion in 2023, a 1% increase versus the prior year. Net earnings, adjusted for non-cash items (depreciation and amortization, share-based compensation, deferred income taxes and gain on sale of assets) generated approximately $17.5 billion of operating cash flow. Working capital and other impacts used $656 million of operating cash flow as summarized below.\n\u2022\nAn increase in Accounts receivable used $307 million of cash primarily due to sales growth. The number of days sales outstanding increased approximately 1 day versus prior year.\n\u2022\nHigher inventory used $119 million of cash due to increased safety stock levels to strengthen supply chain sufficiency. Inventory days on hand was flat versus year ago. \n\u2022\nAccounts payable and Accrued and other liabilities provided $313 million of cash, primarily driven by increases in taxes payable and accrued compensation expense, partially offset by a reduction in trade payables. The reduction in trade payables was due to lower supply chain payables from a decrease in commodity and transportation costs, partially offset by the impact of extended payment terms with suppliers (see \nExtended Payment Terms and Supply Chain Financing \nbelow). Days payable outstanding decreased approximately 3 days versus prior year.\n\u2022\nOther net operating assets and liabilities used $543 million of cash primarily driven by pension-related contributions.\nAdjusted Free Cash Flow. \nWe view adjusted free cash flow as an important non-GAAP measure because it is a factor impacting the amount of cash available for dividends, share repurchases, acquisitions and other discretionary investments. It is defined as operating cash flow less capital expenditures and excluding payments for the transitional tax resulting from the U.S. Tax Act. Adjusted free cash flow is one of the measures used to evaluate senior management and determine their at-risk compensation. \nAdjusted free cash flow was $14.0 billion in 2023, an increase of 2% versus the prior year. The increase was primarily driven by the increase in operating cash flows as discussed above. Adjusted free cash flow productivity, defined as the ratio of adjusted free cash flow to net earnings, was 95% in 2023. \nExtended Payment Terms and Supply Chain Financing.\n Beginning in fiscal 2014, in response to evolving market practices, the Company began a program to negotiate extended payment terms with its suppliers. At the same time, the Company initiated a Supply Chain Finance program (the \"SCF\") with a number of global financial institutions (the \"SCF Banks\"). Under the SCF, qualifying suppliers may elect to sell their receivables from the Company to an SCF Bank. These participating suppliers negotiate their receivables sales arrangements directly with the respective SCF Bank. While the Company is not party to those agreements, the SCF Banks allow the participating suppliers to utilize the Company\u2019s creditworthiness in establishing credit spreads and associated costs. This generally provides the suppliers with more favorable terms than they would be able to secure on their own. The Company has no economic interest in a supplier\u2019s decision to sell a receivable. Once a qualifying supplier elects to participate in the SCF and reaches an agreement with an SCF Bank, they elect which individual Company invoices they sell to the SCF bank. However, all the Company\u2019s payments to participating suppliers are paid to the SCF Bank on the invoice due date, regardless of whether the individual invoice is sold by the supplier to the SCF Bank. The SCF Bank pays the supplier on the invoice due date for any invoices that were not previously sold to the SCF Bank under the SCF.\nThe Procter & Gamble Company        25\nThe terms of the Company\u2019s payment obligation are not impacted by a supplier\u2019s participation in the SCF. Our payment terms with our suppliers for similar services and materials within individual markets are consistent between suppliers that elect to participate in the SCF and those that do not participate. Accordingly, our average days outstanding are not significantly impacted by the portion of suppliers or related input costs that are included in the SCF. In addition, the SCF is available to both material suppliers, where the underlying costs are largely included in Cost of goods sold, and to service suppliers, where the underlying costs are largely included in SG&A. As of June\u00a030, 2023, approximately 3% of our global suppliers have elected to participate in the SCF. Payments to those suppliers during fiscal year 2023 were approximately $18 billion, which equals approximately 29% of our total Cost of goods sold and SG&A for the year. For participating suppliers, we believe substantially all of their receivables with the Company are sold to the SCF Banks. Accordingly, we would expect that at each balance sheet date, a similar proportion of amounts originally due to suppliers would instead be payable to SCF Banks. All outstanding amounts related to suppliers participating in the SCF are recorded within Accounts payable in our Consolidated Balance Sheets, and the associated payments are included in operating activities within our Consolidated Statements of Cash Flows. As of June\u00a030, 2023 and 2022, the amounts due to suppliers participating in the SCF and included in Accounts payable were approximately $6 billion.\nAlthough difficult to project due to market and other dynamics, we anticipate incremental cash flow benefits from the extended payment terms with suppliers could increase at a slower rate in fiscal 2024. Future changes in our suppliers\u2019 financing policies or economic developments, such as changes in interest rates, general market liquidity or the Company\u2019s credit-worthiness relative to participating suppliers, could impact suppliers\u2019 participation in the SCF and/or our ability to negotiate extended payment terms with our suppliers. However, any such impacts are difficult to predict.\nInvesting Cash Flow\nNet investing activities used $3.5\u00a0billion of cash in 2023, primarily due to capital spending and acquisitions. \nCapital Spending. \nCapital expenditures, primarily to support capacity expansion, innovation and cost efficiencies, were $3.1 billion in 2023. Capital spending as a percentage of net sales decreased 20 basis points to 3.7% in 2023. \nAcquisitions. \nAcquisition activity used cash of $765 million in 2023, primarily related to a Beauty acquisition.\nFinancing Cash Flow\nNet financing activities consumed $12.1 billion of cash in 2023, mainly due to dividends to shareholders and treasury stock purchases, partially offset by a net debt increase and the impact of stock options and other.\nDividend Payments. \nOur first discretionary use of cash is dividend payments. Dividends per common share increased 4% to $3.6806 per share in 2023. Total dividend payments to common and preferred shareholders were $9.0 billion in 2023. In April 2023, the Board of Directors declared a 3% increase in our quarterly dividend from $0.9133 to $0.9407 per share on Common Stock and Series A and B Employee Stock Ownership Plan (ESOP) Convertible Class\u00a0A Preferred Stock. This is the 67th consecutive year that our dividend has increased. We have paid a dividend for 133 consecutive years, every year since our incorporation in 1890.\nLong-Term and Short-Term Debt. \nWe maintain debt levels we consider appropriate after evaluating a number of factors, including cash flow expectations, cash requirements for ongoing operations, investment and financing plans (including acquisitions and share repurchase activities) and the overall cost of capital. Total debt was $34.6 billion as of June\u00a030, 2023. We generated $2.9 billion from net debt issuances in short-term debt and long-term debt markets.\nTreasury Purchases. \nTotal share repurchases were $7.4 billion in 2023. \nImpact of Stock Options and Other. \nThe exercise of stock options and other financing activities generated $1.3 billion of cash in 2023. \nLiquidity\nAt June\u00a030, 2023, our current liabilities exceeded current assets by $13.1 billion, largely due to short-term borrowings under our commercial paper program. We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. The Company regularly assesses its cash needs and the available sources to fund these needs. As of June\u00a030, 2023, the Company had $5.1 billion of cash and cash equivalents related to foreign subsidiaries, primarily in various European and Asian countries. We did not have material cash and cash equivalents related to any country subject to exchange controls that significantly restrict our ability to access or repatriate the funds. Under current law, we do not expect restrictions or taxes on repatriation of cash held outside of the U.S. to have a material effect on our overall liquidity, financial condition or the results of operations for the foreseeable future. \nWe utilize short- and long-term debt to fund discretionary items, such as acquisitions and share repurchases. We have strong short- and long-term debt ratings, which have enabled and should continue to enable us to refinance our debt as it becomes due at favorable rates in commercial paper and bond markets. In addition, we have agreements with a diverse group of financial institutions that, if needed, should provide sufficient funding to meet short-term financing requirements.\nOn June\u00a030, 2023, our short-term credit ratings were P-1 (Moody's) and A-1+ (Standard\u00a0& Poor's), while our long-term credit ratings were Aa3 (Moody's) and AA- (Standard\u00a0& Poor's), all with a stable outlook.\nWe maintain bank credit facilities to support our ongoing commercial paper program. The current facility is an $8.0 billion facility split between a $3.2 billion five-year facility and a $4.8 billion 364-day facility, which expire in November 2027 and \n26        The Procter & Gamble Company\nNovember 2023, respectively. Both facilities can be extended for certain periods of time as specified in the terms of the credit agreement. These facilities are currently undrawn and we anticipate that they will remain undrawn. These credit facilities do not have cross-default or ratings triggers, nor do they have material adverse events clauses, except at the time of signing. In addition to these credit facilities, we have an automatically effective registration statement on Form S-3 filed with the SEC that is available for registered offerings of short- or long-term debt securities. For additional details on debt, see Note 10 to the Consolidated Financial Statements.\nGuarantees and Other Off-Balance Sheet Arrangements\nWe do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.\nContractual Commitments\nThe following table provides information on the amount and payable date of our contractual commitments as of June\u00a030, 2023.\n($ millions)\nTotal\nLess Than 1 Year\n1-3 Years\n3-5 Years\nAfter 5 Years\nRECORDED LIABILITIES\nTotal debt\n$\n35,248\n\u00a0\n$\n10,316\u00a0\n$\n5,328\u00a0\n$\n5,899\u00a0\n$\n13,705\u00a0\nLeases\n911\n\u00a0\n222\u00a0\n322\u00a0\n171\u00a0\n196\u00a0\nU.S. Tax Act transitional charge\n (1)\n1,575\n\u00a0\n421\u00a0\n1,154\u00a0\n\u2014\u00a0\n\u2014\u00a0\nOTHER\nInterest payments relating to long-term debt\n5,727\n\u00a0\n713\u00a0\n1,245\u00a0\n946\u00a0\n2,823\u00a0\nMinimum pension funding \n(2)\n591\n\u00a0\n192\u00a0\n399\u00a0\n\u2014\u00a0\n\u2014\u00a0\nPurchase obligations \n(3)\n2,989\n\u00a0\n1,169\u00a0\n976\u00a0\n482\u00a0\n362\u00a0\nTOTAL CONTRACTUAL COMMITMENTS\n$\n47,041\n\u00a0\n$\n13,033\u00a0\n$\n9,424\u00a0\n$\n7,498\u00a0\n$\n17,086\u00a0\n(1)\nRepresents the U.S. federal tax liability associated with the repatriation provisions of the U.S. Tax Act. \n(2)\nRepresents future pension payments to comply with local funding requirements. These future pension payments assume the Company continues to meet its future statutory funding requirements. Considering the current economic environment in which the Company operates, the Company believes its cash flows are adequate to meet the future statutory funding requirements. The projected payments beyond fiscal year 2026 are not currently determinable.\n(3)\nPrimarily reflects future contractual payments under various take-or-pay arrangements entered into as part of the normal course of business. Commitments made under take-or-pay obligations represent minimum commitments with suppliers and are in line with expected usage. This includes service contracts for information technology, human resources management and facilities management activities that have been outsourced. While the amounts listed represent contractual obligations, we do not believe it is likely that the full contractual amount would be paid if the underlying contracts were canceled prior to maturity. In such cases, we generally are able to negotiate new contracts or cancellation penalties, resulting in a reduced payment. The amounts do not include other contractual purchase obligations that are not take-or-pay arrangements. Such contractual purchase obligations are primarily purchase orders at fair value that are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such purchase obligations will adversely affect our liquidity position. \nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\nIn preparing our financial statements in accordance with U.S. GAAP, there are certain accounting policies that may require a choice between acceptable accounting methods or may require substantial judgment or estimation in their application. These include revenue recognition, income taxes, certain employee benefits and goodwill and intangible assets. We believe these accounting policies, and others set forth in Note 1 to the Consolidated Financial Statements, should be reviewed as they are integral to understanding the results of operations and financial condition of the Company.\nThe Company has discussed the selection of critical accounting policies and the effect of estimates with the Audit Committee of the Company's Board of Directors.\nRevenue Recognition\nOur revenue is primarily generated from the sale of finished product to customers. Those sales predominantly contain a single performance obligation and revenue is recognized at a single point in time when ownership, risks and rewards transfer, which can be on the date of shipment or the date of receipt by the customer. Trade promotions, consisting primarily of customer pricing allowances, in-store merchandising funds, advertising and other promotional activities and consumer coupons, are offered through various programs to customers and consumers.\u00a0Sales are recorded net of trade promotion spending, which is recognized as incurred at the time of the sale.\u00a0Amounts accrued for trade promotions at the end of a period require estimation, based on contractual terms, sales volumes and historical utilization and redemption rates.\u00a0The actual amounts paid may be different from such estimates.\u00a0These differences, which have historically not been significant, are recognized as a change in management estimate in a subsequent period.\nIncome Taxes\nOur annual tax rate is determined based on our income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Also inherent in determining our annual tax rate are judgements and \nThe Procter & Gamble Company        27\nassumptions regarding the recoverability of certain deferred tax balances, primarily net operating loss and other carryforwards, and our ability to uphold certain tax positions.\nRealization of net operating losses and other carryforwards is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods, which involves business plans, planning opportunities and expectations about future outcomes. Although realization is not assured, management believes it is more likely than not that our deferred tax assets, net of valuation allowances, will be realized.\nWe operate in multiple jurisdictions with complex tax policy and regulatory environments. In certain of these jurisdictions, we may take tax positions that management believes are supportable but are potentially subject to successful challenge by the applicable taxing authority. These interpretational differences with the respective governmental taxing authorities can be impacted by the local economic and fiscal environment.\nA core operating principle is that our tax structure is based on our business operating model, such that profits are earned in line with the business substance and functions of the various legal entities in the jurisdictions where those functions are performed. However, because of the complexity of transfer pricing concepts, we may have income tax uncertainty related to the determination of intercompany transfer prices for our various cross-border transactions. We have obtained and continue to prioritize the strategy of seeking advance rulings with tax authorities to reduce this uncertainty. We estimate that our current portfolio of advance rulings reduces this uncertainty with respect to over 70% of our global earnings. We evaluate our tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. We review these tax uncertainties considering changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly. We have several audits in process in various jurisdictions. Although the resolution of these tax positions is uncertain, based on currently available information, we believe that the ultimate outcomes will not have a material adverse effect on our financial position, results of operations or cash flows.\nBecause there are several estimates and assumptions inherent in calculating the various components of our tax provision, certain future events such as changes in tax legislation, geographic mix of earnings, completion of tax audits or earnings repatriation plans could have an impact on those estimates and our effective tax rate. See Note 5 to the Consolidated Financial Statements for additional details on the Company's income taxes.\nEmployee Benefits\nWe sponsor various postretirement benefits throughout the world. These include pension plans, both defined contribution plans and defined benefit plans, and other postretirement benefit (OPRB) plans consisting primarily of health care and life insurance for retirees. For accounting purposes, the defined benefit pension and OPRB plans require assumptions to estimate the net projected and accumulated benefit obligations, including the following variables: discount rate; expected salary increases; certain employee-related factors, such as turnover, retirement age and mortality; expected return on assets; and health care cost trend rates. These and other assumptions affect the annual expense and net obligations recognized for the underlying plans. Our assumptions reflect our historical experiences and management's best judgment regarding future expectations. As permitted by U.S. GAAP, the net amount by which actual results differ from our assumptions is deferred. If this net deferred amount exceeds 10% of the greater of plan assets or liabilities, a portion of the deferred amount is included in expense for the following year. The cost or benefit of plan changes, such as increasing or decreasing benefits for prior employee service (prior service cost), is deferred and included in expense on a straight-line basis over the average remaining service period of the employees expected to receive benefits.\nThe expected return on plan assets assumption impacts our defined benefit expense since many of our defined benefit pension plans and our primary OPRB plan are partially funded. The process for setting the expected rates of return is described in Note 8 to the Consolidated Financial Statements. For 2023, the average return on assets assumptions for pension plan assets and OPRB assets was 5.9% and 8.4%, respectively. A change in the rate of return of 100 basis points for both pension and OPRB assets would impact annual after-tax benefit/expense by approximately $135 million.\nSince pension and OPRB liabilities are measured on a discounted basis, the discount rate impacts our plan obligations and expenses. Discount rates used for our U.S. defined benefit pension and OPRB plans are based on a yield curve constructed from a portfolio of high-quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan. For our international plans, the discount rates are set by benchmarking against investment grade corporate bonds rated AA or better. The average discount rate on the defined benefit pension plans of 4.2% represents a weighted average of local rates in countries where such plans exist. A 100 basis-point change in the discount rate would impact annual after-tax benefit expense by approximately $130 million. The average discount rate on the OPRB plan of 5.6% reflects the higher interest rates generally applicable in the U.S., which is where most of the plan participants receive benefits. A 100 basis-point change in the discount rate would impact annual after-tax OPRB expense by approximately $30 million. See Note 8 to the Consolidated Financial Statements for additional details on our defined benefit pension and OPRB plans.\nGoodwill and Intangible Assets\nSignificant judgment is required to estimate the fair value of our goodwill reporting units and intangible assets. Accordingly, we typically obtain the assistance of third-party valuation specialists for significant goodwill reporting units and intangible assets. Determining the useful life of an intangible asset also requires judgment. Certain brand intangible assets are expected to have indefinite lives based on their history and our plans to continue to support and build the acquired brands. Other acquired intangible assets (e.g., certain brands, customer relationships, patents and technologies) are expected to have determinable \n28        The Procter & Gamble Company\nuseful lives. Our assessment as to brands that have an indefinite life and those that have a determinable life is based on a number of factors including competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the brands are sold. Determinable-lived intangible assets are amortized to expense over their estimated lives. An impairment assessment for determinable-lived intangibles is only required when an event or change in circumstances indicates that the carrying amount of the asset may not be recoverable. \nGoodwill and indefinite-lived intangible assets are not amortized but are tested at least annually for impairment. We use the income method to estimate the fair value of these assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. If the resulting fair value is less than the asset's carrying value, that difference represents an impairment. Our annual impairment testing for goodwill and indefinite-lived intangible assets occurs during the three months ended December 31. \nMost of our goodwill reporting units have fair value cushions that significantly exceed their underlying carrying values. In connection with the Grooming operating segment integration as described further in Note 2, we concluded that the Shave Care and Appliances categories now operate as one reporting unit for goodwill impairment testing. Based on our annual impairment testing during the three months ended December 31, 2022, our Grooming reporting unit goodwill has a fair value cushion of over 30%. As of June 30, 2023, the carrying value of the Grooming reporting unit goodwill was $12.7 billion.\nMost of our indefinite-lived intangible assets have fair value cushions that significantly exceed their underlying carrying value. Based on our annual impairment testing during the three months ended December 31, 2022, the Gillette indefinite-lived intangible asset's fair value exceeded its carrying value by approximately 5%. As of June 30, 2023, the carrying value of the Gillette indefinite-lived intangible asset was $14.1 billion. While we have concluded that no triggering event has occurred during the fiscal year ended June 30, 2023, the Gillette indefinite-lived intangible asset is most susceptible to future impairment risk. Adverse changes in the business or in the macroeconomic environment, including foreign currency devaluation, increasing global inflation, market contraction from an economic recession and the Russia-Ukraine War, could reduce the underlying cash flows used to estimate the fair value of the Gillette indefinite-lived intangible asset and trigger a future impairment charge. Further reduction of the Gillette business activities in Russia could reduce the estimated fair value by up to 5%. \nThe most significant assumptions utilized in the determination of the estimated fair value of the Gillette indefinite-lived intangible asset are the net sales growth rates (including residual growth rates), discount rate and royalty rates. \nNet sales growth rates could be negatively impacted by reductions or changes in demand for our Gillette products, which may be caused by, among other things: changes in the use and frequency of grooming products, shifts in demand away from one or more of our higher priced products to lower priced products or potential supply chain constraints. In addition, relative global and country/regional macroeconomic factors, including the Russia-Ukraine War, could result in additional and prolonged devaluation of other countries\u2019 currencies relative to the U.S. dollar. The residual growth rates represent the expected rate at which the Gillette brand is expected to grow beyond the shorter-term business planning period. The residual growth rates utilized in our fair value estimates are consistent with the brand operating plans and approximates expected long-term category market growth rates. The residual growth rates depend on overall market growth rates, the competitive environment, inflation, relative currency exchange rates and business activities that impact market share. As a result, the residual growth rates could be adversely impacted by a sustained deceleration in category growth, grooming habit changes, devaluation of currencies against the U.S. dollar or an increased competitive environment. \nThe discount rate, which is consistent with a weighted average cost of capital that is likely to be expected by a market participant, is based upon industry required rates of return, including consideration of both debt and equity components of the capital structure. Our discount rate may be impacted by adverse changes in the macroeconomic environment, volatility in the equity and debt markets or other country specific factors, such as further devaluation of currencies against the U.S. dollar. Spot rates as of the fair value measurement date are utilized in our fair value estimates for cash flows outside the U.S. \nThe royalty rates are driven by historical and estimated future profitability of the underlying Gillette business. The royalty rate may be impacted by significant adverse changes in long-term operating margins. \nWe performed a sensitivity analysis for the Gillette indefinite-lived intangible asset as part of our annual impairment testing during the three months ended December 31, 2022, utilizing reasonably possible changes in the assumptions for the discount rate, the short-term and residual growth rates and the royalty rates to demonstrate the potential impacts to the estimated fair values. The table below provides, in isolation, the estimated fair value impacts related to a 25 basis-point increase in the discount rate, a 25 basis-point decrease in our shorter-term and residual growth rates, or a 50 basis-point decrease in our royalty rates, which may result in an impairment of the Gillette indefinite-lived intangible asset.\n \nApproximate Percent Change in Estimated Fair Value\n+25 bps Discount Rate\n-25 bps\nGrowth Rate\n-50 bps Royalty Rate\nGillette indefinite-lived intangible asset\n(6)%\n(6)%\n(4)%\nSee Note 4 to the Consolidated Financial Statements for additional discussion on goodwill and intangible assets.\nThe Procter & Gamble Company        29\nNew Accounting Pronouncements\nRefer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of June\u00a030, 2023.\nOTHER INFORMATION\nHedging and Derivative Financial Instruments\nAs a multinational company with diverse product offerings, we are exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. We evaluate exposures on a centralized basis to take advantage of natural exposure correlation and netting. We leverage the Company's diversified portfolio of exposures as a natural hedge and prioritize operational hedging activities over financial market instruments. To the extent we choose to further manage volatility within our financing operations, as discussed below, we enter into various financial transactions which we account for using the applicable accounting guidance for derivative instruments and hedging activities. These financial transactions are governed by our policies covering acceptable counterparty exposure, instrument types and other hedging practices. See Note 9 to the Consolidated Financial Statements for a discussion of our accounting policies for derivative instruments.\nDerivative positions are monitored using techniques including market valuation, sensitivity analysis and value-at-risk modeling. The tests for interest rate, currency rate and commodity derivative positions discussed below are based on the RiskManager\u2122 value-at-risk model using a one-year horizon and a 95% confidence level. The model incorporates the impact of correlation (the degree to which exposures move together over time) and diversification (from holding multiple currency, commodity and interest rate instruments) and assumes that financial returns are normally distributed. Estimates of volatility and correlations of market factors are drawn from the RiskMetrics\u2122 dataset as of June\u00a030, 2023. In cases where data is unavailable in RiskMetrics\u2122, a reasonable proxy is included.\nOur market risk exposures relative to interest rates, currency rates and commodity prices, as discussed below, have not changed materially versus the previous reporting period. In addition, we are not aware of any facts or circumstances that would significantly impact such exposures in the near term.\nInterest Rate Exposure on Financial Instruments. \nInterest rate swaps are used to manage exposures to interest rates on underlying debt obligations. Certain interest rate swaps denominated in foreign currencies are designated to hedge exposures to currency exchange rate movements on our investments in foreign operations. These currency interest rate swaps are designated as hedges of the Company's foreign net investments.\nBased on our interest rate exposure as of and during the fiscal year ended June\u00a030, 2023, including derivative and other instruments sensitive to interest rates, we believe a near-term change in interest rates, at a 95% confidence level based on historical interest rate movements, would not materially affect our financial statements.\nCurrency Rate Exposure on Financial Instruments. \nBecause we manufacture and sell products and finance operations in a number of countries throughout the world, we are exposed to the impact on revenue and expenses of movements in currency exchange rates. Corporate policy prescribes the range of allowable hedging activity. To manage the exchange rate risk associated with the financing of our operations, we primarily use forward contracts and currency swaps with maturities of less than 18 months. \nBased on our currency rate exposure on derivative and other instruments as of and during the fiscal year ended June\u00a030, 2023, we believe, at a 95% confidence level based on historical currency rate movements, the impact on such instruments of a near-term change in currency rates would not materially affect our financial statements.\nCommodity Price Exposure on Financial Instruments. \nWe use raw materials that are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. We may use futures, options and swap contracts to manage the volatility related to the above exposures. During the fiscal years ended June\u00a030, 2023 and 2022, we did not have any financial commodity hedging activity. \nMeasures Not Defined By U.S. GAAP\nIn accordance with the SEC's Regulation S-K Item 10(e), the following provides definitions of the non-GAAP measures and the reconciliation to the most closely related GAAP measure. We believe that these measures provide useful perspective on underlying business trends (i.e., trends excluding non-recurring or unusual items) and results and provide a supplemental measure of year-on-year results. The non-GAAP measures described below are used by management in making operating decisions, allocating financial resources and for business strategy purposes. These measures may be useful to investors, as they provide supplemental information about business performance and provide investors a view of our business results through the eyes of management. These measures are also used to evaluate senior management and are a factor in determining their at-risk compensation. These non-GAAP measures are not intended to be considered by the user in place of the related GAAP measures but rather as supplemental information to our business results. These non-GAAP measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted. These measures include:\nOrganic Sales Growth. \nOrganic sales growth is a non-GAAP measure of sales growth excluding the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. We believe this measure provides investors with a \n30        The Procter & Gamble Company\nsupplemental understanding of underlying sales trends by providing sales growth on a consistent basis. This measure is used in assessing the achievement of management goals for at-risk compensation.\nThe following tables provide a numerical reconciliation of organic sales growth to reported net sales growth:\nFiscal year ended June\u00a030, 2023\nNet Sales Growth\nForeign Exchange Impact\nAcquisition & Divestiture \nImpact/Other \n(1)\nOrganic Sales Growth\nBeauty\n2\u00a0\n%\n5\u00a0\n%\n(1)\n%\n6\u00a0\n%\nGrooming\n(3)\n%\n7\u00a0\n%\n1\u00a0\n%\n5\u00a0\n%\nHealth Care\n4\u00a0\n%\n4\u00a0\n%\n\u2014\u00a0\n%\n8\u00a0\n%\nFabric & Home Care\n3\u00a0\n%\n5\u00a0\n%\n\u2014\u00a0\n%\n8\u00a0\n%\nBaby, Feminine & Family Care\n2\u00a0\n%\n4\u00a0\n%\n\u2014\u00a0\n%\n6\u00a0\n%\nTOTAL COMPANY\n2\n\u00a0\n%\n5\n\u00a0\n%\n\u2014\n\u00a0\n%\n7\n\u00a0\n%\n(1)\nAcquisition & Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales.\nAdjusted Free Cash Flow. \nAdjusted free cash flow is defined as operating cash flow less capital spending and excluding payments for the transitional tax resulting from the U.S. Tax Act. Adjusted free cash flow represents the cash that the Company is able to generate after taking into account planned maintenance and asset expansion. We view adjusted free cash flow as an important measure because it is one factor used in determining the amount of cash available for dividends, share repurchases, acquisitions and other discretionary investments.\nThe following table provides a numerical reconciliation of adjusted free cash flow ($ millions):\nOperating Cash Flow \nCapital Spending\nAdjustments to Operating Cash Flow \n(1)\nAdjusted Free Cash\u00a0Flow\n2023\n$\n16,848\n\u00a0\n$\n(3,062)\n$\n225\n\u00a0\n$\n14,011\n\u00a0\n2022\n$\n16,723\u00a0\n$\n(3,156)\n$\n225\u00a0\n$\n13,792\u00a0\n(1)\nAdjustments to Operating Cash Flow include transitional tax payments resulting from the U.S. Tax Act of $225 in 2023 and 2022.\nAdjusted Free Cash Flow Productivity. \nAdjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to net earnings. We view adjusted free cash flow productivity as a useful measure to help investors understand P&G\u2019s ability to generate cash. Adjusted free cash flow productivity is used by management in making operating decisions, in allocating financial resources and for budget planning purposes. This measure is used in assessing the achievement of management goals for at-risk compensation. \nThe following table provides a numerical reconciliation of adjusted free cash flow productivity ($ millions):\nAdjusted Free\nCash Flow\nNet Earnings\nAdjusted Free \nCash\u00a0Flow Productivity\n2023\n$\n14,011\n\u00a0\n$\n14,738\n\u00a0\n95\n\u00a0\n%\n2022\n$\n13,792\u00a0\n$\n14,793\u00a0\n93\u00a0\n%\nCore EPS. \nCore EPS is a measure of the Company's diluted EPS excluding items that are not judged by management to be part of the Company's sustainable results or trends. Management views this non-GAAP measure as a useful supplemental measure of Company performance over time. This measure is also used in assessing the achievement of management goals for at-risk compensation. For the fiscal years ended June\u00a030, 2023 and 2022, there were no adjustments to or reconciling items for diluted EPS.",
+  "item7a": ">Item\u00a07A. \nQuantitative and Qualitative Disclosures About Market Risk.\nThe information required by this item is incorporated by reference to the section entitled Other Information in the MD&A and Note 9 to the Consolidated Financial Statements.\nThe Procter & Gamble Company        31",
+  "cik": "80424",
+  "cusip6": "742718",
+  "cusip": ["742718109", "742718959", "742718909"],
+  "names": ["PROCTER & GAMBLE CO PUT", "PROCTER & GAMBLE CO CALL", "PROCTER AND GAMBLE CO"],
+  "source": "https://www.sec.gov/Archives/edgar/data/80424/000008042423000073/0000080424-23-000073-index.htm"
+}
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+{
+  "item1": ">Item 1.\u00a0\u00a0\u00a0\u00a0Business. \nThe Company:\n The J. M. Smucker Company (\u201cCompany,\u201d \u201cregistrant,\u201d \u201cwe,\u201d \u201cus,\u201d or \u201cour\u201d), often referred to as Smucker\u2019s (a registered trademark), was established in 1897 and incorporated in Ohio in 1921. We operate principally in one industry, the manufacturing and marketing of branded food and beverage products on a worldwide basis, although the majority of our sales are in the United States (the \u201cU.S.\u201d). Operations outside the U.S. are principally in Canada, although our products are exported to other countries as well. Net sales outside the U.S., subject to foreign currency translation, represented 5 percent of consolidated net sales for 2023. Our branded food and beverage products include a strong portfolio of trusted, iconic, market-leading brands that are sold to consumers through retail outlets in North America.\nWe have three reportable segments: U.S. Retail Pet Foods, U.S. Retail Coffee, and U.S. Retail Consumer Foods. The U.S. retail market segments in total comprised 87 percent of 2023 consolidated net sales and represent a major portion of our strategic focus \u2013 the sale of branded food and beverage products with leadership positions to consumers through retail outlets in North America. International and Away From Home represents sales outside of the U.S. retail market segments. For additional information on our reportable segments, see Note 4: Reportable Segments.\nOn April 28, 2023, we sold certain pet food brands to Post Holdings, Inc. (\u201cPost\u201d). The transaction included the\n Rachael Ray\n\u00ae\n Nutrish\n\u00ae\n, 9Lives\n\u00ae\n, Kibbles \u2019n Bits\n\u00ae\n, Nature\u2019s Recipe\n\u00ae\n, and \nGravy Train\n\u00ae\n brands, as well as our private label pet food business, inclusive of certain trademarks and licensing agreements, manufacturing and distribution facilities in Bloomsburg, Pennsylvania, manufacturing facilities in Meadville, Pennsylvania and Lawrence, Kansas, and approximately 1,100 employees who supported these pet food brands. Under our ownership, these brands generated net sales of $1.5 billion in 2023, and $1.4 billion in both 2022 and 2021, primarily included in the U.S. Retail Pet Foods segment.\nOn January 31, 2022, we sold the natural beverage and grains businesses to Nexus Capital Management LP (\u201cNexus\u201d). The transaction included products sold under the \nR.W. Knudsen\n\u00ae\n \nand \nTruRoots\n\u00ae\n \nbrands, inclusive of certain trademarks, a licensing agreement for \nSanta Cruz Organic\n\u00ae\n beverages, dedicated\n \nmanufacturing and distribution facilities in Chico, California and Havre de Grace, Maryland, and approximately 150 employees who supported the natural beverage and grains businesses. The transaction did not include \nSanta Cruz Organic\n nut butters, fruit spreads, syrups, or applesauce. Under our ownership, the businesses generated net sales of $106.7 and $143.4 in 2022 and 2021, respectively, primarily included in the U.S. Retail Consumer Foods segment. \nOn December 1, 2021, we sold the private label dry pet food business to Diamond Pet Foods, Inc. (\u201cDiamond Pet Foods\u201d). The transaction included dry pet food products sold under private label brands, a dedicated manufacturing facility located in Frontenac, Kansas, and approximately 220 employees who supported the private label dry pet food business. The transaction did not include any branded products or our private label wet pet food business. Under our ownership, the business generated net sales of $62.3 and $94.0 in 2022 and 2021, respectively, included in the U.S. Retail Pet Foods segment.\nOn January 29, 2021, we sold the \nNatural Balance\n\u00ae\n premium pet food business to Nexus. The transaction included pet food products sold under the \nNatural Balance\n brand, certain trademarks and licensing agreements, and select employees who supported the \nNatural Balance\n business. Under our ownership, the business generated net sales of $156.7 in 2021, included in the U.S. Retail Pet Foods segment.\nOn December 1, 2020, we sold the \nCrisco\n\u00ae\n oils and shortening business to B&G Foods, Inc. (\u201cB&G Foods\u201d). The transaction included oils and shortening products sold under the \nCrisco\n brand, primarily in the U.S. and Canada, certain trademarks and licensing agreements, dedicated manufacturing and warehouse facilities located in Cincinnati, Ohio, and approximately 160 employees who supported the \nCrisco\n business. Under our ownership, the business generated net sales of $198.9 in 2021, primarily included in the U.S. Retail Consumer Foods segment. \nFor additional information on these divestitures, see Note 3: Divestitures.\nPrincipal Products:\n In 2023, our principal products were coffee, cat food, pet snacks, dog food, frozen handheld products, peanut butter, fruit spreads, portion control products, as well as baking mixes and ingredients. Product sales information for the years 2023, 2022, and 2021 is included within Note 4: Reportable Segments.\n2\nIn the U.S. retail market segments, our products are primarily sold through a combination of direct sales and brokers to food retailers, club stores, discount and dollar stores, online retailers, pet specialty stores, drug stores, military commissaries, mass merchandisers, and natural foods stores and distributors. In International and Away From Home, our products are distributed domestically and in foreign countries through retail channels and foodservice distributors and operators (e.g., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and universities, and convenience stores). \nSources and Availability of Raw Materials:\n The raw materials used in each of our segments are primarily commodities, agricultural-based products, and packaging materials. Green coffee, protein meals, peanuts, grains, plastic containers, oils and fats, fruit, and other ingredients are obtained from various suppliers. The availability, quality, and costs of many of these commodities have fluctuated, and may continue to fluctuate over time, partially driven by the elevated commodity and supply chain costs we experienced in 2023. We actively monitor changes in commodity and supply chain costs, and to mitigate the fluctuation of costs, we may be required to implement material price increases or decreases across our business. Futures, basis, options, and fixed price contracts are used to manage price volatility for a significant portion of our commodity costs. Green coffee, along with certain other raw materials, is sourced solely from foreign countries, and its supply and price is subject to high volatility due to factors such as weather, global supply and demand, product scarcity, plant disease, investor speculation, armed hostilities (including the ongoing conflict between Russia and Ukraine), changes in governmental agricultural and energy policies and regulation, and political and economic conditions in the source countries. We source peanuts, protein meals, and oils and fats mainly from North America. The principal packaging materials we use are plastic, glass, metal cans, caps, carton board, and corrugate.\n \nFor additional information on the commodities we purchase, see \u201cCommodities Overview\u201d within Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K.\nRaw materials are generally available from numerous sources, although we have elected to source certain plastic packaging materials for our \nFolgers\n\u00ae\n coffee products, as well as our \nJif\n\u00ae\n \npeanut butter, and certain finished goods, such as K-Cup\n\u00ae\n pods, our \nPup-Peroni\n\u00ae\n \ndog snacks, and liquid coffee, from single sources of supply pursuant to long-term contracts. While availability may vary year-to-year, we believe that we will continue to obtain adequate supplies and that alternatives to single-sourced materials are available. We have not historically encountered significant shortages of key raw materials. We consider our relationships with key raw material suppliers to be in good standing. \nTrademarks and Patents\n: Many of our products are produced and sold under various patents and patents pending, and marketed under trademarks owned or licensed by us or one of our subsidiaries. Our major trademarks as of April\u00a030, 2023, are listed below. \nPrimary Reportable Segment\n\u00a0\u00a0\nMajor\u00a0Trademark\nU.S. Retail Pet Foods\nMeow Mix\n\u00ae\n, Milk-Bone\n\u00ae\n,\n \nPup-Peroni\n\u00ae\n,\n and \nCanine Carry Outs\n\u00ae\nU.S.\u00a0Retail\u00a0Coffee\n\u00a0\u00a0\nFolgers\n\u00ae\n,\n \nDunkin\u2019\n\u00ae\n,\n and \nCaf\u00e9 Bustelo\n\u00ae\nU.S.\u00a0Retail\u00a0Consumer\u00a0Foods\n\u00a0\u00a0\nUncrustables\n\u00ae\n, \nJif\n\u00ae\n, \nand \nSmucker\u2019s\n\u00ae\n \nOther \n(A)\n\u00a0\u00a0\nSmucker\u2019s,\n \nFolgers, \nand\n Uncrustables\n (A)  Represents the combined International and Away From Home operating segments. \nDunkin\u2019 \nis a trademark of DD IP Holder LLC used under three licenses (the \u201cDunkin\u2019 Licenses\u201d) for packaged coffee products, including K-Cup\n\u00ae\n pods, sold in retail channels, such as grocery stores, mass merchandisers, club stores, e-commerce, and drug stores, as well as in certain away from home channels. The Dunkin\u2019 Licenses do not pertain to coffee or other products for sale in \nDunkin\u2019\n restaurants. The terms of the Dunkin\u2019 Licenses include the payment of royalties to an affiliate of DD IP Holder, LLC and other financial commitments by the Company. The Dunkin\u2019 Licenses are in effect until January\u00a01, 2039. Keurig\n\u00ae\n and K-Cup\n\u00ae\n are trademarks of Keurig Green Mountain, Inc. (\u201cKeurig\u201d), used with permission.\nSlogans or designs considered to be important trademarks include, without limitation, \u201c\nWith A Name Like Smucker\u2019s, It Has To Be Good\n\u00ae\n,\n\u201d \u201c\nThe Best Part of Wakin\u2019 Up Is Folgers In Your Cup\n\u00ae\n,\n\u201d \u201c\nChoosy Moms Choose Jif\n\u00ae\n,\n\u201d \u201c\nThat Jif\u2019ing Good\nTM\n,\n\u201d\n \n\u201c\nThe Only One Cats Ask For By Name\n\u00ae\n,\n\u201d the \nSmucker\u2019s\n banner, the Crock Jar shape, the Gingham design, the \nJif \nColor Banner design, the\n Caf\u00e9 Bustelo \nAngelina design, and the \nMilk-Bone\n and \nMeow Mix\n logos.\nWe own many patents worldwide in addition to utilizing proprietary trade secrets, technology, know-how processes, and other intellectual property rights that are not registered.\nWe consider all of our owned and licensed intellectual property, taken as a whole, to be essential to our business.\n3\nSeasonality:\n The U.S. Retail Pet Foods, U.S. Retail Coffee, and U.S. Retail Consumer Foods segments do not experience significant seasonality, as demand for our products is generally consistent throughout the year.\nCustomers: \nSales to Walmart Inc. and subsidiaries amounted to 34 percent of net sales in both 2023 and 2022, and 32 percent of net sales in 2021. These sales are primarily included in our U.S. retail market segments. No other customer exceeded 10 percent of net sales for any year.\nDuring 2023, our top 10 customers, collectively, accounted for approximately 60 percent of consolidated net sales. Supermarkets, warehouse clubs, and food distributors continue to consolidate, and we expect that a significant portion of our revenues will continue to be derived from a limited number of customers. Although the loss of any large customer for an extended length of time could negatively impact our sales and profits, we do not anticipate that this will occur to a significant extent due to strong consumer demand for our brands.\nGovernment Business: \nNo material portion of our business is subject to renegotiation of profits or termination of contracts at the election of the government.\nCompetition:\n We are the branded market leader in the coffee, dog snacks, peanut butter, and fruit spreads categories in the U.S. In Canada, we are the branded market leader in the flour, pickles, fruit spreads, canned milk, and ice cream toppings categories.\n \nOur business is highly competitive as all of our brands compete with other branded products as well as private label products. \nIn order to remain competitive, companies in the food industry need to consider emerging consumer preferences, technological advances, product and packaging innovations, and the growth of certain retail channels, such as the \ne-commerce market. The primary ways in which products and brands are distinguished are brand recognition, product quality, price, packaging, new product introductions, nutritional value, convenience, advertising, promotion, and the ability to identify and satisfy consumer preferences. Positive factors pertaining to our competitive position include well-recognized brands, high-quality products, consumer trust, experienced brand and category management, varied product offerings, product innovation, responsive customer service, and an integrated distribution network.\nThe packaged foods industry has been challenged by a general long-term decline in sales volume in the center of the store. However, there has been an increase in sales primarily driven by changes in consumer behaviors, including employees working at home more frequently as a result of the novel coronavirus (\u201cCOVID-19\u201d) pandemic. Certain evolving consumer trends have contributed to the longer-term decline, such as a heightened focus on health and wellness, an increased desire for fresh foods, and the growing impact of social media and e-commerce on consumer behavior. To address these dynamics, we continue to focus on innovation with an increased emphasis on products that satisfy evolving consumer trends.\nIn addition, private label continues to be a competitor in the categories in which we compete, partially due to improvements in private label quality, the increased emphasis of store brands by retailers in an effort to cultivate customer loyalty, and a movement toward lower-priced offerings during economic downturns or instances of increased inflationary pressures. In our total U.S. retail categories, private label held a 12.1 dollar average market share during the 52 weeks ended April 23, 2023, as compared to a 11.5 dollar average market share during the same period in the prior year. We believe that both private label and leading brands play an important role in the categories in which we compete, appealing to different consumer segments. We closely monitor the price gap, or price premium, between our brands and private label brands, with the view that value is about more than price and the expectation that number one brands will continue to be an integral part of consumers\u2019 shopping baskets. \n4\nOur primary brands and major competitors as of April\u00a030, 2023, are listed below. \nOur Primary Products\nOur Primary Brands\nCompeting Brands\nCompetitors\nU.S. Retail Pet Foods\nMainstream cat food\nMeow Mix\nCat Chow \n(A)\n, Friskies, Kit & Kaboodle, \nand\n Fancy Feast\nNestl\u00e9 Purina PetCare Company\nIams \nand\n Sheba\nMars, Incorporated\nPet snacks\nMilk-Bone \n(A)\n,\n Pup-Peroni, \nand \nCanine Carry Outs\nBeggin\u2019 Strips\nNestl\u00e9 Purina PetCare Company\nBlue Buffalo \nand \nNudges\nGeneral Mills, Inc.\nDentastix \nand\n Greenies\nMars, Incorporated\nPrivate label brands\nVarious\nU.S. Retail Coffee\nMainstream roast and ground coffee\nFolgers \n(A)\n \nand \nCaf\u00e9 Bustelo\nMaxwell House \nand\n Yuban\nThe Kraft Heinz Company\nPrivate label brands\nVarious\nMcCaf\u00e9\nKeurig Dr. Pepper\nCafe La Llave\nF. Gavi\u00f1a & Sons, Inc.\nSingle serve coffee - K-Cup\n\u00ae\nDunkin\u2019, Folgers, \nand\n Caf\u00e9 Bustelo\nPrivate label brands\nVarious\nGreen Mountain Coffee \n(A) \n, Donut Shop, \nand \nMcCaf\n\u00e9\nKeurig Dr. Pepper\nStarbucks\nNestl\u00e9 S.A.\nPeet\u2019s Coffee & Tea\nJDE Peet\u2019s N.V.\nMaxwell House\n and \nGevalia\nThe Kraft Heinz Company\nPremium coffee\nDunkin'\nStarbucks \n(A)\n and\n Seattle\u2019s Best Coffee\nNestl\u00e9 S.A.\nPrivate label brands\nVarious\nPeet\u2019s Coffee & Tea\nJDE Peet\u2019s N.V.\nEight O\u2019Clock\nTata Global Beverages Limited\nCommunity Coffee\nCommunity Coffee Company\nGevalia \nThe Kraft Heinz Company\nU.S. Retail Consumer Foods\nPeanut butter and specialty spreads\nJif \n(A)\nPrivate label brands\nVarious\nSkippy\nHormel Foods Corporation\nNutella\nFerrero SpA\nPeter Pan\nPost Holdings, Inc.\nFruit spreads\nSmucker\u2019s \n(A)\nPrivate label brands\nVarious\nWelch\u2019s\nWelch Foods Inc.\nBonne Maman\nAndros Foods USA, Inc.\nFrozen sandwiches and snacks\nSmucker\u2019s Uncrustables\nHot Pockets \n(A)\nNestl\u00e9 S.A.\nTotino\u2019s\nGeneral Mills, Inc.\nEl Monterrey\nRuiz Foods\nInternational and Away From Home\nFoodservice hot beverage\nFolgers, 1850\n\u00ae\n,\n and\n Caf\u00e9 Bustelo\nStarbucks\nNestl\u00e9 S.A.\nPrivate label brands\nVarious\nNescaf\u00e9\nSoci\u00e9t\u00e9 des Produits Nestl\u00e9 S.A.\nFoodservice portion control\nSmucker\u2019s\n and \nJif\nPrivate label brands\nVarious, including Diamond Crystal Brands\nHeinz, Welch\u2019s, \nand\n \nPrivate Label Brands\nThe Kraft Heinz Company\nFoodservice frozen handheld\nSmucker\u2019s Uncrustables\nHot Off the Grill\nIntegrated Food Service\nClassic Delight\nClassic Delight Inc.\nCanada coffee\nFolgers\nTim Hortons \n(A)\nRestaurant Brands International Inc.\nMaxwell House\nThe Kraft Heinz Company\nPrivate label brands\nVarious\nCanada flour\nRobin Hood\n\u00ae (A)\n \nand\n Five Roses\n\u00ae\nPrivate label brands\nVarious\n(A)  Identifies the current market leader within the product category. In certain categories, the market leader is not identified as two or more brands compete for the largest share. \n5\nGovernment Regulations: \nOur operations are subject to various regulations and laws administered by federal, state, and local government agencies in the U.S., including the U.S. Food and Drug Administration (the \u201cFDA\u201d), U.S. Federal Trade Commission, U.S. Departments of Agriculture, Commerce, and Labor, and U.S. Environmental Protection Agency. Additionally, we are subject to regulations and laws administered by government agencies in Canada and other countries in which we have operations and our products are sold. In particular, the manufacturing, marketing, transportation, storage, distribution, and sale of food products are each subject to governmental regulation that is increasingly extensive. Governmental regulation encompasses such matters as ingredients (including whether a product contains bioengineered ingredients), packaging, labeling, pricing, advertising, relations with distributors and retailers, health, safety, data privacy and security, and anti-corruption, as well as an increased focus regarding environmental policies relating to climate change, regulating greenhouse gas emissions, energy policies, and sustainability, including single-use plastics. We are subject to tax and securities regulations, accounting and reporting standards, and other financial laws and regulations. We rely on legal and operational compliance programs, including in-house and outside counsel, to guide our business in complying with applicable laws and regulations of the countries in which we do business. We believe we are in compliance with such laws and regulations and do not expect continued compliance to have a material impact on our capital expenditures, earnings, or competitive position in 2024. \nEnvironmental Matters:\n Compliance with environmental regulations and prioritizing our environmental sustainability efforts are important to us as a responsible corporate citizen. As such, we have public goals related to waste diversion, water usage, energy usage, greenhouse gas emissions, and sustainable packaging. In support of our commitment to environmental sustainability, we have implemented and manage a variety of programs across our operations, including energy optimization, utilization of renewable energy, water conservation, recycling, and, in our supply chains, we have partnerships with farmers who implement sustainable practices. We continue to evaluate and modify our processes to further limit our impact on the environment.\nHuman Capital Management: \nOur values and principles are rooted in our \nBasic Beliefs\n and serve as the foundation for our strategic and daily decisions. With 2023 marking our 125\nth\n year in business, we updated and strengthened the language of our \nBasic Beliefs \nto be as clear, concise, and actionable as possible. While we are incredibly proud of our past, we believe strongly in the concept of working to be better tomorrow than we are today, which is why we evolved our \nBasic Beliefs\n during 2023, to\n Be Bold, Be Kind, Do the Right Thing, Play to Win, \nand\n Thrive Together.\n Our employees are among our most important resources and are critical to our success as a company. Therefore, we are committed to supporting our employees holistically, both personally and professionally. With almost 5,800 full-time employees worldwide, every employee makes a difference to our Company. We believe it is critical that we have an inclusive and diverse environment and that we take proactive steps to ensure we are enabling our employees to reach their full potential. To hold ourselves accountable, we conduct an employee engagement survey annually to provide an opportunity for open and confidential feedback from our employees and to help guide our organization priorities for the upcoming fiscal year. Additionally, we conduct functional pulse surveys as needed to gain additional information based on responses to the larger engagement survey, or in sub-groups of our employee population where a specific topic or question may be needed. These surveys are supplemented by regular Company Town Halls, which help to foster an environment of transparency and two-way communication. Employees also have the opportunity to anonymously report violations of the Commitment to Integrity: Our Code (\u201cCode of Conduct\u201d) or complaints regarding accounting, auditing, and financial-related matters through our Smucker Voice Line \u2013 the Integrity Portal (\u201cPortal\u201d). The Portal also can be utilized by customers, contractors, vendors, and their employees, as well as any others in a business relationship with our Company. To further support our commitment to ethics and our basic belief, \nDo the Right Thing\n, our employees were also asked to participate in an Ethics and Compliance Survey in 2023, to help us understand our strengths and identify opportunities for future ethics and compliance programs and training. We conduct this assessment on a biennial basis.\nAdditional information regarding our human capital management is available in our 2022 Corporate Impact Report that can be found on our website at www.jmsmucker.com/news-stories/corporate-publications. Information on our website, including our 2022 Corporate Impact Report, is not incorporated by reference into this Annual Report on Form 10-K. \nHealth and Wellness:\n \nMaintaining a safe and healthy workplace is among our top priorities and is aligned with our basic belief,\n Do the Right Thing\n. We are diligent in ensuring workforce health and safety through education and training which is provided at all locations. These efforts resulted in our achievement of a total recordable incident rate during 2023, that is three times below the industry average. Our health and safety internal assessments conducted at each of our production facilities quarterly, as well as periodic external assessments, confirm our compliance with safety regulations and corporate policies. The teams document the results and determine corrective actions to ensure we hold ourselves accountable for providing a safe work environment. \n6\nAs part of our focus on well-being, we emphasize the need for our employees to embrace healthy lifestyles. We offer all employees a variety of free and discounted services, as well as education opportunities, to support their physical, emotional, and financial well-being, including free sessions through our Employee Assistance Program. We also offer on-site conveniences, such as health and wellness centers at several of our locations and a Child Development Center at our corporate headquarters in Orrville, Ohio. In addition, we provide our employees with paid time off to renew and programs to promote workplace flexibility.\nFurther, we have continued to promote the importance of self-care and the availability of mental health resources to our employees. In recognition of the need for mental health resources across society, we have partnered with the United Way\n\u00ae\n of Summit County 211 program and the National Council for Behavioral Health to provide support for our employees and communities. In 2022, we supported the Akron Children\u2019s Hospital\u2019s (\u201cACH\u201d) Lois and John Orr Family Behavioral Health Center and its scholarship program, which will help fund scholarships to help four nurses at ACH get the training they need to become psychiatric-mental health nurses. The scholarship program will support ACH\u2019s ability to provide behavioral health care to meet the growing need for this specialized treatment. \nDiversity and Inclusion:\n \nWe believe having an inclusive culture and the expertise of diverse professionals across our business that reflects our consumers is critical to our success and is in alignment with our basic belief, \nThrive Together\n. Our commitment to inclusion, diversity, and equity (\u201cID&E\u201d) is focused around the following three aspirations:\nEnhance Workplace Diversity\n\u2022\nAspire to double the representation of People of Color within our U.S. salaried employee community by 2027 \n\u2022\nAspire to increase women at all senior levels within our U.S. salaried employee community to 45 percent by 2027\n\u2022\nComplete foundational work across other key demographics to establish baselines to inform future quantitative growth aspirations \nIncrease Equity Through Expanded Opportunities \n\u2022\nEvaluate and evolve practices, including lateral assignments and promotions, to support equitable opportunities\nFoster an Inclusive Workplace \n\u2022\nEstablish measurable expectations for participation in select employee resource group (\u201cERG\u201d) sponsored events and education \n\u2022\nDevelop integrated strategy, aspirations, and prioritized initiatives across our ERGs\nIn support of these aspirations, we have made important progress over the past year on our commitment to create an environment where our employees are supported and differences are truly celebrated. We have successfully introduced ERGs, which are all voluntary, employee-led groups that represent a unique community. The purpose of these groups is to create inclusion where all can see themselves and feel a part of our Company. We have seven ERGs, as well as our Advocate Alliance group, to support employees and encourage allyship. Our ERGs include BLAC (Black Leadership and Ally Council); PRIDE Alliance (i.e., LGBTQ+); GROW (Greater Resources and Opportunities for Women); RAICES (i.e., Latino/a/x and Hispanic contributions); AFVA (Armed Forces Veterans and Allies); CAPIA (Community of Asians, Pacific Islanders, and Allies); and ADDAPT (Advocating for Disabilities and Diverse Abilities by Partnering Together), which all employees are encouraged to join as either a member or ally. Additionally, we have coordinated more than 750 hours of employee programming on education and understanding, hosted panels to reflect the unique experiences of underrepresented groups to increase employee awareness while encouraging empathy and allyship, and published regular content to celebrate our differences and increase understanding.\nWe approach diversity from the top-down, exemplified by our Board of Directors (the \u201cBoard\u201d), where 4 of 11 directors are women and 2 of 11 directors are racially or ethnically diverse. Additionally, 46 percent of our executive and senior management team members are women, inclusive of 4 of 7 members of our Executive Leadership Team, demonstrating our belief that a diverse team with a variety of viewpoints is important and further contributes to a more effective decision-making process and overall greater success. Furthermore, approximately 39 percent of our salaried workforce in senior-level roles are women and 12 percent of our salaried workforce are racially or ethnically diverse. We recognize we have work to do to ensure a more inclusive and diverse organization, which is why we are implementing changes to our recruiting, hiring, and retention programs to improve diversity at all levels within our Company. To further these efforts, in 2023, we established human resource positions focused on improving our diversity and inclusion, specifically within talent acquisition and recruiting. Our Company Leadership Team, beginning in 2022 with all Officers, and further expanding to Senior Directors \n7\nand above in 2023, has 10 percent of their annual cash incentive awards based on the achievement of our environmental, social, and governance objectives, which includes our ID&E efforts, among others.\nFurther, we have partnered with the Akron Urban League, the Urban League of Greater Cleveland, the Equal Justice Initiative, the Human Rights Campaign, and the NAACP Legal Defense and Educational Fund to further our commitment to this cause and have committed more than $600,000 to these partners as part of multi-year partnerships. These organizations advocate for inclusion, racial justice, and the advancement of underrepresented and vulnerable people. To ensure ongoing progress against our commitments, we are evaluating our success through several measures, including reviews of organization health assessments, evaluation of workforce composition and minority representation across all levels of the organization, and successful integration of key programming. In addition, to further support our ERGs and charitable giving efforts, we have committed over $250,000 as an ongoing annual charitable donation to support organizations that align and are supported by our ERGs.\nDuring calendar year 2022, due to our increased effort to support diversity and inclusion, our Corporate Equality Index (\u201cCEI\u201d) from the Human Rights Campaign was 95 out of 100 points, which increased from 80 in calendar year 2021. Specifically, we were able to increase the CEI index through enhancements to our transgender-inclusive health benefits, philanthropic contributions to and partnerships with LGBTQ+ organizations, pledging our support of the Human Rights Campaign\u2019s Business Coalition for the Equality Act, enhancement of charitable giving guidelines to prohibit philanthropic support of organizations with an explicit policy of sexual orientation and gender identity discrimination, having a supplier diversity program that includes the outreach to LGBTQ+ owned businesses, and the establishment of the PRIDE Alliance ERG.\nLearning and Development:\n \nWe strive to foster an environment of growth for our people and support our culture of continuous learning and our focus on our basic belief,\n Play to Win\n. We support and challenge our employees to increase their knowledge, skills, and capabilities through all phases of their career. Our Employee Development programs offer foundational instruction on Company culture and provide employees additional learning opportunities throughout their careers. This is reflected in annual reviews, which allow management and employees to partner and determine specific opportunities for growth within each role through important work, new experiences generated through a dynamic environment, regular feedback, and purposeful development opportunities. Building a career at our Company is fundamental to who we are and is evidenced by our Executive Leadership Team, where 5 of 7 members were promoted from within, and our trailing 12-month turnover remains below industry average.\nIn addition, we are committed to providing the tools and resources our employees need to learn, develop, and grow with us, including virtual sessions. A suite of online training and education programs are available to our employees, ranging from role-specific training to education on soft skills and our Company culture. Through these tools and resources, in 2023, we coordinated nearly 8,000 hours of professional development training for our employees. Our best-in-class \u201cDiscovering the Art of Leadership\u201d series, developed in collaboration with Case Western Reserve University, teaches our people managers how to effectively lead teams and develop employees. We dedicate time to developing and coaching our people managers to provide support to our employees holistically. This means promoting resonant leadership and the practice of emotional intelligence and mindfulness, so our people managers have the knowledge and tools to support the unique needs of each employee.\nFostering an environment for growth and continuous learning for our employees is an important priority of our Company. However, our commitment to education also includes our communities as evidenced by our partnerships with organizations passionate about improving access to quality education. We have partnered with The University of Akron Zip Assist Program, which offers emergency aid to students, and have acted as a founding sponsor of Opening Track, a unique music education program from Boys and Girls Club of Northeast Ohio. We also donated $100,000 to the Cleveland Museum of Natural History capital campaign. Finally, our \nCaf\u00e9 Bustelo \nbrand continues to sponsor the El Caf\u00e9 del Futuro Scholarship, a program that invests in the Latino community by awarding scholarships to college students at HACU-member institutions seeking a better future for themselves, their families, and their communities. To date, $550,000 in college funds have been awarded to 110 Latino students nationwide.\nCompensation and Benefits:\n In support of our basic beliefs,\n Be Kind \nand \nPlay to Win\n,\n \nwe believe in paying for performance and compensating our employees at market competitive rates and utilizing performance-based awards to support the overall well-being of our employees. Additionally, we employ an incentive program for eligible participants to reward both shared Company results and strong individual performance. Our Total Rewards program offers competitive, comprehensive benefits to meet the unique needs of each employee at each life stage, including insurance coverage options for domestic partners in \n8\naddition to married couples, and a Company-matched retirement savings program. Our rewards program also addresses the holistic needs of our employees by supporting their physical well-being, providing tools and resources to help them actively take responsibility, share in the cost, and make the best decisions regarding their personal well-being. These programs provide resources that respond to their changing needs throughout their careers, including access to our Child Development Center, flexible work schedules, tuition assistance, pet insurance, and expanded parental leave. Additionally, our approach to paid time off is competitive with our industry peers, which includes at least three weeks of paid time off (and increases based on an employee\u2019s tenure), 12 paid Company holidays per calendar year, including a floating holiday, which can be used at the employee\u2019s discretion to observe and celebrate occasions that align with their personal interests and beliefs, 12 weeks of parental leave, in addition to short-term disability available to birth mothers, and pet bereavement leave. In 2022, we extended our Total Rewards benefits package to include advocacy resources to help LGBTQ+ employees navigate obstacles and identify LGBTQ+ knowledgeable providers. In addition, we broadened our family building benefits to support the desire for all aspiring parents to build their family through enhanced fertility benefits through a third-party partner as well as enhanced adoption and surrogacy financial support.\nCommunity and Social Impact:\n \nSupporting the communities where we live and work has been a Company priority since our inception and is aligned with our basic belief, \nBe Kind\n. Through our many partnerships, we are able to understand the needs and support required within our local communities and leverage these relationships to make the connections necessary to offer this critical assistance. With our partners, including the American Red Cross\n\u00ae\n, United Way\n\u00ae\n, Feeding America\n\u00ae\n, and Habitat for Humanity\n\u00ae\n, we have helped support disaster relief efforts with product and financial donations. Specifically, through the American Red Cross\n\u00ae\n and United Way\n\u00ae\n, we have donated more than $1.2 to support the communities where we live and work. We have supported the LeBron James Family Foundation, and its work with the I PROMISE School, including helping supply the school\u2019s on-site food pantry, donating funds to the school\u2019s library, and the development of the I PROMISE School\u2019s J. M. Smucker Hometown Hall. In addition to our work to support those in the communities where we live and work, we believe it is important that we help facilitate business success globally and are proud that our employees share in this belief. Through our relationship with Partners in Food Solutions and TechnoServe\n\u00ae\n, we have opened up skills-based employee volunteer opportunities to our workforce, allowing our people to share their talents and expertise with companies that work to help provide a secure and consistent food supply for families in Africa.\nWe are fortunate to have the expertise and passion of talented employees who help us deliver high-quality products to our customers and consumers across North America. We are also fortunate to have employees who share our commitment to ensure that people, pets, and communities where we live and work have access to the support and essential resources they need. We believe it is important to celebrate their contributions, including recognizing organizations about which they are especially passionate about. One way we do this is through our Company Matching Gift Program, which gives employees the opportunity to donate to partner charities and have their donation matched by the Company, dollar-for-dollar, from a minimum of $5 up to a maximum of $2,500 per calendar year per employee. In addition, each year we offer employees the opportunity to nominate the organizations most important to them to be added to the program. In 2023, the Company Matching Gift Program was expanded to credit our employees\u2019 Smucker Giving accounts for each hour of volunteering done for a non-profit charity, and these funds can be donated to an approved charity of the employee\u2019s choice.\nInformation about our Executive Officers: \nThe names, ages as of June\u00a013, 2023, and current positions of our executive officers are listed below. All executive officers serve at the pleasure of the Board, with no fixed term of office.\nName\nAge\nYears\nwith\nCompany\nPosition\nServed\u00a0as\nan\u00a0Officer\nSince\nMark T. Smucker\n53\n25\nChair of the Board, President, and Chief Executive Officer \n(A)\n2001\nJohn P. Brase\n55\n3\nChief Operating Officer \n(B)\n2020\nAmy C. Held\n49\n10\nChief Transformation Officer \n(C)\n2018\nJeannette L. Knudsen\n53\n20\nChief Legal Officer and Secretary \n(D)\n2009\nTucker H. Marshall\n47\n11\nChief Financial Officer \n(E)\n2020\nJill R. Penrose\n50\n19\nChief People and Corporate Services Officer \n(F)\n2014\n(A)\nMr.\u00a0Mark Smucker was elected to his present position in August 2022, having previously served as President and Chief Executive Officer since May 2016.\n(B)\nMr. Brase was elected to his present position in April 2020, having previously served at The Procter & Gamble Company (\u201cP&G\u201d) for 30 years. He was the Vice President and General Manager of P&G\u2019s North American Family Care business from April 2016 through March 2020.\n9\n(C)\nMs. Held was elected to her present position in September 2022, having served as Chief Strategy and International Officer since November 2019. Prior to that time, she served as Senior Vice President, Corporate Strategy, M&A, and International since March 2018.\n(D)\nMs.\u00a0Knudsen was elected to her present position in September 2022, having served as Chief Legal and Compliance Officer and Secretary since November 2019. Prior to that time, she served as Senior Vice President, General Counsel and Secretary since May 2016.\n(E)\nMr. Marshall was elected to his present position in May 2020, having served as Senior Vice President and Deputy Chief Financial Officer since November 2019. Prior to that time, he served as Vice President, Finance since May 2016.\n(F)\nMs.\u00a0Penrose was elected to her present position in March 2023, having served as Chief People and Administrative Officer since November 2019. Prior to that time, she served as Senior Vice President, Human Resources and Corporate Communications since May 2016. \nAvailable Information:\n Access to all of our Securities and Exchange Commission (\u201cSEC\u201d) filings, including our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section\u00a013(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d), is provided, free of charge, on our website (investors.jmsmucker.com/sec-filings) as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.",
+  "item1a": ">Item 1A.\u00a0\u00a0\u00a0\u00a0Risk Factors. \nOur business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described below should be carefully considered, together with the other information contained or incorporated by reference in this Annual Report on Form 10-K and our other filings with the SEC, in connection with evaluating the Company, our business, and the forward-looking statements contained in this Annual Report. Although the risks are organized and described separately, many of the risks are interrelated. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may affect us. The occurrence of any of these known or unknown risks could have a material adverse impact on our business, financial condition, and results of operations.\nRisks Related to Our Business\nDeterioration of national and global macroeconomic conditions, an economic recession, periods of inflation, or economic uncertainty in key markets may adversely affect consumer spending and demand for our products.\nNational and global macroeconomic conditions can be uncertain and volatile. We have in the past been, and may continue to be, adversely affected by changes in national and global macroeconomic conditions, such as inflation, rising interest rates, tax rates, availability of capital markets, consumer spending rates, energy availability and costs, supply chain challenges, labor shortages, and growing recession risk. The macroeconomic conditions recently experienced were in part due to the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine, and global supply chain challenges.\nVolatility in financial markets and deterioration of national and global macroeconomic conditions could impact our business and results of operations in a number of ways, including, but not limited to, the following:\n\u2022\nfinancial instability of our customers and suppliers could result in additional bad debts or non-performance;\n\u2022\nvalue of our investments in debt and equity securities may decline, including our investment in Post common stock;\n\u2022\nfuture volatility or disruption in the capital and credit markets could negatively impact our liquidity or increase costs of borrowing; \n\u2022\nan impairment in the carrying value of goodwill, other intangible assets, or other long-lived assets, or a change in the useful life of finite-lived intangible assets could occur if there are sustained changes in consumer purchasing behaviors, government restrictions, financial results, or a deterioration of macroeconomic conditions;\n\u2022\nvolatility in commodity and other input costs could continue due to adverse macroeconomic conditions; and\n\u2022\nconsumers could choose to purchase private label or competitive products of our lower-priced products as a result of an economic downturn.\nThese and other impacts of global and national macroeconomic conditions could also heighten many of the other risk factors discussed in this section. Our sensitivity to economic cycles and any related fluctuation in consumer demand could negatively impact our business, results of operations, financial condition, and liquidity.\n10\nOur proprietary brands, packaging designs, and manufacturing methods are essential to the value of our business, and the inability to protect our intellectual property could harm the value of our brands and adversely affect our sales and profitability.\nThe success of our business depends significantly on our brands, know-how, and other intellectual property. We rely on a combination of trademarks, service marks, trade secrets, patents, copyrights, licensing agreements, and similar rights to protect our intellectual property. The success of our growth strategy depends on our continued ability to use our existing trademarks and service marks in order to maintain and increase brand awareness and further develop our brands. If our efforts to protect our intellectual property are not adequate, if any third party misappropriates or infringes on our intellectual property, or if we are alleged to be misappropriating or infringing on the intellectual property rights of others, the value of our brands may be harmed, which could have a material adverse effect on our business. From time to time, we are engaged in litigation to protect our intellectual property, which could result in substantial costs as well as diversion of management attention.\nIn particular, we consider our proprietary coffee roasting methods essential to the consistent flavor and richness of our coffee products and, therefore, essential to our coffee brands. Because many of the roasting methods we use are considered our trade secrets and not protected by patents, it may be difficult for us to prevent competitors from copying our coffee products if such coffee roasting methods are independently discovered or become generally known in the industry. We also believe that our packaging innovations, such as our \nAromaSeal\n\u2122\n canisters, are important to the coffee business\u2019 marketing and operational efforts. In addition, we utilize a number of proprietary methods for manufacturing our \nSmucker\u2019s Uncrustables\n frozen sandwiches, which we believe are essential to producing high-quality sandwiches that consistently meet consumer expectations. Since the current methods used in making our sandwiches are considered our trade secrets and not protected by patents, it may be difficult for us to prevent competitors from copying our sandwiches if such sandwich-making methods are independently discovered or become generally known in the industry. If our competitors copy or develop more advanced coffee roasting or packaging or sandwich-making methods then the value of our coffee products or \nSmucker\u2019s Uncrustables\n brand, respectively, may be diminished, and we could lose customers to our competitors. \nIn addition, certain of our intellectual property rights, including the \nDunkin\u2019 \ntrademarks, are owned by third parties and licensed to us. These trademarks are renegotiated and renewed pursuant to their terms, and if in the future, we are unable to renew or fail to renegotiate the licensing arrangements, then our financial results could be materially and negatively affected.\nLoss or interruption of supply from single-source suppliers of raw materials and finished goods could have a disruptive effect on our business and adversely affect our results of operations.\nWe have elected to source certain raw materials, such as packaging for our \nFolgers\n coffee products, as well as our \nJif \npeanut butter, and certain finished goods, such as K-Cup\n\u00ae\n pods, our \nPup-Peroni\n dog snacks, and liquid coffee, from single sources of supply. While we believe that, except as set forth below, alternative sources of these raw materials and finished goods could be obtained on commercially reasonable terms, loss or an extended interruption in supplies from a single-source supplier would result in additional costs, could have a disruptive short-term effect on our business, and could adversely affect our results of operations.\nKeurig is our single-source supplier for K-Cup\n\u00ae\n pods, which are used in its proprietary Keurig\n\u00ae\n K-Cup\n\u00ae\n brewing system. There are a limited number of manufacturers other than Keurig that are making pods that will work in such proprietary brewing system. In addition, JDE Peet\u2019s N.V. (\u201cJDE Peet\u2019s\u201d) is our single-source supplier for liquid coffee for our Away From Home business, and there are a limited number of manufacturers other than JDE Peet\u2019s that are able to manufacture liquid coffee. If either Keurig or JDE Peet\u2019s are unable to supply K-Cup\n\u00ae\n pods or liquid coffee, respectively, to us for any reason, it could be difficult to find an alternative supplier for such goods on commercially reasonable terms, which could have a material adverse effect on our results of operations.\nCertain of our products are produced at single manufacturing sites.\nWe have consolidated our production capacity for certain products into single manufacturing sites, including substantially all of our coffee, \nMilk-Bone\n dog snacks, and fruit spreads. We could experience a production disruption at these or any of our manufacturing sites resulting in a reduction or elimination of the availability of some of our products. If we are not able to obtain alternate production capability in a timely manner, our business, financial condition, and results of operations could be adversely affected.\n11\nA significant interruption in the operation of any of our supply chain or distribution capabilities could have an adverse effect on our business, financial condition, and results of operations.\nOur ability and the ability of our third-party suppliers and service providers, distributors, and contract manufacturers to manufacture, distribute, and sell products is critical to our success. A significant interruption in the operation of any of our manufacturing or distribution capabilities, or the manufacturing or distribution capabilities of our suppliers, distributors, or contract manufacturers, or a service failure by a third-party service provider, whether as a result of adverse weather conditions or a natural disaster, fire, or water availability, whether caused by climate change or otherwise; work stoppage or labor shortages; or political instability, terrorism, armed hostilities (including the ongoing conflict between Russia and Ukraine), pandemic illness (such as COVID-19), government restrictions, or other causes could significantly impair our ability to operate our business. In particular, substantially all of our coffee production takes place in New Orleans, Louisiana and is subject to risks associated with hurricane and other weather-related events, and some of our production facilities are located in places where tornadoes or wildfires can frequently occur, such as Alabama, Kansas, and California. Failure to take adequate steps to mitigate or insure against the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition, and results of operations. While we insure against many of these events and certain business interruption risks and have policies and procedures to manage business continuity planning, such insurance may not compensate us for any losses incurred and our business continuity plans may not effectively resolve the issues in a timely manner.\nIn November 2021, we announced plans to invest $1.1 billion to build a new manufacturing facility and distribution center in McCalla, Alabama dedicated to the production of \nSmucker\u2019s Uncrustables\n frozen sandwiches. Construction of this facility began in 2022, with production expected to begin in calendar year 2025. Production of new manufacturing facilities and distribution centers could cause delays and increased costs, such as shortages of materials or skilled labor, unforeseen construction, scheduling, engineering, or environmental problems, impacts of adverse weather, and unanticipated cost increases. In addition, any construction delays may impact the future demand for \nSmucker\u2019s Uncrustables \nfrozen sandwiches. If we are unable to complete the construction of the McCalla facility within the anticipated timeframe and within our cost estimates, our financial condition and results of operations could be adversely affected.\nOur business could be harmed by strikes or work stoppages.\nAs of April\u00a030, 2023, 22 percent of our full-time employees, located at seven manufacturing locations, are covered by collective bargaining agreements. These contracts vary in term depending on location, with one contract expiring in 2024, representing approximately one percent of our total employees. We cannot assure that we will be able to renew these collective bargaining agreements on the same or more favorable terms as the current agreements, or at all, without production interruptions caused by labor stoppages. If a strike or work stoppage were to occur in connection with negotiations of new collective bargaining agreements or as a result of disputes under collective bargaining agreements with labor unions, our business, financial condition, and results of operations could be materially adversely affected.\nThe success of our business depends substantially on consumer perceptions of our brands.\nWe are the branded market leader in several categories both in the U.S. and Canada. We believe that maintaining and continually enhancing the value of our brands is critical to the success of our business. Brand value is based in large part on consumer perceptions. Success in promoting and enhancing brand value depends on our ability to provide high-quality products. Brand value could diminish significantly as a result of a number of factors, such as if we fail to preserve the quality of our products, if there are concerns about the safety of our products, if we are perceived to act in an irresponsible manner, if the Company or our brands otherwise receive negative publicity, if our brands fail to deliver a consistently positive consumer experience, or if our products become unavailable to consumers. The growing use of social and digital media by consumers increases the speed and extent that information and opinions can be shared. Negative posts or comments about us or our brands or products on social or digital media could damage our brands and reputation. If we are unable to build and sustain brand equity by offering recognizably superior products, we may be unable to maintain premium pricing over private label products. If our brand values are diminished, our revenues and operating results could be materially adversely affected. In addition, anything that harms the \nDunkin\u2019 \nbrand could adversely affect the success of our exclusive licensing agreements with the owner of that brand.\n12\nWe may not be able to attract, develop, and retain the highly skilled people we need to support our business.\nWe depend on the skills and continued service of key employees, including our experienced management team. In addition, our ability to achieve our strategic and operating goals depends on our ability to identify, recruit, hire, train, and retain qualified individuals, including, for example, all levels of skilled labor in our manufacturing facilities. We compete with other companies both within and outside of our industry for talented people, and we may lose key employees or fail to attract, recruit, train, develop, and retain other talented individuals. Any such loss, failure, or negative perception with respect to these individuals may adversely affect our business or financial results. In addition, activities related to identifying, recruiting, hiring, integrating, and training qualified individuals may require significant time and expense. We may not be able to locate suitable replacements for any key employees who leave or to offer employment to potential replacements on reasonable terms, each of which may adversely affect our business and financial results. \nDuring 2023, we continued to experience an increasingly competitive labor market, increased employee turnover, changes in the availability of our workers, and labor shortages in our supply chain. These challenges have resulted in, and could continue to result in, increased costs and could impact our ability to meet consumer demand, each of which may adversely affect our business and financial results.\nOur operations are subject to the general risks associated with acquisitions, divestitures, and restructurings. \nOur stated strategic vision is to engage, delight, and inspire consumers by building brands they love and leading in growing categories. We have historically made strategic acquisitions of brands and businesses, and intend to do so in the future in support of this strategy. If we are unable to complete acquisitions or to successfully integrate and develop acquired businesses, including the effective management of integration and related restructuring costs, we could fail to achieve the anticipated synergies and cost savings, or the expected increases in revenues and operating results. Additional acquisition risks include the diversion of management attention from our existing business, potential loss of key employees, suppliers, or consumers from the acquired business, assumption of unknown risks and liabilities, and greater than anticipated operating costs of the acquired business. Any of these factors could have a material adverse effect on our financial results.\nIn addition, we have made strategic divestitures of brands and businesses, including the recent sale of certain pet food brands, as well as the natural beverage and grains, private label dry pet food, \nCrisco\n, and \nNatural Balance\n businesses, and we may do so in the future. If we are unable to complete divestitures or successfully transition divested businesses, including the effective management of the related separation and stranded overhead costs, transition services, and the maintenance of relationships with customers, suppliers, and other business partners, our business and financial results could be negatively impacted. Further, we may incur asset impairment charges related to divestitures that reduce our profitability. Divestitures and related restructuring costs, such as the restructuring plan entered into in 2021, and concluded in 2023, require a significant amount of management and operational resources. These additional demands could divert management\u2019s attention from core business operations, potentially adversely impacting existing business relationships and employee morale, resulting in negative impacts on our financial performance. For more information, see Note 2: Special Project Costs and Note 3: Divestitures.\nWe may not realize the benefits we expect from our cost reduction and other cash management initiatives. \nWe continuously pursue initiatives to reduce costs, increase effectiveness, and optimize cash flow. We may not realize all of the anticipated cost savings or other benefits from such initiatives. Other events and circumstances, such as financial or strategic difficulties, delays, or unexpected costs, may also adversely impact our ability to realize all of the anticipated cost savings or other benefits, or cause us not to realize such cost savings or other benefits on the expected timetable. If we are unable to realize the anticipated benefits, our ability to fund other initiatives may be adversely affected. Finally, the complexity of the implementation may require a substantial amount of management and operational resources. Our management team must successfully execute the administrative and operational changes necessary to achieve the anticipated benefits of the initiatives. These and related demands on our resources may divert the organization\u2019s attention from other business issues, have adverse effects on existing business relationships with suppliers and customers, and impact employee morale. Any failure to implement these initiatives in accordance with our plans could adversely affect our business and financial results.\nDuring 2023, we created a Transformation Office to support our multi-year commitment to ongoing margin enhancement efforts, inclusive of the removal of stranded overhead costs associated with the recent sale of certain pet food brands. The Transformation Office is focused on enterprise-wide continuous improvement strategies to ensure a pipeline of productivity \n13\ninitiatives and profit growth opportunities. It is compiled of cross-functional leaders at every level of our organization who help to establish new ways of working, along with sustainable efficiencies and cost reduction efforts throughout our Company. If we are unable to successfully implement our transformation initiatives, our business and results of operations could be adversely affected.\nRisks Related to Our Industry\nOur operations are subject to the general risks of the food industry.\nThe food industry is subject to risks posed by food spoilage and contamination, product tampering, mislabeling, food allergens, adulteration of food products resulting in product recall, consumer product liability claims, or regulatory investigations or actions. Our operations could be impacted by both genuine and fictitious claims regarding our products as well as our competitors\u2019 products. In the event of product contamination, tampering, or mislabeling, we may need to recall some of our products. A widespread product recall could result in significant loss due to the cost of conducting a product recall, including destruction of inventory and the loss of sales resulting from the unavailability of product for a period of time. We could also suffer losses from a significant judgment or settlement of a claim or litigation or a regulatory action taken against us. In addition, we could be the target of claims of false or deceptive advertising under U.S. federal and state laws as well as foreign laws, including consumer protection statutes of some states. A significant product recall, a product liability judgment or settlement, a regulatory action, or false advertising claim, involving either us or our competitors, could also result in a loss of consumer confidence in our food products or the food category, and an actual or perceived loss of value of our brands, materially impacting consumer demand. \nIn May 2022, we initiated a voluntary recall of select \nJif\n peanut butter products produced at our Lexington, Kentucky facility and sold primarily in the U.S., due to potential salmonella contamination. At that time, we also suspended the manufacturing of \nJif \npeanut butter products at the Lexington facility and temporarily paused shipments from our Memphis, Tennessee facility to eliminate confusion while customers cleared their shelves of potentially impacted products manufactured at the Lexington facility. No other products produced at our other facilities were affected by the recall. In June 2022, we resumed manufacturing \nJif\n peanut butter products at our Lexington facility, as well as shipping from our Memphis facility. We partnered with retailers to restock \nJif \npeanut butter products during the first quarter of 2023, and as of April 30, 2023, we have returned to normal levels. To date, we have recognized total direct costs associated with the recall of approximately $120.0, net of insurance recoveries, related to customer returns, fees, unsaleable inventory, and other product recall-related costs, primarily within our U.S. Retail Consumer Foods segment. We expect costs associated with the recall to be minimal in 2024.\nFurther, the FDA issued a Warning Letter on January 24, 2023, following an inspection of our Lexington facility completed in June 2022 in connection with the \nJif\n voluntary recall, identifying concerns regarding certain practices and controls at the facility. We have responded to the Warning Letter with a detailed explanation of our food safety plan and extensive verification activities to prevent contamination in \nJif\n peanut butter products. In addition, we have worked diligently to further strengthen our already stringent quality processes, including doubling our finished product testing and tripling our environmental testing to verify the efficacy of our actions. The FDA or other agencies may nonetheless conclude that certain practices or controls were not in compliance with the Federal Food, Drug, and Cosmetic Act or other laws. Any potential regulatory action based on such an agency conclusion could result in the imposition of injunctive terms and monetary payments that could have a material adverse effect on our business, reputation, brand, results of operations, and financial performance, as well as affect ongoing consumer litigation associated with the voluntary recall of \nJif\n peanut butter products. The outcome and financial impact of the ongoing consumer litigation or any potential regulatory action associated with the \nJif \nvoluntary recall cannot be predicted at this time. Accordingly, no loss contingency has been recorded for these matters as of April 30, 2023, and the likelihood of loss is not considered probable or estimable.\nChanges in our relationships with significant customers, including the loss of our largest customer, could adversely affect our results of operations.\nSales to Walmart Inc. and subsidiaries amounted to 34 percent of net sales in 2023. These sales are primarily included in our U.S. retail market segments. Trade receivables \u2013 net at April\u00a030, 2023, included amounts due from Walmart Inc. and subsidiaries of $211.5, or 35 percent of the total trade receivables \u2013 net balance. During 2023, our top 10\u00a0customers, collectively, accounted for approximately 60 percent of consolidated net sales. We expect that a significant portion of our revenues will continue to be derived from a limited number of customers as the traditional retail grocery environment continues to consolidate and as dollar stores, club stores, and e-commerce retailers have experienced growth. Our customers \n14\nare generally not contractually obligated to purchase from us. These customers make purchase decisions based on a combination of price, promotional support, product quality, consumer demand, customer service performance, their desired inventory levels, and other factors. Changes in customers\u2019 strategies, including a reduction in the number of brands they carry or a shift of shelf space to private label products, may adversely affect sales and profitability. Customers also may respond to price increases by reducing distribution, resulting in reduced sales of our products. Additionally, our customers may face financial or other difficulties that may impact their operations and their purchases from us, which could adversely affect our results of operations. A reduction in sales to one or more major customers could have a material adverse effect on our business, financial condition, and results of operations.\nWe operate in the competitive food industry and continued demand for our products may be affected by our failure to effectively compete or by changes in consumer preferences.\nWe face competition across our product lines from other food companies with the primary methods and factors in competition being product quality, price, packaging, product innovation, nutritional value, taste, convenience, customer service, advertising, promotion, and brand recognition and loyalty. Continued success is dependent on product innovation, the ability to secure and maintain adequate retail shelf space and to compete in new and growing channels, and effective and sufficient trade merchandising, advertising, and marketing programs. In particular, technology-based systems, which give consumers the ability to shop through e-commerce websites and mobile commerce applications, are also significantly altering the retail landscape in many of our markets and intensifying competition by simplifying distribution and lowering barriers to entry. We are committed to serving customers and consumers in e-commerce, transforming our manufacturing, commercial, and corporate operations through digital technologies, and enhancing our data analytics capabilities to develop new commercial insights. However, if we are unable to effectively compete in the expanding e-commerce market, adequately leverage technology to improve operating efficiencies, or develop the data analytics capabilities needed to generate actionable commercial insights, our business performance may be impacted, which may negatively impact our financial condition and results of operations.  \nSome of our competitors have substantial financial, marketing, and other resources, and competition with them in our various markets, channels, and product lines could cause us to reduce prices, increase marketing or other expenditures, or lose category share. Category share and growth could also be adversely impacted if we are not successful in introducing new products. Introduction of new products and product extensions requires significant development, marketing investment, and consideration of our diverse consumer base. If our products fail to meet consumer preferences, or we fail to introduce new and improved products on a timely basis, then the return on that investment will be less than anticipated and our strategy to grow sales and profits through investment in innovation will be less successful. In addition, if sales generated by new products cause a decline in our sales of our existing products, our financial condition and results of operations could be negatively affected. In order to generate future revenues and profits, we must continue to sell products that appeal to our customers and consumers. Specifically, there are a number of trends in consumer preferences that may impact us and the food industry as a whole, including convenience, flavor variety, an emphasis on protein and snacking, and the desire for transparent product labeling and simple and natural ingredients.\nFurther, weak economic conditions, recessions, significant inflation, severe or unusual weather events, pandemics (such as COVID-19), and other factors could affect consumer preferences and demand causing a strain on our supply chain due, in part, to retailers, distributors, or carriers modifying their restocking, fulfillment, or shipping procedures. Failure to respond to these changes could negatively affect our financial condition and results of operations.\nWe may be limited in our ability to pass cost increases on to our customers in the form of price increases or may realize a decrease in sales volume to the extent price increases are implemented.\nWe may not be able to pass some or all of any increases in the price of raw materials, energy, and other input costs to our customers by raising prices or decreasing product size. To the extent competitors do not also increase their prices or decrease product size, customers and consumers may choose to purchase competing products, including private label or other lower-priced offerings, which may adversely affect our results of operations.\nConsumers may be less willing or able to pay a price differential for our branded products and may increasingly purchase lower-priced offerings or may forego some purchases altogether, especially during economic downturns or instances of increased inflationary pressures. Retailers may also increase levels of promotional activity for lower-priced offerings as they seek to maintain sales volumes during times of economic uncertainty. Accordingly, sales volumes of our branded products \n15\ncould be reduced or lead to a shift in sales mix toward our lower-margin offerings. As a result, decreased demand for our products or a shift in sales mix toward lower-margin offerings may adversely affect our results of operations. \nOur ability to competitively serve customers depends on the availability of reliable transportation. Increases in logistics and other transportation-related costs could adversely impact our results of operations.\nLogistics and other transportation-related costs have a significant impact on our earnings and results of operations. We use multiple forms of transportation, including ships, trucks, and railcars, to bring our products to market. Disruption to the timely supply of these services or increases in the cost of these services for any reason, including availability or cost of fuel, regulations affecting the industry, labor shortages in the transportation industry, service failures by third-party service providers, accidents, natural disasters, inflation, or a pandemic illness (such as COVID-19), which may impact the transportation infrastructure or demand for transportation services, could have an adverse effect on our ability to serve our customers, and could have a material adverse effect on our business, financial condition, and results of operations. \nWe must leverage our brand value to compete against private label products. \nIn nearly all of our product categories, we compete against branded products as well as private label products. Our products must provide higher value and/or quality to our consumers than alternatives, particularly during periods of economic uncertainty, weakness, or inflation. Consumers may not buy our products if relative differences in value and/or quality between our products and private label products change in favor of competitors\u2019 products or if consumers perceive this type of change. If consumers prefer private label products, which are typically sold at lower prices, then we could lose category share or sales volumes or shift our product mix to lower margin offerings, which could have a material effect on our business, financial position, and results of operations.\nFinancial Risks\nOur results may be adversely impacted as a result of increased cost, limited availability, and/or insufficient quality of raw materials, including commodities and agricultural products.\nWe and our business partners purchase and use large quantities of many different commodities and agricultural products in the manufacturing of our products, including green coffee, protein meals, peanuts, grains, oils and fats, fruit, and other ingredients. In addition, we and our business partners utilize significant quantities of plastic, glass, metal cans, caps, carton board, and corrugate to package our products and natural gas and fuel oil to manufacture, package, and distribute our products. The prices of these commodities, agricultural-based products, and other materials are subject to volatility and can fluctuate due to conditions that are difficult to predict, including global supply and demand, commodity market fluctuations, crop sizes and yield fluctuations, adverse weather conditions, natural disasters, water supply, pandemic illness (such as COVID-19), foreign currency fluctuations, investor speculation, trade agreements (such as tariffs and sanctions), political instability, armed hostilities (including the ongoing conflict between Russia and Ukraine), consumer demand, general economic conditions (such as inflationary pressures and rising interest rates), and changes in governmental agricultural programs. In particular, the supply chain for protein meals, fats, corn products, and green coffee has been significantly disrupted by the COVID-19 pandemic, and therefore, the prices for these commodities reached a high level during 2023, and could continue to remain high into 2024. Furthermore, commodity and oil prices have been impacted by the ongoing conflict between Russia and Ukraine.\nWe also compete for certain raw materials, notably corn and soy-based agricultural products, with the biofuels industry, which has resulted in increased prices for these raw materials. Additionally, farm acreage currently devoted to other agricultural products we purchase may be utilized for biofuels crops resulting in higher costs for the other agricultural products we utilize. Although we use futures, basis, options, and fixed price contracts to manage commodity price volatility in some instances, commodity price increases ultimately result in corresponding increases in our raw material and energy costs. \nDuring 2023, we continued to experience materially higher commodity and supply chain costs, including manufacturing, ingredient, and packaging costs, due to inflationary pressures. We expect the pressures of cost inflation to continue into 2024. Although we take measures to mitigate inflation through the use of derivatives and pricing actions, if these measures are not effective, our financial condition, results of operations, and cash flows could be materially adversely affected.\n16\nWe expect the green coffee commodity markets to continue to be challenging due to the significant ongoing price volatility. For example, during 2022, we experienced drought and frost impacts, which substantially reduced green coffee production in Brazil. Due to the significance of green coffee to our coffee business, combined with our ability to only partially mitigate future price risk through purchasing practices and hedging activities, significant increases or decreases in the cost of green coffee could have an adverse impact on our profitability, as compared to that of our competitors. In addition, if we are not able to purchase sufficient quantities of green coffee due to any of the above factors or to a worldwide or regional shortage, we may not be able to fulfill the demand for our coffee, which could have a material adverse effect on our business, financial condition, and results of operations.\nOur efforts to manage commodity, foreign currency exchange, and other price volatility through derivative instruments could adversely affect our results of operations and financial condition.\nWe use derivative instruments, including commodity futures and options, to reduce the price volatility associated with anticipated commodity purchases. The extent of our derivative position at any given time depends on our assessment of the markets for these commodities. If we fail to take a derivative position and costs subsequently increase, or if we institute a position and costs subsequently decrease, our costs may be greater than anticipated or higher than our competitors\u2019 costs and our financial results could be adversely affected. In addition, our liquidity may be adversely impacted by the cash margin requirements of the commodities exchanges or the failure of a counterparty to perform in accordance with a contract.\nWe currently do not qualify any of our commodity or foreign currency exchange derivatives for hedge accounting treatment. We instead mark-to-market our derivatives through the Statements of Consolidated Income, which results in changes in the fair value of all of our derivatives being immediately recognized in consolidated earnings, resulting in potential volatility in both gross profit and net income (loss). These gains and losses are reported in cost of products sold in our Statements of Consolidated Income but are excluded from our segment operating results and non-GAAP earnings until the related inventory is sold, at which time the gains and losses are reclassified to segment profit and non-GAAP earnings. Although this accounting treatment aligns the derivative gains and losses with the underlying exposure being hedged within segment results, it may result in volatility in our consolidated earnings.\nWeak financial performance, downgrades in our credit ratings, or disruptions in the financial markets may adversely affect our ability to access capital in the future.\nWe may need new or additional financing in the future to conduct our operations, expand our business, or refinance existing indebtedness, which would be dependent upon our financial performance. Any downgrade in our credit ratings, particularly our short-term rating, would likely impact the amount of commercial paper we could issue and increase our commercial paper borrowing costs. The liquidity of the overall capital markets and the state of the economy, including the food and beverage industry, may make credit and capital markets more difficult for us to access, even though we have an established revolving credit facility. From time to time, we have relied, and also may rely in the future, on access to financial markets as a source of liquidity for working capital requirements, acquisitions, and general corporate purposes. In particular, our access to funds under our revolving credit facility is dependent on the ability of the financial institutions that are parties to that facility to meet their funding commitments. The obligations of the financial institutions under our revolving credit facility are several and not joint and, as a result, a funding default by one or more institutions does not need to be made up by the others. In addition, long-term volatility and disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation of financial institutions, reduced alternatives, or the failure of significant financial institutions could adversely affect our access to the liquidity needed for our business in the longer term. Such disruptions could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Disruptions in the capital and credit markets could also result in higher interest rates on publicly issued debt securities and increased costs under credit facilities. Continuation of these disruptions would increase our interest expense and capital costs and could adversely affect our results of operations and financial position.\nThe Financial Conduct Authority in the United Kingdom no longer requires banks to submit London Interbank Offered Rate (\u201cLIBOR\u201d), and as a result, the U.S. Federal Reserve has selected the Secured Overnight Funding Rate (\u201cSOFR\u201d) as the preferred alternative to LIBOR. We have transitioned and amended our contracts to accommodate the SOFR rate where required. Although we do not anticipate a significant impact to our financial position as a result of this transition given our current mix of fixed- and variable-rate debt, our interest expense could increase, and our available cash flow for general corporate requirements may be adversely affected.\n17\nOur substantial debt obligations could restrict our operations and financial condition. Additionally, our ability to generate cash to make payments on our indebtedness depends on many factors beyond our control. \nAs of April\u00a030, 2023, we had $4.3 billion of short-term borrowings and long-term debt. We may also incur additional indebtedness in the future. Our debt service obligations will require us to use a portion of our operating cash flow to pay interest and principal on indebtedness rather than for other corporate purposes, including funding future expansion of our business and ongoing capital expenditures, which could impede our growth. Our substantial indebtedness could have other adverse consequences, including:\n\u2022\nmaking it more difficult for us to satisfy our financial obligations;\n\u2022\nincreasing our vulnerability to adverse economic, regulatory, and industry conditions, and placing us at a disadvantage compared to our competitors that are less leveraged;\n\u2022\nlimiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;\n\u2022\nlimiting our ability to borrow additional funds for working capital, capital expenditures, acquisitions, and general corporate or other purposes; and\n\u2022\nexposing us to greater interest rate risk, including the risk to variable borrowings of a rate increase and the risk to fixed borrowings of a rate decrease.\nOur ability to make payments on our indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory, and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us in an amount sufficient to enable us to pay our indebtedness when scheduled payments are due or to fund other liquidity needs. In these circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. Any refinancing of our debt could be at higher interest rates and may require make-whole payments and compliance with more onerous covenants, which could further restrict our business operations. Our ability to refinance our indebtedness or obtain additional financing would depend on, among other things, our financial condition at the time, restriction in the agreements governing our indebtedness, and the condition of the financial markets and the industry in which we operate. As a result, we may not be able to refinance any of our indebtedness on commercially reasonable terms or at all. Without this financing, we may have to seek additional equity or debt financing or restructure our debt, which could harm our long-term business prospects. Our failure to comply with the terms of any existing or future indebtedness could result in an event of default which, if not cured or waived, could result in the acceleration of the payment of all of our debt.\nIn addition, there are various covenants and restrictions in our debt and financial instruments. If we fail to comply with any of these requirements, the related indebtedness could become due and payable prior to its stated maturity, and our ability to obtain additional or alternative financing may also be negatively affected.\nThe value of our investment in equity securities is subject to certain risks and uncertainties which could make it difficult to dispose of some or all of such securities at favorable market prices.\nAs of April 30, 2023, we beneficially owned approximately 5.4 million shares of Post common stock. Investments in equity securities of any publicly-traded company, including Post, are subject to risks and uncertainties relating to such company\u2019s business and ownership of such company\u2019s common stock, some of which are disclosed in such company\u2019s filings with the SEC, as well as risks and uncertainties relating to fluctuations in the global economy and public equity markets generally. Any such risk or uncertainty may cause the share price of such company\u2019s common stock, and the value of our equity in such company to decline, including our investment in Post common stock, which could hinder our ability to dispose of these equity securities at favorable market prices. We also may not be able to realize gains from these equity securities, and any gains that we do realize on the disposition of these equity securities may not be sufficient to offset any losses we may experience. Further, our ability to dispose of the Post common stock is subject to certain restrictions set forth in our agreements with Post and arising under applicable laws and regulations, which in some circumstances could adversely impact our ability to sell the Post common stock in amounts and at the times desired.\n18\nA material impairment in the carrying value of acquired goodwill or other intangible assets could negatively affect our consolidated operating results and net worth.\nA significant portion of our assets is composed of goodwill and other intangible assets, the majority of which are not amortized but are reviewed for impairment at least annually on February 1, and more often if indicators of impairment exist. At April\u00a030, 2023, the carrying value of goodwill and other intangible assets totaled $9.6 billion, compared to total assets of $15.0 billion and total shareholders\u2019 equity of $7.3 billion. If the carrying value of these assets exceeds the current estimated fair value, the asset would be considered impaired, and this would result in a noncash charge to earnings, which could be material. Events and conditions that could result in impairment include a sustained drop in the market price of our common shares, increased competition or loss of market share, obsolescence, product claims that result in a significant loss of sales or profitability over the product life, deterioration in macroeconomic conditions, declining financial performance in comparison to projected results, increased input costs beyond projections, or divestitures of significant brands.\nSubsequent to the annual test date, on April 28, 2023, we divested certain pet food brands, and as a result, we disposed $790.3 and $1,014.4 of goodwill and finite-lived intangible assets, respectively, primarily within the Pet Foods reporting unit. As a result, the impacted reporting units were assessed for impairment as of April 30, 2023, and we concluded there were no indicators of impairment, as the estimated fair values were in excess of the carrying values for all reporting units. For additional information, see Note 3: Divestitures.\nAs of April\u00a030, 2023, goodwill and indefinite-lived intangible assets totaled $5.2 billion and $2.6 billion, respectively. The carrying values of the goodwill and indefinite-lived intangible assets were $1.6 billion and $1.1 billion, respectively, within the U.S. Retail Pet Foods segment, and $2.1 billion and $1.2 billion, respectively, within the U.S. Retail Coffee segment, which represent approximately 80 percent of the total goodwill and indefinite-lived intangible assets as of April 30, 2023. Furthermore, the goodwill within the U.S. Retail Pet Foods segment remains susceptible to future impairment charges due to narrow differences between fair value and carrying value, which is primarily attributable to the recognition of these assets at fair value resulting from impairment charges in recent years. To date, we have recognized $465.0 of impairment charges related to the goodwill and indefinite-lived intangible assets acquired as part of the Big Heart Pet Brands (\u201cBig Heart\u201d) acquisition in 2015, primarily as a result of reductions in our long-term net sales and profitability projections. Furthermore, during 2022, we recognized an impairment charge of $150.4 related to the divested \nRachael Ray Nutrish \nbrand within the U.S. Retail Pet Foods segment, primarily driven by the re-positioning of this brand within the Pet Foods brand portfolio, which led to a decline in the current and long-term net sales expectations and the royalty rate used in the valuation analysis. For additional information, refer to Note 6: Goodwill and Other Intangible Assets.\nWe do not believe that the Pet Foods reporting unit or any of the indefinite-lived assets within the U.S. Retail Pet Foods segment are more likely than not impaired as of April\u00a030, 2023. However, significant adverse changes to the assumptions regarding the future performance of the U.S. Retail Pet Foods segment or its brands, a sustained adverse change to macroeconomic conditions, or a change to other assumptions could result in additional impairment losses in the future, which could be significant. As of April\u00a030, 2023, the estimated fair value was substantially in excess of the carrying value for all reporting units and material indefinite-lived intangible assets, and in all such instances, the estimated fair value exceeded the carrying value by greater than 10 percent. \nWhile we concluded there were no indicators of impairment as of April 30, 2023, any significant sustained adverse change in consumer purchasing behaviors, financial results, or macroeconomic conditions could result in future impairment.\nWe work with our suppliers to extend our payment terms, which are then supplemented by a third-party administrator to assist in effectively managing our working capital. If the extension of payment terms is reversed or the financial institution terminates its participation in the program, our ability to maintain acceptable levels of working capital may be adversely affected.\nAs part of ongoing efforts to maximize working capital, we work with our suppliers to optimize our terms and conditions, which includes the extension of payment terms. Payment terms with our suppliers, which we deem to be commercially reasonable, range from 0 to 180 days. We have an agreement with a third-party administrator to provide an accounts payable tracking system and facilitate a supplier financing program, which allows participating suppliers the ability to monitor and voluntarily elect to sell our payment obligations to a designated third-party financial institution. Participating suppliers can sell one or more of our payment obligations at their sole discretion. We have no economic interest in a supplier\u2019s decision to enter into these agreements. Our rights and obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted by our suppliers\u2019 decisions to sell amounts under these arrangements. As of April 30, 2023 and 2022, \n19\n$414.2 and $314.3 of our outstanding payment obligations, respectively, were elected and sold to a financial institution by participating suppliers.\nIf the financial institution terminates its participation in our supplier financing program and we are unable to modify related consumer payment terms or payment terms are shortened as a result of supplier negotiations, working capital could be adversely affected. In addition, due to terminations or negotiations, we may be unable to secure alternative programs and may have to utilize various financing arrangements for short-term liquidity or increase our long-term debt.\nRisks Related to Regulation and Litigation\nWe could be subject to adverse publicity or claims from consumers.\nCertain of our products contain ingredients which are the subject of public scrutiny, including the suggestion that consumption may have adverse health effects. Although we strive to respond to consumer preferences and social expectations, we may not be successful in these efforts. An unfavorable report on the effects of ingredients present in our products, product recalls, such as the \nJif\n peanut butter product recall, or negative publicity or litigation could influence consumer preferences, significantly reduce the demand for our products, and adversely affect our profitability.\nWe may also be subject to complaints from or litigation by consumers who allege food and beverage-related illness, or other quality, health, or operational concerns. Adverse publicity resulting from such allegations could materially adversely affect us, regardless of whether such allegations are true or whether we are ultimately held liable. A lawsuit or claim could result in an adverse decision against us, which could have a material adverse effect on our business, financial condition, and results of operations.\nChanges in tax, environmental, or other regulations and laws, or their application, or failure to comply with existing licensing, trade, and other regulations and laws could have a material adverse effect on our financial condition. \nWe are subject to income and other taxes, primarily in the U.S. and Canada, based upon the jurisdictions in which our sales and profits are determined to be earned and taxed. Federal, state, and foreign statutory income tax rates and taxing regimes have been subject to significant change and continue to evolve. Our interpretation of current tax laws and their applicability to our business, as well as any changes to existing laws, can significantly impact our effective income tax rate and deferred tax balances. In particular, proposals brought forth by the U.S. presidential administration include increases to federal income tax rates that, if enacted, could have a material impact to our financial results. We are also subject to regular reviews, examinations, and audits by the Internal Revenue Service (the \u201cIRS\u201d) and other taxing authorities with respect to taxes within and outside of the U.S. Although we believe our tax estimates are reasonable, the final outcome of tax controversies could result in material incremental tax liabilities, including interest and penalties. Our effective income tax rate is also influenced by the geography, timing, nature, and magnitude of transactions, such as acquisitions and divestitures, restructuring activities, and impairment charges. Further, we continue to monitor \nThe Inflation Reduction Act of 2022, H.R. 5376\n (the \u201cInflation Reduction Act\u201d) and related regulatory developments to evaluate their potential impact on our business, tax rate, and financial results.\nOur operations are subject to various regulations and laws, in addition to tax laws, administered by federal, state, and local government agencies in the U.S., including the FDA, U.S. Federal Trade Commission, the U.S. Departments of Agriculture, Commerce, and Labor, state regulatory agencies, and other agencies, as well as to regulations and laws administered by government agencies in Canada and other countries in which we have operations and our products are sold. In particular, the manufacturing, marketing, transportation, storage, distribution, and sale of food products are each subject to governmental regulation that is increasingly extensive. Governmental regulation encompasses such matters as ingredients (including whether a product contains bioengineered ingredients), packaging, labeling, pricing, advertising, relations with distributors and retailers, health, safety, data privacy and security, and anti-corruption, as well as an increased focus regarding environmental policies relating to climate change, regulating greenhouse gas emissions, energy policies, and sustainability, including single-use plastics. Additionally, we are routinely subject to new or modified securities regulations, other laws and regulations, and accounting and reporting standards. \nIn the U.S., we are required to comply with federal laws, such as the Food, Drug and Cosmetic Act, the Food Safety Modernization Act, the Occupational Safety and Health Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Tariff Act, laws governing equal employment opportunity, and various other federal statutes and regulations. \n20\nWe are also subject to various laws and regulations that are continuously evolving in the U.S. and other jurisdictions regarding privacy, data protection, and data security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data. For example, in the U.S., the California Consumer Privacy Act (the \u201cCCPA\u201d) imposes requirements on companies that do business in California and collect personal information from certain individuals, providing civil penalties for companies that fail to comply with these requirements as well as a private right of action for data breaches. Further, the California Privacy Rights Act, which took effect January 1, 2023, builds on the CCPA requiring the establishment of a dedicated agency to regulate privacy issues. Similarly, Virginia, Colorado, Connecticut, and Utah have all adopted laws that take effect in calendar year 2023, introducing new privacy obligations that will require developing additional compliance mechanisms and processes. There also is a wide range of enforcement agencies at both state and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws. Accordingly, failure to comply with federal and state laws regarding privacy and security of personal information could expose us to fines and penalties under such laws. \nComplying with new regulations and laws, or changes to existing regulations and laws, or their application could increase our costs or adversely affect our sales of certain products. In addition, our failure or inability to comply with applicable regulations and laws could subject us to civil remedies, including fines, injunctions, recalls or seizures, and potential criminal sanctions, which could have a material adverse effect on our business and financial condition.\nOur operations in certain developing markets expose us to regulatory risks.\nIn many countries outside of the U.S., particularly in those with developing economies, it may be common for others to engage in business practices prohibited by laws and regulations applicable to us, such as the U.S. Foreign Corrupt Practices Act or similar local anti-bribery or anti-corruption laws. These laws generally prohibit companies and their employees, contractors, or agents from making improper payments to government officials for the purpose of obtaining or retaining business. Failure to comply with these laws could subject us to civil and criminal penalties that could have a material adverse effect on our financial condition and results of operations. In addition, the enforcement of remedies in foreign jurisdictions may be less certain, resulting in varying abilities to enforce intellectual property and contractual rights.\nRisks associated with climate change and other environmental impacts or legal, regulatory, or market measures to address climate change may negatively affect our business and operations.\nAs set forth in the Intergovernmental Panel on Climate Change Sixth Assessment Report, global average temperatures are gradually increasing due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere, which have contributed to and are expected to continue contributing to significant changes in weather patterns around the globe and an increase in the frequency and severity of extreme weather and natural disasters. In the event that climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as green coffee, protein meals, peanuts, grains, plastic containers, oils and fats, fruit, and other ingredients. We may also be subjected to decreased availability or less favorable pricing for water or energy as a result of such change, which could impact our manufacturing and distribution operations. In addition, natural disasters and extreme weather conditions may disrupt the productivity of our facilities or the operation of our supply chain, which could increase our insurance or other operating costs or require us to make additional, unplanned capital expenditures. Specifically, in 2022, Hurricane Ida caused our coffee manufacturing facilities in New Orleans, Louisiana to be temporarily shut down, and in 2021, unforeseen weather events in Texas, Oklahoma, and Kansas temporarily shut down our pet manufacturing facilities in Kansas. Although we consider these to be uncommon events and we were able to effectively minimize any disruptions through our business continuity planning efforts, extreme weather could disrupt our production in the future, adversely affecting our ability to meet customer deadlines and supply demands.\nAdditionally, there is an increased focus by foreign, federal, state, and local regulatory and legislative bodies regarding environmental policies relating to climate change, regulating greenhouse gas emissions, energy policies, and sustainability, including single-use plastics. Increased energy or compliance costs and expenses due to the impacts of climate change and additional legal or regulatory requirements regarding climate change designed to reduce or mitigate the effects of carbon dioxide and other greenhouse gas emissions on the environment could be costly and may cause disruptions in, or an increase in the costs associated with, our manufacturing and distribution facilities, as well as increase supply chain costs. Moreover, compliance with any such legal or regulatory requirements may require us to make significant changes to our business operations, strategy, and reporting, which will likely require substantial time, attention, and costs. \nFinally, we might fail to effectively address increased attention from the media, shareholders, activists, and other stakeholders on climate change and related environmental sustainability matters. Such failure, or the perception that we have failed to act \n21\nresponsibly with respect to such matters or to effectively respond to new or additional regulatory requirements regarding climate change, whether or not valid, could result in adverse publicity and negatively affect our business and reputation. In addition, from time to time we establish and publicly announce goals and commitments, including goals to reduce our impact on the environment. For example, in 2022, we established science-based targets for Scope 1, 2, and 3 greenhouse gas emissions. Our ability to achieve any stated goal, target, or objective is subject to numerous factors and conditions, many of which are outside of our control, including evolving regulatory requirements and the availability of suppliers that can meet our sustainability and other standards. Furthermore, standards for tracking and reporting such matters continue to evolve. Our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and standards, may change from time to time or differ from those of others. Methodologies for reporting this data may be updated and previously reported data may be adjusted to reflect improvement in availability and quality of third-party data, changing assumptions, changes in the nature and scope of our operations (including from acquisitions and divestitures), and other changes in circumstances, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in the future. If we fail to achieve, are perceived to have failed, or are delayed in achieving these goals and commitments, it could negatively affect consumer preference for our products or investor confidence in our stock, as well as expose us to government enforcement actions and private litigation.\nThe physical effects and transitional costs of climate change and legal, regulatory, or market initiatives to address climate change could have a negative impact on our business, financial condition, and results of operations.\nGeneral Risk Factors\nWe may be unable to grow market share of our products.\nWe operate in the competitive food industry whose growth potential is positively correlated to population growth. Our success depends in part on our ability to grow our brands faster than the population in general. We consider our ability to build and sustain the equity of our brands critical to our market share growth. If we do not succeed in these efforts, our market share growth may slow, which could have a material impact on our results of operations.\n\u00a0\nIf our information technology systems fail to perform adequately or we are unable to protect such information technology systems against data corruption, cyber-based attacks, or network security breaches, our operations could be disrupted, and we may suffer financial damage or loss because of lost or misappropriated information.\nWe rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic information, and the importance of such networks and systems has increased due to many of our employees working remotely. In particular, we depend on our information technology infrastructure to effectively manage our business data, supply chain, logistics, finance, manufacturing, and other business processes and for digital marketing activities and electronic communications between Company personnel and our customers and suppliers. If we do not allocate and effectively manage the resources necessary to build, sustain, and protect an appropriate technology infrastructure, or we do not effectively implement system upgrades, our business or financial results could be negatively impacted. We are regularly the target of attempted cyber and other security threats. Therefore, we continuously monitor and update our information technology networks and infrastructure to prevent, detect, address, and mitigate the risk of unauthorized access, misuse, computer viruses, phishing attacks, malware, ransomware, social engineering, password theft, physical breaches, and other events that could have a security impact. In addition, the ongoing conflict between Russia and Ukraine has heightened the risk of cyberattacks. We invest in industry standard security technology to protect our data and business processes against the risk of data security breaches and cyber-based attacks. We believe our security technology tools and processes provide adequate measures of protection against security breaches and in reducing cybersecurity risks. Nevertheless, despite continued vigilance in these areas, security breaches or system failures of our infrastructure, whether due to attacks by hackers, employee error, or other causes, can create system disruptions, shutdowns, transaction errors, or unauthorized disclosure of confidential information. If we are unable to prevent such breaches or failures, our operations could be disrupted, or we may suffer financial damage or loss because of lost or misappropriated information. In addition, the cost to remediate any damages to our information technology systems suffered as a result of a cyber-based attack could be significant.\nFurther, we have outsourced several information technology support services and administrative functions, including benefit plan administration and other functions, to third-party service providers, and may outsource other functions in the future to achieve cost savings and efficiencies. In addition, certain of our processes rely on third-party cloud computing services. If the service providers to which we outsource these functions do not perform effectively, we may not be able to achieve the \n22\nexpected benefits and may have to incur additional costs to correct errors made by such service providers. Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies, inaccurate financial reporting, the loss of or damage to intellectual property through security breach, the loss of sensitive data through security breach, or otherwise.\nWe may face complications with the design or implementation of our new enterprise performance management system, which may negatively affect our business and operations.\nWe rely on information technology networks and systems to manage our business and operations. We are in the process of a multi-year implementation of a new enterprise performance management (\u201cEPM\u201d) system, inclusive of an enterprise resource planning system (i.e., general ledger), through the use of Oracle Cloud Solutions. The EPM system will replace our existing financial system and is designed to accurately maintain our financial records, enhance operational functionality and efficiency, and provide timely information to our management team. The EPM system implementation process has required, and will continue to require, the investment of significant personnel and financial resources over the duration of the project. We anticipate full integration of the EPM system by the end of 2025. Further, we may not be able to successfully implement the EPM system without experiencing delays, increased costs, and other complications. If we are unable to successfully design and implement the new EPM system as planned, our financial condition, results of operations, and cash flows could be negatively impacted. In addition, if the EPM system does not operate as intended, the effectiveness of our internal controls over financial reporting could be negatively affected.\nThe ongoing conflict between Russia and Ukraine and the related disruptions to the global economy could adversely affect our business, financial condition, or results of operations.\nThe global economy has been negatively impacted by the ongoing conflict between Russia and Ukraine. Governments in the United States, United Kingdom, and European Union have imposed sanctions on certain products, industry sectors, and parties in Russia. Although we do not have any operations in Russia or Ukraine, we have experienced and may continue to experience shortages in materials and increased costs for transportation, energy, and raw materials due in part to the negative impact of the conflict on the global economy. If the conflict continues for an extended period of time, it could result in cyberattacks, supply chain disruptions, lower consumer demand, changes in foreign exchange rates, increased trade barriers and restrictions on global trade, and other impacts, which may adversely affect our business, financial condition, or results of operations. These and other impacts of the ongoing conflict between Russia and Ukraine could also heighten many of the other risk factors discussed in this section.",
+  "item7": ">Item 7. \u00a0\u00a0\u00a0\u00a0Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations. \n(Dollars and shares in millions, unless otherwise noted, except per share data)\nThis Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide an understanding of our results of operations, financial condition, and cash flows by focusing on changes in certain key measures from year-to-year, and should be read in conjunction with our consolidated financial statements and the accompanying notes presented in Item 8. \u201cFinancial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in Item 1A. \u201cRisk Factors\u201d in this Annual Report on Form 10-K. \nCompany Background\nAt The J. M. Smucker Company, it is our privilege to make food people and pets love by offering a diverse portfolio of brands available across North America. We are proud to lead in the coffee, consumer foods, dog snacks, and cat food categories by offering brands consumers trust for themselves and their families each day including \nFolgers\n, \nDunkin\u2019\n, \nCaf\u00e9 Bustelo\n, \nJif\n, \nSmucker\u2019s Uncrustables\n, \nSmucker\u2019s\n, \nMilk-Bone,\n and \nMeow Mix\n. Through our unwavering commitment to producing quality products, operating responsibly and ethically, and delivering on our purpose, we will continue to grow our business and the positive impact we have on society.\nWe have three reportable segments: U.S. Retail Pet Foods, U.S. Retail Coffee, and U.S. Retail Consumer Foods. The U.S. retail market segments in total comprised 87 percent of net sales in 2023, and represent a major portion of our strategic \nfocus \u2013 the sale of branded food and beverage products with leadership positions to consumers through retail outlets in North America. In the U.S. retail market segments, our products are primarily sold to food retailers, club stores, discount and dollar stores, online retailers, pet specialty stores, drug stores, military commissaries, mass merchandisers, and natural foods stores and distributors. International and Away From Home includes the sale of products distributed domestically and in foreign countries through retail channels and foodservice distributors and operators (e.g., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and universities, and convenience stores).\nStrategic Overview\nOur \nBasic Beliefs\n are the foundation for everything we do as an organization. They serve as guideposts for decision-making and how we interact with our colleagues and partners. As we have grown, we have remained unwavering in our commitment to these values but also recognize how we are called to act upon them must evolve as the world around us does. In this spirit, with 2023 marking our 125\nth\n year in business, we introduced an evolution of our \nBasic Beliefs\n, building from the original \nBasic Beliefs\n, to ensure they are as actionable as possible in order to help our employees continue to bring our unique culture to life. As such, we evolved our \nBasic Beliefs \nto\n Be Bold, Be Kind, Do the Right Thing, Play to Win, \nand\n Thrive Together, \nwhich are clear, concise, and actionable\n.\n In addition, we have been led by five generations of family leadership, having had only six chief executive officers in 125 years. This continuity of management and thought extends to the broader leadership team that embodies the values and embraces the business practices that have contributed to our consistent growth. \nOur strategic vision is to engage, delight, and inspire consumers by building brands they love and leading in growing categories. This vision is our long-term direction that guides business priorities and aligns our organization. We will continue to drive balanced, long-term growth by advancing on the following strategic pillars:  \n\u2022\nWinning with superior execution;\n\u2022\nImproving profitability and cost discipline;\n\u2022\nTransforming our portfolio;\n\u2022\nDoing our part: Corporate Responsibility, Sustainability, and ID&E; and\n\u2022\nNurturing and evolving our culture.\nOur strategic growth objectives include net sales increasing by a low-single digit percentage and operating income excluding non-GAAP adjustments (\u201cadjusted operating income\u201d) increasing by a mid-single digit percentage on average over the long-term. Related to income per diluted share excluding non-GAAP adjustments (\u201cadjusted earnings per share\u201d), our strategic growth objective is to increase by a high-single digit percentage over the long-term. We expect organic growth, including new products, to drive much of our top-line growth, while the contribution from acquisitions will vary from year-to-year. Our \n26\nnon-GAAP adjustments include amortization expense and impairment charges related to intangible assets, certain divestiture, acquisition, integration, and restructuring costs (\u201cspecial project costs\u201d), gains and losses on divestitures, the net change in cumulative unallocated gains and losses on commodity and foreign currency exchange derivative activities (\u201cchange in net cumulative unallocated derivative gains and losses\u201d), and other infrequently occurring items that do not directly reflect ongoing operating results, such as unrealized gains and losses on the investment in equity securities. Refer to \u201cNon-GAAP Financial Measures\u201d in this discussion and analysis for additional information. Due to the unknown and potentially prolonged impact of the inflationary environment, challenged supply network, and increased labor shortages, we may experience difficulties or be delayed in achieving our long-term strategies; however, we continue to evaluate the effects of the macroeconomic environment on our long-term growth objectives. \nOver the past five years, net sales and adjusted earnings per share increased at a compound annual growth rate of 3 percent and 2 percent, respectively, while adjusted operating income has remained consistent. These changes were primarily driven by increased at-home consumption for the U.S. Retail Coffee and U.S. Retail Consumer Foods segments, partially offset by the reduction in net sales from the divestitures of\n \nthe private label dry pet food and natural beverage and grains businesses in 2022, \nCrisco \nand \nNatural Balance \nbusinesses\n \nin 2021, and the U.S. baking business in 2019. Net cash provided by operating activities has remained consistent over the past five years. Our cash deployment strategy is to balance reinvesting in our business through acquisitions and capital expenditures with returning cash to our shareholders through the payment of dividends and share repurchases. Our deployment strategy also includes a significant focus on debt repayment.\nDivestitures \nOn April 28, 2023, we sold certain pet food brands to Post. The transaction included the\n Rachael Ray Nutrish, 9Lives, Kibbles \u2019n Bits, Nature\u2019s Recipe\n, and \nGravy Train\n brands, as well as our private label pet food business, inclusive of certain trademarks and licensing agreements, manufacturing and distribution facilities in Bloomsburg, Pennsylvania, manufacturing facilities in Meadville, Pennsylvania and Lawrence, Kansas, and approximately 1,100 employees who supported these pet food brands. Under our ownership, these brands generated net sales of $1.5 billion in 2023, and $1.4 billion in both 2022 and 2021, primarily included in the U.S. Retail Pet Foods segment. Net proceeds from the divestiture were $1.2\u00a0billion, consisting of $684.7 in cash, net of a preliminary working capital adjustment and cash transaction costs, and approximately 5.4\u00a0million shares of Post common stock, valued at $491.6 at the close of the transaction. Upon completion of this transaction, we recognized a pre-tax loss of $1.0 billion. The net proceeds and pre-tax loss will be finalized during the first quarter of 2024, upon finalization of the working capital adjustment and cash transaction costs.\nOn January 31, 2022, we sold the natural beverage and grains businesses to Nexus. The transaction included products sold under the \nR.W. Knudsen \nand \nTruRoots \nbrands, inclusive of certain trademarks, a licensing agreement for \nSanta Cruz Organic\n beverages, dedicated\n \nmanufacturing and distribution facilities in Chico, California and Havre de Grace, Maryland, and approximately 150 employees who supported the natural beverage and grains businesses. The transaction did not include \nSanta Cruz Organic\n nut butters, fruit spreads, syrups, or applesauce. Under our ownership, the businesses generated net sales of $106.7 in 2022, primarily included in the U.S. Retail Consumer Foods segment. Final net proceeds from the divestiture were $98.7, inclusive of a working capital adjustment and cash transaction costs. We recognized a pre-tax gain of $28.3 related to the natural beverage and grains businesses, of which $26.7 was recognized during 2022, and the remaining $1.6 was recognized upon finalization of the working capital adjustment during 2023.\nOn December 1, 2021, we sold the private label dry pet food business to Diamond Pet Foods. The transaction included dry pet food products sold under private label brands, a dedicated manufacturing facility located in Frontenac, Kansas, and approximately 220 employees who supported the private label dry pet food business. The transaction did not include any branded products or our private label wet pet food business. Under our ownership, the business generated net sales of $62.3 in 2022, included in the U.S. Retail Pet Foods segment. Final net proceeds from the divestiture were $32.9, net of cash transaction costs. Upon completion of this transaction during 2022, we recognized a pre-tax loss of $17.1. \nTrends Affecting our Business\nDuring 2023, we experienced significant input cost inflation and a dynamic macroeconomic environment, which we anticipate will persist into 2024. In addition, the higher costs required us to implement material price increases across our business in 2023, and we anticipate the price elasticity of demand will remain elevated into 2024 as consumers continue to respond to broader inflationary pressures. In response to the inflationary pressures, we have introduced a company-wide transformation initiative to focus on deliberately translating our continuous improvement mindset into sustainable productivity initiatives to grow our profit margins and reinvest in the Company to enable future growth and cost savings.\nIn addition, we continued to experience disruption in our supply chain network, including labor shortages and the supply of certain ingredients, packaging, and other sourced materials, which has resulted in the continued elevation of transportation \n27\nand other supply chain costs during 2023. It is possible that more significant disruptions could occur if the COVID-19 pandemic and certain geopolitical events continue to impact markets around the world, including the impact of e-commerce pressures on freight charges and potential shipping delays due to supply and demand imbalances, as well as labor shortages. We also continue to work closely with our customers and external business partners, taking additional actions to ensure safety and business continuity and maximize product availability. We have maintained production at all our facilities and availability of appointments at distribution centers. Furthermore, we have implemented measures to manage order volumes to ensure a consistent supply across our retail partners during periods of high demand. However, to the extent that high demand levels or the current supply chain environment continues to disrupt order fulfillment, we may experience volume loss and elevated penalties.\nAlthough we do not have any operations in Russia or Ukraine, we continue to monitor the environment for any significant escalation or expansion of economic or supply chain disruptions, including broader inflationary costs, as well as regional or global economic recessions. During 2023, the conflict between Russia and Ukraine primarily impacted the price of grains, oils, and fat-based products, which may continue to have an adverse impact on our results of operations into 2024.\nOverall, broad-based supply chain disruptions and rising levels of inflation, including the impact of the conflict between Russia and Ukraine, remain uncertain and ultimately depend on the length and severity of the conflict and the pandemic. We will continue to evaluate the nature and extent to which supply chain disruptions and inflation will impact our business; supply chain, including labor availability and attrition; results of operations; financial condition; and liquidity.\nResults of Operations\nThis discussion and analysis deals with comparisons of material changes in the consolidated financial statements for the years ended\u00a0April\u00a030, 2023\u00a0and\u00a02022.\u00a0For the comparisons of the years ended April\u00a030, 2022 and 2021, see the Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2022 Annual Report on Form 10-K.\n\u00a0\u00a0\nYear Ended April 30,\n\u00a0\u00a0\n2023\n2022\n%\u00a0Increase\n(Decrease)\nNet sales\n$\n8,529.2\u00a0\n$\n7,998.9\u00a0\n7\u00a0\n%\nGross profit\n$\n2,801.8\u00a0\n$\n2,700.7\u00a0\n4\u00a0\n% of net sales\n32.8\u00a0\n%\n33.8\u00a0\n%\nOperating income\n$\n157.5\u00a0\n$\n1,023.8\u00a0\n(85)\n% of net sales\n1.8\u00a0\n%\n12.8\u00a0\n%\nNet income (loss):\nNet income (loss)\n$\n(91.3)\n$\n631.7\u00a0\n(114)\nNet income (loss) per common share \u2013 assuming dilution\n$\n(0.86)\n$\n5.83\u00a0\n(115)\nAdjusted gross profit \n(A)\n$\n2,829.6\u00a0\n$\n2,744.6\u00a0\n3\u00a0\n% of net sales\n33.2\u00a0\n%\n34.3\u00a0\n%\nAdjusted operating income \n(A)\n$\n1,415.4\u00a0\n$\n1,440.1\u00a0\n(2)\n% of net sales\n16.6\u00a0\n%\n18.0\u00a0\n%\nAdjusted income: \n(A)\nIncome\n$\n950.8\u00a0\n$\n962.2\u00a0\n(1)\nEarnings per share \u2013 assuming dilution\n$\n8.92\u00a0\n$\n8.88\u00a0\n\u2014\u00a0\n(A)\nWe use non-GAAP financial measures to evaluate our performance. Refer to \u201cNon-GAAP Financial Measures\u201d in this discussion and analysis for a reconciliation to the comparable generally accepted accounting principles (\u201cGAAP\u201d) financial measure.\n28\nNet Sales\nYear Ended April 30,\n\u00a0\n2023\n2022\nIncrease \u00a0\n(Decrease)\n\u00a0\u00a0%\u00a0\u00a0\u00a0\u00a0\nNet sales\n$\n8,529.2\u00a0\n$\n7,998.9\u00a0\n$\n530.3\u00a0\n7\u00a0\n%\nPrivate label dry pet food divestiture\n\u2014\u00a0\n(62.3)\n62.3\u00a0\n1\u00a0\nNatural beverage and grains divestiture\n\u2014\u00a0\n(106.7)\n106.7\u00a0\n1\u00a0\nPet food brands divestiture\n\u2014\u00a0\n(12.2)\n12.2\u00a0\n\u2014\u00a0\nForeign currency exchange\n26.3\u00a0\n\u2014\u00a0\n26.3\u00a0\n\u2014\u00a0\nNet sales excluding divestitures and foreign currency exchange \n(A)\n$\n8,555.5\u00a0\n$\n7,817.7\u00a0\n$\n737.8\u00a0\n9\u00a0\n%\nAmounts may not add due to rounding\n.\n(A)\nNet sales excluding divestitures and foreign currency exchange is a non-GAAP financial measure used to evaluate performance internally. This measure provides useful information to investors because it enables comparison of results on a year-over-year basis. \nNet sales in 2023 increased $530.3, or 7 percent, which includes $181.2 of noncomparable net sales in the prior year related to divestitures. Net sales excluding divestitures and foreign currency exchange increased $737.8, or 9 percent. Higher net price realization contributed a 14 percentage point increase to net sales, primarily reflecting list price increases for each of our U.S. Retail segments and for International and Away From Home, which was partially offset by a 5 percentage point decrease from volume/mix, primarily driven by the U.S. Retail Coffee segment and manufacturing downtime related to the \nJif\n peanut butter product recall.\nOperating Income\nThe following table presents the components of operating income as a percentage of net sales. \n\u00a0\u00a0\nYear Ended April 30,\n\u00a0\u00a0\n2023\n2022\nGross profit\n32.8\u00a0\n%\n33.8\u00a0\n%\nSelling, distribution, and administrative expenses:\nMarketing\n3.3\u00a0\n%\n3.5\u00a0\n%\nAdvertising\n1.9\u00a0\n2.2\u00a0\nSelling\n2.8\u00a0\n2.8\u00a0\nDistribution\n3.5\u00a0\n3.6\u00a0\nGeneral and administrative\n5.5\u00a0\n5.0\u00a0\nTotal selling, distribution, and administrative expenses\n17.1\u00a0\n%\n17.0\u00a0\n%\nAmortization\n2.4\u00a0\n2.8\u00a0\nOther intangible assets impairment charge\n\u2014\u00a0\n1.9\u00a0\nOther special project costs\n0.1\u00a0\n0.1\u00a0\nLoss (gain) on divestitures \u2013 net\n11.9\u00a0\n(0.1)\nOther operating expense (income) \u2013 net\n(0.5)\n(0.7)\nOperating income\n1.8\u00a0\n%\n12.8\u00a0\n%\nAmounts may not add due to rounding.\nGross profit increased $101.1, or\u00a04 percent, in 2023, reflecting a favorable net impact of higher net price realization and increased commodity and ingredient, manufacturing, and packaging costs, inclusive of the unfavorable impact related to the \nJif\n peanut butter product recall, partially offset by a lower contribution from volume/mix and the noncomparable impact of the divested natural beverage and grains businesses.\nOperating income decreased $866.3, or\u00a085 percent, primarily driven by the $1.0 billion pre-tax loss related to the divestiture of certain pet food brands and a $94.7 increase in selling, distribution, and administrative (\u201cSD&A\u201d) expenses, primarily driven by increased incentive compensation, partially offset by lapping a $150.4 intangible asset impairment charge in the prior year and the increase in gross profit.\n29\nOur non-GAAP adjustments include amortization expense and impairment charges related to intangible assets, special project costs, gains and losses on divestitures, the change in net cumulative unallocated derivative gains and losses, and other infrequently occurring items that do not directly reflect ongoing operating results, such as unrealized gains and losses on the investment in equity securities. Refer to \u201cNon-GAAP Financial Measures\u201d in this discussion and analysis for additional information. Gross profit excluding non-GAAP adjustments (\u201cadjusted gross profit\u201d) increased $85.0, or 3 percent, in 2023, primarily reflecting the exclusion of special project costs, as compared to GAAP gross profit. Adjusted operating income decreased $24.7, or\u00a02 percent, as compared to the prior year, further reflecting the exclusion of the pre-tax loss related to the divestiture of certain pet food brands and the prior year impairment charge.\nInterest Expense\nNet interest expense decreased $8.9, or 6 percent, in 2023, primarily due to a net favorable impact of the repayment of Senior Notes and the issuance of debt in the prior year. For additional information, refer to Note 7: Debt and Financing Arrangements.\nIncome Taxes \nIncome taxes decreased $130.0, or 61 percent, in 2023, as compared to the prior year. The effective income tax rate for 2023 varied from the U.S. statutory income tax rate of 21.0 percent primarily due to an unfavorable permanent impact of the divestiture of certain pet food brands, as well as state income taxes. The effective income tax rate for 2022 varied from the U.S. statutory income tax rate of 21.0 percent primarily due to state income taxes, including an unfavorable one-time deferred tax impact of an internal legal entity simplification. We anticipate a full-year effective income tax rate for 2024 to be approximately 24.2 percent. For additional information, refer to Note 13: Income Taxes. \nSpecial Project Costs\nA restructuring program was approved by the Board during 2021, associated with opportunities identified to reduce our overall cost structure, optimize our organizational design, and support our portfolio reshape. This is inclusive of certain restructuring costs associated with the divestitures of the \nCrisco\n, \nNatural Balance\n, private label dry pet food, and natural beverage and grains businesses. For additional information related to the divestitures, see Note 3: Divestitures. \nDuring 2021, we substantially completed an organizational redesign related to our corporate headquarters and announced plans to close our Suffolk, Virginia facility as a result of a new strategic partnership for the production of our liquid coffee products. During 2022, we completed the transition of production to JDE Peet\u2019s, and expanded the restructuring program to include certain costs associated with the divestitures of the private label dry pet food and natural beverage and grains businesses, as well as the closure of our Ripon, Wisconsin production facility to further optimize operations for our U.S. Retail Consumer Foods business. We completed the closure of the Ripon facility during 2023, as planned, and the remaining restructuring activities were completed as of April 30, 2023. The costs incurred associated with these restructuring activities include other transition and termination costs associated with our cost reduction and margin management initiatives, inclusive of accelerated depreciation, as well as employee-related costs. We have incurred total cumulative restructuring costs of $63.7, of which $11.1 and $28.5 were incurred during 2023 and 2022, respectively. For further information, refer to Note 2: Special Project Costs.\nCommodities Overview\nThe raw materials we use in each of our segments are primarily commodities, agricultural-based products, and packaging materials. The most significant of these materials, based on 2023 annual spend, are green coffee, protein meals, peanuts, grains, and plastic containers. Green coffee, corn, certain meals, oils, and grains are traded on active regulated exchanges, and the price of these commodities fluctuates based on market conditions. Derivative instruments, including futures and options, are used to minimize the impact of price volatility for these commodities.\nWe source green coffee from more than 20 coffee-producing countries. Its price is subject to high volatility due to factors such as weather, global supply and demand, plant disease, investor speculation, and political and economic conditions in the source countries.\nWe source peanuts, protein meals, and oils and fats mainly from North America. We are one of the largest procurers of peanuts in the U.S. and frequently enter into long-term purchase contracts for various periods of time to mitigate the risk of a shortage of this commodity. The oils we purchase are mainly peanut and soybean. The price of peanuts, protein meals, and oils are driven primarily by weather, which impacts crop sizes and yield, as well as global demand, especially from large importing countries such as China and India. In particular, the supply chain for protein meals, fats, corn products, and green coffee has been significantly disrupted by the COVID-19 pandemic, and therefore, the price for these commodities has \n30\nincreased and may continue to increase due to such disruptions. Furthermore, the price of grains and oils and fat-based products has been impacted by the ongoing conflict between Russia and Ukraine.\nWe frequently enter into long-term contracts to purchase plastic containers, which are sourced mainly from within the U.S. Plastic resin is made from petrochemical feedstock and natural gas feedstock, and the price can be influenced by feedstock, energy, and crude oil prices as well as global economic and geopolitical conditions. \nExcluding the impact of derivative gains and losses, our overall commodity costs in 2023 were higher than in 2022, primarily due to higher costs for green coffee, protein meals, oils and fats, and grains.\nSegment Results\nWe have\u00a0three\u00a0reportable segments: U.S. Retail Pet Foods, U.S. Retail Coffee, and U.S. Retail Consumer Foods. The presentation of International and Away From Home represents a combination of all other operating segments that are not individually reportable.\nThe U.S. Retail Pet Foods segment primarily includes the domestic sales of \nMeow Mix\n,\n Milk-Bone\n, \nPup-Peroni, \nand \nCanine Carry Outs \nbranded products; the U.S. Retail Coffee segment primarily includes the domestic sales of \nFolgers\n, \nDunkin\u2019\n, and \nCaf\u00e9 Bustelo\n \nbranded coffee; and the U.S. Retail Consumer Foods segment primarily includes the domestic sales of \nSmucker\u2019s \nand \nJif \nbranded products. International and Away From Home includes the sale of products distributed domestically and in foreign countries through retail channels and foodservice distributors and operators (e.g., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and universities, and convenience stores). Under our ownership, the divested \nRachael Ray Nutrish, 9Lives, Kibbles \u2019n Bits, Nature\u2019s Recipe\n, and \nGravy Train \nbrands generated net sales of $1.5 billion and $1.4 billion in 2023 and 2022, respectively, primarily included in the U.S. Retail Pet Foods segment. \n\u00a0\u00a0\nYear Ended April 30,\n\u00a0\u00a0\n2023\n2022\n%\u00a0Increase (Decrease)\nNet sales:\nU.S. Retail Pet Foods\n$\n3,038.1\u00a0\n$\n2,764.3\u00a0\n10\u00a0\n%\nU.S. Retail Coffee\n2,735.3\u00a0\n2,497.3\u00a0\n10\u00a0\nU.S. Retail Consumer Foods\n1,630.9\u00a0\n1,707.2\u00a0\n(4)\nInternational and Away From Home\n1,124.9\u00a0\n1,030.1\u00a0\n9\u00a0\nSegment profit:\nU.S. Retail Pet Foods\n$\n494.9\u00a0\n$\n395.9\u00a0\n25\u00a0\n%\nU.S. Retail Coffee\n737.7\u00a0\n736.7\u00a0\n\u2014\u00a0\nU.S. Retail Consumer Foods\n352.6\u00a0\n424.2\u00a0\n(17)\nInternational and Away From Home\n143.3\u00a0\n142.0\u00a0\n1\u00a0\nSegment profit margin:\nU.S. Retail Pet Foods\n16.3\u00a0\n%\n14.3\u00a0\n%\nU.S. Retail Coffee\n27.0\u00a0\n29.5\u00a0\nU.S. Retail Consumer Foods\n21.6\u00a0\n24.8\u00a0\nInternational and Away From Home\n12.7\u00a0\n13.8\u00a0\n\u00a0\nU.S. Retail Pet Foods\nThe U.S. Retail Pet Foods segment net sales increased $273.8 in 2023, inclusive of the impact of $74.3 of noncomparable net sales in the prior year related to the divested private label dry pet food business and the divestiture of certain pet food brands. Excluding the noncomparable impact of the divested businesses, net sales increased $348.1, or 13 percent. Higher net price realization increased net sales by 16 percentage points, primarily reflecting list price increases across the portfolio, partially offset by increased trade spend. The higher net price realization was partially offset by a lower contribution from volume/mix of 3 percentage points, primarily reflecting decreases for cat food and dog food. Segment profit increased $99.0, primarily reflecting a favorable net impact of higher net price realization and increased commodity and ingredient, packaging, and manufacturing costs, partially offset by higher marketing spend.\n31\nU.S. Retail Coffee\nThe U.S. Retail Coffee segment net sales increased $238.0 in 2023. Net price realization contributed a 19 percentage point increase to net sales, primarily reflecting list price increases across the portfolio, partially offset by increased trade spend. Unfavorable volume/mix decreased net sales by 9 percentage points driven by mainstream and premium coffee. Segment profit was comparable to the prior year as a favorable net impact of higher net price realization and increased commodity and manufacturing costs was mostly offset by the unfavorable volume/mix. \nU.S. Retail Consumer Foods\nThe U.S. Retail Consumer Foods segment net sales decreased $76.3 in 2023, inclusive of the impact of $101.8 of noncomparable net sales in the prior year related to the divested natural beverage and grains businesses. Excluding the noncomparable impact of the divested businesses, net sales increased $25.5, or 2 percent. Net price realization contributed a \n6 percentage point increase to net sales, primarily driven by list price increases for the \nSmucker\u2019s\n brand, partially offset by declines for \nJif\n peanut butter, inclusive of the unfavorable impact of customer returns and fees related to the \nJif\n peanut butter product recall. Volume/mix decreased net sales by 4 percentage points, primarily driven by downtime related to the recall, partially offset by an increase for \nSmucker\u2019s Uncrustables \nfrozen sandwiches. Segment profit decreased $71.6, primarily reflecting higher commodity and ingredient, manufacturing, and packaging costs, inclusive of costs related to the recall, and the impact of the noncomparable segment profit in the prior year related to the divested natural beverage and grains businesses, partially offset by higher net pricing and favorable volume/mix.\nInternational and Away From Home\nInternational and Away From Home net sales increased $94.8 in\u00a02023, including $26.3 of unfavorable foreign currency exchange and the noncomparable impact of $5.1 of net sales in the prior year primarily related to the divested natural beverage and grains businesses. Excluding the noncomparable impact of foreign currency exchange and the divested businesses, net sales increased $126.2, or 12 percent, reflecting a 19 percent and 5 percent increase for the Away From Home and International operating segments, respectively. Net price realization contributed a 13 percentage point increase to net sales for the combined businesses, primarily driven by increases for coffee products, baking mixes and ingredients, and frozen handheld products, partially offset by the unfavorable impact of customer returns and fees related to the \nJif\n peanut butter product recall. Segment profit increased $1.3, primarily reflecting a favorable net impact of higher net price realization and increased commodity costs, as well as decreased marketing spend, partially offset by the unfavorable foreign currency exchange.\nLIQUIDITY AND CAPITAL RESOURCES\nLiquidity\nOur principal source of funds is cash generated from operations, supplemented by borrowings against our commercial paper program and revolving credit facility. Further benefiting from proceeds from divestitures, total cash and cash equivalents increased to $655.8 at April\u00a030, 2023, compared to $169.9 at April\u00a030, 2022.\nThe following table presents selected cash flow information.\n\u00a0\u00a0\nYear Ended April 30,\n\u00a0\u00a0\n2023\n2022\nNet cash provided by (used for) operating activities\n (A)\n$\n1,194.4\u00a0\n$\n1,136.3\u00a0\nNet cash provided by (used for) investing activities\n (A)\n256.2\u00a0\n(355.5)\nNet cash provided by (used for) financing activities\n(964.6)\n(944.5)\nNet cash provided by (used for) operating activities\n (A)\n$\n1,194.4\u00a0\n$\n1,136.3\u00a0\nAdditions to property, plant, and equipment \n(A)\n(477.4)\n(417.5)\nFree cash flow \n(B)\n$\n717.0\u00a0\n$\n718.8\u00a0\n(A)\nNet cash provided by (used for) operating activities and net cash provided by (used for) investing activities differ immaterially from the Unaudited Condensed Consolidated Statement of Cash Flow for the year ended April 30, 2023, as previously furnished within the Form 8-K filed with the SEC on June 6, 2023, reflecting the reclassification of certain items, inclusive of additions to property, plant, and equipment. Free cash flow and the net increase (decrease) in cash and cash equivalents for the year ended April 30, 2023, were not impacted by the reclassifications and remain unchanged.\n32\n(B)\nFree cash flow is a non-GAAP financial measure used by management to evaluate the amount of cash available for debt repayment, dividend distribution, acquisition opportunities, share repurchases, and other corporate purposes.\nThe\u00a0$58.1\u00a0increase in cash provided by operating activities in 2023 was primarily driven by lower working capital requirements in 2023, partially offset by the $70.0 contribution to our U.S. qualified defined benefit pension plans during the first quarter of 2023. The cash required to fund working capital decreased compared to the prior year primarily related to insurance proceeds related to the \nJif\n peanut butter product recall that were received in 2023, a decrease in inventory, and changes in accrued incentive compensation, which were partially offset by a decrease in cash from trade receivables due to timing of sales and payments.\nCash provided by investing activities in 2023 consisted primarily of net proceeds received from the sale of certain pet food brands of $684.7 and a decrease of $37.6 in our derivative cash margin account balances. These increases were partially offset by $477.4\u00a0in capital expenditures, primarily driven by investments in \nSmucker\u2019s Uncrustables \nfrozen sandwiches to support the new manufacturing and distribution facilities in McCalla, Alabama and capacity expansion in Longmont, Colorado, as well as plant maintenance across our facilities. Cash used for investing activities in 2022 consisted primarily of $417.5 in capital expenditures, primarily driven by investments in \nSmucker's Uncrustables \nfrozen sandwiches to support the new manufacturing and distribution facilities, and an increase of $65.4 in our derivative cash margin account balances. These decreases in 2022 were partially offset by net proceeds received from the divested private label dry pet food and natural beverage and grains businesses of $130.0.\nCash used for financing activities in 2023\u00a0consisted primarily of dividend payments of $430.2, purchase of treasury shares of $367.5, and a net decrease in short-term borrowings of $185.9. Cash used for financing activities in 2022\u00a0consisted primarily of\u00a0long-term debt repayments of $1,157.0, dividend payments of $418.1, and purchase of treasury shares of $270.4, partially offset by $797.6 in long-term debt proceeds and a net increase in short-term borrowings of $97.6.\nSupplier Financing Program\nAs part of ongoing efforts to maximize working capital, we work with our suppliers to optimize our terms and conditions, which includes the extension of payment terms. Payment terms with our suppliers, which we deem to be commercially reasonable, range from 0 to 180 days. We have an agreement with a third-party administrator to provide an accounts payable tracking system and facilitate a supplier financing program, which allows participating suppliers the ability to monitor and voluntarily elect to sell our payment obligations to a designated third-party financial institution. Participating suppliers can sell one or more of our payment obligations at their sole discretion, and our rights and obligations to our suppliers are not impacted. We have no economic interest in a supplier\u2019s decision to enter into these agreements. Our rights and obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted by our suppliers\u2019 decisions to sell amounts under these arrangements. As of April 30, 2023 and 2022, $414.2 and $314.3 of our outstanding payment obligations, respectively, were elected and sold to a financial institution by participating suppliers. During 2023 and 2022, we paid $1,495.2 and $1,042.9, respectively, to a financial institution for payment obligations that were settled through the supplier financing program. \nContingencies\nWe, like other food manufacturers, are from time to time subject to various administrative, regulatory, and other legal proceedings arising in the ordinary course of business. We are currently a defendant in a variety of such legal proceedings, including certain lawsuits related to the alleged price-fixing of shelf stable tuna products prior to 2011 by a business previously owned by, but divested prior to our acquisition of, Big Heart, the significant majority of which were settled and paid during 2019 and 2020. While we cannot predict with certainty the ultimate results of these proceedings or potential settlements associated with these or other matters, we have accrued losses for certain contingent liabilities that we have determined are probable and reasonably estimable at April\u00a030, 2023. Based on the information known to date, with the exception of the matters discussed below, we do not believe the final outcome of these proceedings would have a material adverse effect on our financial position, results of operations, or cash flows.\nIn addition to the legal proceedings discussed above, we are defendants in a series of putative class action lawsuits that were transferred to the United States District Court for the Western District of Missouri for coordinated pre-trial proceedings. The plaintiffs assert claims arising under various state laws for false advertising, consumer protection, deceptive and unfair trade practices, and similar statutes. Their claims are premised on allegations that we have misrepresented the number of servings that can be made from various canisters of \nFolgers\n coffee on the packaging for those products.\nThe outcome and the financial impact of these cases, if any, cannot be predicted at this time. Accordingly, no loss contingency has been recorded for these matters as of April 30, 2023, and the likelihood of loss is not considered probable or \n33\nestimable. However, if we are required to pay significant damages, our business and financial results could be adversely impacted, and sales of those products could suffer not only in these locations but elsewhere. For additional information, see Note 15: Contingencies.\nProduct Recall\nIn May 2022, we initiated a voluntary recall of select \nJif\n peanut butter products produced at our Lexington, Kentucky facility and sold primarily in the U.S., due to potential salmonella contamination. At that time, we also suspended the manufacturing of \nJif \npeanut butter products at the Lexington facility and temporarily paused shipments from our Memphis, Tennessee facility to eliminate confusion while customers cleared their shelves of potentially impacted products manufactured at the Lexington facility. No other products produced at our other facilities were affected by the recall. In June 2022, we resumed manufacturing \nJif\n peanut butter products at our Lexington facility, as well as shipping from our Memphis facility. We partnered with retailers to restock \nJif \npeanut butter products during the first quarter of 2023, and as of April 30, 2023, we have returned to normal levels. To date, we have recognized total direct costs associated with the recall of approximately $120.0, net of insurance recoveries, related to customer returns, fees, unsaleable inventory, and other product recall-related costs, primarily within our U.S. Retail Consumer Foods segment. We expect costs associated with the recall to be minimal in 2024.\nFurther, the FDA issued a Warning Letter on January 24, 2023, following an inspection of our Lexington facility completed in June 2022 in connection with the \nJif\n voluntary recall, identifying concerns regarding certain practices and controls at the facility. We have responded to the Warning Letter with a detailed explanation of our food safety plan and extensive verification activities to prevent contamination in \nJif\n peanut butter products. In addition, we have worked diligently to further strengthen our already stringent quality processes, including doubling our finished product testing and tripling our environmental testing to verify the efficacy of our actions. The FDA or other agencies may nonetheless conclude that certain practices or controls were not in compliance with the Federal Food, Drug, and Cosmetic Act or other laws. Any potential regulatory action based on such an agency conclusion could result in the imposition of injunctive terms and monetary payments that could have a material adverse effect on our business, reputation, brand, results of operations, and financial performance, as well as affect ongoing consumer litigation associated with the voluntary recall of \nJif\n peanut butter products. The outcome and financial impact of the ongoing consumer litigation or any potential regulatory action associated with the \nJif \nvoluntary recall cannot be predicted at this time. Accordingly, no loss contingency has been recorded for these matters as of April 30, 2023, and the likelihood of loss is not considered probable or estimable.\nCapital Resources\nThe following table presents our capital structure.\n\u00a0\u00a0\nApril 30,\n\u00a0\u00a0\n2023\n2022\nShort-term borrowings\n$\n\u2014\u00a0\n$\n180.0\u00a0\nLong-term debt\n4,314.2\u00a0\n4,310.6\u00a0\nTotal debt\n$\n4,314.2\u00a0\n$\n4,490.6\u00a0\nShareholders\u2019 equity\n7,290.8\u00a0\n8,140.1\u00a0\nTotal capital\n$\n11,605.0\u00a0\n$\n12,630.7\u00a0\nWe have available a $2.0\u00a0billion unsecured revolving credit facility with a group of 11 banks that matures in August 2026. Additionally, we participate in a commercial paper program under which we can issue short-term, unsecured commercial paper not to exceed $2.0\u00a0billion at any time. The commercial paper program is backed by our revolving credit facility and reduces what we can borrow under the revolving credit facility by the amount of commercial paper outstanding. Commercial paper is used as a continuing source of short-term financing for general corporate purposes. As of April 30, 2023, we did not have a balance outstanding under the commercial paper program.\nWe are in compliance with all our debt covenants as of April 30, 2023, and expect to be for the next 12 months. For additional information on our long-term debt, sources of liquidity, and debt covenants, see Note 7: Debt and Financing Arrangements.\nDividend payments were $430.2 and $418.1 in 2023 and 2022, respectively, and quarterly dividends declared per share were $4.08 and $3.96 in 2023 and 2022, respectively. The declaration of dividends is subject to the discretion of our Board and depends on various factors, such as our net income, financial condition, cash requirements, future events, and other factors deemed relevant by the Board. \n34\nDuring the fourth quarter of 2023, we repurchased approximately 2.4\u00a0million common shares for $358.0 pursuant to the authorizations of the Board. Under the repurchase plan, a total of approximately 3.5\u00a0million common shares remain available for repurchase as of April 30, 2023. In accordance with the Inflation Reduction Act, a one percent excise tax was applied to share repurchases after December 31, 2022. As a result, an excise tax of $3.6 was accrued on the repurchased shares during 2023, and included within additional capital in our Consolidated Balance Sheet. A total of 2.0\u00a0million common shares were repurchased for $262.5 during 2022 under authorizations by the Board, and no excise tax was accrued on the repurchased shares. All other share repurchases during 2023 and 2022 consisted of shares repurchased from stock plan recipients in lieu of cash payments.\nOn March 2, 2023, we also entered into a share repurchase plan (the \u201c10b5-1 Plan\u201d) established in accordance with Rule 10b5-1 of the Exchange Act in connection with the remaining common shares authorized for repurchase by the Board. In accordance with the 10b5-1 Plan, our designated broker has the authority to repurchase approximately 2.4\u00a0million commons shares, which commenced on the consummation of the sale of certain pet food brands on April 28, 2023, and will expire 45 calendar days after the closure of the transaction, which is in the first quarter of 2024, unless terminated earlier in accordance with the terms of the 10b5-1 Plan. Subsequent to April 30, 2023, we repurchased approximately 2.4 million common shares for $362.8 under this 10b5-1 Plan and approximately 1.1 million common shares remain available for repurchase. An excise tax of $3.6 was also accrued on the repurchased shares during the first quarter of 2024.\nIn November 2021, we announced plans to invest $1.1 billion to build a new manufacturing facility and distribution center in McCalla, Alabama dedicated to production of\n Smucker\u2019s Uncrustables\n frozen sandwiches. Construction of this facility began in 2022, with production expected to begin in calendar year 2025. The project demonstrates our commitment to meet increasing demand for this highly successful product and deliver on our strategy to focus on brands with the most significant growth opportunities. Construction of the facility and production will occur in three phases over multiple years and will result in the creation of up to 750 jobs. Financial investments and job creation will align with each of the three phases.\nThe following table presents certain cash requirements related to 2024 investing and financing activities based on our current expectations. Although no principal payments are required on our debt obligations in 2024, we may utilize a portion of our cash for debt repayment. \nProjection \nYear Ending \nApril 30, 2024\nDividend payments \u2013 based on current rates and common shares outstanding\n$\n425.9\u00a0\nCapital expenditures\n565.0\u00a0\nInterest payments\n138.9\u00a0\nAbsent any material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations, borrowings available under our revolving credit facility and commercial paper program, and access to capital markets, will be sufficient to meet our cash requirements for the next 12 months, including the payment of quarterly dividends, principal and interest payments on debt outstanding, and capital expenditures. However, as a result of the current macroeconomic environment, we may experience an increase in the cost or the difficulty to obtain debt or equity financing, or to refinance our debt in the future. We continue to evaluate these risks, which could affect our financial condition or our ability to fund operations or future investment opportunities.\nAs of April 30, 2023, total cash and cash equivalents of $35.8 was held by our foreign subsidiaries, primarily in Canada. We did not repatriate foreign cash to the U.S. during 2023.\nMaterial Cash Requirements\nThe following table summarizes our material cash requirements by fiscal year at April 30, 2023.\nTotal\n2024\n2025-2026\n2027-2028\n2029 and\nbeyond\nLong-term debt obligations \n(A)\n$\n4,350.0\u00a0\n$\n\u2014\u00a0\n$\n1,000.0\u00a0\n$\n500.0\u00a0\n$\n2,850.0\u00a0\nInterest payments \n(B)\n1,682.3\u00a0\n147.2\u00a0\n259.3\u00a0\n224.3\u00a0\n1,051.5\u00a0\nPurchase obligations \n(C)\n2,146.2\u00a0\n1,774.3\u00a0\n228.6\u00a0\n93.9\u00a0\n49.4\u00a0\nTotal\n$\n8,178.5\u00a0\n$\n1,921.5\u00a0\n$\n1,487.9\u00a0\n$\n818.2\u00a0\n$\n3,950.9\u00a0\n(A)\nLong-term debt obligations excludes the impact of offering discounts, make-whole payments, and debt issuance costs.\n35\n(B)\nInterest payments consists of the interest payments for our fixed-rate Senior Notes. \n(C)\nPurchase obligations includes agreements that are enforceable and legally bind us to purchase goods or services, which primarily consist of obligations related to normal, ongoing purchase obligations in which we have guaranteed payment to ensure availability of raw materials. We expect to receive consideration for these purchase obligations in the form of materials and services. These purchase obligations do not represent all future purchases expected but represent only those items for which we are contractually obligated. Amounts included in the table above represent our current best estimate of payments due. Actual cash payments may vary due to the variable pricing components of certain purchase obligations.\nOur other cash requirements at April 30, 2023, primarily included operating and finance lease obligations, which consist of the minimum rental commitments under non-cancelable operating and finance leases. As of April 30, 2023, we had total undiscounted minimum lease payments of $120.9 and $3.5 related to our operating and finance leases, respectively. For additional information, see Note 11: Leases.\nIn addition, we have other liabilities which consisted primarily of projected commitments associated with our defined benefit pension and other postretirement benefit plans, as disclosed in Note 8: Pensions and Other Postretirement Benefits. The total liability for our unrecognized tax benefits and tax-related net interest at April 30, 2023, was $6.3 under Financial Accounting Standards Board (\u201cFASB\u201d) Accounting Standards Codification (\u201cASC\u201d) 740, \nIncome Taxes\n; however, we are unable to reasonably estimate the timing of cash settlements with the respective taxing authorities. For additional information, see Note 13: Income Taxes.\nAs of April 30, 2023, we do not have material off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as variable interest entities. Transactions with related parties are in the ordinary course of business and are not material to our results of operations, financial condition, or cash flows.\nNON-GAAP FINANCIAL MEASURES\nWe use non-GAAP financial measures including: net sales excluding divestitures and foreign currency exchange, adjusted gross profit, adjusted operating income, adjusted income, adjusted earnings per share, and free cash flow, as key measures for purposes of evaluating performance internally. We believe that investors\u2019 understanding of our performance is enhanced by disclosing these performance measures. Furthermore, these non-GAAP financial measures are used by management in preparation of the annual budget and for the monthly analyses of our operating results. The Board also utilizes certain non-GAAP financial measures as components for measuring performance for incentive compensation purposes.\nNon-GAAP financial measures exclude certain items affecting comparability that can significantly affect the year-over-year assessment of operating results, which include amortization expense and impairment charges related to intangible assets, special project costs, gains and losses on divestitures, the change in net cumulative unallocated derivative gains and losses, and other infrequently occurring items that do not directly reflect ongoing operating results, such as unrealized gains and losses on the investment in equity securities. Income taxes, as adjusted is calculated using an adjusted effective income tax rate that is applied to adjusted income before income taxes and reflects the exclusion of the previously discussed items, as well as any adjustments for one-time tax related activities, when they occur. While this adjusted effective income tax rate does not generally differ materially from our GAAP effective income tax rate, certain exclusions from non-GAAP results, such as the unfavorable permanent impact of the divestiture of certain pet food brands during 2023, and the one-time deferred state tax impact of the internal legal entity simplification during 2022, can significantly impact our adjusted effective income tax rate.  \nThese non-GAAP financial measures are not intended to replace the presentation of financial results in accordance with U.S. GAAP. Rather, the presentation of these non-GAAP financial measures supplements other metrics we use to internally evaluate our business and facilitate the comparison of past and present operations and liquidity. These non-GAAP financial measures may not be comparable to similar measures used by other companies and may exclude certain nondiscretionary expenses and cash payments.\nThe following table reconciles certain non-GAAP financial measures to the comparable GAAP financial measure. See page 29 for a reconciliation of net sales adjusted for certain noncomparable items to the comparable GAAP financial measure.\n\u00a0\u00a0\nYear Ended April 30,\n\u00a0\u00a0\n2023\n2022\nGross profit reconciliation:\nGross profit\n$\n2,801.8\u00a0\n$\n2,700.7\u00a0\nChange in net cumulative unallocated derivative gains and losses\n21.4\u00a0\n23.4\u00a0\nCost of products sold \u2013 special project costs \n(A)\n6.4\u00a0\n20.5\u00a0\nAdjusted gross profit \n$\n2,829.6\u00a0\n$\n2,744.6\u00a0\n% of net sales\n33.2\u00a0\n%\n34.3\u00a0\n%\nOperating income reconciliation:\nOperating income\n$\n157.5\u00a0\n$\n1,023.8\u00a0\nAmortization\n206.9\u00a0\n223.6\u00a0\nOther intangible assets impairment charge\n\u2014\u00a0\n150.4\u00a0\nLoss (gain) on divestitures \u2013 net\n1,018.5\u00a0\n(9.6)\nChange in net cumulative unallocated derivative gains and losses\n21.4\u00a0\n23.4\u00a0\nCost of products sold \u2013 special project costs\n (A)\n6.4\u00a0\n20.5\u00a0\nOther special project costs\n (A)\n4.7\u00a0\n8.0\u00a0\nAdjusted operating income\n$\n1,415.4\u00a0\n$\n1,440.1\u00a0\n% of net sales\n16.6\u00a0\n%\n18.0\u00a0\n%\nNet income (loss) reconciliation:\nNet income (loss)\n$\n(91.3)\n$\n631.7\u00a0\nIncome tax expense \n82.1\u00a0\n212.1\u00a0\nAmortization\n206.9\u00a0\n223.6\u00a0\nOther intangible assets impairment charge\n\u2014\u00a0\n150.4\u00a0\nLoss (gain) on divestitures \u2013 net\n1,018.5\u00a0\n(9.6)\nChange in net cumulative unallocated derivative gains and losses\n21.4\u00a0\n23.4\u00a0\nCost of products sold \u2013 special project costs\n (A)\n6.4\u00a0\n20.5\u00a0\nOther special project costs\n (A)\n4.7\u00a0\n8.0\u00a0\nOther infrequently occurring items:\nUnrealized loss (gain) on investment in equity securities\n (B)\n3.8\u00a0\n\u2014\u00a0\nAdjusted income before income taxes\n$\n1,252.5\u00a0\n$\n1,260.1\u00a0\nIncome taxes, as adjusted\n301.7\u00a0\n297.9\u00a0\nAdjusted income\n$\n950.8\u00a0\n$\n962.2\u00a0\nWeighted-average shares \u2013 assuming dilution\n(C)\n106.6\u00a0\n108.4\u00a0\nAdjusted earnings per share \u2013 assuming dilution\n(C)\n$\n8.92\u00a0\n$\n8.88\u00a0\nFree cash flow reconciliation:\nNet cash provided by (used for) operating activities\n$\n1,194.4\u00a0\n$\n1,136.3\u00a0\nAdditions to property, plant, and equipment\n(477.4)\n(417.5)\nFree cash flow\n$\n717.0\u00a0\n$\n718.8\u00a0\n(A)\u00a0\u00a0\u00a0\u00a0Special project costs include certain restructuring costs, which are recognized in cost of products sold and other special project costs. For more information, see\n \nNote 2: Special Project Costs and Note 4: Reportable Segments.\n(B)\u00a0\u00a0\u00a0\u00a0Unrealized loss (gain) on investment in equity securities includes unrealized gains and losses on the change in fair value on our investment in Post common stock. For more information, see Note 3: Divestitures and Note 10: Other Financial Instruments and Fair Value Measurements.\n(C)\u00a0\u00a0\u00a0\u00a0Adjusted earnings per common share \u2013 assuming dilution for 2023 and 2022 was computed using the treasury stock method. Further, in 2023, the weighted-average shares \u2013 assuming dilution differed from our GAAP weighted-average common shares outstanding \u2013 assuming dilution as a result of the anti-dilutive effect of our stock-based awards, which were excluded from the computation of net loss per share \u2013 assuming dilution. For more information see Earnings Per Share in Note 1: Accounting Policies and Note 5: Earnings Per Share. \n36\nCRITICAL ACCOUNTING ESTIMATES AND POLICIES\nThe preparation of financial statements in conformity with U.S. GAAP requires that we make estimates and assumptions that in certain circumstances affect amounts reported in the accompanying consolidated financial statements. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.\nTrade Marketing and Merchandising Programs:\n In order to support our products, various promotional activities are conducted through retailers, distributors, or directly with consumers, including in-store display and product placement programs, price discounts, coupons, and other similar activities. The costs of these programs are classified as a reduction of sales. We regularly review and revise, when we deem necessary, estimates of costs for these promotional programs based on estimates of what will be redeemed by retailers, distributors, or consumers. These estimates are made using various techniques, including historical data on performance of similar promotional programs. Differences between estimated expenditures and actual performance are recognized as a change in estimate in a subsequent period. During 2023, 2022, and 2021, subsequent period adjustments were less than 3 percent of both consolidated pre-tax adjusted income and cash provided by operating activities. \n\u00a0\nIncome Taxes:\n We account for income taxes using the liability method. In the ordinary course of business, we are exposed to uncertainties related to tax filing positions and periodically assess the technical merits of these tax positions for all tax years that remain subject to examination, based upon the latest information available. We recognize a tax benefit when it is more likely than not the position will be sustained upon examination, based on its technical merits. The tax position is then measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. \nWe routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that it is more likely than not that all or some portion of such assets will not be realized. Valuation allowances related to deferred tax assets can be affected by changes in tax laws, statutory tax rates, and projected future taxable income levels. Changes in estimated realization of deferred tax assets would result in an adjustment to income in the period in which that determination is made, unless such changes are determined to be an adjustment to goodwill within the allowable measurement period under the acquisition method of accounting.\nThe future tax benefit arising from the net deductible temporary differences and tax carryforwards was $196.8 and $193.4 at April\u00a030, 2023 and 2022, respectively. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and results of operations. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not likely, a valuation allowance has been provided.\nAs of April 30, 2023, a portion of our undistributed foreign earnings, primarily in Canada, is not considered permanently reinvested, and an immaterial deferred tax liability has been recognized accordingly. Further, we have not repatriated foreign cash to the U.S during 2023. For additional information, see Note 13: Income Taxes.\nGoodwill and Other Indefinite-Lived Intangible Assets: \nA significant portion of our assets is composed of goodwill and other intangible assets, the majority of which are not amortized but are reviewed for impairment at least annually on \nFebruary 1, and more often if indicators of impairment exist. At April\u00a030, 2023, the carrying value of goodwill and other intangible assets totaled $9.6 billion, compared to total assets of $15.0 billion and total shareholders\u2019 equity of $7.3 billion. If the carrying value of these assets exceeds the current estimated fair value, the asset is considered impaired, and this would result in a noncash impairment charge to earnings. Any such impairment charge would reduce earnings and could be material. Events and conditions that could result in impairment include a sustained drop in the market price of our common shares, increased competition or loss of market share, obsolescence, product claims that result in a significant loss of sales or profitability over the product life, deterioration in macroeconomic conditions, or declining financial performance in comparison to projected results.\nTo test for goodwill impairment, we estimate the fair value of each of our reporting units using both a discounted cash flow valuation technique and a market-based approach. The impairment test incorporates estimates of future cash flows; allocations of certain assets, liabilities, and cash flows among reporting units; future growth rates; terminal value amounts; \n37\nand the applicable weighted-average cost of capital used to discount those estimated cash flows. The estimates and projections used in the calculation of fair value are consistent with our current and long-range plans, including anticipated changes in market conditions, industry trends, growth rates, and planned capital expenditures. Changes in forecasted operations and other estimates and assumptions could impact the assessment of impairment in the future. \nAs a result of the divestiture of certain pet food brands on April 28, 2023, we disposed of $790.3 of goodwill, primarily within the Pet Foods reporting unit. The amount of goodwill allocated to the disposal group was determined based on a relative fair value analysis, utilizing a discounted cash flow valuation technique, which required management to make certain estimates and assumptions utilizing Level 3 inputs, consistent with our approach for an impairment test.\nAt April\u00a030, 2023, goodwill totaled $5.2 billion. Goodwill is substantially concentrated within the U.S. Retail Coffee, U.S. Retail Pet Foods, and U.S. Retail Consumer Foods segments. During 2023, no goodwill impairment was recognized as a result of the evaluations performed throughout the year, inclusive of an assessment performed following the divestiture. The estimated fair value of each of our reporting units for which there is a goodwill balance was substantially in excess of its carrying value as of the annual test date, with the exception of the Pet Foods reporting unit, for which its fair value exceeded its carrying value by approximately 7 percent. However, subsequent to the annual test, the reporting units impacted by the divestiture were assessed for impairment as of April 30, 2023, and we concluded there were no indicators of impairment, as the estimated fair values were in excess of the carrying values for all reporting units. For additional information, see Note 3: Divestitures and Note 6: Goodwill and Other Intangible Assets.\nOther indefinite-lived intangible assets, consisting entirely of trademarks, are also tested for impairment at least annually and more often if events or changes in circumstances indicate their carrying values may be below their fair values. To test these assets for impairment, we estimate the fair value of each asset based on a discounted cash flow model using various inputs, including projected revenues, an assumed royalty rate, and a discount rate. Changes in these estimates and assumptions could impact the assessment of impairment in the future. \nAt April\u00a030, 2023, other indefinite-lived intangible assets totaled $2.6 billion. Trademarks that represent our leading brands comprise approximately 95 percent of the total carrying value of other indefinite-lived intangible assets. As of April\u00a030, 2023, the estimated fair value was substantially in excess of the carrying value for the majority of these leading brand trademarks, and in all instances, the estimated fair value exceeded the carrying value by greater than 10 percent.\nPension and Other Postretirement Benefit Plans:\n To determine the ultimate obligation under our defined benefit pension and other postretirement benefit plans, we must estimate the future cost of benefits and attribute that cost to the time period during which each covered employee works. Various actuarial assumptions must be made in order to predict and measure costs and obligations many years prior to the settlement date, the most significant being the interest rates used to discount the obligations of the plans, the long-term rates of return on the plans\u2019 assets, and mortality assumptions. We, along with third-party actuaries and investment managers, review all of these assumptions on an ongoing basis to ensure that the most reasonable information available is being considered.\nWe employ a total return on investment approach for the defined benefit pension plans\u2019 assets. A mix of equity, fixed-income, and alternative investments is used to maximize the long-term rate of return on assets for the level of risk. In determining the expected long-term rate of return on the defined benefit pension plans\u2019 assets, we consider the historical rates of return, the nature of investments, the asset allocation, and expectations of future investment strategies. The actual rate of return was a loss of 2.3 percent and a loss of 4.6 percent for the years ended April\u00a030, 2023 and 2022, respectively, which excludes administrative and investment expenses. \nWe utilize a spot rate methodology for the estimation of service and interest cost for our plans by applying specific spot rates along the yield curve to the relevant projected cash flows to provide a better estimate of service and interest costs. For 2024 expense recognition, we will use weighted-average discount rates for the U.S. defined benefit pension plans of 5.19 percent to determine benefit obligation, 5.38 percent to determine service cost, and 5.08 percent to determine interest cost. As of April 30, 2023, a 50 basis-point decrease in the discount rate assumption would increase the 2024 net periodic benefit cost by approximately $0.4, and the benefit obligation would increase by approximately $18.4. In addition, we anticipate using an expected rate of return on plan assets of 5.35 percent for the U.S. defined benefit pension plans. A 50 basis-point decrease in the expected rate of return on plan assets assumption would increase the 2024 net periodic benefit cost by approximately $1.5. \n38\nFor the Canadian defined benefit pension plans, we will use weighted-average discount rates of 4.59 percent to determine benefit obligation and 4.65 percent to determine interest cost for 2024 expense recognition. In addition, we anticipate using an expected rate of return on plan assets of 3.30 percent for the Canadian defined pension plans. A change in the assumptions used for the Canadian defined benefit pension plans would not have a material impact on the net periodic benefit cost and benefit obligation. For additional information, see Note 8: Pensions and Other Postretirement Benefits.\nFORWARD-LOOKING STATEMENTS\nCertain statements included in this Annual Report on Form 10-K contain forward-looking statements within the meaning of federal securities laws. The forward-looking statements may include statements concerning our current expectations, estimates, assumptions, and beliefs concerning future events, conditions, plans, and strategies that are not historical fact. Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as \u201cexpect,\u201d \u201canticipate,\u201d \u201cbelieve,\u201d \u201cintend,\u201d \u201cwill,\u201d \u201cplan,\u201d and similar phrases.\nFederal securities laws provide a safe harbor for forward-looking statements to encourage companies to provide prospective information. We are providing this cautionary statement in connection with the safe harbor provisions. Readers are cautioned not to place undue reliance on any forward-looking statements, as such statements are by nature subject to risks, uncertainties, and other factors, many of which are outside of our control and could cause actual results to differ materially from such statements and from our historical results and experience. These risks and uncertainties include, but are not limited to, those set forth under the caption \u201cRisk Factors\u201d in this Annual Report on Form 10-K, as well as the following:\n\u2022\nthe effect of the sale of certain pet food brands on our ability to retain key personnel and to maintain relationships with customers, suppliers, and other business partners, and any impact to the value of our investment in Post common stock or our ability to dispose of some or all of such securities at favorable market prices;\n\u2022\ndisruptions or inefficiencies in our operations or supply chain, including any impact caused by product recalls (including the \nJif\n peanut butter product recall), political instability, terrorism, armed hostilities (including the ongoing conflict between Russia and Ukraine), extreme weather conditions, natural disasters, pandemics (including COVID-19), work stoppages or labor shortages, or other calamities;\n\u2022\nrisks related to the availability, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging, and transportation;\n\u2022\nthe impact of food security concerns involving either our products or our competitors\u2019 products, including changes in consumer preference, consumer litigation, actions by the FDA or other agencies, and product recalls;\n\u2022\nrisks associated with derivative and purchasing strategies we employ to manage commodity pricing and interest rate risks;\n\u2022\nthe availability of reliable transportation on acceptable terms;\n\u2022\nour ability to achieve cost savings related to our restructuring and cost management programs in the amounts and within the time frames currently anticipated;\n\u2022\nour ability to generate sufficient cash flow to continue operating under our capital deployment model, including capital expenditures, debt repayment, dividend payments, and share repurchases;\n\u2022\nour ability to implement and realize the full benefit of price changes, and the impact of the timing of the price changes to profits and cash flow in a particular period;\n\u2022\nthe success and cost of marketing and sales programs and strategies intended to promote growth in our business, including product innovation;\n\u2022\ngeneral competitive activity in the market, including competitors\u2019 pricing practices and promotional spending levels;\n\u2022\nour ability to attract and retain key talent;\n\u2022\nthe concentration of certain of our businesses with key customers and suppliers, including single-source suppliers of certain key raw materials and finished goods, and our ability to manage and maintain key relationships;\n\u2022\nimpairments in the carrying value of goodwill, other intangible assets, or other long-lived assets or changes in the useful lives of other intangible assets or other long-lived assets;\n\u2022\nthe impact of new or changes to existing governmental laws and regulations and their application;\n\u2022\nthe outcome of tax examinations, changes in tax laws, and other tax matters;\n\u2022\na disruption, failure, or security breach of our or our suppliers\u2019 information technology systems, including ransomware attacks;\n39\n\u2022\nforeign currency exchange rate and interest rate fluctuations; and\n\u2022\nrisks related to other factors described under \u201cRisk Factors\u201d in other reports and statements we have filed with the SEC.\nReaders are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this Annual Report on Form 10-K. We do not undertake any obligation to update or revise these forward-looking statements to reflect new events or circumstances subsequent to the filing in this Annual Report on Form 10-K.",
+  "item7a": ">Item 7A. \u00a0\u00a0\u00a0\u00a0Quantitative and Qualitative Disclosures About Market Risk.\nDERIVATIVE FINANCIAL INSTRUMENTS AND MARKET RISK\nThe following discussions about our market risk disclosures involve forward-looking statements. Actual results could differ from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates, commodity prices, and foreign currency exchange rates. \nInterest Rate Risk:\n The fair value of our cash and cash equivalents at April\u00a030, 2023, approximates carrying value. We are exposed to interest rate risk with regard to existing debt consisting of fixed- and variable-rate maturities. Our interest rate exposure primarily includes U.S. Treasury rates, SOFR, and commercial paper rates in the U.S. \nWe utilize derivative instruments to manage interest rate risk associated with anticipated debt transactions, as well as to manage changes in the fair value of our long-term debt. At the inception of an interest rate contract, the instrument is evaluated and documented for qualifying hedge accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the contract are deferred and included as a component of accumulated other comprehensive income (loss) and generally reclassified to interest expense in the period during which the hedged transaction affects earnings. If the contract is designated as a fair value hedge, the contract is recognized at fair value on the balance sheet, and changes in the fair value are recognized in interest expense. Generally, changes in the fair value of the contract are equal to changes in the fair value of the underlying debt and have no net impact on earnings.\nIn 2020, we terminated all outstanding interest rate contracts concurrent with the pricing of the Senior Notes due March 15, 2030, and March 15, 2050. The contracts were designated as cash flow hedges and were used to manage our exposure to interest rate volatility associated with the anticipated debt financing. The termination resulted in a pre-tax loss of $239.8, which was deferred and included as a component of accumulated other comprehensive income (loss) and is being amortized as interest expense over the life of the debt.\nIn 2015, we terminated the interest rate swap on the Senior Notes due October 15, 2021, which was designated as a fair value hedge and used to hedge against the changes in the fair value of the debt. As a result of the early termination, we received $58.1 in cash, which included $4.6 of accrued and prepaid interest. The gain on termination was recorded as an increase in the long-term debt balance and was recognized over the life of the debt as a reduction of interest expense. As of 2022, we had fully recognized the gain of $53.5, of which $4.0 was recognized in 2022. For more information on our derivative financial instruments and terminated contracts, see Note 9: Derivative Financial Instruments.\nIn measuring interest rate risk by the amount of net change in the fair value of our financial liabilities, \na hypothetical \n100 basis-point decrease in interest rates at April\u00a030, 2023, would increase the fair value of our long-term debt by\n $307.7.\nCommodity Price Risk:\n We use certain raw materials and other commodities that are subject to price volatility caused by supply and demand conditions, political and economic variables, weather, investor speculation, and other unpredictable factors. To manage the volatility related to anticipated commodity purchases, we use derivatives with maturities of generally less than one year. We do not qualify commodity derivatives for hedge accounting treatment. As a result, the gains and losses on all commodity derivatives are immediately recognized in cost of products sold.\n40\nThe following sensitivity analysis presents our potential loss of fair value resulting from a hypothetical 10 percent change in market prices related to commodities.\n\u00a0\u00a0\nYear Ended April 30,\n\u00a0\u00a0\n2023\n2022\nHigh\n$\n53.9\u00a0\n$\n72.3\u00a0\nLow\n21.6\u00a0\n14.8\u00a0\nAverage\n39.7\u00a0\n37.1\u00a0\nThe estimated fair value was determined using quoted market prices and was based on our net derivative position by commodity for the previous four quarters. The calculations are not intended to represent actual losses in fair value that we expect to incur. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. The commodities hedged have a high inverse correlation to price changes of the derivative instrument. Thus, we would expect that over time any gain or loss in the estimated fair value of its derivatives would generally be offset by an increase or decrease in the estimated fair value of the underlying exposures.\nForeign Currency Exchange Risk:\n We have operations outside the U.S. with foreign currency denominated assets and liabilities, primarily denominated in Canadian currency. Because we have foreign currency denominated assets and liabilities, financial exposure may result, primarily from the timing of transactions and the movement of exchange rates.\n The foreign currency balance sheet exposures as of April\u00a030, 2023, are not expected to result in a significant impact on future earnings or \ncash flows.\nWe utilize foreign currency derivatives to manage the effect of foreign currency exchange fluctuations on future cash payments primarily related to purchases of certain raw materials and finished goods. The contracts generally have maturities of less than one year. We do not qualify instruments used to manage foreign currency exchange exposures for hedge accounting treatment. Therefore, the change in value of these instruments is immediately recognized in cost of products sold. \nBased on our hedged foreign currency positions as of April\u00a030, 2023, a hypothetical 10 percent change in exchange rates would not materially impact the fair value.\nRevenues from customers outside the U.S., subject to foreign currency exchange, represented 5 percent of net sales during 2023. Thus, certain revenues and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations, and these fluctuations may have an impact on operating results.\n41",
+  "cik": "91419",
+  "cusip6": "832696",
+  "cusip": ["832696955", "832696405", "832696905"],
+  "names": ["The J M Smucker Co.", "SMUCKER J M CO"],
+  "source": "https://www.sec.gov/Archives/edgar/data/91419/000009141923000072/0000091419-23-000072-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\n \n\u00a0Business\nUnless this Form 10-K indicates otherwise or the context otherwise requires, the terms \u201cwe,\u201d \u201cour,\u201d \u201cus,\u201d \u201cSysco,\u201d or the \u201ccompany\u201d as used in this Form 10-K refer to Sysco Corporation together with its consolidated subsidiaries and divisions.\nOverview\nSysco Corporation, acting through its subsidiaries and divisions, is the largest global distributor of food and related products primarily to the foodservice or food-away-from-home industry.\u00a0Our purpose is \u201cConnecting the World to Share Food and Care for One Another.\u201d We provided products and related services to approximately 725,000 customer locations, including restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers during fiscal 2023. \nFounded in 1969, Sysco commenced operations as a public company in March 1970 when the stockholders of nine companies exchanged their stock for Sysco common stock.\u00a0Since our formation, we have grown from $115 million to our all-time high of $76.3 billion in annual sales in fiscal 2023, both through internal expansion of existing operations and acquisitions. \nSysco\u2019s fiscal year ends on the Saturday nearest to June 30th.\u00a0This resulted in a 52-week year ended July 1, 2023 for fiscal 2023, a 52-week year ended July 2, 2022 for fiscal 2022 and a 53-week year ended July 3, 2021 for fiscal 2021. We will have a 52-week year ending June\u00a029, 2024 for fiscal 2024. \nSysco Corporation is organized under the laws of Delaware.\u00a0The address and telephone number of our executive offices are 1390 Enclave Parkway, Houston, Texas 77077-2099, (281) 584-1390. This annual report on Form 10-K, as well as all other reports filed or furnished by Sysco pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), are available free of charge on Sysco\u2019s website at \nwww.sysco.com\n as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC).\nReporting Segments\nSysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers.\u00a0Our primary operations are in North America and Europe.\u00a0Under the accounting provisions related to disclosures about segments of an enterprise, we have combined certain operations into three reportable segments. \u201cOther\u201d financial information is attributable to our other operations that do not meet the quantitative disclosure thresholds.\n\u2022\nU.S. Foodservice Operations\n \u2013 primarily includes (a) our U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, produce, specialty Italian, specialty imports and a wide variety of non-food products and (b) our U.S. Specialty operations, which include our FreshPoint fresh produce distribution business, our Specialty Meats and Seafood Group specialty protein operations, our growing Italian Specialty platform anchored by Greco & Sons, our Asian specialty distribution company and a number of other small specialty businesses that are not material to the operations of Sysco; \n\u2022\nInternational Foodservice Operations\n \u2013 includes operations outside of the United States (U.S.), which distribute a full line of food products and a wide variety of non-food products. The Americas primarily consists of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as well as our export operations that distribute to international customers. Our European operations primarily consist of operations in the United Kingdom (U.K.), France, Ireland and Sweden;\n\u2022\nSYGMA\n \u2013 our U.S. customized distribution operations serving quick-service chain restaurant customer locations; and\n\u2022\nOther\n \u2013 primarily our hotel supply operations, Guest Worldwide.\nFoodservice operating sites distribute a full line of food products and a wide variety of non-food products to both independent and chain restaurant customers, hospitals, schools, hotels, industrial caterers and other venues where foodservice products are served.\u00a0SYGMA operating sites distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations. Selected financial data for each of our reportable segments, as well as financial information concerning geographic areas, can be found in Note 21, \u201cBusiness Segment Information,\u201d in the Notes to Consolidated Financial Statements in Item 8.\n1\nCustomers and Products\nSysco\u2019s customers in the foodservice industry include restaurants, hospitals and skilled nursing facilities, schools and colleges, hotels and motels, industrial caterers and other similar venues where foodservice products are served.\nThe products we distribute include:\n\u2022\nfrozen foods, such as meats, seafood, fully prepared entr\u00e9es, fruits, vegetables and desserts;\n\u2022\ncanned and dry foods;\n\u2022\nfresh meats and seafood;\n\u2022\ndairy products;\n\u2022\nbeverage products;\n\u2022\nimported specialties; and\n\u2022\nfresh produce.\nWe also supply a wide variety of non-food items, including:\n\u2022\npaper products such as disposable napkins, plates and cups;\n\u2022\ntableware such as glassware and silverware;\n\u2022\ncookware such as pots, pans and utensils;\n\u2022\nrestaurant and kitchen equipment and supplies; and\n\u2022\ncleaning supplies.\nA comparison of the sales mix in the principal product categories during the last three years is presented below:\nPrincipal product categories\n2023\n2022\n2021\nCanned and dry products\n19\u00a0\n%\n17\u00a0\n%\n16\u00a0\n%\nFresh and frozen meats\n18\u00a0\n19\u00a0\n19\u00a0\nFrozen fruits, vegetables, bakery and other\n15\u00a0\n14\u00a0\n15\u00a0\nDairy products\n11\u00a0\n10\u00a0\n10\u00a0\nPoultry\n10\u00a0\n11\u00a0\n11\u00a0\nFresh produce\n9\u00a0\n8\u00a0\n8\u00a0\nPaper and disposables\n7\u00a0\n7\u00a0\n8\u00a0\nSeafood\n4\u00a0\n5\u00a0\n5\u00a0\nBeverage products\n3\u00a0\n3\u00a0\n3\u00a0\nOther \n(1)\n4\u00a0\n6\u00a0\n5\u00a0\nTotals\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\n(1)\nOther sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, other janitorial products, medical supplies and smallwares.\nOur distribution centers, which we refer to as operating sites, distribute branded merchandise, as well as products packaged under our private brands. Products packaged under our private brands have been manufactured for Sysco according to specifications that have been developed by our quality assurance team. In addition, our quality assurance team certifies the manufacturing and processing plants where these products are packaged, enforces our quality control standards and identifies supply sources that satisfy our requirements.\nWe believe that prompt and accurate delivery of orders, competitive pricing, customer service and the ability to provide a full array of products and services to assist customers in their foodservice operations are of primary importance in the marketing and distribution of foodservice products to our customers. Our operating sites offer daily delivery to certain customer locations and have the capability of delivering special orders on short notice. Through the sales and marketing representatives and support staff, we stay informed of the needs of our customers and acquaint them with new products and services. We also provide ancillary services relating to foodservice distribution, such as providing customers with product usage reports and other data, menu-planning advice, food safety training and assistance in inventory control. Additionally, we provide access to various third-party services designed to add value to our customers\u2019 businesses.\nNo single customer accounted for 10% or more of Sysco\u2019s total sales for the fiscal year ended July 1, 2023.\n2\nWe estimate that our sales by type of customer during the past three fiscal years were as follows:\nType of Customer\n2023\n2022\n2021\nRestaurants \n(1)\n62\u00a0\n%\n63\u00a0\n%\n66\u00a0\n%\nEducation, government\n8\u00a0\n8\u00a0\n6\u00a0\nTravel and leisure\n8\u00a0\n7\u00a0\n5\u00a0\nHealthcare\n7\u00a0\n8\u00a0\n9\u00a0\nOther \n(2)\n15\u00a0\n14\u00a0\n14\u00a0\nTotals\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\n(1)\nRestaurants returned to a pre-pandemic percentage of total sales in fiscal year 2023. For comparability purposes, in both fiscal years 2020 and 2019, restaurants constituted 62% of total sales. \n(2)\nOther includes cafeterias that are not stand-alone restaurants, bakeries, caterers, churches, civic and fraternal organizations, vending distributors, other distributors and international exports, as well as retail food sales and logistics services. None of these types of customers, as a group, exceeded 5% of total sales in any of the years for which information is presented.\nWe estimate that sales to our customers in the food service management (FSM) sector, which include large customers that service cafeterias in institutions such as universities, hospitals, and sporting venues, accounted for 7% of sales in fiscal 2023, as compared to 6% of sales in fiscal 2022. These sales are reflected within the respective customer types listed in the table above, depending on the type of customer the FSM operator serves.\nSources of Supply\nWe purchase from thousands of suppliers, both domestic and international, none of which individually accounted for more than 10% of our purchases for fiscal 2023.\u00a0These suppliers consist generally of large corporations selling brand name and private label merchandise, as well as independent regional brand and private label processors and packers.\u00a0We also provide specialty and seasonal products from small to mid-sized producers to meet a growing demand for locally sourced products. Our locally sourced products, including produce, meats, cheese and other products, help differentiate our customers\u2019 offerings, satisfy demands for new products, and support local communities. Merchandise is generally purchased through both centrally developed programs, domestically and internationally, and direct programs established by our various operating sites.\nWe administer a consolidated product procurement program designed to develop, obtain and ensure consistent quality food and non-food products. The program covers the purchasing and marketing of branded merchandise, as well as products from several national brand suppliers, encompassing substantially all product lines. Some of our products are purchased internationally within global procurement centers to build strategic relationships with international suppliers and to optimize our supply chain network. We also focus on increasing profitability by lowering operating costs and aggregate inventory levels. This reduces future facility expansion needs at our operating sites, while providing greater value to our suppliers and customers.\nWorking Capital Practices\nOur growth is funded through a combination of cash on hand, cash flow from operations, commercial paper issuances and long-term borrowings. See the discussion in Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2013 Liquidity and Capital Resources\u201d regarding our liquidity, financial position and sources and uses of funds. \nWe extend credit terms to some of our customers based on our assessment of each customer\u2019s creditworthiness. We monitor each customer\u2019s account and will suspend shipments if necessary.\nA majority of our sales orders are filled within 24 hours of customer order placement. We generally maintain inventory on hand to meet customer demand. The level of inventory on hand will vary by product depending on shelf-life, supplier order fulfillment lead times and customer demand. We also purchase additional volumes of certain products based on supply or pricing opportunities. We take advantage of suppliers\u2019 cash discounts where appropriate. Otherwise, we pay our suppliers according to our payment terms.\nGlobal Support Center\nOur Global Support Center (GSC) provides numerous centralized services to our operating sites and performs support activities for employees, suppliers and customers. GSC team members possess experience and expertise in, among other areas, \n3\ncustomer and vendor contract administration, accounting and finance, treasury, legal, information technology, payroll and employee benefits, risk management and insurance, sales and marketing, merchandising, inbound logistics, human resources, strategy and tax compliance services. The GSC also makes available supply chain expertise in warehousing, distribution, and omni-channel strategic services, which provide assistance in operational best practices, including space utilization, energy conservation, fleet management and workflow.\nCapital Improvements\nDuring fiscal 2023, 2022 and 2021, $793.3 million, $632.8 million and $470.7 million, respectively, were invested in facilities, technology, equipment, delivery fleet and other capital asset enhancements. From time to time, we dispose of assets in the normal course of business and we consider proceeds from these asset sales to be an offset to capital expenditures. During fiscal 2023, 2022 and 2021, capital expenditures, net of proceeds from sales of assets, were $751.2 million, $608.7 million and $411.5 million, respectively. Capital expenditures, net of proceeds from sales of assets, as a percentage of sales during fiscal 2023, 2022 and 2021 were 1.0%, 0.9% and 0.8%, respectively. During the three years ended July 1, 2023, capital expenditures were financed primarily by internally generated funds along with bank and other borrowings. We expect our capital expenditures, net of proceeds from sales of assets, to continue to approximate 1% of sales in fiscal 2024, and we expect to finance these capital expenditures from cash flows from operations and bank and other borrowings.\nHuman Capital Resources\nWe believe engaged and empowered colleagues are key to business success. Attracting, developing and retaining the best talent globally drives the company\u2019s long-term value. Our diverse colleagues and inclusive culture create an environment where colleagues can develop their skills and contribute to our success. As of July 1, 2023, we employed approximately 72,000 employees, including 50,000 U.S. employees and 22,000 employees outside the U.S., as compared to approximately 71,000 employees as of July 2, 2022. Also, approximately 99% of our U.S.-based colleagues are classified as full-time, defined as employees who work 30 or more hours per week. Approximately 15% of our employees were represented by unions, primarily the International Brotherhood of Teamsters and unions in France and Sweden. Approximately 8% of our union U.S. employees and 20% of our union international employees are covered by collective bargaining agreements that are subject to renegotiation in fiscal 2024.\nTalent Acquisition and Talent Management \n\u2014 Maintaining a pipeline of talent is critical to our ongoing success and is essential to our succession planning efforts and to growing leaders throughout the organization. Our leadership is responsible for attracting and retaining top talent by facilitating an environment where employees feel supported and encouraged in their professional and personal development. Specifically, we promote employee development by cultivating a high-impact learning culture for our colleagues through a variety of enterprise development programs and learning resources, including goal-setting and career development processes. We commit to investing in our employees through on the job training and coaching.  Additionally, through our Sysco Speaks program, we conduct annual, confidential engagement surveys of our global workforce that are administered and analyzed by an independent third party.\nTotal Rewards \n\u2014 We are committed to equal pay for equal work, regardless of gender, race, ethnicity or other personal characteristics. To deliver on that commitment, we benchmark and set pay ranges based on market data and consider various factors, such as an employee\u2019s role and experience, job location and individual performance. We also regularly review our compensation practices to promote fair and equitable pay. In fiscal 2023, our hourly colleagues received an average hourly wage of $24.15, and 100% of colleagues in our U.S. distribution facilities received pay above state minimum wage thresholds. Also, some of our full-time colleagues receive paid vacation and sick time benefits, short-term and long-term incentives, retirement plans, training and development, access to career opportunities, paid pregnancy and adoption leave benefits, short-term and long-term disability benefits, health and welfare benefits, and recognition, as well as other programs like employee discounts.\nDiversity, Equity and Inclusion \n\u2014 Our Diversity, Equity and Inclusion (DEI) team develops global strategic initiatives that are implemented to ensure that the needs specific to each region are addressed. Our vision is to build a diverse, equitable and inclusive work environment that reflects the customers and communities we serve. We use our Global DEI Advisory Council to monitor and enhance our three-year DEI Roadmap and Real Talk Dialogues which provide leaders and colleagues safe forums to have open, honest, two-way and completely voluntary conversations. Our Colleague Resource Groups (CRGs) are voluntary, colleague-led groups organized to foster a diverse, inclusive workplace at Sysco. They are a critical element of our engagement and DEI efforts at both our headquarters and at operating sites. \n4\nAs of July 1, 2023, our U.S. employee population possessed the gender, ethnic and racial attributes identified below:\nUnited States Employee Population \n(1)\nMale\nFemale\nWhite\nHispanic or Latino\nBlack or African American\nAsian\nAmerican Indian or Alaskan Native\nNative Hawaiian or Other Pacific Islander\nTwo or more races\nNot Available\nIndividual Contributors\n81\u00a0\n%\n19\u00a0\n%\n42\u00a0\n%\n26\u00a0\n%\n23\u00a0\n%\n4\u00a0\n%\n1\u00a0\n%\n1\u00a0\n%\n2\u00a0\n%\n1\u00a0\n%\nManagement\n74\u00a0\n26\u00a0\n63\u00a0\n16\u00a0\n12\u00a0\n5\u00a0\n1\u00a0\n1\u00a0\n2\u00a0\n\u2014\u00a0\nSenior Management\n74\u00a0\n26\u00a0\n79\u00a0\n6\u00a0\n6\u00a0\n6\u00a0\n\u2014\u00a0\n\u2014\u00a0\n2\u00a0\n1\u00a0\nOfficers\n72\u00a0\n28\u00a0\n66\u00a0\n5\u00a0\n14\u00a0\n5\u00a0\n1\u00a0\n\u2014\u00a0\n3\u00a0\n6\u00a0\nTotal Sysco\n80\u00a0\n20\u00a0\n45\u00a0\n25\u00a0\n21\u00a0\n4\u00a0\n1\u00a0\n1\u00a0\n2\u00a0\n1\u00a0\n(1)\nInformation is based on self-reported identification.\nCompetition\nA large number of companies are engaged in the distribution of food and non-food products to the foodservice industry. Our customers may choose to purchase products directly from wholesale or retail outlets, including club, cash and carry and grocery stores, online retailers, or negotiate prices directly with our suppliers. We compete with local and regional distributors and some organizations that operate on a multi-region basis. In addition, these local, regional and multi-regional distributors can create purchasing cooperatives and marketing groups to enhance their competitive abilities by expanding their product mix, improving purchasing power and extending their geographic capabilities. Our customers are accustomed to purchasing from multiple suppliers and channels concurrently. Customers can choose from many broadline foodservice distributors; specialty distributors that focus on specific categories such as produce, meat or seafood; other wholesale channels; club stores; cash and carry stores; grocery stores; and numerous online retailers. Since switching costs are very low, customers can make supplier and channel changes very quickly. We believe that the principal competitive factors in the foodservice industry are effective customer contacts, the ability to deliver a wide range of quality products and related services on a timely and dependable basis, and competitive prices. There are few barriers to market entry. \nWe estimate we serve more than 17% of the approximately $350 billion annual foodservice market in the U.S., as estimated by Technomic, Inc., for calendar year 2022. Technomic projects the market size to increase to approximately $370\u00a0billion by the end of calendar 2023. We also serve certain international geographies that vary in size and amount of market share. We believe, based upon industry trade data, our sales to the U.S. and Canada food-away-from-home industry were the highest of any foodservice distributor during fiscal 2023. While comprehensive industry statistics are not available, we believe that, in most instances, our operations in the U.S. and Canada are among the leading distributors of food and related non-food products to foodservice customers in those trade areas.\u00a0We believe our competitive advantages include our sales consultants; our diversified product base, which includes quality-assured Sysco brand products; our service reliability; the ancillary services we provide to our customers, such as business reviews and menu analysis; and our multi-regional presence in North America and Europe. These advantages combined with a large geographical footprint of multi-temperature warehouses, mitigates some of the impact of regional economic declines that may occur over time.\nGovernment Regulation\nOur company is required to comply, and it is our policy to comply, with all applicable laws and regulations in the numerous countries throughout the world in which we do business.\nIn the U.S., as a marketer and distributor of food products, we are subject to the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the U.S. Food and Drug Administration (FDA). The FDA regulates food safety and quality through various statutory and regulatory mandates, including manufacturing and holding requirements for foods through good manufacturing practice regulations, hazard analysis and critical control point (HACCP) requirements for certain foods, and the food and color additive approval process. The agency also specifies the standards of identity for certain foods; prescribes the format and content of information required to appear on food product labels; regulates food contact packaging and materials; and maintains a Reportable Food Registry for the industry to report when there is a reasonable probability that an article of food will cause serious adverse health consequences. For certain product lines, we are also subject to the Federal Meat Inspection Act, the Poultry Products Inspection Act, the Perishable Agricultural Commodities Act, the Packers and Stockyard Act and regulations promulgated by the U.S. Department of Agriculture (USDA) to interpret and implement these statutory provisions. The USDA imposes standards for product safety, quality and sanitation through the federal meat and poultry \n5\ninspection program. The USDA reviews and approves the labeling of these products and establishes standards for the grading and commercial acceptance of produce shipments from our suppliers. We are also subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, which imposes certain registration and record keeping requirements on facilities that manufacture, process, pack or hold food for human or animal consumption.\nThe Food Safety Modernization Act (FSMA) has significantly expanded our food safety requirements. The FDA has finalized regulations implementing the FSMA, recognizing that ensuring the safety of the food supply is a shared responsibility among many different points in the global supply chain. The FSMA rules are designed to identify specific actions that must be taken at each of these points to prevent contamination. We have established and continue to maintain comprehensive, prevention-based controls across the food supply chain that are both verified and validated, as required by FDA regulations implementing FSMA. The FSMA further imposes requirements for food products imported into the U.S. and provides the FDA with mandatory recall authority. \nWe and our products are also subject to state and local regulation through such measures as the licensing of our facilities; enforcement by state and local health agencies of state and local standards for our products; and regulation of our trade practices in connection with the sale of our products. Our facilities are subject to regulations issued pursuant to the U.S. Occupational Safety and Health Act by the U.S. Department of Labor. These regulations require us to comply with certain manufacturing, health and safety standards to protect our employees from accidents and to establish hazard communication programs to transmit information on the hazards of certain chemicals present in products we distribute. We are also subject to the National Labor Relations Act, which governs the process for collective bargaining between employers and employees and protects the rights of both employers and employees in the workplace.\nOur processing and distribution facilities must be registered with the FDA biennially and are subject to periodic government agency inspections by the FDA and USDA. Our facilities are generally inspected at least annually by federal and/or state authorities. We also must comply with Federal Trade Commission standards with respect to any claims made about our food products in advertising and marketing materials.\nOur customers include several departments of the federal government, including the Department of Defense and Department of Veterans Affairs facilities, as well as certain state and local entities. These customer relationships subject us to additional regulations applicable to government contractors.\nWe are also subject to regulation by numerous federal, state and local regulatory agencies, including, but not limited to, the U.S. Department of Labor, which sets employment practice standards for workers. We are also subject to regulations by the U.S. Department of Transportation, as well as its agencies, the Surface Transportation Board, the Federal Highway Administration, the Federal Motor Carrier Safety Administration, and the National Highway Traffic Safety Administration, which collectively regulate our trucking operations through the regulation of operations, safety, insurance and hazardous materials. We must comply with the safety and fitness regulations promulgated by the Federal Motor Carrier Safety Administration, including those relating to drug and alcohol testing and hours-of service. Such matters as weight and dimension of equipment also fall under federal and state regulations. We are subject to regulations of the Federal Aviation Administration covering items transported by air. In addition, we are subject to the federal False Claims Act, and similar state statutes, which prohibit knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to the government and the knowing and improper retention of overpayments. \nThe U.S. Foreign Corrupt Practices Act (FCPA) prohibits bribery of public officials to obtain or retain business in foreign jurisdictions. The FCPA also requires us to keep accurate books and records and to maintain internal accounting controls to detect and prevent bribery and to ensure that transactions are properly authorized and recorded. We have implemented and continue to develop an anti-corruption compliance program applicable to our global operations intended to detect and prevent bribery and to comply with these and other anti-corruption laws in countries where we operate.\nOur business is subject to competition laws in the various jurisdictions where we operate, including the Sherman Antitrust Act and related federal and state antitrust laws in the U.S. These laws and regulations generally prohibit competitors from fixing prices, boycotting competitors, or engaging in other conduct that unreasonably restrains competition. In many jurisdictions, compliance with these competition laws is of special importance to us. Our operations may come under special scrutiny by competition law authorities due to our competitive position in those jurisdictions.\nOutside the U.S., our business is subject to numerous similar statutes, regulations, and other regulatory requirements. For example, we are subject to legal and regulatory requirements of the European Union (EU), as well as those of EU countries, where we conduct business (including Ireland, France and Sweden). Those requirements relate to, among other things, \n6\ncompetition, product composition, packaging, labeling, advertisement (including nutrition and health claims) and the safety of food products, as well as the health, safety and working conditions of employees. We are subject to privacy laws in the EU, including the General Data Protection Regulation (GDPR), which requires companies to meet certain requirements regarding the handling of personal data. In addition, our business is subject to the U.K. Modern Slavery Act 2015, which requires certain companies that operate in the U.K. to prepare a report describing steps that they have taken to ensure that slavery and human trafficking is not taking place in their supply chain or business. Our business is also subject to the U.K. Bribery Act 2010, an anti-corruption law that criminalizes the failure by a company to prevent persons associated with that company from offering or paying bribes to government officials or non-government persons in order to obtain or retain business or a business advantage for the company, as well as restricting the offer, payment or receipt of bribes to or from governmental officials and non-governmental persons.\nAll of our company\u2019s facilities and other operations in the U.S. and elsewhere around the world are subject to various environmental protection statutes and regulations, including those in the U.S., the U.K. and the EU, relating to: (1) the use of water resources and the discharge of wastewater; (2) the discharge of pollutants into the air, including vehicle emissions; (3) proper handling, treatment and disposing of solid and hazardous wastes; and (4) protecting against and appropriately investigating and remediating spills and releases. Further, most of our distribution facilities have ammonia-based refrigeration systems and tanks for the storage of diesel fuel and other petroleum products which are subject to laws regulating such systems and storage tanks (including the investigation and remediation of soil and groundwater contamination associated with the use of underground storage tanks). See \u201cItem 1A. Risk Factors - Business and Operational Risks - We may incur significant costs to comply with environmental laws and regulations, and we may be subject to substantial fines, penalties, or third-party claims for non-compliance.\u201d\nGeneral\nWe have numerous trademarks that are of significant importance, including the SYSCO\u00ae and Brakes\u00ae trademarks, in addition to our privately branded product trademarks that include these trademarks. These trademarks and the private brands on which they are used are widely recognized within the foodservice industry. Both our U.S. and European trademarks are effective for a ten-year period, and we generally renew our trademarks before their expiration dates unless a particular trademark is no longer in use. We believe the loss of the SYSCO\u00ae trademark would have a material adverse effect on our results of operations. We do not have any material patents or licenses.\nWe are not engaged in material research and development activities relating to the development of new products or the improvement of existing products.\nOur sales do not generally fluctuate significantly on a seasonal basis; therefore, our business is not deemed to be seasonal.\nAs of July 1, 2023, we operated 334 distribution facilities throughout North America and Europe.\n Item 1A.  \nRisk Factors\nThe following discussion of \u201crisk factors\u201d identifies the most significant factors that may adversely affect our business, results of operations, financial position and future financial performance. This information should be read in conjunction with Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes contained in this report.  The following discussion of risks is not all inclusive, but is designed to highlight what we believe are the most significant factors to consider when evaluating our business. These factors could cause our future results to differ from our expectations expressed in the forward-looking statements identified within \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and from other historical trends.\nIndustry and General Economic Risks\nOur industry is characterized by low margins, and periods of significant or prolonged inflation or deflation affect our product costs and may negatively impact our profitability and results of operations.\nThe foodservice distribution industry is characterized by relatively high inventory turnover with relatively low profit margins. Volatile food costs have a direct impact on our industry. We experienced an elevated inflation rate of approximately 6.1% in our total company operations during fiscal 2023, primarily in the dairy, frozen and canned and dry categories. In periods of significant product cost inflation, if we are unable to pass on all or a portion of such product cost increases to our customers in a timely manner, our results of operations would be adversely affected. In addition, periods of rapidly increasing \n7\ninflation may adversely affect our results of operations due to the impact of such inflation on discretionary spending by consumers and our limited ability to increase prices in the current, highly competitive environment. Conversely, our results of operations may be adversely affected by periods of product cost disinflation and deflation, because we make a significant portion of our sales at prices that are based on the cost of products we sell plus a percentage margin, mark-up or fee per case. As a result, our results of operations may be adversely affected during periods of product cost disinflation and deflation, even though our gross profit percentage may remain relatively constant.\nA shortage of qualified labor and increases in labor costs could adversely affect our business and materially reduce earnings\n.\nThe future success of our operations, including the achievement of our strategic objectives, depends on our ability, and the ability of certain third parties on which we rely, to identify, recruit, develop and retain diverse, qualified and talented individuals. As a result, a shortage of qualified labor could adversely affect our business, decrease our ability to effectively serve our customers, and achieve our strategic objectives. We are experiencing a shortage of qualified labor in certain geographies, particularly in the area of warehouse workers and drivers. Such shortages frequently result in increased costs from certain temporary wage actions, such as hiring, referral, and retention bonus programs. See the discussion under \u201cHuman Capital Resources\u201d in Item 1, \u201cBusiness\u201d for additional information regarding our talent acquisition and talent management efforts in the context of these labor shortages. Unsuccessful recruiting and retention efforts as a result of such continuing shortages for a prolonged period of time could have a material adverse effect on our financial condition and results of operations.\nLabor shortages also likely lead to higher wages for employees and higher costs to purchase the services of third parties. Increases in labor costs, such as increases in minimum wage requirements, wage inflation and/or increased overtime, reduce our profitability and that of our customers. Increases in such labor costs for a prolonged period of time could have a material adverse effect on our financial condition and results of operations. \nFurther, potential changes in labor legislation and case law could result in current non-union portions of our workforce, including warehouse and delivery personnel, being subjected to greater organized labor influence. If additional portions of our workforce became subject to collective bargaining agreements, this could result in increased costs of doing business as we would become subject to mandatory, binding arbitration or labor scheduling, costs and standards, which may reduce our operating flexibility.\nGlobal health developments and economic uncertainty resulting from the COVID-19 pandemic or other future public health crises may continue to adversely affect our business, financial condition and results of operations. \nPublic health crises, pandemics and epidemics could adversely affect our business, financial condition and results of operations. For example, the coronavirus (COVID-19) pandemic adversely impacted our business, results of operations and financial condition directly and disrupted the operations of our business partners, suppliers and customers. \n \nWhile our operations have generally stabilized since the peak of the COVID-19 pandemic, we cannot predict with certainty the extent to which our operations may be impacted in the future by any continuing effects of COVID-19 on us or on our business partners, suppliers and customers. \n \nFear of COVID-19 or similar events may further alter consumer confidence, behavior and spending patterns, and could adversely affect the economies and financial markets of many countries (or globally), resulting in an economic downturn that could affect customers\u2019 demand for our products. \nIn response to the outbreak of COVID-19 and its development into a pandemic, governmental authorities in many countries in which we, our customers and our suppliers were present and operated, imposed mandatory closures, sought voluntary closures and imposed restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions. Among other matters, these actions required or strongly urged various venues where foodservice products were served, including restaurants, schools, hotels and cruise liners, to reduce or discontinue operations, which adversely affected demand in the foodservice industry, including demand for our products and services. Mutations of the virus have arisen, and may arise in the future, some of which could prove to be particularly aggressive variants, causing some governmental authorities to reintroduce certain restrictions in the future, which could adversely affect demand in the foodservice industry.\nThe future outbreak of a public health crisis (including the reemergence of COVID-19) that adversely affects our business, results of operations and financial condition, could also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K and subsequent filings with the SEC, such as those risks relating to our level of indebtedness, and may have an adverse effect on the price of our common stock.\n8\nUnfavorable macroeconomic conditions, as well as unfavorable conditions in particular local markets, may adversely affect our results of operations and financial condition.\nOur results of operations are susceptible to regional, national and international economic trends and uncertainties. Economic conditions can affect us in the following ways:\n\u2022\nUnfavorable conditions can depress sales and/or gross margins in a given market.\n\u2022\nFood cost and fuel cost inflation can lead to reductions in the frequency of dining out and the amount spent by consumers for food-away-from-home purchases, reducing demand for our products.\n\u2022\nHeightened uncertainty in the financial markets negatively affects consumer confidence and discretionary spending.\n\u2022\nThe inability to consistently access credit markets could impair our ability to market and distribute food products, support our operations and meet our customers\u2019 needs.\n\u2022\nLiquidity and the inability of our customers and suppliers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to collect funds from our customers and obtain the products and supplies that we need in the quantities and at the prices that we request.\n\u2022\nForeign exchange rate fluctuations can adversely impact our competitiveness and/or financial results.\nThe countries in which we operate have experienced and are experiencing, from time to time, deteriorating economic conditions and heightened uncertainty in financial markets, which have adversely impacted business and consumer confidence and spending and depressed capital investment and economic activity in the affected regions. Such conditions and high levels of uncertainty make it difficult to predict when, or if, a recession may occur. In fact, some commentators have suggested that the U.S. is already in a recession.\n \nA prolonged economic downturn or recession in the U.S. or global economies, and the impact on gross domestic product growth, corporate earnings, consumer confidence, employment rates, income levels and/or personal wealth, could have a material adverse effect on our results of operations and financial condition.\nWe may not be able to fully compensate for increases in fuel costs, and fuel hedging arrangements intended to contain fuel costs could result in above market fuel costs, any of which could adversely affect our results of operations.\nThe cost of fuel affects the prices we pay for products, as well as the costs we incur to deliver products to our customers. We require significant quantities of fuel for our delivery vehicles and are exposed to the risk associated with fluctuations in the market price for fuel. The price and supply of fuel can fluctuate significantly based on international, political and economic circumstances (such as the invasion of Ukraine by the Russian Federation (Russia)) as well as other factors outside our control, such as actions by the Organization of the Petroleum Exporting Countries (OPEC) and other oil and gas producers, regional production patterns, weather conditions and environmental concerns. Although we have been able to pass along a portion of increased fuel costs to our customers in the past through, among other things, our fuel surcharge program, we may not be able to do so in the future. If fuel costs continue to increase in the future, we may experience difficulties in passing all or a portion of these costs along to our customers, which may adversely affect our results of operations.\nWe routinely enter into fuel hedging arrangements, including fuel derivatives, to hedge our exposure to volatile fuel prices. Nevertheless, our fuel hedging transactions may not be effective in protecting us from changes in fuel prices. If fuel prices were to decrease significantly, these hedging arrangements would result in our paying higher-than-market costs for a portion of our diesel fuel. In addition, our future use of fuel derivatives would expose us to the risk that any of our counterparties fails to perform its obligations, whether due to its insolvency or otherwise, which could result in financial losses.\nEconomic and political instability and changes in laws and regulations could adversely affect our results of operations and financial condition.\nOur international operations subject us to certain risks, including economic and political instability and potential unfavorable changes in laws and regulations in international markets in which we operate. Local or regional geopolitical events, such as Brexit and, civil unrest in France in 2023 related to socioeconomic issues, have negatively impacted our operations. Similar future trade or labor disruptions or disputes could have a negative impact on our operations in the EU and other parts of the world.\nIn addition, military conflicts, such as the invasion of Ukraine by Russia, can negatively impact global demand. In response to such conflicts, various governments can and have recently imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties, which actions can have a negative impact on our operations. Although our business has not been materially impacted to date by the ongoing invasion of Ukraine by Russia, it is impossible to predict the extent to which our operations, or those of our suppliers and customers, will be impacted in the short \n9\nand long term, or the ways in which the conflict may impact our business. The extent and duration of the military action, sanctions and resulting market disruptions are difficult to predict, but could be substantial. Further escalation of geopolitical tensions related to the military conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, supply disruptions, lower consumer demand and changes to foreign exchange rates and financial markets. Any or all of these factors could disrupt our business directly and could disrupt the business of our customers, which could have an adverse effect on our business and results of operations. Any such disruptions may also magnify the impact of other risks described in this Annual Report on Form 10-K.\nCompetition and the impact of GPOs may reduce our margins and make it difficult for us to maintain our market share, growth rate and profitability\n.\nThe foodservice distribution industry is fragmented and highly competitive, with local, regional and multi-regional distributors and specialty competitors. Local and regional companies often align themselves with other smaller distributors through purchasing cooperatives and marketing groups, with the goal of enhancing their geographic reach, private label offerings, overall purchasing power, cost efficiencies and ability to meet customer distribution requirements. These suppliers may also rely on local presence as a source of competitive advantage, and they may have lower costs and other competitive advantages due to geographic proximity. Furthermore, barriers to entry by new competitors, or geographic or product line expansion by existing competitors, are low. Additionally, increased competition from non-traditional sources (such as club stores and commercial wholesale outlets with lower cost structures), online direct food wholesalers and cash and carry operations have served to further increase pressure on the industry\u2019s profit margins.\n \nContinued margin pressure within the industry may have a material adverse effect on our results of operations.\nMoreover, some of our customers purchase their products from us through group purchasing organizations (GPOs) in an effort to lower the prices paid by these customers on their foodservice orders. GPOs have a relatively larger presence in the healthcare, lodging and foodservice management customer segments. If these GPOs are able to add a significant number of our customers as members,\n \nour business, financial condition and results of operations may be adversely affected.\nFinally, demand for food-away-from-home products is volatile and price sensitive, imposing limits on our customers\u2019 ability to absorb cost increases. New and increasing competitive sources may result in increased focus on pricing and on limiting price increases or may require increased discounting or other concessions. Such competition or other industry pressures may result in margin erosion and/or make it difficult for us to attract and retain customers.\nIf we are unable to effectively differentiate ourselves from our competitors, our results of operations could be adversely impacted. In addition, even if we are able to effectively differentiate ourselves, we may only be able to do so through increased expenditures or decreased prices, which could also adversely impact our results of operations.\nBusiness and Operational Risks\nConditions beyond our control can interrupt our supplies, increase our product costs and impair our ability to deliver products and services to our customers, any of which could adversely affect our business, results of operations and financial condition\n.\nWe obtain substantially all of our foodservice and related products from third-party suppliers. Although our purchasing volume can provide benefits when dealing with suppliers, suppliers may not be able to provide the foodservice products and supplies that we need due to conditions outside of their control. We are also subject to delays caused by interruptions in production and increases in product costs based on conditions outside of our control. These conditions include shortages of qualified labor for our suppliers, work slowdowns, work interruptions, strikes or other job actions by employees of suppliers, short-term weather conditions or more prolonged climate change, crop and other agricultural conditions, water shortages, transportation interruptions (such as shortages of ocean cargo containers), unavailability of fuel or increases in fuel costs, product recalls, competitive demands, civil insurrection or social unrest, terrorist attacks or international hostilities (such as the invasion of Ukraine by Russia) and natural disasters, epidemics, pandemics (such as the COVID-19 pandemic) or other human or animal disease outbreaks or other catastrophic events (including, but not limited to, foodborne illnesses). Many of these conditions outside of our control could also impair our ability to provide our products and services to our customers or increase the cost of doing so. While our operations have generally stabilized since the peak of the COVID-19 pandemic, we cannot predict with certainty the extent that our operations may continue to be impacted by any continuing effects of COVID-19 on us or on our business partners, suppliers and customers. Customer demand is currently outpacing available supply in certain categories. Certain suppliers are struggling to meet demand for our orders and may also be affected by higher costs to source or \n10\nproduce and transport products, which impairs our ability to deliver products and services to our customers. Prolonged future supply shortages could have an adverse effect on our financial condition and results of operations.\nFurther, increased frequency or duration of extreme weather conditions, which may be from climate change, could also impair production capabilities, disrupt our supply chain or adversely affect demand for our products. At any time, input costs could increase for a prolonged period for a large portion of the products that we sell. Additionally, we procure products from suppliers outside of the U.S., and we are subject to the risks associated with political or financial instability, military conflict, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to foreign trade, including health and safety restrictions related to epidemics and pandemics (such as the COVID-19 pandemic), any or all of which could delay our receipt of products or increase our input costs.  \nIn addition, as a foodservice distributor, it is necessary for us to maintain an inventory of products. Declines in product pricing levels between the time we purchase a product from our suppliers and the time we sell the product to our customers could reduce our margin on that inventory, adversely affecting our results of operations.\nAdverse publicity about us or lack of confidence in our products could negatively impact our reputation and reduce earnings.\nMaintaining a good reputation and public confidence in the safety of the products we distribute is critical to our business. Our brand names, trademarks, logos and reputation are powerful sales and marketing tools, and we devote significant resources to promoting and protecting them. Anything that damages our reputation or public confidence in our products, whether or not justified, could tarnish our reputation and diminish the value of our brand, which could adversely affect our results of operations, and require additional resources to rebuild our reputation and restore the value of our brand.\nReports, whether true or not, of foodborne illnesses or injuries caused by food tampering could also severely injure our reputation or reduce public confidence in our products. If patrons of our restaurant customers were to become ill from foodborne illnesses, our customers could be forced to temporarily close restaurant locations, which would have an adverse effect on our sales and profitability. In addition, adverse publicity about regulatory or legal action against us could damage our reputation and image, undermine our customers\u2019 confidence in us and reduce short-term or long-term demand for our products and\n \nservices, even if the regulatory or legal action is unfounded or not material to our operations. \n \nAny of these developments or circumstances could adversely affect our results of operations.\nOur relationships with long-term customers may be materially diminished or terminated, which could adversely affect our business, financial condition and results of operations.\nWe have long-standing relationships and agreements with a number of our customers. Some of our customer agreements are terminable upon written notice by either us or the customer, which provides some customers with the opportunity to renegotiate their contracts with us on less favorable terms or to award more business to our competitors. Market competition, customer requirements, customer financial condition and customer consolidation through mergers or acquisitions also could adversely affect our ability to continue or expand these relationships. We may not be able to retain or renew existing agreements, maintain relationships with any of our customers on acceptable terms, or at all, or collect amounts that insolvent customers might owe us. The loss of one or more of our major customers could adversely affect our business, financial condition, and results of operations.\nOur anticipated change to the mix of locally managed customers versus multi-unit customers could reduce our gross and operating margins.\nGross margin from our multi-unit customers, which includes primarily national and regional casual dining and quick service restaurant chains, is generally lower than that of our locally managed customers because we typically sell higher volumes of products to multi-unit customers and provide a relatively lower level of value-added services than we do to locally managed customers. If sales to our locally managed customers do not grow at the same (or a greater) rate as sales to our multi-unit customers, our operating margins could decline. For example, the COVID-19 pandemic generally negatively affected multi-unit customers less than locally managed customers.\nIf our sales to multi-unit customers were to continue to increase at a faster pace of growth than sales to our locally managed customers, we will become more dependent on multi-unit customers, as they begin to represent a greater proportion of our total sales. Therefore, a future loss of sales to the larger of these multi-unit customers could have a material negative impact on our results of operations and financial condition. Additionally, as a result of our greater dependence on these customers, \n11\nthese customers could pressure us to lower our prices and/or offer expanded or additional services at the same prices. In that event, if we were unable to achieve additional cost savings to offset these price reductions and/or cost increases, our results of operations could be materially adversely affected. We may be unable to change our cost structure and pricing practices rapidly enough to successfully compete in such an environment.\nChanges in consumer eating habits could materially and adversely affect our business, financial condition, and results of operations.\nChanges in consumer eating habits (such as a decline in consuming food away from home, a decline in portion sizes, or a shift in preferences toward restaurants that are not our customers) could reduce demand for our products. Consumer eating habits could be affected by a number of factors, including changes in attitudes regarding diet and health (including shifting preferences for sustainable, organic and locally grown products, as well as alternative proteins) or new information regarding the health effects of consuming certain foods.\nChanging consumer eating habits also occur due to generational shifts. Millennials, the largest demographic group in terms of spend, seek new and different, as well as more ethnic, menu options and menu innovation. If consumer eating habits change significantly, we may be required to modify or discontinue sales of certain items in our product portfolio, and we may experience higher costs and/or supply shortages associated with our efforts to accommodate those changes as our suppliers adapt to new eating preferences. Changing consumer eating habits may reduce the frequency with which consumers purchase meals outside of the home. Additionally, changes in consumer eating habits may result in the enactment or amendment of laws and regulations that impact the ingredients and nutritional content of our food products, or laws and regulations requiring us to disclose the nutritional content of our food products. Compliance with these laws and regulations, as well as others regarding the ingredients and nutritional content of our food products, may be costly and time-consuming. We may not be able to effectively respond to changes in consumer health perceptions or resulting new laws or regulations or to adapt our menu offerings to trends in eating habits.\nIn addition, in response to the COVID-19 pandemic and the related economic downturn, many consumers preferred to eat at home rather than consume food away from home. If these preferences return and consumers choose to avoid gathering in public places in large groups, the demand for our products and services could be adversely affected. Moreover, if governmental restrictions were to resume, it is unclear how quickly customers will return to their prior eating habits, which may be a function of continued concerns over safety or depressed consumer sentiment due to adverse economic conditions, including job losses.  \nExpanding into new markets and complementary lines of business presents unique challenges and may not be successful, and failure to successfully expand may adversely affect the implementation of our business strategy.\nAn element of our strategy includes further expansion of operations into new markets and the establishment of new procurement organizations. Our ability to successfully operate in these new markets may be adversely affected by political, economic and social conditions beyond our control, public health crises, epidemics and pandemics (such as the COVID-19 pandemic), local laws and customs, and legal and regulatory constraints, including compliance with applicable anti-corruption and currency laws and regulations, of the countries or regions in which we currently operate or intend to operate in the future. Risks inherent in such expansion also include, among others, the costs and difficulties of identifying and gaining access to local suppliers, suffering possible adverse tax consequences from changes in tax laws or the unfavorable resolution of tax assessments or audits, maintaining product quality and greater difficulty in enforcing intellectual property rights. \nOur business strategy also includes the possibility of expansion into businesses that are closely related or complementary to, but not currently part of, our core foodservice distribution business. Our ability to successfully operate in these complementary business markets may be adversely affected by legal and regulatory constraints, including compliance with regulatory programs to which we become subject. Risks inherent in branching out into such complementary markets also include the costs and difficulties of managing operations outside of our core business, which may require additional skills and competencies, as well as difficulties in identifying and gaining access to suppliers or customers in new markets.\nChanges in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results.\nAs a multinational corporation, we are subject to income taxes, as well as non-income-based taxes, in both the U.S. and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. Changes in tax laws or tax rulings may have a significant adverse impact on our effective tax rate. For example:\n12\n\u2022\nThe U.S. and many countries where we do business are actively considering or have recently enacted changes in relevant tax, accounting and other laws, regulations and interpretations, including changes to tax laws applicable to corporate multinationals. \n\u2022\nOn August 16, 2022, the U.S. Congress passed the Inflation Reduction Act of 2022 (Inflation Reduction Act), which, among other provisions, creates a new corporate alternative minimum tax (CAMT) of at least 15% for certain large corporations that have at least an average of $1\u00a0billion in adjusted financial statement income over a consecutive three-year period effective after December 31, 2022. The Inflation Reduction Act also includes a 1% excise tax on certain stock repurchases beginning in 2023. We do not expect to meet the CAMT threshold in the near term. \n\u2022\nOn October 8, 2021, the Organization for Economic Co-operation and Development (OECD) announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which provides for a two-pillar solution to address tax challenges arising from the digitalization of the economy. Pillar One expands a country\u2019s authority to tax profits from companies that make sales into their country but do not have a physical location in the country. Pillar Two includes an agreement on international tax reform, including rules to ensure that large corporations pay a minimum rate of corporate income tax. On December 20, 2021, the OECD released Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large corporations at a minimum rate of 15%. The OECD continues to release additional guidance on the two-pillar framework, with widespread implementation anticipated by 2024. We are continuing to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by individual countries.\nFurther, in the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination could change if tax laws or tax rulings were to be modified. We are also subject to non-income-based taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the U.S. and various foreign jurisdictions. Although we believe that our income and non-income-based tax estimates are appropriate, there is no assurance that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.\nGiven the unpredictability of possible further changes to the U.S. or foreign tax laws and regulations and their potential interdependency, it is very difficult to predict the cumulative effect of such tax laws and regulations on our results of operations and cash flow, but such laws and regulations (and changes thereto) could adversely impact our financial results. \nAdditionally, we are subject to regular review and audit by both domestic and foreign tax authorities as well as to the prospective and retrospective effects of changing tax regulations and legislation. Although we believe our tax estimates are reasonable, the ultimate tax outcome may materially differ from the tax amounts recorded in our Consolidated Financial Statements and may materially affect our income tax provision, net income, or cash flows in the period or periods for which such determination and settlement occurs.\nIf our products are alleged to have caused injury or illness, or to have failed to comply with governmental regulations, we may need to recall or withdraw our products and may experience product liability claims.\nWe, like any other foodservice distributor, may be subject to product recalls, including voluntary recalls or withdrawals, if the products we distribute are alleged to have caused injury or illness, to have been mislabeled, misbranded, or adulterated or to otherwise have violated applicable governmental regulations. We may also choose to voluntarily recall or withdraw products that we determine do not satisfy our quality standards, in order to protect our brand and reputation. Any future product recall or withdrawal that results in substantial and unexpected expenditures, destruction of product inventory, damage to our reputation and/or lost sales due to the unavailability of the product for a period of time could materially adversely affect our results of operations and financial condition.\nWe also face the risk of exposure to product liability claims if the use of products sold by Sysco is alleged to have caused injury or illness. We cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Further, even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. Umbrella liability insurance that we maintain for product liability claims may not continue to be available at a reasonable cost or, if available, may not be adequate to cover all of our liabilities. We generally seek contractual indemnification and insurance coverage from parties supplying our products, but this indemnification or insurance coverage is limited, as a practical matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by suppliers. If we do not have \n13\nadequate insurance or contractual indemnification available, product liability relating to defective products could materially adversely affect our results of operations and financial condition.\nIf we fail to comply with requirements imposed by applicable law or other governmental regulations, we could become subject to lawsuits, investigations and other liabilities and restrictions on our operations that could materially adversely affect our business\n.\nWe are subject to various federal, state, provincial, regional and local laws, rules and regulations in the countries in which we operate with respect to many aspects of our business, such as food safety and sanitation, ethical business practices, transportation, minimum wage, overtime, wage payment, wage and hour and employment discrimination, immigration, human health and safety. Due to the services we provide in connection with governmentally funded entitlement programs, we are also subject to additional laws and regulations. For a detailed discussion of the laws and regulations to which our business is subject, please refer to \u201cBusiness \u2013 Government Regulation\u201d in Part I, Item 1 of this Annual Report on Form 10-K.\nFrom time to time, both federal and state governmental agencies conduct audits of various aspects of our operations, as part of investigations of providers of services under governmental contracts, or otherwise. We also receive requests for information from governmental agencies in connection with these audits. While we attempt to comply with all applicable laws and regulations, we may not be in full compliance with all applicable laws and regulations or interpretations of these laws and regulations at all times; moreover, we may not be able to comply with all future laws, regulations or interpretations of these laws and regulations.\nIf we fail to comply with applicable laws and regulations or encounter disagreements with respect to our contracts subject to governmental regulations, including those referred to above, we may be subject to investigations, criminal sanctions or civil remedies, including fines, injunctions, prohibitions on exporting, or seizures or debarments from contracting with such government. The cost of compliance or the consequences of non-compliance, including debarments, could have an adverse effect on our results of operations. In addition, governmental units may make changes in the regulatory frameworks within which we operate that may require us to incur substantial increases in costs in order to comply with such laws and regulations.\nWe may incur significant costs to comply with environmental laws and regulations, and we may be subject to substantial fines, penalties or third-party claims for non-compliance.\nOur operations are subject to various federal, state, provincial, regional and local laws, rules and regulations in the various countries in which we operate relating to the protection of the environment, including those governing:\n\u2022\nthe discharge of pollutants into the air, soil, and water;\n\u2022\nthe management and disposal of solid and hazardous materials and wastes;\n\u2022\nemployee exposure to hazards in the workplace; and\n\u2022\nthe investigation and remediation of contamination resulting from releases of petroleum products and other regulated materials.\nIn the course of our operations, we: operate, maintain and fuel fleet vehicles; store fuel in on-site above and underground storage tanks; operate refrigeration systems; and use and dispose of hazardous substances and food wastes. We could incur substantial costs, including fines or penalties and third-party claims for property damage or personal injury, as a result of any violations of environmental or workplace safety laws and regulations or releases of regulated materials into the environment. In addition, we could incur substantial investigation, remediation or other costs related to environmental conditions at our currently or formerly owned or operated properties.\nFor example, most of our distribution facilities have ammonia-based refrigeration systems and tanks for the storage of diesel fuel and other petroleum products, which are subject to laws regulating such systems and storage tanks (including the investigation and remediation of soil and groundwater contamination associated with the use of underground storage tanks). Certain of these laws and regulations in the EU may impose liability for costs of investigation or remediation of contamination (which could be material), regardless of fault or the legality of the original disposal, even if such contamination was present prior to the commencement of our operations at the site and was not caused by our activities. In addition, many of our facilities have propane and battery-powered forklifts. Proposed or recently enacted legal requirements, such as those requiring the phase-out of certain ozone-depleting substances, and proposals for the regulation of greenhouse gas emissions, may require us to upgrade or replace equipment, or may increase our transportation or other operating costs.\n14\nIf we are unable to finance and integrate acquired businesses effectively, our earnings per share could be materially adversely affected\n.\nHistorically, a portion of our growth has come through acquisitions. If we are unable to integrate acquired businesses successfully or realize anticipated economic, operational and other benefits and synergies in a timely manner, our results of operations may be materially adversely affected. For example, we are experiencing ongoing operational challenges related to our efforts to integrate two businesses in France, adversely affecting our ability to drive growth in sales. Integration of an acquired business may be more difficult when we acquire a business in a market in which we have limited expertise, or with a culture different from Sysco\u2019s.\nA significant expansion of our business and operations, in terms of geography or magnitude, could strain our administrative and operational resources. Significant acquisitions may also require the issuance of material additional amounts of debt or equity, which could materially alter our debt-to-equity ratio, increase our interest expense and decrease earnings per share, and make it difficult for us to obtain favorable financing for other acquisitions or capital investments. In addition, our failure to implement effective internal control over financial reporting and disclosure controls and procedures with respect to a significant acquired business could result in material weaknesses and/or a failure to file our periodic reports with the Securities and Exchange Commission on a timely basis.\nWe rely on technology in our business, and any cybersecurity incident, other technology disruption or delay in implementing new technology could negatively affect our business and our relationships with customers\n.\nWe use technology in substantially all aspects of our business operations, and our ability to serve customers most effectively depends on the reliability of our technology systems. We use software and other technology systems, among other things, to generate and select orders, to load and route trucks, to make purchases, to manage our warehouses and to monitor and manage our business on a day-to-day basis. We also use mobile devices, social networking and other online platforms to connect with our employees, suppliers, business partners and customers. Further, our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers\u2019 and suppliers\u2019 personal information, private information about employees and financial and strategic information about us and our business partners. This sensitive and/or confidential information and intellectual property are stored on information technology systems controlled by us, as well as systems controlled by third parties, such as our service providers.\nThese technology systems and the operation thereof are vulnerable to disruption from circumstances beyond our control, including fire, natural disasters, power outages, systems failures, security breaches, espionage, cyber-attacks, viruses, theft and inadvertent release of information. We and our third-party providers experience cybersecurity incidents of varying degrees from time-to-time, including ransomware and phishing attacks, as well as distributed denial of service attacks and the theft of data. Cyber threats are constantly evolving, are becoming more sophisticated and are being made by groups and individuals with a wide range of expertise and motives, and this increases the difficulty of detecting and successfully defending against them. For example, as disclosed in our Quarterly Report on Form 10-Q for our third quarter of fiscal 2023, in March 2023, Sysco became aware of a cybersecurity event perpetrated by a threat actor believed to have begun in January 2023. Immediately upon detection, Sysco initiated an investigation, with the assistance of cybersecurity and forensics professionals, determining that the threat actor had extracted certain company data, including data relating to operation of the business, customers, employees and personal data. This data extraction did not impact Sysco\u2019s operational systems and related business functions, and its service to customers continued uninterrupted. Sysco also notified federal law enforcement and provided other required notifications.\n \nTo date, these cybersecurity incidents have not had a material impact on our financial condition, results of operations or liquidity. However, there is no assurance that there will not be a material adverse effect in the future, especially if the amount of insurance coverage we maintain is not sufficient to cover claims or liabilities relating to an incident. \nPotential consequences of a future material cybersecurity incident include: business disruption; disruption to systems; theft, destruction, loss, corruption, misappropriation or unauthorized release of sensitive and/or confidential information or intellectual property (including personal information in violation of one or more privacy laws); loss of revenue; reputational and brand damage; and potential liability, including litigation or other legal actions against us or the imposition by governmental authorities of penalties, fines, fees or liabilities, which, in turn, could cause us to incur significantly increased cybersecurity protection and remediation costs and the loss of customers. In addition, if our suppliers or customers experience such a breach or unauthorized disclosure or system failure, their businesses could be disrupted or otherwise negatively affected.\n \nThis may result in a disruption in our supply chain or reduced customer orders, which would adversely affect our business operations. We have also outsourced several information technology support services and administrative functions to third-party service providers, including cloud-based service providers, and may outsource other functions in the future to achieve cost savings and \n15\nefficiencies. If these service providers do not perform effectively due to breach or system failure, we may not be able to achieve the expected benefits and our business may be disrupted.\nThe COVID-19 pandemic has resulted in many of our employees, contractors and other corporate partners working remotely, increasing reliance on information technology systems that are outside our direct control. These systems are potentially vulnerable to cyber-based attacks and security breaches. In addition, cyber criminals are increasing their attacks on individual employees with business email compromise scams designed to trick victims into transferring sensitive data or funds, or steal credentials that compromise information systems. \nThe actions and controls we have implemented and are implementing to date, or which we seek to cause or have caused third-party providers to implement, may be insufficient to protect our systems, information or other intellectual property. Further, we anticipate continuing to devote significant resources to maintaining and upgrading our security measures generally, including those we employ to protect personal information against these cybersecurity threats.\nFurther, as we pursue our strategy to grow through acquisitions and to pursue new initiatives that improve our operations and cost structure, we are also expanding and improving our information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. Failure to adequately assess and identify cybersecurity risks associated with acquisitions and new initiatives could increase our vulnerability to such risks.\nOur efforts to prevent security breaches and cybersecurity incidents, and to implement effective disaster recovery plans, may not be entirely effective to insulate us from technology disruption or protect us from adverse effects on our results of operations. Additionally, information technology systems continue to evolve and, in order to remain competitive, we must implement new technologies in a timely and efficient manner. For example, we may incorporate emerging artificial intelligence (AI) solutions into our platform, offerings, services and features, and these applications may become important in our operations over time. Our failure to implement timely and/or successfully new technologies, including AI, may adversely affect our competitiveness and, consequently, our results of operations.\nOur failure to comply with data privacy regulations could adversely affect our business.\nThere are new and emerging data privacy laws, as well as frequent updates and changes to existing data privacy laws, in most jurisdictions in which we operate. Given the complexity of these laws and the often-onerous requirements they place on businesses regarding the collection, storage, handling, use, disclosure, transfer, and security of personal data, it is important for us to understand their impact and respond accordingly. Failure to comply with data privacy laws can result in substantial fines or penalties, legal liability and / or reputational damage. \nIn the UK and Europe, the General Data Protection Regulation (the GDPR), which came into effect in 2018, places stringent requirements on companies when handling personal data. There continues to be a growing trend of other countries adopting similar laws. \nAdditionally, there continues to be significant uncertainty with respect to the California Consumer Privacy Act of 2018 (the CCPA), which went into effect on January 1, 2020, and imposes additional obligations on companies regarding the handling of personal information and provides certain individual privacy rights to persons whose information is collected. Both the GDPR and the CCPA are continuously evolving and developing and may be interpreted and applied differently from jurisdiction to jurisdiction and may create inconsistent or conflicting requirements. For example, the California Privacy Rights Act (the CPRA), which was approved by California voters as a ballot initiative in November 2020, modifies the CCPA significantly, further enhancing and extending an individual\u2019s rights over their personal data and the obligations placed on companies that handle this data. The resulting new regulations became effective on January 1, 2023. Most notably, employee and business data were brought into scope, which raises the compliance requirements for us significantly, in terms of internal controls, processes and governance requirements. \nFurthermore, since 2020, several other U.S. states have enacted (and additional U.S. states are considering enacting) stringent consumer privacy laws, which may impose varying standards and requirements on our data collection, use and processing activities. Continued state by state introduction of privacy laws can be expected to lead to significantly greater complexity in our compliance requirements globally, which could result in complaints from data subjects and/or action from regulators. If we do not provide sufficient resources to ensure we are able to respond, adapt and implement the necessary requirements to respond to the various forthcoming changes, which could include federal data privacy requirements in the US, while continuing to maintain our compliance with global data privacy laws, this could adversely impact our reputation and we could face exposure to fines levied by regulators, which could have a significant financial impact on our business.\n16\nOur level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position\n.\nAs described in Note 12, \u201cDebt and Other Financing Arrangements,\u201d in the Notes to Consolidated Financial Statements in Item 8, as of July 1, 2023, we had approximately $10.4 billion of total indebtedness, which primarily includes our outstanding senior notes. Additionally, we have the ability to borrow under our revolving credit facility, which supports our U.S. commercial paper program. \nOur level of indebtedness could have important consequences for us, including:\n\u2022\nlimiting our ability to obtain additional financing, if needed, for working capital, capital expenditures, acquisitions, debt service requirements or other purposes;\n\u2022\nincreasing our vulnerability to adverse economic, industry or competitive developments;\n\u2022\nlimiting our flexibility in planning for, or reacting to, changes in our business and our industry; and\n\u2022\nplacing us at a competitive disadvantage compared to our competitors that have less debt.\nOur indebtedness may increase from time to time for various reasons, including fluctuations in operating results, working capital needs, capital expenditures, potential acquisitions, joint ventures and/or share repurchase programs. Our level of indebtedness and the ultimate cost of such indebtedness could have a negative impact on our liquidity, cost of future debt financing and financial results, and our credit ratings may be adversely affected as a result of the incurrence of additional indebtedness. A significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital. In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our debt, and any alternative financing measures available may not be successful and may not permit us to meet our scheduled debt service obligations.\nWe may be required to pay material amounts under multiemployer defined benefit pension plans, which could adversely affect our financial condition, results of operations and cash flows\n.\nWe contribute to several multiemployer defined benefit pension plans based on obligations arising under collective bargaining agreements covering union-represented employees. In fiscal 2023, our total contributions to these plans were approximately $52.6 million. The costs of providing benefits through such plans have increased in recent years. The amount of any increase or decrease in our required contributions to these multiemployer plans will depend upon many factors, including collective bargaining negotiations, actions taken by trustees who manage the plans, government regulations, changes in the funded status of these plans and the potential payment of a withdrawal liability if we, for any reason, cease to have an ongoing obligation to contribute to a given plan. Based upon the information available to us from the administrators of these plans, none of these plans have assets sufficient to fully pay their liabilities, and therefore all such plans have unfunded vested benefits. Increases in the unfunded liabilities of these plans may result in increased future contribution obligations imposed on us and on other participating employers. Under federal law, significant underfunding experienced by a given plan generally results in increased contribution obligations in the form of surcharges and supplemental contribution obligations. Our risk of such increased payments may be greater if any of the participating employers in these underfunded plans withdraws from a given plan due to insolvency and is not able to contribute an amount sufficient to fund the unfunded liabilities associated with its participants in the plan. We could also be treated as partially withdrawing from participation in one of these plans if the number of our employees participating in a given plan is reduced to a certain percentage over a certain period of time, or if we cease to have an obligation to contribute under one or more, but fewer than all, of the collective bargaining agreements that require us to make contributions to a particular plan. Such reductions in the number of employees participating in these plans could occur as a result of changes in our business operations, such as facility closures or consolidations. We estimate our share of the aggregate withdrawal liability on the multiemployer plans in which we participate could have been as much as $142.6 million as of August 18, 2023. This estimate is based on the information available from plan administrators, which had valuation dates between February 1, 2020 and December 31, 2022. As the valuation dates for all of the plans was between February 1, 2020 and December 31, 2022, the company\u2019s estimate reflects the condition of the financial markets as of this date range. Due to the lack of current information, management believes Sysco\u2019s current share of the withdrawal liability could materially differ from this estimate. A significant increase to funding requirements could adversely affect our financial condition, results of operations and cash flows.\nOur funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines, which could adversely affect our financial condition, results of operations and cash flows\n.\n17\nWe had a pension obligation of $2.6\u00a0billion, as compared to assets totaling $2.6 billion, as of July 1, 2023, both of which have sensitivity to financial market factors that could impact our funding requirements. See Note 14, \u201cCompany-Sponsored Employee Benefit Plans\u201d in the Notes to Consolidated Financial Statements in Item 8 for a discussion of the funded status of the U.S. Retirement Plan. At the end of fiscal 2012, we decided to freeze future benefit accruals under our company-sponsored qualified pension plan (the U.S. Retirement Plan) as of December 31, 2012 for all U.S.-based salaried and non-union hourly employees. Effective January 1, 2013, these employees were eligible for additional contributions under an enhanced, defined contribution plan. \nThe amount of our annual contribution to the U.S. Retirement Plan is dependent upon, among other things, the returns on the U.S. Retirement Plan\u2019s assets and discount rates used to calculate the plan\u2019s liability. In fiscal 2018, we made voluntary contributions of $380 million to the U.S. Retirement Plan, allowing us to set an investment strategy that more closely aligns the duration of the U.S. Retirement Plan\u2019s assets with the duration of its liabilities. As a result, our U.S. Retirement Plan holds a greater amount of investments in fixed income securities, but also holds equity securities. Fluctuations in asset values can cause the amount of our anticipated future contributions to the plan to increase. The projected liability of the U.S. Retirement Plan will be impacted by the fluctuations of interest rates on high quality bonds in the public markets as these are inputs in determining our minimum funding requirements. \nFailure to successfully renegotiate union contracts could result in work stoppages, which could have a material adverse effect on our business, financial condition and results of operations\n.\nAs of July 1, 2023, we had approximately 72,000 employees, approximately 15% of whom were represented by unions, primarily the International Brotherhood of Teamsters and unions in France and Sweden. Approximately 15% of our union employees are covered by collective bargaining agreements that are subject to renegotiation in fiscal 2024. Failure to effectively renegotiate these contracts could result in work stoppages. We believe our operating sites have good relationships with their unions, but a work stoppage due to failure of multiple operating subsidiaries to renegotiate union contracts could have a material adverse effect on our business, financial condition and results of operations.\nOrganization and Common Stock Risks\nOur authorized preferred stock provides anti-takeover benefits that may not be viewed as beneficial to stockholders\n.\nUnder our Restated Certificate of Incorporation, our Board of Directors is authorized to issue up to 1,500,000 shares of preferred stock without stockholder approval. Issuance of these shares could make it more difficult for anyone to acquire Sysco without approval of our Board of Directors, depending on the rights and preferences of the stock issued. In addition, if anyone attempts to acquire Sysco without approval of our Board of Directors, the existence of this undesignated preferred stock could allow our Board of Directors to adopt a shareholder rights plan without obtaining stockholder approval, which could result in substantial dilution to a potential acquirer. As a result, hostile takeover attempts that might result in an acquisition of Sysco, which could otherwise have been financially beneficial to our stockholders, could be deterred.\nOur amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for certain stockholder litigation matters, which could limit our stockholders\u2019 ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.\nOur amended and restated bylaws provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine, except for any action (A) as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within 10 days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than such court, or (C) for which such court does not have subject matter jurisdiction.\nThis provision may limit a stockholder\u2019s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find this provision in our amended and restated bylaws to be inapplicable or unenforceable in any action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition and results of operations.\n18",
+  "item1a": ">Item 1A.\nRisk Factors\n7\nItem 1B.\nUnresolved Staff Comments\n19\nItem 2.\nProperties\n19\nItem 3.\nLegal Proceedings\n19\nItem 4.\nMine Safety Disclosures\n20\nPART II\nItem 5.\nMarket for Registrant\u2019s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities\n21\nItem 6.\n[Reserved]\n22\nItem 7.\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n22\nItem 7A.\nQuantitative and Qualitative Disclosures about Market Risk\n52\nItem 8.\nFinancial Statements and Supplementary Data\n54\nItem 9.\nChanges in and Disagreements with Accountants on Accounting and Financial Disclosure\n111\nItem 9A.\nControls and Procedures\n111\nItem 9B.\nOther Information\n112\nItem 9C.\nDisclosure Reporting Regarding Foreign Jurisdictions that Prevent Inspections\n112\n\u00a0\nPART III\nItem 10.\nDirectors, Executive Officers and Corporate Governance\n113\nItem 11.\nExecutive Compensation\n113\nItem 12.\nSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\n113\nItem 13.\nCertain Relationships and Related Transactions, and Director Independence\n113\nItem 14.\nPrincipal Accountant Fees and Services\n113\n\u00a0\nPART IV\nItem 15.\nExhibit and Financial Statement Schedules\n113\nItem 16.\nForm 10-K Summary\n119\nSignatures\nPART I",
+  "item7": ">Item 7.\u00a0 \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThe following discussion and analysis of Sysco\u2019s financial condition, results of operations and liquidity and capital resources for the fiscal years ended July 1, 2023 and July 2, 2022 should be read as a supplement to our Consolidated Financial Statements and the accompanying notes contained in Item 8 of this report, and in conjunction with the \u201cForward-looking Statements\u201d section set forth in Part II and the \u201cRisk Factors\u201d section set forth in Item 1A of Part I. All discussion of changes in our results of operations from fiscal 2022 to fiscal 2021 has been omitted from this Form 10-K, but may be found in Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Form 10-K for the year ended July 2, 2022, filed with the Securities and Exchange Commission on August 26, 2022.\nOverview\nSysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers.\u00a0Our primary operations are in North America and Europe.\u00a0Under the accounting provisions related to disclosures about segments of an enterprise, we have combined certain operations into three reportable segments. \u201cOther\u201d financial information is attributable to our other operations that do not meet the quantitative disclosure thresholds.\n\u2022\nU.S. Foodservice Operations\n \u2013 primarily includes (a) our U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, produce, specialty Italian, specialty imports and a wide variety of non-food products and (b) our U.S. Specialty operations, which include our FreshPoint fresh produce \n22\ndistribution business, our Specialty Meats and Seafood Group specialty protein operations, our growing Italian Specialty platform anchored by Greco & Sons, our Asian specialty distribution company and a number of other small specialty businesses that are not material to the operations of Sysco; \n\u2022\nInternational Foodservice Operations\n \u2013 includes operations outside of the United States (U.S.), which distribute a full line of food products and a wide variety of non-food products. The Americas primarily consists of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as well as our export operations that distribute to international customers. Our European operations primarily consist of operations in the United Kingdom (U.K.), France, Ireland and Sweden;\n\u2022\nSYGMA\n \u2013 our U.S. customized distribution operations serving quick-service chain restaurant customer locations; and\n\u2022\nOther\n \u2013 primarily our hotel supply operations, Guest Worldwide.\nWe estimate that we serve about 17% of an approximately $350 billion annual foodservice market in the U.S. based on industry data obtained from Technomic, Inc. (Technomic) as of the end of calendar year 2022. Technomic projects the market size to increase to approximately $370 billion by the end of calendar year 2023. From time to time, Technomic may revise the methodology used to calculate the size of the foodservice market and, as a result, our percentage can change not only from our sales results, but also from such revisions. We also serve certain international geographies that vary in size and amount of market share.\nAccording to industry sources, the foodservice, or food-away-from-home, market represents approximately 53% of the total dollars spent on food purchases made at the consumer level in the U.S. as of the end of calendar year 2022.\nHighlights\nOur fiscal 2023 results were strong, reflecting growth in volumes and market share. Our market share gains in the U.S. segments continued to accelerate through the fiscal year. This demonstrates the favorable impact of our Recipe for Growth strategy on our business, now in its third year. This strategy is helping us advance our capabilities in supply chain and sales. As a result, Sysco achieved an all-time record for annual sales and operating income. We made significant improvements in operating expense leverage, resulting in improved productivity that drove profitable growth. See below for a comparison of our fiscal 2023 results to our fiscal 2022 results, both including and excluding Certain Items (as defined below).\n\u00a0\u00a0\u00a0\u00a0Below is a comparison of results from fiscal 2023 to fiscal 2022:\n\u2022\nSales:\n\u25e6\nincreased 11.2%, or $7.7 billion, to $76.3 billion; \n\u2022\nOperating income:\n\u25e6\nincreased 29.5%, or $692.0 million, to $3.0 billion;\n\u25e6\nadjusted operating income increased 21.7%, or $572.0 million, to $3.2 billion; \n\u2022\nNet earnings:\n\u25e6\nincreased 30.3%, or $411.4 million, to $1.8 billion;\n\u25e6\nadjusted net earnings increased 22.2%, or $371.2 million, to $2.0 billion; \n\u2022\nBasic earnings per share:\n\u25e6\nincreased 31.2%, or $0.83, to $3.49 from the comparable prior year amount of $2.66 per share;\n\u2022\nDiluted earnings per share:\n\u25e6\nincreased 31.4%, or $0.83, to $3.47 from the comparable prior year amount of $2.64 per share;\n\u25e6\nadjusted diluted earnings per share were $4.01 in fiscal 2023, a $0.76 increase from the comparable prior year amount of $3.25 per share. \n\u2022\nEBITDA:\n\u25e6\nincreased 14.1%, or $444.4 million, to $3.6 billion; and\n\u25e6\nadjusted EBITDA increased 15.6%, or $519.2 million, to $3.8 billion. \nThe discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of restructuring and transformational project costs consisting of: (1) restructuring charges, (2) expenses associated with our various transformation initiatives and (3) severance charges; acquisition-related costs consisting of: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our acquisitions; and the reduction of bad debt expense previously \n23\nrecognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Our results for fiscal 2023 were also impacted by adjustments to a product return allowance pertaining to COVID-related personal protection equipment inventory, a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer, and a litigation financing agreement. Our results for fiscal 2022 were also impacted by a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory, losses on the extinguishment of long-term debt and an increase in reserves for uncertain tax positions.\nThe fiscal 2023 and fiscal 2022 items discussed above are collectively referred to as \u201cCertain Items.\u201d The results of our operations can be impacted by changes in exchange rates applicable to converting from local currencies to U.S. dollars. We measure our results on a constant currency basis. Our discussion below of our results includes certain non-GAAP financial measures that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures and exclude the impact from Certain Items, and certain metrics are stated on a constant currency basis.\nManagement believes that adjusting its operating expenses, operating income, interest expense, other (income) expense, net earnings and diluted earnings per share to remove these Certain Items, provides an important perspective with respect to our underlying business trends and results. Additionally, it provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company\u2019s underlying operations, (2) facilitates comparisons on a year-over-year basis and (3) removes those items that are difficult to predict and are often unanticipated and that, as a result, are difficult to include in analysts\u2019 financial models and our investors\u2019 expectations with any degree of specificity.\nThe company uses these non-GAAP measures when evaluating its financial results as well as for internal planning and forecasting purposes. These financial measures should not be used as a substitute for GAAP measures in assessing the company\u2019s results of operations for periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. Any metric within this section referred to as \u201cadjusted\u201d will reflect the applicable impact of Certain Items. More information on the rationale for the use of these measures and reconciliations to GAAP numbers can be found under \u201cNon-GAAP Reconciliations.\u201d\nKey Performance Indicators\nSysco seeks to meet its strategic goals by continually measuring its success in its key performance metrics that drive stakeholder value through sales growth and capital allocation and deployment. We believe the following are our most significant performance metrics in our current business environment: \n\u2022\nAdjusted operating income growth (non-GAAP); \n\u2022\nAdjusted diluted earnings per share growth (non-GAAP); \n\u2022\nAdjusted EBITDA (non-GAAP);\n\u2022\nCase volume growth by customer type for U.S. Foodservice operations;\n\u2022\nSysco brand penetration for U.S. Broadline operations;\n\u2022\nFree cash flow (non-GAAP); and\n\u2022\nAdjusted return on invested capital (non-GAAP).\nWe use these financial metrics and related computations, as well as sales and gross profit growth, to evaluate our business and to plan for near and long-term operating and strategic decisions. We believe it is useful to provide investors with the same financial information that we use internally to make comparisons of our historical operating results, identify trends in our underlying operating results and evaluate our business. \nKey Financial Definitions\n \n\u2022\nSales \u2013 Sales is equal to gross sales subtracted by, (1) sales returns and (2) sales incentives that we offer to certain customers, such as upfront monies and discounts. Our sales are driven by changes in case volumes, product inflation that is reflected in the pricing of our products and mix of products sold.\n\u2022\nGross profit \u2013 Gross profit is equal to our net sales subtracted by our cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration) and inbound freight. Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes.\n24\nAdjusted Operating Income and Adjusted Diluted Earnings per Share Growth\nAdjusted operating income represents our consolidated operating income, adjusted for the impact of Certain Items that we do not consider representative of our underlying performance. Adjusted diluted earnings per share represents our consolidated diluted earnings per share, adjusted for the impact of Certain Items that we do not consider representative of our underlying performance. Sysco\u2019s management considers growth in these metrics to be useful measures of operating efficiency and profitability as they facilitate comparison of performance on a consistent basis from period to period by providing a measurement of recurring factors and trends affecting our business.\nAdjusted EBITDA\nEBITDA represents net earnings plus: (1) interest expense, (2) income tax expense and benefit, (3) depreciation and (4) amortization. The net earnings component of our EBITDA calculation is impacted by Certain Items that we do not consider representative of our underlying performance. As a result, in the non-GAAP reconciliations below for each period presented, adjusted EBITDA is computed as EBITDA plus the impact of Certain Items, excluding Certain Items related to interest expense, income taxes, depreciation and amortization. Sysco\u2019s management considers growth in this metric to be a measure of overall financial performance that provides useful information to management and investors about the profitability of the business. It facilitates comparison of performance on a consistent basis from period to period by providing a measurement of recurring factors and trends affecting our business. Additionally, it is a commonly used component metric used to inform on capital structure decisions.\nCase Volume Growth by Customer Type for U.S. Foodservice Operations\nCase volume represents the volume of product sold to customers during a period of time and improvements in this metric are a primary driver of Sysco\u2019s top line performance. We define a case, specifically for our U.S. Foodservice operations, as the lowest level of packaged products that are sold from our warehouses, with one case potentially containing several pieces of a product packaged in bulk. Case size does not generally vary by location or from period to period due to the design of our warehouses. Case volume growth is calculated by dividing the change in the volume of cases sold year-over-year by the volume of cases sold in the prior year. Sysco management considers case volume growth within its U.S. Foodservice operations to be a measure that provides useful information to management and investors in evaluating sales performance and as an indicator of gross margin performance. Management monitors case volume growth by customer type, with bifurcation between local customers and national customers, as this provides a measure of gross profit performance due to the pricing strategies attached to each customer type. Local customers are primarily street customers, such as independent restaurants that do not have long-term contracts, or locally managed customers, such as local chain restaurants, while national customers are the multi-unit customers requiring national coverage from a customer-centric view and are managed centrally from our Global Shared Center. Sysco management seeks to drive higher case volume growth to local customers, which allows more favorable pricing terms for our U.S. Foodservice operations and generates higher gross margins as a result. National customers benefit from purchasing power as they are able to negotiate pricing agreements across multiple businesses reducing our gross profit potential, but reducing our overall cost per case, as national customers have bigger drop sizes. While overall case volume growth reflects a key component of sales growth, local customer case growth provides additional context around gross profit performance.\nSysco Brand Penetration for U.S. Broadline Operations\nSysco management considers Sysco brand penetration to be a measure that provides useful information to management and investors in evaluating the gross profit performance of the company\u2019s U.S. Broadline operations. Sysco offers an assortment of Sysco-branded products which are differentiated from privately branded products. These Sysco Branded products enable us to achieve higher gross margin by administering and leveraging a consolidated product procurement program for quality food and non-food products. Due to cost efficiencies, Sysco-branded products generate a higher gross margin than sales from other privately branded products. We define Sysco brand penetration as the percentage of Sysco-branded case volume sold to U.S. Broadline customers over all cases sold to U.S. Broadline customers. It is calculated by dividing Sysco-branded case volume sold to U.S. Broadline customers by total cases sold to U.S. Broadline customers. This performance indicator, also measured at the customer type level, including local and national customers, is driven by growth in the distribution of Sysco branded products to more customers and more geographies, as well as increasing Sysco branded offerings through innovation and the launch of new products.\nFree Cash Flow\nFree cash flow represents net cash provided from operating activities, subtracted by purchases of plant and equipment, added to proceeds from sales of plant and equipment. Sysco management considers free cash flow to be a non-GAAP liquidity \n25\nmeasure that provides useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash, including dividend payments, share repurchases and acquisitions. However, free cash flow may not be available for discretionary expenditures as it may be necessary that we use it to make mandatory debt service or other payments. Free cash flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity. See \u201cLiquidity and Capital Resources\u201d for discussions of GAAP metrics, including net cash provided by operating activities and our reconciliation of this non-GAAP financial measure. \nAdjusted Return on Invested Capital\nAlthough adjusted return on invested capital (ROIC) is considered a non-GAAP financial measure, Sysco management considers adjusted ROIC to be a measure that provides useful information to management and investors in evaluating the efficiency and effectiveness of the company\u2019s long-term capital investments and it has been reintroduced as a component of long-term incentive compensation for fiscal 2024. We calculate adjusted ROIC as adjusted net earnings divided by the sum of: (1) stockholders\u2019 equity, computed as the average of adjusted stockholders\u2019 equity at the beginning of the year and at the end of each fiscal quarter during the year; and (2) long-term debt, computed as the average of the long-term debt at the beginning of the year and at the end of each fiscal quarter during the year. Trends in ROIC can fluctuate over time as management balances long-term strategic initiatives with possible short-term impacts. \nTrends\nEconomic and Industry Trends\n \nSysco continues to outperform the foodservice market due to the success of the Recipe for Growth strategy. The food-away-from-home sector is a healthy long-term market. Sysco is diversified and well positioned as a market leader in food service. We expect the foodservice market to grow at a lower rate in fiscal 2024 as compared to fiscal 2023. \nSales and Gross Profit Trends\nOur sales and gross profit performance are influenced by multiple factors including price, volume, inflation, customer mix and product mix. The most significant factor affecting performance in fiscal 2023 was volume growth, as we experienced a 5.2% improvement in U.S. Foodservice case volume and a 3.3% improvement in local case volume within our U.S. segment in each instance as compared to fiscal 2022. This volume reflects our broadline and specialty businesses, except for our specialty meats business, which measures its volume in pounds. This growth enabled us to gain market share during fiscal 2023 and contributed to Sysco achieving an all-time record for annual sales.\nProduct cost inflation has also been a driver of our sales and gross profit performance. We experienced inflation at a rate of 2.1% and 6.1% in the fourth quarter and fiscal 2023, respectively, at the total enterprise level, primarily driven by inflation in the dairy, frozen, and canned and dry categories. The rate of inflation, as compared to the prior year, declined at an accelerated rate during the fourth quarter. We have been successful in managing inflation, resulting in an increase in gross profit dollars. Gross margin increased 51 basis points in the fourth quarter and increased 33 basis points for fiscal 2023, as compared to the corresponding prior year periods, primarily driven by higher volumes, the effective management of inflation and progress with our partnership growth management initiatives.\nWe expect the rate of inflation for fiscal 2024 to be below historical trends. We expect deflation within our U.S. Broadline operations for the first half of fiscal 2024, followed by minimal inflation in the second half of fiscal 2024. Our International Foodservice operations are expected to remain inflationary during fiscal 2024 given the unique marketplace conditions present in those operations. At the total enterprise level, inflation is expected to be slightly positive for fiscal 2024.\nGiven our expectation for slower market growth and inflation as noted previously, we expect sales growth to increase in the mid-single digits in fiscal 2024 as compared to fiscal 2023, as we reach approximately $80\u00a0billion in annual sales. \n26\nOperating Expense Trends\nTotal operating expenses increased 9.4% during fiscal 2023, as compared to fiscal 2022, driven by increased volumes, cost inflation, continued operational cost pressures from the operating environment and our planned investments to drive our transformation initiatives under our Recipe for Growth strategy. We continued to improve our supply chain efficiency, while investing in associate retention and best-in-class training, primarily for transportation and warehouse colleagues. These efficiency efforts are expected to continue to improve in fiscal 2024. Our Sysco Driver Academy and industry leading training programs are contributing to improved retention and productivity, and we expect to see this trend improve as the percentage of drivers and warehouse colleagues trained from within Sysco continues to grow. We believe the advancements we are making in our physical capabilities, and the investments we are making in improved training, will provide higher service levels to our customers and strengthen Sysco\u2019s ability to profitably win market share.\nNon-Routine Gains and Losses\nIn fiscal 2023, we completed two transactions that created non-routine gains and losses, both of which were treated as Certain Items. First, the Sysco Corporation Retirement Plan (the Plan) executed a commitment agreement to purchase a nonparticipating single premium group annuity contract that transferred $695.0\u00a0million of the Plan\u2019s defined benefit pension obligations related to certain pension benefits. As a result of this transaction, we recognized a one-time, non-cash pre-tax pension settlement charge of $315.4\u00a0million in the second quarter of fiscal 2023. Second, Sysco had been pursuing claims against a variety of vendors from which the company purchased products. To mitigate the risk of incurring significant legal fees on these claims without any ultimate gain, in calendar 2019 and 2020, we entered into agreements with a third party whereby the company secured a minimum amount of cash proceeds from the third party in exchange for assigning to the third party the rights to a portion of the future litigation proceeds. At the time of receipt of these cash proceeds, the amounts were deferred in \u201cOther long-term liabilities.\u201d In June 2023, an agreement was reached in which the company assigned all its remaining claims against these vendors to the third party. As a result, Sysco is no longer obligated to pursue litigation against these vendors; therefore, previous deferred proceeds were recognized within \u201cOther expense (income), net.\u201d  In total, this agreement resulted in $122.0\u00a0million being recognized in \u201cOther expense (income), net\u201d in June 2023. We do not expect similar transactions to these in fiscal 2024.\nIncome Tax Trends\nOur provision for income taxes primarily reflects a combination of income earned and taxed in the various U.S. federal and state as well as foreign jurisdictions. Tax law changes, increases or decreases in book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate. Our effective tax rate for fiscal 2023 was 22.55% and is expected to increase to approximately 24.50% in fiscal 2024 due to geographic mix, strong international growth and increases in state tax rates.\nMergers and Acquisitions\nWe continue to focus on mergers and acquisitions as a part of our growth strategy. We plan to reinforce our existing businesses, while cultivating new channels, new segments and new capabilities. In the first and second quarters of fiscal 2023, we acquired a total of three small U.S.-based independent Italian food distributors as part of our plan to meaningfully scale our growing Italian platform. The results of these acquisitions were not material to the consolidated results of the company for fiscal 2023. In August 2023, we acquired BIX Produce, a leading produce specialty distributor based in Minnesota. This acquisition is expected to provide a strategic opportunity for specialty produce operations to expand its geographic footprint in an area of the country where it does not currently have operations.\nStrategy \nOur purpose is \u201cConnecting the World to Share Food and Care for One Another.\u201d Purpose driven companies are believed to perform better, and we believe our purpose will assist us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our \u201cRecipe for Growth\u201d transformation. This growth transformation is supported by strategic pillars that we believe will continue to enable us to better serve our customers, including: \n\u2022\nDigital\n \u2013 We have and will continue to enrich the customer experience through personalized digital tools that reduce friction in the purchase experience and introduce innovation to our customers. We continue to invest in our personalization engine and upgraded our digital shopping platform with more than 100 new feature enhancements, including Spanish language capability, implemented in fiscal 2023. We successfully leveraged our centralized pricing \n27\ntool in the U.S. in fiscal 2023 that gave us the ability to be right on price at the region, customer, and item level even during periods of rapid inflation, dis-inflation, and even deflation.\n\u2022\nProducts and Solutions\n \u2013 We are providing customer-focused marketing and merchandising solutions that inspire increased sales of our broad assortment of fair priced products and services. We continue to improve our merchandising strategies globally to secure the best possible cost for our customers and in fiscal 2023, we stood up a Sysco Brand team to accelerate progress within our owned-brands.\n\u2022\nSupply Chain\n \u2013 We are efficiently and consistently serving customers with the products they need, when and how they need them, through a flexible delivery framework. We are developing a more nimble, accessible and productive supply chain that is better positioned to support our customers. In fiscal 2023, our work on deploying strengthened engineered labor standards allowed us to consistently improve supply chain efficiency quarter over quarter.  We also completed the roll out of our Driver Academy nationally. Our strategic initiatives to enable omni-channel inventory fulfillment are being piloted.\n\u2022\nCustomer Teams\n \u2013 Our greatest strength is our people, people who are passionate about food and food service. Our diverse team delivers expertise and differentiated services designed to help our customers grow their businesses. We intend to improve the effectiveness of our sales organization by leveraging data to increase the yield of the sales process. In fiscal 2023, we meaningfully advanced our Total Team Selling model that brings together our Broadline and Specialty businesses in shared geography to best meet the needs of our customers.\n\u2022\nFuture Horizons\n \u2013 We are committed to responsible growth. We will cultivate new channels, new segments, and new capabilities while being stewards of our company and our planet for the long-term. We will fund our journey through cost-out and efficiency improvements.  In August 2023, we acquired BIX Produce \u2013 a leading produce specialty distributor based in Minnesota that allows us to expand our geographic footprint and continue to add new capabilities, including fresh cut produce, grab-and-go sandwiches, and value-added products.\nResults\n \nof Operations\nThe following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:\n\u00a0\n2023\n2022\nSales\n100.0\u00a0\n%\n100.0\u00a0\n%\nCost of sales\n81.7\u00a0\n82.0\u00a0\nGross profit\n18.3\u00a0\n18.0\u00a0\nOperating expenses\n14.3\u00a0\n14.6\u00a0\nOperating income\n4.0\u00a0\n3.4\u00a0\nInterest expense\n0.7\u00a0\n0.9\u00a0\nOther (income) expense, net\n0.3\u00a0\n\u2014\u00a0\nEarnings before income taxes\n3.0\u00a0\n2.5\u00a0\nIncome taxes\n0.7\u00a0\n0.5\u00a0\nNet earnings\n2.3\u00a0\n%\n2.0\u00a0\n%\n28\nThe following table sets forth the change in the components of our consolidated\u00a0results of operations expressed as a percentage increase or decrease over the comparable period in the prior year:\n\u00a0\n2023\nSales\n11.2\u00a0\n%\nCost of sales\n10.8\u00a0\nGross profit\n13.3\u00a0\nOperating expenses\n9.4\u00a0\nOperating income\n29.5\u00a0\nInterest expense\n(15.5)\nOther (income) expense, net \n(1)\n(1,046.8)\nEarnings before income taxes\n30.8\u00a0\nIncome taxes\n32.8\u00a0\nNet earnings\n30.3\u00a0\n%\nBasic earnings per share\n31.2\u00a0\n%\nDiluted earnings per share\n31.4\u00a0\nAverage shares outstanding\n(0.6)\nDiluted shares outstanding\n(0.8)\n(1)\nOther (income) expense, net was expense of $226.4 million in fiscal 2023 and income of $23.9 million in fiscal 2022.\nSegment Results  \nThe following represents our results by reportable segments:\n\u00a0\nYear Ended Jul. 1, 2023\n\u00a0\nU.S. Foodservice Operations\nInternational Foodservice Operations\nSYGMA\nOther\nGlobal Support Center\nConsolidated\nTotals\n\u00a0\n(In thousands)\nSales\n$\n53,682,894\u00a0\n$\n13,559,610\u00a0\n$\n7,843,111\u00a0\n$\n1,239,060\u00a0\n$\n\u2014\u00a0\n$\n76,324,675\u00a0\nSales increase\n10.6\u00a0\n%\n15.0\u00a0\n%\n8.2\u00a0\n%\n14.5\u00a0\n%\n11.2\u00a0\n%\nPercentage of total\n70.3\u00a0\n%\n17.8\u00a0\n%\n10.3\u00a0\n%\n1.6\u00a0\n%\n100.0\u00a0\n%\nOperating income (loss)\n$\n3,586,576\u00a0\n$\n313,449\u00a0\n$\n56,526\u00a0\n$\n56,877\u00a0\n$\n(974,879)\n$\n3,038,549\u00a0\nOperating income increase\n12.8\u00a0\n%\n213.3\u00a0\n%\nNM\n227.0\u00a0\n%\n29.5\u00a0\n%\nPercentage of total segments \n89.4\u00a0\n%\n7.8\u00a0\n%\n1.4\u00a0\n%\n1.4\u00a0\n%\n100.0\u00a0\n%\nOperating income as a percentage of sales\n6.7\u00a0\n%\n2.3\u00a0\n%\n0.7\u00a0\n%\n4.6\u00a0\n%\n4.0\u00a0\n%\n\u00a0\nYear Ended Jul. 2, 2022\n\u00a0\nU.S. Foodservice Operations\nInternational Foodservice Operations\nSYGMA\nOther\nGlobal Support Center\nConsolidated\nTotals\n\u00a0\n(In thousands)\nSales\n$\n48,520,562\u00a0\n$\n11,787,449\u00a0\n$\n7,245,824\u00a0\n$\n1,082,311\u00a0\n$\n\u2014\u00a0\n$\n68,636,146\u00a0\nPercentage of total\n70.7\u00a0\n%\n17.2\u00a0\n%\n10.6\u00a0\n%\n1.5\u00a0\n%\n100.0\u00a0\n%\nOperating income (loss)\n$\n3,180,705\u00a0\n$\n100,033\u00a0\n$\n(3,124)\n$\n17,392\u00a0\n$\n(948,506)\n$\n2,346,500\u00a0\nPercentage of total segments\n96.5\u00a0\n%\n3.1\u00a0\n%\n(0.1)\n%\n0.5\u00a0\n%\n100.0\u00a0\n%\nOperating income (loss) as a percentage of sales\n6.6\u00a0\n%\n0.8\u00a0\n%\n\u2014\u00a0\n%\n1.6\u00a0\n%\n3.4\u00a0\n%\nIn fiscal 2023, U.S. Foodservice Operations and International Foodservice Operations represented approximately 70.3% and 17.8%, respectively, of Sysco\u2019s overall sales, compared to 70.7% and 17.2%, respectively, in fiscal 2022. In fiscal 2023 and fiscal 2022, U.S. Foodservice Operations represented approximately 89.4% and 96.5%, respectively, of the total segment operating income. This illustrates that these segments represent a substantial majority of our total segment results when \n29\ncompared to other reportable segments. See Note 21, \u201cBusiness Segment Information,\u201d in the Notes to Consolidated Financial Statements in Item 8.\nCost of sales primarily includes our product costs, net of vendor consideration, and includes in-bound freight. Operating expenses include the costs of facilities, product handling, delivery, selling and general and administrative activities. Fuel surcharges are reflected within sales and gross profit; fuel costs are reflected within operating expenses. Along with sales, operating income is the most relevant measure for evaluating segment performance and allocating resources, as operating income includes cost of goods sold in addition to the costs to warehouse and deliver goods, which are significant and relevant costs when evaluating a distribution business.\nResults of U.S. Foodservice Operations\nIn fiscal 2023, the U.S. Foodservice Operations operating results represented approximately 70.3% of Sysco\u2019s overall sales and 89.4% of the aggregated operating income of Sysco\u2019s reporting segments. Several factors contributed to these higher operating results as compared to the other operating segments.\u00a0We invested substantial amounts in assets, operating methods, technology and management expertise in this segment.\u00a0The breadth of its sales force, geographic reach of its distribution area and its purchasing power enable this segment to generate its relatively stronger results of operations.\nThe following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the prior year:\n\u00a0\n2023\n2022\nChange in Dollars\n\u00a0% Change\n\u00a0\n(Dollars in thousands)\nSales\n$\n53,682,894\u00a0\n$\n48,520,562\u00a0\n$\n5,162,332\u00a0\n10.6\u00a0\n%\nGross profit\n10,359,003\u00a0\n9,196,133\u00a0\n1,162,870\u00a0\n12.6\u00a0\nOperating expenses\n6,772,427\u00a0\n6,015,428\u00a0\n756,999\u00a0\n12.6\u00a0\nOperating income\n$\n3,586,576\u00a0\n$\n3,180,705\u00a0\n$\n405,871\u00a0\n12.8\u00a0\n%\nGross profit\n$\n10,359,003\u00a0\n$\n9,196,133\u00a0\n$\n1,162,870\u00a0\n12.6\u00a0\n%\nAdjusted operating expenses (Non-GAAP) \n(1)\n6,729,738\u00a0\n5,998,824\u00a0\n730,914\u00a0\n12.2\u00a0\nAdjusted operating income (Non-GAAP) \n(1)\n$\n3,629,265\u00a0\n$\n3,197,309\u00a0\n$\n431,956\u00a0\n13.5\u00a0\n%\n(1)\nSee \u201cNon-GAAP Reconciliations\u201d below.\nSales\nThe following table sets forth the percentage and dollar value increase or decrease in sales over the prior year in order to demonstrate the cause and magnitude of change.\nIncrease (Decrease)\n2023\n(Dollars in millions)\nCause of change\nPercentage\nDollars\nCase volume \n(1)\n4.5\u00a0\n%\n$\n2,175.3\u00a0\nInflation\n5.6\u00a0\n2,716.7\u00a0\nOther \n(2)\n0.5\u00a0\n270.3\u00a0\nTotal change in sales\n10.6\u00a0\n%\n$\n5,162.3\u00a0\n(1)\nCase volumes increased 5.2% compared to fiscal 2022. This volume increase resulted in a 4.5% increase in the dollar value of sales compared to fiscal 2022.\n(2)\nCase volume reflects our broadline and specialty businesses, with the exception of our specialty meats business, which measures its volume in pounds. Any impact in volumes from our specialty meats operations is included within \u201cOther.\u201d\nThe sales growth in our U.S. Foodservice Operations was fueled by three factors: inflation, market growth, and strong market share gains. Case volumes from our U.S. Foodservice Operations increased 5.2%, as compared to fiscal 2022. This included a 3.3% increase in local customer case volume as compared to fiscal 2022.\n30\nOperating Income\nThe increase in operating income for fiscal 2023, as compared to fiscal 2022, was driven by gross profit dollar growth and partially offset by an increase in operating expenses. \nGross profit dollar growth was driven primarily by higher volumes as well as continued progress with effective management of product cost inflation and our strategic sourcing initiatives. The estimated change in product costs, an internal measure of inflation or deflation, increased in fiscal 2023. For fiscal 2023, this change in product costs was primarily driven by inflation in the dairy, frozen, and canned and dry categories. Sysco brand penetration for U.S. Broadline improved by 36 basis points to 37.0% for fiscal 2023, as compared to fiscal 2022. Specific to local customers, Sysco brand penetration for U.S. Broadline improved by 118 basis points to 46.8% for fiscal 2023, as compared to fiscal 2022. \nGross margin, which is gross profit as a percentage of sales, was 19.3% in fiscal 2023. This was an increase of 35 basis points compared to gross margin of 19.0% in fiscal 2022 due to the effective management of inflation, along with specific efforts to optimize our gross profit dollars.\nThe increase in operating expenses for fiscal 2023, as compared to fiscal 2022, was primarily driven by increased volumes, operational pressures from the operating environment, cost inflation and our planned investments to drive our transformation initiatives. We also experienced an increase in operating expenses due to investments for our Recipe for Growth strategy in fiscal 2023. \nResults of International Foodservice Operations\nIn fiscal 2023, the International Foodservice Operations operating results represented approximately 17.8% of Sysco\u2019s overall sales.\u00a0\n31\nThe following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the prior year:\n\u00a0\n2023\n2022\nChange in Dollars\n\u00a0% Change\n\u00a0\n(Dollars in thousands)\nSales\n$\n13,559,610\u00a0\n$\n11,787,449\u00a0\n$\n1,772,161\u00a0\n15.0\u00a0\n%\nGross profit\n2,640,860\u00a0\n2,377,093\u00a0\n263,767\u00a0\n11.1\u00a0\nOperating expenses\n2,327,411\u00a0\n2,277,060\u00a0\n50,351\u00a0\n2.2\u00a0\nOperating income\n$\n313,449\u00a0\n$\n100,033\u00a0\n$\n213,416\u00a0\n213.3\u00a0\n%\nGross profit\n$\n2,640,860\u00a0\n$\n2,377,093\u00a0\n$\n263,767\u00a0\n11.1\u00a0\n%\nAdjusted operating expenses (Non-GAAP) \n(1)\n2,243,137\u00a0\n2,148,551\u00a0\n94,586\u00a0\n4.4\u00a0\nAdjusted operating income (Non-GAAP) \n(1)\n$\n397,723\u00a0\n$\n228,542\u00a0\n$\n169,181\u00a0\n74.0\u00a0\n%\nComparable sales using a constant currency basis (Non-GAAP) \n(1)\n$\n14,451,906\u00a0\n$\n11,787,449\u00a0\n$\n2,664,457\u00a0\n22.6\u00a0\n%\nComparable gross profit using a constant currency basis (Non-GAAP) \n(1)\n2,823,663\u00a0\n2,377,093\u00a0\n446,570\u00a0\n18.8\u00a0\nComparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) \n(1)\n2,409,493\u00a0\n2,148,551\u00a0\n260,942\u00a0\n12.1\u00a0\nComparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) \n(1)\n$\n414,170\u00a0\n$\n228,542\u00a0\n$\n185,628\u00a0\n81.2\u00a0\n%\n(1)\nSee \u201cNon-GAAP Reconciliations\u201d below.\nSales\nThe following table sets forth the percentage and dollar value increase or decrease in sales over the comparable prior year period in order to demonstrate the cause and magnitude of change.\nIncrease (Decrease)\n2023\n(Dollars in millions)\nCause of change\nPercentage\nDollars\nInflation\n14.3\u00a0\n%\n$\n1,680.7\u00a0\nForeign currency\n(7.6)\n(892.3)\nOther \n(1)\n8.3\u00a0\n983.8\u00a0\nTotal change in sales\n15.0\u00a0\n%\n$\n1,772.2\u00a0\n(1)\nThe impact of volumes as a component of sales growth from international operations are included within \u201cOther.\u201d Volume in our foreign operations includes volume metrics that differ from country to country and cannot be aggregated on a consistent comparable basis.\nSales in fiscal 2023 were higher primarily due to inflation, along with an increase in volume, some of which was attributable to our Recipe for Growth initiatives. Partially offsetting these increases was the negative impact of foreign currency translation.\nOperating Income\nThe $213.4 million increase in operating income for fiscal 2023, as compared to fiscal 2022, was primarily a result of the continuing increase in sales volumes along with specific efforts to optimize our gross profit while managing our operating expenses.\nThe increase in gross profit dollars in fiscal 2023, as compared to fiscal 2022, was attributable to the increase in sales volume and the management of inflation along with specific efforts to optimize our gross profit dollars.\n32\nThe increase in operating expenses for fiscal 2023, as compared to fiscal 2022, was primarily due to increased volume and inflation. \nResults of SYGMA and Other Segment\nFor SYGMA, sales were 8.2% higher in fiscal 2023, as compared to fiscal 2022, primarily from inflation and fee increases to customers. Operating income increased by $59.7 million in fiscal 2023, as compared to fiscal 2022, primarily due to fee increases to customers.\nFor the operations that are grouped within our Other segment, operating income increased $39.5 million in fiscal 2023, as compared to fiscal 2022, primarily due to the recovery of our hospitality business, Guest Worldwide. Volume for this business has improved as hospitality occupancy rates have grown from prior year levels.\nGlobal Support Center Expenses\nOur Global Support Center generally includes all expenses of the corporate office and Sysco\u2019s shared service operations. These expenses increased $101.2 million in fiscal 2023, or 11.6% as compared to fiscal 2022, primarily due to increases in self-insurance costs, technology expense and employee-related expenses, partially offset by reduced acquisition-related costs.\nIncluded in Global Support Center expenses are Certain Items that totaled $44.9 million in fiscal 2023, as compared to $146.8 million in fiscal 2022. Certain Items impacting fiscal 2023 were primarily expenses associated with our business technology transformation initiatives. In fiscal 2022, Certain Items that impacted the year were primarily expenses associated with our business technology transformation initiatives and acquisitions, as well as a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.\nInterest Expense\nInterest expense decreased $96.9 million for fiscal 2023, as compared to fiscal 2022, primarily due to a $115.6 million charge taken for debt extinguished in fiscal 2022.\nOther income and expense \nOther income decreased $250.4\u00a0million for fiscal 2023, as compared to fiscal 2022, primarily due to a pension settlement charge partially offset by a gain on a litigation financing agreement.\nNet Earnings\nNet earnings increased 30.3% in fiscal 2023, as compared to fiscal 2022, due primarily to the items noted previously for operating income and interest expense, as well as items impacting our income taxes that are discussed in Note 19, \u201cIncome Taxes,\u201d in the Notes to Consolidated Financial Statements in Item 8. Adjusted net earnings, excluding Certain Items, increased 22.2% in fiscal 2023, primarily due to an increase in sales volume.\nEarnings Per Share\nBasic earnings per share in fiscal 2023 were $3.49, a 31.2% increase from the comparable prior year period amount of $2.66 per share. Diluted earnings per share in fiscal 2023 were $3.47, a 31.4% increase from the comparable prior year period amount of $2.64 per share. Adjusted diluted earnings per share, excluding Certain Items (which is a non-GAAP financial measure for which a reconciliation is provided in \u201cNon-GAAP Reconciliations\u201d on the subsequent page), in fiscal 2023 were $4.01, a 23.4% increase from the comparable prior year period amount of $3.25 per share. These results were primarily attributable to the factors discussed previously related to net earnings in fiscal 2023. \n33\nNon-GAAP Reconciliations\nThe discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of restructuring and transformational project costs consisting of: (1) restructuring charges, (2) expenses associated with our various transformation initiatives and (3) severance charges; acquisition-related costs consisting of: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our acquisitions; and the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Our results for fiscal 2023 were also impacted by adjustments to a product return allowance pertaining to COVID-related personal protection equipment inventory, a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer, and a litigation financing agreement. Our results for fiscal 2022 were also impacted by a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory, losses on the extinguishment of long-term debt and an increase in reserves for uncertain tax positions.\nThe results of our operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our results on a constant currency basis. Constant currency operating results are calculated by translating current-period local currency operating results with the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.\nManagement believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these Certain Items and presenting its results on a constant currency basis, provides an important perspective with respect to our underlying business trends and results. It provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company\u2019s underlying operations and (2) facilitates comparisons on a year-over-year basis.\nSysco has a history of growth through acquisitions and excludes from its non-GAAP financial measures the impact of acquisition-related intangible amortization, acquisition costs and due-diligence costs for those acquisitions. We believe this approach significantly enhances the comparability of Sysco\u2019s results for fiscal 2023 and fiscal 2022.\nSet forth on the following page is a reconciliation of sales, operating expenses, operating income, other (income) expense, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented. Individual components of diluted earnings per share may not be equal to the total presented when added due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.\n34\n\u00a0\n2023\n2022\nChange in Dollars\n%/bps \nChange\n\u00a0\n(In thousands, except for share and per share data)\nSales (GAAP)\n$\n76,324,675\u00a0\n$\n68,636,146\u00a0\n$\n7,688,529\u00a0\n11.2\u00a0\n%\nImpact of currency fluctuations \n(1)\n910,290\u00a0\n\u2014\u00a0\n910,290\u00a0\n1.3\u00a0\nComparable sales using a constant currency basis (Non-GAAP)\n$\n77,234,965\u00a0\n$\n68,636,146\u00a0\n$\n8,598,819\u00a0\n12.5\u00a0\n%\nCost of sales (GAAP)\n$\n62,369,678\u00a0\n$\n56,315,622\u00a0\n$\n6,054,056\u00a0\n10.8\u00a0\n%\nImpact of inventory valuation adjustment \n(2)\n2,571\u00a0\n(73,224)\n75,795\u00a0\n0.1\u00a0\nCost of sales adjusted for Certain Items (Non-GAAP)\n$\n62,372,249\u00a0\n$\n56,242,398\u00a0\n$\n6,129,851\u00a0\n10.9\u00a0\n%\nGross profit (GAAP)\n$\n13,954,997\u00a0\n$\n12,320,524\u00a0\n$\n1,634,473\u00a0\n13.3\u00a0\n%\nImpact of inventory valuation adjustment \n(2)\n(2,571)\n73,224\u00a0\n(75,795)\n(0.7)\nGross profit adjusted for Certain Items (Non-GAAP)\n13,952,426\u00a0\n12,393,748\u00a0\n1,558,678\u00a0\n12.6\u00a0\nImpact of currency fluctuations \n(1)\n188,796\u00a0\n\u2014\u00a0\n188,796\u00a0\n1.5\u00a0\nComparable gross profit adjusted for Certain Items using a constant currency basis (Non-GAAP)\n$\n14,141,222\u00a0\n$\n12,393,748\u00a0\n$\n1,747,474\u00a0\n14.1\u00a0\n%\nGross margin (GAAP)\n18.28\u00a0\n%\n17.95\u00a0\n%\n33 bps\nImpact of inventory valuation adjustment \n(2)\n\u2014\u00a0\n0.11\u00a0\n-11 bps\nGross margin adjusted for Certain Items (Non-GAAP)\n18.28\u00a0\n18.06\u00a0\n22 bps\nImpact of currency fluctuations \n(1)\n0.03\u00a0\n\u2014\u00a0\n3 bps\nComparable gross margin adjusted for Certain Items using a constant currency basis (Non-GAAP)\n18.31\u00a0\n%\n18.06\u00a0\n%\n25 bps\nOperating expenses (GAAP)\n$\n10,916,448\u00a0\n$\n9,974,024\u00a0\n$\n942,424\u00a0\n9.4\u00a0\n%\nImpact of restructuring and transformational project costs \n(3)\n(62,965)\n(107,475)\n44,510\u00a0\n41.4\u00a0\nImpact of acquisition-related costs \n(4)\n(115,889)\n(139,173)\n23,284\u00a0\n16.7\u00a0\nImpact of bad debt reserve adjustments \n(5)\n4,425\u00a0\n27,999\u00a0\n(23,574)\n(84.2)\nOperating expenses adjusted for Certain Items (Non-GAAP)\n10,742,019\u00a0\n9,755,375\u00a0\n986,644\u00a0\n10.1\u00a0\nImpact of currency fluctuations \n(1)\n182,873\u00a0\n\u2014\u00a0\n182,873\u00a0\n1.9\u00a0\nComparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)\n$\n10,924,892\u00a0\n$\n9,755,375\u00a0\n$\n1,169,517\u00a0\n12.0\u00a0\n%\nOperating expense as a percentage of sales (GAAP)\n14.30\u00a0\n%\n14.53\u00a0\n%\n-23 bps\nImpact of certain item adjustments\n(0.23)\n(0.32)\n9 bps\nAdjusted operating expense as a percentage of sales (Non-GAAP)\n14.07\u00a0\n%\n14.21\u00a0\n%\n-14 bps\nOperating income (GAAP)\n$\n3,038,549\u00a0\n$\n2,346,500\u00a0\n$\n692,049\u00a0\n29.5\u00a0\n%\nImpact of inventory valuation adjustment \n(2)\n(2,571)\n73,224\u00a0\n(75,795)\nNM\nImpact of restructuring and transformational project costs \n(3)\n62,965\u00a0\n107,475\u00a0\n(44,510)\n(41.4)\nImpact of acquisition-related costs \n(4)\n115,889\u00a0\n139,173\u00a0\n(23,284)\n(16.7)\nImpact of bad debt reserve adjustments \n(5)\n(4,425)\n(27,999)\n23,574\u00a0\n84.2\u00a0\nOperating income adjusted for Certain Items (Non-GAAP)\n3,210,407\u00a0\n2,638,373\u00a0\n572,034\u00a0\n21.7\u00a0\nImpact of currency fluctuations \n(1)\n5,923\u00a0\n\u2014\u00a0\n5,923\u00a0\n0.2\u00a0\nComparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)\n$\n3,216,330\u00a0\n$\n2,638,373\u00a0\n$\n577,957\u00a0\n21.9\u00a0\n%\nOperating margin (GAAP)\n3.98\u00a0\n%\n3.42\u00a0\n%\n56 bps\nOperating margin adjusted for Certain Items (Non-GAAP)\n4.21\u00a0\n%\n3.84\u00a0\n%\n37 bps\nOperating margin adjusted for Certain Items using a constant currency basis (Non-GAAP)\n4.16\u00a0\n%\n3.83\u00a0\n%\n33 bps\nInterest expense (GAAP)\n$\n526,752\u00a0\n$\n623,643\u00a0\n$\n(96,891)\n(15.5)\n%\nImpact of loss on extinguishment of debt\n\u2014\u00a0\n(115,603)\n115,603\u00a0\nNM\n35\n\u00a0\n2023\n2022\nChange in Dollars\n%/bps \nChange\n\u00a0\n(In thousands, except for share and per share data)\nInterest expense adjusted for Certain Items (Non-GAAP)\n$\n526,752\u00a0\n$\n508,040\u00a0\n$\n18,712\u00a0\n3.7\u00a0\n%\nOther expense (income) (GAAP)\n$\n226,442\u00a0\n$\n(23,916)\n$\n250,358\u00a0\nNM\nImpact of other non-routine gains and losses \n(6)\n(194,459)\n\u2014\u00a0\n(194,459)\nNM\nOther expense (income) adjusted for Certain Items (Non-GAAP)\n$\n31,983\u00a0\n$\n(23,916)\n$\n55,899\u00a0\nNM\nNet earnings (GAAP)\n$\n1,770,124\u00a0\n$\n1,358,768\u00a0\n$\n411,356\u00a0\n30.3\u00a0\n%\nImpact of inventory valuation adjustment \n(2)\n(2,571)\n73,224\u00a0\n(75,795)\nNM\nImpact of restructuring and transformational project costs \n(3)\n62,965\u00a0\n107,475\u00a0\n(44,510)\n(41.4)\nImpact of acquisition-related costs \n(4)\n115,889\u00a0\n139,173\u00a0\n(23,284)\n(16.7)\nImpact of bad debt reserve adjustments \n(5)\n(4,425)\n(27,999)\n23,574\u00a0\n84.2\u00a0\nImpact of loss on extinguishment of debt\n\u2014\u00a0\n115,603\u00a0\n(115,603)\nNM\nImpact of other non-routine gains and losses \n(6)\n194,459\u00a0\n\u2014\u00a0\n194,459\u00a0\nNM\nTax impact of inventory valuation adjustment\n (7)\n647\u00a0\n(18,902)\n19,549\u00a0\nNM\nTax impact of restructuring and transformational project costs \n(7)\n(15,847)\n(27,743)\n11,896\u00a0\n42.9\u00a0\nTax impact of acquisition-related costs \n(7)\n(29,166)\n(35,926)\n6,760\u00a0\n18.8\u00a0\nTax impact of bad debt reserves adjustments \n(7)\n1,114\u00a0\n7,228\u00a0\n(6,114)\n(84.6)\nTax impact of loss on extinguishment of debt \n(7)\n\u2014\u00a0\n(29,841)\n29,841\u00a0\nNM\nTax impact of other non-routine gains and losses \n(7)\n(48,941)\n\u2014\u00a0\n(48,941)\nNM\nImpact of adjustments to uncertain tax positions\n\u2014\u00a0\n12,000\u00a0\n(12,000)\nNM\nNet earnings adjusted for Certain Items (Non-GAAP)\n$\n2,044,248\u00a0\n$\n1,673,060\u00a0\n$\n371,188\u00a0\n22.2\u00a0\n%\nDiluted earnings per share (GAAP)\n$\n3.47\u00a0\n$\n2.64\u00a0\n$\n0.83\u00a0\n31.4\u00a0\n%\nImpact of inventory valuation adjustment \n(2)\n(0.01)\n0.14\u00a0\n(0.15)\nNM\nImpact of restructuring and transformational project costs \n(3)\n0.12\u00a0\n0.21\u00a0\n(0.09)\n(42.9)\nImpact of acquisition-related costs \n(4)\n0.23\u00a0\n0.27\u00a0\n(0.04)\n(14.8)\nImpact of bad debt reserve adjustments \n(5)\n(0.01)\n(0.05)\n0.04\u00a0\n80.0\u00a0\nImpact of loss on extinguishment of debt\n\u2014\u00a0\n0.22\u00a0\n(0.22)\nNM\nImpact of other non-routine gains and losses \n(6)\n0.38\u00a0\n\u2014\u00a0\n0.38\u00a0\nNM\nTax impact of inventory valuation adjustment\n (7)\n\u2014\u00a0\n(0.04)\n0.04\u00a0\nNM\nTax impact of restructuring and transformational project costs \n(7)\n(0.03)\n(0.05)\n0.02\u00a0\n40.0\u00a0\nTax impact of acquisition-related costs \n(7)\n(0.06)\n(0.07)\n0.01\u00a0\n14.3\u00a0\nTax impact of bad debt reserves adjustments \n(7)\n\u2014\u00a0\n0.01\u00a0\n(0.01)\nNM\nTax impact of loss on extinguishment of debt \n(7)\n\u2014\u00a0\n(0.06)\n0.06\u00a0\nNM\nTax impact of other non-routine gains and losses \n(7)\n(0.10)\n\u2014\u00a0\n(0.10)\nNM\nImpact of adjustments to uncertain tax positions\n\u2014\u00a0\n0.02\u00a0\n(0.02)\nNM\nDiluted earnings per share adjusted for Certain Items (Non-GAAP) \n(8)\n$\n4.01\u00a0\n$\n3.25\u00a0\n$\n0.76\u00a0\n23.4\u00a0\n%\nDiluted shares outstanding\n509,719,756\n514,005,827\n36\n(1)\nRepresents a constant currency adjustment which eliminates the impact of foreign currency fluctuations on the current year results. \n(2)\nFiscal 2023 represents an adjustment to a product return allowance related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.\n(3)\nFiscal 2023 includes $20 million related to restructuring and severance charges and $43 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2022 includes $59 million related to restructuring and severance charges and $49 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.\n(4)\nFiscal 2023 includes $105 million of intangible amortization expense and $10 million in acquisition and due diligence costs. Fiscal 2022 includes $106 million of intangible amortization expense and $33 million in acquisition and due diligence costs. \n(5)\nFiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.\n(6)\nFiscal 2023 primarily includes a pension settlement charge of $315 million that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer and $122 million in income from a litigation financing agreement.\n(7)\nThe tax impact of adjustments for Certain Items is calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.\n(8)\nIndividual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.\nNM represents that the percentage change is not meaningful.\n37\nSet forth below is a reconciliation by segment of actual operating expenses and operating income to adjusted results for these measures for the periods presented (dollars in thousands):\n2023\n2022\nChange in Dollars\n%/bps \nChange\nU.S. FOODSERVICE OPERATIONS\nSales (GAAP)\n$\n53,682,894\u00a0\n$\n48,520,562\u00a0\n$\n5,162,332\u00a0\n10.6\u00a0\n%\nGross profit (GAAP)\n10,359,003\u00a0\n9,196,133\u00a0\n1,162,870\u00a0\n12.6\u00a0\n%\nGross margin (GAAP)\n19.30\u00a0\n%\n18.95\u00a0\n%\n35 bps\nOperating expenses (GAAP)\n$\n6,772,427\u00a0\n$\n6,015,428\u00a0\n$\n756,999\u00a0\n12.6\u00a0\n%\nImpact of restructuring and transformational project costs \n(817)\n(1,162)\n345\u00a0\n29.7\u00a0\nImpact of acquisition-related costs \n(1)\n(46,042)\n(36,207)\n(9,835)\n(27.2)\nImpact of bad debt reserve adjustments \n(2)\n4,170\u00a0\n20,765\u00a0\n(16,595)\n(79.9)\nOperating expenses adjusted for Certain Items (Non-GAAP)\n$\n6,729,738\u00a0\n$\n5,998,824\u00a0\n$\n730,914\u00a0\n12.2\u00a0\n%\nOperating income (GAAP)\n$\n3,586,576\u00a0\n$\n3,180,705\u00a0\n$\n405,871\u00a0\n12.8\u00a0\n%\nImpact of restructuring and transformational project costs \n817\u00a0\n1,162\u00a0\n(345)\n(29.7)\nImpact of acquisition-related costs \n(1)\n46,042\u00a0\n36,207\u00a0\n9,835\u00a0\n27.2\u00a0\nImpact of bad debt reserve adjustments \n(2)\n(4,170)\n(20,765)\n16,595\u00a0\n79.9\u00a0\nOperating income adjusted for Certain Items (Non-GAAP)\n$\n3,629,265\u00a0\n$\n3,197,309\u00a0\n$\n431,956\u00a0\n13.5\u00a0\n%\nINTERNATIONAL FOODSERVICE OPERATIONS\nSales (GAAP)\n$\n13,559,610\u00a0\n$\n11,787,449\u00a0\n$\n1,772,161\u00a0\n15.0\u00a0\n%\nImpact of currency fluctuations \n(3)\n892,296\u00a0\n\u2014\u00a0\n892,296\u00a0\n7.6\u00a0\nComparable sales using a constant currency basis (Non-GAAP)\n$\n14,451,906\u00a0\n$\n11,787,449\u00a0\n$\n2,664,457\u00a0\n22.6\u00a0\n%\nGross profit (GAAP)\n$\n2,640,860\u00a0\n$\n2,377,093\u00a0\n$\n263,767\u00a0\n11.1\u00a0\n%\nImpact of currency fluctuations \n(3)\n182,803\u00a0\n\u2014\u00a0\n182,803\u00a0\n7.7\u00a0\nComparable gross profit using a constant currency basis (Non-GAAP)\n$\n2,823,663\u00a0\n$\n2,377,093\u00a0\n$\n446,570\u00a0\n18.8\u00a0\n%\nGross margin (GAAP)\n19.48\u00a0\n%\n20.17\u00a0\n%\n-69 bps\nImpact of currency fluctuations \n(3)\n0.06\u00a0\n\u2014\u00a0\n6 bps\nComparable gross margin using a constant currency basis (Non-GAAP)\n19.54\u00a0\n%\n20.17\u00a0\n%\n-63 bps\nOperating expenses (GAAP)\n$\n2,327,411\u00a0\n$\n2,277,060\u00a0\n$\n50,351\u00a0\n2.2\u00a0\n%\nImpact of restructuring and transformational project costs \n(4)\n(19,018)\n(57,683)\n38,665\u00a0\n67.0\u00a0\nImpact of acquisition-related costs \n(5)\n(65,511)\n(78,062)\n12,551\u00a0\n16.1\u00a0\nImpact of bad debt reserve adjustments \n(2)\n255\u00a0\n7,236\u00a0\n(6,981)\n(96.5)\nOperating expenses adjusted for Certain Items (Non-GAAP)\n2,243,137\u00a0\n2,148,551\u00a0\n94,586\u00a0\n4.4\u00a0\nImpact of currency fluctuations \n(3)\n166,356\u00a0\n\u2014\u00a0\n166,356\u00a0\n7.7\u00a0\nComparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)\n$\n2,409,493\u00a0\n$\n2,148,551\u00a0\n$\n260,942\u00a0\n12.1\u00a0\n%\nOperating income (GAAP)\n$\n313,449\u00a0\n$\n100,033\u00a0\n$\n213,416\u00a0\nNM\nImpact of restructuring and transformational project costs \n(4)\n19,018\u00a0\n57,683\u00a0\n(38,665)\n(67.0)\nImpact of acquisition-related costs \n(5)\n65,511\u00a0\n78,062\u00a0\n(12,551)\n(16.1)\nImpact of bad debt reserve adjustments \n(2)\n(255)\n(7,236)\n6,981\u00a0\n96.5\u00a0\nOperating income adjusted for Certain Items (Non-GAAP)\n397,723\u00a0\n228,542\u00a0\n169,181\u00a0\n74.0\u00a0\nImpact of currency fluctuations \n(3)\n16,447\u00a0\n\u2014\u00a0\n16,447\u00a0\n7.2\u00a0\nComparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)\n$\n414,170\u00a0\n$\n228,542\u00a0\n$\n185,628\u00a0\n81.2\u00a0\n%\nSYGMA\nSales (GAAP)\n$\n7,843,111\u00a0\n$\n7,245,824\u00a0\n$\n597,287\u00a0\n8.2\u00a0\n%\n38\n2023\n2022\nChange in Dollars\n%/bps \nChange\nGross profit (GAAP)\n631,135\u00a0\n576,280\u00a0\n54,855\u00a0\n9.5\u00a0\n%\nGross margin (GAAP)\n8.05\u00a0\n%\n7.95\u00a0\n%\n10 bps\nOperating expenses (GAAP)\n$\n574,609\u00a0\n$\n579,404\u00a0\n$\n(4,795)\n(0.8)\n%\nOperating income (loss) (GAAP)\n56,526\u00a0\n(3,124)\n59,650\u00a0\nNM\nOTHER\nSales (GAAP)\n$\n1,239,060\u00a0\n$\n1,082,311\u00a0\n$\n156,749\u00a0\n14.5\u00a0\n%\nGross profit (GAAP)\n326,315\u00a0\n248,125\u00a0\n78,190\u00a0\n31.5\u00a0\n%\nGross margin (GAAP)\n26.34\u00a0\n%\n22.93\u00a0\n%\n341 bps\nOperating expenses (GAAP)\n$\n269,438\u00a0\n$\n230,733\u00a0\n$\n38,705\u00a0\n16.8\u00a0\n%\nImpact of bad debt reserve adjustments\n (2)\n\u2014\u00a0\n(2)\n2\u00a0\nNM\nOperating expenses adjusted for Certain Items (Non-GAAP)\n$\n269,438\u00a0\n$\n230,731\u00a0\n$\n38,707\u00a0\n16.8\u00a0\n%\nOperating income (GAAP)\n$\n56,877\u00a0\n$\n17,392\u00a0\n$\n39,485\u00a0\nNM\nImpact of bad debt reserve adjustments\n (2)\n\u2014\u00a0\n2\u00a0\n(2)\nNM\nOperating income adjusted for Certain Items (Non-GAAP)\n$\n56,877\u00a0\n$\n17,394\u00a0\n$\n39,483\u00a0\nNM\nGLOBAL SUPPORT CENTER\nGross loss (GAAP)\n$\n(2,316)\n$\n(77,107)\n$\n74,791\u00a0\n97.0\u00a0\n%\nImpact of inventory valuation adjustment \n(6)\n(2,571)\n73,224\u00a0\n(75,795)\nNM\nGross loss adjusted for Certain Items (Non-GAAP)\n$\n(4,887)\n$\n(3,883)\n$\n(1,004)\n(25.9)\n%\nOperating expenses (GAAP)\n$\n972,563\u00a0\n$\n871,399\u00a0\n$\n101,164\u00a0\n11.6\u00a0\n%\nImpact of restructuring and transformational project costs \n(7)\n(43,130)\n(48,630)\n5,500\u00a0\n11.3\u00a0\nImpact of acquisition-related costs \n(8)\n(4,336)\n(24,904)\n20,568\u00a0\n82.6\u00a0\nOperating expenses adjusted for Certain Items (Non-GAAP)\n$\n925,097\u00a0\n$\n797,865\u00a0\n$\n127,232\u00a0\n15.9\u00a0\n%\nOperating loss (GAAP)\n$\n(974,879)\n$\n(948,506)\n$\n(26,373)\n(2.8)\n%\nImpact of inventory valuation adjustment \n(6)\n(2,571)\n73,224\u00a0\n(75,795)\nNM\nImpact of restructuring and transformational project costs \n(7)\n43,130\u00a0\n48,630\u00a0\n(5,500)\n(11.3)\nImpact of acquisition-related costs \n(8)\n4,336\u00a0\n24,904\u00a0\n(20,568)\n(82.6)\nOperating loss adjusted for Certain Items (Non-GAAP)\n$\n(929,984)\n$\n(801,748)\n$\n(128,236)\n(16.0)\n%\n(1)\nFiscal 2023 and fiscal 2022 include intangible amortization expense and acquisition costs. \n(2)\nFiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. \n(3)\nRepresents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.\n(4)\nIncludes restructuring and severance costs, primarily in Europe.\n(5)\nRepresents intangible amortization expense.\n(6)\nFiscal 2023 represents an adjustment to a product return allowance related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.\n(7)\nIncludes various transformation initiative costs, primarily consisting of changes to our business technology strategy.\n(8)\nRepresents due diligence costs.\nNM represents that the percentage change is not meaningful.\n39\nEBITDA and Adjusted EBITDA\nEBITDA and adjusted EBITDA should not be used as a substitute for the most comparable GAAP measure in assessing Sysco\u2019s overall financial performance for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See \u201cKey Performance Indicators\u201d for further discussion regarding this non-GAAP financial measure. Set forth below is a reconciliation of actual net earnings (loss) to EBITDA and to adjusted EBITDA results for the periods presented (dollars in thousands):\n2023\n2022\nChange in Dollars\n% Change\nNet earnings (GAAP)\n$\n1,770,124\u00a0\n$\n1,358,768\u00a0\n$\n411,356\u00a0\n30.3\u00a0\n%\nInterest (GAAP)\n526,752\u00a0\n623,643\u00a0\n(96,891)\n(15.5)\nIncome taxes (GAAP)\n515,231\u00a0\n388,005\u00a0\n127,226\u00a0\n32.8\u00a0\nDepreciation and amortization (GAAP)\n775,604\u00a0\n772,881\u00a0\n2,723\u00a0\n0.4\u00a0\nEBITDA (Non-GAAP)\n$\n3,587,711\u00a0\n$\n3,143,297\u00a0\n$\n444,414\u00a0\n14.1\u00a0\n%\nCertain Item adjustments:\nImpact of inventory valuation adjustment \n(1)\n$\n(2,571)\n$\n73,224\u00a0\n$\n(75,795)\nNM\nImpact of restructuring and transformational project costs \n(2)\n61,009\u00a0\n106,091\u00a0\n(45,082)\n(42.5)\nImpact of acquisition-related costs \n(3)\n10,393\u00a0\n32,738\u00a0\n(22,345)\n(68.3)\nImpact of bad debt reserve adjustments\n (4)\n(4,425)\n(27,999)\n23,574\u00a0\n84.2\u00a0\nImpact of other non-routine gains and losses \n (5)\n194,459\u00a0\n\u2014\u00a0\n194,459\u00a0\nNM\nEBITDA adjusted for Certain Items (Non-GAAP)\n(6)\n$\n3,846,576\u00a0\n$\n3,327,351\u00a0\n$\n519,225\u00a0\n15.6\u00a0\n%\n(1)\nFiscal 2023 represents an adjustment to a product return allowance related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.\n(2)\nFiscal 2023 and fiscal 2022 include charges related to restructuring and severance, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy and exclude charges related to accelerated depreciation.\n(3)\nFiscal 2023 and fiscal 2022 include acquisition and due diligence costs.\n(4)\nFiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.\n(5)\nFiscal 2023 primarily includes a pension settlement charge of $315 million that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer and $122 million in income from a litigation financing agreement.\n(6)\nIn arriving at adjusted EBITDA, Sysco does not exclude interest income of $24 million and $7 million or non-cash stock compensation expense of $95 million and $122 million for fiscal 2023 and fiscal 2022, respectively.\nNM represents that the percentage change is not meaningful.\nLiquidity and Capital Resources\nHighlights\nBelow are comparisons of the cash flows from fiscal 2023 to fiscal 2022:\n\u2022\nCash flows from operations were $2.9 billion in fiscal 2023, compared to $1.8 billion in fiscal 2022;\n\u2022\nNet capital expenditures totaled $751.2 million in fiscal 2023, compared to $608.7 million in fiscal 2022;\n\u2022\nFree cash flow was $2.1 billion in fiscal 2023, compared to $1.2 billion in fiscal 2022 (see \u201cCash Flows \u2013 Free Cash Flow \u2013 Non-GAAP Reconciliation\u201d below for an explanation of this non-GAAP financial measure);\n\u2022\nCash used for acquisition of businesses was $37.4 million in fiscal 2023, compared to $1.3 billion in fiscal 2022;\n\u2022\nDividends paid were $996.0 million in fiscal 2023, compared to $958.9 million in fiscal 2022; \n\u2022\nCash paid for treasury stock repurchases was $500.1 million in fiscal 2023, compared to $499.8 million in fiscal 2022;\n\u2022\nWe repaid senior notes in the amount of $549.3 million in fiscal 2023; and\n\u2022\nThere were no commercial paper amounts outstanding as of the end of fiscal 2023 and fiscal 2022.\n40\nAs of July 1, 2023, there were no borrowings outstanding under our long-term revolving credit facility and the company had approximately $3.7 billion in cash and available liquidity. As of August\u00a08, 2023, the company had approximately $3.1 billion in cash and available liquidity. \nSources and Uses of Cash\nSysco generates cash in the U.S. and internationally. Sysco\u2019s strategic objectives include continuous investment in our business; these investments are funded primarily by cash from operations and, to a lesser extent, external borrowings. Traditionally, our operations have produced significant cash flow and, due to our strong financial position, we believe that we will continue to be able to effectively access capital markets, as needed. Cash generated from operations is generally allocated to:\n\u2022\nworking capital-investments;\n\u2022\ncapital investments in facilities, systems, fleet, other equipment and technology;\n\u2022\nacquisitions consistent with our growth strategy;\n\u2022\ndebt repayments;\n\u2022\ncash dividends; and\n\u2022\nshare repurchases. \nAny remaining cash generated from operations may be invested in high-quality, short-term instruments. As a part of our ongoing strategic analysis, we regularly evaluate business opportunities, including potential acquisitions and sales of assets and businesses, and our overall capital structure. Any transactions resulting from these evaluations may materially impact our liquidity, borrowing capacity, leverage ratios and capital availability.\nWe continue to be in a strong financial position based on our balance sheet and operating cash flows; however, our liquidity and capital resources can be influenced by macro-economic trends and conditions that impact our results of operations. We believe our mechanisms to manage working capital, such as actively working with customers to receive payments on receivables, optimizing inventory levels and maximizing payment terms with vendors, have been sufficient to limit a significant unfavorable impact on our cash flows from operations. We believe these mechanisms will continue to mitigate any unfavorable impact on our cash flows from operations arising from macro-economic trends and conditions.\nWe extend credit terms to some of our customers based on our assessment of each customer\u2019s creditworthiness. We monitor each customer\u2019s account and will suspend shipments if necessary. In the ordinary course of business, customers periodically negotiate extended payment terms on trade accounts receivable. The company may utilize purchase arrangements with third-party financial institutions to transfer portions of our trade accounts receivable balance on a non-recourse basis in order to extend terms for the customer without negatively impacting our cash flow. The arrangements meet the requirements for the receivables transferred to be accounted for as sales. See Note 1, \u201cSummary of Accounting Policies,\u201d in the Notes to Consolidated Financial Statements in Item 8 for additional information.\nAs of July 1, 2023, we had $745.2 million in cash and cash equivalents, approximately 83% of which was held by our international subsidiaries and generated from our earnings of international operations. If these earnings were transferred among countries or repatriated to the U.S., such amounts may be subject to withholding and additional foreign tax obligations. Additionally, Sysco Corporation has provided intercompany loans to certain of its international subsidiaries. When interest and principal payments are made, some of this cash will move to the U.S.\nOur wholly owned captive insurance subsidiary (the Captive) must maintain a sufficient level of liquidity to fund future reserve payments. As of July 1, 2023, the Captive held $120.7 million of fixed income marketable securities and $220.8 million of restricted cash and restricted cash equivalents in a restricted investment portfolio in order to meet solvency requirements. We purchased $16.2 million in marketable securities in fiscal 2023 and received $11.6 million in proceeds from the sale of marketable securities in the period.\n41\nCash Requirements\nThe Company\u2019s cash requirements within the next twelve months include accounts payable and accrued liabilities, current maturities of long-term debt, other current liabilities, purchase commitments and other obligations. We expect the cash required to meet these obligations to be primarily generated through a combination of cash from operations and access to capital from financial markets.\nOur long-term cash requirements under our various contractual obligations and commitments include:\n\u2022\nDebt Obligations and Interest Payments \n\u2013 See Note 12, \u201cDebt and Other Financing Arrangements,\u201d in the Notes to Consolidated Financial Statements in Item 8 for further detail of our debt and the timing of expected future principal and interest payments.\n\u2022\nOperating and Finance Leases\n \u2013 See Note 13, \u201cLeases,\u201d in the Notes to Consolidated Financial Statements in Item 8 for further detail of our obligations and the timing of expected future payments.\n\u2022\nDeferred Compensation\n \u2013 The estimate of the timing of future payments under the Executive Deferred Compensation Plan and Management Savings Plan involves the use of certain assumptions, including retirement ages and payout periods. See Note 14, \u201cCompany-Sponsored Employee Benefit Plans,\u201d in the Notes to Consolidated Financial Statements in Item 8 for further detail of our obligations and the timing of expected future payments.\n\u2022\nPurchase and Other Obligations \n\u2013 Purchase obligations include agreements for purchases of product in the normal course of business for which all significant terms have been confirmed, including minimum quantities resulting from our category management process. Such amounts are based on estimates. Purchase obligations also include amounts committed with various third-party service providers to provide information technology services for periods up to fiscal 2029. See discussion under Note 20, \u201cCommitments and Contingencies,\u201d in the Notes to Consolidated Financial Statements in Item 8. Purchase obligations exclude full requirements electricity contracts where no stated minimum purchase volume is required.\n\u2022\nOther Liabilities \n\u2013 These include other long-term liabilities reflected in our consolidated balance sheets as of July 1, 2023, including obligations associated with certain employee benefit programs, unrecognized tax benefits and various long-term liabilities which have some inherent uncertainty in the timing of these payments.\n\u2022\nContingent Consideration\n \u2013 Certain acquisitions involve contingent consideration typically payable only if certain operating results are attained or certain outstanding contingencies are resolved. See Note 4, \u201cAcquisitions,\u201d in the Notes to Consolidated Financial Statements in Item 8 for aggregate contingent consideration amounts outstanding as of July 1, 2023.\nWe believe the following sources will be sufficient to meet our anticipated cash requirements for at least the next twelve months while maintaining sufficient liquidity for normal operating purposes:\n\u2022\nour cash flows from operations;\n\u2022\nthe availability of additional capital under our existing commercial paper programs, supported by our revolving credit facility; and\n\u2022\nour ability to access capital from financial markets, including issuances of debt securities, either privately or under our shelf registration statement filed with the SEC.\nDue to our strong financial position, we believe that we will continue to be able to effectively access the commercial paper market and long-term capital markets if necessary.\n42\nCash Flows\nOperating Activities\nWe generated $2.9 billion in cash flows from operations in fiscal 2023, compared to cash flows from operations of $1.8 billion in fiscal 2022. In fiscal 2023, these amounts included year-over-year favorable comparisons on working capital of $772.1 million\u00a0due to a favorable comparison on accounts receivable and inventory of $700.5 million and $686.4 million, respectively, partially offset by an unfavorable comparison on accounts payable of $614.8 million. Accrued expenses also had an unfavorable comparison of $401.1 million, primarily from accrued payroll. Income taxes positively impacted cash flows from operations by $149.8 million, as estimated payments made were lower than in fiscal 2022 due to overpayments in the prior year. \nInvesting Activities\nFiscal 2023 and Fiscal 2022 capital expenditures included:\n\u2022\nbuildings and building improvements; \n\u2022\nfleet replacements; \n\u2022\ninvestments in technology; and\n\u2022\nwarehouse equipment.\nThe Company had net cash used by plant and equipment purchases and sales of $751.2 million and financed $311.2 million of non-cash capital expenditures for the year ended July 1, 2023. \nThe following table sets forth the company\u2019s total plant and equipment additions:\n2023\n2022\n(In thousands)\nNet cash capital expenditures\n$\n751,178\u00a0\n$\n608,658\u00a0\nPlant and equipment acquired through financing programs\n197,096\u00a0\n\u2014\u00a0\nAssets obtained in exchange for finance lease obligations\n114,098\u00a0\n191,523\u00a0\nTotal net plant and equipment additions\n$\n1,062,372\u00a0\n$\n800,181\u00a0\nOur capital expenditures in fiscal 2023 were $160.5 million higher than in fiscal 2022, as we made investments to advance our Recipe for Growth strategy. Consistent with fiscal 2023, we expect our capital expenditures in fiscal 2024 to be approximately 1.0% of sales. \nDuring fiscal 2023, we paid $37.4 million, net of cash acquired, for acquisitions. During fiscal 2022, we paid $1.3 billion, net of cash acquired, for acquisitions. These payments decreased in fiscal 2023 compared to fiscal 2022 due to the smaller size of acquisitions during the year. \nFree Cash Flow\nOur free cash flow for fiscal 2023 increased by $933.8 million, to $2.1 billion, as compared to fiscal 2022, principally as a result of an increase in cash flows from operations, offset by a year-over-year increase in capital expenditures. \n43\nNon-GAAP Reconciliation\nFree cash flow should not be used as a substitute for the most comparable GAAP measure in assessing the company\u2019s liquidity for the periods presented.\u00a0An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See \u201cKey Performance Indicators\u201d for further discussion regarding this non-GAAP financial measure. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities.\n\u00a0\n2023\n2022\nChange in Dollars\n% Change\n\u00a0\n(In thousands)\nNet cash provided by operating activities (GAAP)\n$\n2,867,602\u00a0\n$\n1,791,286\u00a0\n$\n1,076,316\u00a0\n60.1\u00a0\n%\nAdditions to plant and equipment\n(793,325)\n(632,802)\n(160,523)\n(25.4)\nProceeds from sales of plant and equipment\n42,147\u00a0\n24,144\u00a0\n18,003\u00a0\n74.6\u00a0\nFree Cash Flow (Non-GAAP)\n$\n2,116,424\u00a0\n$\n1,182,628\u00a0\n$\n933,796\u00a0\n79.0\u00a0\n%\nFinancing Activities\nEquity Transactions \nProceeds from exercises of share-based compensation awards were $79.2 million and $128.2 million in fiscal 2023 and fiscal 2022, respectively. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire.\nWe have traditionally engaged in share repurchase programs to allow Sysco to continue offsetting dilution resulting from shares issued under the company\u2019s benefit plans and to make opportunistic repurchases. In May 2021, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $5.0\u00a0billion of the company\u2019s common stock which will remain available until fully utilized. We repurchased 6,231,071 shares for $500.1 million during fiscal 2023. As of July 1, 2023, we had a remaining authorization of approximately $4.0 billion. We expect to complete approximately  $750\u00a0million in shares repurchases in fiscal 2024. Depending on the volume of acquisitions completed in fiscal 2024, we could increase share repurchases above this amount. We repurchased 552,463 additional shares for $41.3 million under our authorization through August\u00a08, 2023.\nWe have made dividend payments to our shareholders in each fiscal year since our company\u2019s inception. Dividends paid in fiscal 2023 were $996.0 million, or $1.96 per share, as compared to $958.9 million, or $1.88 per share, in fiscal 2022.\u00a0In April 2023, we declared our regular quarterly dividend for the fourth quarter of fiscal 2023 of $0.50 per share, a $0.01 per share increase from the prior quarter, which was paid in July 2023. \nIn August 2021, we filed a universal shelf registration statement with the SEC under which we, as a well-known seasoned issuer, have the ability to issue and sell an indeterminate amount of various types of debt and equity securities. The specific terms of any securities we issue under this registration statement will be provided in the applicable prospectus supplements.\nIn November 2000, we filed with the SEC a shelf registration statement covering 30,000,000 shares of common stock to be offered from time to time in connection with acquisitions. As of August\u00a08, 2023, 29,477,835 shares remained available for issuance under this registration statement.\nDebt Activity and Borrowing Availability \nOur debt activity, including issuances and repayments, and our borrowing availability is described in Note 12, \u201cDebt and Other Financing Arrangements,\u201d in the Notes to Consolidated Financial Statements in Item 8.\u00a0Our outstanding borrowings at July 1, 2023, and repayment activity since the end of fiscal 2023 are disclosed within those notes.\u00a0Updated amounts at August\u00a08, 2023, include:\n\u2022\nNo outstanding borrowings from the long-term revolving credit facility supporting our U.S. commercial paper program; and\n\u2022\n$339.0 million outstanding borrowings under our U.S. commercial paper program.\n44\nOur aggregate commercial paper issuances and short-term bank borrowings had weighted average interest rates of 4.10% for fiscal 2023 and 1.35% for fiscal 2022.\nThe availability of financing in the form of debt is influenced by many factors, including our profitability, free cash flows, debt levels, credit ratings, debt covenants and economic and market conditions. A\ns of August\u00a08, 2023,\n Moody\u2019s Investors Service has assigned us an unsecured debt credit rating of Baa1 and a ratings outlook of \u201cstable.\u201d Standard & Poor\u2019s has assigned us an unsecured debt credit rating of BBB and a ratings outlook of \u201cstable.\u201d Fitch Ratings Inc. has assigned us an unsecured debt credit rating of BBB and a ratings outlook of \u201cstable.\u201d A significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital. To date, we have not experienced difficulty accessing the credit markets. As of August\u00a08, 2023, the company had approximately $3.1 billion in cash and available liquidity. \nOur long-term revolving credit facility includes aggregate commitments of the lenders thereunder of $3.0\u00a0billion with an option to increase such commitments to $4.0\u00a0billion. The facility includes a covenant, among others, requiring Sysco to maintain a ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0 over four consecutive fiscal quarters. The revolving credit facility expires on April 29, 2027. As of July 1, 2023, Sysco was in compliance with all of its debt covenants and the company expects to remain in compliance through the next twelve months.\nSysco\u2019s commercial paper dealer agreement includes an issuance allowance for an aggregate amount not to exceed $3.0 billion. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility.\nGuarantor Summarized Financial Information \nOn January 19, 2011, the wholly owned U.S. Broadline subsidiaries of Sysco Corporation, which distribute a full line of food products and a wide variety of non-food products, entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. A list of the current guarantors is included in Exhibit 22 to this Form 10-K. All subsequent issuances of senior notes and debentures in the U.S. and borrowings under the company\u2019s $3.0\u00a0billion long-term revolving credit facility have also been guaranteed by these subsidiaries, as discussed in Note 12, \u201cDebt and Other Financing Arrangements,\u201d in the Notes to Consolidated Financial Statements in Item 8. As of July 1, 2023, Sysco had a total of $9.5 billion in senior notes, debentures and borrowings under the long-term revolving credit facility that were guaranteed by these subsidiary guarantors. Our remaining consolidated subsidiaries (non-guarantor subsidiaries) are not obligated under the senior notes indenture, debentures indenture or our long-term revolving credit facility.\nAll subsidiary guarantors are 100% owned by the parent company, all guarantees are full and unconditional, and all guarantees are joint and several. The guarantees rank equally and ratably in right of payment with all other existing and future unsecured and unsubordinated indebtedness of the respective guarantors.\nThe assets of Sysco Corporation consist principally of the stock of its subsidiaries. Therefore, the rights of Sysco Corporation and the rights of its creditors to participate in the assets of any subsidiary upon liquidation, recapitalization or otherwise will be subject to the prior claims of that subsidiary\u2019s creditors, except to the extent that claims of Sysco Corporation itself and/or the claims of those creditors themselves may be recognized as creditor claims of the subsidiary. Furthermore, the ability of Sysco Corporation to service its indebtedness and other obligations is dependent upon the earnings and cash flow of its subsidiaries and the distribution or other payment to it of such earnings or cash flow. If any of Sysco Corporation\u2019s subsidiaries becomes insolvent, the direct creditors of that subsidiary will have a prior claim on its assets. Sysco Corporation\u2019s rights and the rights of its creditors, including the rights of a holder of senior notes as an owner of debt securities, will be subject to that prior claim unless Sysco Corporation or such noteholder, if such noteholder\u2019s debt securities are guaranteed by such subsidiary, also is a direct creditor of that subsidiary.\nThe guarantee of any subsidiary guarantor with respect to a series of senior notes or debentures may be released under certain customary circumstances. If we exercise our defeasance option with respect to the senior notes or debentures of any series, then any subsidiary guarantor effectively will be released with respect to that series. Further, each subsidiary guarantee will remain in full force and effect until the earliest to occur of the date, if any, on which (1) the applicable subsidiary guarantor shall consolidate with or merge into Sysco Corporation or any successor of Sysco Corporation or (2) Sysco Corporation or any successor of Sysco Corporation consolidates with or merges into the applicable subsidiary guarantor.\n45\nBasis of Preparation of the Summarized Financial Information \nThe summarized financial information of Sysco Corporation (issuer), and certain wholly owned U.S. Broadline subsidiaries (guarantors) (together, the obligor group) is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. Investments in and equity in the earnings of our non-guarantor subsidiaries, which are not members of the obligor group, have been excluded from the summarized financial information. The obligor group\u2019s amounts due to, amounts due from and transactions with non-guarantor subsidiaries have been presented in separate line items, if they are material to the obligor financials. The following table includes summarized financial information of the obligor group for the periods presented. \nCombined Parent and Guarantor Subsidiaries Summarized Balance Sheet\nJul. 1, 2023\n(In thousands)\nASSETS\nReceivables due from non-obligor subsidiaries\n$\n321,476\u00a0\nCurrent assets\n5,149,509\u00a0\nTotal current assets\n$\n5,470,985\u00a0\nNotes receivable from non-obligor subsidiaries \n$\n108,380\u00a0\nOther noncurrent assets\n4,254,145\u00a0\nTotal noncurrent assets\n$\n4,362,525\u00a0\nLIABILITIES\nPayables due to non-obligor subsidiaries \n$\n71,175\u00a0\nOther current liabilities \n2,305,435\u00a0\nTotal current liabilities\n$\n2,376,610\u00a0\nNotes payable to non-obligor subsidiaries\n$\n240,874\u00a0\nLong-term debt\n9,793,541\u00a0\nOther noncurrent liabilities\n1,121,884\u00a0\nTotal noncurrent liabilities\n$\n11,156,299\u00a0\nCombined Parent and Guarantor Subsidiaries Summarized Results of Operations\n2023\n(In thousands)\nSales\n$\n47,919,810\u00a0\nGross profit\n8,722,554\u00a0\nOperating income\n2,621,532\u00a0\nInterest expense from non-obligor subsidiaries\n16,754\u00a0\nNet earnings\n1,390,966\u00a0\nOff-Balance Sheet Arrangements\nWe have no off-balance sheet arrangements.\nCritical Accounting Policies and Estimates\nThe preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses in the accompanying financial statements. Significant accounting policies employed by Sysco are presented in the notes to the financial statements.\nCritical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Our most critical accounting policies and estimates pertain to the goodwill and intangible assets, income taxes, company-sponsored pension plans and inventory valuation.\n46\nGoodwill and Intangible Assets\nWe account for acquired businesses using the acquisition method of accounting, which requires that once control of a business is obtained, 100% of the assets acquired and liabilities assumed are recorded at the date of acquisition at their respective fair values. We use multiple valuation methods to determine the fair value of assets acquired and liabilities assumed. For intangible assets, we generally use the income method which uses a forecast of the expected future net cash flows associated with each asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows and the discount rate selected to measure the risks inherent in the future cash flows. Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. More information on our acquisitions can be found in Note 4, \u201cAcquisitions,\u201d in the Notes to Consolidated Financial Statements in Item 8.\nAnnually in our fiscal fourth quarter, we assess the recoverability of goodwill and indefinite-lived intangibles by determining whether the fair values exceed the carrying values of these assets. Impairment reviews, outside our annual review time frame, are performed if events or circumstances occur that include changes in macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit or sustained decrease in share price. Our testing may be performed utilizing either a qualitative or quantitative assessment; however, if a qualitative assessment is performed and we determine that the fair value of a reporting unit is more likely than not (\ni.e.\n, a likelihood of more than 50 percent) to be less than its carrying amount, a quantitative test is performed.\nWhen using a quantitative test, we arrive at our estimates of fair value using a combination of discounted cash flow and earnings or revenue multiple models. The results from each of these models are then weighted and combined into a single estimate of fair value for each reporting unit. We use a higher weighting for our discounted cash flow valuation compared to the earnings multiple models because the forecasted operating results that serve as a basis for the analysis incorporate management\u2019s outlook and anticipated changes for the businesses consistent with a market participant. The primary assumptions used in these various models include estimated earnings multiples of comparable acquisitions in the industry, including control premiums, earnings or revenue multiples on acquisitions completed by Sysco in the past, future cash flow estimates of the reporting units which are dependent on internal forecasts and projected growth rates, and weighted average cost of capital, along with working capital and capital expenditure requirements.\u00a0When possible, we use observable market inputs in our models to arrive at the fair values of our reporting units.\nCertain reporting units have a greater proportion of goodwill recorded to estimated fair value as compared to the U.S. Broadline, Canada Broadline or SYGMA reporting units.\u00a0This is primarily due to these businesses having been more recently acquired, and as a result there has been less history of organic growth than in the U.S. Broadline, Canadian Broadline and SYGMA reporting units.\u00a0As such, these reporting units have a greater risk of future impairment if their operations were to suffer a significant downturn. In the annual fiscal 2023 assessment, we concluded that all reporting units have a fair value that exceeded book value by at least 30%, with one exception. Impairment charges would have been applicable for this reporting unit if our estimate of fair value was decreased by approximately 6%, with goodwill of $119.0 million in the aggregate as of July 1, 2023.\nThe company estimated the fair value of these reporting units using a combination of discounted cash flow and earnings or revenue multiple models. For the purposes of the discounted cash flow models, fair value was determined based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The fair value conclusions as of July 1, 2023 for the reporting units are highly sensitive to changes in the assumptions used in the income approach which include forecasted revenues, perpetual growth rates, and long-term discount rates, among others, all of which require significant judgments by management. Fair value of the reporting unit is: therefore, determined using significant unobservable inputs, or level 3 in the fair value hierarchy. The company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the discounted cash flow model. These key assumptions are inherently uncertain and require a high degree of estimation and judgment and are subject to change based on future changes, industry and global economic and geo-political conditions, and the timing and success of the implementation of current strategic initiatives.\nIncome Taxes\nThe determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes primarily reflects a combination of income \n47\nearned and taxed in the various U.S. federal and state as well as foreign jurisdictions. Tax law changes, increases or decreases in book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate. Certain of our operations have carryforward attributes, such as operating losses. If these operations do not produce sufficient income, it could lead to the recognition of valuation allowances against certain deferred tax assets in the future if losses occur or growth is insufficient beyond our current expectations. This would negatively impact our income tax expense, net earnings, and balance sheet.\nOur liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment in estimating the exposures associated with our various filing positions. We believe that the judgments and estimates discussed herein are reasonable; however, actual results could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which a liability has been established, or pay amounts in excess of recorded liabilities, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective income tax rate in the period of resolution. During the third quarter of fiscal 2023, Sysco received a Statutory Notice of Deficiency from the Internal Revenue Service, mainly related to foreign tax credits generated in fiscal 2018 from repatriated earnings primarily from our Canadian operations. On April 18, 2023, during the company\u2019s fourth fiscal quarter, the company filed suit in the U.S. Tax Court challenging the validity of certain tax regulations related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act of 2017 (TCJA). The lawsuit seeks to have the court invalidate these regulations, which would affirm the company\u2019s position regarding its foreign tax credits. Sysco previously recorded a benefit of $131.0\u00a0million attributable to its interpretation of the TCJA and the Internal Revenue Code. If the company is ultimately unsuccessful in defending its position, it may be required to reverse all, or some portion, of the benefit previously recorded.\nCompany-Sponsored Pension Plans\nAmounts related to defined benefit plans recognized in the financial statements are determined on an actuarial basis. Two of the more critical assumptions in the actuarial calculations are the discount rate for determining the current value of plan benefits and the expected rate of return on plan assets. Our U.S. Retirement Plan is largely frozen and is only open to a small number of employees. Our Supplemental Executive Retirement Plan (SERP) is frozen and is not open to any employees. None of these plans have a significant sensitivity to changes in discount rates s\npecific to our results of operations, but such changes could impact our balance sheet due to a change in our funded status. Due to the low level of active employees in our retirement plans, our assumption for the rate of increase in future compensation is n\not a critical assumption.\nThe expected long-term rate of return on plan assets of the U.S. Retirement Plan was 4.50% for the period of July 2022 to October 2022. Due to the settlement that occurred, as discussed in Note 14, \u201cCompany-Sponsored Employee Benefit Plans\u201d in the Notes to Consolidated Financial Statements in Item 8, the rate changed to 6.00% from November 2022 to June 2023. The expected long-term rate of return on plan assets was 4.50% for fiscal 2022.\u00a0The expectations of future returns are derived from a mathematical asset model that incorporates assumptions as to the various asset class returns reflecting a combination of historical performance analysis, the forward-looking views of the financial markets regarding the yield on bonds, historical returns of the major stock markets, and returns on alternative investments. The rate of return assumption is reviewed annually and revised as deemed appropriate.\nThe expected return on plan assets impacts the recorded amount of net pension costs. The expected long-term rate of return on plan assets of the U.S. Retirement Plan is 5.50% for fiscal 2024. A 25 basis point increase (decrease) in the assumed rate of return in the Plan for fiscal 2024 would decrease (increase) Sysco\u2019s net company-sponsored pension costs for fiscal 2024 by approximately $6.0 million.\nPension accounting standards require the recognition of the funded status of our defined benefit plans in the Statement of Financial Position, with a corresponding adjustment to accumulated other comprehensive income, net of tax.\u00a0The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of July 1, 2023 was a charge, net of tax, of $839.5 million.\u00a0The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of July 2, 2022 was a charge, net of tax, of $1.0 billion. The decrease compared to July 2, 2022 is due to a portion of the accumulated other comprehensive loss being recognized in our consolidated results of operations as a result of the purchase of a nonparticipating single premium group annuity contract that transferred a portion of the U.S. Retirement Plan\u2019s pension obligations related to certain pension benefits over to an insurer.\n48\nInventory Valuation\nInventories consisting primarily of finished goods include food and related products and lodging products held for sale. Inventories are valued at the lower of cost (first-in, first-out method) and net realizable value. Inventory balances are adjusted for slow-moving, excess, and obsolete inventories. Inventory valuation reserves require certain management estimates and judgments which may significantly affect the ending inventory valuation. We estimate our reserves based on the consideration of a variety of factors, including but not limited to, current economic conditions and business trends, seasonal demand, future merchandising strategies and the age of our products. \nWe have not made any material changes in the methodology used to establish our inventory valuation or the related reserves. We believe that we have sufficient current and historical knowledge to record reasonable estimates, and the risk of inventory obsolescence is largely mitigated because of the speed with which our inventory typically turns. However, these assumptions are inherently uncertain and require estimation and judgment and are subject to change. During fiscal year 2023, the change in our inventory valuation reserve was not material to our results of operations or balance sheet.\nForward-Looking Statements\nCertain statements made herein that look forward in time or express management\u2019s expectations or beliefs with respect to the occurrence of future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as \u201cfuture,\u201d \u201canticipates,\u201d \u201cbelieves,\u201d \u201cestimates,\u201d \u201cexpects,\u201d \u201cintends,\u201d \u201cplans,\u201d \u201cpredicts,\u201d \u201cwill,\u201d \u201cwould,\u201d \u201ccould,\u201d \u201ccan,\u201d \u201cmay,\u201d \u201cprojected,\u201d \u201ccontinues,\u201d \u201ccontinuously,\u201d variations of such terms, and similar terms and phrases denoting anticipated or expected occurrences or results. Examples of forward-looking statements include, but are not limited to, statements about:\n\u2022\nour expectations of an improving market over the course of fiscal 2024;\n\u2022\nour expectations regarding the ability of our supply chain and facilities to remain in place and operational;\n\u2022\nour plans regarding our transformation initiatives and the expected effects from such initiatives, including the Sysco Driver Academy;\n\u2022\nstatements regarding uncollectible accounts, including that if collections continue to improve, additional reductions in bad debt expense could occur;\n\u2022\nour expectations that our Recipe for Growth strategy will allow us to better serve our customers and differentiate Sysco from our competition;\n\u2022\nour expectations regarding our fiscal 2024 sales and our rate of sales growth in fiscal 2024 and the three years of our long-range plan;\n\u2022\nour expectations regarding the impact of inflation on sales, gross margin rates and gross profit dollars;\n\u2022\nour expectations regarding gross margins in fiscal 2024;\n\u2022\nour plans regarding cost savings, including our target for cost savings through fiscal 2024 and the impact of costs savings on the company;\n\u2022\nour belief that our purpose will allow us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our Recipe for Growth transformation, and statements regarding our plans with respect to our strategic pillars that support this growth transformation;\n\u2022\nour expectations regarding the use and investment of remaining cash generated from operations;\n\u2022\nthe effect, impact, potential duration or other implications of the COVID-19 pandemic and any expectations we may have with respect thereto, including our ability to withstand and recover from the crisis;\n\u2022\nthe expected long-term rate of return on plan assets of the U.S. Retirement Plan; \n\u2022\nthe sufficiency of our available liquidity to sustain our operations for multiple years;\n\u2022\nestimates regarding the outcome of legal proceedings;\n49\n\u2022\nthe impact of seasonal trends on our free cash flow; \n\u2022\nestimates regarding our capital expenditures and the sources of financing for our capital expenditures;\n\u2022\nour expectations regarding the impact of potential acquisitions and sales of assets on our liquidity, borrowing capacity, leverage ratios and capital availability;\n\u2022\nour expectations regarding real sales growth in the U.S. foodservice market and trends in produce markets;\n\u2022\nour expectations regarding the calculation of adjusted return on invested capital, adjusted operating income, adjusted net earnings and adjusted diluted earnings per share;\n\u2022\nour expectations regarding the impact of future Certain Items on our projected future non-GAAP and GAAP results;\n\u2022\nour expectations regarding our effective tax rate in fiscal 2024;\n\u2022\nthe sufficiency of our mechanisms for managing working capital and competitive pressures, and our beliefs regarding the impact of these mechanisms;\n\u2022\nour ability to meet future cash requirements, including the ability to access financial markets effectively, including issuances of debt securities, and maintain sufficient liquidity;\n\u2022\nour expectations regarding the payment of dividends, and the growth of our dividend, in the future;\n\u2022\nour expectations regarding future activity under our share repurchase program;\n\u2022\nfuture compliance with the covenants under our revolving credit facility;\n\u2022\nour ability to effectively access the commercial paper market and long-term capital markets;\n\u2022\nour intention to repay our long-term debt with cash on hand, cash flow from operations, issuances of commercial paper, issuances of senior notes, or a combination thereof.\nThese statements are based on management\u2019s current expectations and estimates; actual results may differ materially due in part to the risk factors set forth below and those within Part I, Item 1A of this document:\n\u2022\nthe risk that if sales from our locally managed customers do not grow at the same rate as sales from multi-unit customers, our gross margins may decline; \n\u2022\nperiods of significant or prolonged inflation or deflation and their impact on our product costs and profitability generally;\n\u2022\nthe risk that we are unlikely to be able to predict inflation over the long term, and lower inflation is likely to produce lower gross profit;\n\u2022\nthe risk that our efforts to modify truck routing, including our small truck initiative, in order to reduce outbound transportation costs may be unsuccessful;\n\u2022\nthe risk that we may not be able to accelerate and/or identify additional administrative cost savings in order to compensate for any gross profit or supply chain cost leverage challenges; \n\u2022\nrisks related to unfavorable conditions in the Americas and Europe and the impact on our results of operations and financial condition;\n\u2022\nthe risks related to our efforts to implement our transformation initiatives and meet our other long-term strategic objectives, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected;\n\u2022\nthe impact of unexpected future changes to our business initiatives based on management\u2019s subjective evaluation of our overall business needs;\n\u2022\nthe risk that the actual costs of any business initiatives may be greater or less than currently expected;\n50\n\u2022\nthe risk that competition in our industry and the impact of GPOs may adversely impact our margins and our ability to retain customers and make it difficult for us to maintain our market share, growth rate and profitability;\n\u2022\nthe risk that our relationships with long-term customers may be materially diminished or terminated; \n\u2022\nthe risk that changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations;\n\u2022\nthe impact and effects of public health crises, pandemics and epidemics, such as the recent outbreak of COVID-19, and the adverse impact thereof on our business, financial condition and results of operations;\n\u2022\nthe risk that changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results; \n\u2022\nthe risk that we may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to contain fuel costs could result in above market fuel costs;\n\u2022\nthe risk of interruption of supplies and increase in product costs as a result of conditions beyond our control;\n\u2022\nthe potential impact on our reputation and earnings of adverse publicity or lack of confidence in our products;\n\u2022\nrisks related to unfavorable changes to the mix of locally managed customers versus corporate-managed customers;\n\u2022\nthe risk that we may not realize anticipated benefits from our operating cost reduction efforts;\n\u2022\ndifficulties in successfully expanding into international markets and complimentary lines of business;\n\u2022\nthe potential impact of product liability claims;\n\u2022\nthe risk that we fail to comply with requirements imposed by applicable law or government regulations;\n\u2022\nrisks related to our ability to effectively finance and integrate acquired businesses;\n\u2022\nrisks related to our access to borrowed funds in order to grow and any default by us under our indebtedness that could have a material adverse impact on cash flow and liquidity;\n\u2022\nour level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position;\n\u2022\nthe risk that the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending;\n\u2022\nthe risk that divestiture of one or more of our businesses may not provide the anticipated effects on our operations;\n\u2022\nthe risk that future labor disruptions or disputes could disrupt the integration of Brake France and Davigel into Sysco France and our operations in France and the EU generally;\n\u2022\nthe risk that factors beyond management\u2019s control, including fluctuations in the stock market, as well as management\u2019s future subjective evaluation of the company\u2019s needs, would impact the timing of share repurchases;\n\u2022\ndue to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business;\n\u2022\nthe risk of negative impacts to our business and our relationships with customers from a cybersecurity incident and/or other technology disruptions;\n\u2022\nthe risk that changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related to outstanding debt;\n\u2022\nthe potential requirement to pay material amounts under our multiemployer defined benefit pension plans;\n\u2022\nour funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines;\n51\n\u2022\nlabor issues, including the renegotiation of union contracts and shortage of qualified labor;\n\u2022\ncapital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending; \n\u2022\nthe risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders; and\n\u2022\nthe risk that the exclusive forum provisions in our amended and restated bylaws could limit our stockholders\u2019 ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.",
+  "item7a": ">Item 7A.\u00a0 \nQuantitative and Qualitative Disclosures about Market Risk\nOur market risks consist of interest rate risk, foreign currency exchange rate risk, fuel price risk and investment risk.\nInterest Rate Risk\nWe do not utilize financial instruments for trading purposes.\u00a0Our use of debt directly exposes us to interest rate risk.\u00a0Floating rate debt, where the interest rate fluctuates periodically, exposes us to short-term changes in market interest rates.\u00a0Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes us to changes in market interest rates reflected in the fair value of the debt and to the risk that we may need to refinance maturing debt with new debt at higher rates.\nWe manage our debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps as a tool to achieve that position.\u00a0The major risks from interest rate derivatives include changes in the interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions.\nAt\u00a0July 1, 2023,\u00a0there were no commercial paper issuances outstanding under our U.S. commercial paper program. Total debt as of July 1, 2023 was $10.4 billion, of which approximately 100% was at fixed rates of interest.\nAt July 2, 2022, there were no commercial paper issuances outstanding under our U.S. commercial paper program.\u00a0Total debt as of July 2, 2022 was $10.6 billion, of which approximately 95% was at fixed rates of interest, including the impact of our interest rate swap agreements.\nThe following tables present our interest rate position as of July 1, 2023. All amounts are stated in U.S. dollar equivalents.\n\u00a0\nInterest Rate Position as of July 1, 2023\n\u00a0\nPrincipal Amount by Expected Maturity\n\u00a0\nAverage Interest Rate\n\u00a0\n2024\n2025\n2026\n2027\n2028\nThereafter\nTotal\nFair Value\n\u00a0\n(Dollars in thousands)\nU.S. Dollar Denominated:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nFixed Rate Debt\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n750,000\u00a0\n$\n1,043,176\u00a0\n$\n750,000\u00a0\n$\n7,038,879\u00a0\n$\n9,582,055\u00a0\n$\n8,942,071\u00a0\nAverage Interest Rate\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n3.75\u00a0\n%\n3.46\u00a0\n%\n3.25\u00a0\n%\n4.82\u00a0\n%\n4.47\u00a0\n%\n\u00a0\nCanadian Dollar Denominated:\nFixed Rate Debt\n$\n\u2014\u00a0\n$\n377,815\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n377,815\u00a0\n$\n365,385\u00a0\nAverage Interest Rate\n\u2014\u00a0\n%\n3.65\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n3.65\u00a0\n%\nForeign Currency Exchange Rate Risk\nThe majority of our foreign subsidiaries use their local currency as their functional currency.\u00a0To the extent that business transactions are not denominated in a foreign subsidiary\u2019s functional currency, we are exposed to foreign currency exchange rate risk.\u00a0We will also incur gains and losses within our shareholders\u2019 equity due to the translation of our financial statements from foreign currencies into U.S. dollars.\u00a0Our largest currency exposures are with Canadian dollars, British pound sterling and Euro currencies. Our income statement trends may be impacted by the translation of the income statements of our \n52\nforeign subsidiaries into U.S. dollars.\u00a0The exchange rates used to translate our foreign sales into U.S. dollars negatively affected sales by 1.3% in fiscal 2023 when compared to fiscal 2022.\u00a0The exchange rate used to translate our foreign sales into U.S. dollars negatively affected sales by 0.3% in fiscal 2022 when compared to fiscal 2021.\u00a0The impact to our operating income, net earnings and earnings per share was not material in fiscal 2023\u00a0or fiscal 2022.\u00a0A 10% unfavorable change in the fiscal 2023 weighted year-to-date exchange rate and the resulting impact on our financial statements would have negatively affected fiscal 2023 sales by 1.7% and would not have materially affected our operating income, net earnings and earnings per share.\nOur investments and loans to foreign operations create additional foreign currency exposure and from time to time, we enter into agreements to hedge foreign currency exchange rate risks and mitigate impact to our consolidated results of operations. In the fourth quarter of fiscal 2023, we extinguished \u20ac500 million of Euro notes issued in June 2016 as a hedge of a portion of our net investment in Euro-denominated foreign operations to reduce foreign currency risk associated with the investment in these operations. Changes in the value of these items resulting from fluctuations in the underlying exchange rates to U.S. Dollar exchange rates were recorded as foreign currency translation adjustments within Accumulated other comprehensive income (loss). Additionally, we periodically enter into agreements to hedge foreign currency risk associated with changes in spot rates on foreign denominated debt instruments, which are designated as fair value hedges. Gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged, including the earnings impact of the excluded components. Unrealized gains or losses on components excluded from hedge effectiveness are recorded as a component of Accumulated other comprehensive income and recognized into earnings over the life of the hedged instrument. \nFuel Price Risk\nDue to the nature of our distribution business, we are exposed to potential volatility in fuel prices.\u00a0The price and availability of diesel fuel fluctuates due to changes in production, seasonality and other market factors generally outside of our control. Increased fuel costs may have a negative impact on our results of operations in three areas.\u00a0First, the high cost of fuel can negatively impact consumer confidence and discretionary spending and thus reduce the frequency and amount spent by consumers for food-away-from-home purchases.\u00a0Second, the high cost of fuel can increase the price we pay for product purchases and we may not be able to pass these costs fully to our customers.\u00a0Third, increased fuel costs impact the costs we incur to deliver product to our customers. Fuel costs related to outbound deliveries represented approximately 0.6% of sales during fiscal 2023 and 0.5% of sales in fiscal 2022 and fiscal 2021.\nOur activities to mitigate fuel costs include routing optimization with the goal of reducing miles driven, improving fleet utilization by adjusting idling time and maximum speeds and using fuel surcharges that primarily track with the change in market prices of fuel. We use diesel fuel swap contracts to fix the price of a portion of our projected monthly diesel fuel requirements.\u00a0As of July 1, 2023, we had diesel fuel swaps with a total notional amount of approximately 71 million gallons through September 2025.\u00a0These swaps are expected to lock in the price of approximately 80% of our bulk fuel purchases for fiscal 2024, or 70% of our total projected fuel purchase needs for fiscal 2024. Our remaining fuel purchase needs will occur at market rates unless contracted for a fixed price or hedged at a later date. Using current, published quarterly market price projections for diesel and estimates of fuel consumption, a 10% unfavorable change in diesel prices from the market price would result in a potential increase of approximately $6.1 million in our fuel costs on our non-contracted volumes.\nInvestment Risk\nOur U.S. Retirement Plan holds various investments, including public and private equity, fixed income securities and real estate funds. The amount of our annual contribution to the plan is dependent upon, among other things, the return on the plan\u2019s assets and discount rates used to calculate the plan\u2019s liability. Fluctuations in asset values can cause the amount of our anticipated future contributions to the plan to increase\u00a0and can result in a reduction to shareholders\u2019 equity on our balance sheet as of fiscal year-end, which is when this plan\u2019s funded status is measured. Also, the projected liability of the plan will be impacted by the fluctuations of interest rates on high quality bonds in the public markets. To the extent the financial markets experience declines, our anticipated future contributions and funded status will be affected for future years. A 10% unfavorable change in the value of the investments held by our company-sponsored retirement plans at the plans\u2019 fiscal year end (December 31, 2022)\u00a0would not have a material impact on our anticipated future contributions for fiscal 2024; however, such an unfavorable change would increase our pension expense for fiscal 2024 by $23.4 million and would reduce our shareholders\u2019 equity on our balance sheet as of July 1, 2023 by $264.1 million.\n53",
+  "cik": "96021",
+  "cusip6": "871829",
+  "cusip": ["871829957", "871829107", "871829907"],
+  "names": ["Sysco Corp", "SYSCO CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/96021/000009602123000117/0000096021-23-000117-index.htm"
+}
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+{
+  "item1": ">Item 1.\n\u00a0\u00a0\u00a0\u00a0Business \nGeneral \n \n \nWestern Digital Corporation (\u201cWestern Digital\u201d) is on a mission to unlock the potential of data by harnessing the possibility to use it. We are a leading developer, manufacturer, and provider of data storage devices and solutions based on both NAND flash and hard disk drive technologies. With dedicated flash-based products (\u201cFlash\u201d) and hard disk drives (\u201cHDD\u201d) business units driving advancements in storage technologies, our broad and ever-expanding portfolio delivers powerful Flash and HDD storage solutions for everyone from students, gamers, and home offices, to the largest enterprises and public clouds to capture, preserve, access, and transform an ever-increasing diversity of data. Our broad portfolio of technology and products in Flash and HDD address multiple end markets of \u201cCloud\u201d, \u201cClient\u201d and \u201cConsumer.\u201d \nCloud is comprised primarily of products for public or private cloud environments and end customers, which we believe we are uniquely positioned to address as the only provider of both\n \nFlash and HDD. Through the Client end market, we provide our original equipment manufacturer (\u201cOEM\u201d) and channel customers a broad array of high-performance flash and hard drive solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces. The Consumer end market is highlighted by our broad range of retail and other end-user products, which capitalize on the strength of our product brand recognition and vast points of presence around the world.\nFounded in 1970 in Santa Ana, California, Western Digital is now a Standard & Poor\u2019s 500 (\u201cS&P 500\u201d) company headquartered in San Jose, California. We have one of the technology industry\u2019s most valuable patent portfolios with approximately 13,000 active patents worldwide. We have a rich heritage of innovation and operational excellence, a wide range of intellectual property (\u201cIP\u201d) assets, broad research and development (\u201cR&D\u201d) capabilities, and large-scale, efficient manufacturing supply chains. The strong growth in the amount, value, and use of data continues, creating a global need for larger, faster and more capable storage solutions. \nWe are a customer-focused organization that has developed deep relationships with industry leaders to continue to deliver innovative solutions to help users capture, store and transform data across a boundless range of applications. With much of the world\u2019s data stored on Western Digital products, our innovation powers the global technology ecosystem from consumer devices to the edge, to the heart of the cloud. We enable cloud, Internet, and social media infrastructure players to build more powerful, cost-effective and efficient data centers. We help OEMs address storage opportunities and solutions to capture and transform data in a myriad of devices and edge technologies. We have also built strong consumer brands with tools to manage vast libraries of personal content and to push the limits of what\u2019s possible for storage. At Western Digital, we continue to transform ourselves to address the growth in data by providing what we believe to be the broadest range of storage technologies in the industry with a comprehensive product portfolio and global reach. \nIndustry \n \n \nWe operate in the data storage industry. The ability to access, store and share data from anywhere on any device is increasingly important to our customers and end users. From the intelligent edge to the cloud, data storage is a fundamental component underpinning the global technology architecture. Our strengths in innovation and cost leadership, diversified product portfolio and broad routes to market provide a foundation upon which we are solidifying our position as an essential building block of the digital economy. There is tremendous market opportunity flowing from the rapid global adoption of the technology architecture built with cloud infrastructure tied to intelligent endpoints all connected by high-performance networks. The value and urgency of data storage at every point across this architecture have never been clearer.\nThe increase in computing complexity and advancements in artificial intelligence, along with growth in cloud computing applications, connected mobile devices and Internet-connected products, and edge devices is driving unabated growth in the volume of digital content to be stored and used. This growth has led to the creation of new form factors for data storage. The storage industry is increasingly utilizing tiered architectures with solid state drives (\u201cSSD\u201d), HDD and other non-volatile memory-based storage to address an expanding set of uses and applications. We believe our expertise and innovation across both Flash and HDD technologies enable us to bring powerful solutions to a broader range of applications. We continuously monitor the full array of storage technologies, including reviewing these technologies with our customers, to ensure we are appropriately resourced to meet our customers\u2019 storage needs.\n4\nTable of Content\ns\nTechnology \n \nFlash Technologies\n. Flash products provide non-volatile data storage based on flash technology. We develop and manufacture solid state storage products for a variety of applications including enterprise or cloud storage, client storage, automotive, mobile devices and removable memory devices. Over time, we have successfully developed and commercialized successive generations of 3-dimensional flash technology with increased numbers of storage bits per cell in an increasingly smaller form factor, further driving cost reductions. We devote significant research and development resources to the development of highly reliable, high-performance, cost-effective flash-based technology and are continually pursuing developments in next-generation flash-based technology capacities. We are leveraging our expertise, resources and strategic investments in non-volatile memories to explore a wide spectrum of persistent memory and storage class memory technologies. We have also initiated, defined and developed standards to meet new market needs and to promote wide acceptance of flash storage standards through interoperability and ease of use.\nHard Disk Drives. \nHDD products provide non-volatile data storage by recording magnetic information on a rotating disk. We develop and manufacture substantially all of the recording heads and magnetic media used in our HDD products. We have led the industry in innovation to drive increased areal density and high-performance attributes. Our improvements in HDD capacity, which lower product costs over time, have been enabled largely through advancements in magnetic recording head and media technologies. Our multi-year product roadmap for high-capacity HDD, which combine ePMR, OptiNAND, UltraSMR and triple stage actuators to deliver a cutting-edge portfolio of drives, in commercial volumes, at a wide variety of capacity points, puts Western Digital in a strong position to capitalize on the opportunities presented by the large and growing storage markets. We invest considerable resources in R&D, manufacturing infrastructure and capital equipment for recording head and media technology, as well as other aspects of the magnetic recording system such as HDD mechanics, controller and firmware technology, in order to secure our competitive position and cost structure. \nOur products generally leverage a common platform for various products within product families, and in some cases across product families, resulting in the commonality of components which reduces our exposure to changes in demand, facilitates inventory management and allows us to achieve lower costs through purchasing economies. This platform strategy also enables our customers to leverage their qualification efforts onto successive product models.\nOur Data Solutions \n \n \nOur broad portfolio of technology and products address multiple end markets of \u201cCloud\u201d, \u201cClient\u201d and \u201cConsumer\u201d and are comprised of the Western Digital\u00ae, SanDisk\u00ae and WD\u00ae brands. \nCloud represents a large and growing end market comprised primarily of products for public or private cloud environments and enterprise customers, which we believe we are uniquely positioned to address as the only provider of both flash and hard drive products. We provide the Cloud end market with an array of high-capacity enterprise HDD and high-performance enterprise SSD, and platforms. Our capacity enterprise hard drives provide high-capacity storage needs and a low total cost of ownership per gigabyte for the growing cloud data center and smart video system markets. These drives are primarily for use in data storage systems, in tiered storage models and where data must be stored reliably for years. Our high-performance enterprise class SSD include high-performance flash-based SSD and software solutions that are optimized for performance applications providing a range of capacity and performance levels primarily for use in enterprise servers and supporting high-volume online transactions, data analysis and other enterprise applications. We also provide higher value data storage platforms to the market.\nThrough the Client end market, we provide numerous data solutions that we incorporate into our client\u2019s devices, which consist of HDD and SSD desktop and notebook PCs,  gaming consoles and set top boxes, as well as flash-based embedded storage products for mobile phones, tablets, notebook PCs and other portable and wearable devices, automotive applications, Internet of Things, industrial and connected home applications. Our HDD and SSD are designed for use in devices requiring high performance, reliability and capacity with various attributes such as low cost per gigabyte, quiet acoustics, low power consumption and protection against shocks.\n5\nTable of Content\ns\nThe Consumer end market provides consumers with a portfolio of HDD and SSD embedded into external storage products and removable Flash, which include cards, universal serial bus (\u201cUSB\u201d) flash drives and wireless drives, through our retail and channel routes to market. Our external HDD storage products in both mobile and desktop form factors provide affordable, high quality, reliable storage for backup and capacity expansion that are designed to keep digital content secure. We offer client portable SSD with a range of capacities and performance characteristics to address a broad spectrum of the client storage market. Our removable cards are designed primarily for use in consumer devices, such as mobile phones, tablets, imaging systems, cameras and smart video systems. Our USB flash drives are used in the computing and consumer markets and are designed for high-performance and reliability. Our wireless drive products allow in-field backup of created content, as well as wireless streaming of high-definition movies, photos, music and documents to tablets, smartphones and PCs.\nCompetition \n \n \nOur industry is highly competitive. We compete with manufacturers of Flash and HDD for Cloud, Client, and Consumer end markets. In Flash, we compete with vertically integrated suppliers such as Kioxia, Micron Technology, Inc., Samsung Electronics Co., Ltd., SK hynix, Inc., Yangtze Memory Technologies Co., Ltd. and numerous smaller companies that assemble flash into products. In HDD, we compete with Seagate Technology Holdings plc and Toshiba Electronic Devices & Storage Corporation. \nBusiness Strategy \n \n \nOur overall strategy is to leverage our innovation, technology and execution capabilities to be an industry-leading and broad-based developer, manufacturer and provider of storage devices and solutions that support the infrastructure that has enabled the unabated proliferation of data. We believe we are the only company in the world with large-scale capabilities to develop and manufacture a portfolio of integrated data storage solutions that are based on both Flash and HDD technologies. We strive to successfully execute our strategy through the following foundational elements in order to create long-term value for our customers, partners, investors and employees:\n\u2022\nInnovation and Cost Leadership: \nWe continue to innovate and develop advanced technologies across platforms for both Flash and HDD to deliver timely new products and solutions to meet growing demands for scale, performance and cost efficiency in the market.\n\u2022\nBroad Product Portfolio: \nWe leverage our capabilities in firmware, software and systems in both Flash and HDD to deliver compelling and differentiated integrated storage solutions to our customers that offer the best combinations of performance, cost, power consumption, form factor, quality and reliability, while creating new use cases for our solutions in emerging markets.\n\u2022\nOperational Excellence: \nWe are focused on delivering the best value for our customers in Cloud, Client and Consumer end markets through a relentless focus on appropriately scaling our operations across both Flash and HDD technologies to efficiently support business growth; achieving best in class cost, quality and cycle-time; maintaining industry leading manufacturing capabilities; and having a competitive advantage in supply-chain management.\nOur strategy provides the following benefits, which distinguish us in the dynamic and competitive data storage industry:\n\u2022\na broad product portfolio that differentiates us as a leading developer and manufacturer of integrated products and solutions based on both Flash and HDD, making us a more strategic supply partner to our large-scale customers who have storage needs across the data infrastructure ecosystem;\n\u2022\nefficient and flexible manufacturing capabilities, allowing us to leverage our Flash and HDD R&D and capital expenditures to deliver innovative and cost-effective storage solutions to multiple markets;\n\u2022\ndeep relationships with industry leaders across the data ecosystems that give us the broadest routes to market; and\n\u2022\nindustry leading consumer brand awareness and global retail distribution presence.\nIn June 2022, we announced that we are reviewing potential strategic alternatives aimed at further optimizing long-term value for our stockholders. The Executive Committee of our Board, chaired by our CEO, is overseeing the assessment process, and the potential strategic alternatives include, among other things, options for separating our Flash and HDD business units.\n6\nTable of Content\ns\nResearch and Development \n \n \nWe devote substantial resources to the development of new products and the improvement of existing products. We focus our engineering efforts on optimizing our product design and manufacturing processes to bring our products to market in a cost-effective and timely manner. For a discussion of associated risks, see Part I, Item 1A, \nRisk Factors\n, of this Annual Report on Form 10-K.\nPatents, Licenses and Proprietary Information \n \n \nWe rely on a combination of patents, trademarks, copyright and trade secret laws, confidentiality procedures and licensing arrangements to protect our IP rights.\nWe have approximately 13,000 active patents worldwide and have many patent applications in process. We continually seek additional United States (\u201cU.S.\u201d) and international patents on our technology. We believe that, although our active patents and patent applications have considerable value, the successful manufacturing and marketing of our products also depends upon the technical and managerial competence of our staff. Accordingly, the patents held and applied for cannot alone ensure our future success.\nIn addition to patent protection of certain IP rights, we consider elements of our product designs and processes to be proprietary and confidential. We believe that our non-patented IP, particularly some of our process technology, is an important factor in our success. We rely upon non-disclosure agreements, contractual provisions and a system of internal safeguards to protect our proprietary information. Despite these safeguards, there is a risk that competitors may obtain and use such information. The laws of foreign jurisdictions in which we conduct business may provide less protection for confidential information than the laws of the U.S.\nWe rely on certain technology that we license from other parties to manufacture and sell our products. We believe that we have adequate cross-licenses and other agreements in place in addition to our own IP portfolio to compete successfully in the storage industry. For a discussion of associated risks, see Part I, Item 1A, \nRisk Factors\n, of this Annual Report on Form 10\u2011K.\nManufacturing \n \n \nWe believe that we have significant know-how, unique product manufacturing processes, test and tooling, execution skills, human resources and training to continue to be successful and to adjust our manufacturing operations as necessary. We strive to maintain manufacturing flexibility, high manufacturing yields, reliable products and high-quality components. The critical elements of our production of Flash and HDD are high volume and utilization, low-cost assembly and testing, strict adherence to quality metrics and maintaining close relationships with our strategic component suppliers to access best-in-class technology and manufacturing capacity. We continually monitor our manufacturing capabilities to respond to the changing requirements of our customers and maintain our competitiveness and position as a data technology leader. \nFlash and HDD manufacturing are complex processes involving the production and assembly of precision components with narrow tolerances and rigorous testing. The manufacturing processes involve a number of steps that are dependent on each other and occur in \u201cclean room\u201d environments that demand skill in process engineering and efficient space utilization to control the operating costs of these manufacturing environments. We continually evaluate our manufacturing processes in an effort to increase productivity, sustain and improve quality and decrease manufacturing costs. For example, we have taken aggressive actions to restructure our client HDD manufacturing footprint in light of ongoing trends in the HDD Client market as PCs shift from using HDD to Flash technology. We continually evaluate which steps in the manufacturing process would benefit from automation and how automated manufacturing processes can improve productivity and reduce manufacturing costs. We also leverage contract manufacturers when strategically advantageous. \nOur vertically integrated, in-house assembly and test operations for our HDD products are concentrated in Prachinburi and Bang Pa-In, Thailand; Penang, Johor Bahru, and Kuching, Malaysia; Laguna, Philippines; Shenzhen, China; San Jose and Fremont, CA, USA.\n7\nTable of Content\ns\nVentures with Kioxia\n \n \n \nSubstantially all of our flash-based supply requirements for Flash is obtained from our ventures with Kioxia, which provide us with leading-edge, high-quality and low-cost flash memory wafers. While substantially all of our flash memory supply utilized for our products is purchased from these ventures, from time to time, we also purchase flash memory from other flash manufacturers. While we do not unilaterally control the operations of our ventures with Kioxia, we believe that our business venture relationship with Kioxia helps us reduce product costs, increases our ability to control the quality of our products and speeds delivery of our products to our customers. Our business ventures with Kioxia are located primarily in Yokkaichi and Kitakami, Japan, and our in-house assembly and test operations are located in Shanghai, China and Penang, Malaysia.\nWe and Kioxia currently operate three business ventures in 300-millimeter flash-based manufacturing facilities in Japan, which provide us leading-edge, cost-competitive flash-based memory wafers for our end products. Through Flash Partners Ltd., Flash Alliance Ltd., and Flash Forward Ltd., which we collectively refer to as Flash Ventures, we and Kioxia collaborate in the development and manufacture of flash-based memory wafers using semiconductor manufacturing equipment owned or leased by each of the Flash Venture entities. We hold a 49.9% ownership position in each of the Flash Venture entities. Each Flash Venture entity purchases wafers from Kioxia at cost and then resells those wafers to us and Kioxia at cost plus a small markup. We are obligated to take our share of the output from these ventures or pay for variable costs incurred in producing our share of Flash Ventures\u2019 flash-based memory wafer supply, based on our three-month forecast, which generally equals 50% of Flash Ventures\u2019 output. In addition, we are obligated to pay for half of Flash Ventures\u2019 fixed costs regardless of the output we choose to purchase. We are also obligated to fund 49.9% to 50.0% of each Flash Ventures entity\u2019s capital investments to the extent that the Flash Ventures entity\u2019s operating cash flow is insufficient to fund these investments. We co-develop flash technologies (including process technology and memory design) with Kioxia and contribute IP for Flash Ventures\u2019 use.\nThe agreements governing the operations of the Flash Venture entities also set out a framework for any investment by the joint venture partners in flash manufacturing capacity. Since its inception, Flash Ventures\u2019 primary manufacturing site has been located in Yokkaichi, Japan. The Yokkaichi site, which is owned and operated by Kioxia, currently includes six wafer fabrication facilities. We have jointly invested, and intend to continue to jointly invest, with Kioxia in manufacturing equipment for the Yokkaichi fabrication facilities. We also have agreements that extend Flash Ventures to a wafer fabrication facility located in Kitakami, Japan, referred to as \u201cK1\u201d, which is operated by Kioxia Iwate Corporation, a wholly-owned subsidiary of Kioxia. In January 2022, we entered into agreements regarding Flash Ventures\u2019 investment in a new wafer fabrication facility in Yokkaichi, Japan, referred to as \u201cY7\u201d, which is the sixth wafer fabrication facility at the Yokkaichi site. The primary purpose of Y7 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer flash technology nodes. The first phase of construction of Y7 is now complete and has commenced output.\nFor a discussion of risks associated with our business ventures with Kioxia, see Part I, Item 1A, \nRisk Factors\n, of this Annual Report on Form 10-K.\nMaterials and Supplies \n \n \nOur Flash consists of flash-based memory, controllers and firmware and other components. Substantially all of our flash-based memory is supplied by our business ventures with Kioxia. Controllers are primarily designed in-house and manufactured by third-party foundries or acquired from third-party suppliers. We believe the use of our in-house assembly and test facilities, as well as contract manufacturers, provides flexibility and gives us access to increased production capacity. We have developed deep relationships with these vendors and Kioxia to establish a continuous supply of flash-based memory and controllers.\nHDD consists primarily of recording heads, magnetic media, controllers and firmware, and a printed circuit board assembly. We design and manufacture substantially all of the recording heads and magnetic media required for our products. As a result, we are more dependent upon our own development and execution efforts for these components and less reliant on recording head and magnetic media technologies developed by other manufacturers. We depend on an external supply base for all remaining components and materials for use in our HDD product design, manufacturing, and testing. We believe the use of our in-house manufacturing, assembly and test facilities provides the controls necessary to provide the demanding capabilities, performance and reliability our customers require.\nWe generally retain multiple suppliers for our component requirements, but for business or technology reasons, we source some of our components from a limited number of sole or single source providers. For a discussion of associated risks, see Part I, Item 1A, \nRisk Factors\n, of this Annual Report on Form 10-K.\n8\nTable of Content\ns\nSales and Distribution \n \n \nWe sell our products to computer manufacturers and OEMs, cloud service providers, resellers, distributors and retailers throughout the world. We maintain sales offices in selected parts of the world including the major geographies of the Americas, Asia Pacific, Europe and the Middle East. Our international sales, which include sales to foreign subsidiaries of U.S. companies but do not include sales to U.S. subsidiaries of foreign companies, represented \n69%,\n 71% and 78% of our net revenue for 2023, 2022 and 2021, respectively. Sales to international customers are subject to certain risks not normally encountered in domestic operations, including exposure to tariffs and various trade regulations. For a discussion of such risks, see Part\u00a0I, Item\u00a01A, \nRisk Factors\n, of this Annual Report on Form\u00a010-K.\nWe perform our marketing and advertising functions both internally and through outside firms utilizing both consumer media and trade publications targeting various reseller and end-user markets. We also maintain customer relationships through direct communication and by providing information and support through our website. In accordance with standard storage industry practice, we provide distributors and retailers with limited price protection and programs under which we reimburse certain marketing expenditures. We also provide distributors, resellers and OEMs with other sales incentive programs. \nFor each of 2023, 2022 and 2021, \nno single customer\n accounted for 10% or more of our net revenue.\nSeasonality\nWe have historically experienced seasonal fluctuations in our business with higher levels of demand in the first and second quarters as a result of increased customer spending. Seasonality can also be impacted by cyclicality in the industry and macroeconomic conditions. For a discussion of associated risks, see Part I, Item 1A, \nRisk Factors\n, of this Annual Report on Form 10-K.\nService and Warranty \n \n \nWe generally warrant our newly manufactured products against defects in materials and workmanship from one to five years from the date of sale depending on the type of product, with a small number of products having a warranty ranging up to ten years or more. Our warranty obligation is generally limited to repair or replacement. We have engaged third parties in various countries in multiple regions to provide various levels of testing, processing, or recertification of returned products for our customers. For additional information regarding our service and warranty policy, see Part\u00a0II, Item\u00a08, Note\u00a01, \nOrganization and Basis of Presentation,\n and Note 5, \nSupplemental Financial Statement Data, \nof the Notes to Consolidated Financial Statements included in this Annual Report on Form\u00a010-K.\nHuman Capital Management \n \nIn order to support our company\u2019s strategy, a continued emphasis on talent is required. Despite the current industry headwinds, we continue to focus on attracting, developing, engaging and retaining the best talent for our company. At the end of 2023, we employed approximately 53,000 people worldwide. Our diverse team spans 38 countries with approximately 85% of our employees in Asia Pacific, 13% in the Americas and 2% in Europe, the Middle East and Africa. \nDiversity, Equity and Inclusion\nWe are committed to diversity and promoting an inclusive environment where every individual can thrive through a sense of belonging, respect and contribution. We support inclusive hiring, training and development opportunities and ensuring equitable pay for employees, and we continue to focus on increasing diverse representation at every level of our company. As of June 30, 2023, women represented 26% of our management positions and 23% of our technical staff. Additionally, members of Asian, Black/African American, Hispanic/Latino or other racially or ethnically diverse communities, represented 62% of our U.S. management positions, which is a 1.4 percentage point increase compared to 2022. \nWe have a number of initiatives that focus on increasing our diverse representation, including our new college graduate recruitment and hiring programs as well as veteran hiring and training programs. Our Employee Resource Groups (\u201cERGs\u201d) help create an inclusive culture that embraces the uniqueness of our employees. We have several ERG communities, focusing on women, LGBTQ+, racial and ethnic minorities, military and people with disabilities. For additional detail about our workforce, we encourage you to review our Sustainability Report, which we publish annually and make available on our corporate website. Nothing on our website shall be deemed incorporated by reference into this Annual Report on Form 10-K.\n9\nTable of Content\ns\nIn 2023, we continued the self-identification initiative launched in the previous year by inviting new hires to share more about who they are across dimensions of gender, gender identity, veterans and disabilities. Participation was optional, data was protected and the results were anonymized. We believe an in-depth understanding of our employee population will enable us to better engage and retain our talent.\nCompensation and Benefits\nWe believe in the importance of investing in our people, and we do that through a robust Total Rewards program. We benchmark our compensation and benefits programs annually using market data from reputable third-party consultants. We also conduct internal focus groups and employee surveys to inform programs and identify opportunities.\nWe promote a pay-for-performance culture and offer employees competitive compensation consisting of base salary and both short-term and long-term incentives. We also offer a global recognition program to celebrate the contributions of employees who bring our core values to life. \nTo ensure that our pay practices are fair and equitable, we conduct an annual pay equity assessment to promote equal pay for equal work for men and women. As part of this review, we analyze current pay which takes into consideration various, non-discriminatory factors, such as seniority, experience, skills, performance, location, track and hiring and promotion dates. We use the results to make pay adjustments as needed. In 2023, we expanded our assessment to cover 100% of our employee population globally. In the coming year, we plan to further our pay equity efforts by engaging in a living wage analysis.\nWe also believe in creating an environment that allows our employees to prioritize their physical, mental and financial well-being. We provide competitive benefits, including health coverage, life and disability insurance, retirement, paid time off, an employee assistance program and an employee stock purchase plan. In 2023, we continued our multi-year journey to modernize and improve our benefits portfolio with the goal of offering more choice to meet the unique needs of our diverse employees.\nTalent Attraction, Development and Engagement\nFoundational to our people strategy is the attraction, development and engagement of our employees. We continued our skills-based screening to hire employees based on capabilities and potential as well as our anonymous hiring pilot to identify and remove any potential for bias from our hiring process for interns. Additionally, we revamped our event experience by focusing on career fairs and conferences.\nFostering the next generation of talent continues to be a key priority, and in 2023 we increased our U.S. intern conversion rate by over 40 percentage points. We are also a corporate sponsor for the Quad Fellowship by Schmidt Futures, which aims to \u201cempower exceptional engineering, mathematics, science, and technology graduate students to advance research and innovation with a lens of positive social impact.\u201d\nDeveloping our talent is key to helping us reach our business goals and retaining our people. We foster an environment of continuous learning through on-demand tools to help employees chart their career journey and track their progress. To equip employees with the skills needed to build resilience and manage the economic uncertainty, we shifted our focus to address critical capabilities in real-time. Alongside our flagship program Leader Essentials, we introduced self-directed development modules to help employees at all levels cultivate skills such as how to navigate dynamic times, have a learning mindset, seek insights and communicate effectively. We were recognized by Fast Company as one of the 10 most innovative companies in manufacturing in calendar year 2023 for upskilling 42% of our workforce at our Penang, Malaysia facility while working towards our sustainability goals. \nOngoing engagement is a keystone to our people strategy. We believe that listening is crucial to identifying opportunities to strengthen employee engagement as well as influencing our overall strategy. We also engage employees by taking actions to promote and ground them in our core values and beliefs as a company, so that we are conducting business in an ethical way. As a result of this focus, in 2023, we were named one of the World\u2019s Most Ethical Companies by Ethisphere Institute for the fifth consecutive year. Our employees regularly engage in philanthropy to support the communities in which they work and live. In 2023, 32% of our employees participated in a company-sponsored volunteer event, which was bolstered by a 27-percentage point increase in participation among our factory worker population.\nHealth and Safety\nWe are committed to creating a safe work environment everywhere we operate. We provide extensive health and safety resources and training to all of our employees, especially for those who work in our manufacturing and operations. We use an integrated management system to manage health and safety standards at our manufacturing facilities.\n10\nTable of Content\ns\nGovernment Regulation \n \n \nOur worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments. Compliance with existing or future governmental regulations, including, but not limited to, those pertaining to global trade, the environment, consumer and data protection, employee health and safety, and taxes, could have a material impact on our capital expenditures, earnings, competitive position and overall business in subsequent periods. See Part I, Item 1A, \nRisk Factors\n for a discussion of these potential impacts.\nCorporate Responsibility and Sustainability   \nWe believe responsible and sustainable business practices support our long-term success. As a company, we are deeply committed to protecting and supporting our people, our environment, and our communities. That commitment is reflected through sustainability-focused initiatives as well as day-to-day activities, including our adoption of sustainability-focused policies and procedures, our publicly-recognized focus on fostering an inclusive workplace, our constant drive toward more efficient use of materials and energy, our careful and active management of our supply chain, our community-focused volunteerism programs and philanthropic initiatives, and our impactful, globally-integrated ethics and compliance program.\n\u2022\nWe seek to protect the human rights and civil liberties of our employees through policies, procedures, and programs that avoid risks of compulsory and child labor, both within our company and throughout our supply chain.\n\u2022\nWe foster a workplace of dignity, respect, diversity, and inclusion through our recruiting and advancement practices, internal communications, and employee resource groups.\n\u2022\nWe educate our employees annually on relevant ethics and compliance topics, publish accessible guidance on ethical issues and related company resources in our Global Code of Conduct, and encourage reporting of ethical concerns through any of several global and local reporting channels.\n\u2022\nWe support local communities throughout the world, focusing on hunger relief, environmental quality, and STEM (science, technology, engineering, and math) education, especially for underrepresented and underprivileged youth.\n\u2022\nWe utilize a robust integrated management system, with associated policies and procedures, to evaluate and manage occupational health and safety risks, environmental compliance, and chemical and hazardous substance risks.\n\u2022\nWe work to minimize our impacts on the environment through emissions reduction targets and other initiatives and to evaluate and enhance our climate resiliency.\n\u2022\nWe innovate to reduce the energy used by our products, the energy used to manufacture them, and the amount of new materials required to manufacture them.\nAvailable Information \n \n \nWe maintain an Internet website at \nwww.westerndigital.com\n. The information on our website is not incorporated in this Annual Report on Form 10-K. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available on our website at \nwww.westerndigital.com\n, free of charge, as soon as reasonably practicable after the electronic filing of these reports with, or furnishing of these reports to, the Securities and Exchange Commission (\u201cSEC\u201d). The SEC maintains a website at \nwww.sec.gov\n that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including us.",
+  "item1a": ">Item 1A.\n\u00a0\u00a0\u00a0\u00a0\nRisk Factors\n \n \n \nOur business can be affected by a number of risks and uncertainties, any of which could cause material harm to our actual operating results and financial condition. The risks discussed below are not the only ones facing our business but represent risks that we believe are material to us. Additional risks not presently known to us or that we currently deem immaterial may also negatively affect our business.\nOPERATIONAL RISKS\n  Adverse global or regional conditions could harm our business.\n11\nTable of Content\ns\nA large portion of our revenue is derived from our international operations, and many of our products and components are produced overseas. As a result, our business depends significantly on global and regional conditions. Adverse changes in global or regional economic conditions, including, but not limited to, volatility in the financial markets, tighter credit, recession, inflation, rising interest rates, slower growth in certain geographic regions, political uncertainty, geopolitical tensions or conflicts, other macroeconomic factors, changes to social conditions and regulations, could significantly harm demand for our products, increase credit and collectability risks, result in revenue reductions, reduce profitability as a result of underutilization of our assets, cause us to change our business practices, increase manufacturing and operating costs or result in impairment charges or other expenses.\nOur revenue growth is significantly dependent on the growth of international markets, and we may face challenges in international sales markets. We are subject to risks associated with our global manufacturing operations and global sales efforts, as well as risks associated with our utilization of contract manufacturers, including:\n\u2022\nobtaining governmental approvals and compliance with evolving foreign regulations;\n\u2022\nthe need to comply with regulations on international business, including the Foreign Corrupt Practices Act, the United Kingdom Bribery Act 2010, the anti-bribery laws of other countries and rules regarding conflict minerals;\n\u2022\nexchange, currency and tax controls and reallocations;\n\u2022\nweaker protection of IP rights; \n\u2022\npolicies and financial incentives by governments in China, the United States, and countries in Europe and Asia designed to reduce dependence on foreign semiconductor manufacturing capabilities;\n\u2022\ntrade restrictions, such as export controls, export bans, import restrictions, embargoes, sanctions, license and certification requirements (including semiconductor, encryption and other technology), tariffs and complex customs regulations; and\n\u2022\ndifficulties in managing international operations, including appropriate internal controls.\nAs a result of these risks, our business could be harmed. \n  We are dependent on a limited number of qualified suppliers who provide critical services, materials or components, and a disruption in our supply chain could negatively affect our business.\nWe depend on an external supply base for technologies, software (including firmware), preamps, controllers, dynamic random-access memory, components, equipment and materials for use in our product design and manufacturing. We also depend on suppliers for a portion of our wafer testing, chip assembly, product assembly and product testing, and on service suppliers for providing technical support for our products. In addition, we use logistics partners to manage our worldwide just-in-time hubs and distribution centers and to meet our freight needs. Many of the components and much of the equipment we acquire must be specifically designed for use in our products or for developing and manufacturing our products, and are only available from a limited number of suppliers, some of whom are our sole-source suppliers. We therefore depend on these suppliers to meet our business needs including dedicating adequate engineering resources to develop components that can be successfully integrated into our products. \nOur suppliers have in the past been, and may in the future be, unable or unwilling to meet our requirements, including as a result of events outside of their control such as trade restrictions (including tariffs, quotas and embargoes), geopolitical conflicts, public health emergencies, or natural disasters. If we are unable to purchase sufficient quantities from our current suppliers or qualify and engage additional suppliers, or if we cannot purchase materials at a reasonable price, we may not be able to meet demand for our products. Trade restrictions, including tariffs, quotas and embargoes, demand from other high-volume industries for materials or components used in our products, disruptions in supplier relationships or shortages in other components and materials used in our customers\u2019 products could result in increased costs to us or decreased demand for our products, which could negatively impact our business. Delays, shortages or cost increases experienced by our suppliers in developing or sourcing materials and components for use in our products or incompatibility or quality issues relating to our products, could also harm our business. \n12\nTable of Content\ns\nWe do not have long-term contracts with some of our existing suppliers, nor do we always have guaranteed manufacturing capacity with our suppliers, so we cannot guarantee that they will devote sufficient resources or capacity to manufacturing our products. Any significant problems that occur at our suppliers could lead to product shortages or quality assurance problems. When we do have contractual commitments with suppliers in an effort to stabilize the supply of our components, those commitments may require us to buy a substantial number of components or make significant cash advances to the supplier and may not result in a satisfactory supply of our components. We have cancelled or deferred and may continue to cancel or defer outstanding purchase commitments with certain suppliers due to changes in actual and forecasted demand, which has resulted, and may continue to result in fees, penalties and other associated charges. Such cancellations or deferments can also negatively impact our relationships with certain suppliers or lead to a decline in the financial performance of certain suppliers, each of which could result in even more limited availability of components needed for our products.\nIn addition, our supply base has experienced industry consolidation. Our suppliers may be acquired by our competitors, decide to exit the industry, or redirect their investments and increase costs to us. In addition, some of our suppliers have experienced a decline in financial performance, including as a result of cancelled or deferred purchase commitments. Where we rely on a limited number of suppliers or a single supplier, the risk of supplier loss due to industry consolidation or a decline in financial performance is increased. Some of our suppliers may also be competitors in other areas of our business, which could lead to difficulties in price negotiations or meeting our supply requirements. \n   Public health crises, including the COVID-19 pandemic, have had, and could in the future have, a negative effect on our business.\nThe COVID-19 pandemic has negatively impacted and future public health crises, including resurgences of COVID-19 may negatively impact our workforce and operations in the future, as well as those of our strategic partners, customers, suppliers and logistics providers. The impacts we experienced in connection with the COVID-19 pandemic included temporary closures of certain manufacturing facilities; under-absorbed overhead; increased logistics, component and other costs; decreased demand for our products; and manufacturing challenges. Future outbreaks of infectious disease or other public health crises may have similar impacts.\nThe effects of public health crises are uncertain and difficult to predict, but may include:\n\u2022\nDisruptions to our supply chain, our operations or those of our strategic partners, customers or suppliers caused by employees or others contracting infectious diseases, or by governmental orders to contain the spread of infectious disease, such as travel restrictions, quarantines, shelter in place orders, trade controls and business shutdowns;\n\u2022\nDeterioration of worldwide credit markets that may limit our ability or increase our cost to obtain external financing to fund our operations and capital expenditures and result in a higher rate of losses on our accounts receivables due to customer credit defaults;\n\u2022\nExtreme volatility in financial markets, which may harm our ability to access the financial markets on acceptable terms; \n\u2022\nIncreased data security and technology risk as some employees work from home, including possible outages to systems and technologies critical to remote work and increased data privacy risk with cybercriminals attempting to take advantage of the disruption; and\n\u2022\nReduced productivity or other disruptions of our operations if workers in our factories or our other worksites are exposed to or spread infectious diseases to other employees.\nThe degree to which any future public health crises, including resurgences of COVID-19, ultimately impact our business will depend on many factors beyond our control, which are highly uncertain and cannot be predicted at this time. \n  Our operations, and those of certain of our suppliers and customers, are subject to substantial risk of damage or disruption.\nWe conduct our operations at large, high-volume, purpose-built facilities in California and throughout Asia. The facilities of many of our customers, our suppliers and our customers\u2019 suppliers are also concentrated in certain geographic locations throughout Asia and elsewhere. If a fire (including a climate change-related fire), flood, earthquake, tsunami or other natural disaster, condition or event such as a power outage, contamination event, terrorist attack, cybersecurity incident, physical security breach, political instability, civil unrest, localized labor unrest or other employment issues, or a health epidemic \n13\nTable of Content\ns\nnegatively affects any of these facilities, it would significantly affect our ability to manufacture or sell our products and source components and would harm our business. Possible impacts include work and equipment stoppages and damage to or closure of our facilities, or those of our suppliers or customers, for an indefinite period of time. Climate change has in the past and is expected to continue to increase the incidence and severity of certain natural disasters, including wildfires and adverse weather events. In addition, the geographic concentration of our manufacturing sites could exacerbate the negative impacts resulting from any of these problems. \nWe may incur losses beyond the limits of, or outside the scope of, the coverage of our insurance policies. There can be no assurance that in the future we will be able to maintain existing insurance coverage or that premiums will not increase substantially. Due to market availability, pricing or other reasons, we may elect not to purchase insurance coverage or to purchase only limited coverage. We maintain limited insurance coverage and, in some cases, no coverage at all, for natural disasters and damage to our facilities, as these types of insurance are sometimes not available or available only at a prohibitive cost. Climate change may reduce the availability or increase the cost of certain types of insurance by contributing to an increase in the incidence and severity of certain natural disasters. We depend upon Kioxia to obtain and maintain sufficient property, business interruption and other insurance for Flash Ventures. If Kioxia fails to do so, we could suffer significant unreimbursable losses, and such failure could also cause Flash Ventures to breach various financing covenants.\n  The loss of our key management, staff and skilled employees; the inability to hire and develop new employees; or decisions to realign our business could negatively impact our business prospects.\nOur success depends upon the continued contributions of our talent. Changes in our key management team can result in loss of continuity, loss of accumulated knowledge, departure of other key employees, disruptions to our operations and inefficiency during transitional periods. Global competition for skilled employees in the technology industry is intense, and our business success is increasingly dependent on our ability to attract, develop and retain top talent; implement succession plans for key management and staff and replace aging skilled employees. Additionally, uncertainty about business realignment actions or the structure and organization of our business as a result of our ongoing strategic review could negatively impact our ability to recruit and retain key staff and skilled employees. Changes in immigration policies may also impair our ability to recruit and hire technical and professional talent. \nOur ability to hire and retain employees also depends on our ability to build and maintain a diverse and inclusive workplace culture and to fund competitive compensation and benefits, each of which contribute to being viewed as an employer of choice. Additionally, because a substantial portion of our key employees\u2019 compensation is linked to the performance of our business, we may be at a competitive disadvantage for hiring and retaining talent when our operating results are negatively impacted. If we are unable to hire and retain key talent, our operating results would likely be harmed.\n  The compromise, damage or interruption of our technology infrastructure, systems or products by cyber incidents, data security breaches, other security problems, design defects or system failures could have a material negative impact on our business.\nWe experience cyber incidents of varying degrees on our technology infrastructure and systems and, as a result, unauthorized parties have obtained in the past, and may obtain in the future, access to our computer systems and networks, including cloud-based platforms. For example, an unauthorized third party gained access to a number of our systems in March 2023, which caused disruption to parts of our business operations and resulted in various investigation, recovery, and remediation expenses. In addition, the technology infrastructure and systems of some of our suppliers, vendors, service providers, cloud solution providers and partners have in the past experienced, and may in the future experience, such incidents. Cyber incidents can be caused by ransomware, computer denial-of-service attacks, worms, and other malicious software programs or other attacks, including the covert introduction of malware to computers and networks, and the use of techniques or processes that change frequently, may be disguised or difficult to detect, or are designed to remain dormant until a triggering event, and may continue undetected for an extended period of time. Cyber incidents have in the past resulted from, and may in the future result from, social engineering or impersonation of authorized users, and may also result from efforts to discover and exploit any design flaws, bugs, security vulnerabilities or security weaknesses, intentional or unintentional acts by employees or other insiders with access privileges, intentional acts of vandalism or fraud by third parties and sabotage. In some instances, efforts to correct vulnerabilities or prevent incidents have in the past and may in the future reduce the functionality or performance of our computer systems and networks, which could negatively impact our business. We believe malicious cyber acts are increasing in number and that cyber threat actors are increasingly organized and well-financed or supported by state actors, and are developing increasingly sophisticated systems and means to not only infiltrate systems, but also to evade detection or to obscure their activities. Geopolitical tensions or conflicts may create heightened risk of cyber incidents.\n14\nTable of Content\ns\nOur products are also targets for malicious cyber acts, including those products utilized in cloud-based environments as well as our cloud service offerings. Our cloud services have in the past and may in the future be taken offline as a result of or in order to prevent or mitigate cyber incidents. While some of our products contain encryption or security algorithms to protect third-party content or user-generated data stored on our products, these products could still be hacked or the encryption schemes could be compromised, breached, or circumvented by motivated and sophisticated attackers. Further, our products contain sophisticated hardware and operating system software and applications that may contain security problems, security vulnerabilities, or defects in design or manufacturing, including \u201cbugs\u201d and other problems that could interfere with the intended operation of our products. To the extent our products include design defects, suffer system failure or are hacked, or if the encryption schemes are compromised or breached, this could harm our business by requiring us to employ additional resources to fix the errors or defects, exposing us to litigation and indemnification claims and hurting our reputation.\nIf efforts to breach our infrastructure, systems or products are successful or we are unable to protect against these risks, we could suffer interruptions, delays, or cessation of operations of our systems, and loss or misuse of proprietary or confidential information, IP, or sensitive or personal information. For example, as a result of a network security incident in March 2023, an unauthorized party obtained a copy of a Western Digital database used for our online store that contained some personal information of our online store customers. Compromises of our infrastructure, systems or products could also cause our customers and other affected third parties to suffer loss or misuse of proprietary or confidential information, IP, or sensitive or personal information, and could harm our relationships with customers and other third parties and subject us to liability. As a result of actual or perceived breaches, we have in the past experienced and may in the future experience additional costs, notification requirements, civil and administrative fines and penalties, indemnification claims, litigation, or damage to our brand and reputation. All of these consequences could harm our reputation and our business and materially and negatively impact our operating results and financial condition.\n  We are subject to risks related to product defects, which could result in product recalls or epidemic failures and could subject us to warranty claims in excess of our warranty provisions or which are greater than anticipated, litigation or indemnification claims.\nWe warrant the majority of our products for periods of one to five years. We test our products in our manufacturing facilities through a variety of means. However, our testing may fail to reveal defects in our products that may not become apparent until after the products have been sold into the market. In addition, our products may be used in a manner that is not intended or anticipated by us, resulting in potential liability. Accordingly, there is a risk that product defects will occur, including as a result of third-party components or applications that we incorporate in our products, which could require a product recall. Product recalls can be expensive to implement. As part of a product recall, we may be required or choose to replace the defective product. Moreover, there is a risk that product defects may trigger an epidemic failure clause in a customer agreement. If an epidemic failure occurs, we may be required to replace or refund the value of the defective product and to cover certain other costs associated with the consequences of the epidemic failure. In addition, product defects, product recalls or epidemic failures may cause damage to our reputation or customer relationships, lost revenue, indemnification for a recall of our customers\u2019 products, warranty claims, litigation or loss of market share with our customers, including our OEM and original design manufacturer (\u201cODM\u201d) customers. Our business liability insurance may be inadequate or future coverage may be unavailable on acceptable terms, which could negatively impact our operating results and financial condition.\nOur standard warranties contain limits on damages and exclusions of liability for consequential damages and for misuse, improper installation, alteration, accident or mishandling while in the possession of someone other than us. We record an accrual for estimated warranty costs at the time revenue is recognized. We may incur additional expenses if our warranty provisions do not reflect the actual cost of resolving issues related to defects in our products, whether as a result of a product recall, epidemic failure or otherwise. If these additional expenses are significant, they could harm our business.\nBUSINESS AND STRATEGIC RISKS\n  Our review of potential strategic alternatives may not result in an executed or consummated transaction or other strategic alternative, and the process of reviewing strategic alternatives or its conclusion could adversely affect our business and our stockholders.\nIn June 2022, we announced that we are reviewing potential strategic alternatives aimed at further optimizing long-term value for our stockholders. The potential strategic alternatives include, among other things, the option to separate our Flash and HDD business units. We are actively working with financial advisors and the Company\u2019s legal counsel in this strategic review process.\n15\nTable of Content\ns\nAny potential transaction or other strategic alternative would be dependent on a number of factors that may be beyond our control, including, among other things, market conditions, industry trends, regulatory approvals, and the availability of financing for a potential transaction on reasonable terms. The process of reviewing potential strategic alternatives is time consuming and may be distracting and disruptive to our business operations and long-term planning, which may cause concern to our current or potential customers, employees, investors, strategic partners and other constituencies and may have a material impact on our business and operating results or result in increased volatility in our share price. We have and will continue to incur substantial expenses associated with identifying, evaluating and negotiating potential strategic alternatives. There can be no assurance that any potential transaction or other strategic alternative, if consummated, will provide greater value to our stockholders than that reflected in the current price of our common stock. Until the review process is concluded, perceived uncertainties related to our future may result in the loss of potential business opportunities, volatility in the market price of our common stock and difficulty attracting and retaining qualified talent and business partners. Similarly, activist investors may engage in proxy solicitations or advance shareholder proposals, or otherwise attempt to affect changes and assert influence on our Board and management, which could lead to the impacts on our business, board, management and employees discussed above.\n  We rely substantially on strategic relationships with various partners, including Kioxia, which subjects us to risks and uncertainties that could harm our business.\nWe have entered into and expect to continue to enter into strategic relationships with various partners for product development, manufacturing, sales growth and the supply of technologies, components, equipment and materials for use in our product design and manufacturing, including our business ventures with Kioxia. We depend on Flash Ventures for the development and manufacture of flash-based memory. Our strategic relationships, including Flash Ventures, are subject to various risks that could harm the value of our investments, our revenue and costs, our future rate of spending, our technology plans and our future growth opportunities.\nSubstantially all of our flash-based memory is supplied by Flash Ventures, which limits our ability to respond to market demand and supply changes and makes our financial results particularly susceptible to variations from our forecasts and expectations. A failure to accurately forecast supply and demand could cause us to over-invest or under-invest in technology transitions or the expansion of Flash Ventures\u2019 capacity. Over-investment by us or our competitors could result in excess supply, which could cause significant decreases in our product prices, significant excess, obsolete inventory or inventory write-downs or underutilization charges, and the potential impairment of our investments in Flash Ventures. We are contractually obligated to pay for 50% of the fixed costs of Flash Ventures regardless of whether we order any flash-based memory, and our orders placed with Flash Ventures on a three-month rolling basis are binding. On the other hand, if we under-invest in Flash Ventures, or otherwise grow or transition Flash Ventures\u2019 capacity too slowly, we may not have enough supply of flash-based memory, or the right type of flash-based memory, to meet demand on a timely and cost effective basis, and we may lose opportunities for revenue, gross margin and market share as a result. If our supply is limited, we might make strategic decisions with respect to the allocation of our supply among our products and customers, which could result in less favorable gross margins or damage customer relationships. \nOur control over the operations of our business ventures may be limited, and our interests could diverge from our strategic partners\u2019 interests regarding ongoing and future activities. For example, under the Flash Ventures agreements, we cannot unilaterally direct most of Flash Ventures\u2019 activities, and we have limited ability to source or fabricate flash outside of Flash Ventures. Flash Ventures requires significant investments by both Kioxia and us for technology transitions and capacity expansions, and our business could be harmed if our technology roadmap and investment plans are not sufficiently aligned with Kioxia\u2019s. Lack of alignment with Kioxia with respect to Flash Ventures could negatively impact our ability to react quickly to changes in the market, or to stay at the forefront of technological advancement. Misalignment could arise due to changes in Kioxia\u2019s strategic priorities, management, ownership or access to capital, which have changed in recent years and could continue to change. Kioxia\u2019s stakeholders may include, or have included in the past, competitors, customers, a private equity firm, government entities or public stockholders. Kioxia\u2019s management changes, ownership and capital structure could lead to delays in decision-making, disputes or changes in strategic direction that could negatively impact the strategic partnership, and therefore us. There may exist conflicts of interest between Kioxia\u2019s stakeholders and Flash Ventures or us with respect to, among other things, protecting and growing Flash Ventures\u2019 business, IP and competitively sensitive confidential information.\nTogether with Kioxia, we fund a portion of the investments required for Flash Ventures through lease financings. Continued availability of lease financings for Flash Ventures is not guaranteed and could be limited by several factors, including investor capacity and risk allocation policies, our or Kioxia\u2019s financial performance and changes to our or Kioxia\u2019s \n16\nTable of Content\ns\nbusiness, ownership or corporate structure. To the extent that lease financings are not accessible on favorable terms or at all, more cash would be required to fund investments. \nOur strategic relationships are subject to additional risks that could harm our business, including, but not limited to, the following:\n\u2022\nfailure by our strategic partners to comply with applicable laws or employ effective internal controls; \n\u2022\ndifficulties and delays in product and technology development at, ramping production at, and transferring technology to, our strategic partners;\n\u2022\ndeclining financial performance of our strategic partners, including failure by our strategic partners to timely fund capital investments with us or otherwise meet their commitments, including paying amounts owed to us or third parties when due;\n\u2022\nwe may lose the rights to, or ability to independently manufacture, certain technology or products being developed or manufactured by strategic partners, including if any of them is acquired by another company, files for bankruptcy or experiences financial or other losses;\n\u2022\na bankruptcy event involving a strategic partner could result in structural changes to or termination of the strategic partnership; and\n\u2022\nchanges in tax or regulatory requirements may necessitate changes to the agreements governing our strategic partnerships.\n  We participate in a highly competitive industry that is subject to declining average selling prices (\u201cASPs\u201d), volatile demand, rapid technological change and industry consolidation, as well as lengthy product qualifications, all of which can negatively impact our business.\nDemand for our devices, software and solutions, which we refer to in this Item 1A as our \u201cproducts\u201d, depends in large part on the demand for systems manufactured by our customers and on storage upgrades to existing systems. The demand for systems has been volatile in the past and often has had an exaggerated effect on the demand for our products in any given period. Demand for and prices of our products are influenced by, among other factors, actual and projected data growth, the balance between supply and demand in the storage market, including the effects of new fab capacity, macroeconomic factors, business conditions, technology transitions and other actions taken by us or our competitors. The storage market has recently experienced, and may continue to experience, periods of excess capacity leading to liquidation of excess inventories, inventory write-downs, significant reductions in ASPs and negative impacts on our revenue and gross margins, and volatile product life cycles that harm our ability to recover the cost of product development. \nFurther, our ASPs and gross margins tend to decline when there is a shift in the mix of product sales to lower priced products. We face potential gross margin pressures resulting from our ASPs declining more rapidly than our cost of revenue. Rapid technological changes often reduce the volume and profitability of sales of existing products and increase the risk of inventory obsolescence and write-downs. Finally, the data storage industry has experienced consolidation over the past several years, which could enhance the resources and lower the cost structure of some competitors. These factors could result in a substantial decrease in our market share and harm our business.\nAs we compete in new product areas, the overall complexity of our business may increase and may result in increases in R&D expenses and substantial investments in manufacturing capability, technology enhancements and go-to-market capability. We must also qualify our products with customers through potentially lengthy testing processes with uncertain results. Some of our competitors offer products that we do not offer, which may allow them to win sales from us, and some of our customers may be developing storage solutions internally, which may reduce their demand for our products. We expect that competition will continue to be intense, and our competitors may be able to gain a product offering or cost structure advantage over us, which would harm our business. Further, our competitors may utilize pricing strategies, including offering products at prices at or below cost, that we may be unable to competitively match. We may also have difficulty effectively competing with manufacturers benefiting from governmental investments and may be subject to increased complexity and reduced efficiency in our supply chain as a result of governmental efforts to promote domestic semiconductor industries in various jurisdictions.\n  If we do not properly manage technology transitions and product development and introduction, our competitiveness and operating results may be negatively affected.\n17\nTable of Content\ns\nThe markets for our products continuously undergo technology transitions that can impact our product roadmaps and that we must anticipate in order to adapt our existing products or develop new products effectively. If we fail to adapt to or implement new technologies or develop new products desired by our customers quickly and cost-effectively, or if technology transitions negatively impact our existing product roadmaps, our business may be harmed.\nIn addition, the success of our technology transitions and product development depends on a number of other factors, including:\n\u2022\nR&D expenses and results;\n\u2022\ndifficulties faced in manufacturing ramp;\n\u2022\nmarket acceptance/qualification;\n\u2022\neffective management of inventory levels in line with anticipated product demand;\n\u2022\nthe vertical integration of some of our products, which may result in more capital expenditures and greater fixed costs than if we were not vertically integrated;\n\u2022\nour ability to cost effectively respond to customer requests for new products or features (including requests for more efficient and efficiently-produced products with reduced environmental impacts) and software associated with our products;\n\u2022\nour ability to increase our software development capability; and\n\u2022\nthe effectiveness of our go-to-market capability in selling new products.\nMoving to new technologies and products may require us to align to, and build, a new supply base. Our success in new product areas may depend on our ability to enter into favorable supply agreements. In addition, if our customers choose to delay transition to new technologies, if demand for the products that we develop is lower than expected or if the supporting technologies to implement these new technologies are not available, we may be unable to achieve the cost structure required to support our profit objectives or may be unable to grow or maintain our market position.\nAdditionally, new technologies could impact demand for our products in unforeseen or unexpected ways and new products could substitute for our current products and make them obsolete, each of which would harm our business. We also develop products to meet certain industry and technical standards, which may change and cause us to incur substantial costs as we adapt to new standards or invest in different manufacturing processes to remain competitive.\n  We experience sales seasonality and cyclicality, which could cause our operating results to fluctuate. In addition, accurately forecasting demand has become more difficult, which could harm our business.\nSales of many of our products tend to be seasonal and subject to supply-demand cycles. Changes in seasonal and cyclical supply and demand patterns have made it, and could continue to make it, more difficult for us to forecast demand. Changes in the product or channel mix of our business can also impact seasonal and cyclical patterns. For example, we often ship a high percentage of our total quarterly sales in the third month of the quarter, which makes it difficult for us to forecast our financial results before the end of each quarter. As a result of the above or other factors, our forecast of financial results for a given quarter may differ materially from our actual financial results.\nThe variety and volume of products we manufacture are based in part on accurately forecasting market and customer demand for our products. Accurately forecasting demand has become increasingly difficult for us, our customers and our suppliers due to volatility in global economic conditions, end market dynamics and industry consolidation, resulting in less availability of historical market data for certain product segments. Further, for many of our OEM customers utilizing just-in-time inventory, we do not generally require firm order commitments and instead receive a periodic forecast of requirements, which may prove to be inaccurate. In addition, because our products are designed to be largely interchangeable with competitors\u2019 products, our demand forecasts may be impacted significantly by the strategic actions of our competitors. As forecasting demand becomes more difficult, the risk that our forecasts are not in line with demand increases. This has caused, and may in the future cause, our forecasts to exceed actual market demand, resulting in periods of product oversupply, excess inventory, asset underutilization and price decreases, which has impacted and could further impact our sales, ASPs and gross \n18\nTable of Content\ns\nmargin, thereby negatively affecting our operating results and our financial condition. If market demand increases significantly beyond our forecasts or beyond our ability to add manufacturing capacity, then we may not be able to satisfy customer product needs, possibly resulting in a loss of market share if our competitors are able to meet customer demands. In addition, some of our components have long lead-times, requiring us to place orders several months in advance of anticipated demand. Such long lead-times increase the risk of excess inventory, potentially resulting in inventory write-downs, or loss of sales in the event our forecasts vary substantially from actual demand.\n  Failure to successfully execute on strategic initiatives including acquisitions, divestitures or cost saving measures may negatively impact our future results.\nWe have made and expect to continue to make acquisitions and divestitures, and engage in cost saving measures. Acquisitions of, investment opportunities in, or other significant transactions with companies that are complementary to our business are an important part of our overall business strategy. In order to pursue this part of our growth strategy successfully, we must continue to identify attractive acquisition or investment opportunities, successfully complete the transactions, some of which may be large and complex, and manage post-closing issues such as integration of the acquired company or employees and integration of processes and systems. We may not be able to continue to identify or complete appealing acquisition or investment opportunities given the intense competition for these transactions. Even if we identify and complete suitable corporate transactions, we may not be able to successfully address any integration challenges in a timely manner, or at all. There have been and may continue to be difficulties with implementing new systems and processes or with integrating systems and processes of companies with complex operations, which can result in inconsistencies in standards, controls, procedures and policies and may increase the risk that our internal controls are found to be ineffective. \nFailing to successfully integrate or realign our business to take advantage of efficiencies or reduce redundancies of an acquisition may result in not realizing all or any of the anticipated benefits of the acquisition. In addition, failing to achieve the financial model projections for an acquisition or changes in technology development and related roadmaps following an acquisition may result in the incurrence of impairment charges (including goodwill impairments or other asset write-downs) and other expenses, both of which could negatively impact our results of operations or financial condition. Acquisitions and investments may also result in the issuance of equity securities that may be dilutive to our stockholders as well as earn-out or other contingent consideration payments and the issuance of additional indebtedness that would put additional pressure on liquidity. Furthermore, we may agree to provide continuing service obligations or enter into other agreements in order to obtain certain regulatory approvals of our corporate transactions, and failure to satisfy these additional obligations could result in our failing to obtain regulatory approvals or the imposition of additional obligations on us, any of which could negatively affect our business. In addition, new legislation or additional regulations may affect or impair our ability to invest with or in certain other countries or require us to obtain regulatory approvals to do so, including investments in joint ventures, minority investments and outbound technology transfers to certain countries.\nCost saving measures, restructurings and divestitures may result in workforce reduction and consolidation of our manufacturing or other facilities. As a result of these actions, we may experience a loss of continuity, loss of accumulated knowledge, disruptions to our operations and inefficiency during transitional periods. These actions could also impact employee retention. In addition, we cannot be sure that these actions will be as successful in reducing our overall expenses as we expect, that additional costs will not offset any such reductions or consolidations or that we do not forego future business opportunities as a result of these actions. \n  Loss of revenue from a key customer, or consolidation among our customer base, could harm our operating results.\nHistorically, nearly one half of our total revenue came from sales to our top 10 customers. These customers have a variety of suppliers to choose from and therefore can make substantial demands on us, including demands on product pricing, contractual terms and the environmental impact and attributes of our products, often resulting in the allocation of risk or increased costs to us as the supplier. Our ability to maintain strong relationships with our principal customers is essential to our future performance. We have experienced and may in the future experience events such as the loss of a key customer, prohibition or restriction of sales to a key customer by law, regulation or other government action, reductions in sales to or orders by a key customer, customer requirements to reduce our prices before we are able to reduce costs or the acquisition of a key customer by one of our competitors. These events have impacted, and may in the future impact, our operating results and financial condition. Further, government authorities may implement laws or regulations or take other actions that could result in significant changes to the business or operating models of our customers. Such changes could negatively impact our operating results. \n19\nTable of Content\ns\nAdditionally, if there is consolidation among our customer base, our customers may be able to command increased leverage in negotiating prices and other terms of sale, which could negatively impact our profitability. Consolidation among our customer base may also lead to reduced demand for our products, increased customer pressure on our prices, replacement of our products by the combined entity with those of our competitors and cancellations of orders, each of which could harm our operating results.\nAlso, the storage ecosystem is constantly evolving, and our traditional customer base is changing. Fewer companies now hold greater market share for certain applications and services, such as cloud storage and computing platforms, mobile, social media, shopping and streaming media. As a result, the competitive landscape is changing, giving these companies increased leverage in negotiating prices and other terms of sale, which could negatively impact our profitability. In addition, the changes in our evolving customer base create new selling and distribution patterns to which we must adapt. To remain competitive, we must respond to these changes by ensuring we have proper scale in this evolving market, as well as offer products that meet the technological requirements of this customer base at competitive pricing points. To the extent we are not successful in adequately responding to these changes, our operating results and financial condition could be harmed.\n  Sales in the distribution channel and to the retail market are important to our business, and if we fail to respond to demand changes within these markets, or maintain and grow our applicable market share, our business could suffer.\nOur distribution customers typically sell to small computer manufacturers, dealers, systems integrators and other resellers. We face significant competition in this channel as a result of limited product qualification programs and a significant focus on price and availability of product. As a result of the shift to mobile devices, more computing devices are being delivered to the market as complete systems, which could weaken the distribution market. If we fail to respond to changes in demand in the distribution market, our business could suffer. Additionally, if the distribution market weakens as a result of technology transitions or a significant change in consumer buying preference, or if we experience significant price declines due to demand changes in the distribution channel, our operating results would be negatively impacted. Negative changes in the creditworthiness or the ability to access credit, or the bankruptcy or shutdown of any of our significant retail or distribution partners would harm our revenue and our ability to collect outstanding receivable balances.\nA significant portion of our sales is also made through retailers. Our success in the retail market depends in large part on our ability to maintain our brand image and corporate reputation and to expand into and gain market acceptance of our products in multiple retail market channels. Particularly in the retail market, negative publicity, whether or not justified, or allegations of product or service quality issues, even if false or unfounded, could damage our reputation and cause our customers to choose products offered by our competitors. Further, changes to the retail environment, such as store closures caused by macroeconomic conditions or changing customer preferences, may reduce the demand for our products. If customers no longer maintain a preference for our product brands or if our retailers are not successful in selling our products, our operating results may be negatively impacted.\nFINANCIAL RISKS\n  Our level of debt may negatively impact our liquidity, restrict our operations and ability to respond to business opportunities, and increase our vulnerability to adverse economic and industry conditions.\nWe utilize debt financing in our capital structure and may incur additional debt, including under our revolving credit facility subject to customary conditions in our loan agreements. Our level of debt could have significant consequences, which include, but are not limited to, the following:\n\u2022\nlimiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions or other general corporate purposes;\n\u2022\nrequiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes;\n\u2022\nimposing financial and other restrictive covenants on our operations, including minimum liquidity and free cash flow requirements and limitations on our ability to (i) declare or pay dividends or repurchase shares of our common stock; (ii) purchase assets, make investments, complete acquisitions, consolidate or merge with or into, or sell all or substantially all of our assets to, another person; (iii) enter into sale/leaseback transactions or certain transactions with affiliates; (iv) incur additional indebtedness and (v) incur liens; and\n\u2022\nmaking us more vulnerable to economic downturns and limiting our ability to withstand competitive pressures or take advantage of new opportunities to grow our business.\n20\nTable of Content\ns\nOur ability to meet our debt service obligations, comply with our debt covenants and deleverage depends on our cash flows and financial performance, which are affected by financial, business, economic and other factors. The rate at which we will be able to or choose to deleverage is uncertain. Failure to meet our debt service obligations or comply with our debt covenants could result in an event of default under the applicable indebtedness. We may be unable to cure, or obtain a waiver of, an event of default or otherwise amend our debt agreements to prevent an event of default thereunder on terms acceptable to us or at all. In that event, the debt holders could accelerate the related debt, which may result in the cross-acceleration or cross-default of other debt, leases or other obligations. If we do not have sufficient funds available to repay indebtedness when due, whether at maturity or by acceleration, we may be required to sell important strategic assets; refinance our existing debt; incur additional debt or issue common stock or other equity securities, which we may not be able to do on terms acceptable to us, in amounts sufficient to meet our needs or at all. Our inability to service our debt obligations or refinance our debt could harm our business. Further, if we are unable to repay, refinance or restructure our secured indebtedness, the holder of such debt could proceed against the collateral securing the indebtedness. Refinancing our indebtedness may also require us to expense previous debt issuance costs or to incur new debt issuance costs.\nAs our bank debt contains a variable interest rate component based on our corporate credit ratings, a decline in our ratings could result in increased interest rates and debt service obligations. In addition, our ratings impact the cost and availability of future borrowings and, accordingly, our cost of capital. Our ratings reflect the opinions of the ratings agencies as to our financial strength, operating performance and ability to meet our debt obligations. There can be no assurance that we will achieve a particular rating or maintain a particular rating in the future.\nWe also guarantee a significant amount of lease obligations of Flash Ventures owed to third parties. Flash Ventures sells to and leases back a portion of its equipment from a consortium of financial institutions. Most of the lease obligations are guaranteed 50% by us and 50% by Kioxia. Some of the lease obligations are guaranteed in full by us. The leases are subject to customary covenants and cancellation events that relate to Flash Ventures and each of the guarantors. If a cancellation event were to occur, Flash Ventures would be required to negotiate a resolution with the other parties to the lease transactions to avoid cancellation and acceleration of the lease obligations. Such resolution could include, among other things, supplementary security to be supplied by us, increased interest rates or waiver fees. If a resolution is not reached, we may be required to pay all of the outstanding lease obligations covered by our guarantees, which would significantly reduce our cash position and may force us to seek additional financing, which may not be available on terms acceptable to us, if at all.\nWe may from time to time seek to further refinance our substantial indebtedness by issuing additional shares of common stock or other securities that are convertible into common stock or grant the holder the right to purchase common stock, each of which may dilute our existing stockholders, reduce the value of our common stock, or both.\n  Tax matters may materially affect our financial position and results of operations.\nChanges in tax laws in the United States, the European Union and around the globe have impacted and will continue to impact our effective worldwide tax rate, which may materially affect our financial position and results of operations. Further, the majority of countries in the G20 and Organization for Economic Cooperation and Development (OECD) Inclusive Framework on Base Erosion and Profit Shifting (BEPS) have agreed to adopt a two-pillar approach to taxation, which includes the implementation of a global corporate minimum tax rate of 15%, which when effective could materially increase our tax obligations in these countries. Due to the large scale of our U.S. and international business activities, many of these enacted and proposed changes to the taxation of our activities, including cash movements, could increase our worldwide effective tax rate and harm our business. Beginning in our fiscal year 2023, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures in the year incurred, requiring amortization in accordance with IRC Section 174. Depending on our operating results, this requirement could materially increase our effective tax rate and reduce our operating cash flows. Additionally, portions of our operations are subject to a reduced tax rate or are free of tax under various tax holidays that expire in whole or in part from time to time, or may be terminated if certain conditions are not met. Although many of these holidays may be extended when certain conditions are met, we may not be able to meet such conditions. If the tax holidays are not extended, or if we fail to satisfy the conditions of the reduced tax rate, then our effective tax rate could increase in the future.\nOur determination of our tax liability in the U.S. and other jurisdictions is subject to review by applicable domestic and foreign tax authorities. For example, as disclosed in Part I, Item 1, Note 14, \nIncome Tax Expense\n, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K, we are under examination by the Internal Revenue Service for certain fiscal years. Although we believe our tax positions are properly supported, the final timing and resolution of any tax examinations are subject to significant uncertainty and could result in litigation or the payment of significant amounts to the \n21\nTable of Content\ns\napplicable tax authority in order to resolve examination of our tax positions, which could result in an increase of our current estimate of unrecognized tax benefits and may harm our business.\n  Fluctuations in currency exchange rates as a result of our international operations may negatively affect our operating results. \nBecause we manufacture and sell our products abroad, our revenue, cost of revenue, margins, operating costs and cash flows are impacted by fluctuations in foreign currency exchange rates. If the U.S. dollar exhibits sustained weakness against most foreign currencies, the U.S. dollar equivalents of unhedged manufacturing costs could increase because a significant portion of our production costs are foreign-currency denominated. Conversely, there would not be an offsetting impact to revenues since revenues are substantially U.S. dollar denominated. Additionally, we negotiate and procure some of our component requirements in U.S. dollars from non-U.S. based vendors. If the U.S. dollar weakens against other foreign currencies, some of our component suppliers may increase the price they charge for their components in order to maintain an equivalent profit margin. In addition, our purchases of flash-based memory from Flash Ventures and our investment in Flash Ventures are denominated in Japanese yen. If the Japanese yen appreciates against the U.S. dollar, our cost of purchasing flash-based memory wafers and the cost to us of future capital funding of Flash Ventures would increase. When such events occur, they have had, and may in the future have, a negative impact on our business.\nPrices for our products are substantially U.S. dollar denominated, even when sold to customers that are located outside the U.S. Therefore, as a substantial portion of our sales are from countries outside the U.S., fluctuations in currency exchanges rates, most notably the strengthening of the U.S. dollar against other foreign currencies, contribute to variations in sales of products in impacted jurisdictions and could negatively impact demand and revenue growth. In addition, currency variations can adversely affect margins on sales of our products in countries outside the U.S.\nWe attempt to manage the impact of foreign currency exchange rate changes by, among other things, entering into short-term foreign exchange contracts. However, these contracts may not cover our full exposure, and can be canceled by the counterparty if currency controls are put in place. Thus, our decisions and hedging strategy with respect to currency risks may not be successful and may actually harm our operating results. Further, the ability to enter into foreign exchange contracts with financial institutions is based upon our available credit from such institutions and compliance with covenants and other restrictions. Operating losses, third party downgrades of our credit rating or instability in the worldwide financial markets could impact our ability to effectively manage our foreign currency exchange rate risk. Hedging also exposes us to the credit risk of our counterparty financial institutions.\n  Increases in our customers\u2019 credit risk could result in credit losses and term extensions under existing contracts with customers with credit losses could result in an increase in our operating costs.\nSome of our OEM customers have adopted a subcontractor model that requires us to contract directly with companies, such as ODMs, that provide manufacturing and fulfillment services to our OEM customers. Because these subcontractors are generally not as well capitalized as our direct OEM customers, this subcontractor model exposes us to increased credit risks. Our agreements with our OEM customers may not permit us to increase our product prices to alleviate this increased credit risk. Additionally, as we attempt to expand our OEM and distribution channel sales into emerging economies, the customers with the most success in these regions may have relatively short operating histories, making it more difficult for us to accurately assess the associated credit risks. Our customers\u2019 credit risk may also be exacerbated by an economic downturn or other adverse global or regional economic conditions. Any credit losses we may suffer as a result of these increased risks, or as a result of credit losses from any significant customer, especially in situations where there are term extensions under existing contracts with such customers, would increase our operating costs, which may negatively impact our operating results.\nLEGAL AND COMPLIANCE RISKS\n  We are subject to laws, rules, and regulations relating to the collection, use, sharing, and security of data, including personal data, and our failure to comply with these laws, rules and regulations could subject us to proceedings by governmental entities or others and cause us to incur penalties, significant legal liability, or loss of customers, loss of revenue, and reputational harm.\nWe are subject to laws, rules, and regulations relating to the collection, use, and security and privacy of third-party data including data that relates to or identifies an individual person. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, and among us, our subsidiaries and other parties with which we have commercial relations. Our possession and use of third-party data, including personal data and \n22\nTable of Content\ns\nemployee data in conducting our business, subjects us to legal and regulatory burdens that require us to notify vendors, customers or employees or other parties with which we have commercial relations of a data security breach and to respond to regulatory inquiries and to enforcement proceedings. Laws and regulations relating to the collection, use, security and privacy of third-party data change over time and new laws and regulations become effective from time to time. We are subject to notice and privacy policy requirements, as well as obligations to respond to requests to know and access personal information, correct personal information, delete personal information and say no to the sale of personal information. Global privacy and data protection legislation, enforcement, and policy activity in this area are rapidly expanding and evolving, and may be inconsistent from jurisdiction to jurisdiction. We may also be subject to restrictions on cross-border data transfers and requirements for localized storage of data that could increase our compliance costs and risks and affect the ability of our global operations to coordinate activities and respond to customers. Compliance requirements and even our inadvertent failure to comply with applicable laws may cause us to incur substantial costs, subject us to proceedings by governmental entities or others, and cause us to incur penalties or other significant legal liability, or lead us to change our business practices.\n  We are subject to state, federal and international legal and regulatory requirements, such as environmental, labor, health and safety, trade and public-company reporting and disclosure regulations, customers\u2019 standards of corporate citizenship, and industry and coalition standards, such as those established by the Responsible Business Alliance (\u201cRBA\u201d), and compliance with those regulations and requirements could cause an increase in our operating costs and failure to comply may harm our business.\nWe are subject to, and may become subject to additional, state, federal and international laws and regulations governing our environmental, labor, trade, health and safety practices and public-company reporting and disclosures requirements. These laws and regulations, particularly those applicable to our international operations, are or may be complex, extensive and subject to change. We will need to ensure that we and our suppliers, customers and partners timely comply with such laws and regulations, which may result in an increase in our operating costs. Legislation has been, and may in the future be, enacted in locations where we manufacture or sell our products, which could impair our ability to conduct business in certain jurisdictions or with certain customers and harm our operating results. In addition, climate change and financial reform legislation is a significant topic of discussion and has generated and may continue to generate federal, international or other regulatory responses in the near future, which could substantially increase the complexity of our public-company reporting and disclosure requirements and our compliance and operating costs. If we or our suppliers, customers or partners fail to timely comply with applicable legislation, certain customers may refuse to purchase our products or we may face increased operating costs as a result of taxes, fines or penalties, or legal liability and reputational damage, which could harm our business.\nIn connection with our compliance with environmental laws and regulations, as well as our compliance with industry and coalition environmental initiatives, such as those established by the RBA, the standards of business conduct required by some of our customers, and our commitment to sound corporate citizenship in all aspects of our business, we could incur substantial compliance and operating costs and be subject to disruptions to our operations and logistics. In addition, if we or our suppliers, customers or partners were found to be in violation of these laws or noncompliant with these initiatives or standards of conduct, we could be subject to governmental fines, liability to our customers and damage to our reputation and corporate brand, which could cause our financial condition and operating results to suffer.\n  Our aspirations, disclosures, and actions related to environmental, social and governance (\u201cESG\u201d) matters expose us to risks that could adversely affect our reputation and performance.\nThere is an increased focus from investors, customers, associates, business partners and other stakeholders concerning ESG matters, and we announce initiatives and goals related to ESG matters from time to time, including renewable energy and net zero emissions commitments.\n \nThese statements reflect our current plans and aspirations and are not guarantees that we will be able to achieve them. Our ability to achieve any ESG objective is subject to numerous risks, many of which are outside of our control, including the availability and cost of alternative energy sources; the evolving regulatory and reporting requirements affecting ESG practices and disclosures; the locations and usage of our products and the implications on their greenhouse gas emissions; and the successful execution of our strategy.\n \nOur failure to accomplish or accurately track and report on these goals on a timely basis, or at all, and the potential added costs involved, could adversely affect our reputation; financial performance and growth; our ability to attract or retain talent; and our attractiveness as a business partner or supplier, and could expose us to increased litigation risk, as well as increased scrutiny from the investment community and enforcement authorities.\n  We and certain of our officers are at times involved in litigation, investigations and governmental proceedings, which may be costly, may divert the efforts of our key personnel and could result in adverse court rulings, fines or penalties, which could materially harm our business.\n23\nTable of Content\ns\nFrom time to time, we are involved in litigation, including antitrust and commercial matters, putative securities class action suits and other actions. We are the plaintiff in some of these actions and the defendant in others. Some of the actions seek injunctive relief, including injunctions against the sale of our products, and substantial monetary damages, which if granted or awarded, could materially harm our business. From time to time, we may also be the subject of inquiries, requests for information, investigations and actions by government and regulatory agencies regarding our businesses. Any such matters could result in material adverse consequences to our results of operations, financial condition or ability to conduct our business, including fines, penalties or restrictions on our business activities.\nLitigation is subject to inherent risks and uncertainties that may cause actual results to differ materially from our expectations. In the event of an adverse outcome in any litigation, investigation or governmental proceeding, we could be required to pay substantial damages, fines or penalties and cease certain practices or activities, including the manufacture, use and sale of products. With or without merit, such matters can be complex, can extend for a protracted period of time, can be very expensive and the expense can be unpredictable. Litigation initiated by us could also result in counter-claims against us, which could increase the costs associated with the litigation and result in our payment of damages or other judgments against us. In addition, litigation, investigations or governmental proceedings and any related publicity may divert the efforts and attention of some of our key personnel, affect demand for our products and harm the market prices of our securities.\nWe may be obligated to indemnify our current or former directors or employees, or former directors or employees of companies that we have acquired, in connection with litigation, investigations or governmental proceedings. These liabilities could be substantial and may include, among other things: the costs of defending lawsuits against these individuals; the cost of defending shareholder derivative suits; the cost of governmental, law enforcement or regulatory investigations or proceedings; civil or criminal fines and penalties; legal and other expenses; and expenses associated with the remedial measures, if any, which may be imposed.\n  The nature of our industry and its reliance on IP and other proprietary information subjects us and our suppliers, customers and partners to the risk of significant litigation.\nThe data storage industry has been characterized by significant litigation. This includes litigation relating to patent and other IP rights, product liability claims and other types of litigation. We have historically been involved in frequent disputes regarding patent and other IP rights, and we have in the past received, and we may in the future receive, communications from third parties asserting that certain of our products, processes or technologies infringe upon their patent rights, copyrights, trademark rights or other IP rights. We may also receive claims of potential infringement if we attempt to license IP to others. IP risks increase when we enter into new markets where we have little or no IP protection as a defense against litigation. The complexity of the technology involved and the uncertainty of IP litigation increase the IP risks we face. Litigation can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of litigation are inherently uncertain and may result in adverse rulings or decisions. We may be subject to injunctions, enter into settlements or be subject to judgments that may harm our business.\nIf we incorporate third-party technology into our products or if claims or actions are asserted against us for alleged infringement of the IP of others, we may be required to obtain a license or cross-license, modify our existing technology or design a new non-infringing technology. Such licenses or design modifications can be extremely costly. We evaluate notices of alleged patent infringement and notices of patents from patent holders that we receive from time to time. We may decide to settle a claim or action against us, which settlement could be costly. We may also be liable for any past infringement. If there is an adverse ruling against us in an infringement lawsuit, an injunction could be issued barring production or sale of any infringing product. It could also result in a damage award equal to a reasonable royalty or lost profits or, if there is a finding of willful infringement, treble damages. Any of these results would increase our costs and harm our operating results. In addition, our suppliers, customers and partners are subject to similar risks of litigation, and a material, adverse ruling against a supplier, customer or partner could negatively impact our business.\nMoreover, from time to time, we agree to indemnify certain of our suppliers and customers for alleged IP infringement. The scope of such indemnity varies but may include indemnification for direct and consequential damages and expenses, including attorneys\u2019 fees. We may be engaged in litigation as a result of these indemnification obligations. Third party claims for patent infringement are excluded from coverage under our insurance policies. A future obligation to indemnify our customers or suppliers may harm our business.\n  Our reliance on IP and other proprietary information subjects us to the risk that these key components of our business could be copied by competitors.\n24\nTable of Content\ns\nOur success depends, in significant part, on the proprietary nature of our technology, including non-patentable IP such as our process technology. We primarily rely on patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect our proprietary technologies and processes. There can be no assurance that our existing patents will continue to be held valid, if challenged, or that they will have sufficient scope or strength to protect us. It is also possible that competitors or other unauthorized third parties may obtain, copy, use or disclose, illegally or otherwise, our proprietary technologies and processes, despite our efforts to protect our proprietary technologies and processes. If a competitor is able to reproduce or otherwise capitalize on our technology despite the safeguards we have in place, it may be difficult, expensive or impossible for us to obtain necessary legal protection. There are entities whom we believe may infringe our IP. Enforcement of our rights often requires litigation. If we bring a patent infringement action and are not successful, our competitors would be able to use similar technology to compete with us. Moreover, the defendant in such an action may successfully countersue us for infringement of their patents or assert a counterclaim that our patents are invalid or unenforceable. Also, the laws of some foreign countries may not protect our IP to the same extent as do U.S. laws. In addition to patent protection of IP rights, we consider elements of our product designs and processes to be proprietary and confidential. We rely upon employee, consultant and vendor non-disclosure agreements and contractual provisions and a system of internal safeguards to protect our proprietary information. However, any of our registered or unregistered IP rights may be challenged or exploited by others in the industry, which could harm our operating results.\nThe success of our branded products depends in part on the positive image that consumers have of our brands. We believe the popularity of our brands makes them a target of counterfeiting or imitation, with third parties attempting to pass off counterfeit products as our products. Any occurrence of counterfeiting, imitation or confusion with our brands could negatively affect our reputation and impair the value of our brands, which in turn could negatively impact sales of our branded products, our share and our gross margin, as well as increase our administrative costs related to brand protection and counterfeit detection and prosecution.\n  The exclusive forum provisions in our Bylaws could limit our stockholders' ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other employees.\nOur Bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or the federal district court in the State of Delaware if the Court of Chancery does not have subject matter jurisdiction) is the sole and exclusive forum for (i) any derivative action brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee of the Company or its stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Company\u2019s Certificate of Incorporation or Bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine (the \u201cDelaware Exclusive Forum Provision\u201d). Our Bylaws further provide that the federal district courts of the United States of America will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action under the Securities Act of 1933, as amended (the \u201cFederal Forum Provision\u201d). \nThe Delaware Exclusive Forum Provision is intended to apply to claims arising under Delaware state law and would not apply to claims brought pursuant to the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, the Federal Forum Provision is intended to apply to claims arising under the Securities Act and would not apply to claims brought pursuant to the Exchange Act. The exclusive forum provisions in the Company\u2019s Bylaws will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder and, accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal courts. Our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations. \nThe exclusive forum provisions in the Company\u2019s Bylaws may limit a stockholder\u2019s ability to bring a claim in a judicial forum of its choosing for disputes with the company or its directors, officers or other employees, which may discourage lawsuits against the Company and its directors, officers and other employees. In addition, stockholders who do bring a claim in the Court of Chancery of the State of Delaware pursuant to the Delaware Exclusive Forum Provision could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The court in the designated forum under our exclusive forum provisions may also reach different judgments or results than would other courts, including courts where a stockholder would otherwise choose to bring the action, and such judgments or results may be more favorable to the Company than to our stockholders. Further, the enforceability of similar exclusive forum provisions in other companies\u2019 organizational documents has been challenged in legal proceedings, and it is possible that a court could find any of our exclusive forum provisions to be inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings. If a court were to find all or any part of our exclusive forum provisions to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions.\n25\nTable of Content\ns",
+  "item7": ">Item 7.\n \u00a0\u00a0\u00a0\u00a0\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThe following discussion and analysis contains forward-looking statements within the meaning of the federal securities laws, and should be read in conjunction with the disclosures we make concerning risks and other factors that may affect our business and operating results. You should read this information in conjunction with the Consolidated Financial Statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. See also \u201cForward-Looking Statements\u201d immediately prior to Part I, Item 1 of this Annual Report on Form 10-K. \nOur Company\nWe are on a mission to unlock the potential of data by harnessing the possibility to use it. We are a leading developer, manufacturer, and provider of data storage devices based on both NAND flash and hard disk drive technologies. With dedicated flash-based products (\u201cFlash\u201d) and hard disk drives (\u201cHDD\u201d) business units driving advancements in storage technologies, our broad and ever-expanding portfolio delivers powerful Flash and HDD storage solutions for everyone from students, gamers, and home offices to the largest enterprises and public clouds to capture, preserve, access, and transform an ever-increasing diversity of data.\nOur broad portfolio of technology and products address our multiple end markets: \u201cCloud\u201d, \u201cClient\u201d and \u201cConsumer\u201d. Cloud represents a large and growing end market comprised primarily of products for public or private cloud environments and enterprise customers, which we believe we are uniquely positioned to address as the only provider of both Flash and HDD. Through the Client end market, we provide our original equipment manufacturer (\u201cOEM\u201d) and channel customers a broad array of high-performance flash and hard drive solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces. The Consumer end market is highlighted by our broad range of retail and other end-user products, which capitalize on the strength of our product brand recognition and vast points of presence around the world.\nOur fiscal year ends on the Friday nearest to June 30 and typically consists of 52 weeks. Approximately every five to six years, we report a 53-week fiscal year to align the fiscal year with the foregoing policy. Fiscal years 2023, 2022, and 2021, which ended on June\u00a030, 2023, July\u00a01, 2022, and July\u00a02, 2021, respectively, each comprised 52 weeks, with all quarters presented consisting of 13 weeks.\nKey Developments\nNetwork Security Incident \nAs previously disclosed, on March 26, 2023, we identified a network security incident in which an unauthorized third party gained access to a number of our systems. Upon discovery of the incident, we implemented incident response efforts, which included taking various systems and services offline as a proactive measure to secure our business operations and initiating an investigation with the assistance of leading outside security and forensic experts. In collaboration with outside forensic experts, we confirmed that an unauthorized party obtained a copy of a Western Digital database used for our online store that contained some personal information of our online store customers. This information included customer names, billing and shipping addresses, email addresses and telephone numbers. In addition, the database contained, in encrypted format, hashed and salted passwords and partial credit card numbers. We have provided notifications to impacted customers and relevant governmental authorities.\nThe incident, together with the incident response efforts discussed above, resulted in some disruptions to our business operations, including manufacturing, sales, fulfillment and general corporate activities. We were able to stabilize core operations after a short period of time and brought impacted systems back online in order of \noperational priority. The incident did not have a material impact on the financial results in 2023.\nInvestigation, recovery, and remediation expenses, including costs for forensics activities, third-party consulting and service providers, outside legal advisors, and other IT professionals, as a result of the network security incident were not material to the Consolidated Financial Statements. We maintain cyber insurance, subject to certain deductibles and policy limitations, typical for our size and industry.\n33\nTable of Content\ns\nStrategic Alternatives\n In June 2022, we announced that we are reviewing potential strategic alternatives aimed at further optimizing long-term value for stockholders. The Executive Committee of our Board of Directors is overseeing the assessment process and evaluating a range of alternatives, including options for separating our Flash and HDD business units. As of June\u00a030, 2023, we are still actively working with financial advisors and our legal counsel in this strategic review process.\nTax Resolution\nAs disclosed in previous periods, we have received statutory notices of deficiency and notices of proposed adjustments from the Internal Revenue Service (\u201cIRS\u201d) with respect to 2008 through 2015. During the third quarter of 2023, we and the IRS reached an agreement on the federal tax and interest calculations with respect to the years 2008 through 2012 and a tentative settlement for the years 2013 through 2015. Additional information is provided in our discussion of Income tax expense in our results of operations below, as well as in Part II, Item 8, Note 14, \nIncome Tax Expense\n, of the Notes to the Consolidated Financial Statements, and in the \u201cShort- and Long-Term Liquidity \n- \nUnrecognized Tax Benefits\u201d section below.\nFinancing Activities\nIn December 2022 and in June 2023, we amended the loan agreement governing our Term Loan A-2 and revolving credit facility to provide additional financial flexibility as we navigate through the current dynamic economic environment. The amendments modified our financial covenant requirements, including modifying the leverage ratio requirements, and introducing a minimum liquidity covenant applicable through the quarter ending September 27, 2024 and a minimum free cash flow requirement applicable through the quarter ending December 29, 2023.\nThe amendment also accelerates the due date for amounts outstanding under the loan agreement from January 7, 2027 to November 2, 2023 if, as of that date, our cash and cash equivalents plus available unused capacity under our credit facilities do not exceed by $1.40 billion the sum of the outstanding balance of our 1.50% convertible notes due 2024 plus the outstanding principal amount of any other debt maturing within twelve months.\nIn January 2023, we entered into a new delayed draw term loan agreement, which was then amended in June 2023. As amended, the agreement allowed us to draw a loan of up to $600 million which we exercised in full in August 2023 (the \u201cDelayed Draw Term Loan\u201d). Borrowings on this loan will mature on June 28, 2024 or such earlier date that conditions for acceleration of amounts due under the loan agreement governing our Term Loan A-2 and revolving credit facility have been triggered as described above.\nAlso in January, 2023, we issued an aggregate of 900,000 shares of Series A Preferred Stock for an aggregate purchase price of $900 million. We believe these transactions will provide us with greater financial flexibility to manage our business. \nAdditional information regarding our indebtedness, including the principal repayment terms, interest rates, covenants and other key terms of our outstanding indebtedness, and additional information on the terms of our convertible preferred shares is included in Part II, Item 8, Note 8, \nDebt\n, and Note 13, \nShareholders\u2019 Equity and Convertible Preferred Stock\n, of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.\nOperational Update\nMacroeconomic factors such as inflation, higher interest rates and recession concerns have softened demand for our products, with certain customers reducing purchases as they adjust their production levels and right-size their inventories. As a result, we and our industry are experiencing a supply-demand imbalance, which has resulted in reduced shipments and negatively impacted pricing, particularly in Flash. While supply-demand imbalance has somewhat stabilized beginning in the third quarter of 2023, particularly in Client and Consumer, we continue to face a dynamic market environment. To adapt to these conditions, since the beginning of 2023, we have scaled back on capital expenditures, consolidated production lines and reduced bit growth to align with market demand and implemented measures to reduce operating expenses. This has resulted in incremental charges for employee termination, asset impairment and other charges and manufacturing underutilization charges in Flash and HDD in 2023, and is expected to impact near-term results. However, we believe digital transformation will continue to drive long-term growth for data storage in both Flash and HDD and believe that the actions we are taking will position us to capitalize on market conditions when they improve to address long-term growth opportunities in data storage across all our end markets.\nWe will continue to actively monitor developments impacting our business and may take additional responsive actions that we determine to be in the best interest of our business and stakeholders.\n34\nTable of Content\ns\nWe believe we have made significant progress in strengthening our product portfolio to meet our customers\u2019 growing and evolving storage needs. Our new industry-leading 22-terabyte conventional magnetic recording drives and 26-terabyte shingled magnetic recording drives, utilizing OptiNAND technology, have commenced commercial shipments. We also have commenced product sampling of our latest 28-terabyte Ultra SMR drive, which built upon proven ePMR and UltraSMR technology, with full feature and performance compatibility, as well as the reliability trusted by our customers worldwide.\n During 2023, we announced BiCS8 node, the newest 3D-flash memory technology based on a chip-bonded-to-array architecture. \nSee Part I, Item 1A,\n Risk Factors\n, of this Annual Report on Form 10-K for more information regarding the risks we face as a result of macroeconomic conditions, and supply chain disruptions.\n35\nTable of Content\ns\nResults of Operations\nSummary Comparison of 2023, 2022 and 2021 \nThe following table sets forth, for the periods presented, selected summary information from our Consolidated Statements of Operations by dollars and percentage of net revenue\n(1)\n:\n2023\n2022\n2021\n(in millions, except percentages)\nRevenue, net\n$\n12,318\u00a0\n100.0\u00a0\n%\n$\n18,793\u00a0\n100.0\u00a0\n%\n$\n16,922\u00a0\n100.0\u00a0\n%\nCost of revenue\n10,431\u00a0\n84.7\u00a0\n12,919\u00a0\n68.7\u00a0\n12,401\u00a0\n73.3\u00a0\nGross profit\n1,887\u00a0\n15.3\u00a0\n5,874\u00a0\n31.3\u00a0\n4,521\u00a0\n26.7\u00a0\nOperating expenses:\nResearch and development\n2,009\u00a0\n16.3\u00a0\n2,323\u00a0\n12.4\u00a0\n2,243\u00a0\n13.3\u00a0\nSelling, general and administrative\n970\u00a0\n7.9\u00a0\n1,117\u00a0\n5.9\u00a0\n1,105\u00a0\n6.5\u00a0\nEmployee termination, asset impairment, and other charges\n193\u00a0\n1.6\u00a0\n43\u00a0\n0.2\u00a0\n(47)\n(0.3)\nTotal operating expenses\n3,172\u00a0\n25.8\u00a0\n3,483\u00a0\n18.5\u00a0\n3,301\u00a0\n19.5\u00a0\nOperating income (loss)\n(1,285)\n(10.4)\n2,391\u00a0\n12.7\u00a0\n1,220\u00a0\n7.2\u00a0\nInterest and other income:\nInterest income\n24\u00a0\n0.2\u00a0\n6\u00a0\n\u2014\u00a0\n7\u00a0\n\u2014\u00a0\nInterest expense\n(312)\n(2.5)\n(304)\n(1.6)\n(326)\n(1.9)\nOther income, net\n13\u00a0\n0.1\u00a0\n30\u00a0\n0.2\u00a0\n26\u00a0\n0.2\u00a0\nTotal interest and other income, net\n(275)\n(2.2)\n(268)\n(1.4)\n(293)\n(1.7)\nIncome (loss) before taxes\n(1,560)\n(12.7)\n2,123\u00a0\n11.3\u00a0\n927\u00a0\n5.5\u00a0\nIncome tax expense\n146\u00a0\n1.2\u00a0\n623\u00a0\n3.3\u00a0\n106\u00a0\n0.6\u00a0\nNet income (loss)\n(1,706)\n(13.8)\n1,500\u00a0\n8.0\u00a0\n821\u00a0\n4.9\u00a0\nLess: cumulative dividends allocated to preferred shareholders\n24\u00a0\n0.2\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nNet income (loss) attributable to common shareholders\n$\n(1,730)\n(14.0)\n%\n$\n1,500\u00a0\n8.0\u00a0\n%\n$\n821\u00a0\n4.9\u00a0\n%\n(1)\nPercentage may not total due to rounding.\n36\nTable of Content\ns\nThe following table sets forth, for the periods presented, a summary of our segment information:\n2023\n2022\n2021\n(in millions, except percentages)\nNet revenue:\nFlash\n$\n6,063\n$\n9,753\n$\n8,706\nHDD\n6,255\n9,040\n8,216\nTotal net revenue\n$\n12,318\n$\n18,793\n$\n16,922\nGross profit:\nFlash\n$\n433\n$\n3,527\n$\n2,611\nHDD\n1,505\n2,661\n2,221\nUnallocated corporate items:\nStock-based compensation expense\n(49)\n(48)\n(55)\nAmortization of acquired intangible assets\n\u2014\n(66)\n(331)\nContamination related charges\n\u2014\n(207)\n\u2014\nRecoveries from a power outage incident\n\u2014\n7\n75\nOther\n(2)\n\u2014\n\u2014\nTotal unallocated corporate items\n(51)\n(314)\n(311)\nConsolidated gross profit\n$\n1,887\n$\n5,874\n$\n4,521\nGross margin:\nFlash\n7.1%\n36.2%\n30.0%\nHDD\n24.1%\n29.4%\n27.0%\nConsolidated gross margin\n15.3%\n31.3%\n26.7%\nThe following table sets forth, for the periods presented, summary information regarding our disaggregated revenue:\n2023\n2022\n2021\n(in millions)\nRevenue by End Market \nCloud\n$\n5,252\u00a0\n$\n8,017\u00a0\n$\n5,723\u00a0\nClient\n4,328\u00a0\n7,076\u00a0\n7,281\u00a0\nConsumer\n2,738\u00a0\n3,700\u00a0\n3,918\u00a0\nTotal Revenue\n$\n12,318\u00a0\n$\n18,793\u00a0\n$\n16,922\u00a0\nRevenue by Geography\nAsia\n$\n6,046\u00a0\n$\n10,054\u00a0\n$\n9,455\u00a0\nAmericas\n4,172\u00a0\n5,867\u00a0\n4,406\u00a0\nEurope, Middle East and Africa\n2,100\u00a0\n2,872\u00a0\n3,061\u00a0\nTotal Revenue\n$\n12,318\u00a0\n$\n18,793\u00a0\n$\n16,922\u00a0\nExabytes Shipped\n501\u00a0\n645\u00a0\n541\u00a0\nNet Revenue\nNet revenue decrease\nd \n34% in 2023 compared to 2022, primarily reflecting the supply-demand imbalance and macroeconomic pressures described in the \u201cOperational Update\u201d above.\nFlash revenue decreased 38% in 2023 compared to 2022, substantially all driven by a decline in the average selling prices per gigabyte across all our end markets.\n37\nTable of Content\ns\nHDD revenue decreased 31% in 2023, compared to 2022, primarily driven by an approximately 26% decrease in exabytes sold and a decline in the average selling prices. The decrease in exabytes sold was primarily driven by lower shipments to customers in our Cloud end market and to a lesser extent in Client and Consumer end markets.\nThe 34% decrease in Cloud revenue in 2023 compared to 2022, reflects approximately 25 percentage points driven by a decline in HDD revenue as customers reduced purchases to right-size their inventories, and approximately 9 percentage points driven by a decline in Flash revenue resulting primarily from a decrease in shipments, as well as from lower average selling prices of our flash-based products. In Client, the 39% decrease in revenue in 2023 compared to 2022 reflects approximately 34 percentage points driven by a decline in Flash revenue due to pricing pressure across Flash and approximately 5 percentage points driven by a decline in HDD shipments. In Consumer, the 26% decrease in revenues in 2023 compared to 2022, was relatively evenly split between decreases in average selling price per gigabyte in Flash and a decline in retail HDD shipments.\nThe changes in net revenue by geography in 2023, compared to 2022, primarily reflect a larger decline in Asia from lower Client revenue from OEMs in this region as they reduced purchases to align with current market demand, as well as routine variations in the mix of business.\nFor 2023, 2022 and 2021, our top 10 customers accounted for 43%, 45% and 39%, respectively, of our net revenue. For each of 2023, 2022 and 2021, no single customer accounted for 10% or more of our net revenue.\nConsistent with standard industry practice, we have sales incentive and marketing programs that provide customers with price protection and other incentives or reimbursements that are recorded as a reduction to gross revenue. For 2023, 2022 and 2021, these programs represented 20%, 17% and 19%, respectively, of gross revenues, and adjustments to revenue due to changes in accruals for these programs have generally averaged less than 1% of gross revenue over the last three years. The amounts attributed to our sales incentive and marketing programs generally vary according to several factors including industry conditions, list pricing strategies, seasonal demand, competitor actions, channel mix and overall availability of products. Changes in future customer demand and market conditions may require us to adjust our incentive programs as a percentage of gross revenue.\nGross Profit and Gross Margin \nConsolidated gross profit decreased $3.99 billion, or 68%, in 2023 compared to 2022, which reflected the decrease in revenue described above as well as an aggregate of approximately $605 million for manufacturing underutilization and related charges and a write-down of certain Flash inventory to the lower of cost or market value ($404 million in Flash and $201 million in HDD), partially offset by $207 million of charges related to a contamination event in the Flash Ventures\u2019 fabrication facilities incurred in the prior year, and a $66 million decrease in charges related to amortization expense on acquired intangible assets, some of which became fully amortized in 2023. Consolidated gross margin decreased 16 percentage points over the prior year with approximately 4 percentage points of the decline due to the net charges noted above and the remainder driven by the lower average selling prices per gigabyte in Flash. Flash gross margin decreased by 29.1 percentage points year over year, substantially driven by lower average selling prices per gigabyte in Flash with approximately 4 percentage points driven by year-over-year changes in the charges noted above. HDD gross margin decreased by 5.3 percentage points year over year, with approximately 3 percentage points of the decline due to the underutilization charges noted above and the remainder primarily reflecting lower average selling prices per gigabyte and variation in the mix of products.\nOperating Expenses \nR&D expense decreased \n$314 million or 14%\n in 2023 compared to 2022, which reflects reductions in headcount and variable compensation expense as well as savings resulting from our actions to reduce expenses in the current dynamic economic environment. \nSelling, general and administrative (\u201cSG&A\u201d) expense decreased $147 million or 13% in 2023 compared to 2022, which reflects reductions in headcount, variable compensation expense and professional fees as well as savings resulting from our actions to reduce expenses in the current dynamic economic environment.\nEmployee termination, asset impairment and other charges increased $150 million compared to 2022, primarily due to restructuring actions taken to adjust our cost structure to align with the current demand environment.\n For additional information regarding employee termination, asset impairment and other charges, see Part\u00a0II, Item\u00a08, Note\u00a016, \nEmployee Termination, Asset Impairment, and Other Charges\n, of the Notes to Consolidated Financial Statements included in this Annual Report on Form\u00a010-K.\n38\nTable of Content\ns\nInterest and Other Income \nThe total interest and other income, net in 2023 was relatively flat compared to 2022, which reflected higher interest expense as a result of increases in interest rates and lower other income, partially offset by $29 million of lower amortization of the debt discount as a result of the adoption of ASU 2020-06 (as defined and described in Note 2, \nRecent Accounting Pronouncements\n, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K) and higher interest income on our cash and investments due to higher interest rates. \nIncome Tax Expense\nThe Tax Cuts and Jobs Act (the \u201c2017 Act\u201d) includes a broad range of tax reform proposals affecting businesses. We completed our accounting for the tax effects of the enactment of the 2017 Act during the second quarter of fiscal 2019. However, the U.S. Treasury and the IRS have issued tax guidance on certain provisions of the 2017 Act since the enactment date, and we anticipate the issuance of additional regulatory and interpretive guidance. We applied a reasonable interpretation of the 2017 Act along with the then-available guidance in finalizing our accounting for the tax effects of the 2017 Act. Any additional regulatory or interpretive guidance would constitute new information, which may require further refinements to our estimates in future periods.\nOn August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which contained significant law changes related to tax, climate, energy, and health care. The tax measures include, among other things, a corporate alternative minimum tax (\u201cCAMT\u201d) of 15% on corporations with three-year average annual adjusted financial statement income (\u201cAFSI\u201d) exceeding $1.00 billion. The CAMT will be effective for us beginning with fiscal year 2024. We are currently evaluating the potential effects of these legislative changes.\nThe following table sets forth Income tax information from our Consolidated Statement of Operations by dollar and effective tax rate:\n\u00a0\n2023\n2022\n2021\n(in millions, except percentages)\nIncome (loss) before taxes\n$\n(1,560)\n$\n2,123\u00a0\n$\n927\u00a0\nIncome tax expense\n146\u00a0\n623\u00a0\n106\u00a0\nEffective tax rate\n(9)\n%\n29\u00a0\n%\n11\u00a0\n%\nBeginning in 2023, the 2017 Act requires us to capitalize and amortize R&D expenses rather than expensing them in the year incurred. The tax effects related to the capitalization of R&D expenses are included in Income tax expense, but did not have a material impact on our effective tax rate. \nThe primary drivers of the difference between the effective tax rate for 2023 and the U.S. Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign derived intangible income, credits, and tax holidays in Malaysia, the Philippines and Thailand that will expire at various dates during years 2024 through 2031.\nThe primary drivers of the difference between the effective tax rate for 2022 and the U.S. Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign derived intangible income, credits, and tax holidays in Malaysia, the Philippines and Thailand that will expire at various dates during years 2024 through 2031. In addition, the effective tax rate for 2022 includes a net increase of $352 million to the liability for unrecognized tax benefits, which includes interest and offsetting tax benefits, as a result of our discussions with various taxing authorities. This amount includes $324 million related to the effects of the final settlement with the IRS resolving the statutory notices of deficiency with respect to 2008 through 2012 and the tentative settlement reached with the IRS resolving the notices of proposed adjustments with respect to 2013 through 2015.\nOur future effective tax rate is subject to future regulatory developments and changes in the mix of our U.S. earnings compared to foreign earnings. Our total tax expense in future years may also vary as a result of discrete items such as excess tax benefits or deficiencies.\nFor additional information regarding Income tax expense, see Part\u00a0II, Item\u00a08, Note\u00a014, \nIncome Tax Expense\n, of the Notes to Consolidated Financial Statements included in this Annual Report on Form\u00a010-K.\n39\nTable of Content\ns\nA discussion of our results of operations for 2021, including a comparison of such results of operations to 2022, is included in Part\u00a0II, Item\u00a07, \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n, included in our Annual Report on Form\u00a010-K for the year ended July\u00a01, 2022 filed with the Securities and Exchange Commission on August 25, 2022.\n40\nTable of Content\ns\nLiquidity and Capital Resources\nThe following table summarizes our statements of cash flows: \n\u00a0\n2023\n2022\n2021\n(in millions)\nNet cash provided by (used in):\nOperating activities\n$\n(408)\n$\n1,880\u00a0\n$\n1,898\u00a0\nInvesting activities\n(762)\n(1,192)\n(765)\nFinancing activities\n875\u00a0\n(1,718)\n(817)\n\u00a0Effect of exchange rate changes on cash\n(9)\n(13)\n6\u00a0\nNet increase (decrease) in cash and cash equivalents\n$\n(304)\n$\n(1,043)\n$\n322\u00a0\nWe reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012. In addition, we have tentatively reached a basis for resolving the notices of proposed adjustments with respect to years 2013 through 2015. As of June\u00a030, 2023, we have recognized a liability for tax and interest of $753 million related to all years from 2008 through 2015. We expect to pay $523 million in the first quarter of 2024 with respect to years 2008 through 2012 and expect to pay any remaining balance with respect to this matter within the next twelve months. \nIn connection with settlements for years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to approximately $160 million to $180 million. See Part I, Item 1, Note 14, \nIncome Tax Expense\n for further details.\nThe $1.10 billion principal amount of our 1.50% convertible notes due 2024 will mature on February 1, 2024, and we are required to settle any conversion value with the principal amount settled in cash and any excess in cash, shares of the Company\u2019s common stock, or a combination thereof pursuant to the terms of the indenture, dated as of February 13, 2018. See Part I, Item 1, Note 8, \nDebt\n for further details.\nAs further described under \u201cKey Developments - Financing Activities\u201d above, in December 2022 and June 2023, we modified certain financial covenant requirements in the loan agreement governing our Term Loan A-2 and revolving credit facility. In addition, in January 2023, we entered into a delayed draw term loan agreement, which was then amended in June 2023 and fully drawn in the amount of $600 million in August 2023. In January 2023, we also issued an aggregate of 900,000 shares of Series A Preferred Stock for an aggregate purchase price of $900 million. We believe these transactions will provide us with greater financial flexibility to manage our business.\nWe have an existing shelf registration statement (the \u201cShelf Registration Statement\u201d) filed with the Securities and Exchange Commission that expires in August 2024, which allows us to offer and sell shares of common stock, preferred stock, warrants, and debt securities. We may use the Shelf Registration Statement or other capital sources, including other offerings of equity or debt securities or the credit markets, to satisfy future financing needs, including planned or unanticipated capital expenditures, investments, debt repayments or other expenses. Any such additional financing will be subject to market conditions and may not be available on terms acceptable to us or at all.\nAs noted previously, we have been scaling back on capital expenditures, consolidating production lines and reducing bit growth to align with market demand. We reduced our expenditures for property, plant and equipment for our company plus our portion of the capital expenditures by our Flash Ventures joint venture with Kioxia for its operations to approximately $1.4 billion in 2023 from approximately $1.5 billion in 2022. After consideration of the Flash Ventures\u2019 lease financing of its capital expenditures and net operating cash flow, we reduced our net cash used for our purchases of property, plant and equipment and net activity in notes receivable relating to Flash Ventures to $793 million in 2023 from $1.2 billion in 2022. We expect the capital expenditures for 2024 to be less than 2023.\nWe believe our cash, and cash equivalents including the proceeds from the drawdown of the Delayed Draw Term Loan, as discussed in \u201cKey Developments - Financing Activities\u201d above, as well as our available revolving credit facility, will be sufficient to meet our working capital, debt and capital expenditure needs for at least the next twelve months and for the foreseeable future thereafter, as we navigate the current market downturn before returning to profitable operations and positive cash flows when the market normalizes. We believe we can also access the various capital markets to further supplement our liquidity position if necessary. Our ability to sustain our working capital position is subject to a number of risks that we discuss in Part\u00a0I, Item\u00a01A, \nRisk Factors\n, in this Annual Report on Form\u00a010-K. \n41\nTable of Content\ns\nA total of \n$1.28\u00a0billion\n and \n$1.82\u00a0billion\n of our cash and cash equivalents were held outside of the U.S. as of June\u00a030, 2023 and July\u00a01, 2022, respectively. There are no material tax consequences that were not previously accrued for on the repatriation of this cash. \nOur cash equivalents are primarily invested in money market funds that invest in U.S.\u00a0Treasury securities and U.S.\u00a0Government agency securities. In addition, from time to time, we also invest directly in certificates of deposit, asset-backed securities and corporate and municipal notes and bonds.\nOperating Activities\nNet cash provided by or used in operating activities primarily consists of net income or loss, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities. Net cash provided by changes in operating assets and liabilities was \n$90\u00a0million\n for 2023, as compared to $1.08\u00a0billion for 2022, which reflects the reduction in the volume of our business. Changes in our operating assets and liabilities are largely affected by our working capital requirements, which are dependent on the effective management of our cash conversion cycle as well as timing of payments for taxes. Our cash conversion cycle measures how quickly we can convert our products into cash through sales. At the end of the respective fourth quarters, the cash conversion cycles were as follows (in days):\n2023\n2022\n2021\n(in days)\nDays sales outstanding\n54\u00a0\n56\u00a0\n42\u00a0\nDays in inventory\n130\u00a0\n107\u00a0\n98\u00a0\nDays payables outstanding\n(56)\n(66)\n(63)\nCash conversion cycle\n128\u00a0\n97\u00a0\n77\u00a0\nChanges in days sales outstanding (\u201cDSO\u201d) are generally due to the timing of shipments. Changes in days in inventory (\u201cDIO\u201d) are generally related to the timing of inventory builds. Changes in days payables outstanding (\u201cDPO\u201d) are generally related to production volume and the timing of purchases during the period. From time to time, we modify the timing of payments to our vendors. We make modifications primarily to manage our vendor relationships and to manage our cash flows, including our cash balances. Generally, we make the payment term modifications through negotiations with our vendors or by granting to, or receiving from, our vendors\u2019 payment term accommodations.\nDSO decreased by 2 days over the prior year, reflecting timing of shipments and customer collections. DIO increased by 23 days over the prior year, primarily reflecting a decline in products shipped in light of the current market environment. DPO decreased 10 days over the prior year, primarily due to reductions in production volume and capital expenditures as well as routine variations in the timing of purchases and payments during the period.\nInvesting Activities\nN\net cash used in investing activities in 2023 primarily consisted of $821 million in capital expenditures, partially offset by a $14 million net decrease in notes receivable issuance to Flash Ventures and $14 million in net proceeds from the sale of property, plant, and equipment. Net cash used in investing activities in 2022 primarily consisted of a $1.12 billion of capital expenditures, partially offset by a $91\u00a0million net increase in notes receivable issuances to Flash Ventures.\nFinancing Activities\nDuring 2023, net cash provided by financing activities primarily consisted of $881 million from the issuance of Series A Preferred Stock and $93 million from issuance of stock under employee stock plans, partially offset by $80 million used for taxes paid on vested stock awards under employee stock plans. In addition, we drew and repaid $1.18 billion under our revolving credit facility within the period. Cash used in financing activities in 2022 primarily consisted of $3.62 billion for repayment of debt, as well as $122 million for taxes paid on vested stock awards under employee stock plans, partially offset by net proceeds of $1.87\u00a0billion from the issuance of new debt and $90 million from the issuance of stock under employee stock plans.\nA discussion of our cash flows for the year ended July\u00a02, 2021 is included in Part II, Item 7, \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources\n, included in our Annual Report on Form 10-K for the year ended July\u00a01, 2022 filed with the Securities and Exchange Commission on\n August 25, 2022.\n42\nTable of Content\ns\nOff-Balance Sheet Arrangements\nOther than the commitments related to Flash Ventures incurred in the normal course of business and certain indemnification provisions (see \u201cShort- and Long-term Liquidity - Indemnifications\u201d below), we do not have any other material off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any other obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not included in the Consolidated Financial Statements. Additionally, with the exception of Flash Ventures and our joint venture with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co. Ltd. (\u201cUnis\u201d), referred to as the \u201cUnis Venture\u201d, we do not have an interest in, or relationships with, any variable interest entities. For additional information regarding our off-balance sheet arrangements, see Part II, Item\u00a08, Note\u00a010, \nRelated Parties and Related Commitments and Contingencies\n, of the Notes to Consolidated Financial Statements included in this Annual Report on Form\u00a010-K.\n43\nTable of Content\ns\nShort- and Long-term Liquidity\nMaterial Cash Requirements \nIn addition to cash requirements for unrecognized tax benefits and dividend rights with respect to the Series A Preferred Stock discussed below, the following is a summary of our known material cash requirements, including those for capital expenditures, as of June\u00a030, 2023:\nTotal\n1\u00a0Year (2024)\n2-3\u00a0Years (2025-2026)\n4-5\u00a0Years (2027-2028)\nMore than 5\u00a0Years (Beyond 2028)\n(in millions)\nLong-term debt, including current portion\n(1)\n$\n7,100\u00a0\n$\n1,213\u00a0\n$\n2,600\u00a0\n$\n2,287\u00a0\n$\n1,000\u00a0\nInterest on debt\n1,091\u00a0\n342\u00a0\n555\u00a0\n118\u00a0\n76\u00a0\nFlash Ventures related commitments\n(2)\n3,912\u00a0\n1,859\u00a0\n1,613\u00a0\n537\u00a0\n(97)\nOperating leases\n334\u00a0\n49\u00a0\n94\u00a0\n77\u00a0\n114\u00a0\nPurchase obligations and other commitments\n3,102\u00a0\n2,589\u00a0\n316\u00a0\n67\u00a0\n130\u00a0\nMandatory deemed repatriation tax\n663\u00a0\n199\u00a0\n464\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTotal\n$\n16,202\u00a0\n$\n6,251\u00a0\n$\n5,642\u00a0\n$\n3,086\u00a0\n$\n1,223\u00a0\n(1)\nPrincipal portion of debt, excluding discounts and issuance costs.\n(2)\nIncludes reimbursement for depreciation and lease payments on owned and committed equipment, funding commitments for loans and equity investments and payments for other committed expenses, including R&D and building depreciation. Funding commitments assume no additional operating lease guarantees. Additional operating lease guarantees can reduce funding commitments.\nDividend rights \nOn January 31, 2023, we issued an aggregate of 900,000 shares of Series A Preferred Stock for an aggregate purchase price of $900 million. These shares are entitled to cumulative preferred dividends. See Part II, Item 8, Note 13, \nShareholders\u2019 Equity and Convertible Preferred Stock\n, of the Notes to Consolidated Financial Statements included in this Annual Report on Form\u00a010-K for more information regarding the dividend provisions.\nDebt\nIn addition to our existing debt, as of \nJune\u00a030, 2023\n, we had $2.25 billion available for borrowing under our revolving credit facility until January 2027, subject to customary conditions under the loan agreement. Furthermore, we drew the Delayed Draw Term Loan in the amount of $600 million as noted in \u201cKey Developments - Financing Activities\u201d. The agreements governing these credit facilities each include limits on secured indebtedness and certain types of unsecured subsidiary indebtedness and require certain of our subsidiaries to provide guarantees and collateral to the extent the conditions providing for such guarantees and collateral are met. Additional information regarding our indebtedness, including information about availability under our revolving credit facility and the principal repayment terms, interest rates, covenants and other key terms of our outstanding indebtedness, is included in Part\u00a0II, Item\u00a08, Note\u00a08, \nDebt\n, of the Notes to Consolidated Financial Statements included in this Annual Report on Form\u00a010-K. Our delayed draw term loan agreement and the loan\n agreement governing our revolving credit facility and our term loan A-2 due 2027 require us to comply with certain financial covenants, consisting of a leverage ratio, a minimum liquidity and a free cash flow requirements. As of June\u00a030, 2023, we were in compliance with these financial covenants.\nFlash Ventures\nFlash Ventures sells to, and leases back from, a consortium of financial institutions a portion of its tools and has entered into equipment lease agreements, of which we guarantee half or all of the outstanding obligations under each lease agreement. The leases are subject to customary covenants and cancellation events that relate to Flash Ventures and each of the guarantors. The occurrence of a cancellation event could result in an acceleration of the lease obligations and a call on our guarantees. As of June\u00a030, 2023, we were in compliance with all covenants under these Japanese lease facilities. See Part\u00a0II, Item\u00a08, Note\u00a010, \nRelated Parties and Related Commitments and Contingencies\n, of the Notes to Consolidated Financial Statements included in this Annual Report on Form\u00a010-K for information regarding Flash Ventures. \n44\nTable of Content\ns\nPurchase Obligations and Other Commitments\nIn the normal course of business, we enter into purchase orders with suppliers for the purchase of components used to manufacture our products. These purchase orders generally cover forecasted component supplies needed for production during the next quarter, are recorded as a liability upon receipt of the components, and generally may be changed or canceled at any time prior to shipment of the components. We also enter into long-term agreements with suppliers that contain fixed future commitments, which are contingent on certain conditions such as performance, quality and technology of the vendor\u2019s components. These arrangements are included under \u201cPurchase obligations and other commitments\u201d in the table above.\nMandatory Deemed Repatriation Tax\nThe following is a summary of our estimated mandatory deemed repatriation tax obligations under the 2017 Act that are payable in the following years (in millions): \nJune 30,\n2023\n2024\n$\n199\u00a0\n2025\n206\u00a0\n2026\n258\u00a0\nTotal\n$\n663\u00a0\nFor additional information regarding our estimate of the total tax liability for the mandatory deemed repatriation tax, see Part\u00a0II, Item\u00a08, Note\u00a013, \nIncome Tax Expense\n, of the Notes to Consolidated Financial Statements included in our Annual Report on Form\u00a010-K for the year ended\n June 28, 2019.\nUnrecognized Tax Benefits \nAs of June\u00a030, 2023, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was approximately $1.02 billion. Accrued interest and penalties related to unrecognized tax benefits as of June\u00a030, 2023, were approximately $289 million. Of these amounts, approximately $1.14 billion could result in potential cash payments. \nAs noted above, we reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012. In addition, we have tentatively reached a basis for resolving the notices of proposed adjustments with respect to years 2013 through 2015. As of June\u00a030, 2023, we have recognized a liability for tax and interest of $753\u00a0million related to all years from 2008 through 2015. We expect to pay $523\u00a0million in the first quarter of 2024 with respect to years 2008 through 2012 and expect to pay any remaining balance with respect to this matter within the next twelve months.\n \nIn connection with settlements for years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to approximately $160\u00a0million to $180\u00a0million. See Part I, Item 1, Note 14,\n Income Tax Expense\n for further details.\nMandatory Research and Development Expense Capitalization\nBeginning in 2023, the 2017 Act requires us to capitalize and amortize research and development expenses rather than expensing them in the year incurred, which is expected to result in higher cash tax payments once we return to profitability.\nForeign Exchange Contracts\nWe purchase foreign exchange contracts to hedge the impact of foreign currency fluctuations on certain underlying assets, liabilities and commitments for Operating expenses and product costs denominated in foreign currencies. For a description of our current foreign exchange contract commitments, see Part\u00a0II, Item\u00a08, Note\u00a07, \nDerivative Instruments and Hedging Activities\n, of the Notes to Consolidated Financial Statements included in this Annual Report on Form\u00a010-K.\n45\nTable of Content\ns\nIndemnifications\nIn the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements, products or services to be provided by us, environmental compliance, or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers in certain circumstances.\nIt is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements.\nCash Dividend\nWe issued a quarterly cash dividend from the first quarter of 2013 up to the third quarter of 2020. In April 2020, we suspended our dividend to reinvest in the business and to support our ongoing deleveraging efforts. We will reevaluate our dividend policy as our leverage ratio improves.\nRecent Accounting Pronouncements\nFor a description of recently issued and adopted accounting pronouncements, including the respective dates of adoption and expected effects on our results of operations and financial condition, see Part\u00a0II, Item\u00a08, Note\u00a02, \nRecent Accounting Pronouncements\n, of the Notes to Consolidated Financial Statements included in this Annual Report on Form\u00a010-K. \nCritical Accounting Policies and Estimates\nWe have prepared the accompanying Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (\u201cU.S. GAAP\u201d). The preparation of the financial statements requires the use of judgments and estimates that affect the reported amounts of revenues, expenses, assets, liabilities and shareholders\u2019 equity. We have adopted accounting policies and practices that are generally accepted in the industry in which we operate. If these estimates differ significantly from actual results, the impact to the Consolidated Financial Statements may be material.\nRevenue\nWe provide distributors and retailers (collectively referred to as \u201cresellers\u201d) with limited price protection for inventories held by resellers at the time of published list price reductions. We also provide resellers and OEMs with other sales incentive programs. The Company records estimated variable consideration related to these items as a reduction to revenue at the time of revenue recognition. We use judgment in our assessment of variable consideration in contracts to be included in the transaction price. We use the expected value method to arrive at the amount of variable consideration. The Company constrains variable consideration until the likelihood of a significant revenue reversal is not probable and believes that the expected value method is the appropriate estimate of the amount of variable consideration based on the fact that we have a large number of contracts with similar characteristics.\nFor sales to OEMs, the Company\u2019s methodology for estimating variable consideration is based on the amount of consideration expected to be earned based on the OEMs\u2019 volume of purchases from the Company or other agreed upon sales incentive programs. For sales to resellers, the methodology for estimating variable consideration is based on several factors including historical pricing information, current pricing trends and channel inventory levels. Estimating the impact of these factors requires significant judgment and differences between the estimated and actual amounts of variable consideration can be significant.\n46\nTable of Content\ns\nInventories\nWe value inventories at the lower of cost or net realizable value (\u201cNRV\u201d), with cost determined on a first-in, first-out basis. We record inventory write-downs of our inventory to lower of cost or net realizable value or for obsolete or excess inventory based on assumptions, which requires significant judgement. The determination of NRV involves estimating the average selling prices less any selling expenses of inventory based on market conditions and customer demand. To estimate the average selling prices and selling expenses of inventory, we review historical sales, future demand, economic conditions, contract prices and other information.\nWe periodically perform an excess and obsolete analysis of our inventory based on assumptions, which includes changes in business and economic conditions, changes in technology and projected demand of our products. If in any period we anticipate a change in those assumptions to be less favorable than our previous estimates, additional inventory write-downs may be required and could materially and negatively impact our gross margin. If in any period, we can sell inventories that had been written down to a level below the realized selling price in previous period, higher gross profit would be recognized in that period. While adjustments to these reserves have generally not been material, in 2023, we recorded a charge to Cost of revenue of $130 million, primarily to reduce component inventory to net realizable value as a result of a sudden change in demand for certain products.\nIncome Taxes\nWe account for income taxes under the asset and liability method, which provides that deferred tax assets and liabilities be recognized for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected benefits of utilizing net operating loss and tax credit carryforwards. We record a valuation allowance when it is more likely than not that the deferred tax assets will not be realized. Each quarter, we evaluate the need for a valuation allowance for our deferred tax assets and we adjust the valuation allowance so that we record net deferred tax assets only to the extent that we conclude it is more likely than not that these deferred tax assets will be realized. The assessment of valuation allowances against our deferred tax assets requires estimations and significant judgment. We continue to assess and adjust its valuation allowance based on operating results and market conditions. We account for interest and penalties related to income taxes as a component of the provision for income taxes.\nWe recognize liabilities for uncertain tax positions based on a two-step process. To the extent a tax position does not meet a more-likely-than-not level of certainty, no benefit is recognized in the financial statements. If a position meets the more-likely-than-not level of certainty, it is recognized in the financial statements at the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties related to unrecognized tax benefits are recognized on liabilities recorded for uncertain tax positions and are recorded in our provision for income taxes. The actual liability for unrealized tax benefits in any such contingency may be materially different from our estimates, which could result in the need to record additional liabilities for unrecognized tax benefits or potentially adjust previously-recorded liabilities for unrealized tax benefits and materially affect our operating results.\nGoodwill\nGoodwill is not amortized. Instead, it is tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that goodwill may be impaired. We perform our annual impairment test as of the first day of our fourth quarter for each reporting unit. As disclosed in Part II, Item 8. Note 3, \nBusiness Segments, Geographic Information, and Concentrations of Risk,\n of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K, our management identified several factors that warranted a quantitative analysis of impairment for both the Flash and HDD reporting units during 2023. As disclosed, we \nare required to use judgment when applying the goodwill impairment test, including in the identification of our reporting units. We also make judgments and assumptions in the assignment of assets and liabilities to our reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit. In addition, the estimates used to determine the fair value of each of our reporting units may change based on results of operations, macroeconomic conditions or other factors. Changes in these estimates could materially affect our assessment of the fair value and go\nodwill impairment for each reporting unit. If our stock price decreases significantly, goodwill could become impaired, which could result in a material charge and adversely affect our results of operations. Our recent assessments have indicated that fair value exceeds carrying value by a reasonable margin and we have not identified any impairment indicators for our reporting units.\n47\nTable of Content\ns",
+  "item7a": ">Item 7A.\n\u00a0\u00a0\u00a0\u00a0\nQuantitative and Qualitative Disclosures About Market Risk\nDisclosure About Foreign Currency Risk\nAlthough the majority of our transactions are in U.S. dollars, some transactions are based in various foreign currencies. We purchase short-term foreign exchange contracts to hedge the impact of foreign currency exchange fluctuations on certain underlying assets, liabilities and commitments for product costs and Operating expenses denominated in foreign currencies. The purpose of entering into these hedge transactions is to minimize the impact of foreign currency fluctuations on our results of operations. Substantially all of the contract maturity dates do not exceed 12\u00a0months. We do not purchase foreign exchange contracts for speculative or trading purposes. For additional information, see Part\u00a0II, Item\u00a08, Note\u00a06, \nFair Value Measurements and Investments,\n and Note\u00a07, \nDerivative Instruments and Hedging Activities\n, of the Notes to Consolidated Financial Statements included in this Annual Report on Form\u00a010-K.\nDue to macroeconomic changes and volatility experienced in the foreign exchange market recently, we believe sensitivity analysis is more informative in representing the potential impact to the portfolio as a result of market movement. Therefore, we have performed sensitivity analyses for 2023 and 2022, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant. The analyses cover all of our foreign currency derivative contracts used to offset the underlying exposures. The foreign currency exchange rates used in performing the sensitivity analyses were based on market rates in effect at June\u00a030, 2023 and July\u00a01, 2022. The sensitivity analyses indicated that a hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar would result in a foreign exchange fair value loss of $285\u00a0million and $306\u00a0million at June\u00a030, 2023 and July\u00a01, 2022, respectively. \nDuring 2023, 2022 and 2021, total net realized and unrealized transaction and foreign exchange contract currency gains and losses were not material to our Consolidated Financial Statements.\nNotwithstanding our efforts to mitigate some foreign exchange risks, we do not hedge all of our foreign currency exposures, and there can be no assurance that our mitigating activities related to the exposures that we hedge will adequately protect us against risks associated with foreign currency fluctuations.\nDisclosure About Interest Rate Risk\nVariable Interest Rate Risk \nWe have generally held a balance of fixed and variable rate debt. As of June\u00a030, 2023, our only variable rate debt outstanding was our Term Loan A-2 Loan, which bears interest, at the Company\u2019s option, at a per annum rate equal to either (x) the Adjusted Term Secured Overnight Financing Rate (\u201cSOFR\u201d) (as defined in the Loan Agreement) plus an applicable margin varying from 1.125% to 2.000% or (y) a base rate plus an applicable margin varying from 0.125% to 1.000%, in each case depending on the corporate family ratings of the Company from at least two of Standard & Poor\u2019s Ratings Services, Moody\u2019s Investors Service, Inc. and Fitch Ratings, Inc., with an initial interest rate of Adjusted Term SOFR plus 1.375%. As of June\u00a030, 2023, the outstanding balance on our Term Loan A-2 was $2.70 billion and a one percent increase in the variable rate of interest would increase annual interest expense by $27 million. \nFor additional information regarding our variable interest rate debt, see Part\u00a0II, Item\u00a08, Note\u00a08, \nDebt\n, of the Notes to Consolidated Financial Statements included in this Annual Report on Form\u00a010-K.\n48\nTable of Content\ns",
+  "cik": "106040",
+  "cusip6": "958102",
+  "cusip": ["958102905", "958102955", "958102105", "958102AM7"],
+  "names": ["WESTERN DIGITAL CORP", "WESTERN DIGITAL CORP."],
+  "source": "https://www.sec.gov/Archives/edgar/data/106040/000010604023000024/0000106040-23-000024-index.htm"
+}
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+{
+  "item1": ">Item 1. Business\nThe Company, founded in 1807, was incorporated in the state of New York on January 15, 1904. Throughout this report, when we refer to \u201cWiley,\u201d the \u201cCompany,\u201d \u201cwe,\u201d \u201cour,\u201d or \u201cus,\u201d we are referring to John Wiley & Sons, Inc. and all of our subsidiaries, except where the context indicates otherwise.\nPlease refer to Part II, Item 8, \u201cFinancial Statements and Supplementary Data,\u201d for financial information about the Company and its subsidiaries, which is incorporated herein by reference. Also, when we cross reference to a \u201cNote,\u201d we are referring to our \u201cNotes to Consolidated Financial Statements,\u201d in Part II, Item 8, \u201cFinancial Statements and Supplementary Data\u201d unless the context indicates otherwise.\nWiley is a global leader in scientific research and career-connected education, unlocking human potential by enabling discovery, powering education, and shaping workforces. For over 200 years, Wiley has fueled the world\u2019s knowledge ecosystem. Today, our high-impact content, platforms, and services help researchers, learners, institutions, and corporations achieve their goals in an ever-changing world. Wiley is a predominantly digital company with approximately 85% of revenue generated by digital products and tech-enabled services. For the year ended April 30, 2023, approximately 57% of our revenue is recurring which includes revenue that is contractually obligated or set to recur with a high degree of certainty. \nWe have reorganized our Education lines of business into two new customer-centric segments. The Academic segment addresses the university customer group and includes Academic Publishing and University Services. The Talent segment addresses the corporate customer group and is focused on delivering training, sourcing, and upskilling solutions. Prior period segment results have been revised to the new segment presentation. There were no changes to our consolidated financial results. Our new segment reporting structure consists of three reportable segments, as well as a Corporate expense category (no change), which includes certain costs that are not allocated to the reportable segments:\n\u2022\nResearch includes Research Publishing and Research Solutions, and no changes were made as a result of this realignment;\n\u2022\nAcademic includes the Academic Publishing and University Services lines. Academic Publishing is the combination of the former Education Publishing line and professional publishing offerings;\n\u2022\nTalent is the combination of the former Talent Development line, and our assessments (corporate training) and corporate learning offerings.\nThrough the Research segment, we provide peer-reviewed scientific, technical, and medical (STM) publishing, content platforms, and related services to academic, corporate, and government customers, academic societies, and individual researchers. The Academic segment provides scientific, professional, and education print and digital books, digital courseware, and test preparation services, as well as engages in the comprehensive management of online degree programs for universities. The Talent segment services include sourcing, training, and preparing aspiring students and professionals to meet the skill needs of today\u2019s technology careers and placing them with large companies and government agencies. It also includes assessments (corporate training) and corporate learning offerings. Our operations are primarily located in the United States (US), United Kingdom (UK), India, Sri Lanka, and Germany. In the year ended April 30, 2023, approximately 45% of our consolidated revenue was from outside the US. \nWiley\u2019s business strategies are tightly aligned with long term growth trends, including open research, career-connected education, and workforce optimization. Research strategies include driving publishing output to meet the global demand for peer-reviewed research and expanding platform and service offerings for corporations and societies. Education strategies include expanding online degree programs and driving online enrollment for university partners, scaling digital content and courseware, and expanding IT talent placement and reskilling programs for corporate partners.\n5\nIndex\nBusiness Segments\nWe report financial information for the following reportable segments, as well as a Corporate expense category, which includes certain costs that are not allocated to the reportable segments:\n\u2022\nResearch \n\u2022\nAcademic\n\u2022\nTalent\nResearch:\nResearch\u2019s mission is to support researchers, professionals and learners in the discovery and use of research knowledge to help them achieve their goals. Research provides scientific, technical, medical, and scholarly journals, as well as related content and services, to academic, corporate, and government libraries, learned societies, and individual researchers and other professionals. Journal publishing categories include the physical sciences and engineering, health sciences, social sciences and humanities, and life sciences. Research also includes Atypon Systems, Inc. (Atypon), a publishing software and service provider that enables scholarly and professional societies and publishers to deliver, host, enhance, market, and manage their content on the web through the \nLiteratum\n\u2122 platform. Research customers include academic, corporate, government, and public libraries, funders of research, researchers, scientists, clinicians, engineers and technologists, scholarly and professional societies, and students and professors. Research products are sold and distributed globally through multiple channels, including research libraries and library consortia, independent subscription agents, direct sales to professional society members, and other customers. Publishing centers include Australia, China, Germany, India, the UK, and the US. Research revenue accounted for approximately 54% of our consolidated revenue in the year ended April 30, 2023, with a 34.9% Adjusted EBITDA margin. See Part II, Item 7, \"Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\" in the section \"Segment Operating Results\" of this Annual Report on Form 10-K for further details. Approximately 95% of Research revenue is generated by digital and online products, and services. \nResearch revenue by product type includes Research Publishing and Research Solutions. The graphs below present revenue by product type for the years ended April 30, 2023 and 2022:\n2023\n2022\nKey growth strategies for the Research segment include evolving and developing new licensing models for our institutional customers (\u201cpay to read and publish\u201d), developing new open access journals and revenue streams (\u201cpay to publish\u201d), focusing resources on high-growth and emerging markets, and developing new digital products, services, and workflow solutions to meet the needs of researchers, authors, societies, and corporate customers.\nResearch Publishing\nResearch Publishing generates the majority of its revenue from contracts with its customers in the following revenue streams:\n\u2022\nJournal Subscriptions (\u201cpay to read\u201d), Open Access (\u201cpay to publish\u201d), and Transformational Models (\u201cpay to read and publish\u201d); and\n\u2022\nLicensing, Backfiles, and Other.\n6\nIndex\nJournal Subscriptions, Open Access, and Transformational Model\ns\nAs of April 30, 2023, we publish over 1,900 academic research journals. We sell journal subscriptions\n \ndirectly to thousands of research institutions worldwide through our sales representatives, indirectly through independent subscription agents, through promotional campaigns, and through memberships in professional societies for those journals that are sponsored by societies. Journal subscriptions are primarily licensed through contracts for digital content available online through our \nWiley Online Library \nplatform. Contracts are negotiated by us directly with customers or their subscription agents. Subscription periods typically cover calendar years. Subscription revenue is generally collected in advance. Approximately 53% of Journal Subscription revenue is derived from publishing rights owned by Wiley. Long-term publishing alliances also play a major role in Research Publishing\u2019s success. Approximately 47% of Journal Subscriptions revenue is derived from publication rights that are owned by professional societies and other publishing partners such as charitable organizations or research institutions, and are published by us pursuant to long-term contracts or owned jointly with such entities\n.\n These alliances bring mutual benefit: The partners gain Wiley\u2019s publishing, marketing, sales, and distribution expertise, while Wiley benefits from being affiliated with prestigious organizations  and their members. Societies that sponsor or own such journals generally receive a royalty and/or other financial consideration. We may procure editorial services from such societies on a prenegotiated fee basis. We also enter into agreements with outside independent editors of journals that define their editorial duties and the fees and expenses for their services. Contributors of articles to our journal portfolio transfer publication rights to us or a professional society, as applicable. We publish the journals of many prestigious societies, including the American Cancer Society, the American Heart Association, the American Anthropological Association, the American Geophysical Union, and the German Chemical Society.\nWiley Online Library, \nwhich is delivered through our \nLiteratum\n platform, provides the user with intuitive navigation, enhanced discoverability, expanded functionality, and a range of personalization options. Access to abstracts is free and full content is accessible through licensing agreements or as individual article purchases. Large portions of the content are provided free or at nominal cost to developing nations through partnerships with certain nonprofit organizations. Our online publishing platforms provide revenue growth opportunities through new applications and business models, online advertising, deeper market penetration, and individual sales and pay-per-view options.\nWiley\u2019s performance in the 2021 release of Clarivate Analytics\u2019 Journal Citation Reports (JCR) remains strong, maintaining its top 3 position in terms of citations received and sits in 4\nth\n place for journals indexed and articles published. Wiley has 7% of titles, 8% of articles, and 11% of citations.\nA total of 1,540 Wiley journals were included in the reports. Wiley journals ranked #1 in 19 categories across 17 of its titles and achieved 270 top-10 category rankings.\nThe annual JCR are one of the most widely used sources of citation metrics used to analyze the performance of peer-reviewed journals. The most famous of these metrics, the Impact Factor, is based on the frequency with which an average article is cited in the JCR report year. Alongside other metrics, this makes it an important tool for evaluating a journal\u2019s impact on ongoing research.\nUnder the Open Access business model, accepted research articles are published subject to payment of Article Publication Charges (APCs) and then all open articles are immediately free to access online. Contributors of open access articles retain many rights and typically license their work under terms that permit reuse.\nOpen Access offers authors choices in how to share and disseminate their work, and it serves the needs of researchers who may be required by their research funder to make articles freely accessible without embargo. APCs are typically paid by the individual author or by the author\u2019s funder, and payments are often mediated by the author\u2019s institution. We provide specific workflows and infrastructure to authors, funders, and institutions to support the requirements of Open Access.\nWe offer two Open Access publishing models. The first of these is \nHybrid Open Access \nwhere authors publishing in the majority of our paid subscription journals, after article acceptance, are offered the opportunity to make their individual research article openly available online.\nThe second offering of the Open Access model is a growing portfolio of fully open access journals, also known as \nGold Open Access Journals.\n All Open Access articles are subject to the same rigorous peer-review process applied to our subscription-based journals. As with our subscription portfolio, a number of the \nGold Open Access Journals\n are published under contract for, or in partnership with, prestigious societies, including the American Geophysical Union, the American Heart Association, the European Molecular Biology Organization, and the British Ecological Society. The Open Access portfolio spans life, physical, medical, and social sciences and includes a choice of high impact journals and broad-scope titles that offer a responsive, author-centered service.\n7\nIndex\nTransformational agreements (\u201cread and publish\u201d), are an innovative model that blends Journal Subscription and Open Access offerings. Essentially, for a single fee, a national or regional consortium of libraries pays for and receives full read access to our journal portfolio and the ability to publish under an open access arrangement. Like subscriptions, transformational agreements involve recurring revenue under multiyear contracts. Transformational models accelerate the transition to open access while maintaining subscription access.\nLicensing, Backfiles, and Other\nLicensing, Backfiles, and Other\n \nincludes backfile sales, the licensing of publishing rights, and individual article sales. A backfile\n \nlicense provides access to a historical collection of Wiley journals, generally for a one-time fee. We also engage with international publishers and receive licensing revenue from reproductions, translations, and other digital uses of our content. Through the \nArticle Select\n and \nPayPerView\n programs, we provide fee-based access to non-subscribed journal articles, content, book chapters, and major reference work articles. The Research Publishing business is also a provider of content and services in evidence-based medicine (EBM). Through our alliance with The Cochrane Collaboration, we publish \nThe Cochrane Library\n, a premier source of high-quality independent evidence to inform healthcare decision-making. EBM facilitates the effective management of patients through clinical expertise informed by best practice evidence that is derived from medical literature.\nResearch Solutions\nResearch Solutions is principally comprised of our Atypon platforms business and our corporate and society services offerings, including advertising, career-centers, knowledge hubs, databases, consulting, and reprints. \nAtypon Platforms and Services\nLiteratum\n, our online publishing platform for societies and other research publishers, delivers integrated access to more than 10 million articles from approximately 2,100 publishers and societies, as well as over 27,000 online books and hundreds of multivolume reference works, laboratory protocols and databases. \nCorporate and Society Service Offerings\nCorporate and society service offerings include advertising, spectroscopy software and spectral databases, and job board software and career center services, which includes the products and services from our acquisition of Madgex Holdings Limited (Madgex) and Bio-Rad Laboratories Inc.\u2019s Informatics products (Informatics). In addition, it also includes product and service offerings related to recent acquisitions such as \nJ&J Editorial Services, LLC. (J&J) on October 1, 2021, \nand the e\nJournalPress business (EJP) on November 30, 2021. \nJ&J is a publishing services company providing expert offerings in editorial operations, production, copyediting, system support and consulting. EJP is a technology platform company with an established journal submission and peer-review management system.\nWe generate advertising revenue from print and online journal subscription and controlled circulation products, our online publishing platform, \nLiteratum, \nonline events such as webinars and virtual conferences, community interest websites such as \nanalyticalscience.wiley.com,\n and other websites. Journal and article reprints\n \nare primarily used by pharmaceutical companies and other industries for marketing and promotional purposes. \nAcademic:\nOur Academic segment includes Academic Publishing and University Services, whose products and services include scientific, professional, and education print and digital books, and digital courseware to support libraries, corporations, students, professionals, and researchers, as well as online program management or OPM services for higher education institutions. Communities served include business, finance, accounting, management, leadership, computer science, data science, technology, behavioral health, engineering and architecture, mathematics, science and medicine, and education. Products are developed for worldwide distribution through multiple channels, including brick-and-mortar and online retailers, libraries, colleges and universities, corporations, direct-to-consumer, distributor networks, and through other channels. Publishing centers include Australia, Germany, India, the UK, and the US. Academic accounted for approximately 34% of our consolidated revenue in the year ended April 30, 2023, with a 21.4% Adjusted EBITDA margin. See Part II, Item 7, \"Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\" in the section \"Segment Operating Results\" of this Annual Report on Form 10-K for further details. Approximately 65% of Academic revenue is from digital and online products and services.\n8\nIndex\nAcademic revenue by product type includes Academic Publishing and University Services. The graphs below present revenue by product type for the years ended April 30, 2023 and 2022:\n2023\n2022\nKey strategies for the Academic business include developing high-impact, career-aligned courseware, products, brands, franchises, and solutions to meet the evolving needs of global learners and university partners while expanding global discoverability and distribution. We continue to implement strategies to efficiently and effectively manage print revenue declines while driving growth in our digital lines of business.    \nBook sales for Academic Publishing are generally made on a returnable basis with certain restrictions. We provide for estimated future returns on sales made during the year based on historical return experience and current market trends.\nMaterials for book publications are obtained from authors throughout most of the world, utilizing the efforts of a best-in-class internal editorial staff, external editorial support, and advisory boards. Most materials originate by the authors themselves or as the result of suggestions or solicitations by editors. We enter into agreements with authors that state the terms and conditions under which the materials will be published, the name in which the copyright will be registered, the basis for any royalties, and other matters. Author compensation models include royalties, which vary depending on the nature of the product and work-for-hire. We may make advance royalty payments against future royalties\n \nto authors of certain publications. Royalty advances are reviewed for recoverability and a reserve for loss is maintained, if appropriate.\nWe continue to add new titles, revise existing titles, and discontinue the sale of others in the normal course of our business. We also create adaptations of original content for specific markets based on customer demand. Our general practice is to revise our textbooks every 3-5 years, as warranted, and to revise other titles as appropriate. Subscription-based products are updated on a more frequent basis.\nWe generally contract independent printers and binderies globally for their services, using a variety of suppliers and materials to support our range of needs.\nWe have an agreement to outsource our US-based book distribution operations to Cengage Learning, with the continued aim of improving efficiency in our distribution activities and moving to a more variable cost model. As of April 30, 2023, we had one global warehousing and distribution facility remaining, which is in the UK.\nAcademic Publishing\nAcademic Publishing generates the majority of its revenue from contracts with its customers in the following revenue streams:\n\u2022\nPrint and Digital Publishing\n\u2022\nDigital Courseware\n\u2022\nTest Preparation and Certification\n\u2022\nLicensing and Other\n9\nIndex\nPrint and Digital Publishing\nEducation textbooks, related supplementary material, and digital products are sold primarily to bookstores and online retailers serving both for-profit and nonprofit educational institutions (primarily colleges and universities), and direct-to-students. We employ sales representatives who call on faculty responsible for selecting books to be used in courses and on the bookstores that serve such institutions and their students. The textbook business is seasonal, with the majority of textbook sales occurring during the July-through-October and December-through-February periods. There are various channels to drive affordability for print and digital materials within the higher education market, including used, rental, and inclusive access. \nSTM books (Reference) are sold and distributed globally in digital and print formats through multiple channels, including research libraries and library consortia, independent subscription agents, direct sales to professional society members, bookstores, online booksellers, and other customers.\nProfessional books, which include business and finance, technology, professional development for educators, and other professional categories, as well as the \nFor Dummies\n\u00ae brand, are sold to brick-and-mortar and online retailers, wholesalers who supply such bookstores, college bookstores, individual practitioners, corporations, and government agencies. We employ sales representatives who call upon independent bookstores, national and regional chain bookstores, wholesalers, and corporations globally. Sales of professional books also result from direct marketing outreach, conferences, and other industry-relevant outreach. \nWe also promote active and growing custom professional and education publishing programs. Professional organizations use our custom professional publications for marketing outreach. This outreach includes customized digital and print books written for a specific customer and includes custom cover art, such as imprints, messages, and slogans. More specific are customized \nFor Dummies\n\u00ae publications, which leverage the power of this well-known brand to meet the specific information needs of a wide range of organizations around the world. \nWe develop content in a digital format that can be used for both digital and print products, resulting in productivity and efficiency savings and enabling print-on-demand delivery. Book content is available online through \nWiley Online Library \n(delivered through our\n Literatum \nplatform), \nWileyPLUS\n, \nzyBooks\u00ae, alta\n\u2122,\n \nand other proprietary platforms. Digital books are delivered to intermediaries, including Amazon, Apple, and Google, for sale to individuals in various industry-standard formats. These are now the preferred deliverable for licensees of all types, including foreign language publishers. Digital books are also licensed to libraries through aggregators. Specialized formats for digital textbooks go to distributors servicing the academic market, and digital book collections are sold by subscription through independent third-party aggregators servicing distinct communities. Custom deliverables are provided to corporations, institutions, and associations to educate their employees, generate leads for their products, and extend their brands. Digital content is also used to create online articles, mobile apps, newsletters, and promotional collateral. Continually reusing content improves margins, speeds delivery, and helps satisfy a wide range of evolving customer needs. Our online presence not only enables us to deliver content online, but also to sell more books. The growth of online booksellers benefits us because they provide unlimited virtual \u201cshelf space\u201d for our entire backlist. Publishing alliances and franchise products are important to our strategy. Education and STM publishing alliance partners include IEEE, American Institute of Chemical Engineers, and many others. The ability to join Wiley\u2019s product development, sales, marketing, distribution, and technology with a partner\u2019s content, technology, and/or brand name has contributed to our success.\nDigital Courseware\nWe offer high-quality online learning solutions, including \nWileyPLUS\n, a research-based online environment for effective teaching and learning that is integrated with a complete digital textbook. \nWileyPLUS \nimproves student learning through instant feedback, personalized learning plans, and self-evaluation tools, as well as a full range of course-oriented activities, including online planning, presentations, study, homework, and testing. In selected courses, \nWileyPLUS\n includes a personalized adaptive learning component. \nThe highly interactive \nzyBooks\n platform enables learners to learn by doing while allowing professors to be more efficient and devote more time to teaching. The platform maximizes learner engagement and retention through demonstration and hands-on learning experiences using interactive question sets, animations, tools, and embedded labs. The \nzyBooks\n platform will become an essential component of Wiley\u2019s differentiated digital learning experience and, when combined with \nalta\u2019s\n adaptive learning technology and \nWileyPLUS, \npowers high-impact education across Wiley\u2019s Academic segment. \n10\nIndex\nTest Preparation and Certification\nThe Test Preparation and Certification business represents learning solutions, training activities, and print and digital formats that are delivered to customers directly through online digital delivery platforms, bookstores, online booksellers, and other customers. Products include CPAExcel\u00ae, a modular, digital platform comprised of online self-study, videos, mobile apps, and sophisticated planning tools to help professionals prepare for the CPA exam, and test preparation products for the GMAT\u2122, ACT\u00ae, CFA\u00ae, CMA\u00ae, CIA\u00ae, CMT\u00ae, FRM\u00ae, FINRA\u00ae, Banking, and PMP\u00ae exams. In the last quarter of fiscal year 2023 we sold a portion of our test preparation and certification products referred to as Wiley's Efficient Learning test prep portfolio which focused on test prep for finance, accounting and business certifications. See Note 4, \"Acquisitions and Divestitures\" of the Notes to Consolidated Financial Statements for further details.  \nLicensing and Other\nLicensing and distribution services are made available to other publishers under agency arrangements. We also engage in co-publishing titles with international publishers and receive licensing revenue from photocopies, reproductions, translations, and digital uses of our content and use of the Knewton\u00ae adaptive engine. Wiley also realizes advertising revenue from branded websites (e.g., Dummies.com) and online applications.\nUniversity Services\nOur University Services business offers institutions and their students a rich portfolio of education technology and student and faculty support services, allowing the institutions to reach more students online with their own quality academic programs. \nMany of Wiley\u2019s client institutions are regional state universities or small liberal arts colleges. Our resources, expertise and innovations meaningfully impact their ability to increase access to their programs online, as many students now seek these types of flexible offerings. University Services provides institutions with a bespoke suite of services that each institution has determined it needs to serve students, including market research, marketing and recruitment, program development, online platform technology, student retention support, instructional design, faculty development and support, and access to the Engage Learning Management System, which facilitates the online education experience. Graduate degree programs include Business Administration, Finance, Accounting, Healthcare, Engineering, Communications, and others. Revenue is derived from pre-negotiated contracts with institutions that provide for a share of revenue generated after students have enrolled and demonstrated initial persistence. While the majority of our contracts are revenue-share arrangements, we also offer the opportunity to contract on a fee-for-service basis, unlike many other third-party online providers. As of April 30, 2023, the University Services business had 64 university partners under contract.  \nTalent:\nOur Talent segment consists of talent development (Wiley Edge, formerly mthree) for professionals and businesses, assessments (corporate training) and corporate learning offerings. Our key growth strategy includes bridging the IT skills gap through talent development for corporations around the world. Talent accounted for approximately 12% of our consolidated revenue in the year ended April 30, 2023, with a 21.1% Adjusted EBITDA margin. See Part II, Item 7, \"Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\" in the section \"Segment Operating Results\" of this Annual Report on Form 10-K for further details. Talent generated 98% of its revenue from digital and online products and services.\nOn January 1, 2020, Wiley acquired mthree, a talent placement provider that addresses the IT skills gap by finding, training, and placing job-ready technology talent in roles with leading corporations worldwide. In late May 2022, Wiley renamed  mthree as Wiley Edge. Wiley Edge sources, trains, and prepares aspiring students and professionals to meet the skill needs of today\u2019s technology and banking services careers, and then places them with some of the world\u2019s largest financial institutions, technology companies, and government agencies. Wiley Edge also works with its clients to retrain and retain existing employees so they can continue to meet the changing demands of today\u2019s technology landscape. In fiscal year 2023, Wiley Edge signed 15 new corporate clients and expanded into new industry verticals beyond financial services, such as technology and consumer goods.\n11\nIndex\nOur assessments (corporate training) offerings include high-demand soft-skills training solutions that are delivered to organizational clients through online digital delivery platforms, either directly or through an authorized distributor network of independent consultants, trainers, and coaches. Wiley\u2019s branded assessment solutions include Everything DiSC\u00ae, The Five Behaviors\u00ae based on Patrick Lencioni\u2019s perennial bestseller \nThe Five Dysfunctions of a Team\n, and Leadership Practices Inventory\u00ae from Kouzes and Posner\u2019s bestselling \nThe Leadership Challenge\n\u00ae, as well as PXT Select\u2122, a pre-hire selection tool. Our solutions help organizations hire and develop effective managers, leaders, and teams.\nWe also offer online learning and training solutions for global corporations and small and medium-sized enterprises, which are sold on a subscription or fee basis. Learning experiences, formats and modules on topics such as leadership development, value creation, client orientation, change management, and corporate strategy are delivered on a cloud-based CrossKnowledge Learning Management System (LMS) platform that hosts more than 20,000 content assets (videos, digital learning modules, written files, etc.) in 18 languages. Its offering includes a collaborative e-learning publishing and program creation system. In addition, learning experiences, content, and LMS offerings are continuously refreshed and expanded to serve a wider variety of customer needs. These digital learning solutions are either sold directly to corporate customers or through our global partners\u2019 network.\nFiscal Year 2024 Dispositions, Segment Realignment, and Restructuring\nOn June 1, 2023, Wiley\u2019s Board of Directors approved a plan to dispose of certain education businesses.  Those businesses are University Services (formerly Online Program Management) in our Academic segment, and Wiley Edge (formerly Talent Development) and CrossKnowledge in our Talent segment.  These dispositions are expected to be completed in fiscal year 2024, and will be reported as held for sale in the first quarter of fiscal year 2024.  In fiscal year 2023, these businesses, combined with the two dispositions disclosed in Note 4, \"Acquisitions and Divestitures\" generated approximately $393 million of revenue (approximately 19% of our consolidated revenue) and $43 million of Adjusted EBITDA (approximately 10% of our consolidated Adjusted EBITDA). \nWe are evaluating the financial statement impact of these planned dispositions.\n During fiscal year 2024, it is anticipated that additional restructuring actions will be undertaken to rightsize the Company\u2019s expenses.  The timing of much of these restructuring actions will be influenced by the completion of the dispositions.  The amount of such charges has not yet been determined.  \nIn the first quarter of fiscal year 2024, we are realigning our segments. Our new segment structure will consist of two reportable segments which includes (1) Research (no change) and (2) Learning, as well as a Corporate expense category (no change), which includes certain costs that are not allocated to the reportable segments. Research will continue to have reporting lines of Research Publishing and Research Solutions. Learning will include reporting lines of Academic (education publishing) and Professional (professional publishing and assessments).  \nHuman Capital \nAs of April 30, 2023, we employed approximately 8,800 colleagues, including 1,800 placement candidates in the Wiley Edge product offering, on a full-time equivalent basis worldwide.\nWe view our colleagues as one of our most significant assets and investments to deliver on our mission to unlock human potential and to champion and advocate for our customers who want to make impacts in their fields, their workplaces, and their lives, through knowledge creation, use and dissemination. Our success depends on our ability to develop, attract, reward, and retain a diverse population of talented, qualified, and highly skilled colleagues at all levels of our organization and across our global workforce so that they can deliver on our promise to our customers to clear the way to their successes. \nThis includes programs, policies, and initiatives that promote diversity, equity, and inclusion (DEI); talent acquisition; ongoing employee learning and development; competitive compensation and benefits; health and well-being; and emphasis on employee satisfaction and engagement. \nOur culture differentiates us as an organization and our core values define how we work together. We ask colleagues to embody our three values\u2014Learning Champion, Needle Mover, and Courageous Teammate\u2014and assess their performance against these in addition to what they achieve against their goals. These values define who we are as a company and what we stand for.\n12\nIndex\nOur human capital metrics summary (excluding placement candidates in Wiley Edge) as of April 30, 2023:\nCATEGORY\nMETRIC\nEMPLOYEES\nBy Region\nAmericas\n48\u00a0\n%\nAPAC\n20\u00a0\n%\nEMEA\n32\u00a0\n%\nDIVERSITY AND INCLUSION\nGlobal Gender Representation\n% Female Colleagues\n59\u00a0\n%\n% Female Senior Leaders\n(Vice President and Above)\n43\u00a0\n%\nUS Person of Color (POC) Representation*\n% POC\n27\u00a0\n%\n% POC Senior Leaders\n(Vice President and Above)\n19\u00a0\n%\n*\n US POC includes employees who self-identify as Hispanic or Latino, Black or African American, Asian, American Indian or Alaskan Native, Native Hawaiian or other Pacific Islander, Other, or two or more races.\nHealth & Well-Being\nSafeguarding and promoting colleague well-being is central to what we do, as it is critical we provide tools and resources to help colleagues be healthy, and an environment that allows us to be at our best. We support our colleagues in maintaining their physical, emotional, social, and financial well-being through working practices, education, and benefit programs.\nOur recently implemented post pandemic hybrid work model provides the majority of our colleagues the flexibility to work remotely at least some of the time. The hybrid work model is intended to support colleague health and well-being, while maintaining a \nculture of innovation and collaboration.\nDiversity, Equity & Inclusion\nThrough our DEI strategy, we are operationalizing critical priorities. We are focused on four DEI Strategic Pillars\u2014Fostering an Inclusive Community, Enhancing our Foundation, Understanding our People, and Creating Impact Through our Business. \nThese pillars reflect our DEI near-term priorities to propel a sustainable, inclusive organization that embodies diversity and equity throughout our policies, programs, and processes, and fosters an inclusive culture that celebrates the unique contributions of our colleagues and supports human connectivity. In addition, we develop partnerships and launch pilot programs to support communities that are underrepresented in higher education, the workforce, and the field of publishing.  \nOur Employee Resource Groups help amplify our DEI priorities through learning, community engagement, and allyship and advocacy. As a member of the CEO Action for Diversity and Inclusion, Wiley demonstrates its commitment to sustained, concrete actions that advance diversity and inclusive thinking, behavior, and business practices in the workplace. \nCareers & Engagement\nInvestment in colleague development and growth for current and future roles is central to our culture. Our goal is to provide colleagues with learning opportunities and experiences at every stage of their journey at Wiley. We help colleagues upskill and thrive by leveraging the power of our internal products and tapping into our external partnerships. We focus on delivering quality curated resources, customized learning paths, and comprehensive development programs. We offer interactive development programs that allow our colleagues to share lessons learned, adopt best practices, and have interactive opportunities with their peers. Through our Champion Your Career program, our colleagues get practical advice on updating their resumes and honing their interviewing skills, and have career conversations with our Talent team.  Leveraging Wiley's Everything DiSC assessment tools and resources, our colleagues can better understand themselves and others, creating a common language that makes interactions more collaborative and effective.  \n13\nIndex\nThrough our Pay@Wiley journey, we enhanced our colleague and manager understanding of pay through our education programs, and raised transparency by sharing segment in range and publishing our first global equitable pay study. We introduced Achievers, our recognition platform that was designed so our colleagues can recognize each other to create a culture of recognition and celebrate success.  \nWe conduct our Talent Review annually, focusing on high-performing and high-potential talent, diversity, and succession for our most critical roles. We are committed to identifying, growing, and retaining top talent and ensuring we have the right skills for the future. We establish key development action planning opportunities for each colleague to build bench strength and review development progress and mobility regularly.\nEnvironment\nWe continue our journey to support the sustainability of our planet. We believe environmental responsibility and business objectives are fundamentally connected and essential to our operations. This is why we are acting now to protect the environment by making informed choices and limiting our impact on natural resources. \nFor the fourth consecutive year, we are a CarbonNeutral\u00ae certified company across our global operations, in accordance with the CarbonNeutral Protocol. Our locations use 100% renewable energy through green tariffs and energy attribute certificates (EACs). Most of our global office real estate is leased and, whenever possible, we work with property owners to optimize sustainability.  \nThis year, we furthered our commitment by setting a science-based target with the Science Based Targets Initiative (SBTi). We set a near and long-term company-wide emissions target, including being net zero by 2040. We are responding to the SBTi\u2019s urgent call for corporate climate action by aligning with 1.5\u00b0C and net-zero through the Business Ambition for 1.5\u00b0C campaign.  \nWe also work with publishing partners, where possible, to reduce print production and consumption, reduce excess inventory through print-on-demand, and encourage digital consumption of our products. We begun implementing measures to ensure our subcontractors who assist us in providing material aspects of the products and services are held to the same high standards as we hold ourselves. \nIn July 2022, we submitted to Carbon Disclosure Project (CDP) Climate for the first time. We continue to track and trace our paper usage and submitted a CDP Forests disclosure for the second year. Our commitment to sustainably sourced paper is supported by our Paper Selection and Use Policy. We continually evaluate climate and environmental reporting and plan to expand our disclosures in the coming years. \nOur partnership with Trees for the Future continues. We plant a tree for every copy of a journal we actively stop printing, up to one million trees, resulting in more than 600,000 trees to date. \nWe are always seeking opportunities to improve environmental performance. We comply with environmental laws and regulations, thoughtfully investing resources toward managing environmental affairs and raising awareness of global environmental issues through education and research. \nFinancial Information About Business Segments\nThe information set forth in Part II, Item 8, \u201cFinancial Statements and Supplementary Data\u201d in Note 3, \u201cRevenue Recognition, Contracts with Customers,\u201d and Note 20, \u201cSegment Information,\u201d of the Notes to Consolidated Financial Statements and Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of this Annual Report on Form 10-K are incorporated herein by reference.\nAvailable Information\nOur investor site is\n investors.wiley.com.\n  Our internet address is \nwww.wiley.com\n. We make available, free of charge, on or through our \ninvestors.wiley.com\n website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports that we file or furnish pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the SEC. The information contained on, or that may be accessed through our website is not incorporated by reference into, and is not a part of, this Annual Report on Form 10-K.\n14\nIndex",
+  "item1a": ">Item 1A. Risk Factors\nIntroduction\nThe risks described below should be carefully considered before making an investment decision. You should carefully consider all the information set forth in this Annual Report on Form 10-K, including the following risk factors, before deciding to invest in any of our securities. This Annual Report on Form 10-K also contains, or may incorporate by reference, forward-looking statements that involve risks and uncertainties. See the \u201cCautionary Notice Regarding Forward-Looking Statements,\u201d immediately preceding Part I of this Annual Report on Form 10-K. The risks below are not the only risk factors we face. Additional risks not currently known to us or that we presently deem insignificant could impact our consolidated financial position and results of operations. Our businesses, consolidated financial position, and results of operations could be materially adversely affected by any of these risks. The trading price of our securities could decline due to any of these risks, and investors may lose all or part of their investment.\nStrategic Risks \nWe may not be able to realize the expected benefits of our growth strategies, which are described in Item 1. Business, including successfully integrating acquisitions, which could adversely impact our consolidated financial position and results of operations\n.\nOur growth strategy includes business acquisitions, including knowledge-enabled services, which complement our existing businesses. Acquisitions may have a substantial impact on our consolidated financial position and results of operations. Acquisitions involve risks and uncertainties, including difficulties in integrating acquired operations and in realizing expected opportunities, cost synergies, diversions of management resources, loss of key employees, challenges with respect to operating new businesses, and other uncertainties.\nWe have announced our intent to explore the sale of certain of our businesses, and such proposed divestitures may introduce significant risks and uncertainties.\nWe have initiated a strategic review of our non-core education businesses which could result in the future divestiture of certain assets or businesses that no longer fit with our strategic direction or growth targets. Divestitures involve significant risks and uncertainties that could adversely affect our business, consolidated financial position and consolidated results of operations. These include, among others, the inability to find potential buyers on favorable terms, disruption to our business and/or diversion of management attention from other business concerns, the potential loss of key employees, difficulties in separating the operations of the divested business, and retention of certain liabilities related to the divested business. Significant time and expenses could be incurred to divest these non-core businesses which may adversely affect operations as dispositions may require our continued financial involvement, such as through transition service agreements, guarantees, and indemnities or other current or contingent financial obligations and liabilities.\nThe demand for digital and lower cost books could impact our sales volumes and pricing in an adverse way.\nA common trend facing each of our businesses is the digitization of content and proliferation of distribution channels through the Internet and other electronic means, which are replacing traditional print formats. This trend towards digital content has also created contraction in the print book retail market which increases the risk of bankruptcy for certain retail customers, potentially leading to the disruption of short-term product supply to consumers, as well as potential bad debt write-offs. New distribution channels, such as digital formats, the Internet, online retailers, and growing delivery platforms (e.g., tablets and e-readers), combined with the concentration of retailer power, present both risks and opportunities to our traditional publishing models, potentially impacting both sales volumes and pricing.\nAs the market has shifted to digital products, customer expectations for lower-priced products have increased due to customer awareness of reductions in production costs and the availability of free or low-cost digital content and products. As a result, there has been pressure to sell digital versions of products at prices below their print versions. Increased customer demand for lower prices could reduce our revenue.\n15\nIndex\nWe publish educational content for undergraduate, graduate, and advanced placement students, lifelong learners, and, in Australia, for secondary school students. Due to growing student demand for less expensive textbooks, many college bookstores, online retailers, and other entities, offer used or rental textbooks to students at lower prices than new textbooks. The Internet has made the used and rental textbook markets more efficient and has significantly increased student access to used and rental textbooks. Further expansion of the used and rental textbook markets could further adversely affect our sales of print textbooks, subsequently affecting our consolidated financial position and results of operations.\nA reduction in enrollment at colleges and universities could adversely affect the demand for our higher education products.\nEnrollment in US colleges and universities can be adversely affected by many factors, including changes in government and private student loan and grant programs, uncertainty about current and future economic conditions, increases in tuition, general decreases in family income and net worth, and record low unemployment due to an active job market. In addition, enrollment levels at colleges and universities outside the US are influenced by global and local economic factors, local political conditions, and other factors that make predicting foreign enrollment levels difficult. Reductions in expected levels of enrollment at colleges and universities both within and outside the US could adversely affect demand for our higher education offerings, which could adversely impact our consolidated financial position and results of operations.\nIf we are unable to retain key talent and other colleagues, our consolidated financial condition or results of operations may be adversely affected.\nThe Company and industry are highly dependent on the loyal engagement of key leaders and colleagues. Loss of talent due to inadequate skills and career path development or maintaining competitive salaries and benefits could have a significant impact on Company performance.\nWe are highly dependent on the continued services of key talent who have in-depth market and business knowledge and/or key relationships with business partners. The loss of the services of key talent for any reason and our inability to replace them with suitable candidates quickly or at all, as well as any negative market perception resulting from such loss, could have a material adverse effect on our business, consolidated financial position, and results of operations.\nWe have a significant investment in our colleagues around the world. We offer competitive salaries and benefits in order to attract and retain the highly skilled workforce needed to sustain and develop new products and services required for growth. Employment costs are affected by competitive market conditions for qualified individuals and factors such as healthcare and retirement benefit costs.\nThe competitive pressures we face in our business, as well as our ability to retain our business relationships with our authors and professional societies, could adversely affect our consolidated financial position and results of operations.\nThe contribution of authors and their professional societies is one of the more important elements of the highly competitive publishing business. Success and continued growth depend greatly on developing new products and the means to deliver them in an environment of rapid technological change. Attracting new authors and professional societies while retaining our existing business relationships is critical to our success. If we are unable to retain our existing business relationships with authors and professional societies, this could have an adverse impact on our consolidated financial position and results of operations.\n16\nIndex\nInformation Technology Systems and Cybersecurity Risks\nOur company is highly dependent on information technology systems and their business management and customer-facing capabilities critical for the long-term competitive sustainability of the business. If we fail to innovate in response to rapidly evolving technological and market developments, our competitive position may be negatively impacted.\nWe must continue to invest in technology and other innovations to adapt and add value to our products and services to remain competitive. This is particularly true in the current environment, where investment in new technology is ongoing and there are rapid changes in the products competitors are offering, the products our customers are seeking, and our sales and distribution channels. In some cases, investments will take the form of internal development; in others, they may take the form of an acquisition. There are uncertainties whenever developing or acquiring new products and services, and it is often possible that such new products and services may not be launched, or, if launched, may not be profitable or as profitable as existing products and services. If we are unable to introduce new technologies, products, and services, our ability to be profitable may be adversely affected.\nIn addition, our ability to effectively compete, may be affected by our ability to anticipate and respond effectively to the opportunity and threat presented by new technology disruption and developments, including generative artificial intelligence (GAI). We may be exposed to competitive risks related to the adoption and application of new technologies by established market participants or new entrants, and others. \nWe cannot predict the effect of technological changes on our business. Failure to keep pace with these technological developments or otherwise bring to market products that reflect these technologies could have a material adverse impact on our overall business and results of operations. We may not be successful in anticipating or responding to these developments on a timely and cost-effective basis. Additionally, the effort to gain technological expertise and develop new technologies in our business requires us to incur significant expenses. If we cannot offer new technologies as quickly as our competitors, or if our competitors develop more cost-effective technologies or product offerings, we could experience a material adverse effect on our operating results, growth and financial condition.\nWe may be susceptible to information technology risks that may adversely impact our business, consolidated financial position and results of operations.\nInformation technology is a key part of our business strategy and operations. As a business strategy, Wiley\u2019s technology enables us to provide customers with new and enhanced products and services and is critical to our success in migrating from print to digital business models. Information technology is also a fundamental component of all our business processes, collecting and reporting business data, and communicating internally and externally with customers, suppliers, employees, and others. We face technological risks associated with digital products and service delivery in our businesses, including with respect to information technology capability, reliability, security, enterprise resource planning, system implementations, and upgrades. Across our businesses, we hold personal data, including that of employees and customers. Failures of our information technology systems and products (including operational failure, natural disaster, computer virus, or cyberattacks) could interrupt the availability of our digital products and services, result in corruption or loss of data or breach in security, and result in liability or reputational damage to our brands and/or adversely impact our consolidated financial position and results of operations. \nManagement has designed and implemented policies, processes, and controls to mitigate risks of information technology failure and to provide security from unauthorized access to our systems. In addition, we have disaster recovery plans in place to maintain business continuity for our key financial systems.\u202fWhile key financial systems have backup and tested disaster recovery systems, other applications and services have limited backup and recovery procedures which may delay or prevent recovery in case of disaster. The size and complexity of our information technology and information security systems, and those of our third-party vendors with whom we contract, make such systems potentially vulnerable to cyberattacks common to most industries from inadvertent or intentional actions by employees, vendors, or malicious third parties. While we have taken steps to address these risks, there can be no assurance that a system failure, disruption, or data security breach would not adversely affect our business and could have an adverse impact on our consolidated financial position and results of operations. \n17\nIndex\nWe are continually improving and upgrading our computer systems and software.\u202fWe have implemented a global Enterprise Resource Planning (ERP) system as part of a multiyear plan to integrate and upgrade our operational and financial systems and processes. We have also implemented record-to-report, purchase-to-pay, and several other business processes within all locations. We implemented order-to-cash for certain businesses and have continued to roll out additional processes and functionality of the ERP system in phases. Implementation of an ERP system involves risks and uncertainties. Any disruptions, delays, or deficiencies in the design or implementation of a new system could result in increased costs, disruptions in operations, or delays in the collection of cash from our customers, as well as having an adverse effect on our ability to timely report our financial results, all of which could materially adversely affect our business, consolidated financial position, and results of operations. We currently use out of support systems for order management for certain businesses. While we have contingency support available, any major disruptions, while unlikely, may require longer remediation time. This could impact our ability to process and fulfill orders for those businesses. We currently use a legacy platform with limited support for order management of the global Academic business. Any defects and disruptions in the legacy systems which cannot be addressed in a timely manner could impact our ability to process orders and reconcile financial statements. \nCyber risk and the failure to maintain the integrity of our operational or security systems or infrastructure, or those of third parties with which we do business, could have a material adverse effect on our business, consolidated financial condition, and results of operations.\nThe cybersecurity risks we face range from cyberattacks common to most industries, such as the development and deployment of malicious software to gain access to our networks and attempt to steal confidential information, launch distributed denial of service attacks, or attempt other coordinated disruptions, to more advanced threats that target us because of our prominence in the global research and advisory field. As a result of the COVID-19 pandemic, most of our employees continue to work remotely, at least some of the time, which magnifies the importance of the integrity of our remote access security measures. \nLike many multinational corporations, we, and some third parties upon which we rely, have experienced cyberattacks on our computer systems and networks in the past and may experience them in the future, likely with more frequency and sophistication and involving a broader range of devices and modes of attack, all of which will increase the difficulty of detecting and successfully defending against them. To date, none have resulted in any material adverse impact to our business, operations, products, services, or customers. Wiley has invested heavily in Cybersecurity tools and resources to keep our systems safe. We have implemented various security controls to meet our security obligations, while also defending against constantly evolving security threats. Our security controls help to secure our information systems, including our computer systems, intranet, proprietary websites, email and other telecommunications and data networks, and we scrutinize the security of outsourced website(s) and service providers prior to retaining their services. However, the security measures implemented by us or by our outside service providers may not be effective, and our systems (and those of our outside service providers) may be vulnerable to theft, loss, damage and interruption from a number of potential sources and events, including unauthorized access or security breaches, cyber-attacks, computer viruses, power loss, or other disruptive events. \nThe security compliance landscape continues to evolve, requiring us to stay apprised of changes in cybersecurity,  privacy laws and regulations, such as the European Union General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), the Brazilian General Data Protection Law (LGPD), the Chinese Cybersecurity, Data Security and Personal Information Protection laws (PIPL). The United Kingdom ceased to be an EU Member State on January 31, 2020, but enacted the UK data protection law. It is unclear how UK data protection laws will continue to develop; however, contractual clauses have been established regulating data transfers to and from the United Kingdom. Some countries also are considering or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our services. \nIn addition, to new and proposed data protection laws, we also stay apprised and adopt certain security standards required by our clients, such as International Organization for Standardization (ISO), National Institute of Standards and Technology (NIST) and Center for Internet Security (CIS). Recent well-publicized security breaches at other companies have led to enhanced government and regulatory scrutiny of the measures taken by companies to protect against cyberattacks and may in the future result in heightened cybersecurity requirements, including additional regulatory expectations for oversight of vendors and service providers.\n18\nIndex\nA cyberattack could cause delays in initiating or completing sales, impede delivery of our products and services to our clients, disrupt other critical client-facing or business processes, or dislocate our critical internal functions. Additionally, any material breaches or other technology-related catastrophe, or media reports of perceived security vulnerabilities to our systems or those of our third parties, even if no breach has been attempted or has occurred, could cause us to experience reputational harm, loss of customers and revenue, fines, regulatory actions and scrutiny, sanctions or other statutory penalties, litigation, liability for failure to safeguard our customers information, or financial losses that are either not insured against or not fully covered through any insurance maintained by us. \nOperational Risks\nWe may not realize the anticipated cost savings and benefits from, or our business may be disrupted by, our business transformation and restructuring efforts.\nWe continue to transform our business from a traditional publishing model to a global provider of content-enabled solutions with a focus on digital products and services. We have made several acquisitions over the past few years that represent examples of strategic initiatives that were implemented as part of our business transformation. We will continue to explore opportunities to develop new business models and enhance the efficiency of our organizational structure. The rapid pace and scope of change increases the risk that not all our strategic initiatives will deliver the expected benefits within the anticipated timeframes. In addition, these efforts may disrupt our business activities, which could adversely affect our consolidated financial position and results of operations.\nWe continue to restructure and realign our cost base with current and anticipated future market conditions, including our Business Optimization Program and Fiscal Year 2023 Restructuring Program. Significant risks associated with these actions that may impair our ability to achieve the anticipated cost savings or that may disrupt our business, include delays in the implementation of anticipated workforce reductions in highly regulated locations outside of the US, decreases in employee morale, the failure to meet operational targets due to the loss of key employees, and disruptions of third parties to whom we have outsourced business functions. In addition, our ability to achieve the anticipated cost savings and other benefits from these actions within the expected timeframe is subject to many estimates and assumptions. These estimates and assumptions are subject to significant economic, competitive, and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our business and consolidated financial position and results of operations could be adversely affected.\nWe may not realize the anticipated cost savings and processing efficiencies associated with the outsourcing of certain business processes.\nWe have outsourced certain business functions, principally in technology, content management, printing, warehousing, fulfillment, distribution, returns processing, and certain other transactional processing functions, to third-party service providers to achieve cost savings and efficiencies. If these third-party service providers do not perform effectively, we may not be able to achieve the anticipated cost savings, and depending on the function involved, we may experience business disruption or processing inefficiencies, all with potential adverse effects on our consolidated financial position and results of operations.\nChallenges and uncertainties associated with operating in certain global markets has a higher risk due to political instability, economic volatility, crime, terrorism, corruption, social and ethnic unrest, and other factors, which may adversely impact our consolidated financial position and results of operations.\nWe sell our products to customers in certain sanctioned and previously sanctioned developing markets in accordance with such restrictions. While sales in these markets are not material to our consolidated financial position and results of operations, adverse developments related to the risks associated with these markets may cause actual results to differ from historical and forecasted future consolidated operating results.\nWe have certain technology development operations in Sri Lanka, and previously in Russia, related to software development and architecture, digital content production, and system testing services. Due to the political instability within these regions, there is the potential for future government embargos and sanctions, which could disrupt our operations in these areas. While we have developed business continuity plans to address these issues, further adverse developments in the region could have a material impact on our consolidated financial position and results of operations.\n19\nIndex\nIn February 2022, the Russian Federation and Belarus commenced a military action with Ukraine. As a result, the United States, as well as other nations, instituted economic sanctions against Russia and Belarus. The impact of this action and related sanctions on the world economy is not currently determinable but the impact of this conflict has not been material to our consolidated financial position and results of operations.\nIn the third quarter of fiscal year 2023, due to the political instability and military actions between Russia and Ukraine, we made the decision to close our operations in Russia, which primarily consists of technology development resources. We are substantially complete with this closure as of April 30, 2023, except for the formal liquidation of our Russian legal entity, which we expect to complete in fiscal year 2024. This action did not materially impact our overall operations. Prior to the closure, the net assets of our Russian operations were not material to our overall consolidated financial position. We have customers in Russia, primarily for our Research offerings, which are not material to our overall consolidated results of operations. We do not have operations in Ukraine or Belarus, and the business conducted in those countries is also not material to our consolidated financial position and results of operations.\nIn our Research segment, approximately 32% of the articles we published in 2022 included a China based author. This compares to the industry percentage which is approximately 30% of articles published in 2022 which included a China based author. Any restrictions on exporting intellectual property could adversely affect our business and consolidated financial position and results of operations. Chinese governments and institutions are producing early warning lists of journals published by non-Chinese publishers that have high proportions of Chinese content which could have an impact on future article volumes. \nIn our journal publishing business, we have a trade concentration and credit risk related to subscription agents, and in our book business the industry has a concentration of customers in national, regional, and online bookstore chains. Changes in the financial position and liquidity of our subscription agents and customers could adversely impact our consolidated financial position and results of operations.\nIn the journal publishing business, subscriptions are primarily sourced through journal subscription agents who, acting as agents for library customers, facilitate ordering by consolidating the subscription orders/billings of each subscriber with various publishers. Cash is generally collected in advance from subscribers by the subscription agents and is principally remitted to us between the months of December and April. Although at fiscal year-end we had minimal credit risk exposure to these agents, future calendar year subscription receipts from these agents are highly dependent on their financial condition and liquidity.\nSubscription agents account for approximately 15% of total annual consolidated revenue and no one agent accounts for more than 10% of total annual consolidated revenue.\nOur book business is not dependent upon a single customer; however, the industry is concentrated in national, regional, and online bookstore chains. Although no book customer accounts for more than 6% of total consolidated revenue and 10% of accounts receivable at April 30, 2023, the top 10 book customers account for approximately 10% of total consolidated revenue and approximately 20% of accounts receivable at April 30, 2023.\nIn our Research business, a lack of integrity in our published research could adversely impact our consolidated financial position and results of operations.  \nWe publish research authored by individuals outside our Company. The integrity of that research could be compromised due to the manipulation, misrepresentation and misconduct by those individuals or other outsiders involved in the publishing process. This activity could adversely impact our open access publishing and article output by causing us to potentially pause publication, retract articles, or halt publication of a journal, which could adversely impact our business and consolidated financial position and results of operations.  \n20\nIndex\nFinancial Risks\nChanges in global economic conditions could impact our ability to borrow funds and meet our future financing needs.\nChanges in global financial markets have not had, nor do we anticipate they will have, a significant impact on our liquidity. Due to our significant operating cash flow, financial assets, access to capital markets, and available lines of credit and revolving credit agreements, we continue to believe that we have the ability to meet our financing needs for the foreseeable future. As market conditions change, we will continue to monitor our liquidity position. However, there can be no assurance that our liquidity or our consolidated financial position and results of operations will not be adversely affected by possible future changes in global financial markets and global economic conditions. Unprecedented market conditions including illiquid credit markets, volatile equity markets, dramatic fluctuations in foreign currency and interest rates, and economic recession, could affect future results. \nFluctuations in foreign currency exchange rates and interest rates could materially impact our consolidated financial condition and results of operations.\nNon-US revenues, as well as our substantial non-US net assets, expose our consolidated results to volatility from changes in foreign currency exchange rates. The percentage of consolidated revenue for the year ended April 30, 2023 recognized in the following currencies (on an equivalent US dollar basis) were approximately: 57% US dollar, 24% British pound sterling, 10% euro, and 9% other currencies. In addition, our interest-bearing loans and borrowings are subject to risk from changes in interest rates. We may, from time to time, use derivative instruments to hedge such risks. Notwithstanding our efforts to foresee and mitigate the effects of changes in external market or fiscal circumstances, we cannot predict with certainty changes in foreign currency exchange rates and interest rates, inflation, or other related factors affecting our business, consolidated financial position, and results of operations\n.\nWe may not be able to mitigate the impact of inflation and cost increases, which could have an adverse impact on our consolidated financial position and results of operations.\nFrom time to time, we experience cost increases reflecting, in part, general inflationary factors. There is no guarantee that we can increase selling prices or reduce costs to fully mitigate the effect of inflation on our costs, which may adversely impact our consolidated financial position and results of operations.\nAs a result of acquisitions, we have and may record a significant amount of goodwill and other identifiable intangible assets and we may never realize the full carrying value of these assets\n.\nAs a result of acquisitions, we recorded a significant amount of goodwill and other identifiable intangible assets. At April 30, 2023, we had $1,204.1 million of goodwill and $854.8 million of intangible assets, of which $121.9 million are indefinite-lived intangible assets, on our Consolidated Statements of Financial Position. The intangible assets are principally composed of content and publishing rights, customer relationships, brands and trademarks, and developed technology. Failure to achieve business objectives and financial projections could result in an asset impairment, which would result in a noncash charge to our consolidated results of operations. Goodwill and intangible assets with indefinite lives are tested for impairment on an annual basis and when events or changes in circumstances indicate that impairment may have occurred. Intangible assets with definite lives, which were $732.9 million at April 30, 2023, are tested for impairment only when events or changes in circumstances indicate that an impairment may have occurred. Determining whether an impairment exists can be difficult as a result of increased uncertainty and current market dynamics and requires management to make significant estimates and judgments. A noncash intangible asset impairment charge could have a material adverse effect on our consolidated financial position and results of operations. See Note 11, \u201cGoodwill and Intangible Assets\u201d for further information related to goodwill and intangible assets, and the impairment charges recorded in the year ended April 30, 2023.\n21\nIndex\nChanges in pension costs and related funding requirements may impact our consolidated financial position and results of operations.\nWe provide defined benefit pension plans for certain employees worldwide. Our Board of Directors approved amendments to the US, Canada, and UK defined benefit plans that froze the future accumulation of benefits effective June 30, 2013, December 31, 2015, and April 30, 2015, respectively. The retirement benefit pension plan in Russia was discontinued on February 28, 2023 and we retain no further obligations for retirement benefits in Russia. The funding requirements and costs of these plans are dependent upon various factors, including the actual return on plan assets, discount rates, plan participant population demographics, and changes in global pension regulations. Changes in these factors affect our plan funding, consolidated financial position, and results of operations.\nLegal, Regulatory, and Compliance Risks\nChanges in laws, tariffs, and regulations, including regulations related to open access, could adversely impact our consolidated financial position and results of operations.\nWe maintain operations in Asia, Australia, Canada, Europe, South America, the Middle East, and the US. The conduct of our business, including the sourcing of content, distribution, sales, marketing, and advertising, is subject to various laws and regulations administered by governments around the world. Changes in laws, regulations, or government policies, including tax regulations and accounting standards, may adversely affect our future consolidated financial position and results of operations.\nThe scientific research publishing industry generates much of its revenue from paid customer subscriptions to online and print journal content. There is interest within government, academic, and library communities for such journal content to be made available for free immediately or following a period of embargo after publication, referred to as open access. For instance, certain governments and privately held funding bodies have implemented mandates that require journal articles derived from government-funded research to be made available to the public at no cost immediately or after an embargo period. Open access can be achieved in two ways: Green, which enables authors to publish articles in subscription-based journals and self\u2013archive the author accepted version of the article for free public use after any embargo period; and Gold, which enables authors to publish their articles in journals that provide immediate free access to the final version of the article on the publisher\u2019s website, and elsewhere under permissive licensing terms, following payment or waiver of an APC. These mandates have the potential to put pressure on subscription-based publications. If such regulations are widely implemented, our consolidated financial position and results of operations could be adversely affected.\nTo date, many of the governments and national research councils that have taken a position on open access have favored the Green model and have generally specified embargo periods of twelve months. The publishing community generally takes the view that this period should be sufficient to protect subscription revenues, provided that publishers\u2019 platforms offer sufficient added value to the article. Governments in Europe have been more supportive of the Gold model, which thus far is generating incremental revenue for publishers with active open access programs. Many institutions have signed on to the business model which combines the purchasing of subscription content with the purchase of open access publishing for affiliated authors. This development removes an element of risk by fixing revenues from that market, provided that the terms, price, and rate of transition negotiated are acceptable.\nOn January 31, 2020, the UK exited the European Union (EU), an action referred to as Brexit. The uncertainty concerning the UK\u2019s legal, political, and economic relationship with the EU after Brexit may be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border cooperation arrangements (whether economic, tax, fiscal, legal, regulatory, or otherwise) beyond the date of Brexit.\nAdditional Brexit-related impacts on our business could include potential inventory shortages in the UK, increased regulatory burdens and costs to comply with UK-specific regulations, and higher transportation costs for our products coming into and out of the UK. Any of these effects, among others, could materially and adversely affect our business and consolidated financial position and results of operations.\n22\nIndex\nChanges in global and local tax laws and regulations in, and the distribution of income among, jurisdictions in which the Company operates could have a material impact on our consolidated financial position and results of operations.\nWe are subject to tax laws in the jurisdictions where we conduct business, including the US and many foreign jurisdictions. Wiley's future results of operations could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, the result of audits of previously filed tax returns, or changes in liabilities for uncertain tax positions, the cost of repatriation, or changes in tax laws and regulations and the interpretations thereof in the jurisdictions where we operate.\nA number of international legislative and regulatory bodies have proposed legislation and begun investigations of the tax practices of multinational companies and, in the European union, the tax policies of certain European Union member states. One of these efforts has been led by the Organization for Economic Co-operation and Development (OECD), which has finalized recommendations to revise corporate tax, transfer pricing, and tax treaty provisions in member countries. On December 15, 2022, European Union member states unanimously adopted the Minimum Tax Directive ensuring a global minimum level of taxation for multinational companies. Member states have until December 31, 2023, to transpose the Minimum Tax Directive into national legislation. The enactment of this and the heightened interest in and taxation of large multinational companies increase tax uncertainty and could ultimately have a material effect on our effective tax rate, income tax expense, net income, or cash flows.\nOn August 16, 2022, the Inflation Reduction Act of 2022 was enacted into law in the United States, which, among other things, created a new corporate alternative minimum tax of 15% for certain corporations and a 1% excise tax on stock repurchases made by publicly traded US.companies after December 31, 2022. In addition, there are proposals to increase the rate and otherwise change US tax laws, which could significantly increase the Company's tax rate. Given the unpredictability of possible further changes to, and the potential interdependency of, the United States or foreign tax laws and regulations, it is difficult to predict the cumulative effect of such laws and regulations on Wiley's results of operations.\nWe are also subject to potential taxes in jurisdictions where we have sales even though we do not have a physical presence. These potential taxes could have a material impact on our consolidated financial position and results of operations as substantially all our taxable income is earned outside the US. In addition, we are subject to examination by tax authorities and although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from our historical income tax provisions and accruals and could have a material impact on our consolidated financial position and results of operations.\nOur intellectual property rights may not be protected, which could adversely affect our consolidated financial position and results of operations.\nA substantial portion of our publications are protected by copyright, held either in our name, in the name of the author of the work, or in the name of a sponsoring professional society. Such copyrights protect our exclusive right to publish the work in many countries abroad for specified periods, in most cases, the author\u2019s life plus 70 years. Our ability to continue to achieve our expected results depends, in part, upon our ability to protect our intellectual property rights. Our consolidated financial position and results of operations may be adversely affected by lack of legal and/or technological protections for its intellectual property in some jurisdictions and markets.\nA disruption or loss of data sources could limit our collection and use of certain kinds of information, which could adversely impact our communication with our customers.\nSeveral of our businesses rely extensively upon content and data from external sources. Data is obtained from public records, governmental authorities, customers, and other information companies, including competitors. Legal regulations, such as the EU\u2019s GDPR, relating to Internet communications, privacy and data protection, e-commerce, information governance, and use of public records, are becoming more prevalent worldwide. The disruption or loss of data sources, either because of changes in the law or because data suppliers decide not to supply them, may impose limits on our collection and use of certain kinds of information about individuals and our ability to communicate such information effectively with our customers. In addition, GDPR imposes a strict data protection compliance regime with severe penalties of up to 4% of worldwide revenue or \u20ac20 million, whichever is greater.\n23\nIndex\nIf we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.\nWe are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act (Sarbanes-Oxley Act) and the rules and regulations of the New York Stock Exchange. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are required to perform system and process evaluations and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Annual Report on Form 10-K, as required by Section 404 of the Sarbanes-Oxley Act. This may require us to incur substantial additional professional fees and internal costs to further expand our accounting and finance functions and expend significant management efforts.\nWe may in the future discover material weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. In addition, our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system\u2019s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to errors or fraud will not occur, or that all control issues and instances of fraud will be detected.\nIf we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities.\nGeneral Risks\nGlobal economic, market, public health and geopolitical conditions or other events could negatively impact our consolidated financial positions and results of operations.\nWe are exposed to risks and uncertainties caused by factors beyond our control, including global economic, public health and geopolitical conditions. These include economic weakness, softness in consumer and corporate spending, uncertainty and volatility, including the potential for a recession; a competitive labor market and evolving workforce expectations; inflation, rising interest rates; public health crisis, including pandemics; financial stability of the banking industry, and political and sociopolitical uncertainties and conflicts. These factors may result in declines and/or volatility in our results or stock price. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. Our business could also be impacted by volatility caused by geopolitical events, such as the conflict in Ukraine. In addition, the actual or perceived effects of a disease outbreak, epidemic, pandemic or similar widespread public health concern, such as COVID-19, could also materially and adversely affect our results. The future impact that global economic, public health and geopolitical conditions will have on our business operations and financial results is uncertain and will depend on numerous evolving factors and developments that we are not able to reliably predict or mitigate. It is also possible that these conditions may impact other risks discussed in this section.  \n24\nIndex\nThe trading price of the shares of our common stock may fluctuate materially, and investors of our common stock could incur substantial losses.\nOur stock price may fluctuate materially. The stock market in general has experienced significant volatility that has often been unrelated to the operating performance of companies. As a result of this volatility, investors may not be able to sell their common stock at or above the price paid for the shares. The market price for our common stock may be influenced by many factors, including:\n\u2022\nActual or anticipated changes in our consolidated operating results;\n\u2022\nVariances between actual consolidated operating results and the expectations of securities analysts, investors, and the financial community;\n\u2022\nChanges in financial estimates by us or by any securities analysts who might cover our stock;\n\u2022\nConditions or trends in our industry, the stock market, or the economy;\n\u2022\nThe level of demand for our stock, the stock market price, and volume fluctuations of comparable companies;\n\u2022\nAnnouncements by us or our competitors of new product or service offerings, significant acquisitions, strategic partnerships, or divestitures;\n\u2022\nAnnouncements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;\n\u2022\nCapital commitments;\n\u2022\nInvestors\u2019 general perception of the Company and our business;\n\u2022\nRecruitment or departure of key personnel; and\n\u2022\nSales of our common stock, including sales by our directors and officers or specific stockholders.\nAdverse publicity could negatively impact our reputation, which could adversely affect our consolidated financial position and results of operations.\nOur professional customers worldwide rely upon many of our publications to perform their jobs. It is imperative that we consistently demonstrate our ability to maintain the integrity of the information included in our publications. Adverse publicity, whether valid or not, may reduce demand for our publications and adversely affect our consolidated financial position and results of operations.",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThe information in our Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read together with our Consolidated Financial Statements and related notes set forth in Part II, Item 8, as well as the discussion included in Part I, Item 1, \u201cBusiness,\u201d \u201cCautionary Notice Regarding Forward-Looking Statements \u201cSafe Harbor\u201d Statement under the Private Securities Litigation Reform Act of 1995\u201d and \u201cNon-GAAP Financial Measures,\u201d along with Part I, Item 1A, \u201cRisk Factors,\u201d of this Annual Report on Form 10-K. All amounts and percentages are approximate due to rounding and all dollars are in thousands, except per share amounts or where otherwise noted. When we cross-reference to a \u201cNote,\u201d we are referring to our \u201cNotes to Consolidated Financial Statements,\u201d in Part II, Item 8, \u201cFinancial Statements and Supplementary Data\u201d unless the context indicates otherwise.\nOverview\nWiley is a global leader in scientific research and career-connected education, unlocking human potential by enabling discovery, powering education, and shaping workforces. For over 200 years, Wiley has fueled the world\u2019s knowledge ecosystem. Today, our high-impact content, platforms, and services help researchers, learners, institutions, and corporations achieve their goals in an ever-changing world. Wiley is a predominantly digital company with approximately 85% of revenue for the year ended April 30, 2023 generated by digital products and tech-enabled services.  For the year ended April\u00a030, 2023, approximately 57% of our revenue is recurring which includes revenue that is contractually obligated or set to recur with a high degree of certainty.\nWe have reorganized our Education lines of business into two new customer-centric segments. The Academic segment addresses the university customer group and includes Academic Publishing and University Services. The Talent segment addresses the corporate customer group and will be focused on delivering training, sourcing, and upskilling solutions. Prior period segment results have been revised to the new segment presentation. There were no changes to our consolidated financial results. Our new segment reporting structure consists of three reportable segments, as well as a Corporate expense category (no change), which includes certain costs that are not allocated to the reportable segments:\n\u2022\nResearch includes Research Publishing and Research Solutions, and no changes were made as a result of this realignment;\n\u2022\nAcademic includes the Academic Publishing and University Services lines. Academic Publishing is the combination of the former Education Publishing line and professional publishing offerings;\n\u2022\nTalent is the combination of the former Talent Development line, and our assessments (corporate training) and corporate learning offerings.\nThrough the Research segment, we provide peer-reviewed STM publishing, content platforms, and related services to academic, corporate, and government customers, academic societies, and individual researchers. The Academic segment provides scientific, professional, and education print and digital books, digital courseware, and test preparation services, as well as engages in the comprehensive management of online degree programs for universities. The Talent segment services include sourcing, training, and preparing aspiring students and professionals to meet the skill needs of today\u2019s technology careers and placing them with large companies and government agencies. It also includes assessments (corporate training) and corporate learning offerings.\nWiley\u2019s business strategies are tightly aligned with long term growth trends, including open research, career-connected education, and workforce optimization. Research strategies include driving publishing output to meet the global demand for peer-reviewed research and expanding platform and service offerings for corporations and societies. Education strategies include expanding online degree programs and driving online enrollment for university partners, scaling digital content and courseware, and expanding IT talent placement and reskilling programs for corporate partners.\nWiley has announced for fiscal year 2024 strategic actions that will focus Wiley on its strongest and most profitable businesses and large market opportunities in Research and Learning. We are divesting non-core education businesses, including University Services (known as online program management), Wiley Edge (formerly Talent Development) and CrossKnowledge. These assets will be reported as businesses held for sale starting in the first quarter of fiscal year 2024.  We will be streamlining our organization and rightsizing our cost structure to reflect these portfolio actions. In addition, we will be changing our reportable segments for fiscal year 2024 reporting. These actions and our fiscal year 2024 transition year outlook are described further below in the section \"Fiscal Year 2024 Transition Year Outlook.\"\n29\nIndex\nConsolidated Results of Operations\nFISCAL YEAR 2023 AS COMPARED TO FISCAL YEAR 2022 SUMMARY RESULTS\nSUMMARY \n\u2022\nUS GAAP Results:\n Revenue of $2,019.9 million (-3% compared with the prior year), Operating income of $55.9 million (-$163.4 million compared with the prior year), and EPS of $0.31 (-$2.31 compared with prior year). US GAAP earnings performance primarily due to $99.8 million ($1.77 per share) of non-cash goodwill impairment in Education Services/University Services and restructuring charges totaling $49.4 million ($0.66 per share). \n\u2022\nAdjusted Results (at constant currency compared with the prior year)\n:  Revenue of $2,019.9 million (flat compared with the prior year), Adjusted EBITDA of $422.0 million (-2% compared with the prior year), and Adjusted EPS of $3.84 (-8% compared with the prior year).   \n\u2022\nNet Cash Provided by Operating Activities of $277.1 million ($-62.0\u00a0million compared with the prior year) and Free Cash Flow of $173.0 million ($-50.3\u00a0million compared with the prior year).   \nRevenue:\nRevenue for the year ended April\u00a030, 2023 decreased $63.0\u00a0million, or 3%, as compared with the prior year. On a constant currency basis, revenue was flat as compared with the prior year including contributions from acquisitions. Excluding the contributions from acquisitions, revenue decreased 1% on a constant currency basis.\nSee the \u201cSegment Operating Results\u201d below for additional details on each segment\u2019s revenue and Adjusted EBITDA performance\n.\nCost of Sales:\nCost of sales for the year ended April\u00a030, 2023 decreased $8.1\u00a0million, or 1% as compared with the prior year. On a constant currency basis, cost of sales increased 2% as compared with the prior year. This increase was primarily due to higher employee costs to support the growth in placements in the Talent segment, partially offset by lower royalty costs.\nOperating and Administrative Expenses:\nOperating and administrative expenses for the year ended April\u00a030, 2023 decreased $42.2\u00a0million, or 4%, as compared with the prior year. On a constant currency basis, operating and administrative expenses were flat as compared with the prior year primarily reflecting higher technology related costs, travel and entertainment costs, and a $3.7 million charge related to the settlement of a litigation matter related to consideration for a previous acquisition. These were offset by lower professional fees, employment costs and facility related costs.  \nImpairment of Goodwill:\nWe recorded an impairment of goodwill in the year ended April 30, 2023 of $99.8 million. T\nhis charge is reflected in the Impairment of goodwill in the Consolidated Statements of Income. \nIn accordance with applicable accounting standards, we were required to test goodwill for impairment immediately before and after our segment realignment. Prior to the realignment, we concluded that the fair value of the Education Services reporting unit was below its carrying value, which resulted in a pretax non-cash goodwill impairment of $31.0 million. \nEducation Services was adversely impacted by market conditions and headwinds for online degree programs. This has led to a decline in projected student enrollments from existing partners, pricing pressures and revenue share concessions, and a decline in new partner additions over both the short-term and long-term, which adversely impacted forecasted revenue growth and operating cash flows. This was partially offset by projected growth in talent placements, partially due to expansion into new regions and the addition of new corporate clients, which are forecasted to have a positive impact on revenue growth and operating cash flows.  \n30\nIndex\nAfter the realignment, we concluded that the fair value of the University Services reporting unit within the Academic segment was below its carrying value, which resulted in an additional pretax non-cash goodwill impairment of $68.8 million. \nUniversity Services was adversely impacted by market conditions and headwinds for online degree programs, which lead to a decline in projected enrollments from existing partners, pricing pressures and revenue share concessions, and a decline in new partner additions over both the short-term and long-term which adversely impacted forecasted revenue growth and operating cash flows. \nSee Note 11, \"Goodwill and Intangible Assets\" for details on these charges. \nRestructuring and Related Charges (Credits):\nFiscal Year 2023 Restructuring Program\nIn May 2022, the Company initiated a global program to restructure and align our cost base with current and anticipated future market conditions. This program includes \nseverance related charges for the elimination of certain positions, \nthe exit of certain leased office space which began in the first quarter of fiscal year 2023 and the reduction of our occupancy at other facilities. We are reducing our real estate square footage occupancy by approximately 22%. We realized $35 million in savings from actions starting in fiscal year 2023.\nIn the three months ended January 31, 2023, due to the political instability and military actions between Russia and Ukraine, we made the decision to close our operations in Russia which primarily consisted of technology development resources. We were substantially complete with our closure as of April\u00a030, 2023, except for the formal liquidation of our Russian legal entity, which we expect to complete in our fiscal year 2024.\nFor the year ended April 30, 2023, we recorded pretax restructuring charges of $48.9 million related to this program, which includes $8.3\u00a0million related to the closure of our operations in Russia as described above. These charges are reflected in Restructuring and related charges (credits) on our Consolidated Statements of Income. This restructuring charge primarily reflects the following charges:\n\u2022\nSeverance charges of $25.8 million for the elimination of certain positions; \n\u2022\nImpairment charges of $12.7 million, which included the impairment of operating lease right-of-use (ROU) assets of $7.6 million related to certain leases that will be subleased, and the related property and equipment of $5.1 million;\n\u2022\nAcceleration of expense of $2.1 million, which included the acceleration of rent expense associated with operating lease ROU assets of $0.9 million related to certain leases that will be abandoned or terminated and the related depreciation and amortization of property and equipment of $1.2 million;\n\u2022\nOngoing facility-related costs with previously vacated properties that resulted in additional restructuring charges of $4.2 million; and\n\u2022\nConsulting, relocation and other costs of $4.1 million.\nThese actions are anticipated to yield annualized cost savings estimated to be approximately $70 million. We anticipate ongoing facility-related costs associated with certain properties to result in additional restructuring charges in future periods.\nSee Note 7, \u201cRestructuring and Related Charges (Credits)\u201d for more details on these charges.\nBusiness Optimization Program \nFor the years ended April 30, 2023 and 2022, we recorded pretax restructuring charges of $0.5 million and credits of $1.4 million, respectively, related to this program. \nThese charges (credits) are reflected in Restructuring and related charges (credits) in the Consolidated Statements of Income. See Note 7, \u201cRestructuring and Related Charges (Credits)\u201d for more details on these charges (credits).\nFor the impact of our restructuring programs on diluted earnings per share, see the section below, \u201cDiluted Earnings per Share (EPS).\u201d\n31\nIndex\nAmortization of Intangible Assets:\nAmortization of intangible assets was $84.9 million for the year ended April\u00a030, 2023, and was flat as compared to the prior year. On a constant currency basis, amortization of intangible assets increased 3% as compared with the prior year primarily due to the acceleration of expense of $4.6 million related to the discontinued use of the mthree trademark. \nOn January 1, 2020, Wiley acquired mthree, a talent placement provider that addresses the IT skills gap by finding, training, and placing job-ready technology talent in roles with leading corporations worldwide. Its results of operations are included in our Talent segment. In late May 2022, Wiley renamed the mthree talent development solution to Wiley Edge and discontinued use of the mthree trademark during the three months ended July 31, 2022. As a result of these actions, we determined that a revision of the useful life was warranted, and the intangible asset was fully amortized over its remaining useful life resulting in accelerated amortization expense of $4.6 million in the three months ended July 31, 2022.\nOperating Income, Adjusted Operating Income (OI) and Adjusted EBITDA:\nOperating income for the year ended April\u00a030, 2023, decreased $163.4\u00a0million, or 75% as compared with the prior year. On a constant currency basis, operating income decreased 76% as compared with the prior year. The decrease was \nprimarily due to the impairment of goodwill in the three months ended January 31, 2023 as described above, an increase in restructuring charges and, to a lesser extent, higher cost of sales.\nAdjusted OI on a constant currency basis and excluding restructuring charges (credits), impairment of goodwill, legal settlement, and the accelerated amortization of an intangible asset, decreased 3% as compared with the prior year primarily due to an increase in cost of sales as described above, partially offset by lower operating and administrative expenses.\nAdjusted EBITDA on a constant currency basis and excluding restructuring charges (credits), decreased 2% as compared with the prior year primarily due to a decrease in Adjusted OI.\nAdjusted OI\nBelow is a reconciliation of our consolidated US GAAP Operating Income to Non-GAAP Adjusted OI:\nYear Ended\nApril 30,\n2023\n2022\nOperating Income\n$\n55,890\u00a0\n$\n219,276\u00a0\nAdjustments:\nRestructuring charges (credits)\n49,389\u00a0\n(1,427)\nImpairment of goodwill\n99,800\u00a0\n\u2014\u00a0\nLegal settlement \n(1)\n3,671\u00a0\n\u2014\u00a0\nAccelerated amortization of an intangible asset\n (2)\n4,594\u00a0\n\u2014\u00a0\nNon-GAAP Adjusted Operating Income\n$\n213,344\u00a0\n$\n217,849\u00a0\n(1)\nWe settled a litigation matter related to consideration for a previous acquisition for $3.7 million during the three months ended January 31, 2023. This amount is reflected in Operating and administrative expenses on our  Consolidated Statements of Income.\n(2)\nAs described above, we determined that a revision of the useful life of the mthree trademark was warranted, and the intangible asset was fully amortized over its remaining useful life resulting in accelerated amortization expense of $4.6 million in the three months ended July 31, 2022.\n32\nIndex\nAdjusted EBITDA\nBelow is a reconciliation of our consolidated US GAAP Net Income to Non-GAAP EBITDA and Adjusted EBITDA:\nYear Ended\nApril 30, \n2023\n2022\nNet Income\n$\n17,233\u00a0\n$\n148,309\u00a0\nInterest expense\n37,745\u00a0\n19,802\u00a0\nProvision for income taxes\n15,867\u00a0\n61,352\u00a0\nDepreciation and amortization\n213,253\u00a0\n215,170\u00a0\nNon-GAAP EBITDA\n284,098\u00a0\n444,633\u00a0\nImpairment of goodwill\n99,800\u00a0\n\u2014\u00a0\nLegal settlement\n3,671\u00a0\n\u2014\u00a0\nRestructuring and related charges (credits)\n49,389\u00a0\n(1,427)\nForeign exchange (gains) losses on intercompany transactions, including the write off of certain cumulative translation adjustments\n(894)\n3,192\u00a0\nGain on sale of businesses and certain assets\n(10,177)\n(3,694)\nOther income, net\n(3,884)\n(9,685)\nNon-GAAP Adjusted EBITDA\n$\n422,003\u00a0\n$\n433,019\u00a0\nInterest Expense:\nInterest expense for the year ended April\u00a030, 2023, was $37.7 million compared with the prior year of $19.8 million. This increase was primarily due to a higher weighted average effective interest rate.\nForeign Exchange Transaction Gains (Losses):\nForeign exchange transaction gains were $0.9 million for the year ended April\u00a030, 2023, and were primarily due to the write off of the $1.1\u00a0million cumulative translation adjustment in earnings since the Russia entity was deemed substantially liquidated.  As described above, we were substantially complete with our exit from Russia as of \nApril\u00a030, 2023.\nForeign exchange transaction losses were $3.2 million for the year ended April\u00a030, 2022, and were primarily due to losses on our foreign currency denominated third-party and, to a lesser extent, intercompany accounts receivable and payable balances due to the impact of the change in average foreign exchange rates as compared to the US dollar.\nGain on Sale of Businesses and Certain Assets:\nThe pretax gain on sale of businesses for the year ended \nApril\u00a030, 2023, was $10.2 million. As part of our ongoing initiatives to simplify our portfolio and focus our attention on strategic growth areas, we have completed two dispositions during the year ended April 30, 2023. Both were included in our Academic segment. On February 28, 2023, we completed the sale of Wiley's Efficient Learning test prep portfolio business. In addition, on March 31, 2023, we completed the sale of our advancement courses business. Neither disposition constituted a strategic shift, and the impact on our overall operations and financial results was not material. Accordingly, the operations associated with the dispositions are not reported in discontinued operations.  See Note 4, \"Acquisitions and Divestitures\" for more details on these divestitures. \nThe gain on sale of certain assets for the year ended April\u00a030, 2022, was due to the sale of our world languages product portfolio which was included in our Academic segment and resulted in a pretax gain of approximately $3.7 million.\n33\nIndex\nOther Income, Net:\nOther income, net was $3.9 million for the year ended April\u00a030, 2023, a decrease of $5.8\u00a0million, or 60%, as compared with the prior year. On a constant currency basis, other income, net decreased 51%. This decrease was primarily due to \nlower pension income for our defined benefit plans,  partially offset by a decrease in donations and pledges to humanitarian organizations to provide aid to those impacted by the crisis in Ukraine, and a curtailment and settlement credit due to the wind up of the Russia pension plan of $1.8 million.\nProvision for Income Taxes:\nBelow is a reconciliation of our US GAAP Income Before Taxes to Non-GAAP Adjusted Income Before Taxes:\nYear Ended\nApril 30, \n2023\n2022\nUS GAAP Income Before Taxes\n$\n33,100\u00a0\n$\n209,661\u00a0\nPretax Impact of Adjustments:\nImpairment of goodwill \n99,800\u00a0\n\u2014\u00a0\nLegal settlement\n3,671\u00a0\n\u2014\u00a0\nPension income related to the wind up of the Russia plan\n(1,750)\n\u2014\u00a0\nRestructuring and related charges (credits)\n49,389\u00a0\n(1,427)\nForeign exchange losses on intercompany transactions, including the write off of certain cumulative translation adjustments\n457\u00a0\n1,513\u00a0\nAmortization of acquired intangible assets\n89,177\u00a0\n89,346\u00a0\nGain on sale of businesses and certain assets\n(10,177)\n(3,694)\nNon-GAAP Adjusted Income Before Taxes\n$\n263,667\u00a0\n$\n295,399\u00a0\nBelow is a reconciliation of our US GAAP Income Tax Provision to Non-GAAP Adjusted Income Tax Provision, including our US GAAP Effective Tax Rate and our Non-GAAP Adjusted Effective Tax Rate:\nYear Ended\nApril 30, \n2023\n2022\nUS GAAP Income Tax Provision\n$\n15,867\n$\n61,352\nIncome Tax Impact of Adjustments \n(1)\n:\nLegal settlement \n716\n\u2014\nPension income related to the wind up of the Russia plan\n(437)\n\u2014\nRestructuring and related charges (credits)\n12,151\n(260)\nForeign exchange losses on intercompany transactions, including the write off of certain cumulative translation adjustments\n132\n597\nAmortization of acquired intangible assets\n20,183\n20,816\nGain on sale of businesses and certain assets\n(3,860)\n(922)\nIncome Tax Adjustments\nImpact of increase in UK statutory rate on deferred tax balances \n(2)\n2,370\n(21,415)\nNon-GAAP Adjusted Income Tax Provision \n$\n47,122\n$\n60,168\nUS GAAP Effective Tax Rate\n47.9\u00a0\n%\n29.3\u00a0\n%\nNon-GAAP Adjusted Effective Tax Rate\n17.9\u00a0\n%\n20.4\u00a0\n%\n34\nIndex\n(1)\nFor the years ended April 30, 2023 and 2022, substantially all of the tax impact was from deferred taxes.\n(2)\nIn the three months ended July 31, 2021, the UK enacted legislation that increased its statutory rate from 19% to 25% effective April 1, 2023. This resulted in a $21.4 million non-cash deferred tax expense from the re-measurement of the Company\u2019s applicable UK net deferred tax liabilities during the three months ended July 31, 2021. These adjustments impacted deferred taxes.\u00a0For the year ended April 30, 2023, we recorded a $2.4 million non-cash deferred tax benefit related to pensions due to the UK statutory rate change. These adjustments impacted deferred taxes.\nThe effective tax rate was 47.9% for the year ended April\u00a030, 2023, compared to 29.3% for the year ended April\u00a030, 2022. Our rate for the year ended April\u00a030, 2023, was higher due to the rate differential with respect to certain restructuring charges, the impairment of non-deductible goodwill resulting from the segment realignment described in Note 11, \"Goodwill and Intangible Assets,\" offset by a benefit of $2.4 million relating to the effect of the increase in the UK statutory tax rate on UK pensions. On June 10, 2021, the UK increased its statutory corporate tax rate from 19% to 25% effective April 1, 2023. The 29.3% effective tax rate for the year ended April\u00a030, 2022, was increased by a similar $21.4 million nonrecurring, noncash US GAAP deferred tax expense relating to the UK statutory tax rate increase described above.\nExcluding the UK rate change, the tax implications of certain restructuring and related actions, and other unusual items, the Non-GAAP Adjusted Effective Tax Rate for the year ended April\u00a030, 2023, was 17.9%. The Non-GAAP Adjusted Effective Tax Rate for the year ended April\u00a030, 2022, excluding the impact of the UK statutory rate change, was 20.4%. The decrease in the Non-GAAP Adjusted Effective Tax Rate before these items was primarily due to a more favorable mix of earnings by jurisdiction for the year ended April\u00a030, 2023.\nDiluted Earnings Per Share (EPS):\nDiluted earnings per share for the year ended April\u00a030, 2023, was $0.31 per share compared to $2.62 per share in the prior year. This decrease was due to lower operating income and, to a lesser extent, higher interest expense and lower other income.  These were partially offset by a lower provision for income taxes and, to a lesser extent, an increase in the gain on sale of businesses and certain assets, and foreign exchange transaction gains.\nBelow is a reconciliation of our US GAAP EPS to Non-GAAP Adjusted EPS. The amount of the pretax and the related income tax impact for the adjustments included in the table below are presented in the section above, \u201cProvision for Income Taxes.\u201d\nYear Ended\nApril 30, \n2023\n2022\nUS GAAP EPS\n$\n0.31\u00a0\n$\n2.62\u00a0\nAdjustments:\nImpairment of goodwill \n1.77\u00a0\n\u2014\u00a0\nLegal settlement\n0.05\u00a0\n\u2014\u00a0\nPension income related to the wind up of the Russia plan\n(0.02)\n\u2014\u00a0\nRestructuring and related charges (credits)\n0.66\u00a0\n(0.02)\nForeign exchange losses on intercompany transactions, including the write off of certain cumulative translation adjustments\n0.01\u00a0\n0.02\u00a0\nAmortization of acquired intangible assets\n1.21\u00a0\n1.21\u00a0\nGain on sale of businesses and certain assets\n(0.11)\n(0.05)\nIncome tax adjustments\n(0.04)\n0.38\u00a0\nNon-GAAP Adjusted EPS\n$\n3.84\u00a0\n$\n4.16\u00a0\nOn a constant currency basis, Adjusted EPS decreased 8% primarily due to an increase in interest expense, lower pension income, and lower Adjusted OI.  These were partially offset by a lower provision for income taxes.\n35\nIndex\nSEGMENT OPERATING RESULTS:\nYear Ended\nApril 30, \n% Change \nFavorable \n(Unfavorable) \nConstant Currency\n% Change\nFavorable \n(Unfavorable) \nRESEARCH\n2023\n2022\nRevenue: \nResearch Publishing \n(1)\n$\n926,773\u00a0\n$\n963,715\u00a0\n(4)\n%\n(1)\n%\nResearch Solutions \n(1)\n153,538\u00a0\n147,628\u00a0\n4\u00a0\n%\n7\u00a0\n%\nTotal Research\n1,080,311\u00a0\n1,111,343\u00a0\n(3)\n%\n\u2014\u00a0\n%\nCost of Sales\n286,361\u00a0\n300,373\u00a0\n5\u00a0\n%\n2\u00a0\n%\nOperating Expenses\n463,731\u00a0\n468,012\u00a0\n1\u00a0\n%\n(4)\n%\nAmortization of Intangibles\n46,235\u00a0\n47,731\u00a0\n3\u00a0\n%\n(1)\n%\nRestructuring Charges (see Note 7)\n2,182\u00a0\n238\u00a0\n#\n#\nContribution to Profit \n281,802\u00a0\n294,989\u00a0\n(4)\n%\n(4)\n%\nRestructuring Charges (see Note 7)\n2,182\u00a0\n238\u00a0\n#\n#\nAdjusted Contribution to Profit\n283,984\u00a0\n295,227\u00a0\n(4)\n%\n(3)\n%\nDepreciation and Amortization\n93,008\u00a0\n94,899\u00a0\n2\u00a0\n%\n(1)\n%\nAdjusted EBITDA\n$\n376,992\u00a0\n$\n390,126\u00a0\n(3)\n%\n(2)\n%\nAdjusted EBITDA Margin\n34.9\u00a0\n%\n35.1\u00a0\n%\n# Not meaningful\n(1)\nAs previously announced in May 2022, our revenue by product type previously referred to as Research Platforms was changed to Research Solutions. Research Solutions includes infrastructure and publishing services that help societies and corporations thrive in a complex knowledge ecosystem. In addition to Platforms (Atypon), certain product offerings such as corporate sales which included the recent acquisitions of Madgex Holdings Limited (Madgex), and Bio-Rad Laboratories Inc.\u2019s Informatics products (Informatics) that were previously included in Research Publishing moved to Research Solutions to align with our strategic focus.  Research Solutions also includes product offerings related to certain recent acquisitions such as J&J, and EJP. Prior period results have been revised to the new presentation. There were no changes to the total Research segment or our consolidated financial results. The revenue reclassified was $93.3 million and $80.3 million for the years ended April 30, 2022 and 2021, respectively.\nRevenue:\nResearch revenue for the year ended April\u00a030, 2023 decreased $31.0 million, or 3%, as compared with the prior year. On a constant currency basis, revenue was flat as compared with the prior year. Excluding revenue from acquisitions, organic revenue decreased 1% on a constant currency basis. This decrease was primarily due to lower article volume in Research Publishing, notably in Hindawi, and to a lesser extent corporate spending headwinds in Research Solutions. Starting in the three months ended January 31, 2023, open access publishing was adversely impacted by the publishing pause in a Hindawi special issues program. The program was suspended temporarily due to the presence in certain special issues of compromised articles. As a result, Hindawi revenue for the year ended April 30, 2023 decreased $3.0 million on a constant currency basis as compared with the prior year. We have closed four Hindawi journals and retracted over 1,700 articles.  We expect a decrease in fiscal year 2024 revenue of $30 to $35 million due to this disruption. \nExcluding Hindawi, Wiley\u2019s Research revenue for the year ended April 30, 2023 on a constant currency basis was flat as compared with the prior year.  Open access article output was flat for the year ended April 30, 2023, as compared with the prior year. Excluding Hindawi, open access article output growth was approximately 6% for the year ended April 30, 2023.\n36\nIndex\nAdjusted EBITDA:\nOn a constant currency basis, Adjusted EBITDA decreased 2% as compared with the prior year. This decrease was primarily due to \ninvestments to optimize and scale publishing and solutions, \nhigher employment costs and, \nto a lesser extent, \ntravel and entertainment costs due to the resumption of in-person activities.  These were partially offset by lower royalty costs largely due to the product mix.  We expect a decrease in fiscal year 2024 Adjusted EBITDA of $25 to $30 million due to the Hindawi disruption as described above. \nYear Ended\nApril 30, \n% Change\nFavorable \n(Unfavorable) \nConstant Currency\n% Change Favorable\n(Unfavorable) \nACADEMIC:\n2023\n2022\nRevenue:\n\u00a0\n\u00a0\nAcademic Publishing\n$\n481,752\u00a0\n$\n531,705\u00a0\n(9)\n%\n(7)\n%\nUniversity Services\n208,656\u00a0\n227,407\u00a0\n(8)\n%\n(8)\n%\nTotal Academic Revenue \n690,408\u00a0\n759,112\u00a0\n(9)\n%\n(7)\n%\nCost of Sales\n286,647\u00a0\n309,220\u00a0\n7\u00a0\n%\n6\u00a0\n%\nOperating Expenses\n312,159\u00a0\n333,098\u00a0\n6\u00a0\n%\n4\u00a0\n%\nImpairment of Goodwill (see Note 11)\n99,800\u00a0\n\u2014\u00a0\n#\n#\nAmortization of Intangibles\n23,323\u00a0\n25,547\u00a0\n9\u00a0\n%\n9\u00a0\n%\nRestructuring Charges (Credits) (see Note 7)\n10,366\u00a0\n(470)\n#\n#\nContribution to Profit \n(41,887)\n91,717\u00a0\n#\n#\nRestructuring Charges (Credits) (see Note 7)\n10,366\u00a0\n(470)\n#\n#\nImpairment of Goodwill (see Note 11)\n99,800\u00a0\n\u2014\u00a0\n#\n#\nAdjusted Contribution to Profit\n68,279\u00a0\n91,247\u00a0\n(25)\n%\n(23)\n%\nDepreciation and Amortization\n79,741\u00a0\n81,721\u00a0\n2\u00a0\n%\n1\u00a0\n%\nAdjusted EBITDA\n$\n148,020\u00a0\n$\n172,968\u00a0\n(14)\n%\n(13)\n%\nAdjusted EBITDA Margin\n21.4\u00a0\n%\n22.8\u00a0\n%\n\u00a0\n\u00a0\n# Not meaningful\nRevenue:\nAcademic revenue decreased $68.7 million, or 9%, as compared with the prior year. On a constant currency basis, revenue decreased 7% as compared with prior year. Excluding revenue from acquisitions, organic revenue decreased 8% on a constant currency basis. This decrease was primarily due to a decrease in Academic Publishing due to a decline in print, partially offset by an increase in digital courseware. University Services revenue decreased primarily due to continued online enrollment challenges, and lower tuition share in services. For the year ended April 30, 2023, University Services experienced a 5% decline in online enrollment.\nAdjusted EBITDA:\nOn a constant currency basis, Adjusted EBITDA decreased 13% as compared with the prior year. This decrease was primarily due to lower revenues and, to a lesser extent, inflationary impacts on inventory, and higher technology and distribution costs.  These were partially offset by expense savings from restructuring activities, and lower annual incentive compensation.\n37\nIndex\nYear Ended\nApril 30, \n% Change\nFavorable\n(Unfavorable) \nConstant Currency\n% Change\nFavorable \n(Unfavorable) \nTALENT:\n2023\n2022\nTotal Talent Revenue \n$\n249,181\u00a0\n$\n212,473\u00a0\n17\u00a0\n%\n24\u00a0\n%\nCost of Sales\n119,533\u00a0\n91,065\u00a0\n(31)\n%\n(40)\n%\nOperating Expenses\n86,032\u00a0\n85,891\u00a0\n\u2014\u00a0\n%\n(5)\n%\nAmortization of Intangibles\n15,203\u00a0\n11,558\u00a0\n(32)\n%\n(35)\n%\nRestructuring Charges (see Note 7)\n3,009\u00a0\n23\u00a0\n#\n#\nContribution to Profit \n25,404\u00a0\n23,936\u00a0\n6\u00a0\n%\n10\u00a0\n%\nRestructuring Charges (see Note 7)\n3,009\u00a0\n23\u00a0\n#\n#\nAccelerated Amortization of an Intangible Asset\n4,594\u00a0\n\u2014\u00a0\n#\n#\nAdjusted Contribution to Profit\n33,007\u00a0\n23,959\u00a0\n38\u00a0\n%\n41\u00a0\n%\nDepreciation and Amortization\n19,448\u00a0\n21,997\u00a0\n12\u00a0\n%\n7\u00a0\n%\nAdjusted EBITDA\n$\n52,455\u00a0\n$\n45,956\u00a0\n14\u00a0\n%\n18\u00a0\n%\nAdjusted EBITDA Margin\n21.1\u00a0\n%\n21.6\u00a0\n%\n\u00a0\n# Not meaningful\nRevenue:\nTalent revenue increased $36.7 million, or 17%, as compared with the prior year on a reported basis. On a constant currency basis, revenue increased 24% as compared with prior year. This increase was primarily due to double-digit growth in placements and, to a lesser extent, an increase in assessments (corporate training), partially offset by a decrease in corporate learning. For the year ended April 30, 2023, we delivered approximately 18% growth in talent placements in talent development (Wiley Edge).\nAdjusted EBITDA:\nOn a constant currency basis, Adjusted EBITDA increased 18% as compared with the prior year. This was due to revenue, partially offset by increased inflationary impacts on placements, and investments to  scale talent development (Wiley Edge).\nCORPORATE EXPENSES: \nCorporate expenses for the year ended April\u00a030, 2023, increased $18.1\u00a0million, or 9%, as compared with the prior year. On a constant currency basis and excluding restructuring charges (credits) and a legal settlement, these expenses decreased 7% as compared with the prior year. On a constant currency basis, Adjusted EBITDA decreased 8% as compared with the prior year. This was primarily due to lower employee related costs, including lower annual incentive compensation for fiscal year 2023.\nFISCAL YEAR 2022 AS COMPARED TO FISCAL YEAR 2021 SUMMARY RESULTS\nRevenue:\nRevenue for the year ended April 30, 2022, increased $141.4 million, or 7%, as compared with the prior year on a reported and on a constant currency basis including contributions from acquisitions. Excluding the contributions from acquisitions, revenue increased 5% on a constant currency basis.\nSee the \u201cSegment Operating Results\u201d below for additional details on each segment\u2019s revenue and Adjusted EBITDA performance\n.\n38\nIndex\nCost of Sales:\nCost of sales for the year ended April 30, 2022, increased $75.3 million, or 12%, as compared with the prior year. On a constant currency basis, cost of sales increased 11% as compared with the prior year. This increase was primarily due to higher employee costs and, to a lesser extent, higher student acquisition costs in Academic and increased royalty costs in Research.\nOperating and Administrative Expenses:\nOperating and administrative expenses for the year ended April 30, 2022, increased $56.9 million, or 6%, as compared with the prior year. On a constant currency basis, operating and administrative expenses increased 5% as compared with the prior year primarily reflecting higher editorial costs due to additional resources to support investments in growth, technology costs to support growth initiatives, higher advertising and marketing costs and, to a lesser extent, higher employee-related costs.\nRestructuring and Related (Credits) Charges:\nFor the years ended April 30, 2022 and 2021, we recorded pretax restructuring credits of $1.4 million and charges of $33.3 million, respectively primarily related to our Business Optimization Program. \nIn November 2020, in response to the COVID-19 pandemic and the Company\u2019s successful transition to a virtual work environment, we increased use of virtual work arrangements for postpandemic operations. As a result, we expanded the scope of the Business Optimization Program to include the exit of certain leased office space beginning in the third quarter of fiscal year 2021, and the reduction of our occupancy at other facilities. We are reducing our real estate square footage occupancy by approximately 12%. These actions resulted in a pretax restructuring charge of $18.3 million in the year ended April 30, 2021.\nIn addition, we also incurred ongoing facility-related costs associated with certain properties that resulted in additional restructuring charges of $1.8 million and $3.7 million in the years ended April 30, 2022 and 2021, respectively.\nWe anticipate ongoing facility-related costs associated with certain properties to result in additional restructuring charges in future periods.\nThese (credits) charges are reflected in Restructuring and related (credits) charges in the Consolidated Statements of Income (Loss). See Note 7, \u201cRestructuring and Related (Credits) Charges\u201d for more details on these (credits) charges.\nFor the impact of our restructuring program on diluted earnings per share, see the section below, \u201cDiluted Earnings per Share (EPS).\u201d\nAmortization of Intangible Assets:\nAmortization of intangible assets was $84.8 million for the year ended April 30, 2022, an increase of $10.2 million, or 14%, as compared with the prior year. On a constant currency basis, amortization of intangible assets increased 13% as compared with the prior year primarily due to the intangibles acquired as part of the Hindawi acquisition completed in fiscal year 2021 and, to a lesser extent, other acquisitions completed in fiscal year 2022, partially offset by the completion of amortization of certain acquired intangible assets. See Note 4, \u201cAcquisitions and Divestitures\u201d for more details on our acquisitions.\nOperating Income, Adjusted Operating Income (OI) and Adjusted EBITDA:\nOperating income for the year ended April 30, 2022 increased $33.8 million, or 18% as compared with the prior year on a reported and on a constant currency basis. The increase was primarily due to the increase in revenue and, to a lesser extent, lower restructuring charges, partially offset by an increase in cost of sales and operating and administrative expenses.\n39\nIndex\nAdjusted OI on a constant currency basis and excluding restructuring (credits) charges decreased 1% as compared with the prior year primarily due to an increase in cost of sales, operating and administrative expenses and, to a lesser extent, amortization of intangible assets, partially offset by higher revenues as described above.\nAdjusted EBITDA on a constant currency basis and excluding restructuring (credits) charges, increased 3%, as compared with the prior year primarily due to revenue performance, partially offset by an increase in operating and administrative expenses, and cost of sales.\nAdjusted OI\nBelow is a reconciliation of our consolidated US GAAP Operating Income to Non-GAAP Adjusted OI:\nYear Ended\nApril 30,\n2022\n2021\nUS GAAP Operating Income\n$\n219,276\u00a0\n$\n185,511\u00a0\nAdjustments:\n\u00a0\n\u00a0\nRestructuring and related (credits) charges\n(1,427)\n33,310\u00a0\nNon-GAAP Adjusted OI\n$\n217,849\u00a0\n$\n218,821\u00a0\nAdjusted EBITDA\nBelow is a reconciliation of our consolidated US GAAP Net Income to Non-GAAP EBITDA and Adjusted EBITDA:\nYear Ended\nApril 30, \n2022\n2021\nNet Income\n$\n148,309\u00a0\n$\n148,256\u00a0\nInterest expense\n19,802\u00a0\n18,383\u00a0\nProvision for income taxes\n61,352\u00a0\n27,656\u00a0\nDepreciation and amortization\n215,170\u00a0\n200,189\u00a0\nNon-GAAP EBITDA\n444,633\u00a0\n394,484\u00a0\nRestructuring and related (credits) charges\n(1,427)\n33,310\u00a0\nForeign exchange transaction losses\n3,192\u00a0\n7,977\u00a0\nGain on sale of certain assets\n(3,694)\n\u2014\u00a0\nOther income, net\n(9,685)\n(16,761)\nNon-GAAP Adjusted EBITDA\n$\n433,019\u00a0\n$\n419,010\u00a0\nInterest Expense:\nInterest expense for the year ended April 30, 2022 was $19.8 million compared with the prior year of $18.4 million. This increase was due to a higher average debt balance outstanding, which included borrowings for the funding of acquisitions and, to a lesser extent, higher weighted average effective interest rate.\nForeign Exchange Transaction Losses:\nForeign exchange transaction losses were $3.2 million for the year ended April 30, 2022 and were primarily due to losses on our foreign currency denominated third-party and, to a lesser extent, intercompany accounts receivable and payable balances due to the impact of the change in average foreign exchange rates as compared to the US dollar.\n40\nIndex\nForeign exchange transaction losses were $8.0 million for the year ended April 30, 2021 and were due to the unfavorable impact of the changes in exchange rates on US dollar cash balances held in the UK to fund the acquisition of Hindawi and the net impact of changes in average foreign exchange rates as compared to the US dollar on our third-party accounts receivable and payable balances.\nGain on Sale of Certain Assets:\nThe gain on the sale of certain assets is due to the sale of our world languages product portfolio which was included in our Academic segment and resulted in a pretax gain of approximately $3.7 million during the year ended April 30, 2022.\nOther Income, Net:\nOther income, net was $9.7 million for the year ended April 30, 2022, a decrease of $7.1 million, or 42%, as compared with the prior year. This decrease was primarily due to $3 million in donations and pledges made in the year ended April 30, 2022 to humanitarian organizations to provide aid to those impacted by the crisis in Ukraine.\nProvision for Income Taxes:\nBelow is a reconciliation of our US GAAP Income Before Taxes to Non-GAAP Adjusted Income Before Taxes:\nYear Ended\nApril 30, \n2022\n2021\nUS GAAP Income Before Taxes\n$\n209,661\u00a0\n$\n175,912\u00a0\nPretax Impact of Adjustments:\n\u00a0\n\u00a0\nRestructuring and related (credits) charges\n(1,427)\n33,310\u00a0\nForeign exchange losses (gains) on intercompany transactions\n1,513\u00a0\n(1,457)\nAmortization of acquired intangible assets\n89,346\u00a0\n79,421\u00a0\nGain on sale of certain assets\n(3,694)\n\u2014\u00a0\nNon-GAAP Adjusted Income Before Taxes\n$\n295,399\u00a0\n$\n287,186\u00a0\nBelow is a reconciliation of our US GAAP Income Tax Provision to Non-GAAP Adjusted Income Tax Provision, including our US GAAP Effective Tax Rate and our Non-GAAP Adjusted Effective Tax Rate:\nYear Ended\nApril 30, \n2022\n2021\nUS GAAP Income Tax Provision\n$\n61,352\n$\n27,656\nIncome Tax Impact of Adjustments\n(1)\n:\n\u00a0\n\u00a0\nRestructuring and related (credits) charges\n(260)\n8,065\nForeign exchange losses (gains) on intercompany transactions\n597\n(363)\nAmortization of acquired intangible assets\n20,816\n18,511\nGain on sale of certain assets\n(922)\n\u2014\nIncome Tax Adjustments:\n\u00a0\n\u00a0\nImpact of increase in UK statutory rate on deferred tax balances\n(2)\n(21,415)\n(3,511)\nImpact of US CARES Act\n(3)\n\u2014\n13,998\nImpact of change in certain US state tax rates in 2021\n(2)\n\u2014\n(3,225)\nNon-GAAP Adjusted Income Tax Provision\n$\n60,168\n$\n61,131\n\u00a0\n\u00a0\nUS GAAP Effective Tax Rate\n29.3\u00a0\n%\n15.7\u00a0\n%\nNon-GAAP Adjusted Effective Tax Rate\n20.4\u00a0\n%\n21.3\u00a0\n%\n41\nIndex\n(1)\nFor the year ended April 30, 2022, substantially all of the tax impact was from deferred taxes. For the year ended April 30, 2021, except for the $8.4 million current tax impact from the US CARES Act noted below, substantially all of the tax impact was from deferred taxes.\n(2)\nThese adjustments impacted deferred taxes in the years ended April 30, 2022 and 2021.\n(3)\nThe tax impact was $8.4 million from current taxes and $5.6 million from deferred taxes in the year ended April 30, 2021.\nThe effective tax rate was 29.3% for the year ended April 30, 2022, compared to 15.7% for the year ended April 30, 2021. Our effective tax rate for the year ended April 30, 2022, was increased by $21.4 million due to an increase in the UK statutory rate during the three months ended July 31, 2021. On June 10, 2021, the UK announced an increase to its statutory corporate income tax rate from 19% to 25% effective April 1, 2023, resulting in this nonrecurring, noncash US GAAP deferred tax expense. The 15.7% tax expense rate for the year ended April 30, 2021, benefited by $14.0 million from provisions in the Coronavirus Aid Relief and Economic Security Act (the CARES Act) and certain regulations issued in late July 2020, which enabled us to carry certain net operating losses back to a year with a higher statutory tax rate.\nExcluding the expense from the UK rate change, the Non-GAAP Adjusted Effective Tax Rate for the year ended April 30, 2022, was 20.4%. The Non-GAAP Adjusted Effective Tax Rate for the year ended April 30, 2021, excluding the impact of the UK statutory rate change, the CARES Act, and state tax expense from rate changes, was 21.3%. The Non-GAAP Adjusted Effective Tax Rate before these items decreased because the year ended April 30, 2021, included US state tax expenses from our expanded presence due to employees working in additional locations given the COVID-19 pandemic.\nDiluted Earnings Per Share (EPS):\nDiluted earnings per share for the year ended April 30, 2022 was $2.62 per share compared to $2.63 per share in the prior year. This decrease was due to a higher weighted average number of common shares outstanding in the year ended April 30, 2022 as net income was flat compared to the year ended April 30, 2021. Net income was flat as higher operating income and, to a lesser extent, lower foreign exchange losses and the gain on sale of certain assets were offset by higher provision for income taxes and, to a lesser extent, lower other income, net.\nBelow is a reconciliation of our US GAAP EPS to Non-GAAP Adjusted EPS. The amount of the pretax and the related income tax impact for the adjustments included in the table below are presented in the section above, \u201cProvision for Income Taxes.\u201d\nYear Ended\nApril 30, \n2022\n2021\nUS GAAP EPS\n$\n2.62\u00a0\n$\n2.63\u00a0\nAdjustments:\n\u00a0\n\u00a0\nRestructuring and related (credits) charges\n(0.02)\n0.44\u00a0\nForeign exchange losses (gains) on intercompany transactions\n0.02\u00a0\n(0.02)\nAmortization of acquired intangible assets\n1.21\u00a0\n1.08\u00a0\nGain on sale of certain assets\n(0.05)\n\u2014\u00a0\nIncome tax adjustments\n0.38\u00a0\n(0.13)\nNon-GAAP Adjusted EPS\n$\n4.16\u00a0\n$\n4.00\u00a0\nOn a constant currency basis, Adjusted EPS increased 1% primarily due to a lower Non-GAAP Adjusted Effective Tax Rate, partially offset by lower Other income, net and, to a lesser extent, lower Adjusted OI.\n42\nIndex\nSEGMENT OPERATING RESULTS:\nYear Ended\nApril 30, \n% Change \nFavorable \n(Unfavorable) \nConstant Currency\n% Change\nFavorable \n(Unfavorable) \nRESEARCH:\n2022\n2021\nRevenue:\nResearch Publishing \n(1)\n$\n963,715\u00a0\n$\n892,176\u00a0\n8\u00a0\n%\n8\u00a0\n%\nResearch Solutions \n(1)\n147,628\u00a0\n123,173\u00a0\n20\u00a0\n%\n20\u00a0\n%\nTotal Research Revenue\n1,111,343\u00a0\n1,015,349\u00a0\n9\u00a0\n%\n9\u00a0\n%\nCost of Sales\n300,373\u00a0\n275,377\u00a0\n(9)\n%\n(8)\n%\nOperating Expenses\n468,012\u00a0\n429,916\u00a0\n(9)\n%\n(9)\n%\nAmortization of Intangible Assets\n47,731\u00a0\n37,033\u00a0\n(29)\n%\n(28)\n%\nRestructuring Charges (Credits) (see Note 7)\n238\u00a0\n(36)\n#\n#\nContribution to Profit\n294,989\u00a0\n273,059\u00a0\n8\u00a0\n%\n9\u00a0\n%\nRestructuring Charges (Credits) (see Note 7)\n238\u00a0\n(36)\n#\n#\nAdjusted Contribution to Profit\n295,227\u00a0\n273,023\u00a0\n8\u00a0\n%\n9\u00a0\n%\nDepreciation and Amortization\n94,899\u00a0\n83,866\u00a0\n(13)\n%\n(13)\n%\nAdjusted EBITDA\n$\n390,126\u00a0\n$\n356,889\u00a0\n9\u00a0\n%\n10\u00a0\n%\nAdjusted EBITDA Margin\n35.1\u00a0\n%\n35.1\u00a0\n%\n# Not meaningful\n(1)\nAs previously announced in May 2022, our revenue by product type previously referred to as Research Platforms was changed to Research Solutions. Research Solutions includes infrastructure and publishing services that help societies and corporations thrive in a complex knowledge ecosystem. In addition to Platforms (Atypon), certain product offerings such as corporate sales which included the recent acquisitions of Madgex Holdings Limited (Madgex), and Bio-Rad Laboratories Inc.\u2019s Informatics products (Informatics) that were previously included in Research Publishing moved to Research Solutions to align with our strategic focus. Research Solutions also includes product offerings related to certain recent acquisitions such as J&J, and EJP. Prior period results have been revised to the new presentation. There were no changes to the total Research segment or our consolidated financial results. The revenue reclassified was $93.3 million and $80.3 million for the years ended April 30, 2022 and 2021, respectively.\nRevenue:\nResearch revenue for the year ended April 30, 2022 increased $96.0 million, or 9%, as compared with the prior year on a reported and constant currency basis. Excluding revenue from acquisitions, organic revenue increased 5% on a constant currency basis. This increase was primarily due to an increase in publishing and, to a lesser extent corporate solutions. Research Publishing has continued growth due to Transformational Agreements (read and publish). Excluding the impact from acquisitions, Open Access article output growth was approximately 27% for the year ended April 30, 2022 as compared with the prior year.\nAdjusted EBITDA:\nOn a constant currency basis, Adjusted EBITDA increased 10% as compared with the prior year. This increase was primarily due to higher revenue, partially offset by higher editorial costs due to additional resources to support investments in growth, which includes the impact of the acquisition of Hindawi and, to a lesser extent, higher cost of sales including the incremental impact of acquisitions, technology, and sales-related costs.\n43\nIndex\nYear Ended\nApril 30, \n% Change\nFavorable \n(Unfavorable) \nConstant Currency\n% Change Favorable\n(Unfavorable) \nACADEMIC:\n2022\n2021\nRevenue:\n\u00a0\n\u00a0\nAcademic Publishing\n$\n531,705\u00a0\n$\n538,643\u00a0\n(1)\n%\n(2)\n%\nUniversity Services\n227,407\u00a0\n230,371\u00a0\n(1)\n%\n(1)\n%\nTotal Academic Revenue\n759,112\u00a0\n769,014\u00a0\n(1)\n%\n(2)\n%\nCost of Sales\n309,220\u00a0\n294,365\u00a0\n(5)\n%\n(5)\n%\nOperating Expenses\n333,098\u00a0\n333,858\u00a0\n\u2014\u00a0\n%\n1\u00a0\n%\nAmortization of Intangible Assets\n25,547\u00a0\n23,786\u00a0\n(7)\n%\n(7)\n%\nRestructuring (Credits) Charges (see Note 7)\n(470)\n3,457\u00a0\n#\n#\nContribution to Profit\n91,717\u00a0\n113,548\u00a0\n(19)\n%\n(20)\n%\nRestructuring (Credits) Charges (see Note 7)\n(470)\n3,457\u00a0\n#\n#\nAdjusted Contribution to Profit\n91,247\u00a0\n117,005\u00a0\n(22)\n%\n(23)\n%\nDepreciation and Amortization\n81,721\u00a0\n77,823\u00a0\n(5)\n%\n(5)\n%\nAdjusted EBITDA\n$\n172,968\u00a0\n$\n194,828\u00a0\n(11)\n%\n(12)\n%\nAdjusted EBITDA Margin\n22.8\u00a0\n%\n25.3\u00a0\n%\n\u00a0\n\u00a0\n# Not meaningful\nRevenue:\nAcademic revenue decreased $9.9 million, or 1%, as compared with the prior year on a reported basis. On a constant currency basis, revenue decreased 2% as compared with prior year. Excluding revenue from acquisitions, organic revenue decreased 2% on a constant currency basis. This decrease was due to Academic Publishing due to a decrease in education publishing due to lower US college enrollment and some easing of prior year COVID-19-related favorability for courseware and content and, to a lesser extent, test preparation.  This was partially offset by an increase in professional publishing. This decrease was also due University Services due to a decrease in student enrollments. For the year ended April 30, 2022, University Services experienced an 8% decrease in online enrollment.\nAdjusted EBITDA:\nOn a constant currency basis, Adjusted EBITDA decreased 12% as compared with the prior year. This decrease was due to lower revenue, higher student acquisition costs in University Services, and higher print product costs. This was partially offset by lower operating expenses. \n44\nIndex\nYear Ended\nApril 30, \n% Change\nFavorable\n(Unfavorable) \nConstant Currency\n% Change\nFavorable \n(Unfavorable) \nTALENT:\n2022\n2021\nTotal Talent Revenue\n$\n212,473\u00a0\n$\n157,138\u00a0\n35\u00a0\n%\n35\u00a0\n%\nCost of Sales\n91,065\u00a0\n55,593\u00a0\n(64)\n%\n(63)\n%\nOperating Expenses\n85,891\u00a0\n91,833\u00a0\n6\u00a0\n%\n6\u00a0\n%\nAmortization of Intangible Assets\n11,558\u00a0\n13,866\u00a0\n17\u00a0\n%\n17\u00a0\n%\nRestructuring Charges (see Note 7)\n23\u00a0\n577\u00a0\n(96)\n%\n(96)\n%\nContribution to Profit\n23,936\u00a0\n(4,731)\n#\n#\nRestructuring Charges (see Note 7)\n23\u00a0\n577\u00a0\n(96)\n%\n(96)\n%\nAdjusted Contribution to Profit\n23,959\u00a0\n(4,154)\n#\n#\nDepreciation and Amortization\n21,997\u00a0\n23,828\u00a0\n8\u00a0\n%\n7\u00a0\n%\nAdjusted EBITDA\n$\n45,956\u00a0\n$\n19,674\u00a0\n#\n#\nAdjusted EBITDA Margin\n21.6\u00a0\n%\n12.5\u00a0\n%\n\u00a0\n# Not meaningful\nRevenue:\nTalent revenue increased $55.3\u00a0million, or 35%, as compared with the prior year on a reported and constant currency basis. This increase was primarily due to an increase in placements in talent development (Wiley Edge) and, to a lesser extent, driven by a strong recovery in assessments (corporate training) from prior year COVID-19 lockdown impacts. For the year ended April 30, 2022, we delivered approximately 112% growth in IT talent placements in talent development (Wiley Edge).\nAdjusted EBITDA:\nOn a constant currency basis, Adjusted EBITDA increased $26.3\u00a0million as compared with the prior year. This was due to an increase in revenue, partially offset by higher employee-related costs due to increased investments to accelerate growth in talent development (Wiley Edge).\nCORPORATE EXPENSES:\nCorporate expenses for the year ended April 30, 2022 decreased $5.0 million, or 3%, as compared with the prior year. On a constant currency basis and excluding restructuring (credits) charges, these expenses increased 16% as compared with the prior year. This was primarily due to higher employee-related costs, marketing costs and, to a lesser extent, technology-related spending.\n45\nIndex\nFISCAL YEAR 2024 TRANSITION YEAR OUTLOOK\nWiley has announced strategic actions that will focus Wiley on its strongest and most profitable businesses and large market opportunities in Research and Learning. We are divesting non-core education businesses, including University Services (known as online program management), Wiley Edge (formerly Talent Development) and CrossKnowledge.  These assets will be reported as businesses held for sale starting in the first quarter of fiscal year 2024. We will be streamlining our organization and rightsizing our cost structure to reflect these portfolio actions. The benefits of these actions will be realized in fiscal year 2025 and fiscal year 2026. \nWiley\u2019s fiscal year 2024 outlook excludes businesses held for sale: University Services, Wiley Edge (Talent Development), and CrossKnowledge, as well as those businesses sold in fiscal year 2023 (test prep and advancement courses).  Collectively, these businesses generated $393 million of revenue (19% of our consolidated revenue) and $43 million of Adjusted EBITDA (10% of our consolidated Adjusted EBITDA) in fiscal year 2023. \nWiley\u2019s go-forward reporting structure will consist of two reportable segments: (1) Research and (2) Learning, as well as a Corporate expense category (no change), which includes certain costs that are not allocated to the reportable segments.  Research is unchanged with reporting lines of Research Publishing and Research Solutions. Learning will include reporting lines of Academic (education publishing) and Professional (professional publishing and assessments). Wiley will begin to report on this structure in the first quarter of fiscal year 2024.      \n(amounts in millions, except Adjusted EPS)\nMetric\nFiscal Year 2023 \nAll Company\nFiscal Year 2023\nEx-Divestitures\nFiscal Year 2024 Outlook \nEx-Divestitures\nAdjusted Revenue \n(1)\n$2,020\n$1,627\n$1,580 to $1,630\nResearch\n$1,080\nFlat (+3% ex-Hindawi)\nLearning\n$547\nDown low single digits\nAdjusted EBITDA \n(1)\n$422\n$379\n$305 to $330\nAdjusted EPS \n(1)\n$3.84\n$3.48\n$2.05 to $2.40\n(1)\nWiley\u2019s fiscal year 2024 outlook (\u201cAdjusted Revenue,\u201d \u201cAdjusted EBITDA,\u201d and \u201cAdjusted EPS\u201d) exclude businesses held for sale, including University Services, Wiley Edge (formerly Talent Development), and CrossKnowledge, as well as those sold in fiscal year 2023, Test Prep and Advancement Courses.  \nFiscal Year 2024 Transition Year Outlook\n\u2022\nAdjusted Revenue\n \u2013 Projected year-over-year performance excluding divestitures primarily due to the Hindawi special issues publishing pause and continued softness in consumer and corporate spending. Research revenue is expected to be flat. Excluding Hindawi, our base business is anticipated to grow 3% driven by open access and solutions. In Learning, we are anticipating a low-single decline. We expect steadier market conditions in professional publishing than we saw in fiscal year 2023, but enrollment and print demand remain constrained in higher education, offsetting a modest growth expectation in our professional line. Note, this is a new metric defined as revenue adjusted to exclude businesses held for sale or sold.  \n\u2022\nAdjusted EBITDA\n \u2013 Projected year-over-year decline excluding divestitures primarily due to projected revenue performance, notably Hindawi, particularly in the first half of the year, and to a lesser extent the Learning revenue decline. Other contributors include higher employment costs, notably a standard reset of incentive compensation after fiscal year 2023 underperformance ($30 million of Adjusted EBITDA impact) and wage inflation ($20 million of Adjusted EBITDA impact). Wiley is implementing its multi-year business optimization program by expanding its scope to drive operating efficiency and modernization while reducing corporate overhead.  Wiley\u2019s Adjusted EBITDA margin for its go-forward business is projected to be 19-20%, down from 23.3% in fiscal year 2023. The Company expects to more than recover its fiscal 2023 margin of 23.3% as it exits fiscal year 2024 and progress from there in fiscal year 2025 and fiscal year 2026. \n\u2022\nAdjusted EPS\n \u2013 Projected year-over-year decline excluding divestitures due to lower projected Adjusted EBITDA, and further impacted by $0.42 of non-operational items including a higher tax rate (-$0.21/share), pension expense (-$0.11/share), and interest expense (-$0.10/share). Our Adjusted Effective Tax Rate is expected to rise from 17.9% in fiscal year 2023 to approximately 25% in fiscal year 2024.  Wiley\u2019s higher tax rate is primarily due to a less favorable mix of earnings by country and an increase in the UK statutory rate. Wiley froze its US and UK pension programs in 2015, and they are approximately 90% funded.\n46\nIndex\nWiley is not providing a Free Cash Flow outlook due to the uncertainty around both the timing of divestitures and the size and scope of restructuring payments.\nIn August 2022, the White House Office of Science and Technology Policy (OSTP) issued guidance for US federal agencies to make federally funded research freely available starting no later than December 31, 2025, without an embargo. For reference, approximately 10% of Wiley\u2019s published articles today are funded by US federal departments impacted by this guidance, and approximately 27% of those articles are already open access. Wiley has been working for several years with the OSTP and other stakeholders around the world to support the orderly transition to open research. This new guidance is aligned with Wiley\u2019s stated strategy and mission and is supported by the growth the Company is seeing in open research publishing. Wiley supports multiple publishing models to execute against the industry\u2019s shared objective of unlocking access to scientific research and improving the efficiency of peer review and publication. Those models include journal subscriptions (\u201cpay to read\u201d), transformational agreements (\u201cpay to read and publish\u201d), and open access (\u201cpay to publish\u201d). In the past three years, our open access revenues, including from transformational agreements, have increased from less than 9% of total Research Publishing revenues to approximately 32% today. Based on our assessment of the guidance, we do not believe it will have a material financial impact on our Company.\nLIQUIDITY AND CAPITAL RESOURCES:\nPrincipal Sources of Liquidity\nWe believe that our operating cash flow, together with our revolving credit facilities and other available debt financing, will be adequate to meet our operating, investing, and financing needs in the foreseeable future. Operating cash flow provides the primary source of cash to fund operating needs and capital expenditures. Excess operating cash is used to fund shareholder dividends. Other discretionary uses of cash flow include share repurchases and acquisitions to complement our portfolio of businesses. As necessary, we may supplement operating cash flow with debt to fund these activities. The overall cash position of the Company reflects our durable business results and a global cash management strategy that considers liquidity management, economic factors and tax considerations. Our cash and cash equivalents are maintained at a number of financial institutions. To mitigate the risk of uninsured balances, we select financial institutions based on their credit ratings and financial strength, and we perform ongoing evaluations of these institutions to limit our concentration risk exposure to any financial institution.\nAs of April\u00a030, 2023, we had cash and cash equivalents of $106.7 million, of which approximately $104.6 million, or 98%, was located outside the US. Maintenance of these cash and cash equivalent balances outside the US does not have a material impact on the liquidity or capital resources of our operations. We intend to repatriate earnings from our non-US subsidiaries, and to the extent we repatriate these funds to the US, we will be required to pay income taxes in various US state and local jurisdictions and applicable non-US withholding or similar taxes in the periods in which such repatriation occurs. Accordingly, as of April\u00a030, 2023, we have recorded an approximately $2.8 million deferred tax liability related to the estimated taxes that would be incurred upon repatriating certain non-US earnings to the US.\nOn November 30, 2022, we entered into the second amendment to the Third Amended and Restated Credit Agreement (collectively, the Amended and Restated CA). See Note 14, \u201cDebt and Available Credit Facilities\u201d for more details on the amendment. The Amended and Restated CA provided for senior unsecured credit facilities comprised of a (i) five-year revolving credit facility in an aggregate principal amount up to $1.115\u00a0billion, (ii) a five-year term loan A facility consisting of $200\u00a0million, and (iii) $185\u00a0million aggregate principal amount revolving credit facility through May 2024. \n47\nIndex\nAs of April\u00a030, 2023, we had approximately $748.3 million of debt outstanding, net of unamortized issuance costs of $0.7 million, and approximately $749.5 million of unused borrowing capacity under our Amended and Restated CA and other facilities. Our Amended and Restated CA contains certain restrictive covenants related to our consolidated leverage ratio and interest coverage ratio, which we were in compliance with as of April\u00a030, 2023.\nContractual Obligations and Commercial Commitments\nA summary of contractual obligations and commercial commitments, excluding unrecognized tax benefits further described in Note 13, \u201cIncome Taxes,\u201d of the Notes to Consolidated Financial Statements\n,\n as of April\u00a030, 2023 is as follows:\nPayments Due by Period\n(in millions)\nTotal\nWithin\nYear 1\n2\u20133\nYears\n4\u20135\nYears\nAfter 5\nYears\nTotal debt\n(1)\n$\n749.0\u00a0\n$\n5.0\u00a0\n$\n35.0\u00a0\n$\n709.0\u00a0\n$\n\u2014\u00a0\nInterest on debt\n(2)\n164.3\u00a0\n33.9\u00a0\n74.4\u00a0\n56.0\u00a0\n\u2014\u00a0\nNon-cancellable leases\n171.5\u00a0\n26.5\u00a0\n48.5\u00a0\n32.3\u00a0\n64.2\u00a0\nMinimum royalty obligations\n385.5\u00a0\n98.1\u00a0\n147.5\u00a0\n93.6\u00a0\n46.3\u00a0\nOther operating commitments\n85.2\u00a0\n51.4\u00a0\n33.7\u00a0\n0.1\u00a0\n\u2014\u00a0\nTotal\n$\n1,555.5\u00a0\n$\n214.9\u00a0\n$\n339.1\u00a0\n$\n891.0\u00a0\n$\n110.5\u00a0\n(1)\nTotal debt is exclusive of unamortized issuance costs of $0.7 million.\n(2)\nInterest on debt includes the effect of our interest rate swap agreements and the estimated future interest payments on our unhedged variable rate debt, assuming that the interest rates as of April\u00a030, 2023 remain constant until the maturity of the debt.\nAnalysis of Historical Cash Flow\nThe following table shows the changes in our Consolidated Statements of Cash Flows:\nYears Ended April 30, \n2023\n2022\n2021\nNet cash provided by operating activities\n$\n277,071\u00a0\n$\n339,100\u00a0\n$\n359,923\u00a0\nNet cash used in investing activities\n(98,398)\n(194,024)\n(433,154)\nNet cash used in financing activities\n(168,568)\n(131,638)\n(47,086)\nEffect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash\n$\n(3,570)\n$\n(7,070)\n$\n11,629\u00a0\nCash flow from operations is seasonally a use of cash in the first half of Wiley\u2019s fiscal year principally due to the timing of collections for annual journal subscriptions, which typically occurs in the beginning of the second half of our fiscal year.\nFree cash flow less product development spending helps assess our ability, over the long term, to create value for our shareholders, as it represents cash available to repay debt, pay common dividends, and fund share repurchases, and acquisitions. Below are the details of Free cash flow less product development spending.\n48\nIndex\nFree Cash Flow Less Product Development Spending:\nYears Ended April 30,\n2023\n2022\n2021\nNet cash provided by operating activities\n$\n277,071\u00a0\n$\n339,100\u00a0\n$\n359,923\u00a0\nLess: Additions to technology, property and equipment\n(81,155)\n(88,843)\n(77,407)\nLess: Product development spending\n(22,958)\n(27,015)\n(25,954)\nFree cash flow less product development spending\n$\n172,958\u00a0\n$\n223,242\u00a0\n$\n256,562\u00a0\nNet Cash Provided By Operating Activities\n2023 compared to 2022\nThe following is a summary of the $62.0\u00a0million change in Net cash provided by operating activities for the year ended April\u00a030, 2023, as compared with the year ended April\u00a030, 2022 (amounts in millions).\nNet cash provided by operating activities \u2013 Year ended April\u00a030, 2022\n$\n339.1\u00a0\nNet income adjusted for items to reconcile net income to net cash provided by operating activities, which would include such noncash items as depreciation and amortization, impairment of goodwill, restructuring and related charges (credits), and the change in deferred taxes\n(27.8)\nWorking capital changes:\nAccounts receivable, net and contract liabilities \n6.6\u00a0\nAccounts payable and accrued royalties\n6.5\u00a0\nChanges in other assets and liabilities\n(47.3)\nNet cash provided by operating activities \u2013 Year ended April\u00a030, 2023\n$\n277.1\u00a0\nThe favorable change in accounts receivable, net and contract liabilities was primarily due to the timing of collections and billings with customers. \nThe favorable change in accounts payable and accrued royalties was due to the timing of payments.\nThe unfavorable changes in other assets and liabilities noted in the table above was primarily due to higher restructuring payments in fiscal year 2023, and lower employee related costs due to lower annual incentive compensation for fiscal year 2023.\nOur negative working capital (current assets less current liabilities) was $354.3 million and $418.6 million as of April\u00a030, 2023 and April\u00a030, 2022, respectively. The primary driver of the negative working capital is the benefit realized from unearned contract liabilities related to subscriptions for which cash has been collected in advance. The contract liabilities will be recognized as income when the products are shipped or made available online to the customers over the term of the subscription. Current liabilities as of April\u00a030, 2023 and as of April\u00a030, 2022 include contract liabilities of $504.7 million and $538.1 million, respectively, primarily related to deferred subscription revenue for which cash was collected in advance.\nCash collected in advance for subscriptions is used by us for a number of purposes, including funding operations, capital expenditures, acquisitions, debt repayments, dividend payments, and share repurchases.\n2022 compared to 2021\nThe following is a summary of the $20.8\u00a0million change in Net cash provided by operating activities for the year ended April 30, 2022 as compared with the year ended April 30, 2021 (amounts in millions).\n49\nIndex\nNet cash provided by operating activities \u2013 Year ended April 30, 2021\n$\n359.9\u00a0\nNet income adjusted for items to reconcile net income to net cash provided by operating activities, which would include such noncash items as depreciation and amortization and the change in deferred taxes\n(16.3)\nWorking capital changes:\nAccounts payable and accrued royalties\n47.5\u00a0\nAccounts receivable, net and contract liabilities\n(23.3)\nChanges in other assets and liabilities\n(28.7)\nNet cash provided by operating activities \u2013 Year ended April 30, 2022\n$\n339.1\u00a0\nThe favorable change in accounts payable and accrued royalties was due to the timing of payments.\nThe unfavorable change in accounts receivable, net and contract liabilities was primarily the result of sales growth, as well as the timing of billings and collections with customers.\nThe unfavorable changes in other assets and liabilities noted in the table above was primarily due to an increase in employee-related costs, including payments due to higher annual incentive compensation payments in fiscal year 2022, partially offset by a favorable change in income taxes, and a decrease in restructuring payments.\nOur negative working capital (current assets less current liabilities) was $418.6 million and $462.7 million as of April 30, 2022 and April 30, 2021, respectively. The primary driver of the negative working capital is the benefit realized from unearned contract liabilities related to subscriptions for which cash has been collected in advance. The contract liabilities will be recognized as income when the products are shipped or made available online to the customers over the term of the subscription. Current liabilities as of April 30, 2022 and as of April 30, 2021 include contract liabilities of $538.1 million and $545.4 million, respectively, primarily related to deferred subscription revenue for which cash was collected in advance.\nCash collected in advance for subscriptions is used by us for a number of purposes, including funding operations, capital expenditures, acquisitions, debt repayments, dividend payments, and share repurchases.\nNet Cash Used In Investing Activities\n2023 Compared to 2022\nNet cash used in investing activities in the year ended April\u00a030, 2023 was $98.4 million compared to $194.0 million in the prior year. The decrease in cash used in investing activities was primarily due to a decrease of $68.4 million in cash used to acquire businesses. Additionally, cash proceeds related to the sale of businesses and certain assets increased $12.2 million.  See Note 4, \u201cAcquisitions and Divestitures\u201d for more information related to the acquisitions and divestitures that occurred in the years ended April\u00a030, 2023 and 2022. For additions of technology, property, and equipment and product development spending decreased $7.7 million  and $4.1 million, respectively. \n2022 Compared to 2021\nNet cash used in investing activities in the year ended April 30, 2022 was $194.0 million compared to $433.2 million in the prior year. The decrease in cash used in investing activities was due to a decrease of $224.2 million in cash used to acquire businesses. See Note 4, \u201cAcquisitions and Divestitures\u201d for more information related to the acquisitions that occurred in the years ended April 30, 2022 and 2021. Additionally, cash outflows for the acquisitions of publication rights and other activities decreased $24.0 million. This was partially offset by an increase of $11.4 million for additions of technology, property, and equipment.\n50\nIndex\nNet Cash Used In Financing Activities\n2023 Compared to 2022\nNet cash used in financing activities in the year ended April\u00a030, 2023 was $168.6 million compared to $131.6 million in the year ended April\u00a030, 2022. This change was primarily due to an increase in net debt repayments of $27.9 million and, to a lesser extent, a $5.0 million increase in cash used for purchases of treasury shares, and $4.5 million of cash used for costs related to the second amendment of the Amended and Restated CA.\n2022 Compared to 2021\nNet cash used in financing activities was $131.6 million in the year ended April 30, 2022 compared to net cash used of $47.1 million in the year ended April 30, 2021. This change was primarily due to net debt repayments of $11.0 million in the year ended April 30, 2022 compared with net debt borrowings of $30.7 million in the year ended April 30, 2021 and, to a lesser extent, a $24.7 million change from book overdrafts, and a $14.2 million increase in cash used for purchases of treasury shares.\nDividends and Share Repurchases\nIn the year ended April\u00a030, 2023, we increased our quarterly dividend to shareholders to $1.39 per share annualized versus $1.38 per share annualized in the prior year.\nIn the year ended April\u00a030, 2022, we increased our quarterly dividend to shareholders to $1.38 per share annualized versus $1.37 per share annualized in the prior year.\nDuring the year ended April 30, 2020, our Board of Directors approved an additional share repurchase program of $200 million of Class A or B Common Stock. As of April 30, 2023, we had authorization from our Board of Directors to purchase up to $162.5 million that was remaining under this program. During the years ended April 30, 2023 and 2022, we purchased $35.0 million and $2.5 million, respectively, under this program. No share repurchases were made under this program during the year ended April 30, 2021. The share repurchase program described above is in addition to the share repurchase program approved by our Board of Directors during the year ended April 30, 2017 of four million shares of Class A or B Common Stock. As of April 30, 2022, no additional shares were remaining under this program for purchase.\nThe following table summarizes the shares repurchased of Class A and B Common Stock (shares in thousands):\nYears Ended April 30,\n2023\n2022\n2021\nShares repurchased \u2013 Class A\n831\n542\n308\nShares repurchased \u2013 Class B\n1\n2\n2\nAverage Price \u2013 Class A and Class B\n$\n42.07\u00a0\n$\n55.14\u00a0\n$\n50.93\u00a0\nRECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS, ACCOUNTING GUIDANCE, AND DISCLOSURE REQUIREMENTS\nWe are subject to numerous recently issued statements of financial accounting standards, accounting guidance, and disclosure requirements. The information set forth in Part II, Item 8, \u201cFinancial Statements and Supplementary Data\u201d in Note 2, \u201cSummary of Significant Accounting Policies, Recently Issued and Recently Adopted Accounting Standards,\u201d of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K is incorporated by reference and describes these new accounting standards.\n51\nIndex\nCRITICAL ACCOUNTING POLICIES AND ESTIMATES:\nThe preparation of our Consolidated Financial Statements and related disclosures in conformity with US GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and revenue and expenses during the reporting period. These estimates include, among other items, sales return reserves, allocation of acquisition purchase price to assets acquired and liabilities assumed, goodwill and indefinite-lived intangible assets, intangible assets with definite lives and other long-lived assets, and retirement plans. We review these estimates and assumptions periodically using historical experience and other factors and reflect the effects of any revisions on the Consolidated Financial Statements in the period we determine any revisions to be necessary. Actual results could differ from those estimates, which could affect the reported results. In Part II, Item 8, \u201cFinancial Statements and Supplementary Data\u201d in Note 2, \u201cSummary of Significant Accounting Policies, Recently Issued and Recently Adopted Accounting Standards\u201d of the Notes to Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in preparation of our Consolidated Financial Statements. Set forth below is a discussion of our more critical accounting policies and methods.\nRevenue Recognition:\nIn Part II, Item 8, \u201cFinancial Statements and Supplementary Data,\u201d see Note 3, \u201cRevenue Recognition, Contracts with Customers,\u201d of the Notes to Consolidated Financial Statements for details of our revenue recognition policy.\nSales Return Reserves:\nIn Part II, Item 8, \u201cFinancial Statements and Supplementary Data,\u201d see Note 2, \u201cSummary of Significant Accounting Policies, Recently Issued, and Recently Adopted Accounting Standards\u201d in the section \u201cSummary of Significant Accounting Policies\u201d of the Notes to Consolidated Financial Statements for details of our sales return reserves.\nA one percent change in the estimated sales return rate could affect net income by approximately $2.6 million. A change in the pattern or trends in returns could also affect the estimated allowance.\nAllocation of Acquisition Purchase Price to Assets Acquired and Liabilities Assumed\n:\nIn connection with acquisitions, we allocate the cost of the acquisition to the assets acquired and the liabilities assumed based on the estimates of fair value for such items, including intangible assets. The excess of the purchase consideration over the fair value of assets acquired and liabilities assumed is recorded as goodwill. The determination of the acquisition date fair value of the assets acquired, and liabilities assumed, requires us to make significant estimates and assumptions, such as, if applicable, forecasted revenue growth rates and operating cash flows, royalty rates, customer attrition rates, obsolescence rates of developed technology, and discount rates. We may use a third-party valuation consultant to assist in the determination of such estimates.\nIn Part II, Item 8, \u201cFinancial Statements and Supplementary Data,\u201d see Note 4, \u201cAcquisitions and Divestitures\u201d of the Notes to Consolidated Financial Statements for details of our acquisitions.\nGoodwill and Indefinite-lived Intangible Assets:\nGoodwill is reviewed for possible impairment at least annually on a reporting unit level during the fourth quarter of each year. Our annual impairment assessment date is February 1. A review of goodwill may be initiated before or after conducting the annual analysis if events or changes in circumstances indicate the carrying value of goodwill may no longer be recoverable.\nA reporting unit is the operating segment unless, at businesses one level below that operating segment\u2013 the \u201ccomponent\u201d level, discrete financial information is prepared and regularly reviewed by management, and the component has economic characteristics that are different from the economic characteristics of the other components of the operating segment, in which case the component is the reporting unit.\n52\nIndex\nAs part of the annual impairment test, we may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In a qualitative assessment, we would consider the macroeconomic conditions, including any deterioration of general conditions and industry and market conditions, including any deterioration in the environment where the reporting unit operates, increased competition, changes in the products/services and regulatory and political developments, cost of doing business, overall financial performance, including any declining cash flows and performance in relation to planned revenues and earnings in past periods, other relevant reporting unit specific facts, such as changes in management or key personnel or pending litigation, and events affecting the reporting unit, including changes in the carrying value of net assets.\nIf the results of our qualitative assessment indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we are required to perform a quantitative assessment to determine the fair value of the reporting unit.\nAlternatively, if an optional qualitative goodwill impairment assessment is not performed, we may perform a quantitative assessment. Under the quantitative assessment, we compare the fair value of each reporting unit to its carrying value, including the goodwill allocated to the reporting unit. If the fair value of the reporting unit exceeded its carrying value, there would be no indication of impairment. If the fair value of the reporting unit were less than the carrying value, an impairment charge would be recognized for the difference.\nWe derive an estimate of fair values for each of our reporting units using a combination of an income approach and a market approach, each based on an applicable weighting. We assess the applicable weighting based on such factors as current market conditions and the quality and reliability of the data. Absent an indication of fair value from a potential buyer or similar specific transactions, we believe that the use of these methods provides a reasonable estimate of a reporting unit\u2019s fair value.\nFair value computed by these methods is arrived at using a number of key assumptions including forecasted revenues and related growth rates, forecasted operating cash flows, the discount rate, and the selection of relevant market multiples of comparable publicly-traded companies with similar characteristics to the reporting unit. There are inherent uncertainties, however, related to these factors and to our judgment in applying them to this analysis. We believe that the combination of these methods provides a reasonable approach to estimate the fair value of our reporting units. Assumptions for sales, net earnings, and cash flows for each reporting unit were consistent among these methods.\nFiscal Year 2023 and 2022 Annual Goodwill Impairment Test\nAs of February 1, 2023, we completed a quantitative assessment for our annual goodwill impairment test for our University Services reporting unit. We concluded that the fair value of the reporting unit was above the carrying value and, therefore, there was no indication of impairment.  For our other reporting units, we performed a qualitative assessment by reporting unit as of February 1, 2023. This assessment included consideration of key factors including macroeconomic conditions, industry and market considerations, cost factors, financial performance, and other relevant entity and reporting unit-specific events. Based on our qualitative assessment, we determined it was not more likely than not that the fair value of any reporting unit was less than its carrying amount. As such, it was not necessary to perform a quantitative test. There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the qualitative assessment performed as of February 1, 2023.\nAs of February 1, 2022, we completed a quantitative assessment for our annual goodwill impairment test for our reporting units. We concluded that the fair values of our reporting units were above their carrying values and, therefore, there was no indication of impairment.\nIncome Approach Used to Determine Fair Values\nThe income approach is based upon the present value of expected cash flows. Expected cash flows are converted to present value using factors that consider the timing and risk of the future cash flows. The estimate of cash flows used is prepared on an unleveraged debt-free basis. We use a discount rate that reflects a market-derived weighted average cost of capital. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting unit\u2019s expected long-term operating and cash flow performance. The projections are based upon our best estimates of forecasted economic and market conditions over the related period including growth rates, expected changes in forecasted operating cash flows, and cash expenditures. Other estimates and assumptions include terminal value long-term growth rates, provisions for income taxes, future capital expenditures, and changes in future cashless, debt-free working capital.\n53\nIndex\nChanges in any of these assumptions could materially impact the estimated fair value of our reporting units. As noted below, the University Services reporting unit incurred an interim goodwill impairment. If the University Services reporting unit fair value decreases further in future periods, we could potentially have an additional impairment which would be limited to the remaining allocated goodwill of approximately $11 million as of April 30, 2023. Our forecasts take into account the near and long-term expected business performance, considering the long-term market conditions and business trends within the reporting units. However, changes in these assumptions may impact our ability to recover the allocated goodwill in the future. For further discussion of the factors that could result in a change in our assumptions, see \u201cRisk Factors\u201d in this Annual Report on Form 10-K.\nMarket Approach Used to Determine Fair Values\nThe market approach estimates the fair value of the reporting unit by applying multiples of operating performance measures to the reporting unit\u2019s operating performance (the Guideline Public Company Method). These multiples are derived from comparable publicly-traded companies with similar investment characteristics to the reporting unit, and such comparable data are reviewed and updated as needed annually. We believe that this approach is appropriate because it provides a fair value estimate using multiples from entities with operations and economic characteristics comparable to our reporting units and Wiley.\nThe key estimates and assumptions that are used to determine fair value under this market approach include current and forward 12-month revenue and EBITDA results, as applicable, and the selection of the relevant multiples to be applied. Under the Guideline Public Company Method, a control premium, or an amount that a buyer is usually willing to pay over the current market price of a publicly traded company is considered, and applied to the calculated equity values to adjust the public trading value upward for a 100% ownership interest, where applicable.\nIn order to assess the reasonableness of the calculated fair values of our reporting units, we also compare the sum of the reporting units\u2019 fair values to our market capitalization and calculate an implied control premium (the excess of the sum of the reporting units\u2019 fair values over the market capitalization). We evaluate the control premium by comparing it to control premiums of recent comparable market transactions. If the implied control premium is not reasonable in light of these recent transactions, we will reevaluate our fair value estimates of the reporting units by adjusting the discount rates and/or other assumptions.\nIf our assumptions and related estimates change in the future, or if we change our reporting unit structure or other events and circumstances change (such as a sustained decrease in the price of our common stock, a decline in current market multiples, a significant adverse change in legal factors or business climates, an adverse action or assessment by a regulator, heightened competition, strategic decisions made in response to economic or competitive conditions, or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of), we may be required to record impairment charges in future periods. Any impairment charges that we may take in the future could be material to our consolidated results of operations and financial condition.\nFiscal Year 2023 Segment Realignment Goodwill Impairment Test\nIn the third quarter of fiscal year 2023, we began to operate under a new organizational structure, which resulted in a change in our composition of our reportable segments, which resulted in a change in our reporting units. See Note 20, \u201cSegment Information,\u201d for more details. The Academic reportable segment includes two reporting units, Academic Publishing and University Services, and the Talent reportable segment includes two reporting units, Talent Development and Professional Learning.\n \nNo changes were made to the Research reportable segment. As a result of this realignment, we are required to test goodwill for impairment immediately before and after the realignment. Since there were no changes to the Research reportable segment, no interim impairment test of the Research reportable segment goodwill was required. \nWe estimated the fair value of the reporting units using a weighting of fair values derived from an income and a market approach. Under the income approach, we determined the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on our best estimates of forecasted economic and market conditions over the period including growth rates, expected changes in operating cash flows. The discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows. The market approach estimates fair value based on market multiples of current and forward 12-month revenue or EBITDA, as applicable, derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit.\n54\nIndex\nGoodwill Impairment Before Realignment\nPrior to the realignment, we concluded that the fair value of the Academic & Professional Learning reporting unit was above its carrying value.\n \nTherefore, there was no indication of impairment.\n \nThe carrying value of the Education Services reporting unit was above its fair value which resulted in a pretax non-cash goodwill impairment of $31.0 million. This charge is reflected in Impairment of goodwill in the Consolidated Statements of Income.\nEducation Services was adversely impacted by market conditions and headwinds for online degree programs. This has led to a decline in projected student enrollments from existing partners, pricing pressures and revenue share concessions, and a decline in new partner additions over both the short-term and long-term, which adversely impacted forecasted revenue growth and operating cash flows. This was partially offset by projected growth in talent placements, partially due to expansion into new regions and the addition of new corporate clients, which are forecasted to have a positive impact on revenue growth and operating cash flows.  \nThe key assumptions underlying the estimate of the fair value of the Education Services reporting unit included the following:\n\u2022\nFuture cash flow assumptions \u2013 the projections for future cash flows utilized in the model were derived from historical experience and assumptions regarding future growth and profitability of the reporting unit. These projections include forecasted revenues and related growth rates, and forecasted operating cash flows, and are consistent with our operating budget and strategic plan. We applied a compounded annual growth rate of approximately 8.5% for forecasted sales in our projected cash flows through fiscal year 2036. Beyond the forecasted period, a terminal value was determined using a perpetuity growth rate of 3.0% to reflect our estimate of stable and perpetual growth.\n\u2022\nDiscount rate based on the weighted average cost of capital (WACC) \u2013 the WACC is the rate used to discount the reporting unit\u2019s estimated future cash flows. The WACC is calculated based on a proportionate weighting of the cost of debt and equity. The cost of equity is based on a capital asset pricing model and includes a company-specific risk premium to capture the perceived risks and uncertainties associated with the reporting unit\u2019s projected cash flows. The cost of debt component is calculated based on the after-tax cost of debt of Moody\u2019s Baa-rated corporate bonds. The cost of debt and equity is weighted based on the debt to market capitalization ratio of publicly traded companies with similarities to the Education Services reporting unit. The WACC applied to the Education Services reporting unit was 15%.\n\u2022\nValuation Multiples \u2013 for the Guideline Public Company Method, we applied relevant current and forward 12-month revenue multiples based on an evaluation of multiples of publicly-traded companies with similarities to the Education Services reporting unit. The multiples applied ranged from 1.1x to 1.2x revenue.\nThe following hypothetical changes in the valuation of the Education Services reporting unit would have impacted the goodwill impairment as follows (absent of any related impact in discount rates applies):\n\u2022\nA hypothetical 1% increase to revenue growth and EBITDA margins would have reduced the impairment charge by approximately $30\u00a0million.\n\u2022\nA hypothetical 1% decrease to revenue growth and EBITDA margins would have increased the impairment charge by approximately $25\u00a0million.\nPrior to performing the goodwill impairment test for Education Services, we also evaluated the recoverability of long-lived assets of the reporting unit. The carrying value of the long-lived assets that were tested for impairment was approximately $467.0 million. When indicators of impairment are present, we test definite lived and long-lived assets for recoverability by comparing the carrying value of an asset group to an estimate of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset group. We considered the lower-than-expected revenue and forecasted operating cash flows over a sustained period of time, and downward revisions to our cash flow forecasts for this reporting unit to be indicators of impairment for their long-lived assets. Based on the results of the recoverability test, we determined that the undiscounted cash flows of the asset group of the Education Services reporting unit exceeded the carrying value. Therefore, there was no impairment.\nGoodwill Impairment After Realignment\nAfter the realignment, we concluded that the fair value of the Academic Publishing, Talent Development and Professional Learning reporting units were above their carrying values. Therefore, there was no indication of impairment. The carrying  value of the University Services reporting unit was above its fair value which resulted in a pretax non-cash goodwill impairment of $68.8 million. This charge is reflected in Impairment of goodwill in the Consolidated Statements of Income.\n55\nIndex\nUniversity Services was adversely impacted by market conditions and headwinds for online degree programs which led to a decline in projected enrollments from existing partners, pricing pressures and revenue share concessions, and a decline in new partner additions over both the short-term and long-term which adversely impacted forecasted revenue growth and operating cash flows. \nThe key assumptions underlying the estimate of the fair value of the University Services reporting unit included the following:\n\u2022\nFuture cash flow assumptions \u2013 the projections for future cash flows utilized in the model were derived from historical experience and assumptions regarding future growth and profitability of the reporting unit. These projections include forecasted revenues and related growth rates, and forecasted operating cash flows, and are consistent with our operating budget and strategic plan. We applied a compounded annual growth rate of approximately 3.7% for forecasted sales in our projected cash flows through fiscal year 2036. Beyond the forecasted period, a terminal value was determined using a perpetuity growth rate of 3.0% to reflect our estimate of stable and perpetual growth.\n\u2022\nDiscount rate based on the weighted average cost of capital (WACC) \u2013 the WACC is the rate used to discount the reporting unit\u2019s estimated future cash flows. The WACC is calculated based on a proportionate weighting of the cost of debt and equity. The cost of equity is based on a capital asset pricing model and includes a company-specific risk premium to capture the perceived risks and uncertainties associated with the reporting unit\u2019s projected cash flows. The cost of debt component is calculated based on the after-tax cost of debt of Moody\u2019s Baa-rated corporate bonds. The cost of debt and equity is weighted based on the debt to market capitalization ratio of publicly traded companies with similarities to the University Services reporting unit. The WACC applied to the University Services reporting unit was 11.0%.\n\u2022\nValuation Multiples \u2013 for the Guideline Public Company Method, we applied relevant current and forward 12-month EBITDA multiples based on an evaluation of multiples of publicly-traded companies with similarities to the University Services reporting unit. The multiples applied ranged from 6.0x to 7.0x EBITDA.\nThe following hypothetical changes in the valuation of the University Services reporting unit would have impacted the goodwill impairment as follows (absent of any related impact in discount rates applies):\n\u2022\nA hypothetical 1% increase to revenue growth and EBITDA margins would have reduced the impairment charge by approximately $15\u00a0million.\n\u2022\nA hypothetical 1% decrease to revenue growth and EBITDA margins would have increased the impairment charge by approximately $12\u00a0million.\nPrior to performing the goodwill impairment test for University Services, we also evaluated the recoverability of long-lived assets of the reporting unit. The carrying value of the long-lived assets that were tested for impairment was approximately $326.0 million. When indicators of impairment are present, we test definite lived and long-lived assets for recoverability by comparing the carrying value of an asset group to an estimate of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset group. We considered the lower-than-expected revenue and forecasted operating cash flows over a sustained period of time, and downward revisions to our cash flow forecasts for this reporting unit to be indicators of impairment for their long-lived assets. Based on the results of the recoverability test, we determined that the undiscounted cash flows of the asset group of the University Services reporting unit exceeded the carrying value. Therefore, there was no impairment.\nFiscal Year 2023 and 2022 Annual Indefinite-lived Intangible Impairment Test\nWe also review our indefinite-lived intangible assets for impairment annually, which consists of brands and trademarks and certain acquired publishing rights. \nFor fiscal year 2023, we performed a qualitative assessment for our annual indefinite-lived intangible assets impairment test. This assessment included consideration of key factors including macroeconomic conditions, industry and market considerations, cost factors, financial performance, and other relevant entity and reporting unit-specific events. Based on our qualitative assessment, we determined it was not more likely than not that the fair value of any indefinite-lived intangible asset was less than its carrying amount. As such, it was not necessary to perform a quantitative test. \n56\nIndex\nFor fiscal year 2022, we estimated the fair value of these indefinite-lived intangible assets using a relief from royalty method under an income approach. The key assumptions for this method were revenue projections, a royalty rate as determined by management in consultation with valuation experts, and a discount rate. We concluded that the fair values of these indefinite-lived intangible assets were above their carrying values and therefore, there was no indication of impairment.\nIntangible Assets with Definite Lives and Other Long-Lived Assets:\nSee Note 2, \u201cSummary of Significant Accounting Policies, Recently Issued, and Recently Adopted Accounting Standards,\u201d in the section \u201cSummary of Significant Accounting Policies\u201d of the Notes to Consolidated Financial Statements for details of definite lived intangible assets and other long-lived assets.\nRetirement Plans:\nWe provide defined benefit pension plans for certain employees worldwide. Our Board of Directors approved amendments to the US, Canada, and UK defined benefit plans that froze the future accumulation of benefits effective June 30, 2013, December 31, 2015, and April 30, 2015, respectively. Under the amendments, no new employees will be permitted to enter these plans and no additional benefits for current participants for future services will be accrued after the effective dates of the amendments.\nThe accounting for benefit plans is highly dependent on assumptions concerning the outcome of future events and circumstances, including discount rates, long-term return rates on pension plan assets, healthcare cost trends, compensation increases, and other factors. In determining such assumptions, we consult with outside actuaries and other advisors.\nThe discount rates for the US, Canada, and UK pension plans are based on the derivation of a single-equivalent discount rate using a standard spot rate curve and the timing of expected benefit payments as of the balance sheet date. The spot rate curves are based upon portfolios of corporate bonds rated at Aa or above by a respected rating agency. The discount rate for Germany is based on the expected benefit payments for the sample mixed population plan. The expected long-term rates of return on pension plan assets are estimated using forecasted returns for the asset classifications within the asset portfolio, and a composite return assumption range is determined using a weighted average based on each plan\u2019s target asset allocation percentage. Salary growth and healthcare cost trend assumptions are based on our historical experience and future outlook. While we believe that the assumptions used in these calculations are reasonable, differences in actual experience or changes in assumptions could materially affect the expense and liabilities related to our defined benefit pension plans.\n A hypothetical one percent increase in the discount rate would increase net income and decrease the accrued pension liability by approximately $1.2 million and $76.2 million, respectively. A one percent decrease in the discount rate would decrease net income and increase the accrued pension liability by approximately $0.3 million and $89.2 million, respectively. A one percent change in the expected long-term rate of return would affect net income by approximately $5.1 million.\n57\nIndex",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures about Market Risk\nWe are exposed to market risk primarily related to interest rates, foreign exchange, and credit risk. It is our policy to monitor these exposures, and to use derivative financial investments and/or insurance contracts from time to time to reduce fluctuations in earnings and cash flows when it is deemed appropriate to do so. We do not use derivative financial instruments for trading or speculative purposes.\nInterest Rates:\nFrom time to time, we may use interest rate swaps, collars, or options to manage our exposure to fluctuations in interest rates. It is management\u2019s intention that the notional amount of interest rate swaps be less than the variable rate loans outstanding during the life of the derivatives.\nThe information set forth in Note 15, \u201cDerivative Instruments and Activities,\u201d of the Notes to Consolidated Financial Statements under the caption \u201cInterest Rate Contracts,\u201d is incorporated herein by reference.\nOn an annual basis, a hypothetical 1% change in interest rates for the $249.1 million of unhedged variable rate debt as of April\u00a030, 2023 would affect net income and cash flow by approximately $2 million.\nForeign Exchange Rates:\nFluctuations in the currencies of countries where we operate outside the US may have a significant impact on financial results. We are primarily exposed to movements in British pound sterling, euros, Canadian and Australian dollars, and certain currencies in Asia. The statements of financial position of non-US business units are translated into US dollars using period-end exchange rates for assets and liabilities and the Statements of Income are translated into US dollars using weighted-average exchange rates for revenues and expenses. The percentage of consolidated revenue for the year ended April\u00a030, 2023 recognized in the following currencies (on an equivalent US dollar basis) were approximately: 57% US dollar, 24% British pound sterling, 10% euro, and 9% other currencies.\nOur significant investments in non-US businesses are exposed to foreign currency risk. Adjustments resulting from translating assets and liabilities are reported as a separate component of Total Accumulated Other Comprehensive Loss, Net of Tax within Shareholders\u2019 Equity under the caption Foreign currency translation adjustment. During the year ended April\u00a030, 2023, we recorded foreign currency translation gains in Total accumulated other comprehensive loss, net of tax of approximately $3.2 million primarily as a result of the fluctuations of the US dollar relative to the euro and the British pound sterling, partially offset by fluctuations of the US dollar relative to the Australian dollar. During the year ended April\u00a030, 2022, we recorded foreign currency translation (losses) in Total accumulated other comprehensive loss, net of tax of approximately $(71.6) million primarily as a result of the fluctuations of the US dollar relative to the British pound sterling and, to a lesser extent, the euro. During the year ended April\u00a030, 2021, we recorded foreign currency translation gains in Total accumulated other comprehensive loss, net of tax of approximately $82.8 million, primarily as a result of the fluctuations of the US dollar relative to the British pound sterling and, to a lesser extent, the euro.\nExchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses on the Consolidated Statements of Income as incurred. Under certain circumstances, we may enter into derivative financial instruments in the form of foreign currency forward contracts to hedge against specific transactions, including intercompany purchases and loans.\nThe information set forth in Note 15, \u201cDerivative Instruments and Activities,\u201d of the Notes to Consolidated Financial Statements under the caption \u201cForeign Currency Contracts,\u201d is incorporated herein by reference.\nCustomer Credit Risk:\nIn the journal publishing business, subscriptions are primarily sourced through journal subscription agents who, acting as agents for library customers, facilitate ordering by consolidating the subscription orders/billings of each subscriber with various publishers. Cash is generally collected in advance from subscribers by the subscription agents and is principally remitted to us between the months of December and April. Although at fiscal year-end we had minimal credit risk exposure to these agents, future calendar year subscription receipts from these agents are highly dependent on their financial condition and liquidity. Subscription agents account for approximately 15% of total annual consolidated revenue, and no one agent accounts for more than 10% of total annual consolidated revenue.\nOur book business is not dependent upon a single customer; however, the industry is concentrated in national, regional, and online bookstore chains. Although no book customer accounts for more than 6% of total consolidated revenue and 10% of accounts receivable at April\u00a030, 2023, the top 10 book customers account for approximately 10% of total consolidated revenue and approximately 20% of accounts receivable at April\u00a030, 2023.\n58\nIndex",
+  "cik": "107140",
+  "cusip6": "968223",
+  "cusip": ["968223206"],
+  "names": ["WILEY (JOHN) SONS CLASS A"],
+  "source": "https://www.sec.gov/Archives/edgar/data/107140/000010714023000092/0000107140-23-000092-index.htm"
+}
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+{
+  "item1": ">Item 1.\u00a0\nDescription of Business\nGeneral.\n\u00a0The Company, which has continuously operated since July 1962, is now one of the nation's largest small-loan consumer finance companies, offering short-term small installment loans, medium-term larger installment loans, related credit insurance and ancillary products and services to individuals.\u00a0The Company offers traditional installment loans generally between $500 and $6,000, with the average loan origination being $2,359 in fiscal 2023. The Company operates 1,073 branches in Alabama, Georgia, Idaho, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, South Carolina, Texas, Tennessee, Utah, and Wisconsin as of March 31, 2023.\u00a0The Company generally serves individuals with limited access to other sources of consumer credit such as banks, credit unions, other consumer finance businesses and credit card lenders.\u00a0The Company also offers income tax return preparation services to its loan customers and other individuals.\nThe traditional installment loan industry is a highly fragmented segment of the consumer lending industry.\u00a0Installment loan finance companies generally make loans to individuals of less than $2,000 with maturities of less than 18 months.\u00a0These companies approve loans on the basis of the personal creditworthiness of their customers and maintain close contact with borrowers to encourage the repayment or, when appropriate to meet the borrower\u2019s needs, the refinancing of loans.\u00a0By contrast, commercial banks, credit unions and some other consumer finance businesses typically make loans of more than $5,000 with maturities of greater than one year.\u00a0Those financial institutions generally approve consumer loans on the security of qualifying personal property pledged as collateral or impose more stringent credit requirements than those of small-loan consumer finance companies.\u00a0As a result of their higher credit standards and specific collateral requirements, commercial banks, credit unions and other consumer finance businesses typically charge lower interest rates and fees and experience lower delinquency and charge-off rates than do small-loan consumer finance companies.\u00a0Traditional installment loan companies generally charge higher interest rates and fees to compensate for the greater risk of delinquencies and charge-offs and increased loan administration and collection costs.\nThe majority of the participants in the industry are independent operators with generally less than 100 branches. We believe that competition between small-loan consumer finance companies occurs primarily on the basis of the strength of customer relationships, customer service and reputation in the local community. We believe that our relatively large size affords us a competitive advantage over smaller companies by increasing our access to, and reducing our cost of capital.\nSmall-loan consumer finance companies are subject to extensive regulation, supervision, and licensing under various federal and state laws and regulations, as well as local ordinances. Consumer loan offices are licensed under state laws which, in many states, establish maximum loan amounts, interest rates, permissible fees and charges and other aspects of the operation of small-loan consumer finance companies. Furthermore, the industry is subject to numerous federal laws and regulations that affect lending operations. These federal laws require companies to provide complete disclosure of the terms of each loan to the borrower in accordance with specified standards prior to the consummation of the loan transaction. Federal laws also prohibit misleading advertising, protect against discriminatory lending practices and prohibit unfair, deceptive, and abusive credit practices.\nBranch Expansion and Consolidation.\n\u00a0As of March 31, 2023, the Company had 1,073 branches in 16 states, with over 100 branches located in Texas and Georgia. During fiscal 2023, the Company opened 2 new branches and merged 96 branches into other existing branches due to their inability to generate sufficient returns or for efficiency reasons.\u00a0In fiscal 2024, the Company may open or acquire new branches in its existing market areas or commence operations in new states where it believes demographic profiles and state regulations are attractive.\u00a0The Company may merge other branches on a case-by-case basis based on profitability or other factors. The Company's ability to continue existing operations and expand its operations in existing or new states is dependent upon, among other things, laws and regulations that permit the Company to operate its \n2\nTable of Contents\nbusiness profitably and its ability to obtain necessary regulatory approvals and licenses. There can be no assurance that such laws and regulations will not change in ways that adversely affect the Company or that the Company will be able to obtain any such approvals or consents.\u00a0See Part 1, Item 1A, \u201cRisk Factors\u201d for a further discussion of risks to our business and plans for expansion.\nThe Company's expansion is also dependent upon its ability to identify attractive locations for new branches and to hire suitable personnel to staff, manage, and supervise new branches.\u00a0In evaluating a particular community, the Company examines several factors, including the demographic profile of the community, the existence of an established small-loan consumer finance market and the availability of suitable personnel.\nProduct Offerings \nInstallment Loans.\n\u00a0We primarily offer pre-computed and interest bearing consumer installment loans with interest and fee income from such loans accounting for 82.4%, 83.0%, and 85.4% of our total revenues in fiscal years 2023, 2022, and 2021, respectively. Our loans are payable in fully-amortizing monthly installments with terms generally from 7 to 27 months and are prepayable at any time without penalty.\u00a0\n\u00a0\nThe following table sets forth information about our loan products for fiscal 2023:\nMinimum\n\u00a0\u00a0\u00a0\u00a0Origination \n(1)\nMaximum\n\u00a0\u00a0\u00a0\u00a0Origination \n(1)\nMinimum Term\n(Months)\nMaximum Term\n(Months)\nSmall loans\n$\n500\u00a0\n$\n2,450\u00a0\n5\n31\nLarge loans\n$\n2,500\u00a0\n$\n33,450\u00a0\n10\n60\n_______________________________________________________\n(1)\n Gross loan net of finance charges.\nSpecific allowable interest, fees, and other charges vary by state.\u00a0The finance charge is a combination of origination or acquisition fees, account maintenance fees, monthly account handling fees, interest and other charges permitted by the relevant state laws. As of March 31, 2021, we no longer offered loans with annual percentage rates, including interest, fees and other charges as calculated in accordance with the Federal Truth in Lending Act, above 100%. The average annual percentage rate of our portfolio was 45.8% as of March 31, 2023. \nAs of March 31, 2023, annual percentage rates applicable to our gross loans receivable as defined by the Truth in Lending Act were as follows:\nLow\nHigh\nAmount\nPercentage of total\ngross loans\nreceivable\n\u2014\u00a0\n%\n36\u00a0\n%\n$\n680,805,765\u00a0\n48.9\u00a0\n37\u00a0\n%\n50\u00a0\n%\n316,345,789\u00a0\n22.8\u00a0\n51\u00a0\n%\n60\u00a0\n%\n121,292,968\u00a0\n8.7\u00a0\n61\u00a0\n%\n70\u00a0\n%\n57,976,907\u00a0\n4.2\u00a0\n71\u00a0\n%\n80\u00a0\n%\n19,808,244\u00a0\n1.4\u00a0\n81\u00a0\n%\n90\u00a0\n%\n91,386,549\u00a0\n6.6\u00a0\n91\u00a0\n%\n100\u00a0\n%\n102,377,024\u00a0\n7.4\u00a0\n101\u00a0\n%\n120\u00a0\n%\n9,556\u00a0\n\u00a0\n1\n\u2014\u00a0\n121\u00a0\n%\n>121%\n12,766\u00a0\n\u00a0\n2\n\u2014\u00a0\n\u00a0\n\u00a0\n$\n1,390,015,568\u00a0\n100\u00a0\n1\n Gross loans receivable with an APR between 101% and 120% are a result of acquired loans receivable, and not loans originated by the Company.\n2\n Gross loans receivable with an APR of 121% or greater are a result of acquired loans receivable, and not loans originated by the Company.\n3\nTable of Contents\nInsurance Related Operations. \nThe Company, as an agent for an unaffiliated insurance company, markets and sells credit life, credit accident and health, credit property and auto, unemployment, and accidental death and dismemberment insurance in connection with its loans in selected states where the sale of such insurance is permitted by law.\u00a0Credit life insurance provides for the payment in full of the borrower's credit obligation to the lender in the event of death.\u00a0The Company offers credit insurance for all loans originated in Alabama, Idaho, Indiana, Kentucky, New Mexico, Oklahoma, South Carolina, Tennessee, Texas and Utah, and on a more limited basis in Georgia, Louisiana, Mississippi, and Missouri. Customers in those states typically obtain such credit insurance through the Company.\u00a0Charges for such credit insurance are made at filed, authorized rates and are stated separately in the Company's disclosure to customers, as required by the Truth in Lending Act and by various applicable state laws.\u00a0In the sale of insurance policies, the Company, as an agent, writes policies only within limitations established by its agency contracts with the insurer.\u00a0The Company does not sell credit insurance to non-borrowers. These insurance policies provide for the payment of the outstanding balance of the Company's loan upon the occurrence of an insured event. The Company earns a commission on the sale of such credit insurance, which, for most products, is directly impacted by the claims experience of the insurance company on policies sold on its behalf by the Company. In states where commissions on certain products are capped, the commission earned is not directly impacted by the claims experience.\nThe Company has a wholly-owned, captive insurance subsidiary that reinsures a portion of the credit insurance sold in connection with loans made by the Company.\u00a0Certain coverages currently sold by the Company on behalf of the unaffiliated insurance carrier are ceded by the carrier to the captive insurance subsidiary, providing the Company with an additional source of income derived from the earned reinsurance premiums. In fiscal 2023, the captive insurance subsidiary reinsured approximately 11.1% of the credit insurance sold by the Company and contributed approximately $3.1 million to the Company's total revenue.\nThe table below shows the types of insurance and ancillary products the Company sells by state as of March 31, 2023:\n\u00a0\nCredit Life\nCredit Accident\nand Health\nCredit Property and Auto\nUnemployment\nAccidental Death & Dismemberment\nNon-file\nAutomobile Club\nMembership\nAlabama \n(1)\nX\nX\nX\nX\nX\nGeorgia\nX\nX\nX\n\u00a0\nX\nX\nX\nIdaho\nX\nX\nX\nX\nX\nIllinois\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nIndiana\nX\nX\nX\nX\nX\nX\nX\nKentucky\nX\nX\nX\nX\nX\nX\nLouisiana\nX\nX\nX\n\u00a0\nX\nX\nX\nMississippi\nX\nX\nX\nX\nMissouri\nX\nX\n\u00a0\nX\nX\nNew Mexico\nOklahoma \n(1)\nX\nX\nX\nX\nX\nSouth Carolina\nX\nX\nX\nX\nX\n\u00a0X\nTennessee \n(1)\nX\nX\nX\nX\nX\nTexas \n(1)\nX\nX\nX\nX\nX\nUtah\nX\nX\nX\nX\nX\nX\nWisconsin\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nX\n_______________________________________________________\n(1)\n Credit insurance is offered for certain loans.\nNon-Filing Insurance.\n\u00a0The Company typically does not perfect its security interest in collateral securing its smaller loans by filing UCC financing statements.\u00a0Non-filing insurance premiums are equal in aggregate amount to the premiums paid by the Company to purchase non-filing insurance coverage from an unaffiliated insurance company.\u00a0Under its non-filing insurance coverage, the Company is reimbursed for losses on loans resulting from its policy not to perfect its security interest in collateral securing the loans.\nAutomobile Club Memberships.\n The Company also offers automobile club memberships to its borrowers in Alabama, Georgia, Idaho, Indiana, Kentucky, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, Tennessee, Texas, South Carolina, Utah and Wisconsin, as an agent for an unaffiliated automobile club.\u00a0Club memberships entitle members to automobile breakdown coverage, towing reimbursement and related services.\u00a0The Company is paid a commission on each membership sold, but has no \n4\nTable of Contents\nresponsibility for administering the club, paying benefits or providing services to club members.\u00a0The Company primarily sells automobile club memberships to borrowers.\nTax Preparation Services and Advances. \nThe Company also offers income tax return preparation and electronic filing services.\u00a0This program is provided in all but a few of the Company\u2019s branches.\u00a0The Company prepared approximately 75,000, 81,000 and 77,000 returns in fiscal years 2023, 2022, and 2021, respectively.\u00a0Net revenue generated by the Company from this program during fiscal 2023, 2022, and 2021 amounted to approximately $24.0 million, $24.5 million, and $20.6 million, respectively.\u00a0In addition, our tax customers are eligible to receive an interest and fee-free tax advance loan which is generally a percentage of the anticipated tax refund amount. The Company believes that this is a beneficial service for its existing customer base as well as non-loan customers, and it plans to continue to promote this program.\nThe following table sets forth information about our tax advance loan product for fiscal 2023:\nMinimum Origination\nMaximum Origination\nMinimum Term\n(Months)\nMaximum Term\n(Months)\nTax advance loans\n$\n500\u00a0\n$\n5,000\u00a0\n8\n8\nLoan Receivables.\n\u00a0The following table sets forth the composition of the Company's gross loans receivable by state at March 31 of each year from 2014 through 2023:\n\u00a0\nAt March 31,\nState\n2023\n2022\n2021\n2020\n2019\n2018\n2017\n2016\n2015\n2014\nAlabama\n6\n\u00a0\n%\n7\u00a0\n%\n6\u00a0\n%\n5\u00a0\n%\n5\u00a0\n%\n5\u00a0\n%\n4\u00a0\n%\n6\u00a0\n%\n5\u00a0\n%\n4\u00a0\n%\nGeorgia\n13\n\u00a0\n13\u00a0\n13\u00a0\n13\u00a0\n13\u00a0\n14\u00a0\n15\u00a0\n13\u00a0\n13\u00a0\n13\u00a0\nIdaho \n(1)\n1\n\u00a0\n1\u00a0\n1\u00a0\n1\u00a0\n1\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nIllinois\n10\n\u00a0\n10\u00a0\n8\u00a0\n8\u00a0\n7\u00a0\n7\u00a0\n7\u00a0\n7\u00a0\n7\u00a0\n8\u00a0\nIndiana\n2\n\u00a0\n3\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\n1\u00a0\n1\u00a0\n1\u00a0\nKentucky\n6\n\u00a0\n6\u00a0\n7\u00a0\n8\u00a0\n8\u00a0\n9\u00a0\n10\u00a0\n10\u00a0\n10\u00a0\n9\u00a0\nLouisiana\n4\n\u00a0\n3\u00a0\n3\u00a0\n3\u00a0\n3\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\nMississippi \n(2)\n2\n\u00a0\n2\u00a0\n2\u00a0\n1\u00a0\n1\u00a0\n1\u00a0\n1\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nMissouri\n7\n\u00a0\n7\u00a0\n8\u00a0\n8\u00a0\n7\u00a0\n7\u00a0\n7\u00a0\n8\u00a0\n8\u00a0\n7\u00a0\nNew Mexico\n4\n\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\nOklahoma\n6\n\u00a0\n6\u00a0\n6\u00a0\n6\u00a0\n7\u00a0\n7\u00a0\n7\u00a0\n8\u00a0\n8\u00a0\n7\u00a0\nSouth Carolina\n8\n\u00a0\n8\u00a0\n10\u00a0\n10\u00a0\n9\u00a0\n10\u00a0\n11\u00a0\n10\u00a0\n11\u00a0\n12\u00a0\nTennessee\n9\n\u00a0\n10\u00a0\n11\u00a0\n11\u00a0\n12\u00a0\n13\u00a0\n13\u00a0\n13\u00a0\n13\u00a0\n13\u00a0\nTexas\n20\n\u00a0\n20\u00a0\n19\u00a0\n19\u00a0\n21\u00a0\n19\u00a0\n18\u00a0\n19\u00a0\n19\u00a0\n21\u00a0\nUtah \n(3)\n1\n\u00a0\n1\u00a0\n1\u00a0\n1\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nWisconsin\n1\n\u00a0\n1\u00a0\n1\u00a0\n2\u00a0\n2\u00a0\n2\u00a0\n1\u00a0\n1\u00a0\n1\u00a0\n1\u00a0\nTotal\n100\n\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\n_______________________________________________________\n(1)\n The Company commenced operations in Idaho in October 2014.\n(2)\n The Company commenced operations in Mississippi in September 2013.\n(3)\n The Company commenced operations in Utah in October 2018.\n5\nTable of Contents\nThe following table sets forth the total number of loans, the average gross loan balance, and the gross loan balance by state at March\u00a031, 2023:\u00a0\n\u00a0\nTotal Number\nof Loans\nAverage Gross Loan Balance\nGross Loan Balance (thousands)\nAlabama\n46,330\u00a0\n$\n1,889\u00a0\n$\n87,538\u00a0\nGeorgia\n82,572\u00a0\n2,182\u00a0\n180,202\u00a0\nIdaho\n6,366\u00a0\n1,709\u00a0\n10,877\u00a0\nIllinois\n43,232\u00a0\n3,185\u00a0\n137,705\u00a0\nIndiana\n19,835\u00a0\n1,723\u00a0\n34,176\u00a0\nKentucky\n42,577\u00a0\n2,096\u00a0\n89,235\u00a0\nLouisiana\n29,886\u00a0\n1,752\u00a0\n52,368\u00a0\nMississippi\n21,252\u00a0\n1,348\u00a0\n28,650\u00a0\nMissouri\n32,402\u00a0\n2,992\u00a0\n96,944\u00a0\nNew Mexico\n25,979\u00a0\n2,164\u00a0\n56,230\u00a0\nOklahoma\n40,078\u00a0\n2,014\u00a0\n80,718\u00a0\nSouth Carolina\n50,623\u00a0\n2,141\u00a0\n108,365\u00a0\nTennessee\n60,203\u00a0\n2,050\u00a0\n123,409\u00a0\nTexas\n162,921\u00a0\n1,698\u00a0\n276,596\u00a0\nUtah\n4,389\u00a0\n2,017\u00a0\n8,854\u00a0\nWisconsin\n9,300\u00a0\n1,952\u00a0\n18,149\u00a0\nTotal\n677,945\u00a0\n$\n2,050\u00a0\n$\n1,390,016\u00a0\nSeasonality\n.\u00a0The Company's highest loan demand generally occurs from October to December, its third fiscal quarter.\u00a0Loan demand is generally lowest and loan repayment highest from January to March, its fourth fiscal quarter.\u00a0Consequently, the Company experiences significant seasonal fluctuations in its operating results and cash needs.\u00a0Operating results for the Company's third fiscal quarter are generally lower than in other quarters, and operating results for its fourth fiscal quarter are generally higher than in other quarters.\nOperations\nLending Operations.\n\u00a0The Company seeks to provide short-term consumer installment loans to the segment of the population that has limited access to other sources of credit.\u00a0In evaluating the creditworthiness of potential customers, the Company primarily examines the individual's discretionary income, length of current employment and/or sources of income, duration of residence, and prior credit experience.\u00a0Loans are made to individuals on the basis of their discretionary income and other factors and are limited to amounts we believe that customers can reasonably be expected to repay from that income given our assessment of their stability and ability and willingness to pay.\u00a0The Company also generates a proprietary credit score in assisting loan decisions to potential new customers that evaluates key attributes such as payment history, outstanding debt, length of credit history, number of credit inquiries as well as credit mix. All loan applicants are required to complete standardized credit applications online, in person, or by telephone.\u00a0Each of the Company's local branches are equipped to perform rapid background, employment, and credit bureau checks and approve loan applications promptly. The Company's employees verify the applicant's sources of income and credit history.\u00a0Substantially all new customers are required to submit a listing of personal property that will serve as collateral to secure the loan, but the Company does not rely on the value of such collateral in the loan approval process and generally does not perfect its security interest in that collateral.\u00a0Accordingly, if the customer were to default in the repayment of the loan, the Company may not be able to recover the outstanding loan balance by resorting to the sale of collateral.\u00a0\nNew Loans to Current and Former Customers\n. The Company believes that development and continual reinforcement of personal relationships with customers improves the Company's ability to monitor their creditworthiness, reduce credit risk, and generate customer loyalty.\u00a0It is not unusual for the Company to have made a number of loans to the same customer over the course of several years, many of which were refinanced with a new loan after the borrower had reduced the existing loan's outstanding balance by making multiple payments.\u00a0In determining whether to refinance existing loans, the Company typically requires loans to be current on a recency basis, and repeat customers are generally required to complete a new credit application if they have not completed one within the prior year.\n6\nTable of Contents\nA refinancing represents a new loan transaction with a present customer in which a portion of the new loan proceeds is used to repay the balance of an existing loan and the remaining portion is advanced to the customer.\u00a0In many cases the existing customer\u2019s past performance and established creditworthiness with the Company qualifies that customer for a larger loan.\u00a0For fiscal 2023, 2022, and 2021, the percentages of the Company's loan originations that were refinancings of existing loans were 71.4%, 63.9%, and 69.2%, respectively.\nThe Company allows refinancing of delinquent loans on a case-by-case basis for those customers who otherwise satisfy the Company's credit standards.\u00a0Each such refinancing is carefully examined before approval in an effort to avoid increasing credit risk.\u00a0A delinquent loan generally may be refinanced only if the customer has made payments that, together with any credits of insurance premiums or other charges to which the customer is entitled in connection with the refinancing, reduce the balance due on the loan to an amount equal to or less than the original cash advance made in connection with the loan.\u00a0The Company does not allow the amount of the new loan to exceed the original amount of the existing loan.\u00a0The Company believes that refinancing delinquent loans for certain customers who have made periodic payments allows the Company to increase its average loans outstanding and its interest, fees and other income without experiencing a significant increase in loan losses.\u00a0These refinancings also provide a resolution to temporary financial setbacks for these borrowers and sustain their credit rating.\u00a0Refinancings of delinquent loans represented 1.4%, 1.1%, and 1.5% of the Company\u2019s loan volume in fiscal 2023, 2022, and 2021, respectively.\nApproximately 16.9%, 15.0%, and 14.7% of the Company's loans were generated through the origination of new loans to previous customers in fiscal 2023, 2022, and 2021, respectively. \nCollection Operations\n. To reduce late payment risk, local branch staff encourage customers to inform the Company in advance of expected payment problems.\u00a0Local branch staff also promptly contact delinquent customers following any payment due date and thereafter remain in close contact with such customers through phone calls or letters until payment is received or some other resolution is reached.\u00a0The Company also has a centralized collections team that primarily focuses on customers who have become more than 90 days past due on a recency basis.\u00a0In Alabama, Georgia, Idaho, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, Tennessee, Utah, and Wisconsin, the Company is permitted under state laws to garnish customers' wages, within certain circumstances, for repayment of loans, but the Company does not otherwise generally resort to litigation for collection purposes and rarely attempts to foreclose on collateral.\nMonitoring and Supervision.\n\u00a0Several levels of management monitor and supervise the operations of each of the Company's branches.\u00a0Senior management has access to daily delinquency, loan volume, charge-off, and other statistical data on a consolidated, state and branch level. District managers evaluate branch performance in their geographic area, communicate regularly with branch managers regarding operations and submit standardized reports detailing their efforts and findings to the Company's senior management. Regional vice presidents monitor the performance of all branches within their states and communicate regularly with district managers. The Company takes a risk-based approach to determine internal audit frequency. Each branch undergoes periodic audits which include an examination of cash balances and compliance with Company loan approval, review and collection procedures, and compliance with federal and state laws and regulations.\nStaff and Training.\n\u00a0Local branches are staffed with a minimum of two employees.\u00a0The branch manager supervises and administers operations of the branch and is responsible for approving all borrower loan applications and requests for increases in the amount of credit extended.\u00a0Each branch generally has one or two financial service representatives who take loan applications, process loan applications, apply payments, and assist in the preparation of operational reports, collection efforts, and marketing activities.\u00a0Larger branches may employ additional financial service representatives.\nNew employees are required to review detailed training materials that explain the Company's operating policies and procedures.\u00a0The Company tests each employee on the training materials during the first year of employment.\u00a0In addition, each branch associate completes an online training session and attends periodic training sessions outside the branch.\u00a0The Company utilizes an enhanced training tool, which provides continuous, real-time, online training to all locations.\u00a0This allows for more training opportunities to be available to all employees throughout the course of their career with the Company.\nAdvertising.\n\u00a0The Company actively advertises through direct mail, digital platforms and by email and SMS/text, targeting both its present and former customers and potential customers who have used other sources of consumer credit. In addition to the general promotion of its loans for last-minute needs, back-to-school needs and other uses, the Company advertises extensively during the October through December holiday season and in connection with new branch openings. The Company believes its advertising contributes significantly to its ability to compete effectively with other providers of small-loan consumer credit.\u00a0Advertising expenses as a percent of revenue were approximately 1.0%, 3.1%, and 3.3% in fiscal 2023, 2022, and 2021, respectively.\n7\nTable of Contents\nCompetition\n.\u00a0The small-loan consumer finance industry is highly fragmented, with numerous competitors.\u00a0The majority of the Company's competitors are independent operators with generally less than 100 branches.\u00a0Competition from community banks and credit unions is limited because they typically do not make loans of less than $5,000. We believe that online lending could be affecting the consumer lending market within which we operate. While it currently appears online lenders are marketing to a different customer segment than that of our primary customers, some of our customers may overlap.\nThe Company believes that competition between small-loan consumer finance companies occurs primarily on the basis of the strength of customer relationships, customer service, and reputation in the local community. The Company believes that its relatively larger size affords it a competitive advantage over smaller companies by increasing its access to, and reducing its cost of, capital.\u00a0\u00a0\nSeveral of the states in which the Company currently operates limit the size of loans made by small-loan consumer finance companies and prohibit the extension of more than one loan to a customer by any one company.\u00a0As a result, many customers borrow from more than one finance company, which enables the Company, subject to the limitations of various consumer protection and privacy statutes, including, but not limited to, the Fair Credit Reporting Act and the Gramm-Leach-Bliley Act, to obtain information on the credit history of specific customers from other consumer finance companies.\nHuman Capital Resources\nOur Mission. \nAt World Acceptance Corporation, our employees (who we call our \u201cTeam Members\u201d) create possibilities by embracing our mission to partner with customers to unlock their financial good.\n \nCreating a culture of opportunity for our Team Members is key to supporting this mission. \nTeam Members. \nAs a people-focused finance company, we value our Team Members by investing in competitive compensation and benefit packages and a vibrant, team-oriented environment centered on professional service and open communication. We strive to build and maintain a high-performing culture and believe in operating by strong values. \nWe value feedback from our team and participate in an annual engagement survey that resulted in being named by Energage as a Top Workplaces USA winner in 2023, 2022, and 2021. \nDuring fiscal 2023, our human capital efforts were focused on accelerating the transformation of our technology for workforce management through investments in upgraded systems and processes, and continuing to increase our agility to meet the quickly changing needs of the business.\u00a0The Company maintains strong relations with its employees and seeks to hire people who will become long-term employees, and, as a result, the vast majority of our field leadership has been promoted from within.\nAs of March\u00a031, 2023, we employed 3,075 full and part-time employees across our sixteen-state footprint, approximately 287 of whom were corporate Team Members located in our main corporate office in Greenville, South Carolina and approximately 2,788 of whom were branch-based Team Members located in 16 states throughout the United States. None of our Team Members belong to a union or are party to any collective bargaining or similar agreement. \nWe strive toward having a powerful and diverse team of Team Members, knowing we are better together with our combined wisdom and intellect. With a commitment to equality, inclusion and workplace diversity, we focus on understanding, accepting, and valuing the differences between people. \nAs of March\u00a031, 2023, our Team Members had the following gender, race and ethnicity demographics:\nGender - All Team Members\nFemale\n85.94%\nMale\n13.96%\nUndeclared\n0.10%\nRace/Ethnicity - All Team Members\nWhite\n55.76%\nHispanic or Latino\n22.27%\nBlack or African American\n16.31%\n8\nTable of Contents\nOther Race/Ethnicity\n4.65%\nNot provided\n1.01%\nTotal Rewards. \nWe provide a comprehensive suite of benefits designed to help Team Members and their families stay healthy, meet their financial goals, protect their income and help them balance their work and personal lives. We provide competitive pay, as well as a wide array of benefits including the following:\n\u2022\nHealthcare benefits, including medical, dental and vision, and flexible spending accounts \n\u2022\nA 401(k) Plan (with an employer matching contribution)\n\u2022\nCompany-paid basic life insurance and long-term and short-term disability\n\u2022\nVacation, sick and holiday paid-time off, as well as volunteer paid time off and paid parental leave\n\u2022\nTime off donation program for Team Members experiencing medical emergencies\n\u2022\nFinancial assistance program for Team Members impacted by natural disasters\nTraining and Development. \nWe believe the development of our Team Members is key to our future success and are focused on delivering programs designed to increase our internal talent pools at all levels within the organization. Some examples of these programs include:\n\u2022\nBOLT \u2013 developing high performing and high potential Account Specialists to prepare them for Branch Manager roles\n\u2022\nEmerging Leaders \u2013 developing high performing and high potential Branch Managers to prepare them for District Manager roles\nInformation about our Executive Officers\n.\u00a0The names and ages, positions, terms of office and periods of service of each of the Company's executive officers (and other business experience for executive officers who have served as such for less than five years) are set forth below.\u00a0The term of office for each executive officer expires upon the earlier of the appointment and qualification of a successor or such officer's death, resignation, retirement, or removal. \nName and Age\nPosition\nPeriod of Service as Executive Officer and\nPre-Executive Officer Experience (if an \nExecutive Officer for Less Than Five Years)\n\u00a0\n\u00a0\n\u00a0\nR. Chad Prashad (42)\nPresident and Chief Executive Officer\n\u2022\nPresident and Chief Executive Officer since June 2018\n\u2022\nSenior Vice President, Chief Strategy & Analytics Officer from February 2018 to June 2018\n\u2022\nVice President of Analytics from June 2014 to February 2018\n\u2022\nSenior Director of Strategy Development for Resurgent Capital Services (a consumer debt managing and servicing company) from 2013 to June 2014\n\u2022\nDirector of Legal Strategy for Resurgent Capital Services from 2009 to 2013\n\u00a0\n\u00a0\n\u00a0\nJohn L. Calmes Jr. (43)\nExecutive Vice President, Chief Financial and Strategy Officer, and Treasurer\n\u2022\nExecutive Vice President, Chief Financial and Strategy Officer and Treasurer since October 2018\n\u2022\nSenior Vice President, Chief Financial Officer and Treasurer from November 2015 to October 2018\n\u2022\nVice President, Chief Financial Officer and Treasurer from December 2013 to November 2015\n\u2022\nDirector of Finance - Corporate and Investment Banking Division of Bank of Tokyo-Mitsubishi UFJ in 2013\n\u2022\nSenior Manager of PricewaterhouseCoopers from 2011 to 2013; Manager of PricewaterhouseCoopers from 2008 to 2011.\n\u00a0\n\u00a0\n9\nTable of Contents\nD. Clinton Dyer (50)\nExecutive Vice President and Chief Branch Operations Officer\n\u2022\nExecutive Vice President and Chief Branch Operations Officer since February 2018\n\u2022\nExecutive Vice President of Branch Operations from September 2016 to February 2018\n\u2022\nSenior Vice President, Southeastern Division from November 2015 to September 2016\n\u2022\nSenior Vice President, Central Division from June 2005 to November 2015; Vice President, Operations \u2013Tennessee and Kentucky from April 2002 to June 2005.\n\u00a0\n\u00a0\nLuke J. Umstetter (43)\nSenior Vice President, General Counsel, Chief Compliance Officer and Secretary\n\u2022\nSenior Vice President, Secretary and General Counsel since August 2018\n\u2022\nGeneral Counsel and Chief Compliance Officer for Shellpoint Mortgage Servicing from December 2015 to August 2018\n\u2022\nGeneral Counsel for Global Lending Services from May 2015 to December 2015; Managing Counsel for Resurgent Capital Services, June 2009 to May 2015.\n\u00a0\n\u00a0\n\u00a0\nA. Lindsay Caulder (47)\nSenior Vice President, Human Resources\n\u2022\nSenior Vice President, Human Resources since October 2018\n\u2022\nVice President, Human Resources from February 2016 to October 2018\n\u2022\nDivisional Vice President - Human Resources of Family Dollar Corporation, a nationwide variety retail chain, from 2012 to 2016\n\u2022\nDirector - Learning and Talent Acquisition of Family Dollar Corporation from 2009-2012.\nJason E. Childers (48)\nSenior Vice President, Information Technology\n\u2022\nSenior Vice President, Information Technology since October 2018\n\u2022\nVice President of IT Strategic Solutions from April 2016 to October 2018\n\u2022\nPartner and Head of IT at Sabal Financial Group, LP from March 2009 until April 2016.\nScott McIntyre (46)\nSenior Vice President, Accounting\n\u2022\nSenior Vice President of Accounting since October 2018\n\u2022\nVice President of Accounting-US from June 2013 to October 2018\n\u2022\nController-US from June 2011 to June 2013.\nGovernment Regulation\nSmall-loan consumer finance companies are subject to extensive regulation, supervision, and licensing under various federal and state statutes, ordinances, and regulations. See Part I, Item 1A, \u201cRisk Factors\u201d, for a discussion of the risks related to our extensive regulation.\nState Regulations and Legislation\n. The Company is subject to numerous state laws and regulations that affect our lending activities. Many of these regulations impose detailed and complex constraints on the terms of our loans, lending forms and operations. Further, there is a trend of increased state regulation on loan origination, servicing, and collection procedures, as well as more detailed reporting and examinations, and coordination of examinations among the states. Failure to comply with applicable laws and regulations could subject us to regulatory enforcement action that could result in the assessment against us of civil, monetary, or other penalties. Generally, state regulations also establish minimum capital requirements for each local branch. Accordingly, the ability of the Company to expand by acquiring existing branches and opening new branches will depend in part on obtaining the necessary regulatory approvals.\nFor example, Texas regulation requires the approval of the Texas Consumer Credit Commissioner for the acquisition, directly or indirectly, of more than 10% of the voting or common stock of a consumer finance company.\u00a0A Louisiana statute prohibits any person from acquiring control of 25% or more of the shares of stock of a licensed consumer lender, such as the Company, \n10\nTable of Contents\nwithout first obtaining a license as a consumer lender.\u00a0The overall effect of these laws, and similar laws in other states, is to make it more difficult to acquire a consumer finance company than it might be to acquire control of an unregulated company.\nAll of the Company's branches are licensed under the laws of the state in which the branch is located.\u00a0Licenses in these states are subject to renewal every year and may be revoked for failure to comply with applicable state and federal laws and regulations.\u00a0In the states in which the Company currently operates, licenses may be revoked only after an administrative hearing.\nThe Company and its operations are regulated by a variety of state agencies in the jurisdictions in which the Company operates, including those related to banking, finance, financial institutions and consumer credit. These state regulatory agencies audit the Company's local branches from time to time, and most state agencies perform an annual compliance audit of the Company's operations in that state.\nInsurance Regulations\n. The Company is also subject to state regulations governing insurance agents in the states in which it sells credit insurance.\u00a0State insurance regulations require that insurance agents be licensed, govern the commissions that may be paid to agents in connection with the sale of credit insurance and limit the premium amount charged for such insurance.\u00a0The Company's captive insurance subsidiary is regulated by the insurance authorities of the Turks and Caicos Islands of the British West Indies, where the subsidiary is organized and domiciled.\nIn addition, state authorities regulate and supervise the Company's insurance operations. The extent of such regulation varies by product and by state, but relate primarily to the following: licensing; conduct of business, including marketing and sales practices; periodic financial and market conduct examination of the affairs of insurers; form and content of required financial reports; standards of solvency; limitations on the payment of dividends and other affiliate transactions; types of products offered; approval of policy forms and premium rates; formulas used to calculate any unearned premium refund due to an insured customer; permissible investments; deposits of securities for the benefit of policyholders; reserve requirements for unearned premiums, losses, and other purposes; and claims processing.\nConsumer finance companies are affected by changes in state and federal statutes and regulations.\n The Company actively participates in trade associations and in lobbying efforts in the states in which it operates and at the federal level.\u00a0There have been, and the Company expects that there will continue to be, media attention, initiatives, discussions, proposals, and legislation regarding the entire consumer credit industry, as well as our particular installment loan business, and possible significant changes to the laws and regulations that govern our business, or the authority exercised pursuant to those laws and regulations.\u00a0In some cases, proposed or pending legislative or regulatory changes have been introduced that would, if enacted,\u00a0have a material adverse effect on, or possibly even eliminate, our ability to continue our current business.\u00a0We can give no assurance that the laws and regulations that govern our business, or the interpretation or administration of those laws and regulations, will remain unchanged or that any such future changes will not materially and adversely affect, or in the worst case, eliminate, the Company\u2019s lending practices, operations, profitability, or prospects.\u00a0See \u201cFederal legislation\u201d below and Part I, Item 1A, \u201cRisk Factors,\u201d for a further discussion of the potential impact of regulatory changes on our business.\nFederal legislation\n.\u00a0In addition to state and local laws and regulations, we are subject to numerous federal laws and regulations that affect our lending operations.\u00a0These laws include the Truth in Lending Act, the Equal Credit Opportunity Act, the Military Lending Act, the Fair Credit Reporting Act, and the regulations thereunder, and the Federal Trade Commission's Credit Practices Rule.\u00a0These laws require the Company to provide complete disclosure of the principal terms of each loan to the borrower prior to the consummation of the loan transaction, prohibit misleading advertising, protect against discriminatory lending practices, and prohibit unfair, deceptive, or abusive credit practices.\u00a0Violations of these statutes and regulations may result in actions for damages, claims for refund of payments made, certain fines and penalties, injunctions against certain practices, and the potential forfeiture of rights to repayment of loans.\nAlthough these laws and regulations remained substantially unchanged for many years, over the last several years, the laws and regulations directly affecting our lending activities have been under review and are subject to change as a result of various developments and changes in economic conditions, the make-up of the executive and legislative branches of government, and the political and media focus on issues of consumer and borrower protection.\u00a0See Part I, Item 1A, \u201cRisk Factors\".\n11\nTable of Contents\nVarious legislative proposals addressing consumer credit transactions have been passed in recent years or are currently pending in the U.S. Congress. Congressional members continue to receive pressure from consumer activists and other industry opposition groups to adopt legislation to address various aspects of consumer credit transactions. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the \u201cDodd-Frank Act\u201d) established the Consumer Financial Protection Bureau (commonly referred to as the CFPB), which has sweeping regulatory, supervisory, and enforcement powers over providers of consumer financial products and services, including explicit supervisory authority to examine and require registration of non-depository lenders and to promulgate rules that can affect the practices and activities of lenders. The CFPB continues to actively engage in the announcement and implementation of various plans and initiatives generally in the area of consumer financial transactions. Some of these CFPB announced plans and initiatives, if implemented, would directly affect certain loan products we currently offer and subject us to the CFPB\u2019s supervisory authority. See Part II, Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Matters,\u201d for more information regarding the CFPB's regulatory initiatives.\nIn addition to the grant of certain regulatory powers to the CFPB, the Dodd-Frank Act gives the CFPB authority to pursue administrative proceedings or litigation for violations of federal consumer financial laws. In these proceedings, the CFPB can obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief) and monetary penalties. Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations thereunder, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions to remedy violations of state law.\nAlthough the Dodd-Frank Act prohibits the CFPB from setting interest rates on consumer loans, efforts to\u00a0create a federal usury cap, applicable to all consumer credit transactions and substantially below rates at which the Company could continue to operate profitably, are still ongoing.\u00a0Any federal legislative or regulatory action that severely restricts or prohibits the provision of small-loan consumer credit and similar services on terms substantially similar to those we currently provide would, if enacted, have a material, adverse impact on our business, prospects, results of operations and financial condition.\u00a0Any federal law that would impose a national 36% or similar annualized credit rate cap on our services would, if enacted, almost certainly eliminate our ability to continue our current operations.\u00a0See Part I, Item 1A, \u201cRisk Factors\u201d - Federal legislative or regulatory proposals, initiatives, actions or changes that are adverse to our operations or result in adverse regulatory proceedings, or our failure to comply with existing or future federal laws and regulations, could force us to modify, suspend, or cease part or all of our nationwide operations,\u201d for further information regarding the potential impact of adverse legislative and regulatory changes.\nAvailable Information\n. The Company maintains an Internet website, \u201cwww.LoansByWorld.com,\u201d where interested persons will be able to access free of charge, among other information, the Company\u2019s annual reports on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K as well as amendments to these filings via a link to a third-party website.\u00a0These documents are available for access as soon as reasonably practicable after we electronically file these documents with the SEC.\u00a0The Company files these reports with the SEC via the SEC\u2019s EDGAR filing system, and such reports also may be accessed via the SEC\u2019s EDGAR database at www.sec.gov/edgar. Information included on or linked to our website is not incorporated by reference into this annual report.",
+  "item1a": ">Item 1A.\u00a0\nRisk Factors\nForward-Looking Statements\nThis annual report contains various \u201cforward-looking statements\u201d within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management\u2019s beliefs and assumptions, as well as information currently available to management.\u00a0Statements other than those of historical fact, including, but not limited to those identified by the use of words such as \u201canticipate,\u201d \u201cestimate,\u201d \u201cintend,\u201d \u201cplan,\u201d \u201cexpect,\u201d \u201cbelieve,\u201d \u201cmay,\u201d \u201cwill,\u201d \u201cshould,\u201d \u201cwould,\u201d \u201ccould,\u201d and any variations of the foregoing and similar expressions, are forward-looking statements.\u00a0Although we believe that the expectations reflected in any such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct.\u00a0Any such statements are subject to certain risks, uncertainties, and assumptions.\u00a0Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual financial results, performance or financial condition may vary materially from those anticipated, estimated, expected or implied by any forward-looking statements. Therefore, you should not rely on any of these forward-looking statements.\nInvestors should consider the risk factors described in this annual report, in addition to the other information presented in this annual report and the other reports and registration statements the Company files with or furnishes to the SEC from time to time, in evaluating us, our business, and an investment in our securities.\u00a0Any of the risk factors described in this annual report, as well as other risks, uncertainties, and possibly inaccurate assumptions underlying our plans and expectations, could result in \n12\nTable of Contents\nharm to our business, results of operations and financial condition and cause the value of our securities to decline, which in turn could cause investors to lose all or part of their investment in our Company. These factors, among others, could also cause actual results to differ materially from those we have experienced in the past or those we may express or imply from time to time in any forward-looking statements we make.\u00a0Investors are advised that it is impossible to identify or predict all risks, and those risks not currently known to us or those we currently deem immaterial could also affect us in the future. The following risks should not be construed as exclusive and should be read with the other cautionary statements that are in this annual report on Form 10-K. The Company does not undertake any obligation to update forward-looking statements, except as may be required by law, whether as a result of new information, future developments, or otherwise. \nMedia and public characterization of consumer installment loans as being predatory or abusive could have a materially adverse effect on our business, prospects, results of operations and financial condition.\nConsumer activist groups and various other media sources continue to advocate for governmental and regulatory action to prohibit or severely restrict our products and services. These critics frequently characterize our products and services as predatory or abusive toward consumers. If this negative characterization of the consumer installment loans we make and/or ancillary services we provide becomes widely accepted by government policy makers or is embodied in legislative, regulatory, policy or litigation developments that adversely affect our ability to continue offering our products and services or the profitability of these products and services, our business, results of operations and financial condition would be materially and adversely affected. Furthermore, our industry is highly regulated, and announcements regarding new or expected governmental and regulatory action regarding consumer lending may adversely impact perceptions of our business even if such actions are not targeted at our operations and do not directly impact us.\nInterest rate fluctuations may adversely affect our borrowing costs, profitability and liquidity.\nInterest rate risk arises from the possibility that changes in interest rates will affect our results of operations and financial condition. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, in particular, the Federal Reserve Board. In response to elevated inflation, the Federal Reserve Board has increased interest rates on several occasions since early 2022. The Federal Reserve Board has indicated that it will raise rates further, if deemed necessary, to combat continued inflation growth.\nIn addition, our profitability may be directly affected by the level of and fluctuations in interest rates, whether caused by changes in economic conditions or other factors that affect our borrowing costs. Changes in monetary policy, including changes in interest rates, could influence the amount of interest we pay on our revolving credit facility or any other floating interest rate obligations we may incur. Our profitability and liquidity could be materially adversely affected during any period of higher interest rates. See Part II, Item 7A, \u201cQuantitative and Qualitative Disclosure About Market Risk\u201d for additional information regarding our interest rate risk.\nWe are exposed to credit risk in our lending activities.\nOur ability to collect on loans to individuals, our single largest asset group, depends on the ability and willingness of our borrowers to repay such loans.\u00a0Our customers generally do not qualify for, or have difficulty qualifying for, credit from traditional sources of consumer credit. These traditional sources of consumer credit typically impose more stringent credit requirements than the personal loan products that we provide. As a result, the historical delinquency and default experience on our loans may be higher than those experienced by financial products arising from traditional sources of consumer credit. \nAny material adverse change in the ability or willingness of a significant portion of our borrowers to meet their obligations to us, whether due to changes in economic conditions, unemployment rates, the cost of consumer goods (particularly, but not limited to, food and energy costs) and inflationary pressures, disposable income, interest rates, health crises, natural disasters, acts of war or terrorism, political or social conditions, divorce, death, or other causes over which we have no control, would have a material adverse impact on our earnings and financial condition. Additionally, delinquency and default experience on our loans is likely to be more sensitive to changes in the economic climate in the areas in which our borrowers reside. Although new customers are required to submit a listing of personal property that will serve as collateral to secure their loans, the Company does not rely on the value of such collateral in the loan approval process and generally does not perfect its security interest in that collateral. Additionally, increases in the size of the loans we offer and average loan size could increase the chance a borrower does not meet their obligations to us and could further increase our credit risk. Additional information regarding our credit risk is included in Part II, Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operation-Allowance for Credit Losses.\u201d\nOur insurance operations are subject to a number of risks and uncertainties, including claims, catastrophic events, underwriting risks and dependence on a primary distribution channel.\n13\nTable of Contents\nInsurance claims and policyholder liabilities are difficult to predict and may exceed the related reserves set aside for claims (losses) and associated expenses for claims adjudication (loss adjustment expenses). Additionally, events such as cyber security attacks and breaches and other types of catastrophes, and prolonged economic downturns, could adversely affect our financial condition and results of operations. Other risks relating to our insurance operations include changes to laws and regulations applicable to us, as well as changes to the regulatory environment, such as: changes to laws or regulations affecting capital and reserve requirements; frequency and type of regulatory monitoring and reporting; consumer privacy, use of customer data and data security; benefits or loss ratio requirements; insurance producer licensing or appointment requirements; required disclosures to consumers; and collateral protection insurance (i.e., insurance some of our lender companies purchase, at the customer\u2019s expense, on that customer\u2019s loan collateral for the periods of time the customer fails to adequately, as required by his loan, insure his collateral).\nIf our estimates of credit losses are not adequate to absorb actual losses, our provision for credit losses would increase, which would adversely affect our results of operations.\nTo estimate the appropriate level of allowance for credit losses, we consider known and relevant internal and external factors that affect loan collectability, including the total amount of loan receivables outstanding, historical loan receivable charge-offs, our current collection patterns, and economic trends. Our methodology for establishing our allowance for credit losses is based on the guidance in ASC 326, and, in part, on our historic loss experience. If customer behavior changes as a result of economic, political, social, or other conditions, or if we are unable to predict how these conditions may affect our allowance for credit losses, our allowance for credit losses may be inadequate. Our allowance for credit losses is an estimate, and if actual credit losses are materially greater than our allowance for credit losses, our provision for credit losses would increase, which would result in a decline in our future earnings, and thus our results of operations could be adversely affected. Neither state regulators nor federal regulators regulate our allowance for credit losses. Additional information regarding our allowance for credit losses is included in Part II, Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations-Allowance for Credit Losses.\u201d\nIn June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL). This ASU significantly changed the way that entities are required to measure credit losses. This standard requires that the estimated credit loss be based upon an \u201cexpected credit loss\u201d approach rather than the \u201cincurred loss\u201d approach previously required. The new approach requires entities to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable forecasts of collectability. As such, the expected credit loss model requires earlier recognition of credit losses than the incurred loss approach. CECL became effective for the Company April 1, 2020. Our financial results may be negatively affected as weak or deteriorating economic conditions are forecasted and alter our expectations for credit losses. In addition, due to the expansion of the time horizon over which we are required to estimate future credit losses under CECL, we may experience increased volatility in our future provisions for credit losses.\nThe concentration of our revenues in certain states could adversely affect us.\nWe currently operate consumer installment loan branches in sixteen states in the United States.\u00a0Any adverse legislative or regulatory change in any one of our states or an economic downturn or catastrophic event that disproportionately affects one or more of our states, including in any of our larger states, could have a material adverse effect on our business, prospects, and results of operations or financial condition. See Part I, Item 1, \u201cDescription of Business\u201d for information regarding the size of our business in the various states in which we operate.\nWe may be unable to execute our business strategy due to economic conditions and these economic conditions could have a material adverse effect on our business, financial position, results of operations, and cash flows.\nUncertainty and deterioration in general economic conditions in the U.S. historically have created a difficult operating environment for consumer lending. Our financial performance generally, and in particular the ability of our borrowers to make payments on outstanding loans, is highly dependent upon the business and economic environments in the markets where we operate and in the United States as a whole. Many factors, including factors that are beyond our control, may impact our financial position, liquidity, and results of operations and depend on management\u2019s ability to execute our business strategy. The U.S. economy is undergoing a period of significant uncertainty. These macro-economic factors include general inflation, unemployment levels, housing markets, commodity prices, energy costs, volatile interest rates, natural disasters, acts of war and terrorism. Additionally, many of our customers are primarily non-prime borrowers, who have historically been more likely to be affected by adverse macro-economic factors than prime borrowers. Currently, due to a number of factors, the global economy is experiencing inflationary pressures not seen in a significant period of time. We cannot predict the timing or the \n14\nTable of Contents\nduration of any inflation or downturn in the economy and we are not immune to the effects of general worldwide economic conditions. During an economic downturn or recession, demand for credit products often decreases and credit losses in the financial services industry generally increase. Additionally, during an economic downturn, our loan servicing costs and collection costs may increase as we may have to expend greater time and resources on these activities.\nKey factors involved in the execution of our business strategy include achieving our desired loan volume and pricing strategies, the use of effective credit risk management techniques, marketing and servicing strategies, continued investment in technology to support operating efficiency, and continued access to funding and liquidity sources. Although our pricing strategy is intended to maximize the amount of economic profit we generate, within the confines of capital and infrastructure constraints, there can be no assurance that this strategy will have its intended effect. Our failure or inability to execute any element of our business strategy, due to economic conditions or otherwise, could materially adversely affect our financial position, liquidity, and results of operations.\nOur ability to execute our growth strategy is subject to significant risks, including some beyond our control, and may be adversely affected.\nOur growth strategy includes opening and acquiring branches in existing and new markets and is subject to significant risks, some of which are beyond our control, including:\n\u2022\nthe prevailing laws and regulatory environment of each state in which we operate or seek to operate, and, to the extent applicable, federal laws and regulations, which are subject to change at any time;\n\u2022\nour ability to obtain and maintain any regulatory approvals, government permits, or licenses that may be required;\n\u2022\nthe degree of competition in new markets and its effect on our ability to attract new customers;\n\u2022\nour ability to obtain adequate financing for our expansion plans; and\n\u2022\nour ability to attract, train, and retain qualified personnel to staff our new operations.\nWe currently lack product and business diversification; as a result, our revenues and earnings may be disproportionately negatively impacted by external factors and may be more susceptible to fluctuations than more diversified companies.\nOur primary business activity is offering small consumer installment loans together with, in some states in which we operate, related ancillary products. Thus, any developments, whether regulatory, economic or otherwise, that would hinder, reduce the profitability of, or limit our ability to operate our small consumer installment loan business on the terms currently conducted would have a direct and adverse impact on our business, profitability, and perhaps even our viability.\u00a0Our current lack of product and business diversification could inhibit our opportunities for growth, reduce our revenues and profits, and make us more susceptible to earnings fluctuations than many other financial institutions whose operations are more diversified.\nA reduction in demand for our products and a failure by us to adapt to such reduction could adversely affect our business and results of operations.\nThe demand for the products we offer may be reduced due to a variety of factors, such as demographic patterns, changes in customer preferences or financial condition, regulatory restrictions that decrease customer access to particular products, or the availability of competing products, including through alternative or competing marketing channels. For example, we are highly dependent upon selecting and maintaining attractive branch locations. These locations are subject to local market conditions, including the employment available in the area, housing costs, traffic patterns, crime, and other demographic influences, any of which may quickly change, thereby negatively impacting demand for our products in the area. Should we fail to adapt to significant changes in our customers\u2019 demand for, or access to, our products, our revenues could decrease significantly and our operations could be harmed. Even if we do make changes to existing products or introduce new products and channels to fulfill customer demand, customers may resist or may reject such products. Moreover, the effect of any product change on the results of our business may not be fully ascertainable until the change has been in effect for some time, and by that time it may be too late to make further modifications to such product without causing further harm to our business, results of operations, and financial condition. \nOur policies and procedures for underwriting, processing, and servicing loans are subject to potential failure or circumvention, which may adversely affect our results of operations. \nWe rely on certain inputs and verifications in the underwriting process to be performed by individual personnel at the branch level or a centralized location. If the training or supervision of our personnel fails to be effective, or if we are unable to attract and retain qualified employees, it is possible that our underwriting criteria would be improperly applied to a greater percentage of such applications. If such improper applications were to increase, delinquency and losses on our loan portfolio could increase and could increase significantly. In addition, we rely on certain third-party service providers in connection with loan \n15\nTable of Contents\nunderwriting and origination. Any error or failure by a third-party service provider in providing loan underwriting and origination services may cause us to originate loans to borrowers that do not meet our underwriting standards. \nIn addition, in deciding whether to extend credit or enter into other transactions with customers and counterparties, we rely heavily on information provided by customers, counterparties, and other third parties, including credit bureaus and data aggregators, the inaccuracy or incompleteness of which may adversely affect our results of operations. We further rely on representations of customers and counterparties as to the accuracy and completeness of that information. If a significant percentage of our customers were to intentionally or negligently misrepresent any of this information, or provide incomplete information, and our internal processes were to fail to detect such misrepresentations in a timely manner, or any or all of the other components of the underwriting process described above were to fail, it could result in our approval of a loan that, based on our underwriting criteria, we would not have otherwise made. As a result, our results of operations and financial condition could be negatively impacted.\nWe operate in a highly competitive market, and we cannot ensure that the competitive pressures we face will not have a material adverse effect on our results of operations, financial condition and liquidity.\nThe consumer lending industry is highly competitive. We compete with other consumer finance companies as well as other types of financial institutions that offer similar consumer financial products and services. Some of these competitors may have greater financial, technical, and marketing resources than we possess. Some competitors may also have a lower cost of funds and access to funding sources that may not be available to us. While banks and credit card companies have decreased their lending to non-prime customers in recent years, there is no assurance that such lenders will not resume those lending activities. Further, because of increased regulatory pressure on payday lenders, many of those lenders are starting to make more traditional installment consumer loans in order to reduce regulatory scrutiny of their practices, which could increase competition in markets in which we operate. We cannot be sure that the competitive pressures we face will not have a material adverse effect on our results of operations, financial condition, and liquidity.\nWe depend on secure information technology, and an attack on or a breach of those systems or those of third-party vendors could result in significant losses, unauthorized disclosure of confidential customer information, and reputational damage, which could materially adversely affect our business, financial condition and/or results of operations, and could lead to significant financial and legal exposure and reputational harm.\nOur operations rely heavily on the secure collection, processing, storage, and transmission of personal, confidential, and other information about us, our customers and third parties with which we do business. We process a significant number of customer transactions on a continuous basis through our computer systems and networks and are subject to increasingly more risk related to security systems as we enhance our mobile payment technologies and otherwise attempt to keep pace with rapid technological changes in the financial services industry. \nWhile we commit resources to the design, implementation, maintenance, and monitoring of our networks and systems, we may be required to expend significant additional resources in the future to modify and enhance our security controls in response to new or more sophisticated threats, new regulations related to cybersecurity and other developments. Additionally, there is no guarantee that our security controls can provide absolute security. \nDespite the measures we implement to protect our systems and data, we may not be able to anticipate, identify, prevent or detect cyber-attacks, ransomware, computer viruses or other security breaches, particularly because the techniques used by attackers change frequently and often are not immediately detected, and because cyber-attacks can originate from a wide variety of sources, including third parties who are or may be involved in organized crime or linked to terrorist organizations or hostile foreign governments. Such third parties may seek to gain unauthorized access to our systems directly, by fraudulently inducing employees, customers, or other users of our systems, or by using equipment or security passwords belonging to employees, customers, third-party service providers, or other users of our systems. Or, they may seek to disrupt or disable our services through attacks such as denial-of-service attacks and ransomware attacks. In addition, we may be unable to identify, or may be significantly delayed in identifying, cyber-attacks and incidents due to the increasing use of techniques and tools that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic artifacts. As a result, our computer systems, software and networks, as well as those of third-party vendors we utilize, may be vulnerable to unauthorized access, computer viruses, malicious attacks and other events that could have a security impact beyond our control. Our staff, technologies, systems, networks, and those of third-parties we utilize also may become the target of cyber-attacks, unauthorized access, malicious code, computer viruses, denial of service attacks, ransomware, and physical attacks that could result in information security breaches, the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers\u2019 confidential, proprietary and other information, or otherwise disrupt our or our customers\u2019 operations. We also routinely transmit and receive personal, confidential and proprietary information through third parties, which may be vulnerable to interception, misuse, or mishandling.\n16\nTable of Contents\nIf one or more of such events occur, personal, confidential, and other information processed and stored in, and transmitted through our computer systems and networks, or those of third-party vendors, could be compromised or could cause interruptions or malfunctions in our operations that could result in significant losses, loss of confidence and business from customers, customer dissatisfaction, significant litigation, regulatory exposures, and harm to our reputation and brand.\nIn the event personal, confidential, or other information is threatened, intercepted, misused, mishandled, or compromised, we may be required to expend significant additional resources to modify our protective measures, to investigate the circumstances surrounding the event, and implement mitigation and remediation measures. We also may be subject to fines, penalties, litigation (including securities fraud class action lawsuits), regulatory investigation costs and settlements and financial losses that are either not insured against or not fully covered through any insurance maintained by us. If one or more of such events occur, our business, financial condition and/or results of operations could be significantly and adversely affected.\nAny interruption of our information systems could adversely affect us.\nOur business and reputation may be materially impacted by information system failures or network disruptions. We rely heavily on communications and information systems to conduct our business.\u00a0Each branch is part of an information network that is designed to permit us to maintain adequate cash inventory, reconcile cash balances on a daily basis, and report revenues and expenses to our headquarters.\u00a0Any failure or interruption of these systems, including any failure of our back-up systems, network outages, slow performance, breaches, unauthorized access, misuse, computer viruses, or other failures or disruptions could result in disruption to our business or the loss or theft of confidential information, including customer information. A disruption could impair our ability to offer and process our loans, provide customer service, perform collections or other necessary business activities, which could result in a loss of customer confidence or business, subject us to additional regulatory scrutiny or negative publicity, or expose us to civil litigation and possible financial liability, or otherwise materially adversely affect our financial condition and operating results. Furthermore, we may not be able to immediately detect any such breach, which may increase the losses that we would suffer. In addition, our existing insurance policies may not reimburse us for all of the damages that we might incur as a result of a breach or other information system failure or network disruption.\nWe may not be able to make technological improvements as quickly as some of our competitors, which could harm our ability to compete with our competitors and adversely affect our results of operations, financial condition, and liquidity.\nThe financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial and lending institutions to better serve customers and reduce costs. Our future success and, in particular, the success of our centralized operations, will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services as quickly as some of our competitors or be successful in marketing these products and services to our existing and new customers. Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to compete with our competitors and adversely affect our results of operations, financial condition, and liquidity.\nWe are subject to data privacy laws, which may significantly increase our compliance and technology costs resulting in a material adverse effect on our results of operations and financial condition.\nWe are subject to various federal and state privacy, data protection, and information security laws and regulations, including requirements concerning security breach notification. Various federal and state regulatory agencies require us to notify customers in the event of a security breach. Moreover, federal and state legislators are increasingly considering and implementing new guidance, laws, and regulations. Compliance with current or future privacy, data protection and information security laws affecting customer or employee data to which we are subject could result in higher compliance and technology costs and could materially and adversely affect our profitability. Our failure to comply with privacy, data protection and information security laws may require us to change our business practices or operational structure, and could subject us to potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, and damage to our reputation.\nWe are also subject to the risk of theft or misuse of physical customer and employee records at our facilities.\nOur branch offices and centralized headquarters have physical and electronic customer records necessary for day-to-day operations that contain extensive confidential information about our customers. We also retain physical records in various storage locations. The loss or theft of customer information and data from our branch offices, headquarters, or other storage \n17\nTable of Contents\nlocations could subject us to additional regulatory scrutiny and penalties and could expose us to civil litigation and possible financial liability, which could have a material adverse effect on our results of operations, financial condition and liquidity. In addition, if we cannot locate original documents (or copies, in some cases) for certain loans receivables, we may not be able to collect on those loans receivables.\nOur off-site data center and centralized IT functions are susceptible to disruption by catastrophic events, which could have a material adverse effect on our business, results of operations, and financial condition.\nOur information systems, and administrative and management processes could be disrupted if a catastrophic event, such as severe weather, natural disaster, power outage, act of war or terror or similar event, destroyed or severely damaged our infrastructure.\u00a0Any such catastrophic event or other unexpected disruption of our headquarters' functions or off-site data center could have a material adverse effect on our business, results of operations, and financial condition.\nA small number of our shareholders have the ability to significantly influence matters requiring shareholder approval and such shareholders may have interests which conflict with the interests of our other security holders.\nAs of March 31, 2023, based on filings made with the SEC and other information made available to us, Prescott General Partners, LLC and its affiliates beneficially owned approximately 43.8% of our common stock. As a result, these shareholders are able to significantly influence matters presented to shareholders, including the election and removal of directors, the approval of significant corporate transactions, such as any reclassification, reorganization, merger, consolidation or sale of all or substantially all of our assets, and the control of our management and affairs, including executive compensation arrangements. Their interests may conflict with the interests of our other security holders. \nInitiating and processing potential acquisitions may be unsuccessful or difficult, leading to losses and increased delinquencies, which could have a material adverse effect on our results of operations.\nWe have previously acquired, and in the future may acquire, assets or businesses, including large portfolios of loans receivables, either through the direct purchase of such assets or the purchase of the equity of a company with such a portfolio. Since we will not have originated or serviced the loans we acquire, we may not be aware of legal or other deficiencies related to origination or servicing, and our due diligence efforts of the acquisition prior to purchase may not uncover those deficiencies. Further, we may have limited recourse against the seller of the portfolio.\nIn pursuing these transactions, we may experience, among other things:\n\u2022\novervaluing potential targets;\n\u2022\ndifficulties in integrating any acquired companies or branches into our existing business, including integration of account data into our information systems;\n\u2022\ninability to realize the benefits we anticipate in a timely fashion, or at all;\n\u2022\nunexpected losses due to the acquisition of loan portfolios with loans originated using less stringent underwriting criteria;\n\u2022\nsignificant costs, charges, or write-downs; or\n\u2022\nunforeseen operating difficulties that require significant financial and managerial resources that would otherwise be available for the ongoing development and expansion of our existing operations.\nRisks Related to our Indebtedness\n \nWe depend to a substantial extent on borrowings under our revolving credit agreement to fund our liquidity needs.\nOur revolving credit agreement allows us to borrow up to $685.0 million, with an accordion feature permitting the maximum aggregate commitments to increase to $785.0 million provided that certain conditions are met, through June\u00a07, 2024. Pursuant to the terms of our revolving credit agreement, we are required to comply with a number of covenants and conditions, including a minimum borrowing base calculation.\u00a0If our existing sources of liquidity become insufficient to satisfy our financial needs or our access to these sources becomes unexpectedly restricted, we may need to try to raise additional capital in the future.\u00a0If such an event were to occur, we can give no assurance that such alternate sources of liquidity would be available to us at all or on favorable terms.\u00a0Additional information regarding our liquidity risk is included in Part II, Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.\u201d\n \nOur current debt and any additional debt we may incur in the future could negatively impact our business, prevent us from satisfying our debt obligations and adversely affect our financial condition.\n18\nTable of Contents\nWe may incur a substantial amount of debt in the future. As of March 31, 2023, the Company's debt outstanding was $595.3 million, net of $3.5 million unamortized debt issuance costs related to the unsecured senior notes payable, and a total debt-to-equity ratio of approximately 1.6 to 1. The amount of debt we may incur in the future could have important consequences, including the following:\n\u2022\nour ability to obtain additional financing for working capital, debt refinancing, share repurchases or other purposes could be impaired;\n\u2022\na substantial portion of our cash flows from operations will be dedicated to paying principal and interest on our debt, reducing funds available for other purposes;\n\u2022\nwe may be vulnerable to interest rate increases, as borrowings under our revolving credit agreement bear interest at variable rates, as may any future debt that we incur;\n\u2022\nwe may be at a competitive disadvantage to competitors that are not as highly leveraged; \n\u2022\nwe could be more vulnerable to adverse developments in our industry or in general economic conditions;\n\u2022\nwe may be restricted from taking advantage of business opportunities or making strategic acquisitions;\n\u2022\nwe may be limited in our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; \n\u2022\nwe may have difficulty satisfying our obligations under the debt if accelerated upon the occurrence of an event of default; and\n\u2022\nwe may be more vulnerable to periods of negative or slow growth in the general economy or in our business.\nIn addition, meeting our anticipated liquidity requirements is contingent upon our continued compliance with our revolving credit agreement. An acceleration of our debt would have a material adverse effect on our liquidity and our ability to continue as a going concern. If our debt obligations increase, whether due to the increased cost of existing indebtedness or the incurrence of additional indebtedness, the consequences described above could be magnified.\nAlthough the terms of our revolving credit agreement contain restrictions on our ability to incur additional debt, as well as any future debt that we incur, these restrictions are subject, or likely to be subject, in the case of any future debt, to exceptions that could permit us to incur a substantial amount of additional debt. In addition, our existing and future debt agreements will not prevent us from incurring certain liabilities that do not constitute indebtedness as defined for purposes of those debt agreements. If new debt or other liabilities are added to our current debt levels, the risks associated with our having substantial debt could intensify. As of March 31, 2023, we had $318.7 million available for borrowing under our revolving credit agreement, subject to borrowing base limitations and other specified terms and conditions.\nWe may not be able to generate sufficient cash flows to service our outstanding debt and fund operations and may be forced to take other actions to satisfy our obligations under such debt.\nOur ability to make scheduled payments on the principal of, to pay interest on, or to refinance our indebtedness will depend in part on our cash flows from operations, which are subject to regulatory, economic, financial, competitive, and other factors beyond our control. We may not generate a level of cash flows from operations sufficient to permit us to meet our debt service obligations. If we are unable to generate sufficient cash flows from operations to service our debt, we may be required to sell assets, refinance all or a portion of our existing debt, obtain additional financing, or obtain additional equity capital on terms that may be onerous or highly dilutive. There can be no assurance that any refinancing will be possible or that any asset sales or additional financing can be completed on acceptable terms or at all.\nThe terms of our debt limit how we conduct our business.\nOur revolving credit agreement contains covenants that restrict our ability to, among other things:\n\u2022\nincur and guarantee debt;\n\u2022\npay dividends or make other distributions on or redeem or repurchase our stock;\n\u2022\nmake investments or acquisitions;\n\u2022\ncreate liens on our assets;\n\u2022\nsell assets;\n\u2022\nmerge with or into other companies;\n\u2022\nenter into transactions with shareholders and other affiliates; and\n\u2022\nmake capital expenditures.\n19\nTable of Contents\nOur revolving credit agreement also imposes requirements that we maintain specified financial measures not in excess of, or not below, specified levels. In particular, our revolving credit agreement requires, among other things, that we maintain (i) at all times a specified minimum consolidated net worth, (ii) as of the end of each fiscal quarter, a minimum ratio of consolidated net income available for fixed charges for the period of four consecutive fiscal quarters most recently ended to consolidated fixed charges for that period of not less than a specified minimum, (iii) at all times a specified maximum ratio of total debt on a consolidated basis to consolidated adjusted net worth and (iv) at all times a specified maximum collateral performance indicator. These covenants limit the manner in which we can conduct our business and could prevent us from engaging in favorable business activities or financing future operations and capital needs and impair our ability to successfully execute our strategy and operate our business.\nThe indenture governing our 7.0% senior notes due 2026 (the \u201cNotes\u201d) contains certain covenants that, among other things, limit the Company\u2019s ability and the ability of its restricted subsidiaries to (i) incur additional indebtedness or issue certain disqualified stock and preferred stock; (ii) pay dividends or distributions or redeem or purchase capital stock; (iii) prepay subordinated debt or make certain investments; (iv) transfer and sell assets; (v) create or permit to exist liens; (vi) enter into agreements that restrict dividends, loans and other distributions from their subsidiaries; (vii) engage in a merger, consolidation or sell, transfer or otherwise dispose of all or substantially all of their assets; and (viii) engage in transactions with affiliates. However, these covenants are subject to a number of important detailed qualifications and exceptions.\nA breach of any of the covenants in our revolving credit agreement would result in an event of default thereunder. Any event of default would permit the creditors to accelerate the related debt, which could also result in the acceleration of any other or future debt containing a cross-acceleration or cross-default provision. In addition, an event of default under our revolving credit agreement would permit the lenders thereunder to terminate all commitments to extend further credit under the revolving credit agreement. Furthermore, if we were unable to repay the amounts due and payable under the revolving credit agreement or any other secured debt we may incur, the lenders thereunder could cause the collateral agent to proceed against the collateral securing that debt. In the event our creditors accelerate the repayment of our debt, there can be no assurance that we would have sufficient assets to repay that debt, and our financial condition, liquidity and results of operations would suffer. A breach of our covenants under the Notes would have similar consequences. Additional information regarding our revolving credit facility and Notes is included in Part II, Item 7 \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.\u201d\nThe conditions of the U.S. and international capital markets may adversely affect lenders with which we have relationships, causing us to incur additional costs and reducing our sources of liquidity, which may adversely affect our financial position, liquidity and results of operations.\nTurbulence in the global or domestic capital markets or other macro-economic factors can result in disruptions in the financial sector, including bank failures, and can affect lenders with which we have relationships, including members of the syndicate of banks that are lenders under our revolving credit agreement. Disruptions in the financial sector may increase our exposure to credit risk and adversely affect the ability of lenders to perform under the terms of their lending arrangements with us. Failure by our lenders to perform under the terms of our lending arrangements could cause us to incur additional costs that may adversely affect our liquidity, financial condition, and results of operations.\n \nThere can be no assurance that future disruptions in the financial sector will not occur that could have\n \nadverse effects on our business. Additional information regarding our liquidity and related risks is included in Part II, Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.\u201d\nRisks Related to Legal Proceedings and Regulation \nFederal legislative or regulatory proposals, initiatives, actions, or changes that are adverse to our operations or result in adverse regulatory proceedings, or our failure to comply with existing or future federal laws and regulations, could force us to modify, suspend, or cease part or all of our nationwide operations.\nWe are subject to numerous federal laws and regulations that affect our lending operations. From time to time, we may become involved in formal and informal reviews, investigations, examinations, proceedings, and information-gathering requests by federal and state government and self-regulatory agencies. Should we become subject to such an investigation, examination, or proceeding, the matter could result in material adverse consequences to us, including, but not limited to, increased compliance costs, adverse judgments, significant settlements, fines, penalties, injunction, or other actions.\nAlthough these laws and regulations have remained substantially unchanged for many years, the laws and regulations directly affecting our lending activities have been under review and subject to change in recent years as a result of various developments and changes in economic conditions, the make-up of the executive and legislative branches of government, and the political and \n20\nTable of Contents\nmedia focus on issues of consumer and borrower protection. Any changes in such laws and regulations could force us to modify, suspend, or cease part or, in the worst case, all of our existing operations. It is also possible that the scope of federal regulations could change or expand in such a way as to preempt what has traditionally been state law regulation of our business activities.\nIn July 2010 the Dodd-Frank Act was enacted. The Dodd-Frank Act restructured and enhanced the regulation and supervision of the financial services industry and created the CFPB, an agency with sweeping regulatory and enforcement authority over consumer financial transactions. The CFPB\u2019s rulemaking and enforcement authority extends to certain non-depository institutions, including us. The CFPB is specifically authorized, among other things, to take actions to prevent companies providing consumer financial products or services and their service providers from engaging in unfair, deceptive or abusive acts or practices in connection with consumer financial products and services, and to issue rules requiring enhanced disclosures for consumer financial products or services. The CFPB also has authority to interpret, enforce, and issue regulations implementing enumerated consumer laws, including certain laws that apply to our business. Further, the CFPB has authority to designate non-depository \u201clarger participants\u201d in certain markets for consumer financial services and products for purposes of the CFPB\u2019s supervisory authority under the Dodd-Frank Act. Such designated \u201clarger participants\u201d are subject to reporting and on-site compliance examinations by the CFPB, which may result in increased compliance costs and potentially greater enforcement risks based on these supervisory activities. Although the CFPB has not yet developed a \u201clarger participant\u201d rule that directly covers the Company\u2019s installment lending business, the Company believes that the implementation of any such rules would likely bring the Company\u2019s business under the CFPB\u2019s direct supervisory authority. In addition, even in the absence of a \u201clarger participant\u201d rule, the CFPB has the power to order individual nonbank financial institutions to submit to supervision where the CFPB has reasonable cause to determine that the institution is engaged in \u201cconduct that poses risks to consumers\u201d under 12 USC 5514(a)(1)(C). In 2022, the CFPB announced that it has begun using this \u201cdormant authority\u201d to examine nonbank entities and the CFPB is attempting to expand the number of nonbank entities it currently supervises. Specifically, the CFPB has notified the Company that it is seeking to establish such supervisory authority over the Company.  The Company disagrees that the CFPB has reasonable cause to to supervise the Company, has responded to the CFPB's notice, and is awaiting further response from the CFPB. If the CFPB ultimately determines it has supervisory authority over the Company, then the Company may be subject to,\n \namong other things, examination by the CFPB. \nAlthough the Dodd-Frank Act prohibits the CFPB from setting interest rates on consumer loans, efforts to create a federal usury cap, applicable to all consumer credit transactions and substantially below rates at which the Company could continue to operate profitably, are still ongoing. Any federal legislative or regulatory action that severely restricts or prohibits the provision of small-loan consumer credit and similar services on terms substantially similar to those we currently provide would, if enacted, have a material adverse impact on our business, prospects, results of operations, and financial condition. Any federal law that would impose a maximum annualized credit rate cap in the range of 36% on our products would, if enacted, almost certainly eliminate our ability to continue our current operations. Given the uncertainty associated with the manner in which various expected provisions of the Dodd-Frank Act have been and are expected to continue to be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our operations remains unclear; however, these regulations have increased and are expected to further increase our cost of doing business and time spent by management on regulatory matters, which may have a material adverse effect on the Company\u2019s operations and results.\nIn 2017, the CFPB issued a final rule (the \"Rule\") under its unfair, deceptive and abusive acts and practices rulemaking authority relating to payday, vehicle title, and similar loans. The final rule originally required lenders originating short-term loans and longer-term balloon payment loans to first make a good-faith reasonable determination that the consumer has the ability to repay the covered loan along with current obligations and expenses (\u201cability to repay requirements\u201d); however, the ability to repay requirements was rescinded in July 2020. The final rule also curtails repeated unsuccessful attempts to debit consumers\u2019 accounts for short-term loans, balloon payment loans, and installment loans that involve a payment authorization and an annual percentage rate over 36% (\u201cpayment requirements\u201d). Although the Company does not make loans with terms of 45 days or less or obtain access to a customer\u2019s bank account or paycheck for repayment of any of its loans, it does make some vehicle-secured loans with an annual percentage rate within the scope of the final rule. The final rule has significant differences from the CFPB\u2019s proposed rules announced on June 2, 2016. Implementation of the Rule\u2019s payment requirements may require changes to the Company\u2019s practices and procedures for such loans, which could materially and adversely affect the Company\u2019s ability to make such loans, the cost of making such loans, the Company\u2019s ability to, or frequency with which it could, refinance any such loans, and the profitability of such loans. Additionally, any further regulatory changes could have effects beyond those currently contemplated that could further materially and adversely impact our business and operations. \nIn addition to the specific matters described above, other aspects of our business may be the subject of future CFPB rule-making. The enactment of one or more of such regulatory changes, or the exercise of broad regulatory authority by regulators, including but not limited to, the CFPB, having jurisdiction or supervisory authority over the Company\u2019s business or discretionary consumer financial transactions, generically, could materially and adversely affect our business, results of \n21\nTable of Contents\noperations and prospects. See Part I, Item 1, \u201cDescription of Business-Government Regulation\u201d for more information regarding legislation we are subject to and related risks.\nLitigation and regulatory actions, including challenges to the arbitration clauses in our customer agreements, could subject us to significant class actions, fines, penalties, judgments and requirements resulting in increased expenses and potential material adverse effects on our business, results of operations and financial condition.\nIn the normal course of business, from time to time, we have been involved in various legal actions, including arbitration, class actions and other litigation, arising in connection with our business activities. All such legal proceedings are inherently unpredictable and, regardless or the merits of the claims, litigation is often expensive, time consuming, disruptive to our operations and resources, and distracting to management. If resolved against us, such legal proceedings could result in excessive verdicts and judgments, injunctive relief, equitable relief, and other adverse consequences that may affect our financial condition and how we operate our business. Similarly, if we settle such legal proceedings, it may affect our financial condition and how we operate our business. Future court decisions, alternative dispute resolution awards, business expansion or legislative activity may increase our exposure to litigation and regulatory investigations. In some cases, substantial non-economic remedies or punitive damages may be sought. \nAlthough we maintain liability insurance coverage, there can be no assurance that such coverage will cover any particular verdict, judgment, or settlement that may be entered against us, that such coverage will prove to be adequate, or that such coverage will continue to remain available on acceptable terms, if at all. If in any legal proceeding we incur liability or defense costs that exceed our insurance coverage or that are not within the scope of our insurance coverage, it could have a material adverse effect on our business, financial condition, and results of operations. \nCertain legal actions include claims for substantial compensatory and punitive damages, or claims for indeterminate amounts of damages. While the arbitration provisions in our customer agreements historically have limited our exposure to consumer class action litigation, there can be no assurance that we will be successful in enforcing our arbitration clause in the future. There may also be legislative, administrative or regulatory efforts to directly or indirectly prohibit the use of pre-dispute arbitration clauses, or we may be compelled as a result of competitive pressure or reputational concerns to voluntarily eliminate pre-dispute arbitration clauses.\nAdditionally, if we are subject to regulatory actions or other litigation, we may not be able to maintain all requisite licenses and permits or obtain additional licenses and permits necessary for future business operations, and the failure to satisfy those or other regulatory requirements could have a material adverse effect on our business, financial condition, and results of operations. Material changes in laws or regulations applicable to us could also subject us to additional licensing, registration and other regulatory requirements in the future or could adversely affect our business, financial condition, and results of operations.\nUnfavorable state legislation, executive orders, or regulatory actions, adverse outcomes in litigation or regulatory proceedings or failure to comply with existing laws and regulations could force us to cease, suspend or modify our operations in a state, potentially resulting in a material adverse effect on our business, results of operations and financial condition.\nIn addition to federal laws and regulations, we are subject to numerous state laws and regulations that affect our lending activities. Many of these regulations impose detailed and complex constraints on the terms of our loans, lending forms and operations. Failure to comply with applicable laws and regulations could subject us to regulatory enforcement action that could result in the assessment against us of civil, monetary, or other penalties, including the suspension or revocation of our licenses to lend in one or more jurisdictions.\nAs discussed elsewhere in this report, the Company\u2019s operations are subject to extensive state and federal laws and regulations, and changes in those laws or regulations or their application could have a material adverse effect on the Company\u2019s business, results of operations, prospects, or ability to continue operations in the jurisdictions affected by these changes. See Part I, Item 1, \u201cDescription of Business-Government Regulation\u201d for more information regarding this legislation and related risks.\nPassage of adverse legislation, such as rate caps on financial lending products or similar initiatives, in any of the states in which we operate could have a material adverse effect on the Company\u2019s business, results of operations, prospects, or ability to continue operations in the jurisdictions affected by such changes. We can give no assurance that the laws and regulations that govern our business, or the interpretation or administration of those laws and regulations, will remain unchanged or that any such future changes will not materially and adversely affect or in the worst case, eliminate the Company\u2019s lending practices, operations, profitability, or prospects.\n22\nTable of Contents\nIn addition, any adverse change in existing laws or regulations, or any adverse interpretation or litigation relating to existing laws and regulations in any state in which we operate, could subject us to liability for prior operating activities or could lower or eliminate the profitability of our operations going forward by, among other things, reducing the amount of interest and fees we can charge in connection with our loans. If these or other factors lead us to close our branches in a state, then in addition to the loss of net revenues attributable to that closing, we would also incur closing costs such as lease cancellation payments and we would have to write off assets that we could no longer use. If we were to suspend rather than permanently cease our operations in a state, we may also have continuing costs associated with maintaining our branches and our employees in that state, with little or no revenues to offset those costs.\nChanges in local laws and regulations or interpretations of local laws and regulations could negatively impact our business, results of operations, and financial condition. \nIn addition to state and federal laws and regulations, our business is subject to various local laws and regulations, such as local zoning regulations. Local zoning boards and other local governing bodies have been increasingly restricting the permitted locations of consumer finance companies. Any future actions taken to require special use permits for or impose other restrictions on our ability to provide products could adversely affect our ability to expand our operations or force us to attempt to relocate existing branches. If we were forced to relocate any of our branches, in addition to the costs associated with the relocation, we may be required to hire new employees in the new areas, which may adversely impact the operations of those branches. Relocation of an existing branch may also hinder our collection abilities, as our business model relies in part on the locations of our branches being close to where our customers live in order to successfully collect on outstanding loans.\nChanges in laws or regulations may have a material adverse effect on all aspects of our business in a particular state and on our overall business, financial condition, and results of operations, including our ability to generate new loans and the manner in which existing loans are serviced and collected.\nWe may be exposed to liabilities under follow-on litigation from our previous settlement with the SEC and DOJ for our previously disclosed FCPA issue in Mexico, which could have a material adverse effect on our business and liquidity.\nOn August 6, 2020, the Company announced that it had reached resolution with both the SEC and the DOJ with respect to the FCPA matter in Mexico. See Part II, Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Matters,\u201d for more information.\nThe Company could face additional third-party claims by shareholders and/or other stakeholders of the Company relating to this settlement. Any such litigation may be expensive and would likely consume significant time and attention of the Company\u2019s senior management. We may incur substantial expenses responding to such actions, which may have a material impact on our business.\nOur use of third-party vendors and service providers is subject to regulatory review.\nThe CFPB and other regulators have issued regulatory guidance focusing on the need for financial institutions to perform due diligence and ongoing monitoring of third-party vendor and service provider relationships, which increases the scope of management involvement and decreases the benefit that we receive from using third-party vendors. Moreover, if our regulators conclude that we have not met the standards for oversight of our third-party vendors, we could be subject to enforcement actions, civil monetary penalties, supervisory orders to cease and desist or other remedial actions, which could have a material adverse effect on our business, reputation, financial condition and operating results. Further, federal and state regulators have been scrutinizing the practices of lead aggregators and providers recently. If regulators place restrictions on certain practices by lead aggregators or providers, our ability to use them as a source for applicants could be affected.\nEmployee misconduct or misconduct by third parties acting on our behalf could harm us by subjecting us to monetary loss, significant legal liability, regulatory scrutiny, and reputational harm.\nThere is a risk that our employees or third-party contractors could engage in misconduct that adversely affects our business. Due to the general decentralized nature in which the loan application process occurs, employee misconduct or error in the application or closing process could also result in the origination of loans that do not satisfy our underwriting standards, which could in turn have a material adverse effect on our results of operations and financial condition.\n \nAdditionally, for example, if an employee or a third-party contractor were to engage in, or be accused of engaging in, illegal or suspicious activities including fraud or theft, we could suffer direct losses from the activity. Additionally, we could be subject to regulatory sanctions and suffer serious harm to our reputation, financial condition, customer relationships and ability to attract future customers. Employee or third-party misconduct could prompt regulators to allege or to determine based upon such misconduct that we have not established adequate supervisory systems and procedures to inform employees of applicable rules or to detect \n23\nTable of Contents\nviolations of such rules. Our branches have experienced employee fraud from time to time, and it is not always possible to deter employee or third-party misconduct. The precautions that we take to detect and prevent misconduct may not be effective in all cases. Misconduct by our employees or third-party contractors, or even unsubstantiated allegations of misconduct, could result in a material adverse effect on our reputation and our business.\nGeneral Risk Factor\ns\nOur risk management efforts may not be effective.\nWe could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, and other market-related risks, as well as regulatory and operational risks related to our business, assets, and liabilities. Our risk management policies, procedures, and techniques may not be sufficient to identify all of the risks we are exposed to, mitigate the risks we have identified, or identify additional risks to which we may become subject in the future.\nWe may experience significant turnover in our senior management, and our business may be adversely affected by the transitions in our senior management team.\nExecutive leadership transitions can be inherently difficult to manage and may cause disruption to our business.  In addition, management transition inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution, and our results of operations and financial condition could be negatively impacted as a result. The loss of services of one or more other members of senior management, or the inability to attract qualified permanent replacements, could have a material adverse effect on our business. If we fail to successfully attract and appoint permanent replacements with the appropriate expertise, we could experience increased employee turnover and harm to our business, results of operations, cash flow and financial condition. The search for permanent replacements could also result in significant recruiting and relocation costs.\nThe departure, transition, or replacement of key personnel could significantly impact the results of our operations. If we cannot continue to hire and retain high-quality employees, our business and financial results may be negatively affected.\nOur future success significantly depends on the continued service and performance of our key management personnel. Competition for these employees is intense. Our operating results could be adversely affected by higher employee turnover or increased salary and benefit costs. Like most businesses, our employees are important to our success and we are dependent in part on our ability to retain the services of our key management, operational, compliance, finance, and administrative personnel. We have built our business on a set of core values, and we attempt to hire employees who are committed to these values. We want to hire and retain employees who will fit our culture of compliance and of providing exceptional service to our customers. In order to compete and to continue to grow, we must attract, retain, and motivate employees, including those in executive, senior management, and operational positions. As our employees gain experience and develop their knowledge and skills, they become highly desired by other businesses. Therefore, to retain our employees, we must provide a satisfying work environment and competitive compensation and benefits. If costs to retain our skilled employees increase, then our business and financial results may be negatively affected. \nChanges in federal, state and local tax law, interpretations of existing tax law, or adverse determinations by tax authorities, could increase our tax burden or otherwise adversely affect our financial condition or results of operations.\nWe are subject to taxation at the federal, state and local levels. Furthermore, we are subject to regular review and audit by tax authorities. While we believe our tax positions will be sustained, the final outcome of tax audits and related litigation may differ materially from the tax amounts recorded in our Consolidated Financial Statements, which could adversely impact our cash flows and financial results.\nDamage to our reputation could negatively impact our business. \nMaintaining a strong reputation is critical to our ability to attract and retain customers, investors, and employees. Harm to our reputation can arise from many sources, including employee misconduct, misconduct by third-party service providers or other vendors, litigation or regulatory actions, failure by us to meet minimum standards of service and quality, inadequate protection of customer information, and compliance failures. Negative publicity regarding our Company (or others engaged in a similar business or similar activities), whether or not accurate, may damage our reputation, which could have a material adverse effect on our business, results of operations, and financial condition. \n24\nTable of Contents\nWe have goodwill, which is subject to periodic review and testing for impairment.\nAt March 31, 2023, our total assets contained $7.4 million of goodwill.\u00a0Under GAAP, goodwill is subject to periodic review and testing to determine if it is impaired.\u00a0Unfavorable trends in our industry and unfavorable events or disruptions to our operations resulting from adverse legislative or regulatory actions or from other unpredictable causes could result in goodwill impairment charges.\nIf we fail to maintain appropriate controls and procedures, we may not be able to accurately report our financial results, which could have a material adverse effect on our operations, financial condition, and the trading price of our common stock.\nWe are required to maintain disclosure controls and procedures and internal control over financial reporting. Section 404(a) of the Sarbanes Oxley Act requires us to include in our annual reports on Form 10-K an assessment by management of the effectiveness of our internal control over financial reporting. Section 404(b) of the Sarbanes Oxley Act requires us to engage our independent registered public accounting firm to attest to the effectiveness of our internal control over financial reporting. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. \nIf we identify a material weakness in our controls and procedures, our ability to record, process, summarize, and report financial information accurately and within the time periods specified in the rules and forms of the SEC could be adversely affected. In addition, remediation of a material weakness would require our management to devote significant time and incur significant expense. A material weakness is a deficiency, or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. If we are unable to maintain effective controls and procedures we could lose investor confidence in the accuracy and completeness of our financial reports, and we may be subject to investigation or sanctions by the SEC. Any such consequence or other negative effect could adversely affect our operations, financial condition, and the trading price of our common stock.\nRegular turnover among our managers and other employees at our branches makes it more difficult for us to operate our branches and increases our costs of operations, which could have an adverse effect on our business, results of operations and financial condition.\nThe annual turnover as of March 31, 2023 among our branch employees was approximately 47.1%.\u00a0This turnover increases our cost of operations and makes it more difficult to operate our branches. If we are unable to keep our employee turnover rates consistent with historical levels or if unanticipated problems arise from our high employee turnover, our business, results of operations, and financial condition could be adversely affected.\nAbsence of dividends could reduce our attractiveness to investors.\nSince 1989, we have not declared or paid cash dividends on our common stock and may not pay cash dividends in the foreseeable future.\u00a0As a result, our common stock may be less attractive to certain investors than the stock of dividend-paying companies. Investors may need to rely on sales of their common stock after price appreciation, which may not occur, as the only way to realize future gains on their investment.\nVarious provisions of our charter documents and applicable laws could delay or prevent a change of control that shareholders may favor.\nProvisions of our articles of incorporation, South Carolina law, and the laws in several of the states in which our operating subsidiaries are incorporated could delay or prevent a change of control that the holders of our common stock may favor or may impede the ability of our shareholders to change our management.\u00a0In particular, our articles of incorporation and South Carolina law, among other things, authorize our board of directors to issue preferred stock in one or more series, without shareholder approval, and will require the affirmative vote of holders of two-thirds of our outstanding shares of voting stock, to approve our merger or consolidation with another corporation.\u00a0Additional information regarding the similar effect of laws in certain states in which we operate is described in Part 1, Item 1, \u201cDescription of Business - Government Regulation.\u201d\nOverall stock market volatility may materially and adversely affect the market price of our common stock.\n25\nTable of Contents\nThe Company\u2019s common stock price has been and is likely to continue to be subject to significant volatility.\u00a0Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market, or political conditions, could reduce the market price of shares of our common stock in spite of our operating performance. Additionally, a variety of factors could cause the price of the common stock to fluctuate, perhaps substantially, including: general market fluctuations resulting from factors not directly related to the Company\u2019s operations or the inherent value of its common stock; state or federal legislative or regulatory proposals, initiatives, actions or changes that are, or are perceived to be, adverse to our operations or the broader consumer finance industry in general; announcements of developments related to our business; fluctuations in our operating results and the provision for credit losses; low trading volume in our common stock; decreased availability of our common stock resulting from stock repurchases and concentrations of ownership by large or institutional investors; general conditions in the financial service industry; disruption to the domestic financial services industry, the domestic or global economy, including inflationary pressures, or the domestic or global credit or capital markets; changes in financial estimates by securities analysts; our failure to meet the expectations of securities analysts or investors; negative commentary regarding our Company and corresponding short-selling market behavior; adverse developments in our relationships with our customers; investigations or legal proceedings brought against the Company or its officers; or significant changes in our senior management team.\nChanges to accounting rules, regulations or interpretations could significantly affect our financial results.\nNew accounting rules or regulations, changes to existing accounting rules or regulations, and changing interpretations of existing rules and regulations have been issued or occurred and may continue to be issued or occur in the future. Our methodology for valuing our receivables and otherwise accounting for our business is subject to change depending upon the changes in, and interpretation of, accounting rules, regulations, or interpretations. Any such changes to accounting rules, regulations, or interpretations could negatively affect our reported results of operations and could negatively affect our financial condition through increased cost of compliance.\nIn addition, the FASB may propose changes to financial accounting and reporting standards that govern key aspects of our financial statements, including areas where assumptions or estimates are required. As a result of changes to financial accounting or reporting standards, whether promulgated or required by the FASB or other regulators, we could be required to change certain assumptions or estimates we previously used in preparing our financial statements, which could negatively impact how we record and report our results of operations and financial condition.\nIf assumptions or estimates we use in preparing our financial statements are incorrect or are required to change, our reported results of operations and financial condition may be adversely affected. \nWe are required to use certain assumptions and estimates in preparing our financial statements under GAAP, including  determining allowances for credit losses, the fair value of financial instruments, asset impairment, reserves related to litigation and other legal matters, the fair value of share-based compensation, valuation of income, and other taxes and regulatory exposures. In addition, significant assumptions and estimates are involved in determining certain disclosures required under GAAP, including those involving the fair value of our financial instruments. If the assumptions or estimates underlying our financial statements are incorrect, the actual amounts realized on transactions and balances subject to those estimates will be different, and this could have a material adverse effect on our results of operations and financial condition. \nIn addition, the FASB may propose changes to several financial accounting and reporting standards that govern key aspects of our financial statements, including areas where assumptions or estimates are required. As a result of changes to financial accounting or reporting standards, whether promulgated or required by the FASB or other regulators, we could be required to change certain assumptions or estimates we previously used in preparing our financial statements, which could negatively impact how we record and report our results of operations and financial condition. \nThe future issuance of additional shares of our common stock in connection with potential acquisitions or otherwise will dilute all other shareholders.\nExcept in certain circumstances, we are not restricted from issuing additional shares of common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The market price of shares of our common stock could decline as a result of sales of a large number of shares of common stock in the market or the perception that such sales could occur. We intend to continue to evaluate acquisition opportunities and may issue shares of common stock in connection with these acquisitions. Any shares of common stock issued in connection with acquisitions, the exercise of outstanding stock options, or otherwise would dilute the percentage ownership held by our existing shareholders.\n26\nTable of Contents",
+  "item7": ">Item 7.\u00a0\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nGeneral\nThe Company's financial performance continues to be dependent in large part upon the growth in its outstanding loans receivable, the maintenance of loan quality and acceptable levels of operating expenses.\u00a0Since March\u00a031, 2019, gross loans receivable have increased at a 5.36% annual compounded rate from $1.13 billion to $1.39 billion at March\u00a031, 2023.\u00a0We believe we were able to improve our gross loans receivable growth rates through acquisitions, improved marketing processes, and analytics.\u00a0The Company plans to enter into new markets through opening new branches and acquisitions as opportunities arise.\nThe Company offers an income tax return preparation and electronic filing program in all but a few of its branches.\u00a0The Company prepared approximately 75,000, 81,000, and 77,000 returns in each of the fiscal years 2023, 2022, and 2021, respectively.\u00a0Revenues from the Company\u2019s tax preparation business in fiscal 2023 amounted to approximately $24.0 million, a 2.2% decrease over the $24.5 million earned during fiscal 2022.\u00a0\u00a0\nThe following table sets forth certain information derived from the Company's consolidated statements of operations and balance sheets, as well as operating data and ratios, for the periods indicated:\n29\nTable of Contents\n\u00a0\nYears Ended March 31,\n\u00a0\n2023\n2022\n2021\n\u00a0\n(Dollars in thousands)\nGross loans receivable\n$\n1,390,016\n\u00a0\n$\n1,522,789\u00a0\n$\n1,104,746\u00a0\nAverage gross loans receivable \n(1)\n$\n1,555,655\n\u00a0\n$\n1,377,740\u00a0\n$\n1,143,186\u00a0\nNet loans receivable \n(2)\n$\n1,013,341\n\u00a0\n$\n1,119,758\u00a0\n$\n825,382\u00a0\nAverage net loans receivable\n \n(3)\n$\n1,133,051\n\u00a0\n$\n1,014,984\u00a0\n$\n848,732\u00a0\nExpenses as a percentage of total revenue:\n\u00a0\n\u00a0\n\u00a0\nProvision for credit losses\n42.1\n\u00a0\n%\n31.8\u00a0\n%\n16.3\u00a0\n%\nGeneral and administrative\n45.3\n\u00a0\n%\n51.3\u00a0\n%\n57.7\u00a0\n%\nInterest expense\n8.2\n\u00a0\n%\n5.7\u00a0\n%\n4.9\u00a0\n%\nOperating income as a % of total revenue \n(4)\n12.6\n\u00a0\n%\n16.9\u00a0\n%\n26.0\u00a0\n%\nLoan volume \n(5)\n3,078,672\n\u00a0\n3,267,860\u00a0\n2,371,981\u00a0\nNet charge-offs as percent of average net loans receivable\n23.7\n\u00a0\n%\n14.2\u00a0\n%\n14.1\u00a0\n%\nReturn on average assets (trailing 12 months)\n1.7\n\u00a0\n%\n4.8\u00a0\n%\n9.1\u00a0\n%\nReturn on average equity (trailing 12 months)\n5.8\n\u00a0\n%\n13.4\u00a0\n%\n22.8\u00a0\n%\nBranches opened or acquired (merged or closed), net\n(94)\n(38)\n(38)\nBranches open (at period end)\n1,073\n\u00a0\n1,167\u00a0\n1,205\u00a0\n_______________________________________________________\n(1)\n Average gross loans receivable have been determined by averaging month-end gross loans receivable over the indicated period, excluding tax advances.\n(2)\n Net loans receivable is defined as gross loans receivable less unearned interest and deferred fees.\n(3)\n Average net loans receivable have been determined by averaging month-end gross loans receivable less unearned interest and deferred fees over the indicated period, excluding tax advances.\n(4)\n Operating income is computed as total revenue less provision for credit losses and general and administrative expenses.\n(5)\n Loan volume includes all loan balances originated by the Company. It does not include loans purchased through acquisitions.\nComparison of Fiscal 2023 Versus Fiscal 2022\n \nNet income for fiscal 2023 was $21.2 million, a 60.6% decrease from the $53.9 million earned during fiscal 2022. The decrease in net income from was primarily due to a $73.3 million increase in the provision for credit losses partially offset by a $31.4 million increase in revenue.\nOperating income (revenues less provision for credit losses and general and administrative expenses) during fiscal 2023 decreased $21.4 million. \nTotal revenues increased $31.36 million, or 5.4%, to $616.55 million in fiscal 2023, from $585.19 million in fiscal 2022.\u00a0At March\u00a031, 2023, the Company had 1,073 branches in operation, a decrease of 94 branches from March\u00a031, 2022.\nInterest and fee income during fiscal 2023 increased by $22.7 million, or 4.7%, from fiscal 2022.\u00a0The\u00a0increase\u00a0was primarily due to an increase\u00a0in average net loans receivable, which increased 11.6% during fiscal 2023 compared to fiscal 2022.\u00a0Interest and fee income was also impacted by a shift to larger, lower interest rate loans. The large loan portfolio increased from 51.8% of the overall portfolio as of March\u00a031, 2022, to 58.1% as of March\u00a031, 2023. \nInsurance commissions and other income increased by $8.7 million, or 8.7%, from fiscal 2022 to fiscal 2023.\u00a0Insurance commissions increased by $10.9 million, or 19.3%, from fiscal 2022 to fiscal 2023 due to an increase in loan volume in states where we offer our insurance products along with the shift towards larger loans. The sale of insurance products is limited to \n30\nTable of Contents\nlarge loans in several states in which we operate. Other income decreased by $2.2 million, or 5.1%, from fiscal 2022 to fiscal 2023 primarily due to a decrease in tax preparation income of $0.5 million and a decrease in revenue from the Company's motor club product of $5.1 million offset by a $4.0 million gain from acquisitions.\nThe provision for losses during fiscal 2023 increased by $73.3 million, or 39.3%, from the previous year.\u00a0This increase can mostly be attributed to an increase in charge-off rates during the year. Accounts that were 91 days or more past due represented 3.5% and 4.5% of our loan portfolio on a recency basis at March\u00a031, 2023 and March\u00a031, 2022, respectively. The Company's year-over-year net charge-off ratio (net charge-offs as a percentage of average net loans receivable) increased from 14.2% for the year ended March\u00a031, 2022 to 23.7% for the year ended March\u00a031, 2023.\nNet charge-offs and the net charge-off rate were negatively impacted by a higher proportion of new borrowers at the beginning of the current fiscal year. New borrowers are our riskiest customer type and typically perform worse than our longer tenured customers. Additionally, new borrowers originated in the prior fiscal year performed worse than expected due to macro-economic factors. Customers who are new borrowers to the Company (less than two years since their first origination at the time of their current loan) as a percentage of the year-end portfolio decreased 20.8% year over year. These \"new to World\" customers now account for 25.1% of the portfolio, a decrease from 31.7% last year. Customers who were with the Company for less than five months have decreased 54.9% from 13.1% to 5.9%. The reduction of new borrowers in the portfolio as well as better performance of the new borrowers originated in the current fiscal year should result in lower net-charge offs in fiscal year 2024. \nThe net charge-off rate for the past ten fiscal years averaged 16.0%, with a high of 23.7% (fiscal 2023) and a low of 12.8% (fiscal 2015). In fiscal 2023 the charge-off rate was 23.7%. The following table presents the Company's net charge-off ratios since 2013. \n\u00a0\u00a0\u00a0\u00a0_______________________________________________________\n2015 \nIn fiscal 2015, the Company's net charge-off rate decreased to 12.8%. The net charge-off rate benefited from a change in branch level incentives during the year, which allowed branch managers to continue collection efforts on accounts that are 91 days or more past due without having their monthly bonus negatively impacted. As expected, the change resulted in an increase in accounts 91 \n31\nTable of Contents\ndays or more past due and fewer net charge-offs during fiscal 2015. We estimate the net charge-off rate would have been approximately 14.0% for fiscal 2015 excluding the impact of the change.\n2023 \nIn fiscal 2023, the Company's net charge-off rate increased to 23.7%. This increase is primarily attributable to the higher proportion of new borrowers at the beginning of the current fiscal year. Additionally, new borrowers originated in the prior fiscal year performed worse than expected due to macro-economic factors.\nGeneral and administrative expenses during fiscal 2023 decreased by $20.5 million, or 6.8%, over the previous fiscal year. General and administrative expenses, when divided by average open branches, increased 0.3% from fiscal 2022 to fiscal 2023 and, overall, general and administrative expenses as a percent of total revenues decreased to 45.3% in fiscal 2023 from 51.3% in fiscal 2022. The change in general and administrative expense is explained in greater detail below.\nPersonnel\n expense totaled $177.7 million for fiscal 2023, a $5.4 million, or 2.9%, decrease over fiscal 2022. The decrease was largely due to an $8.5 million decrease in stock compensation expense and a $6.8 million decrease in bonus expense, offset by an $8.5 million increase in salary expense. On July 1, 2022, we increased base wages for our financial service representatives to a minimum of approximately $15 an hour and eliminated the monthly bonus for the same position. \nOccupancy and equipment\n expense totaled $52.1 million for fiscal 2023, remaining relatively flat when compared to fiscal year 2022. Occupancy and equipment expense is generally a function of the number of branches the Company has open throughout the year. In fiscal 2023, the expense per average open branch increased to $46.7 thousand, up from $43.4 thousand in fiscal 2022.\nAdvertising\n expense totaled $6.1 million for fiscal 2023, a $12.2 million, or 66.7%, decrease over fiscal 2022. The decrease was primarily due to decreased spending in our digital marketing and new customer acquisition programs.\nAmortization of intangible assets\n totaled $4.5 million for fiscal 2023, a $0.5 million, or 10.9%, decrease over fiscal 2022, which primarily relates to a corresponding decrease in intangible assets acquired in the current fiscal year compared to the previous fiscal year.\nOther\n expense totaled $39.1 million for fiscal 2023, a $2.4 million, or 5.8%, decrease over fiscal 2022.\nInterest expense increased by $17.0 million, or 51.0%, during fiscal 2023 when compared to the previous fiscal year as a result of an increase in average debt outstanding of 26.1% and an increase in the effective interest rate from 5.7% to 7.1%. \nIncome tax expense decreased $5.7 million, or 49.3% for fiscal 2023 compared to the prior fiscal year.\u00a0The effective tax rate increased to 21.8% for fiscal 2023 compared to 17.8% for fiscal 2022. The increase was primarily due to the Adoption of ASU 2023-02 in the current fiscal year which requires the recognition of tax credit investments as a portion of income tax expense rather than pretax other expense, along with a decrease in the permanent tax benefit related to non-qualified stock option exercises and vesting of restricted stock recognized in the current fiscal year. This was partially offset by a decrease in the disallowed executive compensation under Section 162(m) in the current fiscal year.\nComparison of Fiscal 2022 Versus Fiscal 2021 \nFor a comparison of our results of operations for the years ended March 31, 2022 and March 31, 2021, see Part II, Item 7, \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022 (which was filed with the SEC on May 27, 2022).\nRegulatory Matters\nMexico Investigation\nAs previously disclosed, in August 2020, the Company reached a resolution with both the SEC and the DOJ regarding allegations primarily involving the Company's former subsidiary in Mexico (the Company divested its operations in Mexico in 2018). The DOJ declined to prosecute the Company given its voluntary self-disclosure and full remediation.\n \nPursuant to a settlement and cease and desist order with the SEC, the Company paid $21,726,000 to the SEC in August of 2020.\nCFPB Rulemaking Initiative\n32\nTable of Contents\nOn October 5, 2017, the CFPB issued a final rule (the \"Rule\") imposing limitations on (i) short-term consumer loans, (ii) longer-term consumer installment loans with balloon payments, and (iii) higher-rate consumer installment loans repayable by a payment authorization. The Rule originally required lenders originating short-term loans and longer-term balloon payment loans to evaluate whether each consumer has the ability to repay the loan along with current obligations and expenses (\u201cability to repay requirements\u201d); however, the ability to repay requirements was rescinded in July 2020. The Rule also curtails repeated unsuccessful attempts to debit consumers\u2019 accounts for short-term loans, balloon payment loans, and installment loans that involve a payment authorization and an annual percentage rate over 36% (\u201cpayment requirements\u201d). Implementation of the Rule\u2019s payment requirements may require changes to the Company\u2019s practices and procedures for such loans, which could materially and adversely affect the Company\u2019s ability to make such loans, the cost of making such loans, the Company\u2019s ability to, or frequency with which it could, refinance any such loans, and the profitability of such loans.\nIn July 2020, the CFPB rescinded provisions of the Rule governing the ability to repay requirements. Currently, the payment requirements are scheduled to take effect in June 2022. However, on October 19, 2022, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit ruled, in Community Financial Services Association of America v. Consumer Financial Protection Bureau, that the funding mechanism for the CFPB violates the appropriations clause of the U.S. Constitution, and as a result vacated the Rule. On February 27, 2023, the U.S. Supreme Court announced that it would grant the CFPB\u2019s petition for certiorari, to decide the constitutionality of the CFPB\u2019s funding mechanism. Because all CFPB rulemakings depend on the expenditure of CFPB funds, there is a risk that if the Court finds the CFPB\u2019s funding mechanism to be unconstitutional, prior CFPB activities, including the promulgation of regulations impacting the lending market and upon which lenders, such as the Company, have relied in conducting their activities, may also be deemed unconstitutional. Although the Court could issue is decision at any time after oral argument, which is anticipated to occur as part of the Court\u2019s October 2023 Term, it is possible that a decision may not be issued until the end of the Court\u2019s term in June 2024. To the extent that the Rule is reinstated and takes effect, any regulatory changes could have effects beyond those currently contemplated that could further materially and adversely impact our business and operations. Unless rescinded or otherwise amended, the Company will have to comply with the Rule\u2019s payment requirements if it continues to allow consumers to set up future recurring payments online for certain covered loans such that it meets the definition of having a \u201cleveraged payment mechanism\u201d under the Rule. If the payment provisions of the Rule apply, the Company will have to modify its loan payment procedures to comply with the required notices and mandated timeframes set forth in the final rule.\nThe CFPB also has stated that it expects to conduct separate rulemaking to identify larger participants in the installment lending market for purposes of its supervision program. This initiative was classified as \u201cinactive\u201d on the CFPB\u2019s Spring 2018 rulemaking agenda and has remained inactive since, but the CFPB indicated that such action was not a decision on the merits. Though the likelihood and timing of any such rulemaking is uncertain, the Company believes that the implementation of such rules would likely bring the Company\u2019s business under the CFPB\u2019s supervisory authority which, among other things, would subject the Company to reporting obligations to, and on-site compliance examinations by, the CFPB.  In addition, even in the absence of a \u201clarger participant\u201d rule, the CFPB has the power to order individual nonbank financial institutions to submit to supervision where the CFPB has reasonable cause to determine that the institution is engaged in \u201cconduct that poses risks to consumers\u201d under 12 USC 5514(a)(1)(C). In 2022, the CFPB announced that it has begun using this \u201cdormant authority\u201d to examine nonbank entities and the CFPB is attempting to expand the number of nonbank entities it currently supervises. Specifically, the CFPB has notified the Company that it is seeking to establish such supervisory authority over the Company.  The Company disagrees that the CFPB has reasonable cause to to supervise the Company, has responded to the CFPB's notice, and is awaiting further response from the CFPB. If the CFPB ultimately determines it has supervisory authority over the Company, then the Company may be subject to,\n \namong other things, examination by the CFPB. See Part I, Item 1, \u201cDescription of Business - Government Regulation - Federal legislation,\u201d for a further discussion of these matters and the federal regulations to which the Company\u2019s operations are subject and Part I, Item 1A, \u201cRisk Factors,\u201d for more information regarding these regulatory and related risks.\nQuarterly Information and Seasonality\nThe Company's loan volume and corresponding loans receivable follow seasonal trends.\u00a0The Company's highest loan demand typically occurs from October through December, its third fiscal quarter.\u00a0Loan demand has generally been the lowest and loan repayment highest from January to March, its fourth fiscal quarter.\u00a0Loan volume and average balances typically remain relatively level during the remainder of the year.\u00a0This seasonal trend affects quarterly operating performance through corresponding fluctuations in interest and fee income and insurance commissions earned and the provision for credit losses recorded, as well as fluctuations in the Company's cash needs.\u00a0Consequently, operating results for the Company's third fiscal quarter generally are significantly lower than in other quarters and operating results for its fourth fiscal quarter are significantly higher than in other quarters.\n33\nTable of Contents\nThe following table sets forth, on a quarterly basis, certain items included in the Company's unaudited Consolidated Financial Statements and shows the number of branches open during fiscal years 2023 and 2022.\n\u00a0\n\u00a0\nAt or for the Three Months Ended\n\u00a0\n2023\n2022\nJune\n30,\nSeptember\n30,\nDecember\n31,\nMarch\n31,\nJune\n30,\nSeptember\n30,\nDecember\n31,\nMarch\n31,\n(Dollars in thousands)\nTotal revenues\n$\n157,918\n\u00a0\n$\n151,258\n\u00a0\n$\n146,532\n\u00a0\n$\n160,837\n\u00a0\n$\n129,659\u00a0\n$\n137,827\u00a0\n$\n149,046\u00a0\n$\n168,656\u00a0\nProvision for credit losses\n$\n85,822\n\u00a0\n$\n68,620\n\u00a0\n$\n59,609\n\u00a0\n$\n45,412\n\u00a0\n$\n30,266\u00a0\n$\n42,044\u00a0\n$\n56,459\u00a0\n$\n57,439\u00a0\nGeneral and administrative expenses\n$\n73,174\n\u00a0\n$\n71,218\n\u00a0\n$\n66,475\n\u00a0\n$\n68,607\n\u00a0\n$\n73,351\u00a0\n$\n74,989\u00a0\n$\n74,703\u00a0\n$\n76,934\u00a0\nNet income (loss)\n$\n(8,803)\n$\n(1,366)\n$\n5,759\n\u00a0\n$\n25,643\n\u00a0\n$\n15,771\u00a0\n$\n12,439\u00a0\n$\n7,327\u00a0\n$\n18,382\u00a0\nGross loans receivable\n$\n1,641,798\n\u00a0\n$\n1,598,362\n\u00a0\n$\n1,553,985\n\u00a0\n$\n1,390,016\n\u00a0\n$\n1,223,139\u00a0\n$\n1,394,827\u00a0\n$\n1,606,111\u00a0\n$\n1,522,789\u00a0\nNumber of branches open\n1,146\n\u00a0\n1,104\n\u00a0\n1,084\n\u00a0\n1,073\n\u00a0\n1,205\u00a0\n1,202\u00a0\n1,202\u00a0\n1,167\u00a0\nCritical Accounting Policies\nThe Company\u2019s accounting and reporting policies are in accordance with GAAP and conform to general practices within the finance company industry.\u00a0The significant accounting policies used in the preparation of the Consolidated Financial Statements are discussed in Note 1 to the Consolidated Financial Statements.\u00a0Certain critical accounting policies involve significant judgment by the Company\u2019s management, including the use of estimates and assumptions which affect the reported amounts of assets, liabilities, revenues, and expenses.\u00a0As a result, changes in these estimates and assumptions could significantly affect the Company\u2019s financial position and results of operations.\u00a0The Company considers its policies regarding the allowance for credit losses, share-based compensation, and income taxes to be its most critical accounting policies due to the significant degree of management judgment involved.\nAllowance for Credit Losses\nAccounting policies related to the allowance for credit losses are considered to be critical as these policies involve considerable subjective judgement and estimation by management. As discussed in Note 1 to the Consolidated Financial Statements included in this report, our policies related to the allowances for credit losses changed on April 1, 2020 in connection with the adoption of a new accounting standard update as codified in ASC 326. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance account represents management\u2019s best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions, and reasonable and supportable forecasts.\nShare-Based Compensation\nThe Company measures compensation cost for share-based awards at fair value and recognizes compensation over the service period for awards expected to vest. The fair value of restricted stock is based on the number of shares granted and the quoted price of our common stock at the time of grant, and the fair value of stock options is determined using the Black-Scholes valuation model. The Black-Scholes model requires the input of highly subjective assumptions, including expected volatility, risk-free interest rate and expected life, changes to which can materially affect the fair value estimate. Actual results, and future changes in estimates, may differ substantially from our current estimates.\nIncome Taxes\n34\nTable of Contents\n\u00a0\nManagement uses certain assumptions and estimates in determining income taxes payable or refundable, deferred income tax liabilities and assets for events recognized differently in its financial statements and income tax returns, and income tax expense. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations. Management exercises considerable judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets. These judgments and estimates are re-evaluated on a periodic basis as regulatory and business factors change.\nPursuant to ASC 740, a deferred tax asset or liability is generally recognized for the estimated future tax effects attributable to temporary differences, net operating losses, and tax credit carryforwards. Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Significant judgment is required in assessing the realizability of the Company\u2019s deferred tax assets. The Company considers all available evidence, both positive and negative, in assessing the extent to which a valuation allowance should be applied against its deferred tax asset. If, based on its assessment, the Company determines that it is more likely than not (intended to mean a likelihood that is more than 50%) that some portion or all of the deferred tax asset will not be realized, a valuation allowance is established. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income of the appropriate character during the periods in which the temporary differences become deductible. Management considers the timing of the reversal of deferred liabilities, projected future taxable income, tax planning strategies, and the ability to carryback tax attributes in making this assessment. \nNo assurance can be given that either the tax returns submitted by management or the income tax reported on the Consolidated Financial Statements will not be adjusted by either adverse rulings, changes in the tax code, or assessments made by the Internal Revenue Service or by state or foreign taxing authorities. The Company is subject to potential adverse adjustments including, but not limited to: an increase in the statutory federal or state income tax rates, the permanent non-deductibility of amounts currently considered deductible either now or in future periods, and the dependency on the generation of future taxable income in order to ultimately realize deferred income tax assets.\nUnder FASB ASC 740, the Company includes the current and deferred tax impact of its tax positions in the financial statements when it is more likely than not (likelihood of greater than 50%) that such positions will be sustained by taxing authorities, with full knowledge of relevant information, based on the technical merits of the tax position. While the Company supports its tax positions by unambiguous tax law, prior experience with the taxing authority, and analysis that considers all relevant facts, circumstances and regulations, management must still rely on assumptions and estimates to determine the overall likelihood of success and proper quantification of a given tax position.\nLiquidity and Capital Resources\nThe Company has financed and continues to finance its operations, acquisitions and branch expansion through a combination of cash flows from operations and borrowings from its institutional lenders.\u00a0The Company has generally applied its cash flows from operations to fund its loan volume, fund acquisitions, repay long-term indebtedness and repurchase its common stock.\u00a0As the Company's gross loans receivable increased from $1.21 billion at March\u00a031, 2020 to $1.39 billion at March\u00a031, 2023, net cash provided by operating activities for fiscal years 2023, 2022, and 2021 was $291.6 million, $272.4 million, and $227.0 million, respectively.\nOn September 27, 2021, we issued $300 million in aggregate principal amount of 7.0% senior notes due 2026 (the \u201cNotes\u201d). The Notes were sold in a private placement in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended. The Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the Company\u2019s existing and certain of its future subsidiaries that guarantee the revolving credit facility. Interest on the notes is payable semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2022. At any time prior to November 1, 2023, the Company may redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount plus a make-whole premium, as described in the indenture, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. At any time on or after November 1, 2023, the Company may redeem the Notes at redemption prices set forth in the indenture, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. In addition, at any time prior to November 1, 2023, the Company may use the proceeds of certain equity offerings to redeem up to 40% of the aggregate principal amount of the Notes issued under the indenture at a redemption price equal to 107.0% of the principal amount of Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.\nWe used the net proceeds from this offering to repay a portion of the outstanding indebtedness under our revolving credit facility and for general corporate purposes.\n35\nTable of Contents\nDuring fiscal 2023, the Company repurchased and extinguished $9.0 million of its Notes, net of $0.1 million unamortized debt issuance costs related to the extinguished debt, on the open market for a reacquisition price of $7.2 million. In accordance with ASC 470, the Company recognized the $1.8 million gain on extinguishment as a component of interest expense in the Company's Consolidated Statements of Operations.\nThe indenture governing the Notes contains certain covenants that, among other things, limit the Company\u2019s ability and the ability of its restricted subsidiaries to (i) incur additional indebtedness or issue certain disqualified stock and preferred stock; (ii) pay dividends or distributions or redeem or purchase capital stock; (iii) prepay subordinated debt or make certain investments; (iv) transfer and sell assets; (v) create or permit to exist liens; (vi) enter into agreements that restrict dividends, loans and other distributions from their subsidiaries; (vii) engage in a merger, consolidation or sell, transfer or otherwise dispose of all or substantially all of their assets; and (viii) engage in transactions with affiliates. However, these covenants are subject to a number of important detailed qualifications and exceptions.\nThe Company continues to believe stock repurchases are a viable component of the Company\u2019s long-term financial strategy and an excellent use of excess cash when the opportunity arises. However, our revolving credit facility and the Notes limit share repurchases up to $90.0 million from March 26, 2021 through June 30, 2022 plus up to 50% of consolidated adjusted net income for the period commencing January 1, 2019. As of March 31, 2023, subject to further approval from our Board of Directors, we could repurchase approximately $29.2 million of shares under the terms of our debt facilities. Additional share repurchases can be made subject to compliance with, among other things, applicable restricted payment covenants under the revolving credit facility and the Notes. \nThe Company acquired $28.3 million in loans receivable, net during fiscal 2023. The Company believes that attractive opportunities to acquire new branches or receivables from its competitors or to acquire branches in communities not currently served by the Company will continue to become available as conditions in local economies and the financial circumstances of owners change.\n\u00a0\nThe Company has a revolving credit facility with a syndicate of banks. The revolving credit facility provides for revolving borrowings of up to the lesser of (a)\u00a0the aggregate commitments under the facility and (b)\u00a0a borrowing base, and it includes a $300,000 letter of credit under a $1.5 million subfacility.\nSubject to a borrowing base formula, the Company may borrow at the rate of one month SOFR plus 0.10% and an applicable margin of 3.5% with a minimum rate of 4.5%. At March 31, 2023, the aggregate commitments under the revolving credit facility were $685.0 million. The $300,000 letter of credit outstanding under the subfacility expires on December 31, 2023; however, it automatically extends for one year on the expiration date. The borrowing base limitation is equal to the product of (a) the Company\u2019s eligible loans receivables, less unearned finance charges, insurance premiums and insurance commissions, and (b) an advance rate percentage that ranges from 70% (decreasing to as low as 62% for the calendar months ending October 31, 2022 through June 30, 2023) to 80% based on a collateral performance indicator, as more completely described below. Further, under the amended and restated revolving credit agreement, the administrative agent has the right to set aside reasonable reserves against the available borrowing base in such amounts as it may deem appropriate, including, without limitation, reserves with respect to certain regulatory events or any increased operational, legal, or regulatory risk of the Company and its subsidiaries.\nFor the year ended March 31, 2023, the effective interest rate, including the commitment fee, on borrowings under the revolving credit facility was 7.0%. The Company pays a commitment fee equal to 0.50% per annum of the daily unused portion of the commitments. On March 31, 2023, $307.9 million was outstanding under this facility, and there was $318.7 million of unused borrowing availability under the borrowing base limitations. \nThe Company\u2019s obligations under the revolving credit facility, together with treasury management and hedging obligations owing to any lender under the revolving credit facility or any affiliate of any such lender, are required to be guaranteed by each of the Company\u2019s wholly-owned subsidiaries. The obligations of the Company and the subsidiary guarantors under the revolving credit facility, together with such treasury management and hedging obligations, are secured by a first-priority security interest in substantially all assets of the Company and the subsidiary guarantors. \nThe agreement governing the Company\u2019s revolving credit facility contains affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, pay dividends and repurchase or redeem capital stock, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, redeem or prepay subordinated debt, amend subordinated debt documents, make changes in the nature of its business, and engage in transactions with affiliates. The agreement allows the Company to incur subordinated debt that matures after the termination date for the revolving credit facility and that contains specified subordination terms, subject to limitations on amount imposed by the financial covenants under the agreement. The agreement's \n36\nTable of Contents\nfinancial covenants include (i) a minimum consolidated net worth of $325.0 million on and after December 31, 2020; (ii) a maximum ratio of total debt to consolidated adjusted net worth of 2.5 to 1.0 (decreasing to 2.25 to 1.0 for the fiscal quarters ending March 31, 2023 and June 30, 2023, 2.0 to 1.0 for the fiscal quarter ending September 30, 2023, and 2.25 to 1.0 for the fiscal quarter ending December 31, 2023); (iii) a maximum collateral performance indicator of 26.0% as of the end of each calendar month (increasing to 28.0% for the calendar months ending October 31, 2022 through June 30, 2023); and (iv) a minimum fixed charges coverage ratio of 1.25 to 1.0 for the fiscal quarter ended December 31, 2022, 1.15 to 1.0 for the fiscal quarters ending March 31, 2023 and June 30, 2023, 1.50 to 1.0 for the fiscal quarter ending September 30, 2023, 2.0 to 1.0 for the fiscal quarter ending December 31, 2023, and 2.75 to 1.0 for each fiscal quarter thereafter, where the ratio for the most recent four consecutive fiscal quarters must be at least 2.0 to 1.0 in order for the Company to declare dividends or purchase any class or series of its capital stock or other equity.\nThe collateral performance indicator is equal to the sum of (a) a three-month rolling average rate of receivables at least sixty days past due and (b) an eight-month rolling average net charge-off rate. The Company was in compliance with these covenants at March 31, 2023 and does not believe that these covenants will materially limit its business and expansion strategy.\nThe agreement contains events of default including, without limitation, nonpayment of principal, interest or other obligations, violation of covenants, misrepresentation, cross-default to other debt, bankruptcy and other insolvency events, judgments, certain ERISA events, actual or asserted invalidity of loan documentation, invalidity of subordination provisions of subordinated debt, certain changes of control of the Company, and the occurrence of certain regulatory events (including the entry of any stay, order, judgment, ruling or similar event related to the Company\u2019s or any of its subsidiaries\u2019 originating, holding, pledging, collecting or enforcing its eligible loans receivables that is material to the Company or any subsidiary) which remains unvacated, undischarged, unbonded or unstayed by appeal or otherwise for a period of 60 days from the date of its entry and is reasonably likely to cause a material adverse change. \nThe Company believes that cash flow from operations and borrowings under its revolving credit facility or other sources will be adequate to fund the expected cash requirements from contractual and other obligations and cost of opening or acquiring new branches, including funding initial operating losses of new branches and funding loans receivable originated by those branches and the Company's other branches (for the next 12 months and for the foreseeable future beyond that). Except as otherwise discussed in this report including, but not limited to, any discussions in Part 1, Item 1A, \"Risk Factors\" (as supplemented by any subsequent disclosures in information the Company files with or furnishes to the SEC from time to time), management is not currently aware of any trends, demands, commitments, events or uncertainties that it believes will or could result in, or are or could be reasonably likely to result in, any material adverse effect on the Company\u2019s liquidity. \nShare Repurchase Program\nOn February 24, 2022, the Board of Directors authorized the Company to repurchase up to $30.0 million of the Company\u2019s outstanding common stock, inclusive of the amount that remains available for repurchase under prior repurchase authorizations. As of March 31, 2023, the Company had $1.1 million in aggregate remaining repurchase capacity under its current share repurchase program. The timing and actual number of shares of common stock repurchased will depend on a variety of factors, including the stock price, corporate and regulatory requirements, restrictions under the Company's debt agreements and other market and economic conditions.\nThe Company continues to believe stock repurchases are a viable component of the Company\u2019s long-term financial strategy and an excellent use of excess cash when the opportunity arises. However, our revolving credit facility and the Notes limit share repurchases up to $90.0 million from March 26, 2021 through June 30, 2022 plus up to 50% of consolidated adjusted net income for the period commencing January 1, 2019. As of March 31, 2023, subject to further approval from our Board of Directors, we could repurchase approximately $29.2 million of shares under the terms of our debt facilities. Additional share repurchases can be made subject to compliance with, among other things, applicable restricted payment covenants under the revolving credit facility and the Notes. Our first priority is to ensure we have enough capital to fund loan growth. To the extent we have excess capital, we may repurchase stock, if appropriate and as authorized by our Board of Directors. As of March 31, 2023, the Company's debt outstanding was $595.3 million, net of $3.5 million unamortized debt issuance costs related to the unsecured senior notes payable, and its shareholders' equity was $385.2 million resulting in a debt-to-equity ratio of 1.6:1.0. Management will continue to monitor the Company's debt-to-equity ratio and is committed to maintaining a debt level that will allow the Company to continue to execute its business objectives, while not putting undue stress on its consolidated balance sheet.\nInflation\nThe Company does not believe that inflation, within reasonably anticipated rates, will have a materially adverse effect on its financial condition.\u00a0Although inflation would increase the Company\u2019s operating costs in absolute terms and may impact the ability or willingness of borrowers to repay their loans, the Company expects that the same decrease in the value of money \n37\nTable of Contents\nwould result in an increase in the size of loans demanded by its customer base.\u00a0It is reasonable to anticipate that such a change in customer preference would result in an increase in total loan receivables and an increase in absolute revenues to be generated from that larger amount of loans receivable.\u00a0The Company believes that this increase in absolute revenues should offset any increase in operating costs.\u00a0In addition, because the Company\u2019s loans have a relatively short contractual term and average life, it is unlikely that loans made at any given point in time will be repaid with significantly inflated dollars.\nLegal Matters\nFrom time to time the Company is involved in litigation relating to claims arising out of its operations in the normal course of business.\u00a0See Part I, Item 3, \u201cLegal Proceedings\u201d and Note 16 to our audited Consolidated Financial Statements for further discussion of legal matters.\u00a0",
+  "item7a": ">Item 7A.\u00a0\nQuantitative and Qualitative Disclosures About Market Risk\n\u00a0\nOur operations expose us to a variety of market risks, including the effects of changes in interest rates. We monitor and manage these financial exposures as an integral part of our overall risk management program.\nInterest Rate Risk\nThe Company\u2019s outstanding debt under its revolving credit facility was $307.9 million at March\u00a031, 2023.\u00a0Interest on borrowings under this facility is based on the greater of 4.5% or one month SOFR plus 0.10% and an applicable margin of 3.5%.\nBased on the outstanding balance under the Company's revolving credit facility at March\u00a031, 2023, a change of 1% in the  interest rate would cause a change in interest expense of approximately $3.1 million on an annual basis.\n38\nTable of Contents\nPart II",
+  "cik": "108385",
+  "cusip6": "981419",
+  "cusip": ["981419904", "981419104"],
+  "names": ["WORLD ACCEP CORPORATION"],
+  "source": "https://www.sec.gov/Archives/edgar/data/108385/000010838523000022/0000108385-23-000022-index.htm"
+}
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+{
+  "item1": ">ITEM 1. \nBUSINESS.\nIn this annual report on Form 10-K, \u201cApplied\u201d refers to Applied Industrial Technologies, Inc., an Ohio corporation. References to \u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d and \u201cthe Company\u201d refer to Applied and its subsidiaries. \nWe are a leading distributor and solutions provider of industrial motion, power, control, and automation technologies.  Through our comprehensive network of approximately 6,200 employee associates and approximately 580 facilities including service center, fluid power, flow control, and automation operations, as well as repair shops and distribution centers, we offer a selection of more than 8.8 million stock keeping units with a focus on industrial bearings, power transmission products, fluid power components and systems, specialty flow control, and advanced factory automation solutions.  We market our products with a set of service solutions including inventory management, engineering, design, assembly, repair, and systems integration, as well as customized mechanical, fabricated rubber, and shop services.  Our customers use our products and services for both MRO (maintenance, repair, and operating) and OEM (original equipment manufacturing) applications across a variety of end markets primarily in North America, as well as Australia, New Zealand, and Singapore.  Headquartered in Cleveland, Ohio, Applied and its predecessor companies have engaged in business since 1923.\nOur internet address is www.applied.com.  The following documents are available via hyperlink from the investor relations area of our website:\n\u2022\nApplied's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, together with Section 16 insider beneficial stock ownership reports - these documents are posted as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission\n\u2022\nApplied's Code of Business Ethics\n\u2022\nApplied's Board of Directors Governance Principles and Practices\n\u2022\nApplied's Director Independence Standards\n\u2022\nCharters for the Audit, Corporate Governance & Sustainability, and Executive Organization & Compensation Committees of Applied's Board of Directors\nThe information available via hyperlink from our website is not incorporated into this annual report on Form 10-K.\nGENERAL DEVELOPMENT OF BUSINESS\nInformation regarding developments in our business can be found in Item 7 under the caption \u201cManagement's Discussion and Analysis of Financial Condition and Results of Operations.\u201d  This information is incorporated here by reference.\nVALUE PROPOSITION\nWe serve a segment of the industrial market that requires technical expertise and service given that our products and solutions are directly tied to companies\u2019 production and efficiency initiatives.  As such, we believe we are integral to our customers\u2019 supply chains considering the critical nature and direct exposure our solutions have on our customers\u2019 core production equipment and plant capabilities.  While we compete with other distributors and service providers offering products and solutions addressing this area of the industrial supply chain, we believe our industry position and value proposition benefits from relative advantages tied to the following key attributes:\n1) Technical expertise in motion control technologies and related service offerings\n2) Broad in-stock product offering, inventory availability, and repair capabilities\n3) Tenured relationships with industrial customers and leading suppliers\n4) Scale and proximity of our service center network relative to customer facilities\n5) Leading positions in engineered fluid power and flow control solutions\n6) Expanding capabilities in advanced automation solutions and smart technologies\n7) Talent acquisition and development of technically-oriented sales associates, engineers, and service personnel \n8) Business systems and distribution capabilities\n9) Complementary offerings including indirect consumable supply inventory management\nWe focus on helping customers minimize their production downtime, improve machine performance, and reduce overall procurement and maintenance costs, as well as optimize the efficiency and safety of their facilities and equipment.  A primary focus for our service center network is responding to a critical \u201cbreak-fix\u201d situation, which requires knowledge of a customer\u2019s facility, localized inventory, timely delivery capabilities, service execution, and accountability.  In addition, our fluid power, flow control, and automation operations design, engineer, and \n2\nTable of Contents\nintegrate solutions focused on making a customer\u2019s operations and equipment more productive, cost and energy-efficient, and automated.  We believe our products and solutions are increasingly critical within the industrial supply chain given increased manufacturing activity in the U.S., potential reshoring or localization of supply chains across North America, greater supply chain investments following the pandemic, an aging and tighter customer labor force, more sophisticated production equipment and processes, a greater focus on plant floor optimization, and compliance and regulatory requirements.\nINDUSTRY AND COMPETITION\nWe primarily compete within North America which we believe offers significant growth potential given our industry position, established distribution and sales network, market fragmentation, and customer technical requirements, as well as opportunities tied to automation and smart technologies.  In addition, reshoring and localization of supply chains could be a meaningful growth catalyst in years to come.  Growth within our industry is influenced by broader industrial production and capacity utilization, as well as inflation, labor dynamics, capital spending, geopolitical events, factory optimization initiatives, changes in industrial equipment technologies, and supply chain requirements.\nOur principal competitors are specialist and general line distributors of bearings, power transmission products, fluid power components and systems, flow control solutions, industrial rubber products, linear motion components, and automation solutions, and, to a lesser extent, providers of tools, safety products, and other industrial and maintenance supplies.  These competitors include local, regional, national, and multinational operations.  We also compete with original equipment manufacturers and integrators.  The identity and number of our competitors vary throughout the geographic, industry, and product markets we serve. \nSTRATEGIC GROWTH AND OPERATIONAL OPPORTUNITIES\n\u2022\nOptimize operations and capture market share across our core service center network\n.\n \n Our network of service centers located close to industrial companies allows us to respond quickly and effectively to critical MRO situations involving direct production infrastructure and industrial equipment.  We believe more sophisticated industrial production processes and customer labor constraints, as well as increased industrial capacity and manufacturing activity across North America could drive greater demand for our products and services.  We continue to deploy initiatives to further enhance our capabilities across our service center network and gain market share.  These include investments in analytics, strategic account penetration, sales process optimization, talent development, and digital channel solutions, as well as fully leveraging and cross-selling our expanded product and service platform across fluid power, flow control, automation, and consumables solutions.\n\u2022\nExtend our leading fluid power and flow control position as demand for comprehensive solutions grows\n.  We provide innovative fluid power and flow control solutions including systems design and engineering, electronic control integration, software programming, valve actuation, compliance consulting, fabrication and assembly, and dedicated service and repair.  Demand for these solutions is increasing across a variety of industrial, off-highway mobile, technology, and process related applications given a greater focus on power consumption, plant efficiency and automation, emissions control, electrification, remote monitoring, advancements in machining, regulatory and compliance standards, and data analytics.  We believe our service and engineering capabilities, shop network, and supplier relationships, combined with our software coding and smart technology application knowledge, are key competitive advantages.  We see opportunities to leverage these advantages across new and underserved geographies, as well as through new commercial solutions that could drive a greater share gain of this market opportunity in coming years. \n\u2022\nExpand automation platform and develop growth around emerging industrial technologies\n.  We are expanding our position and capabilities focused on advanced factory automation and smart technologies that optimize and connect customers\u2019 industrial supply chains.  We believe we have a favorable position to capture this addressable market given our technical product focus, service capabilities, embedded customer relationships and knowledge across direct production infrastructure and equipment, and existing supplier relationships.  Following several business acquisitions made in recent years, we now offer products and solutions focused on the design, assembly, integration, and distribution of machine vision, robotics, digital networking, and motion control technologies.  Our emerging growth across these areas is diversifying our end-market exposure with greater penetration into technology, life sciences, logistics, and food and beverage industries. We expect to continue to expand our automation footprint and capabilities in coming years, as well as pursue opportunities tied to the Industrial Internet of Things (IIoT).  We believe this market potential could be meaningful as technology continues to converge within traditional industrial supply chains and end-markets.   \n\u2022\nExecute ongoing operational initiatives supporting margin expansion\n.  We have a number of initiatives focused on driving operational improvements throughout the organization.  Systems investments in recent \n3\nTable of Contents\nyears including common ERP platforms are supporting opportunities in leveraging shared services, refining our sales management process, and standardizing pricing and sourcing functions, while we continue to optimize our shop and distribution network and analytics.  We also remain focused on achieving margin synergies across our operations following expansion into flow control and automation.  This includes enhanced pricing functions, leveraging vendor procurement, freight savings, and refined cost management.  Combined with growth in more profitable areas of our business and our history of cost accountability, we see ongoing opportunity to optimize our margin profile and cash generation in coming years.\n\u2022\nPursue value-creating acquisitions to supplement growth and strengthen industry position\n.            We expect to pursue additional acquisitions aligned with our growth strategy and long-term financial targets.  We view acquisitions as an important growth consideration given high fragmentation, greater operational and technical requirements, and supplier authorizations within the markets we serve.  We believe our sourcing strategy, cash generation capabilities, industry relationships, and operational discipline are key to our acquisition success.  In addition, dedicated corporate teams and related support functions provide strategic oversight of critical work streams and integration execution, which we believe enhances our ability to capture synergistic value.  Over the near to intermediate-term, our acquisition priorities are focused on continuing to expand our current offerings, while further enhancing our technical differentiation and value-added service capabilities.\nOPERATIONS\nOur distribution and sales network consists of approximately 450 locations in our Service Center Distribution segment and approximately 130 locations in our Engineered Solutions segment.  This includes service centers, distribution centers, and facilities tied to our fluid power, flow control, and automation operations.  Our service centers resemble local inventory hubs located in close proximity to our customers and focused primarily on MRO related fulfillment and service needs.  Our fluid power, flow control, and automation locations support technical and shop-oriented services integral to the more specialized and integrated nature of the products and solutions they provide.  Other operations and channels we market through include inventory management services for indirect consumable supplies and digital solutions including our Applied.com website, electronic data interchange (EDI) and other electronic interfaces with customers' technology platforms and plant maintenance systems. \nOur distribution centers provide daily service to our service centers, helping replenish inventories and shipping products directly to customers where appropriate.  An efficient supply chain and timely delivery of our products is vital to our value proposition particularly when customers require products for emergency repairs.  We utilize dedicated third-party transportation providers, our own delivery vehicles, as well as surface and air common carrier and courier services.  Customers may also pick up items at our service centers.  We maintain product inventory levels at each service center tailored to the local market.  These inventories consist of standard items as well as other items specific to local customer demand. \nOur operations are primarily based in the U.S. where 87% of our fiscal 2023 sales were generated.  We also have international operations, the largest of which is in Canada (7% of fiscal 2023 sales) with the balance (6% of fiscal 2023 sales) in Mexico, Australia, New Zealand, and Singapore. \nSUPPLIERS\nWe are a leading distributor of products including bearings, power transmission products, engineered fluid power components and systems, specialty flow control solutions, advanced automation products, industrial rubber products, linear motion components, tools, safety products, and other industrial and maintenance supplies.\nThese products are generally supplied to us by manufacturers whom we serve as a non-exclusive distributor.  The suppliers also may provide us product training, as well as sales and marketing support.  Authorizations to represent particular suppliers and product lines vary by geographic region, particularly for our fluid power, flow control, and automation businesses.  We believe our supplier relationships are generally good, and many have existed for decades.  The disruption of relationships with certain suppliers, or the disruption of their operations, could adversely affect our business.\nOur product suppliers typically confine their direct sales activities to large-volume transactions, mainly with large original equipment manufacturers.  The suppliers generally do not sell maintenance and repair products directly to the customer, but instead refer the customer to us or another distributor.\nMARKETS \nWe purchase from thousands of product manufacturers and resell the products to thousands of customers in a wide variety of industries, including agriculture and food processing, cement, chemicals and petrochemicals, fabricated \n4\nTable of Contents\nmetals, forest products, industrial machinery and equipment, life sciences, mining, oil and gas, primary metals, technology, transportation, and utilities, as well as to government entities.  Customers range from very large businesses, with which we may have multiple-location relationships, to very small ones.  We are not significantly dependent on a single customer or group of customers, the loss of which would have a material adverse effect on our business as a whole, and no single customer accounts for more than 4% of our fiscal 2023 sales.\nSERVICES\nWe believe part of our success, differentiation, and competitive advantage is attributable to the comprehensive set of services and solutions we provide, which we view as critical given the technical nature and application of our core product offering of motion, power, control, and automation technologies.  The foundation of our service capabilities lies with our technically-oriented associate team, which includes engineers, industry segment specialists, mechanics, technicians, fluid power specialists, as well as our systems, shop network, and supplier relationships.  We believe knowledge and service capabilities relating to our core product offering are increasingly needed across our customer base given skilled labor constraints within their operations, maintenance requirements, and more sophisticated plant equipment and processes.  Our services and solutions help customers minimize production downtime, improve machine performance, expand their engineering capabilities, and reduce overall procurement and maintenance costs.  By providing high levels of service, product and industry expertise, and technical support, while at the same time offering product breadth and competitive pricing, we believe we develop stronger, longer-lasting, and more profitable customer relationships.   See the Reportable Segments section below for more detail on the various service solutions we provide to customers.\nREPORTABLE SEGMENTS\nWe report results of operations in two segments: 1) Service Center Based Distribution, and 2) Engineered Solutions.  In fiscal 2023, our Service Center Based Distribution segment represented 67% of our total sales, while our Engineered Solutions segment represented 33% of our total sales. \nService Center Based Distribution\n.  Our Service Center Based Distribution segment includes our legacy MRO distribution operations across North America, Australia, and New Zealand.  This business operates through local service centers and distribution centers with a focus on providing products and services addressing the maintenance and repair of motion control infrastructure and production equipment.  Products primarily include industrial bearings, motors, belting, drives, couplings, pumps, linear motion products, hydraulic and pneumatic components, filtration supplies, and hoses, as well as other related supplies for general operational needs of customers\u2019 machinery and equipment.\nService center locations are stocked with product inventory tailored to each local market and staffed with customer sales and service representatives, account managers, as well as product and industry specialists.  Customer sales and service representatives receive, process, and expedite customer orders, provide product information, and assist account managers in serving customers.  Account managers make onsite calls to customers to provide product information, identify customer requirements, make recommendations, and assist in implementing equipment maintenance and storeroom management programs.  Industry specialists assist with product applications in their areas of expertise.  Service centers market product offerings with a suite of services that create additional value for the customer.  This includes onsite training, product fabrication and repair, and inventory management solutions.  We also provide analysis and measurement of productivity improvement and cost savings potential from these services through our Applied Documented Value-Added\n\u00ae\n (DVA\n\u00ae\n) reports.  \nThe segment includes operations focused on certain end markets and indirect consumable supplies through vendor managed inventory solutions, as well as regional fabricated rubber shops and service field crews, which install, modify, and repair conveyor belts and rubber linings, and make hose assemblies in accordance with customer requirements.\nEngineered Solutions\n.  Our Engineered Solutions segment includes our operations that specialize in distributing, engineering, designing, integrating, and repairing hydraulic and pneumatic fluid power technologies, and engineered flow control products and services.  We believe we are the largest distributor and solutions provider of fluid power and industrial flow control products and solutions in the U.S.  The segment also includes our operations that focus on advanced automation solutions, including machine vision, robotics, motion control, and smart technologies.\nOur fluid power operations offer products and services primarily used within industrial, off-highway mobile, and technology applications.  Fluid power products include hydraulic and pneumatic technologies using liquids and gases to transmit power, typically in smaller spaces than other forms of power transmission.  Hydraulic products offer high power to weight ratios, high torque at low speeds, and power reliability, while pneumatic products are focused on \n5\nTable of Contents\nlightweight applications in need of speed and precision.  Our fluid power products and solutions are commonly used for off-highway equipment, heavy industrial equipment and machines at factories, marine and offshore equipment, factory automation, food processing equipment, packaging operations, and downstream energy process systems. Operations are supported by a team of certified fluid power specialists, mechanics, technicians, and engineers that provide technical services ranging from system design and integration, electronic control integration, hydraulic assemblies, repair and rebuild, manifold design and assembly, customized filtration solutions, software programming and repair, and hydraulic system retrofits, and integration of autonomous and electrification features.\nOur specialty flow control operations provide highly engineered process flow control products, solutions, and services.  Products include pumps, valves, fittings, hoses, process instrumentation, actuators, and filtration supplies which are used to control the flow of liquids and gases in mission-critical industrial applications.  Our flow control products and services are focused on MRO related applications; OEMs; and engineering, procurement, and construction (EPC) firms across a variety of industries including chemicals, steel, power, oil and gas, pulp and paper, life sciences, pharmaceuticals, food and beverage, and general industrials.  Similar to our fluid power operations, our flow control offering includes technical service capabilities such as flow control systems integration, repair services, valve actuation, process instrumentation, pipe and hose fabrication, and compliance consulting.  Our flow control solutions are increasingly used in applications tied to required infrastructure for decarbonization initiatives, including providing technical support for the configuration, assembly, and testing of process systems.\nOur advanced automation operations provide solutions focused on the design, assembly, integration, and distribution of machine vision, collaborative robots, mobile robots, RFID, industrial networking, and machine learning technologies for OEMs, machine builders, integrators, and other industrial and technology end users.  Products and solutions are marketed across a variety of industries including technology, medical, life sciences, biotechnology, data centers, food and beverage, logistics, consumer, and general industrial.  Our automation business helps customers develop, produce, and integrate machine and facility automation solutions using comprehensive technology and application knowledge.  A core element of our strategy and value proposition within automation is our value-added and engineered solution capabilities, enabling us to provide in-depth consultative, design, engineering, assembly, testing, and support services for various customer requirements.  \nHUMAN CAPITAL\nWe attribute our business success to talented, dedicated employee associates who live our Core Values of integrity, respect, customer focus, commitment to excellence, accountability, innovation, continuous improvement, and teamwork. \nAt June 30, 2023, we had approximately 6,200 associates across six countries, with geographic and segment counts as follows:\nCountry\nAssociates\nSegment\nAssociates\nUnited States\n4,800\nService Center Based Distribution\n4,050\nCanada\n650\nEngineered Solutions\n1,850\nOther Countries\n750\nOther\n300\nAssociate Development\n.\n \nWe strive to attract, retain, and develop a diverse group of high-performing associates, empowering them to achieve their potential and providing them opportunities to test their skills, increase their responsibilities, and advance their careers.  Applied\u2019s commitment to associate development is reflected in our investments in a learning management system (offering a wide array of internal facilitated training courses, supplier product training, and other third-party courses), a modern social learning platform, and in-person training through which associates can continually expand their knowledge base and position themselves to achieve their professional goals.  During the fiscal year we implemented manager training on the importance of identifying and providing resources for associate mental health needs.  Approximately 55% of eligible managers have completed this training as of the end of the fiscal year.\nCompensation and Benefits\n.  We seek to provide competitive compensation and benefits in order to help attract and retain high quality associates.  In the U.S., Applied offers comprehensive benefits with choices to fit our associates\u2019 varied needs, including the following: medical, dental, vision, and prescription drug insurance; short and long-term disability benefits; life insurance plans; Section 401(k) retirement savings plan with company match; paid vacations and holidays; incentive programs in support of our pay for performance culture; an employee assistance program; and an educational reimbursement program.\nDiversity and Inclusion\n.  We are committed to a diverse and inclusive workplace that is respectful to all associates and believe this serves as a cornerstone for a strong company.  We employ multiple initiatives to recruit, train, and \n6\nTable of Contents\nadvance diverse associates.  In the area of recruitment, for example, we engage in on-campus events and recruitment strategies that increase our exposure to diverse populations in order to enhance the diversity of our applicant pool.\nHealth and Safety\n.\n \n Applied is also committed to the safety and well-being of our associates.  In the U.S., all associates are required to complete specific assigned online training courses annually, which include offerings on workplace safety hazards and vehicle safety.  In addition, role-specific training is assigned based on the types of hazards associates may face while carrying out their job function, such as training modules on operating in confined spaces, forklift operation, and lockout/tagout procedures.  Our U.S. associates completed over 35,000 safety training courses during the fiscal year, helping to raise awareness of workplace risks.\nSEASONALITY  \nOur business has exhibited minor seasonality.  In particular, sales per day during the first half of our fiscal year have historically been slightly lower than the second half due, in part, to the impact of customer plant shutdowns, summer vacations and holidays. \nPATENTS, TRADEMARKS, TRADE NAMES, AND LICENSES \nCustomer recognition of our service marks and trade names, including Applied Industrial Technologies\n\u00ae\n, Applied\n\u00ae\n, and AIT\n\u00ae\n, is an important contributing factor to our sales.  Patents and licenses are not of material importance to our business.\nRAW MATERIALS AND GENERAL BUSINESS CONDITIONS  \nOur operations are dependent on general industrial and economic conditions.  We would be adversely affected by the unavailability of raw materials to our suppliers, prolonged labor disputes experienced by suppliers or customers, or by events or conditions that have an adverse effect on industrial activity generally in the markets we serve or on key customer industries.\nENVIRONMENTAL LAWS\nWe believe that compliance with government regulations relating to the discharge of materials into the environment or otherwise relating to environmental protection will not have a material adverse effect on our capital expenditures, earnings, or competitive position.  ",
+  "item1a": ">ITEM 1A. \nRISK FACTORS.\nIn addition to other information set forth in this report, you should carefully consider the following factors that could materially affect our business, financial condition, or results of operations.  The risks described below are not the only risks facing the Company.  Certain risks are identified below in Item 7 under the caption \u201cManagement's Discussion and Analysis of Financial Condition and Results of Operations.\u201d  This information is incorporated here by reference.  Additional risks not currently known to us, risks that could apply broadly to issuers, or risks that we currently deem immaterial, may also impact our business and operations.  Risks can also change over time.  Further, the disclosure of a risk should not be interpreted to imply that the risk has not already materialized.  \nGENERAL ECONOMIC AND INDUSTRY RISKS\nOur business depends heavily on the operating levels of our customers and the factors that affect them, including general economic conditions.\n  The markets for our products and services are subject to conditions or events that affect demand for goods and materials that our customers produce.  Consequently, demand for our products and services has been and will continue to be influenced by most of the same factors that affect demand for and production of customers' goods and materials.\nWhen customers or prospective customers reduce production levels because of lower demand, increased supply, higher costs, supply chain or labor market disruptions, tight credit conditions, unfavorable currency exchange rates, adverse trade policies, foreign competition, other competitive disadvantage, offshoring of production, geopolitical instability, or other reasons, their need for our products and services diminishes.  Selling prices and terms of sale come under pressure, adversely affecting the profitability and the durability of customer relationships, and credit losses may increase.  Inventory management becomes more difficult in times of economic uncertainty.  Volatile economic and credit conditions also make it more difficult for us, as well as our customers and suppliers, to forecast and plan future business activities.\nOur business, results of operation and financial condition have been, and could in the future be, adversely affected by a pandemic, epidemic or other public health emergency.  \nThe COVID-19 pandemic created significant volatility, uncertainty, and economic disruption, and resulted in lost or delayed sales to us, and we \n7\nTable of Contents\nexperienced business disruptions as we modified our business practices. Another pandemic, including a new COVID-19 variant, or other public health emergency, together with preventative measures taken to contain or mitigate such crises, could impact our results of operations and financial condition in a variety of ways, such as: impact our customers such that the demand for our products and services could change; disrupt our supply chain and impact the ability of our suppliers to provide products as required; disrupt our ability to sell and provide our products and services and otherwise operate effectively; increase incremental costs resulting from the adoption of preventative measures and compliance with regulatory requirements; create financial hardship on customers, including by creating restrictions on their ability to pay for our services and products; result in closures of our facilities or the facilities of our customers or suppliers; and reduce customer demand on purchasing incentives we earn from suppliers. \nIn addition, a pandemic or other public health emergency could impact the proper functioning of financial and capital markets, foreign currency exchange rates, product and energy costs, labor supply and costs, and interest rates.  Any pandemic or other public health emergency could also amplify the other risks and uncertainties described in this Annual Report on Form 10-K.\nWe cannot reasonably predict the ultimate impact of any pandemic or other public health emergency, including the extent of any adverse impact on our business, results of operations and financial condition, which will depend on, among other things, the duration and spread, the impact of governmental regulations that may be imposed in response, the effectiveness of actions taken to contain or mitigate the outbreak, the availability, safety and efficacy of vaccines, including against emerging variants of the infectious disease, and global economic conditions. \nSupply chain disruptions could adversely affect our results of operations and financial condition.             \nOur supply chain, including transportation availability, staffing, and cost, could be disrupted by\n \nnatural or human-induced events or conditions, such as power or telecommunications outage, security incident, terrorist attack, war, other geopolitical events, public health emergency, earthquake, extreme weather events, fire, flood, other natural disasters, transportation disruption, labor actions, including strikes, raw materials shortages, financial problems or insolvency, trade regulations or actions, inadequate manufacturing capacity or utilization to meet demand, or other reasons beyond our control.  For example, the COVID-19 pandemic disrupted certain suppliers\u2019 operations and our ability to procure product to meet customer demand fully and timely.  When we can find acceptable alternate sources for certain products, they may cost more.  Impairment of our ability to meet customer demand could result in lost sales, increased costs, reduced profitability, and damage to our reputation.\nConsolidation in our customers' and suppliers' industries could adversely affect our business and financial results.  \nConsolidation continues among our product suppliers and customers.  As customer industries consolidate or customers otherwise aggregate their purchasing power, a greater proportion of our sales could be derived from large volume contracts, which could adversely impact margins.  Consolidation among customers can produce changes in their purchasing strategies, potentially shifting blocks of business among competing distributors and contributing to volatility in our sales and pressure on prices.  Similarly, continued consolidation among suppliers could reduce our ability to negotiate favorable pricing and other commercial terms for our inventory purchases.  There can be no assurance we will be able to take advantage of consolidation trends.\nAn increase in competition could decrease sales or earnings.\n  We operate in a highly competitive industry.    The industry remains fragmented, but is consolidating.  Our principal competitors are specialist and general line distributors of bearings, power transmission products, fluid power components and systems, flow control solutions, automation technologies, industrial rubber products, linear motion components, tools, safety products, oilfield supplies, and other industrial and maintenance supplies.  These competitors include local, regional, national, and multinational operations, and can include catalog and e-commerce companies.  Competition is largely focused in the local service area and is generally based on product line breadth, product availability, service capabilities, and price. Existing competitors have, and future competitors may have, greater financial or other resources than we do, broader or more appealing product or service offerings, greater market presence, stronger relationships with key suppliers or customers, or better name recognition.  If existing or future competitors seek to gain or to retain market share by aggressive pricing strategies or sales methods, business acquisition, or otherwise through competitive advantage, our sales and profitability could be adversely affected.  Our success will also be affected by our ability to continue to provide competitive offerings as customer preferences or demands evolve, for example with respect to product and service types, brands, quality, or prices.  Technological evolution or other factors can render product and service offerings obsolete, potentially impairing our competitive position and our inventory values.\nOur operations outside the United States increase our exposure to global economic and political conditions and currency exchange volatility.\n  Foreign operations contributed 13% of our sales in 2023.  This presence outside the U.S. increases risks associated with exposure to more volatile economic conditions, political \n8\nTable of Contents\ninstability, cultural and legal differences in conducting business (including corrupt practices), economic and trade policy actions, and currency exchange fluctuations.\nOur foreign operations' results are reported in the local currency and then translated into U.S. dollars at applicable exchange rates for inclusion in our consolidated financial statements.  Fluctuations in currency exchange rates affect our operating results and financial position, as well as the comparability of results between financial periods.\nSTRATEGIC AND OPERATIONAL RISKS\nOur business could be adversely affected if we do not successfully execute our strategies to grow sales and earnings. \n We have numerous strategies and initiatives to grow sales, leveraging the breadth of our product offering, supplier relationships, and value-added technical capabilities to differentiate us and improve our competitive position.  We also continually seek to enhance gross margins, manage costs, and otherwise improve earnings.  Many of our activities target improvements to the consistency of our operating practices across our hundreds of locations.  If we do not implement these initiatives effectively, or if for other reasons they are unsuccessful, our business could be adversely affected.\nLoss of key supplier authorizations, lack of product availability, or changes in distribution programs could adversely affect our sales and earnings.\n  Our business depends on maintaining an immediately available supply of various products to meet customer demand.  Many of our relationships with key product suppliers are longstanding, but are terminable by either party.  The loss of key supplier authorizations, or a substantial decrease in the availability of their products (including due to supply chain disruptions, as noted above), could put us at a competitive disadvantage and have a material adverse effect on our business. \nIn addition, as a distributor, we face the risk of key product suppliers changing their relationships with distributors generally, or us in particular, in a manner that adversely impacts us.  For example, key suppliers could change the following: the prices we must pay for their products relative to other distributors or relative to competing brands; the geographic or product line breadth of distributor authorizations; the number of distributor authorizations; supplier purchasing incentive or other support programs; product purchase or stocking expectations; or the extent to which the suppliers seek to serve end users directly.\nThe purchasing incentives we earn from product suppliers can be impacted if we reduce our purchases in response to declining customer demand.\n  Certain product suppliers have historically offered to their distributors, including us, incentives for purchasing their products.  In addition to market, customer account-specific, or transaction-specific incentives, certain suppliers pay incentives to the distributor for attaining specific purchase volumes during a program period.   In some cases, to earn incentives, we must achieve year-over-year growth in purchases with the supplier.  When demand for our products declines, we may be less inclined to add inventory to take advantage of certain incentive programs, thereby potentially adversely impacting our profitability.\nVolatility in product, energy, labor, and other costs can affect our profitability.\n  Product manufacturers may adjust the prices of products we distribute for many reasons, including changes in their costs for raw materials, components, energy, labor, and tariffs and taxes on imports.  In addition, a portion of our own distribution costs is composed of fuel for our sales and delivery vehicles, freight, and utility expenses for our facilities.  Labor costs are our largest expense.  Our ability to pass along increases in our costs in a timely manner to our customers depends on execution, market conditions, and contractual limitations.  Failing to pass along price increases timely in an inflationary environment, such as the current economic climate, or not maintaining sales volume while increasing prices, could significantly reduce our profitability.\nWhile increases in the cost of products, labor, or energy could be damaging to us, decreases in those costs, particularly if severe, could also adversely impact us by creating deflation in selling prices, which could cause our gross profit margin to deteriorate.  Changes in energy or raw materials costs can also adversely affect customers; for example, declines in oil, gas, and coal prices may negatively impact customers operating in those industries and, consequently, our sales to those customers.\nChanges in customer or product mix and downward pressure on sales prices could cause our gross profit percentage to fluctuate or decline.\n  Because we serve thousands of customers in many end markets, and offer millions of products, with varying profitability levels, changes in our customer or product mix could cause our gross profit percentage to fluctuate or decline.  Downward pressure on sales prices could also cause our gross profit percentage to fluctuate or decline.  We can experience downward pressure on sales prices as a result of deflation, pressure from customers to reduce costs, or increased competition.\nOur ability to transact business is highly reliant on information systems.  A disruption or security breach could materially affect our business, financial condition, or results of operation.\n  We depend on information systems to, among other things, process customer orders, manage inventory and accounts receivable collections, \n9\nTable of Contents\npurchase products, manage accounts payable processes, ship products to customers on a timely basis, maintain cost-effective operations, provide superior service to customers, conduct business communications, and compile financial results.  A serious, prolonged disruption of our information systems, due to man-made or natural causes, including power or telecommunications outage, or breach in security, could materially impair fundamental business processes and increase expenses, decrease sales, or otherwise reduce earnings.\nBecause of our reliance on information systems, we are vulnerable to the growing threat of damage or intrusion from computer viruses or other cyber-attacks, including ransomware and business e-mail compromise, on our systems.  Despite precautions taken to prevent or mitigate the risks of such incidents, breaches of our systems could not only cause business disruption, but could also result in the theft of funds, the theft, loss, or disclosure of proprietary or confidential information, or the breach of customer, supplier, or employee information.  A security incident involving our systems, or even an inadvertent failure to comply with data privacy and security laws and regulations, could negatively impact our sales, damage our reputation, and cause us to incur unanticipated legal liability, remediation costs, and other losses and expenses.\nAcquisitions are a key component of our anticipated growth.  We may not be able to identify or to complete future acquisitions, to integrate them effectively into our operations, or to realize their anticipated benefits. \n Many industries we serve are mature.  As a result, acquisitions of businesses have been important to our growth.  While we wish to continue to acquire businesses, we may not be able to identify and to negotiate suitable acquisitions, to obtain financing for them on satisfactory terms, or otherwise to complete acquisitions.  In addition, existing and future competitors, and private equity firms, increasingly compete with us for acquisitions, which can increase prices and reduce the number of suitable opportunities; the acquisitions they make can also adversely impact our market position.\nWe seek acquisition opportunities that complement and expand our operations.  However, substantial costs, delays, or other difficulties related to integrating acquisitions could adversely affect our business or financial results.  For example, we could face significant challenges in consolidating functions, integrating information systems, personnel, and operations, and implementing procedures and controls in a timely and efficient manner.\nFurther, even if we successfully integrate the acquisitions with our operations, we may not be able to realize cost savings, sales, profit levels, or other benefits that we anticipate from these acquisitions, either as to amount or in the time frame we expect.  Our ability to realize anticipated benefits may be affected by a number of factors, including the following: our ability to achieve planned operating results, to reduce duplicative expenses and inventory effectively, and to consolidate facilities; economic and market factors; the incurrence of significant integration costs or charges in order to achieve those benefits; our ability to retain key product supplier authorizations, customer relationships, and employees; our ability to address competitive, distribution, and regulatory challenges arising from entering into new markets (geographic, product, service, end-industry, or otherwise), especially those in which we may have limited or no direct experience; and exposure to unknown or contingent liabilities of the acquired company.  In addition, acquisitions could place significant demand on administrative, operational, and financial resources.\nAn interruption of operations at our headquarters or distribution centers, or in our means of transporting product, could adversely impact our business.  \nOur business depends on maintaining operating activity at our headquarters and distribution centers, and being able to receive and deliver product in a timely manner.  A serious, prolonged interruption due to power or telecommunications outage, security incident, terrorist attack, war, public health emergency, earthquake, extreme weather events, other natural disasters, fire, flood, transportation disruption, or other interruption could have a material adverse effect on our business and financial results.\nFINANCIAL AND REPORTING RISKS\nOur indebtedness entails debt service commitments that could adversely affect our ability to fulfill our obligations and could limit or reduce our flexibility.\n  As of June 30, 2023, we had total debt obligations outstanding of $622.2 million.  Our ability to service our debt and fund our other liquidity needs will depend on our ability to generate cash in the future.  Our debt commitments may (i) require us to dedicate a substantial portion of our cash flows from operations to the payment of debt service, reducing the availability of our cash flow to fund planned capital expenditures, pay dividends, repurchase our shares, complete other acquisitions or strategic initiatives, and other general corporate purposes; (ii) limit our ability to obtain additional financing in the future (either at all or on satisfactory terms) to enable us to react to changes in our business or execute our growth strategies; and (iii) place us at a competitive disadvantage compared to businesses in our industry that have lower levels of indebtedness.  Additionally, any failure to comply with covenants in the instruments governing our debt could result in an event of default.  Any of the foregoing events or circumstances relating to our indebtedness may adversely affect our business, financial position, or results of operations and may cause our stock price to decline.\n10\nTable of Contents\nIn addition, the increase in interest rates has created some tightening in the credit markets.  If credit markets continue to tighten, or if it creates credit market volatility, obtaining additional or replacement financing could be more difficult and the cost of issuing new debt or replacing a credit facility could be higher than under our current facilities.  \nFor more information regarding borrowing and interest rates, see the following sections below: \u201cLiquidity and Capital Resources\u201d in Item 7 under the caption \u201cManagement's Discussion and Analysis of Financial Condition and Results of Operations;\u201d Item 7A under the caption \u201cQuantitative and Qualitative Disclosures about Market Risk;\u201d and notes 6 and 7 to the consolidated financial statements, included below in Item 8 under the caption \u201cFinancial Statements and Supplementary Data.\u201d  That information is incorporated here by reference.\nOur ability to maintain effective internal control over financial reporting may be insufficient to allow us to accurately report our financial results or prevent fraud, and this could cause our financial statements to become materially misleading and adversely affect the trading price of our common stock. \n We require effective internal control over financial reporting in order to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud.  Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud.  Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.  If we cannot provide reasonable assurance with respect to our financial statements and effectively prevent fraud, our financial statements could be materially misstated, which could adversely affect the trading price of our common stock.\nIf we are not able to maintain the adequacy of our internal control over financial reporting, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business, financial condition and operating results could be harmed.  Any material weakness could affect investor confidence in the accuracy and completeness of our financial statements.  As a result, our ability to obtain any additional financing, or additional financing on favorable terms, could be materially and adversely affected.  This, in turn, could materially and adversely affect our business, financial condition, and the market value of our stock and require us to incur additional costs to improve our internal control systems and procedures.  In addition, perceptions of the Company among customers, suppliers, lenders, investors, securities analysts, and others could also be adversely affected.\nGoodwill, long-lived, and other intangible assets recorded as a result of our acquisitions could become impaired.\n  We review goodwill, long-lived assets, including property, plant and equipment and identifiable amortizing intangible assets, for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable.  Factors which may cause an impairment of long-lived assets include significant changes in the manner of use of these assets, negative industry or market trends, significant underperformance relative to historical or projected future operating results, or a likely sale or disposal of the asset before the end of its estimated useful life.  In 2021, we recorded a $49.5 million non-cash charge for the impairment of certain intangible, lease, and fixed assets.\nAs of June 30, 2023, we had remaining $578.4 million of goodwill and $235.5 million of other intangible assets, net.  We assess all existing goodwill at least annually for impairment on a reporting unit basis.  The techniques used in our qualitative assessment and goodwill impairment tests incorporate a number of estimates and assumptions that are subject to change.  Although we believe these estimates and assumptions are reasonable and reflect market conditions forecasted at the assessment date, any changes to these assumptions and estimates due to market conditions or otherwise may lead to an outcome where impairment charges would be required in future periods.\nGENERAL RISK FACTORS\nOur business depends on our ability to attract, develop, motivate, and retain qualified employees.\n  Our success depends on hiring, developing, motivating, and retaining key employees, including executive, managerial, sales, professional, and other personnel.  We may have difficulty identifying and hiring qualified personnel.  In addition, we may have difficulty retaining such personnel once hired, and key people may leave and compete against us.  With respect to sales and customer service positions in particular, we greatly benefit from having employees who are familiar with the products and services we sell, and their applications, as well as with our customer and supplier relationships.  The loss of key employees or our failure to attract and retain other qualified workers could disrupt or adversely affect our business.  In addition, our operating results could be adversely affected by increased competition for employees, shortages of qualified workers, higher employee turnover (including through retirement as the workforce ages), or increased employee compensation or benefit costs.\nWe are subject to legal, regulatory, and litigation risks, which may have a material adverse effect on our business.\n  We are subject to a wide array of laws and regulations.  Changes in the legal and regulatory environment \n11\nTable of Contents\nin which we operate, including with respect to taxes, international trade, employment laws, and data privacy, could adversely and materially affect the Company.      \nIn addition, from time to time, we are involved in lawsuits or other legal proceedings that arise from our business.  These may, for example, relate to product liability claims, commercial disputes, personal injuries, or employment-related matters.  In addition, we could face claims or additional costs arising from our compliance with regulatory requirements, including those relating to the following: our status as a public company; our government contracts; tax compliance; our engagement in international trade; and our collection, storage, or transmission of personal data. \nWe maintain insurance policies that provide limited coverage for some, but not all, of the potential risks and liabilities associated with our business.  The policies are subject to limits, deductibles, and exclusions that result in our retention of a level of risk on a self-insured basis.  \nThe defense and ultimate outcome of lawsuits or other legal proceedings or inquiries may result in higher operating expenses, the inability to participate in existing or future government contacts, or other adverse consequences, which could have a material adverse effect on our business, financial condition, or results of operations.\n12\nTable of Contents",
+  "item7": ">ITEM 7.  \nMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION \n \nAND RESULTS OF OPERATIONS.\nOVERVIEW\nWith approximately 6,200 associates across North America, Australia, New Zealand, and Singapore, Applied Industrial Technologies, Inc. (\"Applied,\" the \"Company,\" \"We,\" \"Us,\" or \"Our\") is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies.  Our leading brands, specialized services, and comprehensive knowledge serve MRO (Maintenance, Repair & Operations) and OEM (Original Equipment Manufacturer) end users in virtually all industrial markets through our multi-channel capabilities that provide choice, convenience, and expertise.  We have a long tradition of growth dating back to 1923, the year our business was founded in Cleveland, Ohio.  At June\u00a030, 2023, business was conducted in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, and Singapore from approximately 580 facilities.\nThe following is Management's Discussion and Analysis of significant factors that have affected our financial condition, results of operations and cash flows during the periods included in the accompanying consolidated balance sheets, statements of consolidated income, consolidated comprehensive income and consolidated cash flows in Item 8 under the caption \"Financial Statements and Supplementary Data.\"  When reviewing the discussion and analysis set forth below, please note that a significant number of SKUs (Stock Keeping Units) we sell in any given year were not sold in the comparable period of the prior year, resulting in the inability to quantify certain commonly used comparative metrics analyzing sales, such as changes in product mix and volume.\nOur fiscal 2023 consolidated sales were $4.4 billion, an increase of \n$602.1 million\n or 15.8% compared to the prior year, with the acquisitions of R.R. Floody Company (Floody), Automation, Inc. and Advanced Motion Systems, Inc. (AMS) increasing sales by $20.0 million or 0.5% and\n unfavorable foreign currency translation of $16.3 million decreasing sales by 0.4%.  Gross profit margin increased to 29.2% for fiscal 2023 from 29.0% for fiscal 2022.  Operating margin increased to 10.7% in fiscal 2023 from 9.4% in fiscal 2022.  \nOur diluted earnings per share was $8.84 in fiscal 2023 versus $6.58 in fiscal 2022. \nShareholders\u2019 equity was $1,458.4 million at June\u00a030, 2023 compared to $1,149.4 million at June\u00a030, 2022.  Working capital increased $246.6 million from June\u00a030, 2022 to $1,106.5 million at June\u00a030, 2023.  The current ratio was 3.0 to 1 and 2.7 to 1 at June\u00a030, 2023 and at\n \nJune\u00a030, 2022, respectively. \nApplied monitors several economic indices that have been key indicators for industrial economic activity in the United States.  These include the Industrial Production (IP) and Manufacturing Capacity Utilization (MCU) indices published by the Federal Reserve Board and the Purchasing Managers Index (PMI) published by the Institute for Supply Management (ISM).  Historically, our performance correlates well with the MCU, which measures productivity and calculates a ratio of actual manufacturing output versus potential full capacity output.  When manufacturing plants are running at a high rate of capacity, they tend to wear out machinery and require replacement parts. \nThe MCU (total industry) and IP indices decreased since June 2022 correlating with an overall decrease in the economy in the same period.  The ISM PMI registered 46.0 in June 2023, a decrease from the June 2022 revised reading of 53.1.  A reading above 50 generally indicates expansion.  The index readings for the months during the most recent quarter, along with the revised indices for previous quarter ends, were as follows:\nIndex Reading\nMonth\nMCU\nPMI\nIP\nJune 2023\n78.9\n46.0\n99.6\nMay 2023\n79.4\n46.9\n99.9\nApril 2023\n79.9\n47.1\n100.1\nMarch 2023\n79.5\n46.3\n99.1\nDecember 2022\n78.9\n48.4\n97.9\nSeptember 2022\n80.8\n51.0\n100.6\nJune 2022\n80.5\n53.1\n100.0\n17\nTable of Contents\nRESULTS OF OPERATIONS \nThis discussion and analysis deals with comparisons of material changes in the consolidated financial statements for the years ended June\u00a030, 2023 and 2022.  For the comparison of the years ended June\u00a030, 2022 and 2021, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2022 Annual Report on Form 10-K.\nThe following table is included to aid in review of Applied\u2019s statements of consolidated income. \nYear Ended June 30,\nAs a % of Net Sales\nChange in $'s Versus Prior Period\n2023\n2022\n% Change\nNet Sales\n100.0\n\u00a0\n%\n100.0\u00a0\n%\n15.8\u00a0\n%\nGross Profit Margin\n29.2\n\u00a0\n%\n29.0\u00a0\n%\n16.3\u00a0\n%\nSelling, Distribution & Administrative Expense\n18.4\n\u00a0\n%\n19.7\u00a0\n%\n8.6\u00a0\n%\nOperating Income\n10.7\n\u00a0\n%\n9.4\u00a0\n%\n32.2\u00a0\n%\nNet Income\n7.9\n\u00a0\n%\n6.8\u00a0\n%\n34.7\u00a0\n%\nSales in fiscal 2023 were $4.4 billion, which was $602.1 million or 15.8% above the prior year, with sales from acquisitions adding $20.0 million or 0.5% and unfavorable foreign currency translation accounting for a decrease of $16.3 million or 0.4%.  There were 252.5 selling days in both fiscal 2023 and 2022.  Excluding the impact of businesses acquired and foreign currency translation, sales were up $598.4 million or 15.7% during the year, driven by an increase from operations reflecting resilient underlying demand across both segments, structural and secular tailwinds across legacy and new markets, and support from company-specific growth opportunities. \nThe following table shows changes in sales by reportable segment.\nAmounts in millions\nAmount of change due to\nYear ended June 30,\nSales Increase\nAcquisitions\nForeign Currency\nOrganic Change\nSales by Reportable Segment\n2023\n2022\nService Center Based Distribution\n$\n2,966.8\n\u00a0\n$\n2,565.6\u00a0\n$\n401.2\u00a0\n$\n\u2014\u00a0\n$\n(16.3)\n$\n417.5\u00a0\nEngineered Solutions\n1,446.0\n\u00a0\n1,245.1\u00a0\n200.9\u00a0\n20.0\u00a0\n\u2014\u00a0\n180.9\u00a0\nTotal\n$\n4,412.8\n\u00a0\n$\n3,810.7\u00a0\n$\n602.1\u00a0\n$\n20.0\u00a0\n$\n(16.3)\n$\n598.4\u00a0\nSales in our Service Center Based Distribution segment, which operates primarily in MRO markets, increased $401.2 million, or 15.6%.  Unfavorable foreign currency translation decreased sales by $16.3 million or 0.6%.  Excluding the impact of foreign currency translation, sales increased $417.5 million or 16.2% during the year, driven by an increase from operations due to ongoing benefits from market position, sales process initiatives, solid growth across national strategic accounts, as well as benefits from cross-selling actions.\nSales in our Engineered Solutions segment increased $200.9 million or 16.1%.  Acquisitions within this segment, primarily Automation, Inc., increased sales $20.0 million or 1.6%.  Excluding the impact of businesses acquired, sales increased $180.9 million or 14.5%, reflecting positive underlying segment demand and driven by expanding technical and engineering capabilities, diverse end-market mix, and cross-selling initiatives, partially offset by slower order activity across the technology sector and ongoing supply chain constraints.\n18\nTable of Contents\nThe following table shows changes in sales by geographical area.  Other countries include Mexico, Australia, New Zealand, and Singapore.  \nAmounts in millions\nAmount of change due to\nYear ended June 30,\nSales Increase\nAcquisitions\nForeign Currency\nOrganic Change\nSales by Geographic Area\n2023\n2022\nUnited States\n$\n3,860.4\n\u00a0\n$\n3,299.8\u00a0\n$\n560.6\u00a0\n$\n20.0\u00a0\n$\n\u2014\u00a0\n$\n540.6\u00a0\nCanada\n315.5\n\u00a0\n291.5\u00a0\n24.0\u00a0\n\u2014\u00a0\n(16.0)\n40.0\u00a0\nOther Countries\n236.9\n\u00a0\n219.4\u00a0\n17.5\u00a0\n\u2014\u00a0\n(0.3)\n17.8\u00a0\nTotal\n$\n4,412.8\n\u00a0\n$\n3,810.7\u00a0\n$\n602.1\u00a0\n$\n20.0\u00a0\n$\n(16.3)\n$\n598.4\u00a0\nSales in our U.S. operations increased $560.6 million or 17.0%, with acquisitions adding $20.0 million or 0.6%. Excluding the impact of businesses acquired, U.S. sales were up $540.6 million or 16.4%.  Sales from our Canadian operations increased $24.0 million or 8.2%.  Unfavorable foreign currency translation decreased Canadian sales by $16.0 million or 5.5%.  Excluding the impact of foreign currency translation, Canadian sales were up $40.0 million or 13.7%.  Consolidated sales from our other countries operations increased $17.5 million or 8.0% compared to the prior year.  Unfavorable foreign currency translation decreased other countries sales by $0.3 million or 0.1%.  Excluding the impact of foreign currency translation, other countries sales were up $17.8 million or 8.1% compared to the prior year, driven by an increase from operations, primarily an $11.5 million increase in Mexican sales due to increased industrial activity, mainly related to the automotive industry.\nOur gross profit margin increased to 29.2% in fiscal 2023 compared to 29.0% in fiscal 2022.  Gross profit margin expanded year over year primarily reflecting broad-based execution across the business and countermeasures in response to ongoing inflation and supply chain dynamics.  The gross profit margin for the current year was negatively impacted by 18 basis points due to a $7.7 million increase in LIFO expense over the prior year.\nThe following table shows the changes in selling, distribution, and administrative expense (SD&A).\nAmounts in millions\nAmount of change due to\nYear ended June 30,\nSD&A Increase\nAcquisitions\nForeign Currency\nOrganic Change\n2023\n2022\nSD&A\n$\n813.8\n\u00a0\n$\n749.1\u00a0\n$\n64.7\u00a0\n$\n6.4\u00a0\n$\n(4.3)\n$\n62.6\u00a0\nSD&A consists of associate compensation, benefits and other expenses associated with selling, purchasing, warehousing, supply chain management, and marketing and distribution of the Company\u2019s products, as well as costs associated with a variety of administrative functions such as human resources, information technology, treasury, accounting, insurance, legal, facility related expenses and expenses incurred in acquiring businesses.    SD&A increased $64.7 million or 8.6% during fiscal 2023 compared to the prior year, and as a percentage of sales decreased to 18.4% in fiscal 2023 compared to 19.7% in fiscal 2022.  Changes in foreign currency exchange rates had the effect of decreasing SD&A by\n $4.3 million or 0.6% compared to the prior year.  SD&A from businesses acquired added $6.4 million or 0.9%, including $0.9 million of intangibles amortization related to acquisitions.  Excluding the impact of businesses acquired and the unfavorable impact from foreign currency translation, SD&A increased $62.6 million or 8.3% during fiscal 2023 compared to fiscal 2022.  Excluding the impact of acquisitions, total compensation increased $47.3 million during fiscal 2023, as a result of annual calendar year merit increases and an increase in employee incentive compensation correlating with the improved company performance.  Also, excluding the impact of acquisitions, travel & entertainment and fleet expenses increased $4.7 million during 2023, primarily driven by higher fuel costs and the return of travel activity in the current year after travel constraints in the prior year due to COVID-19.  Additionally, excluding the impact of acquisitions, occupancy costs increased $5.3 million during 2023, primarily driven by increased building lease costs.  All other expenses within SD&A were up $5.3 million.  \nOperating income increased $115.3 million, or 32.2%, to $473.2 million during fiscal 2023 from $357.9 million during fiscal 2022, and as a percentage of sales, increased to 10.7% from 9.4%, primarily due to gross profit margin expansion, volume leverage, and control of SD&A expense in fiscal 2023.\nOperating income, as a percentage of sales for the Service Center Based Distribution segment increased to 12.6% in fiscal 2023 from 11.8% in fiscal 2022.  Operating income as a percentage of sales for the Engineered Solutions segment increased to 14.1% in fiscal 2023 from 12.6% in fiscal 2022. \n19\nTable of Contents\nSegment operating income is impacted by changes in the amounts and levels of certain supplier support benefits and expenses allocated to the segments.  The expense allocations include corporate charges for working capital, logistics support and other items and impact segment gross profit and operating expense.\nOther expense (income), net, represents certain non-operating items of income and expense, and was $1.7 million of expense in fiscal 2023 compared to $1.8 million of expense in fiscal 2022.  Current year expense primarily consists of foreign currency transaction losses of $3.3 million and other periodic post-employment costs of $1.5 million, offset by unrealized gains on investments held by non-qualified deferred compensation trusts of $2.2 million, life insurance income of $0.7 million and other income of $0.2 million.  Fiscal 2022 expense consisted primarily of unrealized loss on investments held by non-qualified deferred compensation trusts of $2.6 million and other periodic post-employment costs of $0.6 million, offset by life insurance income of $1.4 million.\nThe effective income tax rate was 22.9% for fiscal 2023 compared to 21.9% for fiscal 2022.  The increase in the effective tax rate is due to changes in compensation-related deductions in fiscal 2023 compared to the prior year. \nAs a result of the factors discussed above, net income for fiscal 2023 increased $89.3 million from the prior year.  Diluted net income per share was $8.84 per share for fiscal 2023 compared to $6.58 per share for fiscal 2022.  \nAt June\u00a030, 2023, we had approximately 580 operating facilities in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, and Singapore at June\u00a030, 2023, versus 568 June\u00a030, 2022. \nThe approximate number of Company employees was 6,200 at June\u00a030, 2023 and 6,100 at June\u00a030, 2022.\n \nLIQUIDITY AND CAPITAL RESOURCES\nOur primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of debt.  At June\u00a030, 2023 we had total debt obligations outstanding of $622.2 million compared to $689.5 million at June\u00a030, 2022.  Management expects that our existing cash, cash equivalents, funds available under the revolving credit facility, and cash provided from operations, will be sufficient to finance normal working capital needs in each of the countries in which we operate, payment of dividends, acquisitions, investments in properties, facilities and equipment, debt service, and the purchase of additional Company common stock.  Management also believes that additional long-term debt and line of credit financing could be obtained if necessary based on the Company\u2019s credit standing and financial strength.\nThe Company\u2019s working capital at June\u00a030, 2023 was $1,106.5 million compared to $859.9 million at June\u00a030, 2022.  The current ratio was 3.0 to 1 at June\u00a030, 2023 and 2.7 to 1 at\n \nJune\u00a030, 2022.  \nNet Cash Flows\nThe following table is included to aid in review of Applied\u2019s statements of consolidated cash flows.\nAmounts in thousands\nYear Ended June 30,\n2023\n2022\nNet Cash Provided by (Used in):\nOperating Activities\n$\n343,966\n\u00a0\n$\n187,570\u00a0\nInvesting Activities\n(60,833)\n(35,658)\nFinancing Activities\n(126,888)\n(223,029)\nExchange Rate Effect\n3,317\n\u00a0\n(2,154)\nIncrease (Decrease) in Cash and Cash Equivalents\n$\n159,562\n\u00a0\n$\n(73,271)\nThe increase in cash provided by operating activities during fiscal 2023 is driven by changes in working capital for the year and by increased operating results.  Changes in cash flows between years related to working capital were driven by (amounts in thousands): \nAccounts receivable\n$\n94,460\n\u00a0\nInventory \n$\n49,448\n\u00a0\nAccounts payable \n$\n(15,915)\nNet cash used in investing activities in fiscal 2023 included $35.8 million used for the acquisitions of Automation, Inc. and AMS and $26.5 million used for capital expenditures.  Net cash used in investing activities in fiscal 2022 included $7.0 million used for the acquisition of Floody, $14.8 million million in cash payments for loans on company-owned life insurance and $18.1 million used for capital expenditures. \n20\nTable of Contents\nNet cash used in financing activities decreased from the prior year period primarily due to a change in net debt activity, as there was $67.2 million of net debt payments in fiscal 2023 compared to $139.9 million of net debt payments in 2022.  Further uses of cash in 2023 were $53.4 million for dividend payments and $12.9 million used to pay taxes for shares withheld.  Further uses of cash in 2022 were $51.8 million for dividend payments, $8.1 million used to pay taxes for shares withheld, and $13.8 million used to repurchase 148,658 shares of treasury stock.\nThe increase in dividends over the year is the result of regular increases in our dividend payout rates.  We paid dividends of $1.38 and $1.34 per share in fiscal 2023 and 2022, respectively. \nCapital Expenditures\nWe expect capital expenditures for fiscal 2024 to be in the $27.0\u00a0million to $29.0 million range, primarily consisting of capital associated with additional information technology equipment and infrastructure investments.  \nShare Repurchases\nThe Board of Directors has authorized the repurchase of shares of the Company\u2019s stock.  These purchases may   \nbe made in open market and negotiated transactions, from time to time, depending upon market conditions.    \nAt June\u00a030, 2023, we had authorization to purchase an additional 1,500,000 shares.  \nIn fiscal 2023, we purchased 8,000 shares of the Company's common stock at an average price per share of $89.46.  In fiscal 2022, we repurchased 148,658 shares of the Company's common stock at an average price per share of $92.72.  In fiscal 2021,we repurchased 400,000 shares of the Company's common stock at an average price per share of $100.22.\nBorrowing Arrangements\nA summary of long-term debt, including the current portion, follows (amounts are in thousands):\nJune 30,\n2023\n2022\nRevolving credit facility\n$\n383,592\n\u00a0\n$\n410,592\u00a0\nTrade receivable securitization facility\n188,300\n\u00a0\n188,300\u00a0\nSeries C Notes \n\u2014\n\u00a0\n40,000\u00a0\nSeries D Notes\n25,000\n\u00a0\n25,000\u00a0\nSeries E Notes\n25,000\n\u00a0\n25,000\u00a0\nOther\n356\n\u00a0\n603\u00a0\nTotal debt\n$\n622,248\n\u00a0\n$\n689,495\u00a0\nLess: unamortized debt issuance costs\n152\n\u00a0\n171\u00a0\n$\n622,096\n\u00a0\n$\n689,324\u00a0\nIn December 2021, the Company entered into a new revolving credit facility with a group of banks to refinance the existing credit facility as well as provide funds for ongoing working capital and other general corporate purposes.  The revolving credit facility provides a $900.0\u00a0million unsecured revolving credit facility and an uncommitted accordion feature which allows the Company to request an increase in the borrowing commitments, or incremental term loans, under the credit facility in aggregate principal amounts of up to $500.0\u00a0million.  In May 2023, the Company and the administrative agent entered into an amendment to the credit facility to replace LIBOR as a reference rate available for use in the computation of interest and replace it with SOFR.  Borrowings under this agreement bear interest, at the Company's election, at either the base rate plus a margin that ranges from 0 to 55 basis points based on net leverage ratio or SOFR plus a margin that ranges from 80 to 155 basis points based on the net leverage ratio.  Unused lines under this facility, net of outstanding letters of credit of $0.2\u00a0million to secure certain insurance obligations, totaled $516.2\u00a0million and $489.2\u00a0million at June 30, 2023 and June 30, 2022, respectively, and were available to fund future acquisitions or other capital and operating requirements.  The interest rate on the revolving credit facility was 6.11% and 2.81% as of June 30, 2023 and June 30, 2022, respectively.\nAdditionally, the Company had letters of credit outstanding not associated with the revolving credit agreement, in the amount of $4.0\u00a0million and $4.7\u00a0million as of June\u00a030, 2023 and June\u00a030, 2022, respectively, in order to secure certain insurance obligations.\nIn August 2018, the Company established a trade receivable securitization facility (the \u201cAR Securitization Facility\u201d).  On March 26, 2021, the Company amended the AR Securitization Facility to expand the eligible receivables, which increased the maximum availability to $250.0\u00a0million and increased the fees on the AR Securitization Facility to 0.98% per year.  Availability is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable being transferred and, therefore, at certain \n21\nTable of Contents\ntimes, we may not be able to fully access the $250.0\u00a0million of funding available under the AR Securitization Facility.  The AR Securitization Facility effectively increases the Company\u2019s borrowing capacity by collateralizing a portion of the amount of the U.S. operations\u2019 trade accounts receivable.  The Company uses the proceeds from the AR Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs.  In May 2023, the Company entered into an amendment to the AR Securitization facility to replace LIBOR as a reference rate available for use in the computation of interest and replace it with SOFR, therefore borrowings under this facility carry variable interest rates tied to SOFR.  The interest rate on the AR Securitization Facility as of June\u00a030, 2023 and June\u00a030, 2022 was 6.16% and 2.60%, respectively.  The Company classified the AR Securitization Facility as long-term debt as it has the ability and intent to extend or refinance this amount on a long-term basis.  On August 4, 2023, the Company amended the AR Securitization Facility and extended the term to August\u00a04, 2026.  \nAt June\u00a030, 2023 and June\u00a030, 2022, the Company had borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management of $50.0\u00a0million and $90.0\u00a0million, respectively.  Fees on this facility range from 0.25% to 1.25% per year based on the Company's leverage ratio at each quarter end.  The remaining principal balance on the \"Series C\" notes of the $40.0\u00a0million was paid in July 2022\n.  \nThe \"Series D\" notes have a remaining principal amount of $25.0\u00a0million, carry a fixed interest rate of 3.21%, and are due in October 2023.  The \"Series E\" notes have a principal amount of $25.0\u00a0million, carry a fixed interest rate of 3.08%, and are due in October 2024. \nIn 2014, the Company assumed $2.4\u00a0million of debt as a part of the headquarters facility acquisition.  The 1.50% fixed interest rate note is held by the State of Ohio Development Services Agency and matures in November 2024. \nIn 2019, the Company entered into an interest rate swap which mitigates variability in forecasted interest payments on \n$384.0 million\n of the Company\u2019s U.S. dollar-denominated unsecured variable rate debt.  For more information, see note 7, Derivatives, to the consolidated financial statements, included in Item 8 under the caption \u201cFinancial Statements and Supplementary Data.\u201d\nThe credit facility and the unsecured shelf facility contain restrictive covenants regarding liquidity, net worth, financial ratios, and other covenants.  At June\u00a030, 2023, the most restrictive of these covenants required that the Company have net indebtedness less than 3.75 times consolidated income before interest, taxes, depreciation and amortization (as defined).  At June\u00a030, 2023, the Company's net indebtedness was less than 0.7 times consolidated income before interest, taxes, depreciation and amortization (as defined).  The Company was in compliance with all financial covenants at June\u00a030, 2023.\nAccounts Receivable Analysis\nThe following table is included to aid in analysis of accounts receivable and the associated provision for losses on accounts receivable (all dollar amounts are in thousands):\nJune 30,\n2023\n2022\nAccounts receivable, gross\n$\n730,729\n\u00a0\n$\n673,951\u00a0\nAllowance for doubtful accounts\n22,334\n\u00a0\n17,522\u00a0\nAccounts receivable, net\n$\n708,395\n\u00a0\n$\n656,429\u00a0\nAllowance for doubtful accounts, % of gross receivables\n3.1\n\u00a0\n%\n2.6\u00a0\n%\nYear Ended June 30,\n2023\n2022\nProvision for losses on accounts receivable\n$\n5,619\n\u00a0\n$\n3,193\u00a0\nProvision as a % of net sales\n0.13\n\u00a0\n%\n0.08\u00a0\n%\nAccounts receivable are reported at net realizable value and consist of trade receivables from customers.  Management monitors accounts receivable by reviewing Days Sales Outstanding (DSO) and the aging of receivables for each of the Company's locations.  The Company experienced a significant increase in accounts receivable during fiscal 2023 commensurate with the increase in sales.\nOn a consolidated basis, DSO was 55.1 at June\u00a030, 2023 versus 55.7 at June\u00a030, 2022.  Approximately 2.5% of our accounts receivable balances are more than 90 days past due at June\u00a030, 2023 compared to 3.4% at June\u00a030, 2022.  On an overall basis, our provision for losses from uncollected receivables represents 0.13% of our sales for the year ended June\u00a030, 2023, compared to 0.08% of sales for the year ended June\u00a030, 2022.  The increase primarily relates to provisions recorded in the current year for customer credit deterioration and bankruptcies primarily in the Service Center Based Distribution segment.  Historically, this percentage is around 0.10% to 0.15%.  Management believes the overall receivables aging and provision for losses on uncollected receivables are at reasonable levels.\n22\nTable of Contents\nInventory Analysis\nInventories are valued using the last-in, first-out (LIFO) method for U.S. inventories and the average cost method for foreign inventories.  Inventory increased throughout fiscal 2022 to meet increasing customer demand.  Management uses an inventory turnover ratio to monitor and evaluate inventory.  Management calculates this ratio on an annual as well as a quarterly basis and uses inventory valued at average costs.  The annualized inventory turnover (using average costs) for the year ended June\u00a030, 2023 was 4.4 versus 4.7 for the year ended June\u00a030, 2022. \n \nCONTRACTUAL OBLIGATIONS\nThe following table shows the approximate value of the Company\u2019s contractual obligations and other commitments to make future payments as of June\u00a030, 2023 (in thousands):\nTotal\nPeriod Less\nThan 1 yr\nPeriod\n2-3 yrs\nPeriod\n4-5 yrs\nPeriod\nOver 5 yrs\nOther\nOperating leases\n$\n113,251\u00a0\n$\n34,235\u00a0\n$\n44,995\u00a0\n$\n22,646\u00a0\n$\n11,375\u00a0\n$\n\u2014\u00a0\nPlanned funding of post-retirement obligations\n6,561\u00a0\n1,360\u00a0\n2,770\u00a0\n460\u00a0\n1,971\u00a0\n\u2014\u00a0\nUnrecognized income tax benefit liabilities, including interest and penalties\n5,900\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n5,900\u00a0\nLong-term debt obligations\n622,248\u00a0\n25,251\u00a0\n25,105\u00a0\n571,892\u00a0\n\u2014\u00a0\n\u2014\u00a0\nInterest on long-term debt obligations (1)\n68,000\u00a0\n22,300\u00a0\n34,000\u00a0\n11,700\u00a0\n\u2014\u00a0\n\u2014\u00a0\nAcquisition holdback payments\n810\u00a0\n684\u00a0\n126\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTotal Contractual Cash Obligations\n$\n816,770\u00a0\n$\n83,830\u00a0\n$\n106,996\u00a0\n$\n606,698\u00a0\n$\n13,346\u00a0\n$\n5,900\u00a0\n(1) Amounts represent estimated contractual interest payments on outstanding long-term debt obligations net of receipts under the terms of the interest rate swap.  Rates in effect as of June\u00a030, 2023 are used for variable rate debt.\nPurchase orders for inventory and other goods and services are not included in our estimates as we are unable to aggregate the amount of such purchase orders that represent enforceable and legally binding agreements specifying all significant terms.  The previous table includes the gross liability for unrecognized income tax benefits including interest and penalties in the \u201cOther\u201d column as the Company is unable to make a reasonable estimate regarding the timing of cash settlements, if any, with the respective taxing authorities.\nCRITICAL ACCOUNTING POLICIES\nThe preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates at a specific point in time that affect the amounts reported in the consolidated financial statements and disclosed in the accompanying notes.  The Business and Accounting Policies note to the consolidated financial statements describes the significant accounting policies and methods used in preparation of the consolidated financial statements.  Estimates are used for, but not limited to, determining the net carrying value of trade accounts receivable, inventories, recording self-insurance liabilities and other accrued liabilities.  Estimates are also used in establishing opening balances in relation to purchase accounting.  Actual results could differ from these estimates.  The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.\nLIFO Inventory Valuation and Methodology\nInventories are valued at the average cost method, using the last-in, first-out (LIFO) method for U.S. inventories, and the average cost method for foreign inventories.  We adopted the link chain dollar value LIFO method for accounting for U.S. inventories in fiscal 1974.  Approximately 14.2% of our domestic inventory dollars relate to LIFO layers added in the 1970s.  The excess of average cost over LIFO cost is $215.3 million as reflected in our consolidated balance sheet at June\u00a030, 2023.  The Company maintains five LIFO pools based on the following product groupings: bearings, power transmission products, rubber products, fluid power products and other products.\nLIFO layers and/or liquidations are determined consistently year-to-year.  See the Inventories note to the\n \n \nconsolidated financial statements in Item 8 under the caption \"Financial Statements and Supplementary Data,\"  \nfor further information. \n23\nTable of Contents\nAllowances for Slow-Moving and Obsolete Inventories\nWe evaluate the recoverability of our slow-moving and inactive inventories at least quarterly.  We estimate the recoverable cost of such inventory by product type while considering factors such as its age, historic and current demand trends, the physical condition of the inventory, as well as assumptions regarding future demand.  Our ability to recover our cost for slow moving or obsolete inventory can be affected by such factors as general market conditions, future customer demand and relationships with suppliers.  A significant portion of the products we hold in inventory have long shelf lives and are not highly susceptible to obsolescence.  \nAs of June\u00a030, 2023 and 2022, the Company's reserve for slow-moving or obsolete inventories was $42.6 million and $39.2 million, respectively, recorded in inventories in the consolidated balance sheets. \nAllowances for Doubtful Accounts\nWe evaluate the collectibility of trade accounts receivable based on a combination of factors.  Initially, we estimate an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience.  This initial estimate is adjusted based on recent trends of certain customers and industries estimated to be a greater credit risk, trends within the entire customer pool and changes in the overall aging of accounts receivable.  While we have a large customer base that is geographically dispersed, a general economic downturn in any of the industry segments in which we operate could result in higher than expected defaults, and therefore, the need to revise estimates for bad debts.  Accounts are written off against the allowance when it becomes evident that collection will not occur.\nAs of June\u00a030, 2023 and 2022, our allowance for doubtful accounts was 3.1% and 2.6% of gross receivables, respectively.  Our provision for losses on accounts receivable was $5.6 million, $3.2 million, and $6.5 million in fiscal 2023, 2022, and 2021, respectively.\nGoodwill and Intangibles\nThe purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill.  Goodwill for acquired businesses is accounted for using the acquisition method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of the acquisition at their respective estimated fair values.  The determination of the value of the intangible assets acquired involves certain judgments and estimates.  These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.  The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated life of each asset, can materially impact the net income of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future.  As part of acquisition accounting, we recognize acquired identifiable intangible assets such as customer relationships, vendor relationships, trade names, and non-competition agreements apart from goodwill.  Finite-lived identifiable intangibles are evaluated for impairment when changes in conditions indicate carrying value may not be recoverable.  If circumstances require a finite-lived intangible asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by the asset to the carrying value of the asset.  If the carrying value of the finite-lived intangible asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value determined through a discounted cash flow model.\nWe evaluate goodwill for impairment at the reporting unit level annually as of January 1, and whenever an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  Events or circumstances that may result in an impairment review include changes in macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit or sustained decrease in share price.  Each year, the Company may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.  If impairment is indicated in the qualitative assessment, or, if management elects to initially perform a quantitative assessment of goodwill, the impairment test uses a one-step approach.  The fair value of a reporting unit is compared with its carrying amount, including goodwill.  If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired.  If the carrying amount of a reporting unit exceeds its fair value, an impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to that reporting unit. \nGoodwill on our consolidated financial statements relates to both the Service Center Based Distribution segment and the Engineered Solutions segment.  The Company has eight (8) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2023.\u00a0 The Company concluded that all of the reporting units\u2019 fair values exceeded their carrying amounts by at least 20% as of January 1, 2023.  \n24\nTable of Contents\nThe fair values of the reporting units in accordance with the goodwill impairment test were determined using the income and market approaches.  The income approach employs the discounted cash flow method reflecting projected cash flows expected to be generated by market participants and then adjusted for time value of money factors, and requires management to make significant estimates and assumptions related to forecasts of future revenues, operating margins, and discount rates.  The market approach utilizes an analysis of comparable publicly traded companies and requires management to make significant estimates and assumptions related to the forecasts of future revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA) and multiples that are applied to management\u2019s forecasted revenues and EBITDA estimates.  \nChanges in future results, assumptions, and estimates after the measurement date may lead to an outcome where additional impairment charges would be required in future periods.\u00a0 Specifically, actual results may vary from the Company\u2019s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions.\u00a0 Further, continued adverse market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values.\nIncome Taxes\nDeferred income taxes are recorded for estimated future tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes, giving consideration to enacted tax laws.  As of June\u00a030, 2023, the Company recognized $35.0 million of net deferred tax liabilities.  Valuation allowances are provided against net deferred tax assets, determined on a jurisdiction by jurisdiction basis, where it is considered more-likely-than-not that the Company will not realize the benefit of such assets.  The remaining net deferred tax asset is the amount management believes is more-likely-than-not of being realized.  The realization of these deferred tax assets can be impacted by changes to tax laws, statutory rates and future taxable income levels.\n25\nTable of Contents\nCAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT\nThis Form 10-K, including Management\u2019s Discussion and Analysis, contains statements that are forward-looking based on management\u2019s current expectations about the future. Forward-looking statements are often identified by qualifiers, such as \u201cguidance\u201d, \u201cexpect\u201d, \u201cbelieve\u201d, \u201cplan\u201d, \u201cintend\u201d, \u201cwill\u201d, \u201cshould\u201d, \u201ccould\u201d, \u201cwould\u201d, \u201canticipate\u201d, \u201cestimate\u201d, \u201cforecast\u201d, \u201cmay\u201d, \"optimistic\" and derivative or similar words or expressions.  Similarly, descriptions of objectives, strategies, plans, or goals are also forward-looking statements.  These statements may discuss, among other things, expected growth, future sales, future cash flows, future capital expenditures, future performance, and the anticipation and expectations of the Company and its management as to future occurrences and trends.  The Company intends that the forward-looking statements be subject to the safe harbors established in the Private Securities Litigation Reform Act of 1995 and by the Securities and Exchange Commission in its rules, regulations, and releases.\nReaders are cautioned not to place undue reliance on any forward-looking statements.  All forward-looking statements are based on current expectations regarding important risk factors, many of which are outside the Company\u2019s control.  Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of those statements should not be regarded as a representation by the Company or any other person that the results expressed in the statements will be achieved.  In addition, the Company assumes no obligation publicly to update or revise any forward-looking statements, whether because of new information or events, or otherwise, except as may be required by law.\nImportant risk factors include, but are not limited to, the following: risks relating to the operations levels of our customers and the economic factors that affect them; continuing risks relating to the effects of the COVID-19 pandemic; inflationary or deflationary trends in the cost of products, energy, labor and other operating costs, and changes in the prices for products and services relative to the cost of providing them; reduction in supplier inventory purchase incentives; loss of key supplier authorizations, lack of product availability (such as due to supply chain strains), changes in supplier distribution programs, inability of suppliers to perform, and transportation disruptions; changes in customer preferences for products and services of the nature and brands sold by us; changes in customer procurement policies and practices; competitive pressures; our reliance on information systems and risks relating to their proper functioning, the security of those systems, and the data stored in or transmitted through them; the impact of economic conditions on the collectability of trade receivables; reduced demand for our products in targeted markets due to reasons including consolidation in customer industries; our ability to retain and attract qualified sales and customer service personnel and other skilled executives, managers and professionals; our ability to identify and complete acquisitions, integrate them effectively, and realize their anticipated benefits; the variability, timing and nature of new business opportunities including acquisitions, alliances, customer relationships, and supplier authorizations; the incurrence of debt and contingent liabilities in connection with acquisitions; our ability to access capital markets as needed on reasonable terms; disruption of operations at our headquarters or distribution centers; risks and uncertainties associated with our foreign operations, including volatile economic conditions, political instability, cultural and legal differences, and currency exchange fluctuations; the potential for goodwill and intangible asset impairment; changes in accounting policies and practices; our ability to maintain effective internal control over financial reporting; organizational changes within the Company; risks related to legal proceedings to which we are a party; potentially adverse government regulation, legislation, or policies, both enacted and under consideration, including with respect to federal tax policy, international trade, data privacy and security, and government contracting; and the occurrence of extraordinary events (including prolonged labor disputes, power outages, telecommunication outages, terrorist acts, war, public health emergency, earthquakes, extreme weather events, other natural disasters, fires, floods, and accidents).  Other factors and unanticipated events could also adversely affect our business, financial condition, or results of operations.  Risks can also change over time. Further, the disclosure of a risk should not be interpreted to imply that the risk has not already materialized.\nWe discuss certain of these matters and other risk factors more fully throughout our Form 10-K, as well as other of our filings with the Securities and Exchange Commission.\n26\nTable of Contents",
+  "item7a": ">ITEM 7A.  \nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.\nOur market risk is impacted by changes in foreign currency exchange rates as well as changes in interest rates.\n \n \nWe occasionally utilize derivative instruments as part of our overall financial risk management policy, but do not use derivative instruments for speculative or trading purposes. \nForeign Currency Exchange Rate Risk\nBecause we operate throughout North America, Australia and New Zealand and approximately 13% of our fiscal year 2023 net sales were generated outside the United States, foreign currency exchange rates can impact our financial position, results of operations and competitive position.  The financial statements of foreign subsidiaries are translated into their U.S. dollar equivalents at end-of-period exchange rates for assets and liabilities, while income and expenses are translated at average monthly exchange rates.  Translation gains and losses are components of other comprehensive income\u00a0as reported in the statements of consolidated comprehensive income.  Transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized in the statements of consolidated income as a component of other expense (income), net.  Applied does not currently hedge the net investments in our foreign operations.\nDuring the course of the fiscal year, the Canadian, Australian and New Zealand currency exchange rates decreased in relation to the U.S. dollar by 2.9%, 3.9%, and 2.5%, respectively, while the Mexican currency exchange rate increased in relation to the U.S. dollar by 17.7%.  In the twelve months ended June\u00a030, 2023, we experienced net foreign currency translation gains totaling $7.7 million, which were included in other comprehensive income.  We utilize a sensitivity analysis to measure the potential impact on earnings based on a hypothetical 10% change in foreign currency rates.  A 10% strengthening of the U.S. dollar relative to foreign currencies that affect the Company from the levels experienced during the year ended June\u00a030, 2023 would have resulted in a $1.7 million decrease in net income for the year ended June\u00a030, 2023.  \nInterest Rate Risk\nOur primary exposure to interest rate risk results from our outstanding debt obligations with variable interest rates.  The levels of fees and interest charged on our various debt facilities are based upon leverage levels and market interest rates.  The Company uses interest rate swap instruments to mitigate variability in forecasted interest rates.\nOur variable interest rate debt facilities outstanding include our five-year credit facility, which provides for a revolving credit facility with a capacity of up to $900.0 million in borrowings with $383.6 million outstanding at June\u00a030, 2023, and a $188.3 million trade receivable securitization facility, all of which was outstanding at June\u00a030, 2023.    In January 2019, the Company entered into an interest rate swap on $463.0 million of the Company\u2019s U.S. dollar-denominated unsecured variable rate debt.  The notional amount of the interest rate swap was $384.0 million as of June\u00a030, 2023.  The interest rate swap effectively converts a portion of the floating rate interest payment into a fixed rate interest payment.  The Company designated the interest rate swap as a pay-fixed, receive-floating interest rate swap instrument and is accounting for this derivative as a cash flow hedge.  Fixed interest rate debt facilities include $50.0 million outstanding under our unsecured shelf facility agreement, as well as $0.4 million of assumed debt from the purchase of our headquarters facility.  We had total average variable interest rate bank borrowings of $587.1 million during fiscal 2023.  The impact of a hypothetical 1.0% increase in the interest rates on our average variable interest rate bank borrowings (not considering the impact of the interest rate swap) would have resulted in a $5.9 million increase in interest expense.  Including the impact of the interest rate swap, the impact of a hypothetical 1.0% increase in the variable interest rate would have resulted in a $2.0 million increase in interest expense.  \nFor more information relating to borrowing and interest rates, see the \u201cLiquidity and Capital Resources\u201d section of \u201cManagement's Discussion and Analysis\n of Financial Condition and Results of Operations\n\u201d in Item 7 and notes 6 and 7 to the consolidated financial statements in Item 8.  That information is also incorporated here by reference.          In addition, see Item 1A, \u201cRisk Factors,\u201d for additional risk factors relating to our business.\n27\nTable of Contents",
+  "cik": "109563",
+  "cusip6": "03820C",
+  "cusip": ["03820C105", "03820c105"],
+  "names": ["APPLIED INDLTECH INC COM", "APPLIED INDL TECHNOLOGIES INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/109563/000010956323000075/0000109563-23-000075-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0000319201-23-000031.json b/GraphRAG/standalone/data/all/form10k/0000319201-23-000031.json
new file mode 100644
index 0000000000..9e0edb913c
--- /dev/null
+++ b/GraphRAG/standalone/data/all/form10k/0000319201-23-000031.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\nBusiness\n1",
+  "item1a": ">Item 1A.\nRisk Factors\n14",
+  "item7": ">Item\u00a07.\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n35",
+  "item7a": ">Item\u00a07A.\nQuantitative and Qualitative Disclosures About Market Risk\n53",
+  "cik": "319201",
+  "cusip6": "482480",
+  "cusip": ["482480900", "482480100", "482480950"],
+  "names": ["KLA CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/319201/000031920123000031/0000319201-23-000031-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0000320187-23-000039.json b/GraphRAG/standalone/data/all/form10k/0000320187-23-000039.json
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+++ b/GraphRAG/standalone/data/all/form10k/0000320187-23-000039.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1. BUSINESS\nGENERAL\nNIKE, Inc. was incorporated in 1967 under the laws of the State of Oregon. As used in this Annual Report on Form 10-K (this \"Annual Report\"), the terms \"we,\" \"us,\" \"our,\" \"NIKE\" and the \"Company\" refer to NIKE, Inc. and its predecessors, subsidiaries and affiliates, collectively, unless the context indicates otherwise.\nOur principal business activity is the design, development and worldwide marketing and selling of athletic footwear, apparel, equipment, accessories and services. NIKE is the largest seller of athletic footwear and apparel in the world. We sell our products through NIKE Direct operations, which are comprised of both NIKE-owned retail stores and sales through our digital platforms (also referred to as \"NIKE Brand Digital\"), to retail accounts and to a mix of independent distributors, licensees and sales representatives in nearly all countries around the world. We also offer interactive consumer services and experiences through our digital platforms. Nearly all of our products are manufactured by independent contractors. Nearly all footwear and apparel products are manufactured outside the United States, while equipment products are manufactured both in the United States and abroad.\nAll references to fiscal 2023, 2022, 2021 and 2020 are to NIKE, Inc.'s fiscal years ended May\u00a031, 2023, 2022, 2021 and 2020, respectively. Any references to other fiscal years refer to a fiscal year ending on May 31 of that year.\nPRODUCTS\nOur NIKE Brand product offerings are aligned around our consumer construct focused on Men's, Women's and Kids'. We also design products specifically for the Jordan Brand and Converse. We believe this approach allows us to create products that better meet individual consumer needs while accelerating our largest growth opportunities.\nNIKE's athletic footwear products are designed primarily for specific athletic use, although a large percentage of the products are worn for casual or leisure purposes. We place considerable emphasis on innovation and high-quality construction in the development and manufacturing of our products. Our Men's, Women's and Jordan Brand footwear products currently lead in footwear sales and we expect them to continue to do so.\nWe also sell sports apparel, which features the same trademarks and are sold predominantly through the same marketing and distribution channels as athletic footwear. Our sports apparel, similar to our athletic footwear products, is designed primarily for athletic use, although many of the products are worn for casual or leisure purposes, and demonstrates our commitment to innovation and high-quality construction. Our Men's and Women's apparel products currently lead in apparel sales and we expect them to continue to do so. We often market footwear, apparel and accessories in \"collections\" of similar use or by category. We also market apparel with licensed college and professional team and league logos.\nWe sell a line of performance equipment and accessories under the NIKE Brand name, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment and other equipment designed for sports activities. We also sell small amounts of various plastic products to other manufacturers through our wholly-owned subsidiary, NIKE IHM, Inc., doing business as Air Manufacturing Innovation.\nOur Jordan Brand designs, distributes and licenses athletic and casual footwear, apparel and accessories predominantly focused on basketball performance and culture using the Jumpman trademark. Sales and operating results for Jordan Brand products are reported within the respective NIKE Brand geographic operating segments.\nOur wholly-owned subsidiary brand, Converse, headquartered in Boston, Massachusetts, designs, distributes and licenses casual sneakers, apparel and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron and Jack Purcell trademarks. Operating results of the Converse brand are reported on a stand-alone basis.\nIn addition to the products we sell to our wholesale customers and directly to consumers through our NIKE Direct operations, we have also entered into license agreements that permit unaffiliated parties to manufacture and sell, using NIKE-owned trademarks, certain apparel, digital devices and applications and other equipment designed for sports activities.\n2023 FORM 10-K   \n1\n \nTable of Contents\nWe also offer interactive consumer services and experiences as well as digital products through our digital platforms, including fitness and activity apps; sport, fitness and wellness content; and digital services and features in retail stores that enhance the consumer experience.\nSALES AND MARKETING\nWe experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third fiscal quarters. However, the mix of product sales may vary considerably as a result of changes in seasonal and geographic demand for particular types of footwear, apparel and equipment, as well as other macroeconomic, strategic, operating and logistics-related factors.\nBecause NIKE is a consumer products company, the relative popularity and availability of various sports and fitness activities, as well as changing design trends, affect the demand for our products. We must, therefore, respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories and influencing sports and fitness preferences through extensive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability. This is a continuing risk. Refer to Item 1A. Risk Factors.\nOUR MARKETS\nWe report our NIKE Brand operations based on our internal geographic organization.\u00a0Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel and equipment. The Company's reportable operating segments for the NIKE Brand are: North America; Europe, Middle East & Africa (\"EMEA\"); Greater China; and Asia Pacific & Latin America (\"APLA\"), and include results for the NIKE and Jordan brands. Sales through our NIKE Direct operations are managed within each geographic operating segment.\nConverse is also a reportable operating segment and operates predominately in one industry: the design, marketing, licensing and selling of casual sneakers, apparel and accessories. Converse direct to consumer operations, including digital commerce, are reported within the Converse operating segment results.\nUNITED STATES MARKET\nFor fiscal 2023, NIKE Brand and Converse sales in the United States accounted for approximately 43% of total revenues, compared to 40% and 39% for fiscal 2022 and fiscal 2021, respectively. We sell our products to thousands of retail accounts in the United States, including a mix of footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis and golf shops and other retail accounts. In the United States, we utilize NIKE sales offices to solicit such sales. During fiscal 2023, our three largest United States customers accounted for approximately 22% of sales in the United States.\nOur NIKE Direct and Converse direct to consumer operations sell our products to consumers through various digital platforms. In addition, our NIKE Direct and Converse direct to consumer operations sell products through the following number of retail stores in the United States:\nU.S. RETAIL STORES\nNUMBER\nNIKE Brand factory stores\n213\u00a0\nNIKE Brand in-line stores (including employee-only stores)\n74\u00a0\nConverse stores (including factory stores)\n82\u00a0\nTOTAL\n369\n\u00a0\nIn the United States, NIKE has eight significant distribution centers. Refer to Item 2. Properties for further information.\n2023 FORM 10-K       \n2\nTable of Contents\nINTERNATIONAL MARKETS\nFor fiscal 2023, non-U.S. NIKE Brand and Converse sales accounted for approximately 57% of total revenues, compared to 60% and 61% for fiscal 2022 and fiscal 2021, respectively. We sell our products to retail accounts through our own NIKE Direct operations and through a mix of independent distributors, licensees and sales representatives around the world. We sell to thousands of retail accounts and ship products from 67 distribution centers outside of the United States. Refer to Item 2. Properties for further information on distribution facilities outside of the United States. During fiscal 2023, NIKE's three largest customers outside of the United States accounted for approximately 14% of total non-U.S.\u00a0sales.\nIn addition to NIKE-owned and Converse-owned digital commerce platforms in over 40 countries, our NIKE Direct and Converse direct to consumer businesses operate the following number of retail stores outside the United States:\nNON-U.S. RETAIL STORES\nNUMBER\nNIKE Brand factory stores\n560\u00a0\nNIKE Brand in-line stores (including employee-only stores)\n49\u00a0\nConverse stores (including factory stores)\n54\u00a0\nTOTAL\n663\n\u00a0\nSIGNIFICANT CUSTOMER\nNo customer accounted for 10% or more of our consolidated net Revenues during fiscal 2023.\nPRODUCT RESEARCH, DESIGN AND DEVELOPMENT\nWe believe our research, design and development efforts are key factors in our success. Technical innovation in the design and manufacturing process of footwear, apparel and athletic equipment receives continued emphasis as we strive to produce products that help to enhance athletic performance, reduce injury and maximize comfort, while decreasing our environmental impact.\nIn addition to our own staff of specialists in the areas of biomechanics, chemistry, exercise physiology, engineering, digital technologies, industrial design, sustainability and related fields, we also utilize research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists, physicians and other experts who consult with us and review certain designs, materials and concepts for product and manufacturing, design and other process improvements and compliance with product safety regulations around the world. Employee athletes, athletes engaged under sports marketing contracts and other athletes wear-test and evaluate products during the design and development process.\nAs we continue to develop new technologies, we are simultaneously focused on the design of innovative products and experiences incorporating such technologies throughout our product categories and consumer applications. Using market intelligence and research, our various design teams identify opportunities to leverage new technologies in existing categories to respond to consumer preferences. The proliferation of Nike Air, Zoom, Free, Dri-FIT, Flyknit, FlyEase, ZoomX, Air Max, React and Forward technologies, among others, typifies our dedication to designing innovative products.\nMANUFACTURING\nNearly all of our footwear and apparel products are manufactured outside the United States by independent manufacturers (\"contract manufacturers\"), many of which operate multiple factories. We are also supplied, primarily indirectly, by a number of materials, or \"Tier 2\" suppliers, who provide the principal materials used in footwear and apparel finished goods products. As of May\u00a031, 2023, we had 146 strategic Tier 2 suppliers.\nAs of May\u00a031, 2023, our contract manufacturers operated 123 finished goods footwear factories located in 11 countries. For fiscal 2023, NIKE Brand footwear finished goods were manufactured by 15 contract manufacturers, many of which operate multiple factories. The largest single finished goods footwear factory accounted for approximately 9% of total fiscal 2023 NIKE Brand footwear production. For fiscal 2023, factories in Vietnam, Indonesia and China manufactured approximately 50%, 27% and 18% of total NIKE Brand footwear, respectively. For fiscal 2023, four footwear contract manufacturers each accounted for greater than 10% of footwear production and in the aggregate accounted for approximately 58% of NIKE Brand footwear production.\nAs of May\u00a031, 2023, our contract manufacturers operated 291 finished goods apparel factories located in 31 countries. For fiscal 2023, NIKE Brand apparel finished goods were manufactured by 55 contract manufacturers, many of which operate multiple factories. The largest single finished goods apparel factory accounted for approximately 8% of total fiscal 2023 NIKE Brand apparel production. For fiscal 2023, factories in Vietnam, China and Cambodia manufactured approximately 29%, 18% and 16% \n2023 FORM 10-K   \n3\n \nTable of Contents\nof total NIKE Brand apparel, respectively. For fiscal 2023, one apparel contract manufacturer accounted for more than 10% of apparel production, and the top five contract manufacturers in the aggregate accounted for approximately 52% of NIKE Brand apparel production.\nNIKE's contract manufacturers buy raw materials for the manufacturing of our footwear, apparel and equipment products. Most raw materials are available and purchased by those contract manufacturers in the countries where manufacturing takes place. \nThe principal materials used in our footwear products are natural and synthetic rubber, plastic compounds, foam cushioning materials, natural and synthetic leather, nylon, polyester and natural fiber textiles, as well as polyurethane films used to make NIKE Air-Sole cushioning components. During fiscal 2023, Air Manufacturing Innovation, a wholly-owned subsidiary, with facilities near Beaverton, Oregon, in Dong Nai Province, Vietnam, and St. Charles, Missouri, as well as contract manufacturers in China and Vietnam, were our suppliers of NIKE Air-Sole cushioning components used in footwear.\nThe principal materials used in our apparel products are natural and synthetic fabrics, yarns and threads (both virgin and recycled); specialized performance fabrics designed to efficiently wick moisture away from the body, retain heat and repel rain and/or snow; and plastic and metal hardware. \nIn fiscal 2023, we experienced ongoing supply chain volatility during the first part of the year, which improved gradually during the course of the year. We also experienced higher supply chain network costs primarily due to inflationary pressures during the year. Despite competition for certain materials during fiscal 2023, contract manufacturers were able to source sufficient quantities of raw materials for use in our footwear and apparel products. Refer to Item 1A. Risk Factors, for additional discussion of the impact of sourcing risks on our business.\nSince 1972, Sojitz Corporation of America (\"Sojitz America\"), a large Japanese trading company and the sole owner of our redeemable preferred stock, has performed import-export financing services for us.\nINTERNATIONAL OPERATIONS AND TRADE\nOur international operations and sources of supply are subject to the usual risks of doing business abroad, such as the implementation of, or potential changes in, foreign and domestic trade policies, increases in import duties, anti-dumping measures, quotas, safeguard measures, trade restrictions, restrictions on the transfer of funds and, in certain parts of the world, political tensions, instability, conflicts, nationalism and terrorism, and resulting sanctions and other measures imposed in response to such issues. We have not, to date, been materially affected by any such risk but cannot predict the likelihood of such material effects occurring in the future.\nIn recent years, uncertain global and regional economic and political conditions have affected international trade and increased protectionist actions around the world.\u00a0These trends are affecting many global manufacturing and service sectors, and the footwear and apparel industries, as a whole, are not immune. Companies in our industry are facing trade protectionism in many different regions, and, in nearly all cases, we are working together with industry groups to address trade issues and reduce the impact to the industry, while observing applicable competition laws. Notwithstanding our efforts, protectionist measures have resulted in increases in the cost of our products, and additional measures, if implemented, could adversely affect sales and/or profitability for NIKE, as well as the imported footwear and apparel industry as a whole.\nWe monitor protectionist trends and developments throughout the world that may materially impact our industry, and we engage in administrative and judicial processes to mitigate trade restrictions. We are actively monitoring actions that may result in additional anti-dumping measures and could affect our industry. We are also monitoring for and advocating against other impediments that may limit or delay customs clearance for imports of footwear, apparel and equipment. NIKE also advocates for trade liberalization for footwear and apparel in a number of bilateral and multilateral free trade agreements. Changes in, and responses to, U.S. trade policies, including the imposition of tariffs or penalties on imported goods or retaliatory measures by other countries, have negatively affected, and could in the future negatively affect, U.S. corporations, including NIKE, with business operations and/or consumer markets in those countries, which could also make it necessary for us to change the way we conduct business, either of which may have an adverse effect on our business, financial condition or our results of operations. In addition, with respect to proposed trade restrictions, we work with a broad coalition of global businesses and trade associations representing a wide variety of sectors to help ensure that any legislation enacted and implemented (i)\u00a0addresses legitimate and core concerns, (ii)\u00a0is consistent with international trade rules and (iii)\u00a0reflects and considers domestic economies and the important role they may play in the global economic community.\nWhere trade protection measures are implemented, we believe we have the ability to develop, over a period of time, adequate alternative sources of supply for the products obtained from our present suppliers. If events prevented us from acquiring products from our suppliers in a particular country, our operations could be temporarily disrupted and we could experience an adverse financial impact. However, we believe we could abate any such disruption, and that much of the adverse impact on supply would, therefore, be of a short-term nature, although alternate sources of supply might not be as cost-effective and could have an ongoing adverse impact on profitability.\n2023 FORM 10-K       \n4\nTable of Contents\nOur international operations are also subject to compliance with the U.S. Foreign Corrupt Practices Act (the \"FCPA\"), and other anti-bribery laws applicable to our operations. We source a significant portion of our products from, and have important consumer markets, outside of the United States. We have an ethics and compliance program to address compliance with the FCPA and similar laws by us, our employees, agents, suppliers and other partners.\n \nRefer to Item 1A. Risk Factors for additional information on risks relating to our international operations.\nCOMPETITION\nThe athletic footwear, apparel and equipment industry is highly competitive on a worldwide basis. We compete internationally with a significant number of athletic and leisure footwear companies, athletic and leisure apparel companies, sports equipment companies and large companies having diversified lines of athletic and leisure footwear, apparel and equipment, including adidas, Anta, ASICS, Li Ning, lululemon athletica, New Balance, Puma, Under Armour and V.F. Corporation, among others. The intense competition and the rapid changes in technology and consumer preferences in the markets for athletic and leisure footwear and apparel and athletic equipment constitute significant risk factors in our operations. Refer to Item 1A. Risk Factors for additional information.\nNIKE is the largest seller of athletic footwear and apparel in the world. Important aspects of competition in this industry are:\n\u2022\nProduct attributes such as quality; performance and reliability; new product style, design, innovation and development; as well as consumer price/value.\n\u2022\nConsumer connection, engagement and affinity for brands and products, developed through marketing, promotion and digital experiences; social media interaction; customer support and service; identification with prominent and influential athletes, influencers, public figures, coaches, teams, colleges and sports leagues who endorse our brands and use our products and active engagement through sponsored sporting events and clinics. \n\u2022\nEffective sourcing and distribution of products, with attractive merchandising and presentation at retail, both in-store and on digital platforms.\nWe believe that we are competitive in all of these areas.\nTRADEMARKS AND PATENTS\nWe believe that our intellectual property rights are important to our brand, our success and our competitive position. We strategically pursue available protections of these rights and vigorously protect them against third-party theft and infringement.\nWe use trademarks on nearly all of our products and packaging, and in our marketing materials, and believe having distinctive marks that are readily identifiable is an important factor in creating a market for our goods, in identifying our brands and the Company, and in distinguishing our goods from the goods of others. We consider our NIKE and Swoosh Design trademarks to be among our most valuable assets and we have registered these trademarks in over 190 jurisdictions worldwide. In addition, we own many other trademarks that we use in marketing our products. We own common law rights in the trade dress of several distinctive shoe designs and elements. For certain trade dress, we have sought and obtained trademark registrations.\nWe have copyright protection in our designs, graphics, software applications, digital goods and other original works. When appropriate, we also obtain registered copyrights.\nWe file for, own and maintain many U.S. and foreign utility and design patents protecting components, technologies, materials, manufacturing techniques, features, functionality, and industrial designs used in and for the manufacture of various athletic, performance, and leisure footwear and apparel, including physical and digital versions thereof, athletic equipment, and digital devices, and related software applications. These patents expire at various times.\nWe believe our success depends upon our capabilities in areas such as design, research and development, production and marketing and is supported and protected by our intellectual property rights, such as trademarks, utility and design patents, copyrights, and trade secrets, among others. \nWe have followed a policy of applying for and registering intellectual property rights in the United\u00a0States and select foreign countries on trademarks, inventions, innovations and designs that we deem valuable. We also continue to vigorously protect our intellectual property, including trademarks, patents and trade secrets against third-party infringement and misappropriation.\n2023 FORM 10-K   \n5\n \nTable of Contents\nHUMAN CAPITAL RESOURCES\nAt NIKE, we consider the strength and effective management of our workforce to be essential to the ongoing success of our business. We believe that it is important to attract, develop and retain a diverse and engaged workforce at all levels of our business and that such a workforce fosters creativity and accelerates innovation. We are focused on building an increasingly diverse talent pipeline that reflects our consumers, athletes and the communities we serve.\nCULTURE \nEach employee shapes NIKE's culture through behaviors and practices. This starts with our Maxims, which represent our core values and, along with our Code of Conduct, feature the fundamental behaviors that help anchor, inform and guide us and apply to all employees. Our mission is to bring inspiration and innovation to every athlete in the world, which includes the belief that if you have a body, you are an athlete. We aim to do this by creating groundbreaking sport innovations, making our products more sustainably, building a creative and diverse global team, supporting the well-being of our employees and making a positive impact in communities where we live and work. Our mission is aligned with our deep commitment to maintaining an environment where all NIKE employees have the opportunity to reach their full potential, to connect to our brands and to shape our workplace culture. We believe providing for growth and retention of our employees is essential in fostering such a culture and are dedicated to giving access to training programs and career development opportunities, including trainings on NIKE's values, history and business, trainings on developing leadership skills at all levels, tools and resources for managers and qualified tuition reimbursement opportunities. \nAs part of our commitment to empowering our employees to help shape our culture, we source employee feedback through our Engagement Survey program, including several corporate pulse surveys. The program provides every employee throughout the globe an opportunity to provide confidential feedback on key areas known to drive employee engagement, including their satisfaction with their managers, their work and the Company generally. The program also measures our employees\u2019 emotional commitment to NIKE as well as NIKE's culture of diversity, equity and inclusion. NIKE also provides multiple points of contact for employees to speak up if they experience something that does not align with our values or otherwise violates our workplace policies, even if they are uncertain what they observed or heard is a violation of company policy.\nAs part of our commitment to make a positive impact on our communities, we maintain a goal of investing 2% of our prior fiscal year's pre-tax income into global communities. The focus of this investment continues to be inspiring kids to be active through play and sport as well as uniting and inspiring communities to create a better and more equitable future for all. Our community investments are an important part of our culture in that we also support employees in giving back to community organizations through donations and volunteering, which are matched by the NIKE Foundation where eligible.\nEMPLOYEE BASE\nAs of May\u00a031, 2023, we had approximately 83,700 employees worldwide, including retail and part-time employees. We also utilize independent contractors and temporary personnel to supplement our workforce.\nNone of our employees are represented by a union, except certain employees in the EMEA and APLA geographies are members of and/or represented by trade unions, as allowed or required by local law and/or collective bargaining agreements. Also, in some countries outside of the United States, local laws require employee representation by works councils (which may be entitled to information and consultation on certain subsidiary decisions) or by organizations similar to a union. In certain European countries, we are required by local law to enter into, and/or comply with, industry-wide or national collective bargaining agreements. NIKE has never experienced a material interruption of operations due to labor disagreements.\nDIVERSITY, EQUITY AND INCLUSION\nDiversity, equity and inclusion (\"DE&I\") is a strategic priority for NIKE and we are committed to having an increasingly diverse team and culture. We aim to foster an inclusive and accessible workplace through recruitment, development and retention of diverse talent with the goal of expanding representation across all dimensions of diversity over the long term. We remain committed to the targets announced in fiscal 2021 for the Company to work toward by fiscal 2025, including increasing representation of women in our global corporate workforce and leadership positions, as well as increasing representation of U.S. racial and ethnic minorities in our U.S. corporate workforce and at the Director level and above. \nWe continue to enhance our efforts to recruit diverse talent through our traditional channels and through initiatives, such as partnerships with athletes and sports-related organizations to create apprenticeship programs and new partnerships with organizations, colleges and universities that serve diverse populations. Additionally, we are prioritizing DE&I education so that all NIKE employees and leaders have the cultural awareness and understanding to lead inclusively and build diverse and inclusive teams. We also have Employee Networks, collectively known as NikeUNITED, representing various employee groups.\n2023 FORM 10-K       \n6\nTable of Contents\nOur DE&I focus extends beyond our workforce and includes our communities, which we support in a number of ways. We have committed to investments that aim to address racial inequality and improve diversity and representation in our communities. We also are leveraging our global scale to accelerate business diversity, including investing in business training programs for women and increasing the proportion of services supplied by minority-owned businesses.\nCOMPENSATION AND BENEFITS \nNIKE's total rewards are intended to be competitive and equitable, meet the diverse needs of our global teammates and reinforce our values. We are committed to providing comprehensive, competitive and equitable pay and benefits to our employees, and we have invested, and aim to continue to invest, in our employees through growth and development and holistic well-being initiatives. Our initiatives in this area include: \n\u2022\nWe are committed to competitive pay and to reviewing our pay and promotion practices annually. \n\u2022\nWe have an annual company bonus plan and a retail-focused bonus plan applicable to all eligible employees. Both programs are focused on rewarding employees for company performance, which we believe reinforces our culture and rewards behaviors that support collaboration and teamwork.\n\u2022\nWe provide comprehensive family care benefits in the U.S. and globally where practicable, including family planning coverage, backup care and child/elder care assistance as well as an income-based childcare subsidy for eligible employees. \n\u2022\nOur Military Leave benefit provides up to 12 weeks of paid time off every 12 months.\n\u2022\nWe offer free access to our Sport Centers at our world headquarters for our full-time employees and North America store employees.\n\u2022\nWe provide employees free access to mindfulness and meditation resources, as well as live classes through our Sport Centers.\n\u2022\nWe provide all employees and their families globally with free and confidential visits with a mental health counselor through a third-party provider and our global Employee Assistance Program (EAP).\n\u2022\nWe provide support to our employees in a variety of ways during times of crisis, including pay continuity under certain circumstances, our natural disaster assistance program, and ongoing support for challenges related to the COVID-19 pandemic.\n\u2022\nWe provide a hybrid work approach for the majority of employees, as well as a Four Week Flex, which provides employees an opportunity to work from a location of their choice for up to four weeks per year.\n\u2022\nWe offer a Well-Being Week where we close our corporate offices for a full-week in the summer and Well-Being Days for our teammates in our retail stores and distribution centers, and encourage our teammates to focus on their well-being.\n\u2022\nWe provide inclusive family planning benefits and transgender healthcare coverage for eligible employees covered on the U.S. Health Plan, including access to both restorative services and personal care.\n\u2022\nWe provide all U.S. employees with unlimited free financial coaching through a third-party provider.\nAdditional information related to our human capital strategy can be found in our FY22 NIKE, Inc. Impact Report, which is available on the Impact section of about.nike.com. Information contained on or accessible through our websites is not incorporated into, and does not form a part of, this Annual Report or any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.\nAVAILABLE INFORMATION AND WEBSITES\nOur NIKE digital commerce website is located at www.nike.com. On our NIKE corporate website, located at investors.nike.com, we post the following filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the United States Securities and Exchange Commission (the \"SEC\"): our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended. Our proxy statements are also posted on our corporate website. All such filings on our corporate website are available free of charge. Copies of these filings are also available on the SEC's website at www.sec.gov. Also available on our corporate website are the charters of the committees of our Board of Directors, as well as our corporate governance guidelines and code of ethics. Copies of any of these documents will be provided in print to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453. Information contained on or accessible through our website is not incorporated into, and does not form a part of, this Annual Report or any other report or document we file with the SEC, and any references to our website are intended to be inactive textual references only.\n2023 FORM 10-K   \n7\n \nTable of Contents\nINFORMATION ABOUT OUR EXECUTIVE OFFICERS\nThe executive officers of NIKE, Inc. as of July\u00a020, 2023, are as follows:\nMark G. Parker\n, Executive Chairman \u2014 Mr.\u00a0Parker, 67, is Executive Chairman of the Board of Directors and served as President and Chief Executive Officer from 2006 - January 2020. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing and brand management. Mr.\u00a0Parker was appointed divisional Vice\u00a0President in charge of product development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998 and President of the NIKE Brand in 2001.\nJohn J. Donahoe II\n, President and Chief Executive Officer \u2014 Mr.\u00a0Donahoe, 63, was appointed President and Chief Executive Officer in January 2020 and has been a director since 2014. He brings expertise in digital commerce, technology and global strategy. He previously served as President and Chief Executive Officer at ServiceNow, Inc. Prior to joining ServiceNow, Inc., he served as President and Chief Executive Officer of eBay, Inc. He also held leadership roles at Bain & Company for two decades.\nMatthew Friend\n, Executive Vice President and Chief Financial Officer \u2014 Mr. Friend, 45, joined NIKE in 2009 and leads the Company's finance, demand & supply management, procurement and global places & services organizations. He joined NIKE as Senior Director of Corporate Strategy and Development, and was appointed Chief Financial Officer of Emerging Markets in 2011. In 2014, Mr. Friend was appointed Chief Financial Officer of Global Categories, Product and Functions, and was subsequently appointed Chief Financial Officer of the NIKE Brand in 2016. He was also appointed Vice President of Investor Relations in 2019. Mr. Friend was appointed as Executive Vice President and Chief Financial Officer of NIKE, Inc. in April 2020. Prior to joining NIKE, he worked in the financial industry including roles as VP of investment banking and mergers and acquisitions at Goldman Sachs and Morgan Stanley.\nMonique S. Matheson\n, Executive Vice President, Chief Human Resources Officer \u2014 Ms.\u00a0Matheson, 56, joined NIKE in 1998, with primary responsibilities in the human resources function. She was appointed as Vice President and Senior Business Partner in 2011 and Vice President, Chief Talent and Diversity Officer in 2012. Ms. Matheson was appointed Executive Vice President, Global Human Resources in 2017.\nAnn M. Miller\n, Executive Vice President, Chief Legal Officer \u2014 Ms.\u00a0Miller, 49, joined NIKE in 2007 and serves as EVP, Chief Legal Officer for NIKE, Inc. In her capacity as Chief Legal Officer, she oversees all legal, compliance, government & public affairs, social community impact, security, resilience and investigation matters of the Company. For the past six years, she served as Vice President, Corporate Secretary and Chief Ethics & Compliance Officer. She previously served as Converse's General Counsel, and brings more than 20 years of legal and business expertise to her role. Prior to joining NIKE, Ms. Miller worked at the law firm Sullivan & Cromwell.\nHeidi O'Neill\n,\n \nPresident, Consumer, Brand & Product \u2014 Ms. O'Neill, 58, joined NIKE in 1998 and leads the integration of global Men's, Women's & Kids' consumer teams, the entire global product engine and global brand marketing and sports marketing to build deep storytelling, relationships and engagement with the brand. Since joining NIKE, she has held a variety of key roles, including leading NIKE's marketplace and four geographic operating regions, leading NIKE Direct and accelerating NIKE's retail and digital-commerce business and creating and leading NIKE's Women\u2019s business. Prior to NIKE, Ms. O'Neill held roles at Levi Strauss & Company and Foote, Cone & Belding.\nCraig Williams\n, President, Geographies & Marketplace \u2014 Mr. Williams, 54, joined NIKE in 2019 and leads NIKE's four geographies and marketplace across the NIKE Direct and wholesale business. In addition, he leads the Supply Chain and Logistics organization. Mr. Williams joined NIKE as President of Jordan Brand overseeing a team of designers, product developers, marketers and business leaders. Prior to NIKE, he was Senior Vice President, The Coca-Cola Co., and President of The McDonald's Division (TMD) Worldwide. Mr. Williams has also held roles at CIBA Vision and Kraft Foods Inc., and served five years in the U.S. Navy as a Naval Nuclear Power Officer.\n \n2023 FORM 10-K       \n8\nTable of Contents",
+  "item1a": ">ITEM 1A. RISK FACTORS\nSpecial Note Regarding Forward-Looking Statements and Analyst Reports\nCertain written and oral statements, other than purely historic information, including estimates, projections, statements relating to NIKE's business plans, objectives and expected operating or financial results and the assumptions upon which those statements are based, made or incorporated by reference from time to time by NIKE or its representatives in this Annual Report, other reports, filings with the SEC, press releases, conferences or otherwise, are \"forward-looking statements\" within the meaning of the Private Securities Litigation Reform Act of 1995 and Section\u00a021E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words \"believe,\" \"anticipate,\" \"expect,\" \"estimate,\" \"project,\" \"will be,\" \"will continue,\" \"will likely result\" or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by NIKE with the SEC, including reports filed on Forms 8-K, 10-Q and 10-K, and include, among others, the following: international, national and local political, civil, economic and market conditions, including high, and increases in, inflation and interest rates; the size and growth of the overall athletic or leisure footwear, apparel and equipment markets; intense competition among designers, marketers, distributors and sellers of athletic or leisure footwear, apparel and equipment for consumers and endorsers; demographic changes; changes in consumer preferences; popularity of particular designs, categories of products and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for NIKE products and the various market factors described above; our ability to execute on our sustainability strategy and achieve our sustainability-related goals and targets, including sustainable product offerings; difficulties in implementing, operating and maintaining NIKE's increasingly complex information technology systems and controls, including, without limitation, the systems related to demand and supply planning and inventory control; interruptions in data and information technology systems; consumer data security; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance orders may not be indicative of future revenues due to changes in shipment timing, the changing mix of orders with shorter lead times, and discounts, order cancellations and returns; the ability of NIKE to sustain, manage or forecast its growth and inventories; the size, timing and mix of purchases of NIKE's products; increases in the cost of materials, labor and energy used to manufacture products; new product development and introduction; the ability to secure and protect trademarks, patents and other intellectual property; product performance and quality; customer service; adverse publicity and an inability to maintain NIKE's reputation and brand image, including without limitation, through social media or in connection with brand damaging events; the loss of significant customers or suppliers; dependence on distributors and licensees; business disruptions; increased costs of freight and transportation to meet delivery deadlines; increases in borrowing costs due to any decline in NIKE's debt ratings; changes in business strategy or development plans; general risks associated with doing business outside of the United States, including, without limitation, exchange rate fluctuations, import duties, tariffs, quotas, sanctions, political and economic instability, conflicts and terrorism; the potential impact of new and existing laws, regulations or policy, including, without limitation, tariffs, import/export, trade, wage and hour or labor and immigration regulations or policies; changes in government regulations; the impact of, including business and legal developments relating to, climate change, extreme weather conditions and natural disasters; litigation, regulatory proceedings, sanctions or any other claims asserted against NIKE; the ability to attract and retain qualified employees, and any negative public perception with respect to key personnel or our corporate culture, values or purpose; the effects of NIKE's decision to invest in or divest of businesses or capabilities; health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic; and other factors referenced or incorporated by reference in this Annual Report and other reports.\nInvestors should also be aware that while NIKE does, from time to time, communicate with securities analysts, it is against NIKE's policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that NIKE agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, NIKE has a policy against confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of NIKE.\nRisk Factors\nThe risks included here are not exhaustive. Other sections of this Annual Report may include additional factors which could adversely affect NIKE's business and financial performance. Moreover, NIKE operates in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for management to predict all such risks, nor can it assess the impact of all such risks on NIKE's business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.\n2023 FORM 10-K   \n9\n \nTable of Contents\nEconomic and Industry Risks\nGlobal economic conditions could have a material adverse effect on our business, operating results and financial condition.\nThe uncertain state of the global economy, including high and rising levels of inflation and interest rates and the risk of a recession, continues to impact businesses around the world. If global economic and financial market conditions deteriorate, the following factors, among others, could have a material adverse effect on our business, operating results and financial condition:\n\u2022\nOur sales are impacted by discretionary spending by consumers. Declines in consumer spending have in the past resulted in and may in the future result in reduced demand for our products, increased inventories, reduced orders from retailers for our products, order cancellations, lower revenues, higher discounts and lower gross margins.\n\u2022\nIn the future, we may be unable to access financing in the credit and capital markets at reasonable rates in the event we find it desirable to do so.\n\u2022\nWe conduct transactions in various currencies, which creates exposure to fluctuations in foreign currency exchange rates relative to the U.S. Dollar.\u00a0Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies has had and could continue to have a significant impact on our reported operating results and financial condition.\n\u2022\nContinued volatility in the availability and prices for commodities and raw materials we use in our products and in our supply chain (such as cotton or petroleum derivatives) has had and could in the future have a material adverse effect on our costs, gross margins and profitability. In addition, supply chain issues caused by factors including the COVID-19 pandemic and geopolitical conflicts have impacted and may continue to impact the availability, pricing and timing for obtaining commodities and raw materials. \n\u2022\nIf retailers of our products experience declining revenues or experience difficulty obtaining financing in the capital and credit markets to purchase our products, this could result in reduced orders for our products, order cancellations, late retailer payments, extended payment terms, higher accounts receivable, reduced cash flows, greater expense associated with collection efforts and increased bad debt expense.\n\u2022\nIn the past, certain retailers of our products have experienced severe financial difficulty, become insolvent and ceased business operations, and this could occur in the future, which could negatively impact the sale of our products to consumers. \n\u2022\nIf contract manufacturers of our products or other participants in our supply chain experience difficulty obtaining financing in the capital and credit markets to purchase raw materials or to finance capital equipment and other general working capital needs, it may result in delays or non-delivery of shipments of our products.\nOur products, services and experiences face intense competition.\nNIKE is a consumer products company and the relative popularity of various sports and fitness activities and changing design trends affect the demand for our products, services and experiences. The athletic footwear, apparel and equipment industry is highly competitive both in the United States and worldwide. We compete internationally with a significant number of athletic and leisure footwear companies, athletic and leisure apparel companies, sports equipment companies, private labels and large companies that have diversified lines of athletic and leisure footwear, apparel and equipment. We also compete with other companies for the production capacity of contract manufacturers that produce our products. In addition, we and our contract manufacturers compete with other companies and industries for raw materials used in our products. Our NIKE Direct operations, both through our digital commerce operations and retail stores, also compete with multi-brand retailers, which sell our products through their digital platforms and physical stores, and with digital commerce platforms. In addition, we compete with respect to the digital services and experiences we are able to offer our consumers, including fitness and activity apps; sport, fitness and wellness content and services; and digital services and features in retail stores that enhance the consumer experience.\nProduct offerings, technologies, marketing expenditures (including expenditures for advertising and endorsements), pricing, costs of production, customer service, digital commerce platforms, digital services and experiences and social media presence are areas of intense competition. These, in addition to ongoing rapid changes in technology, a reduction in barriers to the creation of new footwear and apparel companies and consumer preferences in the markets for athletic and leisure footwear, apparel, and equipment, services and experiences, constitute significant risk factors in our operations. In addition, the competitive nature of retail, including shifts in the ways in which consumers shop, and the continued proliferation of digital commerce, constitutes a risk factor implicating our NIKE Direct and wholesale operations. If we do not adequately and timely anticipate and respond to our competitors, our costs may increase, demand for our products may decline, possibly significantly, or we may need to reduce wholesale or suggested retail prices for our products.\n2023 FORM 10-K       \n10\nTable of Contents\nEconomic factors beyond our control, and changes in the global economic environment, including fluctuations in inflation and currency exchange rates, could result in lower revenues, higher costs and decreased margins and earnings.\nA majority of our products are manufactured and sold outside of the United States, and we conduct purchase and sale transactions in various currencies, which creates exposure to the volatility of global economic conditions, including fluctuations in inflation and foreign currency exchange rates. Central banks may deploy various strategies to combat inflation, including increasing interest rates, which may impact our borrowing costs. Additionally, there has been, and may continue to be, volatility in currency exchange rates that impact the U.S. Dollar value relative to other international currencies. Our international revenues and expenses generally are derived from sales and operations in foreign currencies, and these revenues and expenses are affected by currency fluctuations, specifically amounts recorded in foreign currencies and translated into U.S. Dollars for consolidated financial reporting, as weakening of foreign currencies relative to the U.S. Dollar adversely affects the U.S. Dollar value of the Company's foreign currency-denominated sales and earnings. Currency exchange rate fluctuations could also disrupt the business of the independent manufacturers that produce our products by making their purchases of raw materials more expensive and more difficult to finance. Foreign currency fluctuations have adversely affected and could continue to have an adverse effect on our results of operations and financial condition.\nWe hedge certain foreign currency exposures to lessen and delay, but not to completely eliminate, the effects of foreign currency fluctuations on our financial results. Since the hedging activities are designed to lessen volatility, they not only reduce the negative impact of a stronger U.S.\u00a0Dollar or other trading currency, but they also reduce the positive impact of a weaker U.S. Dollar or other trading currency. Our future financial results have in the past been and could in the future be significantly affected by the value of the U.S.\u00a0Dollar in relation to the foreign currencies in which we conduct business. The degree to which our financial results are affected for any given time period will depend in part upon our hedging activities.\nWe may be adversely affected by the financial health of our wholesale customers.\nWe extend credit to our customers based on an assessment of a customer's financial condition, generally without requiring collateral. To assist in the scheduling of production and the shipping of our products, we offer certain customers the opportunity to place orders five to six months ahead of delivery under our futures ordering program. These advance orders may be canceled under certain conditions, and the risk of cancellation increases when dealing with financially unstable retailers or retailers struggling with economic uncertainty. In the past, some customers have experienced financial difficulties up to and including bankruptcies, which have had an adverse effect on our sales, our ability to collect on receivables and our financial condition. When the retail economy weakens or as consumer behavior shifts, retailers tend to be more cautious with orders. A slowing or changing economy in our key markets, including a recession, could adversely affect the financial health of our customers, which in turn could have an adverse effect on our results of operations and financial condition. In addition, product sales are dependent in part on high quality merchandising and an appealing retail environment to attract consumers, which requires continuing investments by retailers. Retailers that experience financial difficulties may fail to make such investments or delay them, resulting in lower sales and orders for our products.\nClimate change and other sustainability-related matters, or legal, regulatory or market responses thereto, may have an adverse impact on our business and results of operations.\n \nThere are concerns that increased levels of carbon dioxide and other greenhouse gases in the atmosphere have caused, and may continue to cause, potentially at a growing rate, increases in global temperatures, changes in weather patterns and increasingly frequent and/or prolonged extreme weather and climate events. Climate change may also exacerbate challenges relating to the availability and quality of water and raw materials, including those used in the production of our products, and may result in changes in regulations or consumer preferences, which could in turn affect our business, operating results and financial condition. For example, there has been increased focus by governmental and non-governmental organizations, consumers, customers, employees and other stakeholders on products that are sustainably made and other sustainability matters, including responsible sourcing and deforestation, the use of plastic, energy and water, the recyclability or recoverability of packaging and materials transparency, any of which may require us to incur increased costs for additional transparency, due diligence and reporting. In addition, federal, state or local governmental authorities in various countries have proposed, and are likely to continue to propose, legislative and regulatory initiatives to reduce or mitigate the impacts of climate change on the environment. Various countries and regions are following different approaches to the regulation of climate change, which could increase the complexity of, and potential cost related to complying with, such regulations. Any of the foregoing may require us to make additional investments in facilities and equipment, may impact the availability and cost of key raw materials used in the production of our products or the demand for our products, and, in turn, may adversely impact our business, operating results and financial condition.\nAlthough we have announced sustainability-related goals and targets, there can be no assurance that our stakeholders will agree with our strategies, and any perception, whether or not valid, that we have failed to achieve, or to act responsibly with respect to, such matters or to effectively respond to new or additional legal or regulatory requirements regarding climate change, could result in adverse publicity and adversely affect our business and reputation. Execution of these strategies and achievement of our goals is subject to risks and uncertainties, many of which are outside of our control. These risks and uncertainties include, but are not \n2023 FORM 10-K   \n11\n \nTable of Contents\nlimited to, our ability to execute our strategies and achieve our goals within the currently projected costs and the expected timeframes; the availability and cost of raw materials and renewable energy; unforeseen production, design, operational and technological difficulties; the outcome of research efforts and future technology developments, including the ability to scale projects and technologies on a commercially competitive basis such as carbon sequestration and/or other related processes; compliance with, and changes or additions to, global and regional regulations, taxes, charges, mandates or requirements relating to greenhouse gas emissions, carbon costs or climate-related goals; adapting products to customer preferences and customer acceptance of sustainable supply chain solutions; and the actions of competitors and competitive pressures. As a result, there is no assurance that we will be able to successfully execute our strategies and achieve our sustainability-related goals, which could damage our reputation and customer and other stakeholder relationships and have an adverse effect on our business, results of operations and financial condition.\nExtreme weather conditions and natural disasters could negatively impact our operating results and financial condition.\nGiven the broad and global scope of our operations, we are particularly vulnerable to the physical risks of climate change, such as shifts in weather patterns. Extreme weather conditions in the areas in which our retail stores, suppliers, manufacturers, customers, distribution centers, offices, headquarters and vendors are located could adversely affect our operating results and financial condition. Moreover, natural disasters such as earthquakes, hurricanes, wildfires, tsunamis, floods or droughts, whether occurring in the United States or abroad, and their related consequences and effects, including energy shortages and public health issues, have in the past temporarily disrupted, and could in the future disrupt, our operations, the operations of our vendors, manufacturers and other suppliers or have in the past resulted in, and in the future could result in, economic instability that may negatively impact our operating results and financial condition. In particular, if a natural disaster or severe weather event were to occur in an area in which we or our suppliers, manufacturers, employees, customers, distribution centers or vendors are located, our continued success would depend, in part, on the safety and availability of the relevant personnel and facilities and proper functioning of our or third parties' computer, network, telecommunication and other systems and operations. In addition, a natural disaster or severe weather event could negatively impact retail traffic to our stores or stores that carry our products and could have an adverse impact on consumer spending, any of which could in turn result in negative point-of-sale trends for our merchandise. Further, climate change may increase both the frequency and severity of extreme weather conditions and natural disasters, which may affect our business operations, either in a particular region or globally, as well as the activities of our third-party vendors and other suppliers, manufacturers and customers. We believe the diversity of locations in which we operate, our operational size, disaster recovery and business continuity planning and our information technology systems and networks, including the Internet and third-party services (\"Information Technology Systems\"), position us well, but may not be sufficient for all or for concurrent eventualities. If we were to experience a local or regional disaster or other business continuity event or concurrent events, we could experience operational challenges, in particular depending upon how a local or regional event may affect our human capital across our operations or with regard to particular aspects of our operations, such as key executive officers or personnel. For example, our world headquarters is located in an active seismic zone, which is at a higher risk for earthquakes and the related consequences or effects. Further, if we are unable to find alternative suppliers, replace capacity at key manufacturing or distribution locations or quickly repair damage to our Information Technology Systems or supply systems, we could be late in delivering, or be unable to deliver, products to our customers. These events could result in reputational damage, lost sales, cancellation charges or markdowns, all of which could have an adverse effect on our business, results of operations and financial condition.\nOur financial condition and results of operations have been, and could in the future be, adversely affected by a pandemic, epidemic or other public health emergency.\nPandemics, including the COVID-19 pandemic, and other public health emergencies, and preventative measures taken to contain or mitigate such crises have caused, and may in the future cause, business slowdown or shutdown in affected areas and significant disruption in the financial markets, both globally and in the United States. These events have led to and could again lead to adverse impacts to our global supply chain, factory cancellation costs, store closures, and a decline in retail traffic and discretionary spending by consumers and, in turn, materially impact our business, sales, financial condition and results of operations as well as cause a volatile effective tax rate driven by changes in the mix of earnings across our jurisdictions. We cannot predict whether, and to what degree, our sales, operations and financial results could in the future be affected by the pandemic and preventative measures. Risks presented by pandemics and other public health emergencies include, but are not limited to:\n\u2022\nDeterioration in economic conditions in the United States and globally, including the effect of prolonged periods of inflation on our consumers and vendors;\n\u2022\nDisruption to our distribution centers, contract manufacturers, finished goods factories and other vendors, through the effects of facility closures, increased operating costs, reductions in operating hours, labor shortages, and real time changes in operating procedures, such as additional cleaning and disinfection procedures, which have had, and could in the future again have, a significant impact on our planned inventory production and distribution, including higher inventory levels or inventory shortages in various markets;\n2023 FORM 10-K       \n12\nTable of Contents\n\u2022\nImpacts to our distribution and logistics providers' ability to operate, including labor and container shortages, and increases in their operating costs. These supply chain effects have had, and could in the future have, an adverse effect on our ability to meet consumer demand, including digital demand, and have in the past resulted in and could in the future result in extended inventory transit times and an increase in our costs of production and distribution, including increased freight and logistics costs and other expenses;\n\u2022\nDecreased retail traffic as a result of store closures, reduced operating hours, social distancing restrictions and/or changes in consumer behavior;\n\u2022\nReduced consumer demand for our products, including as a result of a rise in unemployment rates, higher costs of borrowing, inflation and diminished consumer confidence;\n\u2022\nCancellation or postponement of sports seasons and sporting events in multiple countries, and bans on large public gatherings, which have reduced and in the future could reduce consumer spending on our products and could impact the effectiveness of our arrangements with key endorsers;\n\u2022\nThe risk that any safety protocols in NIKE-owned or affiliated facilities, including our offices, will not be effective or not be perceived as effective, or that any virus-related illnesses will be linked or alleged to be linked to such facilities, whether accurate or not;\n\u2022\nIncremental costs resulting from the adoption of preventative measures and compliance with regulatory requirements, including providing facial coverings and hand sanitizer, rearranging operations to follow social distancing protocols, conducting temperature checks, testing and undertaking regular and thorough disinfecting of surfaces;\n\u2022\nBankruptcies or other financial difficulties facing our wholesale customers, which could cause them to be unable to make or delay making payments to us, or result in revised payment terms, cancellation or reduction of their orders; and\n\u2022\nSignificant disruption of and volatility in global financial markets, which could have a negative impact on our ability to access capital in the future.\nWe cannot reasonably predict the ultimate impact of any pandemic or public health emergency, including the extent of any adverse impact on our business, results of operations and financial condition, which will depend on, among other things, the duration and spread of the pandemic or public health emergency, the impact of governmental regulations that have been, and may continue to be, imposed in response, the effectiveness of actions taken to contain or mitigate the outbreak, the availability, safety and efficacy of vaccines, including against emerging variants of the infectious disease, and global economic conditions. Additionally, disruptions have in the past made it more challenging to compare our performance, including our revenue growth and overall profitability, across quarters and fiscal years, and could have this effect in the future. Any pandemic or public health emergency may also affect our business, results of operations or financial condition in a manner that is not presently known to us or that we currently do not consider to present significant risks and may also exacerbate, or occur concurrently with, other risks discussed in this Item 1A. Risk Factors, any of which could have a material effect on us.\nBusiness and Operational Risks\nFailure to maintain our reputation, brand image and culture could negatively impact our business.\nOur iconic brands have worldwide recognition, and our success depends on our ability to maintain and enhance our brand image and reputation. Maintaining, promoting and growing our brands will depend on our design and marketing efforts, including advertising and consumer campaigns, product innovation and product quality. Our commitment to product innovation, quality and sustainability, and our continuing investment in design (including materials), marketing and sustainability measures may not have the desired impact on our brand image and reputation. In addition, our success in maintaining, extending and expanding our brand image depends on our ability to adapt to a rapidly changing media and digital environment, including our reliance on social media and other digital advertising networks, and digital dissemination of advertising campaigns on our digital platforms and through our digital experiences and products. We could be adversely impacted if we fail to achieve any of these objectives.\nOur brand value also depends on our ability to maintain a positive consumer perception of our corporate integrity, purpose and brand culture. Negative claims or publicity involving us, our culture and values, our products, services and experiences, consumer data, or any of our key employees, endorsers, sponsors, suppliers or partners could seriously damage our reputation and brand image, regardless of whether such claims are accurate. For example, while we require our suppliers of our products to operate their business in compliance with applicable laws and regulations, we do not control their practices. Negative publicity relating to a violation or an alleged violation of policies or laws by such suppliers could damage our brand image and diminish consumer trust in our brand. Further, our reputation and brand image could be damaged as a result of our support of, association with or lack of support or disapproval of certain social causes, as well as any decisions we make to continue to conduct, or change, certain of our activities in response to such considerations. Social media, which accelerates and potentially amplifies the scope of negative publicity, can increase the challenges of responding to negative claims. Adverse publicity about regulatory or legal action against us, or by us, could also damage our reputation and brand image, undermine consumer confidence in us and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations. If \n2023 FORM 10-K   \n13\n \nTable of Contents\nthe reputation, culture or image of any of our brands is tarnished or if we receive negative publicity, then our sales, financial condition and results of operations could be materially and adversely affected.\nOur business is affected by seasonality, which could result in fluctuations in our operating results.\nWe experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third fiscal quarters. However, the mix of product sales may vary considerably from time to time or in the future as a result of strategic shifts in our business and seasonal or geographic demand for particular types of footwear, apparel and equipment and in connection with the timing of significant sporting events, such as the NBA Finals, Olympics or the World Cup, among others. In addition, our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of operations are likely to fluctuate significantly from period to period. This seasonality, along with other factors that are beyond our control, including economic conditions, changes in consumer preferences, weather conditions, outbreaks of disease, social or political unrest, availability of import quotas, transportation disruptions and currency exchange rate fluctuations, has in the past adversely affected and could in the future adversely affect our business and cause our results of operations to fluctuate. Our operating margins are also sensitive to a number of additional factors that are beyond our control, including manufacturing and transportation costs, shifts in product sales mix and geographic sales trends, all of which we expect to continue. Results of operations in any period should not be considered indicative of the results to be expected for any future period.\nIf we are unable to anticipate consumer preferences and develop new products, we may not be able to maintain or increase our revenues and profits.\nOur success depends on our ability to identify, originate and define product trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. However, lead times for many of our products may make it more difficult for us to respond rapidly to new or changing product trends or consumer preferences. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of performance products or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. If we fail to anticipate accurately and respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, designs, styles and categories, and influencing sports and fitness preferences through extensive marketing, we could experience lower sales, excess inventories or lower profit margins, any of which could have an adverse effect on our results of operations and financial condition. In addition, we market our products globally through a diverse spectrum of advertising and promotional programs and campaigns, including social media and other digital advertising networks. If we do not successfully market our products or if advertising and promotional costs increase, these factors could have an adverse effect on our business, financial condition and results of operations.\nWe rely on technical innovation and high-quality products to compete in the market for our products.\nTechnical innovation and quality control in the design and manufacturing processes of footwear, apparel, equipment and other products and services are essential to the commercial success of our products and development of new products. Research and development play a key role in technical innovation. We rely upon specialists in the fields of biomechanics, chemistry, exercise physiology, engineering, digital technologies, industrial design, sustainability and related fields, as well as research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists and other experts to develop and test cutting-edge performance products. While we strive to produce products that help to enhance athletic performance and reduce injury and maximize comfort, if we fail to introduce technical innovation in our products, consumer demand for our products could decline, and if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems and loss of consumer confidence.\nFailure to continue to obtain or maintain high-quality endorsers of our products could harm our business.\nWe establish relationships with professional athletes, sports teams and leagues, as well as other public figures, including artists, designers and influencers, to develop, evaluate and promote our products, as well as establish product authenticity with consumers. However, as competition in our industry has increased, the costs associated with establishing and retaining such sponsorships and other relationships have increased, and competition to attract and retain high-quality endorsers has increased. If we are unable to maintain our current associations with professional athletes, sports teams and leagues, or other public figures, or to do so at a reasonable cost, we could lose the high visibility or on-field authenticity associated with our products, and we may be required to modify and substantially increase our marketing investments. As a result, our brands, net revenues, expenses and profitability could be harmed.\nFurthermore, if certain endorsers were to stop using our products contrary to their endorsement agreements, our business could be adversely affected. In addition, actions taken or statements made by athletes, teams or leagues, or other endorsers, associated with our products or brand that harm the reputations of those athletes, teams or leagues, or endorsers, or our decisions to cease collaborating with certain endorsers in light of actions taken or statements made by them, have in the past harmed and could in the future seriously harm our brand image with consumers and, as a result, could have an adverse effect on \n2023 FORM 10-K       \n14\nTable of Contents\nour sales and financial condition. Poor or non-performance by our endorsers, a failure to continue to correctly identify promising athletes, public figures or sports organizations, to use and endorse our products and brand or a failure to enter into cost-effective endorsement arrangements with prominent athletes, public figures and sports organizations could adversely affect our brand, sales and profitability.\nFailure to accurately forecast consumer demand could lead to excess inventories or inventory shortages, which could result in decreased operating margins, reduced cash flows and harm to our business.\nTo meet anticipated demand for our products, we purchase products from manufacturers outside of our futures ordering program and in advance of customer orders, which we hold in inventory and resell to customers. There is a risk we may be unable to sell excess products ordered from manufacturers. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have an adverse effect on our operating results, financial condition and cash flows. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply products we require at the time we need them, we may experience inventory shortages. Inventory shortages could delay shipments to customers, negatively impact retailer, distributor and consumer relationships and diminish brand loyalty. The difficulty in forecasting demand also makes it difficult to estimate our future results of operations, financial condition and cash flows from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in advance.\nOur NIKE Direct operations have required and will continue to require a substantial investment and commitment of resources and are subject to numerous risks and uncertainties.\nOur NIKE Direct operations, including our retail stores and digital platforms, have required and will continue to require significant investment. Our NIKE Direct stores have required and will continue to require substantial fixed investment in equipment and leasehold improvements and personnel. We have entered into substantial operating lease commitments for retail space. Certain stores have been designed and built to serve as high-profile venues to promote brand awareness and marketing activities and to integrate with our digital platforms. Because of their unique design and technological elements, locations and size, these stores require substantially more investment than other stores. Due to the high fixed-cost structure associated with our NIKE Direct retail stores, a decline in sales, a shift in consumer behavior away from brick-and-mortar retail, or the closure, temporary or otherwise, or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and employee-related costs.\nMany factors unique to retail operations, some of which are beyond our control, pose risks and uncertainties. Risks include, but are not limited to: credit card fraud; mismanagement of existing retail channel partners; inability to manage costs associated with store construction and operation; and theft. \nIn addition, \nwe have made significant investments in digital technologies and information systems for the digital aspect of our NIKE Direct operations, and our digital offerings will require co\nntinued investment in the development and upgrading of our technology platforms.\n \nIn order to deliver high-quality digital experiences, our digital platforms must be designed effectively and work well with a range of other technologies, systems, networks, and standards that we do not control. We may not be successful in developing platforms that operate effectively with these technologies, systems, networks or standards. A growing portion of consumers access our NIKE Direct digital platforms, but in the event that it is more difficult for consumers to access and use our digital platforms, consumers find that our digital platforms do not effectively meet their needs or expectations or consumers choose not to access or use our digital platforms or use devices that do not offer access to our platforms, the success of our NIKE Direct operations could be adversely impacted. Our competitors may develop, or have already developed, digital experiences, features, content, services or technologies that are similar to ours or that achieve greater acceptance.\u00a0\nWe may not realize a satisfactory return on our investment in our NIKE Direct operations and management's attention from our other business opportunities could be diverted, which could have an adverse effect on our business, financial condition or results of operations.\nIf the technology-based systems that give our consumers the ability to shop or interact with us online do not function effectively, our operating results, as well as our ability to grow our digital commerce business globally or to retain our customer base, could be materially adversely affected.\nMany of our consumers shop with us through our digital platforms. Increasingly, consumers are using mobile-based devices and applications to shop online with us and with our competitors, and to do comparison shopping, as well as to engage with us and our competitors through digital services and experiences that are offered on mobile platforms. We use social media and proprietary mobile applications to interact with our consumers and as a means to enhance their shopping experience. Any failure on our part to provide attractive, effective, reliable, secure and user-friendly digital commerce platforms that offer a wide assortment of merchandise with rapid delivery options and that continually meet the changing expectations of online shoppers or any failure to provide attractive digital experiences to our customers could place us at a competitive disadvantage, result in the loss of digital commerce and other sales, harm our reputation with consumers, have a material adverse impact on the growth of our digital commerce business globally and have a material adverse impact on our business and results of operations. In \n2023 FORM 10-K   \n15\n \nTable of Contents\naddition, as use of our digital platforms continues to grow, we will need an increasing amount of technical infrastructure to continue to satisfy our consumers' needs. If we fail to continue to effectively scale and adapt our digital platforms to accommodate increased consumer demand, our business may be subject to interruptions, delays or failures and consumer demand for our products and digital experiences could decline.\nRisks specific to our digital commerce business also include diversion of sales from our and our retailers' brick and mortar stores, difficulty in recreating the in-store experience through direct channels and liability for online content. Our failure to successfully respond to these risks might adversely affect sales in our digital commerce business, as well as damage our reputation and brands.\nWe rely significantly on information technology to operate our business, including our supply chain and retail operations, and any failure, inadequacy or interruption of that technology could harm our ability to effectively operate our business.\nWe are heavily dependent on Information Technology Systems, across our supply chain, including product design, production, forecasting, ordering, manufacturing, transportation, sales and distribution, as well as for processing financial information for external and internal reporting purposes, retail operations and other business activities. Information Technology Systems are critical to many of our operating activities and our business processes and may be negatively impacted by any service interruption or shutdown. For example, our ability to effectively manage and maintain our inventory and to ship products to customers on a timely basis depends significantly on the reliability of these Information Technology Systems. Over a number of years, we have implemented Information Technology Systems in all of the geographical regions in which we operate. Our work to integrate, secure and enhance these systems and related processes in our global operations is ongoing and NIKE will continue to invest in these efforts. We cannot provide assurance, however, that the measures we take to secure and enhance these systems will be sufficient to protect our Information Technology Systems and prevent cyber-attacks, system failures or data or information loss. The failure of these systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes, failure to properly maintain, protect, repair or upgrade systems, or problems with transitioning to upgraded or replacement systems could cause delays in product fulfillment and reduced efficiency of our operations, could require significant capital investments to remediate the problem which may not be sufficient to cover all eventualities, and may have an adverse effect on our reputation, results of operations and financial condition. In addition, the use of employee-owned devices for communications as well as hybrid work arrangements, present additional operational risks to our Information Technology Systems, including, but not limited to, increased risks of cyber-attacks. Further, like other companies in the retail industry, we have in the past experienced, and we expect to continue to experience, cyber-attacks, including phishing, and other attempts to breach, or gain unauthorized access to, our systems. To date, these attacks have not had a material impact on our operations, but we cannot provide assurance that they will not have an impact in the future.\nWe also use Information Technology Systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. From time to time, we have expended, and expect to continue to expend, significant resources to modify, update and enhance our Information Technology Systems and to investigate and remediate vulnerabilities or other exposures. These modifications, updates and enhancements may cost more than initially expected and may not be effective in preventing issues and disruptions. Moreover, due to the complexity of our Information Technology Systems, the process of implementing modifications or enhancements can itself create a risk of systems disruptions and security issues. If Information Technology Systems suffer severe damage, disruption or shutdown and our business continuity plans, or those of our vendors, do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results, which could result in lost revenues and profits, as well as reputational damage. Furthermore, we depend on Information Technology Systems and personal data collection for digital marketing, digital commerce, consumer engagement and the marketing and use of our digital products and services. We also rely on our ability to engage in electronic communications throughout the world between and among our employees as well as with other third parties, including customers, suppliers, vendors and consumers. Any interruption in Information Technology Systems may impede our ability to engage in the digital space and result in lost revenues, damage to our reputation, and loss of users.\nWe are subject to the risk our licensees may not generate expected sales or maintain the value of our brands. \nWe currently license, and expect to continue licensing, certain of our proprietary rights, such as trademarks or copyrighted material, to third parties. If our licensees fail to successfully market and sell licensed products, or fail to obtain sufficient capital or effectively manage their business operations, customer relationships, labor relationships, supplier relationships or credit risks, it could adversely affect our revenues, both directly from reduced royalties received and indirectly from reduced sales of our other products. \nWe also rely on our licensees to help preserve the value of our brands. Although we attempt to protect our brands through approval rights over the design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of our licensed products, we cannot completely control the use of our licensed brands by our licensees. The misuse of a brand by or negative publicity involving a licensee could have a material adverse effect on that brand and on us.\n2023 FORM 10-K       \n16\nTable of Contents\nConsolidation of retailers or concentration of retail market share among a few retailers may increase and concentrate our credit risk and impair our ability to sell products.\nThe athletic footwear, apparel and equipment retail markets in some countries are dominated by a few large athletic footwear, apparel and equipment retailers with many stores and accelerating digital commerce capabilities. The market shares of these retailers may increase through acquisitions and construction of additional stores and investments in digital capacity, and as a result of attrition as struggling retailers exit the market. Consolidation of our retailers will concentrate our credit risk with a smaller set of retailers, any of whom may experience declining sales or a shortage of liquidity. In addition, increasing market share concentration among a few retailers in a particular country or region increases the risk that if any one of them substantially reduces their purchases of our products, we may be unable to find sufficient retail outlets for our products to sustain the same level of sales and revenues.\nIf one or more of our counterparty financial institutions default on their obligations to us or fail, we may incur significant losses.\nAs part of our hedging activities, we enter into transactions involving derivative financial instruments, which may include forward contracts, commodity futures contracts, option contracts, collars and swaps with various financial institutions. In addition, we have significant amounts of cash, cash equivalents and other investments on deposit or in accounts with banks or other financial institutions in the United States and abroad. As a result, we are exposed to the risk of default by or failure of counterparty financial institutions. The risk of counterparty default or failure may be heightened during economic downturns and periods of uncertainty in the financial markets. If one of our counterparties were to become insolvent or file for bankruptcy, our ability to recover losses incurred as a result of default, or our assets deposited or held in accounts with such counterparty, may be limited by the counterparty's liquidity or the applicable laws governing the insolvency or bankruptcy proceedings. In the event of default or failure of one or more of our counterparties, we could incur significant losses, which could negatively impact our results of operations and financial condition.\nWe rely on a concentrated source base of contract manufacturers to supply a significant portion of our footwear products.\nAs of May\u00a031, 2023, our contract manufacturers operated 123 finished goods footwear factories located in 11 countries. We rely upon contract manufacturers, which we do not own or operate, to manufacture all of the footwear products we sell. For fiscal 2023, four footwear contract manufacturers each accounted for greater than 10% of footwear production and in the aggregate accounted for approximately 58% of NIKE Brand footwear production. Our ability to meet our customers' needs depends on our ability to maintain a steady supply of products from our contract manufacturers. If one or more of our significant suppliers were to sever their relationship with us or significantly alter the terms of our relationship, including due to changes in applicable trade policies, or be unable to perform, we may not be able to obtain replacement products in a timely manner, which could have a material adverse effect on our business operations, sales, financial condition or results of operations. Additionally, if any of our primary footwear contract manufacturers fail to make timely shipments, do not meet our quality standards or otherwise fail to deliver us product in accordance with our plans, there could be a material adverse effect on our results of operations.\nCertain of our footwear contract manufacturers are highly specialized and only produce a specific type of product. Such contract manufacturers may go out of business if consumer preferences or market conditions change such that there is no longer sufficient demand for the types of products they produce. If, in the future, the relevant products are again in demand and the specialized contract manufacturers no longer exist, we may not be able to locate replacement facilities to manufacture certain footwear products in a timely manner or at all, which could have a material adverse effect on our sales, financial condition or results of operations.\nThe market for prime real estate is competitive.\nOur ability to effectively obtain real estate to open new retail stores and otherwise conduct our operations, both domestically and internationally, depends on the availability of real estate that meets our criteria for traffic, square footage, co-tenancies, lease economics, demographics and other factors. We also must be able to effectively renew our existing real estate leases. In addition, from time to time, we seek to downsize, consolidate, reposition or close some of our real estate locations, which may require modification of an existing lease. Failure to secure adequate new locations or successfully modify leases for existing locations, or failure to effectively manage the profitability of our existing fleet of retail stores, could have an adverse effect on our operating results and financial condition.\nAdditionally, the economic environment may make it difficult to determine the fair market rent of real estate properties domestically and internationally. This could impact the quality of our decisions to exercise lease options at previously negotiated rents and to renew expiring leases at negotiated rents. Any adverse effect on the quality of these decisions could impact our ability to retain real estate locations adequate to meet our targets or efficiently manage the profitability of our existing fleet of stores, which could have an adverse effect on our operating results and financial condition.\n2023 FORM 10-K   \n17\n \nTable of Contents\nThe success of our business depends, in part, on high-quality employees, including key personnel as well as our ability to maintain our workplace culture and values.\nOur success depends in part on the continued service of high-quality employees, including key executive officers and personnel. The loss of the services of key individuals, or any negative perception with respect to these individuals, or our workplace culture or values, could harm our business. Our success also depends on our ability to recruit, retain and engage our personnel sufficiently, both to maintain our current business and to execute our strategic initiatives. Competition for employees in our industry is intense and we may not be successful in attracting and retaining such personnel. Changes to our current and future work models may not meet the needs or expectations of our employees or may not be perceived as favorable compared to other companies' policies, which could negatively impact our ability to attract, hire and retain our employees. In addition, shifts in U.S. immigration policy could negatively impact our ability to attract, hire and retain highly skilled employees who are from outside the United States. W\ne also believe that our corporate culture has been a key driver of our success, and we have invested substantial time and resources in building, maintaining and evolving our culture. Any failure to preserve and evolve our culture could negatively affect our future success, including our ability to retain and recruit employees.\nOur business operations and financial performance could be adversely affected by changes in our relationship with our workforce or changes to United States or foreign employment regulations.\nWe have significant exposure to changes in domestic and foreign laws governing our relationships with our workforce, including wage and hour laws and regulations, fair labor standards, minimum wage requirements, overtime pay, unemployment tax rates, workers' compensation rates, citizenship requirements and payroll taxes, which could have a direct impact on our operating costs. A significant increase in minimum wage or overtime rates in countries where we have workforce could have a significant impact on our operating costs and may require that we relocate those operations or take other steps to mitigate such increases, all of which may cause us to incur additional costs. There is also a risk of potential claims that we have violated laws related to discrimination and harassment, health and safety, wage and hour laws, criminal activity, personal injury and other claims. In addition, if there were a significant increase in the number of members of our workforce who are members of labor organizations or become parties to collective bargaining agreements, we could be vulnerable to a strike, work stoppage or other labor action, which could have an adverse effect on our business.\nRisks Related to Operating a Global Business\nOur international operations involve inherent risks which could result in harm to our business.\nNearly all of our athletic footwear and apparel is manufactured outside of the United States, and the majority of our products are sold outside of the United States. Accordingly, we are subject to the risks generally associated with global trade and doing business abroad, which include foreign laws and regulations, varying consumer preferences across geographic regions, political tensions, unrest, disruptions or delays in cross-border shipments and changes in economic conditions in countries in which our products are manufactured or where we sell products. Changes in U.S. or international social, political, regulatory and economic conditions could impact our business, reputation, financial condition and results of operations. In particular, political and economic instability, geopolitical conflicts, political unrest, civil strife, terrorist activity, acts of war, public corruption, expropriation, nationalism and other economic or political uncertainties in the United States or internationally could interrupt and negatively affect the sale of our products or other business operations. Any negative sentiment toward the United States as a result of any such changes could also adversely affect our business.\nIn addition, disease outbreaks, terrorist acts and military conflict have increased the risks of doing business abroad. These factors, among others, could affect our ability to manufacture products or procure materials, or our costs for manufacturing and procuring materials, our ability to import products, our ability to sell products in international markets and our cost of doing business. If any of these or other factors make the conduct of business in a particular country undesirable or impractical, our business could be adversely affected.\nOur products are subject to risks associated with overseas sourcing, manufacturing and financing.\nThe principal materials used in our footwear products \u2014 natural and synthetic rubber, plastic compounds, foam cushioning materials, natural and synthetic leather, nylon, polyester and natural fiber textiles and polyurethane films \u2014 are locally available to manufacturers. The principal materials used in our apparel products \u2014 natural and synthetic fabrics, yarns and threads (both virgin and recycled), specialized performance fabrics designed to efficiently wick moisture away from the body, retain heat and repel rain and/or snow as well as plastic and metal hardware \u2014 are also available in countries where our manufacturing takes place. Both our apparel and footwear products are dependent upon the ability of our contract manufacturers to locate, train, employ and retain adequate personnel. NIKE contract manufacturers and materials suppliers buy raw materials and are subject to wage rates and other labor standards that are oftentimes regulated by the governments of the countries in which our products are manufactured.\nThere could be a significant disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption or heightened competition for such materials, our contract manufacturers might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price or at all. Further, our contract manufacturers have experienced and may continue to experience in the future, unexpected closures, unexpected increases in work wages or other \n2023 FORM 10-K       \n18\nTable of Contents\nchanges in labor standards, whether government mandated or otherwise, and increases in compliance costs due to governmental regulation concerning certain metals, fabrics or raw materials used in the manufacturing of our products. In addition, we cannot be certain that manufacturers that we do not contract and that we refer to as \"unaffiliated manufacturers\" will be able to fill our orders in a timely manner. If we experience significant increases in demand, or reductions in the availability of materials, or need to replace an existing contract manufacturer or materials supplier, there can be no assurance additional supplies of fabrics or raw materials or additional manufacturing capacity will be available when required on terms acceptable to us, or at all, or that any contract manufacturer, unaffiliated manufacturer, or any materials supplier would allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing or find new manufacturing capacity or sources of materials, we may encounter delays in production and added costs as a result of the time it takes to train suppliers and manufacturers in our methods, products, quality control standards and labor, health and safety standards. Any delays, interruption or increased costs in labor or wages, in the supply of materials or in the manufacturing of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower revenues and net income both in the short- and long-term.\nBecause contract manufacturers make a majority of our products outside of our principal sales markets, our products must be transported by third parties over large geographic distances. Delays in the shipment or delivery of our products due to the availability of transportation, container shortages, labor shortages, including work stoppages or port strikes, infrastructure and port congestion or other factors, and costs and delays associated with consolidating or transitioning between manufacturers, have adversely impacted, and could in the future adversely impact the availability of our products and, in turn, our financial performance. In addition, delays in the shipment or delivery of our products, manufacturing delays or unexpected demand for our products have required us, and may in the future require us to use faster, but more expensive, transportation methods such as air freight, which could adversely affect our profit margins. The cost of oil is a significant component in manufacturing and transportation costs, so increases in the price of petroleum products can adversely affect our profit margins. Changes in U.S. trade policies, including modifications to import tariffs and existing trade policies and agreements, have also had, and could continue to have a significant impact on our activities in foreign jurisdictions, and could adversely affect our reputation or results of operations.\nOur success depends on our global distribution facilities.\nWe distribute our products to customers directly from the factory and through distribution centers located throughout the world. Our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies and growth, particularly in emerging markets, depends on the proper operation of our distribution facilities, the development or expansion of additional distribution capabilities and the timely performance of services by third parties (including those involved in shipping product to and from our distribution facilities). Our distribution facilities have in the past and could in the future be interrupted by information technology problems, disasters such as earthquakes or fires or outbreaks of disease or government actions taken to mitigate their spread. Any significant failure in our distribution facilities could result in an adverse effect on our business. We maintain business interruption insurance, but it may not adequately protect us from adverse effects caused by significant disruptions in our distribution facilities.\nLegal, Regulatory, and Compliance Risks\nWe are subject to a complex array of laws and regulations and litigation and other legal and regulatory proceedings, which could have an adverse effect on our business, financial condition and results of operations.\nAs a multinational corporation with operations and distribution channels throughout the world, we are subject to and must comply with extensive laws and regulations in the United States and other jurisdictions in which we have operations and distribution channels. If we or our employees, agents, suppliers, and other partners fail to comply with any of these laws or regulations, such failure could subject us to fines, sanctions or other penalties that could negatively affect our reputation, business, financial condition and results of operations. Furthermore, laws, regulations and policies and the interpretation of such, can conflict among jurisdictions and compliance in one jurisdiction may result in legal or reputational risks in another jurisdiction. We are involved in various types of claims, lawsuits, regulatory proceedings and government investigations relating to our business, our products and the actions of our employees and representatives, including contractual and employment relationships, product liability, antitrust, trademark rights and a variety of other matters.\u00a0It is not possible to predict with certainty the outcome of any such legal or regulatory proceedings or investigations, and we could in the future incur judgments, fines or penalties, or enter into settlements of lawsuits and claims that could have a material adverse effect on our business, financial condition and results of operations and negatively impact our reputation.\u00a0The global nature of our business means legal and compliance risks, such as anti-bribery, anti-corruption, fraud, trade, environmental, competition, privacy and other regulatory matters, will continue to exist and additional legal proceedings and other contingencies have and will continue to arise from time to time, which could adversely affect us.\u00a0In addition, the adoption of new laws or regulations, or changes in the interpretation of existing laws or regulations, may result in significant unanticipated legal and reputational risks. Moreover, the regulation of certain transactions we engage in, including those involving virtual goods and cryptocurrencies, remains in an early stage and subject to significant uncertainty. As a result, we are required to exercise our judgment as to whether or how certain laws or regulations apply, or may in the future \n2023 FORM 10-K   \n19\n \nTable of Contents\napply, and it is possible that legislators, regulators and courts may disagree with our conclusions. Any current or future legal or regulatory proceedings could divert management's attention from our operations and result in substantial legal fees.\nChanges to U.S. or other countries' trade policies and tariff and import/export regulations or our failure to comply with such regulations may have a material adverse effect on our reputation, business, financial condition and results of operations.\nChanges in the U.S. government's import and export policies, including trade restrictions, sanctions and countersanctions, increased tariffs or quotas, embargoes, safeguards or customs restrictions, could require us to change the way we conduct business and adversely affect our results of operations.\nIn addition, changes in laws and policies governing foreign trade, manufacturing, development and investment in the territories or countries where we currently sell our products or conduct our business could adversely affect our business. U.S. presidential administrations have instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the U.S., economic sanctions on individuals, corporations or countries, and other government regulations affecting trade between the U.S. and other countries where we conduct our business. It may be time-consuming and expensive for us to alter our business operations in order to adapt to or comply with any such changes.\nChanges or proposed changes in U.S. or other countries' trade policies may result in restrictions and economic disincentives on international trade. Tariffs and other changes in U.S. trade policy have in the past and could in the future trigger retaliatory actions by affected countries, and certain foreign governments have instituted or are considering imposing retaliatory measures on certain U.S. goods. Further, any emerging protectionist or nationalist trends either in the United States or in other countries could affect the trade environment. The Company, similar to many other multinational corporations, does a significant amount of business that would be impacted by changes to the trade policies of the United States and foreign countries (including governmental action related to tariffs, international trade agreements, or economic sanctions). Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof or the economy of another country in which we conduct operations, our industry and the global demand for our products, and as a result, could have a material adverse effect on our business, financial condition and results of operations.\nIn addition, many of our imported products are subject to duties, tariffs or quotas that affect the cost and quantity of various types of goods imported into the United States and other countries. Any country in which our products are produced or sold may eliminate, adjust or impose new quotas, duties, tariffs, safeguard measures, anti-dumping duties, cargo restrictions to prevent terrorism, restrictions on the transfer of currency, climate change legislation, product safety regulations or other charges or restrictions, any of which could have an adverse effect on our results of operations and financial condition.\nFurthermore, we are subject to the FCPA as well as the anti-corruption laws of other countries in which we operate. Although we implement policies and procedures designed to promote compliance with these laws, our employees, independent contractors, contract manufacturers, suppliers and agents, as well as those companies to which we outsource certain of our business operations, may take actions in violation of our policies. Any such violation could result in sanctions or other penalties and have an adverse effect on our business, reputation and operating results.\nFailure to adequately protect or enforce our intellectual property rights could adversely affect our business.\nWe periodically discover counterfeit reproductions of our products or products that otherwise infringe our intellectual property rights. If we are unsuccessful in enforcing our intellectual property rights, continued sales of these products could adversely affect our sales and our brand and could result in a shift of consumer preference away from our products.\nThe actions we take to establish and protect our intellectual property rights may not be adequate to prevent imitation of our products by others. We also may be unable to prevent others from seeking to block sales of our products as violations of proprietary rights. \nWe may be subject to liability if third parties successfully claim we infringe their intellectual property rights. Defending infringement claims could be expensive and time-consuming and might result in our entering into costly license agreements. We also may be subject to significant damages or injunctions against development, manufacturing, use, importation and/or sale of certain products.\nWe take various actions to prevent the unauthorized use and/or disclosure of our confidential information and intellectual property rights. These actions include contractual measures such as entering into non-disclosure and non-compete agreements and agreements relating to our collaborations with third parties and providing confidential information awareness training. Our controls and efforts to prevent unauthorized use and/or disclosure of confidential information and intellectual property rights might not always be effective. For example, confidential information related to business strategy, innovations, new technologies, mergers and acquisitions, unpublished financial results or personal data could be prematurely, inadvertently, or improperly used and/or disclosed, resulting in a loss of reputation, loss of intellectual property rights, a decline in our stock price and/or a negative impact on our market position, and could lead to damages, fines, penalties or injunctions. In addition, new products we offer, such as virtual goods, may raise various novel intellectual property law considerations, including adequacy and scope of assignment, licensing, transfer, copyright and other right-of-use issues.\n2023 FORM 10-K       \n20\nTable of Contents\nIn addition, the laws of certain countries may not protect or allow enforcement of intellectual property rights to the same extent as the laws of the United States. We may face significant expenses and liability in connection with the protection of our intellectual property rights, including outside the United States, and if we are unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition may be adversely affected.\nWe are subject to data security and privacy risks that could negatively affect our results, operations or reputation.\nIn addition to our own sensitive and proprietary business information, we handle transactional and personal information about our wholesale customers and consumers and users of our digital experiences, which include online distribution channels and product engagement, adaptive products and personal fitness applications. Hackers and data thieves are increasingly sophisticated and operate social engineering, such as phishing, and large-scale, complex automated attacks that can evade detection for long periods of time. Any breach of our or our service providers' networks, or other vendor systems, may result in the loss of confidential business and financial data, misappropriation of our consumers', users' or employees' personal information or a disruption of our business. Any of these outcomes could have a material adverse effect on our business, including unwanted media attention, impairment of our consumer and customer relationships, damage to our reputation; resulting in lost sales and consumers, fines, lawsuits, or significant legal and remediation expenses. We also may need to expend significant resources to protect against, respond to and/or redress problems caused by any breach.\nIn addition, we must comply with increasingly complex and rigorous, and sometimes conflicting, regulatory standards enacted to protect business and personal data in the United States, Europe and elsewhere. For example, the European Union adopted the General Data Protection Regulation (the \"GDPR\"); the United Kingdom enacted the UK General Data Protection Regulation (which implements the GDPR into UK law); several states in the United States have passed data privacy laws; China enacted the Data Security Law and Personal Information Protection Law; and additional jurisdictions have adopted or are considering proposing or adopting similar regulations. These laws impose additional obligations on companies regarding the handling of personal data and provide certain individual privacy rights to persons whose data is stored. Compliance with existing, proposed and recently enacted laws and regulations can be costly and time consuming, and any failure to comply with these regulatory standards could subject us to legal, operational and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against the Company by governmental entities or others, imposition of fines by governmental authorities and damage to our reputation and credibility and could have a negative impact on revenues and profits.\nWe could be subject to changes in tax rates, adoption of new tax laws, additional tax liabilities or increased volatility in our effective tax rate.\nWe earn a substantial portion of our income in foreign countries and, as such, we are subject to the tax laws in the United States and numerous foreign jurisdictions. Current economic and political conditions make tax laws and regulations, or their interpretation and application, in any jurisdiction subject to significant change. \nProposals to reform U.S. and foreign tax laws could significantly impact how U.S. multinational corporations are taxed on global earnings and could increase the U.S. corporate tax rate. For example, the Organization for Economic Co-operation and Development (OECD) and the G20 Inclusive Framework on Base Erosion and Profit Shifting (the \"Inclusive Framework\") has put forth two proposals\u2014Pillar One and Pillar Two\u2014that revise the existing profit allocation and nexus rules and ensure a minimal level of taxation, respectively. On December 12, 2022, the European Union member states agreed to implement the Inclusive Framework's global corporate minimum tax rate of 15%. Other countries are also actively considering changes to their tax laws to adopt certain parts of the Inclusive Framework's proposals. Although we cannot predict whether or in what form these proposals will be enacted into law, these changes, if enacted into law, could have an adverse impact on our effective tax rate, income tax expense and cash flows.\nPortions of our operations are subject to a reduced tax rate or are under a tax holiday. We also utilize tax rulings and other agreements to obtain certainty in treatment of certain tax matters. Tax holidays and rulings can expire from time to time and may be extended when certain conditions are met, or terminated if certain conditions are not met. The impact of any changes in conditions would be the loss of certainty in treatment thus potentially impacting our effective income tax rate. For example, in January 2019, the European Commission opened a formal investigation to examine whether the Netherlands has breached State Aid rules when granting certain tax rulings to the Company. If this matter is adversely resolved, the Netherlands may be required to assess additional amounts with respect to prior periods, and the Company's income taxes related to prior periods in the Netherlands could increase.\nWe are also subject to the examination of our tax returns by the United States Internal Revenue Service (\"IRS\") and other tax authorities. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax provisions are adequate, the final determination of tax audits and any related disputes could be materially different from our historical income tax provisions and accruals. The results of audits or related disputes could have an adverse effect on our financial statements for the period or periods for which the applicable final determinations are made. For example, we and our subsidiaries are also engaged in a number of intercompany transactions across multiple tax jurisdictions. Although we believe we have clearly reflected the economics of these transactions \n2023 FORM 10-K   \n21\n \nTable of Contents\nand the proper local transfer pricing documentation is in place, tax authorities may propose and sustain adjustments that could result in changes that may impact our mix of earnings in countries with differing statutory tax rates.\nFailure of our contractors or our licensees' contractors to comply with our code of conduct, local laws and other standards could harm our business.\nWe have license agreements that permit independent parties to manufacture or contract for the manufacture of products using our intellectual property. We require the contractors that directly manufacture our products and our licensees that make products using our intellectual property (including, indirectly, their contract manufacturers) to comply with a code of conduct and other environmental, human rights, health and safety standards for the benefit of workers. We also require our contract manufacturers and the contractors of our licensees to comply with applicable standards for product safety. Notwithstanding their contractual obligations, from time to time contractors may not comply with such standards or applicable local law or our licensees may fail to enforce such standards or applicable local law on their contractors. If one or more of our direct or indirect contractors violates or fails to comply with, or is accused of violating or failing to comply with, such standards and laws, this could harm our reputation or result in a product recall and, as a result, could have an adverse effect on our sales and financial condition. Negative publicity regarding production methods, alleged unethical or illegal practices or workplace or related conditions of any of our suppliers, manufacturers or licensees could adversely affect our brand image and sales, force us to locate alternative suppliers, manufacturers or licenses or result in the imposition of additional regulations, including new or additional quotas, tariffs, sanctions, product safety regulations or other regulatory measures, by governmental authorities.\nRisks Related to Our Securities, Investments and Liquidity\nOur financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns.\nFrom time to time, we may invest in technology, business infrastructure, new businesses or capabilities, product offering and manufacturing innovation and expansion of existing businesses, such as our NIKE Direct operations, which require substantial cash investments and management attention. We believe cost-effective investments are essential to business growth and profitability; however, significant investments are subject to typical risks and uncertainties inherent in developing a new business or expanding an existing business. The failure of any significant investment to provide expected returns or profitability could have a material adverse effect on our financial results and divert management attention from more profitable business operations. See also \"\nOur NIKE Direct operations have required and will continue to require a substantial investment and commitment of resources and are subject to numerous risks and uncertainties\n.\"\nThe sale of a large number of shares of common stock by our principal shareholder could depress the market price of our common stock.\nAs of June 30, 2023, Swoosh, LLC beneficially owned approximately 77% of our Class\u00a0A Common Stock. If, on June 30, 2023, all of these shares were converted into Class B Common Stock, Swoosh, LLC's commensurate ownership percentage of our Class B Common Stock would be approximately 16%. The shares are available for resale, subject to the requirements of the U.S. securities laws and the terms of the limited liability company agreement governing Swoosh, LLC. The sale or prospect of a sale of a substantial number of these shares could have an adverse effect on the market price of our common stock. Swoosh, LLC was formed by Philip H. Knight, our Chairman Emeritus, to hold the majority of his shares of Class A Common Stock. Mr. Knight does not have voting rights with respect to Swoosh, LLC, although Travis Knight, his son and a NIKE director, has a significant role in the management of the Class A Common Stock owned by Swoosh, LLC.\nChanges in our credit ratings or macroeconomic conditions may affect our liquidity, increasing borrowing costs and limiting our financing options.\nOur long-term debt is currently rated Investment Grade by Standard & Poor's and Moody's Investors Service. If our credit ratings are lowered, borrowing costs for our existing facilities or for future long-term debt or short-term credit facilities may increase and our financing options, including our access to credit or capital markets, could be adversely affected. We may also be subject to restrictive covenants that would reduce our flexibility to, among other things, incur additional indebtedness, make restricted payments, pledge assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. Failure to comply with such covenants could result in a default, and as a result, the commitments of our lenders under our credit agreements may be terminated and the maturity of amounts owed may be accelerated. In addition, macroeconomic conditions, such as increased volatility or disruption in the credit or capital markets, could adversely affect our ability to refinance existing debt.\nIf our internal controls are ineffective, our operating results could be adversely affected.\nOur internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience \n2023 FORM 10-K       \n22\nTable of Contents\ndifficulties in their implementation, our business and operating results could be harmed and we could fail to meet our financial reporting obligations. \nIf our estimates or judgments relating to our critical accounting estimates prove to be incorrect, our operating results could be adversely affected.\nThe preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, as provided in \"Management's Discussion and Analysis of Financial Condition and Results of Operations\". The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenues and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, inventory reserves, hedge accounting for derivatives, income taxes and other contingencies. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the price of our Class B Common Stock.\nAnti-takeover provisions may impair an acquisition of the Company or reduce the price of our common stock.\nThere are provisions within our articles of incorporation and Oregon law intended to protect shareholder interests by providing the Board of Directors a means to attempt to deny coercive takeover attempts or to negotiate with a potential acquirer in order to obtain more favorable terms. Such provisions include a control share acquisition statute, a freeze-out statute, two classes of stock that vote separately on certain issues, and the fact that holders of Class\u00a0A Common Stock elect three-quarters of the Board of Directors rounded down to the next whole number. However, such provisions could discourage, delay or prevent an unsolicited merger, acquisition or other change in control of the Company that some shareholders might believe to be in their best interests or in which shareholders might receive a premium for their common stock over the prevailing market price. These provisions could also discourage proxy contests for control of the Company.\nWe may fail to meet market expectations, which could cause the price of our stock to decline.\nOur Class B Common Stock is traded publicly, and at any given time various securities analysts follow our financial results and issue reports on us. These reports include information about our historical financial results as well as analysts' opinions of our future performance, which may, in part, be based upon any guidance we have provided. Analysts' estimates are often different from our estimates or expectations. If our operating results are below the estimates or expectations of public market analysts and investors, our stock price could decline. In the past, securities class action litigation has been brought against NIKE and other companies following a decline in the market price of their securities. If our stock price is volatile for any reason, we may become involved in this type of litigation in the future. Any litigation could result in reputational damage, substantial costs and a diversion of management's attention and resources needed to successfully run our business.\n2023 FORM 10-K   \n23\n \nTable of Contents",
+  "item7": ">ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nOVERVIEW\nNIKE designs, develops, markets and sells athletic footwear, apparel, equipment, accessories and services worldwide. We are the largest seller of athletic footwear and apparel in the world. We sell our products through NIKE Direct operations, which is comprised of both NIKE-owned retail stores and sales through our digital platforms (also referred to as \"NIKE Brand Digital\"), to wholesale accounts and to a mix of independent distributors, licensees and sales representatives in nearly all countries around the world. Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear, apparel, equipment and accessories businesses. Our strategy is to achieve long-term revenue growth by creating innovative, \"must-have\" products, building deep personal consumer connections with our brands and delivering compelling consumer experiences through digital platforms and at retail.\nThrough the Consumer Direct Acceleration strategy, we are focused on creating the marketplace of the future with more premium, consistent and seamless consumer experiences, leading with digital and our owned stores, as well as select wholesale partners. In addition, our product creation and marketing organizations are aligned to a consumer construct focused on sports dimensions through Men's, Women's and Kids', which allows us to better serve consumer needs. We continue to invest in a new Enterprise Resource Planning Platform, data and analytics, demand sensing, insight gathering, and other areas to create an end-to-end technology foundation, which we believe will further accelerate our digital transformation. We believe this unified approach will accelerate growth and unlock more efficiency for our business, while driving speed and responsiveness as we serve consumers globally.\nFINANCIAL HIGHLIGHTS \n\u2022\nIn fiscal 2023, NIKE, Inc. achieved record Revenues of $51.2\u00a0billion, which increased 10% and 16% on a reported and currency-neutral basis, respectively \n\u2022\nNIKE Direct revenues grew 14% from $18.7 billion in fiscal 2022 to $21.3 billion in fiscal 2023, and represented approximately 44% of total NIKE Brand revenues for fiscal 2023\n\u2022\nGross margin for the fiscal year decreased 250 basis points to 43.5% primarily driven by higher product costs, higher markdowns and unfavorable changes in foreign currency exchange rates, partially offset by strategic pricing actions\n\u2022\nInventories as of May\u00a031, 2023 were $8.5 billion, flat compared to the prior year, driven by the actions we took throughout fiscal 2023 to manage inventory levels\n\u2022\nWe returned $7.5\u00a0billion to our shareholders in fiscal 2023 through share repurchases and dividends\n\u2022\nReturn on Invested Capital (\"ROIC\") as of May\u00a031, 2023 was 31.5% compared to 46.5% as of May 31, 2022. ROIC is considered a non-GAAP financial measure, see \"Use of Non-GAAP Financial Measures\" for further information.\nFor discussion related to the results of operations and changes in financial condition for fiscal 2022 compared to fiscal 2021 refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2022 Form 10-K, which was filed with the United States Securities and Exchange Commission on July 21, 2022.\nCURRENT ECONOMIC CONDITIONS AND MARKET DYNAMICS \n\u2022\nConsumer Spending:\n \nOur fiscal 2023 growth in Revenues reflects strong demand for our products despite ongoing uncertainty in the global economy. We will continue to closely monitor macroeconomic conditions, including potential impacts of inflation and rising interest rates on consumer behavior. \n\u2022\nInflationary Pressures:\n \nInflationary pressures, including higher product input, freight and logistics costs negatively impacted gross margin for fiscal 2023. The strategic pricing actions we have taken partially offset the impacts of these higher costs.\n\u2022\nSupply Chain Volatility:\n \nSupply chain challenges, macroeconomic conditions and the impact of the COVID-19 pandemic on the manufacturing of our product disrupted the flow of seasonal product in fiscal 2022 and the first quarter of fiscal 2023, resulting in elevated inventory levels at the end of the first quarter of fiscal 2023. Throughout fiscal 2023, we took action to reduce excess inventory by decreasing future inventory purchases and increasing promotional activity. These actions, along with the stabilization of inventory transit times in the second and third quarters of fiscal 2023, resulted in the normalization of the seasonal flow of product in the fourth quarter of fiscal 2023.\n2023 FORM 10-K       \n28\nTable of Contents\n\u2022\nCOVID-19 Impacts in Greater China:\n \nDuring the first and second quarters of fiscal 2023, we managed through continued temporary store closures and reduced retail traffic in Greater China, primarily due to COVID-19 related local government restrictions. At the beginning of the third quarter of fiscal 2023, the government mandated restrictions were lifted and we experienced improvement in physical retail traffic. \n\u2022\nForeign Currency Impacts: \nAs a global company with significant operations outside the United States, we are exposed to risk arising from foreign currency exchange rates. For fiscal 2023, fluctuations in foreign currency exchange rates negatively impacted our reported Revenues by approximately $2,859 million, reducing our revenue growth rate to 10% on a reported basis from 16% on a currency-neutral basis. Foreign currency impacts, net of hedges, also reduced our reported Income before income taxes by approximately $1,023 million. For further information, refer to \"Foreign Currency Exposures and Hedging Practices\".\nThe operating environment could remain volatile in fiscal 2024 as the risk exists that worsening macroeconomic conditions could have a material adverse impact on our future revenue growth as well as overall profitability. For more information refer to Item 1A Risk Factors, within Part I, Item 1. Business.\nRECENT DEVELOPMENTS\nDuring the first and second quarters of fiscal 2023, we completed the sale of our entity in Chile and our entities in Argentina and Uruguay to third-party distributors, respectively. Now that we have completed the shift from a wholesale and direct to consumer operating model to a distributor model within our Central and South America (\"CASA\") territory, we expect consolidated NIKE, Inc. and Asia Pacific & Latin America (\"APLA\") revenue growth will be reduced due to different commercial terms. However, over time we expect the future operating model to have a favorable impact on our overall profitability as we reduce selling and administrative expenses, as well as reduce exposure to foreign exchange rate volatility.\nUSE OF NON-GAAP FINANCIAL MEASURES\nThroughout this Annual Report on Form 10-K, we discuss non-GAAP financial measures, which should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with U.S. GAAP. References to these measures should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. Management uses these non-GAAP measures when evaluating the Company's performance, including when making financial and operating decisions. Additionally, management believes these non-GAAP financial measures provide investors with additional financial information that should be considered when assessing our underlying business performance and trends. \nEarnings Before Interest and Taxes (\"EBIT\")\n: Calculated as Net income before Interest expense (income), net and Income tax expense in the Consolidated Statements of Income. Total NIKE, Inc. EBIT for fiscal 2023 and fiscal 2022 is as follows:\nYEAR ENDED MAY 31,\n(Dollars in millions)\n2023\n2022\nNet income\n$\n5,070\n$\n6,046\nAdd: Interest expense (income), net\n(6)\n205\nAdd: Income tax expense\n1,131\n605\nEarnings before interest and taxes\n$\n6,195\n$\n6,856\nEBIT Margin\n: Calculated as total NIKE, Inc. EBIT divided by total NIKE, Inc. Revenues. Our EBIT Margin calculation for fiscal 2023 and fiscal 2022 is as follows:\nYEAR ENDED MAY 31,\n(Dollars in millions)\n2023\n2022\nNumerator\nEarnings before interest and taxes\n$\n6,195\n$\n6,856\nDenominator\nTotal NIKE, Inc. Revenues\n$\n51,217\n$\n46,710\nEBIT Margin\n12.1%\n14.7%\n2023 FORM 10-K   \n29\n \nTable of Contents\nReturn on Invested Capital (\"ROIC\")\n: Represents a performance measure that management believes is useful information in understanding the Company's ability to effectively manage invested capital. Our ROIC calculation as of May\u00a031, 2023 and 2022 is as follows:\nFOR THE TRAILING FOUR QUARTERS ENDED\n(Dollars in millions)\nMAY 31, 2023\nMAY 31, 2022\nNumerator\nNet income \n$\n5,070\n$\n6,046\nAdd: Interest expense (income), net\n(6)\n205\nAdd: Income tax expense\n1,131\n605\nEarnings before interest and taxes\n6,195\n6,856\nIncome tax adjustment\n(1)\n(1,130)\n(624)\nEarnings before interest and after taxes\n$\n5,065\n$\n6,232\nAVERAGE FOR THE TRAILING FIVE QUARTERS ENDED\nMAY 31, 2023\nMAY 31, 2022\nDenominator\nTotal debt\n(2)\n$\n12,491\n$\n12,722\nAdd: Shareholders' equity\n14,982\n14,425\nLess: Cash and equivalents and Short-term investments\n11,394\n13,748\nTotal invested capital\n$\n16,079\n$\n13,399\nRETURN ON INVESTED CAPITAL\n31.5%\n46.5%\n(1)\nEquals Earnings before interest and taxes multiplied by the effective tax rate as of the respective quarter end.\n(2)\nTotal debt includes the following: 1) Current portion of long-term debt, 2) Notes Payable, 3) Current portion of operating lease liabilities, 4) Long-term debt and 5) Operating lease liabilities.\nCurrency-neutral revenues\n: Currency-neutral revenues enhance visibility to underlying business trends, excluding the impact of translation arising from foreign currency exchange rate fluctuations. Currency-neutral revenues are calculated using actual exchange rates in use during the comparative prior year period in place of the exchange rates in use during the current period.\nWholesale equivalent revenues\n: References to wholesale equivalent revenues are intended to provide context as to the total size of our NIKE Brand market footprint if we had no NIKE Direct operations. NIKE Brand wholesale equivalent revenues consist of (1) sales to external wholesale customers and (2) internal sales from our wholesale operations to our NIKE Direct operations, which are charged at prices comparable to those charged to external wholesale customers. \nCOMPARABLE STORE SALES\nComparable store sales\n: This key metric, which excludes NIKE Brand Digital sales, comprises revenues from NIKE-owned in-line and factory stores for which all three of the following requirements have been met: (1) the store has been open at least one year, (2) square footage has not changed by more than 15% within the past year and (3) the store has not been permanently repositioned within the past year. Comparable store sales includes revenues from stores that were temporarily closed during the period as a result of COVID-19. Comparable store sales represents a performance metric that we believe is useful information for management and investors in understanding the performance of our established NIKE-owned in-line and factory stores. Management considers this metric when making financial and operating decisions. The method of calculating comparable store sales varies across the retail industry. As a result, our calculation of this metric may not be comparable to similarly titled metrics used by other companies.\n2023 FORM 10-K       \n30\nTable of Contents\nRESULTS OF OPERATIONS\n(Dollars in millions, except per share data)\nFISCAL 2023\nFISCAL 2022\n% CHANGE\nFISCAL 2021\n% CHANGE\nRevenues\n$\n51,217\u00a0\n$\n46,710\u00a0\n10\u00a0\n%\n$\n44,538\u00a0\n5\u00a0\n%\nCost of sales\n28,925\u00a0\n25,231\u00a0\n15\u00a0\n%\n24,576\u00a0\n3\u00a0\n%\nGross profit\n22,292\u00a0\n21,479\u00a0\n4\u00a0\n%\n19,962\u00a0\n8\u00a0\n%\nGross margin\n43.5\u00a0\n%\n46.0\u00a0\n%\n44.8\u00a0\n%\nDemand creation expense\n4,060\u00a0\n3,850\u00a0\n5\u00a0\n%\n3,114\u00a0\n24\u00a0\n%\nOperating overhead expense\n12,317\u00a0\n10,954\u00a0\n12\u00a0\n%\n9,911\u00a0\n11\u00a0\n%\nTotal selling and administrative expense\n16,377\u00a0\n14,804\u00a0\n11\u00a0\n%\n13,025\u00a0\n14\u00a0\n%\n% of revenues\n32.0\u00a0\n%\n31.7\u00a0\n%\n29.2\u00a0\n%\nInterest expense (income), net\n(6)\n205\u00a0\n\u2014\u00a0\n262\u00a0\n\u2014\u00a0\nOther (income) expense, net\n(280)\n(181)\n\u2014\u00a0\n14\u00a0\n\u2014\u00a0\nIncome before income taxes\n6,201\u00a0\n6,651\u00a0\n-7\u00a0\n%\n6,661\u00a0\n0\u00a0\n%\nIncome tax expense\n1,131\u00a0\n605\u00a0\n87\u00a0\n%\n934\u00a0\n-35\u00a0\n%\nEffective tax rate\n18.2\u00a0\n%\n9.1\u00a0\n%\n14.0\u00a0\n%\nNET INCOME\n$\n5,070\n\u00a0\n$\n6,046\n\u00a0\n-16\n\u00a0\n%\n$\n5,727\n\u00a0\n6\n\u00a0\n%\nDiluted earnings per common share\n$\n3.23\u00a0\n$\n3.75\u00a0\n-14\u00a0\n%\n$\n3.56\u00a0\n5\u00a0\n%\n \n2023 FORM 10-K   \n31\n \nTable of Contents\nCONSOLIDATED OPERATING RESULTS\nREVENUES\n(Dollars in\u00a0millions)\nFISCAL 2023\nFISCAL 2022\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\n(1)\nFISCAL 2021\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\n(1)\nNIKE, Inc. Revenues:\nNIKE Brand Revenues by:\nFootwear\n$\n33,135\u00a0\n$\n29,143\u00a0\n14\u00a0\n%\n20\u00a0\n%\n$\n28,021\u00a0\n4\u00a0\n%\n4\u00a0\n%\nApparel\n13,843\u00a0\n13,567\u00a0\n2\u00a0\n%\n8\u00a0\n%\n12,865\u00a0\n5\u00a0\n%\n6\u00a0\n%\nEquipment\n1,727\u00a0\n1,624\u00a0\n6\u00a0\n%\n13\u00a0\n%\n1,382\u00a0\n18\u00a0\n%\n18\u00a0\n%\nGlobal Brand Divisions\n(2)\n58\u00a0\n102\u00a0\n-43\u00a0\n%\n-43\u00a0\n%\n25\u00a0\n308\u00a0\n%\n302\u00a0\n%\nTotal NIKE Brand Revenues\n$\n48,763\n\u00a0\n$\n44,436\n\u00a0\n10\n\u00a0\n%\n16\n\u00a0\n%\n$\n42,293\n\u00a0\n5\n\u00a0\n%\n6\n\u00a0\n%\nConverse\n2,427\u00a0\n2,346\u00a0\n3\u00a0\n%\n8\u00a0\n%\n2,205\u00a0\n6\u00a0\n%\n7\u00a0\n%\nCorporate\n(3)\n27\u00a0\n(72)\n\u2014\u00a0\n\u2014\u00a0\n40\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTOTAL NIKE, INC. REVENUES\n$\n51,217\n\u00a0\n$\n46,710\n\u00a0\n10\n\u00a0\n%\n16\n\u00a0\n%\n$\n44,538\n\u00a0\n5\n\u00a0\n%\n6\n\u00a0\n%\nSupplemental NIKE Brand Revenues Details:\nNIKE Brand Revenues by:\nSales to Wholesale Customers\n$\n27,397\u00a0\n$\n25,608\u00a0\n7\u00a0\n%\n14\u00a0\n%\n$\n25,898\u00a0\n-1\u00a0\n%\n-1\u00a0\n%\nSales through NIKE Direct\n21,308\u00a0\n18,726\u00a0\n14\u00a0\n%\n20\u00a0\n%\n16,370\u00a0\n14\u00a0\n%\n15\u00a0\n%\nGlobal Brand Divisions\n(2)\n58\u00a0\n102\u00a0\n-43\u00a0\n%\n-43\u00a0\n%\n25\u00a0\n308\u00a0\n%\n302\u00a0\n%\nTOTAL NIKE BRAND REVENUES\n$\n48,763\n\u00a0\n$\n44,436\n\u00a0\n10\n\u00a0\n%\n16\n\u00a0\n%\n$\n42,293\n\u00a0\n5\n\u00a0\n%\n6\n\u00a0\n%\nNIKE Brand Revenues on a Wholesale Equivalent Basis\n(1)\n:\nSales to Wholesale Customers\n$\n27,397\u00a0\n$\n25,608\u00a0\n7\u00a0\n%\n14\u00a0\n%\n$\n25,898\u00a0\n-1\u00a0\n%\n-1\u00a0\n%\nSales from our Wholesale Operations to NIKE Direct Operations\n12,730\u00a0\n10,543\u00a0\n21\u00a0\n%\n27\u00a0\n%\n9,872\u00a0\n7\u00a0\n%\n7\u00a0\n%\nTOTAL NIKE BRAND WHOLESALE EQUIVALENT REVENUES\n$\n40,127\n\u00a0\n$\n36,151\n\u00a0\n11\n\u00a0\n%\n18\n\u00a0\n%\n$\n35,770\n\u00a0\n1\n\u00a0\n%\n1\n\u00a0\n%\nNIKE Brand Wholesale Equivalent Revenues by:\n(1),(4)\nMen's\n$\n20,733\u00a0\n$\n18,797\u00a0\n10\u00a0\n%\n17\u00a0\n%\n$\n18,391\u00a0\n2\u00a0\n%\n3\u00a0\n%\nWomen's\n8,606\u00a0\n8,273\u00a0\n4\u00a0\n%\n11\u00a0\n%\n8,225\u00a0\n1\u00a0\n%\n1\u00a0\n%\nNIKE Kids'\n5,038\u00a0\n4,874\u00a0\n3\u00a0\n%\n10\u00a0\n%\n4,882\u00a0\n0\u00a0\n%\n0\u00a0\n%\nJordan Brand\n6,589\u00a0\n5,122\u00a0\n29\u00a0\n%\n35\u00a0\n%\n4,780\u00a0\n7\u00a0\n%\n7\u00a0\n%\nOthers\n(5)\n(839)\n(915)\n8\u00a0\n%\n-3\u00a0\n%\n(508)\n-80\u00a0\n%\n-79\u00a0\n%\nTOTAL NIKE BRAND WHOLESALE EQUIVALENT REVENUES\n$\n40,127\n\u00a0\n$\n36,151\n\u00a0\n11\n\u00a0\n%\n18\n\u00a0\n%\n$\n35,770\n\u00a0\n1\n\u00a0\n%\n1\n\u00a0\n%\n(1)\nThe percent change excluding currency changes and the presentation of wholesale equivalent revenues represent non-GAAP financial measures. For further information, see \"Use of Non-GAAP Financial Measures\".\n(2)\nGlobal Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.\n(3)\nCorporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through our central foreign exchange risk management program.\n(4)\nAs a result of the Consumer Direct Acceleration strategy, announced in fiscal 2021, the Company is now organized around a consumer construct of Men's, Women's and Kids'. Beginning in the first quarter of fiscal 2022, unisex products are classified within Men's, and Jordan Brand revenues are separately reported. Certain prior year amounts were reclassified to conform to fiscal 2022 presentation. These changes had no impact on previously reported consolidated results of operations or shareholders' equity. \n(5)\nOthers include products not allocated to Men's, Women's, NIKE Kids' and Jordan Brand, as well as certain adjustments that are not allocated to products designated by consumer.\n2023 FORM 10-K       \n32\nTable of Contents\nFISCAL 2023 NIKE BRAND REVENUE HIGHLIGHTS\nThe following tables present NIKE Brand revenues disaggregated by reportable operating segment, distribution channel and major product line:\nFISCAL 2023 COMPARED TO FISCAL 2022\n\u2022\nNIKE, Inc. Revenues were $51.2 billion in fiscal 2023, which increased 10% and 16% compared to fiscal 2022 on a reported and currency-neutral basis, respectively. The increase was due to higher revenues in North America, Europe, Middle East & Africa (\"EMEA\"), APLA and Greater China, which contributed approximately 7, 6, 2 and 1 percentage points to NIKE, Inc. Revenues, respectively. \n\u2022\nNIKE Brand revenues, which represented over 90% of NIKE, Inc. Revenues,\n \nincreased\n \n10% and 16% on a reported and currency-neutral basis, respectively. This increase was primarily due to higher revenues in Men's, the Jordan Brand, Women's and Kids' which grew 17%, 35%,11% and 10%, respectively, on a wholesale equivalent basis. \n\u2022\nNIKE Brand footwear revenues increased 20% on a currency-neutral basis, due to higher revenues in Men's, the Jordan Brand, Women's and Kids'. Unit sales of footwear increased 13%, while higher average selling price (\"ASP\") per pair contributed approximately 7 percentage points of footwear revenue growth. Higher ASP was primarily due to higher full-price ASP, net of discounts, on a wholesale equivalent basis, and growth in the size of our NIKE Direct business, partially offset by lower NIKE Direct ASP. \n\u2022\nNIKE Brand apparel revenues increased 8% on a currency-neutral basis, primarily due to higher revenues in Men's. Unit sales of apparel increased 4%, while higher ASP per unit contributed approximately 4 percentage points of apparel revenue growth. Higher ASP was primarily due to higher full-price ASP and growth in the size of our NIKE Direct business, partially offset by lower NIKE Direct ASP, reflecting higher promotional activity.\n\u2022\nNIKE Direct revenues increased 14% from $18.7 billion in fiscal 2022 to $21.3 billion in fiscal 2023. On a currency-neutral basis, NIKE Direct revenues increased 20% primarily driven by NIKE Brand Digital sales growth of 24%, comparable store sales growth of 14% and the addition of new stores. For further information regarding comparable store sales, including the definition, see \"Comparable Store Sales\". NIKE Brand Digital sales were $12.6\u00a0billion for fiscal 2023 compared to $10.7\u00a0billion for fiscal 2022.\n2023 FORM 10-K   \n33\n \nTable of Contents\nGROSS MARGIN\nFISCAL 2023 COMPARED TO FISCAL 2022\nFor fiscal 2023, our consolidated gross profit increased 4% to $22,292 million compared to $21,479 million for fiscal 2022. Gross margin decreased 250 basis points to 43.5% for fiscal 2023 compared to 46.0% for fiscal 2022 due to the following:\n*Wholesale equivalent\nThe decrease in gross margin for fiscal 2023 was primarily due to:\n\u2022\nHigher NIKE Brand product costs, on a wholesale equivalent basis, primarily due to higher input costs and elevated inbound freight and logistics costs as well as product mix;\n\u2022\nLower margin in our NIKE Direct business, driven by higher promotional activity to liquidate inventory in the current period compared to lower promotional activity in the prior period resulting from lower available inventory supply;\n\u2022\nUnfavorable changes in net foreign currency exchange rates, including hedges; and\n\u2022\nLower off-price margin, on a wholesale equivalent basis.\nThis was partially offset by:\n\u2022\nHigher NIKE Brand full-price ASP, net of discounts, on a wholesale equivalent basis, due primarily to strategic pricing actions and product mix; and\n\u2022\nLower other costs, primarily due to higher inventory obsolescence reserves recognized in Greater China in the fourth quarter of fiscal 2022.\nTOTAL SELLING AND ADMINISTRATIVE EXPENSE\n(Dollars in millions)\nFISCAL 2023\nFISCAL 2022\n% CHANGE\nFISCAL 2021\n% CHANGE\nDemand creation expense\n(1)\n$\n4,060\u00a0\n$\n3,850\u00a0\n5\u00a0\n%\n$\n3,114\u00a0\n24\u00a0\n%\nOperating overhead expense\n12,317\u00a0\n10,954\u00a0\n12\u00a0\n%\n9,911\u00a0\n11\u00a0\n%\nTotal selling and administrative expense\n$\n16,377\u00a0\n$\n14,804\u00a0\n11\u00a0\n%\n$\n13,025\u00a0\n14\u00a0\n%\n% of revenues\n32.0\u00a0\n%\n31.7\u00a0\n%\n30\u00a0\n\u00a0bps\n29.2\u00a0\n%\n250\u00a0\n\u00a0bps\n(1)\nDemand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, complimentary product, television, digital and print advertising and media costs, brand events and retail brand presentation.\nFISCAL 2023 COMPARED TO FISCAL 2022\nDemand creation expense increased 5% for fiscal 2023, primarily due to higher advertising and marketing expense and higher sports marketing expense. Changes in foreign currency exchange rates decreased Demand creation expense by approximately 4 percentage points. \nOperating overhead expense increased 12%, primarily due to higher wage-related expenses, NIKE Direct variable costs, strategic technology enterprise investments and other administrative costs. Changes in foreign currency exchange rates decreased Operating overhead expense by approximately 3 percentage points.\n2023 FORM 10-K       \n34\nTable of Contents\nOTHER (INCOME) EXPENSE, NET\n(Dollars in millions)\nFISCAL 2023\nFISCAL 2022\nFISCAL 2021\nOther (income) expense, net\n$\n(280)\n$\n(181)\n$\n14\u00a0\nOther (income) expense, net comprises foreign currency conversion gains and losses from the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, as well as unusual or non-operating transactions that are outside the normal course of business.\nFISCAL 2023 COMPARED TO FISCAL 2022\n \nOther (income) expense, net increased from $181 million of other income, net in fiscal 2022 to $280 million in the current fiscal year, primarily due to a net favorable change in foreign currency conversion gains and losses, including hedges, and the one-time charge related to the deconsolidation of our Russian operations recognized in the prior year. This increase was partially offset by net unfavorable activity related to our strategic distributor partnership transition within APLA, including the loss recognized upon the completion of the sale of our entities in Argentina and Uruguay to a third-party distributor in the second quarter of fiscal 2023.\nFor more information related to our distributor partnership transition within APLA, see Note\u00a018 \u2014 Acquisitions and Divestitures within the accompanying Notes to the Consolidated Financial Statements. \nWe estimate the combination of the translation of foreign currency-denominated profits from our international businesses, and the year-over-year change in foreign currency-related gains and losses included in Other (income) expense, net had an unfavorable impact on our Income before income taxes of $1,023 million for fiscal 2023. \nINCOME TAXES\nFISCAL 2023\nFISCAL 2022\n% CHANGE\nFISCAL 2021\n% CHANGE\nEffective tax rate\n18.2\u00a0\n%\n9.1\u00a0\n%\n910 bps\n14.0\u00a0\n%\n(490) bps\nFISCAL 2023 COMPARED TO FISCAL 2022\n \nOur effective tax rate was 18.2% for fiscal 2023, compared to 9.1% for fiscal 2022, primarily due to decreased benefits from stock-based compensation and a non-cash, one-time benefit in the prior year related to the onshoring of certain non-U.S. intangible property ownership rights.\nOn August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 that includes, among other provisions, changes to the U.S. corporate income tax system, including a fifteen percent minimum tax based on \"adjusted financial statement income,\" which is effective for NIKE beginning June 1, 2023. Based on our current analysis of the provisions, we do not expect these tax law changes to have a material impact on our financial statements; however, we will continue to evaluate their impact as further information becomes available. \n2023 FORM 10-K   \n35\n \nTable of Contents\nOPERATING SEGMENTS\nAs discussed in Note\u00a015 \u2014 Operating Segments and Related Information in the accompanying Notes to the Consolidated Financial Statements, our operating segments are evidence of the structure of the Company's internal organization. The NIKE Brand segments are defined by geographic regions for operations participating in NIKE Brand sales activity. \nThe breakdown of Revenues is as follows:\n(Dollars\u00a0in\u00a0millions)\nFISCAL 2023\nFISCAL 2022\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\n(1)\nFISCAL 2021\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\n(1)\nNorth America\n$\n21,608\u00a0\n$\n18,353\u00a0\n18\u00a0\n%\n18\u00a0\n%\n$\n17,179\u00a0\n7\u00a0\n%\n7\u00a0\n%\nEurope, Middle East & Africa\n13,418\u00a0\n12,479\u00a0\n8\u00a0\n%\n21\u00a0\n%\n11,456\u00a0\n9\u00a0\n%\n12\u00a0\n%\nGreater China\n7,248\u00a0\n7,547\u00a0\n-4\u00a0\n%\n4\u00a0\n%\n8,290\u00a0\n-9\u00a0\n%\n-13\u00a0\n%\nAsia Pacific & Latin America\n(2)\n6,431\u00a0\n5,955\u00a0\n8\u00a0\n%\n17\u00a0\n%\n5,343\u00a0\n11\u00a0\n%\n16\u00a0\n%\nGlobal Brand Divisions\n(3)\n58\u00a0\n102\u00a0\n-43\u00a0\n%\n-43\u00a0\n%\n25\u00a0\n308\u00a0\n%\n302\u00a0\n%\nTOTAL NIKE BRAND\n$\n48,763\n\u00a0\n$\n44,436\n\u00a0\n10\n\u00a0\n%\n16\n\u00a0\n%\n$\n42,293\n\u00a0\n5\n\u00a0\n%\n6\n\u00a0\n%\nConverse\n2,427\u00a0\n2,346\u00a0\n3\u00a0\n%\n8\u00a0\n%\n2,205\u00a0\n6\u00a0\n%\n7\u00a0\n%\nCorporate\n(4)\n27\u00a0\n(72)\n\u2014\u00a0\n\u2014\u00a0\n40\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTOTAL NIKE, INC. REVENUES\n$\n51,217\n\u00a0\n$\n46,710\n\u00a0\n10\n\u00a0\n%\n16\n\u00a0\n%\n$\n44,538\n\u00a0\n5\n\u00a0\n%\n6\n\u00a0\n%\n(1)\u00a0\u00a0\u00a0\u00a0The percent change excluding currency changes represents a non-GAAP financial measure. For further information, see \"Use of Non-GAAP Financial Measures\".\n(2)\u00a0\u00a0\u00a0\u00a0For additional information on the transition of our NIKE Brand businesses within our CASA territory to a third-party distributor, see Note\u00a018 \u2014 Acquisitions and Divestitures of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report.\n(3)\u00a0\u00a0\u00a0\u00a0Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.\n(4)\u00a0\u00a0\u00a0\u00a0Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through our central foreign exchange risk management program.\nThe primary financial measure used by the Company to evaluate performance is Earnings Before Interest and Taxes (\"EBIT\"). As discussed in Note\u00a015 \u2014 Operating Segments and Related Information in the accompanying Notes to the Consolidated Financial Statements, certain corporate costs are not included in EBIT.\nThe breakdown of EBIT is as follows: \n(Dollars in millions)\nFISCAL 2023\nFISCAL 2022\n% CHANGE\nFISCAL 2021\n% CHANGE\nNorth America\n$\n5,454\u00a0\n$\n5,114\u00a0\n7\u00a0\n%\n$\n5,089\u00a0\n0\u00a0\n%\nEurope, Middle East & Africa\n3,531\u00a0\n3,293\u00a0\n7\u00a0\n%\n2,435\u00a0\n35\u00a0\n%\nGreater China\n2,283\u00a0\n2,365\u00a0\n-3\u00a0\n%\n3,243\u00a0\n-27\u00a0\n%\nAsia Pacific & Latin America\n1,932\u00a0\n1,896\u00a0\n2\u00a0\n%\n1,530\u00a0\n24\u00a0\n%\nGlobal Brand Divisions\n(4,841)\n(4,262)\n-14\u00a0\n%\n(3,656)\n-17\u00a0\n%\nTOTAL NIKE BRAND\n(1)\n$\n8,359\n\u00a0\n$\n8,406\n\u00a0\n-1\n\u00a0\n%\n$\n8,641\n\u00a0\n-3\n\u00a0\n%\nConverse\n676\u00a0\n669\u00a0\n1\u00a0\n%\n543\u00a0\n23\u00a0\n%\nCorporate\n(2,840)\n(2,219)\n-28\u00a0\n%\n(2,261)\n2\u00a0\n%\nTOTAL NIKE, INC. EARNINGS\u00a0BEFORE INTEREST AND TAXES\n(1)\n$\n6,195\n\u00a0\n$\n6,856\n\u00a0\n-10\n\u00a0\n%\n$\n6,923\n\u00a0\n-1\n\u00a0\n%\nEBIT margin\n(1)\n12.1\u00a0\n%\n14.7\u00a0\n%\n15.5\u00a0\n%\nInterest expense (income), net\n(6)\n205\u00a0\n\u2014\u00a0\n262\u00a0\n\u2014\u00a0\nTOTAL NIKE, INC. INCOME BEFORE INCOME TAXES\n$\n6,201\n\u00a0\n$\n6,651\n\u00a0\n-7\n\u00a0\n%\n$\n6,661\n\u00a0\n0\n\u00a0\n%\n(1)\u00a0\u00a0\u00a0\u00a0Total NIKE Brand EBIT, Total NIKE, Inc. EBIT and EBIT Margin represent non-GAAP financial measures. See \"Use of Non-GAAP Financial Measures\" for further information. \n2023 FORM 10-K       \n36\nTable of Contents\nNORTH AMERICA\n(Dollars in millions)\nFISCAL 2023\nFISCAL 2022\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\nFISCAL 2021\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\nRevenues by:\nFootwear\n$\n14,897\u00a0\n$\n12,228\u00a0\n22\u00a0\n%\n22\u00a0\n%\n$\n11,644\u00a0\n5\u00a0\n%\n5\u00a0\n%\nApparel\n5,947\u00a0\n5,492\u00a0\n8\u00a0\n%\n9\u00a0\n%\n5,028\u00a0\n9\u00a0\n%\n9\u00a0\n%\nEquipment\n764\u00a0\n633\u00a0\n21\u00a0\n%\n21\u00a0\n%\n507\u00a0\n25\u00a0\n%\n25\u00a0\n%\nTOTAL REVENUES\n$\n21,608\n\u00a0\n$\n18,353\n\u00a0\n18\n\u00a0\n%\n18\n\u00a0\n%\n$\n17,179\n\u00a0\n7\n\u00a0\n%\n7\n\u00a0\n%\nRevenues by:\n\u00a0\n\u00a0\n\u00a0\nSales to Wholesale Customers\n$\n11,273\u00a0\n$\n9,621\u00a0\n17\u00a0\n%\n18\u00a0\n%\n$\n10,186\u00a0\n-6\u00a0\n%\n-6\u00a0\n%\nSales through NIKE Direct\n10,335\u00a0\n8,732\u00a0\n18\u00a0\n%\n18\u00a0\n%\n6,993\u00a0\n25\u00a0\n%\n25\u00a0\n%\nTOTAL REVENUES\n$\n21,608\n\u00a0\n$\n18,353\n\u00a0\n18\n\u00a0\n%\n18\n\u00a0\n%\n$\n17,179\n\u00a0\n7\n\u00a0\n%\n7\n\u00a0\n%\nEARNINGS\u00a0BEFORE\u00a0INTEREST AND\u00a0TAXES\n$\n5,454\n\u00a0\n$\n5,114\n\u00a0\n7\n\u00a0\n%\n$\n5,089\n\u00a0\n0\n\u00a0\n%\nFISCAL 2023 COMPARED TO FISCAL 2022\n\u2022\nNorth America revenues increased 18% on a currency-neutral basis, primarily due to higher revenues in Men's and the Jordan Brand. NIKE Direct revenues increased 18%, driven by strong digital sales growth of 23%, comparable store sales growth of 9% and the addition of new stores.\n\u2022\nFootwear revenues increased 22% on a currency-neutral basis, primarily due to higher revenues in Men's and the Jordan Brand. Unit sales of footwear increased 17%, while higher ASP per pair contributed approximately 5 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher full-price ASP and growth in NIKE Direct, partially offset by lower NIKE Direct ASP, reflecting higher promotional activity as well as lower available inventory supply in the prior period and a lower mix of full-price sales. \n\u2022\nApparel revenues increased 9% on a currency-neutral basis, primarily due to higher revenues in Men's. Unit sales of apparel increased 7%, while higher ASP per unit contributed approximately 2 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to higher full-price ASP and growth in NIKE Direct, partially offset by lower NIKE Direct ASP, reflecting higher promotional activity.\nReported EBIT increased 7% due to higher revenues and the following:\n\u2022\nGross margin contraction of 310 basis points primarily due to higher product costs, reflecting higher input costs and inbound freight and logistics costs and product mix, lower margins in NIKE Direct due to higher promotional activity and a lower mix of full-price sales. This was partially offset by higher full-price ASP, net of discounts, largely due to strategic pricing actions and product mix.\n\u2022\nSelling and administrative expense increased 15% due to higher operating overhead and demand creation expense. The increase in operating overhead expense was primarily due to higher wage-related costs and higher NIKE Direct variable costs, in part due to new store additions. Demand creation expense increased primarily due to higher sports marketing expense and an increase in digital marketing.\n2023 FORM 10-K   \n37\n \nTable of Contents\nEUROPE, MIDDLE EAST & AFRICA\n(Dollars in millions)\nFISCAL 2023\nFISCAL 2022\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\nFISCAL 2021\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\nRevenues by:\nFootwear\n$\n8,260\u00a0\n$\n7,388\u00a0\n12\u00a0\n%\n25\u00a0\n%\n$\n6,970\u00a0\n6\u00a0\n%\n9\u00a0\n%\nApparel\n4,566\u00a0\n4,527\u00a0\n1\u00a0\n%\n14\u00a0\n%\n3,996\u00a0\n13\u00a0\n%\n16\u00a0\n%\nEquipment\n592\u00a0\n564\u00a0\n5\u00a0\n%\n18\u00a0\n%\n490\u00a0\n15\u00a0\n%\n17\u00a0\n%\nTOTAL REVENUES\n$\n13,418\n\u00a0\n$\n12,479\n\u00a0\n8\n\u00a0\n%\n21\n\u00a0\n%\n$\n11,456\n\u00a0\n9\n\u00a0\n%\n12\n\u00a0\n%\nRevenues by:\n\u00a0\n\u00a0\n\u00a0\nSales to Wholesale Customers\n$\n8,522\u00a0\n$\n8,377\u00a0\n2\u00a0\n%\n15\u00a0\n%\n$\n7,812\u00a0\n7\u00a0\n%\n10\u00a0\n%\nSales through NIKE Direct\n4,896\u00a0\n4,102\u00a0\n19\u00a0\n%\n33\u00a0\n%\n3,644\u00a0\n13\u00a0\n%\n15\u00a0\n%\nTOTAL REVENUES\n$\n13,418\n\u00a0\n$\n12,479\n\u00a0\n8\n\u00a0\n%\n21\n\u00a0\n%\n$\n11,456\n\u00a0\n9\n\u00a0\n%\n12\n\u00a0\n%\nEARNINGS\u00a0BEFORE\u00a0INTEREST AND\u00a0TAXES\n$\n3,531\n\u00a0\n$\n3,293\n\u00a0\n7\n\u00a0\n%\n$\n2,435\n\u00a0\n35\n\u00a0\n%\n\u00a0\nFISCAL 2023 COMPARED TO FISCAL 2022\n \n\u2022\nEMEA revenues increased 21% on a currency-neutral basis, due to higher revenues in Men's, the Jordan Brand, Women's and Kids'. NIKE Direct revenues increased 33%, driven primarily by strong digital sales growth of 43% and comparable store sales growth of 22%.\n\u2022\nFootwear revenues increased 25% on a currency-neutral basis, due to higher revenues in Men's, the Jordan Brand, Women's and Kids'. Unit sales of footwear increased 9%, while higher ASP per pair contributed approximately 16 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher full-price ASP and growth in NIKE Direct.\n\u2022\nApparel revenues increased 14% on a currency-neutral basis, primarily due to higher revenues in Men's. Unit sales of apparel increased 2%, while higher ASP per unit contributed approximately 12 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to higher full-price ASP and growth in NIKE Direct, partially offset by lower NIKE Direct ASP, reflecting higher promotional activity.\nReported EBIT increased 7% due to higher revenues and the following:\n\u2022\nGross margin contraction of 60 basis points primarily due to higher product costs reflecting higher input costs, inbound freight and logistics costs and product mix, higher other costs and unfavorable changes in standard foreign currency exchange rates. This was partially offset by higher full-price ASP, net of discounts, primarily due to strategic pricing actions and product mix.\n\u2022\nSelling and administrative expense increased 4% due to higher operating overhead and demand creation expense. Operating overhead expense increased primarily due to higher wage-related expenses and other administrative costs, partially offset by favorable changes in foreign currency exchange rates. Demand creation expense increased primarily due to higher advertising and marketing expense, partially offset by favorable changes in foreign currency exchange rates. \n2023 FORM 10-K       \n38\nTable of Contents\n GREATER CHINA\n(Dollars in millions)\nFISCAL 2023\nFISCAL 2022\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\nFISCAL 2021\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\nRevenues by:\nFootwear\n$\n5,435\u00a0\n$\n5,416\u00a0\n0\u00a0\n%\n8\u00a0\n%\n$\n5,748\u00a0\n-6\u00a0\n%\n-10\u00a0\n%\nApparel\n1,666\u00a0\n1,938\u00a0\n-14\u00a0\n%\n-7\u00a0\n%\n2,347\u00a0\n-17\u00a0\n%\n-21\u00a0\n%\nEquipment\n147\u00a0\n193\u00a0\n-24\u00a0\n%\n-18\u00a0\n%\n195\u00a0\n-1\u00a0\n%\n-6\u00a0\n%\nTOTAL REVENUES\n$\n7,248\n\u00a0\n$\n7,547\n\u00a0\n-4\n\u00a0\n%\n4\n\u00a0\n%\n$\n8,290\n\u00a0\n-9\n\u00a0\n%\n-13\n\u00a0\n%\nRevenues by:\n\u00a0\n\u00a0\n\u00a0\nSales to Wholesale Customers\n$\n3,866\u00a0\n$\n4,081\u00a0\n-5\u00a0\n%\n2\u00a0\n%\n$\n4,513\u00a0\n-10\u00a0\n%\n-14\u00a0\n%\nSales through NIKE Direct\n3,382\u00a0\n3,466\u00a0\n-2\u00a0\n%\n5\u00a0\n%\n3,777\u00a0\n-8\u00a0\n%\n-12\u00a0\n%\nTOTAL REVENUES\n$\n7,248\n\u00a0\n$\n7,547\n\u00a0\n-4\n\u00a0\n%\n4\n\u00a0\n%\n$\n8,290\n\u00a0\n-9\n\u00a0\n%\n-13\n\u00a0\n%\nEARNINGS\u00a0BEFORE\u00a0INTEREST AND\u00a0TAXES\n$\n2,283\n\u00a0\n$\n2,365\n\u00a0\n-3\n\u00a0\n%\n\u00a0\n$\n3,243\n\u00a0\n-27\n\u00a0\n%\n\u00a0\nFISCAL 2023 COMPARED TO FISCAL 2022\n \n\u2022\nGreater China revenues increased 4% on a currency-neutral basis, primarily due to higher revenues in the Jordan Brand, partially offset by lower revenues in Men's and Women's. NIKE Direct revenues increased 5%, due to comparable store sales growth of 9% and the addition of new stores, partially offset by digital sales declines of 4%.\n\u2022\nFootwear revenues increased 8% on a currency-neutral basis, primarily due to higher revenues in the Jordan Brand and Men's. Unit sales of footwear increased 7%, while higher ASP per pair contributed approximately 1 percentage point of footwear revenue growth. Higher ASP per pair was primarily due to higher NIKE Direct ASP and a higher mix of full-price sales, largely offset by a lower mix of NIKE Direct sales.\n\u2022\nApparel revenues decreased 7% on a currency-neutral basis, primarily due to lower revenues in Men's and Women's. Unit sales of apparel decreased 8%, while higher ASP per unit contributed approximately 1 percentage point of apparel revenue growth. Higher ASP per unit was primarily due to a higher mix of full price sales, partially offset by lower off-price ASP.\nReported EBIT decreased 3% due to lower revenues and the following:\n\u2022\nGross margin expansion of approximately 140 basis points, primarily due to higher inventory obsolescence reserves recognized in the fourth quarter of fiscal 2022, favorable changes in standard foreign currency exchange rates and higher full-price ASP, net of discounts, in part due to product mix. This was partially offset by higher product costs reflecting higher input costs and product mix.\n\u2022\nSelling and administrative expense was flat due to increased operating overhead expense offset by lower demand creation expense. The increase in operating overhead expense was primarily due to higher wage-related expenses and other administrative costs, partially offset by favorable changes in foreign currency exchange rates. Demand creation expense decreased primarily due to lower retail brand presentation costs, lower digital marketing and favorable changes in foreign currency exchange rates, partially offset by higher advertising and marketing expense.\n2023 FORM 10-K   \n39\n \nTable of Contents\nASIA PACIFIC & LATIN AMERICA\n(Dollars in millions)\nFISCAL 2023\nFISCAL 2022\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\nFISCAL 2021\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\nRevenues by:\nFootwear\n$\n4,543\u00a0\n$\n4,111\u00a0\n11\u00a0\n%\n19\u00a0\n%\n$\n3,659\u00a0\n12\u00a0\n%\n17\u00a0\n%\nApparel\n1,664\u00a0\n1,610\u00a0\n3\u00a0\n%\n13\u00a0\n%\n1,494\u00a0\n8\u00a0\n%\n12\u00a0\n%\nEquipment\n224\u00a0\n234\u00a0\n-4\u00a0\n%\n4\u00a0\n%\n190\u00a0\n23\u00a0\n%\n28\u00a0\n%\nTOTAL REVENUES\n$\n6,431\n\u00a0\n$\n5,955\n\u00a0\n8\n\u00a0\n%\n17\n\u00a0\n%\n$\n5,343\n\u00a0\n11\n\u00a0\n%\n16\n\u00a0\n%\nRevenues by:\nSales to Wholesale Customers\n$\n3,736\u00a0\n$\n3,529\u00a0\n6\u00a0\n%\n14\u00a0\n%\n$\n3,387\u00a0\n4\u00a0\n%\n8\u00a0\n%\nSales through NIKE Direct\n2,695\u00a0\n2,426\u00a0\n11\u00a0\n%\n22\u00a0\n%\n1,956\u00a0\n24\u00a0\n%\n30\u00a0\n%\nTOTAL REVENUES\n$\n6,431\n\u00a0\n$\n5,955\n\u00a0\n8\n\u00a0\n%\n17\n\u00a0\n%\n$\n5,343\n\u00a0\n11\n\u00a0\n%\n16\n\u00a0\n%\nEARNINGS\u00a0BEFORE\u00a0INTEREST AND\u00a0TAXES\n$\n1,932\n\u00a0\n$\n1,896\n\u00a0\n2\n\u00a0\n%\n$\n1,530\n\u00a0\n24\n\u00a0\n%\nAs discussed previously, our NIKE Brand business in Brazil transitioned to a distributor operating model during fiscal 2021. We completed the sale of our entity in Chile and our entities in Argentina and Uruguay to third-party distributors in the first and second quarters of fiscal 2023, respectively. The impacts of closing these transactions are included within Corporate and are not reflected in the APLA operating segment results. This completed the transition of our NIKE Brand businesses within our CASA marketplace, which now reflects a full distributor operating model. For more information see Note\u00a018 \u2014 Acquisitions and Divestitures within the accompanying Notes to the Consolidated Financial Statements.\nFISCAL 2023 COMPARED TO FISCAL 2022\n\u2022\nAPLA revenues increased 17% on a currency-neutral basis due to higher revenues across nearly all territories, led by Southeast Asia and India, Korea and Japan. The increase was partially offset by a decline in our CASA territory. Within our CASA territory, the transition of our Chile, Argentina and Uruguay entities to a third-party distributor operating model reduced APLA revenue growth by approximately 5 percentage points. Revenues increased primarily due to growth in Men's, Women's and the Jordan Brand. NIKE Direct revenues increased 22%, driven by digital sales growth of 23% and comparable store sales growth of 28%.\n\u2022\nFootwear revenues increased 19% on a currency-neutral basis, primarily due to higher revenues in Men's, Women's and the Jordan Brand. Unit sales of footwear increased 16%, while higher ASP per pair contributed approximately 3 percentage points of footwear revenue growth. Higher ASP per pair was primarily due to higher full-price ASP and growth in NIKE Direct, partially offset by lower NIKE Direct ASP.\n\u2022\nApparel revenues increased 13% on a currency-neutral basis, primarily due to higher revenues in Men's. Unit sales of apparel increased 9%, while higher ASP per unit contributed approximately 4 percentage points of apparel revenue growth. Higher ASP per unit was primarily due to higher full-price and off-price ASPs, partially offset by lower NIKE Direct ASP.\nReported EBIT increased 2% due to higher revenues and the following:\n\u2022\nGross margin contraction of approximately 190 basis points primarily due to higher product costs, reflecting product mix and higher input costs, as well as unfavorable changes in standard foreign currency exchange rates. This was partially offset by higher full-price ASP, net of discounts, due to product mix and strategic pricing actions.\n\u2022\nSelling and administrative expense increased 8% due to higher operating overhead and demand creation expense. Operating overhead expense increased primarily due to higher wage-related expenses and an increase in NIKE Direct variable costs, partially offset by favorable changes in foreign currency exchange rates. Demand creation expense increased primarily due to higher sports marketing expense and higher advertising and marketing expense, partially offset by favorable changes in foreign currency exchange rates. \n2023 FORM 10-K       \n40\nTable of Contents\nGLOBAL BRAND DIVISIONS\n(Dollars in millions)\nFISCAL 2023\nFISCAL 2022\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\nFISCAL 2021\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\nRevenues\n$\n58\u00a0\n$\n102\u00a0\n-43\u00a0\n%\n-43\u00a0\n%\n$\n25\u00a0\n308\u00a0\n%\n302\u00a0\n%\nEarnings (Loss) Before Interest and Taxes\n$\n(4,841)\n$\n(4,262)\n-14\u00a0\n%\n$\n(3,656)\n-17\u00a0\n%\n\u00a0\nGlobal Brand Divisions primarily represent demand creation and operating overhead expense, including product creation and design expenses that are centrally managed for the NIKE Brand, as well as costs associated with NIKE Direct global digital operations and enterprise technology. Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.\nFISCAL 2023 COMPARED TO FISCAL 2022 \nGlobal Brand Divisions' loss before interest and taxes increased 14% for fiscal 2023 primarily due to a 12% increase in selling and administrative expense from higher operating overhead expense largely driven by higher wage-related costs and strategic technology enterprise investments.\nCONVERSE\n(Dollars\u00a0in\u00a0millions)\nFISCAL 2023\nFISCAL 2022\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\nFISCAL 2021\n% CHANGE\n% CHANGE EXCLUDING CURRENCY CHANGES\nRevenues by:\nFootwear\n$\n2,155\u00a0\n$\n2,094\u00a0\n3\u00a0\n%\n8\u00a0\n%\n$\n1,986\u00a0\n5\u00a0\n%\n6\u00a0\n%\nApparel\n90\u00a0\n103\u00a0\n-13\u00a0\n%\n-7\u00a0\n%\n104\u00a0\n-1\u00a0\n%\n-3\u00a0\n%\nEquipment\n28\u00a0\n26\u00a0\n8\u00a0\n%\n16\u00a0\n%\n29\u00a0\n-10\u00a0\n%\n-16\u00a0\n%\nOther\n(1)\n154\u00a0\n123\u00a0\n25\u00a0\n%\n25\u00a0\n%\n86\u00a0\n43\u00a0\n%\n42\u00a0\n%\nTOTAL REVENUES\n$\n2,427\n\u00a0\n$\n2,346\n\u00a0\n3\n\u00a0\n%\n8\n\u00a0\n%\n$\n2,205\n\u00a0\n6\n\u00a0\n%\n7\n\u00a0\n%\nRevenues by:\nSales to Wholesale Customers\n$\n1,299\u00a0\n$\n1,292\u00a0\n1\u00a0\n%\n7\u00a0\n%\n$\n1,353\u00a0\n-5\u00a0\n%\n-4\u00a0\n%\nSales through Direct to Consumer\n974\u00a0\n931\u00a0\n5\u00a0\n%\n8\u00a0\n%\n766\u00a0\n22\u00a0\n%\n22\u00a0\n%\nOther\n(1)\n154\u00a0\n123\u00a0\n25\u00a0\n%\n25\u00a0\n%\n86\u00a0\n43\u00a0\n%\n42\u00a0\n%\nTOTAL REVENUES\n$\n2,427\n\u00a0\n$\n2,346\n\u00a0\n3\n\u00a0\n%\n8\n\u00a0\n%\n$\n2,205\n\u00a0\n6\n\u00a0\n%\n7\n\u00a0\n%\nEARNINGS\u00a0BEFORE\u00a0INTEREST AND\u00a0TAXES\n$\n676\n\u00a0\n$\n669\n\u00a0\n1\n\u00a0\n%\n$\n543\n\u00a0\n23\n\u00a0\n%\n(1)\u00a0\u00a0\u00a0\u00a0Other revenues consist of territories serviced by third-party licensees who pay royalties to Converse for the use of its registered trademarks and other intellectual property rights. We do not own the Converse trademarks in Japan and accordingly do not earn revenues in Japan.\nFISCAL 2023 COMPARED TO FISCAL 2022\n\u2022\nConverse revenues increased 8% on a currency-neutral basis for fiscal 2023 due to revenue growth in North America, Western Europe and licensee markets, partially offset by declines in Asia. Combined unit sales within the wholesale and direct to consumer channels increased 1% while ASP increased 6%, driven by strategic pricing actions in Western Europe and North America.\n\u2022\nDirect to consumer revenues increased 8% on a currency-neutral basis, led by strong digital sales growth in North America. \n\u2022\nWholesale revenues increased 7% on a currency-neutral basis, as growth in North America and Western Europe was partially offset by declines in Asia due to marketplace dynamics in China.\nReported EBIT increased 1% due to higher revenues and the following:\n\u2022\nGross margin expansion of approximately 50 basis points as higher full-price ASP, net of discounts, lower other costs, and growth in licensee revenues were partially offset by higher product costs, lower margins in direct to consumer in part reflecting increased promotional activity, and unfavorable changes in standard foreign currency exchange rates.\n\u2022\nSelling and administrative expense increased 7% due to higher operating overhead and demand creation expense. Operating overhead expense increased primarily as a result of higher wage-related expenses. Demand creation expense increased as a result of higher advertising and marketing costs, partially offset by lower retail brand presentation costs.\n2023 FORM 10-K   \n41\n \nTable of Contents\nCORPORATE\n(Dollars in millions)\nFISCAL 2023\nFISCAL 2022\n% CHANGE\nFISCAL 2021\n% CHANGE\nRevenues\n$\n27\u00a0\n$\n(72)\n\u2014\u00a0\n$\n40\u00a0\n\u2014\u00a0\nEarnings (Loss) Before Interest and Taxes\n$\n(2,840)\n$\n(2,219)\n-28\u00a0\n%\n$\n(2,261)\n2\u00a0\n%\nCorporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse, but managed through our central foreign exchange risk management program. \nThe Corporate loss before interest and taxes primarily consists of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to our corporate headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses.\nIn addition to the foreign currency gains and losses recognized in Corporate revenues, foreign currency results in Corporate include gains and losses resulting from the difference between actual foreign currency exchange rates and standard rates used to record non-functional currency denominated product purchases within the NIKE Brand geographic operating segments and Converse; related foreign currency hedge results; conversion gains and losses arising from remeasurement of monetary assets and liabilities in non-functional currencies; and certain other foreign currency derivative instruments. \nFISCAL 2023 COMPARED TO FISCAL 2022 \nCorporate's loss before interest and taxes increased $621 million during fiscal 2023, primarily due to the following:\n\u2022\nan unfavorable change of $371\u00a0million primarily related to higher wage and other professional services expenses, reported as a component of consolidated Operating overhead expense;\n\u2022\nan unfavorable change of $352\u00a0million related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Converse, net of hedge gains and losses; these results are reported as a component of consolidated gross margin;\n\u2022\nan unfavorable change of $45\u00a0million largely due to net unfavorable activity related to our strategic distributor partnership transition within APLA, including the loss recognized upon completion of the sale our entities in Argentina and Uruguay to a third-party distributor in the second quarter of fiscal 2023. This was partially offset by the one-time charge related to the deconsolidation of our Russian operations recognized in the prior year, with the net amount of these activities reported as a component of consolidated Other (income) expense, net; and\n\u2022\na favorable change in net foreign currency gains and losses of $174\u00a0million related to the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, reported as a component of consolidated Other (income) expense, net. \nFOREIGN CURRENCY EXPOSURES AND HEDGING PRACTICES\nOVERVIEW\nAs a global company with significant operations outside the United States, in the normal course of business we are exposed to risk arising from changes in currency exchange rates. Our primary foreign currency exposures arise from the recording of transactions denominated in non-functional currencies and the translation of foreign currency denominated results of operations, financial position and cash flows into U.S.\u00a0Dollars.\nOur foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. We manage global foreign exchange risk centrally on a portfolio basis to address those risks material to NIKE, Inc. We manage these exposures by taking advantage of natural offsets and currency correlations existing within the portfolio and, where practical and material, by hedging a portion of the remaining exposures using derivative instruments such as forward contracts and options. As described below, the implementation of the NIKE Trading Company (\"NTC\") and our foreign currency adjustment program enhanced our ability to manage our foreign exchange risk by increasing the natural offsets and currency correlation benefits existing within our portfolio of foreign exchange exposures. Our hedging policy is designed to partially or entirely offset the impact of exchange rate changes on the underlying net exposures being hedged. Where exposures are hedged, our program has the effect of delaying the impact of exchange rate movements on our Consolidated Financial Statements; the length of the delay is dependent upon hedge horizons. We do not hold or issue derivative instruments for trading or speculative purposes.\n2023 FORM 10-K       \n42\nTable of Contents\nRefer to Note\u00a04 \u2014 Fair Value Measurements and Note\u00a012 \u2014 Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional description of outstanding derivatives at each reported period end.\nTRANSACTIONAL EXPOSURES\nWe conduct business in various currencies and have transactions which subject us to foreign currency risk. Our most significant transactional foreign currency exposures are:\n\u2022\nProduct Costs \u2014 NIKE's product costs are exposed to fluctuations in foreign currencies in the following ways:\n1.\nProduct purchases denominated in currencies other than the functional currency of the transacting entity:\na.\nCertain NIKE entities purchase product from the NTC, a wholly-owned sourcing hub that buys NIKE branded products from third-party factories, predominantly in U.S. Dollars. The NTC, whose functional currency is the U.S.\u00a0Dollar, then sells the products to NIKE entities in their respective functional currencies. NTC sales to a NIKE entity with a different functional currency results in a foreign currency exposure for the NTC.\nb.\nOther NIKE entities purchase product directly from third-party factories in U.S. Dollars. These purchases generate a foreign currency exposure for those NIKE entities with a functional currency other than the U.S. Dollar.\nIn both purchasing scenarios, a weaker U.S.\u00a0Dollar reduces inventory costs incurred by NIKE whereas a stronger U.S.\u00a0Dollar increases its cost.\n2.\nFactory input costs: NIKE operates a foreign currency adjustment program with certain factories. The program is designed to more effectively manage foreign currency risk by assuming certain of the factories' foreign currency exposures, some of which are natural offsets to our existing foreign currency exposures. Under this program, our payments to these factories are adjusted for rate fluctuations in the basket of currencies (\"factory currency exposure index\") in which the labor, materials and overhead costs incurred by the factories in the production of NIKE branded products (\"factory input costs\") are denominated.\nAs an offset to the impacts of the fluctuating U.S.\u00a0Dollar on our non-functional currency denominated product purchases described above, a strengthening U.S.\u00a0Dollar against the foreign currencies within the factory currency exposure indices reduces NIKE's U.S.\u00a0Dollar inventory cost. Conversely, a weakening U.S.\u00a0Dollar against the indexed foreign currencies increases our inventory cost.\n\u2022\nNon-Functional Currency Denominated External Sales \u2014 A portion of our NIKE Brand and Converse revenues associated with European operations are earned in currencies other than the Euro (e.g., the British Pound) but are recognized at a subsidiary that uses the Euro as its functional currency. These sales generate a foreign currency exposure.\n\u2022\nOther Costs \u2014 Non-functional currency denominated costs, such as endorsement contracts, also generate foreign currency risk, though to a lesser extent. \n\u2022\nNon-Functional Currency Denominated Monetary Assets and Liabilities \u2014 Our global subsidiaries have various assets and liabilities, primarily receivables and payables, including intercompany receivables and payables, denominated in currencies other than their functional currencies. These balance sheet items are subject to remeasurement which may create fluctuations in Other (income) expense, net within our Consolidated Statements of Income.\nMANAGING TRANSACTIONAL EXPOSURES\nTransactional exposures are managed on a portfolio basis within our foreign currency risk management program. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio and may also elect to use currency forward and option contracts to hedge the remaining effect of exchange rate fluctuations on probable forecasted future cash flows, including certain product cost exposures, non-functional currency denominated external sales and other costs described above. Generally, these are accounted for as cash flow hedges.\n2023 FORM 10-K   \n43\n \nTable of Contents\nCertain currency forward contracts used to manage the foreign exchange exposure of non-functional currency denominated monetary assets and liabilities subject to remeasurement are not formally designated as hedging instruments. Accordingly, changes in fair value of these instruments are recognized in Other (income) expense, net and are intended to offset the foreign currency impact of the remeasurement of the related non-functional currency denominated asset or liability being hedged. \nTRANSLATIONAL EXPOSURES\nMany of our foreign subsidiaries operate in functional currencies other than the U.S. Dollar. Fluctuations in currency exchange rates create volatility in our reported results as we are required to translate the balance sheets, operational results and cash flows of these subsidiaries into U.S. Dollars for consolidated reporting. The translation of foreign subsidiaries' non-U.S.\u00a0Dollar denominated balance sheets into U.S. Dollars for consolidated reporting results in a cumulative translation adjustment to Accumulated other comprehensive income (loss) within Shareholders' equity. In the translation of our Consolidated Statements of Income, a weaker U.S.\u00a0Dollar in relation to foreign functional currencies benefits our consolidated earnings whereas a stronger U.S.\u00a0Dollar reduces our consolidated earnings. The impact of foreign exchange rate fluctuations on the translation of our consolidated Revenues was a detriment of approximately $2,859 million, $295 million and a benefit of approximately $893 million for the years ended May\u00a031, 2023, 2022 and 2021, respectively. The impact of foreign exchange rate fluctuations on the translation of our Income before income taxes was a detriment of approximately $824 million, $87 million and a benefit of approximately $260 million for the years ended May\u00a031, 2023, 2022 and 2021, respectively.\nMANAGING TRANSLATIONAL EXPOSURES\nTo minimize the impact of translating foreign currency denominated revenues and expenses into U.S. Dollars for consolidated reporting, certain foreign subsidiaries use excess cash to purchase U.S.\u00a0Dollar denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of these U.S.\u00a0Dollar denominated investments at non-U.S.\u00a0Dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting under generally accepted accounting principles in the United States of America (\"U.S. GAAP\"). We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of these U.S.\u00a0Dollar investments. The combination of the purchase and sale of the U.S.\u00a0Dollar investment and the hedging instrument has the effect of partially offsetting the year-over-year foreign currency translation impact on net earnings in the period the investments are sold. Hedges of the purchase of U.S. Dollar denominated available-for-sale investments are accounted for as cash flow hedges. \nWe estimate the combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in Other (income) expense, net had an unfavorable impact of approximately $1,023 million and a favorable impact of approximately $132 million and $19 million on our Income before income taxes for the years ended May\u00a031, 2023, 2022 and 2021, respectively.\nNET INVESTMENTS IN FOREIGN SUBSIDIARIES\nWe are also exposed to the impact of foreign exchange fluctuations on our investments in wholly-owned foreign subsidiaries denominated in a currency other than the U.S.\u00a0Dollar, which could adversely impact the U.S.\u00a0Dollar value of these investments and therefore the value of future repatriated earnings. We have, in the past, hedged and may, in the future, hedge net investment positions in certain foreign subsidiaries to mitigate the effects of foreign exchange fluctuations on these net investments. These hedges are accounted for as net investment hedges in accordance with U.S. GAAP. There were no outstanding net investment hedges as of May\u00a031, 2023 and 2022. There were no cash flows from net investment hedge settlements for the years ended May\u00a031, 2023, 2022 and 2021.\nLIQUIDITY AND CAPITAL RESOURCES\nCASH FLOW ACTIVITY\nCash provided (used) by operations was an inflow of $5,841 million for fiscal 2023, compared to $5,188 million for fiscal 2022. Net income, adjusted for non-cash items, generated $6,354 million of operating cash inflow for fiscal 2023, compared to $6,848 million for fiscal 2022. The net change in working capital and other assets and liabilities resulted in a decrease to Cash provided (used) by operations of $513 million for fiscal 2023 compared to a decrease of $1,660 million for fiscal 2022. For fiscal 2023, the net change in working capital compared to the prior year was impacted by unfavorable changes in Accounts payable, offset by favorable impacts from Inventories and Accounts receivable. These changes were, in part, due to reduced inventory purchases in the current period and timing of wholesale shipments. Further impacting these changes was a lower available supply of inventory in the prior year due to supply chain constraints. \nCash provided (used) by investing activities was an inflow of $564 million for fiscal 2023, compared to an outflow of $1,524 million for fiscal 2022, primarily driven by the net change in short-term investments. For fiscal 2023, the net change in short-term \n2023 FORM 10-K       \n44\nTable of Contents\ninvestments (including sales, maturities and purchases) resulted in a cash inflow of $1,481 million compared to a cash outflow of $747 million for fiscal 2022. Additionally, we continue to invest in our infrastructure to support future growth, specifically focused around digital capabilities, our end-to-end technology foundation, our corporate facilities and improvements across our supply chain. \nCash provided (used) by financing activities was an outflow of $7,447 million for fiscal 2023 compared to an outflow of $4,836 million for fiscal 2022. The increased outflow in fiscal 2023 was driven by higher share repurchases of $5,480 million for fiscal 2023 compared to $4,014 million for fiscal 2022, the repayment of $500 million of senior notes that matured in fiscal 2023, as well as lower proceeds from stock option exercises, which resulted in a cash inflow of $651 million in fiscal 2023 compared to $1,151 million in fiscal 2022.\nIn fiscal 2023, we purchased a total of 50.0 million shares of NIKE's Class B Common Stock for $5.5\u00a0billion (an average price of $110.32 per share). In August 2022, we terminated the previous four-year, $15\u00a0billion share repurchase program approved by the Board of Directors in June 2018. Under this program, we repurchased 6.5 million shares for a total approximate cost of $710.0\u00a0million (an average price of $109.85 per share) during the first quarter of fiscal 2023 and 83.8 million shares for a total approximate cost of $9.4\u00a0billion (an average price of $111.82 per share) during the term of the program. Upon termination of the four-year, $15\u00a0billion program, we began purchasing shares under the new four-year, $18\u00a0billion share repurchase plan authorized by the Board of Directors in June 2022. As of May\u00a031, 2023, we had repurchased 43.5\u00a0million shares at a cost of approximately $4.8\u00a0billion (an average price of $110.38 per share) under this new program. We continue to expect funding of share repurchases will come from operating cash flows. The timing and the amount of share repurchases will be dictated by our capital needs and stock market conditions.\nCAPITAL RESOURCES\nOn July 21, 2022, we filed a shelf registration statement (the \"Shelf\") with the U.S. Securities and Exchange Commission (the \"SEC\") which permits us to issue an unlimited amount of debt securities from time to time. The Shelf expires on July 21, 2025.\nOn March 11, 2022, we entered into a five-year committed credit facility agreement with a syndicate of banks which provides for up to $2\u00a0billion of borrowings, with the option to increase borrowings up to $3\u00a0billion in total with lender approval. The facility matures on March 11, 2027, with options to extend the maturity date up to an additional two years. This facility replaces the prior $2\u00a0billion five-year credit facility agreement entered into on August 16, 2019, which would have matured on August 16, 2024. Refer to Note\u00a05 \u2014 Short-Term Borrowings and Credit Lines for additional information. \nOn March 10, 2023, we entered into a 364-day committed credit facility agreement with a syndicate of banks which provides for up to $1 billion of borrowings, with the option to increase borrowings up to $1.5 billion in total with lender approval. The facility matures on March 8, 2024, with an option to extend the maturity date by 364 days. This facility replaces the prior $1 billion 364-day credit facility agreement entered into on March 11, 2022, which matured on March 10, 2023. Refer to Note\u00a05 \u2014 Short-Term Borrowings and Credit Lines for additional information.\nWe currently have long-term debt ratings of AA- and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively. As it relates to our committed credit facilities entered into on March 11, 2022 and March 10, 2023, if our long-term debt ratings were to decline, the facility fees and interest rates would increase. Conversely, if our long-term debt ratings were to improve, the facility fees and interest rates would decrease. Changes in our long-term debt ratings would not trigger acceleration of maturity of any then-outstanding borrowings or any future borrowings under the committed credit facilities. Under these facilities, we have agreed to various covenants. These covenants include limits on the disposal of assets and the amount of debt secured by liens we may incur. In the event we were to have any borrowings outstanding under these facilities, failed to meet any covenant and were unable to obtain a waiver from a majority of the banks in the applicable syndicate, any borrowings would become immediately due and payable. As of May\u00a031, 2023, we were in full compliance with each of these covenants, and we believe it is unlikely we will fail to meet any of these covenants in the foreseeable future.\nLiquidity is also provided by our $3 billion commercial paper program. As of and for the fiscal years ended May\u00a031, 2023 and 2022, we did not have any borrowings outstanding under our $3 billion program. \nWe may continue to issue commercial paper or other debt securities depending on general corporate needs. \nTo date, we have not experienced difficulty accessing the capital or credit markets; however, future volatility may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets.\nAs of May\u00a031, 2023, we had Cash and equivalents and Short-term investments totaling $10.7 billion, primarily consisting of commercial paper, corporate notes, deposits held at major banks, money market funds, U.S. Treasury obligations and other investment grade fixed-income securities.\u00a0Our fixed-income investments are exposed to both credit and interest rate risk.\u00a0All of our investments are investment grade to minimize our credit risk.\u00a0While individual securities have varying durations, as of May\u00a031, 2023, the weighted-average days to maturity of our cash equivalents and short-term investments portfolio was 98\u00a0days.\n2023 FORM 10-K   \n45\n \nTable of Contents\nWe believe that existing Cash and equivalents, Short-term investments and cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet our\u00a0domestic and foreign\u00a0capital needs in the foreseeable future.\nOur material cash requirements as of May\u00a031, 2023, were as follows:\n\u2022\nDebt Obligations \u2014 Refer to Note\u00a05 \u2014 Short-Term Borrowings and Credit Lines and Note\u00a06 \u2014 Long-Term Debt in the accompanying Notes to the Consolidated Financial Statements for further information.\n\u2022\nOperating Leases \u2014 Refer to Note\u00a017 \u2014 Leases in the accompanying Notes to the Consolidated Financial Statements for further information.\n\u2022\nEndorsement Contracts \u2014 As of May\u00a031, 2023, we had endorsement contract obligations of $7.6 billion, with $1.3 billion payable within 12 months, representing approximate amounts of base compensation and minimum guaranteed royalty fees we are obligated to pay athlete, public figure, sport team and league endorsers of our products. Actual payments under some contracts may be higher than these amounts as these contracts provide for bonuses to be paid to the endorsers based upon athletic achievements and/or royalties on product sales in future periods. Actual payments under some contracts may also be lower as these contracts include provisions for reduced payments if athletic performance declines in future periods. In addition to the cash payments, we are obligated to furnish our endorsers with NIKE product for their use. It is not possible to determine how much we will spend on this product on an annual basis as the amount of product provided to the endorsers will depend on many factors and the contracts generally do not stipulate a minimum amount of cash to be spent on the product.\n\u2022\nProduct Purchase Obligations \u2014 As of May\u00a031, 2023, we had product purchase obligations of $6.4 billion, all of which are payable within the next 12 months. Product purchase obligations represent agreements (including open purchase orders) to purchase products in the ordinary course of business that are enforceable and legally binding and specify all significant terms. We generally order product at least four to five months in advance of sale based primarily on advanced orders received from external wholesale customers and internal orders from our direct to consumer operations. In some cases, prices are subject to change throughout the production process.\n\u2022\nOther Purchase Obligations \u2014 As of May\u00a031, 2023, we had $3.3 billion of other purchase obligations, with $1.7 billion payable within the next 12 months. Other purchase obligations primarily include technology investments, construction, service and marketing commitments, including marketing commitments associated with endorsement contracts, made in the ordinary course of business. The amounts represent the minimum payments required by legally binding contracts and agreements that specify all significant terms, and may include open purchase orders for non-product purchases. \nIn addition to the above, we have long-term obligations for uncertain tax positions and various post-retirement benefits for which we are not able to reasonably estimate when cash payments will occur. Refer to Note\u00a07 \u2014 Income Taxes and Note\u00a011 \u2014 Benefit Plans in the accompanying Notes to the Consolidated Financial Statements for further information related to uncertain tax positions and post-retirement benefits, respectively. \nAs a part of the transition tax related to the Tax Cuts and Jobs Act, as of May\u00a031, 2023, we had $644 million in estimated future cash payments, with $161 million payable within the next 12 months. These amounts represent the transition tax on deemed repatriation of undistributed earnings of foreign subsidiaries, which are reflected net of foreign tax credits we utilized.\nRefer to Note\u00a016 \u2014 Commitments and Contingencies in the accompanying Notes to the Consolidated Financial Statements for further information related to our off-balance sheet arrangements, bank guarantees and letters of credit. \nOFF-BALANCE SHEET ARRANGEMENTS\nAs of May\u00a031, 2023, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our current and future financial condition, results of operations, liquidity, capital expenditures or capital resources. In connection with various contracts and agreements, we routinely provide indemnification relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items where we are acting as the guarantor. Currently, we have several such agreements in place. Based on our historical experience and the estimated probability of future loss, we have determined that the fair value of such indemnification is not material to our financial position or results of operations.\nNEW ACCOUNTING PRONOUNCEMENTS\nRefer to Note\u00a01 \u2014 Summary of Significant Accounting Policies within the accompanying Notes to the Consolidated Financial Statements for recently adopted and issued accounting standards.\n2023 FORM 10-K       \n46\nTable of Contents\nCRITICAL ACCOUNTING ESTIMATES\nOur previous discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Note\u00a01 \u2014 Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements.\nWe believe the assumptions and judgments involved in the accounting estimates described below have the greatest potential impact on our Consolidated Financial Statements, so we consider these to be our critical accounting estimates. Management has reviewed and discussed these critical accounting estimates with the Audit & Finance Committee of the Board of Directors.\nBecause of the uncertainty inherent in these matters, actual results could differ from the estimates we use in the preparation of our Consolidated Financial Statements. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.\nSALES-RELATED RESERVES\nProvisions for anticipated sales returns consist of both contractual return rights and discretionary authorized returns. Provisions for post-invoice sales discounts consist of both contractual programs and discretionary discounts that are expected to be granted at a later date.\nEstimates of discretionary authorized returns, discounts and claims are based on (1) historical rates, (2) specific identification of outstanding returns not yet received from customers and outstanding discounts and claims and (3) estimated returns, discounts and claims expected but not yet finalized with customers. Actual returns, discounts and claims in any future period are inherently uncertain and may differ from estimates recorded. If actual or expected future returns, discounts or claims were significantly different than reserves established, a reduction or increase to net revenues would be recorded in the period in which such determination was made.\nRefer to Note\u00a014 \u2014 Revenues in the accompanying Notes to the Consolidated Financial Statements for additional information. \nINVENTORY RESERVES\nWe make ongoing estimates relating to the net realizable value of inventories based upon our assumptions about future demand and market conditions. If we estimate the net realizable value of our inventory is less than the cost of the inventory recorded on our books, we record a reserve equal to the difference between the cost of the inventory and the estimated net realizable value. This reserve is recorded as a charge to Cost of sales. If changes in market conditions result in reductions to the estimated net realizable value of our inventory below our previous estimate, we would increase our reserve in the period in which we made such a determination.\u00a0\nHEDGE ACCOUNTING FOR DERIVATIVES\nWe use derivative contracts to hedge certain anticipated foreign currency and interest rate transactions as well as certain non-functional currency monetary assets and liabilities. When the specific criteria to qualify for hedge accounting has been met, changes in the fair value of contracts hedging probable forecasted future cash flows are recorded in Accumulated other comprehensive income (loss), rather than Net income, until the underlying hedged transaction affects Net income. In most cases, this results in gains and losses on hedge derivatives being released from Accumulated other comprehensive income (loss) into Net income sometime after the maturity of the derivative. One of the criteria for this accounting treatment is that the notional value of these derivative contracts should not be in excess of the designated amount of anticipated transactions. By their very nature, our estimates of anticipated transactions may fluctuate over time and may ultimately vary from actual transactions. When the designated amount of anticipated or actual transactions decline below hedged levels, or if it is no longer probable a forecasted transaction will occur by the end of the originally specified time period or within an additional two-month period of time thereafter, we reclassify the cumulative change in fair value of the over-hedged portion of the related hedge contract from Accumulated other comprehensive income (loss) to Other (income) expense, net during the quarter in which the decrease occurs. In rare circumstances, the additional period of time may exceed two months due to extenuating circumstances related to the nature of the forecasted transaction that are outside our control or influence.\nRefer to Note\u00a012 \u2014 Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional information.\n2023 FORM 10-K   \n47\n \nTable of Contents\nINCOME TAXES\nWe are subject to taxation in the United States, as well as various state and foreign jurisdictions. The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. On an interim basis, we estimate our effective tax rate for the full fiscal year. This estimated annual effective tax rate is then applied to the year-to-date Income before income taxes excluding infrequently occurring or unusual items, to determine the year-to-date Income tax expense. The income tax effects of infrequent or unusual items are recognized in the interim period in which they occur. As the fiscal year progresses, we continually refine our estimate based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically results in a change to our expected effective tax rate for the fiscal year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs.\nOn a quarterly basis, we evaluate the probability a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity. Changes in our assessment may result in the recognition of a tax benefit or an additional charge to the tax provision in the period our assessment changes. We recognize interest and penalties related to income tax matters in Income tax expense. \nRefer to Note\u00a07 \u2014 Income Taxes in the accompanying Notes to the Consolidated Financial Statements for additional information.\nOTHER CONTINGENCIES\nIn the ordinary course of business, we are subject to various legal proceedings, claims and government investigations related to our business, products and actions of our employees and representatives, including contractual and employment relationships, product liability, antitrust, customs, tax, intellectual property and other matters. We record contingent liabilities resulting from claims against us when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions of third-party claimants and courts. Recorded contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. If future adjustments to estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record additional charges during the period in which the actual loss or change in estimate occurred. In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility the ultimate loss will materially exceed the recorded liability. \nRefer to Note\u00a016 \u2014 Commitments and Contingencies in the accompanying Notes to the Consolidated Financial Statements for additional information. \n2023 FORM 10-K       \n48\nTable of Contents",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nIn the normal course of business and consistent with established policies and procedures, we employ a variety of financial instruments to manage exposure to fluctuations in the value of foreign currencies and interest rates. It is our policy to utilize these financial instruments only where necessary to finance our business and manage such exposures; we do not enter into these transactions for trading or speculative purposes.\nWe are exposed to foreign currency fluctuations, primarily as a result of our international sales, product sourcing and funding activities. Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. We use forward and option contracts to hedge certain anticipated, but not yet firmly committed, transactions as well as certain firm commitments and the related receivables and payables, including third-party and intercompany transactions. Where exposures are hedged, our program has the effect of delaying the impact of exchange rate movements on our Consolidated Financial Statements.\nThe timing for hedging exposures, as well as the type and duration of the hedge instruments employed, are guided by our hedging policies and determined based upon the nature of the exposure and prevailing market conditions. Typically, the Company may enter into hedge contracts starting 12 to 24 months in advance of the forecasted transaction and may place incremental hedges up to 100% of the exposure by the time the forecasted transaction occurs. The majority of derivatives outstanding as of May\u00a031, 2023, are designated as foreign currency cash flow hedges, primarily for Euro/U.S. Dollar, British Pound/Euro, Chinese Yuan/U.S. Dollar, and Japanese Yen/U.S. Dollar currency pairs. Refer to Note\u00a012 \u2014 Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional information.\nOur earnings are also exposed to movements in short- and long-term market interest rates. Our objective in managing this interest rate exposure is to limit the impact of interest rate changes on earnings and cash flows and to reduce overall borrowing costs. To achieve these objectives, we maintain a mix of commercial paper, bank loans, and fixed-rate debt of varying maturities.\nMARKET RISK MEASUREMENT\nWe monitor foreign exchange risk, interest rate risk and related derivatives using a variety of techniques including a review of market value, sensitivity analysis and Value-at-Risk (\"VaR\"). Our market-sensitive derivative and other financial instruments are foreign currency forward contracts, foreign currency option contracts, intercompany loans denominated in non-functional currencies and fixed interest rate U.S.\u00a0Dollar denominated debt.\nWe use VaR to monitor the foreign exchange risk of our foreign currency forward and foreign currency option derivative instruments only. The VaR determines the maximum potential one-day loss in the fair value of these foreign exchange rate-sensitive financial instruments. The VaR model estimates assume normal market conditions and a 95% confidence level. There are various modeling techniques that can be used in the VaR computation. Our computations are based on interrelationships between currencies and interest rates (a\u00a0\"variance/co-variance\" technique). These interrelationships are a function of foreign exchange currency market changes and interest rate changes over the preceding one-year period. The value of foreign currency options does not change on a one-to-one basis with changes in the underlying currency rate. We adjust the potential loss in option value for the estimated sensitivity (the \"delta\" and \"gamma\") to changes in the underlying currency rate. This calculation reflects the impact of foreign currency rate fluctuations on the derivative instruments only and does not include the impact of such rate fluctuations on non-functional currency transactions (such as anticipated transactions, firm commitments, cash balances and accounts and loans receivable and payable), including those which are hedged by these instruments.\nThe VaR model is a risk analysis tool and does not purport to represent actual losses in fair value we will incur nor does it consider the potential effect of favorable changes in market rates. It also does not represent the full extent of the possible loss that may occur. Actual future gains and losses will differ from those estimated because of changes or differences in market rates and interrelationships, hedging instruments and hedge percentages, timing and other factors.\nThe estimated maximum one-day loss in fair value on our foreign currency sensitive derivative financial instruments, derived using the VaR model, was $111 million and $99 million as of May\u00a031, 2023 and 2022, respectively. The VaR increased year-over-year as a result of an increase in foreign currency volatilities as of May\u00a031, 2023. Such a hypothetical loss in the fair value of our derivatives would be offset by increases in the value of the underlying transactions being hedged. The average monthly change in the fair values of foreign currency forward and foreign currency option derivative instruments was $289 million and $170 million during fiscal 2023 and fiscal 2022, respectively.\nThe instruments not included in the VaR are intercompany loans denominated in non-functional currencies and fixed interest rate U.S.\u00a0Dollar denominated debt. Intercompany loans and related interest amounts are eliminated in consolidation. Furthermore, our non-functional currency intercompany loans are substantially hedged against foreign exchange risk through the use of forward \n2023 FORM 10-K   \n49\n \nTable of Contents\ncontracts, which are included in the VaR calculation above. Therefore, we consider the interest rate and foreign currency market risks associated with our non-functional currency intercompany loans to be immaterial to our consolidated financial position, results of operations and cash flows.\nDetails of third-party debt are provided in the table below. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. \nEXPECTED MATURITY DATE YEAR ENDING MAY 31,\n(Dollars in millions)\n2024\n2025\n2026\n2027\n2028\nTHEREAFTER\nTOTAL \nFAIR VALUE\nInterest Rate Risk\nLong-term U.S. Dollar debt \u2014 Fixed rate\nPrincipal payments\n$\n\u2014\n$\n1,000\n$\n\u2014\n$\n2,000\n$\n\u2014\n$\n6,000\n$\n9,000\n$\n7,889\u00a0\nAverage interest rate\n0.0\u00a0\n%\n2.4\u00a0\n%\n0.0\u00a0\n%\n2.6\u00a0\n%\n0.0\u00a0\n%\n3.3\u00a0\n%\n3.1\u00a0\n%\n2023 FORM 10-K       \n50\nTable of Contents",
+  "cik": "320187",
+  "cusip6": "654106",
+  "cusip": ["654106103", "654106953", "654106903"],
+  "names": ["NIKE Inc.", "NIKE INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/320187/000032018723000039/0000320187-23-000039-index.htm"
+}
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+{
+  "item1": ">Item 1.01    Entry into a Material Definitive Agreement.\nItem 2.03    Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.\nOn June 23, 2023, the Company and MBT entered into amendments to the MBT revolving credit agreement and related promissory note.  The amendments extended the maturity date of the credit facility to August 31, 2024 and include the following changes:\n1.\n A $2.0 million seasonal increase in the maximum amount available under the facility.  The maximum amount of the facility will now increase to $19.0 million between May 1 and November 30 of each year and will decrease to $17.0 million between December 1 and April 30 of each year;\n2.\nThe reference rate for the interest rate payable on the revolving facility will change from Prime to SOFR, plus a spread.  The exact spread over SOFR will change every September 30 and March 31 based on the Company calculated funded debt leverage ratio (defined as total debt divided by EBITDA).  Depending on the result of the calculation, the interest rate spread applicable to the facility will range between 2.25% and 3.25%;\n3.\nThe unused commitment fee on the revolving credit facility will increase from 0.11% to 0.15%; and, \n4.\nThe covenant restricting the Company\u2019s use of funds for \u201cOther Investments\u201d was revised to limit the Company to $5.0 million of \u201cOther Investments\u201d per year.\nThe foregoing summary of the terms of Amended and Restated Revolving Credit Note and Amendment No. 3 to Third Amended and Restated Credit Agreement are qualified in their entirety by reference to the amendment and promissory note filed as Exhibits 10.15, and 10.26 herewith. The changes to the revolving credit facility and related promissory note were acknowledged and agreed to by the non-borrower guarantor entities.\nItem 9C.\u00a0\u00a0\u00a0\u00a0\nDisclosure Regarding Foreign Jurisdictions that Prevent Inspections.\nNot Applicable.\nPART III\nItem 10.\u00a0\u00a0\u00a0\u00a0\nDirectors, Executive Officers and Corporate Governance\nThe information contained under the headings \u201cProposal 1 - Election of Directors,\u201d \u201cExecutive Officers,\u201d \u201c Committees of the Board of Directors,\u201d and \u201cDelinquent Section 16(a) Reports\u201d in our Proxy Statement to be filed within 120 days of our fiscal year end, is incorporated herein by reference.\nAudit Committee Report\nThe Audit Committee reviews the Company\u2019s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process. \nIn this context, the Audit Committee has reviewed and discussed with management and the independent registered public accounting firm the audited financial statements as of and for the year ended March\u00a031, 2023. The Audit Committee has \n78\ndiscussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committee, as adopted by the Public Company Accounting Oversight Board and currently in effect. In addition, the Audit Committee discussed with the independent registered public accounting firm the written disclosures and letter required by Public Company Accounting Oversight Board Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, regarding the independent registered public accounting firm\u2019s communication with the Audit Committee concerning independence and discussed with them their independence from the Company and its management. The Audit Committee also has considered whether the independent registered public accounting firm\u2019s provision of non-audit services to the Company is compatible with their independence.\nBased on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company\u2019s Annual Report on Form 10-K for the year ended March\u00a031, 2023 for filing with the Securities and Exchange Commission.\nJune\u00a027, 2023\nAUDIT COMMITTEE\nTravis Swenson, Chair\nPeter McClung\nRay Cabillot\nCode of Ethics\nThe Company has adopted a code of ethics applicable to its executive officers and other employees. A copy of the code of ethics is available on the Company\u2019s internet website at http://www.airt.net. The Company intends to post waivers of and amendments to its code of ethics applicable to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions on its Internet website.\nItem 11.\u00a0\u00a0\u00a0\u00a0\nExecutive Compensation\n.\nThe information contained under the heading \u201cExecutive Compensation,\u201d \u201cBase Salary,\u201d \u201cIncentive and Bonus Compensation,\u201d \u201cRetirement and Other Benefits,\u201d \u201cExecutive Compensation Tables,\u201d \u201cEmployment Agreement and Retirement Savings Plan\u201d and \u201cDirector Compensation\u201d in our Proxy Statement to be filed within 120 days of our fiscal year end, is incorporated herein by reference..\nItem 12.\u00a0\u00a0\u00a0\u00a0\nSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.\nThe information contained under the heading \u201cCertain Beneficial Owners of Common Stock,\u201d \u201cDirector and Executive Officer Stock Ownership,\u201d in our Proxy Statement to be filed within 120 days of our fiscal year end, is incorporated herein by reference.\n79\nEquity Compensation Plan Information\nThe following table provides information as of March\u00a031, 2023, regarding shares outstanding and available for issuance under Air T, Inc.\u2019s existing equity compensation plans.\nPlan Category\nNumber of securities\nto be issued upon\nexercise of\noutstanding options,\nwarrants and rights\nWeighted-average\nexercise price of\noutstanding options,\nwarrants and rights\nNumber of securities\nremaining available\nfor future issuance\nunder equity\ncompensation plans\n(excluding securities\nlisted in first column)\nEquity compensation plans approved by security holders:\nAir T 2012 Stock Option Plan\n7,500\u00a0\n$\n7.04\u00a0\n\u2014\nAir T 2020 Omnibus Stock Option Plan\n293,400\u00a0\nN/A\n94,000\u00a0\nEquity compensation plans not approved by security holders:\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTotal\n300,900\u00a0\n$\n7.04\u00a0\n94,000\u00a0\nItem 13.\u00a0\u00a0\u00a0\u00a0\nCertain Relationships and Related Transactions and Director Independence.\nThe information contained under the heading \u201cDirector Independence\u201d and \u201cCertain Transactions\u201d in our Proxy Statement to be filed within 120 days of our fiscal year end, is incorporated herein by reference.\nItem 14.\u00a0\u00a0\u00a0\u00a0\nPrincipal Accountant Fees and Services.\nInformation about aggregate fees billed to us by our principal accountant, Deloitte & Touche LLP (PCAOB ID No. \n34\n) will be presented under the caption \u201cAudit Committee Pre-approval of Auditor Engagements\u201d and \u201cAudit Fees\u201d in our Proxy Statement to be filed within 120 days of our fiscal year end, is incorporated herein by reference.\nPART IV\n80\nItem 15.\u00a0\u00a0\u00a0\u00a0Exhibits and Financial Statement Schedules.\n1.\nFinancial Statements\na.\nThe following are incorporated herein by reference in Item 8 of Part II of this report:\n(i)\nReport of Independent Registered Public Accounting Firm \u2013 Deloitte & Touche LLP\n(ii)\nConsolidated Balance Sheets as of March\u00a031, 2023 and 2022.\n(iii)\nConsolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the years ended March\u00a031, 2023 and 2022.\n(iv)\nConsolidated Statements of Stockholders\u2019 Equity for the years ended March\u00a031, 2023 and 2022.\n(v)\nConsolidated Statements of Cash Flows for the years ended March\u00a031, 2023 and 2022.\n(vi)\nNotes to Consolidated Financial Statements.\n2.\u00a0\u00a0\u00a0\u00a0Exhibits\nNo\n.\nDescription\n3.1\nRestated Certificate of Incorporation dated October 30, 2001, Certificate of Amendment to Certificate of Incorporation dated September 25, 2008, Certificate of Designation dated March 26, 2012, and Certificate of Designation dated December 15, 2014, incorporated by reference to Exhibit 3.1 of the Company\u2019s Quarterly Report on Form 10-Q for the period ended December 31, 2014 (Commission File No. 001-35476)\n3.2\nCertificate of Amendment to Certificate of Incorporation dated August 18, 2021 (filed herewith)\n3.3\nAmended and Restated By-laws of the Company, incorporated by reference to Exhibit 3.1 of the Company\u2019s Current Report on Form 8-K dated November 21, 2012 (Commission File No. 001-35476)\n4.1\nSpecimen Common Stock Certificate of Air T, Inc., incorporated by reference to Exhibit 4.1 of the Company\u2019s\n \nAmended Registration Statement on Form S-1/A dated January 22, 2019 (Registration Number 333-228485)\n4.2\nDescription of Registered Securities, incorporated by reference to Exhibit 4.2 to the Company\u2019s Annual Report on Form 10-K for the year ended March 31, 2022\n4.3\nForm of Capital Securities Certificate of Air T Funding, incorporated by reference to Exhibit 4.2 to\n \nthe Company\u2019s Current Report on Form 8-K filed June 13, 2019 (Commission File No. 001-35476)\n4.4\nIndenture for the Debentures dated as of June 10, 2019, incorporated by reference to Exhibit 4.5 to\n \nthe Company\u2019s Current Report on Form 8-K filed June 13, 2019 (Commission File No. 001-35476)\n4.5\nSecond Amendment to the Air T Funding Amended and Restated Trust Agreement dated as of March\n \n3, 2021, incorporated by reference to Exhibit 4.1 to the Company\u2019s Current Report on Form 8-K filed\n \nMarch 5, 2021\n \n(Commission File No. 001-35476)\n4.6\nSupplemental Indenture dated as of March 3, 2021, incorporated by reference to Exhibit 4.2 to the\n \nCompany\u2019s Current Report on Form 8-K filed March 5, 2021 (Commission File No. 001-35476)\n4.7\nDebenture dated as of June 10, 2019, incorporated by reference to Exhibit 4.6 to the Company\u2019s\n \nCurrent Report on Form 8-K filed June 13, 2019 (Commission File No. 001-35476)\n4.8\nCommon Securities Certificate of Air T Funding issued to Air T, Inc. dated as of June 10, 2019,\n \nincorporated by\n \nreference to Exhibit 4.7 to the Company\u2019s Current Report on Form 8-K filed June 13, 2019 (Commission File No.\n \n001-35476)\n4.9\nInterim Trust Agreement, incorporated by reference to Exhibit 4.11 of the Company\u2019s Registration Statement on Form S-1 filed November 20, 2018 (Registration Number 333-228485)\n10.1\nPremises and Facilities Lease dated November 16, 1995 between Global TransPark Foundation, Inc. and Mountain Air Cargo, Inc., incorporated by reference to Exhibit 10.5 to Amendment No. 1 on Form 10-Q/A to the Company\u2019s Quarterly Report on Form 10-Q for the period ended December 31, 1995 (Commission File No. 001-35476)\n81\n10.2\nSecond Amendment to Premises and Facilities Lease dated as of October 15, 2015 between Global TransPark Foundation, Inc. and Mountain Air Cargo, Inc., incorporated by reference to Exhibit 10.3 to the Company\u2019s Annual Report on Form 10-K for the fiscal year ended March 31, 2016 (Commission File No. 001-35476) \n10.3\nAir T, Inc. 2005 Equity Incentive Plan, incorporated by reference to Annex C to the Company\u2019s proxy statement on Schedule 14A for its annual meeting of stockholders on September 28, 2005, filed with the SEC on August 12, 2005 (Commission File No. 001-35476)*\n10.4\nForm of Air T, Inc. Director Stock Option Agreement (2005 Equity Incentive Plan), incorporated by reference to Exhibit 10.22 to the Company\u2019s Annual Report on Form 10-K for the fiscal year ended March 31, 2006 (Commission File No. 001-35476)*\n10.5\nAir T, Inc. 2020 Omnibus Stock and Incentive Plan , incorporated by reference to Exhibit 10.11 to the Company\u2019s Quarterly Report on Form 10-Q dated February 12, 2021 (Commission File No. 001-35476)*\n10.6\nForm of Non-Qualified Stock Option Award Agreement under 2020 Omnibus Stock and Incentive Plan, incorporated by reference to Exhibit 10.12 to the Company\u2019s Quarterly Report on Form 10-Q dated February 12, 2021 (Commission File No. 001-35476)*\n10.7\nEmployment Agreement dated as of March 26, 2014 between the Company and Nicholas J. Swenson, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated March 26, 2014 (Commission File No. 001-35476)*\n10.8\nEmployment Agreement between Air T, Inc. and Brian Ochocki dated June 12, 2019, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated June 18, 2019 (Commission File No. 001-35476)\n10.9\nForm of Air T, Inc. Term Note A in the principal amount of $10,000,000 to Minnesota Bank & Trust, incorporated by reference to Exhibit 10.2 of the Company\u2019s Current Report on Form 8-K dated December 18, 2017 (Commission File No. 001-35476)\n10.10\nAmended and Restated Term Note A of Air T, Inc. in the principal amount of $9,000,000 in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)\n10.11\nForm of Air T, Inc. Term Note B in the principal amount of $5,000,000 to Minnesota Bank & Trust, incorporated by reference to Exhibit 10.3 of the Company\u2019s Current Report on Form 8-K dated December 18, 2017 (Commission File No. 001-35476)\n10.12\nAmended and Restated Term Note B of Air T, Inc. in the principal amount of $3,166,666.52 in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.4 to the Company\u2019s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)\n10.13\nForm of Air T, Inc. Revolving Credit Note in the principal amount of $10,000,000 to Minnesota Bank & Trust dated December 21, 2017, incorporated by reference to Exhibit 10.5 to the Company\u2019s Current Report on Form 8-K dated December 18, 2017 (Commission File No. 001-35476)\n10.14\nForm of Air T, Inc. Amended and Restated Revolving Credit Note in the principal amount of $13,000,000 to Minnesota Bank & Trust dated November 12, 2018, incorporated by reference to Exhibit 10.14 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2018 (Commission File No. 001-35476)\n10.15\nForm of Amended and Restated Revolving Credit Note in the principal amount of $17,000,000 to Minnesota Bank & Trust dated March 28, 2019, incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K dated April 4, 2019 (Commission File No. 001-35476) \n10.16\nAmended and Restated Revolving Credit Agreement, in the principal amount of $17,000,000, dated as of June 26, 2020, by and between Air T, Inc., and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.101 to the Company\u2019s Annual Report on Form 10-K dated June 26, 2020 (Commission File No. 001-35476)\n82\n10.17\nAmended and Restated Revolving Credit Note of Air T, Inc. to Minnesota Bank & Trust in the amount of $17,000,000 dated August 31, 2021, incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)\n10.18\nA\nmend\ned and \nRestated Revolving Credit Note\n of Air T, Inc.\n to Minnesota Bank & Trust dated as of June 23, 2023\n.\n10.19\nForm of Credit Agreement between Air T, Inc. and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.5 to the Company\u2019s Current Report on Form 8-K dated December 18, 2017 (Commission File No. 001-35476)\n10.20\nForm of Amendment No. 1 to Credit Agreement between Air T, Inc. and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated February 20, 2018 (Commission File No. 001-35476)\n10.21\nForm of Amendment No. 2 to Credit Agreement between Air T, Inc. and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.13 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2018 (Commission File No. 001-35476)\n10.22\nForm of Amended and Restated Credit Agreement between Air T, Inc. and Minnesota Bank & Trust dated March 28, 2019, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated April 4, 2019) (Commission File No. 001-35476)\n10.23\nAmendment No. 1 to Amended and Restated Credit Agreement, dated September 24, 2019 by and between Air T, Inc. and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.38 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.24\nForm of Amendment No. 2 to Amended and Restated Credit Agreement, dated December 31, 2019 by and between Air T, Inc. and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.1 of the Company\u2019s Current Report on Form 8-K dated January 7, 2020 (Commission File No. 001-35476)**\n10.25\nForm of Second Amended and Restated Credit Agreement, dated as of June 26, 2020, by and between Air T, Inc., and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.99 to the Company\u2019s Annual Report on Form 10-K dated June 26, 2020 (Commission File No. 001-35476)\n10.26\nThird Amended and Restated Credit Agreement between Air T, Inc. and Minnesota Bank & Trust dated as of August 31, 2021, without exhibits or schedules, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)\n10.27\nAmendment No. 1 to Third Amended and Restated Credit Agreement by and between Air T, Inc, Jet Yard, LLC and Minnesota Bank & Trust dated June 9, 2022, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated June 14, 2022 (Commission file No. 001-35476).\n10.28\nForm of Amendment No. 2 to Third Amended and Restated Credit Agreement between Air T, Inc., Jet Yard, LLC and MBT dated as of January 31, 2023\n, \nincorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated J\nanuary\n \n31\n, 202\n3\n(Commission file No. 001-35476).\n10.29\nFrom of Amendment No. 3 to Third Amended and Restated Credit Agreement between Air T, Inc., Jet Yard, LLC and MBT dated as of June 23, 2023.\n10.30\nForm of Security Agreement, incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K dated December 18, 2017 (Commission file No. 001-35476).\n10.31\nForm of Amended and Restated Security Agreement in favor of Minnesota Bank & Trust dated March 28, 2019, incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K dated April 4, 2019 (Commission File No. 001-35476)\n10.32\nAmended and Restated Security Agreement by and amount Air T, Inc., the guarantors listed and Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.7 to the Company\u2019s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)\n83\n10.33\nForm of Air T, Inc. Term Note D in the principal amount of $1,680,000 to Minnesota Bank & Trust, incorporated by reference to Exhibit 10.2 of the Company\u2019s Current Report on Form 8-K dated February 20, 2018 (Commission File No. 001-35476)\n10.34\nPromissory Note and Business Loan Agreement executed as of March 7, 2018 between Contrail Aviation Support, LLC as Borrower, and Old National Bank as the Lender, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated March 8, 2018) (Commission File No. 001-35476)\n10.35\nForm of Second Amended and Restated Promissory Note Revolving Note, dated January 24, 2020 in the principal amount of $40,000,000 to Old National Bank, incorporated by reference to Exhibit 10.5 to the Company\u2019s Current Report on Form 8-K dated June 24, 2019 (Commission File No. 001-35476)\n10.36\nThird Amended and Restated Promissory Note Revolving Note of Contrail Aviation Support, LLC to Old National Bank dated September 2, 2021, incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K dated September 2, 2021 (Commission File No. 001-35476)\n10.37\nFourth Amended and Restated Promissory Note Revolving Note executed by Contrail Aviation Support, LLC in favor of Old National Bank dated May 26, 2023. (incorporated by reference to Exhibit 10.5 to the Company\u2019s Current Report on Form 8-K dated \nJune 2\n, 2023) (Commission File No. 001-35476)\n10.38\nForm of Amended and Restated Guaranty in favor of Minnesota Bank & Trust dated March 28, 2019, incorporated by reference to Exhibit 10.4 to the Company\u2019s Current Report on Form 8-K dated April 4, 2019 (Commission File No. 001-35476)\n10.39\nAmended and Restated Guaranty of various Air T subsidiaries in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.10 to the Company\u2019s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)\n10.40\nGuarantee Acknowledgment dated June 9, 2022, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K dated June 14, 2022 (Commission file No. 001-35476).\n10.41\nForm of Amended and Restated Security Agreement in favor of Minnesota Bank & Trust dated April 3, 2019, incorporated by reference to Exhibit 10.4 to the Company\u2019s Current Report on Form 8-K dated April 9, 2019 (Commission File No. 001-35476)\n10.42\nForm of Subordination Agreement among AirCo 1, LLC, Air T, Inc. and Minnesota Bank & Trust dated April 3, 2019, incorporated by reference to Exhibit 10.5 to the Company\u2019s Current Report on Form 8-K dated April 9, 2019 (Commission File No. 001-35476)\n10.43\nForm of Loan Agreement between AirCo 1, LLC and Minnesota Bank & Trust dated April 3, 2019, incorporated by reference to Exhibit 10.5 to the Company\u2019s Current Report on Form 8-K dated April 9, 2019 (Commission File No. 001-35476)\n10.44\nForm of Amendment No. 1 to Loan Agreement, dated February 25, 2020 by and between AirCo 1, LLC and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K dated February 25, 2020 (Commission File No. 001-35476)\n10.45\nAgreement as to Expenses dated as of June 10, 2019, incorporated by reference to Exhibit 1.1 to the Company\u2019s Current Report on Form 8-K dated June 13, 2019 (Commission File No. 001-35476)\n10.46\nForm of Capital Securities Certificate of Air T Funding, incorporated by reference to Exhibit 4.2 to the Company\u2019s Current Report on Form 8-K dated June 13, 2019 (Commission File No. 001-35476)\n10.47\nCapital Securities Guarantee dated as of June 10, 2019, incorporated by reference to Exhibit 4.3 to the Company\u2019s Current Report on Form 8-K dated June 13, 2019 (Commission File No. 001-35476)\n10.48\nAmendment to Capital Securities Guarantee Agreement, effective as of March 31, 2021, dated as of March 31, 2021, by and between Air T, Inc. and Delaware Trust Company incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated March 31, 2021 (Commission File Nos. 001-35476 and 001-38928)\n84\n10.49\nIndenture for the Debentures dated as of June 10, 2019, incorporated by reference to Exhibit 4.5 to the Company\u2019s Current Report on Form 8-K dated June 13, 2019 (Commission File No. 001-35476)\n10.50\nSupplemental Indenture dated as of March 3, 2021, incorporated by reference to Exhibit 4.2 to the Company\u2019s Current Report on Form 8-K dated March 3, 2021 (Commission File No. 001-35476)\n10.51\nDebenture dated as of June 10, 2019, incorporated by reference to Exhibit 4.6 to the Company\u2019s Current Report on Form 8-K dated June 13, 2019 (Commission File No. 001-35476)\n10.52\nCommon Securities Certificate of Air T Funding issued to Air T, Inc. dated as of June 10, 2019, incorporated by reference to Exhibit 4.7 to the Company\u2019s Current Report on Form 8-K dated June 13, 2019 (Commission File No. 001-35476)\n10.53\nInterim Trust Agreement, incorporated by reference to Exhibit 4.11 of the Company\u2019s Registration Statement on Form S-1 dated November 20, 2018 (Registration Number 333-228485)\n10.54\nSecond Amended and Restated Trust Agreement dated as of June 23, 2021, incorporated by reference to Exhibit 10.31 to the Company\u2019s Annual Report on Form 10-K dated June 25, 2021 (Commission File No. 001-35476)\n10.55\nCertificate of Interim Trust dated September 28, 2018, incorporated by reference to Exhibit 4.14 of the Company\u2019s Registration Statement on Form S-1 dated November 20, 2018 (Registration Number 333-228485)\n10.57\nMaster Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated by reference to Exhibit 10.1 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)\n10.58\nFirst Amendment to Master Loan Agreement, dated November 24, 2020 between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated by reference to Exhibit 10.5 to the Company\u2019s Current Report on Form 8-K dated December 11, 2020 (Commission File No. 001-35476)\n10.59\nSecond Amendment to Master Loan Agreement, dated November 10,2022 between Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC and Old National Bank, incorporated by reference to Exhibit 10.2 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2022 (Commission File No. 001-35476)\n10.60\nFirst Amendment to Second Amendment to Master Loan Agreement and Third Amendment to Master Loan Agreement, dated March 22, 2023 between Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC and Old National Bank. (incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K dated March 22, 2023) (Commission File No. 001-35476)\n10.61\nFourth Amendment to Master Loan Agreement by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank dated May 26, 2023. (incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K dated \nJune 2\n, 2023) (Commission File No. 001-35476)\n10.62\nSupplement #1 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank. incorporated by reference to Exhibit 10.3 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)\n10.63\nSupplement #2 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, and Old National Bank. incorporated by reference to Exhibit 10.5 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)\n10.64\nForm of First Amendment to Supplement #2 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC and Old National Bank, incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K dated June 24, 2019 (Commission File No. 001-35476)\n10.65\nForm of Second Amendment to Supplement #2 to Master Loan Agreement, dated January 24, 2020 by and between Contrail Aviation Support, LLC and Old National Bank, incorporated by reference to Exhibit 10.4 to the Company\u2019s Current Report on Form 8-K dated June 24, 2019 (Commission File No. 001-35476)\n85\n10.66\nForm of Third Amendment to Supplement #2 to Master Loan Agreement with Exhibit A, dated September 25, 2020 by and between Contrail Aviation Support, LLC and Old National Bank (incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated September 30, 2020) (Commission File No. 001-35476)\n10.67\nFourth Amendment to Supplement #2 to Master Loan Agreement between Contrail Aviation Support, LLC and Old National Bank effective September 2, 2021, incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K dated September 2, 2021 (Commission File No. 001-35476)\n10.68\nFifth Amendment to Supplement #2 to Master Loan Agreement between Contrail Aviation Support, LLC and Old National Bank dated May 26, 2023. (incorporated by reference to Exhibit 10.4 to the Company\u2019s Current Report on Form 8-K dated \nJune 2\n, 2023) (Commission File No. 001-35476)\n10.69\nAir T, Inc. Continuing Guaranty in favor of Old National Bank, dated June 24, 2019, incorporated by reference to Exhibit 10.2 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.70\nContrail Aviation Leasing, LLC Continuing Guaranty in favor of Old National Bank, dated June 24, 2019, incorporated by reference to Exhibit 10.6 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.71\nSupplement #3 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated by reference to Exhibit 10.8 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.72\nSupplement #4 to Master Loan Agreement, dated August 16, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated by reference to Exhibit 10.10 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.73\nContrail Aviation Support, LLC and Contrail Aviation Leasing, LLC Term Note C in the principal amount of $13,000,594.00 to Old National Bank, incorporated by reference to Exhibit 10.11 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.74\nTrustee Aircraft Security Agreement, dated August 16, 2019 by and between Wells Fargo Trust Company, National Association, Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, and Old National Bank, incorporated by reference to Exhibit 10.12 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.75\nBeneficial Interest Pledge Agreement, dated August 16, 2019 by and between Contrail Aviation Leasing, LLC, and Old National Bank, incorporated by reference to Exhibit 10.13 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.76\nForm of Declaration of Trust (MSN 29922), dated June 26, 2019 by and between Contrail Aviation Leasing, LLC, Wilmington Trust SP Services (Dublin) Limited, and Contrail Aviation Support, LLC, incorporated by reference to Exhibit 10.18 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.77\nSupplement #5 to Master Loan Agreement, dated October 30, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated by reference to Exhibit 10.21 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.78\nTrustee Aircraft Security Agreement, dated October 30, 2019 by and between Wilmington Trust SP Services (Dublin) Limited, Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, and Old National Bank, incorporated by reference to Exhibit 10.23 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.79\nBeneficial Interest Pledge Agreement, dated October 30, 2019 by and between Contrail Aviation Leasing, LLC and Old National Bank, incorporated by reference to Exhibit 10.24 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n86\n10.80\nThird Trust Assignment and Assumption Agreement, dated July 26, 2019 by and between Sapphire Finance I Holding Designated Activity Company and Contrail Aviation Leasing, LLC, incorporated by reference to Exhibit 10.35 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.81\nAmendment Number Five to Aircraft Lease Agreement, dated June 20, 2019 by and between Wells Fargo Trust Company, National Association and Sun Country, Inc. d/b/a Sun Country Airlines, incorporated by reference to Exhibit 10.37 to the Company\u2019s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**\n10.82\nForm of Master Short-Term Engine Lease Agreement, IATA Document No. 5016-01, dated October 2012, incorporated by reference to Exhibit 10.2 of the Company\u2019s Current Report on Form 8-K dated December 9, 2019 (Commission File No. 001-35476)** \n10.83\nPurchase Agreement, dated December 13, 2019 by and between Wilmington Trust Services (Dublin) Limited and KG Aircraft Rotables Co., Ltd., incorporated by reference to Exhibit 10.1 of the Company\u2019s Current Report on Form 8-K dated December 19, 2019 (Commission File No. 001-35476)**\n10.84\nDeed of Lease Novation, dated December 20, 2019 by and between Leasing Ireland DAC, CRO No. 662616, MAM Seldon Aviation 2 Designated Activity Company, and SmartLynx Airlines Estonia O\u00fc, incorporated by reference to Exhibit 10.2 of the Company\u2019s Current Report on Form 8-K dated December 26, 2019 (Commission File No. 001-35476)**\n10.85\nForm of Supplement #6 to Master Loan Agreement, dated December 19, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, Contrail Aviation Leasing Ireland DAC, CRO No. 662616 and Old National Bank, incorporated by reference to Exhibit 10.4 of the Company\u2019s Current Report on Form 8-K dated December 26, 2019 (Commission File No. 001-35476)**\n10.86\nForm of Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, and Contrail Aviation Leasing Ireland DAC, CRO No. 662616 Term Note E in the principal amount of $6,894,790.00 to Old National Bank, incorporated by reference to Exhibit 10.5 of the Company\u2019s Current Report on Form 8-K dated December 26, 2019 (Commission File No. 001-35476)**\n10.87\nForm of Aircraft Security Agreement, dated December 19, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, Contrail Aviation Leasing Ireland DAC, CRO No. 662616, and Old National Bank, incorporated by reference to Exhibit 10.6 of the Company\u2019s Current Report on Form 8-K dated December 26, 2019 (Commission File No. 001-35476)**\n10.88\nForm of Air T, Inc. Amendment to Continuing Guaranty in favor of Old National Bank, incorporated by reference to Exhibit 10.8 of the Company\u2019s Current Report on Form 8-K dated December 26, 2019 (Commission File No. 001-35476)**\n10.89\nForm of Indemnity and Guaranty Agreement, dated December 19, 2019 by and between Contrail Aviation Support, LLC and Contrail Aviation Leasing Ireland DAC, CRO No. 662616, incorporated by reference to Exhibit 10.9 of the Company\u2019s Current Report on Form 8-K dated December 26, 2019 (Commission File No. 001-35476)**\n10.90\nForm of Collateral Account Agreement, dated December 31, 2019, by and between Air T OZ 1, LLC and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.3 of the Company\u2019s Current Report on Form 8-K dated January 7, 2020 (Commission File No. 001-35476)**\n10.91\nForm of Collateral Account Agreement, dated December 31, 2019, by and between Air T OZ 2, LLC and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.4 of the Company\u2019s Current Report on Form 8-K dated January 7, 2020 (Commission File No. 001-35476)**\n10.92\nForm of Collateral Account Agreement, dated December 31, 2019, by and between Air T OZ 3, LLC and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.5 of the Company\u2019s Current Report on Form 8-K dated January 7, 2020 (Commission File No. 001-35476)**\n10.93\nForm of Supplement #7 to Master Loan Agreement, dated February 3, 2020 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K dated February 3, 2020 (Commission File No. 001-35476)\n87\n10.94\nForm of Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC Term Note F, dated February 3, 2020 in the principal amount of $8,500,000 to Old National Bank, incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K dated February 3, 2020 (Commission File No. 001-35476)\n10.95\nForm of Aircraft Assets Security Agreement, dated February 3, 2020 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated by reference to Exhibit 10.4 to the Company\u2019s Current Report on Form 8-K dated February 3, 2020 (Commission File No. 001-35476)\n10.96\nForm of Air T, Inc. Promissory Note, in the principal amount of $8,215,000 in favor of Minnesota Bank & Trust, dated April 10, 2020, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated April 10, 2020 (Commission File No. 001-35476)\n10.97\nTerm Note E, in the principal amount of $9,463,000, dated as of June 26, 2020, by and between Air T, Inc., and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.100 to the Company\u2019s Annual Report on Form 10-K dated June 26, 2020 (Commission File No. 001-35476)\n10.98\nAmended and Restated Term Note E of Air T, Inc. in the principal amount of $3,655,819.22 in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.5 to the Company\u2019s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)\n10.99\n\u201cJet Yard Collateral Account Agreements\u201d dated as of June 26, 2020, by and between Jet Yard, LLC, and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.102 to the Company\u2019s Annual Report on Form 10-K dated June 26, 2020 (Commission File No. 001-35476)\n10.100\nAmended and Restated Collateral Account Agreement between Jet Yard, LLD and Minnesota Bank & Trust dated August 31, 2021,  incorporated by reference to Exhibit 10.12 to the Company\u2019s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)\n10.101\n\u201cAmbry Hill Collateral Account Agreements\u201d dated as of June 26, 2020, by and between Jet Yard, LLC, and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.103 to the Company\u2019s Annual Report on Form 10-K dated June 26, 2020 (Commission File No. 001-35476)\n10.102\nAmended and Restated Collateral Account Agreement between Ambry Hill Technologies, LLC and Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.11 to the Company\u2019s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)\n10.103\nSupplement #8 to Master Loan Agreement dated November 24, 2020 between Borrowers Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC and Lender Old National Bank (incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated December 11, 2020) (Commission File No. 001-35476)\n10.104\nFirst Amendment to Supplement #8 to Master Loan Agreement between Contrail Aviation Support, LLC and Old National Bank dated May 26, 2023. (incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K dated \nJune 2\n, 2023) (Commission File No. 001-35476)\n10.105\n$43,598,000 Promissory Note \u2013 Term Note G of Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC in favor of Old National Bank dated November 24, 2020. (incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K dated December 11, 2020) (Commission File No. 001-35476)\n10.106\nAmended and Restated Promissory Note Term Note G executed by Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC in favor of Old National Bank dated May 26, 2023. (incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated\n June 2\n, 2023) (Commission File No. 001-35476)\n10.107\nCommercial Security Agreement of Contrail Aviation Support, LLC dated November 24, 2020, incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K dated December 11, 2020 (Commission File No. 001-35476)\n10.108\nCommercial Security Agreement of Contrail Aviation Leasing, LLC dated November 24, 2020., incorporated by reference to Exhibit 10.4 to the Company\u2019s Current Report on Form 8-K dated December 11, 2020 (Commission File No. 001-35476)\n88\n10.109\nTerm Loan Agreement for Mail Street Priority Loan Facility by and between Park State Bank and AirCo 1, LLC dated as of December 11, 2020, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated December 23, 2020 (Commission File No. 001-35476)\n10.110\nAmendment to Main Street Priority Loan Facility Term Loan Agreement by and between Airco 1, LLC and Park State Bank dated May 26, 2023. (incorporated by reference to Exhibit 10.6 to the Company\u2019s Current Report on Form 8-K dated \nJune 2\n, 2023) (Commission File No. 001-35476)\n10.111\n$6,200,000 Main Street Priority Loan Facility Term of AirCo 1, LLC in favor of Park State Bank dated December 11, 2020, incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K dated December 23, 2020) (Commission File No. 001-35476)\n10.112\nSecurity Agreement of AirCo 1, LLC dated as of December 11, 2020, incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K dated December 23, 2020) (Commission File No. 001-35476)\n10.113\nPledge Agreement by and between AirCo, LLC and Park State Bank dated as of December 11, 2020, incorporated by reference to Exhibit 10.4 to the Company\u2019s Current Report on Form 8-K dated December 23, 2020 (Commission File No. 001-35476)\n10.114\nAt the Market Offering Agreement dated as of May 14, 2021, by and among the Air T, Inc., Air T Funding and Ascendiant Capital Markets, LLC, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated May 14, 2021 (Commission File No. 001-35476)\n10.115\nFirst Amendment to At the Market Offering Agreement, dated November 18, 2021, by and between Air T, Inc., Air T Funding and Ascendiant Capital Markets, LLC, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated November 18, 2021 (Commission File No. 001-35476)\n10.116\nForm of Contrail Asset Management, LLC Amended and Restated Limited Liability Company Agreement dated May 5, 2021, by and among the Members listed therein, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated May 5, 2021 (Commission File No. 001-35476)*\n10.117\nForm of Engine Purchase Agreement, dated December 23, 2020, by and between Equipment Lease Finance Corporation and Contrail Aviation Leasing, LLC, incorporated by reference to Exhibit 4.2 to the Company\u2019s Current Report on Form 8-K dated March 26, 2021 (Commission File No. 001-35476)*\n10.118\nForm of Assignment, Assumption and Amendment Agreement dated March 30, 2021, by and among Engine Lease Finance Corporation, Companhia de Transportes Aereos Air Macau, SARL, and Contrail Aviation Leasing, LLC, incorporated by reference to Exhibit 4.2 to the Company\u2019s Current Report on Form 8-K dated March 26, 2021 (Commission File No. 001-35476)*\n10.119\nAircraft dry lease and services agreement between FedEx and CSA Air, Inc. dated June 1, 2021, incorporated by reference to Exhibit 10.97 to the Company\u2019s Annual Report on Form 10-K dated June 25, 2021 (Commission File No. 001-35476)\n10.120\nAircraft dry lease and services agreement between FedEx and Mountain Air Cargo, Inc. dated June 1, 2021, incorporated by reference to Exhibit 10.98 to the Company\u2019s Annual Report on Form 10-K dated June 25, 2021 (Commission File No. 001-35476)\n10.121\nJoinder to Security Agreement between Minnesota Bank & Trust and Air'Zona Aircraft Services, Inc. dated June 23, 2021, incorporated by reference to Exhibit 10.99 to the Company\u2019s Annual Report on Form 10-K dated June 25, 2021 (Commission File No. 001-35476)\n10.122\nJoinder to Guaranty of Air'Zona Aircraft Services, Inc. in favor of Minnesota Bank & Trust dated June 23, 2021, incorporated by reference to Exhibit 10.100 to the Company\u2019s Annual Report on Form 10-K dated June 25, 2021 (Commission File No. 001-35476)\n10.123\nJoinder to Security Agreement between Minnesota Bank & Trust and Jet Yard Solutions, LLC dated June 23, 2021, incorporated by reference to Exhibit 10.101 to the Company\u2019s Annual Report on Form 10-K dated June 25, 2021 (Commission File No. 001-35476)\n89\n10.124\nJoinder to Guaranty of Jet Yard Solutions, LLC in favor of Minnesota Bank & Trust dated June 23, 2021, incorporated by reference to Exhibit 10.102 to the Company\u2019s Annual Report on Form 10-K dated June 25, 2021 (Commission File No. 001-35476)\n10.125\nAir T, Inc. 2020 Omnibus Stock and Incentive Plan**, incorporated by reference to the Company's Definitive Proxy Statement as Appendix A on Form DEF 14A dated July 19, 2021 (Commission File No. 001-35476)\n10.126\nJet Yard Term Note in the principal amount of $2,000,000 in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.6 to the Company\u2019s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)\n10.127\nGuaranty of Jet Yard, LLC in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.8 to the Company\u2019s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)\n10.128\nGuaranty of Air T, Inc. in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.9 to the Company\u2019s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)\n10.129\nCooperation Agreement by and among Insignia Systems, Inc., Nicholas J. Swenson, Air T, Inc., Groveland Capital LLC; AO Partners I, L.P.; AO Partners, LLC and Glenhurst Co., dated October 11, 2021, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated October 11, 2021 (Commission File No. 001-35476)\n10.130\nReal Estate Purchase Agreement between Air T, Inc. and WLPC East, LLC dated October 11, 2021, without exhibits, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated October 14, 2021 (Commission File No. 001-35476)\n10.131\nOpinion of Winthrop & Weinstine, P.A. incorporated by reference to Exhibit 5.1 to the Company's Current Report on Form 8-K dated November 19, 2021 (Commission file No. 001-35476).\n10.132\nPromissory Note with Bridgewater Bank dated December 2, 2021 in the principal amount of $9,900,000, incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K dated December 2, 2021 (Commission File No. 001-35476)\n10.133\nCombination Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement with Bridgewater Bank dated December 2, 2021, incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K dated December 2, 2021 (Commission File No. 001-35476)\n10.134\nInternational Swaps and Derivatives Association, Inc. 2002 Master Agreement dated as of December 28, 2021 between Old National Bank and Contrail Aviation Support, LLC & Contrail Aviation Leasing, LLC., incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated January 7, 2022 (Commission File No. 001-35476)\n10.135\nSchedule to the 2002 Master Agreement dated as of December 28, 2021 between Old National Bank and Contrail Aviation Support, LLC & Contrail Aviation Leasing, LLC, including Swap Transaction Confirmation dated January 7, 2022, incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K dated January 7, 2022 (Commission File No. 001-35476)\n10.136\nForm of Engine Sale Agreement between Finnair Aircraft Finance Oy and Contrail Aviation Support, LLC dated January 19, 2022.*, incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated January 19, 2022 (Commission File No. 001-35476)\n10.137\nForm of Agreement for the Sale and Purchase of Shares in the share capital of GdW Beheer B.V. Between Mr G. de Wit (as the Seller), Decision Company B.V. and Ubi Concordia B.V. (as the Warrantors) And Shanwick B.V. (as the Purchaser) dated February 10, 2022, without exhibits or schedules (English Translation), incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K dated February 8, 2022 (Commission File No. 001-35476)\n10.138\nForm of Loan Agreement between Air T Acquisition 22.1, LLC and Bridgewater Bank dated February 8, 2022, incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K dated February 8, 2022 (Commission File No. 001-35476)\n90\n10.139\nForm of Air T Acquisition 22.1, LLC $5,000,000 Promissory Note to Bridgewater Bank dated February 8, 2022, incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K dated February 8, 2022 (Commission File No. 001-35476)\n10.140\nSupplement #9 to Master Loan Agreement dated June 24, 2019 by and between CAS and Old National Bank dated February 18, 2022, without exhibits, incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K dated February 15, 2022 (Commission File No. 001-35476)\n10.141\nPromissory Note Term Note H in the principal amount of $14,875,000 from CAS to Old National Bank dated February 18, 2022, incorporated by reference to Exhibit 10.4 to the Company\u2019s Current Report on Form 8-K dated February 15, 2022 (Commission File No. 001-35476)\n10.142\nForm of Security Agreement from CAS to Old National Bank dated February 18, 2022, incorporated by reference to Exhibit 10.5 to the Company\u2019s Current Report on Form 8-K dated February 15, 2022 (Commission File No. 001-35476)\n10.143\nForm of Overline Promissory Note dated June 9, 2022,\n incorporated by reference to \nExhibit 10.2 to the Company's Current Report\n on Form \n8-K\n dated \nJune 14, 2022\n (Commission \nfile\n No. \n001-35476).\n10.144\nForm \nPromissory Note dated September 30, 2022,\n incorporated by reference to \nExhibit 10.1 to the Company's Current Report\n on Form \n8-K\u00a0filed\u00a0on\u00a0October 4, 2022\n (Commission \nfile\n No. \n001-35476).\n10.145\nForm of Term Note F dated January 31, 2023\n, \nincorporated by reference to Exhibit 10.\n2\n to the Company's Current Report on Form 8-K\u00a0filed\u00a0on\u00a0\nJanuary 31\n, 202\n3\n (Commission file No. 001-35476).\n10.146\nThe Company's Quarterly Report on Form 10-Q dated August 12, \n2022\n (Commission File No. 001-35476)\n10.147\nThe Company\u2019s Quarterly Report on Form 10-Q dated November \n10, 2022\n (Commission File No. 001-35476)\n10.148\nThe Company\u2019s Quarterly Report on Form 10-Q dated February \n10, 2023\n (Commission File No. 001-35476)\n21.1\nList of subsidiaries of the Company (filed herewith)\n23.1\nConsent of Deloitte & Touche LLP (filed herewith)\n24.1\nPower of Attorney (filed herewith)\n31.1\nSection 302 Certification of Chief Executive Officer (filed herewith)\n31.2\nSection 302 Certification of Chief Financial Officer (filed herewith)\n32.1\nSection 1350 Certification of Chief Executive Officer (filed herewith)\n32.2\nSection 1350 Certification of Chief Financial Officer (filed herewith)\n101\nThe following financial information from the Annual Report on Form 10-K for the year ended March\u00a031, 2023, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss), (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Stockholders Equity, and (v) the Notes to the Consolidated Financial Statements (filed herewith).\n* Management compensatory plan or arrangement required to be filed as an exhibit to this report.\n91\n** Certain information has been omitted from this exhibit pursuant to the request for confidential treatment submitted to the Securities and Exchange Commission. The omitted information has been separately filed with the Securities and Exchange Commission.\n92\nItem 16.\u00a0\u00a0\u00a0\u00a0Form 10-K Summary\nWe have chosen not to include an optional summary of the information required by this Form 10-K. For a reference to the information in this Form 10-K, investors should refer to the Table of Contents to this Form 10-K.\n93\nSIGNATURES\nPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.\nAIR T, INC.\nBy:\n/s/ Nick Swenson\nNick Swenson, Chairman, President and\nChief Executive Officer and Director (Principal Executive Officer)\nDate: June 27, 2023\nBy:\n/s/ Brian Ochocki\nBrian Ochocki, Chief Financial Officer\n(Principal Financial Officer)\nDate: June 27, 2023\nBy:\n/s/ Raymond Cabillot\nRaymond Cabillot, Director\nDate: June 27, 2023\nBy:\n/s/ William R. Foudray\nWilliam R. Foudray, Director\nDate: June 27, 2023\nBy:\n/s/ Gary S. Kohler\nGary S. Kohler, Director\nDate: June 27, 2023\nBy:\n/ s/ Peter McClung\nPeter McClung, Director\nDate: June 27, 2023\nBy:\n/s/ Travis Swenson\nTravis Swenson, Director\nDate: June 27, 2023\n\n",
+  "item1a": ">Item 1A.\nRisk Factors\n9\nItem 1B.\nUnresolved Staff Comments\n21\nItem 2.\nProperties\n21\nItem 3.\nLegal Proceedings\n22\nItem 4.\nMine Safety Disclosures\n23\nPART II\nItem 5.\nMarket for Registrant's Common Equity, Related Stockholder Matters and Issuer\u00a0Purchases of Equity Securities\n23\nItem 6.\n[Reserved]\n23\nItem 7.\nManagement's Discussion and Analysis of Financial Condition and Results of Operations\n24\nItem 7A.\nQuantitative and Qualitative Disclosures About Market Risk\n35\nItem 8.\nFinancial Statements and Supplementary Data\n36\nItem 9.\nChanges in and Disagreements with Accountants on Accounting and Financial Disclosure\n77\nItem 9A.\nControls and Procedures\n77\nItem 9B.\nOther Information\n78\nItem 9C.\nDisclosure Regarding Foreign Jurisdictions that Prevent Inspections\n78\nPART III\nItem 10.\nDirectors, Executive Officers and Corporate Governance\n78\nItem 11.\nExecutive Compensation\n79\nItem 12.\nSecurity Ownership of Certain Beneficial Owners and Management and Related\u00a0Stockholder Matters\n79\nItem 13.\nCertain Relationships and Related Transactions, and Director Independence\n80\nItem 14.\nPrincipal Account\nant\n Fees and Services\n80\nPART IV\nItem 15.\nExhibits and Financial Statement Schedules\n81\nItem 16.\nForm 10-K Summary\n93\nSignatures\nInteractive Data Files\n3\nPART I\nItem 1.\u00a0\u00a0\u00a0\u00a0\nBusiness\nAir T, Inc. (the \u201cCompany,\u201d \u201cAir T,\u201d \u201cwe\u201d or \u201cus\u201d or \u201cour\u201d) is a holding company with a portfolio of operating businesses and financial assets. Our goal is to prudently and strategically diversify Air T\u2019s earnings power and compound the growth in its free cash flow per share over time.\nWe currently operate in four industry segments:\n\u2022\nOvernight air cargo, which operates in the air express delivery services industry;\n\u2022\nGround equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers;\n\u2022\nCommercial jet engines and parts, which manages and leases aviation assets; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines and;\n\u2022\nCorporate and other, which acts as the capital allocator and resource for other consolidated businesses. Further, Corporate and other is also comprised of insignificant businesses that do not pertain to other reportable segments.\nAcquisitions\nOn January 31, 2023, the Company acquired Worldwide Aircraft Services, Inc. (\"WASI\"), a Kansas corporation that services the aircraft industry across the United States and internationally through the operation of a repair station which is located in Springfield, Missouri at the Branson National Airport. The acquisition was was funded with cash and the loans described in \nNote 14\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report. WASI is included within the Overnight Air Cargo segment. See \nNote 2\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report.\nUnconsolidated Investments\nThe Company has ownership interest in Contrail Asset Management, LLC (\u201cCAM\u201d). The operations of CAM are not consolidated into the operations of the Company. See \nNote 24\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report.\nThe Company also has ownership interests in Insignia Systems, Inc. (\"Insignia\") and Cadillac Casting, Inc. (\"CCI\"). The operations of these companies are not consolidated into the operations of the Company. See \nNote 10\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report.\nEach business segment has separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business segments based on operating income (loss) and Adjusted EBITDA. \nCertain financial data with respect to the Company\u2019s geographic areas and segments is set forth in \nNotes 21\n and \n22\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report.\nAir T was incorporated under the laws of the State of Delaware in 1980. The principal place of business of Air T is 11020 David Taylor Drive, Suite 305, Charlotte NC, 28262 and Mountain Air Cargo, Inc. (\u201cMAC\u201d) is 5930 Balsom Ridge Road, Denver, North Carolina. The principal place of business of CSA Air, Inc. (\u201cCSA\u201d) is Iron Mountain, Michigan. The principal place of business for Global Ground Support, LLC (\u201cGGS\u201d) is Olathe, Kansas. The principal place of business of Delphax Technologies, Inc (\u201cDelphax\u201d) is Minneapolis, Minnesota. The principal place of business for Delphax Solutions, Inc. (\u201cDSI\u201d) is Mississauga, Canada. The principal place of business of Contrail Aviation Support, LLC (\u201cContrail\u201d) is Verona, Wisconsin. The principal place of business of AirCo, LLC, AirCo 1, LLC, AirCo 2, LLC and AirCo Services, LLC (collectively, \"AirCo\u201d) and Worthington Aviation, LLC (\u201cWorthington\u201d) is Eagan, Minnesota. The principal place of business of Jet Yard, LLC (\u201cJet Yard\u201d) and Jet Yard Solutions, LLC (\"Jet Yard Solutions\") is Marana, Arizona. The principal place of business of Air'Zona Aircraft Services, Inc. (\"Air'Zona\") is Kingman, Arizona. The principal place of business of Wolfe Lake is Minneapolis, Minnesota. The principal place of business of GdW Beheer B.V. (\"GdW\") is Amsterdam, the Netherlands. GdW was administratively dissolved on June 24, 2022 with Shanwick B.V. (\"Shanwick\") as the surviving entity and Shanwick's principal place of business is Amsterdam, the Netherlands. The principal place of business of Landing Gear Support Services, Inc. and Landing Gear Support Services PTE Limited (collectively, \"LGSS\") is Singapore, Singapore. The principal place of business of WASI is Springfield, Missouri.\nWe maintain an Internet website at http://www.airt.net and our SEC filings may be accessed through links on our website. The information on our website is available for information purposes only and is not incorporated by reference in this Annual Report on Form 10-K.\n4\nOvernight Air Cargo.\nThe Company\u2019s Overnight Air Cargo segment comprises the operations of MAC, CSA and WASI. MAC and CSA have a relationship with FedEx spanning over 40 years and represent two of nine companies in the U.S. that have North American feeder airlines under contract with FedEx. MAC and CSA operate and maintain Cessna Caravan, Sky Courier, ATR-42 and ATR-72 aircraft that fly daily small-package cargo routes throughout the eastern United States and upper Midwest, and in the Caribbean. MAC and CSA\u2019s revenues are derived principally pursuant to \u201cdry-lease\u201d service contracts with FedEx. In these \u201cdry- lease\" contracts, FedEx provides the aircraft while MAC and CSA provide their own crew and exercise operational control of their flights.\nOn June 1, 2021, MAC and CSA entered into new dry-lease agreements with FedEx which together cover all of the aircraft operated by MAC and CSA and replaced all prior dry-lease service contracts.\u00a0These dry-lease agreements provide for the lease of specified aircraft by MAC and CSA in return for the payment of monthly rent with respect to each aircraft leased, which monthly rent reflected an estimate of a fair market rental rate. These dry-lease agreements provide that FedEx determines the type of aircraft and schedule of routes to be flown by MAC and CSA, with all other operational decisions made by MAC and CSA, respectively. The current dry-lease agreements provide for the reimbursement of MAC and CSA\u2019s costs by FedEx, without mark up, incurred in connection with the operation of the leased aircraft for the following: fuel, landing fees, third-party maintenance, parts and certain other direct operating costs.\u00a0The current dry-lease agreement was most recently renewed on June 1, 2021 and is set to expire on August 31, 2026. The dry-lease agreements may be terminated by FedEx or MAC and CSA, respectively, at any time upon 90 days\u2019 written notice and FedEx may at any time terminate the lease of any particular aircraft thereunder upon 10 days\u2019 written notice. In addition, each of the dry-lease agreements provides that FedEx may terminate the agreement upon written notice if 60% or more of MAC or CSA\u2019s revenue (excluding revenues arising from reimbursement payments under the dry-lease agreement) is derived from the services performed by it pursuant to the respective dry-lease agreement, FedEx becomes MAC or CSA\u2019s only customer, or MAC or CSA employs fewer than six employees. As of the date of this report, FedEx would be permitted to terminate each of the dry-lease agreements under this provision. The Company believes that the short-term nature of its agreements with FedEx is standard within the airfreight contract delivery service industry, where performance is measured on a daily basis.\nAs of March\u00a031, 2023, MAC and CSA had an aggregate of 85 aircraft under its dry-lease agreements with FedEx.\u00a0Included within the 85 aircraft, 2 Cessna Caravan aircraft are considered soft-parked. Soft-parked aircraft remain covered under our agreements with FedEx although at a reduced administrative fee compared to aircraft that are in operation.\u00a0MAC and CSA continue to perform maintenance on soft-parked aircraft, but they are not crewed and do not operate on scheduled routes.\nRevenues from MAC and CSA\u2019s contracts with FedEx accounted for approximately 36% and 41% of the Company\u2019s consolidated revenue for the fiscal years ended March\u00a031, 2023 and 2022, respectively. The loss of FedEx as a customer would have a material adverse effect on the Company. FedEx has been a customer of the Company since 1980. MAC and CSA are not contractually precluded from providing services to other parties and MAC occasionally provides third-party maintenance services to other airline customers and the U.S. military.\nMAC and CSA operate under separate aviation certifications. MAC is certified to operate under Part 121, Part 135 and Part 145 of the regulations of the FAA. These certifications permit MAC to operate and maintain aircraft that can carry a maximum cargo capacity of 7,500 pounds on the Cessna Caravan 208B under Part 135 and a maximum cargo capacity of 14,000 pounds for the ATR-42 and 17,800 pounds for the ATR-72 aircraft under Part 121. The maximum payload (cargo capacity) for the Cessna 408 operated under Part 135 is 6,000 pounds. The maximum structural payload (cargo capacity) for the ATR72-600F operated under Part 121 is 20,281 pounds. CSA is certified to operate and maintain aircraft under Part 135 of the FAA regulations. This certification permits CSA to operate aircraft with a maximum cargo capacity of 7,500 pounds.\nMAC and CSA, together, operated the following FedEx-owned cargo aircraft as of March\u00a031, 2023:\nType of Aircraft\nModel Year\nForm of Ownership\nNumber\nof\nAircraft\nCessna Caravan 208B (single turbo prop)\n1985-1996\nDry lease\n61\u00a0\nCessna SkyCourier 408 (twin turbo prop)\n2022-2023\nDry lease\n4\u00a0\nATR-42 (twin turbo prop)\n1992\nDry lease\n9\u00a0\nATR-72 (twin turbo prop)\n1992\nDry lease\n10\u00a0\nATR-72-600 (twin turbo prop)\n2022-2023\nDry lease\n1\u00a0\n85\u00a0\nThe Cessna Caravan 208B aircraft are maintained under an FAA Approved Aircraft Inspection Program (\u201cAAIP\u201d). The inspection intervals range from 100 to 200 hours. The current engine overhaul period on the Cessna aircraft is 8,000 hours.\n5\nThe ATR-42 and ATR-72 aircraft are maintained under a FAA Part 121 continuous airworthiness maintenance program. The program consists of A and C service checks as well as calendar checks ranging from weekly to 12 years in duration. The engine overhaul period is 6,000 hours.\nThe Cessna Caravan 408 aircraft are maintained under an FAA Approved AAIP.\u00a0 The inspection program consists of 400 to 5,600 flight hour checks and 18 month to 120 month calendar checks.\nMAC and CSA operate in a niche market within a highly competitive contract cargo carrier market. MAC and CSA are two of  nine carriers that operate within the United States as FedEx feeder carriers. MAC and CSA are benchmarked against the other five FedEx feeders based on safety, reliability, compliance with federal, state and applicable foreign regulations, price and other service-related measurements. The Company believes accurate industry data is not available to indicate the Company\u2019s position within its marketplace (in large measure because all of the Company\u2019s direct competitors are privately held), but management believes that MAC and CSA, combined, constitute the largest contract carrier of the type described.\nFedEx conducts periodic audits of MAC and CSA, and these audits are an integral part of the relationship between the carrier and FedEx. The audits test adherence to the dry-lease agreements and assess the carrier\u2019s overall internal control environment, particularly as related to the processing of invoices of FedEx-reimbursable costs. The scope of these audits typically extends beyond simple validation of invoice data against the third-party supporting documentation. The audit teams generally investigate the operator\u2019s processes and internal control procedures. The Company believes satisfactory audit results are critical to maintaining its relationship with FedEx. The audits conducted by FedEx are not designed to provide any assurance with respect to the Company\u2019s consolidated financial statements, and investors, in evaluating the Company\u2019s consolidated financial statements, should not rely in any way on any such examination of the Company or any of its subsidiaries.\nOn January 31, 2023, the Company acquired WASI, an aircraft repair station that began operating in 1986. WASI is a certified FAA/EASA part 145 repair station (no. OWRF547L) and specializes in medium passenger regional jets, regional/commuter turboprops, cargo and special mission operators. It maintains a fully equipped engine shop with tooling and engine run stands. Services of WASI include inspections, contract maintenance, refurbishment, structural repairs and modifications, avionics, engine service refurbishment and upgrades.\nThe Company\u2019s overnight air cargo operations are not materially seasonal.\nGround\n \nEquipment Sales.\nGGS is located in Olathe, Kansas and manufactures, sells and services aircraft deicers and other specialized equipment sold to domestic and international passenger and cargo airlines, ground handling companies, the United States Air Force (\u201cUSAF\u201d), airports and industrial customers. GGS\u2019s product line includes aircraft deicers, scissor-type lifts, military and civilian decontamination units, flight-line tow tractors, glycol recovery vehicles and other specialized equipment. In the fiscal year ended March\u00a031, 2023, sales of deicing equipment accounted for approximately 85% of GGS\u2019s revenues, compared to 88% in the prior fiscal year.\nGGS designs and engineers its products. Components acquired from third-party suppliers are used in the assembly of its finished products. Components are sourced from a diverse supply chain. The primary components for mobile deicing equipment are the chassis (which is a commercial medium or heavy-duty truck), the fluid storage tank, a boom system, the fluid delivery system and heating equipment. The price of these components is influenced by raw material costs, principally high-strength carbon steels and stainless steel. GGS utilizes continuous improvements and other techniques to improve efficiencies and designs to minimize product price increases to its customers, to respond to regulatory changes, such as emission standards, and to incorporate technological improvements to enhance the efficiency of GGS\u2019s products. Improvements have included the development of single operator mobile deicing units to replace units requiring two operators, a patented premium deicing blend system and a more efficient forced-air deicing system.\nGGS manufactures five basic models of mobile deicing equipment with capacities ranging from 700 to 2,800 gallons. GGS also offers fixed-pedestal-mounted deicers. Each model can be customized as requested by the customer, including single operator configuration, fire suppressant equipment, open basket or enclosed cab design, a patented forced-air deicing nozzle, on-board glycol blending system to substantially reduce glycol usage, and color and style of the exterior finish. GGS also manufactures five models of scissor-lift equipment, for catering, cabin service and maintenance service of aircraft, and has developed a line of decontamination equipment, flight-line tow tractors, glycol recovery vehicles and other special purpose mobile equipment.\n\u00a0\nGGS competes primarily on the basis of the quality and reliability of its products, prompt delivery, service and price. The market for aviation ground service equipment is highly competitive. Certain of GGS' competitors may have substantially greater financial resources than we do. These entities or investors may be able to accept more risk than the Company believes is in our best interest. In addition, the market for aviation ground services in the past has typically been directly related to the financial health of the aviation industry, weather patterns and changes in technology.\nGGS\u2019s mobile deicing equipment business has historically been seasonal, with revenues typically being lower in the fourth and first fiscal quarters as commercial deicers are typically delivered prior to the winter season. The Company has continued its \n6\nefforts to reduce GGS\u2019s seasonal fluctuation in revenues and earnings by broadening its international and domestic customer base and its product line.\nIn October 2021, GGS was awarded a new contract to supply deicing trucks to the USAF. This agreement renewed GGS' original agreement with the USAF entered in July 2009. Per the contract, GGS had to provide annual pricing for each one-year period during the duration of the contract. Further, based upon volume of commercial items purchased during that year, there may be discounts calculated into the pricing and are reflective of the submitted pricing. With all option years expected to be executed by the government, this contract would expire on October 21, 2027.\nGGS sold a total of 14 and 7 deicers under the current contract with the USAF including both GL 1800 and ER 2875 models during fiscal years ended March\u00a031, 2023 and March\u00a031, 2022, respectively and all the units were accepted by the USAF. GGS has already received confirmed orders of 6 deicers for fiscal 2024\u2019s delivery order and currently expects the delivery of both GL 1800 and ER 2875 models to begin in the second quarter of fiscal year 2024.\nCommercial Jet Engines\n \nand Parts.\nContrail and Jet Yard (acquired during fiscal year 2017), AirCo (formed in May 2017), Worthington (acquired in May 2018),  Jet Yard Solutions (formed in January 2021), Air'Zona (acquired in March 2021), LGSS (formed March 2022), and Crestone Air Partners (\"Crestone\", formed April 2022) comprises the commercial jet engines and parts segment of the Company\u2019s operations. Contrail is a commercial aircraft trading, leasing and parts solutions provider. Its primary focus revolves around the CFM International CFM56-3/-5/-7 engines and the International Aero Engines V2500A5 engine, which power the two most prevalent narrow body, single aisle aircraft that are currently flown commercially\u2014the Boeing 737 Classic / 737 NG and the Airbus A320 family. Contrail acquires commercial aircraft, jet engines and components for the purposes of sale, trading, leasing and disassembly/overhaul. Contrail holds an ASA-100 accreditation from the Aviation Suppliers Association.\nJet Yard and Jet Yard Solutions offer commercial aircraft storage, storage maintenance and aircraft disassembly/part-out services at facilities leased at the Pinal Air Park in Marana, Arizona. The prevailing climate in this area of Arizona provides conditions conducive to long-term storage of aircraft. Jet Yard Solutions is registered to operate a repair station under Part 145 of the regulations of the FAA. Jet Yard leases approximately 48.5 acres of land under a lease agreement with Pinal County, Arizona. Jet Yard was organized in 2014, entered into the lease in June 2016 and had maintained de minimus operations from formation through the date it was acquired by the Company. Effective January 1, 2021, Jet Yard subleased the aforementioned lease with Pinal County to Jet Yard Solutions.\nAirCo operates an established business offering commercial aircraft parts sales, exchanges, procurement services, consignment programs and overhaul and repair services. AirCo Services, a wholly-owned subsidiary of AirCo (\"AirCo Services\"), holds FAA and European Aviation Safety Agency certifications covering aircraft instrumentation, avionics and a range of electrical accessories for civilian, military transport, regional/commuter and business/commercial jet and turboprop aircraft. Customers of AirCo include airlines and commercial aircraft leasing companies.\n\u00a0\nWorthington Aviation, like AirCo, operates an established business which supplies spare parts, repair programs and aircraft maintenance services to the global aviation community of regional and business aircraft fleets. Worthington offers a globally networked infrastructure and 24/7 support, ensuring fast delivery of spare parts and service, with four locations strategically located in the United States, United Kingdom & Australia. In addition, Worthington operates two FAA and EASA Certificated repair stations. The Tulsa maintenance, repair and overhaul (\"MRO\") facility provides composite aircraft structures, repair and support services. As a strategic resource for flight control, exhaust system and line replacement components, Worthington offers a wide array of services for complex operations. At the Eagan, Minnesota-based Repair Station, Worthington repair services offers a wide range of capabilities for repair and overhaul of airframe, accessories and power plant components in support of external as well as internal sales.\nAir'Zona is a full service Fixed Base Operator, located on field at Kingman Airport (IGM) in Kingman, Arizona that provides aircraft service and maintenance. LGSS delivers landing gear focused asset management and technical and commercial services worldwide. Crestone invests in commercial jet aircraft and engines on behalf of capital partners and provides full-service aviation asset management. The revenues of Air'Zona, LGSS, and Crestone are not material to the Company's consolidated financial statements. \nThe Company\u2019s commercial jet engines and parts operations are not materially seasonal.\nBacklog.\nGGS\u2019s backlog consists of \u201cfirm\u201d orders supported by customer purchase orders for the equipment sold by GGS. At March\u00a031, 2023, GGS\u2019s backlog of orders was $13.6\u00a0million, all of which GGS expects to be filled in the fiscal year ending March 31, 2024. At March\u00a031, 2022, GGS\u2019s backlog of orders was $14.0\u00a0million. Backlog is not meaningful for the Company\u2019s other business segments.\nGovernmental Regulation.\n7\nThe Company and its subsidiaries are subject to regulation by various governmental agencies.\nThe Department of Transportation (\u201cDOT\u201d) has the authority to regulate air service. The DOT has authority to investigate and institute proceedings to enforce its economic regulations, and may, in certain circumstances, assess civil penalties, revoke operating authority and seek criminal sanctions.\nUnder the Aviation and Transportation Security Act of 2001, as amended, the Transportation Security Administration (\u201cTSA\u201d), an agency within the Department of Homeland Security, has responsibility for aviation security. The TSA requires MAC and CSA to comply with a Full All-Cargo Aircraft Operator Standard Security Plan, which contains evolving and strict security requirements. These requirements are not static but change periodically as the result of regulatory and legislative requirements, imposing additional security costs and creating a level of uncertainty for our operations. It is reasonably possible that these rules or other future security requirements could impose material costs on us.\nThe FAA has safety jurisdiction over flight operations generally, including flight equipment, flight and ground personnel training, examination and certification, certain ground facilities, flight equipment maintenance programs and procedures, examination and certification of mechanics, flight routes, air traffic control and communications and other matters. The FAA is concerned with safety and the regulation of flight operations generally, including equipment used, ground facilities, maintenance, communications and other matters. The FAA can suspend or revoke the authority of air carriers or their licensed personnel for failure to comply with its regulations and can ground aircraft if questions arise concerning airworthiness. The FAA also has power to suspend or revoke for cause the certificates it issues and to institute proceedings for imposition and collection of fines for violation of federal aviation regulations. The Company, through its subsidiaries, holds all operating airworthiness and other FAA certificates that are currently required for the conduct of its business, although these certificates may be suspended or revoked for cause. The FAA periodically conducts routine reviews of MAC and CSA\u2019s operating procedures and flight and maintenance records.\nThe FAA has authority under the Noise Control Act of 1972, as amended, to monitor and regulate aircraft engine noise. The aircraft operated by the Company are in compliance with all such regulations promulgated by the FAA. Moreover, because the Company does not operate jet aircraft, noncompliance is not likely. Aircraft operated by us also comply with standards for aircraft exhaust emissions promulgated by the U.S. Environmental Protection Agency (\u201cEPA\u201d) pursuant to the Clean Air Act of 1970, as amended.\nJet Yard, Jet Yard Solutions, AirCo, and WASI, like Worthington, operate repair stations licensed under Part 145 of the regulations of the FAA. These certifications must be renewed annually, or in certain circumstances within 24 months. Certified repair stations are subject to periodic FAA inspection and audit. The repair station may not be relocated without written approval from the FAA.\nBecause of the extensive use of radio and other communication facilities in its aircraft operations, the Company is also subject to the Federal Communications Act of 1934, as amended.\nMaintenance and Insurance.\nThe Company, through its subsidiaries, is required to maintain the aircraft it operates under the appropriate FAA and manufacturer standards and regulations.\nThe Company has secured public liability and property damage insurance in excess of minimum amounts required by the United States Department of Transportation.\nThe Company maintains cargo liability insurance, workers\u2019 compensation insurance and fire and extended coverage insurance for owned and leased facilities and equipment. In addition, the Company maintains product liability insurance with respect to injuries and loss arising from use of products sold and services provided.\nIn March 2014, the Company formed SAIC, a captive insurance company licensed in Utah. SAIC insures risks of the Company and its subsidiaries that were not previously insured by the various Company insurance programs (including the risk of loss of key customers and contacts, administrative actions and regulatory changes); and may from time to time underwrite third-party risk through certain reinsurance arrangements. SAIC is included within the Company's Corporate and other segment.\nEmployees and Human Capital Resources.\nAs of March\u00a031, 2023, the Company and its subsidiaries had 584 full-time and full-time-equivalent employees. None of the employees of the Company or any of its consolidated subsidiaries are represented by labor unions. The Company believes its relations with its employees are good.\nWe consider our relationship with our employees to be good. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees. As it relates to our employees:\nOversight and Management\n8\nOur executive officers are tasked with leading our organization in managing employment-related matters, including recruiting and hiring, onboarding and training, compensation planning, talent management and development. We are committed to providing team members with the training and resources necessary to continually strengthen their skills. Our executive team is responsible for periodically reviewing team member programs and initiatives, including healthcare and other benefits, as well as our management development and succession planning practices. Management periodically reports to the Board regarding our human capital measures and results that guide how we attract, retain and develop a workforce to enable our business strategies.\nDiversity, Equity and Inclusion\nWe believe that a diverse workforce is critical to our success, and we continue to monitor and improve the application of our hiring, retention, compensation and advancement processes for women and underrepresented populations across our workforce, including persons of color, veterans and LGBTQ to enhance our inclusive and diverse culture. We plan to invest in recruiting diverse talent.\nWorkplace Safety and Health\nA vital part of our business is providing our workforce with a safe, healthy and sustainable working environment. We focus on implementing change through workforce observation and feedback channels to recognize risk and continuously improve our processes.\nImportantly during fiscal years 2020 through 2022, our focus on providing a positive work environment on workplace safety have enabled us to preserve business continuity without sacrificing our commitment to keeping our colleagues and workplace visitors safe during the COVID-19 pandemic. We took immediate action at the onset of the COVID-19 pandemic to enact rigorous safety protocols in our facilities by improving sanitation measures, implementing mandatory social distancing, use of facing coverings, reducing on-site workforce through staggered shifts and schedules, remote working where possible, and restricting visitor access to our locations. We believe these actions helped minimize the impact of COVID-19 on our workforce.\nItem 1B.\u00a0\u00a0\u00a0\u00a0\nRisk Factors\nGeneral Business Risks\nMarket fluctuations may affect our operations.\nMarket fluctuations may affect our ability to obtain funds necessary for the operation of our businesses from current lenders or new borrowings. In addition, we may be unable to obtain financing on satisfactory terms, or at all. Third-party reports relating to market studies or demographics we obtained previously also may no longer be accurate or complete. The occurrence of any of the foregoing events or any other related matters could materially and adversely affect our business, financial condition, results of operation and the overall value of our assets.\nRising inflation may result in increased costs of operations and negatively impact the credit and securities markets generally, which could have a material adverse effect on our results of operations and the market price of our common stock.\nInflation has accelerated in the U.S. and globally due in part to global supply chain issues, the increase in interest rates by the Federal Reserve, the Ukraine-Russia war, a rise in energy prices, and strong consumer demand. An inflationary environment can increase our cost of labor, as well as our other operating costs, which may have a material adverse impact on our financial results. In addition, economic conditions could impact and reduce the number of customers who purchase our products or services as credit becomes more expensive or unavailable. Although interest rates have increased and may increase further, inflation may continue. Further, increased interest rates could have a negative effect on the securities markets generally which may, in turn, have a material adverse effect on the market price of our common stock and our ability to sell additional trust preferred securities.\nWe could experience significant increases in operating costs and reduced profitability due to competition for skilled management and staff employees in our operating businesses.\nWe compete with many other organizations for skilled management and staff employees, including organizations that operate in different market sectors than us. Costs to recruit and retain adequate personnel could adversely affect results of operations.\nLegacy technology systems require a unique technical skillset which is becoming scarcer.\nThe Company deploys legacy technology systems in several significant business units. As technology continues to rapidly change, the available pool of individuals technically trained in and able to repair or perform maintenance on these legacy systems shrinks. As this scarcity increases, the Company\u2019s ability to efficiently and quickly repair its legacy systems becomes increasingly difficult, which could have a significant impact on the Company\u2019s day-to-day operations.\nSecurity threats and other sophisticated computer intrusions could harm our information systems, which in turn could harm our business and financial results.\n9\nWe utilize information systems and computer technology throughout our business. We store sensitive data and proprietary information on these systems. Threats to these systems, and the laws and regulations governing security of data, including personal data, on information systems and otherwise held by companies is evolving and adding layers of complexity in the form of new requirements and increasing costs of attempting to protect information systems and data and complying with new cybersecurity regulations. Information systems are subject to numerous and evolving cybersecurity threats and sophisticated computer crimes, which pose a risk to the stability and security of our information systems, computer technology, and business. \nGlobal cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information systems and computer technology to sophisticated and targeted measures known as advanced persistent threats and ransomware. The techniques used in these attacks change frequently and may be difficult to detect for periods of time and we may face difficulties in anticipating and implementing adequate preventative measures. A failure or breach in security could expose our company as well as our customers and suppliers to risks of misuse of information, compromising confidential information and technology, destruction of data, production disruptions, ransom payments, and other business risks which could damage our reputation, competitive position and financial results of our operations. Further, our technology resources may be strained due to an increase in the number of remote users. In addition, defending ourselves against these threats may increase costs or slow operational efficiencies of our business. If any of the foregoing were to occur, it could have a material adverse effect on our business and results of operations.\nWe sustained a cybersecurity attack in May 2022 involving ransomware that caused a network disruption and impacted certain of our systems. Upon detection, we undertook steps to address the incident, including engaging a team of third-party forensic experts and notifying law enforcement. We restored network systems and resumed normal operations. We have taken actions to improve our existing systems such as adding multi-factor authentication and to improve employee training and security competency. While we do not believe this event or resultant actions will have a material adverse effect on our business, this or similar incidents, or any other such breach of our data security infrastructure could have a material adverse effect on our business, results of operations and financial condition.\nAlthough we maintain cybersecurity liability insurance, our insurance may not cover potential claims of these types or may not be adequate to indemnify us for any liability that may be imposed. Any imposition of liability or litigation costs that are not covered by insurance could harm our business.\nWe may not be able to insure certain risks adequately or economically.\nWe cannot be certain that we will be able to insure all risks that we desire to insure economically or that all of our insurers or reinsurers will be financially viable if we make a claim. If an uninsured loss or a loss in excess of insured limits should occur, or if we are required to pay a deductible for an insured loss, results of operations could be adversely affected.\nLegal liability may harm our business.\nMany aspects of our businesses involve substantial risks of liability, and, in the normal course of business, we have been named as a defendant or co-defendant in lawsuits involving primarily claims for damages. The risks associated with potential legal liabilities often may be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time. The expansion of our businesses, including expansions into new products or markets, impose greater risks of liability. In addition, unauthorized or illegal acts of our employees could result in substantial liability. Substantial legal liability could have a material adverse financial effect or cause us significant reputational harm, which in turn could seriously harm our businesses and our prospects. Although our current assessment is that there is no pending litigation that could have a significant adverse impact, if our assessment proves to be in error, then the outcome of such litigation could have a significant impact on our consolidated financial statements.\nOur business might suffer if we were to lose the services of certain key employees.\nOur business operations depend upon our key employees, including our executive officers. Loss of any of these employees, particularly our Chief Executive Officer, could have a material adverse effect on our businesses as our key employees have knowledge of our businesses, the industries they operate in and customers that would be difficult to replace.\nOur business, financial condition and results of operations could be adversely affected by global public health issues or similar events.\nDuring the fiscal years ended March 31, 2021 and 2022, and to a lesser extent during the fiscal year ended March 31, 2023, the Company\u2019s operations were impacted by the spread of the COVID-19 pandemic. Additionally, the Company has had to navigate the impact it had on employees, supply chains and the economy in general and the aviation industry in particular. The Company is unable at this time to predict the impact that a global health crisis or similar event would have on its businesses, financial position and operating results in future periods due to numerous uncertainties. \nA pandemic, epidemic or outbreak of a contagious disease in the markets in which we operate or that otherwise impacts our centers could adversely impact our business.\nIf a pandemic, epidemic or outbreak of an infectious disease, including new COVID-19 variants, or other public health crisis were to affect the areas in which we operate, our business, including our revenue, profitability and cash flows, could be \n10\nadversely affected. Further, a pandemic, epidemic or outbreak of an infectious disease might adversely impact our business by causing temporary shutdowns of our businesses or by causing staffing shortages. We may be unable to locate replacement supplies, and ongoing delays could require us to reduce business operations. Although we have disaster plans in place, the extent to which new COVID-19 variants or other public health crisis will impact our business is difficult to predict and will depend on many factors beyond our control, including the speed of contagion, the development and implementation of effective preventative measures and possible treatments, the scope of governmental and other restrictions on travel and other activity, and public reactions to these factors.\nRisks Related to Our Segment Operations\nThe operating results of our four segments may fluctuate, particularly our commercial jet engine and parts segment.\nThe operating results of our four segments have varied from period to period and comparisons to results for preceding periods may not be meaningful. Due to a number of factors, including the risks described in this section, our operating results may fluctuate. These fluctuations may also be caused by, among other things:\na.\nthe economic health of the economy and the aviation industry in general;\nb.\nFedEx\u2019s demand for the use of the services of our Air Cargo segment; \nc.\nthe timing and number of purchases and sales of engines or aircraft;\nd.\nthe timing and amount of maintenance reserve revenues recorded resulting from the termination of long term leases, for which significant amounts of maintenance reserves may have accumulated;\ne.\nthe termination or announced termination of production of particular aircraft and engine types;\nf.\nthe retirement or announced retirement of particular aircraft models by aircraft operators;\ng.\nthe operating history of any particular engine, aircraft or engine or aircraft model;\nh.\nthe length of our operating leases; and\ni.\nthe timing of necessary overhauls of engines and aircraft.\nThese risks may reduce our operating segment\u2019s results including particularly our commercial jet engines and parts segment.  These risks may reduce the commercial jet engines and parts segment\u2019s engine utilization rates, lease margins, maintenance reserve revenues and proceeds from engine sales, and result in higher legal, technical, maintenance, storage and insurance costs related to repossession and the cost of engines being off-lease. As a result of the foregoing and other factors, the availability of engines for lease or sale periodically experiences cycles of oversupply and undersupply of given engine models and generally. The incidence of an oversupply of engines may produce substantial decreases in engine lease rates and the appraised and resale value of engines and may increase the time and costs incurred to lease or sell engines. We anticipate that supply fluctuations from period to period will continue in the future. As a result, comparisons to results from preceding periods may not be meaningful and results of prior periods should not be relied upon as an indication of our future performance.\nOur Air Cargo Segment is dependent on a significant customer.\nOur Air Cargo business is significantly dependent on a contractual relationship with FedEx Corporation (\u201c\nFedEx\n\u201d), the loss of which would have a material adverse effect on our business, results of operations and financial position. In the fiscal year ended March 31, 2023, 36% of our consolidated operating revenues, and 98% of the operating revenues for our overnight air cargo segment, arose from services we provided to FedEx. While FedEx has been our customer since 1980 under similar terms, our current agreements may be terminated by FedEx upon 90 days\u2019 written notice and FedEx may at any time terminate the lease of any particular aircraft thereunder upon 10 days\u2019 written notice. In addition, FedEx may terminate the dry-lease agreement with MAC or CSA upon written notice if 60% or more of MAC or CSA\u2019s revenue (excluding revenues arising from reimbursement payments under the dry-lease agreement) is derived from the services performed by it pursuant to the respective dry-lease agreement, FedEx becomes its only customer, or either MAC or CSA employs less than six employees. As of the date of issuance of this report, FedEx would be permitted to terminate each of the dry-lease agreements under this provision. The loss of these contracts with FedEx would have a material adverse effect on our business, results of operations and financial position.\nOur dry-lease agreements with FedEx subject us to operating risks.\nOur dry-lease agreements with FedEx provide for the lease of specified aircraft by us in return for the payment of monthly rent with respect to each aircraft leased. The dry-lease agreements provide for the reimbursement by FedEx of our costs, without mark up, incurred in connection with the operation of the leased aircraft for the following: fuel, landing fees, third-party maintenance, parts and certain other direct operating costs. Under the dry-lease agreements, certain operational costs incurred by us in operating the aircraft are not reimbursed by FedEx at cost, and such operational costs are borne solely by us.  An increase in unreimbursed operational costs would negatively affect our results of operations.\nBecause of our dependence on FedEx, we are subject to the risks that may affect FedEx\u2019s operations.\nBecause of our dependence on FedEx, we are subject to the risks that may affect FedEx\u2019s operations. These risks are discussed in FedEx\u2019s periodic reports filed with the SEC including its Annual Report on Form 10-K for the fiscal year ended May 31, 2022. These risks include but are not limited to the following:\n\u2022\nEconomic conditions and anti-trade measures/trade policies and relations in the global markets in which it operates;\n\u2022\nAdditional changes in international trade policies and relations could significantly reduce the volume of goods transported globally and adversely affect its business and results of operations.\n\u2022\nThe price and availability of fuel.\n11\n\u2022\nDependence on its strong reputation and value of its brand;\n\u2022\nPotential disruption to operations resulting from a significant data breach or other disruption to FedEx\u2019s technology infrastructure;\n\u2022\nThe continuing impact of the COVID-19 pandemic;\n\u2022\nThe impact of being self-insured for certain costs;\n\u2022\nThe transportation infrastructure continues to be a target for terrorist activities; \n\u2022\nFailure to successfully implement its business strategy and effectively respond to changes in market dynamics and customer preferences.\n\u2022\nAny inability to execute and effectively operate, integrate, leverage and grow acquired businesses and realize the anticipated benefits of acquisitions, joint ventures or strategic alliances;\n\u2022\nFedEx's ability to manage capital and its assets, including aircraft, to match shifting and future shipping volumes;\n\u2022\nIntense competition; \n\u2022\nIts autonomous delivery strategy is dependent upon the ability to successfully mitigate unique technological, operational and regulatory risks. \n\u2022\nThe failure to successfully implement its business strategy and effectively respond to changes in market dynamics and customer preferences;\n\u2022\nFailure to attract and maintain employee talent or maintain company culture, as well as increases in labor and purchased transportation cost;\n\u2022\nLabor organizations attempt to organize groups of our employees from time to time, and potential changes in labor laws could make it easier for them to do so.\n\u2022\nFedEx Ground relies on service providers to conduct its linehaul and pickup-and-delivery operations, and the status of these service providers as direct employers of drivers providing these services is being challenged.\n\u2022\nDisruptions, modifications in service or changes in the business or financial soundness of the United States Postal Service, a significant customer and vendor of FedEx;\n\u2022\nThe impact of proposed pilot flight and duty time regulations;\n\u2022\nIncreasing costs, the volatility of costs and funding requirements and other legal mandates for employee benefits, especially pension and healthcare benefits;\n\u2022\nThe impact of global climate change or by legal, regulatory or market responses to such change;\n\u2022\nPotentially being unable to achieve our goal of carbon neutrality for its global operations by calendar 2040;\n\u2022\nAny inability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography;\n\u2022\nEvolving Government regulation and enforcement;\n\u2022\nAny adverse changes in regulations and interpretations or challenges to its tax positions;\n\u2022\nComplex and evolving U.S. and foreign laws and regulations regarding data protection; \n\u2022\nThe regulatory environment for global aviation or other transportation rights;\n\u2022\nOther risks and uncertainties, including:\n\u25aa\nwidespread outbreak of an illness or any other communicable disease, or any other public health crisis;\n\u25aa\nthe increasing costs of compliance with federal, state and foreign governmental agency mandates (including the Foreign Corrupt Practices Act and the U.K. Bribery Act) and defending against inappropriate or unjustified enforcement or other actions by such agencies;\n\u25aa\nchanges in foreign currency exchange rates, especially in the euro, Chinese yuan, British pound, Canadian dollar, Australian dollar, Hong Kong dollar, Mexican peso, Japanese yen and Brazilian real, which can affect our sales levels and foreign currency sales prices;\n\u25aa\nany liability resulting from and the costs of defending against class-action, derivative and other litigation, such as wage-and-hour, joint employment, securities and discrimination and retaliation claims, and any other legal or governmental proceedings;\n\u25aa\nthe impact of technology developments on our operations and on demand for our services, and our ability to continue to identify and eliminate unnecessary information-technology redundancy and complexity throughout the organization;\n\u25aa\ngovernmental underinvestment in transportation infrastructure, which could increase our costs and adversely impact our service levels due to traffic congestion, prolonged closure of key thoroughfares or sub-optimal routing of our vehicles and aircraft;\n\u25aa\ndisruptions in global supply chains, which can limit the access of FedEx and our service providers to vehicles and other key capital resources and increase our costs;\n\u25aa\nstockholder activism, which could divert the attention of management and our board of directors from our business, hinder execution of our business strategy, give rise to perceived uncertainties as to our future and cause the price of our common stock to fluctuate significantly; and,\n\u25aa\nconstraints, volatility or disruption in the capital markets, our ability to maintain our current credit ratings, commercial paper ratings, and senior unsecured debt and pass-through certificate credit ratings, and our ability to meet credit agreement financial covenants.\nA material reduction in the aircraft we fly for FedEx could materially adversely affect our business and results of operations.\nUnder our agreements with FedEx, we are not guaranteed a number of aircraft or routes we are to fly and FedEx may reduce the number of aircraft we lease and operate upon 10 days\u2019 written notice.  Our compensation under these agreements, including our administrative fees, depends on the number of aircraft leased to us by FedEx.  Any material permanent reduction in the aircraft we operate could materially adversely affect our business and results of operations.  A temporary reduction in any period could materially adversely affect our results of operations for that period. \n12\nSales of deicing equipment can be affected by weather conditions.\nOur ground equipment sales segment\u2019s deicing equipment is used to deice commercial and military aircraft. The extent of deicing activity depends on the severity of winter weather. Mild winter weather conditions permit airports to use fewer deicing units, since less time is required to deice aircraft in mild weather conditions. As a result, airports may be able to extend the useful lives of their existing units, reducing the demand for new units.\nWe are affected by the risks faced by commercial aircraft operators and MRO companies because they are our customers.\nCommercial aircraft operators are engaged in economically sensitive, highly cyclical and competitive businesses. We are a supplier to commercial aircraft operators and MROs. As a result, we are indirectly affected by all of the risks facing commercial aircraft operators and MROs, with such risks being largely beyond our control. Our results of operations depend, in part, on the financial strength of our customers and our customers\u2019 ability to compete effectively in the marketplace and manage their risks. \nOur engine values and lease rates, which are dependent on the status of the types of aircraft on which engines are installed, and other factors, could decline.\nThe value of a particular model of engine depends heavily on the types of aircraft on which it may be installed and the available supply of such engines. Values of engines generally tend to be relatively stable so long as there is sufficient demand for the host aircraft. However, the value of an engine may begin to decline rapidly once the host aircraft begins to be retired from service and/or used for spare parts in significant numbers. Certain types of engines may be used in significant numbers by commercial aircraft operators that are currently experiencing financial difficulties. If such operators were to go into liquidation or similar proceedings, the resulting over-supply of engines from these operators could have an adverse effect on the demand for the affected engine types and the values of such engines.\nUpon termination of a lease, we may be unable to enter into new leases or sell the airframe, engine or its parts on acceptable terms.\nWe directly or indirectly own the engines or aircraft that we lease to customers and bear the risk of not recovering our entire investment through leasing and selling the engines or aircraft. Upon termination of a lease, we seek to enter a new lease or to sell or part-out the engine or aircraft. We also selectively sell engines on an opportunistic basis. We cannot give assurance that we will be able to find, in a timely manner, a lessee or a buyer for our engines or aircraft coming off-lease or for their associated parts. If we do find a lessee, we may not be able to obtain satisfactory lease rates and terms (including maintenance and redelivery conditions), and we cannot guarantee that the creditworthiness of any future lessee will be equal to or better than that of the existing lessees of our engines. Because the terms of engine leases may be less than 12 months, we may frequently need to remarket engines. We face the risk that we may not be able to keep our engines on lease consistently.\nFailures by lessees to meet their maintenance and recordkeeping obligations under our leases could adversely affect the value of our leased engines and aircraft which could affect our ability to re-lease the engines and aircraft in a timely manner following termination of the leases.\nThe value and income producing potential of an engine or aircraft depends heavily on it being maintained in accordance with an approved maintenance system and complying with all applicable governmental directives and manufacturer requirements. In addition, for an engine or aircraft to be available for service, all records, logs, licenses and documentation relating to maintenance and operations of the engine or aircraft must be maintained in accordance with governmental and manufacturer specifications.  Under our leases, our lessees are primarily responsible for maintaining our aircraft and engines and complying with all governmental requirements applicable to the lessee and the aircraft and engines, including operational, maintenance, government agency oversight, registration requirements and airworthiness directives. However, over time, certain lessees have experienced, and may experience in the future, difficulties in meeting their maintenance and recordkeeping obligations as specified by the terms of our leases.  Failure by our lessees to maintain our assets in accordance with requirements could negatively affect the value and desirability of our assets and expose us to increased maintenance costs that may not be sufficiently covered by supplemental maintenance rents paid by such lessees.\nOur ability to determine the condition of the engines or aircraft and whether the lessees are properly maintaining our assets is generally limited to the lessees\u2019 reporting of monthly usage and any maintenance performed, confirmed by periodic inspections performed by us and third-parties. A lessee\u2019s failure to meet its maintenance or recordkeeping obligations under a lease could result in:\na.\na grounding of the related engine or aircraft;\nb.\na repossession that would likely cause us to incur additional and potentially substantial expenditures in restoring the engine or aircraft to an acceptable maintenance condition;\nc.\na need to incur additional costs and devote resources to recreate the records prior to the sale or lease of the engine or aircraft;\nd.\na decline in the market value of the aircraft or engine resulting in lower revenues upon a subsequent lease or sale; \ne.\nloss of lease revenue while we perform refurbishments or repairs and recreate records; and\nf.\na lower lease rate and/or shorter lease term under a new lease entered into by us following repossession of the engine or aircraft.\nAny of these events may adversely affect the value of the engine, unless and until remedied, and reduce our revenues and increase our expenses. If an engine is damaged during a lease and we are unable to recover from the lessee or though insurance, we may incur a loss.\n13\nWe may experience losses and delays in connection with repossession of engines or aircraft when a lessee defaults.\nWe may not be able to repossess an engine or aircraft when the lessee defaults, and even if we are able to repossess the engine or aircraft, we may have to expend significant funds in the repossession, remarketing and leasing of the asset. When a lessee defaults and such default is not cured in a timely manner, we typically seek to terminate the lease and repossess the engine or aircraft. If a defaulting lessee contests the termination and repossession or is under court protection, enforcement of our rights under the lease may be difficult, expensive and time-consuming. We may not realize any practical benefits from our legal rights and we may need to obtain consents to export the engine or aircraft. As a result, the relevant asset may be off-lease or not producing revenue for a prolonged period of time. In addition, we will incur direct costs associated with repossessing our engine or aircraft, including, but not limited to, legal and similar costs, the direct costs of transporting, storing and insuring the engine or aircraft, and costs associated with necessary maintenance and recordkeeping to make the asset available for lease or sale. During this time, we will realize no revenue from the leased engine or aircraft, and we will continue to be obligated to pay any debt financing associated with the asset. If an engine is installed on an airframe, the airframe may be owned by an aircraft lessor or other third party. Our ability to recover engines installed on airframes may depend on the cooperation of the airframe owner.\nOur commercial jet engine and parts segment and its customers operate in a highly regulated industry and changes in laws or regulations may adversely affect our ability to lease or sell our engines or aircraft.\nCertain of the laws and regulations applicable to our business, include:\nLicenses and consents\n.  A number of our leases require specific governmental or regulatory licenses, consents or approvals. These include consents for certain payments under the leases and for the export, import or re-export of our engines or aircraft. Consents needed in connection with future leasing or sale of our engines or aircraft may not be received timely or have economically feasible terms. Any of these events could adversely affect our ability to lease or sell engines or aircraft.\nExport/import regulations\n.  The U.S. Department of Commerce (the \u201c\nCommerce Department\n\u201d) regulates exports. We are subject to the Commerce Department\u2019s and the U.S. Department of State\u2019s regulations with respect to the lease and sale of engines and aircraft to foreign entities and the export of related parts. These Departments may, in some cases, require us to obtain export licenses for engines exported to foreign countries. The U.S. Department of Homeland Security, through the U.S. Customs and Border Protection, enforces regulations related to the import of engines and aircraft into the United States for maintenance or lease and imports of parts for installation on our engines and aircraft.\nRestriction Lists\n.  We are prohibited from doing business with persons designated by the U.S. Department of the Treasury\u2019s Office of Foreign Assets Control (\u201c\nOFAC\n\u201d) on its \u201cSpecially Designated Nationals List,\u201d and must monitor our operations and existing and potential lessees and other counterparties for compliance with OFAC\u2019s rules. Similarly, sanctions issued by the United Nations, the U.S. government, the European Union or other foreign governments could prohibit or restrict us from doing business in certain countries or with certain persons. As a result, we must monitor our operations and existing and potential lessees and other counterparties for compliance with such sanctions.\nAnti-corruption Laws.\n As a U.S. corporation with international operations, we are required to comply with a number of U.S. and international laws and regulations which combat corruption. For example, the U.S. Foreign Corrupt Practices Act (the \u201c\nFCPA\n\u201d) and similar world-wide anti-bribery laws generally prohibit improper payments to foreign officials for the purpose of influencing any official act or decision or securing any improper advantage. The scope and enforcement of such anti-corruption laws and regulations may vary. Although our policies expressly mandate compliance with the FCPA and similarly applicable laws, there can be no assurance that none of our employees or agents will take any action in violation of our policies. Violations of such laws or regulations could result in substantial civil or criminal fines or penalties. Actual or alleged violations could also damage our reputation, be expensive to defend, and impair our ability to do business.\nCivil aviation regulation\n. Users of engines and aircraft are subject to general civil aviation authorities, including the FAA and the EASA, who regulate the maintenance of engines and issue airworthiness directives. Airworthiness directives typically set forth special maintenance actions or modifications to certain engine and aircraft types or a series of specific engines that must be implemented for the engine or aircraft to remain in service. Also, airworthiness directives may require the lessee to make more frequent inspections of an engine, aircraft or particular engine parts. Each lessee of an engine or aircraft generally is responsible for complying with all airworthiness directives. However, if the engine or aircraft is off lease, we may be forced to bear the cost of compliance with such airworthiness directives. Additionally, even if the engine or aircraft is leased, subject to the terms of the lease, if any, we may still be forced to share the cost of compliance.\nOur aircraft, engines and parts could cause damage resulting in liability claims.  \nOur aircraft, engines or parts could cause bodily injury or property damage, exposing us to liability claims. Our leases require our lessees to indemnify us against these claims and to carry insurance customary in the air transportation industry, including general liability and property insurance at agreed upon levels. However, we cannot guarantee that one or more catastrophic events will not exceed insurance coverage limits or that lessees\u2019 insurance will cover all claims that may be asserted against us. Any insurance coverage deficiency or default by lessees under their indemnification or insurance obligations may reduce our recovery of losses upon an event of loss.\nWe have risks in managing our portfolio of aircraft and engines to meet customer needs.\n14\nThe relatively long life cycles of aircraft and jet engines can be shortened by world events, government regulation or customer preferences. We seek to manage these risks by trying to anticipate demand for particular engine and aircraft types, maintaining a portfolio mix of engines that we believe is diversified, has long-term value and will be sought by lessees in the global market for jet engines, and by selling engines and aircraft that we expect will not experience obsolescence or declining usefulness in the foreseeable future. There is no assurance that the engine and aircraft types owned or acquired by us will meet customer demand.\nLiens on our engines or aircraft could exceed the value of such assets, which could negatively affect our ability to repossess, lease or sell a particular engine or aircraft.\nLiens that secure the payment of repairers\u2019 charges or other liens may, depending on the jurisdiction, attach to engines and aircraft. Engines also may be installed on airframes to which liens unrelated to the engines have attached. These liens may secure substantial sums that may, in certain jurisdictions or for certain types of liens, exceed the value of the particular engine or aircraft to which the liens have attached. In some jurisdictions, a lien may give the holder the right to detain or, in limited cases, sell or cause the forfeiture of the engine or aircraft. Such liens may have priority over our interest as well as our creditors\u2019 interest in the engines or aircraft. These liens and lien holders could impair our ability to repossess and lease or sell the engines or aircraft. We cannot give assurance that our lessees will comply with their obligations to discharge third-party liens on our assets. If they do not, we may, in the future, find it necessary to pay the claims secured by such liens to repossess such assets.\nIn certain countries, an engine affixed to an aircraft may become an addition to the aircraft and we may not be able to exercise our ownership rights over the engine. \nIn certain jurisdictions, an engine affixed to an aircraft may become an addition to the aircraft such that the ownership rights of the owner of the aircraft supersede the ownership rights of the owner of the engine. If an aircraft is security for the owner\u2019s obligations to a third-party, the security interest in the aircraft may supersede our rights as owner of the engine. Such a security interest could limit our ability to repossess an engine located in such a jurisdiction in the event of a lessee bankruptcy or lease default. We may suffer a loss if we are not able to repossess engines leased to lessees in these jurisdictions.\nHigher or volatile fuel prices could affect the profitability of the aviation industry and our lessees\u2019 ability to meet their lease payment obligations to us. \nHistorically, fuel prices have fluctuated widely depending primarily on international market conditions, geopolitical and environmental factors and events and currency exchange rates. Natural and other disasters can also significantly affect fuel availability and prices. The cost of fuel represents a major expense to airlines that is not within their control, and significant increases in fuel costs or hedges that inaccurately assess the direction of fuel costs can materially and adversely affect their operating results. Due to the competitive nature of the aviation industry, operators may be unable to pass on increases in fuel prices to their customers by increasing fares in a manner that fully offsets the increased fuel costs they may incur. In addition, they may not be able to manage this risk by appropriately hedging their exposure to fuel price fluctuations. The profitability and liquidity of those airlines that do hedge their fuel costs can also be adversely affected by swift movements in fuel prices if such airlines are required to post cash collateral under hedge agreements. Therefore, if for any reason fuel prices return to historically high levels or show significant volatility, our lessees are likely to incur higher costs or generate lower revenues, which may affect their ability to meet their obligations to us.\nInterruptions in the capital markets could impair our lessees\u2019 ability to finance their operations, which could prevent the lessees from complying with payment obligations to us. \nThe global financial markets can be highly volatile and the availability of credit from financial markets and financial institutions can vary substantially depending on developments in the global financial markets. Our lessees depend on banks and the capital markets to provide working capital and to refinance existing indebtedness. To the extent such funding is unavailable, or available only on unfavorable terms, and to the extent financial markets do not provide equity financing as an alternative, our lessees\u2019 operations and operating results may be materially and adversely affected and they may not comply with their respective payment obligations to us.\nOur lessees may fail to adequately insure our aircraft or engines which could subject us to additional costs. \nWhile an aircraft or engine is on lease, we do not directly control its operation. Nevertheless, because we hold title to the aircraft or engine, we could, in certain jurisdictions, be held liable for losses resulting from its operation. At a minimum, we may be required to expend resources in our defense. We require our lessees to obtain specified levels of insurance and indemnify us for, and insure against, such operational liabilities. However, some lessees may fail to maintain adequate insurance coverage during a lease term, which, although constituting a breach of the lease, would require us to take some corrective action, such as terminating the lease or securing insurance for the aircraft or engines. Therefore, our lessees\u2019 insurance coverage may not be sufficient to cover all claims that could be asserted against us arising from the operation of our aircraft or engines. Inadequate insurance coverage or default by lessees in fulfilling their indemnification or insurance obligations to us will reduce the insurance proceeds that we would otherwise be entitled to receive in the event we are sued and are required to make payments to claimants. Moreover, our lessees\u2019 insurance coverage is dependent on the financial condition of insurance companies and their ability to pay claims. A reduction in insurance proceeds otherwise payable to us as a result of any of these factors could materially and adversely affect our financial results.\nIf our lessees fail to cooperate in returning our aircraft or engines following lease terminations, we may encounter obstacles and are likely to incur significant costs and expenses conducting repossessions. \n15\nOur legal rights and the relative difficulty of repossession vary significantly depending on the jurisdiction in which an aircraft or engines are located. We may need to obtain a court order or consents for de-registration or re-export, a process that can differ substantially from county to country. When a defaulting lessee is in bankruptcy, protective administration, insolvency or similar proceedings, additional limitations may also apply. For example, certain jurisdictions give rights to the trustee in bankruptcy or a similar officer to assume or reject the lease, to assign it to a third party, or to entitle the lessee or another third party to retain possession of the aircraft or engines without paying lease rentals or performing all or some of the obligations under the relevant lease. Certain of our lessees are partially or wholly owned by government-related entities, which can further complicate our efforts to repossess our aircraft or engines in that government\u2019s jurisdiction. If we encounter any of these difficulties, we may be delayed in, or prevented from, enforcing certain of our rights under a lease and in re-leasing the affected aircraft or engines.\nWhen conducting a repossession, we are likely to incur significant costs and expenses that are unlikely to be recouped. These include legal and other expenses related to legal proceedings, including the cost of posting security bonds or letters of credit necessary to effect repossession of the aircraft or engines, particularly if the lessee is contesting the proceedings or is in bankruptcy. We must absorb the cost of lost revenue for the time the aircraft or engines are off-lease. We may incur substantial maintenance, refurbishment or repair costs that a defaulting lessee has failed to pay and are necessary to put the aircraft or engines in suitable condition for re-lease or sale. We may also incur significant costs in retrieving or recreating aircraft records required for registration of the aircraft and in obtaining the certificate of airworthiness for an aircraft. It may be necessary to pay to discharge liens or pay taxes and other governmental charges on the aircraft to obtain clear possession and to remarket the aircraft effectively, including, in some cases, liens that the lessee may have incurred in connection with the operation of its other aircraft. We may also incur other costs in connection with the physical possession of the aircraft or engines.\nIf our lessees fail to discharge aircraft liens for which they are responsible, we may be obligated to pay to discharge the liens. \nIn the normal course of their businesses, our lessees are likely to incur aircraft and engine liens that secure the payment of airport fees and taxes, custom duties, Eurocontrol and other air navigation charges, landing charges, crew wages, and other liens that may attach to our aircraft. Aircraft may also be subject to mechanic\u2019s liens as a result of routine maintenance performed by third parties on behalf of our customers. Some of these liens can secure substantial sums, and if they attach to entire fleets of aircraft, as permitted for certain kinds of liens, they may exceed the value of the aircraft itself. Although the financial obligations relating to these liens are the contractual responsibility of our lessees, if they fail to fulfill their obligations, the liens may ultimately become our financial responsibility. Until they are discharged, these liens could impair our ability to repossess, re-lease or sell our aircraft or engines. In some jurisdictions, aircraft and engine liens may give the holder thereof the right to detain or, in limited cases, sell or cause the forfeiture of the aircraft. If we are obliged to pay a large amount to discharge a lien, or if we are unable take possession of our aircraft subject to a lien in a timely and cost-effective manner, it could materially and adversely affect our financial results.\nIf our lessees encounter financial difficulties and we restructure or terminate our leases, we are likely to obtain less favorable lease terms. \nIf a lessee delays, reduces, or fails to make rental payments when due, or has advised us that it will do so in the future, we may elect or be required to restructure or terminate the lease. A restructured lease will likely contain terms that are less favorable to us. If we are unable to agree on a restructuring and we terminate the lease, we may not receive all or any payments still outstanding, and we may be unable to re-lease the aircraft or engines promptly and at favorable rates, if at all.\nWithdrawal, suspension or revocation of governmental authorizations or approvals could negatively affect our business.\nWe are subject to governmental regulation and our failure to comply with these regulations could cause the government to withdraw or revoke our authorizations and approvals to do business and could subject us to penalties and sanctions that could harm our business. Governmental agencies throughout the world, including the FAA, highly regulate the manufacture, repair and operation of aircraft operated in the United States and equivalent regulatory agencies in other countries, such as the EASA in Europe, regulate aircraft operated in those countries. With the aircraft, engines and related parts that we purchase, lease and sell to our customers, we include documentation certifying that each part complies with applicable regulatory requirements and meets applicable standards of airworthiness established by the FAA or the equivalent regulatory agencies in other countries. Specific regulations vary from country to country, although regulatory requirements in other countries are generally satisfied by compliance with FAA requirements. With respect to a particular engine or engine component, we utilize FAA and/or EASA certified repair stations to repair and certify engines and components to ensure marketability. The revocation or suspension of any of our material authorizations or approvals would have an adverse effect on our business, financial condition and results of operations. New and more stringent government regulations, if enacted, could have an adverse effect on our business, financial condition and results of operations. In addition, certain product sales to foreign countries require approval or licensing from the U.S. government. Denial of export licenses could reduce our sales to those countries and could have a material adverse effect on our business.\nRisks Related to Our Structure and Financing/Liquidity Risks\nOur holding company structure may increase risks related to our operations.\nOur business, financial condition and results of operations are dependent upon those of our individual businesses, and our aggregate investment in particular industries. We are a holding company with investments in businesses and assets in a number of industries. Our business, financial condition and results of operations are dependent upon our various businesses and investments and their management teams. Each of our businesses generally operate independently and in a decentralized manner.  Additionally, in the ordinary course of business we guarantee the obligations of entities that we manage and/or invest \n16\nin.  Any material adverse change in one of our businesses, investments or management teams, or in a particular industry in which we operate or invest, may cause material adverse changes to our business, financial condition and results of operations. The more capital we devote to a particular investment or industry may increase the risk that such investment could significantly impact our financial condition and results of operations, possibly in a material adverse way.\nA small number of stockholders has the ability to control the Company.\nWe have a very concentrated stockholder base. As of March 31, 2023, our three largest stockholders beneficially owned or had the ability to direct the voting of shares of our common stock representing approximately 65% of the outstanding shares. As a result, these stockholders have the power to determine the outcome of substantially all matters submitted to our stockholders for approval, including the election of our board of directors. In addition, future sales by these stockholders of substantial amounts of our common stock, or the potential for such sales, could adversely affect the prevailing market price of our securities.\nAlthough we do not expect to rely on the \u201ccontrolled company\u201d exemption, we may soon become a \u201ccontrolled company\u201d within the meaning of the Nasdaq listing standards, and we would qualify for exemptions from certain corporate governance requirements. \nA \u201ccontrolled company,\u201d as defined in the Nasdaq listing standards, is a company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. Controlled companies are not required to comply with certain Nasdaq listing standards relating to corporate governance, including:\n\u2022\nthe requirement that a majority of its board of directors consist of independent directors;\n\u2022\nthe requirement that its nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee\u2019s purpose and responsibilities; and\n\u2022\nthe requirement that its compensation committee be composed entirely of independent directors with a written charter addressing the committee\u2019s purpose and responsibilities.\nAs of May 4, 2023, Nicolas Swenson, our President, Chief Executive Officer and Chairman of the Board, beneficially owned an aggregate of 1,340,799 shares of our common stock, which represents 47.84% of the voting power of our outstanding common stock.  Our President, CEO/Chairman could soon own a majority of the voting power for the election of our directors, and thus we would meet the definition of a \u201ccontrolled company.\u201d As a result, these requirements would not apply to us as long as we remain a \u201ccontrolled company.\u201d\nAlthough we may soon qualify as a \u201ccontrolled company,\u201d we currently do not, and we do not expect to, rely on this exemption and we currently comply with, and we expect to continue to comply with, all relevant corporate governance requirements under the Nasdaq listing standards. However, if we were to utilize some or all of these exemptions, you may not have the same protections afforded to shareholders of companies that are subject to all of the Nasdaq listing standards that relate to corporate governance.\nAn increase in interest rates or in our borrowing margin would increase the cost of servicing our debt and could reduce our cash flow and negatively affect the results of our business operations.\nA portion of our outstanding debt bears interest at floating rates. As a result, to the extent we have not hedged against rising interest rates, an increase in the applicable benchmark interest rates would increase the cost of servicing our debt and could materially and adversely affect our results of operations, financial condition, liquidity and cash flows. In addition, if we refinance our indebtedness or it matures and interest rates or our borrowing margins increase between the time an existing financing arrangement was consummated and the time such financing arrangement is refinanced or matures, the cost of servicing our debt would increase and our results of operations, financial condition, liquidity and cash flows could be materially and adversely affected.\nOur inability to maintain sufficient liquidity could limit our operational flexibility and also impact our ability to make payments on our obligations as they come due.\nIn addition to being capital intensive and highly leveraged, our aircraft and engine business requires that we maintain sufficient liquidity to enable us to contribute the non-financed portion of engine and aircraft purchases as well as to service our payment obligations to our creditors as they become due, despite the fact that the timing and amounts of our revenues do not match the timing under our debt service obligations. Our restricted cash is unavailable for general corporate purposes. Accordingly, our ability to successfully execute our business strategy and maintain our operations depends on our ability to continue to maintain sufficient liquidity, cash and available credit under our credit facilities. Our liquidity could be adversely impacted if we are subjected to one or more of the following:\n\u2022\na significant decline in revenues,\n\u2022\na material increase in interest expense that is not matched by a corresponding increase in revenues,\n\u2022\na significant increase in operating expenses,  \n\u2022\na reduction in our available credit under our credit facilities, or\n\u2022\ngeneral economic or national events. \nIf we do not maintain sufficient liquidity, our ability to meet our payment obligations to creditors or to borrow additional funds could become impaired.\nFuture cash flows from operations or through financings may not be sufficient to enable the Company to meet its obligations.\n17\nFuture cash flow of the Company\u2019s operations can fluctuate significantly.  If future cash flows are not sufficient to permit the Company to meet its obligations, this would likely have a material adverse effect on the Company, its businesses, financial condition and results of operations. Additionally, credit market volatility may affect our ability to refinance our existing debt, borrow funds under our existing lines of credit or incur additional debt. There can be no assurance that the Company or its subsidiaries will continue to have access to their lines of credit if their financial performance does not satisfy the financial covenants set forth in the applicable financing agreements. If the Company or its subsidiaries do not meet certain of its financial covenants, and if they are unable to secure necessary waivers or other amendments from the respective lenders on terms acceptable to management and to renew or replace financing arrangements that mature during the current fiscal year, their ability to access available lines of credit could be limited, their debt obligations could be accelerated by the respective lenders and liquidity could be adversely affected.\nThe Company and/or its subsidiaries may be required to seek additional or alternative financing sources if the Company\u2019s or its subsidiaries\u2019 cash needs are significantly greater than anticipated or they do not materially meet their business plans, or there are unanticipated downturns in the markets for the Company\u2019s and its subsidiaries\u2019 products and services. Future disruption and volatility in credit market conditions could have a material adverse impact on the Company\u2019s ability, or that of its subsidiaries, to refinance debt when it comes due on terms similar to our current credit facilities, to draw upon existing lines of credit or to incur additional debt if needed. There can be no assurance therefore that such financing will be available or available on acceptable terms. The inability to generate sufficient cash flows from operations or through financings or disruptions in the credit markets could impair the Company\u2019s or its subsidiaries\u2019 liquidity and would likely have a material adverse effect on their businesses, financial condition and results of operations.\nA large proportion of our capital is invested in physical assets and securities that can be hard to sell, especially if market conditions are poor. \nBecause our investment strategy can involve public company securities, we may be restricted in our ability to effect sales during certain time periods. A lack of liquidity could limit our ability to vary our portfolio or assets promptly in response to changing economic or investment conditions. Additionally, if financial or operating difficulties of other competitors result in distress sales, such sales could depress asset values in the markets in which we operate. The restrictions inherent in owning physical assets could reduce our ability to respond to changes in market conditions and could adversely affect the performance of our investments, our financial condition and results of operations. Because there is significant uncertainty in the valuation of, or in the stability of the value of illiquid or non-public investments, the fair values of such investments do not necessarily reflect the prices that would actually be obtained when such investments are realized. \nTo service our debt and meet our other cash needs, we will require a significant amount of cash, which may not be available. \nOur ability to make payments on, or repay or refinance, our debt, will depend largely upon our future operating performance. Our future performance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition, our ability to borrow funds in the future to make payments on our debt will depend on our maintaining specified financial ratios and satisfying financial condition tests and other covenants in the agreements governing our debt. Our business may not generate sufficient cash flow from operations and future borrowings may not be available in amounts sufficient to pay our debt and to satisfy our other liquidity needs.\nIf our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to seek alternatives.\nIf we cannot meet our debt service obligations, we may be forced to reduce or delay investments and aircraft or engine purchases, sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and might require us to comply with more onerous covenants, which could further restrict our business operations. The terms of our debt instruments may restrict us from adopting some of these alternatives. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations or to meet our aircraft or engine purchase commitments as they come due.\nThe transition away from LIBOR may adversely affect our cost to obtain financing and may potentially negatively impact our interest rate swap agreements.\nIt is expected that a transition away from the widespread use of London Interbank Offered Rate (\u201cLIBOR\") to alternative rates  may have a material adverse impact on the availability and cost of our financing, including LIBOR-based loans, as well as our interest rate swap agreements. We currently anticipate phasing out of our LIBOR based loans and swaps in the foreseeable future but uncertainty remains with respect to the implementation of the phase out and what revisions will be required and implemented, which will depend heavily on the current market conditions.  It therefore remains uncertain how such changes will be implemented and the effects such changes would have on us and the financial markets generally. These changes may have a material adverse impact on the availability of financing and on our financing costs. Also, increases in interest rates on variable rate debt would increase our interest expense and the cost of refinancing existing debt and incurring new debt, unless we make arrangements that hedge the risk of rising interest rates, which would adversely affect net income and cash available for payment of our debt obligations and distributions to equity holders.\nDespite our substantial indebtedness, we may incur significantly more debt, and cash may not be available to meet our financial obligations when due or enable us to capitalize on investment opportunities when they arise. \n18\nWe employ debt and other forms of leverage in the ordinary course of business to enhance returns to our investors and finance our operations, and despite our current indebtedness levels, we expect to incur additional debt in the future to finance our operations, including purchasing aircraft and engines and meeting our contractual obligations as the agreements relating to our debt, including our junior subordinated debentures, indentures, term loan facilities, revolving credit facilities, and other financings do not entirely prohibit us from incurring additional debt. We also enter into financing commitments in the normal course of business, which we may be required to fund. If we are required to fund these commitments and are unable to do so, we could be liable for damages pursued against us or a loss of opportunity through default under contracts that are otherwise to our benefit could occur.  We are therefore subject to the risks associated with debt financing and refinancing, including but not limited to the following: (i) our cash flow may be insufficient to meet required payments of principal and interest; (ii) payments of principal and interest on borrowings may leave us with insufficient cash resources to pay operating expenses and dividends; (iii) if we are unable to obtain committed debt financing for potential acquisitions or can only obtain debt at high interest rates or on other unfavorable terms, we may have difficulty completing acquisitions or may generate profits that are lower than would otherwise be the case; (iv) we may not be able to refinance indebtedness at maturity due to company and market factors such as the estimated cash flow produced by our assets, the value of our assets, liquidity in the debt markets, and/or financial, competitive, business and other factors; and (v) if we are able to refinance our indebtedness, the terms of a refinancing may not be as favorable as the original terms for such indebtedness. If we are unable to refinance our indebtedness on acceptable terms, or at all, we may need to utilize available liquidity, which would reduce our ability to pursue new investment opportunities, dispose of one or more of our assets on disadvantageous terms, or raise equity, causing dilution to existing stockholders.\nThe terms of our various credit agreements and other financing documents also require us to comply with a number of customary financial and other covenants, such as maintaining debt service coverage and leverage ratios, and adequate insurance coverage. These covenants may limit our flexibility in conducting our operations and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness, even if we have satisfied and continue to satisfy our payment obligations. Regulatory and market changes may also result in higher borrowing costs and reduced access to credit.\nOur current financing arrangements require compliance with financial and other covenants and a failure to comply with such covenants could adversely affect our ability to operate.\nThe terms of our various credit agreements and other financing documents require us to comply with a number of customary financial and other covenants, such as maintaining debt service coverage and leverage ratios and adequate insurance coverage. These covenants may limit our flexibility in conducting our operations and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness, even if we have satisfied and continue to satisfy our payment obligations. Regulatory and market changes may also result in higher borrowing costs and reduced access to credit.\nFuture acquisitions and dispositions of businesses and investments are possible, changing the components of our assets and liabilities, and if unsuccessful or unfavorable, could reduce the value of the Company and its securities.\nAny future acquisitions or dispositions may result in significant changes in the composition of our assets and liabilities, as well as our business mix and prospects. Consequently, our financial condition, results of operations and the trading price of our securities may be affected by factors different from those affecting our financial condition, results of operations and trading price at the present time.\nWe face numerous risks and uncertainties as we expand our business.\nWe expect the growth and development of our business to come primarily from internal expansion and through acquisitions, investments, and strategic partnering. As we expand our business, there can be no assurance that financial controls, the level and knowledge of personnel, operational abilities, legal and compliance controls and other corporate support systems will be adequate to manage our business and growth. The ineffectiveness of any of these controls or systems could adversely affect our business and prospects. In addition, if we acquire new businesses and/or introduce new products, we face numerous risks and uncertainties concerning the integration of their controls and systems, including financial controls, accounting and data processing systems, management controls, other operations and adequate security. A failure to integrate these systems and controls, and even an inefficient integration of these systems and controls, could adversely affect our business and prospects.\nOur business strategy includes acquisitions, and acquisitions entail numerous risks, including the risk of management diversion and increased costs and expenses, all of which could negatively affect the Company\u2019s ability to operate profitably.\nOur business strategy includes, among other things, strategic and opportunistic acquisitions. This element of our strategy entails several risks, including, but not limited to the diversion of management\u2019s attention from other business concerns and the need to finance such acquisitions with additional equity and/or debt. In addition, once completed, acquisitions entail further risks, including: unanticipated costs and liabilities of the acquired businesses, including environmental liabilities, that could materially adversely affect our results of operations; difficulties in assimilating acquired businesses, preventing the expected benefits from the transaction from being realized or achieved within the anticipated time frame; negative effects on existing business relationships with suppliers and customers; and losing key employees of the acquired businesses. If our acquisition strategy is not successful or if acquisitions are not well integrated into our existing operations, the Company\u2019s operations and business results could be negatively affected.\nStrategic ventures may increase risks applicable to our operations.\n19\nWe may enter into strategic ventures that pose risks, including a lack of complete control over the enterprise, and other potential unforeseen risks, any of which could adversely impact our financial results. We may occasionally enter into strategic ventures or investments with third parties in order to take advantage of favorable financing opportunities, to share capital or operating risk, or to earn aircraft management fees. These strategic ventures and investments may subject us to various risks, including those arising from our possessing limited decision-making rights in the enterprise or over the related aircraft. If we were unable to resolve a dispute with a strategic partner in such a venture that retains material managerial veto rights, we might reach an impasse which may lead to operational difficulties in the venture and increases costs or the liquidation of our investment at a time and in a manner that would result in our losing some or all of our original investment and/or the occurrence of other losses, which could adversely impact our financial results.\nRapid business expansions or new business initiatives may increase risk.\nCertain business initiatives, including expansions of existing businesses such as the relatively recent expansion at our commercial jet engines and parts segment and the establishment of an aircraft asset management business and an aircraft capital joint venture, may bring us into contact, directly or indirectly, with individuals and entities that are not within our traditional client and counterparty base and may expose us to new asset classes, new business plans and new markets. These business activities expose us to new and enhanced risks, greater regulatory scrutiny of these activities, increased credit-related, sovereign and operational risks, and reputational concerns regarding the manner in which these assets are being operated or held. There is no assurance that prior year activity and results will occur in future periods.\nOur policies and procedures may not be effective in ensuring compliance with applicable law.\nOur policies and procedures designed to ensure compliance with applicable laws may not be effective in all instances to prevent violations. We could become subject to various governmental investigations, audits and inquiries, both formal and informal. Such investigations, regardless of their outcome, could be costly, divert management attention, and damage our reputation. The unfavorable resolution of such investigations could result in criminal liability, fines, penalties or other monetary or non-monetary sanctions and could materially affect our business or results of operations.\nCompliance with the regulatory requirements imposed on us as a public company results in significant costs that may have an adverse effect on our results.\nAs a public company, we are subject to various regulatory requirements including, but not limited to, compliance with the rules\nand regulations of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Compliance with these rules and regulations results in significant additional costs to us both directly, through increased audit and consulting fees, and indirectly, through the time required by our limited resources to address such regulations.\nDeficiencies in our public company financial reporting and disclosures could adversely impact our reputation. \nAs we expand the size and scope of our business, there is a greater susceptibility that our financial reporting and other public disclosure documents may contain material misstatements and that the controls we maintain to attempt to ensure the complete accuracy of our public disclosures may fail to operate as intended. The occurrence of such events could adversely impact our reputation and financial condition. Management is responsible for establishing and maintaining adequate internal controls over financial reporting to give our stakeholders assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (\u201c\nGAAP\n\u201d). However, the process for establishing and maintaining adequate internal controls over financial reporting has inherent limitations, including the possibility of human error. Our internal controls over financial reporting may not prevent or detect misstatements in our financial disclosures on a timely basis, or at all. Some of these processes may be new for certain subsidiaries in our structure, and in the case of acquisitions, may take time to be fully implemented. Our disclosure controls and procedures are designed to provide assurance that information required to be disclosed by us in reports filed or submitted under U.S. securities laws is recorded, processed, summarized and reported within the required time periods. Our policies and procedures governing disclosures may not ensure that all material information regarding us is disclosed in a proper and timely fashion or that we will be successful in preventing the disclosure of material information to a single person or a limited group of people before such information is generally disseminated.\nRisks Related to Environmental, Social, and Governance Issues\nClimate change, related legislative and regulatory responses to climate change, and the transition to a lower carbon economy may adversely affect our business.\nThere is increasing concern that a gradual rise in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe, an increase in the frequency, severity, and duration of extreme weather conditions and natural disasters, and water scarcity and poor water quality. These events could also compound adverse economic conditions. To the extent that significant changes in the climate occur in areas where our businesses are located or operate, we may experience extreme weather and/or changes in precipitation and temperature, all of which may result in physical damage to, or a decrease in demand for, our properties located in these areas or affected by these conditions and could negatively impact our operations. In addition, changes in federal, state, and local legislation and regulation based on concerns about climate change, including regulations aimed at limiting greenhouse gas emissions and the implementation of \u201cgreen\u201d building codes, could result in increased capital expenditures without a corresponding increase in revenue. Any assessment of the potential impact of future climate change legislation, regulations, or \n20\nindustry standards, as well as any international treaties and accords, is uncertain given the wide scope of potential regulatory change.\nWe are subject to risks from natural disasters such as earthquakes and severe weather (the frequency and severity of which may be impacted by climate change), which may include more frequent or severe storms, extreme temperatures and ambient temperature increases, hurricanes, flooding, rising sea levels, shortages of water, droughts and wildfires, any of which could have a material adverse effect on our business, results of operations, and financial condition.\nNatural disasters, severe weather such as earthquakes, tornadoes, wind, or floods, and wildfires may result in significant damage to our properties or disruption of our operations. The extent of casualty losses and loss of income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. Additional consequences of severe weather could include increased insurance premiums and deductibles or a decrease in the availability of coverage.\nEnvironmentally hazardous conditions could potentially adversely affect us.\nUnder various federal, state, and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Even if more than one person may have been responsible for the contamination, each person covered by applicable environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages based on personal injury, natural resources, or property damage or other costs, including investigation and clean-up costs, resulting from the environmental contamination. The presence of hazardous or toxic substances on one of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination or otherwise adversely affect our ability to sell or lease the property or borrow using the property as collateral. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated. A property owner who violates environmental laws may be subject to sanctions which may be enforced by governmental agencies or, in certain circumstances, private parties. The cost of defending against environmental claims, of compliance with environmental regulatory requirements, or of remediating any contaminated property could materially and adversely affect us.\nWe are subject to increasing scrutiny from investors and others regarding our environmental, social, governance, or sustainability responsibilities, which could result in additional costs or risks and adversely impact our reputation, associate retention, and ability to raise capital from such investors.\nInvestor advocacy groups, certain institutional investors, investment funds, other market participants, and stakeholders have focused increasingly on the Environmental, Social and Governance (\u201cESG\u201d or \u201csustainability\u201d) practices of companies, including those associated with climate change. These parties have placed increased importance on the implications of the social cost of their investments. If our ESG practices do not meet investor or other industry stakeholder expectations and standards, which continue to evolve, our reputation and associate retention may be negatively impacted based on an assessment of our ESG practices. Any sustainability disclosures we make may include our policies and practices on a variety of social and ethical matters, including corporate governance, environmental compliance, associate health and safety practices, human capital management, product quality, supply chain management, and workforce inclusion and diversity. It is possible that stakeholders may not be satisfied with our ESG practices or the speed of their adoption. We could also incur additional costs and require additional resources to monitor, report, and comply with various ESG practices. In addition, investors may decide to refrain from investing in us as a result of their assessment of our approach to and consideration of the ESG factors.",
+  "item7": ">Item 7.\u00a0\u00a0\u00a0\u00a0\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\nOverview\nAir T, Inc. (the \u201cCompany,\u201d \u201cAir T,\u201d \u201cwe\u201d or \u201cus\u201d or \u201cour\u201d) is a holding company with a portfolio of operating businesses and financial assets. Our goal is to prudently and strategically diversify Air T\u2019s earnings power and compound the growth in its free cash flow per share over time.\nWe currently operate in four industry segments:\n\u2022\nOvernight air cargo, which operates in the air express delivery services industry;\n\u2022\nGround equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers;\n\u2022\nCommercial aircraft, engines and parts, which manages and leases aviation assets; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines and;\n\u2022\nCorporate and other, which acts as the capital allocator and resource for other consolidated businesses. Further, Corporate and other is also comprised of insignificant businesses that do not pertain to other reportable segments.\nAcquisitions\nOn January 31, 2023, the Company acquired WASI, a Kansas corporation that services the aircraft industry across the United States and internationally through the operation of a repair station which is located in Springfield, Missouri at the Branson National Airport. The acquisition was funded with cash and the loans described in \nNote 14\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report. WASI is included within the Overnight air cargo segment. See \nNote\n 2\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report.\nUnconsolidated Investments\nThe Company has an ownership interest in Contrail Asset Management, LLC (\u201cCAM\u201d). The operations of CAM are not consolidated into the operations of the Company. See \nNote 24\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report.\nThe Company also has ownership interests in Insignia and CCI. The operations of these companies are not consolidated into the operations of the Company. See \nNote 10\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report.\nEach business segment has separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business segments based on operating income (loss) and Adjusted EBITDA. \n24\nForward Looking Statements\nCertain statements in this Report, including those contained in \u201cOverview,\u201d are \u201cforward-looking\u201d statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company\u2019s financial condition, results of operations, plans, objectives, future performance and business. Forward-looking statements include those preceded by, followed by or that include the words \u201cbelieves\u201d, \u201cpending\u201d, \u201cfuture\u201d, \u201cexpects,\u201d \u201canticipates,\u201d \u201cestimates,\u201d \u201cdepends\u201d or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by such forward-looking statements, because of, among other things, potential risks and uncertainties, such as:\n\u2022\nEconomic and industry conditions in the Company\u2019s markets;\n\u2022\nThe risk that contracts with FedEx could be terminated or adversely modified;\n\u2022\nThe risk that the number of aircraft operated for FedEx will be reduced;\n\u2022\nThe risk that GGS customers will defer or reduce significant orders for deicing equipment;\n\u2022\nThe impact of any terrorist activities on United States soil or abroad;\n\u2022\nThe Company\u2019s ability to manage its cost structure for operating expenses, or unanticipated capital requirements, and match them to shifting customer service requirements and production volume levels;\n\u2022\nThe Company's ability to meet debt service covenants and to refinance existing debt obligations;\n\u2022\nThe risk of injury or other damage arising from accidents involving the Company\u2019s overnight air cargo operations, equipment or parts sold and/or services provided;\n\u2022\nMarket acceptance of the Company\u2019s commercial and military equipment and services;\n\u2022\nCompetition from other providers of similar equipment and services;\n\u2022\nChanges in government regulation and technology;\n\u2022\nChanges in the value of marketable securities held as investments;\n\u2022\nMild winter weather conditions reducing the demand for deicing equipment;\n\u2022\nMarket acceptance and operational success of the Company\u2019s relatively new aircraft asset management business and related aircraft capital joint venture; and\n\u2022\nDespite our current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks associated with our substantial leverage.\nA forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.\n25\nResults of Operations\nFiscal 2023 vs. 2022\nConsolidated revenue increased by $70.2 million (40%) to $247.3 million for the fiscal year ended March\u00a031, 2023 compared to the prior fiscal year. Following is a table detailing revenue (after elimination of intercompany transactions), in thousands:\nYear ended March 31,\nChange\n2023\n2022\nOvernight Air Cargo\n$\n90,543\u00a0\n$\n74,409\u00a0\n$\n16,134\u00a0\n22\u00a0\n%\nGround Equipment Sales\n48,485\u00a0\n42,239\u00a0\n6,246\u00a0\n15\u00a0\n%\nCommercial Jet Engines and Parts\n101,737\u00a0\n57,689\u00a0\n44,048\u00a0\n76\u00a0\n%\nCorporate and Other\n6,558\u00a0\n2,740\u00a0\n3,818\u00a0\n139\u00a0\n%\nTotal\n$\n247,323\u00a0\n$\n177,077\u00a0\n$\n70,246\u00a0\n40\u00a0\n%\nRevenues from the air cargo segment increased by $16.1 million (22%) compared to the prior fiscal year, principally attributable to higher labor revenues, higher admin fees and higher FedEx pass through revenues due to increased fleet (72 aircraft in the prior year compared to 85 in the current year). Pass-through costs under the dry-lease agreements with FedEx totaled $29.2\u00a0million and $23.0\u00a0million for the years ended March\u00a031, 2023 and 2022, respectively.\nThe ground equipment sales segment contributed approximately $48.5 million and $42.2 million to the Company\u2019s revenues for the fiscal years ended March\u00a031, 2023 and 2022, respectively, representing a $6.2 million (15%) increase in the current year. The increase was primarily driven by a higher volume of truck sales to the USAF and commercial customers in the current fiscal year. At March\u00a031, 2023,\u00a0the ground equipment sales segment\u2019s order backlog was $13.6 million compared to $14.0 million at March\u00a031, 2022.\nThe commercial jet engines and parts segment contributed $101.7 million of revenues in fiscal year ended March\u00a031, 2023 compared to $57.7 million in the prior fiscal year which is an increase of $44.0 million (76%). The increase is primarily attributable to the fact that all the companies within this segment had higher component sales as the aviation industry started to see more activity in the current year as COVID-19 related restrictions continued to loosen.\nRevenues from the corporate and other segment increased by $3.8 million (139%) compared to the prior fiscal year, principally attributable to having a full year of Shanwick's revenues in fiscal 2023 compared to having only 2 months of revenues in fiscal 2022.\nFollowing is a table detailing operating (loss) income by segment, net of intercompany during Fiscal 2023 and Fiscal 2022 (in thousands):\nYear ended March 31,\nChange\n2023\n2022\nOvernight Air Cargo\n$\n4,047\u00a0\n$\n2,794\u00a0\n$\n1,253\u00a0\nGround Equipment Sales\n3,141\u00a0\n3,220\u00a0\n(79)\nCommercial Jet Engines and Parts\n(957)\n3,619\u00a0\n(4,576)\nCorporate and Other\n$\n(10,638)\n(878)\n(9,760)\nTotal\n$\n(4,407)\n$\n8,755\u00a0\n$\n(13,162)\nConsolidated operating loss for the fiscal year ended March\u00a031, 2023 was $4.4 million compared to consolidated operating income of $8.8 million in the prior fiscal year.\nOperating income for the air cargo segment increased by $1.3 million in the current fiscal year, due primarily to having higher segment revenues as described above, offset by higher pilot salaries and aircraft lease costs. \nThe current fiscal year's ground equipment sales segment operating income was relatively flat compared to the prior fiscal year. \nOperating loss of the commercial jet engines and parts segment was $1.0 million compared to operating income of $3.6 million in the prior year. The change was primarily attributable to the increase in inventory write-down of $6.6 million in the current fiscal year compared to the prior fiscal year, offset by the increase in sales explained above.\nOperating loss of the corporate and other segment increased by $9.8 million in the current fiscal year, primarily driven by the $9.1 million offset to general and administrative expenses in the prior fiscal year as a result of the Employee Retention Credit (\"ERC\") that did not recur in the current fiscal year.\nThe table below provides Adjusted EBITDA by segment for the fiscal year ended March\u00a031, 2023 and 2022 (in thousands):\nTwelve Months Ended\nChange\nMarch 31, 2023\nMarch 31, 2022\nOvernight Air Cargo\n$\n4,505\u00a0\n$\n2,854\u00a0\n$\n1,651\u00a0\nGround Equipment Sales\n3,314\u00a0\n3,455\u00a0\n(141)\nCommercial Jet Engines and Parts\n7,105\u00a0\n5,200\u00a0\n1,905\u00a0\nCorporate and Other\n(8,895)\n(103)\n(8,792)\nAdjusted EBITDA\n$\n6,029\u00a0\n$\n11,406\u00a0\n$\n(5,377)\nConsolidated Adjusted EBITDA for the fiscal year ended March\u00a031, 2023 was $6.0 million, a decrease of $5.4 million compared to the prior fiscal year. \nAdjusted EBITDA for the air cargo segment increased by $1.7 million in the current fiscal year, due primarily to having higher segment operating income as described above.\nThe current fiscal year's ground equipment sales segment Adjusted EBITDA was relatively flat compared to the prior fiscal year's. \nAdjusted EBITDA of the commercial jet engines and parts segment was $7.1 million, an increase of $1.9 million from the prior fiscal year. The increase was primarily driven by higher component sales explained above.\nThe corporate and other segment Adjusted EBITDA loss increased by $8.8 million from fiscal 2022 to fiscal 2023. The increase was driven by the $9.1 million offset to general and administrative expenses in the prior fiscal year as a result of the ERC credit that did not recur in the current fiscal year.\nFollowing is a table detailing consolidated non-operating income (expense), net of intercompany during fiscal 2023 and fiscal 2022 (in thousands):\nYear Ended March 31,\nChange\n2023\n2022\nInterest expense, net\n$\n(7,935)\n$\n(4,948)\n$\n(2,987)\nGain on forgiveness of Paycheck Protection Program (\"PPP\")\n\u2014\u00a0\n8,331\u00a0\n(8,331)\nIncome from equity method investments\n1,460\u00a0\n37\u00a0\n1,423\u00a0\nOther\n(471)\n1,221\u00a0\n(1,692)\nTotal\n$\n(6,946)\n$\n4,641\u00a0\n$\n(11,587)\nThe Company had net non-operating loss of $6.9 million for the fiscal year ended March\u00a031, 2023 compared to a non-operating income of $4.6 million in the prior fiscal year. The change was primarily attributable to the $8.3 million gain on the SBA's forgiveness of the Company's PPP loan recognized in the prior fiscal year, in addition to the $3.0 million increase in contractual interest expense driven by an increase in Contrail's revolver usage in the current fiscal year.\nDuring the year ended March\u00a031, 2023, the Company recorded $0.4 million of income tax expense, which yielded an effective rate of -3.8%. The primary factors contributing to the difference between the federal statutory rate of 21% and the Company\u2019s effective tax rate for the fiscal year ended March\u00a031, 2023 were the estimated benefit for the exclusion of income for the Company\u2019s captive insurance company subsidiary under \u00a7831(b), the exclusion of the minority owned portion of pretax income of Contrail, state income tax expense, and changes in the valuation allowance. The net change in the valuation allowance was $3.1 million for the year ended March 31, 2023. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. The change in the Company\u2019s valuation allowance is primarily due to the realizability of the domestic deferred tax assets, the unrealized losses on investments, the foreign tax credits generated by the operations in the Company\u2019s Puerto Rico branch that is expected to expire before being fully utilized, and the change in full valuation allowances associated with the Delphax entities.\nDuring the fiscal year ended March\u00a031, 2022, the Company recorded $1.2 million of income tax expense at an effective tax rate of 8.7%. The primary factors contributing to the difference between the federal statutory rate of 21% and the Company\u2019s effective tax rate for the fiscal year ended March\u00a031, 2022 were the estimated benefit for the exclusion of income for the Company\u2019s captive insurance company subsidiary under \u00a7831(b), the exclusion of the minority owned portion of pretax income of Contrail, state income tax expense, the exclusion of PPP loan forgiveness proceeds from taxable income, and changes in the valuation allowance. The change in the valuation allowance is primarily due to unrealized losses on investments and the generation of foreign tax credits through the NOL carryback claim that the Company expects to expire before they are fully utilized, and attribute reduction incurred by Delphax related to dissolution of its French subsidiary.\n26\nMarket Outlook\nFuture economic developments such as inflation and increased interest rates as well as further business issues such as supply chain issues present uncertainty and risk with respect to our financial condition and results of operations. Each of our businesses implemented measures to attempt to limit the impact of COVID-19 and economic and business issues but we still experienced disruptions, and we experienced a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. Many of our businesses may continue to generate reduced operating cash flows and could operate at a loss from time to time beyond fiscal 2023. We expect that issues caused by the pandemic and other economic and business issue will continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact these issues on economic and market conditions and our businesses in particular, and, as a result, present material uncertainty and risk with respect to us and our results of operations.\n27\nLiquidity and Capital Resources\nAs of March\u00a031, 2023, the Company held approximately $7.1\u00a0million in total cash, cash equivalents and restricted cash, of which, $0.8 million related to cash collateral for three Opportunity Zone fund investments. The Company also held $2.2 million in restricted investments held as statutory reserve of SAIC. \nAs of March\u00a031, 2023, the Company\u2019s working capital amounted to $52.3 million, a decrease of $45.1 million compared to March\u00a031, 2022, primarily driven by an increase of $32.3 million in the current portion of long-term debt and a decrease of $8.2 million in the ERC receivable as refunds were received during fiscal 2023. \nThe Company\u2019s Credit Agreement with Minnesota Bank & Trust, a Minnesota state banking corporation (\u201cMBT\u201d) (the Air T debt in \nNote 14\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report) includes several covenants that are measured twice a year at September 30 and March 31, including but not limited to, a negative covenant requiring a debt service coverage ratio of 1.25. \nThe AirCo 1 Credit Agreement (the AirCo 1 debt in \nNote 14\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report) contains an affirmative covenant relating to collateral valuation. \nThe Air T Acquisition 22.1's term loans with ING (the Air T Acquisition 22.1 debt in \nNote 14\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report) include several covenants that are measured once a year at December 31, including but not limited to, a negative covenant requiring a debt service coverage ratio of 1.10 and a senior net leverage ratio of 2.10 at December 31, 2022 and 1.50 at subsequent years. \nThe Contrail Credit Agreement (the Contrail debt in \nNote 14\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report) contains affirmative and negative covenants, including covenants that restrict the ability of Contrail and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Contrail Credit Agreement also contains quarterly financial covenants applicable to Contrail and its subsidiaries, including a minimum debt service coverage ratio of 1.25 to 1.0 and a minimum tangible net worth (\"TNW\") of $12 million. As of March\u00a031, 2023, the Company, AirCo 1, Air T Acquisition 22.1 and Contrail were in compliance with all financial covenants.\nAs of December 31, 2022, Contrail management forecasted that Contrail would be in violation of the debt service coverage ratio covenant contained in the ONB financing agreements during the twelve-month period subsequent to the filing date of the Form 10-Q for the quarterly period ended December 31, 2022, primarily because the first principal payment of its Term Note G (\u201cTerm Note G \u2013 ONB\u201d) was to become due in November 2023. Non-compliance with a debt covenant that is not subsequently cured allows Old National Bank (\u201cONB\u201d) the right to accelerate the maturity of the Contrail Credit Agreement and declare the entire amount of Contrail\u2019s outstanding debt at the time of non-compliance immediately due and payable and exercise its remedies with respect to the collateral that secures the debt. In the event of acceleration of maturity of the Contrail Credit Agreement, the Company would not have sufficient cash on hand or available liquidity to repay the outstanding debt.\nIn response to this condition, Contrail entered into an amendment to the Credit Agreement with ONB whereby, among other things, in exchange for a $20 million principal prepayment of Term Note G, Contrail obtained a waiver of the debt service coverage ratio covenant. $6.7 million of the $20.0 million prepayment was paid on March 30, 2023 and the remaining $13.3 million payment is currently expected to be paid in September 2023.\n \nThese payments will eliminate the need for Contrail to make any future scheduled principal payments on Term Note G until the final maturity of (on) November 24, 2025.\n \nAt this time, Contrail management believes it is highly probable that it will have sufficient liquidity to make the $13.3 million prepayment in September 2023.  \nThe obligations of Contrail under the Contrail Credit Agreement are guaranteed by the Company, up to a maximum of $1.6 million, plus costs of collection. The Company is not liable for any other assets or liabilities of Contrail and there are no cross-default provisions with respect to Contrail\u2019s debt in any of the Company\u2019s debt agreements with other lenders.\nAs mentioned in \nNote 14\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report, on June 9, 2022, the Company, Jet Yard and MBT entered into Amendment No. 1 to Third Amended and Restated Credit Agreement (\u201cAmendment\u201d) and a related Overline Note (\u201cOverline Note\u201d) in the original principal amount of $5.0 million. The Amendment and Note memorialize an increase to the amount that may be drawn by the Company on the MBT revolving credit agreement from $17.0 million to $22.0 million. As of  March\u00a031, 2023, the Overline Note was paid in full and terminated and the unused commitment on the MBT revolver was $8.3 million. The borrowing base calculation methodology remains unchanged.\nAs mentioned in \nNote 10\n and \nNote 14\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report, on September 30, 2022, the Company executed a promissory note payable to CCI for $2.0 million that bears interest at 10.00% per annum and matured on December 30, 2022. As of December 31, 2022, this note has been repaid.\nAs mentioned in \nNote 14\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report, on November 8, 2022, Contrail entered into the Second Amendment to Master Loan Agreement (the \u201cAmendment\u201d) with ONB. The Amendment amends the Master Loan Agreement dated as of June 24, 2019, as amended. The principal revisions made in the Amendment are: (i) the tangible net worth covenant was revised to require that Contrail maintain a tangible net worth of at least $12.0 million at all times prior to March 31, 2024 and $15.0 million at all times on or following March 31, 2024; and, (ii) that all proceeds from certain asset sales during the period beginning on October 1, 2022 and ending on March 31, 2023 be applied as prepayments on Term Loan G. Contrail executed a Collateral Assignment of two Aircraft engines in connection with the Amendment.\n28\nAs mentioned in \nNote 14\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report, on March 22, 2023, Contrail entered into the First Amendment to Second Amendment to Master Loan Agreement and Third Amendment to Master Loan Agreement (\"the Amendment\") with ONB. The Amendment amends the Master Loan Agreement dated June 24, 2019 with principal revisions to: (i) Section 3 of the Second Amendment was revised so that exclusion of certain gains and losses from the definition of \u201cnet income\u201d applies through September 30, 2023, not March 31, 2023; (ii) Section 5 of the Second Amendment relating to prepayment of Term Loan G was amended to eliminate the requirement that all asset sales during the period beginning with October 1, 2022 and ending on March 31, 2023 be applied as prepayments on Term Loan G; instead, the Amendment provision now reflects the agreement that voluntary payments totaling $20.0 million would be made by the borrower on Term Loan G no later than September 30, 2023; and, (iii) a revolving note resting period covenant was added to the Amendment whereby the outstanding principal balance on the revolving note would be paid to zero (0) for at least thirty (30) consecutive days during each annual period ending on the anniversary date of the revolving note, provided the borrower has not achieved a debt service coverage ratio of 1.10:1.\nAs mentioned in \nNote 2\n and \nNote 14\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report, on January 31, 2022 the Company funded the WASI acquisition through (i) a promissory note to Worldwide Aviation, LLC, (ii) cash, and (iii) an additional secured loan from MBT. The promissory note to Worldwide Aviation, LLC (\"Seller's Note\") in the amount of $1.5 million bears a fixed interest rate of 6.00% and is payable via periodic payments up to the January 1, 2026 maturity date. In connection with the acquisition, the Company and Jet Yard, LLC entered Amendment No. 2 to the Third Amended and Restated Credit Agreement (\u201cAmendment No. 2\u201d) with MBT. Amendment No. 2 amends the Third Amended and Restated Credit Agreement dated as of August 31, 2021 as amended by that certain Amendment No. 1 to the Third Amended and Restated Credit Agreement dated June 9, 2022. Amendment No. 2 provides for a new term loan (\u201cTerm Loan F\u201d) in the amount of $1.0 million to help finance a portion of the consideration paid by the Company. Pursuant to the amendment, the Company executed Term Note F in favor of MBT in the original principal amount of $1.0 million. The note bears interest at a rate equal to the greater of six percent (6.00%) or the prime rate plus one percent (1.00%). The note obligates the Company to make monthly payments of principal plus accrued interest commencing March 1, 2023. The note may be prepaid, in whole or part, at any time without penalty and final payment of all amounts due under the note is due January 31, 2028. \nAs mentioned in \nNote 24\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report, Contrail entered into an Operating Agreement with the Seller providing for the put and call options with regard to the 21% non-controlling interest retained by the Seller. The Seller is the founder of Contrail and its current Chief Executive Officer. The Put/Call Option permits the Seller to require Contrail to purchase all of the Seller\u2019s equity membership interests in Contrail commencing on July 18, 2021 (\"Contrail RNCI\"). As of the date of this filing, neither the Seller nor Air T has indicated an intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations.\nAs mentioned in \nNote 24\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report, the Company has ownership interest in Contrail Asset Management, LLC (\u201cCAM\u201d). The operations of CAM are not consolidated into the operations of the Company. For its Investment Function (as defined in \nNote 24\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report), CAM\u2019s initial commitment to CJVII was approximately $51.0\u00a0million. The Company and MRC have commitments to CAM in the respective amounts of $7.0 million and $44.0 million. As of March\u00a031, 2023, the Company has fulfilled its capital commitments to CAM. \nThe revolving lines of credit at Air T with MBT and Contrail with ONB have a due date or expire within the next twelve months. As of the date of this report, the Company and MBT entered into amendments to the MBT revolving credit agreement and related promissory note to extend the maturity date of the credit facility to August 31, 2024 and include the following changes:\n1.\n A $2.0 million seasonal increase in the maximum amount available under the facility.  The maximum amount of the facility will now increase to $19.0 million between May 1 and November 30 of each year and will decrease to $17.0 million between December 1 and April 30 of each year;\n2.\nThe reference rate for the interest rate payable on the revolving facility will change from Prime to SOFR, plus a spread.  The exact spread over SOFR will change every September 30 and March 31 based on the Company calculated funded debt leverage ratio (defined as total debt divided by EBITDA).  Depending on the result of the calculation, the interest rate spread applicable to the facility will range between 2.25% and 3.25%;\n3.\nThe unused commitment fee on the revolving credit facility will increase from 0.11% to 0.15%; and, \n4.\nThe covenant restricting the Company\u2019s use of funds for \u201cOther Investments\u201d was revised to limit the Company to $5.0 million of \u201cOther Investments\u201d per year.\nWe are currently seeking to refinance the Contrail revolver prior to its maturity date; however, there is no assurance that we will be able to execute this refinancing or, if we are able to refinance this obligation, that the terms of such refinancing would be as favorable as the terms of our existing credit facility.\nAs a result, management believes it is probable that the cash on hand and current financings, net cash provided by operations from its remaining operating segments, together with amounts available under our current revolving lines of credit, as amended, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. \n29\nCash Flows\nFollowing is a table of changes in cash flow from continuing operations for the respective years ended March\u00a031, 2023 and 2022 (in thousands):\nYear Ended March 31,\nChange\n2023\n2022\nNet Cash Provided by (Used in) Operating Activities\n$\n16,909\u00a0\n$\n(33,084)\n$\n49,993\u00a0\nNet Cash Used in Investing Activities\n(6,168)\n(33,388)\n27,220\u00a0\nNet Cash (Used in) Provided by Financing Activities\n(12,380)\n59,254\u00a0\n(71,634)\nEffect of foreign currency exchange rates\n361\u00a0\n(341)\n702\u00a0\nNet Decrease in Cash and Cash Equivalents and Restricted Cash\n$\n(1,278)\n$\n(7,559)\n$\n6,281\u00a0\nCash provided by operating activities was $16.9 million in fiscal year 2023 compared to cash used in operating activities of $33.1 million in fiscal year 2022. The fluctuation was primarily driven by the $17.3\u00a0million change in the ERC receivable: in the prior fiscal year, the Company applied for the ERC in the amount of $9.1 million, of which, in the current fiscal year, the Company received $8.2 million. In addition, the fluctuation was further increased by the $27.8\u00a0million change in inventories, primarily due to Contrail and GGS generating more sales of their inventories compared to the prior fiscal year.  \nCash used in investing activities for fiscal year 2023 was $6.2 million compared to cash used in investing activities for the prior fiscal year of $33.4 million. The current fiscal year's cash usage was primarily driven by cash used for the acquisition of WASI of $2.5 million and investment in unconsolidated entities of $3.1 million. The prior fiscal year's cash usage was primarily driven by cash used for the acquisitions of Wolfe Lake assets of $13.4 million, Shanwick's acquisition of $12.8 million, and investment in unconsolidated entities of $6.8 million.\nCash used in financing activities for fiscal year 2023 was $12.4 million compared to cash provided by financing activities for the prior fiscal year of $59.3 million. This was primarily due to decreased net proceeds from lines of credit of $8.4 million, less proceeds from term loans of $23.6 million in addition to increased payments on term loans of $24.0 million. Lastly, the change was also due to the fact that there was no proceeds received from issuance of TruPs in the current fiscal year compared to $11.3 million in the prior fiscal year.\n30\nOff-Balance Sheet Arrangements\nThe Company defines an off-balance sheet arrangement as any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a Company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity, or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or that engages in leasing, hedging, or research and development arrangements with the Company. The Company is not currently engaged in the use of any of these arrangements.\nSystems and Network Security\nAlthough we have employed significant resources to develop our security measures against breaches, our cybersecurity measures may not detect or prevent all attempts to compromise our systems, including hacking, viruses, malicious software, break-ins, phishing attacks, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted by our systems. Breaches of our cybersecurity measures could result in unauthorized access to our systems, misappropriation of information or data, deletion or modification of client information or other interruption to our business operations. As techniques used to obtain unauthorized access to sabotage systems change frequently and may not be known until launched against us or our third-party service providers, we may be unable to anticipate, or implement adequate measures to protect against these attacks. If we are unable to avert these attacks and security breaches, we could be subject to significant legal and financial liability, our reputation would be harmed and we could sustain substantial revenue loss from lost sales and customer dissatisfaction. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Cyber-attacks may target us or other participants, or the communication infrastructure on which we depend. Actual or anticipated attacks and risks may cause us to incur significantly higher costs, including costs to deploy additional personnel and network protection technologies, train employees, and engage third-party experts and consultants. Cybersecurity breaches would not only harm our reputation and business, but also could materially decrease our revenue and net income.\nSupply Chain and Inflation\nThe Company continues to monitor a wide range of health, safety, and regulatory matters related to the continuing COVID-19 pandemic including its impact on our business operations. In addition, ongoing supply chain disruptions have impacted product availability and costs across all markets including the aviation industry in which our Company operates. Additionally, the United States is experiencing an acute workforce shortage and increasing inflation and interests rates which has created a hyper-competitive wage environment and increased debt costs. Thus far, the direct impact of these items on our businesses has not been material. However, ongoing or future disruptions to consumer demand, our supply chain, product pricing inflation, continued increases in interest rates, our ability to attract and retain employees, or our ability to procure products and fulfill orders, could negatively impact the Company\u2019s operations and financial results in a material manner. We continue to look for proactive ways to mitigate potential impacts of these issues at our businesses.\nThe Company believes that inflation has not had a material effect on its manufacturing and commercial jet engine and parts operations, because increased costs to date have been passed on to customers. Under the terms of its overnight air cargo business contracts the major cost components of that segment's operations, consisting principally of fuel, crew and other direct operating costs, and certain maintenance costs are reimbursed by its customer. Significant increases in inflation rates could, however, have a material impact on future revenue and operating income.\n31\nNon-GAAP Financial Measures\nThe Company uses adjusted earnings before taxes, interest, and depreciation and amortization (\"Adjusted EBITDA\"), a non-GAAP financial measure as defined by the SEC, to evaluate the Company's financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.\nAdjusted EBITDA is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specified items. The Company calculates Adjusted EBITDA by removing the impact of specific items and adding back the amounts of interest expense and depreciation and amortization to earnings before income taxes. When calculating Adjusted EBITDA, the Company does not add back depreciation expense for aircraft engines that are on lease, as the Company believes this expense matches with the corresponding revenue earned on engine leases. Depreciation expense for leased engines totaled $1.6 million and $0.3 million for the fiscal year ended March\u00a031, 2023 and 2022. \nManagement believes that Adjusted EBITDA is a useful measure of the Company's performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and better period-to-period comparability. Adjusted EBITDA is not intended to replace or be an alternative to operating income (loss) from continuing operations, the most directly comparable amounts reported under GAAP.\nThe table below provides a reconciliation of operating income (loss) from continuing operations to Adjusted EBITDA for the fiscal year ended March\u00a031, 2023 and 2022 (in thousands):\nTwelve Months Ended\nMarch 31, 2023\nMarch 31, 2022\nOperating (loss) income from continuing operations\n$\n(4,407)\n$\n8,755\u00a0\nDepreciation and amortization (excluding leased engines depreciation)\n2,525\u00a0\n1,589\u00a0\nAsset impairment, restructuring or impairment charges\n1\n7,840\u00a0\n805\u00a0\nLoss on sale of property and equipment\n8\u00a0\n5\u00a0\nSecurities expenses\n63\u00a0\n252\u00a0\nAdjusted EBITDA\n$\n6,029\n\u00a0\n$\n11,406\n\u00a0\nThe table below provides Adjusted EBITDA by segment for the fiscal year ended March\u00a031, 2023 and 2022 (in thousands):\nTwelve Months Ended\nMarch 31, 2023\nMarch 31, 2022\nOvernight Air Cargo\n$\n4,505\u00a0\n$\n2,854\u00a0\nGround Equipment Sales\n3,314\u00a0\n3,455\u00a0\nCommercial Jet Engines and Parts\n7,105\u00a0\n5,200\u00a0\nCorporate and Other\n(8,895)\n(103)\nAdjusted EBITDA\n$\n6,029\n\u00a0\n$\n11,406\n\u00a0\n1\n Included in the asset impairment, restructuring or impairment charges for the fiscal year ended March\u00a031, 2023 was a write-down of $7.3 million on the commercial jet engines and parts segment's inventory, of which, $5.4\u00a0million was due to a management decision to monetize three engines by sale to a third party, in which the net carrying values exceeded the estimated proceeds. The remainder of the write-down was attributable to our evaluation of the carrying value of inventory as of March\u00a031, 2023, where we compared its cost to its net realizable value and considered factors such as physical condition, sales patterns and expected future demand to estimate the amount necessary to write down any slow moving, obsolete or damaged inventory. \n32\nSeasonality\nThe ground equipment sales segment business has historically been seasonal, with the revenues and operating income typically being higher in the second and third fiscal quarters as commercial deicers are typically delivered prior to the winter season. Other segments are typically not susceptible to material seasonal trends.\n33\nCritical Accounting Policies and Estimates.\nThe Company\u2019s significant accounting policies are described in \nNote 1\n of \nNotes to Consolidated Financial Statements included under Part II, Item 8\n of this report. The preparation of the Company\u2019s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company\u2019s estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. The Company believes that the following are its most critical\u00a0accounting policies:\nBusiness Combinations\n. The Company accounts for business combinations in accordance with Financial Accounting Standards Board (\u201cFASB\u201d) Accounting Standards Codification (\u201cASC\u201d) 805, Business Combinations. Consistent with ASC 805, the Company accounts for each business combination by applying the acquisition method. Under the acquisition method, the Company records the identifiable assets acquired and liabilities assumed at their respective fair values on the acquisition date. Goodwill is recognized for the excess of the purchase consideration over the fair value of identifiable net assets acquired. Included in purchase consideration is the estimated acquisition date fair value of any earn-out obligation incurred. For business combinations where non-controlling interests remain after the acquisition, assets (including goodwill) and liabilities of the acquired business are recorded at the full fair value and the portion of the acquisition date fair value attributable to non-controlling interests is recorded as a separate line item within the equity section or, as applicable to redeemable non-controlling interests, between the liabilities and equity sections of the Company\u2019s consolidated balance sheets. There are various estimates and judgments related to the valuation of identifiable assets acquired, liabilities assumed, goodwill and non-controlling interests. These estimates and judgments have the potential to materially impact the Company\u2019s consolidated financial statements.\nInventories\n \u2013 Inventories are carried at the lower of cost or net realizable value. Within the Company\u2019s commercial jet engines and parts segment, there are various estimates and judgments made in relief of inventory as parts are sold from established groups of parts from one engine or airframe purchase. The estimates and judgments made in relief of inventory are based on assumptions that are consistent with a market participant\u2019s future expectations for the commercial aircraft, jet engines and parts industry and the economy in general and our expected intent for the inventory. These assumptions and estimates are complex and subjective in nature. Changes in economic and operating conditions, including those occurring as a result of the impact of the COVID-19 pandemic or its effects could impact the assumptions and result in future losses to our inventory.\nThe Company periodically evaluates the carrying value of inventory. In these evaluations, the Company is required to make estimates regarding the net realizable value, which includes the consideration of sales patterns and expected future demand. Any slow moving, obsolete or damaged inventory and inventory with costs exceeding net realizable value are evaluated for write-downs. These estimates could vary significantly from actual amounts based upon future economic conditions, customer inventory levels, or competitive factors that were not foreseen or did not exist when the estimated write-downs were made.\nValuation of Assets on Lease or Held for Lease\n - Engine assets on lease or held for lease are stated at cost, less accumulated depreciation. On a quarterly basis, we monitor the portfolio for events which may indicate that a particular asset may need to be evaluated for potential impairment. These events may include a decision to part-out or sell an asset, knowledge of specific damage to an asset, or supply/demand events which may impact the Company\u2019s ability to lease an asset in the future. On an annual basis, even absent any such \u2018triggering event\u2019, we evaluate the assets in our portfolio to determine if their carrying amount may not be recoverable. If an asset is determined to be unrecoverable, the asset is written down to fair value. When evaluating for impairment, we test at the individual asset level (e.g., engine, airframe or aircraft), as each asset generates its own stream of cash flows, including lease rents and maintenance reserves.\nThe Company must make significant and subjective estimates in determining whether any impairment exists. Those estimates  are as follows:\n\u2022\nFair value \u2013 we determine fair value by reference to independent appraisals, quoted market prices (e.g., an offer to purchase) and other factors such as current data from airlines, engine manufacturers and MRO providers as well as specific market sales and repair cost data.\n\u2022\nFuture cash flows \u2013 when evaluating the future cash flows that an asset will generate, we make assumptions regarding the lease market for specific engine models, including estimates of market lease rates and future demand. These assumptions are based upon lease rates that we are obtaining in the current market as well as our expectation of future demand for the specific engine/aircraft model. \nIf the forecasted undiscounted cash flows and fair value of our long-lived assets decrease in the future, we may incur impairment charges.\nAccounting for Redeemable Non-Controlling Interest\n. Policies related to redeemable non-controlling interests involve judgment and complexity, specifically on the classification of the non-controlling interests in the Company\u2019s consolidated balance sheet, and the accounting treatment for changes in the fair value or estimated redemption value for non-controlling interests that are redeemed at other than fair value. Further, there is significant judgment in determining whether an equity instrument is currently redeemable or not currently redeemable but probable that the equity instrument will become redeemable. Additionally, there are also significant estimates made in the valuation of Contrail's RNCI. The fair value of Contrail's non-controlling interest is determined using a combination of the income approach, utilizing a discounted cash flow analysis, and the market approach, utilizing the guideline public company method. Contrail's discounted cash flow analysis requires significant management judgment with respect to forecasts of revenue, operating margins, capital expenditures, and the selection and use of an appropriate discount rate. Contrail\u2019s market approach requires management to make significant assumptions related to market multiples of earnings derived from comparable publicly-traded companies with similar operating characteristics as Contrail. There are also significant estimates made to determine the estimated redemption value of Shanwick's redeemable non-controlling interest (\"Shanwick RNCI\"). The analysis uses significant inputs such as forecasted earnings before interest and taxes (\"EBIT\"), discount rate and expected volatility, which require significant management judgment and assumptions. \n34",
+  "item7a": ">Item 7A. \nQuantitative and Qualitative Disclosures about Market Risk.\nThe Company is subject to the risk of fluctuating interest rates in the normal course of business, primarily as a result of its variable rate borrowing. The Company has entered into variable to fixed rate interest-rate swap agreements to effectively reduce its exposure to interest rate fluctuations. \nWe are also exposed to certain losses in the event of nonperformance by the counterparties under the swaps. We regularly evaluate the financial condition of our counterparties. Based on this review, we currently expect the counterparties to perform fully under the swaps. However, if a counterparty defaults on its obligations under a swap, we could be required to pay the full rates on the applicable debt, even if such rates were in excess of the rate in the contract.\nSee \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources\u201d and the Notes to Consolidated Financial Statements for a description of our accounting policies and other information related to these financial instruments.\n35",
+  "cik": "353184",
+  "cusip6": "009207",
+  "cusip": ["009207101"],
+  "names": ["AIR T INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/353184/000035318423000071/0000353184-23-000071-index.htm"
+}
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+{
+  "item1": ">Item\u00a01. \u00a0\u00a0\u00a0\u00a0\nBusiness\nIncorporated in 1980, Lam Research Corporation (\u201cLam Research,\u201d \u201cLam,\u201d \u201cwe,\u201d \u201cour,\u201d \u201cus,\u201d or the \u201cCompany\u201d) is a Delaware corporation, headquartered in Fremont, California. We maintain a network of facilities throughout Asia, Europe, and the United States in order to meet the needs of our dynamic customer base.\nAdditional information about Lam Research is available on our website at www.lamresearch.com. The content on any website referred to in this Form\u00a010-K is not a part of or incorporated by reference in this Form 10-K unless expressly noted.\nOur Annual Report on Form 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Forms 8-K, Proxy Statements and all other filings we make with the SEC are available on our website, free of charge, as soon as reasonably practical after we file them with or furnish them to the SEC and are also available online at the SEC\u2019s website at www.sec.gov. \nThe Lam Research logo, Lam Research, and all product and service names used in this report are either registered trademarks or trademarks of Lam Research Corporation or its subsidiaries in the United States and/or other countries. All other marks mentioned herein are the property of their respective holders.\nLam Research Corporation 2023 10-K \n3\nTable of Contents\n \nWe are a global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. We have built a strong global presence with core competencies in areas such as nanoscale applications enablement, chemistry, plasma and fluidics, advanced systems engineering, and a broad range of operational disciplines. Our products and services are designed to help our customers build smaller and better performing devices that are used in a variety of electronic products, including mobile phones, personal computers, servers, wearables, automotive vehicles, and data storage devices. \nOur customer base includes leading semiconductor memory, foundry, and integrated device manufacturers (\u201cIDMs\u201d) that make products such as non-volatile memory (\u201cNVM\u201d), dynamic random-access memory (\u201cDRAM\u201d), and logic devices. Their continued success is part of our commitment to driving semiconductor breakthroughs that define the next generation. Our core technical competency is integrating hardware, process, materials, software, and process control enabling results on the wafer.\nSemiconductor manufacturing, our customers\u2019 business, involves the complete fabrication of multiple dies or integrated circuits (\u201cICs\u201d) on a wafer. This involves the repetition of a set of core processes and can require hundreds of individual steps. Fabricating these devices requires highly sophisticated process technologies to integrate an increasing array of new materials with precise control at the atomic scale. Along with meeting technical requirements, wafer processing equipment must deliver high productivity and be cost-effective.\nDemand from cloud computing (the \u201cCloud\u201d)\n,\n the Internet of Things (\u201cIoT\u201d), and other markets is driving the need for increasingly powerful and cost\n-\nefficient semiconductors. At the same time, there are growing technical challenges with traditional two-dimensional scaling. These trends are driving significant inflections in semiconductor manufacturing, such as the increasing importance of vertical scaling strategies like three-dimensional (\u201c3D\u201d) architectures as well as multiple patterning to enable shrinks. \nWe believe we are in a strong position with our leadership and expertise in deposition\n,\n etch, and clean to facilitate some of the most significant innovations in semiconductor device manufacturing. Several factors create opportunity for sustainable differentiation for us: (i) our focus on research and development, with several on-going programs relating to sustaining engineering, product and process development, and concept and feasibility; (ii) our ability to effectively leverage cycles of learning from our broad installed base; (iii) our collaborative focus with semi-ecosystem partners; (iv) our ability to identify and invest in the breadth of our product portfolio to meet technology inflections; and (v) our focus on delivering our multi-product solutions with a goal to enhance the value of Lam\u2019s solutions to our customers.\nWe also address processes for back-end wafer-level packaging (\u201cWLP\u201d), which is an alternative to traditional wire bonding and can offer a smaller form factor, increased interconnect speed and bandwidth, and lower power consumption, among other benefits. We offer advanced packaging solutions that support fan-out panel-level packaging, a process in which chips or chiplets are cut from a large format substrate sheet several times the size of a traditional silicon wafer, which increases yield and reduces waste and solutions that meet the need for 3D stacking of high bandwidth memory (\u201cHBM\u201d). In addition, our products are well-suited for related markets that rely on semiconductor processes and require production-proven manufacturing capability, such as complementary metal-oxide-semiconductor image sensors (\u201cCIS\u201d) and micro-electromechanical systems (\u201cMEMS\u201d).\nOur Customer Support Business Group (\u201cCSBG\u201d) provides products and services to maximize installed equipment performance, predictability, and operational efficiency. We offer a broad range of services to deliver value throughout the lifecycle of our equipment, including customer service, spares, upgrades, and new and refurbished non-leading edge products in our deposition, etch, and clean markets. Many of the technical advances that we introduce in our newest products are also available as upgrades, which provide customers with a cost-effective strategy for extending the performance and capabilities of their existing wafer fabrication lines. Service offerings include addressing productivity needs for our customers including, but not limited to, system uptime or availability optimization, throughput improvements, and defect reduction. Additionally, within CSBG, our Reliant\n\u00ae\n product line offers new and refurbished non-leading edge products in deposition, etch and clean markets for those applications that do not require the most advanced wafer processing capability. \nLam Research Corporation 2023 10-K \n4\nTable of Contents\n \nProducts\nMarket\n\u00a0\nProcess/Application\n\u00a0\nTechnology\n\u00a0\nProducts\nDeposition\nMetal Films\nElectrochemical Deposition (\u201cECD\u201d) (Copper & Other)\nSABRE\n\u00ae\n family\u00a0\nChemical Vapor Deposition (\u201cCVD\u201d)\nAtomic Layer Deposition (\u201cALD\u201d)\n(Tungsten)\nALTUS\n\u00ae\n family\n\u00a0Dielectric Films\nPlasma-enhanced CVD (\u201cPECVD\u201d)\nALD\u00a0\nGapfill High-Density Plasma CVD (\u201cHDP-CVD\u201d)\nVECTOR\n\u00ae\n family\nStriker\n\u00ae\n \nfamily\nSPEED\n\u00ae\n family\nEtch\nConductor Etch\nReactive Ion Etch\nKiyo\n\u00ae\n\u00a0family,\u00a0\nVersys\n\u00ae\n\u00a0Metal family\nDielectric Etch\nReactive Ion Etch\nFlex\n\u00ae\n family\nVantex\n\u00ae\n family\nThrough-silicon Via (\u201cTSV\u201d) Etch\nDeep Reactive Ion Etch\nSyndion\n\u00ae\n family\nClean\nWafer Cleaning\nWet Clean\nEOS\n\u00ae\n, DV-Prime\n\u00ae\n, \nDa Vinci\n\u00ae\n, SP Series\nBevel Cleaning\nDry Plasma Clean\nCoronus\n\u00ae\n family\nDeposition Processes and Product Families\n \nDeposition processes create layers of dielectric (insulating) and metal (conducting) materials used to build a semiconductor device. Depending on the type of material and structure being made, different techniques are employed. Electrochemical deposition creates the copper wiring (interconnect) that links devices in an integrated circuit (\u201cIC\u201d or \u201cchip\u201d). Plating of copper and other metals is also used for TSV and WLP applications. Tiny tungsten connectors and thin barriers are made with the precision of chemical vapor deposition and atomic layer deposition, which adds only a few layers of atoms at a time. Plasma-enhanced CVD, high-density plasma CVD, and ALD are used to form the critical insulating layers that isolate and protect all of these electrical structures. Lastly, post-deposition treatments such as ultraviolet thermal processing are used to improve dielectric film properties.\nALTUS\n\u00ae\n Product Family\nTungsten and/or Molybdenum deposition is used to form conductive features such as contacts, vias, and wordlines on a chip. These features are small, often narrow, and use only a small amount of metal, so minimizing resistance and achieving complete fill can be difficult. At these nanoscale dimensions, even slight imperfections can impact device performance or cause a chip to fail. Our ALTUS\n\u00ae\n systems combine CVD and ALD technologies to deposit the highly conformal or selective films as needed for advanced tungsten metallization applications in both logic and memory. The Multi-Station Sequential Deposition architecture enables nucleation layer formation and bulk CVD/ALD fill to be performed in the same chamber (\u201cin situ\u201d). Our ALD technologies are used in the deposition of barrier films to achieve high step coverage with reduced thickness at lower temperatures relative to a conventional process.\nSABRE\n\u00ae\n Product Family\nCopper deposition lays down the electrical wiring for most semiconductor devices. Even the smallest defect - say, a microscopic pinhole or dust particle - in these conductive structures can impact device performance, from loss of speed to complete failure. The SABRE\n\u00ae\n ECD product family, which helped pioneer the copper interconnect transition, offers the precision needed for copper damascene manufacturing in logic and memory. System capabilities include cobalt deposition for logic applications and copper deposition directly on various liner materials, which is important for next-generation metallization schemes. For advanced WLP applications, such as forming conductive bumps, redistribution layers, TSV filing, and wafer level bonding, the SABRE\n\u00ae\n 3D family combines Lam\u2019s SABRE Electrofill\n\u00ae\n technology with additional innovation to deliver the high-quality films needed at high productivity. The modular architecture can be configured with multiple plating and pre/post-treatment cells, providing flexibility to address a variety of packaging applications, including HBM.\nSPEED\n\u00ae\n Product Family\nDielectric gapfill processes deposit critical insulation layers between conductive and/or active areas by filling openings of various aspect ratios between conducting lines and between devices. With advanced devices, the structures being filled can be very tall and narrow. As a result, high-quality dielectric films are especially important due to the ever-increasing possibility of cross-talk and device failure. Our SPEED\n\u00ae\n HDP-CVD products provide a multiple dielectric film solution for high-quality gapfill with industry-leading throughput and reliability. SPEED\n\u00ae\n products have excellent particle performance, and their design allows large batch sizes between cleans and faster cleans.\nLam Research Corporation 2023 10-K \n5\nTable of Contents\n \nStriker\n\u00ae\n Product Family\nThe latest memory, logic, and imaging devices require extremely thin, highly conformal dielectric films for continued device performance improvement and scaling. For example, ALD films are critical for spacer-based multiple patterning schemes where the spacers help define critical dimensions, as well as for insulating liners and gapfill in high aspect ratio features, which have little tolerance for voids and even the smallest defect. The Striker\n\u00ae\n single-wafer ALD products provide dielectric film solutions for these challenging requirements through application-specific material, process and hardware options that deliver film technology and defect performance. \nVECTOR\n\u00ae \nProduct Family\nDielectric film deposition processes are used to form some of the most difficult-to-produce insulating layers in a semiconductor device, including those used in the latest transistors and 3D structures. In some applications, these films require dielectric films to be exceptionally smooth and defect free since slight imperfections are multiplied greatly in subsequent layers. Our VECTOR\n\u00ae\n PECVD products are designed to provide the performance and flexibility needed to create these enabling structures within a wide range of challenging device applications. As a result of its design, VECTOR\n\u00ae\n produces superior thin film quality, along with exceptional within-wafer and wafer-to-wafer uniformity. \nEtch Processes and Product Families\nEtch processes help create chip features by selectively removing dielectric (insulating), metal, silicon and poly silicon (conducting/semiconducting) materials that have been added during deposition. These processes involve fabricating increasingly small, complex, and narrow features using many types of materials. The primary technology, reactive ion etch, bombards the wafer surface with ions (charged particles) to remove material. For the smallest features, atomic-layer etching (\u201cALE\u201d) removes a few atomic layers of material at a time. While conductor etch processes precisely shape critical electrical components like transistors, dielectric etch forms the insulating structures that protect conducting parts. \nFlex\n\u00ae\n Product Family\nDielectric etch carves patterns in insulating materials to create barriers between the electrically conductive parts of a semiconductor device. For advanced devices, these structures can be extremely tall and thin and involve complex, sensitive materials. Slight deviations from the target feature profile - even at the atomic level - can negatively affect electrical properties of the device. To precisely create these challenging structures, our Flex\n\u00ae\n product family offers differentiated technologies and application-focused capabilities for critical dielectric etch applications. Uniformity, repeatability, and tunability are enabled by a unique multi-frequency, small-volume, confined plasma design. Flex\n\u00ae\n offers in situ multi-step etch and continuous plasma capability that delivers high productivity with low defectivity.\nVantex\n\u00ae\n Product Family\nDielectric etch processes remove non-conductive materials during the manufacturing of a semiconductor device. Leading-edge memory devices have especially challenging structures, such as extremely deep holes and trenches, that must be manufactured with tight tolerances. Our latest dielectric etch system, Vantex\n\u00ae\n creates high aspect ratio device features while maintaining critical dimension (\u201cCD\u201d) uniformity and selectivity. Vantex\n\u00ae \nis part of our Sense.i\n\u00ae\n platform and offers advanced RF technology and repeatable wafer-to-wafer performance enabled by Equipment Intelligence\n\u00ae\n to meet the needs of advanced memory manufacturing, primarily in 3D NAND high aspect ratio hole, trench, contact, and capacitor cell applications.\nKiyo\n\u00ae\n Product Family\nConductor etch helps shape the electrically active materials used in the parts of a semiconductor device. Even a slight variation in these miniature structures can degrade device performance. In fact, these structures are so tiny and sensitive that etch processes push the boundaries of the basic laws of physics and chemistry. Our Kiyo\n\u00ae\n product family delivers the high-performance capabilities needed to precisely and consistently form these features precisely and with high productivity. Proprietary Hydra technology in Kiyo\n\u00ae\n products improves CD uniformity by correcting for incoming pattern variability, and atomic-scale variability control with production-worthy throughput is achieved with plasma-enhanced ALE capability.\nSyndion\n\u00ae\n Product Family \nPlasma etch processes used to remove single crystal silicon and other materials deep into the wafer are collectively referred to as deep silicon etch. These may be deep trenches for CMOS image sensors, trenches for power and other devices, TSVs for HBM and advanced packaging, and other high aspect ratio features. These are created by etching through multiple materials sequentially, where each new material involves a change in the etch process. The Syndion\n\u00ae\n etch product family is optimized for deep silicon etch, providing the fast process switching with depth and cross-wafer uniformity control required to achieve precision etch results. The systems support both conventional single-step etch and rapidly alternating process, which minimizes damage and delivers precise depth uniformity.\nLam Research Corporation 2023 10-K \n6\nTable of Contents\n \nVersys\n\u00ae\n Metal Product Family\nMetal etch processes play a key role in connecting the individual components that form an IC, such as forming wires and electrical connections. These processes can also be used to drill through metal hardmasks that are used to form the wiring for advanced devices. To enable these critical etch steps, the Versys\n\u00ae\n Metal product family provides high-productivity capability on a flexible platform. Superior CD, profile uniformity, and uniformity control are enabled by a symmetrical chamber design with independent process tuning features.\nClean Processes and Product Families\nClean techniques are used between manufacturing steps to clear away particles, contaminants, residues and other unwanted material that could later lead to defects and to prepare the wafer surface for subsequent processing. Wet processing technologies can be used for wafer cleaning and etch applications. Plasma bevel cleaning is used to enhance die yield by removing unwanted materials from the wafer\u2019s edge that could impact the device area. \nCoronus\n\u00ae\n Product Family\nBevel cleaning removes unwanted masks, residues, and films from the edge of a wafer between manufacturing steps. If not cleaned, these materials become defect sources. For instance, they can flake off and re-deposit on the device area during subsequent processes. Even a single particle that lands on a critical part of a device can ruin the entire chip. By inserting bevel clean processes at strategic points, these potential defect sources can be eliminated and more functional chips produced. By combining the precise control and flexibility of plasma with technology that protects the active die area, the Coronus\n\u00ae\n \nbevel clean family cleans the wafer\u2019s edge to enhance die yield.\n \nThe systems provide active die area protection by using plasma processing with proprietary confinement technology. Applications include post-etch, pre- and post-deposition, pre-lithography, and metal film removal to prevent arcing during plasma etch or deposition steps.\nDV-Prime\n\u00ae\n,\n \nDa Vinci\n\u00ae\n,\n \nEOS\n\u00ae\n, and SP Series Product Families\nWafer cleaning is performed repeatedly during semiconductor device manufacturing and is a critical process that affects product yield and reliability. Unwanted microscopic materials - some no bigger than the tiny structures themselves - need to be cleaned effectively. At the same time, these processes must selectively remove residues that are chemically similar to the device films. For advanced WLP, the wet clean steps used between processes that form the package and external wiring have surprisingly complex requirements. These processes are called on to completely remove specific materials and leave other fragile structures undisturbed. In IoT products that include power devices, MEMS and image sensors, there is a unique requirement for wafer backside wet etch to uniformly thin the silicon wafer while protecting the device side of the wafer.\nBased on our pioneering single-wafer spin technology, the DV-Prime\n\u00ae\n and Da Vinci\n\u00ae\n products provide the process flexibility needed with high productivity to address a wide range of wafer cleaning steps throughout the manufacturing process flow. As the latest of Lam\u2019s wet clean products, EOS\n\u00ae\n delivers exceptionally low on-wafer defectivity and high throughput to address progressively demanding wafer cleaning applications. With a broad range of process capability, our SP Series products deliver cost-efficient, production-proven wet clean and silicon wet etch solutions for challenging WLP and IoT applications. \nFiscal Periods Presented\nAll references to fiscal years apply to our fiscal years, which ended June\u00a025, 2023, June\u00a026, 2022, and June\u00a027, 2021.\nResearch and Development\nThe market for semiconductor capital equipment is characterized by rapid technological change and product innovation. Our ability to achieve and maintain our competitive advantage depends in part on our continued and timely development of new products and enhancements to existing products. Accordingly, we devote a significant portion of our personnel and financial resources to research and development (\u201cR&D\u201d) programs and seek to maintain close and responsive relationships with our customers and suppliers.\nWe believe current challenges for customers at various points in the semiconductor manufacturing process present opportunities for us. We expect to continue to make substantial investments in R&D to meet our customers\u2019 product needs, support our growth strategy and enhance our competitive position.\nMarketing, Sales, and Service\nOur marketing, sales, and service efforts are focused on building long-term relationships with our customers and targeting product and service solutions designed to meet their needs. These efforts are supported by a team of product marketing and sales professionals as well as equipment and process engineers who work closely with individual customers to develop solutions for their wafer processing needs. We maintain ongoing service relationships with our customers and have an extensive network of service engineers in place throughout the United States, China, Europe, India, Japan, Korea, Southeast Asia, and Taiwan. We believe that comprehensive support programs and close working relationships with customers are essential to maintaining high customer satisfaction and our competitiveness in the marketplace.\nLam Research Corporation 2023 10-K \n7\nTable of Contents\n \nWe provide standard warranties for our systems. The warranty provides that systems will be free from defects in material and workmanship and will conform to agreed-upon specifications. The warranty is limited to repair of the defect or replacement with new or like-new equivalent goods and is valid when the buyer provides prompt notification within the warranty period of the claimed defect or non-conformity and also makes the items available for inspection and repair. We also offer extended warranty packages to our customers to purchase as desired.\nInternational Sales\nA significant portion of our sales and operations occur outside the United States (\u201cU.S.\u201d) and, therefore, may be subject to certain risks, including but not limited to compliance with U.S. and international laws and regulations, including U.S. export restrictions; tariffs and other barriers; difficulties in staffing and managing non-U.S. operations; adverse tax consequences; foreign currency exchange rate fluctuations; changes in currency controls; and economic and political conditions. Any of these factors may have a material adverse effect on our business, financial position, and results of operations and cash flows. For geographical reporting, revenue is attributed to the geographic location in which the customers\u2019 facilities are located. Refer to \nNote 20\n of our Consolidated Financial Statements, included in Part II, Item 8 of this 2023 Form 10-K, for the attribution of revenue by geographic region. \nLong-lived Assets\nRefer to \nNote 20\n of our Consolidated Financial Statements, included in Part II, Item\u00a08 of this 2023 Form 10-K, for information concerning the geographic locations of long-lived assets.\nCustomers\nOur customers include many of the world\u2019s leading semiconductor manufacturers. Customers continue to establish joint ventures, alliances, and licensing arrangements which have the potential to positively or negatively impact our competitive position and market opportunities. Refer to \nNote 9\n of our Consolidated Financial Statements, included in Part II, Item\u00a08 of this report, for information concerning customer concentrations. Our most significant customers during the fiscal years ending June\u00a025, 2023, June\u00a026, 2022, and June\u00a027, 2021 included Intel Corporation; Kioxia Corporation; Micron Technology, Inc.; Samsung Electronics Company, Ltd.; and Taiwan Semiconductor Manufacturing Company. Additionally, SK hynix Inc, and Yangtze Memory Technologies Co., Ltd. were significant customers during the fiscal years ending June\u00a026, 2022, and June\u00a027, 2021.\nA material reduction in orders from our customers could adversely affect our results of operations and projected financial condition. Our business depends upon the expenditures of semiconductor manufacturers. Semiconductor manufacturers\u2019 businesses, in turn, depend on many factors, including their economic capability, the current and anticipated market demand for ICs, and the availability of equipment capacity to support that demand.\nManufacturing\nOur manufacturing operations mainly consist of assembling and testing components, sub-assemblies, and modules that are then integrated into finished systems prior to shipment to or at the location of our customers. The assembly and testing of our products is conducted predominately in cleanroom environments. \nWe have agreements with third parties to outsource certain aspects of our manufacturing, production warehousing, and logistics functions. These outsourcing contracts may provide us more flexibility to scale our operations up or down in a timely and cost-effective manner. We believe that we have selected reputable providers and have secured their performance on terms documented in written contracts. However, it is possible that one or more of these providers could fail to perform as we expect, and such failure could have an adverse impact on our business and have a negative effect on our operating results and financial condition. Overall, we believe we have effective mechanisms to manage risks associated with our outsourcing relationships. Refer to \nNote 17\n of our Consolidated Financial Statements, included in Part II, Item\u00a08 of this report, for further information concerning our outsourcing commitments, reported as a component of purchase obligations.\nCertain components and sub-assemblies that we include in our products may only be obtained from a single supplier. In response to supply chain constraints, we are engaged in efforts to obtain and qualify alternative sources to supply these products and in some circumstances protect against potential supply challenges by carrying inventory in excess of current need. Any prolonged inability to obtain these components could have an adverse effect on our operating results and could unfavorably impact our customer relationships.\nCompliance with Government Regulations\nAs a public company with global operations, we are subject to a variety of governmental regulations across multiple jurisdictions, including those related to export controls, financial and other disclosures, corporate governance, anti-trust, intellectual property, privacy, anti-bribery, anti-corruption, anti-boycott, tax, labor, health and safety, conflict minerals, human trafficking, the management of hazardous materials, and carbon emissions, among others. Each of these regulations imposes costs on our business and has the potential to divert our management\u2019s time and attention from revenue-generating and other profit maximizing activities to those associated with compliance. Efforts to comply with new and changing regulations have resulted in, and are likely to continue to result in, decreased net income and increased capital expenditures. If we are alleged or found by a court or regulatory agency not to be in compliance with regulations, we may be subject to fines, restrictions on our actions, reputational damage, and harm to our \nLam Research Corporation 2023 10-K \n8\nTable of Contents\n \ncompetitive position, and our business, financial condition, and/or results of operations could be adversely affected. For additional details, please refer to \u201cLegal, Regulatory and Tax Risks \u2013 We Are Exposed to Various Risks from Our Regulatory Environment\u201d in \nItem 1A: Risk Factors\n.\nRegulations that impact trade, including tariffs, export controls, taxes, trade barriers, sanctions, the termination or modification of trade agreements, trade zones, and other duty mitigation initiatives, have the potential to increase our manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial conditions. For additional details regarding the impacts of compliance with trade laws and regulations, please refer to \u201cBusiness and Operational Risks \u2013 Our Future Success Depends Heavily on International Sales and the Management of Global Operations\u201d and \u201cLegal, Regulatory and Tax Risks \u2013 Our Sales to Customers in China, a Significant Region for Us, Have Been Impacted, and are Likely to be Materially and Adversely Affected by Export License Requirements and Other Regulatory Changes, or Other Governmental Actions in the Course of the Trade Relationship Between the U.S. and China\u201d in \nItem 1A: Risk Factors\n. \nWe are subject to income, transaction, and other taxes in the United States and various foreign jurisdictions that impact our tax rate and profitability. For additional details regarding the impacts of compliance with tax laws and regulations, please refer to \u201cLegal, Regulatory and Tax Risks \u2013 Our Financial Results May Be Adversely Impacted by Higher than Expected Tax Rates or Exposure to Additional Tax Liabilities\u201d in \nItem 1A: Risk Factors\n.\nAn important element of our management strategy is to review acquisition prospects that would complement our existing products, augment our market coverage and distribution ability, enhance our technological capabilities, or accomplish other strategic objectives. However, for regulatory reasons, we may not be successful in our attempts to acquire or dispose of businesses, products, or technologies. For additional details regarding the impacts of regulations on acquisitions or dispositions we may attempt, please refer to \u201cBusiness and Operational Risks \u2013 If We Choose to Acquire or Dispose of Businesses, Product Lines, and Technologies, We May Encounter Unforeseen Costs and Difficulties That Could Impair Our Financial Performance\u201d in \nItem 1A: Risk Factors\n.\nWe are subject to a variety of domestic and international governmental regulations related to the handling, discharge, and disposal of toxic, volatile, or otherwise hazardous chemicals. For additional details regarding the impacts of compliance with environmental laws and regulations, please refer to \u201cLegal, Regulatory and Tax Risks \u2013 A Failure to Comply with Environmental Regulations May Adversely Affect Our Operating Results\u201d in \nItem 1A: Risk Factors\n.\nEnvironmental, Social, and Governance\nWe strive to incorporate environmental, social and governance (\"ESG\") consi\nderations \ninto everything we do \u2013 from our operations and workplace practices, to how we source our materials and design our products. Our ESG report for calendar year 2022 details, among other items, a number of ESG goals. One such goal is to achieve net zero emissions by 2050, which we intend to achieve in part by meeting a number of interim targets related to our environmental impact. There have been no material impacts to capital expenditures or our results of operations associated with this goal, and there are no material cash commitments associated with the goal as of the fiscal year ended June\u00a025, 2023.\nInformation contained on our website or in our annual ESG Report is not incorporated by reference into this or any other report we file with the Securities and Exchange Commission, or the SEC. Refer to \u201cItem 1A. Risk Factors\u201d for a discussion of risks and uncertainties we face related to ESG.\nCompetition\nThe semiconductor capital equipment industry is characterized by rapid change and is highly competitive throughout the world. To compete effectively, we invest significant financial resources targeted to strengthen and enhance our product and services portfolio and to maintain customer service and support locations globally. Semiconductor manufacturers evaluate capital equipment suppliers in many areas, including but not limited to process performance, productivity, defect control, customer support, and overall cost of ownership, which can be affected by many factors such as equipment design, reliability, software advancements, and similar factors. Our ability to succeed in the marketplace depends upon our ability to manufacture and ship products on a timeline that meets our customers\u2019 needs, maintain existing products, and introduce product enhancements and new products that meet customer requirements on a timely basis. In addition, semiconductor manufacturers must make a substantial investment to qualify and integrate new capital equipment into semiconductor production lines. As a result, once a semiconductor manufacturer has selected a particular supplier\u2019s equipment and qualified it for production, the manufacturer generally maintains that selection for that specific production application and technology node as long as the supplier\u2019s products demonstrate performance to specification in the installed base. Accordingly, we may experience difficulty in selling to a given customer if that customer has qualified a competitor\u2019s equipment. We must also continue to meet the expectations of our installed base of customers through the delivery of high-quality and cost-efficient spare parts in the presence of competition from third-party spare parts providers.\nWe face significant competition with all of our products and services. Our primary competitor in the dielectric and metals deposition market is Applied Materials, Inc. For ALD and PECVD, we also compete against ASM International and Wonik IPS. In the etch market, our primary competitors are Applied Materials, Inc.; Hitachi, Ltd.; and Tokyo Electron, Ltd., and our primary competitors in the wet clean market are Screen Holding Co., Ltd.; Semes Co., Ltd.; and Tokyo Electron, Ltd.\nLam Research Corporation 2023 10-K \n9\nTable of Contents\n \nWe face competition from a number of established and emerging companies in the industry. We expect our competitors to continue to improve the design and performance of their current products and processes, to introduce new products and processes with enhanced price/performance characteristics, and to provide more comprehensive offerings of products. If our competitors make acquisitions or enter into strategic relationships with leading semiconductor manufacturers, or other entities, covering products similar to those we sell, our ability to sell our products to those customers could be adversely affected. Strategic investments to encourage local semiconductor manufacturing and supply chain in China could increase competition from domestic equipment manufacturers in China. Additionally, the U.S. Government has enacted a number of export controls regulating the sales of certain technologies to customers in China, which provides an advantage to our international competitors. There can be no assurance that we will continue to compete successfully in the future. \nPatents and Licenses\nOur policy is to seek patents on inventions relating to new or enhanced products and processes developed as part of our ongoing research, engineering, manufacturing, and support activities. We currently hold a number of U.S. and foreign patents and applications covering various aspects of our products and processes. Our patents, which cover material aspects of our past and present core products, have current durations ranging from approximately one to twenty years. We believe that, although the patents we own and may obtain in the future will be of value, they alone will not determine our success. Our success depends principally upon our research and development, engineering, marketing, support, and delivery skills. However, in the absence of patent protection, we may be vulnerable to competitors who attempt to imitate our products, manufacturing techniques, and processes and may be more limited in our ability to exclude competitors than would otherwise be the case. In addition, other companies and inventors may receive patents that contain claims applicable to our products and processes. The sale of products covered by patents of others could require licenses that may not be available on terms acceptable to us, or at all. For further discussion of legal matters, see Item\u00a03, \u201cLegal Proceedings,\u201d of this report.\nHuman Capital \nWe endeavor to be a great place to work globally by investing in a multi-faceted strategy that is rooted in building an inclusive and diverse workplace. To support our employees, we tailor our programs to meet the unique cultural needs and priorities within different regions around the world.\nAs of August\u00a010, 2023, we had approximately 17,200 regular full-time employees, of which over 28% were engaged in research and development. Approximately 45% of our regular full-time employees are located in the United States, 48% in Asia, and 7% in Europe. \nInclusion and Diversity\nTo achieve their full potential, we believe it is important for every employee to feel valued, included, and empowered. We embrace inclusion and diversity (\u201cI&D\u201d) and proactively create opportunities to attract, retain, develop, and reward our employees. I&D is one of our strategic focus areas for the company. The three core pillars of our strategy include fostering inclusion, increasing diversity, and sharing our progress. We employ an executive leader of I&D who is responsible for driving our I&D strategy, building partnerships, and aligning with best practices.\nEmployment, Recruitment and Development \nOur talented people are what makes our success possible. Many of our recruitment efforts are carried out through partnerships with key universities. In fact, many of our senior executives began their careers with us right out of college, demonstrating that programs that recruit university students have the potential to contribute to our leadership pipeline. To tap into the best and brightest students, we prioritize core initiatives including an internship program, campus events, and thesis awards and scholarships. We accelerate employee development, broaden career opportunities, and expand professional networks for employees through our mentorship, coaching, and rotation programs. Additionally, we offer leadership development programs which are designed to scale leadership across our business by guiding managers to motivate, inspire, and lead employees through change. \nEmployee Engagement \nEmployee engagement (i.e. satisfaction) and voice are critical to Lam\u2019s culture. We conduct a global survey at a regular cadence to gather input from employees on culture, I&D, career opportunity, and manager effectiveness. We also solicit employee feedback through in-person and online employee forums, engagement sessions, all-employee meetings, conversations with\nmanagers, and our Human Resource Support and Employee Relations programs.\nTotal Rewards \nOur Total Rewards program incorporates a comprehensive compensation and benefits package aimed at supporting employees\u2019 financial, physical, and mental well-being. We conduct an annual review of salaries and benefits packages using third-party benchmarking surveys to ensure that our offerings are aligned with the marketplace and attractive to top talent. We offer our employees a competitive 401(k) benefit, an employee stock purchase plan, and annual cash bonuses. Stock awards are offered to executives and select employees. \nLam Research Corporation 2023 10-K \n10\nTable of Contents\n \nWe recognize the importance of time away from work for personal reasons, and we offer annual paid holidays and time off. Additionally, we offer paid parental leave benefits for parents welcoming a new child to the family through birth, adoption, or foster care placement. \nEmployee Health and\n \nSafety\nPrioritizing the health, safety, and well-being of our employees is critical to our ongoing success. We invest in education, awareness, monitoring, and prevention programs to help recognize and control safety hazards. Our goal is to apply our environmental health and safety (\u201cEHS\u201d) policies, programs, and response plans to anywhere we operate and to extend them to anyone who works on our sites with the intent to provide a safe environment during both routine and extraordinary circumstances. People managers in field support, manufacturing, R&D, warehouse, and logistics operations undergo formal safety leadership training biannually to enhance their skills in safety management and communication. We screen contractors\u2019 safety performance and require contractor compliance with specified safety standards. \nWe monitor our safety performance at the enterprise, regional, and site levels. By using our global incident tracking system, our corporate EHS team can assess and monitor safety trends to report to business units and executive leadership as a part of quarterly reviews. We maintain multi-site certifications for ISO 45001, the globally recognized standard for occupational health and safety management systems. \nInformation about our Executive Officers\nAs of August\u00a010, 2023, the executive officers of Lam Research were as follows:\nName\nAge\nTitle\nTimothy M. Archer\n56\nPresident and Chief Executive Officer\nDouglas R. Bettinger\n56\nExecutive Vice President and Chief Financial Officer\nPatrick J. Lord\n57\nExecutive Vice President and Chief Operating Officer\nNeil J. Fernandes\n56\nSenior Vice President, Global Customer Operations\nAva M. Hahn\n50\nSenior Vice President, Chief Legal Officer and Secretary\nVahid Vahedi\n57\nSenior Vice President and Chief Technology Officer\nSeshasayee (Sesha) Varadarajan\n48\nSenior Vice President Global Products Group\nTimothy M. Archer has been our president and chief executive officer since December 2018. Prior to this, he served as our president and chief operating officer, from January 2018 to November 2018. Mr. Archer joined us in June 2012 as our executive vice president, chief operating officer.\u00a0Prior to joining us, he spent 18 years at Novellus Systems, Inc., (\u201cNovellus\u201d) in various technology development and business leadership roles, including most recently as chief operating officer from January 2011 to June 2012; executive vice president of Worldwide Sales, Marketing, and Customer Satisfaction from September 2009 to January 2011; and executive vice president of the PECVD and Electrofill Business Units from November 2008 to September 2009.\u00a0His tenure at Novellus also included assignments as senior director of technology for Novellus Systems Japan from 1999 to 2001 and senior director of technology for the Electrofill Business Unit from April 2001 to April 2002.\u00a0He started his career in 1989 at Tektronix, where he was responsible for process development for high-speed bipolar ICs.\u00a0Mr. Archer currently serves on the International Board of Directors for SEMI, the global industry association representing the electronics manufacturing and design supply chain. From 2020 to 2022, Mr. Archer served as chairman of the board for the National GEM Consortium, a nonprofit organization that is dedicated to increasing the participation of underrepresented groups at the master\u2019s and doctoral levels in engineering and science. Mr.\u00a0Archer completed the Program for Management Development at the Harvard Graduate School of Business and earned a B.S. degree in applied physics from the California Institute of Technology.\nDouglas R. Bettinger is our executive vice president and chief financial officer with responsibility for Finance, Tax, Treasury, and Investor Relations. Prior to joining the Company in 2013, Mr. Bettinger served as senior vice president and chief financial officer of Avago Technologies from 2008 to 2013. From 2007 to 2008, he served as vice president of Finance and corporate controller at Xilinx, Inc., and from 2004 to 2007, he was chief financial officer at 24/7 Customer, a privately held company.\u00a0Mr. Bettinger worked at Intel Corporation from 1993 to 2004, where he held several senior-level finance positions, including corporate planning and reporting controller and Malaysia site operations controller. Mr. Bettinger currently serves on the Board of Directors of Lattice Semiconductor Corporation, the SEMI Board of Industry Leaders, and the Industrial Advisory Board of the University of Wisconsin School of Engineering.\u00a0Mr. Bettinger earned an M.B.A. degree in finance from the University of Michigan and a B.S. degree in economics from the University of Wisconsin in Madison. \nPatrick J. Lord is our executive vice president and chief operating officer, a position he has held since March 2023. In this role, Dr. Lord is responsible for several functions including, Global Operations; Customer Support; Global Quality; Environmental Health and Safety; Information Technology; and Global Resilience, Security, and Transformation. Dr. Lord previously served as executive vice president of CSBG and Global Operations from September 2020 to February 2023; and senior vice president and general manager of CSBG from December 2016 to September 2020. Prior to that, Dr. Lord held the position of group vice president and deputy general manager of the Global Products Group from September 2013 to December 2016. He served as the head of the Direct Metals, GapFill, Surface Integrity Group, and Integrated Metals (\u201cDGSI\u201d) Business Units between June 2012 and September 2013. Prior to \nLam Research Corporation 2023 10-K \n11\nTable of Contents\n \nour acquisition of Novellus in June 2012, Dr. Lord was senior vice president and general manager of the DGSI Business Units at Novellus. Additionally, Dr. Lord held the position of senior vice president of Business Development and Strategic Planning. He joined Novellus in 2001 and held a number of other positions, including senior vice president and general manager of the CMP Business Unit, senior director of Business Development, senior director of Strategic Marketing, and acting vice president of Corporate Marketing. Before joining Novellus, Dr. Lord spent six years at KLA-Tencor in various product marketing and management roles. He earned his Ph.D., M.S., and B.S. degrees in mechanical engineering from the Massachusetts Institute of Technology.\nNeil J. Fernandes is our senior vice president of Global Customer Operations, a position he has held since March 2023. Previously, he was global vice president of business development and sales operations and held other senior sales and customer-focused leadership positions at Lam. He joined the company in 2012 through the acquisition of Novellus, where he was the vice president of sales operations. Prior to that role, he held range of management positions in product marketing and process engineering at Novellus, Gasonics and Watkins-Johnson. Neil earned an M.S. degree in mechanical engineering from the University of Texas at Austin and a B.E. in mechanical engineering from the Manipal Institute of Technology.\nAva M. Hahn is our senior vice president, chief legal officer and secretary. She joined us in January 2020 and is responsible for global legal matters, ethics and compliance, global trade and government affairs. Prior to joining us, Ms. Hahn served as executive vice president, chief compliance officer, general counsel and secretary of CA Technologies, an enterprise software company, from February 2019 to November 2019 (until its acquisition by Broadcom Corp.), general counsel and secretary of Aruba Networks from April 2013 to June 2016 (until its acquisition by Hewlett Packard Enterprise), general counsel and secretary of ShoreTel, Inc. from 2007 to 2013, and general counsel and secretary of Genesis Microchip from 2002 to 2007. Ms. Hahn also served as general counsel of venture capital firms Kleiner Perkins and Felicis Ventures. She started her career at the law firm of Wilson Sonsini Goodrich & Rosati, where she practiced corporate and securities law. Ms. Hahn earned a J.D. from Columbia Law School and a B.A. in history from the University of California at Berkeley.\nVahid Vahedi is our senior vice president and chief technology officer, a position he has held since March 2023. Dr. Vahedi previously served as senior vice president and general manager of the Etch business unit beginning February 2018; and group vice president of the Etch product group beginning March 2012. Previously, he served as vice president of Etch Business Product Management and Marketing, vice president of Dielectric Etch, vice president of Conductor and 3DIC Etch, and director of Conductor Etch Technology Development. He joined us in 1995. He earned his Ph.D., M.S., and B.S. degrees in electrical engineering and computer science from the University of California at Berkeley.\nSesha Varadarajan is our senior vice president of the Global Products Group, a position he has held since March 2023. Mr. Varadarajan previously served as senior vice president and general manager of the Deposition Business Unit beginning February 2018; and group vice president of the Deposition product group beginning September 2013. Previously, he served as the head of the PECVD/Electrofill Business Unit between June 2012 and September 2013. Prior to our acquisition of Novellus in June 2012, Mr. Varadarajan was senior vice president and general manager of Novellus\u2019 PECVD and Electrofill Business Units. He joined Novellus in 1999 as a process engineer with the Electrofill Business Unit and held various roles in that business unit before being appointed director of technology in 2004. Between 2006 and 2008, he worked in the PECVD Business Unit, initially as director of technology, until being promoted to product general manager. In 2009, he returned to the Electrofill Business Unit as vice president and general manager. In mid-2011, he was promoted to senior vice president and general manager, where he was also responsible for the PECVD Business Unit. Mr. Varadarajan earned an M.S. degree in manufacturing engineering and material science from Boston University and a B.S. degree in mechanical engineering from the University of Mysore.",
+  "item1a": ">Item\u00a01A. \u00a0\u00a0\u00a0\u00a0\nRisk Factors\nIn addition to the other information in this Annual Report on Form 10-K (\u201c2023 Form 10-K\u201d), the following risk factors should be carefully considered in evaluating us and our business because such factors may significantly impact our business, operating results, and financial condition. As a result of these risk factors, as well as other risks discussed in our other SEC filings, our actual results could differ materially from those projected in any forward-looking statements. No priority or significance is intended by, nor should be attached to, the order in which the risk factors appear.\nINDUSTRY AND CUSTOMER RISKS\nThe Semiconductor Capital Equipment Industry Is Subject to Variability and Periods of Rapid Growth or Decline; We Therefore Face Risks Related to Our Strategic Resource Allocation Decisions\nThe semiconductor capital equipment industry has historically been characterized by rapid changes in demand. Variability in our customers\u2019 business plans may lead to changes in demand for our equipment and services, which could negatively impact our results. The variability in our customers\u2019 investments during any particular period is dependent on several factors, including but not limited to electronics demand, economic conditions (both general and in the semiconductor and electronics industries), industry supply and demand, prices for semiconductors, and our customers\u2019 ability to develop and manufacture increasingly complex and costly semiconductor devices. The changes in demand may require our management to adjust spending and other resources allocated to operating activities.\nLam Research Corporation 2023 10-K \n12\nTable of Contents\n \nDuring periods of rapid growth or decline in demand for our products and services, we face significant challenges in maintaining adequate financial and business controls, management processes, information systems, and procedures for training, assimilating, and managing our workforce, and in appropriately sizing our supply chain infrastructure and facilities, work force, and other components of our business on a timely basis. If we do not adequately meet these challenges during periods of increasing or declining demand, our gross margins and earnings may be negatively impacted. \nWe continuously reassess our strategic resource allocation choices in response to the changing business environment. If we do not adequately adapt to the changing business environment, we may lack the infrastructure and resources to scale up our business to meet customer expectations and compete successfully during a period of growth, or we may expand our capacity and resources too rapidly and/or beyond what is appropriate for the actual demand environment, resulting in excess fixed costs.\nEspecially during transitional periods, resource allocation decisions can have a significant impact on our future performance, particularly if we have not accurately anticipated industry changes. Our success will depend, to a significant extent, on the ability of our executive officers and other members of our senior management to identify and respond to these challenges effectively.\nFuture Declines in the Semiconductor Industry, and the Overall World Economic Conditions on Which It Is Significantly Dependent, Could Have a Material Adverse Impact on Our Results of Operations and Financial Condition\nOur business depends on the capital equipment expenditures of semiconductor manufacturers, which in turn depend on the current and anticipated market demand for integrated circuits. With the consolidation of customers within the industry, the semiconductor capital equipment market may experience rapid changes in demand driven both by changes in the market generally and the plans and requirements of particular customers. The economic, regulatory, political, and business conditions occurring nationally, globally, or in any of our key sales regions, which are often unpredictable, have historically impacted customer demand for our products and normal commercial relationships with our customers, suppliers, and creditors. Additionally, in times of economic uncertainty, our customers\u2019 budgets for our products, or their ability to access credit to purchase them, could be adversely affected. This would limit their ability to purchase our products and services. As a result, changing economic, regulatory, political or business conditions can cause material adverse changes to our results of operations and financial condition, including but not limited to:\u00a0\n\u2022\na decline in demand for our products or services;\n\u2022\nan increase in reserves on accounts receivable due to our customers\u2019 inability to pay us;\n\u2022\nan increase in reserves on inventory balances due to excess or obsolete inventory as a result of our inability to sell such inventory;\n\u2022\nvaluation allowances on deferred tax assets;\n\u2022\nrestructuring charges;\n\u2022\nasset impairments including the potential impairment of goodwill and other intangible assets;\n\u2022\na decline in the value of our investments;\n\u2022\nexposure to claims from our suppliers for payment on inventory that is ordered in anticipation of customer purchases that do not come to fruition;\n\u2022\na decline in the value of certain facilities we lease to less than our residual value guarantee with the lessor; and\n\u2022\nchallenges maintaining reliable and uninterrupted sources of supply.\nFluctuating levels of investment by semiconductor manufacturers may materially affect our aggregate shipments, revenues, operating results, and earnings. Where appropriate, we will attempt to respond to these fluctuations with cost management programs aimed at aligning our expenditures with anticipated revenue streams, which sometimes result in restructuring charges. Even during periods of reduced revenues, we must continue to invest in R&D and maintain extensive ongoing worldwide customer service and support capabilities to remain competitive, which may temporarily harm our profitability and other financial results.\nWe Have a Limited Number of Key Customers\nSales to a limited number of large customers constitute a significant portion of our overall revenue, shipments, cash flows, collections, and profitability. As a result, the actions of even one customer may subject us to variability in those areas that is difficult to predict. In addition, large customers may be able to negotiate requirements that result in decreased pricing, increased costs, and/or lower margins for us and limitations on our ability to share technology with others. Similarly, significant portions of our credit risk may, at any given time, be concentrated among a limited number of customers so that the failure of even one of these key customers to pay its obligations to us could significantly impact our financial results.\nWe Face a Challenging and Complex Competitive Environment\nWe face significant competition from multiple competitors, and with increased consolidation efforts in our industry, as well as the emergence and strengthening of new, regional competitors, we may face increasing competitive pressures. Other companies continue to develop systems and/or acquire businesses and products that are competitive to ours and may introduce new products and product capabilities that may affect our ability to sell and support our existing products. We face a greater risk if our competitors enter into strategic relationships with leading semiconductor manufacturers covering products similar to those we sell or may develop, as this could adversely affect our ability to sell products to those manufacturers.\nLam Research Corporation 2023 10-K \n13\nTable of Contents\n \nWe believe that to remain competitive we must devote significant financial resources to offer products that meet our customers\u2019 needs, to maintain customer service and support centers worldwide, and to invest in product and process R&D. Technological changes and developing technologies have required, and are expected to continue to require, new and costly investments. Certain of our competitors, including those that are created and financially backed by foreign governments, have substantially greater financial resources and more extensive engineering, manufacturing, marketing, and customer service and support resources than we do and therefore have the potential to offer customers a more comprehensive array of products and/or product capabilities and to therefore achieve additional relative success in the semiconductor equipment industry. These competitors may deeply discount or give away products similar to those that we sell, challenging or even exceeding our ability to make similar accommodations and threatening our ability to sell those products. We also face competition from our own customers, who in some instances have established affiliated entities that manufacture equipment similar to ours. In addition, we face competition from companies that exist in a more favorable legal or regulatory environment than we do, who are able to sell products for certain applications at certain customers that we are prohibited from selling to under applicable export controls, allowing the freedom of action in ways that we may be unable to match. In many cases speed to solution is necessary for customer satisfaction and our competitors may be better positioned to achieve these objectives. For these reasons, we may fail to continue to compete successfully worldwide.\nIn addition, our competitors may be able to develop products comparable or superior to those we offer or may adapt more quickly to new technologies or evolving customer requirements. In particular, while we continue to develop product enhancements that we believe will address future customer requirements, we may fail in a timely manner to complete the development or introduction of these additional product enhancements successfully, or these product enhancements may not achieve market acceptance or be competitive. Accordingly, competition may intensify, and we may be unable to continue to compete successfully in our markets, which could have a material adverse effect on our revenues, operating results, financial condition, and/or cash flows.\nOnce a Semiconductor Manufacturer Commits to Purchase a Competitor\u2019s Semiconductor Manufacturing Equipment, the Manufacturer Typically Continues to Purchase That Competitor\u2019s Equipment, Making It More Difficult for Us to Sell Our Equipment to That Customer\nSemiconductor manufacturers must make a substantial investment to qualify and integrate wafer processing equipment into a semiconductor production line. We believe that once a semiconductor manufacturer selects a particular supplier\u2019s processing equipment, the manufacturer generally relies upon that equipment for that specific production line application for an extended period of time, especially for customers that are more focused on tool reuse. Accordingly, we expect it to be more difficult to sell our products to a given customer for a product line application if that customer initially selects a competitor\u2019s equipment for the same product line application.\nWe Depend on Creating New Products and Processes and Enhancing Existing Products and Processes for Our Success; Consequently, We Are Subject to Risks Associated with Rapid Technological Change\nRapid technological changes in semiconductor manufacturing processes subject us to increased pressure to develop technological advances that enable those processes. We believe that our future success depends in part upon our ability to develop and offer new products with improved capabilities and to continue to enhance our existing products. If new products or existing products have reliability, quality, design, or safety problems, our performance may be impacted by reduced orders, higher manufacturing costs, delays in acceptance of and payment for new products, and additional service and warranty expenses. We may be unable to develop and manufacture products successfully, or products that we introduce may fail in the marketplace. For more than 25 years, the primary driver of technology advancement in the semiconductor industry has been to shrink the lithography that prints the circuit design on semiconductor chips. That driver could be approaching its technological limit, leading semiconductor manufacturers to investigate more complex changes in multiple technologies in an effort to continue technology development. In addition, the emergence of \u201cbig data\u201d and new tools such as machine learning and artificial intelligence that capitalize on the availability of large data sets is leading semiconductor manufacturers and equipment manufacturers to pursue new products and approaches that exploit those tools to advance technology development. In the face of uncertainty on which technology solutions will become successful, we will need to focus our efforts on developing the technology changes that are ultimately successful in supporting our customers\u2019 requirements. Our failure to develop and offer the correct technology solutions in a timely manner with productive and cost-effective products could adversely affect our business in a material way. Our failure to commercialize new products in a timely manner could result in loss of market share, unanticipated costs, and inventory obsolescence, which would adversely affect our financial results.\nIn order to develop new products and processes and enhance existing products and processes, we expect to continue to make significant investments in R&D, to investigate the acquisition of new products and technologies, to invest in or acquire such businesses or technologies, and to pursue joint development relationships with customers, suppliers, or other members of the industry. Our investments and acquisitions may not be as successful as we may expect, particularly in the event that we invest in or acquire product lines and technologies that are new to us. We may find that acquisitions are not available to us, for regulatory or other reasons, and that we must therefore limit ourselves to collaboration and joint venture development activities, which do not have the same benefits as acquisitions. Pursuing development through collaboration and/or joint development activities rather than through an acquisition poses substantial challenges for management, including those related to aligning business objectives; sharing confidential information, intellectual property and data; sharing value with third parties; and realizing synergies that might have been available in an acquisition but are not available through a joint development project. We must manage product transitions and joint development relationships successfully, as the introduction of new products could adversely affect our sales of existing products and certain jointly developed technologies may be subject to restrictions on our ability to share that technology with other customers, which could limit our market for products incorporating those technologies. Future technologies, processes, or product developments \nLam Research Corporation 2023 10-K \n14\nTable of Contents\n \nmay render our current product offerings obsolete, leaving us with non-competitive products, obsolete inventory, or both. Moreover, customers may adopt new technologies or processes to address the complex challenges associated with next-generation devices. This shift may result in a reduction in the size of our addressable markets or could increase the relative size of markets in which we either do not compete or have relatively low market share.\nStrategic Alliances and Customer Consolidation May Have Negative Effects on Our Business\nSemiconductor manufacturing companies from time to time enter into strategic alliances or consolidate with one another to expedite the development of processes and other manufacturing technologies and/or achieve economies of scale. The outcomes of such an alliance can be the definition of a particular tool set for a certain function and/or the standardization of a series of process steps that use a specific set of manufacturing equipment, while the outcomes of consolidation can lead to an overall reduction in the market for semiconductor manufacturing equipment as customers\u2019 operations achieve economies of scale and/or increased purchasing power based on their higher volumes. In certain instances, this could work to our disadvantage if a competitor\u2019s tools or equipment become the standard equipment for such functions or processes. Additional outcomes of such consolidation may include our customers re-evaluating their future supplier relationships to consider our competitors\u2019 products and/or gaining additional influence over the pricing of products and the control of intellectual property or data.\nSimilarly, our customers may partner with, or follow the lead of, educational or research institutions that establish processes for accomplishing various tasks or manufacturing steps. If those institutions utilize a competitor\u2019s equipment when they establish those processes, it is likely that customers will tend to use the same equipment in setting up their own manufacturing lines. Even if they select our equipment, the institutions and the customers that follow their lead could impose conditions on acceptance of that equipment, such as adherence to standards and requirements or limitations on how we license our proprietary rights, that increase our costs or require us to take on greater risk. These actions could adversely impact our market share and financial results.\nBUSINESS AND OPERATIONAL RISKS\nOur Revenues and Operating Results Are Variable\nOur revenues and operating results may fluctuate significantly from quarter to quarter or year to year due to a number of factors, not all of which are in our control. We manage our expense levels based in part on our expectations of future revenues. Because our operating expenses are based in part on anticipated future revenues, and a certain amount of those expenses are relatively fixed, a change in the timing of recognition of revenue and/or the level of gross profit from a small number of transactions can unfavorably affect operating results in a particular quarter or year. Factors that may cause our financial results to fluctuate unpredictably include but are not limited to:\u00a0\n\u2022\nlegal, tax, accounting, or regulatory changes (including but not limited to changes in import/export regulations and tariffs, such as regulations imposed by the U.S. government restricting exports to China) or changes in the interpretation or enforcement of existing requirements;\n\u2022\nmacroeconomic, industry, and market conditions, including those caused by the Russian invasion of Ukraine or bank failures, and geopolitical issues;\n\u2022\nchanges in average selling prices, customer mix, and product mix;\n\u2022\nforeign currency exchange rate fluctuations;\n\u2022\neconomic conditions in the electronics and semiconductor industries in general and specifically the semiconductor equipment industry;\n\u2022\nthe size and timing of orders from customers;\n\u2022\nchanges in our deferred revenue balance, including as a result of factors such as volume purchase agreements, multi-year service contracts, back orders, and down payments toward purchases; \n\u2022\nconsolidation of the customer base, which may result in the investment decisions of one customer or market having a significant effect on demand for our products or services;\n\u2022\nprocurement shortages;\n\u2022\nthe failure of our suppliers or outsource providers to perform their obligations in a manner consistent with our expectations;\n\u2022\nmanufacturing difficulties;\n\u2022\ncustomer cancellations or delays in shipments, installations, customer payments, and/or customer acceptances;\n\u2022\nthe extent that customers continue to purchase and use our products and services in their business;\n\u2022\nour customers\u2019 reuse of existing and installed products, to the extent that such reuse decreases their need to purchase new products or services;\n\u2022\nour ability to develop, introduce, and market new, enhanced, and competitive products in a timely manner;\n\u2022\nour competitors\u2019 introduction of new products;\n\u2022\nlegal or technical challenges to our products and technologies;\n\u2022\ntransportation, communication, demand, information technology, or supply disruptions based on factors outside our control, such as strikes, acts of God, wars, terrorist activities, widespread outbreak of illness, natural or man-made disasters, or climate change;\n\u2022\nmanagement of supply chain risks;\n\u2022\nrising inflation or interest rates; and\n\u2022\nchanges in our estimated effective tax rate.\nLam Research Corporation 2023 10-K \n15\nTable of Contents\n \nOur Future Success Depends Heavily on International Sales and the Management of Global Operations \nNon-U.S. sales, as reflected in Part II Item 7. Results of Operations of this 2023 Form 10-K, accounted for approximately 91%, 92%, and 94% of total revenue in fiscal years 2023, 2022, and 2021, respectively. We expect that international sales will continue to account for a substantial majority of our total revenue in future years.\nWe are subject to various challenges related to international sales and the management of global operations including, but not limited to:\n\u2022\ndomestic and international trade regulations, policies, practices, relations, disputes and issues;\n\u2022\ndomestic and international tariffs, export controls and other barriers;\n\u2022\ndeveloping customers and/or suppliers, who may have limited access to capital resources;\n\u2022\nglobal or national economic and political conditions;\n\u2022\nchanges in currency controls;\n\u2022\ndifferences in the enforcement of intellectual property and contract rights in varying jurisdictions;\n\u2022\nour ability to respond to customer and foreign government demands for locally sourced systems, spare parts, and services and develop the necessary relationships with local suppliers;\n\u2022\nchanges in and compliance with U.S. and international laws and regulations affecting foreign operations, including U.S. and international trade restrictions and sanctions, anti-bribery, anti-corruption, anti-boycott, environmental, tax, and labor laws;\n\u2022\nfluctuations in interest and foreign currency exchange rates;\n\u2022\nthe need for technical support resources in different locations; and\n\u2022\nour ability to secure and retain qualified people, and effectively manage people, in all necessary locations for the successful operation of our business.\nThere is inherent risk, based on the complex relationships among China, Japan, Korea, Taiwan, and the United States, that political, diplomatic and national security influences can lead to trade disputes, impacts and/or disruptions, in particular those affecting the semiconductor industry. This can adversely affect our business with China, Japan, Korea, and/or Taiwan and perhaps the entire Asia Pacific region or global economy. A significant trade dispute, impact and/or disruption in any area where we do business could have a materially adverse impact on our future revenue and profits. \nTariffs, export controls, additional taxes, trade barriers, sanctions, the termination or modification of trade agreements, trade zones, and other duty mitigation initiatives, and any reciprocal retaliatory actions, can increase our manufacturing costs, decrease margins, reduce the competitiveness of our products, disrupt our supply chain operations, or inhibit our ability to sell products or provide services, which has had and in the future could have a material adverse effect on our business, results of operations, or financial conditions. Certain of our international sales depend on our ability to obtain export licenses from the U.S. or foreign governments, and our inability to obtain such licenses, or an expansion of the number or kinds of sales for which export licenses are required, has limited and could in the future further limit the market for our products and has had and could in the future have an adverse impact on our revenues. As is discussed below under the heading \u201cOur Sales to Customers in China, a Significant Region for Us, Have Been Impacted, and are Likely to Be Materially and Adversely Affected by Export License Requirements and Other Regulatory Changes, or Other Governmental Actions in the Course of the Trade Relationship Between the U.S. and China,\u201d the U.S. government has recently imposed new controls, including expanded export license requirements, that significantly impact trade with China. In addition, the U.S. government has an ongoing process of assessing technologies that may be subject to new or additional export controls, and it is possible that such additional controls, if and when imposed, could further adversely impact our ability to sell our products outside the U.S. The implementation by the U.S. government of broad export controls restricting access to our technology (such as recent controls limiting exports to China) may cause customers with international operations to reconsider their use of and reliance on our products, which could adversely impact our future revenue and profits. Furthermore, there are risks that foreign governments may, among other things, take retaliatory actions; insist on the use of local suppliers; compel companies to partner with local companies to design and supply equipment on a local basis, requiring the transfer of intellectual property rights and/or local manufacturing; utilize their influence over their judicial systems to respond to intellectual property disputes or issues; and provide special incentives to government-backed local customers to buy from local competitors, even if their products are inferior to ours; all of which could adversely impact our revenues and margins.\nWe are exposed to potentially adverse movements in foreign currency exchange rates. The majority of our sales and expenses are denominated in U.S. dollars. However, we are exposed to foreign currency exchange rate fluctuations primarily related to revenues denominated in Japanese yen and expenses denominated in euro, Korean won, Malaysian ringgit, and Indian rupee. Further, in periods in which the U.S. dollar is strong relative to the local currencies of our international customers, this can potentially reduce demand for our products, which may compound the adverse effect of foreign exchange translation on our revenue. Currently, we hedge certain anticipated foreign currency cash flows, primarily anticipated revenues denominated in Japanese yen and expenses dominated in euro, Korean won, Malaysian ringgit, and Indian rupee. In addition, we enter into foreign currency hedge contracts to minimize the short-term impact of the foreign currency exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily third-party accounts receivables, accounts payables, and intercompany receivables and payables. We believe these are our primary exposures to currency rate fluctuation. We expect to continue to enter into hedging transactions, for the purposes outlined, for the foreseeable future. However, these hedging transactions may not achieve their desired effect because differences between the actual timing of the underlying exposures and our forecasts of those exposures may leave us either over or under hedged on any given transaction. Moreover, by hedging these foreign currency denominated revenues, expenses, monetary \nLam Research Corporation 2023 10-K \n16\nTable of Contents\n \nassets, and liabilities, we may miss favorable currency trends that would have been advantageous to us but for the hedges. Additionally, we are exposed to short-term foreign currency exchange rate fluctuations on non-U.S. dollar-denominated monetary assets and liabilities (other than those currency exposures previously discussed), and currently we do not enter into foreign currency hedge contracts against these exposures. In addition, our currency hedges do not necessarily mitigate the potential negative impact of a strong U.S. dollar on demand for our products. Therefore, we are subject to potential unfavorable foreign currency exchange rate fluctuations to the extent that we transact business (including intercompany transactions) in these currencies.\nThe magnitude of our overseas business also affects where our cash is generated. Certain uses of cash, such as share repurchases, payment of dividends, or the repayment of our notes, can usually only be made with onshore cash balances. Since the majority of our cash is generated outside of the United States, this may impact certain business decisions and outcomes.\nOur Business Relies on Technology, Data, Intellectual Property and Other Sensitive Information That is Susceptible to Cybersecurity and Other Threats or Incidents\nOur business is dependent upon the use and protection of technology, data, intellectual property and other sensitive information, which may be owned by, or licensed to, us or third parties, such as our customers and vendors. We maintain and rely upon certain critical information systems for the creation, transmission, use and storage of much of this information, and for the effective operation of our business. These information systems include but are not limited to, telecommunications, the Internet, our corporate intranet, various computer hardware and software applications, (some of which may be integrated into the products that we sell or be required in order to provide the services that we offer), network communications, and email. These information systems may be owned and maintained by us, our outsourced providers, or third parties such as vendors, contractors, customers and Cloud providers. In addition, we make use of Software-as-a-Service (SaaS) products for certain important business functions that are provided by third parties and hosted on their own networks and servers, or third-party networks and servers, all of which rely on networks, email and/or the Internet for their function. \nThe technology, data, intellectual property and other sensitive information we seek to protect are subject to loss, release, misappropriation or misuse, and the information systems containing or transmitting such technology, data, intellectual property and other sensitive information are subject to disruption, breach or failure, in each case as a result of various possible causes. Such causes may include mistakes or unauthorized actions by our employees or contractors, phishing schemes and other third-party attacks, and degradation or loss of service or access to data due to viruses, malware, denial of service attacks, destructive or inadequate code, power failures, or physical damage to computers, hard drives, communication lines, or networking equipment. Such causes may also include the use of techniques that change frequently or may be disguised or difficult to detect, or designed to remain dormant until a triggering event, or that may continue undetected for an extended period of time.\nWe have experienced cybersecurity and other threats and incidents in the past. Although past threats and incidents have not resulted in a material adverse effect, we may incur material losses related to cybersecurity and other threats or incidents in the future. If we were subject to a cybersecurity or other incident, it could have a material adverse effect on our business. Such adverse effects might include:\n\u2022\nloss of (or inability to access, e.g. through ransomware) confidential and/or sensitive information stored on these critical information systems or transmitted to or from those systems;\n\u2022\nthe disruption of the proper function of our products, services and/or operations;\n\u2022\nthe failure of our or our customers\u2019 manufacturing processes;\n\u2022\nerrors in the output of our work or our customers\u2019 work;\n\u2022\nthe loss or public exposure of the personal or other confidential information of our employees, customers or other parties;\n\u2022\nthe public release of customer financial and business plans, customer orders and operational results;\n\u2022\nexposure to claims from our employees or third parties who are adversely impacted by such incidents; \n\u2022\nmisappropriation or theft of our or a customer\u2019s, supplier\u2019s or other party\u2019s assets or resources, including technology data, intellectual property or other sensitive information and costs associated therewith;\n\u2022\nreputational damage;\n\u2022\ndiminution in the value of our investment in research, development and engineering; or\n\u2022\nour failure to meet, or violation of, regulatory or other legal obligations, such as the timely publication or filing of financial statements, tax information and other required communications.\nWhile we have implemented ISO 27001 compliant security procedures and virus protection software, intrusion prevention systems, identity and access control, and emergency recovery processes, and we carefully select our third-party providers of information systems, to mitigate risks to the information systems that we rely on and to the technology, data, intellectual property and other sensitive information we seek to protect, those security procedures and mitigation and protection systems cannot be guaranteed to be fail-safe, and we may still suffer cybersecurity and other incidents. It has been difficult and may continue to be difficult to hire and retain employees with substantial cybersecurity acumen. In addition, there have been and may continue to be instances of our policies and procedures not being effective in enabling us to identify risks, threats and incidents in a timely manner, or at all, or to respond expediently, appropriately and effectively when incidents occur and repair any damage caused by such incidents, and such occurrences could have a material adverse effect on our business.\nLam Research Corporation 2023 10-K \n17\nTable of Contents\n \nWe May Not Achieve the Expected Benefits of Our Restructuring Plans and Business Transformation Initiatives, and These Efforts Could Have a Material Adverse Effect on Our Business, Operations, Financial Condition, Results of Operations and Competitive Position\nIn January 2023 we announced that we are implementing a restructuring plan consisting of a workforce reduction, and that we anticipate undertaking, and may in the future undertake, additional business restructuring, realignment and transformation initiatives. We expect to incur material costs and charges in connection with these plans and initiatives. While the restructuring plan is intended to better align our cost structure with the current economic environment and future business opportunities, and our anticipated transformation initiatives have the goal of strengthening our operations and achieving operational efficiencies, there can be no assurance that we will be successful in these plans and initiatives. Implementation of these plans and initiatives may be costly and disruptive to our business, we may not be able to complete them at the cost or within the time frame contemplated, and we may not be able to obtain the anticipated benefits within the projected timing or at all. Restructuring and transformation may adversely affect our internal programs and our ability to recruit and retain skilled and motivated personnel, may result in a loss of continuity, loss of accumulated knowledge and/or inefficiency during transitional periods, may require a significant amount of management and other employees' time and focus, and may be distracting to employees and management, which may divert attention from operating and growing our business. Additionally, reductions in our workforce may cause a reduction in our production output capabilities which could impact our ability to manufacture or ship products to customers within a mutually beneficial timeline. If we fail to achieve some or all of the expected benefits, it could have a material adverse effect on our business, operations, financial condition, results of operations and competitive position. For more information about our restructuring plan, see Note 22 of our Consolidated Financial Statements in Part II, Item 8 of this 2023 Form 10-K.\nDisruptions to Our Supply Chain and Outsource Providers Could Impact Our Ability to Meet Demand, Increase Our Costs, and Adversely Impact Our Revenue and Operating Results\nOur supply chain has played and will continue to play a key role in our product development, manufacturing operations, field installation and support. Our business depends on our timely supply of products and services to meet the demand from our customers, which depends in significant part on the timely delivery of parts, materials and services, including components and subassemblies, from our direct suppliers to us, and to our direct suppliers by other companies. In addition, outsource providers have played and will continue to play a key role both in the manufacturing and customer-focused operations described above, and in many of our transactional and administrative functions, such as information technology, facilities management, and certain elements of our finance organization. These providers and suppliers might suffer financial setbacks, be acquired by third parties, become subject to exclusivity arrangements that preclude further business with us, or be unable to meet our requirements or expectation due to their independent business decisions or force majeure events that could interrupt or impair their continued ability to perform as we expect. We may also experience significant interruptions of our manufacturing operations, delays in our ability to deliver or install products or perform services or to recognize revenue, increased costs or customer order cancellations as a result of:\n\u2022\nthe failure or inability to accurately forecast demand and obtain sufficient quantities of quality parts on a cost-effective basis;\n\u2022\nvolatility in the availability and cost of parts, materials or services, including increased costs due to rising inflation or interest rates or other market conditions;\n\u2022\ndifficulties or delays in obtaining required import or export approvals;\n\u2022\nshipment delays and increased costs of shipment due to transportation interruptions, capacity constraints, or fuel shortages;\n\u2022\nshortages of semiconductor or other components or materials as a result of increases in demand;\n\u2022\ninformation technology or infrastructure failures, including those of a third-party supplier or service provider; and\n\u2022\ntransportation or supply disruptions based on factors outside our control, such as strikes, acts of God, wars, terrorist activities, widespread outbreak of illness, natural or man-made disasters, or climate change.\nDemand for electronic products and other factors, such as the COVID-19 pandemic, have resulted in, and may in the future result in, a shortage of parts, materials and services needed to manufacture, deliver and install our products, as well as delays in and unpredictability of shipments due to transportation interruptions. Such shortages, delays and unpredictability have adversely impacted, and may in the future impact, our suppliers\u2019 ability to meet our demand requirements. Difficulties in obtaining sufficient and timely supply of parts, materials or services, and delays in and unpredictability of shipments due to transportation interruptions, have adversely impacted, and may in the future adversely impact, our manufacturing operations and our ability to meet customer demand. In addition, difficulties in obtaining parts, materials or services necessary to deliver or install products or perform services have adversely impacted, and may in the future adversely impact, our ability to recognize revenue, our gross margins on the revenue we recognize, and our other operating results. Although we are endeavoring to pass along some of the impact of increased costs to our customers to counteract adverse impacts to our gross margins and other operating results, such measures could be unsuccessful, or could have the effect of reducing demand, which would adversely impact our revenue.\nFurther, increased restrictions imposed on a class of chemicals known as per- and polyfluoroalkyl substances (\u201cPFAS\u201d), which are widely used in a large number of products, including parts and materials that are incorporated into our products, may negatively impact our supply chain due to the potentially decreased availability, or non-availability, of PFAS-containing products. Proposed regulations under consideration could require that we transition away from the usage of PFAS-containing products, which could adversely impact our business, operations, revenue, costs, and competitive position. There is no assurance that suitable replacements for PFAS-containing parts and materials will be available at similar costs, or at all. \nLam Research Corporation 2023 10-K \n18\nTable of Contents\n \nAlthough we attempt to select reputable providers and suppliers and we attempt to secure their performance on terms documented in written contracts, it is possible that one or more of these providers or suppliers could fail to perform as we expect, or fail to secure or protect intellectual property rights, and such failure could have an adverse impact on our business. In some cases, the requirements of our business mandate that we obtain certain components and sub-assemblies included in our products from a single supplier or a limited group of suppliers. Where practical, we endeavor to establish alternative sources to mitigate the risk that the failure of any single provider or supplier will adversely affect our business, but this is not feasible in all circumstances. Some key parts are subject to long lead-times or available only from a single supplier or limited group of suppliers, and some sourcing or subassembly is provided by suppliers located in countries other than the countries where we conduct our manufacturing. There is therefore a risk that a prolonged inability to obtain certain components or secure key services could impair our ability to manage operations, ship products, and generate revenues, which could adversely affect our operating results and damage our customer relationships. \nThe COVID-19 Pandemic Adversely Impacted, and May in the Future Adversely Impact, Our Business, Operations, and Financial Results\nThe COVID-19 pandemic and efforts by national, state and local governments worldwide to control its spread resulted in measures aimed at containing the disease such as quarantines, travel bans, shutdowns, and shelter in place or \u201cstay at home\u201d orders, which collectively significantly restricted the movement of people and goods and the ability of businesses to operate. These restrictions and measures, incidents of confirmed or suspected infections within our workforce or those of our suppliers or other business partners, and our efforts to act in the best interests of our employees, customers, and suppliers, affected and in the future may affect our business and operations by, among other things, causing facility closures, production delays and capacity limitations; disrupting production by our supply chain; disrupting the transport of goods from our supply chain to us and from us to our customers; requiring modifications to our business processes; requiring the implementation of business continuity plans; requiring the development and qualification of alternative sources of supply; requiring the implementation of social distancing measures that impede manufacturing processes; disrupting business travel; disrupting our ability to staff our on-site manufacturing and research and development facilities; delaying capital expansion projects; and necessitating teleworking by portions of our workforce. These impacts caused and in the future may cause delays in product shipments and product development, increases in costs, and decreases in revenue, profitability and cash from operations, which caused and in the future may cause an adverse effect on our results of operations that may be material. The pandemic resulted at various times in significant disruption of global financial markets, increases in levels of unemployment, and economic uncertainty, which adversely impacted our business and may do so in the future, and may lead to significant negative impacts on customer spending, demand for our products, the ability of our customers to pay, our financial condition and the financial condition of our suppliers, and our access to external sources of financing to fund our operations and capital expenditures. \nWe Face Risks Related to the Disruption of Our Primary Manufacturing and R&D Facilities\nWhile we maintain business continuity plans, our manufacturing and R&D facilities are concentrated in a limited number of locations. These locations are subject to disruption for a variety of reasons, such as natural or man-made disasters, widespread outbreaks of illness, war, terrorist activities, political or governmental unrest or instability, disruptions of our information technology resources, utility interruptions, the effects of climate change, or other events beyond our control. Such disruptions may cause delays in developing or shipping our products, in engaging with customers on new product applications, or in supporting customers, which could result in the loss of business or customer trust, adversely affecting our business and operating results. \nWe Are Subject to Risks Relating to Product Concentration and Lack of Product Revenue Diversification\nWe derive a substantial percentage of our revenues from a limited number of products. Our products are priced up to the tens of millions of dollars per system. As a result, the inability to recognize revenue on even a few systems can cause a significantly adverse impact on our revenues for a given quarter, and, in the longer term, the continued market acceptance of these products is critical to our future success. Our business, operating results, financial condition, and cash flows could therefore be adversely affected by:\n\u2022\na decline in demand for even a limited number of our products;\n\u2022\na failure to achieve continued market acceptance of our key products;\n\u2022\nexport restrictions or other regulatory or legislative actions that could limit our ability to sell those products to key customers or customers within certain markets;\n\u2022\nan improved version of products being offered by a competitor in the markets in which we participate;\n\u2022\nincreased pressure from competitors that offer broader product lines;\n\u2022\nincreased pressure from regional competitors;\n\u2022\ntechnological changes that we are unable to address with our products; or\n\u2022\na failure to release new or enhanced versions of our products on a timely basis.\nIn addition, the fact that we offer limited product lines creates the risk that our customers may view us as less important to their business than our competitors that offer additional products and/or product capabilities, including new products that take advantage of \u201cbig data\u201d or other new technologies such as machine learning and artificial intelligence. This may impact our ability to maintain or expand our business with certain customers. Such product concentration may also subject us to additional risks associated with technology changes. Our business is affected by our customers\u2019 use of our products in certain steps in their wafer fabrication processes. Should technologies change so that the manufacture of semiconductors requires fewer steps using our products, this could have a larger impact on our business than it would on the business of our less concentrated competitors.\nLam Research Corporation 2023 10-K \n19\nTable of Contents\n \nWe May Fail to Protect Our Critical Proprietary Technology Rights, Which Could Affect Our Business\nOur success depends in part on our proprietary technology and our ability to protect key components of that technology through patents, copyrights, trade secrets and other forms of protection. Protecting our key proprietary technology helps us achieve our goals of developing technological expertise and new products and systems that give us a competitive advantage; increasing market penetration and growth of our installed base; and providing comprehensive support and service to our customers. As part of our strategy to protect our technology, we currently hold a number of U.S. and foreign patents and pending patent applications, and we keep certain information, processes, and techniques confidential and/or as trade secrets. However, other parties may challenge or attempt to invalidate or circumvent any patents the U.S. or foreign governments issue to us; these governments may fail to issue patents for pending applications; or we may lose trade secret protection over valuable information due to our or third parties\u2019 intentional or unintentional actions or omissions or even those of our own employees. Additionally, intellectual property litigation can be expensive and time-consuming and even when patents are issued, or trade secret processes are followed, the legal systems in certain of the countries in which we do business might not enforce patents and other intellectual property rights as rigorously or effectively as the United States or may favor local entities in their intellectual property enforcement. The rights granted or anticipated under any of our patents, pending patent applications, or trade secrets may be narrower than we expect or, in fact, provide no competitive advantages. Moreover, because we selectively file for patent protection in different jurisdictions, we may not have adequate protection in all jurisdictions based on such filing decisions. Any of these circumstances could have a material adverse impact on our business.\nOur Ability to Attract, Retain, and Motivate Key Employees Is Critical to Our Success\nOur ability to compete successfully depends in large part on our ability to attract, retain, and motivate key employees with the appropriate skills, experiences and competencies. This is an ongoing challenge due to intense competition for top talent, fluctuations in industry or business economic conditions, as well as increasing geographic expansion, and these factors in combination may result in cycles of hiring activity and workforce reductions. Our success in hiring depends on a variety of factors, including the attractiveness of our compensation and benefit programs, global economic or political and industry conditions, our organizational structure, global competition for talent and the availability of qualified employees, the availability of career development opportunities, the ability to obtain necessary authorizations for workers to provide services outside their home countries, and our ability to offer a challenging and rewarding work environment. We periodically evaluate our overall compensation and benefit programs and make adjustments, as appropriate, to maintain or enhance their competitiveness. If we are not able to successfully attract, retain, and motivate key employees, we may be unable to capitalize on market opportunities and our operating results may be materially and adversely affected.\nIf We Choose to Acquire or Dispose of Businesses, Product Lines, and Technologies, We May Encounter Unforeseen Costs and Difficulties That Could Impair Our Financial Performance\nAn important element of our management strategy is to review acquisition prospects that would complement our existing products, augment our market coverage and distribution ability, enhance our technological capabilities, or accomplish other strategic objectives. As a result, we may seek to make acquisitions of complementary companies, products, or technologies, or we may reduce or dispose of certain product lines or technologies that no longer fit our long-term strategies. For regulatory or other reasons, we may not be successful in our attempts to acquire or dispose of businesses, products, or technologies, resulting in significant financial costs, reduced or lost opportunities, and diversion of management\u2019s attention. Managing an acquired business, disposing of product technologies, or reducing personnel entails numerous operational and financial risks, including difficulties in assimilating acquired operations and new personnel or separating existing business or product groups, diversion of management\u2019s attention away from other business concerns, amortization of acquired intangible assets, adverse customer reaction to our decision to cease support for a product, and potential loss of key employees or customers of acquired or disposed operations. There can be no assurance that we will be able to achieve and manage successfully any such integration of potential acquisitions, disposition of product lines or technologies, or reduction in personnel, or that our management, personnel, or systems will be adequate to support continued operations. Any such inabilities or inadequacies could have a material adverse effect on our business, operating results, financial condition, and/or cash flows.\nIn addition, any acquisition could result in changes such as potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, the amortization of related intangible assets, and goodwill impairment charges, any of which could materially adversely affect our business, financial condition, results of operations, cash flows, and/or the price of our Common Stock.\nLEGAL, REGULATORY AND TAX RISKS\nOur Sales to Customers in China, a Significant Region for Us, Have Been Impacted, and are Likely to Be Materially and Adversely Affected by Export License Requirements and Other Regulatory Changes, or Other Governmental Actions in the Course of the Trade Relationship Between the U.S. and China\nChina represents a large and fast-developing market for the semiconductor equipment industry and therefore is important to our business. Revenue in China, which includes global customers and domestic Chinese customers with manufacturing facilities in China, represented approximately 26%, 31%, and 35% of our total revenue for fiscal years 2023, 2022, and 2021, respectively. The U.S. and China have historically had a complex relationship that has included actions that have impacted trade between the two countries. Recently, these actions have included an expansion of export license requirements imposed by the U.S. government, which have limited the market for our products, adversely impacted our revenues, and increased our exposure to foreign competition, \nLam Research Corporation 2023 10-K \n20\nTable of Contents\n \nand could potentially do so to an even greater extent in the future. Most recently, the U.S. government has enacted new rules aimed at restricting China\u2019s ability to manufacture advanced semiconductors, which include restrictions on exports, reexports or transfers to, or shipping, transmitting, transferring, or facilitating such movement to, or performing services at, customer facilities in China engaged in certain technology end-uses, without appropriate authorizations obtained from U.S. authorities. In addition, the U.S. Department of Commerce has enacted new rules that have expanded export license requirements for U.S. companies to sell certain items to companies and other end-users in China that are designated as military end-users or have operations that could support military end uses; has added additional Chinese companies to its restricted entity list and unverified list under suspicion of military-civil fusion, support of Russia, or other factors associated with a broadening scope of national security concerns (including Semiconductor Manufacturing International Corporation, or SMIC, and related entities, and Yangtze Memory Technologies Co., Ltd., or YMTC, and related entities); and has expanded an existing rule (referred to as the foreign direct product rule) in a manner that could cause foreign-made wafers, chipsets, and certain related items produced with many of our products to be subject to U.S. licensing requirements if Huawei Technologies Co. Ltd (\u201cHuawei\u201d) or its affiliates are parties to a transaction involving the items. These rules have required and may require us to apply for and obtain additional export licenses to supply certain of our products to customers in China, such as SMIC, YMTC and ChangXin Memory Technologies, Inc., and there is no assurance that we will be issued licenses that we apply for on a timely basis or at all. In addition, our customers (including but not limited to Chinese customers) may require U.S. export licenses for the use of our products in order to manufacture products, including semiconductor wafers and integrated circuits, for those of their customers (i.e. Huawei and its affiliates) that are subject to the expanded foreign direct product rule, which may adversely impact the demand for our products. The U.S. Department of Commerce could in the future add additional Chinese companies to its restricted entity list or unverified list or take other actions that could expand licensing requirements or otherwise impact the market for our products and our revenue. The implementation, interpretation and impact on our business of these rules and other regulatory actions taken by the U.S. government is uncertain and evolving, and these rules, other regulatory actions or changes, and other actions taken by the governments of either the U.S. or China, or both, that have occurred and may occur in the future could materially and adversely affect our results of operations.\nWe Are Exposed to Various Risks from Our Regulatory Environment\nWe are subject to various risks related to (1)\u00a0new, different, inconsistent, or even conflicting laws, rules, and regulations that may be enacted by legislative or executive bodies and/or regulatory agencies in the countries that we operate; (2)\u00a0disagreements or disputes related to international trade; and (3)\u00a0the interpretation and application of laws, rules, and regulations. As a public company with global operations, we are subject to the laws of multiple jurisdictions and the rules and regulations of various governing bodies, including those related to export controls, financial and other disclosures, corporate governance, privacy, anti-corruption, such as the Foreign Corrupt Practices Act and other local laws prohibiting corrupt payments to governmental officials, anti-boycott compliance, conflict minerals or other social responsibility legislation, immigration or travel regulations, antitrust regulations, and laws or regulations relating to carbon emissions, as well as other laws or regulations imposed in response to climate change concerns, among others. Each of these laws, rules, and regulations imposes costs on our business, including financial costs and potential diversion of our management\u2019s attention associated with compliance, and may present risks to our business, including potential fines, restrictions on our actions, and reputational damage if we do not fully comply.\nTo maintain high standards of corporate governance and public disclosure, we intend to invest appropriate resources to comply with evolving standards. Changes in or ambiguous interpretations of laws, regulations, and standards may create uncertainty regarding compliance matters. Efforts to comply with new and changing regulations have resulted in, and are likely to continue to result in, reduced operating income, and a diversion of management\u2019s time and attention from revenue-generating activities to compliance activities. If we are found by a court or regulatory agency not to be in compliance with the laws and regulations, our business, financial condition, and/or results of operations could be adversely affected.\nIntellectual Property, Indemnity, and Other Claims Against Us Can Be Costly and We Could Lose Significant Rights That Are Necessary to Our Continued Business and Profitability\nThird parties may assert infringement, misappropriation, unfair competition, product liability, breach of contract, or other claims against us. From time to time, other persons send us notices alleging that our products infringe or misappropriate their patent or other intellectual property rights. In addition, law enforcement authorities may seek criminal charges relating to intellectual property or other issues. We also face risks of claims arising from commercial and other relationships. In addition, our bylaws and other indemnity obligations provide that we will indemnify officers and members of our Board of Directors against losses that they may incur in legal proceedings resulting from their service to us. From time to time, in the normal course of business, we indemnify third parties with whom we enter into contractual relationships, including customers and suppliers, with respect to certain matters. We have agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, other third-party claims that our products when used for their intended purposes infringe the intellectual property rights of such other third parties, or other claims made against certain parties. In such cases, it is our policy either to defend the claims or to negotiate licenses or other settlements on commercially reasonable terms. However, we may be unable in the future to negotiate necessary licenses or reach agreement on other settlements on commercially reasonable terms, or at all, and any litigation resulting from these claims by other parties may materially and adversely affect our business and financial results, and we may be subject to substantial damage awards and penalties. Moreover, although we have insurance to protect us from certain claims and cover certain losses to our property, such insurance may not cover us for the full amount of any losses, or at all, and may be subject to substantial exclusions and deductibles.\nLam Research Corporation 2023 10-K \n21\nTable of Contents\n \nOur Financial Results May Be Adversely Impacted by Higher than Expected Tax Rates or Exposure to Additional Tax Liabilities\nWe are subject to income, transaction, and other taxes in the United States and various foreign jurisdictions, and significant judgment is required to determine worldwide tax liabilities. The amount of taxes we pay is subject to ongoing audits in various jurisdictions, and a material assessment by a governing tax authority could affect our profitability. As a global company, our effective tax rate is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region. Changes in the split of earnings between countries with differing statutory tax rates, in the valuation allowance of deferred tax assets, in tax laws, in material audit assessments, or in expirations of agreements with tax authorities could adversely affect our effective tax rate. In particular, the carrying value of deferred tax assets, which are predominantly in the United States, is dependent upon our ability to generate future taxable income in the United States.\nOn August 16, 2022, the Inflation Reduction Act (the \u201cIRA\u201d) was signed into law. In general, the provisions of the IRA will be effective beginning with our fiscal year 2024, with certain exceptions. The IRA includes a new 15% corporate minimum tax. We have evaluated the potential impacts of the IRA and do not expect it to have a material impact on our effective tax rate. However, we expect future guidance from the Treasury Department and will further analyze when the guidance is issued.\nRecommendations made by the Organization for Economic Co-operation and Development\u2019s Base Erosion and Profit Shifting 2.0 (\u201cBEPS 2.0\u201d) project have the potential to lead to changes in the tax laws in numerous countries, including the implementation of a global minimum tax. Several countries around the world have enacted or proposed changes to their existing tax laws based on these recommendations. As each country in which we operate evaluates their alignment with the recommendations, the timing and ultimate impact of any such changes on our effective tax rate remain uncertain. When fully enacted, such changes could have a material impact on our effective tax rate. We will continue to monitor the progress of the BEPS 2.0 implementation.\nIn addition, the U.S. has made several corporate income tax proposals, including changes in the taxation of non-U.S. income. If enacted, such changes could have a material impact on our effective tax rate. \nIncreasing and Evolving Environmental Regulations May Adversely Affect Our Operating Results\nWe are subject to a variety of domestic and international governmental regulations related to the handling, discharge, sale, and disposal of toxic, volatile, or otherwise hazardous or potentially hazardous substances, and the regulatory environment is dynamic. Failure to comply with present or future environmental regulations (such as future regulations imposed on the use or sale of PFAS or PFAS-containing products) could result in fines being imposed on us, require us to undertake remediation activities, suspend production, and/or cease operations, or cause our customers to not accept our products. These regulations could require us to alter or discontinue our current operations in certain jurisdictions, acquire significant additional equipment, incur substantial other expenses to comply with environmental regulations, or take other actions. Compliance obligations, as well as any failure to comply with current or future regulations governing the use, handling, sale, transport, or disposal of hazardous or potentially hazardous substances (including, but not limited to, PFAS) could subject us to future costs and liabilities that may adversely affect our operating results, financial condition, and ability to operate our business.\nOur Bylaws Designate the Court of Chancery of the State of Delaware as the Sole and Exclusive Judicial Forum for Certain Legal Actions Between the Company and its Stockholders, Which May Discourage Lawsuits with Respect to Such Claims\u00a0\nOur bylaws provide that, unless we consent otherwise, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for lawsuits asserting certain stockholder claims (including claims asserted derivatively for our benefit), such as claims against directors and officers for breach of a fiduciary duty, claims arising under any provision of the General Corporation Law of Delaware or our certificate of incorporation or our bylaws, or claims governed by the internal affairs doctrine. This is a general summary of the bylaw provision; you should refer to the language of the bylaws for details. While the forum provision does not generally apply to direct claims arising under the Securities Exchange Act of 1934 or the Securities Act of 1933, derivative lawsuits that assert legal claims arising under these statutes could fall within the provision, as recent court decisions have held.\u00a0\nAs a Delaware corporation, Delaware law controls issues of our internal affairs, including duties that our directors, officers, employees, and others owe to the Company and its stockholders. We believe that our exclusive forum provision benefits us, and our stockholders, by permitting relatively prompt resolution of lawsuits concerning our internal affairs, promoting consistent application of Delaware law in these lawsuits, and reducing the possibility of duplicative, costly, multi-jurisdictional litigation with the potential for inconsistent outcomes. However, the forum provision limits a stockholder\u2019s ability to bring a claim in a judicial forum that it believes may be more favorable than Delaware, and this could discourage the filing of such lawsuits.\nFINANCIAL, ACCOUNTING AND CAPITAL MARKETS RISKS\nThe Market for Our Common Stock Is Volatile, Which May Affect Our Ability to Raise Capital or Make Acquisitions or May Subject Our Business to Additional Costs\nThe market price for our Common Stock is volatile and has fluctuated significantly over the past years. The trading price of our Common Stock could continue to be highly volatile and fluctuate widely in response to a variety of factors, many of which are not within our control or influence. These factors include but are not limited to the following:\nLam Research Corporation 2023 10-K \n22\nTable of Contents\n \n\u2022\ngeneral market, semiconductor, or semiconductor equipment industry conditions;\n\u2022\neconomic or political events, trends, and unexpected developments occurring nationally, globally, or in any of our key sales regions;\n\u2022\nmacroeconomic, industry and market conditions, including those caused by the Russian invasion of Ukraine or bank failures; and geopolitical issues;\n\u2022\nvariations in our quarterly operating results and financial condition, including our liquidity;\n\u2022\nvariations in our revenues, earnings, or other business and financial metrics from forecasts by us or securities analysts or from those experienced by other companies in our industry;\n\u2022\nannouncements of restructurings, reductions in force, departure of key employees, and/or consolidations of operations;\n\u2022\nmargin trading, short sales, hedging and derivative transactions involving our Common Stock;\n\u2022\ngovernment regulations;\n\u2022\ndevelopments in, or claims relating to, patent or other proprietary rights;\n\u2022\ntechnological innovations and the introduction of new products by us or our competitors;\n\u2022\ncommercial success or failure of our new and existing products; or\n\u2022\ndisruptions of relationships with key customers or suppliers.\nIn addition, the stock market experiences significant price and volume fluctuations. Historically, we have witnessed significant volatility in the price of our Common Stock due in part to the price of and markets for semiconductors. These and other factors have adversely affected and may again adversely affect the price of our Common Stock, regardless of our actual operating performance. In the past, following volatile periods in the price of their stock, many companies became the object of securities class action litigation. If we are sued in a securities class action, we could incur substantial costs, and it could divert management\u2019s attention and resources and have an unfavorable impact on our financial performance and the price for our Common Stock.\nWe May Incur Impairments to Goodwill or Long-lived Assets\nWe review our goodwill identified in business combinations for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of these assets may exceed the fair value. We review all other long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstance indicate that these assets may not be recoverable. The process of evaluating the potential impairment of goodwill and other long-lived assets requires significant judgement. Negative industry or economic trends, including reduced market prices of our Common Stock, reduced estimates of future cash flows, disruptions to our business, slower growth rates, or lack of growth in our relevant business units, could lead to impairment charges against our long-lived assets, including goodwill and other intangible assets. \nWhen evaluating goodwill, if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative impairment test is performed and we may be required to record an impairment charge in that period, which could adversely affect our result of operations. \nWhen evaluating other long-lived assets, if we conclude that the estimated undiscounted cash flows attributable to the assets are less than their carrying value, we recognize an impairment loss based on the excess of the carrying amount of the assets over their respective fair values, which could adversely affect our results of operations.\nOur valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely heavily on projections of future operating performance. We operate in a highly competitive environment and projections of future operating results and cash flows may vary significantly from actual results. Additionally, if our analysis indicates potential impairment, we may be required to record additional charges to earnings in our financial statements, which could negatively affect our results of operations.\nOur Leverage and Debt Service Obligations May Adversely Affect Our Financial Condition, Results of Operations, and Earnings per Share\nWe have $5.0 billion in aggregate principal amount of senior unsecured notes outstanding.\u00a0Additionally, we have funding available to us under our $1.5 billion commercial paper program and our $1.5 billion revolving credit facility, which serves as a backstop to our commercial paper program. Our revolving credit facility also includes an option to increase the amount up to an additional $600.0 million, for a potential total commitment of $2.1 billion. We may, in the future, decide to enter into additional debt arrangements.\nIn addition, we have entered, and in the future may enter, into derivative instrument arrangements to hedge against the variability of cash flows due to changes in the benchmark interest rate of fixed rate debt. We could be exposed to losses in the event of nonperformance by the counterparties to our derivative instruments.\nOur indebtedness could have adverse consequences, including:\n\u2022\nrisk associated with any inability to satisfy our obligations;\n\u2022\na portion of our cash flows that may have to be dedicated to interest and principal payments and may not be available for operations, working capital, capital expenditures, expansion, acquisitions, or general corporate or other purposes; and\n\u2022\nimpairment of our ability to obtain additional financing in the future.\nLam Research Corporation 2023 10-K \n23\nTable of Contents\n \nOur ability to meet our expenses and debt obligations will depend on our future performance, which will be affected by financial, business, economic, regulatory, and other factors. Furthermore, our operations may not generate sufficient cash flows, to enable us to meet our expenses and service our debt. As a result, we may need to enter into new financing arrangements to obtain the necessary funds. If we determine it is necessary to seek additional funding for any reason, we may not be able to obtain such funding or, if funding is available, obtain it on acceptable terms. If we fail to make a payment on our debt, we could be in default on such debt, and this default could cause us to be in default on our other outstanding indebtedness.\nOur Credit Agreements Contain Covenant Restrictions That May Limit Our Ability to Operate Our Business\nWe may be unable to respond to changes in business and economic conditions, engage in transactions that might otherwise be beneficial to us, or obtain additional financing because our debt agreements contain, and any of our other future similar agreements may contain, covenant restrictions that limit our ability to, among other things:\n\u2022\nincur additional debt, assume obligations in connection with letters of credit, or issue guarantees;\n\u2022\ncreate liens;\n\u2022\nenter into transactions with our affiliates;\n\u2022\nsell certain assets; and\n\u2022\nmerge or consolidate with any person.\nOur ability to comply with these covenants is dependent on our future performance, which will be subject to many factors, some of which are beyond our control, including prevailing economic conditions. In addition, our failure to comply with these covenants could result in a default under the Senior Notes, or our other debt, which could permit the holders to accelerate such debt. If any of our debt is accelerated, we may not have sufficient funds available to repay such debt, which could materially and negatively affect our financial condition and results of operation.\nThere Can Be No Assurance That We Will Continue to Declare Cash Dividends or Repurchase Our Shares at All or in Any Particular Amounts\nOur Board of Directors has declared quarterly dividends since April 2014. Our intent to continue to pay quarterly dividends and to repurchase our shares is subject to capital availability and periodic determinations by our Board of Directors that cash dividends and share repurchases are in the best interest of our stockholders and are in compliance with all laws and agreements applicable to the declaration and payment of cash dividends or the repurchasing of shares by us. Future dividends and share repurchases may also be affected by, among other factors, our views on potential future capital requirements for investments in acquisitions and the funding of our research and development; legal risks; changes in federal, state, and international tax laws or corporate laws; contractual restrictions, such as financial or operating covenants in our debt arrangements; availability of onshore cash flow; and changes to our business model. Our dividend payments and share repurchases may change from time to time, and we cannot provide assurance that we will continue to declare dividends or repurchase shares at all or in any particular amounts. A reduction or suspension in our dividend payments or share repurchases could have a negative effect on the price of our Common Stock.\nIf One or More of Our Counterparty Financial Institutions Default on Their Obligations To Us or Fail, We May Incur Significant Losses.\nAs part of our hedging activities, we enter into transactions involving derivative financial instruments, which may include forward contracts, option contracts, collars and swaps with various financial institutions. In addition, we have significant amounts of cash, cash equivalents and other investments on deposit or in accounts with banks or other financial institutions both in and out of the United States. As a result, we are exposed to the risk of default by or failure of counterparty financial institutions, which may be heightened during economic downturns and periods of uncertainty in the financial markets. If one of our counterparties were to become insolvent or file for bankruptcy, our ability to recover losses incurred as a result of default, or our assets deposited or held in accounts with such counterparty, may be limited by the counterparty's liquidity or the applicable laws governing the insolvency or bankruptcy proceedings. In the event of default or failure of one or more of our counterparties, we could incur significant losses, which could negatively impact our results of operations and financial condition.",
+  "item7": ">Item\u00a07.\u00a0\u00a0\u00a0\u00a0\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThe following discussion of our financial condition and results of operations contains forward-looking statements, which are subject to risks, uncertainties, and changes in condition, significance, value, and effect. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to those discussed in \u201cRisk Factors\u201d and elsewhere in this 2023 Form 10-K and other documents we file from time to time with the Securities and Exchange Commission. (See \u201cCautionary Statement Regarding Forward-Looking Statements\u201d in Part\u00a0I of this 2023 Form 10-K.)\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations (\u201cMD&A\u201d) provides a description of our results of operations and should be read in conjunction with our Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in \nPart II, Item 8\n of this 2023 Form\u00a010-K. MD&A consists of the following sections:\nExecutive Summary\n provides a summary of the key highlights of our results of operations and our management\u2019s assessment of material trends and uncertainties relevant to our business.\nResults of Operations\n provides an analysis of operating results.\nCritical Accounting Policies and Estimates\n discusses accounting policies that reflect the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.\nLiquidity and Capital Resources\n provides an analysis of cash flows, contractual obligations, and financial position.\nExecutive Summary\nLam Research Corporation is a global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. We have built a strong global presence with core competencies in areas like nanoscale applications enablement, chemistry, plasma and fluidics, advanced systems engineering and a broad range of operational disciplines. Our products and services are designed to help our customers build smaller, and better performing devices that are used in a variety of electronic products, including mobile phones, personal computers, servers, wearables, automotive vehicles, and data storage devices.\nOur customer base includes leading semiconductor memory, foundry, and integrated device manufacturers that make products such as NVM, DRAM, and logic devices. Their continued success is part of our commitment to driving semiconductor breakthroughs that define the next generation. Our core technical competency is integrating hardware, process, materials, software, and process control enabling results on the wafer.\nSemiconductor manufacturing, our customers\u2019 business, involves the complete fabrication of multiple dies or integrated circuits on a wafer. This involves the repetition of a set of core processes and can require hundreds of individual steps. Fabricating these devices requires highly sophisticated process technologies to integrate an increasing array of new materials with precise control at the atomic scale. Along with meeting technical requirements, wafer processing equipment must deliver high productivity and be cost-effective.\nDemand from cloud computing, 5G, the Internet of Things, and other markets is driving the need for increasingly powerful and cost\n-\nefficient semiconductors. At the same time, there are growing technical challenges with traditional two-dimensional scaling. These trends are driving significant inflections in semiconductor manufacturing, such as the increasing importance of vertical scaling strategies like three-dimensional architecture as well as multiple patterning to enable shrinks. \nWe believe we are in a strong position with our leadership and expertise in deposition\n,\n etch, and clean to facilitate some of the most significant innovations in semiconductor device manufacturing. Our Customer Support Business Group provides products and services to maximize installed equipment performance, predictability and operational efficiency. Several factors create opportunity for sustainable differentiation for us: (i) our focus on research and development, with several on-going programs relating to sustaining engineering, product and process development, and concept and feasibility; (ii) our ability to effectively leverage cycles of learning from our broad installed base; (iii) our collaborative focus with semi-ecosystem partners; (iv) our ability to identify and invest in the breadth of our product portfolio to meet technology inflections; and (v) our focus on delivering our multi-product solutions with a goal to enhance the value of Lam\u2019s solutions to our customers.\nDuring fiscal year 2023, customer demand weakened in the second half of the year due to wafer fabrication equipment spending reductions resulting primarily from incremental demand weakness in memory. In addition, the U.S. government\u2019s restrictions on sales of equipment, parts, and service for specific technologies and customers in China further impacted equipment demand in the year. While we did experience supply chain constraints in the first half of fiscal year 2023, there were improvements and we were able to fulfill shipments of nearly all our outstanding back order systems in the second half of the year. As a result of the expected reduced business levels, we initiated a restructuring plan in the quarter-ended March 26, 2023 designed to better align the Company\u2019s cost structure with our outlook. We incurred a charge for the workforce actions associated with the restructuring plan of approximately $107 million\n \nin fiscal year 2023. Over the course of calendar year 2023, we are projecting expenditures in the range of $250 million \nLam Research Corporation 2023 10-K \n28\nTable of Contents\n \nassociated with various business process improvements and initiatives, inclusive of the fiscal year 2023 restructuring activity. Risks and uncertainties related to trade restrictions, supply chain challenges, and inflationary pressures may continue to negatively impact our revenue and gross margin. Over the longer term, we believe that secular demand for semiconductors combined with technology inflections in our industry, including 3D device scaling, multiple patterning, process flow, and advanced packaging chip integration, will drive sustainable growth and lead to an increase in the served available market for our products and services in the deposition, etch, and clean businesses.\n The following table summarizes certain key financial information for the periods indicated below:\n\u00a0\nYear Ended\n\u00a0Change\nJune 25,\n2023\nJune 26,\n2022\nJune 27,\n2021\nFY23 vs. FY22\nFY22 vs. FY21\n\u00a0\n(in thousands, except per share data and percentages)\nRevenue\n$\n17,428,516\u00a0\n$\n17,227,039\u00a0\n$\n14,626,150\u00a0\n$\n201,477\u00a0\n1.2\u00a0\n%\n$\n2,600,889\u00a0\n17.8\u00a0\n%\nGross margin\n$\n7,776,925\u00a0\n$\n7,871,807\u00a0\n$\n6,805,306\u00a0\n$\n(94,882)\n(1.2)\n%\n$\n1,066,501\u00a0\n15.7\u00a0\n%\nGross margin as a percent of total revenue\n44.6\u00a0\n%\n45.7\u00a0\n%\n46.5\u00a0\n%\n(1.1)%\n(0.8)%\nTotal operating expenses\n$\n2,602,065\u00a0\n$\n2,489,985\u00a0\n$\n2,323,283\u00a0\n$\n112,080\u00a0\n4.5\u00a0\n%\n$\n166,702\u00a0\n7.2\u00a0\n%\nNet income\n$\n4,510,931\u00a0\n$\n4,605,286\u00a0\n$\n3,908,458\u00a0\n$\n(94,355)\n(2.0)\n%\n$\n696,828\u00a0\n17.8\u00a0\n%\nNet income per diluted share\n$\n33.21\u00a0\n$\n32.75\u00a0\n$\n26.90\u00a0\n$\n0.46\u00a0\n1.4\u00a0\n%\n$\n5.85\u00a0\n21.7\u00a0\n%\nFiscal year 2023 revenu\ne was slightly higher than fiscal year 2022. Customer support-related revenue increased in fiscal year 2023 due to continued strength in specialty node investments, which was offset by a decline in our systems revenue as a result of semiconductor demand weakness, largely in the memory market. \nGross margin as a percentage of revenue decreased due to inflationary cost pressures that led to higher spending on material costs, as well as costs associated with restructuring related activities, partially offset by favorable customer and product mix. The increase in operating expenses in fiscal year 2023 compared to fiscal year 2022 was driven by higher deferred compensation plan-related costs, restructuring-related charges, employee-related costs as a result of increased headcount, depreciation and amortization, and supplies, partially offset by a decrease in amortization of intangible assets as the intangible assets associated with the acquisition of Novellus have fully amortized. \nFiscal year 2022 revenue increased over 17% compared to fiscal year 2021, reflecting continued strong customer demand for semiconductor equipment. Gross margin as a percentage of revenue decreased due to inflationary cost pressures that led to higher spending on material costs, freight and logistics, and labor-related expenses, as well as unfavorable customer and product mix, partially offset by decreased variable compensation. The increase in operating expenses in fiscal year 2022 compared to fiscal year 2021 was mainly driven by higher employee-related costs as a result of increased headcount, supplies expense, rent, repair and utilities expense, and outside services spending, partially offset by lower deferred compensation plan-related costs.\nWe aim to balance the requirements of our customers with the availability of resources, as well as performance to our operational and financial objectives. As a result, from time to time, we exercise discretion and judgment as to the timing and prioritization of manufacturing and deliveries of products, which has impacted, including in the current fiscal year, and may in the future impact, the timing of revenue recognition with respect to such products.\nOur cash and cash equivalents, investments, and restricted cash and investments balances totaled approximately $5.6 billion as of June\u00a025, 2023, compared to $3.9 billion as of June\u00a026, 2022. Cash flows provided from operating activities was $5.2 billion for fiscal year 2023 compared to $3.1 billion for fiscal year 2022. Cash flows provided from operating activities in fiscal year 2023 was primarily used for $2.0 billion in treasury stock purchases, including net share settlement on employee stock-based compensation; $908 million in dividends paid to our stockholders; and $502 million of capital expenditures. \nResults of Operations\nRevenue\n\u00a0\nYear Ended\nJune 25,\n2023\nJune 26,\n2022\nJune 27,\n2021\nRevenue (in millions)\n$\n17,429\u00a0\n$\n17,227\u00a0\n$\n14,626\u00a0\nChina\n26\u00a0\n%\n31\u00a0\n%\n35\u00a0\n%\nKorea\n20\u00a0\n%\n23\u00a0\n%\n27\u00a0\n%\nTaiwan\n20\u00a0\n%\n17\u00a0\n%\n14\u00a0\n%\nJapan\n10\u00a0\n%\n9\u00a0\n%\n9\u00a0\n%\nUnited States\n9\u00a0\n%\n8\u00a0\n%\n6\u00a0\n%\nSoutheast Asia\n8\u00a0\n%\n8\u00a0\n%\n6\u00a0\n%\nEurope\n7\u00a0\n%\n4\u00a0\n%\n3\u00a0\n%\nLam Research Corporation 2023 10-K \n29\nTable of Contents\n \nRevenue\n increased i\nn fiscal year 2023 compared to fiscal year 2022 mainly due to higher revenue from CSBG related to strength in mature node equipment. Revenue increased in fiscal year 2022 compared to fiscal year 2021 primarily due to the increased investment by our customers in semiconductor capital equipment as well as from CSBG for spares, services, upgrades and mature node equipment. \nWhile the overall Asia region continued to account for a majority of our revenues, the U.S. and Europe regions increased in each of fiscal years 2023 and 2022 compared to the prior fiscal year as these regions prioritized domestic capacity investments for semiconductor manufacturing. \nThe deferred revenue balance was $1.8 billion as of June\u00a025, 2023 compared to $2.2 billion as of June\u00a026, 2022. Advance deposit additions from newer customers increased in fiscal year 2023, compared to fiscal year 2022, offsetting the decline in deferred balances related to shipments we completed of tools that had critical parts outstanding.\nThe following table presents our revenue disaggregated between system and customer support-related revenue:\nYear Ended\nJune 25,\n2023\nJune 26,\n2022\nJune 27,\n2021\n(in thousands)\nSystems Revenue\n$\n10,695,897\u00a0\n$\n11,322,271\u00a0\n$\n9,764,845\u00a0\nCustomer support-related revenue and other\n6,732,619\u00a0\n5,904,768\u00a0\n4,861,305\u00a0\n$\n17,428,516\u00a0\n$\n17,227,039\u00a0\n$\n14,626,150\u00a0\nPlease refer to \nNote 4: Revenue\n of our Consolidated Financial Statements in Part II, Item 8 of this 2023 Form 10-K for additional information regarding the composition of the two categories into which revenue has been disaggregated.\nThe percentage of leading- and non-leading-edge equipment and upgrade revenue from each of the markets we serve was as follows:\n\u00a0\n\u00a0\nYear Ended\nJune 25,\n2023\nJune 26,\n2022\nJune 27,\n2021\nMemory\n42\u00a0\n%\n60\u00a0\n%\n61\u00a0\n%\nFoundry\n38\u00a0\n%\n26\u00a0\n%\n32\u00a0\n%\nLogic/integrated device manufacturing\n20\u00a0\n%\n14\u00a0\n%\n7\u00a0\n%\nGross Margin\n\u00a0\nYear Ended\nChange\nJune 25,\n2023\nJune 26,\n2022\nJune 27,\n2021\nFY23 vs. FY22\nFY22 vs. FY21\n\u00a0\n(in thousands, except percentages)\nGross margin\n$\n7,776,925\u00a0\n$\n7,871,807\u00a0\n$\n6,805,306\u00a0\n$\n(94,882)\n(1.2)\n%\n$\n1,066,501\u00a0\n15.7\u00a0\n%\nPercent of revenue\n44.6\u00a0\n%\n45.7\u00a0\n%\n46.5\u00a0\n%\n(1.1)%\n(0.8)%\nThe decrease in gross margin as a percentage of revenue for fiscal year 2023 compared to fiscal year 2022 was due to inflationary cost pressures that led to higher spending on material costs, partially offset by favorable customer and product mix.\nThe decrease in gross margin as a percentage of revenue for fiscal year 2022 compared to fiscal year 2021 \nwas due to inflationary cost pressures that led to higher spending on material costs, freight and logistics, and labor-related expenses, as well as unfavorable customer and product mix, partially offset by decreased variable compensation.\nResearch and Development\n\u00a0\nYear Ended\nChange\nJune 25,\n2023\nJune 26,\n2022\nJune 27,\n2021\nFY23 vs. FY22\nFY22 vs. FY21\n\u00a0\n(in thousands, except percentages)\nResearch & development\n$\n1,727,162\u00a0\n$\n1,604,248\u00a0\n$\n1,493,408\u00a0\n$\n122,914\u00a0\n7.7\u00a0\n%\n$\n110,840\u00a0\n7.4\u00a0\n%\nPercent of revenue\n9.9\u00a0\n%\n9.3\u00a0\n%\n10.2\u00a0\n%\n0.6%\n(0.9)%\nWe continued to make significant R&D investments focused on leading-edge deposition, etch, clean, and other semiconductor manufacturing processes. The\n increase i\nn R&D expense during fiscal year 2023 compared to fiscal year 2022\n was primarily driven by \nLam Research Corporation 2023 10-K \n30\nTable of Contents\n \nan increase of $43 million in employee-related costs as a result of increased headcount, $26 million in deferred compensation plan-related costs, $22 million in spending for supplies, and $14 million of depreciation and amortization.\nThe increase in R&D expense during fiscal year 2022 compared to fiscal year 2021 was mainly driven by a\nn increase of $89 million in employee-related costs due in part to increased headcount and $43 million in spending for supplies, partially offset by a decrease of $44 million in deferred compensation plan-related costs.\nSelling, General, and Administrative\n\u00a0\nYear Ended\nChange\nJune 25,\n2023\nJune 26,\n2022\nJune 27,\n2021\nFY23 vs. FY22\nFY22 vs. FY21\n\u00a0\n(in thousands, except percentages)\nSelling, general, and administrative (\"SG&A\")\n$\n832,753\u00a0\n$\n885,737\u00a0\n$\n829,875\u00a0\n$\n(52,984)\n(6.0)\n%\n$\n55,862\u00a0\n6.7\u00a0\n%\nPercent of revenue\n4.8\u00a0\n%\n5.1\u00a0\n%\n5.7\u00a0\n%\n(0.3)%\n(0.6)%\nThe de\ncrease in\n SG&A expense during fiscal year 2023 compared to fiscal year 2022\n was primarily driven by a decrease of $44 million in amortization of intangible assets, as the intangible assets associated with the acquisition of Novellus have fully amortized, as well as from $12 million in lower employee-related costs, partially offset by $17 million in higher deferred compensation plan-related costs.\nThe increase in SG&A expense during fiscal year 2022 compared to fiscal year 2021 was primarily \ndriven by an increase of $28 million in outside service costs, $28 million in spending for rent, repair and utilities, and $26 million in employee-related costs due in part to increased headcount, partially offset by a decrease of $29 million in deferred compensation plan-related costs\n.\nRestructuring Charges, Net\n\u00a0\nYear Ended\nChange\nJune 25,\n2023\nJune 26,\n2022\nJune 27,\n2021\nFY23 vs. FY22\nFY22 vs. FY21\n\u00a0\n(in thousands, except percentages)\nRestructuring charges, net\n$\n120,316\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n120,316\u00a0\n100.0\u00a0\n%\n$\n\u2014\u00a0\n\u2014\u00a0\n%\nPercent of revenue\n0.7\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n0.7%\n\u2014%\nIn fiscal year 2023, we initiated a restructuring plan designed to better align our cost structure with our outlook for the economic environment and business opportunities. Under the plan we terminated approximately 1,650 employees, incurring expenses related to employee severance and separation costs. Employee severance and separation costs primarily relate to severance, non-cash severance, including equity award compensation expense, pension and other termination benefits. Additionally, we made a strategic decision to relocate certain manufacturing activities to pre-existing facilities and incurred costs to move inventory and equipment and exit selected supplier arrangements.\nDuring fiscal year 2023 net restructuring costs of $78 million and $42 million were recorded in restructuring charges, net - cost of goods sold, and restructuring charges, net - operating expenses, respectively of our Consolidated Financial Statements. Please refer to \nNote 22: Restructuring charges, net\n of our Consolidated Financial Statements in Part II, Item 8 of this 2023 Form 10-K for additional information.\nLam Research Corporation 2023 10-K \n31\nTable of Contents\n \nOther Income (Expense), Net\nOther income (expense), net, consisted of the following:\n\u00a0\nYear Ended\nChange\nJune 25,\n2023\nJune 26,\n2022\nJune 27,\n2021\nFY23 vs. FY22\nFY22 vs. FY21\n\u00a0\n(in thousands, except percentages)\nInterest income\n$\n138,984\u00a0\n$\n15,209\u00a0\n$\n19,687\u00a0\n$\n123,775\u00a0\n813.8\u00a0\n%\n$\n(4,478)\n(22.7)\n%\nInterest expense\n(186,462)\n(184,759)\n(208,597)\n$\n(1,703)\n0.9\u00a0\n%\n$\n23,838\u00a0\n(11.4)\n%\nGains (losses) on deferred compensation plan related assets, net\n20,186\u00a0\n(38,053)\n61,838\u00a0\n$\n58,239\u00a0\n(153.0)\n%\n$\n(99,891)\n(161.5)\n%\nForeign exchange (losses) gains, net\n(7,078)\n(723)\n(6,962)\n$\n(6,355)\n879.0\u00a0\n%\n$\n6,239\u00a0\n(89.6)\n%\nOther, net\n(31,280)\n19,618\u00a0\n22,815\u00a0\n$\n(50,898)\n(259.4)\n%\n$\n(3,197)\n(14.0)\n%\n$\n(65,650)\n$\n(188,708)\n$\n(111,219)\n$\n123,058\u00a0\n(65.2)\n%\n$\n(77,489)\n69.7\u00a0\n%\nInterest income increased in fiscal year 2023 compared to fiscal year 2022 primarily because of higher yields and higher cash balances. Interest income decreased in fiscal year 2022 compared to fiscal year 2021 as a result of lower cash balances.\nInterest expense in fiscal year 2023 was flat compared to fiscal year 2022. Interest expense decreased in fiscal year 2022 compared to fiscal year 2021 primarily due to the payoff of $800 million of senior notes in June 2021.\nThe gains or losses on deferred compensation plan related assets, net were driven by fluctuations in the fair market value of the underlying funds for all periods presented.\nForeign exchange fluctuations were primarily due to currency movements against portions of our unhedged balance sheet exposures for all periods presented.\nThe variation in other, net for the fiscal year 2023 compared to fiscal years 2022 and 2021 was primarily driven by fluctuations in the fair market value of equity investments. \nIncome Tax Expense \nOur provision for income taxes and effective tax rate for the periods indicated were as follows:\n\u00a0\nYear Ended\nChange\nJune 25,\n2023\nJune 26,\n2022\nJune 27,\n2021\nFY23 vs. FY22\nFY22 vs. FY21\n\u00a0\n(in thousands, except percentages)\nIncome tax expense\n$\n598,279\u00a0\n$\n587,828\u00a0\n$\n462,346\u00a0\n$\n10,451\u00a0\n1.8\u00a0\n%\n$\n125,482\u00a0\n27.1\u00a0\n%\nEffective tax rate\n11.7\u00a0\n%\n11.3\u00a0\n%\n10.6\u00a0\n%\n0.4%\n0.7%\nThe increase in the effective tax rate in fiscal year 2023 as compared to fiscal year 2022 and the increase in the effective tax rate in fiscal year 2022 compared to fiscal year 2021 was primarily due to the change in level and proportion of income in higher and lower tax jurisdictions.\nInternational revenues account for a significant portion of our total revenues, such that a material portion of our pre-tax income is earned and taxed outside the United States. International pre-tax income is taxable in the United States at a lower effective tax rate than the federal statutory tax rate. Please refer to \nNote 7\n of our Consolidated Financial Statements in Part II, Item 8 of this 2023 Form 10-K.\nBeginning in our fiscal year 2023, a provision enacted as part of the 2017 Tax Cuts & Jobs Act requires us to capitalize research and experimental expenditures for tax purposes. Due to this provision, we expect our cash tax payments to increase significantly in the near term and stabilize in future years as the capitalized expenditures continue to amortize.\nOn August 16, 2022, the IRA was signed into law. In general, the provisions of the IRA will be effective beginning with our fiscal year 2024, with certain exceptions. The IRA includes a new 15% corporate minimum tax. The impact on income taxes due to changes in legislation is required under the authoritative guidance of Accounting Standard Codification (\u201cASC\u201d) 740, Income Taxes, to be recognized in the period in which the law is enacted. We have evaluated the potential impacts of the IRA and do not expect it to have a material impact on our effective tax rate. However, we expect future guidance from the Treasury Department and will further analyze when the guidance is issued.\nLam Research Corporation 2023 10-K \n32\nTable of Contents\n \nDeferred Income Taxes\nDeferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carryforwards. Our gross deferred tax assets were $1,303 million and $1,103 million at the end of fiscal years 2023 and 2022, respectively. These gross deferred tax assets were offset by gross deferred tax liabilities of $238 million and $234 million and a valuation allowance primarily representing our entire California deferred tax asset balance due to the single sales factor apportionment resulting in lower taxable income in California of $352 million and $309 million at the end of fiscal years 2023 and 2022, respectively. The change in gross deferred tax assets, gross deferred tax liabilities, and valuation allowance between fiscal year 2023 and 2022 is primarily due to increases in gross deferred tax assets for outside basis differences of foreign subsidiaries, tax credits, and capitalized research and experimental expenditures.\nWe evaluate if the deferred tax assets are realizable on a quarterly basis and will continue to assess the need for changes in valuation allowances, if any.\nUncertain Tax Positions \nWe re-evaluate uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Any change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.\nCritical Accounting Policies and Estimates\nA critical accounting policy is defined as one that has both a material impact on our financial condition and results of operations and requires us to make difficult, complex and/or subjective judgments, often as a result of the need to make estimates about matters that are inherently uncertain. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (\u201cGAAP\u201d) requires management to make certain judgments, estimates and assumptions that could affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates and assumptions on historical experience and on various other assumptions we believe to be applicable and evaluate them on an ongoing basis to ensure they remain reasonable under current conditions. Actual results could differ significantly from those estimates, which could have a material impact on our business, results of operations, and financial condition. Our critical accounting estimates include:\n\u2022\nthe recognition and valuation of revenue from arrangements with multiple performance obligations which impacts revenue;\n\u2022\nthe valuation of inventory, which impacts gross margin;\n\u2022\nthe valuation of warranty reserves, which impacts gross margin;\n\u2022\nthe recognition and measurement of current and deferred income taxes, including the measurement of uncertain tax positions, which impact our provision for income tax expenses; and\n\u2022\nthe valuation and recoverability of long-lived assets, which impacts gross margin and operating expenses when we record asset impairments or accelerate their depreciation or amortization.\nWe believe that the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements regarding the critical accounting estimates indicated above. See \nNote 2: Summary of Significant Accounting Policies\n of our Consolidated Financial Statements in Part II, Item 8 of this 2023 Form 10-K for additional information regarding our accounting policies.\nRevenue Recognition:\n We recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services by following a five-step process, (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when or as we satisfy a performance obligation, as further described below.\nIdentify the contract with a customer\n. We generally consider documentation of terms with an approved purchase order as a customer contract, provided that collection is considered probable, which is assessed based on the creditworthiness of the customer as determined by credit checks, payment histories, and/or other circumstances.\nIdentify the performance obligations in the contract\n. Performance obligations include sales of systems, spare parts, and services. In addition, our customer contracts contain provisions for installation and training services which have been deemed immaterial in the context of the contract.\nDetermine the transaction price\n. The transaction price for our contracts with customers consists of both fixed and variable consideration provided it is probable that a significant reversal of revenue will not occur when the uncertainty related to variable consideration is resolved. Fixed consideration includes amounts to be contractually billed to the customer while variable consideration includes estimates for discounts and credits for future usage which are based on contractual terms outlined in volume purchase agreements and other factors known at the time. We generally invoice customers at shipment and for professional services either as \nLam Research Corporation 2023 10-K \n33\nTable of Contents\n \nprovided or upon meeting certain milestones. Customer invoices are generally due within\u00a030\u00a0to\u00a090 days after issuance. Our contracts with customers typically do not include significant financing components as the period between the transfer of performance obligations and timing of payment are generally within one year.\nAllocate the transaction price to the performance obligations in the contract\n. For contracts that contain multiple performance obligations, we allocate the transaction price to the performance obligations in the contract on a relative standalone selling price basis. Standalone selling prices are based on multiple factors including, but not limited to historical discounting trends for products and services and pricing practices in different geographies.\nRecognize revenue when or as we satisfy a performance obligation\n. Revenue for systems and spares are recognized at a point in time, which is generally upon shipment or delivery. Revenue from services is recognized over time as services are completed or ratably over the contractual period of generally one year or less.\nInventory Valuation:\n Our policy is to assess the valuation of all inventories including manufacturing raw materials, work-in-process, finished goods, and spare parts in each reporting period. Obsolete inventory or inventory in excess of management\u2019s estimated usage requirement is written down to its estimated net realizable value if less than cost. Estimates of market value include but are not limited to management\u2019s forecasts related to our future manufacturing schedules, customer demand, technological and/or market obsolescence, general semiconductor market conditions, and possible alternative uses. If future customer demand or market conditions are less favorable than our projections, additional inventory write-downs may be required and would be reflected in cost of goods sold in the period in which the revision is made.\nWarranty:\n We record a provision for estimated warranty expenses to cost of sales for each system when we recognize revenue. We periodically monitor the performance and cost of warranty activities, if actual costs incurred are different than our estimates, we may recognize adjustments to provisions in the period in which those differences arise or are identified. We do not maintain general or unspecified reserves; all warranty reserves are related to specific systems.\nIncome Taxes:\n Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carryforwards. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Realization of our net deferred tax assets is dependent on future taxable income. We believe it is more likely than not that such assets will be realized; however, ultimate realization could be negatively impacted by market conditions and other variables not known or anticipated at this time. In the event that we determine that we will not be able to realize all or part of our net deferred tax assets, an adjustment will be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the deferred tax assets will be realized, then the previously provided valuation allowance will be reversed.\nWe recognize the benefit from a tax position only if it is more likely than not that the position will be sustained upon audit based solely on the technical merits of the tax position. Our policy is to include interest and penalties related to uncertain tax positions as a component of income tax expense.\nLong-lived Assets\n: We review goodwill at least annually for impairment during the fourth quarter of each fiscal year and if certain events or indicators of impairment occur between annual impairment tests. The process of evaluating the potential impairment of goodwill requires significant judgment. When reviewing goodwill for impairment, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. In performing a qualitative assessment, we consider business conditions and other factors including, but not limited to (i) adverse industry or economic trends, (ii) restructuring actions and lower projections that may impact future operating results, (iii) sustained decline in share price, and (iv) overall financial performance and other events affecting the reporting units. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative impairment test is performed by estimating the fair value of the reporting unit and comparing it to its carrying value, including goodwill allocated to that reporting unit.\nWe determine the fair value of our reporting units by using an income approach. Under the income approach, we determine fair value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn.\nIn estimating the fair value of a reporting unit, we make estimates and judgments about the future cash flows of our reporting units, including estimated growth rates and assumptions about the economic environment. Although our cash flow forecasts are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying businesses, there is significant judgment involved in determining the cash flows attributable to a reporting unit. In addition, we make certain judgments about allocating shared assets to the estimated balance sheets of our reporting units. Changes in judgment on these assumptions and estimates could result in a goodwill impairment charge.\nIf after completing the quantitative assessment the carrying value of a reporting unit exceeds its fair value, we would record an impairment charge equal to the excess of the carrying value of the reporting unit over its fair value, up to the amount of the goodwill assigned to the reporting unit.\nLam Research Corporation 2023 10-K \n34\nTable of Contents\n \nFor other long-lived assets, we review them whenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable. If such indicators are present, we determine whether the sum of the estimated undiscounted cash flows attributable to the assets is less than their carrying value. If the sum is less, we recognize an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals or other methods. We recognize an impairment charge to the extent the present value of anticipated net cash flows attributable to the\u00a0asset is less than the asset\u2019s carrying value. The fair value of the asset then becomes the asset\u2019s new carrying value, which we depreciate over the remaining estimated useful life of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value. In addition, for fully amortized intangible assets, we de-recognize the gross cost and accumulated amortization in the period we determine the intangible asset no longer enhances future cash flows.\nRecent Accounting Pronouncements\nFor a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see \nNote 3: Recent Accounting Pronouncements\n of our Consolidated Financial Statements, included in Part II, Item 8 of this 2023 Form 10-K.\nLiquidity and Capital Resources \nTotal gross cash, cash equivalents, investments, and restricted cash and investments balances were $5.6 billion at the end of fiscal year 2023 compared to $3.9 billion at the end of fiscal year 2022. This increase was primarily due to cash provided by operating activities, partially offset by Common Stock repurchases in connection with our stock repurchase program, dividends paid, and capital expenditures.\nCash Flow from Operating Activities\nNet cash provided by operating activities of $5.2 billion during fiscal year 2023 consisted of (in thousands):\nNet income\n$\n4,510,931\u00a0\nNon-cash charges:\nDepreciation and amortization\n342,432\u00a0\nDeferred income taxes\n(172,061)\nEquity-based compensation expense\n286,600\u00a0\nChanges in operating asset and liability accounts\n158,738\u00a0\nOther\n52,298\u00a0\n$\n5,178,938\u00a0\nSignificant changes in operating asset and liability accounts, net of foreign exchange impact, included the following sources of cash: decreases in accounts receivable of $1.5 billion, deferred profit of $163 million, and prepaid expenses and other assets of $136 million; partially offset by the following uses of cash: increase in inventories of $962 million, and decreases in accounts payable of $522 million, and accrued expenses and other liabilities of $109 million.\nCash Flow from Investing Activities\nNet cash used for investing activities during fiscal year 2023 was $535 million, primarily consisting of $502 million in capital expenditures and $120 million net cash disbursed for business acquisitions, partially offset by proceeds from sales and maturities of available-for-sale securities of $98\u00a0million.\nCash Flow from Financing Activities\nNet cash used for financing activities during fiscal year 2023 was $2.8 billion, primarily consisting of $2.0 billion in Common Stock repurchases, including net share settlement on employee stock-based compensation; and $908 million of dividends paid; partially offset by $121 million of stock issuance and treasury stock reissuances associated with our employee stock-based compensation plans.\nLiquidity\nGiven that the semiconductor industry is highly competitive and has historically experienced rapid changes in demand, we believe that maintaining sufficient liquidity reserves is important to support sustaining levels of investment in R&D and capital infrastructure. Anticipated cash flows from operations based on our current business outlook, combined with our current levels of cash, cash equivalents, and short-term investments as of June\u00a025, 2023, are expected to be sufficient to support our anticipated levels of operations, investments, debt service requirements, capital expenditures, capital redistributions, and dividends through at least the next twelve months. However, factors outside of our control, including uncertainty in the global economy and the semiconductor industry, as well as disruptions in credit markets, have in the past, are currently, and could in the future, impact customer demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers, and creditors.\nLam Research Corporation 2023 10-K \n35\nTable of Contents\n \nIn the longer term, liquidity will depend to a great extent on our future revenues and our ability to appropriately manage our costs based on demand for our products and services. While we have substantial cash balances, we may require additional funding and need or choose to raise the required funds through borrowings or public or private sales of debt or equity securities. We believe that, if necessary, we will be able to access the capital markets on terms and in amounts adequate to meet our objectives. However, domestic and global macroeconomic and political conditions could cause disruptions to the capital markets and otherwise make any financing more challenging, and there can be no assurance that we will be able to obtain such financing on commercially reasonable terms or at all.\nOff-Balance Sheet Arrangements and Contractual Obligations\n \nWe have certain obligations to make future payments under various contracts, some of which are recorded on our balance sheet and some of which are not. Certain obligations that are recorded on our balance sheet in accordance with GAAP include our long-term debt, operating leases and finance leases; refer to Notes \n14\n and \n15\n of our Consolidated Financial Statements in Part II, Item 8 of this 2023 Form 10-K for further discussion. Our off-balance sheet arrangements and our transition tax liability are presented as purchase obligations, refer to Note \n17\n of our Consolidated Financial Statements in Part II, Item 8 of this 2023 Form 10-K for further discussion.",
+  "item7a": ">Item\u00a07A.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nQuantitative and Qualitative Disclosures About Market Risk\nInvestments\nWe maintain an investment portfolio of various holdings, types, and maturities. As of June\u00a025, 2023, our mutual funds are classified as trading securities. Investments classified as trading securities are recorded at fair value based upon quoted market prices. Any material differences between the cost and fair value of trading securities are recognized as other income (expense), net in our Consolidated Statement of Operations. All of our other investments are classified as available-for-sale and consequently are recorded in the Consolidated Balance Sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income, net of tax.\nInterest Rate Risk\nFixed-Income Securities\nOur investments in various interest-earning securities carry a degree of market risk for changes in interest rates. At any time, a sharp rise in interest rates could have a material adverse impact on the fair value of our fixed-income investment portfolio. Conversely, declines in interest rates could have a material adverse impact on interest income for our investment portfolio. We target to maintain a conservative investment policy, which focuses on the safety and preservation of our capital by limiting default risk, market risk, reinvestment risk, and concentration risk. As of June\u00a025, 2023, our fixed income securities total $37.6 million. Market changes with hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (\u201cBPS\u201d), 100 BPS, and 150 BPS, with a minimum interest rate of zero BPS, are not significant. \nWe mitigate default risk by investing in high credit quality securities and by positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to achieve portfolio liquidity and maintain a prudent amount of diversification.\nLong-Term Debt\nAs of June\u00a025, 2023, we had $5.0 billion in principal amount of fixed-rate long-term debt outstanding, with a fair value of $4.4 billion. The fair value of our Notes is subject to interest rate risk and market risk. Generally, the fair value of Notes will increase as interest rates fall and decrease as interest rates rise. The interest and market value changes affect the fair value of our Notes but do not impact our financial position, cash flows, or results of operations due to the fixed nature of the debt obligations. We do not carry the Notes at fair value but present the fair value of the principal amount of our Notes for disclosure purposes.\nEquity Price Risk\nPublicly Traded Securities\nThe values of our investments in publicly traded securities, including mutual funds related to our obligations under our deferred compensation plans, are subject to market price risk. As of June\u00a025, 2023, our publicly traded securities total $106.7 million. Potential fluctuations in the price of each security in the portfolio of plus or minus 10%, 15%, or 25% are not significant.\nForeign Currency Exchange (\u201cFX\u201d) Risk\nWe conduct business on a global basis in several major international currencies. As such, we are potentially exposed to adverse as well as beneficial movements in foreign currency exchange rates. The majority of our revenues and expenses are denominated in U.S. dollars. However, we are exposed to foreign currency exchange rate fluctuations on non-U.S. dollar transactions or cash flows. \nLam Research Corporation 2023 10-K \n36\nTable of Contents\n \nWe enter into foreign currency forward contracts to minimize the short-term impact of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily cash, third-party accounts receivable, accounts payable, and intercompany receivables and payables. In addition, we hedge certain anticipated foreign currency cash flows. \nTo protect against adverse movements in value of anticipated non-U.S. dollar transactions or cash flows, we enter into foreign currency forward and option contracts that generally expire within 12\u00a0months and no later than 24\u00a0months. The option contracts include collars, an option strategy that is comprised of a combination of a purchased put option and a written call option with the same expiration dates and notional amounts but with different strike prices. These foreign currency hedge contracts are designated as cash flow hedges and are carried on our balance sheet at fair value, with the effective portion of the contracts\u2019 gains or losses included in accumulated other comprehensive income (loss)\u00a0and subsequently recognized in earnings in the same period the hedged revenue and/or expense is recognized. We also enter into foreign currency forward contracts to hedge the gains and losses generated by the remeasurement of certain non-U.S.-dollar denominated monetary assets and liabilities, primarily cash, third-party accounts receivable, accounts payable, and intercompany receivables and payables. The change in fair value of these balance sheet hedge contracts is recorded into earnings as a component of other income (expense), net, and offsets the change in fair value of the foreign currency denominated monetary assets and liabilities also recorded in other income (expense), net, assuming the hedge contract fully covers the hedged items. The unrealized gain of our outstanding forward and option contracts that are designated as cash flow hedges, as of June\u00a025, 2023, and the change in fair value of these cash flow hedges assuming a hypothetical foreign currency exchange rate movement of plus or minus 10\u00a0percent and plus or minus 15\u00a0percent are not significant.\nThe unrealized loss of our outstanding foreign currency forward contracts that are designated as balance sheet hedges, as of June\u00a025, 2023, and the change in fair value of these balance sheet hedges, assuming a hypothetical foreign currency exchange rate movement of plus or minus 10\u00a0percent and plus or minus 15\u00a0percent are not significant. These changes in fair values would be offset in other income (expense), net, by corresponding change in fair values of the foreign currency denominated monetary assets and liabilities, assuming the hedge contract fully covers the intercompany and trade receivable balances.\nLam Research Corporation 2023 10-K \n37\nTable of Contents\n ",
+  "cik": "707549",
+  "cusip6": "512807",
+  "cusip": ["512807908", "512807958", "512807108"],
+  "names": ["LAM RESEARCH CORP CALL", "LAM RESEARCH CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/707549/000070754923000102/0000707549-23-000102-index.htm"
+}
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+  "item1": ">ITEM 1.  BUSINESS\nOverview\nQuantum delivers end-to-end solutions to analyze and enrich, store and manage, and protect and preserve unstructured data across its entire lifecycle. We specialize in solutions for video data, images, and other large files because this \u201cunstructured\u201d data represents more than 80% of all data being created, according to leading industry analyst firms. This unstructured data has driven a fundamental shift in the nature of data and the role data plays in every industry. It is exponentially larger than traditional corporate data, contains immense value, and must be captured, protected, and stored for many years, decades, and longer. It is no longer just about storing data\u2014 organizations need to extract value from their data. Locked inside video, imagery, security camera footage, scientific data sets, and other sensor-derived data is a wealth of information for informed decision-making. \nAs a result, organizations need end-to-end solutions that allow them to manage and preserve data for decades and to easily extract insights from the detail. Whether data lives in the workplace, at the edge, or in the cloud, we provide organizations with the technology, software, and services they need to store, manage, protect, and enrich data throughout its lifecycle.\nProducts and Services\nOur portfolio of products includes primary storage software and systems, secondary storage software and systems, as well as devices and media. \nPrimary Storage Software and Systems\n include:\n\u2022\nMyriad All-Flash File and Object Storage Software: \nAll-flash scale-out file and object storage for high performance enterprise unstructured data applications such as AI, machine learning, and data analytics.\n\u2022\nStorNext Hybrid Flash/Disk File Storage Software: \nFor video editing, post-production, and streaming applications, as well as large digital file archives.\n\u2022\nUnified Surveillance Platform Software\n: Unified compute and storage for video surveillance recording, storage, and analytics.\n\u2022\nCatDV Asset Management Software\n: For indexing, cataloging, enriching video, audio, and image files, and workflow orchestration.\nSecondary Storage Software and Systems \ninclude:\n\u2022\nActiveScale Object Storage Software: \nExtremely scalable and durable storage for long term data preservation and protection.\n\u2022\nDXi Backup Appliances\n: Purpose-built backup appliances for high-speed backup and recovery and multisite data protection.\n\u2022\nScalar Tape Storage\n: Low cost, secure storage for long term data archiving and offline data protection. Scalar tape storage systems are used by the world\u2019s largest hyperscalers as well as thousands of enterprises worldwide.\nDevices and Media\n includes the sale of standalone Linear Tape-Open (\u201cLTO\u00ae\u201d) tape drives for small business data protection and archiving, and LTO\u00ae media for use in tape storage systems.\nWe also offer a broad portfolio of services including 24x7x365 global support, deployment and consulting services, education services, and Quantum-as-a-Service. Our services are delivered with a combination of expertise and technology, including the MyQuantum Service Delivery Platform, and Cloud-Based Analytics (CBA) AIOps software for proactive remote monitoring.\n \nGlobal Support and Services, and Warranty\n4\nTable of Contents\nOur global services strategy is an integral component of our total customer solution. Service is typically a significant purchase factor for customers considering long-term storage for archiving and retention or data protection storage solutions. Consequently, our ability to provide comprehensive installation and integration services as\u00a0well as maintenance services can be a noteworthy competitive advantage to attract new customers and retain existing customers. In addition, we believe that our ability to retain long-term customer relationships and secure repeat business is frequently tied directly to our comprehensive service capabilities and performance.\nOur extensive use of technology and innovative product intelligence allows us to scale our global services operations to meet the needs of our customers. We are currently able to provide service to customers in more than 100 countries, supported by\u00a024-hour,\u00a0multi-language technical support centers located in North America, Europe, and Asia. We provide our customers with warranty coverage on our products. Customers with high availability requirements may also purchase additional services to obtain faster response times on our high-performance shared storage systems, tape systems, and disk backup systems. We offer this additional support coverage at a variety of response levels up to\u00a024-hours\u00a0a day,\u00a0seven-days-a-week,\u00a0365-days-a-year,\u00a0for customers with stringent high-availability needs. We provide support ranging from repair and replacement to\u00a024-hour\u00a0rapid exchange to\u00a0on-site\u00a0service support for our midrange and enterprise-class products. In addition to these traditional installation and maintenance services, we also provide project management, managed services, and other\u00a0value-added\u00a0services to enhance our customer\u2019s experience and engagement. These incremental services create a deeper relationship with customers that enables them to maximize the value of our solution and better positions us to retain our customers through technology transitions.\nWe generally warrant our hardware products against defects for periods ranging from one to three years from the date of sale. We provide warranty and\u00a0non-warranty\u00a0repair services through our service team and third-party service providers. In addition, we utilize various other third-party service providers throughout the world to perform repair and warranty services for us to reach additional geographic areas and industries to provide quality services in a cost-effective manner.\nResearch and Development\nWe are a solutions company that relies on technology advancements to compete in an industry characterized by rapid change and evolving customer requirements. Our success depends, in part, on our ability to introduce new products and features to meet end user needs. Our research and development teams are focused on technology and services to make our end-to-end solution of storage systems and data management software easier to manage at scale, software enhancements to make our storage more searchable and accessible, software-defined hyperconverged storage technology, next generation solid-state and hard-drive storage system software, data deduplication and other data reduction technologies, and making tape and other mediums even more efficient as a solution for\n \nmedium for long term archival storage.\nSales and Distribution Channels\nProduct Sales Channels\nWe utilize distributors, value-added resellers (\"VARs\") and direct market resellers (\"DMRs\") in our sales process. Our reseller program provides our channel partners the option of purchasing products directly or through distribution channels and provides them access to a more comprehensive product line. Additionally, we sell directly to multiple large corporate entities and government agencies.\nOEM Relationships\nWe sell our products to several original equipment manufacturer (\"OEM\") customers that resell our hardware products under their own brand names and typically assume responsibility for product sales, end user service and support. We also license our software to certain OEM customers that include this software in their own brand name products. These OEM relationships enable us to reach end users not served by our branded distribution channels or our direct sales force. They also allow us to sell to select geographic or vertical markets where specific OEMs have exceptional strength.\nCustomers\n5\nTable of Contents\nWe provide\n \nsolutions to multiple industries globally.\n \nHistorically, our primary customers are in hyperscale, technology and industrial, media and entertainment, federal government, life sciences and healthcare, and financial industries.\n \nIn addition, we sell to OEMs, distributors, VARs and DMRs to reach end user customers. Sales to our top five customers represented 32%, 17%, and 16% of revenue in fiscal 2023, fiscal 2022 and fiscal 2021, respectively, of which one of our hyperscale customers represented 10% or more of our total 2023 revenue.\nCompetition\nThe markets in which we participate are highly competitive, characterized by rapid technological change and changing customer requirements. In some cases, our competitors in one market area are customers or suppliers in another. Our competitors often have greater financial, technical, manufacturing, marketing, or other resources than we do. Additionally, the competitive landscape continues to change due to merger and acquisition activity as well as new entrants into the market.\nAs our customers look to use more public cloud storage services, these providers offer a competitive alternative, as well as new platforms and new ways to deploy our software. We expect that the data storage infrastructures of the future will be both hybrid-cloud and multi-cloud, meaning our customers will store their data in the various large public cloud environments, and also want to use services from multiple public cloud vendors.\nOur primary storage solutions, including object storage systems, primarily face competition from the EMC business unit of Dell Inc. (\u201cDell\u201d), International Business Machines Corporation, (\u201cIBM\u201d), NetApp, Inc., (\u201cNetApp\u201d), and other enterprise storage vendors in the markets we serve.\nOur secondary storage solutions, primarily tape storage systems, compete in the midrange and enterprise reseller and end user markets with IBM and other tape library vendors.\n \nCompetitors for entry-level and OEM tape systems include BDT Products, Inc. and several others that supply or manufacture similar products. In addition, disk backup products and cloud storage are an indirect competitive alternative to tape storage. Our backup storage systems primarily compete with products sold by Dell, Hewlett Packard Enterprise Company and Veritas Technologies LLC. \nManufacturing and Supply Chain\nQuantum has a global supply chain and operations organization, with contract manufacturers located in the U.S. and Mexico along with supporting third-party logistics companies in the Europe, Middle East, and Africa region (\u201cEMEA\u201d), and the Asia-Pacific region, or (\u201cAPAC\u201d). Our supply chain and manufacturing strategy minimizes geo-political and environmental causal risks and provides flexibility to support demand fluctuations by region.\nQuantum primary storage and secondary disk-based storage systems are sold as appliances that combine Quantum software with servers that are procured from various server vendors. Quantum sources these servers from various vendors, then uses contract manufacturers for final integration and shipment to customers. Quantum's tape storage systems are designed by Quantum and manufactured by a global contract manufacturer.  \nTape media is manufactured in Japan and distributed globally.\nThe global supply chain and logistics have been severely constrained and impacted by inflationary pricing for the past couple of years.\n \nWhile we are cautiously optimistic and see signs of improvement over the past year with supply of both server and tape automation components, we continue to see some constraints. While some components continue to have extended lead times and often non-cancellable purchase orders are required, Quantum continues to work with suppliers to minimize lead times and associated liabilities.\n \nWe continue to focus on a number of actions including alternate component qualifications, more aggressive management of contract manufacturers, and model changes for better logistics performance and visibility.\nIntellectual Property and Technology\nWe generally rely on patent, copyright, trademark and trade secret laws and contract rights to establish and maintain our proprietary rights in our technology and products. As of March\u00a031, 2023, we hold over 160 U.S. patents. In general, these patents have a\u00a020-year\u00a0term from the first effective filing date for each patent. We may \n6\nTable of Contents\nalso hold foreign patents and patent applications for certain of our products and technologies. Although we believe that our patents and applications have significant value, rapidly changing technology in our industry means that our future success may also depend heavily on the technical competence and creative skills of our employees.\nFrom time to time, third parties have asserted that the manufacture and sale of our products have infringed on their patents. We are not knowingly infringing any third-party patents. Should it ultimately be determined that licenses for third-party patents are required, we will undertake best efforts to obtain such licenses on commercially reasonable terms. See\u00a0\nNote 11:\n\u00a0\nCommitments and\n \nContingencies\n\u00a0for additional disclosures regarding lawsuits alleging patent infringement.\nOn occasion, we have entered into various patent licensing and cross-licensing agreements with other companies. We may enter into patent cross-licensing agreements with other third parties in the future as part of our normal business activities. These agreements, when and if entered into, would enable these third parties to use certain patents we own and enable us to use certain patents owned by these third parties. We have also sold certain patents, retaining a royalty-free license for these patents.\nWe are a member of the consortium that develops, patents, and licenses Linear Tape-Open, (or \u201cLTO\u00ae tape\u201d) technology to media manufacturing companies. We receive royalty payments for LTO media technology sold under licensing agreements. We have also entered into various licensing agreements with respect to our technology, patents and similar intellectual property which provide licensing revenues in certain cases and may expand the market for products and solutions using these technologies.\nSegment Information\nWe operate as a single reporting unit and operating segment for business and operating purposes. Information about revenue attributable to each of our product groups is included in\u00a0\nItem 7.\n\u00a0\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\u00a0and information about revenue and long-lived assets attributable to certain geographic regions is included in \nNote 2: Revenue\n and \nNote 4: Balance Sheet Information\n, respectively, to the consolidated financial statements and risks attendant to our foreign operations is set forth below in\u00a0\nItem 1A.\n\u00a0\nRisk Factors.\nSeasonality\nAs is typical in our industry, we generally have the greatest demand for our products and services in the fourth quarter of each calendar year, or our fiscal third quarter. We usually experience the lowest demand for our products and services in the first and second quarters of each calendar year, or our fiscal fourth quarter and fiscal first quarter, respectively.\nInformation About Our Executive Officers\nFollowing are the names and positions of our management team as of May 18, 2023, including a brief account of the business experience of each.\nName\nPosition with Quantum\nJames J. Lerner\nPresident, Chief Executive Officer and Chairman of the Board\nKenneth Gianella\nChief Financial Officer\nBrian E. Cabrera\nChief Administrative Officer\nJohn Hurley\nChief Revenue Officer\nLewis Moorehead \nChief Accounting Officer\nJames J. Lerner, 53, was appointed as President and Chief Executive Officer of the Company, effective July 1, 2018, and was appointed Chairman of the Company\u2019s Board of Directors (the \u201cBoard of Directors\u201d) on August 7, 2018. Mr. Lerner has previously served as Vice President and Chief Operating Officer at Pivot3 Inc., a smart infrastructure solutions company, from March 2017 to June 2018, and as Chief Revenue Officer from November 2016 to March 2017. Prior to Pivot3 Inc., from March 2014 to August 2015, Mr. Lerner served as President of Cloud Systems and Solutions at Seagate Technology Holdings Public Limited Company (\u201cSeagate\u201d) (Nasdaq: STX), a data storage company. Prior to Seagate, Mr. Lerner served in various executive roles at Cisco Systems, Inc. \n7\nTable of Contents\n(Nasdaq: CSCO), a networking hardware and software manufacturing company, including most recently as Senior Vice President and General Manager of the Cloud & Systems Management Technology Group. Before beginning his career as a technology company executive, Mr. Lerner was a Senior Consultant at Andersen Consulting, a financial advisory and consulting firm. Since 2011, Mr. Lerner has served on the Board of Trustees of Astia, a global not-for-profit organization built on a community of men and women dedicated to the success of women-led, high-growth ventures, and is currently serving as the Chair of the Board of Trustees. Mr. Lerner earned a Bachelor of Arts in Quantitative Economics and Decision Sciences from U.C. San Diego.\nKenneth Gianella, 50, has served as our Chief Financial Officer since January 2023. Prior to joining us, he served as the Vice President of Investor Relations; Mergers, Divestitures, & Acquisitions; and Environmental, Social & Governance (ESG) Strategy at Itron, Inc. (Nasdaq: ITRI), an energy and water network technology and services company, since July 2018, and as Vice President of Finance and Treasury of Itron\u2019s Networks segment from January 2018 to July 2018. Prior to that, from December 2012 to December 2017, Mr. Gianella held various senior finance positions at Silver Springs Networks, an IoT and smart networks company (acquired by Itron in December 2017), including as interim Chief Financial Officer, Senior Vice President, Finance and Treasurer. Mr. Gianella also was the Head of Finance and Administration at Sensity Systems, Inc., a producer of smart LED lights for enabling Smart Cities, and held various senior finance roles at KLA-Tencor Corporation, a leader in process control, yield management, and computational analytics for the semiconductor industry. Mr. Gianella holds a Master of Business Administration from University of Pittsburgh and a Bachelor of Science in Business Administration from Duquesne University.\nBrian E. Cabrera, 58, most recently served as the Assistant United States Attorney from October 2018 to April 2020 and as Special Assistant United States Attorney from October 2017 to October 2018 in the Office of the United States Attorney, Northern District of California.  From May 2014 to June 2017, Mr. Cabrera served as Senior Vice President & General Counsel of NVIDIA Corporation (\u201cNVIDIA\u201d) (Nasdaq: NVIDIA), a graphics processing units technology company.  Prior to NVIDIA, Mr. Cabrera served as General Counsel and Corporate Secretary, Chief Ethics & Compliance Officer of Synopsys, Inc. (Nasdaq: SNPS), an electronic design automation company, from 2006 to 2014.  From 1999 to 2006, Mr. Cabrera served as Senior Vice President, Operations, General Counsel and Corporate Secretary of Callidus Software, Inc., an enterprise software company.  Prior to Callidus Software, Inc., Mr. Cabrera held various legal positions with PeopleSoft, Inc., a human resource management systems provider, Netscape Communications Corporation, an internet software developing company, Silicon Graphics, Inc., a computer hardware and software manufacturing company, and Bronson, Bronson & McKinnon LLP, a law firm. Mr. Cabrera holds Bachelor\u2019s and Master\u2019s degrees and a Juris Doctorate from the University of Southern California.\nJohn Hurley, 57, has served as Quantum's Chief Revenue Officer since August 2021. Prior to Quantum, Mr. Hurley was at Cisco Systems, Inc. (Nasdaq: CSCO), a networking hardware and software manufacturing company, from 2008 to 2021, and most recently served as Vice President at Cisco, global commercial segment. Mr. Hurley also spent several years overseeing Cisco's service provider business. Additionally, Mr. Hurley led transformational enterprise relationships with Cisco's largest enterprise customers in aerospace and automotive. From 2005 to 2008, he served as area Vice President, Midwest Global / Corporate Business Group at Dell Technologies Inc. (NYSE: DELL), a multinational technology company, where he led regional sales directors and their teams to support multiple Fortune 100 customers. Mr. Hurley held leadership roles at transformational early-stage software companies, where he helped drive the businesses to successful acquisitions by industry leaders Microsoft Corporation and HP Inc. Mr. Hurley holds a Bachelor of Science in Economics from Pennsylvania State University.\nLewis Moorehead, 51, has served as our Chief Accounting Officer since October 2018. Prior to joining Quantum, Mr. Moorehead was the Director of Finance, Accounting and Tax at Carvana, Co. (NYSE: CVNA), a publicly traded on-line retailer, from November 2016 to October 2018. Beginning in September 2004, he has served as Managing Partner at Quassey, an investment firm. While at Quassey, he also served as Vice President of Finance and Principal Accounting Officer at Limelight Networks, Inc. (now Edgio, Inc.), a Nasdaq-listed global content delivery network and SaaS provider, from March 2010 to August 2013. He has also held finance and accounting positions at eTelecare Global Solutions, an outsourcing service company, Rivers and Moorehead PLLC, an accounting advisory firm, Intelligentias, Inc., a data intelligence company, American Express Company (NYSE: AXP), a payment card services company, and PricewaterhouseCoopers LLP, an advisory and tax services firm. He holds a Bachelor of Business Administration, in Accounting from the University of Wisconsin-Whitewater.\nHuman Capital\n8\nTable of Contents\nOur Chief Administrative Officer (\"CAO\") leads our human capital initiatives, which include the design and execution of all people strategies. The CAO partners directly with the Board of Directors, the Leadership and Compensation Committee, and Senior Management on the design, cost, and effectiveness of our people programs to ensure they are competitive and reward our teams for driving company performance. \nOur workforce is currently distributed across 19 countries, with approximately 850 employees globally as of March 31, 2023, including 460 in North America, 190 in APAC, and 200 in EMEA. We engage with contractors, consultants, or temporary employees as needs for special projects occur. \nWork Environment\nWhile we believe competition for talent in the technology industry in certain geographies may be beginning to soften, we continue to design, evaluate, and expand our total rewards programs so they remain competitive in attracting, motivating, rewarding, and retaining key talent. \nWe offer flexible and hybrid working arrangements that allow our employees to choose where and how they work. We work to ensure our office environments, whether at a primary location or remote, are safe, professional, and inclusive so our employees can be successful. \nTo build high performing products and services, we aim to build high performing teams that are inclusive, diverse, and respected regardless of gender, race, color, religion, age, sexual orientation, or disability. We invest in diverse hiring and training initiatives, performance and professional development opportunities, and candidates ranging from interns to experienced leaders. This past year, we partnered with an outside firm for our training on compliance and preventing harassment and discrimination. We believe that fostering an inclusive work environment is a critical component for our culture of excellence.\nCulture of Excellence, Accountability, and Innovation\nOur company goals and leadership attributes set the tone for our culture of excellence and accountability. Employees are empowered to ask questions and encouraged to report concerns without fear of retaliation, including reporting anonymously if preferred. \nDuring the fiscal year ended March 31, 2023, we redesigned our internal employee recognition program to encourage driving innovation, promoting teamwork, and leading by example.\n \nWe also continued our practice of \u201cno internal meeting days\u201d so employees can have more time for focused work, training, or personal development. \nTalent Development \nOur talent is our greatest asset. We seek to actively grow our employees\u2019 skills and leadership perspective while retaining our most critical talent. Our managers and employees participate in regular performance discussions that help facilitate conversations on employee contributions, goals, and expectations.\nAvailable Information\nOur Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website at https://www.quantum.com generally when such reports are available on the Securities and Exchange Commission (\u201cSEC\u201d) website. The contents of our website are not incorporated into this Annual Report on Form 10-K.\nThe public may read and copy any materials we file with the SEC at the SEC\u2019s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 or (202) 551-5450. The SEC maintains an internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.\n9\nTable of Contents",
+  "item1a": ">ITEM 1A. RISK FACTORS\nBefore investing in any of our securities, you should carefully consider the risks and uncertainties described below, together with all other information in this Annual Report. The risks and uncertainties described below could materially and adversely affect our business, operating results, revenue, financial condition, liquidity, market share or competitive position, and consequently, the value of our securities. \nRisks Related to Our Supply Chain, Customers and Sales Strategy\nCost increases, supply disruptions, or raw material shortages, including in single source components, could harm our business.\nWe have and may continue to experience cost increases or supply interruptions in raw materials and components necessary for our products, as well as increased freight charges and reduced capacity from our freight forwarders.\n \nAny such increases or interruptions could materially negatively impact our business, prospects, financial condition and operating results, including delays in manufacturing and shipments of our products and in some cases, result in canceled orders.\n \nWhile we have implemented price increases intended to offset rising costs, we cannot provide assurance that these increases will have the desired effects on our business model in the expected timeframe.\nWe outsource our component supply, manufacturing, and service repair operations to third parties. Our business, financial condition, and operating results could face material adverse impacts if we cannot obtain parts, products, and services in a cost effective and timely manner that meets our customers\u2019 expectations.\nMany aspects of our supply chain and operational results are dependent on the performance of third-party business partners, including contract manufacturers, service providers, and product integrators. We face a number of risks as a result of these relationships, any or all of which could have a material adverse effect on our business and harm our operating results and financial condition.\nSole source of product supply\nIn many cases, our business partners are the sole source of supply for the products or parts they manufacture, or the services they provide to us, and we do not have executed long-term purchase agreements with these partners. Our reliance on a limited number of suppliers and the lack of any guaranteed sources of supply exposes us to several risks, including:\n \n\u2022\nthe inability to obtain an adequate supply of key components; \n\u2022\nprice volatility for the components of our products; \n\u2022\nfailure of a supplier to meet our quality or production requirements; \n\u2022\nfailure of a supplier of key components to remain in business or adjust to market conditions; and \n\u2022\nconsolidation among suppliers, resulting in some suppliers exiting the industry, discontinuing the manufacture of components or increasing the price of components. \nWe cannot assure investors that we will be able to obtain a sufficient supply of these key components or that their costs will not increase. If our component supply is disrupted or delayed, or if we need to replace our existing suppliers or redesign a product to accept different components, we cannot guarantee that additional components will be available when required, on terms that are favorable to us, or at reasonable prices, which could extend our lead times and increase our component costs.\nCost and purchase commitments and processes\nWe may not be able to control the costs of products or services we obtain from our business partners. We provide a customer demand forecast used to procure inventory to build our products. We could be responsible for the financial impact from any forecast reduction or product mix shift relative to materials already purchased under a prior forecast, including the cost of finished goods in excess of current customer demand or for excess or obsolete inventory. \n10\nTable of Contents\nIn some cases, we may retain the responsibility to purchase component inventory to support third-party manufacturing activities, which presents a number of risks that could materially and adversely affect our financial condition. For instance, as part of our component planning, we may place orders with or pay certain suppliers for components in advance of receiving customer purchase orders. We may occasionally enter into large orders with vendors to ensure that we have sufficient components for our products to meet anticipated customer demand. It is possible that we could experience a design or manufacturing flaw that could delay or even prevent the production of the components for which we previously committed to pay.\nIn addition, in order to reduce manufacturing lead times and plan for adequate component supply, from time to time we may issue non-cancelable and non-returnable component or product orders. Our inventory management systems and related supply chain visibility tools may be inadequate to enable us to make accurate forecasts and effectively manage our component and product supply. If we ultimately determine that we have excess supply, we may have to reduce our prices and write down or write off excess or obsolete inventory. Alternatively, insufficient supply levels may lead to shortages resulting in delayed or lost revenue or reduced product margins.\n \nWe could experience operating losses based on any of these conditions.\nWe also maintain service parts inventories to satisfy future warranty obligations and to earn service revenue by providing enhanced and extended technical support and product service during and beyond the warranty period. We estimate service parts inventory needs based on historical usage and forecasts of future warranty and service contract requirements, including estimates of failure rates, costs to repair, and out of warranty revenue. Given the significant levels of judgment inherently involved in the process, we cannot provide assurance that we will be able to maintain service parts inventories appropriate to satisfy customer needs or to avoid inventory purchases that later prove to be unnecessary. If we are unable to maintain appropriate levels of service parts inventories, our business, financial condition and results of operations may be materially and adversely impacted.\nAlthough we have contracts for most of our third-party repair service vendors, the contract period may not be the same as the underlying customer service contract. In such cases, we face risks that the third-party service provider may increase the cost of providing services in later periods already under contract to our customers at a fixed price.\nFinancial condition and stability\nOur third-party business partners may suffer adverse financial or operating results or be negatively impacted by economic conditions. We may face interrupted component, product, or service supply as a result of financial or other volatility affecting our supply chain. As a result, we could suffer production downtime or increased costs to procure alternate products or services.\nQuality and supplier conduct\nWe have limited control over the quality of products and components produced and services provided by our third-party business partners and their supply chains. The quality of the products, parts or services may not be acceptable to our customers and could result in customer dissatisfaction, lost revenue, and increased warranty costs. In addition, we have limited control over the manner in which our business partners conduct their business. We may face negative consequences or publicity as a result of a third-party\u2019s failure to comply with applicable compliance, trade, environmental, or employment regulations.\nAs a result of our global manufacturing and sales operations, we are subject to a variety of risks related to our business outside of the U.S., any of which could, individually or in the aggregate, have a material adverse effect on our business.\nA significant portion of our manufacturing, sales, and supply chain operations occur in countries other than the U.S. We utilize third-party business partners to engineer, produce, sell, and fulfill orders for our products, several of which have operations located in foreign countries including China, Hungary, India, Japan, Malaysia, Singapore, Mexico, the Philippines, Thailand, and Ukraine. Because of these operations, we are subject to a number of risks in addition to those already described, including:\n11\nTable of Contents\n\u2022\nincreasing import and export duties and value-added taxes, or trade regulation changes that could erode our profit margins or delay or restrict our ability to transport our products;\n\u2022\nwar, military conflict, and geopolitical unrest, including the war between Russia and Ukraine, may affect our engineering and support teams outside the U.S. and their ability to perform as well as our sales and services delivery with sanctioned entities and countries;\n\u2022\nreduced or limited protection of our intellectual property;\n\u2022\ndifficulty complying with multiple and potentially conflicting regulatory requirements and practices, including laws governing corporate conduct outside the U.S., such as the Foreign Corrupt Practices Act, United Kingdom Bribery Act, and similar regulations;\n\u2022\ncommercial laws that favor local businesses and cultural differences that affect how we conduct business;\n\u2022\ndiffering technology standards or customer requirements;\n\u2022\nexposure to economic uncertainty and fluctuations including inflation, adverse movement of foreign currencies against the U.S. dollar (the currency in which we report our results), restrictions on transferring funds between countries, and continuing sovereign debt risks;\n\u2022\nfluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points for our products and shipments;\n\u2022\ninflexible employee contracts and employment laws that may make it difficult to terminate or change the compensation structure for employees in the event of business downturns;\n\u2022\ndifficulties attracting and recruiting employees and wage inflation in highly competitive markets;\n\u2022\npolitical instability, military, social and infrastructure risks, especially in emerging or developing economies;\n\u2022\npolitical or nationalist sentiment impacting global trade, including the willingness of non-U.S. consumers to purchase goods or services from U.S. corporations;\n\u2022\nnatural disasters, including earthquakes, flooding, typhoons and tsunamis; and\n\u2022\npandemics and epidemics, and varying and potentially inconsistent governmental restrictions on the operation of businesses, travel and other restrictions.\nAny or all of these risks could have a material adverse effect on our business.\nWe rely on indirect sales channels to market and sell our branded products. The loss of or deterioration in our relationship with one or more of our resellers or distributors, or our inability to establish new indirect sales channels to drive growth of our branded revenue, could negatively affect our operating results.\nWe sell most of our branded products to distributors, value added resellers, and direct market resellers, who in turn sell our products to end users. We use different distribution channel partners in different countries and regions in the world. The success of these sales channels is hard to predict, particularly over time, and we have no purchase commitments or long-term orders from them that assure us of any baseline sales. Several of our channel partners carry competing product lines they may promote over ours. A channel partner might discontinue our products or fail to effectively market them, and each partner determines the type and amount of our products that it will purchase and the price at which it sells to end users. Establishing new indirect sales channels is an important part of our strategy to drive growth of our branded revenue.\n \nOur results of operations could be adversely affected by any number of factors related to our channel partners, including:\n\u2022\na change in competitive strategy that adversely affects a partner\u2019s willingness or ability to distribute our products;\n\u2022\nthe reduction, delay, or cancellation of orders or the return of significant products volume;\n\u2022\nour inability to gain traction in developing new indirect sales channels for our branded products, or the loss of one or more existing partners; or\n\u2022\nchanges in requirements or programs that allow our products to be sold by third parties to government or other customers.\n12\nTable of Contents\nBecause we rely heavily on channel partners to market and sell our products, if one or more of them were to experience a significant deterioration in its financial condition or its relationship with us, this could disrupt our product distribution and reduce our revenue, which could materially and adversely affect our business, financial condition, and operating results.\nWe heavily utilize channel partners to perform the functions necessary to market and sell our products in certain product and geographic segments. To fulfill this role, partners must maintain an acceptable level of financial stability, creditworthiness, and the ability to successfully manage business relationships with the customers they serve directly. If partners are unable to perform in an acceptable manner, we may be required to reduce sales to the partner or terminate the relationship. We may also incur financial losses for product returns from partners or for the failure or refusal of distributors to pay obligations owed to us. Either scenario could result in fewer of our products being available to the affected market segments, reduced levels of customer satisfaction and increased expenses, which could in turn have a material and adverse impact on our business, results of operations and financial condition.\nA certain percentage of our sales are to a few customers, some of which are also competitors, and these customers generally have no minimum or long-term purchase commitments. The loss of, or a significant reduction in demand from, one or more key customers could materially and adversely affect our business, financial condition and results of operations.\nOur product sales have been and continue to be concentrated among a small number of channel partners, direct end-users, and original equipment manufacturers. We sell to many end-user customers and channel partners on purchase orders, not under the terms of a binding long-term procurement agreement. Accordingly, they generally are not obligated to purchase any minimum product volume, and our relationships with them are terminable at will. In addition, recently we have focused our direct-sales business on the largest users of hierarchical storage architectures, the so-called \u201cHyper-scalers\u201d; there are very few of these extremely large storage customers, but their order activity has a significant impact on our results from quarter to quarter. \nSome of our tape and disk products are incorporated into larger storage systems or solutions that are marketed and sold to end users by third parties. Because of this, we may have limited market access to those end users, limiting our ability to influence and forecast their future purchasing decisions.  In addition, revenue from OEM customers has decreased in recent years.  Certain of our large OEM customers are also our competitors, and could decide to reduce or terminate purchasing our products for competitive reasons. \nIn addition, our sales efforts may involve long sales cycles during which we incur expenses to educate our customers about product use and benefits and support customer-driven product evaluations.\n \nThese cycles may make it difficult for us to predict when, or if, future sales will occur.\n \nDuring the fiscal year ended March 31, 2023 we had one Hyperscale customer represent 10% or more of our total revenue versus the prior\n \nfiscal year, March 31, 2022, when we had no single customer represent 10% or more of our total revenue. If this customer or any other large customers should significantly decrease or stop purchasing our solutions we would see a significant reduction in revenue that may result in\n \na material adverse effect on our operating results.\nThe U.S. federal government is an important customer, and our business may be materially and adversely harmed by changes in government purchasing activity.\nA portion of our sales are to various agencies and departments of the U.S. federal government, and federal spending funding cuts and temporary government shutdowns have previously impacted and may continue to impact our revenue in the future. Future spending cuts by the U.S. federal government, temporary shutdowns of the U.S. federal government, or changes in its procurement processes or criteria could decrease our sales to the federal government and materially and adversely affect our operating results.\n \nIn addition, changes in government certification requirements applicable to our products could impact our ability to see to U.S. federal customers.\nRisks Related to Our Operating Results, Financial Condition, or Stock Price\n13\nTable of Contents\nWe continue to face risks related to inflation, economic uncertainty, and slow economic growth.\nUncertainty about economic conditions pose risks as businesses may further reduce or postpone spending in response to reduced budgets, tightening of credit markets, increases in inflation and interest rates, negative financial news, and declines in income or asset values which could adversely affect our business, financial condition and operating results. Recent inflationary increases have driven up the prices at which we are able to purchase necessary components, products, and services, as well as the cost of contract labor. In addition, we continue to face risks related to uncertain tariff levels between countries where our products are manufactured and sold, unstable political and economic conditions in Europe, including the war between Russia and Ukraine, and concerns about sovereign debt, which could negatively impact the U.S. and global economies and adversely affect our financial results. In addition, our ability to access capital markets may be restricted or result in unfavorable financing terms, impacting our ability to react to changing economic and business conditions and could also materially and adversely affect our ability to sustain our operations at their current levels.\nOur stock price has experienced significant volatility in the past, and continued volatility may cause our common stock trading price to remain volatile or decline.\nOur stock price has been extremely volatile in the past.\n \nThe trading price of our common stock may continue to fluctuate in response to a number of events and factors, many of which may be beyond our control, such as:\n\u2022\nquarterly variations in our operating results;\n\u2022\nfailure to meet our financial guidance or the expectations of securities analysts and investors;\n\u2022\nnew products, services, innovations, strategic developments, or business combinations and investments by our competitors or us;\n\u2022\nchanges in our capital structure, including incurring new debt, issuing additional debt or equity to the public, and issuing common stock upon exercise of our outstanding warrants or subscribing to our recent rights offering;\n\u2022\nlarge or sudden purchases or sales of stock by investors; \n\u2022\nchanges in interest and exchange rates;\n\u2022\na continued widespread decline in the U.S. or global economy as a result of the impact of COVID-19, supply chain constraints, or other factors;\n\u2022\nfluctuations in the stock market in general and market prices for technology companies in particular;\n\u2022\ntariffs imposed by the U.S. government on sales originating in or being shipped to countries with which we have on-going trade or other political conflicts;\n\u2022\ninvestigations or enforcement actions related to a potential or actual failure to comply with applicable regulations;\n\u2022\ncosts of new or ongoing commercial litigation; and\n\u2022\nsignificant changes in our brand or reputation.\nAny of these events and factors may cause our stock price to rise or fall and may adversely affect our business and financing opportunities.\nWe may be unable to attract and retain key talent necessary to effectively meet our business objectives.\nThe market for skilled engineering, sales, and administrative talent is competitive and we have seen delays in recruiting and hiring timeframes. We believe our ability to recruit and hire new talent, and retain existing key personnel, may be negatively impacted by prior and ongoing fluctuations in our operating results, stock price, and ability to offer competitive benefits and total compensation programs.\n \nOur business results may be harmed if we are unable to attract and retain key talent in the future.\nOur quarterly operating results have fluctuated significantly, and past results should not be used to predict future performance.\n14\nTable of Contents\nOur quarterly operating results have fluctuated significantly in the past and could fluctuate significantly in the future. As a result, our quarterly operating results should not be used to predict future performance. Quarterly results could be materially and adversely affected by a number of factors, including, but not limited to:\n\u2022\nIT spending fluctuations resulting from economic conditions or changes in U.S. federal government spending;\n\u2022\nsupply chain constraints or other failures by our contract manufacturers to complete shipments in a timely manner;\n\u2022\nnew product announcements by us or our competitors which may cause purchasing delays or cancellations;\n\u2022\ncustomers canceling, reducing, deferring, or rescheduling significant orders as a result of excess inventory levels, weak economic conditions, reduced demand, or other factors;\n\u2022\nseasonality, including customer and government fiscal year-ends and budget availability impacting demand for our products;\n\u2022\nreduced demand, declines in large orders, royalty, or software revenues, or other changes in product mix;\n\u2022\nproduct development and ramp cycle delays or product performance or quality issues;\n\u2022\npoor execution of and performance against expected sales and marketing plans and strategies;\n\u2022\nincreased competition which may, among other things, increase pricing pressure or reduce sales;\n\u2022\nrestructuring actions or unexpected costs; and\n\u2022\nforeign currency exchange fluctuations.\nOur operating results depend on continuing and increasing market acceptance of our existing products and on new product introductions, which may be unsuccessful, in which case our business, financial condition and results of operations may be materially and adversely affected.\nA limited number of products comprise a significant majority of our sales, and due to rapid technological change in our industry, our future operating results depend on our ability to improve existing products and develop and successfully introduce new products. We have devoted and expect to continue to devote considerable management and financial resources to these efforts. \nWhen we introduce new products to the market, they may not achieve market acceptance or significant market share.\n \nIn addition, the target markets for our new products may not continue or grow as we anticipate.\n \nOur new products may not be successfully or timely qualified by new customers, and if they are qualified, we may not achieve high volume production in a timely manner, if at all.\n \nIn addition, we may experience technical, quality, performance-related, or other difficulties that could prevent or delay the introduction and market acceptance of new products.\nIf we are not successful in timely completing our new product qualifications and ramping sales to our key customers, our revenue and operating results could be adversely impacted. In addition, if the quality of our products is not acceptable to our customers, customer dissatisfaction, lost revenue, and increased warranty and repair costs could result.\nWe derive significant revenue from products incorporating tape technology. Our future operating results depend in part on continued market acceptance and use of tape products; in the past, decreases in the tape products market have materially and adversely impacted our business, financial condition and operating results. \nWe currently derive significant revenue from products that incorporate some form of tape technology, and we expect to continue to do so in the next several years. As a result, our future operating results depend in part on continued market acceptance and use of tape products. Decreased market acceptance or use of products employing tape technology has materially and adversely impacted our business, financial condition, and operating results, and we expect that our revenues from certain types of tape products could continue to decline in the future.\nDisk, solid-state, and flash storage products, as well as various software solutions and alternative technologies have eroded the demand for tape products. We expect that, over time, many of our tape customers could migrate toward \n15\nTable of Contents\nthese other products and solutions and their proportionate contribution to our revenue will increase in the future. While we are making targeted investments in software, disk backup and flash storage systems, and other alternative technologies, these markets are characterized by rapid innovation, evolving customer demands, and strong competition, including competition with companies who are also significant customers. If we are not successful in our efforts, we may not be able to attract or retain customers, and our business, financial condition and results of operations could be materially and adversely affected.\nA significant decline in our media royalty or branded software revenues could materially and adversely affect our business, financial condition and operating results.\nOur media royalties and branded software revenues generate relatively greater profit margins than some of our other products and can significantly impact our overall profitability. We receive media royalty revenue based on tape media cartridges sold by various tape media manufacturers and resellers. Under our patent and technology license agreements with these companies, each of the licensees determines the pricing and number of units of tape media cartridges that it sells. Our media royalty revenue varies based on the licensees\u2019 media sales and other factors, including:\n\u2022\nour customers\u2019 continued use of storage tape media, including the size of the installed base of devices and similar products that use tape media cartridges;\n\u2022\nthe relative growth in units of newer device products, since the associated media cartridges for newer products typically sell at higher prices compared with the media cartridges associated with older products;\n\u2022\nmedia consumption habits and rates of end users and pattern of device retirements;\n\u2022\nthe level of channel inventories; and\n\u2022\nagreement on standards for newer generations of the tape media that generates our royalty revenue.\nRisks Related to Our Indebtedness\nWe have significant indebtedness, which imposes upon us debt service obligations, and our term loan and revolving credit facilities contain various operating and financial covenants that limit our discretion in operating our business. If we are unable to generate sufficient cash flows from operations and overall operating results to meet these debt obligations or remain in compliance with the covenants, our business, financial condition and operating results could be materially and adversely affected.\nOur level of indebtedness presents significant risks to our business and investors, both in terms of the constraints that it places on our ability to operate our business and because of the possibility that we may not generate sufficient cash and operating results to remain in compliance with our covenants and pay the principal and interest on our indebtedness as it becomes due. As recently as March 2023, we were in danger of failing to meet certain financial covenants in our debt agreements, which could have resulted in a default under these agreements if we had not obtained a waiver of noncompliance from our lenders.  For further description of our outstanding debt, see the section captioned \u201cLiquidity and Capital Resources\u201d in Part II, Item 7 Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations.  \nAs a result of our indebtedness: \n\u2022\nOur ability to invest in growing our business is constrained by the financial covenants contained in our credit facilities, which require us to maintain certain maximum total net leverage ratio levels, a minimum fixed charge coverage ratio, and liquidity levels and restrict our ability to:\n\u25aa\nIncur debt and liens;\n\u25aa\nAcquire businesses or entities or sell certain assets;\n\u25aa\nMake investments, including loans, guarantees, and advances;\n\u25aa\nEngage in transactions with affiliates;\n\u25aa\nPay dividends or repurchase stock; and\n\u25aa\nEnter into certain restrictive agreements;\n16\nTable of Contents\n\u2022\nWe must dedicate a significant portion of our cash flow from operations and other capital resources to debt service, thereby reducing our ability to fund working capital, capital expenditures, research and development, mergers and acquisitions, and other cash-based activities, all of which may place us at a competitive disadvantage;\n\u2022\nWe are subject to mandatory field audits and control of cash receipts by the lenders if we do not maintain liquidity above certain thresholds;\n\u2022\nWe may be more vulnerable to adverse economic and industry conditions; and\n\u2022\nWe may be unable to make payments on other indebtedness or obligations.\nOur ability to make scheduled payments of the principal, to pay interest on, or refinance our debt, or to make cash payments in connection with our credit facilities, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Further, as our debt reaches maturity, we will be required to make large cash payments or adopt one or more alternatives, such as restructuring indebtedness or obtaining additional debt or equity financing on terms that may be onerous or highly dilutive. Our ability to restructure or refinance our debt will depend on the capital markets and our financial condition at such time. We may be unable to incur additional debt or refinance our existing debt on acceptable terms, if at all.\nOur credit facilities are collateralized by a pledge of all our assets. If we were to default and be unable to cure it within any applicable grace periods or obtain a waiver of such default, the lenders would have a right to foreclose on our assets to satisfy our obligations under these agreements. Any such action on the part of the lenders could have a materially adverse impact on our business, financial condition and results of operations.\nIn connection with entering into our prior credit facilities and certain amendments to our prior credit facilities, we were required to issue to our lenders thereunder, certain warrants to purchase our common stock. When exercised, these warrants will result in significant dilution to our stockholders. As a result, the issuance of common stock upon the exercise of our outstanding warrants may cause our stock price to decline. \nRisks Related to Our Business and Industry\nIf we do not successfully manage the changes that we have made and may continue to make to our business model, infrastructure, and management, our business could be disrupted, and that could adversely impact our operating results and financial condition.\nManaging change is an important focus for us. In recent years, we have implemented several significant initiatives involving our sales and marketing, product engineering, and operations organizations, aimed at transitioning our revenue model from discrete hardware sales to recurring software revenue, increasing our efficiency, and better aligning internal operations with our corporate strategy. In addition, we have reduced headcount to streamline and consolidate our supporting functions as appropriate following recent acquisitions and in response to market or competitive conditions, and have increased our reliance on certain third-party business relationships. If we are unable to successfully manage the changes that we implement and detect and address issues as they arise, our business could be disrupted, and our results of operations and financial condition could be materially and adversely impacted.\nIn addition, given that we are relatively new to offering products and services on a subscription basis, and those models in the storage industry continue to evolve, we may not be able to effectively compete, drive expected revenue and margin growth, or obtain profitability for the foreseeable future.\n \nDemand for subscription-based products could also erode one-time sales of our hardware products that might not be immediately offset by increased recurring revenue.\nWe have taken considerable steps towards reducing our cost structure. The steps we have taken may not reduce our cost structure to a level appropriate in relation to our future sales and therefore, these cost reductions may be insufficient to achieve profitability.\nIn the last several years, we have recorded significant restructuring charges and made cash payments to reduce our cost of sales and operating expenses to respond to adverse economic and industry conditions, to execute \n17\nTable of Contents\nstrategic management decisions, and to rationalize our operations following acquisitions. These restructuring plans may result in decreases to our revenues or adversely affect our ability to grow our business in the future. Workforce reductions may also adversely affect employee morale and our ability to retain our employees. We may take future steps to further reduce our operating costs, including additional restructurings in response to strategic decisions, increased operating and product costs due to inflation, supply chain constraints, and other external factors, adverse changes in our business or industry, or future acquisitions. We may be unable to reduce our cost of sales and operating expenses at a rate and to a level appropriate in relation to our future sales, which may materially and adversely affect our business, financial condition and results of operations.\nIn addition, our ability to achieve the anticipated cost savings and other benefits from these restructuring plans within the expected time frame is subject to many estimates and assumptions which may be adversely impacted by significant economic, competitive and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our business, financial condition, and operating results could be adversely affected.\nThe failure to successfully integrate future acquired businesses, products or technologies could harm our business, financial condition, and operating results.\nAs a part of our business strategy, we have in the past and may make acquisitions in the future. We may also make significant investments in complementary companies, products or technologies. If we fail to successfully integrate such acquisitions or significant investments, it could harm our business, financial condition, and operating results. Risks that we may face in our efforts to integrate any recent or future acquisitions include, among others:\n\u2022\nfailure to realize anticipated synergies or return on investment from the acquisition;\n\u2022\ndifficulties assimilating and retaining employees, business culture incompatibility, or resistance to change;\n\u2022\ndiverting management\u2019s attention from ongoing business concerns;\n\u2022\ncoordinating geographically separate organizations and infrastructure operations in a rapid and efficient manner;\n\u2022\nthe potential inability to maximize our financial and strategic position through the successful incorporation of acquired technology and rights into our products and services;\n\u2022\nfailure of acquired technology or products to provide anticipated revenue or margin contribution;\n\u2022\ninsufficient revenues to offset increased expenses associated with the acquisition;\n\u2022\ncosts and delays in implementing or integrating common systems and procedures;\n\u2022\nreduction or loss of customer orders due to the potential for market confusion, hesitation and delay;\n\u2022\nimpairment of existing customer, supplier and strategic relationships of either company;\n\u2022\ninsufficient cash flows from operations to fund the working capital and investment requirements;\n\u2022\ndifficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;\n\u2022\ndissatisfaction or performance problems with the acquired company;\n\u2022\nthe assumption of risks, unknown liabilities, or other unanticipated adverse circumstances of the acquired company that are difficult to quantify; and \n\u2022\nthe cost associated with the acquisition, including restructuring actions, which may require cash payments that, if large enough, could materially and adversely affect our liquidity.\nA cybersecurity breach could adversely affect our ability to conduct our business, harm our reputation, expose us to significant liability, or otherwise damage our financial results.\nWe maintain sensitive data related to our employees, strategic partners, and customers, including personally identifiable information, intellectual property, and proprietary business information on our own systems. In addition, many of our customers and partners store sensitive data on our products.\nIt is critical to our business that our employees\u2019, strategic partners\u2019 and customers\u2019 sensitive information remains and is perceived as secure. While we employ sophisticated security measures in our own environment and our product features, we may face internal and external threats including unauthorized access, ransomware attacks, \n18\nTable of Contents\nsecurity breaches, and other system disruptions. A cybersecurity breach of our own IT infrastructure or products sold to our customers could result in unauthorized access to, loss of, or unauthorized disclosure of such information and expose us to litigation, indemnity obligations, government investigations, and other possible liabilities. Additionally, a cyber-attack, whether actual or perceived, could result in negative publicity which could harm our reputation and reduce our customers\u2019 confidence in the effectiveness of our solutions, which could materially and adversely affect our business and operating results. A breach could also expose us to increased costs from remediation, disruption of operations, or increased cybersecurity protection costs that may have a material adverse effect on our business. Although we maintain cybersecurity liability insurance, our insurance may not cover all or any portion of claims of these types or may not be adequate to indemnify us for inability that may be imposed. Any imposition or liability or litigation costs that are not covered by insurance could harm our business.\nIf our products fail to meet our or our customers\u2019 specifications for quality and reliability, we may face liability and reputational or financial harm which may adversely impact our operating results and our competitive position may suffer.\nWe may from time to time experience problems with the performance of our products, which could result in one or more of the following:\n\u2022\nincreased costs related to fulfilling our warranty obligations;\n\u2022\nreduced, delayed, or cancelled orders or the return of a significant amount of products; or\n\u2022\nthe loss of reputation in the market and customer goodwill.\nThese factors could cause our business, financial condition and results of operations to be materially and adversely affected.\nIn addition, we face potential liability for product performance problems because our end users employ our technologies to store and backup important data and to satisfy regulatory requirements. Loss of this data could cost our customers significant amounts of money, directly and indirectly as a result of lost revenues, intellectual property, proprietary business information, or other harm to their business. In some cases, the failure of our products may be caused by third-party technology that we incorporate into them.\n \nEven if failures are caused by third-party technology, we may be required to expend resources to address the failure and preserve customer relationships. We could also potentially face claims for product liability from our customers if our products cause property damage or bodily injury. Although there are limitations of liability in our commercial agreements and we maintain technology errors and omissions liability and general liability insurance, our insurance may not cover potential claims of these types or may not be adequate to indemnify us for all liability that may be imposed. Any imposition of liability or litigation costs that are not covered by insurance or could harm our business.\nCompetition is intense in the data storage and protection market in which we operate.\nOur competitors in the data storage and protection market are aggressively trying to advance and develop new technologies and products to compete against us. Consequently, we face the risk that customers could choose competitor products over ours. As a result of competition and new technology standards, our sales or gross margins could decline, which could materially and adversely affect our business, financial condition, and operating results. Some of those competitors are much larger and financially stronger, have more diverse product offerings, and aggressively compete based on their reputations and greater size.\nTechnological developments, industry consolidation, and storage market competition over the years have resulted in decreased prices and increased commoditization for tape device and automation products and our other product offerings. Pricing pressure is more pronounced for entry-level products and less pronounced for enterprise products. Over time, the prices of our and competitor products have decreased, but such products often incorporate new or different features and technologies from what we offered in prior years. We face risks that customers could choose competitors\u2019 products over ours due to these features and technologies or pricing differences. If competition further intensifies, our product sales and gross margins could decline, which could materially and adversely affect our business, financial condition and results of operations.\nAdditional industry consolidation may further result in:\n19\nTable of Contents\n\u2022\ncompetitors consolidating, having greater resources and becoming more competitive with us;\n\u2022\nnew entrants into one or more of our primary markets increasing competition; \n\u2022\ncustomers that are also competitors becoming more competitive with us and/or reducing their purchase of our products; \n\u2022\ncompetitors acquiring our current suppliers or business partners and negatively impacting our business model; and\n\u2022\nmarket uncertainty and disruption due to the impact and timing of announced and completed transactions.\nRisks Related to Intellectual Property\nSome of our products contain licensed, third-party technology that provides important product functionality and features. The loss or inability to obtain any such license could have a material adverse effect on our business.\nCertain of our products contain technology licensed from third parties that provides important product functionality and features. We cannot provide assurance that we will have continued access to this technology in the future. In some cases, we may seek to enforce our technology access via litigation against the licensing company itself, which may cause us to incur significant legal or other costs and may not be resolved in our favor. Other legal actions against the licensing company, such as for intellectual property infringement, could also impact our future access to the technology. We also have limited visibility or control of the technology roadmap at the licensing company and cannot ensure that the licensing company will advance the roadmap of the licensed technology in the manner best for us. We also face the risk of not being able to quickly implement a replacement technology or otherwise mitigate the risks associated with not having access to this licensed technology.\n \nAny of these actions could negatively impact our available technology portfolio, thereby reducing the functionality or features of our products, and could materially and adversely affect our business, financial condition, and operating results.\nThird-party intellectual property infringement claims could result in substantial liability and significant costs, and, as a result, our business, financial condition and results of operations may be materially and adversely affected.\nFrom time to time, third parties allege that our products infringe their patented or proprietary technology and demand that we purchase a license from them. The ultimate outcome of any license discussion or litigation is uncertain. Adverse resolution of any third-party infringement claim could subject us to substantial liabilities and require us to refrain from manufacturing and selling certain products. In addition, the costs incurred in intellectual property litigation can be substantial, regardless of the outcome. As a result, our business, financial condition, and operating result could be materially and adversely affected.\nIf we fail to protect our intellectual property or if others use our proprietary technology without authorization, our competitive position may suffer.\nOur future success and ability to compete depends in part on our proprietary technology. We rely on a combination of copyright, patent, trademark, and trade secrets laws and nondisclosure agreements to establish and protect our proprietary technology. However, we cannot provide assurance that patents will be issued with respect to pending or future patent applications that we have filed or plan to file, that our patents will be upheld as valid, or that our patents will prevent the development of competitive products, or that any actions we have taken will adequately protect our intellectual property rights. \nDespite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain or use our products or technology. Enforcing our intellectual property rights can sometimes only be accomplished through litigation, which is expensive and can divert management\u2019s attention away from our business. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the U.S.\nWe license certain of our software under \u201copen source\u201d licenses. Because of the characteristics of opensource software licenses, it may be relatively easy for competitors, some of whom have greater \n20\nTable of Contents\nresources than we have, to enter our markets and compete with us.\n \nIn addition, our failure to comply with the terms of open source licenses could have a material adverse effect on our competitive position and financial results.\nOne of the characteristics of open source software is that the source code is typically publicly available at no charge, and anyone who obtains copies has a license under certain of our intellectual property rights. Depending on the license, that may include access to certain of our patents, to modify and redistribute the software, and use it to compete in the marketplace.\n \nCertain open source software licenses require users to license to other any software that is based on, incorporates, or interacts with the open source software. Although we endeavor to comply fully with those requirements, third parties could claim we are required to license larger portions of our software than we intended.\n \nIf such claims were successful, they could adversely impact our competitive position and financial results by providing our competitors with access to sensitive information that may help them develop competitive products without the degree of overhead and lead time required by traditional proprietary software development.\n \nIt is possible for competitors to use our open source project software to develop their own software, potentially reducing the demand for our solution and putting price pressure on our subscription offerings. We cannot guarantee that competitive pressure or the availability of new open source software will not result in price reductions, reduced operating margins and loss of market share, any one of which could harm our business, financial condition, operating results, and cash flows.\nIn addition, we use our own open source project software in our proprietary products. As a result, there is a risk that we may inadvertently release as open source certain code that was intended to be kept as proprietary, that reveals confidential information regarding the inner workings of our proprietary products, or that could enable competitors to more readily reverse engineer or replicate aspects of our proprietary technology that we would otherwise protect as trade secrets. We may also accept contributions from third parties to our open source projects, and it may be difficult for us to accurately determine the origin of the contributions and whether their use, including in our proprietary products, infringes, misappropriates, or violates third-party intellectual property or other rights. The availability of certain of our own software in source code form may also enable others to detect and exploit security vulnerabilities in our products.\n \nIn addition, our use of open source software may harm our business and subject us to intellectual property claims, litigation, or proceedings in the future.\nRisks Related to Regulatory Matters\nWe are subject to many laws and regulations, and violation of or changes in those requirements could materially and adversely affect our business.\nWe are subject to numerous U.S. and international laws and requirements regarding corporate conduct, fair competition, corruption prevention, import and export practices, and hazardous or restricted material use, storage, discharge, and disposal, including laws applicable to U.S. government contractors. We have incurred, and will continue to incur, costs and business process changes to comply with such regulations. While we maintain a rigorous corporate ethics and compliance program, we may be subject to increased regulatory scrutiny, significant monetary fines or penalties, suspension of business opportunities, loss of jurisdictional operating rights, and increased litigation and investigation costs as a result of any failure to comply with those requirements. If we identify that we have fallen out of compliance, we may proactively take corrective actions, including the filing of voluntary self-disclosure statements with applicable agencies, which could cause us to incur additional expenses and subject us to penalties and other consequences that could adversely affect our business, financial condition, and operating results. Our supply and distribution models may be reliant upon the actions of our third-party business partners and we may also be exposed to potential liability resulting from their violation of these or other compliance requirements. Further, our U.S. and international business models are based on currently applicable regulatory requirements and exceptions. Changes in those requirements or exceptions could necessitate changes to our business model. Any of these consequences could materially and adversely impact our business and results of operations. \nOur actual or perceived failure to adequately protect personally identifiable information could adversely affect our business, financial condition, and operating results.\n21\nTable of Contents\nA variety of state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, deletion, and other processing of personally identifiable information. These privacy- and data protection-related laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. Compliance with these laws and regulations can be costly and can delay or impede the development or implementation of new products or internal systems.\n \nFailure to comply could result in enforcement actions and significant penalties against us, which could result in negative publicity, increase our operating costs, and have a material adverse effect on our business, financial condition, and operating results.\nGeneral Risk Factors\nWe face risks related to health epidemics which could have a material adverse effect on our business and results of operations.\nWe face various risks related to public health issues, including epidemics, pandemics, and other outbreaks, including the COVID-19 pandemic. The COVID-19 pandemic and efforts to control its spread have impacted and may continue to impact our workforce and operations, and those of our strategic partners, customers, suppliers, and logistics providers. These impacts have included and may include increased component, product, transportation, and overhead costs, increased logistics capacity and flexibility needs, decreased workforce availability, component supply, and product output, increased cybersecurity threats from remote work, and general economic downturns. We or our third-party business partners have been and may continue to be subject to government restrictions that impact our ability to continue efficient business operations.\n \nWhile we have taken many actions to mitigate the ongoing effects of the COVID-19 pandemic, we cannot guarantee that they will be sufficient to mitigate all related risks.\n \nTo the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in more detail in this \u201cRisk Factors\u201d section, such as those relating to adverse global or regional conditions, our highly competitive industry, supply chain disruption, customer demand conditions and our ability to forecast demand, cost saving initiatives, our indebtedness and liquidity, and cyber-attacks.\nIf we fail to maintain proper and effective internal controls, material misstatements in our financial statements could occur, impairing our ability to produce accurate and timely financial statements and adversely affecting investor confidence in our financial reports, which could negatively affect our business.\nIf we fail to maintain proper and effective internal controls, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results in the future. Moreover, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all. If we are unable to provide reliable and timely financial reports in the future, our business and reputation may be further harmed. Restated financial statements and failures in internal control may also cause us to fail to meet reporting obligations or debt covenants, negatively affect investor confidence in our management and the accuracy of our financial statements and disclosures, or result in adverse publicity, any of which could have a negative effect on the price of our common stock, subject us to further regulatory investigations and penalties or stockholder litigation, and materially and adversely impact our business and financial condition.\nWe are exposed to fluctuations in foreign currency exchange rates, and an adverse change in foreign currency exchange rates relative to our position in such currencies could have a material adverse impact on our business, financial condition and results of operations.\nWe do not currently use derivative financial instruments for speculative purposes. To the extent that we have assets or liabilities denominated in a foreign currency that are inadequately hedged or not hedged at all, we may be subject to foreign currency losses, which could be significant.\n \nOur international operations can act as a natural hedge when both operating expenses and sales are denominated in local currencies. In these instances, although an unfavorable change in the exchange rate of a foreign currency against the U.S. dollar would result in lower sales when translated to U.S. dollars, operating expenses would also be lower in these circumstances. The competitive price of our products relative to others could also be negatively impacted by changes in the rate at which a foreign \n22\nTable of Contents\ncurrency is exchanged for U.S. dollars. Such fluctuations in currency exchange rates could materially and adversely affect our business, financial condition and results of operations.\nIf the future outcomes related to the estimates used in recording tax liabilities to various taxing authorities result in higher tax liabilities than estimated, then we would have to record tax charges, which could be material.\nWe have provided amounts and recorded liabilities for probable and estimable tax adjustments required by various taxing authorities in the U.S. and foreign jurisdictions. If events occur that indicate payments of these amounts will be less than estimated, then reversals of these liabilities would create tax benefits recognized in the periods when we determine the liabilities have reduced. Conversely, if events occur which indicate that payments of these amounts will be greater than estimated, then tax charges and additional liabilities would be recorded. In particular, various foreign jurisdictions could challenge the characterization or transfer pricing of certain intercompany transactions. In the event of an unfavorable outcome of such challenge, material tax charges and adverse impacts on operating results could occur in the period in which the matter is resolved or an unfavorable outcome becomes probable and estimable.\nCertain changes in stock ownership could result in a limitation on the amount of net operating loss and tax credit carryovers that can be utilized each year. Should we undergo such a change in stock ownership, it would severely limit the usage of these carryover tax attributes against future income, resulting in additional tax charges, which could be material.\n23\nTable of Contents",
+  "item7": ">ITEM 7.\u00a0\u00a0\u00a0\u00a0MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThe following discussion and analysis compares the change in the consolidated financial statements for fiscal years 2023 and 2022 and should be read together with our consolidated financial statements, the accompanying notes, and other information included in this Annual Report. In particular, the risk factors contained in Item 1A may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources.  For comparisons of fiscal years 2022 and 2021, see our Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, , Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the SEC on June 8, 2022, and incorporated herein by reference.\nThe following discussion contains forward-looking statements, such as statements regarding\u00a0anticipated impacts on our business, our future operating results and financial position, our business strategy and plans, our market growth and trends, and our objectives for future operations. Please see \"Note Regarding Forward-Looking Statements\" for more information about relying on these forward-looking statements. \nOverview and Highlights\nWe are a technology company whose mission is to deliver innovative solutions to forward-thinking organizations across the world. We design, manufacture and sell technology and services that help customers capture, create and share digital content, and protect it for decades. We emphasize innovative technology in the design and manufacture of our products to help our customers unlock the value in their video and unstructured data in new ways to solve their most pressing business challenges.\nWe generate revenue by designing, manufacturing, and selling technology and services. Our most significant expenses are related to compensating employees; designing, manufacturing, marketing, and selling our products and services; data center costs in support of our cloud-based services; and income taxes.\nRESULTS OF OPERATIONS\nYear Ended March 31,\n(in thousands)\n2023\n2022\nTotal revenue\n$\n412,752\u00a0\n$\n372,827\u00a0\nTotal cost of revenue \n(1)\n278,813\u00a0\n225,792\u00a0\nGross profit\n133,939\u00a0\n147,035\u00a0\nOperating expenses\nResearch and development \n(1)\n44,555\u00a0\n51,812\u00a0\nSales and marketing \n(1)\n66,034\u00a0\n62,957\u00a0\nGeneral and administrative \n(1)\n47,752\u00a0\n45,256\u00a0\nRestructuring charges\n1,605\u00a0\n850\u00a0\nTotal operating expenses\n159,946\u00a0\n160,875\u00a0\nLoss from operations\n(26,007)\n(13,840)\nOther income (expense), net\n1,956\u00a0\n(251)\nInterest expense\n(10,560)\n(11,888)\nLoss on debt extinguishment, net\n(1,392)\n(4,960)\nNet loss before income taxes\n(36,003)\n(30,939)\nIncome tax provision\n1,940\u00a0\n1,341\u00a0\nNet loss\n$\n(37,943)\n$\n(32,280)\n(1) \nIncludes stock-based compensation as follows:\n28\nTable of Contents\nYear Ended March 31,\n(in thousands)\n2023\n2022\nCost of revenue\n$\n929\u00a0\n$\n1,112\u00a0\nResearch and development\n2,997\u00a0\n5,843\u00a0\nSales and marketing\n2,397\u00a0\n2,516\u00a0\nGeneral and administrative\n4,427\u00a0\n4,358\u00a0\n\u00a0\u00a0\u00a0Total\n$\n10,750\u00a0\n$\n13,829\u00a0\n \nComparison of the Years Ended March 31, 2023 and 2022\nRevenue\nYear Ended March 31,\n(in thousands)\n2023\n% of\nrevenue\n2022\n% of\nrevenue\n$ Change\n% Change\nProduct revenue\n$\n266,537\u00a0\n65\u00a0\n%\n$\n223,761\u00a0\n60\u00a0\n%\n$\n42,776\u00a0\n19\u00a0\n%\nService and subscription revenue\n132,510\u00a0\n32\u00a0\n%\n133,689\u00a0\n36\u00a0\n%\n(1,179)\n(1)\n%\nRoyalty revenue\n13,705\u00a0\n3\u00a0\n%\n15,377\u00a0\n4\u00a0\n%\n(1,672)\n(11)\n%\nTotal revenue\n$\n412,752\u00a0\n100\u00a0\n%\n$\n372,827\u00a0\n100\u00a0\n%\n$\n39,925\u00a0\n11\u00a0\n%\nProduct Revenue\nIn fiscal 2023, product revenue increased $42.8 million, or 19%, as compared to fiscal 2022.  The primary driver of the increase was demand from our large hyperscale customers, as well as continued strong demand globally for data protection and archive solutions. Outside of the Tape and Hyperscale business, our remaining Secondary and Primary storage systems are also offer as a subscription.  We anticipate the product revenue portion of our Primary and Secondary storage systems to decrease as we continue to transition to subscription-based offerings.  The Devices and media also decreased partially driven by lower volume of LTO\u00ae  media sales. \nService and Subscription Revenue\nService and subscription revenue decreased $1.2 million, or 1%, in fiscal 2023 compared to fiscal 2022.  This decrease was due in part to certain long-lived products reaching their end-of-service-life, partially offset by new support bookings and the transition towards subscription-based licensing.  \nRoyalty Revenue \nWe receive royalties from third parties that license our LTO\u00ae media patents through our membership in the LTO\u00ae  consortium. Royalty revenue decreased $1.7 million, or 11%, in fiscal 2023, as compared to fiscal 2022, related to lower overall unit shipments. \nGross Profit and Margin\nYear Ended March 31,\n(in thousands)\n2023\nGross\nmargin %\n2022\nGross\nmargin %\n$ Change\nBasis point change\nProduct gross profit\n$\n46,506\u00a0\n17.4\u00a0\n%\n$\n53,981\u00a0\n24.1\u00a0\n%\n$\n(7,475)\n(670)\nService and subscription gross profit\n73,728\u00a0\n55.6\u00a0\n%\n77,677\u00a0\n58.1\u00a0\n%\n(3,949)\n(250)\nRoyalty gross profit\n13,705\u00a0\n100.0\u00a0\n%\n15,377\u00a0\n100.0\u00a0\n%\n(1,672)\n\u2014\u00a0\nGross profit\n$\n133,939\u00a0\n32.5\u00a0\n%\n$\n147,035\u00a0\n39.4\u00a0\n%\n$\n(13,096)\n(690)\n29\nTable of Contents\nProduct Gross Margin \nProduct gross margin decreased 670 basis points for fiscal 2023, as compared to fiscal 2022. This decrease was due primarily to a $9.8 million inventory provision recorded during fiscal 2023. Due to longer purchasing lead times and other factors caused by the global supply chain disruptions occurring since the beginning of the COVID-19 pandemic, certain inventory has become obsolete due to next generation products being released and legacy products being discontinued. In addition, following our integration of several past acquisitions, certain legacy products were discontinued and replaced with updated product offerings rendering the related inventory obsolete. We do not believe that the magnitude of this inventory provision is indicative of our ongoing operations and is not expected to be repeated in the near term.\nExcluding this non-recurring adjustment, product gross margin has declined approximately 370 basis points for fiscal 2023, as compared to fiscal 2022 primarily due to the continuation of pricing pressure on materials cost and freight, as global supply chain constraints disrupted normal procurement channels. Our product mix was also more heavily weighted to lower margin solutions. \nService and subscription Gross Margin \nService and subscription gross margin decreased 250 basis points for fiscal 2023, as compared to fiscal 2022. This decrease was due partially to increased costs for freight and repair on replacement parts in addition to additional inventory write downs required for service parts caused by the transition of certain service logistics activities to a third party provider.\nRoyalty Gross Margin \nRoyalties do not have significant related cost of sales. \nOperating expenses\nYear Ended March 31,\n(in thousands)\n2023\n% of\nrevenue\n2022\n% of\nrevenue\n$ Change\n% Change\nResearch and development\n$\n44,555\u00a0\n11\u00a0\n%\n$\n51,812\u00a0\n14\u00a0\n%\n$\n(7,257)\n(14)\n%\nSales and marketing\n66,034\u00a0\n16\u00a0\n%\n62,957\u00a0\n17\u00a0\n%\n3,077\u00a0\n5\u00a0\n%\nGeneral and administrative\n47,752\u00a0\n12\u00a0\n%\n45,256\u00a0\n12\u00a0\n%\n2,496\u00a0\n6\u00a0\n%\nRestructuring charges\n1,605\u00a0\n\u2014\u00a0\n%\n850\u00a0\n\u2014\u00a0\n%\n755\u00a0\n89\u00a0\n%\n\u00a0\u00a0\u00a0Total operating expenses\n$\n159,946\u00a0\n39\u00a0\n%\n$\n160,875\u00a0\n43\u00a0\n%\n$\n(929)\n(1)\n%\nIn fiscal 2023, research and development expense decreased $7.3 million, or 14%, as compared with fiscal 2022.  This decrease was the result of one-time acquisition-related costs that occurred in the prior year, as well as the overall consolidation of those acquisitions. \nIn fiscal 2023, sales and marketing expenses increased $3.1 million, or 5%, as compared with fiscal 2022.  This increase was partially driven by increased investment in sales resources in key strategic markets, as well as the resumption of large trade shows and other events that are a key driver of our marketing activities. \nIn fiscal 2023, general and administrative expenses increased $2.5 million, or 6%, as compared with fiscal 2022. This increase was driven primarily by transition costs as we complete large projects in our IT and facilities infrastructure. \nIn fiscal 2023, restructuring expenses increased $0.8 million, or 89%, as compared with fiscal 2022.  This increase is driven by corporate restructuring activities as we consolidated our physical footprint and operations in certain markets.\nOther expense, net\nYear Ended March 31,\n(in thousands)\n2023\n% of\nrevenue\n2022\n% of\nrevenue\n$ Change\n% Change\nOther income (expense), net\n$\n1,956\u00a0\n1\u00a0\n%\n$\n(251)\n0\u00a0\n%\n$\n(2,207)\n(879)\n%\n30\nTable of Contents\nIn fiscal 2023, other income (expense), net increased $2.2 million or 879%, compared to fiscal 2022. The increase was primarily related to differences in foreign currency gains and losses during each period, as well as the sale of  IP licenses. \nInterest expense\nYear Ended March 31,\n(in thousands)\n2023\n% of\nrevenue\n2022\n% of\nrevenue\n$ Change\n% Change\nInterest expense\n(10,560)\n(3)\n%\n(11,888)\n(3)\n%\n(1,328)\n(11)\n%\nIn fiscal 2023, interest expense decreased $1.3 million, or 11%, as compared to fiscal 2022.   This decrease was primarily due to a lower principal balance on our Term Loan. \nLoss on debt extinguishment, net\nYear Ended March 31,\n(in thousands)\n2023\n% of\nrevenue\n2022\n% of\nrevenue\n$ Change\n% Change\nLoss on debt extinguishment, net\n(1,392)\n\u2014\u00a0\n%\n(4,960)\n(1)\n%\n(3,568)\n(72)\n%\nIn fiscal 2023, loss on debt extinguishment, net was related to prepayment of our long-term debt.\nIncome tax provision\nYear Ended March 31,\n(in thousands)\n2023\n% of\nrevenue\n2022\n% of\nrevenue\n$ Change\n% Change\nIncome tax provision\n$\n1,940\u00a0\n1\u00a0\n%\n$\n1,341\u00a0\n\u2014\u00a0\n%\n$\n599\u00a0\n45\u00a0\n%\nOur income tax provision is primarily influenced by foreign and state income taxes. In fiscal 2023, the income tax provision increased $0.6 million or 45%, compared to fiscal 2022, related primarily to higher current foreign taxes as a result of an increase in foreign taxable income.\nDue to our history of net losses in the U.S., the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgement is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.\nLiquidity and Capital Resources\nWe consider liquidity in terms of the sufficiency of internal and external cash resources to fund our operating, investing and financing activities. Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet and amounts available under our credit facility with PNC Bank, National Association (as amended from time to time, the \u201cPNC Credit Facility\u201d) pursuant to the Amended Restated Revolving Credit and Security Agreement dated December 27, 2018.  We require significant cash resources to meet obligations to pay principal and interest on our outstanding debt, provide for our research and development activities, fund our working capital needs, and make capital expenditures. Our future liquidity requirements will depend on multiple factors, including our research and development plans and capital asset needs.  \n31\nTable of Contents\nWe had cash and cash equivalents of $26.0 million as of March\u00a031, 2023, which excludes $0.2 million. of short-term restricted cash as of March 31, 2023. Our total outstanding Term Loan debt was $74.7 million, and we had $20.0\u00a0million available to borrow under the PNC Credit Facility as of March 31, 2023.\nWe generated negative cash flows from operations of approximately $4.9 million and $33.7 million for the fiscal years ended March 31, 2023 and 2022, respectively, and generated net losses of approximately $37.9 million and $32.3 million for the fiscal years ended March 31, 2023 and 2022, respectively. We have funded operations through the sale of common stock, term debt borrowings and revolving credit facility borrowings described in \nNote 5: Debt\n.\nOn June 1, 2023, the Company entered into amendments to the Term Loan and the PNC Credit Facility. The amendments, among other things, (a) amended the total net leverage ratio financial covenant commencing with the fiscal quarter ended June 30, 2023; (b) amended the minimum liquidity financial covenant to decrease the minimum liquidity to $15 million; and (c) amended the \u201cEBITDA\u201d definition to increase the add-back cap on non-recurring items including restructuring charges during the fiscal years ended March 31, 2024 and 2025. The Term Loan amendment also provided an advance of $15 million in additional Term Loan borrowings. With the additional term debt borrowings, in addition to the amendments to the credit agreements, we forecasted that operating performance, cash, current working capital and borrowings available under the PNC Credit Facility will provide us with sufficient capital to fund operations for at least one year from the financial statement issuance date. If required, there is no assurance that we would be able to obtain sufficient additional funds when needed or that such funds, if available, would be obtainable on terms satisfactory to us.\n \nOur outstanding long-term debt amounted to $83.1 million\u00a0as of March\u00a031, 2023, net of $3.3 million in unamortized debt issuance costs and $5.0 million in current portion of long-term debt.\nWe are subject to various debt covenants under our debt agreements. Our failure to comply with our debt covenants could materially and adversely affect our financial condition and ability to service our obligations. We believe we were in compliance with all covenants under our debt agreements as of the date of filing of this Annual Report on Form\u00a010-K. See \"Risks Related to our Indebtedness\" section of\n Item 1A. Risk Factors.\nCash Flows\nThe following table summarizes our consolidated cash flows for the periods indicated.\n\u00a0\nYear Ended March 31,\n( in thousands)\n2023\n2022\nCash provided by (used in):\n\u00a0\u00a0\u00a0Operating activities\n(4,894)\n(33,728)\n\u00a0\u00a0\u00a0Investing activities\n(15,601)\n(14,124)\n\u00a0\u00a0\u00a0Financing activities\n41,165\u00a0\n20,157\u00a0\n\u00a0\u00a0\u00a0Effect of exchange rate changes\n12\u00a0\n51\u00a0\nNet change in cash, cash equivalents, and restricted cash\n$\n20,682\u00a0\n$\n(27,644)\nNet Cash Used in Operating Activities\nNet cash used in operating activities was $4.9 million for the year ended March\u00a031, 2023, primarily attributable to cash provided by operating activities excluding changes in assets and liabilities of $1.5 million offset by cash used associated with working capital changes of $6.4 million including cash used related to manufacturing and service inventories of $5.3 million.\nNet cash used in operating activities was $33.7 million for the year ended March 31, 2022, primarily attributable to $30.5 million of changes in assets and liabilities due primarily to working capital requirements due to higher manufacturing and service inventories.\n32\nTable of Contents\nNet Cash Used in Investing Activities\nNet cash used in investing activities was $15.6 million for the year ended March\u00a031, 2023, primarily attributable to $12.6 million of capital expenditures and $3.0 million of cash paid related to the deferred purchase price for a prior business acquisition.\nNet cash used in investing activities was $14.1 million for the year ended March 31, 2022, primarily attributable to $7.8 million of business acquisitions and $6.3 million of capital expenditures. \nNet Cash Provided by Financing Activities\nNet cash provided by financing activities was $41.2 million for the year ended March\u00a031, 2023 due primarily to $66.2 million of net cash received from the Rights Offering of 30 million shares of our common stock offset in part by a $20.0 million prepayment of our term debt and term debt principal amortization payments and amendment fees totaling $3.3 million. \nNet cash provided by financing activities was $20.2 million for the year ended March 31, 2022, primarily related to borrowings under our credit facility, and proceeds from the new Term Loan offset by the repayment in full of the Senior Secured Term Loan. \nCommitments and Contingencies\nOur contingent liabilities consist primarily of certain financial guarantees, both express and implied, related to product liability and potential infringement of intellectual property. We have little history of costs associated with such indemnification requirements and contingent liabilities associated with product liability may be mitigated by our insurance coverage. In the normal course of business to facilitate transactions of our services and products, we indemnify certain parties with respect to certain matters, such as intellectual property infringement or other claims. We also have indemnification agreements with our current and former officers and directors. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of our indemnification claims, and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements have not had a material impact on our operating results, financial position or cash flows.\nWe are also subject to ordinary course of business litigation, See \nNote 11:\u00a0Commitments and Contingencies\n, to our consolidated financial statements included elsewhere in this Annual Report on Form\u00a010-K.\nContractual Obligations\nContractual obligations are cash amounts that we are obligated to pay as part of certain contracts that we have entered into during the normal course of business. Below is a table that shows our contractual obligations as of March\u00a031, 2023 (in thousands):\nPayments Due by Period\n(in thousands)\nTotal\n1 year or less\n1 \u2013 3 Years\n3 \u20135 Years\nMore than\n5 years\nDebt obligations \n(1)\n$\n140,407\u00a0\n$\n15,109\u00a0\n$\n108,548\u00a0\n$\n16,750\u00a0\n$\n\u2014\u00a0\nFuture lease commitments \n(2)\n22,993\u00a0\n2,700\u00a0\n3,989\u00a0\n3,042\u00a0\n13,262\u00a0\nPurchase obligations \n(3)\n28,688\u00a0\n28,688\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0Total\n$\n192,088\u00a0\n$\n46,497\u00a0\n$\n112,537\u00a0\n$\n19,792\u00a0\n$\n13,262\u00a0\n(1)\n \nConsists of (i) principal and interest payments on our term loan based on the amount outstanding and interest rates in effect at March 31, 2023, and (ii) principal, interest, and unused commitment fees on our PNC Credit Facility based on the amount outstanding and rates in effect at March 31, 2023. Term loan debt matures on August 5, 2026. \n(2)\n \nRepresents aggregate future minimum lease payments under non-cancelable operating leases.\n(3)\n \nIncludes primarily non-cancelable inventory purchase commitments.\n33\nTable of Contents\nOff-Balance Sheet Arrangements\nWe do not currently have any other\u00a0off-balance\u00a0sheet arrangements and do not have any holdings in variable interest entities.\nCRITICAL ACCOUNTING ESTIMATES AND POLICIES\nThe preparation of our consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (\u201cGAAP\u201d) requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form\u00a010-K.\u00a0On an ongoing basis, we evaluate estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We consider the following accounting policies to be critical to understanding our financial statements because the application of these policies requires significant judgment on the part of management, which could have a material impact on our financial statements if actual performance should differ from historical experience or if our assumptions were to change. The following accounting policies include estimates that require management\u2019s subjective or complex judgments about the effects of matters that are inherently uncertain. For information on our significant accounting policies, including the policies discussed below, see \nNote 1:\u00a0Description of Business and Significant Accounting Policies\n, to our consolidated financial statements.\nRevenue Recognition \nOur revenue is derived from three main sources: (a)\u00a0products, (b)\u00a0service and subscription, and (c)\u00a0royalties. Our performance obligations are satisfied at a point in time or over time as stand ready obligations. Product revenue is recognized at the point in time when the customer takes control of the product, which typically occurs at the point of shipment. Service and subscription revenue consists of customer support agreements, software subscriptions, installation, and consulting\u00a0& training. Our software subscriptions include term licenses which are recognized as revenue when the license has been delivered to the customer and related customer support which is recognized ratably over the service period. Revenue from customer support agreements is recognized ratably over the contractual term of the agreement. Installation services are typically completed within a short period of time and revenue from these services are recognized at the point when installation is complete. A majority of our consulting and training revenue does not take significant time to complete therefore these obligations are satisfied upon completion of such services at a point in time. We license certain products under royalty arrangements, pursuant to which our licensees periodically provide us with reports containing units sold to end users subject to the royalties. The reports substantiate that our performance obligation has been satisfied and we recognize royalty revenue based on the reports or when amounts can be reasonably estimated.\nThere are significant judgements used when applying Accounting Standards Codification (\u201cASC\u201d) Topic 606 to contracts with customers. Most of our contracts contain multiple goods and services designed to meet each customers\u2019 unique storage needs. For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation based on the relative standalone selling price of the good or service underlying each performance obligation. Where standalone selling price may not be directly observable (e.g., the performance obligation is not sold separately), we maximize the use of observable inputs by using information including reviewing discounting practices, performance obligations with similar customers and product groupings. We determined that invoice price is the best representation of what we expect to receive from the delivery of each performance obligation. This judgment is based on the fact that each storage solution is customizable to meet an individual customer\u2019s needs and every product\u2019s transaction price can vary depending on the mix of other products included in the same purchase order and there are no identifiable trends that provide a good representation of expected margin for each product.\nProduct revenue may be impacted by a variety of price adjustments or other factors, including rebates, returns and stock rotation. We use the expected value method to estimate the net consideration expected to be returned by the customer. We use historical data and current trends to drive our estimates. We record a reduction to revenue to account for these items that may result in variable consideration. We initially measure a returned asset at the carrying amount of the inventory, less any expected costs to recover the goods including potential decreases in value of the returned goods.\n34\nTable of Contents\nIncome Taxes\nDeferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and tax bases of assets and liabilities, measured at the enacted tax rates expected to apply to taxable income in the years in which those tax assets or liabilities are expected to be realized or settled. Based on the evaluation of available evidence, both positive and negative, we recognize future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the extent that realizing these benefits is considered to be more likely than not.\nA valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. An increase or decrease in the valuation allowance, if any, that results from a change in circumstances, and which causes a change in our judgment about the realizability of the related deferred tax asset, is included in the tax provision.\nWe recognize the financial statement effects of an uncertain income tax position when it is more likely than not, based on technical merits, that the position will be sustained upon examination. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances and changes in tax law.\u00a0We recognize penalties and\u00a0tax-related\u00a0interest expense as a component of income tax expense in our consolidated statements of operations. See \nNote 9:\u00a0Income Taxes\n, to our consolidated financial statements included elsewhere in this Annual Report on Form\u00a010-K.\nInventories\nManufacturing Inventories\nOur manufacturing inventory is recorded at the lower of cost or net realizable value, with cost being determined on a\u00a0first-in,\u00a0first-out\u00a0(\u201cFIFO\u201d) basis. Costs include material, direct labor, and an allocation of overhead. Adjustments to reduce the cost of manufacturing inventory to its net realizable value, if required, are made for estimated excess, obsolete or impaired balances. Factors influencing these adjustments include declines in demand, rapid technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues. Revisions to these adjustments would be required if these factors differ from our estimates.\nService Parts Inventories\nOur service parts inventories are recorded at the lower of cost or net realizable value, with cost being determined on a FIFO basis. Service parts inventories consist of both component parts, which are primarily used to repair defective units, and finished units, which are provided for customer use permanently or on a temporary basis while the defective unit is being repaired. We record adjustments to reduce the carrying value of service parts inventory to its net realizable value and dispose of parts with no use and a net realizable value of zero. Factors influencing these adjustments include product life cycles, end of service life plans and the volume of enhanced or extended warranty service contracts. Estimates of net realizable value involve significant estimates and judgments about the future, and revisions would be required if these factors differ from our estimates.\nBusiness Acquisitions, Goodwill and Acquisition-Related Intangible Assets\nWe allocate the purchase price to the intangible and tangible assets acquired and liabilities assumed in a business combination at their estimated fair values on the date of acquisition, with the excess recorded to goodwill. We use our best estimates and assumptions to assign fair value to the assets acquired and liabilities assumed as well as the useful lives of the acquired intangible assets. Examples of critical estimates in valuing certain intangible assets we have acquired include, but are not limited to, future expected cash flows, expected technology life cycle, attrition rates of customers, and discount rates. We estimate the useful lives of each intangible asset based on the expected period over which we anticipate generating economic benefit from the asset. The amounts and useful lives assigned to acquired intangible assets impact the amount and timing of future amortization expense.\nWhile we use our best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments \n35\nTable of Contents\nto the estimated fair value of 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 the consolidated statements of operations.\nRecently Issued and Adopted Accounting Pronouncements\nFor recently issued and adopted accounting pronouncements, see \nNote 1:\u00a0Description of Business and Significant Accounting Policies\n, to our consolidated financial statements.",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nMarket risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.\nInterest Rate Risk\nWe are subject to interest rate risk on borrowings under our variable interest rate term debt and PNC Credit Facility. See \nNote 5: Debt\n to our consolidated financial statements for a description of our long-term debt. Changes in the market interest rate will increase or decrease our interest expense. Assuming no change in the outstanding borrowings under the term debt and the PNC Credit Facility during fiscal 2023, a hypothetical 100-basis point increase or decrease in market interest rates sustained throughout the year would not result in a material change to our annual interest expense.  Our other long-term debt related to lease obligations have fixed interest rates and terms, and as such, we consider the associated risk to our results of operations from changes in market rates of interest applied to our lease obligations to be minimal.\nForeign Exchange Risk\nWe conduct business in certain international markets. Because we operate in international markets, we have exposure to different economic climates, political arenas, tax systems and regulations that could affect foreign exchange rates. Our primary exposure to foreign currency risk relates to transacting in foreign currency and recording the activity in U.S. dollars. Changes in exchange rates between the U.S. dollar and these other currencies will result in transaction gains or losses, which we recognize in our consolidated statements of operations.\nTo the extent practicable, we minimize our foreign currency exposures by maintaining natural hedges between our assets and liabilities and revenues and expenses denominated in foreign currencies. We may enter into foreign exchange derivative contracts or other economic hedges in the future. Our goal in managing our foreign exchange risk is to reduce to the extent practicable our potential exposure to the changes that exchange rates might have on our earnings.\n36\nTable of Contents",
+  "cik": "709283",
+  "cusip6": "747906",
+  "cusip": ["747906501"],
+  "names": ["QUANTUM CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/709283/000070928323000013/0000709283-23-000013-index.htm"
+}
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+{
+  "item1": ">Item\u00a01.\u00a0\u00a0\u00a0\u00a0Business\nGeneral:\nRegis Corporation franchises and owns hair care salons. The Company is listed on the NYSE under the ticker symbol \"RGS.\" Unless the context otherwise provides, when we refer to the \"Company,\" \"we,\" \"our,\" or \"us,\" we are referring to Regis Corporation, the Registrant, together with its subsidiaries.\nAs of June\u00a030, 2023, the Company franchised or owned 4,863 locations, primarily in North America. The Company's locations consist of 4,795 franchised salons and 68 company-owned salons. Each of the Company's salon concepts generally offer similar salon products and services.\nThe major services supplied by the salons are haircutting and styling (including shampooing and conditioning) and hair coloring.\u00a0Salons also sell a variety of hair care and other beauty products.\u00a0We earn royalty revenue based on service and product sales at our franchise locations and earn revenue for services and products sold at our company-owned salons.\u00a0Salons operate primarily under the trade names of Supercuts, SmartStyle, Cost Cutters, First Choice Haircutters and Roosters and they generally serve the value category within the industry. Salons are primarily located in strip center locations and Walmart Supercenters. \nFinancial information about our segments and geographic areas for fiscal years 2023, 2022 and 2021 are included in Note\u00a015 to the Consolidated Financial Statements in Part\u00a0II, Item\u00a08, of this Form\u00a010-K.\nAs of June\u00a030, 2023, 98.6% of our salons are owned by franchisees. The remaining 68 company-owned salons will be sold or closed when the related leases expire or terminate.\nIndustry Overview:\nThe hair salon market is highly fragmented, with the vast majority of locations independently-owned and operated. In nearly every area in which the Company has a salon, there are competitors offering similar hair care services and products at similar prices. The Company faces competition from chains, such as Great Clips, Fantastic Sams, Sport Clips and Ulta Beauty, independently-owned salons, in-home hair services, booth rentals and blow dry bars. The Company also faces competition from other franchise organizations outside of the hair salon industry in attracting new franchisees.\nAt the individual salon level, barriers to entry are low; however, barriers exist for chains to expand nationally due to the need to establish systems and infrastructure, the ability to recruit franchisees, experienced field and salon management and stylists, and to lease quality sites. The principal factors of competition in the hair care category are quality and consistency of the guest experience, the ability to attract, retain, and train stylists, technology, convenience, location and price. The Company continually strives to improve its performance in each of these areas and to create additional points of brand differentiation versus the competition.\n4\nTable of Conte\nn\nt\ns\nSalon Franchising Program:\nGeneral.\n\u00a0\u00a0\u00a0\u00a0We provide our franchisees with a comprehensive system of business training, stylist education, site approval, professional marketing, promotion, and advertising programs, and other forms of ongoing support designed to help franchisees build successful businesses. Historically, we have signed the salon lease and then subleased the space to our franchisees. However, moving forward, for new locations and some lease renewals, we will seek for franchisees to sign the salon leases directly with the landlords. We have the right to approve salon leases. The Company's salons range from 500 to 5,000 square feet, with the typical salon approximating 1,200 square feet. \nStandards of Operations.\n\u00a0\u00a0\u00a0\u00a0The Company does not control the day-to-day operations of its franchisees, including employment, benefits and wage determination, prices charged for products and services, business hours, personnel management, and capital expenditure decisions. However, the franchise agreements afford certain rights to the Company, such as the right to approve locations, suppliers and the sale of a franchise. Additionally, franchisees are required to conform to the Company's established operational policies and procedures relating to quality of service, training, salon design, and decor and trademark usage. The Company's field personnel make periodic visits to franchised salons to ensure they are operating in conformity with the standards for each franchising program. All the rights afforded to the Company with regard to franchised operations allow the Company to protect its brands, but do not allow the Company to control day-to-day franchise operations or make decisions that have a significant impact on the success of the franchised salons. The Company's franchise agreements do not give the Company any right, ability or potential to determine or otherwise influence any terms and/or conditions of employment of franchisees' employees (except for those, if any, that are specifically related to quality of service, training, salon design, decor and trademark usage), including, but not limited to, franchisees' employees' wages and benefits, hours of work, scheduling, leave programs, seniority rights, promotional or transfer opportunities, layoff/recall arrangements, grievance and dispute resolution procedures, and/or discipline and discharge. \nFranchise Terms.\n\u00a0\u00a0\u00a0\u00a0Pursuant to a franchise agreement with the Company, each franchisee pays an initial fee for each store and ongoing royalties to the Company. In addition, for most brands, the Company collects advertising funds from franchisees and administers the funds on behalf of the brands. Franchisees are responsible for the costs of leasehold improvements, furniture, fixtures, equipment, supplies, inventory, payroll costs and certain other items, including initial working capital. The majority of franchise agreements provide the Company a right of first refusal if the store is to be sold and the franchisee must obtain the Company's approval in all instances where there is a sale of a franchise location.\nAdditional information regarding each of the major franchised brands is listed below:\nSupercuts\nSupercuts franchise agreements have a perpetual term, subject to termination of the underlying lease agreement or termination of the franchise agreement by either the Company or the franchisee. All new franchisees enter into development agreements, which give them the right to enter into a defined number of franchise agreements. These franchise agreements are site specific. The development agreement provides limited territorial protection for the stores developed under those franchise agreements. Older franchisees have grandfathered expansion rights, which allow them to develop stores outside of development agreements and provide them with greater territorial protections in their markets. The Company has a comprehensive impact policy that resolves potential conflicts among Supercuts franchisees and/or the Company's Supercuts locations regarding proposed store sites.\nSmartStyle and Cost Cutters in Walmart Supercenters \nThe majority of existing SmartStyle and Cost Cutters franchise agreements for salons located in Walmart Supercenters have a five-year term with a five-year option to renew. The franchise agreements are site specific. \nCost Cutters (not located in Walmart Supercenters), First Choice Haircutters and Magicuts\nThe majority of existing Cost Cutters franchise agreements have a 15-year term with a 15-year option to renew (at the option of the franchisee), while the majority of First Choice Haircutters franchise agreements have a 10-year term with a five-year option to renew. The majority of Magicuts franchise agreements have a term equal to the greater of five years or the current initial term of the lease agreement with an option to renew for two additional five-year periods. The current franchise agreement is site specific. Franchisees may enter into development agreements with the Company, which provide limited territorial protection.\nRoosters Men\u2019s Grooming Center\nRoosters franchise agreements have a 10-year term with a 10-year option to renew (at the option of the franchisee). New franchisees enter into a franchise agreement concurrent with the opening of their first store, along with a development agreement with the right to open two additional locations. \n5\nTable of Conte\nn\nt\ns\nFranchisee Training.\n\u00a0\u00a0\u00a0\u00a0The Company provides new franchisees with training, focusing on the various aspects of salon management, including operations, management training, marketing fundamentals and controls. Existing franchisees receive training, counseling and information from the Company on a regular basis. The Company provides franchise salon managers and stylists with access to technical training resources.\nGuests\nAmong other factors, consistent delivery of an exceptional guest experience, haircut quality, convenience, competitive pricing, salon location, inviting salon appearance and atmosphere, comprehensive retail assortments, and engagement through technology all drive guest traffic and improve guest retention.\nGuest Experience.\n\u00a0Our portfolio of salon concepts enables our guests to select different service scheduling options based upon their preference. We believe the ability to serve walk-in appointments and minimize guest wait times are essential elements in delivering an efficient guest experience. Our mobile applications and online check-in capabilities, including check-ins directly from Google\n\u00ae\n, allow us to capitalize on our guests' desire for convenience. Our franchisees continue to focus on stylist staffing and retention, optimizing schedules, balancing variable labor hours with guest traffic, and managing guest wait times. Our franchise salons are located in high-traffic strip centers and Walmart Supercenters, with guest parking and easy access, and are generally open seven days per week to offer guests a variety of convenient ways to fulfill their beauty needs. \nStylists. \nOur Company depends on the stylists in our system to help deliver great guest experiences. We believe in the importance of the ongoing development of stylists' craft. We aim to be an industry leader in stylist training, including the utilization of both live and digital training. We believe stylists deliver a superior experience for guests when they are well-trained technically and through years of experience. We employ trainers who provide new hire training for stylists joining the Company and train franchisee trainers. We supplement internal training with targeted vendor training and external trainers that bring specialized expertise to stylists in our system. We utilize training materials to help all levels of field employees navigate the operation of a salon and essential elements of guest service training within the context of brand positions. \nAffordability.\n\u00a0The Company strives to offer an exceptional value for its services. In the value category, our guests expect outstanding service at competitive prices. These expectations are met with the average service price of transactions ranging from $24 to $30. Pricing decisions are considered on a salon-level basis and are established based on local conditions. Our franchisees control all pricing at their locations.\nRetail Assortments.\n\u00a0Salons sell nationally recognized hair care and beauty products, as well as an assortment of company-owned brand products. Stylists are compensated and regularly trained to sell hair care and beauty products to their guests. Additionally, guests are encouraged to purchase products after stylists demonstrate their efficacy by using them in the styling of our guests' hair. The top selling brands within the Company's retail assortment include: L'Oreal Professional Brands, Regis Private Label Brand, Designline\n\u00ae\n, and Paul Mitchell. We also distribute our Designline brand through distribution channels, including Amazon.com and Walmart.com. \nMarketing.\n\u00a0Our marketing is brand specific and funded primarily from contractual contributions, based on sales, to the brand's cooperative advertising funds. These funds are used largely in support of advertising and other efforts to increase guest traffic to our salons, grow online booking usage, and improve overall awareness of and affinity for our brands. A portion of our marketing funds are used in support of stylist recruitment and training to grow the number of active stylists in our system.\nTechnology.\n\u00a0In fiscal year 2022, we sold our proprietary back-office salon management system, Opensalon\n\u00ae\n Pro\n to a third party, Soham Inc. (Zenoti). See Note\u00a03 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. We expect all our salons will transition to the Zenoti salon technology platform. We also use mobile applications to allow guests to view wait times and interact in other ways with salons.\nSalon Support. \nOur corporate headquarters is referred to as Salon Support. We take a service-oriented mentality to best support our franchisees and oversee our remaining company-owned locations. Salon Support and our associated priorities are aligned with our brands to enhance the effectiveness and efficiency of the service we provide. Salon Support is primarily located in Minneapolis, Minnesota while allowing for hybrid and remote work. \n6\nTable of Conte\nn\nt\ns\nSalon Concepts:\nThe Company's salon concepts focus on providing high-quality hair care services and professional hair care products. Descriptions of the Company's salon concepts are listed below:\nSupercuts.\n\u00a0\u00a0\u00a0\u00a0Supercuts salons provide consistent, high-quality hair care services and professional hair care products to guests at convenient times and locations at value prices. This concept appeals to men, women, and children. The Company has 2,082 franchised and seven company-owned Supercuts locations throughout North America. \nSmartStyle/Cost Cutters in Walmart stores.\n\u00a0\u00a0\u00a0\u00a0SmartStyle and Cost Cutters salons offer a full range of custom styling, cutting, and hair coloring, as well as professional hair care products and are currently located in Walmart Supercenters. This concept has primarily a \"walk-in\" guest base with value pricing. The Company has 1,388\u00a0franchised and 48 company-owned SmartStyle and Cost Cutters salons located in Walmart Supercenter locations throughout North America. \nPortfolio Brands.\n\u00a0\u00a0\u00a0Portfolio Brands salons are made up of acquired regional salon groups operating under the primary concepts of Cost Cutters, First Choice Haircutters, Roosters, Hair Masters, Cool Cuts for Kids, Style America, Famous Hair, Magicuts, Holiday Hair, and TGF, as well as other concept names. Most concepts offer a full range of custom hairstyling, cutting and coloring services, as well as professional hair care products. The Company has 1,223 franchised and 13 company-owned Portfolio Brands locations throughout North America. \nInternational Salons.\n\u00a0\u00a0\u00a0\u00a0International salons are locations operating in the United Kingdom, primarily under the Supercuts and Regis concepts. These salons offer similar levels of service as our North American salons. Salons are usually located in prominent high-traffic locations and offer a full range of custom hairstyling, cutting and coloring services, as well as professional hair care products. The Company has 102 franchised international locations.\nThe tables below set forth the number of system-wide locations (Franchised and Company-owned) and activity within the various salon concepts.\nSystem-wide location counts\n\u00a0\nJune\u00a030,\n\u00a0\n2023\n2022\n2021\nFRANCHISE SALONS:\nSupercuts\n2,082\u00a0\n2,264\u00a0\n2,386\u00a0\nSmartStyle/Cost Cutters in Walmart stores\n1,388\u00a0\n1,646\u00a0\n1,666\u00a0\nPortfolio Brands\n1,223\u00a0\n1,344\u00a0\n1,357\u00a0\nTotal North American salons\n4,693\u00a0\n5,254\u00a0\n5,409\u00a0\nTotal International salons (1)\n102\u00a0\n141\u00a0\n154\u00a0\nTotal Franchise salons\n4,795\u00a0\n5,395\u00a0\n5,563\u00a0\nas a percent of total Franchise and Company-owned salons\n98.6\u00a0\n%\n98.1\u00a0\n%\n95.3\u00a0\n%\nCOMPANY-OWNED SALONS:\n\u00a0\n\u00a0\n\u00a0\nSupercuts\n7\u00a0\n18\u00a0\n35\u00a0\nSmartStyle/Cost Cutters in Walmart stores\n48\u00a0\n49\u00a0\n91\u00a0\nPortfolio Brands\n13\u00a0\n38\u00a0\n150\u00a0\nTotal Company-owned salons\n68\u00a0\n105\u00a0\n276\u00a0\nas a percent of total Franchise and Company-owned salons\n1.4\u00a0\n%\n1.9\u00a0\n%\n4.7\u00a0\n%\nTotal Franchise and Company-owned salons\n4,863\u00a0\n5,500\u00a0\n5,839\u00a0\n7\nTable of Conte\nn\nt\ns\nConstructed locations (net relocations)\n\u00a0\nFiscal Years\n\u00a0\n2023\n2022\n2021\nFRANCHISE SALONS:\nSupercuts\n11\u00a0\n15\u00a0\n21\u00a0\nSmartStyle/Cost Cutters in Walmart stores\n\u2014\u00a0\n1\u00a0\n\u2014\u00a0\nPortfolio Brands\n4\u00a0\n5\u00a0\n10\u00a0\nTotal North American salons\n15\u00a0\n21\u00a0\n31\u00a0\nTotal International salons (1)\n\u2014\u00a0\n\u2014\u00a0\n1\u00a0\nTotal Franchise salons\n15\u00a0\n21\u00a0\n32\u00a0\nCOMPANY-OWNED SALONS:\n\u00a0\n\u00a0\n\u00a0\nSupercuts\n\u2014\u00a0\n\u2014\u00a0\n4\u00a0\nSmartStyle/Cost Cutters in Walmart stores\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nPortfolio Brands\n1\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTotal Company-owned salons\n1\u00a0\n\u2014\u00a0\n4\u00a0\nClosed locations\n\u00a0\nFiscal Years\n\u00a0\n2023\n2022\n2021\nFRANCHISE SALONS:\nSupercuts\n(196)\n(156)\n(273)\nSmartStyle/Cost Cutters in Walmart stores\n(258)\n(49)\n(56)\nPortfolio Brands\n(123)\n(81)\n(82)\nTotal North American salons\n(577)\n(286)\n(411)\nTotal International salons (1)\n(39)\n(13)\n(14)\nTotal Franchise salons\n(616)\n(299)\n(425)\nCOMPANY-OWNED SALONS:\n\u00a0\n\u00a0\n\u00a0\nSupercuts\n(11)\n(6)\n(54)\nSmartStyle/Cost Cutters in Walmart stores\n(1)\n(15)\n(252)\nPortfolio Brands\n(25)\n(40)\n(307)\nTotal Company-owned salons\n(37)\n(61)\n(613)\n8\nTable of Conte\nn\nt\ns\nConversions (including net franchisee transactions) (2)\n\u00a0\nFiscal Years\n\u00a0\n2023\n2022\n2021\nFRANCHISE SALONS:\nSupercuts\n3\u00a0\n19\u00a0\n130\u00a0\nSmartStyle/Cost Cutters in Walmart stores\n\u2014\u00a0\n28\u00a0\n405\u00a0\nPortfolio Brands\n(2)\n63\u00a0\n212\u00a0\nTotal Franchise salons\n1\u00a0\n110\u00a0\n747\u00a0\nCOMPANY-OWNED SALONS:\n\u00a0\n\u00a0\n\u00a0\nSupercuts\n\u2014\u00a0\n(11)\n(125)\nSmartStyle/Cost Cutters in Walmart stores\n\u2014\u00a0\n(27)\n(408)\nPortfolio Brands\n(1)\n(72)\n(214)\nTotal Company-owned salons\n(1)\n(110)\n(747)\n_______________________________________________________________________________\n(1)\nCanadian and Puerto Rican salons are included in the North American salon totals.\n(2)\nDuring fiscal years 2023, 2022 and 2021, the Company acquired 0, 0 and 1 salon locations, respectively, from franchisees. During fiscal years 2023, 2022 and 2021, the Company sold 1, 110 and 748 salon locations, respectively, to franchisees.\n9\nTable of Conte\nn\nt\ns\nAffiliated Ownership Interest:\nThe Company maintains a non-controlling 55.1%\u00a0ownership interest in Empire Education Group, Inc. (EEG), which is accounted for as an equity method investment. EEG operates accredited cosmetology schools. We entered into an agreement to sell our stake in EEG to the controlling owner in fiscal year 2020, the closing of which is pending state approvals. The sale is not expected to have a significant impact on the Company's operations or financial position.\nCorporate Trademarks:\nThe Company holds numerous trademarks, both in the United States and in many foreign countries. The most recognized trademarks are \"SmartStyle\n\u00ae\n,\" \"Supercuts\n\u00ae\n,\" \"Regis Salons\n\u00ae\n,\" \"Cost Cutters\n\u00ae\n,\" \"First Choice Haircutters\n\u00ae\n,\" \"Roosters\n\u00ae\n\" and \"Magicuts\n\u00ae\n.\"\nHuman Capital Management:\nOur Culture\nWe are committed to our purpose of \nUnleashing the Beauty of Potential\n, which is supported by our four core values:\nFoster Trust.\u00a0\u00a0\n\u00a0\u00a0Create powerful relationships by acting with empathy and integrity.\nCreate Community.\u00a0\n\u00a0\u00a0\u00a0Connect and collaborate with all your partners. Share the challenges as much as you celebrate the wins.\nBe Brave\n.\u00a0\u00a0\u00a0\u00a0Dream big and courageously challenge the status quo.\nOwn It.\u00a0\u00a0\u00a0\n\u00a0You are empowered. Take responsibility and own your role and your results.\nThese values support a collaborative and inclusive culture that is critical to the success and growth of our Company. To help reinforce our values and incorporate them into everything we do, we have a values committee comprised of cultural ambassadors who serve as the voice of employees and help ensure a best-in-class employee experience.\nOur People\nAs of June\u00a030, 2023, the Company employed 435 employees. The Company offers flexible work arrangements such as hybrid and remote work.\nDiversity and Inclusion\nThe Company promotes diversity of thoughts, backgrounds, experiences, and ideas. As of June\u00a030, 2023, 86% of the Company's entire workforce are women and 14% are men. Additionally, 68% of the Company's leadership positions are held by women.\n10\nTable of Conte\nn\nt\ns\nFamilies First\nOver one hundred years ago, the Company began as a family business and its support of families continues today. It offers up to 16 weeks of parental leave, including adoption, up to 12 of which are paid, so that parents have time to focus on their newest family members. It also offers flexible work arrangements, including full-time telecommuting. Additionally, the Company offers flexible paid time off, which allows employees to control their time away from work based on individual needs, not years of service. \nOther Compensation and Benefits\nThe Company also takes care of its people by offering competitive compensation and benefits packages that are designed to support the total well-being and promote the full potential of our employees and their families. These include short- and long-term incentive packages, an employee stock purchase plan, retirement plans, health, dental, and vision benefits, basic life insurance, long-term disability coverage, and wellness and employee assistance programs. The Company analyzes market trends and monitors its own compensation practices to attract, retain, and promote employees and reduce turnover and associated costs. In addition, its short- and long-term incentive plans are aligned with its core values and key business objectives, which are intended to motivate strong performance.\nDevelopment and Engagement\nContinuous employee development and engagement are essential to creating a high-performance culture. In fiscal years 2023 and 2022, we increased our investment in learning and development. In addition to the resources available on our internal Learning Hub, we launched our \nBeauty of Series\n, which consists of interactive sessions designed to help our employees unleash their potential.\nWe surveyed our employees to provide them with an opportunity to share anonymous feedback with management in a variety of areas, including support from leadership, communication and collaboration, growth and career opportunities, available resources, and recognition. Leaders reviewed the results to determine opportunities and develop action plans for their teams to improve engagement and the overall employee experience. We introduced \nRegis Listens\n, which highlights offerings that we've implemented as a result of employee feedback to show employees that we are listening.\nCorporate Responsibility\nThe Company will not do business with organizations that employ or condone unfair labor practices. Instead, it partners with companies who share its commitment to ethical business conduct and fair labor practices. The Company also specifically condemns human trafficking and abuse of child labor. \n11\nTable of Conte\nn\nt\ns\nGovernmental Regulations:\nThe Company is subject to various federal, state, local and provincial laws affecting its business, as well as a variety of regulatory provisions relating to the conduct of its beauty-related business, including health and safety. At the end of fiscal year 2020, the majority of state and local governments where we operate temporarily mandated the closure of our salons in response to the COVID-19 global pandemic. These pandemic related government-mandated closures continued into fiscal year 2021 and into fiscal year 2022 in parts of Canada. We monitor state and local regulations carefully to ensure the safety of our stylists and guests.\nIn the United States, the Company's franchise operations are subject to the Federal Trade Commission's Trade Regulation Rule on Franchising (the FTC Rule) and to state laws and administrative regulations that regulate various aspects of franchise operations and sales. The Company's franchises are offered to franchisees by means of a disclosure document containing specified disclosures in accordance with the FTC Rule and the laws and regulations of certain states. The Company has registered its offering of franchises with the regulatory authorities of those states in which it offers franchises and where registration is required. State laws that regulate the franchisee/franchisor relationship presently exist in a substantial number of states and, in certain cases, apply substantive standards to this relationship. Such laws may, for example, require that the franchisor deal with the franchisee in good faith, prohibit interference with the right of free association among franchisees, and limit termination of franchisees without payment of reasonable compensation. The Company believes that the current trend is for government regulation of franchising to increase over time. However, such laws have not had, and the Company does not expect such laws to have, a significant effect on the Company's operations.\nIn Canada, the Company's franchise operations are subject to franchise laws and regulations in the provinces of Ontario, Alberta, Manitoba, New Brunswick, Prince Edward Island and British Columbia. The offering of franchises in Canada occurs by way of a disclosure document, which contains certain disclosures required by the applicable provincial laws. The provincial franchise laws and regulations primarily focus on disclosure requirements, although each requires certain relationship requirements, such as a duty of fair dealing and the right of franchisees to associate and organize with other franchisees.\nThe Company believes it is operating in substantial compliance with applicable laws and regulations governing all its operations.\nThe Company maintains an ownership interest in Empire Education Group, Inc. Beauty schools derive a significant portion of their revenue from student financial assistance originating from the U.S. Department of Education's Title IV Higher Education Act of 1965. For the students to receive financial assistance at the schools, the beauty schools must maintain eligibility requirements established by the U.S. Department of Education. In 2020, the Company signed an agreement to sell our ownership interest in EEG to the other owner. The transaction is subject to state ownership transfer approvals.\nFinancial Information about Foreign and North American Operations\nFinancial information about foreign and North American operations is incorporated herein by reference to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part\u00a0II, Item\u00a07 and segment information in Note\u00a015 to the Consolidated Financial Statements in Part\u00a0II, Item\u00a08 of this Form\u00a010-K.\nAvailable Information\nThe Company is subject to the informational requirements of the Securities and Exchange Act of 1934, as amended (Exchange Act). The Company therefore files periodic reports, proxy statements and other information with the Securities and Exchange Commission (SEC). All our reports, proxy and information statements and other information are available on the SEC's internet site (\nwww.sec.gov\n).\nFinancial and other information can be accessed in the Investor Relations section of the Company's website at \nwww.regiscorp.com\n. The Company makes available, free of charge, copies of its annual report on Form\u00a010-K, quarterly reports on Form\u00a010-Q, current reports on Form\u00a08-K and amendments to those reports filed or furnished pursuant to Section\u00a013(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.\n12\nTable of Conte\nn\nt\ns\nExecutive Officers of the Registrant:\nInformation relating to the Executive Officers of the Company follows:\nName\nAge\nPosition\nJohn Davi\n45\u00a0\nExecutive Vice President, Chief Digital Officer\nMichelle DeVore\n39\u00a0\nSenior Vice President, Marketing\nMatthew Doctor\n36\u00a0\nPresident and Chief Executive Officer\nMichael Ferranti\n40\u00a0\nExecutive Vice President, Chief People Officer\nJim Lain\n59\u00a0\nExecutive Vice President, Chief Operating Officer\nJames Suarez\n48\u00a0\nSenior Vice President, Merchandising and Education\nKersten Zupfer\n48\u00a0\nExecutive Vice President, Chief Financial Officer\nJohn Davi was appointed to Executive Vice President and Chief Digital Officer in July 2022. Previously, he served as Executive Vice President and Chief Technology Officer from October 2021 to July 2022. Prior to joining the Company, Mr. Davi served as an advisor at Apostrophe, a wellness and fitness services company, from July 2012 to October 2021, as Chief Product Officer for BriteCore, a cloud-based insurance solution for personal and commercial insurance providers, from November 2019 to November 2020, Senior Vice President of Product at MINDBODY, Inc, a wellness and fitness services company, from February 2018 to September 2019, founding Vice President of Product for Diffbot, and Head of Engineering for Cisco Systems' Media Solutions Group.\nMichelle DeVore was appointed to Senior Vice President, Marketing in August 2022. Prior to joining the Company, Ms. DeVore was Vice President, Customer Experience at European Wax Center, a chain of hair removal salons, from November 2019 to August 2022. Prior to European Wax Center, Ms. DeVore served as consultant at StudioMDV, LLC, an advertising services company, from March 2019 to August 2022, as Vice President E-commerce Marketing at Aerus LLC, an air and surface purification manufacturer, from October 2017 to March 2019, and she directed digital transformation and growth in a variety of roles and as a consultant focused on brand strategy, digital innovation and e-commerce. \nMatthew Doctor was appointed to President and Chief Executive Officer in May 2022, after holding such position on an interim basis since December 2021. Previously, he served as Executive Vice President and Chief Strategy Officer from February 2021 to December 2021, and as a consultant to the Company from December 2020 to February 2021. Prior to joining the Company, he was Chief Financial Officer of Kava Restaurants LLC, a Tim Horton's franchisee, from May 2018 to December 2020. Earlier in his career, Mr. Doctor worked in business development at Restaurant Brands International and was in investment banking with J.P. Morgan.\nMichael Ferranti was appointed to Executive Vice President and Chief People Officer in December 2021. Previously, he served as Senior Vice President, People and Culture from March 2021 to December 2021. Before joining the Company, Mr. Ferranti served as Head of M&A and Franchising for Subway Restaurants U.S. and Canada, a restaurant brand, from September 2020 to March 2021. Prior to Subway Restaurants, Mr. Ferranti served as Global Head of Development, HR, IT - Chief Administrative Officer of Le Pain Quotidien, a chain of bakery restaurants, from October 2018 to November 2019, and held a variety of leadership roles with KraftHeinz and Restaurant Brands International previous to that.\nJim Lain was appointed to Executive Vice President and Chief Operating Officer in December 2021. Previously, he served as President of SmartStyle from June 2021 to December 2021 and President of Portfolio Brands from December 2020 to June 2021. Mr. Lain served as a consultant to the Company from July 2020 to December 2020 and as Executive Vice President and Chief Operating Officer from November 2013 to July 2020. Before joining the Company, Mr. Lain served as Vice President at Gap, Inc. from August 2006 to November 2013.\nJames Suarez was appointed to Senior Vice President, Merchandising and Education in February 2022. Prior to his promotion to Senior Vice President, Merchandising and Education, Mr. Suarez had 25 years of combined salon operations and education experience at the Company, including as Vice President of Merchandising and Education from October 2021 to February 2022 and as Vice President of Education from August 2017, and he also holds a seat on the board of directors of Empire Education Group, Inc.\nKersten Zupfer was appointed to Executive Vice President and Chief Financial Officer in November 2019. For more than 13 years before her promotion to Chief Financial Officer, Ms. Zupfer served in accounting and finance roles of increasing leadership at the Company. Ms. Zupfer served as Senior Vice President and Chief Accounting Officer from November 2017 to November 2019, prior to which she served as Vice President, Corporate Controller and Chief Accounting Officer from December 2014 to November 2017.\n13\nTable of Conte\nn\nt\ns",
+  "item1a": ">Item\u00a01A.\u00a0\u00a0\u00a0\u00a0Risk Factors\nBusiness and Industry Risks\nChanges in consumer shopping trends and manufacturer choice of distribution channels may negatively affect both service and product revenues.\nOur salons are partly dependent on the volume of customer foot traffic around their locations to generate both service and product revenues. Because many of our salons are located in shopping centers, customer foot traffic may be adversely affected by changing consumer shopping trends that favor internet-based shopping or alternative shopping methods or locations.\nIn addition, we are experiencing a proliferation of alternative channels of distribution, such as blow dry bars, booth rental facilities, discount brick-and-mortar and online professional product retailers, as well as manufacturers selling directly to consumers online, all of which may negatively affect our product and service revenue. Also, product manufacturers may decide to utilize these other distribution channels to a larger extent than in the past and they generally have the right to terminate relationships with us with little advance notice. These changes in distribution channels could also reduce the volume of foot traffic around our salons, and in turn, our revenues may be adversely affected.\n14\nTable of Conte\nn\nt\ns\nWe are subject to laws and regulations that could require us to modify our current business practices and incur increased costs, which could have an adverse effect on our business, financial condition and revenues.\nIn our U.S. markets, numerous laws and regulations at the federal, state and local levels can affect our business. Legal requirements are frequently changed and subject to interpretations, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. If we or our franchisees fail to comply with any present or future laws or regulations, we or they could be subject to future liabilities or a prohibition on the operation of salons.\nA number of U.S. states, Canadian provinces, and municipalities in which we do business have recently increased, or are considering increasing, the minimum wage, with increases generally phased over several years depending upon the size of the employer. Increases in minimum wages, employment taxes and overtime pay result in an increase in salon operating costs, and the salons' ability to offset these increases through price increases may be limited. In fact, increases in minimum wages have increased salon operating costs over the last five years. In addition, a growing number of states, provinces and municipalities have passed, or are considering passing, requirements for paid sick leave, family leave, predictive scheduling (which imposes penalties for changing an employee's shift as it nears), and other requirements that increase the administrative complexity and cost of managing a workforce. Increases in costs for our franchisees could lead to reduced profitability of salons, which may lead to salon closures. Finally, changes in labor laws designed to facilitate union organizing, could increase the likelihood of stylists being subjected to greater organized labor influence. If a significant portion of stylists were to become unionized, it would have an adverse effect on salon operations which adversely impacts our business and financial results.\nIf the National Labor Relations Board (NLRB) were to decide to treat our franchisees as \"joint employers\" with us or if our franchisees are classified as large employers under minimum wage statutes because of their affiliations with us, this could have an adverse impact on our business. In addition, we and our franchisees must comply with state employment laws, including the California Labor Code, which has stringent requirements and penalties for non-compliance.\nVarious state and federal laws govern our relationships with our franchisees and our potential sale of a franchise. If we fail to comply with these laws, we may subject the Company and our personnel to claims lodged by our franchisees, as well as federal and state government agencies, and those claims may include, among others, fraud, misrepresentation, unfair business practices and wrongful terminations. As a result of those claims, we could be liable for fines, damages, stop orders or other penalties. A franchisee or government agency may bring legal action against us based on the franchisee/franchisor relationship. Also, under the franchise business model, we may face claims and liabilities based on vicarious liability, joint-employer liability or other theories or liabilities. All such legal actions could not only result in changes to laws and interpretations, which could make it more difficult to appropriately support our franchisees and, consequently, impact our performance, but could also result in expensive litigation with our franchisees, third parties or government agencies, which could adversely affect both our profits and our important relationships with our franchisees. In addition, other regulatory or legal developments may result in changes to laws or to the franchisee/franchisor relationship that could negatively impact the franchise business model and, accordingly, our profits.\nWe are also subject to federal statutes and regulations, including the rules promulgated by the U.S. Federal Trade Commission, as well as certain state laws governing the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition provisions and on provisions concerning the termination or non-renewal of a franchise. Some states require that certain materials be filed for a franchisor to be registered and approved before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could have a material adverse effect on our business, financial condition, results of operations and prospects.\nIn addition to employment and franchise laws, we are also subject to a wide range of federal, state, provincial and local laws and regulations in the jurisdictions in which we operate, including those affecting public companies, product manufacturing and sale and those governing the franchisee/franchisor relationship. Compliance with new, complex, and changing laws may cause our expenses to increase. In addition, any non-compliance with laws or regulations could result in penalties, fines, product recalls and enforcement actions or otherwise restrict our ability to market certain products or attract or retain employees, which could adversely affect our business, financial condition and results of operations.\nWe may be responsible for Empire Education Group, Inc.'s liabilities.\nWe have a majority ownership interest in Empire Education Group, Inc. (EEG), an operator of accredited cosmetology schools. EEG students receive significant federal financial aid through the U.S. Department of Education. The Department of Education has released proposed rules related to gainful employment that could be detrimental to EEG's business model. If EEG were to become insolvent, the Department of Education could hold the Company responsible for EEG's liabilities. \n15\nTable of Conte\nn\nt\ns\nChanges in the general economic environment may impact our business and results of operations.\nChanges to the U.S., Canada and U.K.'s economies have an impact on our business. General economic factors that are beyond our control, such as recession, inflation, deflation, tax rates and policy, energy costs, unemployment trends, extreme weather patterns, viruses, pandemics, stay-at-home orders, and other casualty events that influence consumer confidence and spending, may impact our business and results of operations. In particular, visitation patterns to our salons can be adversely impacted by increases in unemployment rates and decreases in discretionary income levels.\nChanges in consumer tastes, hair product innovation, fashion trends and consumer spending patterns may impact our revenue.\nOur success depends, in part, on our ability to anticipate, gauge and react in a timely manner to changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns. If we do not timely identify and properly respond to evolving trends and changing consumer demands for hair care or services, salon sales may decline. Remote work arrangements reduce foot traffic in downtowns, city centers, and other business districts where our salons are located, causing a reduction in our revenue.\nWe currently are not in compliance with New York Stock Exchange listing requirements.\nIn June 2022, we received written notice from the New York Stock Exchange (NYSE) that we did not meet certain NYSE continued listing standards. Under the NYSE continued listing standards, the Company is required to maintain (a) a minimum average closing price of $1.00 per share over a period of 30 consecutive trading days, and (b) an average market capitalization of at least $50.0 million over a period of 30 consecutive trading days, and at the same time, total stockholders' equity equal to or greater than $50.0 million.  On September 1, 2022, we were notified we cured the minimum average closing price of $1.00 per share, but our average market capitalization was still non-compliant. If our average market capitalization is not greater than $50.0 million on December 13, 2023, we will be subject to the NYSE\u2019s suspension and delisting procedures. We are closely monitoring the closing share price of our common stock and are considering all available options. A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock; reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; limiting our ability to issue additional securities or obtain additional financing in the future; decreasing the amount of news and analyst coverage of us; and causing us reputational harm with investors, our employees, and parties conducting business with us.\n16\nTable of Conte\nn\nt\ns\nOperating Risks\nWe are substantially dependent on franchise royalties and the overall success of our franchisees' salons.\nOur success is substantially dependent on franchise royalties and the overall success of our franchisees' salons. Many franchisees have seen a decline in revenues in recent years which reduces their profitability. As a result, franchise salon closures have increased, which reduces our royalty income. In addition, franchisees may be unable to pay their royalties which could decrease cash collections. Some franchisees have stopped paying rents as they come due, reduced operating hours, or closed before the lease end date, which are violations of the lease agreements and may result in penalties depending on the lease, which may increase our cash outflows when the franchisee subleases from us, or we guarantee the lease. Franchisees who decide to close their salons when there is not another franchisee willing to take over their business decreases the size of our fleet and our royalty revenues.\nTo support and enhance our franchisees' businesses, we may need to invest in certain unanticipated new capabilities and/or services and we will need to determine the appropriate amount of investment to optimize the success of our franchisees, while ensuring that the level of investment supports our expected return on those investments. If we are not able to identify the right level of support and effectively deliver those resources to our franchisees, our results of operations and business may be adversely affected. Furthermore, as a fully-franchised business, we may be exposed to additional legal, compliance and operational risks specific to this business model, including the business failure of unproven new salon owners.\nOur salons are dependent on a third-party preferred supplier agreement for merchandise.\nIn fiscal year 2023, we entered into a preferred supplier agreement with a supplier. This change has and will continue to reduce our future revenue. If our new supplier is unable to source the products at the prices expected by our franchisees, our franchisees' profitability and our profitability may be adversely impacted. Further, events or circumstances beyond our control, including economic instability and other impactful events and circumstances in the regions in which our supplier and its manufacturers are located, the financial instability of our supplier, our supplier's failure to meet our terms and conditions or our supplier standards, product safety and quality issues, disruption or delay in the transportation of products from our supplier and its manufacturers to our salons, transport availability and cost, transport security, inflation and other factors relating to the supplier and the areas in which it operates, may adversely impact our and our franchisees' profitability.\nIt is important for us and our franchisees to attract, train and retain talented stylists and salon leaders.\nGuest loyalty is strongly dependent upon the stylists who serve our guests and the customer experience in our salons. Qualified, trained stylists are key to a memorable guest experience that creates loyal customers. In order to profitably grow our business, it is important for our salons to attract, train and retain talented stylists and salon leaders and to adequately staff our salons. Regulations proposed by the Department of Education, if passed, could reduce access to Federal financial aid for beauty schools which could reduce the number of qualified stylists to recruit if licensing requirements are not adjusted. Because the salon industry is highly fragmented and comprised of many independent operators, the market for stylists is highly competitive. In addition, labor shortages and increases in minimum wage requirements may impact the number of stylists considering careers outside the beauty industry. In most markets, we and our franchisees have experienced a shortage of qualified stylists or a reduction in the hours stylists will work. Offering competitive wages, benefits, education, and training programs are important elements to attracting and retaining qualified stylists. In addition, due to challenges facing the for-profit education industry, cosmetology schools have experienced declines in enrollment, revenues, and profitability in recent years. If the cosmetology school industry sustains further declines in enrollment or some schools close entirely, or if stylists leave the beauty industry, we expect that we and our franchisees would have increased difficulty staffing our salons in some markets. We are making significant investments in programs to attract and retain stylists. If our strategies are not successful in attracting, training, and retaining stylists or in staffing salons, our system-wide sales or the performance of our business could experience periods of volatility or sales could decline and our results of operations could be adversely affected.\n17\nTable of Conte\nn\nt\ns\nOur continued success depends, in part, on the success of our franchisees, which operate independently.\nAs of June\u00a030, 2023, 98.6% of our salons were franchised locations. We derive revenues associated with our franchised locations primarily from royalties and fees. Our financial results are therefore substantially dependent upon the operational and financial success of our franchisees. As a franchise business, we are dependent on our franchisees. \nWe have limited control over how our franchisees' businesses are operated. Though we have established operational standards and guidelines, franchisees own, operate, and oversee the daily operations of their salon, including employee-related matters and pricing. If franchisees do not successfully operate their salons in compliance with our standards, our brand reputation and image could be harmed, and our financial results could be affected. Additionally, if franchisees do not price their goods and services competitively, the franchisee may fail to maximize the financial performance of their salon. We could experience greater risks as the scale of our franchised salons increases. \nIn addition, our franchisees are subject to the same general economic risks as our Company, and their results are influenced by competition for both guests and stylists, market trends, price competition and disruptions in their markets and business operations due to public health issues, including pandemics, severe weather and other external events. Like us, they rely on external vendors for some critical functions and to protect their company data. They may also be limited in their ability to open new locations by an inability to secure adequate financing, especially because many of them are small businesses with much more limited access to financing than our Company or by the limited supply of favorable real estate for new salon locations. They may also experience financial distress because of over-leveraging, which could negatively affect our operating results due to delayed or non-payments to us. The bankruptcy, default, abandonment, or breach by or of a franchisee could also expose us to lease liability due to our lease guarantees or subleases as explained previously. \nA deterioration in the financial results of our franchisees, a failure of our franchisees to renew their franchise agreements or closure of locations adversely affects our operating results through decreased royalty payments and fees. We also must continue to attract qualified franchisees and work with them to make their businesses successful.\nIn addition, challenges in supporting our franchise system could cause our operating results to suffer. If we are unable to effectively select and train new franchisees and support our growing franchisee base, it could affect our brand standards, cause disputes between us and our franchisees, and potentially lead to material liabilities.\nOur business is dependent on franchisees continuing to operate. When a franchisee exits the franchise system, and we are unable to recruit an existing or new franchisee to run that salon location, our salon count and revenues decline. A decline in salon count could also reduce the value of our brands. Additionally, we are dependent on our franchisees to grow their business in order for our business to grow. However, franchisees may not have access to capital, labor, etc., to support their growth.\n18\nTable of Conte\nn\nt\ns\nData security and data privacy compliance requirements could increase our costs, and cybersecurity incidents could result in the compromise of potentially sensitive information about our guests, franchisees, employees, vendors, or Company and expose us to business disruption, negative publicity, costly government enforcement actions or private litigation and our reputation could suffer.\nThe normal operations of our business and our investments in technology involve processing, transmitting and storing potentially sensitive personal information about our guests, employees, franchisees, vendors and our Company, all of which require the appropriate and secure utilization of such information and subjects us to increased focus regarding our data security compliance. Cyber-attacks, including ransomware, designed to gain access to sensitive information by breaching mission critical systems of large organizations (and their third-party vendors) are constantly evolving and high-profile electronic security breaches leading to unauthorized release of sensitive information have occurred at a number of large U.S. companies in recent years. Furthermore, there has been heightened legislative and regulatory focus on data security in the U.S. and abroad, including requirements for varying levels of customer notification in the event of a data breach. These laws are changing rapidly and vary among jurisdictions. We will continue our efforts to meet any applicable privacy and data security obligations; however, it is possible that certain new obligations may be difficult to meet and could increase our costs. We rely on commercially available systems, software, and tools to provide security for processing, transmitting, and storing of sensitive information. As this risk of cyber-attacks increases, our related insurance premiums may also increase. Despite the security measures and processes we have in place, our efforts (and those of our third-party vendors) to protect sensitive guest, employee, franchisee, vendor, and Company information may not be successful in preventing a breach in our systems or detecting and responding to a breach on a timely basis. We have, from time to time, experienced threats to, and incidents involving, our systems and information, none of which have been material to date. As a result of a security incident or breach in our systems, our systems could be interrupted or damaged, and/or sensitive information could be accessed by third parties. If that occurred, our guests could lose confidence in our ability to protect their information, which could cause them to stop visiting our salons altogether or our franchisees could exit the system due to lack of confidence. Such events could also lead to lost future sales and adversely affect our results of operations. In addition, as the regulatory environment relating to retailers and other companies' obligations to protect sensitive data becomes stricter, a material failure on our part to comply with applicable regulations could potentially subject us to fines, penalties, other regulatory sanctions, or lawsuits with the possibility of substantial damages. The costs to remediate security incidents or breaches that may occur could be material. Also, as cyber-attacks become more frequent, intense, and sophisticated, the costs of proactive defensive measures may increase. Furthermore, while our franchisees are independently responsible for data security at their franchised salon locations, a security incident or breach at a franchised salon location could negatively affect public perception of our brands. More broadly, our incident response preparedness and disaster recovery planning efforts may be inadequate or ill-suited for a security incident and we could suffer disruption of operations or adverse effects to our operating results. \nOur SmartStyle salon operations are dependent on our relationship with Walmart. \nAs of June\u00a030, 2023, we had 1,436 SmartStyle or Cost Cutters salons within Walmart locations. Walmart is our largest landlord. Business within each of those 1,436 salons relies primarily on the traffic of visitors to the Walmart location, so our success is tied to Walmart's success in bringing shoppers into their stores. We have limited control over the locations and markets in which we open new SmartStyle locations, as we only have potential opportunities in locations offered to us by Walmart. Furthermore, Walmart has the right to (a) close up to 100 salons per year for any reason, upon payment of certain buyout fees; (b) terminate lease agreements for breach, such as if we failed to conform with required operating hours, subject to a notice and cure period; (c) non-renew the lease agreements if salons fail to reach certain sales thresholds; (d) impose penalties for failing to meet required operation hours; and (e) terminate the lease if the Walmart store is closed. Future franchising activity is dependent upon a continued relationship between us and Walmart, as well as Walmart's approval of our proposed franchisee on a location-by-location basis. Further, Walmart may attempt to impose changes to the terms and conditions of our agreements, which may be contrary to our economic interests. Operating SmartStyle salons adds complexity in overseeing franchise compliance and coordination with Walmart. Additionally, there are various remodel requirements of our franchisees, whether it be upon lease expiration or the remodeling of a Walmart location. To the extent Walmart accelerates the pace of their own store remodels, our salons in remodeled Walmart locations would be held to the same standard. The cost of these remodels may be prohibitive to our franchisees and could lead to the Company bearing a portion of the cost, or closures if the remodel requirement is not satisfied.\n19\nTable of Conte\nn\nt\ns\nOur future growth and profitability may depend, in part, on our ability to build awareness and drive traffic with advertising and marketing efforts and on delivering a quality guest experience to drive repeat visits to our salons. \nOur future growth and profitability may depend on the effectiveness, efficiency and spending levels of our marketing and advertising efforts to drive awareness and traffic to our salons. In addition, delivering a quality guest experience is crucial to drive repeat visits to our salons. We are focusing on improving guest experiences to provide brand differentiation and preference as well as ensure our guests' needs are met. If our marketing, advertising, and improved guest experience efforts do not generate sufficient customer traffic and repeat visits to our salons, our business, financial condition, and results of operations may be adversely affected. Our future growth and profitability may depend on the effectiveness, efficiency and spending levels of our marketing and advertising efforts to drive awareness and traffic to our salons. Additionally, we plan to increase our digital marketing efforts, and the success of those efforts is dependent upon our franchisee's migration to the Zenoti salon technology platform and customers opting-in to receive marketing messages from us.\nOur success depends substantially on the migration of our franchisees to the Zenoti salon technology platform.\nThe success of our digital marketing efforts discussed previously, as well as our ability to provide franchisees with back-office and salon management support, including walk-in or advanced appointments, is dependent upon our franchisees' adoption of the Zenoti point-of-sale software. Additionally, some of our technology capabilities will require development by Zenoti, and thus if not developed, may adversely affect our digital marketing efforts and our ability to provide our franchisees with critical functionality and information.\nOur success depends substantially on the value of our brands.\nOur success depends, in large part, on our ability to maintain and enhance the value of our brands, our customers' connection to our brands and a positive relationship with our franchisees. Declining franchisee revenue reduces the advertising funds available to invest in the brands and a decline in the Company's investment in its brands could reduce brand awareness and the overall value of our brands. Brand value can be severely damaged even by isolated incidents, particularly if the incidents receive considerable negative publicity, including via social media or if they result in litigation. Some of these incidents may relate to the way we manage our relationships with our franchisees, our growth strategies, our development efforts, or the ordinary course of our or our franchisees' business. Other incidents may arise from events that may be beyond our control and may damage our brands, such as actions taken (or not taken) by one or more franchisees or their employees relating to health, safety, welfare, social issues or otherwise, litigation and claims, security breaches or other fraudulent activities associated with our back-office management or payment systems, and illegal activity targeted at us or others. Consumer demand for our products and services and our brands' value could diminish significantly if any such incidents or other matters erode consumer confidence in us or our products or services. This could result in lower sales and, ultimately, lower royalty income, which could materially and adversely affect our business and operating results.\nWe rely heavily on our information technology systems for our key business processes. If we experience an interruption in their operation, our results of operations may be affected.\nThe efficient operation of our business is dependent on our management information systems. We rely heavily on our management information systems to collect daily sales information and guest demographics, monitor salon performance, generate payroll information, and other functions. Such systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, hacker attempts, security breaches and natural disasters. Certain capabilities or entire systems may become outdated which could limit functionality. These management information systems may require upgrades or replacements periodically, which involve implementation and other operational risks. In addition, our management information systems are developed and maintained by external vendors, and we are transitioning our franchisees onto the Zenoti salon technology platform. The failure of our management information systems to perform as we anticipate, to meet the continuously evolving needs of our business, or to provide an affordable long-term solution, could disrupt our business operations and result in other negative consequences, including remediation costs, loss of revenue and reputational damage. Further, if our external vendors fail to adequately provide technical support for any one of our key existing management information systems or if new or updated components are not integrated smoothly, we could experience service disruptions that could result in the loss of important data, increase our expenses, decrease our revenues and generally harm our business, reputation and brands. Any such conduct with respect to our franchisees could also result in litigation.\n20\nTable of Conte\nn\nt\ns\nWe rely on external vendors for products and services critical to our operations.\nWe, along with our franchisees, rely on external vendors for the manufacture, supply and distribution of our owned brand products, other retail products we sell, and products we use during salon services, such as color and chemical treatments. We also rely on external vendors for various services critical to our operations and the security of certain Company data. Our dependence upon vendors exposes us to operational, reputational, financial and compliance risk. \nIf salon product offerings do not meet guests' expectations regarding safety and quality, we could experience lost sales, increased costs, and exposure to legal and reputational risk. All our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products and packages we buy, for either use on a guest during a service or resale to the public, comply with all safety and quality standards. Events that give rise to actual, potential, or perceived product safety concerns or mislabeling could expose us to government enforcement action and/or private litigation and result in costly product recalls and other liabilities. \nOur vendors are also responsible for the security of certain Company data, as discussed above. If one of our key vendors becomes unable to continue to provide products and services, or their systems fail, or are compromised or the quality of their systems deteriorate, we may suffer operational difficulties and financial loss.\nThe use of social media may have an adverse effect on our reputation.\nOur reputation is critical to our ability to compete and succeed. However, our reputation may be damaged by negative publicity on social media or other channels regarding the quality of products or services we provide. There has been a substantial increase in the use of social media platforms, which allow individuals to be heard by a broad audience of consumers and other interested persons. Negative or false commentary regarding our brands or the products or services we offer may be posted on social media platforms at any time. Customers value readily available information and may act on information without further investigation or regard to its accuracy. The harm to our reputation may be immediate, without affording us an opportunity for redress or correction. Our reputation may also be damaged by factors that are mostly or entirely out of our control, including actions by a franchisee or a franchisee's employee. \nWe also use social media platforms as marketing tools. As laws and regulations rapidly evolve to govern the use of these platforms, the failure by us, our employees, franchisees or third parties acting at our direction, to abide by applicable laws and regulations in the use of these platforms could adversely affect our business, financial condition and revenues.\nOur enterprise risk management program may leave us exposed to unidentified or unanticipated risks. \nWe maintain an enterprise risk management program that is designed to identify, assess, mitigate and monitor the risks that we face. There can be no assurance that our frameworks or models for assessing and managing known risks, compliance with applicable laws and related controls will effectively mitigate risk and limit losses in all market environments or against all types of risk in our business. If conditions or circumstances arise that expose flaws or gaps in our risk management or compliance programs, the performance and value of our business could be adversely affected. \nInsurance and other traditional risk-shifting tools may be held by, or made available to, us in order to manage certain types of risks, but they are subject to terms such as deductibles, retentions, limits and policy exclusions, as well as risk of denial of coverage, default or insolvency. If we suffer unexpected or uncovered losses, or if any of our insurance policies or programs are terminated for any reason or are not effective in mitigating our risks, we may incur losses that are not covered or that exceed our coverage limits and could adversely impact our results of operations, cash flows and financial position. \nOur franchise agreements require each franchisee to maintain specified insurance coverages and levels. Certain extraordinary hazards, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks. Moreover, any loss incurred could exceed policy limits and policy payments made to franchisees may not be made on a timely basis. Any such loss or delay in payment could have a material and adverse effect on a franchisee's ability to satisfy its obligations under its franchise agreement, including its ability to make royalty payments.\n21\nTable of Conte\nn\nt\ns\nFinancial and Economic Risks\nWe may be unable to generate sufficient cash flow to satisfy our debt service obligations, which would materially adversely affect our financial condition and results of operations.\nOur ability to make interest payments and comply with debt covenants associated with our indebtedness depends on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. Specifically, our interest payments are based on the secured overnight financing rate (SOFR), such that an increase in the SOFR will have a negative impact on our cash flows. \n \nIf we fail to comply with any of the covenants in our existing financing arrangement, we may not be able to access our existing revolving credit facility, and we may face an accelerated obligation to repay our indebtedness.\nIf we fail to comply with the terms in our existing financing arrangements, such a failure may cause a default under our financing arrangement, which could limit our ability to obtain new replacement financing or additional financing under our existing credit facility, require us to pay higher levels of interest or accelerate our obligation to repay our indebtedness. The impacts of significant business disruptions could ultimately impair our ability to comply with our covenants, which could preclude our ability to access our credit facility or accelerate our debt repayment obligation, which is secured by a lien on substantially all of the Company's assets.\nWe have limited resources to invest in our business and execute on our strategic plans.\nUnder our current operating and financial model, we use the cash we generate and borrow to cover the operating costs of our business as it is currently conducted and to pay interest expense on outstanding debt. We have limited capital resources available to invest in further execution of our strategy to grow our business. While management\u2019s projections demonstrate our ability to continue funding our business in this manner through the maturity of our revolving credit facility in August 2025, we do not expect to have access to additional cash to make further investments in the business. In order for the Company to be able to repay its debt in full upon maturity, or restructure the debt prior to August 2025, the Company will likely need to explore options for refinancing the indebtedness, and the availability of such options depends on the ability of the Company to continue to improve its cash from operations and other market conditions.\nPremature termination of franchise agreements can cause losses.\nOur franchise agreements may be subject to premature termination in certain circumstances, such as failure of a franchisee to cure a default, monetary or otherwise, a franchisee bankruptcy, voluntary termination, or abandonment of the franchise. If terminations occur for these or other reasons, we may need to enforce our right to damages for breach of contract and related claims, which could cause us to incur significant legal fees and expenses and/or to take back and operate such salons as company-owned salons. Any damages we ultimately collect could be less than the projected future value of the fees and other amounts we would have otherwise collected under the franchise agreement. In addition, with many of our brands, we remain liable under the lease and, therefore, will be obligated to pay rent or enter a settlement with the landlord, and we may not be made whole by the franchisee. A significant loss of franchisee agreements due to premature terminations could hurt our financial performance or our ability to grow our business.\nEmpire Education Group, Inc. may be unsuccessful, which could adversely affect our financial results. \nIn 2020, we entered into an agreement to sell to the other owner our 55.1% ownership stake in EEG. The transaction is subject to regulatory approval before it can close, and there is no guarantee that the regulatory approval will occur. Due to poor financial performance of EEG, we fully impaired the investment in prior years. If the transaction does not close as anticipated and EEG is unsuccessful in executing its business plan, or if economic, regulatory and other factors, including declines in enrollment, revenue and profitability, continue for the for-profit secondary education market, our financial results may be affected by certain potential liabilities related to this investment.\nFailure to control costs may adversely affect our operating results.\nWe must continue to control our expense structure. Failure to manage our labor and benefit rates, advertising and marketing expenses, professional fees, operating lease costs, other expenses, or indirect spending could delay or prevent us from achieving increased profitability or otherwise adversely affect our operating results.\n22\nTable of Conte\nn\nt\ns\nIf we are not able to successfully compete in our business markets, our financial results may be affected.\nCompetition on a market-by-market basis remains challenging as many smaller chain competitors are franchise systems with local operating strength in certain markets and the hair salon industry, as a whole, is fragmented and highly competitive for customers, stylists and prime locations. Therefore, our ability to attract guests, raise prices and secure suitable locations in certain markets can be adversely impacted by this competition. Our strategies for competing are complicated by the fact that we have multiple brands in multiple segments, which compete on different factors. We also face significant competition for prime real estate, particularly in strip malls. We compete for lease locations not only with other hair salons, but with a wide variety of businesses looking for similar square footage and high-quality locations. If we are unable to successfully compete, we may lose market share and our ability to grow same-store sales and increase our revenue and earnings may be impaired.\nCorporate Structure and Governance Risks\nWe rely on our management team and other key personnel. \nWe depend on the skills, working relationships and continued services of key personnel, including our management team and others throughout our Company. We are also dependent on our ability to attract and retain qualified personnel, for whom we compete with other companies both inside and outside our industry. We may be required to increase wages and/or benefits to attract and retain qualified personnel or risk considerable turnover. Our business, financial condition or results of operations may be adversely impacted by the unexpected loss of any of our management team or other key personnel, or more generally if we fail to identify, recruit, train and/or retain talented personnel. In addition, our business may be harmed if we lose too many individuals with institutional knowledge.\nIf we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results and prevent or detect material misstatements due to fraud, which could reduce investor confidence and adversely affect the value of our common stock.\nEffective internal controls over financial reporting is necessary for us to provide reliable financial reports and effectively prevent and detect material fraud. If we cannot provide reliable financial reports or prevent or detect material fraud, our operating results could be materially misstated. There can be no assurances that we will be able to prevent control deficiencies from occurring, which could cause us to incur unforeseen costs, reduce investor confidence, cause the market price of our common stock to decline or have other potential adverse consequences. Commencing with our fiscal 2023 audit, and as a result of our smaller reporting company status, we are not required to obtain, nor did we obtain, an audit of our system of internal controls over financial reporting.\nWe could be subject to changes in tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities.\nWe are subject to income taxes in the U.S. and other foreign jurisdictions. Significant judgment is required in determining our tax provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are subject to the examination of our income tax returns, payroll taxes and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for income taxes and payroll tax accruals. There can be no assurances as to the outcome of these examinations. Although we believe our tax estimates are reasonable, the final determination of tax audits, and any related litigation, could be materially different from our historical tax provisions and employment taxes. The results of an audit or litigation could have a material effect on our Consolidated Financial Statements in the period or periods where that determination is made. Also, in the future, our effective income tax rate could be adversely affected by a number of factors, including changes in the mix of earnings in countries with different statutory tax rates, changes in tax laws or the outcome of income examinations. \nOur ability to use our U.S. net operating loss carryforwards to offset future taxable income may be subject to certain limitations.\nUtilization of the net operating loss carryforwards may be subject to an annual limitation if an ownership change occurs under Section 382 of the Internal Revenue Code of 1986. An ownership change could be triggered by subsequent sales of securities by us, or our shareholders and such a change of ownership may limit our utilization of net operating losses. \n23\nTable of Conte\nn\nt\ns\nLitigation and other legal or regulatory proceedings or claims and the outcome of such litigation, proceedings or claims, including possible fines and penalties, could have an adverse effect on our business and any loss contingency accruals may be inadequate to cover actual losses.\nFrom time-to-time in the ordinary course of our business operations, we are subject to litigation, including potential class action and single-plaintiff litigation, arbitration and other legal or regulatory proceedings or claims. Litigation to defend ourselves against claims by third parties, or to enforce any rights that we may have against third parties, may be necessary, which could require significant time commitments from our management team and result in substantial costs and diversion of our resources, which may cause an adverse effect on our business, financial condition and revenues. We establish accruals for potential liabilities arising from litigation and other legal or regulatory proceedings or claims when potential liabilities are probable, and the amount of the loss can be reasonably estimated based on currently available information. We may still incur legal costs for a matter even if we have not accrued a liability. In addition, actual losses may be higher than the amount accrued for a certain matter or in the aggregate. Any resolution of litigation or other legal or regulatory proceedings as well as claims could adversely affect our business, financial condition or revenues.\n24\nTable of Conte\nn\nt\ns",
+  "item7": ">Item\u00a07.\u00a0\u00a0\u00a0\u00a0Management's Discussion and Analysis of Financial Condition and Results of Operations\nManagement's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results.\nBUSINESS DESCRIPTION\nRegis Corporation (the Company) franchises, owns and operates beauty salons. As of June\u00a030, 2023, the Company franchised or owned 4,863 salons in North America and the United Kingdom. Each of the Company's salon concepts generally offer similar salon products and services and serve the mass market. As of June\u00a030, 2023, we had 435 corporate employees worldwide. See discussion within Part\u00a0I, Item\u00a01 of this Form 10-K.\nAs part of the Company's strategic transition to a fully-franchised model, the Company is selling salons to franchisees. The impact of these transactions is as follows:\n\u00a0\nFiscal Years\n2023\n2022\n2021\n(Dollars in thousands)\nSalons sold to franchisees\n1\u00a0\n110\n748\u00a0\nCash proceeds received\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n8,437\u00a0\nLoss from sale of salon assets to franchisees, net\n$\n\u2014\u00a0\n$\n(2,334)\n$\n(16,696)\nOn June 30, 2022, the Company sold its Opensalon\n\u00ae\n Pro (OSP) software-as-a-service solution to Soham Inc. The Company received $13.0\u00a0million in proceeds in June 2022 and received an additional $5.0\u00a0million in proceeds in fiscal year 2023, offset by a $0.5\u00a0million transaction fee. The Company expects to receive an additional $2.0\u00a0million of proceeds held back for general indemnity provisions in December 2024 and additional proceeds as salons migrate to the Zenoti platform. As a result of the sale, the Company classified the OSP business as discontinued operations in the financial statements as discussed in Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\nThe Company shifted its product business from a wholesale model to a third-party distribution model as part of its asset-light transformation. In fiscal year 2022, the Company exited its distribution centers and ceased selling products to franchisees. Franchisees source product from a third-party distribution partner and the Company receives a royalty payment based on franchisee purchases. This change has significantly decreased both the Company's franchise product revenue and general and administrative expense, including the Franchise distribution costs discussed in Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. In fiscal years 2023, 2022 and 2021, the Company experienced the following charges related to the exit of the distribution centers: \n\u00a0\nFiscal Years\n\u00a0\n2023\n2022\n2021\n\u00a0\nFinancial Statement Caption\n(Dollars in thousands)\nInventory reserve (1)\nInventory reserve\n$\n1,228\u00a0\n$\n7,655\u00a0\n$\n\u2014\u00a0\nInventory valuation adjustment (2)\nCompany-owned salon expense\n\u2014\u00a0\n\u00a0\n2,823\u00a0\n12,068\u00a0\nGain from disposal of distribution center assets\nOther, net\n\u2014\u00a0\n\u2014\u00a0\n(14,997)\n____________________________________________________________________________\n(1)\nIncludes charges in the third and fourth quarter of fiscal year 2022 associated with the liquidation of distribution center inventory, which primarily related to reserving for personal protective equipment acquired as a result of the COVID-19 pandemic. \n(2)\nDue to the reduction in company-owned salons, the Company cannot redistribute inventory from closed salons causing an increase to the reserve. Also included in fiscal year 2021 was the write-off of marketing and promotional items.\n27\nTable of Conte\nn\nt\ns\nRESULTS OF OPERATIONS\nThe Company reports its operations in two operating segments: Franchise salons and Company-owned salons.\nCOVID-19 Impact:\nThe global coronavirus pandemic (COVID-19) had an adverse impact on operations. As a result, the Company received Canadian rent relief, Canadian wage relief, U.S. employee retention payroll tax credits and a grant from the state of North Carolina. In fiscal years 2023, 2022 and 2021, the Company received the following financial assistance:\n\u00a0\nFiscal Years\n\u00a0\n2023\n2022\n2021\n\u00a0\nFinancial Statement Caption\n(Dollars in thousands)\nCanadian rent relief\nRent \n$\n\u2014\u00a0\n$\n1,235\u00a0\n$\n\u2014\u00a0\nCanadian wage relief\nCompany-owned salon expense\n\u2014\u00a0\n\u00a0\n1,966\u00a0\n1,629\u00a0\nU.S. employee retention payroll tax credit\nCompany-owned salon expense\n\u2014\u00a0\n\u2014\u00a0\n1,547\u00a0\nNorth Carolina COVID-19 grant\nOther, net\n1,106\u00a0\n\u2014\u00a0\n\u2014\u00a0\nAdditionally, in both December 2022 and December 2021, the Company paid $2.5 million of social security contributions that had been deferred under the CARES Act. \nSystem-wide results\nOur results are impacted by our system-wide sales, which include sales by all points of distribution, whether owned by our franchisees or the Company. While we do not record sales by franchisees as revenue, and such sales are not included in our Consolidated Financial Statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe system-wide sales information aids in understanding how we derive royalty revenue and in evaluating performance. In fiscal year 2023, a net 600 franchise salons have closed, which reduces future royalty income.\nThe following table summarizes system-wide revenue and system-wide same-store sales (1) by concept:\nFiscal Years\n2023\n2022\n2021\n(Dollars in millions)\nSystem-wide revenue\n$\n1,230.5\u00a0\n$\n1,228.5\u00a0\n$\n1,086.0\u00a0\nSupercuts\n6.9\u00a0\n%\n22.1\u00a0\n%\n(25.8)\n%\nSmartStyle\n(2.5)\n5.7\u00a0\n(26.7)\nPortfolio Brands\n5.5\u00a0\n11.2\u00a0\n(24.8)\nTotal system-wide same-store sales\n4.4\u00a0\n%\n14.8\u00a0\n%\n(25.8)\n%\n____________________________________________________________________________\n(1)\nSystem-wide same-store sales are calculated as the total change in sales for system-wide franchise and company-owned locations that were open on a specific day of the week during the current period and the corresponding prior period. System-wide same-store sales are the sum of the system-wide same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. System-wide same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.\n28\nTable of Conte\nn\nt\ns\nConsolidated Results of Operations\nThe following table sets forth, for the periods indicated, certain information derived from our Consolidated Statements of Operations. The percentages are computed as a percent of total consolidated revenues, except as otherwise indicated, and the increase (decrease) is measured in basis points. Variances calculated on amounts shown in millions may result in rounding differences.\n\u00a0\nFiscal Years\n\u00a0\n2023\n2022\n2021\n2023\n2022\n2021\n2023\n2022\n\u00a0\n(Dollars in millions)\n% of Total Revenues (1)\nIncrease (Decrease)\nRoyalties\n$\n66.0\u00a0\n$\n65.8\u00a0\n$\n52.4\u00a0\n28.4\u00a0\n%\n23.8\u00a0\n%\n12.7\u00a0\n%\n460\u00a0\n1,110\u00a0\nFees\n11.3\u00a0\n11.6\u00a0\n10.2\u00a0\n4.8\u00a0\n4.2\u00a0\n2.6\u00a0\n60\u00a0\n160\u00a0\nProduct sales to franchisees\n2.8\u00a0\n15.1\u00a0\n56.7\u00a0\n1.2\u00a0\n5.5\u00a0\n13.8\u00a0\n(430)\n(830)\nAdvertising fund contributions\n31.7\u00a0\n32.6\u00a0\n22.0\u00a0\n13.6\u00a0\n11.8\u00a0\n5.3\u00a0\n180\u00a0\n650\u00a0\nFranchise rental income\n111.4\u00a0\n130.8\u00a0\n127.4\u00a0\n47.7\u00a0\n47.4\u00a0\n30.9\u00a0\n30\u00a0\n1,650\u00a0\nCompany-owned salon revenue\n10.1\u00a0\n20.2\u00a0\n143.0\u00a0\n4.3\u00a0\n7.3\u00a0\n34.7\u00a0\n(300)\n(2,740)\nCost of product sales to franchisees\n3.5\u00a0\n17.4\u00a0\n43.8\u00a0\n125.0\u00a0\n115.2\u00a0\n77.2\u00a0\n980\u00a0\n3,800\u00a0\nInventory reserve\n1.2\u00a0\n7.7\u00a0\n\u2014\u00a0\n0.5\u00a0\n2.8\u00a0\n\u2014\u00a0\n(230)\nN/A\nGeneral and administrative\n50.8\u00a0\n65.3\u00a0\n96.4\u00a0\n21.8\u00a0\n23.7\u00a0\n23.4\u00a0\n(190)\n30\u00a0\nRent\n9.2\u00a0\n9.4\u00a0\n40.8\u00a0\n3.9\u00a0\n3.4\u00a0\n9.9\u00a0\n50\u00a0\n(650)\nAdvertising fund expense\n31.7\u00a0\n32.6\u00a0\n22.0\u00a0\n13.6\u00a0\n11.8\u00a0\n5.3\u00a0\n180\u00a0\n650\u00a0\nFranchise rent expense\n111.4\u00a0\n130.8\u00a0\n127.4\u00a0\n47.7\u00a0\n47.4\u00a0\n30.9\u00a0\n30\u00a0\n1,650\u00a0\nCompany-owned salon expense\n8.8\u00a0\n22.0\u00a0\n141.2\u00a0\n3.8\u00a0\n8.0\u00a0\n34.3\u00a0\n(420)\n(2,630)\nDepreciation and amortization\n7.7\u00a0\n6.2\u00a0\n21.7\u00a0\n3.3\u00a0\n2.2\u00a0\n5.3\u00a0\n110\u00a0\n(310)\nLong-lived asset impairment\n0.1\u00a0\n0.5\u00a0\n13.0\u00a0\n\u2014\u00a0\n0.2\u00a0\n3.2\u00a0\n(20)\n(300)\nGoodwill impairment\n\u2014\u00a0\n13.1\u00a0\n\u2014\u00a0\n\u2014\u00a0\n4.7\u00a0\n\u2014\u00a0\n(470)\nN/A\nOperating income (loss) (2)\n8.8\u00a0\n(28.9)\n(94.7)\n3.8\u00a0\n(10.5)\n(23.0)\n1,430\u00a0\n1,250\u00a0\nInterest expense\n(22.1)\n(12.9)\n(13.2)\n(9.5)\n(4.7)\n(3.2)\n(480)\n(150)\nLoss from sale of salon assets to franchisees, net\n\u2014\u00a0\n(2.3)\n(16.7)\n\u2014\u00a0\n(0.8)\n(4.1)\n80\u00a0\n330\u00a0\nOther, net\n1.4\u00a0\n(0.3)\n15.9\u00a0\n0.6\u00a0\n(0.1)\n3.9\u00a0\n70\u00a0\n(400)\nIncome tax benefit (expense) (3)\n0.7\u00a0\n(2.0)\n5.4\u00a0\n5.5\u00a0\n(4.5)\n5.0\u00a0\nN/A\nN/A\nIncome (loss) from discontinued operations\n4.0\u00a0\n(39.4)\n(10.1)\n1.7\u00a0\n(14.3)\n(2.5)\n1,600\u00a0\n(1,180)\nNet loss (2)\n(7.4)\n(85.9)\n(113.3)\n(3.2)\n(31.1)\n(27.5)\n2,790\u00a0\n(360)\n____________________________________________________________________________\n(1)\nCost of product sales to franchisees is computed as a percent of product sales to franchisees.\n(2)\nTotal is a recalculation; line items calculated individually may not sum to total due to rounding.\n(3)\nComputed as a percent of loss from continuing operations before income taxes. The income taxes basis point change is noted as not applicable (N/A) as the discussion below is related to the effective income tax rate.\n29\nTable of Conte\nn\nt\ns\nFiscal Year Ended\u00a0June\u00a030, 2023\u00a0Compared with Fiscal Year Ended\u00a0June\u00a030, 2022\nRoyalties\nDuring fiscal year 2023, royalties increased $0.2 million, or 0.3%, primarily due to higher average royalty rates and improved system-wide same-store sales, mostly offset by a decrease in franchise salon count.\nFees\nDuring fiscal year 2023, fees decreased $0.3 million, or 2.6%, primarily due to a decrease in terminated development agreements year over year, partially offset by an increase in the fee received from the Company's third-party distribution partner.\nProduct Sales to Franchisees\nProduct sales to franchisees decreased $12.3 million, or 81.5%, during fiscal year 2023, primarily due to the Company's shift in its product business to a third-party distribution model.\nAdvertising Fund Contributions\nAdvertising fund contributions decreased $0.9 million, or 2.8%, during fiscal year 2023, primarily due to the decrease in franchise salon count, partially offset by improved system-wide same-store sales.\nFranchise Rental Income\nDuring fiscal year 2023, franchise rental income decreased $19.4 million, or 14.8%, primarily due to the decrease in franchise salon count.\nCompany-owned Salon Revenue\nDuring fiscal year 2023, company-owned salon revenue decreased $10.1 million, or 50.0%, due to the decrease in company-owned salon count and a decline in product sales.\nCost of Product Sales to Franchisees\nThe 980 basis point increase in cost of product sales to franchisees as a percent of product revenue during fiscal year 2023 was primarily due to the Company reducing prices to liquidate distribution center inventory.\nInventory Reserve\nDuring fiscal year 2023, the Company recorded an inventory reserve charge of $1.2 million related to slow moving products. During fiscal year 2022, the Company recorded a total inventory reserve charge of $10.5 million, of which $7.7 million was recorded in inventory reserve and $2.8 million was recorded in company-owned salon expense on the Consolidated Statements of Operations. See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\nGeneral and Administrative\nThe decrease of $14.5 million, or 22.2%, in general and administrative expense during fiscal year 2023 was primarily due to lower administrative and field management compensation resulting from headcount reductions, lower legal and professional fees and a decrease in expenses associated with the distribution centers closures in fiscal year 2022.\nRent\nThe decrease of $0.2 million, or 2.1%, in rent expense during fiscal year 2023 was primarily due to the net reduction in the number of company-owned salons, partially offset by a $1.2 million benefit in fiscal year 2022 related to Canadian COVID-19 rent relief.\nAdvertising Fund Expense\nAdvertising fund expense decreased $0.9 million, or 2.8%, during fiscal year 2023, primarily due to the decrease in franchise salon count, partially offset by improved system-wide same-store sales.\n30\nTable of Conte\nn\nt\ns\nFranchise Rent Expense\nDuring fiscal year 2023, franchise rent expense decreased $19.4 million, or 14.8%, primarily due to the decrease in franchise salon count.\nCompany-owned Salon Expense\nCompany-owned salon expense decreased $13.2 million, or 60.0%, during fiscal year 2023, primarily due to the reduction in company-owned salon count, a decline in product sales and an inventory reserve charge of $2.8 million in fiscal year 2022 included in company-owned salon expense. These decreases were partially offset by $2.0 million of Canadian COVID-19 wage relief received in fiscal year 2022. \nDepreciation and Amortization\nThe increase of $1.5 million, or 24.2%, in depreciation and amortization during fiscal year 2023 was primarily due to a $2.6 million accelerated depreciation charge in the second quarter of fiscal year 2023 related to the consolidation of office space within the Company's corporate headquarters, partially offset by lower asset retirement obligations (\"white boxing\" salons at lease end) and the net reduction in company-owned salon count.\nLong-Lived Asset Impairment\nIn fiscal year 2023, the Company recorded a long-lived asset impairment charge of $0.1 million, and in fiscal year 2022, the Company recorded a long-lived asset impairment charge of $0.5 million. The decrease in long-lived asset impairment was primarily due to more salon ROU assets being impaired in prior periods.\nGoodwill Impairment\nDuring fiscal year 2023, the Company did not record a goodwill impairment charge, and during fiscal year 2022, the Company recorded a goodwill impairment charge of $13.1 million. See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\nInterest Expense\nThe $9.2 million increase in interest expense during fiscal year 2023 was primarily due to the increase of $1.1 million in amortization of fees related to the credit amendment that was signed in the first quarter of fiscal year 2023 and a higher weighted average interest rate on outstanding borrowings, including non-cash paid-in-kind interest of $1.0 million.\nLoss from Sale of Salon Assets to Franchisees, net\nThere was one salon sold in fiscal year 2023 compared to 110 in fiscal year 2022, which resulted in a $2.3 million improvement in the loss from sale of salon assets to franchises, net.\nOther, net \nOther, net improved $1.7 million in fiscal year 2023, primarily due to a $1.1 million grant received from the state of North Carolina related to COVID-19 relief and a class action settlement.\nIncome Tax Benefit (Expense)\nDuring fiscal year 2023, the Company recognized an income tax benefit of $0.7\u00a0million, with a corresponding effective tax rate of 5.5%, compared to recognizing income tax expense of $2.0\u00a0million, with a corresponding effective tax rate of (4.5)% during fiscal year 2022. See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\nIncome (Loss) from Discontinued Operations\nIn fiscal year 2023, the Company recorded income from discontinued operations of $4.0 million and in fiscal year 2022, the Company recorded a loss from discontinued operations of $39.4 million. Income in fiscal year 2023 is primarily due to the receipt of $5.0 million sales proceeds offset by a $0.5 million transaction fee and other expenses from the sale of OSP. The loss in fiscal year 2022 includes the loss from the sale of OSP, including goodwill derecognition of $38.4 million, partially offset by proceeds from the sale. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\n31\nTable of Conte\nn\nt\ns\nResults of Operations by Segment\nBased on our internal management structure, we report two segments: Franchise salons and Company-owned salons. See Note 15 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. Significant results of continuing operations are discussed below with respect to each of these segments.\nFranchise Salons\nFiscal Years\n2023\n2022\n2021\n2023\n2022\n(Dollars in millions)\nIncrease (Decrease) (1)\nRoyalties\n$\n66.0\u00a0\n$\n65.8\u00a0\n$\n52.4\u00a0\n$\n0.2\u00a0\n$\n13.4\u00a0\nFees\n11.3\u00a0\n11.6\u00a0\n10.2\u00a0\n(0.3)\n1.4\u00a0\nProduct sales to franchisees\n2.8\u00a0\n15.1\u00a0\n56.7\u00a0\n(12.3)\n(41.6)\nAdvertising fund contributions\n31.7\u00a0\n32.6\u00a0\n22.0\u00a0\n(0.9)\n10.6\u00a0\nFranchise rental income\n111.4\u00a0\n130.8\u00a0\n127.4\u00a0\n(19.4)\n3.4\u00a0\nTotal franchise revenue (1)\n$\n223.2\u00a0\n$\n255.8\u00a0\n$\n268.7\u00a0\n$\n(32.6)\n$\n(12.9)\nFranchise same-store sales (2)\n4.4\u00a0\n%\n15.0\u00a0\n%\n(24.5)\n%\nFranchise adjusted EBITDA\n$\n22.8\u00a0\n$\n7.7\u00a0\n$\n(29.4)\n$\n15.1\u00a0\n$\n37.1\u00a0\nTotal franchise salons\n4,795\u00a0\n5,395\u00a0\n5,563\u00a0\n(600)\n(168)\n_______________________________________________________________________________\n(1)\nTotal is a recalculation; line items calculated individually may not sum to total due to rounding.\n(2)\nFranchise same-store sales are calculated as the total change in sales for franchise locations that were open on a specific day of the week during the current period and the corresponding prior period. Year-to-date franchise same-store sales are the sum of the franchise same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. Franchise same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.\nFiscal Year Ended\u00a0June 30, 2023\u00a0Compared with Fiscal Year Ended\u00a0June 30, 2022\nFranchise Revenue\nFranchise revenue decreased $32.6 million during fiscal year 2023. The decrease in franchise revenue was primarily due to the decrease in franchise rental income as a result of lower salon count and the decrease in product sales to franchisees due to the Company's shift to a third-party distributor model. During fiscal year 2023, franchisees purchased one salon from the Company and constructed (net of relocations) and closed 15 and 616 franchise salons, respectively.\nFranchise Adjusted EBITDA\nDuring fiscal year 2023, franchise adjusted EBITDA totaled $22.8 million, an improvement of $15.1 million compared to fiscal year 2022. The improvement is primarily due to a decrease in general and administrative expense.\n32\nTable of Conte\nn\nt\ns\nCompany-Owned Salons\nFiscal Years\n2023\n2022\n2021\n2023\n2022\n(Dollars in millions)\n(Decrease) Increase (1)\nTotal revenue\n$\n10.1\u00a0\n$\n20.2\u00a0\n$\n143.0\u00a0\n$\n(10.1)\n$\n(122.8)\nCompany-owned salon adjusted EBITDA\n$\n(1.8)\n$\n(9.5)\n$\n(47.5)\n$\n7.7\u00a0\n$\n38.0\u00a0\nTotal Company-owned salons\n68\u00a0\n105\u00a0\n276\u00a0\n(37)\n(171)\n_______________________________________________________________________________\n(1)\nTotal is a recalculation; line items calculated individually may not sum to total due to rounding.\nFiscal Year Ended\u00a0June 30, 2023\u00a0Compared with Fiscal Year Ended\u00a0June 30, 2022\nCompany-owned Salon Revenue\nCompany-owned salon revenue decreased $10.1 million in fiscal year 2023, primarily due to decrease in company-owned salon count and a decline in product sales in salons.\nCompany-owned Salon Adjusted EBITDA\nDuring fiscal year 2023, Company-owned salon adjusted EBITDA improved $7.7 million, primarily due to the closure of unprofitable salons. Fiscal year 2023 also benefited from a $1.1 million grant received from the state of North Carolina related to COVID-19 relief.\nRecent Accounting Pronouncements\nRecent accounting pronouncements are discussed in Note\u00a01 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\n33\nTable of Conte\nn\nt\ns\nLIQUIDITY AND CAPITAL RESOURCES\nFollowing the amendment of the Company's credit agreement in August 2022, the facility matures in August 2025. In addition to a $10.0 million minimum liquidity covenant, the amended credit agreement includes typical provisions and financial covenants, including minimum EBITDA, leverage and fixed-charge coverage ratio covenants, the latter two of which are not tested until December 31, 2023. See Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\nSources of Liquidity\nFunds generated by operating activities, available cash and cash equivalents and our borrowing agreements are our most significant sources of liquidity. The Company believes it has sufficient liquidity, cash on hand and borrowing capacity, to meet its obligations in the next twelve months and until maturity of the credit agreement in August 2025. In conducting the Company\u2019s current operations, all cash in excess of the amounts needed to support existing operating activities is used to pay the interest on the amounts outstanding under the credit agreement, and we are periodically borrowing additional amounts to cover these operating and interest expense costs.\nAs of June\u00a030, 2023, cash and cash equivalents were $9.5 million, with $8.7 and $0.8 million within the United States and Canada, respectively. \nAs of June\u00a030, 2023, the Company's borrowing arrangements include a $172.3 million term loan and a $55.0 million revolving credit facility with a $10.0 million minimum liquidity covenant that expires in August 2025. As of June\u00a030, 2023, the unused available credit under the revolving credit facility was $33.3 million and total liquidity per the agreement was $42.8 million. See additional discussion under Financing Arrangements and Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\nAdditionally, on February 3, 2021, the Company filed a $150.0 million shelf registration and $50.0 million prospectus supplement with the Securities and Exchange Commission under which it may offer and sell, from time to time, up to $50.0 million worth of its common stock in \"at-the-market\" offerings. Net proceeds from sales of shares under the \"at-the-market\" program, if any, may be used to, among other things, fund working capital requirements, repay debt and support of our brands and franchisees. The timing and amount of sales of shares, if any, will depend on a variety of factors, including prevailing market conditions, the trading price of shares, and other factors as determined by the Company. During fiscal year 2023, the Company did not issue shares under the prospectus supplement. As of June\u00a030, 2023, 9.3 million shares have been cumulatively issued for $38.4 million, and $11.6 million remains outstanding under the share issuance program.\nUses of Cash\nThe Company closely manages its liquidity and capital resources. The Company's liquidity requirements depend on key variables, including the performance of the business, the level of investment needed to support its business strategies, credit facilities and borrowing arrangements, and working capital management. The Company has a disciplined approach to capital allocation, which focuses on ensuring we can meet our interest obligations and investing in key priorities to support the Company's strategic plan as discussed within Part I, Item 1. Additional information about the Company's current use of cash is described under \"Sources of Liquidity.\"\nCash Requirements\nThe Company's most significant contractual cash requirements as of June\u00a030, 2023 were lease commitments and interest payments. See Notes 6 and 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further detail. \n34\nTable of Conte\nn\nt\ns\nCash Flows\nCash Flows from Operating Activities\nDuring fiscal year 2023, cash used in operating activities was $7.9 million. Cash used in operations improved due to lower general and administrative expense resulting from a reduced headcount, a $1.1 million cash grant received from the state of North Carolina related to COVID-19 relief, $0.6 million received related to COVID-19 employee retention credits and less cash used for working capital. Cash used in fiscal year 2023 included a $2.5 million payment of previously deferred social security contributions.\nCash Flows from Investing Activities\nDuring fiscal year 2023, cash provided by investing activities of $4.0 million was primarily related to cash received of $5.0 million from the sale of OSP, partially offset by a $0.5 million transaction fee.\nCash Flows from Financing Activities\nDuring fiscal year 2023, cash used in financing activities of $2.1 million was primarily as a result of debt refinancing fees of $4.4 million, partially offset by a net $2.3 million borrowing under the Company's revolving credit facility. \n35\nTable of Conte\nn\nt\ns\nFinancing Arrangements\nFinancing activities are discussed in Note\u00a08 and Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. Derivative activities are discussed in Part\u00a0II, Item\u00a07A, \"Quantitative and Qualitative Disclosures about Market Risk.\"\nThe Company's financing arrangements consist of the following:\n\u00a0\n\u00a0\nJune\u00a030,\n\u00a0\nMaturity Dates\n2023\n2022\n2023\n2022\n\u00a0\n(Fiscal year)\n(Interest rate %)\n(Dollars in thousands)\nTerm loan\n2026\n9.54%\nN/A\n$\n172,268\u00a0\n$\n\u2014\u00a0\nDeferred financing fees\n(6,471)\n\u2014\u00a0\nTerm loan, net\n165,797\u00a0\n\u2014\u00a0\nRevolving credit facility\n2026\n9.54%\n5.50%\n10,000\u00a0\n179,994\u00a0\nPaid-in-kind interest\n1,033\u00a0\n\u2014\u00a0\nTotal long-term debt, net\n\u00a0\n\u00a0\n\u00a0\n$\n176,830\u00a0\n$\n179,994\u00a0\nIn August 2022, the Company amended its credit agreement and extended the maturity to August 2025. Under the amendment, the $295.0 million revolving credit facility was converted to a $180.0 million term loan and reduced commitments under the revolving credit facility to $55.0 million, with the minimum liquidity covenant reduced to $10.0 million from $75.0 million. The agreement includes typical provisions and financial covenants, including minimum EBITDA, leverage and fixed-charge coverage ratio covenants, the latter two of which are not tested until December 31, 2023. Total liquidity and available credit under the revolving credit facility, as defined by the agreement, were $42.8 and $33.3 million, respectively, as of June\u00a030, 2023. As of June\u00a030, 2023 and 2022, the Company had $176.8 and $180.0 million, respectively, of net outstanding borrowings. The agreement utilizes an interest rate margin that is subject to annual increases. The margin applicable to term secured overnight financing rate (SOFR) loans was 3.875% through March 27, 2023. Effective March 27, 2023, the margin increased to 6.25%, of which 4.25% is paid currently in cash and 2.00% is paid-in-kind (PIK) interest (added to the principal balance and thereafter accruing interest). Effective March 27, 2024, the margin will increase to 7.25%, of which 4.25% will be paid currently in cash and 3.00% will be PIK interest. The margin applicable to base rate loans will be 100 basis points (1.00%) less than the margin applicable to term SOFR loans. See additional discussion in Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\nOur debt to capitalization ratio, calculated as the principal amount of debt, including paid-in-kind interest accrued, as a percentage of the principal amount of debt and shareholders' deficit at fiscal year-end, was as follows:\nAs of June\u00a030,\nDebt to\nCapitalization (1)\n2023\n125.1\u00a0\n%\n2022\n120.8\u00a0\n%\n2021\n91.6\u00a0\n%\n_______________________________________________________________________________\n(1)\nExcludes the long-term lease liability as that liability is offset by the ROU asset.\nThe increase in the debt to capitalization ratio as of June\u00a030, 2023 compared to June\u00a030, 2022 was primarily due to the increase in shareholders' deficit as a result of the net loss.\n36\nTable of Conte\nn\nt\ns\nContractual Obligations and Commercial Commitments\nOn-Balance Sheet Obligations\nOur debt obligations are primarily composed of our credit agreement at June\u00a030, 2023. \nNon-current deferred benefits of $6.0 million includes $1.8 million related to a non-qualified deferred salary plan, a salary deferral program of $2.0 million and a bonus deferral plan of $2.2 million related to established contractual payment obligations under retirement and severance agreements for a small number of employees. See Note\u00a04 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\nOperating leases primarily represent long-term obligations for the rental of salons, including leases for company-owned locations, as well as salon franchisee lease obligations, which are reimbursed to the Company by franchisees. Regarding franchisee subleases, we generally retain the right to the related salon assets, net of any outstanding obligations, in the event of a default by a franchise owner. Declines in system-wide revenue in certain brands over the past few years have increased the risk of default by franchisees, which may be material.\nThe Company has unfunded deferred compensation contracts covering certain management and executive personnel. We cannot predict the timing or amount of future payments related to these contracts. See Note\u00a011 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\nAs of June\u00a030, 2023, we have liabilities for uncertain tax positions. We are not able to reasonably estimate the amount by which the liabilities will increase or decrease over time; however, at this time, we do not expect a significant payment related to these obligations within the next fiscal year. See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\nOff-Balance Sheet Arrangements\nUnder the credit agreement entered into in August 2022, the applicable margins for the loans bearing interest are subject to annual increases. The margin applicable to loans bearing interest at SOFR was 3.875% through March 27, 2023. Effective March 27, 2023, the margin increased to 6.25%, of which 4.25% is paid currently in cash and 2.00% is PIK interest (added to the principal balance and thereafter accruing interest). Effective March 27, 2024, the margin will increase to 7.25%, of which 4.25% will be paid currently in cash and 3.00% will be PIK interest. The margin applicable to base rate loans will be 100 basis points (1.00%) less than the margin applicable to SOFR loans. See Note\u00a08 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\nWe are a party to a variety of contractual agreements that we may be obligated to indemnify the other party for certain matters, which indemnities may be secured by operation of law or otherwise, in the ordinary course of business. These contracts primarily relate to our commercial contracts, operating leases and other real estate contracts, financial agreements, agreements to provide services and agreements to indemnify officers, directors, and employees in the performance of their work. While our aggregate indemnification obligation could result in a material liability, we are not aware of any current matter that we expect will result in a material liability.\nWe do not have any unconditional purchase obligations or significant other commercial commitments such as standby repurchase obligations.\nWe do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes at June\u00a030, 2023. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.\n37\nTable of Conte\nn\nt\ns\nDividends\nThe Company has not declared a quarterly dividend payment since December 2013. \nShare Issuance Program\nIn February 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its common stock in \"at-the-market\" offerings. During fiscal year 2023, the Company did not issue shares under the prospectus supplement. As of June\u00a030, 2023, 9.3 million shares have been cumulatively issued for $38.4 million, and $11.6 million remains outstanding under the share issuance program.\nShare Repurchase Program\nIn May 2000, the Board approved a stock repurchase program with no stated expiration date. Since that time and through June\u00a030, 2023, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depends on many factors, including the market price of the common stock and overall market conditions. During fiscal year 2023, the Company did not repurchase shares. As of June\u00a030, 2023, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remained authorized for repurchase. The Company does not anticipate repurchasing shares of common stock for the foreseeable future.\n38\nTable of Conte\nn\nt\ns\nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\nThe Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States. In preparing the Consolidated Financial Statements, we are required to make various judgments, estimates and assumptions that could have a significant impact on the results reported in the Consolidated Financial Statements. We base these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. Estimates are considered to be critical if they meet both of the following criteria: (1)\u00a0the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, and (2)\u00a0other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Changes in these estimates could have a material effect on our Consolidated Financial Statements.\nOur significant accounting policies can be found in Note\u00a01 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. We believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations.\nGoodwill\nAs of June\u00a030, 2023 and 2022, the Franchise reporting unit had $173.8 and $174.4 million of goodwill, respectively, and the Company-owned segment had no goodwill at either period. See Note\u00a05 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. The Company assesses goodwill impairment on an annual basis as of April 30, and between annual assessments if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount.\nGoodwill impairment assessments are performed at the reporting unit level, which is the same as the Company's operating segments. The goodwill assessment involves a one-step comparison of the reporting unit's fair value to its carrying value, including goodwill (Step 1). If the reporting unit's fair value exceeds its carrying value, no further procedures are required. However, if the reporting unit's fair value is less than the carrying value, an impairment charge is recorded for the difference between the fair value and carrying value of the reporting unit. \nIn applying the goodwill impairment assessment, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting units is less than its carrying value (Step 0). Qualitative factors may include, but are not limited to, economic, market and industry conditions, cost factors, and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company determines it is more likely than not that the carrying value is less than the fair value, then performing Step 1 of the goodwill impairment assessment is unnecessary. \nThe carrying value of each reporting unit is based on the assets and liabilities associated with the operations of the reporting unit, including allocation of shared or corporate balances among reporting units. Allocations are generally based on the number of salons in each reporting unit as a percent of total salons or expenses of the reporting unit as a percentage of total company expenses.\nThe Company calculates estimated fair values of the reporting units based on discounted cash flows utilizing estimates in annual revenue, fixed expense rates, allocated corporate overhead, franchise and company-owned salon counts, and long-term growth rates for determining terminal value. Where available and as appropriate, comparative market multiples are used in conjunction with the results of the discounted cash flows. The Company engages third-party valuation consultants to assist in evaluating the Company's estimated fair value calculations. See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\n39\nTable of Conte\nn\nt\ns\nLong-Lived Assets, Excluding Goodwill\nThe Company follows the guidance in ASC 360, Property, Plant, and Equipment and applies the guidance to property, plant, and equipment as well as right of use (ROU) assets. The Company has identified its asset groups at the individual salon level as this represents the lowest level that identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Poor salon performance in fiscal years 2023, 2022 and 2021 resulted in ASC 360-10-35-21 triggering events. As a result, management assessed underperforming salon asset groups, which included the related ROU assets, for impairment in accordance with ASC 360. \nThe first step in the impairment test under ASC 360 is to determine whether the long-lived assets are recoverable, which is determined by comparing the net carrying value of the salon asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset group. Estimating cash flows for purposes of the recoverability test is subjective and requires significant judgment. Estimated future cash flows used for the purposes of the recoverability test were based upon historical cash flows for the salons, adjusted for expected changes in future market conditions and other factors. The period of time used to determine the estimates of the future cash flows for the recoverability test was based on the remaining useful life of the primary asset of the group, which was the ROU asset in all cases.\nThe second step of the long-lived asset impairment test requires that the fair value of the asset group be estimated when determining the amount of any impairment loss. For the salon asset groups that failed the recoverability test, an impairment loss was measured as the amount by which the carrying amount of the asset group exceeds its fair value. The Company applied the fair value guidance within ASC 820-10 to determine the fair value of the asset group from the perspective of a market-participant considering, among other things, appropriate discount rates, multiple valuation techniques, the most advantageous market, and assumptions about the highest and best use of the asset group. To determine the fair value of the salon asset groups, the Company utilized market-participant assumptions rather than the Company's own assumptions about how it intends to use the asset group. The significant judgments and assumptions utilized to determine the fair value of the salon asset groups include the market rent of comparable properties and a discount rate. The fair value of the salon long-lived asset group is estimated using market participant methods based on the best information available. The fair value of the right of use asset is estimated by determining what a market participant would pay over the life of the primary asset in the group, discounted back to June\u00a030, 2023.\nDuring fiscal years 2023 and 2022, the Company recognized long-lived asset impairment charges of $0.1 and $0.5 million, respectively, related to ROU assets on the Consolidated Statements of Operations in Part II, Item 8 of this Form 10-K. During fiscal year 2021, the Company recognized a long-lived asset impairment charge of $13.0 million, which included $9.5 million related to ROU assets on the Consolidated Statements of Operations in Part II, Item 8 of this Form 10-K. The impairment loss for each salon asset group that was recognized was allocated among the long-lived assets of the group on a pro-rata basis using their relative carrying amounts. Additionally, the impairment losses did not reduce the carrying amount of an individual asset below its fair value, including the ROU assets included in the salon asset groups. Assessing the long-lived assets for impairment requires management to make assumptions and to apply judgment which can be affected by economic conditions and other factors that can be difficult to predict. The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions it uses to calculate impairment losses for its long-lived assets, including its ROU assets. If actual results are not consistent with the estimates and assumptions used in the calculations, the Company may be exposed to future impairment losses that could be material. \n40\nTable of Conte\nn\nt\ns\nIncome Taxes\nDeferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the Consolidated Financial Statements or income tax returns. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverse. \nWe recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. The Company evaluates all evidence, including recent financial performance, the existence of cumulative year losses and our forecast of future taxable income, to assess the need for a valuation allowance against our deferred tax assets. While the determination of whether to record a valuation allowance is not fully governed by a specific objective test, accounting guidance places significant weight on recent financial performance.\nThe Company has a valuation allowance on its deferred tax assets amounting to $202.2 and $201.7 million at June\u00a030, 2023 and 2022, respectively. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make necessary adjustments to the deferred tax asset valuation, which would reduce the provision for income taxes. \nIn fiscal year 2022, the Company determined that it no longer had sufficient U.S. state indefinite-lived taxable temporary differences to support realization of its U.S. state indefinite-lived NOLs and its existing U.S. deferred tax assets that upon reversal are expected to generate state indefinite-lived NOLs. As a result, the Company recorded a $4.1 million valuation allowance on its U.S. state indefinite-lived deferred tax assets.\nThe Company reserves for unrecognized tax benefits, interest and penalties related to anticipated tax audit positions in the U.S. and other tax jurisdictions based on an estimate of whether additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of these liabilities would result in tax benefits being recognized in the period in which it is determined that the liabilities are no longer necessary. If the estimate of unrecognized tax benefits, interest and penalties proves to be less than the ultimate assessment, additional expenses would result.\nInherent in the measurement of deferred balances are certain judgments and interpretations of tax laws and published guidance with respect to the Company's operations. Income tax expense is primarily the current tax payable for the period and the change during the period in certain deferred tax assets and liabilities.\nSee Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.\n41\nTable of Conte\nn\nt\ns",
+  "item7a": ">Item\u00a07A.\u00a0\u00a0\u00a0\u00a0Quantitative and Qualitative Disclosures about Market Risk\nThe primary market risk exposure of the Company relates to changes in interest rates in connection with its credit agreement, which bears interest at variable rates based on SOFR plus an applicable borrowing margin. Additionally, the Company is exposed to foreign currency translation risk related to changes in the Canadian dollar, and to a lesser extent, the British pound. The Company has established policies and procedures that govern the management of these exposures through the use of derivative financial instrument contracts. By policy, the Company does not enter into such contracts for the purpose of speculation. The following details the Company's policies and use of financial instruments.\nInterest Rate Risk:\nThe Company has established an interest rate management policy that attempts to minimize its overall cost of debt. The Company's interest payments are based on the SOFR, such that a hypothetical 100 basis point increase or decrease in the SOFR will have a $1.8 million annual impact on our annual cash flows.\n \nAs of June\u00a030, 2023, the Company had outstanding variable rate debt of $183.3 million and the Company did not have any outstanding interest rate swaps.  \nForeign Currency Exchange Risk:\nOver 90% of the Company's operations are transacted in U.S. dollars. However, because a portion of the Company's operations consist of activities outside of the U.S., the Company has transactions in other currencies, primarily the Canadian dollar, and to a lesser extent, the British pound. In preparing the Consolidated Financial Statements, the Company is required to translate the financial statements of its foreign subsidiaries from the currency in which they keep their accounting records, generally the local currency, into U.S. dollars. Different exchange rates from period to period impact the amounts of reported income and the amount of foreign currency translation recorded in accumulated other comprehensive income (AOCI). As part of its risk management strategy, the Company frequently evaluates its foreign currency exchange risk by monitoring market data and external factors that may influence exchange rate fluctuations. As a result, the Company may engage in transactions involving various derivative instruments to hedge assets, liabilities and purchases denominated in foreign currencies. As of June\u00a030, 2023, the Company did not have any derivative instruments to manage its foreign currency risk.\nDuring fiscal years 2023, 2022 and 2021, the Company recorded a $0.3 million foreign currency loss, $0.6 million foreign currency loss and a $0.3 million foreign currency gain in loss from continuing operations, respectively, in the Consolidated Financial Statements.\n42\nTable of Conte\nn\nt\ns",
+  "cik": "716643",
+  "cusip6": "758932",
+  "cusip": ["758932107", "758932907", "758932957"],
+  "names": ["REGIS CORP", "REGIS CORP MINN"],
+  "source": "https://www.sec.gov/Archives/edgar/data/716643/000071664323000031/0000716643-23-000031-index.htm"
+}
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+{
+  "item1": ">Item 1.\n    Business\nA. GENERAL\nThe holding company, Arrow Financial Corporation, a New York corporation, was incorporated on March 21, 1983 and is registered as a bank holding company within the meaning of the Bank Holding Company Act of 1956. \u00a0Arrow owns two nationally-chartered banks in New York (Glens Falls National and Saratoga National), and through such banks indirectly owns various non-bank subsidiaries, including an insurance agency, a registered investment adviser and a REIT.  See \"The Company and Its Subsidiaries,\" above. \nSubsidiary Banks\n (dollars in thousands and data is as of December. 31, 2022)\nGlens Falls National\nSaratoga National\nTotal Assets at Year-End\n$\n3,125,180\u00a0\n$\n895,584\u00a0\nTrust Assets Under Administration and\n\u00a0\u00a0\u00a0Investment Management at Year-End\n\u00a0\u00a0\u00a0(Not Included in Total Assets)\n$\n1,486,327\u00a0\n$\n119,805\u00a0\nDate Organized\n1851\n1988\nEmployees (full-time equivalent)\n454\u00a0\n48\u00a0\nOffices\n26\u00a0\n11\u00a0\nCounties of Operation\nWarren, Washington,\nSaratoga, Essex &\nClinton\n\u00a0Saratoga, Albany,\nRensselaer, & Schenectady\nMain Office\n250 Glen Street\nGlens Falls, NY\n171 So. Broadway\nSaratoga Springs, NY\nThe holding company\u2019s business consists primarily of the ownership, supervision and control of Arrow's two banks, including the banks' subsidiaries. \u00a0The holding company provides various advisory and administrative services and coordinates the general policies and operation of the banks.  There were 502 full-time equivalent employees, including 34 employees within Arrow's  insurance agency subsidiary, at December\u00a031, 2022. See the discussion of our human capital resources in Section G (\"HUMAN CAPITAL\") of this Item 1.\nArrow offers a broad range of commercial and consumer banking and financial products. \u00a0The deposit base consists of deposits derived principally from the communities served. \u00a0The Company targets lending activities to consumers and small- and mid-sized companies in Arrow's regional geographic area.  In addition, through an indirect lending program Arrow acquires consumer loans from an extensive network of automobile dealers that operate in New York and Vermont. Through the banks' trust operations, the Company provides retirement planning, trust and estate administration services for individuals, and pension, profit-sharing and employee benefit plan administration for corporations.\nB. LENDING ACTIVITIES\nArrow engages in a wide range of lending activities, including commercial and industrial lending primarily to small and mid-sized companies; mortgage lending for residential and commercial properties; and consumer installment and home equity financing. An active indirect lending program is maintained through Arrow's sponsorship of automobile dealer programs under which consumer auto loans, primarily from dealers that meet pre-established specifications are purchased. \u00a0From time to time, a portion of the Arrow's residential real estate loan originations are sold into the secondary market, primarily to the Federal Home Loan Mortgage Corporation (\"Freddie Mac\") and other governmental agencies.  Normally, the Company retains the servicing rights on mortgage loans originated and sold into the secondary markets, subject to periodic determinations on the continuing profitability of such activity. \u00a0\nGenerally, Arrow continues to implement lending strategies and policies that are intended to protect the quality of the loan portfolio, including strong underwriting and collateral control procedures and credit review systems. Loans are placed on nonaccrual status either due to the delinquency status of principal and/or interest or a judgment by management that the full repayment of principal and interest is unlikely.  Home equity lines of credit, secured by real property, are systematically placed on nonaccrual status when 120 days past due, and residential real estate loans are placed on nonaccrual status when 150 days past due.  Commercial and commercial real estate loans are evaluated on a loan-by-loan basis and are placed on nonaccrual status when 90 days past due if the full collection of principal and interest is uncertain (See Part II, Item 7.C.II.c. \"Risk Elements\") Subsequent cash payments on loans classified as nonaccrual may be applied entirely to principal, although income in some cases may be recognized on a cash basis.\nArrow lends primarily to borrowers within the normal retail service area in northeastern New York State, with the exception of the indirect consumer lending line of business, where Arrow acquires retail paper from an extensive network of automobile dealers that operate in a larger area of New York and Vermont.  The loan portfolio does not include any foreign loans or any other significant risk concentrations. \u00a0Arrow does not generally participate in loan syndications, either as originator or as a participant. \u00a0However, from time to time, Arrow buys and offers participations in individual loans, typically commercial loans, in New York and adjacent states.  In recent periods, the total dollar amount of such participations has fluctuated, but generally represents less than 20% of commercial loans outstanding.  The majority of the portfolio is properly collateralized, and most commercial loans are further supported by personal guarantees. Arrow also participated as a lender in the Paycheck Protection \n5\nProgram (\"PPP\") administered by the Small Business Administration (\"SBA\") under the Coronavirus Aid, Relief, and Economic Security Act (the \"CARES Act\"). Arrow originated over $91.5 million in loans under the PPP in 2021 and approximately $234.2 million over the life of the PPP program. As of December 31, 2022, there were no PPP loans outstanding. See the discussion of the CARES Act in Section D (\"RECENT LEGISLATIVE DEVELOPMENTS\") of this Item 1.  \nArrow does not engage in subprime mortgage lending as a business line and does not extend or purchase so-called \"Alt A,\" \"negative amortization,\" \"option ARM's\" or \"negative equity\" mortgage loans. \u00a0\nC. SUPERVISION AND REGULATION\nThe following generally describes the laws and regulations to which Arrow is subject. \u00a0Bank holding companies, banks and their affiliates are extensively regulated under both federal and state law. \u00a0To the extent that the following information summarizes statutory or regulatory law, it is qualified in its entirety by reference to the particular provisions of the various statutes and regulations. \u00a0Any change in applicable law may have a material effect on business operations, customers, prospects and investors.\nBank Regulatory Authorities with Jurisdiction over Arrow and its Subsidiary Banks\nArrow is a registered bank holding company within the meaning of the Bank Holding Company Act of 1956 (\"BHC Act\") and as such is subject to regulation by the Board of Governors of the Federal Reserve System (\"FRB\"). \u00a0As a \"bank holding company\" under New York State law, Arrow is also subject to regulation by the New York State Department of Financial Services.  Arrow's  two subsidiary banks are both national banks and are subject to supervision and examination by the Office of the Comptroller of the Currency (\"OCC\"). The banks are members of the Federal Reserve System and the deposits of each bank are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (\"FDIC\"). \u00a0The BHC Act generally prohibits Arrow from engaging, directly or indirectly, in activities other than banking, activities closely related to banking, and certain other financial activities. \u00a0Under the BHC Act, a bank holding company generally must obtain FRB approval before acquiring, directly or indirectly, voting shares of another bank or bank holding company, if after the acquisition the acquiror would own 5 percent or more of a class of the voting shares of that other bank or bank holding company. \u00a0Bank holding companies are able to acquire banks or other bank holding companies located in all 50 states, subject to certain limitations.  Bank holdings companies that meet certain qualifications may choose to apply to the FRB for designation as \u201cfinancial holding companies.\u201d  Upon receipt of such designation, a financial holding company may engage in a broader array of activities, such as insurance underwriting, securities underwriting and merchant banking.  Arrow has not attempted to become, and has not been designated as, a financial holding company.\nThe FRB and the OCC have broad regulatory, examination and enforcement authority.  The FRB and the OCC conduct regular examinations of the entities they regulate.  In addition, banking organizations are subject to requirements for periodic reporting to the regulatory authorities.\u00a0\u00a0The FRB and OCC have the authority to implement various remedies if they determine that the financial condition, capital, asset quality, management, earnings, liquidity or other aspects of a banking organization's operations are unsatisfactory or if they determine the banking organization is violating or has violated any law or regulation.  The authority of the federal bank regulators over banking organizations includes, but is not limited to, prohibiting unsafe or unsound practices; requiring affirmative action to correct a violation or unsafe or unsound practice; issuing administrative orders; requiring the organization to increase capital; requiring the organization to sell subsidiaries or other assets; restricting dividends, distributions and repurchases of the organization's stock; restricting the growth of the organization; assessing civil money penalties; removing officers and directors; and terminating deposit insurance.  The FDIC may terminate a depository institution's deposit insurance upon a finding that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices for certain other reasons. \nRegulatory Supervision of Other Arrow Subsidiaries\nThe insurance agency subsidiary of Glens Falls National is subject to the licensing and other provisions of New York State Insurance Law and is regulated by the New York State Department of Financial Services.  Arrow's investment adviser subsidiary is subject to the licensing and other provisions of the federal Investment Advisers Act of 1940 and is regulated by the SEC.\n \nRegulation of Transactions between Banks and their Affiliates\nTransactions between banks and their \"affiliates\" are regulated by Sections 23A and 23B of the Federal Reserve Act (FRA).  Each of Arrow's non-bank subsidiaries (other than the business trusts formed to issue the TRUPs) is a subsidiary of one of the subsidiary banks, and also is an \"operating subsidiary\" under Sections 23A and 23B.  This means each non-bank subsidiary is considered to be part of the bank that owns it and thus is not an affiliate of that bank for purposes of Section 23A and 23B.  However, each of the two banks is an affiliate of the other bank, under Section 23A, and Arrow, the holding company, is also an affiliate of each bank under both Sections 23A and 23B.  Extensions of credit that a bank may make to affiliates, or to third parties secured by securities or obligations of the affiliates, are substantially limited by the FRA and the Federal Deposit Insurance Act (FDIA).  Such acts further restrict the range of permissible transactions between a bank and any affiliate, including a bank affiliate.  Furthermore, under the FRA, a bank may engage in certain transactions, including loans and purchases of assets, with a non-bank affiliate, only if certain special conditions, including collateral requirements for loans, are met and if the other terms and conditions of the transaction, including interest rates and credit standards, are substantially the same as, or at least as favorable to the bank as, those prevailing at the time for comparable transactions by the bank with non-affiliated companies or, in the absence of comparable transactions, on terms and conditions that would be offered by the bank to non-affiliated companies.\n \n6\nRegulatory Capital Standards\nAn important area of banking regulation is the federal banking system's promulgation and enforcement of minimum capitalization standards for banks and bank holding companies. \u00a0\nBank Capital Rules\n.  \nIn July 2013, federal bank regulators, including the FRB and the OCC, approved revised bank capital rules aimed at implementing capital requirements pursuant to Dodd-Frank.  These rules were also intended to coordinate U.S. bank capital standards with the then-current drafts of the Basel III proposed bank capital standards for all of the developed world's banking organizations.  The federal regulators' revised capital rules (the \"Capital Rules\"), which impose significantly higher minimum capital ratios on U.S. financial institutions than the rules they replaced, became effective for Arrow and its subsidiary banks on January 1, 2015, and were fully phased in by the end of 2019.\nIn 2020, federal bank regulators introduced an optional simplified measure of capital adequacy for qualifying community banking organizations (CBLR).\u00a0 A qualifying community banking organization that opts into the CBLR framework and meets all the requirements under the CBLR framework will be considered to have met the well-capitalized ratio requirements under the \u201cprompt corrective action\u201d regulations and will not be required to report or calculate risk-based capital ratios.\nThe CBLR final rule became effective as of January 1, 2020, and Arrow and both subsidiary banks have opted out of utilizing the CBLR framework.  Therefore, the Capital Rules promulgated under Dodd-Frank remain applicable to Arrow and both subsidiary banks.\nThe Capital Rules which remain applicable to Arrow consist of two basic types of capital measures, a leverage ratio and a set of risk-based capital measures.  Within these two broad types of rules, however, significant changes were made in the revised Capital Rules, as discussed as follows.  \nLeverage Ratio\n.\n  The Capital Rules increased the minimum required leverage ratio from 3.0% to 4.0%.  The leverage ratio continues to be defined as the ratio of the institution's \"Tier 1\" capital (as defined under the new leverage rule) to total tangible assets (as defined under the revised leverage rule). \nRisk-Based Capital Measures\n.\n Current risk-based capital measures assign various risk weightings to all of the institution's assets, by asset type, and to certain off balance sheet items, and then establish minimum levels of capital to the aggregate dollar amount of such risk-weighted assets.  Under the risk-based Capital Rules, there are eight major risk-weighted categories of assets (although there are several additional super-weighted categories for high-risk assets that are generally not held by community banking organizations like Arrow).  The Capital Rules include a measure called the \"common equity tier 1 capital ratio\" (CET1).  For this ratio, only common equity (basically, common stock plus surplus plus retained earnings) qualifies as capital (i.e., CET1).  Preferred stock and trust preferred securities, which qualified as Tier 1 capital under the old Tier 1 risk-based capital measure (and continue to qualify as capital under the revised Tier 1 risk-based capital measure), are not included in CET1 capital.  Under these rules, CET1 capital also includes most elements of accumulated other comprehensive income (AOCI), including unrealized securities gains and losses, as part of both total regulatory capital (numerator) and total assets (denominator).  However, smaller banking organizations like Arrow's were given the opportunity to make a one-time irrevocable election to include or not to include certain elements of AOCI, most notably unrealized securities gains or losses.  Arrow made such an election, and therefore does not include unrealized securities gains and losses in calculating the CET1 ratio under the Capital Rules.  The minimum CET1 ratio under these rules, effective January 1, 2015, is 4.50%, which remained constant throughout the phase-in period. \nConsistent with the general theme of higher capital levels, the Capital Rules also increased the minimum ratio for Tier 1 risk-based capital from 4.0% to 6.0%, effective January 1, 2015.  The minimum level for total risk-based capital under the Capital Rules remained at 8.0%. \nThe Capital Rules also incorporated a capital concept, the so-called \"capital conservation buffer\" (set at 2.5%, after full phase-in), which must be added to each of the minimum required risk-based capital ratios (i.e., the minimum CET1 ratio, the minimum Tier 1 risk-based capital ratio and the minimum total risk-based capital ratio).  The capital conservation buffer was phased-in over four years beginning January 1, 2016 (see the table below).  When, during economic downturns, an institution's capital begins to erode, the first deductions from a regulatory perspective would be taken against the capital conservation buffer.  To the extent that such deductions should erode the buffer below the required level (2.5% of total risk-based assets after full phase-in), the institution will not necessarily be required to replace the buffer deficit immediately, but will face restrictions on paying dividends and other negative consequences until the buffer is fully replenished. \nAlso under the Capital Rules, and as required under Dodd-Frank, TRUPs issued by small- to medium-sized banking organizations (such as Arrow) that were outstanding on the Dodd-Frank grandfathering date for TRUPS (May 19, 2010) will continue to qualify as tier 1 capital, up to a limit of 25% of tier 1 capital, until the TRUPs mature or are redeemed, subject to certain limitations.  See the discussion of grandfathered TRUPs in Section E (\"CAPITAL RESOURCES AND DIVIDENDS\") of Item 7.\nThe following is a summary of the definitions of capital under the various risk-based measures in the Capital Rules:\nCommon Equity Tier 1 Capital (CET1):\n  Equals the sum of common stock instruments and related surplus (net of treasury stock), retained earnings, accumulated other comprehensive income (AOCI), and qualifying minority interests, minus applicable regulatory adjustments and deductions. Such deductions will include AOCI, if the organization has exercised its irrevocable option not to include AOCI in capital (Arrow made such an election). Mortgage-servicing assets, deferred tax assets, and investments in financial institutions are limited to 15% of CET1 in the aggregate and 10% of CET1 for each such item individually.\nAdditional Tier 1 Capital:\n  Equals the sum of noncumulative perpetual preferred stock, tier 1 minority interests, grandfathered TRUPs, and Troubled Asset Relief Program instruments, minus applicable regulatory adjustments and deductions. \n7\nTier 2 Capital:\n  Equals the sum of subordinated debt and preferred stock, total capital minority interests not included in Tier 1, and allowance for loan and lease losses (not exceeding 1.25% of risk-weighted assets) minus applicable regulatory adjustments and deductions.\nThe following table presents the Capital Rules applicable to Arrow and its subsidiary banks:\nYear, as of January 1\n2022\nMinimum CET1 Ratio\n4.500\u00a0\n%\nCapital Conservation Buffer (\"Buffer\")\n2.500\u00a0\n%\nMinimum CET1 Ratio Plus Buffer\n7.000\u00a0\n%\nMinimum Tier 1 Risk-Based Capital Ratio\n6.000\u00a0\n%\nMinimum Tier 1 Risk-Based Capital Ratio Plus Buffer\n8.500\u00a0\n%\nMinimum Total Risk-Based Capital Ratio\n8.000\u00a0\n%\nMinimum Total Risk-Based Capital Ratio Plus Buffer\n10.500\u00a0\n%\nMinimum Leverage Ratio\n4.000\u00a0\n%\n\u00a0\nAt December\u00a031, 2022,  Arrow and its two subsidiary banks exceeded, by a substantial amount, each of the applicable minimum capital ratios established under the revised Capital Rules, including the minimum CET1 Ratio, the minimum Tier 1 Risk-Based Capital Ratio, the minimum Total Risk-Based Capital Ratio, and the minimum Leverage Ratio, and including in the case of each risk-based ratio, the phased-in portion of the capital buffer.  See Note 20, \nRegulatory Matters\n, to the Consolidated Financial Statements for a presentation of Arrow's period-end ratios for 2022 and 2021.\nRegulatory Capital Classifications.\n  Under applicable banking law, federal banking regulators are required to take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. \u00a0The regulators have established five capital classifications for banking institutions, ranging from the highest category of \"well-capitalized\" to the lowest category of \"critically under-capitalized\".  Under the Capital Rules, a banking institution is considered \"well-capitalized\" if it meets the following capitalization standards on the date of measurement:  a CET1 risk-based capital ratio of 6.50% or greater, a Tier 1 risk-based capital ratio of 8.00% or greater, and a total risk-based capital ratio of 10.00% or greater, provided the institution is not subject to any regulatory order or written directive regarding capital maintenance. \nAs of December\u00a031, 2022, Arrow and its two subsidiary banks qualified as \"well-capitalized\" under the revised capital classification scheme.\nRegulatory Reporting.\n  Arrow's recent failure to timely file this Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 has resulted in a failure to timely file certain other regulatory reports, which rely in whole or in part upon the information contained in such 10-K and 10-Q Reports.  Any such required reports will be promptly filed upon the filing of this Annual Report on Form 10-K and the Quarterly Report on Form 10-Q.\nDividend Restrictions; Other Regulatory Sanctions\n \nA holding company's ability to pay dividends or repurchase its outstanding stock, as well as its ability to expand its business, including for example, through acquisitions of additional banking organizations or permitted non-bank companies, may be restricted if its capital falls below minimum regulatory capital ratios or fails to meet other informal capital guidelines that the regulators may apply from time to time to specific banking organizations. \u00a0In addition to these potential regulatory limitations on payment of dividends, the holding company's ability to pay dividends to shareholders, and the subsidiary banks' ability to pay dividends to the holding company are also subject to various restrictions under applicable corporate laws, including banking laws (which affect the subsidiary banks) and the New York Business Corporation Law (which affects the holding company).  The ability of the holding company and banks to pay dividends or repurchase shares in the future is, and is expected to continue to be, influenced by regulatory policies, the Capital Rules and other applicable law.\nIn cases where banking regulators have significant concerns regarding the financial condition, assets or operations of a bank holding company and/or one of its banks, the regulators may take enforcement action or impose enforcement orders, formal or informal, against the holding company or the particular bank. \u00a0If the ratio of tangible equity to total assets of a bank falls to 2% or below, the bank will likely be closed and placed in receivership, with the FDIC as receiver.\nCybersecurity\nIn addition to the provisions in the Gramm-Leach-Bliley Act relating to data security (discussed below), Arrow and its subsidiaries are subject to many federal and state laws, regulations and regulatory interpretations which impose standards and requirements related to cybersecurity.\nIn March 2015, federal regulators issued related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution\u2019s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution\u2019s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of \n8\ncyber-attack. Financial institutions that fail to observe this regulatory guidance on cybersecurity may be subject to various regulatory sanctions, including financial penalties.\nIn February 2018, the SEC issued the \u201cCommission Statement and Guidance on Public Company Cybersecurity Disclosures\u201d to assist public companies in preparing disclosures about cybersecurity risks and incidents. With the increased frequency and magnitude of cybersecurity incidents, the SEC stated that it is critical that public companies take all required actions to inform investors about material cybersecurity risks and incidents in a timely fashion.  Additionally, in October 2018 the SEC issued the \u201cReport of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 Regarding Certain Cyber-Related Frauds Perpetrated Against Public Companies and Related Internal Controls Requirements\u201d which cited business email compromises that led to the incidents and that internal accounting controls may need to be reassessed in light of these emerging risks.  Certain Arrow subsidiaries are subject to certain New York State cybersecurity regulations.\nPrivacy and Confidentiality Laws\nArrow and its subsidiaries are subject to a variety of laws that regulate customer privacy and confidentiality. The Gramm-Leach-Bliley Act requires financial institutions to adopt privacy policies, to restrict the sharing of nonpublic customer information with nonaffiliated parties upon the request of the customer, and to implement data security measures to protect customer information. Certain state laws may impose additional privacy and confidentiality restrictions. The Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003, regulates use of credit reports, providing of information to credit reporting agencies and sharing of customer information with affiliates, and sets identity theft prevention standards.\nAnti-Money Laundering, the U.S. Patriot Act and OFAC\nThe Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 initially adopted in 2001 and re-adopted by the U.S. Congress in 2006 with certain changes (the \u201cPatriot Act\u201d), imposes substantial record-keeping and due diligence obligations on banks and other financial institutions, with a particular focus on detecting and reporting money-laundering transactions involving domestic or international customers. The U.S. Treasury Department has issued and will continue to issue regulations clarifying the Patriot Act's requirements.  \nUnder the Patriot Act and other federal anti-money laundering laws and regulations, including, but not limited to, the Currency and Foreign Transactions Report Act (collectively, \u201cAnti-Money Laundering Laws\u201d), financial institutions, including banks, must maintain certain anti-money laundering compliance, customer identification and due diligence programs that include established internal policies, procedures, and controls. Financial institutions are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and customer identification. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report suspicious transactions. Law enforcement authorities have been granted increased access to financial information maintained by financial institutions.  Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution's compliance in connection with the regulatory review of applications, including applications for banking mergers and acquisitions.  The U.S. Treasury Department's Financial Crises Enforcement Network (\u201cFinCEN\u201d) issued a final rule in 2016 increasing customer due diligence requirements for banks, including adding a requirement to identify and verify the identity of beneficial owners of customers that are legal entities, subject to certain exclusions and exemptions.  The Company has established procedures for compliance with these requirements. Compliance with the provisions of the Patriot Act and other Anti-Money Laundering Laws results in substantial costs on all financial institutions.\nThe U.S. Department of the Treasury's Office of Foreign Assets Control (\u201cOFAC\u201d) is responsible for helping to insure that United States persons, including banks, do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress. OFAC publishes lists of persons, organizations, and countries suspected of aiding, harboring or engaging in terrorist acts, including, but not limited to, Specially Designated Nationals and Blocked Persons. If Arrow finds a name on any transaction, account or wire transfer that is on an OFAC list, Arrow must freeze or block such account or transaction, file a suspicious activity report, if required, notify the appropriate authorities and maintain appropriate records. \nCommunity Reinvestment Act\nArrow's subsidiary banks are subject to the Community Reinvestment Act (\"CRA\") and implementing regulations. CRA regulations establish the framework and criteria by which the bank regulatory agencies assess an institution's record of helping to meet the credit needs of its community, including low and moderate-income individuals. CRA ratings are taken into account by regulators in reviewing certain applications made by Arrow and its bank subsidiaries.\nThe Dodd-Frank Act\nDodd-Frank significantly changed the regulatory structure for financial institutions and their holding companies, for example, through provisions requiring the Capital Rules. Among other provisions, Dodd-Frank implemented corporate governance revisions that apply to all public companies, not just financial institutions, permanently increased the FDIC\u2019s standard maximum deposit insurance amount to $250,000, changed the FDIC insurance assessment base to assets rather than deposits and increased the reserve ratio for the deposit insurance fund to ensure the future strength of the fund.  The federal prohibition on the payment of interest on certain demand deposits was repealed, thereby permitting depository institutions to pay interest on business transaction accounts. Dodd-Frank established a new federal agency, the Consumer Financial Protection Bureau (the \u201cCFPB\u201d), centralizing significant aspects of consumer financial protection under this agency. Limits were imposed for debit card interchange fees for issuers that have assets greater than $10 billion, which also could affect the amount of interchange fees collected by financial institutions with less than $10 billion in assets. Dodd-Frank also imposed new requirements related to mortgage lending, including prohibitions against payment of steering incentives and provisions relating to underwriting standards, \n9\ndisclosures, appraisals and escrows.  The Volcker Rule prohibited banks and their affiliates from engaging in proprietary trading and investing in certain unregistered investment companies.\nFederal banking regulators and other agencies including, among others, the FRB, the OCC and the CFPB, have been engaged in extensive rule-making efforts under Dodd-Frank, and the Community Bank Leverage Ratio has impacted certain Dodd-Frank requirements, as explained above. \n\u00a0\u00a0\u00a0\u00a0\nIncentive Compensation\n\u00a0\nDodd-Frank required the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, such as the Company, having at least $1\u00a0billion in total assets that encourage inappropriate risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. In addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements. \nThe federal bank regulators issued proposed rules to address incentive-based compensation arrangements in June 2016. Final rules have not yet been issued by the federal bank regulatory agencies under this Dodd-Frank provision.\nIn 2010, the FRB, OCC and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization\u2019s incentive compensation arrangements should (i)\u00a0provide incentives that do not encourage risk-taking beyond the organization\u2019s ability to effectively identify and manage risks, (ii)\u00a0be compatible with effective internal controls and risk management, and (iii)\u00a0be supported by strong corporate governance, including active and effective oversight by the organization\u2019s board of directors. Management believes the current and past compensation practices of the Company do not encourage excessive risk taking or undermine the safety and soundness of the organization.\nThe FRB will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not \u201clarge, complex banking organizations.\u201d These reviews will be tailored to each organization based on the scope and complexity of the organization\u2019s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization\u2019s supervisory ratings, which can affect the organization\u2019s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization\u2019s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.\n\u00a0\nDeposit Insurance Laws and Regulations\nIn February 2011, the FDIC finalized a new assessment system that took effect in the second quarter of 2011. \u00a0The final rule changed the assessment base from domestic deposits to average assets minus average tangible equity, adopted a new large-bank pricing assessment scheme, and set a target size for the Deposit Insurance Fund. The rule (as mandated by Dodd-Frank) finalized a target size for the Deposit Insurance Fund Reserve Ratio at 2.0% of insured deposits.\nDue to increased growth in insured deposits during the first half of 2020, on September 15, 2020, the FDIC established a plan to restore the Deposit Insurance Fund Reserve Ratio to at least 1.35% by September 30, 2028, as required by the FDIA, utilizing the rate schedule in effect at that time.  In response to updated analysis and projections for the fund balance and the Deposit Insurance Fund Reserve Ratio, the FDIC adopted a final rule in October 2022 increasing the initial base deposit insurance assessment rate schedules by two percent effective January 1, 2023 and beginning on the first quarterly assessment period of 2023.  The increase is intended to ensure that the reserve ratio meets the minimum ratio of 1.35% by the September 30, 2028 statutory deadline. Arrow is unable to predict whether or to what extent the FDIC may elect to impose additional special assessments on insured institutions in upcoming years, especially in light of recent high-profile large bank failures.\nReserve Requirements \nPursuant to regulations of the FRB, all banking organizations are required to maintain average daily reserves at mandated ratios against their transaction accounts and certain other types of deposit accounts. These reserves must be maintained in the form of vault cash or in an account at a Federal Reserve Bank.  In March 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent to free up liquidity in the banking industry to support lending to households and businesses.  \nD. RECENT LEGISLATIVE DEVELOPMENTS\nThe CARES Act and other COVID-19 Responses\nIn response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020.  The CARES Act is a $2.2 trillion economic stimulus bill that was enacted to provide relief in the wake of the COVID-19 pandemic. Several provisions within the CARES Act directly impacted financial institutions and led to action from the bank regulatory agencies. \nSection 1102 of the CARES Act created the PPP, a program administered by the SBA to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic. Arrow participated in the PPP as a lender, originating over $234.2 million in loans in 2020 and 2021. These loans were eligible to be forgiven if certain conditions were satisfied and were fully guaranteed by the SBA.  As of December 31, 2022, there were no PPP loans outstanding in Arrow's loan portfolio.\nOn March 22, 2020, a statement was issued by the Board of Governors of the Federal Reserve Bank, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the office of the Comptroller of the Currency and the Consumer \n10\nFinancial Protection Bureau, titled the \u201cInteragency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus\u201d (the \u201cInteragency Statement\u201d) that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt from classification as a troubled debt restructuring (\"TDR\") as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates. Section 541 of the CAA extended this relief to the earlier of January 1, 2022, or 60 days after the national emergency termination date. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the federal banking regulators\u2019 views on consumer protection considerations.  In accordance with such guidance, Arrow offered short-term modifications in response to COVID-19 to qualified borrowers.  As of January 1, 2022, all COVID related deferrals had ended.\nOn May 11, 2023, the COVID-19 national emergency and public health emergency declarations ended.\nThe American Rescue Plan Act of 2021\nOn March 11, 2021, the American Rescue Plan Act of 2021 (\"American Rescue Plan\") was signed into law to speed up the recovery from the economic and health effects of the COVID-19 pandemic and the ongoing recession.  The American Rescue Plan is a $1.9 trillion economic stimulus bill that builds upon both the CARES Act and the CAA. \nSeveral provisions within the American Rescue Plan impact financial institutions. Key provisions include direct stimulus payments for the majority of Americans, extending unemployment benefits and continuing eviction and foreclosure moratoriums.  In addition, over $350 billion has been allocated to state, local and tribal governments to bridge budget shortfalls.\n \nOther Legislative Initiatives\u00a0\nFrom time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory authorities. These initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to change the financial institution regulatory environment. Such legislation could change banking laws and the operating environment of our Company in substantial, but unpredictable ways. Arrow cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations would have on the Company's financial condition or results of operations.\nE. STATISTICAL DISCLOSURE \u2013 (Regulation S-K, Subpart 1400)\nSet forth below is an index identifying the location in this Report of various items of statistical information required to be included in this Report by the SEC\u2019s industry guide for Bank Holding Companies.\nRequired Information\nLocation in Report\nDistribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential\nPart II, Item 7.B.I.\nInvestment Portfolio\nPart II, Item 7.C.I.\nLoan Portfolio\nPart II, Item 7.C.II.\nSummary of Credit Loss Experience\nPart II, Item 7.C.III.\nDeposits\nPart II, Item 7.C.IV.\nReturn on Equity and Assets\nPart II, Item 6.\nShort-Term Borrowings\nPart II, Item 7.C.V.\nF. COMPETITION\nArrow faces intense competition in all markets served. \u00a0Competitors include traditional local commercial banks, savings banks and credit unions, non-traditional internet-based lending alternatives, as well as local offices of major regional and money center banks. \u00a0Like all banks, the Company encounters strong competition in the mortgage lending space from a wide variety of other mortgage originators, all of whom are principally affected in this business by the rate and terms set, and the lending practices established from time-to-time by the very large government sponsored enterprises (\"GSEs\") engaged in residential mortgage lending, most importantly, \u201cFannie Mae\u201d and \u201cFreddie Mac.\u201d For many years, these GSEs have purchased and/or guaranteed a very substantial percentage of all newly-originated mortgage loans in the U.S.  Additionally, non-banking financial organizations, such as consumer finance companies, insurance companies, securities firms, money market funds, mutual funds, credit card companies and wealth management enterprises offer substantive equivalents of the various other types of loan and financial products and services and transactional accounts that are offered, even though these non-banking organizations are not subject to the same regulatory restrictions and capital requirements that apply to Arrow. \u00a0Under federal banking laws, such non-banking financial organizations not only may offer products and services comparable to those offered by commercial banks, but also may establish or acquire their own commercial banks.\nG. HUMAN CAPITAL\nArrow believes that its employees are among its most important assets. Accordingly, Arrow has prioritized investment in the well-being, performance, engagement and development of its employees. This includes, but is not limited to, providing access to well-being resources and assistance, offering competitive compensation and benefits to attract and retain top-level talent, empowering team members to take an active role in the formation and execution of the business strategy, and fostering a diverse and inclusive work environment that reflects the many values of the communities that Arrow serves. One example is through the \n11\ncreation of Arrow University, we are investing in our people by bringing employee learning and development to the forefront. We offer opportunities to employees at all levels for personal and professional growth, technical training, and career exploration and enhancement.  At December\u00a031, 2022, Arrow had 502 full-time equivalent employees. \nH. ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)\nArrow is firmly committed to operating in a socially conscious manner that demonstrates positive environmental, social and governance contributions.\nEnvironmentally, Arrow is dedicated to conserving natural resources and complying with environmental regulations. Some of the steps we have taken to help promote environmentally responsible corporate citizenship include:\n\u2022\nExpanded our philanthropic support of environmental sustainability in our community, including organizations that impact soil and water conservation, land conservation, sustainable farming, mountain and lake protection and stewardship, and parks and recreation\n\u2022\nIncorporated energy-saving features into the renovation of our branches, such as interior and exterior LED lighting and energy-efficient plumbing in 40% of our branch network\n\u2022\nIncorporated the above environmentally friendly attributes into our Glens Falls, New York, headquarters renovation, which includes approximately 76,000 square feet of office space; motion-activated lighting; significant improvements to exterior wall and roof insulation; new HVAC systems with higher efficiency which meet modern fresh-air and ventilation requirements; energy-efficient windows and entry doors; low-VOC materials; a separate tie-in to the city stormwater and sewer system to bypass the municipal treatment of rainwater collected off the building; and green plantings on a portion of the roof \n\u2022\nInstalled solar panels at part of our corporate headquarters, to support the main campus with approximately 3,000 square feet of green energy\n\u2022\nInstalled electric vehicle charging stations at our SNB Main Office, with utilization offered at no charge to customers \n\u2022\nReduced emissions via remote work and video conferencing for large segments of employees\n\u2022\nProvided and encouraged digital banking options and paperless statements\nSocially, Arrow is proud of its many contributions to its employees, customers and communities, including providing professional development and holistic support of its team, giving back to its communities in dollars and volunteer hours, and   meeting financial needs of the low- to moderate-income population. Arrow is also working on many ways to demonstrate the value of differences, particularly around diversity, equity, inclusion and belonging (\u201cDEIB\u201d).\nSteps taken in this area include:\n\u2022\nMore than $675,000 and 9,395 hours donated to our communities in 2022 in support of arts and culture, child care, economic and workforce development, emergency assistance, food security, financial literacy, mental and physical health, safe and affordable housing, transportation and more \n\u2022\n71 percent of donated dollars and 40 percent of hours are Community Reinvestment Act-eligible\n\u2022\nPrioritization of donations to organizations that make it their mission to provide affordable homeownership, environmental or sustainable activities and programming, economic empowerment, health and human services and social progress\n\u2022\nLending program to facilitate first-time home ownership\n\u2022\nExtensive pandemic-related support to customers in need, including loan deferrals and over $234.2 million of 2,400 PPP loans through 2022 \n\u2022\nBank On-certified checking product for the unbanked or underbanked population with no overdraft fees\n\u2022\nPartnership with numerous organizations to meet the financial needs of the low- to moderate-income population\n\u2022\nAnnual engagement with a third party to assess diversity within our employee base and support for setting and tracking goals to encourage the advancement of minorities, women, veterans and persons with disabilities\n\u2022\nProfessional development, wellness and mental health services to our employees through the HR Department and through outside Employee Assistance Program (EAP) contracted services\n\u2022\nOngoing outreach to measure employee engagement\n\u2022\nThree consecutive years of special bonuses for all employees in recognition of exceptional commitment and performance\n\u2022\nIncorporation of inclusion and belonging into our human resources policies, practices and programs\n\u2022\nUpcoming DEIB educational series for the Arrow Team as well as the development of a group of stakeholders to guide further initiatives\n\u2022\nEncouraged and facilitated employee giving including payroll deduction, dress-down days, and a fundraising campaign that totaled more than $103,000, a true reflection of our culture of giving\n\u2022\nDeveloped ESG Investment Models for our socially conscious clients\n\u2022\nLongstanding dedication to diversity on Arrow\u2019s Board of Directors, exceeding Nasdaq requirements\nFinally, Arrow believes that strong corporate governance is the foundation to delivering on its commitments to its stakeholders. Arrow adheres to a comprehensive governance program, which is described in further detail in its annual Proxy Statement. \n12\nI. EXECUTIVE OFFICERS OF THE REGISTRANT\nThe names and ages of the executive officers of Arrow and positions held by each are presented in the following table:\nName\nAge\nPositions Held and Years from Which Held\nDavid S. DeMarco\n61\nPresident and Chief Executive Officer of Arrow since May 13, 2023 and Chief Banking Officer since 2018. In addition to his executive leadership role at Arrow, Mr. DeMarco serves as President and Chief Executive Officer of each of GFNB (serving since May 13, 2023) and SNB (serving since 2012). Prior positions in the Company include Senior Executive Vice President from February 2022 through May 2023, Senior Vice President of Arrow between May 2009 and January 2022, Executive Vice President and Chief Banking Officer of GFNB and Executive Vice President and Head of the Branch, Corporate Development, Financial Services & Marketing Division of GFNB (2003-2012).  Mr. DeMarco started with the Company as a commercial lender in 1987.\nPenko Ivanov\n54\nChief Financial Officer, Executive Vice President, Treasurer and Chief Accounting Officer effective February 21, 2023. Mr. Ivanov most recently served as executive vice president and chief financial officer of Bankwell Financial Group, Inc. in New Canaan, Connecticut. Prior to that, he worked in various finance positions for Doral Bank, General Electric Co. and PepsiCo Inc. Mr. Ivanov began his career with Ernst & Young in Munich, Germany.\nDavid D. Kaiser\n63\nSenior Executive Vice President and Chief Credit Officer of Arrow, GFNB and SNB since February 2022.  Prior positions in the Company include Senior Vice President and Chief Credit Officer of Arrow from February 2015 through January 2022, Executive Vice President of GFNB from 2012 through January 2022, Chief Credit Officer of GFNB from 2011 through January 2022 and Corporate Banking Manager for GFNB from 2005 to 2011.  Mr. Kaiser started with the Company in 2000.\nAndrew J. Wise\n56\nSenior Executive Vice President and Chief Operating Officer of Arrow, GFNB and SNB since February 2022.  Prior positions in the Company include Senior Vice President and Chief Operating Officer of Arrow from February 2018 through January 2022, Executive Vice President and Chief Operating Officer of GFNB from October 2017 through January 2022, Chief Administrative Officer of GFNB. He joined GFNB in May 2016 as Senior Vice President of Administration. Prior to that, he worked at Adirondack Trust Company for 12 years where he was Executive Vice President and Chief Operating Officer of the Company\u2019s insurance subsidiary.\nJ. AVAILABLE INFORMATION\nArrow's Internet address is \nwww.arrowfinancial.com\n. \u00a0The Company makes available, free of charge on or through Arrow's website, the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as practicable after they are filed or furnished with the SEC pursuant to the Exchange Act. \u00a0We intend to use our website to disclose material non-public information and various other documents related to corporate operations, including Corporate Governance Guidelines, the charters of  principal board committees, and codes of ethics and to comply with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website, in addition to following and reviewing our news releases, filings with the SEC and public conference calls and other presentations. \u00a0The Company has adopted a financial code of ethics that applies to Arrow\u2019s chief executive officer, chief financial officer and principal accounting officer and a business code of ethics that applies to all directors, officers and employees of the holding company and its subsidiaries.  Both of these can be found at: https://www.arrowfinancial.com/Corporate/Governance.\n13",
+  "item1a": ">Item 1A\n. Risk Factors\nArrow's financial results and the market price of its stock are subject to risks arising from many factors, including the risks listed below, as well as other risks and uncertainties.  Any of these risks could materially and adversely affect Arrow's business, financial condition or results of operations. Please note that the discussion below regarding the potential impact on Arrow of certain of these factors that may develop in the future is not meant to provide predictions by Arrow's management that such factors will develop, but to acknowledge the possible negative consequences to the Company and business if certain conditions materialize.\nMACROECONOMIC AND INDUSTRY RISKS \nMarket conditions could present significant challenges to the U.S. commercial banking industry and its core business of making and servicing loans and any substantial downturn in the regional markets in which Arrow operates or in the U.S. economy generally could adversely affect Arrow's ability to maintain steady growth in the loan portfolio and earnings.\n Arrow's business is highly dependent on the business environment in the markets in which the Company operates as well as the United States as a whole. Arrow's business is dependent upon the financial stability of the Company's borrowers, including their ability to pay interest on and repay the principal amount of, outstanding loans, the value of the collateral securing those loans, and the overall demand for loans and other products and services, all of which impact Arrow's stability and future growth. Although Arrow's market area has experienced a stabilizing of economic conditions in recent years and even periods of modest growth, if unpredictable or unfavorable economic conditions unique to the market area should occur in upcoming periods, these conditions will likely have an adverse effect on the quality of the loan portfolio and financial performance. As a community bank, Arrow is less able than larger regional competitors to spread the risk of unfavorable local economic conditions over a larger market area. Further, if the overall U.S. economy deteriorates, then Arrow's business, results of operations, financial condition and prospects could be adversely affected. In particular, financial performance may be adversely affected by short-term and long-term interest rates, the prevailing yield curve, inflation, monetary supply, fluctuations in the debt and equity capital markets, and the strength of the domestic economy and the local economies in the markets in which Arrow operates, all of which are beyond Arrow's control.\nA continued period of high inflation could adversely impact our business and our customers.\n The Federal Reserve Board has raised certain benchmark interest rates in an effort to combat the pronounced increase in inflation. As rates continue to rise, the value of our investment securities, particularly those with longer maturities, would likely decrease (although this effect may be mitigated for floating rate instruments). Further, inflation increases the cost of operational expenses which increases our noninterest expenses. Additionally, our customers may be affected by inflation, which could have a negative impact on their ability to repay loans. Finally, the high inflationary environment may discourage our customers from pursuing new loans.\nArrow operates in a highly competitive industry and market areas that could negatively affect growth and profitability. \nCompetition for commercial banking and other financial services is fierce in Arrow's market areas. In one or more aspects of business, Arrow's subsidiaries compete with other commercial banks, savings and loan associations, credit unions, finance companies, Internet-based financial services companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Additionally, due to their size and other factors, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services, as well as better pricing for those products and services, than Arrow can. Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. In addition, many of Arrow's competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks. Failure, by Arrow, to offer competitive services in Arrow's market areas could significantly weaken Arrow's market position, adversely affecting growth, which, in turn, could have a material adverse effect on Arrow's financial condition and results of operations.\nUncertainty relating to LIBOR and other reference rates and their potential discontinuance may negatively impact our access to funding and the value of our financial instruments and commercial agreements.\n Due to uncertainty surrounding the suitability and sustainability of the London interbank offered rate (LIBOR), central banks and global regulators have called for financial market participants to prepare for the discontinuance of LIBOR and the establishment of alternative reference rates. ICE Benchmark Administration (IBA), the administrator of LIBOR, announced that it will consult on its intention to cease publication of one-week and two-month U.S. dollar LIBOR at December 31, 2021, and stop the remaining U.S. dollar settings immediately after publication on June 30, 2023. At this time, it is not anticipated to have a significant impact to Arrow, or Arrow's financial instruments or commercial agreements that reference LIBOR.\nCertain of our financial instruments and commercial agreements contain provisions to replace LIBOR as the benchmark following the occurrence of specified transition events. Such provisions may not be sufficient to trigger a change in the benchmark at all times when LIBOR is no longer representative of market interest rates, or that these events will align with similar events in the market generally or in other parts of the financial markets, such as the derivatives market.\nAlternative reference rates are calculated using components different from those used in the calculation of LIBOR and may fluctuate differently than, and not be representative of, LIBOR. In order to compensate for these differences, certain of our financial instruments and commercial agreements allow for a benchmark replacement adjustment. However, there is no assurance that any benchmark replacement adjustment will be sufficient to produce the economic equivalent of LIBOR, either at the benchmark replacement date or over the life of such instruments and agreements.\nArrow established a committee in 2020 comprised of Bank Management to prepare for the discontinuance of LIBOR. Arrow has determined that the financial products tied to LIBOR will not be subject to cessation until June 30, 2023. This review also identified that only a few legacy contracts do not include appropriate fallback language. Arrow anticipates that the appropriate fallback provisions for these contracts will be implemented and allow for an orderly transition prior to the June 30, 2023 cessation of U.S. Dollar LIBOR (additional information regarding the replacement of LIBOR for \"tough legacy\" contracts can be found in the Reference Rate Reform section).  As of December 31, 2021, Arrow no longer issues new LIBOR-based financial instruments. Furthermore, U.S. Dollar LIBOR indices utilized by Arrow's existing financial instruments shall cease on June 30, 2023. \n14\nBeginning January 1, 2022, Arrow is using the CME Term Secured Overnight Financing Rate (SOFR) as the primary index for financial instruments.\nUncertainty as to the nature and timing of the potential discontinuance or modification of LIBOR, the replacement of LIBOR with one or more alternative reference rates or other reforms may negatively impact market liquidity, Arrow's access to funding required to operate Arrow's business and/or the trading market for financial instruments. Furthermore, the timing of implementation and use of alternative reference rates and corresponding adjustments or other reforms could be subject to disputes, could cause the interest payable on Arrow's outstanding financial instruments and commercial agreements to be materially different than expected and may impact the value of financial instruments and commercial agreements.\nThe financial services industry is faced with technological advances and changes on a continuing basis, and failure to adapt to these advances and changes could have a material adverse impact on Arrow's business\n. Technological advances and changes in the financial services industry are pervasive and constant. The retail financial services sector, like many other retail goods and services sectors, is constantly evolving, involving new delivery and communications systems and technologies that are extraordinarily far-reaching and impactful. For Arrow to remain competitive, Arrow must comprehend and adapt to these systems and technologies. Proper implementation of new technologies can increase efficiency, decrease costs and help to meet customer demand. However, many competitors have greater resources to invest in technological advances and changes. Arrow may not always be successful in utilizing the latest technological advances in offering its products and services or in otherwise conducting its business. Failure to identify, consider, adapt to and implement technological advances and changes could have a material adverse effect on business.\nProblems encountered by other financial institutions could adversely affect Arrow\n. Arrow's ability to engage in routine funding transactions could be adversely affected by financial or commercial problems confronting other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. Arrow has exposure to many different counterparties in the normal course of business, and routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, other commercial banks, investment banks, mutual and hedge funds, and other financial institutions. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, including in response to recent high-profile large bank failures, could lead to market-wide liquidity problems and losses or defaults by Arrow or by other financial institutions on whom Arrow relies or with whom Arrow interacts. Some of these transactions expose Arrow to credit and other potential risks in the event of default of Arrow's counterparty or client. In addition, credit risk may be exacerbated when the collateral held by Arrow cannot be liquidated or only may be liquidated at prices not sufficient to recover the full amount due Arrow under the underlying financial instrument, held by Arrow. There is no assurance that any such losses would not materially and adversely affect results of operations.\nOPERATIONAL RISKS\nAny future economic or financial downturn, including any significant correction in the equity markets, may negatively affect the volume of income attributable to, and demand for, fee-based services of banks such as Arrow, including the Company's fiduciary business, which could negatively impact Arrow's financial condition and results of operations\n. Revenues from trust and wealth management business are dependent on the level of assets under management. Any significant downturn in the equity markets may lead Arrow's trust and wealth management customers to liquidate their investments, or may diminish account values for those customers who elect to leave their portfolios with Arrow, in either case reducing assets under management and thereby decreasing revenues from this important sector of the business. Other fee-based businesses are also susceptible to a sudden economic or financial downturn.\nIn addition, Arrow's loan quality is affected by the condition of the economy. Like all financial institutions, Arrow maintains an allowance for credit losses to provide for probable credit losses at the balance sheet date. Arrow's allowance for credit losses is based on its historical loss experience as well as an evaluation of the risks associated with its loan portfolio, including the size and composition of the portfolio, current economic conditions and geographic concentrations within the portfolio and other factors. While Arrow has continued to enjoy a very high level of quality in its loan portfolio generally and very low levels of loan charge-offs and non-performing loans, if the economy in Arrow's geographic market area should deteriorate to the point that recessionary conditions return, or if the regional or national economy experiences a protracted period of stagnation, the quality of our loan portfolio may weaken so significantly that its allowance for loan losses may not be adequate to cover actual or expected loan losses. In such events, Arrow may be required to increase its provisions for credit losses and this could materially and adversely affect financial results. Moreover, weak or worsening economic conditions often lead to difficulties in other areas of its business, including growth of its business generally, thereby compounding the negative effects on earnings.\nPotential complications with the implementation of our new core banking system could adversely impact our business and operations\n. Arrow relies extensively on information systems and technology to manage the Company's business and summarize operating results. During September 2022, Arrow completed the implementation of a new core banking system which replaced the prior system. The new core system will enable future enhancements to our digital experience, improve efficiency for our teams and customers, and empower data-driven decisions. This upgrade constitutes a major investment in Arrow\u2019s technology needs and is a key initiative within its strategic plan. The new core system implementation process has required, and will continue to require, the investment of significant personnel and financial resources. We are now using the new core system. In connection with the conversion, we have encountered, and are continuing to experience, operational and other issues, certain of which have required substantial time and resources to address, and which have had a negative impact on our operations and business and have contributed to the material weaknesses in the Company\u2019s internal controls described in Part II, Item 9A, \nControls and Procedures\n. We are continuing to resolve these issues expeditiously, but there can be no assurance that such issues will not have a further negative impact on our operations or business.\nArrow faces continuing and growing security risks to its information base including the information maintained relating to customers, and any breaches in the security systems implemented to protect this information could have a material negative effect on Arrow's business operations and financial condition\n. In the ordinary course of business, Arrow \n15\nrelies on electronic communications and information systems to conduct its operations and to store sensitive data. Arrow employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. Arrow employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Arrow has implemented and regularly reviews and updates extensive systems of internal controls and procedures as well as corporate governance policies and procedures intended to protect its business operations, including the security and privacy of all confidential customer information. In addition, Arrow relies on the services of a variety of vendors to meet data processing and communication needs. No matter how well designed or implemented its controls are, Arrow cannot provide an absolute guarantee to protect its business operations from every type of cybersecurity or other security problem in every situation, whether as a result of systems failures, human error or negligence, cyberattacks, security breaches, fraud or misappropriation. Any failure or circumvention of these controls could have a material adverse effect on Arrow's business operations and financial condition. Notwithstanding the strength of defensive measures, the threat from cyberattacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date, Arrow has not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks or other security problems, Arrow's systems and those of its customers and third-party service providers are under constant threat. Risks and exposures related to cybersecurity attacks or other security problems are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats and issues, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by Arrow and customers.\nThe computer systems and network infrastructure that Arrow uses are always vulnerable to unforeseen disruptions, including theft of confidential customer information (\u201cidentity theft\u201d) and interruption of service as a result of fire, natural disasters, explosion, general infrastructure failure, cyberattacks or other security problems. These disruptions may arise in Arrow's internally developed systems, or the systems of our third-party service providers or may originate from the actions of our consumer and business customers who access our systems from their own networks or digital devices to process transactions. Information security and cyber security risks have increased significantly in recent years because of consumer demand to use the Internet and other electronic delivery channels to conduct financial transactions. Cybersecurity risk and other security problems are a major concern to financial services regulators and all financial service providers, including Arrow. These risks are further exacerbated due to the increased sophistication and activities of organized crime, hackers, terrorists and other disreputable parties. Arrow regularly assesses and tests security systems and disaster preparedness, including back-up systems, but the risks are substantially escalating. As a result, cybersecurity and the continued enhancement of Arrow's controls and processes to protect its systems, data and networks from attacks or unauthorized access remain a priority. Accordingly, Arrow may be required to expend additional resources to enhance its protective measures or to investigate and remediate any information security vulnerabilities or exposures. Any breach of Arrow's system security could result in disruption of its operations, unauthorized access to confidential customer information, significant regulatory costs, litigation exposure and other possible damages, loss or liability. Such costs or losses could exceed the amount of available insurance coverage, if any, and would adversely affect Arrow's earnings. Also, any failure to prevent a security breach or to quickly and effectively deal with such a breach could negatively impact customer confidence, damaging Arrow's reputation and undermining its ability to attract and keep customers. In addition, if Arrow fails to observe any of the cybersecurity requirements in federal or state laws, regulations or regulatory guidance, Arrow could be subject to various sanctions, including financial penalties.\nBusiness could suffer if Arrow loses key personnel unexpectedly or if employee wages increase significantly.\n Arrow's success depends, in large part, on Arrow's ability to retain key personnel for the duration of their expected terms of service. On an ongoing basis, Arrow prepares and reviews back-up plans, in the event key personnel are unexpectedly rendered incapable of performing or depart or resign from their positions. However, any sudden unexpected change at the senior management level may adversely affect business. In addition, should Arrow's industry begin to experience a shortage of qualified employees, Arrow, like other financial institutions or businesses in general, may have difficulty attracting and retaining entry level or higher bracket personnel and also may experience, as a result of such shortages or the enactment of higher minimum wage laws locally or nationwide, increased salary expense, which would likely negatively impact results of operations.\nCOVID-19 or other health emergencies may adversely affect Arrow\u2019s business activities, financial condition and results of operations.\n The business of Arrow and its subsidiary banks depends on the willingness and ability of its customers to conduct financial transactions. COVID-19 or other health emergencies could disrupt the business, activities, and operations of Arrow\u2019s customers, as well as Arrow's business and operations.\nArrow has taken steps to mitigate the risk of harm to its employees and customers and to its operations from the COVID-19 pandemic or other events through its business continuity plan.  There are a number of uncertainties related to the potential effects of a pandemic that may not be able to be addressed by this effort. If the spread of a pandemic or a health emergency has an adverse effect on (i) customer deposits, (ii) the ability of borrowers to satisfy their obligations, (iii) the demand for loans or other financial products and services, (iv) the ability of Arrow\u2019s personnel and third party service providers to perform effectively, (v) financial markets, real estate markets, or economic growth, or (vi) other aspects of operations, then Arrow\u2019s liquidity, financial condition and/or results of operations may be materially and adversely affected.\nFINANCIAL RISKS\nArrow is subject to interest rate risk, which could adversely affect profitability\n. Profitability, like that of most financial institutions, depends to a large extent on Arrow's net interest income, which is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Changes in monetary policy, including changes in interest rates, could influence not only the interest received on loans and securities and the amount of interest paid on deposits and borrowings, but also (1) Arrow's ability to originate loans and obtain deposits, (2) the fair value of financial assets and liabilities, and (3) the average duration of mortgage-backed securities portfolio. If the interest rates Arrow pays on deposits and other borrowings increase at a faster rate than the interest rates received on loans, securities and other interest-earning investments, net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. Changes in interest rates, whether they are increases or decreases, can also trigger repricing and changes in the pace of payments for both assets and liabilities.\n16\nBeginning and continuing throughout 2022, the Federal Reserve raised benchmark interest rates, partially in response to increasing inflation.  In 2023, rates may continue to rise and/or stay at elevated levels.  Higher interest rates could have a negative impact on results of operations by reducing the ability of borrowers to repay their current loan obligations. These circumstances could not only result in increased loan defaults, foreclosures and charge-offs, but also necessitate further increases to the allowance for credit losses which may materially and adversely affect Arrow's business, results of operations, financial condition and prospects.\nArrow could recognize losses on securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate. \n Factors beyond our control can significantly influence and cause potential adverse changes to the fair value of securities in our portfolio. For example, fixed-rate securities acquired by us are generally subject to decreases in market value when interest rates rise. Additional factors include, but are not limited to, rating agency downgrades of the securities, our own analysis of the value of the securities, defaults by the issuers or individual mortgagors with respect to the underlying securities and instability in the credit markets. Any of the foregoing factors, as well as changing economic and market conditions, generally, could cause other-than-temporary impairments, realized or unrealized losses in future periods and declines in other comprehensive income, any of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. The process for determining whether an impairment is other-than-temporary requires complex, subjective judgments about Arrow's future financial performance and liquidity, the fair value of any collateral underlying the security and whether and to what extent the principal and interest on the security will ultimately be paid in accordance with its payment terms, any of which could subsequently prove to have been wrong.\nArrow's allowance for possible credit losses may be insufficient, and an increase in the allowance would reduce earnings\n. The allowance is established through a provision for credit losses based on management\u2019s evaluation of the risks inherent in the loan portfolio and the general economy. The allowance is based upon a number of factors, including the size of the loan portfolio, asset classifications, economic trends, industry experience and trends, industry and geographic concentrations, estimated collateral values, management\u2019s assessment of the credit risk inherent in the portfolio, historical loss experience and loan underwriting policies. In addition, Arrow evaluates all loans identified as problem loans and augments the allowance based upon an estimation of the potential loss associated with those problem loans. Additions to the allowance for credit losses decrease net income through provisions for credit losses. If the evaluation performed in connection with establishing credit loss reserves is wrong, the allowance for credit losses may not be sufficient to cover Arrow's losses, which would have an adverse effect on operating results. Arrow's regulators, in reviewing the loan portfolio as part of a regulatory examination, may from time to time require Arrow to increase the allowance for credit losses, thereby negatively affecting earnings, financial condition and capital ratios at that time. Moreover, additions to the allowance may be necessary based on changes in economic and real estate market conditions, new information regarding existing loans and leases, identification of additional problem loans and other factors, both within and outside of Arrow's control. Additions to the allowance could have a negative impact on Arrow's results of operations.\nArrow\u2019s financial condition and the results of its operations could be negatively impacted by liquidity management.\n Arrow\u2019s liquidity can be significantly and negatively impacted by factors outside the Company\u2019s control, including general disruptions in the financial markets, governmental fiscal and monetary policies, regulatory changes, negative investor perceptions of Arrow\u2019s creditworthiness, unexpected increases in cash or collateral requirements and the consequent inability to monetize available liquidity resources. Further, competition for deposits has continued to increase in recent years, including as a result of online banks and digital banking and fixed income alternatives for customer funds. Continued or increased competition for deposits in the current higher interest rate environment could negatively impact  Arrow\u2019s liquidity going forward.\nIn addition, as a holding company, Arrow relies on interest, dividends, distributions and other payments from its subsidiary banks to fund dividends as well as to satisfy its debt and other obligations. Limitations on the payments that Arrow receives from its subsidiary banks could also impact Arrow\u2019s liquidity. A bank holding company is required by law to act as a source of financial and managerial strength for its subsidiary banks. As a result, Arrow may be required to commit resources to its subsidiary banks, even if doing so is not otherwise in the interests of the Company, its shareholders or its creditors, which could reduce the amount of funds available to meet its obligations.\nThe increasing complexity of Arrow's operations presents varied risks that could affect earnings and financial condition. \nArrow processes a large volume of transactions on a daily basis and is exposed to numerous types of risks related to internal processes, people and systems. These risks include, but are not limited to, the risk of fraud by persons inside or outside the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, breaches of data security, human error or negligence, and Arrow's internal control system and compliance with a complex array of consumer and safety and soundness regulations. Arrow could also experience additional loss as a result of potential legal actions that could arise as a result of operational deficiencies or as a result of noncompliance with applicable laws and regulations.\nWe have identified material weaknesses in our internal control over financial reporting which could, if not remediated, result in a material misstatement of our financial statements.\n Although Arrow  established and maintained a system of internal controls to provide management with information on a timely basis and allow for the monitoring of compliance with operational standards, we have identified material weaknesses in our system of internal controls. Specifically, in connection with management's evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, we determined that we did not maintain effective monitoring controls in relation to testing, communication, and oversight over internal controls over financial reporting. Also, with regard to the conversion of our core banking information technology system, we did not effectively perform risk assessment procedures to identify the impact of the conversion on our internal control over financial reporting. The material weaknesses did not result in a material misstatement of our annual or interim financial statements. However, the material weaknesses could result in a misstatement of certain account balances or disclosures that could result in a material misstatement to the annual or interim financial statements which would not be prevented or detected in a timely manner. Losses from operational risks may still occur, however, including losses from the effects of operational errors. We have developed and are executing upon a plan of remediation to address the identified material weaknesses. If our \n17\nremediation efforts are insufficient to address the identified material weaknesses or if additional material weaknesses in internal controls are discovered in the future, we may be unable to timely and accurately record, process, summarize and report our financial results. The occurrence of or failure to remediate a material weakness may adversely affect our reputation and business and the market price of shares of our common stock. For additional discussion, see Part II, Item 9A, Controls and Procedures.\nRISKS RELATED TO OWNING OUR COMMON STOCK\nThe Company relies on the operations of its banking subsidiaries to provide liquidity, which, if limited, could impact Arrow's ability to pay dividends to its shareholders or to repurchase its common stock.\n Arrow is a bank holding company, a separate legal entity from its subsidiaries. The bank holding company does not have significant operations of its own. The ability of the subsidiaries, including bank and insurance subsidiaries, to pay dividends is limited by various statutes and regulations. It is possible, depending upon the financial condition of Arrow's subsidiaries and other factors, that the subsidiaries might be restricted at some point in the ability to pay dividends to the holding company, including by a bank regulator asserting that the payment of such dividends or other payments would constitute an unsafe or unsound practice. In addition, under federal banking law, Arrow is subject to consolidated capital requirements at the holding company level. If the holding company or the bank subsidiaries are required to retain or increase capital, Arrow may not be able to maintain the cash dividends or pay dividends at all, or to repurchase shares of Arrow's common stock.\nLEGAL, TAX, REGULATORY AND COMPLIANCE RISKS\nCapital and liquidity standards require banks and bank holding companies to maintain more and higher quality capital and greater liquidity than has historically been the case\n. Capital standards, particularly those adopted as a result of Dodd-Frank, continue to have a significant effect on banks and bank holding companies, including Arrow. The need to maintain more and higher quality capital, as well as greater liquidity, and generally increased regulatory scrutiny with respect to capital levels, may at some point limit business activities, including lending, and our ability to expand. It could also result in Arrow being required to take steps to increase regulatory capital and may dilute shareholder value or limit the ability to pay dividends or otherwise return capital to investors through stock repurchases.  The Capital Rules promulgated under Dodd-Frank will remain applicable to Arrow.\nFederal banking statutes and regulations could change in the future, which may adversely affect Arrow.  \nArrow is subject to extensive federal and state banking regulations and supervision. Banking laws and regulations are intended primarily to protect bank depositors\u2019 funds (and indirectly the Federal Deposit Insurance Fund) as well as bank retail customers, who may lack the sophistication to understand or appreciate bank products and services. These laws and regulations generally are not, however, aimed at protecting or enhancing the returns on investment enjoyed by bank shareholders.\nArrow's depositor/customer awareness of the changing regulatory environment is particularly true of the set of laws and regulations under Dodd-Frank, which were passed in the aftermath of the 2008-09 financial crisis and in large part were intended to better protect bank customers (and to some degree, banks) against a wide variety of lending products and aggressive lending practices that pre-dated the crisis and are seen as having contributed to its severity. Although not all banks offered such products or engaged in such practices, all banks are affected by these laws and regulations to some degree.\nDodd-Frank restricts Arrow's lending practices, requires us to expend substantial additional resources to safeguard customers, significantly increases its regulatory burden, and subjects Arrow to significantly higher minimum capital requirements which, in the long run, may serve as a drag on its earnings, growth and ultimately on its dividends and stock price (the Dodd-Frank capital standards are separately addressed in a previous risk factor).\nAlthough the Economic Growth Act and similar initiatives may mitigate the impact of Dodd-Frank, other statutory and regulatory changes including additional guidance and interpretations of existing rules and requirements could add to the existing regulatory burden imposed on banking organizations like Arrow, resulting in a potential material adverse effect on Arrow's financial condition and results of operations.\nNon-compliance with the Patriot Act, Bank Secrecy Act, or other anti-money laundering laws and regulations could result in fines or sanctions and restrictions on conducting acquisitions or establishing new branches.\n The Patriot Act and Bank Secrecy Act require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are suspected, financial institutions are obligated to file suspicious activity reports with FinCEN. Federal anti-money laundering rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, and restrictions on conducting acquisitions or establishing new branches. During the last few years, several banking institutions have received large fines for non-compliance with these laws and regulations. The policies and procedures Arrow adopted that are designed to assist in compliance with these laws and regulations may not be effective in preventing violations of these laws and regulations.\nArrow, through its banking subsidiaries, is subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties\n. CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. A successful regulatory challenge to an institution\u2019s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion. Private parties may also have the ability to challenge an institution\u2019s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on Arrow's business, financial condition and results of operations.    ",
+  "item7": ">Item 7.\n    Management's Discussion and Analysis of Financial Condition and Results of Operations\nSelected Quarterly Information\nDollars in thousands, except per share amounts\nShare and per share amounts have been restated for the September 2022 3% stock dividend\nQuarter Ended\n12/31/2022\n9/30/2022\n6/30/2022\n3/31/2022\n12/31/2021\nNet Income\n$\n12,087\u00a0\n$\n12,163\u00a0\n$\n11,974\u00a0\n$\n12,575\u00a0\n$\n10,309\u00a0\nTransactions Recorded in Net Income (Net of Tax):\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nNet Changes in Fair Value of Equity Investments\n35\u00a0\n70\u00a0\n114\u00a0\n96\u00a0\n(104)\nShare and Per Share Data: \n1\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nPeriod End Shares Outstanding\n16,552\u00a0\n16,523\u00a0\n16,503\u00a0\n16,493\u00a0\n16,522\u00a0\nBasic Average Shares Outstanding\n16,535\u00a0\n16,512\u00a0\n16,494\u00a0\n16,511\u00a0\n16,509\u00a0\nDiluted Average Shares Outstanding\n16,589\u00a0\n16,558\u00a0\n16,535\u00a0\n16,566\u00a0\n16,574\u00a0\nBasic Earnings Per Share\n$\n0.73\u00a0\n$\n0.74\u00a0\n$\n0.72\u00a0\n$\n0.76\u00a0\n$\n0.62\u00a0\nDiluted Earnings Per Share\n0.73\u00a0\n0.74\u00a0\n0.72\u00a0\n$\n0.76\u00a0\n$\n0.62\u00a0\nCash Dividend Per Share\n0.270\u00a0\n0.262\u00a0\n0.262\u00a0\n0.262\u00a0\n0.252\u00a0\nSelected Quarterly Average Balances:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\u00a0Interest-Bearing Deposits at Banks\n$\n143,499\u00a0\n$\n209,001\u00a0\n$\n232,545\u00a0\n$\n410,644\u00a0\n$\n551,890\u00a0\n\u00a0\u00a0Investment Securities\n845,859\u00a0\n821,052\u00a0\n822,112\u00a0\n797,347\u00a0\n681,732\u00a0\n\u00a0\u00a0Loans\n2,951,547\u00a0\n2,872,066\u00a0\n2,804,180\u00a0\n2,678,796\u00a0\n2,660,665\u00a0\n\u00a0\u00a0Deposits\n3,614,945\u00a0\n3,598,519\u00a0\n3,569,754\u00a0\n3,582,256\u00a0\n3,590,766\u00a0\n\u00a0\u00a0Other Borrowed Funds\n63,304\u00a0\n50,125\u00a0\n50,140\u00a0\n68,596\u00a0\n70,162\u00a0\n\u00a0\u00a0Shareholders\u2019 Equity\n351,402\u00a0\n361,675\u00a0\n357,228\u00a0\n370,264\u00a0\n364,409\u00a0\n\u00a0\u00a0Total Assets\n4,074,028\u00a0\n4,047,738\u00a0\n4,012,999\u00a0\n4,054,943\u00a0\n4,060,540\u00a0\nReturn on Average Assets, annualized\n1.18\u00a0\n%\n1.19\u00a0\n%\n1.20\u00a0\n%\n1.26\u00a0\n%\n1.01\u00a0\n%\nReturn on Average Equity, annualized\n13.65\u00a0\n%\n13.34\u00a0\n%\n13.44\u00a0\n%\n13.77\u00a0\n%\n11.22\u00a0\n%\nReturn on Average Tangible Equity, annualized \n2\n14.62\u00a0\n%\n14.27\u00a0\n%\n14.40\u00a0\n%\n14.72\u00a0\n%\n12.01\u00a0\n%\nAverage Earning Assets\n$\n3,940,905\u00a0\n$\n3,902,119\u00a0\n$\n3,858,837\u00a0\n$\n3,886,787\u00a0\n$\n3,894,287\u00a0\nAverage Paying Liabilities\n2,891,092\u00a0\n2,781,985\u00a0\n2,808,287\u00a0\n2,855,884\u00a0\n2,841,304\u00a0\nInterest Income\n35,904\u00a0\n34,207\u00a0\n30,593\u00a0\n28,947\u00a0\n28,354\u00a0\nTax-Equivalent Adjustment \n3\n279\u00a0\n268\u00a0\n269\u00a0\n270\u00a0\n285\u00a0\nInterest Income, Tax-Equivalent \n3\n36,183\u00a0\n34,475\u00a0\n30,862\u00a0\n29,217\u00a0\n28,639\u00a0\nInterest Expense\n5,325\u00a0\n3,306\u00a0\n1,555\u00a0\n1,122\u00a0\n1,152\u00a0\nNet Interest Income\n30,579\u00a0\n30,901\u00a0\n29,038\u00a0\n27,825\u00a0\n27,202\u00a0\nNet Interest Income, Tax-Equivalent \n3\n30,858\u00a0\n31,169\u00a0\n29,307\u00a0\n28,095\u00a0\n27,487\u00a0\nNet Interest Margin, annualized\n3.08\u00a0\n%\n3.14\u00a0\n%\n3.02\u00a0\n%\n2.90\u00a0\n%\n2.77\u00a0\n%\nNet Interest Margin, Tax-Equivalent, annualized \n3\n3.11\u00a0\n%\n3.17\u00a0\n%\n3.05\u00a0\n%\n2.93\u00a0\n%\n2.80\u00a0\n%\nEfficiency Ratio Calculation:\n \n4\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nNoninterest Expense\n$\n20,792\u00a0\n$\n21,448\u00a0\n$\n20,345\u00a0\n$\n18,945\u00a0\n$\n20,860\u00a0\nLess: Intangible Asset Amortization\n47\u00a0\n48\u00a0\n48\u00a0\n49\u00a0\n52\u00a0\nNet Noninterest Expense\n20,745\u00a0\n21,400\u00a0\n20,297\u00a0\n18,896\u00a0\n20,808\u00a0\nNet Interest Income, Tax-Equivalent\n30,858\u00a0\n31,169\u00a0\n29,307\u00a0\n28,095\u00a0\n27,487\u00a0\nNoninterest Income\n7,165\u00a0\n7,827\u00a0\n7,744\u00a0\n8,162\u00a0\n7,589\u00a0\nLess: Net Changes in Fair Value of Equity Investments\n48\u00a0\n95\u00a0\n154\u00a0\n130\u00a0\n(139)\nNet Gross Income\n$\n37,975\u00a0\n$\n38,901\u00a0\n$\n36,897\u00a0\n$\n36,127\u00a0\n$\n35,215\u00a0\nEfficiency Ratio\n54.63\u00a0\n%\n55.01\u00a0\n%\n55.01\u00a0\n%\n52.30\u00a0\n%\n59.09\u00a0\n%\nPeriod-End Capital Information: \n5\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nTotal Stockholders\u2019 Equity (i.e. Book Value)\n$\n353,538\u00a0\n$\n345,550\u00a0\n$\n356,498\u00a0\n$\n357,243\u00a0\n$\n371,186\u00a0\nBook Value per Share \n1\n21.36\u00a0\n20.91\u00a0\n21.60\u00a0\n21.66\u00a0\n22.47\u00a0\nGoodwill and Other Intangible Assets, net\n23,373\u00a0\n23,477\u00a0\n23,583\u00a0\n23,691\u00a0\n23,791\u00a0\nTangible Book Value per Share \n1,2\n19.95\u00a0\n19.49\u00a0\n20.17\u00a0\n20.22\u00a0\n21.03\u00a0\nCapital Ratios: \n5\nTier 1 Leverage Ratio\n9.80\u00a0\n%\n9.71\u00a0\n%\n9.60\u00a0\n%\n9.37\u00a0\n%\n9.20\u00a0\n%\nCommon Equity Tier 1 Capital Ratio\n \n13.32\u00a0\n%\n13.14\u00a0\n%\n13.14\u00a0\n%\n13.48\u00a0\n%\n13.77\u00a0\n%\nTier 1 Risk-Based Capital Ratio\n14.01\u00a0\n%\n13.85\u00a0\n%\n13.86\u00a0\n%\n14.23\u00a0\n%\n14.55\u00a0\n%\nTotal Risk-Based Capital Ratio\n15.11\u00a0\n%\n14.93\u00a0\n%\n14.93\u00a0\n%\n15.33\u00a0\n%\n15.69\u00a0\n%\nAssets Under Trust Administration & Investment Mgmt\n$\n1,606,132\u00a0\n$\n1,515,994\u00a0\n$\n1,589,178\u00a0\n$\n1,793,747\u00a0\n$\n1,851,101\u00a0\n24\nSelected Twelve-Month Information\nDollars in thousands, except per share amounts\nShare and per share amounts have been restated for the September 2022 3% stock dividend\n2022\n2021\n2020\nNet Income\n$\n48,799\u00a0\n$\n49,857\u00a0\n$\n40,827\u00a0\nTransactions Recorded in Net Income (Net of Tax):\nNet Gain (Loss) on Securities\n315\u00a0\n83\u00a0\n(346)\nPeriod End Shares Outstanding\n1\n16,552\u00a0\n16,522\u00a0\n16,461\u00a0\nBasic Average Shares Outstanding\n1\n16,513\u00a0\n16,499\u00a0\n16,406\u00a0\nDiluted Average Shares Outstanding\n1\n16,562\u00a0\n16,555\u00a0\n16,422\u00a0\nBasic Earnings Per Share\n1\n$\n2.95\u00a0\n$\n3.02\u00a0\n$\n2.49\u00a0\nDiluted Earnings Per Share\n1\n2.95\u00a0\n3.01\u00a0\n2.49\u00a0\nCash Dividends Per Share\n1\n1.06\u00a0\n0.99\u00a0\n0.96\u00a0\nAverage Assets\n4,047,480\u00a0\n3,882,642\u00a0\n3,481,761\u00a0\nAverage Equity\n360,095\u00a0\n353,757\u00a0\n319,814\u00a0\nReturn on Average Assets\n1.21\u00a0\n%\n1.28\u00a0\n%\n1.17\u00a0\n%\nReturn on Average Equity\n13.55\u00a0\n%\n14.09\u00a0\n%\n12.77\u00a0\n%\nAverage Earning Assets\n$\n3,902,077\u00a0\n$\n3,716,856\u00a0\n$\n3,320,937\u00a0\nAverage Interest-Bearing Liabilities\n2,834,266\u00a0\n2,727,441\u00a0\n2,510,655\u00a0\nInterest Income\n129,651\u00a0\n115,550\u00a0\n111,896\u00a0\nInterest Income, Tax-Equivalent*\n130,737\u00a0\n116,655\u00a0\n113,000\u00a0\nInterest Expense\n11,308\u00a0\n5,195\u00a0\n12,694\u00a0\nNet Interest Income\n118,343\u00a0\n110,355\u00a0\n99,202\u00a0\nNet Interest Income, Tax-Equivalent*\n119,429\u00a0\n111,460\u00a0\n100,306\u00a0\nNet Interest Margin\n3.03\u00a0\n%\n2.97\u00a0\n%\n2.99\u00a0\n%\nNet Interest Margin, Tax-Equivalent*\n3.06\u00a0\n%\n3.00\u00a0\n%\n3.02\u00a0\n%\nEfficiency Ratio Calculation\n*\n4\nNoninterest Expense\n$\n81,530\u00a0\n$\n78,048\u00a0\n$\n70,678\u00a0\nLess: Intangible Asset Amortization\n193\u00a0\n210\u00a0\n227\u00a0\nNet Noninterest Expense\n81,337\u00a0\n77,838\u00a0\n70,451\u00a0\nNet Interest Income, Tax-Equivalent \n119,429\u00a0\n111,460\u00a0\n100,306\u00a0\nNoninterest Income\n30,898\u00a0\n32,369\u00a0\n32,658\u00a0\nLess: Net (Loss) Gain on Securities\n427\u00a0\n111\u00a0\n(464)\nNet Gross Income, Adjusted\n$\n149,900\u00a0\n$\n143,718\u00a0\n$\n133,428\u00a0\nEfficiency Ratio*\n54.26\u00a0\n%\n54.16\u00a0\n%\n52.80\u00a0\n%\nPeriod-End Capital Information\n:\nTier 1 Leverage Ratio\n9.80\u00a0\n%\n9.20\u00a0\n%\n9.07\u00a0\n%\nTotal Stockholders\u2019 Equity (i.e. Book Value)\n$\n353,538\u00a0\n$\n371,186\u00a0\n$\n334,392\u00a0\nBook Value per Share\n21.36\u00a0\n22.47\u00a0\n20.31\u00a0\nIntangible Assets\n23,373\u00a0\n23,791\u00a0\n23,823\u00a0\nTangible Book Value per Share \n2\n19.95\u00a0\n21.03\u00a0\n18.87\u00a0\nAsset Quality Information:\nNet Loans Charged-off as a\u00a0Percentage of Average Loans\n0.08\u00a0\n%\n0.03\u00a0\n%\n0.05\u00a0\n%\nProvision for Credit Losses as a Percentage of Average Loans\n0.17\u00a0\n%\n0.01\u00a0\n%\n0.37\u00a0\n%\nAllowance for Credit Losses as a\u00a0Percentage of Period-End Loans\n1.00\u00a0\n%\n1.02\u00a0\n%\n1.13\u00a0\n%\nAllowance for Credit Losses as a Percentage of Nonperforming Loans\n249.95\u00a0\n%\n233.89\u00a0\n%\n456.32\u00a0\n%\nNonperforming Loans as a Percentage of Period-End Loans\n0.40\u00a0\n%\n0.44\u00a0\n%\n0.25\u00a0\n%\nNonperforming Assets as a\u00a0Percentage of Total Assets\n0.32\u00a0\n%\n0.29\u00a0\n%\n0.18\u00a0\n%\n*See \"Use of Non-GAAP Financial Measures\" on page 4.\n25\nArrow Financial Corporation\nReconciliation of Non-GAAP Financial Information\n(Dollars In Thousands, Except Per Share Amounts\n)\nFootnotes:\n1.\nShare and per share data have been restated for the September\u00a023, 2022, 3% stock dividend.\n2.\nNon-GAAP Financial Measure Reconciliation: Tangible Book Value, Tangible Equity, and Return on Tangible Equity exclude goodwill and other intangible assets, net from total equity. \u00a0These are non-GAAP financial measures which Arrow believes provides investors with information that is useful in understanding its financial performance.\n12/31/2022\n9/30/2022\n6/30/2022\n3/31/2022\n12/31/2021\nTotal Stockholders' Equity (GAAP)\n$\n353,538\u00a0\n$\n345,550\u00a0\n$\n356,498\u00a0\n$\n357,243\u00a0\n$\n371,186\u00a0\nLess:  Goodwill and Other Intangible assets, net\n23,373\u00a0\n23,477\u00a0\n23,583\u00a0\n23,691\u00a0\n23,791\u00a0\nTangible Equity (Non-GAAP)\n$\n330,165\u00a0\n$\n322,073\u00a0\n$\n332,915\u00a0\n$\n333,552\u00a0\n$\n347,395\u00a0\nPeriod End Shares Outstanding\n16,552\u00a0\n16,523\u00a0\n16,503\u00a0\n16,493\u00a0\n16,522\u00a0\nTangible Book Value per Share (Non-GAAP)\n$\n19.95\u00a0\n$\n19.49\u00a0\n$\n20.17\u00a0\n$\n20.22\u00a0\n$\n21.03\u00a0\nNet Income\n12,087\u00a0\n12,163\u00a0\n11,974\u00a0\n12,575\u00a0\n10,309\u00a0\nReturn on Tangible Equity (Net Income/Tangible Equity - Annualized)\n14.62\u00a0\n%\n14.27\u00a0\n%\n14.40\u00a0\n%\n14.72\u00a0\n%\n12.01\u00a0\n%\n3.\nNon-GAAP Financial Measure Reconciliation: Net Interest Margin is the ratio of annualized tax-equivalent net interest income to average earning assets.  This is also a non-GAAP financial measure which Arrow believes provides investors with information that is useful in understanding its financial performance.\n12/31/2022\n9/30/2022\n6/30/2022\n3/31/2022\n12/31/2021\nInterest Income (GAAP)\n$\n35,904\u00a0\n$\n34,207\u00a0\n$\n30,593\u00a0\n$\n28,947\u00a0\n$\n28,354\u00a0\nAdd: Tax Equivalent Adjustment (Non-GAAP)\n279\u00a0\n268\u00a0\n269\u00a0\n270\u00a0\n285\u00a0\nInterest Income - Tax Equivalent (Non-GAAP)\n$\n36,183\u00a0\n$\n34,475\u00a0\n$\n30,862\u00a0\n$\n29,217\u00a0\n$\n28,639\u00a0\nNet Interest Income (GAAP)\n$\n30,579\u00a0\n$\n30,901\u00a0\n$\n29,038\u00a0\n$\n27,825\u00a0\n$\n27,202\u00a0\nAdd:  Tax-Equivalent adjustment (Non-GAAP)\n279\u00a0\n268\u00a0\n269\u00a0\n270\u00a0\n285\u00a0\nNet Interest Income - Tax Equivalent (Non-GAAP)\n$\n30,858\u00a0\n$\n31,169\u00a0\n$\n29,307\u00a0\n$\n28,095\u00a0\n$\n27,487\u00a0\nAverage Earning Assets\n$\n3,940,905\u00a0\n$\n3,902,119\u00a0\n$\n3,858,837\u00a0\n$\n3,886,787\u00a0\n$\n3,894,287\u00a0\nNet Interest Margin (Non-GAAP)\n3.11\u00a0\n%\n3.17\u00a0\n%\n3.05\u00a0\n%\n2.93\u00a0\n%\n2.80\u00a0\n%\n4.\nNon-GAAP Financial Measure Reconciliation: Financial Institutions often use the \"efficiency ratio\", a non-GAAP ratio, as a measure of expense control.  Arrow believes the efficiency ratio provides investors with information that is useful in understanding its financial performance.  Arrow defines efficiency ratio as the ratio of noninterest expense to net gross income (which equals tax-equivalent net interest income plus noninterest income, as adjusted).\n5.\nFor the current quarter, all of the regulatory capital ratios as well as the Total Risk-Weighted Assets are calculated in accordance with bank regulatory capital rules.  The December\u00a031, 2022 CET1 ratio listed in the tables (i.e., 13.32%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).\n12/31/2022\n9/30/2022\n6/30/2022\n3/31/2022\n12/31/2021\nTotal Risk Weighted Assets\n$\n2,883,902\u00a0\n$\n2,856,224\u00a0\n$\n2,790,520\u00a0\n$\n2,661,952\u00a0\n$\n2,552,812\u00a0\nCommon Equity Tier 1 Capital\n384,003\u00a0\n375,394\u00a0\n366,798\u00a0\n358,738\u00a0\n351,497\u00a0\nCommon Equity Tier 1 Ratio\n13.32\u00a0\n%\n13.14\u00a0\n%\n13.14\u00a0\n%\n13.48\u00a0\n%\n13.77\u00a0\n%\n\u00a0\u00a0\u00a0\u00a0\n26\nCRITICAL ACCOUNTING ESTIMATES\nThe significant accounting policies, as described in Note 2\n - Summary of Significant Accounting Policies \nto the Consolidated Financial Statements are essential in understanding the Management Discussion and Analysis. Many of the significant accounting policies require complex judgments to estimate the values of assets and liabilities. Arrow has procedures and processes in place to facilitate making these judgments.  The more judgmental estimates are summarized in the following discussion. In many cases, there are numerous alternative judgments that could be used in the process of determining the inputs to the models. Where alternatives exist, Arrow has used the factors that are believed to represent the most reasonable value in developing the inputs. Actual performance that differs from estimates of the key variables could impact the results of operations. \nAllowance for credit losses:\n  The allowance for credit losses consists of the allowance for credit losses and the allowance for losses on unfunded commitments.  Arrow adopted on January 1, 2021, Accounting Standards Updates (\u2018\u2018ASU\u2019\u2019) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (\u2018\u2018CECL\u2019\u2019) and its related amendments. The CECL approach requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. Arrow then considers whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used.  Finally, Arrow considers forecasts about future economic conditions that are reasonable and supportable. The allowance for losses on unfunded commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments unconditionally cancellable by Arrow. The allowance for losses on unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws.  Arrow considers the accounting policy relating to the allowance for credit losses to be a critical accounting estimate given the uncertainty in evaluating the level of the allowance required to cover Arrow's estimate of all expected credit losses over the expected contractual life of our loan portfolio.  Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods.  While management\u2019s current evaluation of the allowance for credit losses indicates that the allowance is appropriate at this time, the allowance may need to be increased in the future due to changes in conditions or assumptions. The impact of utilizing the CECL approach to calculate the reserve for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings.  Arrow's policies on the allowance for credit losses, pension accounting and provision for income taxes are disclosed in Note 2 to the consolidated financial statements of this Form 10-K.\n27\nA. OVERVIEW\nThe following discussion and analysis focuses on and reviews Arrow's results of operations for each of the years in the three-year period ended December\u00a031, 2022 and the financial condition as of December\u00a031, 2022 and 2021. \u00a0The discussion below should be read in conjunction with the selected quarterly and annual information set forth above and the Consolidated Financial Statements and other financial data presented elsewhere in this Report. \u00a0When necessary, prior-year financial information has been reclassified to conform to the current-year presentation.\nSummary of 2022 Financial Results: \nFor the year ended December\u00a031, 2022, net income was $48.8 million, down 2.1% from $49.9 million for 2021.  The decrease from the prior year was primarily the result of an increase in net interest income of $8.0 million, offset by a $4.5 million increase in the provision for credit loss, a decrease in Paycheck Protection Program (PPP) revenue earned of $6.2 million and a $2.3 million decrease in the gain on the sale of loans.\nDiluted EPS was $2.95 for 2022, down 2.1% from $3.01 in 2021.  Return on average equity (ROE) and return on average assets (ROA) were 13.55% and 1.21%, respectively, as compared to 14.09% and 1.28%, respectively, for 2021.\nNet interest income for the year ended December\u00a031, 2022 was $118.3 million, an increase of $8.0 million, or 7.2%, from the prior year. Interest and fees on loans were $113.0 million, an increase of 7.6% from the $105.0 million for the year ended December\u00a031, 2021. Interest and fees related to PPP loans, included in the $113.0 million, were $1.6 million.  In 2021, $7.8 million of income was earned on PPP loans. Interest expense for the year ended December\u00a031, 2022 was $11.3 million. This is an increase of $6.1 million, or 117.7%, from the $5.2 million in expense for the prior-year period.\nNet interest margin was 3.03% for the year ended December\u00a031, 2022, as compared to 2.97% for the year ended December\u00a031, 2021. In the fourth quarter of 2022, the net interest margin was 3.08%, as compared to 2.77% for the fourth quarter of 2021.  The increase in net interest margin was due to a variety of factors, including higher market rates impacting asset yields and a reduction in cash balances. Net interest margin in 2022, excluding PPP income, increased to 3.00% from 2.84% in the prior year. The cost of interest-bearing liabilities increased primarily due to the repricing of time deposits and municipal deposits.\nFor 2022, the provision for credit losses related to the loan portfolio was $4.8 million, compared to $272 thousand in 2021. The key drivers affecting the provision were strong loan growth, increase in net charge-offs and a deterioration in forecasted economic conditions.\nNoninterest income was $30.9 million for the year ended December\u00a031, 2022, a decrease of 4.5%, as compared to $32.4 million for the year ended December\u00a031, 2021. Income from fiduciary activities in 2022 was $9.7 million, a decrease of $431 thousand from 2021, primarily driven by market conditions. Fees and other services to customers increased $164 thousand to $11.6 million in 2022. Gain on sales of loans decreased $2.3 million from 2021 to $83 thousand in 2022. Other operating income increased $814 thousand from 2021, due to gains related to other investments and bank-owned life insurance proceeds.\nNoninterest expense for the year ended December\u00a031, 2022 increased by $3.5 million, or 4.5%, to $81.5 million, as compared to $78.0 million in 2021. The largest component of noninterest expense is salaries and benefits paid to our employees, which totaled $47.0 million in 2022. Salaries and benefits increased $2.2 million, or 4.9%, from the prior year.  Technology and equipment expense was $16.1 million, an increase of $1.2 million or 8.4%, from the prior year, reflects our continued commitment to innovation. Noninterest expense for the fourth quarter of 2022 decreased $68 thousand, or 0.3%, as compared to the fourth quarter of 2021.\nThe provision for income taxes for 2022 was $14.1 million, compared to $14.5 million for 2021. The effective income tax rates for 2022 and 2021 were 22.4% and 22.6%, respectively.\nTotal assets were $3.97 billion at December\u00a031, 2022, a decrease of $58.4 million, or 1.5%, compared to December\u00a031, 2021.  Total cash and cash equivalents were $64.7 million at December\u00a031, 2022, a decrease of $393.0 million, or 85.9%, compared to December\u00a031, 2021.  Total investments were $757.1 million at December\u00a031, 2022, a decrease of $5.9 million, or 0.8%, compared to December\u00a031, 2021. In 2022, the rising interest rate environment resulted in an increase of unrealized losses versus the prior year.\nAt December\u00a031, 2022, total loan balances reached $3.0 billion, up $315 million, or 11.8%, from the prior-year level. Loan growth for the fourth quarter was $58.4 million. The consumer loan portfolio grew by $144.6 million, or 15.7%, over the balance at December\u00a031, 2021, primarily as a result of continued strength in the indirect automobile lending program. The residential real estate loan portfolio increased $124.8 million, or 13.2%, from the prior year. Commercial loans, including commercial real estate, increased $45.9 million, or 5.7%, over the balances at December\u00a031, 2021.\nThe allowance for credit losses was $30.0 million at December\u00a031, 2022, an increase of $2.7 million from December\u00a031, 2021.  The allowance for credit losses represents 1.00% of loans outstanding, a decrease from 1.02% at year-end 2021. When expressed as a percentage of nonperforming loans, the allowance for credit loss coverage ratio was 250.0% at year-end 2022 as compared to 233.9% at year-end 2021. Asset quality remained solid at December\u00a031, 2022. Net loan losses, expressed as an annualized percentage of average loans outstanding, were 0.08% for the year ended December\u00a031, 2022, as compared to 0.03% for the prior year. Nonperforming assets of $12.6 million at December\u00a031, 2022, represented 0.32% of period-end assets, compared to $11.8 million or 0.29% at December\u00a031, 2021.\nAt December\u00a031, 2022, total deposit balances were $3.5 billion, a decrease of $52.1 million, or 1.5%, from the prior-year level. Non-municipal deposits decreased by $26.6 million and municipal deposits decreased by $25.5 million as compared to December 31, 2021. Noninterest-bearing deposits grew by $26.6 million, or 3.3%, during 2022, and represented 23.9% of total deposits at year-end, as compared to the prior-year level of 22.8%.  At December\u00a031, 2022, total time deposits decreased $5.1\u00a0million from the prior-year level.  Deposits decreased in the fourth quarter by $296.7 million.  Non-municipal and municipal deposits decreased by $149.0 million and $147.7 million, respectively in the fourth quarter.  The decline in deposits was primarily the result of increased consumer spending, pressure from competitive rate pricing and seasonality of municipal deposits.\n28\nTotal borrowings were $74.8 million at December\u00a031, 2022, an increase of $9.8 million, or 15.1%, compared to December\u00a031, 2021.\nTotal shareholders\u2019 equity was $353.5 million at period-end, a decrease of $17.6 million, or 4.8%, from the year-end 2021 balance. Arrow's regulatory capital ratios remained strong in 2022. At December\u00a031, 2022, Arrow's Common Equity Tier 1 Capital Ratio was 13.32% and Total Risk-Based Capital Ratio was 15.11%. The capital ratios of Arrow and both its subsidiary banks continued to significantly exceed the \u201cwell capitalized\u201d regulatory standards.\nIn 2022, Arrow upgraded its core banking system.  The system upgrade reflects the strategic focus on a strong technology foundation and this investment paves the way for customer-facing enhancements and more efficient and improved internal operations as Arrow continues to work toward fully leveraging the capabilities of the new bank core system.  In connection with the conversion, we have encountered, and are continuing to experience, operational and other issues, certain of which have required substantial time and resources to address, and which have had a negative impact on our operations and business and have contributed to material weaknesses in the Company\u2019s internal controls described in Part II, Item 9A, \nControls and Procedures\n. Additionally in 2022, Arrow further optimized its branch network with the December consolidation of Glens Falls National Bank's Aviation Road Office into nearby Queensbury locations. Meanwhile, construction on the downtown Glens Falls headquarters advanced; once completed later in 2023, the energy-efficient space will improve both the employee and customer experience. \nThe changes in net income, net interest income and net interest margin between the current and prior year are discussed in detail under the heading \"Results of Operations,\" beginning on page 30.  \n \nRegulatory Capital and Decrease in Stockholders' Equity:\n   As of December\u00a031, 2022, Arrow continued to exceed all required minimum capital ratios under the current bank regulatory capital rules as implemented under Dodd-Frank (the \"Capital Rules\") at both the holding company and bank levels.\u00a0 At that date, both subsidiary banks, as well as the holding company, continued to qualify as \"well-capitalized\" under the capital classification guidelines as defined by the Capital Rules.\u00a0 Because of continued profitability and strong asset quality, the regulatory capital levels throughout recent years have consistently remained well in excess of the various required regulatory minimums in effect from time to time, as they do at present.\nIn 2020, federal bank regulators introduced an optional simplified measure of capital adequacy for qualifying community banking organizations (CBLR).\u00a0 A qualifying community banking organization that opts into the CBLR framework and meets all the requirements under the CBLR framework will be considered to have met the well-capitalized ratio requirements under the \u201cprompt corrective action\u201d regulations and will not be required to report or calculate risk-based capital ratios.\nThe CBLR final rule became effective as of January 1, 2020, and Arrow and both subsidiary banks have opted out of utilizing the CBLR framework.  Therefore, the Capital Rules promulgated under Dodd-Frank will remain applicable to Arrow and both subsidiary banks.\nTotal stockholders' equity was $353.5 million at December\u00a031, 2022, a decrease of $17.6 million, or 4.8%, from December\u00a031, 2021.  The components of the change in stockholders' equity since year-end 2021 are presented in the Consolidated Statement of Changes in Stockholders' Equity on page 59.  Total book value per share decreased by 4.9% over the prior year level.  At December\u00a031, 2022, tangible book value per share, a non-GAAP financial measure calculated based on tangible book value (total stockholders' equity minus intangible assets including goodwill) was $19.95, a decrease of $1.08, or 5.1%, over the December\u00a031, 2021 amount. The net decrease in total stockholders' equity during 2022 principally reflected the following factors: (i) $48.8 million of net income for the year, plus (ii) $2.0 million of equity related to various stock-based compensation plans, plus (iii) $1.9 million of equity resulting from the dividend reinvestment plan, reduced by (iv) other comprehensive loss of $50.0 million, (v) cash dividends of $17.4 million and (vi) repurchases of common stock of $2.9 million.  As of December\u00a031, 2022, Arrow's closing stock price was $33.90, resulting in a trading multiple of 1.70 to Arrow's tangible book value.  The Board of Directors declared and Arrow paid a cash dividend of $0.262 per share for the first three quarters of 2022, as adjusted for a 3% stock dividend distributed September\u00a023, 2022, a cash dividend of $0.27 per share for the fourth quarter of 2022, and declared a $0.27 per share cash dividend for the first quarter of 2023.\n \nLoan quality:  \nNonperforming loans were $12.0 million at December\u00a031, 2022, an increase of $319 thousand, or 2.7%, from year-end 2021. The ratio of nonperforming loans to period-end loans at December\u00a031, 2022 was 0.40%, a decrease from 0.44% at December\u00a031, 2021 and higher than Arrow's peer group ratio of 0.38% at September\u00a030, 2022.   Loans charged-off (net of recoveries) against the allowance for credit losses was $2.1 million for 2022, an increase of $1.2 million from 2021. The ratio of net charge-offs to average loans was 0.08% for 2022 and 0.03% for 2021, compared to the peer group ratio of 0.04% for the period ended September\u00a030, 2022\n. \n At December\u00a031, 2022, the allowance for credit losses was $30.0 million, representing 1.00% of total loans, a decrease of 2 basis points from the December\u00a031, 2021 ratio.\nLoan Segments:\n  As of December\u00a031, 2022, total loans grew $315.3 million, or 11.8%, as compared to the balance at December\u00a031, 2021.\n\u25e6\u00a0\u00a0\u00a0\u00a0\nCommercial and Commercial Real Estate Loans:\n  Combined, these loans comprised 28.4% of the total loan portfolio at period-end.  Commercial property values in Arrow's region have largely remained stable, however, there remains uncertainty surrounding market conditions due to the inflation and the rising interest rate environment. Appraisals on nonperforming and watched CRE loan properties are updated as deemed necessary, usually when the loan is downgraded or when there has been significant market deterioration since the last appraisal.\n\u25e6\u00a0\u00a0\u00a0\u00a0\nConsumer Loans:\n \nThese loans (primarily automobile loans) comprised approximately 35.7% of the total loan portfolio at period-end.  Consumer automobile loans at December\u00a031, 2022, were $1.1 billion, or 99.6% of this portfolio segment.  The vast majority of automobile loans are initiated through the purchase of vehicles by consumers with automobile \n29\ndealers.  Although previous supply chain constraints have lessened, inflation and higher rates may limit the potential growth in this category.\n\u25e6\u00a0\u00a0\u00a0\u00a0\nResidential Real Estate Loans:\n  These loans, including home equity loans, made up 35.9% of the total loan portfolio at period-end. Demand for residential real estate has continued but weakened as interest rates have increased.  Arrow originated nearly all of the residential real estate loans currently held in the loan portfolio and applies conservative underwriting standards to loan originations.  Arrow typically sells a portion of residential real estate mortgage originations into the secondary market.  The ratio of the sales of originations to total originations tends to fluctuate from period to period based on market conditions and other factors.  Since the second half 2021, sales have decreased as a result of the strategic decision to grow the residential loan portfolio. The rate at which mortgage loan originations are sold in future periods will depend on various circumstances, including prevailing mortgage rates, other lending opportunities, capital and liquidity needs, and the availability of a market for such transactions.\nLiquidity and access to credit markets:\n  Arrow did not experience any liquidity problems or special concerns in recent years or in 2022.  Arrow\u2019s liquidity position should provide the Company with the necessary flexibility to address any unexpected near-term disruptions.\u00a0 Interest-bearing cash balances at December\u00a031, 2022 were $32.8 million which represents a significant decline as compared to $430.7 million at December\u00a031, 2021.\u00a0 In the fourth quarter, deposits declined as the result of increased consumer spending, pressure from competitive rate pricing and seasonality of municipal deposits.  Deposit balances nonetheless provided an abundance of liquidity to fund Arrow's asset growth. Additionally, contingent lines of credit are also available.  Operating collateralized lines of credit are established and available through the FHLBNY and FRB, totaling $1.3 billion.  The terms of Arrow's lines of credit have not changed significantly in recent periods (see the general liquidity discussion on page 46).  Historically, Arrow has principally relied on asset-based liquidity (i.e., funds in overnight investments and cash flow from maturing investments and loans) with liability-based liquidity as a secondary source of funds (the main liability-based sources are an overnight borrowing arrangement with correspondent banks, an arrangement for overnight borrowing and term credit advances from the FHLBNY, and an additional arrangement for short-term advances at the Federal Reserve Bank discount window). Regular liquidity stress tests and tests of the contingent liquidity plan are performed to ensure that an adequate amount of available funds can be generated to meet a wide variety of potential liquidity crises.\nReference Rate Reform:\n  On March 5, 2021, the ICE Benchmark Administration (the IBA), the administrator of LIBOR, and the United Kingdom\u2019s Financial Conduct Authority, the regulatory supervisor for the IBA, announced certain future dates that LIBOR settings will cease to be provided by any administrator. In addition, regulators have issued statements indicating that financial institutions should not issue new LIBOR-based financial instruments after January 1, 2022.  To prepare for the upcoming cessation of LIBOR, Arrow established a committee in 2020 comprised of Bank Management to prepare for the discontinuance of LIBOR, which is widely used to reprice floating rate financial instruments. Based on a review of existing floating rate financial instruments, Management has determined that the financial products tied to LIBOR will not be subject to cessation until June 30, 2023. This review also identified that only a few legacy contracts do not include appropriate fallback language. On March 15, 2022, the \u201cAdjustable Interest Rate (LIBOR) Act\u201d was enacted by Congress. The law provides basic framework for addressing the discontinuation of U.S. Dollar LIBOR under federal law. The law establishes a clear uniform process, on a nationwide basis, for replacing LIBOR in existing contracts that do not provide for the use of a clearly defined or practicable replacement benchmark rate (so-called \u201ctough legacy\u201d contracts), without affecting the ability of parties to use any appropriate benchmark rate in new contracts. In December 2022, the Federal Reserve Board adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act, which was effective February 27, 2023. Arrow no longer issues new LIBOR-based financial instruments. Furthermore, U.S. Dollar LIBOR indices utilized by Arrow's existing financial instruments shall cease on or before June 30, 2023. On January 1, 2022, Arrow designated SOFR as the replacement index for financial instruments previously tied to LIBOR.\n \nVisa Class B Common Stock:  \nArrow's subsidiary bank, Glens Falls National, like other Visa member banks, bears some indirect contingent liability for Visa's direct liability arising out of certain antitrust claims involving merchant discounts to the extent that Visa's liability might exceed the amount funded in its litigation escrow account. On December 13, 2019, the Court granted final approval to a settlement in this class action lawsuit. On January 3, 2020 an appeal of the final-approved order was filed with the court. On December 16, 2021, the second circuit court of appeals set oral arguments regarding objections to final approval of the settlement for March 16, 2022.  On March 16, 2022, the Second Circuit Court of Appeals heard oral arguments regarding objections to final approval of the settlement.  It is currently unknown when the appeal will be decided.   When the appeals process is resolved and assuming the balance in the litigation escrow account is sufficient to cover the litigation claims and related expenses, Arrow could potentially realize a gain on the receipt of Visa Class A common stock.  At December\u00a031, 2022, Glens Falls National held 27,771 shares of Visa Class B common stock, and utilizing the conversion ratio to Class A common stock at that time, these Class B shares would convert to approximately 44,000 shares of Visa Class A common stock. Since the litigation settlement is not certain, Arrow has not recognized any economic value for these shares.\nB. RESULTS OF OPERATIONS\nThe following analysis of net interest income, the provision for credit losses, noninterest income, noninterest expense and income taxes, highlights the factors that had the greatest impact on the results of operations for December\u00a031, 2022 and the prior two years.  For a comparison of the years ended December 31, 2020 and 2021, see Part II. Item 7, Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the year ended December 31, 2021.\n30\nI. NET INTEREST INCOME\nNet interest income represents the difference between interest, dividends and fees earned on loans, securities and other earning assets and interest paid on deposits and other sources of funds. \u00a0Changes in net interest income result from changes in the level and mix of earning assets and sources of funds (volume) and changes in the yields earned and interest rates paid (rate).  Net interest margin is the ratio of net interest income to average earning assets. \u00a0Net interest income may also be described as the product of average earning assets and the net interest margin.\nCHANGE IN NET INTEREST INCOME\n(Dollars In Thousands) (GAAP Basis)\nYears Ended December 31,\nChange From Prior Year\n2021 to 2022\n2020 to 2021\n2022\n2021\n2020\nAmount\n%\nAmount\n%\nInterest and Dividend Income\n$\n129,651\u00a0\n$\n115,550\u00a0\n$\n111,896\u00a0\n$\n14,101\u00a0\n12.2\u00a0\n%\n$\n3,654\u00a0\n3.3\u00a0\n%\nInterest Expense\n11,308\u00a0\n5,195\u00a0\n12,694\u00a0\n6,113\u00a0\n117.7\u00a0\n%\n(7,499)\n(59.1)\n%\nNet Interest Income\n$\n118,343\u00a0\n$\n110,355\u00a0\n$\n99,202\u00a0\n$\n7,988\u00a0\n7.2\u00a0\n%\n$\n11,153\u00a0\n11.2\u00a0\n%\nNet interest income was $118.3 million in 2022, an increase of $8.0 million, or 7.2%, from the $110.4 million in 2021. \u00a0This is in comparison with the increase of $11.2 million, or 11.2%, from 2020 to 2021. \u00a0Factors contributing to the year-to-year changes in net interest income over the three-year period are discussed in the following portions of this Section B.I.\nThe following tables reflect the components of net interest income for years ended December\u00a031, 2022, 2021 and 2020: (i) average balances of assets, liabilities and stockholders' equity, (ii) interest and dividend income earned on earning assets and interest expense incurred on interest-bearing liabilities, (iii) average yields earned on earning assets and average rates paid on interest-bearing liabilities, (iv) the net interest spread (average yield less average cost) and (v) the net interest margin (yield) on earning assets.  The yield on securities available-for-sale is based on the amortized cost of the securities.  Nonaccrual loans are included in average loans. \u00a0\nAverage Consolidated Balance Sheets and Net Interest Income Analysis\n(GAAP basis)\n(Dollars in Thousands)\nYears Ended December 31:\n2022\n2021\n2020\nInterest\nRate\nInterest\nRate\nInterest\nRate\nAverage\nIncome/\nEarned/\nAverage\nIncome/\nEarned/\nAverage\nIncome/\nEarned/\nBalance\nExpense\nPaid\nBalance\nExpense\nPaid\nBalance\nExpense\nPaid\nInterest-Bearing Deposits at Banks\n$\n252,835\u00a0\n$\n3,100\u00a0\n1.23\u00a0\n%\n$\n418,488\u00a0\n565\u00a0\n0.14\u00a0\n%\n195,821\u00a0\n321\u00a0\n0.16\u00a0\n%\n\u00a0Investment Securities:\n\u00a0\u00a0\u00a0Fully Taxable\n648,540\u00a0\n10,357\u00a0\n1.60\u00a0\n%\n470,133\u00a0\n6,487\u00a0\n1.38\u00a0\n%\n398,915\u00a0\n7,131\u00a0\n1.79\u00a0\n%\n\u00a0\u00a0\u00a0Exempt from Federal\n\u00a0\u00a0\u00a0Taxes\n173,184\u00a0\n3,212\u00a0\n1.85\u00a0\n%\n185,072\u00a0\n3,513\u00a0\n1.90\u00a0\n%\n199,410\u00a0\n3,952\u00a0\n1.98\u00a0\n%\nLoans\n2,827,518\u00a0\n112,982\u00a0\n4.00\u00a0\n%\n2,643,163\u00a0\n104,985\u00a0\n3.97\u00a0\n%\n2,526,791\u00a0\n100,492\u00a0\n3.98\u00a0\n%\n\u00a0Total Earning Assets\n3,902,077\u00a0\n129,651\u00a0\n3.32\u00a0\n%\n3,716,856\u00a0\n115,550\u00a0\n3.11\u00a0\n%\n3,320,937\u00a0\n111,896\u00a0\n3.37\u00a0\n%\nAllowance for Credit Losses\n(27,954)\n(27,187)\n(25,128)\nCash and Due From Banks\n30,462\u00a0\n36,464\u00a0\n35,609\u00a0\nOther Assets\n142,895\u00a0\n156,509\u00a0\n150,343\u00a0\n\u00a0Total Assets\n$\n4,047,480\u00a0\n$\n3,882,642\u00a0\n$\n3,481,761\u00a0\n31\nDeposits:\n\u00a0\u00a0\u00a0Interest-Bearing Checking\n\u00a0\u00a0\u00a0Accounts\n$\n1,038,751\u00a0\n973\u00a0\n0.09\u00a0\n%\n$\n926,875\u00a0\n731\u00a0\n0.08\u00a0\n%\n772,000\u00a0\n1,292\u00a0\n0.17\u00a0\n%\n\u00a0\u00a0Savings Deposits\n1,549,278\u00a0\n7,879\u00a0\n0.51\u00a0\n%\n1,496,906\u00a0\n1,904\u00a0\n0.13\u00a0\n%\n1,258,154\u00a0\n5,090\u00a0\n0.40\u00a0\n%\n\u00a0\u00a0Time Deposits of $250,000\n\u00a0\u00a0Or More\n55,690\u00a0\n369\u00a0\n0.66\u00a0\n%\n87,033\u00a0\n261\u00a0\n0.30\u00a0\n%\n124,601\u00a0\n1,465\u00a0\n1.18\u00a0\n%\n\u00a0\u00a0Other Time Deposits\n132,541\u00a0\n604\u00a0\n0.46\u00a0\n%\n141,677\u00a0\n632\u00a0\n0.45\u00a0\n%\n223,111\u00a0\n2,782\u00a0\n1.25\u00a0\n%\n\u00a0\u00a0\u00a0\u00a0Total Interest-Bearing\n\u00a0\u00a0\u00a0  Deposits\n2,776,260\u00a0\n9,825\u00a0\n0.35\u00a0\n%\n2,652,491\u00a0\n3,528\u00a0\n0.13\u00a0\n%\n2,377,866\u00a0\n10,629\u00a0\n0.45\u00a0\n%\nShort-Term Borrowings\n2,124\u00a0\n92\u00a0\n4.33\u00a0\n%\n4,768\u00a0\n3\u00a0\n0.06\u00a0\n%\n57,929\u00a0\n246\u00a0\n0.42\u00a0\n%\nFHLBNY Term Advances\nand Other Long-Term Debt\n50,750\u00a0\n1,198\u00a0\n2.36\u00a0\n%\n65,000\u00a0\n1,469\u00a0\n2.26\u00a0\n%\n69,631\u00a0\n1,623\u00a0\n2.33\u00a0\n%\nFinance Leases\n5,132\u00a0\n193\u00a0\n3.76\u00a0\n%\n5,182\u00a0\n195\u00a0\n3.76\u00a0\n%\n5,229\u00a0\n196\u00a0\n3.75\u00a0\n%\n\u00a0\u00a0Total Interest-\n\u00a0\u00a0Bearing Liabilities\n2,834,266\u00a0\n11,308\u00a0\n0.40\u00a0\n%\n2,727,441\u00a0\n5,195\u00a0\n0.19\u00a0\n%\n2,510,655\u00a0\n12,694\u00a0\n0.51\u00a0\n%\nDemand Deposits\n815,218\u00a0\n767,671\u00a0\n613,408\u00a0\nOther Liabilities\n37,901\u00a0\n33,773\u00a0\n37,884\u00a0\n\u00a0Total Liabilities\n3,687,385\u00a0\n3,528,885\u00a0\n3,161,947\u00a0\nStockholders\u2019 Equity\n360,095\u00a0\n353,757\u00a0\n319,814\u00a0\n\u00a0Total Liabilities and\n\u00a0Stockholders\u2019 Equity\n$\n4,047,480\u00a0\n$\n3,882,642\u00a0\n$\n3,481,761\u00a0\nNet Interest Income\n$\n118,343\u00a0\n$\n110,355\u00a0\n$\n99,202\u00a0\nNet Interest Spread\n2.92\u00a0\n%\n2.92\u00a0\n%\n2.86\u00a0\n%\nNet Interest Margin\n3.03\u00a0\n%\n2.97\u00a0\n%\n2.99\u00a0\n%\nChanges between periods are attributed to movement in either the average daily balances or average rates for both earning assets and interest-bearing liabilities. \u00a0Changes attributable to both volume and rate have been allocated proportionately between the categories.\nNet Interest Income Rate and Volume Analysis\n(Dollars in Thousands) (GAAP basis)\n2022 Compared to 2021 Change in Net Interest Income Due to:\n2021 Compared to 2020 Change in Net Interest Income Due to:\nInterest and Dividend Income:\nVolume\nRate\nTotal\nVolume\nRate\nTotal\nInterest-Bearing Bank Balances\n$\n(224)\n$\n2,759\u00a0\n$\n2,535\u00a0\n$\n309\u00a0\n$\n(65)\n$\n244\u00a0\nInvestment Securities:\nFully Taxable\n2,443\u00a0\n1,427\u00a0\n3,870\u00a0\n1,146\u00a0\n(1,790)\n(644)\nExempt from Federal Taxes\n(214)\n(87)\n(301)\n(277)\n(162)\n(439)\nLoans\n7,149\u00a0\n848\u00a0\n7,997\u00a0\n4,622\u00a0\n(129)\n4,493\u00a0\nTotal Interest and Dividend Income\n9,154\u00a0\n4,947\u00a0\n14,101\u00a0\n5,800\u00a0\n(2,146)\n3,654\u00a0\nInterest Expense:\nDeposits:\nInterest-Bearing Checking Accounts\n138\u00a0\n104\u00a0\n242\u00a0\n221\u00a0\n(782)\n(561)\nSavings Deposits\n88\u00a0\n5,887\u00a0\n5,975\u00a0\n822\u00a0\n(4,008)\n(3,186)\nTime Deposits of $250,000 or More\n(92)\n200\u00a0\n108\u00a0\n(347)\n(857)\n(1,204)\nOther Time Deposits\n(41)\n13\u00a0\n(28)\n(779)\n(1,371)\n(2,150)\nTotal Deposits\n93\u00a0\n6,204\u00a0\n6,297\u00a0\n(82)\n(7,019)\n(7,101)\nShort-Term Borrowings\n(2)\n91\u00a0\n89\u00a0\n(126)\n(117)\n(243)\nLong-Term Debt\n(322)\n51\u00a0\n(271)\n(106)\n(48)\n(154)\nFinance Leases\n(2)\n\u2014\u00a0\n(2)\n(2)\n1\u00a0\n(1)\nTotal Interest Expense\n(233)\n6,346\u00a0\n6,113\u00a0\n(316)\n(7,183)\n(7,499)\nNet Interest Income\n$\n9,387\u00a0\n$\n(1,399)\n$\n7,988\u00a0\n$\n6,116\u00a0\n$\n5,037\u00a0\n$\n11,153\u00a0\n32\nNET INTEREST MARGIN\nYIELD ANALYSIS (GAAP Basis)\nDecember 31,\n2022\n2021\n2020\nYield on Earning Assets\n3.32\u00a0\n%\n3.11\u00a0\n%\n3.37\u00a0\n%\nCost of Interest-Bearing Liabilities\n0.40\u00a0\n%\n0.19\u00a0\n%\n0.51\u00a0\n%\nNet Interest Spread\n2.92\u00a0\n%\n2.92\u00a0\n%\n2.86\u00a0\n%\nNet Interest Margin\n3.03\u00a0\n%\n2.97\u00a0\n%\n2.99\u00a0\n%\nNet Interest Margin excluding PPP Loans\n3.00\u00a0\n%\n2.84\u00a0\n%\n2.97\u00a0\n%\nArrow's earnings are derived predominantly from net interest income, which is interest income, net of interest expense. Changes in balance sheet composition, including interest-earning assets, deposits, and borrowings, combined with changes in market interest rates, impact net interest income. Net interest margin is net interest income divided by average interest-earning assets. Interest-earning assets and funding sources are managed, including noninterest and interest-bearing liabilities, in order to maximize this margin.\n2022 Compared to 2021:  Net interest income increased $8.0 million, or 7.2%, to $118.3 million for the year ended December\u00a031, 2022 from $110.4 million for the year ended December\u00a031, 2021.  Interest and fees on loans were $113.0 million, an increase of 7.6% from the $105.0 million for the year ended December\u00a031, 2021. Interest and fees related to PPP loans, included in the $113.0 million, were $1.6 million.  In 2021, $7.8 million of income was earned on PPP loans. The net interest margin was 3.03% for the year ended December\u00a031, 2022 as compared to 2.97% for the year ended December\u00a031, 2021.\nIncome on investment securities increased $3.6 million, or 35.7%, between the years ended December\u00a031, 2022 and December\u00a031, 2021.  The average balances for fully taxable securities were higher for the year, with yield increasing by 22 basis points.   The average balances for securities exempt from federal taxes were lower for the year, with yield decreasing by 5 basis points.  \nInterest income from loans increased $8.0 million, or 7.6%, to $113.0 million for the year ended December\u00a031, 2022 from $105.0 million for the year ended December\u00a031, 2021.  The loan portfolio yield increased 3 basis points in 2022, to 4.00%.  Average loan balances increased by $184.4 million, a 7.0% increase over 2021 average balances. Within the loan portfolio, the three principal segments are residential real estate loans, consumer loans (primarily through the indirect automobile lending program) and commercial loans.  The consumer loan portfolio grew by $144.6 million, or 15.7%, over the balance at December\u00a031, 2021. The residential real estate loan portfolio increased $124.8 million, or 13.2% from the prior year.  Commercial loans, including commercial real estate, increased $45.9 million, or 5.7%, over the balances at December\u00a031, 2021.\nTotal interest expense on interest-bearing liabilities increased $6.1 million, or 117.7%, to $11.3 million for the year ended December\u00a031, 2022 from $5.2 million for the year ended December\u00a031, 2021.  Average interest bearing deposit balances increased by $123.8 million and the total cost of interest-bearing deposits increased to 22 basis points from 13 basis points. In addition, average demand deposits, which are non-interest bearing, increased by $47.5 million.\nII.\n \nPROVISION FOR CREDIT LOSSES AND ALLOWANCE FOR CREDIT LOSSES\nArrow considers the accounting policy relating to the allowance for credit losses to be a critical accounting policy, given the uncertainty involved in evaluating the level of the allowance required to cover credit losses inherent in the loan portfolio, and the material effect that such judgments may have on the results of operations. \u00a0The provision for credit losses for 2022 was $4.8 million, compared to the $0.3 million provision for 2021.  The analysis of the method employed for determining the amount of the credit loss provision is explained in detail in Notes 2, \nSummary of Significant Accounting Policies\n, and 5, \nLoans,\n to the Consolidated Financial Statements.\n33\nSUMMARY OF THE ALLOWANCE AND PROVISION FOR CREDIT LOSSES\n(Dollars In Thousands) (Loans, Net of Unearned Income)\nYears-Ended December 31,\n2022\n2021\nPeriod-End Loans\n$2,983,207\n$2,667,941\nAverage Loans\n2,827,518\n2,643,163\nPeriod-End Assets\n3,969,509\n4,027,952\nNonperforming Assets, at Period-End:\nNonaccrual Loans:\nCommercial Loans\n8\u00a0\n33\u00a0\nCommercial Real Estate\n3,110\u00a0\n7,244\u00a0\nConsumer Loans\n3,503\u00a0\n1,697\u00a0\nResidential Real Estate Loans\n4,136\u00a0\n1,790\u00a0\nTotal Nonaccrual Loans\n10,757\u00a0\n10,764\u00a0\nLoans Past Due 90 or More Days and\nStill Accruing Interest\n1,157\n823\nRestructured\n69\n77\nTotal Nonperforming Loans\n11,983\n11,664\nRepossessed Assets\n593\n126\nOther Real Estate Owned\n\u2014\n\u2014\nTotal Nonperforming Assets\n12,576\n11,790\nAllowance for Credit Losses:\nBalance at Beginning of Period\n$\n27,281\u00a0\n$\n29,232\u00a0\nImpact of the Adoption of ASU 2016-13\n\u2014\u00a0\n(1,300)\nLoans Charged-off:\nCommercial Loans\n(34)\n(97)\nCommercial Real Estate\n\u2014\u00a0\n\u2014\u00a0\nConsumer Loans\n(4,079)\n(2,133)\nResidential Real Estate Loans\n(30)\n(9)\nTotal Loans Charged-off\n(4,143)\n(2,239)\nRecoveries of Loans Previously Charged-off:\nCommercial Loans\n43\u00a0\n190\u00a0\nCommercial Real Estate\n\u2014\u00a0\n\u2014\u00a0\nConsumer Loans\n1,973\u00a0\n1,126\u00a0\nResidential Real Estate Loans\n\u2014\u00a0\n\u2014\u00a0\n\u00a0\u00a0\u00a0\u00a0Total Recoveries of Loans Previously Charged-off\n2,016\u00a0\n1,316\u00a0\nNet Loans Charged-off\n(2,127)\n(923)\nProvision for Credit Losses\nCharged to Expense\n4,798\u00a0\n272\u00a0\nBalance at End of Period\n$\n29,952\u00a0\n$\n27,281\u00a0\nAsset Quality Ratios:\nNet Charge-offs to\u00a0Average Loans\n0.08\u00a0\n%\n0.03\u00a0\n%\nProvision for Credit Losses to Average Loans\n0.17\u00a0\n%\n0.01\u00a0\n%\nAllowance for Credit Losses to Period-end Loans\n1.00\u00a0\n%\n1.02\u00a0\n%\nAllowance for Credit Losses to Nonperforming Loans\n249.95\u00a0\n%\n233.89\u00a0\n%\nNonperforming Loans to Period-end Loans\n0.40\u00a0\n%\n0.44\u00a0\n%\nNonperforming Assets to Period-end Assets\n0.32\u00a0\n%\n0.29\u00a0\n%\nALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES\n(Dollars in Thousands)\n2022\n2021\nCommercial Loans\n$\n1,961\u00a0\n$\n2,298\u00a0\nCommercial Real Estate\n15,213\u00a0\n13,523\u00a0\nConsumer Loans\n2,585\u00a0\n2,402\u00a0\nResidential Real Estate Loans\n10,193\u00a0\n9,058\u00a0\nTotal\n$\n29,952\u00a0\n$\n27,281\u00a0\n34\nArrow adopted CECL on January 1, 2021.  The CECL approach requires an estimate of the credit losses expected over the life of a loan (or pool of loans). It replaced the incurred loss approach\u2019s threshold that required the recognition of a credit loss when it was probable that a loss event was incurred. The allowance for credit losses is a valuation account that is deducted from, or added to, the loans\u2019 amortized cost basis to present the net, lifetime amount expected to be collected on the loans. Loan losses are charged off against the allowance when Arrow believes a loan balance is confirmed to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.\nManagement estimates the allowance using relevant available information from internal and external sources related to past events, current conditions, and a reasonable and supportable single economic forecast. Historical credit loss experience provides the basis for the estimation of expected credit losses. Arrow's historical loss experience was supplemented with peer information when there was insufficient loss data for Arrow. Peer selection was based on a review of institutions with comparable loss experience as well as loan yield, bank size, portfolio concentration and geography. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in credit concentrations, delinquency level, collateral values and underwriting standards as well as changes in economic conditions or other relevant factors. Management judgment is required at each point in the measurement process.\nPortfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Upon adoption of CECL, Management revised the manner in which loans were pooled for similar risk characteristics. Management developed portfolio segments for estimating loss based on type of borrower and collateral as follows:\nCommercial Loans\nCommercial Real Estate Loans\nConsumer Loans\nResidential Loans\nFurther details related to loan portfolio segments are included in Note 5, \nLoans\n, to the Consolidated Financial Statements.\nHistorical credit loss experience for both Arrow and segment-specific peers provides the basis for the estimation of expected credit losses. Arrow utilized regression analyses of peer data, of which Arrow is included, where observed credit losses and selected economic factors were utilized to determine suitable loss drivers for modeling lifetime probability of default (PD) rates.  Arrow uses the discounted cash flow (DCF) method to estimate expected credit losses for the commercial, commercial real estate, and residential segments. For each of these loan segments, Arrow generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, PD, and segment-specific loss given default (LGD) risk factors. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data and adjusted, if necessary, based on the reasonable and supportable forecast of economic conditions. \nFor the loan segments utilizing the DCF method, (commercial, commercial real estate, and residential) Management utilizes externally developed economic forecast of the following economic factors as loss drivers: national unemployment, gross domestic product and home price index (HPI). The economic forecast is applied over a reasonable and supportable forecast period.  Arrow utilizes a six quarter reasonable and supportable forecast period with an eight quarter reversion to the historic mean on a straight-line basis.\nThe combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (NPV). An allowance for credit loss is established for the difference between the instrument\u2019s NPV and amortized cost basis. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: Management has a reasonable expectation at the reporting date that a troubled debt restructuring (TDR) will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by Arrow.\nArrow uses the vintage analysis method to estimate expected credit losses for the consumer loan segment. The vintage method was selected since the loans within the consumer loan segment are homogeneous, not just by risk characteristic, but by loan structure.  Under the vintage analysis method, a loss rate is calculated based on the quarterly net charge-offs to the outstanding loan balance for each vintage year over the lookback period. Once this periodic loss rate is calculated for each quarter in the lookback period, the periodic rates are averaged into the loss rate. The loss rate is then applied to the outstanding loan balances based on the loan's vintage year. Arrow maintains, over the life of the loan, the loss curve by vintage year. If estimated losses computed by the vintage method need to be adjusted based on current conditions and the reasonable and supportable economic forecast, these adjustments would be incorporated over a six quarter reasonable and supportable forecast period, reverting to historical losses using a straight-line method over an eight quarter period.  Based on current conditions, and the reasonable and supportable economic forecast, no adjustments are currently required.\nThe vintage and DCF models also consider the need to qualitatively adjust expected loss estimates for information not already captured in the quantitative loss estimation process. Qualitative considerations include limitations inherent in the quantitative model; trends experienced in nonperforming and delinquent loans; changes in value of underlying collateral; changes in lending policies and procedures; nature and composition of loans; portfolio concentrations that may affect loss experience across one or more components or the portfolio; the experience, ability and depth of lending management and staff; Arrow's credit review system; and the effect of external factors such as competition, legal and regulatory requirements. These \n35\nqualitative factor adjustments may increase or decrease Arrow's estimate of expected credit losses so that the allowance for credit loss is reflective of the estimate of lifetime losses that exist in the loan portfolio at the balance sheet date.\nThe change in methodology from incurred loss to the expected loss over the life of the loan also impacted the allocation of the allowance for credit losses.  The vintage approach combined with a shorter life of loan decreased the allowance needed for consumer loans.  Residential real estate loans, due to their longer life of loan, have a higher allocation of the allowance of credit loans as compared to the incurred loss methodology.\nArrow's allowance for credit losses was $30.0 million at December\u00a031, 2022, which represented 1.00% of loans outstanding, a decrease from 1.02% at year-end 2021.\nSee Note 5, \nLoans\n, to the Consolidated Financial Statements for the complete methodology used to calculate the provision for credit losses.\n \nIII. NONINTEREST INCOME\nThe majority of the noninterest income constitutes fee income from services, principally fees and commissions from fiduciary services, deposit account service charges, insurance commissions, net gains (losses) on securities transactions, net gains on sales of loans and other recurring fee income.\nANALYSIS OF NONINTEREST INCOME\n(Dollars In Thousands)\nYears Ended December 31,\nChange From Prior Year\n2021 to 2022\n2020 to 2021\n2022\n2021\n2020\nAmount\u00a0\n%\nAmount\u00a0\n%\nIncome from Fiduciary Activities\n$\n9,711\u00a0\n$\n10,142\u00a0\n$\n8,890\u00a0\n$\n(431)\n(4.2)\n%\n$\n1,252\u00a0\n14.1\u00a0\n%\nFees for Other Services to Customers\n11,626\u00a0\n11,462\u00a0\n10,003\u00a0\n164\u00a0\n1.4\u00a0\n%\n1,459\u00a0\n14.6\u00a0\n%\nInsurance Commissions\n6,463\u00a0\n6,487\u00a0\n6,876\u00a0\n(24)\n(0.4)\n%\n(389)\n(5.7)\n%\nNet Gain (Loss) on Securities\n427\u00a0\n111\u00a0\n(464)\n316\u00a0\n284.7\u00a0\n%\n575\u00a0\n123.9\u00a0\n%\nNet Gain on Sales of Loans\n83\u00a0\n2,393\u00a0\n3,889\u00a0\n(2,310)\n(96.5)\n%\n(1,496)\n(38.5)\n%\nOther Operating Income\n2,588\u00a0\n1,774\u00a0\n3,464\u00a0\n814\u00a0\n45.9\u00a0\n%\n(1,690)\n(48.8)\n%\nTotal Noninterest Income\n$\n30,898\u00a0\n$\n32,369\u00a0\n$\n32,658\u00a0\n$\n(1,471)\n(4.5)\n%\n$\n(289)\n(0.9)\n%\n2022 Compared to 2021:\n \u00a0Total noninterest income in 2022 was $30.9 million, a decrease of $1.5 million, or 4.5%, from total noninterest income of $32.4 million for 2021.  Income from fiduciary activities decreased $431 thousand from 2021 to 2022.  The decrease was primarily driven by market conditions. Assets under trust administration and investment management at December\u00a031, 2022 were $1.61 billion, a decrease of $245.0 million, or 13.2%, from the prior year-end balance of $1.85 billion.  Fees for other services to customers were $11.6 million for 2022, an increase of $164 thousand as compared to 2021.  Insurance commissions were flat to the previous year.  Net gain on securities in 2022, consisting of a change in the fair value of equity investments, was $427 thousand as compared to a loss of $111 thousand in 2021.\nNet gains on the sales of loans decreased in 2022 to $83 thousand, from $2.4 million in 2021.  Sales decreased primarily as a result of the strategic decision in the second half of 2021 to retain more newly originated residential real estate loans. The rate at which mortgage loan originations are sold in future periods will depend on various circumstances, including prevailing mortgage rates, other lending opportunities, capital and liquidity needs, and the availability of a market for such transactions. Therefore, Arrow is unable to predict what the retention rate of such loans in future periods may be. Servicing rights are generally retained for loans originated and sold, which also generates additional noninterest income in subsequent periods (fees for other services to customers).\nOther operating income increased by $814 thousand, or 45.9% between the two years primarily due to gains on other assets of $421 thousand as well as proceeds received related to bank owned life insurance of $383 thousand.\n36\nIV. NONINTEREST EXPENSE\nNoninterest expense is the measure of the delivery cost of services, products and business activities of a company. \u00a0The key components of noninterest expense are presented in the following table.\nANALYSIS OF NONINTEREST EXPENSE\n(Dollars In Thousands)\nYears Ended December 31,\nChange From Prior Year\n2021 to 2022\n2020 to 2021\n2022\n2021\n2020\nAmount\n%\nAmount\n%\nSalaries and Employee Benefits\n$\n47,003\n$\n44,798\n$\n42,061\n$\n2,205\n4.9\u00a0\n%\n$\n2,737\n6.5\u00a0\n%\nOccupancy Expenses, Net\n6,202\n5,814\n5,614\n388\n6.7\u00a0\n%\n200\n3.6\u00a0\n%\nTechnology and Equipment Expense\n16,118\n14,870\n12,976\n1,248\n8.4\u00a0\n%\n1,894\n14.6\u00a0\n%\nFDIC Regular Assessment\n1,176\n1,042\n1,063\n134\n12.9\u00a0\n%\n(21)\n(2.0)\n%\nAmortization of Intangible Assets\n193\n210\n227\n(17)\n(8.1)\n%\n(17)\n(7.5)\n%\nOther Operating Expense\n10,838\n11,314\n8,737\n(476)\n(4.2)\n%\n2,577\n29.5\u00a0\n%\nTotal Noninterest Expense\n$\n81,530\n$\n78,048\n$\n70,678\n$\n3,482\n4.5\u00a0\n%\n$\n7,370\n10.4\u00a0\n%\nEfficiency Ratio\n54.26\u00a0\n%\n54.16\u00a0\n%\n52.80\u00a0\n%\n0.10\u00a0\n%\n0.2\u00a0\n%\n1.36\u00a0\n%\n2.6\u00a0\n%\n2022\u00a0compared to\u00a02021:\n\u00a0\u00a0Noninterest expenses for 2022 were $81.5 million, an increase of $3.5 million, or 4.5%, from 2021. \u00a0For 2022, the efficiency ratio was 54.26%.  This ratio, which is a commonly used non-GAAP financial measure in the banking industry, is a comparative measure of a financial institution's operating efficiency.  The efficiency ratio (a ratio where lower is better), as defined by Arrow, is the ratio of operating noninterest expense (excluding intangible asset amortization) to net interest income (on a tax-equivalent basis) plus operating noninterest income (excluding net securities gains or losses).  See the discussion of the efficiency ratio in this Report under the heading \u201cUse of Non-GAAP Financial Measures.\u201d\nSalaries and employee benefits expense increased $2.2 million or 4.9%, from 2021.  Included within salaries and benefits was a $1.5 million reclassification between salaries and employee benefits and other operating expenses.  Under ASU 2017-07 (Compensation-Retirement Benefits), interest cost, expected return on plan assets, amortization of prior service cost and amortization of net loss are required to be reclassified out of salaries and employee benefits. The reclassification was $1.7 million in 2021.  Salaries and benefits were also impacted by increased benefit costs and incentive payments.\nTechnology expenses increased $1.2 million, or 8.4%, from 2021 due to the investment in upgrading the core banking system. The expense reflects the strategic focus on a strong technology foundation and paves the way for customer-facing enhancements and more efficient and improved internal operations.\nOther operating expense decreased $476 thousand, or 4.2%, from 2021. The decrease is the result of the expense for estimated credit losses on off-balance sheet credit exposures of $685 thousand for 2021 as compared to $22 thousand in the current year.\nV. INCOME TAXES\nThe following table sets forth the provision for income taxes and effective tax rates for the periods presented.\nINCOME TAXES AND EFFECTIVE RATES\n(Dollars In Thousands)\nYears Ended December 31,\nChange From Prior Year\n2021 to 2022\n2020 to 2021\n2022\n2021\n2020\nAmount\n%\nAmount\n%\nProvision for Income Taxes\n$\n14,114\u00a0\n$\n14,547\u00a0\n$\n11,036\u00a0\n$\n(433)\n(3.0)\n%\n$\n3,511\u00a0\n31.8\u00a0\n%\nEffective Tax Rate\n22.4\u00a0\n%\n22.6\u00a0\n%\n21.3\u00a0\n%\n(0.2)\n%\n(0.9)\n%\n1.3\u00a0\n%\n6.1\u00a0\n%\nThe provisions for federal and state income taxes amounted to $14.1 million for 2022, $14.5 million for 2021, and $11.0 million for  2020. The effective income tax rates for 2022, 2021 and 2020 were 22.4%, 22.6% and 21.3%, respectively.  The effective tax rate was essentially flat between 2022 and 2021.  The increase in 2021 as compared to 2020 was primarily due to the reduction of tax exempt investments held and the related investment income, combined with the increase in the New York State corporate tax rate which was effective January 1, 2021.\n37\nC. FINANCIAL CONDITION\nI. INVESTMENT PORTFOLIO\nDuring 2022 and 2021, Arrow held no trading securities.\nThe available-for-sale securities portfolio, held-to-maturity securities portfolio and the equity securities portfolio are further detailed below.\nThe table below presents the changes in the period-end balances for available-for-sale, held-to-maturity and equity securities from December\u00a031, 2021 to December\u00a031, 2022 (in thousands):\n(Dollars in Thousands)\nFair Value at Period-End\nNet Unrealized (Losses) Gains\nFor Period Ended\n12/31/2022\n12/31/2021\nChange\n12/31/2022\n12/31/2021\nChange\nSecurities Available-for-Sale:\nU.S. Agency Securities\n$\n175,199\u00a0\n$\n108,365\u00a0\n$\n66,834\u00a0\n$\n(14,801)\n$\n(1,635)\n$\n(13,166)\nState and Municipal Obligations\n340\u00a0\n400\u00a0\n(60)\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nMortgage-Backed Securities\n397,156\u00a0\n449,751\u00a0\n(52,595)\n(50,599)\n1,009\u00a0\n(51,608)\nCorporate and Other Debt Securities\n800\u00a0\n800\u00a0\n\u2014\u00a0\n(200)\n(200)\n\u2014\u00a0\nTotal\n$\n573,495\u00a0\n$\n559,316\u00a0\n$\n14,179\u00a0\n$\n(65,600)\n$\n(826)\n$\n(64,774)\nSecurities Held-to-Maturity:\nState and Municipal Obligations\n$\n160,470\u00a0\n$\n184,374\u00a0\n$\n(23,904)\n$\n(3,130)\n$\n4,179\u00a0\n$\n(7,309)\nMortgage-Backed Securities\n11,153\u00a0\n16,918\u00a0\n(5,765)\n(611)\n547\u00a0\n(1,158)\nTotal\n$\n171,623\u00a0\n$\n201,292\u00a0\n$\n(29,669)\n$\n(3,741)\n$\n4,726\u00a0\n$\n(8,467)\nEquity Securities \n$\n2,174\u00a0\n$\n1,747\u00a0\n$\n427\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\nThe table below presents the weighted average yield for available-for-sale and held-to-maturity securities as of December\u00a031, 2022 (in thousands).\nDecember 31, 2022\nWithin One Year\nAfter One But Within Five Years\nAfter Five But Within Ten Years\nAfter Ten Years\nTotal\nAmount\nYield\nAmount\nYield\nAmount\nYield\nAmount\nYield\nAmount\nYield\nSecurities Available-for-Sale:\nU.S. Agency Securities\n$\n\u2014\u00a0\n\u2014\u00a0\n%\n$\n190,000\u00a0\n1.6\u00a0\n%\n$\n\u2014\u00a0\n\u2014\u00a0\n%\n$\n\u2014\u00a0\n\u2014\u00a0\n%\n$\n190,000\u00a0\n190000000\n1.6\u00a0\n%\nState and Municipal Obligations\n20\u00a0\n6.3\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n320\u00a0\n6.8\u00a0\n%\n\u2014\u00a0\n%\n340\u00a0\n6.7\u00a0\n%\nMortgage-Backed Securities\n690\u00a0\n1.7\u00a0\n%\n241,322\u00a0\n1.9\u00a0\n%\n205,743\u00a0\n1.6\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n447,755\u00a0\n1.8\u00a0\n%\nCorporate and Other Debt Securities\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n1,000\u00a0\n6.4\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n1,000\u00a0\n6.4\u00a0\n%\nTotal\n$\n710\u00a0\n1.9\u00a0\n%\n$\n431,322\u00a0\n1.8\u00a0\n%\n$\n207,063\u00a0\n1.6\u00a0\n%\n$\n\u2014\u00a0\n\u2014\u00a0\n%\n$\n639,095\u00a0\n1.8\u00a0\n%\nSecurities Held-to-Maturity:\nState and Municipal Obligations\n$\n52,522\u00a0\n2.3\u00a0\n%\n$\n108,233\u00a0\n2.4\u00a0\n%\n$\n2,806\u00a0\n3.5\u00a0\n%\n$\n39\u00a0\n6.1\u00a0\n%\n$\n163,600\u00a0\n2.4\u00a0\n%\nMortgage-Backed Securities\n\u2014\u00a0\n\u2014\u00a0\n%\n11,764\u00a0\n2.5\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n11,764\u00a0\n2.5\u00a0\n%\nCorporate and Other Debt Securities\n\u2014\u00a0\n\u2014\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\nTotal\n$\n52,522\u00a0\n2.3\u00a0\n%\n$\n119,997\u00a0\n2.4\u00a0\n%\n$\n2,806\u00a0\n3.5\u00a0\n%\n$\n39\u00a0\n6.1\u00a0\n%\n$\n175,364\u00a0\n2.4\u00a0\n%\nFor the years above, Arrow held no investment securities in the securities portfolio that consisted of or included, directly or indirectly, obligations of foreign governments or government agencies of foreign issuers.\nIn the periods referenced above, mortgage-backed securities consisted solely of mortgage pass-through securities and collateralized mortgage obligations (CMOs) issued or guaranteed by U.S. federal agencies or by government-sponsored enterprises (GSEs). Mortgage pass-through securities provide to the investor monthly portions of principal and interest pursuant to the contractual obligations of the underlying mortgages. CMOs are pools of mortgage-backed securities, the repayments on which have generally been separated into two or more components (tranches), where each tranche has a separate estimated life and yield. Arrow's practice has been to purchase pass-through securities and CMOs that are issued or guaranteed by U.S. federal agencies or GSEs, and the tranches of CMOs purchased are generally those having shorter average lives and/or \n38\ndurations. Lower market interest rates and/or payment deferrals on underlying loans that make up mortgage-backed security collateral may impact cashflows.\nIn the periods referenced above, U.S. Government & Agency Obligations consisted solely of agency bonds issued\n by GSEs.  These securities generally pay fixed semi-annual \ncoupons\n with principle payments at maturity.  For some, callable options are included that may impact the timing of these principal payments. \nArrow's practice has been to purchase Agency securities that are issued or guaranteed by GSEs\n with limited embedded optionality (call features).  Final maturities are generally less than 5 years.\nThe yields on obligations of states and municipalities exempt from federal taxation were computed on a tax-equivalent basis. The yields on other debt securities shown in the table above are calculated by dividing annual interest, including accretion of discounts and amortization of premiums, by the amortized cost of the securities at December\u00a031, 2022.\nArrow evaluates available-for-sale debt securities in unrealized loss positions at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or non-credit related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized within the allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via credit loss expense.  Arrow determined that at December\u00a031, 2022, gross unrealized losses, $65.6 million, were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. In 2022, the rising interest rate environment resulted in an increase in unrealized losses versus the comparable prior period.  Arrow does not intend to sell, nor is it more likely than not that Arrow will be required to sell any securities before recovery of its amortized cost basis, which may be at maturity.  Therefore, Arrow carried no allowance for credit loss at December\u00a031, 2022 and there was no credit loss expense recognized by Arrow with respect to the securities portfolio during the year ended December\u00a031, 2022.\nAt December\u00a031, 2022 and 2021, the weighted average maturity was 4.2\u00a0and 4.0 years, respectively, for debt securities in the available-for-sale portfolio.\nFor further information regarding the portfolio of securities available-for-sale, see Note 4, \nInvestment Securities\n, to the Consolidated Financial Statements. \nSecurities Held-to-Maturity\n:\nThe following table sets forth the carrying value of the portfolio of securities held-to-maturity at December 31 of each of the last two years.\nSECURITIES HELD-TO-MATURITY\n(Dollars In Thousands)\nDecember 31,\n2022\n2021\nState and Municipal Obligations\n$\n163,600\u00a0\n$\n180,195\u00a0\nMortgage Backed Securities - Residential\n11,764\u00a0\n16,371\u00a0\nTotal\n$\n175,364\u00a0\n$\n196,566\u00a0\nArrow's held-to-maturity debt securities are comprised of GSEs and state and municipal obligations.  GSE securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as \u201crisk free,\u201d and have a long history of zero credit loss. Arrow performs an analysis of the credit worthiness of municipal obligations to determine if a security is of investment grade. The analysis may include, but may not solely rely upon credit analysis conducted by external credit rating agencies.  Arrow determined that the expected credit loss on its held to maturity debt portfolio was immaterial and, therefore, no allowance for credit loss was recorded as of December\u00a031, 2022.\nAt December\u00a031, 2022 and 2021, the weighted average maturity was 1.9\u00a0and 2.0 years, respectively, for the debt securities in the held-to-maturity portfolio.\nFor additional information regarding the fair value of the portfolio of securities held-to-maturity at December\u00a031, 2022, see Note 4, \nInvestment Securities\n, to the Consolidated Financial Statements.\nEQUITY SECURITIES\n(Dollars In Thousands)\nThe following table is the schedule of Equity Securities at December 31 of each of the last two years.\nEquity Securities\nDecember 31, \n2022\n2021\nEquity Securities, at Fair Value\n$\n2,174\u00a0\n$\n1,747\u00a0\n39\nII. LOAN PORTFOLIO\nThe amounts and respective percentages of loans outstanding represented by each principal category on the dates indicated were as follows:\na. Types of Loans\n(Dollars In Thousands) \nDecember 31,\n2022\n2021\nAmount\n%\nAmount\n%\nCommercial\n$\n140,293\u00a0\n5\u00a0\n%\n$\n172,518\u00a0\n6\u00a0\n%\nCommercial Real Estate\n707,022\u00a0\n24\u00a0\n%\n628,929\u00a0\n24\u00a0\n%\nConsumer\n1,065,135\u00a0\n35\u00a0\n%\n920,556\u00a0\n35\u00a0\n%\nResidential Real Estate\n1,070,757\u00a0\n36\u00a0\n%\n945,938\u00a0\n35\u00a0\n%\nTotal Loans\n2,983,207\u00a0\n100\u00a0\n%\n2,667,941\u00a0\n100\u00a0\n%\nAllowance for Credit Losses\n(29,952)\n(27,281)\nTotal Loans, Net\n$\n2,953,255\u00a0\n$\n2,640,660\u00a0\nCommercial and Commercial Real Estate Loans:\n  Commercial and commercial real estate loans in the loan portfolio were extended to businesses or borrowers primarily located in Arrow's regional markets.  A portion of the loans in the commercial portfolio have variable rates tied to market indices, such as Prime, LIBOR, SOFR or FHLBNY.  PPP loans were previously included within the commercial loan portfolio. There were no PPP loans outstanding as of December 31, 2022.\nConsumer Loans:\n  At December\u00a031, 2022, consumer loans (primarily automobile loans originated through dealerships located in New York and Vermont) continue to be a significant component of Arrow's business, comprising approximately one third of the total loan portfolio.\nConsumer loan originations have remained strong in 2022, with origination volume for the last three years at $572.3 million, $452.1 million and $386.4 million\n \nfor 2022, 2021 and 2020, respectively.\nFor credit quality purposes, Arrow assigns potential automobile loan customers into one of four tiers, ranging from lower to higher quality in terms of anticipated credit risk.  Arrow's experienced lending staff not only utilizes credit evaluation software tools but also reviews and evaluates each loan individually prior to the loan being funded.  Arrow believes that this disciplined approach to evaluating risk has contributed to maintaining the strong credit quality in this portfolio.\nResidential Real Estate Loans\n: Gross originations for residential real estate loans (including refinancings of mortgage loans) were $217.5 million, $244.5 million and $250.1 million for the years 2022, 2021, and 2020, respectively.\nDemand for residential real estate has continued but weakened as interest rates have increased. New origination activity has benefited from the higher rates. A continuous elevated rate environment may impact future demand.  Arrow continues to sell portions of these originations in the secondary market.  Sales decreased during 2021 and were minimal in 2022 as the result of the strategic decision to grow the residential loan portfolio.  The rate at which mortgage loan originations are sold in future periods will depend on a variety of factors, including demand for residential mortgages in our operating markets, market conditions for mortgage sales and strategic balance sheet and interest-rate risk management decisions.\nThe following table indicates the changing mix in the loan portfolio by including the quarterly average balances for the significant loan segments for the past five quarters. \u00a0The remaining quarter-by-quarter tables present the percentage of total loans represented by each category and the annualized yield of each category.\nLOAN PORTFOLIO\nQuarterly Average Loan Balances\n(Dollars In Thousands)\nQuarters Ended\n12/31/2022\n9/30/2022\n6/30/2022\n3/31/2022\n12/31/2021\nCommercial excluding PPP Loans\n$\n141,419\u00a0\n$\n134,986\u00a0\n$\n130,177\u00a0\n$\n135,472\u00a0\n$\n127,346\u00a0\nPPP Loans\n\u2014\u00a0\n637\u00a0\n11,267\u00a0\n26,086\u00a0\n48,778\u00a0\nCommercial Real Estate\n674,420\u00a0\n661,471\u00a0\n645,968\u00a0\n631,255\u00a0\n623,273\u00a0\nConsumer\n1,065,467\u00a0\n1,047,470\u00a0\n1,013,361\u00a0\n932,401\u00a0\n921,376\u00a0\nResidential Real Estate\n1,070,241\u00a0\n1,027,502\u00a0\n1,003,407\u00a0\n953,582\u00a0\n939,892\u00a0\nTotal Loans\n$\n2,951,547\u00a0\n$\n2,872,066\u00a0\n$\n2,804,180\u00a0\n$\n2,678,796\u00a0\n$\n2,660,665\u00a0\n40\nPercentage of Total Quarterly Average Loans\nQuarters Ended\n12/31/2022\n9/30/2022\n6/30/2022\n3/31/2022\n12/31/2021\nCommercial excluding PPP Loans\n4.8\u00a0\n%\n4.7\u00a0\n%\n4.6\u00a0\n%\n5.0\u00a0\n%\n4.8\u00a0\n%\nPPP Loans\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n0.4\u00a0\n%\n1.0\u00a0\n%\n1.8\u00a0\n%\nCommercial Real Estate\n22.8\u00a0\n%\n23.0\u00a0\n%\n23.0\u00a0\n%\n23.6\u00a0\n%\n23.4\u00a0\n%\nConsumer\n36.1\u00a0\n%\n36.5\u00a0\n%\n36.2\u00a0\n%\n34.8\u00a0\n%\n34.6\u00a0\n%\nResidential Real Estate\n36.3\u00a0\n%\n35.8\u00a0\n%\n35.8\u00a0\n%\n35.6\u00a0\n%\n35.4\u00a0\n%\nTotal Loans\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\nQuarterly Yield on Loans\nQuarters Ended\n12/31/2022\n9/30/2022\n6/30/2022\n3/31/2022\n12/31/2021\nCommercial (total portfolio)\n4.18\u00a0\n%\n4.17\u00a0\n%\n3.93\u00a0\n%\n4.17\u00a0\n%\n3.97\u00a0\n%\n\u00a0\u00a0\u00a0\u00a0\u00a0Commercial excluding PPP loans\n4.18\u00a0\n%\n4.17\u00a0\n%\n3.90\u00a0\n%\n3.87\u00a0\n%\n3.83\u00a0\n%\nCommercial Real Estate\n4.57\u00a0\n%\n4.60\u00a0\n%\n3.82\u00a0\n%\n3.80\u00a0\n%\n3.78\u00a0\n%\nConsumer\n4.02\u00a0\n%\n4.10\u00a0\n%\n3.83\u00a0\n%\n3.84\u00a0\n%\n3.87\u00a0\n%\nResidential Real Estate\n3.80\u00a0\n%\n3.78\u00a0\n%\n3.70\u00a0\n%\n3.71\u00a0\n%\n3.73\u00a0\n%\nTotal Loans - QTD Average\n4.13\u00a0\n%\n4.09\u00a0\n%\n3.85\u00a0\n%\n3.90\u00a0\n%\n3.82\u00a0\n%\nThe average yield on the loan portfolio increased from 3.82% for the fourth quarter of 2021 to 4.13% for the fourth quarter of 2022.  The current raising rate environment prevailed for much of 2022, which impacted new loan yields for both fixed and variable rate loans.\nPPP Loans\nArrow originated over $234.2 million of PPP loans in 2020 and 2021.  Arrow completed the PPP program in 2022.\nOutstanding PPP Loans\n(Dollars In Thousands)\nYears Ended December 31,\n2022\n2021\nBeginning Balance\n$\n43,649\u00a0\n$\n114,630\u00a0\nPPP Loans Funded\n\u2014\u00a0\n91,511\u00a0\nPPP Loans Forgiven\n(43,649)\n(162,492)\nEnding PPP Loans\n$\n\u2014\u00a0\n$\n43,649\u00a0\nIncome Earned on PPP Loans\n(Dollars In Thousands)\nYears Ended December 31,\n2022\n2021\nInterest Earned\n$\n97\u00a0\n$\n1,067\u00a0\nFees Recognized\n1,477\u00a0\n6,744\u00a0\nIncome Earned on PPP Loans\n$\n1,574\u00a0\n$\n7,811\u00a0\n41\nThe following table indicates the respective maturities and interest rate structure of commercial loans and commercial real estate construction loans at December\u00a031, 2022. \u00a0For purposes of determining relevant maturities, loans are assumed to mature at (but not before) their scheduled repayment dates as required by contractual terms. \u00a0Demand loans and overdrafts are included in the \u201cWithin 1 Year\u201d maturity category. \u00a0Most of the commercial construction loans are made with a commitment for permanent financing, whether extended by us or unrelated third parties. \u00a0The maturity distribution below reflects the final maturity of the permanent financing.\nb. Maturities and Sensitivities of Loans to Changes in Interest Rates\n(Dollars in Thousands)\nThe table below shows the maturity of loans outstanding as of December\u00a031, 2022.  Also provided are the amounts due after one year, classified according to fixed interest rates and variable interest rates (in thousands):\nDecember 31, 2022\nWithin One Year\nAfter One But Within Five Years\nAfter Five But Within 15 Years\nAfter 15 Years\nTotal\nCommercial\n$\n26,019\u00a0\n$\n74,943\u00a0\n$\n39,215\u00a0\n$\n116\u00a0\n$\n140,293\u00a0\nCommercial Real Estate\n182,494\u00a0\n212,354\u00a0\n306,607\u00a0\n5,567\u00a0\n707,022\u00a0\nConsumer\n11,595\u00a0\n527,907\u00a0\n525,132\u00a0\n501\u00a0\n1,065,135\u00a0\nResidential Real Estate\n142,824\u00a0\n53,594\u00a0\n226,887\u00a0\n647,452\u00a0\n1,070,757\u00a0\nTotal\n$\n362,932\u00a0\n$\n868,798\u00a0\n$\n1,097,841\u00a0\n$\n653,636\u00a0\n$\n2,983,207\u00a0\nAfter One But Within Five Years\nAfter Five But Within 15 Years\nAfter 15 Years\nTotal\nLoans maturing with:\nFixed Interest Rates\n$\n600,355\u00a0\n$\n929,621\u00a0\n$\n651,751\u00a0\n$\n2,181,727\u00a0\nVariable Interest Rates\n268,443\u00a0\n168,220\u00a0\n1,885\u00a0\n438,548\u00a0\nTotal\n$\n868,798\u00a0\n$\n1,097,841\u00a0\n$\n653,636\u00a0\n$\n2,620,275\u00a0\nCOMMITMENTS AND LINES OF CREDIT\nStand-by letters of credit represent extensions of credit granted in the normal course of business, which are not reflected in the financial statements at a given date because the commitments are not funded at that time. \u00a0As of December\u00a031, 2022, the total contingent liability for standby letters of credit amounted to $3.6 million. \u00a0In addition to these instruments, there are lines of credit to customers, including home equity lines of credit, commitments for residential and commercial construction loans and other personal and commercial lines of credit, which also may be unfunded or only partially funded from time-to-time.  Commercial lines, generally issued for a period of one year, are usually extended to provide for the working capital requirements of the borrower. At December\u00a031, 2022, outstanding unfunded loan commitments in the aggregate amount were approximately $424.2 million compared to $402.3 million at December\u00a031, 2021.\nc. Risk Elements\n1. Nonaccrual, Past Due and Restructured Loans\nThe amounts of nonaccrual, past due and restructured loans at year-end for each of the past two years are presented in the table on page 33 under the heading \"Summary of the Allowance and Provision for Credit Losses.\"\nLoans are placed on nonaccrual status either due to the delinquency status of principal and/or interest or a judgment by Management that the full repayment of principal and interest is unlikely.  Unless already placed on nonaccrual status, loans secured by home equity lines of credit are put on nonaccrual status when 120 days past due and residential real estate loans are put on nonaccrual status when 150 days past due.  Commercial and commercial real estate loans are evaluated on a loan-by-loan basis and are placed on nonaccrual status when 90 days past due if the full collection of principal and interest is uncertain.\u00a0Under the Uniform Retail Credit Classification and Account Management Policy established by banking regulators, fixed-maturity consumer loans not secured by real estate must generally be charged-off no later than when 120 days past due.  Loans secured with non-real estate collateral in the process of collection are charged-down to the value of the collateral, less cost to sell. \u00a0Arrow had no material commitments to lend additional funds on outstanding nonaccrual loans at December\u00a031, 2022. \u00a0Loans past due 90 days or more and still accruing interest are those loans which were contractually past due 90 days or more but because of expected repayments, were still accruing interest. \u00a0\nThe balance of loans 30-89 days past due and still accruing interest totaled $20.4 million at December\u00a031, 2022 and represented 0.68% of loans outstanding at that date, as compared to approximately $12.2 million, or 0.46% of loans outstanding at December\u00a031, 2021.  These non-current loans at December\u00a031, 2022 were composed of approximately $18.2 million of consumer loans (principally indirect automobile loans), $1.8 million of residential real estate loans and $0.4 million of commercial and commercial real estate loans.\n42\nThe method for measuring all other loans is described in detail in Note 2, \nSummary of Significant Accounting Policies\n, and Note 5, \nLoans,\n to the Consolidated Financial Statements.\nNote 5, \nLoans, \nto the Consolidated Financial Statements contains detailed information on modified loans and impaired loans.\n2. Potential Problem Loans\nOn at least a quarterly basis, the internal credit quality rating is re-evaluated for commercial loans that are either past due or fully performing but exhibit certain characteristics that could reflect well-defined weaknesses. \u00a0Loans are placed on nonaccrual status when the likely amount of future principal and interest payments are expected to be less than the contractual amounts, even if such loans are not past due.\nPeriodically, Arrow reviews the loan portfolio for evidence of potential problem loans. \u00a0Potential problem loans are loans that are currently performing in accordance with contractual terms, but where known information about possible credit problems of the borrower may jeopardize loan repayment and result in a non-performing loan. \u00a0In the credit monitoring program, Arrow treats loans that are classified as substandard but continue to accrue interest as potential problem loans. \u00a0At December\u00a031, 2022, Arrow identified 52 commercial loans totaling $41.7 million as potential problem loans. \u00a0At December\u00a031, 2021, Arrow identified 56 commercial loans totaling $37.5 million\n \nas potential problem loans. \u00a0For these loans, although positive factors such as payment history, value of supporting collateral, and/or personal or government guarantees led Arrow to conclude that accounting for them as non-performing at year-end was not warranted, other factors, specifically, certain risk factors related to the loan or the borrower justified concerns that they may become nonperforming at some point in the future. \u00a0\n3\n.\n \nForeign\n \nOutstandings\n \n- None\n4. Loan Concentrations\nThe loan portfolio is well diversified. \u00a0There are no concentrations of credit that exceed 10% of the portfolio, other than the general categories reported in the preceding Section C.II.a. of this Item 7, beginning on page 40. \u00a0For further discussion, see Note 1, \nRisks and Uncertainties\n, to the Consolidated Financial Statements.\n5. Other Real Estate Owned and Repossessed Assets\nOther real estate owned (\"OREO\") primarily consists of real property acquired in foreclosure. \u00a0OREO is carried at fair value less estimated cost to sell.  Arrow establishes allowances for OREO losses, which are determined and monitored on a property-by-property basis and reflect the ongoing estimate of the property's estimated fair value less costs to sell.  All Repossessed Assets for each of the five years in the table below consist of motor vehicles.\nDistribution of OREO and Repossessed Assets\n(Dollars In Thousands)\nDecember 31,\n2022\n2021\n2020\nOther Real Estate Owned\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nRepossessed Assets\n593\u00a0\n126\u00a0\n155\u00a0\nTotal OREO and Repossessed Assets\n$\n593\u00a0\n$\n126\u00a0\n$\n155\u00a0\nThe following table summarizes changes in the net carrying amount of OREO and the number of properties for each of the periods presented. At December 31, 2022, Arrow had no OREO.\nSchedule of Changes in OREO\n(Dollars In Thousands)\n2022\n2021\n2020\nBalance at Beginning of Year\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n1,122\u00a0\nProperties Acquired Through Foreclosure\n\u2014\u00a0\n99\u00a0\n\u2014\u00a0\nGain of Sale of OREO properties\n\u2014\u00a0\n\u2014\u00a0\n192\u00a0\nSubsequent Write-downs to Fair Value\n\u2014\u00a0\n(19)\n\u2014\u00a0\nSales\n\u2014\u00a0\n(80)\n(1,314)\nBalance at End of Year\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\nNumber of Properties, Beginning of Year\n\u2014\u00a0\n\u2014\u00a0\n3\u00a0\nProperties Acquired During the Year\n\u2014\u00a0\n1\u00a0\n\u2014\u00a0\nProperties Sold During the Year\n\u2014\u00a0\n(1)\n(3)\nNumber of Properties, End of Year\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nI\nII. SUMMARY OF CREDIT LOSS EXPERIENCE\nThe information required in this section is presented in the discussion of the \"Provision for Credit Losses and Allowance for Credit Losses\" in Part II Item 7, Section B.II. beginning on page 33 of this Report, including:\n\u2022\nCharge-offs and Recoveries by loan type\n\u2022\nFactors that led to the amount of the Provision for Credit Losses\n\u2022\nAllocation of the Allowance for Credit Losses by loan type\n43\nThe percent of loans in each loan category is presented in the table of loan types in the preceding section on page 40 of this Report.\nIV. DEPOSITS\nThe following table sets forth the average balances of and average rates paid on deposits for the periods indicated.\nAVERAGE DEPOSIT BALANCES\n(Dollars In Thousands)\nYears Ended\n12/31/2022\n12/31/2021\n12/31/2020\nAverage\nBalance\nRate\nAverage\nBalance\nRate\nAverage\nBalance\nRate\nDemand Deposits\n$\n815,218\u00a0\n\u2014\u00a0\n%\n$\n767,671\u00a0\n\u2014\u00a0\n%\n$\n613,408\u00a0\n\u2014\u00a0\n%\nInterest-Bearing Checking Accounts\n1,038,751\u00a0\n0.09\u00a0\n%\n926,875\u00a0\n0.08\u00a0\n%\n772,000\u00a0\n0.17\u00a0\n%\nSavings Deposits\n1,549,278\u00a0\n0.51\u00a0\n%\n1,496,906\u00a0\n0.13\u00a0\n%\n1,258,154\u00a0\n0.40\u00a0\n%\nTime Deposits of $250,000 or More\n55,690\u00a0\n0.66\u00a0\n%\n87,033\u00a0\n0.30\u00a0\n%\n124,601\u00a0\n1.18\u00a0\n%\nOther Time Deposits\n132,541\u00a0\n0.46\u00a0\n%\n141,677\u00a0\n0.45\u00a0\n%\n223,111\u00a0\n1.25\u00a0\n%\nTotal Deposits\n$\n3,591,478\u00a0\n0.27\u00a0\n%\n$\n3,420,162\u00a0\n0.10\u00a0\n%\n$\n2,991,274\u00a0\n0.36\u00a0\n%\nAverage total deposit balances increased by $171.3 million, or 5.0% in 2022, mainly in the demand deposit, checking and savings deposit categories. \nArrow used reciprocal deposits for a select group of municipalities to reduce the amount of investment securities required to be pledged as collateral for municipal deposits where municipal deposits in excess of the FDIC insurance coverage limits were transferred to other participating banks, divided into portions so as to qualify such transferred deposits for FDIC insurance coverage at each transferee bank.  In return, reciprocal amounts are transferred to Arrow in equal amounts of deposits from the participant banks.  The balances of reciprocal deposits were $520.6 million and $529.8 million at December\u00a031, 2022 and 2021, respectively.\nThe following tables presents the quarterly average balance by deposit type for each of the most recent five quarters. \u00a0\nDEPOSIT PORTFOLIO\nQuarterly Average Deposit Balances\n(Dollars In Thousands)\nQuarters Ended\n12/31/2022\n9/30/2022\n6/30/2022\n3/31/2022\n12/31/2021\nDemand Deposits\n$\n787,157\u00a0\n$\n866,659\u00a0\n$\n811,607\u00a0\n$\n794,968\u00a0\n$\n819,624\u00a0\nInterest-Bearing Checking Accounts\n1,082,267\u00a0\n996,116\u00a0\n1,048,752\u00a0\n1,027,740\u00a0\n998,398\u00a0\nSavings Deposits\n1,548,293\u00a0\n1,549,451\u00a0\n1,541,616\u00a0\n1,557,855\u00a0\n1,562,318\u00a0\nTime Deposits of $250,000 or More\n65,897\u00a0\n49,459\u00a0\n37,418\u00a0\n70,101\u00a0\n71,965\u00a0\nOther Time Deposits\n131,331\u00a0\n136,834\u00a0\n130,361\u00a0\n131,592\u00a0\n138,461\u00a0\nTotal Deposits\n$\n3,614,945\u00a0\n$\n3,598,519\u00a0\n$\n3,569,754\u00a0\n$\n3,582,256\u00a0\n$\n3,590,766\u00a0\nQuarters Ended\n12/31/2022\n9/30/2022\n6/30/2022\n3/31/2022\n12/31/2021\nNon-Municipal Deposits\n$\n2,668,704\u00a0\n$\n2,719,291\u00a0\n$\n2,662,052\u00a0\n$\n2,639,258\u00a0\n$\n2,629,553\u00a0\nMunicipal Deposits\n946,241\u00a0\n879,228\u00a0\n907,702\u00a0\n942,998\u00a0\n961,213\u00a0\nTotal Deposits\n$\n3,614,945\u00a0\n$\n3,598,519\u00a0\n$\n3,569,754\u00a0\n$\n3,582,256\u00a0\n$\n3,590,766\u00a0\nThe above tables provide information on trends in the balance and mix of the deposit portfolio by presenting, for each of the last five quarters, the quarterly average balances by deposit type.   Time deposits over $250,000 and other time deposits have decreased for the four quarters leading into the fourth quarter of 2022.  In the current quarter, the overall balance of time deposits has increased as the result of a strategic initiative to grow certificate of deposit balances.  Despite the increase in the average deposit balance from the third to fourth quarter of 2022, deposits decreased from September 30, 2022 to December 31, 2022.  The decrease in deposits was primarily the result of both increased consumer spending and pressure from competitive rate pricing.\nIn general, there is a seasonal pattern to municipal deposits which dip to a low point in August each year. \u00a0Account balances tend to increase throughout the fall and into early winter from tax deposits, flatten out after the beginning of the ensuing calendar year, and increase again at the end of March from the electronic deposit of NYS Aid payments to school districts. \u00a0In addition to seasonal behavior, the likelihood of downward trajectory of municipal balances may be the result of record high balances that \n44\nincluded  American Rescue Plan and other COVID-19 pandemic response stimulus as well as increasing competition in the current rate environment.\n \nThe total quarterly average balances as a percentage of total deposits are illustrated in the table below.\nPercentage of Total Quarterly Average Deposits\nQuarters Ended\n12/31/2022\n9/30/2022\n6/30/2022\n3/31/2022\n12/31/2021\nDemand Deposits\n21.8\u00a0\n%\n24.1\u00a0\n%\n22.7\u00a0\n%\n22.2\u00a0\n%\n22.8\u00a0\n%\nInterest-Bearing Checking Accounts\n29.9\u00a0\n%\n27.7\u00a0\n%\n29.4\u00a0\n%\n28.7\u00a0\n%\n27.8\u00a0\n%\nSavings Deposits\n42.9\u00a0\n%\n43.0\u00a0\n%\n43.2\u00a0\n%\n43.4\u00a0\n%\n43.5\u00a0\n%\nTime Deposits of $250,000 or More\n1.8\u00a0\n%\n1.4\u00a0\n%\n1.0\u00a0\n%\n2.0\u00a0\n%\n2.0\u00a0\n%\nOther Time Deposits\n3.6\u00a0\n%\n3.8\u00a0\n%\n3.7\u00a0\n%\n3.7\u00a0\n%\n3.9\u00a0\n%\nTotal Deposits\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\nThe total quarterly interest cost of deposits, by type of deposit and in total, for each of the most recent five quarters is set forth in the table below: \nQuarterly Cost of Deposits\nQuarters Ended\n12/31/2022\n9/30/2022\n6/30/2022\n3/31/2022\n12/31/2021\nDemand Deposits\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\nInterest-Bearing Checking Accounts\n0.13\u00a0\n%\n0.11\u00a0\n%\n0.08\u00a0\n%\n0.06\u00a0\n%\n0.07\u00a0\n%\nSavings Deposits\n1.05\u00a0\n%\n0.63\u00a0\n%\n0.23\u00a0\n%\n0.11\u00a0\n%\n0.10\u00a0\n%\nTime Deposits of $250,000 or More\n1.36\u00a0\n%\n0.71\u00a0\n%\n0.28\u00a0\n%\n0.16\u00a0\n%\n0.18\u00a0\n%\nOther Time Deposits\n0.71\u00a0\n%\n0.43\u00a0\n%\n0.34\u00a0\n%\n0.33\u00a0\n%\n0.35\u00a0\n%\nTotal Deposits\n0.54\u00a0\n%\n0.33\u00a0\n%\n0.14\u00a0\n%\n0.08\u00a0\n%\n0.08\u00a0\n%\nThe cost of deposits began to increase in the second quarter of 2022, and accelerated in the third and fourth quarters. The Federal Funds rate increased throughout 2022 and is anticipated to continue into 2023.  Arrow believes it is well positioned for a variety of rate environments.\n\u00a0\u00a0\u00a0\u00a0The maturities of time deposits of $250,000 or more at December\u00a031, 2022 are presented below. \u00a0(Dollars In Thousands)\nMaturing in:\nUnder Three Months\n$\n15,215\u00a0\nThree to Six Months\n13,848\u00a0\nSix to Twelve Months\n30,002\u00a0\n2024\n14,653\u00a0\n2025\n2,254\u00a0\n2026\n252\u00a0\n2027\n\u2014\u00a0\nLater\n\u2014\u00a0\nTotal\n$\n76,224\u00a0\n45\nV. SHORT-TERM BORROWINGS (Dollars in Thousands)\n12/31/2022\n12/31/2021\n12/31/2020\nOvernight Advances from the FHLBNY, Federal Funds Purchased\n\u00a0\u00a0and Securities Sold\u00a0Under Agreements to Repurchase:\nBalance at December 31\n$\n27,000\u00a0\n$\n\u2014\u00a0\n$\n17,486\u00a0\nMaximum Month-End Balance\n27,000\u00a0\n15,798\u00a0\n73,949\u00a0\nAverage Balance During the Year\n2,124\u00a0\n4,768\u00a0\n57,929\u00a0\nAverage Rate During the Year\n4.34\u00a0\n%\n0.06\u00a0\n%\n0.43\u00a0\n%\nRate at December 31\n4.61\u00a0\n%\nN/A\n0.07\u00a0\n%\nD. LIQUIDITY\nThe objective of effective liquidity management is to ensure that Arrow has the ability to raise cash when needed at a reasonable cost. \u00a0This includes the capability of meeting expected and unexpected obligations to Arrow's customers at any time.  Given the uncertain nature of customer demands and the need to maximize earnings, Arrow must have available reasonably priced sources of funds, both on- and off-balance sheet, that can be accessed quickly in times of need.  Arrow\u2019s liquidity position should provide the Company with the necessary flexibility to address any unexpected near-term disruptions such as reduced cash flows from the investment and loan portfolio, unexpected deposit runoff, or increased loan originations.\nArrow's primary sources of available liquidity are overnight investments in federal funds sold, interest bearing bank balances at the Federal Reserve Bank of New York, and cash flow from investment securities and loans. \u00a0Certain investment securities are categorized as available-for-sale at time of purchase based on their marketability and collateral value, as well as their yield and maturity.  The securities available-for-sale portfolio was $573.5 million at year-end 2022, an increase of $14.2 million from the year-end 2021 level. Due to the potential for volatility in market values, Arrow may not always be able to sell securities on short notice at their carrying value, even to provide needed liquidity.  Arrow also held interest-bearing cash balances at December\u00a031, 2022 of $32.8 million compared to $430.7 million at December\u00a031, 2021. \nIn addition to liquidity from cash, short-term investments, investment securities and loans, Arrow has supplemented available operating liquidity with additional off-balance sheet sources such as a federal funds lines of credit with correspondent banks and credit lines with the FHLBNY.  The federal funds lines of credit are with two correspondent banks totaling $52 million which were not drawn on in 2022.\nTo support the borrowing relationship with the FHLBNY, Arrow has pledged collateral, including residential mortgage, home equity and commercial real estate loans.  At December\u00a031, 2022, Arrow had outstanding collateralized obligations with the FHLBNY of $45 million; as of that  date, the unused borrowing capacity at the FHLBNY was approximately $608 million. Brokered deposits have also been identified as an available source of funding accessible in a relatively short time period.  At December\u00a031, 2022, there were no outstanding brokered deposits. In addition, Arrow's two bank subsidiaries have each established a borrowing facility with the Federal Reserve Bank of New York, pledging certain consumer loans as collateral for potential \"discount window\" advances, which are maintained for contingency liquidity purposes.  At December\u00a031, 2022, the amount available under this facility was approximately $649 million in the aggregate, and there were no advances then outstanding.\nArrow performs regular liquidity stress tests and tests of the contingent liquidity plan to ensure that an adequate amount of available funds can be generated to meet a wide variety of potential liquidity events.  Additionally, Arrow continually monitors levels and composition of uninsured deposits.  \nArrow measures and monitors basic liquidity as a ratio of liquid assets to total short-term liabilities, both with and without the availability of borrowing arrangements.  Based on the level of overnight investments, available liquidity from the investment securities portfolio, cash flows from the loan portfolio, the stable core deposit base and the significant borrowing capacity, Arrow believes that the available liquidity is sufficient to meet all reasonably likely events or occurrences.  At December\u00a031, 2022, Arrow's basic liquidity ratio, including FHLBNY collateralized borrowing capacity, was 19.6% of total assets, or $619 million in excess of Arrow's internally-set minimum target ratio of 4%.\nArrow did not experience any liquidity constraints in 2022 and did not experience any such constraints in recent prior years.  Arrow has not at any time during such period been forced to pay above-market rates to obtain retail deposits or other funds from any source.\nE. CAPITAL RESOURCES AND DIVIDENDS\nImportant Regulatory Capital Standards:  \nDodd-Frank, enacted in 2010, directed U.S. bank regulators to promulgate revised bank organization capital standards, which were required to be at least as strict as the regulatory capital standards for banks then in effect.  The Capital Rules under Dodd-Frank were adopted by the Federal bank regulatory agencies in 2013 and became effective for Arrow and its subsidiary banks on January 1, 2015.  These Capital Rules are summarized in an earlier section of this Report, \"Regulatory Capital Standards,\" beginning on page 7.\nThe table below sets forth the various capital ratios achieved by Arrow and its subsidiary banks, Glens Falls National and Saratoga National, as of December\u00a031, 2022, as determined under the bank regulatory capital standards in effect on that date, as well as the minimum levels for such capital ratios that bank holding companies and banks are required to maintain under the Capital Rules (not including the \"capital conservation buffer\").  As demonstrated in the table, all of Arrow's and the banks' capital ratios at year-end were well in excess of the minimum required levels for such ratios, as established by the regulators.  (See Item \n46\n1, Section C, under \"Regulatory Capital Standards\" and Item 8, Note 19 in the Notes to Consolidated Financial Statements, for information regarding the \"capital conservation buffer.\") In addition, on December\u00a031, 2022, Arrow and each of the banks qualified as \"well-capitalized\", the highest capital classification category under the revised capital classification scheme recently established by the federal bank regulators, that was in effect on that date. \n \nCapital Ratios\n:\nArrow\nGFNB\nSNB\nMinimum\nRequired\nRatio\nTier 1 Leverage Ratio\n9.8%\n9.0%\n10.5%\n4.0%\nCommon Equity Tier 1 Capital Ratio\n13.3%\n13.2%\n14.3%\n4.5%\nTier 1 Risk-Based Capital Ratio\n14.0%\n13.2%\n14.3%\n6.0%\nTotal Risk-Based Capital Ratio \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n15.1%\n14.3%\n15.5%\n8.0%\n \nFederal bank regulators introduced an optional simplified measure of capital adequacy for qualifying community banking organizations (CBLR).\u00a0 A qualifying community banking organization that opts into the CBLR framework and meets all the requirements under the CBLR framework will be considered to have met the well-capitalized ratio requirements under the \u201cprompt corrective action\u201d regulations and will not be required to report or calculate risk-based capital ratios.\nThe CBLR final rule became effective as of January 1, 2020, and Arrow and both subsidiary banks have opted out of utilizing the CBLR framework.  Therefore, the Capital Rules promulgated under Dodd-Frank will remain applicable to Arrow and both subsidiary banks.\nStockholders' Equity at Year-end 2022:  \n Total stockholders' equity was $353.5 million at December\u00a031, 2022, a decrease of $17.6 million, or 4.8%, from December\u00a031, 2021. The net decrease in total stockholders' equity during 2022 principally reflected the following factors: (i) $48.8 million of net income for the year, plus (ii) $2.0 million of equity related to various stock-based compensation plans, plus (iii) $1.9 million of equity resulting from the dividend reinvestment plan, reduced by (iv) other comprehensive loss of $50.0 million, (v) cash dividends of $17.4 million and (vi) repurchases of common stock of $2.9 million.\nTrust Preferred Securities:\n  In each of 2003 and 2004, Arrow issued $10 million of trust preferred securities (TRUPs) in a private placement.  Under the Federal Reserve Board's regulatory capital rules then in effect, TRUPs proceeds typically qualified as Tier 1 capital for bank holding companies such as Arrow, but only in amounts up to 25% of Tier 1 capital, net of goodwill less any associated deferred tax liability.  Under the Dodd-Frank Act, any trust preferred securities that Arrow might issue on or after the grandfathering date set forth in Dodd-Frank (May 19, 2010) would not qualify as Tier 1 capital under bank regulatory capital guidelines. For Arrow, TRUPs outstanding prior to the grandfathering cutoff date set forth in Dodd-Frank (May 19, 2010) would continue to qualify as Tier 1 capital until maturity or redemption, subject to limitations.  Thus, Arrow's outstanding TRUPs continue to qualify as Tier 1 regulatory capital, subject to such limitations. Arrow's recent failure to timely file this Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, and deliver such reports to the  trustee would represent a default under the indenture if the Trustee or the holders of at least 25% of the aggregate principal amount of the outstanding securities delivered such a notice. If the trustee delivers a notice of default, Arrow will have 30 days to remedy the default or else it will constitute an event of default under the indenture. The trustee has not provided a notice as of the date hereof.\nIn the first quarter of 2020, Arrow entered into interest rate swap agreements to synthetically fix the variable rate interest payments associated with $20 million in outstanding subordinated trust securities.  The effective fixed rate is 3.43% until maturity.  These agreements are designated as cash flow hedges.\nDividends:\n \nThe source of funds for the payment by Arrow of cash dividends to stockholders consists primarily of dividends declared and paid to it by its bank subsidiaries. \u00a0In addition to legal and regulatory limitations on payments of dividends by Arrow (i.e., the need to maintain adequate regulatory capital), there are also legal and regulatory limitations applicable to the payment of dividends by the bank subsidiaries to Arrow. \u00a0As of December\u00a031, 2022, under the statutory limitations in national banking law, the maximum amount that could have been paid by the bank subsidiaries to Arrow, without special regulatory approval, was approximately $88.8 million \u00a0The ability of Arrow and its banks to pay dividends in the future is and will continue to be influenced by regulatory policies, capital guidelines and applicable laws.\nSee Part II, Item 5, \"Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities\" for a recent history of its cash dividend payments.\nStock Repurchase Program\n:\n  In October 2021, the Board of Directors approved a $5 million stock repurchase program, effective for the period January 1, 2022 through December 31, 2022 (the 2022 Repurchase Program), under which management is authorized, in its discretion, to permit Arrow to repurchase up to $5 million of shares of Arrow's common stock, in the open market or in privately negotiated transactions, to the extent management believes Arrow's stock is reasonably priced and such repurchases appear to be an attractive use of available capital and in the best interests of shareholders. This 2022 program replaced a similar repurchase program which was in effect for the 2021 calendar year (the 2021 program), which also authorized the repurchase of up to $5.0 million of shares of Arrow's common stock. As of December\u00a031, 2022 approximately $2.5 million had been used under the 2022 program to repurchase Arrow shares.  In addition, approximately $408 thousand of Arrow's Common Stock was purchased during 2022 other than through its repurchase program, i.e., repurchases of Arrow shares on the market utilizing funds accumulated under Arrow's Dividend Reinvestment Plan and the surrender or deemed surrender of Arrow stock to \n47\nArrow in connection with employees' stock-for-stock exercises of compensatory stock options to buy Arrow stock.  The 2022 program expired on December 31, 2022.  A similar 2023 program, allowing for stock repurchases of up to $5 million for calendar year 2023 was approved by the Board of Directors in October 2022.\nF. OFF-BALANCE SHEET ARRANGEMENTS\nIn the normal course of operations, Arrow may engage in a variety of financial transactions or arrangements, including derivative transactions or arrangements, that in accordance with GAAP are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. \u00a0These transactions or arrangements involve, to varying degrees, elements of credit, interest rate, and liquidity risk. \u00a0Such transactions or arrangements may be used by Arrow or Arrow's customers for general corporate purposes, such as managing credit, interest rate, or liquidity risk or to optimize capital, or may be used by Arrow or Arrow's customers to manage funding needs.\nIn 2021, Arrow entered into interest rate swap agreements with certain commercial customers to provide them with a long-term fixed rate, while simultaneously Arrow entered into offsetting interest rate swap agreements with a counterparty to swap the fixed rate to a variable rate to manage interest rate exposure.\nArrow's commercial loan interest rate swap agreements are not designated as a hedge for accounting purposes. The commercial loan interest rate swap agreements have substantially equivalent and offsetting terms, they do not present any material exposure to Arrow's consolidated statements of income.  Arrow records its interest rate swap agreements at fair value and is presented on a gross basis within other assets and other liabilities on the consolidated balance sheets. Changes in the fair value of assets and liabilities arising from these derivatives are included, net, in other income in the consolidated statement of income.\nG. CONTRACTUAL OBLIGATIONS (Dollars In Thousands)\nPayments Due by Period\nContractual Obligation\nTotal\nLess Than\n\u00a0\n1 Year\n1-3 Years\n3-5 Years\nMore Than \n5 Years\nLong-Term Debt Obligations:\n\u00a0\u00a0Federal Home Loan Bank Advances \n1\n$\n27,800\u00a0\n$\n27,800\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\nJunior Subordinated Obligations\n\u00a0\u00a0\u00a0\u00a0Issued to Unconsolidated\n\u00a0\u00a0\u00a0\u00a0Subsidiary Trusts \n2\n20,000\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n20,000\u00a0\nOperating Lease Obligations \n3\n6,996\u00a0\n964\u00a0\n1,336\u00a0\n1,119\u00a0\n3,577\u00a0\nFinance Lease Obligations \n3\n8,555\u00a0\n243\u00a0\n512\u00a0\n536\u00a0\n7,264\u00a0\nObligations under Retirement Plans\n 4\n43,202\u00a0\n4,240\u00a0\n9,281\u00a0\n8,680\u00a0\n21,001\u00a0\nTotal\n$\n106,553\u00a0\n$\n33,247\u00a0\n$\n11,129\u00a0\n$\n10,335\u00a0\n$\n51,842\u00a0\n1\n See Note 10, \nDebt\n, to the Consolidated Financial Statements for additional information on Federal Home Loan Bank Advances, including call provisions.\n2\n See Note 10, \nDebt\n, to the Consolidated Financial Statements for additional information on Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts (trust preferred securities).\n3\n See Note 18, \nLeases\n, to the Consolidated Financial Statements for additional information on Operating Lease Obligations.\n4\n See Note 13, \nRetirement Benefit Plans\n, to the Consolidated Financial Statements for additional information on Retirement Benefit Plans.\nH. RECENTLY ISSUED ACCOUNTING STANDARDS\nThe following accounting standard has been issued and becomes effective for Arrow at a future date:\n\u00a0\u00a0\u00a0\u00a0\nIn March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. On January 7, 2021, the FASB issued ASU 2021-01, which refines the scope of ASC 848 and clarifies some of its guidance. The ASU and related amendments provide temporary optional expedients and exceptions to the existing guidance for applying GAAP to affected contract modifications and hedge accounting relationships in the transition away from the LIBOR or other interbank offered rate on financial reporting. The guidance also allows a one-time election to sell and/or reclassify to AFS or trading HTM debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective March 12, 2020 through December 31, 2022 and permit relief solely for reference rate reform actions and different elections over the effective date for legacy and new activity. In December 2022, FASB issued ASU 2022-06, \"Reference Rate Reform (Topic 848)\" which deferred the sunset date of Topic 848 to December 31, 2024, to allow for a transition period after the sunset of LIBOR. Arrow does not expect it will have a material impact on the consolidated financial statements.\nIn March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure \n48\nrequirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. For Arrow, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022.  Arrow does not expect it will have a material impact on the consolidated financial statements.\nI. FOURTH QUARTER RESULTS\nArrow reported net income of $12.1 million for the fourth quarter of 2022, an increase of $1.8 million, or 17.2%, from the net income of $10.3 million reported for the fourth quarter of 2021. \u00a0Diluted earnings per common share for the fourth quarter of 2022 were $0.73, up from $0.62 during the fourth quarter of 2021.  The net change in earnings between the two quarters was primarily due to the following: (a) a $3.4 million increase in net interest income, (b) a $424 thousand decrease in noninterest income, (c) a $851 thousand increase in the provision for credit losses, (d) a $68 thousand decrease in noninterest expense, and (e) a $390 thousand increase in the provision for income taxes. \u00a0The principal factors contributing to these quarter-to-quarter changes are included in the discussion of the year-to-year changes in net income set forth elsewhere in this Item 7, specifically, in Section B, \"Results of Operations,\" above, as well as in Arrow's Current Report on Form 8-K, as filed with the SEC on January\u00a030, 2023, incorporating by reference Arrow's earnings release for the year ended December\u00a031, 2022.\nSELECTED FOURTH QUARTER FINANCIAL INFORMATION\n(Dollars In Thousands, Except Per Share Amounts)\nFor the Quarters Ended\n\u00a0December 31,\n2022\n2021\nInterest and Dividend Income\n$\n35,904\u00a0\n$\n28,354\u00a0\nInterest Expense\n5,325\u00a0\n1,152\u00a0\nNet Interest Income\n30,579\u00a0\n27,202\u00a0\nProvision for Credit Losses\n1,409\u00a0\n558\u00a0\nNet Interest Income after Provision for Credit Losses\n29,170\u00a0\n26,644\u00a0\nNoninterest Income\n7,165\u00a0\n7,589\u00a0\nNoninterest Expense\n20,792\u00a0\n20,860\u00a0\nIncome Before Provision for Income Taxes\n15,543\u00a0\n13,373\u00a0\nProvision for Income Taxes\n3,456\u00a0\n3,064\u00a0\nNet Income\n$\n12,087\u00a0\n$\n10,309\u00a0\nSHARE AND PER SHARE DATA:\nWeighted Average Number of Shares Outstanding:\nBasic\n16,535\u00a0\n16,509\u00a0\nDiluted\n16,589\u00a0\n16,574\u00a0\nBasic Earnings Per Common Share\n$\n0.73\u00a0\n$\n0.62\u00a0\nDiluted Earnings Per Common Share\n0.73\u00a0\n$\n0.62\u00a0\nCash Dividends Per Common Share\n0.270\u00a0\n0.252\u00a0\nAVERAGE BALANCES:\nAssets\n$\n4,074,028\u00a0\n$\n4,060,540\u00a0\nEarning Assets\n3,940,905\u00a0\n3,894,287\u00a0\nLoans\n2,951,547\u00a0\n2,660,665\u00a0\nDeposits\n3,614,945\u00a0\n3,590,766\u00a0\nStockholders\u2019 Equity\n351,402\u00a0\n364,409\u00a0\nSELECTED RATIOS (Annualized):\nReturn on Average Assets\n1.18\u00a0\n%\n1.01\u00a0\n%\nReturn on Average Equity\n13.65\u00a0\n%\n11.22\u00a0\n%\nNet Interest Margin\n3.08\u00a0\n%\n2.77\u00a0\n%\nNet Charge-offs to Average Loans\n0.09\u00a0\n%\n0.03\u00a0\n%\nProvision for Credit Losses to Average Loans\n0.19\u00a0\n%\n0.08\u00a0\n%\n49\nSUMMARY OF QUARTERLY FINANCIAL DATA (Unaudited)\nThe following quarterly financial information for 2022 and 2021 is unaudited, but, in the opinion of Management, fairly presents the results of Arrow. \u00a0\nSELECTED QUARTERLY FINANCIAL DATA\n(Dollars In Thousands, Except Per Share Amounts)\n2022\nFirst\nQuarter\nSecond\nQuarter\nThird\nQuarter\nFourth\nQuarter\nTotal Interest and Dividend Income\n$\n28,947\u00a0\n$\n30,593\u00a0\n$\n34,207\u00a0\n$\n35,904\u00a0\nNet Interest Income\n27,825\u00a0\n29,038\u00a0\n30,901\u00a0\n30,579\u00a0\nProvision for Credit Losses\n769\u00a0\n905\u00a0\n1,715\u00a0\n1,409\u00a0\nNet (Loss) Gain on Securities\n130\u00a0\n154\u00a0\n95,000\u00a0\n48\u00a0\nIncome Before Provision for Income Taxes\n16,273\u00a0\n15,532\u00a0\n15,565\u00a0\n15,543\u00a0\nNet Income\n12,575\u00a0\n11,974\u00a0\n12,163\u00a0\n12,087\u00a0\nBasic Earnings Per Common Share\n0.76\u00a0\n0.72\u00a0\n0.74\u00a0\n0.73\u00a0\nDiluted Earnings Per Common Share\n0.76\u00a0\n0.72\u00a0\n0.74\u00a0\n0.73\u00a0\n2021\nFirst\nQuarter\nSecond\nQuarter\nThird\nQuarter\nFourth\nQuarter\nTotal Interest and Dividend Income\n$\n27,694\u00a0\n$\n29,695\u00a0\n$\n29,807\u00a0\n$\n28,354\u00a0\nNet Interest Income\n26,155\u00a0\n28,360\u00a0\n28,638\u00a0\n27,202\u00a0\nProvision for Loan Losses\n(648)\n263\u00a0\n99\u00a0\n558\u00a0\nNet Gain on Securities\n16\u00a0\n196\u00a0\n(106)\n(139)\nIncome Before Provision for Income Taxes\n16,733\u00a0\n17,488\u00a0\n16,810\u00a0\n13,373\u00a0\nNet Income\n13,280\u00a0\n13,279\u00a0\n12,989\u00a0\n10,309\u00a0\nBasic Earnings Per Common Share\n0.81\u00a0\n0.80\u00a0\n0.79\u00a0\n0.62\u00a0\nDiluted Earnings Per Common Share\n0.81\u00a0\n0.80\u00a0\n0.78\u00a0\n0.62\u00a0\n50",
+  "item7a": ">Item 7A.\n \u00a0Quantitative and Qualitative Disclosures About Market Risk\nIn addition to credit risk in the loan portfolio and liquidity risk, discussed earlier, Arrow's business activities also generate market risk. \u00a0Market risk is the possibility that changes in future market rates (interest rates) or prices (market value of financial instruments) will make Arrow's position (i.e. assets and operations) less valuable. \u00a0Arrow's primary market risk is interest rate volatility.  The ongoing monitoring and management of interest rate risk is an important component of the asset/liability management process, which is governed by policies that are reviewed and approved annually by the Board of Directors. \u00a0The Board of Directors delegates responsibility for carrying out asset/liability oversight and control to Management's Asset/Liability Committee (\"ALCO\"). \u00a0In this capacity ALCO develops guidelines and strategies impacting the asset/liability profile based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends. \u00a0\nChanges in market interest rates, whether increases or decreases, can trigger repricing and changes in the pace of payments for both assets and liabilities (prepayment risk). This may individually or in combination affect net interest income, net interest margin, and ultimately net income, either positively or negatively. ALCO utilizes the results of a detailed and dynamic simulation model to quantify this interest rate risk by projecting net interest income in various interest rate scenarios. \u00a0\nArrow's standard simulation model applies a parallel shift in interest rates, ramped over a 12-month period, to capture the impact of changing interest rates on net interest income. \u00a0The results are compared to ALCO policy limits which specify a maximum tolerance level for net interest income exposure over a one-year horizon, assuming no balance sheet growth and a 200 basis point upward and a 100 basis point downward shift in interest rates.  Additional tools to monitor potential longer-term interest rate risk, including periodic stress testing involving hypothetical sudden and significant interest rate spikes, are also evaluated.\nThe following table summarizes the percentage change in net interest income as compared to the base scenario, which assumes no change in market interest rates as generated from the standard simulation model. The results are presented for each of the first two years of the simulation period for the 200 basis point increase in interest rate scenario and the 100 basis point decrease in interest rate scenario.  These results are well within the ALCO policy limits as shown.\nAs of December\u00a031, 2022: \nChange in Interest Rate\nPolicy Limit\n+ 200 basis points\n- 100 basis points\nCalculated change in Net Interest Income - Year 1\n(2.47)%\n0.39%\n(10.00)%\nCalculated change in Net Interest Income - Year 2\n10.11%\n10.45%\n(15.00)%\nThe balance sheet shows an inverse relationship between changes in prevailing rates and the Company's net interest income in the near term, suggesting that liabilities and sources of funds generally reprice more quickly than earning assets. However, when net interest income is simulated over a longer time frame, the balance sheet shows a relatively neutral profile with long-term asset sensitivity, as asset yields continue to reprice while the cost of funding reaches assumed ceilings or floors.\nThe hypothetical estimates underlying the sensitivity analysis are based upon numerous assumptions, including: the nature and timing of changes in interest rates including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. While assumptions are developed based upon current economic and local market conditions, Arrow cannot make any assurance as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.\n Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will differ due to: prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate changes on caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, unanticipated shifts in the yield curve and other internal/external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates.",
+  "cik": "717538",
+  "cusip6": "042744",
+  "cusip": ["042744102"],
+  "names": ["ARROW FINANCIAL CORP COM"],
+  "source": "https://www.sec.gov/Archives/edgar/data/717538/000071753823000132/0000717538-23-000132-index.htm"
+}
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+{
+  "item1": ">ITEM\u00a01.\nBUSINESS\nThe Company\nAs of April\u00a030, 2023, Casey\u2019s General Stores, Inc. and its direct and indirect wholly-owned subsidiaries operate convenience stores primarily under the names \"Casey's\" and \"Casey\u2019s General Store\" (collectively, with the stores below referenced as \"GoodStop\", \"Bucky's\" or \"Minit Mart\", referred to as \"Casey's\" or the \"Company\") throughout 16 states, primarily in Iowa, Missouri, and Illinois. On April\u00a030, 2023, there were a total of 2,521 stores in operation. \nAll convenience stores carry a broad selection of food items (including, but not limited to, freshly prepared foods such as regular and breakfast pizza, donuts, hot breakfast items, and hot and cold sandwiches), beverages, tobacco and nicotine products, health and beauty aids, automotive products, and other nonfood items. As of April\u00a030, 2023, 217 store locations offered car washes. In addition, all but seven store locations offer fuel for sale on a self-service basis.\nDuring the prior fiscal year, the Company introduced certain stores branded or rebranded as \"GoodStop (by Casey\u2019s)\". Similar to most of our store footprint, the \"GoodStop\" locations offer fuel for sale on a self-serve basis, and a broad selection of snacks, beverages, tobacco products, and other essentials. However, these locations typically do not have a kitchen and have limited prepared food offerings. As of April\u00a030, 2023, 43 stores operate under the \"GoodStop\" brand.\nThe Company is also temporarily operating certain locations acquired from Buchanan Energy during the prior fiscal year under the name \"Bucky's\" and certain locations acquired from Minit Mart LLC during the current fiscal year under the name \"Minit Mart.\" The Company is in the process of transitioning all \"Bucky's\" and \"Minit Mart\" locations to either the \"Casey's\" or \"GoodStop\" brand. These locations typically have similar offerings to the \"Casey\u2019s\" or \"GoodStop\" branded stores. The Company also operates two stores selling primarily tobacco and nicotine products, one liquor-only store, and one grocery store.\nThe Company has 76 dealer locations, where Casey\u2019s manages fuel wholesale supply agreements to these stores. These locations are not operated by Casey's and are not included in our overall store count.\nApproximately 50% of all stores in the Company were opened in areas with populations of fewer than 5,000 persons, while approximately 26% of our stores were opened in communities with populations of more than 20,000 persons. The Company competes on the basis of price, as well as on the basis of traditional features of convenience store operations such as location, extended hours, product offerings, and quality of service.\nThe Company operates three distribution centers - in Ankeny, Iowa adjacent to our corporate headquarters, which we refer to as our Store Support Center, in Terre Haute, Indiana and in Joplin, Missouri - from which certain grocery and general merchandise and prepared food and dispensed beverage items are supplied to our stores by our Company-operated delivery fleet. The Company also self-distributes the majority of fuel to our stores. The Company has a fleet of 397 tractors used for distribution.\nThe Company\u2019s internet address is www.caseys.com. We make available through our website all of our SEC filings, including current reports on Form 8-K, quarterly reports on Form 10-Q, our annual report on Form 10-K, and amendments to those reports, free of charge as soon as reasonably practicable after they have been electronically filed with the SEC. Additionally, you can go to our website to read our Financial Code of Ethics for the CEO and Senior Financial Officers, Corporate Governance Guidelines, Code of Business Conduct and Ethics, and committee charters. In the event of a waiver from, or updates to, the Code of Business Conduct and Ethics, any required disclosure will be posted to our website.\nCasey\u2019s, with its principal business office, and Store Support Center, located at One SE Convenience Blvd., Ankeny, Iowa 50021-8045 (telephone 515-965-6100), was incorporated in Iowa in 1967. Our fiscal year runs from May\u00a01 through April\u00a030 of each year.\nGeneral\nCasey's corporate purpose is to make the lives of our guests and communities better every day. Many of the smaller communities in which we operate often are not served by national-chain convenience stores. We have succeeded in operating stores in smaller towns by offering, at competitive prices, a broader selection of products than does a typical convenience store. We have also succeeded in meeting the needs of residents in larger communities with these same offerings. We currently own most of our real estate, including substantially all of our stores, all three distribution centers (see discussion of ownership structure of the distribution center in Joplin, Missouri in Note 7), a construction and support services facility located in Ankeny, Iowa, and the Store Support Center facility.\nThe Company derives its revenue primarily from the retail sale of fuel and the products offered in our stores. Our sales historically have been strongest during the first and second fiscal quarters (May through October) relative to the third and fourth \n4\nfiscal quarters (November through April). In warmer weather, guests tend to purchase greater quantities of fuel and certain convenience items such as beer, sports drinks, water, soft drinks, and ice.\nCorporate Subsidiaries\nCasey's Marketing Company (\"CMC\") and Casey's Services Company (\"CSC\") were organized as Iowa corporations in March 1995. Casey\u2019s Retail Company (\"CRC\") was organized as an Iowa corporation in April 2004. CGS Stores, LLC was organized as an Iowa limited liability company in April 2019. Heartland Property Company, LLC was organized as a Delaware limited liability company in September 2019, for the purposes of acquiring land and real estate. CMC, CSC, and CRC are wholly-owned subsidiaries of Casey\u2019s, while CGS Stores, LLC and Heartland Property Company, LLC are wholly-owned subsidiaries of CMC.\nIn addition, the acquisition of Buchanan Energy during the prior fiscal year resulted in the addition of several subsidiaries to the Company\u2019s corporate structure, including Bucks, LLC, a Nebraska limited liability company, Buchanan Energy (N), LLC and Buchanan Energy (S), LLC, each Delaware limited liability companies, Buck\u2019s, LLC of Collinsville, an Illinois limited liability company, and C.T. Jewell Company, Inc., a Nebraska corporation.\n T\nhe Company is in the process of merging these subsidiaries into the applicable Company legacy entities, described above.\nCRC owns and/or operates certain stores in Illinois, Kansas, Michigan, Minnesota, Nebraska, North Dakota, and South Dakota, holds the rights to the Company's trademarks, service marks, trade names, and other intellectual property, and performs most \u201ccorporate\u201d functions of the enterprise. CMC owns and/or operates stores in Arkansas, Indiana, Iowa, Kentucky, Missouri, Ohio, Oklahoma, and Wisconsin, and is responsible for all of our wholesale operations, including all three distribution centers and management of the wholesale fuel network. CGS Stores, LLC owns and/or operates stores in Tennessee. CSC provides a variety of construction, maintenance and transportation services for all stores. \nStore Operations\nProducts Offered\nThe Company designs, develops and delivers value to its guests through a differentiated product assortment where the right products are optimally placed, priced and promoted to drive traffic, revenue and profit. It is our practice to continually make additions to the Company\u2019s product line, especially products with higher gross profit margins such as prepared food and our new private label offerings, described below. To facilitate many of these items, we have installed full kitchens in almost all of our stores, other than those branded as \u201cGoodStop\u201d.\nThe Company's flagship product is its handmade pizza, which we began preparing and selling in 1984. It was available in 2,465 stores (98%)\u00a0as of April\u00a030, 2023. In addition, we have expanded our prepared food offerings, which currently includes made to order cheesy breadsticks, sandwiches and wraps, chicken wings, chicken tenders, breakfast croissants and biscuits, breakfast pizza, breakfast burritos, hash browns, burgers, and bakery items which includes include donuts, cookies and brownies as well as other seasonal items. During the fiscal year, the Company launched new limited time offers to include our \u201cUltimate Beer Cheese Breakfast Pizza\u201d as well as our \u201cBBQ Brisket Pizza.\u201d Additional stores selling pizza will come on line as newly acquired stores are remodeled and kitchens are added. Finally, as of April\u00a030, 2023, the Company was selling donuts in 2,449 (97%) of our stores in addition to cookies, brownies, and other bakery items. \nThe growth in our prepared food program reflects the Company\u2019s strategy to promote high-margin products that are compatible with convenience store operations. In the last three fiscal years, retail sales of nonfuel items have generated about 37% of our total revenue, but they have resulted in approximately 66% of our revenue less cost of goods sold (excluding depreciation and amortization). Revenue less cost of goods sold (excluding depreciation and amortization) as a percentage of revenue on prepared food items averaged approximately 59% for the three fiscal years ended April\u00a030, 2023\u2014substantially higher than the impact of retail sales of fuel, which averaged approximately 12%.\nEach Casey\u2019s store typically carries over 3,000 packaged food, beverage and non-food items. The selection is a blend of differentiated private label products (which now includes over 300 items as of April\u00a030, 2023), as well as favored national and regional brands, many of which can be found in larger format stores. Our assortment includes product across the following categories: \n\u2022\nnon-alcoholic beverages (soft drinks, energy, water, sports drinks, juices, coffee, tea and dairy)\n\u2022\nalcoholic beverages (beer, wine and spirits) \n\u2022\npackaged foods (snacks, candy, packaged bakery and other food items)\n\u2022\ntobacco and nicotine products\n\u2022\nfrozen foods (ice, ice cream, meals and appetizers)\n\u2022\nnon-foods (health and beauty aids, automotive, electronic accessories, housewares and pet supplies)\n\u2022\nservices (ATM, lotto/lottery and prepaid cards)\n5\nAll but seven stores offer retail motor fuel products for sale on a self-service basis. Gasoline and diesel fuel are sold under the Casey\u2019s name at the majority of our locations.\nThe Company offers the Casey's Rewards program to bring value to guests and improve the digital guest experience. As part of this program, guests can earn points from online, in-store, or at the pump purchases. Points earned can be redeemed for donations to a local school of the guest's choice, fuel discounts, or Casey's Cash, which can be used on many products sold in our stores. The Rewards program is delivered through Casey\u2019s mobile application. In addition to earning points, guests may receive other program benefits such as special offers and bonus points. At the end of the fiscal year, the Company had surpassed 6.4 million members enrolled in the program.\nStore Design\nCasey\u2019s constructs stores that are primarily freestanding and, with a few exceptions to accommodate local conditions, conform to standard construction specifications. The current larger store design measures approximately 2,550 square feet devoted to sales area, 550 square feet to kitchen space, 400 square feet to storage, and 2 large multi-stall public restrooms. There is also a smaller store design that is generally designated for smaller communities that measures approximately 1,350 square feet devoted to sales area with the remaining areas similar in size, and 2 single user restrooms. Store lots have sufficient frontage and depth to permit adequate drive-in parking facilities on one or more sides of each store. Each new store typically includes 4 to 6 islands of fuel dispensers and storage tanks with capacity for 44,000 to 70,000 gallons of fuel. The merchandising display follows a standard layout designed to encourage a flow of guest traffic through all sections of every store. All stores are air-conditioned and have modern refrigeration equipment. Nearly all locations feature a bright sign which displays the Casey\u2019s or GoodStop name and trade/service marks. \nAlmost all stores remain open at least sixteen hours per day, seven days a week. Hours of operation may be adjusted on a store-by-store basis to accommodate guest traffic patterns. As of April\u00a030, 2023, we operated 526 stores on a 24-hour basis, and another 1,843 have expanded hours. \nStore Locations\nThe Company historically has located many of its stores in smaller towns not served by national-chain convenience stores. We believe that a Casey\u2019s store provides a service generally not otherwise available in smaller towns and that a convenience store in an area with limited population can be profitable if it stresses sales volume and competitive prices. Our store-site selection criteria emphasize the population of the immediate area and daily highway traffic volume.\nRetail Fuel Operations\nRetail fuel sales are an important part of our revenue and earnings. Approximately 66% of total revenue for the year ended April\u00a030, 2023 was derived from the retail sale of fuel. The following table summarizes (dollars and gallons in thousands) retail fuel sales for the last three fiscal years ended April\u00a030:\n\u00a0\n\u00a0\nYear ended April\u00a030,\n\u00a0\n2023\n2022\n2021\nNumber of gallons sold\n2,672,366\n\u00a0\n2,579,179\u00a0\n2,180,772\u00a0\nTotal retail fuel sales\n$\n10,027,310\n\u00a0\n$\n8,312,038\u00a0\n$\n4,825,466\u00a0\nPercentage of total revenue\n66.4\n\u00a0\n%\n64.2\u00a0\n%\n55.4\u00a0\n%\nPercentage of revenue less cost of goods sold (excluding depreciation and amortization)\n10.7\n\u00a0\n%\n11.2\u00a0\n%\n15.8\u00a0\n%\nAverage retail price per gallon\n$\n3.75\n\u00a0\n$\n3.22\u00a0\n$\n2.21\u00a0\nAverage revenue less cost of goods sold per gallon (excluding depreciation and amortization)\n40.22\n\u00a0\n\u00a2\n36.01\u00a0\n\u00a2\n34.91\u00a0\n\u00a2\nAverage number of gallons sold per store*\n1,092\n\u00a0\n1,047\u00a0\n981\u00a0\n*\nIncludes only those stores in operation at least one full year on April\u00a030 of the fiscal year indicated.\nAverage retail prices of fuel during the year increased 16.5% from prior year. Fuel prices increased at the end of the prior fiscal year due to overall supply issues, as refiners cut production levels in response to a slowing economy during the COVID-19 pandemic and as Russia's invasion of Ukraine resulted in a United States ban of Russian crude oil imports. While prices have moderated since the highs seen at the end of the prior fiscal year and the first quarter of fiscal 2023, the higher costs have continued into 2023. Regardless, with the Company's centralized fuel team and the procurement improvements implemented, we believe we are well positioned to navigate any potential future fuel price volatility. \nThe total number of gallons sold during this period increased by 3.6%. Gallons sold were positively impacted by a growing store count as we operated 69 more stores than the prior year. Average revenue less cost of goods sold (excluding \n6\ndepreciation and amortization) per gallon increased by 11.7%. Our centralized fuel team, coupled with fuel procurement improvements, has grown fuel profitability and has been instrumental in sustaining higher than historically typical average revenue less cost of goods sold per gallon (excluding depreciation and amortization). \nPercentage of revenue less cost of goods sold (excluding depreciation and amortization) represents the fuel gross profit divided by the gross fuel sales dollars. As retail fuel prices fluctuate in a period of consistent gross margin per gallon, the percentage will also fluctuate in an inverse relationship to fuel price. For additional information concerning the Company\u2019s fuel operations, see Item\u00a07, below.\nDistribution and Wholesale Arrangements\nCMC supplies all stores with groceries, food, health and beauty aids, and general merchandise from our three distribution centers. The stores place orders for merchandise electronically to the Store Support Center, and the orders are filled with shipments in Company-operated delivery trucks from one of the distribution centers, based on route optimization for the fleet network. Most of our existing and proposed stores are within the three distribution centers' optimum efficiency range\u2014a radius of approximately 500 miles around each distribution center. \nIn fiscal 2023, a majority of the food and nonfood items supplied to stores through the distribution centers were purchased directly from manufacturers. While we consider long-term contracts for potential favorability against short-term contracts, long-term supply contracts are not typically entered into with the suppliers of products sold by our stores. We believe the practice enables us to respond to changing market conditions with minimal impact on margins.\nIn addition to the products discussed above, CMC supplies all fuel to our stores, and supplies fuel on a wholesale basis as part of a dealer network to 76 locations. We have entered into various purchase agreements related to our fuel supply, which include varying volume commitments. Prices included in the purchase agreements are indexed to market prices. \nHuman Capital\nOur employees, who we refer to as Team Members, are critical to our business operations and the success of the Company. As of April\u00a030, 2023, we had 20,292 full-time, and 22,690 part-time, Team Members. Approximately 94% are store Team Members, 1% are field management and related Team Members, 1% work in and support our three distribution centers, 1% are fuel or grocery drivers and 3% work out of the Store Support Center, or perform Store Support Center functions.\nWe are not a party to any collective bargaining agreements with our Team Members and believe the working relationship with our Team Members is good.\nCore Values\nDuring the prior fiscal year, the Company unveiled its new core values to its Team Members, as part of its evolution to build a culture of commitment \u2013 Casey\u2019s CARES:\nC\n \u2013 Commitment: We work hard to be the best and have a good time doing it.\nA\n \u2013 Authenticity: We\u2019re true to our roots by being high integrity and low ego.\nR\n \u2013 Respect: We treat people the way they want to be treated.\nE\n \u2013 Evolving: We\u2019re driven to build a better future for ourselves and for our business.\nS\n \u2013 Service: We put service first and take pride in caring for our guests, our communities, and each other.\nWe believe these core values serve as a solid foundation for how we treat our Team Members, how they treat one another and how we operate our business as a whole.\nIn the 2023 fiscal year, Casey\u2019s became \u201cGreat Places to Work\u201d certified. This certification is administered by an independent third party and is based largely on team member survey results.\nTotal Rewards\nWe believe that the future success of the Company depends in large part on our ability to attract, train, retain, and motivate qualified Team Members. As such, we are committed to providing market-competitive pay and benefits for all positions and offer performance-based compensation opportunities to certain of our full-time Team Member base. In addition, the Company offers a 401(k) plan to eligible Team Members, with a generous 6% match made in the form of Company stock, and all full-time and part-time associates are eligible for competitive health and welfare benefits, including medical, dental, vision, disability, life insurance and other benefits. In addition, during the 2023 fiscal year, we enhanced our offerings to include a military pay differential benefit for team members in the armed forces during periods of military service, introduced a free care management service for those suffering from back and joint pain/injury to expedite improved pain management and/or healing, and increased the contributions to, and number of visits allowed, in our Employee Assistance Program (EAP), which allows our team members and their families additional support for mental health at no cost. We also increased participation and \n7\nutilization of Casey's Team Member Support Fund, which is designed to help team members facing financial hardships due to catastrophic circumstances.\nDiversity and Inclusion\nThe Company is committed to building a diverse and inclusive workforce across the organization, which it believes is set by example with its Board of Directors and extended leadership team. The Board consists of twelve members, five (or 42%) of which are diverse as to gender, and three (or 25%) of which are diverse to race and/or ethnicity. The extended leadership team, which includes all of our Vice-President level executives and above, consists of thirty-two members, almost 60% of which are diverse as to gender, race and/or ethnicity. Across our entire Team Member base, 60% of our Team Members are female and 15% are diverse as to race and/or ethnicity. In addition, we have a strict Anti Harassment and Discrimination Policy of which all Team Members are trained and expected to follow and we have several mechanisms, including an Ethics and Compliance Hotline, under which Team Members and guests can report incidents confidentially or anonymously and without fear of retaliation. We have four team member resource groups which further enhance the diversity, equity and inclusion culture at Casey's: Women in Leadership, Veterans, Faith and LGBTQ. The Company has also established a formal Diversity, Equity and Inclusion Committee to further promote the already strong culture of belonging and empowerment for all Team Members. In addition, the company has expanded its learning related to unconscious bias and critical conversations through formal training.\nEducation and Training\nThe Company, including its established Learning and Development Department, which serves all levels of the organization, invests significant time and resources in educating and training Team Members by providing them with educational, development and leadership opportunities. These opportunities are provided through a mix of formal onboarding training, safety training, in-person classes, virtual modules and \u201con-the-job\u201d learning. For example, through its virtual modules, the Company offers over 500 hours of educational opportunities through over 600 classes, for which there were almost 1 million enrollments during the 2023 fiscal year. In addition, the Company has a formal leadership development program with core curriculum consisting of Development programs for Kitchen Managers, Store Managers, District Managers, a Leadership Excellence Certification, and an Individualized Development Program for all Officers based on their review.\nCompetition\nOur business is highly competitive. Food, including prepared foods, and nonfood items similar or identical to those sold by the Company, are generally available from various competitors in the communities served by Casey\u2019s and by certain online retailers. We believe our stores located in smaller towns compete principally with other local grocery and convenience stores, similar retail outlets, and, to a lesser extent, prepared food outlets, restaurants, and expanded fuel stations offering a more limited selection of grocery and food items for sale. Stores located in more heavily populated communities may compete with local and national grocery and drug store chains, quick service restaurants, expanded fuel stations, supermarkets, discount food stores, and traditional convenience stores. \nIn addition to our inside store products, the fuel business is also highly competitive. The Company competes on the basis of brand, price, and convenience of our fuel products. We believe our locations in smaller towns are well-positioned. Similar to inside, stores compete with larger store chains with expanded fuel offerings and increased buying power in more heavily populated communities.\nExamples of convenience store chains competing in the larger towns served by Casey\u2019s include Quik Trip, Kwik Trip/Star, Kum & Go, and other regional chains. These competitive factors are discussed further in Item\u00a07 of this Form 10-K.\nTrademarks and Service Marks\nThe Company regularly evaluates its portfolio of intellectual property and takes steps to review potential new trademarks and service marks and to renew existing marks. The names \"Casey\u2019s\", \u201cCasey\u2019s General Store\u201d, and \"GoodStop (by Casey's)\", the marks consisting of the Casey\u2019s design logos (with the words \u201cCasey\u2019s\u201d and \u201cCasey\u2019s General Store\u201d), the weathervane, and certain of our private label product names, are registered trademarks and service marks under federal law. We believe these marks are of material importance in promoting and advertising the Company\u2019s business. In addition, the Company has a number of other registered and unregistered trademarks and service marks that are significant to the Company from an operational and branding perspective (e.g. \"Casey\u2019s Pizza\", \"Casey's Here for Good\", \u201cCasey\u2019s Rewards\u201d, \u201cCasey\u2019s Cash\u201d, etc.).\nGovernment Regulation (dollars in thousands)\nUnderground Storage Tanks\nThe United States Environmental Protection Agency and several states, including Iowa, have established requirements for owners and operators of underground fuel storage tanks (USTs) with regard to (i)\u00a0maintenance of leak detection, corrosion protection, and overfill/spill protection systems; (ii)\u00a0upgrade of existing tanks; (iii)\u00a0actions required in the event of a detected \n8\nleak; (iv)\u00a0prevention of leakage through tank closings; and (v)\u00a0required fuel inventory record keeping. Since 1984, our new stores have been equipped with noncorroding fiberglass USTs, including some with double-wall construction, overfill protection, and electronic tank monitoring. We believe that all capital expenditures for electronic monitoring, cathodic protection, and overfill/spill protection to comply with the existing UST regulations have been completed. Additional regulations or amendments to the existing UST regulations could result in future expenditures.\nThe majority of states in which we do business have trust fund programs with provisions for sharing or reimbursing corrective action or remediation costs incurred by UST owners, including the Company. For the years ended April\u00a030, 2023, 2022, and 2021, we spent approximately $653, $577, and $849 respectively, for assessments and remediation. Substantially all of these expenditures were submitted for reimbursement from state-sponsored trust fund programs. The payments are typically subject to statutory provisions requiring repayment of the reimbursed funds for noncompliance with upgrade provisions or other applicable laws. None of the reimbursements received are currently expected to be repaid by the Company to the trust fund programs. At April\u00a030, 2023 and 2022 we had an accrued liability of $268 and $274, respectively, for estimated expenses related to anticipated corrective actions or remediation efforts, including relevant legal and consulting costs. We believe we have no material joint and several environmental liability with other parties.\nAge-Restricted Products\nAlmost all of our stores sell a variety of age-restricted products, which may include beer, liquor, tobacco and other nicotine products. The sale of these products are subject to significant regulations and require the Company to procure special sales licenses from local and/or state agencies, which govern their sale. While the costs to procure such licenses is not material, the failure to comply with the conditions of the licenses, or other age-restricted products laws, could result in the suspension or revocation of such licenses, or fines related thereto. In addition to these products, the Company is also subject to\n rules governing lottery and lotto sales as determined by state lottery commissions in each state in which we make such sales.",
+  "item1a": ">ITEM\u00a01A.\u00a0\nRISK FACTORS\nYou should carefully consider the risks described in this report before making a decision to invest in our securities. If any of such risks actually occur, our business, financial condition, and/or results of operations could be materially adversely affected. In that case, the trading price of our securities could decline and you might lose all or part of your investment.\nRisks Related to Our Business Operations\nOur business and our reputation could be adversely affected by a cyber or data security incident or the failure to protect sensitive guest, Team Member or supplier data, or the failure to comply with applicable regulations relating to data security and privacy.\nIn the normal course of our business, we obtain, are provided and have access to large amounts of personal data, including but not limited to credit and debit card information, personally identifiable information and other data from and about our guests, Team Members, and suppliers. A compromise or a breach in our systems, or another data security or privacy incident that results in the loss, unauthorized release, disclosure or acquisition of such data or information, or other sensitive data or information, or other internal or external cyber or data security threats, including but not limited to viruses, denial-of-service attacks, phishing attacks, ransomware attacks and other intentional or unintentional disruptions, could occur and have a material adverse effect on our operations and ability to operate, reputation, operating results and financial condition.\n \nIn addition, similar events at vendors, third-party service providers or other market participants, whether or not we are directly impacted, could negatively affect our business and supply chain or lead to a general loss of guest confidence, which could result in reduced guest traffic and sales.\nA data security or privacy incident of any kind could expose us to risk in terms of the loss, unauthorized release, disclosure or acquisition of sensitive guest, Team Member or supplier data, and could result in litigation or other regulatory action being brought against us and damages, monetary and other claims made by or on behalf of the payment card brands, guests, Team Members, shareholders, financial institutions and governmental agencies, or monetary demands or other extortion attempts from cybercriminals. Such events could give rise to substantial monetary damages and/or losses which are not covered, or in some instances fully covered, by our insurance policies and which could adversely affect our reputation, results of operations, financial condition and liquidity. Moreover, a data security or privacy incident could require that we expend significant additional resources on mitigation efforts and to further upgrade the security and other measures that we employ to guard against, and respond to, such incidents.\nFood-safety issues and foodborne illnesses, whether actual or reported, or the failure to comply with applicable regulations relating to the transportation, storage, preparation or service of food, could adversely affect our business and reputation.\nInstances or reports of food-safety issues, such as foodborne illnesses, food tampering, food contamination or mislabeling, either during growing, manufacturing, packaging, transportation, storage, preparation or service, have in the past \n9\nsignificantly damaged the reputations and impacted the sales of companies in the food processing, grocery, quick service and \u201cfast casual\u201d restaurant sectors, and could affect us as well. Any instances of, or reports linking us to, foodborne illnesses or food tampering, contamination, mislabeling or other food-safety issues could damage the value of our brand and severely hurt sales of our prepared or other food products and possibly lead to product liability and personal injury claims, litigation (including class actions), government agency investigations and damages. In addition, guest preferences and store traffic could be adversely impacted by food-safety issues, health concerns or negative publicity about the consumption of our products, which could damage our reputation and cause a decline in demand for those products and adversely impact our sales.\n \nIn addition, we rely on our suppliers to provide quality ingredients and to comply with applicable food and food safety laws and industry standards. A failure of one of our suppliers to comply with such laws, to meet our quality standards, or to meet food industry standards, could also disrupt our supply chain, damage our reputation and adversely impact our sales.\nWe may be adversely impacted by increases in the cost of food ingredients and other related costs\nOur business is exposed to fluctuations in prices of commodities.\n \nAny increase in the cost or sustained high levels of the cost of cheese, proteins or other commodities could adversely affect the profitability of stores, particularly if we are unable to increase the retail price of our products to offset such costs. We have recently experienced inflation in the price of commodities, including food ingredients, which has increased our cost of goods sold. Cheese, representing our largest food cost, and other commodities can be subject to significant cost fluctuations due to weather, availability, global demand and other factors that are beyond our control.\n \nAdditionally, increases in labor, mileage, insurance, fuel, and other costs could adversely affect the profitability of our stores.\n \nMany of these factors are beyond our control, and we may not be able to adequately mitigate these costs or pass along these costs to our customers, given the significant competitive pricing in our industry.\nA significant disruption to our distribution network, to the capacity of the distribution centers, or timely receipt of inventory could adversely impact our sales or increase our transaction costs, which could have a material adverse effect on our business.\nWe rely on our distribution and transportation network, which includes our drivers and distribution center Team Members, and the networks of our vendors and direct store delivery partners, to provide products to our distribution centers and stores in a timely and cost-effective manner. Any disruption, unanticipated or unusual expense or operational failure related to this process, including our inability, or that of our delivery partners, to hire and/or retain enough qualified drivers and distribution center Team Members to meet demand, could affect our store operations negatively. \nWe also depend on regular deliveries of products from third-parties to and from our facilities and stores that meet our specifications. In addition, we may have a single supplier or limited number of suppliers for certain products. While we believe there are adequate reserve quantities and alternative suppliers available, shortages or interruptions in the receipt or supply of products caused by unanticipated or changing demand, such as occurred during the COVID-19 pandemic, problems in production or distribution, financial or other difficulties of suppliers, cyber-related events, social unrest, inclement weather or other economic conditions, including the availability of qualified drivers and distribution center Team Members, could adversely affect the availability, quality and cost of products, and our operating results.\nWe could be adversely affected if we experience difficulties in, or are unable to recruit, hire or retain, members of our leadership team and other distribution, field and store Team Members.\nWe are dependent on the continued knowledge and efforts of our leadership team and other key Team Members. If, for any reason, our leadership team does not continue to be active in management, or we lose such persons, or other key Team Members, or we fail to identify and/or recruit for current or future leadership positions, our business, financial condition or results of operations could be adversely affected.\nWe also rely on our ability to recruit, hire and retain qualified drivers, distribution center Team Members, field management and store Team Members. Recent difficulties and shortages in the general labor market for such individuals, in particular hourly Team Members and drivers, and the failure to continue to attract and retain these individuals, especially at reasonable compensation levels in the current rising wage environment, could have a material adverse effect on the operation of individual stores, distribution network, our business and results of operations.\nAny failure to anticipate and respond to changes in consumer preferences, or to introduce and promote innovative technology for guest interaction, could adversely affect our financial results.\nOur continued success depends on our ability to remain relevant with respect to consumer needs and wants, attitudes toward our industry, and our guests\u2019 preferences for ways of doing business with us, particularly with respect to digital engagement, contactless delivery, curbside pick-up and other non-traditional ordering and delivery platforms. We must continually work to develop, produce and market new products, maintain and enhance the recognition of our brands, offer a favorable mix of products, and refine our approach as to how and where we market, sell and deliver our products. This risk is compounded by the increasing use of digital media by consumers and the speed by which information and opinions are shared. \n10\nFurther, changes in consumer preferences, trends or perceptions of certain items we sell, or the ingredients therein, could cause consumers to avoid such items in favor of those that are or are perceived as healthier, lower-calorie, or lower in carbohydrates or otherwise based on their ingredients or nutritional content. If we are unable to anticipate and respond to sudden challenges that we may face in the marketplace, trends in the market for our products and changing consumer demands and sentiment, it could have a material adverse effect on our business, financial condition and results of operations.\nWe rely on our information technology systems, and a number of third-party software providers, to manage numerous aspects of our business, and a disruption of these systems could adversely affect our business.\nWe are dependent on our information technology (IT) systems, and a large number of third-party software providers and platforms, to manage and operate numerous aspects of our business, develop our financial statements, provide analytical information to management and serve as a platform for our business continuity plan. Our IT systems, and the software and other technology platforms provided by our vendors and other third-parties, are an essential component of our business operations and growth strategies, and a serious disruption to any of these could significantly limit our ability to manage and operate our business efficiently. These systems are vulnerable to, among other things, damage and interruption, computer system and network failures, loss of telecommunications services, physical and electronic loss of, or loss of access to, data and information, security breaches or other security or cyber-related incidents, computer viruses or attacks and obsolescence. Any disruption could cause our business and competitive position to suffer and cause our operating results to be reduced.\nIncreased credit card expenses could lead to higher operating expenses and other costs for the Company.\nA significant percentage of our sales are made with credit cards. Because the interchange and other fees we pay when credit cards are used to make purchases, which the Company has little control over, are based on transaction amounts, higher fuel prices at the pump, including record fuel prices that were seen in recent years, higher gallon movement and other increases in price and sales of fuel and other items we sell in our stores directly result in higher credit card expenses. These additional fees directly increase operating expenses. Higher operating expenses that result from higher credit card fees may decrease our overall profit and have a material adverse effect on our business, financial condition and results of operations. Total credit card fees paid in fiscal 2023 and 2022 exceeded $200 million. For fiscal 2021, total credit card fees paid were approximately $150 million.\nIn addition, credit card providers now mandate that any fraudulent activity and related losses at fuel dispensers that do not accept certain chip technology (referred to as EMV) be borne by the retailers accepting those cards. While the Company has invested, and will continue to invest, a significant amount of resources in upgrading its fuel dispensers to accept EMV, and has implemented other fraud mitigation strategies, not all of its fuel dispensers have, or in the near future may, be upgraded to such technology. As such, it is possible that credit card providers could attempt to pass the costs of certain fraudulent activity at the non-upgraded dispensers to the Company, which if significant, could have a material adverse effect on our business, financial condition and results of operations.\nOur operations present hazards and risks which may not be fully covered by insurance, if insured.\nThe scope and nature of our operations present a variety of operational hazards and risks that must be managed through continual oversight and control. As protection against hazards and risks, we maintain insurance against many, but not all, potential losses or liabilities arising from such risks. Uninsured or underinsured losses and liabilities from operating risks could reduce the funds available to us for capital and investment spending and could have a material adverse impact on the results of operations.\nThe dangers inherent in the storage and transport of fuel could cause disruptions and could expose to us potentially significant losses, costs or liabilities.\nWe store fuel in storage tanks at our retail locations. Additionally, a significant portion of fuel is transported in our own trucks, instead of by third-party carriers. Our operations are subject to significant hazards and risks inherent in transporting and storing motor fuel. These hazards and risks include, but are not limited to, fires, explosions, traffic accidents, spills, discharges and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally-imposed fines or clean-up obligations, personal injury or wrongful death claims and other damage to our properties and the properties of others. As a result, any such event could have a material adverse effect on our business, financial condition and results of operations.\nConsumer or other litigation could adversely affect our financial condition and results of operations.\nOur retail operations are characterized by a high volume of guest traffic and by transactions involving a wide array of product selections, including prepared food. Retail operations, and in particular our distribution and food-related operations, carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in many other industries. Consequently, we may become a party to personal injury, food safety, product liability, accessibility, data security and privacy and other legal actions in the ordinary course of our business. While these actions are generally routine in nature, \n11\nincidental to the operation of our business and immaterial in scope, if our assessment of any action or actions should prove inaccurate, our financial condition and results of operations could be adversely affected.\nAdditionally, we are occasionally exposed to industry-wide or class-action claims arising from the products we carry, industry-specific business practices or other operational matters, including wage-and-hour and other employment related individual and class-action claims. Our defense costs and any resulting damage awards or settlement amounts may be significant and not be covered, or in some instances fully covered, by our insurance policies. Thus, an unfavorable outcome or settlement of one or more of these lawsuits could have a material adverse effect on our reputation, financial position, liquidity and results of operations.\nPandemics or disease outbreaks, such as COVID-19, responsive actions taken by governments and others to mitigate their spread, and guest behavior in response to these events, have, and may in the future, adversely affect our business operations, supply chain and financial results.\nPandemics or disease outbreaks such as COVID-19 and its variants (collectively, \u201cCOVID-19\u201d) have had, and may continue to have, adverse impacts on the Company\u2019s business. These include, but are not limited to, decreased store traffic and changed guest behavior, decreased demand for our fuel, prepared food and other convenience offerings, decreased or slowed unit/store growth, issues with our supply chain including difficulties delivering products to our stores and obtaining certain items sold at our stores, issues with respect to our Team Members\u2019 health, working hours and/or ability to perform their duties, and increased costs to the Company in response to these conditions and to protect the health and safety of our Team Members and guests.\nIn addition, the general economic and other impacts related to responsive actions taken by governments and others to mitigate the spread of COVID-19, or in the future other pandemics or disease outbreaks, including but not limited to stay-at-home, shelter-in-place and other travel restrictions, social distancing requirements, mask mandates, limitations on certain businesses\u2019 hours and operations, limits on public gatherings and other events, and restrictions on what, and in certain cases how, certain products can be sold and offered to our guests, have, and may continue to, result in similar declines in store traffic and overall demand, increased operating costs, and decreased or slower unit/store growth. Further, although the Company\u2019s business was deemed an \u201cessential service\u201d by many public authorities throughout the COVID-19 pandemic, allowing our operations to continue (in some cases in a modified manner), there are no guarantees the designation will continue, or be applied during a future pandemic or COVID-19 outbreak, which would require us to reduce our operations and potentially close stores for an undetermined period of time.\nCovenants in our Senior Notes and credit facility agreements require us to comply with certain covenants and meet financial maintenance tests. Failure to comply with these requirements could have a material impact to us.\nWe are required to comply with certain financial and non-financial covenants under our existing Senior Notes and credit facility agreements. A breach of any covenant, even if unintentional, could result in a default under such agreements, which could, if not timely cured, permit lenders to declare all amounts outstanding to be immediately due and payable, and to terminate such instruments, which in turn could have a material adverse effect on our business, liquidity, financial condition and results of operation.\nRisks Related to Governmental Actions, Regulations, and Oversight\nCompliance with and changes in tax laws could adversely affect our performance.\nWe are subject to extensive tax liabilities imposed by multiple jurisdictions, including but not limited to state and federal income taxes, indirect taxes (excise, sales/use, and gross receipts taxes), payroll taxes, property taxes, and tobacco taxes. Tax laws and regulations are dynamic and subject to change as new laws are passed, new administrations are elected and new interpretations of existing laws are issued and applied.\n \nIn addition, as the federal government and certain states face economic and other pressures, they may seek revenue in the form of additional income, sales and other taxes and related fees. These activities could result in increased expenditures for tax liabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxing authorities. Subsequent changes to our tax liabilities as a result of these audits may subject us to interest and penalties.\nWe are subject to extensive governmental regulations.\nOur business is subject to extensive governmental laws and regulations that include, but are not limited to, those relating to environmental protection and remediation; the preparation, transportation, storage, sale and labeling of food; minimum wage, overtime and other employment and labor laws and regulations; the Americans with Disabilities Act; legal restrictions on the sale of alcohol, tobacco and nicotine products, money orders, lottery/lotto and other age-restricted products; compliance with the Payment Card Industry Data Security Standards and similar requirements; compliance with the Federal Motor Carriers Safety Administration regulations; and, securities laws and Nasdaq listing standards. These, and other laws and regulations, are dynamic and subject to change as new laws are passed, new interpretations of existing laws are issued and applied and as \n12\npolitical administrations and majorities change over time. The effects created by these, including the costs of compliance with these laws and regulations, is substantial, and a violation of or change in such laws and/or regulations could have a material adverse effect on our business, financial condition, and results of operations.\nState laws regulate the sale of alcohol, tobacco and nicotine products, lottery/lotto products and other age-restricted products. A violation or change of these laws could adversely affect our business, financial condition, and results of operations because state and local regulatory agencies have the power to approve, revoke, suspend, or deny applications for and renewals of permits and licenses relating to the sale of certain of these products or to seek other remedies.\nAny appreciable increase in wages, overtime pay, or the statutory minimum salary requirements, minimum wage rate, mandatory scheduling or scheduling notification laws, or the adoption of additional mandated healthcare or paid-time-off benefits would result in an increase in our labor costs. For example, recent state-mandated minimum wage increases, along with general labor market shortages and wage pressures, have increased our operating expenses significantly.\n \nSuch cost increases, or the penalties for failing to comply, could adversely affect our business, financial condition, and results of operations. State or federal lawmakers or regulators may also enact new laws or regulations applicable to us that may have a material adverse and potentially disparate impact on our business.\nGovernmental action and campaigns to discourage tobacco and nicotine use and other tobacco products may have a material adverse effect on our revenues and gross profit.\nCongress has given the Food and Drug Administration (\u201cFDA\u201d) broad authority to regulate tobacco and nicotine products, including e-cigarettes and vapor products, and the FDA has enacted numerous regulations restricting the sale of such products. These governmental actions, as well as national, state and local campaigns and regulations to discourage tobacco and nicotine use and limit the sale of such products, including but not limited to tax increases related to such products and certain actions taken to increase the minimum age in order to purchase such products, have resulted or may in the future result in, reduced industry volume and consumption levels, and could materially affect the retail price of cigarettes, unit volume and revenues, gross profit, and overall guest traffic, which in turn could have a material adverse effect on our business, financial condition and results of operations.\nWholesale cost and tax increases relating to tobacco and nicotine products could affect our operating results.\nSales of tobacco and nicotine products have averaged approximately 10% of our total revenue over the past three fiscal years, and our tobacco and nicotine revenue less cost of goods sold (excluding depreciation and amortization) accounted for approximately 9% of the total revenue less cost of goods sold (excluding depreciation and amortization) for the same period. Any significant increases in wholesale cigarette and related product costs or tax increases on tobacco or nicotine products may have a materially adverse effect on unit demand for cigarettes (or related products). Currently, major cigarette and tobacco and nicotine manufacturers offer significant rebates to retailers, although there can be no assurance that such rebate programs will continue. We include these rebates as a component of cost of goods sold, which affects our gross margin from sales of cigarettes and related products. In the event these rebates are no longer offered or decreased, our wholesale cigarette and related product costs will increase accordingly. In general, we attempt to pass price increases on to our guests. Due to competitive pressures in our markets, however, we may not always be able to do so. These factors could adversely affect our retail price of cigarettes and related products, cigarette or related product unit volume and revenues, merchandise revenue less cost of goods sold (excluding depreciation and amortization), and overall guest traffic, and in turn have a material adverse effect on our business, financial condition and results of operations.\nRisks Related to Our Industry\nGeneral economic and political conditions that are largely out of the Company\u2019s control may adversely affect the Company\u2019s financial condition and results of operations.\nGeneral economic and political conditions, including social and political causes and movements, higher interest rates, higher fuel and other energy costs, inflation, increases or fluctuations in commodity prices such as cheese and coffee, higher levels of unemployment, unemployment benefits and related stimulus provided as a result of the COVID-19 pandemic (including the rollback of certain payment relief programs introduced during the pandemic such as delayed or deferred rent, student loan payments, etc.), higher consumer debt levels and lower consumer discretionary spending, higher tax rates and other changes in tax laws or other economic factors may affect the operations of our stores, input costs, consumer spending, buying habits and labor markets generally, and could adversely affect the discretionary income and spending levels of our guests, the costs of the products we sell in our stores, the consumer demand for such products and the labor costs of transporting, storing and selling those products. For example, the recent conflict in Ukraine has resulted in historically high oil and other commodity prices, which, coupled with a recent period of high inflation, has significantly increased the cost of fuel and other products we sell. These events and their impacts can be unpredictable, and we may not always be able to recapture these higher input costs through pricing strategies or otherwise. In addition, unfavorable economic conditions, especially those affecting the agricultural industry, higher fuel prices, and unemployment levels can affect consumer confidence, spending patterns, and miles driven, and \n13\ncan cause guests to \u201ctrade down\u201d to lower priced products in certain categories when these conditions exist. These factors can lead to sales declines, and in turn have an adverse impact on our business, financial condition and results of operations.\nDevelopments related to fuel efficiency, fuel conservation practices, climate change, and changing consumer preferences may decrease the demand for motor fuel.\nTechnological advances and consumer behavior in reducing fuel use, governmental mandates to improve fuel efficiency and consumer desire or regulations to lower carbon emissions could lessen the demand for our largest revenue product, petroleum-based motor fuel, which may have a material adverse effect on our business, financial condition, and results of operation. Changes in our climate, including the effects of carbon emissions in the environment, may lessen demand for fuel or lead to additional government regulation. In addition, a shift toward electric, hydrogen, natural gas or other alternative fuel-powered vehicles, including driverless motor vehicles, could fundamentally change the shopping and driving habits of our guests or lead to new forms of fueling destinations or new competitive pressures. Any of these outcomes could potentially result in fewer guest visits to our stores, decreases in sales revenue across all categories or lower profit margins, which could have a material adverse effect on our business, financial condition and results of operations.\nUnfavorable weather conditions can adversely affect our business.\nThe vast majority of our stores are located in the Midwest region of the United States, which is susceptible to tornadoes, thunderstorms, extended periods of rain or unseasonably cold temperatures, flooding, ice storms, and heavy snow. Inclement weather conditions could damage our facilities or could have a significant impact on consumer behavior, travel, and convenience store traffic patterns as well as our ability to operate our locations. In addition, we typically generate higher revenues and gross margins during warmer weather months, which fall within our first and second fiscal quarters. When weather conditions are not favorable during a particular period, our operating results and cash flow from operations could be adversely affected.\nThe volatility of wholesale petroleum costs could adversely affect our operating results.\nOur net income is significantly affected by changes in the margins we receive on our retail fuel sales. Over the past three fiscal years, on average our fuel revenues accounted for approximately 63% of total revenue and our fuel revenue less cost of goods sold (excluding depreciation and amortization) accounted for approximately 34% of the total revenue less cost of goods sold (excluding depreciation and amortization). Crude oil and domestic wholesale petroleum markets are currently, and in the recent past have been, marked by significant volatility, starting with the onset of the COVID-19 pandemic and its effects and more recently with the conflict in Ukraine.\n \nGeneral political conditions, threatened or actual acts of war or terrorism, instability or other changes in oil producing regions, historically in the Middle East and South America but recently in Europe with the conflict in Ukraine, and trade, economic or other disagreements between oil producing nations, can, and recently have, significantly affected crude oil supplies and wholesale petroleum costs. In addition, the supply of fuel and wholesale purchase costs could be adversely affected in the event of a shortage, which could result from, among other things, severe weather events in oil producing regions, the lack of capacity at United States oil refineries or, in our case, the level of fuel contracts that we have that guarantee an uninterrupted, unlimited supply of fuel. Increases in the retail price of petroleum products have resulted and could in the future adversely affect consumer demand for fuel and other discretionary purchases. This volatility makes it difficult to predict the impact that future wholesale cost fluctuations will have on our operating results and financial condition in future periods. Any significant change in one or more of these factors could materially affect the number of fuel gallons sold, fuel revenue less cost of goods sold excluding depreciation and amortization and overall guest traffic, which in turn could have a material adverse effect on our business, financial condition and results of operations.\nThe convenience store industry is highly competitive.\nThe convenience store and retail fuel industries in which we operate are highly competitive and characterized by ease of entry and constant change in the number and type of retailers offering the products and services found in our stores. We compete with many other convenience store chains, gasoline stations, supermarkets, drugstores, discount stores, club stores, fast food outlets, and mass merchants, and a variety of other retail companies, including retail gasoline companies that have more extensive retail outlets, greater brand name recognition and more established fuel supply arrangements. Several non-traditional retailers such as supermarkets, club stores, and mass merchants have affected the convenience store industry by entering the retail fuel business and have obtained a share of the fuels market. Certain of these non-traditional retailers may use more extensive promotional pricing or discounts, both at the fuel pump and in the store, to encourage in-store merchandise sales and gasoline sales. In some of our markets, our competitors have been in existence longer and have greater financial, marketing, and other resources than we do. As a result, our competitors may have a greater ability to bear the economic risks inherent in our industry and may be able to respond better to changes in the economy and new opportunities within the industry, including those related to electric vehicle charging stations. This intense competition could adversely affect our revenues and profitability and have a material adverse impact on our business and results of operations.\n14\nRisks Related to Our Growth Strategies\nWe may not be able to identify, acquire, and integrate new properties and stores, which could adversely affect our ability to grow our business.\nAn important part of our growth strategy has been to purchase properties on which to build our stores, and in other instances, acquire other convenience stores that complement our existing stores or broaden our geographic presence. We expect to continue pursuing acquisition opportunities, which involve risks that could cause our actual growth or operating results to differ materially from our expectations or the expectations of our shareholders and securities analysts. These risks include, but are not limited to, the inability to identify and acquire suitable sites at advantageous prices; competition in targeted market areas; difficulties in obtaining favorable financing for larger acquisitions or construction projects; difficulties during the acquisition process in discovering some of the liabilities of the businesses that we acquire; difficulties associated with our existing financial controls, information systems, management resources and human resources needed to support our future growth; difficulties with hiring, training and retaining skilled personnel; difficulties in adapting distribution and other operational and management systems to an expanded network of stores; difficulties in adopting, adapting to or changing the business practices, models or processes of stores or chains we acquire; difficulties in obtaining governmental and other third-party consents, permits and licenses needed to operate additional stores; difficulties in obtaining the cost savings and financial improvements we anticipate from future acquired stores; the potential diversion of our management\u2019s attention from focusing on our core business due to an increased focus on acquisitions; and, challenges associated with the consummation and integration of any future acquisition.\nRisks Relating to Our Common Stock\nThe market price for our common stock has been and may in the future be volatile, which could cause the value of your investment to decline.\nSecurities markets worldwide experience significant price and volume fluctuations. This market volatility could significantly affect the market price of our common stock without regard to our operating performance. In addition, the price of our common stock could be subject to wide fluctuations in response to these, and other factors: a deviation in our results from the expectations of public market analysts and investors; statements by research analysts about our common stock, company, or industry; changes in market valuations of companies in our industry and market evaluations of our industry generally; additions or departures of key personnel; actions taken by our competitors; sales or repurchases of common stock by the Company or other affiliates; and, other general economic, political, or market conditions, many of which are beyond our control.\nThe market price of our common stock will also be affected by our quarterly operating results and same store sales results, which may be expected to fluctuate. Some of the factors that may affect our quarterly results and same store sales include general, regional, and national economic conditions; competition; unexpected costs; changes in retail pricing, consumer trends, and the number of stores we open and/or close during any given period; and the costs of compliance with corporate governance and other legal requirements. Other factors are discussed throughout Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations. You may not be able to resell your shares of our common stock at or above the price you pay.\nAny issuance of shares of our common stock in the future could have a dilutive effect on your investment.\nWe could issue additional shares for investment, acquisition, or other business purposes. Even if there is not an immediate need for capital, we may choose to issue securities to sell in public or private equity markets, if and when conditions are favorable. Raising funds by issuing securities would dilute the ownership interests of our existing shareholders. Additionally, certain types of equity securities we may issue in the future could have rights, preferences, or privileges senior to the rights of existing holders of our common stock.\nIowa law and provisions in our charter documents may have the effect of preventing or hindering a change in control and adversely affecting the market price of our common stock.\nOur articles of incorporation give the Company\u2019s board of directors the authority to issue up to one million shares of preferred stock and to determine the rights and preferences of the preferred stock without obtaining shareholder approval. The existence of this preferred stock could make it more difficult or discourage an attempt to obtain control of the Company by means of a tender offer, merger, proxy contest, or otherwise. Furthermore, this preferred stock could be issued with other rights, including economic rights, senior to our common stock, thereby having a potentially adverse effect on the market price of our common stock.\nIn addition, provisions of Iowa corporate law could make it more difficult for a third party to acquire us or remove our directors by means of a proxy contest, even if doing so would be beneficial to our shareholders. For example, the Iowa Business Corporation Act (the \u201cAct\u201d) prohibits publicly held Iowa corporations to which it applies from engaging in a business combination with an interested shareholder for a period of three years after the date of the transaction in which the person \n15\nbecame an interested shareholder unless the business combination is approved in a prescribed manner. Further, the Act permits a board of directors, in the context of a takeover proposal, to consider not only the effect of a proposed transaction on shareholders, but also on a corporation\u2019s Team Members, suppliers, guests, creditors, and on the communities in which the corporation operates. These provisions could discourage others from bidding for our shares and could, as a result, reduce the likelihood of an increase in our stock price that would otherwise occur if a bidder sought to buy our stock.\nWe may, in the future, adopt other measures (such as a shareholder rights plan or \u201cpoison pill\u201d) that could have the effect of delaying, deferring, or preventing an unsolicited takeover, even if such a change in control were at a premium price or favored by a majority of unaffiliated shareholders. These measures may be adopted without any further vote or action by our shareholders.\n16\nTable of Contents",
+  "item7": ">ITEM\u00a07.\nMANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n(Dollars and gallons in thousands, except per share amounts)\nPlease read the following discussion of the Company\u2019s financial condition and results of operations in conjunction with the selected historical consolidated financial data and consolidated financial statements and accompanying notes presented elsewhere in this Form 10-K.\nOverview\nAs of April\u00a030, 2023, Casey\u2019s General Stores, Inc. and its direct and indirect wholly-owned subsidiaries operate convenience stores primarily under the names \"Casey's\" and \"Casey\u2019s General Store\" (collectively, with the stores below referenced as \"GoodStop\", \"Bucky's\" or \"Minit Mart\", referred to as \"Casey's\" or the \"Company\") throughout 16 states, primarily in Iowa, Missouri, and Illinois. On April\u00a030, 2023, there were a total of 2,521 stores in operation. \nAll convenience stores carry a broad selection of food items (including, but not limited to, freshly prepared foods such as regular and breakfast pizza, donuts, hot breakfast items, and hot and cold sandwiches), beverages, tobacco and nicotine products, health and beauty aids, automotive products, and other nonfood items. As of April\u00a030, 2023, 217 store locations offered car washes. In addition, all but seven store locations offer fuel for sale on a self-service basis.\nDuring the prior fiscal year, the Company introduced certain stores branded or rebranded as \"GoodStop (by Casey\u2019s)\". Similar to most of our store footprint, the \"GoodStop\" locations offer fuel for sale on a self-serve basis, and a broad selection of snacks, beverages, tobacco products, and other essentials. However, these locations typically do not have a kitchen and have limited prepared food offerings. As of April\u00a030, 2023, 43 stores operate under the \"GoodStop\" brand.\nThe Company is also temporarily operating certain locations acquired from Buchanan Energy during the prior fiscal year under the name \"Bucky's\" and certain locations acquired from Minit Mart LLC during the current fiscal year under the name \"Minit Mart.\" The Company is in the process of transitioning all \"Bucky's\" and \"Minit Mart\" locations to either the \"Casey's\" or \"GoodStop\" brand. These locations typically have similar offerings to the \"Casey\u2019s\" or \"GoodStop\" branded stores. \nThe Company has 76 dealer locations, where Casey\u2019s manages fuel wholesale supply agreements to these stores. These locations are not operated by Casey's and are not included in our overall store count in the paragraph below. Approximately 1% of total revenue for the year-ended April\u00a030, 2023 relates to this dealer network\nApproximately 50% of all Casey\u2019s were opened in areas with populations of fewer than 5,000 people, while approximately 26% of all stores were opened in communities with populations of more than 20,000 persons. CMC operates three distribution centers, through which certain grocery and general merchandise, and prepared food and dispensed beverage items, are supplied to our stores. One is adjacent to the Store Support Center facility in Ankeny, Iowa. The other two distribution centers are located in Terre Haute, Indiana (opened in February 2016) and Joplin, Missouri (opened in April 2021). At April\u00a030, 2023, the Company leased the combination of land and/or building at 121 locations. \nThe Company\u2019s business is seasonal, and generally experiences higher sales and profitability during the first and second fiscal quarters (May-October), when guests tend to purchase greater quantities of fuel and certain convenience items such as beer, sports drinks, water, soft drinks and ice.\nThe following table represents the roll forward of store growth throughout fiscal 2023:\nStore Count\nStores at April 30, 2022\n2,452\u00a0\nNew store construction\n34\u00a0\nAcquisitions\n47\nAcquisitions not opened\n(4)\nPrior acquisitions opened\n2\u00a0\nClosed\n(10)\nStores at April 30, 2023\n2,521\u00a0\n19\nTable of Contents\nAcquisitions in the table above include, in part, 26 stores which were acquired from Minit Mart LLC in April 2023. For additional discussion, refer to Note 2 in the consolidated financial statements.\nFor further general descriptive information on the Company\u2019s business and operations, see Item 1, above, which is incorporated herein by reference.\nLong-Term Strategic Plan\nThe Company announced a three-year strategic plan in January 2020 focused on four strategic objectives: reinvent hospitality and the guest experience; be where the guest is by accelerating unit growth; create capacity through best-in-\nclass efficiencies; and, invest in our people and culture. The Company's plan was based on building on our proud heritage and distinct advantages to become more contemporary through new capabilities, technology, data, and processes. We believe this will best position the Company to address rapidly evolving shifts in consumer habits and other macro retail trends.\nThe Company closed out its strategic plan at the end of the fiscal year. Some of the key highlights from this past fiscal year include:\n\u2022\nGrew our store count through new store construction and a number of strategic acquisitions\n\u2022\nDiluted EPS of $11.91, up 30.8% over the prior year\n\u2022\nPrivate label penetration in the grocery and general merchandise category was over 9% on both units and gross profit for the year \n\u2022\nCasey's Rewards members grew to 6.4 million at year-end\nCOVID-19 and Related Impacts\nThe onset of COVID-19 caused a significant decrease in store traffic across our entire footprint. While store traffic has markedly increased as the economy reopened over the past two or so years, the Company has not seen a full return to store traffic levels experienced prior to the pandemic. The Company believes this is largely contributed to by the increased prevalence and acceptance across all industries of working from home, a trend which the Company expects to continue into the foreseeable future.\nWhile the ongoing impacts of COVID-19, in particular those related to governmental actions in response thereto, and those mentioned immediately above, will continue to bring challenges to our operating environment, we believe that our resilient business model and the strength of our brand and balance sheet position us well to navigate the impacts.\nFuel Volatility\nSince early calendar 2020, the price of crude oil, and in turn the wholesale cost of fuel, has been volatile compared to historical averages. Initially, at the outset of the pandemic, oil and fuel prices fell dramatically; however, as the economy in general began to emerge from the COVID-19 pandemic, prices began to modestly increase over time. More recently, during the end of the Company\u2019s 2022 fiscal year, oil and fuel prices saw a quick and dramatic increase, in part, as a result of the conflict in Ukraine, as well as other macroeconomic conditions, which also directly impacts the retail price of fuel that we sell at our stores. Generally, oil and fuel prices have decreased from levels seen throughout the past two years, but they remain elevated compared to historical levels. The Company expects these comparatively higher prices to remain into the 2024 fiscal year.\nIn addition, during the past three calendar years, the Company, and the retail fuel industry as a whole, has experienced historically high average revenue less cost of goods sold per gallon (excluding depreciation and amortization). Although this has remained relatively consistent since that time, on a longer-term basis, this metric can fluctuate significantly, and sometimes unpredictably, in the short-term. While the Company believes that its average revenue less cost of goods sold per gallon (excluding depreciation and amortization) will remain elevated from historical levels for the foreseeable future, it is possible that increased oil and fuel prices, rising interest rates, macroeconomic conditions and/or continuing conflicts or disruptions involving oil producing countries may materially impact the performance of this metric.\nElectric Vehicles and Renewable Fuels\nCasey's continues its process of developing a robust electric vehicle (\"EV\") strategy and our management team remains committed to understanding if and how the increased demand for, and usage of, EVs impacts consumer behavior across our store footprint and beyond. As consumer demand for alternative fuel options continues to grow, Casey\u2019s has continued to add EV charging stations across our 16-state footprint. The Company has installed 138 charging stations at 29 stores, across 10 states. Our installation strategy is currently designed to selectively increase our charging stations at locations within our region where we see higher levels of consumer EV buying trends and demand for EV charging. To date, consumer EV demand within our Midwest footprint has been comparatively lower than the levels along the coasts. As EV demand from our guests increases, we are prepared to strategically integrate charging station options at select stores.\nThe Company also remains committed to offering renewable fuel options at our stores and continues to expand its alternative fuel options in response to evolving guest needs and as part of its environmental stewardship efforts. Currently, \n20\nTable of Contents\nalmost all of our stores offer fuel with at least 10% of blended ethanol and 43% of our stores offer biodiesel. Every new store has the capability to sell higher blended ethanol, and we aim to continue growing sales of renewable fuels throughout our footprint\nFiscal 2023 Compared with Fiscal 2022 \nTotal revenue for fiscal 2023 increased 16.5% ($2,141,881) to $15,094,475. \nTotal revenue was impacted favorably by operating \n69\n more stores than a year ago, elevated retail fuel prices, and strategic retail price adjustments.\n Retail fuel sales for the fiscal year were $10,027,310, an increase of 20.6% primarily due to a 16.5% increase in the average price of fuel. Fuel gallons sold increased 3.6% to 2.7 billion gallons, which increased fuel revenue by an additional $349,451. Grocery and general merchandise revenue for the fiscal year was $3,445,777, an increase of 9.7% due to strong sales of packaged beverages, snacks, and candy. Prepared food\u00a0and dispensed beverage revenue increased 9.8% to $1,322,560 due to increased sales of pizza slices, whole pies, and donuts.\nTotal revenue less cost of goods sold (excluding depreciation and amortization) was 20.4% for fiscal 2023 compared with 21.3% for the prior year. Fuel cents per gallon increased to 40.2 cents in fiscal 2023 from 36.0 cents in fiscal 2022. The grocery\u00a0and general merchandise revenue less related cost of goods sold (exclusive of depreciation and amortization) increased to 33.6% from 32.7% during fiscal 2023 compared to fiscal 2022. Grocery and general merchandise revenue less related cost of goods sold (exclusive of depreciation and amortization) was positively impacted by mix shift to higher margin items like energy drinks, candy, and private label products, as well as retail price adjustments, offset by inflationary pressures. The prepared food\u00a0and dispensed beverage revenue less related cost of goods sold (exclusive of depreciation and amortization) decreased to 56.6% from 59.2% during fiscal 2023 compared to the prior year, primarily due to higher ingredient costs, notably cheese, and higher levels of stales, which were partially offset by retail price adjustments.\nOperating expenses increased 8.1% ($158,469) in fiscal 2023. A one-time payment of $15,297 was received from the resolution of a legal matter, which reduced operating expenses by approximately 1%. Approximately 3% of the increase is due to operating 69 more stores than a year ago. Approximately 2% of the increase was related to same-store operations. One percent of the increase was related to same-store credit card fees driven by higher retail fuel prices, retail price adjustments and strong inside sales. Approximately 1% of the change is related to an increase in variable incentive compensation due to strong financial performance. Same-store employee expense was flat as the increase in employee wage rate was offset by a 2% reduction in same-store labor hours. The majority of all operating expenses are wages and wage-related costs.\nDepreciation and amortization expense increased 3.2% ($9,590) to $313,131 in fiscal 2023 from $303,541 in fiscal 2022. The increase was due primarily to acquisitions and capital expenditures made in fiscal 2023 and fiscal 2022, offset by a decrease in accelerated depreciation, which was recorded in the prior year on equipment replaced in remodels.\nInterest, net decreased 9.1% ($5,157) to $51,815 in fiscal 2023 from $56,972 in fiscal 2022. The decrease was primarily attributable to an increase in interest income due to the increase in cash and cash equivalents and interest rates.\nThe effective tax rate increased to 24.0% in fiscal 2023 from 22.9% in fiscal 2022. The increase in the effective tax rate was driven by a decrease in excess tax benefits recognized on share-based awards and a decrease in favorable permanent differences.\nNet income increased to $446,691 in fiscal 2023 from $339,790 in fiscal 2022. The increase was primarily attributable to higher profitability both inside the store and in fuel. This increase was partially offset by higher operating expenses, depreciation and amortization, and income tax expense. See discussion in the paragraphs above for the primary drivers for each of these increases.\nPlease refer to the Form 10-K related to the fiscal year ended April 30, 2022, filed on June 24, 2022, for comparison of Fiscal 2022 to Fiscal 2021.\n21\nTable of Contents\nCOMPANY TOTAL REVENUE AND REVENUE LESS COST OF GOODS SOLD (EXCLUDING DEPRECIATION AND AMORTIZATION) BY CATEGORY\n \n\u00a0\n\u00a0\nYears ended April\u00a030,\n\u00a0\n2023\n2022\n2021\nTotal revenue by category\nFuel\n$\n10,027,310\n\u00a0\n$\n8,312,038\u00a0\n$\n4,825,466\u00a0\nGrocery\u00a0and general merchandise\n3,445,777\n\u00a0\n3,141,527\u00a0\n2,724,374\u00a0\nPrepared food\u00a0and dispensed beverage\n1,322,560\n\u00a0\n1,204,100\u00a0\n1,087,147\u00a0\nOther (1)\n298,828\n\u00a0\n294,929\u00a0\n70,202\u00a0\n$\n15,094,475\n\u00a0\n$\n12,952,594\u00a0\n$\n8,707,189\u00a0\nRevenue less cost of goods sold (excluding depreciation and amortization) by category \nFuel\n$\n1,074,913\n\u00a0\n$\n928,868\u00a0\n$\n761,247\u00a0\nGrocery\u00a0and general merchandise\n1,156,451\n\u00a0\n1,027,477\u00a0\n872,573\u00a0\nPrepared food\u00a0and dispensed beverage\n748,405\n\u00a0\n712,352\u00a0\n653,689\u00a0\nOther (1)\n92,637\n\u00a0\n94,017\u00a0\n68,926\u00a0\n$\n3,072,406\n\u00a0\n$\n2,762,714\u00a0\n$\n2,356,435\u00a0\n(1)\nThe 'Other' category historically has primarily consisted of lottery, which is presented net of applicable costs, and car wash. As a result of the Buchanan Energy acquisition in the prior fiscal year, we acquired a dealer network where Casey\u2019s manages fuel wholesale supply agreements to these stores. The activity related to this dealer network is included in the 'Other' category and is presented gross of applicable costs.\nINDIVIDUAL STORE COMPARISONS (1)\n\u00a0\n\u00a0\nYears ended April\u00a030,\n\u00a0\n2023\n2022\n2021\nAverage retail sales\n$\n6,064\n\u00a0\n$\n5,206\u00a0\n$\n3,894\u00a0\nAverage retail inside sales (2)\n1,956\n\u00a0\n1,840\u00a0\n1,720\u00a0\nAverage revenue less cost of goods sold (excluding depreciation and amortization) on inside sales (2)\n752\n\u00a0\n723\u00a0\n655\u00a0\nAverage retail sales of fuel\n4,110\n\u00a0\n3,366\u00a0\n2,174\u00a0\nAverage revenue less cost of goods sold (excluding depreciation and amortization) on fuel \n450\n\u00a0\n363\u00a0\n338\u00a0\nAverage operating income (3)\n445\n\u00a0\n367\u00a0\n338\u00a0\nAverage number of gallons sold\n1,092\n\u00a0\n1,047\u00a0\n981\u00a0\n\u00a0\n(1)\nIndividual store comparisons include only those stores that had been in operation for at least one full year and remained open on April\u00a030 of the fiscal year indicated.\n(2)\nInside sales is comprised of sales related to the grocery and general merchandise and prepared food and dispensed beverage categories.\n(3)\nAverage operating income represents retail sales less cost of goods sold, operating expenses and depreciation and amortization attributable to a particular store; it excludes interest, federal and state income taxes, and Company operating expenses not attributable to a particular store.\n22\nTable of Contents\nSAME STORE SALES BY CATEGORY (1) \n\u00a0\nYears\u00a0ended\u00a0April\u00a030,\n\u00a0\n2023\n2022\n2021\nFuel gallons \n(0.8)\n%\n4.4\u00a0\n%\n(8.1)\n%\nGrocery\u00a0and general merchandise (2)\n6.3\n\u00a0\n%\n6.3\u00a0\n%\n6.6\u00a0\n%\nPrepared food\u00a0and dispensed beverage (2)\n7.1\n\u00a0\n%\n7.4\u00a0\n%\n(2.1)\n%\n\u00a0\n(1)\nSame-store sales is a common metric used in the convenience store industry. We define same-store sales as the total sales increase (or decrease) for stores open during the full time of the periods being presented. The store must be open for each entire fiscal year being compared. Remodeled stores that remained open or were closed for just a very brief period of time (less than a week) during the period being compared remain in the same store sales comparison. If a store is replaced, either at the same location (razed and rebuilt) or relocated to a new location, it is removed from the comparison until the new store has been open for each entire period being compared. Newly constructed and acquired stores do not enter the calculation until they are open for each entire period being compared as well.\n(2)\nThe increase in grocery and general merchandise same-store sales was primarily due to strong sales of packaged beverages, snacks and candy. The increase in prepared food and dispensed beverage same-store sales was attributable to improved sales in pizza slices, whole pies, and donuts. Both categories were also impacted favorably by strategic retail price adjustments.\nUse of Non-GAAP Measures\nWe define EBITDA as net income before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding the gain or loss on disposal of assets as well as impairment charges. Neither EBITDA nor Adjusted EBITDA are presented in accordance with GAAP.\nWe believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our operating performance because securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities, and they are regularly used by management for internal purposes including our capital budgeting process, evaluating acquisition targets, and assessing store performance.\nEBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as a substitute for net income, cash flows from operating activities or other income or cash flow statement data. These measures have limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.\nBecause non-GAAP financial measures are not standardized, EBITDA and Adjusted EBITDA, as defined by us, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare our use of these non-GAAP financial measures with those used by other companies.\nThe following table contains a reconciliation of net income to EBITDA and Adjusted EBITDA for the years ended April\u00a030, 2023 and 2022, respectively:\n\u00a0\n\u00a0\nYears ended\n\u00a0\nApril 30, 2023\nApril 30, 2022\nNet income\n$\n446,691\n\u00a0\n$\n339,790\u00a0\nInterest, net\n51,815\n\u00a0\n56,972\u00a0\nDepreciation and amortization\n313,131\n\u00a0\n303,541\u00a0\nFederal and state income taxes\n140,827\n\u00a0\n100,938\u00a0\nEBITDA\n$\n952,464\n\u00a0\n$\n801,241\u00a0\nLoss (gain) on disposal of assets and impairment charges\n6,871\n\u00a0\n(1,201)\nAdjusted EBITDA\n$\n959,335\n\u00a0\n$\n800,040\u00a0\nFor the year ended April\u00a030, 2023, EBITDA and Adjusted EBITDA increased 18.9% and 19.9%, respectively. The increase was primarily attributable to higher profitability both inside the store and in fuel, which was partially offset by higher operating expenses due to operating 69 more stores than one year ago, an increase in store operations cost, as well as increased credit card fees resulting from increased revenue.\n23\nTable of Contents\nCritical Accounting Policies and Estimates\nCritical accounting policies are those accounting policies that management believes are important to the portrayal of our financial condition and results of operations and require management\u2019s most difficult, subjective judgments, often because of the need to estimate the effects of inherently uncertain factors.\nBusiness Combinations\nThe Company uses the acquisition method of accounting for transactions meeting the definition of a business combination. The acquisitions are recorded in the financial statements by allocating the purchase price to the assets acquired, including intangible assets, and liabilities assumed, based on their estimated fair values at the acquisition date as determined by third party appraisals or internal estimates. The more significant assets acquired include buildings, equipment, and land. The Company primarily values buildings and equipment using the cost method and land using comparable land sales. The purchase price is determined based upon the fair value of consideration transferred to the seller. Fair values are typically determined using Level 3 inputs (see Note 3 to the consolidated financial statements). Given these estimates often are based upon unobservable inputs, the estimates require significant judgment when determining the overall value and actual results could differ from the estimates originally established. The excess of the cost of the acquisition over the net amounts assigned to the fair value of the assets acquired and the liabilities assumed is recorded as goodwill if the acquisition is considered to be a business combination. During a one-year period from the acquisition date, amounts are allowed to be provisional for areas that are expected to be adjusted to their final amounts during the measurement period. These provisional adjustments are for when the buyer obtains additional information about the facts and circumstances that existed as of the acquisition date. Subsequent adjustments recorded to provisional balances within the measurement period are recorded in the period in which the adjustment is identified. Acquisition-related transaction costs are recognized as period costs as incurred. \nInventory\nInventories, which consist of merchandise and fuel, are stated at the lower of cost or market. For fuel inventories, cost is determined through the use of the first-in, first-out (FIFO) method. For merchandise inventories, cost is determined through the use of the last-in, first-out (LIFO) method. Inventory valued using the LIFO method of inventory requires judgement when making the determination of appropriate indices to be used for determining price level changes.\nLong-lived Assets\nThe Company monitors closed and underperforming stores for an indication that the carrying amount of assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets, an impairment loss is recognized to the extent carrying value of the assets exceeds their estimated fair value. Fair value is based on management\u2019s estimate of the price that would be received to sell an asset in an orderly transaction between market participants. The estimate is derived from offers, actual sale or disposition of assets subsequent to year-end, and other indications of fair value, which are considered Level 3 inputs (see Note 3 to the consolidated financial statements). In determining whether an asset is impaired, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, which for the Company is generally on a store-by-store basis. The Company incurred impairment charges of $3,500 in fiscal 2023, $1,056 in fiscal 2022, and $3,846 in fiscal 2021. Impairment charges are a component of operating expenses.\nSelf-insurance\nThe Company is primarily self-insured for Team Member healthcare, workers\u2019 compensation, general liability, and automobile claims. The self-insurance claim liability for workers\u2019 compensation, general liability, and automobile claims is determined actuarially at each year-end based on claims filed and an estimate of claims incurred but not yet reported. Actuarial projections of the losses are employed due to the potential of variability in the liability estimates. Some factors affecting the uncertainty of claims include the development time frame, settlement patterns, litigation and adjudication direction, and medical treatment and cost trends. The liability is not discounted. The balances of our self-insurance reserves were $61,168 and $53,752 for the years ended April\u00a030, 2023 and 2022, respectively.\nRecent Accounting Pronouncements\nRefer to Note 1 of the consolidated financial statements for a description of new accounting pronouncements applicable to the Company.\n24\nTable of Contents\nLiquidity and Capital Resources\nDue to the nature of our business, cash provided by operations is our primary source of liquidity. The Company finances our inventory purchases primarily from normal trade credit aided by relatively rapid inventory turnover. This turnover allows us to conduct operations without large amounts of cash and working capital. As of April\u00a030, 2023, the Company\u2019s ratio of current assets to current liabilities was 0.99 to 1. The ratio at April\u00a030, 2022 and at April\u00a030, 2021 was 0.80 to 1 and 1.18 to 1, respectively. The increase in the ratio from the prior year is partially attributable to an increase in cash and cash equivalents due to strong free cash flows, and a decrease in payments for acquisitions. \nWe believe our current $850,000 unsecured revolving credit facility, our $25,000 unsecured bank line of credit (subsequent to year-end this increased to $50,000, see discussion in Note 3), current cash and cash equivalents, and the future cash flow from operations will be sufficient to satisfy the working capital needs of our business.\nNet cash provided by operating activities was $881,951 for the year ended April\u00a030, 2023, compared to $788,741 for the year ended April\u00a030, 2022. The increase in operating cash flows was partially attributable to an increase in net income adjusted for non-cash reconciling items (depreciation and amortization, amortization of debt issuance costs, stock-based compensation, and loss (gain) on disposal of assets and impairment charges) of approximately $132,873. Refer to \u201cFiscal 2023 Compared with Fiscal 2022\u201d on page 21 for further details on the primary driver for these changes. This increase was partially offset by the changes in deferred income taxes and changes in components of assets and liabilities. Cash provided by operations can be impacted by variability in the timing of payments and receipts for certain assets and liabilities, as well as changes in commodity costs year-over-year. The impacts from changes in deferred income taxes decreased by $59,595, attributable to lower accelerated tax depreciation on acquisitions and capital expenditures made in the current fiscal year. Additionally, impacts from accounts payable decreased $175,376 due to higher fuel costs in the prior fiscal year and an effort to better utilize available payment terms introduced in the prior fiscal year. These decreases were partially offset by impacts from changes in income tax balances which increased $56,368, primarily attributable to the timing of tax payments across the last two fiscal years, and impacts from inventories which increased $100,820, attributable to higher fuel costs in the prior year.\nAs shown in the supplemental disclosures to the cash flow, cash paid for taxes increased $40,833, primarily attributable to an increase in taxable income (refer to \u201cFiscal 2023 Compared with Fiscal 2022\u201d on page 21 for further details on the primary driver for these changes) during the year as impacts from changes in deferred tax liabilities and income tax receivable were offsetting.\nPurchases of property and equipment and payments for acquisitions of businesses typically represent the single largest use of Company funds. Management believes that by acquiring, building, and reinvesting in stores, the Company will be better able to respond to competitive challenges and increase operating efficiencies. During fiscal 2023, we expended $562,137 for property and equipment, primarily for construction, acquisition, and remodeling of stores compared with $1,228,113 in the prior year. The decrease was primarily due to significant acquisition activity occurring in the prior year (see Note 2 for further discussion).\nCash provided by financing decreased $308,513, primarily due to $450,000 in draws on the Company's term loan facility to finance acquisitions in the prior year, offset by prior year prepayments of $167,500 on the Company's term loan facility due to strong free cash flow.\n25\nTable of Contents\nAs of April\u00a030, 2023, we had long-term debt and finance lease obligations consisting of:\nFinance lease liabilities (Note 7)\n$\n95,072\u00a0\n3.67% Senior Notes (Series A) due in 7 installments beginning June\u00a017, 2022, and ending June\u00a015, 2028\n135,000\u00a0\n3.75% Senior Notes (Series B) due in 7 installments beginning December\u00a017, 2022 and ending December\u00a018, 2028\n45,000\u00a0\n3.65% Senior Notes (Series C) due in 7 installments beginning May 2, 2025 and ending May 2, 2031\n50,000\u00a0\n3.72% Senior Notes (Series D) due in 7 installments beginning October 28, 2025 and ending October 28, 2031\n50,000\u00a0\n3.51% Senior Notes (Series E) due June 13, 2025\n150,000\u00a0\n3.77% Senior Notes (Series F) due August 22, 2028\n250,000\u00a0\n2.85% Senior Notes (Series G) due August 7, 2030\n325,000\u00a0\n2.96% Senior Notes (Series H) due August 6, 2032\n325,000\u00a0\nVariable rate term loan facility, requiring quarterly installments ending April 21, 2028\n250,000\u00a0\nDebt issuance costs\n(1,698)\n$\n1,673,374\u00a0\nLess current maturities\n52,861\u00a0\n$\n1,620,513\u00a0\nInterest on the 3.67% Senior Notes Series A and 3.75% Senior Notes Series B is payable on the 17th day of each June and December. Principal on the Senior Notes Series A and Series B is payable in various installments beginning June 17, 2022 (Series A) and December 17, 2022 (Series B) through December 2028. We may prepay the 3.67% and 3.75% Senior Notes in whole or in part at any time in an amount of not less than $2,000 at a redemption price calculated in accordance with the Note Agreement dated June 17, 2013, as amended, between the Company and the purchasers of the Senior Notes Series A and Series B.\nInterest on the 3.65% Senior Notes Series C is payable on the 2nd day of each May and November, while the interest on the 3.72% Senior Notes Series D is payable on the 28th day of each April and October. Principal on the Senior Notes Series C and Series D is payable in various installments beginning May 2, 2025 (Series C) and October 28, 2025 (Series D) through October 2031. We may prepay the 3.65% and 3.72% Senior Notes in whole or in part at any time in an amount of not less than $2,000 at a redemption price calculated in accordance with the Note Agreement dated May 2, 2016, as amended, between the Company and the purchasers of the Senior Notes Series C and Series D.\nInterest on the 3.51% Senior Notes Series E is payable on the 13th day of each June and December, while the interest on the 3.77% Senior Notes Series F is payable on the 22nd day of each February and August. Principal on the Senior Notes Series E and Series F is payable in full on June 13, 2025 (Series E) and August 22, 2028 (Series F), respectively.  We may prepay the 3.51% and 3.77% Senior Notes in whole or in part at any time in an amount of not less than $2,000 at a redemption price calculated in accordance with the Note Agreement dated June 13, 2017, as amended, between the Company and the purchasers of the Senior Notes Series E and Series F.\nInterest on the 2.85% Senior Notes Series G and 2.96% Senior Notes Series H is payable on the 7th day of each February and August. Principal on the Senior Notes Series G and Series H is payable in full on August 7, 2030 (Series G) and August 6, 2032 (Series H), respectively. We may prepay the 2.85% and 2.96% Senior Notes in whole or in part at any time in an amount of not less than $2,000 at a redemption price calculated in accordance with the Note Purchase Agreement dated June 30, 2020, between the Company and the purchasers of the Senior Notes Series G and Series H.\nDuring the fourth quarter, the Company refinanced its existing credit agreement (dated January 11, 2019, as amended, by and among the Company, the lenders party thereto and Royal Bank of Canada, as administrative agent) which resulted in its termination and repayment, in full, and entry into a new credit agreement (dated April 21, 2023, by among the lenders thereto and Wells Fargo Bank, National Association, as administrative agent) to provide for (a) a $250 million unsecured term loan , and (b) an $850 million unsecured revolving credit facility (collectively, the \u201cCredit Facilities\u201d). See Note 3 for additional information related to the Credit Facilities (see \u201cPrior Credit Agreement\u201d and \u201cNew Credit Agreement\u201d sections). Amounts borrowed under the Credit Facilities bear interest at variable rates based upon, at the Company\u2019s option, either: (a) either Term SOFR or Daily Simple SOFR, in each case plus 0.10% (with a floor of 0.00%) for the interest period in effect, plus an applicable margin ranging from 1.10% to 1.70% or (b) an alternate base rate, which generally equals the highest of (i) the prime \n26\nTable of Contents\ncommercial lending rate announced by the Administrative Agent as its \u201cprime rate\u201d, (ii) the federal funds rate plus 1/2 of 1.00%, and (iii) Adjusted Daily Simple SOFR plus 1.00%, each plus an applicable margin ranging from 0.10% to 0.70% and each with a floor of 1.00%. The applicable margins are dependent upon the Company's quarterly Consolidated Leverage Ratio, as defined in the credit agreement. We have the right at any time to prepay all or a portion of the outstanding balance without premium or penalty, other than customary \u201cbreakage\u201d costs with respect to Term SOFR-based borrowings, with prior notice given. \nTo date, we have funded capital expenditures primarily through funds generated from operations, the proceeds of the sale of common stock, issuance of debt or other bank financing, and existing cash. Future capital required to finance operations, improvements, and the anticipated growth in the number of stores is expected to come from cash generated by operations, its $850,000 committed unsecured revolving credit facility, its additional $25,000 unsecured bank line of credit, and additional long-term debt or other securities as circumstances may dictate. We do not expect such capital needs to adversely affect liquidity.\nThe table below presents our significant contractual obligations, including interest, at April\u00a030, 2023:\n\u00a0\nContractual obligations\nPayments due by period\n\u00a0\nTotal\nLess\u00a0than\n1 year\n1-3 years\n3-5 years\nMore\u00a0than\n5 years\nLong-term debt (1)\n$\n1,845,788\u00a0\n$\n87,959\u00a0\n$\n329,559\u00a0\n$\n374,706\u00a0\n$\n1,053,564\u00a0\nFinance lease obligations\n130,897\u00a0\n12,398\u00a0\n21,502\u00a0\n20,240\u00a0\n76,757\u00a0\nOperating lease obligations\n164,321\u00a0\n8,140\u00a0\n16,322\u00a0\n16,086\u00a0\n123,773\u00a0\nUnrecognized tax benefits\n10,957\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nDeferred compensation\n12,585\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTotal\n$\n2,164,548\u00a0\n$\n108,497\u00a0\n$\n367,383\u00a0\n$\n411,032\u00a0\n$\n1,254,094\u00a0\n(1)\nThe long-term debt portion of the table above excludes interest payments related to the Company's term loan facility, due to the variable nature of the required interest payments. \nUnrecognized tax benefits relate to uncertain tax positions and since we are not able to reasonably estimate the timing of the payments or the amount by which the liability will increase or decrease over time, the related timing of the payment of the balances have not been reflected in the above \u201cPayments due by period\u201d table.\nAt April 30, 2023, the Company had a total of $10,957 in gross unrecognized tax benefits. Of this amount, $8,656 represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate. The total amount of accrued interest and penalties for such unrecognized tax benefits was $386 as of April 30, 2023. Interest and penalties related to income taxes are classified as income tax expense in our consolidated statements of income. The federal statute of limitations remains open for the tax years 2019 and forward. Tax years 2013 and forward are subject to audit by state tax authorities depending on open statute of limitations waivers and the tax code of each state.\nA number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months. These changes could result from the expiration of the statute of limitations, examinations or other unforeseen circumstances. The Company has no ongoing federal or state income tax examinations. At this time, management believes it is reasonably possible the aggregate amount of unrecognized tax benefits will decrease by $2,500 within the next 12 months. This expected decrease is due to the expiration of statute of limitations related to certain federal and state income tax filing positions.\nIncluded in other long-term liabilities on our consolidated balance sheet at April\u00a030, 2023, was a $11,534 obligation for deferred compensation. Additionally, $756 was recognized in current liabilities as of April\u00a030, 2023 related to deferred compensation. As the specific payment dates for a portion of the deferred compensation outstanding are unknown due to the unknown retirement dates of many of the participants, the related timing of the payment of the balances have not been reflected in the above \u201cPayments due by period\u201d table. However, known payments of $8,777 will be due during the next 5 years.\nAt April\u00a030, 2023, we were partially self-insured for workers\u2019 compensation claims in all but two states of our operating territory. In North Dakota and Ohio, we are required to participate in an exclusive, state managed fund for all workers compensation claims. We were also partially self-insured for general liability and auto liability under an agreement that provides for annual stop-loss limits equal to or exceeding $2,000 for auto liability and $1,000 for workers' compensation and general liability.\n27\nTable of Contents\nForward-Looking Statements\nThis Form 10-K, including but not limited to the Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations, contains \u201cforward-looking statements\u201d within the meaning of\u00a0Section\u00a027A of the Securities Act of 1933, as amended, Section\u00a021E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. The words \u201cmay,\u201d \u201cwill,\u201d \"should,\" \u201cbelieve,\u201d \u201cexpect,\u201d \u201canticipate,\u201d \u201cintend,\u201d \u201cestimate,\u201d \u201cproject,\u201d \u201ccontinue,\u201d and similar expressions are used to identify forward-looking statements. Forward-looking statements represent the Company\u2019s current expectations or beliefs concerning future\u00a0events and trends that we believe may affect our financial condition, liquidity and related sources and needs, supply chain, results of operations and performance at our stores, business strategy, strategic plans, growth opportunities, integration of acquisitions, acquisition synergies, short-term and long-term business operations and objectives including our long-term strategic plan, wholesale fuel, inventory and ingredient costs and the potential effects of the conflict in Ukraine and COVID-19 on our business.\u00a0 The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the following risk factors described more completely above in Item 1A entitled \u201cRisk Factors\u201d:\nBusiness Operations;\n Our business and our reputation could be adversely affected by a cyber or data security incident or the failure to protect sensitive guest, Team Member or supplier data, or the failure to comply with applicable regulations relating to data security and privacy; food-safety issues and foodborne illnesses, whether actual or reported, or the failure to comply with applicable regulations relating to the transportation, storage, preparation or service of food, could adversely affect our business and reputation; we may be adversely impacted by increases in the cost of food ingredients and other related costs;  a significant disruption to our distribution network, to the capacity of the distribution centers, or timely receipt of inventory could adversely impact our sales or increase our transaction costs, which could have a material adverse effect on our business; we could be adversely affected if we experience difficulties in, or are unable to recruit, hire or retain, members of our leadership team and other distribution, field and store Team Members; any failure to anticipate and respond to changes in consumer preferences, or to introduce and promote innovative technology for guest interaction, could adversely affect our financial results; we rely on our information technology systems, and a number of third-party software providers, to manage numerous aspects of our business, and a disruption of these systems could adversely affect our business; increased credit card expenses could lead to higher operating expenses and other costs for the Company; our operations present hazards and risks which may not be fully covered by insurance, if insured; the dangers inherent in the storage and transport of fuel could cause disruptions and could expose to us potentially significant losses, costs or liabilities; consumer or other litigation could adversely affect our financial condition and results of operations; pandemics or disease outbreaks, such as COVID-19, responsive actions taken by governments and others to mitigate their spread, and guest behavior in response to these events, have, and may in the future, adversely affect our business operations, supply chain and financial results; and, covenants in our Senior Notes and credit facility agreements require us to comply with certain covenants and meet financial maintenance tests and the failure to comply with these requirements could have a material impact to us.\nGovernmental Actions, Regulations, and Oversight\n:\u00a0Compliance with and changes in tax laws could adversely affect our performance; we are subject to extensive governmental regulations; governmental action and campaigns to discourage tobacco and nicotine use and other tobacco products may have a material adverse effect on our revenues and gross profit; and, wholesale cost and tax increases relating to tobacco and nicotine products could affect our operating results.\nIndustry\n:\u00a0General economic and political conditions that are largely out of the Company\u2019s control may adversely affect the Company\u2019s financial condition and results of operations; developments related to fuel efficiency, fuel conservation practices, climate change, and changing consumer preferences may decrease the demand for motor fuel; unfavorable weather conditions can adversely affect our business; the volatility of wholesale petroleum costs could adversely affect our operating results; and, the convenience store industry is highly competitive.\nGrowth Strategies\n:\u00a0We may not be able to identify, acquire, and integrate new properties and stores, which could adversely affect our ability to grow our business.\nCommon Stock\n:\u00a0The market price for our common stock has been and may in the future be volatile, which could cause the value of your investment to decline; any issuance of shares of our common stock in the future could have a dilutive effect on your investment; and, Iowa law and provisions in our charter documents may have the effect of preventing or hindering a change in control and adversely affecting the market price of our common stock.\nAlthough we have attempted to list the important factors that presently affect the Company\u2019s business and operating results, we further caution you that other factors we have not identified may in the future prove to be important in affecting our business and results of operations.\u00a0We ask you not to place undue reliance on any forward-looking statements because they speak only of our views as of the statement dates.\u00a0We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.\n28\nTable of Contents\n ",
+  "item7a": ">ITEM\u00a07A.\nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nThe Company\u2019s exposure to market risk for changes in interest rates relates primarily to our investment portfolio and floating rate long-term debt obligations. We place our investments with high-quality credit issuers and, by policy, limit the amount of credit exposure to any one issuer. Our first priority is to reduce the risk of principal loss. Consequently, we seek to preserve our invested funds by attempting to limit default risk, market risk, and reinvestment risk. We attempt to mitigate default risk by investing in only high-quality credit securities that we believe to be low risk and by positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. Based upon the outstanding balance of the Company's term loan facilities as of April\u00a030, 2023, an immediate 100-basis-point move in interest rates would have an approximate annualized impact of $2.5 million on interest expense. \nWe do, from time to time, participate in a forward buy of certain commodities. These are not accounted for as derivatives under the normal purchase and sale exclusions under the applicable accounting guidance.\n29\nTable of Contents",
+  "cik": "726958",
+  "cusip6": "147528",
+  "cusip": ["147528103", "147528903"],
+  "names": ["CASEYS GEN STORES INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/726958/000072695823000059/0000726958-23-000059-index.htm"
+}
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+{
+  "item1": ">ITEM 1. \u00a0BUSINESS\nJack Henry & Associates, Inc.\u00ae is a well-rounded financial technology company that strengthens connections between financial institutions and the people and businesses they serve. For more than 47 years, we have provided technology solutions to help banks and credit unions innovate faster, strategically differentiate, and successfully compete while serving the evolving needs of their accountholders. We empower over 7,500 financial institutions and diverse corporate entities with people-inspired innovation, personal service, and insight-driven solutions that help reduce the barriers to financial health. \nMission Statement\nWe strengthen the connections between people and their financial institutions through technology and services that reduce the barriers to financial health.\nThis philosophy has always been part of our foundation and the roots on which Jack Henry was built. Our founders, Jack Henry and Jerry Hall, were committed to their community and believed they could help financial institutions better serve the needs of people and businesses using more modern technology and services. \nWhile much has changed since we opened for business in 1976, we continue to be focused on helping community and regional financial institutions, and we are guided by our founding principles: do the right thing, do whatever it takes, and have fun.\nWho We Serve\nWe provide products and services primarily to community and regional financial institutions:\n\u2022\nCore bank integrated data processing systems are provided to 940 banks ranging from de novo to multi-billion-dollar institutions with assets of up to $50 billion. The number of banks we serve has decreased in the last year due to acquisitions and mergers within the banking industry, which are discussed further under the heading \"Our Industry\" in this Item 1. Our banking solutions support both on-premise and private cloud operating environments with functionally distinct core processing platforms and integrated complementary solutions.\n\u2022\nCore credit union data processing solutions are provided to credit unions of all sizes, with a client base of over 710 credit union customers. We offer a flagship core processing platform and integrated complementary solutions that support both on-premise and private cloud operating environments.\n\u2022\nNon-core highly specialized core-agnostic products and services are also provided to financial institutions. We offer complementary solutions that include highly specialized financial performance, imaging and payments processing, information security and risk management, retail delivery, and online and mobile functionality. These products and services enhance the performance of traditional financial services organizations of all asset sizes and charters, and non-traditional diverse corporate entities. In total, we serve over 7,500 customers, over 1,650 of our core customers included in our bank and credit union customers listed above, and nearly 5,880 non-core customers.\nOur products and services provide our customers with solutions that can be tailored to support their unique growth, service, operational, and performance goals. Our well-rounded solutions also enable financial institutions to offer the high-demand products and services required by their customers to compete more successfully, and to capitalize on evolving trends shaping the financial services industry.\nWe are committed to exceeding our customers\u2019 expectations. We measure and monitor customer satisfaction using a variety of surveys, such as an annual survey on the customer's anniversary date and randomly-generated online surveys initiated each day by routine support requests to ensure feedback is received throughout the year. The results of our survey process provide assurance that our service consistently exceeds our customers\u2019 expectations and, we believe, contribute to our excellent customer retention rates.\nWe are focused on establishing long-term customer relationships, continually expanding and strengthening those relationships with cross sales of additional products and services that support our clients' strategy, earning new financial and non-financial clients, and ensuring our product offerings are highly competitive.\nThe majority of our revenue is derived from support and services provided by our private and public cloud services for our hosted customers that are typically on a seven-year or greater contract, recurring electronic payment solutions that are also generally on a contract term of seven years or greater, and our on-premise customers that are typically on a one-year contract. Less predictable software license fees, paid by customers implementing our \n5\nsoftware solutions on-premise, and hardware sales, including all non-software products that we re-market in order to support our software systems, complement our primary revenue sources. Information regarding the classification of our business into four separate segments is set forth in Note\u00a014 to the consolidated financial statements (see Item 8).\nWe recognize that our associates and their collective contribution are ultimately responsible for Jack Henry's past, present, and future success. Recruiting and retaining high-quality employees is essential to our ongoing growth and financial performance, and we believe we have established an organizational culture that sustains high levels of employee engagement. For further discussion of our human capital considerations, see \"Human Capital\" below.\nOur Industry\u00a0\nOur core banking solutions serve commercial banks and savings institutions with up to $50 billion in assets. According to the Federal Deposit Insurance Corporation (\u201cFDIC\u201d), there were approximately 4,660 commercial banks and savings institutions in this asset range as of December\u00a031, 2022, and we currently support 940 of these banks with one of our three core information processing platforms and complementary products and services. \u00a0\nOur core credit union solutions serve credit unions of all asset sizes. According to the Credit Union National Association (\u201cCUNA\u201d), there were more than 4,850 domestic credit unions as of December\u00a031, 2022, and we currently support over 710 of these credit unions with one flagship core information processing platform and complementary products and services.\nOur non-core solutions serve financial services organizations of all asset sizes and charters and other diverse corporate entities. We currently support over 7,500 institutions with specialized solutions for generating additional revenue and growth, increasing security, mitigating operational risks, and controlling operating costs.\nThe FDIC reports the number of commercial banks and savings institutions declined 17% from the beginning of calendar year 2017 to the end of calendar year 2022, due mainly to mergers. Although the number of banks declined at a 4% compound annual rate during this period, aggregate assets increased at a compound annual rate of 6% and totaled $23.6 trillion as of December\u00a031, 2022. There were 15 new bank charters issued in calendar year 2022, compared to 10 in the 2021 calendar year. Comparing calendar years 2022 to 2021, the number of mergers decreased 19%.\nCUNA reports the number of credit unions declined 15% from the beginning of calendar year 2017 to the end of calendar year 2022. Although the number of credit unions declined at a 3% compound annual rate during this period, aggregate assets increased at a compound annual rate of 9% and totaled $2.2 trillion as of December\u00a031, 2022.\nCommunity and mid-tier banks and credit unions are vitally important to the communities, consumers, and businesses they serve. Bank customers and credit union members rely on these institutions to provide personalized, relationship-based service and competitive financial products and services available through the customer\u2019s delivery channel of choice.  Institutions are recognizing that attracting and retaining customers and members in today\u2019s highly competitive financial industry and realizing near-term and long-term performance goals are often technology dependent. Financial institutions must implement technological solutions that enable them to:\n\u2022\nOffer e-commerce, mobile, and digital strategies that provide the convenience-driven services required in today\u2019s financial services industry.\n\u2022\nMaximize performance with accessible, accurate, and timely business intelligence information.\n\u2022\nProvide the high-demand products and services needed to successfully compete with traditional and non-traditional competitors created by convergence within the financial services industry.\n\u2022\nEnhance the customer/member experience at multiple points of contact.\n\u2022\nExpand existing customer/member relationships and strengthen exit barriers by cross selling additional products and services.\n\u2022\nCapitalize on new revenue, and deposit and loan portfolio growth opportunities.\n\u2022\nIncrease operating efficiencies and reduce operating costs.\n\u2022\nProtect mission-critical information assets and operational infrastructure.\n\u2022\nProtect customers/members with various security tools from fraud and related financial losses.\n\u2022\nMaximize the day-to-day use of technology and return on technology investments.\n\u2022\nEnsure full regulatory compliance.\n6\nJack Henry\u2019s extensive product and service offerings help diverse financial institutions meet business challenges and capitalize on opportunities. We strive to get to know our customers, understand their strategies and challenges, and provide innovative solutions that help them achieve short- and long-term success. \nBusiness Strategy\nOur fundamental business strategy is to generate organic revenue and earnings growth augmented by strategic acquisitions. We execute this strategy by:\n\u2022\nProviding community and regional banks and credit unions with core processing systems that provide excellent functionality and support on-premise and private cloud delivery environments with identical functionality.\n\u2022\nExpanding each core customer relationship by cross-selling complementary products and services that enhance the functionality provided by our core processing systems.\n\u2022\nProviding non-core highly specialized core-agnostic complementary products and services to financial institutions, including institutions not utilizing one of our core processing systems, and diverse corporate entities.\n\u2022\nDeveloping and deploying a long-term technology modernization strategy to provide public cloud native solutions that provide clients with greater flexibility, optionality, open integration, speed to market, and other benefits.\n\u2022\nMaintaining a company-wide commitment to customer service that consistently exceeds our customers\u2019 expectations and generates high levels of customer retention.\n\u2022\nBuilding, maintaining, and enhancing a protected environment and tools that help our clients and us protect customer data, assets, and comply with regulations.\n\u2022\nCapitalizing on our acquisition strategy.\nAcquisition Strategy\nWe have a disciplined approach to acquisitions and have been successful in supplementing our organic growth with 35 strategic acquisitions since the end of fiscal year 1999. We continue to explore acquisitions that have the potential to: \n\u2022\nExpand our suite of complementary products and services.\n\u2022\nProvide products and services that can be sold to both existing core and non-core customers and outside our base to new customers.\n\u2022\nAccelerate our internal development efforts.\n\u2022\nProvide selective opportunities to sell outside our traditional markets in the financial services industry. \nAfter 47 years in business, we have very few gaps in our product line, so it is increasingly difficult to find proven products or services that would enable our clients and prospects to better optimize their business opportunities or solve specific operational issues. In addition, we see few acquisition opportunities that would expand our market or enable our entry into adjacent markets within the financial services industry that are fairly priced or that we could assimilate into our Company without material distractions. \nWe have a solid track record of executing acquisitions from both a financial and operational standpoint, and we will continue to pursue acquisition opportunities that support our strategic direction, complement and accelerate our organic growth, and generate long-term profitable growth for our stockholders. While we seek to identify appropriate acquisition opportunities, we will continue to explore alternative ways to leverage our cash position and balance sheet to the benefit of our stockholders, such as continued investment in new products and services for our customers, repurchases of our stock, and continued payment of dividends.\nOur most recent acquisition was:\nFiscal Year\nCompany or Product Name\nProducts and Services\n2023\nPayrailz, LLC (\"Payrailz\")\nProvider of cloud-native modern digital payment capabilities leveraging AI and machine learning features for the financial services industry.\nSolutions\n\u2022\nOur core banking solutions support commercial banks with information and transaction processing platforms that provide enterprise-wide automation. We have three functionally distinct core bank processing systems and more than 140 fully integrated complementary solutions, including business intelligence and bank management, retail and business banking, digital and mobile internet banking and electronic payment solutions, fraud and risk management and protection, account origination, and item and document imaging solutions. Our core banking \n7\nsolutions have state-of-the-art functional capabilities, and we can re-market the hardware required by on-premise use of each software system. Our banking solutions can be delivered on-premise or through our private cloud delivery model and are backed by a company-wide commitment to provide exceptional personal service. \n\u2022\nOur core credit union solutions support credit unions of all sizes with an information and transaction processing platform that provides enterprise-wide automation. Our solution includes one flagship core processing system and more than 100 fully integrated complementary solutions, including business intelligence and credit union management, member and member business services, digital and mobile internet banking and electronic payment solutions, fraud and risk management and protection, account origination, and item and document imaging solutions. Our credit union solution also has state-of-the-art functional capabilities. We also re-market the hardware required by on-premise use of the software system. Our credit union solution can be delivered on-premise, through our private cloud, or through our partner private cloud delivery models. Each is backed by our company-wide commitment to provide exceptional personal service. \n\u2022\nOur non-core solutions for financial institutions are specialized products and services assembled primarily through our focused diversification acquisition strategy. These core-agnostic solutions are compatible with a wide variety of information technology platforms and operating environments and offer more than 100 complementary solutions, including proven solutions for generating additional revenue and growth, increasing security and mitigating operational risks, and/or controlling operating costs. Our non-core products and services enhance the performance of financial services organizations of all asset sizes and charters, and diverse corporate entities. These distinct products and services can be implemented individually or as solution suites to address specific business problems or needs and enable effective responses to dynamic industry trends.\nWe strive to develop and maintain functionally robust, integrated solutions that are supported with high service levels, regularly updating and improving those solutions using an interactive customer enhancement process; ensuring compliance with relevant regulations; updated with proven advances in technology; and consistent with Jack Henry\u2019s reputation as a premium solution and service provider.\nCore Software Systems\nCore software systems primarily consist of the integrated applications required to process deposit, loan, and general ledger transactions, and to maintain centralized customer/member information.\nOur core banking solutions consist of three software systems marketed to banks and our core credit union solution consists of one software system marketed to credit unions. These core systems are available for on-premise installation at customer sites, or financial institutions can choose to leverage our private cloud environment for ongoing information processing.\nCore banking platforms are:\n\u2022\nSilverLake System\u00ae, \na robust system primarily designed for commercial-focused banks with assets ranging from $1 billion to $50 billion. Some progressive smaller banks and de novo (start-up) banks also select SilverLake. This system is in use by over 460 banks, and now automates nearly 10% of the domestic banks with assets less than $50 billion.\n\u2022\nCIF 20/20\u00ae, \na parameter-driven, easy-to-use system that now supports approximately 300 banks ranging from de novo institutions to those with assets of $5 billion.\n\u2022\nCore Director\u00ae, \na cost-efficient system with point-and-click operation that now supports approximately 180 banks ranging from de novo institutions to those with assets of over $2 billion.\nCore credit union platform is: \u00a0\n\u2022\nSymitar\u00ae (formerly known as Episys\u00ae),\n a robust system designed specifically for credit unions. It has been implemented by over 710 credit unions with assets ranging from $3 million to $35 billion, and according to National Credit Union Administration (\"NCUA\") data, is the system implemented by more credit unions with assets exceeding $25 million than any other alternative core system.\nCustomers electing to install our solutions on-premise license the proprietary software systems. The majority of these customers pay ongoing annual software maintenance fees. We re-market the hardware, hardware maintenance, and peripheral equipment that is required by on-premise use of our software solutions; and we perform software implementation, data conversion, training, ongoing support, and other related services. On-premise customers generally license our core software systems under a standard license agreement that provides a fully paid, nonexclusive, nontransferable right to use the software on a single computer at a single location.\nCustomers can eliminate the significant up-front capital expenditures required by on-premise installations and the responsibility for operating information and transaction processing infrastructures by leveraging our private cloud environment for those functions. Our core private cloud services are provided through a highly resilient data center \n8\nconfiguration across multiple physical locations. We also provide image item processing services from two host/archive sites and several key entry and balancing locations throughout the country. We print and mail customer statements for financial institutions from three regional printing and rendering centers. Customers electing to outsource their core processing typically sign contracts for seven or more years that include \"per account\" fees and minimum guaranteed payments during the contract period.\nWe support the dynamic business requirements of our core bank and credit union clients with ongoing enhancements to each core system, the regular introduction of new integrated complementary products, the ongoing integration of practical new technologies, and regulatory compliance initiatives. We also serve each core customer as a single point of contact, support, and accountability.\nComplementary Products and Services \u00a0\nWe have more than 140 complementary products and services that are targeted to our core banks and more than 100 targeted to credit union customers. Many of these are selectively sold to financial services organizations that use other core processing systems.\nThese complementary solutions enable core bank and credit union clients to respond to evolving customer/member demands, expedite speed-to-market with competitive offerings, increase operating efficiency, address specific operational issues, and generate new revenue streams. The highly specialized solutions enable diverse financial services organizations and corporate entities to generate additional revenue and growth opportunities, increase security and mitigate operational risks, and control operating costs.\nWe regularly introduce new products and services based on demand for integrated complementary solutions from our existing core clients and based on the growing demand among financial services organizations and corporate entities for specialized solutions capable of increasing revenue and growth opportunities, mitigating and controlling operational risks, and/or containing costs. Our Industry Research department solicits customer guidance on the business solutions they need, evaluates available solutions and competitive offerings, and manages the introduction of new product offerings. Our new complementary products and services are developed internally, acquired, or provided through strategic alliances.\nImplementation and Training\nMost of our core bank and credit union customers contract with us for implementation and training services in connection with their systems and additional complementary products.\nA complete core system implementation typically includes detailed planning, project management, data conversion, and testing. Our experienced implementation teams travel to customer facilities or work remotely with clients to help manage the implementation process and ensure that all data is transferred from the legacy system to the Jack Henry system. Our implementation fees are fixed or hourly based on the core system being installed.\nWe also provide extensive initial and ongoing education to our customers. We have a comprehensive training program that supports new customers with basic training and longtime customers with continuing education. The training enables financial institutions to maximize the use of our core and complementary solutions, learn about ongoing system enhancements, and understand dynamic year-end legislative and regulatory requirements. \nSupport and Services\nWe serve our customers as a single point of contact and support for the complex solutions we provide. Our comprehensive support infrastructure incorporates:\n\u2022\nExacting service standards.\n\u2022\nTrained support staff available up to 24 hours a day, 365 days a year.\n\u2022\nAssigned account managers.\n\u2022\nSophisticated support tools, resources, and technology.\n\u2022\nBroad experience converting diverse banks and credit unions to our core platforms from competitive platforms. \n\u2022\nHighly effective change management and control processes.\n\u2022\nBest practices methodology developed and refined through the company-wide, day-to-day experience supporting over 7,500 diverse clients.\nMost on-premise customers contract for annual software support services, and this represents a significant source of recurring revenue for Jack Henry. These support services are typically priced at approximately 20% of the respective product\u2019s software license fee. The subsequent years' service fees generally increase as customer assets increase and as additional complementary products are purchased. Annual software support fees typically are billed during June and are paid in advance for the entire fiscal year, with proration for new product \n9\nimplementations that occur during the fiscal year. Hardware support fees also are usually paid in advance for entire contract periods which typically range from one to five years. Most support contracts automatically renew unless the customer or Jack Henry gives notice of termination at least 30 days prior to contract expiration.\nHigh levels of support are provided to our private cloud customers by the same support infrastructure utilized for on-premise customers. However, these support fees are included as part of monthly private cloud fees.\nHardware Systems\nOur software systems operate on a variety of hardware platforms. We have established remarketing agreements with IBM Corporation, and many other hardware providers that allow Jack Henry to purchase hardware and related maintenance services at a discount and resell them directly to our customers. We currently sell IBM Power Systems\u2122; Lenovo\u00ae, Dell, Hewlett Packard, and Cisco servers and workstations; Canon\u00ae, Digital Check, Epson\u00ae, and Panini\u00ae check scanners; and other devices that complement our software solutions.\nDigital Products and Services\nJack Henry Digital represents a category of digital products and services that are being built and integrated together into one unified platform. Our main offering is the Banno Digital Platform\u2122. It is an online and mobile banking platform that helps community and regional financial institutions strategically differentiate their digital offerings from those of megabanks and other financial technology companies. It is a complete, open digital banking platform that gives banks and credit unions attractive, fast, native applications for their customers and members and cloud-based, core-connected back-office tools for their employees.\nPayment Solutions\nElectronic payment solutions provide our customers with the tools necessary to be at the forefront of payment innovation with secure payment processing designed to simplify complex payment processing, attract profitable retail and commercial accounts, increase operating efficiencies, comply with regulatory mandates, and proactively mitigate and manage payment-related risk.\n\u2022\nJHA Card Processing Solutions\u2122 (\"CPS\")\n supports full-service and in-house debit and credit card programs backed by a comprehensive suite of tools for fraud mitigation, digital payments, dispute management, plastics manufacturing and personalization, loyalty programs, data analytics, and terminal driving. In addition, advisory services are offered to support a variety of needs including card portfolio growth, start-up program consultation, as well as customized fraud management; all tailored to individual financial institution goals and concerns. \n\u2022\nEnterprise Payment Solutions (\"EPS\")\n is a comprehensive payments engine. It offers an integrated suite of remote deposit capture, Automated Clearing House (\"ACH\"), and card transaction processing solutions, risk management tools, reporting capabilities, and more for financial institutions, businesses, and fintechs of all sizes. EPS helps its clients succeed in today\u2019s competitive market to increase revenue, improve efficiencies, better manage compliance, and enhance customer relationships. \n\u2022\niPay Solutions\nTM\n provides consumers and businesses with money movement options through their financial institutions\u2019 digital platforms including paying bills, sending money to anyone and transferring funds between their own accounts. iPay\u2019s extensive application programming interface (\"API\") and hosted interfaces allow for multiple levels of integration by digital platforms and financial institutions. iPay provides financial institutions with services and tools to increase adoption, support end-users and monitor fraud. The money movement options keep the consumers and businesses engaged with the financial institution.\n\u2022\nPayrailz\nTM \nsupports our technology modernization strategy by adding next generation digital payment capabilities to our payment\u2019s ecosystem based on cloud native microservices.  Our new Money Movement payments platform includes native artificial intelligence (\"AI\"), Action Insights (which is predictive and proactive recommendations through AI), a flexible modern user experience, a layered security model, an automated fraud feature leveraging machine learning, and a modern and flexible administrative portal.  In addition to bill payment capabilities, we have a \u2018pay a loan\u2019 feature, an \u2018open looped\u2019 real-time person-to-person (\"P2P\") solution, and account-to-account (\"A2A\") transfer features.  \n\u2022\nJHA PayCenter\nTM\n, provides our customer financial institutions with a single entry point to both Zelle\u00ae and Real Time Payments (\"RTP\") real-time networks and supports the Federal Reserve's FedNow\u00ae, which launched in July 2023. PayCenter manages the certification process and mandatory updates from the networks, simplifies integration with toolkits and provides fraud monitoring. Financial institutions can send and receive transactions instantly 24 hours a day, 365 days a year, through our core and complementary solutions.\n\u2022\nPayments as a Service (\"PaaS\")\n ties together and further enhances the complete array of electronic payments functionality with a front-end Payments Developers Experience Portal and back-end data analytics.\n10\nResearch and Development\nWe invest significant resources in ongoing research and development to develop new software solutions and services and enhance existing solutions with additional functionality and features required to ensure regulatory compliance. We enhance our core and complementary systems a minimum of once each year. Product-specific enhancements are largely customer-driven with recommended enhancements formally gathered through focus groups, change control boards, strategic initiatives meetings, annual user group meetings, and ongoing customer contact. We also continually evaluate and implement process improvements that expedite the delivery of new products and enhancements to our customers and reduce related costs.\nResearch and development expenses for fiscal 2023, 2022, and 2021 were $142.7 million, $121.4 million, and $109.0 million, respectively. We recorded capitalized software in fiscal 2023, 2022, and 2021 of $166.1 million, $148.2 million, and $128.3 million, respectively.\nSales and Marketing\nWe serve established, well-defined markets that provide ongoing sales and cross-sales opportunities.\nThe marketing and sales initiatives within the core business lines are primarily focused on identifying banks and credit unions evaluating alternative core information and transaction processing solutions. Our non-core specialized core-agnostic niche solutions are sold to complement existing technology platforms to domestic financial services organizations of all asset sizes and charters.\nSales executives are responsible for the activities required to earn new customers in assigned territories, and regional account executives are responsible for nurturing customer relationships and cross selling additional products and services. Our sales professionals receive base salaries and performance-based commission compensation. Sales support staff provide a variety of services, including product and service demonstrations, responses to prospect-issued requests-for-proposals, and proposal and contract generation. Our marketing department supports sales with lead generation and brand-building activities, including participation in state-specific, regional, and national trade shows; print and online advertising; telemarketing; customer/client newsletters; ongoing promotional campaigns; and media relations. We also host annual national education conferences which provide opportunities to network with existing clients and demonstrate new products and services.\nJack Henry has sold select products and services outside the United States, primarily in Latin America, the Caribbean and Canada. International sales accounted for less than 1% of Jack Henry\u2019s total revenue in each of fiscal 2023, 2022, and 2021.\nCompetition\nThe market for companies providing technology solutions to financial services organizations is competitive, and we expect that competition from both existing competitors and companies entering our existing or future markets will remain strong. Some of our current competitors have longer operating histories, larger customer bases, and greater financial resources. The principal competitive factors affecting the market for technology solutions include product/service functionality, price, operating flexibility and ease-of-use, customer support, and existing customer references. For more than a decade, there has been significant consolidation among providers of products and services designed for financial institutions, and this consolidation is expected to continue in the future.\nOur core solutions compete with large vendors that provide information and transaction processing solutions to banks and credit unions, including Fidelity National Information Services, Inc.; Fiserv, Inc.; and Finastra. Our non-core specialized solutions compete with an array of disparate vendors that provide niche solutions to financial services organizations and corporate entities.\nIntellectual Property, Patents, and Trademarks \u00a0\nAlthough we believe our success depends upon our technical expertise more than our proprietary rights, our future success and ability to compete depend in part upon our proprietary technology. We have registered or filed applications for our primary trademarks. Most of our technology is not patented. Instead, we rely on a combination of contractual rights, copyrights, trademarks, and trade secrets to establish and protect our proprietary technology. We generally enter into confidentiality agreements with our employees, consultants, resellers, customers, and potential customers. Access to and distribution of our Company\u2019s source code is restricted, and the disclosure and use of other proprietary information is further limited. Despite our efforts to protect our proprietary rights, unauthorized parties can attempt to copy or otherwise obtain, or use our products or technology. \n11\nRegulatory Compliance\nWe maintain a corporate commitment to address compliance issues and implement requirements imposed by federal regulators prior to the effective date of such requirements when adequate prior notice is given. Our compliance program is coordinated by a team of compliance analysts and auditors with extensive regulatory agency and financial institution experience, and a thorough working knowledge of Jack Henry and our solutions. These compliance professionals leverage multiple channels to remain informed about potential and recently enacted regulatory requirements, including regular discussions on emerging topics with the Federal Banking Agencies (\u201cFBA\u201d) examination team and training sessions sponsored by various professional associations.\nJack Henry has a process to inform internal stakeholders of new and revised regulatory requirements. Upcoming regulatory changes also are presented to the Company\u2019s development teams through monthly regulatory compliance meetings and the necessary product changes are included in the ongoing product development cycle. We publish newsletters to keep our customers informed of regulatory changes that could impact their operations. Periodically, customer advisory groups are assembled to discuss significant regulatory changes.\nInternal audits of our systems, networks, operations, business recovery plans, and applications are conducted and specialized outside firms are periodically engaged to perform testing and validation of our systems, processes, plans and security. The FBA conducts annual reviews throughout the Company and issues a Report of Examination. The Board of Directors provides oversight of these activities through the Risk and Compliance Committee and the Audit Committee.\nGovernment Regulation\nThe financial services industry is subject to extensive and complex federal and state regulation. All financial institutions are subject to substantial regulatory oversight and supervision. Our products and services must comply with the extensive and evolving regulatory requirements applicable to our customers, including but not limited to those mandated by federal truth-in-lending and truth-in-savings rules, the Privacy of Consumer Financial Information regulations, usury laws, the Equal Credit Opportunity Act, the Fair Housing Act, the Electronic Funds Transfer Act, the Fair Credit Reporting Act, the Bank Secrecy Act, the USA Patriot Act, the Gramm-Leach-Bliley Act, the Community Reinvestment Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. The compliance of Jack Henry\u2019s products and services with these requirements depends on a variety of factors, including the parameters set through the interactive design, the classification of customers, and the manner in which the customer utilizes the products and services. Our customers are contractually responsible for assessing and determining what is required of them under these regulations and then we provide solutions that assist them in meeting their regulatory needs through our products and services. We cannot predict the impact these regulations, any future amendments to these regulations or any newly implemented regulations will have on our business in the future.\nJack Henry is not chartered by the Office of the Comptroller of Currency (\"OCC\"), the Board of Governors of the Federal Reserve System, the FDIC, the NCUA or other federal or state agencies that regulate or supervise depository institutions. However, operating as a service provider to financial institutions, Jack Henry\u2019s operations are governed by the same regulatory requirements as those imposed on financial institutions, and subject to periodic reviews by FBA regulators who have broad supervisory authority to remedy any shortcomings identified in such reviews.\nWe provide private cloud services through JHA OutLink Processing Services\u2122 for banks and EASE Processing Services\u2122 for credit unions. We provide data centers and electronic transaction processing through JHA Card Processing Solutions\u2122, internet banking through NetTeller\u00ae and Banno\nTM\n online solutions, bill payment through iPay, network security monitoring and Hosted Network Solutions (\"HNS\") through our Gladiator\u00ae unit, cloud services through Hosted Partner Services and Enterprise Integration Services, and business recovery services through Centurion Disaster Recovery\n\u00ae\n.\nOur private cloud services are subject to examination by FBA regulators under the Bank Service Company Act. These examinations cover a wide variety of subjects, including system development, functionality, reliability, and security, as well as disaster preparedness and business recovery planning. Our private cloud services are also subject to examination by state banking authorities on occasion.\nInformation and Cybersecurity\nIn our increasingly interconnected environment, information is inherently exposed to a growing number of risks, threats, and vulnerabilities. As a provider of products and services to financial institutions, we use industry standard policies and procedures to process and store sensitive, personally identifiable information securely. We prioritize \n12\nprotecting our associates, clients, and their private data from the ever-evolving cyber threat environment and ensuring the resiliency of such information. \nWe have an established information and cybersecurity program maintained by a team of diverse, highly skilled cybersecurity professionals, as well as a portfolio of investments in modern technology including artificial intelligence and machine learning. The program incorporates industry-standard frameworks, policies, and practices designed to protect the confidentiality and privacy of Jack Henry\u2019s and our clients\u2019 information. Additionally, we maintain insurance that includes cybersecurity coverage. \nIn support of the program, our systems and services undergo regular reviews performed by the same regulatory agencies that review financial institutions: Consumer Financial Protection Bureau (\"CFPB\"), Federal Reserve Board (\"FRB\"), FDIC, NCUA, and the OCC, among others. Reviews such as those by the Federal Banking agencies (a regulatory group comprised of the FDIC, FRB, and the OCC) assess and identify security gaps or flaws in controls and monitor the effectiveness of our security program. Critical services provided to our clients are subject to annual System and Organization Controls (\"SOC\") reviews by independent auditors. Information and cybersecurity leadership reports to the Risk and Compliance Board committee and the full Board of Directors quarterly, on information security and cybersecurity matters.\nHuman Capital\nOur Employees\nAs of June\u00a030, 2023, we had approximately 7,120 full-time and part-time employees. Our employees are not covered by a collective bargaining agreement and there have been no labor-related work stoppages. \nTalent Attraction and Engagement\nOur people and culture strategy focuses on attracting, engaging, and retaining qualified, diverse, and innovative talent at all levels of the Company. We are a committed equal opportunity employer and all qualified candidates receive consideration for employment without regard to race, color, religion, national origin, age, disability, sex, sexual orientation, gender, gender identity, pregnancy, genetic information, or other characteristics protected by applicable law.\nBeyond nondiscrimination compliance, we are committed to fostering a respectful, diverse, and inclusive workplace in which all individuals are treated with respect and dignity. We continue to concentrate efforts on diversity, equity, inclusion, and belonging and continue to hire employees in the human resources function to focus on this important area. We seek nontraditional talent streams to help identify candidates from underrepresented groups, including through our internship and apprenticeship programs. Our internship program focuses on attracting college and university students to paid work in Jack Henry departments related to their studies, while our apprenticeship program offers paid training and work for candidates (either students or non-students) with little to no traditional experience in the field, such as learning computer coding. Both our internship and apprenticeship programs can lead to full-time employment. \nWe continue to engage our Business Innovation Groups (\u201cBIGs\u201d) to develop attraction and retention suggestions and practices that advance a diverse, equitable, and inclusive culture. Our BIGs are company-sponsored groups open to all employees. As of June\u00a030, 2023, we had over 1,840 unique associates participating in seven active BIGs, with six focused on inclusion for specific communities \u2014 women, people of color, remote employees, LGBTQ+, veterans, and people with disabilities \u2014 and one focused on environmental and sustainability topics. While BIGs allow employees to connect and support each other, they also function to assist us in addressing bona fide business problems through input and suggestions. For example, these groups work with executive leadership to actively improve our talent attraction processes for prospective employees. They also provide education, training, and conversation opportunities to all employees to increase belongingness and to advance diversity, inclusion, understanding, and innovation throughout the Company. JHAnywhere, a BIG formed previously to provide community and resources for the then minority of employees working remotely, was discontinued in July 2023 due to the proliferation of remote work resulting from the COVID-19 pandemic to the extent that such efforts became a company-wide focus that went beyond the capacity of a single BIG to support. The Company remains focused on equipping all employees with the tools necessary to effectively communicate, collaborate, and build connections in a remote environment, including ensuring leaders have the skills needed to effectively lead dispersed teams.\nWe seek to actively listen to our employees throughout the year using a defined and continuous listening strategy designed to gather regular feedback on well-being, engagement, leadership, ethics, culture and values, and other top of mind topics. These surveys allow us to respond to employee concerns, benefit from employee perspectives, and better design and develop processes to support our Company culture. Employees can learn about changes \n13\nthrough our jhDaily online news center, regular email communications, monthly Manager Forum events, quarterly employee update videos or all-employee town hall meetings delivered by senior management.  \nTraining and Development\nOur success depends not only on attracting and retaining talented employees, but also in developing our current employees and providing new opportunities for their growth. We offer our employees numerous live and on-demand courses, resources, and training programs to help them build knowledge, improve skills, and develop their career at Jack Henry. Learning opportunities include mandatory courses, such as security awareness, as well as recommended content in areas including leadership development; technical skills; and diversity, equity, inclusion, and belonging. Jack Tracks, an annual, company-wide virtual learning event, offers employees a large selection of curated topics such as technical and operational readiness, technology trends, company solutions, and industry trends.\nRecognizing the importance of mentoring in career development, we host an internal mentorship marketplace, which allows prospective mentors and mentees to connect and self-initiate a mentoring relationship. Career mobility and personal development resources are available to all employees through dedicated intranet sites. We continue to strengthen our leadership capacity by providing training on effective coaching practices to leaders of the Company.\nWe recognize and value the contribution of our employees who develop, improve, and support our technology solutions. Access to on-demand technical training libraries, customized learning plans, certification programs, and classes facilitated by external experts are available to advance their technical expertise. When there is a critical skill need or where the technology landscape is rapidly changing, we provide unique learning solutions to align employees' development with our strategic initiatives.\nWellness and Safety\nWe emphasize the safety and well-being of our employees as a top priority. We define wellness comprehensively and include mental, physical, emotional, financial, psychological, and environmental considerations. Our benefit plan offerings include supportive and dedicated campaigns that communicate directly to employees about financial wellness, mental health, healthful nutrition and exercise, and other wellness topics. Employee well-being is further supported through policies such as remote work, paid parental leave, military service leave, educational assistance, and bereavement leave policies.  \nAvailable Information\nJack Henry\u2019s website is easily accessible to the public at \njackhenry.com\n. The \u201cInvestor Relations\" portion of the website provides key corporate governance documents, the code of conduct, an archive of press releases, and other relevant Company information. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other filings and amendments thereto that are made with the SEC also are available free of charge on our website as soon as reasonably practical after these reports have been filed with or furnished to the SEC. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at \nhttps://www.sec.gov\n.",
+  "item1a": ">ITEM 1A.  RISK FACTORS\nThe Company's business and the results of its operations are affected by numerous factors and uncertainties, some of which are beyond our control. The following is a description of some of the important risks and uncertainties that may cause our actual results of operations in future periods to differ materially from those expected or desired.\nBusiness and Operating Risks\nData security breaches, failures, or other incidents could damage our reputation and business.\n Our business relies upon receiving, processing, storing, and transmitting sensitive information relating to our operations, employees, and customers. If we fail to maintain a sufficient digital security infrastructure, address security vulnerabilities and new threats, or deploy adequate technologies to secure our systems against attack, we may be subject to security breaches that compromise confidential information, adversely affect our ability to operate our business, damage our reputation and business, adversely affect our results of operations and financial condition, and expose us to liability. We rely on third parties for various business purposes, and these third parties face similar security risks. A security failure by one of these third parties could expose our data or subject our information systems to interruption of operations and security vulnerabilities. Our services and infrastructure are increasingly reliant on the internet. Computer networks and the Internet are vulnerable to disruptive problems such as denial of service attacks or other cyber-attacks carried out by cyber criminals or state-sponsored actors. Other potential attacks include attempts to obtain unauthorized access to confidential information or destroy data, often through the \n14\nintroduction of computer viruses, ransomware or malware, cyber-attacks, and other means, which are constantly evolving and at times difficult to detect. Those same parties may also attempt to fraudulently induce employees, customers, vendors, or other users of our systems through phishing schemes or other social engineering methods to disclose sensitive information in order to gain access to our data or that of our customers. We are also subject to the risk that our employees may intercept and transmit unauthorized confidential or proprietary information or that employee corporate-owned computers are stolen, or customer data media is lost in shipment. An interception, misuse or mishandling of personal, confidential, or proprietary information being sent to or received from a customer or third party could result in legal liability, remediation costs, regulatory action, and reputational harm, any of which could adversely affect our results of operations and financial condition. \nWe anticipate that attempts to attack our systems, services, and infrastructure, and those of our customers and vendors, may grow in frequency and sophistication. We cannot be certain that our security controls and infrastructure will be adequate to continue to protect our systems and data and our efforts may not be sufficient to combat all current and future technological risks and threats. Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may render our security measures inadequate. Security risks may result in liability to our customers or other third parties, damage to our reputation, and may deter financial institutions from purchasing our products. The significant amount of capital and other resources we currently expend to protect against the threat of security breaches may prove insufficient to prevent a breach. We cannot ensure that any limitation-of-liability provisions in our customer and user agreements, contracts with third-party vendors, or other contracts are sufficient to protect us from liabilities or damages with respect to claims relating to a security breach or similar matters. The insurance coverage we maintain to address data security risks may be insufficient to cover all types of claims or losses that may arise, and there is no assurance that such insurance coverage will continue to be available to us on economically reasonable terms, or at all. In the event of a security breach, we may need to spend substantial additional capital and resources alleviating problems caused by such breach. Under state, federal, and foreign laws requiring consumer notification of security breaches, the costs to remediate security breaches can be substantial. Addressing security problems may result in interruptions, delays, or cessation of service to users, any of which could harm our business.\nFailure to maintain sufficient technological infrastructure or an operational failure in our outsourcing facilities could expose us to damage claims, increase regulatory scrutiny, and cause us to lose customers.\n Our products and services require substantial investments in technological infrastructure, and we have experienced significant growth in the number of users, transactions, and data that our technological infrastructure supports. If we fail to adequately invest in and support our technological infrastructure and processing capacity, we may not be able to support our customers\u2019 processing needs and may be more susceptible to interruptions and delays in services. Damage or destruction that interrupts our outsourcing operations could cause delays and failures in customer processing which could hurt our relationship with customers, damage our reputation, expose us to damage claims, and cause us to incur substantial additional expense to relocate operations and repair or replace damaged equipment. Events that could cause operational failures include, but are not limited to, hardware and software defects, breakdowns or malfunctions, cybersecurity incidents, human error, power losses, disruptions in telecommunications services, computer viruses or other malware, or other events. Our facilities are also subject to physical risks related to natural disasters or severe weather events, such as tornados, flooding, hurricanes, and heat waves. Climate change may increase the likelihood and severity of such events. Our back-up systems and procedures may prove insufficient or otherwise fail to prevent disruption, such as a prolonged interruption of our transaction processing services. If an interruption extends for more than several hours, we may experience data loss or a reduction in revenues by reason of such interruption. Any significant interruption of service could reduce revenue, have a negative impact on our reputation, result in damage claims, lead our present and potential customers to choose other service providers, and lead to increased regulatory scrutiny of the critical services we provide to financial institutions, with resulting increases in compliance burdens and costs. Implementing modifications and upgrades to our technological infrastructure subject us to inherent costs and risks associated with changing systems, policies, procedures, and monitoring tools.\nFailures associated with payment transactions could result in financial loss. \nThe volume and dollar amount of payment transactions that we process is significant and continues to grow. We direct the settlement of funds on behalf of financial institutions, other businesses, and consumers, and receive funds from clients, card issuers, payment networks, and consumers on a daily basis for a variety of transaction types. Transactions facilitated by us include debit card, credit card, electronic bill payment transactions, Automated Clearing House (\u201cACH\u201d) payments, real-time payments through faster payment networks (such as Zelle, RTP, and FedNow), and check clearing that support consumers, financial institutions, and other businesses. If the continuity of operations, integrity of processing, or ability to detect or prevent fraudulent payments were compromised in connection with payments transactions, we could suffer financial as well as reputational loss. In addition, we rely on various third parties to \n15\nprocess transactions and provide services in support of the processing of transactions and funds settlement for certain of our products and services that we cannot provide ourselves. If we are unable to obtain such services in the future or if the price of such services becomes unsustainable, our business, financial position, and results of operations could be materially and adversely affected. In addition, we may issue short-term credit to consumers, financial institutions, or other businesses as part of the funds settlement process. A default on this credit by a counterparty could result in a financial loss to us.\nFailures of third-party service providers we rely upon could lead to financial loss. \nWe rely on third party service providers to support key portions of our operations. We also rely on third party service providers to provide part, or all of, certain services we deliver to customers. As we continue to move more computing, storage, and processing services out of our data centers and facilities and into third-party hosting environments, our reliance on these providers and their systems will increase. This reliance is further concentrated as we use certain third-party vendors to provide large portions of our hosting needs. While we have selected these third-party vendors carefully, we do not control their actions. A failure of these services by a third party could have a material impact upon our delivery of services to our customers. Such a failure could lead to damage claims, loss of customers, and reputational harm, depending on the duration and severity of the failure. Third parties perform significant operational services on our behalf. These third-party vendors are subject to similar risks as us including, but not limited to, compliance with applicable laws and regulations, hardware and software defects, breakdowns or malfunctions, cybersecurity incidents, human error, failures in internal controls, power losses, disruptions in telecommunications services, computer viruses or other malware, natural disasters or severe weather events, or other events. One or more of our vendors may experience a cybersecurity event or operational disruption and, if any such event does occur, it may not be adequately addressed, either operationally or financially, by the third-party vendor. Certain of our vendors may have limited indemnification obligations or may not have the financial capacity to satisfy their indemnification obligations. If a critical vendor is unable to meet our needs in a timely manner or if the services or products provided by such a vendor are terminated or otherwise delayed and if we are not able to develop alternative sources for these services and products quickly and cost-effectively, our customers could be negatively impacted, and it could have a material adverse effect on our business.\nCompetition may result in decreased demand or require price reductions or other concessions to customers, which could result in lower margins and reduce income.\n We vigorously compete with a variety of software vendors and service providers in all our major product lines. We compete on the basis of product quality, reliability, performance, ease of use, quality of support and services, integration with other products, and pricing. Some of our competitors may have advantages over us due to their size, product lines, greater marketing resources, or exclusive intellectual property rights. New competitors regularly appear with new products, services, and technology for financial institutions. If competitors offer more favorable pricing, payment or other contractual terms, warranties, or functionality, or otherwise attract our customers or prevent us from capturing new customers, we may need to lower prices or offer other terms that negatively impact our results of operations in order to successfully compete.\nFailure to achieve favorable renewals of service contracts could negatively affect our business. \nOur contracts with our customers for outsourced data processing and electronic payment transaction processing services generally run for a period of seven or more years. We will continue to experience a significant number of these contracts coming up for renewal each year. Renewal time presents our customers with the opportunity to consider other providers or to renegotiate their contracts with us, including reducing the services we provide or negotiating the prices paid for our services. If we are not successful in achieving high renewal rates upon favorable terms, revenues and profit margins will suffer. We may experience increased costs for services from our third-party vendors due to inflation or other cost expansion, but because our customer contracts typically have longer terms than our vendor contracts, our ability to pass on those higher costs to customers may be limited. If inflation or costs outpace our contractual ability to adjust pricing during the contractual terms of our customer contracts, our revenues and profit margins could be negatively impacted.\nIf we fail to adapt our products and services to changes in technology and the markets we serve, we could lose existing customers and be unable to attract new business.\n The markets for our products and services are characterized by changing customer and regulatory requirements and rapid technological changes. These factors and new product introductions by our existing competitors or by new market entrants could reduce the demand for our existing products and services, and we may be required to develop or acquire new products and services. Our future success is dependent on our ability to enhance our existing products and services in a timely manner and to develop or acquire new products and services. If we are unable to develop or acquire new products and services as planned, or if we fail to sell our new or enhanced products and services, we may incur unanticipated expenses or fail to achieve anticipated revenues, as well as lose prospective sales.\n16\nSoftware defects or problems with installations may harm our business and reputation and expose us to potential liability. \nOur software products are complex and may contain undetected defects, especially in connection with newly released products and software updates. Software defects may cause interruptions or delays to our services as we attempt to correct the problem. We may also experience difficulties in installing or integrating our products on systems used by our customers. Defects in our software, installation problems or delays, or other difficulties could result in negative publicity, loss of revenues, loss of competitive position, or claims against us by customers. In addition, we rely on technologies and software supplied by third parties that may also contain undetected errors or defects that could have a negative effect on our business and results of operations.\nExpansion of services to non-traditional customers could expose us to new risks. \nWe have expanded our services to business lines that are marketed outside our traditional, regulated, and litigation-averse base of financial institution customers. These non-regulated customers may entail greater operational, credit, and litigation risks than we have faced before and could result in increases in bad debts and litigation costs.\nRegulatory and Compliance Risks\nThe software and services we provide to our customers are subject to government regulation that could hinder the development of our business, increase costs, or impose constraints on the way we conduct our operations\n. The financial services industry is subject to extensive and complex federal and state regulation. As a supplier of software and services to financial institutions, portions of our operations are examined by the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and the National Credit Union Association, among other regulatory agencies. These agencies regulate services we provide and the way we operate, and we are required to comply with a broad range of applicable federal and state laws and regulations. If we, or third parties with whom we contract or partner, fail to comply with applicable regulations or guidelines, we could be subject to regulatory actions and suffer harm to our customer relationships and reputation. Such failures could require significant expenditures to correct and could negatively affect our ability to retain customers and obtain new customers.\nIn addition, existing laws, regulations, and policies could be amended or interpreted differently by regulators in a manner that imposes additional costs and has a negative impact on our existing operations or that limits our future growth or expansion. New regulations could require additional programming or other costly changes in our processes or personnel. Our customers are also regulated entities, and actions by regulatory authorities could influence both the decisions they make concerning the purchase of data processing and other services and the timing and implementation of these decisions. We will be required to apply substantial research and development and other corporate resources to adapt our products to this evolving, complex, and often unpredictable regulatory environment. Our failure to provide compliant solutions could result in significant fines or consumer liability on our customers, for which we may bear ultimate liability.\nCompliance with new and existing privacy laws, regulations, and rules may adversely impact our expenses, development, and strategy.\n We are subject to complex laws, rules, and regulations related to data privacy and cybersecurity. If we fail to comply with such requirements, we could be subject to reputational harm, regulatory enforcement, and litigation. The use, confidentiality, and security of private customer information is under increased scrutiny. Regulatory agencies, Congress, and state legislatures are considering numerous regulatory and statutory proposals to protect the interests of consumers and to require compliance with standards and policies that have not been defined. The number of state privacy and cybersecurity laws and regulations has grown tremendously over the past several years, creating an increasingly complex patchwork of data privacy and security requirements. This includes industry-specific rules such as those enacted by the New York Department of Financial Services that require covered financial institutions to have a cybersecurity program along with other compliance requirements as well as comprehensive consumer data privacy rules such as the California Consumer Privacy Act, the Iowa Consumer Data Protection Act, and the Virginia Consumer Data Protection Act. Though several privacy concepts are common across the laws, each state requires compliance with standards and policies that are not cohesive with other laws and are often further amended by regulatory action. The unique data protection regulations issued by multiple agencies have created a fragmented series of requirements that makes it increasingly complex to comply with all the mandates in an efficient manner and may increase costs to deliver affected products and services as those requirements are established.\nFailure to comply or readily address compliance and regulatory rule changes made by payment card networks could adversely affect our business. \nWe are subject to card association and network compliance rules governing the payment networks we serve, including Visa, MasterCard, Zelle, FedNow, and The Clearing House\u2019s RTP network, and all rules governing the Payment Card Data Security Standards. If we fail to comply with these rules and standards, we could be fined or our certifications could be suspended or terminated, which could limit our \n17\nability to service our customers and result in reductions in revenues and increased costs of operations. Changes made by the networks, even when complied with, may result in reduction in revenues and increased costs of operations.\nEconomic Conditions Risks\nNatural disasters, public health crises, wars, acts of terrorism, other armed conflict, and workforce shortages could adversely affect our results of operations. \nThe occurrence of, or threat of, natural disasters, widespread public health crises, political unrest, war, acts of terrorism, other armed conflicts involving the United States or foreign countries, or general workforce shortages can result in significant economic disruptions and uncertainties and could adversely affect our business, results of operation, and financial condition. The conditions caused by such events may affect the rate of spending by our customers and their ability to pay for our products and services, delay prospective customers\u2019 purchasing decisions, interfere with our employees\u2019 ability to support our business function, disrupt the ability of third-party providers we rely upon to deliver services, adversely impact our ability to provide on-site services or installations to our customers, or reduce the number of transactions we process, all of which could adversely affect our results of operation and financial position. We are unable to accurately predict the impact of such events on our business due to a number of uncertainties, including the duration, severity, geographic reach and governmental responses to such events, the impact on our customers\u2019 and vendors' operations, and our ability to provide products and services, including the impact of our employees working remotely. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.\nOur business may be adversely impacted by general U.S. and global market and economic conditions or specific conditions in the financial services industry. \nWe derive most of our revenue from products and services we provide to the financial services industry. If the general economic environment worsens, including if inflation or interest rates continue to increase or remain at higher than recent historical levels, or if conditions or regulatory requirements within the financial services industry change, such as if financial institutions are required to increase reserve amounts or become subject to new regulatory assessments, customers may be less willing or able to pay the cost of our products and services, and we could face a reduction in demand from current and potential clients for our products and services, which could have a material adverse effect on our business, results of operations, and financial condition. In addition, a growing portion of our revenue is derived from transaction processing fees, which depend heavily on levels of consumer and business spending. Deterioration in general economic conditions could negatively impact consumer confidence and spending, resulting in reduced transaction volumes and our related revenues.\nConsolidation and failures of financial institutions will continue to reduce the number of our customers and potential customers.\n Our primary market consists of approximately 4,660 commercial and savings banks and more than 4,850 credit unions. The number of commercial banks and credit unions in the United States has experienced a steady decrease over recent decades due to mergers and acquisitions and financial failures and we expect this trend to continue as more consolidation occurs. Such events may reduce the number of our current and potential customers, which could negatively impact our results of operations.\nAcquisition Risks\nOur growth may be affected if we are unable to find or complete suitable acquisitions. \nWe have augmented the growth of our business with a number of acquisitions and we plan to continue to acquire appropriate businesses, products, and services. This strategy depends on our ability to identify, negotiate, and finance suitable acquisitions. Merger and acquisition activity in our industry has affected the availability and pricing of such acquisitions. If we are unable to acquire suitable acquisition candidates, we may experience slower growth.\nAcquisitions subject us to risks and may be costly and difficult to integrate.\n Acquisitions are difficult to evaluate, and our due diligence may not identify all potential liabilities or valuation issues. We may also be subject to risks related to cybersecurity incidents or vulnerabilities of the acquired company and the acquired systems. We may not be able to successfully integrate acquired companies. We may encounter problems with the integration of new businesses, including: financial control and computer system compatibility; unanticipated costs and liabilities; unanticipated quality or customer problems with acquired products or services; differing regulatory and industry standards; diversion of management's attention; adverse effects on existing business relationships with suppliers and customers; loss of key employees; and significant depreciation and amortization expenses related to acquired assets. To finance future acquisitions, we may have to increase our borrowing or sell equity or debt securities to the public. If we fail to integrate our acquisitions, our business, financial condition, and results of operations could be materially and adversely affected. Failed acquisitions could also produce material and unpredictable impairment charges as we review our acquired assets.\n18\nIntellectual Property Risks\nIf others claim that we have infringed their intellectual property rights, we could be liable for significant damages or could be required to change our processes.\n We have agreed to indemnify many of our customers against claims that our products and services infringe on the proprietary rights of others. We also use certain open- source software in our products, which may subject us to suits by persons claiming ownership of what we believe to be open-source software. Infringement claims have been and will in the future be asserted with regard to our software solutions and services. Such claims, whether with or without merit, are time-consuming, may result in costly litigation and may not be resolved on terms favorable to us. If our defense of such claims is not successful, we could be forced to pay damages or could be subject to injunctions that would cause us to cease making or selling certain applications or force us to redesign applications.\nOur failure to protect our intellectual property and proprietary rights may adversely affect our competitive position. \nOur success and ability to compete depend in part upon protecting our proprietary systems and technology. Unauthorized parties may attempt to copy or access systems or technology that we consider proprietary. We actively take steps to protect our intellectual property and proprietary rights, including entering into agreements with users of our services for that purpose and maintaining security measures. However, these steps may be inadequate to prevent misappropriation. Policing unauthorized use of our proprietary rights is difficult and misappropriation or litigation relating to such matters could have a material negative effect on our results of operation.\nGeneral Risk Factors\nA material weakness in our internal controls could have a material adverse effect on us. \nEffective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to mitigate risk of fraud. If material weaknesses in our internal controls are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results, which could materially and adversely affect our business and results of operations or financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the weaknesses or deficiencies, subject us to fines, penalties or judgments, harm our reputation, or otherwise cause a decline in investor confidence.\nThe loss of key employees and difficulties in hiring and retaining employees could adversely affect our business. \nWe depend on the contributions and abilities of our senior management and other key employees. Our Company has grown significantly in recent years and our management remains concentrated in a small number of highly qualified individuals. If we lose one or more of our key employees, we could suffer a loss of managerial experience, and management resources would have to be diverted from other activities to compensate for this loss. We do not have employment agreements with any of our executive officers. Further, we continue to face a competitive market for hiring and retaining skilled employees. Difficulties in hiring and retaining skilled employees may restrict our ability to adequately support our business needs and/or result in increased personnel costs. There is no assurance that we will be able to attract and retain the personnel necessary to maintain the Company\u2019s strategic direction.\nUnfavorable future tax law changes could adversely affect our tax expense.\n Our income tax positions result in a significant net deferred income tax liability on our consolidated balance sheet. Unfavorable future tax law changes, including increasing U.S. corporate tax rates, could increase this net liability and negatively impact our provision for income taxes and net income.\nThe impairment of a significant portion of our goodwill and intangible assets would adversely affect our results of operations.\n Our balance sheet includes goodwill and intangible assets that represent a significant portion of our total assets as of June\u00a030, 2023. On an annual basis, and whenever circumstances require, we review our goodwill and intangible assets for impairment. If the carrying value of a material asset is determined to be impaired, it will be written down to fair value by a charge to operating earnings. An impairment of a significant portion of our goodwill or intangible assets could have a material negative effect on our operating results.  \nAn increase in interest rates could increase our borrowing costs.\n  Although our debt borrowing levels have historically been low, we may require additional or increased borrowings in the future under existing or new debt facilities to support operations, finance acquisitions, or fund stock repurchases. Our current credit facilities bear interest at variable rates. Increases in interest rates on variable-rate debt would increase our interest expense, which could negatively impact our results of operations.\n19",
+  "item7": ">ITEM 7. \u00a0\u00a0MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThe following section provides management's view of the Company's financial condition and results of operations and should be read in conjunction with the audited consolidated financial statements, and related notes included \n22\nTable of Contents\nelsewhere in this report. All dollar and share amounts, except per share amounts, are in thousands and discussions compare fiscal 2023 to fiscal 2022. Discussions of fiscal 2021 items and comparisons between fiscal 2021 and fiscal 2022 that are not included in this Form 10-K can be found in Part II, Item 7 \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in our Annual Report on Form 10-K for the fiscal year ended June\u00a030, 2022.\nOVERVIEW\nJack Henry & Associates, Inc. is a well-rounded financial technology company headquartered in Monett, Missouri, that employs approximately 7,120 full-time and part-time employees nationwide, and is a leading provider of technology solutions and payment processing services primarily to community and regional financial institutions.\u00a0Our solutions serve over 7,500 customers and consist of integrated data processing systems solutions to banks ranging from de novo to multi-billion-dollar institutions with assets up to $50 billion,\u00a0core data processing solutions for credit unions of all sizes, and non-core highly specialized core-agnostic products and services that enable financial institutions of every asset size and charter, and diverse corporate entities outside the financial services industry, to mitigate and control risks, optimize revenue and growth opportunities, and contain costs. Our integrated solutions are available for on-premise installation and delivery in our private and public cloud.\nEach of our solutions shares the fundamental commitment to provide high-quality business systems, service levels that consistently exceed customer expectations, and integration of solutions and practical new technologies. The quality of our solutions, our high service standards, and the fundamental way we do business typically foster long-term customer relationships, attract prospective customers, and have enabled us to capture substantial market share. \nThrough internal product development, disciplined acquisitions, and alliances with companies offering niche solutions that complement our proprietary solutions, we regularly introduce new products and services and generate new cross-sales opportunities. We provide compatible computer hardware for our on-premise installations and secure processing environments for our outsourced solutions in our private and public cloud. We perform data conversions, software implementations, initial and ongoing customer training, and ongoing customer support services. \nWe believe our primary competitive advantage is customer service. Our support infrastructure and strict standards provide service levels we believe to be the highest in the markets we serve and generate high levels of customer satisfaction and retention. We consistently measure customer satisfaction using a variety of surveys, such as an annual survey on the customer's anniversary date and randomly-generated surveys initiated each day by routine support requests. Dedicated surveys are also used to grade specific aspects of our customer experience, including product implementation, education, and consulting services.\nOur two primary revenue streams are \"services and support\" and \"processing.\" Services and support includes: \"private and public cloud\" fees that predominantly have contract terms of seven years or longer at inception; \"product delivery and services\" revenue, which includes revenue from the sales of licenses, implementation services, deconversion fees, consulting, and hardware; and \"on-premise support\" revenue, composed of maintenance fees which primarily contain annual contract terms. Processing revenue includes: \"remittance\" revenue from payment processing, remote capture, and ACH transactions; \"card\" fees, including card transaction processing and monthly fees; and \"transaction and digital\" revenue, which includes transaction and mobile processing fees. We continually seek opportunities to increase revenue while at the same time containing costs to expand margins.\nWe have four reportable segments: Core, Payments, Complementary, and Corporate and Other. The respective segments include all related revenues along with the related cost of sales.\nA detailed discussion of the major components of the results of operations follows.\nRESULTS OF OPERATIONS\nFISCAL 2023 COMPARED TO FISCAL 2022\nOn August\u00a031, 2022, the Company acquired all of the equity interest in Payrailz, LLC (\"Payrailz\"). Payrailz related revenue and operating expenses mentioned in the discussion below are for the 10 months from the date of acquisition through our fiscal year ended June\u00a030, 2023.\nIn fiscal 2023, total revenue increased 7% or $134,818, compared to fiscal 2022. Reducing total revenue for deconversion fees of $31,775 in the current fiscal year and $53,279 in the prior fiscal year, and for Payrailz related revenue of $8,482 in the current fiscal year, results in an 8% increase, or $147,840. This increase was primarily driven by growth in data processing and hosting and card processing revenue, as new customers were added and \n23\nTable of Contents\nvolumes expanded, payment processing revenues, digital revenues (including Banno), as new customers were added and active users increased, and software usage and subscription fee revenues, as more customers chose time-based licenses rather than perpetual, compared to the prior fiscal year.\nOperating expenses increased 9% in fiscal 2023 compared to fiscal 2022. Reducing total operating expenses for deconversion costs of $4,261 in the current fiscal year and $6,277 in the prior fiscal year, and for Payrailz related expenses of $22,467, and gain on assets, net, of $4,567 in the current fiscal year, results in an 8% increase, or $112,864. This increase was primarily due to higher personnel costs, including commissions and benefits expenses, increased direct costs consistent with increases in the related revenue, amortization of intangible assets, and internal licenses and fees.\nWe move into fiscal 2024 following strong performance in fiscal 2023. Significant portions of our business continue to provide recurring revenue and our sales pipeline is also encouraging. Our customers continue to face regulatory and operational challenges which our products and services address, and in these times, they have an even greater need for our solutions that directly address institutional profitability, efficiency, and security. We believe our strong balance sheet, access to extensive lines of credit, the strength of our existing product line and an unwavering commitment to superior customer service position us well to address current and future opportunities.\nA detailed discussion of the major components of the results of operations for the fiscal year ended June\u00a030, 2023 compared to the fiscal year ended June\u00a030, 2022 follows.\nREVENUE\nServices and Support Revenue\nYear Ended June 30,\n% \nChange\n\u00a0\n2023\n2022\nServices and support\n$\n1,214,701\n\u00a0\n$\n1,156,365\u00a0\n5%\nPercentage of total revenue\n58%\n60%\n\u00a0\nServices and support includes: \"private and public cloud\" fees that predominantly have contract terms of seven years or greater at inception; \"product delivery and services\" revenue, which includes revenue from the sales of licenses, implementation services, deconversion fees, consulting, and hardware; and \"on-premise support\" revenue, which is composed primarily of maintenance fees with annual contract terms. \nIn the fiscal year ended June\u00a030, 2023, services and support revenue increased 5% compared to the prior fiscal year. Reducing total services and support revenue by deconversion fees for each year, which totaled $31,775 in fiscal 2023 and $53,279 in fiscal 2022, and for Payrailz related revenue of $46 from the current fiscal year, services and support revenue grew 7%. This increase was primarily driven by higher data processing and hosting fees within private and public cloud revenue resulting from new customers being added and volumes expanding. Growth in software usage and subscription fee revenues, as more customers chose time-based licenses rather than perpetual, and hardware revenue also contributed to the increase.\nProcessing Revenue\nYear Ended June 30,\n%\nChange\n\u00a0\n2023\n2022\nProcessing\n$\n863,001\n\u00a0\n$\n786,519\u00a0\n10%\nPercentage of total revenue\n42%\n40%\n\u00a0\nProcessing revenue includes: \"remittance\" revenue from payment processing, remote capture, and ACH transactions; \"card\" fees, including card transaction processing and monthly fees; and \"transaction and digital\" revenue, which includes transaction and mobile processing fees.\nProcessing revenue increased 10% for the fiscal year ended\n \nJune\u00a030, 2023, compared to the fiscal year ended\n \nJune\u00a030, 2022. Reducing total processing revenue by Payrailz related revenue of $8,436 from the current fiscal year, processing revenue grew 9%. This increase was driven by growth in card processing, payment processing (including iPay), digital revenue (including Banno), and other processing fee revenues, as new customers were added, the active user base expanded, and transaction volumes increased.\n24\nTable of Contents\nOPERATING EXPENSES\nCost of Revenue\nYear Ended June 30,\n%\nChange\n\u00a0\n2023\n2022\nCost of revenue\n$\n1,219,062\n\u00a0\n$\n1,128,614\u00a0\n8%\nPercentage of total revenue\n59%\n58%\n\u00a0\nCost of revenue for fiscal 2023 increased 8% compared to fiscal 2022. Reducing total cost of revenue for deconversion costs of $2,046 in the current fiscal year and $3,793 in the prior fiscal year, and for Payrailz related costs of $18,193 in the current fiscal year, results in a 7% increase. This increase was driven by higher direct costs consistent with increases in the related revenue, higher personnel costs, including benefits expenses, and increased amortization of intangible assets. Cost of revenue increased 1% as a percentage of total revenue for fiscal 2023 compared to fiscal 2022.\nResearch and Development\nYear Ended June 30,\n%\nChange\n\u00a0\n2023\n2022\nResearch and development\n$\n142,678\n\u00a0\n$\n121,355\u00a0\n18%\nPercentage of total revenue\n7%\n6%\n\u00a0\nWe devote significant effort and expense to develop new software and service products and continually upgrade and enhance our existing offerings. We believe our research and development efforts are highly efficient because of the extensive experience of our research and development staff and because our product development is highly customer driven.\nResearch and development expenses for fiscal 2023 increased 18% compared to fiscal 2022. Reducing total research and development expenses for Payrailz related costs of $2,130 in the current fiscal year, results in a 16% increase. This increase is primarily due to higher personnel costs including benefits expenses, net of capitalization, due to a headcount increase of 9% in the trailing twelve months, and higher internal licenses and fees. Research and development expense increased 1% as a percentage of total revenue for fiscal 2023 compared to fiscal 2022. The increase in this expense category for the current fiscal year reflects our continuing commitment to the development of strategic products. \nSelling, General, and Administrative\nYear Ended June 30,\n%\nChange\n\u00a0\n2023\n2022\nSelling, general, and administrative\n$\n235,274\n\u00a0\n$\n218,296\u00a0\n8%\nPercentage of total revenue\n11%\n11%\n\u00a0\nSelling, general, and administrative costs included all expenses related to sales efforts, commissions, finance, legal, and human resources, plus all administrative costs. \nSelling, general, and administrative expenses for fiscal 2023 increased 8% compared to fiscal 2022. Reducing total selling, general, and administrative expense for deconversion costs from each year, which totaled $2,216 in fiscal 2023 and $2,485 in fiscal 2022, and Payrailz related costs of $2,144, and the gain on assets, net, of $4,567 for the current fiscal year, results in a 9% increase. This increase was primarily due to higher personnel costs, including commissions and benefits expenses. Selling, general, and administrative expenses remained consistent as a percentage of total revenue for fiscal 2023 compared to fiscal 2022. This consistency reflects our continuing commitment to control costs.\nINTEREST INCOME AND EXPENSE\nYear Ended June 30,\n%\nChange\n\u00a0\n2023\n2022\nInterest income\n$\n8,959\n\u00a0\n$\n32\u00a0\n27,897%\nInterest expense\n$\n(15,073)\n$\n(2,384)\n532%\nInterest income fluctuated due to changes in invested balances and yields on invested balances. Interest expense increased in fiscal 2023 mainly due to the timing and amounts of borrowed balances and increases in interest rates.\n25\nTable of Contents\nPROVISION FOR INCOME TAXES\nYear Ended June 30,\n%\nChange\n\u00a0\n2023\n2022\nProvision for income taxes\n$\n107,928\n\u00a0\n$\n109,351\u00a0\n(1)%\nEffective rate\n22.7%\n23.2%\nThe decrease in the Company's effective tax rate in fiscal 2023 compared to fiscal 2022 was primarily the result of a decrease in the state tax rate applied to net deferred tax liabilities and an increase in rate benefit received from research and development credits.\nNET INCOME\nYear Ended June 30,\n%\nChange\n\u00a0\n2023\n2022\nNet income\n$\n366,646\n\u00a0\n$\n362,916\u00a0\n1%\nDiluted earnings per share\n$\n5.02\n\u00a0\n$\n4.94\u00a0\n2%\nNet income grew 1% to $366,646, or $5.02 per diluted share, in fiscal 2023 from $362,916, or $4.94 per diluted share, in fiscal 2022. The diluted earnings per share increase year over year was 2%. This increase was primarily due to growth in our lines of revenue in fiscal 2023 compared to fiscal 2022 and a reduction in the number of shares outstanding.\nREPORTABLE SEGMENT DISCUSSION\nThe Company is a leading provider of technology solutions and payment processing services primarily to community and regional financial institutions.  \nThe Company\u2019s operations are classified into four reportable segments: Core, Payments, Complementary, and Corporate and Other. The Core segment provides core information processing platforms to banks and credit unions, which consist of integrated applications required to process deposit, loan, and general ledger transactions, and maintain centralized customer/member information. The Payments segment provides secure payment processing tools and services, including ATM, debit, and credit card processing services; online and mobile bill pay solutions; ACH origination and remote deposit capture processing; and risk management products and services. The Complementary segment provides additional software, hosted processing platforms, and services, including call center support, and network security management, consulting, and monitoring, that can be integrated with our core solutions and many can be used independently. The Corporate and Other segment includes revenue and costs from hardware and other products not attributed to any of the other three segments, as well as operating costs not directly attributable to the other three segments. \nDuring fiscal 2023, the Company transferred a product, Remit, from the Complementary segment to the Payments segment, due to better alignment with the Payments segment. As a result of this transfer, adjustments were made during fiscal 2023 to reclassify related revenue and cost of revenue for the fiscal year ended June\u00a030, 2022, from the Complementary to the Payments segment. Revenue reclassed for the fiscal year ended June\u00a030, 2022, was $12,049. Cost of revenue reclassed for the fiscal year ended June\u00a030, 2022, was $2,059. \nImmaterial adjustments were made in fiscal 2023 to reclassify revenue that was recognized in fiscal 2022 from the Complementary to the Corporate and Other segment. Immaterial adjustments were also made in fiscal 2023 to reclassify cost of revenue that was recognized in fiscal 2022 from the Complementary to the Payments and Corporate and Other segments. These reclasses were made to be consistent with the current allocation of revenue and cost of revenue by segment. Revenue reclassed for the fiscal year ended June\u00a030, 2022,  from Complementary to Corporate and Other was $4,917. Cost of revenue reclassed for the fiscal year ended June\u00a030, 2022, from Complementary to Payments was $3,396, and from Complementary to Corporate and Other was $403.\nCore\n\u00a0\n2023\n% Change\n2022\nRevenue\n$\n656,164\n\u00a0\n5%\n$\n622,442\u00a0\nCost of Revenue\n$\n283,531\n\u00a0\n8%\n$\n261,585\u00a0\nIn fiscal 2023, revenue in the Core segment increased 5% compared to fiscal 2022. Reducing total Core revenue by deconversion fees from both fiscal years, which totaled $10,924 in fiscal 2023 and $23,048 in fiscal 2022, Core \n26\nTable of Contents\nsegment revenue increased 8%. This increase was primarily driven by organic increases in our private and public cloud revenue. Cost of revenue in the Core segment increased 8% for fiscal 2023 compared to fiscal 2022.  Reducing total Core cost of revenue by deconversion costs from both fiscal years, which totaled $913 in fiscal 2023 and $1,719 in fiscal 2022, Core segment revenue increased 9% This increase was primarily due to increased direct costs associated with the organic growth in cloud revenue and personnel costs, including benefits expenses. Core segment cost of revenue increased 1% as a percentage of revenue for fiscal 2023 compared to fiscal 2022.\nPayments\n\u00a0\n2023\n% Change\n2022\nRevenue\n$\n767,339\n\u00a0\n7%\n$\n719,068\u00a0\nCost of Revenue\n$\n423,474\n\u00a0\n10%\n$\n386,409\u00a0\nIn fiscal 2023, revenue in the Payments segment increased 7% compared to fiscal 2022. Reducing total Payments revenue by deconversion fees from both fiscal years, which totaled $7,924 in fiscal 2023 and $14,319 in fiscal 2022, and Payrailz related revenue from the current fiscal year of $8,482, Payments segment revenue also increased 7%. This increase was primarily driven by growth within card processing and payment processing revenues. Cost of revenue in the Payments segment increased 10% for fiscal 2023 compared to fiscal 2022. Reducing total Payments cost of revenue by deconversion costs from both fiscal years, which totaled $303 in fiscal 2023 and $439 in fiscal 2022 and Payrailz related costs from the current fiscal year of $18,104, Payments cost of revenue increased 5%. This increase was primarily due to increased direct costs related to the growth in card processing and payment processing, and increased personnel costs, including benefits expenses. Payments segment cost of revenue increased 2% as a percentage of revenue for fiscal 2023 compared to fiscal 2022.\nComplementary\n\u00a0\n2023\n% Change\n2022\nRevenue\n$\n583,893\n\u00a0\n7%\n$\n544,244\u00a0\nCost of Revenue\n$\n239,044\n\u00a0\n6%\n$\n226,229\u00a0\nRevenue in the Complementary segment increased 7% for fiscal 2023 compared to fiscal 2022. Reducing total Complementary revenue by deconversion fees from both fiscal years, which totaled $12,649 in fiscal 2023 and $15,589 in fiscal 2022, Complementary segment revenue increased 8%. This increase was primarily driven by organic increases in hosting fee and digital revenues (including Banno). Cost of revenue in the Complementary segment increased 6% for fiscal 2023 compared to fiscal 2022. Reducing total Complementary cost of revenue by deconversion costs from both fiscal years, which totaled $807 in fiscal 2023 and $1,309 in fiscal 2022, Complementary segment cost of revenue also increased 6%. This increase was primarily due to higher direct costs related to the organic growth in hosting fee and digital revenues (including Banno) and increased personnel costs, including benefits expenses. Complementary segment cost of revenue decreased 1% as a percentage of revenue for fiscal 2023 compared to fiscal 2022.\nCorporate and Other\n\u00a0\n2023\n% Change\n2022\nRevenue\n$\n70,306\n\u00a0\n23%\n$\n57,130\u00a0\nCost of Revenue\n$\n273,013\n\u00a0\n7%\n$\n254,391\u00a0\nRevenue in the Corporate and Other segment increased 23% for fiscal 2023 compared to fiscal 2022. Reducing total Corporate and Other revenue by deconversion fees from both fiscal years, which totaled $278 in fiscal 2023 and $323 in fiscal 2022, Corporate and Other segment revenue also increased 23%. The increase was mainly due to increased hardware, user group, and processing fee revenues.\nCost of revenue for the Corporate and Other segment includes operating costs not directly attributable to any of the other three segments and increased 7% for fiscal 2023 compared to fiscal 2022. Reducing total Corporate and Other cost of revenue by deconversion fees from both fiscal years, which totaled $23 in fiscal 2023 and $325 in fiscal 2022, and Payrailz related costs of $90, Corporate and Other segment cost of revenue also increased 7%. This increase was primarily related to higher internal licenses and fees and personnel costs, including benefits expenses.\n27\nTable of Contents\nLIQUIDITY AND CAPITAL RESOURCES\nThe Company's cash and cash equivalents decreased to $12,243 at June\u00a030, 2023 from $48,787 at June\u00a030, 2022. The following table summarizes net cash from operating activities in the statement of cash flows:\nYear Ended\nJune 30,\n2023\n2022\nNet income\n$\n366,646\n\u00a0\n$\n362,916\u00a0\nNon-cash expenses\n166,621\n\u00a0\n234,676\u00a0\nChange in receivables\n(12,067)\n(41,508)\nChange in deferred revenue\n(10,547)\n6,572\u00a0\nChange in other assets and liabilities\n(129,094)\n(58,025)\nNet cash provided by operating activities\n$\n381,559\n\u00a0\n$\n504,631\u00a0\nCash provided by operating activities for fiscal 2023 decreased 24% compared to fiscal 2022, primarily due to the change in current and deferred income taxes included within non-cash expenses above that were related to Internal Revenue Code (IRC) Section 174 tax law changes with respect to the treatment of research and development expenses, as indicated by the increase in cash taxes paid, fiscal year over fiscal year. The Company paid income taxes, net of refunds, of $145,862, $60,553, and $80,220 in fiscal 2023, 2022, and 2021, respectively. Cash from operations is primarily used to repay debt, pay dividends, repurchase stock, and for capital expenditures.\nCash used in investing activities for fiscal 2023 totaled $409,673 and included: $229,628 for the acquisition of Payrailz, $166,120 for the ongoing enhancements and development of existing and new product and service offerings; capital expenditures on facilities and equipment of $39,179, mainly for the purchase of computer equipment; $1,685 for the purchase and development of internal use software; and $1,000 for purchase of investments. These expenditures were partially offset by $27,939 of proceeds from asset sales. \nCash used in investing activities for fiscal 2022 totaled $196,344 and included: $148,239 for the ongoing enhancements and development of existing and new product and service offerings; capital expenditures on facilities and equipment of $34,659, mainly for the purchase of computer equipment; $5,000 for the purchase of investments; and $8,491 for the purchase and development of internal use software. These expenditures were partially offset by $45 of proceeds from the sale of assets.\nFinancing activities used cash of $8,430 for fiscal 2023 and included $147,237 for dividends paid to stockholders and $25,000 for the purchase of treasury shares. These expenditures were partially offset by borrowings and repayments on our credit facilities and financing leases which netted to borrowings of $159,940 at June\u00a030, 2023, and $3,867 of net cash inflow related to stock-based compensation.  \nFinancing activities used cash in fiscal 2022 of $310,492 and included $193,916 for the purchase of treasury shares and $139,070 for dividends paid to stockholders. These expenditures were partially offset by borrowings and repayments on our revolving credit facility and financing leases which netted to borrowings of $14,873 at June\u00a030, 2022, and $7,621 of net cash inflow related to stock-based compensation.\nCapital Requirements and Resources\nThe Company generally uses existing resources and funds generated from operations to meet its capital requirements. Capital expenditures totaling $39,179 and $34,659 for fiscal years ended June\u00a030, 2023, and June\u00a030, 2022, respectively, were made primarily for additional equipment and the improvement of existing facilities. These additions were funded from cash generated by operations. At June\u00a030, 2023, the Company had no significant outstanding purchase commitments related to property and equipment. We assessed our liquidity needs throughout fiscal 2023, and determined we had adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated funding needs. We will continue to monitor and assess these needs going forward.\nAt June\u00a030, 2023, the Company had contractual obligations of $1,550,247, including operating lease obligations and $1,494,366 related to off-balance sheet contractual purchase obligations. Contractual obligations exclude $13,877 of liabilities for uncertain tax positions as we are unable to reasonably estimate the ultimate amount or timing of settlement.\nThe Board of Directors has authorized the Company to repurchase shares of its common stock. Under this authorization, the Company may finance its share repurchases with available cash reserves or short-term borrowings on its existing credit facilities. The share repurchase program does not include specific price targets or \n28\nTable of Contents\ntimetables and may be suspended at any time. At June\u00a030, 2023, there were 31,194 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,796 additional shares. The total cost of treasury shares at June\u00a030, 2023 was $1,832,118. During fiscal 2023, the Company repurchased 151 treasury shares for $25,000. At June\u00a030, 2022, there were 31,043 shares in treasury stock and the Company had authority to repurchase up to 3,948 additional shares.\nPayrailz\nOn August\u00a031, 2022, the Company acquired all of the equity interest in Payrailz. The final purchase price, following customary post-closing adjustments to the extent actual closing date working capital, cash, debt, and unpaid seller transaction expenses exceeded or were less than the amounts estimated at closing, was $230,205. Pursuant to the merger agreement for the transaction, $48,500 of the purchase price was placed in an escrow account at the closing, consisting of $2,500 for any final purchase price adjustments owed by the sellers, which amount was released to the sellers on December 15, 2022, in connection with post-closing adjustments, and $46,000 for indemnification matters under the merger agreement.\nThe primary reason for the acquisition was to expand the Company's digital financial management solutions and the purchase was originally funded by our revolving line of credit (Note\u00a07) and cash generated from operations. Payrailz provides cloud-native, API-first, AI-enabled consumer and commercial digital payment solutions and experiences that enable money to be moved in the moment of need.\nRevolving credit facility\nOn August 31, 2022, the Company entered into a five-year senior, unsecured amended and restated credit agreement that replaced the prior credit facility described below. The credit agreement allows for borrowings of up to $600,000, which may be increased to $1,000,000 by the Company at any time until maturity. The credit agreement bears interest at a variable rate equal to (a) a rate based on an adjusted Secured Overnight Financing Rate (\"SOFR\") term rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the Prime Rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day \nplus\n 0.50% per annum and (iv) the Adjusted Term SOFR Screen Rate (without giving effect to the Applicable Margin) for a one month Interest Period on such day for Dollars \nplus\n 1.0%), \nplus\n an applicable percentage in each case determined by the Company's leverage ratio. The credit agreement is guaranteed by certain subsidiaries of the Company and is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the credit agreement. As of June\u00a030, 2023, the Company was in compliance with all such covenants. The amended and restated credit facility terminates August\u00a031, 2027. There was $95,000 outstanding under the amended and restated credit facility at June\u00a030, 2023.\nOn June\u00a030, 2022, there was a $115,000 outstanding balance on the prior credit facility that was entered into on February 10, 2020. The prior credit facility was a five-year senior, unsecured revolving credit facility. The prior credit facility allowed for borrowings of up to $300,000, which could be increased by the Company to $700,000 at any time until maturity. The prior credit facility bore interest at a variable rate equal to (a) a rate based on a eurocurrency rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the U.S. Bank prime rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day \nplus\n 0.50% and (iv) the eurocurrency rate for a one-month interest period on such day for dollars \nplus\n 1.0%), \nplus\n an applicable percentage in each case determined by the Company's leverage ratio. The prior credit facility was guaranteed by certain subsidiaries of the Company and was subject to various financial covenants that required the Company to maintain certain financial ratios as defined in the prior credit agreement. As of June\u00a030, 2022, the Company was in compliance with all such covenants. The prior credit facility's termination date was February\u00a010, 2025.\nTerm loan facility\nOn May 16, 2023, the Company entered into a term loan credit agreement with a syndicate of financial institutions, with an original principal balance of $180,000. Borrowings under the term loan facility bear interest at a variable rate equal to (a) a rate based on an adjusted SOFR term rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the Prime Rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day \nplus\n 0.50% per annum and (iv) the Adjusted Term SOFR Screen Rate (without giving effect to the Applicable Margin) for a one month Interest Period on such day for Dollars \nplus\n 0.75%), \nplus\n an applicable percentage in each case determined by the Company's leverage ratio. The term loan credit agreement is guaranteed by certain subsidiaries of the Company and is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the term loan credit agreement. As of June\u00a030, 2023, the Company was in compliance with all such covenants. The term loan credit agreement has a maturity date of May\u00a016, 2025. There was $180,000 outstanding under the term loan at June\u00a030, 2023.\n29\nTable of Contents\nOther lines of credit\nThe Company has an unsecured bank credit line which provides for funding of up to $5,000 and bears interest at the prime rate \nless\n 1.0%. The credit line was renewed in May 2019 and modified in May 2023 to extend the expiration to April\u00a030, 2025. There was no balance outstanding at June\u00a030, 2023 or 2022.\nRECENT ACCOUNTING PRONOUNCEMENTS\nNot Adopted at Fiscal Year End\nIn October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company adopted the ASU on July 1, 2023, and will apply it prospectively to business combinations occurring after that date.\nCRITICAL ACCOUNTING ESTIMATES\nWe prepare our consolidated financial statements in accordance with U.S. GAAP. The significant accounting policies are discussed in Note\u00a01 to the consolidated financial statements. The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, as well as disclosure of contingent assets and liabilities. We base our estimates and judgments upon historical experience and other factors believed to be reasonable under the circumstances. Changes in estimates or assumptions could result in a material adjustment to the consolidated financial statements.\nWe have identified several critical accounting estimates. An accounting estimate is considered critical if both: (a) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (b) the impact of changes in the estimates and assumptions would have a material effect on the consolidated financial statements.\nRevenue Recognition\nWe generate revenue from data processing, transaction processing, software licensing and related services, professional services, and hardware sales.\nSignificant Judgments Used in the Application of the Guidance\nIdentification of performance obligations\nWe enter into contracts with customers that may include multiple types of goods and services. At contract inception,  we assess the solutions and services promised in our contracts with customers and identify a performance obligation for each promise to transfer to the customer a solution or service (or bundle of solutions or services) that is distinct \u2014 that is, if the solution or service is separately identifiable from other items in the arrangement and if the customer can benefit from the solution or service on its own or together with other resources that are readily available. Significant judgment is used in the identification and accounting for all performance obligations. We recognize revenue when or as we satisfy each performance obligation by transferring control of a solution or service to the customer.\nDetermination of transaction price\nThe amount of revenue recognized is based on the consideration we expect to receive in exchange for transferring goods and services to the customer. Our contracts with our customers frequently contain some component of variable consideration. We estimate variable consideration in our contracts primarily using the expected value method, based on both historical and current information. Where appropriate, we may constrain the estimated variable consideration included in the transaction price in the event of a high degree of uncertainty as to the final consideration amount. Significant judgment is used in the estimate of variable consideration of customer contracts that are long-term and include uncertain transactional volumes.\nTechnology or service components from third parties are frequently included in or combined with our applications or service offerings. Whether we recognize revenue based on the gross amount billed to the customer or the net amount retained involves judgment in determining whether we control the good or service before it is transferred to the customer. This assessment is made at the performance obligation level.\n30\nTable of Contents\nAllocation of transaction price\nThe transaction price, once determined, is allocated between the various performance obligations in the contract based upon their relative standalone selling prices. The standalone selling prices are determined based on the prices at which we separately sell each good or service. For items that are not sold separately, we estimate the standalone selling prices using all information that is reasonably available, including reference to historical pricing data.\nContract costs\nWe incur incremental costs to obtain a contract as well as costs to fulfill contracts with customers that are expected to be recovered. These costs consist primarily of sales commissions, which are incurred only if a contract is obtained, and customer conversion or implementation-related costs. \nCapitalized costs are amortized based on the transfer of goods or services to which the asset relates, in line with the percentage of revenue recognized for each performance obligation to which the costs are allocated.\nDepreciation and Amortization Expense\nThe calculation of depreciation and amortization expense is based on the estimated economic lives of the underlying property, plant and equipment and intangible assets, which have been examined for their useful life and determined that no impairment exists. We believe it is unlikely that any significant changes to the useful lives of our tangible and intangible assets will occur in the near term, but rapid changes in technology or changes in market conditions could result in revisions to such estimates that could materially affect the carrying value of these assets and our future consolidated operating results. For long-lived assets, we consider whether any impairment indicators are present. If impairment indicators are identified, we test the recoverability of the long-lived assets. If this recoverability test is failed, we determine the fair value of the long-lived assets and recognize an impairment loss if the fair value is less than its carrying value.\nCapitalization of software development costs\nWe capitalize certain costs incurred to develop commercial software products. For software that is to be sold, significant areas of judgment include: establishing when technological feasibility has been met and costs should be capitalized, determining the appropriate period over which to amortize the capitalized costs based on the estimated useful lives, estimating the marketability of the commercial software products and related future revenues, and assessing the unamortized cost balances for impairment. Costs incurred prior to establishing technological feasibility are expensed as incurred. Amortization begins on the date of general release and the appropriate amortization period is based on estimates of future revenues from sales of the products. We consider various factors to project marketability and future revenues, including an assessment of alternative solutions or products, current and historical demand for the product, and anticipated changes in technology that may make the product obsolete. \nFor internal use software, capitalization begins at the beginning of application development. Costs incurred prior to this are expensed as incurred. Significant estimates and assumptions include determining the appropriate amortization period based on the estimated useful life and assessing the unamortized cost balances for impairment. Amortization begins on the date the software is placed in service and the amortization period is based on estimated useful life.\nA significant change in an estimate related to one or more software products could result in a material change to our results of operations.\nEstimates used to determine current and deferred income taxes\nWe make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We also must determine the likelihood of recoverability of deferred tax assets and adjust any valuation allowances accordingly. Considerations include the period of expiration of the tax asset, planned use of the tax asset, and historical and projected taxable income as well as tax liabilities for the tax jurisdiction to which the tax asset relates. Valuation allowances are evaluated periodically and will be subject to change in each future reporting period as a result of changes in one or more of these factors. Also, liabilities for uncertain tax positions require significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect our financial results.\n31\nTable of Contents\nAssumptions related to purchase accounting and goodwill\nWe account for our acquisitions using the purchase method of accounting. This method requires estimates to determine the fair values of assets and liabilities acquired, including judgments to determine any acquired intangible assets such as customer-related intangibles, as well as assessments of the fair value of existing assets such as property and equipment. Liabilities acquired can include balances for litigation and other contingency reserves established prior to or at the time of acquisition and require judgment in ascertaining a reasonable value. Third-party valuation firms may be used to assist in the appraisal of certain assets and liabilities, but even those determinations would be based on significant estimates provided by us, such as forecast revenues or profits on contract-related intangibles. Numerous factors are typically considered in the purchase accounting assessments, which are conducted by Company professionals from legal, finance, human resources, information systems, program management and other disciplines. Changes in assumptions and estimates of the acquired assets and liabilities would result in changes to the fair values, resulting in an offsetting change to the goodwill balance associated with the business acquired.\nAs goodwill is not amortized, goodwill balances are regularly assessed for potential impairment. Such assessments include a qualitative assessment of factors that may indicate a potential for impairment, such as: macroeconomic conditions, industry and market changes, our overall financial performance, changes in share price, and an assessment of other events or changes in circumstances that could negatively impact us. If that qualitative assessment indicates a potential for impairment, a quantitative assessment is then required, including an analysis of future cash flow projections as well as a determination of an appropriate discount rate to calculate present values. Cash flow projections are based on management-approved estimates, which involve the input of numerous Company professionals from finance, operations and program management. Key factors used in estimating future cash flows include assessments of labor and other direct costs on existing contracts, estimates of overhead costs and other indirect costs, and assessments of new business prospects and projected win rates. Our most recent assessment indicates that no reporting units are currently at risk of impairment as the fair value of each reporting unit is significantly in excess of the carrying value. However, significant changes in the estimates and assumptions used in purchase accounting and goodwill impairment testing could have a material effect on the consolidated financial statements.",
+  "item7a": ">ITEM 7A.\u00a0\u00a0\u00a0\u00a0QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nMarket risk refers to the risk that a change in the level of one or more market prices, interest rates, indices, volatilities, correlations or other market factors such as liquidity, will result in losses for a certain financial instrument or group of financial instruments. We are currently exposed to credit risk on credit extended to customers and interest risk on outstanding debt. We do not currently use any derivative financial instruments. We actively monitor these risks through a variety of controlled procedures involving senior management.\nBased on the controls in place and the credit worthiness of the customer base, we believe the credit risk associated with the extension of credit to our customers will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.\nWe have $275,000 outstanding debt with variable interest rates as of June\u00a030, 2023, and a 1% increase in our borrowing rate would increase our annual interest expense by $2.75 million.\n32\nTable of Contents",
+  "cik": "779152",
+  "cusip6": "426281",
+  "cusip": ["426281901", "426281101", "426281951"],
+  "names": ["HENRY JACK & ASSOC INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/779152/000077915223000062/0000779152-23-000062-index.htm"
+}
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+{
+  "item1": ">Item 1.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0BUSINESS\n\u00a0\nOur Company\nAmerican Woodmark Corporation (\"American Woodmark,\" the \"Company,\" \"we,\" \"our\" or \"us\") was incorporated in 1980 by the four principal managers of the Boise Cascade Cabinet Division through a leveraged buyout of that division. We operated privately until 1986 when we became a public company through a registered public offering of common stock.\nFrom design to installation, we believe we offer a higher level of service than our competitors, serving both national and regional markets with the most relevant options. This makes us the cabinetmaker of choice for many homeowners, builders, designers, dealers, distributors, and retailers across the country. Our customer base is expanding as we build our portfolio of brands and reach new markets beyond kitchen and bath. Aspirational yet grounded, we've embraced an ambitious, strategic vision that will advance us boldly into the future.\nOur annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all amendments to those reports are available free of charge on our website, americanwoodmark.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The contents of our website are not, however, part of, or incorporated by reference into, this report.\nOur Business\nAmerican Woodmark celebrates the creativity in all of us. With over 8,800 employees and more than a dozen brands, we're one of the nation's largest cabinet manufacturers. From inspiration to installation, we help people find their unique style and turn their home into a space for self-expression. By partnering with major home centers, builders, and dealers and distributors, we spark the imagination of homeowners and designers and bring their vision to life. Across our service and distribution centers, our corporate office and manufacturing facilities, you'll always find the same commitment to customer satisfaction, integrity, teamwork, and excellence. \nOur Products \nWe offer a wide variety of products that fall into product lines including kitchen cabinetry, bath cabinetry, office cabinetry, home organization and hardware. Our cabinetry products are available in a variety of designs, finishes and finish colors and door styles. \nWe offer products in the following categories: made-to-order and stock. Made-to-order products typically utilize higher grade materials with more options as compared to stock and are all special ordered and shipped directly to the home from the factory. Our home organization products are exclusively stock products. Our kitchen cabinetry and bath cabinetry are offered across all product categories (made-to-order and stock). Our stock products represent cash and carry products and are sold through home centers, while our made-to-order products are sold through home centers, builders, and independent dealers and distributors. \nOur Market \nOur products are sold on a national basis across the United States to the remodeling and new home construction markets. We service these markets through three primary channels: home centers, builders, and independent dealers and distributors. We distribute our products to each market channel directly from our assembly plants and through a third party logistics network.\nOur Customers \nWe serve three main categories of customers: home center customers, builders, and independent dealers and distributors. \nHome Center Customers \nContractors, builders, remodelers, and do-it-yourself homeowners use our products primarily for repair and remodel (\"R&R\") projects. Products for R&R projects are predominately purchased through home centers such as Home Depot and Lowe's. Due to the market presence, store network and customer reach of these large home centers, our strategy has been to develop long-term strategic relationships with both Home Depot and Lowe's to distribute our products. During the fiscal year ended April\u00a030, \n3\n2023 (\"fiscal 2023\"), Home Depot and Lowe's combined accounted for approximately 43.2% of net sales of the Company. The loss of either Home Depot or Lowe's as a customer would have a material adverse effect on us.\nBuilders\nThe builder business represents a large portion of our overall revenue and has historically been a strategic component of our go-to-market strategy.\u00a0We serve 19 of the top 20 U.S. builders with a high degree of geographic concentration around major metro areas where single family starts are most robust.\u00a0We also serve multi-family builders, primarily in the Southwest Region of the U.S. Our various service center locations are close to these builders and enable us to deliver exceptional service to our builder partners. During fiscal 2023, builders accounted for approximately 42.9% of net sales of the Company.\nIndependent Dealers\u00a0& Distributors\nIn 2010, we expanded our business into the dealer channel with the launch of the Waypoint Living Spaces\u00ae brand.\u00a0Today, we sell this brand to over 1,500 regional and local dealers across the country.\u00a0The dealer channel of the market is the largest by volume, characterized by a high degree of entrepreneurship and one that rewards suppliers that deliver great service.\u00a0Our ability to provide superior value delivered with exceptional service has helped drive our expansion into this channel and this channel will continue to be a strong growth and market share opportunity for us. Within our distributor channel we also sell our Timberlake\u00ae brand through a network of regional distributors who are focused on selling a complete variety of building materials to small and midsized builders and contractors within their local markets. During fiscal 2023, independent dealers and distributors accounted for approximately 13.9% of net sales of the Company.\u00a0 \nManufacturing, Distribution and Service \nOur manufacturing facilities are strategically located to serve our customers, which enhances our ability to provide high quality, value priced products with low production costs. We manufacture our products across 17 facilities located in Maryland, Indiana, West Virginia, Georgia, Arizona, Kentucky, Virginia, California, Texas, North Carolina, and Tijuana, Mexico. We are building a new manufacturing facility in Monterrey, Mexico that will increase our stock kitchen and bath capacity for east coast markets.  This facility is expected to open in the third quarter of fiscal 2024. The geographic distribution of our facilities throughout the United States, together with our third party logistics network for the American Woodmark business and beneficial freight arrangements with home centers, enable us to provide a \"short supply chain\" to our U.S. customers. The ordering patterns of Home Depot and Lowe's, our two biggest customers, require suppliers to have sufficient manufacturing capacity to meet demand and to serve a large number (frequently hundreds to thousands) of stores. They impose strict logistics and performance criteria on us. The scale and strategic locations of our manufacturing facilities help us to meet these demands of the home center customers, as well as provide a logistics platform that we can leverage for builders and dealers. We distribute our products through one stand-alone distribution center, distribution centers located in some of our manufacturing facilities, and other third party locations to maximize efficiency. Our vertically-integrated production and assembly lines, standardized product construction, and investments in automation have allowed us to continuously improve productivity, and develop an expertise in wood processing and yield-maximizing technologies. We have standardized our raw material inputs and a number of our production processes, which reduces logistical requirements to manufacture and gives us increased economies of scale in sourcing these inputs. Certain of our inputs are also partially processed by our vendors, which reduces cost. In addition, our production of labor-intensive manufacturing and fabrication processes in our three Tijuana, Mexico facilities has enabled us to keep overall labor costs low while maintaining higher quality, greater speed-to-market and transportation cost advantage over Asian based manufacturers. \nWe provide complete turnkey installation services to our direct builder customers via our network of eight primary service centers that are strategically located throughout the United States in Virginia, Texas, North Carolina, Georgia, Florida, Arizona and California. \nWe regularly evaluate our organizational productivity and supply chains and assess opportunities to reduce costs and enhance quality. We strive to improve quality, speed and flexibility to meet changing and uncertain market conditions, as well as manage cost inflation, including wages and employee medical costs. \nRaw Materials and Suppliers \nThe primary raw materials used in our products include hard maple, cherry, and beech lumber and plywood. Additional raw materials include paint, particleboard, medium density fiberboard, high density fiberboard, manufactured components, and hardware. We purchase these and other raw materials from more than one source and generally believe them to be readily available. We rely on outside suppliers for some of our key components and do not typically enter into long-term contracts with \n4\nour suppliers or sourcing partners. We source a portion of our components from third parties in Asia and Europe. The distances involved in these arrangements, together with the differences in business practices, shipping and delivery requirements, and laws and regulations add complexity to our supply chain logistics and increase the potential for interruptions in our production scheduling. In addition, prices and availability of these components may be affected by world market conditions and government policies and tariffs that impacted fiscal 2023 and may continue into fiscal 2024.\nCompetition \nWe operate in a highly fragmented industry that is composed of several thousand local, regional, and national manufacturers. Most of our competitors compete on a local or regional basis, but others, like us, compete on a national basis as well. Our competitors include importers and large consolidated operations as well as relatively small, local cabinet manufacturers. Moreover, companies in other building products industries may compete with us. Competitive factors within the industry include pricing, quality, product availability, service, delivery time, and relationships with customers. Our principal means for competition is our breadth and variety of product offerings, expanded service capabilities, geographic reach, competitive price points for our products, and affordable quality. We believe we are a top three manufacturer of kitchen, bath, and home organization products in the United States based on publicly available information.\nEnvironmental Matters and Regulatory Matters \nOur operations are subject to federal, state and local environmental laws and regulations relating to, among other things, the generation, storage, handling, emission, transportation, and discharge of regulated materials into the environment. Permits are required for certain of our operations, and these permits are subject to revocation, modification, and renewal by issuing authorities. Governmental authorities have the power to enforce compliance with their regulations, and violations may result in the payment of fines or the entry of injunctions, or both. We may also incur liabilities for investigation and clean-up of soil or groundwater contamination on or emanating from current or formerly owned and operated properties, or at offsite locations at which regulated materials are located where we are identified as a responsible party. Discovery of currently unknown conditions could require responses that could result in significant costs. \nIntellectual Property \nWe maintain trademarks, copyrights, and trade secrets. We sell many of our products under a number of registered and unregistered trademarks, which we believe are widely recognized in our industry. We rely on trade secrets and confidentiality agreements to develop and maintain our competitive position. Monitoring the unauthorized use of our intellectual property is difficult, and the steps we have taken may not prevent unauthorized use of our intellectual property. The disclosure or misappropriation of our intellectual property could harm our ability to protect our rights and our competitive position. If we must litigate to protect our rights, we may incur significant expenses and divert significant attention from our business operations. To date, we have not relied on material patents in operating our business. \nSeasonality \nOur business has been subject to seasonal influences, with higher sales typically realized in our first and fourth fiscal quarters. General economic forces and changes in our customer mix have reduced seasonal fluctuations in revenue over the past few years and this trend is expected to continue. The costs of the Company's products are subject to inflationary pressures and commodity price fluctuations. The Company has generally been able, over time, to recover the effects of inflation and commodity price fluctuations through sales price increases.\nHuman Capital Resources\nEmployees \nAs of April\u00a030, 2023, we employed over 8,800 full-time employees, with approximately 277 unionized employees in Anaheim, California. We believe that our employee relations and relationship with the union representing the employees in Anaheim are good. \nCulture and Core Values\nAt American Woodmark, our mission to create value through people remains unchanged. The way we conduct our business and interact with our customers, vendors, and the communities in which we operate is driven by our core principles of Customer Satisfaction, Integrity, Teamwork, and Excellence. These principles also guide our interactions with employees and serve as a \n5\nbasis for setting goals for and evaluating our employees. By living out these principles, we believe we will be best positioned to attract, develop, and promote a broad range of talent and to conduct our business in a responsible, ethical, and professional manner. To that end, we have, among other things, established policies under which we strive to:\n\u2022\nEngage with our key stakeholders, including employees, to ensure their needs and concerns are heard and addressed, and if appropriate, incorporated into our strategy;\n\u2022\nMaintain a safe and enriching working environment where all employees are treated with respect and are able to achieve their full potential;\n\u2022\nEncourage employees to volunteer in our communities through internally or externally organized events; \n\u2022\nFund the American Woodmark Foundation and the AWCares Fund, which serves as vehicles for our employees to serve the community and receive financial assistance for unforeseen personal disaster or tragedy; and \n\u2022\nProvide scholarship opportunities to family members for our employees.\nTraining\nTraining is an important part of attracting and retaining a qualified workforce. Through our training programs, we seek to ensure that each employee is engaged, and has opportunities to succeed and advance his or her career. We invest a significant number of hours annually in onboarding, culture, safety, supervisory, and leadership training activities. Through these activities, as well as our tuition reimbursement programs, executive development opportunities, formal and informal cross-training activities, and other operational training offerings, we strive to establish American Woodmark as a continuous learning organization dedicated to providing the training and development opportunities necessary to maintain a well-qualified workforce connected to and invested in our continued operational success.\nOur training is designed and developed at the corporate and local level in order to further our goals of enterprise alignment and local integration. We prefer a leader-led approach to training whenever possible to foster engagement, relationship building, connection, and shared learning experiences. Depending on the course, our training and development opportunities are offered through a variety of platforms and frequencies, such as on an on-demand, semi-annual, annual, or biannual basis.\nSafety\nWe have established comprehensive safety programs throughout our operations to provide our employees with the tools they need to comply with the safety standards established under federal, state, and local laws and regulations or independently by us. Our safety leadership teams monitor our safety programs and related benchmarking with the goal of improving safety across the Company. Our rate of incidents recordable under the standards of the Occupational Safety and Health Administration (\u201cOSHA\u201d) per one hundred employees per year, also known as the OSHA recordable rate, was 1.56 during fiscal 2023.\nDiversity and Inclusion\nWe are an equal opportunity employer and strive to create an environment free from discrimination and harassment and in which each employee is valued, treated with dignity and respect, and engaged in an inclusive manner. We believe that a workplace that encourages the interaction of different perspectives and backgrounds creates superior solutions, approaches, and innovations. Five years ago, we commissioned the first formal team to better understand and evaluate inclusion and diversity at American Woodmark. Since that time, we have taken deliberate steps to educate our leaders and increase internal awareness within our workforce. Among these actions were the following: establishment of Right Environment Councils in each of our locations in an attempt to more effectively engage and connect with employees of all levels as well as the communities in which we serve; enhancing our employee engagement survey process to include measures specific to inclusion and diversity; participation in an external consultant partnership; establishment of our Inclusion, Diversity, Equity, and Alignment (IDEA) team; launching an enterprise-wide social strategic roadmap, and most recently the inclusion of representation metrics as part of our organizational scorecard and long-term incentive pay components. Going forward, we intend to continue our strategy with the goal of enhancing our culture of inclusion while increasing the diversity of people, thought, and perspectives represented throughout our company.\nOur Competitive Strengths\nMarket Leader with Nationwide Manufacturing and Distribution Network\nWe believe our company holds the number two or three market position in the United States cabinet market with an estimated 10% market share based on publicly available information. We are one of a select number of market participants with a national manufacturing and distribution footprint, which includes 17 manufacturing facilities in the United States and Mexico and eight primary service centers and one distribution center located throughout the United States. Our operating footprint provides us an ability to service our builder, dealer, and home center customers on a national basis, and we offer a broad set of products to serve our customers across a variety of price points. Our facilities are primarily located in or near major metropolitan markets to \n6\nfacilitate efficient product distribution to our customers. We believe the scale and breadth of our operations differentiate us and result in a competitive advantage providing superior customer service, low-cost distribution, and on-time delivery.\nComprehensive Product Offering with Diversified End-Markets\nWe believe that the diversity of our product portfolio across categories, channels, and end-markets benefits our financial performance, both in periods of growth and cyclicality. Our made-to-order offerings provide products for customers looking for a designer product, which can be used for both new home construction and remodeling applications. Our stock offering allows us to further serve our existing end-markets through the addition of a lower price point product that is well-suited for areas of growing demand such as new home construction targeting the first-time homebuyer. We also offer turnkey cabinet solutions for our builder customers which we believe is a unique aspect of our service platform. Our turnkey solution provides in-house design and measurement as well as installation service. We believe the ability to leverage our labor and expertise is a value-added service to our builder customers which has helped strengthen our position in the new home construction market.\nDeep Relationships with Leading Retailers\nWe have built strong and stable relationships with a base of long-standing customers across home centers, builders, and independent dealers and distributors. We have an average relationship length of 20 plus years with our top 10 customers, including long-standing relationships with Home Depot and Lowe's. We believe our customers value our national manufacturing and distribution footprint, which allows us to meet demanding logistics and performance criteria. We believe our focus on providing exceptional customer service and a quality product at a competitive price have enabled us to establish ourselves as a vendor of choice.\nBest-in-Class Manufacturing Capabilities\nWe operate 17 manufacturing facilities across the United States and Mexico. Our vertically-integrated production and assembly lines, standardized product construction, and investments in automation, have allowed us to continuously improve productivity and efficiency. We have standardized our raw material inputs and a number of our production processes, which reduces logistical requirements and provides increased economies of scale in sourcing these inputs. Our labor-intensive manufacturing and fabrication processes in Mexico offer a low cost alternative to Asian based manufacturers, while providing a quality product with lower transportation costs. \nExperienced Management Team\nWe have assembled an executive team from leading organizations with a deep base of management experience within industrial manufacturing companies. Our President and Chief Executive Officer, M. Scott Culbreth, joined our team in 2014 as the Chief Financial Officer and was named Chief Executive Officer in 2020. Mr. Culbreth's career in the manufacturing industry has been highlighted with multiple leadership roles in finance. Our other senior executives all have over twenty plus years of experience working for multi-national companies, with individual backgrounds in manufacturing and finance. ",
+  "item1a": ">Item 1A.\u00a0\u00a0\u00a0\u00a0RISK FACTORS \n\u00a0\nThere are a number of risks and uncertainties that may affect the Company's business, results of operations, and financial condition. These risks and uncertainties could cause future results to differ from past performance or expected results, including results described in statements elsewhere in this report that constitute \"forward-looking statements\" under the Private Securities Litigation Reform Act of 1995. Additional risks and uncertainties not presently known to the Company or currently believed to be immaterial also may adversely impact the Company's business. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the Company's business, financial condition, and results of operations. These risks and uncertainties, which the Company considers to be most relevant to specific business activities, include, but are not limited to, the following. Additional risks and uncertainties that may affect the Company's business, results of operations, and financial condition are discussed elsewhere in this report, including in Item 7. \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" under the headings \"Forward-Looking Statements,\" \"Seasonality,\" and \"Outlook for Fiscal 2024\" and Item 7A. \"Quantitative and Qualitative Disclosures about Market Risk.\"\u00a0\n\u00a0\n7\nRisks related to our business and industry\nBecause of the concentration of our sales to our two largest customers, the loss of either customer or a significant reduction in orders from either customer could adversely affect our financial results. \nHome Depot and Lowe's collectively accounted for approximately 43.2% of total net sales during the fiscal year 2023. We do not typically enter into long-term sales contracts with Home Depot or Lowe's and our sales usually occur on a \"purchase order\" basis. Our customers can make significant changes in their purchase volumes and can seek to significantly affect the prices we receive for our products and services and the other terms and conditions on which we do business. They have in the past discontinued, and may in the future choose to discontinue, purchasing some or all of our products with little or no notice. In the past, purchase volumes from our customers, including Home Depot and Lowe's, have fluctuated substantially, and we expect such fluctuations to occur from time to time in the future. Any reduction in, or termination of, our sales to either Home Depot or Lowe's could have a material adverse effect on our business, financial condition, or results of operations.\nIn addition, the potential for orders from these large retail customers to increase significantly from time to time requires us to have sufficient manufacturing capacity. These large retailers also impose strict logistics and performance criteria and fines. Failure to comply with these obligations may result in these customers reducing or stopping their purchase of our products.\nWe could also experience delays or defaults in payment from Home Depot or Lowe's, which could adversely affect our business, financial condition or results of operations. The loss of a substantial portion of our order volumes or revenue from either Home Depot or Lowe's for any reason would have a material adverse effect on our business, financial condition, or results of operations.\nOur business primarily relies on U.S. home improvement, repair and remodel and new home construction activity levels, all of which are impacted by risks associated with fluctuations in the housing market. Downward changes in the general economy, the housing market, or other business conditions could adversely affect our results of operations, cash flows, and financial condition. \nOur business primarily relies on home improvement, repair and remodel and new home construction activity levels in the United States. The housing market is sensitive to changes in economic conditions and other factors, such as the level of employment, access to labor, consumer confidence, consumer income, availability of financing and interest rate levels, and recent concerns with the housing market. Adverse changes in any of these conditions generally, or in any of the markets where we operate, could decrease demand and could adversely impact our businesses by: \n\u2022\ncausing consumers to delay or decrease homeownership; \n\u2022\nmaking consumers more price conscious resulting in a shift in demand to smaller, less expensive homes; \n\u2022\nmaking consumers more reluctant to make investments in their existing homes, including kitchen and bath repair and remodel projects; or \n\u2022\nmaking it more difficult to secure loans for major renovations. \nFluctuating raw material and energy costs could have a material adverse effect on our business and results of operations. \nWe purchase various raw materials, including, among others, wood, wood-based, and resin products, which are subject to price fluctuations that could materially increase our manufacturing costs. Further, increases in energy costs increase our production costs and also the cost to transport our products, each of which could have a material adverse effect on our business and results of operations. In addition, some of our suppliers have consolidated and other suppliers may do so in the future. Combined with increased demand, such consolidation could increase the price of our supplies and raw materials.\nWe also may be unwilling or unable to pass on to customers commensurate cost increases. Competitive considerations and customer resistance to price increases may delay or make us unable to adjust selling prices. To the extent we are unable to either re-engineer or otherwise offset increased costs or are unwilling or unable to build price increases into our sales prices, our margins will be negatively affected. Even if we are able to increase our selling prices, sustained price increases for our products may lead to sales declines and loss of market share, particularly if our competitors do not increase their prices, and there is usually a six to nine month lag before we are able to see the results of our pricing actions. Conversely, when raw materials or energy prices decline, we may receive customer pressure to reduce our sales prices.\nThese prices are market-based and fluctuate based on factors beyond our control. We do not have long-term fixed supply agreements and do not hedge against price fluctuations. We, therefore, cannot predict our raw materials or energy costs for the coming year. \nProlonged economic downturns may adversely impact our sales, earnings, and liquidity. \nOur industry historically has been cyclical in nature and has fluctuated with economic cycles. During economic downturns, our industry could experience longer periods of recession and greater declines than the general economy. We believe that our industry is significantly influenced by economic conditions generally and particularly by housing activity, consumer confidence, the level of personal discretionary \n8\nspending, demographics, and credit availability. These factors may affect not only the ultimate consumer of our products, but also may impact home centers, builders, and our other primary customers. As a result, a worsening of economic conditions could adversely affect our sales and earnings as well as our cash flow and liquidity.\nThe U.S. cabinetry industry is highly competitive, and market share losses could occur. \nWe operate within a highly competitive U.S. cabinetry industry, which is characterized by competition from a number of other manufacturers. Competition is further intensified during economic downturns. We compete with numerous large national and regional home products companies for, among other things, customers, orders from Home Depot and Lowe's, raw materials, skilled management, and labor resources. Purchase volumes from our main home center customers have fluctuated substantially from time to time in the past, and we expect such fluctuations to occur from time to time in the future. \nSome of our competitors may have greater financial, marketing, and other resources than we do and, therefore, may be able to adapt to changes in customer preferences more quickly, devote more resources to the marketing and sale of their products, generate greater national brand recognition, or adopt more aggressive pricing policies than we can. In addition, some of our competitors may resort to price competition to sustain or gain market share and manufacturing capacity utilization, and we may have to adjust the prices on some of our products to stay competitive, which could reduce our revenues. \nWe also face competition with respect to some of our products from competitors in countries with lower regulatory, safety, environmental, and other costs, such as China, Vietnam, Thailand, and Malaysia. These competitors may also benefit from certain local government subsidies or other incentives that are not available to us. \nWe may not ultimately succeed in competing with other manufacturers and distributors in our market, which may have a material adverse effect on our business, financial condition, or results of operations.\nOur failure to develop new products or respond to changing consumer preferences and purchasing practices could have a material adverse effect on our business, financial condition, or results of operations. \nThe U.S. cabinetry industry is subject to changing consumer trends, demands, and preferences. The uncertainties associated with developing and introducing new products, such as gauging changing consumer preferences and successfully developing, manufacturing, marketing, and selling new products, could lead to, among other things, rejection of a new product line, reduced demand and price reductions for our products. If our products do not keep up with consumer trends, demands, and preference, we could lose market share, which could have a material adverse effect on our business, financial condition, or results of operations.\nChanges to consumer shopping habits and potential trends toward \"online\" purchases could also impact our ability to compete. Further, the volatile and challenging economic environment of recent years has caused shifts in consumer trends, demands, preferences and purchasing practices, and changes in the business models and strategies of our customers. Shifts in consumer preferences, which may or may not be long-term, have altered the quantity, type, and prices of products demanded by the end-consumer and our customers. If we do not timely and effectively identify and respond to these changing consumer preferences and purchasing practices, our relationships with our customers could be harmed, the demand for our products could be reduced, and our market share could be negatively affected.\nWe may fail to fully realize the anticipated benefits of our growth strategy within the home center, dealer, distributor and homebuilder channels. \nPart of our growth strategy depends on expanding our business in the home center, dealer, distributor and homebuilder channels. We may fail to compete successfully against other companies that are already established providers within the home center, dealer, distributor and homebuilder channels. Demand for our products within the home center, homebuilder, dealer and distributor channels may not grow, or might even decline. In addition, we may not accurately gauge consumer preferences and successfully develop, manufacture, and market our products at a national level. Further, the implementation of our growth strategy may place additional demands on our administrative, operational, and financial resources and may divert management's attention away from our existing business and increase the demands on our financial systems and controls. If our management is unable to effectively manage growth, our business, financial condition, or results of operations could be adversely affected. If our growth strategy is not successful then our revenue and earnings may not grow as anticipated or may decline, we may not be profitable, or our reputation and brand may be damaged. In addition, we may change our financial strategy or other components of our overall business strategy if we believe our current strategy is not effective, if our business or markets change, or for other reasons, which may cause fluctuations in our financial results.\nManufacturing expansion to add capacity, manufacturing realignments, and other cost savings programs could result in a decrease in our near-term earnings. \nWe continually review our manufacturing operations. These reviews could result in the expansion of capacity, manufacturing realignments, and various cost savings programs. Effects of manufacturing expansion, realignments, or cost savings programs could result in a decrease in our short-term earnings until the additional capacity is in place, cost reductions are achieved, and/or production volumes stabilize, such as our expansion of stock kitchen and bath \n9\ncapacity in North Carolina and Mexico, which is currently underway. Such manufacturing expansions, realignments, and programs involve substantial planning, often require capital investments, and may result in charges for fixed asset impairments or obsolescence and substantial severance costs. We also cannot assure you that we will achieve all of the intended cost savings. Our ability to achieve cost savings and other benefits within expected time frames is subject to many estimates and assumptions. These estimates and assumptions are subject to significant economic, competitive, and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our business, financial condition, and results of operations could be materially and adversely affected. In addition, downturns in the economy could potentially have a larger impact on the Company as a result of any added capacity.\nWe manufacture our products internationally and are exposed to risks associated with doing business globally. \nWe manufacture our products in the United States and Mexico and sell our products in the United States and Canada. Accordingly, we are subject to risks associated with potential disruption caused by changes in political, monetary, economic, and social environments, including civil and political unrest, terrorism, possible expropriation, local labor conditions, changes in laws, regulations, and policies of foreign governments and trade disputes with the United States (including tariffs), and compliance with U.S. laws affecting activities of U.S. companies abroad, including tax laws, economic sanctions, and enforcement of contract and intellectual property rights. \nWe are also subject to the Foreign Corrupt Practices Act and other anti-bribery laws. While we have implemented safeguards and policies to discourage these practices by our employees and agents, our existing safeguards and policies to assure compliance and any future improvements may prove to be less than effective and our employees or agents may engage in conduct for which we might be held responsible. If employees violate our policies, we may be subject to regulatory sanctions. Violations of these laws or regulations could result in sanctions including fines, debarment from export privileges, and penalties and could have a material adverse effect on our business, financial condition, or results of operations.\nWe may continue to hedge certain foreign currency transactions in the future; however, a change in the value of the currencies may impact our financial statements when translated into U.S. dollars. In addition, fluctuations in currency can adversely impact the cost position in local currency of our products, making it more difficult for us to compete. Our success will depend, in part, on our ability to effectively manage our business through the impact of these potential changes.\nIn addition, we source raw materials and components from Asia where we have recently experienced higher manufacturing costs and longer lead times due to currency fluctuations, higher wage rates, labor shortages, and higher raw material costs, and we have also experienced higher shipping costs and shipping delays. Our international operations and sourcing of materials (including from Asia and Mexico) could be harmed by a variety of factors including, but not limited to:\n\u2022\nincreases in transportation costs or transportation delays;\n\u2022\nwork stoppages and labor strikes;\n\u2022\nintroduction of non-native invasive organisms into new environments;\n\u2022\nrecessionary trends in international markets;\n\u2022\nlegal and regulatory changes and the burdens and costs of our compliance with a variety of laws, including export controls, import and customs trade restrictions, tariffs and other regulations;\n\u2022\nfluctuations in exchange rates, particularly the value of the U.S. dollar relative to other currencies; and\n\u2022\npolitical unrest, terrorism, and economic instability.\nIf any of these or other factors were to render the conduct of our business in a particular country undesirable or impractical, our business, financial condition, or results of operations could be materially adversely affected.\nThe inability to obtain raw materials from suppliers in a timely manner would adversely affect our ability to manufacture and market our products. \nOur ability to offer a wide variety of products depends on our ability to obtain an adequate supply of components from manufacturers and other suppliers, particularly wood-based and resin products. Transportation and container delays may adversely impact our supply chain. Additionally, failure by our suppliers to provide us with quality products on commercially reasonable terms, and to comply with legal requirements for business practices, could have a material adverse effect on our business, financial condition, or results of operations. Furthermore, we rely heavily or, in certain cases, exclusively, on outside suppliers for some of our key components. While we do not rely exclusively on any one supplier for any particular raw materials, the loss of a major supplier could increase our costs to obtain raw materials until we obtain an adequate alternative source.\nWe typically do not enter into long-term contracts with our suppliers or sourcing partners. Instead, most raw materials and sourced goods are obtained on a \"purchase order\" basis. Although these components are generally obtainable in sufficient quantities from other sources, resourcing them from another supplier could take time. Financial, operating, or other difficulties encountered by our suppliers or sourcing partners, or changes in our relationships with them could result in manufacturing or \n10\nsourcing interruptions, delays, and inefficiencies, and prevent us from manufacturing enough products to meet customer demands. \nCertain of our customers have been expanding and may continue to expand through consolidation and internal growth, which may increase their buying power, which could materially and adversely affect our sales, results of operations, and financial position. \nCertain of our customers are large companies with significant buying power. In addition, potential further consolidation in the distribution channels could enhance the ability of certain of our customers to seek more favorable terms, including pricing, for the products that they purchase from us. Accordingly, our ability to maintain or raise prices in the future may be limited, including during periods of raw material and other cost increases. If we are forced to reduce prices or to maintain prices during periods of increased costs, or if we lose customers because of pricing or other methods of competition, our sales, operating results, and financial position may be materially and adversely affected.\nRisks related to indebtedness\nOur level and terms of indebtedness could adversely affect our business and liquidity position\n. \nOur consolidated indebtedness level could have important consequences to us, including, among other things, increasing our vulnerability to general economic and industry conditions; requiring a portion of our cash flow used in operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our liquidity and our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; exposing us to the risk of increased interest rates, and corresponding increased interest expense, because borrowings under our credit facilities are at variable rates of interest; reducing funds available for working capital, capital expenditures, acquisitions, and other general corporate purposes, due to the costs, and expenses associated with such debt; limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions, and general corporate, or other purposes; and limiting our ability to adjust to changing marketplace conditions and placing us at a competitive disadvantage compared to our competitors who may have less debt.\nIf our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital, or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations, which could cause us to default on our debt obligations and impair our liquidity. In the event of a default under any of our indebtedness, the holders of the defaulted debt could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest. The lenders under our credit facilities could also elect to terminate their commitments thereunder and cease making further loans, and such lenders could institute foreclosure proceedings against their collateral, all of which could adversely affect our financial condition in a material way.\nThe credit agreement that governs our credit facility imposes operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities or otherwise negatively impact our business.\n \nThe credit agreement that governs our credit facility imposes operating and financial restrictions on us. These restrictions limit our ability and the ability of our subsidiaries to, among other things, to incur additional indebtedness, create additional liens on its assets, make certain investments, dispose of assets, or engage in a merger or other similar transaction or engage in transactions with affiliates, subject, in each case, to the various exceptions and conditions described in the credit agreement. The negative covenants further restrict the ability of the Company and certain of its subsidiaries to make certain restricted payments, including, in the case of the Company, the payment of dividends, and the repurchase of common stock, in certain limited circumstances.\nAs a result of these restrictions, each of which is subject to certain exceptions and qualifications, we may be limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these existing covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.\nOur failure to comply with the restrictive covenants described above as well as other terms of our indebtedness and/or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in us being required to repay these borrowings before their due date.\n \nIf we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.\n11\nOther general risks applicable to us and our business\nWe may incur future goodwill impairment charges or other asset impairment charges which could negatively impact our future results of operations and financial condition.\n \nWe recorded significant goodwill as a result of the acquisition of RSI Home Products, Inc. (the \"RSI Acquisition\" or \"RSI\") in fiscal year 2018. Goodwill and other acquired intangible assets represent a substantial portion of our assets. We also have long-lived assets consisting of property and equipment and other identifiable intangible assets which we review both on an annual basis as well as when events or circumstances indicate that the carrying amount of an asset may not be recoverable. If a determination is made that a significant impairment in value of goodwill, other intangible assets, or long-lived assets has occurred, such determination could require us to impair a substantial portion of our assets. Asset impairments could have a material adverse effect on our financial condition and results of operations. \nThe implementation of our Enterprise Resource Planning system could disrupt our business. \nWe are in the process of implementing a common Enterprise Resource Planning (ERP) system across the Company and went live with the first wave of the system, including procurement, general ledger, accounts payable, and projects and fixed assets, in the second half of fiscal 2022. A Global Design project is in process to design the manufacturing processes that will be converted to the ERP system. We also will be piloting the ERP system in our new Monterrey, Mexico manufacturing location. Although we currently expect the ERP implementation to increase efficiencies by leveraging a common, cloud-based system throughout the Company and standardizing processes and reporting, our ERP system implementation may not result in improvements that outweigh its costs and may disrupt our operations. Our inability to mitigate existing and future disruptions could adversely affect our sales, earnings, financial condition and liquidity. The ERP system implementation subjects us to substantial costs and inherent risks associated with migrating from our legacy systems. These costs and risks could include, but are not limited to:\n\u2022\nsignificant capital and operating expenditures;\n\u2022\ndisruptions to our domestic and international supply chains;\n\u2022\ninability to fill customer orders accurately and on a timely basis, or at all;\n\u2022\ninability to process payments to suppliers, vendors and associates accurately and in a timely manner;\n\u2022\ndisruption to our system of internal controls;\n\u2022\ninability to fulfill our SEC or other governmental reporting requirements in a timely or accurate manner;\n\u2022\ninability to fulfill federal, state, or local tax filing requirements in a timely or accurate manner; and\n\u2022\nincreased demands on management and staff time to the detriment of other corporate initiatives.\nOur operations may be adversely affected by information systems interruptions or intrusions. \nWe rely on a number of information technology systems to process, transmit, store, and manage information to support our business activities. Increased global cybersecurity vulnerabilities, threats, and more sophisticated and targeted attacks pose a risk to our information technology systems. We have established security policies, processes, and layers of defense designed to help identify and protect against intentional and unintentional misappropriation or corruption of our systems and information and disruption of our operations. Despite these efforts, systems may be damaged, disrupted, or shut down due to attacks by unauthorized access, malicious software, undetected intrusion, hardware failures, or other events, and in these circumstances our disaster recovery planning may be ineffective or inadequate. These breaches or intrusions could lead to business interruption, exposure of proprietary or confidential information, data corruption, damage to our reputation, exposure to litigation, and increased operational costs. Such events could have a material adverse impact on our business, financial condition and results of operation. In addition, we could be adversely affected if any of our significant customers or suppliers experience any similar events that disrupt their business operations or damage their reputation. \nIncreased compliance costs or liabilities associated with environmental regulations could have a material adverse effect on our business, financial condition, or results of operations. \nOur facilities are subject to numerous environmental laws, regulations and permits, including those governing emissions to air, discharges to water, storage, treatment and disposal of waste, remediation of contaminated sites, and protection of worker health and safety. We may not be in complete compliance with these laws, regulations, or permits at all times. Our efforts to comply with environmental requirements do not remove the risk that we may incur material liabilities, fines or penalties for, among other things, releases of regulated materials occurring on or emanating from current or formerly owned or operated properties or any associated offsite disposal location, or for contamination discovered at any of our properties from activities conducted by previous occupants. Liability for environmental contamination or a release of hazardous materials may be joint and several, so that we may be held responsible for more than our share of the contamination or other damages, or even for the entire share.\nChanges in environmental laws and regulations or the discovery of previously unknown contamination or other liabilities relating to our properties and operations could result in significant environmental liabilities that could impact our business, financial condition, or results of operation. In addition, we may incur capital and other costs to comply with increasingly \n12\nstringent environmental laws and enforcement policies. These laws, including, for example, the regulations relating to formaldehyde emissions promulgated by the California Air Resources Board, require us to rely on compliance by our suppliers of raw materials. Should a supplier fail to comply with such regulations, notify us of non-compliance, or provide us with a product that does not comply, we could be subject to disruption in our business and incur substantial liabilities.\nUnauthorized disclosure of confidential information provided to us by customers, employees or third parties could harm our business. \nWe rely on the internet and other electronic methods to transmit confidential information and store confidential information on our networks. If there were a disclosure of confidential information provided by, or concerning, our employees, customers or other third parties, including through inadvertent disclosure, unapproved dissemination, or unauthorized access, our reputation could be harmed and we could be subject to civil or criminal liability and regulatory actions.\nChanges in government and industry regulatory standards could have a material adverse effect on our business, financial condition, or results of operations. \nGovernment regulations pertaining to health and safety and environmental concerns continue to emerge, domestically as well as internationally. These regulations include the Occupational Safety and Health Administration and other worker safety regulations for the protection of employees, as well as regulations for the protection of consumers. It is necessary for us to comply with current requirements (including requirements that do not become effective until a future date), and even more stringent requirements could be imposed on our products or processes. Compliance with these regulations may require us to alter our manufacturing and installation processes and our sourcing. Such actions could increase our capital expenditures and adversely impact our business, financial condition or results of operations, and our inability to effectively and timely meet such regulations could adversely impact our competitive position.\nWe could continue to pursue growth opportunities through either acquisitions, mergers or internally developed projects, which may be unsuccessful or may adversely affect our future financial condition and operating results. \nWe could continue to pursue opportunities for growth through either acquisitions, mergers, or internally developed projects as part of our growth strategy. We cannot assure you that we will be successful in integrating an acquired business or that an internally developed project will perform at the levels we anticipate. We may pay for future acquisitions using cash, stock, the assumption of debt, or a combination of these. Future acquisitions could result in dilution to existing shareholders and to earnings per share. In addition, we may fail to identify significant liabilities or risks associated with a given acquisition that could adversely affect our future financial condition, and operating results or result in us paying more for the acquired business or assets than they are worth.\nOur ability to operate and our growth potential could be materially and adversely affected if we cannot employ, train, and retain qualified personnel at a competitive cost. \nMany of the products that we manufacture and assemble require manual processes in plant environments. We believe that our success depends upon our ability to attract, employ, train, and retain qualified personnel with the ability to design, manufacture, and assemble these products. In addition, our ability to expand our operations depends in part on our ability to increase our skilled labor force as the housing market continues to recover in the United States. In addition, we believe that our success depends in part on our ability to quickly and effectively train additional workforce to handle the increased volume and production while minimizing labor inefficiencies and maintaining product quality in a housing market recovery. If either of these events were to occur, our cost structure could increase, our margins could decrease, and any growth potential could be impaired.\nOur failure to maintain acceptable quality standards could result in significant unexpected costs. \nAny failure to maintain acceptable quality standards could require us to recall or redesign such products, or pay substantial damages, any of which would result in significant unexpected costs. We may also have difficulty controlling the quality of products or components sourced from other manufacturers, so we are exposed to risks relating to the quality of such products and to limitations on our recourse against such suppliers. Further, any claim or product recall could result in adverse publicity against us, which could decrease our credibility, harm our reputation, adversely affect our sales, or increase our costs. Defects in our products could also result in decreased orders or sales to our customers, which could have a material adverse effect on our business, financial condition or results of operations.\nNatural disasters could have a material adverse effect on our business, financial condition, or results of operations. \nMany of our facilities are located in regions that are vulnerable to natural disasters and other risks, such as earthquakes, fires, floods, tropical storms, hurricanes, and snow and ice, which at times have disrupted the local economy and posed physical risks to our property. In addition, the continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to the economies of the United States and other countries. Our redundant, multiple site capacity may not be sufficient in the event of a natural disaster, terrorist act or other catastrophic event. Such disruptions could, among other things, disrupt our manufacturing or distribution facilities and result in delays or cancellations of customer orders for our products, which in turn could have a material adverse effect on our business, financial condition and results of operations. Further, if a natural disaster occurs in a region from which we derive a significant portion of \n13\nour revenue, end-user customers in that region may delay or forego purchases of our products, which may materially and adversely impact our operating results for a particular period.",
+  "item7": ">Item 7.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\u00a0\nResults of Operations\n\u00a0\nThe following table sets forth certain income and expense items as a percentage of net sales:\n\u00a0\nPERCENTAGE OF NET SALES\n\u00a0\nFISCAL YEARS ENDED APRIL 30,\n\u00a0\n2023\n2022\n2021\nNet sales\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\nCost of sales and distribution\n82.7\u00a0\n87.8\u00a0\n81.5\u00a0\nGross profit\n17.3\u00a0\n12.2\u00a0\n18.5\u00a0\nSelling and marketing expenses\n4.6\u00a0\n5.0\u00a0\n5.1\u00a0\nGeneral and administrative expenses\n6.1\u00a0\n5.3\u00a0\n6.5\u00a0\nRestructuring charges, net\n0.1\u00a0\n\u2014\u00a0\n0.3\u00a0\nOperating income\n6.5\u00a0\n1.9\u00a0\n6.6\u00a0\nPension settlement, net\n\u2014\u00a0\n3.7\u00a0\n\u2014\n\u00a0\nInterest expense/other (income) expense, net\n0.7\u00a0\n0.5\u00a0\n2.0\u00a0\nIncome (loss) before income taxes\n5.8\u00a0\n(2.3)\n4.6\u00a0\nIncome tax expense (benefit)\n1.4\u00a0\n(0.7)\n1.1\u00a0\nNet income (loss)\n4.4\u00a0\n(1.6)\n3.5\u00a0\nThe following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes contained elsewhere in this report.\n\u00a0\nForward-Looking Statements\n\u00a0\nThis annual report contains statements concerning the Company's expectations, plans, objectives, future financial performance, and other statements that are not historical facts.\u00a0These statements may be \"forward-looking statements\" within the meaning of the Private Securities Litigation Reform Act of 1995.\u00a0In most cases, the reader can identify forward-looking statements by words such as \"anticipate,\" \"estimate,\" \"forecast,\" \"expect,\" \"believe,\" \"should,\" \"could,\" \"would,\" \"plan,\" \"may,\" \"intend,\" \"estimate,\" \"prospect,\" \"goal,\" \"will,\" \"predict,\" \"potential,\" or other similar words.\u00a0Forward-looking statements contained in this report, including elsewhere in \"Management's Discussion and Analysis of Financial Condition and Results of Operations,\" are based on current expectations and our actual results may differ materially from those projected in any forward-looking statements.\u00a0In addition, the Company participates in an industry that is subject to rapidly changing conditions and there are numerous factors that could cause the Company to experience a decline in sales and/or earnings or deterioration in financial condition.\u00a0Factors that could cause actual results to differ materially from those in forward-looking statements made in this report include but are not limited to:\n\u2022\nthe loss of or a reduction in business from one or more of our key customers;\n16\n\u2022\nnegative developments in the macro-economic factors that impact our performance such as the U.S. housing market, general economy, unemployment rates, and consumer sentiment and the impact of such developments on our and our customers' business, operations, and access to financing;\n\u2022\nan inability to obtain raw materials in a timely manner or fluctuations in raw material, transportation, and energy costs due to inflation or otherwise;\n\u2022\na failure to attract and retain certain members of management or other key employees or other negative labor developments, including increases in the cost of labor; competition from other manufacturers and the impact of such competition on pricing and promotional levels;\n\u2022\nan inability to develop new products or respond to changing consumer preferences and purchasing practices;\n\u2022\nincreased buying power of large customers and the impact on our ability to maintain or raise prices;\n\u2022\na failure to effectively manage manufacturing operations, alignment, and capacity or an inability to maintain the quality of our products;\n\u2022\nthe impairment of goodwill, other intangible assets, or our long-lived assets;\n\u2022\ninformation systems interruptions or intrusions or the unauthorized release of confidential information concerning customers, employees, or other third parties;\n\u2022\nthe cost of compliance with, or liabilities related to, environmental or other governmental regulations or changes in governmental or industry regulatory standards, especially with respect to health and safety and the environment; \n\u2022\nrisks associated with the implementation of our growth strategy;\n\u2022\nrisks related to sourcing and selling products internationally and doing business globally, including the imposition of tariffs or duties on those products;\n\u2022\nunexpected costs resulting from a failure to maintain acceptable quality standards;\n\u2022\nchanges in tax laws or the interpretations of existing tax laws;\n\u2022\nthe impact of COVID-19 or another pandemic on our business, the global and U.S. economy, and our employees, customers, and suppliers;\n\u2022\nthe occurrence of significant natural disasters, including earthquakes, fires, floods, hurricanes, or tropical storms;\n\u2022\nthe unavailability of adequate capital for our business to grow and compete; and\n\u2022\nlimitations on operating our business as a result of covenant restrictions under our indebtedness, our ability to pay amounts due under our credit facilities and our other indebtedness, and interest rate increases.\nAdditional information concerning the factors that could cause actual results to differ materially from those in forward-looking statements is contained in this annual report, including elsewhere in \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" and under Item 1A. \"Risk Factors,\" and Item 7A. \"Quantitative and Qualitative Disclosures about Market Risk.\"\u00a0While the Company believes that these risks are manageable and will not adversely impact the long-term performance of the Company, these risks could, under certain circumstances, have a material adverse impact on its operating results and financial condition.\n\u00a0\nAny forward-looking statement that the Company makes speaks only as of the date of this annual report.\u00a0The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information, future events or otherwise, except as required by law.\n\u00a0\nOverview\n\u00a0\nAmerican Woodmark Corporation manufactures and distributes kitchen, bath and home organization products for the remodeling and new home construction markets.\u00a0Its products are sold on a national basis directly to home centers and builders and through a network of independent dealers and distributors.\u00a0At\u00a0April\u00a030, 2023, the Company operated 17 manufacturing facilities in the United States and Mexico and eight primary service centers and one distribution center located throughout the United States.\nFinancial Overview\nA number of general market factors impacted the Company's business in fiscal 2023, some positive and some negative, including:\n\u00a0\n\u2022\nThe unemployment rate decreased by 6% compared to April 2022, to 3.4% as of April 2023 according to data provided by the U.S. Department of Labor; \n\u2022\nThere was a decrease in single family housing starts during the Company's fiscal 2023 of 17%, as compared to the Company's fiscal 2022, according to the U.S. Department of Commerce;\n17\n\u2022\nMortgage interest rates increased with a 30-year fixed mortgage rate of 6.4% in April 2023, an increase of approximately 133 basis points compared to April 2022;\n\u2022\nThe median price of existing homes sold in the U.S. rose by 7.1% during the Company's fiscal 2023, according to data provided by the National Association of Realtors; and\n\u2022\nConsumer sentiment, as reported by the University of Michigan, averaged 2.6% lower during the Company's fiscal 2023 than in its prior fiscal year.\nThe Company's largest remodeling customers and competitors continued to utilize sales promotions in the Company's product category during fiscal 2023.\u00a0The Company strives to maintain its promotional levels in line with market activity, with a goal of remaining competitive. \nSales in the remodel channel increased 4.8% during the fiscal year.\nSales in the new construction channel increased 21.1% during fiscal 2023 due to stabilized building trends and increased completions, which grew 4.8% year over year according to data provided by the U.S. Department of Commerce.\nThe Company increased its net sales by 11.3% during fiscal 2023, which was driven by growth in all sales channels.\nGross margin for fiscal 2023 was 17.3%, an increase from 12.2% in fiscal 2022.\u00a0\u00a0The increase in gross margin was primarily due to pricing actions and operational improvements related to increased manufacturing efficiencies and supply chain, partially offset by increased costs in our labor and domestic logistics expenses.\nThe Company had net income of $93.7 million in fiscal 2023, net loss of $29.7 million in fiscal 2022, and net income of $61.2 million in fiscal 2021. The net loss in fiscal 2022 is primarily due to onetime pension settlement charges of $68.5 million related to the termination of the Company's pension plan.\n \nThe Company regularly considers the need for a valuation allowance against its deferred tax assets.\u00a0The Company has had operating profits for the past 10 years.\u00a0As of April\u00a030, 2023, the Company had total deferred tax assets of $47.9 million net of valuation allowance, up from $40.8 million of deferred tax assets net of valuation allowance at April\u00a030, 2022. Deferred tax assets are reduced by a valuation allowance when, after considering all positive and negative evidence, it is determined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.\u00a0 The Company has recorded a valuation allowance related to deferred tax assets for certain state investment tax credit (\"ITC\") carryforwards. These credits expire in various years beginning in fiscal 2028. The Company believes based on positive evidence of the housing industry improvement along with 9 consecutive years of profitability that the Company will more likely than not realize all other remaining deferred tax assets.\nThe Company also regularly assesses its long-lived assets to determine if any impairment has occurred. The Company has concluded that none of its long-lived assets were impaired as of April\u00a030, 2023.\u00a0\nFiscal Year Ended April 30, 2022 Compared to the Fiscal Year Ended April 30, 2021\nFor a comparison of our performance and financial metrics for the fiscal years ended April 30, 2022 and April 30 2021, see \u201cPart II, Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Annual Report on Form 10-K for the fiscal year ended April 30, 2022, filed with the SEC on June 29, 2022.\n18\nResults of Operations\n\u00a0\nFISCAL YEARS ENDED APRIL 30,\n(Dollars in thousands)\n2023\n2022\n2021\n2023 vs. 2022 PERCENT\n\u00a0CHANGE\n2022 vs. 2021 PERCENT\n\u00a0CHANGE\nNet sales\n$\n2,066,200\u00a0\n$\n1,857,186\u00a0\n$\n1,744,014\u00a0\n11.3\u00a0\n%\n6.5\u00a0\n%\nGross profit\n357,524\u00a0\n226,444\u00a0\n322,118\u00a0\n57.9\u00a0\n%\n(29.7)\n%\nSelling and marketing expenses\n94,602\u00a0\n92,555\u00a0\n89,011\u00a0\n2.2\u00a0\n%\n4.0\u00a0\n%\nGeneral and administrative expenses\n125,045\u00a0\n97,547\u00a0\n112,521\u00a0\n28.2\u00a0\n%\n(13.3)\n%\nInterest expense, net\n15,994\u00a0\n10,189\u00a0\n23,128\u00a0\n57.0\u00a0\n%\n(55.9)\n%\nNet Sales\n\u00a0\nNet sales for fiscal 2023 increased 11.3% to $2,066.2 million from the prior fiscal year. The Company experienced growth of 21.1% in the builder channel and 22.2% in the dealer distributor channel primarily due to the impact of price increases, while the home center channel was largely flat during fiscal 2023.\n\u00a0\nGross Profit\nGross profit as a percentage of sales increased to 17.3% in fiscal 2023 as compared with 12.2% in fiscal 2022, representing a 510 basis point improvement The increase in gross profit margin was primarily due to pricing actions and operational improvements related to increased manufacturing efficiencies and supply chain, partially offset by increased costs in our labor and domestic logistics expenses.\nSelling and Marketing Expenses\n\u00a0\nSelling and marketing costs increased by $2.0 million or 2.2% during fiscal 2023 versus the prior year.\u00a0Selling and marketing expenses in fiscal 2023 were 4.6% of net sales, compared with 5.0%\u00a0of net sales in fiscal 2022. The increase in selling and marketing expenses was due to increased digital spend partially offset by reduced spending across the selling and marketing function and leverage created from higher sales.\nGeneral\n \nand\n \nAdministrative Expenses\n\u00a0\nGeneral and administrative expenses increased by $27.5 million or 28.2% during fiscal 2023 versus the prior fiscal year. General and administrative costs increased to 6.1% of net sales in fiscal 2023 compared with 5.3% of net sales in fiscal 2022. The increase in general and administrative expenses was primarily due to increased incentive and profit sharing costs and digital spend, partially offset by controlled spending and leverage created from higher sales.\nEffective Income Tax Rates\n\u00a0\nThe Company generated pre-tax income of $122.7 million during fiscal 2023.\u00a0The Company's effective tax rate decreased from 30.8% in fiscal 2022 to 23.6% in fiscal 2023 primarily due to the benefit from higher federal income tax credits.\u00a0\nNon-GAAP Financial Measures\nWe have reported our financial results in accordance with U.S. generally accepted accounting principles (\"GAAP\"). In addition, we have presented in this report the non-GAAP measures described below.\nA reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP is set forth below.\nManagement believes these non-GAAP financial measures provide an additional means of analyzing the current period's results against the corresponding prior period's results. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company's reported results prepared in accordance with GAAP. Our non-GAAP financial \n19\nmeasures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.\nEBITDA, Adjusted EBITDA and Adjusted EBITDA margin\nWe use EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin in evaluating the performance of our business, and we use each in the preparation of our annual operating budgets and as indicators of business performance and profitability. We believe EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin allow us to readily view operating trends, perform analytical comparisons, and identify strategies to improve operating performance. Additionally, Adjusted EBITDA is a key measurement used in our Term Loans to determine interest rates and financial covenant compliance.\nWe define EBITDA as net income (loss) adjusted to exclude (1) income tax expense (benefit), (2) interest expense, net, (3) depreciation and amortization expense, and (4) amortization of customer relationship intangibles and trademarks. We define Adjusted EBITDA as EBITDA adjusted to exclude (1) expenses related to the RSI Acquisition and the subsequent restructuring charges that the Company incurred related to the acquisition, (2) non-recurring restructuring charges, (3) net gain/loss on debt forgiveness and modification, (4) stock-based compensation expense, (5) gain/loss on asset disposals, (6) change in fair value of foreign exchange forward contracts, and (7) pension settlement charges. We believe Adjusted EBITDA, when presented in conjunction with comparable GAAP measures, is useful for investors because management uses Adjusted EBITDA in evaluating the performance of our business.\nWe define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales.\nAdjusted EPS per diluted share\nWe use Adjusted EPS per diluted share in evaluating the performance of our business and profitability. Management believes that this measure provides useful information to investors by offering additional ways of viewing the Company's results by providing an indication of performance and profitability excluding the impact of unusual and/or non-cash items. We define Adjusted EPS per diluted share as diluted earnings per share excluding the per share impact of (1) expenses related to the RSI Acquisition and the subsequent restructuring charges that the Company incurred related to the acquisition, (2) non-recurring restructuring charges, (3) the amortization of customer relationship intangibles and trademarks, (4) net gain/loss on debt forgiveness and modification, (5) pension settlement charges, and (6) the tax benefit of RSI Acquisition expenses and subsequent restructuring charges, the net gain/loss on debt forgiveness and modification, and the amortization of customer relationship intangibles and trademarks. The amortization of intangible assets is driven by the RSI Acquisition and will recur in future periods. Management has determined that excluding amortization of intangible assets from our definition of Adjusted EPS per diluted share will better help it evaluate the performance of our business and profitability and we have also received similar feedback from some of our investors regarding the same. \n \nFree cash flow \nTo better understand trends in our business, we believe that it is helpful to subtract amounts for capital expenditures consisting of cash payments for property, plant and equipment and cash payments for investments in displays from cash flows from continuing operations which is how we define free cash flow. Management believes this measure gives investors an additional perspective on cash flow from operating activities in excess of amounts required for reinvestment. It also provides a measure of our ability to repay our debt obligations.\nA reconciliation of these non-GAAP financial measures and the most directly comparable measures calculated and presented in accordance with GAAP are set forth in the following tables:\n20\nReconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin\nFISCAL YEARS ENDED APRIL 30,\n(Dollars in thousands)\n2023\n2022\n2021\nNet income (loss) (GAAP)\n$\n93,723\u00a0\n$\n(29,722)\n$\n61,193\u00a0\nAdd back:\nIncome tax expense (benefit)\n28,963\u00a0\n(13,257)\n19,500\u00a0\nInterest expense, net\n15,994\u00a0\n10,189\u00a0\n23,128\u00a0\nDepreciation and amortization expense\n48,077\u00a0\n50,939\u00a0\n51,100\u00a0\nAmortization of customer relationship intangibles and trademarks\n45,667\u00a0\n45,667\u00a0\n47,889\u00a0\nEBITDA (Non-GAAP)\n$\n232,424\u00a0\n$\n63,816\u00a0\n$\n202,810\u00a0\nAdd back:\nAcquisition and restructuring related expenses (1)\n80\u00a0\n80\u00a0\n174\u00a0\nNon-recurring restructuring charges, net (2)\n1,525\u00a0\n183\u00a0\n5,848\u00a0\nPension settlement, net\n(7)\n68,473\u00a0\n\u2014\u00a0\nChange in fair value of foreign exchange forward contracts (3)\n\u2014\u00a0\n\u2014\u00a0\n(1,102)\nNet (gain) loss on debt forgiveness and modification (4)\n(2,089)\n\u2014\u00a0\n13,792\u00a0\nStock-based compensation expense\n7,396\u00a0\n4,708\u00a0\n4,598\u00a0\nLoss on asset disposal\n1,050\u00a0\n697\u00a0\n384\u00a0\nAdjusted EBITDA (Non-GAAP)\n$\n240,379\u00a0\n$\n137,957\u00a0\n$\n226,504\u00a0\nNet Sales\n$\n2,066,200\u00a0\n$\n1,857,186\u00a0\n$\n1,744,014\u00a0\nNet income (loss) margin (GAAP)\n4.5\u00a0\n%\n(1.6)\n%\n3.5\u00a0\n%\nAdjusted EBITDA margin (Non-GAAP)\n11.6\u00a0\n%\n7.4\u00a0\n%\n13.0\u00a0\n%\n(1) Acquisition and restructuring related expenses are comprised of expenses related to the RSI Acquisition and the subsequent restructuring charges that the Company incurred related to the acquisition.\n(2) Non-recurring restructuring charges are comprised of expenses incurred related to the nationwide reduction-in-force implemented in fiscal 2023 and the closure of the manufacturing plant in Humboldt, Tennessee. Fiscal year 2021 includes accelerated depreciation expense of $1.3 million and gain on asset disposal of $2.2 million related to Humboldt.\n(3) In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange rates. The Company manages these risks through the use of foreign exchange forward contracts. The changes in the fair value of the forward contracts are recorded in other (income) expense, net in the operating results. \n(4) The Company recognized net gain on debt forgiveness totaling $2.1 million in fiscal 2023 related to the New Market Tax Credits more fully described in Note F \u2014 \nLoans Payable and Long-Term Debt\n in the Notes to the Consolidated Financial Statements herein. The Company recognized net loss on debt modification totaling $13.8 million for fiscal year 2021 related to the restructuring of its debt.\nA reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin as projected for fiscal 2024 is not provided because we do not forecast net income as we cannot, without unreasonable effort, estimate or predict with certainty various components of net income.\n21\nAdjusted EPS per diluted share\nFISCAL YEARS ENDED APRIL 30,\n(Dollars in thousands, except share and per share data)\n2023\n2022\n2021\nNet income (loss) (GAAP)\n$\n93,723\u00a0\n$\n(29,722)\n$\n61,193\u00a0\nAdd back:\nAcquisition and restructuring related expenses\n80\u00a0\n80\u00a0\n174\u00a0\nNon-recurring restructuring charges, net\n1,525\u00a0\n183\u00a0\n5,848\u00a0\nPension settlement, net\n(7)\n68,473\u00a0\n\u2014\u00a0\nAmortization of customer relationship intangibles and trademarks\n45,667\u00a0\n45,667\u00a0\n47,889\u00a0\nNet (gain) loss on debt forgiveness and modification\n(2,089)\n\u2014\u00a0\n13,792\u00a0\nTax benefit of add backs\n(11,791)\n(29,859)\n(17,467)\nAdjusted net income (Non-GAAP)\n$\n127,108\u00a0\n$\n54,822\u00a0\n$\n111,429\u00a0\nWeighted average diluted shares (GAAP)\n16,685,359\u00a0\n16,592,358\u00a0\n17,036,730\u00a0\nAdd back: potentially anti-dilutive shares (1)\n\u2014\u00a0\n48,379\u00a0\n\u2014\u00a0\nWeighted average diluted shares (Non-GAAP)\n16,685,359\u00a0\n16,640,737\u00a0\n17,036,730\u00a0\nEPS per diluted share (GAAP)\n$\n5.62\u00a0\n$\n(1.79)\n$\n3.59\u00a0\nAdjusted EPS per diluted share (Non-GAAP)\n$\n7.62\u00a0\n$\n3.29\u00a0\n$\n6.54\u00a0\n(1) Potentially dilutive securities for the twelve-month period ended April 30, 2022 have not been considered in the GAAP calculation of net loss per shares as effect would be anti-dilutive.\nFree cash flow\nFISCAL YEARS ENDED APRIL 30,\n(Dollars in thousands)\n2023\n2022\n2021\nCash provided by operating activities\n$\n198,837\u00a0\n$\n24,445\u00a0\n$\n151,763\u00a0\nLess: Capital expenditures (1)\n45,380\u00a0\n51,582\u00a0\n46,318\u00a0\nFree cash flow\n$\n153,457\u00a0\n$\n(27,137)\n$\n105,445\u00a0\n(1) Capital expenditures consist of cash payments for property, plant and equipment and cash payments for investments in displays. \nOutlook for Fiscal 2024\n\u00a0\nWe expect low double-digit declines in net sales for fiscal 2024 versus fiscal 2023. Our outlook for adjusted EBITDA for fiscal 2024 will range from $205 million to $225 million. The change in net sales and adjusted EBITDA is highly dependent upon overall industry, economic growth trends, material constraints, labor impacts, interest rates and consumer behaviors. Adjusted EBITDA will also be impacted by one-time start up costs for our plant expansions in Monterrey, Mexico and Hamlet, NC.\nWe will continue our investment back into the business with investments focusing on the plant expansions in Monterrey, Mexico and Hamlet, NC, continuing our path for our digital transformation with investments in Oracle and Salesforce and investing in automation. We are choosing to make these additional investments into our core business which will help improve sales and enhance our margins in the future. We will be opportunistic in our share repurchasing and lastly, we have our debt position at a leverage ratio we wanted to achieve and will be deprioritizing paying down debt in fiscal 2024.\nAdditional risks and uncertainties that could affect the Company's results of operations and financial condition are discussed elsewhere in this annual report, including under \"Forward-Looking Statements,\" and elsewhere in \"Management's Discussion and Analysis of Financial Condition and Results of Operations,\" as well as under Item 1A. \"Risk Factors\" and Item 7A. \"Quantitative and Qualitative Disclosures about Market Risk.\"\n22\nLiquidity and Capital Resources\nThe Company's cash and cash equivalents totaled\u00a0$41.7 million\u00a0at\u00a0April\u00a030, 2023, representing a $19.4 million increase from its April\u00a030, 2022 levels.\u00a0At\u00a0April\u00a030, 2023, total long-term debt (including current maturities) was $371.7 million, a decrease of $137.3 million from the balance at April\u00a030, 2022.\u00a0The Company's ratio of long-term debt to total capital was 29.7% at\u00a0April\u00a030, 2023, compared with 39.6% at\u00a0April\u00a030, 2022.\u00a0The Company's main source of liquidity is its cash and cash equivalents on hand and cash generated from its operating activities, which we expect to continue into fiscal 2024. See Note F \u2014 \nLoans Payable and Long-Term Debt\n for further discussion on our indebtedness.\nOn April 22, 2021, the Company amended and restated the Prior Credit Agreement.\n \nThe amended and restated credit agreement (the \"A&R Credit Agreement\") provides for a $500 million revolving loan facility with a $50 million sub-facility for the issuance of letters of credit (the \"Revolving Facility\") and a $250 million term loan facility (the \"Term Loan Facility\").\n \nAlso on April 22, 2021, the Company borrowed the entire $250 million under the Term Loan Facility and approximately $264 million under the Revolving Facility to fund, in part, the repayment in full of the amounts then outstanding under the Prior Credit Agreement and the redemption of the Senior Notes.\n \nThe Company is required to repay the Term Loan Facility in specified quarterly installments.\n \nThe Revolving Facility and Term Loan Facility mature on April 22, 2026. Approximately $323.2\u00a0million was available under this facility as of April\u00a030, 2023. \u00a0\nThe A&R Credit Agreement includes certain financial covenants that require the Company to maintain (i) a \"Consolidated Interest Coverage Ratio\" of no less than 2.00 to 1.00 and (ii) a \"Total Net Leverage Ratio\" of no greater than 4.00 to 1.00, subject, in each case, to certain limited exceptions.\nThe A&R Credit Agreement includes certain additional covenants, including negative covenants that restrict the ability of the Company and certain of its subsidiaries to incur additional indebtedness, create additional liens on its assets, make certain investments, dispose of its assets or engage in a merger or other similar transaction or engage in transactions with affiliates, subject, in each case, to the various exceptions and conditions described in the A&R Credit Agreement. The negative covenants further restrict the ability of the Company and certain of its subsidiaries to make certain restricted payments, including, in the case of the Company, the payment of dividends and the repurchase of common stock, in certain limited circumstances. See Note F \u2014 \nLoans Payable and Long-Term Debt\n for a discussion of interest rates under the new A&R Credit Agreement and our compliance with the covenants in the credit agreement. We expect to remain in compliance with each of the covenants under the A&R Credit Agreement during fiscal 2024.\nAs of April\u00a030, 2023 and 2022, the Company had no off-balance sheet arrangements.\n\u00a0\nOPERATING ACTIVITIES\n\u00a0\nCash provided by operating activities in fiscal 2023 was $198.8 million, compared with $24.4 million in fiscal 2022. The increase in the Company's cash from operating activities was driven primarily by an increase in net income and increased cash flows from inventories, customer receivables, and accrued compensation and related expenses, which were partially offset by a decrease in cash flows from accounts payable.\nINVESTING ACTIVITIES\n\u00a0\nThe Company's investing activities primarily consist of capital expenditures and investments in promotional displays. Net cash used by investing activities in fiscal 2023 was $45.3 million, compared with $51.6 million in fiscal 2022 Investments in property, plant and equipment for fiscal 2023 were $42.6 million, compared with $44.1 million in fiscal 2022. Investments in promotional displays were $2.8 million in fiscal 2023, compared with $7.5 million in fiscal 2022.\nFINANCING ACTIVITIES\n\u00a0\nThe Company realized a net outflow of $134.1 million from financing activities in fiscal 2023 compared with a net outflow of $41.6 million in fiscal 2022.\u00a0During fiscal 2023, $132.9 million, net, was used to repay long-term debt, compared with approximately $15.5 million in fiscal 2022.\nOn May 25, 2021, the Board authorized a stock repurchase program of up to $100 million of the Company's outstanding common shares. In conjunction with this authorization the Board cancelled the remaining portion of the $50 million existing authorization, of which the Company had repurchased $20 million in the fourth quarter of fiscal 2021. The Company repurchased $25.0 million during fiscal 2022 and $20.0 million during fiscal 2021. The Company did not repurchase any of its \n23\nshares during the fiscal year ended April 30, 2023, and the current stock repurchase program has a remaining authorization of $75.0 million as of such date.\nCash flow from operations combined with accumulated cash and cash equivalents on hand are expected to be more than sufficient to support forecasted working capital requirements, service existing debt obligations, and fund capital expenditures for fiscal 2024.\nFuture minimum annual commitments for contractual obligations under term loans, the Revolving Facility, capital and operating lease obligations, and other long-term debt amount to $30.2 million in fiscal 2024, $416.9 million in fiscal 2025-26, $31.4 million in fiscal 2027-28, and $10.6 million in fiscal 2029 and thereafter. Estimated required interest payments based on rates as of April 30, 2023 would be $17.5 million in fiscal 2024, $18.3 million in fiscal 2025-26, $15.5 million in fiscal 2027-28, and $0.2 million in fiscal 2029 and thereafter.\nSEASONALITY\nOur business has been subject to seasonal influences, with higher sales typically realized in our first and fourth fiscal quarters. General economic forces and changes in our customer mix have reduced seasonal fluctuations in revenue over the past few years. The costs of the Company's products are subject to inflationary pressures and commodity price fluctuations. The Company has generally been able over time to recover the effects of inflation and commodity price fluctuations through sales price increases.\nFor additional discussion of risks that could affect the Company and its business, see \"Forward-Looking Statements\" above, as well as Item 1A. \"Risk Factors\" and Item 7A. \"Quantitative and Qualitative Disclosures About Market Risk.\" \nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\nManagement has chosen accounting policies that are necessary to give reasonable assurance that the Company's operational results and financial position are accurately and fairly reported. The significant accounting policies of the Company are disclosed in Note A to the Consolidated Financial Statements included in this annual report. The following discussion addresses the accounting policies that management believes have the greatest potential impact on the presentation of the financial condition and operating results of the Company for the periods being reported and that require the most judgment.\nManagement regularly reviews these critical accounting policies and estimates with the Audit Committee of the Board.\nRevenue Recognition.\n The Company utilizes signed sales agreements that provide for transfer of title to the customer at the time of shipment or upon delivery based on the contractual terms. The Company must estimate the amount of sales that have been transferred to third-party carriers but not delivered to customers as the carriers are not able to report real-time what has been delivered and thus there is a delay in reporting to the Company. The estimate is calculated using a lag factor determined by analyzing the actual difference between shipment date and delivery date of orders over the past 12 months. Revenue is recognized on those shipments which the Company believes have been delivered to the customer.\nThe Company recognizes revenue based on the invoice price less allowances for sales returns, cash discounts, and other deductions as required under GAAP. Collection is reasonably assured as determined through an analysis of accounts receivable data, including historical product returns and the evaluation of each customer's ability to pay. Allowances for sales returns are based on the historical relationship between shipments and returns. The Company believes that its historical experience is an accurate reflection of future returns.\nGoodwill.\n\u00a0Goodwill represents the excess of purchase price over the fair value of net assets acquired. The Company does not amortize goodwill but evaluates for impairment annually, or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.\nIn accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill is impaired. If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value. There were no impairment charges related to goodwill for the fiscal years 2023, 2022, and 2021.\n24\nIntangible Assets. \nIntangible assets consist of customer relationship intangibles. The Company amortizes the cost of  intangible assets over their estimated useful lives, six years, unless such lives are deemed indefinite. The Company reviews its intangible assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges related to other intangible assets for the fiscal years 2023, 2022, and 2021.",
+  "item7a": ">Item 7A.\u00a0\u00a0\u00a0\u00a0QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nThe costs of the Company's products are subject to inflationary pressures and commodity price fluctuations.\u00a0The Company has generally been able, over time, to recover the effects of inflation and commodity price fluctuations through sales price increases although there may be a lag in the recovery.\nThe A&R Credit Agreement includes a variable interest rate component. As a result, we are subject to interest rate risk with respect to such floating-rate debt. A 100 basis point increase in the variable interest rate component of our borrowings as of April\u00a030, 2023 would increase our annual interest expense by approximately $1.7 million. See Note F \u2014 \nLoans Payable and Long-Term Debt Financial Instruments \nfor further discussion. \nIn May 2021, we entered into interest rate swaps to hedge approximately $200 million of our variable interest rate debt.  See Note J \u2014 \nDerivative Financial Instruments \nfor further discussion.\nThe Company enters into foreign exchange forward contracts principally to offset currency fluctuations in transactions denominated in certain foreign currencies, thereby limiting our exposure to risk that would otherwise result from changes in exchange rates. The periods of the foreign exchange forward contracts correspond to the periods of the transactions denominated in foreign currencies.\nThe Company does not currently use commodity or similar financial instruments to manage its commodity price risks.\n25",
+  "cik": "794619",
+  "cusip6": "030506",
+  "cusip": ["030506109", "030506959"],
+  "names": ["AMERICAN WOODMARK CORPORATIO"],
+  "source": "https://www.sec.gov/Archives/edgar/data/794619/000079461923000040/0000794619-23-000040-index.htm"
+}
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+{
+  "item1": ">ITEM\u00a01.\u00a0\u00a0\u00a0\u00a0BUSINESS.\nOverview\nMitek Systems, Inc. (\u201cMitek,\u201d the \u201cCompany,\u201d \u201cwe,\u201d \u201cus,\u201d and \u201cour\u201d\n)\n is a leading innovator of mobile image capture and digital identity verification solutions. We are a software development company with expertise in artificial intelligence and machine learning. We currently serve more than 7,800 financial services organizations and leading marketplace and financial technology (\u201cfintech\u201d) brands around the globe. Customers count on Mitek to deliver trusted and convenient online experiences, detect and reduce fraud, and document Know Your Customer (\u201cKYC\u201d) and Anti-Money Laundering (\u201cAML\u201d) regulatory compliance. Our solutions are embedded in native mobile apps and web browsers to facilitate digital consumer experiences. Mitek\u2019s identity verification and authentication technologies and services make it possible for banks, financial services organizations and the world\u2019s leading marketplace and sharing platforms to verify an individual\u2019s identity during digital transactions, allowing them to reduce risk and meet regulatory requirements. Our advanced mobile deposit system enables secure, fast and convenient deposit services. Thousands of organizations use Mitek solutions to optimize the security of mobile check deposits, new account openings and more.\nIn May of 2021, Mitek acquired ID R&D, Inc. (\u201cID R&D\u201d and such acquisition, the \u201cID R&D Acquisition\u201d), an award-winning provider of AI-based voice and face biometrics and liveness detection. ID R&D delivers innovative, biometric capabilities that raise the bar on usability and performance. The ID R&D Acquisition helps simplify and secure the entire transaction lifecycle for both businesses and consumers. It provides businesses and financial institutions with access to one authentication solution to deploy throughout the entire transaction cycle, and can provide consumers with a simple, intuitive approach to fighting fraud. \nIn March of 2022, Mitek acquired HooYu Ltd. (\u201cHooYu\u201d), a leading KYC technology provider in the United Kingdom. Such technology helps to ensure businesses know the true identity of their customers by linking biometric verification with real-time data aggregation across many different sources, including credit bureaus, international sanctions lists, local law-enforcement, and others.\nMitek markets and sells its products and services worldwide through internal, direct sales teams located in the U.S., Europe, and Latin America as well as through channel partners. Our partner sales strategy includes channel partners who are financial services technology providers and identity verification providers. These partners integrate our products into their solutions to meet the needs of their customers, typically provisioning Mitek\u2019s services through their respective platforms.\nProduct and Technology Overview\nTechnology\nDuring the twelve months ended September 30, 2022, we had one operating segment: the development, sale, and service of our proprietary software solutions related to mobile image capture and identity verification.\nOur digital technology solutions are provided in two parts: (i) a software development kit for mobile image capture and (ii) a cloud software platform which uses artificial intelligence and machine learning to classify and extract data to enable mobile check deposit as well as aid the authentication of identity documents including passports, identity cards, and driver's licenses using a camera-equipped device.\nOur technology uses patented algorithms that analyze images of identity documents in many ways. These include image quality analysis, image repair and optimization, document identification and classification, data extraction, and numerous authenticators.\nProducts\nMobile Deposit\u00ae\nMitek\u2019s Mobile Deposit\u00ae solution is used today by millions of consumers in the United States and Canada for mobile check deposit. Mobile Deposit\u00ae enables individuals and businesses to remotely deposit checks using their camera-equipped smartphone or tablet. Mobile Deposit\u00ae is embedded within the financial institutions\u2019 digital banking apps used by consumers and has now processed more than six billion check deposits. Mitek began selling Mobile Deposit\u00ae in early 2008 and received its first patent for this product in August 2010. Today, Mitek holds more than 80 U.S. patents related to document image capture technology.\nMobile Deposit\u00ae allows consumers to take photographs of the front and back of a check and then remotely deposit the check with their participating bank by submitting the images electronically.\u00a0Mitek delivers a simple and easy user experience with our proprietary mobile automatic capture which assists users in capturing a high quality image of a check by holding their mobile device over the check.\n1\nMobile Verify\u00ae\nMobile Verify\u00ae is an identity verification solution that can be integrated into mobile apps, mobile websites, and desktop applications.\u00a0Mobile Verify\u00ae combines an optimal image capture experience with our leading document authentication technology \u2014 helping our customers validate an identity document presented in a digital transaction is genuine and unaltered. Adding a second layer for identity proofing, Mobile Verify\u00ae matches the portrait extracted from the identity document with a selfie of its presenter by doing a biometric face comparison.\nThe Mobile Verify\u00ae identity verification engine is a modular cross-platform architecture that uses machine learning and advanced computer vision algorithms. To achieve the highest accuracy rates, Mitek\u2019s technology was conceptualized to verify the authenticity of an identity document in the following systematic approach:\n\u2022\nGuided document capture, enabling users to take a quality photo for optimal processing;\n\u2022\nDocument classification computer vision algorithms that recognize and classify thousands of diverse identity documents from around the world allowing for reliable data extraction;\n\u2022\nData extraction that goes beyond traditional Optimal Character Recognition (\u201cOCR\u201d) to deconstruct the document and analyze the content of each field; and\n\u2022\nEvaluation of authenticity elements, using a combination of machine learning techniques and unique computer vision algorithms to help determine the authenticity of a document by evaluating several elements within the document.\nMobile Fill\u00ae\nMobile Fill\u00ae, which includes automatic image capture, minimizes the number of clicks and expedites form fill completion. In mere seconds, and just by taking a photo of an identity document, people can easily complete application forms and quickly become approved customers.\u00a0Organizations can use Mobile Fill\u00ae for a variety of purposes, including streamlining the process of opening a checking, savings, or credit card account, paying a bill, activating an offer, and more. Mobile Fill\u00ae is available for native apps and web browser applications.\nMiSnap\u2122 \nMitek MiSnap\u2122 is a patented mobile-capture software development kit (\u201cSDK\u201d) that enables an intuitive user experience and instant capture of quality images of identity documents and checks.  The key to successful mobile check deposit, data pre-fill and ID document verification is the quality of the image capture. Mitek's MiSnap\u2122 helps enable every user to capture a quality image the first time. \nCheckReader\n\u2122\nCheckReader\u2122 enables financial institutions to automatically extract data from checks once they have been scanned or photographed by the application. Easily integrated into mobile and server-based applications providing automatic image pre-processing and recognition capabilities, CheckReader\u2122 allows for the automatic recognition of all fields on checks and generic payments documents, whether handwritten or machine printed. CheckReader\u2122 is utilized as a core component throughout a wide range of check processing applications, including ATMs, centralized and back office processes, remittance, merchants, and fraud applications. CheckReader\u2122 is deployed worldwide in over forty countries.\nCheck Fraud Defender\nThe premier AI-powered and cloud-hosted model for fighting check fraud, Check Fraud Defender uses Mitek\u2019s proprietary check image science to spot visual anomalies in checks submitted by participating banks to better isolate suspected fraud and reduce bank and consumer losses. Check Fraud Defender helps banks fight check fraud by analyzing more than 18 visual elements of a check to give a more comprehensive view of possible fraud.\nCheck Intelligence\nCheck Intelligence enables financial institutions to automatically extract data from a check image received across any deposit channel\u2014branch, ATM, remote deposit capture, and mobile. Through the automatic recognition of all fields on checks, whether handwritten or machine printed, Check Intelligence speeds up the time to deposit for banks and customers and helps enable financial institutions to comply with check clearing regulations. With built-in image quality analysis and image usability analysis, Check Intelligence also ensures that the check meets the Check Clearing for the 21st Century Act requirements and other industry and regulatory standards.\nMitek Verified Identity Platform (\u201cMiVIP\u00ae\u201d)\nMiVIP\u00ae is an end-to-end KYC platform that helps companies to quickly design, build, and deploy robust KYC journeys with little or no development resources. We combine facial biometrics, liveness detection, ID document validation, database checks, geolocation, digital footprint analysis, and more to provide the clearest picture of who is requesting access to a business\u2019 services. The \n2\nplatform provides robust identity verification through comprehensive document verification, biometric comparison, and liveness detection. The platform also simplifies the end user experience with omni-channel journey support in which users can easily switch between a mobile and desktop experience without losing their journey progress, or pause and pick up their journey at a later time via a different device.\nMiPass\n\u00ae\nMiPass\u00ae, with its state-of-the-art facial and voice biometric capabilities, provides increased protection against today\u2019s most sophisticated forms of identity theft and increasingly dangerous fraud techniques, such as deepfakes and synthetic identities. These technologies ensure the highest level of security against evolving threats while delivering a superior consumer experience.\nAs more interactions move online, passwords are a challenging and a highly imperfect solution for granting account access to customers. Asking trusted customers to re-assert their identity at every touchpoint only leads to frustration and abandonment. And passwords leave customers vulnerable to identity theft and account takeover attacks. The availability, simplicity, and convenience of biometrics on consumer devices has opened the door for organizations in all industries to transform the trusted customer experience. MiPass\u00ae strengthens a business\u2019s trust in a consumer\u2019s real-world identity using a sophisticated combination of biometrics that are extremely difficult to falsify \u2013 face, liveness detection, and voice allowing organizations to replace passwords and one-time passcodes with biometric authentication that can be easily embedded into existing platforms and customer experiences. \nID_CLOUD\u2122\nID_CLOUD\u2122 is a fully automated identity verification solution that can be integrated into a customer\u2019s application to instantly read and validate identity documents. ID_CLOUD\u2122 automated technology enables global enterprises to improve their customer acquisition technology while meeting AML requirements in a safe and cost-effective manner. This solution is available in the cloud, via mobile websites, and desktop applications. Additionally, a version of ID_CLOUD\u2122 is available that works locally on a desktop which is connected to a propriety hardware scanner for reading and validating identity documents.\nIDLive\u00ae Face\nIDLive\u00ae Face is the industry\u2019s first passive facial liveness detection product. The technology is critical to frictionless fraud prevention in solutions that use face biometrics for authentication and digital identity proofing. IDLive\u00ae Face is iBeta Levels 1 and 2 Presentation Attack Detection (\u201cPAD\u201d) compliant and is used to process millions of monthly transactions for customers worldwide.\n \nIDVoice\u00ae\nIDVoice\u00ae is a robust AI-driven voice biometric engine that enables fast, convenient authentication on mobile, web, and telephone channels. The product is also optimized to enable embedded security and personalization on Internet of Things devices. IDVoice\u00ae has achieved top rankings in the industry\u2019s leading benchmark challenges.\nIDLive\u00ae Voice\nIDLive\u00ae Voice helps stop spoofing attacks on voice biometric systems by distinguishing live voice from synthesized speech, voice deepfakes, and recordings.\nIDLive Doc\u2122\nIDLive Doc\u2122 works to fight fraud related to digitally displayed document images. This AI-based product validates the physical presence of documents used when verifying customer identities online. The product can be added to any onboarding or electronic KYC solution, providing another layer of fraud prevention for banks, gig economy companies, telecom companies, and others.\nSales and Marketing\nWe derive revenue predominately from the sale of licenses (to both our on premise and transactional software as a service (\u201cSaaS\u201d) products) and transaction fees to use our products, and to a lesser extent by providing maintenance and professional services for the products we offer. The revenue we derive from the sale of such licenses is derived from both the sale to our channel partners of licenses to sell the applications we offer as well as the direct sale of licenses and services to customers.\nWe have an internal marketing group that develops corporate and digital marketing strategies.\u00a0The internal team executes these strategies with the help of external resources as needed to support both direct sales and channel partners\u2019 sales efforts.\nIntellectual Property \nOur success depends in large part upon our proprietary technology. We attempt to protect our intellectual property rights primarily through a combination of patents, copyrights, trademarks, trade secrets, employee and third-party non-disclosure agreements, and other measures. We believe that factors such as the technological and creative skills of our personnel, new product development, frequent product enhancements, name recognition, and reliable product maintenance are essential to establishing and \n3\nmaintaining a technological leadership position. There can be no assurance that our means of protecting our proprietary rights in the U.S. or abroad will be adequate. We seek to protect our software, documentation, and other written materials under trade secret and copyright laws, which afford only limited protection. Further, there can be no assurance that our patents will offer any protection or that they will not be challenged, invalidated, or circumvented. If we are unable to protect our intellectual property, or we infringe on the intellectual property rights of a third-party, our operating results could be adversely affected. \nAs of September 30, 2022, the U.S. Patent and Trademark Office has issued us 80 patents with expiration dates ranging from 2026 through 2037 and we have filed for 16 additional domestic and international patents. In addition, we generally enter into confidentiality agreements with certain employees.\nMarket Opportunities, Challenges, and Risks\nWe believe that financial institutions, fintechs, and other companies see our patented solutions as a way to provide a superior digital customer experience to meet growing consumers demands of trust and convenience online and, at the same time, assist them in meeting regulatory requirements. The value of digital transformation to our customers is a possible increase in top line revenue and a reduction in the cost of sales and service. As the use of new technology increases, so does associated fraud and cyber-attacks. The negative outcomes of fraud and cyber-attacks encompass financial losses, brand damage, and loss of loyal customers. We predict growth in our deposits business as a result of the increased consumer adoption of digital financial services provided to them by their banks and identity verification products based on current trends in payments, online lending, more stringent regulations, growing usage of sharing apps and online marketplaces, and the ever-increasing demand for digital services.\nFactors adversely affecting the pricing of, or demand for, our digital solutions, such as competition from other products or technologies, any decline in the demand for digital transactions, or negative publicity or obsolescence of the software environments in which our products operate, could result in lower revenues or gross margins. Further, because substantially all of our revenues are from a few types of technology, our product concentration may make us especially vulnerable to market demand and competition from other technologies, which could reduce our revenues.\nThe sales cycle for our software and services can be lengthy and the implementation cycles for our software and services by our channel partners and customers can also be lengthy, often as long as six months and sometimes longer for larger customers. If implementation of our products by our channel partners and customers is delayed or otherwise not completed, our business, financial condition, and results of operations may be adversely affected.\nRevenues related to most of our on premise licenses for mobile products are required to be recognized up front upon satisfaction of all applicable revenue recognition criteria. Revenue related to our SaaS products is recognized ratably over the life of the contract or as transactions are used depending on the contract criteria. The recognition of future revenues from these licenses is dependent upon a number of factors, including, but not limited to, the term of our license agreements, the timing of implementation of our products by our channel partners and customers, and the timing of any re-orders of additional licenses and/or license renewals by our channel partners and customers.\nDuring each of the last few years, sales of licenses to one or more channel partners have comprised a significant part of our revenue each year. This is attributable to the timing of renewals or purchases of licenses and does not represent a dependence on any single channel partner. If we were to lose a channel partner relationship, we do not believe such a loss would adversely affect our operations because either we or another channel partner could sell our products to the end-users that had purchased products from the channel partner we lost. However, in that case, we or another channel partner must establish a relationship with the end-users, which could take time to develop, if it develops at all.\nWe have a growing number of competitors in the mobile image capture and identity verification industry, many of which have greater financial, technical, marketing, and other resources. However, we believe our patented mobile image capture and identity verification technology, our growing portfolio of products and geographic coverage for the financial services industry, and our market expertise gives us a distinct competitive advantage. To remain competitive, we must continue to offer products that are attractive to the consumer as well as being secure, accurate, and convenient. To help us remain competitive, we intend to further strengthen performance of our portfolio of products through research and development as well as partnering with other technology providers.\nCompetition\nThe market for our products and solutions is intensely competitive, subject to rapid change, and significantly affected by new product introductions and other market activities of industry participants. We face direct and indirect competition from a broad range of competitors who offer a variety of products and solutions to our current and potential customers. Our principal competition comes from: (i) customer-developed solutions; (ii) companies offering alternative methods of identity verification; and (iii) companies offering competing technologies capable of mobile remote deposit capture or authenticating identity documents and facial photo comparison.\nIt is also possible that we will face competition from new industry participants or alternative technologies. Moreover, as the market for automated document processing, image recognition and authentication, check imaging, and fraud detection software \n4\ndevelops, a number of companies with significantly greater resources than we have could attempt to enter or increase their presence in our industry, either independently or by acquiring or forming strategic alliances with our competitors, or otherwise increase their focus on the industry. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of our current and potential customers.\nOur products are compliant with Service-Oriented Architecture standards and compete, to various degrees, with products produced by a number of substantial competitors. Competition among product providers in this market generally focuses on price, accuracy, reliability, global coverage, and technical support. We believe our primary competitive advantages in this market are: (i) our mobile auto image capture user experience used by millions of consumers; (ii) our patented science; (iii) scalability; and (iv) an architectural software design that allows our products to be more readily modified, improved with added functionality, and configured for new products, thereby allowing our software to be easily upgraded.\nIncreased competition may result in price reductions, reduced gross margins, and loss of market share, any of which could have a material adverse effect on our business, operating results, and financial condition.\nResearch and Development\nWe develop software products internally and also purchase or license rights to third-party intellectual property. We believe that our future success depends in part on our ability to maintain and improve our core technologies, enhance our existing products, and develop new products that meet an expanding range of customer requirements.\nInternal research and development allows us to maintain closer technical control over our products and gives us the ability to determine which modifications and enhancements are most important and when they should be implemented to ensure the proper functioning and improved performance of our products. We intend to expand our existing product offerings and introduce new mobile image capture and digital identity verification capabilities that meet a broader set of needs of our customers. We intend to continue to support the major industry standard operating environments.\nOur research and development organization includes software engineers and scientists, many of whom have advanced degrees, as well as additional personnel in quality assurance and related disciplines. All our scientists and software engineers are involved in product development.\u00a0\u00a0\nThe development team includes specialists in artificial intelligence, computer vision, software engineering, user interface design, product documentation, product management, and quality assurance.\u00a0The team is responsible for maintaining and enhancing the performance, quality, and utility of all of our products. In addition to research and development, our engineering staff provides customer technical support on an as-needed basis.\nWe expect research and development expenses during fiscal year 2023 to increase as compared with those incurred in fiscal year 2022 as we continue our new product research and development efforts.\nHuman Capital Resources\nAs of September 30, 2022, we had 588 employees, 170 in the U.S. and 418 internationally, 565 of which are full time.\u00a0Our total employee base consists of 327 sales and marketing, professional services, and document review employees, 199 research and development and support employees, and 62 employees in executive, finance, network administration, and other capacities.\u00a0In addition, we engaged various consultants in the areas of research and development, product development, finance, and marketing during fiscal year 2022. We have never had a work stoppage and none of our employees are represented by a labor organization. Substantially all of our employees, other than a certain number of our executive officers and employees with customary employment arrangements within Europe, are at will employees, which means that each employee can terminate his or her relationship with us and we can terminate our relationship with him or her at any time.\u00a0We offer industry competitive wages and benefits and are committed to maintaining a workplace environment that promotes employee productivity and satisfaction.\u00a0We consider our relations with our employees to be good. We are also focused on understanding our diversity and inclusion strengths and opportunities and executing on a strategy to support further progress. We continue to focus on building a pipeline for talent to create more opportunities for workplace diversity and to support greater representation within the Company.\nAvailable Information\nWe are subject to the reporting requirements of the Exchange Act. Consequently, we are required to file reports and information with the SEC, including reports on the following forms: annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports and other information concerning us may be accessed, free of charge, through the SEC\u2019s website at www.sec.gov and our website at www.miteksystems.com. These reports are placed on our website as soon as reasonably practicable after they are filed with the SEC. Information contained in, or that can be accessed through, our website is not incorporated by reference into, nor is it in any way a part of, this Form 10-K.\n5\nITEM\u00a0 1A.\u00a0\u00a0\u00a0\u00a0RISK FACTORS.\nRisk Factor Summary \nBelow is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below and should be carefully considered, together with other information in this Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission before making investment decisions regarding our common stock.\n\u2022\nWe currently derive substantially all of our revenue from a few types of technologies. If these technologies and the related products do not achieve or continue to achieve market acceptance, our business, financial condition, and results of operations would be adversely affected.\n\u2022\nWe cannot predict the impact that the decline of the use of checks, changes in consumer behavior facilitated by advances in technologies, and the development of check alternatives, or the plateau of the penetration of active mobile banking users may have on our business.\n\u2022\nClaims that our products infringe upon the rights, or have otherwise utilized proprietary information, of third parties may give rise to costly litigation against us or our customers who we may be obligated to indemnify, and we could be prevented from selling those products, required to pay damages, and obligated to defend against litigation or indemnify our customers.\n\u2022\nIf the patents we own or license, or our other intellectual property rights, do not adequately protect our technologies, we may lose market share to our competitors and be unable to operate our business profitably.\n\u2022\nWe face competition from several companies that may have greater resources than we do, which could result in price reductions, reduced margins, or loss of market share.\n\u2022\nWe must continue to engage in extensive research and development in order to remain competitive.\n\u2022\nDefects or malfunctions in our products could hurt our reputation, sales and profitability.\n\u2022\nOur lengthy sales cycles and the difficulty in predicting timing of sales or delays may impair our operating results.\n\u2022\nOur historical order flow patterns, which we expect to continue, have caused forecasting difficulties for us. If we do not meet our forecasts or analysts\u2019 forecasts for us, the price of our common stock may decline.\n\u2022\nEntry into new lines of business, and our offering of new products and services, resulting from our acquisitions may result in exposure to new risks.\n\u2022\nAdverse economic conditions or reduced spending on information technology solutions may adversely impact our revenue and profitability. \n\u2022\nWe may need to raise additional capital to fund continuing operations and an inability to raise the necessary capital or the inability to do so on acceptable terms could threaten the success of our business.\n\u2022\nWe expect to incur additional expenses related to the integration of ID R&D, Inc. and HooYu Ltd.\n\u2022\nWe may be unable to successfully integrate our business with the respective businesses of ID R&D, and HooYu and realize the anticipated benefits of the acquisitions.\n\u2022\nOur actual financial and operating results following the acquisitions of ID R&D and HooYu could differ materially from any expectations or guidance provided by us concerning our future financial and operating results.\n\u2022\nOur annual and quarterly results have fluctuated greatly in the past and will likely continue to do so, which may cause substantial fluctuations in our common stock price.\n\u2022\nWe face risks related to the storage of our customers\u2019 and their end users\u2019 confidential and proprietary information. Our products may not provide absolute security. We may incur increasing costs in an effort to minimize those risks and to respond to cyber incidents.\n\u2022\nDue to our operations in non-U.S. markets, we are subject to certain risks that could adversely affect our business, results of operations or financial condition.\n\u2022\nOur international operations may increase our exposure to potential liability under anti-corruption, trade protection, tax, and other laws and regulations.\n\u2022\nFluctuations in foreign currency exchange and interest rates could adversely affect our results of operations.\n\u2022\nCompliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses.\n6\n\u2022\nWe have a history of losses and we may not be able to maintain profitability in the future.\n\u2022\nAn \u201cownership change\u201d could limit our ability to utilize our net operating loss and tax credit carryforwards, which could result in our payment of income taxes earlier than if we were able to fully utilize our net operating loss and tax credit carryforwards.\n\u2022\nOur cash and cash equivalents could be adversely affected if the financial institutions at which we hold our cash and cash equivalents fail.\n\u2022\nOur business could be adversely affected in the event we default under our debt agreements.\n\u2022\nOur revenues are dependent on our ability to maintain and expand existing customer relationships and our ability to attract new customers.\n\u2022\nEvolving domestic and international data privacy regulations may restrict our ability, and that of our customers, to solicit, collect, process, disclose and use personal information or may increase the costs of doing so, which could harm our business.\n\u2022\nFrom time-to-time our Board explores and considers strategic alternatives, including financings, strategic alliances, acquisitions, or the possible sale of our company. Our Board may not be able to identify or complete any suitable strategic alternatives, and announcements regarding any such strategic alternatives could have an impact on our operations or stock price.\n\u2022\nFuture sales of our common stock by our insiders may cause our stock price to decline.\n\u2022\nA potential proxy contest for the election of directors at our annual meeting could result in potential operational disruption, divert our resources, and could potentially result in adverse consequences under certain of our agreements.\n\u2022\nOur corporate documents and the Delaware General Corporation Law (the \u201cDGCL\u201d) contain provisions that could discourage, delay, or prevent a change in control of our company, prevent attempts to replace or remove current management, and reduce the market price of our stock.\n\u2022\nOur restated certificate of incorporation and second amended and restated bylaws provide for indemnification of officers and directors at our expense and limits their liability, which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of officers and/or directors.\n\u2022\nThe market price of our common stock has been volatile and your investment in our stock could suffer a decline in value.\n\u2022\nBecause we do not intend to pay cash dividends, our stockholders will benefit from an investment in our common stock only if our stock price appreciates in value.\n\u2022\nAs a result of our failure to timely file our Annual Report on Form 10-K for year ended September 30, 2022, and our Quarterly Reports on Form 10-Q for the quarters ended December 31, 2022 and March 31, 2023, we are currently ineligible to file new short form registration statements on Form S-3 or to have resale registration statements declared effective in a timely manner, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.\n\u2022\nOur second amended and restated bylaws provide that a state or federal court located within in the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders\u2019 ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.\n\u2022\nIf we are unable to retain and recruit qualified personnel, or if any of our key executives or key employees discontinues his or her employment with us, it may have a material adverse effect on our business.\n\u2022\nLegislation and governmental regulations enacted in the U.S. and other countries that apply to us or to our customers may require us to change our current products and services and/or result in additional expenses, which could adversely affect our business and results of operations.\n\u2022\nFuture sales of our common stock could cause the market price of our common stock to decline.\n\u2022\nIf financial or industry analysts do not publish research or reports about our business, or if they issue negative or misleading evaluations of our stock, our stock price and trading volume could decline.\n\u2022\nWe have identified material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.\n\u2022\nNatural disasters or other catastrophic events may disrupt our business.\n7\nRisk Factors\nThe following risk factors and other information included in this Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following risks actually occur, our business, financial condition, results of operations, cash flows, projected results, and future prospects could be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you could lose all or part of your investment or interest.\nRisks Associated With Our Business and Operations \nWe currently derive substantially all of our revenue from a few types of technologies. If these technologies and the related products do not achieve or continue to achieve market acceptance, our business, financial condition, and results of operations would be adversely affected.\nWe currently derive substantially all of our revenue from license sales and services provided with our software products to customers incorporating our intelligent mobile imaging technology and software products. If we are unable to achieve or continue to achieve market acceptance of our core technologies or products incorporating such technologies, we will not generate significant revenue growth from the sale of our products.\nAdditionally, factors adversely affecting the pricing of or demand for our products and services, such as competition from other products or technologies, any decline in the demand for mobile image processing, negative publicity, or obsolescence of the software environments in which our products operate could adversely affect our business, financial condition, and results of operations.\nWe cannot predict the impact that the decline of the use of checks, changes in consumer behavior facilitated by advances in technologies, and the development of check alternatives, or the plateau of the penetration of active mobile banking users may have on our business.\nOver the last few years, the use of checks has started to decline. Advances in technologies have enabled the development of check alternatives like Zelle and Venmo, which have caused certain changes in consumer behavior. As check alternatives become more widely accepted by consumers, the use of checks could continue to decline, which could have a negative effect on our business. In addition, as the mobile banking market matures, the growth of active mobile banking users is slowing, which may negatively impact our ability to grow our business.\nClaims that our products infringe upon the rights, or have otherwise utilized proprietary information, of third parties may give rise to costly litigation against us or our customers who we may be obligated to indemnify, and we could be prevented from selling those products, required to pay damages, and obligated to defend against litigation or indemnify our customers.\nIn the past, third parties have brought claims against us and against our customers who use our products asserting that certain technologies incorporated into our products infringe on their intellectual property rights.  Although we have resolved past claims against us that we have infringed on third-party patents, there can be no assurance that we will not receive additional claims against us asserting that our products infringe on the intellectual property rights of third parties or that our products otherwise utilize such third parties\u2019 proprietary information.\nOn July 7, 2018, United Services Automobile Association (\u201cUSAA\u201d) filed a lawsuit against Wells Fargo Bank, N.A. (\u201cWells Fargo\u201d) in the Eastern District of Texas alleging that Wells Fargo\u2019s remote deposit capture systems (which in part utilize technology provided by the Company to Wells Fargo through a partner) infringe four USAA owned patents related to mobile deposits (the \u201cFirst Wells Lawsuit\u201d). On August 17, 2018, USAA filed a second lawsuit (the \u201cSecond Wells Lawsuit\u201d and together with the First Wells Lawsuit, the \u201cWells Lawsuits\u201d) against Wells Fargo in the Eastern District of Texas asserting that an additional five patents owned by USAA were infringed by Wells Fargo\u2019s remote deposit capture system. In neither lawsuit was the Company named in the Complaint as an infringer and at no time did USAA allege specifically that the Company\u2019s products by themselves infringed any of the asserted patents. Subsequently, on November 6, 2019, a jury in the First Wells Lawsuit found that Wells Fargo willfully infringed at least one of the Subject Patents (as defined below) and awarded USAA $200 million in damages. In the Second Wells Lawsuit, USAA dropped two of the patents from the litigation, and the judge in the case found that one of the remaining three patents was invalid. On January 10, 2020, a jury in the Second Wells Lawsuit found that Wells Fargo willfully infringed at least one of the patents at issue in that case and awarded USAA $102\u00a0million in damages. No Mitek product was accused of infringing either of the two patents in question in the Second Wells Lawsuit as the litigation involved broad banking processes and not the Company\u2019s specific mobile deposit features. USAA and Wells Fargo subsequently reached a settlement, and on April 1, 2021 the Court granted the parties\u2019 joint motion and stipulation of dismissal of the Wells Lawsuits with prejudice. \nWells Fargo filed petitions for \nInter Partes\n Review (\u201cIPR\u201d) with the Patent Trial and Appeal Board (\u201cPTAB\u201d)\n \nchallenging the validity of the four patents in the First Wells Lawsuit. Three of those four petitions were instituted, while one (relating to U.S. Patent No. 9,818,090 (\u201cthe \u2019090 Patent\u201d)) was denied institution. On November 24, 2020, and January 26, 2021, the PTAB issued final written decisions determining that Wells Fargo had not demonstrated by a preponderance of the evidence that any claims of the U.S. Patent Nos. 8,977,571 (\u201cthe \u2019571 Patent\u201d), 8,699,779 (\u201cthe \u2019779 Patent\u201d), or 9,336,517 (\u201cthe \u2019517 Patent\u201d) were unpatentable.\n8\nOn September 30, 2020, USAA filed suit against PNC Bank (the \u201cFirst PNC Lawsuit\u201d) in the Eastern District of Texas alleging infringement of U.S. Patent Nos. 10,482,432 (\u201cthe \u2019432 Patent\u201d) and 10,621,559. These two patents are continuations of an asserted patent in the Second Wells Lawsuit and relate to similar subject matter. On October 19, 2020, PNC Bank\u2019s integration partner, NCR Corporation, sent an indemnification demand to the Company requesting indemnification from all claims related to the First PNC Lawsuit. The complaint against PNC Bank does not claim that any Company product infringes any of the asserted patents. At this time, the Company does not believe it is obligated to indemnify NCR Corporation or end-users of NCR Corporation resulting from the patent infringement allegations by USAA. On December 4, 2020, USAA filed an amended complaint against PNC Bank also asserting two patents at issue in the First Wells Lawsuit\u2014the \u2019779 Patent and the \u2019571 Patent. On February 2, 2021, NCR Corporation sent a second indemnification demand to the Company requesting indemnification of the claims described in the amended complaint. On March 31, 2021, USAA filed another suit against PNC Bank in the Eastern District of Texas alleging infringement of two patents from the Second Wells Lawsuit, U.S. Patent Nos. 10,013,605 (\u201cthe \u2018605 Patent\u201d) and 10,013,681 (\u201cthe \u2018681 Patent\u201d) (the \u201cSecond PNC Lawsuit\u201d). On July 7, 2021, USAA filed a third lawsuit against PNC Bank (the \u201cThird PNC Lawsuit\u201d and together with the First PNC Lawsuit and the Second PNC Lawsuit, the \u201cPNC Lawsuits\u201d) asserting infringement of U.S. Patents 10,769,598; 10,402,638; and 9,224,136. A jury trial was held in May 2022 on the consolidated First PNC Lawsuit and Second PNC Lawsuit. The jury found that PNC willfully infringed at least one patent claim and awarded USAA $218 million in damages. The Court denied PNC Bank\u2019s equitable defenses and entered a Final Judgment in the consolidated First PNC Lawsuit and Second PNC Lawsuit on August 19, 2022. A jury trial was held in September 2022 on the Third PNC Lawsuit. The jury found that PNC infringed at least one patent claim and awarded USAA $4.3 million in damages. The Court entered a Final Judgment in the Third PNC Lawsuit on February 16, 2023.\nWhile neither the Wells Lawsuits nor the PNC Lawsuits name the Company as a defendant, given (among other factors) the Company\u2019s prior history of litigation with USAA and the continued use of the Company\u2019s products by its customers, on November 1, 2019, the Company filed a complaint in the U.S. District Court for the Northern District of California seeking declaratory judgment that its products do not infringe the \u2019779 Patent, the \u2019571 Patent, the \u2019517 Patent, and the \u2019090 Patent (collectively, the \u201cSubject Patents\u201d). On January 15, 2020, USAA filed motions requesting the dismissal of the declaratory judgement of the Subject Patents and transfer of the case to the Eastern District of Texas, both of which the Company opposed. On April 21, 2020, the Court in the Northern District of California transferred the Company\u2019s declaratory judgement action to the Eastern District of Texas and did not rule on USAA\u2019s motion to dismiss. On April 28, 2021, the Court in the Eastern District of Texas granted USAA\u2019s motion to dismiss the Company\u2019s declaratory judgment action on jurisdictional grounds. The Court\u2019s ruling did not address the merits of the Company\u2019s claim of non-infringement. The Company appealed the ruling on the motion to dismiss and the decision to transfer the declaratory judgment action from California to Texas to the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit heard oral argument on the Company\u2019s appeal on April 4, 2022 and on May 20 2022, issued an opinion vacating and remanding the district court\u2019s order granting USAA\u2019s motion to dismiss. On August 1, 2022, the parties submitted additional briefing to the district court in light of Federal Circuit\u2019s opinion. The court held another hearing on USAA\u2019s motion to dismiss the Company\u2019s declaratory judgment action on jurisdictional grounds, and once again granted USAA\u2019s motion to dismiss on February 23, 2023. The Company timely filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. The Company continues to believe that its products do not infringe the Subject Patents and will vigorously defend the right of its end-users to use its technology. \nIn April, May, and June 2020, the Company filed petitions for IPR with the PTAB of the U.S. Patent & Trademark Office challenging the validity of the Subject Patents. On November 6 and 17, 2020, the PTAB decided to exercise its discretion and deny institution of the four petitions due to the alleged relationship between the Company and Wells Fargo, who previously filed petitions for IPR on the Subject Patents. The PTAB did not address the merits of the Company\u2019s petitions or the prior art cited in those petitions. The Company continues to believe that the prior art cited in the petitions renders all the claims of the Subject Patents invalid. On each of December 6, 2020, December 17, 2020, and February 23, 2021, the Company filed requests for rehearing and Precedential Opinion Panel (\u201cPOP\u201d) review of the four denied IPR petitions.  The Patent Office denied the requests for rehearing and for POP review.\nIn September 2020, the Company filed an additional two petitions for IPR with the U.S. Patent & Trademark Office challenging the validity of the \u2018681 Patent and the \u2019605 Patent\u2014two of the patents at issue in the Second Wells Lawsuit. In March 2021, the PTAB decided not to institute the two petitions.\nOn July 7, July 14, and July 21 2021, PNC Bank filed six additional petitions for IPR with the U.S. Patent & Trademark Office challenging the validity of the \u2019779 Patent, the \u2019571 Patent, the \u2018559 Patent, and the \u2018432 Patent. On August 27, 2021, PNC filed two additional petitions for IPR challenging the validity of the \u2018681 Patent and the \u2018605 Patent. In October and November of 2021, PNC Bank filed four more petitions for IPR challenging the validity of the \u2018638 Patent, the \u2018136 Patent, and the \u2018598 Patent. The Patent Office denied institution with respect to the petitions challenging the \u2018432 Patent, the \u2018605 Patent, the \u2018681 Patent, and the \u2018638 Patent, but instituted inter partes review on the petitions relating to the \u2018779 Patent, the \u2018571 Patent, the \u2018559 Patent, and the \u2018598 Patent\u2014finding a reasonable likelihood that at least one challenged patent claim was invalid. The U.S. Patent & Trademark Office issued a final written decision in each of the IPRs challenging the \u2018779 Patent, the \u2018571 Patent, and the \u2018559 Patent and found all challenged claims of each patent unpatentable. USAA filed requests for rehearing and requests for POP review. The requests for POP review were denied in March 2023; the requests for rehearing were denied in March and April 2023.\n9\nOn August 16, 2021, USAA filed suit against BBVA USA (\u201cBBVA\u201d) in the Eastern District of Texas alleging infringement of the same patents at issue in the PNC Lawsuits. While the Company\u2019s IPR petitions were mentioned in the complaint, the Company was not named as a defendant or mentioned in connection with any alleged infringement. BBVA then sent the Company an indemnification demand on September 7, 2021. For the same reasons discussed above in connection with PNC, the Company does not believe it is obligated to indemnify BBVA.\nOn July 29, 2022, USAA filed another patent infringement lawsuit against Truist Bank (\u201cTruist\u201d) in the Eastern District of Texas. The lawsuit alleges infringement of the \u2019090 Patent, the \u2019432 Patent, and the U.S. Patent No. 11,182,753 (\u201cthe \u2019753 Patent\u201d). The Company was not named as a defendant or mentioned in connection with any alleged infringement. On October 5, 2022, Truist\u2019s integration partner, NCR Corporation, sent an indemnification demand to the Company requesting indemnification from all claims related to the lawsuit. For the same reasons discussed above in connection with the PNC Lawsuits, the Company does not believe it is obligated to indemnify NCR Corporation or end-users of NCR Corporation resulting from the patent infringement allegations by USAA. On October 7, 2022, Truist filed a motion to transfer venue to the Western District of North Carolina, which was denied. On March 13, 2023, USAA moved for leave to file a First Amended Complaint, adding an additional allegation of patent infringement of U.S. Patent No. 11,544,944 (\u201cthe \u2019944 Patent\u201d). On April 4, 2023, Truist sent another indemnification demand to the Company requesting indemnification related to the First Amended Complaint.\n \nOn May 3, 2023, USAA moved for leave to file a Second Amended Complaint, adding an additional allegation of patent infringement of U.S. Patent No. 11,625,770 (\u201cthe \u2019770 Patent\u201d). On May 30, 2023, Truist sent another indemnification demand to the Company requesting indemnification related to the Second Amended Complaint.\nIn October and November of 2022, Truist filed a petition for IPR with the U.S. Patent & Trademark Office challenging the validity of the \u2019090 Patent, the \u2019432 Patent, and the \u2019753 Patent. The Patent Office instituted the petitions directed to the \u2019090 and \u2019753 Patents, but denied institution of the petition directed to the \u2019432 patent. Final written decisions are expected in mid-2024.\nFurthermore, we may initiate other claims or litigation against parties for infringement of our intellectual property rights or to establish the validity of our intellectual property rights. Litigation, either as plaintiff or defendant, could result in significant expense to us, whether or not such litigation is resolved in our favor. Even if we were to prevail, any litigation could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. \nIf the patents we own or license, or our other intellectual property rights, do not adequately protect our technologies, we may lose market share to our competitors and be unable to operate our business profitably.\nOur success depends significantly on our ability to protect our rights to the technologies used in our products, including Mobile Deposit\u00ae. We rely on trademark, trade secret, copyright, and patent law, as well as a combination of non-disclosure, confidentiality, and other contractual arrangements to protect our technology and rights. However, these legal protections afford only limited protection and may not adequately protect our rights or permit us to gain or maintain any competitive advantage. \nIn addition, we cannot be assured that any of our pending patent applications will result in the issuance of a patent. The Patent and Trademark Office (\u201cPTO\u201d) may deny or require significant narrowing of claims in our pending patent applications, and patents issued as a result of the pending patent applications, if any, may not provide us with significant commercial protection or may not be issued in a form that is advantageous to us. We could also incur substantial costs in proceedings before the PTO. Our issued and licensed patents and those that may be issued or licensed in the future may expire or may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing technologies related to ours. Additionally, upon expiration of our issued or licensed patents, we may lose some of our rights to exclude others from making, using, selling or importing products using the technology based on the expired patents. \nWe also must rely on contractual provisions with the third parties that license technology to us and that obligate these third parties to protect our rights in the technology licensed to us. There is no guarantee that these third parties would be successful in attempting to protect our rights in any such licensed technology. There is no assurance that competitors will not be able to design around our patents or other intellectual property or any intellectual property or technology licensed to us. \nWe also rely on unpatented proprietary technology. We cannot assure you that we can meaningfully protect all our rights in our unpatented proprietary technology or that others will not independently develop substantially equivalent proprietary technology or otherwise gain access to our unpatented proprietary technology. We seek to protect our know-how and other unpatented proprietary technology with confidentiality agreements and intellectual property assignment agreements with our employees, consultants, partners, and customers. However, such agreements may not be enforceable or may not provide meaningful protection for our proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements or in the event that our competitors discover or independently develop similar or identical designs or other proprietary information. \nIn addition, we rely on the use of registered and common law trademarks with respect to the brand names of some of our products. Common law trademarks provide less protection than registered trademarks. Loss of rights in our trademarks could adversely affect our business, financial condition, and results of operations.\nFurthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S. If we cannot adequately protect our intellectual property rights in these foreign countries, our competitors may be able to compete \n10\nmore effectively against us, which could adversely affect our competitive position, as well as our business, financial condition, and results of operations.\nWe face competition from several companies that may have greater resources than we do, which could result in price reductions, reduced margins, or loss of market share.\nWe compete against numerous companies in the mobile imaging software market. Competition in this market may increase as a result of a number of factors, such as the entrance of new or larger competitors or alternative technologies. These competitors may have greater financial, technical, marketing and public relations resources, larger client bases, and greater brand or name recognition. These competitors could, among other things:\n\u2022\nannounce new products or technologies that have the potential to replace our existing product offerings;\n\u2022\nforce us to charge lower prices; or\n\u2022\nadversely affect our relationships with current clients.\nWe may be unable to compete successfully against our current and potential competitors and if we lose business to our competitors or are forced to lower our prices, our revenue, operating margins, and market share could decline. If our competitors offer deep discounts on certain products or services in an effort to recapture or gain market share or to sell other products or services, we may need to lower prices or offer other favorable terms in order to compete successfully. For these and other reasons, in the future we may choose to make changes to our pricing practices. Such changes could materially and adversely affect our margins, and our revenues may be negatively affected if our competitors are able to recapture or gain market share.\nWe must continue to engage in extensive research and development in order to remain competitive.\nOur ability to compete effectively with our mobile imaging software products depends upon our ability to meet changing market conditions and develop enhancements to our products on a timely basis in order to maintain our competitive advantage. The markets for products incorporating mobile imaging software technology and products are characterized by rapid advancements in technology and changes in user preferences. Our continued growth will ultimately depend upon our ability to develop additional technologies and attract strategic alliances for related or separate products. There can be no assurance that we will be successful in developing and marketing product enhancements and additional technologies, that we will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these products, or that our new products and product enhancements will adequately meet the requirements of the marketplace, will be of acceptable quality, or will achieve market acceptance.\nDefects or malfunctions in our products could hurt our reputation, sales and profitability.\nOur business and the level of customer acceptance of our products depend upon the continuous, effective, and reliable operation of our products. Our products are extremely complex and are continually being modified and improved, and as such may contain undetected defects or errors when first introduced or as new versions are released. To the extent that defects or errors cause our products to malfunction and our customers\u2019 use of our products is interrupted, our reputation could suffer and our revenue could decline or be delayed while such defects are remedied. We may also be subject to liability for the defects and malfunctions of third-party technology partners and others with whom our products and services are integrated. In addition, our products are typically intended for use in applications that are critical to a customer\u2019s business. As a result, we believe that our customers and potential customers have a greater sensitivity to product defects than the market for software products in general. There can be no assurance that, despite our testing, errors will not be found in new products or releases after commencement of commercial shipments, resulting in loss of revenues or delay in market acceptance, diversion of development resources, damage to our reputation, adverse litigation, or increased service and warranty costs, any of which would have a material adverse effect upon our business, operating results, and financial condition.\nOur lengthy sales cycles and the difficulty in predicting timing of sales or delays may impair our operating results. \nThe long sales cycle and the implementation cycles for our software and services may cause operating results to vary significantly from period to period. The sales cycle for our products can be six months or more and varies substantially from customer to customer. Because we sell complex and deeply integrated solutions, it can take many months of customer education to secure sales and implement our product. Since our potential customers may evaluate our products before, if ever, executing definitive agreements, we may incur substantial expenses and spend significant management and legal effort in connection with a potential customer.\nOur historical order flow patterns, which we expect to continue, have caused forecasting difficulties for us. If we do not meet our forecasts or analysts\u2019 forecasts for us, the price of our common stock may decline.\nHistorically, a significant portion of our sales have resulted from shipments during the last few weeks of the quarter from orders received in the final month of the applicable quarter. We do, however, base our expense levels, in significant part, on our expectations of future revenue. As a result, we expect our expense levels to be relatively fixed in the short term. Any concentration of sales at the end of the quarter may limit our ability to plan or adjust operating expenses. Therefore, if anticipated shipments in any quarter do not occur or are delayed, expenditure levels could be disproportionately high as a percentage of sales, and our operating results for that \n11\nquarter would be adversely affected. As a result, we believe that period-to-period comparisons of our results of operations are not and will not necessarily be meaningful, and you should not rely upon them as an indication of future performance. If our operating results for a quarter are below the expectations of public market analysts and investors, it could have a material adverse effect on the price of our common stock.\nEntry into new lines of business, and our offering of new products and services, resulting from our acquisitions may result in exposure to new risks.\nNew lines of business, products or services could have a significant impact on the effectiveness of our system of internal controls and could reduce our revenues and potentially generate losses. New products and services, or entrance into new markets, may require substantial time, resources and capital, and profitability targets may not be achieved. Entry into new markets entails inherent risks associated with our inexperience, which may result in costly decisions that could harm our profit and operating results. There are material inherent risks and uncertainties associated with offering new products, and services, especially when new markets are not fully developed or when the laws and regulations regarding a new product are not mature. Factors outside of our control, such as developing laws and regulations, regulatory orders, competitive product offerings and changes in commercial and consumer demand for products or services may also materially impact the successful implementation of new products or services. Failure to manage these risks, or failure of any product or service offerings to be successful and profitable, could have a material adverse effect on our financial condition and results of operations.\nAdverse economic conditions or reduced spending on information technology solutions may adversely impact our revenue and profitability. \nUnpredictable and unstable changes in economic conditions, including a recession, inflation, increased government intervention, or measures taken in response to a global pandemic like COVID-19, or other changes, may adversely affect our general business strategy. In particular an economic downturn affecting small and medium sized businesses could significantly affect our business as many of our existing and target customers are in the small and medium sized business sector and these businesses are more likely to be significantly affected by economic downturns than larger, more established businesses. Additionally, these customers often have limited discretionary funds, which they may choose to spend on items other than our products and services, causing our revenue to decline. \nWe may need to raise additional capital to fund continuing operations and an inability to raise the necessary capital or the inability to do so on acceptable terms could threaten the success of our business.\nWe currently anticipate that our available capital resources and operating cash flows will be sufficient to meet our expected working capital and capital expenditure requirements for at least the next 12 months. However, such resources may not be sufficient to fund the long-term growth of our business. If we determine that it is necessary to raise additional funds, we may choose to do so through public or private equity or debt financings, a bank line of credit, strategic collaborations, licensing, or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us, if at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to certain of our technologies, products or marketing territories. If we are unable to obtain the financing necessary to support our operations, we may be required to defer, reduce or eliminate certain planned expenditures or significantly curtail our operations.\nWe expect to incur additional expenses related to the integration of ID R&D, Inc. and HooYu Ltd.\nWe expect to incur additional expenses in connection with the integration of the business, policies, procedures, operations, technologies, and systems of ID R&D, a New York corporation and HooYu Ltd. There are a number of systems and functions that are being integrated into our larger organization, including, but not limited to, management information, accounting and finance, billing, payroll and benefits, and regulatory compliance. In addition, the acquisitions of non-public entities such as ID R&D and HooYu, are particularly challenging because their prior practices may not meet the requirements of the Sarbanes-Oxley Act of 2002 (\u201cSarbanes-Oxley\u201d) and/or accounting principles generally accepted in the U.S. (\u201cGAAP\u201d). While we have assumed that a certain level of expenses would be incurred to integrate this business, there are a number of factors beyond our control that could affect the total amount or the timing of all of the expected integration expenses. Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. \nWe may be unable to successfully integrate our business with the respective businesses of ID R&D, and HooYu and realize the anticipated benefits of the acquisitions.\nOur management will be required to continue to devote significant attention and resources to integrating our business practices and operations with that of ID R&D and HooYu. In particular, the acquisitions of ID R&D and HooYu involve the combination of companies that previously operated independently in different countries. Potential difficulties we may encounter as part of the integration process include, but are not limited to, the following:\n12\n\u2022\ncomplexities associated with managing our business and the respective businesses of ID R&D and HooYu following the completion of the acquisition, including the challenge of integrating complex systems, technology, networks, and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees, and other constituencies;\n\u2022\nintegrating the workforces of the companies while maintaining focus on providing consistent, high quality customer service; and\n\u2022\npotential unknown liabilities and unforeseen increased expenses or delays associated with the acquisitions, including costs to integrate the companies that may exceed anticipated costs.\nAny of the potential difficulties listed above could adversely affect our ability to maintain relationships with customers, suppliers, employees, and other constituencies or our ability to achieve the anticipated benefits of the acquisitions or otherwise adversely affect our business and financial results. \nOur actual financial and operating results following the acquisitions of ID R&D and HooYu could differ materially from any expectations or guidance provided by us concerning our future financial and operating results.\nThe combined company resulting from the acquisitions of ID R&D and HooYu may not perform as we or the market expects. Expectations regarding each of ID R&D\u2019s and HooYu\u2019s impact on our financial and operating results are subject to numerous assumptions, including assumptions derived from our diligence efforts concerning the status of and prospects for the businesses of ID R&D and HooYu, respectively, and assumptions relating to the near-term prospects for our industry generally and the market for the products of ID R&D and HooYu in particular. Additional assumptions that we have made relate to numerous matters, including, without limitation, the following:\n\u2022\nprojections of future revenues;\n\u2022\nanticipated financial performance of products and products currently in development;\n\u2022\nour expected capital structure after the acquisitions, including after the distribution of any earnout shares that may (under certain circumstances) become payable to the former shareholders of ID R&D;\n\u2022\nour ability to maintain, develop and deepen relationships with the respective customers of ID R&D and HooYu; and\n\u2022\nother financial and strategic risks of the acquisitions.\nWe cannot provide any assurances with respect to the accuracy of our assumptions, including our assumptions with respect to future revenues or revenue growth rates, if any, of ID R&D or HooYu. Risks and uncertainties that could cause our actual results to differ materially from currently anticipated results include, but are not limited to, risks relating to our ability to realize incremental revenues from the acquisitions in the amounts that we currently anticipate; risks relating to the willingness of customers and other partners of ID R&D or HooYu to continue to conduct business with the combined company; and numerous risks and uncertainties that affect our industry generally and the markets for our products and those of each of ID R&D and HooYu. Any failure to realize the financial benefits we currently anticipate from the acquisitions would have a material adverse impact on our future operating results and financial condition and could materially and adversely affect the trading price or trading volume of our common stock.\nOur annual and quarterly results have fluctuated greatly in the past and will likely continue to do so, which may cause substantial fluctuations in our common stock price.\nOur annual and quarterly operating results have in the past, and may in the future, fluctuate significantly depending on factors including the timing of customer projects and purchase orders, new product announcements and releases by us and other companies, gain or loss of significant customers, price discounting of our products, the timing of expenditures, customer product delivery requirements, the availability and cost of components or labor, and economic conditions, both generally and in the information technology market. Revenues related to our licenses for mobile imaging software products are required to be recognized upon satisfaction of all applicable revenue recognition criteria. The recognition of future revenues from these licenses is dependent on a number of factors, including, but not limited to, the terms of our license agreements, the timing of implementation of our products by our channel partners and customers and the timing of any re-orders of additional licenses and/or license renewals by our channel partners and customers. Any unfavorable change in these or other factors could have a material adverse effect on our operating results for a particular quarter or year, which may cause downward pressure on our common stock price.\nHistorically, sales of licenses to our channel partners have comprised a significant part of our revenue. This is attributable to the timing of the purchase or renewal of licenses and does not represent a dependence on any single channel partner. If we were to lose a channel partner relationship, we do not believe such a loss would adversely affect our operations because either we or another channel partner could sell our products to the end-users that had purchased products from the channel partner we lost. However, in that case, we or another channel partner must establish a relationship with the end-users, which could take time to develop, if it develops at all.\nWe expect quarterly and annual fluctuations to continue for the foreseeable future. These fluctuations may result in volatility in our results of operations, have an adverse effect on the market price of our common stock, or both. \n13\nWe face risks related to the storage of our customers\u2019 and their end users\u2019 confidential and proprietary information. Our products may not provide absolute security. We may incur increasing costs in an effort to minimize those risks and to respond to cyber incidents.\nOur products are designed to maintain the confidentiality and security of our customers\u2019 and their end users\u2019 confidential and proprietary information that is stored on our systems, which may include sensitive financial data and personally identifiable information about consumers. However, any accidental or willful security breaches or other unauthorized access to this data could expose us to liability for the loss of such information, time-consuming and expensive litigation, and other possible liabilities as well as negative publicity. \nWe devote significant resources to addressing security vulnerabilities in our products, systems and processes, however our maintenance and regular upgrades of our products, systems and processes, which are designed to protect the security of our products and the confidentiality, integrity and availability of information belonging to us and our clients, may not provide absolute security. Techniques used to obtain unauthorized access or to sabotage systems change frequently, are increasingly sophisticated, and generally are difficult to recognize and react to. We may be unable to anticipate these techniques or implement adequate preventative or reactionary measures.\nAs cyber-attacks become more sophisticated, the need to develop our infrastructure to secure our business and customer data can lead to increased cybersecurity protection costs. Such costs may include making organizational changes, deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants. These efforts come at the potential cost of revenues and human resources that could be utilized to continue to enhance our product offerings. \nA successful penetration or circumvention of the security of our products could cause serious negative consequences, including significant disruption of our operations, misappropriation of our confidential information or that of our clients, or damage to our systems or those of our clients and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our clients, loss of confidence in our security measures, client dissatisfaction, significant litigation exposure, and harm to our reputation, all of which could have a material adverse effect on us. We may not have adequate insurance coverages for a cybersecurity breach or may realize increased insurance premiums as a result of a security breach.\nIf an actual or perceived breach of security occurs, client perception of the effectiveness of our security measures could be harmed and could result in the loss of clients. Actual or anticipated attacks and risks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third party experts and consultants.\nDue to our operations in non-U.S. markets, we are subject to certain risks that could adversely affect our business, results of operations or financial condition.\nWe generate revenue in markets outside of the U.S. The risks inherent in global operations include:\n\u2022\nlack of familiarity with, and unexpected changes in, foreign laws and legal standards, including employment laws and privacy laws, which may vary widely across the countries in which we sell our products;\n\u2022\nincreased expense to comply with U.S. laws that apply to foreign corporations, including the Foreign Corrupt Practices Act (the \u201cFCPA\u201d);\n\u2022\ncompliance with, and potentially adverse tax consequences of foreign tax regimes;\n\u2022\nfluctuations in currency exchange rates, currency exchange controls, price controls, and limitations on repatriation of earnings;\n\u2022\nlocal economic conditions;\n\u2022\nincreased expense related to localization of products and development of foreign language marketing and sales materials;\n\u2022\nlonger accounts receivable payment cycles and difficulty in collecting accounts receivable in foreign countries;\n\u2022\nincreased financial accounting and reporting burdens and complexities;\n\u2022\nrestrictive employment regulations;\n\u2022\ndifficulties and increased expense in implementing corporate policies and controls;\n\u2022\ninternational intellectual property laws, which may be more restrictive or may offer lower levels of protection than U.S. law;\n\u2022\ncompliance with differing and changing local laws and regulations in multiple international locations, including regional data privacy laws, as well as compliance with U.S. laws and regulations where applicable in these international locations; and\n\u2022\nlimitations on our ability to enforce legal rights and remedies.\n14\nIf we are unable to successfully manage these and other risks associated with managing and expanding our international business, the risks could have a material adverse effect on our business, results of operations, or financial condition. Further, operating in international markets requires significant management attention and financial resources. Due to the additional uncertainties and risks of doing business in foreign jurisdictions, international acquisitions tend to entail risks and require additional oversight and management attention that are typically not attendant to acquisitions made within the U.S. We cannot be certain that the investment and additional resources required to establish, acquire or integrate operations in other countries will produce desired levels of revenue or profitability.\nOur international operations may increase our exposure to potential liability under anti-corruption, trade protection, tax, and other laws and regulations.\nThe FCPA and other anti-corruption laws and regulations (\u201cAnti-Corruption Laws\u201d) prohibit corrupt payments by our employees, vendors, or agents. From time to time, we may receive inquiries from authorities in the U.S. and elsewhere about our business activities outside of the U.S. and our compliance with Anti-Corruption Laws. While we have implemented policies, training, and internal controls designed to reduce the risk of corrupt payments, our employees, vendors, or agents may violate our policies. Our acquisitions of ID Checker, ICAR, A2iA, ID R&D, and HooYu may significantly increase our exposure to potential liability under Anti-Corruption Laws. ID Checker, ICAR, A2iA, ID R&D, and HooYu were not historically subject to the FCPA, Sarbanes-Oxley, or other laws, to which we are subject, and we may become subject to liability if in the past, ID Checker\u2019s, ICAR\u2019s, A2iA\u2019s, ID R&D\u2019s, and HooYu\u2019s operations did not comply with such laws.\nOur failure to comply with Anti-Corruption Laws could result in significant fines and penalties, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business, and damage to our reputation. Operations outside of the U.S. may be affected by changes in trade protection laws, policies and measures, and other regulatory requirements affecting trade and investment.\nThe transfer of personal data from the European Union (\u201cEU\u201d) to the U.S. has become a significant area of potential operational and compliance risk.  In 2020, the Court of Justice of the European Union (\u201cCJEU\u201d) and the Swiss Federal Data Protection and Information Commissioner invalidated the U.S.-EU and U.S.-Swiss Privacy Shield frameworks, respectively. Privacy Shield was a mechanism for companies to transfer data from EU member states or Switzerland to the U.S. In its decision, the CJEU also indicated that individual EU member states could determine whether Standard Contractual Clauses (\u201cSCCs\u201d) (another \u201cadequate\u201d option for data transfers) are sufficient to securely transfer data out of the EU.  A number of local country data protection authorities in the EU subsequently determined that SCCs were invalid for data transfers to the U.S.  The EU Data Protection Board subsequently published updated SCCs to address some of the issues presented in the CJEU decision. Those new SCCs were required to be in place by December 27, 2022, and required significant effort for companies to review and revise their EU-U.S. data transfer agreements. Because of the legal challenges presented by these court and data protection authority decisions, there is uncertainty regarding the legal basis for data transfers to the U.S., which could lead to interruption of such transfers. The complex nature and shifting laws related to EU/UK/Switzerland to U.S. data transfers could cause operational interruptions, liabilities and reputational harm. These and other requirements could increase the cost of compliance for us and our customers, restrict our and our customers\u2019 ability to store and process data, negatively impact our ability to offer our solutions in certain locations and limit our customers\u2019 ability to deploy our solutions globally. These consequences may be more significant in countries with legislation that requires data to remain localized \u201cin country,\u201d as this could require us or our customers to establish data storage in other jurisdictions or apply local operational processes that are difficult and costly to integrate with global processes.\n If we fail to comply with such laws and regulations, we may be subject to significant fines, penalties or liabilities for noncompliance, thereby harming our business. For example, in 2016, the EU adopted the General Data Protection Regulation (\u201cGDPR\u201d), which establishes new requirements regarding the handling of personal data and which became effective in May 2018. Non-compliance with the GDPR may result in monetary penalties of up to 4% of worldwide revenue. \nDue to our international operations, we are subject to certain foreign tax regulations. Such regulations may not be clear, not consistently applied, and subject to sudden change, particularly with regard to international transfer pricing. Our earnings could be reduced by the uncertain and changing nature of such tax regulations.\nFluctuations in foreign currency exchange and interest rates could adversely affect our results of operations.\nOur business is generally conducted in U.S. dollars. However, we earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues and expenses into U.S. dollars at the average exchange rate during each reporting period, as well as assets and liabilities into U.S. dollars at exchange rates in effect at the end of each reporting period. The costs of operating in The Netherlands, Spain, France, and other European markets are subject to the effects of exchange fluctuations of the Euro and British pound sterling against the U.S. dollar. Therefore, increases or decreases in the value of the U.S. dollar against other major currencies will affect our net revenues, net income (loss), and the value of balance sheet items denoted in foreign currencies, and can adversely affect our operating results.\n \nCompliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses.\n15\nOur business is subject to laws, rules, regulations, and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the \u201cDodd-Frank Act\u201d), Sarbanes-Oxley, and various other new regulations promulgated by the SEC and rules promulgated by the national securities exchanges.\nThe Dodd-Frank Act, enacted in July 2010, expands federal regulation of corporate governance matters and imposes requirements on publicly-held companies, including us, to, among other things, provide stockholders with a periodic advisory vote on executive compensation and also adds compensation committee reforms and enhanced pay-for-performance disclosures. While some provisions of the Dodd-Frank Act were effective upon enactment, and others have been implemented upon the SEC\u2019s adoption of related rules and regulations, the Dodd-Frank Act is not yet fully implemented and the scope and timing of the adoption of additional rules and regulations thereunder is uncertain and accordingly, the cost of compliance with the Dodd-Frank Act is also uncertain. In addition, Sarbanes-Oxley specifically requires, among other things, that we maintain effective internal control over financial reporting and disclosure of controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley Act (\u201cSection 404\u201d). Our independent registered public accounting firm is required to attest to our internal control over financial reporting. Our testing, or the subsequent testing by our independent registered public accounting firm may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 requires that we incur substantial accounting expenses and expend significant management efforts. We currently have limited internal audit capabilities and will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm, if applicable, identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.\nThese and other new or changed laws, rules, regulations and standards are, or will be, subject to varying interpretations in many cases due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Further, compliance with new and existing laws, rules, regulations and standards may make it more difficult and expensive for us to maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Members of our board of directors (the \u201cBoard\u201d) and our principal executive officer and principal financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business. We continually evaluate and monitor regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result.\nWe have a history of losses and we may not be able to maintain profitability in the future.\nAlthough we generated net income for the twelve months ended September 30, 2022, 2021, and 2020, operations resulted in a net loss of $0.7 million and $11.8 million for the twelve months ended September 30, 2019, 2018, respectively. We may continue to incur significant losses for the foreseeable future which may limit our ability to fund our operations and we may not generate income from operations in the future. As of September 30, 2022, September 30, 2021, and September 30, 2020, we had an accumulated deficit of $18.0 million, $6.1 million, and $14.0 million, respectively. Our future profitability depends upon many factors, including several that are beyond our control. These factors include, without limitation:\n\u2022\nchanges in the demand for our products and services;\n\u2022\nloss of key customers or contracts;\n\u2022\nthe introduction of competitive software;\n\u2022\nthe failure to gain market acceptance of our new and existing products;\n\u2022\nthe failure to successfully and cost effectively develop, introduce and market new products, services and product enhancements in a timely manner; and\n\u2022\nthe timing of recognition of revenue.\nIn addition, we incur significant legal, accounting, and other expenses related to being a public company. As a result of these expenditures, we will have to generate and sustain increased revenue to achieve and maintain future profitability.\nAn \u201cownership change\u201d could limit our ability to utilize our net operating loss and tax credit carryforwards, which could result in our payment of income taxes earlier than if we were able to fully utilize our net operating loss and tax credit carryforwards.\n16\nFederal and state tax laws impose restrictions on the utilization of net operating loss (\u201cNOL\u201d) and tax credit carryforwards in the event of an \u201cownership change\u201d as defined by Section 382 of the Internal Revenue Code of 1986, as amended (\u201cSection 382\u201d). Generally, an \u201cownership change\u201d occurs if the percentage of the value of the stock that is owned by one or more direct or indirect \u201cfive percent shareholders\u201d increases by more than 50% over their lowest ownership percentage at any time during an applicable testing period (typically, three years). Under Section 382, if a corporation undergoes an \u201cownership change,\u201d such corporation\u2019s ability to use its pre-change NOL and tax credit carryforwards and other pre-change tax attributes to offset its post-change income may be limited. While no \u201cownership change\u201d has resulted in annual limitations, future changes in our stock ownership, which may be outside of our control, may trigger an \u201cownership change.\u201d In addition, future equity offerings or acquisitions that have equity as a component of the consideration could result in an \u201cownership change.\u201d If an \u201cownership change\u201d occurs in the future, utilization of our NOL and tax credit carryforwards or other tax attributes may be limited, which could potentially result in increased future tax liability to us. \nOur cash and cash equivalents could be adversely affected if the financial institutions at which we hold our cash and cash equivalents fail.\nOur cash and cash equivalents that we use to satisfy our working capital and operating expense needs are held in accounts at various financial institutions. The balance held in deposit accounts often exceeds the Federal Deposit Insurance Corporation (\u201cFDIC\u201d) deposit insurance limit or similar government deposit insurance schemes. Our cash and cash equivalents could be adversely impacted, including the loss of uninsured deposits and other uninsured financial assets, if one or more of the financial institutions in which we hold our cash or cash equivalents fails or is subject to other adverse conditions in the financial or credit markets.\nWe maintain a significant amount our cash and cash equivalents in Silicon Valley Bank, a division of First Citizens Bank (\u201cSVB\u201d), and our deposits at this institution exceeds insured limits. In March 2023, SVB failed and the FDIC took control of SVB. The Federal Reserve subsequently announced that account holders would be made whole and we were able to access all of our cash held at SVB. There is no guarantee that the Federal Reserve Board, the U.S. Treasury Department and the FDIC will provide access to uninsured funds in the future in the event of the closure of any other banks or financial institutions in a timely fashion or at all. Any inability to access or delay in accessing these funds could adversely affect our business, financial position, and liquidity.\nIf we do not effectively diversify our bank deposits and investment portfolio, the value and liquidity of our investments may fluctuate substantially which could affect our access to capital and results of operations in a material way. Furthermore, our access to our cash and cash equivalents in amounts adequate to finance our operations could be significantly impaired if the financial institutions with which we have arrangements directly face liquidity constraints or failures. Investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any material decline in available funding or our ability to access our cash and cash equivalents could adversely impact our results of operations and liquidity.\nOur business could be adversely affected in the event we default under our debt agreements.\nIn the event we default on any debt agreement, including those related to our convertible notes due 2026, our business, ability to make distributions, financial condition, results of operations and cash flows could be adversely affected. If we were unable to obtain a waiver of a default from the lenders or holders of that indebtedness, as applicable, those lenders or holders could accelerate repayment under that indebtedness. An acceleration could have a material adverse impact on our business, financial condition and results of operations.\nOur ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows in the future. This, to some extent, is subject to market, economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in amounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs.\nOur revenues are dependent on our ability to maintain and expand existing customer relationships and our ability to attract new customers.\nThe continued growth of our revenues is dependent in part on our ability to expand the use of our solutions by existing customers and attract new customers. If we are unable to expand our customers\u2019 use of our solutions, sell additional solutions to our customers, maintain our renewal rates for maintenance and subscription agreements and expand our customer base, our revenues may decline or fail to increase at historical growth rates, which could adversely affect our business and operating results. In addition, if we experience customer dissatisfaction with customers in the future, we may find it more difficult to increase use of our solutions within our existing customer base and it may be more difficult to attract new customers, or we may be required to grant credits or refunds, any of which could negatively impact our operating results and materially harm our business.\nEvolving domestic and international data privacy regulations may restrict our ability, and that of our customers, to solicit, collect, process, disclose and use personal information or may increase the costs of doing so, which could harm our business.\n17\nFederal, state and foreign governments and supervising authorities have enacted, and may in the future enact, laws and regulations concerning the solicitation, collection, processing, disclosure or use of consumers' personal information, including sensitive information such as biometric data. Evolving regulations regarding personal data and personal information, in the European Union and elsewhere, especially relating to classification of IP addresses, machine identification, household data, location data, biometric data, and other information, may limit or inhibit our ability to operate or expand our business. Such laws and regulations require or may in the future require us or our customers to implement privacy and security policies and practices; permit individuals to access, correct or delete personal information stored or maintained by us or our customers; inform individuals of security incidents that affect their personal information; and, in some cases, obtain consent to use personal information for specified purposes. Other proposed legislation could, if enacted, impose additional requirements and prohibit the use of specific technologies, such as those that track individuals' activities on web pages or record when individuals click on a link contained in an email message, or those relating to collection and use of biometric identifiers, and systems reliant on such technologies. Such laws and regulations could restrict our customers' ability to collect and use web browsing data and personal information, or utilize biometrics-derived information, which may reduce our customers' demand for our solutions. The laws in this area are complex and developing rapidly.\nIn the United States, many state legislatures have adopted legislation that regulates how businesses operate online, including measures relating to privacy, data security and data breaches. Laws in all states require businesses to provide notice to customers whose personally identifiable information has been disclosed as a result of a data breach. The laws are not consistent, and compliance in the event of a widespread data breach is costly. Further, states are constantly adopting new laws or amending existing laws, requiring attention to frequently changing regulatory requirements. For example, California enacted the California Consumer Privacy Act (the \u201cCCPA\u201d) on June 28, 2018, which went into effect on January 1, 2020 and has been dubbed the first \u201cGDPR-like\u201d law (referring to the EU's General Data Protection Regulation, described below) in the United States. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used by requiring covered companies to provide new disclosures to California consumers (as that term is broadly defined) and provides such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. The California Privacy Rights Act (the \u201cCPRA\u201d) was approved by California voters in the November 3, 2020 election, and created additional obligations relating to consumer data beginning on January 1, 2022, with implementing regulations expected on or before July 1, 2022, and enforcement beginning July 1, 2023. Aspects of the CCPA and the CPRA (referred to collectively as \u201cthe California Legislation\u201d), and their interpretation and enforcement, remain uncertain. For example, Virginia recently passed its Consumer Data Protection Act, which went into effect on January 1, 2023, and Colorado recently passed the Colorado Privacy Act, which will go into effect on July, 2023, and both of which differ from the California Legislation. Additional U.S. states have enacted, or are considering, similar data privacy laws. We cannot fully predict the impact of these state laws, including the California Legislation, on our business or operations, but it may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. We expect that new legislation proposed or enacted in various other states will continue to shape the data privacy environment nationally. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to confidential, sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which may complicate compliance efforts.\nChanging industry standards and industry self-regulation regarding the collection, use and disclosure of data may have similar effects. Existing and future privacy and data protection laws and increasing sensitivity of consumers to unauthorized disclosures and use of personal information may also negatively affect the public's perception of our customers' sales practices. If our solutions are perceived to cause, or are otherwise unfavorably associated with, insecurity of personal information, whether or not illegal, we or our customers may be subject to public criticism. Public concerns regarding data collection, privacy and security may also cause some consumers to be less likely to visit our customers' websites or otherwise interact with our customers, which could limit the demand for our solutions and inhibit the growth of our business. Any failure on our part to comply with applicable privacy and data protection laws, regulations, policies and standards or any inability to adequately address privacy or security concerns associated with our solutions, even if unfounded, could subject us to liability, damage our reputation, impair our sales and harm our business. Furthermore, the costs to our customers of compliance with, and other burdens imposed by, such laws, regulations, policies and standards may limit adoption of and demand for our solutions.\nRisks Related to Investing in Our Common Stock\nFrom time-to-time our Board explores and considers strategic alternatives, including financings, strategic alliances, acquisitions, or the possible sale of our company. Our Board may not be able to identify or complete any suitable strategic alternatives, and announcements regarding any such strategic alternatives could have an impact on our operations or stock price.\nFrom time-to-time our Board explores and considers strategic alternatives, including financings, strategic alliances, acquisitions, or the possible sale of our company. We currently have no agreements or commitments to engage in any specific strategic transactions, and we cannot assure you that any future explorations of various strategic alternatives will result in any specific action or transaction. If we determine to engage in a strategic transaction, we cannot predict the impact that such strategic transaction might \n18\nhave on our operations or stock price. We do not intend to provide updates or make further comments regarding the evaluation of strategic alternatives, unless otherwise required by law.\nFuture sales of our common stock by our insiders may cause our stock price to decline.\nA significant portion of our outstanding shares are held by our current and former directors and executive officers. Resales of a substantial number of shares of our stock by these stockholders, announcements of the proposed resale of substantial amounts of our stock, or the perception that substantial resales may be made by such stockholders could adversely impact the market price of our stock. Some of our directors and executive officers have in the past and may in the future enter into Rule 10b5-1 trading plans pursuant to which they may sell shares of our stock from time to time in the future. Actual or potential sales by these individuals, including those under a pre-arranged Rule 10b5-1 trading plan, regardless of the actual circumstances, could be interpreted by the market as an indication that the insider has lost confidence in our stock and adversely impact the market price of our stock.\nWe have registered and expect to continue to register shares reserved under our equity plans under a registration statement on Form S-8. All shares issued pursuant to a registration statement on Form S-8 can be freely sold in the public market upon issuance, subject to restrictions on our affiliates under Rule 144 of the Securities Act. If a large number of these shares are sold in the public market, the sales could adversely impact the trading price of our stock.\nA potential proxy contest for the election of directors at our annual meeting could result in potential operational disruption, divert our resources, and could potentially result in adverse consequences under certain of our agreements.\nOur investors may launch a proxy contest to nominate director candidates for election to the Board at our annual meeting of stockholders. A proxy contest would require us to incur significant legal fees and proxy solicitation expenses and could result in potential operational disruption, including that the investor-nominated directors (if elected) may have a business agenda for our company that is different than the strategic and operational plans of the existing Board, which agenda may adversely affect our stockholders. Further, any perceived uncertainties as to our future direction and control could result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners, any of which could adversely affect our business and operating results and create increased volatility in our stock price.\nFurther, a change in a majority of the Board may, under certain circumstances, result in a change of control under certain employment agreements we have with our executive management and our 2002 Stock Option Plan, 2010 Stock Option Plan, Amended and Restated 2012 Incentive Plan, 2020 Incentive Plan, Director Restricted Stock Unit Plan, and any equity based awards issued thereunder. Pursuant to the agreements and awards, certain payments and vesting provisions may be triggered following a change of control, conditioned upon a qualifying termination that occurs within 12 months of any such change of control.\nOur corporate documents and the Delaware General Corporation Law (the \u201cDGCL\u201d) contain provisions that could discourage, delay, or prevent a change in control of our company, prevent attempts to replace or remove current management, and reduce the market price of our stock.\nProvisions in our restated certificate of incorporation and second amended and restated bylaws may discourage, delay, or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our restated certificate of incorporation authorizes our Board to issue up to one million shares of \u201cblank check\u201d preferred stock. As a result, without further stockholder approval, the Board has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third-party to acquire us. We are also subject to the anti-takeover provisions of the DGCL. Under these provisions, if anyone becomes an \u201cinterested stockholder,\u201d we may not enter into a \u201cbusiness combination\u201d with that person for three years without special approval, which could discourage a third-party from making a takeover offer and could delay or prevent a change in control of us. An \u201cinterested stockholder\u201d is, generally, a stockholder who owns 15% or more of our outstanding voting stock or an affiliate of ours who has owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in the DGCL.\nOur restated certificate of incorporation and second amended and restated bylaws provide for indemnification of officers and directors at our expense and limits their liability, which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of officers and/or directors.\nPursuant to our restated certificate of incorporation and second amended and restated bylaws and as authorized under applicable Delaware law, our directors and officers are not liable for monetary damages for breaches of fiduciary duties, except for liability (i) for any breach of the director\u2019s duty of loyalty to the Company or its stockholders; (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from which the director derived an improper personal benefit.\nWe have entered into a separate indemnification agreement (the \u201cIndemnification Agreement\u201d) with each of our directors. Under the Indemnification Agreement, each director is entitled to be indemnified against all expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of such director in connection with any claims, proceedings or other actions brought against such director as a result of the director\u2019s service to us, provided that the director: (i) acted in good faith; (ii) reasonably believed the action was in our best interest; and (iii) in criminal proceedings, reasonably believed the \n19\nconduct was not unlawful. Additionally, the Indemnification Agreement entitles each director to contribution of expenses from us in any proceeding in which we are jointly liable with such director, but for which indemnification is not otherwise available. The Indemnification Agreement also entitles each director to advancement of expenses incurred by such director in connection with any claim, proceeding or other action in advance of the final adjudication of any such claim, proceeding or other action, provided the director agrees to reimburse us for all such advances if it shall ultimately be determined that the director is not entitled to indemnification.\nThe foregoing limitations of liability and provisions for expenses may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of officers and/or directors.\nThe market price of our common stock has been volatile and your investment in our stock could suffer a decline in value.\nThe market price of our common stock has experienced significant price and volume fluctuations. For example, during the three year period ended September 30, 2022, the closing price of our common stock ranged from $5.56 to $23.03. In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the common stock of technology companies and that have often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of our common stock. You may not be able to resell your shares at or above the price you paid for them due to fluctuations in the market price of our stock caused by changes in our operating performance or prospects and other factors.\nSome specific factors, in addition to the other risk factors identified above, that may have a significant effect on the price of our stock, many of which we cannot control, include but are not limited to:\n\u2022\nour announcements or our competitors\u2019 announcements of technological innovations;\n\u2022\nquarterly variations in operating results;\n\u2022\nchanges in our product pricing policies or those of our competitors;\n\u2022\nclaims of infringement of intellectual property rights or other litigation;\n\u2022\nthe public\u2019s reaction to our press releases, our other public announcements and our filings with the SEC;\n\u2022\nchanges in accounting standards, policies, guidance, interpretations or principles;\n\u2022\nchanges in our growth rate or our competitors\u2019 growth rates;\n\u2022\ndevelopments regarding our patents or proprietary rights or those of our competitors;\n\u2022\nour inability to raise additional capital as needed;\n\u2022\nchanges in financial markets or general economic conditions;\n\u2022\nsales of stock by us or members of our management team or Board; and\n\u2022\nchanges in stock market analyst recommendations or earnings estimates regarding our stock, other comparable companies or our industry generally.\nBecause we do not intend to pay cash dividends, our stockholders will benefit from an investment in our common stock only if our stock price appreciates in value.\nWe have never declared or paid a cash dividend on our common stock. We currently intend to retain our future earnings, if any, for use in the operation and expansion of our business and do not expect to pay any cash dividends in the foreseeable future. As a result, the success of an investment in our common stock will depend entirely upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which it was purchased.\nAs a result of our failure to timely file our Annual Report on Form 10-K for year ended September 30, 2022, and our Quarterly Reports on Form 10-Q for the quarters ended December 31, 2022 and March 31, 2023, we are currently ineligible to file new short form registration statements on Form S-3 or to have resale registration statements declared effective in a timely manner, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.\nForm S-3 permits eligible issuers to conduct registered offerings using a short form registration statement that allows the issuer to incorporate by reference its past and future filings and reports made under the Exchange Act. In addition, Form S-3 enables eligible issuers to conduct primary offerings \u201coff the shelf\u201d under Rule 415 of the Securities Act. The shelf registration process, combined with the ability to forward incorporate information, allows issuers to avoid delays and interruptions in the offering process and to access the capital markets in a more expeditious and efficient manner than raising capital in a standard registered offering pursuant to a Registration Statement on Form S-1. The ability to register securities for resale may also be limited as a result of the loss of Form S-3 eligibility.\n20\nAs a result of our failure to timely file our Annual Report on Form 10-K for year ended September 30, 2022, and our Quarterly Reports on Form 10-Q for the quarters ended December 31, 2022 and March 31, 2023, we are currently ineligible to file new short form registration statements on Form S-3 . In addition, if we seek to access the capital markets through a registered offering during the period of time that we are unable to use Form S-3, we may be required to publicly disclose the proposed offering and the material terms thereof before the offering commences, we may experience delays in the offering process due to SEC review of a Form S-1 registration statement and we may incur increased offering and transaction costs and other considerations.\nOur second amended and restated bylaws provide that a state or federal court located within in the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders\u2019 ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.\nOur second amended and restated bylaws provide that, unless we consent to an alternative forum, a state or federal court located within the state of Delaware will be the sole and exclusive forum for: (a) any derivative action or proceeding brought on our behalf; (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (c) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (d) any action asserting a claim governed by the internal affairs doctrine. Our Bylaws also provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and consented to this choice of forum provision.  The foregoing choice of forum provision is not intended to apply to any actions brought under the Securities Act of 1933, as amended, or the Securities Act, or the Securities Exchange Act of 1934, as amended, or the Exchange Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. However, our Bylaws do not relieve us of our duties to comply with federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations. \nThis choice of forum provision in our Bylaws may limit a stockholder\u2019s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. In addition, stockholders who do bring a claim in the state or federal courts in the State of Delaware could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. Furthermore, the enforceability of similar choice of forum provisions in other companies\u2019 governing documents has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provision in our Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.\nWe may not be able to maintain our listing on The Nasdaq Stock Market LLC (\u201cNasdaq\u201d), or trading on the Nasdaq Capital Market may otherwise be halted or suspended, which may negatively impact the price of our common stock.  If our common stock is delisted from Nasdaq, our business, financial condition, results of operations and share price could be adversely affected, and the liquidity of our common stock could be impaired.\nWe have in the past and may in the future fail to comply with the Nasdaq listing requirements, including the continued listing requirement to timely file all required periodic financial reports with the SEC. As of the date of the filing of this Form 10-K, we have not yet filed our Form 10-Qs for the quarterly periods ended December 31, 2022 and March 31, 2023. If our common stock ceases to be listed for trading on Nasdaq for any reason, it may harm our stock price, increase the volatility of our stock price, decrease the level of trading activity and make it more difficult for investors to buy or sell shares of our common stock. Our failure to maintain listing on Nasdaq may constitute an event of default under our outstanding indebtedness, including our convertible notes due 2026, and any future indebtedness, which would accelerate the maturity date of such debt or trigger other obligations.  In addition, certain institutional investors that are not permitted to own securities of non-listed companies may be required to sell their shares adversely affecting the market price of our common stock. If we are not listed on Nasdaq, we will be limited in our ability to raise additional capital we may need.\nOn August 11, 2022, we were notified by Nasdaq that we were not in compliance with Nasdaq \nListing Rule 5250(c)(1) (the \u201cListing Rule\u201d), which requires\n that a listed company timely file all required periodic financial reports with the SEC as a result of our failure to file our Quarterly Report on Form 10-Q for the period ended June 30, 2022. We submitted a plan to regain compliance on October 12, 2022 and on October 18, 2022, the Company received an exception of 180 days from the date the filing was due to regain compliance. On October 28, 2022, the Company filed its Quarterly Report on Form 10-Q for the period ended June 30, 2022 and regained compliance. \nOn December 16, 2022, we were notified by Nasdaq that we were not in compliance with the Listing Rule as a result of our failure to file our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (the \u201cForm 10-K\u201d). We submitted an initial plan of compliance to Nasdaq on February 9, 2023.\nOn February 16, 2023, we were notified by Nasdaq that we were not in compliance with the Listing Rule as a result of our failure to file our Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2022 (the \u201cQ1 Form 10-Q\u201d) and our then-continuing delinquency to file our Form 10-K. On March 1, 2023, we submitted to Nasdaq an update to our previously submitted \n21\nplan of compliance. On March 15, 2023, we \nreceived an exception from Nasdaq allowing us until June 12, 2023 (the \u201cCompliance Deadline\u201d), or 180 days from the initial due date of the Form 10-K, to regain compliance by filing the Form 10-K and Q1 Form 10-Q.\nOn May 12, 2023, we were notified by Nasdaq that we were not in compliance with the Nasdaq requirement that a company shall timely file all required period financial reports with the SEC as a result of our failure to file our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 (the \u201cQ2 Form 10-Q\u201d) and our then-continuing delinquency to file our Form 10-K and Q1 Form 10-Q. On May 26, 2023, we submitted to Nasdaq another update to our previously submitted plan of compliance.\nAs this Form 10-K and our delinquent Form 10-Qs were not filed by the Compliance Deadline, on \nJune 13, 2023\n, we received a Staff Delisting Determination \n \nfrom the Listing Qualifications Department of The Nasdaq Stock Market, LLC \nnotifying us that the Nasdaq Listing Qualifications Department (the \u201cStaff\u201d) has initiated a process to delist our securities from Nasdaq as a result of us not being in compliance with the Listing Rule. \nThe notice was issued because we had not filed our Form 10-K, Q1 Form 10-Q and Q2 Form 10-Q in a timely manner and did not meet the terms of the exception by the Compliance Deadline. \nOn June 20, 2023 we submitted our request for a hearing before \nan independent Nasdaq Hearings Panel (the \u201cPanel\u201d)\n. Our common stock will continue to trade on the Nasdaq Capital Market under the symbol \u201cMITK\u201d until the Panel issues its decision following the hearing and through the expiration of any additional extension period granted by the Panel. The Panel has discretion to grant an exception for up to 180 days after the Nasdaq Staff\u2019s initial delisting decision. There can be no assurance that the Panel will grant our request for a stay pending the hearing process or any further extension following the hearing or continued listing. \nWe have developed a detailed plan to present to the Panel in an effort to regain compliance with the Listing Rule and obtain an extended stay.\n If our common stock ceases to be listed for trading on Nasdaq, we expect that our common stock would be traded on the over-the-counter market.\nRisks Related to Regulation and Compliance\nWe have identified material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.\nIn the course of preparing our financial statements for fiscal 2022 and 2021, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. See \nPart II, Item 9A \u201cControls and Procedures\u201d\n for additional information about these material weaknesses and our remediation efforts.\nIf we are unable to further implement and maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected and we could become subject to litigation or investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources. Furthermore, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.\nAny failure to implement and maintain effective internal control over financial reporting could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports that are filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq.\nGeneral Risk Factors\n22\nIf we are unable to retain and recruit qualified personnel, or if any of our key executives or key employees discontinues his or her employment with us, it may have a material adverse effect on our business.\nWe are highly dependent on the key members of our management team and other key technical personnel. If we were to lose the services of one or more of our key personnel, or if we fail to attract and retain additional qualified personnel, it could materially and adversely affect our business. Furthermore, recruiting and retaining qualified highly skilled engineers involved in the ongoing development required to refine our technologies and introduce future products is critical to our success. We may be unable to attract, assimilate, and retain qualified personnel on acceptable terms given the competition within the high technology industry. We do not have any employment agreements providing for a specific term of employment with any member of our senior management. We do not maintain \u201ckey man\u201d insurance policies on any of our officers or employees. We have granted and plan to grant restricted stock units or other forms of equity awards as a method of attracting and retaining employees, motivating performance and aligning the interests of employees with those of our stockholders. As of September 30, 2022, we had 1,477,769 shares of common stock available for issuance pursuant to future grants of equity awards under our existing equity compensation plans, which may limit our ability to provide equity incentive awards to existing and future employees. If we are unable to adopt, implement and maintain equity compensation arrangements that provide sufficient incentives, we may be unable to retain our existing employees and attract additional qualified candidates. If we are unable to retain our existing employees, including qualified technical personnel, and attract additional qualified candidates, our business and results of operations could be adversely affected.\nLegislation and governmental regulations enacted in the U.S. and other countries that apply to us or to our customers may require us to change our current products and services and/or result in additional expenses, which could adversely affect our business and results of operations.\nLegislation and governmental regulations including changes in legislation and governmental regulations impacting financial institutions, insurance companies, and mobile device companies, affect how our business is conducted. Globally, legislation and governmental regulations also influence our current and prospective customers\u2019 activities, as well as their expectations and needs in relation to our products and services. Compliance with these laws and regulations may be onerous and expensive, and may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance. Any such increase in costs as a result of changes in these laws and regulations or in their interpretation could individually or in the aggregate make our products and services less attractive to our customers, delay the introduction of new products in one or more regions, cause us to change or limit our business practices or affect our financial condition and operating results.\nFuture sales of our common stock could cause the market price of our common stock to decline.\nWe cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. We currently have an effective universal shelf registration statement on file with the SEC, providing for the potential issuance of shares of our common stock and other securities. Sales of substantial amounts of shares of our common stock or other securities in the public market, or the perception that those sales could occur, may cause the market price of our common stock to decline. In addition, any such decline may make it more difficult for you to sell shares of our common stock at prices you may deem acceptable.\nIf financial or industry analysts do not publish research or reports about our business, or if they issue negative or misleading evaluations of our stock, our stock price and trading volume could decline.\nThe trading market for our common stock will be influenced by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts or the content and opinions included in their reports. If one or more of the analysts who cover us were to adversely change their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our stock price could decline. If one or more of the analysts who cover us cease coverage of our company or fail to publish reports on us regularly we could lose visibility in the financial markets which in turn could cause our stock price or trading volume to decline.\nNatural disasters or other catastrophic events may disrupt our business.\nOur business operations are subject to interruption by natural disasters and other catastrophic events, such as fire, floods, earthquakes, power loss, telecommunications failure, cyberattack, war or terrorist attack, or epidemic or pandemic. To the extent such events impact our facilities or off-premises infrastructure, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our software development, lengthy interruptions in our services, breaches of data security and loss of critical data, all of which could have an adverse effect on our future operating results.",
+  "item1a": ">Item 1A.\nRisk Factors\n6\nItem 1B.\nUnresolved Staff Comments\n23\nItem 2.\nProperties\n23\nItem 3.\nLegal Proceedings\n24\nItem 4.\nMine Safety Disclosures\n24\nPart II\nItem 5.\nMarket for Registrant\u2019s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities\n25\nItem 6.\n[Reserved]\n26\nItem 7.\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n27",
+  "item7": ">ITEM\u00a07.\u00a0\u00a0\u00a0\u00a0MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.\nThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under Item\u00a01A\u2014\u201cRisk Factors\u201d or in other parts of this report. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under \u201cRisk Factors.\u201d\nOverview\nMitek Systems, Inc. (\u201cMitek,\u201d the \u201cCompany,\u201d \u201cwe,\u201d \u201cus,\u201d and \u201cour\u201d\n)\n is a leading innovator of mobile image capture and digital identity verification solutions. We are a software development company with expertise in artificial intelligence and machine learning. We currently serve more than 7,800 financial services organizations and leading marketplace and financial technology (\u201cfintech\u201d) brands around the globe. Customers count on Mitek to deliver trusted and convenient online experiences, detect and reduce fraud, and document Know Your Customer (\u201cKYC\u201d) and Anti-Money Laundering (\u201cAML\u201d) regulatory compliance. Our solutions are embedded in native mobile apps and web browsers to facilitate digital consumer experiences. Mitek\u2019s identity verification and authentication technologies and services make it possible for banks, financial services organizations and the world\u2019s leading marketplace and sharing platforms to verify an individual\u2019s identity during digital transactions, allowing them to reduce risk and meet regulatory requirements. Our advanced mobile deposit system enables secure, fast and convenient deposit services. Thousands of organizations use Mitek solutions to optimize the security of mobile check deposits, new account openings and more.\nIn May of 2021, Mitek acquired ID R&D, Inc. (\u201cID R&D\u201d and such acquisition, the \u201cID R&D Acquisition\u201d), an award-winning provider of AI-based voice and face biometrics and liveness detection. ID R&D delivers innovative, biometric capabilities that raise the bar on usability and performance. The ID R&D Acquisition helps simplify and secure the entire transaction lifecycle for both businesses and consumers. It provides businesses and financial institutions with access to one authentication solution to deploy throughout the entire transaction cycle, and can provide consumers with a simple, intuitive approach to fighting fraud. \nIn March of 2022, Mitek acquired HooYu Ltd. (\u201cHooYu\u201d), a leading KYC technology provider in the United Kingdom. Such technology helps to ensure businesses know the true identity of their customers by linking biometric verification with real-time data aggregation across many different sources, including credit bureaus, international sanctions lists, local law-enforcement, and others.\nMitek markets and sells its products and services worldwide through internal, direct sales teams located in the U.S., Europe, and Latin America as well as through channel partners. Our partner sales strategy includes channel partners who are financial services technology providers and identity verification providers. These partners integrate our products into their solutions to meet the needs of their customers, typically provisioning Mitek\u2019s services through their respective platforms.\nFiscal Year 2022 Highlights\n\u00a0\n\u2022\nRevenues for the twelve months ended September 30, 2022 were $143.9 million, an increase of 20% compared to revenues of $119.8 million for the twelve months ended September 30, 2021.\n\u2022\nNet income was $3.0 million, or $0.07 per diluted share, for the twelve months ended September 30, 2022, compared to a net income of $8.0 million, or $0.18 per diluted share, for the twelve months ended September 30, 2021. \n\u2022\nCash provided by operating activities was $26.4 million for the twelve months ended September 30, 2022, compared to $37.3 million for the twelve months ended September 30, 2021.\n\u2022\nDuring fiscal 2022 the total number of financial institutions licensing our technology continued to exceed 7,800.\n\u2022\nWe added new patents to our portfolio during fiscal year 2022, bringing our total number of issued patents to 80 as of September 30, 2022.\u00a0In addition, we had 16 patent applications outstanding as of September 30, 2022.\nAcquisition of HooYu Ltd\nOn March 23, 2022, the Company completed the acquisition of HooYu (the \u201cHooYu Acquisition\u201d) pursuant to the Purchase Agreement (the \u201cPurchase Agreement\u201d) dated March 23, 2022, by and among the Company and certain selling parties identified in the Purchase Agreement. Pursuant to the Purchase Agreement, the Company, among other things, acquired 100% of the outstanding share capital of HooYu, a leading global customer onboarding platform designed to increase the integrity of KYC and maximize the success of customer onboarding. As consideration for the HooYu Acquisition, the Company paid aggregate consideration in the amount of $129.1\u00a0million (the \u201cClosing Consideration\u201d), as such amount may be adjusted for transaction expenses and indebtedness.\nMarket Opportunities, Challenges, & Risks\nSee Item 1: \u201cBusiness\u201d for details regarding additional market opportunities, challenges and risks.\n27\nResults of Operations\nComparison of the Twelve Months Ended September 30, 2022 and 2021\nThe following table summarizes certain aspects of our results of operations for the twelve months ended September 30, 2022 compared to the twelve months ended September 30, 2021 (\nin thousands, except percentages\n):\nTwelve Months Ended September 30,\nPercentage of Total Revenue\nIncrease (Decrease)\n2022\n2021\n2022\n2021\n$\n%\nRevenue\nSoftware and hardware\n$\n72,494\u00a0\n$\n60,069\u00a0\n50\u00a0\n%\n50\u00a0\n%\n12,425\u00a0\n21\u00a0\n%\nServices and other\n71,449\u00a0\n59,728\u00a0\n50\u00a0\n%\n50\u00a0\n%\n11,721\u00a0\n20\u00a0\n%\nTotal revenue\n$\n143,943\u00a0\n$\n119,797\u00a0\n100\u00a0\n%\n100\u00a0\n%\n24,146\u00a0\n20\u00a0\n%\nCost of revenue\n20,008\u00a0\n14,540\u00a0\n14\u00a0\n%\n12\u00a0\n%\n5,468\u00a0\n38\u00a0\n%\nSelling and marketing\n38,841\u00a0\n32,497\u00a0\n27\u00a0\n%\n27\u00a0\n%\n6,344\u00a0\n20\u00a0\n%\nResearch and development\n30,192\u00a0\n28,042\u00a0\n21\u00a0\n%\n23\u00a0\n%\n2,150\u00a0\n8\u00a0\n%\nGeneral and administrative\n26,591\u00a0\n22,490\u00a0\n18\u00a0\n%\n19\u00a0\n%\n4,101\u00a0\n18\u00a0\n%\nAmortization and acquisition-related costs\n15,172\u00a0\n8,951\u00a0\n11\u00a0\n%\n7\u00a0\n%\n6,221\u00a0\n70\u00a0\n%\nRestructuring costs\n1,800\u00a0\n\u2014\u00a0\n1\u00a0\n%\n\u2014\u00a0\n%\n1,800\u00a0\n100\u00a0\n%\nInterest expense\n8,232\u00a0\n5,129\u00a0\n6\u00a0\n%\n4\u00a0\n%\n3,103\u00a0\n60\u00a0\n%\nOther income (expense), net\n(370)\n654\u00a0\n\u2014\u00a0\n%\n1\u00a0\n%\n(1,024)\n(157)\n%\nIncome tax benefit (provision)\n295\u00a0\n(824)\n\u2014\u00a0\n%\n(1)\n%\n1,119\u00a0\n(136)\n%\nRevenue\nTotal revenue increased $24.1 million, or 20%, to $143.9 million in 2022 compared to $119.8 million in 2021. Software and hardware revenue increased $12.4 million, or 21%, to $72.5 million in 2022 compared to $60.1 million in 2021. This increase is primarily due to\n an increase in sales of our Mobile Deposit\u00ae, \nCheckReader\u2122, and IDLive\u00ae \nsoftware products. The increase was partially offset by a decrease in revenue from our ID_CLOUD\n\u2122\n software and hardware products\n. Services and other revenue increased $11.7 million, or 20%, to $71.4 million in 2022 compared\n to $59.7 million in 2021. This increase is \nprimarily due to strong growth in Mobile Verify\u00ae transactional SaaS revenue and SaaS revenue as a result of the HooYu Acquisition, as well as an increase in maintenance revenue associated with Mobile Deposit\u00ae software sales and hosted mobile deposit transactional revenue in 2022 compared to 2021.\nCost of Revenue\nCost of revenue includes personnel costs related to billable services and software support, direct costs associated with our hardware products, and hosting costs. Cost of revenue increased $5.5 million, or 38%, to $20.0 million in 2022 compared to $14.5 million in 2021. The increase in cost of revenue is primarily due to an increase in variable personnel, hosting, and royalty costs associated with a higher volume of Mobile Verify\u00ae transactions processed during 2022 compared to 2021 and the HooYu Acquisition. \nThe increase was partially offset by decreased costs of our identity verification hardware products due to lower hardware revenues\n.\nSelling and Marketing Expenses\nSelling and marketing expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with sales and marketing personnel. Selling and marketing expenses also include non-billable costs of professional services personnel, advertising expenses, product promotion costs, trade shows, and other brand awareness programs. Selling and marketing expenses increased $6.3 million, or 20%, to $38.8 million in 2022 compared to $32.5 million in 2021. As a percentage of revenue, selling and marketing expenses were consistent at 27% in 2022 and in 2021. The increase in selling and marketing expense is primarily due to higher personnel-related costs resulting from our increased headcount of $4.0 million, higher product promotion costs of $1.7 million, and higher travel and related expenses of $0.6 million in 2022 compared to 2021.\n28\nResearch and Development Expenses\nResearch and development expenses include payroll, employee benefits, stock-based compensation, third-party contractor expenses, and other headcount-related costs associated with software engineering and mobile image capture science. Research and development expenses increased $2.2 million, or 8%, to $30.2 million in 2022 compared to $28.0 million in 2021. As a percentage of revenue, research and development expenses decreased to 21% in 2022 from 23% in 2021. The increase in research and development expenses is primarily due to higher personnel-related costs resulting from our increased headcount of $3.6 million and higher travel and related expenses of $0.2 million, partially offset by lower third-party contractor and other expenses of $1.7 million in 2022 compared to 2021. \nGeneral and Administrative Expenses\nGeneral and administrative expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with finance, legal, administration and information technology functions, as well as third-party legal, accounting, and other administrative costs. General and administrative expenses increased $4.1 million, or 18%, to $26.6 million in 2022 compared to $22.5 million in 2021. As a percentage of revenue, general and administrative expenses decreased to 18% in 2022 from 19% in 2021. The increase in general and administrative expenses is primarily due to higher third-party and professional fees of $2.1 million, higher personnel-related costs resulting from our increased headcount of $1.4 million, higher litigation expenses of $0.5 million, and higher travel and related expenses of $0.3 million in 2022 compared to 2021. The overall increase in general and administrative expenses was partially offset by decreased intellectual property litigation costs of $2.2 million in 2022 compared to 2021.\nAmortization and Acquisition-Related Costs\nAmortization and acquisition-related costs include amortization of intangible assets, expenses recorded due to changes in the fair value of contingent consideration, and other costs associated with acquisitions. Amortization and acquisition-related costs increased $6.2 million, or 70%, to $15.2 million in 2022 compared to $9.0 million in 2021. As a percentage of revenue, amortization and acquisition-related costs increased to 11% in 2022 from 7% in 2021. The increase in amortization and acquisition-related costs is primarily due to amortization of intangibles associated with the HooYu Acquisition and the ID R&D Acquisition of $7.1 million and expenses associated with the HooYu Acquisition of $2.9 million in 2022 compared to 2021. These increases were partially offset by a decrease in the fair value of the contingent consideration liability associated with the ID R&D Acquisition of $2.4 million compared to an increase in 2021, a decrease in amortization expense of intangibles related to previous acquisitions that were fully amortized of $1.0 million, and a decrease in acquisition-related expense from the ID R&D Acquisition of $0.3 million in 2022 compared to 2021.\nRestructuring Costs\nRestructuring costs consist of employee severance obligations and other related costs. In order to streamline the organization and focus resources going forward, we undertook a strategic restructuring in June 2022, which included a reduction in our workforce. Restructuring costs incurred in 2022 were $1.8 million. There were no restructuring costs in 2021. \nInterest Expense\nInterest expense includes the amortization of debt discount and issuance costs and coupon interest incurred associated with our 2026 Notes (as defined below). Interest expense was $8.2 million in 2022 and consisted of $7.0 million of amortization of debt discount and issuance costs and $1.2 million of coupon interest incurred. Interest expense was $5.1 million in 2021 and consisted of $4.4 million of amortization of debt discount and issuance costs and $0.8 million of coupon interest incurred.\nOther Income (Expense), Net\nOther income (expense), net includes interest income net of amortization and net realized gains or losses on our marketable securities portfolio, foreign currency transactional gains or losses, and the change in fair value of our convertible senior notes hedge and embedded conversion derivative. Other income (expense), net decreased $1.0 million, to net expense of $0.4 million in 2022 compared to net income of $0.7 million in 2021, primarily due to higher foreign currency exchange transaction losses, higher realized losses on the sale of marketable securities, partially offset by higher interest income net of amortization in 2022 compared to 2021.\nIncome Tax Benefit (Provision)\nThe income tax benefit for 2022 was $0.3 million which yielded an effective tax rate of negative 11% compared to an income tax provision of $0.8 million which yielded an effective tax rate of 9% in 2021. The income tax benefit for 2022 is primarily due to our positive net income for the year. Our effective tax rate for fiscal year 2022 was lower than the U.S. federal statutory rate of 21% due to excess tax benefits resulting from the exercise of stock options and vesting of restricted stock awards, the impact of foreign and state taxes, the impact of certain permanent items on its tax provision, and the impact of federal and state research and development credits on its tax provision. \n29\nResults of Operations\nComparison of the Twelve Months Ended September 30, 2021 and 2020\nThe following table summarizes certain aspects of our results of operations for the twelve months ended September 30, 2021 compared to the twelve months ended September 30, 2020 (\nin thousands, except percentages\n):\nTwelve Months Ended September 30,\nPercentage of Total Revenue\nIncrease (Decrease)\n2021\n2020\n2021\n2020\n$\n%\nRevenue\nSoftware and hardware\n$\n60,069\u00a0\n$\n54,152\u00a0\n50\u00a0\n%\n53\u00a0\n%\n5,917\u00a0\n11\u00a0\n%\nServices and other\n59,728\u00a0\n47,158\u00a0\n50\u00a0\n%\n47\u00a0\n%\n12,570\u00a0\n27\u00a0\n%\nTotal revenue\n$\n119,797\u00a0\n$\n101,310\u00a0\n100\u00a0\n%\n100\u00a0\n%\n18,487\u00a0\n18\u00a0\n%\nCost of revenue\n14,540\u00a0\n13,192\u00a0\n12\u00a0\n%\n13\u00a0\n%\n1,348\u00a0\n10\u00a0\n%\nSelling and marketing\n32,497\u00a0\n27,646\u00a0\n27\u00a0\n%\n27\u00a0\n%\n4,851\u00a0\n18\u00a0\n%\nResearch and development\n28,042\u00a0\n22,859\u00a0\n23\u00a0\n%\n23\u00a0\n%\n5,183\u00a0\n23\u00a0\n%\nGeneral and administrative\n22,490\u00a0\n22,284\u00a0\n19\u00a0\n%\n22\u00a0\n%\n206\u00a0\n1\u00a0\n%\nAmortization and acquisition-related costs\n8,951\u00a0\n6,575\u00a0\n7\u00a0\n%\n6\u00a0\n%\n2,376\u00a0\n36\u00a0\n%\nRestructuring costs\n\u2014\n(114)\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n114\u00a0\n(100)\n%\nInterest expense\n5,129\u00a0\n\u2014\u00a0\n4\u00a0\n%\n\u2014\u00a0\n%\n5,129\u00a0\n100\u00a0\n%\nOther income, net\n654\u00a0\n541\u00a0\n1\u00a0\n%\n1\u00a0\n%\n113\u00a0\n21\u00a0\n%\nIncome tax provision\n(824)\n(1,595)\n(1)\n%\n(2)\n%\n771\u00a0\n(48)\n%\nRevenue\nTotal revenue increased $18.5 million, or 18%, to $119.8 million in 2021 compared to $101.3 million in 2020. Software and hardware revenue increased $5.9 million, or 11%, to $60.1 million in 2021 compared to $54.2 million in 2020. This increase is primarily due to\n an increase in sales of our Mobile Deposit\u00ae, ID_CLOUD\n\u2122, CheckReader\u2122, and IDLive\u00ae Face \nsoftware products. The increase was partially offset by a decrease in revenue from our identity verification hardware products\n. Services and other revenue increased $12.6 million, or 27%, to $59.7 million in 2021 compared\n to $47.2 million in 2020. This increase is \nprimarily due to strong growth in Mobile Verify\u00ae transactional SaaS revenue of $10.1 million, or 36%, in 2021 compared to 2020, as well as an increase in maintenance revenue associated with Mobile Deposit\u00ae software sales and hosted mobile deposit transactional revenue.\nCost of Revenue\nCost of revenue includes personnel costs related to billable services and software support, direct costs associated with our hardware products, and hosting costs. Cost of revenue increased $1.3 million, or 10%, to $14.5 million in 2021 compared to $13.2 million in 2020. The increase in cost of revenue is primarily due to an increase in variable personnel, hosting, and royalty costs associated with a higher volume of Mobile Verify\u00ae transactions processed during 2021 compared to 2020. \nThe increase was partially offset by decreased costs of our identity verification hardware products due to lower hardware revenues\n.\nSelling and Marketing Expenses\nSelling and marketing expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with sales and marketing personnel. Selling and marketing expenses also include non-billable costs of professional services personnel, advertising expenses, product promotion costs, trade shows, and other brand awareness programs. Selling and marketing expenses increased $4.9 million, or 18%, to $32.5 million in 2021 compared to $27.6 million in 2020. As a percentage of revenue, selling and marketing expenses were consistent at 27% in 2021 and in 2020. The increase in sales and marketing expense is primarily due to higher personnel-related costs resulting from our increased headcount of $5.2 million and higher product promotion costs of $0.2 million in 2021 compared to 2020. The overall increase in selling and marketing expense was partially offset by a decrease in travel and related expenses of $0.5 million as a result of the COVID-19 pandemic.\n30\nResearch and Development Expenses\nResearch and development expenses include payroll, employee benefits, stock-based compensation, third-party contractor expenses, and other headcount-related costs associated with software engineering and mobile image capture science. Research and development expenses increased $5.2 million, or 23%, to $28.0 million in 2021 compared to $22.9 million in 2020. As a percentage of revenue, research and development expenses were consistent at 23% in 2021 and in 2020. The increase in research and development expenses is primarily due to higher personnel-related costs and third-party contractor expenses in 2021 compared to 2020. \nGeneral and Administrative Expenses\nGeneral and administrative expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with finance, legal, administration and information technology functions, as well as third-party legal, accounting, and other administrative costs. General and administrative expenses increased $0.2 million, or 1%, to $22.5 million in 2021 compared to $22.3 million in 2020. As a percentage of revenue, general and administrative expenses decreased to 19% in 2021 from 22% in 2020. The increase in general and administrative expenses is primarily due to higher personnel-related costs resulting from our increased headcount of $1.6 million, higher executive transition costs of $0.4 million, and higher third-party professional fees of $0.4 million in 2021 compared to 2020. The overall increase in general and administrative expenses was partially offset by decreased intellectual property litigation costs of $2.2 million in 2021 compared to 2020.\nAmortization and Acquisition-Related Costs\nAmortization and acquisition-related costs include amortization of intangible assets, expenses recorded due to changes in the fair value of contingent consideration, and other costs associated with acquisitions. Amortization and acquisition-related costs increased $2.4 million, or 36%, to $9.0 million in 2021 compared to $6.6 million in 2020. As a percentage of revenue, amortization and acquisition-related costs increased to 7% in 2021 from 6% in 2020. The increase in amortization and acquisition-related costs is primarily due to expenses associated with the acquisition of ID R&D in 2021 as compared to 2020.\nRestructuring Costs\nRestructuring costs consist of employee severance obligations and other related costs. There were no restructuring costs in 2021. Restructuring costs were negative $0.1 million in 2020 due to a reversal of costs accrued for the restructuring plan implemented in June 2019.\nInterest Expense\nInterest expense includes the amortization of debt discount and issuance costs and coupon interest incurred associated with our 2026 Notes. Interest expense was $5.1 million in 2021 and consisted of $4.4 million of amortization of debt discount and issuance costs and $0.8 million of coupon interest incurred. There was no interest expense in 2020.\nOther Income, Net\nOther income, net includes interest income net of amortization and net realized gains or losses on our marketable securities portfolio, foreign currency transactional gains or losses, and the change in fair value of our convertible senior notes hedge and embedded conversion derivative. Other income, net increased $0.1 million, to a net income of $0.7 million in 2021 compared to a net income of $0.5 million in 2020, primarily due to higher foreign currency exchange transactional gains in 2021 compared to 2020.\nIncome Tax Provision\nThe income tax provision for 2021 was $0.8 million compared to an income tax provision of $1.6 million in 2020. The income tax provision for 2021 is primarily due to our positive net income for the year. Our effective tax rate for fiscal year 2021 was lower than the U.S. federal statutory rate of 21% due to changes in our deferred tax benefit of $1.6 million related to excess tax benefits from the exercise of stock options and the vesting of restricted stock awards. \nLiquidity and Capital Resources\nCash generated from operations has historically been our primary source of liquidity to fund operations and investments to grow our business. Our additional sources of liquidity include available cash balances and proceeds from the issuance of the 2026 Notes. On September 30, 2022, we had $101.0 million in cash and cash equivalents and investments compared to $227.4 million on September 30, 2021, a decrease of $126.5 million, or 56%. The decrease in cash and cash equivalents and investments is primarily due to acquisitions, net of cash acquired of $127.9 million, partially offset by net proceeds from the issuance of our common stock, par value $0.001 per share (\u201cCommon Stock\u201d) under the Mitek Systems, Inc. 2020 Incentive Plan (the \u201c2020 Plan\u201d) of $1.7 million.\nIn summary, our cash flows from continuing operations were as follows (\ndollars in thousands\n):\n31\nTwelve Months Ended September 30,\n2022\n2021\n2020\nCash provided by operating activities\n$\n26,351\u00a0\n$\n37,341\u00a0\n$\n24,122\u00a0\nCash used by investing activities\n(3,530)\n(170,488)\n(24,706)\nCash (used) provided by financing activities\n(21,143)\n143,680\u00a0\n3,403\u00a0\nCash Flows from Operating Activities\nCash flows related to operating activities are dependent on net income, adjustments to net income and changes in working capital. Net cash provided by operating activities during fiscal 2022 was $26.4 million and resulted primarily from net income of $3.0 million, net non-cash charges of $31.8 million, and unfavorable changes in operating assets and liabilities of $8.5 million. Net cash provided by operating activities during fiscal 2021 was $37.3 million and resulted primarily from net income of $8.0 million, net non-cash charges of $27.3 million, and favorable changes in operating assets and liabilities of $2.1 million. The decrease in cash provided by operating activities during fiscal 2022 compared to fiscal 2021 was primarily due to an increase in accounts receivable of $10.0 million and a decrease in the estimated fair value of acquisition-related contingent consideration of $2.4 million, partially offset by an increase in restructuring expenses of $1.0 million and the amortization of investment premiums and other of $0.4 million.\nNet cash provided by operating activities during fiscal 2020 was $24.1 million and resulted primarily from net income of $7.8 million adjusted for net non-cash charges of $19.6 million partially offset by unfavorable changes in operating assets and liabilities of $3.3 million. The increase in cash provided by operating activities during fiscal 2021 compared to fiscal 2020 was primarily due to an increase in contract assets of $7.8 million, $4.4 million of accretion and amortization related to the 2026 Notes which were issued in fiscal 2021, and an increase in amortization of intangibles expense of $1.1 million due to the ID R&D Acquisition.\nCash Flows from Investing Activities\nNet cash used in investing activities was $3.5 million during fiscal 2022, which consisted primarily of net cash paid in connection with the HooYu Acquisition of $127.9 million and capital expenditures of $1.1 million, partially offset by net sales and maturities of investments of $125.5 million. Net cash used in investing activities was $170.5 million during fiscal 2021, which consisted primarily of net purchases of investments of $156.6 million, net cash paid in connection with the ID R&D Acquisition of $12.5 million, and capital expenditures of $1.4 million. The decrease in cash used in investing activities during fiscal 2022 compared to fiscal 2021 was primarily due to an increase in net sales and maturities of investments of $282.1 million partially offset by an increase in cash paid for acquisitions, net of cash acquired of $115.4 million, related to the HooYu Acquisition.\nNet cash used in investing activities was $24.7 million during fiscal 2020, which consisted primarily of net purchases of investments of $23.9 million and capital expenditures of $0.8 million. The increase in cash used in investing activities during fiscal 2021 compared to fiscal 2020 was primarily due to an increase in net purchases of investments of $132.6 million and an increase in cash paid for acquisitions, net of cash acquired of $12.5 million related to the ID R&D Acquisition.\nCash Flows from Financing Activities\nNet cash used in financing activities was $21.1 million during fiscal 2022, which consisted of $15.2 million in repurchases and retirements of our Common Stock and $7.7 million in payments of acquisition-related contingent consideration, partially offset by net proceeds from the issuance of Common Stock under the 2020 Plan of $1.7 million. Net cash provided by financing activities was $143.7 million during fiscal 2021, which consisted of net proceeds from the issuance of the 2026 Notes of $149.7 million, proceeds from the issuance of equity plan Common Stock of $4.0 million and net proceeds from other borrowings of $0.2 million, partially offset by net cash used for the call spreads on the sales and purchases of warrants and convertible senior notes hedge issued in connection with the 2026 Notes of $9.3 million, payment of acquisition-related contingent consideration of $0.8 million, and repurchases and retirements of Common Stock of $0.2 million. The increase in cash used in financing activities during fiscal 2022 compared to fiscal 2021 was primarily due to the net proceeds from the issuance of the 2026 Notes in fiscal 2021 of $149.7 million and repurchases and retirements of our Common Stock of $15.2 million during fiscal 2022.\nNet cash provided by financing activities was $3.4 million during fiscal 2020, which consisted of proceeds from the issuance of equity plan Common Stock of $4.8 million and net proceeds from other borrowings of $0.1 million, partially offset by repurchases and retirements of Common Stock of $1.0 million and payment of acquisition-related contingent consideration of $0.5 million. The increase in cash provided by financing activities during fiscal 2021 compared to fiscal 2020 was primarily due to the net proceeds from the issuance of the 2026 Notes in fiscal 2021 of $149.7 million, proceeds from the issuance of convertible senior notes warrants of $23.9 million, partially offset by the purchase of the convertible senior notes hedge of $33.2 million\n0.75% Convertible Senior Notes due 2026\nIn February 2021, the Company issued $155.3\u00a0million aggregate principal amount of the 2026 Notes. The 2026 Notes are senior unsecured obligations of the Company. The 2026 Notes were issued pursuant to an Indenture, dated February 5, 2021 (the \n32\n\u201cIndenture\u201d), between the Company and UMB Bank, National Association, as trustee. The Indenture includes customary covenants and sets forth certain events of default after which the 2026 Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the 2026 Notes become automatically due and payable. As of January 13, 2023 (\"Date of Noncompliance\"), the Company was not in compliance with certain of the covenants in the Indenture as a result of the Company not timely filing reports with the SEC. As a result, the 2026 Notes began to accrue additional special interest of 0.25% per annum of the outstanding principal of the 2026 Notes for the 90 days after the Date of Noncompliance and 0.50% per annum of the outstanding principal of the 2026 Notes for the 91st through 180th day after the Date of Noncompliance.\nThe net proceeds from the 2026 Notes offering were approximately $149.7\u00a0million, after deducting the Initial Purchasers\u2019 discounts and commissions and the Company\u2019s estimated offering expenses related to the offering. The 2026 Notes will mature on February 1, 2026, unless earlier redeemed, repurchased or converted. The 2026 Notes bear interest from February 5, 2021 at a rate of 0.750% per year payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2021. The 2026 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding August 1, 2025, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021, if the last reported sale price per share of the Company\u2019s Common Stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the \u201cmeasurement period\u201d) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Common Stock on such trading day and the conversion rate on such trading day; and (3) upon the occurrence of certain corporate events or distributions on the Common Stock. On or after August 1, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of the 2026 Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. Upon conversion, the Company may satisfy its conversion obligation by paying and/or delivering, as the case may be, cash and, if applicable at the Company\u2019s election, shares of Common Stock, based on the applicable conversion rate(s); provided that the Company will be required to settle conversions solely in cash unless and until the Company (i) receives stockholder approval to increase the number of authorized shares of the Common Stock and (ii) reserves such amount of shares of the Common Stock for future issuance as required pursuant to the indenture that will govern the 2026 Notes. The conversion rate for the 2026 Notes will initially be 47.9731 shares of the Common Stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of approximately $20.85 per share of the Common Stock. The initial conversion price of the 2026 Notes represents a premium of approximately 37.5% to the $15.16 per share last reported sale price of the Common Stock on February 2, 2021. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture. The impact of the convertible feature will be dilutive to our earnings per share when our average stock price for the period is greater than the conversion price.\nIn connection with the issuance of the 2026 Notes, we entered into transactions for convertible notes hedge (the \u201cNotes Hedge\u201d) and warrants (the \u201cWarrant Transactions\u201d). The Notes Hedge was entered into with Bank of America, N.A., Jefferies International Limited and Goldman Sachs & Co. LLC, and provided the Company with the option to acquire, on a net settlement basis, approximately 7.4\u00a0million shares of Common Stock at a strike price of $20.85, which is equal to the number of shares of Common Stock that notionally underlie and corresponds to the conversion price of the 2026 Notes. The cost of the Notes Hedge was $33.2\u00a0million. The Notes Hedge will expire on February 1, 2026, equal to the maturity date of the 2026 Notes. The Notes Hedge is expected to reduce the potential equity dilution upon conversion of the 2026 Notes if the daily volume-weighted average price per share of our Common Stock exceeds the strike price of the Notes Hedge.\nIn addition, the Warrant Transactions provided us with the ability to acquire up to 7.4\u00a0million shares of our Common Stock. The Warrant Transactions will expire ratably during the 80 trading days commencing on and including May 1, 2026 and may be settled in net shares of Common Stock or net cash at the Company\u2019s election. We received $23.9\u00a0million in cash proceeds from the Warrant Transactions.\nAs of July\u00a031, 2023, the 2026 Notes were not convertible, therefore, we had not purchased any shares under the Notes Hedge and the Warrant Transactions had not been exercised and remain outstanding. See Note 9 of the accompanying notes to the consolidated financial statements included in this Form 10-K for more information relating to the Notes Hedge and Warrant Transactions.\nRights Agreement\nOn October 23, 2018, the Company entered into the Section 382 Rights Agreement (the \u201cRights Agreement\u201d) and issued a dividend of one preferred share purchase right (a \u201cRight\u201d) for each share of Common Stock payable on November 2, 2018 to the stockholders of record of such shares on that date. Each Right entitles the registered holder, under certain circumstances, to purchase from the Company one one-thousandth of a share of Series B Junior Preferred Stock, par value $0.001 per share (the \u201cPreferred Shares\u201d), of the Company, at a price of $35.00 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement.\n33\nThe Rights are not exercisable until the Distribution Date (as defined in the Rights Agreement). Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends.\nAt any time prior to the time any person becomes an Acquiring Person (as defined in the Rights Agreement), the Board may redeem the Rights in whole, but not in part, at a price of $0.0001 per Right (the \u201cRedemption Price\u201d). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price.  \nOn February 28, 2019, the Company entered into an Amendment No. 1 to the Rights Agreement for the purpose of (i) modifying the definitions of \u201cBeneficial Owner,\u201d \u201cBeneficially Own,\u201d and \u201cBeneficial Ownership\u201d under the Rights Agreement to more closely align such definitions to the actual and constructive ownership rules under Section 382 of the Internal Revenue Code of 1986, as amended (\u201cSection 382\u201d) or such similar provisions of the Tax Cuts and Jobs Act of 2017 and the rules and regulations promulgated thereunder, and (ii) adding an exemption request process for persons to seek an exemption from becoming an \u201cAcquiring Person\u201d under the Rights Agreement in the event such person wishes to acquire 4.9% or more of the Common Stock then outstanding.\nThe Rights expired on October 22, 2021 and no Rights were redeemed or exchanged.\nShare Repurchase Program\nOn June 15, 2021, the Board authorized and approved a share repurchase program for up to $15.0 million of the currently outstanding shares of our Common Stock. The share repurchase program expired on June 30, 2022. The Company made purchases of $0.2\u00a0million, or 10,555 shares, during fiscal 2021 at an average price of $17.99 per share. The Company made purchases of $14.8 million, or approximately 886,204 shares during fiscal 2022 at an average price of $16.73 per share. The share repurchase plan was completed during the second quarter of fiscal 2022 and total purchases made under the share repurchase program were $15.0 million.\nLease Obligations\nOur principal executive offices, as well as our research and development facility, are located in approximately 29,000 square feet of office space in San Diego, California and the term of the lease continues through June\u00a030, 2024. The average annual base rent under this lease is approximately $1.2 million per year. In connection with this lease, we received tenant improvement allowances totaling approximately $1.0 million. These lease incentives are being amortized as a reduction of rent expense over the term of the lease. \nOur other offices are located in Paris, France; Amsterdam, The Netherlands; New York, New York; Barcelona, Spain; and London, United Kingdom. Other than the lease for our office space in San Diego, California, we do not believe that the leases for our offices are material lease obligations.\nOther Liquidity Matters\nOn September 30, 2022, we had investments of $68.9 million, designated as available-for-sale debt securities, which consisted of U.S. Treasury notes, asset-backed securities, foreign government and agency securities, and corporate issuances, carried at fair value as determined by quoted market prices for identical or similar assets, with unrealized gains and losses, net of tax, and reported as a separate component of stockholders\u2019 equity. All securities for which maturity or sale is expected within one year are classified as \u201ccurrent\u201d on the consolidated balance sheets. All other securities are classified as \u201clong-term\u201d on the consolidated balance sheets. At September 30, 2022, we had $58.3 million of our available-for-sale securities classified as current and $10.6 million of our available-for-sale securities classified as long-term. At September 30, 2021, we had $149.1 million of our available-for-sale securities classified as current and $48.1 million of our available-for-sale securities classified as long-term.\nWe had working capital (current assets less current liabilities) of $88.6 million at September 30, 2022 compared to $164.8 million at September 30, 2021.\nBased on our current operating plan, we believe the current cash and cash equivalent balance and cash expected to be generated from operations will be adequate to satisfy our working capital needs for the next twelve months from the date these consolidated financial statements are filed.\nCritical Accounting Estimates\nOur financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the U.S. (\u201cGAAP\u201d). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, stockholders\u2019 equity, revenue, and expenses and related disclosure of contingent assets and liabilities. Management regularly evaluates its estimates and assumptions. These estimates and assumptions are based on historical experience and on various other factors that are believed to be reasonable under the circumstances, and form the basis for making management\u2019s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are \n34\ninherently uncertain. Actual results could vary from those estimates under different assumptions or conditions. We believe the following critical accounting estimates affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. \nRevenue Recognition\nWe enter into contractual arrangements with integrators, resellers, and directly with our customers that may include licensing of our software products, product support and maintenance services, SaaS services, consulting services, or various combinations thereof, including the sale of such products or services separately. Our accounting policies regarding the recognition of revenue for these contractual arrangements are fully described in Note 2 of the accompanying notes to our consolidated financial statements included in this Form 10-K.\nOur SaaS offerings give customers the option to be charged upon their incurred usage in arrears (\u201cPay as You Go\u201d) or to commit to a minimum spend over their contracted period, with the ability to purchase unlimited additional transactions above the minimum during the contract term. For contracts which include a minimum commitment, we are standing ready to provide as many transactions as desired by the customer during the contract term and revenue is recognized on a ratable basis over the contract period including an estimate of usage above the minimum commitment. Usage above minimum commitment is estimated by looking at historical usage, expected volume, and other factors to project out for the remainder of the contract term. The estimated usage-based revenues are constrained to the amount we expect to be entitled to receive in exchange for providing access to our platform.\nWe include any fixed charges within our contracts as part of the total transaction price. To the extent that variable consideration is not constrained, we include an estimate of the variable amount, as appropriate, within the total transaction price and update our assumptions over the duration of the contract. We may constrain the estimated transaction price in the event of a high degree of uncertainty as to the final consideration amount owed because of an extended length of time over which the fees may be adjusted. The transaction price, including any discounts, is allocated between separate goods and services in a multi-element arrangement based on their relative standalone selling prices. For items that are not sold separately, we estimate the standalone selling prices using available information such as market conditions and internally approved pricing guidelines. Significant judgment may be required to determine standalone selling prices for each performance obligation and whether it depicts the amount we expect to receive in exchange for the related good or service.\nConvertible Senior Notes Hedge and Embedded Conversion Derivative\n \nIn February 2021, the Company issued $155.3\u00a0million aggregate principal amount of 0.750% convertible notes due 2026 (the \u201c2026 Notes\u201d). Concurrently with the issuance of the 2026 Notes, the Company entered into privately-negotiated convertible senior note hedge (the \u201cNotes Hedge\u201d) and warrant transactions (the \u201cWarrant Transactions\u201d) which, in combination, are intended to reduce the potential dilution from the conversion of the 2026 Notes. The Company could not elect to issue the shares of its Common Stock upon settlement of the 2026 Notes due to insufficient authorized share capital. As a result, the embedded conversion option (the \u201cembedded conversion derivative\u201d) is accounted for as a derivative liability and the Notes Hedge as a derivative asset and the resulting gain (or loss) was reported in other income, net, in the consolidated statement of operations to the extent the valuation changed from the date of issuance of the 2026 Notes. The Warrant Transactions were recorded in additional paid-in-capital in the consolidated balance sheet and are not remeasured as long as they continue to meet the conditions for equity classification. See Note 9 of the accompanying notes to the consolidated financial statements included in this Form 10-K for additional information related to these transactions.\nInvestments\nWe determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value:\n\u2022\nLevel 1\u2014Quoted prices in active markets for identical assets or liabilities;\n\u2022\nLevel 2\u2014Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and\n\u2022\nLevel 3\u2014Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.\nIn using this fair value hierarchy, management may be required to make assumptions about pricing by market participants and assumptions about risk, specifically when using unobservable inputs to determine fair value. These assumptions are subjective in nature and may significantly affect our results of operations.\n35\nFair Value of Equity Instruments\nThe valuation of certain items, including compensation expense related to equity awards granted, involves significant estimates based on underlying assumptions made by management. The valuation of stock options is based upon a Black-Scholes valuation model, which involves estimates of stock volatility, expected life of the instruments and other assumptions. The valuation of performance options, Senior Executive Long Term Incentive Restricted Stock Units, and similar awards are based upon the Monte-Carlo simulation, which involves estimates of our stock price, expected volatility, and the probability of reaching the performance targets.\nGoodwill and Purchased Intangible Assets\nGoodwill and intangible assets with indefinite useful lives are tested for impairment at least annually or as circumstances indicate that their value may no longer be recoverable. Our goodwill is considered to be impaired if we determine that the carrying value of the reporting unit to which the goodwill has been assigned exceeds management\u2019s estimate of its fair value. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis. We determine the fair value of the reporting unit based on the income approach which requires significant judgments to be made about the future cash flows of that reporting unit, discount rates, and growth rates. Our cash flow forecasts are based on assumptions that represent the highest and best use for our reporting units. In the fourth quarter of fiscal 2022, we completed our annual goodwill impairment test and concluded that our goodwill was not impaired. \nIntangible assets with definite lives are amortized over their useful lives. Each period, we evaluate the estimated remaining useful life of our intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. The carrying amounts of these assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount of each asset group to the future undiscounted cash flows the asset is expected to generate. The carrying amount of such assets is reduced to fair value if the undiscounted cash flows used in the test for recoverability are less than the carrying amount of such assets. No impairment charge related to the impairment of intangible assets was recorded during the twelve months ended September 30, 2022, 2021, and 2020.\u00a0\nBusiness Combinations\nAccounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired, liabilities assumed, and pre-acquisition contingencies. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date.\nExamples of critical estimates in valuing certain of the intangible assets and goodwill we have acquired include but are not limited to:\n\u2022\nfuture expected cash flows from license sales, software services contracts, professional services contracts, other customer contracts, and acquired developed technologies and patents;\n\u2022\nthe acquired company\u2019s trade name, trademark and existing customer relationships, as well as assumptions about the period of time the acquired trade name and trademark will continue to be used in our offerings;\n\u2022\nuncertain tax positions and tax related valuation allowances assumed; and\n\u2022\ndiscount rates.\nAccounting for Income Taxes\nWe estimate income taxes based on the various jurisdictions where we conduct business. Significant judgment is required in determining our worldwide income tax provision. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These differences result in deferred tax assets and liabilities, which are reflected in our balance sheets. We then assess the likelihood that deferred tax assets will be realized. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. When a valuation allowance is established or increased, we record a corresponding tax expense in our statements of operations. We review the need for a valuation allowance each interim period to reflect uncertainties about whether we will be able to utilize deferred tax assets before they expire. The valuation allowance analysis is based on estimates of taxable income for the jurisdictions in which we operate and the periods over which our deferred tax assets will be realizable.\nWe recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely than not of being sustained upon audit, the second step is to measure the tax benefit as the largest amount that has more than a 50% chance of being realized upon settlement. Significant judgment is required to evaluate uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis. The evaluations are based upon a number of factors, including \n36\nchanges in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits, and effective settlement of audit issues.\nIn assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We will continue to assess the need for a valuation allowance on the deferred tax asset by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required.\nITEM\u00a0 7A.\u00a0\u00a0\u00a0\u00a0QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.\nInterest Rates\nThe primary objective of our investment activities is to preserve principal while at the same time maximizing after-tax yields without significantly increasing risk. To achieve this objective, we maintain our investment portfolio of cash equivalents and marketable securities in a variety of securities, including corporate debt securities, commercial paper and certificates of deposit. We have not used derivative financial instruments in our investment portfolio, and none of our investments are held for trading or speculative purposes. Short-term and long-term debt securities are generally classified as available-for-sale and consequently are recorded on the consolidated balance sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive loss, net of estimated tax. As of September 30, 2022, our marketable securities had remaining maturities between one and twenty-five months and a fair market value of $68.9 million, representing 19% of our total assets.\nThe fair value of our cash equivalents and debt securities is subject to change as a result of changes in market interest rates and investment risk related to the issuers\u2019 credit worthiness. We do not utilize financial contracts to manage our investment portfolio\u2019s exposure to changes in market interest rates. A hypothetical 100 basis point increase or decrease in market interest rates would not have a material impact on the fair value of our cash equivalents and debt securities due to the relatively short maturities of these investments. While changes in market interest rates may affect the fair value of our investment portfolio, any gains or losses will not be recognized in our results of operations until the investment is sold or if the reduction in fair value was determined to be an other-than-temporary impairment.\nForeign Currency Risk\nAs a result of past acquisitions, we have operations in France, the Netherlands, and Spain that are exposed to fluctuations in the foreign currency exchange rate between the U.S. dollar, the Euro, the Ruble, and the British pound sterling. The functional currency of our French, Dutch, and Spanish operations is the Euro. Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro. Translation adjustments resulting from translating the functional currency financial statements into U.S. dollar equivalents are reported separately in the consolidated statements of operations and other comprehensive income (loss).\nInflation\n We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last three fiscal years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.",
+  "item7a": ">Item 7A.\nQuantitative and Qualitative Disclosures About Market Risk\n37\nItem 8.\nFinancial Statements and Supplementary Data\n37\nItem 9.\nChanges in and Disagreements with Accountants on Accounting and Financial Disclosure\n37\nItem 9A.\nControls and Procedures\n38\nItem 9B.\nOther Information\n40\nItem 9C. \nDisclosure Regarding Foreign Jurisdictions that Prevent Inspections\n41\nPart III\nItem 10.\nDirectors, Executive Officers and Corporate Governance\n42\nItem 11.\nExecutive Compensation\n48\nItem 12.\nSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\n65\nItem 13.\nCertain Relationships and Related Transactions, and Director Independence\n69\nItem 14.\nPrincipal Accountant Fees and Services\n69\nPart IV\nItem 15.\nExhibits and Financial Statement Schedules\n72\nItem 16.\nForm 10-K Summary\n75\nSignatures\n76\nEXPLANATORY NOTE\nMitek Systems, Inc. (\u201cMitek,\u201d the \u201cCompany,\u201d \u201cwe,\u201d \u201cus,\u201d and \u201cour\u201d), a Delaware corporation, is filing this comprehensive Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (this \u201cForm 10-K\u201d). This Comprehensive Form 10-K contains our audited consolidated financial statements for the fiscal year ended September 30, 2022, as well as restatement of the following previously filed periods: our unaudited consolidated financial statements covering the quarterly reporting periods for the three and six month periods ended March 31, 2022 and the three and nine month periods ended June 30, 2022.\nOn May 8, 2023, the Company filed a Current Report on Form 8-K disclosing that the Company determined that its previously issued unaudited interim consolidated financial statements contained in the Amendment No. 1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 (the \u201cNon-Reliance \nPeriods\u201d), should no longer be relied upon. For additional information, please refer to our Current Report on Form 8-K, filed with the Securities and Exchange Commission (\u201cSEC\u201d).\nBackground of Restatement\nIn connection with the preparation of the Company\u2019s financial statements for the fiscal year ended September 30, 2022, the Company noted that certain revenue contracts and other items were improperly accounted for during three and six months ended March 31, 2022 and the three and nine months ended June 30, 2022. Specifically, the Company (a) did not appropriately (i) recognize revenue on its multiyear term licenses; (ii) recognize revenue related to guaranteed minimums and overages for software as a service (\u201cSaaS\u201d) product sales; (iii) cut off revenue related to term license sales; (iv) capitalize certain commissions paid to the HooYu Ltd (\u201cHooYu\u201d) sales team subsequent to the acquisition of HooYu in March 2022; (v) recognize a lease liability and right-of-use asset related to the office lease assumed in the HooYu acquisition; and (vi) recognize certain liabilities upon the acquisition of HooYu that were not valid liabilities; and (b) misclassified certain employee costs related to cloud operations as research and development expense instead of cost of revenue.\nThe complete impact of these errors and adjustments is disclosed in Note 15 of the accompanying notes to the consolidated financial statements included in this Form 10-K. The Company has corrected these errors for the quarters ended March 31, 2022 and June 30, 2022.\nInternal Control Considerations\nIn connection with the restatement, management has re-evaluated the effectiveness of the Company\u2019s internal controls over financial reporting as of March 31, 2022. The Audit Committee of the Company\u2019s Board of Directors, with concurrence of management, has concluded that, in light of the errors described above, additional material weaknesses exist in the Company\u2019s internal controls over financial reporting as of March 31, 2022. Management plans to enhance processes by increasing the number of resources with the necessary skill sets, providing ongoing training for key personnel, and designing and implementing appropriate risk assessment and internal control procedures. For a discussion of management\u2019s consideration of our disclosure controls and procedures, internal controls over financial reporting, and the material weaknesses identified, see Part II, Item 9A, Controls and Procedures of this Form 10-K.\nItems Amended By the Filing of this Form 10-K\nThis Form 10-K reflects changes to the: (i) consolidated balance sheets as of March 31, 2022 and June 30, 2022, (ii) consolidated statements of operations and comprehensive income (loss) for the three and six months ended March 31, 2022 and three and nine months ended June 30, 2022, and (iii) consolidated statements of stockholders\u2019 equity, and statements of cash flows for the six months ended March 31, 2022 and the nine months ended June 30, 2022, and the related notes thereto. Restatement of consolidated financial statements for the quarterly periods are disclosed in Note 15 of the accompanying notes to the consolidated financial statements included in this Form 10-K. The Company has not filed, and does not intend to file, amendments to its previously filed Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022. Accordingly, investors should rely only on the financial information and other disclosures regarding the restated periods in this Form 10-K or in future filings with the SEC (as applicable), and not on any previously issued or filed reports, earnings releases or similar communications relating to these periods.\nSee Note 15 of the accompanying notes to the consolidated financial statements, included in Part II, Item 8 of this Form 10-K for additional information on the effects of the restatement and the related consolidated financial statement effects.\nIMPORTANT NOTE ABOUT FORWARD-LOOKING STATEMENTS\nThis Annual Report on Form 10-K, including the \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations,\u201d contains \u201cforward-looking statements\u201d that are often identified by the use of regarding future events and future results that are subject to the safe harbors created under the meaning, that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements.\nStatements that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the \u201cSecurities Act\u201d), and Section 21E of the Securities and Exchange Act of 1934, as amended (the \u201cExchange Act\u201d). Forward-looking statements can be identified by the use of words such as \u201cestimate,\u201d \u201cplan,\u201d \u201cproject,\u201d \u201cforecast,\u201d \u201cintend,\u201d \u201cexpect,\u201d \u201canticipate,\u201d \u201cbelieve,\u201d \u201cseek,\u201d \u201ctarget,\u201d or similar expressions.\nIn addition to those factors discussed under Item\u00a01A\u2014\u201cRisk Factors,\u201d important factors could cause actual results to differ materially from our expectations. These factors include, but are not limited to:\n\u2022\nadverse economic conditions;\n\u2022\ngeneral decreases in demand for our products and services;\n\u2022\nchanges in timing of introducing new products into the market;\n\u2022\nintense competition (including entry of new competitors), including among competitors with substantially greater resources than us;\n\u2022\nincreased or adverse federal, state, and local government regulation;\n\u2022\ninadequate capital;\n\u2022\nunexpected costs;\n\u2022\nrevenues and net income lower than anticipated;\n\u2022\nlitigation;\n\u2022\nthe possible fluctuation and volatility of operating results and financial conditions;\n\u2022\nthe impact of legal, regulatory, or supervisory matters on our business, results of operations, or financial condition;\n\u2022\ninability to carry out our marketing and sales plans; \n\u2022\nthe loss of key employees and executives;\n\u2022\nour sales and marketing strategy, including our international sales and channel partner strategy;\n\u2022\ncustomer product adoption and purchasing patterns, including renewal, expansion and conversion from on-premises to cloud services;\n\u2022\nmanagement\u2019s plans, beliefs and objectives for future operations;\n\u2022\nour ability to provide compelling, uninterrupted and secure cloud services to our customers;\n\u2022\nthe impact of geopolitical events, including the war in Ukraine;\n\u2022\nour acquisitions, including the expected impacts of such acquisitions;\n\u2022\nexpected impact of changes in accounting pronouncements and other financial and non-financial reporting standards;\n\u2022\nexposure to interest rate changes;\n\u2022\ninflation; and\n\u2022\nthe impact of climate change, natural disasters and actual or threatened public health emergencies.\nThese statements represent the beliefs and assumptions of our management based on the information currently available to us. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified above, and those discussed in the section titled \u201cRisk Factors\u201d included in Part I, Item 1A. Furthermore, such forward-looking statements speak only as of the date of report. Except as required by law, we undertake no obligations to update any forward-looking statements to reflect events or circumstances that occur after the date of this report.\ni\nPART I",
+  "cik": "807863",
+  "cusip6": "606710",
+  "cusip": ["606710200"],
+  "names": ["MITEK SYSTEMS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/807863/000080786323000049/0000807863-23-000049-index.htm"
+}
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+{
+  "item1": ">Item\u00a01. Business\n6\nItem\u00a01A. Risk Factors\n24\nItem\u00a01B. Unresolved Staff Comments\n41\nItem\u00a02. Properties\n41\nItem\u00a03. Legal Proceedings\n41\nItem\u00a04. Mine Safety Disclosures\n41\nPART II\nItem 5. Market for Registrant\u2019s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities\n41\nItem\u00a06. \nReserved\n43\nItem\u00a07. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n43\nItem\u00a07A. Quantitative and Qualitative Disclosures About Market Risk\n52\nItem\u00a08. Financial Statements and Supplementary Data\n52\nItem\u00a09. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure\n52\nItem\u00a09A. Controls and Procedures\n52\nItem\u00a09B. Other Information\n53\nItem\u00a09C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections\n53\nPART III\nItem\u00a010. Directors, Executive Officers and Corporate Governance\n53\nItem\u00a011. Executive Compensation\n53\nItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\n53\nItem\u00a013. Certain Relationships and Related Transactions, and Director Independence\n53\nItem\u00a014. Principal Accountant Fees and Services\n53\nPART IV\nItem\u00a015. Exhibits, Financial Statement Schedules\n54\nSignatures\n56\n5\nPART I\nITEM\u00a01 \u2014 BUSINESS\nOverview\nLifeVantage Corporation is a company focused on nutrigenomics, the study of how nutrition and naturally occurring compounds affect human genes to support good health. LifeVantage is dedicated to helping people achieve their health, wellness and financial goals. We provide quality, scientifically validated products to customers and independent consultants as well as a financially rewarding commission-based direct sales opportunity to our independent consultants. We sell our products in the United States, Mexico, Japan, Australia, Hong Kong, Canada, Thailand, the United Kingdom, the Netherlands, Germany, Taiwan, Austria, Spain, Ireland, Belgium, New Zealand, Singapore, and the Philippines. We also sell our products in a number of countries to customers for personal consumption only. \nWe engage in the identification, research, development, formulation and sale of advanced nutrigenomic activators, dietary supplements, nootropics, pre- and pro-biotics, weight management, skin and hair care, bath & body, and targeted relief products. Our line of scientifically validated dietary supplements includes our flagship Protandim\u00ae family of products, LifeVantage\u00ae Omega+, ProBio, IC Bright\u00ae, and Daily Wellness dietary supplements. TrueScience\u00ae is our line of skin, hair, bath & body, and targeted relief products. We also market and sell Petandim\u00ae, our companion pet supplement formulated to combat oxidative stress in dogs, Axio\u00ae our nootropic energy drink mixes, and PhysIQ, our smart weight management system.\nWe were incorporated in Colorado in June 1988 under the name Andraplex Corporation. We changed our corporate name to Yaak River Resources, Inc. in January 1992 and subsequently changed it again in October 2004 to Lifeline Therapeutics, Inc. In October 2004 and March 2005, we acquired all of the outstanding common stock of Lifeline Nutraceuticals Corporation. In November 2006, we changed our name to LifeVantage Corporation. From our fiscal year 2005 until our fiscal year 2009, we marketed and sold a single product, Protandim\n\u00ae\n, through traditional retail stores. In October 2008, we announced that we were transitioning our business model from a traditional retail model to a direct sales model in which Protandim\n\u00ae\n would be sold primarily through a network of independent consultants. Since entering direct sales, we have increased our geographic reach by entering new international markets and increased our product offering by introducing additional scientifically validated products.\nIn 2018, we reincorporated from the State of Colorado to the State of Delaware.\nFiscal Year 2023 Highlights\n \nCOVID-19 Influence on Business Operations and Work Environment\nIn fiscal year 2023, we maintained both virtual and in person business operations, which started in 2020 as a result of the COVID 19 pandemic. During fiscal year 2023, we continued to provide successful virtual events and trainings, including twice-weekly online training events. We have seen a high level of engagement and attendance from our independent consultants, with hundreds of attendees on average and over 2,000 attendees at some virtual and in-person meetings. In fiscal year 2023, we continued the hybrid model with our employees working from home a few days a week and in the office a few days a week which has worked well for employee productivity. We remain focused on being digital first and committed to increasing our investments into digital technologies and tools for independent consultants and employees to function effectively in the current hybrid working environment. \nNew Product Offerings\nIn fiscal year 2023, we launched three new products. In the US, Australia, New Zealand, and Japan we launched a multi-vitamin system branded as the LifeVantage\n\u00ae\n Rise AM & Reset PM System\u2122 in the US, the TimeVantage\n\u00ae\n Zen & Go System in Japan, and the TimeVantage\u2122 Nutrient System in Australia and New Zealand. This product set provides an essential micronutrient foundation of vitamins, minerals, and adaptogens to support ultimate activation for antioxidant pathways. In those same markets we also launched LifeVantage\n\u00ae\n D3+, a micronutrient solution of vitamins D and K2, magnesium and calcium to support a balanced immune response, strong bones and a healthy cardiovascular system.\nSeveral products also were introduced into new markets in fiscal year 2023: \n\u2022\nAustralia introduced TrueScience\n \u00ae\n Liquid Collagen, Body Wash and Body Lotion, AXIO\n\u00ae\n, Protandim\n\u00ae\n NAD Synergizer, and LifeVantage\n\u00ae\n IC Bright, and Daily Wellness.\n\u2022\nNew Zealand introduced TrueScience\n\u00ae\n Liquid Collagen and Body Lotion, LifeVantage\n\u00ae\n IC Bright, Daily Wellness and AXIO\n\u00ae\n.\n6\n\u2022\nMexico introduced Protandim\n\u00ae\n NAD and PhysIQ\n\u00ae\n BRN as well as LifeVantage\n\u00ae\n IC Bright, Daily IMM and a new delivery system of LifeVantage Protandim\n\u00ae\n Nrf2\n\u00ae\n in 7-day blister packs for direct retailing to customers.\n\u2022\nJapan introduced TrueScience\n\u00ae\n Liquid Collagen, Protandim\n\u00ae\n NAD Synergizer, LifeVantage\n\u00ae\n IC Bright, and a limited-edition flavor of LifeVantage\n\u00ae\n Daily Wellness. \n\u2022\nThe United States introduced a number of limited-edition AXIO\n\u00ae\n flavors.\n\u2022\nCanada, Europe and Hong Kong introduced LifeVantage\n\u00ae\n IC Bright and Daily Wellness. \n\u2022\nSingapore introduced LifeVantage\n\u00ae\n ProBio, IC Bright and Daily Wellness.\n\u2022\nTaiwan introduced LifeVantage\n\u00ae\n ProBio.\nTechnology Innovation \nWe continued to develop, enhance and improve the LifeVantage app, which is available for download on the Apple app store and Google Play store. This custom-developed platform is pioneering new ways for us to interact with our independent consultants and gives us and our consultant leaders valuable insight into the activities of the broader independent consultant base. The app provides independent consultants with tools and communications that help simplify business activities, by providing step-by-step instruction for starting their business, and ways to improve the prospecting of potential consultants and customers. \nNutrigenomic Culture & Activating Wellness \nWe have continued to simplify our nutrigenomic story, emphasizing that it activates and empowers the body to work better by using nutrients to turn natural internal processes on or off and help support vibrant health at any age. Nutrigenomics and cellular activation are cutting-edge trends in our industry that support our unique position in the market and leverage our core competencies and existing products. Activation is the guiding principle of our culture and is the key underlying message for our independent consultants and customers. We are capitalizing on this message by highlighting how LifeVantage has used the concept of activation and expanded it to every aspect of our business, with a new brand message of \u201cactivating wellness.\u201d By focusing on wellness, we are able to apply activation not only to our products, which support physical, mental, and emotional health, but also our business opportunity, which supports financial, social, and spiritual health. The \u201cactivating wellness\u201d message was introduced in fiscal year 2022 and continues to be featured across our communications with our independent consultants and in our brand and marketing materials. In fiscal year 2023, the brand message of activation and \u201cactivating wellness\u201d grew to include four \u201cactivation paths\u201d that encompass three overarching product categories and our business opportunity.  The four \u201cactivation paths\u201d are known as \u201cOptimize Health,\u201d \u201cAchieve More,\u201d \u201cLook Radiant,\u201d and \u201cEvolve Possibilities.\u201d Each product path is anchored by key activating products such as the Protandim\n\u00ae\n line for the \u201cOptimize Health\u201d pathway. These pathways, as an expansion of our activation message, will continue to be a focus of additional marketing and media assets.  \nRed Carpet Program\nIn fiscal year 2023, we continued to grow through our red-carpet program, which is designed to attract and incentivize experienced direct selling sales leaders who are in transition to join LifeVantage. Red carpet leaders are identified by our independent consultants who facilitate the relationship between the potential red carpet leader and LifeVantage. Our corporate team does not actively engage in recruiting leaders for the red carpet program. We remain optimistic that this program will help drive long term revenue growth for our business. We have increased red carpet leadership enrollments and hope to see improved retention and active independent consultant and customer counts as a result of this program. \nRewards Circle Customer Loyalty Program\nIn March 2023, we launched Rewards Circle, our first-ever customer loyalty program, in the United States, Australia, New Zealand, and Japan. This program rewards customer loyalty through subscription purchases. The amount spent on each subscription purchase accumulates toward different reward thresholds. When a threshold is reached, the customer receives reward credits that they can apply to future purchases. The amount rewarded varies by the customer\u2019s status, which is based on their lifetime cumulative spend. Rewards Circle is focused on supporting customer retention for independent consultants, supporting their efforts to grow and maintain their LifeVantage business.\n7\nOur Competitive Advantages\nWe believe we have a competitive advantage in several key areas:\n\u2022\nOur Sales Compensation\n: We believe our sales compensation plan engineered for our independent consultants is one of the more financially rewarding plans in the direct selling industry and in line with direct selling industry standards. \n \nOur sales compensation plan also enables independent consultants to earn compensation early and often as they sell our products. Some elements of our sales compensation plan are calculated and paid daily to eligible independent consultants and others are calculated and paid weekly or monthly, allowing new independent consultants to receive their sales commissions more quickly. We believe the ease of more frequent payments of sales commissions helps us attract and then retain new consultants by allowing them to receive their commission payments as soon as possible after making qualified product sales. We also offer a variety of incentives to our independent consultants for achieving specified product sales goals. We believe our sales compensation plan provides motivation for our independent consultants to sell our products to customers and share the business opportunity with those entrepreneurs seeking to begin their own sales business. In January 2023, we announced the adoption of a new compensation plan for our independent consultants, which became effective March 1, 2023, in our United States, Australia, New Zealand and Japan markets. The new compensation plan is known as our \u201cEvolve Compensation Plan.\u201d We plan to roll out this new compensation plan to our other markets. \n\u2022\nOur Products:\n Our focus is on nutrigenomics, the study of how properly formulated and applied nutrition and naturally occurring compounds affect human genes to support good health. We have developed proprietary and exclusive scientifically validated nutrigenomics products focused on helping individuals look, feel and perform better. Our products are the Protandim\n\u00ae\n line of scientifically validated dietary supplements; LifeVantage\n\u00ae\n Omega+, ProBio, IC Bright\u00ae, Rise AM, Reset PM, D3+ and Daily Wellness dietary supplements; TrueScience\n\u00ae\n, our line of skin, bath & body, target relief, and hair care products; Petandim\n\u00ae\n, our companion pet supplement formulated to combat oxidative stress in dogs; Axio\n\u00ae\n, our nootropic energy drink mixes; and PhysIQ our smart weight management system. The Protandim\n\u00ae\n product line includes Protandim\n\u00ae\n NRF1 Synergizer\n\u00ae\n, Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n, and Protandim\n\u00ae\n NAD Synergizer\n\u00ae\n. The Protandim\n\u00ae\n NRF1 Synergizer\n\u00ae\n is formulated to increase cellular energy and performance by boosting mitochondria production to improve cellular repair and slow cellular aging. The Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n contains a proprietary blend of ingredients and has been shown to combat oxidative stress and enhance energy production by increasing the body\u2019s natural antioxidant protection at the genetic level, inducing the production of naturally occurring protective antioxidant enzymes, including superoxide dismutase, catalase, and glutathione synthase. The Protandim\n\u00ae\n NAD Synergizer\n\u00ae\n was specifically formulated to target cell signaling pathways involved in the synthesis and recycling of a specific molecule called NAD (nicotinamide adenine dinucleotide), and it has been shown to double sirtuin activity, supporting increased health, focus, energy, mental clarity and mood. Use of the three Protandim\n\u00ae\n products together (marketed as the Protandim\n\u00ae\n Tri-Synergizer) has been shown to produce synergistic benefits greater than using the individual products on their own. LifeVantage\n\u00ae\n Omega+ is a dietary supplement that combines DHA and EPA omega-3 fatty acids, omega-7 fatty acids, and vitamin D3 to support cognitive health, cardiovascular health, skin health, and the immune system. LifeVantage\n\u00ae\n ProBio is a dietary supplement designed to support optimal digestion and immune system function. LifeVantage\n\u00ae\n Daily Wellness is a dietary supplement designed to support immune health. IC Bright\n\u00ae \nis a supplement to help support eye and brain health, reduce eye fatigue and strain, support cognitive functions, and may help support normal sleep patterns. Our TrueScience\n\u00ae\n line of Nrf2- and CBD-enhanced anti-aging skin care, hair care, bath & body, and targeted relief products includes TrueScience\n\u00ae\n Facial Cleanser, TrueScience\n\u00ae\n Perfecting Lotion, TrueScience\n\u00ae\n Eye Serum, TrueScience\n\u00ae\n Anti-Aging Cream, TrueScience\n\u00ae\n Hand Cream, TrueScience\n\u00ae\n Invigorating Shampoo, TrueScience\n\u00ae\n Nourishing Conditioner, TrueScience\n\u00ae\n Scalp Serum, TrueScience\n\u00ae\n Body Lotion, TrueScience\n\u00ae\n Body Wash, TrueScience\n\u00ae\n Body Butter, TrueScience\n\u00ae\n Deodorant, TrueScience\n\u00ae\n Soothing Balm, TrueScience\n\u00ae\n Body Rub, and TrueScience\n\u00ae \nLiquid Collagen. TrueScience\n\u00ae \nLiquid Collagen activates, replenishes, and maintains collagen to support firmness and elasticity from within. Petandim\n\u00ae\n is a supplement specially formulated to combat oxidative stress in dogs through Nrf2 activation. AXIO\n\u00ae\n is our line of our nootropic energy drink mixes formulated to promote alertness and support mental performance. PhysIQ is our smart weight management system, which includes PhysIQ Fat Burn and PhysIQ Prebiotic, all formulated to aid in weight management. We believe our significant number of customers who regularly and repeatedly purchase our products is a strong indicator of the health benefits of our products.\n\u2022\nTechnology-Enabled Consultant Training and Resources\n: We are committed to providing our independent consultants with resources and training designed to promote productivity and their opportunity for successful sales and resulting commissions. We are dedicated to using technology to facilitate a streamlined approach for independent consultants to manage their businesses and sell our products. The LifeVantage app, which is available for download on the Apple app store and Google Play store, is a custom-developed platform that provides new ways for us to interact with our independent consultants and gives us and our consultant leadership valuable insight into the sales activities of our \n8\nconsultant base. The LifeVantage app was designed to allow independent consultants to conduct their business on a single platform from anywhere in the world. Ultimately, through artificial intelligence and machine learning, we expect that the app will be able to guide independent consultants on what to share, when to share it, and with whom to sell LifeVantage products. In addition, we provide other business and product training materials, and we encourage our independent consultants to participate in company-sponsored events, including conventions and sales promotions and incentives. \n\u2022\nOur Culture\n: We are committed to creating a culture for our independent consultants, their customers and our employees that focuses on ethical, legal and transparent business practices. At enrollment, our independent consultants agree to abide by their contract with us, which includes our policies and procedures. These policies and procedures, when followed, are designed to ensure that our independent consultants comply with applicable laws and regulations. Our consultant compliance department monitors the activities of o\nur independent consultants \nas part of our effort to enforce our policies and procedures. Similarly, our code of business conduct and ethics sets forth guidelines and expectations for our employees. We believe our ethical, legal and transparent culture attracts highly qualified employees and independent consultants who share our commitment to these principles.\n\u2022\nGlobal Customer Acquisition\n: We introduced our global customer acquisition program in April 2018 to expand the number of countries where customers can purchase and use our products for personal consumption only. This program allows us to enter additional markets at low incremental cost and enables independent consultants to leverage customer sales through their international relationships outside of their home countries. The program initially launched in eight markets, many of which subsequently became fully open for business on-the-ground through a growing network of resident independent consultants. We continued expanding our global customer base in fiscal year 2021 by entering into key strategic agreements with third parties based in the United States that helps customers ship LifeVantage products purchased in the U.S. throughout the world via their customer personal purchase and importation programs. We also expanded our Auto-Assigned Customer Program, which allows new customers to order directly through www.lifevantage.com without being required to go through an independent consultant on their initial order. After the initial order, these new customers are then assigned to independent consultants, who benefit from the initial sale commission and are then incentivized to provide future product support and sales to the assigned customer. This program provides consumers easier access to our innovative products while providing referrals to our consultant force.\n\u2022\nOur Employees\n: We believe that our employees are an essential asset. We have a dedicated team of professionals that support our independent consultants, work to generate long-term value for our stockholders and contribute to the broader society through charitable programs, including the 501(c)(3) LifeVantage Legacy \u2013 an independent charitable organization focused on bettering the lives of children throughout the world. In turn, we offer competitive compensation and direct employee focus toward the short and long-term goals of our stockholders and independent consultants.\nScientific Background\nThe Normal Aging Process\nAging in humans is a complex process driven by diverse changes in genetic, molecular, biochemical, and cellular events. This multifactorial process is ultimately characterized by a gradual decline in physiological functions and in the effectiveness of the intricate network of internal cellular communication referred to as cellular signaling. Theories as to why humans' age include the oxidative stress theory, the mitochondrial theory, and the sirtuin theory. \nOxidative Stress Theory of Aging and the Nrf2 Pathway\nThe oxidative stress theory of aging states that as humans age, we accumulate free radicals and other oxidants. If left unchecked, this oxidative stress can lead to serious consequences to the cell. Oxidative stress can ultimately lead to oxidative damage from attacks and damage to essential biological structures of the cell which results in compromised cellular function.\nAntioxidants are the cell\u2019s primary defense against free radicals and other oxidants. There are two major classes of antioxidants: 1) dietary antioxidants obtained through food and nutritional supplements and 2) endogenous antioxidants produced by the body. A 2013 review of the scientific literature led by the United States National Institutes of Health\u2019s National Center for Complementary and Integrative Health concluded that \u201crigorous trials of antioxidant supplements in large numbers of people have not found that high doses of antioxidant supplements prevent disease.\u201d Thus, much attention has shifted to the body\u2019s endogenous antioxidant and detoxification systems. Endogenous antioxidants are antioxidants made by the body and are the primary line of defense against oxidative stress. In general, endogenous antioxidants either prevent oxidants from being formed, or remove them from the body. Endogenous antioxidants form a complex network of antioxidant metabolites and enzymes. These networks work together, throughout the cell, to neutralize oxidants and protect important biological structures from oxidative damage.\n9\nEndogenous antioxidants can also be upregulated in times of increasing oxidative stress. The Nrf2 cellular signaling pathway is the primary pathway for upregulating endogenous antioxidant and other detoxification pathways. With age, the activity of this Nrf2 cellular signaling pathway has been shown to decrease \u2013 both in its ability to sense oxidative threats and ultimately upregulate its target genes.\nMitochondrial Theory of Aging and the NRF1 Pathway\nMitochondria are membrane-bound cellular organelles that generate most of the chemical energy needed to power the cell's biochemical reactions. \nThe mitochondria produce energy by breaking down food that has been ingested and capturing high-energy electrons in the process. When mitochondria are functioning properly, they harness the energy of these electrons to produce energy for the cell. At the end of this process, the mitochondria attach these electrons to molecular oxygen that ultimately get detoxified to water. However, this process is not perfectly efficient and, even in young, healthy mitochondria, electrons can escape, potentially forming free radicals and other oxidants. \nThe mitochondrial theory of aging states that as humans age, mitochondria function less efficiently, producing less energy and more free radicals and other oxidants. The reduction in energy production compromises cellular function. The increase in free radicals and other oxidants in turn damage structures of the cell, including the mitochondria. This mitochondrial damage goes on to further compromise mitochondrial function leading to a downward spiral of decreased mitochondrial efficiency and increased production of free radicals and other oxidants. This process ultimately contributes to an increase in the overall cellular burden of oxidative stress and otherwise compromises cellular function through decreased energy production.\nA major cellular signaling pathway believed to be involved in mitochondrial health is NRF1 (nuclear factor erythroid 2-related factor 1). The \nNRF1 \ncellular signaling pathway, directly or indirectly, regulates a number of genes involved in mitochondrial health, turnover, and biogenesis. Nrf1 (Nuclear Respiratory Factor-1) is a protein believed to activate the expression of key genes involved in metabolism, cellular growth, energy production, and mitochondrial DNA transcription and replication. Together with Nrf2, Nrf1 also provides the essential function of coordinating gene expression between nuclear and mitochondrial genomes. An additional protein shown to support mitochondrial health is PGC1-alpha (peroxisome proliferator activated receptor gamma coactivator-1-alpha). PGC1-alpha has been shown to regulate energy metabolism and is the master regulator of mitochondrial biogenesis and turnover. \nSirtuin Theory of Aging and the NAD Pathway\nThe sirtuin theory of aging developed from studies examining the health benefits of caloric restriction. Caloric restriction is the process whereby caloric intake is restricted by as much as 40 to 60 percent. In numerous experimental models, animals put on calorically restricted diets experienced significant increases in maximum lifespan. Numerous studies have concluded that a family of proteins called the \u201csirtuins\u201d are required for the increase in lifespan brought on by caloric restriction.\nWhen the physiology of humans undergoing caloric restriction was examined, a number of health benefits were discovered. As researchers began to understand the molecular biology of these sirtuins, they found that the enzymatic activity for most of them required the molecule NAD\n+\n (nicotinamide adenine dinucleotide). NAD\n+\n is an essential molecule for many biochemical reactions, most notably metabolism of food for energy in the mitochondria.\nTaken together, these findings are intriguing because now there is a direct link between metabolism and healthy longevity. When energy intake is normal, the primary role of NAD\n+\n is for energy production. However, when NAD\n+\n levels increase, either due to restricting calories or increasing the cellular production of NAD\n+\n, it becomes a signaling molecule to activate sirtuins and other health promoting mechanisms within the cell. \nResearch and Development\nHistorically, we have focused our research and development efforts on creating and supporting scientifically validated products under the LifeVantage\n\u00ae\n, Protandim\n\u00ae\n, TrueScience\n\u00ae\n, Petandim\n\u00ae\n, AXIO\n\u00ae\n, and PhysIQ federation of brands. We anticipate that our future research and development efforts will be focused on creating, developing and evaluating new products that are consistent with our commitment to provide quality, scientifically validated products that activate and empower the body\u2019s ability to work better. We will use our \u201cactivation paths\u201d of Optimize Health, Look Radiant, and Achieve More as a guide as we look to identify new areas to focus our research and development efforts. As we expand, we intend to build on our foundation of nutrigenomics with products that activate or support products that activate gene or cell pathways targeting specific benefit areas, provide real results, and are an essential and enjoyable part of everyday life. We are also exploring ways to expand our product delivery systems. We remain committed to helping people look and feel healthy and vibrant at any age by combating sources of premature aging or declining health.\nProduct Overview\n10\nProtandim\n\u00ae \nNrf2 Synergizer\n\u00ae\nProtandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n is a patented dietary supplement that has been shown in clinical trials to reduce the age-dependent increase in markers of oxidative stress and has also been shown to provide substantial benefits to combat the variety of negative health effects linked to oxidative stress.\nProtandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n combats oxidative stress by increasing the body\u2019s natural antioxidant protection at the gene level. The unique blend of phytonutrients in Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n signals the activation of Nrf2 to increase production of antioxidant enzymes, specifically superoxide dismutase and catalase, and other cell-protective gene products. The body's internally produced antioxidant enzymes provide a better defense against oxidative stress than externally derived sources of antioxidants such as vitamin C and vitamin E. Unlike externally derived sources of antioxidants, these enzymes are \u201ccatalytic,\u201d which means these enzymes are not used up upon neutralizing free radicals.\nWe hold multiple U.S. patents related to Protandim\n\u00ae \nNrf2 Synergizer\n\u00ae\n. We believe these patents set Protandim\n\u00ae\n apart from other dietary supplements and protect the original formula as well as certain formula modifications we could create to extend our Protandim\n\u00ae\n product line. We sell Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n in three formulas around the world.\nProtandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n has been, and is expected to continue to be, the subject of numerous independent scientific studies at various universities and research facilities including Ohio State University, Louisiana State University, University of Colorado Denver, Virginia Commonwealth University, Colorado State University, Texas Tech University and the National Institute on Aging. The results of these studies have been published in a variety of peer-reviewed scientific journals, including \nFree Radical Biology & Medicine, Enzyme Research, Circulation-the scientific journal of the American Heart Association, American Journal of Physiology-Lung Cellular and Molecular Physiology, PLoS One, Journal of Dietary Supplements, Molecular Aspects of Medicine, Oxidative Medicine and Cell Longevity, Exercise & Sports Science Reviews\n, \nClinical Pharmacology,\n \nthe FASEB Journal, and the Journal of Applied Physiology.\nWe also continue to perform our own research into Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae \nand the synergy with other products in our portfolio.  In fiscal year 2023, we received a patent for the combination of Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n, Protandim\n\u00ae\n NRF1 Synergizer\n\u00ae\n, and Protandim\n\u00ae\n NAD Synergizer\n\u00ae\n (marketed as the Protandim\n\u00ae\n Tri-Synergizer), continuing to show how our Protandim\n\u00ae\n product line is differentiated and unique in the marketplace.  We also filed a U.S. Patent application in fiscal year 2023 which, if granted, will protect the combined effects and synergistic benefits of the Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n and TrueScience\n\u00ae\n Liquid Collagen products when used together.\nProtandim\n\u00ae\n \nNRF1 Synergizer\n\u00ae\nProtandim\n\u00ae\n NRF1 Synergizer\n\u00ae\n is a dietary supplement which was formulated to strengthen the mitochondria, the powerhouse of all cells, for better cellular health. It is designed to work in tandem with our flagship Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n and further enhance the body's internal ability to naturally produce antioxidants and reduce the effects of cellular stress. Protandim\n\u00ae\n NRF1 Synergizer\n\u00ae\n activates NRF1, a protein that regulates the expression of genes involved in mitochondrial DNA transcription, translation and repair. The unique blend of ingredients in Protandim\n\u00ae\n NRF1 Synergizer\n\u00ae\n supports the mitochondria to slow cellular aging and increase cellular energy.\nProtandim\n\u00ae\n \nNAD Synergizer\n\u00ae\nSirtuin activity naturally declines by as much as 60 percent as humans age. Research has long shown that sirtuin activity can be increased by as much as 94 percent through drastic caloric restriction. Protandim\n\u00ae\n NAD Synergizer\n\u00ae\n is a dietary supplement which was specifically formulated to target the biochemical pathways involved in the synthesis and recycling of a specific molecule called NAD (nicotinamide adenine dinucleotide) and has been shown to double sirtuin activity in just 24 hours. Sirtuin activity has been linked to multiple health benefits. In addition to being responsible for cellular autophagy (cellular cleanup and renewal process), sirtuins help improve mental focus and concentration, support positive mood and motivation, boost mental and physical energy, aid in maintaining cholesterol levels already in a healthy range, support a healthy vascular system, and promote healthy longevity. A recent study on the active ingredients in NAD Synergizer also demonstrated a significant increase in NAD+ associated metabolites.\nThe Protandim\n\u00ae\n Family of Products and Nutrigenomics\nNutrigenomics is the study of how foods and individual nutrients can affect gene expression and how genes can also affect how humans metabolize food. Specific combinations of nutrients that engage cellular signaling and biochemical pathways are believed to unlock specific health mechanisms in human cells, tissues, and organs. Specifically, by looking at the cellular signaling and biochemical pathways known to be implicated in the aging process, we have formulated products to address various effects of aging utilizing nutrigenomics. This is the rationale behind the Protandim\n\u00ae\n family of products, which were formulated from specific combinations of nutrients to support natural cellular functions by targeting specific cellular signaling \n11\nand biochemical pathways related to oxidative stress, optimal mitochondrial function, and activation of the sirtuin family of proteins.\nLifeVantage\n\u00ae\n Omega+\nLifeVantage\n\u00ae \nOmega+ is a dietary supplement that combines DHA and EPA omega-3 fatty acids, omega-7 fatty acids, and vitamin D3 to support cognitive health, cardiovascular health, skin health, and the immune system.\nLifeVantage\n\u00ae \nProBio\nLifeVantage\n\u00ae\n ProBio is a dietary supplement designed to support long-term gut health by restoring healthy gut bacteria to support digestive system health.\nLifeVantage\n\u00ae\n IC Bright\n\u00ae \nIC Bright\n\u00ae\n combines macular carotenoids with vitamins and key ingredients that effectively support eye and brain health.\n \nIt helps reduce eye fatigue and strain from use of digital devices, helps promote healthy levels of essential proteins for the brain, and may help support normal sleep patterns, which can be disrupted by blue light exposure. \nLifeVantage\n\u00ae \nDaily Wellness\nLifeVantage\n\u00ae\n Daily Wellness is a dietary supplement designed to strengthen immune health by supporting and balancing the three essential roles of the immune system: barrier, innate and adaptive.\nLifeVantage\n\u00ae \nRise AM& Reset PM System\n\u2122\nThe LifeVantage\n\u00ae\n Rise AM & Reset PM System\n\u2122\n is an intelligent approach to a multivitamin that uses Timewise Nutrient Delivery\n\u2122\n to provide the body with the right nutrients in the right amounts at the right time.  Timewise Nutrient Delivery\n\u2122\n was developed in combination with experts in biochemistry, biophysics, and molecular biology and results in nutrition that allows your body to stay in sync with its natural rhythms, delivering energy and focus for a productive day and helping to calm the mind and body at night.\nLifeVantage\n\u00ae \nD3\n+\nLifeVantage\n\u00ae\n D3+\n \nis a dietary supplement that provides vitamin D3, vitamin K2, magnesium, calcium, and other trace minerals to support a balanced immune system, strong bones, and cardiovascular health.\nPhysIQ\nWe sell weight management products under our PhysIQ brand, which consists of:\n\u2022\nPhysIQ Fat Burn: \na supplement containing naturally derived active ingredients to stimulate the breakdown of abdominal fat, increase energy and support long-term weight management.\n\u2022\nPhysIQ Prebiotic: \na supplement designed to support the \u201cgood\u201d bacteria in the gut and a healthy microbiome, resulting in a healthier digestive tract and a healthier metabolism.\nTrueScience\n\u00ae \nSkin Care\nOur line of anti-aging skin care products under our LifeVantage TrueScience\n\u00ae\n brand, consists of:\n\u2022\nTrueScience\n\u00ae\n Liquid Collagen\n: our first digestible liquid supplement in fully recyclable glass bottles that activates, replenishes, and maintains the body\u2019s production of collagen on the cellular level to support skin firmness and elasticity for healthy, glowing skin.\n\u2022\nTrueScience\n\u00ae\n Facial Cleanser:\n a concentrated, ultra-rich cleanser used to remove impurities and light make-up without drying or stripping natural oils in the skin.\n\u2022\nTrueScience\n\u00ae\n Perfecting Lotion: \na hybrid lotion formulated for smoother, radiant and brighter looking skin.\n\u2022\nTrueScience\n\u00ae\n Eye Serum:\n a serum that noticeably improves the visible signs of fine lines, creases and wrinkles around the entire eye area, diminishes puffiness above and below the eye, firms and tightens the upper eyelid area and evens skin tone and dark circles that are visible signs of aging.\n\u2022\nTrueScience\n\u00ae\n Anti-Aging Cream:\n a cream that deeply moisturizes and helps to combat the appearance of fine lines and wrinkles.\n12\n\u2022\nTrueScience\n\u00ae\n Hand Cream:\n a cream formulated with Nrf2 ingredients to moisturize skin and decrease the visible signs of premature aging on the hands.\nOur TrueScience\n\u00ae\n Beauty System includes the following products in a TSA-compliant set: TrueScience\n\u00ae \nFacial Cleanser, TrueScience\n\u00ae\n Perfecting Lotion, TrueScience\n\u00ae\n Eye Serum, and TrueScience\n\u00ae\n Anti-Aging Cream.\nWe received two composition patents related to our LifeVantage TrueScience\n\u00ae \nskin care products, which were tested in an independent third-party clinical study and shown to reduce the visible signs of aging by utilizing Nrf2 technology to mitigate the visible effects of skin damage caused by oxidative stress. Our LifeVantage TrueScience\n\u00ae \nskin care products leverage our research on Nrf2 activation and oxidative stress. \nTrueScience\n\u00ae \nHair Care\nOur line of hair care products under our TrueScience\n\u00ae\n brand, consists of:\n\u2022\nTrueScience\n\u00ae\n Invigorating Shampoo:\n Mild surfactant and added amino acid blend that cleans hair without drying out the scalp.\n\u2022\nTrueScience\n\u00ae\n Nourishing Conditioner: \nDeeply nourishing weightless conditioner that helps hair feel soft and smooth and look fuller and thicker.\n\u2022\nTrueScience\n\u00ae\n Scalp Serum:\n A serum that nourishes the scalp to support normal hair growth while soothing all scalp types.\nPetandim\n\u00ae\nPetandim\n\u00ae\n is a supplement specially formulated to combat oxidative stress in dogs through Nrf2 activation. Petandim\n\u00ae \nbuilds upon the active ingredients in Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n to reduce oxidative stress and support joint function, mobility and flexibility in dogs. Petandim\n\u00ae \nreceived the Quality Seal from the National Animal Supplement Council.\nAXIO\n\u00ae\nAXIO\n\u00ae \nis our line of energy drink mixes, formulated as a nootropic to promote alertness and support mental performance. These energy drink powders deliver sustained energy, as well as improved mental focus and promote a positive mood. Available in regular and decaf formulas, AXIO\n\u00ae\n is derived from a unique combination of scientifically validated ingredients. \nProduct Stacking\nA stack consists of multiple products bundled together that are designed to achieve a specific result. By studying the effects of nutrients and natural compounds, we have developed scientifically backed nutrigenomics products that promote healthy aging on the cellular level. By stacking these products together, we have created a foundation for synergy from nutrigenomic products to promote a healthier life. \nThe Vitality Stack includes four of our nutrigenomics products \u2014 Protandim\n\u00ae\n NRF1 Synergizer\n\u00ae\n, Protandim\n\u00ae \nNrf2 Synergizer\n\u00ae\n, LifeVantage\n\u00ae\n Omega+ and LifeVantage\n\u00ae \nProBio. This product stack was designed to provide a foundation for wellness, supporting healthy organs, including the brain, heart, eyes, and other vitals. With the Ultimate Stack, we added Protandim\n\u00ae\n NAD Synergizer\n\u00ae\n and PhysIQ Prebiotic to our Vitality Stack to support gut health and increase sirtuin activity, supporting increased health, focus, energy, mental clarity and mood. The Protandim\n\u00ae\n Tri-Synergizer\n\u2122\n \nconsists of our Protandim\n\u00ae\n NRF1 Synergizer\n\u00ae\n, Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n and Protandim\n\u00ae\n NAD Synergizer\n\u00ae\n, and was designed to effectively and synergistically reduce oxidative stress, support mitochondria function, increase sirtuin activity, and target cell signaling pathways to fight the effects of aging. We also offer stacks that directly support the following consumer needs: immune support, heart health, energy, well-being, eye health, cognition and memory, metabolism, gut health, skin care, and hair care.\nDistribution of Products\nWe believe our products are well suited for consultant to customer sales through our direct selling model. This model allows our independent consultants to educate our customers regarding the benefits of our unique products more thoroughly than other business models. Our direct selling model also allows our independent consultants to offer personalized customer service to our customers and encourage regular use of our products.\nProduct Return Policy\nAll products purchased directly from us include a product guarantee. Subject to some exceptions based on local regulations, we will accept returns of opened and unopened products within 30 days of purchase for a full refund of the \n13\npurchase price. In addition, our product return program allows independent consultants to return certain unopened, unexpired products for a refund of the purchase price less a 10% restocking fee and any paid commissions. The amount of inventory we will repurchase from an independent consultant is subject to specified policies and procedures.\nAccounts\nWe generally categorize accounts as either independent consultants or customers, both of which may be consumers of our products.\nIndependent Consultants\nAn independent consultant in our company is an independent contractor who participates in our direct sales opportunity by enrolling through the independent consultant contract process and selling our products. Independent consultants may purchase our products and sell them to others either directly or through our company. We believe our independent consultants are typically entrepreneurs, who believe in our products and desire to earn income through sales commissions and by building their own consulting business. Many of our independent consultants are attracted by the opportunity to sell unique, scientifically validated products without incurring significant start-up costs. Independent consultants sign a contract with us that includes a requirement that they adhere to strict policies and procedures. Independent consultants may purchase product from us for individual and family consumption and for demonstrations, samples and retailing opportunities. \nWhile we provide product development, shipping and logistics support, brochures, magazines, a website, the LifeVantage app and other sales and marketing materials, independent consultants are primarily responsible for their sales to customers and for attracting, enrolling and educating new independent consultants about the benefits of our products and sales compensation plan. An independent consultant creates multiple levels of compensation by selling our products and enrolling new independent consultants who sell our products. These newly enrolled independent consultants form a \u201cdownline\u201d or \u201cgroup\u201d for the independent consultant who enrolled them. If downline independent consultants enroll new independent consultants or customers who purchase our products, they create additional levels of compensation and their downline independent consultants remain in the same downline network as the original enrolling independent consultant We pay commissions only upon the sale of our products. We do not pay commissions for enrolling independent consultants.\nWe define \u201cactive indepe\nndent consultants\u201d as those independent consultants who have purchased product from us for retail sales or personal consumption during the prior three months.  We had approximately 54,000 and 63,000 active independent consultants\n \nas of each of the fiscal years ended June\u00a030, 2023 and 2022, respectively.\nIndependent Consultant Compensation\nIn January 2023, we announced the adoption of the Evolve Compensation Plan for our independent consultants, which became effective March 1, 2023, in our United States, Australia, New Zealand and Japan markets. \n \nWe plan to roll out this new compensation plan to other markets. \nWe believe our sales compensation plan is one of the more financially rewarding in the direct selling industry and in line with direct selling industry standards. Some elements of our sales compensation plan are paid daily, to eligible consultants, and others are paid weekly or monthly. We believe this gives us a competitive advantage and helps retain new consultants by allowing them to receive some sales commissions in a more timely manner from their sales efforts. Our sales compensation plan is intended to appeal to a broad cross-section of people, including those seeking to supplement family income, start a home-based business or pursue entrepreneurial opportunities full- or part-time. Through the Evolve Compensation Plan our independent consultants earn bonuses specifically for the sale of products to customers and by growing a customer subscription-based business, creating greater opportunities for consultants who are not interested in enrolling other consultants to sell products. Our independent consultants earn sales commissions on product sales to their personally enrolled customers and independent consultants and the product sales to customers and independent consultants within their sales organization, or \"downline.\" Our independent consultants can also earn money by purchasing product from us and selling that product to others at their chosen retail price. We pay sales commissions in the local currency of the independent consultant\u2019s home country.\nIndependent Consultant Motivation and Training\nOur revenue depends on the sales success and productivity of our independent consultants. We provide tools, training and technology designed to increase our independent consultants' sales productivity and increase their potential for sales success. We offer training and business development opportunities to our independent consultants, including the opportunities listed below.\n\u2022\nPlaybook\n: Professionally designed training materials independent consultants can utilize in their sales efforts.\n14\n\u2022\n Activation Nation Podcast\n: Our digital audio series presented by our corporate support team and independent consultant leaders provides training and tips on becoming more productive in selling our products.\n\u2022\nElite Academy, Global Convention, and Other Company-Sponsored Training\n: We hold regularly occurring live and virtual company-sponsored events intended to provide sales training and motivation to our independent consultants, in addition to twice-weekly virtual consultant trainings.\n\u2022\nPromotions and Incentive Trips\n: We hold special sales promotions, business incentives and incentive trips from time to time in order to motivate our independent consultants to accomplish specific sales goals.\n\u2022\nMobile Application\n: The LifeVantage app was designed to allow users to conduct their business on a single platform from anywhere in the world. Ultimately, through artificial intelligence and machine learning, we expect that the app will be able to guide users on what to share, when to share it, and with whom to maximize their sales potential. \n\u2022\nOnline Social Media Groups\n: Through the use of social media platforms, we host online groups to support the success of our independent consultants. Important announcements, trainings, calls and documentation are also shared through our social media groups to provide our independent consultants many opportunities to find the training and support. \n\u2022\nCorporate Support Team\n: The LifeVantage contact center, VIP Lines, and sales support team are designed to provide support, motivation, training and resources to our independent consultants through their business journey. As consultants advance through the titles in our consultant path, they continue to receive more personalized support.\nWe continue to evaluate new ways in which to incorporate new technology and sales training opportunities to improve consultant product sales.\nIndependent Consultant Compliance Activities\nGiven that our independent consultants are independent contractors, we do not control or direct their promotional efforts. We do, however, require that our independent consultants abide by policies and procedures that require them to act in an ethical manner and in compliance with applicable laws and regulations. As a member of the United States Direct Selling Association and similar organizations in many of the markets where we do business, we are also subject to the ethical business practices and consumer service standards required by the industry's code of ethics. \nIndependent consultants represent to us that their receipt of sales commissions is based on their product sales and by product sales of other LifeVantage consultants in their personal marketing organization.\n \nWe must produce or pre-approve all sales aids used by independent consultants, such as brochures and online materials. Products may be promoted only through sales materials produced or approved by us. Independent consultants may not use our trademarks or other intellectual property without our written consent.\nWe monitor and systematically review alleged independent consultant misbehavior through our internal consultant compliance department. If we determine one of our independent consultants has violated any of our policies and procedures, we first attempt to educate, but may discipline or terminate the independent consultant\u2019s rights to sell or distribute our products when appropriate. When necessary, we have brought legal action against independent consultants, or former consultants, to enforce our policies and procedures. Short of termination or legal action, and in addition to educating, we may impose sanctions against independent consultants whose actions are in violation of our policies and procedures. Such sanctions may include warnings, probation, withdrawal or denial of an award, suspension of privileges of a consultantship, fines and/or withholding of commissions until specified conditions are satisfied, or other appropriate injunctive relief.\nCustomers\nCustomers purchase products directly from us at either our retail (list) pricing for one-time purchases or our subscription price on a monthly subscription basis for personal consumption, without the ability to resell or earn commissions from the purchase or sale of such products. Customers who order their items on a subscription also automatically join our Rewards Circle loyalty program, a program that rewards customer loyalty through subscription purchases. A customer may decide to enroll as an independent consultant at any time if they become interested in selling our products. We believe our customers are a great source of word-of-mouth advertising for our products. We also believe our large base of customers validates the health benefits of our products.\nWe define an \u201cactive customer\u201d as a customer who has purchased product from us within the prior three months. As of June\u00a030, 2023 and 2022, we had approximately 89,000 and 93,000 active customers, respectively.\n15\nSales of Our Products\nWe accept orders for our products through our website at www.lifevantage.com and through personalized websites we provide to our independent consultants, which we refer to as \u201cVirtual Offices.\u201d Orders placed through Virtual Offices and through our website are processed daily at our fulfillment centers, where orders are shipped directly to the consumer.\nWe offer toll-free numbers for our independent consultants and our customers to order product or ask questions. Our customer service representatives assist customers in placing orders through our web order processing system, answering questions, tracking packages, and initiating refunds. The customer service representatives receive extensive training about our products and our direct selling business model. LifeVantage customers and independent consultants generally pay for products by credit card, prior to shipment, and as a result, we carry minimal accounts receivable.\nSeasonality\nIn addition to general economic factors, we are impacted by seasonal factors and trends such as major cultural events and vacation patterns. We believe that direct selling in the United States and Japan is also generally negatively impacted during our first fiscal quarter, from July 1 through September 30, when many individuals, including our independent consultants, traditionally take vacations. The timing and size of our training events and incentive trips can also cause revenue and expense to fluctuate in the periods that they are held.\nAlthough our product launch process may vary by market, we may introduce new products to our customers and independent consultants through limited-time offers and promotions. The limited-time offers and promotions typically generate significant activity and a high level of sales and purchasing, which may result in a higher-than-normal increase in revenue during the quarter of the limited-time offer and skew year-over-year and sequential comparisons. Similarly, company events for independent consultants typically generate a higher-than-normal increase in revenue. The timing of these events can also skew year-over-year and sequential comparisons.\nGeographic Information\nWe sell our products in the United States, Mexico, Japan, Australia, Hong Kong, Canada, Thailand, the United Kingdom, the Netherlands, Germany, Taiwan, Austria, Spain, Ireland, Belgium, New Zealand, Singapore, and the Philippines. We also sell our products in a number of countries to customers for personal consumption only. In addition, we sold our products in China through our approved e-commerce business model until March 2023, at which time we closed our e-commerce business in China.  In fiscal year 2023, revenue generated in the United States accounted for approximately\n 70% of our total revenue and revenue generated from Japan accounted for approximately 15% of our total revenue. For reporting purposes, we generally divide our markets into two geographic regions: the Americas regio\nn and the Asia/Pacific & Europe region. The following table sets forth net revenue information by region for the periods indicated (in thousands):\nFor the fiscal years ended June 30,\n2023\n2022\nAmericas\n$\n155,361\u00a0\n72.8\u00a0\n%\n$\n138,323\u00a0\n67.0\u00a0\n%\nAsia/Pacific & Europe\n58,037\u00a0\n27.2\u00a0\n%\n68,037\u00a0\n33.0\u00a0\n%\nTotal\n$\n213,398\u00a0\n100.0\u00a0\n%\n$\n206,360\u00a0\n100.0\u00a0\n%\nAdditional comparative revenue and related financial information is presented in the section captioned \"\nSegment Information\"\n in Note 2 to our consolidated financial statements.\nMarketing\nWe utilize our network of \ni\nndependent \nc\nonsultants located throughout the United\n States, Mexico, Japan, Australia, Hong Kong, Canada, Thailand, the United Kingdom, the Netherlands, Germany, Taiwan, Austria, Spain, Ireland, Belgium, New Zealand, Singapore, and the Philippines to market and sell our products. We also have in-house sales, marketing, IT, and customer service groups dedicated to supporting our independent consultants. Support includes training and education, personalized assistance, in-person and digital events, recognition, incentives and promotions, digital and social media content, press coverage, regular communications, as well as a full suite of marketing assets, including content for their websites.\nRaw Materials and Manufacturing\nWe outsource the primary manufacturing, fulfillment, and shipping components of our business to third-party companies we believe possess a high degree of expertise. We believe outsourcing provides us access to advanced manufacturing process capabilities and expertise without incurring fixed costs associated with manufacturing our own products in house.\n16\nWe currently outsource the manufacture of our products to multiple third-party contract manufacturers. Our contract manufacturers have a legal obligation to comply with the current Good Manufacturing Practices regulations that are applicable to those who manufacture, package, label and hold dietary supplements and personal care products. Additionally, we are subject to regulations that, among other things, obligate us to know what and how manufacturing activities are performed so that we can make decisions related to whether the packaged and labeled product conforms to our established specifications and whether to approve and release product for distribution to consumers. We maintain and qualify alternative manufacturing options in order to keep our costs low, maintain the quality of our products, and prepare for unanticipated spikes in demand or manufacturing failure. Our contract manufacturers deliver products to our fulfillment centers based on our purchase orders. We also have a Vendor Code of Conduct that we expect our contract manufacturers and/or vendors to adhere to. This Vendor Code of Conduct requires contract manufacturers and vendors to abide by certain human rights, labor rights, protection of the environment and fight against corruption standards outlined under the United Nations Global Compact. \nWe acquire raw materials for our products from third-party suppliers. Although we generally have good relationships with our suppliers, we believe we could replace any of our current suppliers without great difficulty or significant increase to our cost of goods sold. We also have ongoing relationships with secondary and tertiary suppliers. Please refer to \"\nRisk Factors - High quality material for our products may be difficult to obtain or expensive\n\" for a discussion of the risks and uncertainties associated with our sourcing of raw materials.\nProduct Liability and Other Insurance\nWe have product liability insurance coverage for our products that we believe is adequate for our needs. We also maintain commercial property and liability coverage, directors\u2019 and officers\u2019 liability insurance, workers compensation coverage and cyber information security risk insurance policies as well as foreign and other miscellaneous coverage. \nIntellectual Property\nWe use commercially reasonable efforts to protect our intellectual property through patent protection, trademarks and trade secrets, licensed rights and contractual protections, and intend to continue to develop a strong brand identity for our company and our products. \nProtandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n is a proprietary, patented dietary supplement formulation for enhancing antioxidant enzymes including superoxide dismutase and catalase. The patents and patent applications protecting its formulations are held by LifeVantage Corporation or our wholly owned subsidiary, Lifeline Nutraceuticals Corporation. Our intellectual property is covered, in part, by many issued U.S. patents. Our patents and patent applications claim the benefit of priority of multiple U.S. provisional patent applications, the earliest of which was filed on March 23, 2004, and relate to compositions, methods of use, and methods of manufacture of various compositions, including those embodied by the Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n formulation. The expected duration of our patent protection via some granted patents for Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n is at least through approximately March 2025, and we continue to research and file new composition and method patents in the U.S. for enhanced and improved product formulations that will extend our patent protection for a variety of product formulations and methods. During fiscal year 2018, we received other patents for personal care or skin care products. These patents expire approximately February 2036. In fiscal year 2023, we received a patent for the combination of Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n, Protandim\n\u00ae\n NRF1 Synergizer\n\u00ae\n, and Protandim\n\u00ae\n NAD Synergizer\n\u00ae\n, collectively called the Tri-Synergizer\u2122 pack. In fiscal year 2023, we filed for a U.S. patent application which, if granted, will protect the combined synergistic effects and benefits of the Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n and TrueScience\n\u00ae\n Liquid Collagen products when these two products are used together.\nWe continue to protect our products and brands using trademarks. We have filed and successfully procured registered trademarks for our key brands consisting of Protandim\n\u00ae\n, LifeVantage\n\u00ae\n, and TrueScience\n\u00ae\n in many countries around the world, and we have pending trademark applications for these and other marks in many other countries. We anticipate seeking protection in other countries, as we deem appropriate.\nIn order to protect the confidentiality of our intellectual property, including trade secrets, know-how and other proprietary technical and business information, it is our policy to limit access to such information to those who require access in order to perform their functions and to enter into agreements with employees, consultants and vendors to contractually protect such information.\nCompetition\nDirect Selling Companies\nWe compete with other direct selling companies, many of which have longer operating histories and greater visibility, name recognition and financial resources than we do. We also compete with newer direct selling companies that may attempt to solicit our independent consultants by offering the possibility of a more financially rewarding opportunity or by being among \n17\nthe company's early consultant base. We compete for new consultants with these companies on the basis of our business opportunity, product offerings, sales compensation plan, management and operations. In order to successfully compete in the direct selling industry and attract and retain quality consultants, we must maintain the attractiveness of our business opportunity, product offerings and sales compensation plan.\nDietary Supplement Market\nWe compete with other companies that sell dietary supplements. We believe the dietary supplement market is highly fragmented and competitive. We believe competition in the dietary supplement market is based primarily on quality, price, efficacy, brand name, and recognition of product benefits. In the dietary supplement industry, our competition includes numerous nutritional supplement companies, pharmaceutical companies and packaged food and beverage companies. Many of these companies have broader product lines, larger sales volumes and greater financial resources than we do. Additionally, some of these companies are able to compete more effectively due to greater vertical integration. Increased competition in the dietary supplement market could have a material adverse effect on our results of operations and financial condition.\nNrf2 Activators\nIn the last few years, we have seen the number of products marketed as Nrf2 activators increase. We anticipate the number of products that claim to activate Nrf2 will continue to increase as the technology becomes more popular and more broadly accepted. \nDirect Antioxidants\nVitamin C, vitamin E, other vitamin/mineral antioxidants, and other sources of externally derived antioxidants may be considered competitors of Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n but they are mechanistically distinct from Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n. These other sources of antioxidants do not increase the body\u2019s elimination of oxidants using internal antioxidant enzymes. Our research indicates that Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n increases production of anti-fibrotic gene products, including antioxidant enzymes, such as superoxide dismutase and catalase, within the cells of the body. We believe that the body\u2019s internally produced antioxidant enzymes provide a better defense against oxidative stress than externally derived sources of antioxidants.\nOral Superoxide Dismutase and Catalase\nThere are many companies performing research into antioxidants. Several companies sell oral forms of superoxide dismutase and catalase. Although we believe Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n is a superior alternative to oral forms of superoxide dismutase and catalase, these products do compete with Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n in the marketplace. We anticipate additional companies will likely develop, purchase or in-license products that are competitive with Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n.\nOmega Fatty Acid Products\nThere are many companies that market omega supplements, including omega-3. Although LifeVantage\n\u00ae \nOmega+ contains a unique combination of DHA and EPA omega-3 fatty acids, omega-7 fatty acids, and vitamin D3, we anticipate additional companies will likely develop products that are competitive with LifeVantage\n\u00ae \nOmega+. \nProbiotic Products\nThere are many companies that market probiotic supplements and we anticipate additional companies will likely continue to develop products that are competitive with our LifeVantage\n\u00ae \nProBio supplement. \nEye Health and Vitamin Products\nThere are many companies that market eye health and other vitamin/mineral supplements and we anticipate additional companies will likely continue to develop products that are competitive with our IC Bright\n\u00ae\n, \nLifeVantage\n\u00ae \nDaily Wellness,\n \nLifeVantage\n\u00ae\n Rise AM & Reset PM System\n\u2122\n, and LifeVantage\n\u00ae\n D3+. \nPersonal Skin Care Market\nIn the personal skin care market, we compete principally with large, well-known cosmetics companies that manufacture and sell broad product lines through retail establishments. Many of these competitors have greater financial resources and brand recognition than we do. We believe, however, we can compete with these larger companies by leveraging our direct selling model and emphasizing our unique, science-based, Nrf2 and personal care products. We also now compete in the growing global liquid collagen market and believe we can compete with our triple-action formula that has been shown to deliver visible results in only 30 days as it activates, replenishes and maintains collagen levels. Our TrueScience\n\u00ae\n Liquid Collagen product is a \n18\nunique blend featuring sustainably sourced, hydrolyzed fish collagen that delivers 10 different types of peptides \u2013 significantly more than most competitive products \u2013 plus a unique red quinoa extract that has been shown to up regulate genes associated with collagen production and down regulate those that produce enzymes that break down collagen.\n \nPersonal Hair Care Market\nIn the personal hair care market, we compete principally with large, well-known hair care companies that manufacture and sell broad product lines through retail establishments. Many of these competitors have greater financial resources and brand recognition than we do. We believe, however, we can compete with these larger companies by leveraging our direct selling model and emphasizing our unique, science-based hair care products.\nAnimal Supplement Market\nWe compete principally with large, well-known companies in the animal supplement market. Most of the companies we compete with in the animal supplement market have broad distribution channels that include retail establishments. Many of these competitors have greater financial resources and brand recognition than we do. We believe, however, that we can compete with these larger companies by leveraging our direct selling model and emphasizing our unique, science-based animal supplement product.\nEnergy Drink Market\nWe compete with large, well-known companies in the energy drink market. Most of the companies we compete with in the energy drink market have broad distribution channels that include big box retail establishments. Many of these competitors have greater financial resources and brand recognition than we do. We intend to compete with these larger companies by leveraging our direct selling model and emphasizing our unique, science-based energy drink product. AXIO\n\u00ae\n is a no sugar, low-carbohydrate and low-calorie energy drink that is also non-GMO, gluten-free and vegan. \nWeight Management Market\nWe compete with large, well-known companies in the weight management market. Most of the companies we compete with in the weight management market have broad distribution channels that include big box retail establishments. Many of these competitors have greater financial resources and brand recognition than we do. We intend to compete with these larger companies by leveraging our direct selling model and emphasizing our unique, science-based weight management products.\nRegulatory Environment\nThe formulation, manufacturing, packaging, labeling, and advertising of our products in the United States are subject to regulation by the Food and Drug Administration (\u201cFDA\u201d) and the Federal Trade Commission (\u201cFTC\u201d), as well as comparable state laws.\nFDA Regulations and DSHEA\nWe market our Protandim\n\u00ae\n products as \u201cdietary supplements\u201d as defined in the Dietary Supplement Health and Education Act of 1994, or DSHEA. DSHEA is intended to promote access to safe, quality dietary supplements, and information about dietary supplements. DSHEA established a new framework governing the composition and labeling of dietary supplements. DSHEA does not apply to animal supplements like Petandim\n\u00ae\n. We are not required to obtain FDA pre-market approval to sell our products in the United States under current laws.\nDSHEA permits statements of nutritional support, called \u201cstructure-function\u201d statements, to be included in labeling for dietary supplements without FDA marketing approval. Such statements may claim a benefit related to a classical nutrient deficiency disease and disclose the prevalence of such disease in the United States, describe the role of a nutrient or dietary ingredient intended to affect the structure or function in humans, characterize the documented mechanism by which a nutrient or dietary ingredient acts to maintain such structure or function, or describe general well-being from consumption of a nutrient or dietary ingredient. Such statements may not expressly o\nr impliedly\n claim that a dietary supplement is intended to diagnose, cure, mitigate, treat, or prevent a disease. A company that uses a structure-function statement in labeling must possess evidence substantiating that the statement is truthful and not misleading and is supported by competent and reliable scientific evidence. \nThe FDA may assert that a particular structure-function statement that a company is using is an illegal claim; that assertion, normally, is in the form of a warning letter to that company. We have a duty to send to the FDA a notice that lists each new structure-function statement made by us; we are obligated to send that notice within 30 days after the first marketing of a supplement with such a statement.\n19\nDSHEA also permits certain scientific literature, for example a reprint of a peer-reviewed scientific publication, to be used in connection with the sale of a dietary supplement to consumers without the literature being subject to regulation as labeling. However, such literature must not be false or misleading, the literature may not promote a particular manufacturer or brand of dietary supplement and it must include a balanced view of the available scientific information on the subject matter, among other requirements.\nThe FDA's Center for Veterinary Medicine (\u201cCVM\u201d) is responsible for enforcing the portion of the Federal Food, Drug, and Cosmetic Act (the \u201cFFDCA\u201d), that relates to animal supplements, like our Petandim\n\u00ae\n product. CVM's primary responsibility in enforcing the FFDCA is to ensure that animal supplements are safe, effective, and can be manufactured to a consistent standard. CVM has taken the position that DSHEA does not apply to products intended for animals, but it is clear that products like Petandim\n\u00ae\n are under FDA jurisdiction.\nOur Petandim\n\u00ae\n product follows the labeling rules of the National Animal Supplement Council (\u201cNASC\u201d) of which LifeVantage is a member. Under the NASC rules, Petandim\n\u00ae\n is classified as a dosage form animal health product.\nWhile we exercise care in our formulation, manufacturing, packaging, labeling, and advertising of our products, we cannot guarantee the FDA will never inform us that the FDA believes some violation of law has occurred either by us or by our independent consultants. Any allegations of our non-compliance may result in time-consuming and expensive defense of our activities. The FDA\u2019s normal course of action is to issue a warning letter if it believes that a product is misbranded or adulterated. The responsive action requested by the FDA differs depending upon the nature of the product and claims in question. Typically, the FDA expects a written response within 15 working days of the receipt of a warning letter. The warning letter is public information posted on the FDA\u2019s web site. That information could affect our relationships with our customers/consumers, investors, independent consultants, vendors, and employees. Warning letters also often spark private class action litigation under state consumer protection statutes. The FDA could also order compliance activities, such as an inspection of our facilities and products, and could file a civil lawsuit in which an arrest warrant (seizure) could be issued as to some or all of our products. In extraordinary cases, we could be named a defendant and sued for declaratory and injunctive relief.  There were no open letters from the FDA as of June 30, 2023.\nFTC Regulations\nAdvertising and marketing of our products in the United States are also subject to regulation by the FTC under the Federal Trade Commission Act (\u201cFTC Act\u201d). Among other things, the FTC Act prohibits unfair methods of competition and unfair false or deceptive acts or practices in or affecting commerce. The FTC Act also makes it illegal to disseminate or cause to be disseminated any false advertisement for \u201cfood, drugs, devices, services, or cosmetics.\" The FTC Act provides that disseminating any false advertisement pertaining to foods, which would include dietary supplements, is an unfair or deceptive act or practice. An advertiser is required to have competent and reliable scientific evidence for all express and implied health-related product claims at the time the claims are first made. We are required to have adequate scientific substantiation for all material advertising claims made for our products in the United States. The FTC routinely reviews websites to identify questionable advertising claims and practices. Competitors sometimes inform the FTC when they believe other competitors are violating the FTC Act and consumers may also notify the FTC of what they believe may be wrongful advertising. The FTC may initiate a non-public investigation that focuses on our advertising claims, which usually involves non-public pre-lawsuit extensive formal discovery. Such an investigation may be very expensive to defend, be lengthy, and result in a publicly disclosed Consent Decree, which is a settlement agreement. If no settlement can be reached, the FTC may start an administrative proceeding or a federal court lawsuit against us and/or our principal officers. The FTC often seeks to recover from the defendants, whether in a Consent Decree or a proceeding, any or all of the following: (i) consumer redress in the form of monetary relief or disgorgement of profits; (ii) significant reporting requirements for several years; and (iii) injunctive relief. In addition, most, if not all, states have statutes prohibiting deceptive and unfair acts and practices. The requirements under these state statutes are similar to those of the FTC Act.\nThe National Advertising Division (\u201cNAD\u201d), of the national Better Business Bureau, a non-governmental not-for-profit organization through its Advertising Self-Regulatory Council (\u201cASRC\u201d), is also actively engaged in conducting investigations, called inquiries, which are focused on determining whether the requisite claim substantiation standard exists for advertising claims, including specific structure-function claims. Although the results of each inquiry or proceeding are not binding on the recipient, they are posted on NAD\u2019s website, and the NAD often refers cases to the FTC, if the advertisers do not agree to modify their advertising in conformance with the NAD decision. We have been the subject of a NAD proceeding in 2008 and 2009, which was concluded in 2009.\nIn January 2019, the Direct Selling Self-Regulatory Council (\u201cDSSRC\u201d) was introduced. T\nhis program monitors the entire direct selling channel \n\u2014\n including Direct Selling Association member companies and non-members. The DSSRC provides impartial monitoring, enforcement, and dispute resolution regarding product claims or income representations (including lifestyle claims) disseminated by \ndirect selling\n companies and their \nsales\n force members (consultants). The failure of a company \n20\nto resolve DSSRC complaints will ultimately result in the DSSRC reporting the matter to the FTC, which may or may not pursue enforcement action in any given case. \n There were no open letters from the FTC as of June 30, 2023.\nRegulation of Direct Selling Activities\nDirect selling activities are regulated by the FTC, as well as various federal, state and local governmental agencies in the United States and foreign countries. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes, often referred to as \u201cpyramid\u201d schemes, which compensate participants primarily for recruiting additional participants without sufficient emphasis on product sales. The laws and regulations may often:\n\u2022\nrequire us or our independent consultants to register with governmental agencies;\n\u2022\nimpose caps on the amount or type of sales commission we can pay;\n\u2022\nimpose reporting requirements; and\n\u2022\nrequire that we ensure, among other things, that our independent consultants maintain levels of product sales to qualify to receive sales commissions and that our independent consultants are being compensated primarily for sales of products and not primarily for recruiting additional participants.\nThe laws and regulations governing direct selling are modified from time to time, and, like other direct selling companies, we may be subject to government investigations related to our direct selling activities. This may require us to make changes to our business model and our sales compensation plan.\nState Regulations\nIn addition to United States federal regulation, each state has enacted its own food and drug laws. We may receive requests to supply information regarding our sales or advertising to state regulatory agencies. We remain subject to the risk that, in one or more of our present or future markets, our products, sales, and advertising could be found non-compliant with state laws and regulations. If we fail to comply with these laws and regulations, it could have a material adverse effect on our business in a particular market or in general. In addition, these laws and regulations could affect our ability to enter new markets.\nThe FDA Food Safety Modernization Act\nThe FDA Food Safety Modernization Act (\u201cFSMA\u201d) was enacted in 2011 and is now part of the FFDCA. The FSMA is a comprehensive set of laws that gives the FDA considerable authority with respect to the prevention of food contamination and the serious problems associated with such contamination. Among other things, it does the following:\n\u2022\ngives the FDA explicit authority to compel a recall if the FDA believes there is a reasonable probability of serious adverse health consequences or death;\n\u2022\nplaces strict obligations on food and dietary supplement importers to verify that food from foreign suppliers is not adulterated or misbranded; and\n\u2022\nprovides whistle blower protection for employees of conventional food or dietary supplement companies who provide information to governmental authorities about violations of the FFDCA.\nInternational Regulations\nIn addition to the regulations applicable to our activities in the United States, all other markets in which we operate our business regulate our products under a variety of statutory and regulatory schemes. We typically market our Protandim\n\u00ae\n line of products in international markets as foods, health foods or dietary supplements under applicable regulatory regimes. However, because of varied regulations, some products or ingredients that are recognized as a \u201cfood\u201d in certain markets may be treated as a \u201cpharmaceutical\u201d or equivalent in other markets. In the event a product, or an ingredient in a product, is classified as a drug or pharmaceutical product in any market, we will generally not be able to distribute that product through our independent consultants channel because of pre-marketing approval requirements and strict regulations applicable to drug and pharmaceutical products. In Japan, for example, ashwagandha was determined to be inappropriate for inclusion in food products. Ashwagandha is one of the ingredients in Protandim\n\u00ae \nNrf2 Synergizer\n\u00ae\n. While we disagree with the assessment of ashwagandha by Japanese regulatory authorities, we are restricted from selling a formulation of Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n that contains ashwagandha in Japan. As such, we reformulated Protandim\n\u00ae \nNrf2 Synergizer\n\u00ae\n for the Japan market to exclude ashwagandha\n and include black pepper extract\n. This reformulated Protandim\n\u00ae \nNrf2 Synergizer\n\u00ae\n was introduced in Japan in fiscal year 2013.\n21\nSimilarly, our other markets outside the United States regulate advertising and product claims regarding the efficacy of our products and require adequate substantiation of claims. As such, we are unable to claim that any of our products will diagnose, cure, mitigate, treat or prevent diseases. For example, in Japan, Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n is considered a food product, which significantly limits our ability to make claims regarding the product. If marketing materials make claims that exceed the scope of allowed claims for dietary supplements, regulatory authorities could deem our products to be unapproved drugs and we could experience substantial harm.\nOur business model is also subject to regulatory frameworks that may limit or significantly alter the way business is done in foreign markets vis-\u00e0-vis the United States. For example, our marketing of products or business opportunity as a consultant in the United Kingdom differs significantly from marketing to United States customers and consultants. Consequently, we may experience additional costs and delays in entering or continuing to do business in foreign markets in order to comply with local regulations.\nPotential FDA and Other Regulation\nWe could become subject to additional laws or regulations administered by the FDA, FTC, or other federal, state, local or international regulatory authorities, to the repeal of laws or regulations that we consider favorable, such as DSHEA, or to more stringent interpretations of current laws or regulations. Because of negative publicity associated with some adulterated or misbranded supplements, including pharmaceutical drugs marketed as dietary supplements, there has been an increased movement in the United States and other markets to expand the regulation of dietary supplements, which could impose additional restrictions or requirements in the future. In recent years, there also has been increased pressure in the United States to further regulate cosmetics. In general, the regulatory environment is becoming more complex with increasingly strict regulations. \nThe Dietary Supplement and Nonprescription Drug Consumer Protection Act requires us to report to the FDA all serious adverse events and to maintain for six years, records of all adverse events, whether or not serious. An adverse event is defined as any health-related event associated with the use of a dietary supplement that is adverse. In addition, this law requires the label of each dietary supplement, including our Protandim\n\u00ae\n products, to include a domestic address or telephone number by which the company selling the product may receive a report of a serious adverse event associated with such product. The labels of our Protandim\n\u00ae\n products comply with that statutory provision.\nEmployees\nAs of June\u00a030, 2023 and 2022, we had\n 248\n \nand 259 full-time employees, respectively. As of June\u00a030, 2023, 184 of our full-time employees were based in the United States, 29 were based in Japan and a total of 9 were based in the Philippines, 9 in Thailand, 8 in Taiwan, 3 in Mexico, 3 in Australia, 1 in Singapore, 1 in Europe, and 1 in Canada. We do not include our independent consultants in our number of employees because our independent consultants are independent contractors and not employees. We outsource our manufacturing, warehousing and shipping operations.\nCorporate Responsibility and Sustainability\n \nWe understand that long-term value creation for stockholders is our core responsibility. \nWe are investing in a number of sustainability initiatives, including reducing the environmental impact of our business activities and products, improving the global human condition, providing a positive working environment and engaging with our stakeholders regarding these initiatives.\nEmployees\n: We believe that our employees are an essential asset. We have a dedicated team of professionals that support our customers and independent consultants, work to generate long-term value for our stockholders and contribute to the broader public through charitable programs, including LifeVantage Legacy \u2013 an independent charitable organization focused on bettering the lives of children throughout the world. In turn, we offer competitive compensation and guide employees to focus on the long-term goals of our stockholders and independent consultants.  We have received many \u2018best place to work\u2019 awards over the years, most recently being named to the Utah Top Workplaces List by the Salt Lake Tribune.\nEnvironment\n: We are committed to reducing our impact on the environment and creating awareness about sustainability. We strive to improve our environmental footprint over time and to initiate additional projects and activities that will further reduce our impact on the environment. Our commitment to the environment extends to our customers, our independent consultants, our employees, and the global communities in which we operate. We comply with applicable environmental regulations and strive to prevent pollution whenever possible. We are increasing our efforts to train our employees and independent consultants on our environmental program and empower them to contribute and participate. We are committed to continually improving over time by striving to measure our environmental impacts and by setting goals to reduce these impacts each year. Some examples of our efforts include:\n22\n\u2022\nUsing more easily recycled packaging for the launch of our new products in our TrueScience\n\u00ae\n line and ensuring the new products score low on the Think Dirty scale;\n\u2022\nAbiding by our environmental policy using the feedback from our stakeholders to help formalize our focus on sustainability and began using environmental auditing in our selection process for new partners;\n\u2022\nSwitched to more easily recyclable bottles and cartons for product packaging, including replacing plastic bags with paper cartons for our energy drink products and using a fully recyclable glass bottle and cap for the recently launched TrueScience\n\u00ae\n Liquid Collagen product line;\n\u2022\nBegan sourcing shipping boxes made from Sustainable Forestry Initiative (SFI) certified corrugate material; \n\u2022\nCreated sharable videos that our independent consultants can use with our sustainability efforts;\n\u2022\nFocused on working with fish oil suppliers and fisheries who are Marine Stewardship Council (MSC) certified; and\n \n\u2022\nJoined the Roundtable on Sustainable Palm Oil (RSPO) to support sustainable sources of Palm Oil as we look for additional ways to enhance and /or create products for consumers.\nSocial/Community:\n We believe that our legacy is not the past, it is the future we create. This belief informed our effort to sponsor the formation of LifeVantage Legacy \u2013 an independent charitable organization focused on bettering the lives of children throughout the world. LifeVantage Legacy helps the leaders of tomorrow by touching a million lives across the world today. From simply helping a child in need to supporting initiatives that uplift entire communities, our goal is simple - give future generations the support and resources they need to live happier, healthier lives one child at a time. One of the best parts of LifeVantage is our commitment to leaving places better than we find them. \n\u2022\nHosting home building trips over the holidays with our independent consultants and their families in Puerto Penasco, Mexico where we have built over 30 homes for families in need over the past several years.\n\u2022\nWe have partnered with local refugee foundations to provide help to repair fences, provide habitat upkeep,  as well as helped procure needed items for kids and cleaning supplies for people's homes.\n\u2022\nAt our global convention, those who attended in person were able to aid us in packing 101,000 nutrient dense meals being sent to Thailand through a nonprofit partner.\n\u2022\nAt our company-sponsored incentive trips, we make sure to take time and give back to the local communities. At our Elite training event, we spent a day preparing local hygiene and school kits for an organization who helps provide medical care for children in the community and their families who cannot afford it.\n\u2022\nWe have a human rights policy and vendor code of conduct to formalize our auditing and commitment to align internationally with human rights philosophies in how we conduct business. We audit our key partners each year to ensure we are partnering with those who share our values.\n\u2022\nWe measured our employee's engagement level and requested anonymous feedback during the fiscal year and implemented changes to address the feedback.   We host a monthly all hands staff meeting to ensure our employees feel informed and aligned on our priorities.  This meeting encourages transparent communication, which was a focus for us this fiscal year.\nGovernance\n: We endeavor to continue to strengthen and improve our corporate governance and executive compensation practices. We have an equity ownership policy to reinforce our belief that executives and directors who believe in the future of our company should have meaningful equity holdings in LifeVantage. In addition, we have a majority standard for the election of directors on our board. \nAvailable Information\nOur principal offices are located at 3300 N. Triumph Blvd, Suite 700, Lehi, UT 84043. Our telephone number is (801)\u00a0432-9000 and our fax number is (801)\u00a0880-0699. Our website address is www.lifevantage.com; however, information found on our website is not incorporated by reference into this report. Our website address is included in this annual report as an inactive textual reference only.\nThe reports filed with the Securities and Exchange Commission (\u201cSEC\u201d), by us and by our officers, directors, and significant stockholders are available for review on the SEC\u2019s website at www.sec.gov. \nSuch reports are\n \nalso available free of charge through the investor relations section of our website at \nwww.lifevantage.com\n and are accessible as soon as reasonably practicable after being electronically filed with or furnished to the SEC.\n23",
+  "item1a": ">ITEM\u00a01A \u2014 RISK FACTORS\nBecause of the following risks, as well as other risks affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. The risks described below are those we currently believe could materially affect us. The following risks are not necessarily all of the important factors that could cause our actual results of operations to differ materially from those expressed in the forward-looking statements in this report.\nRisks Relating to Our Company\nAn inability to properly motivate and incentivize sales from our independent consultants could harm our business.\nMotivating our independent consultants and providing them with appropriate sales resources, including technology, tools and training, are important to the growth and success of our business. We have faced, and may continue to face, challenges in motivating and incentivizing our independent consultants. In addition, actions we take from time to time to enforce our policies and procedures, may cause discord among some of our independent consultants. The loss of key independent consultants due to various factors including, but not limited to, voluntary termination or involuntary termination or suspension resulting from non-compliance with our policies and procedures, could distract our independent consultants and disrupt our business. For example, in the past, we have experienced discord among our leading independent consultants. If we fail to properly respond to any discord among our leading independent consultants in the United States and other markets, we could lose additional leaders, including to competing direct selling companies, which could have a significant negative impact on our revenue. Further, from time to time, we are involved in legal proceedings with former independent consultants. Such legal proceedings can be a distraction to our active independent consultants and can be expensive, time-consuming and cause a disruption to our business. Our inability to properly respond to these and other distractions may have a negative impact on our business.\nThe widespread outbreak of an illness or communicable disease, or any other public health crisis, including the recent COVID-19 pandemic, could adversely affect our business, results of operations and financial condition.\nWe could be negatively impacted by the widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. In December 2019, an outbreak of COVID-19 began in China and in March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The pandemic resulted in significant national and global economic disruption and there is a chance that a future public health crisis may adversely affect our business. \nDuring fiscal year 2023, we continued to monitor COVID-19 and the disruptions it could have on our business. Our independent consultants have experienced, and could continue to experience, disruptions resulting from the recent COVID-19 pandemic. In Japan, independent consultants are still required to provide a hard-copy introductory packet (gaiyoshomen) in person to each person they approach to possibly enroll as an independent consultant before presenting our products and business opportunity. This requirement has inhibited, and could continue to inhibit, independent consultants from connecting with potential new independent consultants virtually or through social media from time. While some of the orders and restrictions that were in place during the COVID-19 pandemic have been lifted, we cannot be certain that such orders and restrictions will not be reinstated in the future. Accordingly, quarantines, avoidance of public places and general concerns about physical distancing related to COVID-19 or otherwise, if implemented, may significantly reduce the ability of our independent consultants to meet people in person and commence the enrollment process in some areas of the world. Our independent consultants have adapted their approach for customer outreach and sales, including transitioning to a stronger social media presence, in an effort to sustain their sales volume. \nOur business may, in the future, experience additional disruptions and be negatively impacted by  public health crises, including limitations on the ability of our suppliers to manufacture, or procure from manufacturers, the products we sell or any of the raw materials or components required in the production process, or to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home; limitations on the ability of carriers to deliver our products to customers; limitations on the ability of our independent consultants to conduct their businesses and purchase our products; and limitations on the ability of our customers or independent consultants to continue to purchase our products due to decreased disposable income. \nThe extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, all of which are uncertain and cannot be predicted. An extended period of global supply chain and economic disruption could have a material adverse effect on our business, results of operations, access to sources of liquidity and financial condition.\n24\nCyber security risks and the failure to maintain the integrity of data belonging to our company, employees, customers, and independent consultants could expose us to data loss, litigation and liability, and our reputation could be significantly harmed.\nWe collect and retain large volumes of data relating to our business and from our customers, independent consultants and employees for business purposes, including for transactional and promotional purposes, and our various information technology systems enter, process, summarize and report such data. The integrity and protection of this data is critical to our business. We are subject to significant security and privacy regulations, as well as requirements imposed by the payment card industry. Maintaining compliance with these evolving regulations and requirements could be difficult and may increase our expenses. In addition, a penetrated or compromised data system or the intentional, inadvertent or negligent release or disclosure of data could result in theft, loss or fraudulent or unlawful use of data relating to our company or our customers, independent consultants and/or employees, which could harm our brand and reputation, disrupt our operations, or result in remedial and other costs, fines or lawsuits, all of which would substantially harm our business and operating results.\nFurther, we are subject to changes in the regulatory environment regarding privacy and data protection. Our growth and expansion into a variety of new markets may potentially involve new regulatory issues and requirements. For example, many countries, such as European Union member countries as a result of the General Data Protection Regulation (\u201cGDPR\u201d) have introduced into local law some form of traffic and user data retention requirements. Compliance with these retention requirements can be difficult and costly from a legal, operational and technical perspective and could harm our business and operational results. We did not experience a material cyber security event in fiscal year 2023. \nWe may not be successful in expanding our operations.\nWe may not be successful in expanding our operations. Although we have been selling our products through our direct selling network since fiscal year 2009, we still may have limited insight into trends, disruptions and other factors that may emerge and affect our business. For example, primarily as a result of the impact on our business by the recent COVID-19 pandemic, our total revenue declined the prior two fiscal years. In addition, from time to time, we are compelled to terminate one or more of our independent consultants for actions contrary to their contractual obligations with us. In the past, some of these terminations have caused disruption among our independent consultants, and such terminations or resulting disruption in the future may negatively impact our revenue. Additionally, we may not be successful in keeping our leading independent consultants focused and motivated or in aligning their goals with our company goals. Although we are seeking to grow our business, if we fail to effectively manage operations in our existing markets and/or expand our operations into additional markets, we may be unable to generate consistent operating profit growth in future periods.\nIf we are able to expand our operations, we may experience difficulties in managing our future growth, which could adversely affect our business.\n \nIf we are able to expand our operations in the United States and in other countries where we believe our products will be successful, such expansion could place increased strain on our management, operational, financial and other resources. An inability to leverage our current resources in an efficient manner could have a material adverse effect on our business, operating margins, and results of operations. In addition, if we are able to expand our operations, we expect we will need additional managerial, operational, technical, sales, marketing, financial, legal, and other resources. Our management may need to divert its attention away from its day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure and loss of business opportunities, among others. \nWe may not succeed in growing our business in existing markets or opening new markets. \nWe sell our products in the United States, Mexico, Japan, Australia, Hong Kong, Canada, Thailand, the United Kingdom, the Netherlands, Germany, Taiwan, Austria, Spain, Ireland, Belgium, New Zealand, Singapore, and the Philippines. We also sell our products in a number of countries to customers for personal consumption only. In fiscal year 2023, we generated approximately 30% of our revenue from our international operations, a majority of which was generated in Japan. We believe that our ability to achieve future growth is dependent in part on our ability to effectively expand into new international markets and grow our existing markets. In some international markets, we have experienced difficulties which have resulted in adverse consequences to our business, including declining revenue in some markets and occasional disruption to our business with supply chain and logistics delays in delivering product to certain markets in a timely manner.  Our business and financial results may be also negatively impacted if a particular market or new business model is not widely accepted and adopted. We must overcome significant regulatory and legal barriers before we can begin marketing in any international market. Also, before marketing commences in a new country or market, it is difficult to assess the extent to which our products and sales techniques will be accepted or successful. In addition to significant regulatory barriers, we may also encounter problems conducting operations in new markets with different cultures and legal systems from those encountered elsewhere. We may be required to \n25\nreformulate one or more of our products before commencing sales of that product in a given country. Once we have entered a market, we must adhere to the regulatory and legal requirements of that market. We may not be able to obtain and retain necessary permits and approvals in new markets, or we may have insufficient capital to finance our expansion efforts in a timely manner.\nOur independent consultants could fail to comply with applicable legal requirements or our policies and procedures, which could result in claims against us that could harm our business.\n \nOur independent consultants are independent contractors and, accordingly, we are not in a position to directly provide the same oversight, direction and motivation as we would if they were our employees. As a result, there can be no assurance that our independent consultants will comply with applicable laws or regulations or our independent consultant policies and procedures, participate in our marketing strategies or plans, or accept our introduction of new products.\nExtensive federal, state, local and international laws regulate our business, products and direct selling activities. Because we have expanded into foreign countries, our policies and procedures for our independent consultants differ slightly in some countries due to the different legal requirements of each country in which we do business. In addition, as we have expanded internationally, some of our independent consultants have carried or shipped our products into countries in which such products are not registered or that otherwise impose stringent restrictions on our direct selling model. While we have taken steps to stop or restrict these sales from occurring, including through our independent consultant policies and procedures, it can be difficult to enforce these policies and procedures because of the large number of independent consultants and their independent status. If relevant regulatory authorities determined that any such independent consultant activities are not compliant with all regulatory requirements, we could be subject to related fines, penalties and other assessments. Activities by our independent consultants that violate applicable laws or regulations could result in government or third-party actions against us, which could harm our business. In addition, violations by our independent consultants of our policies and procedures could reflect negatively on our products and operations and harm our business reputation. Further, it is possible that a court could hold us civilly or criminally accountable based on vicarious liability because of the actions of our independent consultants. In the past, some of our independent consultants have been investigated by government agencies for conduct alleged to have violated the law and our policies. This type of investigation can have an adverse effect on us even if we are not involved in the independent consultant\u2019s activities.\nInability of new products and technological innovations to gain market acceptance by customers and/or independent consultants could harm our business.\nWe believe our ability to introduce new products that gain acceptance among our customers and independent consultants is an important part of our ability to grow our revenue in future periods. However, any new products we introduce may not gain market acceptance by customers and/or independent consultants to the extent we anticipate or project. Factors that could affect our ability to introduce new products include, among others, government regulations, the inability to attract and retain qualified research and development staff, the termination of third-party research and collaborative arrangements, proprietary protections of competitors that may limit our ability to offer comparable products and the difficulties in anticipating changes in consumer tastes and buying preferences. In addition, new products we introduce may not be successful or generate substantial sales revenue. The introduction of a new product could also negatively impact other product lines to the extent our independent consultant leaders focus their sales efforts on the new product instead of an existing product. If any of our products fails to gain customer and/or independent consultant acceptance, we could see an increase in product returns.\nIn addition, we believe our ability to introduce new technologies that gain acceptance among our customers and independent consultants is an important part of our ability to grow our sales revenue in future periods. However, these or other new technologies that we introduce may not gain customer and/or independent consultant acceptance to the extent we anticipate or project. \nIf we fail to maintain proper and effective internal controls, our ability to product accurate and timely financial statements could be impaired, which could result in sanctions or other penalties that would harm our business.\nAs a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 (the \u201cSarbanes-Oxley Act\u201d) requires, among other things, that we evaluate and determine the effectiveness of our internal controls over financial reporting and provide a management report on the internal controls over financial reporting.\nWe have implemented internal controls to help ensure the completeness and accuracy of our financial reporting and to detect and prevent fraudulent actions within our financial and accounting processes including the development and implementation of control policies and procedures regarding the international business policies, practices, monitoring and training for each country outside the U.S. in which we do business. However, we cannot be assured that significant deficiencies or material weaknesses in our internal control over financial reporting will not exist in the future. Any failure to maintain or \n26\nimplement required new or improved controls, or any difficulties we encounter in their implementation, could result in significant deficiencies or material weaknesses, cause us to fail to timely meet our periodic reporting obligations, or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations and annual auditor attestation reports regarding disclosure controls and the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act and the rules promulgated thereunder. The existence of a material weakness could result in errors in our financial statements that could result in a restatement of financial statements, cause us to fail to timely meet our reporting obligations, or cause investors to lose confidence in our reported financial information, which could cause a decline in the market price of our stock and we could be subject to sanctions or investigations by the SEC or other regulatory authorities including equivalent foreign authorities. In fiscal year 2023, we did not experience any material weaknesses in our internal control and/or financial reporting processes. \nOur business could be negatively impacted if we fail to execute any product launch process due to increased pressure on our supply chain, information systems and management.\nAlthough our product launch process may vary by market, we generally introduce new products to our customers and independent consultants through live events or cyber launches, limited-time offers and promotions. The limited-time offers typically generate significant activity and a high level of purchasing, which may result in a higher than normal increase in sales revenue during the quarter of the limited-time offer and skew year-over-year and sequential comparisons. We may experience difficulty effectively managing growth associated with these limited-time offers. In addition, the size and condensed schedule of these product launches increases pressure on our supply chain. If we are unable to accurately forecast sales levels in each market, obtain sufficient ingredients or produce a sufficient supply to meet demand, we may incur higher expedited shipping costs and we may temporarily run out of stock of certain products, which could negatively impact the enthusiasm of our independent consultants and their customers. Conversely, if demand does not meet our expectations for a product launch, we could incur increased inventory write-offs. Any inventory write-off would negatively impact our gross margins. In addition, our order processing systems could have difficulties handling the high volume of orders generated by limited-time offers. Although our previous limited-time offers have not materially affected our product return rate, these events may increase our product return rate in the future.\nOur business may be harmed if we are unable to appropriately manage our inventory.\n \nIn the past, we have experienced difficulties in appropriately managing our inventory. For example, when we launched our TrueScience\n\u00ae\n Liquid Collagen product in June 2022, we experienced higher than expected demand and did not have sufficient inventory to meet demand. Subsequently, our inventory balances increased significantly, causing us to engage in a deliberate effort to manage our inventory balances down to levels we viewed as appropriate. We review all inventory items quarterly for obsolescence, and when items become obsolete or are expired, we write down our inventory accordingly. If we are unable to sell our inventory in a timely manner, we may experience additional inventory obsolescence charges, including for finished products in inventory that have expired. If we are unable to appropriately manage our inventory balances, our business may be harmed.\nWe rely on our information technology systems to manage numerous aspects of our business, and a disruption in these systems could adversely affect our business.\nWe depend on our information technology (\u201cIT\u201d), systems to manage numerous aspects of our business, including our finance and accounting transactions, to manage our independent consultant sales compensation plan and to provide analytical information to management. Our IT systems are an essential component of our business and growth strategies, and a serious disruption to our IT systems could significantly limit our ability to manage and operate our business efficiently. These systems are vulnerable to, among other things, damage and interruption from power loss or natural disasters, computer system and network failures, loss of telecommunications services, physical and electronic loss of data, security breaches and computer viruses. Any disruption could cause our business and competitive position to suffer and adversely affect our business and operating results. In addition, if we experience future growth, we will need to scale or change some of our systems to accommodate the increasing number of independent consultants and their customers.\nInability to comply with financial covenants imposed by our credit facility and the impact of debt service obligations and restrictive covenants could impede our operations and flexibility.\nWe entered into a Financing Agreement in March 2016, which was subsequently amended in May 2018, February 2019, April 2021 and September 2022 that provides for a credit facility consisting of a revolving loan facility in an aggregate principal amount not to exceed $5 million. The revolving loan facility has a maturity date of March 2024. A\ns of June\u00a030, 2023 and 2022, there is no outstanding balance on the revolving loan facility. The principal amount of any borrowings under the credit facility is repayable in consecutive quarterly installments. We expect to generate the cash necessary to pay any future principal and interest on the credit facility from our cash flows provided by operating activities. However, our ability to meet \n27\nour debt service obligations will depend on our future performance, which may be affected by financial, business, economic, demographic and other factors. If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our debt, sell assets, borrow more money or raise cash through the sale of equity. In such an event, we may not be able to refinance our debt, sell assets, borrow more money or raise cash through the sale of equity on terms acceptable to us or at all. Also, our ability to carry out any of these activities on favorable terms, if at all, may be further impacted by any financial or credit crisis which may limit access to the credit markets and increase the cost of capital. \nThe credit facility is secured by a lien on substantially all of our assets, and the assets of our subsidiaries, and contains customary covenants, including affirmative and negative covenants, that restrict our ability to incur or guarantee additional indebtedness, declare or pay dividends on or redeem capital stock, make other payments to holders of our equity interests, make certain investments, purchase or otherwise acquire all or substantially all the assets or equity interests of other companies, sell our assets and enter into consolidations, mergers or transfers of all or substantially all of our assets. The credit facility requires that we maintain specified financial ratios and satisfy certain financial condition tests and meet certain informational requirements in order to draw on the revolving loan facility, if needed. Our ability to meet these financial ratios and tests and informational requirements can be affected by events beyond our control and we may be unable to meet these ratios and tests and informational requirements. A breach of any of the covenants, ratios, tests or restrictions imposed by the credit facility would result in an event of default and the lender could declare any and all amounts outstanding under the credit facility to be immediately due and payable or limit our ability to draw on the revolving loan facility. Our assets may not be sufficient to repay the indebtedness if the lenders accelerate our repayment of the indebtedness under the credit facility. We were in compliance with all credit facility covenants at the end of fiscal year 2023.\nA substantial portion of our business is conducted in foreign markets, exposing us to the risks of trade or foreign exchange restrictions, increased tariffs, foreign currency fluctuations, disruptions or conflicts with our third-party importers and similar risks associated with foreign operations.\nGlobal economic conditions continue to be challenging and unpredictable. A substantial portion of our sales are generated outside the United States. If we are successful in entering additional foreign markets, we anticipate that the percentage of our sales generated outside the United States will increase. There are substantial risks associated with foreign operations. For example, a foreign government may impose trade or foreign exchange restrictions, increased tariffs or other legal, tax, customs or other financial burdens on us or our independent consultants, due, for example, to the structure of our operations in various markets. Any such actions could negatively impact our operations and financial results. We are also exposed to risks associated with foreign currency fluctuations. For instance, in preparing our financial statements, we translate revenue and expenses in our markets outside the United States from their local currencies into U.S. Dollars using weighted average exchange rates. If the U.S. Dollar strengthens relative to local currencies, our reported revenue, gross profit and net income will likely be reduced. Foreign currency fluctuations can also result in losses and gains resulting from translation of foreign currency denominated balances on our balance sheet. Additionally, purchases from suppliers are generally made in U.S. Dollars while sales to customers and independent consultants are generally made in local currencies. Accordingly, strengthening of the U.S. Dollar versus a foreign currency could have a negative impact on us. Specifically, because a significant percentage of our revenue is generated in Japan, strengthening of the U.S. Dollar versus the Japanese yen has had and, in the future, could have an adverse impact on our financial results. Although we may engage in transactions intended to reduce our exposure to foreign currency fluctuations, there can be no assurance that these transactions will be effective. Given the complex global political and economic dynamics that affect exchange rate fluctuations, it is difficult to predict future fluctuations and the effect these fluctuations may have upon future reported results or our overall financial condition.\nAdditionally, we may be negatively impacted by conflicts with, or disruptions caused or faced by, third party importers, as well as conflicts between such importers and local governments or regulatory agencies. Our operations in some markets also may be adversely affected by political, economic and social instability in foreign countries.\nWe may require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may require us to delay, scale back, or cease our product development or growth plans.\nBased on our current plans, we believe that our current cash and cash equivalents and our ongoing cash flow from operations will be sufficient to satisfy our anticipated cash requirements for at least 12 months from the date of this report. If our available cash resources and anticipated cash flows from operations are insufficient to satisfy our liquidity requirements, we may be required to raise significant additional capital to support our continued operations and the implementation of our business and growth plans. Future funding requirements will depend on many factors, including but not limited to:\n\u2022\nthe costs associated with acquiring products from third-party vendors;\n\u2022\nthe costs of the sales and marketing activities of our products;\n\u2022\nthe costs associated with commissions and incentives for our independent consultants;\n28\n\u2022\nlitigation expenses we incur to defend against claims, including claims that we infringe the intellectual property of others or judgments we must pay to satisfy such claims;\n\u2022\ncontractual obligations to third parties;\n\u2022\nour rate of progress in developing, launching and selling our current products and any new products we pursue;\n\u2022\nour ability to control our operating costs;\n\u2022\nour ability to satisfy our outstanding debt obligations; and\n\u2022\nthe costs of responding to the other risks and uncertainties described in this report.\nWe may also be required to raise additional capital in the future to expand our business and operations to pursue strategic investments or for other reasons including but not limited to:\n\u2022\nincreasing our sales and marketing efforts to drive market adoption of our products;\n\u2022\nscaling up our customer support capabilities;\n\u2022\nfunding development and marketing efforts of additional products;\n\u2022\nexpanding our product portfolio into additional markets;\n\u2022\nacquiring products through licensing rights;\n\u2022\nacquiring or investing in complementary businesses or assets; and\n\u2022\nfinancing capital expenditures and general and administrative expenses.\nWe may seek required funding through issuances of equity or convertible debt securities or entering into additional loan facilities. Each of the various ways we could raise additional capital carry potential risks. If we raise funds by issuing equity securities, dilution to our stockholders would result. If we raise funds by issuing additional debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of our common stock. Our credit facility restricts our ability to pursue certain transactions that we may believe to be in our best interest, including incurring additional indebtedness without the prior written consent of the lender under the credit facility. \nIf we are unable to obtain adequate financing or financing on terms satisfactory to us, if we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited and could have a material adverse effect on our business, financial condition, results of operations and prospects.\nRisks Relating to Our Business and Industry\nWe primarily depend on a few products for a majority of our revenue.\nAlthough we generate revenue through the sale of other products, we primarily rely on our Protandim\n\u00ae\n and TrueScience\n\u00ae \nproduct lines for a majority of our revenue, which collectively represent approximately 79.3% of our total revenue. We do not currently have a diversified portfolio of other products that we could rely on to support our operations if we were to experience any difficulty with the manufacture, marketing, sale or distribution of these product lines. As such, any adverse impact we experience with respect to these two product lines could result in an impact to our overall revenue. For example, if we are unable to sustain or increase the price or sales levels for the Protandim\n\u00ae\n and TrueScience\n\u00ae\n \nproduct lines, our business could be harmed.\nIf we are unable to retain our existing customers and independent consultants or attract additional customers and independent consultants, our revenue will not increase and may decline.\nOur customers may cease purchasing our products at any time and for any reason. Our independent consultants may terminate their services at any time, and we can and have in the past terminated consultants for conduct violative of our policies and procedures. As such, like most direct selling companies, we have experienced and are likely to continue to experience turnover among both customers and independent consultants. We have experienced, and may continue to experience, a decrease in the number of our independent consultants. The departure for any reason of one of our leading independent consultants can be a major disruption to other independent consultants and could have a significant negative impact on our sales and operating results. Independent consultants who join our company to purchase our products for personal consumption or for short-term \n29\nincome goals may only stay with us for a short time. While we take steps to help train, motivate, and retain independent consultants, we cannot accurately predict the number or sales productivity of our independent consultants.\nOur operating results will be harmed if we and our independent consultant leaders do not generate sufficient interest in our business to retain existing customers and independent consultants and attract new customers and independent consultants. The number and sales productivity of our independent consultants could be harmed by several factors, including:\n\u2022\nany adverse publicity regarding us, our products, our distribution channel, or our competitors;\n\u2022\nnon-compliance by our independent consultants with applicable legal requirements or our policies and procedures;\n\u2022\nlack of interest in existing or new products or their failure to achieve desired sales results;\n\u2022\nlack of a compelling business opportunity sufficient to generate the interest and commitment of new independent consultants;\n\u2022\nany changes we might make to our independent consultant sales compensation plan;\n\u2022\nany negative public perception of our company or our products or their ingredients;\n\u2022\nany negative public perception of our independent consultants and direct selling business in general;\n\u2022\nour actions to enforce our policies and procedures;\n\u2022\nany efforts to sell our products through competitive channels;\n\u2022\nany regulatory actions or charges against us or others in our industry; and\n\u2022\ngeneral economic and business conditions.\nHigh quality materials for our products may be difficult to obtain or expensive.\nRaw materials account for a significant portion of our manufacturing costs and we rely on third-party suppliers to provide raw materials. Suppliers may be unable or unwilling to provide the raw materials our manufacturers need in the quantities requested, at a price we are willing to pay, or that meet our quality standards. We are also subject to potential delays in the delivery of raw materials caused by events beyond our control, including the COVID-19 pandemic, labor disputes, transportation interruptions and changes in government regulations. Our business could be adversely affected if we are unable to obtain a reliable source of any of the raw materials used in the manufacturing of our products that meets our quality standards. Additionally, if demand for our products exceeds our forecasts, we may have difficulties in obtaining additional raw materials in time to meet the excess demand. Any significant delay in or disruption of the supply of raw materials could, among other things, substantially increase the cost of such materials, require reformulation or repackaging of products, require the qualification of new suppliers, or result in our inability to meet customer demands.\nAlthough our independent consultants are independent contractors, improper actions by independent consultants that violate laws or regulations could harm our business.\nOur independent consultants are not employees and act independent of us. However, activities by our independent consultants that allegedly violate applicable laws or regulations could result in government or third-party actions against us, which could harm our business. Our independent consultants agree to abide by our policies and procedures which are designed to ensure our independent consultants will comply with legal requirements. We have a consultant compliance department that addresses violations of our independent consultants when they become known to us. However, given the size of our independent consultant network, we experience problems with independent consultants violating our policies and procedures from time to time and are not always able to discover or remedy such violations.\nOne of our most significant areas of risk with respect to independent consultant activities relates to improper product claims and claims regarding the consultant business opportunity of being an independent consultant. Any determination by the Food and Drug Administration, Federal Trade Commission, any state agency or other similar governmental agency outside the United States that we or our independent consultants are not in compliance with applicable laws could materially harm our business. Even if governmental actions do not result in rulings or orders against us, they could create negative publicity that could detrimentally affect our efforts to recruit or motivate independent consultants and attract customers or lead to consumer lawsuits against us. When we experience growth in the number of our independent consultants, we have seen an increase in sales aids and promotional material being produced by independent consultants and/or consultant groups in some markets. This places an increased burden on us to monitor compliance of such materials and increases the risk that such materials could contain problematic product, marketing, or business opportunity claims in violation of our policies and applicable regulations. \n30\nAs we expand our operations, including internationally, our independent consultants sometimes attempt to anticipate additional new markets that we may enter in the future and begin marketing and sponsoring activities in markets where we are not qualified to conduct business. For example, some of our independent consultants have carried or shipped our products into countries in which such products are not registered or that otherwise impose stringent restrictions on our direct selling model. These or other activities by our independent consultants that violate applicable laws or regulations could subject us to legal or regulatory claims or actions, which could result in fines, penalties or negative publicity, any of which could have an adverse impact on our business.\nWe are dependent upon third parties to manufacture our products.\nWe currently rely on third parties to manufacture our products. We are dependent on the uninterrupted and efficient operation of third-party manufacturers\u2019 facilities. We currently use multiple third-party manufacturers for our products. If any of our current manufacturers are unable or unwilling to fulfill our manufacturing requirements or seek to impose unfavorable terms, we will likely have to seek out other manufacturers, which could disrupt our operations and we may not be successful in finding alternative manufacturing resources. In addition, competitors who perform their own manufacturing may have an advantage over us with respect to pricing, availability of product, and in other areas through their control of the manufacturing process.\nDisruptions to or significantly increased costs associated with transportation and other distribution channels for our products may adversely affect our margins and profitability.\nWe generally rely on the uninterrupted and efficient operation of third-party logistics companies to transport and deliver our products. These third-party logistics companies may experience disruptions to the transportation channels used to distribute our products, including disruptions caused by the COVID-19 pandemic, increased airport and shipping port congestion, a lack of transportation capacity, increased fuel expenses, and a shortage of manpower. Disruptions to the transportation channels experienced by our third-party logistics companies may result in increased costs, including the additional use of airfreight to meet demand. \nWe are subject to risks related to product recalls.\nWe have implemented measures in our manufacturing process that are designed to prevent and detect defects in our products, including contaminants. However, such measures may not prevent or reveal defects or detect contaminants in our products and such defects and contaminants may not become apparent until after our products have been sold into the market. Accordingly, there is a risk that product defects will occur, or that our products will contain foreign contaminants, and that such defects and contaminants will require a product recall. We do not maintain product recall insurance. In the past, we commenced a voluntary recall of certain lots of Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n to alleviate safety concerns related to certain batches of turmeric extract, an ingredient in Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n we purchase from third-party suppliers. Product recalls and subsequent remedial actions can be expensive to implement and could have a material adverse effect on our business, results of operations and financial condition. In addition, product recalls could result in negative publicity and public concerns regarding the safety of our products, either of which could harm the reputation of our products and our business and could cause the market value of our common stock to decline.\nA past voluntary product recall strained our relationships with some of our third-party manufacturers. Additionally, following the voluntary recall we implemented more stringent measures, including several redundant measures, in our manufacturing process to detect contaminants. Third-party manufacturers may be reluctant to implement these redundant measures, may refuse to manufacture our products, and additional safety measures such as these may increase our cost of goods sold and strain our relationships with manufacturers.\nLaws and regulations may prohibit or severely restrict direct selling and cause our revenue and profitability to decline, and regulators could adopt new regulations that negatively impact our business.\nVarious government agencies throughout the world regulate direct selling practices. The laws and regulations applicable to us and our independent consultants in Japan are particularly stringent. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes, often referred to as \u201cpyramid\u201d schemes, which compensate participants primarily for recruiting additional participants without significant emphasis on the sale of product to end consumers. Government agencies, such as the FTC in the United States and similar agencies in foreign jurisdictions, periodically investigate direct selling companies based on such schemes or other claims made by a direct selling company or its independent consultants. Generally, companies that are the subject of an FTC, or similar foreign agency, enforcement action are required to pay monetary fines and/or make updates to its business model. The laws and regulations in some of our markets impose cancellations, product returns, inventory buy-backs and cooling-off rights for our independent consultants and/or customers. Excessive refunds and/or product returns pursuant to local laws and regulations, including being the target of an enforcement action or investigation by the FTC or a similar foreign agency in a foreign jurisdiction, could have a negative impact on our operating results. Complying with \n31\nthese rules and regulations can be difficult and requires the devotion of significant resources on our part. We may not be able to continue business in existing markets or commence operations in new markets if we are unable to comply with these laws or adjust to changes in these laws.\nUnfavorable publicity could materially harm our business.\nWe are highly dependent upon consumers' perceptions of the safety, quality, and efficacy of our products, as well as competitive products distributed by other companies. In the past, we have experienced negative publicity that has harmed our business. Critics of our industry and other individuals whose interests are not aligned with our interests, have in the past and may in the future utilize the Internet, the press and other means to publish criticism of the industry, our company, our products and our competitors, or make allegations regarding our business and operations, or the business and operations of our competitors. For instance, several prominent companies in our industry have been targeted by short sellers who profit if a company's stock price decreases. One such company was targeted by a short seller who, after taking a significant short position, publicly made allegations regarding the legality of the company's direct selling model. Short sellers have an incentive to publicly criticize our industry and business model and any such criticism may adversely affect our stock price.\nFuture scientific research or publicity may not be favorable to our industry or any particular product. Because of our dependence upon consumer perceptions, adverse publicity associated with illness or other adverse effects resulting or claimed to have resulted from the consumption or use of our products or any similar products distributed by other companies could have a material adverse impact on us. Such adverse publicity could arise even if the claims are unsubstantiated or if the adverse effects associated with such products resulted from failure to consume or use such products as directed. Adverse publicity could also increase our product liability exposure, result in increased regulatory scrutiny and lead to the initiation of private lawsuits.\nWe are subject to risks related to a Global Not For Resale Program\nWe have a Global Not For Resale program, which allows customers from around the world to purchase limited amounts of our products for their individual consumption. Under this program, customers from other countries are able to set up a U.S. customer account and associated U.S. address and payment method to drop-ship their order to a third-party vendor in the U.S., who will then ship the products to the customer\u2019s global location with any customs and/or duties being the sole responsibility of the ordering customer.\nThis program may raise questions from tax regulators about the appropriate sales tax jurisdiction due to the varied and complex tax regulations in the U.S. and around the world. Further, any regulatory review of our facilitation to ship U.S. product to our existing markets, where such product has not been registered, may raise issues against the local subsidiary from the foreign jurisdiction equivalents of the FDA or FTC or the relevant trade associations, should any agency or association perceive that we or our independent consultants are advertising and/or facilitating the sale of unregistered product in their country.\nOur direct selling program could be found to be not in compliance with current or newly adopted laws or regulations in one or more markets, which could prevent us from conducting our business in these markets and harm our financial condition and operating results.\nSome of the legal and regulatory requirements concerning the direct selling business model are ambiguous and subject to interpretation. As a result, regulators and courts have discretion in their application of these laws and regulations, and the enforcement or interpretation of these laws and regulations by governmental agencies or courts can change. Allegations by short sellers regarding the legality of multi-level marketing companies generally have also created intense public scrutiny of our industry and could cause governmental agencies to change their enforcement and interpretation of applicable laws and regulations. The failure of our business to comply with current or newly adopted regulations or interpretations could negatively impact our business in a particular market or in general and may adversely affect our stock price.\nActions of activist stockholders could impact the pursuit of our business strategies, cause us to incur substantial costs, divert our management\u2019s attention and resources, and adversely affect our business, results of operations, financial condition, and the trading price of our common stock.\nPublicly traded companies have increasingly become subject to campaigns by activist investors advocating corporate actions such as financial restructurings, increased borrowings, special dividends, stock repurchases or even sales of assets or entire companies to third parties or the activists themselves. Responding to proxy contests and other actions by activist stockholders, including related litigation, can be costly and time consuming, disrupt our operations and divert the attention of our board and senior management from the pursuit of business strategies, which could adversely affect our results of operations and financial condition. Additionally, perceived uncertainties as to our future direction as a result of stockholder activism or changes to the composition of our board may lead to the perception of a change in the direction of our business, instability or lack of continuity. These uncertainties may be more acute or heightened when an activist seeks to change a majority of the board or ultimately desires to acquire the company. If individuals are elected to our board with a specific agenda, it may \n32\nadversely affect our ability to effectively implement our business strategy and create additional value for our stockholders. Additionally, actions by activist stockholders may be exploited by our competitors, cause concern to our current or potential independent consultants and customers, make it more difficult to attract and retain qualified personnel and may create adverse uncertainty for our employees. In addition, actions of activist stockholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business. On August 9, 2023, we received notice from a stockholder, Bradley L. Radoff, of his intent to nominate three directors for election at the company\u2019s fiscal year 2024 annual meeting of stockholders. Our board and management team strive to maintain constructive, ongoing communications with our stockholders, including Mr. Radoff, and welcome all views and ideas that have the potential to enhance value for all stockholders. Although our board has not made its recommendation with respect to the director election the fiscal year 2024 annual meeting of stockholders, it is possible that, if the company and Mr. Radoff cannot reach an agreement in connection with his nomination, a proxy contest involving Mr. Radoff may ensue with respect to the company\u2019s fiscal year 2024 annual meeting of stockholders, or that we could become engaged in a proxy contest with another activist stockholder in the future.\nWe may become involved in legal proceedings that are expensive, time consuming and, if adversely adjudicated or settled, could adversely affect our financial results.\nLitigation claims can be expensive and time consuming to bring or defend against and could result in settlements or damages that could significantly affect our financial results. It is not possible to predict the final resolution of litigation to which we may become a party, and the impact of litigation proceedings on our business, results of operations and financial condition could be material.\nFrom time to time, we are involved in various legal matters, both as a plaintiff and defendant. While we believe the suits against us are without merit, they are costly to defend and we cannot be assured that we will ultimately prevail. If we do not prevail and are required to pay damages, it could harm our business.\nOur business is subject to strict government regulations.\nThe manufacturing, packaging, labeling, advertising, sale and distribution of our products are subject to federal laws and regulations by one or more federal agencies, including, in the United States, the FDA, the FTC, the Consumer Product Safety Commission, and the United States Department of Agriculture. These activities are also regulated by various state, local, and international laws and agencies of the states, localities and countries in which our products are sold. For instance, the FDA regulates, among other things, the composition, safety, labeling, and marketing of dietary supplements (including vitamins, minerals, herbs and other dietary ingredients for human use). Government regulations may prevent or delay the introduction of our products, or require us to reformulate our products or change the claims we make about them, which could result in lost revenue, increased costs and delay our expansion into new international markets.\nThe FDA may determine that a particular dietary supplement or ingredient is adulterated or misbranded or both and may determine that a particular claim or statement of nutritional support that we make to support the marketing of a dietary supplement is an impermissible drug claim, or is an unauthorized version of a \u201chealth claim.\u201d The FDA, the FTC, or state attorneys general may also determine that a particular claim we make for our products is not substantiated. Determining whether a claim is improper frequently involves a degree of subjectivity by the regulatory agency or individual regulator. Any of these determinations by the FDA or other regulators could prevent us from marketing that particular dietary supplement product, or making certain claims for that product. The FDA could also require us to remove a particular product from the market. Any future recall or removal would result in additional costs to us, including lost revenue from any product that we are required to remove from the market, which could be material. Any product recalls or removals could also lead to liability, substantial costs, and reduced growth prospects.\nIn April 2017, we received a warning letter from the FDA alleging that information on our website contained impermissible drug claims relating to our Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n product. We believe the letter from the FDA contained factual inaccuracies and we responded promptly to the FDA. The FDA subsequently concluded that the issues set forth in the warning letter had been fully resolved. We believe we do not claim that any of our products prevent, diagnose, treat or cure any disease in any of our marketing materials or labeling and we proactively and consistently engage distinguished experts in FDA law and regulation to ensure our promotional materials and websites adhere to applicable requirements and restrictions. Nevertheless, in the future, we may receive similar warning letters from the FDA if it believes some violation of law has occurred either by us or by our independent consultants. Any allegations of our non-compliance may result in time-consuming and expensive defense of our activities. FDA warning letters are available to the public on the FDA\u2019s website. That information could negatively affect our relationships with our customers, investors, independent consultants, vendors, employees and consumers. Warning letters may also spark private class action litigation under state consumer protection statutes. The FDA could also order compliance activities, such as an inspection of our facilities and products, and could file a civil lawsuit in \n33\nwhich an arrest warrant (seizure) could be issued as to some or all of our products. In extraordinary cases, we could be named a defendant and sued for declaratory and injunctive relief.\nAdditional or more stringent regulations of dietary supplements and other products have been considered from time to time. In recent years, there has been increased pressure in the United States and other markets to increase regulation of dietary supplements. New regulations, or new interpretations of those regulations, could impose additional restrictions, including requiring reformulation of some products to meet new standards, recalls or discontinuance of some products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of some products, additional or different labeling, additional scientific substantiation, additional adverse event reporting, or other new requirements. Any of these developments could increase our costs significantly. \nIn the United States, for example, some legislators and industry critics continue to push for increased regulatory authority by the FDA over dietary supplements and the FTC over dietary supplements and the direct selling industry. The FDA may strengthen the regulation of dietary supplements by modernizing its oversight of dietary supplements and the FTC may strengthen the regulation of business opportunity claims and direct selling companies, among other things. The FTC has in recent years investigated and taken enforcement action against direct selling companies for misleading representations relating to the earnings potential of an independent consultant within a company\u2019s compensation plan, as well as appropriateness of the compensation plans themselves. Our business could be harmed if more restrictive legislation or regulation is successfully introduced and adopted in the future. In the United States, the FTC\u2019s Guides Concerning the Use of Endorsements and Testimonials in Advertising (the \u201cGuides\u201d), require disclosure of material connections between an endorser and the company they are endorsing and generally do not allow marketing using atypical results. Our independent consultants have historically used testimonials to market and sell our products. Producing marketing materials that conform to the requirements and restrictions of the Guides may diminish the impact of our marketing efforts and negatively impact our sales results. If we or our independent consultants fail to comply with these Guides, the FTC could bring an enforcement action against us and we could be forced to alter our marketing materials and/or refund or disgorge funds. Our operations also could be harmed if new laws or regulations are enacted that restrict our ability to market or distribute dietary supplements or impose additional burdens or requirements on dietary supplement companies or require us to reformulate our products.\nIn addition, the Dietary Supplement and Nonprescription Drug Consumer Protection Act imposes significant regulatory requirements on dietary supplement manufacturers, packers and consultants including the reporting of \u201cserious adverse events\u201d to the FDA and record keeping requirements. Complying with this legislation could raise our costs and negatively impact our business. We and our suppliers are also required to comply with FDA regulations with respect to current Good Manufacturing Practices in manufacturing, packaging, or holding dietary ingredients and dietary supplements. These regulations require dietary supplements to be prepared, packaged, and held in compliance with procedures that we and our third-party subcontractors must develop and make available for inspection by the FDA. These regulations could raise our costs and negatively impact our business. Additionally, our third-party suppliers or vendors may not be able to comply with these rules without incurring substantial expenses. If our third-party suppliers or vendors are not able to comply with these rules, we may experience increased cost or delays in obtaining certain raw materials and third-party products.\nIn 2022, the FDA published an updated draft guidance which is intended, among other things, to help manufacturers and consultants of dietary supplement products determine when they are required to file with the FDA a New Dietary Ingredient (\u201cNDI\u201d), notification with respect to a dietary supplement product. In this draft guidance, the FDA highlighted the necessity for marketers of dietary supplements to submit NDI notifications as an important preventive control to ensure that consumers are not exposed to potential unnecessary public health risks in the form of new ingredients with unknown safety profiles. Although we do not believe that any of our products contain an NDI, if the FDA were to conclude that we should have filed an NDI notification for any of our products, then we could be subject to enforcement actions by the FDA. Such enforcement actions could include product seizures and injunctive relief being granted against us, any of which would harm our business.\nIn May 2016, the FDA released a final rule updating the Nutrition Facts label for packaged foods and the Supplement Facts label for dietary supplements, with the objective to help consumers make better informed decisions. While the original compliance deadline for manufacturers of food and dietary supplements to use the new label was July 26, 2018, the FDA subsequently extended the compliance deadline to January 1, 2020, and later announced it would exercise enforcement discretion (i.e., not enforce the new label requirements) until January 1, 2021. Further, in December 2018, the U.S. Department of Agriculture promulgated regulations requiring that, by January 1, 2022, the labels of certain bio engineered foods, including dietary supplements, must include a disclosure that the food is bio engineered. Implementation of the new label requirements may result in additional costs to our business.\nOur Cannabidiol (\u201cCBD\u201d) products are subject to varying, rapidly changing federal, state and local laws, regulations, and rules, which could adversely affect our results of operations and financial condition. \n34\nWe launched new hemp-derived CBD personal care products during fiscal year 2021. The CBD industry is evolving and subject to varying, and rapidly changing, laws, regulations and administrative practices. For example, the Agricultural Improvement Act of 2018 (the \u201c2018 Farm Bill\u201d) formally defined \u201chemp\u201d as the \nCannabis sativa\n plant and its derivatives, extracts and cannabinoids with a delta-9 tetrahydrocannabinol (\u201cTHC\u201d) concentration of not more than 0.3%, and removed hemp from the federal definition of marijuana, making it no longer a Schedule I illegal drug under the Controlled Substances Act. The 2018 Farm Bill thus opened a pathway for the production and marketing of hemp and hemp derivatives, subject to compliance with certain federal requirements and state and local law. Our CBD products are derived from hemp as defined in the 2018 Farm Bill. Continued development of CBD-related industries is dependent upon continued legalization of CBD-related products at the federal and state levels, and a number of factors could slow or halt progress in this area. \nIn addition, the manufacture, labeling, and distribution of our CBD products are regulated by various federal, state and local agencies. These governmental authorities or litigators, such as class action lawyers or attorneys general, may commence regulatory or legal proceedings, which could restrict the permissible scope of our product claims or our ability to sell products in the future. Violations of applicable laws, or allegations of such violations, could disrupt our business and result in material adverse effects on our operations and financial condition. We cannot predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will have a material adverse effect on our business, including our ability to develop, sell, and expand our CBD-infused products. Further, in the event of either repeal of federal, state or local laws and regulations, or amendments thereto that are adverse to our intended products, we may be restricted or limited with respect to those products that we may sell or distribute, which could adversely impact our intended business plan with respect to such products. \nRegulations governing the production and marketing of our products could harm our business.\nWe are subject to various domestic and foreign laws and regulations that regulate the production and marketing of our products. If, for example, a determination that our dietary supplement products are used to diagnose, treat, cure, or prevent any disease or illness, including due to improper marketing claims by our independent consultants, it may lead to a determination that the LifeVantage\n\u00ae\n supplements require pre-market approval as a drug. Such regulations in any given market can limit our ability to import products and can delay product launches as we go through the registration and approval process for those products. Furthermore, if we fail to comply with these regulations, we could face enforcement action against us and we could be fined, forced to alter or stop selling our products and/or be required to adjust our operations. Our operations also could be harmed if new laws or regulations are enacted that restrict our ability to market or distribute our products or impose additional burdens or requirements on the contents of our products or require us to reformulate our products.\nWe are subject to the risk of investigatory and enforcement action.\nWe are subject to the risk of investigatory and enforcement action by various government agencies, both domestic and international. For instance, the FTC and state attorneys general may open an investigation or bring an enforcement action against us based on our advertising claims and marketing practices. The FTC routinely reviews product advertising, including websites, to identify significant questionable advertising claims and practices. The FTC has brought many actions against dietary supplement companies, including some actions that were brought jointly with state attorneys general, based upon allegations that applicable advertising claims or practices were deceptive or not substantiated. If the FTC initiates an investigation, the FTC can initiate pre-complaint discovery that may be nonpublic in nature. In addition, we are subject to the risk of investigatory and enforcement action by other agencies including, but not limited to, the FDA, including warning letters and other sanctions, enforcement actions by the SEC and by other international regulatory agencies. Any investigation may be very expensive to defend and may result in an adverse ruling or in a consent decree.\nGovernment authorities may question our tax positions or transfer pricing policies or change their laws in a manner that could increase our effective tax rate or otherwise harm our business.\nAs a U.S. company doing business in international markets through subsidiaries, we are subject to various tax and intercompany pricing laws, including those relating to the flow of funds between our company and our subsidiaries. From time to time, we are audited by tax regulators in the United States and in our foreign markets. If regulators challenge our tax positions, corporate structure, transfer pricing mechanisms or intercompany transfers, we may be subject to fines and payment of back taxes, our effective tax rate may increase and our operations may be harmed. Tax rates vary from country to country, and, if tax authorities determine that our profits in one jurisdiction may need to be increased, we may not be able to fully utilize all foreign tax credits that are generated, which will increase our effective tax rate. The various customs, exchange control and transfer pricing laws are continually changing and are subject to the interpretation of government agencies. We may experience increased efforts by customs authorities in foreign countries to reclassify our products or otherwise increase the level of duties we pay on our products. Despite our efforts to be aware of and comply with such laws, and changes to and interpretations thereof, there is a risk that we may not continue to operate in compliance with such laws. We may need to adjust our operating procedures in response to such changes and, as a result, our business may suffer. In addition, due to the international nature of \n35\nour business, from time to time, we are subject to reviews and audits by taxing authorities of other jurisdictions in which we conduct business throughout the world.\nOur financial condition and results of operations may be adversely affected by international regulatory and business risks. \nAs a result of our operations, offering products or contracting with independent contractors and other service providers in various other countries, we are increasingly subject to varied and complex foreign and international laws and regulations. Compliance with these laws and regulations often involves significant costs and may require changes in our business practices that may result in reduced revenues and adversely affect our operating results.\nWe are subject to the Foreign Corrupt Practices Act (the \u201cFCPA\u201d), which prohibits companies and their intermediaries from making payments in violation of law to non-U.S. government officials for the purpose of obtaining or retaining business or securing any other improper advantage. Our reliance on independent consultants to market our products internationally demands a high degree of vigilance in maintaining our policy against participation in corrupt activity, because these independent consultants may be deemed to be our agents and we could be held responsible for their actions. We are also subject to similar anti-bribery laws in the jurisdictions in which we operate, including the United Kingdom\u2019s Bribery Act of 2010, which also prohibits commercial bribery and makes it a crime for companies to fail to prevent bribery. These laws are complex and far-reaching in nature. Any violations of these laws, or allegations of such violations, could disrupt our operations, involve significant management distraction, involve significant costs and expenses, including legal fees, and we could be subject to severe penalties, including criminal and civil penalties, disgorgement, and other remedial measures, any of which could result in a material adverse effect on our business, prospects, financial condition, or results of operations. Any allegations that we are not in compliance with anti-corruption laws may require us to dedicate time and resources to an internal investigation of the allegations or may result in a government investigation. Any determination that our operations or activities are not in compliance with existing anti-corruption laws or regulations could result in the imposition of substantial fines, and other penalties. Although we have implemented anti-corruption policies and controls to protect against violation of these laws, we cannot be certain that these efforts will be effective. Operating internationally requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required to increase international revenues or expand our international presence will produce desired levels of revenues or profitability.\nThe loss of or inability to attract key personnel could negatively impact our business.\nOur future performance will depend, in part, upon our ability to attract, retain, and motivate our executive and senior management team and scientific staff. Our success depends to a significant extent both upon the continued services of our current executive and senior management team and scientific staff, as well as our ability to attract, hire, motivate, and retain additional qualified management and scientific staff in the future. Specifically, competition for executive and senior staff in the direct selling and dietary supplement markets is intense, and our operations could be adversely affected if we cannot attract and retain qualified personnel. Additionally, former members of our executive and senior management team have in the past, and could in the future join or form companies that compete against us in the direct selling industry.\nAll of our employees are \u201cat will\u201d employees, which means any employee may quit at any time and we may terminate any employee at any time. We do not carry \u201ckey person\u201d insurance covering members of senior management or our employees.\nWe may be held responsible for certain taxes or assessments and other obligations relating to the activities of our independent consultants, which could harm our financial condition and operating results.\nOur independent consultants are subject to taxation, and in some instances, legislation or governmental agencies impose an obligation on us to collect or withhold taxes, such as value added taxes or income taxes, and to maintain appropriate records. In the event that local laws and regulations or the interpretation of local laws and regulations change to require us to treat our independent consultants as employees, or that our independent consultants are deemed by local regulatory authorities in one or more of the jurisdictions in which we operate to be our employees rather than independent contractors under existing laws and interpretations, or our independent consultants are deemed to be conducting business in countries outside of the country in which they are authorized to do business, we may be held responsible for social security, income, and other related taxes in those jurisdictions, plus any related assessments and penalties, which could harm our financial condition and operating results. If our independent consultants were deemed to be employees rather than independent contractors, we may be obligated to pay certain employee benefits, such as workers compensation and unemployment insurance. Further, if our independent consultants are misclassified as employees, we would also face the threat of increased vicarious liability for their actions. \nThe dietary supplement market is highly competitive.\nOur flagship product line, Protandim\n\u00ae\n, competes in the dietary supplements market, which is large, highly competitive and fragmented. Participants include specialty retailers, supermarkets, drugstores, mass merchants, multi-level marketing organizations, on-line merchants, mail-order companies, and a variety of other smaller participants. Many of our competitors \n36\nhave greater financial and other resources available to them and possess better manufacturing, independent distribution and marketing capabilities than we do. We believe some of these competitors with greater resources may develop and release products that will compete directly with the Protandim\n\u00ae\n product line and will be marketed as NRF1 and Nrf2 activators. One or more of these products could significantly reduce the demand for the Protandim\n\u00ae\n product line and have a material adverse effect on our revenue. We believe that the market is also highly sensitive to the introduction of new products, including various prescription drugs, which may rapidly capture a significant share of the market. Moreover, because of regulatory restrictions concerning claims about the efficacy of dietary supplements, we may have difficulty differentiating our products from our competitors\u2019 products and competing products entering the dietary supplements market could harm our revenue. In the United States and Japan, we also compete for sales with heavily advertised national brands manufactured by large pharmaceutical and food companies, as well as other retailers. In addition, as some products become more mainstream, we experience increased competition for those products as more participants enter the market. Our international competitors include large international pharmacy chains, major international supermarket chains, and other large U.S.-based companies with international operations. We may not be able to compete effectively and our attempt to do so may result in increased pricing pressure, which may result in lower margins and have a material adverse effect on our results of operations and financial condition.\nOur intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brand.\nThe loss of our intellectual property rights in our products could permit our competitors to manufacture their own version of our products. We have attempted to protect our intellectual property rights in our products through a combination of patents, patent applications, trademarks, trade secrets, confidentiality agreements, non-compete agreements and other contractual protection mechanisms, and we will continue to do so. While we intend to defend against any threats to our intellectual property, our patents or various contractual protections may not adequately protect our intellectual property. In addition, we could be required to expend significant resources to defend our rights to proprietary information and may not be successful in such defense.\nMoreover, our intellectual property rights are more limited outside of the United States than they are in the United States. As such, we may not be successful in preventing third parties from copying or misappropriating our intellectual property. There also can be no assurance that pending patent applications owned by us will result in patents being issued to us, that patents issued to or licensed by us in the past or in the future will not be challenged or circumvented by competitors or that such patents will be found to be valid or sufficiently broad to protect our products or to provide us with any competitive advantage. Third parties could also obtain patents that may require us to negotiate to obtain licenses to conduct our business, and any required licenses may not be available on reasonable terms or at all. We also rely on confidentiality and non-compete agreements with certain employees, independent consultants, consultants and other parties to protect, in part, trade secrets and other proprietary rights. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary information or that third parties will not otherwise gain access to our trade secrets or proprietary knowledge. \nThird parties might claim that we infringe on their intellectual property rights.\nAlthough the dietary supplement industry has historically been characterized by products with naturally occurring ingredients, recently it is becoming more common for suppliers and competitors to apply for patents or develop proprietary technologies and processes. Third parties may assert intellectual property infringement claims against us despite our efforts to avoid such infringement. Such claims could prevent us from offering competitive products or result in litigation or threatened litigation. \nOur business is susceptible to product liability claims.\nThe manufacture and sale of any product for human consumption raises the risk of product liability claims. These claims may derive from the product itself or a contaminant found in the product from the manufacturing, packaging, sales process or even due to tampering by unauthorized third parties. Our products consist of vitamins, minerals, herbs, and other ingredients that are classified as foods or dietary supplements and are not subject to pre-market regulatory approval in the United States. Our products could contain contaminated substances, and some of our products contain ingredients that do not have long histories of human consumption. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. In addition, third-party manufacturers produce all of the products we sell. As a distributor of products manufactured by third parties, we may also be liable for various product liability claims for these products despite not manufacturing them. We may be subject to various product liability claims, including, among others, that our products include inadequate instructions for use or inadequate warnings concerning possible side effects and interactions with other substances. Any product liability claim against us could result in increased costs and could adversely affect our reputation with our customers, which in turn could adversely affect our revenue and operating income. Although we maintain insurance coverage, there is a risk that our insurance will not cover our potential exposure completely or would fail to cover a particular claim, in \n37\nwhich case we may not have the financial resources to satisfy such claim. In addition, certain types of damages, such as punitive damages, are not covered by our insurance policy.\nEconomic, political, and other risks associated with our international operations could adversely affect our revenue and international growth prospects.\nAs part of our business strategy, we intend to continue to expand and grow our international presence. Our international operations are subject to a number of risks inherent to operating in foreign countries, and any expansion or growth of our international operations will increase the effects of these risks. These risks include, among others:\n\u2022\npolitical and economic instability of foreign markets;\n\u2022\nforeign governments\u2019 restrictive trade policies;\n\u2022\nlack of well-established or reliable legal systems in certain areas in which we operate;\n\u2022\ninconsistent product regulation or sudden policy changes by foreign agencies or governments;\n\u2022\nthe imposition of, or increase in, duties, taxes, government royalties, or non-tariff trade barriers;\n\u2022\ndifficulty in collecting international accounts receivable and potentially longer payment cycles;\n\u2022\nthe possibility that a foreign government may limit our ability to repatriate cash;\n\u2022\nincreased costs in maintaining international marketing efforts;\n\u2022\nproblems entering international markets with different cultural bases and consumer preferences; and\n\u2022\nfluctuations in foreign currency exchange rates.\nAny of these risks could have a material adverse effect on our international operations and our growth strategy.\nUnfavorable global economic conditions, including high inflation, and other macroeconomic conditions or trends may have an adverse impact on our business, financial results and prospects.\nWhile the severity of the COVID-19 pandemic has lessened significantly, the pandemic has had a significant negative impact on the macroeconomic environment, such as decreases in per capita income and level of disposable income, inflation, rising interest rates, and supply chain issues. Ongoing geopolitical matters have also contributed to difficult macroeconomic conditions and exacerbated supply chain issues, resulting in significant economic uncertainty as well as volatility in the financial markets, particularly in the United States. Such conditions may adversely impact our business, financial results, and prospects. We rely on consumer discretionary spending. If general economic conditions continue to deteriorate globally or in specific markets where we operate, including with respect to inflation, consumer discretionary spending may decline and demand for our products may be reduced. A decrease in consumer discretionary spending would cause sales in our products to decline and adversely impact our business. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through increases in revenue as increases in core inflation rates may also affect consumers\u2019 willingness to make discretionary purchases on our products. Our inability or failure to do so could harm our business, financial condition, and results of operations. \nIn addition, such macroeconomic conditions could impact our ability to access the public markets as and when appropriate or necessary to carry out our operations or our strategic goals. We cannot predict the ongoing extent, duration or severity of these conditions, nor the extent to which we may be impacted.\nTo the extent that there is a resurgence in the COVID-19 pandemic, or other health epidemics or outbreaks, our operations could be disrupted and our business adversely impacted. Such disruptions or impacts may be similar to those we faced during the COVID-19 pandemic, such as mandated business closures in impacted areas, limitations due to stay at home orders or sickness of employees or their families, reduced demand for certain of our products, or supply constraints.\nWe may be adversely affected by changes to our independent consultant compensation plans. \nWe modify our compensation plans from time to time to keep them competitive and attractive to existing and potential independent consultants, to address changing market dynamics, to provide incentives to our independent consultants that we believe will help grow our business, to conform to local regulations and to address other business-related considerations.\n \nIn fiscal year 2023, we launched our new compensation plan for our independent consultants in the United States, Australia, New Zealand, and Japan markets, with plans to roll out the new compensation plan to other markets where we sell and distribute our products. It is difficult to predict how such changes will be viewed by our independent consultants and whether such changes \n38\nwill achieve their desired results. Such changes could result in unintended or unforeseen negative economic and non-economic consequences to our business, such as higher than anticipated costs or difficulty in attracting and retaining independent consultants, either of which could have a material adverse effect on our results of operations and financial condition. In addition, if regulatory agencies such as the FTC or judicial cases lead to new industry standards or rules, our business could be impacted, and we may need to amend our compensation plan. If we are required to make changes, or if the FTC seeks to enforce similar measures in the industry, either through rulemaking or an enforcement action against our company, our business could be harmed. \nRisks Related to Ownership of Our Common Stock \nIf we are unable to maintain compliance with Nasdaq requirements for continued listing, our common stock could be delisted from trading.\nIf our common stock was delisted from the Nasdaq Stock Market for failure to maintain compliance with its listing requirements, then there can be no assurance whether or when it would be listed again for trading on the Nasdaq or any other exchange. In addition, if our common stock were to be delisted, the market price of our shares will likely decline and become more volatile, and our stockholders may find that their ability to trade in our stock will be adversely affected. Furthermore, institutions whose charters do not allow them to hold securities in unlisted companies might sell our shares, which could have a further adverse effect on the price of our stock. \nOur stock price may experience future volatility.\nThe trading price of our common stock has historically been subject to wide fluctuations. The price of our common stock may fluctuate in the future in response to quarter-to-quarter variations in operating results, material announcements by us or competitors, governmental regulatory action, conditions in the dietary supplement industry, or other events or factors, many of which are beyond our control, and some of which do not have a strong correlation to our operating performance. We cannot predict the effect, if any, of future sales of our common stock, or the availability of our common stock for future sales, on the value of our common stock. Sales of substantial amounts of our common stock by any one or more of our stockholders, or the perception that such sales could occur, may adversely affect the market price of our common stock.\nSubstantial sales of shares of our common stock in the public market may impact the market price of our common stock. \n Sales of a substantial number of shares of our common stock in the public market could cause our stock price to decline. Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we consider appropriate. \nWe have registered and intend to continue to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates. We cannot predict what effect, if any, sales of our shares in the public market or the availability of shares for sale will have on the market price of our common stock. However, future sales of substantial amounts of our common stock in the public market, including shares issued upon exercise of our outstanding warrant or options, or the perception that such sales may occur, could adversely affect the market price of our common stock. Significant additional capital may be required in the future to continue our planned operations. To the extent that we raise additional capital through the sale and issuance of shares or other securities convertible into shares, our stockholders will be diluted.\nWe cannot guarantee that our share repurchase program will be utilized to the full value approved or that it will enhance long-term stockholder value. Repurchases we consummate could increase the volatility of the price of our common stock and could have a negative impact on our available cash balance.\nOur board of directors authorized a share repurchase program pursuant to which we may repurchase up to $60 million of our common stock on or before December 31, 2026. The manner, timing and amount of any share repurchases may fluctuate and will be determined by us based on a variety of factors, including the market price of our common stock, our priorities for the use of cash to support our business operations and plans, general business and market conditions, tax laws, and alternative investment opportunities. The share repurchase program authorization does not obligate us to acquire any specific number or dollar value of shares. Further, our share repurchases could have an impact on our share trading prices, increase the volatility of the price of our common stock, or reduce our available cash balance such that we will be required to seek financing to support our operations. Our share repurchase program may be modified, suspended or terminated at any time, which may result in a decrease in the trading prices of our common stock. Even if our share repurchase program is fully implemented, it may not enhance long-term stockholder value. Additionally, repurchases are subject to the 1% Share Repurchase Excise Tax enacted by the Inflation Reduction Act, which may be offset by shares newly issued during that fiscal year (the \u201cShare Repurchase Excise \n39\nTax\u201d). We have and will continue to take the Share Repurchase Excise Tax into account with respect to our decisions to repurchase shares.\nWe are a \u201csmaller reporting company\u201d and may take advantage of certain scaled disclosures available to us. We cannot be certain if the reduced reporting requirements applicable to smaller reporting companies will make our common stock less attractive to investors. \nWe are a \u201csmaller reporting company\u201d as defined in the Exchange Act. As a smaller reporting company, we are permitted to comply with scaled disclosure obligations in our SEC filings as compared to other issuers who are not smaller reporting companies, including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We have elected to adopt the accommodations available to smaller reporting companies. Until we cease to be a smaller reporting company, the scaled disclosure in our SEC filings will result in less information about our company being available than for public companies that are not smaller reporting companies. \nWe will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is less than $700 million as measured on the last business day of our second fiscal quarter.\nWe cannot predict if investors will find our common stock less attractive because we will rely certain scaled disclosures that are available to smaller reporting companies. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.\nAdditional shares that may be issued upon the exercise of currently outstanding options or upon future vesting of performance restricted stock units, would dilute the voting power of our currently outstanding common stock and could cause our stock price to decline.\nAs of June\u00a030, 2023, we had 12.6 million shares of common stock outstanding. As of June\u00a030, 2023, we also had stock options outstanding for an aggregate of 0.1 million shares of common stock. Additionally, the future vesting of time-based and performance restricted stock units will further increase our outstanding shares of common stock. The issuance of these shares will dilute the voting power of our currently outstanding common stock and could cause our stock price to decline. \nOur certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders\u2019 ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.\nOur certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder\u2019s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition and results of operations.\nDelaware law and provisions in our certificate of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.\nOur status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following:\n\u2022\nthe ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;\n\u2022\nthe exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;\n40\n\u2022\na prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;\n\u2022\nthe requirement that a special meeting of stockholders may be called only by a majority vote of our entire board of directors, the chairman of our board of directors or our chief executive officer, or by stockholders holding at least 10% of the outstanding shares entitled to vote at such special meeting, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and\n\u2022\nadvance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders\u2019 meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror\u2019s own slate of directors or otherwise attempting to obtain control of us.\nIn addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.\nThese and other provisions in our certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.",
+  "item7": ">ITEM\u00a07 \u2014 MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes, which are included in this Annual Report on Form 10-K.\nOverview\nWe are a company focused on nutrigenomics, the study of how nutrition and naturally occurring compounds affect human genes to support good health. We are dedicated to helping people achieve their health, wellness and financial goals. We provide quality, scientifically-validated products to customers an\nd independent consultants as \nwell as a financially rewarding commission-based direct sales opportunity to our independent consultants. We engage in the identification, research, development, formulation and sale of advanced nutrigenomic activators, dietary supplements, nootropics, pre- and pro-biotics, weight management, skin and hair care, bath & body, and targeted relief products. We currently sell our products to customers and independent consultants in two geographic regions that we have classified as the Americas region and the Asia/Pacific & Europe region.\nThe success and growth of our business is primarily based on the effectiveness of our independent consultants to attract and retain customers in order to sell our products and our ability to attract and retain independent consultants. When we are successful in attracting and retaining independent consultants and customers, it is largely because of:\n\u2022\nOur products, including our flagship Protandim\n\u00ae\n family of scientifically-validated dietary supplements, LifeVantage\n\u00ae\n Omega+, ProBio, \nIC Bright\n\u00ae\n, and Daily Wellness dietary supplements, our line of Nrf2 enhanced TrueScience\n\u00ae\n skin, hair, bath & body, and targeted relief products, Petandim\n\u00ae\n, our companion pet supplement formulated to combat oxidative stress in dogs, Axio\n\u00ae\n, our nootropic energy drink mixes, and PhysIQ, our smart weight management system;\n\u2022\nOur sales compensation plan and other sales initiatives and incentives; and\n\u2022\nOur delivery of superior customer service.\nAs a result, it is vital to our success that we leverage our product development resources to develop and introduce compelling and innovative products and provide opportunities for our independent consultants to sell these products in a variety of markets. We sell our products in the United States, Mexico, Japan, Australia, Hong Kong, Canada, Thailand, the United Kingdom, the Netherlands, Germany, Taiwan, Austria, Spain, Ireland, Belgium, New Zealand, Singapore, and the Philippines. In addition, we sell our products in a number of countries to customers for personal consumption only. Entering a new market requires a considerable amount of time, resources and continued support. If we are unable to properly support an existing or new market, our revenue growth may be negatively impacted.\nCOVID-19 Influence on Business Operations and Work Environment\nIn fiscal year 2023, we maintained both virtual and in person business operations in hybrid form, which started in 2020 as a result of COVID-19 pandemic. During fiscal year 2023, we have continued to provide successful virtual events and trainings for our independent consultants and have been successful in conducting day to day business operations both in person, and over virtual platforms. In fiscal year 2023, we continued the hybrid model with our employees working from home a few days a week and in the office a few days a week. We believe that this has worked well for employee productivity. We remain focused on being digital first and committed to increasing our investments in digital technologies and tools for independent consultants and employees to function effectively in the current hybrid working environment. \nOur Products\nOur products are the Protandim\n\u00ae\n line of scientifically-validated dietary supplements, LifeVantage\n\u00ae\n Omega+ , ProBio, IC Bright\n\u00ae\n, Rise AM, Reset PM, D3+ and Daily Wellness dietary supplements, TrueScience\n\u00ae\n, our line of skin, bath & body, target relief, and hair care products, Petandim\n\u00ae\n, our companion pet supplement formulated to combat oxidative stress in dogs, AXIO\n\u00ae\n, our nootropic energy drink mixes, and PhysIQ our smart weight management system. The Protandim\n\u00ae\n product line includes \n43\nProtandim\n\u00ae\n NRF1 Synergizer\n\u00ae\n, Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n, and Protandim\n\u00ae\n NAD Synergizer\n\u00ae\n. The Protandim\n\u00ae\n NRF1 Synergizer\n\u00ae\n is formulated to increase cellular energy and performance by boosting mitochondria production to improve cellular repair and slow cellular aging. The Protandim\n\u00ae\n Nrf2 Synergizer\n\u00ae\n contains a proprietary blend of ingredients and has been shown to combat oxidative stress and enhance energy production by increasing the body\u2019s natural antioxidant protection at the genetic level, inducing the production of naturally-occurring protective antioxidant enzymes, including superoxide dismutase, catalase, and glutathione synthase. The Protandim\n\u00ae\n NAD Synergizer\n\u00ae\n was specifically formulated to target cell signaling pathways involved in the synthesis and recycling of a specific molecule called NAD (nicotinamide adenine dinucleotide), and it has been shown to double sirtuin activity, supporting increased health, focus, energy, mental clarity and mood. Use of the three Protandim\n\u00ae\n products together, marketed as the Protandim\n\u00ae\n Tri-Synergizer, has been shown to produce synergistic benefits greater than using the single products on their own. LifeVantage\n\u00ae\n Omega+ is a dietary supplement that combines DHA and EPA Omega-3 fatty acids, omega-7 fatty acids, and vitamin D3 to support cognitive health, cardiovascular health, skin health, and the immune system. LifeVantage\n\u00ae\n ProBio is a dietary supplement designed to support optimal digestion and immune system function. LifeVantage\n\u00ae\n Daily Wellness is a dietary supplement designed to support immune health. IC Bright\n\u00ae\n is a supplement to help support eye and brain health, reduce eye fatigue and strain, supports cognitive functions and may help support normal sleep patterns. Our TrueScience\n\u00ae\n line of anti-aging skin and hair care, and CBD Nrf2 enhanced, bath & body, targeted relief products includes TrueScience\n\u00ae\n Facial Cleanser, TrueScience\n\u00ae\n Perfecting Lotion, TrueScience\n\u00ae\n Eye Serum, TrueScience\n\u00ae\n Anti-Aging Cream, , TrueScience\n\u00ae\n Hand Cream, TrueScience\n\u00ae\n Invigorating Shampoo, TrueScience\n\u00ae\n Nourishing Conditioner, TrueScience\n\u00ae\n Scalp Serum, TrueScience\n\u00ae\n Body Lotion, TrueScience\n\u00ae\n Body Wash, TrueScience\n\u00ae\n Body Butter, TrueScience\n\u00ae\n Deodorant, TrueScience\n\u00ae\n Soothing Balm, TrueScience\n\u00ae\n Body Rub, and TrueScience\n\u00ae\n Liquid Collagen. TrueScience\n\u00ae\n Liquid Collagen activates, replenishes, and maintains collagen to support firmness and elasticity from within. Petandim\n\u00ae\n is a supplement specially formulated to combat oxidative stress in dogs through Nrf2 activation. AXIO\n\u00ae\n is our line of our nootropic energy drink mixes formulated to promote alertness and support mental performance. PhysIQ is our smart weight management system, which includes PhysIQ Fat Burn, and PhysIQ Prebiotic, all formulated to aid in weight management. We believe our significant number of customers who regularly and repeatedly purchase our products is a strong indicator of the health benefits of our products. The following table shows revenues by major product line for the fiscal years ended June\u00a030, 2023 and 2022.\nYears ended June 30,\n2023\n2022\nProtandim\n\u00ae \nproduct line\n$\n119,720\u00a0\n56.1\u00a0\n%\n$\n135,616\u00a0\n65.7\u00a0\n%\nTrueScience\n\u00ae \nproduct line\n49,494\u00a0\n23.2\u00a0\n%\n22,877\u00a0\n11.1\u00a0\n%\nOther\n44,184\u00a0\n20.7\u00a0\n%\n47,867\u00a0\n23.2\u00a0\n%\nTotal\n$\n213,398\u00a0\n100.0\u00a0\n%\n$\n206,360\u00a0\n100.0\u00a0\n%\nOur revenue is largely attributed to two product lines, Protandim\n\u00ae\n and TrueScience\n\u00ae \neach of which accounted for more than 10% of total revenue for each of the fiscal years ended June\u00a030, 2023 and 2022. On a combined basis, these product lines represent approximately 79.3% and 76.8% of our total net revenue for the fiscal years ended June\u00a030, 2023 and 2022, respectively.\nWe currently have additional products in development. Any delays or difficulties in introducing compelling products or attractive initiatives or tools into our markets may have a negative impact on our revenue and our ability to attract new independent consultants and customers.\nAccounts\nBecause we primarily utilize a direct selling model for the distribution of a majority of our products, the success and growth of our business depends in large part on the effectiveness of our independent consultants to attract and retain customers to purchase our products, and our ability to attract new and retain existing independent consultants. Changes in our product sales are typically the result of variations in product sales volume relating to fluctuations in the number of active independent consultants and customers purchasing our products. The number of active independent consultants and customers is, therefore, used by management as a key non-financial measure.\nThe following tables summarize the changes in our active accounts by geographic region. These numbers have been rounded to the nearest thousand as of the dates indicated. For purposes of this report, we define \"Active Accounts\" as only those independent consultants and customers who have purchased from us at any time during the most recent three-month period, either for personal use or for resale. \n44\nAs of June 30,\n2023\n2022\nChange from Prior Year\nPercent Change\nActive Independent Consultants\n\u00a0\u00a0\u00a0\u00a0Americas\n33,000\u00a0\n61.1\u00a0\n%\n37,000\u00a0\n58.7\u00a0\n%\n(4,000)\n(10.8)\n%\n\u00a0\u00a0\u00a0\u00a0Asia/Pacific & Europe\n21,000\u00a0\n38.9\u00a0\n%\n26,000\u00a0\n41.3\u00a0\n%\n(5,000)\n(19.2)\n%\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total Active Independent Consultants\n54,000\u00a0\n100.0\u00a0\n%\n63,000\u00a0\n100.0\u00a0\n%\n(9,000)\n(14.3)\n%\nActive Customers\n\u00a0\u00a0\u00a0\u00a0Americas\n69,000\u00a0\n77.5\u00a0\n%\n69,000\u00a0\n74.2\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n\u00a0\u00a0\u00a0\u00a0Asia/Pacific & Europe\n20,000\u00a0\n22.5\u00a0\n%\n24,000\u00a0\n25.8\u00a0\n%\n(4,000)\n(16.7)\n%\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total Active Customers\n89,000\u00a0\n100.0\u00a0\n%\n93,000\u00a0\n100.0\u00a0\n%\n(4,000)\n(4.3)\n%\nActive Accounts\n\u00a0\u00a0\u00a0\u00a0Americas\n102,000\u00a0\n71.3\u00a0\n%\n106,000\u00a0\n67.9\u00a0\n%\n(4,000)\n(3.8)\n%\n\u00a0\u00a0\u00a0\u00a0Asia/Pacific & Europe\n41,000\u00a0\n28.7\u00a0\n%\n50,000\u00a0\n32.1\u00a0\n%\n(9,000)\n(18.0)\n%\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total Active Accounts\n143,000\u00a0\n100.0\u00a0\n%\n156,000\u00a0\n100.0\u00a0\n%\n(13,000)\n(8.3)\n%\nIncome Statement Presentation\nWe report revenue in two geographic regions and we translate revenue from each market's local currency into U.S. Dollars using weighted-average exchange rates. Revenue consists primarily of product sales, fee revenue, and shipping and handling fees, net of applicable sales discounts. Revenue is recognized at the time of shipment, which is when the passage of title and risk of loss to customers occurs. Also reflected in revenue is a provision for product returns and allowances, which is estimated based on our historical experience. The following table sets forth net revenue information by region for the years indicated. The following table should be reviewed in connection with the tables presented under \"Results of Operations\" (in thousands):\nFor the fiscal years ended June 30,\n2023\n2022\nAmericas\n$\n155,361\u00a0\n72.8\u00a0\n%\n$\n138,323\u00a0\n67.0\u00a0\n%\nAsia/Pacific & Europe\n58,037\u00a0\n27.2\u00a0\n%\n68,037\u00a0\n33.0\u00a0\n%\nTotal\n$\n213,398\u00a0\n100.0\u00a0\n%\n$\n206,360\u00a0\n100.0\u00a0\n%\nCost of sales primarily consists of costs of products purchased from and manufactured by third-party vendors, shipping and order fulfillment costs, costs of adjustments to inventory carrying value, and costs of marketing materials which we sell to our independent consultant sales force, as well as freight, duties and taxes associated with the import and export of our products. As our international revenue increases as a percentage of total revenue, cost of sales as a percentage of revenue likely will increase as a result of additional duties, freight, and other factors, such as changes in currency exchange rates.\nCommissions and incentives expenses are our most significant expenses and are classified as operating expenses. Commissions and incentives expenses include sales commissions paid to our independent consultants, special incentives and costs for incentive trips and other rewards. Commissions and incentives expenses do not include any amounts we pay to our independent consultants related to their personal purchases. Commissions paid to independent consultants on personal purchases are considered a sales discount and are reported as a reduction to net revenue. Our sales compensation plan is an important factor in our ability to attract and retain our independent consultants. Under our sales compensation plan, independent consultants can earn commissions for product sales to their customers as well as the product sales made through the sales networks they have developed and trained. We do not pay commissions on marketing materials that are sold to our independent consultants. Commissions and incentives expenses, as a percentage of net revenue, may be impacted by the timing and magnitude of non-commissionable revenue derived from the sales of marketing materials, event tickets, and promotional items, investment in our red carpet program, limited-time offers and the timing, magnitude and number of incentive trips and other promotional activities. From time to time, we make modifications and enhancements to our sales compensation plan in an effort to help motivate our sales force and develop leadership characteristics, which can have an impact on commissions and incentives expenses. In fiscal year 2023, we introduced a new compensation plan called the Evolve Compensation Plan in four markets \u2013 the United States, Japan, Australia and New Zea\nland.  \n45\nSelling, general and administrative expenses include wages and benefits, stock compensation expenses, marketing and event costs, professional fees, rents and utilities, depreciation and amortization, research and development, travel costs and other operating expenses. Wages and benefits and stock compensation expenses represent the largest component of selling, general and administrative expenses. Marketing and event costs include costs of consultant conventions and events held in various markets worldwide, which we expense in the period in which they are incurred. Marketing and event costs also include expenses associated with our sponsorship of the Major League Soccer team, Real Salt Lake.  Once our agreement with Real Salt Lake ends, our marketing and event costs will materially decrease.\nSales to customers outside the United States are transacted in the respective local currencies and are translated to U.S. Dollars at weighted-average currency exchange rates for each monthly accounting period to which they relate. Consequently, our net sales and earnings are affected by changes in currency exchange rates. In general, sales and gross profit are affected positively by a weakening U.S. Dollar and negatively by a strengthening U.S. Dollar. Currency fluctuations, however, have the opposite effect on our commissions paid to independent consultants and selling, and general and administrative expenses. In our revenue discussions that follow, we approximate the impact of currency fluctuations on revenue by translating current year revenue at the average exchange rates in effect during the comparable prior year periods.\nResults of Operations\nFor the fiscal years ended June\u00a030, 2023 and 2022, we generated net revenue of $213.4 million and $206.4 million, respectively, recognized operating income of $4.3 million and $7.6 million, respectively, and recognized net income of $2.5 million and $3.1 million, respectively.\nThe following table presents certain consolidated earnings data as a percentage of net revenue for the years indicated\n(1)\n:\n\u00a0\nFor\u00a0the\u00a0fiscal years\u00a0ended June 30,\n\u00a0\n2023\n2022\nRevenue, net\n100.0\u00a0\n%\n100.0\u00a0\n%\nCost of sales\n20.3\u00a0\n18.5\u00a0\nGross profit\n79.7\u00a0\n81.5\u00a0\nOperating expenses:\nCommissions and incentives\n44.4\u00a0\n47.1\u00a0\nSelling, general and administrative\n33.3\u00a0\n30.7\u00a0\nTotal operating expenses\n77.7\u00a0\n77.8\u00a0\nOperating income\n2.0\u00a0\n3.7\u00a0\nOther expense:\nInterest income (expense)\n0.1\u00a0\n\u2014\u00a0\nOther expense, net\n(0.2)\n(0.3)\nImpairment of investment\n\u2014\u00a0\n(1.1)\nTotal other expense\n(0.1)\n(1.4)\nIncome before income taxes\n1.9\u00a0\n2.3\u00a0\nIncome tax expense\n(0.7)\n(0.8)\nNet income\n1.2\u00a0\n%\n1.5\u00a0\n%\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0(1) Certain percentages may not add due to rounding.\nComparison of Fiscal Years Ended June\u00a030, 2023 and 2022 \nNet Revenue\n.\n We generated net revenue of $213.4 million and $206.4 million during the fiscal years ended June\u00a030, 2023 and 2022, respectively. The overall increase in revenue is attributed mainly to increases in our average revenue per account driven by the launch of \nour \nTrueScience\n\u00ae\n Liquid Collagen product during our Activate 2022 event held in June 2022 in the United States and during our Evolve 2023 event held in March 2023 in Japan, Australia, and New Zealand.  Total \nTrueScience\n\u00ae\n Liquid Collagen related revenue, including the product when sold as part of a bundle, was $39.8 million for the fiscal year ended \nJune\u00a030, 2023.\n We also increased product and shipping prices during the fiscal year ended \nJune\u00a030, 2023\n.  Offsetting the increase in our \nTrueScience\n\u00ae\n Liquid Collagen product was a decrease of $15.9 million in sales from our \nProtandim\n\u00ae\n products as well as decreases in other product lines of approximately $9.5 million, and the negative impacts of foreign currency fluctuations compared to fiscal year ended June\u00a030, 2022. Our total active accounts also reduced by\n 8.3% during fiscal year 2023\n. \n46\nRevenue in the United States increased on a year over year basis partially offset by decreases of \n27.3%\n in our Australia and New Zealand market, and \n37.6%\n in our Greater China market. \nForeign currency fluctuations negatively impacted our net revenue $7.4 million or 3.6%. \nAmericas\n. The following table sets forth revenue for the fiscal years ended June\u00a030, 2023 and 2022 for the Americas region (in thousands):\nFor the fiscal years ended June 30,\n2023\n2022\n% change\nUnited States\n$\n148,522\u00a0\n$\n130,932\u00a0\n13.4\u00a0\n%\nOther\n6,839\u00a0\n7,391\u00a0\n(7.5)\n%\nAmericas Total\n$\n155,361\u00a0\n$\n138,323\u00a0\n12.3\u00a0\n%\nRevenue in the Americas region for the fiscal year ended June\u00a030, 2023 increased $17.0 million, or 12.3%, compared to the prior year. Total active accounts decreased 3.8% in the region compared to the prior fiscal year which offset increases in revenue.  The launch of our TrueScience\n\u00ae\n Liquid Collagen product in June 2022 provided a full year of revenue during fiscal 2023.  In the United States, revenue from \nTrueScience\n\u00ae\n Liquid Collagen was $36.2 million for the fiscal year ended \nJune\u00a030, 2023.\n \n As a result of this launch and continued efforts from our independent consultants and employees, we hope to see continued revenue growth in the Americas region in the upcoming fiscal year.\nAsia/Pacific & Europe\n. The following table sets forth revenue for the fiscal years ended June\u00a030, 2023 and 2022 for the Asia/Pacific & Europe region and its principal markets (in thousands):\nFor the fiscal years ended June 30,\n2023\n2022\n% change\nJapan\n$\n32,083\u00a0\n$\n36,810\u00a0\n(12.8)\n%\nAustralia & New Zealand\n8,922\u00a0\n12,280\u00a0\n(27.3)\n%\nGreater China\n3,526\u00a0\n5,655\u00a0\n(37.6)\n%\nOther\n13,506\u00a0\n13,292\u00a0\n1.6\u00a0\n%\nAsia/Pacific & Europe Total\n$\n58,037\u00a0\n$\n68,037\u00a0\n(14.7)\n%\nRevenue in the\n \nAsia/Pacific and Europe region for the fiscal year ended June\u00a030, 2023 decreased\n $10.0 million, or 14.7%, compared to the prior year. \nRevenue in the region was negatively impacted approximately $7.3 million, or 10.9%, by foreign currency exchange rate fluctuations.\nRevenue in our Japan market decreased 12.8% year over year on a U.S. Dollar basis and increased 2.1% on a constant currency basis. Contributing to the increase in revenue on a constant currency basis was revenue related to the launch of TrueScience\n\u00ae\n Liquid Collagen in March 2023.  Total revenue related to this product was $2.3 million for the \nfiscal year. ended June\u00a030, 2023.\n \nDuring the fiscal year ended June\u00a030, 2023, the Japanese yen, on average, weakened against the U.S. Dollar, negatively impacting our revenue in this market by $5.5 million or 14.8%. \nRevenue in our Australia and New Zealand market\ns decreased $3.4 million, or 27.3%, during fiscal year 2023. We saw revenues decline in these markets during the first three quarters of fiscal 2023 as a result of decreases in our active accounts, which was partially offset by revenue from the launch of \nTrueScience\n\u00ae\n Liquid Collagen in March 2023. With the launch of \nTrueScience\n\u00ae\n Liquid Collagen in these markets, we are seeing renewed synergies between our Australia and New Zealand independent consultant organizations and customer bases, increasing our ability to attract experienced direct selling leaders, which we believe will drive future growth within that region.\nRevenue in our Greater China region decreased\n by 37.6% \nyear over year as we experienced revenue declines in our Taiwan market due primarily to a 45.9% decline in active accounts. Also contributing to the decline in revenue was the closure of our e-commerce business in China on March 15, 2023. \nRevenue in our other markets were driven by increases in revenue from the Philippines. Revenue from our Philippines  market was $5.9 million during fiscal year \n2023\n compared to $4.1 million during fiscal year 2022.  This market launched in November 2021 and we are encouraged by the engagement by our consultants and customers in that market.  Increases from the Philippines were offset by decreases in Europe and Thailand of approximately $1.2 million and $0.4 million, respectively.  \n47\nGlobally, our sales and marketing efforts continue to be directed toward strengthening our core business through our fiscal year initiatives and building our worldwide sales. TrueScience\u00ae Liquid Collagen was launched in the US during June 2022 and we continued our successful launch of this product to Japan, Australia, and New Zealand in March 2023. We will continue the refinement and expansion of our product offerings internationally during fiscal year 2024 and beyond. We expect this expansion will continue to drive revenue growth globally through increased average order size and increased ability to attract and retain new independent consultants and customers with a compelling product lineup. \nIn January 2023, we announced the adoption our Evolve Compensation Plan for our independent consultants, which became effective March 1, 2023, in our United States, Australia, New Zealand and Japan markets. This new compensation plan is designed to reward our independent consultants based on attracting and retaining other independent consultants and customers. \nIn March 2023, we launched Rewards Circle, our first-ever customer loyalty program, in the United States, Australia, New Zealand, and Japan. The program rewards customer loyalty through subscription purchases. Rewards Circle is focused on supporting customer retention for independent consultants, supporting their efforts to grow and maintain their LifeVantage business.\nDuring fiscal year 2024, our main focus will be to increase our average account base through concentrating our efforts on the enrollment of new independent consultants and customers, who will in turn help grow the business through incremental product sales, and on increasing the number of accounts that place an order in the month following their initial enrollment.  This will be achieved through the rollout of our Evolve Compensation Plan and Rewards Circle loyalty program to other markets. We will continue investing in our red carpet program, which we believe has increased our ability to attract and retain strong consultant leadership and is a significant opportunity to drive revenue growth throughout our markets. We remain committed to further expanding the functionality and availability of our mobile application, which we believe will aid independent consultants in initiating and expanding their businesses.\nCost of Sales\n.\n Cost of sales were $43.4 million for the fiscal year ended June\u00a030, 2023, and $38.1 million for the fiscal year ended June\u00a030, 2022, resulting in a gross margin of $170.0 million, or 79.7%, and $168.3 million, or 81.5%, respectively. The in\ncrease\n in cost of sales\n as a percentage of revenue is primarily due shift in product mix, increased raw material and manufacturing related costs, shipping to customer expenses, and warehouse fulfillment expenses during the current fiscal year.\nCommissions and Incentives\n.\n Commissions and incentives expenses for the fiscal year ended June\u00a030, 2023 were $94.7 million or 44.4% o\nf revenue compared to $97.3 million or 47.1% of revenue for the fiscal year ended June\u00a030, 2022. The decrease of $2.5 million in fiscal year 2023 was primarily due to a decrease in incentive trip expenses of $1.9 million along with decreases in commission expenses as a result of the change to our Evolve Compensation Plan in March 2023 in the United States, Australia, New Zealand, and Japan markets.  The decrease in commissions and incentives as a percentage of revenue is also due to an increase in non-commissionable sales during fiscal year 2023 compared to fiscal year \n2022.\nCommissions and incentives expenses, as a percentage of revenue, may fluctu\nate in future periods based on ability to hold incentive trips and events and the timing and magnitude of compensation, incentive and promotional programs.\nSelling, General and Administrative\n.\n Selling, general and administrative expenses for the fiscal year ended June\u00a030, 2023 were $71.1 million or 33.3% of revenue compared to $63.4 million or 30.7% of revenue for the fiscal year ended June\u00a030, 2022. \nThe increase\n in selling, general, and administrative expenses as a percentage of revenue during fiscal year \n2023 \nprimarily was due t\no increases in employee salaries and related compensation of $2.9 million, \nevents and travel expenses of $1.3 million, and stock compensation expense of $1.4 million. \nPrimary factors that may cause our selling, general and administrative expenses to fluctuate in the future include changes in the number of employees, the timing and number of events we hold, the termination of material agreements like our agreement with Real Salt Lake, marketing and branding initiatives and costs related to legal matters, if and as they arise. A fluctuation in our stock price may also impact our stock-based compensation expense recorded for equity awards made in future years.\nInterest Income.\n Interest income, net, for the fiscal year ended June\u00a030, 2023 was $0.2 million as compared to interest expense, net, of $10,000 for the fiscal year ended June\u00a030, 2022.  During the fiscal year ended June\u00a030, 2023, we transferred cash into money market accounts to capitalize on higher interest rates within the market.\nOther Expense, Net\n.\n We recognized other expense, net, for the fiscal year ended June\u00a030, 2023 of $0.5 million as compared to $0.7 million for the fiscal year ended June\u00a030, 2022. The\n decrease\n was primarily due to the impact of foreign currency fluctuations recognized during fiscal year \n2023\n.\nImpairment of Investment\n.\n We recognized an impairment of $2.2 million on our investment in Gig Economy Group (\"GEG\") during fiscal year 2022 as we determined our investment in GEG had declined significantly as a result of the business \n48\nfailing to achieve profitability due to weak market conditions for its products.  There was no change in this valuation during fiscal year \n2023\n.\nIncome Tax Expense\n. Our income tax expense for the fiscal year ended June\u00a030, 2023 was $1.5 million as compared to income tax expense of $1.6 million for the fiscal year ended June\u00a030, 2022. \nThe effective tax rate was\u00a036.5%\u00a0of pre-tax income for the fiscal year ended June\u00a030, 2023, compared to\u00a033.5%\u00a0for the fiscal year ended June\u00a030, 2022. The increase in the effectiv\ne tax rate for fiscal year 2023 compared to the prior year is mainly due to \nthe impact of permanent items in relation to pre-tax income.\nOur provision for income taxes for the fiscal year ended June\u00a030, 2023 consisted prim\narily of federal, state, and foreign tax on anticipated fiscal year 2023 income which was partially offset by tax benefits. We expect our effective rate to fluctuate in future periods based on the impact of permanent items in relation to pre-tax income.\nNet Income\n.\n As a result of the foregoing factors, net income for the fiscal year ended June\u00a030, 2023 \ndecreased \nto $2.5 million compared to $3.1 million for the fiscal year ended June\u00a030, 2022.\nComparison of Fiscal Years Ended June\u00a030, 2022 and 2021 \nFor a discussion of our results of operations for the fiscal year 2022 compared with fiscal year 2021, refer to \u201cPart II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations\" in our annual report on Form 10-K for the fiscal year ended June\u00a030, 2022, as filed with the SEC on August 23, 2022.\nLiquidity and Capital Resources\nLiquidity\nOur primary liquidity and capital resource requirements are to service our debt, which includes any outstanding balances under the 2016 Credit Facility, and finance the cost of our planned operating expenses and working capital (principally inventory purchases), as well as capital expenditures. We have generally relied on cash flow from operations to fund operating activities and we have, at times, incurred long-term debt in order to fund stock repurchases and strategic transactions.\nAt June\u00a030, 2023, our cash and cash equivalents were $21.6 million. This represented an increase of $1.4 million from the $20.2 million in cash and cash equivalents as of June\u00a030, 2022. \nDuring the fiscal year ended June\u00a030, 2023, our net cash provided by operating activities was $6.8 million as compared to net cash provided by operating activities of $8.0 million during the fiscal year ended June\u00a030, 2022. The\n decrease i\nn cash provided by operating activities during the fiscal year ended June\u00a030, 2023\n primarily was due to decreases in net income, accounts payable, lease liabilities, and income tax payable. \nDuring the fiscal year ended June\u00a030, 2023, our net cash used in investing activities was $3.1 million, as a result of the purchase of fixed assets, primarily from investing in changes to our Evolve Compensation Plan and Rewards Circle loyalty program through software, website, and mobile application development. During the fiscal year ended June\u00a030, 2022, our net cash used in investing activities was $1.5 million, as a result of the purchase of fixed assets.\nCash used in financing activities during the fiscal year ended June\u00a030, 2023 was $2.4 million, as a result of the payment of quarterly cash dividends, the repurchase of company stock, and shares purchased as payment of tax withholding upon vesting of employee equity awards, partially offset by proceeds from purchases of company stock under our employee stock purchase plan. Cash used in financing activities during the fiscal year ended June\u00a030, 2022 was $9.0 million, as a result of the repurchase of company stock, a payment of a cash dividend, and shares purchased as payment of tax withholding upon vesting of employee equity awards, partially offset by proceeds from stock option exercises and proceeds from purchases of company stock under our employee stock purchase plan.\nAt June\u00a030, 2023 and 2022, the total amount of our foreign subsidiary cash was $6.2 million and $7.0 million, respectively. Under current U.S. tax law, in the future, if needed, we expect to be able to repatriate cash from foreign subsidiaries without paying additional U.S. taxes.\nAt June\u00a030, 2023, we had working capital (current assets minus current liabilities) of $24.7 million compared to working capital of $21.2 million at June\u00a030, 2022. The in\ncrease\n in working capital primarily was due to increases in cash, decreases in accounts payable, commissions payable and lease liabilities, offset slightly by decreases in accounts receivable and prepaid expenses. We believe that our cash and cash equivalents balances and our ongoing cash flow from operations will be sufficient to satisfy our cash requirements for at least the next 12 months. The majority of our historical expenses have been variable in nature and as such, a potential reduction in the level of revenue would reduce our cash flow. In the event that our current cash balances and future cash flow from operations are not sufficient to meet our obligations or strategic needs, we would consider \n49\nraising additional funds, which may not be available on terms that are acceptable to us, or at all. Our credit facility, however, contains covenants that restrict our ability to raise additional funds in the debt markets and repurchase our equity securities without prior approval from the lender. Additionally, our credit facility provides for a revolving loan facility in an aggregate principal amount up to $5.0 million. We would also consider realigning our strategic plans including a reduction in capital spending and expenses.\nCapital Resources\nShelf Registration Statement\nOn March 24, 2020, we filed a shelf registration statement on Form S-3 (the \u201cPrior Shelf Registration\u201d) with the SEC that was declared effective April 3, 2020, which permitted us to offer up to $75 million of common stock, preferred stock, debt securities and warrants in one or more offerings and in any combination, including in units from time to time. The Prior Shelf Registration expired on April 3, 2023.\nOn March 31, 2023, we filed a shelf registration statement on Form S-3 (the \u201c2023 Shelf Registration\u201d) with the SEC that was declared effective on April 6, 2023, which permits us to offer up to $75 million of common stock, preferred stock, debt securities and warrants in one or more offerings and in any combination, including in units from time to time. Our 2023 Shelf Registration is intended to provide us with additional flexibility to access capital markets for general corporate purposes, which may include, among other purposes, working capital, capital expenditures, other corporate expenses and acquisitions of assets, licenses, products, technologies or businesses.\n2016 Credit Facility\nOn March\u00a030, 2016, we entered into a loan agreement (the \"2016 Loan Agreement\") to refinance our outstanding debt. In connection with the 2016 Loan Agreement and on the same date, we entered into a security agreement (the \"Security Agreement\"). The 2016 Loan Agreement provides for a term loan in an aggregate principal amount of $10.0 million (the \"2016 Term Loan\") and a revolving loan facility in an aggregate principal amount not to exceed $2.0 million (the \"2016 Revolving Loan,\" and collectively with the 2016 Term Loan, the 2016 Loan Agreement and the Security Agreement, the \"2016 Credit Facility\"). During the fiscal year ended June 30, 2020, we repaid, in full, the balance of the 2016 Term Loan.\nOn May 4, 2018 and February\u00a01, 2019, we entered into loan modification agreements (\u201cAmendment No. 1\u201d and \u201cAmendment No. 2\u201d, respectively).  These loan modification agreements amended certain financial covenants and the available borrowing amount under the 2016 Revolving Loan.\nOn April 1, 2021, we entered into a loan modification agreement (\"Amendment No. 3\"), which amended the 2016 Credit Facility, as previously amended. Amendment No. 3, with an available borrowing amount of $5.0 million, revised the maturity date from March 31, 2021 to March 31, 2024 and modified the variable interest rate based on the one-month United States Treasury Rate, plus a margin of 3.00%, with an interest rate floor of 4.00%. Amendment No. 3 also revised the debt (total liabilities) to tangible net worth ratio (as defined in Amendment No. 3) covenant to require that the company maintain this ratio not in excess of 2.00 to 1.00, measured as of the end of each fiscal quarter, and revised the definition and calculation of the minimum fixed charge coverage ratio (as defined in Amendment No. 3).  There were no other changes to the minimum fixed charge coverage ratio of 1.10 to 1.00 or the minimum working capital of $6.0 million as set forth in previous amendments.\nWe entered into a loan modification agreement (\"Amendment No. 4\"), effective September 30, 2022, which amended the 2016 Credit Facility, as previously amended. Amendment No. 4 revised the calculation of the minimum fixed charge coverage ratio (as defined in Amendment No. 4) and allows us to declare and pay dividends, up to $500,000 per quarter, through September 30, 2023.  There were no other changes to the covenants or revolving loan facility as set forth in Amendment No. 3.\nThe 2016 Credit Facility, as amended, contains customary covenants, including affirmative and negative covenants that, among other things, restrict our ability to create certain types of liens, incur additional indebtedness, declare or pay dividends on or redeem capital stock without prior approval, make other payments to holders of our equity interests, make certain investments, purchase or otherwise acquire all or substantially all the assets or equity interests of other companies, sell assets or enter into consolidations, mergers or transfers of all or any substantial part of our assets. \nThe 2016 Credit Facility, as amended, contains cross-default provisions, whereby a default under the terms of certain indebtedness or an uncured default of a payment or other material obligation of ours under a material contract of ours will cause a default on the remaining indebtedness under the 2016 Credit Facility, as amended. Our obligations under the 2016 Credit Facility, as amended, are secured by a security interest in substantially all of our assets.\nAs of June\u00a030, 2023, we were in compliance with all financial covenants under the 2016 Credit Facility, as amended. As of June\u00a030, 2023, the effective interest rate is 8.20%.  If we borrow under the 2016 Revolving Loan, interest will be payable \n50\nquarterly in arrears on the last day of each fiscal quarter. As of June\u00a030, 2023, there was no balance outstanding on this credit facility.  \nCommitments and Obligations\nPlease refer to Note 14 to the consolidated financial statements contained in this report for information regarding our contingent liabilities.\nCritical Accounting Policies and Estimates\nWe prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments, and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Actual results could differ from these estimates. Our significant accounting policies are described in Note 2 to our consolidated financial statements. Certain of these significant accounting policies require us to make difficult, subjective, or complex judgments or estimates. We consider an accounting estimate to be critical if (1)\u00a0the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made and (2)\u00a0changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.\nThere are other items within our financial statements that require estimation but are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements. Management has discussed the development and selection of these critical accounting estimates with our board of directors, and the audit committee has reviewed the disclosures noted below.\nInventory Valuation\nWe reduce our inventories for the diminution of value resulting from product obsolescence, damage or other issues affecting marketability equal to the difference between the cost of the inventory and its estimated net realizable value. Factors utilized in the determination of estimated net realizable value include (i) current sales data and historical return rates, (ii) estimates of future demand, (iii) competitive pricing pressures, (iv) new production introductions, (v) product expiration dates, and (vi) component and packaging obsolescence.  If inventory on hand exceeds projected demand or the expected market value is less than the carrying value, the excess is written down to its net realizable value. If actual demand or the estimate of market value decreases, additional write-downs would be required.\nDuring the fiscal years ended June\u00a030, 2023 and 2022, we recognized expenses of \n$1.2 million\n and $1.5 million, respectively, related to obsolete and slow-moving inventory. \nStock-Based Compensation\nWe use the fair value approach to account for stock-based compensation in accordance with current accounting guidance. We recognize compensation costs for awards with performance conditions when we conclude it is probable that the performance conditions will be achieved. We reassess the probability of vesting at each balance sheet date and adjust compensation costs based on our probability assessment. For awards with market-based performance conditions, the cost of the awards is recognized as the requisite service is rendered by the employees, regardless of when, if ever, the market-based performance conditions are satisfied. \nHistorically, our estimates and underlying assumptions have not materially deviated from our actual reported results and rates. However, we base assumptions we use on our best estimates, which involves inherent uncertainties based on market conditions that are outside of our control. If actual results are not consistent with the assumptions we use, the stock-based compensation expense reported in our consolidated financial statements may not be representative of the actual economic cost of stock-based compensation. For example, if actual employee forfeitures significantly differ from our estimated forfeitures, we may be required to adjust our consolidated financial statements in future periods. \nIncome Taxes\nThe provision for income taxes includes income from U.S. and foreign subsidiaries taxed at statutory rates, the accrual or release of amounts for tax uncertainties, and U.S. tax impacts of foreign income in the U.S.\nDeferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities on the financial statements and their respective tax bases. Deferred tax assets also are recognized for net operating losses and credit carryforwards. Deferred tax assets and liabilities are measured \n51\nusing the enacted rates applicable to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. An assessment is made as to whether or not a valuation allowance is required to offset deferred tax assets. This assessment requires estimates as to future operating results, as well as an evaluation of the effectiveness of our tax planning strategies. These estimates are made on an ongoing basis based upon our business plans and growth strategies in each market and consequently, future material changes in the valuation allowance are possible. The valuation allowance reduces the deferred tax assets to an amount that management determined is more-likely-than-not to be realized.\nWe operate in and file income tax returns in the U.S. and numerous foreign jurisdictions with complex tax laws and regulations, which are subject to examination by tax authorities. The complexity of our global structure requires specialized knowledge and judgment in determining the application of tax laws in various jurisdictions. Years open to examination contain matters that could be subject to differing interpretations of applicable tax laws and regulations related to the amount and/or timing of income, deductions, and tax credits. We account for uncertain tax positions in accordance with Accounting Standards Codification (\"ASC\") 740, Income Taxes. This guidance prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.\nInterest and penalties related to tax contingency or settlement items are recorded as a component of the provision for income taxes in our Consolidated Statements of Operations and Comprehensive Income. We record accruals for tax contingencies as a component of accrued liabilities or other long-term liabilities on our Consolidated Balance Sheet.\nRecently Issued Accounting Standards\nRefer to \u201cItem 8. Financial Statements and Supplementary Data\u201d and Note 2 to our consolidated financial statements included in Part IV, Item 15 of this report for discussion regarding the impact of accounting standards that were recently issued but not yet effective, on our consolidated financial statements.",
+  "item7a": ">ITEM\u00a07A \u2014 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nNot required for smaller reporting companies.",
+  "cik": "849146",
+  "cusip6": "53222K",
+  "cusip": ["53222K205"],
+  "names": ["LIFEVANTAGE CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/849146/000084914623000102/0000849146-23-000102-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\n\u00a0\nBusiness\n\u00a0\n1\nItem 1A.\n\u00a0\nRisk Factors\n\u00a0\n10\nItem 1B.\n\u00a0\nUnresolved Staff Comments\n\u00a0\n15\nItem 2.\n\u00a0\nProperties\n\u00a0\n15\nItem 3.\n\u00a0\nLegal Proceedings\n\u00a0\n16\nItem 4.\n\u00a0\nMine Safety Disclosures\n\u00a0\n17\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nPart II\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nItem 5.\n\u00a0\nMarket for the Registrant\u2019s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities\n\u00a0\n18\nItem 6.\n\u00a0\n[Reserved]\n\u00a0\n19\nItem 7.\n\u00a0\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\u00a0\n19\nItem 7A.\n\u00a0\nQuantitative and Qualitative Disclosures about Market Risk\n\u00a0\n32\nItem 8.\n\u00a0\nConsolidated Financial Statements and Supplementary Data\n\u00a0\n34\n\u00a0\n\u00a0\nConsolidated Statements of Operations\n\u00a0\n35\n\u00a0\n\u00a0\nConsolidated Statements of Comprehensive Income (Loss)\n\u00a0\n36\n\u00a0\n\u00a0\nConsolidated Balance Sheets\n\u00a0\n37\n\u00a0\n\u00a0\nConsolidated Statement of Changes in Stockholders\u2019 Equity \n\u00a0\n38\n\u00a0\n\u00a0\nConsolidated Statements of Cash Flows\n\u00a0\n39\n\u00a0\n\u00a0\nNotes to Consolidated Financial Statements\n\u00a0\n41\n\u00a0\n\u00a0\nReports of Independent Registered Public Accounting Firm\n\u00a0\n78\n\u00a0\n\u00a0\nSupplementary Financial Information\n\u00a0\n81\nItem 9.\n\u00a0\nChanges in and Disagreements with Accountants on Accounting and Financial Disclosure\n\u00a0\n82\nItem 9A.\n\u00a0\nControls and Procedures\n\u00a0\n82\nItem 9B.\n\u00a0\nOther Information\n\u00a0\n82\nItem 9\nC\n.\nDisclosure Regarding Foreign Jurisdictions that Prevent Inspections\n82\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nPart III\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nItem 10.\n\u00a0\nDirectors, Executive Officers and Corporate Governance\n\u00a0\n83\nItem 11.\n\u00a0\nExecutive Compensation\n\u00a0\n83\nItem 12.\n\u00a0\nSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\n\u00a0\n83\nItem 13.\n\u00a0\nCertain Relationships and Related Transactions, and Director Independence\n\u00a0\n83\nItem 14.\n\u00a0\nPrincipal Accounting Fees and Services\n\u00a0\n83\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nPart IV\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nItem 15.\n\u00a0\nExhibits, Financial Statement Schedules\n\u00a0\n84\nItem 16.\nSummary\n87\n\u00a0\n\u00a0\nSignatures\n\u00a0\n88\n\u00a0\n\u00a0\nPower of Attorney\n\u00a0\n89\n\u00a0\nSchedule II: Valuation and Qualifying Accounts and Reserves\nS-1\nPart I\nItem 1 | Business\n\u00a0\nOverview\n\u00a0\nScholastic Corporation (the \u201cCorporation\u201d and together with its subsidiaries, \u201cScholastic\u201d or the \u201cCompany\u201d) is the world\u2019s largest publisher and distributor of children\u2019s books, a leading provider of print and digital instructional materials for grades pre-kindergarten (\"pre-K\") to grade 12 and a producer of educational and entertaining children\u2019s media. The Company creates quality books and ebooks, print and technology-based learning materials and programs, classroom magazines and other products that, in combination, offer schools, as well as parents and children, customized and comprehensive solutions to support children\u2019s learning and reading both at school and at home. Since its founding in 1920, Scholastic has emphasized quality products and a dedication to reading, learning and literacy. The Company is the leading operator of school-based book club and book fair proprietary channels. It distributes its products and services through these channels, as well as directly to schools and libraries, through retail stores and through the internet. The Company\u2019s website, scholastic.com, is a leading site for teachers, classrooms and parents and an award-winning destination for children. Scholastic has operations in the United States and throughout the world including Canada, the United Kingdom, Australia, New Zealand and Asia and, through its export business, sells products in approximately \n120\n international locations. \n\u00a0\nSegments\n\u00a0\nThe Company categorizes its businesses into three reportable segments: \nChildren\u2019s Book Publishing and Distribution\n; \nEducation Solutions\n; and \nInternational\n.\n\u00a0\nThe following table sets forth revenues by reportable segment for the three fiscal years ended May 31:\u00a0\n(Amounts in millions)\n2023\n2022\n2021\nChildren\u2019s Book Publishing and Distribution\n$\n1,038.0\u00a0\n$\n946.5\u00a0\n$\n675.0\u00a0\nEducation Solutions\n386.6\u00a0\n393.6\u00a0\n312.3\u00a0\nInternational\n279.4\u00a0\n302.8\u00a0\n313.0\u00a0\nTotal\n$\n1,704.0\n\u00a0\n$\n1,642.9\n\u00a0\n$\n1,300.3\n\u00a0\n\u00a0\nAdditional financial information relating to the Company\u2019s reportable segments is included in Note 3, \"Segment Information\", of Notes to Consolidated Financial Statements in Item 8, \u201cConsolidated Financial Statements and Supplementary Data,\u201d which is included herein.\n\u00a0\nCHILDREN\u2019S BOOK PUBLISHING AND DISTRIBUTION \n(60.9% of fiscal 2023 revenues)\n\u00a0\nGeneral\nThe Company\u2019s \nChildren\u2019s Book Publishing and Distribution \nsegment includes the publication and distribution of children\u2019s books, ebooks, media and interactive products in the United States through its school book clubs and school book fairs channels and through the trade channel.\nThe Company is the world\u2019s largest publisher and distributor of children\u2019s books and is the leading operator of school-based book clubs and school-based book fairs in the United States. The Company is also a leading publisher of children\u2019s print books, ebooks and audiobooks distributed through the trade channel. Scholastic offers a broad range of children\u2019s books through its school and trade channels, many of which have received awards for excellence in children\u2019s literature, including the Caldecott and Newbery Medals.\nThe Company obtains titles for sale through its distribution channels from three principal sources. The first source for titles is the Company\u2019s publication of books created under agreements with authors, illustrators, book packagers or other media companies. Scholastic generally controls the exclusive rights to sell and distribute these titles through all channels of distribution in the United States and, to a lesser extent, internationally. Scholastic\u2019s second source of titles is through obtaining licenses to sell books exclusively in specified channels of distribution, including reprints of books \n1\noriginally published by other publishers for which the Company acquires rights to sell in the school market. The third source of titles is the Company\u2019s purchase of finished books from other publishers.\u00a0\nSchool-Based Book Clubs\n\u00a0\nScholastic founded its first school-based book club in 1948. The Company's school-based book clubs consist of reading clubs for pre-K through grade 8. In addition to its regular reading club offerings, the Company creates special theme-based and seasonal offers targeted to different grade levels during the year. \nThe Company distributes promotional materials containing order forms to classrooms in the vast majority of the pre-K to grade 8 schools in the United States. Classroom teachers who wish to participate in a school-based book club provide the promotional materials to their students, who may choose from curated selections at substantial reductions from list prices. Approximately 37% of kindergarten (\"K\") to grade 5 elementary school teachers in the United States who received promotional materials in fiscal 2023 participated in the Company\u2019s school-based book clubs. In fiscal 2023, approximately 97% of total book club revenues were placed via the internet through the Company\u2019s online ordering platform, which allows parents, as well as teachers, to order online, with approximately 57% of such revenues being placed by parents via the Company's online ordering platform. Alternatively, the teacher may manually aggregate the students\u2019 orders and forward them to the Company. Products are typically shipped to the classroom for distribution to the students. Teachers who participate in book clubs receive bonus points and other promotional incentives, which may be redeemed from the Company for additional books and other resource materials and items for their classrooms or the school.\nSchool-Based Book Fairs \n\u00a0\nThe Company entered the school-based book fairs channel in 1981 under the name Scholastic Book Fairs. The Company is the leading distributor of school-based book fairs in the United States serving schools in all 50 states. Book fairs provide children access to hundreds of popular, quality books and educational materials, increase student reading and help book fair organizers raise funds for the purchase of school library and classroom books, supplies and equipment. Book fairs have traditionally been weeklong events where children and families peruse and purchase their favorite books together. The Company typically delivers book fairs product from its warehouses to schools principally by a fleet of Company-owned and leased vehicles. Sales and customer service representatives, working from the Company\u2019s regional offices, distribution facilities and national distribution facility in Missouri, along with local area field representatives, provide support to book fair organizers. Physical book fairs are conducted by school personnel, volunteers and parent-teacher organizations, from which the schools may receive either books, supplies and equipment or a portion of the proceeds from every book fair.\nEffective June 1, 2023, the Company has combined the school-based book fairs and book clubs businesses into the newly formed reading events business.\n\u00a0\nTrade\n\u00a0\nScholastic is a leading publisher of children\u2019s books sold through bookstores, on-line retailers and mass merchandisers primarily in the United States. Scholastic\u2019s original publications include Harry Potter\n\u00ae\n, The Hunger Games\n\u00ae\n, The Bad Guys\u2122, The Baby-Sitters Club\n\u00ae\n, The Magic School Bus\n\u00ae\n, Captain Underpants\n\u00ae\n, Dog Man\n\u00ae\n, Wings of Fire\u2122, Cat Kid Comic Club\n\u00ae\n, \nI Survived\n, Goosebumps\n\u00ae\n and Clifford The Big Red Dog\n\u00ae\n, and licensed properties such as Peppa Pig\n\u00ae\n and Pokemon\n\u00ae\n. \nIn addition, Klutz\n\u00ae\n and Make Believe Ideas\u2122 publish and create \u201cbooks plus\u201d and novelty products for children, including Klutz titles such as \nInk and Paint Manga, Mini Clay World Puppy Treat Truck, \nand\n LEGO\n\u00ae\n Race Cars \nand\n \ntitles in the \nNever Touch\n series from Make Believe Ideas.\n\u00a0\nThe Company\u2019s trade organization focuses on publishing, marketing and selling books to bookstores, on-line retailers, mass merchandisers, specialty sales outlets and other book retailers, and also supplies books for the Company\u2019s proprietary school channels. The Company maintains a talented and experienced creative staff that constantly seeks to attract, develop and retain the best children\u2019s authors and illustrators. The Company believes that its trade publishing staff, combined with the Company\u2019s reputation and proprietary school distribution channels, provides a significant competitive advantage, evidenced by numerous bestsellers over the past two decades. Top selling new release titles in the trade division during fiscal 2023 included \nDog Man #11: Twenty Thousand Fleas Under the Sea, Cat Kid Comic Club: Collaborations,\n \nHarry Potter and the Order of the Phoenix: The Illustrated Edition, Wings of Fire Graphix #6: Moon Rising, The Baby-Sitters Club\n\u00ae\n Graphic Novel #13: Mary Anne's Bad Luck Mystery and Nick and Charlie: A Heartstopper\nTM\n Novella.\n2\nAlso included in the Company's trade organization are Weston Woods Studios, Inc. (\"Weston Woods\") and Scholastic Audio, as well as Scholastic Entertainment Inc. (\"SEI\"). Weston Woods creates audiovisual adaptations of classic children's picture books distributed through the school and retail markets. Scholastic Audio provides audiobook productions of popular children's titles. SEI is responsible for exploiting the Company's film and television assets, which include a large television programming library based on the Company's properties, and for developing new programming. During fiscal 2023, the Company produced the animated series \"Eva the Owlet,\"\n\u00ae\n based on the Owl Diaries\nTM\n books, which was released on AppleTV+\n\u00ae\n in March 2023. \nEDUCATION SOLUTIONS\n(22.7% of fiscal 2023 revenues)\n\u00a0\nThe \nEducation Solutions\n segment includes the publication and distribution to schools and libraries of children\u2019s books, other print and on-line reference, non-fiction and fiction focused products, classroom magazines and classroom materials for literacy instruction, as well as consulting services and related products supporting professional development for teachers and school and district administrators, including professional books, coaching, workshops and seminars which in combination cover grades pre-K to 12 in the United States.\nClassroom Libraries and Collections\nThe Company is a leading provider of classroom libraries and paperback collections, including best-selling titles, to individual teachers and other educators and schools and school district customers. Scholastic helps schools build classroom and library collections with high quality, award-winning books for every grade, reading level and multicultural background, including the Company\u2019s Rising Voices Library\n\u00ae\n offering, which meets the increasing demand for culturally responsive content and instruction. In addition, the Company provides books to students for summer reading through its \nGrab and Go\n reading packs. \nInstructional Products and Programs\nScholastic serves customer needs with customized support for literacy instruction, by providing comprehensive core and supplemental literacy and reading programs which include print and digital content as well as providing assessment tools. These materials are designed to support instruction-based teaching and learning, and are generally purchased by district and school leadership, both directly from the Company and through teacher stores and booksellers. The Company\u2019s offerings include comprehensive reading programs such as \nScholastic Bookroom\n and \nGuided Reading\n, early childhood programs such as \nPreK On My Way\nTM\n and comprehensive literacy programs such as \nScholastic Literacy\nTM\n. In addition, the Company offers summer learning products to provide students with increased access to books and learning opportunities over the summer. During fiscal 2023, the Company acquired Learning Ovations, Inc., a U.S.-based education technology business and developer of a literacy assessment and instructional system, and integrated the acquired technology into its new K-3 phonic program, Ready4Reading\nTM\n, which was launched in June 2023. \nTeaching Resources and Professional Learning\nThe Company provides a variety of resources to teachers and school leadership including lesson planning, reading management, classroom management, classroom organization, and other instructional resources. These products are available on the Company's on-line teacher store (www.scholastic.com/teacherstore), which provides professional books and other educational materials to teachers and other educators. Professional consulting services are also provided to support academic leadership with training on a multitude of topics, ranging from product implementation to engaging with families and communities.\nLiteracy Initiatives\nThe Company provides books to community-based organizations and other groups engaged in literacy initiatives through \nScholastic Family and Community Engagement (FACE)\nTM\n. The Company also partners with mission-driven organizations to support literacy by increasing children's access to books through the \nScholastic Literacy Partners\n program. \nScholastic Magazines+\nTM\nScholastic is the leading publisher of classroom magazines, Scholastic Magazines+\nTM\n. Teachers in grades pre-K to 12 use the Company\u2019s 33 classroom magazines, including \nScholastic News\n\u00ae\n, Scholastic Scope\n\u00ae\n, Storyworks\n\u00ae\n, Let's Find Out\n\u00ae\n and \nJunior Scholastic\n\u00ae\n, to supplement formal learning programs by bringing subjects of current interest into the classroom, including current events, literature, math, science, social studies and foreign languages. These offerings provide schools with substantial non-fiction material, which is required to meet new higher educational standards. Each magazine has its own website with online digital resources that supplement the print materials, as well as providing access to the magazine in a digital format. A \"digital only\" subscription to the magazine is also offered. \n3\nScholastic\u2019s classroom magazine circulation in the United States in fiscal 2023 was approximately 13.3 million, with approximately 80% of the circulation in grades pre-K to 6. The majority of magazines purchased are paid for with school or district funds, with parents and teachers paying for the balance. \nSponsored Programs\nThe Company works with state partners to provide books to eligible students, generally those reading below grade level, at no cost to the student. The books are purchased with state funds and typically shipped directly to students\u2019 homes.\nINTERNATIONAL \n(16.4% of fiscal 2023 revenues)\nGeneral\n\u00a0\nThe \nInternational\n segment includes the publication and distribution of products and services outside the United States by the Company\u2019s international operations, and its export and foreign rights businesses.\n\u00a0\nScholastic has operations in Major Markets, which include Canada, the United Kingdom, Ireland, Australia, and New Zealand, as well as in India, Singapore and other parts of Asia including Malaysia, Thailand, the Philippines, Indonesia, Hong Kong, Taiwan, Korea and Japan. The Company has branches in the United Arab Emirates and Colombia, a business in China that supports English language learning and also sells products in approximately \n120\n international locations through its export business. The Company\u2019s international operations have original trade and educational publishing programs; distribute children\u2019s books, digital educational resources and other materials through school-based book clubs, school-based book fairs and trade channels; and produce and distribute magazines and on-line subscription services. Many of the Company\u2019s international operations also have their own export and foreign rights licensing programs and are book publishing licensees for major media properties. Original books published by many of these operations have received awards for excellence in children\u2019s literature. In Asia, the Company also operates a franchise program for tutorial centers that provide English language training to students, primarily in China. \nCanada\n\u00a0\nScholastic Canada, founded in 1957, is a leading publisher and distributor of English and French language children\u2019s books in Canada. Scholastic Canada is the largest operator of school-based marketing channels in Canada and is one of the leading suppliers of original or licensed children\u2019s books to the Canadian trade market. Since 1965, Scholastic Canada has also produced quality Canadian-authored books and educational materials, including an early reading program sold to schools for grades K to 6. \n\u00a0\nUnited Kingdom\n\u00a0\nScholastic UK, founded in 1964, is the largest operator of school-based marketing channels in the United Kingdom and is a publisher and one of the leading suppliers of original or licensed children\u2019s books to the United Kingdom trade market. Scholastic UK also publishes supplemental educational materials, including professional books for teachers. \nAustralia\n\u00a0\nScholastic Australia, founded in 1968, is the largest operator of school-based marketing channels in Australia, reaching approximately 90% of the country\u2019s primary schools. Scholastic Australia also publishes quality children\u2019s books supplying the Australian trade market. In addition, Scholastic Australia holds an equity method investment in a publisher and distributor of children's books.\nNew Zealand\n\u00a0\nScholastic New Zealand, founded in 1962, is the largest children\u2019s book publisher and the leading book distributor to schools in New Zealand. Through its school-based book clubs and book fairs channels, Scholastic New Zealand reaches approximately 90% of the country\u2019s primary schools. In addition, Scholastic New Zealand publishes quality children\u2019s books supplying the New Zealand trade market.\u00a0\n4\nAsia \nThe Company\u2019s Asian operations consist of initiatives for educational publishing programs based out of Singapore. In addition, the Company operates school-based marketing channels throughout Asia; publishes original titles in English and Hindi languages in India, including specialized curriculum books for local schools; conducts reading improvement programs inside local schools in the Philippines; and operates a franchise program for English language tutorial centers in China in cooperation with local partners, certain of which were temporarily closed during fiscal 2023 to limit the spread of the coronavirus. All tutorial centers were open as of May 31, 2023. \nForeign Rights and Export\n\u00a0\nThe Company licenses the rights to select Scholastic titles in 65 languages to other publishing companies around the world. The Company\u2019s export business sells educational materials, digital educational resources and children\u2019s books to schools, libraries, bookstores and other book distributors in approximately \n120\n international locations that are not otherwise directly serviced by Scholastic subsidiaries. The Company also partners with governments and non-governmental agencies to create and distribute books to public schools in developing countries.\nPRODUCTION AND DISTRIBUTION\n\u00a0\nThe Company\u2019s books, magazines and other materials are manufactured by the Company with the assistance of third parties under contracts entered into through arms-length negotiations and competitive bidding. As appropriate, the Company enters into multi-year agreements that guarantee specified volumes in exchange for favorable pricing terms. Paper is purchased directly from paper mills and other third-party sources. \n\u00a0\nIn the United States, the Company mainly processes and fulfills orders for school-based book clubs, trade, reference and non-fiction products, educational products and export orders from its primary warehouse and distribution facility in Jefferson City, Missouri. In connection with its trade business, the Company may fulfill product orders directly from printers to customers. Magazine orders are processed at the Jefferson City facility and the magazines are shipped directly from printers. School-based book fairs are fulfilled through a network of warehouses across the country, as well as from the Company's Jefferson City warehouse and distribution facility. The Company\u2019s international school-based book clubs, school-based book fairs, trade and educational operations use distribution systems similar to those employed in the United States. \n\u00a0\nCONTENT ACQUISITION\n\u00a0\nAccess to intellectual property or content (\u201cContent\u201d) for the Company\u2019s product offerings is critical to the success of the Company\u2019s operations. The Company incurs significant costs for the acquisition and development of Content for its product offerings. These costs are often deferred and recognized as the Company generates revenues derived from the benefits of these costs. These costs include the following:\n\u00a0\n\u2022\nPrepublication costs -\n Prepublication costs are incurred in all of the Company\u2019s reportable segments. Prepublication costs include costs incurred to create the art, prepress, editorial, digital conversion and other content required for the creation of the master copy of a book or other media. \n\u2022\nRoyalty advances -\n Royalty advances are incurred in all of the Company\u2019s reportable segments, but are most prevalent in the \nChildren\u2019s Book Publishing and Distribution\n segment and enable the Company to obtain contractual commitments from authors to produce Content. The Company regularly provides authors with advances against expected future royalty payments, often before the books are written. Upon publication and sale of the books or other media, the authors generally will not receive further royalty payments until the contractual royalties earned from sales of such books or other media exceed such advances.\u00a0The Company values its position in the market as the largest publisher and distributor of children's books in obtaining Content, and the Company\u2019s experienced editorial staff aggressively acquires Content from both new and established authors.\n\u2022\nAcquired intangible assets - \nThe Company may acquire fully or partially developed Content from third parties via acquisitions of entities or the purchase of the rights to Content outright.\n5\nSEASONALITY\n\u00a0\nThe Company\u2019s\u00a0\nChildren\u2019s Book Publishing and Distribution\u00a0\nschool-based book club and book fair channels and most of its \nEducation Solutions\n businesses operate on a school-year basis; therefore, the Company\u2019s business is highly seasonal. As a result, the Company\u2019s revenues in the first and third quarters of the fiscal year generally are lower than its revenues in the other two fiscal quarters. Typically, school-based channels and magazine revenues are minimal in the first quarter of the fiscal year as schools are not in session. Education channel revenues are generally higher in the fourth quarter. Trade sales can vary throughout the year due to varying release dates of published titles.\nCOMPETITION\n\u00a0\nThe markets for children\u2019s books, educational products and entertainment materials are highly competitive. Competition is based on the quality and range of materials made available, price, promotion and customer service, as well as the nature of the distribution channels. Competitors include numerous other book, ebook, library, reference material and educational publishers, including of core and supplemental educational materials in both print and digital formats, distributors and other resellers (including over the internet) of children\u2019s books and educational materials, national publishers of classroom and professional magazines with substantial circulation, and distributors of products and services on the internet. In the United States, competitors include regional and local school-based book fair operators and other fund raising activities in schools and bookstores, as well as one other competitor operating on a national level. Competition may increase to the extent that other entities enter the market and to the extent that current competitors or new competitors develop and introduce new materials that compete directly with the products distributed by the Company or develop or expand competitive sales channels. The Company believes that its position as both a publisher and distributor are unique to certain of the markets in which it competes, principally in the context of its children\u2019s book business.\n\u00a0\nCOPYRIGHT AND TRADEMARKS\n\u00a0\nAs an international publisher and distributor of books, Scholastic aggressively utilizes the intellectual property protections of the United States and other countries in order to maintain its exclusive rights to identify and distribute many of its products. Accordingly, SCHOLASTIC is a trademark registered in the United States and in a number of countries where the Company conducts business or otherwise distributes its products. The Corporation\u2019s principal operating subsidiary in the United States, Scholastic Inc., and the Corporation\u2019s international subsidiaries, through Scholastic Inc., have registered and/or have pending applications to register in relevant territories trademarks for important services and programs. All of the Company\u2019s publications, including books and magazines, are subject to copyright protection both in the United States and internationally. The Company also obtains domain name protection for its internet domains. The Company seeks to obtain the broadest possible intellectual property rights for its products, and because inadequate legal and technological protections for intellectual property and proprietary rights could adversely affect operating results, the Company vigorously defends those rights against infringement.\nENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG)\nEnvironmental Responsibility\nPaper consumption is a significant environmental concern for the Company and although the Company creates engaging digital content, educators and parents agree that physical books are the best way to engage and teach young children how to read and become avid readers into adulthood. The Company maintains a procurement policy that extends purchasing preference to products and suppliers that are aligned with the Company's environmental goals such as sustainable forestry practices, efficient use of resources, including the use of recycled paper and materials, clean manufacturing practices, economic viability and credible reporting and verification. The Company strives for all paper manufactured for Scholastic product to be free of unacceptable sources of fiber as described by the Forest Stewardship Council (FSC) controlled wood standard. The Company has a preference for FSC-certified paper and continues to maintain a minimum goal of 60% of paper purchases for publications to be FSC-certified.\nSocial Responsibility\nPromoting literacy has been at the core of Scholastic's mission since the founding of the Company over 100 years ago. The Company's business is focused around providing engaging educational content to help improve childhood literacy. In the United States, during fiscal 2023, the Company distributed over 500 million books and educational materials and, through the book fairs channel, schools earned over $210 million in proceeds in cash and incentive program credits primarily used for books, supplies and other classroom-related materials. The Company also \n6\nworked with more than 85 partners to sponsor over 700 books fairs in high-need schools, ensuring that each child that participated in these fairs left with a book at no cost. \nIn addition to its core business, the Company supports the following initiatives and programs: \n\u2022\nThe Scholastic Possible Fund, established by the Company to provide donations of quality books to children in underserved communities and in communities recovering from crises or natural disasters with the goal of improving global literacy, donating approximately 5 million books and over $500,000 in cash to partners such as Save the Children, National Book Foundation, Toys for Tots, Share the Magic Foundation, Hindi's Libraries and Barbershop Books in fiscal 2023.\n\u2022\nproviding teachers with a free platform, ClassroomsCount\u2122, to raise funds for books and reading materials for their classrooms.\n\u2022\nserving as the presenting sponsor of the Scholastic Art & Writing Awards, the largest creative scholarship program in the country, providing direct scholarships to approximately 100 students in fiscal 2023.\nGovernance\nScholastic selects board members with diverse and relevant backgrounds to provide the right expertise and oversight to management. The Human Resources and Compensation Committee of the Board of Directors (\u201cHRCC\") provides oversight on human capital matters. The HRCC is responsible for evaluating executive compensation, senior management selection, retention and succession planning and human resources strategies in respect to general employee benefit programs (including retirement plan programs) as well as talent management. For detailed background information on senior management and the Board of Directors visit the Company's \"About Us\" section of the Scholastic home page https://www.scholastic.com/home or use the following link https://www.scholastic.com/aboutscholastic/senior-management/.\nHuman Capital\nAs of May\u00a031, 2023, the Company had approximately 6,760 employees, of which 5,100 were located in the United States and 1,660 outside the United States. Globally, approximately 74% of its employees are employed on a full-time basis, 18% part-time, and 8% seasonal. The seasonal employees are largely associated with the school-based businesses which are dependent on the fall and spring seasons when schools are in session.\nThe table below represents the approximate number of employees by business channel and function. \n \nFull-time\nPart-time\nSeasonal\nTotal\nCentral Functions\n1\n720\n10\n\u2014\n730\nPrimary U.S. Warehouse\n1,050\n150\n60\n1,260\nBook Fairs Warehouses\n740\n700\n250\n1,690\nBook Fairs\n440\n20\n50\n510\nBook Clubs\n60\n\u2014\n\u2014\n60\nTrade\n220\n10\n\u2014\n230\nEducation Solutions \n530\n90\n\u2014\n620\nInternational\n950\n100\n20\n1,070\nInternational Warehouses\n270\n130\n190\n590\n\u00a0Total\n4,980\n1,210\n570\n6,760\n1 \nIncludes functions such as finance, accounting, executive, information technology, human resources, legal, and inventory demand planning. \nDiversity, Equity, Inclusion and Belonging\nThe Company is committed to diverse representation in the books, authors and illustrators that it publishes in its trade and education groups. The Company offers age-appropriate books and content featuring storylines and characters that positively represent a wide range of cultures, ethnicities and race, sexual orientation and gender identity, individuals with physical, mental, and emotional exceptionalities, other historically underrepresented groups, and portrayals of varying family structures. The Company applies this same commitment to its selection process for book fairs and books clubs when reviewing content from partner publishers. \nIn fiscal 2021, the Diversity, Equity, Inclusion and Belonging Task Force was created to advance the Company's goals in three priority focus areas: People and Culture focusing on creating an inclusive workplace culture, enabling ongoing internal education, and increasing overall staff diversity; Publishing and Education focusing on promoting equity, social justice, representation and civic understanding in the classroom and in the world; and Procurement and Purchasing with a focus on expanding supplier diversity and sourcing from minority-owned businesses.\n7\nThe Company will continue to build on its credo and commitment to the individual worth of each and every child, regardless of race, sexual orientation, gender identity and expression, economic, political, attitudinal, neurodiverse, religious or demographic background and to inspire everyone who works at the Company with contemporary employee policies and programs dedicated to creating a safe, inclusive environment where every employee can be heard and feel respected.\nCompensation and Benefits\nThe Company is committed to helping its employees and their families lead healthy productive lives. The Company's benefits packages and wellness programs help its employees succeed at work and at home. The Company offers comprehensive compensation and benefits packages designed to attract, retain and recognize its employees and is committed to achieving pay equity and aligning rewards to performance. The Company's benefits program provides an array of flexible plans to meet the needs of eligible employees, which includes, among other things, medical, dental and vision plans, health management and incentive programs, flexible spending arrangements, life and disability insurance, retirement plans, work/life balance programs, 401k contribution matching, an employee discount program including discounts on Scholastic products and an Employee Stock Purchase Plan (\u201cESPP\u201d). The ESPP provides eligible employees the opportunity to purchase Scholastic common stock at a discount. The Company also provides eligible employees paid time off, in addition to volunteer hours to enable involvement in community affairs. \nLearning and Development\nSuccessful execution of the Company's strategy is dependent on attracting, retaining and developing employees and members of its management teams. The Company's learning and development program enhances current and future organizational effectiveness by identifying skill gaps and assessing needs that can be supported by providing high quality educational and developmental programs that are strategic, measurable, effective, and serve to increase employees\u2019 skills, knowledge, and effectiveness. In addition to annual trainings on key topics including compliance, ethics and integrity and information security, employees have access to the Scholastic Learning Center, a learning portal that includes self-paced online courses, books, and videos, as well as virtual and live instructor-led opportunities.\nHealth and Safety\nThe safety and well-being of the Company's employees, customers, and community is a top priority. The Company has a safety program in place that focuses on policies and training programs to prevent injuries and incidents in the distribution centers. In response to the COVID-19 pandemic, the Company has implemented continuing additional safety measures in all its offices and facilities, including work from home flexibility for non-site specific roles, enhanced cleaning protocols, and health monitoring and temperature screening of employees as necessary. \n8\nEXECUTIVE OFFICERS\n\u00a0\nThe following individuals have been determined by the Board of Directors to be the executive officers of the Company. Each such individual serves in his or her position with Scholastic until such person\u2019s successor has been elected or appointed and qualified or until such person\u2019s earlier resignation or removal.\n\u00a0\nName\nAge\nEmployed by\nRegistrant Since\nPrevious Position(s) Held as of July 21, 2023\nPeter Warwick\n71\n2021\nPresident and Chief Executive Officer (since 2021); Board of Directors Member (since 2014); Chief People Officer of Thomson Reuters (2012 - 2018).\nKenneth J. Cleary\n58\n2008\nChief Financial Officer (since 2017); Senior Vice President, Chief Accounting Officer (2014-2017); Vice President, External Reporting and Compliance (2008-2014). \nAndrew S. Hedden\n82\n2008\nExecutive Vice President, General Counsel and Secretary (since 2008).\nIole Lucchese\n56\n1991\nChair of the Board of Directors (since 2021); Executive Vice President (since 2016); Chief Strategy Officer (since 2014); President, Scholastic Entertainment (since 2018); President, Scholastic Canada (2016). \nSasha Quinton\n45\n2020\nExecutive Vice President and President, School Reading Events (since 2023), Executive Vice President and President, Scholastic Book Fairs (2020-2023); Vice President & GMM, Bookstore, Barnes and Noble, Inc. (2019); Senior Vice President, Marketing and Procurement, ReaderLink Distribution Services (2017-2019); Vice President, Marketing and Procurement, ReaderLink Distribution Services (2014-2017).\nRosamund M. Else-Mitchell\n53\n2021\nPresident, Education Solutions (since 2021); Houghton Mifflin Harcourt - Chief Learning Officer & General Manager (2017 -2019), Executive Vice President, Professional Services (2015-2019).\nAVAILABLE INFORMATION\n\u00a0\nThe Corporation\u2019s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports are accessible at the Investor Relations portion of its website (scholastic.com) and are available, without charge, as soon as reasonably practicable after such reports are electronically filed or furnished to the Securities and Exchange Commission (\u201cSEC\u201d). The Company also posts the dates of its upcoming scheduled financial press releases, telephonic investor calls and investor presentations on the \u201cEvents and Presentations\u201d portion of its website at least five days prior to the event. The Company\u2019s investor calls are open to the public and remain available through the Company\u2019s website for at least 45 days thereafter.\n\u00a0\nThe public may also read and copy materials that the Company files with the SEC at the SEC\u2019s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information, as well as copies of the Company\u2019s filings, from the Office of Investor Education and Advocacy by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site, at www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.\n9",
+  "item1a": ">Item 1A | Risk Factors\n\u00a0\nSet forth below and elsewhere in this Annual Report on Form 10-K and in other documents that the Corporation files with the SEC are risks that should be considered in evaluating the Corporation\u2019s common stock, as well as risks and uncertainties that could cause the actual future results of the Company to differ from those expressed or implied in the forward-looking statements contained in this Report and in other public statements the Company makes. Additionally, because of the following risks and uncertainties, as well as other variables which may affect the Company\u2019s operating results in the conduct of its business, the Company\u2019s past financial performance should not be considered an indicator of future performance. It is further noted that the Company\u2019s operating results for the fiscal year ended May 31, 2021, and to a lesser extent the fiscal years ended May 31, 2022 and 2023, also reflect the direct effects of the COVID-19 pandemic on the businesses of the Company during those fiscal years.\nRisks Related to Our Business and Operations\nIf we fail to maintain strong relationships with our authors, illustrators and other creative talent, as well as to develop relationships with new creative talent, our business could be adversely affected.\nThe Company\u2019s business, in particular the trade publishing and media portions of the business, is highly dependent on maintaining strong relationships with the authors, illustrators and other creative talent who produce the products and services that are sold to its customers. Any overall weakening of these relationships, or the failure to develop successful new relationships, could have an adverse impact on the Company\u2019s business and financial performance.\nIf we fail to adapt to new purchasing patterns or trends, our business and financial results could be adversely affected.\n\u00a0\nThe Company\u2019s business is affected significantly by changes in customer purchasing patterns or trends in, as well as the underlying strength of, the trade, educational and media markets for children. In particular, the Company\u2019s educational publishing business may be adversely affected by budgetary restraints and other changes in educational funding as a result of new policies which could be implemented at the federal level or otherwise resulting from new legislation or regulatory action at the federal, state or local level, or by changes in the procurement process, to which the Company may be unable to adapt successfully. In addition, there are many competing demands for educational funds, and there can be no guarantee that the Company will be successful in continuing to obtain sales of its educational programs and materials from any available funding. Further, changes in educational practices affecting structure or content of educational materials or requiring adaption to new learning approaches, particularly in grades pre-K through 6, as well as those which may arise from new legislation or policies at the state or local level directed at content or teaching practices and materials, to which the Company is unable to successfully adapt could result in a loss of business adversely affecting the Company's business and financial performance. In addition, in a highly politicized environment, the content of some of the product being sold by the Company could become controversial, negatively impacting sales made to schools, through partnerships with government agencies or through sponsorships and funding programs. Within the children's book publishing business, the Company's financial performance could be adversely affected by the adaptability of its U.S. book clubs channel. The Company has taken a new holistic approach to serving its customers as part of the newly formed school reading events division and the Company's ability to execute on new customer-centric strategies and operational improvements may not align with customer purchasing behaviors which could negatively impact operating results. \n\u00a0\nIncreases in certain operating costs and expenses, which are beyond our control and can significantly affect our profitability, could adversely affect our operating performance.\n\u00a0\nThe Company\u2019s major expense categories include employee compensation, printing, paper and distribution (such as postage, shipping and fuel) costs. Compensation costs are influenced by general economic factors, including those affecting costs of health insurance, postretirement benefits and any trends specific to the employee skill sets that the Company requires. Current shortages for warehouse labor, driver labor and other required skills, as well as labor supply chain issues, such as the impact of union strikes, may cause the Company's costs to increase beyond increases normally expected. \n\u00a0\nPaper prices fluctuate based on worldwide demand and supply for paper in general, as well as for the specific types of paper used by the Company. The Company is also subject to inflationary pressures on printing, paper, transportation and labor costs. While the Company has taken steps to manage and budget for certain expected operating cost increases, if there is a significant disruption in the supply of paper or a significant increase in paper costs, or in its shipping or fuel costs, beyond those currently anticipated, which would generally be beyond the control of the Company, or if the Company\u2019s strategies to try to manage these costs, including additional cost savings initiatives, are ineffective, the Company\u2019s results of operations could be adversely affected. In addition, supplier bankruptcy may cause price increases for the Company. \n10\nWe maintain an experienced and dedicated employee base that executes the Company\u2019s strategies. Failure to attract, retain and develop this employee base could result in difficulty with executing our strategy.\nThe Company\u2019s employees, notably its senior executives and editorial staff members, have substantial experience in the publishing and education markets. In addition, the Company continues in the process of implementing a strategic information technology transformation process, requiring diverse levels of relevant expertise and experience. If the Company were unable to continue to adequately maintain and develop a workforce of this nature meeting the foregoing needs, including the development of new skills in the context of a rapidly changing business environment created by technology, involving new business processes and increased access to data and data analytics, it could negatively impact the Company\u2019s operations and growth prospects. Additionally, high industry-wide demand for truck drivers may impact the Company's ability to hire and retain adequate staffing levels to deliver book fairs in the number anticipated.\n\u00a0\nFailure of third party providers to provide contracted outsourcing of business processes and information technology services could cause business interruptions and could increase the costs of these services to the Company.\nThe Company outsources business processes to reduce complexity and increase efficiency for activities such as distribution, manufacturing, product development, transactional processing, information technologies and various administrative functions.\u00a0Increasingly, the Company is engaging third parties to provide SaaS, which can reduce the Company\u2019s internal execution risk, but increases the Company\u2019s dependency upon third parties to execute business critical information technology tasks. If SaaS providers are unable to provide these services or outsource providers fail to execute their contracted functionality, or if such providers experience a substantial data breach, the Company could experience damage to its reputation and disruptions to its distribution and other business activities and may incur higher costs.\nRisks Related to Competition\nIf we cannot anticipate technology trends and develop new products or adapt to new technologies responding to changing customer preferences, this could adversely affect our revenues or profitability.\n\u00a0\nThe Company operates in highly competitive markets that are subject to rapid change, including, in particular, changes in customer preferences and changes and advances in relevant technologies. There are substantial uncertainties associated with the Company\u2019s efforts to develop successful trade publishing, educational, and media products and services, including digital products and services, for its customers, as well as to adapt its print and other materials to new digital technologies, such as the internet cloud technologies, tablets, mobile and other devices and school-based technologies and uncertainties involving the use of artificial intelligence in connection with the foregoing. The Company makes significant investments in new products and services that may not be profitable, or whose profitability may be significantly lower than the Company anticipates or has experienced historically. In particular, in the context of the Company\u2019s current focus on key digital opportunities, the markets are continuing to develop and the Company may be unsuccessful in establishing itself as a significant factor in any relevant market segment which does develop. Many aspects of markets which could develop for children and schools, such as the nature of the relevant software and devices or hardware, the size of the market, relevant methods of delivery and relevant content, as well as pricing models, are still evolving and will, most likely, be subject to change on a recurring basis until a pattern develops and becomes more defined. This could specifically impact the Company's ability to execute on a digital and print literacy solution, which requires a multi-year investment, through internal development, third party providers and/or acquisitions. In addition, the Company faces market risks associated with systems development and service delivery in its evolving school ordering and ecommerce businesses, as well as in responding to changes in how schools plan to utilize technology for virtual or remote learning and the potential impact on the demand for printed materials in schools.\n\u00a0\nOur financial results would suffer if we fail to successfully differentiate our offerings and meet market needs in school-based book fairs and book clubs, two of our core businesses.\n\u00a0\nThe Company\u2019s school-based book fairs and book clubs businesses, which have now been combined to form the Company's reading events business, produce a substantial amount of the Company\u2019s revenues. The Company is subject to the risks that it will not successfully continue to develop and execute new promotional strategies for the school-based book fairs and book clubs components of the reading events business in response to future customer trends or technological changes or that it will not otherwise meet market needs in this newly combined business in a timely or cost-effective fashion. The book clubs component also relies on attracting and retaining new sponsor-\n11\nteachers to promote and support the distribution of its offerings. If the Company cannot attract new millennial and younger teachers and meet the changing preferences and demands of these teachers, its revenues and cash flows could be negatively impacted.\nThe Company has differentiated itself from competitors by providing curated offerings in both of the book clubs and book fairs components of the reading events business designed to make reading attractive for children, in furtherance of its mission as a champion of literacy.  Competition from mass market and on-line distributors using customer-specific curation tools could reduce this differentiation, posing a risk to the Company's results.\nThe competitive pressures we face in our businesses could adversely affect our financial performance and growth prospects.\n\u00a0\nThe Company is subject to significant competition, including from other trade and educational publishers and media, entertainment and internet companies, as well as retail and internet distributors, many of which are substantially larger than the Company and have much greater resources. To the extent the Company cannot meet challenges from existing or new competitors and develop new product offerings to meet customer preferences or needs, the Company\u2019s revenues and profitability could be adversely affected. \nIn its educational publishing business, the Company invests in various literacy program solutions, including both digital and print products, covering grades pre-K through 6 which can be in direct competition with traditional basal textbook offerings, as well as new digital instruction offerings with associated assessment tools, to meet the perceived needs of the modern curriculum. There can be no assurance that the Company will be successful in having school districts adopt the Company's new literacy program solutions in preference to basal textbooks or new digital instruction products offered by others or be successful in state adoptions, nor, in the case of basal textbook publishers, that such publishers will not successfully adapt their business models to the development of new forms of core curriculum, which could have an adverse effect on the return on the Company\u2019s investments in this area, as well as on its financial performance and growth prospects. Traditional basal textbook publishers also generally maintain larger sales forces than the Company, and sell across several academic disciplines, allowing them a larger presence than the Company. Additionally, demand for many of the Company\u2019s product offerings, particularly books sold through school channels, is subject to price sensitivity. Failure to maintain a competitive pricing model could reduce revenues and profitability.\nChanges in the mix of our major customers in our trade distribution channel or in their purchasing patterns may affect the profitability of our trade publishing business.\nThe Company\u2019s distribution channels include online retailers and ecommerce sites, digital delivery platforms and expanding social media and other marketing platforms. An increased concentration of retailer power has also resulted in the increased importance of mass merchandisers as well as of publishing best sellers to meet consumer demand. Currently, the Company\u2019s top five trade customers make up approximately 77% of the Company\u2019s U.S. trade business and 14% of the Company\u2019s total revenues. Adverse changes in the mix of the major customers of the trade business, including the type of customer, which may also be engaged in a competitive business, or in their purchasing patterns or financial condition or the nature of their distribution arrangements with the trade business including any requirements related to ESG with which the Company must comply, more specifically those related to environmental sustainability, could negatively affect the profitability of the Company\u2019s trade business and the Company\u2019s financial performance.\nThe inability to obtain and publish best-selling new titles could cause our future results to decline in comparison to historical results.\n\u00a0\nThe Company invests in authors and illustrators for its trade publication business, and has a history of publishing hit titles. The inability to publish best-selling new titles in future years could negatively impact the Company. \nIn addition, competition among electronic and print book retailers, including the decrease in the number of independent booksellers, could decrease prices for new title releases, as well as the number of outlets for book sales. The growing use of self-publishing technologies by authors also increases competition and could result in the decreased use of traditional publishing services. The effects of any of the foregoing factors could have an adverse impact on the Company's business, financial condition or results of operation. \n12\nRisks Related to Information Technology and Systems\nPrivacy breaches and other cyber security risks related to our business could negatively affect our reputation, credibility and business.\nIn certain of its businesses the Company holds or has access to personal data, including that of customers or received from schools. Adverse publicity stemming from a data breach, whether or not valid, could reduce demand for the Company\u2019s products or adversely affect its relationship with teachers or educators, impacting participation in the book fairs or book clubs components of the Company's reading events business or decisions to purchase educational materials or programs produced by the Company's \nEducation Solutions\n segment. Further, a failure to adequately protect personal data, including that of customers or children, or other data security failure, such as cyber-attacks from third parties, could lead to penalties, significant remediation costs and reputational damage, including loss of future business.\nFailure of one or more of our information technology platforms could affect our ability to execute our operating strategy.\nThe Company relies on a variety of information technology platforms to execute its operations, including human resources, payroll, finance, order-to-cash, procurement, vendor payment, inventory management, distribution and content management systems as well as its internal operating systems. Many of these systems are integrated via internally developed interfaces and modifications. Failure of one or more systems could lead to operating inefficiencies or disruptions and a resulting decline in revenue or profitability. \nAs the Company continues the implementation of its new enterprise-wide customer and content management systems and the migration to software as a service (\"SaaS\") and cloud-based technology solutions, in its initiatives to integrate its separate legacy platforms into a cohesive enterprise-wide system, there can be no assurance that it will be successful in its efforts or that the implementation of the remaining stages of these initiatives in the Company's global operations will not involve disruptions in its systems or processes having a short term adverse impact on its operations and ability to service its customers.\nRisks Related to Laws and Regulations\nOur reputation is one of our most important assets, and any adverse publicity or adverse events, such as a violation of privacy laws or regulations, could cause significant reputational damage and financial loss.\n\u00a0\nThe businesses of the Company focus on children\u2019s reading, learning and education, and its key relationships are with educators, teachers, parents and children. In particular, the Company believes that, in selecting its products, teachers, educators and parents rely on the Company\u2019s reputation for quality books and educational materials and programs appropriate for children. Negative publicity, either through traditional media or through social media, could tarnish this relationship.  \nThe Company is subject to privacy laws and regulations in the conduct of its business in the United States and in other jurisdictions in which it conducts its international operations, many of which vary significantly, relating to the collection and use of personal information, including the European Union General Data Protection Regulation, which became enforceable on May 25, 2018, and the California Consumer Privacy Act, which became effective in January 2020. In addition, the Company is also subject to the regulatory requirements of the Children\u2019s Online Privacy Protection Act (\"COPPA\") in the United States relating to access to, and the use of information received from, children in respect to the Company\u2019s on-line offerings. Since the businesses of the Company are primarily centered on children, failures of the Company to comply with the requirements of COPPA and similar laws in particular, as well as failures to comply generally with applicable privacy laws and regulations, as referred to above, could lead to significant reputational damage and other penalties and costs, including loss of future business. \nFailure to meet the demands of regulators, and the associated high cost of compliance with regulations, as well as failure to enforce compliance with our Code of Ethics and other policies, could negatively impact us.  \nThe Company operates in multiple countries and is subject to different regulations throughout the world. In the United States, the Company is regulated by the Internal Revenue Service, the Securities and Exchange Commission, the Federal Trade Commission and other regulating bodies. Failure to comply with these regulators, including providing these regulators with accurate financial and statistical information that often is subject to estimates and assumptions, or the high cost of complying with relevant regulations, including a significant increase in new regulations resulting from changes in the regulatory environment, could negatively impact the Company. The Company is also subject to the risk that it is unable to comply with the unstandardized, rapidly-changing environmental requirements imposed internationally by local governments, including those related to measuring and reporting on the impact its business \n13\nhas on the environment, which could negatively impact the Company's ability to conduct business in the related country if not met.\nIn addition, the decentralized and global nature of the Company\u2019s operations makes it more difficult to communicate and monitor compliance with the Company\u2019s Code of Ethics and other material Company policies and to assure compliance with applicable laws and regulations, some of which have global applicability, such as the Foreign Corrupt Practices Act in the United States and the UK Bribery Act in the United Kingdom. Failures to comply with the Company\u2019s Code of Ethics and violations of such laws or regulations, including through employee misconduct, could result in significant liabilities for the Company, including criminal liability, fines and civil litigation risk, and result in damage to the reputation of the Company. \nRisks Related to Our Intellectual Property\nThe loss of or failure to obtain rights to intellectual property material to our businesses would adversely affect our financial results.\nThe Company\u2019s products generally comprise intellectual property delivered through a variety of media. The ability to achieve anticipated results depends in part on the Company\u2019s ability to defend its intellectual property against infringement, as well as the breadth of rights obtained. The Company\u2019s operating results could be adversely affected by inadequate legal and technological protections for its intellectual property and proprietary rights in some jurisdictions, markets and media, as well as by the costs of dealing with claims alleging infringement of the intellectual property rights of others, including claims involving business method patents in the ecommerce and internet areas and the licensing of photographs in the trade and educational publishing areas, and the Company\u2019s revenues could be constrained by limitations on the rights that the Company is able to secure to exploit its intellectual property in different media and distribution channels, as well as geographic limitations on the exploitation of such rights.\nRisks Related to External Factors\nBecause we procure products and sell our products and services in foreign countries, changes in currency exchange rates, as well as other risks and uncertainties, could adversely affect our operations and financial results.\n\u00a0\nThe Company has various operating subsidiaries domiciled in foreign countries. In addition, the Company sells products and services to customers located in foreign countries where it does not have operating subsidiaries, and a significant portion of the Company\u2019s revenues are generated from outside of the United States. The Company\u2019s business processes, including distribution, sales, sourcing of content, marketing and advertising, are, accordingly, subject to multiple national, regional and local laws, regulations and policies. The Company could be adversely affected by noncompliance with foreign laws, regulations and policies, including those pertaining to foreign rights and exportation. The Company is also exposed to fluctuations in foreign currency exchange rates and to business disruption caused by political, financial or economic instability or the occurrence of war or natural disasters in foreign countries. In addition, the Company and its foreign operations could be adversely impacted by a downturn in general economic conditions on a more global basis caused by general political instability or unrest or changes in global economic affiliations or conditions, such as inflation. Changes in international trade relations with foreign countries, such as increased tariffs and duties (including those imposed by the United States) could cause the Company's costs to rise, or its overseas revenues to decline. \nCertain of our activities are subject to weather and natural disaster risks as well as other events outside our control, which could disrupt our operations or otherwise adversely affect our financial performance.\n\u00a0\nThe Company conducts certain of its businesses and maintains warehouse and office facilities in locations that are at risk of being negatively affected by severe weather and natural disaster events, including those caused by climate change, such as hurricanes, tornadoes, floods, snowstorms, heat waves or earthquakes. Notably, much of the Company\u2019s domestic distribution facilities are located in central Missouri. A disruption of these or other facilities could impact the Company\u2019s school-based reading events business, as well as its trade and education businesses. Additionally, disruptions due to weather, natural disaster, epidemic and pandemic could result in school closures, resulting in reduced demand for the Company\u2019s products in its school channels during the affected periods. Further, the Company may not be able to achieve its book fair count goals and may be materially impacted if widespread pandemic-related closures occur this coming school year. Increases in school security associated with high profile school shootings and other tragic incidents could impact the accessibility to schools for the school book fairs component of the Company's reading events business. \n14\nWe own certain significant real estate assets which are subject to various risks related to conditions affecting the real estate market.\nThe Company has direct ownership of certain significant real estate assets, in particular the Company\u2019s headquarters location in New York City, its primary distribution center in Jefferson City, Missouri and the UK facility in Warwickshire. The New York headquarters location serves a dual purpose as it also contains premium retail space that is or will be leased to retail tenants in order to generate rental income and cash flow. Accordingly, the Company is sensitive to various risk factors such as changes to real estate values and property taxes, pricing and demand for high end retail spaces in Soho, New York City, interest rates, cash flow of underlying real estate assets, supply and demand, and the credit worthiness of any retail tenants. There is also no guarantee that investment objectives for the retail component of the Company\u2019s real estate will be achieved. \nRisks Related to Stock Ownership\nControl of the Company resides in the Estate of our former Chairman of the Board, President and Chief Executive Officer through The Estate's ownership of Class A Stock, and the holders of the Common Stock generally have no voting rights with respect to transactions requiring stockholder approval. \n\u00a0\nThe voting power of the Corporation's capital stock is vested exclusively in the holders of Class A Stock, except for the right of the holders of Common Stock to elect one-fifth of the Board of Directors and except as otherwise provided by law or as may be established in favor of any series of preferred stock that may be issued. The Estate of Richard Robinson, the former Chairman of the Board, President and Chief Executive Officer of the Company, beneficially owns a majority of the outstanding shares of Class A Stock and is able to elect up to four-fifths of the Corporation's Board of Directors and, without the approval of the Corporation's other stockholders, to effect or block other actions or transactions requiring stockholder approval, such as a merger, sale of substantially all assets or similar transaction. Iole Lucchese, Chair of the Board of Directors, Executive Vice President and Chief Strategy Officer of the Company and President of Scholastic Entertainment, Inc., in her capacity as Scholastic special executor of the Estate under Mr. Robinson's will and revocable trust, controls the voting of the Estate's Class A Stock.\nNote\nThe risk factors listed above should not be construed as exhaustive of all possible risks that the Company may face. Additional risks not currently known to the Company or that the Company does not consider to be significant at the present time could also impact the Company's consolidated financial position and results of operations.\n\u00a0\nForward-Looking Statements:\n\u00a0\nThis Annual Report on Form 10-K contains forward-looking statements relating to future periods. Additional written and oral forward-looking statements may be made by the Company from time to time in SEC filings and otherwise. The Company cautions readers that results or expectations expressed by forward-looking statements, including, without limitation, those relating to the Company\u2019s future business prospects and strategic plans, ecommerce and digital initiatives, new product introductions, strategies, new education standards and policies, goals, revenues, improved efficiencies, general costs, manufacturing costs, medical costs, potential cost savings, merit pay, operating margins, working capital, liquidity, capital needs, the cost and timing of capital projects, interest costs, cash flows and income, are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to factors including those noted in this Annual Report and other risks and factors identified from time to time in the Company\u2019s filings with the SEC. The Company disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.",
+  "item7": ">Item 7 | Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\u00a0\nGeneral\n\u00a0\nThe Company categorizes its businesses into three reportable segments: \nChildren\u2019s Book Publishing and Distribution\n; \nEducation Solutions\n; and \nInternational\n. \nThe following discussion and analysis of the Company\u2019s financial position and results of operations should be read in conjunction with the Company\u2019s Consolidated Financial Statements and the related Notes included in Item 8, \u201cConsolidated Financial Statements and Supplementary Data.\u201d\n\u00a0\nOverview and Outlook\nOverview\nRevenues from operations for the fiscal year ended May\u00a031, 2023 increased by $61.1 million, or 3.7%, to $1,704.0 million, compared to $1,642.9 million in the prior fiscal year. The Company reported net income per basic and diluted share of Class A and Common Stock of $2.56 and $2.49, respectively, for the fiscal year ended May 31, 2023, compared to $2.33 and $2.27, respectively, in the prior fiscal year. \nThe \nChildren's Book Publishing and Distribution \nsegment revenues increased 29%, outperforming the continued softness in retail, primarily from the book fairs channel due to higher fair count, which approximated 85% of pre-pandemic levels, and improved revenue per fair. The \nEducation Solutions\n segment experienced an overall reduction in schools' purchasing levels when compared to the prior year when schools were refilling classrooms with in-person learning materials as pandemic restrictions were fully lifted. Although sales were lower in certain instructional products and programs, the Company's diversified portfolio of products met the needs of customers through customized product offers and state sponsored programs. Internationally, local currency revenues increased in the Major Markets as the book fairs channels continued to recover from the pandemic, which offset the lower revenues from the disposition of the direct sales business in Asia.\nOperating income in fiscal 2023 was $106.3 million compared to $97.4 million in the prior fiscal year, representing an improvement of $8.9 million, primarily driven by the book fairs channel which continues to benefit from top-line growth and operational efficiencies. In addition, the Company realized improved operating margin in Asia attributable to the exit from the direct sales business, which generated losses in the prior year. The Company continues to benefit from the operational efficiencies achieved since the pandemic.\nOutlook\nThe Company previously announced the combination of its book fairs and book clubs channels into an integrated school reading events business which the Company expects will provide multiple opportunities to grow Scholastic's reach, serve its customers better and improve efficiencies within the \nChildren\u2019s Books Publishing and Distribution\n segment. The Company expects fair count to increase to approximately 90% of pre-pandemic levels with modest growth in revenue per fair. In the \nEducation Solutions\n segment, the Company\n \nexpects to continue to invest in new products and capabilities to grow its digital and print literacy solutions and expects the segment to benefit from continued growth in state-sponsored programs in the second half of fiscal 2024. Internationally, the Company expects to benefit from the continued recovery in the Major Markets and in Asia, as well as the reorganization in Canada. The Company also plans to invest in process improvements in its manufacturing and distribution functions, which should result in improved efficiencies going forward, and continue to utilize positive cash flows to increase shareholder value.\n20\nCritical Accounting Policies and Estimates\n\u00a0\nGeneral:\n\u00a0\nThe Company\u2019s discussion and analysis of its financial condition and results of operations is based upon its Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements involves the use of estimates and assumptions by management, which affects the amounts reported in the Consolidated Financial Statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, future expectations and various other assumptions believed to be reasonable under the circumstances, all of which are necessary in order to form a basis for determining the carrying values of assets and liabilities. Actual results may differ from those estimates and assumptions. On an ongoing basis, the Company evaluates the adequacy of its reserves and the estimates used in calculations, including, but not limited to: collectability of accounts receivable; variable consideration related to anticipated returns; allocation of transaction price to contractual performance obligations; amortization periods; stock-based compensation expense; pension and other postretirement obligations; tax rates; recoverability of inventories; deferred income taxes and tax reserves; the timing and amount of future income taxes and related deductions; recoverability of prepublication costs; royalty advance reserves; customer reward programs; and the impairment assessment of long-lived assets, goodwill and other intangibles. For a complete description of the Company\u2019s significant accounting policies, see Note 1, \"Description of Business, Basis of Presentation and Summary of Significant Accounting Policies,\" of Notes to Consolidated Financial Statements in Item\u00a08, \u201cConsolidated Financial Statements and Supplementary Data.\u201d The following policies and account descriptions include all those identified by the Company as critical to its business operations and the understanding of its results of operations:\n\u00a0\nRevenue recognition:\n\u00a0\nThe Company has identified the allocation of the transaction price to contractual performance obligations related to revenues within the school-based book fairs channel, as described below, as a critical accounting estimate. \nRevenues associated with school-based book fairs relate to the sale of children's books and other products to book fair sponsors. In addition, the Company employs an incentive program to encourage the sponsorship of book fairs and increase the number of fairs held each school year. The Company identifies two potential performance obligations within its school-based book fair contracts, which include the fulfillment of book fairs product and the fulfillment of product upon the redemption of incentive program credits by customers. The Company allocates the transaction price to each performance obligation and recognizes revenue at a point in time. The Company utilizes certain estimates based on historical experience, redemption patterns and future expectations related to the participation in the incentive program to determine the relative fair value of each performance obligation when allocating the transaction price. Changes in these estimates could impact the timing of the recognition of revenue. Revenue allocated to the book fairs product is recognized at the point at which product is delivered to the customer and control is transferred. The revenue allocated to the incentive program credits is recognized upon redemption of incentive credits and the transfer of control of the redeemed product. Incentive credits are generally redeemed within 12 months of issuance. Payment for school-based book fairs product is due at the completion of a customer's fair. Revenues associated with virtual fairs are recognized upon shipment of the products and related incentive program credits are expensed upon issuance. \nEstimated returns:\nFor sales that include a right of return, the Company estimates the transaction price and records revenues as variable consideration based on the amounts the Company expects to ultimately be entitled. In order to determine estimated returns, the Company utilizes historical return rates, sales patterns, types of products and expectations and recognizes a corresponding reduction to Revenues and Cost of goods sold. Management also considers patterns of sales and returns in the months preceding the fiscal year, as well as actual returns received subsequent to the fiscal year, available customer and market specific data and other return rate information that management believes is relevant. In addition, a refund liability is recorded within Other accrued expenses for the consideration to which the Company believes it will not ultimately be entitled and a return asset is recorded within Prepaid expenses and other current assets for the expected inventory to be returned. Actual returns could differ from the Company's estimate. A one percentage point change in the estimated reserve for returns rate would have resulted in an increase or decrease in operating income for the year ended May\u00a031, 2023 of approximately $3.0 million and approximately $3.2 million, respectively.\n21\nInventories:\n\u00a0\nInventories, consisting principally of books, are stated at the lower of cost, using the first-in, first-out method, or net realizable value. The Company records a reserve for excess and obsolete inventory based upon a calculation using the expected future sales of existing inventory driven by estimates around forecasted purchases, inventory consumption costs, and the sell-through rate of current fiscal year purchases. In accordance with the Company's inventory retention policy, expected future sales of existing inventory are compared against historical usage by channel for reasonableness and any specifically identified excess or obsolete inventory, due to an anticipated lack of demand, will also be reserved. The impact of a one percentage point change in the obsolescence reserve rate would have resulted in an increase or decrease in operating income for the year ended May\u00a031, 2023 of approximately $4.2 million.\n\u00a0\nRoyalty advances:\n\u00a0\nRoyalty advances are initially capitalized and subsequently expensed as related revenues are earned or when the Company determines future recovery through earndowns is not probable. The Company has a long history of providing authors with royalty advances, and it tracks each advance earned with respect to the sale of the related publication. Historically, the longer the unearned portion of the advance remains outstanding, the less likely it is that the Company will recover the advance through the sale of the publication, as the related royalties earned are applied first against the remaining unearned portion of the advance. The Company applies this historical experience to its existing outstanding royalty advances to estimate the likelihood of recovery. Additionally, the Company\u2019s editorial staff regularly reviews its portfolio of royalty advances to determine if individual royalty advances are not recoverable through earndowns for discrete reasons, such as the death of an author prior to completion of a title or titles, a Company decision to not publish a title, poor market demand or other relevant factors that could impact recoverability.\n\u00a0\nEvaluation of Goodwill impairment:\n\u00a0\nGoodwill is not amortized and is reviewed for impairment annually or more frequently if impairment indicators arise.\n\u00a0\nThe Company compares the estimated fair values of its identified reporting units to the carrying values of their net assets. The Company first performs a qualitative assessment to determine whether it is more likely than not that the fair values of its identified reporting units are less than their carrying values.\u00a0If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs the quantitative goodwill impairment test. The Company measures goodwill impairment by the amount the carrying value exceeds the fair value of a reporting unit. For each of the reporting units, the estimated fair value is determined utilizing the expected present value of the projected future cash flows of the reporting unit, in addition to comparisons to similar companies. The Company reviews its definition of reporting units annually or more frequently if conditions indicate that the reporting units may change.\u00a0The Company evaluates its operating segments to determine if there are components one level below the operating segment level.\u00a0A component is present if discrete financial information is available and segment management regularly reviews the operating results of the business.\u00a0If an operating segment only contains a single component, that component is determined to be a reporting unit for goodwill impairment testing purposes. If an operating segment contains multiple components, the Company evaluates the economic characteristics of these components.\u00a0Any components within an operating segment that share similar economic characteristics are aggregated and deemed to be a reporting unit for goodwill impairment testing purposes. Components within the same operating segment that do not share similar economic characteristics are deemed to be individual reporting units for goodwill impairment testing purposes.\u00a0\nThe Company has six reporting units with goodwill subject to impairment testing.\u00a0The determination of the fair value of the Company\u2019s reporting units involves a number of assumptions, including the estimates of future cash flows, discount rates and market-based multiples, among others, each of which is subject to change.\u00a0Accordingly, it is possible that changes in assumptions and the performance of certain reporting units could lead to impairments in future periods, which may be material.\u00a0\nIncome taxes:\nThe Company uses the asset and liability method of accounting for income taxes. Under this method, for purposes of determining taxable income, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of such assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to be realized.\n\u00a0\n22\nThe Company believes that its taxable earnings, during the periods when the temporary differences giving rise to deferred tax assets become deductible or when tax benefit carryforwards may be utilized, should be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of the tax benefit carryforwards or the projected taxable earnings indicate that realization is not likely, the Company establishes a valuation allowance.\n\u00a0\nIn assessing the need for a valuation allowance, the Company estimates future taxable earnings, with consideration for the feasibility of ongoing tax planning strategies and the realizability of tax benefit carryforwards, to determine which deferred tax assets are more likely than not to be realized in the future. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable earnings. In the event that actual results differ from these estimates in future periods, the Company may need to adjust the valuation allowance.\u00a0\n23\nResults of Operations - Consolidated\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0 \n(Amounts in millions, except per share data)\nFor fiscal years ended May 31,\n\u00a0\n2023\n2022\n$\n% \n(1)\n$\n% \n(1)\nRevenues:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nChildren\u2019s Book Publishing and Distribution\n$\n1,038.0\u00a0\n60.9\u00a0\n$\n946.5\u00a0\n57.6\u00a0\nEducation Solutions\n386.6\u00a0\n22.7\u00a0\n393.6\u00a0\n24.0\u00a0\nInternational\n279.4\u00a0\n16.4\u00a0\n302.8\u00a0\n18.4\u00a0\nTotal revenues\n1,704.0\u00a0\n100.0\u00a0\n1,642.9\u00a0\n100.0\u00a0\nCost of goods sold\n786.4\u00a0\n46.2\u00a0\n765.5\u00a0\n46.6\u00a0\nSelling, general and administrative expenses \n(2)\n756.6\u00a0\n44.4\u00a0\n722.8\u00a0\n44.0\u00a0\nDepreciation and amortization \n54.7\u00a0\n3.2\u00a0\n56.8\u00a0\n3.5\u00a0\nAsset impairments and write downs\n\u2014\u00a0\n\u2014\u00a0\n0.4\u00a0\n0.0\u00a0\nOperating income (loss)\n106.3\u00a0\n6.2\u00a0\n97.4\u00a0\n5.9\u00a0\nInterest income\n7.2\u00a0\n0.5\u00a0\n0.5\u00a0\n0.1\u00a0\nInterest expense\n(1.4)\n(0.1)\n(2.9)\n(0.2)\nOther components of net periodic benefit (cost)\n0.3\u00a0\n0.0\u00a0\n0.1\u00a0\n0.0\u00a0\nGain (loss) on assets held for sale \n(3)\n\u2014\u00a0\n\u2014\u00a0\n(15.1)\n(0.9)\nGain (loss) on sale of assets and other \n(4)\n\u2014\u00a0\n\u2014\u00a0\n9.7\u00a0\n0.6\u00a0\nEarnings (loss) before income taxes\n112.4\u00a0\n6.6\u00a0\n89.7\u00a0\n5.5\u00a0\nProvision (benefit) for income taxes \n(5)\n25.9\u00a0\n1.5\u00a0\n8.7\u00a0\n0.5\u00a0\nNet income (loss)\n$\n86.5\u00a0\n5.1\u00a0\n$\n81.0\u00a0\n4.9\u00a0\nLess: Net income (loss) attributable to noncontrolling interest\n0.2\u00a0\n0.0\u00a0\n0.1\u00a0\n0.0\u00a0\nNet income (loss) attributable to Scholastic Corporation \n$\n86.3\u00a0\n5.1\u00a0\n$\n80.9\u00a0\n4.9\u00a0\nBasic and diluted earnings (loss) per share of Class A and Common Stock\n\u00a0\nBasic\n$\n2.56\u00a0\n$\n2.33\u00a0\nDiluted\n$\n2.49\u00a0\n$\n2.27\u00a0\n(1) Represents percentage of total revenues.\n(2) In fiscal 2022, the Company recognized $6.6 of pretax insurance proceeds related to an intellectual property legal settlement accrued in fiscal 2021, pretax severance and related charges of $6.2 and pretax branch consolidation costs of $0.5.\n(3) In fiscal 2022, the Company recognized pretax loss on assets held for sale related to the Company's plan to exit the direct sales business in Asia of $15.1.\n(4) In fiscal 2022, the Company recognized a pretax gain of $3.5 on the sale of its UK distribution center located in Witney and a pretax gain of $6.2 on the sale of its Lake Mary facility.\n(5) In fiscal 2022, the Company recognized a benefit for income taxes in respect to one-time pretax charges of $1.3. \n24\nResults of Operations \u2013 Consolidated \nThe section below is a discussion of the Company's fiscal year 2023 results compared to fiscal year 2022. A detailed discussion of the Company's fiscal year 2021 results and year-over-year comparisons between fiscal years 2022 and 2021 that are not included in this Form 10-K can be found in the \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" for the year ended May\u00a031, 2022, filed as part of the Company's Form 10-K dated July 22, 2022. \nFiscal 2023 compared to fiscal 2022\nRevenues from operations for the fiscal year ended May\u00a031, 2023 increased by $61.1 million, or 3.7%, to $1,704.0 million, compared to $1,642.9 million in the prior fiscal year. \nChildren\u2019s Book Publishing and Distribution\n segment revenues increased $91.5 million, partially offset by lower revenues from the \nEducation Solutions\n segment and International segment of $7.0 million and $23.4 million, respectively.\nWithin the \nChildren\u2019s Book Publishing and Distribution\n segment, revenues in the book fairs channel increased $123.4 million primarily on higher fair count. Increased redemptions of book fair incentive program credits compared to the prior year and an improvement in revenue per fair also drove higher revenues. Lower book clubs channel revenues of $8.6 million were due to lower sponsor participation and fewer events. To address the continued decline, the Company has combined the U.S.-based book clubs and book fairs businesses into an integrated school reading events business subsequent to year-end. The integration is expected to create synergies in operations and a coordinated go-to-market strategy to result in additional opportunities and improved efficiencies. Trade channel revenues decreased $23.3 million, primarily driven by the industry-wide decline in retail market sales, partially offset by higher media channel revenues as the Company completed the delivery of episodes associated with the production of the \"Eva the Owlet\" animated series. \nWithin the \nEducation Solutions\n segment, decreased revenues of $7.0 million were driven by an overall reduction in schools' purchasing levels when compared to the prior year when schools were refilling classrooms with in-person learning materials as pandemic restrictions were fully lifted. Demand for certain of the Company's instructional products and programs, including \nScholastic Bookroom\n, \nGuided Reading\n and\n Scholastic Literacy\n was lower as customer purchasing shifted to the Company's more customized products and digital and print literacy solutions. This was partially offset by increased revenues from sponsored programs, which had a full year of shipments in fiscal 2023 compared to a partial year in fiscal 2022. The Company sells to non-school customers through its community and state-sponsored programs and the related sales increased in fiscal 2023.\nRevenues in the \nInternational\u00a0\nsegment decreased $23.4 million primarily attributable to unfavorable foreign currency exchange of $23.0 million and the disposition of the direct sales business resulting in $15.0 million in lower revenues. Excluding the foregoing, revenues increased $14.6 million primarily driven by the Major Markets as the book fairs channels continued to recover from the pandemic.\nComponents of Cost of goods sold for fiscal years 2023 and 2022 are as follows:\n\u00a0\n($ amounts in millions)\n\u00a0\n2023\n% of revenue\n2022\n% of revenue\nProduct, service, production costs and inventory reserves\n$\n475.2\u00a0\n27.9\u00a0\n%\n$\n448.8\u00a0\n27.3\u00a0\n%\nRoyalty costs\n132.8\u00a0\n7.8\u00a0\n139.1\u00a0\n8.5\u00a0\nPrepublication and production amortization\n26.0\u00a0\n1.5\u00a0\n27.4\u00a0\n1.8\u00a0\nPostage, freight, shipping, fulfillment and all other costs\n152.4\u00a0\n9.0\u00a0\n150.2\u00a0\n9.1\u00a0\nTotal cost of goods sold\n$\n786.4\n\u00a0\n46.2\n\u00a0\n%\n$\n765.5\n\u00a0\n46.6\n\u00a0\n%\nCost of goods sold as a percentage of revenue for the fiscal year ended May\u00a031, 2023 was 46.2%, compared to 46.6% in the prior fiscal year. Cost of goods sold benefited from increased sales volume in the U.S. book fairs channel, which also resulted in lower royalty costs as a percentage of revenue. Traditionally, the book fairs channel has a higher mix of non-royalty bearing titles. This was partially offset by higher excess and obsolete inventory due to the softness in the global retail channels. The Company also incurred higher production costs related to the \"Eva the Owlet\" animated series in fiscal 2023 and higher print costs, primarily in the U.S. trade channel, as well as an increase in inbound and outbound freight costs in the U.S. and in the Major Markets. As of the end of fiscal 2023, inbound freight costs have returned to pre-pandemic levels, however, there remains uncertainty regarding potential shipping courier union strikes \n25\nwhich could result in increased freight costs for the Company in the near future and impact the Company's ability to ship product to customers. \nSelling, general and administrative expenses for the fiscal year ended May\u00a031, 2023 were $756.6 million, compared to $722.8 million in the prior fiscal year. The $33.8 million increase was primarily due to higher spending in the U.S. book fairs channel as a result of the increased fair count resulting in higher labor and other overhead costs, including fuel charges, marketing expenses and bank fees, as well as increased rent for warehouse space. In addition, the Company incurred higher employee-related costs in the \nEducation Solutions\n segment associated with increased spending on strategic initiatives such as the integration efforts related to the Learning Ovations acquisition and the launch of Ready4Reading, as well as higher labor and marketing costs to support the growth in sponsored programs. The increase was also attributable to the prior year receipt of insurance recoveries of $6.6 million related to the intellectual property legal settlement accrued in fiscal 2021. Partially offsetting this increase the Company had lower severance expense from its restructuring programs of $6.2 million, recognized higher COVID-related governmental employee retention credits of $2.1 million received in fiscal 2023, incurred lower costs in Asia as a result of the disposition of the direct sales business of approximately $12.6\u00a0million, benefited from an insurance recovery of $5.0\u00a0million in fiscal 2023 related to photo litigation settlements and also benefited from a favorable settlement of $1.8\u00a0million related to legacy sales tax matters. Additionally, bad debt expense was favorable as the prior fiscal year was negatively impacted by a discrete systems issue in the book clubs channel which resulted in $6.6\u00a0million of higher uncollectible receivable balances. The Company expects to incur severance costs in the first quarter of fiscal 2024 related to restructuring programs in Canada as well as in the U.S. as a result of combining the book clubs and book fairs businesses into an integrated school reading events business. \nDepreciation and amortization expenses for the fiscal year ended May\u00a031, 2023 were $54.7 million, compared to $56.8 million in the prior fiscal year. The $2.1 million decrease primarily related to the Company's shift to cloud computing arrangements (e.g. software as a service) which resulted in capitalized software being amortized through Selling, general and administrative expenses rather than Depreciation and amortization. Amortization of capitalized cloud software increased $2.4\u00a0million when compared to the prior fiscal year which offset the decrease in Depreciation and amortization. Management expects Depreciation and amortization expense to increase as the Company's capitalized spending has and will continue to increase into the next fiscal year.\nAsset impairments and write downs for the fiscal year ended May\u00a031, 2022 were $0.4 million due to the impairment of right-of-use assets associated with certain operating leases as part of the book fairs warehouse consolidation effort.\nInterest income for the fiscal year ended May\u00a031, 2023 was $7.2 million, compared to $0.5 million in the prior fiscal year. $4.7\u00a0million of the increase was driven by overall higher average investment balances as compared to the prior fiscal year, coupled with higher interest rates in fiscal 2023. The Company invests excess cash in short term investments which earn competitive interest rates that change directionally in relation to the Federal Funds rate. In addition, the Company recognized $2.0\u00a0million of interest income related to tax refunds received during fiscal 2023 that will not repeat in the next fiscal year. Interest expense for the fiscal year ended May\u00a031, 2023 was $1.4 million, compared to $2.9 million in the prior fiscal year. The decrease in interest expense was due to lower average debt borrowings as compared to the prior fiscal year as the outstanding borrowings on the U.S. credit agreement were paid down during fiscal 2022, resulting in no outstanding borrowings as of the beginning of fiscal 2023.\nGain (loss) on assets held for sale for the fiscal year ended May\u00a031, 2022 was a loss of $15.1 million related to the Company's exit of the direct sales business in Asia as it was no longer a part of the strategic growth plan for the Company. The exit resulted in the sale of remaining assets, primarily accounts receivable and inventory, and the assets were written down to their recoverable value which equated to the selling price. The loss on assets held for sale included accrued exit costs.\nGain (loss) on sale of assets and other for the fiscal year ended May\u00a031, 2022 was a gain of $9.7 million. In the prior fiscal year, the Company sold its UK distribution facility located in Witney and its facility located in Lake Mary, Florida, resulting in a recognized gain on sale of $3.5\u00a0million and $6.2\u00a0million, respectively. \nThe Company\u2019s effective tax rate for the fiscal year ended May\u00a031, 2023 was a 23.0% tax provision, compared to 9.7% in the prior fiscal year. The 2022 fiscal year tax provision benefited from the release of uncertain tax positions resulting from the effective settlement of the IRS examination from the 2015-2020 tax years. \nNet income for fiscal 2023 was $86.5 million compared to $81.0 million in fiscal 2022, an increase of $5.5 million. The basic and diluted income per share of Class A Stock and Common Stock was $2.56 and $2.49, respectively, in fiscal 2023, compared to basic and diluted income per share of Class A Stock and Common Stock of $2.33 and $2.27, \n26\nrespectively, in fiscal 2022. Outstanding shares decreased 7% from 34.2 million to 31.7 million as of May 31, 2023 which will benefit earnings per share calculations in fiscal 2024.\nNet income attributable to noncontrolling interest for fiscal 2023 and fiscal 2022 was $0.2 million and $0.1 million, respectively. \nResults of Operations \u2013 Segments\n\u00a0\nCHILDREN\u2019S BOOK PUBLISHING AND DISTRIBUTION\u00a0\n($ amounts in millions)\n2023 compared to 2022\n2023\n2022\n$ change\n% change\nRevenues\n$\n1,038.0\u00a0\n$\n946.5\u00a0\n$\n91.5\u00a0\n9.7\u00a0\n%\nCost of goods sold \n481.7\u00a0\n450.3\u00a0\n31.4\u00a0\n7.0\u00a0\nOther operating expenses *\n412.9\u00a0\n380.5\u00a0\n32.4\u00a0\n8.5\u00a0\nAsset impairments and write downs\n\u2014\u00a0\n0.4\u00a0\n(0.4)\nNM\nOperating income (loss)\n$\n143.4\u00a0\n$\n115.3\u00a0\n$\n28.1\u00a0\n24.4\u00a0\n%\nOperating margin\n\u00a0\n13.8\n\u00a0\n%\n12.2\n\u00a0\n%\n\u00a0\n\u00a0\n* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.\nNM Not meaningful \nFiscal 2023 compared to fiscal 2022\nRevenues for the fiscal year ended May\u00a031, 2023 increased by $91.5 million to $1,038.0 million, compared to $946.5 million in the prior fiscal year. The increase in segment revenues was driven by the book fairs channel with an increase of $123.4 million, or 29%, exceeding pre-pandemic revenues for this channel. The increased revenues were driven by a 15% increase in fair count, coupled with higher revenue per fair and a year-over-year increase in redemptions of book fair incentive program credits. Revenues from the book clubs channel decreased $8.6 million as a result of the multi-year trend of lower sponsor participation and fewer events held in fiscal 2023. To address this continued decline, the Company has combined the U.S.-based book clubs and book fairs businesses into an integrated school reading events business and expects the synergies in operations and a coordinated go-to-market strategy to result in additional opportunities and improved efficiencies. Trade channel revenues decreased $23.3 million primarily reflecting the industry-wide decline in retail market sales driving overall lower revenues. The prior fiscal year also included the release of J.K. Rowling's \nThe Christmas Pig \nas well as limited edition foil cover versions of titles in Dav Pilkey's \nDog Man\n series which helped lift overall sales across the series. During fiscal 2023, the trade channel released numerous best-sellers, including \nDog Man #11: Twenty Thousand Fleas Under the Sea, Cat Kid Comic Club: Collaborations, Harry Potter and the Order of the Phoenix: The Illustrated Edition,\n \nWings of Fire Graphix #6: Moon Rising, The Baby-Sitters Club Graphic Novel #13: Mary Anne's Bad Luck Mystery\n and \nNick and Charlie: A Heartstopper Novella\n. In addition, the Company completed the delivery of episodes associated with the production of the animated series \"Eva the Owlet\". The unfavorable economic trends in the retail book markets could continue to negatively impact the trade channel in fiscal 2024. \nCost of goods sold for the fiscal year ended May\u00a031, 2023 was $481.7 million, or 46.4% of revenues, compared to $450.3 million, or 47.6% of revenues, in the prior fiscal year. The decrease in Cost of goods sold as a percentage of revenues was primarily driven by increased sales volume in the book fairs channel, which also resulted in lower royalty costs as a percentage of revenue. Traditionally, the book fairs channel has a higher mix of non-royalty bearing titles. The favorability was partially offset by increased product costs in the trade channel due to higher print and inbound freight costs driven by the continued impact of inflationary pressures and higher production costs related to the production of the \"Eva the Owlet\" animated series in the media business. Cost of goods sold benefited from lower excess and obsolete inventory in the book fairs channel in fiscal 2023 as a result of better utilization of aged inventory. This was substantially offset by higher excess and obsolete inventory in the trade channel due to the softness in the retail market and in the book clubs channel which expects to reduce offerings in fiscal 2024 as part of its integration into the school reading events business. As of the end of fiscal 2023, inbound freight costs have returned to pre-pandemic levels, however, there remains uncertainty regarding potential shipping courier union strikes which could result in increased freight costs for the Company in the near future. \nOther operating expenses were $412.9 million for the fiscal year ended May\u00a031, 2023, compared to $380.5 million in the prior fiscal year. The $32.4 million increase was primarily due to increased labor and other overhead costs in the book fairs channel, including fuel charges, marketing expenses and bank fees, as a result of the increased fair count in \n27\nfiscal 2023, as well as increased rent for warehouse space. The higher labor costs were partially offset by a COVID-related governmental employee retention credit of $3.3 million received and recognized in fiscal 2023. In addition, bad debt expense was favorable as the prior fiscal year was negatively impacted by a discrete systems issue in the book clubs channel which resulted in $6.6\u00a0million of higher uncollectible receivable balances.\nAsset impairments were $0.4 million for the fiscal year ended May\u00a031, 2022. In the prior fiscal year, the Company recorded an impairment of right-of-use assets associated with certain operating leases as part of the book fairs warehouse consolidation effort.\nSegment operating income for the fiscal year ended May\u00a031, 2023 was $143.4 million, compared to $115.3 million in the prior fiscal year. The $28.1 million increase was primarily driven by the continued improvement in the book fairs channel, which resulted in a $123.4 million increase in revenue primarily on higher fair count. The book fairs channel continued to drive an increase in revenue per fair by approximately 5% which benefited operating income due to the fixed distribution costs on a delivered fair. In addition, the production and delivery of the \"Eva the Owlet\" animated series drove additional profit contribution in fiscal 2023. Operating income was negatively impacted by a decrease in trade channel revenue reflecting the industry-wide decline in retail market sales, and continued inflationary pressures driving higher print and inbound freight costs, primarily in the trade channel. As of the end of fiscal 2023, inbound freight costs have returned to pre-pandemic levels, however, there remains uncertainty regarding potential shipping courier union strikes which could result in increased freight costs for the Company in the near future. Lower participation levels in the book clubs channel was also unfavorable to operating income in the current fiscal year. The Company has combined the U.S.-based book clubs and book fairs businesses into an integrated school reading events business subsequent to year-end. The integration is expected to create synergies in operations and a coordinated go-to-market strategy to result in additional opportunities and improved efficiencies. \nEDUCATION SOLUTIONS\n($ amounts in millions)\n2023 compared to 2022\n\u00a0\n2023\n2022\n$ change\n% change\nRevenues\n$\n386.6\u00a0\n$\n393.6\u00a0\n$\n(7.0)\n(1.8)\n%\nCost of goods sold \n143.0\u00a0\n142.4\u00a0\n0.6\n0.4\u00a0\nOther operating expenses *\n185.2\u00a0\n169.4\u00a0\n15.8\n9.3\u00a0\nOperating income (loss)\n$\n58.4\u00a0\n$\n81.8\u00a0\n$\n(23.4)\n(28.6)\n%\nOperating margin\n15.1\n\u00a0\n%\n20.8\n\u00a0\n%\n\u00a0\n\u00a0\n\u00a0* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.\nFiscal 2023 compared to fiscal 2022\n\u00a0\nRevenues for the fiscal year ended May\u00a031, 2023 decreased by $7.0 million to $386.6 million, compared to $393.6 million in the prior fiscal year. The decrease in segment revenues was largely driven by an overall reduction in schools' purchasing levels when compared to the prior year when schools were refilling classrooms with in-person learning materials as pandemic restrictions were being lifted. Demand for certain of the Company's instructional products and programs, including \nScholastic Bookroom\n, \nGuided Reading\n and\n Scholastic Literacy, \nas well as early childhood programs and summer learning product offerings was lower, due in part to customer purchasing shifting to the Company's more customized products and digital and print literacy solutions. Changes to the methods in which schools approach literacy instruction also contributed to the decline in certain offerings and the Company's new K-3 phonic program, Ready4Reading\nTM\n, is expected to align with the modified instruction methods. The decrease in revenues related to instructional products and programs was also due to the timing of revenues in fiscal 2022, which benefited from shipments, primarily consisting of summer learning products, that shifted from the fourth quarter of fiscal 2021 due to supply chain constraints at that time. During the fourth quarter of fiscal 2022, orders were shipped more timely with fewer sales shifting into the first quarter of fiscal 2023. The segment also had lower sales of Rising Voices Library\n\u00ae\n products, professional books and teaching resource products. Cultural awareness products like Rising Voices Library continue to be requested by customers and are subject to fluctuations based on large district sales. The Company continues to actively market these products and make additional investments and improvements in accordance with market demand. The overall decrease in segment revenues was partly offset by revenues from sponsored programs, which had a full year of shipments in fiscal 2023 compared to a partial year in fiscal 2022 and the addition of another state program in fiscal 2023. Additionally, the segment benefited from increased revenues from traditional classroom book collections and \nGrab and Go\n reading packs as well as products from the \nScholastic Family and Community Engagement (FACE)\nTM\n initiative, in which a renewed focus helped to increase offerings and expand into new school districts. Revenues from Magazines+ remained relatively consistent with the prior fiscal year and digital subscription revenues modestly increased year over year. \n28\nCost of goods sold for the fiscal year ended May\u00a031, 2023 was $143.0 million, or 37.0% of revenue, compared to $142.4 million, or 36.2% of revenue, in the prior fiscal year. The increase in Cost of goods sold as a percentage of revenues was primarily attributable to higher product costs, including higher inbound freight costs, in addition to increased postage and outbound freight costs, as the Company continued to be impacted by inflationary pressures. In fiscal 2022, the segment benefited from sales of inventory purchased prior to the cost increases. As of the end of fiscal 2023, inbound freight costs have returned to pre-pandemic levels, however, there remains uncertainty regarding potential shipping courier union strikes which could result in increased freight costs for the Company in the near future. \nOther operating expenses were $185.2 million for the fiscal year ended May\u00a031, 2023, compared to $169.4 million in the prior fiscal year. The\u00a0$15.8 million increase in Other operating expenses was primarily related to higher spending associated with the integration efforts related to the Learning Ovations acquisition which approximated $3\u00a0million and the launch of Ready4Reading as well as the growth within sponsored programs, partially offset by lower bonuses and commissions. In addition, the segment incurred higher marketing costs associated with sponsored programs and continued to incur costs related to strategic initiatives related to the Company's digital and print literacy offerings.\nSegment operating income for the fiscal year ended May\u00a031, 2023 was $58.4 million, compared to $81.8 million in the prior fiscal year. The $23.4 million decrease was attributable to lower revenues, primarily from instructional products and programs, coupled with increased employee-related costs and increased spending associated with growth initiatives. \nINTERNATIONAL\n($ amounts in millions)\n2023 compared to 2022\n\u00a0\n2023\n2022\n$ change\n% change\nRevenues\n$\n279.4\u00a0\n$\n302.8\u00a0\n$\n(23.4)\n(7.7)\n%\nCost of goods sold \n169.7\u00a0\n169.8\u00a0\n(0.1)\n(0.1)\nOther operating expenses *\n113.3\u00a0\n129.7\u00a0\n(16.4)\n(12.6)\nOperating income (loss)\n$\n(3.6)\n$\n3.3\u00a0\n$\n(6.9)\nNM\nOperating margin\n\u2014\n\u00a0\n%\n1.1\n\u00a0\n%\n* Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.\nNM Not meaningful\nFiscal 2023 compared to fiscal 2022\nRevenues for the fiscal year ended May\u00a031, 2023 decreased by $23.4 million to $279.4 million compared to $302.8 million in the prior fiscal year. Local currency revenues in the Company's ongoing foreign operations increased $14.6 million when compared to the prior fiscal year, which excluded $15.0 million in lower revenues from the disposition of the direct sales business and unfavorable foreign exchange impact of $23.0 million. In the Asia channel, excluding the lower revenues from the disposition of the direct sales business, local currency revenues increased $2.1 million primarily attributable to higher revenues in India from the book fairs and trade channels. In Australia and New Zealand, local currency revenues increased $7.3 million, driven by increased sales in the trade and book fairs channels as the prior year was negatively impacted by additional lockdowns imposed by the COVID variant. In the UK, local currency revenues increased $4.5 million largely driven by the continued recovery in the book fairs channel which resulted in a 70% increase in fair count as compared to the prior fiscal year, in addition to increased book clubs channel revenues. This was partially offset by lower education and magazine channel revenues as well as marginally lower revenues in the trade channel due to softness in the retail market which was partially offset by new releases in fiscal 2023 including \nThe Baddies\n by Julia Donaldson and \nDog Man\n\u00ae\n #11: Twenty Thousand Fleas Under the Sea\n by Dav Pilkey. In Canada, local currency revenues increased\u00a0$1.4 million primarily driven by the book fairs channel which continued to recover from the pandemic, resulting in a 37% increase in fair count and higher revenue per fair, largely offset by lower trade channel revenues due to an industry wide decline in the retail market and lower sales in the book clubs channel due to lower sponsor participation. Export sales decreased $0.7 million primarily due to lower distributor sales.\nCost of goods sold for the fiscal year ended May\u00a031, 2023 was $169.7 million, or 60.7% of revenues, compared to $169.8 million, or 56.1% of revenues, in the prior fiscal year. The increase in Cost of goods sold as a percentage of revenues was driven by continued inflationary pressures in the Major Markets which resulted in an overall increase in product costs due to higher inbound freight costs as well as higher outbound postage and freight costs. Certain foreign operations, primarily Canada, purchase inventory in U.S. dollars and the strengthening of the U.S. dollar \n29\nunfavorably impacted Cost of goods sold. Fulfillment costs also increased, primarily in Canada, driven by higher labor costs. In addition, higher excess and obsolete inventory in Canada was due to lower inventory utilization in the trade channel, which was partially offset by lower excess and obsolete inventory in Asia as a result of the exit of the direct sales business. \nOther operating expenses were $113.3 million for the fiscal year ended May\u00a031, 2023, compared to $129.7 million in the prior fiscal year. In local currencies, Other operating expenses decreased $8.3 million coupled with unfavorable foreign exchange impact of $8.1 million. Approximately $12.6\u00a0million of the decrease related to the disposition of the direct sales business in Asia driving lower employee-related expenses, general overhead costs and bad debt expense. In addition, the segment incurred severance expense of $1.2 million related to restructuring programs and UK branch consolidation costs of $0.5 million in the prior fiscal year, both of which did not reoccur in fiscal 2023. Partially offsetting this decrease, Other operating expenses were impacted by higher employee-related expenses due to the increased volume in the book fairs channels and the discontinuation of government subsidies related to COVID-related governmental retention programs in which $1.2 million was recognized in the prior fiscal year.\nSegment operating loss for the fiscal year ended May\u00a031, 2023 was $3.6 million, compared to operating income of $3.3 million in the prior fiscal year. Operating loss increased $6.9 million, primarily driven by cost pressures in Canada related to the impact of the weakening Canadian dollar on inventory purchases which are primarily denominated in U.S. dollars, higher excess and obsolete inventory due to the softness in the retail market, coupled with higher freight and fulfillment labor costs which, in addition to Canada, also impacted the other Major Markets due to continued inflationary pressures. This was partially offset by improved operating margin in Asia of $4.6\u00a0million attributable to the exit from the direct sales business, which generated losses in the prior period. The Company expects to incur severance costs in the first quarter of fiscal 2024 related to restructuring programs in Canada as efforts are being made to utilize efficiencies across North American operations. \nOverhead \nFiscal 2023 compared to fiscal 2022\n\u00a0\nUnallocated overhead expense for the fiscal year ended May\u00a031, 2023 decreased by $11.1 million to $91.9 million, compared to $103.0 million in the prior fiscal year. The decrease was primarily attributable to $5.0\u00a0million of insurance recoveries received and recognized in fiscal 2023 related to photo litigation settlements paid in prior periods and a $1.8\u00a0million benefit related to the favorable settlement of certain legacy sales tax matters. In addition, the Company incurred lower unallocated employee-related costs, including lower severance and related charges from the Company's restructuring programs of $5.0 million. This was partially offset by $6.6 million of insurance recoveries received and recognized in the prior fiscal year related to the intellectual property legal settlement accrued in fiscal 2021.\nLiquidity and Capital Resources\nFiscal 2023 compared to fiscal 2022\n\u00a0\nCash provided by operating activities was $148.9 million for the fiscal year ended May\u00a031, 2023, compared to cash provided by operating activities of $226.0 million for the prior fiscal year, representing a decrease in cash provided by operating activities of $77.1 million. The decrease in cash was primarily driven by higher inventory purchases of approximately $110\u00a0million. In the first half of the fiscal year, the Company increased purchases by approximately $140\u00a0million to mitigate long lead times related to global supply chain challenges. The Company expects to return to historical purchasing patterns as lead times have returned to pre-pandemic levels, however, due to the continued growth of the book fairs business, working capital requirements are expected to remain elevated. The decrease was also attributable to lower net refunds from income taxes of $51.3 million relative to the prior fiscal year, increased spending on general expenses in the book fairs channel to support the increased fair count and lower cash remittances related to book fairs incentive credits. This was partially offset by higher customer remittances on receivable balances in fiscal 2023 of approximately $62.6\u00a0million. \nCash used in investing activities was $99.6 million for the fiscal year ended May\u00a031, 2023, compared to cash used in investing activities of $43.2 million for the prior fiscal year, representing an increase in cash used in investing activities of $56.4 million. The increase in cash used was driven by higher capital expenditures of $20.0 million, primarily for new equipment at the Company's Jefferson City, Missouri distribution facility and in the book fairs warehouses to meet expected demand, payments related to the Learning Ovations acquisition of $10.7 million, and increased prepublication spending of $9.7 million associated with product development in \nEducation Solutions\n. In addition, the \n30\nprior fiscal year included net proceeds of $10.4 million from the sale of the U.S. Lake Mary facility and $5.6 million from the sale of the UK distribution facility located in Witney.\nCash used by financing activities was $139.5 million for the fiscal year ended May\u00a031, 2023, compared to cash used in financing activities of $229.2 million for the prior fiscal year. The decrease in cash used in financing activities of $89.7 million was primarily related to repayments of borrowings under the U.S. credit agreement of $175.0\u00a0million during the prior fiscal year, coupled with an increase in net proceeds from stock option exercises of $10.5\u00a0million. Partially offsetting this decrease, the Company repurchased $132.1 million of common stock, compared to repurchases of $33.4 million in the prior fiscal year, and paid higher dividends of $4.9 million as part of the Company's shareholder enhancement initiatives. As a result, outstanding shares decreased 7% from 34.2 million to 31.7 million as of May 31, 2023 which will benefit earnings per share calculations in fiscal 2024. \nCash Position\nThe Company\u2019s cash and cash equivalents totaled $224.5 million at May\u00a031, 2023 and $316.6 million at May\u00a031, 2022. Cash and cash equivalents held by the Company\u2019s U.S. operations totaled $174.6 million at May\u00a031, 2023 and $275.5 million at May\u00a031, 2022.\nThe Company\u2019s operating philosophy is to use cash provided by operating activities to create value by paying down debt, reinvesting in existing businesses and, from time to time, making acquisitions that will complement its portfolio of businesses or acquiring other strategic assets, as well as engaging in shareholder enhancement initiatives, such as share repurchases or dividend declarations. During fiscal 2023, the Company repurchased $135.1 million of its common stock, which included shares repurchased through a modified Dutch auction tender offer and open-market repurchases. See Note 14, \"Treasury Stock,\" of Notes to the Consolidated Financial Statements in Item 8, \"Consolidated Financial Statements and Supplementary Data\" for further details regarding the modified Dutch auction tender offer. Under the Company's open-market buy-back program, $21.6 million remained available for future purchases of common shares as of May 31, 2023. Subsequent to May 31, 2023, the Board authorized an increase of $100.0 million for common stock repurchases, resulting in a current Board authorization of $119.2 million, which includes the remaining amount from the previous Board authorization less share repurchases of $2.4 million subsequent to May 31, 2023.\nThe Company has maintained, and expects to maintain for the foreseeable future, sufficient liquidity to fund ongoing operations, including working capital requirements, pension contributions, postretirement benefits, debt service, planned capital expenditures and other investments, as well as dividends and share repurchases. As of May\u00a031, 2023, the Company\u2019s primary sources of liquidity consisted of cash and cash equivalents of $224.5 million, cash from operations and the Company's U.S. credit agreement. The Company expects the U.S. credit agreement to provide it with an appropriate level of flexibility to strategically manage its business operations. The Company's U.S. credit agreement, less commitments of $0.4 million, has $299.6 million of availability. Additionally, the Company has short-term credit facilities of $34.5 million, less current borrowings of $6.0 million and commitments of $3.4 million, resulting in $25.1 million of current availability under these facilities at May\u00a031, 2023. Accordingly, the Company believes these sources of liquidity are sufficient to finance its currently anticipated ongoing operating needs, as well as its financing and investing activities.\n31\nThe following table summarizes, as of May\u00a031, 2023, the Company\u2019s contractual cash obligations by future period (see Notes 5, 6, 9 and 15 of Notes to Consolidated Financial Statements in Item 8, \u201cConsolidated Financial Statements and Supplementary Data\u201d): \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n$ amounts in millions\n\u00a0\nPayments Due By Period\nContractual Obligations\n1 Year or Less\nYears 2-3\nYears 4-5\nAfter Year 5\nTotal\nMinimum print quantities\n$\n0.3\u00a0\n$\n0.2\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n0.5\u00a0\nRoyalty advances\n28.9\u00a0\n11.9\u00a0\n0.3\u00a0\n0.2\u00a0\n41.3\u00a0\nLines of credit and short-term debt\n6.0\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n6.0\u00a0\nFinance leases \n(1)\n2.4\u00a0\n2.8\u00a0\n1.9\u00a0\n0.3\u00a0\n7.4\u00a0\nOperating leases\n25.4\u00a0\n36.4\u00a0\n25.1\u00a0\n25.4\u00a0\n112.3\u00a0\nPension and postretirement plans \n(2)\n2.3\u00a0\n4.8\u00a0\n4.5\u00a0\n10.7\u00a0\n22.3\u00a0\nTotal\n$\n65.3\n\u00a0\n$\n56.1\n\u00a0\n$\n31.8\n\u00a0\n$\n36.6\n\u00a0\n$\n189.8\n\u00a0\n(1) \n \nIncludes principal and interest.\n(2)   Excludes expected Medicare Part D subsidy receipts.\nFinancing\n\u00a0\nLoan Agreement\nThe Company is party to the U.S. credit agreement, as well as certain credit lines with various banks. For a more complete description of the U.S. credit agreement, as well as the Company's other debt obligations, reference is made to Note 5 of Notes to Consolidated Financial Statements in Item 8, \u201c\nConsolidated Financial Statements and Supplementary Data\n.\u201d The Company had no outstanding borrowings under the U.S. credit agreement as of May 31, 2023. On February 28, 2023, the Company entered into the First and Second Amendments to the U.S. credit agreement which adjusted the credit spread adjustment for SOFR (the secured overnight financing rate as administered by the Federal Reserve Bank of New York) to 0.10% and transitioned the reference rate from LIBOR (the London interbank offered rate) to SOFR. Reference is made to Note 1 and Note 5 of Notes to Consolidated Financial Statements in Item 8, \u201c\nConsolidated Financial Statements and Supplementary Data\n for further details.\nThe Company is party to other loan agreements, notes or other documents or instruments which previously referenced USD LIBOR as the benchmark interest rate index used to set the borrowing rate on certain short-term and variable-rate loans or advances. As of May 31, 2023, the Company has effectively replaced USD LIBOR with alternative reference rates in all financial contracts. The Company does not believe that the change in reference rates has or will have any material effect on its ability to access the credit markets under its existing financing agreements, or its ability to modify or amend financial contracts, if required.\nAcquisitions\u00a0\nIn the ordinary course of business, the Company explores domestic and international expansion opportunities, including potential niche and strategic acquisitions. As part of this process, the Company engages with interested parties in discussions concerning possible transactions. The Company will continue to evaluate such expansion opportunities and prospects. See Note 10, \"Acquisitions\", of Notes to Consolidated Financial Statements in Item 8, \u201cConsolidated Financial Statements and Supplementary Data.\u201d",
+  "item7a": ">Item 7A | Quantitative and Qualitative Disclosures about Market Risk\n\u00a0\nThe Company conducts its business in various foreign countries, and as such, its cash flows and earnings are subject to fluctuations from changes in foreign currency exchange rates. The Company sells products from its domestic operations to its foreign subsidiaries, creating additional currency risk. The Company manages its exposures to this market risk through internally established procedures and, when deemed appropriate, through the use of short-term forward exchange contracts which were not significant as of May\u00a031, 2023. The Company does not enter into derivative transactions or use other financial instruments for trading or speculative purposes.\nThe Company is subject to the risk that market interest rates and its cost of borrowing will increase and thereby increase the interest charged under its variable-rate debt.\n32\nAdditional information relating to the Company\u2019s derivative transactions and outstanding financial instruments is included in Note 19, \"Derivatives and Hedging,\"  and Note 5, \"Debt,\" respectively, of Notes to Consolidated Financial Statements in Item 8, \u201c\nConsolidated Financial Statements and Supplementary Data\n,\u201d which is included herein.\nThe following table sets forth information about the Company\u2019s debt instruments as of May\u00a031, 2023:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n$ amounts in millions\n\u00a0\nFiscal Year Maturity\n\u00a0\nFair Value\n\u00a0\n2024\n2025\n2026\n2027\n2028\nThereafter\nTotal\n2023\nDebt Obligations\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nLines of credit and current portion of long-term debt\n$\n6.0\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n6.0\u00a0\n$\n6.0\u00a0\nAverage interest rate\n4.9\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n33",
+  "cik": "866729",
+  "cusip6": "807066",
+  "cusip": ["807066905", "807066105"],
+  "names": ["SCHOLASTIC CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/866729/000086672923000019/0000866729-23-000019-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\nBusiness\n6\nItem 1A.\nRisk Factors\n12\nItem 1B.\nUnresolved Staff Comments\n17\nItem 2.\nProperties\n18\nItem 3.\nLegal Proceedings\n20\nItem 4.\nMine Safety Disclosures\n21\nPART II\nItem 5.\nMarket for Registrant\u2019s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities\n22\nItem 7.\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n24\nItem 7A.\nQuantitative and Qualitative Disclosures About Market Risk\n38\nItem 8.\nFinancial Statements and Supplementary Data\n39\nItem 9.\nChanges in and Disagreements With Accountants on Accounting and Financial Disclosure\n85\nItem 9A.\nControls and Procedures\n85\nItem 9B.\nOther Information\n85\nItem 9C.\nDisclosure Regarding Foreign Jurisdictions that Prevent Inspections\n85\nPART III\nItem 10.\nDirectors, Executive Officers and Corporate Governance\n87\nItem 11.\nExecutive Compensation\n90\nItem 12.\nSecurity Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters\n117\nItem 13.\nCertain Relationships and Related Transactions, and Director Independence\n118\nItem 14.\nPrincipal Accounting Fees and Services\n118\nPART IV\nItem 15.\nExhibits, Financial Statement Schedules\n119\nItem 16.\nForm 10-K Summary\n124\n*\n3\nTable\n \nof Contents\nINTRODUCTORY NOTE\nOn April 23, 2023 (the \u201cPetition Date\u201d), the Company and materially all of its direct and indirect subsidiaries (collectively, the \u201cDebtors\u201d or the \u201cCompany Parties\u201d) filed a voluntary petition (the \u201cChapter 11 Cases\u201d) under Chapter 11 of the U.S. Bankruptcy Code (the \u201cBankruptcy Code\u201d) in the U.S. Bankruptcy Court for the District of New Jersey (the \u201cBankruptcy Court\u201d). On the Petition Date, the Company Parties filed a motion with the Bankruptcy Court seeking to jointly administer the Chapter 11 Cases. On April 24, 2023, the Bankruptcy Court entered an order approving joint administration under the caption \n\u201cIn re Bed Bath & Beyond Inc.\n,\n\u201d\n \nCase No. 23-13359.\n Certain of the Company\u2019s subsidiaries were not included in the Chapter 11 filing.\nOn April 25, 2023, the Bankruptcy Court entered an order approving the bidding procedures in connection with the sale of all or substantially all of the Debtors\u2019 assets.\n1.\u00a0\u00a0\u00a0\u00a0Stalking Horse Deadline:  June 11, 2023, at 5:00 p.m. (prevailing Eastern Time)\n2.\u00a0\u00a0\u00a0\u00a0Bid Deadline:  June 16, 2023, at 12:00 p.m. (prevailing Eastern Time)\n3.\u00a0\u00a0\u00a0\u00a0Auction (if applicable): An Auction may be held on June 21, 2023, at 10:00 a.m. (prevailing Eastern Time) via live auction\n4.\u00a0\u00a0\u00a0\u00a0Notice of Successful Bidder: As soon as reasonably practicable after the conclusion of the Auction (if necessary).\n5.             Sale Objection Deadline: June 26, 2023, at 9:00 a.m. (prevailing Eastern Time)\n6.         \u00a0\u00a0\u00a0\u00a0Sale Hearing: June 27, 2023, or as soon thereafter as the Court\u2019s calendar permits\nThe Company Parties continue to operate their business and manage their properties as \u201cdebtors-in-possession\u201d under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Except as otherwise specifically stated herein, the description and disclosures presented elsewhere in this Form 10-K reflect the Company\u2019s business as of February 25, 2023, prior to the filing of the Chapter 11 Cases. As a result of the filing of the Chapter 11 Cases, the Company no longer has any operations, other than those relating to the wind down of its business and the completion of the Chapter 11 process.\nCAUTIONARY INFORMATION REGARDING TRADING IN THE COMPANY\u2019S SECURITIES\nHolders of the Company\u2019s equity securities will likely be entitled to no recovery on their investment following the Chapter 11 Cases, and recoveries to other stakeholders cannot be determined at this time. The Company cautions that trading in the Company\u2019s securities given the pendency of the Chapter 11 Cases is highly speculative and poses substantial risk. Trading prices for the Company\u2019s securities bear little or no relationship to the actual value realized, if any, by holders of the Company\u2019s securities in the Chapter 11 Cases. Accordingly, the Company urges extreme caution with respect to existing and future investment in its securities.\n4\nTable\n \nof Contents\nPART I\nUnless otherwise indicated, references to \"we,\" \"our,\" \"us,\" \"ourselves\" and the \"Company\" refer collectively to Bed Bath & Beyond Inc. and its subsidiaries as of\n \nFebruary\u00a025, 2023. Our fiscal year is comprised of the 52 or 53 week period ending on the Saturday nearest February 28. Accordingly, throughout this Annual Report on Form 10-K: (i) the term \"Fiscal 2022\" means our fiscal year beginning February\u00a027, 2022, and ending February\u00a025, 2023, (ii) the term \"Fiscal 2021\" means our fiscal year beginning February\u00a028, 2021, and ending February\u00a026, 2022, and (iii) the term \"Fiscal 2020\" means our fiscal year beginning March\u00a01, 2020, and ending February\u00a027, 2021. Unless otherwise indicated, all references herein to periods of time (e.g., quarters) are in relation to the fiscal years defined above.\nCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS \nThis Annual Report on Form 10-K contains forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Many of these forward-looking statements can be identified by use of words such as \u201cmay,\u201d \u201cwill,\u201d \u201cexpect,\u201d \u201canticipate,\u201d \u201capproximate,\u201d \u201cestimate,\u201d \u201cassume,\u201d \u201ccontinue,\u201d \u201cmodel,\u201d \u201cproject,\u201d \u201cplan,\u201d \u201cgoal,\u201d \u201cpreliminary,\u201d and similar words and phrases, although the absence of those words does not necessarily mean that statements are not forward-looking. Our actual results and future financial condition may differ materially from those expressed in any such forward-looking statements as a result of many factors. Such factors include, without limitation: \n\u2022\nthe Chapter 11 Cases and the Chapter 11 process;\n\u2022\nrisks attendant to the bankruptcy process, including the Company\u2019s ability to obtain court approval from the Bankruptcy Court (as defined herein) with respect to motions or other requests made to the Bankruptcy Court throughout the course of the Chapter 11 Cases (as defined herein), including with respect the DIP Facility (as defined herein);\n\u2022\nthe effects of the Chapter 11 Cases, including increased legal and other professional costs necessary to execute the Company\u2019s reorganization, on the Company\u2019s liquidity (including the availability of operating capital during the pendency of the Chapter 11 Cases), results of operations or business prospects;\n\u2022\nthe effects of the Chapter 11 Cases on the interests of various constituents and financial stakeholders;\n\u2022\nthe length of time that the Company will operate under Chapter 11 protection and the continued availability of operating capital during the pendency of the Chapter 11 Cases;\n\u2022\nobjections to the Company\u2019s Chapter 11 process, or other pleadings filed that could protract the Chapter 11 Cases;\n\u2022\nrisks associated with third-party motions in the Chapter 11 Cases;\n\u2022\nthe Company\u2019s ability to comply with the restrictions imposed by the terms and conditions of the DIP Credit Agreement (as defined herein) and other financing arrangements;\n\u2022\nrisks relating to the delisting of the Company\u2019s common stock from Nasdaq and future quotation of the Company\u2019s common stock;\n\u2022\nthe effectiveness of the Company\u2019s internal control over financial reporting and disclosure controls and procedures, and the potential for material weaknesses in the Company\u2019s internal controls over financial reporting or other potential weaknesses of which the Company is not currently aware or which have not been detected; and\n\u2022\nthe impact of litigation and regulatory proceedings.\nExcept as required by law, we do not undertake any obligation to update our forward-looking statements. These statements are based on our management\u2019s beliefs and assumptions, which in turn are based on currently available information. These assumptions could prove inaccurate. \nAny forward-looking statement we make in this Annual Report on Form 10-K or elsewhere speaks only as of the date on which we make it. The risks identified above are not exhaustive, and you should be aware that there may be other risks that could adversely affect our business and financial performance. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. In any event, these and other important factors, including those set forth under the caption \u201cRisk Factors\u201d in this Annual Report on Form 10-K, may cause actual results to differ materially from those \n5\nTable\n \nof Contents\nindicated by our forward-looking statements. We have no duty, and do not intend, to update or revise the forward-looking statements we make in this Annual Report on Form 10-K or elsewhere, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that the future events or circumstances described in any forward-looking statement we make in this Annual Report on Form 10-K or elsewhere might not occur. \nITEM 1 \u2013 BUSINESS\nOverview\nThe description of the Company\u2019s business contained herein reflects the Company\u2019s operations of its business prior to the filing of the Chapter 11 Cases on April 23, 2023. As a result of the filing of the Chapter 11 Cases, the Company no longer has operations, other than those relating to the wind down of its business and completion of the Chapter 11 process.\nThe Company is an omni-channel retailer that makes it easy for our customers to feel at home. We sell a wide assortment of merchandise in the Home, Baby, Beauty & Wellness markets and operate under the names Bed Bath & Beyond and buybuy BABY (\"BABY\").\nOur portfolio of banners consists of:\nBed Bath & Beyond\n - a specialty home retailer in the U.S that sells a wide assortment of domestic merchandise and home furnishings. Bed Bath & Beyond is a destination in the home space, particularly in key product categories including bedding, bath, kitchen food prep, home organization and indoor decor.\nbuybuy BABY\n - a specialty baby retailer in North America that sells a wide assortment of baby essentials and nursery furnishings. BABY strives to build trust with parents by supporting them with what they need so families can celebrate every milestone \u2013 big and small \u2013 together.\nWe offer a broad assortment of national brands and an assortment of proprietary owned brands (the \u201cOwned Brands\u201d). Owned Brand merchandise in key destination categories including bedding, bath, kitchen, food prep, home organization, indoor d\u00e9cor, baby and personal care.\nAcross our banners, we carry a wide variety of domestics, and home furnishings and baby merchandise. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, food prep, fine tabletop, basic housewares, home organization, general home furnishings (including furniture and wall d\u00e9cor), consumables, and certain juvenile products. Our Owned Brands in domestics and home furnishings include Simply Essential\u2122, Nestwell\u2122, Our Table\u2122, Squared Away\u2122, H for Happy\u2122 and Everhome\u2122. Our Owned Brands in baby include Mighty Goods\u2122 and Ever & Ever\u2122.\nWe operate an omni-channel platform consisting of various websites and applications and physical retail stores. Our e-commerce platforms include bedbathandbeyond.com and buybuybaby.com. We operate Bed Bath & Beyond and buybuy BABY stores.\nWe are driving a digital-first, omni-always strategy and optimizing our digital and physical store channels to provide our customers with an omni-channel shopping experience. Digital purchases, including web and mobile, can be shipped to a customer from our distribution facilities, directly from vendors, or from a store. Store purchases are primarily fulfilled from that store's inventory or may also be shipped to a customer from one of our distribution facilities, from a vendor, or from another store. Customers can also choose to pick up orders using our Buy Online Pickup In Store (\"BOPIS\") and contactless Curbside Pickup services, as well as return online purchases to a store, or have an order delivered through one of our delivery partners. \nWe operated 872 retail stores, as of February\u00a025, 2023, consisting of 696 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 131 BABY stores in 37 states and Canada and 45 Harmon stores in 2 states. During Fiscal 2022, we opened 7 new stores and closed 88 stores. As of February\u00a025, 2023, our total store square footage, net of openings and closings, was approximately 25.5 million square feet. In addition to our U.S. and Canadian operations, we are a partner in a joint venture that operates 5 stores in Mexico under the name Bed Bath & Beyond.\nWe account for our operations as one North American Retail reporting segment. In Fiscal \n2020\n, we accounted for our operations as two operating segments: North American Retail and Institutional Sales, the latter of which did not meet the quantitative thresholds under GAAP and, therefore, was not a reportable segment, and which was divested in October 2020. Net sales outside of the U.S. were not material for Fiscal \n2022\n, \n2021,\n or \n2020\n.  \n6\nTable\n \nof Contents\nRecent Developments\nChapter 11 Bankruptcy\nOn April 23, 2023 (the \u201cPetition Date\u201d), the Company and materially all of its direct and indirect subsidiaries (collectively, the \u201cDebtors\u201d or the \u201cCompany Parties\u201d) filed voluntary petitions (the \u201cChapter 11 Cases\u201d) under Chapter 11 of the U.S. Bankruptcy Code (the \u201cBankruptcy Code\u201d) in the U.S. Bankruptcy Court for the District of New Jersey (the \u201cBankruptcy Court\u201d). On the Petition Date, the Company Parties filed a motion with the Bankruptcy Court seeking to jointly administer the Chapter 11 Cases.  On April 24, 2023, the Bankruptcy Court entered an order approving joint administration under the caption \n\u201cIn re Bed Bath & Beyond Inc.\n,\n\u201d \nCase No. 23-13359. Certain of the Company\u2019s subsidiaries were not included in the Chapter 11 filing.\nThe Company Parties continue to operate their business and manage their properties as \u201cdebtors-in-possession\" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Company Parties filed with the Bankruptcy Court motions seeking a variety of \u201cfirst-day\u201d relief, including authority to pay employee wages and benefits and to pay vendors and suppliers for goods and services provided both before and after the Petition Date. In addition, the Company filed with the Bankruptcy Court a motion seeking approval (\u201cInterim DIP Order\u201d) of debtor-in-possession financing (\u201cDIP Financing\u201d) in the form of the DIP Credit Agreement (as defined and described below). Following a hearing held on April 24, 2023, the Bankruptcy Court approved the Company Parties\u2019 motions seeking a variety of \u201cfirst-day\u201d relief on an interim basis. The Company Parties resolved numerous informal comments and many of the \"first-day\" motions were entered on a final basis consensually. A hearing was scheduled on June 14, 2023 for the Bankruptcy Court to consider final approval of the relief requested in certain first day motions, and final approval of the DIP Facility. \nDIP Credit Agreement\nPrior to the Petition Date, the Company Parties and Sixth Street Specialty Lending, Inc., Sixth Street Lending Partners and TAO Talents (the \u201cDIP Parties\u201d) agreed to enter into a senior secured super-priority debtor-in-possession term loan credit facility in an aggregate principal amount of $240,000,000 subject to the terms and conditions set forth therein (the \u201cDIP Credit Agreement\u201d). On April 25, 2023, the Bankruptcy Court entered an order approving entry into the DIP Credit Facility on an interim basis.  Pursuant to the DIP Credit Agreement, the DIP Lenders have provided a senior secured super-priority debtor in possession term loan facility (the \u201cDIP Facility\u201d), consisting of (1) a new money single draw term loan facility in the amount of $40 million, and (2) a roll-up of certain secured obligations under the existing prepetition credit agreement between the Company Parties and the Prepetition FILO Lenders in the amount of $200 million. Borrowings under the DIP Facility are senior secured obligations of the Company and certain Company Parties, secured by a super priority lien on the collateral under the Amended and Restated Credit Agreement, dated as of August 9, 2021  (as amended by that certain First Amendment to Amended and Restated Credit Agreement, dated as of August 31, 2022, that certain Second Amendment to Amended and Restated Credit Agreement and Waiver, dated as of February 7, 2023, that certain Third Amendment to Amended and Restated Credit Agreement and Waiver, dated as of March 6, 2023, that certain Fourth Amendment to Amended and Restated Credit Agreement and Waiver, dated as of March 30, 2023, that certain Fifth Amendment to Amended and Restated Credit Agreement and Waiver, dated as of April 6, 2023 and that certain Sixth Amendment to Amended and Restated Credit Agreement, Consent and Waiver, dated as of April 21, 2023, the \u201cExisting Credit Agreement\u201d), as well as all unencumbered assets of the Company Parties (subject to customary exceptions). The DIP Credit Agreement has various customary covenants, as well as covenants mandating compliance by the Debtors with a 13-week budget, variance testing and reporting requirements, among others. The proceeds of all or a portion of the proposed DIP Credit Agreements may be used for, among other things, post-petition working capital for the Company and its subsidiaries, payment of costs to administer the Chapter 11 Cases, payment of expenses and fees of the transactions contemplated by the Chapter 11 Cases, payment of court-approved adequate protection obligations under the DIP Credit Agreements, and payment of other costs, in each case, subject to an approved budget and such other purposes permitted under the DIP Credit Agreement and the Interim DIP Order or any other order of the Bankruptcy Court.\nThe Company Parties are seeking final approval of the DIP Credit Agreement at a hearing before the Bankruptcy Court, contemplated to occur on or about June 14, 2023.\nNasdaq Delisting Proceedings\nOn April 24, 2023, the Company received written notice from the Listing Qualifications Department of the Nasdaq Stock Market LLC (\u201cNasdaq\u201d) notifying the Company that, as a result of the Chapter 11 Cases and in accordance with the Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, Nasdaq had determined that the Company\u2019s common stock will be delisted from Nasdaq Trading of the Company\u2019s common stock was suspended at the opening of business on May 3, 2023.\nFollowing delisting from Nasdaq, the Company\u2019s common stock has been quoted in the OTC Pink Open Market under the symbol \u201cBBBYQ\u201d. The OTC Pink Open Market is a significantly more limited market than Nasdaq, and quotation on the OTC Pink Open Market likely results in a less liquid market for existing and potential holders of the common stock to trade the Company\u2019s common stock and could further depress the trading price of the common stock. The Company can provide no assurance as to \n7\nTable\n \nof Contents\nwhether broker-dealers will continue to provide public quotes of the common stock on this market, or whether the trading volume of the common stock will be sufficient to provide for an efficient trading market.\nWe expect Nasdaq to file a Form 25 with the SEC to delist our common stock from trading on Nasdaq and to remove it from registration under Section 12(b) of the Exchange Act, which will become effective 10 days after such filing. In accordance with Rule 12d2-2 of the Exchange Act, the de-registration of our common stock under Section 12(b) of the Exchange Act will become effective 90 days, or such shorter period as the SEC may determine, from the date of the Form 25 filing. \nAppointment of Chief Restructuring Officer\nEffective on April 22, 2023, the Company appointed Holly Etlin to serve as the Chief Restructuring Officer (\u201cCRO\u201d) of the Company for such a term and in accordance with the terms and conditions of that certain engagement letter, dated as of April 21, 2023 by and among and the Company and AP Services, LLC (the \u201cAP Engagement Letter\u201d). As further set forth in the AP Engagement Letter, Ms. Etlin\u2019s authority as CRO includes, in coordination with the Company\u2019s advisors and management, (a) overseeing the Chapter 11 Cases and court-supervised liquidation and sale process, (b) overseeing cash management and liquidity forecasting, (c) the development of, or revisions to, the Company\u2019s business plan, and (d) engagement with creditors and other stakeholders. Ms. Etlin shall serve at the direction of an ad hoc committee of the Board of Directors of the Company and its subsidiaries comprised of Carol Flaton, Pamela Corrie, Jonathan Foster, and Joshua Schechter, in accordance with the terms and conditions of the AP Engagement Letter.\nDivestiture of Non-Core Assets\nDuring Fiscal 2020, we divested five non-core banners, including One Kings Lane in the first quarter, PersonalizationMall.com in the second quarter, Linen Holdings and Christmas Tree Shops in the third quarter and Cost Plus World Market in the fourth quarter, generating approximately $534 million in net proceeds. See \"Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\" for detailed information relating to these divestitures.\nFiscal 2022 Strategic Transformation\nBeginning in the third quarter of Fiscal 2022, we underwent significant strategic and management changes to transform our business and adapt to the dynamic retail environment and the evolving needs of our customers in order to position ourselves for long-term success. The Company began to execute a comprehensive strategic plan led by our new President and Chief Executive Officer, Sue Gove, who was appointed in October 2022 after serving as Interim Chief Executive Officer. \n\u2022\nChange in leadership and strategy: \nWe realigned our organizational structure, which included the creation of Brand President roles for Bed Bath & Beyond and buybuy BABY to lead merchandising, planning, brand marketing, site merchandising and stores for each banner.\n\u2022\nOwned Brands:\n We exited a third of our Owned Brands, including the discontinuation of three of our nine labels (Haven\u2122, Wild Sage\u2122 and Studio 3B\u2122). We also expect to reduce the breadth and depth of inventory across our six remaining Owned Brands (Simply Essential\u2122, Nestwell\u2122, Our Table\u2122, Squared Away\u2122, H for Happy\u2122 and Everhome\u2122).\n\u2022\nIntroduction of Welcomes Rewards:\n During the second quarter of fiscal 2022, we launched our cross-banner customer loyalty program, Welcome Rewards\u2122, which allows members to earn points for each qualifying purchase at its retail banners either online or in its stores. Points earned are then converted to rewards upon reaching certain thresholds.\n\u2022\nRight-sizing cost structure and store fleets to better serve customers:\n We increased our focus on strategic investments in technologies, capabilities and services, store maintenance, and the expansion of digital offerings and services. We also initiated a strategic revaluation of store remodel plans and returns given changes in customer shopping and service.\n\u2022\nSupporting the growth of \nbuybuy BABY: \nWe began to expand as we worked to become a solution for parents from pre-natal to pre-school. During Fiscal 2022, we launched the first two exclusive buybuy Baby brands, Mighty Goods\n\u2122 and \nEver & Ever\n\u2122 which are available exclusively at buybuy BABY stores and online at buybuyBABY.com.\nStore Closings\nIn support of the Company\u2019s transformation, the Company reduced its store footprint and closed 88 stores during Fiscal 2022. \nAdditionally, as of the commencement of Chapter 11 Case the Company has begun the closing of the remaining stores, and the \n8\nTable\n \nof Contents\nCompany Parties are actively seeking to market and sell real property leases in order to capture substantial value and avoid significant costs associate with such leases.\nRebalancing our Merchandise\nIn conjunction with the Company\u2019s new strategic focus areas, the Company executed plans to rebalance our merchandise assortment to align with customer preference by leading with National Brands inventory and introducing new, emerging direct-to-consumer brands. Consequently, we announced the exiting of a third of our Owned Brands, including the discontinuation of a third of our nine labels (Haven\u2122, Wild Sage\u2122 and Studio 3B\u2122). We also expect to reduce the breadth and depth of inventory across our six remaining Owned Brands (Simply Essential\u2122, Nestwell\u2122, Our Table\u2122, Squared Away\u2122, H for Happy\u2122 and Everhome\u2122).\nExit from Harmon, Decorist and Canadian Operations\nWe have continued to create a more focused portfolio, including through the exit of unprofitable businesses such as our Harmon, Decorist and Canada operations. On September 26, 2022, we announced Decorist, an e-design platform we acquired in 2017, would wind down existing projects by October 12, 2022. On January 30, 2023, we announced plans to close all of our Harmon beauty product stores. \nDuring the fourth quarter of Fiscal 2022, we begun the exit of our Canadian operations.\nOn February 10, 2023 (the \u201cCanadian Petition Date\u201d), BBB Canada Limited made an application with the Ontario Superior Court of Justice (the \u201cCanadian Court\u201d). BBB Canada Limited was granted an order, which, among other provisions, provides a stay of proceedings pursuant to the Companies\u2019 Creditors Arrangement Act (the \u201cCCAA\u201d). The CCAA is a Federal Act that allows financially troubled corporations that owe their creditors in excess of $5 million the opportunity to restructure their affairs. Although Bed Bath & Beyond Canada L.P. (\u201cBBB LP\u201d and together with BBB Canada Limited, \u201cBBB Canada\u201d) did not file an application with the Canadian Court, the stay of proceedings under the CCAA and other benefits were extended to BBB LP. BBB Canada initiated a wind-down of Bed Bath & Beyond and Buy Buy Baby Stores in Canada under the CCAA. A monitor was appointed by the Canadian Court on February 10, 2023 to oversee the orderly liquidation of its remaining inventory with assistance from a third-party professional liquidator and vacate its leased retail stores and premises.\nFinancial Position Realignment\nThe description of the Company\u2019s business contained herein reflects the Company\u2019s operations of its business prior to the filing of the Chapter 11 Cases on April 23, 2023. As a result of the filing of the Chapter 11 Cases, the Company no longer has operations, other than those relating to the wind down of its business and completion of the Chapter 11 process.\nThe Company focused on its financial position with the following efforts prior to the filing of the Chapter 11 Cases:\n\u2022\nRight-sizing cost structure and infrastructure to reflect business operations: \nWe initiated a strategic revaluation of our overall expense and operational structure to align with business performance and target profitability. \n\u2022\nOrganizational changes to drive key focus areas:\n We realigned our executive leadership team and streamlined our organizational structure to focus on immediate priorities and important changes to operations. In conjunction with these changes, the Company has eliminated the Chief Operating Officer, Chief Stores Officer, Chief Merchandising Officer, Chief Customer Officer and Chief Growth Officer roles.\n\u2022\nSupply chain optimization: \nWe completed a supply chain network study to improve cost to serve and time to deliver for our customers by streamlining fulfillment center and distribution center operations.\n\u2022\nSupporting our supplier and vendor partners:\n The Company\u2019s teams worked closely with supplier and vendor partners to ensure customers have access to a strong assortment of their favorite brands across both store and digital channels. The customer experience is our top priority and we made meaningful progress to improve our business and calibrate to customer demand. In addition to leveraging our recent capital to reinvest in high demand inventory, we also worked to develop a third-party consignment program to allow us to fortify our product assortments by expanding merchandise availability from key supplier partners. \n\u2022\nObtaining additional capital:\n On February 7, 2023, the Company consummated an underwritten public offering of (i) shares of Series A Convertible Preferred Stock (\u201cSeries A\u201d), (ii) warrants to purchase shares of the Company\u2019s Common Stock (\u201cCommon Stock Warrants\u201d), and (iii) warrants to purchase shares of the Company\u2019s Series A Convertible Preferred Stock (\u201cPreferred Stock Warrants\u201d). The gross proceeds received for the Series A was $225.0 million and there was no additional consideration received for the Common Stock Warrants and Preferred Stock Warrants issued. \nBetween February 7, 2023 and March 27, 2023, a holder exercised 14,212 Series A Convertible Preferred Stock Warrants to \n9\nTable\n \nof Contents\npurchase 14,212 shares of Series A Convertible Preferred Stock for aggregate proceeds to the Company of $135,014,000. After the Company anticipated that it would not be able to meet the conditions to force the exercise of the Series A Convertible Preferred Stock Warrants in the future and receive cash proceeds therefore, on March 30, 2023, the Company and such holder entered into an exchange agreement (the \u201cExchange Agreement\u201d). Pursuant to the Exchange Agreement,\n the Company exchanged the warrants to purchase Series A Convertible Preferred Stock to purchase 70,004 shares of Series A Convertible Preferred Stock, par value $0.01 per share and stated value of $10,000 per share for 10,000,000 shares of common stock and rights to receive 5,000,000 shares of common stock upon the effectuation of a reverse stock split. The Series A Convertible Preferred Stock Warrants were terminated pursuant to the Exchange Agreement.\n\u2022\nAmending the credit facility to enable strategic initiatives: \n\u25e6\nOn February 7, 2023, the Company entered into the Second Amendment (the \u201cSecond Amendment\u201d) to that certain Amended and Restated Credit Agreement, dated as of August 9, 2021 (the \u201cCredit Agreement\u201d and as further amended, the \u201cAmended Credit Agreement\u201d), with certain of the Company\u2019s US and Canadian subsidiaries party thereto, JPMorgan Chase Bank, N.A., as administrative agent (the \u201cAdministrative Agent\u201d), Sixth Street Specialty Lending, Inc., as FILO agent (the \u201cFILO Agent\u201d), and the lenders party thereto. Pursuant to the Second Amendment, the lenders agreed to (i) waive any outstanding defaults or events of default under the existing Credit Facilities consisting of an asset-based revolving credit facility (the \u201cABL Facility\u201d) and a first-in-last-out term loan credit facility (the \u201cFILO Facility\u201d and, together with the ABL Facility, the \u201cCredit Facilities\u201d) and (ii) rescind the implementation of the acceleration of obligations under the existing Credit Facilities, the requirement to cash collateralize letters of credit obligations under the existing Credit Facilities and the default interest on the outstanding obligations under the existing Credit Facilities.\n\u25e6\nOn March 6, 2023, the Company entered into a waiver and amendment (the \u201cThird Amendment\u201d) to the Amended Credit Agreement. The Third Amendment waived certain defaults and events of default under the Amended Credit Agreement related to negative and affirmative covenants, including relating to the timely approval of the Company\u2019s budget, which impacted the receipt of equity proceeds pursuant to the Equity Commitment Documents by the then Required Funding Date (as defined in the Amended Credit Agreement) and subsequently triggered the required satisfaction of the springing fixed charge coverage ratio. \n\u25e6\nOn March 30, 2023, the Company entered into a waiver and amendment (the \u201cFourth Amendment\u201d) to the Amended Credit Agreement\n. The Fourth Amendment waived certain events of default under the Amended Credit Agreement related to negative and affirmative covenants. The Fourth Amendment also revised provisions of the Amended Credit Agreement relating to the Equity Commitment (as defined in the Amended Credit Agreement) to reflect the Company\u2019s entry into an at-the-market sales agreement, dated March 30, 2023, by and between the Company and B. \nRiley Securities, Inc. (the \u201cATM Agreement\u201d) and the Purchase Agreement and the Common Stock Purchase Agreement entered into with BRPC II on March 30, 2023 (the  \u201cPurchase Agreement\u201d) to provide additional capital to the Company. Simultaneously, the Company terminated its previous public equity offering and all outstanding warrants for Series A Convertible Preferred Stock associated with that offering.\n \n\u25e6\nOn April 6, 2023, the Company entered into an amendment (the \u201cFifth Amendment\u201d) to the Amended Credit Agreement. The Fifth Amendment permitted the entry into an amendment to the Consignment Agreement, dated as of April 4, 2023 (the \u201cConsignment Agreement\u201d), by and among the Company, certain of its subsidiaries and Restore Capital (BBB), LLC. The Fifth Amendment also added an Event of Default under the Amended Credit Agreement in the event that the Consignment Agreement is not extended at least fifteen days prior to the termination date therein. \n \nCompetition\nWe operate in a highly competitive business environment and compete with other national, regional, and local physical and online retailers that may carry similar lines of merchandise, including department stores, specialty stores, off-price stores, mass merchandise stores and online only retailers. \nSuppliers\nHistorically, we have purchased substantially all of our merchandise in the United States, with the majority from domestic sources (who may manufacture overseas) and the balance from importers. \n10\nTable\n \nof Contents\nIn Fiscal \n2022\n, we purchased our merchandise from approximately 3,700 suppliers with our largest supplier accounting for approximately 5% of our merchandise purchases and the ten largest suppliers accounting for approximately 27% of such purchases. We have no long-term contracts for the purchases of merchandise. \nDistribution\nA substantial portion of our merchandise is shipped to stores through a combination of third-party facilities, including cross dock locations, or through our operated distribution facilities that are located throughout the United States. The remaining merchandise is shipped dir\nectly from vendors. Merchandise is shipped directly to customers from one of our distribution facilities, stores or from vendors. The majority of our shipments are made by contract carriers depending upon location. \nAs of February 25, 2023, we had distribution facilities totaling approximately 4.4 million square feet, including our first regional distribution center, an approximately one million square foot facility in Frackville, Pennsylvania, which became operational during Fiscal 2021. Ryder Systems, Inc. operated this regional distribution center under a strategic partnership, with the objective of reducing product replenishment times and improving the customer experience. All of these capabilities allow us to better serve customers across our omni-channel network. During Fiscal 2021, we also executed a lease for our second regional distribution center in Jurupa Valley, California, which became operational during the second half of Fiscal 2022. As part of the optimization and transformation initiatives during the fourth quarter of Fiscal 2022, the Company decided to no longer use the Jurupa Valley, California distribution center. As of February 25, 2023, the Company had not fully exited the distribution center or reached a final negotiation with Ryder Systems, Inc. See \"Item 2 - Properties\" for additional information regarding our distribution facilities.\nMarketing\nWe employ a digital-first, omni-channel approach to marketing that is strategically designed to deliver maximum consumer engagement. The customer-inspired marketing mix includes a comprehensive range of touchpoints, including social, search, mobile SMS, email, digital video, display, content and influencer marketing, online affiliate programs and public relations, as well as traditional broadcast and print media, circulars, catalogs and our well-known \"big blue\" coupons. \nCustomer Care\nOur omni-always strategy is rooted in elevating the end-to-end experience for our customers across all channels, brands and banners. Through a customer inspired lens, we invest in capabilities necessary to continuously evolve and deliver for our customers. Our digital-first customer care made it easy for customers to connect with us through chat, phone and our digital properties including mobile apps that offered quick access to self-serve capabilities. Our holistic approach to customer care was designed to make it convenient for our customers to access help wherever and whenever they need it.\nTradenames, Service Marks and Domain Names\nWe use the service marks \"Bed Bath & Beyond\" and \"buybuy BABY\" in connection with our retail services. We have registered trademarks and service marks (including for our Owned Brands) with the United States Patent and Trademark Office. In addition, we have registered or have applications pending with the trademark registries of several foreign countries, including the \"Bed Bath & Beyond\" name and logo registered in Canada and Mexico and the \"buybuy BABY\" name and logo registered in Canada. We also own a number of product trademarks. We file patent applications and seek copyright registrations where we deem such to be advantageous to the business. We believe that our name recognition and service marks are important elements of our merchandising strategy.\nWe also own a number of domain names, including bedbathandbeyond.com and\n buybuybaby.com. \nPeople & Culture \nAt Bed Bath & Beyond Inc., we strived to create an environment where all Associates can thrive by offering resources that support their physical, mental, social, and emotional well-being. In Fiscal 2022, we specifically focused on providing a sense of continuity and stability as we navigated a dynamic environment. At the same time, and in light of significant senior leadership turnover initiated by the Board and our new CEO, it was essential to maintain an environment optimizing retention and maximizing our ability to recruit new talent.\nAs of February\u00a025, 2023, we had approximately 20,000 associates, including approximately \n17,000\n store associates and approximately 2,200 supply chain associates.\n11\nTable\n \nof Contents\nGovernment Regulations\nWe believe that we are in compliance with all applicable government regulations, including environmental regulations. We do not anticipate any material effects on our capital expenditures, earnings or competitive position as a result of our efforts to comply with applicable government regulations.\nSeasonality\nOur business is subject to seasonal influences. Generally, our sales volumes are higher in the calendar months of August (back to school/college), November and December (holiday), and lower in February.\nAvailable Information\nWe make available as soon as reasonably practicable after filing with the Securities and Exchange Commission (\"SEC\"), free of charge, through our websites, www.bedbathandbeyond.com, and http://bedbathandbeyond.gcs-web.com/financial-information/sec-filings, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, electronically filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We may also use our websites as a distribution channel of material information about us including through press releases, investor presentations, and notices of upcoming events. We intend to utilize the investor relations section of our website as a channel of distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosure obligations under Regulation FD. We also intend to use certain social media channels, including, but not limited to, Twitter, Facebook and LinkedIn, as means of communicating with the public, our customers and investors about us, our products, and other matters. While not all the information that we post to our website and social media channels may be deemed to be of a material nature, some information may be, and we therefore encourage investors, the media and others interested in us to review the information we make public in these locations.",
+  "item1a": ">ITEM 1A \u2013 RISK FACTORS\nAn investment in our common stock involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Annual Report on Form 10-K, before making a decision to invest in our common stock.\nRISKS RELATED TO THE CHAPTER 11 CASES\nOn April 23, 2023, we voluntarily filed the Chapter 11 Cases. The Company Parties continue to operate their business and manage their properties as \u201cdebtors-in-possession\u201d under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.\nWe may not be able to obtain confirmation of a Chapter 11 plan of reorganization.\nTo complete our Chapter 11 bankruptcy process, we must meet certain statutory requirements with respect to adequacy of disclosure with respect to a Chapter 11 plan of reorganization, solicit and obtain the requisite acceptances of such a plan and fulfill other statutory conditions for confirmation of such a plan. The precise requirements and evidentiary showing for confirming a plan, notwithstanding its rejection by one or more impaired classes of claims or equity interests, depends upon a number of factors including, without limitation, the status and seniority of the claims or equity interests in the rejecting class.\nThere is no assurance that the Company will be able to successfully consummate a Chapter 11 plan, creating substantial doubt about the Company\u2019s ability to continue as a going concern.\nThe Company's ability to continue as a going concern is contingent upon, among other things, its ability to, subject to the Bankruptcy Court\u2019s approval, implement a Chapter 11 plan, successfully emerge from the Chapter 11 Cases and establish a sustainable capital structure upon emergence. Our ability to consummate a Chapter 11 plan is subject to risks and uncertainties many of which are beyond our control. These factors, together with the Company\u2019s recurring losses from operations and accumulated deficit, create substantial doubt about the Company\u2019s ability to continue as a going concern. There can be no assurance that the Company will be able to successfully create and implement a Chapter 11 plan, or realize all or any of the expected benefits from such Chapter 11 plan.\nThe Company has sought the protection of the Bankruptcy Court, which subjects it to the risks and uncertainties associated with bankruptcy and may harm its business.\n12\nTable\n \nof Contents\nThe Company has sought the protection of the Bankruptcy Court and as a result our operations and ability to develop and execute its business plan, and its ability to continue as a going concern, are subject to the risks and uncertainties associated with bankruptcy. As such, seeking Bankruptcy Court protection could have a material adverse effect on our business, financial condition, results of operations and liquidity. Senior management has been required to spend a significant amount of time and effort attending to the Chapter 11 Cases instead of focusing exclusively on our business operations. Bankruptcy Court protection also might make it more difficult to retain management and other employees necessary to the success and growth of our business.\nOther significant risks include the following:\n\u2022\nthe Company\u2019s ability to create and implement a Chapter 11 plan;\n\u2022\nthe high costs of bankruptcy and related fees;\n\u2022\nthe imposition of restrictions or obligations on the Company by regulators related to the bankruptcy and emergence from Chapter 11;\n\u2022\nthe Company\u2019s ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute its business plan post-emergence;\n\u2022\nBankruptcy Court rulings in the Chapter 11 Cases as well as the outcome of all other pending litigation and the outcome of the Chapter 11 Cases in general\n\u2022\nthe Company\u2019s ability to maintain its relationships with our suppliers, service providers, customers, employees, and other third parties;\n\u2022\nthe Company\u2019s ability to maintain contracts that are critical to its operations;\n\u2022\nand the actions and decisions of the Company\u2019s debtholders and other third parties who have interests in the Company\u2019s Chapter 11 Cases that may be inconsistent with the Company\u2019s plans.\nDelays in the Chapter 11 Cases could increase the risks of our being unable to reorganize the Company\u2019s business and emerge from bankruptcy and increase costs associated with the bankruptcy process.\nThe Debtors will be subject to the risks and uncertainties associated with the Chapter 11 Cases.\nFor the duration of the Chapter 11 Cases, the Debtors\u2019 ability to operate, develop, and execute a business plan, and continue as a going concern, will be subject to the risks and uncertainties associated with bankruptcy. These risks include the following: (a) ability to obtain Bankruptcy Court approval with respect to motions filed in the Chapter 11 Cases from time to time; (b) ability to maintain contracts that are critical to the Debtors\u2019 operations; (c) ability of third parties to seek and obtain Bankruptcy Court approval to terminate contracts and other agreements with the Debtors; (d) ability of third parties to seek and obtain Bankruptcy Court approval to terminate or shorten the exclusivity period for the Debtors to propose and confirm a Chapter 11 plan, to appoint a Chapter 11 trustee, or to convert the Chapter 11 Cases to Chapter 7 proceedings; and (e) the actions and decisions of the Debtors\u2019 creditors and other third parties who have interests in the Chapter 11 Cases that may be inconsistent with the Debtors\u2019 plans.\nThese risks and uncertainties could affect the Debtors\u2019 businesses and operations in various ways. For example, the Debtors will need the prior approval of the Bankruptcy Court for transactions outside the ordinary course of business, which may limit the Debtors\u2019 ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with the Chapter 11 Cases, the Debtors cannot accurately predict or quantify the ultimate impact of events that occur during the Chapter 11 Cases that may be inconsistent with the Debtors\u2019 plans.\nThe Chapter 11 Cases may be converted to cases under Chapter 7 of the Bankruptcy Code or one or more of the Chapter 11 Cases may be dismissed.\nIf the Bankruptcy Court finds that it would be in the best interest of creditors and/or the debtor in a Chapter 11 case, the Bankruptcy Court may convert a Chapter 11 bankruptcy case to a case under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate the debtor\u2019s assets for distribution in accordance with the priorities established by the Bankruptcy Code. The Debtors believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to creditors than those provided for in a Chapter 11 plan because of (a) the likelihood that the assets would have to be sold or otherwise disposed of in a disorderly fashion over a short period of time, rather than reorganizing or selling the business as a going concern at a later time in a controlled manner, (b) additional administrative expenses involved in the appointment of a Chapter 7 trustee, and (c) additional expenses and claims, some of which would be entitled to priority, that \n13\nTable\n \nof Contents\nwould be generated during the liquidation, including claims resulting from the rejection of unexpired leases and other executory contracts in connection with cessation of operations.\nAdditionally, if the Bankruptcy Court finds that the Debtors have incurred substantial or continuing loss or diminution to the estate and lack of a reasonable likelihood of rehabilitation of the Debtors or the ability to otherwise determines that cause exists, the Bankruptcy Court may dismiss one or more of the Chapter 11 Cases.\nThe Debtors cannot predict the amount of time spent in bankruptcy.\nWhile the Debtors have made efforts to minimize the length of the Chapter 11 Cases, it is impossible to predict with certainty the amount of time that the Debtors may spend in bankruptcy. There is a risk, due to uncertainty about the Debtors\u2019 futures that, among other things: employees could be distracted from performance of their duties or more easily attracted to other career opportunities; and suppliers, vendors, or other business partners could terminate their relationship with the Debtors or demand financial assurances or enhanced performance, any of which could impair the Debtors\u2019 prospects and ability to generate stable, recurring cash flows.\nLengthy Chapter 11 Cases also would involve additional expenses, putting strain on the Debtors\u2019 liquidity position, and divert the attention of management from the operation of the Debtors\u2019 businesses.\nThe disruption that the bankruptcy process would have on the Debtors\u2019 businesses could increase with the length of time it takes to complete the Chapter 11 Cases. Further, the Debtors may be forced to operate in bankruptcy for an extended period of time while they try to develop a plan of reorganization that can be confirmed. A protracted bankruptcy case could increase both the probability and the magnitude of the adverse effects described above.\nEven if a Chapter 11 plan is approved, the reorganized Debtors may not be able to achieve their projected financial results.\nEven if a Chapter 11 plan is approved, the reorganized Debtors may not be able to achieve their projected financial results. If the reorganized Debtors do not achieve their projected financial results or are unable to procure sufficient exit financing to effectuate a Chapter 11 plan, the value of the Company\u2019s securities may be negatively affected and the reorganized Debtors may lack sufficient liquidity to continue operating as planned after the effective date. Moreover, the financial condition and results of operations of the reorganized Debtors from and after the effective date may not be comparable to the financial condition or results of operations reflected in the Debtors\u2019 historical financial statements.\nThe Debtors may not be able to accurately report or timely file their financial results.\nWe have recently experienced significant turnover in our senior management team and reductions in our workforce. Our ability to retain key employees in the long-term is affected by Chapter 11 Cases and our financial situation. Our business may be adversely affected by the transitions in our senior management team and reduction in workforce, and turnover at the senior management level may create instability within the Company, which could disrupt and impede our day-to-day operations and internal controls. In addition, management transition inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution, and our results of operations and financial condition could be negatively impacted as a result.\nSignificant turnover in our senior management team and across our organization could result in one or more material weakness in our internal control over financial reporting. However, internal controls over financial reporting may not prevent or detect misstatements or omissions in the Debtors\u2019 financial statements because of their significant turnover in senior management, inherent limitations, including the possibility of human error, and the circumvention or overriding of controls or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If the Company fails to maintain the adequacy of their internal controls, the Debtors may be unable to provide financial information in a timely and reliable manner within the time periods required under the terms of the agreements governing the Debtors\u2019 indebtedness. Further, the Debtors may discover other internal control deficiencies in the future and/or fail to adequately correct previously identified control deficiencies, which could materially adversely affect the Debtors\u2019 businesses, results of operations, and financial condition.\nThe Company Parties may be adversely affected by potential litigation, including litigation arising out of the Chapter 11 Cases.\nIn the future, the Company Parties may become parties to litigation. In general, litigation can be expensive and time consuming to bring or defend against. Such litigation could result in settlements or damages that could significantly affect the reorganized Debtors\u2019 financial results. It is also possible that certain parties will commence litigation with respect to the treatment of their claims under the Chapter 11 plan. It is not possible to predict the potential litigation that the Company Parties may become party to nor the final resolution of such litigation. The impact of any such litigation on the reorganized Debtors\u2019 businesses and financial stability, however, could be material.\n14\nTable\n \nof Contents\nWe may be subject to claims that are not discharged in the Chapter 11 Cases.\nThe Bankruptcy Code provides that the effectiveness of a Chapter 11 plan discharges a debtor from substantially all debts arising prior to petition date, other than as provided in the applicable Chapter 11 plan. With few exceptions, all claims against us that arose prior to the filing of the Cases or before consummation of a Chapter 11 plan (i) would be subject to compromise and/or treatment under a Chapter 11 plan and/or (ii) would be discharged in accordance with the US Bankruptcy Code and the terms of a Chapter 11 plan. Subject to the terms of a Chapter 11 plan and orders of the Bankruptcy Court, any claims not ultimately discharged pursuant to a Chapter 11 plan could be asserted against the reorganized entities and may have an adverse effect on our liquidity and financial condition.\nThe Company\u2019s ability to use net operating loss carryforwards (\u201cNOLs\u201d) may become subject to limitation, or may be reduced or eliminated, in connection with the implementation of a Chapter 11 plan. The bankruptcy court has entered an order that is designed to protect our NOLs until a plan of reorganization is consummated.\nGenerally, a company generates NOLs if the operating expenses it has incurred exceed the revenues it has earned during a single tax year. A company may apply, or \u201ccarry forward,\u201d NOLs to reduce future tax payments (subject to certain conditions and limitations). To date, the Company has generated a significant amount of U.S. federal NOLs.\nWe expect that we may undergo an ownership change under Section 382 of the Code in connection with the consummation of a Chapter 11 plan. Nevertheless, we believe these NOLs are a valuable asset for us, particularly in the context of the Chapter 11 Cases.\nIn addition, our NOLs (and other tax attributes) may be subject to use in connection with the implementation of any bankruptcy Chapter 11 plan or reduction as a result of any cancellation of indebtedness income arising in connection with the implementation of any bankruptcy Chapter 11 plan. As such, at this time, there can be no assurance that we will have NOLs to offset future taxable income.\nWe are currently out of compliance with the Nasdaq Listing Rules and are at risk of Nasdaq delisting our common stock.\nOn April 24, we received written notice from Nasdaq notifying us Company that, as a result of the Chapter 11 Cases and in accordance with the Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, Nasdaq had determined that our common stock would be delisted from Nasdaq. Trading of the Company\u2019s common stock was suspended at the opening of business on May 3, 2023. Delisting would have an adverse effect on the liquidity of our common stock and, as a result, the market price for our common stock might become more volatile. Delisting could also reduce the number of investors willing to hold or acquire our common stock and negatively impact our ability to access equity markets and obtain financing.\nWe expect Nasdaq to file a Form 25 with the SEC to delist our common stock from trading on Nasdaq and to remove it from registration under Section 12(b) of the Exchange Act. The delisting became effective 10 days after such filing. In accordance with Rule 12d2-2 of the Exchange Act, the de-registration of our common stock under Section 12(b) of the Exchange Act will become effective 90 days, or such shorter period as the SEC may determine, from the date of the Form 25 filing.\nFollowing delisting from Nasdaq, the Company\u2019s common stock has been quoted in the OTC Pink Open Market under the symbol \u201cBBBYQ\u201d. The OTC Pink Open Market is a significantly more limited market than Nasdaq, and quotation on the OTC Pink Open Market likely results in a less liquid market for existing and potential holders of the common stock to trade the Company\u2019s common stock and could further depress the trading price of the common stock. The Company can provide no assurance as to whether broker-dealers will continue to provide public quotes of the common stock on this market, or whether the trading volume of the common stock will be sufficient to provide for an efficient trading market.\n15\nTable\n \nof Contents\nRISKS RELATED TO THE ECONOMY AND INDUSTRY \nGeneral economic factors beyond our control, including the impact of COVID-19, and changes in the economic climate have materially adversely affected, and could continue to materially adversely affect, our business, results of operations, financial condition and liquidity.\nGeneral economic factors that are beyond our control have materially adversely affected, and could continue to materially adversely affect, our business, results of operations, financial condition and liquidity. These factors include, but are not limited to, recent supply chain disruptions, labor shortages, wage pressures, rising inflation and the ongoing military conflict between Russia and Ukraine, as well as housing markets, consumer credit availability, consumer debt levels, fuel and energy costs (for example, the price of gasoline), interest rates, tax rates and policy, unemployment trends, the impact of natural disasters such as pandemics, civil disturbances and terrorist activities, foreign currency exchange rate fluctuations, conditions affecting the retail environment for products sold by us and other matters that influence consumer spending and preferences. Changes in the economic climate and the impact of the COVID-19 pandemic, including on global supply chains, labor markets and economic activity, have materially adversely affected, and could continue to materially adversely affect, our business, results of operations, financial condition and liquidity.\nWe operate in the highly competitive retail business where the use of emerging technologies as well as unanticipated changes in the pricing and other practices of competitors may adversely affect our performance.\nThe retail business is highly competitive. We compete for customers, employees, locations, merchandise, technology, services and other important aspects of the business with many other local, regional and national retailers. These competitors range from specialty retailers to department stores and discounters as well as online and multichannel retailers, some of which are larger than us with significantly greater financial resources. In recent years, competition has further intensified as a result of reduced discretionary consumer spending, increased promotional activity and deep price discounting.\nRapidly evolving technologies are also altering the manner in which we and our competitors communicate and transact with customers. Our execution of the elements of our transformation strategy is designed to adapt to these changes, in the context of competitors\u2019 actions, customer's adoption of new technology and related changes in customer behavior, and presents a specific risk in the event that we are unable to successfully execute our plans or adjust them over time as needed. Further, unanticipated changes in pricing and other practices of our competitors, including promotional activity (particularly during back-to-school/college and/or holiday periods), reduced thresholds for free shipping and rapid price fluctuation enabled by technology, may adversely affect our performance. If we are unable to adapt effectively and quickly to a changing competitive landscape and maintain our competitive position, we could experience downward pressure on prices, lower demand for our merchandise, reduced sales and margins, inability to take advantage of new business opportunities and loss of market share.\n \nOur failure to anticipate and respond in a timely fashion to changes in consumer preferences and demographic factors may adversely affect our business, results of operations and financial condition.\nOur success depends on our ability to anticipate and respond in a timely manner to changing merchandise trends, customer demands and demographics in order to maintain and attract customers. We must continue to monitor and react to consumer expectations, such as the increased focus on environmental, social and governance (\n\"\nESG\n\"\n) matters, climate change, and sustainable products, and appropriately manage our brand to promote the right product lines (including our Owned Brands), drive customer loyalty and protect our reputation. Our failure to anticipate, identify or react appropriately to changes in customer tastes, preferences, shopping and spending patterns and other life interest decisions, including as a result of COVID-19, could lead to, among other things, excess inventories, a shortage of products or reputational damage, and may adversely affect our business, results of operations and financial condition.\nIn addition, we must manage our inventory effectively and commensurately with customer demand. Often, we need to order merchandise, and enter into contracts for the purchase and manufacturing of such merchandise, multiple seasons in advance of and frequently before customer trends and preferences are known. The extended lead times for many of our purchases may make it difficult for us to respond rapidly to new or changing trends and preferences. These extended lead times may also increase our exposure to the effects of global supply chain disruptions, increasing the risk that merchandise is not received when originally planned. As a result, we are vulnerable to demand and pricing shifts and to misjudgments in the selection and timing of merchandise purchases. If we do not accurately predict our customers\u2019 preferences and demands for our products, our inventory levels will not be appropriate, and our business, results of operations and financial condition may be negatively impacted.\nOur business is seasonal in nature, which could negatively affect our results of operations and financial performance.\n16\nTable\n \nof Contents\nOur business is subject to seasonal influences, with a significant portion of sales and revenues historically realized during the back to school/college and holiday seasons. We must carry a significant amount of inventory during this time, and if we are not able to sell the inventory, we may be required to take significant inventory markdowns or write-offs, which could reduce profitability. Similarly, if we do not adequately stock or restock popular products, particularly during the back to school and holiday seasons, and fail to meet customer demand, revenue and customer loyalty may be adversely impacted.\nIn addition, our financial results during the holiday season may fluctuate significantly based on many factors, including holiday spending patterns and weather conditions, and any such fluctuation could have a disproportionate effect on our results of operations for the entire Fiscal year. Because of the seasonality of our business, our operating results vary considerably from quarter to quarter, and results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.\nRISKS RELATED TO LEGAL AND REGULATORY\nChanges in statutory, regulatory, and other legal requirements at a local, state or provincial and national level, or deemed noncompliance with such requirements, could potentially impact our operating and financial results.\nWe are subject to numerous statutory, regulatory and legal requirements at a local, state or provincial and national level, and this regulatory environment is subject to constant change. Our operating results could be negatively impacted by developments in these areas due to the costs of compliance in addition to possible government penalties and litigation, operating interruptions and reputational damage in the event of deemed noncompliance. Changes in the law or the regulatory environment, or deemed noncompliance with such laws or regulations, in the areas of customer, employee or product safety, environmental protection, privacy and information security, labor, wage and hour laws, and international trade policy, among others, could adversely impact our operations and financial results.\nOur product offerings to include a selection of Owned Brands which bring additional regulatory and compliance requirements, requiring new resources and the development of new policies and procedures. Our failure to properly manage this expanded business or \ncomply with these regulations could expose us to fines, penalties, litigation and other costs that could harm our reputation and adversely impact our financial results.\n \nChanges to accounting rules, regulations and tax laws, or new interpretations of existing accounting standards or tax laws could negatively impact our operating results and financial position.\nOur operating results and financial position could be negatively impacted by changes to accounting rules and regulations or new interpretations of existing accounting standards. Our effective income tax rate could be impacted by changes in accounting standards as well as changes in tax laws or the interpretations of these tax laws by courts and taxing authorities, which could negatively impact our financial results. Such changes would include for example, the possible adoption by the United States of additional tariffs, or the disallowance of tax deductions, with respect to imported merchandise.\nNew, or developments in existing, litigation, claims or assessments could potentially impact our reputation, operating and financial results.\nWe are involved in litigation, claims and assessments incidental to our business, the disposition of which is not expected to have a material effect on our reputation, financial position or results of operations. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially adversely affected by changes in our assumptions related to these matters. While outcomes of such actions vary, any such claim or assessment against us could negatively impact our reputation, operations and financial results.\nA failure of our business partners to adhere to appropriate laws, regulations or standards could negatively impact our reputation.\nWe engage with various third parties to meet business needs. These business partners include, among others, vendors, suppliers, and service providers. The failure of these business partners to comply with applicable regulations, rules, laws, and industry standards could negatively impact our reputation and have a material adverse effect on our business and results of operations.",
+  "item7": ">ITEM 7 \u2013 MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nOVERVIEW\nThe description of the Company\u2019s business contained herein reflects the Company\u2019s operations of its business prior to the filing of the Chapter 11 Cases on April 23, 2023. As a result of the filing of the Chapter 11 Cases, the Company no longer has operations, other than those relating to the wind down of its business and completion of the Chapter 11 process.\nBed Bath & Beyond Inc. and subsidiaries (the \"Company\", \"we\", \"our\", \"us\", or ourselves\") are an omni-channel retailer that makes it easy for our customers to feel at home. We sell a wide assortment of merchandise in the Home and Baby markets and operate under the names Bed Bath & Beyond and buybuy BABY. \nWe offer a broad assortment of national brands and an assortment of proprietary Owned Brand merchandise in key destination categories including bedding, bath, kitchen food prep, home organization, indoor d\u00e9cor, baby and personal care.\nWe account for our operations as one North American Retail reporting segment.  Net sales outside of the U.S. were not material for Fiscal 2022, 2021, or 2020.\n \nWe operate a omni-channel platform consisting of various websites and applications and physical retail stores. Our e-commerce platforms include bedbathandbeyond.com and buybuybaby.com. We operate Bed Bath & Beyond and buybuy BABY stores.\nAcross our banners, we carry a wide variety of domestics and home furnishings merchandise. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings (including furniture and wall d\u00e9cor), consumables and certain juvenile products.\nWe are driving a digital-first, omni-always growth strategy and optimizing our digital and physical store channels to provide our customers with a omni-channel shopping experience. Digital purchases, including web and mobile, can be shipped to a customer from our distribution facilities, directly from vendors, or from a store. Store purchases are primarily fulfilled from that store\u2019s inventory or may also be shipped to a customer from one of our distribution facilities, from a vendor, or from another store. Customers can also choose to pick up orders using our Buy Online Pickup In Store (\"BOPIS\")  and contactless Curbside Pickup services, as well as return online purchases to a store, or have an order delivered through one of our same day delivery partners.\nVoluntary Petition for Bankruptcy and Going Concern\nOn April 23, 2023 (the \u201cPetition Date\u201d), the Company and materially all of its direct and indirect subsidiaries (collectively, the \"Debtors\" or the \u201cCompany Parties\u201d) filed voluntary petitions (the \u201cChapter 11 Cases\u201d) under Chapter 11 of the U.S. Bankruptcy Code (the \u201cBankruptcy Code\u201d) in the U.S. Bankruptcy Court for the District of New Jersey (the \u201cBankruptcy Court\u201d). On the Petition Date, the Company Parties filed a motion with the Bankruptcy Court seeking to jointly administer the Chapter 11 Cases. On April 24, 2023, the Bankruptcy Court entered an order approving joint administration under the caption \u201c\nIn re: Bed Bath & Beyond Inc.,\n\u201d Case No. 23-13359. Certain of the Company\u2019s subsidiaries were not included in the Chapter 11 filing. \nThe Company Parties continue to operate their business and manage their properties as \u201cdebtors-in-possession\u201d under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Company Parties filed with the Bankruptcy Court motions seeking a variety of \u201cfirst-day\u201d relief, including authority to pay employee wages and benefits and to pay vendors and suppliers for goods and services provided both before and after the Petition Date. \nIn addition, the Company filed with the Bankruptcy Court a motion seeking approval (\u201cInterim DIP Order\u201d) of debtor-in-possession financing (\u201cDIP Financing\u201d) in the form of the DIP Credit Agreement (as defined and described below). Following a hearing held on April 24, 2023, the Bankruptcy Court approved the Company Parties\u2019 motions seeking a variety of \u201cfirst-day\u201d relief on an interim basis. The Company Parties resolved numerous informal comments and many of the \"first-day\" motions were entered on a final basis consensually. A hearing was scheduled on June 14, 2023 for the Bankruptcy Court to consider final approval of the relief requested in certain first day motions, and final approval of the DIP Facility.\nOn April 25, 2023, the Bankruptcy Court provided approval on an interim basis for the Company Parties and Sixth Street Specialty Lending, Inc., Sixth Street Lending Partners and TAO Talents (the \u201cDIP Parties\u201d) to enter into a senior secured super-priority debtor-in-possession term loan credit facility in an aggregate principal amount of $240.0 million subject to the terms and conditions set forth therein (the \u201cDIP Credit Agreement\u201d). On April 21, 2023, prior to the Petition Date, the DIP Lenders (in their capacity as Prepetition FILO Lenders) and the Prepetition ABL Lenders approved an emergency over advance of $54 million to \n24\nTable\n \nof Contents\nensure payment of critical expenses including, among other things, the Company's\u2019 payroll and tax obligations (the \u201cEmergency Rescue Loan\u201d).\nAs a result of the Company\u2019s assessment of going concern considerations, management has determined that the liquidity condition, our need to satisfy certain financial and other covenants in our debtor-in-possession financing, our need to implement a Chapter 11 plan and the costs, risks and uncertainties surrounding the Chapter 11 Cases raise substantial doubt about the Company\u2019s ability to continue as a going concern for 12 months following the issuance of the financial statements.\nBusiness Transformation and Restructuring\nBeginning in the third quarter of Fiscal 2022, we underwent significant strategic and management changes to transform our business and adapt to the dynamic retail environment and the evolving needs of our customers in order to position ourselves for long-term success. Beginning in the third quarter of Fiscal 2022, the Company began to execute a comprehensive strategic plan led by our new President and Chief Executive Officer, Sue Gove, who was appointed in October 2022 after serving as Interim Chief Executive Officer. This plan focused on strengthening the Company\u2019s financial position through additional liquidity and a reduction of our cost structure, better serving our customers through merchandising, inventory and customer engagement, and regaining our authority in the Home and Baby markets. To accelerate these strategic initiatives, the Company realigned our organizational structure, which included the creation of Brand President roles for Bed Bath & Beyond and bubybuy BABY to lead merchandising, planning, brand marketing, site merchandising and stores for each banner.\nIn conjunction with the Company\u2019s new strategic focus areas, the Company executed plans to rebalance our merchandise assortment to align with customer preference by leading with National Brands inventory and introducing new, emerging direct-to-consumer brands. Consequently, we announced the exiting of a third of our Owned Brands, including the discontinuation of a third of our nine labels (Haven\u2122, Wild Sage\u2122 and Studio 3B\u2122). We also expect to reduce the breadth and depth of inventory across our six remaining Owned Brands (Simply Essential\u2122, Nestwell\u2122, Our Table\u2122, Squared Away\u2122, H for Happy\u2122 and Everhome\u2122).\nWe exited the unprofitable businesses of Harmon and Decorist and began the exit in the fourth quarter of our Canada operations. We have also executed key actions such as corporate restructurings and operating expense control to re-set our cost structure and to advance our ongoing efforts to reset our cost structure and build a modern, durable model for long-term profitable growth.\nIn connection with the above restructuring and transformation initiatives, during Fiscal 2022, we recorded total expense of $407.7\u00a0million including $77.7\u00a0million in cost of sales, primarily associated with $330.0\u00a0million in restructuring and transformation initiative expenses for costs associated with our planned store closures as part of the store fleet optimization program and other transformation initiatives as well as workforce reduction and leadership changes. We also recorded impairment charges of approximately $1.29 billion, primarily related to store assets. At this point, we are unable to estimate the amount or range of amounts expected to be incurred in connection with future restructuring and transformation initiatives, including further store closures, and will provide such estimates as they become available.\nExecutive Summary\n \nThe following represents a summary of key financial results and related business developments for the periods indicated:\n\u00a0\n\u2022\nNet sales for Fiscal 2022 were $5.34 billion, a decrease of approximately 32.1% as compared with Fiscal 2021. \n\u2022\nChange in leadership and strategy\n: Beginning in the third quarter of Fiscal 2022, the Company began to execute a comprehensive strategic plan led by our new President and Chief Executive Officer, Sue Gove, who was appointed in October 2022 after serving as Interim Chief Executive Officer since June 2022. This plan included a significant rebalancing of the merchandise assortment, including the discontinuation of several Owned Brands, and the implementation of cost reduction and and cash preservation actions, including the closing of underperforming stores and reductions in force.  \n\u2022\nOrganizational changes to drive key focus areas:\n We realigned our executive leadership team and streamlined our organizational structure to focus on immediate priorities and important changes to operations. This included the creation of Brand President roles for Bed Bath & Beyond and BABY to lead merchandising, planning, brand marketing, site merchandising and stores for each banner and will report directly to the CEO. In conjunction with these changes, the Company has eliminated the Chief Operating Officer, Chief Stores Officer, Chief Merchandising Officer, Chief Customer Officer and Chief Growth Officer roles.\n25\nTable\n \nof Contents\n\u2022\nReduction of Owned Brands: \nWe exited a third of our Owned Brands, including the discontinuation of three of our nine labels (Haven\u2122, Wild Sage\u2122 and Studio 3B\u2122). We also expect to reduce the breadth and depth of inventory across our six remaining Owned Brands (Simply Essential\u2122, Nestwell\u2122, Our Table\u2122, Squared Away\u2122, H for Happy\u2122 and Everhome\u2122).\n\u2022\nRight-sizing cost structure and infrastructure to reflect business operations: \nWe initiated a strategic revaluation of our overall expense and operational structure to align with business performance and target profitability. During Fiscal 2022, we:\n\u25e6\nRealigned store footprint by closing 88 Bed Bath & Beyond stores and commenced the closure of 331 additional stores by the end of the fiscal year;\n\u25e6\nClosed our Harmon Face Values business;\n\u25e6\nBegun the exit of all Canada operations; and\n\u25e6\nInitiated cost reductions across corporate headquarters, including overhead expense and headcount.\n\u2022\nSupply chain optimization: \nWe completed a supply chain network study to improve cost to serve and time to deliver for our customers by streamlining fulfillment center and distribution center operations.\n\u2022\nIn connection with these restructuring and transformation initiatives, during Fiscal 2022, we recorded total expense of $407.7\u00a0million including $77.7\u00a0million in cost of sales and $330.0\u00a0million in restructuring and transformation initiative expenses in the consolidated statement of operations, as well as $1.29 billion of impairments and $98.6 million of losses on the deconsolidation of our Canada business.\n\u2022\nFinancial transactions to support our business strategies: \nwe pursued several financial transactions during Fiscal 2022 with the intention of optimizing our financial position. These included:\n\u25e6\nEntered into an amendment to our Credit Agreement for more than $500.0 million of new additional financing commitments within our expanded ABL Facility and new FILO Facility on August 31, 2022. \n\u25e6\nPrivately negotiated senior notes exchanges\n with existing holders of 2024 Notes, 2034 Notes, and 2044 Notes, respectively, under which the Company issued shares of common stock to the existing holders in exchange for the exchange notes and cash. \n\u25e6\nAn at the market equity distribution program (the \"ATM Program\"), under which we offered and sold shares of common stock pursuant to prospectus supplements registering (i) 12 million shares on August 31, 2022, and (ii) up to $150.0 million on October 28, 2022.\n\u25e6\nAn underwritten public offering of (i) shares of Series A Convertible Preferred Stock (\u201cSeries A\u201d), (ii) warrants to purchase shares of the Company\u2019s Common Stock (\u201cCommon Stock Warrants\u201d), and (iii) warrants to purchase shares of the Company\u2019s Series A Convertible Preferred Stock (\u201cPreferred Stock Warrants\u201d) for gross proceeds of $225.0 million. \nImpact of the COVID-19 Pandemic\nAs discussed in more detail in our previous filings with the SEC, the coronavirus (COVID-19) pandemic materially disrupted our operations, most significantly in Fiscal 2020. In compliance with relevant government directives, we closed all of our retail banner stores across the U.S. and Canada as of March 23, 2020, except for most stand-alone BABY and Harmon stores, which were categorized as essential given the nature of their products. In May 2020, we announced a phased approach to re-open our stores in compliance with relevant government directives, and as of the end of July 2020, nearly all of our stores reopened. During portions of Fiscal 2021, a limited number of stores in Canada either closed temporarily or continued to operate under restrictions in compliance with local governmental orders. As of February 25, 2023, all of the Company\u2019s stores were operating without restriction subject to compliance with applicable mask and vaccine requirements. As of February 25, 2023, our BOPIS, contactless Curbside Pickup and Same Day Delivery services are in place at the vast majority of our stores. We cannot predict, \n26\nTable\n \nof Contents\nhowever, whether our stores will remain open, particularly if the regions in which we operate experience potential resurgences of reported new cases of COVID-19 or increased rates of hospitalizations or become subject to additional governmental regulatory actions.\nFurther discussion of the risks and uncertainties posed by the COVID-19 pandemic is included in \"Risk Factors\" under \"Part I, Item 1A\" of this Form 10-K.\nRESULTS OF OPERATIONS\nThe fiscal years discussed below were each comprised of 52 weeks.\nNet Sales\nFiscal Year Ended\nChange from Prior Year\n(in millions)\nFebruary 25, 2023\nFebruary 26, 2022\nFebruary 27, 2021\nFebruary 25, 2023\nFebruary 26, 2022\nNet sales\n$\n5,344.7\u00a0\n$\n7,867.8\u00a0\n$\n9,233.0\u00a0\n$\n(2,523.1)\n(32)\n%\n(1,365.3)\n(15)\n%\nSales from divested banners\n\u2014\n\u2014\n1,290.1\n\u2014\u00a0\n\u2014\u00a0\n%\n(1,290.1)\n(100.0)\n%\nFor Fiscal 2022, net sales decreased by approximately $2.52 billion or 32% compared with Fiscal 2021 across all banners, collectively. The change in net sales resulted from a decrease of $1.55 billion in sales through our stores and $977.7 million in sales through our e-commerce platforms - both as a result of decreased customer demand and declines in customer traffic and inventory availability. The Company closed 88 stores during the year with net sales of $234.1 million in Fiscal 2022 and $357.2 million of net sales during Fiscal 2021, resulting in a $123.1\u00a0million decrease. The Company commenced the closure of an additional 331 stores as of February 25, 2023. Such stores had net sales of $1.06 billion in Fiscal 2022 and $1.35 billion in Fiscal 2021, resulting in a $296.0\u00a0million decrease year over year. The remaining decrease of $1.13 billion in net sales, relates to stores that the Company plans to continue to operate in Fiscal 2023 and was driven by lower customer traffic and conversion, in part due to consumer spending patterns and demand, a lack of inventory availability and assortment in key product areas, specifically within the Company's Owned Brands and National Brands product mix, along with additional discounting on sales resulting from the exiting of Owned Brands and closing stores.\nThe decrease in net sales for Fiscal 2021 was primarily due to the impact of traffic declines and supply chain disruptions. Store closures as part of our store fleet optimization program also contributed to the decline in sales.\nDuring Fiscal 2022, Fiscal 2021 and Fiscal 2020, n\net sales consummated through digital channels represented approximately \n37%, 37% and 38%\n, respectively, of our sales. \nSales consummated on a mobile device while physically in a store location and BOPIS orders are recorded as customer facing digital channel sales. Customer orders taken in-store by an associate through The Beyond Store, our proprietary, web-based platform, are recorded as in-store sales. Prior to implementation of BOPIS and contactless Curbside Pickup services, customer orders reserved online and picked up in a store were recorded as in-store sales. Sales originally consummated from customer facing digital channels and subsequently returned in-store are recorded as a reduction of in-store sales.\nComparable Sales* for the year ended February\u00a025, 2023 decreased by approximately 29.7%. Management attributes a portion of this decline to the impact of lower traffic due to macro-economic factors, such as steep inflation, and fluctuations in purchasing patterns of the consumer. Also contributing to the comparable sales decline was the lack of inventory availability and assortment in key product areas, due to vendor constraints and credit line decreases. For the year ended February\u00a026, 2022, Comparable Sales was not a meaningful metric as a result of the impact of the extended closure of the majority of our stores during a portion of the comparable year ended February 27, 2021 due to the COVID-19 pandemic.\n* \nComparable sales normally include sales consummated through all retail channels that have been operating for twelve full months following the opening period (typically six to eight weeks), excluding the impact of store fleet optimization program. We are an omni-channel retailer with capabilities that allow a customer to use more than one channel when making a purchase, including in-store, online, with a mobile device or through a customer contact center, and have it fulfilled, in most cases, either through in-store customer pickup or by direct shipment to the customer from one of our distribution facilities, stores or vendors.\nOur comparable sales metric considers sales consummated through all retail channels \u2013 in-store, online, with a mobile device or through a customer contact center. Our omni-channel environment allows our customers to use more than one channel when \n27\nTable\n \nof Contents\nmaking a purchase. We believe in an integrated and seamless customer experience. A few examples are: a customer may be assisted by an in-store associate to create a wedding or baby registry, while the guests may ultimately purchase a gift from our websites; or a customer may research a particular item, and read other customer reviews on our websites before visiting a store to consummate the actual purchase; or a customer may buy an item online for in-store or curbside pickup; or while in a store, a customer may make the purchase on a mobile device for in home delivery from either a distribution facility, a store or directly from a vendor. In addition, we accept returns in-store without regard to the channel in which the purchase was consummated, therefore resulting in reducing store sales by sales originally consummated through customer facing digital channels. As our retail operations are integrated and we cannot reasonably track the channel in which the ultimate sale is initiated, we can however, provide directional information on where the sale was consummated.\nSales of domestics merchandise accounted for approximately 35.8%, 37.4%, and 34.7%, of net sales in Fiscal 2022, 2021 and 2020, respectively. Sales of home furnishings accounted for approximately 64.2%, 62.6% and 65.3% of net sales, respectively, for Fiscal 2022, 2021, and 2020.\nGross Profit\nFiscal Year Ended\nChange from Prior Year\n(in millions)\nFebruary 25, 2023\nFebruary 26, 2022\nFebruary 27, 2021\nFebruary 25, 2023\nFebruary 26, 2022\nGross profit\n$\n1,214.9\u00a0\n$\n2,483.5\u00a0\n$\n3,118.1\u00a0\n$\n(1,268.6)\n(50.3)\n%\n$\n(634.6)\n(20.4)\n%\nGross profit percentage\n22.7\u00a0\n%\n31.6\u00a0\n%\n33.8\u00a0\n%\n(8.5)\n%\n(26.9)\n%\n(2.2)\n%\n(6.5)\n%\nGross profit in Fiscal 2022 was $1.21 billion, or 22.7% of net sales, compared with $2.48 billion, or 31.6% of net sales in Fiscal 2021. The decrease in gross profit percentage was primarily attributable to markdown and promotional activity associated with the general economic environment, clearance activity related to the exiting of certain Owned Brands and Owned Brands inventory assortment, and activity associated with store closures. Gross profit for Fiscal 2022 included the impact of charges of $91.6 million associated with the markdown of inventory being removed from our assortment in connection with the clearance of certain Owned Brand merchandise. \nThe decrease in the gross profit percentage between Fiscal 2021 and Fiscal 2020 was primarily attributable to a markdown activity associated with inventory being removed from our assortment in connection with the launches of new Owned Brands and, to a lesser extent, the redefinition of certain existing Owned Brands, as well as markdown activity associated with store closures as part of our store fleet optimization program. Gross profit for Fiscal\n \n2021 included the impact of charges of $137.2 million for these higher markdowns on inventory sold, as well as an adjustment to reduce the cost of inventory on hand to be removed from the product assortment as part of these initiatives to its estimated realizable value. In addition, higher freight expenses, both for inbound product shipments and direct-to-customer fulfillment and in part due to industry wide, global supply chain challenges, negatively impacted gross margin in Fiscal 2021 compared with Fiscal 2020, which offset the favorable impact of a shift in product assortment toward new Owned Brands and a more normalized mix of digital sales.\n28\nTable\n \nof Contents\nSelling, General and Administrative Expenses\nFiscal Year Ended\nChange from Prior Year\n(in millions)\nFebruary 25, 2023\nFebruary 26, 2022\nFebruary 27, 2021\nFebruary 25, 2023\nFebruary 26, 2022\nSelling, general and administrative expenses\n$\n2,373.0\u00a0\n$\n2,692.3\u00a0\n$\n3,224.4\u00a0\n$\n(319.3)\n(11.9)\n%\n$\n(532.1)\n(16.5)\n%\nAs a percentage of net sales\n44.4\u00a0\n%\n34.2\u00a0\n%\n34.9\u00a0\n%\n10.2\u00a0\n%\n29.8\u00a0\n%\n(0.7)%\n(2.0)\n%\nThe $319.3 million decrease in SG&A expenses for Fiscal 2022 was primarily attributable to cost reduction initiatives, including the store fleet optimization, supply chain reductions, corporate overhead reductions and reductions in marketing spend. The cost reduction initiatives and the closing of 70 and 88 stores during Fiscal 2021 and Fiscal 2022, respectively, led to a decrease in payroll and payroll-related expenses of approximately $172.0 million (primarily salaries) and a decrease of approximately $70.1 million in rent and occupancy expenses. Additionally, there was a decrease of approximately $38.1 million of other operating expenses related to supplies, maintenance, and other operating fees resulting from the significant decrease in stores that operated during Fiscal 2022. The decrease was also driven by cost reductions in marketing spend of approximately $39.1 million.\nFor Fiscal \n2021, the decrease was primarily attributable to cost reductions resulting from our transformation initiatives, including reductions in corporate overhead, divestitures of non-core assets and lower rent and occupancy expenses as a result of our store fleet optimization program. The decrease in SG&A expenses as a percentage of net sales for Fiscal 2021 was also largely due to the factors above, as well as the de-leveraging effect caused by sales declines in Fiscal 2020 as a result of the COVID-19 pandemic.\nGoodwill and Other Impairments\nGoodwill and other impairments were $1.29 billion for Fiscal 2022, $36.5 million in Fiscal 2021 and $127.3 million in Fiscal 2020. For Fiscal 2022, impairment charges included $1.28 billion related to certain store-level, distribution facilities and corporate assets (including leasehold improvements, other property and equipment and operating lease assets) and tradename impairments of $2.9 million. For Fiscal 2021, impairment charges included $30.8 million related to certain store-level assets (including leasehold improvements and operating lease assets) and tradename impairments of $5.7 million. For Fiscal 2020, impairment charges included impairments of $391.1 million related to certain store-level assets (including leasehold improvements and operating lease assets) and tradename impairments of $35.1 million.\nRestructuring and Transformation Initiative Expenses\nDuring Fiscal 2022, we recorded charges of $407.7\u00a0million for costs associated with restructuring and other transformation initiatives, of which approximately $77.7\u00a0million is included in cost of sales. In addition, approximately $330.0 million, was recorded in restructuring and transformation initiative expenses in the consolidated statements of operations, which included approximately $156.9 million of accelerated depreciation related to closing facilities and information technology systems, $101.5 million of other restructuring and transformation costs and $58.1\u00a0million of severance costs related to workforce reduction, store closures and leadership changes. The Company also recorded approximately $13.5\u00a0million for lease related and other costs, including in connection with store closures,\nIn Fiscal 2021, we recorded charges of $144.0\u00a0million, of which were primarily for costs associated with the store fleet optimization program described above, including for the termination of facility leases, as well as technology transformation and business strategy and operating model transformation programs across core functions, including merchandising, supply chain and finance. (see \"Restructuring and Transformation Activities,\" Note 3 to the accompanying consolidated financial statements).\n29\nTable\n \nof Contents\nLoss on Sale of Businesses\nDuring Fiscal 2022, the Company did not have any businesses classified as held for sale. During Fiscal 2021, we recognized approximately $18.2\u00a0million in loss on sale of businesses in the consolidated statement of operations, primarily related to a $13.5 million charge associated with the Fiscal 2021 settlement of the CTS pension plan (see \"Assets Held for Sale and Divestitures,\" Note 16 to the accompanying consolidated financial statements), as well as certain working capital and other adjustments related to the Fiscal 2021 divestitures.\nOperating Loss\nFiscal Year Ended\nChange from Prior Year\n(in millions)\nFebruary 25, 2023\nFebruary 26, 2022\nFebruary 27, 2021\nFebruary 25, 2023\nFebruary 26, 2022\nOperating Loss\n$\n(2,775.6)\n$\n(407.6)\n$\n(336.9)\n$\n(2,368.1)\n581.0\u00a0\n%\n$\n(70.7)\n21.0\u00a0\n%\nAs a percentage of net sales\n(51.9)\n%\n(5.2)\n%\n(3.6)\n%\n(19.7)\n%\n378.8\u00a0\n%\n(1.6)%\n44.4\u00a0\n%\nOperating loss for Fiscal 2022 was $2.78\u00a0billion or 51.9% of net sales, compared with an operating loss of $407.6 million or 5.2% of net sales for Fiscal 2021. Operating loss for Fiscal 2022 included $407.7\u00a0million associated with restructuring and other transformation initiatives and $1.29 billion for non-cash impairment charges (each as discussed above). The change in operating loss as a percentage of net sales between Fiscal 2022 and 2021 was primarily due to the decline in sales and gross profit percentage, as discussed above, as well as higher restructuring and transformation expenses and higher impairment charges in Fiscal 2022 compared to Fiscal 2021.\nOperating loss for Fiscal 2021 included the impact of pre-tax charges of $137.2 million included in gross profit primarily associated with the transition of our product assortment to Owned Brands and, to a lesser extent, our store fleet optimization program, as well as $144.0 million associated with restructuring and other transformation initiatives, $36.5 million for non-cash impairments and $18.2 million for loss on sale of business (each as described above). The change in operating loss as a percentage of net sales between Fiscal 2021 and 2020 was primarily due to the decline in gross profit percentage, as discussed above, as well as higher restructuring and transformation expenses in Fiscal 2021 compared to Fiscal 2020. \nInterest Expense, net\nInterest expense, net was $110.5\u00a0million, $64.7 million, and $76.9 million in Fiscal 2022, 2021, and 2020, respectively. For Fiscal 2022, the increase in interest expense, net of $45.8 million was primarily due to increased borrowings under our ABL Facility as well as entering into the $375.0 million FILO term loan entered into in August 2022 and entering into another FILO term loan of $100.0 million in February 2023.  For Fiscal\n \n2021\n,\n the decrease in interest expense, net of $12.2 million was primarily driven by \n30\nTable\n \nof Contents\ndecreased interest costs attributable to our revolving credit facilities and the impact of the repurchase of a portion of our senior unsecured notes in Fiscal 2020. \nLoss on Preferred Stock Warrants and Derivative Liabilities \nDuring Fiscal 2022, we recorded a $639.4 million loss on preferred stock warrants and derivative liabilities. During the fourth quarter of Fiscal 2022, the Company issued the Series A Convertible Preferred Stock, Common Stock Warrants, and Preferred Stock Warrants when the Company was in distress, and as a result the Company determined the offering was not an orderly transaction and the gross proceeds of $225.0 million did not represent fair value. As a result, the Company used a model-derived valuation to estimate the fair value of the Series A derivative liability, Preferred Stock Warrants and Common Stock Warrants in which the most significant value driver is the as-converted value utilizing the Company\u2019s common stock price as the input. At issuance, the fair value of the Series A embedded features derivative liability, Common Stock Warrants, and Preferred Stock Warrants was $300.5 million, $186.6 million, and $615.5 million, respectively. The Company recorded a $877.6 million loss for the fair value in excess of proceeds of $225.0 million in loss on preferred stock warrants and derivative liabilities in its consolidated statement of operations for the year ended. The loss is partially offset by a gain of $244.5 million related to the change in fair value associated with these derivative liabilities for the year ended February 25, 2023. Issuance costs of $6.3 million were expensed as incurred and recognized as part of the loss on preferred stock warrants and derivative liabilities.\nLoss on Deconsolidation of Subsidiaries\nOn February 10, 2023 (the \u201cCanadian Petition Date\u201d), BBB Canada Limited made an application with the Ontario Superior Court of Justice (the \u201cCanadian Court\u201d). BBB Canada Limited was granted an order, which, among other provisions, provides a stay of proceedings pursuant to the Companies\u2019 Creditors Arrangement Act (the \u201cCCAA\u201d). The CCAA is a Federal Act that allows financially troubled corporations that owe their creditors in excess of $5 million the opportunity to restructure their affairs. Although Bed Bath & Beyond Canada L.P. (\u201cBBB LP\u201d and together with BBB Canada Limited, \u201cBBB Canada\u201d) did not file an application with the Canadian Court, the stay of proceedings under the CCAA and other benefits were extended to BBB LP. BBB Canada initiated a wind-down of Bed Bath & Beyond and Buy Buy Baby Stores in Canada under the CCAA. A monitor was appointed by the Canadian Court on February 10, 2023 to oversee the orderly liquidation of its remaining inventory with assistance from a third-party professional liquidator and vacate its leased retail stores and premises. \nFor these reasons, we concluded that BBBI had lost control of BBB Canada, and no longer had significant influence over BBB Canada during the pendency of the bankruptcy. Therefore, the Company deconsolidated BBB Canada on the date of the bankruptcy filing. In order to deconsolidate BBB Canada, the carrying values of the assets and certain liabilities of BBB Canada were removed from our consolidated balance sheet as of February 25, 2023, and we recorded our investment in BBB Canada at its estimated fair value of $0. The deconsolidation resulted in the recognition of a loss of $98.6 million during the year ended February 25, 2023.\n(Loss) Gain on Extinguishment of Debt\nDuring Fiscal 2022, we recorded a $94.4 million gain related to approximately $102.8 million recorded for the privately negotiated exchange offers completed in November 2022, partially offset by third-party costs of approximately $8.0 million incurred with the Exchange Offers and $0.4 million of unamortized debt financing costs written-off related to the extinguished notes. (see \"Debt,\" Note 7 to the accompanying consolidated financial statements).  \nDuring Fiscal 2021, we recorded a $0.4 million loss on the \npartial repayment of senior unsecured notes.\nDuring Fiscal 2020, we recorded a $77.0 million gain on the repurchase of $75.0 million principal amount of 4.915% senior unsecured notes due August 1, 2034 and $225.0 million principal of 5.165% senior unsecured notes due August 1, 2044.\nIncome Taxes\nThe effective tax rate was 0.9% for Fiscal 2022, (18.4)% for Fiscal 2021, and 55.2% for Fiscal 2020. \nFor Fiscal 2022, the effective tax rate reflects maintaining a valuation allowance against our U.S. federal and state deferred tax assets (discussed below) and benefits from amended returns related to prior fiscal years from changes in the Company's approach to deducting charitable contributions on certain federal returns and carrying back net operating losses in certain state jurisdictions. \nFor Fiscal 2021, the effective tax rate reflects the recording of a valuation allowance against our U.S federal and state deferred tax assets (discussed below), as well as a benefit resulting from an adjustment to the estimated net operating loss incurred in Fiscal 2020 which was carried back, under the provisions of the CARES Act, to a year in which the tax rate was 35%. \n31\nTable\n \nof Contents\nFor Fiscal 2020, the effective tax rate reflected the carry back of the net operating loss to a year in which the tax rate was 35% under the CARES Act, and included the impact of the benefit of certain tax planning strategies the Company deployed, in addition to the losses from the divestitures of CTS, Linen Holdings and Cost Plus, partially offset by the impact of impairment charges for tradename and certain store-level assets, the gain on the divestiture of PMall, a benefit related to the carry back of the Fiscal 2019 net operating loss under the CARES Act, and other discrete tax items resulting in net after tax benefits.\nIn assessing the recoverability of our deferred tax assets, we evaluated the available objective positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit use of existing deferred tax assets in each taxpaying jurisdiction. A valuation allowance is a non-cash charge, and does not limit our ability to utilize our deferred tax assets, including our ability to utilize tax loss and credit carryforward amounts, against future taxable income.\nDuring Fiscal 2022, we concluded that, based on our evaluation of available objective positive and negative evidence, it continues to be more likely than not that our net U.S. federal and state deferred tax assets will not be recoverable. In assessing the realizability of deferred tax assets, the key assumptions used to determine positive and negative evidence included our cumulative book loss for the past three years and our ability to continue as a going concern. As of February 25, 2023, the total valuation allowance relative to U.S. federal and state deferred tax assets was $851.8 million.\nOn March 27, 2020, the CARES Act was enacted in the United States, which provided for certain changes to tax laws which impacted our results of operations, financial position and cash flows. We implemented certain provisions of the CARES Act, such as deferring employer payroll taxes and utilizing the ability to carry back and deduct losses to offset prior income in previously filed tax returns. There was no benefit from the CARES Act recorded in the provision during the year ended February 25, 2023. As of February\u00a026, 2022 and February 27,2021, under the CARES Act, we recorded income tax benefits of $18.7\u00a0million and $152.0 million, respectively, as a result of the Fiscal 2020 and Fiscal 2019 net operating\u00a0losses were carried back to prior years during which the federal tax rate was 35%. \nNet Loss\nAs a result of the factors described above, the net loss for Fiscal 2022, 2021, and 2020, was $3.50 billion, $559.6 million, and $150.8 million, respectively.\nLIQUIDITY AND CAPITAL RESOURCES\nWe have incurred significant losses over the past few years. As of February\u00a025, 2023, we had approximately $65.9 million in cash and cash equivalents, a decrease of approximately $373.6 million as compared with February\u00a026, 2022, \nCredit Facilities\nIn the second quarter of fiscal 2021, the Company amended its asset-based credit agreement (the \u201cCredit Agreement\u201d) among the Company, certain of the Company\u2019s U.S. and Canadian subsidiaries party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (in such capacity, the \u201cAgent\u201d), and the lenders party thereto. The Credit Agreement provides for an asset based revolving credit facility (the \u201cABL Facility\u201d) with aggregate revolving commitments established at closing of $1.0 billion, including a swingline sub facility and a letter of credit sub facility. The Credit Agreement has an uncommitted expansion feature which allows the borrowers to request, at any time following the delivery of an initial field exam and appraisal, an increase in aggregate revolving commitments under the ABL Facility or elect to enter into a first-in-last-out loan facility (\u201cFIFO Facility\u201d), collectively, in an aggregate amount of up to $375.0 million, subject to certain customary conditions.\nOn August 31, 2022, the Company entered into an amendment (the \u201cFirst Amendment\u201d) to the Credit Agreement, dated as of August 9, 2021 (as amended by the Amendment, the \u201cFirst Amended Credit Agreement\u201d), for more than $500.0 million of new additional financing commitments, including its newly expanded $1.130 billion ABL Facility, which provides for an increase of $130.0 million in aggregate revolving commitments for the time periods set forth in the Amendment, and a new $375.0 million FILO Facility (the \u201cInitial FILO Loan\u201d, together with the ABL Facility, the \u201cCredit Facilities\u201d), with JPMorgan Chase Bank, N.A., as administrative\n \nagent and Sixth Street Specialty Lending, Inc., as agent and lender for the FILO Facility. The ABL Facility and FILO Facility mature on August 9, 2026, and August 31, 2027, respectively, unless required to mature earlier pursuant to the terms of the Amendment.\nOn February 7, 2023, the Company entered into a second amendment (the \u201cSecond Amendment\u201d) to the Credit Agreement. Pursuant to the Amendment, the lenders agreed to (i) waive any outstanding defaults or events of default under the existing Credit Facilities and (ii) rescind the implementation of the acceleration of obligations under the existing Credit Facilities, the requirement to cash collateralize letters of credit obligations under the existing Credit Facilities and the default interest on the \n32\nTable\n \nof Contents\noutstanding obligations under the existing Credit Facilities.\n \nThe Amendment (i) decreased the total revolving commitment from $1.13 billion to $565.0 million, (ii) result in an increased outstanding principal amount as a result of the call protection make-whole amount of $53.9 million being capitalized as principal to the Initial FILO Loan and (iii) provide for an additional $100 million of FILO loans (the \u201c2023 FILO Loan\u201d and together with the Initial FILO Loan, the \u201cFILO Facility\u201d, and together with the ABL Facility, the \u201cCredit Facilities\u201d).\nAs a result of these events of default, the Company classified its outstanding borrowings under its asset-based revolving credit facility (the \u201cABL Facility) and its FILO Facility as current in the consolidated balance sheet as of February\u00a025, 2023. The Company\u2019s outstanding borrowings under its ABL Facility and FILO Facilities were $191.3 million and $528.9 million, respectively, as of February\u00a025, 2023. In addition, the Company had $126.9 million in letters of credit outstanding under its ABL Facility as of February\u00a025, 2023. The Company also had $1.030 billion in senior notes (excluding deferred financing costs) outstanding as of February\u00a025, 2023. For information regarding the Company's borrowings, see Note 7.\nThe filing of the Chapter 11 Cases constituted an event of default that accelerated our obligations under the Senior Notes and the Credit Facilities.\nExchange Offers\nDuring the third fiscal quarter of 2022, the Company commenced exchange offers (the \"Exchange Offers\") with eligible holders for each series of Existing Notes as follows: (i) 2024 Notes for new 3.693% Senior Second Lien Secured Non-Convertible Notes due November 30, 2027 (the \u201cNew Second Lien Non-Convertible Notes\u201d) and/or new 8.821% Senior Second Lien Secured Convertible Notes due November 30, 2027 (the \u201cNew Second Lien Convertible Notes\u201d); (ii) 2034 Notes for new 12.000% Senior Third Lien Secured Convertible Notes due November 30, 2029 (the \u201cNew Third Lien Convertible Notes\u201d and, together with the New Second Lien Non-Convertible Notes and the New Second Lien Convertible Notes, the \u201cNew Notes\u201d); and (iii) 2044 Notes for New Third Lien Convertible Notes (see \u201cLong-Term Debt,\u201d Note 12 to the accompanying consolidated financial statements).\nIn November 2022, the Company completed privately negotiated exchange offers with existing holders of approximately $69.0 million, $15.3 million, and $70.2 million aggregate principal amount of 2024 Notes, 2034 Notes, and 2044 Notes, respectively, under which the Company issued an aggregate of approximately 13.6 million shares of common stock to the existing holders in exchange for the exchange notes, including accrued and unpaid interest, and 0.9 million shares in exchange for a cash payment from an existing holder of $3.5 million. The exchange notes were cancelled and no longer outstanding upon completion of the exchange.\nOn January 5, 2023, upon the expiration of the Exchange Offers, the Company announced the termination of the offer and consent solicitations with respect to its Existing Notes, as a result of the conditions applicable thereto not being satisfied. As a result of the termination of the Exchange Offers, none of the Existing Notes that had been tendered in the Exchange Offers were accepted for purchase and no consideration will be paid or become payable to holders of the Existing Notes who have tendered their Existing Notes in the Exchange Offers.\nATM Program\nOn August 31, 2022, we established an at the market equity distribution program (the \"ATM Program\") (see \u201cShareholders' (Deficit) Equity,\u201d Note 8 to the accompanying consolidated financial statements), under which we offered and sold 12 million shares of common stock for net proceeds of $72.2 million pursuant to the prospectus supplement dated August 31, 2022. On October 28, 2022, we filed a prospectus supplement to register additional shares of our common stock to offer and sell under the ATM Program at an aggregate sales price of up to $150.0 million. The net proceeds, after commissions and offering costs, from the ATM Program were used for a number of general corporate purposes, which include immediate strategic priorities such as rebalancing the Company's assortment and inventory. During Fiscal 2022, we sold approximately 22.2 million shares for approximately $115.4 million of net proceeds under the Company's ATM Programs. \nSeries A Preferred Stock and Warrants\nOn February 7, 2023, the Company consummated an underwritten public offering of (i) shares of Series A Convertible Preferred Stock (\u201cSeries A\u201d), (ii) warrants to purchase shares of the Company\u2019s Common Stock (\u201cCommon Stock Warrants\u201d), and (iii) warrants to purchase shares of the Company\u2019s Series A Convertible Preferred Stock (\u201cPreferred Stock Warrants\u201d). The gross proceeds received for the Series A was $225.0 million and there was no additional consideration received for the Common Stock Warrants and Preferred Stock Warrants issued. \nDuring the year ended February 25, 2023, 5,000 Preferred Stock Warrants were exercised for gross proceeds of $47.5 million.\n33\nTable\n \nof Contents\nThe filing of the Chapter 11 Cases constitutes a Bankruptcy Trigger Event of the Series A, as a result of which mandatory cash redemption provisions contained are triggered. In addition, the filing of the Chapter 11 Cases triggers a holder's ability to convert the preferred stock at the Alternate Conversion Price, which could result in a conversion price of lesser than $0.7160.\nCapital Expenditures\nCapital expenditures for Fiscal 2022 were $332.9 million, which includes the entering into use of accrued capital expenditures of $63.4 million which were recorded in fiscal 2021. As the Company executes its new strategic plans and refine capital resources to improve liquidity, capital expenditures are related to maintenance, and investments in technology and digital offerings.\nStock Repurchases\nDuring the first quarter of Fiscal 2022, we repurchased approximately 2.9 million shares of our common stock, at a total cost of approximately $46.1 million, which included approximately 2.3 million shares at a total cost of approximately $40.4 million repurchased under our share repurchase programs as authorized by our Board of Directors.\nBetween December 2004 and April 2021, the Company\u2019s Board of Directors authorized, through several share repurchase programs, the repurchase of up to $12.950 billion of its shares of common stock. \nSince 2004 through the end of Fiscal 2022, the Company has repurchased approximately $11.731 billion of its common stock through share repurchase programs. \nThe Company also acquires shares of its common stock to cover employee related taxes withheld on vested restricted stock, restricted stock units and performance stock unit awards. Since the initial authorization in December\u00a02004, the aggregate total of common stock repurchased is approximately 265.1\u00a0million shares for a total cost of approximately $11.731 billion. The Company had approximately $1.221 billion remaining of authorized share repurchases as of February\u00a025, 2023. \nDebt Repurchases\nThere were no debt repurchases made during the year ended February\u00a025, 2023. During Fiscal 2021, we purchased approximately $11.0 million aggregate principal amount of our outstanding 3.749% senior unsecured notes due August\u00a01, 2024. \nCash flow from operating activities\nNet cash used in operating activities for Fiscal \n2022\n was $991.0 million, compared with net cash provided by operating activities of $17.9 million in Fiscal 2021. The year-over-year change in operating cash flow was primarily due to higher net loss, adjusted for non-cash expense, which included the impact of higher impairments in fiscal 2022, as well as decreases in accounts payable and accrued expenses and other current liabilities, partially offset by decreases in inventory. For Fiscal 2021, the decrease in cash provided by operating activities was primarily due to higher net loss, adjusted for non-cash expenses, which included the impact of higher restructuring and transformation expenses in Fiscal 2021, as well as investments in inventory, including as a result of changing the timing of purchasing in response to the potential impact of global supply chain disruptions on timing of inventory receipts and availability of product in our stores and on our websites, and lower accounts payable, due primarily to timing of payments for merchandise, and accrued liabilities, including lower incentive compensation accruals. There were partially offset by a decrease in other current assets primarily due to the receipt of income tax refunds in Fiscal 2021. \nRetail inventory, which includes inventory in our distribution facilities for direct to customer shipments, was approximately $817.6\u00a0million at February\u00a025, 2023, a decrease of 52.6% compared with retail inventory at February\u00a026, 2022. We continue to focus on our inventory assortment changes and other merchandising strategies. In Fiscal 2022, the Company's in-stock levels were lower than anticipated due to supplier constraints and vendor credit line decreases. We continue to focus on our inventory optimization strategies while also responding to the potential impact of global supply chain disruptions on product availability. Retail inventory at February\u00a026, 2022 increased approximately 18.0% compared to retail inventory at February\u00a027, 2021, which was primarily related to the focus on our inventory optimization strategies while also responding to the potential impact of global supply chain disruptions on product availability.\nCash flow from investing activities\n\u00a0\n34\nTable\n \nof Contents\nNet cash used in investing activities for Fiscal 2022 was $298.7\u00a0million, compared with net cash used in investing activities of $349.2 million in Fiscal 2021. For Fiscal 2022, net cash used in investing activities included $332.9\u00a0million of capital expenditures, a $10.5 million cash outflow related to the deconsolidation of Canadian subsidiaries, $18.9 million of cash proceeds from the sale of available-for-sale investment securities, and $25.8 million of proceeds from a note receivable. For Fiscal 2021, net cash used in investing activities included $354.2 million of capital expenditures.\nCash flow from financing activities\nNet cash provided by financing activities for Fiscal 2022 was $967.0 million, compared with net cash used in financing activities of $606.0 million in Fiscal 2021. Net cash provided by financing activities for Fiscal 2022 was comprised of $1.6 billion of borrowings under the Credit Facilities, partially offset by repayments of $926.2 million, $272.5 million of proceeds from the issuance and exercising of derivative liabilities, net proceeds from issuances of common stock and ATM Program offerings of $119.0 million, repurchases of common stock of $46.1 million, of which $40.4 million is related to our share repurchase program, payments of deferred financing costs of $24.2 million, payments of Exchange Offer costs of $8.0 million, $6,3 million of payments for issuance costs related to derivative liabilities, repayments of finance leases of $3.2 million, and dividend payments of $0.3 million. Net cash provided by financing activities in Fiscal 2021 was primarily comprised of repurchases of common stock of $589.4 million, of which $574.9\u00a0million was related to our share repurchase program, repayments of long-term debt of $11.4 million and payments of deferred financing costs of $3.4 million. \nContractual Obligations\nOur contractual obligations as of February\u00a025, 2023 consist mainly of (i) principal and interest related to our debt (see \"Long-Term Debt,\" Note 7 to the Consolidated Financial Statements), (ii) leases for stores, offices, distribution facilities and equipment (see \"Leases,\" Note 9 to the Consolidated Financial Statements) and (iii) purchase obligations, primarily under purchase orders issued for merchandise and for certain capital expenditures. \nTotal c\napital expenditures for Fiscal 2022 were $332.9\u00a0million.\nApproximately $215.4 million in principal amount of our senior unsecured notes are due August\u00a01, 2024, with the remaining principal balances due August\u00a01, 2034 and August\u00a01, 2044. Our lease obligations include both operating and finance leases, and have various terms extending through 2041, with approximately $385.5 million in minimum lease payments due in Fiscal 2023, and declining amounts due each year thereafter.\nThese obligations are considered as part of our overall capital allocation and liquidity management processes referred to above.\nSEASONALITY\nOur business is subject to seasonal influences. Generally, our sales volumes are higher in the calendar months of August, November, and December, and lower in February.\nINFLATION\nIn Fiscal 2022, we experienced inflationary pressures in various parts of our business, including, but not limited to, product cost pressure as well as increased freight and shipping costs across our supply chain. We continue to monitor the impact of inflation on the costs of materials, labor, and other costs required to manage our business in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. \nThere can be no assurance, however, that our operating results will not be affected by inflation in the future. See also Risk Factor \"Rising inflation may adversely affect us by increasing costs of materials, labor and other costs beyond what we can recover through price increases\".\nCRITICAL ACCOUNTING POLICIES\nThe preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires us to establish accounting policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on other assumptions that we believe to be relevant under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. In particular, judgment is used in areas such as inventory valuation, impairment of long-lived assets, goodwill and other indefinite lived intangible assets, accruals for self-insurance and income and certain other taxes. Actual results could differ from these estimates.\nInventory Valuation\n: Merchandise inventories are stated at the lower of cost or market. Inventory costs are primarily calculated using the weighted average retail inventory method.\n35\nTable\n \nof Contents\nUnder the retail inventory method, the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail values of inventories. The inputs associated with determining the cost-to-retail ratio include: merchandise purchases, net of returns to vendors, discounts and volume and incentive rebates; inbound freight expenses; import charges, including duties, insurance and commissions.\nThe retail inventory method contains certain management judgments that may affect inventory valuation. At any one time, inventories include items that have been written down to the Company\u2019s best estimate of their realizable value. Judgment is required in estimating realizable value and factors considered are the age of merchandise, anticipated demand based on factors such as customer preferences and fashion trends, and anticipated changes in product assortment (including related to the launch of Owned Brands) as well as anticipated markdowns to reduce the price of merchandise from its recorded retail price to a retail price at which it is expected to be sold in the future. These estimates are based on historical experience and current information about future events which are inherently uncertain. Actual realizable value could differ materially from this estimate based upon future customer demand or economic conditions.\nFor the fiscal years ended February 26, 2022 and February 27, 2021 the Company estimated its reserve for inventory shrinkage throughout the year based on historical shrinkage and any current trends, if applicable. Actual shrinkage was recorded based upon the results of the Company\u2019s physical inventory counts for locations at which counts were conducted. For locations where physical inventory counts were not conducted in the fiscal year, an estimated shrink reserve was recorded based on historical shrinkage and any current trends, if applicable.\n \nFor the fiscal year-ended February 25, 2023 the Company performed store physical inventory counts at or near fiscal year-end\n \nusing a statistical sampling approach based on a stratified random sample.\n \nThe full population of store inventory was estimated and recorded based on an extrapolation using the direct projection method.\n \nThe Company estimated a reserve for inventory shrinkage for inventory held at other locations based on historical shrinkage and current trends.\nThe Company accrues for merchandise in transit once it takes legal ownership and title to the merchandise; as such, an estimate for merchandise in transit is included in the Company\u2019s merchandise inventories.\nImpairment of Long-Lived Assets\n: We review long-lived assets for impairment when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the assets. Judgment is required in estimating the fair value of the assets including assumptions related to sales growth rates and market rental rates. These estimates are based on historical experience and current information about future events which are inherently uncertain.\nIn Fiscal 2022, 2021, and 2020, we recorded $1.28 billion, $30.8 million, and $75.1 million, respectively, of non-cash pre-tax impairment charges within goodwill and other impairments in the consolidated statement of operations for certain store-level assets, including leasehold improvements and operating lease assets. At February 25, 2023, the required step one recoverability test resulted in estimation uncertainty regarding the ability to achieve future location and enterprise level positive undiscounted cash flows.\n \nAs such, the Company moved forward with preparing a step two impairment test for its long-lived assets at all store, distribution facility and corporate locations. The Company used market approach models, including orderly liquidation value, to estimate the fair value of store, distribution facility and corporate location long-lived assets, comparing the fair values to the net book values, and calculating the impairment charge.\n \nIn the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs.\nSelf-Insurance\n: We utilize a combination of third-party insurance and self-insurance for a number of risks including workers\u2019 compensation, general liability, cyber liability, property liability, automobile liability and employee related health care benefits (a portion of which is paid by our employees). Liabilities associated with the risks that we retain are not discounted and are estimated by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. Although our claims experience has not displayed substantial volatility in the past, actual experience could materially vary from our historical experience in the future. Factors that affect these estimates include but are not limited to: inflation, the number and severity of claims and regulatory changes. In the future, if we conclude an adjustment to self-insurance accruals is required, the liability will be adjusted accordingly.\n36\nTable\n \nof Contents\nBeginning in the fourth quarter of Fiscal 2020, we began insuring portions of our workers' compensation and medical insurance through a wholly owned captive insurance subsidiary (the \"Captive\") to enhance our risk financing strategies. The Captive is subject to regulations in Vermont, including those relating to its levels of liquidity. The Captive was in compliance with all regulations as of February\u00a025, 2023.\nMezzanine Equity and Derivatives: \nThe Company also issues various financial instruments, including preferred stock and warrants. We account for instruments containing redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company\u2019s control are classified as redeemable or mezzanine equity. We also evaluate whether the contingent redemption provisions are probable of becoming redeemable to determine whether the carrying value of the redeemable convertible preferred units are required to be remeasured to their respective redemption values. All instruments that are classified as mezzanine equity are evaluated for embedded derivative features by evaluating each feature against the nature of the host instrument (e.g. more equity-like or debt-like). Features identified as freestanding instruments or bifurcated embedded derivatives that are material are recognized separately as a derivative asset or liability, recorded at fair value each reporting period in the consolidated financial statements. \nThe Company uses a model-derived valuation in determining the fair value of the derivative liabilities.  Significant assumptions used in the model include the conversion ratio and stock price of the Company. Significant changes in these assumptions could lead to significant changes in the fair value of the derivative liabilities.\nTaxes:\n The Company accounts for its income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. \nIn assessing the recoverability of our deferred tax assets, we evaluate the available objective positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit use of existing deferred tax assets in each taxpaying jurisdiction. For any deferred tax asset in excess of the amount for which it is more likely than not that we will realize a benefit, we establish a valuation allowance. A valuation allowance is a non-cash charge, and does not limit our ability to utilize our deferred tax assets, including our ability to utilize tax loss and credit carryforward amounts, against future taxable income.\nDuring Fiscal 2022, we concluded that, based on our evaluation of available objective positive and negative evidence, we continue to be more likely than not that our net U.S. federal and state deferred tax assets will not be recoverable. In assessing the realizability of deferred tax assets, the key assumptions used to determine positive and negative evidence included our cumulative book loss for the past three years and our ability to continue as a going concern. As of February\u00a025, 2023, the total valuation allowance relative to U.S. federal and state deferred tax assets was $851.8 million.\nThe Company recognizes the tax benefit from an uncertain tax position only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities.\nThe Company also accrues for certain other taxes as required by its operations.\nJudgment is required in determining the provision for income and other taxes and related accruals, and deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, the Company's various tax returns are subject to audit by various tax authorities. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates.\n37\nTable\n \nof Contents\nFORWARD-LOOKING STATEMENTS\nThis Form 10-K and Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements within the meaning of Section 21 E of the Securities Exchange Act of 1934 including, but not limited to, our progress and anticipated progress towards our long-term objectives, as well as more generally the status of our future liquidity and financial condition and our outlook for our 2022 Fiscal year. \nThese statements may be identified by the use of forward-looking terminology such as \u201canticipate,\u201d \u201cbelieve,\u201d \u201ccontinue,\u201d \u201ccould,\u201d \u201cestimate,\u201d \u201cexpect,\u201d \u201cintend,\u201d \u201cmay,\u201d \u201cmight,\u201d \u201cour vision,\u201d \u201cplan,\u201d \u201cpotential,\u201d \u201cpreliminary,\u201d \u201cpredict,\u201d \u201cshould,\u201d \u201cwill,\u201d or \u201cwould\u201d or the negative thereof or other variations thereof or comparable terminology. These forward-looking statements are subject to a number of factors and uncertainties that could cause the Company\u2019s actual results to differ materially from those expressed in or contemplated by the forward-looking statements. Such factors include, but are not limited to: risks attendant to the bankruptcy process, including the Company\u2019s ability to obtain court approval from the Bankruptcy Court with respect to motions or other requests made to the Bankruptcy Court throughout the course of the Chapter 11 Cases, including with respect the DIP Facility; the effects of the Chapter 11 Cases, including increased legal and other professional costs necessary to execute the Company\u2019s reorganization, on the Company\u2019s liquidity (including the availability of operating capital during the pendency of the Chapter 11 Cases), results of operations or business prospects; the effects of the Chapter 11 Cases on the interests of various constituents and financial stakeholders; the length of time that the Company will operate under Chapter 11 protection and the continued availability of operating capital during the pendency of the Chapter 11 Cases; objections to the Company\u2019s restructuring process, DIP Facilities, or other pleadings filed that could protract the Chapter 11 Cases; risks associated with third-party motions in the Chapter 11 Cases; Bankruptcy Court rulings in the Chapter 11 Cases and the outcome of the Chapter 11 Cases in general; the Company\u2019s ability to comply with the restrictions imposed by the terms and conditions of the DIP Credit Agreement and other financing arrangements; employee attrition and the Company\u2019s ability to retain senior management and other key personnel due to the distractions and uncertainties; the Company\u2019s ability to maintain relationships with suppliers, customers, employees and other third parties and regulatory authorities as a result of the Chapter 11 Cases; the impact and timing of any cost-savings measures and related local law requirements in various jurisdictions; finalization of the Company\u2019s annual and quarterly financial statements (including finalization of the Company\u2019s impairment tests), completion of standard annual and quarterly-close processes; risks relating to the delisting of the Common Stock from Nasdaq and future quotation of the Company\u2019s common stock; the effectiveness of the Company\u2019s internal control over financial reporting and disclosure controls and procedures, and the potential for additional material weaknesses in the Company\u2019s internal controls over financial reporting or other potential weaknesses of which the Company is not currently aware or which have not been detected; the impact of litigation and regulatory proceedings; the impact and timing of any cost-savings measures; and other factors discussed in this Annual Report on Form 10-K. These risks and uncertainties may cause the Company\u2019s actual results, performance, liquidity or achievements to differ materially from any future results, performance, liquidity or achievements expressed or implied by these forward-looking statements. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur.\n Except as required by law, we do not undertake any obligation to update our forward-looking statements.",
+  "item7a": ">ITEM 7A \n\u2013\n QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nOur exposure to market risk is primarily related to variable interest rate changes associated with our investment securities and the Credit Facilities, which includes our asset based revolving credit facility (the \u201cABL Facility\u201d) and a first-in-last-out term loan facility (the \u201cFILO Facility\u201d). Our Credit Facilities are based on the Secured Overnight Financing Rate (\u201cSOFR\u201d). During Fiscal 2022, the Company sold its long-term available-for-sale investment securities of $20.3 million for $18.9 million resulting in a realized loss reclassified out of accumulated other comprehensive loss.\nAs of February 25, 2023, our investments include cash and cash equivalents of approximately $65.9 million and restricted cash of $81.5 million, at weighted average interest rates of 3.34%  and 0.34%, respectively. The book value of these investments is representative of their fair values.\nAs of February 25, 2023, we had a variable interest rate debt outstanding under our Credit Facilities of $720.2 million. The weighted average interest rate on the outstanding amounts under our Credit Facilities was 11.66%. The carrying amount of the Credit Facilities approximates fair value as the interest charged is based on the current market rate.\nOur senior unsecured notes have fixed interest rates and are not subject to interest rate risk. As of February 25, 2023, the fair value of the senior unsecured notes was $176.3\u00a0million, which is based on quoted prices in active markets for identical instruments compared to the carrying value of approximately $1.030\u00a0billion.\n \n38\nTable\n \nof Contents",
+  "cik": "886158",
+  "cusip6": "075896",
+  "cusip": ["075896100", "075896900", "075896950"],
+  "names": ["BED BATH & BEYOND INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/886158/000088615823000059/0000886158-23-000059-index.htm"
+}
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+{
+  "item1": ">Item\u00a01. BUSINESS\nForward-Looking Statements\nThe U.S. Private Securities Litigation Reform Act of 1995 provides a \u201csafe harbor\u201d for forward-looking statements to encourage companies to provide prospective information, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those disclosed in the statement. Certain information of a non-historical nature contained in Items 1, 2, 3 and 7 of this Form 10-K includes \u201cforward-looking statements\u201d within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, and the objectives and expectations of management. Forward-looking statements often include words such as \u201cbelieves,\u201d \u201cexpects,\u201d \u201canticipates,\u201d \u201cestimates,\u201d \u201cintends,\u201d \u201cplans,\u201d \u201cseeks\u201d or words of similar meaning, or future or conditional verbs, such as \u201cwill,\u201d \u201cshould,\u201d \u201ccould\u201d or \u201cmay.\u201d Forward-looking statements are neither historical facts nor assurances of future performance. Instead, such statements, including, but not limited to, our statements regarding business strategy, growth strategy, competitive strengths, productivity and profitability enhancement, competition, new product and service introductions and liquidity and capital resources, are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions,\n \nas well as on assumptions made by and information currently available to management, and involve various risks and uncertainties, some of which are beyond our control.\nBecause forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. Any number of factors could affect our actual results and cause such results to differ materially from those contemplated by any forward-looking statements. Reference is made to \u201cRisk Factors\u201d in Item 1A and \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in Item 7 of this Form 10-K, for a discussion of certain factors that could cause actual operating results to differ materially from those expressed in any forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will in fact prove to be accurate. The order in which these factors appear should not be construed to indicate their relative importance or priority. We caution that these factors may not be exhaustive, accordingly, any forward-looking statements contained herein should not be relied upon as a prediction of actual results.\nYou should carefully consider these and other relevant factors and information which may be contained in this Form 10-K and in our other filings with the U.S. Securities and Exchange Commission, or SEC, when reviewing any forward-looking statement. Investors should understand it is impossible to predict or identify all such factors or risks. As such, you should not consider the risks identified in our SEC filings, to be a complete discussion of all potential risks or uncertainties.\nAny forward-looking statement made in this Form 10-K is based only on information currently available to us and speaks only as of the date on which it is made. We do not undertake any obligation to release publicly any revisions to any forward-looking statements whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.\nGeneral\nPatterson Companies, Inc. is a value-added specialty distributor serving the U.S. and Canadian dental supply markets and the U.S., Canadian and U.K. animal health supply markets. Patterson operates through its two strategic business units, Patterson Dental and Patterson Animal Health, offering similar products and services to different customer bases. Each business has a strong competitive position, serves a highly fragmented market that offers consolidation opportunities and offers relatively low-cost consumable supplies, which makes our value-added business proposition highly attractive to our customers. We believe that we have a strong brand identity as a value-added, full-service distributor with broad product and service offerings, having begun distributing dental supplies in 1877.\n3\nTable of Contents\nBusiness Overview\nThe following table sets forth consolidated net sales (in millions) by segment. \nFiscal Year Ended\nApril 29, 2023\nApril 30, 2022\nApril 24, 2021\nDental\n$\n2,492\u00a0\n$\n2,516\u00a0\n$\n2,327\u00a0\nAnimal Health\n3,965\u00a0\n3,983\u00a0\n3,560\u00a0\nCorporate\n14\u00a0\n\u2014\u00a0\n25\u00a0\nConsolidated net sales\n$\n6,471\u00a0\n$\n6,499\u00a0\n$\n5,912\u00a0\nOur strategically located fulfillment centers enable us to better serve our customers and increase our operating efficiency. This infrastructure, together with broad product and service offerings at competitive prices, and a strong commitment to customer service, enables us to be a single source of supply for our customers\u2019 needs. Our infrastructure also allows us to provide convenient ordering and rapid, accurate and complete order fulfillment.\nElectronic commerce solutions have become an integral part of dental and animal health supply and distribution relationships. Our distribution business is characterized by rapid technological developments and intense competition. The continuing advancement of online commerce requires us to cost-effectively adapt to changing technologies, to enhance existing services and to develop and introduce a variety of new services to address the changing demands of consumers and our customers on a timely basis, particularly in response to competitive offerings. We believe that our tradition of reliable service, our name recognition and large customer base built on solid customer relationships, position us well to participate in this significant aspect of the distribution business. We continue to explore methods to improve and expand our Internet presence and capabilities, including our online commerce offerings and our use of various social media outlets.\nPatterson became publicly traded in 1992 and is a corporation organized under the laws of the state of Minnesota. We are headquartered in St. Paul, Minnesota. Our principal executive offices are located at 1031 Mendota Heights Road, St. Paul, Minnesota 55120, and our telephone number is (651) 686-1600. Unless the context specifically requires otherwise, the terms the \u201cCompany,\u201d \u201cPatterson,\u201d \u201cwe,\u201d \u201cus\u201d and \u201cour\u201d mean Patterson Companies, Inc., a Minnesota corporation, and its consolidated subsidiaries.\nThe Specialty Distribution Markets We Serve\nWe provide manufacturers with cost effective logistics and high-caliber sales professionals to access a geographically diverse customer base, which is critical to the supply chain for the markets we serve. We provide our customers with an array of value-added services, a dedicated and highly skilled sales team, and a broad selection of products through a single channel, thereby helping them efficiently manage their ordering process. Due in part to the inability of our customers to store and manage large quantities of supplies at their locations, the distribution of supplies and small equipment has been characterized by frequent, small-quantity orders, and a need for rapid, reliable and substantially-complete order fulfillment. Supplies and small equipment are generally purchased from more than one distributor, with one generally serving as the primary supplier.\nWe believe that consolidation within the industry will continue as distributors, particularly those with limited financial, operating and marketing resources, seek to combine with larger companies that can provide growth opportunities. This consolidation also may continue to result in distributors seeking to acquire companies that can enhance their current product and service offerings or provide opportunities to serve a broader customer base.\nDental Supply Market\nThe dental supply market we serve consists of geographically dispersed and highly fragmented dental practices. Customers range in size from sole practitioners to large group practices, often called Dental Service Organizations (\"DSO's\"). According to the American Dental Association and the Canadian Dental Association, there are approximately 203,000 dentists practicing in the U.S. and 25,000 dentists practicing in Canada. We believe the average dental practitioner purchases supplies from more than one supplier.\nWe believe the North American dental supply market continues to experience growth due to an increasing population, an aging population, advances in dentistry, demand for general, preventive and specialty services, increasing demand for new technologies that allow dentists to increase productivity, demand for infection control products, and insurance coverage by dental plans.\n4\nTable of Contents\nWe support dental professionals through the many stock keeping units (\u201cSKUs\u201d) that we offer, as well as through important value-added services, including equipment and technology installation and service, practice management software, electronic claims processing, financial services, and continuing education, all designed to help make a dental practice more efficient.\nAnimal Health Supply Market\nThe animal health supply market is a mix of production animal supply, which primarily serves food producing animals, consisting of beef and dairy cattle, swine and poultry and other species such as sheep and goats, and companion animal supply, which serves pets, primarily dogs, cats and horses. Similar to the dental supply market, the animal health supply market is highly fragmented and diverse. Our production animal customers include large animal veterinarians, beef producers (cow/calf, stocker and feedlots), dairy producers, poultry producers, swine producers and retail customers. Our companion animal customers are primarily small animal and equine veterinary clinics, including independently owned, corporates and groups. According to the American Veterinary Medical Association, there are more than 70,000 veterinarians in private practice in the U.S. and Canada. Furthermore, there are approximately 20,000 veterinarians in the U.K. practicing in veterinary outlets; however, we believe there has been a shift in the U.K. market toward consolidation of veterinary practices. National Veterinary Services Limited, is the market leader in the U.K. veterinary market, with the highest percentage of buying groups and corporations as customers compared to its competitors, and the highest share position in that country overall.\nThe global animal health supply market continues to experience growth, and we believe that trend will continue for the foreseeable future. We support our animal health customers through the distribution of biologicals, pharmaceuticals, parasiticides, supplies, including our own private label brands, and equipment. We also supply a full portfolio of technologies, software, services and solutions to all segments and channels of our broad customer base. We actively engage in the development, sale and distribution of inventory, accounting and health management systems to enhance customer operating efficiencies and assist our customers in managing risk. Within the companion animal supply market, we anticipate increasing demand for veterinary services due to the following factors: the increasing number of households with companion animals, increased pet adoption rates and increased expenditures on animal health and preventative care, an aging pet population, advancements in animal health products and diagnostic testing, and extensive marketing programs sponsored by companion animal nutrition and pharmaceutical companies.\nWe anticipate the macroeconomic trend of global population growth and corresponding demand for protein will be favorable to the production animal segment in the future. Likewise, the rise in disposable income, especially in developing countries will be a key driver of future growth. However; product sales in the production animal supply market are more likely to be impacted by volatility in the market such as commodity prices, changes in weather patterns, and trends in the general economy. Many factors can influence how long cattle will graze and consequently the number of days an animal is on feed during a finishing phase. Supply and demand dynamics and economic trends can shift the number of animals treated, the timing of when animals are treated, to what extent they are treated and with which products they are treated. Historically, sales in this market have been largely driven by spending on animal health products to improve productivity, weight gain and disease prevention, as well as a growing focus on health and wellness of the animals, safety, and efficiency in livestock production.\nCompetition\nThe distribution industry is highly competitive. It consists principally of national, regional and local full-service distributors. Substantially all of the products we sell are available to customers from a number of suppliers. In addition, our competitors could obtain exclusive rights from manufacturers to market particular products. Some manufacturers also sell directly to end-users, thereby eliminating or reducing our role and that of other distributors.\nWe compete with other distributors, as well as several manufacturers, of dental and animal health products, on the basis of price, breadth of product line, customer service and value-added products and services. To differentiate ourselves from our competition we deploy a strategy of premium customer service with multiple value-added components, a highly qualified and motivated sales force, highly-trained and experienced service technicians, an extensive breadth and mix of products and services, technology solutions allowing customers to easily access our inventory, accurate and timely delivery of product, strategic location of sales offices and fulfillment centers, and competitive pricing.\nIn the U.S. and Canadian dental supply market, we compete against Henry Schein, Inc., Benco Dental Supply Company, Burkhart Dental Supply and hundreds of distributors that operate on a regional or local level, or online. Also, as noted above, some manufacturers sell directly to end users. With regard to our dental practice \n5\nTable of Contents\nmanagement software, we compete against numerous offerings, including those from Henry Schein, Inc. and Carestream Dental.\nIn the U.S. and Canadian animal health supply market, our primary competitors are AmerisourceBergen/MWI Animal Health and Covetrus, Inc. We also compete against a number of regional and local animal health distributors, some manufacturers that sell direct to end users and several alternative channel market providers that sell through digital platforms to production animal operators, animal health product retailers and veterinarians.  Additionally, major U.S. online e-commerce retailers such as Amazon and Chewy.com have become licensed as veterinary mail order pharmacies, which enables them to offer pharmacy products directly to consumers in all 50 U.S. states. In the animal health practice management market, our primary competitors are IDEXX Laboratories, Inc. and Covetrus, Inc. We face significant competition in the animal health supply market in the U.K., where we compete on the basis of price and customer service with several large competitors, including Covetrus, Inc. and AmerisourceBergen. We also compete directly with pharmaceutical companies who sell certain products or services directly to the customer. \nSuccessful distributors are increasingly providing value-added services in addition to the products they have traditionally provided. We believe that to remain competitive we must continue to add value to the distribution channel, while removing unnecessary costs associated with product movement. Significant price reductions by our competitors could result in competitive harm.\u00a0Any of these competitive pressures may materially adversely affect our operating results.\nCompetitive Strengths\nWe have more than 140 years of experience in distributing products resulting in strong awareness of the Patterson brand. Although further information regarding these competitive strengths is set forth below in the discussion of our two strategic business units, our competitive strengths include:\n\u2022\nBroad product and service offerings at competitive prices\n. We sell approximately 200,000 SKUs to our customers, including many proprietary branded products. We believe that our proprietary branded products and our competitive pricing strategy have generated a loyal customer base that is confident in our brands. Our product offerings include consumables, equipment, software and various technologies. Our value-added services include practice management software, office design, equipment installation and maintenance, and financing.\n\u2022\nFocus on customer relationships and exceptional customer service.\n Our sales and marketing efforts are designed to establish and solidify customer relationships through personal visits by field sales representatives, interaction via phone with sales representatives, web-based activities including e-commerce and frequent direct marketing, emphasizing our broad product lines, competitive prices and ease of order placement. We focus on providing our customers with exceptional order fulfillment and a streamlined ordering process.\n\u2022\nCost-effective purchasing and efficient distribution. \nWe believe that cost-effective purchasing is a key element to maintaining and enhancing our position as a competitive-pricing provider of dental and animal health products. We strive to maintain optimal inventory levels to satisfy customer demand for prompt and complete order fulfillment through our distribution of products from strategically located fulfillment centers.\nBusiness Strategy\nOur objective is to continue to expand as a leading value-added distributor of dental and animal health products and services. To accomplish this, we will apply our competitive strengths in executing the following strategies:\n\u2022\nEmphasizing our differentiated, value-added, full-service capabilities\n. We are positioned to meet virtually all of the needs of dental practitioners, veterinarians, production animal operators and animal health product retailers by providing a broad range of consumable supplies, technology, equipment, software and value-added services. We believe our knowledgeable sales representatives can create customer intimacy and loyalty by providing an informational, consultative approach to our customers, linking them to the industries we serve. Our value-added strategy is further supported by our equipment specialists who offer consultation on design, equipment requirements and financing, our service technicians who perform equipment installation, maintenance and repair services, our business development professionals who provide business tools and educational programs to our customers, and our technology advisors who provide guidance on integrating technology solutions.\n6\nTable of Contents\n\u2022\nUsing technology to enhance customer service. \nAs part of our commitment to providing superior customer service, we offer our customers easy order placement. Although we offer computerized order entry systems that we believe help establish relationships with new customers and increase loyalty among existing customers, predominant platforms for ordering today include www.pattersondental.com, www.pattersonvet.com and www.animalhealthinternational.com. The use of these methods of ordering enables our sales representatives to spend more time with existing and prospective customers. Our Internet environment includes order entry, customer support for digital and our proprietary products, customer-loyalty program reports and services, and access to articles and manufacturers\u2019 product information. We also provide real-time customer and sales information to our sales force, managers and vendors via the Internet. In addition, the Patterson Technology Center (\u201cPTC\u201d) differentiates Patterson from our competition by providing deep and thorough expertise in practice management software and other advanced equipment and technology clinical solutions. In addition to trouble-shooting through the PTC\u2019s support center, customers can access various service capabilities offered by the PTC, including electronic claims and statement processing and system back-up capabilities.\n\u2022\nContinuing to improve operating efficiencies. \nWe continue to implement programs designed to improve our operating efficiencies and allow for continued sales growth. This strategy includes our continuing investment in management information systems and consolidation and leveraging of fulfillment centers and sales branches between our operating segments. In addition, we have established shared sales branch offices in several locations.\n\u2022\nGrowing through internal expansion and acquisitions\n. We intend to continue to grow by hiring sales representatives, hiring and training sales professionals, opening additional locations as needed, and acquiring other companies in order to enter new, or more deeply penetrate existing, markets, gain access to additional product lines, and expand our customer base. We believe both of our operating segments are well positioned to take advantage of expected continued consolidation in our markets. \nDental Segment - Products, Services and Sources of Supply\nPatterson Dental, one of the two largest distributors of dental products in North America, has operations in the U.S. and Canada. As a full-service, value-added supplier to over 100,000 dental practices, dental laboratories, educational institutions, and community health centers, Patterson Dental provides consumable products (including infection control, restorative materials, and instruments); basic and advanced technology and dental equipment; and innovative practice optimization solutions, including practice management software, e-commerce, revenue cycle management, patient engagement solutions, and clinical and patient education. Patterson Dental sells approximately 100,000 SKUs, of which approximately 3,500 are private-label products sold under the Patterson brand. Patterson Dental also offers customers a range of related services including software and design services, maintenance and repair, and equipment financing. Net sales and operating income were $2.5 billion and $237 million in fiscal 2023, respectively.\nThe following table sets forth the percentage of total sales by the principal categories of products and services offered to our dental segment customers:\n \nFiscal Year Ended\nApril 29, 2023\nApril 30, 2022\nApril 24, 2021\nConsumable\n55\u00a0\n%\n57\u00a0\n%\n56\u00a0\n%\nEquipment\n33\u00a0\n32\u00a0\n31\u00a0\nValue-added services and other\n12\u00a0\n11\u00a0\n13\u00a0\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\nPatterson Dental obtains products from hundreds of vendors, most of which are non-exclusive. While there is generally more than one source of supply for most of the categories of products we sell, the concentration of business with key suppliers is considerable, as consolidation has increased among manufacturers. In fiscal 2023, 2022 and 2021, Patterson Dental's top ten supply vendors accounted for approximately 58%, 56% and 57% of the total cost of sales, respectively. The top vendor accounted for 24%, 24% and 25% of the total cost of sales in fiscal 2023, 2022 and 2021, respectively.\n7\nTable of Contents\nAnimal Health Segment - Products, Services and Sources of Supply\nPatterson Animal Health is a leading distributor of animal health products in the U.S., Canada and the U.K. We sell approximately 100,000 SKUs, of which approximately 2,000 are private-label. Products are sourced from over 2,000 manufacturers to over 50,000 customers in the highly fragmented animal health supply market. Products we distribute include pharmaceuticals, vaccines, parasiticides, diagnostics, prescription and non-prescription diets, nutritionals, consumable supplies and equipment. We offer a private label portfolio of products to veterinarians, producers, and retailers through our Aspen, First Companion and Patterson Veterinary brands. We also provide a range of value-added services to our customers. Within our companion animal supply market, our principal customers are companion-pet and equine veterinarians, veterinary clinics, public and private institutions, and shelters. In our production animal supply market, our principal customers are large animal veterinarians, production animal operators and animal health product retailers. Consumer demand for alternative means of sourcing product through digital platforms is an evolving dynamic in our industry. We provide digital home delivery solutions to allow us to evolve with the market. Net sales and operating income were $4.0 billion and $127 million in fiscal 2023, respectively.\nThe following table sets forth the percentage of total sales by the principal categories of products and services offered to our animal health segment customers:\nFiscal Year Ended\nApril 29, 2023\nApril 30, 2022\nApril 24, 2021\nConsumable\n96\u00a0\n%\n96\u00a0\n%\n96\u00a0\n%\nEquipment\n3\u00a0\n3\u00a0\n3\u00a0\nValue-added services and other\n1\u00a0\n1\u00a0\n1\u00a0\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\nPatterson Animal Health obtains products from over 2,000 vendors globally. While Patterson Animal Health makes purchases from many vendors and there is generally more than one source of supply for most of the categories of products, the concentration of business with key vendors is considerable, as consolidation has increased among manufacturers. In fiscal 2023, 2022 and 2021, Patterson Animal Health\u2019s top 10 manufacturers comprised approximately 66%, 66% and 70% of the total cost of sales, respectively, and the single largest supplier comprised approximately 24%, 23% and 20% in of the total cost of sales 2023, 2022 and 2021, respectively.\nSales, Marketing and Distribution\nDuring fiscal 2023, we sold products or services to over 100,000 customers who made one or more purchases during the year. Our customers include dentists, laboratories, institutions, other healthcare professionals, veterinarians, other animal health professionals, production animal operators and animal health product retailers. No single customer accounted for more than 10% of sales during fiscal 2023, and we are not dependent on any single customer or geographic group of customers. \nWe have offices throughout the U.S. and Canada so that we can provide a presence in the market and decision-making near the customer. Patterson Animal Health also has a central office in the U.K. Our offices, or sales branches, are staffed with a complete complement of our capabilities, including sales, customer service and technical service personnel, as well as a local manager who has decision-making authority with regard to customer-related transactions and issues.\nA primary component of our value-added approach is our professional sales and support organization. Due to the highly-fragmented nature of the markets we serve, we believe that our unique combination of field-based and call-center sales and support teams is critical to reaching potential customers and providing a differentiated customer experience. Our sales representatives play an indispensable and critical role in managing a practice\u2019s supply chain and in introducing new products and technologies.\nIn the U.S. and Canada, customer service representatives in call centers work in tandem with our sales representatives, providing a dual coverage approach for individual customers. In addition to processing orders, customer service representatives are responsible for assisting customers with ordering, informing customers of monthly promotions, and responding to general inquiries. In the U.K., our customer service team is primarily responsible for handling customer inquiries and resolving issues.\n8\nTable of Contents\nTo assist our\u00a0customers with their purchasing decisions, we provide a multi-touchpoint\u00a0shopping experience. From print to digital, this seamless experience is inclusive of products and services information. Patterson offers online and in-print showcases of our expansive merchandise and equipment offerings, including digital imaging and computer-aided design and computer-aided manufacturing (\"CAD/CAM\") technologies, hand-held and similar instruments, sundries, office design, e-services, repair and support assistance, as well as financial services. We also promote select products and services through publications, including \nOn Target \nand \nAdvantage \nin the U.S. and \nPatterson Post \nin Canada in our Dental segment, and \nInsight\n in the U.S. and \nThe Cube\n in the U.K. in our Animal Health segment. Additional direct marketing tools that we utilize include customer loyalty programs, social media, and participation in trade shows.\nWe believe that responsive delivery of quality supplies and equipment is key to customer satisfaction. We ship consumable supplies from our strategically located fulfillment centers in the U.S. and Canada. In the U.K., orders are accepted in a centralized fulfillment center and shipped nationwide to one of our depots located throughout the country at which pre-packed orders are sorted by route for delivery to customers. Orders for consumable supplies can be placed through our sales representatives, customer service representatives or electronically 24 hours a day, seven days a week. Rapid and accurate order fulfillment is another principal component of our value-added approach. \nIn order to assure the availability of our broad product lines for prompt delivery to customers, we must maintain sufficient inventories at our fulfillment centers. Purchasing of consumables and standard equipment is centralized, and our purchasing department uses a real-time perpetual inventory system to manage inventory levels. Our inventory consists mostly of consumable supply items and pharmaceutical products. \nImpacts of COVID-19\nThe COVID-19 pandemic had a significant impact on our businesses in fiscal 2021 as we implemented cost reduction measures in response to closures and other steps taken by governmental authorities. In response, management adapted our business practices with respect to employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. Management also took proactive steps with respect to our liquidity position. Within our Dental segment, supply chain disruptions and an increased demand for PPE initially resulted in back orders of PPE, causing substantial price increases.\n \nWe had to prepay suppliers in order to obtain PPE for resale to our customers, and as manufacturing caught up to increased demand for PPE, prices dropped, impacting our margins and requiring us to write down certain inventory.\n \nIn our markets of the U.S., Canada, and the UK, restrictive measures have now been lifted and the World Health Organization declared an end to the COVID-19 pandemic. Concerns remain that our markets could see a resurgence of COVID-19 cases or the emergence of new wide-spread public health outbreaks, triggering additional impacts on our businesses. There is continued uncertainty around the duration and ultimate impact of COVID-19 and other global health concerns.\nRefer to Part I, Item 1A, \u201cRisk Factors,\u201d and Part II, Item 7, \u201cManagement's Discussion and Analysis of Financial Condition and Results of Operations,\u201d within this Annual Report for further information on the impacts to our business and results of operations, our dividends, liquidity and debt arrangements, and associated risks and uncertainties.\nGeographic Information\nFor information on revenues and long-lived assets of our segments by geographic area, see Note 14 to the Consolidated Financial Statements.\nSeasonality and Other Factors Affecting Our Business and Quarterly Results\nOur business in general is not seasonal; however, there are some products that typically sell more often during the winter or summer season. In any given month, unusual weather patterns (e.g., unusually hot or cold weather) could impact the sales volumes of these products, either positively or negatively. In addition, we experience fluctuations in quarterly earnings. As a result, we may fail to meet or exceed the expectations of securities analysts and investors, which could cause our stock price to decline. Quarterly results may be materially adversely affected by a variety of factors, including:\n\u2022\ntiming and amount of sales and marketing expenditures;\n\u2022\ntiming of pricing changes offered by our suppliers;\n9\nTable of Contents\n\u2022\ntiming of the introduction of new products and services by our suppliers;\n\u2022\nchanges in or availability of supplier contracts or rebate programs;\n\u2022\nsupplier rebates based upon attaining certain growth goals;\n\u2022\nchanges in the way suppliers introduce or deliver products to market;\n\u2022\ncosts of developing new applications and services;\n\u2022\nour ability to correctly identify customer needs and preferences and predict future needs and preferences;\n\u2022\nuncertainties regarding potential significant breaches of data security or disruptions of our information technology systems;\n\u2022\nregulatory actions, or government regulation generally;\n\u2022\nloss of sales representatives;\n\u2022\ncosts related to acquisitions and/or integrations of technologies or businesses;\n\u2022\ncosts associated with our self-insured insurance programs;\n\u2022\ngeneral market and economic conditions, as discussed in Item 1A: Risk Factors, including pandemic, macro-economic conditions, increased fuel and energy costs, consumer confidence, as well as conditions specific to the supply and distribution industry and related industries;\n\u2022\nour success in establishing or maintaining business relationships;\n\u2022\ndifficulties of manufacturers in developing and manufacturing products;\n\u2022\nproduct demand and availability, or product recalls by manufacturers;\n\u2022\nexposure to product liability and other claims in the event that the use of the products we sell results in injury;\n\u2022\nincreases in shipping costs or service issues with our third-party shippers;\n\u2022\nfluctuations in the value of foreign currencies;\n\u2022\ngoodwill impairment;\n\u2022\nchanges in interest rates;\n\u2022\nrestructuring costs;\n\u2022\nthe adoption or repeal of legislation;\n\u2022\nchanges in accounting principles; and\n\u2022\nlitigation or regulatory judgments, fines, forfeitures, penalties, equitable remedies, expenses or settlements.\nGovernmental Regulation\nWe strive to be compliant with the applicable laws, regulations and guidance described below, and believe we have effective compliance programs and other controls in place to ensure substantial compliance. However, compliance is not guaranteed either now or in the future, as certain laws, regulations and guidance may be subject to varying and evolving interpretations that could affect our ability to comply, as well as future changes, additions and enforcement approaches, including political changes. Additionally, our policies and procedures may not always protect us from reckless or criminal acts committed by our employees or our agents. When we discover situations of non-compliance we seek to remedy them and bring the affected area back into compliance.\nPresident Biden\u2019s administration (the \u201cBiden Administration\u201d) has indicated that it will be more aggressive in its pursuit of alleged violations of law, and has revoked certain guidance that would have limited governmental use of informal agency guidance to pursue potential violations, and has stated that it is more prepared to pursue individuals for corporate law violations, including an aggressive approach to anti-corruption activities. Changes to applicable laws, regulations and guidance described below, as well as related administrative or judicial interpretations, may require us to update or revise our operations, services, marketing practices, and compliance programs and controls, and may impose additional and unforeseen costs on us, pose new or previously immaterial risks to us, or may otherwise have a material adverse effect on our business, results of operations and financial condition.\nFederal, state and certain foreign governments have also increased enforcement activity in the health care sector, particularly in areas of fraud and abuse, anti-bribery and corruption, controlled substances handling, medical device regulations and data privacy and security standards. Our businesses are generally subject to numerous laws and regulations that could impact our financial performance. Failure to comply with such laws or regulations could be punishable by criminal or civil sanctions, which could materially adversely affect our business. \n10\nTable of Contents\nOperating, Security and Licensure Standards\nOur dental and animal health supply businesses involve the distribution, importation, exportation, marketing and sale of, and third party payment for, pharmaceuticals and medical devices, and in this regard, we are subject to extensive local, state, federal and foreign governmental laws and regulations applicable to the distribution of pharmaceuticals and medical devices.  \nU.S. Federal Agencies\nCertain of our businesses are required to register for permits and/or licenses with, and comply with operating and security standards of, the U.S. Food and Drug Administration (\u201cFDA\u201d), the U.S. Department of Agriculture (\u201cUSDA\u201d), the Environmental Protection Agency (\u201cEPA\u201d), the Food Safety Inspection Service (\u201cFSIS\u201d), the U.S. Drug Enforcement Administration (\u201cDEA\u201d), the Federal Trade Commission (\u201cFTC\u201d), and various state boards of pharmacy, state health departments and/or comparable state agencies as well as comparable foreign agencies, and certain accrediting bodies depending on the type of operations and location of product distribution, manufacturing or sale. These businesses include those that distribute, manufacture and/or repackage prescription pharmaceuticals and/or medical devices and/or HCT/P products, own pharmacy operations, or install, maintain or repair equipment. \nFDA \n\u2013 the regulatory body that is responsible for the regulation of animal-health pharmaceuticals in the U.S. is the Center for Veterinary Medicine (\u201cCVM\u201d) housed within the FDA.\n\u2022\nGenerally, all animal-health pharmaceuticals are subject to pre-market review and must be shown to be safe, effective, and produced by a consistent method of manufacture as defined under the Federal Food, Drug and Cosmetic Act, as amended (the \u201cFDC Act\u201d).\n\u2022\nIf the drug is for food-producing animals, potential consequences for humans are also considered.\n\u2022\nAnimal supplements generally are not required to obtain pre-market approval from the CVM, although they may be treated as food. Any substance that is added to, or is expected to become a component of, animal food must be used in accordance with food-additive regulations, unless it is generally recognized as safe, under the conditions of its intended use. Alternatively, the FDA may consider animal supplements to be drugs. The FDA has agreed to exercise enforcement discretion for such supplements if each such supplement meets certain conditions.\n\u2022\nAdditionally, dental and medical devices we sell in the U.S. are generally classified by the FDA into a category that renders them subject to the same controls that apply to all medical devices, including regulations regarding alternation, misbranding, notification, record-keeping and good manufacturing practices.\nUSDA\n \u2013 the regulatory body in the U.S. for veterinary biologics, such as vaccines.\n\u2022\nThe USDA\u2019s Center for Veterinary Biologics is responsible for the regulation of animal-health vaccines, including immunotherapeutics. Marketing of imported veterinary biological products in the U.S. requires a U.S. Veterinary Biological Product Permit. Veterinary biologics are subject to pre-market review and must be shown to be pure, safe, potent, and efficacious, as defined under the Virus Serum Toxin Act. The USDA requires post-licensing monitoring of these products. \nEPA\n \u2013 the main regulatory body in the U.S. for veterinary pesticides is the EPA. \n\u2022\nThe EPA\u2019s Office of Pesticide Programs is responsible for the regulation of pesticide products applied to animals.\n\u2022\nAnimal-health pesticides are subject to pre-market review and must not cause \u201cunreasonable adverse effects to man or the environment\u201d as stated in the Federal Insecticide, Fungicide, and Rodenticide Act.\n\u2022\nWithin the U.S., pesticide products that are approved by the EPA must also be approved by individual state pesticide authorities before distribution in that state. Post-approval monitoring of products is required, with reports provided to the EPA and some state regulatory agencies.\nFSIS \n- the public health agency within the USDA.\n\u2022\nThe FDA is authorized to determine the safety of substances (including \u201cgenerally recognized as safe\u201d substances, food additives and color additives), as well as prescribe their safe conditions of use. However, \n11\nTable of Contents\nalthough the FDA has the responsibility for determining the safety of substances, the FSIS still retains, under the tenets of the Federal Meat Inspection Act and the Poultry Products Inspection Act and their implementing regulations, the authority to determine whether new substances and new uses of previously approved substances are suitable for use in meat and poultry products.\nDEA \n\u2013 under the Controlled Substances Act, distributors of controlled substances are required to obtain, and renew annually, registrations for their facilities from the DEA.\n\u2022\nDistributors are also subject to other statutory and regulatory requirements relating to the storage, sale, marketing, handling, and distribution of such drugs, in accordance with the Controlled Substances Act and its implementing regulations, and these requirements have been subject to heightened enforcement activity in recent times.\n\u2022\nDistributors are subject to inspection by the DEA.\nFTC\n \u2013 the FTC regulates advertising pursuant to its authority to prevent \u201cunfair or deceptive acts or practices in or affecting commerce\u201d under the Federal Trade Commission Act.\n\u2022\nAdvertising and promotion of animal-health products that are not subject to approval by the CVM may be challenged by the FTC, as well as by state attorneys general and by consumers under state consumer protection laws.\n\u2022\nThe FTC will find an advertisement to be deceptive if it contains a representation or omission of fact that is likely to mislead consumers acting reasonably under the circumstances, the representation or omission is material, and if the advertiser does not possess and rely upon a reasonable basis, such as competent and reliable evidence, substantiating the claim.\n\u2022\nThe FTC may address unfair or deceptive advertising practices through either an administrative adjudication or judicial enforcement action, including preliminary or permanent injunction.\n\u2022\nThe FTC may also seek consumer redress from the advertiser in instances of dishonest or fraudulent conduct.\nState Registrations\n \u2013 states may require registration of animal-drug distributors and wholesalers.\n\u2022\nAdditional requirements may apply when the product is also a controlled substance. States work closely with the Association of American Feed Control Officials (\u201cAAFCO\u201d) in their regulation of animal food.\n\u2022\nAAFCO\u2019s annual official publication contains model animal and pet-food labeling regulations that states may adopt.\n\u2022\nThis publication is treated deferentially by the federal and state government agencies that regulate animal food. Many states require registration or licensing of animal-food distributors.\n\u2022\nStates may also review and approve animal-food labels prior to sale of the product in their state. \nWe are also subject to foreign trade controls administered by certain U.S. government agencies, including the Bureau of Industry and Security within the Commerce Department, Customs and Border Protection within the Department of homeland Security and the U.S. Department of the Treasury\u2019s Office of Foreign Assets Control (OFAC).\nThe DEA, the FDA and state regulatory authorities have broad inspection and enforcement powers, including the ability to suspend or limit the distribution of products by our fulfillment centers, seize or order the recall of products and impose significant criminal, civil and administrative sanctions for violations of these laws and regulations. Foreign regulations subject us to similar foreign enforcement powers. Furthermore, compliance with legal requirements has required and may in the future require us to delay product release, sale or distribution, or institute voluntary recalls of, or other corrective action with respect to, products we sell, each of which could result in regulatory and enforcement actions, financial losses and potential reputational harm. Our customers are also subject to significant federal, state, local and foreign governmental regulation, which may affect our interactions with customers, including the design and functionality of the products we distribute.\n12\nTable of Contents\nAgencies Outside the U.S.\nSince the U.K. formally left the EU on January 31, 2020, the Veterinary Medicines Directorate (\u201cVMD\u201d) became the main regulatory body in the U.K. responsible for regulating and controlling veterinary pharmaceuticals. The U.K. and the EU reached a trade deal in December 2020, which went into effect in May 2021. The agreement includes regulatory and customs cooperation mechanisms, as well as provisions supporting open and fair competition. The Northern Ireland protocol, which is part of the trade deal, requires that VMD follow EU rules in Northern Ireland. Laws applying to the rest of the U.K. could now diverge but currently remain largely aligned. \nU.S. Laws\nAmong the U.S. federal laws applicable to us are the Controlled Substances Act, the FDC Act, Section 361 of the Public Health Service Act, as well as laws regulating the billing of and reimbursement from government programs, such as Medicare and Medicaid, and from commercial payers. We are also subject to comparable foreign regulations.\nThe FDC Act, the Controlled Substances Act, their implementing regulations, and similar foreign laws generally regulate the introduction, manufacture, advertising, marketing and promotion, sampling, pricing and reimbursement, labeling, packaging, storage, handling, returning or recalling, reporting, and distribution of, and record keeping for, pharmaceuticals and medical devices shipped in interstate commerce, and states may similarly regulate such activities within the state. Furthermore, Section 361 of the Public Health Service Act, which provides authority to prevent the introduction, transmission, or spread of communicable diseases, serves as the legal basis for the FDA\u2019s regulation of human cells, tissues and cellular and tissue-based products, also known as \u201cHCT/P products.\u201d\nThe federal Drug Quality and Security Act of 2013 brought about significant changes with respect to pharmaceutical supply chain requirements. Title II of this measure, known as the Drug Supply Chain Security Act (\u201cDSCSA\u201d), was first implemented in November 2014 and is being phased in over a period of 10 years. DSCSA is intended to build a national electronic, interoperable system by November 27, 2023, that will identify and trace certain prescription drugs as they are distributed in the U.S. The law\u2019s track and trace requirements applicable to manufacturers, wholesalers, third-party logistics providers (e.g., trading partners), repackagers and dispensers (e.g., pharmacies) of prescription drugs took effect in January 2015, and continues to be implemented. The DSCSA product tracing requirements replace the former FDA drug pedigree requirements and pre-empt certain state requirements that are inconsistent with, more stringent than, or in addition to, the DSCSA requirements.\nThe DSCSA also establishes certain requirements for the licensing and operation of prescription drug wholesalers and third party logistics providers (\u201c3PLs\u201d), and includes the eventual creation of national wholesaler and 3PL licenses in cases where states do not license such entities. The DSCSA requires that wholesalers and 3PLs distribute drugs in accordance with certain standards regarding the recordkeeping, storage and handling of prescription drugs. The DSCSA requires wholesalers and 3PLs to submit annual reports to the FDA, which include information regarding each state where the wholesaler or 3PL is licensed, the name and address of each facility and contact information. According to FDA guidance, states are pre-empted from imposing any licensing requirements that are inconsistent with, less stringent than, directly related to, or covered by the standards established by federal law in this area. Current state licensing requirements concerning wholesalers will remain in effect until the FDA issues new regulations as directed by the DSCSA.\nThe Food and Drug Administration Amendments Act of 2007 and the Food and Drug Administration Safety and Innovation Act of 2012 amended the FDC Act to require the FDA to promulgate regulations to implement a unique device identification (\u201cUDI\u201d) system. The UDI rule phased in the implementation of the UDI regulations, generally beginning with the highest-risk devices (i.e., Class III medical devices) and ending with the lowest-risk devices. Most compliance dates were reached as of September 24, 2018, with a final set of requirements for low-risk devices being reached on September 24, 2022, which completed the phase in. However, in May 2021, the FDA issued an enforcement policy stating that it does not intend to object to the use of legacy identification numbers on device labels and packages for finished devices manufactured and labeled prior to September 24, 2023. The UDI regulations require \u201clabelers\u201d to include unique device identifiers (\u201cUDIs\u201d), with a content and format prescribed by the FDA and issued under a system operated by an FDA-accredited issuing agency, on the labels and packages of medical devices (including, but not limited to, certain software that qualifies as a medical device under FDA rules), and to directly mark certain devices with UDIs. The UDI regulations also require labelers to submit certain information concerning UDI-labeled devices to the FDA, much of which information is publicly available on an FDA database, the Global Unique Device Identification Database. On July 22, 2022, the FDA posted the final guidance regarding the Global Unique Device Identification Database called Unique Device Identification Policy Regarding \n13\nTable of Contents\nCompliance Dates for Class I and Unclassified Devices, Direct Marketing, and Global Unique Device Identification Database Requirements for Certain Devices. The UDI regulations and subsequent FDA guidance regarding the UDI requirements provide for certain exceptions, alternatives and time extensions. For example, the UDI regulations include a general exception for Class I devices exempt from the Quality System Regulation (other than record-keeping and complaint files). Regulated labelers include entities such as device manufacturers, repackagers, reprocessors and relabelers that cause a device\u2019s label to be applied or modified, with the intent that the device will be commercially distributed without any subsequent replacement or modification of the label, and include certain of our businesses.\nUnder the Controlled Substances Act, as a distributor of controlled substances, we are required to obtain and renew annually registrations for our facilities from the DEA permitting us to handle controlled substances. We are also subject to other statutory and regulatory requirements relating to the storage, sale, marketing, handling and distribution of such drugs, in accordance with the Controlled Substances Act and its implementing regulations, and these requirements have been subject to heightened enforcement activity in recent times. Non-controlled substances can also become subject to these controls. For example, law enforcement agencies are pressing for xylazine, which is an FDA-approved prescription veterinary tranquilizer found in certain analgesic products we distribute, to be listed as a federal controlled substance and several states, including Ohio, Pennsylvania, West Virginia and Florida, have already done so, which measures are likely to increase our cost of distributing such products. There have also been increasing efforts by various levels of government globally to regulate the pharmaceutical distribution system in order to prevent the introduction of counterfeit, adulterated or misbranded pharmaceuticals into the distribution system.\nIn addition, Section 301 of the National Organ Transplant Act, and a number of comparable state laws, impose civil and/or criminal penalties for the transfer of certain human tissue (for example, human bone products) for valuable consideration, while generally permitting payments for the reasonable costs incurred in procuring, processing, storing and distributing that tissue. We are also subject to foreign government regulation of such products. \nCertain of our businesses are subject to various additional federal, state, local and foreign laws and regulations, including with respect to the sale, transportation, storage, handling and disposal of hazardous or potentially hazardous substances, and safe working conditions. In addition, certain of our businesses must operate in compliance with a variety of burdensome and complex billing and record keeping requirements in order to substantiate claims for payment under federal, state and commercial healthcare reimbursement programs.\nCertain of our businesses also maintain contracts with governmental agencies and are subject to certain regulatory requirements specific to government contractors.\nAs disclosed in our prior periodic reports, our subsidiary Animal Health International was the subject of an investigation by the U.S. Attorney\u2019s Office for the Western District of Virginia, which resulted in Animal Health International pleading guilty to a strict-liability misdemeanor offense in connection with its failure to comply with federal law relating to the sales of prescription animal health products, and a total criminal fine and forfeiture of $52.8 million. In addition, Animal Health International and Patterson entered into a non-prosecution agreement for other non-compliant licensing, dispensing, distribution and related sales processes disclosed during the investigation and committed to undertake additional compliance program enhancements and provide compliance certifications through our reporting for fiscal 2023. This matter may continue to divert management's attention and cause us to suffer reputational harm. We also may be subject to other fines or penalties, equitable remedies (including but not limited to the suspension, revocation or non-renewal of licenses) and litigation. The occurrence of any of these events could adversely affect our business, results of operations and financial condition.\nOther Regulations\nVeterinary compounding pharmacies must comply with state and federal laws that govern the relationship between pharmacies and referral sources. The U.S. Federal Anti-Kickback Statute (\u201cAKS\u201d) imposes criminal penalties against individuals and entities that pay or receive remuneration in return for referring an individual for service paid under a federal health care program. Veterinary compounding pharmacies have historically avoided scrutiny under the AKS because no federal programs are involved in veterinary compounding funding. However, most states have enacted statutes and regulations that mirror the AKS and, in some cases, are even broader than the AKS.\nVarious states have enacted business and insurance regulations prohibiting referral arrangements that result in the offer or acceptance of any rebate, refund, commission, discount or other consideration as compensation or inducement for referring patients, clients or customers. These regulations often encompass all health-care related professions, including pharmacies and veterinary practices.\n14\nTable of Contents\nAdditionally, the promotion of regulated animal health products is controlled by regulations in many countries. These rules generally restrict advertising and promotion to those claims and uses that have been reviewed and endorsed by the applicable agency.\nAntitrust and Consumer Protection\nThe U.S. federal government, most U.S. states and many foreign countries have antitrust laws that prohibit certain types of conduct deemed to be anti-competitive, as well as consumer protection laws that seek to protect consumers from improper business practices. At the U.S. federal level, the Federal Trade Commission oversees enforcement of these types of laws, and states have similar government agencies. Violations of antitrust or consumer protection laws may result in various sanctions, including criminal and civil penalties. Private plaintiffs also may bring, and have brought, civil lawsuits against us in the U.S. for alleged antitrust violations, including claims for treble damages. The Biden Administration has indicated increased antitrust enforcement and has been more aggressive in enforcement actions, including investigations and challenging restrictive contractual terms that it believes harm workers and competition.\nHealth Care Fraud\nCertain of our businesses are subject to federal and state (and similar foreign) health care fraud and abuse, referral and reimbursement laws and regulations with respect to their operations. These laws and regulations govern different interactions, including but not limited to, those:\n\u2022\nprohibiting improper influence of or payments to healthcare professionals and government officials;\n\u2022\nsetting out rules for when and how to engage healthcare professionals as vendors;\n\u2022\nrequiring price reporting;\n\u2022\nrequiring marketing of products within regulatory approval (i.e., on label);\n\u2022\nregulating the import and export of products;\n\u2022\naffecting the operation of our facilities and our distribution of products; and\n\u2022\nrequiring disclosure of payments to healthcare professionals and entities.\nSome of these laws, referred to as \u201cfalse claims laws,\u201d prohibit the submission or causing the submission of false or fraudulent claims for reimbursement to federal, state and other health care payers and programs. Other laws, referred to as \u201canti-kickback laws,\u201d prohibit soliciting, offering, receiving or paying remuneration in order to induce the referral of a patient or ordering, purchasing, leasing or arranging for or recommending ordering, purchasing or leasing, of items or services that are paid for by federal, state and other health care payers and programs. Several states apply their false claims and anti-kickback laws to all payers, including goods and services paid for directly by consumers. Certain additional state and federal laws, such as the federal Physician Self-Referral Law, commonly known as the \u201cStark Law,\u201d prohibit physicians and other health professionals from referring a patient to an entity with which the physician (or family member) has a financial relationship, for the furnishing of certain designated health services (for example, durable medical equipment and medical supplies), unless an exception applies. Violations of anti-kickback laws or the Stark Law may be enforced as violations of the federal False Claims Act.\nThe fraud and abuse laws and regulations have been subject to heightened enforcement activity over the past few years, and significant enforcement activity has been the result of \u201crelators,\u201d who serve as whistleblowers by filing complaints in the name of the U.S. (and, if applicable, particular states) under applicable false claim laws. Under the federal False Claims Act, relators can be entitled to receive up to 30% of the total recoveries. Penalties under fraud and abuse laws may be severe, including treble damages and substantial civil penalties under the federal False Claims Act, as well as potential loss of licenses and the ability to participate in federal and state health care programs, criminal penalties, or imposition of a corporate integrity agreement or corporate compliance monitor which could have a material adverse effect on our business. Also, these measures may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our operations or incur substantial defense and settlement expenses. Even unsuccessful challenges by regulatory authorities or private relators could result in reputational harm and the incurring of substantial costs. Most states have adopted similar state false claims laws, and these state laws have their own penalties which may be in addition to federal False Claims Act penalties, as well as other fraud and abuse laws. With respect to measures of this type, the U.S. government (among others) has expressed concerns about financial relationships between suppliers on the one \n15\nTable of Contents\nhand and dentists and other healthcare professionals on the other. As a result, we regularly review and revise our marketing practices as necessary to facilitate compliance. While we believe that we are substantially compliant with applicable fraud and abuse laws and regulations, and have adequate compliance programs and controls in place to ensure substantial compliance, we cannot predict whether changes in applicable law, or interpretation of laws, or changes in our services or marketing practices in response to changes in applicable law or interpretation of laws, or failure to comply with applicable law, could have a material adverse effect on our business.\nAffordable Care Act and Other Insurance Reform\nThe U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (as amended, the \u201cACA\u201d) increased federal oversight of private health insurance plans and included a number of provisions designed to reduce Medicare expenditures and the cost of health care generally, to reduce fraud and abuse, and to provide access to increased health coverage. The ACA also materially expanded the number of individuals in the U.S. with health insurance. The ACA has faced frequent legal challenges, including litigation seeking to invalidate and Congressional action seeking to repeal some of or all of the law or the manner in which it has been implemented. In 2012, the U.S. Supreme Court, in upholding the constitutionality of the ACA and its individual mandate provision requiring that people buy health insurance or else face a penalty, simultaneously limited ACA provisions requiring Medicaid expansion, making such expansion a state-by-state decision. In addition, one of the major political parties in the U.S. remains committed to seeking the ACA's legislative repeal, but legislative efforts to do so have previously failed to pass both chambers of Congress. Under President Trump's administration, a number of administrative actions were taken to materially weaken the ACA, including, without limitation, by permitting the use of less robust plans with lower coverage and eliminating \"premium support\" for insurers providing policies under the ACA. The Tax Cuts and Jobs Act enacted in 2017 (the \"Tax Act\"), which contains a broad range of tax reform provisions that impact the individual and corporate tax rates, international tax provisions, income tax add back provisions and deductions, also effectively repealed the ACA's individual mandate by zeroing out the penalty for non-compliance. In the most recent ACA litigation, the federal Fifth Circuit Court of Appeals found the individual mandate to be unconstitutional, and returned the case to the District Court for the Northern District of Texas for consideration of whether the remainder of the ACA could survive the excision of the individual mandate. The Fifth Circuit's decision was appealed to the U.S. Supreme Court. The Supreme Court issued a decision on June 17, 2021. Without reaching the merits of the case, the Supreme Court held that the plaintiffs in the case did not have standing to challenge the ACA. Any outcomes of future cases that change the ACA, in addition to future legislation, regulation, guidance and/or executive orders that do the same, could have a significant impact on the U.S. healthcare industry. For instance, the American Rescue Plan Act of 2021 enhanced premium tax credits, which has resulted in an expansion of the number of people covered under the ACA. These changes are time-limited, with some enhancements in place for 2021 only and others available through the end of 2022. The continued uncertain status of the ACA affects our ability to plan.\nAn ACA provision, generally referred to as the Physician Payment Sunshine Act or Open Payments Program (the \u201cSunshine Act\u201d), has imposed reporting and disclosure requirements for drug and device manufacturers and distributors with regard to payments or other transfers of value made to certain practitioners (including physicians, dentists and teaching hospitals), and for such manufacturers and distributors and for group purchasing organizations, with regard to certain ownership interests held by covered recipients in the reporting entity. The Centers for Medicare and Medicaid Services (\u201cCMS\u201d) publishes information from these reports on a publicly available website, including amounts transferred and physician, dentist, teaching hospital and non-practitioner identities.\nThe Sunshine Act pre-empts similar state reporting laws, although we or our subsidiaries may also be required to report under certain state transparency laws that address circumstances not covered by the Sunshine Act, and some of these state laws, as well as the federal law, can be unclear. We are also subject to foreign regulations requiring transparency of certain interactions between suppliers and their customers. In the U.S., government actions to seek to increase health-related price transparency may also affect our business. Our compliance with these rules imposes additional costs on us.\nIn addition, recently there has been increased scrutiny on drug pricing and concurrent efforts to control or reduce drug costs by Congress, the President, executive branch agencies and various states, including that several related bills have been introduced at the federal level. Such legislation, if enacted, could have the potential to impose additional costs on our business.\n16\nTable of Contents\nInitiatives sponsored by government agencies, legislative bodies, and the private sector to limit the growth of healthcare expenses generally are ongoing in markets where we do business. It is not possible to predict at this time the long-term impact of such cost containment measures on our future business.\nAdditionally, the regulation of public and private health insurance and benefit programs can affect our business, and scrutiny of the healthcare delivery and reimbursement systems in the U.S., including those related to the importation and reimportation of certain drugs from foreign markets, can be expected to continue at both the state and federal levels. This process may result in additional legislation and/or regulation governing the production, delivery, or pricing of pharmaceutical products and other healthcare services. In addition, changes in the interpretations of existing regulations may result in significant additional compliance costs or the discontinuation of our ability to continue to operate certain of our distribution centers, which may have a material adverse effect on our business, results of operations and financial condition.\nAs a result of political, economic and regulatory influences, the health care distribution industry in the U.S. is under intense scrutiny and subject to fundamental changes. We cannot predict what further reform proposals, if any, will be adopted, when they may be adopted, or what impact they may have on us. \nRegulated Software; Electronic Health Records\nThe FDA has become increasingly active in addressing the regulation of computer software and digital health products intended for use in health care settings. The 21\nst\n Century Cures Act (the \u201cCures Act\u201d), signed into law in December 2016, among other things, amended the medical device definition to exclude certain software from FDA regulation, including clinical decision support software that meets certain criteria. In September 2019, the FDA issued a suite of guidance documents on digital health products, which incorporated applicable Cures Act standards, including regarding the types of clinical decision support tools and other software that are exempt from regulation by the FDA as medical devices, and continues to issue new guidance in this area. Certain of our software and related products support practice management, and it is possible that the FDA or foreign government authorities could determine that one or more of our products is a medical device, which could subject us or one or more of our businesses to substantial additional requirements with respect to these products.\nIn addition, certain of our practice management products include electronic information technology systems that store and process personal health, clinical, financial and other sensitive information of individuals. These information technology systems may be vulnerable to breakdown, wrongful intrusions, data breaches and malicious attack, which could require us to expend significant resources to eliminate these problems and address related security concerns, and could involve claims against us by private parties and/or governmental agencies. For example, we are directly or indirectly subject to numerous and evolving federal, state, local and foreign laws and regulations that protect the privacy and security of such information, such as the privacy and security provisions of the federal Health Insurance Portability and Accountability Act of 1996, as amended, and implementing regulations (\u201cHIPAA\u201d), the Controlling the Assault of Non-Solicited Pornography and Marketing Act, the Telephone Consumer Protection Act of 1991, Section 5 of the Federal Trade Commission Act, the California Privacy Act (\u201cCCPA\u201d), and the California Privacy Rights Act (\u201cCPRA\u201d) that became effective on January 1, 2023. Additionally, Virginia, Colorado, Connecticut and Utah recently passed comprehensive privacy legislation, and several privacy bills have been proposed both at the federal and state level that may result in additional legal requirements that impact our business. Laws and regulations relating to privacy and data protections are continually evolving and subject to potentially differing interpretations.  These requirements may not be harmonized, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. Our businesses\u2019 failure to comply with these laws and regulations could expose us to breach of control claims, substantial fines, penalties and other liabilities and expenses, costs for remediation and harm to our reputation. Also, evolving laws and regulations in this area could restrict the ability of our customers to obtain, use or disseminate patient information, or could require us to incur significant additional costs to re-design our products to reflect these legal requirements, which could have a material adverse effect on our operations.\nOther health information standards, such as regulations under HIPAA, establish standards regarding electronic health data transmissions and transaction code set rules for specific electronic transactions, such as transactions involving claims submissions to third party payers. Certain of our electronic practice management products must meet these requirements. Failure to abide by these and other electronic health data transmission standards could expose us to breach of contract claims, substantial fines, penalties and other liabilities and expenses, costs for remediation and harm to our reputation.\n17\nTable of Contents\nThe Health Information Technology for Economic and Clinical Health Act (\u201cHITECH Act\u201d) strengthened federal privacy and security provisions governing protected health information. Among other things, the HITECH Act expanded certain aspects of the HIPAA privacy and security rules, imposed new notification requirements related to health data security breaches, broadened the rights of the U.S. Department of Health and Human Services (\u201cHHS\u201d) to enforce HIPAA, and directed HHS to publish more specific security standards. In January 2013, the Office for Civil Rights of HHS published the HIPAA omnibus final rule (\u201cHIPAA Final Rule\u201d), which amended certain aspects of the HIPAA privacy, security, and enforcement rules pursuant to the HITECH Act, extending certain HIPAA obligations to business associates and their subcontractors. Certain components of our business act as \u201cbusiness associates\u201d within the meaning of HIPAA and are subject to these additional obligations under the HIPAA Final Rule.\nAlso, the European Parliament and the Council of the European Union adopted the pan-European General Data Protection Regulation (\u201cGDPR\u201d), effective from May 2018, which increased privacy rights for individuals (\u201cData Subjects\u201d), including individuals who are our customers, suppliers, and employees. The GDPR extended the scope of responsibilities for data controllers and data processors, and generally imposes increased requirements and potential penalties on companies that are either established in the EU and process personal data of Data Subjects (regardless the Data Subject location), or that are not established in the EU but that offer goods or services to Data Subjects in the EU or monitor their behavior in the EU. Noncompliance can result in penalties of up to the greater of EUR 20 million, or 4% of global company revenues, and Data Subjects may seek damages. Individual member states may impose additional requirements and penalties regarding certain limited matters such as employee personal data. With respect to the personal data it protects, the GDPR requires, among other things, controller accountability, consents from Data Subjects or another acceptable legal basis to process the personal data, notification within 72 hours of a personal data breach where required, data integrity and security, and fairness and transparency regarding the storage, use or other processing of the personal data. The GDPR also provides rights to Data Subjects relating notably to information, access, rectification and erasure of the personal data and the right to object to the processing.\nIn the U.S., the CCPA, which increases the privacy protections afforded California residents, became effective in January 2020. The CCPA generally requires companies, such as us, to institute additional protections regarding the collection, use and disclosure of certain personal information of California residents. Compliance with the obligations imposed by the CCPA depends in part on how particular regulators interpret and apply them. Regulations were released in August 2020, there remains some uncertainty about how the CCPA will be interpreted by the courts and enforced by the regulators. If we fail to comply with the CCPA or if regulators assert that we have failed to comply with the CCPA, we may be subject to certain fines or other penalties and litigation, any of which may negatively impact our reputation, require us to expend significant resources, and harm our business. Furthermore, California voters approved the CPRA in November 2020, which amends and expands the CCPA, including by providing consumers with additional rights with respect to their personal information, and creating a new state agency, the California Privacy Protection Agency, to enforce the CCPA and the CPRA. The CPRA came into effect on January 1, 2023, applying to information collected by business on or after January 1, 2022.\nOther states, as well as the federal government, have increasingly considered the adoption of similarly expansive personal privacy laws, backed by significant civil penalties for non-compliance. Virginia and Colorado were both successful in passing privacy legislation in 2021, becoming effective on January 1, 2023 and July 1, 2023, respectively. In 2022, privacy legislation passed in Connecticut, effective July 1, 2023, and Utah, effective December 31, 2023. While we believe we have substantially compliant programs and controls in place to comply with the GDPR, CCPA, CPRA and state law requirements, our compliance with data privacy and cybersecurity laws is likely to impose additional costs on us, and we cannot predict whether the interpretations of the requirements, or changes in our practices in response to new requirements or interpretations of the requirements, could have a material adverse effect on our business.\nWe also sell products and services that health care providers, such as dentists, use to store and manage patient dental records. These customers, and we, are subject to laws, regulations and industry standards, such as HIPAA and the Payment Card Industry Data Security Standards, which require the protection of the privacy and security of those records, and our products may also be used as part of these customers\u2019 comprehensive data security programs, including in connection with their efforts to comply with applicable privacy and security laws. Perceived or actual security vulnerabilities in our products or services, or the perceived or actual failure by us or our customers who use our products or services to comply with applicable legal or contractual data privacy or security requirements, may not only cause us significant reputational harm, but may also lead to claims against us by our customers and/or governmental agencies and involve substantial fines, penalties and other liabilities and expenses and costs for remediation.\n18\nTable of Contents\nVarious federal initiatives involve the adoption and use by health care providers of certain electronic health care records systems and processes. Moreover, in order to satisfy our customers, and comply with evolving legal requirements, our products may need to incorporate increasingly complex functionality, such as with respect to reporting and information blocking. Although we believe we are positioned to accomplish this, the effort may involve increased costs, and our failure to implement product modifications, or otherwise satisfy applicable standards, could have a material adverse effect on our business.\nE-Commerce\nElectronic commerce solutions have become an integral part of traditional health care supply and distribution relationships. Our distribution business is characterized by rapid technological developments and intense competition. The continuing advancement of online commerce requires us to cost-effectively adapt to changing technologies, to enhance existing services and to develop and introduce a variety of new services to address the changing demands of consumers and our customers on a timely basis, particularly in response to competitive offerings.\nThrough our proprietary, technologically based suite of products, we offer customers a variety of competitive alternatives. We believe that our tradition of reliable service, our name recognition and large customer base built on solid customer relationships, position us well to participate in this significant aspect of the distribution business. We continue to explore ways and means to improve and expand our online presence and capabilities, including our online commerce offerings and our use of various social media outlets.\nInternational Transactions\nU.S. and foreign import and export laws and regulations require us to abide by certain standards relating to the importation and exportation of products. We also are subject to certain U.S. and foreign laws and regulations concerning the conduct of our foreign operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other anti-bribery laws and laws pertaining to the accuracy of our internal books and records, as well as other types of foreign requirements similar to those imposed in the U.S. These laws and regulations have been the subject of increasing enforcement activity globally in recent years.\nThere can be no assurance that laws and regulations that impact our business or laws and regulations as they apply to our customers\u2019 practices will not have a material adverse effect on our business. As a result of political, economic and regulatory influences, the health care distribution industry in the U.S. is under intense scrutiny and subject to fundamental changes. We cannot predict what further reform proposals, if any, will be adopted, when they may be adopted, or what impact they may have on us.\nSee \u201cItem 1A. Risk Factors\u201d for a discussion of additional burdens, risks and regulatory developments that may affect our business results of operations and financial condition.\nProprietary Rights\nWe hold trademarks relating to the \u201cPatterson\u00ae\u201d name and logo, as well as certain other trademarks. Our U.S. trademark registrations have 10-year terms, and may be renewed for additional 10-year terms. We intend to protect our trademarks to the fullest extent practicable.\nHuman Capital\nPeople are the most important part of Patterson. Our employees are the reason we can confidently say we offer \nTrusted Expertise, Unrivaled Support\n to our customers every day. \nAs of April\u00a029, 2023, we had approximately 7,600 full-time employees, of which approximately 6,200 were employed in the U.S.\n19\nTable of Contents\nOur culture is driven by our purpose, vision, and values:\nAs a people-first organization, the overall well-being of our team is important to us. Patterson\u2019s total reward philosophy is to provide market competitive pay and a range of benefit choices designed to meet our employees\u2019 needs, reward for individual and business performance, and drive shareholder value. We support our employees\u2019 health with medical, dental and vision plans, wellness programs to encourage healthy lifestyles and parental leave for new mothers, fathers and domestic partners. Patterson supports employees\u2019 financial well-being with matching 401K contributions, company-paid short-term disability insurance, and educational offerings throughout the year. \nOur diverse talent acquisition programming includes a focus and commitment to hiring military personnel (both current and inactive). We recognize that the skills developed in the military are highly valuable and beneficial to Patterson, which is why we partner with more than 16 military organizations to find this top talent. We also partner with Minnesota organizations that introduce high school students from underserved communities into the workplace with internships in IT and other corporate functions, and we have a robust college internship program to establish a pipeline of future talent and give students real-world experience. \nTo support the progression and career development of our employees, we offer multiple training and development opportunities including on-demand courses, facilitator-led programs, mentoring relationships, tuition reimbursement and leadership development programs. We have implemented targeted development programs for senior leadership as well as emerging leaders in the organization. In addition, Patterson\u2019s Environmental Health and Safety (EHS) team promotes employee safety and environmental awareness through foundational systems and activities, including safety training courses.\nWe are passionate about taking action to support the communities in which we serve. We provide opportunities for and encourage employees to support local charitable organizations through volunteerism (including volunteer time off), team building, and donation and matching programs. In addition, the Patterson Foundation has donated millions of dollars to dental and animal health nonprofit organizations in order to increase access to oral health care and increase the availability of assistance dogs to veterans, first responders and individuals with disabilities. Quarterly grants are awarded with a preference to organizations where our employees volunteer and those our employees value in their communities.\nWe believe that a diverse and inclusive workforce makes our company stronger, and we encourage our teams to bring their authentic selves to Patterson every day. Our UNITES team is a volunteer-led initiative that has driven various diversity and inclusion efforts, including the launch of employee-led affinity groups for our LGBTQA and under-represented employee populations. Acting on the recommendation of the affinity groups, Patterson added Martin Luther King, Jr. Day as a company-paid holiday in 2023 in recognition of this important day to honor the \n20\nTable of Contents\nsacrifices he made for racial equality. Patterson has several programs in place to support the advancement of women in the workplace, both internally and in the industries we serve. Patterson has launched an enterprise-wide Inclusive Leader program that all leaders will participate in by the end of 2023. As of April 29, 2023, 42.0% of our U.S. workforce and 41.3% of our management was female. In addition, as of that date, 24.1% of our U.S. workforce and 16.5% of our management was ethnically diverse. \nAvailable Information\nWe make available free of charge through our website, \nwww.pattersoncompanies.com\n, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, statements of beneficial ownership of securities on Forms 3, 4 and 5 and amendments to these reports and statements filed or furnished pursuant to Section 13(a) and Section 16 of the Securities Exchange Act of 1934 as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission, or SEC. This material may be accessed by visiting the Investor Relations section of our website.\nIn addition, the SEC maintains an Internet website at \nwww.sec.gov\n, where the above information can be viewed.\nInformation relating to our corporate governance, including our Code of Conduct, and information concerning executive officers, Board of Directors and Board committees, and transactions in Patterson securities by directors and officers, is available on or through our website, \nwww.pattersoncompanies.com\n in the Investor Relations section.\nInformation maintained on the website is not being included as part of this Annual Report on Form 10-K.",
+  "item1a": ">Item 1A. RISK FACTORS \nWe believe that the following risks could have a material adverse impact on our business, reputation, financial results, financial condition and/or the trading price of our common stock. In addition, our business operations could be affected by factors that are not presently known to us or that we currently consider not to be material to our operations, so you should not consider the risks disclosed in this section to necessarily represent a complete statement of all risks and uncertainties. The order in which these factors appear does not necessarily reflect their relative importance or priority.\nCOMPANY RISKS\nWide-spread public health concerns may adversely affect our animal health and dental businesses, as we experienced, and may continue to experience, with the COVID-19 pandemic.\nGiven our dependence on the willingness of dental patients and veterinary customers to seek elective care, our results of operations and financial condition may be negatively impacted by the effects of disease outbreaks, epidemics, pandemics, and similar wide-spread public health concerns. For example, global health concerns relating to the COVID-19 pandemic adversely impacted, and may continue to adversely impact, consumer spending and business spending habits, which adversely impacted, and may continue to adversely impact, our financial results and the financial results of our customers, suppliers and business partners. Despite the World Health Organization declaring an end to the COVID-19 pandemic emergency, we may again experience adverse impacts as a result of the global economic impact of the COVID-19 pandemic or other wide-spread public health concerns, including any recession that may occur in the future, any prolonged period of economic slowdown, or reluctance of customers to seek care. These factors may also exacerbate the effects of other risks we face.\nActual and potential impacts on us from the COVID-19 pandemic include, but are not limited to:\n\u2022\u00a0\u00a0\u00a0\u00a0\nInterrupted operations of industries that use the products we distribute\n. Prior restrictions on the operations of dental and veterinary offices and interruptions in meat and swine packing operations adversely impacted our fiscal results in the past and drove the full goodwill impairment of our animal health business in fiscal 2020. Although these restrictions and interruptions have eased across our markets, continuing economic uncertainty remains. \n\u2022\u00a0\u00a0\u00a0\u00a0\nInventory write-downs of personal protective equipment (PPE). \nAfter manufacturing caught up to the increased demand for PPE, prices dropped substantially, impacting our margins and requiring us to write down certain inventory.\n\u2022\u00a0\u00a0\u00a0\u00a0\nReduced willingness to be in public. \nAlthough mandates and recommendations designed to limit the transmission\n \nof COVID-19\n \nhave lifted, consumer behavior remains uncertain and will depend on the actual and potential for additional resurgences of COVID-19.\n21\nTable of Contents\n\u2022\u00a0\u00a0\u00a0\u00a0\nRisks of remote and hybrid work. \nFollowing an abrupt shift to working remotely at the beginning of the pandemic, we have implemented more flexible working arrangements, including permanent work from home, hybrid and office-based arrangements. We have also taken steps to reduce our physical footprint in an effort to improve efficiency and productivity. Implementing these modified business practices could have a negative impact on employee morale, strain our business continuity plans, and introduce operational risk (including but not limited to cybersecurity risks). \n\u2022\u00a0\u00a0\u00a0\u00a0\nInterruptions in manufacturing or distribution of products we distribute. \nOutbreaks of new COVID-19 variants in the communities in which we operate could adversely affect our ability to operate our distribution activities, and our suppliers could experience similar manufacturing interruptions. \nWe are dependent on our suppliers and exposed to the risks of their businesses, because we generally do not manufacture the products we sell.\nWe obtain substantially all of the products we distribute from third parties. If a supplier is unable to deliver product in a timely and efficient manner, whether due to financial difficulty, natural disaster, pandemic, the failure to comply with applicable government requirements or other reasons, we could experience lost sales. We have experienced, and may continue to experience, disruptions in the supply chains for third-party manufacturing of certain products we distribute, including delays in obtaining or inability to obtain raw materials, inflated price of product inputs, disruptions in operations of logistics service providers and resulting delays in shipments. Customers may be unwillingness to accept such delays.\nOur cost of goods also may be adversely impacted by unanticipated price increases due to factors such as inflation, including wage inflation, or to supply restrictions beyond our control or the control of our suppliers. If current suppliers fail to supply sufficient goods or materials to us on a timely basis, or at all, we could experience inventory shortages and disruptions in our distribution of products.\nIn addition, there is considerable concentration within our animal health and dental businesses with a few key suppliers. A portion of the products we distribute is sourced, directly or indirectly, from countries outside the U.S. including China. Our ability or the ability of our suppliers to successfully source materials may be adversely affected by changes in U.S. laws, including trade tariffs on the importation of certain products from China as a result trade tensions between the U.S. and China. We may experience a disruption in the flow of imported product from China, or an increase in the cost of those goods attributable to increased tariffs, restrictions on trade, or other changes in laws and policies governing foreign trade. In addition, political or financial instability, currency exchange rates, labor unrest, pandemic or other events could slow distribution activities and adversely affect foreign trade beyond our control.\nWe generally do not have long-term contracts with our suppliers, so they may be discontinued or changed abruptly. Changes in the structure of purchasing relationships might include changing from a \u201cbuy/sell\u201d to an agency relationship (or the reverse), or changing the method in which products are taken to market, including the possibility of manufacturers creating or expanding direct sales forces or otherwise reducing their reliance on third-party distribution channels. We compete with certain manufacturers, including some of our own suppliers, that sell directly to customers as well as to wholesale distributors and online businesses that compete with price transparency. An extended interruption in the supply of products would have an adverse effect on our results of operations, and a reduction in our role as a value-added service provider would result in reduced margins on product sales.\nDisruption to our distribution capabilities, including service issues with our third-party shippers, could materially adversely affect our results.\nWeather, natural disaster, fire, terrorism, pandemic, strikes, civil unrest, geopolitical events or other reasons could impair our ability to distribute products and conduct our business. If we are unable to manage effectively such events if they occur, there could be an adverse effect on our business, results of operations and financial condition. Similarly, increases in service costs or service issues with our third-party shippers, including strikes or other service interruptions, could cause our operating expenses to rise and adversely affect our ability to deliver products on a timely basis. For example, in the event a potential United Parcel Service strike occurs, our business could experience shipping delays, which could result in canceled customer orders, unanticipated inventory accumulation or shortages, and reduced revenue and net income. We ship almost all of our orders through third-party delivery services, and often times bear the cost of shipment. We have recently experienced increases in the cost of shipping, and it is possible that such cost increases could be material in the future. Our ability to provide same-day shipping and next-day delivery is an integral component of our business strategy.\n22\nTable of Contents\nCustomer retention and business development depend heavily on our relationships with our sales representatives and service technicians, who interact directly with our customers, and the technological products and services we offer.\nThe inability to attract or retain qualified employees, particularly sales representatives and service technicians who relate directly with our customers, or our inability to build or maintain relationships with customers in the dental and animal health markets, may have an adverse effect on our business. These individuals develop relationships with our customers that could be damaged if these employees are not retained. We face intense competition for the hiring of these professionals, we have experienced and are likely to continue to experience challenges in recruiting those with technical expertise, and many professionals in the field that may otherwise be attractive candidates for us to hire may be bound by non-competition agreements or other restrictive covenants with our competitors. Any failure on our part to hire, train and retain a sufficient number of qualified professionals would damage our business.\nDue to generational and other trends in the dental and animal health industries, our customer base is increasingly interested in having the latest technologies to manage their business. In order to effectively offer solutions that keep pace with rapidly changing technologies and customer expectations, we must acquire, develop or offer new technology products and solutions. If we fail to accurately anticipate and meet our customers\u2019 needs through the acquisition, development or distribution of new products, technologies and service offerings, if we fail to adequately protect our intellectual property rights, if the products we distribute and services we provide are not widely accepted or if current or future offerings fail to meet applicable regulatory requirements, we could lose customers to our competitors. In addition, if technology investments do not achieve the intended results, we may write-off the investments, and we face the risk of claims from system users that the systems failed to produce the intended result or negatively affected the operation of our customers\u2019 businesses. Any such claims could be expensive and time-consuming to defend, cause us to lose customers and associated revenue, divert management\u2019s attention and resources, or require us to pay damages.\nChanges in supplier rebates or other purchasing incentives could negatively affect our business.\nThe terms on which we purchase or sell products from many suppliers may entitle us to receive a rebate or other purchasing incentive based on the attainment of certain growth goals. Suppliers may reduce or eliminate rebates or incentives offered under their programs, or increase the growth goals or other conditions we must meet to earn rebates or incentives to levels that we cannot achieve. Increased competition either from generic or equivalent branded products could result in reduced margins and failure to earn rebates or incentives that are conditioned upon achievement of growth goals. Also, decreases in the market prices of products that we sell could cause customers to demand lower sales prices from us. These price reductions could further reduce our margins and profitability on sales with respect to the lower-priced products. Additionally, factors outside of our control, such as customer preferences, consolidation of suppliers or supply issues, can have a material impact on our ability to achieve the growth goals established by our suppliers, which may reduce the amount of rebates or incentives we receive.\nSales of private label products entail additional risks, including the risk that such sales could adversely affect our relationships with suppliers.\nWe distribute certain private label products that are manufactured by our suppliers and are available exclusively from us. Beyond the risks that normally accompany the distribution of products, our sourcing, marketing and selling of private label products subject us to incremental risks, including but not limited to potential product liability risks, mandatory or voluntary product recalls, potential supply chain and distribution chain disruptions, and potential intellectual property infringement risks. In addition, an increase in the sales of our private label products may negatively affect our sales of products owned by our suppliers which, consequently, could adversely impact certain of our supplier relationships. Our ability to locate qualified, economically stable suppliers who satisfy our requirements, and to acquire sufficient products in a timely and effective manner, is critical to ensuring, among other things, that customer confidence is not diminished. As a distribution company, any failure to develop sourcing relationships with a broad and deep supplier base could adversely affect our financial performance and erode customer loyalty. In addition, we are exposed to the risk that our competitors or our customers may introduce their own private label, generic, or low-cost products that compete with our products at lower price points. Such products could capture significant market share or decrease market prices overall, eroding our sales and margins.\nThe products we sell are subject to market and technological obsolescence.\nThe products we distribute are subject to technological obsolescence outside of our control. We depend on suppliers to regularly develop and pour marketing dollars into the launch of new and enhanced products. For \n23\nTable of Contents\nexample, during fiscal 2023, one of our primary suppliers of dental equipment did not release any significant product introductions and, as a consequence, customers who may have replaced existing equipment with new equipment, did not do so. If our customers discontinue purchasing a given product, we might have to record expense related to the diminution in value of inventories we have in stock, and depending on the magnitude, that expense could adversely impact our operating results. \nOur failure to successfully innovate and develop new and enhanced software and e-services products could negatively affect our business.\nOur growth depends on our investment in the development of software and e-services products and the market traction achieved by such offerings. If we fail to accurately predict future customer needs and preferences or fail to produce viable software and e-services products, we may invest heavily in product commercialization that does not lead to significant sales, which would adversely affect our profitability. Even if we successfully innovate and develop new and enhanced software and e-services products, we may incur substantial costs in doing so, and our profitability may suffer. Furthermore, our software and e-services products also may contain undetected errors or bugs when introduced, or as new versions are released. Any such defects may result in increased expenses and could adversely affect our reputation and our relationships with the customers using such products. We do not have any patents on our software or e-services products, and rely upon copyright, trademark and trade secret laws, as well as contractual and common-law protections. We cannot provide assurance that such legal protections will be available, adequate or enforceable in a timely manner to protect our software or e-services products. Our software and e-services products may fail to remain competitive and may fail to anticipate market demands for functionality. In addition, the cost to replace defective products may not generate commensurate benefit.\nPatterson\u2019s continued success depends on positive perceptions of Patterson\u2019s reputation.\nCustomers do business with Patterson and employees choose Patterson as a place of employment due to the reputation that Patterson has built over many years. To be successful in the future, Patterson must continue to preserve, grow and leverage the value of Patterson\u2019s brand. Reputational value is based in large part on perceptions of subjective qualities. Even an isolated incident, or the aggregate effect of individually insignificant incidents, can erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation, and as a result, could tarnish Patterson\u2019s brand. In addition, maintaining consistent product quality, competitive pricing, and availability of our private label products is essential to developing and maintaining customer loyalty and brand awareness. These products often have higher margins than national brand products. If one or more of these brands experience a loss of consumer acceptance or confidence, our sales and gross margin could be adversely affected.\nIllicit human use of pharmaceutical products we distribute could adversely affect human health and safety, our reputation and our business.\nThe pharmaceutical products our animal health business sells are approved for use under specific circumstances in specific species. Such products could, if misused or abused by humans, adversely affect human health and safety, our reputation and our business. For instance, xylazine, which is an FDA-approved prescription veterinary tranquilizer found in certain analgesic products we distribute, has been found to be increasingly and illicitly used, knowingly or unknowingly, by humans \u2013 frequently in combination with other drugs. As a result, xylazine has become the subject of regulatory, public health, legal and political focus. Law enforcement agencies are pressing for xylazine to be listed as a federal controlled substance and several states, including Ohio, Pennsylvania, West Virginia and Florida, have already done so, which measures are likely to increase the cost of distribution of such products. Illicit use of such products may increase the risk of regulatory enforcement and civil litigation.\nRisks inherent in acquisitions and dispositions could offset the anticipated benefits, and we may face difficulty in efficiently and effectively integrating acquired businesses.\nAs a part of our business strategy, we acquire and dispose of assets and businesses in the ordinary course. Maintaining or improving our price-to-earnings ratio, of which the market price of our common stock is commonly thought to be a function, requires effective execution of our growth strategy, including achieving inorganic earnings per share growth. Acquisitions and dispositions can involve a number of risks and challenges, any of which could cause significant operating inefficiencies and adversely affect our growth and profitability, and may not result in the expected benefits.\nAcquisition risks and challenges include underperformance relative to our expectations and the price paid for the acquisition; unanticipated demands on our management and operational resources; difficulty in integrating \n24\nTable of Contents\npersonnel, operations and systems; retention of customers of the combined businesses; assumption of contingent liabilities; acquisition-related earnings charges; and acquisition-related cybersecurity risks. Our ability to continue to make acquisitions will depend upon our success in identifying suitable targets, which requires substantial judgment in assessing their values, strengths, weaknesses, liabilities and potential profitability, as well as the availability of suitable candidates at acceptable prices, whether restrictions are imposed by anti-trust or other regulations, and compliance with the terms and conditions of our credit agreement. Additionally, when we decide to sell assets or a business, we may encounter difficulty in finding buyers or executing alternative exit strategies on acceptable terms in a timely manner, which could delay the accomplishment of our strategic objectives. Alternatively, we may dispose of assets or a business at a price or on terms that are less than we had anticipated. Dispositions may also involve continued financial involvement in a divested business, such as through continuing equity ownership, transition service agreements, guarantees, indemnities or other current or contingent financial obligations. Under these arrangements, performance by the acquired or divested business, or other conditions outside our control, could affect our future financial results.\nAs we operate through two strategic business units, we consolidate the distribution, information technology, human resources, financial and other administrative functions of those business units jointly to meet their needs while addressing distinctions in the individual markets of those segments. We may not be able to do so effectively and efficiently. In addition, if we acquire technology, manufacturing or other businesses ancillary to our core distribution operations, any such newly acquired business may require the investment of additional capital and significant involvement of our senior management to integrate such business with our operations, which could place a strain on our management, other personnel, resources and systems.\nTurnover or loss of key personnel or highly skilled employees, including executive officers, could disrupt our operations and any inability to attract and retain personnel could harm our business.\nOur future success depends partly on the continued service of our highly qualified and well-trained key personnel, including executive officers. Any unplanned turnover or our failure to develop an adequate succession plan for key positions could reduce our institutional knowledge base and erode our competitive advantage. While our Board of Directors and management actively monitor our succession plans and processes for our executive leadership team, our business could be adversely impacted if we lose key personnel unexpectedly. Competition for senior management is intense and we may not be successful in attracting and retaining key personnel. In addition, reduced employment pools have contributed to increased labor shortages and employee turnover within our organization. These trends have led to, and could in the future lead to, increased costs, such as labor inflation, which we are currently experiencing, and increased overtime to meet demand.\nRisks generally associated with information systems, software products and cybersecurity attacks could adversely affect our results of operations.\nWe rely on information systems (\u201cIS\u201d) in our business to obtain, rapidly process, analyze and store customer, product, supplier, and employee data to conduct our business. Our IS are vulnerable to natural disasters, power losses, computer viruses, telecommunication failures, cybersecurity threats, and other problems. We increasingly rely upon server- and Internet-based technologies to run our business and to store our data and our customers\u2019 data, which depend on continuous Internet access and may carry additional cybersecurity risks relative to those posed by legacy technologies. From time to time, we have had to address non-material security incidents and we expect to experience security incidents in the future. Despite our efforts to ensure the integrity of our systems, as cyber threats evolve and become more difficult to detect and successfully defend against, one or more cyber threats might defeat the measures that we or our vendors take to anticipate, detect, avoid or mitigate such threats. Data breaches and any unauthorized access or disclosure of our information could compromise our intellectual property and expose sensitive business information. Cyber-attacks could also cause us to incur significant remediation costs, disrupt key business operations, and divert attention of management.\nFurther, our suppliers, our customers, including purchasers of our software products, and other market participants are similarly subject to information system and cybersecurity risk, and a material disruption in their business could result in reduced revenue for us. For example, in June 2021 a ransomware attack on Brazil-based JBS SA, the world\u2019s largest meat company by sales, took a significant portion of U.S. beef and pork processing offline, disrupting markets. In addition, compliance with evolving privacy and information security laws and standards may result in significant additional expense due to increased investment in technology and the development of new operational processes. We could be subject to liability if we fail to comply with these laws and standards, fail to protect information, or fail to respond appropriately to an incident or misuse of information, including use of information for unauthorized marketing purposes.\n25\nTable of Contents\nCybersecurity attacks in particular are becoming more sophisticated and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, disruption of our customers\u2019 operations, loss or damage to our data delivery systems, corruption of data, and increased costs to prevent, respond to or mitigate cybersecurity events. Cybersecurity attacks against our IT systems or third-party providers\u2019 IT systems, such as cloud-based systems, could result in exposure of confidential information, the modification of critical data, and/or the failure of critical operations. Furthermore, due to geopolitical tensions and remote and hybrid working conditions, the risk of cyber-attacks may be elevated. In addition, certain cyber incidents, such as advanced persistent threats, may remain undetected for an extended period. Our technologies, systems and networks, and those of our vendors, suppliers and other business partners, may become the target of cyberattacks or information security breaches. \nOur IS or the software products we sell may fail for extended period of time. Despite any precautions we take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins and similar events at our various computer facilities could result in interruptions in the flow of data to our servers. We may need to expend additional resources in the future to continue to protect against, or to address problems caused by, any business interruptions or data security breaches.\nOur business and operations are subject to risks related to climate change.\nThe long-term effects of global climate change present both physical risks (such as extreme weather conditions or rising sea levels) and transition risks (such as regulatory or technology changes), which are expected to be widespread and unpredictable. These changes could over time affect, for example, the availability and cost of products, commodities and energy (including utilities), which in turn may impact our ability to procure goods or services required for the operation of our business at the quantities and levels we require. In addition, certain of our operations and facilities are in locations that may be impacted by the physical risks of climate change, and we face the risk of losses incurred as a result of physical damage to distribution or fulfillment centers of our third-party suppliers, loss or spoilage of inventory and business interruption caused by such events. Insurance may not be available or cost effective for the coverage limits needed. In addition, the increased focus of federal, state, and local governments on sustainability may result in new legislation or regulations and customer requirements that could negatively affect us as we may incur additional costs or be required to make changes to our operations in order to comply with any new regulations or customer requirements.\nOur credit agreements contain restrictive covenants and additional limits and our other debt instruments contain cross-default provisions, which limit our business and financing activities.\nThe covenants under our credit agreements impose restrictions on our business and financing activities, subject to certain exceptions or the consent of our lenders, including, among other things, limits on our ability to incur additional debt, create liens, enter into certain merger, acquisition and divestiture transactions, pay dividends and engage in transactions with affiliates. The credit agreements contain certain customary affirmative covenants, including requirements that we maintain a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio, pursuant to which we may be affected by changes in interest rates, and customary events of default. The terms of agreements governing debt that we may incur in the future may also contain similar covenants.\nOur ability to comply with these covenants may be adversely affected by events beyond our control, including economic, financial and industry conditions. A covenant breach may result in an event of default, which could allow our lenders to terminate the commitments under the credit agreement, declare all amounts outstanding under the credit agreement, together with accrued interest, to be immediately due and payable, and exercise other rights and remedies, and, through cross-default provisions, would entitle our other lenders to accelerate their loans. If this occurs, we may not be able to refinance the accelerated indebtedness on acceptable terms, or at all, or otherwise repay the accelerated indebtedness.\nIn addition, borrowings under certain of our debt instruments are made at variable rates of interest and expose us to interest rate volatility. Due to interest rate increases during fiscal 2023, our debt service obligations on variable rate indebtedness increased even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, correspondingly decreased. Our debt service obligations on variable rate indebtedness will continue to increase if interest rates continue to increase.\n26\nTable of Contents\nOur governing documents, other documents to which we are a party, and Minnesota law may discourage takeovers and business combinations that our shareholders might prefer.\nAnti-takeover provisions of our articles of incorporation, bylaws, and Minnesota law could diminish the opportunity for shareholders to participate in acquisition proposals at a price above the then-current market price of our common stock. For example, while we have no present plans to issue any preferred stock, our Board of Directors, without further shareholder approval, may issue up to approximately 30 million shares of undesignated preferred stock and fix the powers, preferences, rights and limitations of such class or series, which could adversely affect the voting power of our common stock. Further, as a Minnesota corporation, we are subject to provisions of the Minnesota Business Corporation Act regarding \u201ccontrol share acquisitions\u201d and \u201cbusiness combinations.\u201d We may also, in the future, consider adopting additional anti-takeover measures. In addition, certain equity plans predating our Omnibus Incentive Plan provide for acceleration of awards thereunder upon a change in control or other events of acceleration, as defined in those plans. The foregoing, and any future anti-takeover measures adopted by us, may, in certain circumstances, delay, deter or prevent takeover attempts and other changes in control of our company.\nINDUSTRY RISKS\nThe dental and animal health supply markets are highly competitive, and we may not be able to compete successfully.\nOur competitors include national, regional and local full-service distributors, mail-order distributors and Internet-based businesses. Some of our competitors have greater resources than we do, or operate through different sales and distribution models that could allow them to compete more successfully. Our failure to compete effectively and/or pricing pressures resulting from such competition may adversely impact our business, and our expansion into new markets may result in greater-than-expected risks, liabilities and expenses. In addition, most of the products we distribute are available from multiple sources, and our customers tend to have relationships with several different distributors who can fulfill their orders. If any of our competitors are more successful with respect to any key competitive factor such as technological advances or low-cost business models with the ability to operate at high gross margins, our sales and profitability could be adversely affected. Increased competition from any supplier of dental or animal health products could adversely impact our financial results. Additional competitive pressure could arise from, among other things, limited demand growth or a significant number of additional competitive products or services being introduced into a particular market, the emergence of new competitors, the unavailability of products, price reductions by competitors, price transparency (which is further promoted by price aggregators), and the ability of competitors to capitalize on their economies of scale. Manufacturers also could increase their efforts to sell directly to end-users and thereby eliminate or reduce the role of distributors. These suppliers could sell their products at lower prices and maintain a higher gross margin on product sales than we can. In addition, our ability to deliver market growth is challenged by an animal health product mix that is weighted toward lower growth, lower margin parts of the value chain. \nThe dental and animal health supply markets are consolidating, including vertical integration in the production animal market, and we may not be able to compete successfully.\nConsolidation has increased among dental and animal health manufacturers and distributors, which could cause the industry to become more competitive as greater economies of scale are achieved by competitors, or as competitors with lower cost business models are able to offer lower prices but retain high gross margin. In recent years there has also been a trend towards consolidation in the industries that buy the products and services we distribute, including dental practices, veterinary practices and animal producers, and the formation of group purchasing organizations, provider networks and buying groups designed to leverage volume discounts. In addition, the vertical integration we have seen and expect to continue within the production animal business limits the number of purchasing decision-makers we can impact, which could also affect our margins. We also face pricing pressure from branded pharmaceutical manufacturers which could adversely affect our sales and profitability. We may be unable to anticipate and effectively respond to competitive change, and our failure to compete effectively may limit and/or reduce our revenue, profitability and cash flow.\nOur animal health segment is exposed to the risks of the production animal business, including changes in consumer demand, the cyclical livestock market, weather conditions and the availability of natural resources, and other factors outside our control, as well as risks of the companion animal business, including the possibility of disease adversely affecting the pet population.\n27\nTable of Contents\nDemand for our production animal health products can be negatively influenced by factors including: weather conditions (including those that may be related to climate change), varying weather patterns and weather-related pressures from pests; changes in consumer preferences away from food animal products, including increased promotions and publicity for food products containing plant-based protein; supply chain disruptions including due to cyberattack, or actions by animal rights activists; and outbreaks of diseases affecting animals, any of which could reduce herd sizes or affect consumer preferences, and regulations related to food-producing animals. Reductions in herd size would ultimately decrease the demand for the products we distribute, including micro feed ingredients, animal health products, and dairy sanitation solutions, as well as the development and implementation of systems for feed, health, information and production animal management. In recent years, outbreaks of various diseases, including African Swine Fever, avian influenza, foot-and-mouth disease, bovine spongiform encephalopathy (otherwise known as BSE or mad cow disease) and porcine epidemic diarrhea virus (otherwise known as PEDv), have impacted the animal health business. The discovery of additional cases of any of these, or new diseases may result in additional restrictions on animal proteins, reduced herd sizes, or reduced demand for animal protein.\nIn addition, there has been consumer concern and consumer activism with respect to additives (including, without limitation, antibiotics and growth promotants) used in the production of animal products, including growing consumer sentiment for proteins and dairy products produced without the use of antibiotics or other products intended to increase animal production. These concerns have resulted in increased regulation and changing market demand. If there is an increased public perception that consumption of food derived from animals that utilize additives we distribute poses a risk to human health, there may be a further decline in the production of those food products and, in turn, our sales of those products. Furthermore, regulatory restrictions and bans could result in the removal from market of products in these categories, which would adversely affect our sales.\nFarm animal producers depend on the availability of natural resources, including large supplies of fresh water. Their animals\u2019 health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods, droughts or other weather conditions. In the event of adverse weather conditions or a shortage of fresh water, veterinarians or farm animal producers may purchase less of our products. Further, heat waves may cause stress in animals and lead to increased vulnerability to disease, reduced fertility rates and reduced milk production. Droughts may threaten pasture and feed supplies by reducing the quality and amount of forage available to grazing livestock, while climate change may increase the prevalence of parasites and diseases that affect farm animals.\nVeterinary hospitals and practitioners depend on visits from the animals under their care. Veterinarians\u2019 patient volume and ability to operate could be adversely affected if there is a reduction in the companion animal population, such as due to disease outbreak. Furthermore, the industry is facing a veterinarian and veterinary technician labor shortage and new regulations permitting non-economic and punitive damages for pet owners in case of wrongful death or injury.\nOur dental segment is exposed to the risks of the health care industry, including changes in demand due to political, economic and  regulatory influences, and other factors outside our control.\nAspects of the dental market are impacted by price competition that is driven in part by the consolidation of dental practices, innovation and product advancements, and the price sensitivity of customers. Many dental participants are consolidating to create larger and more integrated provider systems with greater market power. We expect additional consolidation in the dental industry in the future. As consolidation accelerates, the economies of scale of our customers may grow. If a customer experiences sizable growth following consolidation, it may determine that it no longer needs to rely on us and may reduce its demand for our products and services. Some of these large and growing customers may choose to contract directly with suppliers for certain supply categories. In addition, as customers consolidate, these providers may try to use their market power to negotiate price reductions for our products and services. Finally, consolidation may also result in the acquisition or future development by our customers of products and services that compete with our products and services.\nIncreased OTC and e-commerce sales of products we sell could adversely affect our business.\nDental and companion animal health products are becoming increasingly available to consumers at competitive prices from sources other than traditional health care supply and distribution sources, including human health product pharmacies, Internet pharmacies, big-box retailers and other online e-commerce solutions, and consumers are increasingly seeking such alternative sources of supply. Dental products are readily available from major U.S. online e-commerce retailers and businesses such as Chewy.com and Amazon are licensed or becoming licensed as veterinary mail order pharmacies to offer pharmacy products directly to consumers in all 50 U.S. states. If federal \n28\nTable of Contents\nregulations were to permit veterinarian-client-patient relationships to be established virtually, which is a focus of lobbyists that appears to be gaining traction, we may face additional competitive pressure. Even where prescriptions must be written by a veterinarian, companion animal owners may shift to these services for home delivery. In addition, companion animal owners may substitute human health products for animal-health products if they deem human health products to be acceptable, lower-cost alternatives. Furthermore, decreased emphasis on veterinary visits, and increased consumer choice through e-commerce retailers could reduce demand for veterinarian-based services. The continued advancement of online e-commerce by third parties will require us to cost-effectively adapt to changing technologies, to enhance existing services and to differentiate our business (including with additional value-added services) to address changing demands of consumers and our customers on a timely basis. We may be unable to anticipate and effectively respond to shifts in consumer traffic patterns and direct-to-consumer buying trends.\nThe formation or expansion of group purchasing organizations (\u201cGPOs\u201d), provider networks and buying groups may place us at a competitive disadvantage.\nThe formation or expansion of GPOs, provider networks and buying groups may shift purchasing decisions to entities or persons with whom we do not have a historical relationship and may threaten our ability to compete effectively, which could in turn negatively impact our financial results. As a full-service distributor with business service capabilities, we cannot guarantee that we will be able to successfully compete with price-oriented distribution models that more readily enable the pricing typically demanded by those with significant purchasing power.\nLITIGATION AND REGULATORY RISKS\nWe are subject to a variety of litigation and governmental inquiries and investigations.\nWe are subject to a variety of litigation incidental to our business, including product liability claims, intellectual property claims, employment claims, commercial disputes, and other matters arising out of the ordinary course of our business, including securities litigation. From time to time we are named as a defendant in cases as a result of our distribution of products. Additionally, purchasers of private-label products may seek recourse directly from us, rather than the ultimate product manufacturer, for product-related claims. Another potential risk we face in the distribution of products is liability resulting from counterfeit or tainted products infiltrating the supply chain. In addition, some of the products that we transport and sell are considered hazardous materials. The improper handling of such materials or accidents involving the transportation of such materials could subject us to liability or legal action that could harm our reputation. From time to time, we also receive and respond to governmental inquiries and investigations, including subpoenas for the production of documents. Defending against such claims, and responding to such governmental inquiries and investigations, may divert our resources and management\u2019s attention over lengthy periods of time, may be expensive, and may require that we pay substantial monetary awards or settlements, pay fines or penalties, or become subject to equitable remedies (including but not limited to the revocation of or non-renewal of licenses). We may be subject to claims in excess of available insurance or not covered by insurance or indemnification agreements, or claims that result in significant adverse publicity. Furthermore, the outcome of litigation is inherently uncertain.\nIf we fail to comply with laws and regulations relating to health care fraud or other laws and regulations, we could suffer penalties or be required to make significant changes to our operations.\nWe are subject to federal and state (and similar foreign) health care fraud and abuse, referral and reimbursement laws and regulations, including those referred to as \u201cfalse claims laws\u201d and \u201canti-kickback\u201d laws. Health care fraud measures may implicate, for example, our relationships with pharmaceutical manufacturers, our pricing and incentive programs for physician and dental practices, and our practice management products that offer billing-related functionality. Failure to comply with fraud and abuse laws and regulations could result in significant civil and criminal penalties and costs, including treble damages and substantial civil penalties under the federal False Claims Act as well as potential loss of licenses and the ability to participate in federal and state health care programs, criminal penalties, or imposition of a corporate compliance monitor. Also, these measures may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our operations or incur substantial defense and settlement expenses. Even unsuccessful challenges by regulatory authorities or private regulators could result in reputational harm and the incurring of substantial costs. Most states have adopted similar state false claims laws, and these state laws have their own penalties which may be in addition to federal False Claims Act penalties, as well as other fraud and abuse laws. In addition, many of these laws are vague or indefinite and have not been interpreted by the courts, and have been subject to frequent \n29\nTable of Contents\nmodification and varied interpretation by prosecutorial and regulatory authorities, increasing the risk of noncompliance.\nChange and uncertainty in the health care industry could materially adversely affect our business.\nLaws and regulations affecting the health care industry in the U.S., including the ACA, have changed and may continue to change the landscape in which our industry operates. Foreign government authorities may also adopt reforms of their health systems. We cannot predict what further reform proposals, if any, will be adopted, when they may be adopted, or what impact they may have on us. The Biden Administration has indicated that it will be more aggressive in its pursuing alleged violations of law, and has revoked certain guidance that would have limited governmental use of informal agency guidance to pursue such violations. In recent years, there has been increasing scrutiny on drug pricing and concurrent efforts to control or reduce drug costs by Congress, the President, and various states, including several bills that have been introduced on a federal level. Such legislation, if enacted, could have the potential to impose additional costs on our business. One provision of the ACA, the Sunshine Act, requires us to collect and report detailed information regarding certain financial relationships we have with covered recipients, including physicians, dentists, teaching hospitals and certain other non-physician practitioners. We may also be required to report under certain state transparency laws that address circumstances not covered by the Sunshine Act, and some of these state laws, as well as the federal law, can be unclear. We are also subject to foreign regulations requiring transparency of certain interactions between suppliers and their customers. Our compliance with these rules imposes additional costs on us. In the U.S., government actions to seek to increase health-related price transparency may also affect our business.\nFailure to comply with existing and future U.S. and foreign laws and regulatory requirements, including those governing the distribution of pharmaceuticals and controlled substances, could subject us to claims or otherwise harm our business.\nOur business is subject to requirements under various local, state, federal and international laws and regulations applicable to the sale and distribution of, and third-party payment for, pharmaceuticals and medical devices, and human cells, tissue and cellular and tissue-based products (\u201cHCT/P products\u201d) and animal feed and supplements. Among other things, such laws, and the regulations promulgated thereunder:\n\u2022\u00a0\u00a0\u00a0\u00a0regulate the introduction, manufacture, advertising, marketing and promotion, sampling, pricing and reimbursement, labeling, packaging, storage, handling, returning or recalling, reporting, and distribution of, and record keeping for drugs, HCT/P products and medical devices, including requirements with respect to unique medical device identifiers;\n\u2022\u00a0\u00a0\u00a0\u00a0subject us to inspection by the FDA and the DEA and similar state authorities;\n\u2022\u00a0\u00a0\u00a0\u00a0regulate the storage, transportation and disposal of products considered hazardous materials;\n\u2022\u00a0\u00a0\u00a0\u00a0regulate the distribution and storage of pharmaceuticals and controlled substances;\n\u2022\u00a0\u00a0\u00a0\u00a0require us to advertise and promote our drugs and devices in accordance with FDA requirements;\n\u2022\u00a0\u00a0\u00a0\u00a0require registration with the FDA and the DEA and various state agencies;\n\u2022\u00a0\u00a0\u00a0\u00a0require record keeping and documentation of transactions involving drug products;\n\u2022\u00a0\u00a0\u00a0\u00a0require us to design and operate a system to identify and report suspicious orders of controlled substances to the DEA;\n\u2022\u00a0\u00a0\u00a0\u00a0require us to manage returns of products that have been recalled and subject us to inspection of our recall procedures and activities;\n\u2022\u00a0\u00a0\u00a0\u00a0impose on us reporting requirements if a pharmaceutical, HCT/P product or medical device causes serious illness, injury or death;\n\u2022\u00a0\u00a0\u00a0\u00a0require manufacturers, wholesalers, repackagers and dispensers of prescription drugs to identify and trace certain prescription drugs as they are distributed;\n\u2022\u00a0\u00a0\u00a0\u00a0require the licensing of prescription drug wholesalers and third-party logistics providers; and\n\u2022\u00a0\u00a0\u00a0\u00a0mandate compliance with standards for the recordkeeping, storage and handling of prescription drugs, and associated reporting requirements.\nThere also have been increasing efforts by Congress and state and federal agencies, including state boards of pharmacy, departments of health, and the FDA, to regulate the pharmaceutical distribution system. Any failure to comply with any of these laws and regulations, or new interpretations of existing laws and regulations, or the enactment of any new or additional laws and regulations, could materially adversely affect our business. When we \n30\nTable of Contents\ndiscover situations of non-compliance we seek to remedy them and bring the affected area back into compliance. If it is determined that we have not complied with these laws, we are potentially subject to penalties including warning letters, substantial civil and criminal fines and penalties, mandatory recall of product, seizure of product and injunction, consent decrees, and suspension or limitation of product sale and distribution. If we enter into settlement agreements to resolve allegations of non-compliance, we could be required to make settlement payments or be subject to civil and criminal penalties, including fines and the loss of licenses. Non-compliance with government requirements could also adversely affect our ability to participate in federal and state government health care programs, such as Medicare and Medicaid, and damage our reputation.\nWe remain subject to compliance certification obligations through our reporting for fiscal 2023 as required by the non-prosecution agreement that was entered into in connection with the investigation of our subsidiary Animal Health International by the U.S. Attorney\u2019s Office for the Western District of Virginia. This investigation resulted in Animal Health International pleading guilty to a strict liability misdemeanor offense in connection with its failure to comply with federal law relating to the sales of prescription animal health products, and a total criminal fine and forfeiture of $52.8 million. In the course of our business, we also may be subject to other fines or penalties, equitable remedies (including but not limited to the suspension, revocation or non-renewal of licenses) and litigation. The occurrence of any of these events may divert management's attention, cause us to suffer reputational harm and adversely affect our business, financial condition and results of operations.\nIf we fail to comply with evolving laws and regulations relating to confidentiality of sensitive personal information or standards in electronic health records or transmissions, we could be required to make significant product changes, or incur substantial liabilities.\nOur practice management products and services include electronic information technology systems that store and process personal health, clinical, financial and other sensitive information of individuals. Both we and our customers are subject to numerous and evolving laws, regulations and industry standards, such as HIPAA and the Payment Card Industry Data Security Standards, which require the protection of the privacy and security of those records. The legal environment surrounding data privacy is demanding with the frequent imposition of new and changing regulatory requirements. Furthermore, our products may be used as part of our customers\u2019 comprehensive data security programs, including in connection with their efforts to comply with applicable privacy and security laws. We are also subject to non-healthcare-specific requirements of the countries and states in which we operate which govern the handling, storage, use and protection of personal information, such as the California Consumer Privacy Act, or CCPA, which is a state statute intended to enhance privacy rights and consumer protection for residents of California, the California Privacy Rights Act, or CPRA, that became effective on January 1, 2023, and the pan-European General Data Protection Regulation, or GDPR. Additionally, Virginia, Colorado, Connecticut and Utah recently passed comprehensive privacy legislation, and several privacy bills have been proposed both at the federal and state level that may result in additional legal requirements that impact our business. \nIn addition, the FDA has become increasingly active in addressing the regulation of computer software intended for use in health care settings, and has developed and continues to develop policies on regulating clinical decision support tools and other types of software as medical devices. Certain of our software and related products support practice management, and it is possible that the FDA or foreign government authorities could determine that one or more of our products is a medical device, which could subject us or one or more of our businesses to substantial additional requirements, costs and potential enforcement actions or liabilities for noncompliance with respect to these products.\nBoth in the U.S. and abroad, these laws and regulations continue to evolve and remain subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain. If we fail to comply with such laws and regulations, we could be required to make significant changes to our products or services, or incur substantial fines, penalties, or other liabilities. The costs of compliance with, and the other burdens imposed by, new or existing laws or regulatory actions may prevent us from selling the products or services we distribute, or increase the costs of doing so, and may affect our decision to distribute such products or services. Also, evolving laws and regulations in this area could restrict the ability of our customers to obtain or use patient information, or could require us to incur significant additional costs to conform to these legal requirements.\nIn addition, the products and services we distribute may be vulnerable to breakdown, wrongful intrusions, data breaches and malicious attack. Perceived or actual security vulnerabilities in these products or services, or the perceived or actual failure by us or our customers who use these products or services to comply with applicable legal or contractual data privacy or security requirements, may not only cause reputational harm and loss of \n31\nTable of Contents\nbusiness, but may also lead to claims against us by our customers and/or governmental agencies and involve substantial damages, fines, penalties and other liabilities and expenses and costs for remediation.\nTax legislation could materially adversely affect our financial results and tax liabilities.\nWe are subject to the tax laws and regulations of the United States federal, state and local governments, as well as\n \nforeign jurisdictions which are extremely complex and subject to varying interpretations. From time to time, various legislative initiatives\n \nmay be proposed that could materially\n \nadversely affect our tax positions. In August 2022, the Inflation Reduction Act of 2022 was passed by the U.S. Congress and signed into law by President Biden. The Inflation Reduction Act of 2022 established a new 15% corporate alternative minimum tax for corporations whose average adjusted net income for any consecutive three-year period beginning after December 31, 2022, exceeds $1.0 billion and a new a 1% excise tax on \u201cnet repurchases\u201d of corporate stock. This provision is effective for tax years beginning after December 31, 2022. We are currently evaluating the impact of this new legislation and there can be no assurance that our effective tax rate will not\n \nbe adversely affected by this legislation or any other legislative initiatives. In addition, although we believe that our\n \nhistorical tax positions are sound and\n \nconsistent with applicable laws, regulations and existing precedent, there can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge.\nOur international operations are subject to inherent risks that could adversely affect our business.\nThere are a number of risks inherent in foreign operations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, complex regulatory requirements, staffing and management complexities, import and export costs, other economic factors and political considerations, all of which are subject to unanticipated changes. Our foreign operations also expose us to foreign currency fluctuations. Because our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies will have an impact on our income. Currency exchange rate fluctuations may adversely affect our results of operations and financial condition. Furthermore, we generally do not hedge translation exposure with respect to foreign operations.\nGENERAL RISKS\nUncertain macro-economic conditions, including inflationary pressure, could materially adversely affect demand for dental and animal health products and services.\nWe are subject to uncertain macro-economic conditions that affect the economy and the economic outlook of the United States and other parts of the world in which we operate. In particular, recessionary or inflationary conditions and depressed levels of consumer and commercial spending may cause dental and animal health customers to reduce, modify, delay or cancel plans to purchase the products we distribute and services we provide, may cause dental and animal health professionals to decrease or stop investing in their practices, and may cause suppliers to reduce their output or change their terms of sale. Increased fuel and energy costs (for example, the price of gasoline) and recent and prospective banking failures may adversely affect consumer confidence and, thereby, reduce dental and veterinary office visits. In addition, the average interest rate in our contract portfolio may not increase at the same rate as interest rate markets, resulting in a reduction of gain on contract sales as compared to the gain that would be realized if the average interest rate in our portfolio were to increase at a rate more similar to the interest rate markets. Tension between the U.S. and China, as well as the conflict between Russia and Ukraine, also are creating increased global and economic uncertainty, which could adversely affect spending on the dental and animal health products and services we distribute. Global political issues also could adversely impact the ability of U.S. producers to export finished protein products to other countries in the world. Furthermore, although inflation did not materially impact our results of operations in fiscal 2023, cost inflation during fiscal 2023, including wage inflation, generally increased our operating costs, including our cost of goods, transportation costs, labor costs and other administrative costs. We may face significantly higher and sustained rates of inflation, with subsequent increases in operational costs that we may be unable to pass through to our dental and animal health customers.",
+  "item7": ">Item\u00a07. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nOverview\nOur financial information for fiscal 2023 is summarized in this Management\u2019s Discussion and Analysis and the Consolidated Financial Statements and related Notes. The following background is provided to readers to assist in the review of our financial information.\nWe present three reportable segments: Dental, Animal Health and Corporate. Dental and Animal Health are strategic business units that offer similar products and services to different customer bases. Dental provides a virtually complete range of consumable dental products, equipment, turnkey digital solutions and value-added services to dentists and dental laboratories throughout North America. Animal Health is a leading, full-line distributor in North America and the U.K. of animal health products, services and technologies to both the production-animal and companion-pet markets. Our Corporate segment is comprised of general and administrative expenses, including home office support costs in areas such as information technology, finance, legal, human resources and facilities. In addition, customer financing and other miscellaneous sales are reported within Corporate results.\nOperating margins of the animal health business are lower than the dental business. While operating expenses run at a lower rate in the animal health business when compared to the dental business, gross margins in the animal health business are lower due generally to the low margins experienced on the sale of pharmaceutical products.\nWe operate with a 52-53 week accounting convention with our fiscal year ending on the last Saturday in April. Fiscal 2023 ended on April\u00a029, 2023 and consisted of 52 weeks. Fiscal 2022 ended on April\u00a030, 2022 and consisted of 53 weeks. Fiscal 2021 ended on April\u00a024, 2021 and consisted of 52 weeks. Fiscal 2024 will end on April 27, 2024 and will consist of 52 weeks.\nWe believe there are several important aspects of our business that are useful in analyzing it, including: (1)\u00a0growth in the various markets in which we operate; (2)\u00a0internal growth; (3)\u00a0growth through acquisition; and (4)\u00a0continued focus on controlling costs and enhancing efficiency. Management defines internal growth as net sales adjusted to exclude the impact of foreign currency, changes in product selling relationships and contributions from recent acquisitions. Foreign currency impact represents the difference in results that is attributable to fluctuations in currency exchange rates the company uses to convert results for all foreign entities where the functional currency is not the U.S. dollar. The company calculates the impact as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period\u2019s currency exchange rates. The company believes the disclosure of net sales changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates.\nFactors Affecting Our Results\nMacro-economic Conditions. \nWe are impacted by various conditions that create uncertainty in our macro-economic environment. We experienced increases in our operating costs related to cost inflation and supply chain disruption and implemented price increases in response; however, cost inflation did not materially impact our net results of operations in fiscal 2023. Rising interest rates increased the interest expense on variable rate indebtedness. We continue to monitor recovery from the disruption of the COVID-19 pandemic and the deflationary impacts on PPE as the supply chain and demand for PPE stabilized. \nReceivables Securitization Program.\n\u00a0We are a party to certain receivables purchase agreements with MUFG Bank, Ltd. (\"MUFG\"), under which MUFG acts as an agent to facilitate the sale of certain Patterson receivables (the \u201cReceivables\u201d) to certain unaffiliated financial institutions (the \u201cPurchasers\u201d). The proceeds from the sale of these Receivables comprise a combination of cash and a deferred purchase price (\u201cDPP\u201d) receivable. The DPP receivable is ultimately realized by Patterson following the collection of the underlying Receivables sold to the Purchasers. The collection of the DPP receivable is recognized as an increase to net cash provided by investing activities within the consolidated statements of cash flows, with a corresponding reduction to net cash used in operating activities within the consolidated statements of cash flows.\nFiscal 2022 Legal Reserve. \nOn August 27, 2021, we signed a memorandum of understanding to settle the federal securities class action complaint against Patterson Companies, Inc. and its former CEO and former CFO filed by Plymouth County Retirement System on March 28, 2018. Under the terms of the settlement, Patterson agreed to pay $63.0 million to resolve the case. Although we agreed to settle this matter, we expressly deny the allegations of the complaint and all liability. Our insurers consented to the settlement and contributed an aggregate of $35.0 \n36\nTable of Contents\nmillion to fund the settlement and to reimburse us for certain costs and expenses of the litigation. As a result of the foregoing, we recorded a pre-tax reserve of $63.0 million in other accrued liabilities in the consolidated balance sheets in our Corporate segment during the first quarter of fiscal 2022 related to the probable settlement of this litigation (the \"Fiscal 2022 Legal Reserve\"). During the first quarter of fiscal 2022, we also recorded a receivable of $27.0 million in prepaid expenses and other current assets in the consolidated balance sheets in our Corporate segment related to probable insurance recoveries, which amount was paid into the litigation settlement escrow as required by the memorandum of understanding. The net expense of $36.0 million was recorded in operating expenses in our consolidated statements of operations and other comprehensive income. We recorded a gain of $8.0 million during the second quarter of fiscal 2022 in our Corporate segment to account for our receipt of carrier reimbursement of previously expended fees and costs. On June 10, 2022, the U.S. District Court for the District of Minnesota entered an order granting final approval to the settlement.\nGains on Vetsource Investment. \nIn fiscal 2022, we sold a portion of our investment in Vetsource, with a carrying value of $25.8 million, for $56.8 million. We recorded a pre-tax gain of $31.0 million in gains on investments in our consolidated statements of operations and other comprehensive income as a result of this sale. The cash received of $56.8 million is reported within investing activities in our consolidated statements of cash flows. We also recorded a pre-tax non-cash gain of $31.0 million to reflect the increase in the carrying value of the remaining portion of our investment in Vetsource, which was based on the selling price of the portion of the investment we sold for $56.8 million. This gain was recorded in gains on investments in our consolidated statements of operations and other comprehensive income. Concurrent with the sale, we obtained rights that will allow us, under certain circumstances, to require another shareholder of Vetsource to purchase our remaining shares. We recorded a pre-tax non-cash gain of $25.8 million in gains on investments in our consolidated statements of operations and other comprehensive income as a result of this transaction. The aggregate gains on investments of $87.8 million are reported within operating activities in our consolidated statements of cash flows. Concurrent with obtaining this put option, we also granted rights to the same Vetsource shareholder that would allow such shareholder, under certain circumstances, to require us to sell our remaining shares at fair value.\nGain on Vets Plus Investment. \nIn fiscal 2022, we sold a portion of our investment in Vets Plus with a carrying value of $4.0 million for $17.1 million. We recorded a pre-tax gain of $13.1 million in gains on investments in our consolidated statements of operations and other comprehensive income as a result of this sale. This $13.1 million pre-tax gain is reported within operating activities in our consolidated statements of cash flows. The cash received of $17.1 million is reported within investing activities in our consolidated statements of cash flows.\nCOVID-19. \nThe COVID-19 pandemic had a significant impact on our businesses in fiscal 2021 as we implemented cost reduction measures in response to closures and other steps taken by governmental authorities. Within our Dental segment, supply chain disruptions and an increased demand for PPE initially resulted in back orders of PPE, causing substantial price increases.\n \nWe had to prepay suppliers in order to obtain PPE for resale to our customers, and as manufacturing caught up to increased demand for PPE, prices dropped, impacting our margins and requiring us to write down certain inventory.\n \nFurthermore, the COVID-19 pandemic has and may continue to affect demand for the goods and services we distribute as a result of the impact it has had and may continue to have on our customers.\nInventory Donation Charges. \nIn fiscal 2022, we committed to donate certain personal protective equipment to charitable organizations to assist with COVID-19 recovery efforts. We recorded a charge of $49.2 million within cost of sales in our consolidated statements of operations and other comprehensive income as a result (\"Inventory Donation Charges\") in the first quarter of fiscal 2022. These charges were driven by our intention to not sell these products, but rather to donate them to charitable organizations. Of the $49.2 million expense recorded, $47.2 million and $2.0 million was recorded within our Dental and Animal Health segments, respectively.\n37\nTable of Contents\nResults of Operations\nThe following table summarizes our results as a percent of net sales:\n\u00a0\nFiscal Year Ended\n\u00a0\nApril 29, 2023\nApril 30, 2022\nApril 24, 2021\nNet sales\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\nCost of sales\n78.8\u00a0\n80.2\u00a0\n79.6\u00a0\nGross profit\n21.2\u00a0\n19.8\u00a0\n20.4\u00a0\nOperating expenses\n16.9\u00a0\n17.4\u00a0\n16.8\u00a0\nOperating income\n4.3\u00a0\n2.4\u00a0\n3.6\u00a0\nOther income (expense), net\n(0.1)\n1.7\u00a0\n(0.2)\nIncome before taxes\n4.2\u00a0\n4.1\u00a0\n3.4\u00a0\nIncome tax expense\n1.0\u00a0\n1.0\u00a0\n0.8\u00a0\nNet income\n3.2\u00a0\n3.1\u00a0\n2.6\u00a0\nNet loss attributable to noncontrolling interests\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nNet income attributable to Patterson Companies, Inc.\n3.2\u00a0\n%\n3.1\u00a0\n%\n2.6\u00a0\n%\nFiscal 2023 Compared to Fiscal 2022 \nNet sales\n.\n Consolidated net sales in fiscal 2023 were $6,471.5 million, a decrease of 0.4% from $6,499.4 million in fiscal 2022. Sales were negatively impacted by an estimated 1.8% due to the extra week of results in the prior year period. Foreign exchange rate changes had an unfavorable impact of\u00a01.7%\u00a0on fiscal 2023 sales. Organic growth in Dental, Animal Health and Corporate segments partially offset these unfavorable impacts. The impact of acquisitions for fiscal 2023 contributed a net increase in sales of approximately 0.2%.\nDental segment sales decreased 1.0% to $2,492.1 million in fiscal 2023 from $2,516.1 million in fiscal 2022. Sales were negatively impacted by an estimated 1.7% due to the extra week of results in the prior year period. Foreign exchange rate changes had an unfavorable impact of\u00a00.6%\u00a0on fiscal 2023 sales. Sales of consumables decreased 4.6%, sales of equipment increased 3.0%, and sales of value-added services and other increased 6.2% in fiscal 2023. Dental consumable sales decreased primarily due to the extra week in prior year period, as well as due to lower sales of PPE. \nAnimal Health segment sales decreased 0.5% to $3,964.9 million in fiscal 2023 from $3,982.9 million in fiscal 2022. Sales were negatively impacted by an estimated 1.8% due to the extra week of results in the prior year period. Foreign exchange rate changes had an unfavorable impact of\u00a02.4%\u00a0on fiscal 2023 sales. Acquisitions contributed 0.3% to Animal Health sales in 2023. Excluding the impact of the extra week of results in the prior year period, both Production Animal and Companion Animal sales grew in fiscal 2023.\nGross profit\n. \nConsolidated gross profit margin increased 140 basis points from the prior year to 21.2%, driven primarily by the impact of the $49.2 million Inventory Donation Charges in the prior year period and higher net sales in our Corporate segment in fiscal 2023. Excluding the impact of the Inventory Donation Charges, the gross profit margin rate increased approximately 60 basis points as compared to the prior year. The gross profit margin rate increased in both our Animal Health and Dental segments in fiscal year 2023 as compared to fiscal year 2022.\nOperating expenses\n. Consolidated operating expenses for fiscal 2023 were $1,097.0 million, a 3.1% decrease from the prior year of $1,132.1 million. We incurred lower operating expenses during fiscal 2023 primarily due to the impact of the Fiscal 2022 Legal Reserve as well as realizing a $3.6 million gain on sale of an office building in fiscal 2023. The consolidated operating expense ratio of 16.9% decreased 50 basis points from the prior year period, which was also driven by these same factors.\nOperating income\n.\n Fiscal 2023 operating income was $276.0 million, or 4.3% of net sales, as compared to $157.0 million, or 2.4% of net sales, in fiscal 2022. The increase in operating income was primarily due to the impact of the Inventory Donation Charges and the Fiscal 2022 Legal Reserve recorded in the prior year period and a higher consolidated gross margin rate in fiscal 2023.\n38\nTable of Contents\nDental segment operating income was\u00a0$237.3 million\u00a0for fiscal 2023, an increase of\u00a0$57.1 million\u00a0from fiscal 2022.  The increase was primarily driven by the expense associated with the Inventory Donation Charges in the prior year period, an increase in gross margin rate and a $3.6 million gain on sale of an office building in fiscal 2023.\nAnimal Health segment operating income was\u00a0$127.0 million\u00a0for fiscal 2023, an increase of $12.6 million from fiscal 2022. The increase was primarily driven by a higher gross profit margin rate, partially offset by higher operating expenses, in fiscal 2023.\nCorporate segment operating loss was\u00a0$88.3 million\u00a0for fiscal 2023, as compared to a loss of\u00a0$137.6 million\u00a0for fiscal 2022. The change was primarily driven by the impact of the Fiscal 2022 Legal Reserve in the prior year period and higher customer financing net sales recorded during fiscal 2023. \nOther income (expense).\n \nNet other expense was $5.8 million in fiscal 2023, compared to net other income of  $109.3 million in fiscal 2022. We recorded higher net other income in fiscal 2022 due to the impact of the gain on Vetsource investment of $87.8 million and the gain on Vets Plus investment in prior year period, and higher interest expense driven by interest rates in fiscal 2023.\nIncome tax expense\n. \nThe effective income tax rate for fiscal 2023 was 23.5%, compared to 24.2% for fiscal 2022. The decrease in the rate was primarily due to provision to return adjustments and a prior period income tax reserve adjustment.\nNet income attributable to Patterson Companies, Inc. and earnings per share\n. \nNet income attributable to Patterson Companies Inc. was $207.6 million in fiscal 2023, compared to $203.2 million in fiscal 2022. Earnings per diluted share were $2.12 in fiscal 2023, compared to $2.06 in fiscal 2022. Weighted average diluted shares in fiscal 2023 were 97.8 million, compared to 98.5 million in fiscal 2022. The fiscal 2023 and fiscal 2022 cash dividend declared was $1.04 per common share.\nFiscal 2022 Compared to Fiscal 2021\nSee\u00a0Item 7 in our 2022 Annual Report on Form 10-K filed June 29, 2022.\nLiquidity and Capital Resources\nNet cash used in operating activities was $754.9 million in fiscal 2023, compared to $981.0 million in fiscal 2022 and $730.5 million in fiscal 2021. Net cash used in operating activities in fiscal 2023 was primarily due to the impact of our Receivables Securitization Program. Net cash used in operating activities in fiscal 2022 was primarily due to the impact of our Receivables Securitization Program and a net increase in inventory, inclusive of the impact of the $49.2 million Inventory Donation Charges, partially offset by an increase in accounts payable. Net cash used in operating activities in fiscal 2021 was primarily due to the impact of our Receivables Securitization Program, as well as an increase in accounts payable.\nNet cash provided by investing activities was $901.6 million in fiscal 2023, compared to $1,239.0 million in fiscal 2022 and $810.7 million in fiscal 2021. Collections of deferred purchase price receivables were $998.9 million, $1,213.5 million and $834.0 million in fiscal 2023, 2022 and 2021, respectively. In fiscal 2023, we recorded cash receipts of $15.2 million from a sale of an office building and used cash of $33.3 million for acquisitions and $15.0 million to purchase a Dental investment. In fiscal 2022, we recorded cash receipts of $75.9 million from the sale of investments and used $19.8 million to acquire Miller Vet.  Capital expenditures were $64.2 million, $38.3 million and $25.8 million in fiscal 2023, 2022 and 2021, respectively. We expect to use a total of approximately $70 million for capital expenditures in fiscal 2024. \nNet cash used in financing activities in fiscal 2023 was\u00a0$126.5 million, driven by\u00a0$101.3 million\u00a0for dividend payments, $55.5 million in share repurchases and $1.5 million for payments on long-term debt, partially offset by $16.0 million draw on our revolving line of credit. Net cash used in financing activities in fiscal 2022 was $253.2 million, driven by $101.1 million for dividend payments, $100.8 million for payments on long-term debt, $35.0 million in share repurchases and $24.0 million attributed to payments on our revolving line of credit. Net cash used in financing activities in fiscal 2021 was $22.6 million, driven by $75.2 million for dividend payments, partially offset by $53.0 million attributed to draws on our revolving line of credit. \nIn fiscal 2023, 2022 and 2021, a quarterly cash dividend of $0.26 per share was declared each quarter, with payment occurring in the subsequent quarter. We currently expect to declare and pay quarterly cash dividends in the future, but any future dividends will be subject to approval by our Board of Directors, which will depend on our \n39\nTable of Contents\nearnings, capital requirements, operating results and financial condition, as well as applicable law, regulatory constraints, industry practice and other business considerations that our Board considers relevant. We are also subject to various financial covenants under our debt agreements including the maintenance of leverage and interest coverage ratios. The terms of agreements governing debt that we may incur in the future may also contain similar covenants. Accordingly, there can be no assurance that we will declare and pay dividends in the future at the same rate or at all.\nIn fiscal 2021, we entered into an amendment, restatement and consolidation of certain credit agreements with various lenders, including MUFG Bank, Ltd, as administrative agent. This amended and restated credit agreement (the \u201cCredit Agreement\u201d) consisted of a $700.0 million revolving credit facility and a $300.0 million term loan facility, and was set to mature no later than February 2024. \nIn fiscal 2023, we amended and restated the Credit Agreement (the \u201cAmended Credit Agreement\u201d). The Amended Credit Agreement consists of a $700.0 million revolving credit facility and a $300.0 million term loan facility, and will mature no later than October 2027. We used the Amended Credit Agreement facilities to refinance and consolidate the Credit Agreement, and pay the fees and expenses incurred therewith. We expect to use the Amended Credit Agreement to finance our ongoing working capital needs and for other general corporate purposes.\nAs of\u00a0April\u00a029, 2023, $298.5 million was outstanding under the Amended Credit Agreement term loan at an interest rate of 6.08% and $45.0 million was outstanding under the Amended Credit Agreement revolving credit facility at an interest rate of 5.93%. As of April\u00a030, 2022, $300.0 million was outstanding under the Credit Agreement term loan at an interest rate of 1.89%, and $29.0 million was outstanding under the Credit Agreement revolving credit facility at an interest rate of 1.54%.\nOn March 16, 2021, our Board of Directors approved a new share repurchase authorization for up to $500 million of our company's common stock through March 16, 2024, replacing the March 2018 share repurchase authorization for up to $500 million of common stock which had expired and under which no repurchases had been made. As of April\u00a029, 2023, $409.5 million remains available under the current repurchase authorization.\nWe have $159.7 million in cash and cash equivalents as of April\u00a029, 2023, of which $61.6 million is in foreign bank accounts. See Note 12 to the Consolidated Financial Statements for further information regarding our intention to permanently reinvest these funds. Included in cash and cash equivalents as of April\u00a029, 2023 is $33.1 million of cash collected from previously sold customer financing arrangements that have not yet been settled with the third party. See Note 5 to the Consolidated Financial Statements for further information. \nWe expect the collection of deferred purchase price receivables, existing cash balances and credit availability under existing debt facilities, less our funds used in operations, will be sufficient to meet our working capital needs and to finance our business over the next fiscal year. \nWe expect to continue to obtain liquidity from the sale of equipment finance contracts. Patterson sells a significant portion of our finance contracts (see below) to a commercial paper funded conduit managed by a third party bank, and as a result, commercial paper is indirectly an important source of liquidity for Patterson. Patterson is allowed to participate in the conduit due to the quality of our finance contracts and our financial strength. Cash flows could be impaired if our financial strength diminishes to a level that precluded us from taking part in this facility or other similar facilities. Also, market conditions outside of our control could adversely affect the ability for us to sell the contracts.\nCustomer Financing Arrangements\nAs a convenience to our customers, we offer several different financing alternatives, including a third party program and a Patterson-sponsored program. For the third party program, we act as a facilitator between the customer and the third party financing entity with no on-going involvement in the financing transaction. Under the Patterson-sponsored program, equipment purchased by creditworthy customers may be financed up to a maximum of $1 million. We generally sell our customers\u2019 financing contracts to outside financial institutions in the normal course of our business. We currently have two arrangements under which we sell these contracts.\nFirst, we operate under an agreement to sell a portion of our equipment finance contracts to commercial paper conduits with MUFG Bank, Ltd. (\"MUFG\") serving as the agent. We utilize PDC Funding, a consolidated, wholly owned subsidiary, to fulfill a requirement of participating in the commercial paper conduit. We receive the proceeds of the contracts upon sale to MUFG. The capacity under the agreement with MUFG at April\u00a029, 2023 was $525 million.\n40\nTable of Contents\nSecond, we maintain an agreement with Fifth Third Bank (\"Fifth Third\") whereby Fifth Third purchases customers\u2019 financing contracts. PDC Funding II, a consolidated, wholly owned subsidiary, sells financing contracts to Fifth Third. We receive the proceeds of the contracts upon sale to Fifth Third. The capacity under the agreement with Fifth Third at April\u00a029, 2023 was $100 million.\nOur financing business is described in further detail in Note 5 to the Consolidated Financial Statements. \nContractual Obligations\nA summary of our contractual obligations as of April\u00a029, 2023 was as follows (in thousands):\n\u00a0\nPayments due by year\n\u00a0\nTotal\nLess\u00a0than\n1 year\n1-3 years\n3-5 years\nMore than\n5 years\nLong-term debt principal\n$\n489,000\u00a0\n$\n36,000\u00a0\n$\n134,000\u00a0\n$\n319,000\u00a0\n$\n\u2014\u00a0\nLong-term debt interest\n105,006\u00a0\n25,247\u00a0\n43,242\u00a0\n36,517\u00a0\n\u2014\u00a0\nOperating leases\n114,881\u00a0\n31,482\u00a0\n38,031\u00a0\n16,846\u00a0\n28,522\u00a0\nTotal\n$\n708,887\u00a0\n$\n92,729\u00a0\n$\n215,273\u00a0\n$\n372,363\u00a0\n$\n28,522\u00a0\nAs of April\u00a029, 2023 our gross liability for uncertain tax positions, including interest and penalties, was $9.9 million. We are not able to reasonably estimate the amount by which the liability will increase or decrease over an extended period of time or whether a cash settlement of the liability will be required. Therefore, these amounts have been excluded from the schedule of contractual obligations. \nFor a more complete description of our contractual obligations, see Notes 10 and 11 to the Consolidated Financial Statements.\nWorking Capital Management\nThe following table summarizes our average accounts receivable days sales outstanding and average annual inventory turnover for the past three fiscal years:\nFiscal Year Ended\nApril 29, 2023\nApril 30, 2022\nApril 24, 2021\nDays sales outstanding\n25.0\u00a0\n25.2\u00a0\n25.9\u00a0\nInventory turnover\n6.2\u00a0\n6.6\u00a0\n6.1\u00a0\nForeign Operations\nWe derive foreign sales from Dental operations in Canada, and Animal Health operations in Canada and the U.K. Fluctuations in currency exchange rates have not significantly impacted earnings, as these fluctuations impact sales, cost of sales and operating expenses. Changes in exchange rates adversely affected net sales by $108.5 million in fiscal 2023, while they positively impacted net sales by $41.0 million and $28.4 million in fiscal 2022 and 2021, respectively. Changes in currency exchange rates are a risk accompanying foreign operations, but this risk is not considered material with respect to our consolidated operations.\nCritical Accounting Policies and Estimates\nPatterson has adopted various accounting policies to prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. Management believes that our policies are conservative and our philosophy is to adopt accounting policies that minimize the risk of adverse events having a material impact on recorded assets and liabilities. However, the preparation of financial statements requires the use of estimates and judgments regarding the realization of assets and the settlement of liabilities based on the information available to management at the time. Changes subsequent to the preparation of the financial statements in economic, technological and competitive conditions may materially impact the recorded values of Patterson\u2019s assets and liabilities. Therefore, the users of the financial statements should read all the notes to the Consolidated Financial Statements and be aware that conditions currently unknown to management may develop in the future. This may require a material adjustment to a recorded asset or liability to consistently apply to our significant accounting principles and policies that are discussed in Note 1 to the Consolidated Financial Statements. The financial performance and condition of Patterson may also be materially impacted by transactions and events that we have \n41\nTable of Contents\nnot previously experienced and for which we have not been required to establish an accounting policy or adopt a generally accepted accounting principle.\nRevenue Recognition\n \u2013 Revenues are generated from the sale of consumable products, equipment and support, software and support, technical service parts and labor, and other sources. Revenues are recognized when or as performance obligations are satisfied. Performance obligations are satisfied when the customer obtains control of the goods or services.\nConsumable product, equipment, software and parts sales are recorded upon delivery, except in those circumstances where terms of the sale are FOB shipping point, in which case sales are recorded upon shipment. Technical service labor is recognized as it is provided. Revenue derived from equipment support and software services is recognized ratably over the period in which the support and services are provided. \nIn addition to revenues generated from the distribution of consumable products under arrangements (buy/sell agreements) where the full market value of the product is recorded as revenue, we earn commissions for services provided under agency agreements. The agency agreement contrasts to a buy/sell agreement in that we do not have control over the transaction, as we do not have the primary responsibility of fulfilling the promise of the good or service and we do not bill or collect from the customer in an agency relationship. Commissions under agency agreements are recorded when the services are provided.\nEstimates for returns, damaged goods, rebates, loyalty programs and other revenue allowances are made at the time the revenue is recognized based on the historical experience for such items. The receivables that result from the recognition of revenue are reported net of related allowances. We maintain a valuation allowance based upon the expected collectability of receivables held. Estimates are used to determine the valuation allowance and are based on several factors, including historical collection data, economic trends, and credit worthiness of customers. Receivables are written off when we determine the amounts to be uncollectible, typically upon customer bankruptcy or non-response to continuous collection efforts. The portions of receivable amounts that are not expected to be collected during the next twelve months are classified as long-term.\nPatterson has a relatively large, dispersed customer base and no single customer accounts for more than 10% of consolidated net sales. In addition, the equipment sold to customers under finance contracts generally serves as collateral for the contract and the customer provides a personal guarantee as well.\nNet sales do not include sales tax as we are considered a pass-through conduit for collecting and remitting sales tax.\nInventory and Reserves\n \u2013 Inventory consists primarily of merchandise held for sale and is stated at the lower of cost or market. Cost is determined using the last-in, first-out (\"LIFO\") method for all inventories, except for foreign inventories and manufactured inventories, which are valued using the first-in, first-out (\"FIFO\") method. We continually assess the valuation of inventories and reduce the carrying value of those inventories that are obsolete or in excess of forecasted usage to estimated realizable value. Estimates are made of the net realizable value of such inventories based on analyses and assumptions including, but not limited to, historical usage, future demand and market requirements.\nGoodwill and Other Indefinite-Lived Intangible Assets\n \u2013 Goodwill and other indefinite-lived intangible assets are not amortized but rather are tested at least annually as of the beginning of the fourth quarter for impairment, or more often if events or circumstances indicate the carrying value of the asset may not be recoverable.\nGoodwill impairment testing is performed at the reporting unit level, which represents an operating segment or a component of an operating segment. We have two reporting units; Dental and Animal Health. Our Corporate reportable segment's assets and liabilities, and net sales and expenses, are allocated to the two reporting units. \nWe perform a qualitative evaluation or a quantitative test to assess goodwill for impairment. The qualitative evaluation is an assessment of factors 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. We may elect not to perform the qualitative assessment for one or both reporting units and perform a quantitative impairment test. \nIf performed, the quantitative goodwill impairment test compares the fair value of each reporting unit to the reporting unit's carrying value, including goodwill. If the reporting unit's carrying value exceeds its fair value, an impairment loss will be recognized. Any goodwill impairment is measured as the amount by which a reporting unit\u2019s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. The determination of fair value requires \n42\nTable of Contents\nmanagement to make assumptions and to apply judgment to estimate industry and economic factors and the profitability of future business strategies. Patterson conducts impairment testing based on current business strategy in light of present industry and economic conditions, as well as future expectations. \nOur indefinite-lived intangible asset is a trade name, which is assessed for impairment by comparing the carrying value of the asset with its fair value. If the carrying value exceeds fair value, an impairment loss is recognized in an amount equal to the excess. The determination of fair value involves assumptions, including projected revenues and gross profit levels, as well as consideration of any factors that may indicate potential impairment.\nWe performed qualitative assessments for our goodwill impairment tests in fiscal 2023. No impairments were recorded in fiscal 2023, 2022, or 2021 as a result of goodwill and other indefinite-lived impairment tests performed.\nRecoverability of Long-Lived Assets\n \u2013 Long-lived assets, including definite-lived intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Our definite-lived intangible assets primarily consist of customer relationships, trade names and trademarks. When impairment exists, the related assets are written down to fair value using level 3 inputs, as discussed further in Note 7 to the Consolidated Financial Statements.\nRecoverability of Development Costs of Software to be Sold \n- At the end of each fiscal quarter, we compare the unamortized capitalized costs of software to be sold to its net realizable value. If the unamortized amount exceeds the net realizable value, an impairment is recorded. If the unamortized capitalized costs are less than the net realizable value of that asset, then there is no impairment. \nIncome Taxes\n \u2013 We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments are required in determining the consolidated provision for income taxes. Changes in tax policy or  interpretation of current tax law create potential added uncertainties.\nDuring the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. As a result, we recognize tax liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognized when, despite our belief that our tax return position is supportable, we believe that certain positions may not be fully sustained upon review by tax authorities. We believe that our accruals for tax liabilities are adequate for all open audit years based on our assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such determination is made and could materially affect our financial results.\nValuation allowances are established for deferred tax assets if, after assessment of available positive and negative evidence, it is more likely than not that the deferred tax asset will not be fully realized. \nStock-based Compensation\n \u2013 We recognize stock-based compensation based on certain assumptions including inputs within valuation models, estimated forfeitures and estimated performance outcomes. These assumptions require subjective judgment and changes in the assumptions can materially affect fair value estimates. Management assesses the assumptions and methodologies used to estimate forfeitures and to calculate estimated fair value of stock-based compensation on a regular basis. Circumstances may change, and additional data may become available over time, which could result in changes to these assumptions and methodologies and thereby materially impact the fair value determination or estimates of forfeitures. If factors change and we employ different assumptions, the amount of compensation expense associated with stock-based compensation may differ significantly from what was recorded in the current period.",
+  "item7a": ">Item\u00a07A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nMarket Risk\nWe are exposed to market risk consisting of foreign currency rate fluctuations and changes in interest rates.\nWe are exposed to foreign currency exchange rate fluctuations in our operating statement due to transactions denominated primarily in Canadian Dollars and British Pounds. Although we do not currently have foreign currency hedge contracts, we continually evaluate our foreign currency exchange rate risk and the different mechanisms for use in managing such risk. A hypothetical 10% change in the value of the U.S. dollar in relation to our most \n43\nTable of Contents\nsignificant foreign currency exposures would have changed net sales by approximately $95.2 million for the fiscal year ended April\u00a029, 2023\n.\n This amount is not indicative of the hypothetical net earnings impact due to the partially offsetting impact of the currency exchange movements on cost of sales and operating expenses. We estimate that if foreign currency exchange rates changed by 10%, the impact would have been approximately $5.2 million to income before taxes for the fiscal year ended April\u00a029, 2023.\nThe Amended Credit Agreement consists of a $300.0 million term loan facility and a $700.0 million revolving credit facility, which will mature no later than October 2027. Interest on borrowings is variable and is determined as a base rate plus a spread. This spread, as well as a commitment fee on the unused portion of the facility, is based on our leverage ratio, as defined in the Amended Credit Agreement. Due to the interest rate being variable, fluctuations in interest rates may impact our earnings. Based on our current level of debt, we estimate that a 100 basis point change in interest rates would have a $3.4 million annual impact on our income before taxes.\nOur earnings are also affected by fluctuations in short-term interest rates through the investment of cash balances and the practice of selling fixed rate equipment finance contracts under agreements with both a commercial paper conduit and a bank that provide for pricing based on variable interest rates.\nWhen considering the exposure under the agreements whereby we sell equipment finance contracts to both a commercial paper conduit and bank, the interest rates in our facilities are priced based on SOFR or commercial paper rates plus a defined spread. In addition, the majority of the portfolio of installment contracts generally turns over in less than 48 months, and we can adjust the rate we charge on new customer contracts at any time. Therefore, in times where the interest rate markets are not rapidly increasing or decreasing, the average interest rate in the portfolio generally moves with the interest rate markets and thus would parallel the underlying interest rate movement of the pricing built into the sale agreements. In calculating the gain on the contract sales, we use an interest rate curve that approximates the maturity period of the then-outstanding contracts. If increases in the interest rate markets occur, the average interest rate in our contract portfolio may not increase at the same rate, resulting in a reduction of gain on the contract sales as compared to the gain that would be realized if the average interest rate in our portfolio were to increase at a more similar rate to the interest rate markets. We have forward interest rate swap agreements in order to hedge against interest rate fluctuations that impact the amount of net sales we record related to these contracts. These interest rate swap agreements do not qualify for hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or liability and the change as income or expense during the period in which the change occurs. As a result of entering into these interest rate swap agreements, we estimate that a 10% change in interest rates would have less than a $1.0 million annual impact on our income before taxes.\n44\nTable of Contents",
+  "cik": "891024",
+  "cusip6": "703395",
+  "cusip": ["703395953", "703395903", "703395103"],
+  "names": ["PATTERSON COS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/891024/000089102423000006/0000891024-23-000006-index.htm"
+}
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+{
+  "item1": ">Item 1.\nBusiness.\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nElectromed,\nInc. (\u201cwe,\u201d \u201cour,\u201d \u201cus,\u201d \u201cElectromed\u201d or the \u201cCompany\u201d) develops,\nmanufactures, markets and sells innovative products that provide airway clearance therapy, including the SmartVest\n\u00ae\n\nAirway Clearance System (\u201cSmartVest System\u201d) and related products, to patients with compromised pulmonary function\nwith a commitment to excellence and compassionate service. Our goal is to make High Frequency Chest Wall Oscillation (\u201cHFCWO\u201d)\ntreatments as effective, convenient, and comfortable as possible, so our patients can breathe easier and live better with improved\nrespiratory function and fewer exacerbations.\n\n\n\u00a0\n\n\nWe\nemploy a direct-to-patient and provider model, through which we obtain patient referrals from clinicians, manage insurance claims\non behalf of our patients, and deliver the SmartVest System to patients, training them on proper use in their homes. This model\nallows us to directly approach patients and clinicians, whereby we disintermediate the traditional durable medical equipment (\u201cDME\u201d)\nchannel and capture both the manufacturer and distributor margins. We also sell our products in the acute care setting for patients\nin a post-surgical or intensive care unit, or who were admitted for a lung infection brought on by compromised airway clearance.\nElectromed was incorporated in Minnesota in 1992. Our common stock is listed on the NYSE American under the ticker symbol \u201cELMD.\u201d\n\n\n\u00a0\n\n\nThe\nSmartVest System features a programmable air pulse generator, a therapy garment worn over the upper body and a connecting hose,\nwhich together provide safe, comfortable, and effective airway clearance therapy. The SmartVest System generates HFCWO, an airway\nclearance therapy. One factor of respiratory health is the ability to clear secretions from airways. Impaired airway clearance,\nwhen mucus cannot be expectorated, may result in labored breathing and/or inflammatory and immune systems boosting mucus production\nthat invites bacteria trapped in stagnant secretions to cause infections. Studies show that HFCWO therapy is as effective an airway\nclearance method for patients who have compromised pulmonary function as traditional chest physical therapy (\u201cCPT\u201d)\nadministered by a respiratory therapist.\n1\n However, HFCWO can be self-administered, relieving a caregiver of participation\nin the therapy, and eliminating the attendant cost of an in-home care provider. We believe that HFCWO treatments are cost-effective\nprimarily because they reduce a patient\u2019s risk of respiratory infections and other secondary complications that are associated\nwith impaired airway clearance and often result in costly hospital visits and repeated antibiotic use.\n\n\n\u00a0\n\n\nThe\nSmartVest System is designed for patient comfort and ease of use which promotes adherence to prescribed treatment schedules, leading\nto improved airway clearance, patient outcomes and quality of life, and a reduction in healthcare utilization. We offer a broad\nrange of garments, referred to as vests and wraps, in sizes for children and adults that allow for tailored fit. User-friendly\ncontrols allow patients to administer their daily therapy with minimal or no assistance. Our direct product support services provide\npatient and clinician education, training, and follow-up to ensure that the product is integrated into each patient\u2019s daily\ntreatment regimen. Additionally, our reimbursement department assures we are working on behalf of the patient by processing their\nphysician paperwork, providing clinical support and billing the applicable insurance provider. We believe that the advantages\nof the SmartVest System and the Company\u2019s customer services to the patient include:\n\n\n\u00a0\n\n\n\n\n\u25cf\nimproved\nquality of life;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nreduction\nin healthcare utilization;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nindependence\nfrom a dedicated caregiver;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nconsistent\ntreatments at home;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nimproved\ncomfort during therapy; and\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\neligibility\nfor reimbursement by private insurance, federal or state government programs or combinations of the foregoing.\n\n\n\n\n\u00a0\n\n\n1\nNicolini\nA, et al. Effectiveness of treatment with high-frequency chest wall oscillation in patients with bronchiectasis. \nBMC Pulmonary\nMedicine. 2013;13(21)\n.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n1\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur\nProducts \n\n\n\u00a0\n\n\nSince\n2000, we have marketed the SmartVest System and its predecessor products to patients suffering from bronchiectasis, cystic fibrosis,\nand neuromuscular conditions such as cerebral palsy and amyotrophic lateral sclerosis (\u201cALS\u201d). Our products are sold\ninto the home health care market and the acute care setting for patients in a post-surgical or intensive care unit, or who were\nadmitted for a lung infection brought on by compromised airway clearance. Accordingly, our sales points of contact include adult\npulmonology clinics, cystic fibrosis centers, neuromuscular clinics and hospitals.\n\n\n\u00a0\n\n\nWe\nhave received clearance from the U.S. Food and Drug Administration (\u201cFDA\u201d) to market the SmartVest System to promote\nairway clearance and improve bronchial drainage. In addition, Electromed is certified to apply the Conformit\u00e9 Europ\u00e9enne\n(\u201cEuropean Conformity\u201d or \u201cCE\u201d) marking for HFCWO device sales in all European Union member countries\nand approved for HFCWO device sales in other, select international countries. The SmartVest System is available only with a physician\u2019s\nprescription.\n\n\n\u00a0\n\n\nThe\nSmartVest System is currently available in two models, The SmartVest SQL\n\u00ae\n and SmartVest Clearway\n\u00ae\n\u2013\nwhich are sold into home care and hospital markets. In November 2022, we announced the introduction of SmartVest Clearway\n\u00ae\n,\nour next generation HFCWO system designed around an enhanced patient experience and modern design. We will continue to support\nand service earlier SmartVest models pursuant to the applicable product warranty. As part of our growth strategies, we periodically\nevaluate opportunities involving products and services, especially those that may provide value to the respiratory homecare and\ninstitutional market.\n\n\n\u00a0\n\n\nThe\nSmartVest Clearway System \n\n\n\u00a0\n\n\nThe\nSmartVest Clearway System consists of an inflatable therapy garment, a programmable air pulse generator and a patented single-hose\nthat delivers air pulses from the generator to the garment to create oscillatory pressure on the chest wall. The SmartVest Clearway\nis designed for maximum comfort and lifestyle convenience, so patients can readily fit therapy into their daily routines. The\nSmartVest Clearway was designed with the patient experience in mind continuing our history of offering the smallest, lightest\nweight generator on the market and introduces an intuitive touch screen to simplify use. The enhanced features make it easier\nto use and enable greater patient freedom in completing therapy.\n\n\n\u00a0\n\n\n\n\n\u25cf\n360\u00b0\n                                         oscillation coverage and patented Soft Start\n(R)\n technology: \nAll SmartVest\n                                         garments provide 360\u00b0 oscillation coverage, which delivers simultaneous treatment\n                                         to all lobes of the lungs. The oscillatory squeeze-and-release technology delivers therapeutic\n                                         pressure to the chest wall to loosen, sheer and propel mucus into the upper airways where\n                                         it can be more easily expectorated. Our patented Soft Start technology gently inflates\n                                         the garment to better acclimate the patient to therapy.\n\n\n\u00a0\n\n\n\n\n\u25cf\nOpen\n                                         system design with Breathing Room\nTM\n:\n The active inflate \u2013 active\n                                         deflate mechanism of the SmartVest System enables patients to take deep breaths during\n                                         therapy without feeling restricted, providing patients with a more comfortable treatment\n                                         experience.\n\n\n\u00a0\n\n\n\n\n\u25cf\nProgrammable\n                                         generator with user-friendly device operation:\n The SmartVest Clearway introduces\n                                         an intuitive touchscreen with single touch start. The improved user interface enhances\n                                         device programming and simplifies every-day use. The system features multiple operating\n                                         modes, including ramp, favorite settings designations, and options for saving, locking\n                                         and restoring protocols. An enhanced pause feature allows the physician to program dedicated\n                                         times for the patient to clear secretions during therapy.\n\n\n\u00a0\n\n\n\n\n\u25cf\nPatented\n                                         single-hose design:\n A single-hose delivers oscillations to the SmartVest garment,\n                                         which we believe provides therapy in a more comfortable and unobtrusive manner than a\n                                         two-hose system. Oscillations are delivered evenly from the base of the SmartVest garment,\n                                         extending the forces upward and inward in strong but smooth cycles surrounding the chest.\n\n\n\u00a0\n\n\n\n\n\u25cf\nSoft-fabric\n                                         garment is lightweight and comfortable:\n The SmartVest garment is the lightest HFCWO\n                                         garment available and is designed to resemble an article of clothing. The light design\n                                         takes weight off of the patients shoulders and torso enhancing the therapy experience.\n                                         Quick fit Velcro\n\u00ae\n-like closures allow for a secure, comfortable fit without\n                                         bulky straps and buckles. The simple design creates a broad size adjustment range to\n                                         ensure a properly tailored fit to accommodate pediatric and adult patients.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n2\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nSmaller\n                                         and lighter: \nSmartVest Clearway is the smallest and lightest HFCWO generator on the\n                                         market, weighing less than 14 pounds. The lightweight design, ergonomic carrying handle\n                                         and compact storage case make it easier for patients to move throughout their home, store\n                                         and integrate HFCWO therapy into their daily lives.\n\n\n\u00a0\n\n\nSmartVest\nConnect \n\n\n\u00a0\n\n\nIn\nJune 2017, we launched SmartVest Connect\n\u00ae\n wireless technology, a personalized HFCWO therapy management portal for\npatients with compromised pulmonary function. In March 2020, we launched the SmartVest Connect app for both the iOS and Android\noperating systems. The SmartVest Connect app securely connects to the SmartVest System through Bluetooth\u2122 technology. This\ninterface allows patients and healthcare teams to track therapy in real-time and collaborate on care decisions to improve therapy\nadherence and patient outcomes.\n\n\n\u00a0\n\n\nOther\nProducts\n\n\n\u00a0\n\n\nWe\nmarket the Single Patient Use (\u201cSPU\u201d) SmartVest and SmartVest Wrap\n\u00ae\n to health care providers in the\nacute care setting. Hospitals issue the SPU SmartVest or SmartVest Wrap to an individual patient for managing airway clearance\nwhile inpatient. Both SPU products provide full coverage oscillation and facilitate continuity of care when the SmartVest System\nis prescribed for patients with a chronic condition upon discharge for use in the home.\n\n\n\u00a0\n\n\nOur\nMarket\n\n\n\u00a0\n\n\nWe\nestimate the total served U.S. market for HFCWO is approximately $250 million in 2022 growing at a 9% compound annual growth rate\nbased on independent third-party market research. We believe the market for HFCWO is under recognized and underdiagnosed and is\ncontinuing to expand due to an aging population, higher incidence of chronic lung disease, growing awareness by physicians of\ndiseases and conditions for which patients can benefit from using HFCWO therapy, and treatments moving to lower cost home care\nsettings. Indications for when HFCWO may be prescribed are not specific to any one disease. A physician may elect to prescribe\nHFCWO when such individual believes the patient will benefit from improved airway clearance and external chest manipulation is\nthe treatment of choice to enhance mucus transport and improve bronchial drainage.\n\n\n\u00a0\n\n\nThe\nSmartVest System is primarily prescribed for patients with bronchiectasis, cystic fibrosis, and neuromuscular conditions such\nas cerebral palsy and ALS. We believe that bronchiectasis represents the fastest growing diagnostic category and greatest potential\nfor HFCWO growth in the United States exhibiting an 8.7% increase in patients diagnosed between 2000 and 2007\n9\n. Bronchiectasis\nis an irreversible, chronic lung condition characterized by enlarged and permanently damaged bronchi. The condition is associated\nwith recurrent lower respiratory infections, inflammation, reduction in pulmonary function, impaired respiratory secretion clearance,\nincreased hospitalizations and medication use, and increased morbidity and mortality.\n\n\n\u00a0\n\n\nWe\nare driven to make life\u2019s important moments possible, one breath at a time, by leading the HFCWO therapy market in clinical\nevidence that supports the therapeutic imperative of clearing excess mucus from the lungs. Electromed continues to add to the\nbody of evidence in support of HFCWO with multiple published clinical outcome studies demonstrating a significant improvement\nin quality of life and reduction in exacerbation rates, hospitalizations, emergency department visits, and antibiotic prescriptions\nin bronchiectasis patients using the SmartVest System. This includes a 2022 publication in the American Journal of Respiratory\nand Critical Care Medicine reviewing outcomes among non-cystic fibrosis bronchiectasis patients with HFCWO Therapy\n2-6. \nIn\naddition, we designed and ran a quality-of-life study for COPD patients using SmartVest, which was shared at the 2023 American\nThoracic Society International Conference and published in American Journal of Respiratory and Critical Care Medicine. The study\u2019s\nresults demonstrated statistically significant favorable responses to HFCWO as add on therapy for patients with a primary diagnosis\nof COPD. We have also shared data from our bronchiectasis quality of life trial at the 2023 World Bronchiectasis and NTM Conference\nhighlight effects of HFCWO on clinical symptoms of patients with bronchiectasis Generating additional clinical evidence to further\nsupport the SmartVest System as a preferred treatment for bronchiectasis patients will remain a focus in fiscal 2024.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n3\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe\nbelieve that bronchiectasis is under recognized and underdiagnosed but is experiencing a surge in clinical interest and awareness,\nincluding the relationship to COPD, commonly referred to as bronchiectasis COPD overlap syndrome. The overlap of bronchiectasis\nand COPD increases exacerbations and hospitalizations, reduces pulmonary function, and increases mortality. Several recent studies\nhave estimated prevalence of bronchiectasis, which we believe are helpful for estimating a range of the overall market size.\n\n\n\u00a0\n\n\n\n\n\u25cf\nWeycker\n(2017) projected 4.2 million adults in the United States over the age of 40 may have bronchiectasis, suggesting there is a large\npool of patients with undiagnosed disease.\n7\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nHenkle\n(2018) confirmed a high prevalence of bronchiectasis in the United States, identifying over 600,000 unique patients with at least\none bronchiectasis claim (ICD-9 claims 494.0 or 494.1). The study also observed that patients with dual diagnosis of bronchiectasis\nand COPD were in poorer health, with more office visits, more inpatient admissions and more acute respiratory infections.\n8\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nSeitz\n(2012) estimated that 190,000 unique cases of bronchiectasis were diagnosed in Medicare patients in 2007 and bronchiectasis prevalence\nincreased 8.7% annually between 2000 and 2007.\n9\n Based on historic growth in prevalence and assuming a constant growth\nrate, the estimated number of bronchiectasis diagnoses in Medicare patients in 2021 exceeded 608,000.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nAksamit\n(2017) found 20% (n=350) of patients with bronchiectasis enrolled in the U.S. Bronchiectasis Research Registry between 2008 and\n2014 also had COPD and 29% (n=515) also had asthma.\n7 \nOther studies have found that the overlap between bronchiectasis\nand COPD is observed in 27% to 57% of patients with COPD. \n10-13\u20138\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nChalmers\n(2017) found that prevalence of bronchiectasis in patients with COPD ranged from a low of 4% to as high as 69% with mean prevalence\nof 54%. In many studies in patients with COPD, the presence of bronchiectasis was associated with reduced lung function, greater\nsputum production, more frequent exacerbations and increased mortality versus those with COPD alone.\n14\n\n\n\n\n\u00a0\n\n\nThese\nstudies indicate a wide range of potential prevalence of bronchiectasis patients in the United States. We also believe that it\nis difficult to estimate from these studies which patients will need or benefit from HFCWO. Internal company estimates derived\nfrom 2020 analysis of the IQVIA PharMetrics Plus database, one of the largest US health plan databases of adjudicated integrated\nmedical and pharmacy claims, indicate a 15% to 20% penetration of HFCWO within the diagnosed Bronchiectasis population\n15\n.\nBy conservatively assessing the market size in relation to the clinical studies cited above, we calculate that current HFCWO adoption\nmay account for only 100,000 patients of the 500,000 to 600,000 currently diagnosed and treatable patients (see Figure 1 below).\nWe believe that bronchiectasis is underdiagnosed in the U.S. based on clinical study and epidemiology evidence with an even greater\nnumber of patients that could potentially benefit from diagnosis and treatment. We believe that HFCWO is under prescribed for\nbronchiectasis patients resulting in a large, underpenetrated US market opportunity and growth potential for HFCWO therapy.\n\n\n\u00a0\n\n\n2\nSievert\nC, et al. Using High Frequency Chest Wall Oscillation in a Bronchiectasis Patient Population: An Outcomes-Based Case Review. \nRespiratory\nTherapy Journal.\n 2016;11(4): 34\u201338.\u00a0\n\n\n3\nSievert\nC, et al. Cost-Effective Analysis of Using High Frequency Chest Wall Oscillation (HFCWO) in Patients with Non-Cystic Fibrosis\nBronchiectasis. \nRespiratory Therapy Journal.\n 2017;12(1): 45\u201349.\u00a0\n\n\n4\nSievert\nC, et al. Incidence of Bronchiectasis-Related Exacerbation Rates After High Frequency Chest Wall Oscillation (HFCWO) Treatment\n\u2014 A Longitudinal Outcome-Based Study. \nRespiratory Therapy Journal.\n 2018;13(2): 38\u201341.\u00a0\n\n\n5\nPowner\nJ, et al. Employment of an algorithm of care including chest physiotherapy results in reduced hospitalizations and stability of\nlung function in bronchiectasis. \nBMC Pulmonary Medicine\n. 2019;19(82).\u00a0\n\n\n6\n\nDeKoven M, Mandia K, DeFabis N, Chen J, Ruscio A. Patient Characteristics, Healthcare Resource Utilization And Outcomes\nAmong Non-Cystic Fibrosis Bronchiectasis Patients With High Frequency Chest Wall Oscillation (HFCWO) Therapy. \nAmerican Journal\nof Respiratory and Critical Care Medicine. 2022. Vol 205:A3090\n\u00a0\n\n\n7\nWeycker\nD, Hansen G, Seifer F. Prevalence and incidence of noncystic fibrosis bronchiectasis among US adults in 2013. \nChronic Respiratory\nDisease.\n 2017; 14(4):377-384.\u00a0\n\n\n8\nHenkle\nE, et al. Characteristics and Health-care Utilization History of Patients with Bronchiectasis in US Medicare Enrollees With Prescription\nDrug Plans, 2006 to 2014. \nChest.\n 2018;154(6), 1311\u20131320.\u00a0\n\n\n9\nSeitz\nA, et al. Trends in Bronchiectasis Among Medicare Beneficiaries in the United States, 2000 to 2007. \nChest.\n 2012;142(2),\n432\u2013439.\u00a0\n\n\n10\nAksamit\nT, et al. Bronchiectasis Research Registry C. Adult Patients With Bronchiectasis: A First Look at the US Bronchiectasis Research\nRegistry. \nChest\n. 2017;151:982-92.\u00a0\n\n\n11\nPatel\nI.S., et al. Bronchiectasis, exacerbation indices, and inflammation in chronic obstructive pulmonary disease. \nAm J Respir Crit\nCare Med\n. 2004;170:400-7.\u00a0\n\n\n12\nO\u2019Brien\nC, et al. Physiological and radiological characterization of patients diagnosed with chronic obstructive pulmonary disease in\nprimary care. \nThorax\n. 2000;55:635-42.\u00a0\n\n\n13\nBafadhel\nM, et al. The role of CT scanning in multidimensional phenotyping of COPD. \nChest\n. 2011;140:634-42.\u00a0\n\n\n14\nChalmers\nJ. and Sethi S. Raising awareness of bronchiectasis in primary care: overview of diagnosis and management strategies in adults.\n\nNPJ Prim Care Respir Med\n. 2017;27:18.\u00a0\n\n\n15\n\nInternal company estimates derived from IQVIA 2018 PharMetrics Plus Database\u00a0\n\n\n16\n\nM. Bruner, C. Bazan, B. Liu, C. Marion, K.S. Skarvan, L. Edwards, G. Solomon. Effects of High Frequency Chest Wall Oscillation\n(HFCWO) on Clinical Symptoms in COPD. \nAmerican Journal of Respiratory and Critical Care Medicine.\n 2023. Vol 207:C96\u00a0\n\n\n17\n\nC. Cheng, M. Bruner, C. Bazan, B. Liu, C. Marion, L. Edwards, G. Solomon. Effects of High Frequency Chest Wall Oscillation\n(HFCWO) on Quality of Life in Bronchiectasis. \n6th World Bronchiectasis & NTM Conference.\n 2023. Poster Abstract 310-B\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n4\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nEstimated\nHFCWO Market Opportunity - Bronchiectasis Patients (U.S.) \u2013 Figure 1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\u00a0\n\n\nThe\nheightened awareness of bronchiectasis speaks to the growing body of clinical evidence supporting treatments to improve symptoms\nand manage disease progression.\n\n\n\u00a0\n\n\n\n\n\u25cf\nIn\n                                         2019, an observational comparative retrospective cohort study published in \nBMC Pulmonary\n                                         Medicine \nevaluated the efficacy of a treatment algorithm in 65 patients with radiographic\n                                         and symptom confirmed bronchiectasis, centered on initiation of HFCWO therapy with the\n                                         SmartVest System.\n5\n Patients were treated per the algorithm if they reported\n                                         greater than two exacerbations in the previous year and symptoms, including chronic cough,\n                                         sputum production, or dyspnea. Results show that at one-year: exacerbations requiring\n                                         hospitalization and antibiotic use were significantly reduced and mean forced expiratory\n                                         volume remained stable post enrollment, suggesting early initiation of HFCWO therapy\n                                         may slow the otherwise normal progression of the disease.\n\n\n\u00a0\n\n\n\n\n\u25cf\nIn\n                                         2022, the American Journal of Respiratory and Crucial Care Medicine published the results\n                                         of a third-party retrospective cohort analysis of 101 qualifying NCFBE patients who received\n                                         HFCWO. Key findings revealed that patients who used HFCWO therapy experienced improved\n                                         health outcomes, a reduction in healthcare resource utilization and reduction in medication\n                                         usage.\n6\n\n\n\u00a0\n\n\nMarketing,\nSales and Distribution\n\n\n\u00a0\n\n\nOur\nsales and marketing efforts are focused on driving adoption of our products and services with physicians, clinicians, patients,\nand third-party payers and building market awareness to the benefits of HFCWO for treatment of bronchiectasis. Because the sale\nof the SmartVest System requires a physician\u2019s prescription, we market to physicians and health care providers as well as\ndirectly to patients. Most of our revenue comes from domestic homecare sales through a physician referral model. We have established\nour own domestic sales force and support network, which we believe is able to provide superior education, support, and training\nto our customers.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n5\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur\ndirect U.S. sales force works with physicians and clinicians, primarily pulmonologists, in defined territories to help them understand\nour products and services and the value they provide to their respective patients. As of June 30, 2023, we had 55 field sales\nemployees, including six regional sales managers, 46 clinical area managers (\u201cCAMs\u201d) and three clinical educators.\nWe also have developed a network of approximately 170 respiratory therapists and health care professionals across the U.S. to\nassist with in-home SmartVest System patient training on a non-exclusive, independent contractor basis. These independent contractors\nare credentialed by the National Board for Respiratory Care as either Certified Respiratory Therapists or Registered Respiratory\nTherapists and provide national coverage to an internal team of Registered Respiratory Therapists dedicated to supporting SmartVest\npatients. Additionally, Electromed employs a team of reimbursement specialists dedicated to managing insurance and payer relations\nand supporting prescribers and patients in navigating financial considerations. The availability of reimbursement is an important\nconsideration for health care professionals and patients. Because our product has an assigned Healthcare Common Procedure Coding\nSystem (\u201cHCPCS\u201d) code, a claim can be billed for reimbursement using that code. We must demonstrate the effectiveness\nof our products to public and private insurance providers. The availability of reimbursement exists primarily due to an established\nHCPCS code for HFCWO. A HCPCS code is assigned to services and products by the Centers for Medicare and Medicaid Services (\u201cCMS\u201d).\n\n\n\u00a0\n\n\nOf\nthe $47.6 million of our revenue derived from the U.S. in fiscal 2023, approximately 92% represented home care and 4% represented\nhospital sales. We expect to achieve future sales, earnings, and overall market share growth through a continued focus on product\ninnovation, differentiation and improved patient experiences and outcomes in the home care segment. We believe that our position\nin the market, direct sales team and a dedication to advancing education on HFCWO awareness positions us to drive market awareness\nand growth to the benefits of HFCWO in treatment of bronchiectasis. We believe that dedicated service to our providers and patients\nis a key component of achieving future sales. Providers seek companies that are easy to work with, are responsive and care for\ntheir patients as an extension of their practices.\n\n\n\u00a0\n\n\nWe\ngenerate sales interest through multiple channels that include visits to pulmonology clinics and medical centers, participation\nin medical conferences, maintenance of industry contacts to increase the visibility and acceptance of our products by physicians\nand health care professionals, support of industry events such as the Cystic Fibrosis Foundation World Bronchiectasis Day and\nAmerican Lung Association Fight for Air Climb, as well as through a focus on increasing patients by word of mouth and traffic\nto our website and social media channels. We continue to evaluate opportunities to offer the SmartVest System through selected\nHome Medical Equipment (\u201cHME\u201d) distributors. We maintain agreements with a limited number of HME distributors to distribute\nand sell the SmartVest System in the United States home care market. We expect to continue our direct sales channel as our primary\nhomecare revenue source.\n\n\n\u00a0\n\n\nInternational\nMarketing \n\n\n\u00a0\n\n\nApproximately\n1% of our net revenues were from sales outside of the U.S. in both of our fiscal 2023 and our fiscal year ended June 30, 2022\n(\u201cfiscal 2022\u201d), respectively. We sell our products outside of the U.S. primarily through independent distributors\nspecializing in respiratory products. Through June 30, 2023, most of our distributors operated in exclusive territories. Our principal\ndistributors are located in Europe, the Arab states of the Persian Gulf, Southeast Asia, South America and Central America. Units\nare sold at a fixed contract price with payments made directly from the distributor, rather than being tied to reimbursement rates\nof a patient\u2019s insurance provider as is the case for domestic sales. Our sales strategy outside of the U.S. is to maintain\nour current distributors with less emphasis on contracting with new distributors.\n\n\n\u00a0\n\n\nThird-Party\nReimbursement\n\n\n\u00a0\n\n\nIn\nthe U.S., individuals who use the SmartVest System generally rely on third-party payers, including private payers and governmental\npayers such as Medicare and Medicaid, to cover and reimburse all or part of the cost of using the SmartVest System. Our home care\nrevenue comes from reimbursement from commercial payers, Medicare, Medicaid, Veterans Affairs and direct patient payments. Reimbursement\nfor HFCWO therapy and the SmartVest System varies among public and private insurance providers.\n\n\n\u00a0\n\n\nA\nkey strategy to grow sales is achieving world class customer service and support for our patients and clinicians and increasing\nthe number of covered lives across a broad payer market. We do this with an established and effective reimbursement department\nworking on behalf of the patient by processing physician paperwork, seeking insurance authorization and processing claims. The\nskill and knowledge gained and offered by our reimbursement department is an important factor in building our revenue and serving\npatients\u2019 financial interests. Our payment terms generally allow patients to acquire the SmartVest System over a period\nof one to 15 months, which is consistent with reimbursement procedures followed by Medicare and other third parties. The payment\namount we receive for any single referral may vary based on several factors, including Medicare and third-party reimbursement\nprocesses and policies. The reimbursement department includes the payer relations function working directly with all payer types\nto increase the covered lives for the SmartVest System with national and regional private insurers and applicable state and federal\ngovernment entities as well as to maintain the current licenses with state and federal government and payer contracts.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n6\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur\nSmartVest System is reimbursed under HCPCS code E0483. Currently, the Medicare total allowable amount of reimbursement for this\nbilling code is approximately $15,000. The allowed amount for state Medicaid programs ranges from approximately $8,000 to $15,000,\nwhich is similar to commercial payers. Actual reimbursement from third-party payers can vary and can be significantly less than\nthe full allowable amount. Deductions from the allowable amount, such as co-payments, deductibles and/or maximums on durable medical\nequipment, decrease the reimbursement received from the third-party payer. Collecting a full allowable amount depends on our ability\nto obtain reimbursement from the patient\u2019s secondary and/or supplemental insurance if the patient has additional coverage,\nor our ability to collect amounts from individual patients.\n\n\n\u00a0\n\n\nMost\npatients can qualify for reimbursement and payment from Medicare, Medicaid, private insurance or combinations of the foregoing.\nOur sales continue to be dependent, in part, on the availability of coverage and reimbursement from third-party payers, even though\nour devices have been cleared for marketing by the FDA. The way reimbursement is sought and obtained varies based upon the type\nof payer involved and the setting in which the procedure is furnished.\n\n\n\u00a0\n\n\nResearch\nand Development\n\n\n\u00a0\n\n\nOur\nresearch and development (\u201cR&D\u201d) capabilities consist of full-time engineering staff and several consultants.\nWe periodically engage consultants and contract engineering employees to supplement our development initiatives. Our team has\na demonstrated record of developing new products that receive the appropriate product approvals and regulatory clearances around\nthe world as demonstrated by the FDA 510(k) clearance for the SmartVest Clearway Airway Clearance System received November 2022.\n\n\n\u00a0\n\n\nDuring\nfiscal 2023 and 2022, we incurred R&D expenses of approximately $916,000 and $1,356,000, or 1.9% and 3.3% of our net revenues,\nrespectively. As a percentage of sales, we expect spending on R&D expenses to remain within a range of 1-2% of net revenues\nfor fiscal 2024.\n\n\n\u00a0\n\n\nIntellectual\nProperty \n\n\n\u00a0\n\n\nAs\nof June 30, 2023, we held 12 United States and 41 foreign-issued patents covering the SmartVest System and its underlying technology\nand had 9 pending United States and foreign patent applications. These patents and patent applications offer coverage in the field\nof air pressure pulse delivery to a human in support of airway clearance.\n\n\n\u00a0\n\n\nWe\ngenerally pursue patent protection for patentable subject matter in our proprietary devices in foreign countries that we have\nidentified as key markets for our products. These markets include the European Union, Japan, and other countries.\n\n\n\u00a0\n\n\nWe\nalso have received 13 U.S. and 111 foreign trademark and service mark registrations.\n\n\n\u00a0\n\n\nManufacturing\n\n\n\n\u00a0\n\n\nOur\nheadquarters in New Prague, Minnesota includes a dedicated manufacturing and engineering facility of more than 14,000 square feet,\nand we are certified on an annual basis to be compliant with International Organization for Standardization (\u201cISO\u201d)\n13485 quality system standards. Our site has been audited regularly by the FDA and ISO, in accordance with their practices, and\nwe maintain our operations in a manner consistent with their requirements for a medical device manufacturer. While components\nare outsourced to meet our detailed specifications, each SmartVest System is assembled, tested, and approved for final shipment\nat our manufacturing site in New Prague, consistent with FDA, Underwriters Laboratory, and ISO standards. Many of our strategic\nsuppliers are located within 100 miles of our headquarters, which enables us to closely monitor our component supply chain. We\nmaintain established inventory levels for critical components and finished goods to assure continuity of supply. During fiscal\n2022 and 2023, we experienced longer lead times for critical electronic components related to worldwide supply shortages due to\nCOVID-19 and the related U.S. and global economic recovery.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n7\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nProduct\nWarranties\n\n\n\u00a0\n\n\nWe\nprovide a warranty on the SmartVest System that covers the cost of replacement parts and labor, or a new SmartVest System in the\nevent we determine a full replacement is necessary. For each homecare SmartVest System initially purchased and currently located\nin the U.S. and Canada, we provide a lifetime warranty to the individual patient for whom the SmartVest System is prescribed.\nFor sales to institutions and HME distributors within the U.S., and for all international sales, except Canadian home care, we\nprovide a three-year warranty.\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nThe\noriginal HFCWO technology was licensed to American Biosystems, Inc. (formerly Hill-Rom Holdings, Inc., now part of Baxter International\nInc.) (\u201cBaxter\u201d), which, until the introduction of our original MedPulse Respiratory Vest System\n\u00ae\n in\n2000, was the only manufacturer of a product with HFCWO technology cleared for market by the FDA (Hill Rom\u2019s The Vest\n\u00ae\n\nAirway Clearance System). Respiratory Technologies, Inc. (formerly RespirTech, now part of Koninklijke Phillips N.V.) (\u201cPhilips\u201d)\nreceived FDA clearance to market their HFCWO product, the inCourage\n\u00ae\n Airway Clearance Therapy in 2005. Both Baxter\nand Philips employ a direct-to-patient model, with Philips additionally offering its HFCWO device through selected DME distributors.\n\n\n\u00a0\n\n\nThe\nAffloVest\n\u00ae\n from Tactile Systems Technology Inc. (\u201cTactile Medical\u201d) also participates in the same market\nas our SmartVest System. Tactile Medical primarily sells its device through DME companies who distribute home care medical devices\nand supplies.\n\n\n\u00a0\n\n\nAlternative\nproducts for administering pulmonary therapy include: Positive Expiratory Pressure, Intrapulmonary Percussive Ventilation, CPT\nand breathing techniques. Physicians may prescribe some or all of these devices and techniques, depending upon each patient\u2019s\nhealth status, severity of disease, compliance, or personal preference.\n\n\n\u00a0\n\n\nKey\ndrivers of HFCWO product sales continue to be improved quality of life through documented clinical outcomes and reduction in healthcare\ncosts through resource utilization evidence. Technology innovations and enhancements to the patient experience such as size, weight\nof the generator, and optimized user interaction increase product reputation and patient satisfaction. We believe we distinguish\nourselves in these areas with competitive advantages over alternative treatments ultimately improving the patient comfort, ease\nof use, and the effectiveness of HFCWO treatment. Because HFCWO is not \u201ctechnique dependent,\u201d as compared to most\nother alternative pulmonary therapy products, therapy remains consistent and controlled for the duration of treatment.\n\n\n\u00a0\n\n\nGovernmental\nRegulation\n\n\n\u00a0\n\n\nMedicare\nand Medicaid\n\n\n\u00a0\n\n\nRecent\ngovernment and private sector initiatives in the U.S. and foreign countries aim at limiting the growth of health care costs including:\nprice regulation, competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology assessments,\nand managed-care arrangements. These initiatives are causing the marketplace to put increased emphasis on the delivery of more\ncost-effective medical devices that result in better clinical outcomes. Government programs, including Medicare and Medicaid,\nhave attempted to control costs by limiting the amount of reimbursement the program will pay for procedures or treatments, restricting\ncoverage for certain products or services, and implementing other mechanisms designed to constrain utilization and contain costs.\nMany private insurance programs look to Medicare as a guide in setting coverage policies and payment amounts. These initiatives\nhave created an increasing level of price sensitivity among our customers.\n\n\n\u00a0\n\n\nHome\nMedical Equipment Licensing\n\n\n\u00a0\n\n\nAlthough\nwe do not fall under competitive bidding for Medicare, we often must satisfy the same licensing requirements as other DME providers\nthat qualify for competitive bidding. In response to out-of-state businesses winning the competitive bidding process, which had\na significant impact on small local DME businesses, many states have enacted regulations that require a DME provider to have an\nin-state business presence, specifically through state HME licensing boards or through state Medicaid programs. In order to do\nbusiness with any patients in the state or to be a provider for the state Medicaid program, a DME provider must have an in-state\npresence. In addition to Minnesota, the location of our corporate headquarters, we have a licensed in-state presence in three\nother states. We also maintain an in-state presence in California to meet their state Medicaid requirements. In-state presence\nrequirements vary from state to state, but generally require a physical location that is staffed and open during regular business\nhours. We are licensed to do business in all states except for Alaska and Hawaii.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n8\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nProduct\nRegulations\n\n\n\u00a0\n\n\nOur\nmedical devices are subject to regulation by numerous government agencies, including the FDA and comparable foreign regulatory\nagencies. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development,\ntesting, manufacturing, labeling, marketing, and distribution of our medical devices, and compliance with these laws and regulations\nentails significant costs for us. Our regulatory and quality assurance departments provide detailed oversight in their areas of\nresponsibility to support required clearances and approvals to market our products.\n\n\n\u00a0\n\n\nIn\naddition to the clearances and approvals discussed below, we obtained ISO 13485 certification in January 2005 and receive annual\ncertification of our compliance to the current ISO quality standards.\n\n\n\u00a0\n\n\nFDA\nRequirements\n\n\n\u00a0\n\n\nWe\nhave received clearance from the FDA to market our products, including the SmartVest System. We may be required to obtain additional\nFDA clearance before marketing a new or modified product in the U.S., either through the 510(k)-clearance process or the more\ncomplex premarket approval process. The process may be time consuming and expensive, particularly if human clinical trials are\nrequired. Failure to obtain such clearances or approvals could adversely affect our ability to grow our business.\n\n\n\u00a0\n\n\nContinuing\nProduct Regulation\n\n\n\u00a0\n\n\nIn\naddition to its approval processes for new products, the FDA may require testing and post-market surveillance programs to monitor\nthe safety and effectiveness of previously cleared products that have been commercialized and may prevent or limit further marketing\nof products based on the results of post-mark surveillance results. At any time after marketing clearance of a product, the FDA\nmay conduct periodic inspections to determine compliance with both the FDA\u2019s Quality System Regulation (\u201cQSR\u201d)\nrequirements and current medical device reporting regulations. Product approvals by the FDA can be withdrawn due to failure to\ncomply with regulatory standards or the occurrence of unforeseen problems following initial market clearance. The failure to comply\nwith regulatory standards or the discovery of previously unknown problems with a product or manufacturer could result in fines,\ndelays or suspensions of regulatory clearances, seizures or recalls of products (with the attendant expenses), the banning of\na particular device, an order to replace or refund the cost of any device previously manufactured or distributed, operating restrictions\nand criminal prosecution, as well as decreased sales as a result of negative publicity and product liability claims.\n\n\n\u00a0\n\n\nWe\nmust register annually with the FDA as a device manufacturer and, as a result, are subject to periodic FDA inspection for compliance\nwith the FDA\u2019s QSR requirements that require us to adhere to certain extensive regulations. In addition, the federal Medical\nDevice Reporting regulations require us to provide information to the FDA whenever there is evidence that reasonably suggests\nthat a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute\nto a death or serious injury. We also must maintain certain certifications to sell products internationally, and we undergo periodic\ninspections by notified bodies to obtain and maintain these certifications.\n\n\n\u00a0\n\n\nAdvertising\nand marketing of medical devices, in addition to being regulated by the FDA, are also regulated by the Federal Trade Commission\nand by state regulatory and enforcement authorities. Recently, promotional activities for FDA-regulated products of other companies\nhave been the subject of enforcement action brought under health care reimbursement laws and consumer protection statutes. Competitors\nand others also can initiate litigation relating to advertising and/or marketing claims. If the FDA were to determine our promotional\nor training materials constitute promotion of an unapproved or uncleared claim of use, it is possible we would need to modify\nour training or promotional materials or be subject to regulatory or enforcement actions that could result in civil fines or criminal\npenalties. Other federal, state or foreign enforcement authorities could also take similar action if they were to determine that\nour promotional or training materials constitute promotion of an unapproved use, which could result in significant fines or penalties.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n9\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nEuropean\nUnion and Other Regions\n\n\n\u00a0\n\n\nEuropean\nUnion rules require that medical products receive the right to affix the CE mark, demonstrating adherence to quality standards\nand compliance with relevant European Union Medical Device Directives (\u201cMDD\u201d). Products that bear CE mark can be imported\nto, sold or distributed within the European Union. We obtained clearance to use the CE mark on our products in April 2005. Renewal\nof CE marking is required every five years, and our notified body performs an annual audit to ensure that we are in compliance\nwith all applicable regulations. We have maintained our CE marking in good standing since originally receiving it and most recently\nrenewed it in January 2020. The renewal of our MDD certificate will allow us to continue to CE mark and sell our SmartVest SQL\ndevice, with no substantial changes, in the European Union until the certificate expires in May 2024. We are currently working\non finalizing updates to the quality system to achieve full compliance with Regulation (EU) 2017/745 (EU MDR) which came into\neffect in May 2021. We also require all our distributors in the European Union and other regions to comply with their home country\nregulations in our distributor agreements.\n\n\n\u00a0\n\n\nFederal\nPhysician Payments Sunshine Act\n\n\n\u00a0\n\n\nThe\nFederal Physician Payments Sunshine Act (Section 6002 of the PPACA) (the \u201cSunshine Act\u201d) was adopted on February 1,\n2013, to create transparency for the financial relationship between medical device companies and physicians and/or teaching hospitals\n(covered recipients). In January 2021, the Sunshine Act was expanded to cover payments made to these additional covered recipients,\nphysician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse midwives.\nThe Sunshine Act requires all manufacturers of drugs and medical devices to annually report to CMS any payments or any other \u201ctransfers\nof value\u201d made to any covered recipients, including but not limited to consulting fees, grants, clinical research support,\nroyalties, honoraria, meals, and value of long-term use (over 90 days) of evaluation equipment. This information is then posted\non a public website so that consumers can learn how much was paid to their physician by drug and medical device companies. The\nSunshine Act requires ongoing data collection and annual management and reporting by us and imposes civil penalties for manufacturers\nthat fail to report timely, accurately, or completely to CMS.\n\n\n\u00a0\n\n\nFraud\nand Abuse Laws\n\n\n\u00a0\n\n\nFederal\nhealth care laws apply to the marketing of our products and when we or our customers submit claims for items or services that\nare reimbursed under Medicare, Medicaid or other federally funded health care programs. The principal applicable federal laws\ninclude:\n\n\n\u00a0\n\n\n\n\n\u25cf\nthe\n                                         False Claims Act, which prohibits the submission of false or otherwise improper claims\n                                         for payment to a federally funded health care program;\n\n\n\u00a0\n\n\n\n\n\u25cf\nthe\n                                         Anti-Kickback Statute, which prohibits offers to pay or receive remuneration of any kind\n                                         for the purpose of inducing or rewarding referrals of items or services reimbursable\n                                         by a federal health care program; and\n\n\n\u00a0\n\n\n\n\n\u25cf\nthe\n                                         Stark Law, which prohibits physicians from profiting (actually or potentially) from their\n                                         own referrals.\n\n\n\u00a0\n\n\nThere\nare often similar state false claims, anti-kickback, and anti-self-referral and insurance laws that apply to state-funded Medicaid\nand other health care programs and private third-party payers. In addition, the U.S. Foreign Corrupt Practices Act can be used\nto prosecute companies in the U.S. for arrangements with physicians, or other parties outside the U.S. if the physician or party\nis a government official of another country and the arrangement violates the law of that country. Enforcement of these regulations\nhas become increasingly stringent, particularly due to more prevalent use of the whistleblower provisions under the False Claims\nAct, which allow a private individual to bring actions on behalf of the federal government alleging that the defendant has submitted\na false claim to the federal government and to share in any monetary recovery. If a governmental authority were to conclude that\nwe are not in compliance with applicable laws and regulations, we and our officers and employees could be subject to severe criminal\nand civil penalties and disbarment from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n10\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nHealth\ncare fraud and false statement statutes, such as the Health Insurance Portability and Accountability Act of 1996 and its implementing\nregulations (\u201cHIPAA\u201d) and the Health Information Technology for Economic and Clinical Health Act (\u201cHITECH\u201d),\nalso prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health\ncare benefit program, including private payers, and knowingly and willfully falsifying, concealing, or covering up a material\nfact or making any materially false, fictitious or fraudulent statement or representation in connection with the delivery of or\npayment for health care benefits, items or services.\n\n\n\u00a0\n\n\nHIPAA,\nHITECH and Other Privacy Regulations\n\n\n\u00a0\n\n\nFederal\nand state laws protect the confidentiality of certain patient health information, including patient records, and restrict the\nuse and disclosure of such information. HIPAA and HITECH set forth privacy and security standards that govern the use and disclosure\nof protected electronic health information by \u201ccovered entities,\u201d which include healthcare providers, health plans\nand healthcare clearinghouses. Because we provide our products directly to patients and bill third-party payers such as Medicare,\nMedicaid, and insurance companies, we are a \u201ccovered entity\u201d and must comply with these standards. Failure to comply\nwith HIPAA and HITECH or any state or foreign laws regarding personal data protection may result in significant fines or penalties\nand/or negative publicity. In addition to federal regulations issued under HIPAA and HITECH, some states have enacted privacy\nand security statutes or regulations that, in some cases, are more stringent than those issued under HIPAA and HITECH. In those\ncases, it may be necessary to modify our planned operations and procedures to comply with the more stringent state laws. If we\nfail to comply with applicable state laws and regulations, we could be subject to additional sanctions.\n\n\n\u00a0\n\n\nEnvironmental\nLaws\n\n\n\u00a0\n\n\nWe\nare subject to various environmental laws and regulations both within and outside the U.S. Like other medical device companies,\nour operations involve the use of substances regulated under environmental laws, primarily manufacturing, sterilization, and disposal\nprocesses. We do not expect that compliance with environmental protection laws will have a material impact on our results of operations,\nfinancial position, or cash flows.\n\n\n\u00a0\n\n\nCybersecurity\nand Data Privacy\n\n\n\u00a0\n\n\nProtecting\nthe privacy of customer and personnel information is important to us, and we maintain security protocols and processes, including\nongoing training and education for all personnel, designed to combat the risk of unauthorized access or inadvertent disclosure.\nOur business operations involve confidential information, including patient health information subject to regulation as discussed\nunder \u201c\nHIPAA, HITECH and Other Privacy Regulations\n\u201d above. Our information technology infrastructure is designed\nto offer reliability, scalability, performance, security and privacy for our personnel, clients, and third-party contractors.\n\n\n\u00a0\n\n\nWe\nmaintain comprehensive compliance and security programs designed to help safeguard and ensure the integrity of the confidential\ninformation we possess, which includes both organizational and technical control measures. We also have programs in place to monitor\nthe safety of confidential information as well as plans for immediate, coordinated action in the event of a potential security\nincident. We routinely conduct employee trainings on important information security procedures and engage with independent third-party\nfirms to test and measure compliance on these security measures. In addition, we have maintained appropriate cyber insurance policies\nthat limit the financial risk of any potential incident. Our cyber insurance policies include dedicated support for remediating\na specific cybersecurity or data privacy incident and limit the potential financial risk associated with an actual incident.\n\n\n\u00a0\n\n\nEven\nthough we have implemented administrative, physical, and technical safeguards designed to help protect the confidential data we\npossess and the integrity of our information systems and infrastructure, these safeguards may not be effective in preventing future\ncybersecurity incidents or data breaches.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n11\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nHuman\nCapital\n\n\n\u00a0\n\n\nWe\nbelieve that our dedicated, talented employees are our most valuable resource and a key strength in accomplishing our collective\nmission and goals. As of June 30, 2023, we had 170 employees, an increase of 9% from fiscal 2022, who are in 30 states throughout\nthe United States. 18 of our employees were respiratory therapists licensed by appropriate state professional organizations. We\nalso had approximately 170 respiratory therapists and health care professionals retained on a non-exclusive, independent contractor\nbasis to provide training to our customers in the U.S. None of our employees are covered by a collective bargaining agreement.\nWe believe our relations with our employees are good.\n\n\n\u00a0\n\n\nWe\nare committed to attracting, retaining, and developing diverse and high-performing talent that includes a strong focus on performance\nand development, total rewards, diversity, inclusion and equity, and employee safety. These serve as the pillars to our human\ncapital management framework.\n\n\n\u00a0\n\n\nWe\nunderstand that our success and growth depend on attracting, retaining, and developing talent across all levels of the organization.\nOur recruitment strategies are continuously reviewed with leadership and partners to ensure our practices align with our mission,\npurpose, and values.\n\n\n\u00a0\n\n\nWe\nbelieve in ensuring that employees understand our mission, purpose, and goals as well as their impact on our success. We use an\nannual performance review process to support development and performance discussions with employees. In addition, every employee\nis eligible to participate in our incentive plan, which allows for us to share the rewards of the company with the people who\nsignificantly contribute to our success.\n\n\n\u00a0\n\n\nTo\ncultivate a learning culture that provides enhancement and growth for our people, we offer educational assistance, online training,\nseminars, specific skill training, and participation in business and industry organizations. We are also committed to contributing\nour talents and resources to serve the communities in which we live and work through various charitable campaigns, employee programs\nand volunteerism. We believe that this commitment assists in our efforts to attract and retain employees.\n\n\n\u00a0\n\n\nWe\nbelieve that sharing rewards is essential to increasing employee engagement and improving morale and creating a positive culture.\nWe also offer our employees a competitive salary and benefits package and are committed to continuous review of these programs.\nThese benefits include but are not limited to retirement savings, a variety of health insurance options and other benefits programs,\nincluding dental and vision, disability insurance, contributions to health savings accounts, paid maternity/paternity leave, and\nwellness resources. In addition, we offer opportunities for remote work and flexible schedules and location, depending on business\nneeds and the specific role.\n\n\n\u00a0\n\n\nWe\nare committed to ensuring a diverse workforce in a safe environment by maintaining compliance with applicable employment laws\nand governmental regulations. Treating employees with dignity and equality is of utmost importance in everything we do. We take\npride in the fact that women represent 50% of our total managerial roles.. We pride ourselves on accepting, hearing, and celebrating\nmultiple approaches and points of view and building on an inclusive and diverse culture.\n\n\n\u00a0\n\n\nSafety\nis a vital aspect to the success of our people and business. We are proud of our employees\u2019 collective commitment to secure\nand maintain safe work practices that have resulted in zero lost time injuries within our manufacturing operations. We also provide\nwellbeing services to support each employee\u2019s physical and mental health and will continue to emphasize the importance of\nthe safety and health of our employees in all we do.\n\n\n\u00a0\n\n\nAvailable\nInformation\n\n\n\u00a0\n\n\nOur\nInternet address is www.smartvest.com. We have made available on our website, free of charge, our Annual Reports on Form 10-K,\nQuarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports, as soon as reasonably\npracticable after we electronically file these materials with, or furnish them to, the SEC. Reports of beneficial ownership filed\nby our directors and executive officers pursuant to Section 16(a) of the Exchange Act are also available on our website. We are\nnot including the information contained on our website as part of, or incorporating it by reference into, this Annual Report on\nForm 10-K. The SEC also maintains an Internet site that contains our reports, proxy and information statements, and other information\nwe file or furnish with the SEC, available at www.sec.gov.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n12\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nItem\n                                         1A.\nRisk\n                                         Factors.\n\n\n\u00a0\n\n\nAs\na smaller reporting company, we are not required to provide disclosure pursuant to this item.\n\n\n\u00a0\n\n\n\n\nItem\n                                         1B.\nUnresolved\n                                         Staff Comments.\n\n\n\u00a0\n\n\nAs\na smaller reporting company, we are not required to provide disclosure pursuant to this item.\n\n\n\u00a0\n\n\n\n\nItem\n                                         2.\nProperties.\n\n\n\u00a0\n\n\nWe\nown our principal headquarters and manufacturing facilities, consisting of approximately 37,000 square feet, which are located\non an approximately 2.3-acre parcel in New Prague, Minnesota. All of the Company\u2019s revenues, profits, and assets are associated\nwith this facility. We believe that our facilities are satisfactory for our long-term growth plans.\n\n\n\u00a0\n\n\n\n\nItem\n                                         3.\nLegal\n                                        Proceedings.\n\n\n\u00a0\n\n\nThe\ndisclosure regarding legal proceedings set forth in Note 11 to our Financial Statements in Part II, Item 8 of this Annual Report\non Form 10-K is incorporated herein by reference. Occasionally, we may be party to legal actions, proceedings, or claims in the\nordinary course of business, including claims based on the assertions of patent and trademark infringement. Corresponding costs\nare accrued when it is probable that loss will be incurred, and the amount can be precisely or reasonably estimated. We are not\naware of any undisclosed actual or threatened litigation that would have a material adverse effect on our financial condition\nor results of operations.\n\n\n\u00a0\n\n\n\n\nItem\n                                         4.\nMine\n                                        Safety Disclosures.\n\n\n\u00a0\n\n\nNone.\n\n\n\u00a0\n\n\nPART\nII\n\n\n\u00a0\n\n\n\n\nItem\n                                         5.\nMarket\n                                        For Registrant\u2019s Common Equity, Related Stockholder Matters and Issuer Purchases\n                                        of Equity Securities.\n\n\n\u00a0\n\n\nMarket\nInformation\n\n\n\u00a0\n\n\nOur\ncommon stock is listed on the NYSE American under the symbol \u201cELMD\u201d.\n\n\n\u00a0\n\n\nAs\nof August 15, 2023, there were 55 registered holders of our common stock.\n\n\n\u00a0\n\n\nDividends\n\n\n\u00a0\n\n\nWe\nhave never paid cash dividends on any of our shares of common stock. We currently intend to retain any earnings for use in operations\nand do not anticipate paying cash dividends to our shareholders in the foreseeable future. The agreement governing our credit\nfacility restricts our ability to pay dividends.\n\n\n\u00a0\n\n\nRecent\nSales of Unregistered Equity Securities\n\n\n\u00a0\n\n\nNone.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n13\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nPurchases\nof Equity Securities by the Company and Affiliated Purchasers\n\n\n\u00a0\n\n\nOn\nMay 26, 2021, our Board of Directors approved a stock repurchase authorization. Under the authorization, we were originally able\nto repurchase up to $3.0 million of outstanding shares of our common stock through May 26, 2022. On May 26, 2022, our Board of\nDirectors removed the date limitation. The shares of our common stock may be repurchased on the open market or in privately negotiated\ntransactions subject to applicable securities laws and regulations. As of June 30, 2023, the approximate dollar value of shares\nthat may yet be purchased under the aforementioned authorization was $275,000. The following table sets forth information concerning\npurchases of shares of our common stock for the three months ended June 30, 2023:\n\n\n\u00a0\n\n\n\n\n\n\nPeriod\n\u00a0\n\u00a0\n\n\nTotal\n    Number \n\n    of Shares \n\n    Purchased\n\u00a0\n\u00a0\n\n\nAverage\n\n    \u00a0Price Paid\n \u00a0per Share\n\u00a0\n\u00a0\n\n\nTotal\n    Number of \n\n    Shares Purchased as \n\n    Part of Publicly \n\n    Announced Plans or \n\n    Programs\n\u00a0\n\u00a0\n\n\nApproximate\n    Dollar \n\n    Value of Shares that \n\n    May Yet be \n\n    Purchased Under the \n\n    Plans or Programs\n\u00a0\n\n\n\n\nApril 1 \u2013 April 30, 2023\n\u00a0\n\u00a0\n\n\n\u2014\n\u00a0\n\u00a0\n\n\n$\n\u2014\n\u00a0\n\u00a0\n\n\n\u2014\n\u00a0\n\u00a0\n\n\n$\n275,000\n\u00a0\n\n\n\n\nMay 1 \u2013 May 31, 2023\n\u00a0\n\u00a0\n\n\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u2014\n\u00a0\n\u00a0\n\n\n$\n275,000\n\u00a0\n\n\n\n\nJune 1 \u2013 June 30, 2023\n\u00a0\n\u00a0\n\n\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u2014\n\u00a0\n\u00a0\n\n\n$\n275,000\n\u00a0\n\n\n\n\nTotal\n\u00a0\n\u00a0\n\n\n\u2014\n\u00a0\n\u00a0\n\n\n$\n\u2014\n\u00a0\n\u00a0\n\n\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\nItem\n6.\n[Reserved].\n\n\n\u00a0\n\n\n\n\nItem\n                                         7.\nManagement\u2019s\n                                        Discussion and Analysis of Financial Condition and Results of Operations.\n\n\n\u00a0\n\n\nThe\nfollowing discussion and analysis of our financial condition and results of operations should be read in conjunction with our\nfinancial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. The forward-looking statements\ninclude statements that reflect management\u2019s good faith beliefs, plans, objectives, goals, expectations, anticipations and\nintentions with respect to our future development plans, capital resources and requirements, results of operations, and future\nbusiness performance. Our actual results could differ materially from those anticipated in the forward-looking statements included\nin this discussion as a result of certain factors, including, but not limited to, those discussed in the section entitled \u201cInformation\nRegarding Forward-Looking Statements\u201d immediately preceding Part I of this Annual Report on Form 10-K.\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nElectromed\ndevelops and provides innovative airway clearance products applying HFCWO technologies in pulmonary care for patients of all ages.\n\n\n\u00a0\n\n\nWe\nmanufacture, market and sell products that provide HFCWO, including the SmartVest System that includes our newest generation SmartVest\nClearway\n\u00ae\n, previous generation SmartVest SQL\n\u00ae\n and related products, to patients with compromised\npulmonary function. The SmartVest Clearway is an updated and modern approach to HFCWO focused on an enhanced patient experience\nand proven patient outcomes. The product delivers effective 360\no\n oscillatory pressure through our proprietary rapid\ninflate-deflate technology which improves the patient\u2019s ability to breathe deeply during therapy. SmartVest Clearway is\nthe smallest, and lightest generator on the market, and is designed with an intuitive touchscreen to simplify programing and everyday\nuse. Our products are sold in both the home health care market and the institutional market for use by patients in hospitals,\nwhich we refer to as \u201cinstitutional sales.\u201d The SmartVest SQL has been sold in the domestic home care market since\n2014. In 2015, we launched the SmartVest SQL into institutional and certain international markets. In June 2017, we announced\nthe launch of the SmartVest SQL with SmartVest Connect\u2122 wireless technology, which allows data connection between physicians\nand patients to track therapy performance and collaborate in treatment decisions. In 2022, we launched the SmartVest Clearway\nwith SmartVest Connect technology to adult pulmonary, pediatric and cystic fibrosis patients for use in the home. We have marketed\nthe SmartVest System and its predecessor products since 2000 to patients suffering from cystic fibrosis, bronchiectasis and repeated\nepisodes of pneumonia. Additionally, we offer our products to a patient population that includes neuromuscular disorders such\nas cerebral palsy, muscular dystrophies, ALS, and patients with post-surgical complications or who are ventilator dependent or\nhave other conditions involving excess secretion and impaired mucus transport.\n\n\n\u00a0\n\n\nThe\nSmartVest System is often eligible for reimbursement from major private insurance providers, health maintenance organizations\n(\u201cHMOs\u201d), state Medicaid systems, and the federal Medicare system, which we believe is an important consideration\nfor patients considering an HFCWO course of therapy. For domestic sales, the SmartVest System may be reimbursed under the Medicare-assigned\nbilling code (E0483) for HFCWO devices if the patient has cystic fibrosis, bronchiectasis (including chronic bronchitis or COPD\nthat has resulted in a diagnosis of bronchiectasis), or any one of certain enumerated neuromuscular diseases, and can demonstrate\nthat another less expensive physical or mechanical treatment did not adequately mobilize retained secretions. Private payers consider\na variety of sources, including Medicare, as guidelines in setting their coverage policies and payment amounts.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n14\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe\nemploy a direct-to-patient and provider model, through which we obtain patient referrals from clinicians, manage insurance claims\non behalf of our patients and their clinicians, deliver our solutions to patients and train them on proper use in their homes.\nThis model allows us to directly approach patients and clinicians, whereby we disintermediate the traditional durable medical\nequipment channel and capture both the manufacturer and distributor margins. We have engaged a limited number of regional durable\nmedical equipment distributors focused on respiratory therapies as an alternate sales channel. Revenue through this channel was\n3% of our total revenues in fiscal 2023.\n\n\n\u00a0\n\n\nOur\nkey growth strategies for fiscal 2024 are to accelerate our revenue growth by taking market share and expanding the addressable\npopulation for the largest and fastest growing segments of the market: adult pulmonology/bronchiectasis. Actions to support accelerating\nour growth include the following:\n\n\n\u00a0\n\n\n\n\n\u25cf\nExpand\n                                         our sales force in targets geographies with high potential, adding an additional five\n                                         territories and direct sales reps;\n\n\n\n\n\n\n\u25cf\nIncrease\n                                         Electromed brand awareness through direct-to-consumer and physician marketing, and peer\n                                         to peer education;\n\n\n\n\n\n\n\u25cf\nProvide\n                                         best-in-class customer care and support; and\n\n\n\n\n\n\n\u25cf\nDevelop\n                                         and promulgate the body of bronchiectasis clinical evidence to increase physician adoption\n                                         of the SmartVest System for patients. \n\n\n\u00a0\n\n\nImpacts\nof COVID-19 on Our Business and Operations\n\n\n\u00a0\n\n\nIn\nMarch 2020, the World Health Organization designated COVID-19 as a global pandemic, and the U.S. Department of Health and Human\nServices designated COVID-19 as a public health emergency (\u201cPHE\u201d). In response to the COVID-19 pandemic and the U.S.\nfederal government\u2019s declaration of a PHE, the Centers for Medicare & Medicaid Services (\u201cCMS\u201d) implemented\nseveral temporary rule changes and waivers to allow prescribers to best treat patients during the period of the PHE. These waivers\nbecame effective on March 1, 2020. Clinical indications and documentation typically required were not enforced for respiratory-related\nproducts, including the SmartVest System (solely with respect to Medicare patients).\n\n\n\u00a0\n\n\nOn\nJanuary 30, 2023, the Biden administration announced that the COVID-19 national and PHE declarations will end on May 11, 2023.\nThe CMS waiver was not extended and expired on May 11, 2023. We believe that we were able to mitigate the potential effects on\nour net revenue resulting from the expiration of the CMS waiver by hiring additional employees to increase capacity and minimize\nthe average timeframe to convert a Medicare patient referral to approval and re-educating clinicians on Medicare requirements\nfor reimbursement of HFCWO.\n\n\n\u00a0\n\n\nWe\ndid not receive any direct financial assistance from any government program during fiscal 2022 or fiscal 2023 in connection with\nCOVID-19 relief measures.\n\n\n\u00a0\n\n\nImpacts\nof Certain Macro-Economic Conditions and the Supply Chain on Our Business and Operations \n\n\n\u00a0\n\n\nWe\nobserved increased lead times for certain components in our supply chain and increased material costs and shipping rates during\nthe second half of fiscal 2022 and all of fiscal 2023. The changes to our supply chain lead times resulted in a temporary interruption\nthat impacted product availability for certain customers beginning in September 2022 and continuing through June 2023. We anticipate\nthat these increased lead times and temporary interruption of supply have the potential to continue through the first half of\nfiscal 2024. If we are unable to procure components to meet our demand or if we extend delivery lead-times to our customers, there\nmay be an adverse impact to our revenue and, longer term, the potential of market share losses. We are taking actions to expedite\ncomponents and to identify and qualify alternate suppliers for certain components to minimize any impact to our revenue and customer\ndeliveries. We expect that material costs and shipping rates will remain elevated during the first half of fiscal 2024 relating\nto supply chain availability and inflationary trends in electronic components and may extend to other components. In certain instances,\nwe have purchased key electronic materials in advance to ensure adequate future supply and mitigate the risk of potential supply\nchain disruptions. It is possible that these macro-economic conditions could have a greater adverse impact on our supply chain\nin the future, including impacts associated with preventative and precautionary measures taken by other businesses and applicable\ngovernments. A reduction or further interruption in any of our manufacturing processes could have a material adverse effect on\nour business. Any significant increases to our raw material or shipping costs could reduce our gross margins.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n15\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCritical\nAccounting Estimates\n\n\n\u00a0\n\n\nDuring\nthe preparation of our financial statements, we are required to make estimates, assumptions and judgment that affect reported\namounts. Those estimates and assumptions affect our reported amounts of assets and liabilities, our disclosure of contingent assets\nand liabilities, and our reported revenues and expenses. We update these estimates, assumptions, and judgment as appropriate.\nSome of our accounting policies and estimates require us to exercise significant judgment in selecting the appropriate assumptions\nfor calculating financial statements. Such judgments are subject to an inherent degree of uncertainty. Among other factors, these\njudgments are based upon our historical experience, known trends in our industry, terms of existing contracts and other information\nfrom outside sources, as appropriate. The following is a summary of our primary critical accounting policies and estimates. See\nalso Note 1 to the Financial Statements, included in Part II, Item 8, of this Annual Report on Form 10-K.\n\n\n\u00a0\n\n\nRevenue\nRecognition\n\n\n\u00a0\n\n\nRevenue\nis measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable\nconsideration and other factors affecting the transaction price, including consideration paid or payable to customers and significant\nfinancing components. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control\nof a distinct good or service to a customer.\n\n\n\u00a0\n\n\nIndividual\npromised goods and services in a contract are considered a performance obligation and accounted for separately if the individual\ngood or service is distinct (i.e., the customer can benefit from the good or service on its own or with other resources that are\nreadily available to the customer and the good or service is separately identifiable from other promises in the arrangement).\nIf an arrangement includes multiple performance obligations, the consideration is allocated between the performance obligations\nin proportion to their estimated standalone selling price, unless discounts or variable consideration is attributable to one or\nmore but not all the performance obligations. Costs related to products delivered are recognized in the period incurred, unless\ncriteria for capitalization of costs under Accounting Standards Codification (\u201cASC\u201d) 340-40, \u201cOther Assets and\nDeferred Costs,\u201d or the requirements under other applicable accounting guidance are met.\n\n\n\u00a0\n\n\nThe\nCompany includes shipping and handling fees in net revenues. Shipping and handling costs associated with the shipment of the Company\u2019s\nSmartVest System after control has transferred to a customer are accounted for as a fulfillment cost and are included in cost\nof revenues.\n\n\n\u00a0\n\n\nWe\nrequest that customers return previously sold units that are no longer in use to us to limit the possibility that such units would\nbe resold by unauthorized parties or used by individuals without a prescription. The customer is under no obligation to return\nthe product; however, we do reclaim the majority of previously sold units upon the discontinuance of patient usage. We are certified\nto recondition and resell returned SmartVest System units. Returned units are typically reconditioned and resold and continue\nto be used for demonstration equipment and warranty replacement parts.\n\n\n\u00a0\n\n\nInventory\nValuation\n\n\n\u00a0\n\n\nInventories\nare stated at the lower of cost (first-in, first-out method) or net realizable value. Work in process and finished goods are carried\nat standard cost, which approximates actual cost, and includes materials, labor and allocated overhead. The reserve for obsolescence\nis determined by analyzing the inventory on hand and comparing it to expected future sales. Estimated inventory to be returned\nis based on how many devices that have shipped that are expected to be returned prior to completion of the insurance reimbursement\nprocess.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n16\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWarranty\nReserve\n\n\n\u00a0\n\n\nThe\nCompany provides a lifetime warranty on its products to the prescribed patient for sales within the U.S. and a three-year warranty\nfor all institutional sales and sales to individuals outside the U.S. The Company estimates the costs that may be incurred under\nits warranty and records a liability in the amount of such costs at the time the product is shipped. Factors that affect the Company\u2019s\nwarranty reserve include the number of units shipped, historical and anticipated rates of warranty claims, the product\u2019s\nuseful life and cost per claim. The Company periodically assesses the adequacy of its recorded warranty reserve and adjusts the\namounts as necessary.\n\n\n\u00a0\n\n\nShare-Based\nCompensation\n\n\n\u00a0\n\n\nShare-based\npayment awards consist of options to purchase shares of our common stock issued to employees. Expense for share-based payment\nawards consist of options to purchase shares of our common stock issued to employees for services. Expense for options is estimated\nusing the Black-Scholes pricing model at the date of grant and expense for restricted stock is determined by the closing price\non the day the grant is made. Expense is recognized on a straight-line basis over the requisite service or vesting period of the\naward, or at the time services are provided for non-employee awards. In determining the fair value of options, we make various\nassumptions using the Black-Scholes pricing model, including expected risk-free interest rate, stock price volatility, and life.\nSee Note 8 to the Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K for a description of these\nassumptions.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n17\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nResults\nof Operations\n\n\n\u00a0\n\n\nFiscal\nYear Ended June 30, 2023 Compared to Fiscal Year Ended June 30, 2022\n\n\n\u00a0\n\n\nRevenues\n\n\n\n\u00a0\n\n\nRevenue\nfor the fiscal years ended June 30, 2023 and 2022 are summarized in the table below.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFiscal\n    Years Ended June 30,\n\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\u00a0\n\n\nIncrease\n    (Decrease)\n\u00a0\n\n\n\n\nHome Care Revenue\n\u00a0\n\n\n$\n43,945,000\n\u00a0\n\u00a0\n\n\n$\n38,004,000\n\u00a0\n\u00a0\n\n\n$\n5,941,000\n\u00a0\n\u00a0\n\n\n\u00a0\n15.6\n%\n\n\n\n\nInstitutional Revenue\n\u00a0\n\n\n\u00a0\n2,080,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,660,000\n\u00a0\n\u00a0\n\n\n\u00a0\n420,000\n\u00a0\n\u00a0\n\n\n\u00a0\n25.3\n%\n\n\n\n\nHome Care Distributor Revenue\n\u00a0\n\n\n\u00a0\n1,618,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,474,000\n\u00a0\n\u00a0\n\n\n\u00a0\n144,000\n\u00a0\n\u00a0\n\n\n\u00a0\n9.8\n%\n\n\n\n\nInternational Revenue\n\u00a0\n\n\n\u00a0\n424,000\n\u00a0\n\u00a0\n\n\n\u00a0\n521,000\n\u00a0\n\u00a0\n\n\n\u00a0\n(97,000\n)\n\u00a0\n\n\n\u00a0\n(18.6\n%)\n\n\n\n\nTotal Revenue\n\u00a0\n\n\n$\n48,067,000\n\u00a0\n\u00a0\n\n\n$\n41,659,000\n\u00a0\n\u00a0\n\n\n$\n6,408,000\n\u00a0\n\u00a0\n\n\n\u00a0\n15.4\n%\n\n\n\n\n\u00a0\n\n\nHome\nCare Revenue.\n Home care revenue increased by $5,941,000, or 15.6%, in fiscal 2023 compared to fiscal 2022. The revenue increase\ncompared to fiscal 2022 was primarily due to increases in referrals and approvals. The increase in referrals was primarily due\nto an increase in direct sales representatives, increased sales representative productivity driven by increased clinic access\nand patient flow, our sales team refining their selling process and clinic targeting methodology, and benefits of the CMS waiver\non the non-commercial Medicare portion of our home care revenue. Additionally, we benefitted from a Medicare allowable rate increase\nthat took effect on January 1, 2023. Annual Medicare rate increases for our device are linked closely to changes in the Urban\nConsumer Price Index.\n\n\n\u00a0\n\n\nThe\nCMS waiver benefited the non-commercial Medicare portion of our home care revenue by increasing the number of referrals and the\napproval percentage for previously non-covered diagnoses. We believe that our ongoing sales team execution, along with the return\nto pre-COVID-19 levels of patient face-to-face engagement with physicians and clinic access for our sales team mitigated the fourth\nquarter homecare revenue impact of the CMS waiver expiration on May 11, 2023.\n\n\n\u00a0\n\n\nInstitutional\nRevenue.\n Institutional revenue increased by $420,000, or 25.3%, in fiscal 2023 compared to fiscal 2022. Institutional revenue\nincludes sales to group purchasing organizations, rental companies and other institutions. The revenue increase was due to increased\ncapital purchases and stronger consumable volumes compared to fiscal 2022, as hospitals resumed utilization of HFCWO protocols\nafter reducing utilization early in the COVID-19 pandemic.\n\n\n\u00a0\n\n\nHome\nCare Distributor Revenue.\n Home care distributor revenue increased by $144,000, or 9.8%, in fiscal 2023 compared to fiscal\n2022. The revenue increase in fiscal 2023 was due to increased demand from one of our primary home care distribution partners.\nWe began selling to a limited number of home medical equipment distributors during our fiscal year ended June 30, 2020, who in\nturn sell our SmartVest System in the U.S. home care market.\n\n\n\u00a0\n\n\nInternational\nRevenue.\n International revenue decreased by $97,000, or 18.6%, in fiscal 2023 compared to fiscal 2022. International revenue\ngrowth is not currently a primary focus for us, and our corporate resources are focused on supporting and maintaining our current\ninternational distributors.\n\n\n\u00a0\n\n\nGross\nProfit \n\n\n\u00a0\n\n\nGross\nprofit increased to $36,519,000 in fiscal 2023, or 76.0% of net revenues, from $31,442,000 or 75.5% of net revenues, in fiscal\n2022. The increase in gross profit was primarily related to increases in domestic home care revenue including the Medicare allowable\nrate increase that took effect in January 2023.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n18\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe\nhave a goal of improving our gross margin percentage over time due to cost savings initiatives associated with Clearway, supplier\noptimization, and gaining operating leverage on higher volumes.\n\n\n\u00a0\n\n\nOperating\nExpenses \n\n\n\u00a0\n\n\nSelling,\nGeneral and Administrative Expenses.\n Selling, general and administrative (\u201cSG&A\u201d) expenses were $31,595,000\nin fiscal 2023, representing an increase of $4,481,000 or 16.5% from $27,114,000 in fiscal 2022.\n\n\n\u00a0\n\n\nSG&A\npayroll and compensation-related expenses including health insurance benefits and other compensation increased by $2,629,000,\nor 14.7%, to $20,552,000 in fiscal 2023, compared to $17,923,000 in fiscal 2022. The increase in the current year was primarily\ndue to a higher average number of sales, sales support and marketing personnel, increased reimbursement personnel to process higher\npatient referrals, increased temporary resources to assist with systems infrastructure investments and increased incentive payments\non higher home care revenue. We have also continued to provide regular merit-based increases for our employees and are regularly\nbenchmarking our compensation ranges for new and existing employees to ensure we can hire and retain the talent needed to drive\ngrowth in our business. Field sales employees totaled 55, of which 46 were direct sales, as of June 30, 2023, compared to 52 as\nof June 30, 2022, of which 43 were direct sales. We expect to continue to expand our salesforce to align with our revenue growth\nprojections.\n\n\n\u00a0\n\n\nProfessional\nand legal fees, including recruiting and insurance expenses, increased by $859,000, or 19.4%, to $5,284,000 in fiscal 2023, compared\nto $4,425,000 in fiscal 2022. Professional fees include services related to legal costs, shareowner services and reporting requirements,\ninformation technology technical support and consulting fees. The increase in the current year was primarily due to an increased\ninvestment in our system infrastructure and increased clinical study costs. We continue to make key investments in systems infrastructure\nincluding implementing a new enterprise resource planning system, enhancing our customer relationship management system and further\noptimizing of the revenue cycle management system that was implemented in June 2021. We expect these system infrastructure investments\nwill result in more efficient and scalable operational processes and provide enhanced analytics to drive business performance.\n\n\n\u00a0\n\n\nTotal\ndiscretionary marketing expenses increased by $211,000, or 25.6% to $1,035,000 in fiscal 2023, compared to $824,000 in fiscal\n2022. The increase in the current year was primarily due to discretionary investment in market research, physician marketing,\nand peer to peer education engagement strategies.\n\n\n\u00a0\n\n\nTravel,\nmeals and entertainment expenses increased $422,000, or 16.4%, to $2,990,000 for fiscal 2023 compared to $2,568,000 in fiscal\n2022. The increase in the current year period was primarily due to an increase in headcount and our annual sales meeting expenses.\n\n\n\u00a0\n\n\nResearch\nand Development Expenses \n\n\n\u00a0\n\n\nR&D\nexpenses decreased by $440,000, or 32.4%, to $916,000 in fiscal 2023 compared to $1,356,000 in fiscal 2022. The decrease in the\ncurrent year was primarily due to reduced professional consulting costs associated with our next generation platform development\nactivities. R&D expenses were 1.9% of revenue in fiscal 2023 compared to 3.3% of revenue in fiscal 2022. We expect R&D\nspending to be between 1.0% and 2.0% of revenue during fiscal 2024.\n\n\n\u00a0\n\n\nInterest\nIncome, net\n\n\n\u00a0\n\n\nNet\ninterest income was approximately $78,000 in fiscal 2023 compared to net interest income of $25,000 in fiscal 2022. The increase\nin the current year was primarily due to higher interest rates earned on our cash deposits despite lower overall cash balances\nin the current year.\n\n\n\u00a0\n\n\nIncome\nTax Expense\n\n\n\u00a0\n\n\nIncome\ntax expense in fiscal 2023 was $920,000, which includes a current tax expense of $963,000 and a deferred benefit of $43,000. Estimated\nincome tax expense includes a current federal and state tax benefit of approximately $250,000 related to the excess tax benefit\nfor fully vested stock options and non-qualified stock options that were exercised during the period.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n19\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIncome\ntax expense in fiscal 2022 was $692,000, which included a current tax expense of $1,181,000 and a deferred benefit of $489,000.\nEstimated income tax expense included a current federal and state tax benefit of approximately $12,000 related to excess tax benefit\nfor fully vested stock options and non-qualified stock options that were exercised during the period.\n\n\n\u00a0\n\n\nThe\neffective tax rates were 22.5% and 23.1% for fiscal 2023 and 2022, respectively. The effective tax rates differ from the statutory\nfederal rate because of state income taxes, R&D tax credits, and other permanent items that are non-deductible for tax purposes\nrelative to the amount of taxable income.\n\n\n\u00a0\n\n\nNet\nIncome\n\n\n\u00a0\n\n\nNet\nincome for fiscal 2023 was $3,166,000, compared to net income of $2,305,000 in fiscal 2022. The increase in current year net income\nwas primarily due to stronger home care and distributor revenue growth.\n\n\n\u00a0\n\n\nLiquidity\nand Capital Resources\n\n\n\u00a0\n\n\nCash\nFlows and Sources of Liquidity\n\n\n\u00a0\n\n\nCash\nFlows from Operating Activities\n\n\n\u00a0\n\n\nNet cash provided by operating activities in fiscal 2023 was $1,315,000. Cash flows from operating activities consisted of net income of $3,166,000, non-cash expenses of approximately $1,278,000, a decrease in prepaid expenses of $202,000 an increase in tax payable of approximately $285,000 and a $696,000 increase in accounts payable and accrued liabilities, and accrued compensation. These cash flows from operating activities were offset by a $3,078,000 increase in accounts receivable, an increase in inventory of $1,033,000, and a $201,000 increase in contract assets. The increase in accounts receivable was primarily due to an increase in the Medicare portion of our home care business, which has a 13-month payment cycle.  The increase in inventory was primarily due to an increase in raw materials associated with the launch of Clearway. Our cash receipt collection remains strong, with the three months ended June 30, 2023, period having the highest cash receipt collections in our company's history, building upon the prior record that was set in the previous quarter.\n\n\n\u00a0\n\n\nCash\nFlows from Investing Activities\n\n\n\u00a0\n\n\nNet\ncash used in investing activities in fiscal 2023 was approximately $1,716,000. Cash used in investing activities consisted of\napproximately $1,648,000 in expenditures for property and equipment, approximately $1,083,000 for software and $565,000 for equipment,\nand $68,000 in payments for patent and trademark costs.\n\n\n\u00a0\n\n\nCash\nFlows from Financing Activities\n\n\n\u00a0\n\n\nNet\ncash used in financing activities in fiscal 2023 was approximately $380,000, consisting of $153,000 used for our share repurchase\nprogram and $310,000 for taxes paid on net share settlements of stock option exercises offset by $83,000 of cash provided by the\nissuance of common stock upon exercise of options.\n\n\n\u00a0\n\n\nAdequacy\nof Capital Resources\n\n\n\u00a0\n\n\nOur\nprimary working capital requirements relate to adding employees to our sales force and support functions, continuing infrastructure\ninvestments, and supporting general corporate needs, including financing equipment purchases and other capital expenditures incurred\nin the ordinary course of business. Based on our current operational performance, we believe our working capital of approximately\n$29,734,000 and available borrowings under our existing credit facility will provide adequate liquidity for fiscal 2024.\n\n\n\u00a0\n\n\nEffective\nDecember 17, 2021, we renewed our credit facility, which provides us with a revolving line of credit. Interest on borrowings on\nthe line of credit accrues at the prime rate (8.25% as of June 30, 2023) less 1.0% and is payable monthly. There was no outstanding\nprincipal balance on the line of credit as of June 30, 2023 or June 30, 2022. The amount eligible for borrowing on the line of\ncredit is limited to the lesser of $2,500,000 or 57.0% of eligible accounts receivable, and the line of credit expires on December\n18, 2023, if not renewed. As of June 30, 2023, the maximum $2,500,000 was available under the line of credit. Payment obligations\nunder the line of credit are secured by a security interest in substantially all of our tangible and intangible assets.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n20\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe\ndocuments governing our line of credit contain certain financial and nonfinancial covenants that include a minimum tangible net\nworth of not less than $10,125,000 and restrictions on our ability to incur certain additional indebtedness or pay dividends.\n\n\n\u00a0\n\n\nAny\nfailure to comply with these covenants in the future may result in an event of default, which if not cured or waived, could result\nin the lender accelerating the maturity of our indebtedness, preventing access to additional funds under the line of credit, requiring\nprepayment of outstanding indebtedness, or refusing to renew the line of credit. If the maturity of the indebtedness is accelerated\nor the line of credit is not renewed, sufficient cash resources to satisfy the debt obligations may not be available and we may\nnot be able to continue operations as planned. If we are unable to repay such indebtedness, the lender could foreclose on these\nassets.\n\n\n\u00a0\n\n\nDuring\nfiscal 2023 and 2022, we spent approximately $1,648,000 and $1,425,000, respectively, on property and equipment. We currently\nexpect to finance planned equipment purchases with cash flows from operations or borrowings under our credit facility. We may\nneed to incur additional debt if we have an unforeseen need for additional capital equipment or if our operating performance does\nnot generate adequate cash flows.\n\n\n\u00a0\n\n\nWhile\nthe impact of macroeconomic conditions and other factors such as inflation are difficult to predict, we believe our cash, cash\nequivalents and cash flows from operations will be sufficient to meet our working capital, capital expenditure, operational cash\nrequirements for fiscal 2024.\n\n\n\u00a0\n\n\nAccounting\nStandards Recently Issued But Not Yet Adopted by the Company \n\n\n\u00a0\n\n\nSee\nNote 1 of the Notes to our Financial Statements in this Annual Report on Form 10-K for information on new accounting standards\nadopted in fiscal 2023 or pending adoption.\n\n\n\u00a0\n\n\n\n\nItem\n                                         7A.\nQuantitative\n                                         and Qualitative Disclosures About Market Risk.\n\n\n\u00a0\n\n\nAs\na smaller reporting company, we are not required to provide disclosure pursuant to this item.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n21\n\n\n\u00a0\n\n\n\n\n\n\nItem\n                          8.\nFinancial\n                                        Statements and Supplementary Data.\n\n\n\u00a0\n\n\nIndex\nto Financial Statements\n\n\n\u00a0\n\n\n\n\n\n\nReport of Independent Registered Public Accounting Firm\n\n\nF-2\n\n\n\n\n\u00a0\n\n\n\n\n\n\nBalance Sheets\n\n\nF-4\n\n\n\n\n\u00a0\n\n\n\n\n\n\nStatements of Operations\n\n\nF-5\n\n\n\n\n\u00a0\n\n\n\n\n\n\nStatements of Shareholders\u2019 Equity\n\n\nF-6\n\n\n\n\n\u00a0\n\n\n\n\n\n\nStatements of Cash Flows\n\n\nF-7\n\n\n\n\n\u00a0\n\n\n\n\n\n\nNotes to Financial Statements\n\n\nF-8\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0F-\n1\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nReport\nof Independent Registered Public Accounting Firm\n\n\n\u00a0\n\n\nShareholders\nand Board of Directors\n\n\nElectromed,\nInc.\n\n\n\u00a0\n\n\nOpinion\non the Financial Statements\n\n\nWe have audited the accompanying balance sheets of Electromed, Inc. (the Company) as of June 30, 2023 and 2022, the related statements of operations, shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.\n\n\n\u00a0\n\n\nBasis\nfor Opinion\n\n\nThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\n\n\u00a0\n\n\nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.\n\n\n\u00a0\n\n\nOur audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.\n\n\n\u00a0\n\n\nCritical\nAudit Matter\n\n\nThe critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.\n\n\n\u00a0\n\n\nMeasurement\nof Customer Revenue Net of Adjustments\n\n\n\u00a0\n\n\nAs discussed in Note 2 to the financial statements, revenues are recognized at a point in time when control passes to the customer upon product shipment or delivery. Net patient revenues (patient revenue less estimated adjustments) are recognized at the estimated net realizable amounts from third-party payers and customers in exchange for the product. The Company has agreements with third-party payers that provide for payments at amounts different from its established rates. Each quarter, the Company estimates its adjustments for each sale based on the terms of third-party payer contracts and historical collections experience, then applies an estimate for an adjustment reserve percentage to the gross accounts receivable balances. \n\n\n\u00a0\n\n\nWe identified the measurement of the adjustment reserve related to customer revenue as a critical audit matter due to the audit effort, degree of auditor judgment, and subjectivity involved in evaluating the audit evidence related to management\u2019s estimate. \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n2\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur audit procedures related to the Company\u2019s measurement of the adjustment reserve included the following, among others.\n\n\n\u00a0\n\n\n\n\n\u25cf\nSelected a sample of product sales to inspect and compare to the underlying source documents and final cash collections to test the reasonableness of the contractual adjustment and collection percentage assumptions used in management\u2019s estimate.\n\n\n\n\n\n\n\u25cf\nEvaluated\n                                         the reasonableness of management\u2019s estimate of contractual and collection reserves\n                                         by:\n\n\n\n\n\n\no\nComparing\n                                         the estimates of realization percentages to historical net collection percentages for\n                                         portfolio groups.\n\n\n\n\n\n\no\nRecalculating\n                                         the contractual and collection reserve estimates and compared them to the general ledger.\n\n\n\n\n\n\no\nEvaluating whether quarterly historical realization percentages were reasonable and qualitatively consistent with internal and external independent data \n\n\n\u00a0\n\n\n/s/\nRSM US LLP\n\n\n\u00a0\n\n\nWe\nhave served as the Company\u2019s auditor since 2010.\n\n\n\u00a0\n\n\nRochester,\nMinnesota\n\n\nAugust\u00a022,\n2023\n\n\n\u00a0\n\n\n\n\n\u00a0F-\n3\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nElectromed,\nInc.\n\n\nBalance\nSheets\n\n\nJune 30, 2023 and 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nJune\n    30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nAssets\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\nCurrent Assets\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nCash and cash equivalents\n\u00a0\n\n\n$\n7,372,000\n\u00a0\n\u00a0\n\n\n$\n8,153,000\n\u00a0\n\n\n\n\nAccounts receivable (net of allowances for doubtful accounts of $\n45,000\n)\n\u00a0\n\n\n\u00a0\n24,130,000\n\u00a0\n\u00a0\n\n\n\u00a0\n21,052,000\n\u00a0\n\n\n\n\nContract assets\n\u00a0\n\n\n\u00a0\n487,000\n\u00a0\n\u00a0\n\n\n\u00a0\n286,000\n\u00a0\n\n\n\n\nInventories\n\u00a0\n\n\n\u00a0\n4,221,000\n\u00a0\n\u00a0\n\n\n\u00a0\n3,178,000\n\u00a0\n\n\n\n\nPrepaid expenses and other current assets\n\u00a0\n\n\n\u00a0\n1,577,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,870,000\n\u00a0\n\n\n\n\nTotal current assets\n\u00a0\n\n\n\u00a0\n37,787,000\n\u00a0\n\u00a0\n\n\n\u00a0\n34,539,000\n\u00a0\n\n\n\n\nProperty and equipment, net\n\u00a0\n\n\n\u00a0\n5,672,000\n\u00a0\n\u00a0\n\n\n\u00a0\n4,568,000\n\u00a0\n\n\n\n\nFinite-life intangible assets, net\n\u00a0\n\n\n\u00a0\n605,000\n\u00a0\n\u00a0\n\n\n\u00a0\n599,000\n\u00a0\n\n\n\n\nOther assets\n\u00a0\n\n\n\u00a0\n161,000\n\u00a0\n\u00a0\n\n\n\u00a0\n120,000\n\u00a0\n\n\n\n\nDeferred income taxes\n\u00a0\n\n\n\u00a0\n1,581,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,538,000\n\u00a0\n\n\n\n\nTotal assets\n\u00a0\n\n\n$\n45,806,000\n\u00a0\n\u00a0\n\n\n$\n41,364,000\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nLiabilities and Shareholders\u2019 Equity\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nCurrent Liabilities\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nAccounts payable\n\u00a0\n\n\n$\n1,372,000\n\u00a0\n\u00a0\n\n\n$\n1,261,000\n\u00a0\n\n\n\n\nAccrued compensation\n\u00a0\n\n\n\u00a0\n3,018,000\n\u00a0\n\u00a0\n\n\n\u00a0\n2,742,000\n\u00a0\n\n\n\n\nIncome tax payable\n\u00a0\n\n\n\u00a0\n336,000\n\u00a0\n\u00a0\n\n\n\u00a0\n51,000\n\u00a0\n\n\n\n\nWarranty reserve\n\u00a0\n\n\n\u00a0\n1,378,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,256,000\n\u00a0\n\n\n\n\nOther accrued liabilities\n\u00a0\n\n\n\u00a0\n1,949,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,840,000\n\u00a0\n\n\n\n\nTotal current liabilities\n\u00a0\n\n\n\u00a0\n8,053,000\n\u00a0\n\u00a0\n\n\n\u00a0\n7,150,000\n\u00a0\n\n\n\n\nOther long-term liabilities\n\u00a0\n\n\n\u00a0\n86,000\n\u00a0\n\u00a0\n\n\n\u00a0\n41,000\n\u00a0\n\n\n\n\nTotal liabilities\n\u00a0\n\n\n\u00a0\n8,139,000\n\u00a0\n\u00a0\n\n\n\u00a0\n7,191,000\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nCommitments and Contingencies (Note 11)\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nShareholders\u2019 Equity\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nCommon stock, $\n0.01\n par value, \n13,000,000\n shares authorized; \n8,555,238\n and \n8,475,438\n issued and outstanding, as of June 30, 2023 and June 30, 2022, respectively\n\u00a0\n\n\n\u00a0\n86,000\n\u00a0\n\u00a0\n\n\n\u00a0\n85,000\n\u00a0\n\n\n\n\nAdditional paid-in capital\n\u00a0\n\n\n\u00a0\n18,788,000\n\u00a0\n\u00a0\n\n\n\u00a0\n18,308,000\n\u00a0\n\n\n\n\nRetained earnings\n\u00a0\n\n\n\u00a0\n18,793,000\n\u00a0\n\u00a0\n\n\n\u00a0\n15,780,000\n\u00a0\n\n\n\n\nTotal shareholders\u2019 equity\n\u00a0\n\n\n\u00a0\n37,667,000\n\u00a0\n\u00a0\n\n\n\u00a0\n34,173,000\n\u00a0\n\n\n\n\nTotal liabilities and shareholders\u2019 equity\n\u00a0\n\n\n$\n45,806,000\n\u00a0\n\u00a0\n\n\n$\n41,364,000\n\u00a0\n\n\n\n\n\u00a0\n\n\nSee\nNotes to Financial Statements.\n\n\n\n\n\n\n\u00a0F-\n4\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nElectromed,\nInc. \n\n\nStatements\nof Operations\n\n\nYears Ended June 30, 2023 and 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nYears\n    Ended June 30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nNet revenues\n\u00a0\n\n\n$\n48,067,000\n\u00a0\n\u00a0\n\n\n$\n41,659,000\n\u00a0\n\n\n\n\nCost of revenues\n\u00a0\n\n\n\u00a0\n11,548,000\n\u00a0\n\u00a0\n\n\n\u00a0\n10,217,000\n\u00a0\n\n\n\n\nGross profit\n\u00a0\n\n\n\u00a0\n36,519,000\n\u00a0\n\u00a0\n\n\n\u00a0\n31,442,000\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nOperating expenses\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nSelling, general and administrative\n\u00a0\n\n\n\u00a0\n31,595,000\n\u00a0\n\u00a0\n\n\n\u00a0\n27,114,000\n\u00a0\n\n\n\n\nResearch and development\n\u00a0\n\n\n\u00a0\n916,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,356,000\n\u00a0\n\n\n\n\nTotal operating expenses\n\u00a0\n\n\n\u00a0\n32,511,000\n\u00a0\n\u00a0\n\n\n\u00a0\n28,470,000\n\u00a0\n\n\n\n\nOperating income\n\u00a0\n\n\n\u00a0\n4,008,000\n\u00a0\n\u00a0\n\n\n\u00a0\n2,972,000\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nInterest income, net\n\u00a0\n\n\n\u00a0\n78,000\n\u00a0\n\u00a0\n\n\n\u00a0\n25,000\n\u00a0\n\n\n\n\nNet income before income taxes\n\u00a0\n\n\n\u00a0\n4,086,000\n\u00a0\n\u00a0\n\n\n\u00a0\n2,997,000\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nIncome tax expense\n\u00a0\n\n\n\u00a0\n920,000\n\u00a0\n\u00a0\n\n\n\u00a0\n692,000\n\u00a0\n\n\n\n\nNet income\n\u00a0\n\n\n$\n3,166,000\n\u00a0\n\u00a0\n\n\n$\n2,305,000\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nIncome per share:\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nBasic\n\u00a0\n\n\n$\n0.37\n\u00a0\n\u00a0\n\n\n$\n0.27\n\u00a0\n\n\n\n\nDiluted\n\u00a0\n\n\n$\n0.36\n\u00a0\n\u00a0\n\n\n$\n0.26\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nWeighted-average common shares outstanding:\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nBasic\n\u00a0\n\n\n\u00a0\n8,463,684\n\u00a0\n\u00a0\n\n\n\u00a0\n8,471,320\n\u00a0\n\n\n\n\nDiluted\n\u00a0\n\n\n\u00a0\n8,700,833\n\u00a0\n\u00a0\n\n\n\u00a0\n8,768,703\n\u00a0\n\n\n\n\n\u00a0\n\n\nSee\nNotes to Financial Statements.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n5\n\n\n\u00a0\n\n\n\n\n\u00a0\u00a0\n\n\nElectromed,\nInc.\n\n\nStatements of Shareholders\u2019 Equity\n\n\nYears Ended June 30, 2023 and 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\nAdditional\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\nTotal\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nCommon\n    Stock\n\u00a0\n\u00a0\n\n\nPaid-in\n\u00a0\n\u00a0\n\n\nRetained\n\u00a0\n\u00a0\n\n\n\n\nShareholders\u2019\n\n\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nShares\n\u00a0\n\u00a0\n\n\nAmount\n\u00a0\n\u00a0\n\n\nCapital\n\u00a0\n\u00a0\n\n\nEarnings\n\u00a0\n\u00a0\n\n\nEquity\n\u00a0\n\n\n\n\nBalance\n    as of June 30, 2021\n\u00a0\n\n\n\u00a0\n8,533,209\n\u00a0\n\u00a0\n\n\n$\n85,000\n\u00a0\n\u00a0\n\n\n$\n17,409,000\n\u00a0\n\u00a0\n\n\n$\n14,922,000\n\u00a0\n\u00a0\n\n\n$\n32,416,000\n\u00a0\n\n\n\n\nNet\n    income\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n2,305,000\n\u00a0\n\u00a0\n\n\n\u00a0\n2,305,000\n\u00a0\n\n\n\n\nIssuance\n    of restricted stock\n\u00a0\n\n\n\u00a0\n49,400\n\u00a0\n\u00a0\n\n\n\u00a0\n1,000\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n1,000\n\u00a0\n\n\n\n\nIssuance\n    of common stock upon exercise of options\n\u00a0\n\n\n\u00a0\n13,245\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\nTaxes\n    paid on stock option exercised on a net basis\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n77,000\n)\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n77,000\n)\n\n\n\n\nShare-based\n    compensation expense\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n976,000\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n976,000\n\u00a0\n\n\n\n\nRepurchase\n    of common stock\n\u00a0\n\n\n\u00a0\n(\n120,416\n)\n\u00a0\n\n\n\u00a0\n(\n1,000\n)\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n1,447,000\n)\n\u00a0\n\n\n\u00a0\n(\n1,448,000\n)\n\n\n\n\nBalance\n    as of June 30, 2022\n\u00a0\n\n\n\u00a0\n8,475,438\n\u00a0\n\u00a0\n\n\n\u00a0\n85,000\n\u00a0\n\u00a0\n\n\n\u00a0\n18,308,000\n\u00a0\n\u00a0\n\n\n\u00a0\n15,780,000\n\u00a0\n\u00a0\n\n\n\u00a0\n34,173,000\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nNet\n    income\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n3,166,000\n\u00a0\n\u00a0\n\n\n\u00a0\n3,166,000\n\u00a0\n\n\n\n\nIssuance\n    of restricted stock, net\n\u00a0\n\n\n\u00a0\n28,701\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\nIssuance\n    of common stock upon exercise of options\n\u00a0\n\n\n\u00a0\n66,467\n\u00a0\n\u00a0\n\n\n\u00a0\n1,000\n\u00a0\n\u00a0\n\n\n\u00a0\n82,000\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n83,000\n\u00a0\n\n\n\n\nTaxes\n    paid on stock option exercised on a net basis\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n310,000\n)\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n310,000\n)\n\n\n\n\nShare-based\n    compensation expense\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n708,000\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n708,000\n\u00a0\n\n\n\n\nRepurchase\n    of common stock\n\u00a0\n\n\n\u00a0\n(\n15,368\n)\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n153,000\n)\n\u00a0\n\n\n\u00a0\n(\n153,000\n)\n\n\n\n\nBalance\n    as of June 30, 2023\n\u00a0\n\n\n\u00a0\n8,555,238\n\u00a0\n\u00a0\n\n\n$\n86,000\n\u00a0\n\u00a0\n\n\n$\n18,788,000\n\u00a0\n\u00a0\n\n\n$\n18,793,000\n\u00a0\n\u00a0\n\n\n$\n37,667,000\n\u00a0\n\n\n\n\n\u00a0\n\n\nSee\nNotes to Financial Statements.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n6\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nElectromed, Inc. \n\n\nStatements of Cash Flows\n\n\nYears Ended June 30, 2023 and 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nYears\n    Ended June 30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nCash Flows from Operating Activities\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nNet income\n\u00a0\n\n\n$\n3,166,000\n\u00a0\n\u00a0\n\n\n$\n2,305,000\n\u00a0\n\n\n\n\nAdjustments to reconcile net income to net cash provided by (used in operating activities:\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nDepreciation\n\u00a0\n\n\n\u00a0\n550,000\n\u00a0\n\u00a0\n\n\n\u00a0\n503,000\n\u00a0\n\n\n\n\nAmortization of finite-life intangible assets\n\u00a0\n\n\n\u00a0\n63,000\n\u00a0\n\u00a0\n\n\n\u00a0\n125,000\n\u00a0\n\n\n\n\nShare-based compensation expense\n\u00a0\n\n\n\u00a0\n708,000\n\u00a0\n\u00a0\n\n\n\u00a0\n976,000\n\u00a0\n\n\n\n\nDeferred income taxes\n\u00a0\n\n\n\u00a0\n(\n43,000\n)\n\u00a0\n\n\n\u00a0\n(\n489,000\n)\n\n\n\n\nChanges in operating assets and liabilities:\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nAccounts receivable\n\u00a0\n\n\n\u00a0\n(\n3,078,000\n)\n\u00a0\n\n\n\u00a0\n(\n4,020,000\n)\n\n\n\n\nContract assets\n\u00a0\n\n\n\u00a0\n(\n201,000\n)\n\u00a0\n\n\n\u00a0\n107,000\n\u00a0\n\n\n\n\nInventories\n\u00a0\n\n\n\u00a0\n(\n1,033,000\n)\n\u00a0\n\n\n\u00a0\n(\n1,072,000\n)\n\n\n\n\nPrepaid expenses and other current assets\n\u00a0\n\n\n\u00a0\n202,000\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n1,322,000\n)\n\n\n\n\nIncome tax payable\n\u00a0\n\n\n\u00a0\n285,000\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n237,000\n)\n\n\n\n\nAccounts payable and accrued liabilities\n\u00a0\n\n\n\u00a0\n420,000\n\u00a0\n\u00a0\n\n\n\u00a0\n2,170,000\n\u00a0\n\n\n\n\nAccrued compensation\n\u00a0\n\n\n\u00a0\n276,000\n\u00a0\n\u00a0\n\n\n\u00a0\n268,000\n\u00a0\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Net cash provided by (used in) operating activities\n\u00a0\n\n\n\u00a0\n1,315,000\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n686,000\n)\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nCash Flows from Investing Activities\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nExpenditures for property and equipment\n\u00a0\n\n\n\u00a0\n(\n1,648,000\n)\n\u00a0\n\n\n\u00a0\n(\n1,425,000\n)\n\n\n\n\nExpenditures for finite-life intangible assets\n\u00a0\n\n\n\u00a0\n(\n68,000\n)\n\u00a0\n\n\n\u00a0\n(\n100,000\n)\n\n\n\n\nNet cash used in investing activities\n\u00a0\n\n\n\u00a0\n(\n1,716,000\n)\n\u00a0\n\n\n\u00a0\n(\n1,525,000\n)\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nCash Flows from Financing Activities\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nIssuance of common stock upon exercise of options\n\u00a0\n\n\n\u00a0\n83,000\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\nTaxes paid on stock options exercised on a net basis\n\u00a0\n\n\n\u00a0\n(\n310,000\n)\n\u00a0\n\n\n\u00a0\n(\n77,000\n)\n\n\n\n\nRepurchase of common stock\n\u00a0\n\n\n\u00a0\n(\n153,000\n)\n\u00a0\n\n\n\u00a0\n(\n1,448,000\n)\n\n\n\n\nNet cash used in financing activities\n\u00a0\n\n\n\u00a0\n(\n380,000\n)\n\u00a0\n\n\n\u00a0\n(\n1,525,000\n)\n\n\n\n\nNet decrease in cash\n\u00a0\n\n\n\u00a0\n(\n781,000\n)\n\u00a0\n\n\n\u00a0\n(\n3,736,000\n)\n\n\n\n\nCash and cash equivalents\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nBeginning of period\n\u00a0\n\n\n\u00a0\n8,153,000\n\u00a0\n\u00a0\n\n\n\u00a0\n11,889,000\n\u00a0\n\n\n\n\nEnd of period\n\u00a0\n\n\n$\n7,372,000\n\u00a0\n\u00a0\n\n\n$\n8,153,000\n\u00a0\n\n\n\n\n\n\n\n\nSupplemental Disclosures of Cash Flow Information\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\u00a0\u00a0Cash paid for income taxes\n\u00a0\n\n\n$\n676,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,418,000\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nSupplemental Disclosures of Noncash Investing and Financing Activities\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\u00a0\u00a0Property and equipment acquisitions in accounts payable\n\u00a0\n\n\n$\n60,000\n\u00a0\n\u00a0\n\n\n$\n44,000\n\u00a0\n\n\n\n\n\u00a0\u00a0\u00a0Intangible asset acquisitions in accounts payable\n\u00a0\n\n\n$\n4,000\n\u00a0\n\u00a0\n\n\n$\n3,000\n\u00a0\n\n\n\n\n\u00a0\u00a0\u00a0Lease assets obtained in exchange for new operating lease liabilities\n\u00a0\n\n\n$\n120,000\n\u00a0\n\u00a0\n\n\n$\n117,000\n\u00a0\n\n\n\n\n\u00a0\u00a0\u00a0Demonstration equipment returned to inventory\n\u00a0\n\n\n$\n10,000\n\u00a0\n\u00a0\n\n\n$\n8,000\n\u00a0\n\n\n\n\n\u00a0\n\n\nSee\nNotes to Financial Statements.\n\n\n\u00a0\n\n\n\n\n\u00a0F-\n7\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nElectromed,\nInc.\n\n\nNotes to Financial Statements\n\n\n\u00a0\n\n\n\n\n\n\nNote 1.\n\n\nNature of Business and Summary of Significant Accounting\nPolicies\n \n\n\n\n\n\u00a0\n\n\nNature\nof business:\n Electromed, Inc. (the \u201cCompany\u201d) develops, manufactures and markets innovative airway clearance products\nthat apply High Frequency Chest Wall Oscillation (\u201cHFCWO\u201d) therapy in pulmonary care for patients of all ages. The\nCompany markets its products in the U.S. to the home health care and institutional markets for use by patients in personal residences,\nhospitals and clinics. The Company also sells internationally both directly and through distributors. International sales were\n$\n424,000\n and $\n521,000\n for the fiscal years ended June 30, 2023 (\u201cfiscal 2023\u201d) and June 30, 2022 (\u201cfiscal 2022\u201d),\nrespectively. Since its inception, the Company has operated in a single industry segment: developing, manufacturing, and marketing\nmedical equipment.\n\n\n\u00a0\n\n\nImpacts\nof COVID-19 on the Company\u2019s business\n\n\n\u00a0\n\n\nThe\nCompany did not receive any direct financial assistance from any government program during fiscal 2022 or fiscal 2023 in connection\nwith COVID-19 relief measures.\n\n\n\u00a0\n\n\nIn\nresponse to the COVID-19 pandemic and the U.S. federal government\u2019s declaration of a public health emergency, the Centers\nfor Medicare and Medicaid Services (\u201cCMS\u201d) implemented a number of temporary rule changes and waivers to allow prescribers\nto best treat patients during the period of the public health emergency. These waivers were made retroactively effective to March\n1, 2020 and were in place for the duration of fiscal 2021 and fiscal 2022 and through May 11, 2023. Clinical indications and documentation\ntypically required were not enforced for respiratory related products including the Company\u2019s SmartVest\u00ae Airway Clearance\nSystem (\u201cSmartVest System\u201d) (solely with respect to direct Medicare covered patients) applicable for the Company\u2019s\nhome care prescriptions.\n\n\n\u00a0\n\n\nThe\npotential impact of the COVID-19 pandemic and its effects on our operational and financial performance will depend in large part\non future developments, which cannot be reasonably estimated at this time.\n\n\n\u00a0\n\n\nA\nsummary of the Company\u2019s significant accounting policies follows:\n\n\n\u00a0\n\n\nUse\nof estimates\n:\n Management uses estimates and assumptions in preparing the financial statements in accordance with U.S. generally\naccepted accounting principles (\u201cU.S. GAAP\u201d). Those estimates and assumptions affect the reported amounts of assets\nand liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could\nvary from the estimates that were used. The Company believes the critical accounting policies that require the most significant\nassumptions and judgments in the preparation of its financial statements include revenue recognition and the related estimation\nof variable consideration, inventory valuation, share-based compensation and warranty reserve.\n\n\n\u00a0\n\u00a0\n\n\nRevenue\nrecognition\n:\n Revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable\nestimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration\npaid or payable to customers and significant financing components. Revenue from all customers is recognized when a performance\nobligation is satisfied by transferring control of a distinct good or service to a customer. See Note 2 for information on revenue.\n\n\n\u00a0\n\n\nShipping\nand handling expense\n:\n Shipping and handling charges incurred by the Company are included in cost of revenues and were $\n896,000\n\nand $\n982,000\n for fiscal 2023 and 2022, respectively.\n\n\n\u00a0\n\n\nCash\nand cash equivalents\n:\n Cash and cash equivalents consist of cash in bank deposits and money market funds with original maturities\nof three months or less at the time of purchase. The Company has not experienced any losses in these accounts.\n\n\n\u00a0\n\n\nAccounts\nreceivable\n:\n The Company\u2019s accounts receivable balance is comprised of amounts due from individuals, institutions and\ndistributors. Balances due from individuals are typically remitted to the Company by third-party reimbursement agencies such as\nMedicare, Medicaid and private insurance companies. Accounts receivable are carried at amounts estimated to be received from patients\nunder reimbursement arrangements with third-party payers. Accounts receivable are also net of an allowance for doubtful accounts.\nManagement determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering\na customer\u2019s financial condition and credit history. Receivables are written off when deemed uncollectible. Recoveries of\nreceivables previously written off are recorded when received. The allowance for doubtful accounts was $\n45,000\n as of June 30,\n2023 and 2022.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n8\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nContract\nassets\n: \nContract assets include amounts recognized as revenue that are estimates of variable consideration for Medicare appeals\nwhere the final determination of the insurance coverage amount is dependent on future approval of an appeal, or when the consideration\ndue to the Company is dependent on a future event such as the patient meeting a deductible prior to the Company\u2019s claim\nbeing processed by the payer. Contract assets are classified as current as amounts will turn into accounts receivable and be collected\nduring the Company\u2019s normal business operating cycle. Contract assets are reclassified to accounts receivable when the right\nto receive payment is unconditional.\n\n\n\u00a0\n\n\nInventories\n:\n\nInventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Work in process and finished\ngoods are carried at standard cost, which approximates actual cost, and includes materials, labor and allocated overhead. Standard\ncosts are reviewed at least quarterly by management, or more often in the event circumstances indicate a change in cost has occurred.\nThe reserve for obsolescence is determined by analyzing the inventory on hand and comparing it to expected future sales. Estimated\ninventory to be returned is based on how many devices that have shipped that are expected to be returned prior to completion of\nthe insurance reimbursement process.\n\n\n\u00a0\n\n\nProperty\nand equipment\n:\n Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the\nstraight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of\ntheir estimated useful lives or the remaining lease term. The Company retains ownership of demonstration equipment in the possession\nof both inside and outside sales representatives, who use the equipment in the sales process.\n\n\n\u00a0\n\n\nLeases\n:\n\nThe Company determines if an arrangement is a lease at inception. Where an arrangement is a lease, the Company determines\nif it is an operating lease or a finance lease. At lease commencement, the Company records a lease liability and corresponding\nright of use ROU asset. Lease liabilities represent the present value of our future lease payments over the expected lease term,\nwhich includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. The present\nvalue of the Company\u2019s lease liability is determined using its incremental collateralized borrowing rate at lease inception.\nROU assets represent the Company\u2019s right to control the use of the leased assets during the lease and are recognized in\nan amount equal to the lease liability for leases with an initial term greater than 12 months. Over the lease term (operating\nleases only), the Company uses the effective interest rate method to account for the lease liability as lease payments are made\nand the ROU asset is amortized to consolidated statement of operations in a manner that results in straight line expense recognition.\n\n\n\u00a0\n\n\nFinite-life\nintangible assets\n:\n Finite-life intangible assets include patents and trademarks. These intangible assets are amortized on\na straight-line basis over their estimated useful lives, as described in Note 5.\n\n\n\u00a0\n\n\nLong-lived\nassets\n:\n Long-lived assets, primarily property and equipment and finite-life intangible assets, are evaluated for impairment\nwhenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable. In\nevaluating recoverability, the following factors, among others, are considered: a significant change in the circumstances used\nto determine the amortization period, an adverse change in legal factors or in the business climate, a transition to a new product\nor service strategy, a significant change in customer base, and a realization of failed marketing efforts. The recoverability\nof an asset or asset group is measured by a comparison of the carrying value of the asset to future undiscounted cash flows.\n\n\n\u00a0\n\n\nIf\nthe Company believes the carrying value is unrecoverable, then it recognizes an impairment charge necessary to reduce the unamortized\nbalance to the estimated fair value of the asset or asset group. The amount of such impairment is charged to operations in the\ncurrent period.\n\n\n\u00a0\n\n\nWarranty\nliability\n:\n The Company provides a lifetime warranty on its products to the prescribed patient for sales within the U.S. and\na three-year warranty for all institutional sales and sales to individuals outside the U.S. The Company estimates the costs that\nmay be incurred under its warranty and records a liability in the amount of such costs at the time the product is shipped or delivered.\nFactors that affect the Company\u2019s warranty liability include the number of units shipped, historical and anticipated rates\nof warranty claims, the product\u2019s useful life, and cost per claim. The Company periodically assesses the adequacy of its\nrecorded warranty liability and adjusts the amounts as necessary.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n9\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nChanges\nin the Company\u2019s warranty liability were as follows:\n\n\n\u00a0\nSchedule of changes in warranty liability\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nYears\n    Ended June 30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nBeginning warranty reserve\n\u00a0\n\n\n$\n1,256,000\n\u00a0\n\u00a0\n\n\n$\n940,000\n\u00a0\n\n\n\n\nAccrual for products sold\n\u00a0\n\n\n\u00a0\n416,000\n\u00a0\n\u00a0\n\n\n\u00a0\n494,000\n\u00a0\n\n\n\n\nExpenditures and costs incurred for warranty claims\n\u00a0\n\n\n\u00a0\n(\n294,000\n)\n\u00a0\n\n\n\u00a0\n(\n178,000\n)\n\n\n\n\nEnding warranty reserve\n\u00a0\n\n\n$\n1,378,000\n\u00a0\n\u00a0\n\n\n$\n1,256,000\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nIncome\ntaxes\n:\n Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary\ndifferences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary\ndifferences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.\nDeferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some\nportion or all of the deferred tax assets will not be realized. The Company reverses a valuation allowance if it determines, based\non the weight of all available evidence, including when cumulative losses become positive income, that it is more likely than\nnot that some or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects\nof changes in tax laws and rates on the date of enactment.\n\n\n\u00a0\n\n\nThe\nCompany recognizes tax liabilities when the Company believes that certain positions may not be fully sustained upon review by\ntax authorities. Benefits from tax positions are measured at the largest amount of benefit that is greater than 50 percent likely\nof being realized upon settlement. To the extent that the final tax outcome of these matters is different than the amounts recorded,\nsuch differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any,\nrelated to accrued liabilities for potential tax assessments are included in income tax expense.\n\n\n\u00a0\n\n\nResearch\nand development\n:\n Research and development costs include costs of research activities as well as engineering and technical\nefforts required to develop new products or make improvements to existing products. Research and development costs are expensed\nas incurred.\n\n\n\u00a0\n\n\nAdvertising\ncosts\n:\n Advertising costs are charged to expense when incurred. Advertising, marketing and trade show costs for fiscal 2023\nand 2022 were $\n1,244,000\n and $\n936,000\n, respectively.\n\n\n\u00a0\n\n\nShare-based\npayments\n:\n Share-based payment awards consist of options to purchase shares of common stock and restricted shares of common\nstock issued to employees for services. Expense for options is estimated using the Black-Scholes pricing model at the date of\ngrant and expense for restricted stock is determined by the closing price on the day the grant is made. Expense is recognized\non a graded vesting basis over the requisite service or vesting period of the award, or at the time services are provided for\nnon-employee awards.\n\n\n\u00a0\n\n\nFair\nvalue of financial instruments\n:\n The carrying values of cash and cash equivalents, accounts receivable, accounts payable and\naccrued expenses approximate their fair value due to the short-term nature of these instruments.\n\n\n\u00a0\n\n\nNet\nincome per common share\n:\n Net income is presented on a per share basis for both basic and diluted common shares. Basic net\nincome per common share is computed using the weighted-average number of common shares outstanding during the period, excluding\nany restricted stock awards which have not vested. The diluted net income per common share calculation includes outstanding restricted\nstock grants and assumes that all stock options were exercised and converted into shares of common stock at the beginning of the\nperiod unless their effect is anti-dilutive. Common stock equivalents included in the calculation of diluted earnings per share\nwere \n237,149\n and \n297,383\n shares for fiscal 2023 and 2022, respectively. Common stock equivalents excluded from the calculation\nof diluted earnings per share because their impact was anti-dilutive were \n194,154\n and \n113,646\n shares for fiscal 2023 and 2022,\nrespectively.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n10\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRecently\nIssued Accounting Standards\n\n\n\u00a0\n\n\nIn\nJune 2016, the Financial Accounting Board issued Accounting Standards Update (\u201cASU\u201d) 2016-13,\u00a0Financial Instruments\n-- Credit Losses: Measurement of Credit Losses on Financial Instruments,\u00a0which was subsequently amended by ASU 2018-19, ASU\n2019-04, 2019-05, 2019-10, 2019-11, and 2020-02. The standard introduces new accounting guidance for credit losses on financial\ninstruments within its scope, including trade receivables. This new guidance adds an impairment model that is based on expected\nlosses rather than incurred losses. It is effective for interim and annual reporting periods beginning after December 15, 2022,\nwith early adoption permitted. Adoption of the standard is not expected to have a material impact on the financial statements.\n\n\n\n\n\u00a0\n\n\nNote\u00a02.\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nRevenues\n\n\n\u00a0\n\n\nRevenue\nis measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable\nconsideration and other factors affecting the transaction price, including consideration paid or payable from customers and significant\nfinancing components. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control\nof a distinct good or service to a customer, as further described below under \nPerformance obligations and transaction price\n.\n\n\n\u00a0\n\n\nIndividual\npromised goods and services in a contract are considered a performance obligation and accounted for separately if the individual\ngood or service is distinct (i.e., the customer can benefit from the good or service on its own or with other resources that are\nreadily available to the customer and the good or service is separately identifiable from other promises in the arrangement).\nIf an arrangement includes multiple performance obligations, the consideration is allocated between the performance obligations\nin proportion to their estimated standalone selling price, unless discounts or variable consideration is attributable to one or\nmore but not all the performance obligations. Costs related to products delivered are recognized in the period incurred, unless\ncriteria for capitalization of costs under Accounting Standards Codification (\u201cASC\u201d) 340-40, \u201cOther Assets and\nDeferred Costs\u201d (\u201cASC 340\u201d), or other applicable guidance are met.\n\n\n\u00a0\n\n\nThe\nCompany includes shipping and handling fees in net revenues. Shipping and handling costs associated with the shipment of the SmartVest\nSystem after control\u00a0has transferred to a customer are accounted for as a fulfillment cost and are included in cost of revenues\nin the Statements of Operations.\n\n\n\u00a0\n\n\nThe\ntiming of revenue recognition, billings and cash collections results in accounts receivable on the Balance Sheets as further described\nbelow under \nAccounts receivable \nand \nContract assets\n.\n\n\n\u00a0\n\n\nDisaggregation\nof revenues. \nIn the following table, revenue is disaggregated by market:\n\n\n\u00a0\nSchedule of disaggregated revenue\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nYears\n    Ended June 30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nHome care\n\u00a0\n\n\n$\n43,945,000\n\u00a0\n\u00a0\n\n\n$\n38,004,000\n\u00a0\n\n\n\n\nInstitutional\n\u00a0\n\n\n\u00a0\n2,080,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,660,000\n\u00a0\n\n\n\n\nHome care distributor\n\u00a0\n\n\n\u00a0\n1,618,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,474,000\n\u00a0\n\n\n\n\nInternational\n\u00a0\n\n\n\u00a0\n424,000\n\u00a0\n\u00a0\n\n\n\u00a0\n521,000\n\u00a0\n\n\n\n\nTotal\n\u00a0\n\n\n$\n48,067,000\n\u00a0\n\u00a0\n\n\n$\n41,659,000\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0F-\n11\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn\nthe following table, home care revenue is disaggregated by payer type:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nYears\n    Ended June 30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nCommercial\n\u00a0\n\n\n$\n18,481,000\n\u00a0\n\u00a0\n\n\n$\n14,937,000\n\u00a0\n\n\n\n\nMedicare\n\u00a0\n\n\n\u00a0\n18,682,000\n\u00a0\n\u00a0\n\n\n\u00a0\n16,692,000\n\u00a0\n\n\n\n\nMedicare Supplemental\n\u00a0\n\n\n\u00a0\n5,000,000\n\u00a0\n\u00a0\n\n\n\u00a0\n4,484,000\n\u00a0\n\n\n\n\nMedicaid\n\u00a0\n\n\n\u00a0\n941,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,028,000\n\u00a0\n\n\n\n\nOther\n\u00a0\n\n\n\u00a0\n841,000\n\u00a0\n\u00a0\n\n\n\u00a0\n863,000\n\u00a0\n\n\n\n\nTotal\n\u00a0\n\n\n$\n43,945,000\n\u00a0\n\u00a0\n\n\n$\n38,004,000\n\u00a0\n\n\n\n\n\u00a0\n\n\nRevenues\nin the Company\u2019s home care, home care distributor and international markets are recognized at a point in time when control\npasses to the customer upon product shipment or delivery. Revenues in the Company\u2019s institutional market include sales recognized\nat a point in time upon shipment or delivery.\n\n\n\u00a0\n\n\nPerformance\nobligations and transaction price. \nA performance obligation is a promise in a contract to transfer a distinct good or service\nto the customer and is the unit of account under ASC 606, \u201cRevenue From Contracts With Customers\u201d (\u201cASC 606\u201d).\nA contract\u2019s transaction price is allocated to each distinct performance obligation in proportion to the standalone selling\nprice for each and recognized as revenue when, or as, the performance obligation is satisfied. The Company\u2019s performance\nobligations and the timing or method of revenue recognition in each of the Company\u2019s markets are discussed below:\n\n\n\u00a0\n\n\nHome\ncare market\n.\n In the Company\u2019s home care market, its customers are patients who use the SmartVest System. The various\nmodels of the SmartVest System are comprised of three main components - a generator, a vest and a connecting hose - that are sold\ntogether as an integrated unit. Accordingly, in contracts within the home care market, the Company regards the SmartVest System\nto be a single performance obligation.\n\n\n\u00a0\n\n\nThe\nCompany makes available to its home care patients limited post-sale services that are not material in the context of the contracts,\neither individually or taken together, and therefore does not consider them to be performance obligations. The costs associated\nwith the services are accrued and expensed when the related revenues are recognized. As such, transactions in the home care market\nconsist of a single performance obligation: the SmartVest System.\n\n\n\u00a0\n\n\nHome\ncare patients generally will rely on third-party payers, including commercial payers and governmental payers such as Medicare,\nMedicaid and the U.S. Department of Veterans Affairs to cover and reimburse all or part of the cost of the SmartVest System. The\nthird-party payers\u2019 reimbursement programs fall into three types, distinguished by the differences in the timing of payments\nfrom the payer, consisting of either (i) outright sale, in which payment is received from the payer based on standard terms, (ii)\ncapped installment sale, under which the SmartVest System is sold for a series of payments that are capped not to exceed a prescribed\nor negotiated amount over a period of time or (iii) installment sale, under which the SmartVest System is paid for over a period\nof several months as long as the patient continues to use the SmartVest System.\n\n\n\u00a0\n\n\nRegardless\nof the type of transaction, provided criteria for an enforceable contract are met, it is the Company\u2019s long-standing business\npractice to regard all home care agreements as transferring control to the patient upon shipment or delivery, in spite of possible\npayment cancellation under government or commercial programs where the payer is controlling the payment over specified time periods.\nFor home care sales that feature installment payments, the ultimate amount of consideration received from Medicare, Medicaid or\ncommercial payers can be significantly less than expected if the contract is terminated due to changes in the patient\u2019s\nstatus, including insurance coverage, hospitalization, death or otherwise becoming unable to use the SmartVest System. However,\nonce delivered to a patient who needs the SmartVest System, the patient is under no obligation to return the SmartVest System\nshould payments be terminated as a result of the described contingencies. As a result, the Company\u2019s product sales qualify\nfor point in time revenue recognition. Control transfers to the patient, and revenue is recognized, upon shipment or delivery\nof the SmartVest System. At this point, physical possession and the significant risks and rewards of ownership are transferred\nto the patient and either a current or future right to payment is triggered, as further discussed under \nAccounts receivable\n\nand \nContract assets \nbelow.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n12\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe\nCompany\u2019s contractually stated transaction prices in the home care market are generally set by the terms of the contracts\nnegotiated with insurance companies or by government programs. The transaction price for the Company\u2019s products may be further\nimpacted by variable consideration. ASC 606 requires the Company to adjust the transaction price at contract inception and throughout\nthe contract duration for the estimated value of payments to be received from insurance payers based on historical experience\nand other available information, subject to the constraint on estimates of variable consideration. Transactions requiring estimates\nof variable consideration primarily include (i) capped installment payments, which are subject to the third-party payer\u2019s\ntermination due to changes in insurance coverage, death or the patient\u2019s discontinued use of the SmartVest System, (ii)\ncontracts under appeal and (iii) patient responsibility amounts for deductibles, coinsurance, copays and other similar payments.\n\n\n\u00a0\n\n\nAlthough\nestimates may be made on a contract-by-contract basis, whenever possible, the Company uses all available information including\nhistorical collection patterns to estimate variable consideration for portfolios of contracts. The Company\u2019s estimates of\nvariable consideration consist of amounts it may receive from insurance providers in excess of its initial revenue estimate due\nto patients meeting deductibles or coinsurance during the payment duration, changes to a patient\u2019s insurance status, changes\nin an insurance allowable, claims in appeals with Medicare and amounts received directly from patients for their allowable or\ncoinsurance. The Company believes it has representative historical information to estimate the amount of variable consideration\nin relevant portfolios considering the significant experience it has with each portfolio and the similarity of patient accounts\nwithin a portfolio. The analysis includes steps to ensure that revenue recognized on a portfolio basis does not result in a material\ndifference when compared with an individual contract approach. The Company also leverages its historical experience and all available\nrelevant information for each portfolio of contracts to minimize the risk its estimates used to arrive at the transaction price\nwill result in a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the\nvariable consideration is subsequently resolved. Variable consideration is included in the transaction price if, in the Company\u2019s\njudgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.\n\n\n\u00a0\n\n\nFor\ncontracts in which the Company believes the criteria for reimbursement under government or commercial payer contracts have been\nmet but for which coverage is unconfirmed or payments are under appeal, the Company has significant observable evidence of relatively\nconsistent claims recovery experience over the prior three to five years. The Company believes the low volatility in historical\nclaims approval rates for populations of patients whose demographics are similar to those of current patients provides reliable\npredictive value in arriving at estimates of variable consideration in such contracts. Similarly, historical payment trends for\nrecovery of claims subject to payer installments and payments from patients have remained relatively consistent over the past\nfive years. No significant changes in patient demographics or other relevant factors have occurred that would limit the predictive\nvalue of such payment trends in estimating variable consideration for current contracts. As a result, the Company believes its\nestimates of variable consideration are generally not subject to the risk of significant revenue reversal.\n\n\n\u00a0\n\n\nFor\neach type of variable consideration discussed above, there are a large number of contracts with similar characteristics with a\nwide range of possible transaction prices. For that reason, the Company uses the probability-weighted expected value method provided\nunder ASC 606 to estimate variable consideration.\n\n\n\u00a0\n\n\nThe\nCompany often receives payment from third-party payers for the SmartVest System sales over a period of time that may exceed one\nyear. Despite these extended payment terms, no significant financing component is deemed to exist because the purpose of such\nterms is not to provide financing to the patient, the payer or the Company. Rather, the extended payment terms are mandated by\nthe government or commercial insurance programs, the fundamental purpose of which is to avoid paying the full purchase price of\nequipment that may potentially be used by the patient for only a short period of time.\n\n\n\u00a0\n\n\nHome\ncare distributors. \n Sales to distributors, who sell direct to patients, are made at fixed contract prices and may include\ntiered pricing structures or volume-based rebates which offer more favorable pricing once certain volumes are achieved per the\nnegotiated contract. The distributor\u2019s purchases accumulate to give the distributor a right to a higher discount on purchases\nin excess of the specified level within the contract period. As a result, to the extent the Company expects the distributor to\nexceed the specified volume of purchases in the annual period, it recognizes revenue at a blended rate based on estimated total\nannual volume and sales revenue. This effectively defers a portion of the transaction price on initial purchases below the specified\nvolumes for recognition when the higher discount is earned on purchases in excess of specified volumes. Transfer of control of\nthe products occurs upon shipment or delivery to the distributor as applicable.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n13\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nInstitutional\nmarket. \nThe Company\u2019s institutional sales are made to hospitals and home health care centers, pulmonary rehabilitation\ncenters and other clinics. Sales to these institutions are negotiated with the individual institution or with group purchasing\norganizations, with payments received directly from the institution. No insurance reimbursement is involved. Generators are either\nsold or leased to the institutions and associated hoses and wraps (used in institutional settings rather than vests) are sold\nseparately. Accordingly, each product is distinct and considered a separate performance obligation in sales to institutional customers.\nThe agreements with institutions fall into two main types, distinguished by differences in the timing of transfer of control and\ntiming of payments:\n\n\n\u00a0\n\n\n\n\n\u25cf\nOutright\n                                         sale \u2013 Under these transactions, the Company sells its products for a prescribed\n                                         or negotiated price. Transfer of control of the product, and associated revenue recognition,\n                                         occurs at the time of shipment and payment is made within normal credit terms, usually\n                                         within 30 days.\n\n\n\u00a0\n\n\n\n\n\u25cf\nWrap\n                                         usage agreements \u2013 Under these transactions, the Company provides a generator device\n                                         at no cost to the hospital in return for a fixed annual commitment to purchase consumable\n                                         wraps. These agreements are cancellable upon at least sixty days prior written notice\n                                         by either party. If cancelled, the generator is returned to the Company, where it can\n                                         be refurbished and used again at a later date. Revenue for the consumable wraps is recognized\n                                         when control transfers to the customer.\n\n\n\u00a0\n\n\nInternational\nmarket. \n Sales to international markets are made directly to a number of independent distributors at fixed contract prices\nthat are not subject to further adjustments for variable consideration. Transfer of control of the products occurs upon shipment\nor delivery to the distributor as applicable.\n\n\n\u00a0\n\n\nProduct\nwarranty. \nThe Company offers warranties on its products. These warranties are assurance type warranties not sold on a standalone\nbasis or are otherwise considered immaterial in the context of the contract, and therefore are not considered distinct performance\nobligations under ASC 606. The Company estimates the costs that may be incurred under its warranties and records a liability in\nthe amount of such costs at the time the product is sold.\n\n\n\u00a0\n\n\nAccounts\nreceivable. \nThe Company\u2019s accounts receivable balance is comprised of amounts\u00a0due from individuals, institutions\nand distributors. Balances due from individuals are typically remitted to the Company by third-party reimbursement agencies such\nas Medicare, Medicaid and private insurance companies. Accounts receivable are carried at amounts estimated to be received from\npatients under reimbursement arrangements with third-party payers. Accounts receivable are also net of an allowance for doubtful\naccounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and\nconsidering a customer\u2019s financial condition and credit history. Receivables are written off when deemed uncollectible.\n\n\n\u00a0\n\n\nContract\nassets. \nContract assets include amounts recognized as revenue that are estimates of variable consideration for Medicare appeals\nwhere the final determination of the insurance coverage amount is dependent on future approval of an appeal, or when the consideration\ndue to the Company is dependent on a future event such as the patient meeting a deductible prior to the Company\u2019s claim\nbeing processed by the payer. Contract assets are classified as current as amounts is expected to turn into accounts receivable\nand be collected during the Company\u2019s normal business operating cycle. Contract assets are reclassified to accounts receivable\nwhen the right to receive payment is unconditional.\n\n\n\u00a0\n\n\nContract\nbalances. \nThe following table provides information about accounts receivable and contracts assets from contracts with customers:\n\n\n\u00a0\nSchedule of contract assets\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nJune\n    30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nReceivables, included in \u201cAccounts receivable, net of allowance for doubtful accounts\u201d\n\u00a0\n\n\n$\n24,130,000\n\u00a0\n\u00a0\n\n\n$\n21,052,000\n\u00a0\n\n\n\n\nContract Assets\n\u00a0\n\n\n$\n487,000\n\u00a0\n\u00a0\n\n\n$\n286,000\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0F-\n14\n\n\n\u00a0\n\n\n\n\nSignificant\nchanges in contract assets during the period are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nYear\n                                         Ended \n \nJune\n                      30, 2023\n\u00a0\n\u00a0\n\n\nYear\n                                         Ended \n \nJune\n                      30, 2022\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nIncrease\n    (decrease)\n\u00a0\n\u00a0\n\n\nIncrease\n    (decrease)\n\u00a0\n\n\n\n\nContract assets, beginning\n\u00a0\n\n\n$\n286,000\n\u00a0\n\u00a0\n\n\n$\n393,000\n\u00a0\n\n\n\n\nReclassification of contract assets to accounts receivable\n\u00a0\n\n\n\u00a0\n(\n1,220,000\n)\n\u00a0\n\n\n\u00a0\n(\n833,000\n)\n\n\n\n\nContract assets recognized\n\u00a0\n\n\n\u00a0\n1,351,000\n\u00a0\n\u00a0\n\n\n\u00a0\n784,000\n\u00a0\n\n\n\n\nIncrease (decrease) as a result of changes in the estimate of amounts to be realized from payers, excluding amounts transferred to receivables during the period\n\u00a0\n\n\n\u00a0\n71,000\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n58,000\n)\n\n\n\n\nContract assets, ending\n\u00a0\n\n\n$\n488,000\n\u00a0\n\u00a0\n\n\n$\n286,000\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nNote\n3.  \u00a0\u00a0\u00a0\u00a0\u00a0\nInventories\n\n\n\u00a0\n\n\nThe\ncomponents of inventory were as follows:\n\n\n\u00a0\nSchedule of components of inventories\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nJune\n    30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nParts inventory\n\u00a0\n\n\n$\n3,420,000\n\u00a0\n\u00a0\n\n\n$\n2,672,000\n\u00a0\n\n\n\n\nWork in process\n\u00a0\n\n\n\u00a0\n470,000\n\u00a0\n\u00a0\n\n\n\u00a0\n100,000\n\u00a0\n\n\n\n\nFinished goods\n\u00a0\n\n\n\u00a0\n323,000\n\u00a0\n\u00a0\n\n\n\u00a0\n469,000\n\u00a0\n\n\n\n\nEstimated inventory to be returned\n\u00a0\n\n\n\u00a0\n265,000\n\u00a0\n\u00a0\n\n\n\u00a0\n228,000\n\u00a0\n\n\n\n\nLess: Reserve for obsolescence\n\u00a0\n\n\n\u00a0\n(\n257,000\n)\n\u00a0\n\n\n\u00a0\n(\n291,000\n)\n\n\n\n\nTotal\n\u00a0\n\n\n$\n4,221,000\n\u00a0\n\u00a0\n\n\n$\n3,178,000\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nNote\n4.  \u00a0\u00a0\u00a0\u00a0\u00a0\nProperty and Equipment\n\n\n\u00a0\n\n\nProperty\nand equipment were as follows:\n\n\nSchedule of property and equipment, including assets under capital leases\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\nEstimated\n                                         Useful Lives\n\u00a0\n\u00a0\n\n\nJune\n    30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n(Years)\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nBuilding\n    and building improvements\n\u00a0\n\n\n\u00a0\n15\n-\n40\n\u00a0\n\u00a0\n\n\n$\n3,427,000\n\u00a0\n\u00a0\n\n\n$\n3,420,000\n\u00a0\n\n\n\n\nLand\n\u00a0\n\n\n\u00a0\nN/A\n\u00a0\n\u00a0\n\n\n\u00a0\n200,000\n\u00a0\n\u00a0\n\n\n\u00a0\n200,000\n\u00a0\n\n\n\n\nLand improvements\n\u00a0\n\n\n\u00a0\n15\n-\n20\n\u00a0\n\u00a0\n\n\n\u00a0\n173,000\n\u00a0\n\u00a0\n\n\n\u00a0\n162,000\n\u00a0\n\n\n\n\nEquipment\n\u00a0\n\n\n\u00a0\n3\n-\n10\n\u00a0\n\u00a0\n\n\n\u00a0\n3,024,000\n\u00a0\n\u00a0\n\n\n\u00a0\n2,356,000\n\u00a0\n\n\n\n\nSoftware\n\u00a0\n\n\n\u00a0\n3\n-\n7\n\u00a0\n\u00a0\n\n\n\u00a0\n2,166,000\n\u00a0\n\u00a0\n\n\n\u00a0\n396,000\n\u00a0\n\n\n\n\nDemonstration and rental\n    equipment\n\u00a0\n\n\n\u00a0\n3\n\u00a0\n\u00a0\n\n\n\u00a0\n1,090,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,036,000\n\u00a0\n\n\n\n\nConstruction\n    in progress\n\u00a0\n\n\n\u00a0\nN/A\n\u00a0\n\u00a0\n\n\n\u00a0\n8,000\n\u00a0\n\u00a0\n\n\n\u00a0\n957,000\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n10,088,000\n\u00a0\n\u00a0\n\n\n\u00a0\n8,527,000\n\u00a0\n\n\n\n\nLess:\n    Accumulated depreciation\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n4,416,000\n)\n\u00a0\n\n\n\u00a0\n(\n3,959,000\n)\n\n\n\n\nNet\n    property and equipment\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n$\n5,672,000\n\u00a0\n\u00a0\n\n\n$\n4,568,000\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nNote\n5.  \u00a0\u00a0\u00a0\u00a0\u00a0\nFinite-life Intangible Assets\n\n\n\u00a0\n\n\nThe\ncarrying value of patents and trademarks includes the original cost of obtaining the patents, periodic renewal fees, and other\ncosts associated with maintaining and defending patent and trademark rights. Patents and trademarks are amortized over their estimated\nuseful lives, generally \n15\n and \n12 \nyears, respectively. Accumulated amortization was $\n224,000\n and $\n433,000\n as of June 30, 2023\nand 2022, respectively.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n15\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe\nactivity and net balances of finite-life intangible assets were as follows:\n\n\n\u00a0\nSchedule of activity and balances of finite-life intangible assets\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nYears\n    Ended June 30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nBalance, beginning\n\u00a0\n\n\n$\n599,000\n\u00a0\n\u00a0\n\n\n$\n663,000\n\u00a0\n\n\n\n\nAdditions\n\u00a0\n\n\n\u00a0\n69,000\n\u00a0\n\u00a0\n\n\n\u00a0\n61,000\n\u00a0\n\n\n\n\nAmortization expense\n\u00a0\n\n\n\u00a0\n(\n63,000\n)\n\u00a0\n\n\n\u00a0\n(\n125,000\n)\n\n\n\n\nBalance, ending\n\u00a0\n\n\n$\n605,000\n\u00a0\n\u00a0\n\n\n$\n599,000\n\u00a0\n\n\n\n\n\u00a0\n\n\nBased\non the carrying value as of June 30, 2023, future amortization is expected to be as follows:\n\n\n\u00a0\nSchedule of future amortization of finite-life intangible assets\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFiscal\nyears ending June 30:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2024\n    \n\n\n$\n\n\n46,000\n\n\n\u00a0\n\n\n\n\n2025\n    \n\n\n\u00a0\n\n\n\u00a0\n44,000\n\n\n\u00a0\n\n\n\n\n2026\n    \n\n\n\u00a0\n\n\n\u00a0\n44,000\n\n\n\u00a0\n\n\n\n\n2027\n    \n\n\n\u00a0\n\n\n\u00a0\n43,000\n\n\n\u00a0\n\n\n\n\n2028\n    \n\n\n\u00a0\n\n\n\u00a0\n41,000\n\n\n\u00a0\n\n\n\n\nThereafter\n\n\n\u00a0\n\n\n387,000\n\n\n\u00a0\n\n\n\n\nTotal\n    \n\n\n$\n\n\n\u00a0\n605,000\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nNote\n6.\n \n\u00a0\u00a0\u00a0\u00a0\u00a0\nFinancing Arrangements\n\n\n\u00a0\n\n\nThe\nCompany has a credit facility that provides for a revolving line of credit and a term loan.\u00a0Effective \nDecember 17, 2021\n,\nthe Company renewed its $\n2,500,000\n revolving line of credit. There was \nno\n outstanding principal balance on the line of credit\nas of June 30, 2023 or June 30, 2022. Interest on borrowings under the line of credit, if any, accrues at the prime rate (\n8.25\n%\nas of June 30, 2023) less \n1.0\n% and is payable monthly. The amount eligible for borrowing on the line of credit is limited to the\nlesser of $\n2,500,000\n or \n57.0\n% of eligible accounts receivable and the line of credit expires on \nDecember 18, 2023\n, if not renewed\nbefore such date. As of June 30, 2023, the maximum $\n2,500,000\n was eligible for borrowing. Payment obligations under the line of\ncredit, if any, are secured by a security interest in substantially all of the tangible and intangible assets of the Company.\n\n\n\u00a0\n\n\nThe\ndocuments governing the line of credit contain certain financial and nonfinancial covenants that include a minimum tangible net\nworth covenant of not less than $\n10,125,000\n and restrictions on the Company\u2019s ability to incur certain additional indebtedness\nor pay dividends.\n\n\n\u00a0\n\n\nNote\n7. \u00a0\u00a0\u00a0\u00a0\u00a0\nCommon Stock\n\n\n\u00a0\n\n\nAuthorized\nshares:\n The Company\u2019s Articles of Incorporation, as amended, have established \n15,000,000\n authorized shares of capital\nstock consisting of \n13,000,000\n shares of common stock, par value $\n0.01\n per share, and \n2,000,000\n shares of undesignated stock.\n\n\n\u00a0\n\n\nOn\nMay 26, 2021 the Company\u2019s Board of Directors (the \u201cBoard\u201d) approved a stock repurchase authorization. Under\nthe authorization, the Company was originally able to repurchase up to $\n3.0\n million of shares of common stock through May 26,\n2022. On May 26, 2022, our Board of Directors removed the date limitation. As of June 30, 2023, a total of \n239,995\n shares have\nbeen repurchased and retired under this authorization for a total cost of $\n2,725,000\n, or $\n11.36\n per share. Repurchased shares\nhave been retired and constitute authorized but unissued shares.\n\n\n\u00a0\n\n\nNote\n8. \u00a0\u00a0\u00a0\u00a0\u00a0\nShare-Based Compensation\n\n\n\u00a0\n\n\nShare-based\ncompensation expense for fiscal 2023 and 2022 was $\n708,000\n and $\n976,000\n, respectively, related to employee stock options and restricted\nstock awards. This expense is included in selling, general and administrative expense in the Statements of Operations. As of June\n30, 2023, the Company had $\n296,000\n \nof unrecognized compensation expense related to non-vested equity awards, which is expected\nto be recognized over a weighted-average period of \n1.5\n to \n1.84\n years related to restricted stock awards and employee stock options,\nrespectively.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n16\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nEmployee\noptions: \nThe Company has historically granted stock options to employees as long-term incentive compensation. Options expire\nten years from the grant date and vest over a period of three years. In November 2017, the Company\u2019s shareholders approved\nthe 2017 Omnibus Incentive Plan (the \u201c2017 Plan\u201d) which superseded the 2014 Equity Incentive Plan (the \u201c2014\nPlan\u201d). The 2017 Plan allows the Board to grant stock options, stock appreciation rights, restricted stock, restricted stock\nunits and other stock-based awards, as well as cash incentive awards to all employees, non-employee directors, and advisors or\nconsultants of the Company. The vesting schedule and term for each award are determined by the Board upon each grant. Upon vesting,\nand the Company\u2019s determination that any necessary conditions precedent to the exercise of shares (such as satisfaction\nof tax withholding and compliance with applicable legal requirements) have been satisfied, shares purchased are delivered to the\nparticipant in a manner prescribed or permitted by the Board. The maximum number of shares of common stock available for issuance\nunder the 2017 Plan is \n900,000\n. There were \n163,500\n options granted under the 2014 Plan and prior plans outstanding as of June\n30, 2023. There were \n288,070\n options issued under the 2017 Plan outstanding and \n291,245\n shares available for grant under the 2017\nPlan as of June 30, 2023.\n\n\n\u00a0\n\n\nThe\nCompany recognizes compensation expense related to share-based payment transactions in the financial statements based on the estimated\nfair value of the award issued. The fair value of each option is estimated using the Black-Scholes pricing model at the time of\naward grant. The Company estimates the expected life of options based on the expected holding period by the option holder. The\nrisk-free interest rate is based upon observed U.S. Treasury interest rates for the expected term of the options. The Company\nmakes assumptions with respect to expected stock price volatility based upon the historical volatility of its stock price. Forfeitures\nare accounted for as they occur.\n\n\n\u00a0\n\n\nThe\nfollowing assumptions were used to estimate the fair value of options granted:\n\n\n\u00a0\nSchedule of assumptions used to estimate fair value of options granted\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nYears\n    Ended June 30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nRisk-free interest rate\n\u00a0\n\n\n2.88\n-\n4.23\n%\n\u00a0\n\u00a0\n\n\n0.89\n-\n2.52\n%\n\u00a0\n\n\n\n\nExpected term (years)\n\u00a0\n\n\n6\n\u00a0\n\u00a0\n\n\n6\n\u00a0\n\n\n\n\nExpected volatility\n\u00a0\n\n\n53\n-\n54\n%\n\u00a0\n\u00a0\n\n\n55\n-\n64\n%\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe\nfollowing table presents employee stock option activity for fiscal 2023 and 2022:\n\n\n\u00a0\nSchedule of stock option transactions\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nNumber\n    of Shares\n\u00a0\n\u00a0\n\n\nWeighted-Average\n    Grant\u00a0Date Fair\u00a0Value\n\u00a0\n\u00a0\n\n\nWeighted-Average\n    Exercise Price\n\u00a0\n\u00a0\n\n\nWeighted-Average\n \nRemaining\n                                         Contractual Life (in\u00a0Years)\n\u00a0\n\n\n\n\nOptions outstanding as of June 30, 2021\n\u00a0\n\n\n\u00a0\n468,049\n\u00a0\n\u00a0\n\n\n$\n4.61\n\u00a0\n\u00a0\n\n\n$\n4.98\n\u00a0\n\u00a0\n\n\n\u00a0\n5.82\n\u00a0\n\n\n\n\nGranted\n\u00a0\n\n\n\u00a0\n81,901\n\u00a0\n\u00a0\n\n\n$\n6.63\n\u00a0\n\u00a0\n\n\n$\n11.52\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\nExercised\n\u00a0\n\n\n\u00a0\n(\n32,000\n)\n\u00a0\n\n\n$\n3.70\n\u00a0\n\u00a0\n\n\n$\n5.44\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\nCanceled or forfeited\n\u00a0\n\n\n\u00a0\n(\n15,866\n)\n\u00a0\n\n\n$\n6.63\n\u00a0\n\u00a0\n\n\n$\n11.30\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\nOptions outstanding as of June 30, 2022\n\u00a0\n\n\n\u00a0\n502,084\n\u00a0\n\u00a0\n\n\n$\n3.71\n\u00a0\n\u00a0\n\n\n$\n5.82\n\u00a0\n\u00a0\n\n\n\u00a0\n5.35\n\u00a0\n\n\n\n\nOptions exercisable as of June 30, 2022\n\u00a0\n\n\n\u00a0\n429,888\n\u00a0\n\u00a0\n\n\n$\n3.16\n\u00a0\n\u00a0\n\n\n$\n4.77\n\u00a0\n\u00a0\n\n\n\u00a0\n4.76\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nGranted\n\u00a0\n\n\n\u00a0\n104,325\n\u00a0\n\u00a0\n\n\n$\n5.35\n\u00a0\n\u00a0\n\n\n$\n9.93\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\nExercised\n\u00a0\n\n\n\u00a0\n(\n101,357\n)\n\u00a0\n\n\n$\n1.44\n\u00a0\n\u00a0\n\n\n$\n2.21\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\nCanceled or forfeited\n\u00a0\n\n\n\u00a0\n(\n53,482\n)\n\u00a0\n\n\n$\n6.33\n\u00a0\n\u00a0\n\n\n$\n11.29\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\nOptions outstanding as of June 30, 2023\n\u00a0\n\n\n\u00a0\n451,570\n\u00a0\n\u00a0\n\n\n$\n4.28\n\u00a0\n\u00a0\n\n\n$\n6.93\n\u00a0\n\u00a0\n\n\n\u00a0\n5.53\n\u00a0\n\n\n\n\nOptions exercisable as of June 30, 2023\n\u00a0\n\n\n\u00a0\n377,875\n\u00a0\n\u00a0\n\n\n$\n4.00\n\u00a0\n\u00a0\n\n\n$\n6.25\n\u00a0\n\u00a0\n\n\n\u00a0\n4.90\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe\nintrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds its exercise price. At\nJune 30, 2023, the weighted average remaining contractual term for all outstanding stock options was \n5.5\n years and their aggregate\nintrinsic value was $\n1,862,000\n. Outstanding at June 30, 2023 were \n451,570\n stock options issued to employees, of which \n377,875\n\nwere vested and exercisable and had an aggregate intrinsic value of $\n1,820,000\n.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n17\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRestricted\nstock:\n The 2017 Plan permits the Personnel and Compensation Committee of the Board to grant other stock-based awards, including\nshares of restricted stock. The Company makes restricted stock grants to key employees and non-employee directors that vest over\nsix months to three years following the applicable grant date.\n\n\n\u00a0\n\n\nThe\nCompany issued restricted stock awards to employees totaling \n32,400\n and \n31,400\n during fiscal 2023 and 2022, respectively, with\na vesting term of \none\n to \nthree\n years and a fair value of $\n9.92\n and $\n11.48\n per share, respectively. The Company issued restricted\nstock awards to directors totaling \n21,000\n and \n18,000\n during fiscal 2023 and 2022, respectively, with a vesting term of six months\nand a fair value of $\n9.86\n and $\n12.09\n per share for fiscal 2023 and 2022, respectively. Restricted stock transactions during the\nyears ended June 30, 2023 and 2022 are summarized as follows:\n\n\n\u00a0\nSchedule of restricted stock transactions\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nShares\n    of Restricted Stock\n\u00a0\n\u00a0\n\n\nWeighted-Average\n    Grant Date Fair Value per Share\n\u00a0\n\n\n\n\nOutstanding as of June 30, 2021\n\u00a0\n\n\n\u00a0\n30,503\n\u00a0\n\u00a0\n\n\n$\n12.57\n\u00a0\n\n\n\n\n\u00a0\u00a0Granted\n\u00a0\n\n\n\u00a0\n49,400\n\u00a0\n\u00a0\n\n\n$\n11.70\n\u00a0\n\n\n\n\n\u00a0\u00a0Vested\n\u00a0\n\n\n\u00a0\n(\n45,219\n)\n\u00a0\n\n\n$\n11.61\n\u00a0\n\n\n\n\nOutstanding as of June 30, 2022\n\u00a0\n\n\n\u00a0\n34,684\n\u00a0\n\u00a0\n\n\n$\n12.59\n\u00a0\n\n\n\n\n\u00a0\u00a0Granted\n\u00a0\n\n\n\u00a0\n53,400\n\u00a0\n\u00a0\n\n\n$\n9.90\n\u00a0\n\n\n\n\n\u00a0\u00a0Vested\n\u00a0\n\n\n\u00a0\n(\n45,152\n)\n\u00a0\n\n\n$\n11.05\n\u00a0\n\n\n\n\n\u00a0\u00a0Canceled or forfeited\n\u00a0\n\n\n\u00a0\n(\n24,699\n)\n\u00a0\n\n\n$\n11.33\n\u00a0\n\n\n\n\nOutstanding as of June 30, 2023\n\u00a0\n\n\n\u00a0\n18,233\n\u00a0\n\u00a0\n\n\n$\n10.23\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nNote\n9.\n \n\u00a0\u00a0\u00a0\u00a0\u00a0\nIncome Taxes\n\n\n\u00a0\n\n\nComponents\nof the provision for income taxes were as follows:\n\n\n\u00a0\nSchedule of components of the provision for income taxes\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nYears\n    Ended June 30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nCurrent:\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\u00a0Current Federal\n\u00a0\n\n\n$\n744,000\n\u00a0\n\u00a0\n\n\n$\n891,000\n\u00a0\n\n\n\n\n\u00a0\u00a0Current State\n\u00a0\n\n\n\u00a0\n219,000\n\u00a0\n\u00a0\n\n\n\u00a0\n290,000\n\u00a0\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0Total Current\n\u00a0\n\n\n\u00a0\n963,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,181,000\n\u00a0\n\n\n\n\nDeferred:\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\u00a0Deferred Federal\n\u00a0\n\n\n\u00a0\n(\n20,000\n)\n\u00a0\n\n\n\u00a0\n(\n348,000\n)\n\n\n\n\n\u00a0\u00a0Deferred State\n\u00a0\n\n\n\u00a0\n(\n23,000\n)\n\u00a0\n\n\n\u00a0\n(\n141,000\n)\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0Total Deferred\n\u00a0\n\n\n\u00a0\n(\n43,000\n)\n\u00a0\n\n\n\u00a0\n(\n489,000\n)\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nTotal Income Tax Expense\n\u00a0\n\n\n$\n920,000\n\u00a0\n\u00a0\n\n\n$\n692,000\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n18\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nActual\nincome tax expense differs from the expected tax expense, computed by applying the statutory federal income tax rate to the Company\u2019s\nearnings before income taxes, as follows:\n\n\n\u00a0\nSchedule of effective income tax reconciliation\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nYears\n    Ended June 30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nTax expense at statutory federal rate\n\u00a0\n\n\n$\n858,000\n\u00a0\n\u00a0\n\n\n$\n629,000\n\u00a0\n\n\n\n\nState income tax expense, net of federal tax effect\n\u00a0\n\n\n\u00a0\n155,000\n\u00a0\n\u00a0\n\n\n\u00a0\n105,000\n\u00a0\n\n\n\n\nShare based compensation\n\u00a0\n\n\n\u00a0\n(212,000\n)\n\u00a0\n\n\n\u00a0\n(10,000\n)\n\n\n\n\nChange in valuation allowance on deferred tax assets\n\u00a0\n\n\n\u00a0\n11,000\n\u00a0\n\u00a0\n\n\n\u00a0\n27,000\n\u00a0\n\n\n\n\nOther permanent items\n\u00a0\n\n\n\u00a0\n108,000\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n59,000\n)\n\n\n\n\nIncome tax expense\n\u00a0\n\n\n$\n920,000\n\u00a0\n\u00a0\n\n\n$\n692,000\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe\neffective tax rates for fiscal 2023 and 2022 were \n22.5\n% and \n23.1\n%, respectively.\n\n\n\u00a0\n\n\nThe\nsignificant components of deferred income taxes were as follows:\n\n\n\u00a0\nSchedule of significant components of deferred income taxes\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nJune\n    30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nDeferred tax assets:\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nRevenue recognition and accounts receivable reserves\n\u00a0\n\n\n$\n1,292,000\n\u00a0\n\u00a0\n\n\n$\n917,000\n\u00a0\n\n\n\n\nAccrued liabilities\n\u00a0\n\n\n\u00a0\n252,000\n\u00a0\n\u00a0\n\n\n\u00a0\n325,000\n\u00a0\n\n\n\n\nFinite-life intangible assets\n\u00a0\n\n\n\u00a0\n126,000\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0Stock options\n\u00a0\n\n\n\u00a0\n516,000\n\u00a0\n\u00a0\n\n\n\u00a0\n532,000\n\u00a0\n\n\n\n\nTax credits\n\u00a0\n\n\n\u00a0\n221,000\n\u00a0\n\u00a0\n\n\n\u00a0\n152,000\n\u00a0\n\n\n\n\nOther\n\u00a0\n\n\n\u00a0\n35,000\n\u00a0\n\u00a0\n\n\n\u00a0\n51,000\n\u00a0\n\n\n\n\nSubtotal\n\u00a0\n\n\n\u00a0\n2,442,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,977,000\n\u00a0\n\n\n\n\nLess: Valuation allowance\n\u00a0\n\n\n\u00a0\n(\n221,000\n)\n\u00a0\n\n\n\u00a0\n(\n152,000\n)\n\n\n\n\nNet deferred tax assets\n\u00a0\n\n\n\u00a0\n2,221,000\n\u00a0\n\u00a0\n\n\n\u00a0\n1,825,000\n\u00a0\n\n\n\n\nDeferred tax liabilities:\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nFinite-life intangible assets\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n(\n41,000\n)\n\n\n\n\nProperty and equipment\n\u00a0\n\n\n\u00a0\n(\n640,000\n)\n\u00a0\n\n\n\u00a0\n(\n246,000\n)\n\n\n\n\nTotal deferred tax liabilities\n\u00a0\n\n\n\u00a0\n(\n640,000\n)\n\u00a0\n\n\n\u00a0\n(\n287,000\n)\n\n\n\n\nNet deferred tax assets\n\u00a0\n\n\n$\n1,581,000\n\u00a0\n\u00a0\n\n\n$\n1,538,000\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe\nCompany has research and development state tax credit carryforwards of $\n221,000\n and $\n152,000\n as of June 30, 2023 and June 30,\n2022, respectively. Based on the historical use of the credits, management believes it is more likely than not these credits will\nbegin to expire between fiscal years 2025 and 2038. As of June 30, 2023 and June 30, 2022, the Company had a valuation allowance\nof $\n221,000\n and $\n152,000\n, respectively, related to its research and development state tax carryforwards.\n\n\n\u00a0\n\n\nThe\nCompany applies the accounting standard for uncertain tax positions pursuant to which a more-likely-than-not threshold is utilized\nto determine the recognition and derecognition of uncertain tax positions. Once the more-likely-than-not threshold is met, the\namount of benefit to be recognized is the largest amount of tax benefit that is greater than 50 percent likely of being ultimately\nrealized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain\ntax positions be recognized in earnings in the period of such a change. The Company does not believe that it has any material\nuncertain tax positions as of June 30, 2023 and June 30, 2022.\n\n\n\u00a0\n\n\nThe\nCompany is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. With limited exceptions,\nthe Company is no longer subject to federal and state income tax examinations by tax authorities for fiscal year ended prior to\nJune 30, 2020. The Internal Revenue Service has completed its examination of the Company\u2019s U.S. federal income tax return\nfor the fiscal year ended June 30, 2020 without proposing any adjustments. The Company is not under any current income tax examinations\nby any other state or local taxing authority. If any issues addressed in the Company\u2019s tax audits are resolved in a manner\nnot consistent with management\u2019s expectations, the Company could be required to adjust its provision for income taxes in\nthe period such resolution occurs.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n19\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\nNote\n10.\n \n\u00a0\u00a0\u00a0\u00a0\u00a0\nLeases\n\n\n\u00a0\n\n\nThe\nCompany has leases for office and warehouse space and office equipment that require monthly payments. These leases have payments\nranging from $\n200\n to $\n5,300\n per month which expire through December 2025 and are recognized on a straight-line basis over the\nlife of the lease. All leases are classified as operating leases which do not include renewal options. The Company currently does\nnot have any variable lease costs. The Company elected the practical expedient\nto calculate the present value of the fixed payments without having to perform an allocation to lease and non-lease components.\n\n\n\n\u00a0\n\n\nThe\nCompany has recognized right of use assets associated with its operating leases of $161,000 and $120,000\n as of June 30, 2023 and\nJune 30, 2022, respectively, which is included in other assets on the Company\u2019s balance sheet. Operating lease liabilities were\n$\n161,000\n\n\nand $\n120,000\n\n\nas of June 30, 2023 and June 30, 2022, respectively, which are included in other accrued liabilities and other long-term liabilities\non the Company\u2019s balance sheet.\n\n\n\u00a0\n\n\nAs\nof June 30, 2023, the Company has a weighted-average lease term of \n1.5\n years for its operating leases, which have a weighted-average\ndiscount rate of \n4.0\n%.Operating lease payments of $\n82,000\n\nare included in operating cash flows in fiscal 2023. \n\n\n\u00a0\n\n\nMaturities\nof lease liabilities, which are included in other accrued liabilities and other long-term liabilities on the Balance Sheet, are\nas follows:\n\n\n\u00a0\nSchedule of maturities of lease liabilities\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\nFiscal years ending June 30:\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n2024\n\u00a0\n\n\n$\n80,000\n\u00a0\n\n\n\n\n2025\n\u00a0\n\n\n\u00a0\n80,000\n\u00a0\n\n\n\n\n2026\n\u00a0\n\n\n\u00a0\n8,000\n\u00a0\n\n\n\n\n2027\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\n2028\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\nTotal lease payments\n\u00a0\n\n\n\u00a0\n168,000\n\u00a0\n\n\n\n\n\u00a0\u00a0Less: Interest\n\u00a0\n\n\n\u00a0\n(\n7,000\n)\n\n\n\n\nPresent value of lease liabilities\n\u00a0\n\n\n$\n161,000\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nNote\n11.\n \n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nCommitments and Contingencies\n\n\n\u00a0\n\n\nLitigation:\n\nThe Company is occasionally involved in claims and disputes arising in the ordinary course of business. The Company insures\ncertain business risks where possible to mitigate the financial impact of individual claims and establishes reserves for an estimate\nof any probable cost of settlement or other disposition.\n\n\n\u00a0\n\n\nOn\nSeptember 8, 2021, a state court putative class action lawsuit was filed in Minnesota against the Company asserting injury resulting\nfrom the previously announced data breach that impacted the Company\u2019s customer protected health information and employee\npersonal information and seeking compensatory damages, equitable relief, and attorneys\u2019 fees and costs. On October 6, 2021,\nthe proceeding was removed to the District of Minnesota. The Company believes the plaintiff was not injured as a result of the\ndata privacy incident and, as a result, the claims are without merit. Accordingly, on November 11, 2021, the Company moved to\ndismiss the complaint in its entirety. Prior to the hearing on the motion to dismiss, the parties agreed in principle to settle\nthe case. The parties have executed a settlement agreement and submitted a motion to settle the class action. During January 2023,\nthe settlement was preliminarily approved. The hearing for final approval took place on June 5, 2023. Following the final approval\nhearing, the court issued a judgment on July 10, 2023 granting a motion for final approval of the settlement. As a result of the\njudgement, there was no additional impact on the financial statements as of or for the year ended June 30, 2023.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n20\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n401(k)\nProfit Sharing Plan:\n The Company has an employee benefit plan under Section 401(k) of the Internal Revenue Code covering all\nemployees who are \n21\n years of age or older. The Company matches each employee\u2019s salary reduction contribution, not to exceed\nfour percent of annual compensation. Total employer contributions to this plan for fiscal 2023 and 2022 were $\n524,000\n and $\n461,000\n,\nrespectively.\n\n\n\u00a0\n\n\nEmployment\nAgreements: \nThe Company has entered into formal employment agreements with its President and Chief Executive Officer and its\nChief Financial Officer, as may be amended from time to time. These agreements provide these officers with, among other things,\ntwelve and eighteen months, respectively, of base salary upon a termination without \u201cCause\u201d or in the event the employee\nresigns for \u201cGood Reason\u201d or within twelve months of a \u201cChange in Control,\u201d as such terms are defined\nin the respective employment agreements.\n\n\n\u00a0\n\n\nNote\n12.\n \n\u00a0\u00a0\u00a0\u00a0\u00a0\nRelated Parties\n\n\n\u00a0\n\n\nThe\nCompany uses a parts supplier whose founder and president was a director of the Company through November 12, 2021. The Company\nmade payments to the supplier of $\n1,857,000\n and $\n360,000\n during fiscal year 2023 and 2022, respectively. Amounts due to the supplier\nwere $\n247,000\n and $\n160,000\n on June 30, 2023 and June 30 2022 respectively, which were included in accounts payable on the Balance\nSheets.\n\n\n\u00a0\n\n\nNote\n13.\n \n\u00a0\u00a0\u00a0\u00a0\u00a0\nSubsequent Events\n\n\n\u00a0\n\n\nThe\nCompany evaluates, as of each reporting period, events or transactions that occur after the balance sheet date through the date\nthe financial statements are issued for either disclosure or adjustment to the Company\u2019s financial results. Except as described\nbelow, there have been no events subsequent to June 30, 2023 which would require recognition in the Financial Statements or Notes\nto the Financial Statements.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0F-\n21\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nItem\n                          9.\nChanges\n                                        in and Disagreements With Accountants on Accounting and Financial Disclosure.\n\n\n\u00a0\n\n\nNone.\n\n\n\u00a0\n\n\n\n\nItem\n                          9A.\nControls\n                                         and Procedures.\n\n\n\u00a0\n\n\nEvaluation\nof Disclosure Controls and Procedures\n\n\n\u00a0\n\n\nOur\nprincipal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures,\nas defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act, as of the end of the period subject to this Annual Report\non Form 10-K. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure\ncontrols and procedures were effective.\n\n\n\u00a0\n\n\nManagement\u2019s\nReport on Internal Control over Financial Reporting\n\n\n\u00a0\n\n\nOur\nmanagement is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is\ndefined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting refers to the process\ndesigned by, or under the supervision of, our President and Chief Executive Officer and our Chief Financial Officer, and effected\nby our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial\nreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles,\nand includes those policies and procedures that:\n\n\n\u00a0\n\n\n(1)\nPertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions\nof our assets;\n\n\n\u00a0\n\n\n(2)\nProvide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance\nwith generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization\nof our management and directors; and\n\n\n\u00a0\n\n\n(3)\nProvide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our\nassets that could have a material effect on the financial statements.\n\n\n\u00a0\n\n\nBecause\nof its inherent limitations, internal control over financial reporting cannot provide absolute assurance of preventing and detecting\nmisstatements on a timely basis. It is possible to design into the process safeguards to reduce, though not eliminate, the risk\nthat misstatements are not prevented or detected on a timely basis. Management is responsible for establishing and maintaining\nadequate internal control over financial reporting for the Company.\n\n\n\u00a0\n\n\nOur\nmanagement conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework\nset forth in the report entitled Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations\nof the Treadway Commission in 2013. Based on this assessment, management has concluded that, as of June 30, 2023, our internal\ncontrol over financial reporting was effective.\n\n\n\u00a0\n\n\nThis\nAnnual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding\ninternal control over financial reporting. Management\u2019s report was not subject to attestation by the Company\u2019s independent\nregistered public accounting firm pursuant to the rules of the SEC that exempt smaller reporting companies from the auditor attestation\nrequirement.\n\n\n\u00a0\n\n\nChanges\nin Internal Control Over Financial Reporting\n\n\n\u00a0\n\n\nThere\nwere no changes in our internal control over financial reporting that occurred during the fourth quarter of fiscal 2023 that have\nmaterially affected, or are reasonably likely to materially affect, our internal control over financial reporting.\n\n\n\u00a0\n\n\n\n\nItem\n                          9B.\nOther Information.\n\n\n\u00a0\n\n\nNone.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n22\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nItem\n                          9C.\nDisclosure\n                                         Regarding Foreign Jurisdictions that Prevent Inspections.\n\n\n\u00a0\n\n\nNot\napplicable.\n\n\n\u00a0\n\n\nPART\nIII\n\n\n\u00a0\n\n\nCertain\ninformation required by Part III is incorporated by reference from our definitive Proxy Statement for the Fiscal 2024 Annual Meeting\nof Shareholders (the \u201cProxy Statement\u201d). Except for those portions specifically incorporated in this Annual Report\non Form 10-K by reference to the Proxy Statement, no other portions of the Proxy Statement are deemed to be filed as part of this\nAnnual Report on Form 10-K.\n\n\n\u00a0\n\n\n\n\nItem\n                          10.\nDirectors,\n                                         Executive Officers and Corporate Governance.\n\n\n\u00a0\n\n\nInformation\nabout our Executive Officers\n\n\n\u00a0\n\n\nThe\nfollowing sets forth certain information about our current executive officers:\n\n\n\u00a0\n\n\nJames\nL. Cunniff\n, age 58, joined Electromed in July 2023 as the Company\u2019s President and Chief Executive Officer. Prior to\njoining Electromed, Mr. Cunniff most recently served as President and Chief Executive Officer of Provista Inc., from 2017 to May\n2022. Previously, he served as President and Chief Executive Officer at Denver Solutions, LLC (d/b/a Leiters Health) from 2015\nto 2017 and as Senior Vice President, Americas, at Acelity L.P. Inc., from 2012 to 2014. Mr. Cunniff holds a bachelor's degree\nin Advertising and Business from the University of Illinois Urbana-Champaign and has completed the Advanced Management Program\nat Harvard Business School.\n\n\n\u00a0\n\n\nBradley\nM. Nagel\n, age 41, joined Electromed in November 2022 as the Company\u2019s Chief Financial Officer, Treasurer and Secretary.\nPrior to joining Electromed, Mr. Nagel most recently served as Divisional Chief Financial Officer of Global Lung Health and Visualization\nat Medtronic plc from June 2018 to November, 2022. Previously, he served at Medtronic as Sr. Manager, Accounting and Sales Operations\nfrom 2016 to June 2018 and Accounting Manager from 2015 to 2016. Before joining Medtronic, Mr. Nagel held various roles of increasing\nresponsibility in sales, operations and accounting at Target Corporation and TCF Financial Corporation. Mr. Nagel holds a bachelor's\ndegree in Business & Finance from Calvin University. \n\n\n\u00a0\n\n\nCode\nof Ethics\n\n\n\u00a0\n\n\nOur\nBoard annually reviews and approves revisions to our Code of Ethics and Business Conduct (the \u201cCode of Ethics\u201d) that\napplies to all employees, directors, and officers, including the Chief Executive Officer and the Chief Financial Officer (Principal\nFinancial Officer and Principal Accounting Officer). The Code of Ethics was updated in May 2020 and is available in the \u201cInvestor\nRelations\u201d section of our website at www.smartvest.com. We intend to disclose on our website any amendment to or waiver\nfrom any provision of the Code of Ethics that applies to our Chief Executive Officer or our Chief Financial Officer (Principal\nFinancial Officer and Principal Accounting Officer), and that relates to any element of the Code of Ethics identified in Item\n406(b) of Regulation S-K, as promulgated by the SEC. Such disclosure will be provided promptly following the date of the amendment\nor waiver.\n\n\n\u00a0\n\n\nThe\nadditional information required by this item is incorporated herein by reference to the sections labeled \u201cElection of Directors,\u201d\n\u201cCorporate Governance,\u201d \u201cand \u201cSecurity Ownership Certain Beneficial Owners and Management\u201d and,\nif any, under \u201cDelinquent Section 16(a) Reports\u201d in the Proxy Statement.\n\n\n\u00a0\n\n\n\n\nItem\n                          11.\nExecutive\n                                         Compensation.\n\n\n\u00a0\n\n\nThe\ninformation required by this item is incorporated herein by reference to the sections labeled \u201cExecutive Compensation,\u201d\n\u201cDirector Compensation,\u201d and \u201cCorporate Governance \u2013 Personnel and Compensation Committee\u201d in the\nProxy Statement.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n23\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nItem\n                          12.\nSecurity\n                                         Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.\n\n\n\u00a0\n\n\nThe\ninformation required by this item relating to the security ownership of certain holders is incorporated herein by reference to\nthe sections labeled \u201cSecurity Ownership of Certain Beneficial Owners and Management\u201d and \u201cEquity Compensation\nPlan Information\u201d in the Proxy Statement.\n\n\n\u00a0\n\n\n\n\nItem\n                          13.\nCertain\n                                         Relationships and Related Transactions, and Director Independence.\n\n\n\u00a0\n\n\nThe\ninformation required by this item is incorporated herein by reference to the sections labeled \u201cCorporate Governance\u2013Independence\u201d\nand \u201cRelated Person Transaction Approval Policy\u201d in the Proxy Statement.\n\n\n\u00a0\n\n\n\n\nItem\n                          14.\nPrincipal\n                                         Accountant Fees and Services.\n\n\n\u00a0\n\n\nOur\nindependent registered public accounting firm is \nRSM US\n LLP, \nRochester, MN\n, Auditor firm ID: \n49\n.\n\n\n\u00a0\n\n\nThe\ninformation required by this item is incorporated herein by reference to the section labeled \u201cRatification of the Appointment\nof the Company\u2019s Independent Registered Public Accounting Firm \u2013 Audit Fees\u201d in the Proxy Statement.\n\n\n\u00a0\n\n\nPART\nIV\n\n\n\u00a0\n\n\n\n\nItem\n                          15.\nExhibits\n                                         and Financial Statement Schedules.\n\n\n\u00a0\n\n\n\n\n(a)\nDocuments\n                                         filed as part of this report.\n\n\n\u00a0\n\n\n\n\n(1)\nFinancial\n                                         Statements. The following financial statements are included in Part II, Item 8 of this\n                                         Annual Report on Form 10-K:\n\n\n\u00a0\n\n\n\n\n\u25cf\nReport\n                                         of Independent Registered Public Accounting Firm\n\n\n\u00a0\n\n\n\n\n\u25cf\nBalance\n                                         Sheets as of June 30, 2023 and 2022\n\n\n\u00a0\n\n\n\n\n\u25cf\nStatements\n                                         of Operations for the years ended June 30, 2023 and 2022\n\n\n\u00a0\n\n\n\n\n\u25cf\nStatements\n                                         of Shareholders\u2019 Equity for the years ended June 30, 2023 and 2022\n\n\n\u00a0\n\n\n\n\n\u25cf\nStatements\n                                         of Cash Flows for the years ended June 30, 2023 and 2022\n\n\n\u00a0\n\n\n\n\n\u25cf\nNotes\n                                         to Financial Statements\n\n\n\u00a0\n\n\n\n\n(2)\nFinancial\n                                         Statement Schedules. No financial statement schedule is required to be included in this\n                                         Annual Report on Form 10-K.\n\n\n\u00a0\n\n\n\n\n\n\n\n\nExhibit Number\n\n\n\u00a0\n\n\nDescription\n\n\n\u00a0\n\n\nMethod of Filing\n\n\n\n\n3.1\n\n\n\u00a0\n\n\nComposite Articles of Incorporation, as amended through November\u00a08, 2010 (incorporated by reference to Exhibit\u00a03.1 to Annual Report on Form 10-K for the fiscal year ended June\u00a030, 2015)\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n3.2\n\n\n\u00a0\n\n\nAmended and Restated Bylaws, effective September 29, 2020 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed September 29, 2020)\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n4.1\n\n\n\u00a0\n\n\nDescription of Securities (incorporated by reference to Exhibit\u00a04.1 to Annual Report on Form 10-K for the fiscal year ended June\u00a030, 2019)\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n24\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\nExhibit Number\n\n\n\u00a0\n\n\nDescription\n\n\n\u00a0\n\n\nMethod of Filing\n\n\n\n\n10.1\n\n\n\u00a0\n\n\nElectromed,\n    Inc. 2012 Stock Incentive Plan (incorporated by reference to Exhibit\u00a010.1 to Current Report on Form 8-K filed November\u00a015,\n    2011)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n10.2\n\n\n\u00a0\n\n\nForm\n    of Stock Option Award Agreement under the Electromed, Inc. 2012 Stock Incentive Plan (incorporated by reference to Exhibit\u00a010.4\n    to Quarterly Report on Form 10-Q for the quarter ended December\u00a031, 2011)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n10.3\n\n\n\u00a0\n\n\nElectromed,\n    Inc. 2014 Equity Incentive Plan (incorporated by reference to Exhibit\u00a010.1 to Current Report on Form 8-K filed November\u00a025,\n    2014)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n10.4\n\n\n\u00a0\n\n\nForm\n    of Incentive Stock Option Agreement under the Electromed, Inc. 2014 Equity Incentive Plan (incorporated by reference to Exhibit\u00a010.2\n    to Current Report on Form 8-K filed November\u00a025, 2014)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n10.5\n\n\n\u00a0\n\n\nForm\n    of Nonqualified Stock Option Agreement under the Electromed, Inc. 2014 Equity Incentive Plan (incorporated by reference to\n    Exhibit\u00a010.3 to Current Report on Form 8-K filed November\u00a025, 2014)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n10.6\n\n\n\u00a0\n\n\nForm\n    of Restricted Stock Agreement under the Electromed, Inc. 2014 Equity Incentive Plan (incorporated by reference to Exhibit\u00a010.4\n    to Current Report on Form 8-K filed November\u00a025, 2014)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n10.7\n\n\n\u00a0\n\n\nElectromed,\n    Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 99.1 to Registration Statement on Form S-8 filed December\n    4, 2017)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n10.8\n\n\n\u00a0\n\n\nForm\n    of Restricted Award Agreement under the 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit\u00a010.11 to Annual\n    Report on Form 10-K for the fiscal year ended June\u00a030, 2018)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n10.9\n\n\n\u00a0\n\n\nForm\n    of Non-Qualified Option Agreement under the 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit\u00a010.1 to\n    Quarterly Report on Form 10-Q for the quarter ended March\u00a031, 2019)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n10.10\n\n\n\u00a0\n\n\nForm\n    of Restricted Stock Agreement (Non-Employee Directors) under the 2017 Omnibus Incentive Plan (incorporated by reference to\n    Exhibit\u00a010.13 to Annual Report on Form 10-K for the fiscal year ended June\u00a030, 2018)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n10.11\n\n\n\u00a0\n\n\nForm of Performance Stock Unit Agreement (Inducement Grant)*\n\n\n\u00a0\n\n\nFiled\n    Electronically\n\n\n\n\n10.12\n\n\n\u00a0\n\n\nForm of Non-Qualified Stock Option Agreement (Inducement Grant)*\n\n\n\u00a0\n\n\nFiled\n    Electronically\n\n\n\n\n10.13\n\n\n\u00a0\n\n\nNon-Competition,\n    Non-Solicitation and Confidentiality Agreement with Kathleen S. Skarvan dated effective December\u00a01, 2012 (incorporated\n    by reference to Exhibit\u00a010.2 to the Current Report on Form 8-K filed December\u00a03, 2012)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n\n\n10.14\n\n\n\u00a0\n\n\nAmended\n    and Restated Employment Agreement with Kathleen S. Skarvan dated as of December 2, 2019 (incorporated by reference to Exhibit\u00a010.1\n    to Current Report on Form 8-K filed December 6, 2019)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n\n\n10.15\n\n\n\u00a0\n\n\nEmployment\n    Agreement with Bradley M. Nagel, dated October 19, 2022 (incorporated by reference to Exhibit 10.1 to Current Report on Form\n    8-K filed October 24, 2022)*\n\n\n\u00a0\n\n\nIncorporated\n    by Reference\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n25\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\nExhibit Number\n\n\n\u00a0\n\n\nDescription\n\n\n\u00a0\n\n\nMethod of Filing\n\n\n\n\n10.16\n\n\n\u00a0\n\n\nLetter Agreement with Kathleen S. Skarvan, dated February 14, 2023 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed February 14, 2023)*\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n\n\n10.17\n\n\n\u00a0\n\n\nEmployment Agreement with James Cunniff, dated May 22, 2023 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed June 5, 2023)*\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n\n\n10.18\n\n\n\u00a0\n\n\nLetter Agreement with James Cunniff, dated May 22, 2023 (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed June 5, 2023)*\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n\n\n10.19\n\n\n\u00a0\n\n\nLetter Agreement with Christopher G. Holland, dated June 9, 2023 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed June 15, 2023)*\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n\n\n10.20\n\n\n\u00a0\n\n\nBusiness Loan Agreement with Choice Financial Group, dated December 18, 2019 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed December 17, 2019)\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n10.21\n\n\n\u00a0\n\n\nRider to Business Loan Agreement (Asset Based) with Choice Financial Group, dated December 18, 2019 (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed December 17, 2019)\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n10.22\n\n\n\u00a0\n\n\nRider to Business Loan Agreement (Asset Based) with Choice Financial Group, dated December 16, 2020 (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed December 17, 2020)\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n10.23\n\n\n\u00a0\n\n\nRider to Business Loan Agreement (Asset Based) with Choice Financial Group, Dated December 17, 2021 (incorporated by reference to Exhibit 10. 1 to Current Report on 8-K filed December 17, 2021)\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n10.24\n\n\n\u00a0\n\n\nCooperation Agreement, dated July 25, 2022, by and among Electromed, Inc. and Summers Value Partners LLC and certain of its affiliates signatory thereto (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed July 25, 2022)\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n10.25\n\n\n\u00a0\n\n\nDescription of Fiscal Year 2023 Officer Bonus Plan (incorporated by reference to Exhibit 10.24 to Annual Report on Form 10-K for the fiscal year ended June 30, 2022)*\n\n\n\u00a0\n\n\nIncorporated by Reference\n\n\n\n\n10.26\n\n\n\u00a0\n\n\nDescription of Fiscal Year 2024 Officer Bonus Plan\n\n\n\u00a0\n\n\nFiled Electronically\n\n\n\n\n23.1\n\n\n\u00a0\n\n\nConsent of Independent Registered Public Accounting Firm\n\n\n\u00a0\n\n\nFiled Electronically\n\n\n\n\n24.1\n\n\n\u00a0\n\n\nPowers of Attorney\n\n\n\u00a0\n\n\nFiled Electronically\n\n\n\n\n31.1\n\n\n\u00a0\n\n\nCertification Pursuant to Section\u00a0302 of the Sarbanes-Oxley Act of 2002\n\n\n\u00a0\n\n\nFiled Electronically\n\n\n\n\n31.2\n\n\n\u00a0\n\n\nCertification Pursuant to Section\u00a0302 of the Sarbanes-Oxley Act of 2002\n\n\n\u00a0\n\n\nFiled Electronically\n\n\n\n\n32.1\n\n\n\u00a0\n\n\nCertification Pursuant to Section\u00a0906 of the Sarbanes-Oxley Act of 2002\n\n\n\u00a0\n\n\nFurnished Electronically\n\n\n\n\n32.2\n\n\n\u00a0\n\n\nCertification Pursuant to Section\u00a0906 of the Sarbanes-Oxley Act of 2002\n\n\n\u00a0\n\n\nFurnished Electronically\n\n\n\n\n101.CAL\n\n\n\u00a0\n\n\nXBRL Taxonomy Extension Calculation Linkbase\n\n\n\u00a0\n\n\nFiled Electronically\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n26\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\nExhibit Number\n\n\n\u00a0\n\n\nDescription\n\n\n\u00a0\n\n\nMethod of Filing\n\n\n\n\n101.DEF\n\n\n\u00a0\n\n\nXBRL Taxonomy Extension Definition Linkbase\n\n\n\u00a0\n\n\nFiled Electronically\n\n\n\n\n101.INS\n\n\n\u00a0\n\n\nXBRL Instance Document\n\n\n\u00a0\n\n\nFiled Electronically\n\n\n\n\n101.LAB\n\n\n\u00a0\n\n\nXBRL Taxonomy Extension Label Linkbase\n\n\n\u00a0\n\n\nFiled Electronically\n\n\n\n\n101.PRE\n\n\n\u00a0\n\n\nXBRL Taxonomy Extension Presentation Linkbase\n\n\n\u00a0\n\n\nFiled Electronically\n\n\n\n\n101.SCH\n\n\n\u00a0\n\n\nXBRL Taxonomy Extension Schema\n\n\n\u00a0\n\n\nFiled Electronically\n\n\n\n\n104\n\n\n\u00a0\n\n\nCover Page Interactive Data File (embedded within the inline XBRL Document)\n\n\n\u00a0\n\n\nFiled electronically\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n*\nManagement compensatory contract or arrangement.\n\n\n\u00a0\n\n\n\n\nItem 16.\nForm 10-K Summary.\n\n\n\u00a0\n\n\nNone.\n\n\n\u00a0\n\n\n\n\n\u00a0\n27\n\n\n\u00a0\n\n\n\n\nSIGNATURES\n\n\n\u00a0\n\n\nPursuant to the requirements\nof Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf\nby the undersigned, thereunto duly authorized.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nELECTROMED, INC.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nDate: August 22, 2023\n\n\nBy\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0/s/ James L. Cunniff\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nJames L. Cunniff\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nPresident and Chief Executive Officer\n\n\n\n\n\u00a0\n\n\nPursuant to the requirements\nof the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant\nand in the capacities and on the dates indicated.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nSignature\n\n\n\u00a0\n\n\nTitle\n\n\n\u00a0\n\n\nDate\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n/s/ James L. Cunniff\n\n\n\u00a0\n\n\nPresident and Chief Executive Officer and Director\n\n\n\u00a0\n\n\nAugust 22, 2023\n\n\n\n\n\n\nJames L. Cunniff\n\n\n\u00a0\n\n\n(principal executive officer)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Bradley M. Nagel\n\n\n\u00a0\n\n\nChief Financial Officer\u00a0\u00a0\n\n\n\u00a0\n\n\nAugust 22, 2023\n\n\n\n\n\n\nBradley M. Nagel\n\n\n\u00a0\n\n\n(principal financial and accounting officer)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n*\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nAugust 22, 2023\n\n\n\n\n\n\nStan K. Erickson\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n*\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nAugust 22, 2023\n\n\n\n\n\n\nGregory J. Fluet\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n*\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nAugust 22, 2023\n\n\n\n\n\n\nJoseph L. Galatowitsch\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n*\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nAugust 22, 2023\n\n\n\n\n\n\nLee A. Jones\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n*\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nAugust 22, 2023\n\n\n\n\n\n\nKathleen S. Skarvan\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n*\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nAugust 22, 2023\n\n\n\n\n\n\nAndrew J. Summers\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n*\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nAugust 22, 2023\n\n\n\n\n\n\nKathleen A. Tune\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n*\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nAugust 22, 2023\n\n\n\n\n\n\nAndrew M. Walsh\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n*\nThe undersigned, by signing his name hereto, does hereby sign this document on behalf of each of the above-named directors\nof the registrant pursuant to powers of attorney duly executed by such persons.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nBy\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0/s/ James L. Cunniff\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nJames L. Cunniff\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAttorney-in-Fact\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n28\n\n\n\n\n\n\n\n",
+  "item1a": ">Item 1A. \n    \nRisk Factors\n\n\n\u00a0\n\n\n13\n\n\n\n",
+  "item7": ">Item 7.\n    \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\n\n\u00a0\n\n\n14\n\n\n\n",
+  "item7a": ">Item 7A.\n    \nQuantitative and Qualitative Disclosures About Market Risk\n\n\n\u00a0\n\n\n21\n\n\n\n",
+  "cik": "1488917",
+  "cusip6": "285409",
+  "cusip": ["285409108"],
+  "names": ["ELECTROMED INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1488917/000089710123000380/0000897101-23-000380-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0000910406-23-000053.json b/GraphRAG/standalone/data/all/form10k/0000910406-23-000053.json
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+{
+  "item1": ">Item 1.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Business\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \nOverview \nThe Hain Celestial Group, Inc., a Delaware corporation (collectively, along with its subsidiaries, the \u201cCompany,\u201d and herein referred to as \u201cHain Celestial,\u201d \u201cwe,\u201d \u201cus\u201d and \u201cour\u201d), was founded in 1993. The Company is a leading manufacturer, marketer and seller of better-for-you brands that inspire healthier living. The Company is committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores worldwide.\nThe Company\u2019s food and beverage brands include Celestial Seasonings\n\u00ae\n, Clarks\u2122, Cully & Sully\n\u00ae\n, Earth\u2019s Best\n\u00ae\n, Ella\u2019s Kitchen\n\u00ae\n, Frank Cooper\u2019s\n\u00ae\n, Garden of Eatin\u2019\n\u00ae\n, Garden Veggie\n\u2122\n, Hartley\u2019s\n\u00ae\n, Health Valley\n\u00ae\n, Imagine\n\u00ae\n, Joya\n\u00ae\n, Lima\n\u00ae\n, Linda McCartney\u2019s\n\u00ae\n (under license), MaraNatha\n\u00ae\n, Natumi\n\u00ae\n, New Covent Garden Soup Co.\n\u00ae\n, ParmCrisps\n\u00ae\n, Robertson\u2019s\n\u00ae\n, Rose\u2019s\n\u00ae\n (under license), Sensible Portions\n\u00ae\n, Spectrum\n\u00ae\n, Sun-Pat\n\u00ae\n, Terra\n\u00ae\n, The Greek Gods\n\u00ae\n, Thinsters\n\u00ae\n, Yorkshire Provender\n\u00ae\n and Yves Veggie Cuisine\n\u00ae\n. The Company\u2019s personal care brands include Alba Botanica\n\u00ae\n, Avalon Organics\n\u00ae\n, JASON\n\u00ae\n, Live Clean\n\u00ae\n and Queen Helene\n\u00ae\n.\nImpact\nWe are a global health and wellness company whose purpose is to inspire healthier living for people, communities, and the planet through better-for-you brands. We have focused our Impact strategy around expanding our commitment to environmentally sound business practices, creating and selling better-for-you products, social and commUpunity impact initiatives and sustainable manufacturing processes.\nOur Impact strategy also consists of our environmental, social, and governance (\u201cESG\u201d) goals along with a commitment to considering long-term social and environmental impacts. More details about our Impact strategy and goals, including our most recent ESG Report, are available at hain.com/company/impact.\nOur ESG Reports and the other information available at hain.com/company/impact are not, and shall not be deemed to be, a part of this Form 10-K or incorporated into any of our other filings made with the Securities and Exchange Commission (the \u201cSEC\u201d).\nHuman Capital Resources\nAs of June\u00a030, 2023, we had approximately 2,837 employees, with approximately 46% located in North America and approximately 54% located outside of North America. Approximately 59% of our employees in North America and approximately 60% of our employees outside of North America were based in our production facilities. Substantially all of our employees are full-time, permanent employees.\nOur employees are critical to our success. The following programs, initiatives and principles encompass some of the human capital objectives and measures that we focus on in managing our business and in seeking to attract and retain a talented workforce.\nDiversity and Inclusion\nPeople have always been our greatest asset. They are the very heart of our Company, and we believe everyone should feel encouraged, respected and welcomed in our workplace.\nDiversity and inclusion drives success, and we believe that our employees\u2019 diverse backgrounds and experiences are essential to helping us all to continue to thrive internally and deliver innovative products to our customers. We promote fairness by practicing equal opportunity in all decisions about hiring, compensation, training, promotions and every other aspect of employment.\n4\nTable of Contents\nWe maintain a Diversity & Inclusion (\u201cD&I\u201d) Council in North America to create and foster a workplace that reflects and contributes to the diverse, global communities in which we do business. We are continuing to work to build our D&I efforts into recruitment, retention and internal mobility.\nAs of June\u00a030, 2023, our global workforce was 59% male and 41% female. In the United States, on an employee self-reported basis, the racial/ethnic composition of our workforce was approximately 40% Hispanic or Latino, 42% White, 10% Black or African American, 6% Asian and 2% other. We make additional workforce demographic data available at \nhain.com/impact\n. The information available at \nhain.com/impact\n is not a part of this Form 10-K or incorporated into any of our other filings made with the SEC.\nEmployee Health and Safety\nEmployee safety is always front and center. We invest in the health, safety, development and well-being of our employees. In an effort to ensure workplace safety, we train employees on how to follow our detailed, written safety standards and procedures, and the law, and to watch for and report anything potentially harmful. Our safety key performance indicators are reviewed weekly, monthly and annually to ensure quick feedback and to address safety issues as soon as they arise.\nLearning and Development\nWe offer a number of programs that help our employees progress in their careers. These programs include access to online learning and development tools as well as many additional local initiatives across our global locations to support employees on their career paths and develop leadership qualities and career skills in our global workforce.\nBenefits\nOur employee benefits vary by region but generally include:\n\u2022\nMedical, Dental, and Vision Benefits;\n\u2022\nRetirement Savings and Pension Plans;\n\u2022\nCommuter Benefits;\n\u2022\nWellness Initiatives;\n\u2022\nTuition Reimbursement; and\n\u2022\nPaid Parental Leave including births, adoptions or placements of foster children.\nEmployee Satisfaction and Engagement\nWe aim to foster a culture of open communications and have implemented a global systematic employee engagement process in which employees are surveyed periodically. Our Executive Leadership Team regularly reviews the results and considers and implements action items to address areas that need improvement. We have additional regional programs and policies in place to encourage open communications with management and Human Resources about employees\u2019 ideas, concerns and how they are doing.\nProducts\nOur brand portfolio focuses on growing global brands in categories where we believe we have the most potential. We continuously evaluate our existing products for quality, taste, nutritional value and cost and make improvements where possible. Conversely, we discontinue products or stock keeping units (\u201cSKUs\u201d) when sales of those items do not warrant further production. Products under different brands for our reportable segments are noted in the segments section.\nSeasonality\nCertain of our product lines have seasonal fluctuations in demand. Hot tea, hot-eating desserts and soup sales are stronger in colder months, while sales of snack foods, sunscreen and certain of our personal care products are stronger in the warmer months. As such, our results of operations and our cash flows for any particular quarter are not indicative of the results we expect for the full year, and our historical seasonality may not be indicative of future quarterly results of operations. In recent years, net sales and diluted earnings per share in the first fiscal quarter have typically been the lowest of our four quarters.\n5\nTable of Contents\nSegments\nOur organization structure consists of two geographic based reportable segments: North America and International. This structure is in line with how our Chief Operating Decision Maker (\u201cCODM\u201d) assesses our performance and allocates resources.\nSee \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in Item 7 and Note 19, \nSegment Information\n, in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for additional details.\nNorth America Segment:\nUnited States\nOur products are sol\nd throughout the United States. Our customer base consists principally of specialty and natural food distributors, supermarkets and natural food stores, mass-market, club stores, e-commerce retailers, drug and convenience stores, and food service channels. Our products are sold through a combination of direct salespeople, brokers and distributors. We believe that our direct salespeople com\nbined with brokers and distributors provide an effective means of reaching a broad and diverse customer base. Brokers act as agents for us within designated territories and receive commissions. A portion of our direct sales force is organized into dedicated teams to serve our significant customers. \nA significant portion of the products marketed by us are sold through independent distributors. Food distributors purchase products from us for resale to retailers.\nThe brands sold in the United States include:\n\u2022\nGarden Veggie\n\u2122\n and Sensible Portions\n\u00ae\n snack products including Garden Veggie Straws\n\u00ae\n, Garden Veggie Chips and Apple Straws\n\u00ae\n,\n \nTerra\n\u00ae\n varieties of root vegetable chips, potato chips, and other exotic vegetable chips, Garden of Eatin\u2019\n\u00ae\n tortilla chips, and ParmCrisps\n\u00ae\n.\n\u2022\nTea products under the Celestial Seasonings\n\u00ae\n brand and include more than 100 varieties of herbal, green, black, wellness, rooibos and chai teas, with well-known names and products such as Sleepytime\n\u00ae\n, Lemon Zinger\n\u00ae\n, Red Zinger\n\u00ae\n,\n \nCinnamon Apple Spice, Bengal Spice\n\u00ae\n, Country Peach Passion\n\u00ae\n and Tea Well\n\u00ae\n. \n\u2022\nBaby food products include infant and toddler formula, infant cereals, jarred baby food, baby food pouches, snacks and frozen toddler and kids\u2019 foods under the Earth\u2019s Best\n\u00ae\n and Earth\u2019s Best Sesame Street (under license) brands.\n\u2022\nYogurt products include The Greek Gods\n\u00ae\n Greek-style yogurt products.\n\u2022\nPersonal care products include hand, skin, hair and oral care products, sun care products and deodorants under the Alba Botanica\n\u00ae\n, Avalon Organics\n\u00ae\n, JASON\n\u00ae\n and Queen Helene\n\u00ae\n brands.\n\u2022\nOther products include Spectrum\n\u00ae\n culinary oils, vinegars and condiments, Spectrum Essentials\n\u00ae\n nutritional oils and supplements, MaraNatha\n\u00ae\n nut butters, Imagine\n\u00ae\n broths, soups and gravies, Hain Pure Foods\n\u00ae\n condiments, Health Valley\n\u00ae\n cereal bars and soups, and Hollywood\n\u00ae\n oils.\nCanada\nOur products are sold throughout Canada. Our customer base consists principally of grocery supermarkets, club stores, mass merchandisers, natural food distributors, drug store chains, personal care distributors, and food service distributors. Our products are sold through our own retail direct sales force. We also utilize third-party brokers who receive commissions and sell to food service and retail customers. We utilize a third-party merchandising team for retail execution. As in the United States, a portion of the products marketed by us are sold through independent distributors.\nThe brands sold in Canada include Yves Veggie Cuisine\n\u00ae\n refrigerated and frozen meat-alternative snacks and meals, vegetables and lentils, Earth\u2019s Best\n\u00ae\n infant formula, MaraNatha\n\u00ae\n nut butters, Spectrum\n\u00ae\n cooking and culinary oils, Imagine\n\u00ae\n aseptic soups, The Greek Gods\n\u00ae\n Greek-style yogurt and Robertson\u2019s\n\u00ae \nmarmalades. Other food brands include Celestial Seasonings\n\u00ae\n teas, Terra\n\u00ae\n chips and Garden Veggie\n\u2122\n and Sensible Portions\n\u00ae\n snack products. Our personal care products include skin, hair and oral care products, sun care products and deodorants under the Alba Botanica\n\u00ae\n, Avalon Organics\n\u00ae\n, JASON\n\u00ae\n, and Live Clean\n\u00ae\n brands.\n6\nTable of Contents\nInternational Segment:\nUnited Kingdom\nIn the United Kingdom, our products include soups, plant-based and meat-free dishes and meals, as well as ambient products such as jams, fruit spreads, jellies, honey, marmalades, nut butters, sweeteners, syrups and dessert sauces.\nThe products sold in the United Kingdom include Ella's Kitchen\n\u00ae\n premium organic infant and toddler foods, New Covent Garden Soup Co.\n\u00ae \nand Yorkshire Provender\n\u00ae \nchilled soups, private label and Farmhouse Fare\n\u2122\n hot-eating desserts, Linda McCartney\u2019s\n\u00ae\n (under license) chilled and frozen plant-based dishes and meals, Hartley\u2019s\n\u00ae\n jams, fruit spreads and jellies, Sun-Pat\n\u00ae \nnut butters, Clarks\u2122 natural sweeteners and Robertson\u2019s\n\u00ae\n, Frank Cooper\u2019s\n\u00ae\n and Rose\u2019s\n\u00ae\n (under license) marmalades. We also provide a comprehensive range of private label products to many grocery and organic food retailers, convenience stores and food service providers in the following categories: fresh soup, chilled desserts, meat-free dishes and meals and ambient grocery products.\nOur products are principally sold throughout the United Kingdom and Ireland but are also sold in Europe and other parts of the world. Our customer base consists principally of retailers, convenience stores, food service providers, business to business, natural food and ethnic specialty distributors, club stores and wholesalers.\nEurope\nOur products sold by the Europe reporting unit include, among others, products sold under the Joya\n\u00ae\n, Lima\n\u00ae\n and Natumi\n\u00ae \nbrands. The Lima\n\u00ae\n brand includes a wide range of organic products such as soy sauce, plant-based beverages and grain cakes, as well as grains, pasta, cereals, miso, snacks, sweeteners, spreads, soups and condiments. Our Natumi\n\u00ae\n brand includes plant-based beverages, including rice, soy, oat and spelt. Our Joya\n\u00ae\n brand includes soy, oat, rice and nut-based drinks as well as plant-based yogurts, desserts, creamers and tofu. We also sell our Hartley\u2019s\n\u00ae\n jams, fruit spreads and jellies, Terra\n\u00ae\n varieties of root vegetable and potato chips, Celestial Seasonings\n\u00ae\n teas, Linda McCartney\u2019s\n\u00ae\n (under license) chilled and frozen plant-based dishes and meals, Cully & Sully\n\u00ae\n chilled soups and ready meals, and private label products in Europe. \nOur products are sold in grocery stores and organic food stores throughout Europe, the Middle East and India. Our products are sold using our own direct sales force and local distributors.\nCustomers\nWalmart Inc. and its affiliates together accounted for approximately 16%, 15% and 11% of our consolidated sales for the fiscal years ended June\u00a030, 2023, 2022 and 2021, respectively, which were primarily related to the United States, Canada and United Kingdom. No other customer accounted for at least 10% of our net sales in any of the past three fiscal years. \nForeign Operations\nWe sell our products to customers worldwide. Sales outside of the United States represented approximately \n43%, 45% and 52% of our consolidated net sales in \nfiscal 2023, 2022 and 2021, respectively.\nMarketing\nWe aim to meet the consumer at multiple points in their journey, across the digital and omnichannel ecosystem, communicating both in-store and online. We use a combination of trade and consumer advertising and promotion. Trade advertising and promotion includes placement fees, cooperative advertising, feature advertising in distribution catalogs and in-store merchandising in prominent and secondary locations.\nConsumer advertising and promotion is used to build brand awareness and equity, drive trial to bring in new consumers and retain existing users to increase household penetration and consumption. Paid social and digital advertising, including retailer media and public relations programs, are the main drivers of brand awareness. Trial and conversion tactics include, but are not limited to, product search on Google and e-commerce sites, digital coupons, product sampling, direct mail and e-consumer relationship programs. Additionally, brand specific websites and social media pages are used to engage consumers with lifestyle, product and usage information related to specific brands.\n7\nTable of Contents\nWe also utilize marketing arrangements with third parties to help create awareness and advocacy. For example, our Earth\u2019s Best\n\u00ae\n brand has an agreement with PBS Kids and Sesame Workshop in the United States, leveraging popular characters for on and off packaging communications. We also leverage various influencers to help increase brand reach and relevance. \nNew Product Initiatives Through Research and Development\nInnovation, including new product development, is a key component of our growth strategy. We continuously seek to understand our consumers and develop products that address their desire for organic, natural and better-for-you alternatives to conventional packaged foods and personal care products. We have a demonstrated track record of extending our product offerings into other product categories. A team of professional product developers, including microbiologists, nutritionists, food scientists, chefs and chemists, work to develop products to meet changing consumer needs. Our research and development staff incorporates product ideas from all areas of our business in order to formulate new products. In addition to developing new products, the research and development staff routinely reformulates and improves existing products based on advances in ingredients, packaging and technology. In addition to our Company-sponsored research and development activities, in order to quickly and economically introduce our new products to market, we may partner with contract manufacturers that make our products according to our formulas or other specifications. The Company also partners with certain customers from time to time on exclusive customer initiatives. The Company\u2019s research and development expenditures do not include the expenditures on such activities undertaken by co-packers and suppliers who develop numerous products on behalf of the Company and on their own initiative with the expectation that the Company will accept their new product ideas and market them under the Company\u2019s brands.\nProduction\nManufacturing\nDuring fiscal 2023, 2022 and 2021, approximately \n58%\n, 51% and 61%, respectively, of our revenue was derived from products manufactured at our own facilities.\nOur North America reportable segment operates the following manufacturing facilities: \n\u2022\nBoulder, Colorado, which produces Celestial Seasonings\n\u00ae\n teas;\n\u2022\nMountville, Pennsylvania, which produces Garden Veggie\n\u2122\n, Sensible Portions\n\u00ae\n and Terra\n\u00ae\n snack products;\n\u2022\nBell, California, which produces Alba Botanica\n\u00ae\n, Avalon Organics\n\u00ae\n, and JASON\n\u00ae \npersonal care products;\n\u2022\nLancaster, Pennsylvania, which produces snack products;\n\u2022\nYork, Pennsylvania, which produces ParmCrisps\n\u00ae\n;\n\u2022\nVancouver, British Columbia, which produces Yves Veggie Cuisine\n\u00ae\n plant-based snacks and meals; and\n\u2022\nMississauga, Ontario, which produces our Live Clean\n\u00ae \nand other personal care products.\nOur International reportable segment operates the following manufacturing facilities:\n\u2022\nHiston, England, which produces our ambient grocery products including Hartley\u2019s\n\u00ae\n, Frank Cooper\u2019s\n\u00ae\n, Robertson\u2019s\n\u00ae\n and Clarks\u2122;\n\u2022\nGrimsby, England, which produces our New Covent Garden Soup Co.\n\u00ae\n and Yorkshire Provender\n\u00ae\n \nchilled soups;\n\u2022\nClitheroe, England, which produces our private label and Farmhouse Fare\nTM \nhot-eating desserts;\n \n\u2022\nFakenham, England, which produces Linda McCartney\u2019s\n\u00ae\n (under license) meat-free frozen and chilled dishes and meals;\n\u2022\nTroisdorf, Germany, which produces Natumi\n\u00ae\n, Lima\n\u00ae\n, \n \nJoya\n\u00ae\n and other plant-based beverages and private label products; \n\u2022\nOberwart, Austria, which produces our Lima\n\u00ae \nand Joya\n\u00ae\n plant-based foods and beverages, creamers, cooking creams and private label products; and\n\u2022\nSchwerin, Germany, which also produces our Lima\n\u00ae \nand Joya\n\u00ae\n plant-based foods and beverages and private label products.\n \nSee \u201cItem 2: Properties\u201d of this Form 10-K for more information on the manufacturing facilities that we operate. \n8\nTable of Contents\nContract Manufacturers\nIn addition to the products manufactured in our own facilities, independent third-party contract manufacturers, who are referred to in our industry as co-manufacturers or co-packers, manufacture many of our products. In general, utilizing co-packers provides us with the flexibility to produce a large variety of products and the ability to enter new categories quickly and economically. Our contract manufacturers have been selected based on their production capabilities, capitalization and their specific product category expertise, and we expect to \ncontinue to partner with them to improve and expand our product offerings.\u00a0During fiscal 2023, 2022 and 2021, approximately 42%, 49% and 39%, respec\ntively, of our sales were derived from products manufactured by co-packers. We require that our co-packers comply with all\n \napplicable regulations and our quality and food safety program requirements, and compliance is verified through auditing and other activities. Additionally, the co-packers are required to ensure our products are manufactured in accordance with our finished goods specifications to ensure we meet customer expectations.\nSuppliers of Ingredients and Packaging\nAgricultural commodities and ingredients, including vegetables, fruits, oils, grains, beans, nuts, tea and herbs, spices, and dairy products, are the principal inputs used in our food and beverage products. Plant-based surfactants, glycerin and alcohols are the main inputs used in our personal care products. Our primary packaging supplies are cartons, pouches, printed film, paper, paperboard and jars. We strive to maintain a global supplier base that provides innovative ideas and sustainable packaging alternatives.\nOur raw materials and packaging materials are obtained from various suppliers around the world. The Company works with its suppliers to ensure the quality and safety of their ingredients and that such ingredients meet our specifications and comply with applicable regulations. These assurances are supported by our purchasing contracts, supplier expectations manual, supplier code of conduct, and technical assessments, including questionnaires, scientific data, certifications, affidavits, certificates of analysis and analytical testing, where required. Our purchasers and quality team visit major suppliers around the world to procure competitively priced, quality ingredients that meet our specifications.\nWe maintain long-term relationships with many of our suppliers. Purchase arrangements with ingredient suppliers are generally made annually. Purchases are made through purchase orders or contracts, and price, delivery terms and product specifications vary.\nAgricultural commodities and ingredients are subject to price volatility which can be caused by a variety of factors. We attempt to mitigate the input price volatility by negotiating and entering into purchase arrangements with our suppliers and by adjusting the sale price of our products.\nCompetition\nWe operate in a highly competitive environment. Our products compete with both large conventional packaged goods companies and natural and organic packaged foods companies. Many of these competitors enjoy significantly greater resources. Large conventional packaged foods competitors include Campbell Soup Company, Conagra Brands, Inc., Danone S.A., General Mills, Inc., The Hershey Company, The J.M. Smucker Company, Kellogg Company, Mondelez International, Inc., Nestle S.A., PepsiCo, Inc. and Unilever PLC. Large conventional personal care products companies with whom we compete include, but are not limited to, The Clorox Company, Colgate-Palmolive Company, Johnson & Johnson, The Procter & Gamble Company, S. C. Johnson & Son, Inc. and Unilever PLC. Certain of these large conventional packaged foods and personal care companies compete with us by selling both conventional products and natural and/or organic products. In addition to these competitors, in each of our categories we compete with many regional and small, local niche brands. Given limited retailer shelf space and merchandising events, competitors actively support their respective brands with marketing, advertising and promotional spending. In addition, most retailers market similar items under their own private label, which compete for the same shelf space.\nCompetitive factors in the packaged foods industry include product quality and taste, brand awareness and loyalty, product variety, interesting or unique product names, product packaging and package design, shelf space, reputation, price, advertising, promotion and nutritional claims. \n9\nTable of Contents\nTrademarks\nWe believe that brand awareness is a significant component in a consumer\u2019s decision to purchase one product over another in the highly competitive consumer packaged goods industry. We generally register our trademarks and brand names in the United States, Canada, the European Union, and the United Kingdom and/or other foreign countries depending on the area of distribution of the applicable products. We intend to keep these filings current and seek protection for new trademarks to the extent consistent with business needs. We monitor trademark registers worldwide and take action to enforce our rights as we deem appropriate. We believe that our trademarks are significant to the marketing and sale of our products and that the inability to utilize certain of these names and marks, and/or the inability to prevent third parties from using similar names or marks, could have a material adverse effect on our business.\nWe also market products under brands licensed under trademark license agreements, including Linda McCartney\u2019s\n\u00ae\n, Rose\u2019s\n\u00ae\n, the Sesame Street name and logo and other Sesame Workshop intellectual property on certain of our Earth\u2019s Best\n\u00ae\n products, as well as the Paddington Bear image on certain of our Robertson\u2019s\n\u00ae\n products.\nGovernment Regulation\nWe are subject to extensive regulations in the United States by federal, state and local government authorities. In the United States, the federal agencies governing the manufacture, marketing and distribution of our products include, among others, the Federal Trade Commission (\u201cFTC\u201d), the United States Food & Drug Administration (\u201cFDA\u201d), the United States Department of Agriculture (\u201cUSDA\u201d), the United States Environmental Protection Agency (\u201cEPA\u201d) and the Occupational Safety and Health Administration (\u201cOSHA\u201d). Under various statutes, these agencies prescribe and establish, among other things, the requirements and standards for quality, safety and representation of our products to the consumer in labeling and advertising.\nInternationally, we are subject to the laws and regulatory authorities of the foreign jurisdictions in which we manufacture and sell our products, including the Canadian Food Inspection Agency, Health Canada, Food Standards Agency in the United Kingdom, and the European Food Safety Authority.\nQuality Control\nWe utilize a comprehensive product safety and quality management program, which employs strict manufacturing procedures, expert technical knowledge on food safety science, employee training, ongoing process innovation, use of quality ingredients and both internal and independent auditing.\nIn the United States, each of our own food manufacturing facilities has a Food Safety Plan (\u201cFSP\u201d), which focuses on preventing food safety risks and is compliant with the requirements set forth under the Food Safety Modernization Act (\u201cFSMA\u201d). In addition, each such facility has at least one Preventive Controls Qualified Individual (\u201cPCQI\u201d) who has successfully completed training equivalent to that received under a standardized curriculum recognized by the FDA.\nWe conduct audits of our contract manufacturers to address topics such as allergen control; ingredient, packaging and product specifications; and sanitation. Under FSMA, each of our contract manufacturers is required to have a FSP, a Hazard Analysis Critical Control Plant (\u201cHACCP\u201d) plan or a hazard analysis critical control points plan that identifies critical pathways for contaminants and mandates control measures to be in place to mitigate food-borne hazards.\nIndependent Certifications\nSubstantially all of our Hain-owned manufacturing sites and a significant number of our contract manufacturers are certified against a recognized standard such as the Global Food Safety Initiative (\u201cGFSI\u201d), which includes Safe Quality Foods (\u201cSQF\u201d) and British Retail Consortium (\u201cBRC\u201d), or ISO 9001 Quality Management Systems and ISO 22716 GMP Cosmetic and Personal Care. All facilities where our food products are manufactured are GFSI compliant. These standards are integrated product safety and quality management protocols designed specifically for the food and personal care sectors and offer a comprehensive methodology to manage product safety and quality. Certification provides an independent and external validation that a product, process or service complies with applicable regulations and standards.\nIn the United States, our organic products are certified in accordance with the USDA\u2019s National Organic Program through Quality Assurance International (\u201cQAI\u201d), a third-party certifying agency. For products marketed as organic outside of the United States, we use accredited certifying agencies to ensure compliance with country-specific government regulations for selling organic products or reciprocity, where available.\n10\nTable of Contents\nMany of our products are certified kosher under the supervision of accredited agencies including The Union of Orthodox Jewish Congregations and \u201cKOF-K\u201d Kosher Supervision.\nWe also work with other non-governmental organizations such as NSF International, which developed the NSF/ANSI 305 Standard for Personal Care Products Containing Organic Ingredients and provides third-party certification through QAI for certain of our personal care products. In addition, we work with other nongovernmental organizations such as the Gluten Free Intolerance Group, Fair Trade USA, Environmental Working Group, The Skin Cancer Foundation, Coalition for Consumer Information on Cosmetics/Leaping Bunny, The Roundtable on Sustainable Palm Oil and the Non-GMO Project.\nCompany Website and Available Information\nThe following information can be found, free of charge, in the \u201cInvestor Relations\u201d section of our corporate website at                                          \nir.hain.com\n:\n\u2022\nour annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC;\n\u2022\nour policies related to corporate governance, including our Code of Business Conduct and Ethics (\u201cCode of Ethics\u201d) applying to our directors, officers and employees (including our principal executive officer and principal financial and accounting officers) that we have adopted to meet the requirements set forth in the rules and regulations of the SEC and The Nasdaq Stock Market LLC; and\n\u2022\nthe charters of the Audit, Compensation, Corporate Governance and Nominating, and Strategy Committees of our Board of Directors.\nIf the Company ever were to amend or waive any provision of its Code of Ethics that applies to the Company\u2019s principal executive officer, principal financial officer, principal accounting officer or any person performing similar functions, the Company intends to satisfy its disclosure obligations, if any, with respect to any such waiver or amendment by posting such information on its website set forth above rather than by filing a Current Report on Form 8-K.\nThe Company may use its website as a distribution channel of material Company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company\u2019s investor relations website at \nir.hain.com\n. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting \u201cE-mail Alerts\u201d under the \"IR Resources\" section of our investor relations website. Information on the Company\u2019s website is not incorporated by reference herein and is not a part of this Form 10-K.\n11\nTable of Contents",
+  "item1a": ">Item 1A. \u00a0\u00a0\u00a0\u00a0Risk Factors\nOur business, operations and financial condition are subject to various risks and uncertainties. The most significant of these risks include those described below; however, there may be additional risks and uncertainties not presently known to us or that we currently consider immaterial. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment. These risk factors should be read in conjunction with the other information in this Annual Report on Form 10-K and in the other documents that we file from time to time with the SEC.\nRisks Related to Our Business, Operations and Industry\nOur markets are highly competitive.\nWe operate in highly competitive geographic and product markets. Numerous brands and products compete for limited retailer shelf space, where competition is based on product quality, brand recognition, brand loyalty, price, product innovation, promotional activity, availability and taste among other things. Retailers also market competitive products under their own private labels, which are generally sold at lower prices and compete with some of our products.\nSome of our markets are dominated by multinational corporations with greater resources and more substantial operations than us. We may not be able to successfully compete for sales to distributors or retailers that purchase from larger competitors that have greater financial, managerial, sales and technical resources. Conventional food companies, including but not limited to Campbell Soup Company, Conagra Brands, Inc., Danone S. A., General Mills, Inc., The Hershey Company, The J.M. Smucker Company, Kellogg Company, Mondelez International, Inc., Nestle S.A., PepsiCo, Inc. and Unilever PLC, and conventional personal care products companies, including but not limited to The Clorox Company, Colgate-Palmolive Company, Johnson & Johnson, The Procter & Gamble Company, S. C. Johnson & Son, Inc. and Unilever PLC, may be able to use their resources and scale to respond to competitive pressures and changes in consumer preferences by introducing new products or reformulating their existing products, reducing prices or increasing promotional activities. We also compete with other organic and natural packaged food brands and companies, which may be more innovative and able to bring new products to market faster and may be better able to quickly exploit and serve niche markets. As a result of this competition, retailers may take actions that negatively affect us. Consequently, we may need to increase our marketing, advertising and promotional spending to protect our existing market share, which may result in an adverse impact on our profitability.\nIf we do not manage our supply chain effectively or if there are disruptions in our supply chain, our business and results of operations may be adversely affected.\nThe success of our business depends, in part, on maintaining a strong sourcing and manufacturing platform and efficient distribution channels. The inability of any supplier of raw materials, independent contract manufacturer or third-party distributor to deliver or perform for us in a timely or cost-effective manner could cause our operating costs to increase and our profit margins to decrease, especially as it relates to our products that have a short shelf life. We must continuously monitor our inventory and product mix against forecasted demand or risk having inadequate supplies to meet consumer demand as well as having too much inventory on hand that may reach its expiration date and become unsaleable.\nWe must also manage our third-party distribution, warehouse and transportation providers to ensure they are able to support the efficient distribution of our products to retailers. A disruption in transportation services could result in an inability to supply materials to our or our co-manufacturers\u2019 facilities or finished products to our distribution centers or customers. Activity at third-party distribution centers could be disrupted by a number of factors, including labor issues, failure to meet customer standards, natural disasters or financial issues affecting the third-party providers.\nIf we are unable to manage our supply chain efficiently and ensure that our products are available to meet consumer demand and customer orders, our sales and profitability could be materially adversely impacted.\n12\nTable of Contents\nOur future results of operations may be adversely affected by input cost inflation, including with respect to freight and other distribution costs.\nMany aspects of our business have been, and may continue to be, directly affected by volatile commodity costs and other inflationary pressures.\nAgricultural commodities and ingredients are subject to price volatility which can be caused by commodity market fluctuations, crop yields, seasonal cycles, weather conditions, temperature extremes and natural disasters (including due to the effects of climate change), pest and disease problems, changes in currency exchange rates, imbalances between supply and demand, and government programs and policies among other factors. Volatile fuel costs and other factors translate into unpredictable costs for the products and services we receive from our third-party providers including, but not limited to, freight and other distribution costs for our products and packaging costs.\nWhile we seek to offset increased input costs with a combination of price increases to our customers, purchasing strategies, cost savings initiatives and operating efficiencies, we may be unable to fully offset our increased costs or unable to do so in a timely manner. If we are unable to fully offset such cost increases, our financial results could be materially adversely affected.\nDisruption or loss of operations at one or more of our manufacturing facilities could harm our business.\nFor the fiscal years ended June\u00a030, 2023, 2022 and 2021, approximately 58%\n, 51% and 61%\n, respectively, of our sales were derived from products manufactured at our own manufacturing facilities. A disruption of or the loss of operations at one or more of these facilities, which may be caused by disease outbreaks or pandemics, labor issues, natural disasters or governmental actions, could delay or postpone production of our products, which could have a material adverse effect on our business, results of operations and financial condition. Labor market shortages have impacted, and may continue to impact, operations at our manufacturing facilities.\nLoss of one or more of our independent contract manufacturers could adversely affect our business.\nDuring fiscal 2023, 2022 and 2021, approximately 42%\n, 49% and 39%\n, respectively, of our sales were derived from products manufactured at independent contract manufacturers, or co-manufacturers. In some cases, an individual co-manufacturer may produce all of our requirements for a particular brand. We believe there are a limited number of competent, high-quality co-manufacturers in the industry, and many of our co-manufacturers produce products for other companies as well. Therefore, if we lose or need to change one or more co-manufacturers or fail to retain co-manufacturers for newly acquired or developed products or brands, production of our products may be delayed or postponed and/or the availability of some of our products may be reduced or eliminated, which could have a material adverse effect on our business, results of operations and financial condition.\nOur growth and continued success depend upon consumer preferences for our products, which could change.\nOur business is primarily focused on sales of organic, natural and better-for-you products which, if consumer demand for such categories were to decrease, could harm our business. During an economic downturn, factors such as increased unemployment, decreases in disposable income and declines in consumer confidence could cause a decrease in demand for our overall product set, particularly higher priced better-for-you products. While we continue to diversify our product offerings, developing new products entails risks, and demand for our products may not continue at current levels or increase in the future. The success of our innovation and product improvement effort is affected by our ability to anticipate changes in consumers\u2019 preferences, the level of funding that can be made available, the technical capability of our research and development staff in developing, formulating and testing product prototypes, including complying with governmental regulations, and the success of our management in introducing the resulting improvements in a timely manner.\nIn addition, over the past several years, we have seen a shift in consumption towards the e-commerce channel and may see a more substantial shift in the future. Some products we sell via the e-commerce channel have lower margins than those sold in traditional brick and mortar retailers and present unique challenges in order fulfillment. If we are unsuccessful in implementing product improvements or introducing new products that satisfy the demands of consumers, our business could be harmed.\nIn addition, we have other product categories that are subject to evolving consumer preferences. Consumer demand could change based on a number of possible factors, including dietary habits and nutritional values, concerns regarding the health of ingredients and the environmental effects of ingredients and packaging, and shifts in preference for various product attributes. A significant shift in consumer demand away from our products could reduce the sales of our brands or our market share, both of which could harm our business.\n13\nTable of Contents\nA significant percentage of our sales is concentrated among a small number of customers, and consolidation of customers or the loss of a significant customer could negatively impact our sales and profitability.\nOur growth and continued success depend upon, among other things, our ability to maintain and increase sales volumes with existing customers, our ability to attract new customers, the financial condition of our customers and our ability to provide products that appeal to customers at the right price. A significant percentage of our sales is concentrated among a small number of customers. For example, sales to Walmart Inc. and its affiliates approximated 16%, 15% and 11% of sales during the fiscal years ended\u00a0June\u00a030, 2023,\u00a02022\u00a0and\u00a02021, respectively. The loss of any large customer, the reduction of purchasing levels or the cancellation of any business from a large customer for an extended length of time could negatively impact our sales and profitability.\nWe rely on independent distributors for a substantial portion of our sales.\nIn the United States, we rely upon sales made by or through non-affiliated distributors to customers. Distributors purchase directly for their own account for resale. The loss of, or business disruption at, one or more of these distributors may harm our business. If we are required to obtain additional or alternative distribution agreements or arrangements in the future, we cannot be certain that we will be able to do so on satisfactory terms or in a timely manner. Our inability to enter into satisfactory distribution agreements may inhibit our ability to implement our business plan or to establish markets necessary to successfully expand the distribution of our products.\nWe are subject to risks associated with our international sales and operations, including foreign currency, compliance and trade risks.\nFor the fiscal years ended June\u00a030, 2023, 2022 and 2021, approximately 43%, 45% and 52%, respectively, of our consolidated sales were generated outside the United States. Sales from outside our U.S. markets may continue to represent a significant portion of our consolidated sales in the future.\nOur non-U.S. sales and operations are subject to risks inherent in conducting business abroad, many of which are outside our control, including:\n\u2022\ndifficulties in managing a global enterprise, including differing labor standards and design and implementation of effective control environment processes across our diverse operations and employee base;\n\u2022\ncompliance with U.S. laws affecting operations outside of the United States, such as the U.S. Foreign Corrupt Practices Act and the Office of Foreign Assets Control trade sanction regulations and anti-boycott regulations; \n\u2022\ndifficulties associated with operating under a wide variety of complex foreign laws, treaties and regulations, including compliance with antitrust and competition laws, anti-modern slavery laws, anti-bribery and anti-corruption laws, data privacy laws, including the European Union General Data Protection Regulation (\u201cGDPR\u201d), tax laws and regulations and a variety of other local, national and multi-national regulations and laws;\n\u2022\ntariffs, quotas, trade barriers or sanctions, other trade protection measures and import or export licensing requirements imposed by governments that might negatively affect our sales, including, but not limited to, Canadian and European Union tariffs imposed on certain U.S. food and beverages; \n\u2022\ncurrency exchange rate fluctuations;\n\u2022\nvarying abilities to enforce intellectual property and contractual rights; \n\u2022\nperiodic economic downturns and the instability of governments, including default or deterioration in the credit worthiness of local governments, geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war, public corruption, instability in the financial services sector, expropriation and other economic or political uncertainties; and\n\u2022\ngreater risk of uncollectible accounts and longer collection cycles. \nOur future results of operations may be adversely affected by the availability of natural and organic ingredients.\nOur ability to ensure a continuing supply of natural and organic ingredients used in certain of our products at competitive prices depends on many factors beyond our control, such as the number and size of farms that grow natural and organic crops, climate conditions, increased demand for natural and organic ingredients by our competitors for these scarce ingredients, climate conditions, global unrest and changes in national and world economic conditions, currency fluctuations and forecasting adequate need of seasonal ingredients.\nThe natural and organic ingredients that we use in the production of our products (including, among others, vegetables, fruits, nuts and grains) are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, water scarcity, \n14\nTable of Contents\ntemperature extremes, wildfires, frosts, earthquakes and pestilences. Natural disasters and adverse weather conditions can lower crop yields and reduce crop size and crop quality, which in turn could reduce our supplies of natural and organic ingredients or increase the prices of those ingredients. Such natural disasters and adverse weather conditions can be caused or exacerbated by climate change, and the spate of recent extreme weather and climate-related events, including historic droughts, heatwaves, wildfires, extreme cold and flooding, presents an alarming trend. If our supplies of natural and organic ingredients are reduced, we may not be able to find enough supplemental supply sources on favorable terms, if at all, which could impact our ability to supply products to our customers and adversely affect our business, financial condition and results of operations.\nWe also compete with other manufacturers in the procurement of natural and organic product ingredients, which may be less plentiful in the open market than conventional product ingredients. This competition may increase in the future if consumer demand for natural and organic products increases. This could cause our expenses to increase or could limit the amount of products that we can manufacture and sell.\nWe have outsourced certain functions to third-party service providers, and any service failures or disruptions related to these outsourcing arrangements could adversely affect our business.\nWe have outsourced certain business processes in the areas of supply chain, accounting and information technology to managed service providers, globally.\nWe face risks associated with third parties managing these functions for us. For example, we have diminished control over the quality and timeliness of the outsourced services, including the cyber security protections implemented by these third parties. As a result of these outsourcing arrangements, we may experience interruptions or delays in our processes, loss or theft of sensitive data or other cyber security issues, compliance issues, challenges in maintaining and reporting financial and operational information, and increased costs to remediate any unanticipated issues that arise, any of which could materially and adversely affect our business, financial condition and results of operations.\nWe may not be successful in achieving savings and efficiencies from cost reduction initiatives and related strategic initiatives.\nOur strategy includes identifying areas of cost savings and operating efficiencies to expand profit margins and cash flow. As part of our identification of operating efficiencies, we may continue to seek to dispose of businesses and brands that are less profitable or are otherwise less of a strategic fit within our core portfolio.\nWe may not be successful in fully implementing our cost savings plans or realizing our anticipated savings and efficiencies, including potentially as a result of factors outside our control. Additionally, we may not be able to identify or negotiate divestiture opportunities on terms acceptable to us. If we are unable to fully realize the anticipated savings and efficiencies of our cost reduction initiatives and related strategic initiatives, our profitability may be materially and adversely impacted.\nThe Russia-Ukraine war could continue to cause challenges and create risks for our business.\nAlthough we have no material assets in Russia, Belarus or Ukraine, our supply chain has been, and may continue to be, adversely impacted by the Russia-Ukraine war. In particular, the war has added significant costs to existing inflationary pressures through increased fuel and raw material prices and labor costs. Further, beyond increased costs, labor challenges and other factors have led to supply chain disruptions. While, to date, we have been able to identify replacement raw materials where necessary, we have incurred increased costs in doing so. Although we are continuing to monitor and manage the impacts of the war on our business, the war and the related economic impact could continue to have a material adverse effect on our business and operating results.\nOur business, operating results and financial condition may be adversely affected by the failure to successfully execute acquisitions or dispositions or to successfully integrate completed acquisitions.\nFrom time to time, we evaluate potential acquisitions or dispositions that align with our strategic objectives. The success of those initiatives depends upon our ability to identify suitable acquisition targets or buyers and successfully negotiate contract terms, among other factors. These initiatives may present operational risks, including diversion of management\u2019s attention from other matters, difficulties integrating acquired businesses into our existing operations or separating businesses from our operations, and challenges presented by acquisitions that may not achieve intended results. If we are not successful in executing acquisitions or divestitures or in integrating completed acquisitions, our business, operating results and financial condition could be adversely affected.\n15\nTable of Contents\nWe rely on independent certifications for a number of our products.\nWe rely on independent third-party certifications, such as certifications of our products as \u201corganic,\u201d \u201cNon-GMO\u201d or \u201ckosher,\u201d to differentiate our products from others. We must comply with the requirements of independent organizations or certification authorities in order to label our products as certified organic. For example, we can lose our \u201corganic\u201d certification if a manufacturing plant becomes contaminated with non-organic materials, or if it is not properly cleaned after a production run. In addition, all raw materials must be certified organic. Similarly, we can lose our \u201ckosher\u201d certification if a manufacturing plant and raw materials do not meet the requirements of the appropriate kosher supervision organization. The loss of any independent certifications could adversely affect our market position as an organic and natural products Company, which could harm our business.\nRisks Related to Our Reputation, Brands and Intellectual Property\nIf the reputation of our Company or our brands erodes significantly, including as a result of concerns regarding product quality or safety or perceptions about our ESG practices, it could have a material impact on our business.\nOur financial success is directly dependent on the perception of our Company and our brands among our customers, consumers, employees and other constituents. Our results could be negatively impacted if our Company or one or more of our brands suffers substantial damage to its reputation due to real or perceived issues related to the quality or safety of our products. Further, the success of our brands may suffer if our marketing plans or product initiatives do not have the desired impact on a brand\u2019s image or its ability to attract consumers.\nIn addition, customers and consumers are increasingly expressing their expectations that companies and brands act responsibly in their ESG practices. Any failure to meet such customer or consumer expectations, or any negative publicity regarding our ESG practices, could impact our reputation with customers, consumers and other constituents, which could have a material impact on our business.\nOur inability to use our trademarks or the trademarks we license from third parties could have a material adverse effect on our business.\nWe believe that brand awareness is a significant component in a consumer\u2019s decision to purchase one product over another in the highly competitive food, beverage and personal care industries. Although we endeavor to protect our trademarks and tradenames, these efforts may not be successful, and third parties may challenge our right to use one or more of our trademarks or tradenames. We believe that our trademarks and tradenames are significant to the marketing and sale of our products and that the inability to utilize certain of these names \nand marks, and/or the inability to prevent third parties from using similar names or marks, \ncould have a material adverse effect on our business, results of operations and financial condition.\nIn addition, we market products under brands licensed under trademark license agreements, including Linda McCartney\u2019s\n\u00ae\n, Rose\u2019s\n\u00ae\n, the Sesame Street name and logo and other Sesame Workshop intellectual property on certain of our Earth\u2019s Best\n\u00ae\n products. We believe that these trademarks have significant value and are instrumental in our ability to market and sustain demand for those product offerings. These trademark license agreements may not remain in effect or be enforceable, and our license agreements, upon expiration, may not be renewed on acceptable terms or at all.\nRisks Related to Economic Considerations\nCurrency exchange rate fluctuations could adversely affect our consolidated financial results and condition.\nWe are subject to risks related to fluctuations in currency exchange rates. Our consolidated financial statements are presented in United States Dollars, requiring us to translate our assets, liabilities, revenue and expenses into United States Dollars. As a result, changes in the values of currencies may unpredictably and adversely impact our consolidated operating results, our asset and liability balances and our cash flows in our consolidated financial statements even if their value has not changed in their original currency.\n16\nTable of Contents\nDisruptions in the worldwide economy and the financial markets may adversely impact our business and results of operations.\nAdverse and uncertain economic and market conditions, particularly in the locations in which we operate, may impact customer and consumer demand for our products and our ability to manage normal commercial relationships with our customers, suppliers and creditors. Consumers may shift purchases to lower-priced or other perceived value offerings during economic downturns, which may adversely affect our results of operations. Consumers may also reduce the number of organic and natural products that they purchase where there are conventional alternatives, given that organic and natural products generally have higher retail prices than do their conventional counterparts. In addition, consumers may choose to purchase private label products rather than branded products, which generally have lower retail prices than do their branded counterparts. Distributors and retailers may also become more conservative in response to these conditions and seek to reduce their inventories.\nProlonged unfavorable economic conditions may have an adverse effect on any of these factors and, therefore, could adversely impact our sales and profitability.\nRisks Related to Information Security and Technology\nA cybersecurity incident or other technology disruptions could negatively impact our business and our relationships with customers.\nWe depend on information systems and technology, including public websites and cloud-based services, in substantially all aspects of our business, including communications among our employees and with suppliers, customers and consumers. Such uses of information systems and technology give rise to cybersecurity risks, including system disruption, security breach, ransomware, theft, espionage and inadvertent release of information. We have become more reliant on mobile devices, remote communication and other technologies \nas part of the recent change in office working patterns\n, enhancing our cybersecurity risk. Our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers\u2019 and suppliers\u2019 information, private information about employees, and financial and strategic information about the Company and its business partners. Further, as we pursue new initiatives that improve our operations and cost structure, we are also expanding and improving our information technologies, resulting in a larger technological presence and increased exposure to cybersecurity risk. If we fail to assess and identify cybersecurity risks associated with new initiatives, we may become increasingly vulnerable to such risks.\nWe have experienced cyber security threats and vulnerabilities in our systems and those of our third party providers. Although, to date, such prior events have not had a material impact on our financial condition, results of operations or financial condition, the potential consequences of a future material cybersecurity attack could be significant and could include reputational damage, litigation with third parties, government enforcement actions, penalties, disruption to systems, unauthorized release of confidential or otherwise protected information, corruption of data and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness, results of operations and financial condition. Due to the evolving nature of such security threats, the potential impact of any future incident cannot be predicted.\nOur business operations could be disrupted if our information technology systems fail to perform adequately.\nThe efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage our business data, communications, supply chain, order entry and fulfillment, and other business processes. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction errors, processing inefficiencies and the loss of sales and customers, causing our business and results of operations to suffer. In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, system failures and viruses. Any such damage or interruption could have a material adverse effect on our business.\n17\nTable of Contents\nRisks Related to ESG Considerations\nChanging rules, public disclosure regulations and stakeholder expectations on ESG-related matters create a variety of risks for our business.\nIncreasingly, regulators, consumers, customers, investors, employees and other stakeholders are focusing on ESG matters and related disclosures. These changing rules, public disclosure regulations and stakeholder expectations have resulted in, and are likely to continue to result in, increased management time and attention spent complying with or meeting such regulations and expectations. For example, developing and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC\u2019s proposed climate-related reporting requirements, and similar proposals by other international regulatory bodies. This rapidly changing environment may result in increased general and administrative expenses.\nWe may also communicate certain initiatives and goals regarding environmental matters, diversity and other ESG-related matters. These initiatives and goals could be difficult and expensive to implement, and we could be criticized for the accuracy, adequacy or completeness of the disclosure. Further, statements about our ESG-related initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our goals within the scope of ESG on a timely basis, or at all, our reputation, business, results of operations and financial condition could be adversely impacted.\nClimate change may negatively affect our business and operations.\nThere is concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. The spate of recent extreme weather and climate-related events, including \nhistoric droughts, heatwaves, wildfires, extreme cold and flooding\n, presents an alarming trend.\nIn the event that such climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as \nvegetables, fruits, grains, beans and nuts\n. As a result of climate change, we may also be subjected to decreased availability of water, deteriorated quality of water or less favorable pricing for water, which could adversely impact our manufacturing and distribution operations.\nLiabilities, claims or new laws or regulations with respect to environmental matters could have a significant negative impact on our business.\nAs with other companies engaged in similar businesses, the nature of our operations exposes us to the risk of liabilities and claims with respect to environmental matters, including those relating to the disposal and release of hazardous substances. Furthermore, our operations are governed by laws and regulations relating to workplace safety and worker health, which, among other things, regulate employee exposure to hazardous chemicals in the workplace. Any material costs incurred in connection with such liabilities or claims could have a material adverse effect on our business, results of operations and financial condition.\nThe increasing global focus on climate change and the need for corporate change may lead to new environmental laws and regulations that impact our business. \nFor example, there are a growing number of laws and regulations regarding product packaging, particularly in Europe. Our compliance with such existing laws and regulations and a\nny new laws or regulations enacted in the future, or any changes in how existing laws or regulations will be enforced, administered or interpreted, may lead to an increase in compliance costs, cause us to change the way we operate or expose us to additional risk of liabilities and claims, which could have a material adverse effect on our business, results of operations and financial condition.\n18\nTable of Contents\nRisks Related to Litigation, Government Regulation and Compliance\nPending and future litigation may lead us to incur significant costs.\nWe are, or may become, party to various lawsuits and claims arising in the normal course of business, which may include lawsuits or claims relating to contracts, intellectual property, product recalls, product liability, the marketing and labeling of products, employment matters, environmental matters, data protection or other aspects of our business as well as any securities class action and stockholder derivative litigation. For example, as discussed in Note 17, \nCommitments and Contingencies\n, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K, we are currently subject to class actions and derivative complaints arising out of or related to the Company\u2019s prior internal accounting review. Certain of our former officers and former members of our Board of Directors, as individual defendants, are also subject to lawsuits related to such accounting review, and we may have an obligation to indemnify them in relation to these matters. Additionally, as discussed further in Note 17, we are subject to consumer class actions, and other lawsuits alleging some form of personal injury, relating to our Earth\u2019s Best\n\u00ae\n baby food products.\nEven when not merited, the defense of these lawsuits may divert our management\u2019s attention, and we may incur significant expenses in defending these lawsuits. The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments or settlements in some or all of these legal disputes may result in monetary damages, penalties or injunctive relief against us, which could have a material adverse effect on our results of operations and financial condition. Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future.\nWe may be subject to significant liability should the consumption of any of our products cause illness or physical harm.\nThe sale of products for human use and consumption involves the risk of injury or illness to consumers. Such injuries may result from inadvertent mislabeling, tampering by unauthorized third parties or product contamination or spoilage. Under certain circumstances, we may be required to recall or withdraw products, suspend production of our products or cease operations, which may lead to a material adverse effect on our business. In addition, customers may cancel orders for such products as a result of such events. Even if a situation does not necessitate a recall or market withdrawal, product liability claims might be asserted against us. While we are subject to governmental inspection and regulations and believe our facilities and those of our co-manufacturers and suppliers comply in all material respects with all applicable laws and regulations, if the consumption of any of our products causes, or is alleged to have caused, an illness or physical harm, we may become subject to claims or lawsuits relating to such matters. For example, as discussed in Note 17, \nCommitments and Contingencies\n, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K, we are subject to consumer class actions, and other lawsuits alleging some form of personal injury, relating to our Earth\u2019s Best\n\u00ae\n baby food products. Even if a claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products were mislabeled, unsafe or caused illness or physical harm could adversely affect our reputation with existing and potential customers and consumers and our corporate and brand image. Although we maintain product liability and product recall insurance in an amount that we believe to be adequate, we may incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a product recall could have a material adverse effect on our business, results of operations and financial condition.\nGovernment regulation could subject us to civil and criminal penalties, and any changes in the legal and regulatory frameworks in which we operate could make it more costly or challenging to manufacture and sell our products.\nWe operate in a highly regulated environment with constantly evolving legal and regulatory frameworks. Consequently, we are subject to a heightened risk of legal claims, government investigations and other regulatory enforcement actions. We are subject to extensive regulations in the United States, United Kingdom, Canada, Europe, Asia, including India, and any other countries where we manufacture, distribute and/or sell our products. Our products are subject to numerous product safety and other laws and regulations relating to the registration and approval, sourcing, manufacturing, storing, labeling, marketing, advertising and distribution of these products. Enforcement of existing laws and regulations, changes in legal or regulatory requirements and/or evolving interpretations of existing requirements may result in increased compliance costs or otherwise make it more costly or challenging to manufacture and sell our products, which could materially adversely affect our business, financial condition or operating results.\nMoreover, a failure to maintain effective control processes could lead to violations, unintentional or otherwise, of laws and regulations. Legal claims, government investigations or regulatory enforcement actions arising out of our failure or alleged failure to comply with applicable laws and regulations could subject us to civil and criminal penalties that could materially and adversely affect our product sales, reputation, financial condition and operating results. In addition, the costs and other effects \n19\nTable of Contents\nof defending potential and pending litigation and administrative actions against us may be difficult to determine and could adversely affect our financial condition and operating results.\nCompliance with data privacy laws may be costly, and non-compliance with such laws may result in significant liability.\nMany jurisdictions in which the Company operates have laws and regulations relating to data privacy and protection of personal information, including the European Union GDPR and the California Consumer Privacy Act of 2018 (\u201cCCPA\u201d), as amended by the California Privacy Rights Act (\u201cCPRA\u201d). \nIn recent years, other U.S. states such as Colorado, Connecticut, Indiana, Iowa, Montana, Tennessee, Utah and Virginia have begun to adopt their own privacy statutes, which may apply to the Company. \nFailure to comply with GDPR or CCPA requirements or other data privacy laws could result in litigation, adverse publicity and significant penalties and damages. The law in this area continues to develop, and the changing nature of privacy laws could impact the Company\u2019s processing of personal information related to the Company\u2019s job applicants, employees, consumers, customers and vendors. The enactment of more restrictive laws, rules or regulations or future enforcement actions or investigations could impact us through increased costs or restrictions on our business, and noncompliance could result in regulatory penalties and significant liability.\nRisks Related to Our Credit Agreement\nAny default under our credit agreement could have significant consequences.\nOur credit agreement contains covenants imposing certain restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. The credit agreement requires us to satisfy certain financial covenants, such as maintaining a maximum consolidated secured leverage ratio and a minimum consolidated interest coverage ratio. The credit agreement also contains restrictive covenants including, with specified exceptions, limitations on our ability to engage in certain business activities, incur debt and liens, make capital expenditures, pay dividends or make other distributions, enter into affiliate transactions, consolidate, merge or acquire or dispose of assets, and make certain investments, acquisitions and loans. \nOur ability to comply with these covenants under the credit agreement may be affected by events beyond our control, including prevailing economic, financial and industry conditions. The breach of any of these covenants could result in a default, which would permit the lenders to declare all outstanding debt to be due and payable, together with accrued and unpaid interest. Our obligations under the credit agreement are guaranteed by certain existing and future domestic subsidiaries of the Company and are secured by liens on assets of the Company and its material domestic subsidiaries, including the equity interest in each of their direct subsidiaries and intellectual property, subject to agreed-upon exceptions. Any default by us under the credit agreement could have a material adverse effect on our business and financial condition.\nRisks Related to Corporate Governance\nOur ability to issue preferred stock may deter takeover attempts.\nOur Board of Directors is empowered to issue, without stockholder approval, preferred stock with dividends, liquidation, conversion, voting or other rights, which could decrease the amount of earnings and assets available for distribution to holders of our common stock and adversely affect the relative voting power or other rights of the holders of our common stock. In the event of issuance, the preferred stock could be used as a method of discouraging, delaying or preventing a change in control. Our amended and restated certificate of incorporation authorizes the issuance of up to 5 million shares of \u201cblank check\u201d preferred stock with such designations, rights and preferences as may be determined from time to time by our Board of Directors. Although we have no present intention to issue any shares of our preferred stock, we may do so in the future under appropriate circumstances.\n20\nTable of Contents\nGeneral Risk Factors\nWe may be subject to significant liability that is not covered by insurance.\nWhile we believe that the extent of our insurance coverage is consistent with industry practice, such coverage does not cover all losses we may incur, even in areas for which we have coverage. Our insurance policies are subject to coverage exclusions, deductibles and caps, and any claim we make under our insurance policies may be subject to such limitations. Any claim we make may not be honored fully, in a timely manner, or at all, and we may not have purchased sufficient insurance to cover all losses incurred. If we were to incur substantial liabilities or if our business operations were interrupted for a substantial period of time, we could incur costs and suffer losses. Additionally, in the future, insurance coverage may not be available to us at commercially acceptable premiums, or at all.\nAn impairment in the carrying value of goodwill or other acquired intangible assets could materially and adversely affect our consolidated results of operations and net worth.\nAs of June\u00a030, 2023, we had goodwill of $938.6 million and trademarks and other intangibles assets of $298.1 million, which in the aggregate represented 55% of our total consolidated assets. The net carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable ass\nets and liabilities as of the acquisition date (or subsequent impairment date, if applicable). The net carrying value of trademarks and other intangibles represents the fair value of trademarks, customer relationships and other acquired intangibles as of the acquisition date (or subsequent impairment date, if applicable), net of accumulated amortization. Goodwill and other acquired intangibles expected to contribute indefinitely to our cash flows are not amortized but must be evaluated by management at least annually for impairment. Amortized intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable. Impairments to goodwill and other intangible assets may be caused by factors outside our control, such as increasing competitive pricing pressures, changes in discount rates based on changes in cost of capital (interest rates, etc.), lower than expected sales and profit growth rates, changes in industry Earnings Before Interest Taxes Depreciation and Amortization (\u201cEBITDA\u201d) multiples, the inability to quickly replace lost co-manufacturing business, or the bankruptcy of a significant customer. \nWe have in the past recorded, and may in the future be required to record, significant charges in our consolidated financial statements during the period in which any impairment of our goodwill or intangible assets is determined. For example, during fiscal 2023, we recorded aggregate non-cash impairment charges of $174.9 million related to certain trademarks and intangible assets to reduce their carrying value to their estimated fair value. The incurrence of additional impairment charges could negatively affect our results of operations and adversely impact our net worth and our consolidated earnings in the period of such charge. For further information, see Note 8, \nGoodwill and Other Intangible Assets\n, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. ",
+  "item7": ">Item 7.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations \nThis Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (this \u201cMD&A\u201d) should be read in conjunction with Item 1A and the Consolidated Financial Statements and the related notes thereto for the period ended June\u00a030, 2023 included in Item 8 of this Form 10-K. Forward-looking statements in this Form 10-K are qualified by the cautionary statement included under the heading, \u201cForward-Looking Statements\u201d at the beginning of this Form 10-K. \nThis MD&A generally discusses fiscal 2023 and fiscal 2022 items and year-to-year comparisons between fiscal 2023 and fiscal 2022. Discussions of fiscal 2021 items and year-to-year comparisons between fiscal 2022 and fiscal 2021 that are not included in this Form 10-K can be found in \u201cPart II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations\u201d of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2022, which was filed with the SEC on August 25, 2022 and is available on the SEC\u2019s website at www.sec.gov.\nOverview \nThe Hain Celestial Group, Inc., a Delaware corporation (collectively, along with its subsidiaries, the \u201cCompany,\u201d and herein referred to as \u201cHain Celestial,\u201d \u201cwe,\u201d \u201cus\u201d and \u201cour\u201d), was founded in 1993. The Company is a leading manufacturer, marketer, and seller of better-for-you brands that inspire healthier living. The Company is committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, drug and convenience stores worldwide.\nThe Company\u2019s food and beverage brands include Celestial Seasonings\n\u00ae\n, Clarks\u2122, Cully & Sully\n\u00ae\n, Earth\u2019s Best\n\u00ae\n, Ella\u2019s Kitchen\n\u00ae\n, Frank Cooper\u2019s\n\u00ae\n, Garden of Eatin\u2019\n\u00ae\n, Garden Veggie\u2122, Hartley\u2019s\n\u00ae\n, Health Valley\n\u00ae\n, Imagine\n\u00ae\n, Joya\n\u00ae\n, Lima\n\u00ae\n, Linda McCartney\u2019s\n\u00ae\n (under license), MaraNatha\n\u00ae\n, Natumi\n\u00ae\n, New Covent Garden Soup Co.\n\u00ae\n, ParmCrisps\n\u00ae\n, Robertson\u2019s\n\u00ae\n, Rose\u2019s\n\u00ae\n (under license), Sensible Portions\n\u00ae\n, Spectrum\n\u00ae\n, Sun-Pat\n\u00ae\n, Terra\n\u00ae\n, The Greek Gods\n\u00ae\n, Thinsters\n\u00ae\n, Yorkshire Provender\n\u00ae\n and Yves Veggie Cuisine\n\u00ae\n. The Company\u2019s personal care brands include Alba Botanica\n\u00ae\n, Avalon Organics\n\u00ae\n, JASON\n\u00ae\n, Live Clean\n\u00ae\n and Queen Helene\n\u00ae\n.\nGlobal Economic Environment\nEconomic conditions during fiscal year 2022 and fiscal year 2023 have been marked by inflationary pressures, rising interest rates and shifts in consumer demand.\n\u2022\nInflation\n \u2013 The inflationary environment has led to higher costs for ingredients, packaging, energy, transportation and other supply chain components. We expect this higher than normal cost environment to continue, although we expect these higher costs to be partially mitigated by pricing actions we have implemented to date and further pricing actions that we may implement.\n\u2022\nInterest Rates\n \u2013 Loans under our credit agreement bear interest at a variable rate, and the interest rate on our outstanding indebtedness has increased as market interest rates have risen significantly starting in the second half of fiscal year 2022. These higher interest rates, together with a higher outstanding debt balance, have led to an increase in our interest expense, and we expect this high rate environment to continue.\n\u2022\nConsumer Demand\n \u2013 Recent economic conditions have resulted in changes in consumer spending patterns, which have adversely impacted our sales. During an economic downturn, factors such as increased unemployment, decreases in disposable income and declines in consumer confidence can cause changes in consumer spending behavior. In particular, economic conditions have prompted some consumers, particularly in Europe, to shift to lower-priced products.\n26\nTable of Contents\nCEO Succession\nOn November 22, 2022, the Board of Directors (the \u201cBoard\u201d) of the Company approved a succession plan pursuant to which the Board appointed Wendy P. Davidson to the role of President and Chief Executive Officer and as a director on the Board, in each case effective as of January 1, 2023. As part of the succession plan, Mark L. Schiller transitioned from his position as President and Chief Executive Officer of the Company effective as of December 31, 2022 (the \u201cTransition Date\u201d). Mr. Schiller remains as a director on the Board following the Transition Date.\nNew Global Headquarters\nWe have selected Hoboken, N.J. to serve as the hub of our global operations. With Hoboken as the hub, our offices and manufacturing locations in the United States, Canada, Europe, and other international locations will serve as the \u201cspokes\u201d for team members to come together and collaborate for moments that matter. Our hub and spoke work model enables broader team collaboration and greater connectivity as a global enterprise. It also provides us the ability to recruit the very best talent, regardless of where they are located. Hoboken will also serve as the home of our Innovation Experience Center, where team members, customers, and consumers will immerse themselves in our products, explore consumer insights, and create innovative opportunities for the future.\nRussia-Ukraine War\nThe Russia-Ukraine war has disrupted our supply chain and increased costs due to higher energy and raw material prices, impacting our operations by leading to labor challenges and supply chain issues. Although we have found alternative materials, we have incurred increased costs in doing so. The war also lowered consumer sentiment in Europe, affecting demand. While we are continuing to monitor and manage the impacts of the war on our business, the extent to which the Russia-Ukraine war and the related economic impact may affect our financial condition or results of operations in the future remains uncertain.\n27\nTable of Contents\nResults of Operations\nComparison of Fiscal Yea\nr E\nnded June\u00a030, 2023 to Fiscal Ye\nar En\nded June\u00a030, 2022\nConsolidated Results\nThe following table compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the fiscal years ended June\u00a030, 2023 and 2022 (amounts in thousands, other than percentages which may not add due to rounding):\n\u00a0\nFiscal Year Ended June 30,\nChange in\n\u00a0\n2023\n2022\nDollars\nPercentage\nNet sales\n$\n1,796,643\u00a0\n100.0\u00a0\n%\n$\n1,891,793\u00a0\n100.0\u00a0\n%\n$\n(95,150)\n(5.0)\n%\nCost of sales\n1,400,229\u00a0\n77.9\u00a0\n%\n1,464,352\u00a0\n77.4\u00a0\n%\n(64,123)\n(4.4)\n%\nGross profit\n396,414\u00a0\n22.1\u00a0\n%\n427,441\u00a0\n22.6\u00a0\n%\n(31,027)\n(7.3)\n%\nSelling, general and administrative expenses\n289,233\u00a0\n16.1\u00a0\n%\n300,469\u00a0\n15.9\u00a0\n%\n(11,236)\n(3.7)\n%\nIntangibles and long-lived asset impairment\n175,501\u00a0\n9.8\u00a0\n%\n1,903\u00a0\n0.1\u00a0\n%\n173,598\u00a0\n**\nAmortization of acquired intangible assets\n10,016\u00a0\n0.6\u00a0\n%\n10,214\u00a0\n0.5\u00a0\n%\n(198)\n(1.9)\n%\nProductivity and transformation costs \n7,284\u00a0\n0.4\u00a0\n%\n10,174\u00a0\n0.5\u00a0\n%\n(2,890)\n(28.4)\n%\nOperating (loss) income\n(85,620)\n(4.8)\n%\n104,681\u00a0\n5.5\u00a0\n%\n(190,301)\n(181.8)\n%\nInterest and other financing expense, net\n45,783\u00a0\n2.5\u00a0\n%\n12,570\u00a0\n0.7\u00a0\n%\n33,213\u00a0\n264.2\u00a0\n%\nOther income, net\n(1,822)\n(0.1)\n%\n(11,380)\n(0.6)\n%\n9,558\u00a0\n(84.0)\n%\n(Loss) income before income taxes and equity in net loss of equity-method investees\n(129,581)\n(7.2)\n%\n103,491\u00a0\n5.5\u00a0\n%\n(233,072)\n*\n(Benefit) provision for income taxes\n(14,178)\n(0.8)\n%\n22,716\u00a0\n1.2\u00a0\n%\n(36,894)\n*\nEquity in net loss of equity-method \n\u00a0\u00a0investees\n1,134\u00a0\n0.1\u00a0\n%\n2,902\u00a0\n0.2\u00a0\n%\n(1,768)\n(60.9)\n%\nNet (loss) income\n$\n(116,537)\n(6.5)\n%\n$\n77,873\u00a0\n4.1\u00a0\n%\n$\n(194,410)\n*\nAdjusted EBITDA\n$\n166,622\u00a0\n9.3\u00a0\n%\n$\n200,616\u00a0\n10.6\u00a0\n%\n$\n(33,994)\n(16.9)\n%\nDiluted net (loss) income per common share\n$\n(1.30)\n$\n0.83\u00a0\n$\n(2.13)\n*\n* Percentage is not meaningful due to one or more numbers being negative.\n** Percentage is not meaningful due to significantly lower number in the comparative period\nNet Sales\nNet sales in fiscal 2023 were $1.80 billion, a decrease of $95.2 million, or 5.0%, from net sales of $1.89 billion in fiscal 2022. On a constant currency basis, adjusted for the impact of acquisitions, divestitures and discontinued brands, net sales decreased approximately $51.1 million, or 2.7% from the prior comparable period. The decrease in net sales was primarily driven by the North America reportable segment. Further details of changes in adjusted net sales by segment are provided below in the \nSegment Results\n section.\nGross Profit\nGross profit in fiscal 2023 w\nas $396.4 million, a decrease of $31.0 million, or 7.3%, from gross profit of $427.4 million in fiscal 2022. Gross profit margin was 22.1% of net sales, compared to 22.6% in the prior year. The decrease in gross profit margin was primarily due to the International reportable segment. \nThe decrease in the International reportable segment gross profit was mainly due to higher energy and supply chain costs when compared\n to the prior year. The decrease in gross margin was partially offset by higher gross margin in the North America reportable segment driven by greater pricing and productivity, partially offset by higher cost of goods.\n28\nTable of Contents\nSelling, General and Administrative Expenses\nSelling, general and administrative expenses were $289.2 million in fiscal 2023, a decrease of $11.2 million, or 3.7%, from $300.5 million in fiscal 2022. The decrease primarily reflected reduced costs in Corporate and Other and the International reportable segment. The decrease in the International reportable segment was primarily a result of lower employee-related expenses in the Europe and the United Kingdom, partially offset by higher selling expenses in the United Kingdom. The decrease in Corporate and Other costs reflected a reduction in transaction costs, including costs in 2022 related to the acquisition of That's How We Roll (\u201cTHWR\u201d) and advisory costs related to the divestiture by affiliates of Engaged Capital, LLC of their shares of the Company's common stock, as well as a reduction in litigation expenses related to the baby food litigation described in Note 17, \nCommitments and Contingencies, \nin the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Selling, general and administrative expenses as a percentage of net sales was 16.1% in the twelve months ended June\u00a030, 2023 compared to 15.9% in the prior year, as the reduction in net sales outpaced the reduction in selling, general and administrative expenses attributable to the aforementioned items.\nIntangibles and Long-Lived Asset Impairment\nDuring fiscal 2023, the Company \nrecognized an aggregate non-cash impairment charge of $175.5 million, primarily related to the ParmCrisps\n\u00ae\n, Thinsters\n\u00ae\n, Imagine\n\u00ae\n,\n \nJoya\n\u00ae\n, and Queen Helene\n\u00ae \nindefinite-lived trademarks and ParmCrisps\n\u00ae\n definite lived customer relationships, which reduced the carrying value of such assets to their estimated fair value. During fiscal 2022, the Company recognized non-cash impairment charges of $1.9 million. The fair value of indefinite-lived trademarks and definite-lived customer relationships were determined using the relief from royalty method and multi-period excess earnings method, respectively. See Note 8, \nGoodwill and Other Intangible Assets\n and Note 15, \nFair Value Measurements\n, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.\nAmortization of Acquired Intangible Assets\nAmortization of acquired intangible assets was $10.0 million in fiscal 2023, a decrease of $0.2 million, or 1.9%, from $10.2 million in fiscal 2022, primarily reflecting reduced amortization expenses due to impairment of the ParmCrisps customer relationships recognized in the third quarter of 2023 (see Note 8, \nGoodwill and Other Intangible Assets\n, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K), partially offset by an increase in amortization expenses associated with the acquisition of THWR in the second quarter of the prior fiscal year.\nProductivity and Transformation Costs\nProductivity and transformation costs were $7.3 million in fiscal 2023, a decrease of $2.9 million or 28.4% from $10.2 million\u00a0in fiscal\u00a02022. The\u00a0decrease\u00a0was primarily due to the wind down of prior year restructuring costs partially offset by new spending on our strategic plan update.\nOperating (Loss) Income\nOperating loss in fiscal 2023 was $85.6 million compared to operating income of $104.7 million in fiscal 2022 due to the items described above. \nInterest and Other Financing Expense, Net\nInterest and other financing expense, net totaled $45.8 million in fiscal 2023, an increase of $33.2 million, or 264.2%, from $12.6 million in the prior year. The increase resulted primarily from rising interest rates and a higher outstanding debt balance driven primarily by the acquisition of THWR and share repurchase activity during fiscal 2022. See Note 10, \nDebt and Borrowings\n, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.\nOther Income, Net\nOther income, net totaled $1.8 million in fiscal 2023, a decrease of $9.6 million from $11.4 million in the prior year. The\ndecrease in income was primarily attributable to the recognition of an $8.7 million gain on sale of assets in the prior year related to the sale of undeveloped land plots in Boulder, Colorado.\n29\nTable of Contents\n(Loss) Income Before Income Taxes and Equity in Net Loss of Equity-Method Investees\nLoss before income taxes and equity in the net loss of our equity-method investees for fiscal 2023 was $129.6 million compared to income of $103.5 million in fiscal 2022. The decrease was due to the items discussed above.\n(Benefit) Provision for Income Taxes\n \nThe (benefit) provision for income taxes includes federal, foreign, state and local income taxes. Our income tax benefit was $14.2 million for fiscal 2023 compared to expense of $22.7 million\u00a0for fiscal 2022.\nThe effective income tax rate was 10.9% and 21.9% of pre-tax income for year ended June 30, 2023 and 2022, respectively. The effective income tax rate for the year ended June 30, 2023 was primarily impacted by establishment of federal valuation allowance against the Company\u2019s tax losses and credits, an increase in the state valuation allowance related to the Company\u2019s state deferred tax assets and state net operating loss carryforwards, an increase related to the sale of Westbrae Natural\n\u00ae\n brand (\u201cWestbrae\u201d) and stock-based compensation.\nThe effective income tax rate for the year ended June 30, 2022 was primarily impacted by the reversal of uncertain tax position accruals based on filing and approval of certain elections by taxing authorities, deductions related to stock-based compensation, non-deductible transaction costs related to the acquisition of THWR (see Note 4, \nAcquisition and Dispositions\n), the reversal of a valuation allowance due to the utilization of a capital loss carryover, and the finalization of prior fiscal year income tax returns.\nOur effective tax rate may change from period-to-period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes and tax audit settlements.\nSee Note 11, \nIncome Taxes, \nin the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.\nEquity in Net Loss of Equity-Method Investees\nOur \nequity in the net loss from our equity method investments for fiscal 2023 was $1.1 million compared to $2.9 million for fiscal 2022.\n See Note 14, \nInvestments\n, in\n the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.\nNet (Loss) Income\nNet loss for fiscal 2023 was $116.5 million compared to net income of $77.9 million for fiscal 2022. Net loss per diluted share was $1.30 in fiscal 2023 compared to net income per diluted share $0.83 in 2022. The change was attributable to the factors noted above.\nAdjusted EBITDA\nOur consolidated Adjusted EBITDA was\u00a0$166.6 million\u00a0and\u00a0$200.6 million\u00a0for fiscal 2023 and 2022, respectively, as a result of the factors discussed above. See\u00a0\nReconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures\u00a0\nfollowing the discussion of our results of operations for definitions and a reconciliation of our net income to Adjusted EBITDA.\n30\nTable of Contents\nSegment Results\nDuring the fourth quarter of 2023, we determined that our measure of segment profitability is Adjusted EBITDA of each reportable segment. Accordingly, our CODM evaluates performance and allocates resources based primarily on Segment Adjusted EBITDA. Segment Adjusted EBITDA excludes: net interest expense, (benefit) provision for income taxes, depreciation and amortization, equity in net loss of equity-method investees, stock-based compensation, net, unrealized currency losses (gains), certain litigation and related costs, CEO succession costs, plant closure related costs-net, productivity and transformation costs, warehouse and manufacturing consolidation and other costs, costs associated with acquisitions, divestitures and other transactions, gains on sales of assets, certain inventory write-downs in 2022, intangibles and long-lived asset impairments and other adjustments. In addition, Segment Adjusted EBITDA does not include Corporate and Other expenses related to the Company\u2019s centralized administrative functions, which do not specifically relate to a reportable segment. Such Corporate and Other expenses are comprised mainly of compensation and related expenses of certain of the Company\u2019s senior executive officers and other employees who perform duties related to our entire enterprise, litigation expense and expenses for certain professional fees, facilities, and other items which benefit the Company as a whole. We do not allocate amounts below Operating income (loss) to our reportable segments. \nThe following table provides a summary of net sales and Adjusted EBITDA by reportable segment for the fiscal years ended June\u00a030, 2023 and 2022:\n(Amounts in thousands)\nNorth America\nInternational\nCorporate and Other\nConsolidated\nFiscal 2023 net sales\n$\n1,139,162\u00a0\n$\n657,481\u00a0\n$\n\u2014\u00a0\n$\n1,796,643\u00a0\nFiscal 2022 net sales\n$\n1,163,132\u00a0\n$\n728,661\u00a0\n$\n\u2014\u00a0\n$\n1,891,793\u00a0\n\u00a0$ change\n$\n(23,970)\n$\n(71,180)\nn/a\n$\n(95,150)\n\u00a0% change\n(2.1)\n%\n(9.8)\n%\nn/a\n(5.0)\n%\nFiscal 2023 Adjusted EBITDA\n$\n123,443\u00a0\n$\n82,945\u00a0\n$\n(39,766)\n$\n166,622\u00a0\nFiscal 2022 Adjusted EBITDA\n$\n122,235\u00a0\n$\n110,073\u00a0\n$\n(31,692)\n$\n200,616\u00a0\n\u00a0$ change\n$\n1,208\u00a0\n$\n(27,128)\n$\n(8,074)\n$\n(33,994)\n\u00a0% change\n1.0\u00a0\n%\n(24.6)\n%\n(25.5)\n%\n(16.9)\n%\nFiscal 2023 Adjusted EBITDA margin\n10.8\u00a0\n%\n12.6\u00a0\n%\nn/a\n9.3\u00a0\n%\nFiscal 2022 Adjusted EBITDA margin\n10.5\u00a0\n%\n15.1\u00a0\n%\nn/a\n10.6\u00a0\n%\nSee the \nReconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures\n following the discussion of our results of operations and Note 19, \nSegment Information\n, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for a reconciliation of segment Adjusted EBITDA.\nNorth America \nOur net sales in the North America reportable segment for fiscal 2023 were $1.14 billion, a decrease of $24.0 million, or 2.1%, from net sales of $1.16 billion in fiscal 2022. On a constant currency basis, adjusted for the impact of acquisitions, divestitures and discontinued brands, net sales decreased by 3.8%. The decrease in net sales \nwas mainly  due to lower sales in personal care and tea. \nAdjusted EBITDA in fiscal 2023 was $123.4 million, an increase of $1.2 million from $122.2 million in fiscal 2022. Fiscal 2023 Adjusted EBITDA on a constant currency basis increased 1.5% from the prior year. The increase was driven by pricing and productivity more than offsetting inflation and volume loss. Adjusted EBITDA margin was 10.8%, a 35-basis point improvement from the prior year. Adjusted EBITDA margin on a constant currency basis was 10.8%, a 30-basis point improvement from the prior year.\n31\nTable of Contents\nInternational\nNet sales in the International reportable segment for fiscal 2023 were $657.5 million, a decrease of $71.2 million, or 9.8%, from net sales of $728.7 million in fiscal 2022. On a constant currency basis, net sales decreased by 1.0% from fiscal 2022. The decrease was driven by softness in plant-based categories in Europe, which was partially offset by growth in the United Kingdom.\nAdjusted EBITDA in fiscal 2023 was $82.9 million, a decrease of $27.1 million from $110.1 million in fiscal 2022. Fiscal 2023 Adjusted EBITDA on a constant currency basis decreased 18.3% from the prior year. The decrease was driven by higher energy and supply chain costs, partially offset by pricing and productivity. Adjusted EBITDA margin was 12.6%, a 250-basis point decline from the prior year. Adjusted EBITDA margin on a constant currency basis was 12.5%, a 265-basis point decline from the prior year. \nCorporate and Other\nThe increase in Corporate and Other expenses primarily reflected an increase in compensation-related expenses.\nRefer to Note\n 19, \nSegm\nent Information\n, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional details.\nLiquidity and Capital Resources \nWe finance our operations and growth primarily with the cash flows we generate from our operations and from borrowings available to us under our Credit Agreement (as defined below). We believe that our cash flows from operations and borrowing capacity under our Credit Agreement (as defined below) will be adequate to meet anticipated operating and other expenditures for the foreseeable future. See Note 10, \nDebt and Borrowings\n, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.\nAmended and Restated Credit Agreement\nOn December 22, 2021, the Company refinanced its revolving credit facility by entering into a Fourth Amended and Restated Credit Agreement (as amended by a First Amendment dated December 16, 2022, the \u201cCredit Agreement\u201d). The Credit Agreement provides for senior secured financing of $1,100.0 million in the aggregate, consisting of (1) $300.0 million in aggregate principal amount of term loans (the \u201cTerm Loans\u201d) and (2) an $800.0 million senior secured revolving credit facility (which includes borrowing capacity available for letters of credit, and is comprised of a $440.0 million U.S. revolving credit facility and $360.0 million global revolving credit facility) (the \u201cRevolver\u201d). Both the Revolver and the Term Loans mature on December 22, 2026.\nThe Credit Agreement includes financial covenants that require compliance with a consolidated interest coverage ratio, a consolidated leverage ratio and a consolidated secured leverage ratio. Prior to the Company entering into the Second Amendment (as defined below), the minimum consolidated interest coverage ratio was 2.75:1.00. The maximum consolidated leverage ratio is 6.00:1.00. Prior to Company entering into the Second Amendment, the maximum consolidated secured leverage ratio was 5.00:1.00 through December 31, 2023 or such earlier date as elected by the Company (the \u201cFirst Amendment Period\u201d). Following the First Amendment Period, the maximum consolidated secured leverage ratio would have been 4.25:1.00, subject to possible temporary increase following certain corporate acquisitions.\nDuring the First Amendment Period, loans under the Credit Agreement bore interest at (a) the Secured Overnight Financing Rate, plus a credit spread adjustment of 0.10% (as adjusted, \u201cTerm SOFR\u201d) plus 2.0% per annum or (b) the Base Rate (as defined in the Credit Agreement) plus 1.0% per annum. Following the First Amendment Period, loans would have borne interest at rates based on (a) Term SOFR plus a rate ranging from 0.875% to 1.75% per annum or (b) the Base Rate plus a rate ranging from 0% to 0.75% per annum, the relevant rate in each case being the Applicable Rate. The Applicable Rate following the First Amendment Period would be determined in accordance with a leverage-based pricing grid, as set forth in the Credit Agreement. The weighted average interest rate on outstanding borrowings under the Credit Agreement at June\u00a030, 2023 was 5.94%. Additionally, the Credit Agreement contains a Commitment Fee (as defined in the Credit Agreement) on the amount unused under the Credit Agreement ranging from 0.15% to 0.25% per annum, and such Commitment Fee is determined in accordance with a leverage-based pricing grid.\nAs of June 30, 2023, there were $541.0 million of loans under the Revolver, $288.8 million of Term Loans, and $4.5 million letters of credit outstanding under the Credit Agreement. As of June\u00a030, 2023, $254.5 million was available under the Credit \n32\nTable of Contents\nAgreement, subject to compliance with the financial covenants, as compared to $204.0 million as of June\u00a030, 2022. As of June\u00a030, 2023, the Company was in compliance with all associated covenants.\nOn August 22, 2023, the Company entered into a Second Amendment (the \u201cSecond Amendment\u201d) to the Credit Agreement.\nPursuant to the Second Amendment, the Company\u2019s maximum consolidated secured leverage ratio was amended to be 5.00 to 1.00 until September 30, 2023, 5.25 to 1.00 until December 31, 2023 and 5.00 to 1.00 until December 31, 2024 (the period of time during which such maximum consolidated secured leverage ratios are in effect, the \u201cSecond Amendment Period,\u201d which the Company may elect to end early). Following the Second Amendment Period, the maximum consolidated secured leverage ratio will be 4.25 to 1.00, subject to possible temporary increase following certain corporate acquisitions. Pursuant to the Second Amendment, the Company\u2019s minimum interest coverage ratio was amended to be 2.50 to 1.00.\nDuring the Second Amendment Period, \nloans under the Credit Agreement will bear interest at (a) \nTerm SOFR\n plus 2.5% per annum or (b) the Base Rate plus 1.5% per annum. Following the Second Amendment Period, Loans will bear interest at rates based on (a) Term SOFR plus a rate ranging from 1.125% to 2.0% per annum or (b) the Base Rate plus a rate ranging from 0.125% to 1.0% per annum, the relevant rate in each case being the Applicable Rate. The Applicable Rate following the Amendment Period will be determined in accordance with a leverage-based pricing grid, as set forth in the Credit Agreement as amended by the Second Amendment.\nIn addition to obligations under the Credit Agreement, we are party to other contractual obligations involving commitments to make payments to third parties, including purchase commitments and lease obligations, which impact our short-term and long-term liquidity and capital resource needs. See Note 7, \nLeases\n, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.\nOur cash and cash equivalents balance decreased $12.1 million at June\u00a030, 2023 to $53.4 million as compared to $65.5 million at June\u00a030, 2022. Our working capital was $358.9 million at June\u00a030, 2023, an increase of $29.9 million from $329.0 million at the end of fiscal 2022. Additionally, our total debt decreased by $59.9 million at June\u00a030, 2023 to $828.7 million as compared to $888.6 million at June\u00a030, 2022 as a result of $59.5 million of net repayments carried out during the year.\nOur cash balances are held in the United States, United Kingdom, Canada, Europe, the Middle East and India. As of June\u00a030, 2023, substantially all cash was held outside of the United States.\nWe maintain our cash and cash equivalents primarily in money market funds or their equivalent. Accordingly, we do not believe that our investments have significant exposure to interest rate risk. Cash provided by (used in) operating, investing and financing activities is summarized below. \nFiscal Year Ended June 30,\n(Amounts in thousands)\n2023\n2022\nCash flows provided by (used in):\nOperating activities\n$\n66,819\u00a0\n$\n80,241\u00a0\nInvesting activities\n(19,640)\n(288,309)\nFinancing activities\n(63,060)\n212,787\u00a0\nEffect of exchange rate changes on cash\n3,733\u00a0\n(15,078)\nNet decrease in cash and cash equivalents\n$\n(12,148)\n$\n(10,359)\nCash provided by operating activities was $66.8 million for the fiscal year ended June\u00a030, 2023, compared to $80.2 million in fiscal 2022. The decrease in cash provided from operating activities resulted from a $49.4 million reduction in net income adjusted for non-cash charges offset by a $36.0 million reduction in cash used for working capital. In 2023, we used $27.7 million of cash for working capital, as a reduction in customer accounts receivable was more than offset by pay downs in short-term liabilities. In 2022, we used $63.7 million of cash for working capital, as we realized slower customer accounts receivable, increased inventory costs and quantities, and paid down short-term liabilities.\nC\nash used in investing activities was $19.6 million for the fiscal year ended June\u00a030, 2023, a decrease of $268.7 million\n from $288.3 million in fiscal 2022 primar\nily due to the acquisition of THWR in the prior year and lower property, plant and equipment purchases in fiscal 2023 compared to fiscal 2022 due to the completion of certain factory-related productivity enhancements that were placed in service in fiscal 2023.\n33\nTable of Contents\nC\nash used in financing activities was $63.1 million for the fiscal year ended June\u00a030, 2023, a decrease of $275.8 million\n from \n$212.8 million\n of cash provided in fiscal 2022. \nThe decrease in cash provided by financing activities was primarily due to higher borrowings under the Credit Agreement to finance the THWR acquisition, higher share repurchases, and payment of shares withheld for employee payroll taxes during the same period in the prior year.\nOperating Free Cash Flows\nOur operating free cash flow was $38.9 million for fiscal 2023, a decrease of $1.3 million from fiscal 2022. The decrease in operating free cash flow primarily resulted a decrease in cash flow from operations of $13.4 million driven by the reasons explained above, partially offset by reduction in capital expenditures. See the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures following the discussion of our results of operations for definitions and a reconciliation from our net cash provided by operating activities to operating free cash flows.\nShare Repurchase Program \nIn January 2022, the Company\u2019s Board of Directors authorized the repurchase of up to \n$200.0 million\n of the Company\u2019s issued and outstanding common stock. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The current 2022 authorization does not have a stated expiration date. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations. During the fiscal year ended June\u00a030, 2023\n, the Company did not repurchase any shares under the repurchase program. \nAs of June\u00a030, 2023, the Company had \n$173.5 million of remaining authorization under the share repurchase program. \nReconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures\nWe have included in this report measures of financial performance that are not defined by U.S. GAAP. We believe that these measures provide useful information to investors and include these measures in other communications to investors. \nFor each of these non-U.S. GAAP financial measures, we are providing below a reconciliation of the differences between the non-U.S. GAAP measure and the most directly comparable U.S. GAAP measure, an explanation of why our management and Board of Directors believe the non-U.S. GAAP measure provides useful information to investors and any additional purposes for which our management and Board of Directors use the non-U.S. GAAP measures. These non-U.S. GAAP measures should be viewed in addition to, and not in lieu of, the comparable U.S. GAAP measures.\nNet Sales - Constant Currency Presentation\n \nWe believe that net sales adjusted for the impact of foreign currency provides useful information to investors because it provides transparency to underlying performance in our consolidated net sales by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given the volatility in foreign currency exchange markets. To present net sales adjusted for the impact of foreign currency, current period net sales for entities reporting in currencies other than the U.S. Dollar are translated into U.S. Dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rate in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.\nNet Sales - Adjusted for the Impact of Acquisitions, Divestitures and Discontinued Brands\nWe also exclude the impact of acquisitions, divestitures and discontinued brands when comparing net sales to prior periods, which results in the presentation of certain non-U.S. GAAP financial measures. The Company's management believes that excluding the impact of acquisitions, divestitures and discontinued brands when presenting period-over-period results of net sales aids in comparability.\nTo present net sales adjusted for the impact of acquisitions, the net sales of an acquired business are excluded from fiscal quarters constituting or falling within the current period and prior period where the applicable fiscal quarter in the prior period did not include the acquired business for the entire quarter. To present net sales adjusted for the impact of divestitures and discontinued brands, the net sales of a divested business or discontinued brand are excluded from all periods.\n34\nTable of Contents\nA reconciliation between reported net sales and net sales adjusted for the impact of foreign currency, acquisitions, divestitures and discontinued brands is as follows:\n(Amounts in thousands)\nNorth America\nInternational\nHain Consolidated\nNet sales - Twelve months ended 6/30/23\n$\n1,139,162\u00a0\n$\n657,481\u00a0\n$\n1,796,643\u00a0\nAcquisitions, divestitures and discontinued brands\n(34,659)\n\u2014\u00a0\n(34,659)\nImpact of foreign currency exchange\n6,560\u00a0\n64,053\u00a0\n70,613\u00a0\nNet sales on a constant currency basis adjusted for acquisitions, divestitures and discontinued brands - Twelve months ended 6/30/23\n$\n1,111,063\u00a0\n$\n721,534\u00a0\n$\n1,832,597\u00a0\nNet sales - Twelve months ended 6/30/22\n$\n1,163,132\u00a0\n$\n728,661\u00a0\n$\n1,891,793\u00a0\nAcquisitions, divestitures and discontinued brands\n(8,109)\n\u2014\u00a0\n(8,109)\nNet sales adjusted for divestitures and discontinued brands - Twelve months ended 6/30/22\n$\n1,155,023\u00a0\n$\n728,661\u00a0\n$\n1,883,684\u00a0\nNet sales decline\n(2.1)\n%\n(9.8)\n%\n(5.0)\n%\nImpact of acquisitions, divestitures and discontinued brands\n(2.3)\n%\n\u2014\u00a0\n%\n(1.4)\n%\nImpact of foreign currency exchange\n0.6\u00a0\n%\n8.8\u00a0\n%\n3.7\u00a0\n%\nNet sales decline on a constant currency basis adjusted for acquisitions, divestitures and discontinued brands\n(3.8)\n%\n(1.0)\n%\n(2.7)\n%\nAdjusted EBITDA\nThe Company defines Adjusted EBITDA as net (loss) income before net interest expense, income taxes, depreciation and amortization, equity in net loss of equity-method investees, stock-based compensation, net, unrealized currency losses (gains), certain litigation and related costs, CEO succession costs, plant closure related costs-net, productivity and transformation costs, warehouse and manufacturing consolidation and other costs,\u00a0costs associated with acquisitions,\u00a0divestitures and other transactions, gains on sales of assets, certain inventory write-downs, intangibles and long-lived asset impairment and other adjustments. The Company\u2019s management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses this measure for reviewing the financial results of the Company and as a component of performance-based executive compensation. Adjusted EBITDA is a non-U.S. GAAP measure and may not be comparable to similarly titled measures reported by other companies.\nWe do not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with U.S. GAAP. The principal limitation of Adjusted EBITDA is that it excludes certain expenses and income that are required by U.S. GAAP to be recorded in our consolidated financial statements. In addition, Adjusted EBITDA is subject to inherent limitations as this metric reflects the exercise of judgment by management about which expenses and income are excluded or included in determining Adjusted EBITDA. In order to compensate for these limitations, management presents.\n35\nTable of Contents\nAdjusted EBITDA in connection with U.S. GAAP results. A reconciliation of net (loss) income to Adjusted EBITDA is as follows: \nFiscal Year Ended June 30,\n(Amounts in thousands)\n2023\n2022\nNet (loss) income\n$\n(116,537)\n$\n77,873\u00a0\nDepreciation and amortization\n50,777\u00a0\n46,849\u00a0\nEquity in net loss of equity-method investees\n1,134\u00a0\n2,902\u00a0\nInterest expense, net\n43,936\u00a0\n10,226\u00a0\n(Benefit) provision for income taxes\n(14,178)\n22,716\u00a0\nStock-based compensation, net\n14,423\u00a0\n15,611\u00a0\nUnrealized currency losses (gains)\n929\u00a0\n(2,259)\nLitigation and related costs\n(a)\n(1,369)\n7,687\u00a0\nRestructuring activities\nCEO succession\n5,113\u00a0\n\u2014\u00a0\nPlant closure related costs, net\n94\u00a0\n929\u00a0\nProductivity and transformation costs\n7,284\u00a0\n8,803\u00a0\nWarehouse/manufacturing consolidation and other costs, net\n1,026\u00a0\n2,721\u00a0\nAcquisitions, divestitures and other\nTransaction and integration costs, net\n2,018\u00a0\n14,055\u00a0\nGain on sale of assets\n(3,529)\n(9,049)\nImpairment charges\nInventory write-down\n\u2014\u00a0\n(351)\nIntangibles and long-lived asset impairment\n175,501\u00a0\n1,903\u00a0\nAdjusted EBITDA\n$\n166,622\u00a0\n$\n200,616\u00a0\n(a) \nExpenses and items relating to securities class action and baby food litigation.\nAdjusted EBITDA - Constant Currency Presentation \nThe Company provides Adjusted EBITDA and Adjusted EBITDA on a constant currency basis because the Company\u2019s management believes that these presentations provide useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses these measures for reviewing the financial results of the Company as well as a component of performance-based executive compensation. The Company believes presenting Adjusted EBITDA on a constant currency basis provides useful information to investors because it provides transparency to underlying performance in the Company\u2019s Adjusted EBITDA by excluding the effect that foreign currency exchange rate fluctuations have on period-to-period comparability given the volatility in foreign currency exchange markets. Adjusted EBITDA on a constant currency basis is calculated by translating foreign currencies based on the average foreign exchange rate for the prior year, for each currency.\nA reconciliation between Adjusted EBITDA and Adjusted EBITDA on a constant currency basis for fiscal years 2023 and 2022 is as follows:\n(Amounts in thousands)\nHain Consolidated\nAdjusted EBITDA - June 30, 2023\n$\n166,622\u00a0\nImpact of foreign currency exchange\n7,622\u00a0\nAdjusted EBITDA on a constant currency basis - June 30, 2023\n$\n174,244\u00a0\nAdjusted EBITDA - June 30, 2022\n$\n200,616\u00a0\n36\nTable of Contents\nOperating Free Cash Flows\nIn our internal evaluations, we use the non-GAAP financial measure \u201cOperating Free Cash Flows\u201d. The difference between Operating Free Cash Flows and cash flows provided by or used in operating activities, which is the most comparable U.S. GAAP financial measure, is that Operating Free Cash Flows reflects the impact of purchases of property, plant and equipment (capital spending). Since capital spending is essential to maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider capital spending when evaluating our cash flows provided by or used in operating activities. We view Operating Free Cash Flows as an important measure because it is one factor in evaluating the amount of cash available for discretionary investments. We do not consider Operating Free Cash Flows in isolation or as an alternative to financial measures determined in accordance with U.S. GAAP. \nA reconciliation from cash flows provided by operating activities to Operating Free Cash Flows is as follows: \nFiscal Year Ended June 30,\n(Amounts in thousands)\n2023\n2022\nNet cash provided by operating activities\n$\n66,819\u00a0\n$\n80,241\u00a0\nPurchases of property, plant and equipment\n(27,879)\n(39,965)\nOperating free cash flows\n$\n38,940\u00a0\n$\n40,276\u00a0\nContractual Obligations\nWe are party to contractual obligations involving commitments to make payments to third parties, which impact our short-term and long-term liquidity and capital resource needs. Our contractual obligations primarily consist of long-term debt and related interest payments, purchase commitments and operating leases. See Note 7, \nLeases\n,\n and \nNote 10, \nDebt and Borrowings\n,\n \nin the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.\nCritical Accounting Estimates \nThe discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are described in Note 2, \nSummary of Significant Accounting Policies and Practices\n, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. The policies below have been identified as the critical accounting policies we use which require us to make estimates and assumptions and exercise judgment that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting estimates; however, materially different amounts might be reported under different conditions or using assumptions, estimates or making judgments different from those that we have applied. Our critical accounting policies, including our methodology for estimates made and assumptions used, are as follows:\nVariable Consideration\nIn addition to fixed contract consideration, many of the Company\u2019s contracts include some form of variable consideration. The Company offers various trade promotions and sales incentive programs to customers and consumers, such as price discounts, slotting fees, in-store display incentives, cooperative advertising programs, new product introduction fees and coupons. The expenses associated with these programs are accounted for as reductions to the transaction price of products and are therefore deducted from sales to determine reported net sales. Trade promotions and sales incentive accruals are subject to significant management estimates and assumptions. The critical assumptions used in estimating the accruals for trade promotions and sales incentives include the Company\u2019s estimate of expected levels of performance and redemption rates. The Company exercises judgment in developing these assumptions. These assumptions are based upon historical performance of the retailer or distributor customers with similar types of promotions adjusted for current trends. The Company regularly reviews and revises, when deemed necessary, estimates of costs to the Company for these promotions and incentives based on what has been incurred by the customers. The terms of most of the promotion and incentive arrangements do not exceed a year and therefore do not require highly uncertain long-term estimates. Settlement of these liabilities typically occurs in subsequent periods primarily through an authorization process for deductions taken by a customer from amounts otherwise due to the Company. Differences between estimated expense and actual promotion and incentive costs are recognized in earnings in the period such differences are determined. Actual expenses may differ if the level of redemption rates and performance were to vary from estimates.\n37\nTable of Contents\nValuation of Long-lived Assets \nFixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may not be recoverable. Undiscounted cash flow analyses are used to determine if impairment exists. If impairment is determined to exist, the loss is calculated based on estimated fair value.\nGoodwill and Intangible Assets \nGoodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually for impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable. \nGoodwill is tested for impairment at the reporting unit level. A reporting unit represents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a two-step quantitative test. The qualitative evaluation is an assessment of factors 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. We may elect not to perform the qualitative assessment for some or all reporting units and perform a two-step quantitative impairment test. The estimate of the fair values of our reporting units are based on the best information available as of the date of the assessment. We generally use a blended analysis of the present value of discounted cash flows and the market valuation approach. The discounted cash flow model uses the present values of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and external economic factors in estimating our future cash flows. The assumptions we use in our evaluations include projections of growth rates and profitability, our estimated working capital needs, as well as our weighted average cost of capital. The market valuation approach indicates the fair value of a reporting unit based on a comparison to comparable publicly traded firms in similar businesses. Estimates used in the market value approach include the identification of similar companies with comparable business factors. Changes in economic and operating conditions impacting the assumptions we made could result in additional goodwill impairment in future periods. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. The amount of the impairment is the difference between the carrying value of the goodwill and the \u201cimplied\u201d fair value, which is calculated as if the reporting unit had just been acquired and accounted for as a business combination.\nIndefinite-lived intangible assets consist primarily of acquired tradenames and trademarks. We first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. We measure the fair value of these assets using the relief from royalty method. This method assumes that the tradenames and trademarks have value to the extent their owner is relieved from paying royalties for the benefits received. We estimate the future revenues for the associated brands, the appropriate royalty rate and the weighted average cost of capital.\nThe Company completed its annual goodwill impairment analysis in the fourth quarter of fiscal 2023, in conjunction with its budgeting and forecasting process for fiscal year 2024 and concluded that no indicators of impairment existed at any of its reporting units.\nAs of June\u00a030, 2023, the carrying value of goodwill was $938.6 million. For the fiscal 2023 impairment analysis, the Company performed a quantitative assessment for its reporting units in the United Kingdom, US, Canada and Europe. The estimated fair value of each reporting unit exceeded its carrying value based on the analysis performed. Holding all other assumptions used in the 2023 fair value measurement constant, a 100-basis-point increase in the weighted average cost of capital would not result in the carrying value of the reporting units to be in excess of the fair value. The fair values were based on significant management assumptions including an estimate of future cash flows. If assumptions are not achieved or market conditions decline, potential impairment charges could result. The Company will continue to monitor impairment indicators and financial results in future periods.\nIndefinite-lived intangible assets are evaluated on an annual basis in conjunction with the Company\u2019s evaluation of goodwill, or on an interim basis if and when events or circumstances change that would more likely than not reduce the fair value of any of its indefinite-life intangible assets below their carrying value. In assessing fair value, the Company utilizes a \u201crelief from royalty payments\u201d methodology. This approach involves two steps: (i) estimating the royalty rates for each trademark and (ii) applying these royalty rates to a projected net sales stream and discounting the resulting cash flows to determine fair value. If the carrying value of the indefinite-lived intangible assets exceeds the fair value of the assets, the carrying value is written down to fair value in the period identified. During the year ended June\u00a030, 2023, the Company recorded aggregate non-cash impairment charges of $174.9 million related to certain trademarks and intangible assets as discussed in Note 8, \nGoodwill and Other Intangible Assets\n, in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.\n38\nTable of Contents\nBusiness Combinations\nDuring the year ended June\u00a030, 2022, the Company completed the acquisition of THWR for total consideration of $260.2 million, net of cash acquired. The transaction was accounted for under the acquisition method of accounting whereby the total purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair value of such assets and liabilities.\nAccounting for the acquisition of THWR required estimation in determining the fair value of identified intangible assets for acquired customer relationships and tradenames. Estimation was utilized as it relates to inputs to the valuation techniques used to measure the fair value of these intangible assets as well as the sensitivity of the respective fair values to the underlying assumptions. The significant assumptions used to estimate the fair value of the acquired intangible assets included discount rates, revenue growth rates, and operating margins. These assumptions are forward-looking and could be affected by future economic and market conditions.\nStock-based Compensation \nThe Company uses the fair market value of the Company\u2019s common stock on the grant date to measure fair value for service-based and performance-based awards and a Monte Carlo simulation model to determine the fair value of market-based awards. The use of the Monte Carlo simulation model requires the Company to make estimates and assumptions, such as expected volatility, expected term and risk-free interest rate. The fair value of stock-based compensation awards is recognized as an expense over the vesting period using the straight-line method. For awards that contain a market condition, expense is recognized over the defined or derived service period using a Monte Carlo simulation model.\nValuation Allowances for Deferred Tax Assets \nDeferred tax assets arise when we recognize expenses in our financial statements that will be allowed as income tax deductions in future periods. Deferred tax assets also include unused tax net operating losses and tax credits that we are allowed to carry forward to future years. Accounting rules permit us to carry deferred tax assets on the balance sheet at full value as long as it is \u201cmore likely than not\u201d that the deductions, losses or credits will be used in the future. A valuation allowance must be recorded against a deferred tax asset if this test cannot be met. Our determination of our valuation allowances is based upon a number of assumptions, judgments and estimates, including forecasted earnings, future taxable income and the relative proportions of revenue and income before taxes in the various jurisdictions in which we operate. Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as cumulative losses in recent years.\nDuring fiscal 2023, a valuation allowance was recorded against certain of our United States federal attributes and a majority of state deferred tax assets as a result of significant negative evidence in such jurisdictions.\nWe have deferred tax assets related to foreign net operating losses, primarily in the United Kingdom and to a lesser extent in Belgium, against which we have recorded valuation allowances. Under current tax law in these jurisdictions, our carryforward losses have no expiration.\nRecent Accounting Pronouncements\nSee Note 2, \nSummary of Significant Accounting Policies and Practices\n, in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for information regarding recent accounting pronouncements. \nSeasonality\nCertain of our product lines have seasonal fluctuations. Hot tea, hot-eating desserts and soup sales are stronger in colder months, while sales of snack foods, sunscreen and certain of our personal care products are stronger in the warmer months. As such, our results of operations and our cash flows for any particular quarter are not indicative of the results we expect for the full year, and our historical seasonality may not be indicative of future quarterly results of operations. In recent years, net sales and diluted earnings per share in the first fiscal quarter have typically been the lowest of our four quarters.\n39\nTable of Contents",
+  "item7a": ">Item 7A.\u00a0\u00a0\u00a0\u00a0Quantitative and Qualitative Disclosures About Market Risk\nMarket Risk \nThe principal market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) to which the Company is exposed are: \n\u2022\ninterest rates on debt and cash equivalents;\n\u2022\nforeign exchange rates, generating translation and transaction gains and losses; and\n\u2022\ningredient inputs.\nInterest Rates \nWe centrally manage our debt and cash equivalents, considering investment opportunities and risks, tax consequences and overall financing strategies. Our cash equivalents consist primarily of money market funds or their equivalent. As of June\u00a030, 2023, we had $830 million of variable rate debt outstanding under our Credit Agreement. During fiscal 2021, the Company used interest rate swaps to hedge a portion of the interest rate risk related its outstanding variable rate debt. As of June\u00a030, 2023, the notional amount of the interest rate swaps was $400 million with fixed rate payments of 5.10% that started from February 2023. Assuming current cash equivalents, variable rate borrowings and the effects of the interest rate swaps, a hypothetical change in average interest rates of one percentage point would have resulted in higher net interest expense of $5.5 million.\nForeign Currency Exchange Rates\nOperating in international markets involves exposure to movements in currency exchange rates, which are volatile at times, and the impact of such movements, if material, could cause adjustments to our financing and operating strategies. \nDuring fiscal 2023, approximately\u00a043%\u00a0of our consolidated net sales were generated from sales outside the United States, while such sales outside the United States were\u00a045%\u00a0of net sales in fiscal 2022 and 52% of net sales in fiscal 2021. These revenues, along with related expenses and capital purchases, were conducted primar\nily in British Pounds Sterling, Euros and Canadian Dollars. Sales and operating income would have decreased by approximatel\ny $39.4\u00a0million and $2.8\u00a0million, resp\nectiv\nely, if average foreign exchange rates had been lower by 5% against the U.S. Dollar in fiscal 2023. These amounts were determined by considering the impact of a hypothetical foreign exchange rate on the sales and operating income of the Company\u2019s international operations.\nFluctuations in currency exchange rates may also impact the Stockholders\u2019 Equity of the Company. Amounts invested in our non-United States subsidiaries are translated into United States Dollars at the exchange rates as of the last day of each reporting period. Any resulting cumulative translation adjustments are recorded in Stockholders\u2019 Equity as Accumulated Other Comprehensive Loss. The cumulative translation adjustments component of Accumulated Other Comprehensive Loss decreased by $30.2 million during the fiscal year ended June\u00a030, 2023.\nTo reduce that risk, the Company ma\ny enter into certain derivative financial instruments, when available on a cost-effective basis, to manage such risk. We had approximately\n\u00a0$131.8 million\u00a0in notional amounts of cross-currency swaps and foreign currency exchange contracts at June\u00a030, 2023. See Note 16, \nDerivatives and Hedging Activities\n, in the Notes to Consolidated Financial Statements included in Item 8 of this Form \n10-K.\nIngredient Inputs Price Risk \nThe Company purchases ingredient inputs such as \nvegetables, fruits, oils, grains, beans, nuts, tea and herbs, spices, dairy products, plant-based surfactants, glycerin and alcohols, as well as packaging materials, to be used in its operations. These inputs are subject to price fluctuations that may create price risk. Although we sometimes hedge against fluctuations in the prices of the ingredients by using future or forward contracts or similar instruments, the ma\njority of our future purchases of these items are subject to changes in price. We may enter into fixed purchase commitments in an attempt to secure an adequate supply of specific ingredients. These agreements are tied to specific market prices. Market risk is estimated as a hypothetical 10% increase or decrease in the weighted average cost of our primary inputs as of June\u00a030, 2023. Based on our cost of goods sold duri\nng the fiscal year ended June\u00a030, 2023, such a change would have resulted in an increase or decrease to cost of sales of approximately $106\u00a0million. W\ne attempt to offset the impact of input cost increases with a combination of cost savings initiatives and efficiencies and price increases.\n40\nTable of Contents",
+  "cik": "910406",
+  "cusip6": "405217",
+  "cusip": ["405217950", "405217100", "405217900"],
+  "names": ["HAIN CELESTIAL GROUP INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/910406/000091040623000053/0000910406-23-000053-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1.\u00a0\u00a0\u00a0\u00a0BUSINESS\nGENERAL\nOverview\nViavi Solutions Inc. (VIAVI, also referred to as the Company, we, our, and us) is a global provider of network test, monitoring, and assurance solutions for communications service providers (CSPs), hyperscalers, network equipment manufacturers (NEMs), original equipment manufacturers (OEMs), government and avionics. We help customers harness the power of instruments, automation, intelligence and virtualization. VIAVI is also a leader in light management technologies for 3D sensing, for the anti-counterfeiting, consumer electronics, industrial, automotive, government and aerospace applications.\nTo serve our markets, we operate the following business segments:\n\u2022\nNetwork Enablement (NE);\n\u2022\nService Enablement (SE); and\n\u2022\nOptical Security and Performance Products (OSP).\nCorporate Strategy\nOur objective is to continue to be a leading provider in the markets and industries we serve. In support of our business segments, we are pursuing a corporate strategy that we believe will best position us for future opportunities as follows: \n\u2022\nMarket leadership in physical and virtualized test and measurement instruments and assurance systems with the opportunity to grow market share; \n\u2022\nMarket leadership in anti-counterfeiting pigments, 3D sensing optical filters and other light management technologies; \n\u2022\nMarket leadership in 5G wireless, public safety radio and navigation/communication transponder test instruments as well as passive optical components for 3D sensing and other optical sensors; \n\u2022\nIncrease benefit from the use of our net operating loss carryforwards (NOL) by improving our profitability organically and inorganically; and \n\u2022\nGreater flexibility in capital structure in support of our strategic plans. \nOur near-term strategy, and next transformation phase, will be more focused on growth, both organic and inorganic. We plan to leverage major secular growth trends in 5G wireless, fiber and 3D sensing to achieve higher levels of revenue and profitability. \nOur long-term capital allocation strategy, which supports our corporate strategy, is as follows: \n\u2022\nMaintenance and run-rate investments to support operations; \n\u2022\nOrganic investments in initiatives to support revenue growth and productivity; \n\u2022\nReturn capital to shareholders through share buybacks and execute on capital allocation and debt management strategy; and \n\u2022\nMergers and acquisitions that are synergistic to company strategy and business segments. \nAlthough we are working to successfully implement our strategy, internal and/or external factors could impact our ability to meet any, or all, of our objectives. These factors are discussed under Item\u202f1A \u201cRisk Factors\u201d of this Annual Report on Form 10-K. \n3\nTable of Contents\nBusiness Segments\nWe operate in two broad business categories: Network and Service Enablement (NSE) and Optical Security and Performance Products (OSP). NSE operates in two reportable segments, NE and SE, whereas OSP operates as a single segment. Our NSE and OSP businesses are each organized with their own engineering, manufacturing and dedicated sales and marketing groups focused on each of the markets we serve to better support our customers and respond quickly to market needs. In addition, our segments share common corporate services that provide capital, legal, infrastructure, resources and functional support, allowing them to focus on core technological strengths to compete and innovate in their markets.\nNetwork Enablement \nOur NE segment provides an integrated portfolio of testing solutions that access the network to perform build-out and maintenance tasks. These solutions include instruments, software and services to design, build, turn-up, certify, troubleshoot, and optimize networks. These solutions also support more profitable, higher-performing networks and help speed time-to-revenue. \nOur solutions address lab and production environments, field deployment and service assurance for wireless and wireline networks, including computing and storage networks. Our test instrument portfolio is one of the largest in the industry, with hundreds of thousands of units in active use by major network equipment manufacturers (NEMs), operators and service providers worldwide.  \nWithin the NE product portfolio, our wireless products consist of flexible application software and multi-function hardware that our customers can easily use as standalone test and measurement solutions or combine with industry-standard computers, networks and third-party devices to create measurement, automation and embedded systems. Our Radio Access Network (RAN) to Core test and validation product addresses the various communications infrastructure market segments. \nOur AvComm products are a global leader in test and measurement (T&M) instrumentation for communication and safety in the government, aerospace and military markets.\u202f AvComm solutions encompass a full spectrum of instrumentation, which include turnkey systems, stand-alone instruments and modular components that provide customers with highly reliable, customized, innovative and cost-effective testing tools and resilient Positioning, Navigation and Timing (PNT) solutions for critical infrastructure serving military and civilian applications.\nMarkets\n \nOur NE segment provides solutions for CSPs, as well as NEMs and data center providers that deliver and/or operate broadband/IP networks (fixed and mobile) supporting voice, video and data services as well as a wide range of applications. These solutions support the development and production of network equipment, the deployment of next generation network technologies and services, and ensure a higher-quality customer experience. AvComm products are positioned in all of the customers\u2019 product life cycle phases from research & development (R&D), manufacturing, installation, deployment and field, to depot repair and maintenance of devices. \nCustomers \nNE customers include CSPs, NEMs, government organizations and large corporate customers, such as major telecom, mobility and cable operators, chip and infrastructure vendors, storage-device manufacturers, storage-network and switch vendors, radio and avionics commercial companies, original equipment manufacturers (OEMs), state and federal agencies, utilities, law enforcement, military contractors and the armed forces and deployed private enterprise customers. Our customers include Am\u00e9rica M\u00f3vil, AT&T Inc., Lumen Technologies, Inc. (formerly CenturyLink, Inc.), Cisco Systems, Inc., Nokia Corporation, British Telecom Openreach, Deutsche Telekom AG and Verizon Communications Inc.  \nFor further information related to our customers, refer to \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d under Item 7 of this Annual Report on Form 10-K. \nCompetition \nNE competitors include Anritsu Corporation, EXFO Inc., Keysight Technologies Inc., Rohde & Schwarz, VeEX Inc. and Spirent Communications plc. While we face multiple competitors for each of our product families, we continue to have one of the broadest portfolios of wireline and wireless products available in the network enablement industry.  \n4\nTable of Contents\nOfferings \nOur NE solutions include instruments and software that support the development and production of network systems in the lab. These solutions activate, certify, troubleshoot and optimize networks that are differentiated through superior efficiency, reliable performance and greater customer satisfaction. Designed to be mobile, these products include instruments and software that access the network to perform installation and maintenance tasks. They help service provider technicians assess the performance of network elements and segments and verify the integrity of the information being transmitted across the network. These instruments are highly intelligent and have user interfaces that are designed to simplify operations and minimize the training required to operate them. Our NE solutions are also used by NEMs in the design and production of next-generation network equipment. Thorough testing by NEMs\u202fplays a critical role in producing the components and equipment that are the building blocks of network infrastructure. We leverage our installed base and knowledge of network management methods and procedures to develop these advanced customer experience solutions.     \nWe also offer a range of product support and professional services designed to comprehensively address our customers\u2019 requirements. These services include repair, calibration, software support and technical assistance for our products. We offer product and technology training as well as consulting services. Our professional services, provided in conjunction with system integration projects, include project management, installation and implementation. \nOur NE products and associated services are, as follows: \nField Instruments\n: Primarily consisting of (a) access and cable products; (b) avionics products; (c) fiber instrument products; (d) metro products; (e) RF test products; and (f) radio test products. \nLab Instruments\n: Primarily consisting of (a) fiber optic production lab tests; (b) optical transport products; (c) computing and storage network test products; and (d) wireless products. \nService Enablement \nSE provides embedded systems and enterprise performance management solutions that give global CSPs, enterprises and cloud operators visibility into network, service and application data.  \nOur assurance solutions let carriers remotely monitor the performance and quality of network, service and applications performance throughout the entire network. This provides our customers with enhanced network management, control, and optimization that allow network operators to initiate service to new customers faster, decrease the need for technicians to make on-site service calls, help to make necessary repairs faster and, as a result, lower costs while providing higher quality and more reliable services. Remote monitoring decreases operating expenses, while early detection helps increase uptime, preserve revenue, and helps operators better monetize their networks.  \nOur network performance management products help enterprise IT and security teams monitor and optimize connectivity for their employees across on-premise and cloud domains and conduct preventative and forensic analysis to address rising security challenges. This functionality has become more critical as organizations continue to operate under remote working procedures, increasing network challenges and security risks. \nMarkets \nOur SE segment provides solutions and services primarily for CSPs and enterprises that deliver and/or operate broadband/IP networks (fixed and mobile) supporting voice, video and data services as well as a wide range of applications. These solutions provide network and application visibility to enable more cost-effective ways to provide a higher-quality customer experience. \nCustomers\n \nSE customers include similar CSPs, NEMs, government organizations, large corporate customers and storage-segment customers that are served by our NE segment.  \nFor further information related to our customers, refer to \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d under Item 7 of this Annual Report on Form 10-K. \n5\nTable of Contents\nCompetition\n \nSE segment competitors include NetScout Systems, Inc., Riverbed Technology, Inc. and Spirent Communications plc. While we face multiple competitors for each of our product families, we continue to have one of the broadest portfolios of wireline and wireless monitoring solutions available in the service enablement industry. \nOfferings\n \nOur SE solutions are embedded network systems, including instruments, microprobes and software that collect and analyze network data to reveal the actual customer experience and identify opportunities for new revenue streams and network optimization. These solutions provide our customers enhanced network management, control, optimization and differentiation and a complete service assurance platform for mobile communications, providing operators with network performance, inventory, configuration and fault management solutions through artificial intelligence driven key performance indicator analysis. Our customers are able to access and analyze the growing amount of network data from a single console, simplifying the process of deploying, provisioning and managing network equipment and services. These capabilities allow network operators to initiate service to new customers faster, decrease the need for technicians to make on-site service calls, and help to make necessary repairs faster, which lowers costs while providing higher quality and more reliable services. \nOur SE products and associated services are, as follows: \nData Center\n:\u202fPrimarily consisting of our network performance monitoring and diagnostic tools (Apex, GigaStor, Observer). \nAssurance\n:\u202fPrimarily consisting of our growth products (location intelligence and NITRO mobile products) and mature products. \nIndustry Trends for NSE \nThe telecommunications industry is experiencing a major evolution in technology as wireless communications expand and evolve from 4G to 5G technology. 5G\u2019s increased bandwidth capacity and speed, as well as lower latency will expand applications beyond mobile devices. 5G is expected to enable numerous use cases including greater device-to-device connectivity, smart applications, autonomous cars, factory automation and other applications that are yet to be conceptualized. The increase in demand for openness and scalability in the 5G Radio Access Network is motivating the push towards O-RAN standards and ecosystems. O-RAN will eventually improve the time-to-market for new verticals and innovations as well as reduce the total cost of ownership. The 5G transition is being deployed globally and is expected to be disruptive to businesses, consumers and potentially create new applications and vertical industries. \nThe increase in demand for 5G services will be increasingly supported by automation and associated artificial intelligence and machine learning, which will further enable enterprise requirements for private 5G as well as numerous use cases such as remote working and energy efficiency. Such increases in demand for pervasive on-premise/off-premise services will further drive the need for cybersecurity. Further adoption of 5G will require optical fiber upgrades and buildouts driven by traditional CSPs as well as enterprise networks. Hyperscale service providers have become significant drivers of technology innovation, including optical fiber up to 800GbE. The scale and complexity of these technology shifts are also challenging service providers to rearchitect their networks, becoming more virtualized, and optimized based on real-time intelligence. We believe these investments will extend fiber connectivity beyond the office and home and permeate \u201cfiber-to-the-everywhere\u201d leading to potential new business opportunities for VIAVI.  \nExisting network infrastructure that is not otherwise being upgraded is also expected to be modernized with new cable and access technologies. Cable providers are investing in DOCSIS 3.1 to enhance existing cable networks while DSL copper lines are being upgraded to GFast. Many operators have decided to run existing legacy networks by deploying superior technologies or continuing to run such networks until they are no longer operable and then replacing them with new optical fiber. For our avionics products, many governments across the globe are increasing their military and public safety budgets to upgrade communication infrastructure.\n6\nTable of Contents\nThe convergence of network technologies requires significant investments from both traditional carriers and cloud service providers. While traditional services providers, in recent years, have continued to consolidate to gain scale, and capital spending in physical networks has been declining, it also creates additional opportunities as service providers deploy NE products and solutions to improve average revenue per user (ARPU) metrics by reducing the need for physical customer service visits through faster installation and repair completion. In addition, the new cloud service providers and virtualized networks create new NSE opportunities. We believe our NSE products and solutions are well positioned to meet these rapidly changing industry trends, given our technology and products, as well as customer installed base. \nOptical Security and Performance Products \nOur OSP segment leverages its core optical coating technologies and volume manufacturing capability to design, manufacture, and sell technologies for the anti-counterfeiting, consumer electronics, industrial, government and automotive markets. \nOur technologies targeting anti-counterfeiting applications include Optical Variable Pigment (OVP\u00ae) and Optical Variable Magnetic Pigment (OVMP\u00ae). OVP enables color-shifting effects, and OVMP enables depth and motion effects in addition to color-shifting effects. Both OVP and OVMP are formulated into inks used by banknote issuers and security printers worldwide for anti-counterfeiting applications on banknotes and other high-value documents. Our technologies are deployed on the banknotes of more than 100 countries today. \nOther OSP product lines include custom color solutions and spectral sensing.  Custom color solutions include innovative special effects pigments for the automotive market.  Spectral sensing solutions include handheld and process miniature near infrared spectrometers for pharmaceutical, agriculture, food, feed, and industrial applications. \nMarkets\n \nOur OSP segment delivers overt and covert technologies to protect banknotes and documents of value against counterfeiting, with a primary focus on the currency market. OSP also produces precise, high-performance, optical thin-film coatings and light shaping optics capabilities for a variety of applications  including, for example, optical filters and Engineered Diffusers, marketed under the trademark \u201cEngineered Diffusers\u00ae\u201d, for 3D sensing applications. \nCustomers\n \nOSP customers include SICPA Holding SA Company (SICPA), STMicroelectronics Holding N.V., Lockheed Martin Corporation and Seiko Epson Corporation.  \nWe have a strategic alliance with SICPA to market and sell our OVP and OVMP product lines for banknote anti-counterfeiting applications worldwide. Sales of these products to SICPA generated approximately 10% of our net revenue from continuing operations during fiscal 2021, 2022 and 2023. A material reduction in sales, or loss of the relationship with SICPA, may harm our business and operating results as we may be unable to find a substitute marketing and sales partner or develop these capabilities ourselves in a timely manner. For additional information please see the Risk Factor entitled \u201c\nWe may experience increased pressure on our pricing and contract terms due to our reliance on a limited number of customers for a significant portion of our sales\n\u201d under Item 1A \u201cRisk Factors,\u201d and \u201cNote 19. Operating Segments and Geographic Information\u201d of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. \nFor further information related to our customers, refer to \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d under Item\u202f7 of this Annual Report on Form 10-K. \nCompetition\n \nOSP competitors include providers of anti-counterfeiting technologies such as Giesecke\u202f& Devrient, De La Rue plc; special-effect pigments such as Merck KGA; coating companies such as Nidek, Toppan and Toray; optics companies such as Materion; and manufacturers of passive and other optical components such as II-VI Inc. and AMS. \n7\nTable of Contents\nOfferings\n \nOur OSP business provides innovative light management technologies for the anti-counterfeiting, consumer electronics, industrial, government and automotive markets. \nAnti-Counterfeiting\n: Our OVP and OVMP technologies are incorporated into inks used by many government and state-owned security printers worldwide for banknote protection. These technologies deliver a range of intuitive overt effects that enable the rapid verification of banknotes without requiring a specialized device or reader.  \nConsumer Electronics and Industrial\n: Our OSP business manufactures and sells optical filters for 3D sensing products that separate ambient light from incoming data to allow devices to be controlled by a person\u2019s movements or gestures. Our Engineered Diffusers shape light emitted for 3D sensing applications and also enhance eye safety. We provide multicavity and linear variable optical filters on a variety of substrates for applications, including thermal imaging, spectroscopy and pollution monitoring. We also develop and manufacture miniature handheld and process near infrared spectrometers that leverage our linear variable optical filters for use in applications for agriculture, pharmaceutical and other markets. \nGovernment\n:\u202fOur products are used in a variety of government and aerospace applications, including optics for inter-satellite laser communications, guidance systems, laser eye protection and night vision systems. These products, including coatings and optical filters, are optimized for each specific application. \nAutomotive\n:  For product differentiation and brand enhancement, we provide custom color solutions for a variety of applications using our ChromaFlair\u00ae and SpectraFlair\u00ae pigments to create color effects that emphasize body contours, create dynamic environments, or enhance products in motion. These pigments are added to paints, plastics or textiles for automotive, sports apparel, and other applications. Additionally, our optical filters and Engineered Diffusers enable automotive sensing applications including LiDAR and in-cabin monitoring.  \nIndustry Trends\n \nFor nearly 75 years, OSP has developed and deployed capabilities that alter how the light is transmitted, reflected, and absorbed, enabling a range of mission critical and high-volume optical solutions. \nWe leverage our capabilities to deliver technologies that enable anti-counterfeiting solutions designed to protect the integrity of banknotes and other documents of value. The wide availability of advanced and relatively low-cost imaging technologies and printing tools threatens the integrity of critical printed documents, necessitating robust, technically sophisticated and easy to validate anti-counterfeiting features. Our OVP, and OVMP technologies enable intuitive overt optical effects that consumers can easily recognize but counterfeiters find very difficult to reproduce. \nWe also design, manufacture and sell optical filters for 3D sensing applications that allow consumers to interact with their devices more naturally by enabling electronic devices to accurately measure depth and motion. Our filters play an important role in those applications, separating out ambient light from the incoming data used by sensors to make precise measurements. Notably, our patented low angle shift technology enables our customers to significantly improve the signal-to-noise ratio of their systems and deliver reliable system performance. Through the development of multiple generations of products for 3D sensing and by delivering improved performance and competitive value with each iteration, we believe we have established ourselves as one of the industry\u2019s leading supplier of high-performance filters enabling depth-sensing systems in consumer electronics. Similarly Engineered Diffusers, diffuse the infrared laser light transmitted by a smartphone in 3D sensing applications, enabling reliable system performance while also guarding eye safety. \nIn addition to anti-counterfeiting and 3D sensing applications, OSP technologies enable optical solutions in industries we believe the applications of which will mature or there will be development of new applications for OSP technologies that will grow demand for our OSP products and solutions. \n8\nTable of Contents\nResearch and Development\n \nWe devote substantial resources to R&D to develop new and enhanced products to serve our markets. Once the design of a product is complete, our engineering efforts shift to enhancing both product performance and our ability to manufacture it in greater volume and at lower cost. \nIn our NE and SE segments, we develop portable test instruments for field service technicians, systems and software used in Network Operations Centers, and instruments used in the development, testing and production of communications network components, modules and equipment. We have centers of excellence for product marketing and development in Asia, Europe and North America. \nIn our OSP segment, our R&D efforts concentrate on developing more innovative technologies and products for customers in the anti-counterfeiting, consumer electronics, industrial, government and automotive markets. Our strength in the banknote anti-counterfeiting market is complemented by our advances in developing novel pigments for a variety of applications. Other areas for OSP include our efforts to leverage our optical coating technology expertise to develop applications for the government and defense markets as well as efforts related to new products for 3D sensing and smartphone sensors. OSP also develops, manufactures and sells a line of miniature hand-held spectrometers with applications in the agriculture, healthcare and defense markets. \nSales and Marketing\n \nCSPs make up the majority of our NSE revenues. We also market and sell products to NEMs, OEMs, enterprises, governmental organizations, distributors and strategic partners worldwide. We have a dedicated sales force organized around each of the markets that we serve that works directly with customers\u2019 executive, technical, manufacturing and purchasing personnel to determine design, performance and cost requirements. We are also supported by a worldwide channel community, including our Velocity Solution Partners, who support our NSE segment. \nOSP sales and marketing efforts are targeted primarily toward customers in the consumer electronics, government, automotive and industrial markets. We have a dedicated direct global sales force focused on understanding customers\u2019 requirements and building market awareness and acceptance of our products. Our direct sales force is complemented by a highly trained team of field applications engineers who assist customers in designing, testing and qualifying our products. We market our products and capabilities through attendance at trade shows, the production of promotional webinars, the development of samples and product demonstrations, participation in technical forums, select advertising and by developing customer partnerships. \nA high level of support is a critical part of our strategy to develop and maintain long-term collaborative relationships with our customers. We develop innovative products by engaging our customers at the initial design phase and continue to build that relationship as our customers\u2019 needs change and develop. Service and support are provided through our offices and those of our partners worldwide. \nAcquisitions\n \nAs part of our strategy, we are committed to the ongoing evaluation of strategic opportunities and, where appropriate, the acquisition of additional products, technologies or businesses that are complementary to, or strengthen, our existing products. \nFor further information related to our acquisitions, refer to \u201cNote 5. Acquisitions\u201d under Item 8 of this Annual Report on Form 10-K. \nRestructuring Programs\n \nWe may continue to engage in targeted restructuring events, to consolidate our operations and align our businesses in response to market conditions and our current investment strategy. Such actions are intended to   further drive our strategy for organizational alignment and consolidation as part of our continued commitment to a  more cost effective and agile organization and to improve overall profitability in our business segments. \nFor further information refer to \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d under Item\u202f7 and \u201cNote 13. Restructuring and Related Charges\u201d under Item\u202f8 of this Annual Report on Form\u202f10-K. \n9\nTable of Contents\nManufacturing \nAs of July 1, 2023, we have significant manufacturing facilities for our NE, SE and OSP segments located in China, France, Germany, Mexico, the United Kingdom and the United States. Our most significant contract manufacturing partners are located in China and Mexico. \nSources and Availability of Raw Materials\n \nWe use various suppliers and contract manufacturers to supply parts and components for the manufacture and support of multiple product lines. Although we intend to establish at least two sources of supply for materials whenever possible, for certain components we have sole or limited source supply arrangements.  \nPatents and Proprietary Rights\n \nIntellectual property rights apply to our various products include patents, trade secrets and trademarks. We do not intend to broadly license our intellectual property rights unless we can obtain adequate consideration or enter into acceptable intellectual property cross-licensing agreements. As of July 1, 2023, we own 956 U.S. patents and 1,892 foreign patents and have 1,155 patent applications pending throughout the world. The average age of the patents we hold is 8.9 years, which is younger than the midpoint of the average 20-year life of a patent. \nBacklog\nDue to possible changes in product delivery schedules and cancellation of product orders, and because our sales often reflect orders shipped in the same quarter in which they are received, our backlog at any particular date is not necessarily indicative of actual revenue or the level of orders for any succeeding period. \nSeasonality\nOur business is seasonal, as is typical for our competitors and many large companies. For NSE, revenue is typically higher in the second and fourth fiscal quarter, all else being equal. There is typically a modest end of calendar year customer spending budget that benefits our second fiscal quarter. Telecom and cable spending budgets are typically set at the start of a new calendar year, thus with all else being equal, our third fiscal quarter is NSE\u2019s weakest revenue quarter with spending release benefiting our fourth fiscal quarter. \nFor our OSP business, given our exposure to the consumer market, namely our 3D sensing products into the smartphone market, OSP revenue is expected to be seasonally higher in the first and second fiscal quarter followed by seasonal demand declines in the third and fourth fiscal quarters. \nHuman Capital Management \nThe VIAVI culture is made up of the diverse contributions of our approximately 3,600 employees worldwide (as of July 1, 2023) representing more than 30 self-identified nationalities working across 30 countries. VIAVI is committed to promoting and maintaining a diverse and inclusive work environment and offering equal opportunities to everyone. We seek to empower our employees to learn and develop their skills to accelerate their career and to attract best-in-class talent. The CEO and the SVP of Human Resources are responsible for the development of our People Strategy and execute on this with the support of the Executive Management Team. We regularly update and partner with the Compensation Committee of the Board of Directors on human capital matters. Employee experience continues to be an important focus of our People Strategy, including implementing automation to increase efficiency in our business processes, manager and employee self-service for transactions and advanced reporting for organizational insight. In addition, we launched a new learning management system to allow for micro-learning in the flow of work. Our next phase will include improving our approach to measuring employee sentiment and drivers for engagement.\n10\nTable of Contents\nBusiness Values & Standards \nThe VIAVI business values articulate the internal cultural identity of VIAVI employees and provide a shared understanding of expectations across the Company. They represent the principles that will help guide us to achieve our objectives globally and the desired operating environment of the employees and management. VIAVI is committed to respecting human rights and acknowledges the fundamental principles contained in the Universal Declaration of Human Rights, the tenets of the United Nations Guiding Principles on Business and Human Rights, and core International Labor Organization Conventions to the extent they are applicable and important to our business. We are a member of the Responsible Business Alliance, which further strengthens our efforts and commitment.  \nWe realize that being a responsible global citizen is important to the sustainability and commercial success of our business and encompasses more than just complying with local regulations. It\u2019s about how we do business, and how our organization\u2019s activities affect the people and communities where we live and work. The VIAVI Code of Business Conduct captures the broad principles of legal and ethical business conduct embraced by the Company as part of its commitment to integrity. VIAVI expects that all employees will act in a manner that complies both with the letter and spirit of this code of conduct. \nDiversity, Equity, and Inclusion (DEI)\n \nVIAVI is committed to fostering, cultivating, and preserving a culture of diversity, equity and inclusion. Our human capital is one of our most valuable assets. We believe the collective sum of our individual differences, life experiences, knowledge, innovation, business acumen, self-expression, and unique capabilities contributes to a culture that enhances our reputation and achievement. \nVIAVI has long been committed to ensuring that all individuals have an equal opportunity to enjoy a fair, safe and productive work environment \u2013 regardless of age, ancestry, race, color, mental or physical disability or medical condition, gender, gender identity, gender expression, genetic information, family or marital status, registered domestic partner status, military and veteran status, race, religious creed, language, national origin, citizenship status, sex (including pregnancy, childbirth, breastfeeding and any related medical conditions), sexual orientation, socio-economic status, or any other protected category under applicable law. We seek to embrace, encourage, and celebrate our employees\u2019 differences and what makes them unique.  \nTalent Development\n \nOur talent development offerings provide relevant and useful learning resources for our employees, managers, and leaders that invite a growth mindset and create an appetite for lifelong learning.   \nWe seek to drive talent conversations at all levels, which is complemented by Everyday Development, our performance management check-in process. Check-ins ensure that employees are being coached and supported throughout the year with relevant and timely discussions on expectations, feedback, and development. Both managers and employees have a role to play to ensure that they are connected to the activities that drive our business forward. Our employees can expect to engage regularly with their manager, and to have their support to accelerate their performance and development. \n     Our global Leadership Development Program has now reached over 70% of our leaders in fiscal 2023. We introduced advanced leadership concepts this year, enabling our participants to connect globally and cross functionally while advancing their skills.\nWe continue to provide guidance and best practices in hybrid working for our employees and managers, which are supported by our Flexible Work policy. \nThe early-in-career rotation programs for engineers and sales talent continue.\n \nOur diverse and global program participants are supported by a mentor and their manager to coach them as they take on exciting new technical challenges. We believe their program experiences will unleash innovation and creativity for our organization while enabling our long-term talent pipeline. \nTechnical talent thought leadership is a continued focus at our annual Technology Council event for engineering talent. \n11\nTable of Contents\nWe are encouraged that VIAVI employees exhibit commitment to their ongoing career development, with 70% of our individual contributors building the professional and technical skills they need to advance their careers.\nOur employees regularly participate in mandatory training courses covering data privacy, cybersecurity, health and safety as well as the prevention of sexual harassment in the workplace, each achieving over 99% compliance by employees. \nTalent Rewards\n \nOur compensation and benefits programs are designed to recognize our employees' individual performance and contributions to our business results, including competitive base salaries and variable pay for all employees, share-based equity award grants, health and welfare benefits, time-off, development programs and training, and opportunities to give back to our communities. We provide talent rewards that are competitive in the marketplace. We support equal pay for equal work, pay transparency as well as all federal anti-discrimination laws applicable to employment, including those within Title VII of the Civil Rights Act.   \nHealth and Safety\nVIAVI is committed to maintaining an inclusive, supportive, safe and healthy work environment where our employees can thrive. We demand strict compliance with all applicable health and safety regulations, offer robust training to our employees on health and safety matters, maintain controls and proper disposal of hazardous materials and track workplace incidents and injuries. We maintain and regularly update emergency and disaster recovery plans.\nThe success of our Safety program is demonstrated by our best-in-class Total Recordable Injury Rate (TRIR) of only 0.13 injuries per 100 full-time workers per year.\nEnvironmental, Social and Governance Matters\nWe believe that serving our stakeholders, including our stockholders, customers, suppliers, employees, communities and the environment, drives commercial success and that implementing environmental, social and governance (ESG) practices makes our business more sustainable. We take immense pride in the progress we are making within our ESG initiatives. VIAVI is committed to transparency in its environmental practices, and we publicly report our key environmental metrics. VIAVI continues to focus on energy efficiency, both in our products and business practices \u2013 which has resulted in a significant reduction of our carbon footprint over the years. Our annual ESG report can be found at \nwww.viavisolutions.com/esg\n. \nInformation Security\n \nInformation security is the responsibility of our Information Security team, overseen by our Chief Information Security Officer. Our enterprise risk management program considers cybersecurity risks alongside other company risks, and our enterprise risk professionals consult with company subject matter experts to gather information necessary to identify cybersecurity risks, and evaluate their nature and severity, as well as identify mitigations and assess the impact of those mitigations on residual risk. We leverage a combination of the National Institute of Standards and Technology Cybersecurity Framework, International Organization for Standardization and Center for Internet Security best practice standards to measure our security posture and manage risk. \nOur information security practices include development, implementation, and improvement of policies and procedures to safeguard information and ensure availability of critical data and systems. Our Information Security team conducts annual information security awareness training for employees involved in our systems and processes that handle customer data and audits of our systems and enhanced training for specialized personnel. We also conduct semi-annual cyber awareness training and run tabletop exercises to simulate a response to a cybersecurity incident, and use the findings to improve our practices, procedures, and technologies. Our Incident Response Plan coordinates the activities we take to prepare for, detect, respond to and recover from cybersecurity incidents, which include processes to triage, assess severity for, escalate, contain, investigate, and remediate the incident, as well as to comply with potentially applicable legal obligations and mitigate brand and reputational damage.\n12\nTable of Contents\nOur program further includes review and assessment by external, independent third-parties, who assess and report on our internal incident response preparedness and help identify areas for continued focus and improvement. We also carry insurance that provides protection against the potential losses arising from a cybersecurity incident. In the last fiscal three years, we have not experienced any material information security breach incidences and the expenses we have incurred from information security breach incidences were immaterial. This includes penalties and settlements, of which there were none.\nAs set forth in its charter, our Audit Committee, comprised fully of independent directors, is responsible for oversight of risk, including cybersecurity and information security risk. Our Audit Committee has established a Cybersecurity Steering Committee consisting of three independent directors, Laura Black (who serves as Chair of the Cybersecurity Steering Committee), Douglas Gilstrap and Joanne Solomon, as well as our Chief Information Officer, our Chief Information Security Officer and other members of our management representing a variety of teams and functions including legal, finance, and internal audit. Members of our Cybersecurity Steering Committee have work experience managing cybersecurity and information security risks, an understanding of the cybersecurity threat landscape and/or knowledge of emerging privacy risks.\nThe purpose of the Cybersecurity Steering Committee is to oversee our compliance with reasonable and appropriate organizational, physical, administrative and technical measures designed to protect the integrity, security and operations of our information technology systems, transactions, and data owned by us, by providing guidance and oversight of our information technology and cybersecurity program.  \nThe Cybersecurity Steering Committee generally meets on a quarterly basis and generally delivers reports and updates to the Audit Committee at each scheduled Audit Committee meeting. The Audit Committee or, at the Audit Committee\u2019s instruction, the Cybersecurity Steering Committee regularly briefs the full Board on these matters, and the Board receives regular updates on the status of the information security program, including but not limited to relevant cyber threats, roadmap and key initiative updates, and the identification and management of information security risks. Our full Board reviews cybersecurity related opportunities as they relate to our business strategy, and cybersecurity-related matters are also factored into business continuity planning.\nWhere You Can Find More Information\nOur website address is \nwww.viavisolutions.com\n, which the Company uses as a means to disclose important information about the Company and comply with its disclosure obligations under Regulation Fair Disclosure.  We are subject to the requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), under which we file annual, quarterly and periodic reports, proxy statements and other information with the SEC, which can be accessed on www.sec.gov. We also make available free of charge all of our SEC filings on our website at \nwww.viavisolutions.com/investors\n as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The information contained on any of the websites referenced in this Annual Report on Form 10-K are not part of or incorporated by reference into this or any other report we file with, or furnish to, the SEC. \n \n \n13\nTable of Contents",
+  "item1a": ">ITEM 1A.    RISK FACTORS\u00a0\nGlobal Risks\nGeopolitical conditions, including political turmoil and volatility, regional conflicts, terrorism and war could result in market instability, which could negatively impact our business results.\nWe operate globally and sell our products in countries throughout the world. Recent escalation in regional conflicts, including the Russian invasion of Ukraine, resulting in ongoing economic sanctions, and the risk of increased tensions between the U.S. and China, could curtail or prohibit our ability to transfer certain technologies, to sell our products and solutions, or to continue to operate in certain locations. Foreign companies with a presence in China are facing increasing operational challenges and enhanced scrutiny from governmental entities in region. Further, it is possible that the U.S.-Chinese geopolitical tensions could result in government measures that could adversely impact our business. For example, in May of 2023, China announced controls on the use of Micron products in China, following a cybersecurity review of Micron. At this time, the scope of these restrictions and entities impacted, and impact on VIAVI, is unclear. This could have an adverse impact on our revenues in region.\n \nInternational conflict has resulted in (i) increased pressure on the supply chain and could further result in increased energy costs, which could increase the cost of manufacturing, selling and delivering products and solutions (ii) inflation, which could result in increases in the cost of manufacturing products, reduced customer purchasing power, increased price pressure, and reduced or cancelled orders (iii) increased risk of cybersecurity attacks and (iv) general market instability, all of which could adversely impact our financial results. Moreover, domestically, U.S. political dissension on raising the debt ceiling may increase the possibility of a government shutdown, default by the U.S. government on its debt obligations, or related credit-rating downgrades, all of which could also have adverse effects on the broader global economy and contribute to, or worsen, an economic recession.\nThe COVID-19 pandemic has and may continue to adversely affect how we and our customers are operating our businesses.\n \nThe worldwide spread of the COVID-19 virus resulted in a global slowdown of economic activity which led, at times, to slowdowns in shipping and commercial activities. \nThe lingering impacts of the COVID-19 pandemic may continue to adversely affect the financial markets in many countries. In addition, the emergence of new and potentially more contagious variants of the virus, new shutdowns or quarantines, and the resulting staffing and labor supply challenges may impact our suppliers and our ability to source materials in a timely manner, may negatively impact manufacturing or shipment of our products and hence adversely affect our results of operations and financial conditions. \nRisks Related to Our Business Strategy and Industry\nOur future profitability is not assured.\nOur profitability in a particular period will be impacted by revenue, product mix and operational costs that vary significantly across our product portfolio and business segments.\nSpecific factors that may undermine our profit and financial objectives include, among others:\n\u2022\nUncertain future telecom carrier and cable operator capital and R&D spending levels, which particularly affects our NE and SE segments;\u00a0\n\u2022\nAdverse changes to our product mix, both fundamentally (resulting from new product transitions, the declining profitability of certain legacy products and the termination of certain products with declining margins, among other things) and due to quarterly demand fluctuations;\u00a0\n\u2022\nPricing pressure across our NSE product lines due to competitive forces, advanced chip component shortages, and a highly concentrated customer base for many of our product lines, which may offset some of the cost improvements;\u00a0\n\u2022\nOur OSP operating margin may experience some downward pressure as a result of a higher mix of 3D sensing products and increased operating expenses;\n\u2022\nLimited availability of components and resources for our products which leads to higher component prices;\n14\nTable of Contents\n\u2022\nResource rationing, including rationing of utilities like electricity by governments and/or service providers; \n\u2022\nIncreasing commoditization of previously differentiated products, and the attendant negative effect on average selling prices and profit margins;\n\u2022\nExecution challenges, which limit revenue opportunities and harm profitability, market opportunities and customer relations;\n\u2022\nDecreased revenue associated with terminated or divested product lines;\u00a0\n\u2022\nRedundant costs related to periodic transitioning of manufacturing and other functions to lower-cost locations;\n\u2022\nOngoing costs associated with organizational transitions, consolidations and restructurings, which are expected to continue in the nearer term;\u00a0\n\u2022\nCyclical demand for our currency products;\n\u2022\nChanging market and economic conditions, including the impacts due to tariffs, the ongoing conflict between Russia and Ukraine, tensions between the U.S. and China, supply chain constraints, pricing and inflationary pressures;\n\u2022\nAbility of our customers, partners, manufacturers and suppliers to purchase, market, sell, manufacture and/or supply our products and services, including as a result of disruptions arising from supply chain constraints; \n\u2022\nFinancial stability of our customers, including the solvency of private sector customers and statutory  authority for government customers to purchase goods and services; and \n\u2022\nFactors beyond our control resulting from pandemics and similar outbreaks such as the COVID-19 pandemic, manufacturing restrictions, travel restrictions and shelter-in-place orders to control the spread of a disease regionally and globally, and limitations on the ability of our employees and our suppliers\u2019 and customers\u2019 employees to work and travel. \nTaken together, these factors limit our ability to predict future profitability levels and to achieve our long-term profitability objectives. If we fail to achieve profitability expectations, the price of our debt and equity securities, as well as our business and financial condition, may be materially adversely impacted.\nRapid technological change in our industry presents us with significant risks and challenges, and if we are unable to keep up with the rapid changes, our customers may purchase less of our products.\nThe manufacture, quality and distribution of our products, as well as our customer relations, may be affected by several factors, including the rapidly changing market for our products, supply chain issues and internal restructuring efforts. We expect the impact of these issues will become more pronounced as we continue to introduce new product offerings and when overall demand increases.\nOur success depends upon our ability to deliver both our current product offerings and new products and technologies on time and at an acceptable cost to our customers. The markets for our products are characterized by rapid technological change, frequent new product introductions, substantial capital investment, changes in customer requirements and a constantly evolving industry. Our future performance will depend on the successful development, introduction and market acceptance of new and enhanced products that address these issues and provide solutions that meet our customers\u2019 current and future needs. As a technology company, we also constantly encounter quality, volume and cost concerns such as:\n\u2022\nOur continuing cost reduction programs which include site and organization consolidations, asset divestitures, outsourcing the manufacture of certain products to contract manufacturers, other outsourcing initiatives, and reductions in employee headcount, requirements related to re-establishment and re-qualification by our customers of complex manufacturing lines, and modifications to systems, planning and operational infrastructure. During this process, we have experienced, and may continue to experience, additional costs, delays in re-establishing volume production levels, planning difficulties, inventory issues, factory absorption concerns and systems integration problems.\n15\nTable of Contents\n\u2022\nWe have experienced variability of manufacturing yields caused by difficulties in the manufacturing process, the effects from a shift in product mix, changes in product specifications and the introduction of new product lines. These difficulties can reduce yields or disrupt production and thereby increase our manufacturing costs and adversely affect our margin.\n\u2022\nWe may incur significant costs to correct defective products (despite rigorous testing for quality both by our customers and by us), which could include lost future sales of the affected product and other products, and potentially severe customer relations problems, litigation and damage to our reputation.\u00a0\n\u2022\nWe are dependent on a limited number of vendors, who are often small and specialized, for raw materials, packages and standard components. We also rely on contract manufacturers around the world to manufacture certain products. Our business could continue to be adversely affected by this dependency. Specific concerns we periodically encounter with our suppliers include stoppages or delays of supply, insufficient vendor resources to supply our requirements, substitution of more expensive or less reliable products, receipt of defective parts or contaminated materials, increases in the price of supplies and an inability to obtain reduced pricing from our suppliers in response to competitive pressures. Additionally, the ability of our contract manufacturers to fulfill their obligations may be affected by economic, political or other forces that are beyond our control. Any such failure could have a material impact on our ability to meet customers\u2019 expectations and may materially impact our operating results.\u00a0\n\u2022\nNew product programs and introductions involve changing product specifications and customer requirements, unanticipated engineering complexities, difficulties in reallocating resources and overcoming resource limitations and increased complexity, which expose us to yield and product risk internally and with our suppliers.\nThese factors have caused considerable strain on our execution capabilities and customer relations. We have seen and could continue to see\u00a0periodic difficulty responding to customer delivery expectations for some of our products, and\u00a0yield and quality problems, particularly with some of our new products and higher volume products which could require additional funds and other resources to respond to these execution challenges. From time to time, we have had to divert resources from new product R&D and other functions to assist with resolving these matters. If we do not improve our performance in all of these areas, our operating results will be harmed, the commercial viability of new products may be challenged, and our customers may choose to reduce or terminate their purchases of our products and purchase additional products from our competitors.\nUnfavorable, uncertain or unexpected conditions in the transition to new technologies may cause our growth forecasts to be inaccurate and/or cause fluctuations in our financial results. \nGrowth forecasts are subject to significant uncertainty and are based on assumptions and estimates which may not prove to be accurate.  Our estimates of the market opportunities related to 5G infrastructure, 3D sensing and other developing technologies are subject to significant uncertainty and are based on assumptions and estimates, including our internal analysis, industry experience and third-party data.  Accordingly, these markets may not develop in the manner or in the time periods we anticipate and our estimated market opportunities may prove to be materially inaccurate.\nIf domestic and global economic conditions worsen, including as a result of pricing and inflationary pressures, overall spending on 5G infrastructure, 3D sensing and other developing technologies may be reduced, which would adversely impact demand for our products in these markets. In addition, unfavorable developments with evolving laws and regulations worldwide related to such technologies may limit or slow the rate of global adoption, impede our strategy, and negatively impact our long-term expectations in these markets.  \nOur growth and ability to serve a significant portion of these markets is subject to many factors including our success in implementing our business strategy as well as market adoption and expansion of 5G infrastructure, 3D sensing and other applications for consumer electronics. We cannot assure you that we will be able to serve a significant portion of these markets and the growth forecasts should not be taken as indicative of our future growth. Even if the markets and rates of adoption develop in the manner or in the time periods we anticipate, if we do not have timely, competitively priced, market-accepted products available to meet our customers\u2019 planned roll-out of 5G platforms and systems, 3D sensing products and other technologies, we may miss a significant opportunity and our business, financial condition, results of operations and cash flows could be materially and adversely affected.\n16\nTable of Contents\nWe may experience increased pressure on our pricing and contract terms due to our reliance on a limited number of customers for a significant portion of our sales.\nWe believe that we will continue to rely upon a limited number of customers for a significant portion of our revenues for the foreseeable future. Any failure by us to continue capturing a significant share of key customer sales could materially harm our business. Dependence on a limited number of customers exposes us to the risk that order reductions from any one customer can have a material adverse effect on periodic revenue. Further, to the extent that there is consolidation among communications equipment manufacturers and service providers, we will have increased dependence on fewer customers who may be able to exert increased pressure on our prices and other contract terms. Customer consolidation activity and periodic manufacturing and inventory initiatives could also create the potential for disruptions in demand for our products as a consequence of such customers streamlining, reducing or delaying purchasing decisions. \nWe have a strategic alliance with SICPA to market and sell our OVP and OVMP product lines for banknote anti-counterfeiting applications worldwide. A material reduction in sales, or loss of the relationship with SICPA, may harm our business and operating results as we may be unable to find a substitute marketing and sales partner or develop these capabilities ourselves in a timely manner. \nMovement towards virtualized networks and software solutions may result in lower demand for our hardware products and increased competition.\nThe markets for our NE and SE segments are increasingly looking towards virtualized networks and software solutions. This trend may result in lower demand for our legacy hardware products. Additionally, barriers to entry are generally lower for software solutions, which may lead to increased competition for our products and services.\nWe face a number of risks related to our strategic transactions.\nOur strategy continues to include periodic acquisitions and divestitures of businesses and technologies. Strategic transactions of this nature involve numerous risks, including the following:\n\u2022\nDiversion of management\u2019s attention from normal daily operations of the business;\u00a0\n\u2022\nPotential difficulties in completing projects associated with in-process R&D;\u00a0\n\u2022\nDifficulties in entering markets in which we have no or limited prior experience and where competitors have stronger market positions;\u00a0\n\u2022\nDifficulties in obtaining or providing sufficient transition services and accurately projecting the time and cost associated with providing these services;\u00a0\n\u2022\nInability of an acquisition to further our business strategy as expected or overpay for, or otherwise not realize the expected return on, our investments;\u00a0\n\u2022\nExpected earn-outs may not be achieved in the time frame or at the level expected or at all;\n\u2022\nLack of ability to recognize or capitalize on expected growth, synergies or cost savings;\n\u2022\nInsufficient net revenue to offset increased expenses associated with acquisitions;\u00a0\n\u2022\nPotential loss of key employees of the acquired companies;\u00a0\n\u2022\nDifficulty in forecasting revenues and margins;\n\u2022\nAdverse public health developments, epidemic disease or pandemics in the countries in which we operate or our customers are located, including regional quarantines restricting the movement of people or goods, reductions in labor supply or staffing, the closure of facilities to protect employees, including those of our customers, disruptions to global supply chains and both our and our suppliers\u2019 ability to deliver materials and products on a timely or cost-effective basis, shipment, acceptance or verification delays, the resulting overall significant volatility and disruption of financial markets, and economic instability affecting customer spending patterns; and\n\u2022\nInadequate internal control procedures and disclosure controls to comply with the requirements of Section\u00a0404 of the Sarbanes-Oxley Act of 2002, or poor integration of a target company\u2019s or business\u2019s procedures and controls.\n17\nTable of Contents\nAcquisitions may also cause us to:\n\u2022\nIssue common stock that would dilute our current stockholders\u2019 percentage ownership and may decrease earnings per share;\u00a0\n\u2022\nAssume liabilities, some of which may be unknown at the time of the acquisitions;\u00a0\n\u2022\nRecord goodwill and non-amortizable intangible assets that will be subject to impairment testing and potential periodic impairment charges;\u00a0\n\u2022\nIncur additional debt to finance such acquisitions;\u00a0\n\u2022\nIncur amortization expenses related to certain intangible assets; and\n\u2022\nAcquire, assume, or become subject to litigation related to the acquired businesses or assets.\nWe may not generate positive returns on our research and development strategy.\nDeveloping our products is expensive, and the investment in product development may involve a long payback cycle. We expect to continue to invest heavily in R&D in order to expand the capabilities of 3D sensing and smart phone sensors, handheld spectrometer solution and portable test instruments, introduce new products and features and build upon our technology. We expect that our results of operations may be impacted by the timing and size of these investments. In addition, these investments may take several years to generate positive returns, if ever. \nOperational Risks\nRestructuring\nWe have from time to time engaged in restructuring activities to realign our cost base with current and anticipated future market conditions, including one recently announced for fiscal 2023. Significant risks associated with these types of actions that may impair our ability to achieve the anticipated cost reductions or disrupt our business include delays in the implementation of anticipated workforce reductions in highly regulated locations outside of the U.S. and the failure to meet operational targets due to the loss of key employees. In addition, our ability to achieve the anticipated cost savings and other benefits from these actions within the expected timeframe is subject to many estimates and assumptions. These estimates and assumptions are subject to significant economic, competitive and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our business and results of operations could be adversely affected.\nManagement transitions and talent retention create uncertainties and could harm our business.\nManagement changes could adversely impact our results of operations and our customer relationships and may make recruiting for future management positions more difficult. Our executives and other key personnel are generally at-will employees and we generally do not have employment or non-compete agreements with our other employees, and we cannot assure you that we will be able to retain them. We have in the past experienced, and could continue to experience changes in our leadership team. Competition for people with the specific technical and other skills we require is significant. Moreover, we may face new and unanticipated difficulties in attracting, retaining and motivating employees in connection with the change of our headquarters to Chandler, Arizona. As remote work has become more available the competition for highly qualified talent has intensified. If we are unable to attract and retain qualified executives and employees, or to successfully integrate any newly hired personnel within our organization, we may be unable to achieve our operating objectives, which could negatively impact our financial performance and results of operations. \n18\nTable of Contents\nWe face risks related to our international operations and revenue.\nOur customers are located throughout the world. In addition, we have significant operations outside North America, including product development, manufacturing, sales and customer support operations.\nOur international presence exposes us to certain risks, including the following:\n\u2022\nFluctuations in exchange rates between the U.S. dollar and among the currencies of the countries in which we do business may adversely affect our operating results\n \nby negatively impacting our revenues or increasing our expenses;\n\u2022\nOur ability to comply with a wide variety of laws and regulations of the countries in which we do business, including, among other things, customs, import/export, anti-bribery, anti-competition, tax and data privacy laws, which may be subject to sudden and unexpected changes;\u00a0\n\u2022\nDifficulties in establishing and enforcing our intellectual property rights;\u00a0\n\u2022\nTariffs and other trade barriers;\u00a0\n\u2022\nPolitical, legal and economic instability in foreign markets, particularly in those markets in which we maintain manufacturing and product development facilities;\u00a0\n\u2022\nStrained or worsening relations between the United States, Russia and China and related impacts on other countries;\n\u2022\nDifficulties in staffing and management;\n\u2022\nLanguage and cultural barriers;\u00a0\n\u2022\nSeasonal reductions in business activities in the countries where our international customers are located;\u00a0\n\u2022\nIntegration of foreign operations;\u00a0\n\u2022\nLonger payment cycles;\u00a0\n\u2022\nDifficulties in management of foreign distributors; and\u00a0\n\u2022\nPotential adverse tax consequences.\nThe spread of COVID-19 affected the manufacturing and shipment of goods globally. Any delay in production or delivery of our products due to an extended closure of our suppliers\u2019 plants could adversely impact our business along with delays in shipment of our products as well as increased logistics costs.\nWe expect that net revenue from customers outside North America will continue to account for a significant portion of our total net revenue. Lower sales levels that typically occur during the summer months in Europe and some other overseas markets may materially and adversely affect our business. In addition, the revenues we derive from many of our customers depend on international sales and further expose us to the risks associated with such international sales.\nLegal, Regulatory and Compliance Risks\nCertain of our products are subject to governmental and industry regulations, certifications and approvals.\nThe commercialization of certain of the products we design, manufacture and distribute through our OSP segment may be more costly due to required government approval and industry acceptance processes. Development of applications for our anti-counterfeiting and special effects pigments may require significant testing that could delay our sales. For example, durability testing by the automobile industry of our special effects pigments used with automotive paints can take up to three years. If we change a product for any reason, including technological changes or changes in the manufacturing process, prior approvals or certifications may be invalid and we may need to go through the approval process again. If we are unable to obtain these or other government or industry certifications in a timely manner, or at all, our operating results could be adversely affected. \n19\nTable of Contents\nU.S. Government trade actions could have an adverse impact on our business, financial position, and results of operation.\nThe United States and China have been engaged in protracted negotiations over the Chinese government\u2019s acts, policies, and practices related to technology transfer, intellectual property, and innovation. For example, the United States has increased tariffs on certain categories of high-tech and consumer goods imported from China pursuant to Section 301 of the Trade Act of 1974, including a current 25% tariff on List 1, List 2 and List 3 goods, which lists cover certain materials and/or products that we import from China. \nOn May 16, 2019, Huawei Technologies Co. Ltd. and 68 designated non-U.S. affiliates (collectively, Huawei) were added to the Entity List of the Bureau of Industry and Security of the U.S. Department of Commerce (BIS), which imposes limitations on the supply of certain U.S. items and product support to Huawei. On August 17, 2020, BIS issued final rules that further restrict access by Huawei to items produced domestically and abroad from U.S. technology and software. Certain products of VIAVI are subject to the restrictions; however, the impact is not expected to be material to our overall operations.\nThese measures, along with any additional tariffs or other trade actions that may be implemented, may increase the cost of certain materials and/or products that we import from China, thereby adversely affecting our profitability. These actions could require us to raise our prices, which could decrease demand for our products. As a result, these actions, including potential retaliatory measures by China and further escalation into a potential \u201ctrade war\u201d, may adversely impact our business. While recent US export controls on China\u2019s semiconductor and artificial intelligence industries may have an indirect impact on VIAVI, the implications of such controls are still being evaluated and are not expected to have a material impact on our consolidated annual revenues. \nFurthermore, the geopolitical and economic uncertainty and/or instability that may result from changes in the relationship among the United States, Taiwan and China, may, directly or indirectly, materially harm our business, financial condition and results of operations. For example, certain of our suppliers are dependent on products sourced from Taiwan which has been distinguished in its prevalence in certain global markets, most specifically semiconductor manufacturing. Hence, greater restrictions and/or disruptions of our suppliers\u2019 ability to operate facilities and/or do business in these jurisdictions may increase the cost of certain materials and/or limit the supply of products and may result in deterioration of our profit margins, a potential need to increase our pricing and, in so doing, may decrease demand for our products and thereby adversely impact our revenue or profitability. \nDue to the ongoing conflict between Russia and Ukraine, the U.S., E.U. and U.K. have broadened restrictions on exports to Russia, thereby blocking shipments of technology, telecommunications and consumer electronics products to Russia. This caused us to suspend transactions in the region effective February 2022 and has negatively impacted our business in the region. Sales in the region are not material to our total consolidated revenues or net income and we are not aware of any specific event or circumstances that would require an update to the estimates or judgments or a revision of the carrying value of assets or liabilities at this time. However, these estimates may change, as new events occur and additional information becomes available. Actual results may differ materially from these estimates, assumptions or conditions due to risks and uncertainties, including the ongoing situation in Ukraine as well as the potential for additional trade actions or retaliatory cyber-attacks aimed at infrastructure or supply chains, and the impact on our future operations and results in the region remains uncertain.\n20\nTable of Contents\nFailure to maintain satisfactory compliance with certain privacy and data protections laws and regulations may harm our business. \nComplex local, state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data. These privacy laws and regulations are quickly evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. In addition, our legal and regulatory obligations in jurisdictions outside of the U.S. are subject to unexpected changes, including the potential for regulatory or other governmental entities to enact new or additional laws or regulations, to issue rulings that invalidate prior laws or regulations, or to increase penalties significantly. Complying with these laws and regulations can be costly and can impede the development and offering of new products and services. For example, the E.U. General Data Protection Regulation (GDPR), which became effective in May 2018, imposes stringent data protection requirements and provides for significant penalties for noncompliance. Additionally, California enacted legislation, the California Consumer Privacy Act (CCPA), which became effective January 1, 2020. The CCPA requires, among other things, covered companies to provide new disclosures to California consumers, and allow such consumers new abilities to opt-out of certain sales of personal data. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. Further, there are a number of new state privacy laws that have gone into effect in 2023, the California Privacy Rights Act, expanding the CCPA to provide for certain obligations with respect to California employee\u2019s sensitive personal data and an expansion of rights, including the right to limit, correct and request deletion of certain sensitive personal data, the Virginia Consumer Data Protection Act, the Utah Consumer Privacy Act, the Colorado Privacy Act and the Connecticut Data Privacy Act, and a number of other states have passed laws that will go into effect in the next few years, including Tennessee, Montana, Indiana and Iowa and many more that are considering similar laws. The new state privacy laws will impose additional data protection obligations on covered businesses, including additional consumer rights, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. The new and proposed privacy laws may result in further uncertainty and would require us to incur additional expenditures to comply. These regulations and legislative developments have potentially far-reaching consequences and may require us to modify our data management practices and incur substantial compliance expense. \nOur failure to comply with applicable laws and regulations or other obligations to which we may be subject relating to personal data, or to protect personal data from unauthorized access, use, or other processing, could result in enforcement actions and regulatory investigations against us, claims for damages by customers and other affected individuals, fines, damage to our reputation, and loss of goodwill, any of which could have a material adverse effect on our operations, financial performance, and business. \nInformation Security, Technology and Intellectual Property Risks\nOur business and operations could be adversely impacted in the event of a failure of information technology infrastructure of ours, our suppliers, customers, vendors or our service providers.\nWe rely upon the capacity, reliability and security of our information technology infrastructure and our ability to expand and continually update this infrastructure in response to our changing needs. In some cases, we rely upon third-party hosting and support services to meet these needs. The internet has experienced increasingly sophisticated and damaging threats in the form of phishing emails, malware, malicious websites, ransomware, exploitation of application vulnerabilities, and nation-state attacks. It is also becoming more common for these attacks to leverage previously unknown vulnerabilities. The growing and evolving cyber-risk environment means that individuals, companies, and organizations of all sizes, including ourselves, our customers, suppliers and our hosting and support partners, are increasingly vulnerable to attacks and disruptions on their networks and systems by a wide range of actors on an ongoing and regular basis. We also design and manage IT systems and products that contain IT systems for various customers, and generally face the same threats for these systems as for our own internal systems.  \n21\nTable of Contents\nWe maintain information security tools and technologies, staff, policies and procedures for managing risk to our networks and information systems, and conduct employee training on cybersecurity to mitigate persistent and continuously evolving cybersecurity threats. Our network security controls are comprised of administrative, physical and technical controls, which include, but are not limited to, the implementation of firewalls, anti-virus protection, patches, log monitors, routine backups, off-site storage, network audits and other routine updates and modifications.  We also routinely monitor and develop our internal information technology systems to address risks to our information systems. Despite our implementation of these and other security measures and those of our third-party vendors, our systems are regularly targeted by bad actors and have been subject to damages from computer viruses, natural disasters, unauthorized access and other similar disruptions and attacks that continue to emerge and evolve. Any system failure, accident or security breach could result in disruptions to our business processes, network degradation, and system down time, along with the potential that a third-party will gain unauthorized access to, or acquire intellectual property, proprietary business information, and data related to our employees, customers, suppliers, and business partners, including personal data. To the extent that any disruption, degradation, downtime or other security event results in a loss or damage to our data or systems, or in inappropriate disclosure of confidential or personal information, it could adversely impact us and our clients, potentially resulting in, among other things, financial losses, loss of customers or business, our inability to transact business on behalf of our clients, adverse impact on our brand and reputation, violations of applicable privacy and other laws, regulatory fines, penalties, litigation, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. We may also incur additional costs related to cybersecurity risk management and remediation. There can be no assurance that we or our service providers, if applicable, will not suffer losses relating to cyber-attacks or other information security breaches in the future or that our insurance coverage will be adequate to cover all the costs resulting from such events. No assurances can be given that our efforts to reduce the risk of such attacks or to detect attacks that occur will be successful. \nIf we have insufficient proprietary rights or if we fail to protect those we have, our business would be materially harmed.\n \nWe seek to protect our products and our product roadmaps in part by developing and/or securing proprietary rights relating to those products, including patents, trade secrets, know-how and continuing technological innovation. The steps taken by us to protect our intellectual property may not adequately prevent misappropriation or ensure that others will not develop competitive technologies or products. Other companies may be investigating or developing other technologies that are similar to our own. It is possible that patents may not be issued from any of our pending applications or those we may file in the future and, if patents are issued, the claims allowed may not be sufficiently broad to deter or prohibit others from making, using or selling products that are similar to ours. We do not own patents in every country in which we sell or distribute our products, and thus others may be able to offer identical products in countries where we do not have intellectual property protection. In addition, the laws of some territories in which our products are or may be developed, manufactured or sold, including Europe, Asia-Pacific or Latin America, may not protect our products and intellectual property rights to the same extent as the laws of the United States. \nAny patents issued to us may be challenged, invalidated or circumvented. Additionally, we are currently a licensee in all of our operating segments for a number of third-party technologies, software and intellectual property rights from academic institutions, our competitors and others, and are required to pay royalties to these licensors for the use thereof. Unless we are able to obtain such licenses on commercially reasonable terms, patents or other intellectual property held by others could inhibit our development of new products, impede the sale of some of our current products, substantially increase the cost to provide these products to our customers, and could have a significant adverse impact on our operating results. In the past, licenses generally have been available to us where third-party technology was necessary or useful for the development or production of our products. In the future licenses to third-party technology may not be available on commercially reasonable terms, if at all. \n22\nTable of Contents\nOur products may be subject to claims that they infringe the intellectual property rights of others.\nLawsuits and allegations of patent infringement and violation of other intellectual property rights occur in our industry on a regular basis. We have received in the past, and anticipate that we will receive in the future, notices from third parties claiming that our products infringe their proprietary rights. Over the past several years there has been a marked increase in the number and potential severity of third-party patent infringement claims, primarily from two distinct sources. First, large technology companies, including some of our customers and competitors, are seeking to monetize their patent portfolios and have developed large internal organizations that have approached us with demands to enter into license agreements. Second, patent-holding companies, entities that do not make or sell products (often referred to as \u201cpatent trolls\u201d), have claimed that our products infringe upon their proprietary rights. We will continue to respond to these claims in the course of our business operations. In the past, the resolution of these disputes has not had a material adverse impact on our business or financial condition; however, this may not be the case in the future. Further, the litigation or settlement of these matters, regardless of the merit of the claims, could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not we are successful. If we are unsuccessful, we could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology that is the subject of the litigation. We may not be successful in such development, or such licenses may not be available on terms acceptable to us, if at all. Without such a license, we could be enjoined from future sales of the infringing product or products, which could adversely affect our revenues and operating results.\nThe use of open-source software in our products, as well as those of our suppliers, manufacturers and customers, may expose us to additional risks and harm our intellectual property position.\nCertain of the software and/or firmware that we use and distribute (as well as that of our suppliers, manufacturers and customers) may be, be derived from, or contain, \u201copen source\u201d software, which is software that is generally made available to the public by its authors and/or other third parties. Such open-source software is often made available under licenses which impose obligations in the event the software or derivative works thereof are distributed or re-distributed. These obligations may require us to make source code for the derivative works available to the public, and/or license such derivative works under a particular type of license, rather than the forms of license customarily used to protect our own software products. In the event that a court rules that these licenses are unenforceable, or in the event the copyright holder of any open source software were to successfully establish in court that we had not complied with the terms of a license for a particular work, we could be required to release the source code of that work to the public and/or stop distribution of that work. Additionally, open-source licenses are subject to occasional revision. In the event future iterations of open-source software are made available under a revised license, such license revisions may adversely affect our ability to use such future iterations. \nEnvironmental, Social and Governance Risks \nWe may be subject to environmental liabilities which could increase our expenses and harm our operating results.\nWe are subject to various federal, state and foreign laws and regulations, including those governing pollution, protection of human health, the environment and recently, those restricting the presence of certain substances in electronic products as well as holding producers of those products financially responsible for the collection, treatment, recycling and disposal of certain products. Such laws and regulations have been passed in several jurisdictions in which we operate, are often complex and are subject to frequent changes. We will need to ensure that we comply with such laws and regulations as they are enacted, as well as all environmental laws and regulations, and as appropriate or required, that our component suppliers also comply with such laws and regulations. If we fail to comply with such laws, we could face sanctions for such noncompliance, and our customers may refuse to purchase our products, which would have a materially adverse effect on our business, financial condition and results of operations. \nWith respect to compliance with environmental laws and regulations in general, we have incurred, and in the future could incur, substantial costs for the cleanup of contaminated properties, either those we own or operate or to which we have sent wastes in the past, or to comply with such environmental laws and regulations. Additionally, we could be subject to disruptions to our operations and logistics as a result of such clean-up or compliance obligations. If we were found to be in violation of these laws, we could be subject to governmental fines and liability for damages resulting from such violations. If we have to make significant capital expenditures to comply with environmental laws, or if we are subject to significant expenditures in connection with a violation of these laws, our financial condition or operating results could be materially adversely impacted. \n23\nTable of Contents\nOur business is subject to evolving regulations and expectations with respect to environmental, social and governance matters that could expose us to numerous risks.\nIncreasingly regulators, customers, investors, employees and other stakeholders are focusing on ESG-related matters and related disclosures. These developments have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting ESG-related requirements and expectations. For example, developing and acting on ESG-related initiatives and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC\u2019s proposed climate-related reporting requirements. We may also communicate certain initiatives and goals regarding ESG-related matters in our SEC filings or in other public disclosures. These ESG-related initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosure. Further, statements about our ESG-related initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG-related goals on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected.\n \nWe may be subject to risks related to climate change, natural disasters and catastrophic events.\nWe operate in geographic regions which face a number of climate and environmental challenges. Our new corporate headquarters is located in Chandler, Arizona, a desert climate, subject to extreme heat and drought. The geographic location of our Northern California offices and production facilities subject them to drought, earthquake and wildfire risks. It is impossible to predict the timing, magnitude or location of such natural disasters or their impacts on the local economy and on our operations. If a major earthquake, wildfire or other natural disaster were to damage or destroy our facilities or manufacturing equipment, we may experience potential impacts ranging from production and shipping delays to lost profits and revenues. In October 2017 and again in October 2019, we temporarily closed our Santa Rosa, California facility resulting in production stoppage, due to wildfires in the region and the facility\u2019s close proximity to the wildfire evacuation zone. The location of our production facility could subject us to production delays and/or equipment and property damage. Moreover, Pacific Gas and Electric (PG&E), the public electric utility in our Northern California region, has previously implemented and may continue to implement widespread blackouts during the peak wildfire season to avoid and contain wildfires sparked during strong wind events by downed power lines or equipment failure. Ongoing blackouts, particularly if prolonged or frequent, could impact our operations going forward.\nRisks Related to our Liquidity and Indebtedness\nAny deterioration or disruption of the capital and credit markets may adversely affect our access to sources of funding.\n       Global economic conditions have caused and may cause volatility and disruptions in the capital and credit markets. When the capital or credit markets deteriorate or are disrupted, our ability to incur additional indebtedness to fund a portion of our working capital needs and other general corporate purposes, or to refinance maturing obligations as they become due, may be constrained. In the event that we were to seek to access the capital markets or other sources of financing, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time, if at all. We may seek to access the capital or credit markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. For example, in December 2021, we entered into a $300 million asset-based secured credit facility which has certain limitations based on our borrowing capacity. Our access to the financial markets and the pricing and terms we receive in the financial markets could be adversely impacted by various factors, including changes in financial markets and interest rates. In addition, if we do access the capital or credit markets, agreements governing any borrowing arrangement could contain covenants restricting our operations.\n24\nTable of Contents\nOur notes increased our overall leverage and our convertible notes could dilute our existing stockholders and lower our reported earnings per share.   \nThe issuance of our 1.00% Senior Convertible Notes due 2024, our 1.625% Senior Convertible Notes due 2026 and our 3.75% Senior Notes due 2029 (together the \u201cNotes\u201d) substantially increased our principal payment obligations. The degree to which we are leveraged could materially and adversely affect our ability to successfully obtain financing for working capital, acquisitions or other purposes and could make us more vulnerable to industry downturns and competitive pressures. In addition, the holders of the 2024 and 2026 Notes are entitled to convert the Notes into shares of our common stock or a combination of cash and shares of common stock under certain circumstances which would dilute our existing stockholders and lower our reported per share earnings. \nOur ability to make payments on our indebtedness when due, to make payments upon conversion with respect to our convertible senior notes or to refinance our indebtedness as we may need or desire, depends on our future performance and our ability to generate cash flow from operations, which is subject to economic, financial, competitive and other factors beyond our control. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive. We may not be able to engage in these activities on desirable terms or at all, which may result in a default on our existing or future indebtedness and harm our financial condition and operating results. \nOur outstanding indebtedness may limit our operational and financial flexibility. \nOur level of indebtedness could have important consequences, including: \n\u2022\nImpairing our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes; \n\u2022\nRequiring us to dedicate a substantial portion of our operating cash flow to paying principal and interest on our indebtedness, thereby reducing the funds available for operations; \n\u2022\nLimiting our ability to grow and make capital expenditures due to the financial covenants contained in our debt arrangements; \n\u2022\nImpairing our ability to adjust rapidly to changing market conditions, invest in new or developing technologies, or take advantage of significant business opportunities that may arise;\n\u2022\nMaking us more vulnerable if a general economic downturn occurs or if our business experiences difficulties; and \n\u2022\nResulting in an event of default if we fail to satisfy our obligations under the Notes or our other debt or fail to comply with the financial and other restrictive covenants contained in the indentures governing the Notes, or any other debt instruments, which event of default could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on our assets securing such debt.\nWe may not generate sufficient cash flow to meet our debt service and working capital requirements, which may expose us to the risk of default under our debt obligations. \nWe will need to implement our business strategy successfully on a timely basis to meet our debt service and working capital needs. We may not successfully implement our business strategy, and even if we do, we may not realize the anticipated results of our strategy and generate sufficient operating cash flow to meet our debt service obligations and working capital needs. In addition, our ability to make scheduled payments on our indebtedness, including the notes, is affected by general and regional economic, financial, competitive, business and other factors beyond our control. \nIn the event our cash flow is inadequate to meet our debt service and working capital requirements, we may be required, to the extent permitted under the indentures covering the Notes and any other debt agreements, to seek additional financing in the debt or equity markets, refinance or restructure all or a portion of our indebtedness, sell selected assets or reduce or delay planned capital or operating expenditures. Any insufficient cash flow may make it more difficult for us to obtain financing on terms that are acceptable to us, or at all. \n25\nTable of Contents\nDespite our current level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt. \nWe and our subsidiaries may be able to incur significant additional indebtedness in the future. The indentures that govern the Notes and the agreement that governs our secured credit facility contain restrictions on the incurrence of additional indebtedness, which are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness under the agreements governing our existing debt.\nThe terms of the indentures that govern the Notes and the agreement that governs our secured credit facility restrict our current and future operations. \nThe indentures governing the Notes and the agreement governing the secured credit facility contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to: \n\u2022\nIncur or guarantee additional indebtedness; \n\u2022\nIncur or suffer to exist liens securing indebtedness; \n\u2022\nMake investments; \n\u2022\nConsolidate, merge or transfer all or substantially all of our assets; \n\u2022\nSell assets; \n\u2022\nPay dividends or other distributions on, redeem or repurchase capital stock; \n\u2022\nEnter into transactions with affiliates; \n\u2022\nAmend, modify, prepay or redeem subordinated indebtedness; \n\u2022\nEnter into certain restrictive agreements; \n\u2022\nEngage in a new line of business; \n\u2022\nAmend certain material agreements, including material leases and debt agreements; and \n\u2022\nEnter into sale leaseback transactions. \nTax Risks\nOur ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations and/or changes in regulations.\nChanges in U.S. federal income or other tax laws or the interpretation of tax laws, including the Inflation Reduction Act of 2022, as recently passed by Congress, may impact our tax liabilities. Utilization of our NOLs and tax credit carryforwards may be subject to a substantial annual limitation if the ownership change limitations under Sections 382 and 383 of the Internal Revenue Code and similar state provisions are triggered by changes in the ownership of our capital stock. In general, an ownership change occurs if there is a cumulative change in our ownership by \u201c5-percent shareholders\u201d that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Accordingly, purchases of our capital stock by others could limit our ability to utilize our NOLs and tax credit carryforwards in the future. \nFurthermore, we may not be able to generate sufficient taxable income to utilize our NOLs and tax credit carryforwards before they expire. Due to uncertainty regarding the timing and extent of our future profitability, we continue to record a valuation allowance to offset our U.S. and certain of our foreign deferred tax assets because of uncertainty related to our ability to utilize our NOLs and tax credit carryforwards before they expire. \n If any of these events occur, we may not derive some or all of the expected benefits from our NOLs and tax credit carryforwards.  \n26\nTable of Contents\nGeneral Risks\nCertain provisions in our charter and under Delaware laws could hinder a takeover attempt.\nWe are subject to the provisions of Section\u202f203 of the Delaware General Corporation Law prohibiting, under some circumstances, publicly-held Delaware corporations from engaging in business combinations with some stockholders for a specified period of time without the approval of the holders of substantially all of our outstanding voting stock. Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, even if such events could be beneficial, in the short-term, to the interests of the stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions providing for the limitations of liability and indemnification of our directors and officers, allowing vacancies on our Board of Directors to be filled by the vote of a majority of the remaining directors, granting our Board of Directors the authority to establish additional series of preferred stock and to designate the rights, preferences and privileges of such shares (commonly known as \u201cblank check preferred\u201d) and providing that our stockholders can take action only at a duly called annual or special meeting of stockholders, which may only be called by the Chairman of the Board, the Chief Executive Officer or the Board of Directors. These provisions may also have the effect of deterring hostile takeovers or delaying changes in control or change in our management. \n \n27\nTable of Contents",
+  "item7": ">ITEM 7.\u00a0\u00a0\u00a0\u00a0MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThe following discussion and analysis summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and capital resources during the period ended July 1, 2023. Unless otherwise noted, all references herein for the years 2023, 2022,and 2021 represent the fiscal years ended July 1, 2023, July 2, 2022, and July 3, 2021, respectively. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting estimates affect our financial statements. Factors that could cause or contribute to these differences include those discussed below and in this Annual Report on Form 10-K, particularly in \u201cRisk Factors\u201d and \u201cForward-Looking Statements.\u201d\n \nThis discussion should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements included in this Annual Report that have been prepared in accordance with accounting principles generally accepted in the United States of America. Our actual results could differ materially from those discussed in the forward-looking statements. \nOVERVIEW\nWe are a global provider of network test, monitoring, and assurance solutions for communications service providers (CSPs), hyperscalers, network equipment manufacturers (NEMs), original equipment manufacturers (OEMs), government and avionics. We help these customers harness the power of instruments, automation, intelligence, and virtualization. VIAVI is also a leader in light management technologies for 3D sensing for the anti-counterfeiting, consumer electronics, industrial, automotive, government and aerospace applications.\nTo serve our markets, we operate the following business segments: \n\u2022\nNetwork Enablement (NE); \n\u2022\nService Enablement (SE); and \n\u2022\nOptical Security and Performance Products (OSP).\nDuring fiscal 2023, we experienced a constrained demand outlook and continued inflationary pressures. Weakness in CSP and NEM spending created headwinds for our NE segment. Softening demand for anti-counterfeiting driven by fiscal tightening as central banks continue to normalize currency printing from elevated levels during the pandemic created pressure on OSP revenues. Despite the slowdown in overall service provider spend, some service providers have begun to free up funds for network maintenance and optimization, which benefits VIAVI\u2019s NSE business segment. \nAny prolonged disruption of manufacturing of our products, commerce and related activity or significant decrease in demand for our products could materially and adversely affect our results of business, operations, and financial conditions.\nOur financial results and long-term growth model will continue to be driven by revenue growth, non-GAAP operating income, non-GAAP operating margin, non-GAAP diluted earnings per share (EPS) and cash flow from operations. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies. \n31\nTable of Contents\nLooking Ahead to 2024\nAs we look forward to the year ahead, our focus remains on executing against our strategic priorities to drive revenue and earnings growth, capture market share and continue to optimize our capital structure. We remain positive on our long-term growth drivers in 5G Wireless, Fiber, 3D Sensing and Resilient Position, Navigation and Timing (PNT). We will continue to focus on executing against our strategic priorities highlighted during our September 2022 Analyst Day Event such as our plans to:\n\u2022    Defend and consolidate leadership in core business segments;\n\u2022    Invest in secular trends to drive growth and expand Total Addressable Market (TAM);\n\u2022    Extend VIAVI technologies and platforms into adjacent markets and applications; and\n\u2022   Continue productivity improvement in Operations, Research & Development (R&D) and Selling, General  and Administrative (SG&A).\nFINANCIAL HIGHLIGHTS\nOur fiscal 2023 results included the following notable items:\n\u2022\nNet revenues of $1.1 billion, down $186.3 million or 14.4% year-over-year\n\u2022\nGAAP operating margin of 7.4%, down 690 bps year-over-year\n\u2022\nNon-GAAP operating margin of 15.6%, down 660 bps year-over-year\n\u2022\nGAAP Diluted EPS of $0.11, up $0.04 or 57.1% year-over-year\n\u2022\nNon-GAAP Diluted EPS of $0.55, down $0.40 or 42.1% year-over-year \nIn fiscal 2023, VIAVI experienced a constrained demand outlook and end market volatility. Net revenue of $1.1 billion, down $186.3 million or 14.4%, demonstrated the challenging macro-economic environment faced by our NE and OSP segments.  \nVIAVI's fiscal 2023 GAAP operating margin of 7.4% was down 690 bps compared to fiscal 2022 due to the decline in revenues, partially offset by lower operating expenses. Non-GAAP operating margin of 15.6% decreased 660 basis points largely due to a decline in revenue partially offset by lower operating expenses.\nGAAP Diluted EPS of $0.11 increased 57.1%, or $0.04, from fiscal 2022 largely due to the loss incurred in connection with the repurchase of certain 1.00% and 1.75% Senior Convertible Notes in fiscal 2022. Non-GAAP Diluted EPS of $0.55 decreased 42.1% or $0.40 from a record of $0.95 in fiscal 2022 due to the decline in revenues. \nIn fiscal 2023, we generated $114.1 million in operating cash flow and deployed $51.1 million or 4.6% of revenues towards capital expenditures. We further improved our balance sheet by retiring the remaining 1.75% 2023 Senior Convertible Notes and partially exchanging the 1.0% 2024 Senior Convertible Notes at comparable terms into 1.625% 2026 Senior Convertible Notes. We continued to execute our capital allocation strategy by deploying $72.3 million towards acquisitions and also repurchasing 7.3 million shares of our common stock for $83.9 million.\n32\nTable of Contents\nA reconciliation of GAAP\n \nfinancial measures to Non-GAAP financial measures is provided below (in millions, except EPS amounts):\n\u00a0\nYears Ended\n\u00a0\nJuly 1, 2023\nJuly 2, 2022\n\u00a0\nOperating Income\nOperating Margin\nOperating Income\nOperating Margin\nGAAP measures\n$\n82.4\u00a0\n7.4\u00a0\n%\n$\n185.0\u00a0\n14.3\u00a0\n%\nStock-based compensation\n51.2\u00a0\n4.7\u00a0\n%\n52.3\u00a0\n4.1\u00a0\n%\nChange in fair value of contingent liability\n(4.5)\n(0.4)\n%\n0.3\u00a0\n\u2014\u00a0\n%\nOther (benefits) charges unrelated to core operating performance\n(1)\n(2.0)\n(0.2)\n%\n9.6\u00a0\n0.7\u00a0\n%\nAmortization of intangibles\n33.3\u00a0\n3.0\u00a0\n%\n39.7\u00a0\n3.1\u00a0\n%\nRestructuring and related charges (benefits)\n12.1\u00a0\n1.1\u00a0\n%\n(0.1)\n\u2014\u00a0\n%\nTotal related to Cost of Revenue and Operating Expenses\n90.1\u00a0\n8.2\u00a0\n%\n101.8\u00a0\n7.9\u00a0\n%\nNon-GAAP measures\n$\n172.5\u00a0\n15.6\u00a0\n%\n$\n286.8\u00a0\n22.2\u00a0\n%\n\u00a0\nYears Ended\n\u00a0\nJuly 1, 2023\nJuly 2, 2022\n\u00a0\nNet Income\nDiluted\n\u00a0EPS\nNet Income\nDiluted\n\u00a0EPS\nGAAP measures\n$\n25.5\u00a0\n$\n0.11\u00a0\n$\n15.5\u00a0\n$\n0.07\u00a0\nItems reconciling GAAP net income and EPS to non-GAAP net income and EPS:\nStock-based compensation\n51.2\u00a0\n0.23\u00a0\n52.3\u00a0\n0.22\u00a0\nChange in fair value of contingent liability\n(4.5)\n(0.02)\n0.3\u00a0\n\u2014\u00a0\nOther (benefits) charges unrelated to core operating performance\n(1)\n(2.0)\n(0.01)\n9.6\u00a0\n0.04\u00a0\nAmortization of intangibles\n33.3\u00a0\n0.15\u00a0\n39.7\u00a0\n0.17\u00a0\nRestructuring and related charges (benefits)\n12.1\u00a0\n0.05\u00a0\n(0.1)\n\u2014\u00a0\nNon-cash interest expense and other expense \n(2)\n3.9\u00a0\n0.02\u00a0\n102.2\u00a0\n0.43\u00a0\nBenefit from income taxes\n5.2\u00a0\n0.02\u00a0\n5.8\u00a0\n0.02\u00a0\nTotal related to Net income and EPS\n99.2\u00a0\n0.44\u00a0\n209.8\u00a0\n0.88\u00a0\nNon-GAAP measures \n$\n124.7\u00a0\n$\n0.55\u00a0\n$\n225.3\u00a0\n$\n0.95\u00a0\nShares used in per share calculation for Non-GAAP EPS\n226.6\u00a0\n238.2\u00a0\n(1) Other items include (benefits) charges unrelated to core operating performance primarily consisting of certain acquisition and integration related charges, transformational initiatives such as site consolidations, accretion of debt discount, intangible impairment and loss on disposal of long-lived assets.\n(2) The Company incurred a loss of $2.2 million for the twelve months ended July 1, 2023 in connection with the modification of certain 1.00% Senior Convertible Notes. The Company incurred a loss of $101.8M for the twelve months ended July 2, 2022 in connection with the repurchase of certain 1.00% and 1.75% Senior Convertible Notes. The Company eliminates this in calculating non-GAAP net income and non-GAAP EPS, because it believes that in so doing, it can provide investors a clearer and more consistent view of the Company\u2019s core operating performance.\nUse of Non-GAAP (Adjusted) Financial Measures\nThe Company provides non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP EPS financial measures as supplemental information regarding the Company\u2019s operational performance. The Company uses the measures disclosed in this Report to evaluate the Company\u2019s historical and prospective financial performance, as well as its performance relative to its competitors. Specifically, management uses these items to further its own understanding of the Company\u2019s core operating performance, which the Company believes represent its performance in the ordinary, ongoing and customary course of its operations. Accordingly, management excludes from core operating performance items such as those relating to certain purchase price accounting adjustments, amortization of acquisition-related intangibles, stock-based compensation, legal settlements, restructuring, changes in fair value of contingent consideration liabilities and certain investing expenses and other activities that management believes are not reflective of such ordinary, ongoing and core operating activities.  \u00a0\n33\nTable of Contents\nThe Company believes providing this additional information allows investors to see Company results through the eyes of management. The Company further believes that providing this information allows investors to better understand the Company\u2019s financial performance and, importantly, to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.\nThe non-GAAP adjustments described in this report are excluded by the Company from its GAAP financial measures because the Company believes excluding these items enables investors to evaluate more clearly and consistently the Company\u2019s core operational performance. The non-GAAP adjustments are outlined below.\n\u00a0\nCost of revenues, costs of research and development and costs of selling, general and administrative\n: The Company\u2019s GAAP presentation of operating expenses may include (i) additional depreciation and amortization from changes in estimated useful life and the write-down of certain property, equipment and intangibles that have been identified for disposal but remained in use until the date of disposal, (ii) workforce related charges such as severance, retention bonuses and employee relocation costs related to formal restructuring plans, (iii) costs for facilities not required for ongoing operations, and costs related to the relocation of certain equipment from these facilities and/or contract manufacturer facilities, (iv) stock-based compensation, (v) amortization expense related to acquired intangibles, (vi) changes in fair value of contingent consideration liabilities and (vii) other charges unrelated to our core operating performance comprised mainly of acquisition related transaction costs, integration costs related to acquired entities, litigation and legal settlements and other costs and contingencies unrelated to current and future operations, including transformational initiatives such as the implementation of simplified automated processes, site consolidations, and reorganizations. The Company excludes these items in calculating non-GAAP operating margin, non-GAAP net income and non-GAAP EPS.\nNon-cash interest expense and other expense\n: The Company excludes certain investing expenses and non-cash activities that management believes are not reflective of such ordinary, ongoing and core operating activities, in calculating non-GAAP net income and non-GAAP EPS.\nIncome tax expense or benefit\n: The Company excludes certain non-cash tax expense or benefit items, such as the utilization of net operating losses where valuation allowances were released, intra-period tax allocation benefit and the tax effect for amortization of non-tax deductible intangible assets, in calculating non-GAAP net income and non-GAAP EPS.\nNon-GAAP financial measures are not in accordance with, preferable to, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP operating income is operating income. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net income is net income. The GAAP measure most directly comparable to non-GAAP EPS is earnings per share. The Company believes these GAAP measures alone are not fully indicative of its core operating expenses and performance and that providing non-GAAP financial measures in conjunction with GAAP measures provides valuable supplemental information regarding the Company\u2019s overall performance.\n34\nTable of Contents\nRESULTS OF OPERATIONS\nThis section of this Annual Report on Form 10-K generally discusses the results of operations for the fiscal year ended \nJuly 1, 2023\n and \nJuly 2, 2022\n and year-to-year comparisons between such fiscal years. Discussions of the year-to-year comparisons between the fiscal year ended \nJuly 2, 2022\n and July 3, 2021, that are not included in this Annual Report on Form 10-K, can be found in \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended \nJuly 2, 2022\n. \nThe results of operations for the current period are not necessarily indicative of results to be expected for future periods. The following table summarizes selected Consolidated Statements of Operations items as a percentage of net revenue:\nYears Ended\nJuly 1, 2023\nJuly 2, 2022\nJuly 3, 2021\nSegment net revenue:\nNetwork Enablement\n63.0\u00a0\n%\n65.4\u00a0\n%\n62.3\u00a0\n%\nService Enablement\n9.4\u00a0\n8.0\u00a0\n7.6\u00a0\nOptical Security and Performance\n27.6\u00a0\n26.6\u00a0\n30.1\u00a0\nNet revenue\n100.0\u00a0\n100.0\u00a0\n100.0\u00a0\nCost of revenues\n40.0\u00a0\n37.9\u00a0\n37.6\u00a0\nAmortization of acquired technologies\n2.2\u00a0\n2.3\u00a0\n2.8\u00a0\nGross profit\n57.8\u00a0\n59.8\u00a0\n59.6\u00a0\nOperating expenses:\nResearch and development\n18.7\u00a0\n16.5\u00a0\n16.9\u00a0\nSelling, general and administrative\n29.7\u00a0\n28.3\u00a0\n28.2\u00a0\nAmortization of other intangibles\n0.8\u00a0\n0.7\u00a0\n2.8\u00a0\nRestructuring and related  charges (benefits)\n1.2\u00a0\n\u2014\u00a0\n(0.1)\nTotal operating expenses\n50.4\u00a0\n45.5\u00a0\n47.8\u00a0\nIncome from operations\n7.4\u00a0\n14.3\u00a0\n11.8\u00a0\nLoss on convertible note settlement\n\u2014\u00a0\n(7.9)\n\u2014\u00a0\nLoss on convertible note modification\n(0.2)\n\u2014\u00a0\n\u2014\u00a0\nInterest and other income, net\n0.7\u00a0\n0.4\u00a0\n0.3\u00a0\nInterest expense\n(2.4)\n(1.8)\n(1.2)\nIncome before income taxes\n5.5\u00a0\n5.0\u00a0\n10.9\u00a0\nProvision for income taxes\n3.2\u00a0\n3.8\u00a0\n5.3\u00a0\nNet income\n2.3\u00a0\n%\n1.2\u00a0\n%\n5.6\u00a0\n%\n35\nTable of Contents\nFinancial Data for Fiscal 2023, 2022 and 2021\nThe following table summarizes selected Consolidated Statement of Operations items (\nin millions, except for percentages\n):\n2023\n2022\nChange\nPercent Change\n2022\n2021\nChange\nPercent Change\nSegment net revenue:\nNE\n$\n697.5\u00a0\n$\n845.8\u00a0\n$\n(148.3)\n(17.5)\n%\n$\n845.8\u00a0\n$\n746.6\u00a0\n$\n99.2\u00a0\n13.3\u00a0\n%\nSE\n103.7\u00a0\n103.3\u00a0\n0.4\u00a0\n0.4\u00a0\n%\n103.3\u00a0\n91.3\u00a0\n12.0\u00a0\n13.1\u00a0\n%\nOSP\n304.9\u00a0\n343.3\u00a0\n(38.4)\n(11.2)\n%\n343.3\u00a0\n361.0\u00a0\n(17.7)\n(4.9)\n%\nNet revenue\n$\n1,106.1\u00a0\n$\n1,292.4\u00a0\n$\n(186.3)\n(14.4)\n%\n$\n1,292.4\u00a0\n$\n1,198.9\u00a0\n$\n93.5\u00a0\n7.8\u00a0\n%\nAmortization of acquired technologies\n$\n24.6\u00a0\n$\n30.0\u00a0\n$\n(5.4)\n(18.0)\n%\n$\n30.0\u00a0\n$\n33.2\u00a0\n$\n(3.2)\n(9.6)\n%\nPercentage of net revenue\n2.2\u00a0\n%\n2.3\u00a0\n%\n2.3\u00a0\n%\n2.8\u00a0\n%\nGross profit\n$\n638.8\u00a0\n$\n773.5\u00a0\n$\n(134.7)\n(17.4)\n%\n$\n773.5\u00a0\n$\n714.4\u00a0\n$\n59.1\u00a0\n8.3\u00a0\n%\nGross margin\n57.8\u00a0\n%\n59.8\u00a0\n%\n59.8\u00a0\n%\n59.6\u00a0\n%\nResearch and development\n$\n206.9\u00a0\n$\n213.2\u00a0\n$\n(6.3)\n(3.0)\n%\n$\n213.2\u00a0\n$\n203.0\u00a0\n$\n10.2\u00a0\n5.0\u00a0\n%\nPercentage of net revenue\n18.7\u00a0\n%\n16.5\u00a0\n%\n16.5\u00a0\n%\n16.9\u00a0\n%\nSelling, general and administrative\n$\n328.7\u00a0\n$\n365.7\u00a0\n$\n(37.0)\n(10.1)\n%\n$\n365.7\u00a0\n$\n337.5\u00a0\n$\n28.2\u00a0\n8.4\u00a0\n%\nPercentage of net revenue\n29.7\u00a0\n%\n28.3\u00a0\n%\n28.3\u00a0\n%\n28.2\u00a0\n%\nAmortization of intangibles\n$\n8.7\u00a0\n$\n9.7\u00a0\n$\n(1.0)\n(10.3)\n%\n$\n9.7\u00a0\n$\n33.3\u00a0\n$\n(23.6)\n(70.9)\n%\nPercentage of net revenue\n0.8\u00a0\n%\n0.7\u00a0\n%\n0.7\u00a0\n%\n2.8\u00a0\n%\nRestructuring and related charges (benefits)\n$\n12.1\u00a0\n$\n(0.1)\n$\n12.2\u00a0\nNM\n$\n(0.1)\n$\n(1.6)\n$\n1.5\u00a0\n(93.8)\n%\nPercentage of net revenue\n1.2\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n(0.1)\n%\nLoss on convertible note settlement\n$\n\u2014\u00a0\n$\n(101.8)\n$\n101.8\u00a0\nNM\n$\n(101.8)\n$\n\u2014\u00a0\n$\n(101.8)\nNM\nPercentage of net revenue\n\u2014\u00a0\n%\n(7.9)\n%\n(7.9)\n%\n\u2014\u00a0\n%\nLoss on convertible note modification\n$\n(2.2)\n$\n\u2014\u00a0\n$\n(2.2)\nNM\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n\u2014\u00a0\n%\nPercentage of net revenue\n(0.2)\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\nInterest and other income, net\n$\n7.6\u00a0\n$\n5.2\u00a0\n$\n2.4\u00a0\n46.2\u00a0\n%\n$\n5.2\u00a0\n$\n3.3\u00a0\n$\n1.9\u00a0\n57.6\u00a0\n%\nPercentage of net revenue\n0.7\u00a0\n%\n0.4\u00a0\n%\n0.4\u00a0\n%\n0.3\u00a0\n%\nInterest expense\n$\n(27.1)\n$\n(23.3)\n$\n(3.8)\n16.3\u00a0\n%\n$\n(23.3)\n$\n(14.7)\n$\n(8.6)\n58.5\u00a0\n%\nPercentage of net revenue\n(2.5)\n%\n(1.8)\n%\n(1.8)\n%\n(1.2)\n%\nProvision for income taxes\n$\n35.2\u00a0\n$\n49.6\u00a0\n$\n(14.4)\n(29.0)\n%\n$\n49.6\u00a0\n$\n63.3\u00a0\n$\n(13.7)\n(21.6)\n%\nPercentage of net revenue\n3.2\u00a0\n%\n3.8\u00a0\n%\n3.8\u00a0\n%\n5.3\u00a0\n%\n36\nTable of Contents\nForeign\u00a0Currency\u00a0Impact\u00a0on Results of Operations\nWhile the majority of our net revenue and operating expenses are denominated in U.S. dollar, a portion of our international operations are denominated in currencies other than the U.S. dollar. Changes in foreign exchange rates may significantly affect revenue and expenses. While we use foreign currency hedging contracts to mitigate some foreign currency exchange risk, these activities are limited in the protection that they provide us and can themselves result in losses. We have presented below \u201cconstant dollar\u201d comparisons of our net sales and operating expenses which exclude the impact of currency exchange rate fluctuations. Constant dollar net revenue and operating expenses are non-GAAP financial measures, which is information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. GAAP. Our management believes these non-GAAP measures, when considered in conjunction with the corresponding U.S. GAAP measures, may facilitate a better understanding of changes in net revenue and operating expenses. \nFiscal 2023 and 2022\nIf currency exchange rates had been constant in fiscal 2023 and 2022, our consolidated net revenue in \u201cconstant dollars\u201d would have increased by approximately $23.0 million, or 2.1% of net revenue, which primarily impacted our NE and SE segments. The impact of foreign currency fluctuations on net revenue was not indicative of the impact on net income due to the offsetting\u00a0foreign\u00a0currency\u00a0impact\u00a0on operating costs and expenses. If currency exchange rates had been constant in fiscal 2023 and 2022, our consolidated operating expenses in \u201cconstant dollars\u201d would have increased by approximately $17.5 million, or 1.6% of net revenue.\nThe Results of Operations are presented in accordance with U.S. GAAP and not using constant dollars. Refer to Item 7A \u201cQualitative and Quantitative Disclosures about Market Risk\u201d of this Annual Report on Form 10-K for further details on foreign currency instruments and our related risk management strategies.\nNet Revenue\nRevenue from our service offerings exceeds 10% of our total consolidated net revenue and is presented separately in our Consolidated Statements of Operations. Service revenue primarily consists of maintenance and support, extended warranty, professional services and post-contract support in addition to other services such as calibration and repair services. When evaluating the performance of our segments, management focuses on total net revenue, gross profit and operating income and not the product or service categories. Consequently, the following discussion of business segment performance focuses on total net revenue, gross profit, and operating income consistent with our approach for managing the business.\nFiscal 2023 and 2022\nNet revenue decreased $186.3 million, or 14.4%, during fiscal 2023 when compared to fiscal 2022. This decrease was primarily driven by lower volumes in NE and OSP, partially offset by an increase in SE.\nProduct revenues\u00a0decreased\u00a0$199.4 million, or\u00a017.6%, during fiscal 2023 when compared to fiscal 2022, driven by volume decline in all segments. \nService revenues\u00a0increased\u00a0$13.1 million, or\u00a08.3%, during fiscal 2023 when compared to fiscal 2022. This increase was primarily due to increased support revenue from our NSE segment, offset by a declines in our OSP segment.\nGoing forward, we expect to continue to encounter a number of industry and market risks and uncertainties.  For example, uncertainty around the timing of our customers procurement decisions on infrastructure maintenance and upgrades and decisions on new infrastructure investments or uncertainty about speed of adoption of 5G technology at a commercially viable scale. This may limit our visibility, and consequently, our ability to predict future revenue, seasonality, profitability, and general financial performance, which could create period-over-period variability in our financial measures and present foreign exchange rate risks.\n37\nTable of Contents\nWe cannot predict when or to what extent these uncertainties will be resolved. Our revenues, profitability, and general financial performance may also be affected by: (a) pricing pressures due to, among other things, a highly concentrated customer base, increasing competition, particularly from Asia-based competitors, and a general commoditization trend for certain products; (b) product mix variability in our NE and SE markets, which affects revenue and gross margin; (c) fluctuations in customer buying patterns, which cause demand, revenue and profitability volatility; (d) the current trend of communication industry consolidation, which is expected to continue, that directly affects our NE and SE customer bases and adds additional risk and uncertainty to our financial and business projections; (e) chip component shortages, supply chain and shipping logistic constraints; (f) the impact of ongoing global trade policies, tariffs and sanctions; and (g) regulatory or economic developments and/or technology challenges that slow or change the rate of adoption of 5G, 3D Sensing and other emerging secular technologies and platforms.\nRevenue by Region\nWe operate in three geographic regions, including the Americas, Asia-Pacific and Europe Middle East and Africa (EMEA). Net revenue is assigned to the geographic region and country where our product is initially shipped. For example, certain customers may request shipment of our product to a contract manufacturer in one country, which may differ from the location of their end customers. The following table presents net revenue by the three geographic regions we operate in and net revenue from countries that exceeded 10% of our total net revenue\u00a0\n(in millions)\n:\n\u00a0\nYears Ended\n\u00a0\nJuly 1, 2023\nJuly 2, 2022\nJuly 3, 2021\nAmericas:\nUnited States\n$\n362.9\u00a0\n32.8\u00a0\n%\n$\n388.9\u00a0\n30.1\u00a0\n%\n$\n330.0\u00a0\n27.5\u00a0\n%\nOther Americas\n75.2\u00a0\n6.8\u00a0\n%\n96.8\u00a0\n7.5\u00a0\n%\n85.6\u00a0\n7.2\u00a0\n%\nTotal Americas\n$\n438.1\u00a0\n39.6\u00a0\n%\n$\n485.7\u00a0\n37.6\u00a0\n%\n$\n415.6\u00a0\n34.7\u00a0\n%\nAsia-Pacific:\nGreater China\n$\n210.9\u00a0\n19.1\u00a0\n%\n$\n256.4\u00a0\n19.8\u00a0\n%\n$\n277.0\u00a0\n23.1\u00a0\n%\nOther Asia-Pacific\n166.6\u00a0\n15.0\u00a0\n%\n205.3\u00a0\n15.9\u00a0\n%\n133.5\u00a0\n11.1\u00a0\n%\nTotal Asia-Pacific\n$\n377.5\u00a0\n34.1\u00a0\n%\n$\n461.7\u00a0\n35.7\u00a0\n%\n$\n410.5\u00a0\n34.2\u00a0\n%\nEMEA:\n$\n290.5\u00a0\n26.3\u00a0\n%\n$\n345.0\u00a0\n26.7\u00a0\n%\n$\n372.8\u00a0\n31.1\u00a0\n%\nTotal net revenue\n$\n1,106.1\u00a0\n100.0\u00a0\n%\n$\n1,292.4\u00a0\n100.0\u00a0\n%\n$\n1,198.9\u00a0\n100.0\u00a0\n%\nNet revenue from customers outside the Americas for fiscal 2023, represented 60.4% of net revenue, a decrease of 2.0% year-over-year. This decrease is due to larger declines in revenues from Asia-Pacific and EMEA compared to the decline in the Americas. We expect revenue from customers outside of the United States to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth opportunities.\n38\nTable of Contents\nAmortization of Acquired Technologies (Cost of revenues)\nAmortization of acquired technologies within Cost of revenues for fiscal 2023 decreased $5.4 million, or 18.0%, to $24.6 million from $30.0 million in fiscal 2022. This decrease is primarily due to intangible assets becoming fully amortized in fiscal 2022 offset by amortization of intangibles acquired through current year acquisitions.\nGross Margin\nGross margin in fiscal 2023 declined 2.0% to 57.8% from 59.8% in fiscal 2022. This decrease was primarily driven by lower volume and product mix.\nAs discussed in more detail under \u201cNet Revenue\u201d above, we sell products in certain markets that are consolidating, undergoing product, architectural and business model transitions, have high customer concentrations, are highly competitive (increasingly due to Asia-Pacific-based competition), are price sensitive and/or are affected by customer seasonal and mix variant buying patterns. We expect these factors to continue to result in variability of our gross margin.\nResearch and Development\nR&D expense decreased $6.3 million, or 3.0%, during fiscal 2023 compared to fiscal 2022. This decrease was primarily driven by variable expense reductions. As a percentage of net revenue, R&D increased 2.2% during fiscal 2023 when compared to fiscal 2022.\nWe believe that continuing our investments in R&D is critical to attaining our strategic objectives. We plan to continue to invest in R&D and new products that will further differentiate us in the marketplace.\nSelling, General and Administrative\nSG&A expense decreased $37.0 million, or 10.1%, in fiscal 2023 compared to fiscal 2022. This decrease was driven by the reversal of the U.K. pension accrued liability, fair value adjustment of contingent consideration related to acquisitions, lower commission expense, variable pay and outside service expenses. As a percentage of net revenue, SG&A increased 1.5% in fiscal 2023 when compared to 2022.\nWe intend to continue to focus on reducing our SG&A expense as a percentage of net revenue. However, we have in the recent past experienced, and may continue to experience in the future, certain charges unrelated to our core operating performance, such as acquisitions and integration related expenses and litigation expenses, which could increase our SG&A expenses and potentially impact our profitability expectations in any particular quarter.\nAmortization of  Intangibles (Operating expenses)\nAmortization of intangibles within Operating expenses for fiscal 2023 decreased $1.0 million, or 10.3%, to $8.7 million from $9.7 million in fiscal 2022. This decrease is primarily due to intangible assets becoming fully amortized in fiscal 2022 offset by amortization of intangibles acquired through current year acquisitions.\nAcquired In-Process Research and Development\nIn accordance with authoritative guidance, we recognize acquired in-process research and development (IPR&D) at fair value as of the acquisition date, and subsequently account for it as an indefinite-lived intangible asset until completion or abandonment of the associated R&D efforts. We periodically review the stage of completion and likelihood of success of each IPR&D project. The nature of the efforts required to develop IPR&D projects into commercially viable products principally relates to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements.\n39\nTable of Contents\nRestructuring and Related Charges\nThe Company restructuring events are primarily intended to reduce costs, consolidate operations, integrate various acquisitions, streamline product manufacturing and address market conditions. During the second quarter of fiscal 2023, Management approved a restructuring and workforce reduction plan (the Fiscal 2023 Plan) to better align the Company\u2019s workforce with current business needs and strategic growth opportunities. The Company expects approximately 5% of its global workforce to be affected. We estimate annualized gross cost savings of approximately $28.0 million excluding any one-time charges as a result of the restructuring activities initiated under the Plan. Refer to \u201cNote 13. Restructuring and Related Charges\u201d for more information.\nAs of July 1, 2023, our total restructuring accrual was $5.8 million. During fiscal 2023, we recorded charges and other adjustments of $12.1 million related to the Fiscal 2023 Plan. Restructuring charges consisting of severance, benefit and outplacement costs were recorded to the Restructuring and related charges (benefits) line within our Consolidated Statements of Operations. These charges are primarily the result of the following:\ni.\nThe first phase of the Fiscal 2023 Plan impacted all segments and corporate functions. The Company anticipates this phase of the Fiscal 2023 Plan to be substantially complete by the end of the first quarter of fiscal 2024. \nii. \u00a0\u00a0\u00a0\u00a0\nThe second phase of the Fiscal 2023 Plan is primarily focused on reducing costs in our SE segment. The Company anticipates this phase of the Fiscal 2023 Plan to be substantially complete by the end of the second quarter of fiscal 2024. \nWe estimate future cash payments of $6.0 million under the Fiscal 2023 Plan during fiscal 2024, funded by operating cash flow. Future charges under the Fiscal 2023 Plan are not expected to be material.\nDuring fiscal 2022 and 2021, the Company recorded a benefit related to other restructuring actions of $0.1 million and $1.6 million, respectively.\nLoss on Convertible Note Modification\nDuring fiscal 2023, the Company exchanged $127.5 million principal value of its 1.00% Senior Convertible Notes due 2024 for $132.0 million principal value of its 1.625% Senior Convertible Notes due 2026 and issued $118.0 million principal value of its 1.625% Senior Convertible Notes due 2026 for cash. The Company incurred $4.2 million of issuance costs related to the transaction, of which $2.2 million of the issuance costs were recorded as Loss on convertible note modification in the Consolidated Statements of Operations. The remaining issuance costs of $2.0 million was capitalized within Long-term debt (as a contra-balance) on the Consolidated Balance Sheets and will be amortized as an adjustment to interest expense on a straight-line basis until maturity.\nLoss on Convertible Note Settlement\nDuring fiscal 2022, the Company entered into separate privately-negotiated agreements with certain holders of its 1.75% Senior Convertible Notes due 2023 and 1.00% Senior Convertible Notes due 2024. The Company paid an aggregate of 10.6 million shares of its common stock, par value $0.001 per share, and $347.3 million in cash in exchange for $156.9 million principal amount of the 2023 Notes and $236.1 million principal amount of the 2024 Notes. The Company recorded a loss of $101.8 million in connection with the settlement transactions.\nInterest and Other Income, Net\nInterest and other income, net was $7.6 million in fiscal 2023 as compared to $5.2 million in fiscal 2022. This $2.4 million increase was primarily driven by higher interest income offset by an unfavorable foreign exchange impact as the balance sheet hedging program provided a less favorable offset to the remeasurement of underlying foreign exchange exposures during the current period.\nInterest Expense\nInterest expense increased $3.8 million, or 16.3%, during fiscal 2023 compared to fiscal 2022. This increase was primarily driven by full year interest expense on the Senior Notes due 2029 in the current period as a result of the issuance in September 2021 and the accretion of debt discount on the Senior Convertible Notes due 2026 as a result of the issuance in March 2023 offset by lower interest expense on our convertible notes as a result of convertible notes settlement transactions during fiscal 2022.\n40\nTable of Contents\nProvision for Income Tax\nWe recorded an income tax provision of $35.2 million for fiscal 2023.  The expected tax provision derived by applying the federal statutory rate to our income before income taxes for fiscal 2023 differed from the income tax expense recorded primarily due to valuation allowances in addition to withholding taxes, foreign tax rates higher than the federal statutory rate and the U.S. inclusion of foreign earnings.\nBased on a jurisdiction-by-jurisdiction review of anticipated future income and due to the continued economic uncertainty in the industry, management has determined that in the U.S., it is more likely than not that our net deferred tax assets will not be realized. During fiscal 2023, the valuation allowance for deferred tax assets increased by $30.7 million which was primarily due to the increase in capitalization of federal research expenditures in the U.S.\nThe decrease in income tax provision of $14.4 million or 29.0% during fiscal 2023 was due primarily to a reduction in foreign earnings in the current year as compared to the fiscal 2022 foreign earnings and a charge of $13.2 million related to internal intellectual properties restructuring. \nWe are routinely subject to various federal, state and foreign audits by taxing authorities. We believe that adequate amounts have been provided for any adjustments that may result from these examinations.\nOperating Segment Information\n (\nin millions\n):\n\u00a0\n2023\n2022\nChange\nPercentage Change\n2022\n2021\nChange\nPercentage Change\nNE\nNet revenue\n$\n697.5\u00a0\n$\n845.8\u00a0\n$\n(148.3)\n(17.5)\n%\n$\n845.8\u00a0\n$\n746.6\u00a0\n$\n99.2\u00a0\n13.3\u00a0\n%\nGross profit\n440.1\u00a0\n543.6\u00a0\n(103.5)\n(19.0)\n%\n543.6\u00a0\n474.2\u00a0\n69.4\u00a0\n14.6\u00a0\n%\nGross margin\n63.1\u00a0\n%\n64.3\u00a0\n%\n64.3\u00a0\n%\n63.5\u00a0\n%\nSE\nNet revenue\n$\n103.7\u00a0\n$\n103.3\u00a0\n$\n0.4\u00a0\n0.4\u00a0\n%\n$\n103.3\u00a0\n$\n91.3\u00a0\n$\n12.0\u00a0\n13.1\u00a0\n%\nGross profit\n70.1\u00a0\n71.5\u00a0\n(1.4)\n(2.0)\n%\n71.5\u00a0\n59.9\u00a0\n11.6\u00a0\n19.4\u00a0\n%\nGross margin\n67.6\u00a0\n%\n69.2\u00a0\n%\n69.2\u00a0\n%\n65.6\u00a0\n%\nNSE\nNet revenue\n$\n801.2\u00a0\n$\n949.1\u00a0\n$\n(147.9)\n(15.6)\n%\n$\n949.1\u00a0\n$\n837.9\u00a0\n$\n111.2\u00a0\n13.3\u00a0\n%\nOperating income\n61.2\u00a0\n147.8\u00a0\n(86.6)\n(58.6)\n%\n147.8\u00a0\n92.2\u00a0\n55.6\u00a0\n60.3\u00a0\n%\nOperating margin\n7.6\u00a0\n%\n15.6\u00a0\n%\n15.6\u00a0\n%\n11.0\u00a0\n%\nOSP\nNet revenue\n$\n304.9\u00a0\n$\n343.3\u00a0\n$\n(38.4)\n(11.2)\n%\n$\n343.3\u00a0\n$\n361.0\u00a0\n$\n(17.7)\n(4.9)\n%\nGross profit\n158.6\u00a0\n193.6\u00a0\n(35.0)\n(18.1)\n%\n193.6\u00a0\n218.1\u00a0\n(24.5)\n(11.2)\n%\nGross margin\n52.0\u00a0\n%\n56.4\u00a0\n%\n56.4\u00a0\n%\n60.4\u00a0\n%\nOperating income\n111.3\u00a0\n139.0\u00a0\n(27.7)\n(19.9)\n%\n139.0\u00a0\n161.3\u00a0\n(22.3)\n(13.8)\n%\nOperating margin\n36.5\u00a0\n%\n40.5\u00a0\n%\n40.5\u00a0\n%\n44.7\u00a0\n%\n41\nTable of Contents\nNetwork Enablement\nNE net revenue decreased $148.3 million, or 17.5% during fiscal 2023 when compared to fiscal 2022, This decrease was primarily driven by lower volumes in Field Instruments, Lab & Production and Wireless products compared to the prior year partially offset by PNT revenue not included in the same period a year ago.\nNE gross margin decreased by 1.2% during fiscal 2023 to 63.1% from 64.3% in fiscal 2022. This decrease was primarily due to lower volumes.\nService Enablement\nSE net revenue increased $0.4 million, or 0.4%, during fiscal 2023 when compared to fiscal 2022, primarily due to higher Growth Assurance revenue.\nSE gross margin decreased by 1.6% during fiscal 2023 to 67.6% from 69.2% in fiscal 2022. This decrease was primarily due to lower volumes.\nNetwork and Service Enablement\nNSE operating margin decreased by 8.0% during fiscal 2023 to 7.6% from 15.6% in fiscal 2022. The\u00a0decrease\u00a0in operating margin was primarily driven by lower volumes.\nOptical Security and Performance Products\nOSP net revenue decreased $38.4 million, or 11.2%, during fiscal 2023 when compared to fiscal 2022. This decrease was primarily driven by lower Anti-Counterfeiting and consumer and industrial revenues.\nOSP gross margin\u00a0decreased by\u00a04.4% during fiscal 2023 to 52.0% from 56.4% in fiscal 2022. This decrease was primarily due to unfavorable manufacturing variances associated with lower volumes and startup costs in our new Arizona facility.\nOSP operating margin decreased by 4.0% during fiscal 2023 to 36.5% from 40.5% in fiscal 2022. The decrease in operating margin was primarily due to the aforementioned reduction in gross margin.\nLiquidity and Capital Resources\nWe believe our existing liquidity and sources of liquidity, namely operating cash flows, credit facility capacity, and access to capital markets, will continue to be adequate to meet our liquidity needs, including but not limited to, contractual obligations, working capital and capital expenditure requirements, financing strategic initiatives, funding debt maturities, and execution of purchases under our share repurchase program over the next twelve months and beyond. However, there are a number of factors that could positively or negatively impact our liquidity position, including:\n\u2022\nGlobal economic conditions which affect demand for our products and services and impact the financial stability of our suppliers and customers;\n\u2022\nChanges in accounts receivable, inventory or other operating assets and liabilities which affect our working capital;\n\u2022\nIncrease in capital expenditure to support the revenue growth opportunity of our business;\n\u2022\nChanges in customer payment terms and patterns, which typically results in customers delaying payments or negotiating favorable payment terms to manage their own liquidity positions;\n\u2022\nTiming of payments to our suppliers;\n\u2022\nFactoring or sale of accounts receivable;\n\u2022\nVolatility in fixed income and credit markets which impact the liquidity and valuation of our investment portfolios;\n\u2022\nVolatility in credit markets which would impact our ability to obtain additional financing on favorable terms or at all; \n\u2022\nVolatility in foreign exchange markets which impacts our financial results;\n42\nTable of Contents\n\u2022\nPossible investments or acquisitions of complementary businesses, products or technologies;\n\u2022\nWhile the principal payment obligations of our 1.00% Senior Convertible Notes due 2024, our 1.625% Senior Convertible Notes due 2026, and our 3.75% Senior Notes due 2029 (together the \u201cNotes\u201d) are substantial and there are covenants that restrict our debt level and credit facility capacity, we may be able to incur substantially more debt; \n\u2022\nIssuance or repurchase of debt which may include open market purchases of our 2024 Notes, 2026 Notes and/or 2029 Notes prior to their maturity;\n\u2022\nIssuance or repurchase of our common stock or other equity securities;\n\u2022\nPotential funding of pension liabilities either voluntarily or as required by law or regulation; \n\u2022\nCompliance with covenants and other terms and conditions related to our financing arrangements; and\n\u2022\nThe risks and uncertainties detailed in Item 1A \u201cRisk Factors\u201d section of our Annual Report on Form 10-K.\nCash and Cash Equivalents and Short-Term Investments\nOur cash and cash equivalents and short-term investments consist mainly of investments in institutional money market funds and short-term deposits at major global financial institutions. Our strategy is focused on the preservation of capital and supporting our liquidity requirements that meet high credit quality standards, as specified in our investment policy approved by the Audit Committee of our Board of Directors. Our investments in debt securities and marketable equity securities are primarily classified as available for sale or trading assets and are recorded at fair value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on available-for-sale investments are recorded as Other comprehensive (loss) income and are reported as a separate component of stockholders\u2019 equity. As of July 1, 2023, U.S. subsidiaries owned approximately 34.7% of our cash and cash equivalents, short-term investments and restricted cash. \nAs of July 1, 2023, the majority of our cash investments have maturities of 90 days or less and are of high credit quality. Nonetheless we could realize investment losses under adverse market conditions. During the twelve months ended July 1, 2023, we have not realized material investment losses but can provide no assurance that the value or the liquidity of our investments will not be impacted by adverse conditions in the financial markets. In addition, we maintain cash balances in operating accounts that are with third-party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits. While we monitor the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail.\nSenior Secured Asset-Based Revolving Credit Facility\nOn December 30, 2021, we entered into a credit agreement (the Credit Agreement) with Wells Fargo Bank, National Association (Wells Fargo) as administrative agent, and other lender related parties. The Credit Agreement provides for a senior secured asset-based revolving credit facility in a maximum aggregate amount of $300.0 million, which matures on December 30, 2026. The Credit Agreement also provides that, under certain circumstances, we may increase the aggregate amount of revolving commitments thereunder by an aggregate amount of up to $100.0 million so long as certain conditions are met. \nAs of July 1, 2023, we had no borrowings under this facility and our available borrowing capacity was approximately $172.5 million, net of outstanding standby letters of credit of $4.1 million.\nRefer to \u201cNote 11. Debt\u201d under Item 8 of this Annual Report on Form 10-K for more information.\nRevolving Credit Facility\nOn May 5, 2020, we entered into a credit agreement with Wells Fargo as administrative agent, and other lender related parties. We borrowed $150.0 million and repaid $150.0 million under this credit agreement during the first quarter of fiscal 2022. In connection with the entry into the senior secured asset-based revolving credit facility noted above, we terminated this facility.\n        Refer to \u201cNote 11. Debt\u201d under Item 8 of this Annual Report on Form 10-K for more information.\n43\nTable of Contents\nCash Flows Year Ended July 1, 2023\nAs of July 1, 2023, our combined balance of cash and cash equivalents and restricted cash decreased by $57.2 million to $515.6 million from a balance of $572.8 million as of July 2, 2022.\nCash provided by operating activities was $114.1 million, consisted of net income of $25.5 million adjusted for non-cash charges (e.g.,\u00a0depreciation, amortization, stock-based compensation, amortization of debt issuance cost, loss on convertible note modification and accretion and net change in fair value of contingent liabilities), including changes in deferred tax balances which totaled $138.3 million, offset by changes in operating assets and liabilities that used $49.7 million. Changes in our operating assets and liabilities related primarily to a decrease in accrued expenses and other current and non-current liabilities of $47.4 million due primarily to timing in payments of tax withholding and interest coupled with lower manufacturing accruals, a decrease in accrued payroll and related expenses of $25.8 million due primarily to lower commissions and variable pay, an increase in inventories of $10.7 million to meet demand, a decrease in accounts payable of $9.4 million driven by timing of purchases and related payments, a decrease in deferred revenue of $2.1 million due to timing of support billings and project acceptance and a decrease in income taxes payable of $2.0 million. These were partially offset by a decrease in accounts receivable of $37.4 million due to collections outpacing billings and a decrease in other current and non-current assets of $10.3 million. \nCash used in investing activities was $127.1 million, primarily related to $67.3 million used for acquisitions, $51.1 million used for capital expenditures, $13.1 million used for purchases of short-term investments and $0.7 million purchase price adjustment related to business acquisition. These were partially offset by $5.1 million proceeds from sales of assets. \nCash used in financing activities was $50.0 million, primarily resulting from $83.9 million cash paid to repurchase common stock under our share repurchase program, $68.1 million to retire 2023 Senior Convertible Notes upon maturity, $11.8 million in withholding tax payments on the vesting of restricted stock awards, $7.8 million payment of acquisition related contingent consideration and obligations and $4.3 million in other payments, primarily payments of debt issuance costs. These were partially offset by $118.0 million proceeds from the issuance of 2026 Senior Convertible Notes and $7.9 million in proceeds from the issuance of common stock under our employee stock purchase plan.\n44\nTable of Contents\nMaterial Contractual and Material Cash Obligations\nThe following summarizes our contractual obligations at July 1, 2023, and the effect such obligations are expected to have on our liquidity and cash flow over the next five years (\nin millions\n):\nPayments due by period\nTotal\nLess than \n1 year\n1 - 3 years\n3 - 5 years\nMore than \n5 years\nAsset retirement obligations\u2014expected cash payments\n$\n4.3\u00a0\n$\n1.0\u00a0\n$\n0.9\u00a0\n$\n0.9\u00a0\n$\n1.5\u00a0\nDebt:\n2029 3.75% Senior Notes \n(1)\n400.0\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n400.0\u00a0\n2026 1.625% Senior Convertible Notes \n(1)\n250.0\u00a0\n\u2014\u00a0\n250.0\u00a0\n\u2014\u00a0\n\u2014\u00a0\n2024 1.00% Senior Convertible Notes \n(1)\n96.4\u00a0\n96.4\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nEstimated interest payments\n111.8\u00a0\n20.5\u00a0\n38.4\u00a0\n30.4\u00a0\n22.5\u00a0\nPurchase obligations\n(2)\n124.0\u00a0\n41.7\u00a0\n79.0\u00a0\n2.3\u00a0\n1.0\u00a0\nOperating lease obligations\n(3)\n46.2\u00a0\n10.3\u00a0\n16.6\u00a0\n9.6\u00a0\n9.7\u00a0\nNon-cancelable leaseback obligations\n(2)\n26.0\u00a0\n3.0\u00a0\n6.2\u00a0\n5.9\u00a0\n10.9\u00a0\nRoyalty payment\n1.5\u00a0\n0.8\u00a0\n0.7\u00a0\n\u2014\u00a0\n\u2014\u00a0\nPension and post-retirement benefit payments\n(4)\n58.8\u00a0\n9.2\u00a0\n12.4\u00a0\n11.8\u00a0\n25.4\u00a0\nTotal \n$\n1,119.0\u00a0\n$\n182.9\u00a0\n$\n404.2\u00a0\n$\n60.9\u00a0\n$\n471.0\u00a0\n(1) Refer to \u201cNote 11. Debt\u201d for more information.\u00a0\n(2) Refer to \u201cNote 18. Commitments and Contingencies\u201d for more information.\u00a0\n(3) Refer to \u201cNote 12. Leases\u201d for more information.\u00a0\n(4) Refer to \u201cNote 17. Employee Pension and Other Benefit Plans\u201d for more information.\u00a0\nPurchase obligations represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements. Of the $124.0 million of purchase obligations as of July 1, 2023, $42.1 million are related to inventory and the other $81.9 million are non-inventory items.\nAs of July 1, 2023, our other non-current liabilities primarily relate to asset retirement obligations, pension and financing obligations which are presented in various lines in the preceding table.\nShare Repurchase Program\nDuring fiscal 2023 we repurchased 7.3 million shares of our common stock outstanding for $83.9 million pursuant to our 2019 and 2022 Share Repurchase Plans. As of July 1, 2023, the Company had remaining authorization of $234.8 million for future share repurchases under the 2022 Repurchase Plan.\nRefer to \u201cNote 15. Stockholders Equity\u201d under Item 8 of this Annual Report on Form 10-K for more information.\n45\nTable of Contents\nEmployee Defined Benefit Plans and Other Post-retirement Benefits\nWe sponsor significant qualified and non-qualified pension plans for certain past and present employees in the U.K. and Germany. Most of these plans have been closed to new participants and no additional service costs are being accrued. \nAs of July 1, 2023, the U.K. plan is fully funded. During fiscal 2023, we (amounts represented as \u00a3 and $ denote GBP and USD, respectively) contributed \u00a31.0 million or approximately $1.2 million, while in fiscal 2022, we contributed \u00a31.0 million or approximately $1.3 million to the U.K. pension plan. These contributions allowed us to comply with regulatory funding requirements. \n        As of July 1, 2023, our German pension plans, which were initially established as unfunded or \u201cpay-as-you-go\u201d plans, were underfunded by $55.0 million\u00a0since the Pension Benefit Obligation (PBO) exceeded the fair value of plan assets. We anticipate future annual outlays related to the German plans will approximate estimated future benefit payments. These future benefit payments have been estimated based on the same actuarial assumptions used to measure our projected benefit obligation and currently are forecasted to range between $4.2 million and $7.9 million per annum. \nWe also are responsible for the non-pension post-retirement benefit obligation assumed from a past acquisition with a liability of $0.4 million.\nRecently Issued Accounting Pronouncements\nRefer to \u201cNote 2. Recently Issued Accounting Pronouncements\u201d under Item 8 of this Annual Report on Form 10-K, regarding the effect of certain recent accounting pronouncements on our Consolidated Financial Statements.\nCritical Accounting Estimates\nOur Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which require management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, net revenue and expenses, and the disclosure of contingent assets and liabilities. Our estimates are based on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. We believe that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates and such differences may be material. Refer to \u201cNote 1. Basis of Presentation\u201d under Item 8 of this Annual Report on Form 10-K, for a discussion of the estimates used in preparation our Consolidated Financial Statements.\n \nFor our Pension accounting, significant judgment is required i\nn actuarial assumption used when establishing the discount rate for the net periodic cost and the projected benefit obligation (PBO) calculations. Changes in the discount rate impact the interest cost component of the net periodic benefit cost calculation and PBO due to the fact that the PBO is calculated on a net present value basis. Decreases in the discount rate will generally increase pre-tax cost, recognized expense and the PBO. Increases in the discount rate tend to have the opposite effect. We estimate a 50-basis point decrease or increase in the discount rate would cause a corresponding increase or decrease, respectively, in the PBO of approximately $4.0 million based upon data as of July 1, 2023.\nGoodwill is recognized and initially measured as the excess of the purchase price paid over the net fair value of assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not result in an impairment of goodwill. The Company tests goodwill at the reporting unit level for impairment during the fourth quarter of each fiscal year, or more frequently if events or circumstances indicate that the asset may be impaired. \nFirst, we assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we conduct a quantitative goodwill impairment test comparing the fair value of the applicable reporting unit with its carrying value. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. However, if the fair value of the reporting unit is less than book value, then goodwill will be impaired by the amount that the carrying amount of goodwill exceeds the fair value.\n46\nTable of Contents\nAs part of the annual impairment test, the Company performed a quantitative assessment of goodwill impairment for all reporting units. \nThe Company estimated the fair value of each reporting unit by applying a combination of the income approach and the market approach. The income approach used discounted future cash flows in which sales, operating income and cash flow projections were based on assumptions driven by current economic conditions. In developing these assumptions, we relied on various factors including operating results, business plans, economic projections, anticipated future cash flows, and other market data. The market approach was based on trading multiples of companies comparable to each reporting unit and analysis of recent sales of comparable entities. We corroborated the fair value estimates by comparing the sum of the fair values of the reporting units and corporate net assets to VIAVI\u2019s market capitalization as of the valuation date.  \nThe Company believes the assumptions used in the goodwill impairment test were reasonable, but future changes in the underlying assumptions could occur due to the inherent uncertainty in making such estimates. Further declines in the Company\u2019s operating results due to challenging economic conditions, an unfavorable industry or macroeconomic development or other adverse changes in market conditions could change one of the key assumptions the Company used in the goodwill impairment assessment, which could result in a further decline in fair value and require the Company to record an impairment charge in future periods.\nBased on our testing, the fair value of each of the Company\u2019s reporting units was at least two times the carrying value, and therefore no impairment was identified.\n \n47\nTable of Contents",
+  "item7a": ">ITEM 7A.\u00a0\u00a0\u00a0\u00a0QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\u00a0\nForeign Exchange Risk\nWe use foreign exchange forward contracts to hedge foreign currency risk associated with foreign currency denominated monetary assets and liabilities, primarily certain short-term intercompany receivables and payables. Our foreign exchange forward contracts are accounted for as derivatives whereby the fair value of the contracts are reflected as other current assets or other current liabilities and the associated gains and losses are reflected in Interest and other income, net in the Consolidated Statements of Operations. Our hedging programs reduce, but do not eliminate, the impact of currency exchange rate movements. The gains and losses on those derivatives are expected to be offset by re-measurement gains and losses on the foreign currency denominated monetary assets and liabilities.\nAs of July 1, 2023, we had forward contracts that were effectively closed but not settled with the counterparties by year end. The fair value of these contracts of $3.5 million and $2.4 million is reflected as Prepayments and other current assets and Other current liabilities on the Consolidated Balance Sheets as of July 1, 2023, respectively. \nThe forward contracts outstanding and not effectively closed, with a term of less than 120\u00a0days, were transacted near year end and had minimal value as of July 1, 2023 and a fair value of $0.1 million which is reflected in Other current liabilities on the Consolidated Balance Sheets as of July 2, 2022. As of July 1, 2023 and July 2, 2022, the notional amounts of the forward contracts that we held to purchase foreign currencies were $87.5 million and $119.1 million, respectively, and the notional amounts of forward contracts that we held to sell foreign currencies were $19.3 million and $80.5 million, respectively.\nThe counterparties to these hedging transactions are creditworthy multinational banks. The risk of counterparty nonperformance associated with these contracts is not considered to be material. Notwithstanding our efforts to mitigate some foreign exchange risks, we do not hedge all of our foreign currency exposures, and there can be no assurances that our mitigating activities related to the exposures that we do hedge will adequately protect us against the risks associated with foreign currency fluctuations.\nInvestments\nMajority of our investments have maturities 90 days or less. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investments as a result of changes in interest rates. Changes in interest rates can affect the interest earned on our investments.\nWe seek to mitigate the credit risk of investments by holding high-quality, investment-grade debt instruments. We also seek to mitigate marketability risk by holding only highly liquid securities with active secondary or resale markets. However, the investments may decline in value or marketability due to changes in perceived credit quality or changes in market conditions.\nAs of July 1, 2023, the Company\u2019s short-term investments of $14.6\u00a0million were comprised of a 30-day term deposit of $13.1\u00a0million and trading securities related to the deferred compensation plan of $1.5\u00a0million, of which $0.1 million was invested in debt securities, $1.2 million was invested in equity securities and $0.2 million was invested in money market instruments.\nDebt\nThe fair value of our 2029 Notes is subject to interest rate risk while the fair values of our 2024 and 2026 Notes are subject to interest rate and market price risk due to the convertible feature of the Notes and other factors. Generally, the fair value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The fair value of the 2024 and 2026 Notes may also increase as the market price of our stock rises and decrease as the market price of our stock falls. Changes in interest rates and our stock price in the case of convertible notes affect the fair value of the Notes but does not impact our financial position, cash flows or results of operations. \nBased on quoted market prices, as of July 1, 2023, the fair value of the 2024 Notes was $95.6 million, the fair value of the 2026 Notes was $262.7 million and the fair value of the 2029 Notes was $341.8 million. The carrying value of the 2024 Notes was $96.2 million, the carrying value of the 2026 Notes was $235.0 million and the carrying value of the 2029 Notes was $394.5 million. Refer to \u201cNote 11. Debt\u201d under Item 8 of this Annual Report on Form 10-K for more information.\n48\nTable of Contents",
+  "cik": "912093",
+  "cusip6": "925550",
+  "cusip": ["925550955", "925550105"],
+  "names": ["VIAVI SOLUTIONS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/912093/000091209323000037/0000912093-23-000037-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1.  BUSINESS\n \nCAUTIONARY \nNOTE\n:\n \nIn addition to historical financial information, this discussion of the business of SigmaTron International, Inc. (\u201cSigmaTron\u201d), its wholly-owned subsidiaries Standard Components de Mexico S.A., AbleMex, S.A. de C.V., Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., and Spitfire Controls (Cayman) Co. Ltd., wholly-owned foreign enterprises Wujiang SigmaTron Electronics Co., Ltd. and Wujiang SigmaTron Electronic Technology Co., Ltd., its international procurement office, SigmaTron International Inc. Taiwan Branch, and Wagz, Inc. (19 percent ownership as of April 1, 2023) (\u201cWagz\u201d), (collectively, the \u201cCompany\u201d) and other Items in this Annual Report on Form 10-K contain forward-looking statements concerning the Company\u2019s business or results of operations.  Words such as \u201ccontinue,\u201d \u201canticipate,\u201d \u201cwill,\u201d \u201cexpect,\u201d \u201cbelieve,\u201d \u201cplan,\u201d and similar expressions identify forward-looking statements.  These forward-looking statements are based on the current expectations of the Company.  Because these forward-looking statements involve risks and uncertainties, the Company\u2019s plans, actions and actual results could differ materially.  Such statements should be evaluated in the context of the direct and indirect risks and uncertainties inherent in the Company\u2019s business including, but not necessarily limited to, the Company\u2019s continued dependence on certain significant customers; the continued market acceptance of products and services offered by the Company and its customers; pricing pressures from the Company\u2019s customers, suppliers and the market; the activities of competitors, some of which may have greater financial or other resources than the Company; the variability of the Company\u2019s operating results; the results of long-lived assets and goodwill impairment testing; the ability to achieve the expected benefits of acquisitions as well as the expenses of acquisitions; the collection of aged account receivables; the variability of the Company\u2019s customers\u2019 requirements; the impact of inflation on the Company\u2019s operating results; the availability and cost of necessary components and materials; the impact acts of war may have to the supply chain and the Company\u2019s customers;  the ability of the Company and its customers to keep current with technological changes\n \nwithin its industries; regulatory compliance, including conflict minerals; the continued availability and sufficiency of the Company\u2019s credit arrangements; the costs of borrowing under the Company\u2019s senior and subordinated credit facilities, including under the rate indices that replaced LIBOR; increasing interest rates; the ability to meet the Company\u2019s financial and restrictive covenants under its loan agreements; changes in U.S., Mexican, Chinese, Vietnamese or Taiwanese regulations affecting the Company\u2019s business; the turmoil in the global economy and financial markets; public health crises, including COVID-19 and variants (commonly known as \u201cCOVID-19\u201d) which threatened the Company\u2019s financial stability by causing a disruption to the Company\u2019s global supply chain, and caused plant closings or reduced operations thus reducing output at those facilities; the continued availability of scarce raw materials, exacerbated by global supply chain disruptions, necessary for the manufacture of products by the Company; the stability of the U.S., Mexican, Chinese, Vietnamese and Taiwanese economic, labor and political systems and conditions; currency exchange fluctuations; and the ability of the Company to manage its growth.  These and other factors which may affect the Company\u2019s future business and results of operations are identified throughout this Annual Report on Form 10-K, and as risk factors, may be detailed from time to time in the Company\u2019s filings with the Securities and Exchange Commission.  These statements speak as of the date of such filings, and the Company undertakes no obligation to update such statements in light of future events or otherwise unless otherwise required by law.\n \nOverview \n \nSigmaTron is a Delaware corporation, which was organized on November 16, 1993, and commenced operations when it became the successor to all of the assets and liabilities of SigmaTron L.P., an Illinois limited partnership, through a reorganization on February 8, 1994 as part of going public.\n \nPrior to April 1, 2023, the Company operated in two reportable segments as an independent provider of electronic manufacturing services (\u201cEMS\u201d), and as a provider of products to the pet technology (\u201cPet Tech\u201d) \n\n\n \n \n4\n \n \n\n\nmarket.  The majority of the Pet Tech Segment was sold, effective as of April 1, 2023, and following such date, the Company operates in one reportable segment, the EMS segment.  The EMS segment includes printed circuit board assemblies, electro-mechanical subassemblies and completely assembled (box-build) electronic products.  The Pet Tech segment offered electronic products such as the Freedom Smart Dog Collar \u2122, a wireless, geo-mapped fence, and wellness system, and apparel and accessories.  \n \nExcept as otherwise noted, the description of the Company\u2019 business below reflects its continuing operations. Refer to Note P - Discontinued Operations, to the consolidated financial statements for activity associated with discontinued operations.\n \nThe Company provides manufacturing and assembly services ranging from the assembly of individual components to the assembly and testing of box-build electronic products.  The Company has the ability to produce assemblies requiring mechanical as well as electronic capabilities.  The products assembled by the Company are then incorporated into finished products sold in various industries, particularly industrial electronics, consumer electronics and medical/life sciences.  In some instances, the Company manufactures and assembles the completed finished product for its customers.  \n \nIn connection with the production of assembled products, the Company provides services to its customers, including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) manufacturing and test engineering support; (4) design services; (5) warehousing and distribution services; (6) assistance in obtaining product approval from governmental and other regulatory bodies and (7) compliance reporting.  The Company provides these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan.\n \nThe Company began its Pet Technology operations after the December 2021 acquisition of Wagz, Inc.  During the fourth quarter of fiscal 2023, the Company exited its active involvement in the Pet Tech business that is conducted by Wagz through the sale by the Company of a majority stake in Wagz, effective as of April\u00a01, 2023. See \u201cRecent Developments\u201d below for additional information.\n \nThe Company\u2019s headquarters is in Elk Grove Village, Illinois, United States of America (\u201cU.S.\u201d) which also operates as a manufacturing facility.  In addition, the Company has manufacturing facilities in Union City, California, U.S.; Acuna, Coahuila, Mexico (\u201cMX\u201d); Chihuahua, Chihuahua, MX; and Tijuana, Baja California, MX; Suzhou, Jiangsu Province, China; and Bien Hoa City, Dong Nai Province, Vietnam.  In addition, the Company maintains an International Procurement Office and Compliance and Sustainability Center (\u201cIPO\u201d) in Taipei, Taiwan.  The Company also provides design services in Elgin, Illinois, U.S. and warehousing services in Del Rio, Texas, U.S.; El Paso, Texas, U.S.; Elk Grove Village, Illinois, U.S.; and San Diego, California, U.S.  The Company has an information technology office in Taichung, Taiwan.  \n \nThe Company\u2019s international footprint provides our customers with flexibility within the Company to manufacture in China, Mexico, Vietnam or the U.S.  We believe this strategy will continue to serve the Company well as its customers continuously evaluate their supply chain strategies.\n \nFor the fiscal year ended April, 30 2023, the Company reported pre-tax income of approximately $17,200,000 from continuing operations.  The Company reported sales of approximately $414,400,000.  The fiscal year end revenue results increased 9.5%, compared to the prior fiscal year. The higher sales related to both increased customer demand and price increases passed on to customers for raw material and other operating cost increases.  These results were obtained despite continued electronic component shortages in the marketplace.  This has led to lower productivity on occasion, rapidly growing inventory levels and pressure on working capital, as the marketplace has remained volatile.\u00a0 \n \nThe Company\u2019s backlog remains high with demand staying strong across the vast majority of markets and customers the Company serves. The continued supply chain shortages could impact the Company\u2019s ability to ship the backlog on a timely basis.\u00a0 This is a problem faced by almost every customer and competitor in the EMS industry, and the Company anticipates the situation improving through fiscal 2024.\u00a0 The Company\u2019s supply chain and operations teams continue to face challenges as it starts fiscal year 2024.\n \n\n\n \n \n5\n \n \n\n\n \nRecent Developments \n \nOn December 31, 2021, the Company acquired 100% of the stock of Wagz under the terms of the Agreement and Plan of Merger dated July 19, 2021, \nas amended by the First Amendment to Agreement and Plan of Merger dated December 7, 2021 (the \u201cMerger Agreement\u201d).\n \nPrior to the acquisition, the Company had an investment in Wagz of $600,000, and held Convertible Secured Promissory Notes issued by Wagz of $12,000,000 and Secured Promissory Notes issued by Wagz of $1,380,705.  Pursuant to the Merger Agreement, prior to the acquisition, the Convertible Secured Promissory Notes converted to 12,000,000 shares of Wagz common stock, resulting in a 25.5% ownership in Wagz.  As described in Note F \u2013 Acquisition and Disposition, the Company\u2019s\u00a025.5%\u00a0equity interest in Wagz common stock was remeasured to fair value of\u00a0$6,299,765, resulting in a non-cash impairment charge of $6,300,235 in fiscal 2022. \n \nPursuant to the Merger Agreement, 2,443,870 shares of common stock of the Company were issued in the merger for a value of $25,245,177, of which 1,546,592 shares are allocated to Wagz shareholders (excluding the Company) for a total value of $15,976,295, and 897,278 shares are allocated  to the Company and treated as treasury stock for a total value of $9,268,881, recorded in the Consolidated Statements of Changes in Stockholders\u2019 Equity of Item 15(a) \nExhibits and Financial Statement Schedules\n under Issuance of stock for acquisition and Purchase of treasury stock related to acquisition, respectively.  The treasury shares were retired as of April 30, 2022.\n \nDuring the fourth quarter of fiscal 2023, the Company exited its active involvement in the Pet Tech business that is conducted by Wagz through the sale by the Company of a majority stake in Wagz, effective as of April\u00a01, 2023. The Company entered into a Stock Purchase Agreement (\u201cSPA\u201d) by and among the Company, Wagz, Vynetic LLC, a Delaware limited liability company (\u201cBuyer\u201d), and Terry B. Anderton,\u00a0co-founder\u00a0of Wagz and principal of Buyer (\u201cAnderton\u201d), pursuant to which the Company sold to Buyer 81% of the issued and outstanding shares of common stock of Wagz (the \u201cShares\u201d) for the purchase price of one dollar. Under the SPA, the Company also agreed to provide a $900,000 working capital term loan (the \u201cWagz Loan\u201d) to Wagz during the month of April 2023. The Company agreed to work with Wagz as an EMS provider pursuant to a manufacturing agreement, but the Company did not commit to extending any further financial support beyond the Wagz Loan. On April\u00a028, 2023, the sale of the majority interest in Wagz pursuant to the SPA was consummated with effect as of April\u00a01, 2023, and as a result, as of the closing, the Company holds a minority 19% ownership of the Shares and Buyer holds a majority 81% of the Shares.  \n \nOn\n \nMarch\n \n2,\n \n2023,\n the Company received \nan Event\n \nof\n \nDefault\n \nand\n \nReservation\n \nof\n \nRights\n \nnotice\n \nfrom\n \neach\n \nof\n \nJPMorgan Chase Bank, N.A., lender under the Company\u2019s Amended and Restated Credit Agreement(\u201cJPM\n \nNotice\u201d),\n \nand\n TCW Asset Management Company LLC, as administrative agent (\u201cAgent\u201d), and other lenders party to the Company\u2019s Term Loan Agreement (\nthe\n \u201c\nTCW\n \nLenders\u201d)\n \n(\u201cTCW Notice\u201d\n \nt\nogether\n \nwith\n \nthe \nJPM\n \nNotice,\n \nthe\n \n\u201cNotices\u201d).\n T\nhe Notices indicated the occurrence of certain events of default under the JPM Credit Agreement and the Term Loan Agreement.  See Note I \u2013 Long-term Debt, for more information.  \n \nOn\n \nApril\n \n28,\n \n2023,\n \nthe\n \nCompany\n \nentered\n \ninto\n \n(i)\n \na\n \nW\naive\nr\n,\n \nConsent\n \nand\n \nAmendment \nNo.\n \n1\n \nto\n \nthe\n JPM \nCredit\n \nAgreement\n \n(\u201cJPM\n \nW\naiver\u201d)\n with\n \nW\nagz\n \nand\n \nJPM,\n \nas\n \nl\ne\nnder\n, which waived certain events of default under and amended certain terms of \nthe\n \nJPM\n \nCredit\n \nAgreement\n \nand\n \n(i\ni\n)\n \na\n \nW\naive\nr\n,\n \nConsent \nand\n \nAmendment\n \nNo.\n \n1\n \nto\n \nthe\n \nCredit\n \nAgreement\n \n(\u201cTCW\n \nW\naiver\u201d)\n with\n \nW\nagz,\n \nthe\n \nTCW\n \nLenders\n \nand Agent\n (\ncollectively\n \nwith\n \nthe\n \nTCW\n \nLenders\n \nand\n \nJPM,\n \nthe\n \n\u201cLender\n \nParties\u201d), which waived certain events of default under and amended certain terms of the Term Loan\n \nAgreement\n \n(\ntogether\n \nwith\n \nthe\n \nJPM\n \nCredit Agreement the \u201cCredit Agreements\u201d).\n \nSee Note E \u2013 Long-term Debt, for more information.  \n \nAs described above, the\n \nCompany\n \nexited\n \nits\n \nactive\n \ninvolvement\n \nin\n \nthe\n \nPet\n \nT\nech\n \nbusiness\n \nthat\n w\nas\n \nconducted\n \nb\ny\n \nW\nagz\n \nthrough the\n \nsale\n \nby\n \nthe\n \nCompany\n \nof\n \na\n \nmajority\n \nstake\n \nin\n \nW\nagz,\n \neffective as of April\n \n1,\n \n2023.  In\n \nconnection\n \nwith\n \nthe\n \nW\naivers and such sale, the Lender Parties agreed to release Wagz and its property from the lien of the Lender Parties under the Credit Agreements.\n \n \n\n\n \n \n6\n \n \n\n\n \nProducts and Services\n \nThe Company provides a broad range of electronic and electromechanical manufacturing related outsourcing solutions for its customers.  These solutions incorporate the Company\u2019s knowledge and expertise in the EMS industry to provide its customers with an international network of manufacturing facilities, advanced manufacturing technologies, complete supply chain management, responsive and flexible customer service, as well as product design, test and engineering support.  The Company\u2019s EMS solutions are available from inception of product concept through the ultimate delivery of a finished product.  Such technologies and services include the following:\n \nManufacturing and Testing Services\n:\n  The Company\u2019s core business is the assembly and testing of all types of electronic printed circuit board assemblies (\u201cPCBA\u201d) and often incorporating these PCBAs into electronic modules used in all types of devices and products that depend on electronics for their operation.  This assembly work utilizes state of the art manufacturing and test equipment to deliver highly reliable products to the Company\u2019s customers.  The Company supports new product introduction (\u201cNPI\u201d), low volume/high mix as well as high volume/low mix assembly work at all levels of assembly and test complexity.  From simple component assembly through the most complicated industry testing, the Company offers services required to build the vast majority of electronic devices commercially required in the market today.\n \nDesign Services:\n  To complement the manufacturing services it offers its customers, the Company also offers design for manufacturability (\u201cDFM\u201d), and design for test (\u201cDFT\u201d) review services to help customers ensure that the products they have designed are optimized for production and testing.  The Company also offers complete product design services for certain markets.\n \nSupply Chain Management:\n  The Company provides complete supply chain management for the procurement of components needed to build customers\u2019 products.  This includes the procurement and management of all types of electronic components and related mechanical parts such as plastics and metal.  The Company\u2019s resources supporting this activity are provided both on a plant specific basis as well as globally through its IPO in Taipei, Taiwan.  Each of its sites is linked together using the same Enterprise Resource Planning (\u201cERP\u201d) system and custom Iscore software tools with real-time on-line visibility for customer access.  The Company procures material from major manufacturers and distributors of electronic parts all over the world.\n \nThe Company relies on numerous third-party suppliers for components used in the Company\u2019s production process.  Certain of these components are available only from single-sources or a limited number of suppliers.  In addition, a customer\u2019s specifications may require the Company to obtain components from a single-source or a small number of suppliers.  The loss of any such suppliers could have a material impact on the Company\u2019s results of operations.  Further, the Company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers.  The Company orders material from its suppliers consistent with the purchase orders and binding forecasts it receives from its customers.  See \u201cItem 1A. Risk Factors \u2013 \nRaw material price increases and supply shortages could adversely affect results\n\u201d.\n \nWarehousing and Distribution:\n  The Company provides both in-house and third-party warehousing, shipping, and customs brokerage for certain border crossings as part of its service offering.  This includes international shipping, drop shipments to the end customer as well as support of inventory optimization activities such as kanban and consignment.\n \nGovernment Compliance, Green, Sustainability, and Social Responsible Initiatives:\n  The Company supports initiatives that promote sustainability, green environment and social responsibility.  The Company helps its customers in achieving effective compliance.  Those include, but are not limited to, Restrictions of Hazardous Substances (\u201cRoHS\u201d), Restriction of Chemicals (\u201cREACH\u201d) and Conflict Minerals regulations. \n \nManufacturing Locations and Certifications:  \nThe Company\u2019s manufacturing locations are strategically located to support our customers with locations in Elk Grove Village, Illinois U.S.; Union City, California U.S.; Acuna, Chihuahua and Tijuana, Mexico; Suzhou, China; and Bien Hoa City, Vietnam.  The Company\u2019s ability to transition manufacturing to lower cost regions without jeopardizing flexibility and service differentiates it from many competitors.  Manufacturing certifications and registrations are location specific, \n\n\n \n \n7\n \n \n\n\nand include ISO 9001:2015, ISO 14001:2004, ISO 14001:2015, IATF 16949:2016, Medical ISO 13485:2016 and FDB Certification and International Traffic in Arms Regulations (\u201cITAR\u201d) certifications.  \n \nIn addition, the Company provided products, design and manufacturing services to the pet technology market through its previously wholly owned subsidiary, Wagz.  Wagz offered electronic products such as the Freedom Smart Dog Collar\u2122, a wireless, geo-mapped fence, and wellness system, and apparel and accessories. It also sold its products online.  The Company sold a majority of the stock of Wagz on April 28, 2023, effective as of April 1, 2023.  The Company still owns 19 percent of Wagz common stock as a passive investment as of April 30, 2023.\n \nMarkets and Customers\n \nThe Company\u2019s customers are in the industrial electronics, consumer electronics and medical/life sciences industries.  As of April 30, 2023, the Company had approximately 160 active customers ranging from Fortune 500 companies to small, privately held enterprises.\n \nThe following table shows, for the periods indicated, the percentage of net sales to the principal end-user markets the Company serves.\n \n \n \n \n \n \n \n \n \n \nPercent of Net Sales\nMarkets\nTypical OEM Application\nFiscal 2023%\nFiscal 2022%\nIndustrial Electronics\nGaming, controls, smart grid connectivity, IOT connectivity\n67.0\n55.2\nConsumer Electronics\nAppliances/white goods, automotive vision systems, carbon monoxide detectors, pet technology\n26.6\n38.7\nMedical/Life Sciences\nOperating tables, battery packs, dental equipment, sterilizers, dialysis\n6.4\n6.1\nTotal\n \n100%\n100%\n \nFor the fiscal year ended April 30, 2023, the Company\u2019s largest customer accounted for 13.4% of the Company\u2019s net sales.  For the fiscal year ended April 30, 2022, the Company\u2019s largest customer accounted for 21.8% of the Company\u2019s net sales.  \n \nThe majority of sales are made to U.S. based customers and denominated in USD.  The following geographic data includes net sales based on the country location of the Company\u2019s operation providing the electronic manufacturing service for the year ended April 30, 2023 and 2022:\n \n \n \n \n \n \n \n \n \nLocation\n \nNet Sales Fiscal 2023\n \nNet Sales Fiscal 2022\nUnited States\n \n$\n117,389,877\n \n$\n89,119,720\nMexico\n \n \n236,938,519\n \n \n228,867,962\nChina\n \n \n48,584,165\n \n \n46,347,260\nVietnam\n \n \n11,523,284\n \n \n13,981,553\nTotal\n \n$\n414,435,845\n \n$\n378,316,495\n \nAs of April 30, 2023, approximately 37% of the total assets of the Company are located in foreign jurisdictions outside the United States, 25% and 10% of the total assets were located in Mexico and China, respectively, and 2% in other foreign locations. As of April 30, 2022, approximately 35% of the total assets were located in foreign jurisdictions, 20% and 12% were located in China and Mexico, respectively, and 3% in other foreign locations.\n \n\n\n \n \n8\n \n \n\n\n \nSales and Marketing\n \nMany of the members of the Company\u2019s senior management are actively involved in sales and marketing efforts, and the Company has direct sales employees.  The Company also markets its services through independent manufacturers\u2019 representative organizations that employ sales personnel in the United States and Canada.  Independent manufacturers\u2019 representative organizations receive variable commissions based on orders received by the Company and are assigned specific accounts, not territories.  In addition, the Company markets itself through its website and tradeshows.  Wagz sold its products primarily online.  \n \nMexico, China, Vietnam and Taiwan Operations\n \nThe Company\u2019s wholly-owned subsidiary, Standard Components de Mexico, S.A, a Mexican entity, is located in Acuna, Coahuila, Mexico, a border town across the Rio Grande River from Del Rio, Texas, U.S. and is 155 miles west of San Antonio. Standard Components de Mexico, S.A. was incorporated and commenced operations in 1968 and had 854 employees at April 30, 2023.  The Company\u2019s wholly-owned subsidiary, AbleMex S.A. de C.V., a Mexican entity, is located in Tijuana, Baja California, Mexico, a border town south of San Diego, California, U.S.  AbleMex S.A. de C.V. was incorporated and commenced operations in 2000.  The operation had 436 employees at April 30, 2023.  The Company\u2019s wholly-owned subsidiary, Digital Appliance Controls de Mexico S.A., a Mexican entity, operates in Chihuahua, Chihuahua, Mexico, located approximately 235 miles from El Paso, Texas, U.S.  Digital Appliance Controls de Mexico S.A. was incorporated and commenced operations in 1997.  The operation had 455 employees at April 30, 2023.  The Company believes that one of the key benefits to having operations in Mexico is its access to cost-effective labor resources while having geographic proximity to the United States.\n \nThe Company\u2019s wholly-owned foreign enterprises, Wujiang SigmaTron Electronics Co., Ltd. and Wujiang SigmaTron Electronic Technology Co., Ltd., are located in Suzhou, China.  The Company has entered into an agreement with governmental authorities in the economic development zone of Wujiang, Jiangsu Province, Peoples Republic of China, pursuant to which the Company became the lessee of a parcel of land of approximately 100 Chinese acres.  The term of the land lease is 50 years.  The Company built a manufacturing plant, office space and dormitories on this site during 2004.  In fiscal year 2015, the China facility expanded and added 40,000 square feet in warehouse and manufacturing.  The total square footage of the facility is 216,950 and the operation had 349 employees as of April 30, 2023.  Both \nWujiang SigmaTron Electronics Co., Ltd.and Wujiang SigmaTron Electronic Technology Co., Ltd.\n operate at this site. \n \nThe Company\u2019s wholly-owned subsidiary, Spitfire Controls (Cayman) Co. Ltd., owns all of the equity of the subsidiary, Spitfire Controls (Vietnam) Co. Ltd., and does not conduct any other operations.  Spitfire Controls (Vietnam) Co. Ltd. is located in Amata Industrial Park, Bien Hoa City, Dong Nai Province, Vietnam, and is 18 miles east of Bien Hoa City.  Spitfire Controls (Vietnam) Co. Ltd. was incorporated and commenced operation in 2005 and had 295 employees as of April 30, 2023.\n \nThe Company maintains an international procurement office (\u201cIPO\u201d) in Taipei, Taiwan which was incorporated in 1991.  The total square footage of the office is 4,685 square feet.  The Company has an information technology office in Taichung, Taiwan.  The total square footage of the office is 1,650 square feet.  The Company had 38 employees located in the Taiwan offices as of April 30, 2023.\n \nThe Company provides funds for manufacturing services such as salaries, wages, inventory purchases for certain locations, overhead and capital expenditure items as necessary to operate its wholly-owned Mexican, Vietnamese and Chinese subsidiaries and foreign enterprises and the IPO in Taiwan.  The Company provides funding in U.S. Dollars, which are exchanged for Pesos, Dong, Renminbi, and New Taiwan dollars.  The fluctuation of currencies from time to time, without an equal or greater increase in inflation, could have a material impact on the financial results of the Company.  The impact of currency fluctuations for the fiscal year ended April 30, 2023, resulted in net foreign currency transaction losses of $892,642 compared to net foreign currency losses of $412,218 in the prior fiscal year.  In fiscal year 2023, the Company paid approximately $60,070,000 to its foreign subsidiaries for manufacturing services.  All intercompany balances have been eliminated upon consolidation.  \n \n\n\n \n \n9\n \n \n\n\n \nThe consolidated financial statements as of April 30, 2023, include the accounts and transactions of SigmaTron, its wholly-owned subsidiaries, Standard Components de Mexico, S.A., AbleMex S.A. de C.V., Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., and Spitfire Controls (Cayman) Co. Ltd., wholly-owned foreign enterprises Wujiang SigmaTron Electronics Co., Ltd. and Wujiang SigmaTron Electronic Technology Co., Ltd., its IPO, SigmaTron International, Inc. Taiwan Branch, and Wagz, Inc. (19 percent ownership as of April 1, 2023).  The functional currency of the Company\u2019s foreign subsidiaries operations is the U.S. Dollar.  Intercompany transactions are eliminated in the consolidated financial statements.\n \nCompetition\n \nThe EMS industry is highly competitive and subject to rapid change.  Furthermore, both large and small companies compete in the industry, and many have significantly greater financial resources, more extensive business experience and greater marketing and production capabilities than the Company.  The significant competitive factors in this industry include price, quality, service, timeliness, reliability, the ability to source raw components, and manufacturing and technological capabilities.  The Company believes it can compete on all of these factors.\n \nConsolidation\n \nAs a result of consolidation and other transactions involving competitors and other companies in the Company\u2019s markets, the Company occasionally reviews potential transactions relating to its business, products and technologies.  Such transactions could include mergers, acquisitions, strategic alliances, joint ventures, licensing agreements, co-promotion agreements, financing arrangements or other types of transactions.  In the future, the Company may choose to enter into these types of or other transactions at any time depending on available sources of financing, and such transactions could have a material impact on the Company\u2019s business, financial condition or operations.\n \nGovernmental Regulations \n \nThe Company\u2019s operations are subject to certain foreign government, U.S. federal, state and local regulatory requirements relating to, among others, environmental, waste management, consumer, labor and health and safety matters.\u00a0 Management believes that the Company\u2019s business is operated in compliance with all such regulations, which include European regulations known as Restriction of Hazardous Substances (\u201cRoHS\u201d) and Registration, Evaluation, Authorization and Restriction of Chemicals (\u201cREACH\u201d).\u00a0 From time-to-time\u00a0the Company's\u00a0customers request REACH required information and certifications on the assemblies the Company manufactures for them.\u00a0 These requests require the Company to gather information from component suppliers to verify the presence and level of mass of any substances of very high concerns (\u201cSVHCs\u201d) greater than 0.1% in the assemblies the Company manufactures based on customer specifications.\u00a0 If any SVHCs are present at more than 0.1% of the mass of the item, the specific concentration and mass of the SVHC must be reported to proper authorities by the Company's customer.\n \nBacklog\n \nThe Company relies on binding forecasted orders and purchase orders (firm orders) from its customers to estimate backlog.  The Company\u2019s backlog of firm orders as of April 30, 2023, and April 30, 2022, was approximately $387,350,000 and $485,670,000, respectively.  The Company believes a significant portion of the backlog at April 30, 2023, will ship in fiscal year 2024.  Because customers may cancel or reschedule deliveries, backlog may not be a meaningful indicator of future revenue.  Variations in the magnitude and duration of contracts, forecasts and purchase orders received by the Company and delivery requirements generally may result in substantial fluctuations in backlog from period to period.\n \nHuman Capital Resources\n \nThe Company employed approximately 2,950 full-time employees of which approximately 500 were located in the U.S. as of April 30, 2023.  There were approximately 250 engaged in engineering or engineering-related services, 2,300 in manufacturing and 400 in administrative functions, including supply chain, accounting, management and sales and marketing.  \n\n\n \n \n10\n \n \n\n\n \nThe Company makes a considerable effort to maintain a qualified and engaged work force. The Company makes a concerted effort to engage its employees and provide opportunities for growth and the Company believes that its employee relations are good. The Company considers the health and safety of its employees a key priority, and even more during the COVID-19 pandemic. The Company has adopted various safety, cleaning and social distancing protocols consistent with the requirements of each jurisdiction. T\nhe Company is committed to removing conditions that may cause personal injury or occupational illness. \n \nSigmaTron has a labor contract with Chemical & Production Workers Union Local No. 30, AFL-CIO, covering the Company\u2019s workers in Elk Grove Village, Illinois which expires on November 30, 2024. The Company\u2019s Mexican subsidiary, Standard Components de Mexico S.A., has a labor contract with Sindicato De Trabajadores de la Industra Electronica, Similares y Conexos del Estado de Coahuila, C.T.M. covering the Company\u2019s workers in Acuna, Mexico which expires on February 7, 2024.  \nThe Company\u2019s subsidiary located in Tijuana, Mexico has a labor contract with Sindicato Mexico Moderno De Trabajadores De La, Baja California, C.R.O.C.  \nThe contract does not have an expiration date.  The Company\u2019s subsidiary located in Bien Hoa City, Vietnam, has a labor contract with CONG DOAN CO SO CONG TY TNHH Spitfire Controls Vietnam. The contract expires on April 30, 2025.\n \nSince the time the Company commenced operations, it has not experienced any union-related work stoppages.  \n \nAvailable Information\n \nThe Company\u2019s website address is www.sigmatronintl.com.  The Company announces material information, including press releases and financial information regarding the Company, through a variety of means, including the Company\u2019s website, the Investors subpage of its website (www.sigmatronintl.com/investors/), press releases, filings with the SEC and social media, in order to achieve broad, non-exclusionary distribution of information to the public.  The Investors subpage is accessible by clicking on the tab labeled \u201cInvestors\u201d on the Company\u2019s website home page.  The Company also uses these channels to expedite public access to time-critical information regarding the Company in advance of or in lieu of distributing a press release or a filing with the SEC disclosing the same information.  Therefore, investors should look to these channels for important and time-critical information.  In addition, the Company is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy statements, and other information with the SEC.  Such reports and other information filed by the Company with the SEC are available free of charge on its website when such reports are simultaneously available on the SEC\u2019s website at http://www.sec.gov.  The Company encourages investors, the media and others interested in the Company to review the information it posts on these various channels, as such information could be deemed to be material information.\n \nThe contents of the websites referred to above are not incorporated into this filing.  Further, the Company\u2019s references to the URLs for these websites are intended to be inactive textual references only.\n \n\n\n \n \n11\n \n \n\n\n \nInformation about our Executive Officers \n \n \n \n \n \n \n \nName\n \nAge\n \nPosition\n \n \n \n \n \nGary R. Fairhead\n \n71\n \nChief Executive Officer and Chairman of the Board of Directors.  Gary R. Fairhead has been the Chief Executive Officer of the Company and a director since January 1990 and Chairman of the Board of Directors of the Company since August 2011.  He was also President from January 1990 until October 2021 and then from August 2022 until January 2023.  Gary R. Fairhead is the brother of Gregory A. Fairhead.\n \n \n \n \n \nJohn P. Sheehan\n \n62\n \nPresident since January 2023.  Vice President, Director of Supply Chain, and Assistant Secretary from February 1994 until January 2023.\n \n \n \n \n \nJames J. Reiman\n \n60\n \nChief Financial Officer, Vice President of Finance, Treasurer and Secretary since November 2021.  Corporate Controller at Chroma Color Corporation from August 2019 to October 2021.  Corporate Controller at Methode Electronics, Inc. from April 2007 to December 2018.\n \n \n \n \n \nGregory A. Fairhead\n \n67\n \nExecutive Vice President and Assistant Secretary.  Gregory A. Fairhead has been the Executive Vice President since February 2000 and Assistant Secretary since 1994.  Mr. Fairhead was Vice President - Acuna Operations for the Company from February 1990 to February 2000.  Gregory A. Fairhead is the brother of Gary R. Fairhead.\n \n \n \n \n \nRajesh B. Upadhyaya\n \n68\n \nExecutive Vice President, West Coast Operations since 2005.  Mr. Upadhyaya was the Vice President of the Fremont Operations from 2001 until 2005.\n \n \n \n \n \nHom-Ming Chang\n \n63\n \nVice President, China Operations since 2007.  Vice President - Hayward Materials / Test / IT from 2005 - 2007.  \n \n \n \n \n \n \n \n \n \n \n \n\n\n \n \n12\n \n \n\n\n \nITEM 1\nA. RISK FACTORS\n \n \nThe following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K.  Any of the following risks could materially adversely affect our business, operations, industry or financial position or our future financial performance.  While the Company believes it has identified and discussed below the key risk factors affecting its business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect its business, operations, industry, financial position and financial performance in the future.\n \nBusiness and Operational Risks\n \nThe Company\u2019s inventory levels have been adversely impacted by the global supply chain crisis, with an unprecedented impact on working capital requirements.\n \nThe impact of component shortages on sales of finished goods and the resulting increase in inventory levels have been unprecedented.  Accordingly, we have been actively working with our suppliers to acquire scarce resources and with our customers to share the burden of these factors, while investing in systems to increase visibility into long-term supply and demand.  Nevertheless, resulting improvements on the results of the Company\u2019s operations are not certain and may continue to be elusive.  The continued impact of increased inventory levels on working capital requirements materially increases our operating costs and if it continues unabated, could materially and adversely affect our business and results of operations\n.\n \nRaw material price increases and supply shortages could adversely affect results.\n \nThe supply of raw materials to the Company and to its component parts suppliers could be interrupted for a variety of reasons, including availability and pricing. In particular, inflation, changes in trade policies, the imposition of duties and tariffs, potential retaliatory countermeasures, public health crises (such as the COVID-19 pandemic), and geopolitical conflicts (including \ninvolving Russia, Belarus, or the Ukraine, which supply raw materials, such as neon, palladium and nickel, to the semiconductor industry) could adversely impact the price or availability of raw materials. \nPrices for raw materials necessary for production have fluctuated significantly in the past and the Company is currently experiencing upward pricing pressure on raw materials. Historically, it has been difficult to pass increased prices for \ncomponents and raw materials through to our customers in the form of price increases.  The Company may not be able to pass along increased raw material and components parts prices to its customers in the form of price increases or its ability \nto do so could be delayed. Significant price increases for components and raw materials could adversely affect the Company's results of operations and operating margins. Consequently, its results of operations and financial condition may be adversely affected.\n \nThe Company experiences variable operating results. \n \nThe Company\u2019s results of operations have varied and may continue to fluctuate significantly from period to period, including on a quarterly basis.  Consequently, results of operations in any period should not be considered indicative of the results for any future period, and fluctuations in operating results may also result in fluctuations in the price of the Company\u2019s common stock.\n \nThe Company\u2019s quarterly and annual results may vary significantly depending on numerous factors, many of which are beyond the Company\u2019s control.  Some of these factors include:\n \n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0changes in availability and rising component costs\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0changes in sales mix to customers\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0volume of customer orders relative to capacity\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0market demand and acceptance of our customers\u2019 products\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0price erosion within the EMS marketplace\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0capital equipment requirements needed to remain technologically competitive\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0volatility in the U.S. and international economic and financial markets\n \n\n\n \n \n13\n \n \n\n\n \nThe volume and timing of sales to the Company\u2019s customers may vary due to:\n \n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0component availability\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0variation in demand for the Company\u2019s customers\u2019 products\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0customers\u2019 attempts to manage their inventory\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0design changes\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0acquisitions of or consolidation among customers\n \nMost of the Company\u2019s customers\u2019 production schedules are volatile, which makes it difficult to schedule production and achieve maximum efficiency at the Company\u2019s manufacturing facilities and manage inventory levels.\n \nThe Company\u2019s inability to forecast the level of customer orders with certainty can make it difficult to schedule production and maximize utilization of manufacturing capacity and manage inventory levels.  The Company could be required to increase or decrease staffing and more closely manage other expenses in order to meet the anticipated demand of its customers.  Orders from the Company\u2019s customers could be cancelled or delivery schedules could be deferred as a result of changes in our customers\u2019 demand, thereby adversely affecting the \nCompany\u2019s results of operations in any given period.\n \nWe have,\n and may in the future, encounter complications with acquisitions, which could potentially harm \nour business.\n \nTo integrate\n acquired businesses, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. The integration of acquired businesses may be further complicated by difficulties managing operations in geographically dispersed locations. The integration of acquired businesses may not be successful and could result in disruption by diverting management\u2019s attention from the core business. Also the acquired business\u2019s products or services may not be accepted by the market.  In addition, the integration of acquired businesses may require that we incur significant restructuring charges or other increases in our expenses and working capital requirements, which reduce our return on invested capital. Acquisitions may involve numerous other risks and challenges including but not limited to: potential loss of key employees and customers of the acquired companies; the potential for deficiencies in internal controls at acquired companies; lack of experience operating in the geographic market or industry sector of the acquired business; constraints on available liquidity, and exposure to unanticipated liabilities of acquired companies. These and other factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition, and could adversely affect our consolidated business and operating results.\n \nMarket Risks\n \nPersistent inflation could have a material adverse impact on our business, operating results and financial condition\n.\n \nInflation has risen globally to levels not experienced in years. Inflation directly and indirectly increases the costs of operating expenses such as fuel, energy, transportation, materials, and labor. We may not be able to increase our product prices enough to offset these increased costs, and any increase in our product prices may reduce our future customer orders and profitability.\u00a0Inflation may further erode consumer confidence, and negatively impact the market for our customers\u2019 products. Persistent inflation could exacerbate other risk factors\u00a0discussed in this Annual Report on Form 10-K.\nOur customers have competitive challenges, that could include decreasing demand from their customers, rapid technological changes, and pricing pressures, which could adversely affect their business and the Company\u2019s business.\n \nFactors affecting the industries that utilize our customers\u2019 products could negatively impact our customers and the Company.  These factors include:\n \n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0recessionary periods in our customers\u2019 markets\n\n\n \n \n14\n \n \n\n\n \n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0increased competition among our customers and their competitors\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0the inability of our customers to develop and market their products\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0the inability of our customers to obtain all necessary material to manufacture their products\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0the potential that our customers\u2019 products become obsolete\n-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0our customers\u2019 inability to react to rapidly changing technology\n \nAny such factor or a combination of factors could negatively impact our customers\u2019 need for or ability to pay for our products, which could, in turn, affect the Company\u2019s results of operations.\n \nAdverse market conditions could reduce our future sales and earnings per share.\n \nUncertainty over the erosion of global consumer confidence amidst concerns about volatile energy costs, geopolitical issues, the availability and cost of credit, declining asset values, inflation, unemployment, and the stability and solvency of financial institutions, financial markets, businesses, and sovereign nations has slowed global economic growth.  The economic recovery of recent years is fragile.  The Company\u2019s sales and gross margins depend significantly on market demand for its customers\u2019 products.  The uncertainty in the U.S. and international economic and political environments could result in a decline in demand for our customers\u2019 products in any industry.  Further, any adverse changes in tax rates and laws or trade policies affecting our customers could result in decreasing gross margins.  Any of these potential negative economic conditions may reduce demand for the Company\u2019s customers\u2019 products and adversely affect the Company\u2019s sales.  Consequently, the Company\u2019s past operating results, earnings and cash flows may not be indicative of the Company\u2019s future operating results, earnings and cash flows.\n \nOur exposure to financially troubled customers or suppliers may adversely affect the Company\u2019s financial results.  \n \nOn occasion, we provide services to customers, and rely upon suppliers that have in the past and may in the future experience financial difficulty.  If any of the Company\u2019s customers have financial difficulties, the Company could encounter delays or defaults in the payment of amounts owed for accounts receivable and inventory obligations.  Additionally, if our suppliers experience financial difficulties, we could have difficulty sourcing supplies necessary for production requirements. These risks may be heightened by the effects of the COVID-19 pandemic and recent economic volatility.   Any financially troubled customer or supplier could have a significant adverse impact on the Company\u2019s results of operations and financial condition.\n \nThe Company\u2019s customer base is concentrated.\n \nSales to the Company\u2019s five largest customers accounted for 47.4% and 55.3% of net sales for the fiscal years ended April 30, 2023, and April 30, 2022, respectively.  For the fiscal year ended April 30, 2023, two customers accounted for 13.4% and 12.2% of net sales of the Company, and 6.8% and 4.6%, respectively, of accounts receivable.  For the fiscal year ended April 30, 2022, two customers accounted for 21.8% and 11.7% of net sales of the Company, and 4.0% and 3.2%, respectively, of accounts receivable.  Significant reductions in sales to any of the Company\u2019s major customers or the loss of a major customer could have a material impact on the Company\u2019s operations.  If the Company cannot replace cancelled or reduced orders, sales will decline, which could have a material adverse impact on the results of operations.  There can be no assurance that the Company will retain any or all of its largest customers.  This risk may be further complicated by pricing pressures and intense competition prevalent in our industry.\n \nThe Company faces intense industry competition and downward pricing pressures.\n \nThe EMS industry is highly fragmented and characterized by intense competition.  Many of the Company\u2019s competitors have greater experience, as well as greater manufacturing, purchasing, marketing and financial resources than the Company.  Competition from existing or potential new competitors may have a material adverse impact on the Company\u2019s business, financial condition or results of operations.  The introduction of lower priced competitive products, significant price reductions by the Company\u2019s competitors or significant pricing pressures from its customers could adversely affect the Company\u2019s business, financial condition, and results of operations.\n \n\n\n \n \n15\n \n \n\n\n \nCustomer relationships with start-up companies present more risk.\n \nA small portion of the Company\u2019s current customer base is comprised of start-up companies.\u00a0 Customer relationships with start-up companies may present heightened risk due to the lack of product history.\u00a0 Slow market acceptance of their products could result in demand fluctuations causing inventory levels to rise.\u00a0 Further, the current economic environment could make it difficult for such emerging companies to obtain additional funding.\u00a0 This may result in additional credit risk including, but not limited to, the collection of trade account receivables and payment for their inventory.\u00a0 If the Company does not have adequate allowances recorded, the results of operations may be negatively affected.\n \nInternational Operations Risks\n \nThe Company has significant foreign operations that may pose additional risks\n.\n \nThe Company manufactures product in facilities located in Mexico, China, Vietnam and the United States. These operations may be subject to a number of risks, including:\n-\nthe political climate and relations with the United States, including the impact of trade wars, tariffs and trade barriers (including quotas)\n-\npolitical and economic instability (including acts of terrorism, territorial disputes, pandemics, civil unrest, forms of violence, and outbreaks of war), which could impact our ability to ship, manufacture, or receive product\n-\nthe instability of the foreign economies\n-\nburdens of complying with a wide variety of foreign laws and labor practices\n-\nunexpected changes in regulatory requirements and laws\n-\ndifficulties in staffing, turnover and managing onshore and offshore operations\n-\nexport duties, import controls\n-\nlegal authority of the Company to operate and expand its business in foreign countries\n-\nimpact of physical and operational risks from natural disasters, severe weather events, and climate change\n-\nimpact of future temporary closures and labor constraints as a result of COVID-19.\n \nThe Company obtains many of its materials and components through its IPO in Taipei, Taiwan.  The Company\u2019s access to these materials and components is dependent on the continued viability of its Asian suppliers.\n \nApproximately 37% of the total assets of the Company are located in foreign jurisdictions outside the United States as of April 30, 2023; 25% and 10% of the total assets were located in Mexico and China, respectively, and 2% in other foreign locations. As of April 30, 2022, approximately 35% of the total assets were located in foreign jurisdictions; 20% and 12% were located in China and Mexico, respectively and 3% in other foreign locations.\n \nThere is a risk of fluctuation of various currencies integral to the Company\u2019s operations.\n \nThe Company purchases some of its material components and funds some of its operations in foreign currencies.  From time to time the currencies fluctuate against the U.S. Dollar.  Such fluctuations could have a material impact on the Company\u2019s results of operations and performance.  The impact of currency fluctuations for the fiscal year ended April 30, 2023, resulted in net foreign currency transaction losses of $892,642 compared to net foreign currency losses of $412,218 in the prior year.  These fluctuations are expected to continue and could have a negative impact on the Company\u2019s results of operations.  The Company has not, and is not expected to, utilize derivatives or hedge foreign currencies to reduce the risk of such fluctuations.\n \nUnanticipated changes in our tax position, the adoption of new tax legislation or exposure to additional tax liabilities could adversely affect our financial results.\n \nWe base our tax position upon our understanding of the current tax laws of the various countries in which we have assets or conduct activities. Our tax position, however, is subject to review and possible challenge by \n\n\n \n \n16\n \n \n\n\ntaxing authorities and to possible changes in law. We cannot determine in advance the extent to which some jurisdictions may assess additional tax or interest and penalties on such additional taxes. Given the scope of our international operations and our international tax arrangements, changes to the manner in which U.S. based multinational companies are taxed in the U.S. could have a material impact on our financial results and competitiveness. Based on current and future tax policy in Washington D.C., our effective tax rates and overall cash taxes may change in the future and could have an impact on our financial results.\n \nFinancing and Capital Risks\n \nIf we fail to comply with our credit agreements in future periods, we may be unable to secure any required waivers or amendments from the lenders and repayment obligations on our outstanding indebtedness may be accelerated.\n \nOur credit agreements contain numerous financial and operating covenants with which we must comply. In the fourth quarter of fiscal year 2023\n, the Company was able to negotiate amendments and waivers with both\u00a0J.P. Morgan Chase and TCW Asset Management Company as a result of our failure to maintain certain covenants as of January 31, 2023.  A\ns of April 30, 2023, we were in compliance with these \ncovenants. However, our continued compliance with our obligations in general and these financial covenants in particular is dependent on our financial results, which are subject to fluctuation as described elsewhere in the\u00a0risk factors discussed in this Annual Report on Form 10-K. If \nwe fail to comply with the covenants in the future and if our lenders do not agree to waive any future non-compliance, we may be unable to borrow funds and any outstanding indebtedness could become immediately due and payable, which could materially harm our business.\n \nThe Company\u2019s current credit facilities may become unavailable.\n \nWe cannot be certain that we will be able to amend the credit facilities or revise covenants, if necessary, to accommodate changes or developments in our business and operations. It is possible that counterparties to our financial agreements, including our credit facilities and receivables factoring programs, may not be willing or able to meet their obligations, either due to instability in the global financial markets or otherwise, which could, among other impacts, increase the duration of our cash collection cycle. Furthermore, our ability to meet any current or future financing covenants will largely depend on our financial performance, which in turn will be subject to general economic conditions and financial, business and other factors.  The cessation of any of our current credit facilities could cause a \nmaterial adverse effect on the Company\u2019s business, results of operations and financial condition\n.\n \nWe may fail to secure or maintain necessary additional financing or capital.\n \nWhile we currently believe we have ample liquidity to finance our business and manage the financial impact of current economic challenges, we can give no assurance that our existing credit arrangements will provide all of the financing capacity that we will need in the future.  If the current credit facilities are not adequate, we may seek to raise additional capital by issuing additional equity, modifying our existing or obtaining new credit facilities, or through a combination of these methods. Our ability to issue additional common stock, other equity securities or debt securities may be hampered by any actual or perceived weakness or volatility in our stock price.  Any such securities also likely will be dilutive to stockholders\u2019 ownership interests.  We may not be able to obtain capital when we want or need it, or on satisfactory terms.  The failure to have access to sufficient \ncapital could adversely materially affect the Company\u2019s business, results of operations and financial condition. \n \nIncreasing\n interest rates for our borrowings could adversely affect our results of operations.\n \nThe Company pays interest on outstanding borrowings under its secured credit facilities and certain other long-term debt obligations at interest rates that fluctuate.  In recent months, global inflation and other factors have resulted in a substantial increase in interest rates, and future borrowing costs may rise further.  Adverse changes in the Company\u2019s interest rates could have a material adverse effect on its financial condition and results of operations.\n \n \n \n\n\n \n \n17\n \n \n\n\n \nThe price of the Company\u2019s stock is volatile.\n \nThe price of the Company\u2019s common stock historically has experienced significant volatility due to fluctuations in the Company\u2019s revenue and earnings, other factors relating to the Company\u2019s operations, the market\u2019s changing expectations for the Company\u2019s growth, overall equity market conditions and other factors unrelated to the Company\u2019s operations.  In addition, the limited float of the Company\u2019s common stock also affects the \nvolatility of the Company\u2019s common stock.  Such fluctuations are expected to continue in the future.\n \nAlthough forgiven, the Company\u2019s Paycheck Protection Program Loan (\u201cPPP Loan\u201d) remains subject to audit.\n \nOn April 23, 2020, the Company received a $6,282,973 PPP Loan under the CARES Act, which it used to retain\n current\n U.S. employees, maintain payroll and make lease and utility payments. The PPP Loan was forgiven on July 9, 2021.  However, due to the size of the PPP Loan, it is subject to audit by the SBA for up to six years after forgiveness.  While the Company believes that it satisfied all eligibility criteria for the PPP Loan, there is a risk that on audit, the Company will be determined to have been ineligible to receive the PPP Loan.  In that case, the Company could be required to repay the PPP Loan in a lump sum and be subject to additional penalties and interest and adverse publicity and damage to the Company\u2019s reputation.  If these events were to transpire, they could have a material adverse effect on the Company\u2019s business, results of operations and \nfinancial condition.\n \nRegulatory and Legal Risks\n \nChanges in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations. \n \nThe U.S. government has indicated its intent to adopt a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements.\u00a0 It has also initiated tariffs on certain foreign goods, including raw materials utilized by the Company.\u00a0 Changes in U.S. trade policy could result in one or more of the U.S.\u2019 trading partners adopting responsive trade policy making it more difficult or costly for the Company to import components from those countries.\u00a0 This in turn could require us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in a lower margin on products sold.\n \nChina has imposed tariffs on U.S. products in retaliation for U.S. tariffs.  Additional tariffs could be imposed by China in response to proposed increased tariffs on products imported from China.\u00a0 There is also a concern that the imposition of additional tariffs by the United States could result in the adoption of additional tariffs by other countries.\u00a0 The resulting trade war could have a significant adverse effect on world trade and the world economy.\u00a0 To the extent that trade tariffs and other restrictions imposed by the United States increase the price of or limit the amount of certain raw materials utilized by the Company imported into the United States, the costs of our raw materials may be adversely affected and the demand from our customers for products and services may be diminished, which could adversely affect our revenues and profitability.\n \nWe cannot predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business.\u00a0 The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could adversely impact our business, financial condition and results of operations.\n \nChanges in securities laws and regulations may increase the Company\u2019s compliance efforts and costs.\n \nThe Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and listing requirements subsequently adopted by Nasdaq in response to Sarbanes-Oxley, have required changes in corporate governance practices, internal control policies and securities disclosure and compliance practices of public companies.  More recently the Dodd-Frank Act has required changes to our corporate governance, compliance practices and securities disclosures, and the SEC recently approved pay versus performance disclosures and Nasdaq\u2019s board diversity proposal, immediately increasing the Company\u2019s disclosure \n\n\n \n \n18\n \n \n\n\nrequirements.  \nProposed regulations by the SEC mandating new disclosures of environmental, social and governance information, including climate-related risks, targets and goals and their financial impact, could be adopted in the future.  \nCompliance with these rules has increased our legal, financial and accounting costs, and those costs will increase if additional requirements are imposed.  These legal developments may result in the Company having difficulty in attracting and retaining qualified directors or officers.  The Company\u2019s failure to comply with present or future regulations could result in the SEC or Nasdaq levying sanctions against the Company or even moving to delist its stock.  Such consequences, as well as compliance costs, could have a material impact on the Company\u2019s business, financial condition and results of operations.\n \nConflict Minerals regulations may cause the Company to incur additional expenses and could increase the cost of components contained in its products and adversely affect its inventory supply chain.\n \nThe Dodd-Frank Act, and the rules promulgated by the Securities and Exchange Commission (\u201cSEC\u201d) thereunder, require the Company to attempt to determine and report annually whether any Conflict Minerals contained in our products originated from the DRC or an adjoining country. The Dodd-Frank Act and these rules could affect our ability to source components that contain Conflict Minerals at acceptable prices and could impact the availability of Conflict Minerals, since there may be only a limited number of suppliers of conflict-free Conflict Minerals. Our customers may require that our products contain only conflict-free Conflict Minerals, and our revenues and margins may be negatively impacted if we are unable to meet this requirement at a reasonable price or are unable to pass through any increased costs associated with meeting this requirement. Additionally, the Company may suffer reputational harm with our customers and other stakeholders if our products are not conflict-free.  The Company could incur significant costs in the event we are unable to manufacture products that contain only conflict-free Conflict Minerals or to the extent that we are required to make changes to products, processes, or sources of supply due to the foregoing requirements or pressures.\n \nThe Company\u2019s operations are subject to numerous other regulations and failure to comply with all applicable regulations could subject the Company to liability.\n \nThe Company is subject to a variety of regulations, including environmental regulation of the use, storage, discharge and disposal of hazardous chemicals used during its manufacturing process; disclosures relating to cancer-causing substances in drinking water as required under \nCalifornia Proposition 65; and compliance with the European Union\u2019s requirements relating to certain chemical and hazardous substances including under the \nRegistration, Evaluation, Authorization and Restriction of Chemicals (REACH)\n Act and the \nRestriction of Hazardous Substances (RoHS-2) Directive\n.  To date, the cost to the Company of \nsuch compliance has not had a material impact on the Company\u2019s business, financial condition or results of operations.  However, federal, state and local legislation and regulation are constantly evolving.  Further, increased public awareness and concern regarding environmental risks, including global climate change, may result in more international, federal, state or local requirements or industry standards to reduce or mitigate climate change and other environmental risks. The Company cannot predict the nature, scope or effect of regulatory legislation or requirements that could be imposed or how existing or future laws or regulations will be administered or interpreted.  Any failure by the Company to comply with present or future regulations, whether as a result of human error, equipment failure or other causes, could subject it to future liabilities to customers or governmental agencies, the suspension of production, increased costs or reputational harm with our customers and other stakeholders.  Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies, could require substantial expenditures by the Company and could have a material impact on the Company\u2019s business, financial condition and results of operations.\n \nAny litigation, even where a claim is without merit, could result in substantial costs and diversion of resources.\n \nIn the past, the Company has been notified of claims relating to various matters including contractual matters, product liability, labor issues or other matters arising in the ordinary course of business.  In the event of any such claim, the Company may be required to spend a significant amount of money and resources, even where the claim is without merit or covered by insurance.  Accordingly, the resolution of such disputes, even those encountered in the ordinary course of business, could have a material adverse effect on the Company\u2019s business, consolidated financial conditions and results of operations.\n \n\n\n \n \n19\n \n \n\n\n \nTechnology Risks\n \nIt is increasingly difficult to protect the Company\u2019s \nInformation Technology (\u201cIT\u201d) \nsystems.\n \nWith the increased use of technologies to conduct business, a company is susceptible to operational, information security and related risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyberattacks include gaining unauthorized access to digital systems (e.g., through \u201chacking\u201d or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption (e.g., ransomware attacks). Cyberattacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Cyber incidents affecting the Company or its service providers have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Company\u2019s ability to conduct business in the ordinary course, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, additional compliance costs and, in extreme cases, have caused companies to cease doing business. Cyber events also can affect counterparties or entities with which the Company does business, governmental and other regulatory authorities, banks, insurance companies and other financial institutions, among others. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. While the Company has established risk management systems designed to prevent such cyber incidents, there are inherent limitations in such systems including the possibility that the Company has not prepared for certain risks that have not been or are not possible to have been identified. Further, the Company may have limited ability to influence, and cannot control, the cyber security plans and systems put in place by its service providers or any other third parties whose operations may affect the Company. The Company could be negatively impacted as a result. \n \nIf the security of the Company\u2019s IT systems is breached or otherwise subjected to unauthorized access, the Company\u2019s reputation may be severely harmed and it may be exposed to liability.\n \nThe Company\u2019s IT systems store confidential information which includes its financial information, its customers\u2019 proprietary information, product information, supplier information, and other critical data.\u00a0 Any accidental or willful security breach or other unauthorized access could expose the Company to liability for the loss of such information, adverse regulatory action by federal, state and local governments, time-consuming and expensive litigation and other possible liabilities as well as negative publicity, which could severely damage the Company\u2019s reputation.\u00a0 If security measures are breached because of third-party action, employee action or error, malfeasance or otherwise, or if design flaws in its software are exposed and exploited, and, as a result, a third party obtains unauthorized access to any of the Company\u2019s customer data, its relationships with its customers may be severely damaged, and the Company could incur significant liability.\u00a0 Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, the Company and its third-party hosting facilities may be unable to anticipate these techniques or to implement adequate preventive measures.\u00a0 In addition, many states have enacted laws requiring companies to notify customers of data security breaches involving their data.\u00a0 These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause the Company\u2019s customers to lose confidence in the effectiveness of its data security measures.\u00a0 Any security breach whether actual or perceived, could harm the Company\u2019s reputation, could cause it to lose customers and may negatively impact its ability to acquire new customers.\n \nThe Company and its customers may be unable to keep current with the industry\u2019s technological changes.\n \nThe market for the Company\u2019s manufacturing services is characterized by rapidly changing technology and continuing product development.  The future success of the Company\u2019s business will depend in large part upon our customers\u2019 ability to maintain and enhance their technological capabilities, and our ability to develop and market manufacturing services which meet changing customer needs and successfully anticipate or respond to technological changes in manufacturing processes on a cost-effective and timely basis.\n \n\n\n \n \n20\n \n \n\n\n \nHuman Capital Risks\n \nThe Company depends on management and skilled personnel.\n \nThe Company depends significantly on its Chief Executive Officer and Chairman of the Board, President and other executive officers.  The Company\u2019s employees generally are not bound by employment agreements and the Company cannot assure that it will retain its executive officers or skilled personnel.  The loss of the services of any of these key employees could have a material impact on the Company\u2019s business and results of operations.  In addition, due to significant competition in the labor market, continued growth and expansion of the Company\u2019s EMS business will require that the Company attract, motivate and retain additional skilled and experienced personne\nl.  The Company\u2019s future growth depends on the contributions and abilities of key executives and skilled, experienced employees. The Company\u2019s future growth also depends on its ability to recruit and retain high-quality employees. A failure to obtain or retain the number of skilled employees necessary to support the Company\u2019s efforts, a loss of key employees or a significant shortage of skilled, experienced employees could jeopardize its ability to meet its growth targets.\n \nFavorable labor relations are important to the Company, and failures to comply with domestic or international employment laws could result in significant damages.\n \nThe Company currently has labor union contracts with its employees constituting approximately 48% and 51% of its workforce for fiscal years 2023 and 2022, respectively.  Although the Company believes its labor relations are good, any labor disruptions, whether union-related or otherwise, could significantly impair the Company\u2019s business, substantially increase the Company\u2019s costs or otherwise have a material impact on the Company\u2019s results of operations.  The Company is also subject to a variety of domestic and foreign employment laws, including those related to safety, wages, discrimination, harassment, organizing, employee privacy and severance.  Allegations of violations of these laws could result in defense costs, damages, settlements and fines, which could have a material impact on the Company\u2019s results of operations.\n \nAccounting Risks\n \nThe Company has intangible assets, and future impairment of these assets could have a material adverse \nimpact on the Company's financial results.\n \nThe Company\n has recorded identifiable intangible assets on its balance sheet as a result of operations and acquisitions. A number of factors may result in impairments to intangible assets, including significant negative industry or economic trends, disruptions to our business, increased competition and significant changes in the use of the assets. For example, we concluded that our goodwill and long-lived assets as of April 30, 2023 were impaired and recorded asset impairment charges equal to a total of $23,096,771, which adversely impacted our results of operations.  See Note F \u2013 Acquisition and Disposition, for a discussion related to impairment testing of goodwill and intangible assets for the year ended April 30, 2023. Any additional impairment charges could adversely affect the Company's financial condition or results of operations in the periods recognized.  \n \nInadequate internal control over financial reporting could result in a reduction in the value of our common stock.\n \nIf the Company identifies and reports a material weakness in its internal control over financial reporting, stockholders and the Company\u2019s lenders could lose confidence in the reliability of the Company\u2019s financial statements.  This could have a material adverse impact on the value of the Company\u2019s stock and the Company\u2019s liquidity.\n \nDisclosure and internal controls may not detect all errors or fraud.\n \nThe Company\u2019s disclosure controls and internal controls can provide only reasonable assurance that the procedures will meet the control objectives.  Controls are limited in their effectiveness by human error, including faulty judgments in decision-making.  Further, controls can be circumvented by collusion of two or more people or by management override of controls.  Therefore, the Company\u2019s management, including the \n\n\n \n \n21\n \n \n\n\nChief Executive Officer and Chief Financial Officer, cannot conclude with certainty that the Company\u2019s disclosure controls and internal controls will prevent all errors and all fraud.\nChanges in financial accounting standards may affect our reported financial condition or results of operations as well as increase costs related to implementation of new standards and modifications to internal controls.\n \nOur consolidated financial statements are prepared in conformity with accounting standards generally accepted in the United States, or U.S. GAAP. These principles are subject to amendments made primarily by the Financial Accounting Standards Board (FASB) and the SEC. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions which are completed before a change is announced. Changes to accounting rules or challenges to our interpretation or application of the rules by regulators may have a material adverse effect on our reported financial results or on the way we conduct business.\n ",
+  "item1a": ">ITEM 1A.\nRISK FACTORS\n13\n \nITEM IB.\nUNRESOLVED STAFF COMMENTS\n22\n \nITEM 2.\nPROPERTIES\n22\n \nITEM 3.\nLEGAL PROCEEDINGS\n23\n \nITEM 4.\nMINE SAFETY DISCLOSURES\n23\n \n \n \n \nPART II\n \n \n \n \n \n \n \n \nITEM 5.\nMARKET FOR REGISTRANT\u2019S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES\n24\n \n \n \n \nITEM 6.\nRESERVED \n24\n \nITEM 7.\nMANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n24\n \n \n \n ",
+  "item7": ">ITEM 7.\n  MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION \n                 AND RESULTS OF OPERATIONS \n \nIn addition to historical financial information, this discussion of the business of SigmaTron International, Inc. (\u201cSigmaTron\u201d), its wholly-owned subsidiaries Standard Components de Mexico S.A., AbleMex, S.A. de C.V., Digital Appliance Controls de Mexico, S.A. de C.V., Spitfire Controls (Vietnam) Co. Ltd., and Spitfire Controls (Cayman) Co. Ltd., wholly-owned foreign enterprises Wujiang SigmaTron Electronics Co., Ltd. and Wujiang SigmaTron Electronic Technology Co., Ltd., its international procurement office SigmaTron International, Inc. Taiwan branch, and Wagz, Inc. (19 percent ownership as of April 1, 2023), (collectively, the \u201cCompany\u201d) and other Items in this Annual Report on Form 10-K contain forward-looking statements concerning the Company\u2019s business or results of operations.  See \u201cItem 1. Business\u2014Cautionary Note\u201d for a discussion of these forward-looking statements and the associated risks and uncertainties. \n \nOverview \n \nPrior to April 1, 2023, the Company operated in two reportable segments as an independent provider of EMS, and as a provider of products to the Pet Tech market.  A majority of the Pet Tech Segment was sold on April 28, 2023, effective as of April 1, 2023, and following such date, the Company operates in one reportable segment, the EMS segment.  The EMS segment includes printed circuit board assemblies, electro-mechanical subassemblies and completely assembled (box-build) electronic products.  The Pet Tech reportable segment offered electronic products such as the Freedom Smart Dog Collar\u2122, a wireless, geo-mapped fence, and wellness system, and apparel and accessories.  \n \nThe Company relies on numerous third-party suppliers for components used in the Company\u2019s production process.  Certain of these components are available only from single-sources or a limited number of suppliers.  In addition, a customer\u2019s specifications may require the Company to obtain components from a single-source or a small number of suppliers.  The loss of any such suppliers could have a material impact on the Company\u2019s results of operations.  Further, the Company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers.  The Company does not enter into long-term purchase agreements with major or single-source suppliers.  The Company believes that short-term purchase orders with its suppliers provides flexibility, given that the Company\u2019s orders are based on the changing needs of its customers.\n \nIn connection with the production of assembled products, the Company provides services to its customers, including (1) automatic and manual assembly and testing of products; (2) material sourcing and procurement; (3) manufacturing and test engineering support; (4) design services; (5) warehousing and distribution services; (6) assistance in obtaining product approval from governmental and other regulatory bodies and (7) compliance \n\n\n \n \n24\n \n \n\n\nreporting.  The Company provides these manufacturing services through an international network of facilities located in the United States, Mexico, China, Vietnam and Taiwan.\n \nSee \u201cItem 1. Business\u2014Recent Developments\u201d for additional information.\n \nSales can be a misleading indicator of the Company\u2019s financial performance.  Sales levels can vary considerably among customers and products depending on the type of services (turnkey versus consignment) rendered by the Company and the demand by customers.  Consignment orders require the Company to perform manufacturing services on components and other materials supplied by a customer, and the Company charges only for its labor, overhead and manufacturing costs, plus a profit.  In the case of turnkey orders, the Company provides, in addition to manufacturing services, the components and other materials used in assembly.  Turnkey contracts, in general, have a higher dollar volume of sales for each given assembly, owing to inclusion of the cost of components and other materials in net sales and cost of goods sold.  Variations in the number of turnkey orders compared to consignment orders can lead to significant fluctuations in the Company\u2019s revenue and gross margin levels.  Consignment orders accounted for less than 1% of the Company\u2019s revenues for each of the fiscal years ended April 30, 2023 and April 30, 2022.\n \nThe Company\u2019s international footprint provides our customers with flexibility within the Company to manufacture in China, Mexico, Vietnam or the U.S.  We believe this strategy will continue to serve the Company well as its customers continuously evaluate their supply chain strategies.\n \nFactors Affecting Results\n \nSupply Chain Component Shortages.\n  The Company\u2019s business, results of operations, and financial condition continue to be adversely affected by supply chain issues due to world-wide component shortages. The Company anticipates continuing supply chain issues in fiscal 2024\n.  \n \nImpairment of Goodwill and Long-Lived Assets.\n  During the third quarter of fiscal 2023, the Company determined its goodwill and long-lived asset group was fully impaired and an impairment charge of $23,096,771 was recorded. This non-cash charge was recorded to impairment of goodwill and intangible assets on the unaudited condensed consolidated statements of operations.  See Note H \u2013 Intangible Assets, for more information.\n \nPPP Loan\n \nand CARES Act\n.  During the fourth fiscal quarter of 2020 the Company received a $6,282,973 PPP Loan under the CARES Act. The Company believes it met the requirements for eligibility.  During the fourth fiscal quarter of 2020 and continuing through fiscal year 2022, the Company had operational interruptions and incurred significant expenses related to the COVID-19 pandemic at all of its operations.\u00a0 In some locations the interruptions and expenses were worse than others.  The Company was notified of the forgiveness of the PPP Loan by the SBA on July 9, 2021 and all principal and accrued interest were forgiven.  The accounting for the forgiveness is reflected in the Company\u2019s Statement of Operations as a non-cash gain upon extinguishment of long-term debt.  \n \nRecent Developments \n \nThe Company began its Pet Technology operations after the December 31, 2021 acquisition of Wagz, Inc.  The Company sold a majority of the business on April 28, 2023, effective as of April 1, 2023. Wagz has developed and brought to market a high tech pet collar and has multiple other products in development.  Wagz is an IoT company which both owns intellectual property and secures recurring revenue through subscriptions for its services.  During the fourth quarter of fiscal year 2023, the Company exited its active involvement in the Pet Tech business that is conducted by Wagz through the sale by the Company of a majority stake in Wagz, effective as of April\u00a01, 2023. See \u201cItem 1. Business\u2014Recent Developments\u201d for additional information.\n \nOn\n \nMarch\n \n2,\n \n2023,\n the Company received \nthe\n \nJPM\n \nNotice\n \nand\n \nthe\n \nTCW\n Notice\n.\n T\nhe Notices indicated the occurrence of certain events of default under the JPM Credit Agreement and the Term Loan Agreement.  See Note I \u2013 Long-term Debt, for more information.  \n \n\n\n \n \n25\n \n \n\n\n \nOn\n \nApril\n \n28,\n \n2023,\n \nthe\n \nCompany\n \nentered\n \ninto\n \n(i)\n the \nJPM\n \nW\naiver\n with\n \nW\nagz\n \nand\n \nJPM,\n \nas\n \nl\ne\nnder\n, which waived certain events of default under and amended certain terms of \nthe\n \nJPM\n \nCredit\n \nAgreement\n \nand\n \n(i\ni\n)\n the \nTCW\n \nW\naiver\n with\n \nW\nagz,\n \nthe\n \nTCW\n \nLenders\n \nand Agent, which waived certain events of default under and amended certain terms of the Term Loan\n \nAgreement.\n \nSee Note I \u2013 Long-term Debt and \u201cItem 1. Business\u2014Recent Developments\u201d, for more information.  \n \nAs described in Note I \u2013 Long-term Debt, \nthe\n \nCompany\n \nexited\n \nits\n \nactive\n \ninvolvement\n \nin\n \nthe\n \nPet\n \nT\nech\n \nbusiness\n \nthat\n \nis\n \nconducted\n \nb\ny\n \nW\nagz\n \nthrough the\n \nsale\n \nby\n \nthe\n \nCompany\n \nof\n \na\n \nmajority\n \nstake\n \nin\n \nW\nagz,\n \ne\nf\nfective\n as of \nApril\n \n1,\n \n2023. In\n \nconnection\n \nwith\n \nthe\n \nW\naivers and such sale, the Lender Parties agreed to release Wagz and its property from the lien of the Lender Parties under the Credit Agreements.\n \nCritical Accounting Estimates:\n \nManagement Estimates and Uncertainties \n\u2013 \nThe preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (\u201cGAAP\u201d) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant estimates made in preparing the consolidated financial statements include depreciation and amortization periods, the allowance for doubtful accounts, excess and obsolete reserves for inventory, deferred income, deferred taxes, uncertain tax positions, valuation allowance for deferred taxes and valuation of goodwill and long-lived assets.  Actual results could materially differ from these estimates.\n \nThe potential impact of future disruptions and continued economic uncertainty over public health crises, including COVID-19 and variants, and the global supply chain may have a significant adverse impact on the timing of delivery of customer orders and the levels of future customer orders.  It is possible that these potential adverse impacts may result in the recognition of material impairments of the Company\u2019s long-lived assets or other related charges in future periods.\n \nRevenue Recognition\n \u2013 The Company recognizes revenue when control of the promised goods or services are transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.  The Company\u2019s primary performance obligation to its customers is the production of finished goods electronic assembly products pursuant to purchase orders.  The Company has concluded that control of the products it sells and transfers to its customers and an enforceable right to receive payment is customarily established at the point in time when the finished goods are shipped to its customers, or in some cases delivered pursuant to the specified shipping terms of each customer arrangement.  With respect to consignment arrangements, control transfers and revenue is recognized at the point in time when the goods are shipped to the customer from the consignment location or when delivered to the customer (pursuant to agreed upon shipping terms).  In those limited instances where finished goods delivered to the customer location are stored in a segregated area which are not controlled by the customer (title transfer, etc.) until they are pulled from the segregated area and consumed by the Company\u2019s customer,\n \nrevenue is recognized upon consumption.  For tooling services, the Company\u2019s performance obligation is satisfied at the point in time when the customer approves the first article of dies or molds.  For engineering, design, and testing services, the Company\u2019s performance obligations are satisfied over time as the respective services are rendered as its customers simultaneously derive value from the Company\u2019s performance.  \n \nEach customer purchase order sets forth the transaction price for the products and services purchased under that arrangement.  The Company evaluates the credit worthiness of its customers and exercises judgment to recognize revenue based upon the amount the Company expects to be paid for each sales transaction it enters into with its customers.  Some customer arrangements include variable consideration, such as volume rebates, some of which depend upon the Company\u2019s customers meeting specified performance criteria, such as a purchasing level over a period of time.  The Company exercises judgment to estimate the most likely amount of variable consideration at each reporting date.\n \nInventories\n \u2013 Inventories are valued at cost.  Cost is determined by an average cost method and the Company allocates labor and overhead to work-in-process and finished goods.  In the event of an inventory write-down, the Company records expense to state the inventory at lower of cost or net realizable value.  The \n\n\n \n \n26\n \n \n\n\nCompany establishes inventory reserves for valuation and excess and obsolete inventory for which the customer is not obligated.  The Company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss.  Of the Company\u2019s raw materials inventory, a substantial portion has been purchased to fulfill committed future orders or for which the Company is contractually entitled to recover its costs from its customers.  For the remaining raw materials inventory, a provision for excess and obsolete inventories is recorded for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions.  Upon a subsequent sale or disposal of the impaired inventory, the corresponding reserve is relieved to ensure the cost basis of the inventory reflects any reductions.  Actual results differing from these estimates could significantly affect the Company\u2019s inventories and cost of products sold as the inventory is sold or otherwise relieved.\n \nIntangible Assets \n\u2013 Intangible assets are comprised of finite life intangible assets including customer relationships, trade names and patents.  \nThe fair value recorded as of April 30, 2023 is based on significant inputs that are not observable in the market and thus represents a fair value measurement categorized within Level 3 of the fair value hierarchy. The fair value of the acquired trade names and patents was determined using the relief from\u00a0royalty method, which is a risk-adjusted discounted cash flow approach. The relief from\u00a0royalty method\u00a0values an intangible asset by estimating the royalties saved through ownership of the asset. The relief from\u00a0royalty method\u00a0requires identifying the future revenue that would be generated by the intangible asset, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date using the internal rate of return.\n \nImpairment of Long-Lived Assets\n \u2013 The Company reviews long-lived assets, including amortizable intangible assets, for impairment.  Property, machinery and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances occur that indicate possible impairment.  If events or changes in circumstances occur that indicate possible impairment, the Company first performs an impairment review based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of its assets and liabilities.  This analysis requires management judgment with respect to changes in technology, the continued success of product lines, and future volume, revenue and expense growth rates.  If the carrying value exceeds the undiscounted cash flows, the Company records an impairment, if any, for the difference between the estimated fair value of the asset group and its carrying value.  The Company further conducts annual reviews for idle and underutilized equipment, and reviews business plans for possible impairment.  \n \nDuring the third quarter of fiscal 2023, the Company revised the financial outlook for the Pet Tech segment, resulting in lower projected sales and net income for future periods.  The Company assessed the overall market acceptance of the current Wagz product offerings after the holiday season and determined that this constituted a triggering event for the Company\u2019s long-lived asset groups, primarily consisting of patents, trade names and certain fixed assets.  The Company reviewed the undiscounted future cash flows for the identified long-lived asset group, and the results of the analysis indicated the carrying amount for the long-lived group was not expected to be recovered.\n \nThe fair value of the identified intangible assets was estimated using the \nrelief from\u00a0royalty method, which is a risk-adjusted discounted cash flow approach. The relief from\u00a0royalty method\u00a0values an intangible asset by estimating the royalties saved through ownership of the asset. The relief from\u00a0royalty method\u00a0requires identifying the future revenue that would be generated by the intangible asset, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date using the internal rate of return.\n \nThe Company determined the fair value of the long-lived asset group was lower than its carrying value and recorded an intangible asset impairment charge of $9,527,773 during the three months ended January 31, 2023.  This non-cash charge was recorded to impairment of goodwill and intangible assets on the unaudited condensed consolidated statements of operations.  As of April 30, 2023 this non-cash charge has been reported under discontinued operations.    See Note H \u2013 Intangible Assets and Note P \u2013 Discontinued Operations, for more information.\n \nImpairment of Goodwill \n\u2013\n \n \nGoodwill represents the cost of business acquisitions in excess of the fair value of identifiable net tangible and intangible\u00a0assets acquired.  On an annual basis, or more frequently if \n\n\n \n \n27\n \n \n\n\ntriggering events occur, the Company compares the estimated fair value of its reporting units to the carrying value of each reporting unit to determine if a potential goodwill impairment exists.  If the fair value of a reporting unit is less than its carrying value, a goodwill impairment loss is recorded for the difference.  In calculating the fair value of the reporting units or specific intangible assets, management relies on a number of factors, including business plans, economic projections, anticipated future cash flows, comparable transactions and other market data.  There are inherent uncertainties related to these factors and management's judgment in applying them in the impairment tests of goodwill and other intangible assets.\n \nThe Company observed during the third quarter of fiscal 2023, the overall lack of market acceptance of the current Wagz product offerings during the holiday season and determined this constituted a triggering event.  Accordingly, the Company performed a quantitative goodwill impairment test and estimated the fair value of the Pet Tech segment based on a combination of an income approach (estimates of future discounted cash flows), a market approach (market multiples for similar companies) and a cost approach.  Significant unobservable inputs and assumptions inherent in the valuation methodologies, which represented Level 3 inputs, under the fair value hierarchy, were employed and included, but were not limited to, prospective financial information, terminal value assumptions, discount rates, and multiples from comparable publicly traded companies in the Pet Tech industry.\n \nThe cost approach is based on upon the concept of replacement cost as an indicator of value.  Stated another way, this approach is premised on the assumption that a prudent investor would pay no more for an asset than the amount for which the asset could be replaced.  The cost approach establishes value based on the cost reproducing or replacing the property, less depreciation from physical deterioration and functional obsolescence, if present and measurable.\n \nDuring the third quarter of fiscal 2023, the Company determined its goodwill was fully impaired as the fair value was lower than the carrying value and recorded an impairment charge of $13,320,534. This non-cash charge was recorded to impairment of goodwill and intangible assets as of January 31, 2023.\n \nIncome Tax\n \u2013 \nThe Company\u2019s income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management\u2019s best assessment of estimated future taxes to be paid.  The Company is subject to income taxes in both the U.S. and several foreign jurisdictions.  Significant judgments and estimates by management are required in determining the consolidated income tax expense assessment.\n \nDeferred income tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.  In evaluating the Company\u2019s ability to recover its deferred tax assets within the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations.  In projecting future taxable income, the Company begins with historical results and changes in accounting policies, and incorporates assumptions including the amount of future state, federal and foreign pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies.  These assumptions require significant judgment and estimates by management about the forecasts of future taxable income and are consistent\n \nwith the plans and estimates the Company uses to manage the underlying businesses.  In evaluating the objective evidence that historical results provide, the Company considers three years of cumulative operating income and/or loss.  Valuation allowances are established when necessary to reduce deferred income tax assets to an amount more likely than not to be realized.  SigmaTron and Wagz filed or are expected to file U.S. tax returns on a consolidated basis for periods during which Wagz was wholly owned. Therefore, a valuation allowance was previously established on the group\u2019s U.S. deferred tax assets during fiscal year 2022. After the sale of Wagz, SigmaTron expects to file on a standalone basis and utilize its U.S. deferred tax assets with the exception of the capital loss on sale and certain foreign tax credits. The Company has established a valuation allowance of $7,260,628 on its U.S. capital loss and foreign tax credit carryforwards and a valuation allowance of $442,889 on certain foreign loss carryforwards as of April 30, 2023. \n \n\n\n \n \n28\n \n \n\n\n \nNew Accounting Standards:\n \nSee Note B \u2013 Summary of Significant Accounting Policies \nof Item 15(a) \nExhibits and Financial Statement Schedules\n.\n \nResults of Operations:\n \nFISCAL YEAR ENDED APRIL 30, 2023 COMPARED\nTO FISCAL YEAR ENDED APRIL 30, 2022\n \nThe following table sets forth the percentage relationships of gross profit and expense items to net sales for the years indicated:\n\u00a0\n \n \n \n \n \n \n \nFiscal Years Ended\n \nApril 30,\n \n \n2023\n \n \n2022\n \n \n \n \n \n \nNet sales\n$\n 414,435,845\n \n$\n 378,316,495\nCosts of products sold\n \n 362,982,248\n \n \n 333,925,226\nAs a percent of net sales\n \n87.6%\n \n \n88.3%\nGross profit\n \n 51,453,597\n \n \n 44,391,269\nAs a percent of net sales\n \n12.4%\n \n \n11.7%\n \n \n \n \n \n \nSelling and administrative expenses\n \n 26,495,951\n \n \n 25,981,794\nAs a percent of net sales\n \n6.4%\n \n \n6.9%\nOperating income from continuing operations\n \n 24,957,646\n \n \n 18,409,475\n \n \n \n \n \n \nGain on extinguishment of long-term debt\n \n -\n \n \n 6,282,973\nOther income\n \n 632,223\n \n \n 153,614\nInterest expense, net\n \n (8,403,904)\n \n \n (1,500,140)\nIncome before income taxes from continuing operations\n \n 17,185,965\n \n \n 23,345,922\n \n \n \n \n \n \nIncome tax expense\n \n (2,991,541)\n \n \n (4,980,003)\nNet income from continuing operations\n$\n 14,194,424\n \n$\n 18,365,919\n \n \n \n \n \n \nDiscontinued operations:\n \n \n \n \n \nLoss before taxes from discontinued operations\n$\n (36,629,902)\n \n \n (9,180,064)\nTax benefit for discontinued operations\n \n 1,860,093\n \n \n 678,313\nNet loss from discontinued operations\n$\n (34,769,809)\n \n$\n (8,501,751)\n \n \n \n \n \n \nNet (loss) income\n$\n (20,575,385)\n \n$\n 9,864,168\n \nNet sales\n \nNet sales increased $36,119,350, or 9.5% to $414,435,845 in fiscal 2023, compared to $378,316,495 in fiscal 2022.  Net sales were higher due to higher sales volume and certain customer price increases implemented as a result of increased raw material and other operating costs that occurred during fiscal 2023, as compared to last fiscal year.  The Federal Reserve has raised interest rates several times during fiscal 2023, which has negatively affected customer demand in the consumer electronics markets, but has not had the same effect in the industrial electronics and medical/life science markets.  As a result, the Company\u2019s sales increased in fiscal 2023 in \n\n\n \n \n29\n \n \n\n\nindustrial electronics and medical/life science compared to the prior fiscal year.  The increase in sales was accompanied by a decrease in sales in consumer electronics.  \n \nCosts of products sold\n \nCost of products sold increased $29,057,022, or 8.7%, to $362,982,248 (87.6% of net sales) in fiscal 2023, compared to $333,925,226 (88.3% of net sales) in the prior fiscal year. The decrease in cost of products sold as a percentage of sales is primarily due to favorable sales mix, partially offset with higher material, logistics and other operating costs as a result of higher sales volumes and the impact of global supply chain disruptions that caused factory inefficiencies. Labor costs and other manufacturing costs were higher in fiscal 2023, compared to fiscal 2022, primarily due to inflationary pressures.  The Company anticipates continuing supply chain issues in fiscal 2024.\n \nGross profit margin\n \nGross profit margin was 12.4% of net sales, in fiscal year 2023 compared to 11.7% of net sales in fiscal 2022. The increase in gross margins as a percentage of sales was primarily due to favorable sales mix, notwithstanding higher material, labor and other manufacturing costs during fiscal 2023, compared to fiscal 2022.\n \nSelling and administrative expenses\n \nSelling and administrative expenses increased $514,157, or 2.0% to $26,495,951 (6.4% of net sales) in fiscal 2023, compared to $25,981,794 (6.9% of net sales) in the prior fiscal year.  The increase in selling and administrative expenses primarily relates to inflationary pressures in fiscal 2023, compared to fiscal 2022.\n \nGain on the extinguishment of long-term debt\n \nOn April 23, 2020, the Company received proceeds of $6,282,973 from a PPP Loan under the CARES Act, which it used to retain current U.S. employees, maintain payroll and make lease and utility payments. The PPP Loan was forgiven on July 9, 2021 and was recorded as a gain on the extinguishment of debt in fiscal 2022.\n \nOther Income\n \nOther income increased to $632,223 in fiscal 2023, compared to $153,614 in fiscal 2022.  The increase primarily relates to insurance proceeds received related to fire damage in one of our manufacturing locations.\n \nInterest expense, net\n \nInterest expense, net, increased to $8,403,904 in fiscal 2023 compared to $1,500,140 in fiscal 2022.  The increase primarily relates to higher average debt levels as well as increased interest rates during fiscal 2023.\n \nIncome tax expense\n \nIncome tax expense decreased $1,988,462 to $2,991,541 in fiscal 2023, compared to $4,980,003 in fiscal 2022. The effective tax rate decreased to 17.4% in fiscal 2023, compared to 21.3% in fiscal 2022, primarily due to a decrease in the valuation allowance in the current year.  The decrease in income tax expense in fiscal 2023 compared to fiscal 2022 is primarily due to decreased taxable income recognized in the current fiscal year compared to the previous fiscal year.\n \nNet income from continuing operations\n \nNet income from continuing operations decreased $4,171,495, to a net income of $14,194,424 in fiscal 2023, compared to a net income of $18,365,919 in fiscal 2022.  Net income in fiscal 2022 included the one-time extinguishment of the PPP Loan in the amount of $6,282,973 that was recorded as a gain on the extinguishment of debt.\n \n\n\n \n \n30\n \n \n\n\n \nNet loss from discontinued operations\n \nNet loss from discontinued operations in fiscal 2023 from the Pet Tech Segment of $34,769,809 which includes an impairment of goodwill and long-lived assets of $23,096,771 and losses on the sale of a business of $3,742,709.  The fiscal 2023 discontinued losses include a tax benefit of $1,860,093.  The net loss from discontinued operations for fiscal 2022 consisted of operational losses from the Pet Tech Segment of $2,879,829 and an impairment of notes receivable and investment charge of $6,300,235.  The fiscal 2022 discontinued losses include a tax benefit of $678,313.\n \nEMS Segment\n \nThe following table sets forth the percentage relationships of gross profit and expense items to net sales for the years indicated:\n \n \n \n \n \n \n \n \n \n \nFiscal Years Ended\n \nApril 30,\n \n \n2023\n \n \n2022\n \n \n \n \n \n \nNet sales\n$\n 414,435,845\n \n$\n 378,316,495\nCosts of products sold\n \n 362,982,248\n \n \n 333,925,226\nAs a percent of net sales\n \n87.6%\n \n \n88.3%\nGross profit\n \n 51,453,597\n \n \n 44,391,269\nAs a percent of net sales\n \n12.4%\n \n \n11.7%\n \n \n \n \n \n \nSelling and administrative expenses\n \n 26,495,951\n \n \n 25,981,794\nAs a percent of net sales\n \n6.4%\n \n \n6.9%\nOperating income\n$\n 24,957,646\n \n$\n 18,409,475\n \nNet sales\n \nNet sales increased $36,119,350, or 9.5%, to $414,435,845 in fiscal 2023, compared to $378,316,495 in fiscal 2022.  Net sales were higher primarily due to higher sales volume and certain customer price increases implemented as a result of increased raw material and other operating costs that occurred in fiscal 2023, compared to fiscal 2022.  The Federal Reserve has raised interest rates several times during the fiscal year, which has negatively affected customer demand in the consumer electronics markets, but has not had the same effect in the industrial electronics and medical/life science markets.  As a result, the Company\u2019s sales increased in fiscal 2023 in industrial electronics and medical/life science compared to the prior fiscal year.  The increase in sales was accompanied by a decrease in sales in consumer electronics.  \n \nCost of products sold\n \nCost of products sold increased $29,057,022, or 8.7%, to $362,982,248 (87.6% of net sales) in fiscal 2023, compared to $333,925,226 (88.3% of net sales) in the prior fiscal year. The decrease in cost of products sold as a percentage of sales is primarily due to favorable sales mix, partially offset with higher material, logistics and other operating costs as a result of higher sales volumes and the impact of global supply chain disruptions that caused factory inefficiencies.  Labor costs and other manufacturing costs were higher in fiscal 2023, primarily due to inflationary pressures.  The Company anticipates continuing supply chain issues in fiscal 2024.\n \nGross profit \n \nGross profit margin was 12.4% of net sales in fiscal 2023, compared to 11.7% of net sales in the prior fiscal year. The increase in gross margins as a percentage of sales was primarily due to favorable sales mix, partially offset with higher material, labor and other manufacturing costs in fiscal 2023, compared to fiscal 2022.\n \n\n\n \n \n31\n \n \n\n\n \nSelling and administrative expenses\n \nSelling and administrative expenses increased $514,157, or 2.0%, to $26,495,951 (6.4% of net sales) in fiscal 2023, compared to $25,981,794 (6.9% of net sales) in the prior fiscal year. Selling and administrative expenses increased in fiscal 2023 primarily due to increased wages and professional fees, partially offset by lower bonus expense, compared to fiscal 2022.\n \nOperating income\n \nOperating income increased $6,548,171, or 35.6%, to $24,957,646 (6.0% of net sales) in fiscal 2023, compared to $18,409,475 (4.9% of net sales) in the prior fiscal year. The increase was primarily due to higher sales volume and favorable sales mix, notwithstanding higher material, logistics and other operating costs.\n \nPet Technology Segment\n \nThe Company sold a majority of the Wagz stock on April 28, 2023, effective as of April 1, 2023.  The Company still owns 19 percent of Wagz common stock as a passive investment as of April 30, 2023.  The activity for fiscal 2023 and fiscal 2022 have been classified as discontinued operations in the Consolidated Statements of Operations.\n \nWagz was acquired on December 31, 2021, and therefore only reflects financial results for fiscal 2022 after the transaction date.\n \nThe following table sets forth the percentage relationships of gross profit and expense items to net sales for the years indicated:\n \n \n \n \n \n \n \n \n \nFiscal Years Ended\n \nApril 30,\n \n \n2023\n \n \n2022\n \n \n \n \n \n \nNet sales\n$\n 1,598,929\n \n$\n 549,929\nCosts of products sold\n \n 1,732,352\n \n \n 509,327\nAs a percent of net sales\n \n108.3%\n \n \n92.6%\nGross profit\n \n (133,423)\n \n \n 40,602\nAs a percent of net sales\n \n-(8.3)%\n \n \n7.4%\n \n \n \n \n \n \nSelling and administrative expenses\n \n 9,656,999\n \n \n 2,920,277\nImpairment of notes receivable \n\u200e\nand investment\n \n -\n \n \n 6,300,235\nImpairment of goodwill and other long-lived assets\n \n 23,096,771\n \n \n -\nOperating loss\n$\n (32,887,193)\n \n$\n (9,179,910)\n \nNet sales\n \nNet sales increased $1,049,000 to $1,598,929 in fiscal 2023, compared to $549,929 in fiscal 2022.  Wagz was purchased on December 31, 2021 and sales for fiscal 2022 only reflect four months of activity.  Sales for the period are primarily comprised of hardware and accessories, as well as recurring subscription revenue.  The Pet Tech segment experienced supply chain issues, causing certain inventory shortages during fiscal 2023, which negatively affected hardware sales.  In addition, the products struggled to gain market acceptance during the fiscal year.\n \n\n\n \n \n32\n \n \n\n\n \nCost of products sold\n \nCost of products sold increased $1,223,025 to $1,732,352 (108.3% of net sales) in fiscal 2023, compared to $509,327 (92.6% of net sales) in the prior fiscal year.  Cost of products sold as a percentage of sales increased during the current period primarily due to material cost increases and lower sales volumes.\n \nGross profit margin\n \nGross profit margin was \u2013(8.3)% of net sales in fiscal 2023, compared to a gross profit margin of 7.4% in the prior fiscal year.  Gross profit margins were negative in the current period due to material cost increases and lower sales volumes.\n \nSelling and administrative expenses\n \nSelling and administrative expenses increased $6,736,722, to $9,656,999 in fiscal 2023, compared to $2,920,277 in the prior fiscal year.  Selling and administrative costs were primarily comprised of research and development costs for new products that were expected to launch in fiscal 2024, selling and marketing expenses, as well as general and administrative expenses.\n \nImpairment of notes receivable and investment\n \nPrior to the acquisition on December 31, 2021, the Company had an investment in Wagz of $600,000, Convertible Secured Promissory Notes issued by Wagz of $12,000,000 and Secured Promissory Notes issued by Wagz of $1,380,705.  Pursuant to the Merger Agreement, prior to the acquisition, the Convertible Secured Promissory Notes converted to 12,000,000 shares of Wagz common stock, resulting in a 25.5% ownership in Wagz.  As described in Note F \u2013 Acquisition and Disposition, the Company\u2019s\u00a025.5%\u00a0equity interest in Wagz common stock was remeasured to fair value of\u00a0$6,299,765, resulting in a non-cash impairment charge of $6,300,235 in fiscal 2022. \n \nImpairment of goodwill and other long-lived assets \n \nIn connection with the preparation and review of the financial statements for the quarter ended January\u00a031, 2023, the Company revised the financial projections for its Pet Tech segment. The revised projections resulted in a triggering event for the Company\u2019s goodwill and long-lived asset groups consisting of patents and trade names. As a result, the Company concluded that the carrying amount for goodwill and the long-lived asset groups was impaired and not expected to be recovered. Accordingly, a\u00a0non-cash\u00a0pre-tax\u00a0goodwill impairment charge of $13,320,534 and a\u00a0non-cash\u00a0intangible assets impairment charge of $9,527,773, was recorded for the Company\u2019s Pet Tech segment in fiscal 2023.  In addition, Pet Tech fixed assets of $248,464 were written off due to the sale of Wagz effective April 1, 2023.  \n \nOperating loss \n \nOperating loss increased $23,707,283, to $32,887,193 in fiscal 2023, compared to $9,179,910 in fiscal 2022.  The increased loss was primarily due to the impairment of goodwill and other long-lived assets, lower than expected sales and increased selling and administrative expenses in fiscal 2023.\n \nLiquidity and Capital Resources: \n \nThe Company\u2019s liquidity requirements are primarily to fund its business operations, including capital expenditures and working capital requirements, as well as to fund debt service requirements. The Company\u2019s primary sources of liquidity are cash flows from operations and borrowings under the revolving Facility credit agreement. The Company believes its liquidity position will be sufficient to fund its existing operations and current commitments for at least the next twelve months. However, if economic conditions remain impacted for longer than the Company expects due to inflationary pressure, supply chain disruptions, public health crises, including COVID-19 and variants, or other geopolitical risks, the Company\u2019s liquidity position could be severely impacted.  \nDue to availability being less than 10% of the Revolving Commitment,\n \nthe Facility (as defined below) has been classified as a current liability on the Consolidated Balance Sheet as of April 30, 2023.\n\n\n \n \n33\n \n \n\n\n \nOperating Activities\n \nCash flow used in operating activities was $13,256,804 for the fiscal year ended April 30, 2023, compared to cash flow used in operating activities of $14,381,723 for the prior fiscal year.  Cash flow used in operating activities was primarily the result of an increase in accounts receivable in the amount of $5,328,740, a decrease in accounts payable in the amount of $20,702,026 and a decrease in deferred revenue in the amount of $3,179,709.  Cash flow from operating activities was offset by a decrease in prepaid expenses and other assets in the amount of $5,954,202.  The increase in accounts receivable is the result of an increase in net sales.  The decrease in accounts payable is the result of the timing of vendor payments.  The decrease in prepaid expenses and other assets is the result of a decrease in right-of-use assets.  \n \nCash flow used in operating activities was $14,381,723 for the fiscal year ended April 30, 2022.  Cash flow used in operating activities was primarily the result of an increase in both inventory and accounts receivable in the amount of $68,297,962 and $12,288,539, respectively.  Cash flow from operating activities was offset by an increase in accounts payable and deferred revenue in the amount of $33,299,432 and $10,487,828, respectively.  The increase in inventory was the result of an increase in inventory purchases to satisfy customer orders.  Further, capacity issues in the component industry made it difficult to obtain some components to complete assemblies for shipping.  The increase in accounts payable was the result of more favorable payment terms with vendors and increased inventory purchases.\n \nInvesting Activities\n \nIn fiscal year 2023, cash used in investing activities was $5,179,247.  During fiscal year 2023, the Company purchased $4,334,169 in machinery and equipment to be used in the ordinary course of business.  The Company has received forecasts from current customers for increased business that would require additional investment in capital equipment and facilities.  The Company anticipates purchases will be funded by lease transactions.  However, there is no assurance that such increased business will be obtained or that the Company will be able to obtain funding for leases at acceptable terms, if at all, in the future.  During the month of April 2023, the Company made advances of $900,000 to Wagz as agreed upon under the SPA.  On April\u00a028, 2023, the sale of the majority interest in Wagz pursuant to the SPA was consummated effective as of April\u00a01, 2023, and as a result, as of the closing, the Company holds a minority 19% ownership of the shares and Buyer holds a majority 81% of the shares.   \n \nIn fiscal year 2022, cash used in investing activities was $10,252,100.  The Company purchased $4,740,100 in machinery and equipment used in the ordinary course of business.  The Company purchases were funded by the bank line of credit and lease transactions.  The Company made advances of $5,512,000 to Wagz.  In June 2020, the Company announced a proposed business combination with Wagz.  The advances were made in conjunction with the proposed business combination.  \n \nFinancing Activities\n \nCash provided by financing activities was $24,155,387 for the fiscal year ended April 30, 2023.  Cash provided by financing activities was primarily the result of net borrowings under the line of credit and term loan agreement.  \n \nCash provided by financing activities was $29,476,071 for the fiscal year ended April 30, 2022.  Cash provided by financing activities was primarily the result of net borrowings under the line of credit.\n \nLiquidity from Discontinued Operations\n \nDuring fiscal 2023 cash used in discontinued operations from operating activities was $7,264,377, primarily related to Pet Tech Segment operations and transaction related expenses associated with the sale of the Wagz business.  During fiscal 2022, cash used in operating activities of $5,843,456 relates to activity from the Pet Tech Segment.  Cash used in investing activities for fiscal 2023 and fiscal 2022 was $134,419 and $9,432, respectively, primarily for capital expenditures.\n \n \n\n\n \n \n34\n \n \n\n\n \nFinancing Summary\n \nDebt and finance lease obligations consisted of the following at April 30, 2023 and April 30, 2022:\n \n \n \n \n \n \n \n \n \n2023\n \n \n2022\n \n \n \n \n \n \nDebt:\n \n \n \n \n \nNotes Payable - Banks\n$\n90,968,000\n \n$\n56,830,377\nNotes Payable - Buildings\n \n417,143\n \n \n6,459,340\nNotes Payable - Equipment\n \n3,524,115\n \n \n4,202,292\nUnamortized deferred financing costs\n \n(1,608,558)\n \n \n(401,040)\nTotal debt\n \n93,300,700\n \n \n67,090,969\nLess current maturities*\n \n52,761,520\n \n \n6,991,567\nLong-term debt\n$\n40,539,180\n \n$\n60,099,402\n \n \n \n \n \n \nFinance lease obligations\n$\n4,119,437\n \n$\n4,215,810\nLess current maturities\n \n1,523,259\n \n \n1,410,675\nTotal finance lease obligations, less current portion\n$\n2,596,178\n \n$\n2,805,135\n* Due to availability being less than 10% of the Revolving Commitment,\n \nthe Facility (as defined below) has been classified as a current liability on the Consolidated Balance Sheet as of April 30, 2023.\n \nNotes Payable \u2013 Secured lenders\n \n \nOn January 29, 2021, the Company entered into a \nCredit Agreement (the \u201cJPM Agreement\u201d) with JPMorgan Chase Bank, N.A., pursuant to which Lender provided the Company with a secured credit facility consisting of a revolving loan facility and a term loan facility (collectively, the \u201cFacility\u201d).\n \nOn July 18, 2022, SigmaTron, Wagz and Lender amended and restated the JPM Agreement by entering into an Amended and Restated Credit Agreement (as so amended and restated, the \u201cJPM Credit Agreement\u201d).  The Facility, as amended, allows the Company to borrow on a revolving basis up to the lesser of (i) $70,000,000 or (ii) an amount equal to a percentage of the eligible receivable borrowing base plus a percentage of the inventory borrowing base minus any reserves established by Lender (the \u201cRevolving Commitment\u201d).  The maturity date of the Facility is July 18, 2027.  Deferred financing costs of $332,139 and $128,733 were capitalized \nduring the fiscal year ended April 30, 2023 and April 30, 2022, respectively, \nwhich are amortized over the term of the JPM Credit Agreement.  As of April 30, 2023, there was $51,134,699 outstanding and $11,539,183 of unused availability under the revolving Facility compared to an outstanding balance of $51,392,158 and $5,691,855 of unused availability \nat April 30, 2022.  As of April 30, 2023 and April 30, 2022, the unamortized amount offset against outstanding debt was $572,191 and $393,503, respectively.\n \nUnder the JPM Credit Agreement, a minimum Fixed Charge Coverage Ratio (\u201cFCCR\u201d) financial covenant of 1.10x is applicable only during an FCCR trigger period which occurs when (a) commencing on the Effective Date (as defined in the JPM Credit Agreement) and ending when the Term Loan Obligations (as defined in the JPM Credit Agreement) have been paid in full and (b) following the payment in full of the Term Loan Obligations, (i) an event of default (as defined in the JPM Credit Agreement) has occurred and is continuing, and Lender has elected to impose a FCCR trigger period upon notice to the Company or (ii) availability falls below the greater of (a) 10% of the Revolving Commitment and (b) the outstanding principal amount of the term loans.\u00a0In addition, prior to the amendment to the JPM Credit Agreement pursuant to the JPM Waiver (as discussed below under \u201c\nWaiver, Consent and Amendment to Credit Agreements\n\u201d),\n \nthe JPM Credit Agreement imposed a financial covenant that required the Company to maintain a leverage ratio of Total Debt to EBITDA (each as defined in the JPM Credit Agreement) for any twelve month period ending on the last day of a fiscal quarter through the maturity of the revolving Facility not to exceed a certain amount, which ratio (a) ranged from 5.00-to-1 for fiscal quarters beginning with the fiscal quarter ending on January 31, 2023 to 3.00-to-1 for the fiscal quarter ending on July 31, 2026 (if the Term Loan Borrowing Base Coverage Ratio (as defined in the JPM Credit Agreement) as of the end of the applicable fiscal quarter is less than or equal to 1.50-to-1) and (b) ranged from 5.50-to-1 for the fiscal quarter ending on January 31, 2023 to 4.00-to-1 for the fiscal quarters \n\n\n \n \n35\n \n \n\n\nbeginning with the fiscal quarter ending on July 31, 2026 (if the Term Loan Borrowing Base Coverage Ratio as of the end of the applicable fiscal quarter is greater than 1.50-to-1).\n \nIn addition, the JPM Credit Agreement imposes a cash dominion period if there is an event of default or if availability is less than 10% of the Revolving Commitment, and such requirement continues until there is no event of default and availability is greater than 10% of the Revolving Commitment, in each case for 30 consecutive days.  Based on this criteria, the total debt balances for the Facility must be classified as a current liability on the Consolidated Balance Sheet as of April 30, 2023.  \n \nIn connection with the entry into the JPM Credit Agreement, Lender and TCW Asset Management Company LLC, as administrative agent under the Term Loan Agreement (as defined below), entered into the Intercreditor Agreement, dated July 18, 2022, and acknowledged by SigmaTron and Wagz (the \u201cICA\u201d), to set forth and govern the lenders\u2019 respective lien priorities, rights and remedies under the JPM Credit Agreement and the Term Loan Agreement.\nThe Facility under the JPM Credit Agreement is secured by: (a) a first priority security interest in SigmaTron\u2019s and Wagz\u2019s (i) accounts receivable and inventory (excluding Term Priority Mexican Inventory (as defined in the ICA) and certain inventory in transit, (ii) deposit accounts, (iii) proceeds of business interruption insurance that constitute ABL\u00a0BI Insurance Share (as defined in the ICA), (iv) certain other property, including payment intangibles, instruments, equipment, software and hardware and similar systems, books and records, to the extent related to the foregoing, and (v) all proceeds of the foregoing, in each case, now owned or hereafter acquired (collectively, the \u201cABL Priority Collateral\u201d); and (b) a second priority security interest in Term Priority Collateral (as defined below) other than (i) real estate and (ii) the equity interests of SigmaTron\u2019s foreign subsidiaries (unless such a pledge is requested by Lender).  \nOn April 25, 2022, the Company and Lender, entered into an amendment of the Facility.  Under the amended Facility, Lender extended a term loan to the Company in the principal amount of $5,000,000 (the \u201cFILO Term Loan\u201d), \nthe interest on which is based on (i) the \u201c\nAdjusted Term SOFR Rate\u201d for a one-month Interest Period\n (each, as defined in the Agreement), plus (ii) an applicable margin of 4.0% (effectively 4.41% per annum at April 30, 2022).  The FILO Term Loan will mature within 120 days from the date of the amendment.  The amount outstanding as of April 30, 2022 was $5,000,000.  There were no issuance costs associated with the FILO Term Loan.  \nOn July 18, 2022, a portion of the proceeds of the Term Loan Agreement (as defined below) was used to pay in full the FILO Term Loan extended by Lender. \n \nOn July 18, 2022, SigmaTron, Wagz and TCW Asset Management Company LLC, as administrative agent, and other Lenders party thereto (collectively, \u201cTCW\u201d) entered into a Credit Agreement (the \u201cTerm Loan Agreement\u201d) pursuant to which TCW made a term loan to the Company in the principal amount of $40,000,000 (the \u201cTCW Term Loan\u201d).  The TCW Term Loan bears interest at a rate per annum based on SOFR, plus\n \nthe Applicable Margin of 7.50% (each as defined in the Term Loan Agreement).  The TCW Term Loan has a SOFR floor of 1.00%.  The maturity date of the TCW Term Loan is July 18, 2027.  The amount outstanding as of April 30, 2023, was $39,833,301.  \nDeferred financing costs of $1,233,894 were capitalized during the fiscal year ended April 30, 2023.  \nAs of April 30, 2023, the unamortized amount offset against outstanding debt was $1,036,367.\nThe Term Loan Agreement imposes financial covenants, including covenants requiring the Company to maintain a minimum Fixed Charge Coverage Ratio (as defined in the Term Loan Agreement) of 1.10-to-1 and maintain the same leverage ratio of Total Debt to EBITDA as described above under the JPM Credit Agreement.  The Company is required to make quarterly repayments of the principal amount of the TCW Term Loan in amounts equal to $250,000 per fiscal quarter for the quarters beginning October 31, 2022 and $500,000 per fiscal quarter for quarters beginning October 31, 2024.  The Term Loan Agreement also requires mandatory annual repayments equal to 50% of Excess Cash Flow (as defined in the Term Loan Agreement). \n \nThe TCW Term Loan is secured by: (a) a first priority security interest in \nall property of SigmaTron and Wagz that does not constitute ABL Priority Collateral, which includes: \n(i) \nSigmaTron\u2019s and Wagz\u2019s\n real estate other than SigmaTron\u2019s Del Rio, Texas, warehouses, (ii) \nSigmaTron\u2019s and Wagz\u2019s\n machinery, equipment and fixtures \n(but excluding ABL\n Priority Equipment\n (as defined in the ICA))\n, (iii) the Term Priority Mexican \n\n\n \n \n36\n \n \n\n\nInventory\n (as defined in the ICA), (iv) SigmaTron\u2019s stock in its direct and indirect subsidiaries,\n (v) \nSigmaTron\u2019s and Wagz\u2019s\n general intangibles (excluding any that constitute ABL Priority Collateral), goodwill and \nintellectual property, (vi) the proceeds of business interruption insurance that constitute Term\n\u00a0BI Insurance Share (as defined in the ICA)\n, (vii) tax \nrefunds, and (viii) all proceeds thereof, in each case, now owned or hereafter acquired (collectively, the \u201cTerm Priority Collateral\u201d); and (b) a second priority security interest in all collateral that constitutes ABL Priority Collateral.  Also, SigmaTron\u2019s three Mexican subsidiaries pledged all of their assets as security for the TCW Term Loan.\n \nWaiver, Consent and Amendment to Credit Agreements\n \nOn\n \nMarch\n \n2,\n \n2023,\n the Company received notices of default from both JPM and TCW.  \nT\nhe Notices indicated the occurrence of certain events of default under the JPM Credit Agreement and the Term Loan Agreement.   In\n \naddition,\n \nthe\n \nCompany\n \nreceived\n \na\n \ndelinquency\n \nnotification\n \nletter\n \nfrom\n \nNasdaq\n \nindicating\n \nthat \nthe\n \nCompany\n \nwas\n \nnot\n \nin\n \ncompliance\n \nwith\n \nthe\n \ncontinued\n \nlisting\n \nrequirements\n \nof\n \nNasdaq\n \nfor\n \nfailing\n \nto\n \ntimely\n \nfile\n \nthe\n \nCompany\n\u2019\ns\n \nF\no\nrm\n \n10-Q\n \nfor\n \nthe\n \nfiscal \nquarter\n \nended\n \nJanuary\n \n31,\n \n2023.\n \nThis\n \nnotification\n \nalso\n \nconstituted\n \na\n \ndefault\n \nunder\n \nthe\n \nCredit\n \nAgreements.  The delinquency was remedied on May 19, 2023.\n \n \nThe JPM Notice indicated that the Lender was informed of the occurrence of events of defaults and the continuation thereof under the JPM Credit Agreement as a result of the Company\u2019s failure to maintain a FCCR for the twelve month period ending January\u00a031, 2023 of at least 1.10x as required under the JPM Credit Agreement (the \u201cJPM Covenant Defaults\u201d).\n \nThe TCW Notice indicated that Agent and TCW Lenders were informed of the occurrence of events of default and the continuation thereof under the Term Loan Agreement (described below) as a result of the Company permitting the Total Debt to EBITDA Ratio for the twelve month period ending January\u00a031, 2023 to be greater than 5.00:1.00 in violation of the Term Loan Agreement and the Company\u2019s failure to maintain FCCR as required under the JPM Credit Agreement (the \u201cTCW Covenant Defaults\u201d and together with the JPM Covenant Defaults, the \u201cDefaults\u201d).\n \nAs a result of the Defaults, the Company was not in compliance with its financial covenants under the Credit Agreements as of January 31, 2023.  Due to the\n \nNotices\n received on March 2, 2023, \nfrom\n \neach\n \nof\n \nJPM\n \nand\n \nthe\n \nTCW\n \nLenders\n \nand\n \nAgent, the total debt balances for both the Facility and the TCW Term Loan had been classified as a current liability on the Condensed Consolidated Balance Sheet on January 31, 2023.\n \nOn\n \nApril\n \n28,\n \n2023,\n \nthe\n \nCompany\n \nentered\n \ninto\n \n(i)\n \na\n \nW\naive\nr\n,\n \nConsent\n \nand\n \nAmendment \nNo.\n \n1\n \nto\n \nthe\n JPM \nCredit\n \nAgreement\n \nwith \nW\nagz\n \nand\n \nJPM,\n \nas\n \nl\ne\nnder\n, which waived certain events of default under and amended certain terms of \nthe\n \nJPM\n \nCredit\n \nAgreement\n \nand\n \n(i\ni\n)\n \na\n \nW\naive\nr\n,\n \nConsent \nand\n \nAmendment\n \nNo.\n \n1\n \nto\n \nthe\n \nCredit\n \nAgreement\n \nwith\n \nW\nagz,\n \nthe\n \nfinancial\n \ninstitutions\n \nidentifi\ne\nd\n \ntherein\n \nand TCW\n \nAsset\n \nManagement\n \nCompany\n \nLLC\n \nas\n \nadministrative\n \nagent\n \nfor\n \nthe\n \nTCW\n \nLenders\n \n(in\n \nsuch\n \ncapacit\ny\n,\n \nthe\n \n\u201cAgent\u201d\n \nand \ncollectively\n \nwith\n \nthe\n \nTCW\n \nLenders\n \nand\n \nJPM,\n \nthe\n \n\u201cLender\n \nParties\u201d), \nwhich waived certain events of default under and amended certain terms of\n \nthe Credit Agreements.\n \n The\n \nCompany\n \nentered\n \ninto\n \nthe\n \nJPM \nW\naiver\n \nand TCW\n \nW\naiver\n \n(togethe\nr\n,\n \nthe\n \n\u201c\nW\naivers\u201d)\n \nafter\n \nreceiving\n \non\n \nMarch\n \n2,\n \n2023,\n \nthe\n Notices\n \nfrom\n \neach\n \nof\n \nJPM\n \nand\n \nthe\n \nTCW\n \nLenders\n \nand\n \nAgent.\n \n \nPursuant\n \nto\n \nthe\n \nW\naivers,\n \nthe\n \nCompany\n \nhas\n \nagreed,\n \namong\n \nother\n \nthings,\n \nto \n(i)\n \nif\n \nrequested\n \nby\n \nthe\n \nAgent,\n \ne\nf\nfect\n \na\n \ncorporate\n \nrestructuring\n \nthat\n \nwould\n \ncreate\n \na\n \nnew\n \nholding\n \ncompany\n \nstructure\n \nto\n \nown\n \nall\n \nof\n \nthe\n \nCompany\n\u2019\ns\n \nstock \nthrough\n \na\n \nme\nr\nger\n \npursuant\n \nto\n \nSection\n \n251(g)\n \nof\n \nthe\n \nGeneral\n \nCorporation\n \nLaw\n \nof\n \nthe\n \nState\n \nof\n \nDelaware,\n \nafter\n \nwhich\n \nthe\n \nholding\n \nc\no\nmpany\n \nwould\n \ncontinue \nas\n \nthe\n \npublic\n \ncompan\ny\n,\n \nbecome\n \na\n \nguarantor\n \nunder\n \nthe\n \nCredit\n \nAgreements\n \nand\n \npledge\n \nto\n \nthe\n \nLender\n \nParties\n \nall\n \nof\n \nthe\n \nequity\n \nof\n \nthe\n \nCompany (the \u201cCorporate Restructuring\u201d),\n \n(ii)\n \nengage\n \na \nfinancial\n \nadvisor\n \nto\n \nreview\n \ncertain\n \nof\n \nthe\n \nCompany\n\u2019\ns\n \nfinancial\n \nreporting\n \nto\n \nJPM\n \nand\n \nthe\n \nAgent\n \nand\n \nparticipate\n \nin\n \nweekly\n \nconfer\ne\nnce\n \ncalls\n \nwith\n \nthe adviso\nr\n,\n \nJPM\n \nand\n \nthe\n \nAgent\n \nto\n \ndiscuss\n \nand\n \nprovide\n \nupdates\n \non\n \nthe\n \nCompany\n\u2019\ns\n \nliquidity\n \nand\n \noperations,\n \n(iii)\n \nextend\n \nthe\n \nW\nagz\n \nLoan,\n \n(iv) \npay\n \nto\n \nJPM\n \nan\n \namendment\n \nfee\n \nin\n \nthe\n \namount\n \nof\n \n$70,000,\n \npaid\n \nin\n \ncash,\n \nand\n \n(v)\n \npay\n \nto\n \nthe\n \nTCW\n \nLenders\n \nan\n \namendment\n \nfee\n \nof\n \n$395,000\n \nand\n \na\n \ndefault\n \nrate \nfee\n \nof\n \n$188,301,\n \nboth\n \nof\n \nwhich\n \nwere\n \npaid\n \nin\n \nkind\n \nby\n \nbeing\n \nadded\n \nto\n \nthe\n \nprincipal\n \nof\n \nthe\n TCW \nTerm\n \nLoan.\n \nThe \nW\naivers\n \nalso\n \namended\n \nthe\n \nCredit\n \nAgreements\n \nto,\n \namong\n \nother\n \nthings,\n \n(x)\n \nrequire\n \nthat\n \nthe\n \nCompany\n \nmaintain\n \na\n \nminimum\n \nof\n \n$2.5\n \nmil\nl\nion\n \nin\n \nrevolver \navailability\n \nunder\n \nthe\n \nJPM\n \nCredit\n \n\n\n \n \n37\n \n \n\n\nAgreement,\n \n(y)\n \nmodify\n \nthe\n \ndefinition\n \nof\n \nEBITDA\n \nto\n \nallow\n \nadjustments\n \nto\n \naccount\n \nfor\n \nW\nagz\n \noper\na\nting\n \nlosses, \nimpairment\n \ncha\nr\nges\n \nrelating\n \nto\n \nthe\n \nwrite-down\n \nof\n \nthe\n \nW\nagz\n \nbusiness,\n \nthe\n \nW\nagz Loan\n \nand\n \nnet\n \nassets\n \nof\n \nthe\n \nCom\np\nany\n \nand \nW\nagz,\n \nand \nexpenses\n \nrelating\n \nto\n \nthe\n \nW\naivers,\n \nthe\n \nW\nagz\n \nsale\n \nand\n \nS\nP\nA,\n \nand\n \n(z)\n \nmodify\n \nthe\n \nexisting\n \nT\notal\n \nDebt\n \nto\n \nEBITDA\n \nR\na\ntios\n \n(as\n \ndefined\n \nin\n \nthe \nCredit\n \nAgreements)\n \nas\n \nfollows:\n \n \n \n \n \n \n \nFiscal Quarter\n \nTotal Debt to EBITDA Ratio* (as amended)\n \nTotal Debt to EBITDA Ratio* (prior to amendment)\n \n \n \n \n \nOctober 31,2023\n \n4.50:1.0\n \n4.25:1.0\nJanuary 31, 2024\n \n4.50:1.0\n \n4.00:1.0\nApril 30, 2024\n \n4.50:1.0\n \n4.00:1.0\nJuly 31, 2024\n \n4.25:1.0\n \n3.75:1.0\nOctober 31, 2024\n \n4.00:1.0\n \n3.75:1.0\n* \n \nAssumes\n \nthe\n \nT\nerm\n \nLoan\n \nBorrowing\n \nBase\n \nCoverage\n \nRatio\n \n(as\n \ndefined\n \nin\n \nthe\n \nCredit\n \nAgreements)\n \nis\n \nless\n \nthan\n \nor\n \nequal\n \nto\n \n1.50:1.0.\n \nIn addition, pursuant to the TCW Waiver, if the Total Debt to EBITDA Ratio for the trailing twelve month\n \nperiod\n \nas\n \nof\n \nthe\n \nend\n \no\nf\n \nthe\n \nthird\n quarter of \nfiscal\n 2023\n \nexceeds\n \nthe\n \nratios\n \nthat\n \nwere\n \nin\n \ne\nf\nfect\n \nprior\n \nto\n \nthe\n \namendment\n \n(as\n \nset\n \nforth\n \nin\n \nthe\n \nfar\n \nright\n \ncolumn\n \nof\n \nthe\n \ntable\n \nabove)\n \nfor\n \na \nfiscal \nquarter\n \nduring\n \nthe\n \nPIK\n \nPeriod\n \n(defined\n in the Term Loan Agreement\n),\n \nthen\n \nthe\n \nApplicable\n \nMa\nr\ngin\n \nunder\n \nt\nhe\n \nTerm Loan\n \nAgreement \nin\n \nrespect\n \nof\n \nthe\n \noutstanding\n TCW \nTerm\n \nLoan\n \nwould\n \nincrease\n \nby\n \nan\n \namount\n \nequal\n \nto\n \n1.0%\n \nper\n \nannum\n \nfor\n \nthe\n \nfiscal\n \nquarte\nr\n,\n \nwith\n \nsuch \ninterest\n \nbeing\n \npaid\n \nin\n \nkind.\n \nFurthermore,\n \nthe\n \nJPM \nW\naiver\n \nmodified\n \nthe\n \ndefinition\n \nof\n \nApplicable\n \nMa\nr\ngin\n \nfrom\n \na\n \nfixed\n \namount\n \nequal\n \nto\n \n2.00%\n \nto\n \nan\n \namount \nthat\n \nvaries\n \nfrom\n \n2.00%\n \n(for\n \nrevolver\n \navailability\n \ngreater\n \nthan\n \nor\n \nequal\n \nto\n \n$20.0\n \nmillion),\n \nto\n \n2.50%\n \n(for\n \nrevolver\n \navailability\n \ngreater\n \nthan\n \nor\n \nequal\n \nto\n \n$10.0 \nmillion),\n \nto\n \n3.00%\n \n(for\n \nrevolver\n \navailability\n \nless\n \nthan\n \n$10.0\n \nmillion),\n \nand\n \nfixed\n \nthe\n \nApplicable\n \nMa\nr\ngin\n \nat\n \n3.00%\n \nfor\n \nsix\n \nmonths\n \nstarting\n \nApril\n \n1,\n \n2023.\n \nIn\n \nexchange\n \nfor\n \nsuch\n \nagreements,\n \nthe\n \nLender\n \nParties\n \nhave\n \nagreed\n \nto\n \nwaive\n \nall\n \nof\n \nthe\n \nexisting\n \nevents\n \nof\n \ndefault\n \nunder\n \nthe\n \nCredit\n \nAgreements \nthrough\n \nMarch\n \n31,\n \n2023,\n \nconsent\n \nto\n \nthe\n \nsale\n \nof\n \nW\nagz\n \nand\n \nrelease\n \nW\nagz\n \nand\n \nits\n \nproperty\n \nand\n \nthe\n \nCompany\n\u2019\ns\n \n81%\n \ninterest\n \nin\n \nW\nagz \nthat\n \nwas\n \nsold\n \nto\n \nBuyer\n \n(as\n \ndisclosed\n \nbelow)\n \nfrom\n \nthe\n \nlien\n \nof\n \nthe\n \nLender\n \nParties.\n \n \nIn\n \nconnection\n \nwith\n \nthe\n \nW\naivers,\n \nthe\n \nCompany\n \nexited\n \nits\n \nactive\n \ninvolvement\n \nin\n \nthe\n \nPet\n \nT\nech\n \nbusiness\n \nthat\n \nis\n \nconducted\n \nb\ny\n \nW\nagz\n \nthrough the\n \nsale\n \nby\n \nthe\n \nCompany\n \nof\n \na\n \nmajority\n \nstake\n \nin\n \nW\nagz,\n \neffective as of April\n \n1,\n \n2023.\n \nOn June 15, 2023, the Company entered into (i) Amendment No. 2 to the Credit Agreement (the \u201cJPM Amendment No. 2\u201d) by and among the Company and Lender, with respect to the JPM Credit Agreement and (ii) Amendment No. 2 to the Credit Agreement (\u201cTCW Amendment No. 2\u201d) by and among the Company, the TCW Lenders and the Agent with respect to the Term Loan Agreement.  The JPM Amendment No. 2 and TCW Amendment No. 2 (together, the \u201cAmendments\u201d) amend the Credit Agreements to extend the date, from May 31, 2023 to July 31, 2023, after which the Agent may request that the Company effect the Corporate Restructuring.\n \nOn April 23, 2020, the Company received a PPP Loan from U.S. Bank, as lender, pursuant to the Paycheck Protection Program of the CARES Act, as administered by the U.S. Small Business Administration (the \u201cSBA\u201d) in the amount of $6,282,973 (the \u201cPPP Loan\u201d). The PPP Loan was scheduled to mature on April 23, 2022.  The Company was notified of the forgiveness of the PPP Loan by the SBA on July 9, 2021 and all principal and accrued interest were forgiven.  The accounting for the forgiveness is reflected in the Company\u2019s Statement of Operations for fiscal 2022 as a non-cash gain upon extinguishment of long-term debt.  \n \nOn March 15, 2019, the Company\u2019s wholly-owned foreign enterprise, Wujiang SigmaTron Electronic Technology Co., Ltd., entered into a credit facility with China Construction Bank.  On January 26, 2021, the agreement was amended and expired in accordance with its terms on January 6, 2022.  On January 17, 2022, the \n\n\n \n \n38\n \n \n\n\nagreement was renewed, and expired in accordance with its terms on December 23, 2022.  On February 17, 2023, the agreement was renewed, and is scheduled to expire on February 7, 2024.  Under the agreement Wujiang SigmaTron Electronic Technology Co., Ltd. can borrow up to 10,000,000 Renminbi, approximately $1,444,252 as of April 30, 2023, and the facility is collateralized by Wujiang SigmaTron Electronics Co., Ltd.\u2019s manufacturing building.  Interest is payable monthly and the facility bears a fixed interest rate of 3.35% per annum.  There was no outstanding balance under the facility at April 30, 2023 compared to an outstanding balance of $438,219 at April 30, 2022.\n \nNotes Payable - Buildings\n \nThe Facility also included two term loans, in the aggregate principal amount of $6,500,000.\n  A \nfinal aggregate payment of approximately $4,368,444 was due on or before January 29, 2026.  \nOn July 18, 2022, a portion of the proceeds of the TCW Term Loan was used to pay in full both term loans extended by Lender.  \nThere was no outstanding balance \nat April 30, 2023 compared to an outstanding balance of $5,994,445 at April 30, 2022.  \n \nThe Company entered into a mortgage agreement on March 3, 2020, in the amount of $556,000, with The Bank and Trust SSB to finance the purchase of the property that serves as the Company\u2019s warehousing and distribution center in Del Rio, Texas.  The note requires the Company to pay monthly installment payments in the amount of $6,103.  Interest accrues at a fixed rate of 5.75% per year until March 3, 2025, and adjusts thereafter, on an annual basis, equal to 1.0% over the Prime Rate as published by The Wall Street Journal.  The note is payable over a 120 month period.  \nThe outstanding balance was $417,143 and $464,895 at April 30, 2023 and April 30, 2022, respectively.  \n \nNotes Payable - Equipment\n \nThe Company routinely entered into secured note agreements with Engencap Fin S.A. DE C.V. to finance the purchase of equipment. The terms of the outstanding secured note agreement mature on May 1, 2023, with a final quarterly installment payment of $9,310 and a fixed interest rate of 8.00% per annum.\n \nThe Company routinely enters into secured note agreements with FGI Equipment Finance LLC to finance the purchase of equipment. The terms of the outstanding secured note agreements mature from March 2025 through October 2027, with quarterly installment payments ranging from $10,723 to $69,439 and a fixed interest rate ranging from 8.25% to 9.25% per annum.\n \nFinance Lease and Sales Leaseback Obligations\n \nThe Company enters into various finance lease and sales leaseback agreements.  The terms of the outstanding lease agreements mature through April 1, 2027, with monthly installment payments ranging from $2,874 to $33,706 and a fixed interest rate ranging from 7.09% to 12.73% per annum. \n \nOther\n \nThe Company provides funds for administration and manufacturing services such as salaries, wages, overhead and capital expenditure items as necessary to operate its wholly-owned Mexican, Vietnamese and Chinese subsidiaries and the international procurement office in Taiwan.  The Company provides funding in U.S. Dollars, which are exchanged for Pesos, Dong, Renminbi, and New Taiwan dollars.  The fluctuation of currencies from time to time, without an equal or greater increase in inflation, could have a material impact on the financial results of the Company.  The impact of currency fluctuations for the fiscal year ended April 30, 2023, resulted in net foreign currency transaction losses of $892,642 compared to net foreign currency losses of $412,218 in the prior year.  In fiscal year 2023, the Company paid approximately $60,070,000 to its foreign subsidiaries for manufacturing services.  All intercompany balances have been eliminated upon consolidation.\n \nThe Company has not changed its plans to indefinitely reinvest the earnings of the Company\u2019s foreign subsidiaries. The cumulative amount of unremitted earnings for which U.S. income taxes have not been recorded is $11,822,000 as of April 30, 2023.\n \n\n\n \n \n39\n \n \n\n\n \nThe Company anticipates that its credit facilities, expected future cash flow from operations and leasing resources are adequate to meet its working capital requirements and fund capital expenditures for the next 12 months. However, in the event customers delay orders or future payments are not made timely, the Company desires to expand its operations, its business grows more rapidly than expected, or the current economic climate deteriorates, additional financing resources may be necessary. There is no assurance that the Company will be able to obtain equity or debt financing at acceptable terms, or at all, in the future.\u00a0 There is no assurance that the Company will be able to retain or renew its credit agreements in the future, or that any retention or renewal will be on the same terms as currently exist.\n \nThe impact of inflation and the continuing global supply chain disruptions in the electronic component marketplace have been challenging.  \nPrices for raw materials necessary for production have fluctuated significantly in the past and the Company is currently experiencing upward pricing pressure on raw materials.  The Company anticipates supply chain and raw material price volatility will continue during fiscal 2024.  \n \n \nITEM  7A.\n QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS\n \nAs a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Exchange Act, the Company is not required to provide the information required by this item.\n ",
+  "item7a": ">ITEM 7A.\nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS\n40\n \n \n \n \nITEM 8.\nFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA\n40\n \nITEM 9.\nCHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE\n40\n \n \n \n \nITEM 9A.\nCONTROLS AND PROCEDURES\n40\n \nITEM 9B.\nOTHER INFORMATION\n41\n \nITEM 9C.\nDISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION\n41\n \n \n \n \nPART III\n \n \n \n \n \n \n \n \nITEM 10.\nDIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE\n41\n \nITEM 11.\nEXECUTIVE COMPENSATION\n41\n \nITEM 12.\nSECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS\n41\n \n \n \n \nITEM 13.\nCERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE\n42\n \n \n \n \nITEM 14.\nPRINCIPAL ACCOUNTANT FEES AND SERVICES\n42\n \n \n \n \nPART IV\n \n \n \n \n \n \n \n \nITEM 15.\nEXHIBITS AND FINANCIAL STATEMENT SCHEDULES\n42\n \nITEM 16.\nFORM 10-K SUMMARY\n42\nSIGNATURES\n46\n \n \n\u200e\n \n\n\n \n \n3\n \n \n\n\n \n \n \nPART I\n \n ",
+  "cik": "915358",
+  "cusip6": "82661L",
+  "cusip": ["82661L101"],
+  "names": ["SIGMATRON INTL INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/915358/000091535823000008/0000915358-23-000008-index.htm"
+}
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+  "item1": ">Item 1. BUSINESS\nBusiness Overview\nDaktronics, Inc. and its subsidiaries (the \u201cCompany\u201d, \u201cDaktronics\u201d, \u201cwe\u201d, \u201cour\u201d, or \u201cus\u201d) are industry leaders in designing and manufacturing electronic scoreboards, programmable display systems and large screen video displays for sporting, commercial and transportation applications. We serve our customers by providing high quality standard display products as well as custom-designed and integrated systems. We offer a complete line of products, from small scoreboards and electronic displays to large multimillion-dollar video display systems as well as related control, timing, and sound systems. We are recognized as a technical leader with the capabilities to design, market, manufacture, install and service complete integrated systems displaying real-time data, graphics, animation and video. We engage in a full range of activities: marketing and sales, engineering and product design and development, manufacturing, technical contracting, professional services and customer service and support.\nWe were founded in 1968 by Drs. Aelred Kurtenbach and Duane Sander, professors of electrical engineering at South Dakota State University in Brookings, South Dakota. The Company began with the design and manufacture of electronic voting systems for state legislatures. In 1971, Daktronics developed the patented Matside\u00ae wrestling scoreboard, the first product in the Company's growing and evolving line. In 1994, Daktronics became a publicly-traded company and invested in display technologies and new markets. We have continued these investments and have supported our long-term customer relationships to grow from a small company operating out of a garage to a world leader in the display industry. We currently employ 2,734 people globally. We are headquartered at 201 Daktronics Dr., Brookings, SD 57006 telephone 605-692-4200. Our Internet address is https://\nwww.daktronics.com.\nOur annual, quarterly and current reports and any amendments to those reports are freely available in the \"Investor Relations\" section of our website. We post each of these documents on our website as soon as reasonably practicable after it is electronically filed with the Securities and Exchange Commission (the \"SEC\"). These reports and other reports, proxy \n1\nTable of Contents\nstatements, and electronic filings are also found on the SEC\u2019s website at www.sec.gov. Information contained on our website is not deemed to be incorporated by reference into this Report or filed with the SEC.\nWe focus our sales and marketing efforts on markets, geographical regions and products. Our five business segments consist of four domestic business units and the International business unit. The four domestic business units consist of Commercial, Live Events, High School Park and Recreation, and Transportation, all of which include the geographic territories of the United States and Canada. Financial information concerning these segments is set forth in this Form 10-K in \"Part II, Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\" and \"Note 3. Segment Reporting\" of the Notes to our Consolidated Financial Statements included in this Form 10-K.\nIndustry Background\nOver the years, our products have evolved significantly from scoreboards and matrix displays with related software applications to complex, integrated visual display systems which include full color video with text and graphics displays located on a local or remote network that are tied together through sophisticated control systems. In the mid-1990's, as light emitting diodes (\u201cLEDs\u201d) became available in red, blue and green colors with outdoor brightness, we pioneered the development of full color LED video displays capable of replicating trillions of colors, thereby producing large format video systems with excellent color, brightness, energy efficiency and lifetime. Due to our foundation of developing scoring and graphics display systems, we were able to add video capabilities so we could meet all our customers' large format display needs in a complete, integrated system. This has proven to be a key factor in Daktronics becoming a leader in large electronic displays. LED technologies continue to evolve and advance, creating new high-resolution and micro-LED display options of all shapes and sizes. Today, the industry continues development in both the construct of the micro-LED and production methods of micro-LED display panels using mass-transfer technology.\nIntegrated visual display systems are increasingly used across a variety of vertical markets including: media/advertising, stadiums/venues, hospitality/leisure, transportation, military and government, broadcast, control room, corporate and education, and retail. Generally, these vertical markets use systems to collaboratively communicate, inform, entertain, and advertise to various sized audiences. Advances in technologies and the decrease in costs of systems have opened up and increased the market's size.\nDescription of Business\nWe are engaged in a full range of activities: marketing and sales, engineering and product design and development, manufacturing, technical contracting, professional services and customer service and support. Each of those activities is described below:\nMarketing and Sales.\n Our sales force is comprised of direct sales staff and resellers located throughout the world supporting all customer types in both sales and service. We primarily use a direct sales force for large integrated display system sales in professional sports, colleges and universities, and commercial spectacular projects. We also use our direct sales force to sell third-party advertising and transportation applications. We utilize resellers outside North America for large integrated system sales where we do not have a direct sales presence. The majority of our products sold by resellers in North America are standard catalog products. We support our resellers through direct mail/email advertising, social media campaigns, trade journal advertising, product and installation training, trade show exhibitions and accessibility to our regional sales or service teams and demonstration equipment.\nEngineering and Product Design and Development.\n The large format electronic display industry is characterized by ongoing product innovations and developments in technology and complementary services. To remain competitive, we have a tradition of applying engineering resources throughout our business to anticipate and respond rapidly to the system needs in the marketplace. We employ and contract with engineers and technicians in the areas of mechanical and electrical design; applications engineering; software design; quality design; and customer and product support. Product managers assigned to each product family assist our sales staff in training and implementing product improvements which ensures each product is designed for maximum reliability and serviceability. We employ and contract with process engineers to assist in quality and reliability processing in our product design testing and manufacturing areas. We also make selected investments in and contract with affiliated companies to support and advance technologies and capabilities for our product lines and solutions.\nManufacturing.\n The majority of our products are manufactured in the United States, specifically in South Dakota and Minnesota. We also have manufacturing facilities in China and Ireland. We perform component manufacturing, system \n2\nTable of Contents\nmanufacturing (metal fabrication, electronic assembly, sub-assembly and final assembly) and testing in-house for most of our products to control quality, improve response time and maximize cost-effectiveness. Given the cyclical nature of some parts of our business and dispersed sales geography, we balance and maintain our ability to manufacture the same products across our plants so we can efficiently utilize our capacity and reduce costs. A key strategy of ours is to increase standardization and commonality of parts and manufacturing processes across product lines through the use of product platforms to increase efficiencies. Other strategies include supplier management programs and lean manufacturing techniques. For more details on our facilities, see \"Part II, Item 2. Properties\".\nTechnical Contracting.\n We serve as a technical contractor for larger display system installations requiring custom designs and innovative product solutions. The purchase of display systems typically involves competitive proposals. As part of our response to a proposal request, we may suggest additional products or features to assist the prospective customer in analyzing the optimal type of display system. We usually include site preparation and installation services related to the display system in our proposal. In these cases, we serve as a contractor and may retain subcontractors for electrical, steel and installation labor. We have developed relationships with many subcontractors throughout the United States and the world, which is an advantage for us in bidding and delivering on these projects. We are licensed as a general contractor in many jurisdictions.\nProfessional Services.\n To assist our clients' ability to engage, inform and entertain their audiences, we provide professional services including event support, content creation, product maintenance, marketing assistance, training on hardware and software, control room design, and continuing technical support training for operators.\nCustomer Service and Support.\n We offer limited warranties on our products, ranging from one to 10 years, against failure due to defective parts or workmanship. In addition, we offer service agreements of various scopes. To serve our customers, we provide help-desk access, parts repair and replacement, display monitoring and on-site support. Our technical help desk has experienced technicians who are on-call 24 hours a day to support events and sites. Our field service personnel and third-party service partners are trained to provide on-site support. We use third-party service partners to allow us to respond to the changes in volume of service requests during our seasonal peaks.\nProducts and Technologies\nThe two principal components of our systems are the display and the control system, which manages the operation of the display. We produce displays varying in complexity, size and resolution. The physical dimensions of a display depend on the size of the viewing area, the distance from the viewer to the display, and the amount and type of information to be displayed. The control system is comprised of various combinations of computer hardware, video processing hardware and software products designed to compile information provided by the operator and other integrated sources to display information, graphics, video or animation on the displays. We customize our products according to the design specifications of the customer and the conditions of the environment in which our products function.\nOur products are comprised of the following product families:\n\u2022\nVideo displays/video walls\n\u2022\nScoreboards and timing systems\n\u2022\nMessage displays\n\u2022\nITS (intelligent transportation systems) dynamic message signs\n\u2022\nMass Transit displays\n\u2022\nSound systems\n\u2022\nDigital billboards\n\u2022\nDigital street furniture\n\u2022\nDigit and price displays\n\u2022\nIndoor dynamic messaging systems and indoor liquid crystal display (\"LCD\") signs\n\u2022\nSoftware and controllers including Venus\u00ae Control Suite, Show Control Studio and Show Control Live\nEach of these product families is described below:\nVideo Displays/Video Walls.\n These displays are comprised of a large number of full-color pixels capable of showing various levels of video feeds, pre-rendered graphics and animated content with Real Time Data capabilities. These displays include red, green and blue LEDs arranged in various combinations to form pixels. The electronic circuitry, which controls the pixels, allows for variances in the relative brightness of each LED to provide a full color spectrum, thereby displaying \n3\nTable of Contents\nvideo images in striking, vibrant colors. Variables in video displays include the spacing of the pixels (pixel pitch), the resolution of the displays (number of pixels), the brightness of the displays (nits), the number of discrete colors the display is able to produce (color depth), the viewing angles, and the LED technology.\nWe offer a broad range of indoor and outdoor LED video displays with these varying features. Examples of offerings include centerhung displays, landmark displays, video walls, ribbon board displays, hanging banners, roadside displays, digital billboards, corporate office entrance displays, conference room displays, control room displays, and video displays designed for arenas, stadiums, retail stores, restaurants, malls, transportation hubs and other similar indoor facilities.\nVideo displays provide content to serve as a revenue generation source through advertising or as an information and communication medium (such as scoring, statistics, wayfinding, advertising, and control center information), or to provide interior design elements to create luxurious space to feature digital art.\nThe control components for video displays in live event applications include our Show Control Software Suite, proprietary digital media players and video processors. These control components provide advanced capabilities for the display of live video and real-time content on our displays. The Show Control Software Suite can operate an entire network of displays within a venue from a single, intuitive control interface. Its features allow users to instantly deliver media clips, camera feeds, and streaming information to any display in a venue.\nScoreboards and Timing Systems.\n Our line of scoreboards and timing products include indoor and outdoor scoreboards for many different sports, digit displays, scoring and timing controllers, statistics software and other related products. Indoor and outdoor systems range in complexity from small scoreboards to larger systems incorporating scoring, timing, video, message centers, advertising panels and control software.\nWe offer a variety of controllers complementing our scoreboards and displays. These controllers vary in complexity from the All Sport\u00ae 100, a handheld controller for portable scoreboards, to the All Sport\u00ae Pro, designed for more sophisticated scoring systems and allowing for more user-defined options.\nAs a key component of an integrated system, we market sports statistics and results software under the DakStats\u00ae trademark. The software allows the entry and display of sports statistics and other information. It is one of the leading applications of its type in collegiate and high school sports.\nMessage Displays.\n The Galaxy\u00ae product line is a family of full-matrix displays, available in both indoor and outdoor models and controlled with the Venus\u00ae Control Suite. Galaxy\u00ae displays are full color or monochrome with varying pixel spacing depending on color, size and viewing distance. Galaxy\u00ae displays can display text, graphics and animation, as well as prerecorded video clips. They are used primarily to convey information and on-premises advertising to consumers.\nThe Venus\u00ae Control Suite software is used to control the creation of messages and graphic sequences for uploading to the Galaxy\u00ae displays. This software is designed to be user friendly and applicable to all general advertising or message applications. It can be used to control a single message display or can scale up to provide a secure, cloud-based control center for large networks of message displays.\nITS Dynamic Message Signs (\"DMS\").\n DMS products include a wide range of LED displays for road management applications. The Vanguard\u00ae family of dynamic message displays is typically used to direct traffic and inform motorists. These displays are used over freeways, on arterial roads, near bridges, at toll booths and in other locations. We have also developed a Vanguard\u00ae control system for these displays to help transportation agencies manage large networks of displays.\nMass Transit Displays.\n Our Mass Transit products include a wide range of LCD and LED display solutions for public transportation applications. Installations often involve a network of displays located on railway platforms, at bus stations, or on concourses within a transportation hub to guide travelers to their intended destination.\nSound Systems.\n Our sound systems include both standard and custom options. Standard systems are designed to meet the needs of a variety of indoor and outdoor sports venues based on the size and configuration of the facility. Custom indoor and outdoor systems are tailored for larger venues and venues with unique seating configurations and are often integrated into an overall venue solution for scoring, timing, message display and/or video capability. \n4\nTable of Contents\nDigital Billboards.\n Our line of digital billboards offers a unique display solution for the Out-of-Home (\u201cOOH\u201d) advertising industry. The products are used to display images which change at regular intervals. These systems include many features unique to the outdoor advertising market, such as our patented mounting system, self-adjusting brightness, optimized energy consumption, and enhanced network security.\nDigital street furniture. \nOur LED street furniture features some of the brightest imagery in the industry and is built to withstand full-sun conditions. Our line of digital street furniture engages people with advertising content at eye level as they walk through campuses, cityscapes, and malls. This design enhances the message and complements surrounding architecture. These street furniture displays are our most flexible solution for digital OOH campaigns.\nDigit and Price Displays.\n This product line includes our DataTime\u00ae and Fuelight\u2122 displays. The DataTime\u00ae product line consists of outdoor time and temperature displays which use a remote sensor for temperature data. Fuelight\u2122 digit displays are specifically designed for the petroleum industry, offering high visibility and quick fuel price updates using the Fuelink\u2122 control software.\nIndoor Dynamic Messaging Systems and LCD screens. \nOur ADFLOW DMS\u2122 systems include indoor networked solutions for retailers, convenience stores and other businesses. These solutions, using either LED or LCD technologies, allow customers to broadcast advertising campaigns and other information through the software, media players and visual hardware.\nSoftware and Controllers including Venus\n\u00ae\n Control Suite. \nThe Venus\u00ae Control Suite is our platform for scheduled control capability. It can be used in any application where the intended message is created in advance and scheduled to play at a predetermined time. It is available in an on-premise or hosted cloud-based configuration and is capable of supporting a single display or scaling to support many displays. For applications that require both scheduled content and live video or real time content, a control solution can combine the capabilities of Venus\u00ae Control Suite with the capabilities of the Show Control Software Suite to create a powerful solution that enables customers to easily manage content on their displays. Content includes media, scoring, timing, statistics, advertising, way-finding information, playback loops and entertainment type visualizations. \nOur Show Control Suite is an easy-to-use and powerful integrated solution to achieve a dynamic, seamless and fully immersive game-day production. Show Control Studio offers products designed for display control, while Show Control Live is designed for video production. \nRaw Materials\nMaterials used in the production of our video display and control systems are sourced from around the world. Examples of the materials we use in production include LEDs, integrated circuits, printed circuit boards, power supplies, plastics, aluminum, and steel. We source some of our materials from a single-source or a limited number of suppliers due to the proprietary nature of the materials. The loss of a key supplier, part unavailability, tariff changes, price changes, war or other geopolitical impacts to trade or transport, or defects in the supplied material or component could have an adverse impact on our business and operations. Our sourcing group is responsible to maintain and implement strategies to mitigate these evolving risks. Periodically, we enter into pricing agreements or purchasing contracts under which we agree to purchase a minimum amount of product in exchange for guaranteed price terms over the length of the contract, which generally does not exceed one year. We sometimes prepay for future supply.\nSince late fiscal 2021, we have been affected by supply chain disruptions and inflationary pressures stemming from the coronavirus pandemic (\"COVID-19\"), shipping container shortages, weather events, and the changes in global demand. Specifically, we are impacted by the global inflation and shortage of semiconductors and related electronic components, other materials needed for production, and freight. While supply chain disruptions from these factors have subsided over the last half of fiscal 2023 and we expect infrequent disruptions going forward from these factors, it is reasonably possible that future disruptions could occur that would have a material impact on our business. \nIntellectual Property\nWe own or hold licenses to use numerous patents, copyrights, and trademarks on a global basis. Our policy is to protect our competitive position by filing United States and international patent applications to protect technology and improvements that we consider important to the development of our business. This will allow us to pursue infringement claims against competitors for protection due to patent violations. Although we own a number of patents and possess rights under others \n5\nTable of Contents\nto which we attach importance, we do not believe that our business as a whole is materially dependent upon any such patents or rights. We also own a number of trademarks that we believe are important in connection with the identification of our products and associated goodwill with customers, but no part of our business materially depends on such trademarks. We also rely on nondisclosure agreements with our employees and agents to protect our intellectual property. Despite these intellectual property protections, there can be no assurance a competitor will not copy the functions or features of our products.\nSeasonality\nOur net sales and profitability historically have fluctuated due to the impact of uniquely configured orders, such as display systems for professional sports facilities, colleges and universities, and spectacular projects in the commercial area, as well as the seasonality of the sports market. Uniquely configured orders can include several displays, controllers, and subcontracted structure builds, each of which can occur on varied schedules per the customer's needs. Our third fiscal quarter sales and profit levels are lighter than other quarters due to the seasonality of our sports business, construction cycles, and the reduced number of production days due to holidays in the quarter.\nOur gross margins tend to fluctuate more on uniquely configured orders than on limited configured orders. Uniquely configured orders involving competitive bidding and substantial subcontracting work for product installation generally have lower gross margins. Although we follow the over time method of recognizing revenues for uniquely configured orders, we nevertheless have experienced fluctuations in operating results and expect our future results of operations will be subject to similar fluctuations.\nBecause of the seasonality and volatility in business demand and variety of product types, we may not be able to utilize our capacity efficiently or accurately plan our capacity requirements, which may negatively affect our business and operating results.\nWorking Capital\nFor information regarding working capital items, see \u201cPart II, Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources\u201d in this Form 10-K.\nCustomers\nWe have a large and diverse worldwide customer base, ranging from local main street business owners, out-of-home companies, and schools to the owners and operators of premier professional sports arenas. Our customers are important to us, and we strive to serve them over the long-term to earn their future business. The loss of one or more customers could have an adverse effect on us. See \"Note 3. Segment Reporting\" of the Notes to our Consolidated Financial Statements included in this Form 10-K for our primary markets and customers of each business unit.\nProduct Order Backlog\nBacklog represents the dollar value of orders for integrated electronic display systems and related products and services which are expected to be recognized in net sales in the future. Orders are contractually binding purchase commitments from customers. Orders are included in backlog when we are in receipt of an executed contract and any required deposits or security and have not yet been recognized into net sales. Certain orders for which we have received binding letters of intent or contracts will not be included in backlog until all required contractual documents and deposits are received. Orders and backlog are not measures defined by accounting principles generally accepted in the United States of America (\"GAAP\"), and our methodology for determining orders and backlog may vary from the methodology used by other companies in determining their orders and backlog amounts.\nOrder and backlog levels provide management and investors additional details surrounding the results of our business activities in the marketplace and highlight fluctuations caused by seasonality and multimillion dollar projects. Management uses orders to evaluate market share and performance in the competitive environment. Management uses backlog information for capacity and resource planning. We believe order information is useful to investors because it provides an indication of our market share and future revenues. \n6\nTable of Contents\nOur product order backlog as of April\u00a029, 2023 was $400.7 million as compared to $471.6 million as of April\u00a030, 2022. This decrease in backlog is driven by fulfilling orders from our April\u00a030, 2022 backlog. During fiscal 2022 we had record order volume and muted conversion to sales due to supply chain challenges. Our customers had also placed orders for future deliveries to secure our manufacturing capacity during fiscal 2022. \nWe expect to fulfill the backlog as of April\u00a029, 2023 within the next \n24 months\n. The timing of backlog may be impacted by project delays resulting from parts availability and other constraints stemming from the supply chain disruptions.\nGovernment and Other Regulation\nIn the United States and other countries, various laws, regulations and ordinances related to our products and controllers restrict the installation of outdoor signs and displays, particularly in the commercial and transportation markets. These laws and regulations impose greater restrictions on electronic displays versus non-electronic displays due to alleged concerns over aesthetics or driver safety. Globally, our products are also subject to various regulations and standards including electromagnetic interference, electromagnetic compatibility, electrical safety, and flammability standards. We design and have our products tested for these regulations; however, these factors may prevent or inhibit us from selling products to some prospective customers in certain geographies.\nOur manufacturing facilities and products comply with industry specific requirements, including environmental rules and regulations and safety standards. These requirements include quality, manufacturing process controls, manufacturing documentation, supplier certification of raw materials, and various safety tests. Our production processes require the storage, use and disposal of a variety of hazardous chemicals under applicable laws.\nOur global supply chain and sales distribution channels subject us to various trade compliance regulations. These requirements can include certification of country of origin, classification within the various tariff codes and trade agreements; compliance with other specific product or country import/export regulations; and payment of certain import or export tariffs, duties, or taxes.\nOur global operations subject us to various laws and regulations, including laws and regulations relating to tax compliance, anti-corruption, data privacy, cybersecurity, governance, and disclosure reporting. These requirements vary and can involve matters and processes such as using resources for related expertise and information systems, records management, policy creation and maintenance, data protection programs, compliance filings, control design and testing, and continued training of employees.\nWe are subject to regulations restricting the movement and interaction of people and business operations. Countries and states and/or localities in the United States can issue lock down orders impacting the availability of employees, third parties, suppliers, customers, and other services we need to operate our business.\nWe believe we are in material compliance with government and other regulatory requirements.\nCompetition\nWe encounter a wide variety of competitors that vary by product, geographic area, and business unit. Our competitors include both domestic and foreign companies which range in size and product offerings. Our competitors may develop lower-cost or lower-featured products, may be willing to charge lower prices to increase their market share, or include different service and controller offerings. Some competitors have more capital, governmental funding, supply chain access, and other resources, which may allow them to take advantage of acquisition opportunities or adapt more quickly to changes in customer requirements. Other competitors use sponsorships as a way to win business at a particular location or market. In addition, our products compete with other forms of advertising, such as television, print media, digital and mobile, and fixed display signs.\nWe believe that our ability to compete depends upon customer centric product and service quality and features, technical expertise, service breadth, and cost-effective solutions.\n7\nTable of Contents\nResearch and Development\nOur experience in engineering, process design, and product and service design and development capabilities and investments made in affiliates are very important factors in continuing to develop, produce, and offer the most up-to-date digital displays and control system solutions desired by the market.\nWe invest in our development and our affiliates to increase differentiated product platforms, advance our software architecture and offerings, support customer requirements, advance new competitive narrow pixel and micro-electronic technologies, and advance sustainable technologies and related products.\nDuring the first half of fiscal 2023, our design teams focused on adjusting designs to utilize available components as a strategy to gain stability in our production levels.\nDuring fiscal 2024, we will continue to invest in product design and development to improve our video technology over a wide range of pixel pitches and sustainable technologies for both indoor and outdoor applications and to advance micro-LED devices and placement processes. These new or improved technologies are focused on varied pixel density for image quality and use, expanded product line offerings for our various markets and geographies, improved quality and reliability, and improved cost points. \nEmployees and Human Capital Resource Management\nOur core values of \nHonest, Helpful and Humble\n support our commitment to diversity, equity and inclusion, which leads to our vision of every person at Daktronics being able to contribute their best every day. We seek to recruit, retain, and develop our existing and future workforce for decades-long engagements to build long-term mutual prosperity. We facilitate company-wide teams to inspire a more inclusive culture and achieve company goals through teamwork. We encourage each employee to proactively and continuously build self-awareness, understanding of aspects of diversity, and openness to others\u2019 experiences and perspectives. We also foster and encourage self development and a continuous learning environment to build talent.\nThe safety and well-being of our team are a top priority, and we believe each and every team member plays an essential role in creating a safe and healthy workplace. We provide training for safety measures on the job site and in our facilities. We provide our employees and their families with access to a variety of health programs, including benefits that support their physical and mental health. \nAs of April\u00a029, 2023, we employed approximately 2,441 full-time employees and 293 part-time and temporary employees. Of these employees, approximately 1,121 were in manufacturing, 451 were in sales and marketing, 561 were in customer service, 378 were in engineering and 223 were in general and administrative. None of our employees are represented by a collective bargaining agreement. We believe employee relations are good.",
+  "item1a": ">Item 1A. RISK FACTORS\nThe factors that are discussed below, as well as the matters that are generally set forth in this Form 10-K and the documents incorporated by reference herein, could materially and adversely affect the Company\u2019s business, results of operations and financial condition.\nMacroeconomic Risks \nOur business is sensitive to global economic conditions, including recessions, inflation, and interest rate fluctuations. Weakened global economic or recessionary conditions may adversely affect our industry, business and results of operations.\nOur overall performance depends in part on worldwide economic conditions. The United States and other key international economies have experienced downturns and recessions from time to time during which economic activity was impacted by falling demand for a variety of goods and services; restricted credit; poor liquidity; reduced corporate profitability; volatility in credit, equity and foreign exchange markets; increased unemployment; bankruptcies; and overall uncertainty with respect to the economy. These conditions affect consumer and entertainment spending and could adversely affect our customers\u2019 ability or willingness to purchase our products, delay prospective customers\u2019 purchasing decisions, reduce the value of their contracts, or affect attrition rates, all of which could adversely affect our operating results.\n8\nTable of Contents\nThese demand fluctuations and various factors may reduce our ability to effectively utilize our capacity and impact our results of operations.\nWe rely on global supply chains, and inflationary pressures can increase our input costs faster than our ability to raise prices. These could eliminate our ability to sell our products or receive parts and components through our global supply chains.\nThe rate of interest we pay on our asset-based lending facility with JPMorgan Chase Bank, N.A. is correlated to the Standard Overnight Fund Rate (SOFR), which is determined by governmental policy decisions. Increases in SOFR will increase the rate of any extended borrowing on this facility. \nGeopolitical issues, conflicts, governmental actions and other global events could adversely affect our results of operations and financial condition.\nOur business is subject to global political issues and conflicts and governmental actions. Such factors can create trade restrictions, increase tariff costs, increase prices for raw materials and components used in our products, increase the cost of sales, decrease demand for our products, or cause other implications to our business operations. These impacts could reduce profitability and could have a material adverse effect on our results of operations and financial condition if they escalate into geographies in which we do business, manufacture our products, or obtain raw materials and components for production. \nFor example, the continuing conflict arising from the invasion of Ukraine by Russia, or tensions between Taiwan, China, the United States or other countries, could adversely impact macroeconomic conditions, give rise to regional instability and result in heightened economic tariffs, sanctions and import-export restrictions from the United States and the international community in a manner that adversely affects our Company, including to the extent that any such actions cause material business interruptions or restrict our ability in these regions to conduct business with certain suppliers or vendors. Additionally, such conflict or sanctions may significantly devalue various global currencies and have a negative impact on economies in geographies in which we do business.\nWe face risks related to actual or threatened health epidemics and other outbreaks, which have had and could have a material adverse effect on our operations, liquidity, financial conditions, and financial results. \nA serious global pandemic can adversely impact, shock and weaken the global economy. These impacts can amplify other risk factors and could have a material impact on our operations, liquidity, financial conditions, and financial results.\nOur business, operations, and financial results have been, and may continue to be, impacted by the COVID-19 pandemic. Impacts on our business include, but are not limited to:\n\u2022\nInability to meet our customers' demand due to disruptions in our manufacturing caused by delays and disruptions in obtaining certain raw material and other manufacturing components and because of restrictions affecting our ability to conduct work at sites during shutdowns; \n\u2022\nRapid increases in raw material, components, and personnel related costs and expenses; and\n\u2022\nRapid declines and increases in demand for our products.\nUnexpected events, including natural disasters, weather events, war, terrorist acts, and pandemics, may increase our cost of doing business or disrupt our operations.\nWe operate manufacturing operations in three locations in the United States - Brookings, South Dakota, Sioux Falls, South Dakota, and Redwood Falls, Minnesota, and we have production facilities in Ireland and China. Unexpected events could result in damage to, and a complete or partial closure of, one or more of our manufacturing facilities, which could make it difficult to supply our customers with product and provide our employees with work, thereby adversely affecting our business, operating results or financial condition.\nThe occurrence of one or more unexpected events in the United States or in other countries in which we operate may disrupt our operations and the operations of our customers and suppliers. Such events could create additional uncertainties, forcing customers to reduce, delay, or cancel already planned projects or cause our suppliers not to perform, resulting in parts and component shortages. \n9\nTable of Contents\nRisks Related to Our Business and Industry\nWe operate in highly competitive markets and face significant competition and pricing pressures. If we are unable to keep up with the rapidly changing product developments and new technologies or if we cannot compete effectively, we could lose market share and orders, which would negatively impact our results of operations.\nThe electronic display industry is characterized by ongoing product improvement, innovations and development. We compete against products produced in foreign countries and the United States. Our competitors may develop lower-cost or lower-featured products, may be willing to charge lower prices to increase their market share, or market new and unique product, service and controller offerings. Some competitors have more capital and other resources, which may allow them to take advantage of acquisition opportunities or adapt more quickly to changes in customer requirements. Other competitors use sponsorships as a way to win business at a particular location or market. In addition, our products compete with other forms of advertising, such as television, print media, digital and mobile, and fixed display signs. To remain competitive, we must anticipate and respond quickly to provide products and services that meet our customers\u2019 needs, enhance our existing products, introduce new products and features, and continue to price our products competitively.\nWe may be unable to protect our intellectual property rights effectively, or we may infringe upon the intellectual property rights of others, either of which may have a material adverse effect on our operating results and financial condition.\nWe rely on a variety of intellectual property rights we use in our products and services. We may not be able to successfully preserve our intellectual property rights in the future, and these rights could be invalidated, circumvented or challenged. In particular, the laws of certain countries in which our products are sold do not protect our products and intellectual property rights to the same extent as the laws of the United States. If litigation is necessary in the future to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others, such litigation could result in substantial costs and diversion of resources even if we ultimately prevail.\nIn addition, intellectual property rights of others also have an impact on our ability to offer some of our products and services for specific uses or at competitive prices. Competitors' patents or other intellectual property may limit our ability to offer products or services to our customers. Any infringement or claimed infringement by us of the intellectual property rights of others could result in litigation and adversely affect our ability to continue to provide, or could increase the cost of providing, products and services.\nIf we fail to timely and effectively obtain shipments of raw materials and components from our suppliers or to send shipments of our manufactured product to our customers, our business and operating results could be adversely affected.\nWe cannot control all of the various factors that might affect our suppliers' timely and effective delivery of raw materials and components to our manufacturing facilities or the availability of freight capacity for us to deliver products to our customers.\nOur utilization of a complex supply chain for raw material and component imports and the global distribution of our products makes us vulnerable to many risks, including, among other things, shortages or delays because of work restrictions for various reasons like COVID-19 restrictions, supply chain implications due to war or other geopolitical impacts on supply chains, risks of damage, destruction or confiscation of products while in transit to and from our manufacturing facilities; organized labor strikes and work stoppages, such as labor disputes or related employee worker unavailability, that could disrupt operations at ports-of-entry; transportation and other delays in shipments as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions; unexpected or significant port congestion; lack of freight availability; and freight cost increases. In addition, we may be required to arrange for products to be delivered through airfreight, which is significantly more expensive than standard shipping by sea. We may not be able to obtain sufficient freight capacity on a timely basis and, therefore, may not be able to timely receive shipments of raw materials and components or deliver products to customers.\nCOVID-19 created constraints on supply chain operations and resulted in component part shortages due to global capacity constraints, such as the current global capacity constraint we have been facing in the supply of component parts, particularly of semiconductor components. In addition, transportation availability has disrupted the timeliness of raw material and component shipments and customer shipments. Such a constraint could cause and has caused lead times for our products to increase.\n10\nTable of Contents\nCost inflation in, and shortages of, raw materials, components, and related transportation and tariff costs have had and may continue to have a significant impact on our price competitiveness and/or ability to produce our products, which have caused and could continue to cause harm to our sales, financial condition and results of operations.\nCost inflation and shortages of any raw materials and components used to manufacture our products have and may continue to occur due to various factors, such as worldwide demand, natural disasters, logistic disruptions, war and other conflicts, and trade regulations.\nElectronic and other components and materials used in our products are sometimes in short supply, which may impact our ability to meet customer demand. Transportation costs and availability can fluctuate due to fluctuations in oil prices and other social, economic, and geopolitical factors. \nIf we experience shortages or increases in the prices we pay for raw materials and components and are unable to pass on those increases to our customers or are unable to manufacture our products at all or on a timely basis, it could negatively affect our business, financial condition or results of operations as such conditions have in the past. In addition to increased costs, these factors could delay delivery of products, which may result in the assessment of liquidated damages or other contractual damages that could negatively impact our profits.\nDuring late fiscal 2021, supply chain disruptions began to emerge because of COVID-19, shipping container shortages, winter weather, and changes in global demand. Specifically, we are impacted by the global inflation and shortage of semiconductors and related electronic components, other materials needed for production, and freight. While supply chain disruptions from these factors have subsided over the last half of fiscal 2023 and we expect infrequent disruptions going forward from these factors, it is reasonably possible that future disruptions could occur that would have a material impact on our business. \nTrade disruptions between countries could make us subject to additional regulatory costs and challenges, affect global economic and market conditions, and contribute to volatility in foreign exchange markets, which we may be unable to effectively manage through our foreign exchange risk management program. We monitor for these types of situations and evaluate ways to minimize these impacts through vendor negotiations, alternative sources, and potential price adjustments. \nWe depend on a single-source or a limited number of suppliers for our raw materials and components from countries around the world. The loss, an interruption, or a material change in our business relationships with our suppliers or in global supply chain conditions has had and could continue to cause a disruption in our supply chains and a substantial increase in the costs of such raw materials and components. Such changes have and could continue to result in extended lead times or supply changes, which could disrupt or delay our scheduled product deliveries to our end user customers and may result in the loss of sales and end user customers and cause harm to our sales, financial condition, and results of operations.\nThe performance and financial condition of a supplier may cause us to alter our business terms, cease doing business with a particular supplier, or change our sourcing practices. Our suppliers are subject to the fluctuations in global economic cycles and conditions and other business risk factors which may impact their ability to operate their businesses. Our supply chain includes materials that are sourced or packaged directly or indirectly through Taiwan or China suppliers. Geopolitical tensions and shipping disruptions can impact our suppliers ability to deliver components and raw materials. \nAn interruption from our suppliers of raw materials or components could affect our ability to manufacture our products until a new source of supply is located and, therefore, could have a material adverse effect on our business, financial condition or results of operations. Our suppliers may need to allocate available supply, and we may not be able to obtain parts needed for production. Qualifying new suppliers to compensate for such shortages may be time-consuming and costly and may increase the likelihood of errors in design or production. \nIn order to reduce manufacturing lead times and plan for adequate component supply, from time to time we may issue purchase orders or prepay for components and products that are non-cancelable and non-returnable. In addition, we may purchase components and products that have extended lead teams to ensure adequate supply to support long-term customer demand and mitigate the impact of supply disruptions. If we are unable to use all of the components we have purchased, we may have excess inventory or obsolescence, or increased inventory or carrying costs, which could have an adverse impact on our results of operation or financial condition.\n11\nTable of Contents\nWe may fail to continue to attract, develop and retain personnel throughout our business areas, which could negatively impact our operating results.\nWe depend on qualified employees, including experienced and skilled technical personnel, to design, market, fulfill, and serve our customers. Qualified employees can be in high demand and limited in availability. Our future success and operating results will also depend upon our ability to attract, train, motivate and retain qualified personnel to maintain and grow capacity. Although we intend to continue to provide competitive compensation packages to attract and retain qualified personnel, market conditions for pay levels and availability may negatively impact our operations.\nWe depend on third parties to complete some of our contracts.\nDepending on a contract's scope of work, we may hire third-party subcontractors to perform on-site installation and service-related activities, hire manufacturers of structures or elements of structures related to on-site installations, hire contract manufacturers for certain product lines, or purchase specialty non-display related system elements from other companies. If we are unable to hire qualified subcontractors, find qualified manufacturers for on-site elements, find qualified contract manufacturers, or purchase specialty non-display system elements, our ability to successfully complete a project could be impaired. If we are not able to locate qualified third party subcontractors or manufacturers, the amount we are required to pay may exceed what we have estimated, and we may suffer losses on these contracts. If the subcontractor or manufacturer fails to perform, we may be required to source these services to other third parties on a delayed basis or on less favorable terms, which could impact contract profitability. There is a risk that we may have disputes with our subcontractors relating to, among other things, the quality and timeliness of work performed, customer concerns about the subcontractor, or faulty workmanship, resulting in claims against us for failure to meet required project specifications and negatively impacting our financial condition and results of operations.\nThese third parties are subject to fluctuations in global economic cycles and conditions and other business risk factors which may adversely impact their ability to operate their businesses. The performance and financial condition of the third parties may cause us to alter our business terms or to cease doing business with a particular third party or change our sourcing practices.\nWe may not be able to utilize our capacity efficiently or accurately plan our capacity requirements, which may negatively affect our business and operating results. \nWe increase and decrease our production and services capacity and the overhead supporting order fulfillment based on anticipated market demand. Market demand, however, has not always developed as expected or remained at a consistent level. These underutilization and overbooking capacity risks can potentially decrease our profitability and result in the impairment of certain assets.\nThe following factors are among those that could complicate capacity planning for market demand:\n\u2022\nchanges in the demand for and mix of products that our customers buy;\n\u2022\nour ability scale down or to add and train our manufacturing and services staff in advance of demand changes;\n\u2022\nthe market\u2019s pace of technological change;\n\u2022\nvariability in our manufacturing or services productivity;\n\u2022\nlong lead times for and availability of raw materials and components used in production;\n\u2022\nour ability to engage qualified third parties;\n\u2022\ngeography of the order and related shipping methods; and\n\u2022\nlong lead times for our plant and equipment expenditures.\nOur results of operations on a quarterly and annual basis have and are likely to continue to fluctuate and be substantially affected by the size and timing of large contract order awards.\nCustomer demand and the timing and size of large contracts create volatility in supply chain planning and capacity requirements to fulfill orders. Awards of large contracts and their timing and amounts are difficult to predict, may not be repeatable, and are outside of our control. Market demand has not always developed as expected or remained at a consistent level. Adjusting supply chain material planning and production and services capacity to meet this varied demand can increase costs. Large contracts or customer awards include projects for college and professional sports facilities \n12\nTable of Contents\nmarkets, the OOH niche, the transportation market, and the large spectacular niche. These projects can have short delivery time frames. Some factors that may cause our operating results to vary due to timing and size of the awards include:\n\u2022\nthe timing of orders and related deliveries, including delays or cancellations of orders;\n\u2022\nour ability to obtain raw materials and components timely and at reasonable prices;\n\u2022\nour ability to adjust and utilize production and services capacity;\n\u2022\nour ability to engage third parties to support production and fulfillment;\n\u2022\nnew product introductions;\n\u2022\nvariations in product mix; and\n\u2022\ncustomer financial wherewithal and the related economic conditions impacting their business.\nOperating results in one or more quarters of a fiscal year may not be indicative of future operating results.\nWe enter into fixed-price contracts, which could reduce our profits if actual costs exceed estimated costs.\nBecause of the complexity of many of our client contracts, accurately estimating the cost, scope and duration of a particular contract can be a difficult task. Unanticipated costs that exceed our original estimates may not be recoverable under fixed price contracts. Unanticipated cost increases may occur as a result of several factors including, but not limited to: increases in the cost, shortages or non-availability of materials or labor; unanticipated technical problems; required project modifications not initiated by the customer; suppliers\u2019 or subcontractors\u2019 failure to perform or delay in performing their obligations; logistics disruptions or delays; and capacity constraints. In addition to increased costs, these factors could delay delivery of products, which may result in the assessment of liquidated damages or other contractual damages which would negatively impact our profits. We evaluate changes in estimates on a contract-by-contract basis and disclose significant changes, if material, in the Notes to Consolidated Financial Statements. The cumulative catch-up method is used to account for revisions in estimates.\nBacklog may not be indicative of future revenue or profitability.\nMany of our products have long sales, delivery and acceptance cycles. In addition, our backlog is subject to order cancellations and delays. Orders normally contain cancellation provisions to permit our recovery of costs expended as well as a pro-rata portion of the profit. If projects are delayed, revenue recognition can occur over longer periods of time, and projects may remain in backlog for extended periods of time. If we receive relatively large orders in any given quarter, fluctuations in the levels of the quarterly backlog can result because the backlog may reach levels which may not be sustained in subsequent quarters.\nUnanticipated events resulting in credit losses to us could have a material adverse impact on our financial results.\nSignificant portions of our sales are to customers who place large orders for custom products. We closely monitor the creditworthiness of our customers and have not, to date, experienced significant credit losses. We mitigate our exposure to credit risk, to some extent, by requiring deposits, payments prior to shipment, progress payments, payment bonds and letters of credit. However, because some of our exposure to credit losses is outside of our control, unanticipated events resulting in credit losses could have a material adverse impact on our operating results.\nOur actual results could differ from the estimates and assumptions we make to prepare our financial statements, which could have a material impact on our financial condition and results of operations.\nIn connection with the preparation of our financial statements, including the Consolidated Financial Statements included in this Form 10-K, our management is required under GAAP to make estimates and assumptions based on historical experience and other factors. Our most critical accounting estimates are described in \"Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations\" in this Form 10-K.\nThese estimates and assumptions affect the timing and amount of net sales, costs, and profits or losses in applying the principles to contracts with customers under over time method of recording revenue using the cost-to-cost input method; credit losses for accounts receivables and contract assets; the valuation of inventory; estimated amounts for warranty and product maintenance agreement costs; the calculation and valuation of our investments and deferred tax assets; the valuation of our investment in affiliates or unconsolidated subsidiaries; fair value estimates used in goodwill and long-term assets testing; estimating the impact of uncertainties in the application of complex tax laws; and calculating share-based compensation expense. Although we believe these estimates and assumptions are reasonable under the circumstances, they \n13\nTable of Contents\nare subject to significant uncertainties, some of which are beyond our control. If management's estimates and assumptions change or are not correct, our financial condition or results of operations could be adversely affected.\nUnanticipated warranty and other costs for defective products could adversely affect our financial condition, results of operations and reputation.\nWe provide warranties on our products with terms varying from one to 10 years. In addition, we offer extended warranties. These warranties require us to repair or replace faulty products and meet certain performance standards, among other customary warranty provisions. Although we continually monitor our warranty claims and accrue a liability for estimated warranty costs, unanticipated claims could have a material adverse impact on our financial results. In some cases, we may be able to subrogate a claim back to a subcontractor or supplier if the subcontractor or supplier supplied the defective product or performed the service, but this may not always be possible. In addition, the need to repair or replace products with design and manufacturing defects could adversely affect our reputation. Remediation of a claim may take time and could result in lost or deferred revenue, lead to costly warranty expenses, and have a material adverse impact on our financial condition and operating results.\nThe terms and conditions of our credit facilities impose restrictions on our operations, and if we default on our credit facilities, it could have a material adverse effect on our results of operations and financial condition and make us vulnerable to adverse economic or industry conditions and cause liquidity issues.\nThe terms and conditions of our credit facilities impose restrictions limiting our ability to incur debt, contingent liabilities, lease obligations or liens; to merge or consolidate with another company; to dispose substantially all our assets ; to acquire or purchase a business or its assets; or to sell our assets. Our credit facilities also impose certain financial covenants on us which restrict the level of cash dividends and capital expenditures. A breach of any of these covenants could result in an event of default under our credit facilities. Upon the occurrence of an event of default, the lender could elect to declare any and all amounts outstanding under such facilities to be immediately due and payable and terminate all commitments to extend further credit. For additional information on financing agreements, see \"Note 7. Financing Agreements\" and \"Note 17. Subsequent Events\" of the Notes to our Consolidated Financial Statements included in this Form 10-K.\nFor the foreseeable future, it is anticipated that our cash on hand, marketable securities, cash provided by operating activities, and borrowings under our credit facilities should provide sufficient funds to finance our capital expenditures and working capital needs and otherwise meet operating expenses and debt service requirements. However, if additional capital is required or we are unable to renew our existing credit facilities at all or on a timely basis, there can be no assurance we will be able to obtain such capital when needed or on satisfactory terms. \nIf we became unable to obtain adequate surety bonding or letters of credit, it could adversely affect our ability to bid on new work, which could have a material adverse effect on our future revenue and business prospects.\nIn line with industry practice, we are often required to provide performance and surety bonds to customers and may be required to provide letters of credit. These bonds and letters of credit provide credit support for the client if we fail to perform our obligations under the contract. If security is required for a project and we are unable to obtain a bond or letter of credit on terms acceptable to us and our client, we may not be able to pursue that project. In addition, bonding may be more difficult to obtain in the future or may be available only at significant additional cost as a result of general conditions that affect the insurance and bonding markets.\nVolatility in our business driven by global economic conditions and supply chain disruptions can have a negative effect on our liquidity and could cause us to express substantial doubt about our ability to continue as a going concern.\nGlobal economic conditions and supply chain disruptions have and will continue to cause volatility in our cash flow, pricing, order volumes lead times, competitiveness, revenue cycles, and production costs. Our ability to fund inventory levels, operations and capital expenditures in the future will be dependent on our ability to generate cash flow from operations in these conditions, to maintain or improve margins, and to use funds from our credit facility. Also, market conditions can negatively impact our customers' ability to fund their projects and can impact our vendors, suppliers, and subcontractors and may not allow them to meet their obligations to us and impact our liquidity.\nA determination that there is a substantial doubt about our ability to continue as a going concern can cause our existing and prospective suppliers, customers, and financing sources to not do business with us. \n14\nTable of Contents\nWe previously disclosed that liquidity constraints conditions raised substantial doubt about the Company\u2019s ability to continue in our second and third quarter of fiscal 2023 financial statements. On May 11, 2023, we secured long-term financing. During fiscal 2023, we recognized operating income of $21.4 million and generated $15.0 million in cash flows provided by operating activities, and we project we will have sufficient cash on hand and availability under the financing agreements to fund future operations. Therefore, the events and conditions that gave rise to substantial doubt about our ability to continue as a going concern were resolved.\nAcquisitions, investments, and divestitures pose financial, management and other risks and challenges.\nWe routinely invest in and explore investing in or acquiring other businesses and related assets to complement or enhance our business strategies. These investments are often made to increase customer relations and market base, expand geographically, or obtain technological advances to support our solution portfolio. Periodically, we may also consider disposing of these businesses, partial investments, assets, or other lines of business.\nThe financial, management and other risks and challenges associated with these activities include, but are not limited to, the following:\n\u2022\ndiversion of management attention;\n\u2022\ndifficulty with integrating acquired businesses;\n\u2022\nadverse impact on overall profitability if the expanded operations or investments in affiliates do not achieve the strategic benefits forecasted;\n\u2022\npotential loss or adverse relationship with or a change of key employees, customers, or suppliers of the acquired business;\n\u2022\ninability to effectively manage our expanded operations;\n\u2022\ndifficulty with the integration of different corporate cultures;\n\u2022\npersonnel issues;\n\u2022\nincreased expenses;\n\u2022\nassumption of unknown liabilities and indemnification obligations;\n\u2022\npotential disputes with the buyers or sellers;\n\u2022\nthe time involved in evaluating or modifying the financial systems of an acquired business and the establishment of appropriate internal controls; \n\u2022\nincorrect estimates made in the accounting for the transaction that cause misstatements of acquisition assets and liabilities; and\n\u2022\nincorrect assumptions and estimates made in accounting for the value of such asset.\nThere can be no assurance that we will engage in any acquisitions or divestitures or that we will be able to do so on terms that will result in any expected benefits. \nWe have $20.7 million, net invested in affiliates as of April\u00a029, 2023. Our financial results are impacted negatively or positively from our proportionate share of our affiliates' financial performance. Any reduction or impairment of the value of an investment and related acquired assets, goodwill, or investments in affiliates would result in charges against earnings, which would adversely affect our results of operations in future periods. We recorded an impairment to the value of one of these investments by $4.5 million during fiscal year 2023.\nIf goodwill or other intangible assets in connection with our acquisitions become impaired, we could take significant non-cash charges against earnings.\nWe have pursued and will continue to seek potential acquisitions to complement and expand our existing businesses, increase our revenues and profitability, and expand our markets. As a result of prior acquisitions, we have goodwill and intangible assets recorded in our consolidated balance sheets as described in \"Note 4. Goodwill and Intangible Assets\" of the Notes to our Consolidated Financial Statements included in this Form 10-K.\nGoodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. Goodwill is not amortized and remains in our consolidated balance sheets indefinitely unless there is an impairment or a sale of a portion of the business. Under current accounting guidelines, we must assess, at least annually, whether the value of goodwill and other intangible assets has been impaired. Any reduction or impairment of the value of goodwill or other intangible assets will result in charges against earnings, which would adversely affect our results of operations in future periods.\n15\nTable of Contents\nWe performed our annual impairment test on October 30, 2022 and concluded that the carrying value of the Live Events and International reporting units exceeded their respective fair values and consequently recorded a \n$4.6 million \nimpairment charge. We \ndetermined the fair value of the reporting units based on an income approach, using the present value of future discounted cash flows. Significant estimates used to determine fair value include the weighted average cost of capital and financial forecasts. The recognized impairment was primarily a result of our weighted average cost of capital being notably higher, which was driven by strains on our liquidity caused by disrupted supply chains and geopolitical conditions. As a result, the present value of our future cash flows was lower, which caused the impairment charge. \nBased on our annual impairment test, we concluded that the fair value of the Commercial and Transportation reporting units exceeded their respective carrying values and concluded no goodwill impairment existed for those reporting units. The \nannual impairment test for fiscal years 2022 and 2021 concluded no goodwill impairment existed.\nWe may fail to continue to attract, develop and retain key management personnel, which could negatively impact our operating results.\nWe depend on the performance of our senior executives and key employees, including experienced and skilled technical personnel. The loss of any of our senior executives could negatively impact our operating results and ability to execute our business strategy. Our future success will also depend upon our ability to attract, train, motivate and retain qualified personnel.\nAlthough we intend to continue to provide competitive compensation packages to attract and retain key personnel, some of our competitors for these employees have greater resources and more experience, making it difficult for us to compete successfully for key personnel. If we cannot attract and retain sufficiently qualified technical employees for our research and development and manufacturing operations, we may be unable to achieve the synergies expected from mergers and acquisitions or to develop and commercialize new products or new applications for existing products. Furthermore, possible shortages of key personnel, including engineers, could require us to pay more to hire and retain key personnel, thereby increasing our costs.\nThe outcome of pending and future claims, investigations or litigation can have a material adverse impact on our business, financial condition, and results of operations.\nWe are involved from time to time in a variety of litigation, investigations, inquires or similar matters arising in our business. Litigation, investigations and regulatory proceedings are subject to inherent uncertainties, and unfavorable rulings and outcomes can and do occur. Pending or future claims against us could result in professional liability, product liability, criminal liability, warranty obligations, indemnity claims, or other liabilities to the extent we are not insured against a loss or our insurance fails to provide adequate coverage. Also, a well-publicized actual or perceived threat of litigation could adversely affect our reputation and reduce the demand for our products. See \"Note 16. Commitments and Contingencies\" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information on litigation obligations.\nInformation Systems, Legal, and Regulatory Risks\nOur business depends on numerous complex information systems. Any failure to maintain these systems, a network disruption, or breaches in data security that could cause a material adverse effect on our business.\nWe rely heavily on complex information systems for the successful operation of our business, for the support of our controller offerings, and for the collection and retention of business data. Any failure of our digital systems, or any breach of our systems\u2019 security measures, could adversely affect our operations, at least until our data can be restored and/or the breaches remediated. Despite the security measures we have in place, our facilities and systems and those of our third-party service providers may be vulnerable to cybersecurity breaches, acts of vandalism, computer viruses, misplaced or lost data, ransomware attacks, programming issues, and/or human errors or other similar events. Any misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information, whether by us or by our third-party service providers, could adversely affect our business and operations. We could face significant fines and penalties under various global laws revolving around data loss, lack of adequate data protection or lack of required reporting. Any disruption in our digital technologies could affect our business and operations, causing potentially significant expenses to recover and modify the data systems, to reimburse customers' losses, and to investigate and remediate any vulnerabilities, which could severely damage our reputation with customers, suppliers, employees and investors and expose us to risk of litigation and liability.\n16\nTable of Contents\nOur global operations expose us to global regulatory, geopolitical, economic and social changes and add additional risks and uncertainties which can harm our business, operating results, and financial condition.\nOur domestic and foreign operations, sales, earnings, and strategies for profitable growth can be adversely affected by global conditions and compliance with global regulations and governmental orders. Global conditions include political developments; economic changes; unfavorable trading policies; difficulties in staffing and managing global operations; changes in foreign and domestic governmental regulations or requirements, treaty and trade relationships; the imposition of government orders that differ among jurisdictions, including mandatory closures, work-from-home and lock-down orders and social distancing protocols; changes in monetary and fiscal policies; changes in laws and regulations; or other activities of the United States and other foreign governments, agencies, and similar organizations. These conditions include, but are not limited to, changes in a country's or region's economic or political conditions; pricing and marketing of products; local labor conditions and regulations; reduced protection of intellectual property rights; changes in the regulatory or legal environment; lack of well-developed legal systems; restrictions and foreign exchange rate fluctuations; and burdensome taxes and tariffs and other trade regulations or barriers. Other exposures and uncertainties that exist include changing social conditions and attitudes, terrorism, or political hostilities and war. Other difficulties of global operations include staffing and managing our various locations, including logistical and communication challenges. The likelihood of such occurrences and their overall effect on us vary greatly from country to country and are not predictable.\nOur business involves the use of hazardous materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do business.\nOur business involves the blending, controlled storage, use and disposal of hazardous materials. We and our suppliers are subject to federal, state, local and foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. Although we believe the safety procedures we utilize for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, local, state, federal or foreign authorities may curtail the use of these materials and interrupt our business operations. If we are subject to any liability as a result of activities involving hazardous materials, our business, financial condition and results of operations may be adversely affected, and our reputation may be harmed.\nOur future results may be affected by compliance risks related to United States and other countries' anti-bribery and anti-corruption laws, trade controls, economic sanctions, and similar laws and regulations. Our failure to comply with these laws and regulations could subject us to civil, criminal and administrative proceedings or penalties and harm our reputation.\nDoing business on a worldwide basis requires us to comply with the laws and regulations of the United States government and various foreign jurisdictions. These laws and regulations place restrictions on our operations, trade practices, partners, customers, and investments.\nIn particular, we and our operations are subject to United States and foreign anti-corruption and trade control laws and regulations, such as the United States Foreign Corrupt Practices Act (the \u201cFCPA\u201d); the United Kingdom Bribery Act (the \u201cBribery Act\u201d); and export controls and economic sanctions programs, including those administered by the United States Treasury Department\u2019s Office of Foreign Assets Control (\u201cOFAC\u201d), the State Department\u2019s Directorate of Defense Trade Controls (the \u201cDDTC\u201d), and the Bureau of Industry and Security of the United States Department of Commerce.\nAs part of our business, we deal with state-owned business enterprises, the employees of which are considered to be foreign officials for purposes of the FCPA's prohibition on United States companies from engaging in bribery, providing anything of value, or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business, and other similar regulations in other areas of the world. In addition, the provisions of the Bribery Act apply to the bribery of foreign officials and to transactions with individuals that a government does not employ. The FCPA also requires us to maintain specific record-keeping standards and adequate internal accounting controls. In addition, we are subject to similar requirements in other countries. Some of the international locations in which we do business lack a developed legal system and have higher than normal levels of corruption. Our expansion outside of the United States, and our development of new partnerships and joint venture relations worldwide, could increase the risk of violation of the FCPA, OFAC, the Bribery Act or similar laws and regulations.\nAs an exporter, we must comply with various laws and regulations relating to the export of products and technology from the United States and other countries having jurisdiction over our operations and trade sanctions against embargoed \n17\nTable of Contents\ncountries and destinations administered by OFAC. Before shipping certain items, we must obtain an export license or verify that license exemptions are available. Any failures to comply with these laws and regulations could result in fines, adverse publicity, and restrictions on our ability to export our products. Repeat failures could carry more significant penalties.\nAnti-bribery, corruption, and trade laws and regulations, and the enforcement thereof, are increasing in frequency, complexity and severity on a global basis. Violations of anti-corruption, anti-bribery and trade control laws and sanctions regulations are punishable by civil penalties, including fines; the denial of export privileges; injunctions; asset seizures; debarment from government contracts and revocations or restrictions of license; as well as criminal fines and imprisonment, and could harm our reputation, create negative shareholder sentiment and affect our share value. We have established policies and procedures with the intention of providing reasonable assurance of compliance with these laws and regulations and trained our employees to comply with these laws and regulations. However, our employees, contractors, agents and licensees involved in our international operations may take actions in violations of such policies. If our employees, agents, distributors, suppliers and other third parties with whom we do business violate anti-bribery, anti-corruption or similar laws and regulations, we may incur severe fines, penalties and reputational damage. Additionally, there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage or provide a defense to any alleged violation. In particular, we may be held liable for the actions that our partners take inside or outside of the United States even though we are not aware of such actions or our partners may not be subject to these laws. Such a violation, even if our policies prohibit it, could have an adverse effect on our reputation, business, financial condition and results of operations. In addition, various state and municipal governments, universities and other investors maintain prohibitions or restrictions on investments in companies that do business with sanctioned countries, persons and entities, which could adversely affect our reputation, business, financial condition and results of operations.\nRegulation in the areas of privacy, data protection and information security could increase our costs and affect or limit our business opportunities and how we collect or use personal information.\nAs privacy, data protection and information security laws, including data localization laws, are interpreted and applied, compliance costs may increase, particularly in the context of ensuring that adequate data protection and data transfer mechanisms are in place. In recent years, there have been increasing regulatory enforcement and litigation activities in the areas of privacy, data protection and information security in the United States and in various countries in which we operate.\nIn addition, state and federal legislators and/or regulators in the United States and other countries in which we operate are increasingly adopting or revising privacy, data protection and information security laws that potentially could have a significant impact on our current and planned privacy, data protection and information security-related practices; our collection, use, sharing, retention and safeguarding of consumer and/or employee information; and some of our current or planned business activities. New legislation or regulation could increase our costs of compliance and business operations and could reduce revenues from certain business initiatives. Moreover, the application of existing or new laws to existing technology and practices can be uncertain and may lead to additional compliance risk and cost.\nCompliance with current or future privacy, data protection and information security laws relating to consumer and/or employee data, including the General Data Protection Regulation in the European Union and similar laws in other regions of the world, including the United States, could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could materially and adversely affect our results of operations. Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, ongoing regulatory monitoring, customer attrition, customer indemnity claims, decreases in the use or acceptance of our products and services, and damage to our reputation and our brand.\nGlobal tax law changes may adversely affect our business, financial condition and results of operations.\nWe are subject to the income tax laws of the United States and its various state and local governments as well as several foreign tax jurisdictions. Our future income taxes could be materially adversely affected by changes in the amount or mix of earnings amongst countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax rates or the interpretation of tax rules and regulations in jurisdictions in which we do business, changes in tax laws, or the outcome of income tax audits and any related litigation. The United States Tax Cuts and Jobs Act of 2017 is one such example of legislation that has impacted our effective tax rate.\n18\nTable of Contents\nFurther changes in the tax laws of the United States and foreign jurisdictions could arise, including additional tax reform in the United States and the base erosion and profit shifting project undertaken by the Organization for Economic Co-operation and Development (\u201cOECD\u201d). Both the United States tax reform and the OECD proposed recommendations which, in some cases, would make substantial changes to numerous long-standing tax positions and principles. These contemplated changes could increase tax uncertainty and may adversely affect our business, financial condition and results of operations. \nIneffective internal control over financial reporting could result in errors in our financial statements, reduce investor confidence, and adversely impact our stock price.\nUnder Section 404 of the Sarbanes-Oxley Act of 2002, we are required to evaluate and determine the effectiveness of our internal controls over financial reporting. Ineffective internal control over financial reporting could result in errors in our financial statements, reduce investor confidence, and adversely affect our stock price. As discussed in Part II, Item 9A \u201cControls and Procedures\u201d in this Form 10-K, during the year-end closing processes for fiscal 2023, we identified a material weakness in our internal control related to the ineffective operation of certain transactional level controls over revenue recognition, specifically related to revenue contracts recognized over time, which resulted from insufficient precision of processes and insufficient training of the relevant control operators. These internal controls are important to accurately reflect our financial position and results of operations in our financial reports. We performed additional procedures over contracts for which revenue is recognized over time, including leveraging the expertise of a third-party specialist, and we did not identify any material errors in our reported revenue balance. However, due to the material weakness described above, there is a reasonable possibility that our existing controls would not have detected a material misstatement in a timely manner if it were to be material. We are in the process of remediating the material weakness, but our efforts may not be successful. If we are unable to remediate the material weakness in an appropriate and timely manner, or if we identify additional control deficiencies that individually or together constitute significant deficiencies or material weaknesses, our ability to accurately record, process, and report financial information and, consequently, our ability to prepare financial statements within required time periods, could be adversely affected. Our failure to maintain effective internal control over financial reporting could result in violations of applicable securities laws and stock exchange listing requirements; subject us to litigation and investigations; negatively affect investor confidence in our financial statements; and adversely impact our stock price and ability to access capital markets.\nInsurance coverage can be difficult or expensive to obtain, and our failure to obtain adequate insurance coverage could adversely affect our financial condition or results of operations.\nWe maintain insurance both as a corporate risk management strategy and to satisfy the requirements of many of our contracts with customers. As the costs and availability of insurance change, we may decide not to be covered against certain losses where, in the judgment of management, the insurance is not warranted due to the cost or availability of coverage or the remoteness of the perceived risk. We cannot provide assurance that all necessary or appropriate insurances will be available, cover every type of loss incurred, or be able to be economically secured. For example, some insurers limit or refuse coverages, increase premium costs or increase deductibles when global catastrophic events occur. As part of our corporate risk management strategy, we monitor and place our coverages with financially strong insurers, layer our risk with multiple insurers, and seek advice on the amount, breadth and type of insurance coverages to protect our interests. We also contractually require subcontractors and others working on our behalf to carry common insurance coverages for the types of work they perform to mitigate any risk of our loss. Our failure to obtain adequate insurance coverage at reasonable costs could adversely affect our financial condition or results of operations.\nWe have been required to conduct a good faith reasonable country of origin analysis on our use of \u201cconflict minerals\u201d, which has imposed and may impose additional costs on us and could raise reputational challenges and other risks.\nThe SEC has promulgated rules in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding disclosure of the use of certain minerals, known as conflict minerals, mined from the Democratic Republic of the Congo and adjoining countries. As required, we have filed annual Forms SD with the SEC since 2014 reporting our work performed to gain information on the source of conflict minerals we use. We incur costs associated with complying with these disclosure requirements. As we continue our due diligence, we may face reputational challenges if we continue to be unable to verify the origins of all conflict minerals used in our products. We may also encounter challenges in our efforts to satisfy customers that may require all of the components of products purchased to be certified as conflict free. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier.\n19\nTable of Contents\nRisks Related to an Investment in Our Common Stock\nThe protections we have adopted and to which we are subject may discourage takeover offers favored by our shareholders.\nOur articles of incorporation, by-laws and other corporate governance documents and the South Dakota Business Corporation Act (\"SD Act\") contain provisions that could have an anti-takeover effect and discourage, delay or prevent a change in control or an acquisition that many shareholders may find attractive. These provisions make it more difficult for our shareholders to take some corporate actions and include provisions relating to:\n\u2022\nthe ability of our Board of Directors, without shareholder approval, to authorize and issue shares of stock with voting, liquidation, dividend and other rights and preferences that are superior to our common stock;\n\u2022\nthe classification of our Board of Directors, which effectively prevents shareholders from electing a majority of the directors at any one meeting of shareholders;\n\u2022\nthe adoption of a shareholder rights agreement providing for the exercise of junior participating preferred stock purchase rights when a person becomes the beneficial owner of 20 percent or more of our outstanding common stock and upon the occurrence of certain similar events (subject to certain exceptions);\n\u2022\nunder the SD Act, limitations on the voting rights of shares acquired in specified types of acquisitions and restrictions on specified types of business combinations; and\n\u2022\nunder the SD Act, prohibitions against engaging in a \u201cbusiness combination\u201d with an \u201cinterested shareholder\u201d for a period of four years after the date of the transaction in which the person became an interested shareholder unless the business combination is approved.\nThese provisions may deny shareholders the receipt of a premium on their common stock, which in turn may have a depressive effect on the market price of our common stock.\nOur common stock has at times been thinly traded, which may result in low liquidity and price volatility.\nThe daily trading volume of our common stock has at times been relatively low. If this were to occur in the future, the liquidity and appreciation of our common stock may not meet our shareholders\u2019 expectations, and the price at which our stock trades may be volatile. The market price of our common stock could be adversely impacted as a result of sales by existing shareholders of a large number of shares of common stock in the market or by the perception such sales could cause.\nSignificant changes in the market price of our common stock could result in securities litigation claims against us.\nThe market price of our common stock has fluctuated and will likely continue to fluctuate. In the past, companies that have experienced significant changes in the market price of their stock have been subject to securities litigation claims. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management\u2019s attention from other business concerns, which could harm our business.\nAdditionally, if we fail to meet or exceed the expectations of securities analysts and investors, or if one or more of the securities analysts who cover us adversely change their recommendation regarding our stock, the market price of our common stock could decline. Moreover, our stock price may be based on expectations, estimates and forecasts of our future performance that may be unrealistic or that may not be met. Further, our stock price may fluctuate based on reporting by the financial media, including television, radio, press reports and blogs.\nThere can be no assurance that we will pay dividends on our common stock.\nOur Board of Directors approved regular dividends from fiscal 2006 until March 2020. The declaration, amount and timing of such dividends are determined by our Board of Directors at its discretion. Such determinations are subject to capital availability, compliance with all respective laws and agreements applicable to the declaration and payment of cash dividends, our strategic investment cash needs, our business outlook, and other factors the board uses to balance long-term business needs, credit availability, and the interests of our shareholders.\nOur ability to pay dividends will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, including acquisitions, results of operations, financial condition and other factors \n20\nTable of Contents\nthat our Board of Directors may deem relevant. A reduction in or elimination of our dividend payments and/or our dividend program could have a material negative effect on our stock price.\nOur business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the trading value of our securities.\nResponding to actions by activist shareholders can be costly and time-consuming, and impact our brand, disrupting our operations and diverting the attention of management and our employees. Such activities could interfere with our ability to execute our strategic plan. In addition, a proxy contest for the election of directors would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and our board of directors. The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities.\nOur executive officers, directors and principal shareholders have the ability to significantly influence all matters submitted to our shareholders for approval.\nCo-founder Dr. Aelred Kurtenbach served as our Chairman of the Board until September 3, 2014. Dr. Aelred Kurtenbach's family members currently serve as executive officers of the Company. His son, Mr. Reece Kurtenbach, serves as our Chairman of the Board and Chief Executive Officer, and two other children serve as our Vice President of Human Resources and as our Vice President of Manufacturing. Together, these individuals, in the aggregate, beneficially owned 10.2 percent of our outstanding common stock as of June\u00a030, 2023, assuming the exercise by them of all of their options that were currently exercisable or that vest within 60 days of June\u00a030, 2023. Our other executive officers and directors, in the aggregate, beneficially owned an additional 4.2 percent of our outstanding common stock as of June\u00a030, 2023, assuming the exercise by them of all of their options currently exercisable or that vest within 60 days of June\u00a030, 2023. Although this does not represent a majority of our outstanding common stock, if these shareholders were to choose to act together, they would be able to significantly influence all matters submitted to our shareholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, could significantly influence the election of directors and the approval of any merger, consolidation, sale of all or substantially all of our assets or other business combination or reorganization requiring shareholder approval. This concentration of voting power could delay or prevent an acquisition of us on terms that other shareholders may desire. The interests of this group of shareholders may not always coincide with the interests of other shareholders, and they may act in a manner that advances their best interests and not necessarily those of other shareholders, including seeking a premium value for their common stock, that might affect the prevailing market price for our common stock.",
+  "item7": ">Item 7. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThe following discussion provides our highlights and commentary related to factors impacting our financial conditions and further describes the results of operations. The most significant risks and uncertainties are discussed in \"Item 1A. Risk Factors.\"\nThis discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Form 10-K.\n22\nTable of Contents\nManagement's Discussion and Analysis - Fiscal 2022 compared to Fiscal 2021\nThe comparison of fiscal 2022 with fiscal 2021, including the results of operations and liquidity, can be found in the \"Management's Discussion and Analysis\" section of our Annual Report on \nForm 10-K\n for fiscal 2022 filed with the SEC on June 16, 2022, which comparison is incorporated by reference herein. \nEXECUTIVE OVERVIEW\nOur mission is to be a world leader at informing and entertaining audiences through dynamic audio-visual communication systems. We organize into business units to focus on customer loyalty over time and earn new and replacement business, as our products have a finite lifetime. See \"Note 3. Segment Reporting\" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information. Our strategies include the creation of a comprehensive line of innovative solutions and systems and our ability to create and leverage platform designs and technologies. These strategies align us to effectively deliver value to our varied customers and their market needs, while serving our stakeholders over the long-term. We focus on creating local capabilities for sales, service, and manufacturing in geographies with expected digital market opportunities. We believe consistently generating profitable growth will provide value to our stakeholders (customers, employees, shareholders, suppliers, and communities).\nWe measure our success using a variety of measures including:\n\u2022\nour percentage of market share by comparing our estimated revenue to the total estimated global digital display revenue;\n\u2022\nour order growth compared to the overall digital market order change;\n\u2022\nfinancial metrics such as annual order volume and profit change as compared to our previous financial results;\n\u2022\ncustomer retention and expansion rates; and\n\u2022\nour ability to generate profits over the long-term to provide a shareholder return.\nCertain factors impact our ability to succeed in these strategies and impact our business units to varying degrees. For example, due to volatility in our supply chain and labor conditions through the last two years, our lead times and manufacturing and fulfillment costs increased. We deployed various pricing strategies and redesigned products to utilize available raw materials and components. However, not all of our competitors were impacted to the same degree in accessibility to parts and components or reacted similarly with pricing. As a result, in some instances, competitors were awarded more business.\nThe cost to produce digital solutions has declined, which has caused a decline of digital solution pricing over the years. We must sell more products to generate the same or a greater level of net sales as in previous fiscal years. However, the increased user adoption and number of applications available have increased the size of the global market.\nCompetitors' offerings, actions and reactions also can vary and change over time or in certain customer situations. Projects with multimillion-dollar revenue potential attract competition, and competitors can use marketing or other tactics to win business.\nEach business unit's long-term performance can be impacted by economic conditions in different ways and to different degrees. The effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses, although in severe economic downturns with social changes causing decreases in sporting event revenues, the sports business can also be seriously impacted.\nOutlook:\n \nDaktronics endured a dynamic operating environment through the pandemic years. At the beginning of the pandemic, orders pulled back swiftly and abruptly, and we lowered capacity. Then order volumes recovered sharply while supply chain disruptions coupled with a tight labor market constrained our ability to deliver efficiently at traditional lead times and service levels. Inflation in parts, components, and labor increased our operating costs and decreased gross margins. To adapt to these conditions, our teams came together to take decisive and deliberate actions to improve our customers' experience while implementing strategies to improve our profitability and working capital levels.\nSupply chains have gradually been stabilizing, which should allow reduced inventory levels in the coming months as our production levels continue to increase and we are able to purchase less safety stock. Although the post-pandemic \n23\nTable of Contents\ngeopolitical situation and global trade patterns continue to evolve, we believe that the levels of uncertainty and volatility will not be as great in the coming months and will continue to stabilize in the coming fiscal year.\nWe believe the audiovisual industry fundamentals and the development of new technologies and services will drive long-term growth for our business; however,\u202four customers may reduce their spend on audiovisual systems and related services\u202fbecause of the impacts of global economic conditions, war and geopolitical situations, or other factors outside of our control.\nThe outlook and unique key growth drivers and challenges by our business units include the following:\nCommercial Business Unit:\n Over the long-term, we believe growth in the Commercial business unit will result from a number of factors, including:\n\u2022\nStandard display product market growth due to market adoption and lower product costs, which drive marketplace expansion. Standard display products are used to attract or communicate with customers and potential customers of retail, commercial, and other establishments. Pricing and economic conditions are the principal factors that impact our success in this business unit. We utilize a reseller network to distribute our standard products.\n\u2022\nNational accounts standard display market opportunities due to customers' desire to communicate their message, advertising and content consistently across the country. Increased demand is possible from national retailers, quick-serve restaurants, petroleum retailers, and other nationwide organizations.\n\u2022\nAdditional standard display offerings using micro-LED designs.\n\u2022\nIncreasing use of LED technologies replacing signage previously using LCD technology by existing and new customers.\n\u2022\nDevelopment and marketing alternative low-power and sustainable solutions for installations in power constrained areas or for customers desiring these types of products.\n\u2022\nIncreasing interest in spectaculars, which include very large and sometimes highly customized displays as part of entertainment venues such as casinos, shopping centers, cruise ships and Times Square type locations.\n\u2022\nNew market adoption and expansion for use of LED in government and military and corporate campuses.\n\u2022\nDynamic messaging systems demand growth due to market adoption and expanded use of this technology.\n\u2022\nThe use of architectural lighting products for commercial buildings, which real estate owners use to add accents or effects to an entire side or circumference of a building to communicate messages or to decorate the building.\n\u2022\nThe continued deployment of digital billboards as OOH advertising companies continue developing new sites and replacing digital billboards reaching end of life. This is dependent on no adverse changes occurring in the digital billboard regulatory environment restricting future billboard deployments, as well as maintaining our current market share in a business that is concentrated in a few large OOH companies.\n\u2022\nReplacement cycles within each of these areas.\nLive Events Business Unit:\n We believe growth in the Live Events business unit will result from a number of factors, including:\n\u2022\nFacilities spending more on larger display systems to enhance the game-day and event experience for attendees.\n\u2022\nLower product costs, driving an expansion of the marketplace.\n\u2022\nOur product and service offerings, including additional micro-LED offerings which remain the most integrated and comprehensive offerings in the industry.\n\u2022\nThe competitive nature of sports teams, which strive to out-perform their competitors with display systems.\n\u2022\nThe desire for high-definition video displays, which typically drive larger displays or higher resolution displays, both of which increase the average transaction size.\n\u2022\nDynamic messaging system needs throughout a sports facility.\n\u2022\nIncreasing use of LED technologies replacing signage previously using LCD technology in and surrounding live events facilities.\n\u2022\nReplacement cycles within each of these areas.\nHigh School Park and Recreation Business Unit:\n Over the long-term, we believe growth in the High School Park and Recreation business unit will result from a number of factors, including:\n\u2022\nIncreased demand for video systems in high schools as school districts realize the revenue generating potential of these displays compared to traditional scoreboards and these systems' ability to provide or enhance academic curriculum offerings for students.\n24\nTable of Contents\n\u2022\nIncreased demand for different types of displays and dynamic messaging systems, such as message centers at schools to communicate to students, parents and the broader community.\n\u2022\nLower system costs driving the use of more sophisticated displays in school athletic facilities, such as large integrated video systems.\n\u2022\nExpanding control system options tailored for the markets' needs.\n\u2022\nCertain display requirements for sporting events.\nTransportation Business Unit:\n Daktronics has experienced governmental agencies placing orders as a way to spend their allocated budgets for their fiscal years. In addition, the \nInfrastructure Investment and Jobs Act \nsigned into law in November 2021 is expected to have a positive impact on all segments of United States transportation terminals and public transit facilities. \nOver the long-term, we believe growth in the Transportation business unit will result from a number of factors, including:\n\u2022\nIncreasing applications and acceptance of electronic displays to manage transportation systems, including roadway, airport, parking, transit and other applications.\n\u2022\nDevelopment and marketing alternative low-power and sustainable solutions for installations in power constrained areas or for customers desiring these types of products.\n\u2022\nEffective use of the United States transportation infrastructure requires intelligent transportation systems. This growth is highly dependent on government spending, primarily by state and federal governments, along with the continuing acceptance of private/public partnerships as an alternative funding source. \n\u2022\nExpanded use of dynamic messaging systems for advertising and wayfinding use in public transport and airport terminals due to expanded market usage and displays, with LED technology replacing prior LCD installations and additional display offerings using micro-LEDs. \nInternational Business Unit: \nOver the long-term, we believe growth in the International business unit will result from a number of factors, including:\n\u2022\nAchieving greater penetration in various geographies and building products more suited to individual markets. We continue to broaden our product offerings into the transportation segment in Europe and the Middle East. \n\u2022\nContinued focus on sports facility, spectacular-type, OOH advertising products, and architectural lighting market opportunities and the factors listed in each of the other business units to the extent they apply outside of the United States and Canada. \n\u2022\nIncreasing interest in spectaculars, which include very large and sometimes highly customized displays as part of entertainment venues such as casinos, shopping centers, cruise ships and city-center locations.\n\u2022\nNew market adoption and expansion of use of LED in government and military and corporate campuses.\n\u2022\nAdditional opportunities exist with expanded market usage of LED technology due to price considerations, usage of LED technology replacing prior LCD installations and additional display offerings using micro-LEDs. \n\u2022\nDevelopment and marketing alternative low-power and sustainable solutions for installations in power constrained areas or for customers desiring these types of products.\n\u2022\nOur product and service offerings, including additional micro-LED offerings, which remain the most integrated and comprehensive offerings in the industry. \n\u2022\nGrowing our reseller channels to promote our products and gain market share.\nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\nThe following Management's Discussion and Analysis of Financial Condition and Results of Operations (\"MD&A\") are based upon, and should be read in conjunction with, our Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States of America (\"GAAP\"). The preparation of these financial statements requires us to make estimates and judgments affecting the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Although our significant accounting policies are described in \"Note 1. Nature of Business and Summary of Significant Accounting Policies\" of the Notes to our Consolidated Financial Statements included in this Form 10-K, the following discussion is intended to highlight and describe those accounting policies that are especially critical to the preparation of our consolidated financial statements.\nA critical accounting policy is defined as a policy that is both very important to the portrayal of a company's financial condition and results and requires management's most difficult, subjective or complex judgments. We regularly review our \n25\nTable of Contents\ncritical accounting policies and evaluate them based on these factors. We believe the estimation process for uniquely configured contracts and warranties are most material and critical. These areas contain estimates with a reasonable likelihood to change, and those changes could have a material impact on our financial condition and reported results of operations. The estimation processes for these areas are also difficult, subjective and use complex judgments. Our critical accounting estimates are based on historical experience; on our interpretation of GAAP, current laws and regulations; and on various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates.\nRevenue recognition on uniquely configured contracts.\n Revenue for uniquely configured (custom) or integrated systems is recognized over time using the cost-to-cost input method by comparing cumulative costs incurred to the total estimated costs and applying that percentage of completion to the transaction price to recognize revenue. Over time revenue recognition is appropriate because we have no alternative use for the uniquely configured system and have an enforceable right to payment for work performed, including a reasonable profit margin. The cost-to-cost input method measures cost incurred to date compared to estimated total costs for each contract. This method is the most faithful depiction of our performance because it measures the value of the contract transferred to the customer. Costs to perform the contract include direct and indirect costs for contract design, production, integration, installation, and assurance-type warranty reserve. Direct costs include material and components; manufacturing, project management and engineering labor; and subcontracting expenses. Indirect costs include allocated charges for such items as facilities and equipment depreciation and general overhead. Provisions of estimated losses on uncompleted contracts are made in the period when such losses are capable of being estimated.\nWe may have multiple performance obligations in these types of contracts; however, a majority are treated as a combined single performance obligation. In our judgment, this accounting treatment is most appropriate because the substantial part of our promise to our customer is to provide significant integration services and incorporate individual goods and services into a combined output or system. Often times the system is customized or significantly modified to the customer's desired configurations and location, and the interrelated goods and services provide utility to the customer as a package. See \"Note 1. Nature of Business and Summary of Significant Accounting Policies\" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information on our revenue recognition policies.\nWarranties.\n We have recognized an accrued liability for warranty obligations equal to our estimate of the actual costs to be incurred in connection with our performance under contractual warranties. Warranty estimates include the cost of direct material and labor estimates to repair products over their warranty coverage period. Generally, estimates are based on historical experience considering known or expected changes. If we would become aware of an increase in our estimated warranty costs, additional accruals may become necessary, resulting in an increase in cost of sales. Although prior estimates have been materially correct, estimates for warranty liabilities can change based on actual versus estimated defect rates over the lifetime of the warranty coverage, a difference in actual to estimated costs to conduct repairs for the components and related labor needed, and other site related actual to estimated cost changes.\nAs of April\u00a029, 2023 and April\u00a030, 2022, we had approximately $32.5 million and $28.9 million accrued for these warranty obligations, respectively. Due to the difficulty in estimating probable costs related to certain warranty obligations, there is a reasonable likelihood that the ultimate remaining costs to remediate the warranty claims could differ materially from the recorded accrued liabilities. See \"Note 16. Commitments and Contingencies\" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information on warranties.\nRECENT ACCOUNTING PRONOUNCEMENTS\nFor a summary of recently issued accounting pronouncements and the effects those pronouncements have on our financial results, refer to \"Note 1. Nature of Business and Summary of Significant Accounting Policies\" of the Notes to our Consolidated Financial Statements included elsewhere in this Form 10-K.\nRESULTS OF OPERATIONS\nDaktronics, Inc. operates on a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year. When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Within each fiscal year, each quarter is comprised of 13-week periods following the beginning of each fiscal year. In each 53-week year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13-week period.\n26\nTable of Contents\nNet Sales\nThe following table shows information regarding net sales for the fiscal years ended April\u00a029, 2023 and April\u00a030, 2022:\nYear Ended\n(in thousands)\nApril 29, 2023\nApril 30, 2022\nDollar Change\nPercent Change\nNet Sales:\nCommercial\n$\n170,590\u00a0\n$\n154,211\u00a0\n$\n16,379\u00a0\n10.6\u00a0\n%\nLive Events\n284,900\u00a0\n199,106\u00a0\n85,794\u00a0\n43.1\u00a0\nHigh School Park and Recreation\n141,748\u00a0\n111,816\u00a0\n29,932\u00a0\n26.8\u00a0\nTransportation\n72,306\u00a0\n62,707\u00a0\n9,599\u00a0\n15.3\u00a0\nInternational\n84,652\u00a0\n83,130\u00a0\n1,522\u00a0\n1.8\u00a0\n$\n754,196\u00a0\n$\n610,970\u00a0\n$\n143,226\u00a0\n23.4\u00a0\n%\nOrders:\nCommercial\n$\n158,028\u00a0\n$\n192,917\u00a0\n$\n(34,889)\n(18.1)\n%\nLive Events\n259,653\u00a0\n313,940\u00a0\n(54,287)\n(17.3)\nHigh School Park and Recreation\n144,919\u00a0\n156,305\u00a0\n(11,386)\n(7.3)\nTransportation\n66,751\u00a0\n77,993\u00a0\n(11,242)\n(14.4)\nInternational\n51,603\u00a0\n104,916\u00a0\n(53,313)\n(50.8)\n$\n680,954\u00a0\n$\n846,071\u00a0\n$\n(165,117)\n(19.5)\n%\nFiscal Year 2023 as compared to Fiscal Year \n2022\nFor fiscal year 2023, net sales were $754.2 million, an increase of $143.2 million from fiscal year 2022. The year-over-year growth was driven by fulfilling orders in backlog and continued order bookings. Sales growth was driven by strong market demand, increased capacity, and realization of price increases implemented beginning in late fiscal year 2022. We have seen stabilizing and improving supply chain conditions and have invested in automated machinery and equipment and in labor capacity to increase the rate of conversion of orders into sales, creating more throughput in our factories.\nOrder volume decreased in fiscal year 2023 from fiscal year 2022. Fiscal 2022 saw a record number of orders from pent-up demand after COVID, though orders for fiscal 2023 continued to be strong. Macroeconomic and geopolitical conditions caused the decline in orders in the International business unit.\nDue to a number of factors, such as the discretionary nature of customers committing to a system, long replacement cycles, the limited number of large custom projects and competitive factors, advertising revenues during macroeconomic changes, economic dependencies, regulatory environments, and competitive factors, it is difficult to predict orders and net sales for fiscal 2024.\nCommercial\n:\n The increase in net sales for fiscal 2023 compared to fiscal 2022 was driven by fulfilling orders in backlog and continued order bookings. \nWe continued to see increased adoption of video solutions in our Commercial business unit marketplace. Depending on the duration of the current economic conditions, we see opportunities for orders and sales over the coming years in our OOH, on-premise, and spectacular focused niches due to replacement cycles, expansion of dynamic messaging systems usage, releases of new solutions, additional distribution methods, and increased market size due to the decline of digital pricing over the years as well as the desire for higher resolution technology. We expect growth in the Commercial business unit over the long-term, assuming favorable economic conditions and our success in counteracting competitive pressures.\nLive Events\n: \nThe increase in net sales for fiscal 2023 compared to fiscal 2022 was driven by fulfilling orders in backlog and continued order bookings. Sales growth was driven by strong market demand, increased capacity, and realization of price increases implemented beginning in late fiscal year 2022. \n27\nTable of Contents\nWe continue to see ongoing interest from venues at all levels in increasing the size and capabilities of their display systems and in the usage of dynamic messaging systems throughout their facilities in our Live Events business unit marketplace.\nWe expect this business unit's size to remain stable over the long-term, assuming favorable economic conditions, and success in maintaining market share by counteracting competitive pressures.\nHigh School Park and Recreation\n: \nThe increase in net sales for fiscal 2023 compared to fiscal 2022 was driven by fulfilling orders in backlog and strong market demand, increased capacity, and realization of price increases implemented beginning in late fiscal year 2022. \nWe expect sales to continue to grow in fiscal year 2024 because of the adoption of video displays for sporting and educational use. Trends towards deploying professional grade technology, especially in high schools, has expanded the market size. These facilities benefit from our sports marketing services that generate advertising revenue to fund the display systems, from our curriculum program designed to increase educational use, and because of schools' desire to communicate with students and parents using these systems. Some growth is also expected because of regulatory requirements for certain display types for sports events. We expect growth in this business unit over the long-term, assuming favorable economic conditions.\nTransportation\n: \nThe\n \nincrease in net sales for fiscal 2023 compared to fiscal 2022 was driven by fulfilling orders in backlog and continued order bookings. Sales growth was driven by strong market demand, increased capacity, and realization of price increases implemented in late fiscal year 2022 and the beginning of fiscal year 2023. \nSeveral factors, such as transportation funding, the competitive environment, and customer delivery changes, make forecasting orders and net sales difficult for fiscal 2024. However, the stability of long-term federal transportation funding and the number of capital projects for highways and public transit that include dynamic message signs and for advertising and wayfinding use in public transport and airport terminals continue to rise. We expect continued growth in this business unit over the long-term, assuming favorable economic conditions and continued transportation funding.\nInternational\n:\n Net sales were relatively flat for fiscal 2023 compared to fiscal 2022.\nWe expect demand for larger video systems for commercial and sports applications, indoor and outdoor OOH applications, and transportation applications to remain strong over the long-term. Macroeconomic factors, the discretionary nature of customers committing to new systems or replacements, and the pace of market growth, have impacted order bookings and timing, making it difficult to predict order and sales levels for fiscal 2024. For the long-term, we believe the International business unit has the potential for sales growth as we penetrate markets with our established sales networks to increase our International market share, continue to enhance our tailored portfolio of product and control solution offerings, invest in additional distribution methods, and expect the trend of increased use and adoption of our technology globally to continue.\nGross Profit and Contribution Margin\nYear Ended\nApril 29, 2023\nApril 30, 2022\n(in thousands)\nAmount\nAs a Percent of Net Sales\nAmount\nAs a Percent of Net Sales\nGross Profit:\nCommercial\n$\n31,155\u00a0\n18.3\u00a0\n%\n$\n31,851\u00a0\n20.7\u00a0\n%\nLive Events\n49,255\u00a0\n17.3\u00a0\n21,787\u00a0\n10.9\u00a0\nHigh School Park and Recreation\n41,145\u00a0\n29.0\u00a0\n35,477\u00a0\n31.7\u00a0\nTransportation\n19,825\u00a0\n27.4\u00a0\n18,172\u00a0\n29.0\u00a0\nInternational\n9,975\u00a0\n11.8\u00a0\n9,410\u00a0\n11.3\u00a0\n$\n151,355\u00a0\n20.1\u00a0\n%\n$\n116,697\u00a0\n19.1\u00a0\n%\nFiscal Year 2023 as compared to Fiscal Year 2022\nThe increase in gross profit percentage in fiscal 2023 was primarily due to strategic pricing actions implemented in late fiscal year 2022 and the beginning of fiscal year 2023 and increased productivity starting late in the second quarter of fiscal \n28\nTable of Contents\n2023 because of fewer supply chain and operational disruptions and investments in capacity. These improvements were offset by higher material, component, freight and labor costs throughout fiscal 2023. Factors impacting gross profit in fiscal 2022 included ongoing supply chain disruptions and inflationary challenges in materials, freight and personnel related costs, the difference in sales mix between periods, and increases in warranty reserves for inflation. Total warranty expense as a percent of sales increased to 2.1 percent for fiscal 2023 as compared to 1.9 percent during fiscal 2022. \nIt is difficult to project gross profit levels for fiscal 2024 because of the uncertainty regarding the level of sales, the sales mix, price strategy and timing of sales generation, potential inflation, the availability of materials, labor, and freight, and the competitive factors in our business. We are focused on improving our gross profit margins as we execute our strategies for improved profitability, which include selectively increasing pricing, releasing new product designs to lower overall costs of the product; improving reliability to reduce warranty expenses; expanding our global capacity and planning; meeting customer solution expectations; and continued improvements in operational effectiveness in manufacturing, installation, and service delivery areas. \nYear Ended\nApril 29, 2023\nApril 30, 2022\n(in thousands)\nAmount\nAs a Percent of Net Sales\nDollar Change\nPercent Change\nAmount\nAs a Percent of Net Sales\nContribution Margin:\nCommercial\n$\n14,025\u00a0\n8.2\u00a0\n%\n$\n(2,048)\n(12.7)\n%\n$\n16,073\u00a0\n10.4\u00a0\n%\nLive Events\n39,015\u00a0\n13.7\u00a0\n27,112\u00a0\n227.8\u00a0\n11,903\u00a0\n6.0\u00a0\nHigh School Park and Recreation\n27,621\u00a0\n19.5\u00a0\n4,034\u00a0\n17.1\u00a0\n23,587\u00a0\n21.1\u00a0\nTransportation\n15,901\u00a0\n22.0\u00a0\n1,348\u00a0\n9.3\u00a0\n14,553\u00a0\n23.2\u00a0\nInternational\n(1,862)\n(2.2)\n(1,368)\n276.6\u00a0\n(494)\n(0.6)\n$\n94,700\u00a0\n12.6\u00a0\n%\n$\n29,078\u00a0\n44.3\u00a0\n%\n$\n65,622\u00a0\n10.7\u00a0\n%\nFiscal Year 2023 as compared to Fiscal Year 2022\nContribution margin\n is a non-GAAP measure and consists of gross profit less selling expenses. Selling expenses consist primarily of personnel related costs, travel and entertainment expenses, marketing related expenses (show rooms, product demonstration, depreciation and maintenance, conventions and trade show expenses), the cost of customer relationship management/marketing systems, bad debt expenses, third-party commissions, and other expenses. \nContribution margin in fiscal 2023 was positively impacted by the previously discussed sales levels and impacts on gross profit. We have adjusted our sales and marketing activities and staffing levels to achieve current and expected future sales levels. \nReconciliation from non-GAAP contribution margin to operating income GAAP measure is as follows: \nYear Ended\nApril 29, 2023\nApril 30, 2022\n(in thousands)\nAmount\nAs a Percent of Net Sales\nDollar Change\nPercent Change\nAmount\nAs a Percent of Net Sales\nContribution margin\n$\n94,700\u00a0\n12.6\u00a0\n%\n$\n29,078\u00a0\n44.3\u00a0\n%\n$\n65,622\u00a0\n10.7\u00a0\n%\nGeneral and administrative\n38,747\u00a0\n5.1\u00a0\n6,184\u00a0\n19.0\u00a0\n32,563\u00a0\n5.3\u00a0\nProduct design and development\n29,989\u00a0\n4.0\u00a0\n976\u00a0\n3.4\u00a0\n29,013\u00a0\n4.7\u00a0\nGoodwill Impairment\n4,576\u00a0\n0.6\u00a0\n4,576\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nOperating income\n$\n21,388\u00a0\n2.8\u00a0\n%\n$\n17,342\u00a0\n428.6\u00a0\n%\n$\n4,046\u00a0\n0.7\u00a0\n%\n29\nTable of Contents\nFiscal Year 2023 as compared to Fiscal Year 2022\nGeneral and administrative expenses for fiscal 2023 increased as compared to the same period one year ago due to compensation and staffing, marketing expenses, other expense growth, and approximately $4.5 million of discrete professional fees related to the going concern and internal control consultation and shareholder engagement fees.\nOur costs for product design and development represent an allocated amount of costs based on time charges, professional services, material costs and the overhead of our engineering departments. Generally, a significant portion of our engineering time is spent on product design and development, while the rest is allocated to large contract work and included in cost of sales.\nProduct design and development expenses in fiscal 2023 increased as compared to fiscal 2022 primarily due to an increase in personnel related expenses. \nWe expect general and administrative and product design and development expenses to increase for fiscal 2024 as compared to fiscal 2023 due to continued increases in labor costs and for planned investments in digital transformation initiatives and to enhance and develop existing and new product technologies. \nOther Income and Expenses\nYear Ended\nApril 29, 2023\nApril 30, 2022\n(in thousands)\nAmount\nAs a Percent of Net Sales\nDollar Change\nPercent Change\nAmount\nAs a Percent of Net Sales\nInterest income (expense), net\n$\n(920)\n(0.1)\n%\n$\n(1,091)\n(638.0)\n%\n$\n171\u00a0\n\u2014\u00a0\n%\nOther expense, net\n$\n(7,211)\n(1.0)\n%\n$\n(4,102)\n131.9\u00a0\n%\n$\n(3,109)\n(0.5)\n%\nFiscal Year 2023 as compared to Fiscal Year 2022\nThe change in interest income and expense, net for fiscal \n2023\n as compared to fiscal \n2022\n was primarily due to utilizing our previous bank line of credit during fiscal \n2023\n for our strategic investments in inventory.\nOther expense, net: \nThe change in other expense, net for fiscal \n2023\n as compared to fiscal \n2022\n was primarily due to losses and impairments recorded for equity method affiliates and foreign currency volatility.\nIncome Taxes\nOur effective tax rate for fiscal 2023 was 48.7 percent. The effective income tax rate for fiscal 2023 was impacted due to valuation allowances on equity investments and on foreign net operating losses in Ireland, goodwill impairment, state taxes, a mix of taxes in foreign countries where the tax rate is higher than the United States, as well as prior year provision to return adjustments reduced in part by tax benefits from permanent tax credits. \nOur effective tax rate for fiscal 2022 was 46.6 percent resulting from the tax benefit of permanent tax credits reduced by valuation allowances, various permanent tax adjustments and state taxes and prior year provision to return adjustments.\nOur consolidated effective tax rate is impacted by the statutory income tax rates applicable to each of the jurisdictions in which we operate. Due to various factors, and because we operate in multiple state and foreign jurisdictions, our effective tax rate is subject to fluctuation. See \"Note 12. Income Taxes\" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information.\n30\nTable of Contents\nLIQUIDITY AND CAPITAL RESOURCES\nYear Ended\n(in thousands)\nApril 29, 2023\nApril 30, 2022\nDollar Change\nNet cash (used in) provided by:\nOperating activities\n$\n15,024\u00a0\n$\n(27,035)\n$\n42,059\u00a0\nInvesting activities\n(25,388)\n(31,384)\n5,996\u00a0\nFinancing activities\n17,568\u00a0\n(3,576)\n21,144\u00a0\nEffect of exchange rate changes on cash\n(522)\n(399)\n(123)\nNet (decrease) increase in cash, cash equivalents and restricted cash\n$\n6,682\u00a0\n$\n(62,394)\n$\n69,076\u00a0\nNet cash (used in) provided by operating activities: \nNet cash provided by operating activities was $15.0 million for fiscal 2023 compared to $27.0 million net cash used in operating activities in fiscal 2022. The $42.0 million increase in cash provided by operating activities was primarily the result of changes in net operating assets and liabilities and an increase of $6.2 million in net income. For specific quantitative changes in operating assets and liabilities, see \"Note 13. Cash Flow Information\" of the Notes to our Consolidated Financial Statements included in this Form 10-K.\nNet cash used in investing activities:\n Net cash used in investing activities totaled $25.4 million for fiscal 2023 compared to $31.4 million in fiscal 2022. Purchases of property and equipment totaled $25.4 million in fiscal 2023 compared to $20.4 million in fiscal 2022. Proceeds from the sales of property and equipment totaled $0.8 million in fiscal 2023 compared to $0.9 million in fiscal 2022. Purchases of marketable securities totaled $4.0 million in fiscal 2022 compared to the sale of $3.5 million of marketable securities in fiscal 2023. \nNet cash (used in) provided by financing activities:\n Net cash provided by financing activities was $17.6 million for fiscal 2023 due to draws on our previous bank line of credit compared to $3.6 million of net cash used by financing activities for other investing activities in fiscal 2022.\nOther Liquidity and Capital Resources Discussion:\n \nAs of April 29, 2023, we had $17.8 million borrowed under a previous bank line of credit. Subsequent to the end of the 2023 fiscal year, we paid off and terminated that credit line on May 11, 2023 after closing on a $75.0 million senior credit facility (the \"Credit Facility\") and the sale of a $25.0 million senior secured convertible note (the \"Convertible Note\"). The Credit Facility consists of a $60.0 million asset-based revolving credit facility (the \"ABL\") maturing on May 11. 2026, secured by first priority lien on the Company's assets and which is subject to certain factors which can impact our borrowing capacity, and a $15.0 million delayed draw loan (the \"Mortgage\") secured by our Brookings, South Dakota real estate. The ABL and Mortgage are evidenced by a Credit Agreement dated as of May 11, 2023 (the \"Credit Agreement\") between the Company and JPMorgan Chase Bank, N.A., as the lender. \nUnder the ABL, certain factors can impact our borrowing capacity. As of May 11, 2023, our borrowing capacity was $47.5 million and there were no borrowings outstanding. The interest rate on the ABL is set on a sliding scale based on the trailing twelve month fixed charge coverage and ranges from 2.5 percent to 3.5 percent over the standard overnight financing rate (SOFR). The ABL is secured by a first priority lien on the Company's assets described in the Credit Agreement and the Pledge and Security Agreement dated as of May 11, 2023 by and among the Company, Daktronics Installation, Inc. and the JPMorgan Chase Bank, N.A. \nThe $15.0 million delayed draw on the Mortgage closed on July 7, 2023, is secured by a mortgage on the Company's Brookings, South Dakota real estate, amortizes over 10 years and is payable monthly. The Mortgage is subject to the terms of the Credit Agreement and matures on May 11, 2026. The Mortgage interest rate is set on a sliding scale based on the trailing twelve month fixed charge coverage ratio and ranges between 3.5 percent to 4.5 percent.. \nOn May 11, 2023, the Company entered into a Securities Purchase Agreement (the \"Securities Purchase Agreement\") with Alta Fox Opportunities Fund, LP (the \u201cInvestor\u201d) under which the Company agreed to sell and issue to the Investor its senior secured Convertible Note in exchange for the payment by the Investor to the Company of $25.0 million. The Convertible Note allows the Investor and any of the Investor\u2019s permitted transferees, donees, pledgees, assignees or successors-in-interest (collectively, the \u201cSelling Shareholders\u201d) to convert all or any portion of the principal amount of the \n31\nTable of Contents\nConvertible Note, together with any accrued and unpaid interest and any other unpaid amounts, including late charges, if any (together, the \u201cConversion Amount\u201d), into shares of the Company\u2019s common stock at an initial conversion price of $6.31 per share, subject to adjustment in accordance with the terms of the Convertible Note (the \u201cConversion Price\u201d).The Company also has a forced conversion right, which is exercisable on the occurrence of certain conditions set forth in the Convertible Note, pursuant to which it can cause all or any portion of the outstanding and unpaid Conversion Amount to be converted into shares of common stock at the Conversion Price. The Convertible Note incurs interest at an annual rate of 9.0 percent when interest is paid in cash or an annual rate of 10.0 percent if interest is capitalized. Upon an event of default under the Convertible Note, the annual interest rate will increase to 12.0 percent. Under the Pledge and Security Agreement dated as of May 11, 2023 between the Company and the Investor, the Convertible Note is secured by a second priority lien on assets securing the ABL facility and a first priority lien on substantially all of the other assets of the Company, excluding all real property, subject to the Intercreditor Agreement dated as of May 11, 2023 by and among the Company, JPMorgan Chase Bank, N.A., and the Investor. The Convertible Note has a maturity date of May 11, 2027 (the \u201cMaturity Date\u201d). On the Maturity Date, the Company must pay to the Investor and any Selling Shareholders an amount in cash representing all outstanding principal, any accrued and unpaid interest, and any accrued and unpaid late charges on such principal and interest. We expect annual cash usage for interest of up to $2.3 million.\nEffective on May 11, 2023, in connection with the Company\u2019s entry into the Securities Purchase Agreement, the Company also entered into a Registration Rights Agreement with the Investor (the \u201cRegistration Rights Agreement\u201d). Pursuant to the Registration Rights Agreement, the Company agreed to file with the SEC by the dates set forth in the Registration Rights Agreement a registration statement covering the resale of the shares of common stock issuable upon conversion of the Convertible Note. Pursuant to the Registration Rights Agreement, the Company is required to use reasonable best efforts to have such registration statement declared effective by the SEC by the dates set forth in the Registration Rights Agreement. If the registration statement is not filed with the SEC or declared effective by the SEC on a timely basis, certain penalties would be applicable to the Company.\nThe Credit Agreement and the Convertible Note require a fixed charged coverage ratio of greater than 1.1 and include other customary non-financial covenants. We expect to be in compliance with these covenants for the foreseeable future. Refer to \"Note 17. Subsequent Events\" of the Notes to our Consolidated Financial Statements included in this Form 10-K.\n \nOur cash and cash equivalent balances consist of high-quality, short-term money market instruments.\nWorking capital was $132.5 million and $103.9 million as of April\u00a029, 2023 and April\u00a030, 2022, respectively. The changes in working capital, particularly changes in inventory, accounts payable, accounts receivable, contract assets and liabilities, are impacted by the sports market and construction seasonality. These changes can have a significant impact on the amount of net cash provided by or used in operating activities largely due to the timing of payments for inventory and subcontractors and receipts from our customers. On multimillion-dollar orders, the time between order acceptance and project completion may extend up to or exceed 12 months depending on the amount of custom work and a customer\u2019s delivery needs. We use cash to purchase inventory and services at the beginning of these orders and often receive down payments or progress payments on these orders to balance cash flows.\nOur business growth and profitability improvement strategies depend on investments in capital expenditures and strategic investments. We are projecting total capital expenditures to be approximately $19.0 million for fiscal 2024. Projected capital expenditures include purchasing manufacturing equipment for new or enhanced product production and expanded capacity and increased automation of processes; investments in quality and reliability equipment and demonstration and showroom assets; and continued information infrastructure investments. We also evaluated and may make strategic investments in new technologies or in our affiliates or acquire companies aligned with our business strategy.\nWe had $10.4 million of retainage on long-term contracts included in receivables and contract assets as of April\u00a029, 2023, which has an impact on our liquidity. We expect to collect these amounts within one year. \nWe are sometimes required to obtain performance bonds for display installations, and we have bonding capacity available through surety companies for an aggregate of $165.0 million in bonded work outstanding. If we were unable to complete the installation work, and our customer would call upon the bond for payment, the surety company would subrogate its loss to Daktronics. As of April\u00a029, 2023, we had $56.4 million of bonded work outstanding.\nWe repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors. Our long-term capital allocation strategy is to first fund operations and investments in growth, maintain reasonable liquidity, maintain a leverage ratio that reflects a prudent and compliant capital structure in light of the cyclicality of business, and \n32\nTable of Contents\nthen return excess cash over time to shareholders through dividends and share repurchases. During fiscal year 2023, we did not repurchase shares of common stock, and we did not pay a dividend. \nWe believe cash on hand, funds generated from operations, and the borrowing capacity available under our Credit Facility and other debt instruments will be sufficient to support our expected change in working capital, capital expenditures, strategic investments, and financing payments for the foreseeable future.",
+  "item7a": ">Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nForeign Currency Exchange Rates\nOur results of operations could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. We derive net sales in United States dollars and other currencies including Canadian dollars, Euros, Chinese renminbi, British pounds, Australian dollars, or other currencies. For fiscal 2023, 12.3 percent of net sales were derived in currencies other than United States dollars. We incur expenses in currencies other than United States dollars relating to specific contracts with customers and for our operations outside the United States\nIf we believe currency risk in any foreign location or with respect to specific sales or purchase transaction is significant, we utilize foreign exchange hedging contracts to manage our exposure to the currency fluctuations. The notional amount of the foreign currency agreements as of April\u00a029, 2023 was $7.8 million, and all contracts mature within six months. These contracts are marked to market each balance sheet date and are not designated as hedges. See \"Note 15. Derivative Financial Instruments\" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further details. We estimate that a 10 percent change in all foreign exchange rates would impact our reported income before taxes by approximately $0.4 million. This sensitivity analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area.\nOver the long term, net sales to international markets are expected to increase as a percentage of total net sales and, consequently, a greater portion of our business could be denominated in foreign currencies. As a result, operating results may become more subject to fluctuations based upon changes in the exchange rates of certain currencies in relation to the United States dollar. To the extent we engage in international sales denominated in United States dollars, an increase in the value of the United States dollar relative to foreign currencies could make our products less competitive in international markets. This effect is also impacted by sources of raw materials from international sources and costs of our sales, service, and manufacturing locations outside the United States\nWe will continue to monitor and minimize our exposure to currency fluctuations and, when appropriate, use financial hedging techniques to minimize the effect of these fluctuations. However, exchange rate fluctuations as well as differing economic conditions, changes in political climates, and other rules and regulations could adversely affect our ability to effectively hedge exchange rate fluctuations in the future.\nWe have foreign currency cash accounts to operate our global business. These accounts are impacted by changes in foreign currency rates. Of our \n$24.0 million\n in cash balances as of April\u00a029, 2023, \n$15.9 million\n were denominated in United States dollars, of which \n$1.3 million\n were held by our foreign subsidiaries. As of April\u00a029, 2023, we had an additional \n$8.1 million\n in cash balances denominated in foreign currencies, of which \n$7.7 million\n were maintained in accounts of our foreign subsidiaries.\nInterest Rate Risks\nOur exposure to market risks relate primarily to changes in interest rates on our financing agreements, cash, and marketable securities. We do not expect our income or cash flows to be significantly impacted by interest rates.\nCommodity Risk\nWe are dependent on basic raw materials, sub-assemblies, components, and other supplies used in our production operations. Our financial results have been and could continue to be affected by changes in the availability, prices, and global tariff regulation of these materials. Some of these materials are sourced from one or a limited number of suppliers in countries around the world. Some of these materials are also key source materials for our competitors and for other technology companies. Some of these materials are sourced outside of the countries in which we manufacture our products and are subject to transportation delays. Any of these factors may cause a sudden increase in costs and/or limited or \n33\nTable of Contents\nunavailable supplies. As a result, we may not be able to acquire key production materials on a timely basis, which could adversely impact our ability to produce products and satisfy incoming sales orders on a timely basis. Our sourcing and material groups work to implement strategies to monitor and mitigate these risks. Periodically, we enter into pricing agreements or purchasing contracts under which we agree to purchase a minimum amount of product in exchange for guaranteed price terms over the length of the contract, which generally does not exceed one year. \n34\nTable of Contents",
+  "cik": "915779",
+  "cusip6": "234264",
+  "cusip": ["234264109", "234264959", "234264909"],
+  "names": ["DAKTRONIC INC COM", "DAKTRONICS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/915779/000091577923000046/0000915779-23-000046-index.htm"
+}
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+{
+  "item1": ">ITEM 1.\u00a0\u00a0\u00a0\u00a0Business.\nScanSource, Inc. (together with its subsidiaries referred to as the \"Company\u201d or \u201cScanSource\u201d or \u201cwe\u201d) is a leading hybrid distributor connecting devices to the cloud and accelerating growth for customers across hardware, Software as a Service (\"SaaS\"), connectivity and cloud. ScanSource enables customers to deliver solutions for their end users to address changing buying and consumption patterns. ScanSource sells through multiple, specialized routes-to-market with hardware, SaaS, connectivity and cloud service offerings from the world's leading technology suppliers. We provide technology solutions and services from more than 500 leading suppliers of mobility, barcode, point-of-sale (\"POS\"), payments, physical security, networking, unified communications, collaboration (UCaaS, CCaaS), connectivity and cloud services.\nScanSource was incorporated in South Carolina in 1992 and serves approximately 30,000 customers. Net sales for fiscal year ended June\u00a030, 2023 totaled \n$3.79 billion\n. Our common stock trades on the NASDAQ Global Se\nlect Market under the symbol \u201cSCSC.\u201d   \nOur customers are businesses of all sizes that sell to end-customers across many industries. Our customer channels include value-added resellers (\u201cVARs\u201d), customers or agents, independent sales organizations (\u201cISOs\u201d) and independent software vendors (\u201cISVs\u201d). These customer channels provide us with multiple routes-to-market. We align our teams, tools and processes around all of our customers to help them grow through reducing their costs, creating efficiencies and generating end-customer demand for business solutions. We enable our customers to create, deliver and grow hybrid technology offerings for end-customers across almost every vertical market in the United States, Canada, Brazil and the United Kingdom (\"UK\").\nIn fiscal year 2021, we completed the sale of our product distribution businesses in Europe, the UK, Mexico, Colombia, Chile, Peru and our Miami-based export operations (the \"Divestitures\"). Management determined that the Company did not have sufficient scale in these markets to maximize our value-added model for physical product distribution, leading us to focus and invest in our higher margin businesses. The Divestitures are reported as discontinued operations within this Form 10-K. Unless otherwise indicated, descriptions of our business and amounts reported in this Form 10-K pertain to continuing operations only. \nStrategy\nOur strategy is to drive sustainable, profitable growth by orchestrating hybrid technology solutions through a growing ecosystem of partners leveraging our people, processes, and tools. Our goal is to provide exceptional experiences for our partners, suppliers, and people, and we strive for operational excellence. Our hybrid distribution strategy relies on a channel sales model to offer hardware, SaaS, connectivity and cloud services from leading technology suppliers to customers that solve end users\u2019 challenges. ScanSource enables customers to deliver solutions for their end users to address changing buying and consumption patterns. Our solutions may include a combination of offerings from multiple suppliers or give our customers access to additional services. As a trusted adviser to our customers, we provide customized solutions through our strong understanding of end user needs.\nValue Proposition\nOur customer channels and supplier relationships serve as competitive advantages. From our pivotal position at the intersection of technology distribution trends, we provide robust value to both our customers and our suppliers. We make it easier for our sales partners and suppliers to deliver leading technology solutions that drive business outcomes for end users.\nValue proposition for our customers/sales partners:\n\u2022\nEnable end-user consumption preferences\n\u2022\nProvide pre-sale engineering\n\u2022\nMake it easier to sell the technology stack\n\u2022\nInventory availability\n\u2022\nOffer training, education and marketing services\n\u2022\nProvide custom configuration, services, platforms and digital tools\n\u2022\nOffer innovative financial solutions for our customers\n1\nTable of Contents\nIndex to Financial Statements\nValue proposition for our suppliers:\n\u2022\nExpand reach at a variable cost\n\u2022\nProvide access to multiple routes to market\n\u2022\nLower customer acquisition cost\n\u2022\nRecruit and train new sales partners\n\u2022\nManage channel credit\nFinancial Strength\nOur consolidated balance sheet reflects financial strength. Our strong balance sheet and cash generated from our business provide us with the ability to execute our capital allocation plan, which includes organic growth and strategic acquisitions. We have the financial flexibility to invest in our business and in future growth.\nBusiness Segments\nWe operate our business under a management structure that enhances our technology focus and hybrid distribution growth strategy. Our segments operate in the United States, Canada, Brazil and the UK and consist of the following: \n\u2022\nSpecialty Technology Solutions\n\u2022\nModern Communications & Cloud\nSpecialty Technology Solutions Segment\nThe Specialty Technology Solutions portfolio includes enterprise mobile computing, data capture, barcode printing, POS, payments, networking, electronic physical security, cybersecurity and other technologies. There are adjacencies among these technologies to develop and deliver solutions for our customers. These solutions include data capture and POS solutions that interface with computer systems to automate the collection, processing and communication of information for commercial and industrial applications, including retail sales, distribution, shipping, inventory control, materials handling, warehouse management and health care applications. Electronic physical security products include identification, access control, video surveillance and intrusion-related devices. Our networking products include wireless and networking infrastructure products. This segment also includes recurring revenue from hardware rentals and other SaaS offerings. \nModern Communications & Cloud Segment\nThe Modern Communications & Cloud portfolio of solutions includes communications technologies and services for voice, video conferencing, wireless, data networking, cybersecurity, cable, unified communications and collaboration, cloud and technology services.  As these solutions come together on IP networks, new opportunities are created to move into adjacent solutions for all vertical markets, such as education, healthcare and government. This segment includes recurring revenue from our Intelisys and intY businesses.\nCustomers\nOur customers, or sales partners, are businesses of all sizes that sell to end users across industries ranging from manufacturing, warehouse and distribution, retail and e-commerce, hospitality, transportation and logistics, government, education and healthcare, among others. Our customers provide us with multiple, specialized routes-to-market through various channels, including: VARs, agents, ISOs and ISVs. No single customer accounted for more than 4% of our total net sales for the fiscal year ended June\u00a030, 2023.\nVARs\nWithin VARs, our customers include specialty technology VARs, direct marketers, IT system integrators, network integrators, service providers, managed service providers and cloud service providers. Specialty technology VARs focus on one or more technologies, providing specialized knowledge and expertise for technology solutions, such as tailored software or integrated hardware. Direct marketers provide a very broad range of technology brands to business, government, education and healthcare markets. IT system integrators and network integrators develop computer and networking solutions for end-customers\u2019 IT \n2\nTable of Contents\nIndex to Financial Statements\nneeds. Service providers, managed service providers and cloud service providers deliver advanced multi-discipline services with customized solutions that bundle data, collaboration, cloud, network and digital telecommunication services for end-customers' needs. \nAgents\nAgents focus on selling telecommunications and cloud services to end-customers, advising about various services, technologies and cost alternatives to help them make informed choices. Agents typically earn monthly commissions on multi-year contract sales as they build their recurring revenue business.\nIndependent Sales Organizations\nISOs focus on selling credit card processing and finding new merchant customers for credit card member banks. They offer on-going customer service and support and look to bundle hardware, software and processing services. \nIndependent Software Vendors\nISVs develop software, apps and integrated solutions. They generally focus on cloud solutions and sell or certify bundled hardware, software and service solutions.\nSuppliers\nWe provide products and services from approximately\n 500 \nsuppliers, including 8x8, AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Granite, GTT, Hanwha, Honeywell, Ingenico, Jabra, Logitech, Lumen, Microsoft, MetTel, Mitel, NCR, NICE CXone, Poly HP, RingCentral, Spectrum, Toshiba Global Commerce Solutions, Trend Micro, Ubiquiti, Verifone, Verizon, VMWare, Windstream, Zebra Technologies and Zoom. \nWe provide products and services from many of our key suppliers in all of our geographic markets; however, certain suppliers only allow distribution to specific geographies. We typically purchase products directly from the supplier and our supplier agreements generally do not restrict us from selling similar or competitive products or services. We have the flexibility to terminate or curtail sales of one product line in favor of another due to technological change, pricing considerations, product availability, customer demand or supplier distribution policies.\nProducts from two suppliers, Cisco and Zebra, each constituted more than 10% of our net sales for the fiscal year ended June\u00a030, 2023.\n\u2022\nWe have three non-exclusive agreements with Cisco. One agreement covers the distribution of Cisco products in the United States and has a two year term. The second agreement covers the distribution of products in Brazil and has a two year term. Each of these agreements must be renewed by written agreement. Either party may terminate these agreements upon 30 days' notice to the other party. The third agreement is an agency contract for North America and has a two year term. Either party may terminate this agreement upon 60 days' prior written notice.\n\u2022\nWe have three non-exclusive agreements with Zebra. One agreement covers sales of Zebra Enterprise Visibility & Mobility (\u201cEVM\u201d) products in North America and Brazil, while the other two agreements cover sales of Zebra Asset Intelligence & Tracking (\u201cAIT\u201d) products in North America and Brazil.  The Zebra agreements each have a one year term that automatically renews for additional one year terms.  Either party may terminate the EVM agreement upon 30 days' notice to the other party.  Either party may terminate the AIT agreement for North America upon 60 days\u2019 notice to the other party.  Either party may terminate the AIT agreement for Brazil upon 90 days\u2019 notice to the other party. \nIn addition to the agreements mentioned above, we have written agreements with almost all of our other suppliers. These agreements generally include the following terms:\n\u2022\nNon-exclusive distribution rights to resell products and related services in geographical areas (supplier agreements often include territorial restrictions that limit the countries in which we can sell their products and services).\n3\nTable of Contents\nIndex to Financial Statements\n\u2022\nShort-term periods, subject to periodic renewal, and provide for termination by either party without cause upon 30 to 120 days' notice.\n\u2022\nStock rotation rights, which give us the ability, subject to limitations, to return for credit or exchange a portion of the items purchased.\n\u2022\nPrice protection provisions, which enables us to take a credit for declines in inventory value resulting from the supplier's price reductions. \nAlong with our inventory management policies and practices, these stock rotation rights and price protection provisions are designed to reduce our risk of loss due to slow-moving inventory, supplier price reductions, product updates and obsolescence.\nWe participate in various rebate, cash discount and cooperative marketing programs offered by our suppliers to support expenses associated with selling and marketing the suppliers' products and services. These rebates and purchase discounts are largely influenced by sales volumes and are subject to change.\nOur suppliers generally warrant their products we sell and allow returns of defective products, including those returned to us by our customers. For certain of our product offerings, we offer a self-branded warranty program. We purchase contracts from unrelated third parties, generally the original equipment manufacturers, to fulfill our obligations to service or replace defective product claimed on these warranty programs. To maintain customer relations, we also facilitate returns of defective products from our customers by accepting for exchange, with our prior approval, most defective products within 30 days of invoicing. In addition, local laws may in some cases impose warranty obligations on the Company.\nOfferings and Markets\nWe currently market over 65,000 products from approximately 500 hardware, software and service suppliers to approximately 30,000 customers. We sell products and services to the United States and Canada from our facilities located in Mississippi, California and Kentucky; into Brazil from facilities located within the Brazilian states of Paran\u00e1, Esp\u00edrito Santo and Santa Catarina. We provide some of our digital products, which include SaaS and subscriptions, through our digital tools and platforms. See \"Risk Factors\" for a discussion of the risks related to our foreign operations.\nOur offerings to our customers include hardware, software, services and connectivity across premise, hybrid and cloud environments. We believe that customers want to offer end users complete technology solutions that solve end-user challenges and deliver positive outcomes. We align our people, processes and tools to help our sales partners grow by providing more hybrid solutions through a better understanding of end-customer needs. We are able to provide a combination of offerings from multiple suppliers or give our sales partners access to additional services, including configuration, key injection, integration support and others to deliver solutions. \nWe provide our customers and suppliers with an array of pre-sale business tools and value-added services, including market and technology solution expertise, education and training, product configuration tools, technical support, logistics and channel financial services. These services allow our customers to gain knowledge and experience on marketing, negotiation and selling, to improve customer service, to profitably grow their business and be more cost effective. Our business is enhanced by our ability and willingness to provide the extra level of services that keeps both our sales partners and suppliers satisfied.\nWe offer technology solutions and services that include the following:\n\u2022\nMobility and Barcode\n: We offer automatic identification and data capture (\u201cAIDC\u201d) technology that incorporates the capabilities for electronic identification and data processing without the need for manual input. These solutions consists of a wide range of products that include portable data collection terminals, wireless products, barcode label printers and scanners. As AIDC technology has become more pervasive, applications have evolved from traditional uses, such as inventory control, materials handling, distribution, shipping and warehouse management, to more advanced applications, such as healthcare.\n\u2022\nPOS\n: We provide POS solutions for retail, grocery and hospitality environments to efficiently manage in-store sales and operations. POS solutions include computer-based terminals, tablets, monitors, payment processing solutions, receipt printers, pole displays, cash drawers, keyboards, peripheral equipment and fully integrated processing units. These solutions may include self-service checkout, kiosks and products that attach to the POS network in the store, including network access points, routers and digital signage.\n4\nTable of Contents\nIndex to Financial Statements\n\u2022\nPayments\n: We offer payment terminals, comprehensive key injection services, reseller partner branding, extensive key libraries, ability to provide point-to-point encryption, and redundant key injection facilities. We have the resources to deliver secure payment devices that are preconfigured and ready for use. In addition, we partner with ISVs to deliver to merchants integrated tablet POS solution hardware that a merchant may purchase outright or \u201cas a service,\u201d and which includes merchant hardware support and next-day replacement of tablets, terminals and peripherals.\n\u2022\nPhysical Security and Networking\n: We provide electronic physical security solutions that include identification, access control, video surveillance and intrusion-related products. Physical security products are used every day across every vertical market to protect lives, property and information. These technology solutions require specialized knowledge to deploy effectively, and we offer in-depth training and education to our sales partners to enable them to maintain the appropriate skill levels. Our networking products include wireless and networking infrastructure products.  \n\u2022\nCommunications and Collaboration\n: We offer communications and collaboration solutions, delivered in the cloud, on-premise or hybrid, such as voice, video, integration of communication platforms and contact center solutions. These offerings combine voice, video and data with computers, telecommunications and the internet to deliver communications solutions on-premise. Software and hardware products include IP-based telephony platforms, Voice over Internet Protocol systems, private branch exchanges, call center applications, video conferencing, desk phones, headsets and cloud-enabled endpoints. Cloud-delivered services, such as unified communications, contact center and video conferencing, enable end-customers to consume and pay for communications services typically on a monthly subscription basis.\n\u2022\nConnectivity and Cloud Services:\n We offer business communications services, including voice, data, access, cable collaboration, wireless and cloud. We focus on empowering and educating sales partners so they can advise end-customers in making informed choices about services, technology and cost savings. Through our digital tools and platforms, we offer sales partners another way to grow their recurring revenue practices, and take\u00a0\u00a0\u00a0\u00a0 the friction out of acquiring, provisioning and managing SaaS offerings. We have contracts with more than 200 of the world\u2019s leading telecom carriers and cloud services providers.\nPeople and Culture \nAs a people-first organization, respecting and protecting our people and our partners are our top priorities. From ensuring and supporting an inclusive and diverse workforce and partner base; providing a safe, healthy work environment; and working with suppliers and partners that share this commitment, we are dedicated to doing what is right for our employees, channel partners and end customers.\nGeneral\n \nOur real competitive advantage is our people, working together to help our customers and partners grow their businesses. The foundation of ScanSource has always been based on strong values and culture with the clear vision of people first. In a changing environment, ScanSource is investing in new infrastructure, tools and programs to ensure a \"productivity anywhere\" outcome, in the new hybrid working world. In 2023, the Company was named one of the Best Places to Work in South Carolina for the eighth consecutive year.\nAs of June\u00a030, 2023, we have approximately 2,300 employees, of which approximately 1,500 are in the United States and 800 are located internationally in Canada, Brazil and the UK. We have no organized labor or trade unions in the United States. As of June\u00a030, 2023 we have 10\n \noffice locations in the U.S. and three distribution centers, eight office locations outside of the U.S., and have a remote employee presence.\nProfessional Development \nWe want to help our employees succeed\u2014both personally and professionally. We focus heavily on the intellectual and professional development of our employees, and we strive to create an immersive working environment for them. To promote personal and professional growth, we also encourage our employees to pursue ongoing training and career development opportunities, and we provide tuition assistance and reimbursement for certain pre-approved continuing education programs and professional certifications. We enhanced our learning management system, The Hub, to provide a modernized and engaging user experience for our global employees at all levels. The ScanSource Leadership Institute (\"SLI\") is another \n5\nTable of Contents\nIndex to Financial Statements\nimportant program that focuses on identifying and helping to develop the next wave of senior leaders for the Company. The SLI program brings together twelve hand-selected leaders from our global offices for a two-week program of intensive training and development. While this provides a tool for an individual\u2019s education and growth, it also nurtures cross-functional collaboration with colleagues through a unique social capability.\nBenefits\n \nWe offer a comprehensive benefits package which includes traditional health insurance, as well as telemedicine alternatives, life insurance, disability insurance and work-life balance resources. The financial future of our employees is important to us, which is why we have a 401(k) program with a market-competitive employer match, performance-based bonus program and employee ownership opportunities for a meaningful portion of our employees through our Employee Stock Purchase Plan, as well as our equity incentive grants. We partner with Fidelity to provide employees access to knowledge and tools to help manage or plan for student loan debt. To expand our financial wellness offerings, we offer workshops and webinars focused on student debt and general debt-counselling services.\nHealth and Safety \nWe care about our employees\u2019 overall well-being and encourage them to have a healthy lifestyle, both physically and mentally. That\u2019s why we offer dedicated resources to help foster a work/life balance. We have implemented a work-from-home policy for all employees across geographies, outside of our distribution centers. We are pleased with how our employees have adjusted to this new way of doing business, maintaining an extremely high level of productivity and performance. With a largely remote workforce, it is critical that we continue to focus on our employees\u2019 health. We continue to build our 360you program, which provides employees with extensive education and training/coaching opportunities, wellness and fitness challenges, and other valuable resources.\nDiversity and Inclusion\n \nOne of our core values is to promote an environment that respects and values the diverse backgrounds, interests and talents of our employees. ScanSource is committed to a diverse and inclusive workplace with our comprehensive Diversity & Inclusion (D&I) program, led by our first Chief Diversity Officer (\"CDO\") and an internal D&I Advisory Council. The Council is an employee-led group focused on sharing insights, ideas, and opinions from our employee base to assist in the implementation of our DEI plan. To support our goal of becoming a more inclusive workplace, our DEI strategic plan focuses on awareness and education, workforce representation, partner diversity, and community relations. Additionally, initiatives including a D&I book and movie club, educational DEI opportunities, and global employee resource groups are allowing interested employees to broaden their knowledge on various topics in this space.\nBoard Role in People and Culture Management \nOur Board of Directors believes that people and culture management is an important component of our continued growth and success and is essential for our ability to attract, retain and develop talented and skilled employees. We pride ourselves on a culture that respects co-workers and values concern for others. Our Board provides oversight of the Company's policies and strategies relating to talent including corporate culture, diversity and inclusion, and employee development, as well as the Company's compensation principles and practices. Our Board, through the Compensation Committee, evaluates and approves the Company's compensation plans, policies, and programs applicable to our senior executives. Our Board also engages in an active succession planning process.\nDigital Workplace\nEmployee outreach and engagement remain critical to the continued success and growth of ScanSource. Inclusion, participation, and appreciation are key components in retaining talent, maintaining our culture, and keeping employees engaged. In support of that, in 2023, we launched a new global digital workplace, The Bridge, as our new corporate intranet. We are excited to enhance global communication, increase employee recognition, and celebrate milestones through this engaging new platform.\nEmployee Feedback\n \n6\nTable of Contents\nIndex to Financial Statements\nWe foster opportunities for employee engagement and have multiple avenues for communication, which allows all full-time employees to anonymously give us feedback on our workplace culture, employee programs, and more. We also implement employee engagement surveys globally to gather feedback and build the best environment possible for our employees. \nCompetition\nWe believe we are a leader in the specialty markets we serve. The market for technology products and solutions is highly competitive, both in the United States and internationally. Competitive factors include price, product availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability, ability to tailor specific solutions to customer needs, quality and breadth of product lines and services and availability of technical and product information. \nOur competitors include local, regional, national and international distributors, as well as suppliers that sell directly to resellers and to end users. In addition, our competitors include resellers that sell to franchisees, third-party dealers and end users. Competition has increased over the last several years as broad line and other value-added distributors have entered into the specialty technology markets. Such competition could also result in price reductions, reduced margins and loss of market share.\nIn our Specialty Technology Solutions segment, we compete with broad-line distributors, such as Ingram Micro and TD Synnex, in most geographic areas, and more specialized security distributors, such as ADI and Wesco. We also compete against other smaller, more specialized AIDC and POS distributors, such as BlueStar. In our Modern Communications & Cloud segment, we compete against broad-line distributors, such as Ingram Micro and TD Synnex, and more specialized distributors, such as Jenne. Additionally, for Intelisys' technology services, we compete against other smaller, technology services distributors, such as Avant and Telarus. For our intY business, we compete against other developers of cloud software and services platforms, such as CloudBlue and Pax8. As we seek to expand our business into other areas closely related to our offerings, we may encounter increased competition from current competitors and/or from new competitors, some of which may be our current customers.\nSales\nOur sales organization consists of inside and field sales representatives located in the United States, Canada, the UK and Brazil. The majority of our sales partners are assigned to a dedicated sales representative or team whose main focus is developing customer relationships and providing our customers with solutions to meet their end-customer\u2019s needs. Our sales teams are advocates for and trusted advisers to our customers. Sales teams are responsible for developing technical expertise within broad product markets, recruiting sales partners, creating demand, negotiating pricing and reviewing overall product and service requirements of our customers. Our sales representatives receive comprehensive training with respect to the technical characteristics of suppliers\u2019 products, supplemented by frequent product and service seminars conducted by supplier representatives and bi-weekly meetings among product, marketing and sales managers.\nOur sales teams also provide customers with online ordering, API, EDI and other information systems, allowing customers to easily gain access to product specifications, availability and customized pricing, as well as the ability to place and follow the status of orders. \nMarketing\nWe market our technology solutions and services through a range of digital and print channels, including online product catalogs customized for our North American and Brazilian markets; social media; search engine optimization and marketing; content marketing; content automation; e-commerce; email direct marketing, among others. Our marketing practices are tailored to fit the specific needs of our customers and suppliers - ensuring we help our partners create, deliver and manage solutions for end users across our vertical markets. Our comprehensive marketing efforts include sales promotions, advertisements, management of sales leads, trade show design and event management, advertorials, content creation, partner events and training and certification courses with leading suppliers in an effort to recruit prospective sales partners. \nOperations\nInformation Technology Systems\n7\nTable of Contents\nIndex to Financial Statements\nOur information systems are scalable and capable of supporting numerous operational functions including purchasing, receiving, order processing, shipping, inventory management and accounting. Our customers and employees rely on our information systems for online, real-time information on pricing, inventory availability and reservation and order status. Our warehouse operations use bar code technology for receiving and shipping and automated systems for freight processing and shipment tracking, each of which is integrated with our multiple information systems. The customer service and technical support departments employ systems for documentation and faster processing of sales partner inquiries. To ensure that adequate inventory levels are maintained, our buyers depend on the system\u2019s purchasing and receiving functions to track inventory on a perpetual basis. \nWarehouse and Shipping Strategy\nWe operate a 741,000 square foot distribution center in Southaven, Mississippi, which is located near the FedEx hub facility in Memphis, Tennessee, and primarily serves North America. We also acquired warehouses in California and Kentucky through our POS Portal acquisition. Our principal warehouses for our Brazil operations are located in the Brazilian states of Paran\u00e1, Esp\u00edrito Santo and Santa Catarina. Our objective is to ship all orders on the same day, using technology to expedite shipments and minimize shipping errors. We offer reduced freight rates and flexible delivery options to minimize our sales partners' need for inventory.\nFinancial Services\nOur sales terms include trade credit, various third-party financing options, which include leasing, flooring and other secured financing for qualified customers. These sales terms allow us to compete within our specific geographic areas to facilitate our growth plans.  We believe these options reduce the customer\u2019s need to establish multiple credit relationships.\nTrade and Service Marks\nWe conduct our business under the trade names \"ScanSource POS and Barcode,\" \"ScanSource Catalyst,\" \"ScanSource Communications,\" \"ScanSource Services,\" \"ScanSource Networking and Security,\" \"ScanSource KBZ,\" \"ScanSource Brasil,\" \"Network1, a ScanSource company,\" \"Intelisys,\" \"POS Portal,\" \"RPM Software, a ScanSource company\" and \"intY, a ScanSource company.\"  \nCertain of our tradenames, trademarks and service marks are registered, or are in the process of being registered, in the United States or various other countries.  We have been issued registrations for many of our marks including, among others, \"ScanSource,\" \"Catalyst Telecom,\" and \"Network1\" in countries in our principal markets.\u00a0Even though our marks are not registered in every country where we conduct business, in many cases we have acquired rights in those marks because of our continued use of them. These marks do not have value assigned to them and have a designated indefinite life. We do not believe that our operations are dependent upon any of our marks. We also sell products and provide services under various third-party tradenames, trademarks and service marks, some of which we reference in this report, and these tradenames, trademarks and service marks are the property of their respective owners.\nAdditional Information\nOur principal internet address is www.scansource.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this annual report. We provide our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and all amendments to those reports, free of charge on www.scansource.com, as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (\"SEC\").",
+  "item1a": ">ITEM 1A.\u00a0\u00a0\u00a0\u00a0Risk Factors.\nThe following are certain risks that could affect our business, financial position and results of operations. These risks should be considered in connection with evaluating an investment in our company and, in particular, the forward-looking statements contained in this Report because these risks could cause the actual results to differ materially from those suggested by the forward-looking statements. These factors are neither presented in order of importance nor weighted. Additionally, there are other risks which could impact us that we may not describe, because we currently do not perceive them to be material or because they are presently unknown. If any of these risks develops into actual events, our business, financial condition and \n8\nTable of Contents\nIndex to Financial Statements\nresults of operations could be negatively affected, the market price of our common stock could decline and you may lose all or part of your investment in our common stock. We expressly disclaim any obligation to update or revise any risk factors, whether as a result of new information, future events or otherwise, except as required by law.\nRisk Factors Related to our Operations\nPeople - If we cannot continue to hire and retain high quality employees, our business and financial results may be negatively affected. \nOur operating results could be adversely affected by increased competition for employees, difficulty in recruiting employees, higher employee turnover or increased compensation and benefit costs. Our employees are important to our success and we are dependent in part on our ability to retain the services of our employees in key roles. We have built our business on a set of core values, and we attempt to hire and retain employees who are committed to these values and our culture of providing exceptional service to our customers and suppliers. In order to compete and to continue to grow, we must attract, retain and motivate employees, including those in executive, senior management, sales, marketing, logistics, technical support and other operating positions. \nMany of our employees work in small teams to provide specific services to customers and suppliers. They are trained to develop their knowledge of products, services, programs and practices and customer business needs, as well as to enhance the skills required to provide exceptional service and to manage our business. As they gain experience and develop their knowledge and skills, our employees become highly desired by other businesses. Therefore, to retain our employees and attract new ones, we have to provide a satisfying work environment and competitive compensation and benefits.\nAcquisitions - Our growth strategy includes acquisitions of companies that complement or expand our existing business. Acquisitions involve unique risks and uncertainties, including difficulty in identifying and completing potential acquisitions.\nWe have acquired, and may continue to acquire, companies that complement or expand our existing business in the United States and internationally, and some of these acquisitions may be in business lines where we have little, if any, experience.  Acquisitions entail a number of risks, including that the acquired company will not perform as expected and that we will be responsible for unexpected costs or liabilities.  In addition, increases in the size and complexity of our business may place a significant strain on our management, operations, technical performance, financial resources and internal financial control and reporting functions, and there are no assurances that we will be able to manage the acquisition process or newly acquired companies effectively. \nOur personnel, systems, procedures and controls may not be adequate to effectively manage our future operations, especially as we employ personnel in multiple domestic and international locations. We may not be able to hire, train, retain and manage the personnel required to address our growth. Failure to effectively manage our acquisition opportunities could damage our reputation, limit our future growth, and adversely affect our business, financial condition and operating results.\nWe may be unable to identify acquisitions or strategic relationships we deem suitable. Even if we do, we may be unable to successfully complete any such transactions on favorable terms or at all, or to successfully integrate an acquired business, facilities, technologies, or products into our business or retain any key personnel, suppliers, or customers. Furthermore, even if we complete such transactions and effectively integrate the newly acquired business or strategic alliance into our existing operations, we may fail to realize the anticipated returns and/or fail to capture the expected benefits, such as strategic or operational synergies or cost savings.\nIT Systems - Our ability to manage our business and monitor results is highly dependent upon information and communication systems. A failure of these systems could disrupt our business. \nWe are highly dependent upon a variety of computer and telecommunication systems to operate our business, including our enterprise resource planning systems. As we are dependent upon our ability to gather and promptly transmit accurate information to key decision makers, our business, results of operations and financial condition may be adversely affected if our information systems do not allow us to transmit accurate information, even for a short period of time. Failure to properly or adequately address these issues could impact our ability to perform necessary business operations, which could adversely affect our reputation, competitive position, business, financial condition and results of operations. \n9\nTable of Contents\nIndex to Financial Statements\nIn addition, the information systems of companies we acquire may not meet our standards or we may not be able to successfully convert them to provide acceptable information on a timely and cost-effective basis. Furthermore, we must attract and retain qualified people to operate our systems, expand and improve them, integrate new programs effectively with our existing programs and convert to new systems efficiently when required. Any disruption to our business due to such issues, or an increase in our costs to cover these issues, could have an adverse effect on our financial results and operations. \nOur customers rely on our electronic ordering, information systems and website for product information, including availability, pricing and placing orders. Our systems were disrupted during our recent ransomware incident, and there can be no assurance that our systems will not fail or experience disruptions again in the future, and any significant failure or disruption of these systems could prevent us from making sales, ordering and delivering products and otherwise conducting our business.\nSupply Chain issues, include a shortage of products, may increase our costs or cause a delay in fulfilling customer orders, completing services or purchasing products and services needed to support our internal operations, resulting in an adverse impact on our financial results.\nOur business depends on the timely supply of products in order to meet the demands of our customers.\nManufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, significant labor disputes such as strikes, natural disasters, political or social unrest, pandemics or other public health crises or other adverse occurrences affecting any of our suppliers\u2019 facilities, could further disrupt our supply chain. We could experience product constraints due to the failure of suppliers to accurately forecast customer demand or to manufacture sufficient quantities of product to meet customer demand (including as a result of shortages of product components), among other reasons.\nOur supply chain is also exposed to risks related to international operations. While we purchase our products primarily in the markets we serve (for example, products for United States customers are primarily sourced in the United States), our vendor partners manufacture or purchase a significant portion of the products we sell outside of the United States, primarily in Asia. Political, social or economic instability in Asia, or in other regions in which our vendor partners purchase or manufacture the products we sell, could cause disruptions in trade, including exports to the United States.\nSupply chain issues, including a shortage of technology products and available services, may increase our costs or cause a delay in purchasing technology products needed to support our internal systems and infrastructure or operations, resulting in an impact on our operations and availability of our systems, which could result in a materially adverse effect on our operations and financial results.\nOrganic growth strategies - If we fail to effectively manage and implement our operating strategies, we may experience a negative effect on our business and financial results.\nA significant component of our growth strategy is to expand our channels and expand our existing products and services in our existing channels and entry into new channels. These efforts may divert our resources and systems, require additional resources that might not be available (or available on acceptable terms), result in new or more intense competition, require longer implementation times or greater expenditures than anticipated and otherwise fail to achieve timely desired results, if at all. If we are unable to increase our sales and earnings by expanding our product and service offerings in a cost-effective manner, our results may suffer.\nOur ability to successfully manage our organic growth will require continued enhancement of our operational, managerial and financial resources, controls, and models. Our failure to effectively manage our organic growth could have an adverse effect on our business, financial condition and results of operations.\nCredit exposure - We have credit exposure to our customers. Any adverse trends or significant adverse incidents in their businesses could cause us to suffer credit losses.\nAs is customary in our industry, we extend credit to our customers, and most of our sales are on open accounts; we also provide financing to some Intelisys customers based on their future commission flows. As we grow and compete for business, our typical payment terms tend to be longer, and therefore may increase our credit risk. \n10\nTable of Contents\nIndex to Financial Statements\nWhile we evaluate our customers' qualifications for credit and monitor our extensions of credit, these efforts cannot prevent all credit losses and any credit losses negatively impact our performance. In addition, for financial reporting purposes, we estimate future credit losses and establish reserves.  To the extent that our credit losses exceed those reserves, our financial performance will be negatively impacted beyond what is expected. If there is deterioration in the collectability of our receivables, or if we fail to take other actions to adequately mitigate such credit risk, our earnings, cash flows and our ability to utilize receivable-based financing could deteriorate. \nIn addition, extending credit to international customers involves additional risks. It is often more difficult to evaluate credit risk with a customer or obtain credit protections in our international operations. Also, credit cycles and collection periods are typically longer in our international operations. As a result of these factors and other challenges in extending credit to international customers, we generally face greater credit risk from international sales compared to domestic sales. \nReliance on third parties - We are dependent on third parties for some services, including the delivery of a majority of our products, logistics and warehousing. Changes in shipping terms or the failure or inability of our third-party shippers to perform could have an adverse impact on our business and results of operations.\nWe rely on third parties to perform certain services for our business and for our customers, which, if not performed by these third parties in accordance with the terms of the arrangement, could result in significant disruptions or costs to our organization, including monetary damages and an adverse effect on our customer relationships.  \nIn particular, we are dependent upon major shipping companies, including FedEx and UPS, for the shipment of our products to and from our centralized warehouses. Changes in shipping terms, or the inability of these third-party shippers to perform effectively, could affect our responsiveness to our customers. From time to time, we have experienced significant increases in shipping costs due to increases in fuel costs and transit losses due to a congested supply chain. Increases in our shipping costs or transit losses may adversely affect our financial results if we are unable to pass on these higher costs to our customers.\nIn Brazil, we use third parties to provide warehousing and logistics services in order to provide cost-effective operations and scale in certain regions. The failure or inability of one or more of these third parties to deliver products from suppliers to us, or products from us to our customers, for any reason could disrupt our business and harm our reputation and operating results. We work closely with our third-party logistics and warehousing providers to anticipate issues, and also review public information regarding their financial health. However, issues may not be identified quickly, which may lead to lack of or poor execution of services, loss or litigation. Additionally, deterioration of the financial condition of our logistical and warehousing providers could result in delayed responsiveness or delivery failure, which would ultimately affect our responsiveness to our customers and thus may adversely affect our business, financial condition and results of operations.\nInventory - The value of our inventory may be adversely affected by market and other factors.\nOur business, like that of other distributors, is subject to the risk that the value of our inventory will be adversely affected by price reductions by manufacturers, by technological changes affecting the usefulness or desirability of our products or by foreign currency fluctuations. Some of our supplier agreements and certain manufacturers\u2019 policies have some price protection and stock rotation opportunities with respect to slow-moving or obsolete inventory items; however, these protections are becoming less standard, subject to change, limited in scope and do not protect against all declines in inventory value, excess inventory, or product obsolescence, and in some instances we may not be able to fulfill all necessary conditions or successfully manage such price protection or stock rotation opportunities. In addition, these protections are not always reflected in supplier agreements and their application in a particular situation is dependent upon negotiations with our suppliers. As a result, occasionally we are required to write down the value of excess and obsolete inventory, and should any of these write-downs occur at a significant level, they could have an adverse effect on our business, financial condition and results of operations.\nSuppliers - Changes to supply agreement terms or lack of product availability from our suppliers could adversely affect our operating margins, revenue or the level of capital required to fund our operations.\nOur future success is highly dependent on our relationships with our suppliers. A significant percentage of our net sales relates to products we purchase from relatively few suppliers, including Cisco and Zebra. As a result of such concentration risk, terminations of supply or services agreements or a change in terms or conditions of sale from one or more of our key suppliers could adversely affect our operating margins, revenue or the level of capital required to fund our operations. Our suppliers have the ability to make adverse changes in their sales terms and conditions, such as reducing the level of purchase discounts and \n11\nTable of Contents\nIndex to Financial Statements\nrebates they make available to us. In addition, our supplier agreements typically are short-term and may be terminated without cause on short notice. We have no guaranteed price or delivery agreements with our suppliers. In certain product categories, limited price protection or return rights offered by our suppliers may have a bearing on the amount of product we are willing to stock. Our inability to pass through to our customers the impact of these changes, as well as if we fail to develop or maintain systems to manage ongoing supplier programs, could cause us to record inventory write-downs or other losses and could have significant negative impact on our gross margins.\nWe receive purchase discounts and rebates from some suppliers based on various factors, including goals for quantitative and qualitative sales or purchase volume and customer related metrics. Certain purchase discounts and rebates may affect gross margins. Many purchase discounts from suppliers are based on percentage increases in sales of products. Our operating results could be adversely impacted if these rebates or discounts are reduced or eliminated or if our suppliers significantly increase the complexity of their refund procedures and thus increase costs for us to obtain such rebates. \nOur ability to obtain particular products or product lines in the required quantities and our ability to fulfill customer orders on a timely basis is critical to our success. Our suppliers have experienced product supply shortages from time to time due to the inability of certain of their suppliers to supply products on a timely basis. Specifically, shortages of computer chips may lead to product constraints and adversely affect our sales volumes and product availability. In addition, our dependence on a limited number of suppliers leaves us vulnerable to having an inadequate supply of required products, price increases, late deliveries and poor product quality.\u00a0As a result, we have experienced, and may in the future continue to experience, short-term shortages of specific products or be unable to purchase our desired volume of products. Suppliers that currently distribute their products through us, may decide to shift to or substantially increase their existing distribution with other distributors, their own dealer networks, or directly to resellers or end-customers. Suppliers have, from time to time, made efforts to reduce the number of distributors with which they do business. This could result in more intense competition as distributors strive to secure distribution rights with these suppliers, which could have an adverse impact on our operating results. We cannot provide any assurances that suppliers will maintain an adequate supply of products to fulfill all of our customer orders on a timely basis. Our reputation, sales and profitability may suffer if suppliers are not able to provide us with an adequate supply of products to fulfill our customer orders on a timely basis or if we cannot otherwise obtain particular products or product lines. \nIncreasingly, our suppliers are combining and merging, leaving us with fewer alternative sources. Supplier consolidation may also lead to changes in the nature and terms of relationships with our suppliers. In addition, suppliers may face liquidity or solvency issues that in turn could negatively affect our business and operating results.  Any loss or deterioration of a major supplier relationship could adversely affect our business, financial condition and results of operations.\nLiquidity and capital resources - Market factors and our business performance may increase the cost and decrease the availability of capital. Additional capital may not be available to us on acceptable terms to fund our working capital needs and growth.\n \nOur business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by trade creditors. We have an increased demand for capital when our business is expanding, including through acquisitions and organic growth. Changes in payment terms with either suppliers or customers could also increase our capital requirements. We have historically relied on cash generated from operations, borrowings under our revolving credit facility and secured and unsecured borrowings to satisfy our capital needs and to finance growth. While we believe our existing sources of liquidity will provide sufficient resources to meet our current working capital and cash requirements, if we require an increase in capital to meet our future business needs or if we are unable to comply with covenants under our borrowings, such capital may not be available to us on terms acceptable to us, or at all. We have a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (the \u201cAmended Credit Agreement\u201d). The Amended Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants. Specifically, our Leverage Ratio must be less than or equal to 3.50:1.00 at all times. In addition, our Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement) must be at least 3.00:1.00 as of the end of each fiscal quarter. In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates.\nIn addition, the cost of borrowings under our existing sources of capital and any potential new sources of capital as a result of variable interest rates may increase, which could have an adverse effect on our financial condition. Changes in how lenders rate our credit worthiness, as well as macroeconomic factors such as an economic downturn, inflation, rising interest rates and \n12\nTable of Contents\nIndex to Financial Statements\nglobal economic instability may restrict our ability to raise capital in adequate amounts or on terms acceptable to us, and the failure to do so could harm our ability to operate our business.\nIn addition, our cash and cash equivalents are deposited with various financial institutions located in the various countries in which we operate. We endeavor to monitor these financial institutions regularly for credit quality; however, we are exposed to risk of loss on such funds or we may experience significant disruptions in our liquidity needs if one or more of these financial institutions were to fail or suffer bankruptcy or similar restructuring.\nCustomers - We operate in a highly competitive environment and good customer relations are critical to our success. There can be no assurance that we will be able to retain and expand our customer relationships or acquire new customers.\nMeeting our customers' needs quickly and fairly is critical to our business success. Transactions with our customers generally are performed on a purchase order basis rather than under long term supply agreements. Therefore, our customers can choose to purchase from other sources. From time to time, we experience shortages in availability of some products from suppliers, and this impacts customers' decisions regarding whether to make purchases from us. Anything that negatively influences customer relations can also negatively impact our operating results. \nCustomer consolidation also may lead to changes in the nature and terms of relationships with our customers.  The loss or deterioration of a major customer relationship could adversely affect our business, financial condition and results of operations. Economic recession, higher interest rates and inflation could result in some of our customers shuttering their businesses, thus negatively impacting our business.\nLitigation - We routinely are involved in litigation that can be costly and lead to adverse results.\nIn the ordinary course of our business, we are involved in a wide range of disputes, some of which result in litigation. We are routinely involved in litigation related to commercial disputes surrounding our business activities, intellectual property disputes, employment disputes and accounts receivable collection activity.  In addition, as a public company with a large shareholder base, we are susceptible to class-action lawsuits and other litigation resulting from disclosures that we or our officers and directors make (or do not make) and our other activities. Litigation is expensive to bring and defend, and the outcome of litigation can be adverse and significant. Not all adverse outcomes can be anticipated, and applicable accounting rules do not always require or permit the establishment of a reserve until a final result has occurred or becomes probable and estimable. In some instances we are insured or indemnified for the potential losses; in other instances we are not. An uninsured, under insured or non-indemnified adverse outcome in significant litigation could have an adverse effect on our business, financial condition and results of operations. We can make no assurances that we will ultimately be successful in any dispute that we are a party to. See Item 3. \"Legal Proceedings\" for further discussion of our material legal matters.\nFair value measurement of goodwill and other intangible assets - Changes in the fair value of the assets and liabilities measured at fair value could have a significant effect on our reported earnings.\nWe have substantial goodwill.  On at least an annual basis, we are required to assess our goodwill and other intangible assets, including but not limited to customer relationships, trademarks and trade names, for impairment. This includes continuously monitoring events and circumstances that could trigger an impairment test outside of our annual impairment testing date in the fourth quarter of each year. Testing goodwill and other intangibles for impairment requires the use of significant estimates and other inputs outside of our control. If the carrying value of goodwill in any of our goodwill reporting units or other intangible assets is determined to exceed their respective fair values, we may be required to record significant impairment charges. In addition, our decision to dispose of certain of our operations has in the past and may in the future require us to recognize an impairment to the carrying value of goodwill and other intangible assets attendant to those operations. As of June\u00a030, 2023, the Specialty Technology Solutions and Modern Communications & Cloud reporting units' goodwill balances are $16.4\u00a0million and $200.3\u00a0million, respectively. The fair value of the reporting units exceeded its carrying value by 2% and 13%, respectively, as of the annual goodwill impairment testing date. Any declines resulting in a goodwill impairment or long-lived asset impairment may result in material non-cash charges to our earnings. Impairment charges would also reduce our consolidated shareholders' equity and increase our debt-to-total-capitalization ratio, which could negatively impact our credit rating and access to the public debt and equity markets. \n13\nTable of Contents\nIndex to Financial Statements\nInternational operations - Our international operations expose us to risks that are different from, and possibly greater than, the risks we are exposed to domestically.\nWe currently have significant facilities outside the United States. For fiscal year ending June 30, 2023, approximately 9.4% of our revenue is derived from our international operations outside of the United States and Canada. These operations are subject to a variety of risks that are different from the risks that we face domestically or are similar risks but with potentially greater exposure. These risks include:\n\u2022\nFluctuations of foreign currency and exchange rates, which can impact sales, costs of the goods we sell and the reporting of our results and assets on our financial statements;\n\u2022\nChanges in international trade laws, trade agreements, or trading relationships affecting our import and export activities, including export license requirements, restrictions on the export of certain technology and tariff changes, or the imposition of new or increased trade sanctions; \n\u2022\nDifficulties in collecting accounts receivable and longer collection periods;\n\u2022\nChanges in, or expiration of, various foreign incentives that provide economic benefits to us;\n\u2022\nLabor laws or practices that impact our ability and costs to hire, retain and discharge employees;\n\u2022\nDifficulties in staffing and managing operations in foreign countries;\n\u2022\nChanges in the interpretation and enforcement of laws (in particular related to items such as duty and taxation), and laws related to data privacy such as GDPR and other similar privacy laws that impact our IT systems and processes;\n\u2022\nGlobal economic and financial market instability;\n\u2022\nPotential political and economic instability and changes in governments;\n\u2022\nCompliance with foreign and domestic import and export regulations and anti-corruption laws, including the Iran Threat Reduction and Syria Human Rights Act of 2012, U.S.\u00a0Foreign Corrupt Practices Act, UK Bribery Act, and similar laws of other jurisdictions, governing our business activities outside the United States, the violation of which could result in severe penalties, including monetary fines, criminal proceedings and suspension of export or import privileges; and\n\u2022\nTerrorist or military actions that result in destruction or seizure of our assets or suspension or disruption of our \noperations or those of our customers, suppliers or service providers. \nWe have substantial operations in Brazil and face risks related to these countries' complex tax, labor, trade compliance and consumer protection laws and regulations. Additionally, developing markets such as Brazil have greater political volatility and vulnerability to infrastructure and labor disruptions, are more likely to experience market and interest rate fluctuations and may have higher inflation. In addition, doing business in foreign countries poses additional challenges, such as finding and retaining qualified employees, particularly management-level employees, navigating underdeveloped infrastructure and identifying and retaining qualified suppliers, resellers, agents and service providers, among other risks. Furthermore, in developing markets it may be common for others to engage in business practices prohibited by laws and regulations applicable to us, such as the U.S. Foreign Corrupt Practices Act, UK Bribery Act, or similar local anti-bribery laws. Our commitment to legal compliance could put us at a competitive disadvantage, and any lapses in our compliance could subject us to civil and criminal penalties that could materially and adversely affect our financial condition and results of operations. \nIn addition, competition in developing markets is increasing. If we cannot successfully increase our business, our product sales, financial condition and results of operations could be adversely affected. \nQuarterly fluctuations - Our net sales and operating results are dependent on a number of factors. Our net sales will fluctuate from quarter to quarter, and these fluctuations may cause volatility in our stock price.\nOur net sales and operating results may fluctuate quarterly and, as a result our performance in one period may vary significantly from our performance in the preceding quarter, and may differ significantly from our forecast of performance from quarter to quarter. The impact of these variances may cause volatility in our stock price. Additionally, any past financial performance should not be considered an indicator of future performance, and investors should not use historical trends to anticipate results or trends in the future as our operating results may fluctuate significantly quarter to quarter. The results of any quarterly period are not indicative of results to be expected for a full fiscal year.  \n14\nTable of Contents\nIndex to Financial Statements\nCentralized functions - We have centralized a number of functions to provide efficient support to our business. As a result, a loss or reduction of use of one of our locations would have an adverse effect on our business operations and financial results.\nIn order to be as efficient as possible, we centralize a number of critical functions. For instance, we currently distribute products to the majority of North America from a single warehouse. Similarly, for the primary business operations, we utilize a single information system based in the United States for the majority of our North American operations, while our Brazilian and UK operations have separate systems. While we have backup systems and business continuity plans, any significant or lengthy interruption of our ability to provide these centralized functions as a result of natural disasters, prolonged inclement weather, security breaches or otherwise would significantly impair our ability to continue normal business operations. In addition, the centralization of these functions increases our exposure to local risks, such as the availability of qualified employees and the lessening of competition for critical services, such as freight and communications. \nRisk Factors Related to our Industry\nCompetition - We experience intense competition in all of our markets. This competition could result in reduced margins and loss of our market share.\nOur markets are fiercely competitive. We compete on the basis of price, product and service availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability and terms, ability to tailor solutions to the needs of our customers, quality and breadth of product line and services, and availability of technical and product information. Our competitors include local, regional, national and international distributors as well as hardware and service suppliers that sell directly to resellers and to end-customers. In addition, we compete with resellers and master agents that sell to franchisees, third-party dealers and end-customers. Certain of our current and potential competitors have greater financial, technical, marketing and other resources than we have and may be able to respond more quickly to new or emerging technologies and changes in customer requirements. Certain smaller, regional competitors, that are specialty two-tier or mixed model master resellers, may be able to respond more quickly to new or emerging technologies and changes in customer requirements in their regions. Competition has increased for our sales units as broad line and other value-added distributors have entered into the specialty technology markets. Such competition could result in price reductions, reduced margins and loss of our market share. \nAs a result of intense price competition in our industry, our gross margins and our operating profit margins historically have been narrow, and we expect them to continue to be narrow in the future. To remain competitive, we may be forced to offer more credit or extended payment terms to our customers. This could result in an increase in our need for capital, increase our financing costs, increase our bad debt expenses and have an adverse impact on our results of operations. We may lose market share, reduce our prices in response to actions of our competitors, or withdraw from geographical markets where we do not believe we can earn appropriate margins. We expect continued intense competition as current competitors expand their operations and new competitors enter the market. Our inability to compete successfully against current and future competitors could cause our revenue and earnings to decline. \nDisruptive technology - We may not be able to respond and adapt to rapid technological changes, evolving industry standards or changing customer needs or requirements, and thus may become less competitive.\nThe market for some of our products and services is subject to rapid technological change, evolving industry standards and changes in customer demand, which can contribute to the decline in value or obsolescence of inventory.  Although some of our suppliers provide us with certain protections from the loss in value of inventory (such as price protection and certain return rights), we cannot be sure that such protections will fully compensate for any loss in value, or that the suppliers will choose to, or be able to, honor such agreements. \nOur ability and our supplier's ability to anticipate and react quickly to new technology trends and customer requirements is crucial to our overall success, financial condition and results of operations. If our suppliers fail to evolve their product and service offerings, or if we fail to evolve our product and service offerings or engage with desirable suppliers in time to respond to, and remain ahead of, new technological developments, it would adversely affect our ability to retain or increase market share and revenue. New technologies may emerge that quickly surpass the capabilities of the products we currently hold in inventory or have access to sell through our existing supplier network, and our customers may no longer view our product offerings as desirable or necessary, which could result in a reduction in our market share and ability to obtain sufficient profit margins.  Some of our competitors and our suppliers\u2019 competitors may be better at adapting to disruptive technology or entering \n15\nTable of Contents\nIndex to Financial Statements\nnew markets.  Our future success depends, in part, on our ability to adapt and manage our product and service offerings to meet customer needs at prices that our customers are willing to pay. \nGeneral Risk Factors\nCybersecurity risk - If we are the subject of a ransomware or other cyberattack, we could lose valuable financial and operational data, we could be prevented from processing customer orders, ordering and tracking inventory, and efficiently operating our business, and we could lose revenue and profits and incur significant costs. In addition, we could be subject to legal claims in the event of the loss, disclosure or misappropriation of, or access to, our customer's or business partners' or our own information.\nWe make extensive use of online services and integrated information systems, including through third-party service providers. The secure maintenance and transmission of customer information is a critical element of our operations. Our information technology and other systems that maintain and transmit customer or employee information or those of service providers or business partners may be compromised by a malicious third-party penetration of our network security, or that of a third-party service provider or business partner, or impacted by advertent or inadvertent actions or inactions by our employees, or those of a third-party service provider or business partner. With constant changes in the security landscape, experienced computer programmers and hackers may be able to penetrate our network security, or that of our third-party service providers, and misappropriate or compromise our confidential information, create system disruptions, or cause shutdowns. As a result, our customers' information may be lost, disclosed, accessed or taken without our customers' consent. \nWe are subject to laws and regulations relating to customer privacy and the protection of personal information.  Any such loss, disclosure or misappropriation of, or access to, customers' or business partners' information or our information or other breach of such information security can result in legal claims or legal proceedings, including regulatory investigations and actions, and may have a serious impact on our reputation and may adversely affect our businesses, operating results and financial condition. \nIn May 2023, we learned that we had been the subject of a ransomware attack. The attacker encrypted files that, in turn, made certain of our systems inaccessible until they were restored. This attack interrupted our ability to accept and process orders for approximately nine business days and resulted in the disclosure on the \"dark web\" of various information from our systems. Although substantially all of the restoration is complete, there can be no assurance that we will not be a victim of a ransomware or other cyberattack again in the future.\nIncreased government regulation - We may be subject to additional costs and subject to fines and penalties because certain governmental entities are end-customers of products that we sell.\nCertain of our customers sell our products to government entities, which requires us to comply with additional laws, regulations and contractual requirements relating to how we conduct business.  In complying with such laws, regulations and other requirements, we may incur additional costs.  In addition, non-compliance with such laws, regulations and other requirements also may expose us to fines and penalties, including contractual damages or the loss of certain contracts or business.  We also may be subject to increased scrutiny and investigation into our business practices, which may increase operating costs and increase legal liability, as well as expose us to additional reputational risk. \nVolatility of Stock Price - The trading price of our common stock fluctuates. \nThe stock market as a whole and the trading prices of companies with smaller capitalization have been volatile.  This volatility could significantly reduce the price of our common stock at any time, without regard to our own operating performance.  This volatility may affect the price at which you could sell your common stock.  Our stock price is likely to continue to be volatile in response to market and other factors; variations in our quarterly operating results from our expectations or those of securities analysts or investors; downward revisions in securities analysts\u2019 estimates; and announcement by us or our competitors of significant acquisitions, transactions, partnerships, joint ventures or capital commitments.\nA material decline in the price of our common stock may result in the assertion of certain claims against us, and/or the commencement of inquiries and/or investigations against us.  A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital, if needed, and the inability for you to obtain a favorable price at which you could sell your shares. \n16\nTable of Contents\nIndex to Financial Statements\nForeign currency - Our international operations expose us to fluctuations in foreign currency exchange rates that could adversely affect our results of operations. \n \nWe transact sales, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar. Volatility in foreign exchange rates increase our risk of loss related to products and services purchased in a currency other than the currency in which those products and services are sold. We maintain policies to reduce our net exposure to foreign currency exchange rate fluctuations through the use of derivative financial instruments, however there can be no assurance that fluctuations in foreign currency exchange rates will not materially affect our financial results. Because our consolidated financial statements are presented in U.S. dollars, we must translate our financial statements into U.S. dollars at exchange rates in effect during each reporting period. Therefore, increases or decreases in the exchanges rates between the U.S. dollar and other currencies we transact in may positively or negatively affect our results of operations. In addition, unexpected and dramatic changes in foreign currency exchange rates may negatively affect our earnings from those markets. \nEconomic weakness - Economic weakness, including recession and inflation, and geopolitical uncertainty could adversely affect our results and prospects.\nOur financial results, operations and prospects depend significantly on worldwide economic and geopolitical conditions, the demand for our products and services, and the financial condition of our customers and suppliers. Economic weakness and geopolitical uncertainty have in the past resulted, and may result in the future, in reduced demand for products resulting in decreased sales, margins and earnings. Economic weakness and geopolitical uncertainty may also lead us to impair assets, including goodwill, intangible assets and other long-lived assets, take restructuring actions or adjust our operating strategy and reduce expenses in response to decreased sales or margins. We may not be able to adequately adjust our cost structure in a timely fashion, which may adversely impact our profitability. Uncertainty about economic conditions may increase foreign currency volatility in markets in which we transact business, which may negatively impact our results. Economic weakness and geopolitical uncertainty also make it more difficult for us to manage inventory levels and/or collect customer receivables, which may result in provisions to create reserves, write-offs, reduced access to liquidity and higher financing costs. ",
+  "item7": ">ITEM 7.\u00a0\u00a0\u00a0\u00a0Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\nOverview\nScanSource is a leading hybrid distributor connecting devices to the cloud and accelerating growth for customers across hardware, SaaS, connectivity and cloud. We provide technology solutions and services from more than 500 leading suppliers of mobility and barcode, POS and payments, physical security and networking, communications and collaboration, connectivity and cloud services to our approximately 30,000 customers located in the United States, Canada, Brazil, the UK and Europe.   \nWe operate our business under a management structure that enhances our technology focus and hybrid distribution growth strategy. Our segments operate in the United States, Canada, Brazil and the UK and consist of the following:\n\u2022\nSpecialty Technology Solutions\n\u2022\nModern Communications & Cloud\nWe sell hardware, SaaS, connectivity and cloud solutions and services through channel partners to end users. We operate distribution facilities that support our United States and Canada business in Mississippi, California and Kentucky. Brazil distribution facilities are located in the Brazilian states of Paran\u00e1, Espirito Santo and Santa Catarina. We provide some of our digital products, which include SaaS and subscriptions, through our digital tools and platforms.\nOur key suppliers include 8x8, AT&T, Aruba/HPE, Avaya, Axis, Cisco, Comcast Business, Datalogic, Dell, Elo, Epson, Equinix, Extreme, F5, Five9, Fortinet, Genesys, Granite, GTT, Hanwha, Honeywell, Ingenico, Jabra, Logitech, Lumen, Microsoft, MetTel, Mitel, NCR, NICE CXone, Poly HP, RingCentral, Spectrum, Toshiba Global Commerce Solutions, Trend Micro, Ubiquiti, Verifone, Verizon, VMWare, Windstream, Zebra Technologies and Zoom.\nRecent Developments\nCybersecurity Incident\nOn May 14, 2023, we discovered that we were subject to a cybersecurity attack perpetrated by unauthorized third parties that affected our IT systems. Upon detection, we took immediate steps to address the incident, engaged third-party experts, and notified law enforcement. We have cyber insurance and are working with our insurance carriers on claims to recover costs incurred. On May 26, 2023, we substantially recovered our operations and completed the restoration of our pertinent IT systems. We have taken actions to strengthen our existing IT security infrastructure and will continue to implement additional measures to prevent unauthorized access to, or manipulation of, our systems and data.\nImpact of the Macroeconomic Environment, Including Inflation and Supply Chain Constraints\nThe macroeconomic environment, including the economic impacts of supply chain constraints, rising interest rates and inflation continues to create significant uncertainty and may adversely affect our consolidated results of operations. We are actively monitoring changes to the global macroeconomic environment and assessing the potential impacts these challenges may have on our financial condition, results of operations and liquidity. We are also mindful of the potential impact these conditions could have on our customers and suppliers.\nIn spite of these challenges and uncertainties, we believe we have managed the supply chain requirements of our customers and suppliers effectively to date. While we are unable to predict the ultimate impact these factors will have on our business, certain technologies have benefited from the widespread adoption to a work-from-anywhere business model, as well as the accelerated shift to digitize and automate processes.\nOur Strategy\nOur strategy is to drive sustainable, profitable growth by orchestrating hybrid technology solutions through a growing ecosystem of partners leveraging our people, processes and tools. Our goal is to provide exceptional experiences for our partners, suppliers and employees, and we strive for operational excellence. Our hybrid distribution strategy relies on a channel sales model to offer hardware, SaaS, connectivity and cloud services from leading technology suppliers to customers that solve end users\u2019 challenges. ScanSource enables customers to deliver solutions for their end users to address changing buying and \n21\nTable of Contents\nIndex to Financial Statements\nconsumption patterns. Our solutions may include a combination of offerings from multiple suppliers or give our customers access to additional services. As a trusted adviser to our customers, we provide customized solutions through our strong understanding of end user needs.\nResults of Operations from Continuing Operations\nThe following table sets forth for the periods indicated certain income and expense items as a percentage of net sales. Totals may not sum due to rounding.\n\u00a0\nFiscal\u00a0Year\u00a0Ended\u00a0June\u00a030,\n\u00a0\n2023\n2022\n2021\nStatement of income data:\nNet sales\n100.0\n\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\nCost of goods sold\n88.1\n\u00a0\n87.9\u00a0\n88.9\u00a0\nGross profit\n11.9\n\u00a0\n12.1\u00a0\n11.1\u00a0\nSelling, general and administrative expenses\n7.5\n\u00a0\n7.8\u00a0\n7.9\u00a0\nDepreciation expense\n0.3\n\u00a0\n0.3\u00a0\n0.4\u00a0\nIntangible amortization expense\n0.4\n\u00a0\n0.5\u00a0\n0.6\u00a0\nRestructuring and other charges\n0.0\n\u00a0\n0.0\u00a0\n0.3\u00a0\nOperating income\n3.6\n\u00a0\n3.5\u00a0\n2.0\u00a0\nInterest expense\n0.5\n\u00a0\n0.2\u00a0\n0.2\u00a0\nInterest income\n(0.2)\n(0.1)\n(0.1)\nOther (income) expense, net\n0.0\n\u00a0\n0.0\u00a0\n0.0\u00a0\nIncome from continuing operations before income taxes\n3.2\n\u00a0\n3.4\u00a0\n1.8\u00a0\nProvision for income taxes\n0.9\n\u00a0\n0.8\u00a0\n0.4\u00a0\nNet income from continuing operations\n2.3\n\u00a0\n2.5\u00a0\n1.4\u00a0\nNet income (loss) from discontinued operations\n0.0\n\u00a0\n0.0\u00a0\n(1.1)\nNet income\n2.4\n\u00a0\n%\n2.5\u00a0\n%\n0.3\u00a0\n%\nComparison of Fiscal Years Ended June\u00a030, 2023 and 2022\nBelow is a discussion of fiscal years ended June\u00a030, 2023 and 2022. Please refer to our form 10-K for the fiscal year ended June\u00a030, 2022 for a discussion of fiscal year ended June\u00a030, 2021.\nNet Sales\nWe have two reportable segments, which are based on technology. The following table summarizes our net sales results by business segment and by geographic location for the comparable fiscal years ended June\u00a030, 2023 and 2022.\n22\nTable of Contents\nIndex to Financial Statements\n2023\n2022\n$\u00a0Change\n%\u00a0Change\n% Change Constant Currency, Excluding Divestitures and Acquisitions \n(a)\n\u00a0\n(in thousands)\n\u00a0\nSales by Segment:\nSpecialty Technology Solutions\n$\n2,331,030\n\u00a0\n$\n2,082,321\u00a0\n$\n248,709\u00a0\n11.9\u00a0\n%\n11.9\u00a0\n%\nModern Communications & Cloud\n1,456,691\n\u00a0\n1,447,614\u00a0\n9,077\u00a0\n0.6\u00a0\n%\n0.4\u00a0\n%\nTotal net sales\n$\n3,787,721\n\u00a0\n$\n3,529,935\u00a0\n$\n257,786\u00a0\n7.3\u00a0\n%\n7.2\u00a0\n%\nSales by Geography Category:\nUnited States\n$\n3,432,074\n\u00a0\n$\n3,173,694\u00a0\n$\n258,380\u00a0\n8.1\u00a0\n%\n8.1\u00a0\n%\nInternational\n355,647\n\u00a0\n356,241\u00a0\n(594)\n(0.2)\n%\n(1.4)\n%\nTotal net sales\n$\n3,787,721\n\u00a0\n$\n3,529,935\u00a0\n$\n257,786\u00a0\n7.3\u00a0\n%\n7.2\u00a0\n%\n(a)\n \nA reconciliation of non-GAAP net sales in constant currency, excluding divestitures and acquisitions is presented at the end of \nResults of Operations\n, under \nNon-GAAP Financial Information\n.\nOur sales during our fourth quarter were adversely impacted by the cybersecurity attack that we discovered on May 14, 2023. Until the appropriate restoration was completed, we generally were not able to use our core systems to accept orders or ship products. Because some of the lost sales may simply have been deferred, we do not yet have a complete estimate of the ultimate impact. We have business interruption insurance that should cover a portion of the lost profits attributable to any lost sales.\nSpecialty Technology Solutions\nThe Specialty Technology Solutions segment consists of sales to customers in North America and Brazil. During fiscal year 2023, net sales for this segment increased $248.7 million, or 11.9%, compared to fiscal year 2022. Excluding the foreign exchange positive impact of $0.9 million, adjusted net sales for fiscal year 2023 increased $247.8 million, or 11.9%, compared to the prior year. The increase in net sales and in adjusted net sales is primarily due to strong growth in key technologies in North America.\nModern Communications & Cloud\nThe Modern Communications & Cloud segment consists of sales to customers in North America, Brazil, Europe and the UK. During fiscal year 2023, net sales for this segment increased $9.1 million, or 0.6%, compared to fiscal year 2022. Excluding the foreign exchange positive impact of $3.5 million, adjusted net sales increased $5.6 million, or 0.4%, compared to the prior year. The increase in net sales and adjusted net sales is primarily due to increased networking sales, partially offset by lower sales volumes in our communications hardware.\nIntelisys connectivity and cloud net sales for fiscal year 2023 increased 7.0% year-over-year. For our Intelisys business, net sales reflect the net commissions received from suppliers after paying sales partner commissions. For fiscal year 2023, Intelisys net billings, which are amounts billed by suppliers to end users and represents annual recurring revenue, totaled approximately $2.47\u00a0billion. The fiscal year 2023 Intelisys net billings resulted in Intelisys net sales of approximately $79.5 million.\nGross Profit \nThe following table summarizes our gross profit for the fiscal years ended June\u00a030, 2023 and 2022:\n23\nTable of Contents\nIndex to Financial Statements\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n% of Sales\nJune 30,\n\u00a0\n2023\n2022\n$\u00a0Change\n%\u00a0Change\n2023\n2022\n\u00a0\n(in\u00a0thousands)\n\u00a0\n\u00a0\n\u00a0\nSpecialty Technology Solutions\n$\n224,239\n\u00a0\n$\n205,757\u00a0\n$\n18,482\u00a0\n9.0\u00a0\n%\n9.6\u00a0\n%\n9.9\u00a0\n%\nModern Communications & Cloud\n225,000\n\u00a0\n220,767\u00a0\n4,233\u00a0\n1.9\u00a0\n%\n15.4\u00a0\n%\n15.3\u00a0\n%\nTotal gross profit\n$\n449,239\n\u00a0\n$\n426,524\u00a0\n$\n22,715\u00a0\n5.3\u00a0\n%\n11.9\u00a0\n%\n12.1\u00a0\n%\nOur gross profit is primarily affected by sales volume and gross margin mix. Gross margin mix is impacted by multiple factors, which include sales mix (proportion of sales of higher margin products or services relative to total sales), vendor program recognition (consisting of volume rebates, inventory price changes and purchase discounts) and freight costs. Increases in vendor program recognition decrease cost of goods sold, thereby increasing gross profit. Net sales derived from our Intelisys business contribute 100% to our gross profit dollars and margin as they have no associated cost of goods sold.\nSpecialty Technology Solutions\nFor the Specialty Technology Solutions segment, gross profit dollars increased $18.5 million. Higher sales volume, after considering the associated cost of goods sold, contributed $24.6\u00a0million to the growth of gross profit dollars. Gross margin mix negatively impacted gross profit by $6.1\u00a0million, largely from a less favorable sales mix. For the year ended June\u00a030, 2023, the gross profit margin decreased 26 basis points over the prior-year to 9.6%.\nModern Communications & Cloud\nFor the Modern Communications & Cloud segment, gross profit dollars increased $4.2 million. Higher sales volume, after considering the associated cost of goods sold, contributed $1.4\u00a0million to the growth of gross profit dollars. Gross margin mix positively impacted gross profit by $2.8\u00a0million, largely from a more favorable sales mix, partially offset by lower vendor program recognition. For the year ended June\u00a030, 2023, the gross profit margin increased 20 basis points over the prior year to 15.4%. \nOperating expenses\nThe following table summarizes our operating expenses for the periods ended June\u00a030, 2023 and 2022:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n% of Sales\nJune\u00a030,\n\u00a0\n2023\n2022\n$\u00a0Change\n%\u00a0Change\n2023\n2022\n\u00a0\n(in thousands)\n\u00a0\n\u00a0\n\u00a0\nSelling, general and administrative expenses\n$\n285,695\n\u00a0\n$\n275,442\u00a0\n$\n10,253\u00a0\n3.7\u00a0\n%\n7.5\u00a0\n%\n7.8\u00a0\n%\nDepreciation expense\n10,912\n\u00a0\n11,062\u00a0\n(150)\n(1.4)\n%\n0.3\u00a0\n%\n0.3\u00a0\n%\nIntangible amortization expense\n16,746\n\u00a0\n17,853\u00a0\n(1,107)\n(6.2)\n%\n0.4\u00a0\n%\n0.5\u00a0\n%\nOperating expenses\n$\n313,353\n\u00a0\n$\n304,357\u00a0\n$\n8,996\u00a0\n3.0\u00a0\n%\n8.3\u00a0\n%\n8.6\u00a0\n%\nSelling, general and administrative expenses (\"SG&A\") increased $10.3 million for the fiscal year ended June\u00a030, 2023 compared to the prior year. The increase in SG&A expenses is primarily attributable to higher employee costs, partially offset by net tax recoveries of $3.0\u00a0million related to prior periods.\nSG&A includes approximately $1.5\u00a0million in costs attendant to the cybersecurity attack. We have cyber-related insurance that should cover a portion (or all) of these expenses. While we continuously try to improve our cybersecurity, the nature of the particular attack did not suggest a broad problem with our cybersecurity efforts, and we do not expect a significant increase in ongoing cybersecurity-related expenses.\n24\nTable of Contents\nIndex to Financial Statements\nIntangible amortization expense decreased $1.1 million for the fiscal year ended June\u00a030, 2023 compared to the prior year. Amortization expense decreased during fiscal year 2023 due to certain trade name and non-compete intangibles becoming fully amortized in the current year.\nOperating Income\nThe following table summarizes our operating income for the periods ended June\u00a030, 2023 and 2022:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n% of Sales\nJune 30,\n\u00a0\n2023\n2022\n$\u00a0Change\n%\u00a0Change\n2023\n2022\n\u00a0\n(in thousands)\n\u00a0\n\u00a0\n\u00a0\nSpecialty Technology Solutions\n$\n75,688\n\u00a0\n$\n66,686\u00a0\n$\n9,002\u00a0\n13.5\u00a0\n%\n3.2\u00a0\n%\n3.2\u00a0\n%\nModern Communications & Cloud\n61,658\n\u00a0\n55,511\u00a0\n6,147\u00a0\n11.1\u00a0\n%\n4.2\u00a0\n%\n3.8\u00a0\n%\nCorporate\n(1,460)\n(30)\n(1,430)\n*nm\n\u2014\u00a0\n%\n\u2014\u00a0\n%\nTotal operating income\n$\n135,886\n\u00a0\n$\n122,167\u00a0\n$\n13,719\u00a0\n11.2\u00a0\n%\n3.6\u00a0\n%\n3.5\u00a0\n%\n*nm - not meaningful\nSpecialty Technology Solutions\nFor the Specialty Technology Solutions segment, operating income increased $9.0 million, and operating margin increased 5 basis points to 3.2% for the fiscal year ended June\u00a030, 2023, compared to the prior year. The increase in operating income and operating margin is primarily due to higher gross profits.\nModern Communications & Cloud\nFor the Modern Communications & Cloud segment, operating income increased $6.1 million and the operating margin increased 40 basis points to 4.2% for the fiscal year ended June\u00a030, 2023, compared to the prior year. The increase in operating income and margin is largely due to higher gross profits.\nCorporate\nThe fiscal year ended June\u00a030, 2023 Corporate operating loss of $1.5 million represents cyberattack restoration charges. Corporate incurred less than $0.1\u00a0million in divestiture costs during the fiscal year ended June\u00a030, 2022.\nTotal Other (Income) Expense\nThe following table summarizes our total other (income) expense for the fiscal years ended June\u00a030, 2023 and 2022:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n% of Sales\nJune\u00a030,\n\u00a0\n2023\n2022\n$\u00a0Change\n%\u00a0Change\n2023\n2022\n\u00a0\n(in thousands)\n\u00a0\n\u00a0\n\u00a0\nInterest expense\n$\n19,786\n\u00a0\n$\n6,523\u00a0\n$\n13,263\u00a0\n203.3\u00a0\n%\n0.5\u00a0\n%\n0.2\u00a0\n%\nInterest income\n(7,414)\n(4,333)\n(3,081)\n71.1\u00a0\n%\n(0.2)\n%\n(0.1)\n%\nNet foreign exchange losses\n2,168\n\u00a0\n2,078\u00a0\n90\u00a0\n4.3\u00a0\n%\n0.1\u00a0\n%\n0.1\u00a0\n%\nOther, net\n(504)\n(724)\n220\u00a0\n(30.4)\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\nTotal other (income) expense\n$\n14,036\n\u00a0\n$\n3,544\u00a0\n$\n10,492\u00a0\n296.0\u00a0\n%\n0.4\u00a0\n%\n0.1\u00a0\n%\n25\nTable of Contents\nIndex to Financial Statements\nInterest expense consists primarily of interest incurred on borrowings, non-utilization fees charged on the revolving credit facility and amortization of debt issuance costs. Interest expense increased in fiscal 2023 as compared to 2022 primarily from higher interest rates and higher average borrowings on our multi-currency revolving credit facility.\nInterest income for the year ended June\u00a030, 2023 and 2022 was generated on interest-bearing investments in Brazil and customer receivables. \nNet foreign exchange gains and losses consist of foreign currency transactional and functional currency re-measurements, offset by net foreign exchange forward contracts gains and losses. 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 Canadian dollar versus the U.S. dollar, the euro versus the U.S. dollar, and the British pound versus the U.S. dollar. We partially offset foreign currency exposure with the use of foreign exchange contracts to hedge against these exposures. The costs associated with foreign exchange contracts are included in the net foreign exchange losses. \nProvision for Income Taxes\nIncome tax expense for continuing operations was $33.8 million and $29.9 million for the fiscal years ended June\u00a030, 2023 and 2022, respectively, reflecting effective tax rates of 27.7% and 25.2%, respectively. The increase in the effective tax rate for fiscal year 2023 compared to fiscal year 2022 is primarily the result of an increase in global intangible low taxed income. Subsequent to the 2023 fiscal year end, the IRS issued Notice 2023-55, which provides taxpayers with Brazilian subsidiaries temporary relief from the final foreign tax credit regulations. As a result, we anticipate recognizing a $1.5\u00a0million tax benefit for the 2023 fiscal year as a discrete item in the first quarter of the 2024 fiscal year.\nWe expect the fiscal year 2024 effective tax rate from continuing operations to be approximately 26.6% to 27.6%. See Note 13 - \nIncome Taxes\n in the Notes to Consolidated Financial Statements for further discussion including an effective tax rate reconciliation. \n26\nTable of Contents\nIndex to Financial Statements\nNon-GAAP Financial Information\nEvaluating Financial Condition and Operating Performance\nIn addition to disclosing results that are determined in accordance with United States generally accepted accounting principles (\"US GAAP\" or \"GAAP\"), we also disclose certain non-GAAP financial measures. These measures include non-GAAP operating income; non-GAAP pre-tax income; non-GAAP net income; non-GAAP EPS; adjusted earnings before interest expense, income taxes, depreciation, and amortization (\"adjusted EBITDA\"); adjusted return on invested capital (\"adjusted ROIC\"); and constant currency. Constant currency is a measure that excludes the translation exchange impact from changes in foreign currency exchange rates between reporting periods. We use non-GAAP financial measures to better understand and evaluate performance, including comparisons from period to period.\nThese non-GAAP financial measures have limitations as analytical tools, and the non-GAAP financial measures that we report may not be comparable to similarly titled amounts reported by other companies. Analysis of results and outlook on a non-GAAP basis should be considered in addition to, and not in substitution for or as superior to, measurements of financial performance prepared in accordance with US GAAP.\nAdjusted Return on Invested Capital\nAdjusted ROIC assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performance. We believe the calculation of adjusted ROIC provides useful information to investors and is an additional relevant comparison of our performance during the year.\nAdjusted EBITDA starts with net income and adds back interest expense, income tax expense, depreciation expense, amortization of intangible assets, changes in fair value of contingent consideration, non-cash shared-based compensation expense and other non-GAAP adjustments. Since adjusted EBITDA excludes some non-cash costs of investing in our business and people, we believe that adjusted EBITDA shows the profitability from our business operations more clearly. The presentation for adjusted EBITDA for all periods presented has been recast to reflect this change to enhance comparability between periods.\n \nWe calculate adjusted ROIC as adjusted EBITDA, divided by invested capital. Invested capital is defined as average equity plus average daily funded interest-bearing debt for the period. The following table summarizes annualized adjusted ROIC for the fiscal years ended June\u00a030, 2023 and 2022.\n2023\n2022\nAdjusted return on invested capital ratio\n14.6\n\u00a0\n%\n17.0\u00a0\n%\nThe components of our adjusted ROIC calculation and reconciliation to our financial statements are shown, as follows:\nFiscal Year Ended June\u00a030,\n\u00a0\n2023\n2022\n\u00a0\n(in thousands)\nReconciliation of net income to adjusted EBITDA:\nNet income from continuing operations (GAAP)\n$\n88,092\n\u00a0\n$\n88,698\u00a0\nPlus: Interest expense\n19,786\n\u00a0\n6,523\u00a0\nPlus: Income taxes\n33,758\n\u00a0\n29,925\u00a0\nPlus: Depreciation\u00a0and amortization\n28,614\n\u00a0\n29,884\u00a0\nEBITDA (non-GAAP)\n170,250\n\u00a0\n155,030\u00a0\nPlus: Share-based compensation\n11,219\n\u00a0\n11,663\u00a0\nPlus: Tax recovery\n(2,986)\n\u2014\u00a0\nPlus: Cyberattack restoration costs\n1,460\n\u00a0\n\u2014\u00a0\nPlus: Divestiture costs\n(a)\n\u2014\n\u00a0\n30\u00a0\nAdjusted EBITDA (numerator for adjusted ROIC) (non-GAAP)\n179,943\n\u00a0\n166,723\u00a0\n27\nTable of Contents\nIndex to Financial Statements\nFiscal Year Ended June\u00a030,\n\u00a0\n2023\n2022\n\u00a0\n(in thousands)\nInvested capital calculations:\nEquity \u2013 beginning of the year\n$\n806,528\n\u00a0\n$\n731,191\u00a0\nEquity \u2013 end of the year\n905,298\n\u00a0\n806,528\u00a0\nPlus: Share-based compensation, net\n8,326\n\u00a0\n8,709\u00a0\nPlus: Divestiture costs\n(a)\n\u2014\n\u00a0\n30\u00a0\nPlus: Cyberattack restoration costs, net\n1,092\n\u00a0\n\u2014\u00a0\nPlus: Tax recovery, net\n(3,985)\n\u2014\u00a0\nPlus: Impact of discontinued operations, net\n(1,717)\n(100)\nAverage equity\n857,771\n\u00a0\n773,179\u00a0\nAverage funded debt\n(b)\n372,235\n\u00a0\n209,114\u00a0\nInvested capital (denominator for adjusted ROIC) (non-GAAP)\n$\n1,230,006\n\u00a0\n$\n982,293\u00a0\n(a)\n \n\u00a0\u00a0\u00a0\u00a0Includes divestiture costs for the year ended June\u00a030, 2022. Divestiture costs are generally non-deductible for tax purposes.\n(b)\n\u00a0\u00a0\u00a0\u00a0\nAverage funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt.\nNet Sales in Constant Currency, Excluding Acquisitions and Divestitures\nWe make references to \"constant currency,\" a non-GAAP performance measure that excludes the foreign exchange rate impact from fluctuations in the average foreign exchange rates between reporting periods. Constant currency is calculated by translating current period results from currencies other than the U.S. dollar into U.S. dollars using the comparable average foreign exchange rates from the prior year period. We also exclude the impact of acquisitions prior to the first full year of operations from the acquisition date in order to show net sales results on an organic basis. This information is provided to analyze underlying trends without the translation impact of fluctuations in foreign currency rates and the impact of acquisitions. Below we show organic growth by providing a non-GAAP reconciliation of net sales in constant currency, excluding acquisitions:\nNet Sales by Segment:\nFiscal Year Ended June 30,\n2023\n2022\n$ Change\n% Change\nSpecialty Technology Solutions:\n(in thousands)\nNet sales, reported\n$\n2,331,030\n\u00a0\n$\n2,082,321\u00a0\n$\n248,709\u00a0\n11.9\u00a0\n%\nForeign exchange impact\n(a)\n(923)\n\u2014\u00a0\nNon-GAAP net sales, constant currency\n$\n2,330,107\n\u00a0\n$\n2,082,321\u00a0\n$\n247,786\u00a0\n11.9\u00a0\n%\nModern Communications & Cloud:\nNet sales, reported\n$\n1,456,691\n\u00a0\n$\n1,447,614\u00a0\n$\n9,077\u00a0\n0.6\u00a0\n%\nForeign exchange impact\n(a)\n(3,492)\n\u2014\u00a0\nNon-GAAP net sales, constant currency\n$\n1,453,199\n\u00a0\n$\n1,447,614\u00a0\n$\n5,585\u00a0\n0.4\u00a0\n%\nConsolidated:\nNet sales, reported\n$\n3,787,721\n\u00a0\n$\n3,529,935\u00a0\n$\n257,786\u00a0\n7.3\u00a0\n%\nForeign exchange impact\n(a)\n(4,415)\n\u2014\u00a0\nNon-GAAP net sales, constant currency\n$\n3,783,306\n\u00a0\n$\n3,529,935\u00a0\n$\n253,371\u00a0\n7.2\u00a0\n%\n(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the year ended June\u00a030, 2023 into U.S. dollars using the average foreign exchange rates for the year ended June\u00a030, 2022.\n28\nTable of Contents\nIndex to Financial Statements\nNet Sales by Geography:\nFiscal Year Ended June 30,\n2023\n2022\n$ Change\n% Change\nUnited States and Canada:\n(in thousands)\nNet sales, as reported\n$\n3,432,074\n\u00a0\n$\n3,173,694\u00a0\n$\n258,380\u00a0\n8.1\u00a0\n%\nInternational:\nNet sales, reported\n$\n355,647\n\u00a0\n$\n356,241\u00a0\n$\n(594)\n(0.2)\n%\nForeign exchange impact\n(a)\n(4,415)\n\u2014\u00a0\nNon-GAAP net sales, constant currency\n$\n351,232\n\u00a0\n$\n356,241\u00a0\n$\n(5,009)\n(1.4)\n%\nConsolidated:\nNet sales, reported\n$\n3,787,721\n\u00a0\n$\n3,529,935\u00a0\n$\n257,786\u00a0\n7.3\u00a0\n%\nForeign exchange impact\n(a)\n(4,415)\n\u2014\u00a0\nNon-GAAP net sales, constant currency\n$\n3,783,306\n\u00a0\n$\n3,529,935\u00a0\n$\n253,371\u00a0\n7.2\u00a0\n%\n(a) Year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates. Calculated by translating the net sales for the year ended June\u00a030, 2023 into U.S. dollars using the average foreign exchange rates for the year ended June\u00a030, 2022.\n29\nTable of Contents\nIndex to Financial Statements\nOperating Income by Segment:\nFiscal year ended June 30,\n% of Net Sales \nJune 30,\n2023\n2022\n$ Change\n% Change\n2023\n2022\nSpecialty Technology Solutions:\n(in thousands)\nGAAP operating income\n$\n75,688\n\u00a0\n$\n66,686\u00a0\n$\n9,002\u00a0\n13.5\u00a0\n%\n3.2\n\u00a0\n%\n3.2\u00a0\n%\nAdjustments:\nAmortization of intangible assets\n5,136\n\u00a0\n6,005\u00a0\n(869)\nNon-GAAP operating income\n$\n80,824\n\u00a0\n$\n72,691\u00a0\n$\n8,133\u00a0\n11.2\u00a0\n%\n3.5\n\u00a0\n%\n3.5\u00a0\n%\nModern Communications & Cloud:\nGAAP operating income\n$\n61,658\n\u00a0\n$\n55,511\u00a0\n$\n6,147\u00a0\n11.1\u00a0\n%\n4.2\n\u00a0\n%\n3.8\u00a0\n%\nAdjustments:\nAmortization of intangible assets\n11,610\n\u00a0\n11,848\u00a0\n(238)\nTax recovery\n(2,986)\n\u2014\u00a0\n(2,986)\nNon-GAAP operating income\n$\n70,282\n\u00a0\n$\n67,359\u00a0\n$\n2,923\u00a0\n4.3\u00a0\n%\n4.8\n\u00a0\n%\n4.7\u00a0\n%\nCorporate:\nGAAP operating loss\n$\n(1,460)\n$\n(30)\n$\n(1,430)\nnm*\nnm*\nnm*\nAdjustments:\nDivestiture costs\n\u2014\n\u00a0\n30\u00a0\n(30)\nCyberattack restoration costs\n1,460\n\u00a0\n\u2014\u00a0\n1,460\u00a0\nNon-GAAP operating income\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\u00a0\nnm*\nnm*\nnm*\nConsolidated:\nGAAP operating income\n$\n135,886\n\u00a0\n$\n122,167\u00a0\n$\n13,719\u00a0\n11.2\u00a0\n%\n3.6\n\u00a0\n%\n3.5\u00a0\n%\nAdjustments:\nAmortization of intangible assets\n16,746\n\u00a0\n17,853\u00a0\n(1,107)\nCyberattack restoration costs\n1,460\n\u00a0\n\u2014\u00a0\n1,460\u00a0\nDivestiture costs\n\u2014\n\u00a0\n30\u00a0\n(30)\nTax recovery\n(2,986)\n\u2014\u00a0\n(2,986)\nNon-GAAP operating income\n$\n151,106\n\u00a0\n$\n140,050\u00a0\n$\n11,056\u00a0\n7.9\u00a0\n%\n4.0\n\u00a0\n%\n4.0\u00a0\n%\n30\nTable of Contents\nIndex to Financial Statements\nAdditional Non-GAAP Metrics \nTo evaluate current period performance on a more consistent basis with prior periods, we disclose non-GAAP SG&A expenses, non-GAAP operating income, non-GAAP pre-tax income, non-GAAP net income and non-GAAP diluted earnings per share. Non-GAAP results exclude amortization of intangible assets related to acquisitions, changes in fair value of contingent consideration, acquisition and divestiture costs, restructuring costs, impact of Divestitures and other non-GAAP adjustments. These year-over-year metrics include the translation impact of changes in foreign currency exchange rates. These metrics are useful in assessing and understanding our operating performance, especially when comparing results with previous periods or forecasting performance for future periods. Below we provide a non-GAAP reconciliation of the aforementioned metrics adjusted for the costs and charges mentioned above:\nYear ended June 30, 2023\nGAAP Measure\nIntangible amortization expense\nTax recovery\nDivestiture costs\nCyberattack restoration costs\nNon-GAAP measure\n(in thousands, except per share data)\nSG&A expenses\n$\n285,695\n\u00a0\n$\n\u2014\n\u00a0\n$\n2,986\n\u00a0\n$\n\u2014\n\u00a0\n$\n(1,460)\n$\n287,221\n\u00a0\nOperating income\n135,886\n\u00a0\n16,746\n\u00a0\n(2,986)\n\u2014\n\u00a0\n1,460\n\u00a0\n151,106\n\u00a0\nPre-tax income\n121,850\n\u00a0\n16,746\n\u00a0\n(2,986)\n\u2014\n\u00a0\n1,460\n\u00a0\n137,070\n\u00a0\nNet income\n88,092\n\u00a0\n12,489\n\u00a0\n(3,985)\n\u2014\n\u00a0\n1,092\n\u00a0\n97,688\n\u00a0\nDiluted EPS\n$\n3.47\n\u00a0\n$\n0.49\n\u00a0\n$\n(0.16)\n$\n\u2014\n\u00a0\n$\n0.04\n\u00a0\n$\n3.85\n\u00a0\nYear ended June 30, 2022\nGAAP Measure\nIntangible amortization expense\nTax recovery\nDivestiture costs\nCyberattack restoration costs\nNon-GAAP measure\n(in thousands, except per share data)\nSG&A expenses\n$\n275,442\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n(30)\n$\n\u2014\u00a0\n$\n275,412\u00a0\nOperating income\n122,167\u00a0\n17,853\u00a0\n\u2014\u00a0\n30\u00a0\n\u2014\u00a0\n140,050\u00a0\nPre-tax income\n118,623\u00a0\n17,853\u00a0\n\u2014\u00a0\n30\u00a0\n\u2014\u00a0\n136,506\u00a0\nNet income\n88,698\u00a0\n13,412\u00a0\n\u2014\u00a0\n30\u00a0\n\u2014\u00a0\n102,140\u00a0\nDiluted EPS\n$\n3.44\u00a0\n$\n0.52\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n3.97\u00a0\n31\nTable of Contents\nIndex to Financial Statements\nCritical Accounting Policies and Estimates\nManagement\u2019s discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in conformity with US GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis management evaluates its estimates, including those related to the allowance for uncollectible accounts receivable, inventory reserves to reduce inventories to the lower of cost or net realizable value, supplier incentives and goodwill. Management bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances, the results of which form a basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. For further discussion of our significant accounting policies, refer to Note 1 - \nBusiness and Summary of Significant Accounting Policies\n.\nAllowances for Trade and Notes Receivable\nWe adopted ASU 2016-13, \nFinancial Instruments - Credit Losses (ASC Topic 326) \neffective July 1, 2020. The adoption did not have a material impact on our consolidated financial statements. Our policy for estimating allowances for doubtful accounts receivable is described below.\nWe maintain an allowance for uncollectible accounts receivable for estimated future expected credit losses resulting from customers\u2019 failure to make payments on accounts receivable due us. Management determines the estimate of the allowance for doubtful accounts receivable by considering a number of factors, including: (i)\u00a0historical experience, (ii)\u00a0aging of the accounts receivable, (iii)\u00a0specific information obtained by us on the financial condition and the current creditworthiness of its customers, (iv) the current economic and country specific environment and (v) reasonable and supportable forecasts about collectability. Expected credit losses are estimated on a pool basis when similar risk characteristics exist using an age-based reserve model. Receivables that do not share risk characteristics are evaluated on an individual basis. Estimates of expected credit losses on trade receivables are recorded at inception and adjusted over the contractual life.\nInventory Reserves\nManagement determines the inventory reserves required to reduce inventories to the lower of cost or net realizable value based principally on the effects of technological changes, quantities of goods and length of time on hand and other factors. An estimate is made of the net realizable value, less cost to dispose, of products whose value is determined to be impaired. If these products are ultimately sold at less than estimated amounts, additional reserves may be required. The estimates used to calculate these reserves are applied consistently. The adjustments are recorded in the period in which the loss of utility of the inventory occurs, which establishes a new cost basis for the inventory. This new cost basis is maintained until such time that the reserved inventory is disposed of, returned to the supplier or sold. To the extent that specifically reserved inventory is sold, cost of goods sold is expensed for the new cost basis of the inventory sold.\nSupplier Programs\nWe receive incentives from suppliers related to cooperative advertising allowances, volume rebates and other incentive programs. These incentives are generally under quarterly, semi-annual or annual agreements with the suppliers. Some of these incentives are negotiated on an ad hoc basis to support specific programs mutually developed between the Company and the supplier. Suppliers generally require that we use the suppliers' cooperative advertising allowances for advertising or other marketing programs. Incentives received from suppliers for specifically identified incremental cooperative advertising programs are recorded as adjustments to selling, general and administrative expenses. ASC 606\u2013 \nRevenue from Contracts with Customers \naddresses accounting for consideration payable to a customer, which the Company interprets and applies as the customer (i.e., the Company) receives advertising funds from a supplier. The portion of these supplier funds in excess of our costs are reflected as a reduction of inventory. Such funds are recognized as a reduction of the cost of goods sold when the related inventory is sold.\nWe record unrestricted volume rebates received as a reduction of inventory and reduces the cost of goods sold when the related inventory is sold. Amounts received or receivables from suppliers that are not yet earned are deferred in the Consolidated Balance Sheets. Supplier receivables are generally collected through reductions to accounts payable authorized by the supplier. In addition, we may receive early payment discounts from certain suppliers. We record early payment discounts received as a \n32\nTable of Contents\nIndex to Financial Statements\nreduction of inventory, thereby resulting in a reduction of cost of goods sold when the related inventory is sold. ASC 606 requires management to make certain estimates of the amounts of supplier consideration that will be received. Estimates are based on the terms of the incentive program and historical experiences. Actual recognition of the supplier consideration may vary from management estimates.\nGoodwill\nWe account for recorded goodwill in accordance with ASC 350, \nGoodwill and Other Intangible Assets\n, which requires that goodwill be reviewed annually for impairment or more frequently if impairment indicators exist. Goodwill testing utilizes an impairment analysis, whereby we compare the carrying value of each identified reporting unit to its fair value. The carrying value of goodwill is reviewed at a reporting unit level at least annually for impairment, or more frequently if impairment indicators exist. Our goodwill reporting units align directly with our operating segments, Specialty Technology Solutions and Modern Communications & Cloud. The fair values of the reporting units are estimated using the net present value of discounted cash flows generated by each reporting unit. Considerable judgment is necessary in estimating future cash flows, discount rates and other factors affecting the estimated fair value of the reporting units, including the operating and macroeconomic factors. Historical financial information, internal plans and projections and industry information are used in making such estimates.\nUnder ASC 350, if fair value of goodwill fair value is determined to be less than carrying value, an impairment loss is recognized for the amount of the carrying value that exceeds the amount of the reporting units' fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Additionally, we would consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. We also assess the recoverability of goodwill if facts and circumstances indicate goodwill may be impaired. In our most recent annual test, we estimated the fair value of our reporting units primarily based on the income approach utilizing the discounted cash flow method. As of June\u00a030, 2023, the Specialty Technology and Modern Communications & Cloud reporting units' goodwill balances are $16.4\u00a0million and $200.3\u00a0million, respectively. The fair value of the reporting units exceeded its carrying value by 2% and 13%, respectively, as of the annual goodwill impairment testing date. We also utilized fair value estimates derived from the market approach utilizing the public company market multiple method to validate the results of the discounted cash flow method, which required us to make assumptions about the applicability of those multiples to our reporting units. The discounted cash flow method requires us to estimate future cash flows and discount those amounts to present value. The key assumptions utilized in determining fair value included:\n\u2022\nIndustry WACC: We utilized a WACC relative to each reporting unit's respective geography and industry as the discount rate for estimated future cash flows. The WACC is intended to represent a rate of return that would be expected by a market place participant in each respective geography. \n\u2022\nOperating income: We utilized historical and expected revenue growth rates, gross margins and operating expense percentages, which varied based on the projections of each reporting unit being evaluated.\n\u2022\nCash flows from working capital changes:  We utilized a projected cash flow impact pertaining to expected changes in working capital as each of our goodwill reporting units grow.\nWhile we believe our assumptions are appropriate, they are subject to uncertainty and by nature include judgments and estimates regarding future events, including projected growth rates, margin percentages and operating efficiencies. Key assumptions used in determining fair value include projected growth and operating margin, working capital requirements and discount rates. During fiscal years 2023 and 2022, we completed our annual impairment test as of April 30th and determined that our goodwill was not impaired.\nSee Note 7 - \nGoodwill and Other Identifiable Intangible Assets\n in the Notes to Consolidated Financial Statements for further discussion on our goodwill impairment testing and results.\nAccounting Standards Recently Issued\nSee Note 1 in the Notes to Consolidated Financial Statements for the discussion on recent accounting pronouncements.\nLiquidity and Capital Resources\nOur primary sources of liquidity are cash flows from operations and borrowings under the $350 million revolving credit facility. Our business requires significant investment in working capital, particularly accounts receivable and inventory, partially financed through our accounts payable to suppliers. In general, as our sales volumes increase, our net investment in \n33\nTable of Contents\nIndex to Financial Statements\nworking capital typically increases, which typically results in decreased cash flow from operating activities.  Conversely, when sales volumes decrease, our net investment in working capital typically decreases, which typically results in increased cash flow from operating activities.\nCash and cash equivalents totaled $36.2 million and $38.0 million at June\u00a030, 2023 and 2022, respectively, of which $31.0 million and $35.0 million was held outside of the United States as of June\u00a030, 2023 and 2022, respectively. Checks released but not yet cleared from these accounts in the amounts of $8.0 million and $18.0 million are classified as accounts payable as of June\u00a030, 2023 and 2022, respectively.\nWe conduct business in many locations throughout the world where we generate and use cash. We provide for United States income taxes from the earnings of our Canadian and Brazilian subsidiaries. See Note 13 - \nIncome Taxes\n in the Notes to the Consolidated Financial Statements for further discussion.\nOur net investment in working capital increased $160.7 million to $870.3 million at June\u00a030, 2023 from $709.5 million at June\u00a030, 2022, primarily from increases in inventory. Our net investment in working capital is affected by several factors such as fluctuations in sales volume, net income, timing of collections from customers, increases and decreases to inventory levels and payments to vendors. For the fiscal year ended \nJune\u00a030, 2023, our working capital investment increased to support our 7.3% year-over-year net sales growth, as well as impacts from supply chain constraints and the cybersecurity incident.\nYear ended\nCash (used in) provided by:\nJune 30, 2023\nJune 30, 2022\n(in thousands)\nOperating activities of continuing operations\n$\n(35,769)\n$\n(124,354)\nInvesting activities of continuing operations\n(8,262)\n(3,724)\nFinancing activities of continuing operations\n39,531\n\u00a0\n108,106\u00a0\nNet cash used in operating activities was $35.8 million and $124.4 million for the years ended June\u00a030, 2023 and 2022, respectively. Cash used in operating activities for the year ended June\u00a030, 2023 is primarily due to increases in inventory, which increased 23.2% compared to the beginning of the year, partially offset by earnings from operations. Cash used in operating activities for the year ended \nJune\u00a030, 2022 is primarily due to increases in accounts receivable and inventory, which increased 28.2% and 30.8%, respectively, compared to the beginning of the prior year period.\n \nOperating cash flows are subject to variability period over period as a result of the timing of payments related to accounts receivable, accounts payable and other working capital items.\nThe number of days sales outstanding (\"DSO\") was 72 at June\u00a030, 2023, compared to 68 at June\u00a030, 2022. The increase in DSO for fiscal year 2023 is driven by a 3.3% increase in net receivables at period end and a 1.8% decrease in fourth quarter average daily sales compared to the prior fiscal year. Throughout the current fiscal year, DSO ranged from 69 to 72. Inventory turnover was 4.4 times during the fourth quarter of the current fiscal year, compared to 5.6 times in the fourth quarter of fiscal year 2022. Throughout fiscal year 2023, inventory turnover ranged from 4.1 to 5.1 times.\nCash used in investing activities was $8.3 million and $3.7 million for the years ended June\u00a030, 2023 and 2022, respectively. Cash used in investing activities for fiscal year 2023 and 2022 represents capital expenditures, partially offset by proceeds from the sale of our discontinued operations. \nManagement expects capital expenditures for fiscal year 2024 to range from $6.0 million to $8.0 million, primarily for IT investments and facility improvements.\nCash provided by financing activities totaled $39.5 million and $108.1 million for the fiscal years ended June\u00a030, 2023 and \n2022, respectively\n, primarily from net borrowings on the revolving line of credit.\nShare Repurchase Program\n34\nTable of Contents\nIndex to Financial Statements\nIn August 2021, our Board of Directors authorized a $100 million share repurchase program. The authorization does not have any time limit. In fiscal year \n2023\n, we repurchased 524,108 shares totaling $15.8 million.\nCredit Facility\nWe have a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (as amended, the \u201cAmended Credit Agreement\u201d). On September 28, 2022, we amended and restated our Amended Credit Agreement, which includes (i) a five-year, $350\u00a0million multicurrency senior secured revolving credit facility and (ii) a five-year $150\u00a0million senior secured term loan facility. The amendment extended the revolving credit facility maturity date to September 28, 2027. In addition,\u00a0pursuant to an \u201caccordion feature,\u201d we may increase our borrowings up to an additional $250\u00a0million, subject to obtaining additional credit commitments from the lenders participating in the increase. The Amended Credit Agreement allows for the issuance of up to $50\u00a0million for letters of credit. Borrowings under the Amended Credit Agreement are guaranteed by substantially all of our domestic assets and our domestic subsidiaries. Under the terms of the revolving credit facility, the payment of cash dividends is restricted. We incurred debt issuance costs of $1.4\u00a0million in connection with the amendment and restatement of the Amended Credit Agreement. These costs were capitalized to other non-current assets on the Condensed Consolidated Balance Sheets and added to the unamortized debt issuance costs from the previous credit facility.\nLoans denominated in U.S. dollars, other than swingline loans, bear interest at a rate per annum equal to, at our option, (i) the adjusted term SOFR or adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75% depending upon our ratio of (A) total consolidated debt less up to $30\u00a0million of unrestricted domestic cash (\"Credit Facility Net Debt\") to (B) trailing four-quarter consolidated EBITDA measured as of the end of the most recent year or quarter, as applicable (Credit Facility EBITDA\"), for which financial statements have been delivered to the Lenders (the \u201cleverage ratio\u201d); or (ii) the alternate base rate plus an additional margin ranging from 0% to 0.75%, depending upon our leverage ratio, plus, if applicable, certain mandatory costs. All swingline loans denominated in U.S. dollars bear interest based upon the adjusted daily simple SOFR plus an additional margin ranging from 1.00% to 1.75% depending upon our leverage ratio, or such other rate as agreed upon with the applicable swingline lender. 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 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 our leverage ratio plus, if applicable, certain mandatory costs.  \nDuring the fiscal year ended June\u00a030, 2023, our borrowings under the credit facility were U.S. dollar loans. The spread in effect as of June\u00a030, 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 as of June\u00a030, 2023 was 0.25%. The Amended Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants. Specifically, our Leverage Ratio must be less than or equal to 3.50 to 1.00 at all times. In addition, our Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement) must be at least 3.00 to 1.00 as of the end of each fiscal quarter. In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates. We were in compliance with all covenants under the Amended Credit Agreement as of June\u00a030, 2023.\nThe average daily balance on the revolving credit facility, excluding the term loan facility, was $223.5 million and $69.0 million during the fiscal years ended June\u00a030, 2023 and 2022, respectively. There was $171.0 million and $214.2 million available for additional borrowings as of June\u00a030, 2023 and 2022, respectively. There were no letters of credit issued under the multi-currency revolving credit facility as of June\u00a030, 2023 and 2022.\nAvailability to use this borrowing capacity depends upon, among other things, the levels of our Leverage Ratio and Interest Coverage Ratio, which, in turn, will depend upon (1) our Credit Facility Net Debt relative to our EBITDA and (2) Credit Facility EBITDA relative to total interest expense respectively.\u00a0 As a result, our availability will increase if EBITDA increases (subject to the limit of the facility) and decrease if EBITDA decreases. At June\u00a030, 2023, based upon the calculation of our Credit Facility Net Debt relative to our Credit Facility EBITDA, there was \n$171.0 million\n available for borrowing. While we were in compliance with the financial covenants contained in the Credit Facility as of June\u00a030, 2023, and currently expect to continue to maintain such compliance, should we encounter difficulties, our historical relationship with our Credit Facility lending group has been strong and we anticipate their continued support of our long-term business.\nContractual Obligations\n35\nTable of Contents\nIndex to Financial Statements\nAt June\u00a030, 2023, we had \n$179.0 million outstanding under our revolving credit facility. We also had $147.2 million outstanding under our term loan facility, $6.6 million of which matures in fiscal year 2024. Our revolving credit facility and our term loan facility have a maturity date \nSeptember\u00a028, 2027\n. The remaining principal debt payments on our industrial development revenue bond, which total $3.7 million, have maturity dates in 2024 through 2032. See Footnote 8 - \nShort Term Borrowings and Long Term Debt\n.\nWe also had a non-cancelable operating lease agreement of $13.7 million at \nJune\u00a030, 2023, of which \n$4.8 million is expected to be paid within the next 12 months. Remaining amounts are expected to be paid through 2028. See Footnote 14 - \nLeases\n.\nSummary\nWe believe that our existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds under our credit agreements, will provide sufficient resources to meet our present and future working capital and cash requirements for at least the next twelve months. We also believe that our longer-term working capital, planned expenditures and other general funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities.\n36\nTable of Contents\nIndex to Financial Statements",
+  "item7a": ">ITEM 7A.\u00a0\u00a0\u00a0\u00a0Quantitative and Qualitative Disclosures about Market Risk.\nOur principal exposure to changes in financial market conditions in the normal course of our business is a result of our selective use of bank debt and transacting business in foreign currencies in connection with our foreign operations.\nInterest Rate Risk\nWe are exposed to changes in interest rates primarily as a result of our borrowing activities, which include revolving credit facilities with a group of banks used to maintain liquidity and fund our business operations. The nature and amount of our debt may vary as a result of future business requirements, market conditions and other factors. A hypothetical 100 basis point increase or decrease in interest rates on total borrowings on our revolving credit facility and variable rate long-term debt, net of the impact of the interest rate swap, would have resulted in approximately a $2.5\u00a0million and $1.1\u00a0million increase or decrease in pre-tax income for the fiscal year ended June\u00a030, 2023 and 2022, respectively.\nWe evaluate our interest rate risk and utilize interest rate swaps to mitigate the risk of interest rate fluctuations associated with our current and long-term debt. At June\u00a030, 2023 and 2022, we had $329.9 million and $271.2 million, respectively, in variable rate debt.  \nWe entered into an interest rate swap on April 30, 2019, which was amended on September 28, 2022. The interest rate swap has a notional amount of $100.0 million, with a $50.0 million tranche scheduled to mature on April\u00a030, 2024 and a $50.0 million tranche scheduled to mature April\u00a030, 2026. We entered into an additional interest rate swap on March 31, 2023 to lock into a fixed SOFR interest rate. The interest rate swap has notional amount of $25\u00a0million and a maturity date of March 31, 2028.\nThe purpose of these interest rate swaps is to manage or hedge our exposure to floating rate debt and achieve a desired proportion of fixed versus floating rate debt. Our use of derivative instruments have the potential to expose us to certain market risks including the possibility of (1)\u00a0our hedging activities not being as effective as anticipated in reducing the volatility of our cash flows, (2)\u00a0the counterparty not performing its obligations under the applicable hedging arrangement, (3)\u00a0the hedging arrangement being imperfect or ineffective or (4)\u00a0the terms of the swap or associated debt changing. We seek to lessen such risks by having established a policy to identify, control and manage market risks which may arise from changes in interest rates, as well as limiting our counterparties to major financial institutions. \nForeign Currency Exchange Rate Risk\nWe are exposed to foreign currency risks that arise from our foreign operations in Canada, Brazil and the UK. These risks include transactions denominated in non-functional currencies and intercompany loans with foreign subsidiaries.  In the normal course of the business, foreign exchange risk is managed by the use of currency options and forward contracts to hedge these exposures as well as balance sheet netting of exposures.  In addition, exchange rate fluctuations may cause our international results to fluctuate significantly when translated into U.S. dollars. A hypothetical 10% increase or decrease in foreign exchange rates would have resulted in approximately a $2.7\u00a0million and $2.2\u00a0million increase or decrease in pre-tax income for fiscal years ended June\u00a030, 2023 and 2022, respectively. These risks may change over time as business practices evolve and could have a material impact on our financial results in the future. \nOur senior management has approved a foreign exchange hedging policy to reduce foreign currency exposure. Our policy is to utilize financial instruments to reduce risks where internal netting cannot be effectively employed and not to enter into foreign currency derivative instruments for speculative or trading purposes. We monitor our risk associated with the volatility of certain foreign currencies against our functional currencies and enter into foreign exchange derivative contracts to minimize short-term currency risks on cash flows. These positions are based upon balance sheet exposures and, in certain foreign currencies, our forecasted purchases and sales. We continually evaluate foreign exchange risk and may enter into foreign exchange transactions in accordance with our policy. Actual variances from these forecasted transactions can adversely impact foreign exchange results. Foreign currency gains and losses are included in other expense (income).\nWe have elected not to designate our foreign currency contracts as hedging instruments, and therefore, the instruments are marked-to-market with changes in their values recorded in the consolidated income statement each period. Our foreign currencies are primarily Brazilian reais, British pounds and Canadian dollars. At June\u00a030, 2023 and 2022, the fair value of our currency forward contracts were a net asset or payable of less than $0.1\u00a0million. \n37\nTable of Contents\nIndex to Financial Statements",
+  "cik": "918965",
+  "cusip6": "806037",
+  "cusip": ["806037957", "806037107"],
+  "names": ["SCANSOURCE INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/918965/000091896523000023/0000918965-23-000023-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\u00a0 Business\nGeneral\nRiverview Bancorp, Inc., a Washington corporation, is the bank holding company of Riverview Bank. At March 31, 2023, the Company had total assets of $1.6 billion, total deposits of $1.3 billion and total shareholders\u2019 equity of $155.2 million. The Company\u2019s executive offices are located in Vancouver, Washington. The Bank has two subsidiaries Riverview Trust Company (the \u201cTrust Company\u201d) and Riverview Services, Inc. (\u201cRiverview Services\u201d). The Trust Company is a trust and financial services company located in downtown Vancouver, Washington, and provides full-service brokerage activities, trust and asset management services. Riverview Services acts as a trustee for deeds of trust on mortgage loans granted by the Bank and receives a reconveyance fee for each deed of trust.\nSubstantially all of the Company\u2019s business is conducted through the Bank, which until April 28, 2021, was a federal savings bank subject to extensive regulation by the Office of the Comptroller of the Currency (\u201cOCC\u201d). The Bank converted from a federally chartered savings bank to a Washington state-chartered commercial bank on April 28, 2021.\u00a0As a Washington state-chartered commercial bank, the Bank\u2019s regulators are the Washington State Department of Financial Institutions (\u201cWDFI\u201d) and the Federal Deposit Insurance Corporation (\u201cFDIC\u201d), the insurer of its deposits. The Bank\u2019s deposits are insured up to applicable limits by the FDIC. The Board of Governors of the Federal Reserve System (\u201cFederal Reserve\u201d) remains the primary federal regulator for the Company. In connection with the Bank\u2019s charter conversion, the Company converted from a Savings and Loan Holding Company to a Bank Holding Company. The Bank is also a member of the Federal Home Loan Bank of Des Moines (\u201cFHLB\u201d) which is one of the 11 regional banks in the Federal Home Loan Bank System (\u201cFHLB System\u201d).\nAs a progressive, community-oriented financial services company, the Company emphasizes local, personal service to residents of its primary market area. The Company considers Clark, Klickitat and Skamania counties of Washington, and Multnomah, Washington and Marion counties of Oregon as its primary market area. The Company is engaged predominantly in the business of attracting deposits from the general public and using such funds in its primary market area to originate commercial business, commercial real estate, multi-family real estate, land, real estate construction, residential real estate and other consumer loans. The Company\u2019s loans receivable, net, totaled $993.5 million at March 31, 2023 compared to $975.9 million at March 31, 2022.\nThe Company\u2019s strategic plan includes targeting the commercial banking customer base in its primary market area for loan originations and deposit growth, specifically small and medium size businesses, professionals and wealth building individuals. In pursuit of these goals, the Company will seek to increase the loan portfolio consistent with its strategic plan and asset/liability and regulatory capital objectives, which includes maintaining a significant amount of commercial business and commercial real estate loans in its loan portfolio which typically carry adjustable rates, higher yields and shorter terms, as well as higher credit risk, compared to traditional fixed-rate consumer real estate one-to-four family loans.\nOur strategic plan also stresses increased emphasis on non-interest income, including increased fees for asset management through the Trust Company and deposit service charges. The strategic plan is designed to enhance earnings, reduce interest rate risk and provide a more complete range of financial services to customers and the local communities the Company serves. We believe we are well positioned to attract new customers and to increase our market share through our \n17 branch locations, including, among others, 10 in Clark County, three in the Portland metropolitan area and three lending centers.\n\u200b\n4\n\n\nTable of Contents\nMarket Area\nThe Company conducts operations from its home office in Vancouver, Washington and 17 branch offices located in Camas, Washougal, Stevenson, White Salmon, Battle Ground, Goldendale, Ridgefield and Vancouver, Washington (six branch offices), and Portland, Gresham, Tualatin and Aumsville, Oregon. The Trust Company has two locations, one in downtown Vancouver, Washington and one in Lake Oswego, Oregon, providing full-service brokerage activities, trust and asset management services. Riverview Mortgage, a mortgage broker division of the Bank, originates mortgage loans for various mortgage companies predominantly in the Vancouver/Portland metropolitan areas, as well as for the Bank. The Bank\u2019s Business and Professional Banking Division, with two lending offices located in Vancouver and one in Portland, offers commercial and business banking services.\nVancouver is located in Clark County, Washington, which is just north of Portland, Oregon. Many businesses are located in the Vancouver area because of the favorable tax structure and lower energy costs in Washington as compared to Oregon. Companies located in the Vancouver area include: Sharp Microelectronics, Hewlett Packard, Georgia Pacific, Underwriters Laboratory, WaferTech, Nautilus, Barrett Business Services, PeaceHealth and Banfield Pet Hospitals, as well as several support industries. In addition to this industry base, the Columbia River Gorge Scenic Area and the Portland metropolitan area are sources of tourism.\nLending Activities\nGeneral\n.\u00a0 At March 31, 2023, the Company\u2019s net loans receivable totaled $993.5 million, or 62.5% of total assets at that date. The principal lending activity of the Company is the origination of loans collateralized by commercial properties and commercial business loans. A substantial portion of the Company\u2019s loan portfolio is secured by real estate, either as primary or secondary collateral, located in its primary market area. The Company\u2019s lending activities are subject to the written, non-discriminatory, underwriting standards and loan origination procedures established by the Bank\u2019s Board of Directors (\u201cBoard\u201d) and management. The customary sources of loan originations are realtors, walk-in customers, referrals and existing customers. The Bank also uses commissioned loan brokers and print advertising to market its products and services. Loans are approved at various levels of management, depending upon the amount of the loan. Our current loan policy generally limits the maximum amount of loans we can make to one borrower to the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus). The regulatory limit of loans we can make to one borrower is 20% of total risk-based capital, or $36.4 million, at March\u00a031, 2023. At this date, the Bank\u2019s largest lending relationship with one borrower was $29.5 million, which consisted of a multi-family loan of $17.6 million and a commercial real estate loan of $11.9 million, both of which were performing in accordance with their original payment terms at March 31, 2023.\nLoan Portfolio Analysis\n.\u00a0 The following table sets forth the composition of the Company\u2019s loan portfolio, excluding loans held for sale, by type of loan at the dates indicated (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAt\u00a0March\u00a031,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u00a0\u00a0\u00a0\u00a0\nCommercial and construction:\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\nCommercial business\n\u200b\n$\n 232,868\n\u00a0\n\u200b\n 23.08\n%\u00a0\u00a0\n$\n 228,091\n\u00a0\n\u200b\n 23.03\n%\u00a0\u00a0\nCommercial real estate\n\u200b\n\u00a0\n 564,496\n\u00a0\n\u200b\n 55.95\n\u200b\n\u00a0\n 582,837\n\u00a0\n\u200b\n 58.85\n\u200b\nLand\n\u200b\n\u200b\n 6,437\n\u200b\n\u200b\n 0.64\n\u200b\n\u200b\n 11,556\n\u200b\n\u200b\n 1.16\n\u200b\nMulti-family\n\u200b\n\u200b\n 55,836\n\u200b\n\u200b\n 5.54\n\u200b\n\u200b\n 60,211\n\u200b\n\u200b\n 6.08\n\u200b\nReal estate construction\n\u200b\n\u00a0\n 47,762\n\u00a0\n\u200b\n 4.73\n\u200b\n\u00a0\n 24,160\n\u00a0\n\u200b\n 2.44\n\u200b\nTotal commercial and construction\n\u200b\n\u00a0\n 907,399\n\u00a0\n\u200b\n 89.94\n\u200b\n\u00a0\n 906,855\n\u00a0\n\u200b\n 91.56\n\u200b\nConsumer:\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\nReal estate one-to-four family\n\u200b\n\u00a0\n 99,673\n\u00a0\n\u200b\n 9.88\n\u200b\n\u00a0\n 82,006\n\u00a0\n\u200b\n 8.28\n\u200b\nOther installment\n\u200b\n\u00a0\n 1,784\n\u00a0\n\u200b\n 0.18\n\u200b\n\u00a0\n 1,547\n\u00a0\n\u200b\n 0.16\n\u200b\nTotal consumer\n\u200b\n\u00a0\n 101,457\n\u00a0\n\u200b\n 10.06\n\u200b\n\u00a0\n 83,553\n\u00a0\n\u200b\n 8.44\n\u200b\nTotal loans\n\u200b\n\u00a0\n 1,008,856\n\u00a0\n\u200b\n 100.00\n%\u00a0\u00a0\n\u00a0\n 990,408\n\u00a0\n\u200b\n 100.00\n%\u00a0\u00a0\nLess:\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\nAllowance for loan losses\n\u200b\n\u00a0\n 15,309\n\u00a0\n\u200b\n\u200b\n\u200b\n\u00a0\n 14,523\n\u00a0\n\u200b\n\u200b\n\u200b\nTotal loans receivable, net\n\u200b\n$\n 993,547\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 975,885\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n5\n\n\nTable of Contents\nLoan Portfolio Composition.\n The following tables set forth the composition of the Company\u2019s commercial and construction loan portfolio based on loan purpose at the dates indicated (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOther\n\u200b\n\u200b\n\u200b\n\u200b\nCommercial\u00a0and\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nCommercial\n\u00a0\u00a0\u00a0\u00a0\nReal\u00a0Estate\n\u00a0\u00a0\u00a0\u00a0\nReal\u00a0Estate\n\u00a0\u00a0\u00a0\u00a0\nConstruction \n\u200b\n\u200b\nBusiness\n\u200b\nMortgage\n\u200b\nConstruction\n\u200b\nTotal\nMarch\u00a031,\u00a02023\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCommercial business\n\u200b\n$\n 232,859\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\n$\n 232,859\nSBA PPP\n\u200b\n\u00a0\n 9\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 9\nCommercial construction\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 29,565\n\u200b\n\u00a0\n 29,565\nOffice buildings\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 117,045\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 117,045\nWarehouse/industrial\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 106,693\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 106,693\nRetail/shopping centers/strip malls\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 82,700\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 82,700\nAssisted living facilities\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 396\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 396\nSingle purpose facilities\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 257,662\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 257,662\nLand\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 6,437\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 6,437\nMulti-family\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 55,836\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 55,836\nOne-to-four family construction\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 18,197\n\u200b\n\u00a0\n 18,197\nTotal\n\u200b\n$\n 232,868\n\u200b\n$\n 626,769\n\u200b\n$\n 47,762\n\u200b\n$\n 907,399\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMarch\u00a031,\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCommercial business\n\u00a0\u00a0\u00a0\u00a0\n$\n 225,006\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\n$\n 225,006\nSBA PPP\n\u200b\n\u200b\n 3,085\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 3,085\nCommercial construction\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 12,741\n\u200b\n\u00a0\n 12,741\nOffice buildings\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 124,690\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 124,690\nWarehouse/industrial\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 100,184\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 100,184\nRetail/shopping centers/strip malls\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 97,192\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 97,192\nAssisted living facilities\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 663\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 663\nSingle purpose facilities\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 260,108\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 260,108\nLand\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 11,556\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 11,556\nMulti-family\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 60,211\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 60,211\nOne-to-four family construction\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 11,419\n\u200b\n\u00a0\n 11,419\nTotal\n\u200b\n$\n 228,091\n\u200b\n$\n 654,604\n\u200b\n$\n 24,160\n\u200b\n$\n 906,855\n\u200b\nCommercial Business Lending.\n At March 31, 2023, the commercial business loan portfolio totaled $232.9 million, or 23.1% of total loans. Commercial business loans are typically secured by business equipment, accounts receivable, inventory or other property. The Company\u2019s commercial business loans may be structured as term loans or as lines of credit. Commercial term loans are generally made to finance the purchase of assets and usually have maturities of five years or less. Commercial lines of credit are typically made for the purpose of providing working capital and usually have a term of one year or less. Lines of credit are made at variable rates of interest equal to a negotiated margin above an index rate and term loans are at either a variable or fixed rate. The Company also generally obtains personal guarantees from financially capable parties based on a review of personal financial statements.\nCommercial business lending typically involves risks that are different from those associated with residential and commercial real estate lending. Although commercial business loans are often collateralized by equipment, inventory, accounts receivable or other business assets, the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may be obsolete or of limited use, among other things. Accordingly, the repayment of commercial business loans depends primarily on the cash flow and credit-worthiness of the borrower and secondarily on the underlying collateral provided by the borrower. Additionally, the borrower\u2019s cash flow may be unpredictable and collateral securing these loans may fluctuate in value.\n\u200b\n6\n\n\nTable of Contents\nOther Real Estate Mortgage Lending.\n The Company originates other real estate mortgage loans secured by office buildings, warehouse/industrial, retail, assisted living facilities and single-purpose facilities (collectively \u201ccommercial real estate loans\u201d or \u201cCRE\u201d) and land and multi-family loans primarily located in its market area, collectively referred to herein as the \u201cother real estate mortgage loan portfolio\u201d. At March 31, 2023, the other real estate mortgage loan portfolio totaled $564.5 million, or 56.0% of total loans. At March 31, 2023, owner occupied properties accounted for 27.8% and non-owner occupied properties accounted for 72.2% of the Company\u2019s commercial real estate loans.\nCommercial real estate and multi-family loans typically have higher loan balances, are more difficult to evaluate and monitor, and involve a higher degree of risk than residential one-to-four family loans. As a result, commercial real estate and multi-family loans are generally priced at a higher rate of interest than residential one-to-four family loans. Often payments on loans secured by commercial properties are dependent on the successful operation and management of the property securing the loan or business conducted on the property securing the loan; therefore, repayment of these loans may be affected by adverse conditions in the real estate market or the economy. Real estate lending is generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral being viewed as the primary source of repayment in the event of borrower default. The Company seeks to minimize these risks by generally limiting the maximum loan-to-value ratio to 80% and strictly scrutinizing the financial condition of the borrower, the quality of the collateral and the management of the property securing the loan. Loans are secured by first mortgages and often require specified debt service coverage (\u201cDSC\u201d) ratios depending on the characteristics of the collateral. The Company generally imposes a minimum DSC ratio of 1.20 for loans secured by income producing properties. Rates and other terms on such loans generally depend on our assessment of credit risk after considering such factors as the borrower\u2019s financial condition and credit history, loan-to-value ratio, DSC ratio and other factors.\nThe Company actively pursues commercial real estate loans. Loan demand within the Company\u2019s market area was competitive in fiscal year 2023 as economic conditions and competition for strong credit-worthy borrowers remained high. At March 31, 2023, the Company had one commercial real estate loan of $100,000 on non-accrual status. At March 31, 2022, the Company had one commercial real estate loan of $122,000 on non-accrual status. For more information concerning risks related to commercial real estate loans, see Item 1A. \u201cRisk Factors \u2013 Risks Related to Our Lending \u2013 Commercial and multi-family real estate lending involves higher risks than one-to-four family real estate and other consume lending, which exposes us to increased lending risks.\u201d\nLand loans represent loans made to developers for the purpose of acquiring raw land and/or for the subsequent development and sale of residential lots. Such loans typically finance land purchases and infrastructure development of properties (e.g., roads, utilities, etc.) with the aim of making improved lots ready for subsequent sales to consumers or builders for ultimate construction of residential units. The primary source of repayment is generally the cash flow from developer sale of lots or improved parcels of land, secondary sources and personal guarantees, which may provide an additional measure of security for such loans. At March 31, 2023, land loans totaled $6.4 million, or 0.64% of total loans, compared to $11.6 million, or 1.16% of total loans at March 31, 2022. The largest land loan had an outstanding balance at March 31, 2023 of $1.8 million and was performing according to its original payment terms. At March 31, 2023, all of the land loans were secured by properties located in Washington and Oregon. At March 31, 2023 and 2022, the Company had no land loans on non-accrual status.\nReal Estate Construction.\n The Company originates three types of residential construction loans: (i) speculative construction loans, (ii) custom/presold construction loans and (iii) construction/permanent loans. The Company also originates construction loans for the development of business properties and multi-family dwellings. All of the Company\u2019s real estate construction loans were made on properties located in Washington and Oregon.\n\u200b\n7\n\n\nTable of Contents\nThe composition of the Company\u2019s construction loan portfolio, including undisbursed funds, was as follows at the dates indicated (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAt March\u00a031,\u00a0\n\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAmount \n(1)\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u00a0\u00a0\u00a0\u00a0\nAmount \n(1)\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\nSpeculative construction\n\u00a0\u00a0\u00a0\u00a0\n$\n 16,224\n\u00a0\u00a0\u00a0\u00a0\n 19.23\n%\u00a0\u00a0\n$\n 16,561\n\u00a0\u00a0\u00a0\u00a0\n 26.22\n%\nCommercial/multi-family construction\n\u200b\n\u00a0\n 63,973\n\u00a0\n 75.85\n\u200b\n\u00a0\n 37,429\n\u00a0\n 59.27\n\u200b\nCustom/presold construction\n\u200b\n\u00a0\n 4,149\n\u00a0\n 4.92\n\u200b\n\u00a0\n 9,160\n\u00a0\n 14.51\n\u200b\nTotal\n\u200b\n$\n 84,346\n\u00a0\n 100.00\n%\u00a0\u00a0\n$\n 63,150\n\u00a0\n 100.00\n%\n\u200b\n(1)\n Includes undisbursed funds of $36.6 million and $39.0 million at March 31, 2023 and 2022, respectively.\nAt March 31, 2023, the balance of the Company\u2019s construction loan portfolio, including undisbursed funds, was $84.3 million compared to $63.2 million at March 31, 2022. The $21.1 million increase was primarily due to a $26.5 million increase in commercial/multi-family construction loans, partially offset by a decrease of $5.0 million in custom/presold construction loans. The Company plans to continue to proactively manage its construction loan portfolio in fiscal year 2024 while continuing to originate new construction loans to selected customers.\nSpeculative construction loans are made to home builders and are termed \u201cspeculative\u201d because the home builder does not have, at the time of loan origination, a signed contract with a home buyer who has a commitment for permanent financing with either the Company or another lender for the finished home. The home buyer may be identified either during or after the construction period, with the risk that the builder will have to service the speculative construction loan and finance real estate taxes and other carrying costs of the completed home for a significant period of time after the completion of construction until a home buyer is identified. The largest speculative construction loan at March 31, 2023 was a loan to finance the construction of 36 townhomes totaling $8.1 million that is secured by property located in the Company\u2019s market area. The average balance of loans in the speculative construction loan portfolio at March 31, 2023 was $959,000. At March 31, 2023 and 2022, the Company had no speculative construction loans on non-accrual status.\nPresold construction loans are made to homebuilders who, at the time of construction, have a signed contract with a home buyer who has a commitment for permanent financing for the finished home from the Company or another lender. Presold construction loans are generally originated for a term of 12 months. At March 31, 2023 and 2022, presold construction loans totaled $4.1 million and $4.5 million, respectively.\nThe composition of land \u00a0and speculative/presold construction loans by geographical area is as follows at the dates indicated (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nNorthwest\n\u00a0\u00a0\u00a0\u00a0\nSouthwest\n\u00a0\u00a0\u00a0\u00a0\nOther\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nOregon\n\u00a0\u00a0\u00a0\u00a0\nWashington\n\u00a0\u00a0\u00a0\u00a0\nWashington\n\u200b\nTotal\nMarch\u00a031,\u00a02023\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nLand\n\u200b\n$\n 1,884\n\u200b\n\u200b\n 4,553\n\u200b\n$\n \u2014\n\u200b\n$\n 6,437\nSpeculative and presold construction\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 17,105\n\u200b\n\u200b\n 1,092\n\u200b\n\u200b\n 18,197\nTotal\n\u200b\n$\n 1,884\n\u200b\n$\n 21,658\n\u200b\n$\n 1,092\n\u200b\n$\n 24,634\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMarch\u00a031,\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nLand\n\u200b\n$\n 2,111\n\u200b\n\u200b\n 9,445\n\u200b\n$\n \u2014\n\u200b\n$\n 11,556\nSpeculative and presold construction\n\u200b\n\u00a0\n \u2014\n\u200b\n\u200b\n 10,989\n\u200b\n\u200b\n 430\n\u200b\n\u200b\n 11,419\nTotal\n\u200b\n$\n 2,111\n\u200b\n$\n 20,434\n\u200b\n$\n 430\n\u200b\n$\n 22,975\n\u200b\nUnlike speculative and presold construction loans, custom construction loans are made directly to the homeowner. Construction/permanent loans are originated to the homeowner rather than the homebuilder along with a commitment by the Company to originate a permanent loan to the homeowner to repay the construction loan at the completion of construction. The construction phase of a construction/permanent loan generally lasts six to nine months. At the completion of construction, the Company may either originate a fixed-rate mortgage loan or an adjustable rate mortgage (\u201cARM\u201d) loan or use its mortgage \n8\n\n\nTable of Contents\nbrokerage capabilities to obtain permanent financing for the customer with another lender. For adjustable rate loans, the interest rates adjust on their first adjustment date. See \u201cMortgage Brokerage\u201d and \u201cMortgage Loan Servicing\u201d below for more information. At March 31, 2023, the Company had no construction/permanent loans.\nThe Company provides construction financing for non-residential business properties and multi-family dwellings. At March 31, 2023, commercial construction loans totaled $29.6 million, or 61.9% of total real estate construction loans, and 2.9% of total loans. Borrowers may be the business owner/occupier of the building who intends to operate their business from the property upon construction, or non-owner developers. The expected source of repayment of these loans is typically the sale or refinancing of the project upon completion of the construction phase. In certain circumstances, the Company may provide or commit to take-out financing upon construction. Take-out financing is subject to the project meeting specific underwriting guidelines. No assurance can be given that such take-out financing will be available upon project completion. These loans are secured by office buildings, retail rental space, mini storage facilities, assisted living facilities and multi-family dwellings located in the Company\u2019s market area. At March 31, 2023, the largest commercial construction loan had a balance of $6.6 million and was performing according to its original repayment terms. The average balance of loans in the commercial construction loan portfolio at March 31, 2023 was $2.1 million. At March 31, 2023 and 2022, the Company had no commercial construction loans on non-accrual status.\nThe Company has originated construction and land acquisition and development loans where a component of the cost of the project was the interest required to service the debt during the construction period of the loan, sometimes known as interest reserves. The Company allows disbursements of this interest component as long as the project is progressing as originally projected and if there has been no deterioration in the financial standing of the borrower or the underlying project. If the Company makes a determination that there is such deterioration, or if the loan becomes nonperforming, the Company halts any disbursement of those funds identified for use in paying interest. In some cases, additional interest reserves may be taken by use of deposited funds or through credit lines secured by separate and additional collateral. For additional information concerning the risks related to construction lending, see Item 1A. \u201cRisk Factors \u2013 Risks Related to our Lending Activities \u2013 Our real estate construction and land acquisition and development loans expose us to risk.\u201d\nConsumer Lending.\n Consumer loans totaled $101.5 million at March 31, 2023 and were comprised of $88.8 million of real estate one-to-four family loans, $10.3 million of home equity lines of credit, $552,000 of land loans to consumers for the future construction of one-to-four family homes and $1.8 million of other secured and unsecured consumer loans.\nThe majority of our real estate one-to-four family loans are located in the Company\u2019s primary market area. Underwriting standards require that real estate one-to-four family loans generally be owner occupied and that originated loan amounts not exceed 80% (95% with private mortgage insurance) of the lesser of current appraised value or cost of the underlying collateral. Terms typically range from 15 to 30 years. At March 31, 2023, the Company had three residential real estate loans totaling $86,000 on non-accrual status compared to two residential real estate loans totaling $51,000 at March 31, 2022. All of these loans were secured by properties located in Oregon and Washington. The Company no longer originates real estate one-to-four family loans. During the fiscal year 2023, the Company purchased $26.8 million real estate one-to-four family loans as a way to supplement loan originations in this category.\nThe Company also originates a variety of installment loans, including loans for debt consolidation and other purposes, automobile loans, boat loans and savings account loans. At March 31, 2023 and 2022, the Company had no installment loans on non-accrual status.\u00a0The Company did not purchase any automobile loans during fiscal years 2023 and 2022 and does not have plans to purchase any additional automobile loan pools.\nInstallment consumer loans generally entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as mobile homes, automobiles, boats and recreational vehicles. In these cases, we face the risk that any collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. Thus, the recovery and sale of such property could be insufficient to compensate us for the principal outstanding on these loans as a result of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower\u2019s continuing financial stability and are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit our ability to recover on such loans.\nLoan Maturity.\n The following table sets forth certain information at March 31, 2023 regarding the dollar amount of loans maturing in the loan portfolio based on their contractual terms to maturity, but does not include potential prepayments. Demand \n9\n\n\nTable of Contents\nloans, loans having no stated schedule of repayments or stated maturity and overdrafts are reported as due in one year or less. Loan balances are reported net of deferred fees (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nWithin\n\u00a0\u00a0\u00a0\u00a0\nBetween 1-5\n\u00a0\u00a0\u00a0\u00a0\nBetween\u00a05-15\n\u00a0\u00a0\u00a0\u00a0\nBeyond 15\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n1\u00a0Year\n\u00a0\u00a0\u00a0\u00a0\nYears\n\u00a0\u00a0\u00a0\u00a0\nYears\n\u00a0\u00a0\u00a0\u00a0\nYears\n\u00a0\u00a0\u00a0\u00a0\nTotal\nCommercial and construction:\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\nCommercial business\n\u200b\n$\n 10,646\n\u200b\n$\n 28,033\n\u200b\n$\n 100,415\n\u200b\n$\n 93,774\n\u200b\n$\n 232,868\nCommercial real estate\n\u200b\n\u00a0\n 13,862\n\u200b\n\u200b\n 145,950\n\u200b\n\u00a0\n 397,232\n\u200b\n\u00a0\n 7,452\n\u200b\n\u00a0\n 564,496\nLand\n\u200b\n\u200b\n 3,284\n\u200b\n\u200b\n 1,885\n\u200b\n\u200b\n 1,268\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,437\nMulti-family\n\u200b\n\u200b\n 83\n\u200b\n\u200b\n 5,199\n\u200b\n\u200b\n 48,639\n\u200b\n\u200b\n 1,915\n\u200b\n\u200b\n 55,836\nReal estate construction\n\u200b\n\u00a0\n 9,103\n\u200b\n\u200b\n 7,106\n\u200b\n\u00a0\n 31,553\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 47,762\nTotal commercial and construction\n\u200b\n\u00a0\n 36,978\n\u200b\n\u200b\n 188,173\n\u200b\n\u00a0\n 579,107\n\u200b\n\u00a0\n 103,141\n\u200b\n\u00a0\n 907,399\nConsumer:\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\nReal estate one-to-four family\n\u200b\n\u00a0\n \u2014\n\u200b\n\u200b\n 596\n\u200b\n\u200b\n 3,552\n\u200b\n\u200b\n 95,525\n\u200b\n\u00a0\n 99,673\nOther installment\n\u200b\n\u00a0\n 49\n\u200b\n\u200b\n 1,274\n\u200b\n\u200b\n 461\n\u200b\n\u200b\n \u2014\n\u200b\n\u00a0\n 1,784\nTotal consumer\n\u200b\n\u00a0\n 49\n\u200b\n\u200b\n 1,870\n\u200b\n\u00a0\n 4,013\n\u200b\n\u00a0\n 95,525\n\u200b\n\u00a0\n 101,457\nTotal loans\n\u200b\n$\n 37,027\n\u200b\n$\n 190,043\n\u200b\n$\n 583,120\n\u200b\n$\n 198,666\n\u200b\n$\n 1,008,856\n\u200b\nThe following table sets forth the dollar amount of loans due after one year from March 31, 2023, which have fixed and adjustable interest rates (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAdjustable\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nFixed Rate\n\u00a0\u00a0\u00a0\u00a0\nRate\n\u00a0\u00a0\u00a0\u00a0\nTotal\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCommercial and construction:\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\nCommercial business\n\u200b\n$\n 138,306\n\u200b\n$\n 83,916\n\u200b\n$\n 222,222\nCommercial real estate\n\u200b\n\u00a0\n 295,059\n\u200b\n\u00a0\n 255,575\n\u200b\n\u00a0\n 550,634\nLand\n\u200b\n\u200b\n 2,528\n\u200b\n\u200b\n 625\n\u200b\n\u200b\n 3,153\nMulti-family\n\u200b\n\u200b\n 46,865\n\u200b\n\u200b\n 8,888\n\u200b\n\u200b\n 55,753\nReal estate construction\n\u200b\n\u00a0\n 20,994\n\u200b\n\u00a0\n 17,665\n\u200b\n\u00a0\n 38,659\nTotal commercial and construction\n\u200b\n\u00a0\n 503,752\n\u200b\n\u00a0\n 366,669\n\u200b\n\u00a0\n 870,421\nConsumer:\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\nReal estate one-to-four family\n\u200b\n\u00a0\n 86,864\n\u200b\n\u00a0\n 12,809\n\u200b\n\u00a0\n 99,673\nOther installment\n\u200b\n\u00a0\n 1,355\n\u200b\n\u00a0\n 380\n\u200b\n\u00a0\n 1,735\nTotal consumer\n\u200b\n\u00a0\n 88,219\n\u200b\n\u00a0\n 13,189\n\u200b\n\u00a0\n 101,408\nTotal loans\n\u200b\n$\n 591,971\n\u200b\n$\n 379,858\n\u200b\n$\n 971,829\n\u200b\nLoan Commitments\n. The Company issues commitments to originate commercial loans, other real estate mortgage loans, construction loans, real estate one-to-four family loans and other installment loans conditioned upon the occurrence of certain events. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. Commitments to originate loans are conditional and are honored for up to 45 days subject to the Company\u2019s usual terms and conditions. Collateral is not required to support commitments. At March 31, 2023, the Company had outstanding commitments to originate loans of $12.5 million compared to $20.0 million at March 31, 2022.\nMortgage Brokerage.\n The Company employs commissioned brokers who originate mortgage loans (including construction loans) for various mortgage companies. The loans brokered to mortgage companies are closed in the name of, and funded by, the purchasing mortgage company and are not originated as an asset of the Company. In return, the Company receives a fee ranging from 1.5% to 2.0% of the loan amount that it shares with the commissioned broker. Loans previously brokered to the Company are closed on the Company\u2019s books and the commissioned broker receives a portion of the origination fee. Beginning in fiscal year 2021, the Company transitioned to a model where it no longer originates and sells mortgage loans to the Federal Home Loan Mortgage Company (\u201cFHLMC\u201d) as all mortgage loan originations are instead brokered to various third-party mortgage companies. The Company does, however, continue to service its existing FHLMC portfolio. Brokered loans totaled $22.0 million and $58.1 million as of March 31, 2023 and 2022, respectively. There were no loans brokered to the Company for the fiscal year ended March 31, 2023 and 2022. Gross fees of $346,000, including brokered loan fees, were earned in the fiscal year ended March 31, 2023. For the fiscal year ended March 31, 2022, gross fees earned were $1.1 million, which included brokered loan fees and fees for loans sold to the FHLMC. The interest rate environment has a strong influence on the loan volume and amount of fees generated from the mortgage broker activity. In general, during periods of rising interest rates, the volume of loans and the amount \n10\n\n\nTable of Contents\nof loan fees generally decrease as a result of decreased mortgage loan demand. Conversely, during periods of falling interest rates, the volume of loans and the amount of loan fees generally increase as a result of the increased mortgage loan demand.\u00a0\nMortgage Loan Servicing.\n\u00a0 The Company is a qualified servicer for the FHLMC. Prior to the fiscal year ended March 31, 2021, the Company historically sold its fixed-rate residential one-to-four family mortgage loans that it originated with maturities of 15 years or more and balloon mortgages to the FHLMC as part of its asset/liability strategy. Mortgage loans were sold to the FHLMC on a non-recourse basis whereby foreclosure losses are the responsibility of the FHLMC and not the Company. Upon sale, the Company continues to collect payments on the loans, supervise foreclosure proceedings, and otherwise service the loans. At March 31, 2023, total loans serviced for others were $63.4 million, of which $36.5 million were serviced for the FHLMC.\nNonperforming Assets.\n Nonperforming assets were $1.9 million or 0.12% of total assets at March 31, 2023 compared with $22.1 million or 1.27% of total assets at March 31, 2022. The Company had net recoveries totaling $36,000 during fiscal 2023 compared to net charge-offs of $30,000 during fiscal 2022. The decrease in nonperforming assets is attributed to the progress made in resolving the delay in servicing transfer between two third-party servicers of SBA and United States Department of Agriculture (\u201cUSDA\u201d) government guaranteed loans, as further discussed below. Non-performing SBA government guaranteed loans totaled $1.6 million at March 31, 2023 compared to $21.8 million at March 31, 2022.\nLoans are reviewed regularly and it is the Company\u2019s general policy that when a loan is 90 days or more delinquent or when collection of principal or interest appears doubtful, it is placed on non-accrual status, at which time the accrual of interest ceases and a reserve for any unrecoverable accrued interest is established and charged against operations. In general, payments received on non-accrual loans are applied to reduce the outstanding principal balance on a cash-basis method.\nThe Company continues to proactively manage its residential construction and land acquisition and development loan portfolios. At March 31, 2023, the Company\u2019s residential construction and land acquisition and development loan portfolios were $18.2 million and $6.4 million, respectively, as compared to $11.4 million and $11.6 million, respectively, at March 31, 2022. At March 31, 2023 and 2022, there were no nonperforming loans in the residential construction loan portfolio or the land acquisition and development portfolio. For the years ended March 31, 2023 and 2022, there were no charge-offs or recoveries in the residential construction and land acquisition and development loan portfolios.\nThe following table sets forth information regarding the Company\u2019s nonperforming loans at the dates indicated (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02023\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02022\n\u200b\n\u200b\nNumber\u00a0of\n\u200b\n\u200b\n\u200b\n\u200b\nNumber\u00a0of\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nLoans\n\u00a0\u00a0\u00a0\u00a0\nBalance\n\u00a0\u00a0\u00a0\u00a0\nLoans\n\u00a0\u00a0\u00a0\u00a0\nBalance\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCommercial business\n\u00a0\n 1\n\u200b\n$\n 79\n\u00a0\n 1\n\u200b\n$\n 100\nCommercial real estate\n\u00a0\n 1\n\u200b\n\u00a0\n 100\n\u00a0\n 1\n\u200b\n\u00a0\n 122\nConsumer\n\u00a0\n 3\n\u200b\n\u00a0\n 86\n\u00a0\n 2\n\u200b\n\u00a0\n 51\n  Subtotal\n\u200b\n 5\n\u200b\n\u200b\n 265\n\u200b\n 4\n\u200b\n\u200b\n 273\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nSBA and USDA Government Guaranteed\n\u200b\n 6\n\u200b\n\u200b\n 1,587\n\u200b\n 66\n\u200b\n\u200b\n 21,826\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal\n\u00a0\n 11\n\u200b\n$\n 1,852\n\u00a0\n 70\n\u200b\n$\n 22,099\n\u200b\nThe Company continues its efforts to work out problem loans, seek full repayment or pursue foreclosure proceedings and has made significant progress in regards to the SBA and USDA government guaranteed loan servicing transfer. At March 31, 2023, the Bank holds approximately $1.6 million of the government guaranteed portion of SBA and USDA loans originated by other banks that, when purchased, were placed into a Direct Registration Certificate (\u201cDRC\u201d) program by the SBA\u2019s former fiscal transfer agent, Colson Inc. (\u201cColson\u201d) that remain to be reconciled. Under the DRC program, Colson was required to remit monthly payments to the investor holding the guaranteed balance, whether or not a payment had actually been received from the borrower. In 2020, Colson did not successfully retain its existing contract as the SBA\u2019s fiscal transfer agent and began transitioning servicing over to a new company called Guidehouse. In late 2021, Guidehouse, under their contract with the SBA, declined to continue the DRC program. After declining to continue the DRC program, all payments under the DRC program began to be held by Guidehouse or Colson until the DRC program could be unwound and the DRC holdings converted into normal pass through certificates. As part of unwinding the DRC program, Colson has requested investors who had received payments in advance of the borrower actually remitting payment return advanced funds before they will process the conversion of certificates. The Bank \n11\n\n\nTable of Contents\ncontinues to work with Colson on the reconciliation and transfer of the two remaining loans. The Bank expects the reconciliation and unwinding process to continue and until these processes are completed for all loans being transferred, with such loans continuing to be reflected as past due. These nonperforming government guaranteed loans are not considered non-accrual loans because there is no concern of the collectability of the full principal and interest given the Company purchased the guaranteed portion of these loans which is backed by government guaranteed interest certificates. \u00a0At March 31, 2023, all of \u00a0the Company\u2019s nonperforming loans exclusive of the SBA and USDA government guaranteed loans are to borrowers with properties located in Southwest Washington. At March 31, 2023, 9.69% of the Company\u2019s nonperforming loans, totaling $179,000 were measured for impairment. These loans have been charged down to the estimated fair market value of the collateral less selling costs or carry a specific reserve to reduce the net carrying value. There were no reserves associated with these nonperforming loans that were measured for impairment at March 31, 2023. At March 31, 2023, the largest single nonperforming loan was a USDA government guaranteed loan for $879,000. The largest single nonperforming loan exclusive of the SBA and USDA government guaranteed loans was a commercial real estate loan for $100,000 at March 31, 2023.\nThe following table sets forth information regarding the Company\u2019s nonperforming assets at the dates indicated (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAt\u00a0March\u00a031,\u00a0\n\u200b\n\u200b\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nLoans accounted for on a non-accrual basis:\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\nCommercial business\n\u200b\n$\n 97\n\u200b\n$\n 118\nCommercial real estate\n\u200b\n\u00a0\n 100\n\u200b\n\u00a0\n 122\nConsumer\n\u200b\n\u00a0\n 86\n\u200b\n\u00a0\n 51\nTotal\n\u200b\n\u00a0\n 283\n\u200b\n\u00a0\n 291\nAccruing loans which are contractually past due 90 days or more\n\u200b\n\u00a0\n 1,569\n\u200b\n\u00a0\n 21,808\nTotal nonperforming loans\n\u200b\n\u00a0\n 1,852\n\u200b\n\u00a0\n 22,099\nReal estate owned (\u201cREO\u201d)\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\nTotal nonperforming assets\n\u200b\n$\n 1,852\n\u200b\n$\n 22,099\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nForegone interest on non-accrual loans\n\u200b\n$\n 14\n\u200b\n$\n 24\n\u200b\nThe following tables set forth information regarding the Company\u2019s nonperforming assets by loan type and geographical area at the dates indicated (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nSouthwest\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nWashington\n\u00a0\u00a0\u00a0\u00a0\nOther\n\u00a0\u00a0\u00a0\u00a0\nTotal\nMarch\u00a031,\u00a02023\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCommercial business\n\u200b\n$\n 79\n\u200b\n$\n \u2014\n\u200b\n$\n 79\nCommercial real estate\n\u200b\n\u00a0\n 100\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 100\nConsumer\n\u200b\n\u00a0\n 86\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 86\n   Subtotal\n\u200b\n\u200b\n 265\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 265\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nSBA and USDA Government Guaranteed\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 1,587\n\u200b\n\u200b\n 1,587\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal nonperforming assets\n\u200b\n$\n 265\n\u200b\n$\n 1,587\n\u200b\n$\n 1,852\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMarch\u00a031,\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCommercial business\n\u200b\n$\n 100\n\u200b\n$\n \u2014\n\u200b\n$\n 100\nCommercial real estate\n\u200b\n\u00a0\n 122\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 122\nConsumer\n\u200b\n\u00a0\n 51\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 51\n   Subtotal\n\u200b\n\u200b\n 273\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 273\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nSBA and USDA Government Guaranteed\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 21,826\n\u200b\n\u200b\n 21,826\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal nonperforming assets\n\u200b\n$\n 273\n\u200b\n$\n 21,826\n\u200b\n$\n 22,099\n\u200b\n\u200b\n12\n\n\nTable of Contents\nOther loans of concern, which are classified as substandard loans and are not presently included in the non-accrual category, consist of loans where the borrowers have cash flow problems, or the collateral securing the respective loans may be inadequate. In either or both of these situations, the borrowers may be unable to comply with the present loan repayment terms, and the loans may subsequently be included in the non-accrual category. Management considers the allowance for loan losses to be adequate at March 31, 2023, to cover the probable losses inherent in these and other loans.\nThe following table sets forth information regarding the Company\u2019s other loans of concern at the dates indicated (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02023\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02022\n\u200b\n\u200b\nNumber of\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\nNumber of\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nLoans\n\u00a0\u00a0\u00a0\u00a0\nBalance\n\u00a0\u00a0\u00a0\u00a0\nLoans\n\u00a0\u00a0\u00a0\u00a0\nBalance\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCommercial business\n\u00a0\n 1\n\u200b\n$\n 38\n\u00a0\n 1\n\u200b\n$\n 45\nCommercial real estate\n\u00a0\n 2\n\u200b\n\u00a0\n 2,344\n\u00a0\n 3\n\u200b\n\u00a0\n 6,087\nTotal\n\u00a0\n 3\n\u200b\n$\n 2,382\n\u00a0\n 4\n\u200b\n$\n 6,132\n\u200b\nAt March 31, 2023 and 2022, loans delinquent 30 \u2013 89 days were 0.20% and 0.81% of total loans, respectively. At March 31, 2023, loans 30 \u2013 89 days past due were comprised of SBA government guaranteed loans (which are included in commercial business), commercial business and consumer loans. The SBA government guaranteed loans comprise a substantial amount of the total loans 30-89 days past due at March 31, 2023. At March 31, 2022, loans 30 \u2013 89 days past due were comprised of SBA government guaranteed loans, residential real estate construction and consumer loans. There were no commercial real estate (\u201cCRE\u201d) loans 30 \u2013 89 days past at March 31, 2023 or March 31, 2022. At March 31, 2023, CRE loans represent the largest portion of our loan portfolio at 55.95% of total loans and commercial business loans represent 23.08% of total loans.\nTroubled debt restructurings (\u201cTDRs\u201d) are loans for which the Company, for economic or legal reasons related to the borrower\u2019s financial condition, has granted a concession to the borrower that it would otherwise not consider. A TDR typically involves a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, and/or an extension of the maturity date(s) at a stated interest rate lower than the current market rate for a new loan with similar risk.\nTDRs are considered impaired loans when a loan is deemed to be impaired, the amount of the impairment is measured using discounted cash flows and the original note rate, except when the loan is collateral dependent. In these cases, the estimated fair value of the collateral (less any selling costs, if applicable) is used. Impairment is recognized as a specific component within the allowance for loan losses if the estimated value of the impaired loan is less than the recorded investment in the loan. When the amount of the impairment represents a confirmed loss, it is charged-off against the allowance for loan losses. At March 31, 2023, the Company had TDRs totaling $629,000, of which $450,000 were on accrual status. The $179,000 of TDRs accounted for on a non-accrual basis at March 31, 2023 are included as nonperforming loans in the nonperforming asset table above. All of the Company\u2019s TDRs were paying as agreed at March 31, 2023. The related amount of interest income recognized on these TDR loans was $24,000 for the fiscal year ended March 31, 2023.\nThe Company has determined that, in certain circumstances, it is appropriate to split a loan into multiple notes. This typically includes a nonperforming charged-off loan that is not supported by the cash flow of the relationship and a performing loan that is supported by the cash flow. These may also be split into multiple notes to align portions of the loan balance with the various sources of repayment when more than one exists. Generally, the new loans are restructured based on customary underwriting standards. In situations where they are not, the policy exception qualifies as a concession, and if the borrower is experiencing financial difficulties, the loans are accounted for as TDRs. At March 31, 2023, no loans had been restructured in this manner.\nThe accrual status of a loan may change after it has been classified as a TDR. The Company\u2019s general policy related to TDRs is to perform a credit evaluation of the borrower\u2019s financial condition and prospects for repayment under the revised terms. This evaluation includes consideration of the borrower\u2019s sustained historical repayment performance for a reasonable period of time. A sustained period of repayment performance generally would be a minimum of six months and may include repayments made prior to the restructuring date. If repayment of principal and interest appears doubtful, it is placed on non-accrual status.\nIn accordance with the Company\u2019s policy guidelines, unsecured loans are generally charged-off when no payments have been received for three consecutive months unless an alternative action plan is in effect. Consumer installment loans delinquent six months or more that have not received at least 75% of their required monthly payment in the last 90 days are charged-off. In addition, loans discharged in bankruptcy proceedings are charged-off. Loans under bankruptcy protection with no payments \n13\n\n\nTable of Contents\nreceived for four consecutive months are charged-off. The outstanding balance of a secured loan that is in excess of the net realizable value is generally charged-off if no payments are received for four to five consecutive months. However, charge-offs are postponed if alternative proposals to restructure, obtain additional guarantors, obtain additional assets as collateral or a potential sale of the underlying collateral would result in full repayment of the outstanding loan balance. Once any other potential sources of repayment are exhausted, the impaired portion of the loan is charged-off. Regardless of whether a loan is unsecured or collateralized, once an amount is determined to be a confirmed loan loss it is promptly charged-off.\nAsset Classification.\n Federal regulations provide for the classification of lower quality loans and other assets (such as other real estate owned and repossessed property), debt and equity securities, as substandard, doubtful or loss. An asset is considered substandard if it is inadequately protected by the current net worth and pay capacity of the borrower or of any collateral pledged. Substandard assets have a well-defined weakness and include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the additional characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.\nWhen the Company classifies problem assets as either substandard or doubtful, we may determine that the loan is impaired and establish a specific allowance in an amount we deem prudent to address the risk specifically or we may allow the loss to be addressed in the general allowance. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem assets. When a problem asset is classified by us as a loss, we are required to charge off the asset in the period in which it is deemed uncollectible.\nThe aggregate amount of the Company\u2019s classified loans (comprised entirely of substandard loans), general loss allowances, specific loss allowances and net charge-offs (recoveries) were as follows at the dates indicated (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAt\u00a0or\u00a0For\u00a0the\u00a0Year\n\u200b\n\u200b\nEnded\u00a0March\u00a031,\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nClassified loans\n\u200b\n$\n 2,647\n\u200b\n$\n 6,405\nGeneral loss allowances\n\u200b\n\u00a0\n 15,303\n\u200b\n\u00a0\n 14,515\nSpecific loss allowances\n\u200b\n\u00a0\n 6\n\u200b\n\u00a0\n 8\nNet charge-offs (recoveries)\n\u200b\n\u00a0\n (36)\n\u200b\n\u00a0\n 30\n\u200b\nAll loans on non-accrual status as of March 31, 2023 were categorized as classified loans with the exception of one commercial business loan for $18,000 which is fully guaranteed by the SBA. Classified loans at March 31, 2023 were comprised of \u00a0three commercial business loans totaling $117,000, three commercial real estate loans totaling $2.4 million (the largest of which was $1.5 million) and three one-to-four family real estate loans totaling $86,000. The net decrease in classified loans is primarily attributed to the upgrade of one commercial real estate loan totaling $3.6 million. As discussed earlier, nonperforming SBA and USDA government guaranteed loans totaled $1.6 million. These nonperforming government guaranteed loans are not considered classified as there is no well-defined weakness and do not include the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected in regard to these loans. The Company purchased the guaranteed portion of these loans which is backed by government guaranteed interest certificates and expects to receive all principal and interest on these loans.\nAllowance for Loan Losses.\n The Company maintains an allowance for loan losses to provide for probable losses inherent in the loan portfolio consistent with accounting principles generally accepted in the United States of America (\u201cGAAP\u201d) guidelines. The adequacy of the allowance is evaluated monthly to maintain the allowance at levels sufficient to provide for inherent losses existing at the balance sheet date. The key components to the evaluation are the Company\u2019s internal loan review function by its credit administration, which reviews and monitors the risk and quality of the loan portfolio; as well as the Company\u2019s external loan reviews and its loan classification systems. Credit officers are expected to monitor their loan portfolios and make recommendations to change loan grades whenever changes are warranted. Credit administration approves any changes to loan grades and monitors loan grades. For additional discussion of the Company\u2019s methodology for assessing the appropriate level of the allowance for loan losses see Item 7. \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2013 Critical Accounting Estimates.\u201d\n14\n\n\nTable of Contents\nIn accordance with GAAP, loans acquired from MBank during the fiscal year ended March 31, 2017 were recorded at their estimated fair value, which resulted in a net discount to the loans\u2019 contractual amounts, of which a portion reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value, and, as a result, no allowance for loan losses is recorded for acquired loans at the acquisition date. The discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios. However, we believe it should be considered when comparing certain financial ratios of the Company calculated in periods after the MBank transaction, compared to the same financial ratios of the Company in periods prior to the MBank transaction. The net discount on these acquired loans was $228,000 and $371,000 at March 31, 2023 and 2022, respectively.\nThe Company recorded a provision for loan losses of $750,000 for the fiscal year ended March 31, 2023 compared to a recapture of loan losses of $4.6 million for the fiscal year ended March 31, 2022. The increase in the allowance for loan losses in fiscal year 2023 is mainly attributed to an isolated downgrade of a commercial real estate loan for $15.9 million that occurred in the fourth quarter. \nAt March 31, 2023, the Company had an allowance for loan losses of $15.3 million, or 1.52% of total loans, compared to $14.5 million, or 1.47% of total loans at March 31, 2022. Net recoveries totaled $36,000 for the fiscal year ended March 31, 2023 compared to net charge-offs of $30,000 in the prior fiscal year. Criticized loans, which are comprised of watch and special mention loans, increased $11.3 million to $19.1 million at March 31, 2023 from $7.8 million at March 31, 2022. Classified loans decreased $3.8 million to $2.6 million at March 31, 2023 compared to $6.4 million at March 31, 2022. The net increase in criticized loans\u00a0is mainly attributed to the downgrade of the $15.9 million commercial real estate loan mentioned above offset by the upgrade to a pass rating of a $6.6 million commercial real estate loan that was part of the criticized total at March 31, 2022. Additionally, the criticized balance at March 31, 2023 includes three commercial business loans and one commercial real estate loan totaling $1.3 million to a related borrower that were downgraded in the third quarter. The decrease in classified loans is mainly due to the upgrade to a pass rating of a $3.6 million commercial real estate loan. The coverage ratio of allowance for loan losses to nonperforming loans was 826.62% at March 31, 2023 compared to 65.72% at March 31, 2022, and excluding SBA and USDA government guaranteed loans was 5777.0% at March 31, 2023. \u00a0The Company\u2019s general valuation allowance to non-impaired loans was 1.52% and 1.47% at March 31, 2023 and 2022, respectively.\nManagement considers the allowance for loan losses to be adequate at March 31, 2023 to cover probable losses inherent in the loan portfolio based on the assessment of various factors affecting the loan portfolio, and the Company believes it has established its existing allowance for loan losses in accordance with GAAP. However, a decline in national and local economic conditions (including a recession and continued inflationary pressures), results of examinations by the Company\u2019s banking regulators, or other factors could result in a material increase in the allowance for loan losses and may adversely affect the Company\u2019s future financial condition and results of operations. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses will be adequate or that substantial increases will not be necessary should the quality of any loans deteriorate or should collateral values decline as a result of the factors discussed elsewhere in this document.\n15\n\n\nTable of Contents\nThe following table sets forth the breakdown of the allowance for loan losses by loan category as of the dates indicated (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAt March\u00a031,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nLoan Category\n\u200b\n\u200b\n\u200b\n\u200b\nLoan Category\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nas\u00a0a Percent\n\u200b\n\u200b\n\u200b\n\u200b\nas\u00a0a Percent\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nof\u00a0Total Loans\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nof\u00a0Total Loans\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCommercial and construction:\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\nCommercial business\n\u200b\n$\n 3,123\n\u00a0\n 23.08\n%\u00a0\u00a0\n$\n 2,422\n\u00a0\n 23.03\n%\u00a0\u00a0\nCommercial real estate\n\u200b\n\u200b\n 8,894\n\u200b\n 55.95\n\u200b\n\u200b\n 9,037\n\u200b\n 58.85\n\u200b\nLand\n\u200b\n\u200b\n 93\n\u200b\n 0.64\n\u200b\n\u200b\n 168\n\u200b\n 1.16\n\u200b\nMulti-family\n\u200b\n\u200b\n 798\n\u200b\n 5.54\n\u200b\n\u200b\n 845\n\u200b\n 6.08\n\u200b\nReal estate construction\n\u200b\n\u00a0\n 764\n\u00a0\n 4.73\n\u200b\n\u00a0\n 393\n\u00a0\n 2.44\n\u200b\nConsumer:\n\u200b\n\u00a0\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n\u200b\n\u200b\nReal estate one-to-four family\n\u200b\n\u00a0\n 1,087\n\u00a0\n 9.88\n\u200b\n\u00a0\n 905\n\u00a0\n 8.28\n\u200b\nOther installment\n\u200b\n\u00a0\n 40\n\u00a0\n 0.18\n\u200b\n\u00a0\n 38\n\u00a0\n 0.16\n\u200b\nUnallocated\n\u200b\n\u00a0\n 510\n\u00a0\n \u2014\n\u200b\n\u00a0\n 715\n\u00a0\n \u2014\n\u200b\nTotal allowance for loan losses\n\u200b\n$\n 15,309\n\u00a0\n 100.00\n%\u00a0\u00a0\n$\n 14,523\n\u00a0\n 100.00\n%\u00a0\u00a0\n\u200b\n16\n\n\nTable of Contents\nThe following table shows certain credit ratios at and for the periods indicated and each component of the ratio\u2019s calculations.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAt or For the Year Ended March 31,\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAllowance for loan losses as a percentage of total loans outstanding at period end\n\u200b\n\u200b\n 1.52\n%\n\u200b\n 1.47\n%\n\u200b\n 2.03\n%\nAllowance for loan losses\n\u200b\n$\n 15,309\n\u200b\n$\n 14,523\n\u200b\n$\n 19,178\n\u200b\nTotal loans outstanding\n\u200b\n\u200b\n 1,008,856\n\u200b\n\u200b\n 990,408\n\u200b\n\u200b\n 943,235\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNon-accrual loans as a percentage of total loans outstanding at period end\n\u200b\n\u200b\n 0.03\n%\n\u200b\n 0.03\n%\n\u200b\n 0.04\n%\nTotal non-accrual loans\n\u200b\n$\n 283\n\u200b\n$\n 291\n\u200b\n$\n 395\n\u200b\nTotal loans outstanding\n\u200b\n\u200b\n 1,008,856\n\u200b\n\u200b\n 990,408\n\u200b\n\u200b\n 943,235\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAllowance for loan losses as a percentage of non-accrual loans at period end\n\u200b\n\u200b\n 5,409.54\n%\n\u200b\n 4,990.72\n%\n\u200b\n 4,855.19\n%\nAllowance for loan losses\n\u200b\n$\n 15,309\n\u200b\n$\n 14,523\n\u200b\n$\n 19,178\n\u200b\nTotal non-accrual loans\n\u200b\n\u200b\n 283\n\u200b\n\u200b\n 291\n\u200b\n\u200b\n 395\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNet charge-offs/(recoveries) during period to average loans outstanding:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCommercial business:\n\u200b\n\u200b\n \u2014\n%\n\u200b\n 0.03\n%\n\u200b\n \u2014\n%\nNet charge-offs/(recoveries)\n\u200b\n$\n \u2014\n\u200b\n$\n 69\n\u200b\n$\n (10)\n\u200b\nAverage loans receivable, net\n\u200b\n\u200b\n 233,884\n\u200b\n\u200b\n 225,677\n\u200b\n\u200b\n 268,363\n\u200b\nCommercial real estate:\n\u200b\n\u200b\n \u2014\n%\n\u200b\n \u2014\n%\n\u200b\n (0.06)\n%\nNet charge-offs/(recoveries)\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\n$\n (332)\n\u200b\nAverage loans receivable, net\n\u200b\n\u200b\n 568,999\n\u200b\n\u200b\n 559,275\n\u200b\n\u200b\n 526,965\n\u200b\nLand:\n\u200b\n\u200b\n \u2014\n%\n\u200b\n \u2014\n%\n\u200b\n \u2014\n%\nNet charge-offs/(recoveries)\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\nAverage loans receivable, net\n\u200b\n\u200b\n 8,486\n\u200b\n\u200b\n 13,498\n\u200b\n\u200b\n 13,765\n\u200b\nMulti-family:\n\u200b\n\u200b\n \u2014\n%\n\u200b\n \u2014\n%\n\u200b\n \u2014\n%\nNet charge-offs/(recoveries)\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\nAverage loans receivable, net\n\u200b\n\u200b\n 57,548\n\u200b\n\u200b\n 48,651\n\u200b\n\u200b\n 50,489\n\u200b\nReal estate construction:\n\u200b\n\u200b\n \u2014\n%\n\u200b\n \u2014\n%\n\u200b\n \u2014\n%\nNet charge-offs/(recoveries)\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\nAverage loans receivable, net\n\u200b\n\u200b\n 38,214\n\u200b\n\u200b\n 16,828\n\u200b\n\u200b\n 32,834\n\u200b\nConsumer:\n\u200b\n\u200b\n (0.04)\n%\n\u200b\n (0.06)\n%\n\u200b\n 0.12\n%\nNet charge-offs/(recoveries)\n\u200b\n$\n (36)\n\u200b\n$\n (39)\n\u200b\n$\n 88\n\u200b\nAverage loans receivable, net\n\u200b\n\u200b\n 99,914\n\u200b\n\u200b\n 70,813\n\u200b\n\u200b\n 73,654\n\u200b\nTotal loans:\n\u200b\n\u200b\n \u2014\n%\n\u200b\n \u2014\n%\n\u200b\n (0.03)\n%\nTotal net recoveries/(recoveries)\n\u200b\n$\n (36)\n\u200b\n$\n 30\n\u200b\n$\n (254)\n\u200b\nTotal average loans receivable, net\n\u200b\n\u200b\n 1,007,045\n\u200b\n\u200b\n 934,742\n\u200b\n\u200b\n 966,070\n\u200b\n\u200b\nInvestment Activities\nThe Board sets the investment policy of the Company. The Company\u2019s investment objectives are: to provide and maintain liquidity within regulatory guidelines; to maintain a balance of high quality, diversified investments to minimize risk; to provide collateral for pledging requirements; to serve as a balance to earnings; and to optimize returns. The policy permits investment in various types of liquid assets (generally debt and asset-backed securities) permissible under applicable regulations, which includes U.S. Treasury obligations, securities of various federal agencies, \u201cbank qualified\u201d municipal bonds, certain certificates of deposit of insured banks, repurchase agreements, federal funds, real estate mortgage investment conduits (\u201cREMICS\u201d) and mortgage-backed securities (\u201cMBS\u201d), but does not permit investment in non-investment grade bonds. The policy also dictates the criteria for classifying investment securities into one of three categories: held to maturity, available for sale or trading. At March 31, 2023, no investment securities were held for trading purposes. At March 31, 2023, the Company\u2019s investment portfolio consisted of solely debt securities and no equity securities. See Item 7. \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2013 Critical Accounting Estimates.\u201d\nThe Company primarily purchases agency securities and a combination of MBS backed by government agencies (FHLMC, Fannie Mae (\u201cFNMA\u201d), SBA or Ginnie Mae (\u201cGNMA\u201d)). FHLMC and FNMA securities are not backed by the full faith and credit of the U.S. government, while SBA and GNMA securities are backed by the full faith and credit of the U.S. government. At March 31, 2023, the Company owned no privately issued MBS. Our REMICS are MBS issued by FHLMC, FNMA and GNMA and our \n17\n\n\nTable of Contents\nCRE MBS are issued by FNMA. The Company does not believe that it has any exposure to sub-prime lending in its investment securities portfolio. See Note 3 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for additional information.\nThe following table sets forth the investment securities portfolio and carrying values at the dates indicated (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAt March\u00a031,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n\u200b\n\u200b\nCarrying\n\u200b\nPercent\u00a0of\n\u200b\nCarrying\n\u200b\nPercent\u00a0of\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nValue\n\u00a0\u00a0\u00a0\u00a0\nPortfolio\n\u00a0\u00a0\u00a0\u00a0\nValue\n\u00a0\u00a0\u00a0\u00a0\nPortfolio\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAvailable for sale (at estimated fair value):\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\nMunicipal securities\n\u200b\n$\n 40,261\n\u00a0\n 8.84\n%\u00a0\u00a0\n$\n 39,604\n\u00a0\n 9.45\n%\u00a0\u00a0\nAgency securities\n\u200b\n\u00a0\n 85,907\n\u00a0\n 18.87\n\u200b\n\u00a0\n 40,705\n\u00a0\n 9.72\n\u200b\nREMICs\n\u200b\n\u00a0\n 28,877\n\u00a0\n 6.34\n\u200b\n\u00a0\n 32,717\n\u00a0\n 7.81\n\u200b\nResidential MBS\n\u200b\n\u00a0\n 15,471\n\u00a0\n 3.40\n\u200b\n\u00a0\n 16,945\n\u00a0\n 4.05\n\u200b\nOther MBS\n\u200b\n\u00a0\n 40,983\n\u00a0\n 9.00\n\u200b\n\u00a0\n 35,811\n\u00a0\n 8.55\n\u200b\n\u200b\n\u200b\n\u00a0\n 211,499\n\u00a0\n 46.45\n\u200b\n\u00a0\n 165,782\n\u00a0\n 39.58\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nHeld to maturity (at amortized cost):\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nMunicipal securities\n\u200b\n\u00a0\n 10,344\n\u00a0\n 2.27\n\u200b\n\u00a0\n 10,368\n\u00a0\n 2.47\n\u200b\nAgency securities\n\u200b\n\u00a0\n 53,941\n\u00a0\n 11.85\n\u200b\n\u00a0\n 45,277\n\u00a0\n 10.81\n\u200b\nREMICs\n\u200b\n\u00a0\n 35,186\n\u00a0\n 7.73\n\u200b\n\u00a0\n 39,394\n\u00a0\n 9.40\n\u200b\nResidential MBS\n\u200b\n\u00a0\n 123,773\n\u00a0\n 27.18\n\u200b\n\u00a0\n 137,343\n\u00a0\n 32.79\n\u200b\nOther MBS\n\u200b\n\u00a0\n 20,599\n\u00a0\n 4.52\n\u200b\n\u00a0\n 20,718\n\u00a0\n 4.95\n\u200b\n\u200b\n\u200b\n\u00a0\n 243,843\n\u00a0\n 53.55\n\u200b\n\u00a0\n 253,100\n\u00a0\n 60.42\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal investment securities\n\u200b\n$\n 455,342\n\u00a0\n 100.00\n%\u00a0\u00a0\n$\n 418,882\n\u00a0\n 100.00\n%\u00a0\u00a0\n\u200b\nThe following table sets forth the maturities and weighted average yields in the securities portfolio at March 31, 2023 (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAfter One Year\n\u200b\nAfter\u00a0Five\u00a0Years\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\nOne Year or Less\n\u200b\nThrough Five Years\n\u200b\nThrough Ten\u00a0Years\n\u200b\nAfter Ten Years\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWeighted\n\u200b\n\u200b\n\u200b\n\u200b\nWeighted\n\u200b\n\u200b\n\u200b\n\u200b\nWeighted\n\u200b\n\u200b\n\u200b\n\u200b\nWeighted\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAverage\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\nAverage\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\nAverage\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\nAverage\n\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nYield \n(1)\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nYield \n(1)\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nYield \n(1)\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nYield \n(1)\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAvailable for sale:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMunicipal securities\n\u200b\n$\n \u2014\n\u00a0\n \u2014\n%\u00a0\u00a0\n$\n 3,970\n\u200b\n 3.29\n%\u00a0\u00a0\n$\n 8,874\n\u00a0\n 2.74\n%\u00a0\u00a0\n$\n 27,417\n\u00a0\n 2.04\n%\nAgency securities\n\u200b\n\u00a0\n 8,890\n\u00a0\n 3.01\n\u200b\n\u00a0\n 61,647\n\u00a0\n 2.60\n\u200b\n\u00a0\n 15,370\n\u00a0\n 1.26\n\u200b\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u200b\nREMICS\n\u200b\n\u00a0\n 1\n\u00a0\n 5.86\n\u200b\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u200b\n\u00a0\n 544\n\u00a0\n 2.09\n\u200b\n\u00a0\n 28,332\n\u00a0\n 1.73\n\u200b\nResidential MBS\n\u200b\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u200b\n\u00a0\n 624\n\u00a0\n 1.95\n\u200b\n\u00a0\n 5,870\n\u00a0\n 1.78\n\u200b\n\u00a0\n 8,977\n\u00a0\n 2.99\n\u200b\nOther MBS\n\u200b\n\u00a0\n 3,370\n\u00a0\n 2.82\n\u200b\n\u00a0\n 11,963\n\u00a0\n 4.23\n\u200b\n\u00a0\n 16,556\n\u00a0\n 1.73\n\u200b\n\u00a0\n 9,094\n\u00a0\n 2.96\n\u200b\nTotal available for sale\n\u200b\n$\n 12,261\n\u00a0\n 2.96\n%\u00a0\u00a0\n$\n 78,204\n\u00a0\n 2.88\n%\u00a0\u00a0\n$\n 47,214\n\u00a0\n 1.76\n%\u00a0\u00a0\n$\n 73,820\n\u00a0\n 2.13\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nHeld to maturity:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMunicipal securities\n\u200b\n$\n \u2014\n\u00a0\n \u2014\n%\u00a0\u00a0\n$\n \u2014\n\u200b\n \u2014\n%\u00a0\u00a0\n$\n \u2014\n\u200b\n \u2014\n%\u00a0\u00a0\n$\n 10,344\n\u200b\n 2.34\n%\nAgency securities\n\u200b\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u200b\n\u00a0\n 38,937\n\u200b\n 1.84\n\u200b\n\u00a0\n 11,913\n\u200b\n 1.42\n\u200b\n\u00a0\n 3,091\n\u200b\n 0.80\n\u200b\nREMICS\n\u200b\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n \u2014\n\u200b\n\u00a0\n 35,186\n\u200b\n 1.76\n\u200b\nResidential MBS\n\u200b\n\u00a0\n 4\n\u00a0\n 3.84\n\u200b\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u200b\n\u00a0\n 2,473\n\u200b\n 1.20\n\u200b\n\u00a0\n 121,296\n\u200b\n 1.77\n\u200b\nOther MBS\n\u200b\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u200b\n\u00a0\n 3,274\n\u00a0\n 1.95\n\u200b\n\u00a0\n 15,309\n\u200b\n 1.48\n\u200b\n\u00a0\n 2,016\n\u200b\n 1.33\n\u200b\nTotal held to maturity\n\u200b\n$\n 4\n\u00a0\n 3.84\n%\u00a0\u00a0\n$\n 42,211\n\u00a0\n 1.85\n%\u00a0\u00a0\n$\n 29,695\n\u00a0\n 1.43\n%\u00a0\u00a0\n$\n 171,933\n\u00a0\n 1.78\n%\n\u200b\n(1)\nThe weighted average yields are calculated by multiplying each amortized cost value by its yield and dividing the sum of these results by the total amortized cost values. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis.\nManagement reviews investment securities quarterly for the presence of other than temporary impairment (\u201cOTTI\u201d), taking into consideration current market conditions, the extent and nature of changes in estimated fair value, issuer rating changes and trends, financial condition of the underlying issuers, current analysts\u2019 evaluations, the Company\u2019s ability and intent to hold investments \n18\n\n\nTable of Contents\nuntil a recovery of estimated fair value, which may be maturity, as well as other factors. There was no OTTI charge for investment securities for the years ended March 31, 2023, 2022 or 2021. \n \nSee Note 3 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for additional information regarding investment securities.\nDeposit Activities and Other Sources of Funds\nGeneral.\n Deposits, loan repayments and loan sales are the major sources of the Company\u2019s funds for lending and other investment purposes. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources. They may also be used on a longer-term basis for general business purposes.\nDeposit Accounts.\n The Company attracts deposits from within its primary market area by offering a broad selection of deposit instruments, including demand deposits, negotiable order of withdrawal (\u201cNOW\u201d) accounts, money market accounts, savings accounts, certificates of deposit and retirement savings plans. The Company has focused on building customer relationship deposits which include both business and consumer depositors. Deposit account terms vary according to, among other factors, the minimum balance required, the time periods the funds must remain on deposit and the interest rate. In determining the terms of its deposit accounts, the Company considers the rates offered by its competition, profitability to the Company, matching deposit and loan products and customer preferences and concerns.\nThe following table sets forth the average balances of deposit accounts held by the Company at the dates indicated (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended March\u00a031,\u00a0\n\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\n\u00a0\n\u200b\n\u200b\nAverage\n\u200b\nAverage\n\u200b\nAverage\n\u200b\nAverage\n\u200b\nAverage\n\u200b\nAverage\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nBalance\n\u00a0\u00a0\u00a0\u00a0\nRate\n\u00a0\u00a0\u00a0\u00a0\nBalance\n\u00a0\u00a0\u00a0\u00a0\nRate\n\u00a0\u00a0\u00a0\u00a0\nBalance\n\u00a0\u00a0\u00a0\u00a0\nRate\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNon-interest-bearing demand\n\u200b\n$\n 480,029\n\u00a0\n0.00\n%\u00a0\u00a0\n$\n 476,203\n\u00a0\n0.00\n%\u00a0\u00a0\n$\n 387,579\n\u00a0\n0.00\n%\u00a0\u00a0\nInterest-bearing checking\n\u200b\n\u00a0\n 286,627\n\u00a0\n0.03\n\u200b\n\u00a0\n 279,053\n\u00a0\n0.03\n\u200b\n\u00a0\n 225,579\n\u00a0\n0.04\n\u200b\nSavings accounts\n\u200b\n\u00a0\n 308,840\n\u00a0\n0.07\n\u200b\n\u00a0\n 318,885\n\u00a0\n0.08\n\u200b\n\u00a0\n 257,285\n\u00a0\n0.16\n\u200b\nMoney market accounts\n\u200b\n\u00a0\n 266,795\n\u00a0\n0.16\n\u200b\n\u00a0\n 272,161\n\u00a0\n0.06\n\u200b\n\u00a0\n 204,931\n\u00a0\n0.07\n\u200b\nCertificates of deposit\n\u200b\n\u00a0\n 103,484\n\u00a0\n0.75\n\u200b\n\u00a0\n 117,391\n\u00a0\n0.80\n\u200b\n\u00a0\n 129,928\n\u00a0\n1.45\n\u200b\nTotal\n\u200b\n$\n 1,445,775\n\u00a0\n0.10\n%\u00a0\u00a0\n$\n 1,463,693\n\u00a0\n0.10\n%\u00a0\u00a0\n$\n 1,205,302\n\u00a0\n0.21\n%\u00a0\u00a0\n\u200b\nDeposit accounts totaled $1.3 billion at March 31, 2023 compared to $1.5 billion at March 31, 2022. The Company did not have any wholesale-brokered deposits at March 31, 2023 and 2022. The Company continues to focus on core deposits and growth generated by customer relationships as opposed to obtaining deposits through the wholesale markets, although the Company continued to experience competition for customer deposits within its market area during fiscal year 2023. Core branch deposits (comprised of all demand, savings, interest checking accounts and all time deposits excluding wholesale-brokered deposits, trust account deposits, Interest on Lawyer Trust Accounts (\u201cIOLTA\u201d), public funds, and internet based deposits) at March 31, 2023 decreased $250.1 million since March 31, 2022 due to deposit pricing pressures in our market and customers seeking higher yielding investment alternatives. At March 31, 2023, the Company had $22.8 million, or 1.80% of total deposits, in Certificate of Deposit Account Registry Service (\u201cCDARS\u201d) and Insured Cash Sweep (\u201cICS\u201d) deposits, which were gathered from customers within the Company\u2019s primary market-area. CDARS and ICS deposits allow customers access to FDIC insurance on deposits exceeding the $250,000 FDIC insurance limit.\nAt March 31, 2023 and 2022, the Company also had $21.3 million and $25.9 million, respectively, in deposits from public entities located in the States of Washington and Oregon, all of which were fully covered by FDIC insurance or secured by pledged collateral.\nThe Company is enrolled in an internet deposit listing service. Under this listing service, the Company may post certificates of deposit rates on an internet site where institutional investors have the ability to deposit funds with the Company. At March 31, 2023 and 2022, the Company did not have any deposits through this listing service as the Company chose not to utilize these internet-based deposits. Although the Company did not originate any internet based deposits during the fiscal year ended March 31, 2023, the Company may do so in the future consistent with its asset/liability objectives. \n\u200b\n19\n\n\nTable of Contents\nDeposit growth remains a key strategic focus for the Company and our ability to achieve deposit growth, particularly in core deposits, is subject to many risk factors including the effects of competitive pricing pressures, changing customer deposit behavior, and increasing or decreasing interest rate environments. Adverse developments with respect to any of these risk factors could limit the Company\u2019s ability to attract and retain deposits and could have a material negative impact on the Company\u2019s future financial condition, results of operations and cash flows.\nAs of March 31, 2023 and 2022, approximately $225.7 million and $320.0 million, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank\u2019s regulatory reporting requirements. The following table presents the maturity period and amount of certificates of deposit greater than $250,000 at March 31, 2023 (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMaturity Period\n\u200b\nAmount\n\u200b\nThree months or less\n\u200b\n$\n 1,741\n\u00a0\nOver three through six months\n\u200b\n\u00a0\n 5,195\n\u00a0\nOver six through 12 months\n\u200b\n\u00a0\n 19,592\n\u00a0\nOver 12 months\n\u200b\n\u00a0\n 13,787\n\u00a0\nTotal\n\u200b\n$\n 40,315\n\u00a0\n\u200b\nFor more information, see also Note 8 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.\n\u200b\nBorrowings.\n The Company relies upon advances from the FHLB and borrowings from the Federal Reserve Bank of San Francisco (\u201cFRB\u201d), as needed, to supplement its supply of lendable funds and to meet deposit withdrawal requirements. Advances from the FHLB and borrowings from the FRB are typically secured by the Bank\u2019s commercial business loans, commercial real estate loans and real estate one-to-four family loans. At March 31, 2023, the Bank had FHLB advances totaling $123.8 million and no FRB borrowings. At March 31, 2022, the Bank did not have any FHLB advances or FRB borrowings.\nThe FHLB functions as a central reserve bank providing credit for member financial institutions. As a member, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances on the security of such stock and certain of its mortgage loans and other assets (primarily securities which are obligations of, or guaranteed by, the U.S.) provided certain standards related to credit-worthiness have been met. The FHLB determines specific lines of credit for each member institution and the Bank has a line of credit with the FHLB equal to 45% of its total assets to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock. At March 31, 2023, the Bank had an available credit capacity of $718.9 million, subject to sufficient collateral and stock investment.\nThe Bank also has a borrowing arrangement with the FRB with an available credit facility of $57.4 million, subject to pledged collateral, as of March 31, 2023. The following table sets forth certain information concerning the Company\u2019s borrowings for the periods indicated (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended March\u00a031,\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\nMaximum amounts of FHLB advances outstanding at any month end\n\u200b\n$\n 123,754\n\u200b\n$\n \u2014\n\u200b\n$\n 30,000\n\u200b\nAverage FHLB advances outstanding\n\u200b\n\u00a0\n 21,045\n\u200b\n\u00a0\n 3\n\u200b\n\u00a0\n 15,044\n\u200b\nWeighted average rate on FHLB advances\n\u200b\n\u00a0\n 4.88\n%\u00a0\u00a0\n\u00a0\n 0.31\n%\u00a0\u00a0\n\u00a0\n 0.31\n%\u00a0\u00a0\nMaximum amounts of FRB borrowings outstanding at any month end\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\nAverage FRB borrowings outstanding\n\u200b\n\u00a0\n 13\n\u200b\n\u00a0\n 3\n\u200b\n\u00a0\n \u2014\n\u200b\nWeighted average rate on FRB borrowings\n\u200b\n\u00a0\n 4.62\n%\u00a0\u00a0\n\u00a0\n 0.25\n%\u00a0\u00a0\n\u00a0\n \u2014\n%\u00a0\u00a0\n\u200b\n\u200b\n20\n\n\nTable of Contents\nAt March 31, 2023, the Company had three wholly-owned subsidiary grantor trusts totaling $26.9 million that were established for the purpose of issuing trust preferred securities and common securities. The trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in each trust agreement. The trusts used the net proceeds from each of the offerings to purchase a like amount of junior subordinated debentures (the \u201cDebentures\u201d) of the Company. The Debentures are the sole assets of the trusts. The Company\u2019s obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon maturity of the Debentures or upon earlier redemption as provided in the indentures. The Company has the right to redeem the Debentures in whole or in part on or after specific dates, at a redemption price specified in the indentures governing the Debentures plus any accrued but unpaid interest to the redemption date. The Company also has the right to defer the payment of interest on each of the Debentures for a period not to exceed 20 consecutive quarters, provided that the deferral period does not extend beyond the stated maturity. During such deferral period, distributions on the corresponding trust preferred securities will also be deferred and the Company may not pay cash dividends to the holders of shares of the Company\u2019s common stock. The common securities issued by the grantor trusts are held by the Company, and the Company\u2019s investment in the common securities of $836,000 at both March 31, 2023 and 2022 is included in prepaid expenses and other assets in the Consolidated Balance Sheets included in the Consolidated Financial Statements contained in Item 8 of this Form 10-K. For more information, see also Note 10 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.\nTaxation\nFor details regarding the Company\u2019s taxes, see Note 11 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.\nEmployees and Human Capital\nAs of March 31, 2023, the Company had 229 full-time equivalent employees, none of whom are represented by a collective bargaining unit. The Company believes its relationship with its employees is good.\nTo facilitate talent attraction and retention, we strive to make the Bank an inclusive, safe and healthy workplace, with opportunities for our employees to grow and develop in their careers, supported by competitive compensation and benefits programs. Approximately 65.8% of our workforce was female and 34.2% male, 58.0% of our management roles were held by females and 42.0% were held by males and our average tenure was\u00a0seven years. The ethnicity of our workforce was 84.0% White, 5.4% Asian, 4.6% Hispanic or Latinx, 1.3% two or more races, 1.7% American Indian or Alaskan Native, 1.3% Native Hawaiian or Pacific Islander and 1.7% African American or Black. Benefit programs include quarterly or annual incentive opportunities, a Company sponsored Employee Stock Ownership Plan (\u201cESOP\u201d), a Company-matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, and employee assistance programs including educational reimbursement opportunities.\nThe success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety, and wellness of our employees. In support of our commitment, we have onsite gym facilities at our operations center to promote health and wellness. In response to the COVID-19 pandemic, we implemented significant operating environment changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations. We continue to utilize a hybrid work model which is supported by technology that promotes flexibility to work remotely while also recognizing the benefits of in-person collaboration. \nThe Company recognizes that the skills and knowledge of its employees are critical to the success of the organization, and promotes training and continuing education as an ongoing function for its employees. The Bank\u2019s compliance training program provides required annual training courses to assure that all employees know the rules applicable to their jobs. \n\u200b\n21\n\n\nTable of Contents\nCorporate Information\nThe Company\u2019s principal executive offices are located at 900 Washington Street, Vancouver, Washington 98660. Its telephone number is (360) 693-6650. The Company maintains a website with the address www.riverviewbank.com. The information contained on the Company\u2019s website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor\u2019s own internet access charges, the Company makes available free of charge through its website the Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after it has electronically filed such material with, or furnished such material to, the Securities and Exchange Commission (\u201cSEC\u201d).\nSubsidiary Activities\nRiverview has one operating subsidiary, the Bank. The Bank has two wholly-owned subsidiaries, Riverview Services and the Trust Company.\nRiverview Services acts as a trustee for deeds of trust on mortgage loans granted by the Bank and receives a reconveyance fee for each deed of trust. Riverview Services had net income of $21,000 for the fiscal year ended March 31, 2023 and total assets of $1.3 million at March 31, 2023. Riverview Services\u2019 operations are included in the Consolidated Financial Statements of the Company contained in Item 8 of this Form 10-K.\nThe Trust Company is an asset management company providing trust, estate planning and investment management services. The Trust Company had net income of $860,000 for the fiscal year ended March 31, 2023 and total assets of $9.0 million at March 31, 2023. The Trust Company earns fees on the management of assets held in fiduciary or agency capacity. At March 31, 2023, total assets under management were $890.6 million. The Trust Company\u2019s operations are included in the Consolidated Financial Statements of the Company contained in Item 8 of this Form 10-K.\n\u200b\n22\n\n\nTable of Contents\nInformation about our Executive Officers\n. The following table sets forth certain information regarding the executive officers of the Company and its subsidiaries:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nName\n\u00a0\u00a0\u00a0\u00a0\nAge\u00a0\n(1)\n\u00a0\u00a0\u00a0\u00a0\nPosition\nKevin J. Lycklama\n\u00a0\n 45\n\u00a0\nPresident and Chief Executive Officer\nDavid Lam\n\u00a0\n 46\n\u00a0\nExecutive Vice President and Chief Financial Officer\nDaniel D. Cox\n\u00a0\n 45\n\u00a0\nExecutive Vice President and Chief Credit Officer\nTracie L. Jellison\n\u200b\n 54\n\u200b\nExecutive Vice President and Chief Retail Banking Officer\nSteven P. Plambeck\n\u00a0\n 63\n\u00a0\nExecutive Vice President and Chief Lending Officer\nEvan Sowers\n\u00a0\n 45\n\u00a0\nPresident and Chief Executive Officer of Riverview Trust Company\n\u200b\n(1)\nAt March 31, 2023\nKevin J. Lycklama\n is President and Chief Executive Officer of the Company, positions he has held since April 2018. Prior to assuming the role of President and Chief Executive Officer, Mr. Lycklama served as Executive Vice President and Chief Operating Officer of the Company, positions he had held since July 2017. Prior to July 2017, Mr. Lycklama served as Executive Vice President and Chief Financial Officer of the Company since 2008 and Vice President and Controller of the Bank since 2006. Prior to joining Riverview, Mr. Lycklama spent five years with a local public accounting firm advancing to the level of audit manager. He holds a Bachelor of Arts degree from Washington State University, is a graduate of the Pacific Coast Banking School and is a certified public accountant (CPA). Mr. Lycklama is a member of the Washington State University Vancouver Advisory Council.\nDavid Lam\n is Executive Vice President and Chief Financial Officer of the Company, positions he has held since July 2017. Prior to July 2017, Mr. Lam served as Senior Vice President and Controller of the Bank since 2008. He is responsible for accounting, SEC reporting and treasury functions for the Bank and the Company. Prior to joining Riverview, Mr. Lam spent ten years working in the public accounting sector advancing to the level of audit manager. Mr. Lam holds a Bachelor of Arts degree in business administration with an emphasis in accounting from Oregon State University. Mr. Lam is a CPA, holds a chartered global management accountant designation and is a member of both the American Institute of CPAs and Oregon Society of CPAs.\nDaniel D. Cox\n is Executive Vice President and Chief Credit Officer of the Bank and is responsible for credit administration related to the Bank\u2019s commercial, mortgage and consumer loan activities. Mr. Cox joined the Bank in August 2002 and spent five years as a commercial lender and progressed through the credit administration function, most recently serving as Senior Vice President of Credit Administration. He holds a Bachelor of Arts degree from Washington State University and was an Honor Roll graduate of the Pacific Coast Banking School. Mr. Cox is an active mentor in the local schools and was the Past Treasurer and Endowment Chair for the Washougal Schools Foundation and Past Board Member of Camas-Washougal Chamber of Commerce.\nTracie L. Jellison\n is Executive Vice President and Chief Retail Banking Officer of the Bank, a position she has held since June 2022. \u00a0Mrs. Jellison is responsible for the oversight of the bank\u2019s retail branches. \u00a0Prior to June 2022, Mrs. Jellison served as Senior Vice President and Commercial Lending Team Leader of the Portland Commercial Lending Team. \u00a0Mrs. Jellison has spent her entire professional career working in banking and is passionate about delivering high level service to all clients. Mrs. Jellison attended The University of San Diego, studying music, and is a graduate of Flight Safety. \u00a0\nSteven P. Plambeck\n\u00a0is Executive Vice President and Chief Lending Officer of the Bank, a position he has held since March 2018. Mr. Plambeck is responsible for all loan production including commercial, consumer, mortgage and builder/developer construction loans. Mr. Plambeck joined the Bank in January 2011 as Director of Medical Banking. For the past two years Mr. Plambeck served as Senior Vice President and Team Leader for the Portland Commercial Team. Mr. Plambeck holds a Bachelor of Science degree in Accounting from the University of Wyoming and is also a graduate of the Pacific Coast Banking School. Mr. Plambeck is a board member for the Providence St. Vincent Council of Trustees, Providence Heart and Vascular Institute and the Providence Brain and Spine Institute. Mr. Plambeck is also a member of the Medical and Dental Advisory Team.\nEvan Sowers\n is President and Chief Executive Officer of the Trust Company, a wholly-owned subsidiary of the Bank. Mr. Sowers joined the Trust Company in 2022, after having spent twenty-two years working in trusts and investments. Mr. Sowers was managing director of private banking and wealth management and led the region for a large trust company in the Midwest. Mr. Sowers holds an MBA in Finance, Accounting and Investment Banking from Washington University and an undergraduate degree from the University of Missouri. \n\u200b\n23\n\n\nTable of Contents\nREGULATION\nGeneral.\nOn April 28, 2021, the Bank converted from a federally chartered savings bank to a Washington state-chartered commercial bank. As a Washington state-chartered commercial bank, the Bank\u2019s regulators are the WDFI and the FDIC, rather than the OCC. The Company converted from a Savings and Loan Holding Company to a Bank Holding Company and the Federal Reserve remained its primary federal regulator.\nThe following is a brief description of certain laws and regulations which are applicable to the Company and the Bank. The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.\nLegislation is introduced from time to time in the United States Congress (\u201cCongress\u201d) or the Washington State Legislature that may affect the Company\u2019s and Bank\u2019s operations. In addition, the regulations governing the Company and the Bank may be amended from time to time by the WDFI, the FDIC, the Federal Reserve or the SEC, as appropriate. Any such legislation or regulatory changes in the future could have an adverse effect\u00a0on our operations and financial condition. We cannot predict whether any such changes may occur.\nThe WDFI and FDIC have extensive enforcement authority over all Washington state-chartered commercial banks, including the Bank. The Federal Reserve has the same type of authority over Riverview.\nRegulation and Supervision of the Bank\nGeneral.\n As a state-chartered commercial bank, the Bank is subject to applicable provisions of Washington state law and regulations of the WDFI in addition to federal law and regulations of the FDIC applicable to state banks that are not members of the Federal Reserve System. State law and regulations govern the Bank\u2019s ability to take deposits and pay interest, to make loans on or invest in residential and other real estate, to make consumer loans, to invest in securities, to offer various banking services to its customers and to establish branch offices. Under state law, commercial banks in Washington also generally have all of the powers that national banks have under federal laws and regulations. The Bank is subject to periodic examination by and reporting requirements of the WDFI and FDIC.\nCapital Requirements.\n Federally insured financial institutions, such as the Bank and\u00a0their holding companies, are required to maintain a minimum level of regulatory capital. The Bank is subject to capital regulations adopted by the FDIC, which establish minimum required ratios for a common equity Tier 1 (\u201cCET1\u201d) capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a total capital to risk-based assets ratio and a Tier 1 capital to total assets leverage ratio. The capital standards require the maintenance of the following minimum capital ratios: (i) a CET1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. Consolidated regulatory capital requirements identical to those applicable to subsidiary banks generally apply to bank holding companies. However, the Federal Reserve has provided a \u201cSmall Bank Holding Company\u201d exception to its consolidated capital requirements, and bank holding companies with less than $3.0 billion of consolidated assets are not subject to the consolidated holding company capital requirements unless otherwise directed by the Federal Reserve.\nThe Economic Growth, Regulatory Relief and Consumer Protection Act (\u201cEGRRCPA\u201d), enacted in May 2018, required the federal banking agencies, including the FDIC, to establish for institutions with assets of less than $10 billion a \u201ccommunity bank leverage ratio\u201d or \u201cCBLR\u201d of between 8 to 10%. Institutions with capital meeting or exceeding the ratio and otherwise complying with the specified requirements (including off-balance sheet exposures of 25% or less of total assets and trading assets and liabilities of 5% or less of total assets) and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. The CBLR was established at 9% Tier 1 capital to total average assets, effective January 1, 2020. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. An institution that temporarily ceases to meet any qualifying criteria is provided with a two- quarter grace period to again achieve compliance. Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable capital requirements. The Bank has not elected to use the CBLR framework as of March 31, 2023.\n24\n\n\nTable of Contents\nCertain changes in what constitutes regulatory capital, including the phasing out of certain instruments as qualifying capital, are subject to transition periods, most of which have expired. The Bank does not have any such instruments. Because of the Bank\u2019s asset size, the Bank elected to take a one-time option to permanently opt-out of the inclusion of unrealized gains and losses on available for sale debt and equity securities in its capital calculations.\nThe Bank also must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum risk-based capital levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses.\nIn order to be considered well-capitalized under the prompt corrective action regulations described below, the Bank must maintain a CET1 risk-based ratio of 6.5%, a Tier 1 risk-based ratio of 8%, a total risk-based capital ratio of 10% and a leverage ratio of 5%, and the Bank must not be subject to an individualized order, directive or agreement under which its primary federal banking regulator requires it to maintain a specific capital level. As of March 31, 2023, the Bank met the requirements to be \u201cwell capitalized\u201d and met the fully phased-in capital conservation buffer requirement. For a complete description of the Bank\u2019s required and actual capital levels on March 31, 2023, see Note 13 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.\nThe Financial Accounting Standards Board (\u201cFASB\u201d) has adopted a new accounting standard for GAAP that is effective for us for our first fiscal year beginning after December 15, 2022. This standard, referred to as Current Expected Credit Loss (\u201cCECL\u201d) requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets. CECL covers a broader range of assets than the current method of recognizing credit losses and generally results in earlier recognition of credit losses. Upon adoption of CECL, a banking organization must record a one-time adjustment to its credit loss allowances as of the beginning of the fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowances under the current methodology and the amount required under CECL. For a banking organization, implementation of CECL may reduce retained earnings, and to affect other items, in a manner that reduces its regulatory capital.\nThe federal banking regulators (the Federal Reserve, the OCC and the FDIC) have adopted a rule that gives a banking organization the option to phase in over a three-year period the day-one adverse effects of CECL on its regulatory capital.\nPrompt Corrective Action.\n Federal statutes establish a supervisory framework for FDIC-insured institutions based on five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. An institution\u2019s category generally depends upon where its capital levels are in relation to relevant capital measures, which include risk-based capital measures, a leverage ratio capital measure, and certain other factors. An institution that is not well capitalized is subject to certain restrictions on brokered deposits, including restrictions on the rates it can offer on its deposits generally. Any institution which is neither well capitalized nor adequately capitalized is considered under- capitalized. The previously referenced final rule establishing an elective \u201ccommunity bank leverage ratio\u201d regulatory capital framework provides that a qualifying institution whose capital exceeds the CBLR and opts to use that framework will be considered \u201cwell capitalized\u201d for purposes of prompt corrective action.\nUndercapitalized institutions are subject to certain prompt corrective action requirements, regulatory controls and restrictions which become more extensive as an institution becomes more severely undercapitalized. Failure by the Bank to comply with applicable capital requirements would, if unremedied, result in progressively more severe restrictions on its activities and lead to enforcement actions, including, but not limited to, the issuance of a capital directive to ensure the maintenance of required capital levels and, ultimately, the appointment of the FDIC as receiver or conservator. Banking regulators will take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. Additionally, approval of any regulatory application filed for their review may be dependent on compliance with capital requirements.\nFederal Home Loan Bank System.\n The Bank is a member of the FHLB, which is one of 11 regional Federal Home Loan Banks that administer the home financing credit function of savings institutions, each of which serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans or advances to members in accordance with policies and procedures established by the Board of Directors of the FHLB, which are subject to the oversight of the Federal Housing Finance Agency. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. See Business \u2013 \u201cDeposit Activities and Other Sources of Funds \u2013 Borrowings.\u201d As a member, the Bank is required to purchase and maintain stock in the FHLB. At March 31, 2023, the Bank held $6.9 million \n25\n\n\nTable of Contents\nin FHLB stock, which is comprised of $1.9 million of membership stock and $5.0 million of activity stock from borrowing activities. At March 31, 2023, the Bank is in compliance with FHLB stock requirements. During the fiscal year ended March 31, 2023, the Bank redeemed $102,000 of FHLB membership stock at par due to the decrease in the Bank\u2019s consolidated assets at December 31, 2022 as compared to December 31, 2021.\nThe FHLB continues to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of the Bank\u2019s FHLB stock may result in a decrease in net income and possibly capital.\nInsurance of Accounts and Regulation by the FDIC.\n The Bank\u2019s deposits are insured up to $250,000 per separately insured deposit ownership right or category by the Deposit Insurance Fund (\u201cDIF\u201d) of the FDIC. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. The FDIC assesses deposit insurance premiums quarterly on each FDIC-insured institution applied to its deposit base, which is their average consolidated total assets minus its Tier 1 capital. No institution may pay a dividend if it is in default on its federal deposit insurance assessment. Total base assessment rates currently range from 3 to 30 basis points subject to certain adjustments. \nExtraordinary growth in insured deposits during the first and second quarters of 2020 caused the DIF reserve ratio to decline below the statutory minimum of 1.35 percent as of June 30, 2020. \u00a0In September 2020, the FDIC Board of Directors adopted a Restoration Plan to restore the reserve ratio to at least 1.35 percent within eight years, absent extraordinary circumstances, as required by the Federal Deposit Insurance Act. \u00a0The Restoration Plan maintained the assessment rate schedules in place at the time and required the FDIC to update its analysis and projections for the deposit insurance fund balance and reserve ratio at least semiannually. In the semiannual update for the Restoration Plan in June 2022, the FDIC projected that the reserve ratio was at risk of not reaching the statutory minimum of 1.35 percent by September 30, 2028, the statutory deadline to restore the reserve ratio. \u00a0Based on this update, the FDIC Board approved an Amended Restoration Plan, and concurrently proposed an increase in initial base deposit insurance assessment rate schedules uniformly by two basis points, applicable to all insured depository institutions. In October 2022, the FDIC Board finalized the increase with an effective date of January 1, 2023, applicable to the first quarterly assessment period of 2023. The revised assessment rate schedules are intended to increase the likelihood that the reserve ratio of the DIF reaches the statutory minimum level of 1.35 percent by September 30, 2028. Revised assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds two percent, absent further action by the FDIC Board. A significant increase in insurance premiums or a special assessment levied by the FDIC could likely have an adverse effect on the operating expenses and results of operations of the Bank.\u00a0There can be no prediction as to what changes in insurance assessment rates may be made in the future. For the fiscal year ended March 31, 2023, the Bank\u2019s FDIC deposit insurance premiums totaled $534,000. \nThe FDIC also may prohibit any insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the DIF. The FDIC also has the authority to take enforcement actions against banks and savings associations. Management is not aware of any existing circumstances which would result in termination of the Bank\u2019s deposit insurance.\nActivities and Investments of Insured State-Chartered Financial Institutions.\n Federal law generally limits the activities and equity investments of FDIC-insured, state-chartered banks to those that are permissible for national banks. An insured state bank is not prohibited from, among other things, (1) acquiring or retaining a majority interest in a subsidiary, (2) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank\u2019s total assets, (3) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors\u2019, trustees\u2019 and officers\u2019 liability insurance coverage or bankers\u2019 blanket bond group insurance coverage for insured depository institutions and (4) acquiring or retaining the voting shares of a depository institution owned by another FDIC-insured institution if certain requirements are met.\nWashington State has enacted a law regarding financial institution parity. Primarily, the law affords Washington state-chartered commercial banks the same powers as Washington state-chartered savings banks and provides that Washington state-chartered commercial banks may exercise any of the powers that the Federal Reserve has determined to be closely related to the business of banking and the powers of national banks, subject to the approval of the Director of the WDFI in certain situations. Finally, the law provides additional flexibility for Washington state-chartered commercial and savings banks with respect to interest rates on loans and other extensions of credit. Specifically, they may charge the maximum interest rate allowable for loans and other extensions of credit by federally-chartered financial institutions to Washington residents.\n26\n\n\nTable of Contents\nTransactions with Affiliates.\n\u00a0Riverview and the Bank are separate and distinct legal entities. The Bank is an affiliate of Riverview and any non-bank subsidiary of Riverview, federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates. Transactions deemed to be a \u201ccovered transaction\u201d under Section 23A of the Federal Reserve Act between a bank and an affiliate are limited to 10% of a bank\u2019s capital and surplus and, with respect to all affiliates, to an aggregate of 20% of a bank\u2019s capital and surplus. Further, covered transactions that are loans and extensions of credit generally are required to be secured by eligible collateral in specified amounts. Federal law also requires that covered transactions and certain other transactions listed in Section 23B of the Federal Reserve Act between a bank and its affiliates be on terms as favorable to a bank as transactions with non-affiliates.\nCommunity Reinvestment Act.\n The Bank is subject to the provisions of the Community Reinvestment Act of 1977 (\u201cCRA\u201d), which require the appropriate federal bank regulatory agency to assess a bank\u2019s performance under the CRA in meeting the credit needs of the community serviced by the Bank, including low and moderate income neighborhoods. The regulatory agency\u2019s assessment of the Bank\u2019s record is made available to the public. Further, a bank\u2019s CRA performance must be considered in connection with a bank\u2019s application, to among other things, establish a new branch office that will accept deposits, relocate an existing office or merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. An unsatisfactory rating may be the basis for denial of certain applications. The Bank received a \u201csatisfactory\u201d rating during its most recent CRA examination.\nOn May 5, 2022, the federal bank regulatory agencies overhauled the CRA and jointly issued a proposal to strengthen and modernize regulations implementing the CRA. \u00a0The proposed regulations included major changes from the current regulation and will be effective on the first day of the first calendar quarter that begins at least 60 days after the publication date of the final rules. The new rules as proposed are intended to, (1) provide expanded access to credit, investment, and basic banking services in low- and moderate-income communities, (2) address changes in the banking industry, including internet and mobile banking, (3) yield greater clarity, consistency, and transparency, (4) tailor CRA evaluations and data collection to bank size and type, and (5) maintain a unified approach amongst the regulating agencies.\nDividends.\n The amount of dividends payable by the Bank to Riverview depends upon the Bank\u2019s earnings and capital position, and is limited by federal and state laws, regulations and policies. Under Washington law, the Bank may not declare or pay a cash dividend on its capital stock if it would cause its net worth to be reduced below (1) the amount required for liquidation accounts or (2) the net worth requirements, if any, imposed by the Director of the WDFI. In addition, dividends may not be declared or paid if the Bank is in default in payment of any assessments due to the FDIC. Dividends on the Bank\u2019s capital stock may not be paid in an aggregate amount greater than the aggregate retained earnings of the Bank, without the approval of the Director of the WDFI.\nThe amount of dividends actually paid during any one period is affected by the Bank\u2019s policy of maintaining a strong capital position. Federal law further restricts dividends payable by an institution that does not meet the capital conservation buffer requirement and provides that no insured depository institution may pay a cash dividend if it would cause the institution to be \u201cundercapitalized,\u201d as defined in the prompt corrective action regulations. Moreover, the federal bank regulatory agencies also have the general authority to limit the dividends paid by insured banks if such payments are deemed to constitute an unsafe and unsound practice.\nStandards for Safety and Soundness.\n Each federal banking agency, including the FDIC, has adopted guidelines establishing general standards relating to internal controls, information and internal audit systems; loan documentation; credit underwriting; interest rate risk exposure; asset growth; asset quality; earnings; and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder. If the FDIC determines that an institution fails to meet any of these guidelines, it may require an institution to submit to the FDIC an acceptable plan to achieve compliance. Management of the Bank is not aware of any conditions relating to these safety and soundness standards which would require submission of a plan of compliance.\nFederal Reserve System.\n The Federal Reserve requires all depository institutions to maintain reserves at specified levels against their transaction accounts, primarily checking accounts. In response to the COVID-19 pandemic, the Federal Reserve reduced \n27\n\n\nTable of Contents\nreserve requirement ratios to zero percent effective on March 26, 2020, to support lending to households and businesses. At March 31, 2023, the Bank was not required to maintain any reserve balances.\nThe Bank is authorized to borrow from the Federal Reserve Bank of San Francisco\u2019s \u201cdiscount window.\u201d An eligible institution need not exhaust other sources of funds before going to the discount window, nor are there restrictions on the purposes for which the institution can use primary credit. At March 31, 2023, the Bank had no outstanding borrowings from the Federal Reserve.\nCommercial Real Estate Lending Concentrations\n. The federal banking agencies have issued guidance on sound risk management practices for concentrations in commercial real estate lending. The particular focus is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be sensitive to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is not to limit a bank\u2019s commercial real estate lending but to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance directs the FDIC and other federal bank regulatory agencies to focus their supervisory resources on institutions that may have significant commercial real estate loan concentration risk. A bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk:\n\u25cf\nTotal reported loans for construction, land development and other land represent 100% or more of the bank\u2019s capital; or\n\u25cf\nTotal commercial real estate loans (as defined in the guidance) represent 300% or more of the bank\u2019s total capital or the outstanding balance of the bank\u2019s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.\nThe guidance provides that the strength of an institution\u2019s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy.\nEnvironmental Issues Associated with Real Estate Lending.\n The Comprehensive Environmental Response, Compensation and Liability Act (\u201cCERCLA\u201d), is a federal statute that generally imposes strict liability on all prior and present \u201cowners and operators\u201d of sites containing hazardous waste. However, Congress acted to protect secured creditors by providing that the term \u201cowner and operator\u201d excludes a person whose ownership is limited to protecting its security interest in the site. Since the enactment of the CERCLA, this \u201csecured creditor exemption\u201d has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan. To the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties with potentially hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which could substantially exceed the value of the collateral property.\nAnti-Money Laundering and Customer Identification.\n The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (\u201cUSA PATRIOT Act\u201d) was signed into law on October 26, 2001. The USA PATRIOT Act and the Bank Secrecy Act requires financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury\u2019s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts, and, effective in 2018, the beneficial owners of accounts. Bank regulators are directed to consider a holding company\u2019s effectiveness in combating money laundering when ruling on Bank Holding Company Act and Bank Merger Act applications.\nPrivacy Standards and Cybersecurity.\n The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 modernized the financial services industry by establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers. \u00a0Federal banking agencies, including the FDIC, have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of the board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial services. These regulations require the Bank to disclose its privacy policy, including informing consumers of its information sharing practices and informing consumers of their rights to opt out of certain practices.\u00a0In addition, Washington State and other federal and state cybersecurity and data privacy laws and regulations may expose the Bank to risk and result in certain risk management costs. In addition, on November 18, 2021, the federal banking agencies announced the adoption of a final rule providing for new \n28\n\n\nTable of Contents\nnotification requirements for banking organizations and their service providers for significant cybersecurity incidents. Specifically, the new rule requires a banking organization to notify its primary federal regulator as soon as possible, and no later than 36 hours after, the banking organization determines that a \u201ccomputer-security incident\u201d rising to the level of a \u201cnotification incident\u201d has occurred. Notification is required for incidents that have materially affected or are reasonably likely to materially affect the viability of a banking organization\u2019s operations, its ability to deliver banking products and services, or the stability of the financial sector. Service providers are required under the rule to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect the banking organization\u2019s customers for four or more hours. Compliance with the new rule was required by May 1, 2022. Non-compliance with federal or similar state privacy and cybersecurity laws and regulations could lead to substantial regulatory imposed fines and penalties, damages from private causes of action and/or reputational harm\nOther Consumer Protection Laws and Regulations.\n The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the \u201cDodd-Frank Act\u201d) established the Consumer Financial Protection Bureau (\u201cCFPB\u201d) and empowered it to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. The Bank is subject to consumer protection regulations issued by the CFPB, but as a financial institution with assets of less than $10 billion, the Bank is generally subject to supervision and enforcement by the FDIC with respect to its compliance with federal consumer financial protection laws and CFPB regulations.\nThe Bank is subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers. While not exhaustive, these laws and regulations include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services. Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages and the loss of certain contractual rights.\nRegulation and Supervision of Riverview Bancorp, Inc.\nGeneral.\n Riverview as sole shareholder of the Bank, is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended (\u201cBHCA\u201d), and the regulations of the Federal Reserve. Accordingly, Riverview is required to file semi-annual reports with the Federal Reserve and provide additional information as the Federal Reserve may require. The Federal Reserve may examine Riverview, and any of its subsidiaries, and charge Riverview for the cost of the examination. The Federal Reserve also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. Riverview, as a public company, is also required to file certain reports and otherwise comply with the rules and regulations of the SEC. See \u201cFederal Securities Laws\u201d below.\nThe Bank Holding Company Act.\n Under the BHCA, Riverview is supervised by the Federal Reserve. The Federal Reserve has a policy that a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary bank and may not conduct its operations in an unsafe or unsound manner. In addition, the Dodd-Frank Act and earlier Federal Reserve policy provide that a bank holding company should serve as a source of strength to its subsidiary bank by having the ability to provide financial assistance to its subsidiary bank during periods of financial distress to the bank. A bank holding company\u2019s failure to meet its obligation to serve as a source of strength to its subsidiary bank will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve\u2019s regulations or both. No regulations have yet been proposed by the Federal Reserve to implement the source of strength provisions required by the Dodd-Frank Act. Riverview and any subsidiaries that it may control are considered \u201caffiliates\u201d within the meaning of the Federal Reserve Act, and transactions between the Bank and affiliates are subject to numerous restrictions. With some exceptions, Riverview and its \n29\n\n\nTable of Contents\nsubsidiaries are prohibited from tying the provision of various services, such as extensions of credit, to other services offered by Riverview or by its affiliates.\nAcquisitions.\n\u00a0 The BHCA prohibits a bank holding company, with certain exceptions, from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. Under the BHCA, the Federal Reserve may approve the ownership of shares by a bank holding company in any company, the activities of which the Federal Reserve has determined to be so closely related to the business of banking or managing or controlling banks as to be a proper incident thereto. These activities include: operating a savings institution, mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing certain investment and financial advice; underwriting and acting as an insurance agent for certain types of credit-related insurance; leasing property on a full-payout, non-operating basis; selling money orders, travelers\u2019 checks and U.S. Savings Bonds; real estate and personal property appraising; providing tax planning and preparation services; and, subject to certain limitations, providing securities brokerage services for customers. The Federal Reserve must approve the acquisition (or acquisition of control) of a bank or other FDIC-insured depository institution by a bank holding company, and the appropriate federal banking regulator must approve a bank\u2019s acquisition (or acquisition of control) of another bank or other FDIC-insured institution.\nAcquisition of Control of a Bank Holding Company.\n Under federal law, a notice or application must be submitted to the appropriate federal banking regulator if any person (including a company), or group acting in concert, seeks to acquire \u201ccontrol\u201d of a bank holding company. An acquisition of control can occur upon the acquisition of 10% or more of the voting stock of a bank holding company or as otherwise defined by federal regulations. In considering such a notice or application, the Federal Reserve takes into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that acquires control becomes subject to regulation as a bank holding company. Depending on circumstances, a notice or application may be required to be filed with appropriate state banking regulators and may be subject to their approval or non-objection.\nRegulatory Capital Requirements.\nAs discussed above, pursuant to the \u201cSmall Bank Holding Company\u201d exception, effective August 30, 2018, bank holding companies with less than $3 billion in consolidated assets were generally no longer subject to the Federal Reserve\u2019s capital regulations, which are generally the same as the capital regulations applicable to the Bank. At the time of this change, Riverview was considered \u201cwell capitalized\u201d as defined for a bank holding company\u00a0with a total risk-based capital ratio of 10.0% or more and a Tier 1 risk-based capital ratio of 8.0% or more, and was not subject to an individualized order, directive or agreement under which the Federal Reserve requires it to maintain a specific capital level.\nRestrictions on Dividends.\n The Federal Reserve\n\u00a0\nhas issued a policy statement on the payment of cash dividends by bank holding companies which expresses its view that a bank holding company must maintain an adequate capital position and generally should not pay cash dividends unless the company\u2019s net income for the past year is sufficient to fully fund the cash dividends and that the prospective rate of earnings appears consistent with the company\u2019s capital needs, asset quality, and overall financial condition. The Federal Reserve policy statement also indicates that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends.\n\u00a0\nUnder Washington corporate law, Riverview generally may not pay dividends if after that payment it would not be able to pay its liabilities as they become due in the usual course of business, or its total assets would be less than its total liabilities. The capital conservation buffer requirement may also limit or preclude dividends payable by the Company. For additional information, see Item 1.A. \u201cRisk Factors \u2013 Risks Related to Regulatory and Compliance Matters \u2013 Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions\u201d in this report.\n\u200b\n30\n\n\nTable of Contents\nStock Repurchases.\n A bank holding company, except for certain \u201cwell-capitalized\u201d and highly rated bank holding companies, is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding twelve months, is equal to 10% or more of its consolidated net worth.\n\u00a0\nThe Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order or any condition imposed by, or written agreement with, the Federal Reserve.\nFederal Securities Laws.\n Riverview\u2019s common stock is registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, as amended (\u201cExchange Act\u201d). The Company is subject to information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.\n\u00a0\n\u200b\n31\n\n\nTable of Contents",
+  "item1a": ">Item 1A.\u00a0 Risk Factors\nAn investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included in this report. In addition to the risks and uncertainties described below, \nother \nrisks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations.\u00a0The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all or part of your investment. The risks below also include forward-looking statements. This report is qualified in its entirety by these risk factors.\nRisks Related to Macroeconomic Conditions\nOur business may be adversely affected by downturns in the national and the regional economies on which we depend.\nSubstantially all of our loans are to businesses and individuals in the states of Washington and Oregon. A decline in the economies of the seven counties in which we operate, including the Portland, Oregon metropolitan area, which we consider to be our primary market area, could have a materially adverse effect on our business, financial condition, results of operations and prospects. Weakness in the global economy and global supply chain issues have adversely affected many businesses operating in our markets that are dependent upon international trade. Changes in agreements or relationships between the U.S. and other countries may also affect these businesses.\nA deterioration in economic conditions in the market areas we serve could result in the following consequences, any of which could have a materially adverse impact on our business, financial condition, liquidity and results of operations:\n\u200b\n\u25cf\nloan delinquencies, problem assets and foreclosures may increase;\n\u25cf\nwe may increase our allowance for loan losses;\n\u25cf\ndemand for our products and services may decline possibly resulting in a decrease in our total loans or assets;\n\u25cf\ncollateral for loans, especially real estate, may decline in value, thereby reducing customers\u2019 future borrowing power, and reducing the value of assets and collateral associated with existing loans;\n\u25cf\nthe net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and\n\u25cf\nthe amount of our low-cost or non-interest bearing deposits may decrease.\n\u200b\nMany of the loans in our portfolio are secured by real estate. A decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse. Deterioration in the real estate markets where collateral for a mortgage loan is located could negatively affect the borrower\u2019s ability to repay the loan and the value of the collateral securing the loan. Real estate values are affected by various other factors, including changes in general or regional economic conditions, governmental rules or policies and natural disasters such as earthquakes and tornadoes. If we are required to liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected.\nInflationary pressures and rising prices may affect our results of operations and financial condition.\n\u200b\nInflation has risen sharply since the end of 2021 to levels not seen in more than 40 years. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition. Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial condition.\n\u200b\nRisks Related to our Lending Activities\nOur real estate construction loans are based upon estimates of costs and the value of the completed project, and as with land loans may be more difficult to liquidate, if necessary.\nWe make construction and land loans primarily to builders to finance the construction of single and multifamily homes, subdivisions, as well as commercial properties, a portion of which are originated whether or not the collateral property underlying \n32\n\n\nTable of Contents\nthe loan is under contract for sale. At March 31, 2023, real estate construction and land loans totaled $54.2 million, or 5.37% of our total loan portfolio, and was comprised of $18.2 million of speculative and presold construction loans, $6.4 million of land loans and $29.6 million of commercial/multi-family construction loans.\nIn general, construction and land lending involve additional risks when compared with other lending because of the inherent difficulty in estimating a property\u2019s value both before and at completion of the project, as well as the estimated cost of the project and the time needed to sell the property at completion. Construction costs may exceed original estimates as a result of increased materials, labor or other costs. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation on real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. Changes in the demand, such as for new housing and higher than anticipated building costs may cause actual results to vary significantly from those estimated. For these reasons, this type of lending also typically involves higher loan principal amounts and is often concentrated with a small number of builders. A downturn in housing, or the real estate market, could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. Some of our builders have more than one loan outstanding with us and also have residential mortgage loans for rental properties with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss.\nConstruction loans often involve the disbursement of funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. Moreover, during the term of most of our construction loans, no payment from the borrower is required since the accumulated interest is added to the principal of the loan through an interest reserve. If our appraisal of the value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. Because construction loans require active monitoring of the building process, including cost comparisons and on-site inspections, these loans are more difficult and costly to monitor.\nIncreases in market rates of interest also may have a more pronounced effect on construction loans by rapidly increasing the end-purchasers\u2019 borrowing costs, thereby reducing the overall demand for the project. Properties under construction are often difficult to sell and typically must be completed in order to be successfully sold which also complicates the process of working out problem construction loans. This may require us to advance additional funds and/or contract with another builder to complete construction. Furthermore, in the case of speculative construction loans, there is the added risk associated with identifying an end-purchaser for the finished project. \nLoans on land under development or raw land held for future construction, including lot loans made to individuals for the future construction of a residence also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral. These risks can be significantly impacted by supply and demand conditions. As a result, this type of lending often involves the disbursement of substantial funds with repayment dependent on the success of the ultimate project and the ability of the borrower to develop, sell or lease the property, rather than the ability of the borrower or guarantor to independently repay principal and interest. There were no non-performing real estate construction and land loans at March 31, 2023. A material increase in non-performing real estate construction and land loans could have a material adverse effect on our financial condition and results of operation. \nCommercial and multi-family real estate lending involves higher risks than real estate one-to-four family and other consumer lending, which exposes us to increased lending risks.\nWhile commercial and multi-family real estate lending is typically more profitable than real estate one-to-four family lending, it is generally more sensitive to regional and local economic conditions, making loss levels more difficult to predict. Collateral evaluation and financial statement analysis in these types of loans requires a more detailed analysis at the time of loan underwriting and on an ongoing basis. At March 31, 2023, we had $620.3 million of commercial and multi-family real estate loans, representing 61.49% of our total loan portfolio.\nCommercial and multi-family real estate loans typically involve higher principal amounts than other types of loans and some of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one-to-four family residential loan. Repayment on these loans is dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service, which may be \n33\n\n\nTable of Contents\nadversely affected by changes in the economy or local market conditions. For example, if the cash flow from the borrower\u2019s project is reduced as a result of leases not being obtained or renewed, the borrower\u2019s ability to repay the loan may be impaired. Commercial and multi-family mortgage loans also expose a lender to greater credit risk than loans secured by one-to-four family residential real estate because the collateral securing these loans typically cannot be sold as easily as residential real estate. In addition, many of our commercial and multi-family real estate loans are not fully amortizing and contain large balloon payments upon maturity. Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment.\nA secondary market for most types of commercial real estate and multi-family loans is not readily liquid, so we have less opportunity to mitigate credit risk by selling part or all of our interest in these loans. As a result of these characteristics, if we foreclose on a commercial or multi-family real estate loan, our holding period for the collateral typically is longer than for one-to-four family residential mortgage loans because there are fewer potential purchasers of the collateral. Accordingly, charge-offs on commercial and multi-family real estate loans may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.\nOur business may be adversely affected by credit risk associated with residential property and declining property values.\nAt March 31, 2023, $99.7 million, or 9.88% of our total loan portfolio, consisted of real estate one-to-four family loans and home equity loans. Our first-lien real estate one-to-four family loans are primarily made based on the repayment ability of the borrower and the collateral securing these loans. Home equity lines of credit generally entail greater risk than do real estate one-to-four family loans where we are in the first-lien position. For those home equity lines secured by a second mortgage, it is less likely that we will be successful in recovering all of our loan proceeds in the event of default. Our foreclosure on these loans requires that the value of the property be sufficient to cover the repayment of the first mortgage loan, as well as the costs associated with foreclosure. \nThis type of lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. A downturn in the economy or the housing market in our market areas or a rapid increase in interest rates may reduce the value of the real estate collateral securing these types of loans and increase the risk that we would incur losses if borrowers default on their loans. Residential loans with high combined loan-to-value ratios generally will be more sensitive to declining property values than those with lower combined loan-to-value ratios and therefore may experience a higher incidence of default and severity of losses. In addition, if the borrowers sell their homes, the borrowers may be unable to repay their loans in full from the sale proceeds. As a result, these loans may experience higher rates of delinquencies, defaults and losses, which will in turn adversely affect our financial condition and results of operations. \nRepayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value.\nAt March 31, 2023, commercial business loans totaled $232.9 million, or 23.08% of total loans. Our commercial business loans are primarily made based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The borrowers\u2019 cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. This collateral may consist of equipment, inventory, accounts receivable, or other business assets. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Other collateral securing loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the specific type of business and equipment. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself which, in turn, is often dependent in part upon general economic conditions and secondarily on the underlying collateral provided by the borrower.\nOur allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio. Future additions to our allowance for loan losses, as well as charge-offs in excess of reserves, will reduce our earnings.\nLending money is a substantial part of our business and each loan carries a certain risk that it will not be repaid in accordance with its terms or that any underlying collateral will not be sufficient to assure repayment. This risk is affected by, among other things:\n\u200b\n\u25cf\nthe cash flow of the borrower and/or the project being financed;\n\u25cf\nin the case of a collateralized loan, the changes and uncertainties as to the future value of the collateral;\n\u25cf\nthe duration of the loan;\n34\n\n\nTable of Contents\n\u25cf\nthe credit history of a particular borrower; and\n\u25cf\nchanges in economic and industry conditions.\n\u200b\nWe maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, which we believe is appropriate to provide for probable losses in our loan portfolio. The amount of this allowance is determined by management through periodic reviews and consideration of several factors, including, but not limited to:\n\u200b\n\u25cf\nour general reserve, based on our historical default and loss experience and certain macroeconomic factors based on management\u2019s expectations of future events;\n\u25cf\nour specific reserve, based on our evaluation of impaired loans and their underlying collateral or discounted cash flow; and\n\u25cf\nan unallocated reserve to provide for other credit losses inherent in our loan portfolio that may not have been contemplated in the other loss factors.\n\u200b\nThe determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. If our estimates are incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in the need for increases in our allowance for loan losses through the provision for losses on loans which is charged against income. Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may also require an increase in the allowance for loan losses. Additionally, pursuant to our growth strategy, management recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner and will increase the risk that our allowance may be insufficient to absorb losses without significant additional provisions. \u00a0Further, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs based on their judgment about information available to them at the time of their examination.\nIn addition, the FASB has adopted an accounting standard referred to as Current Expected Credit Loss, or CECL, which requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses. This will change the current method of providing allowances for credit losses only when they have been incurred and are probable, which is expected to require us to adjust our allowance for loan losses and greatly increase the types of data we need to collect and review to determine the appropriate level of the allowance for credit losses. This accounting pronouncement is applicable to us effective April 1, 2023. As of the adoption and day one measurement date of April 1, 2023, the Company expects to record a one-time cumulative-effect adjustment to retained earnings, net of income taxes, on the consolidated balance sheet. Also, as required by CECL, the Company reviewed the held-to-maturity debt securities portfolio and determined the expected losses were immaterial. The magnitude of the change in the Company\u2019s allowance for credit losses at the adoption date will depend upon the nature and characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that time, other management judgements, and continued refinement and validation of the model and methodologies. See also, Note 1 of the Notes to Consolidated Financial Statements - Recently Issued Accounting Pronouncements contained in Item 8 of this report. The federal banking regulators, including the Federal Reserve and the FDIC, have adopted a rule that gives a banking organization the option to phase in over a three- year period the day-one adverse effects of CECL on its regulatory capital. \nAny increases in the provision for loan losses will result in a decrease in net income and may have a material adverse effect on our financial condition, results of operations, liquidity and capital.\nRisks Related to Market and Interest Rate Changes\nChanges in interest rates may reduce our net interest income and may result in higher defaults in a rising rate environment.\nOur earnings and cash flows are largely dependent upon our net interest income, which is the difference, or spread, between the interest earned on loans, securities and other interest-earning assets and the interest paid on deposits, borrowings, and other interest-bearing liabilities. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, in particular, the Federal Reserve. Since March 2022, in response to inflation, the Federal Open Market Committee (\u201cFOMC\u201d) of the Federal Reserve has increased the target range for the federal funds rate by 475 basis points, including 50 basis points during the first quarter of 2023, to a range of 4.75% to 5.00% as of March 31, 2023. In May 2023, the FOMC increased the target range for the federal funds rate another 25 basis \n35\n\n\nTable of Contents\npoints to a range of 5.00% to 5.25%. If the FOMC further increases the targeted federal funds rates, overall interest rates will likely continue to rise, which will positively impact our net interest income but may negatively impact the housing market by reducing refinancing activity, new home purchases and the U.S. economy. In addition, as previously discussed, inflationary pressures will increase our operational costs and could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans which could negatively affect our financial performance. \nWe principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. In a changing interest rate environment, we may not be able to manage this risk effectively. If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially affected.\nChanges in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations or by reducing our margins and profitability. Our net interest margin is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding. Changes in interest rates\u2014up or down\u2014could adversely affect our net interest margin and, as a result, our net interest income. Although the yields we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. As a result, when interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest margin to contract until the yield catches up. Changes in the slope of the \u201cyield curve\u201d\u2014or the spread between short-term and long-term interest rates\u2014could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens or even inverts, we could experience pressure on our net interest margin as our cost of funds increases relative to the yield we can earn on our assets. Also, interest rate decreases can lead to increased prepayments of loans and mortgage-backed securities as borrowers refinance their loans to reduce borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such repayment proceeds into lower yielding investments, which would likely hurt our income.\nA sustained increase in market interest rates could adversely affect our earnings. A significant portion of our loans have fixed interest rates and longer terms than our deposits and borrowings. As is the case with many financial institutions, our emphasis on increasing the development of core deposits, those deposits bearing no or a relatively low rate of interest with no stated maturity date, has resulted in our having a significant amount of these deposits which have a shorter duration than our assets. At March 31, 2023, we had $404.9 million in non-interest bearing demand deposits and $84.6 million in certificates of deposit that mature within one year. We would incur a higher cost of funds to retain these deposits in a rising interest rate environment. Our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans. In addition, a substantial amount of our home equity lines of credit have adjustable interest rates. As a result, these loans may experience a higher rate of default in a rising interest rate environment.\nChanges in interest rates also affect the value of our securities portfolio. Generally, the fair value of fixed-rate securities fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities available for sale are reported as a separate component of stockholders\u2019 equity, net of tax. Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders\u2019 equity. At March 31, 2023, we recorded an $18.3 million accumulated other comprehensive loss, which is reflected as a reduction to stockholders\u2019 equity.\nAlthough management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our consolidated balance sheet or projected operating results. See Item 7A., \u201cQuantitative and Qualitative Disclosures About Market Risk,\u201d of this Form 10-K.\nWe may incur losses on our securities portfolio as a result of changes in interest rates.\nFactors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in respect to the \n36\n\n\nTable of Contents\nsecurities, defaults by, or other adverse events affecting, the issuer or with respect to the underlying securities, and changes in market interest rates and continued instability in the capital markets. Any of these factors, among others, could cause other-than-temporary impairments and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could have a material effect on our business, financial condition and results of operations. The process for determining whether impairment of a security is other-than-temporary usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security to assess the probability of receiving all contractual principal and interest payments on the security. There can be no assurance that the declines in market value will not result in other-than-temporary impairments of these assets, and would lead to accounting charges that could have a material adverse effect on our net income and capital levels. For the fiscal year ended March 31, 2023, we did not incur any other-than-temporary impairments on our securities portfolio.\nRevenue from broker loan fees is sensitive to changes in economic conditions, decreased economic activity, a slowdown in the housing market, higher interest rates or new legislation which may adversely impact our financial condition and results of operations.\nOur mortgage brokerage operations provide additional non-interest income. The Company employs commissioned brokers who originate mortgage loans (including construction loans) for various mortgage companies. The loans brokered to mortgage companies are closed in the name of, and funded by, the purchasing mortgage company and are not originated as an asset of the Company. In return, the Company receives a fee ranging from 1.5% to 2.0% of the loan amount that it shares with the commissioned broker. The prevailing interest rate environment has a strong influence on the loan volume and amount of fees generated from our mortgage brokerage activity. In general, during periods of rising interest rates, the volume of loans and the amount of brokered loan fees included in non-interest income generally decrease as a result of slower mortgage loan demand. Conversely, during periods of falling interest rates, the volume of loans and the amount of brokered loan fees generally increase as a result of the increased mortgage loan demand. \nA general decline in economic conditions may adversely affect the fees generated by our asset management company.\nTo the extent our asset management clients and their assets become adversely affected by weak economic and stock market conditions, they may choose to withdraw the amount of assets managed by us and the value of their assets may decline. Our asset management revenues are based on the value of the assets we manage. If our clients withdraw assets or the value of their assets decline, the revenues generated by the Trust Company will be adversely affected.\nRisks Related to Regulatory, Legal and Compliance Matters\nThe continued focus on increasing our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.\nThe FDIC, the Federal Reserve and the OCC have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under this guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution may have a concentration in commercial real estate lending if, among other factors (i) total reported loans for construction, land development, and other land represent 100% or more of total capital, or (ii) total reported loans secured by multi-family and non-farm residential properties, loans for construction, land development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital. Based on these criteria, the Bank determined that it did not have a concentration in commercial real estate lending as total loans for multifamily, non-farm/non-residential, construction, land development and other land represented 285% of total risk-based capital at March 31, 2023. The particular focus of the guidance is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing.\n \nWhile we believe we have implemented policies and procedures with respect to our commercial real estate loan portfolio consistent with this guidance, bank regulators could require us to implement additional policies and procedures consistent with their interpretation of the guidance that may result in additional costs to us.\n37\n\n\nTable of Contents\nWe operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations.\nThe financial services industry is extensively regulated. Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a company\u2019s shareholders. These regulations may sometimes impose significant limitations on operations.\u00a0Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution\u2019s allowance for loan losses. These bank regulators also have the ability to impose conditions in the approval of merger and acquisition transactions. The significant federal and state banking regulations that affect us are described under the heading \u201cItem 1. Business-Regulation\u201d in Item I of this Form 10-K. These regulations, along with the currently existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. These laws, regulations, rules, standards, policies, and interpretations are constantly evolving and may change significantly over time. Any new regulations or legislation, change in existing regulations or oversight, whether a change in regulatory policy or a change in a regulator\u2019s interpretation of a law or regulation, may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations. Additionally, actions by regulatory agencies or significant litigation against us may lead to penalties that materially affect us. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent registered public accounting firm. These accounting changes could materially impact, potentially even retroactively, how we report our financial condition and results of our operations as could our interpretation of those changes.\nNon-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions.\nThe USA PATRIOT Act and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. Failure to comply with these regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions. Recently, several banking institutions have received large fines for non-compliance with these laws and regulations. While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a materially adverse effect on our business, financial condition, results of operations and growth prospects.\nIf our enterprise risk management framework is not effective at mitigating risk and loss to us, we could suffer unexpected losses and our results of operations could be materially adversely affected.\nOur enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing shareholder value. We have established processes and procedures intended to identify, measure, monitor, report, analyze and control the types of risk to which we are subject. These risks include, among others, liquidity, credit, market, interest rate, operational, legal and compliance, and reputational risk. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment. We also maintain a compliance program to identify, measure, assess, and report on our adherence to applicable laws, policies and procedures. While we assess and improve these programs on an ongoing basis, there can be no assurance that our risk management or compliance programs, along with other related controls, will effectively mitigate risk under all circumstances, or that it will adequately mitigate any risk or loss to us. However, as with any risk management framework, there are inherent limitations to our risk management strategies as they may exist, or develop in the future, including risks that we have not appropriately anticipated or identified. If our risk management framework proves ineffective, we could suffer unexpected losses and our business, financial condition, results of operations or growth prospects could be materially adversely affected. We may also be subject to potentially adverse regulatory consequences.\nClimate change and related legislative and regulatory initiatives may materially affect the Company\u2019s business and results of operations.\nThe effects of climate change continue to create an alarming level of concern for the state of the global environment. As a result, the global business community has increased its political and social awareness surrounding the issue, and the United States has entered into international agreements in an attempt to reduce global temperatures, such as reentering the Paris Agreement. Further, \n38\n\n\nTable of Contents\nthe U.S. Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives to supplement the global effort to combat climate change. Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks\u2019 risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change. The lack of empirical data surrounding the credit and other financial risks posed by climate change render it difficult, or even impossible, to predict how specifically climate change may impact our financial condition and results of operations; however, the physical effects of climate change may also directly impact us. Specifically, unpredictable and more frequent weather disasters may adversely impact the real property, and/or the value of the real property, securing the loans in our portfolios. Additionally, if insurance obtained by our borrowers is insufficient to cover any losses sustained to the collateral, or if insurance coverage is otherwise unavailable to our borrowers, the collateral securing our loans may be negatively impacted by climate change, natural disasters and related events, which could impact our financial condition and results of operations. Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and impact the communities in which we operate. Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on our financial condition and results of operations.\nRisks Related to Cybersecurity, Data and Fraud\nWe are subject to certain risks in connection with our use of technology.\nOur security measures may not be sufficient to mitigate the risk of a cyber-attack\n. Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, fraudulent or unauthorized access, denial or degradation of service attacks, misuse, computer viruses, malware or other malicious code and cyber-attacks that could have a security impact. If one or more of these events occur, this could jeopardize our or our customers\u2019 confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us. We could also suffer significant reputational damage.\nFurther, our cardholders use their debit and credit cards to make purchases from third parties or through third-party processing services. As such, we are subject to risk from data breaches of such third-party\u2019s information systems or their payment processors. Such a data security breach could compromise our account information. The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for losses associated with reimbursing our clients for such fraudulent transactions on clients\u2019 card accounts, as well as costs incurred by payment card issuing banks and other third parties or may be subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. We may also incur other costs related to data security breaches, such as replacing cards associated with compromised card accounts. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs.\nBreaches of information security also may occur through intentional or unintentional acts by those having access to our systems or our clients\u2019 or counterparties\u2019 confidential information, including employees. The Company is continuously working to install new and upgrade its existing information technology systems and provide employee awareness training around phishing, malware, and other cyber risks to further protect the Company against cyber risks and security breaches.\nThere continues to be a rise in electronic fraudulent activity, security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts. We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. Insider or employee cyber and security threats are increasingly a concern for \n39\n\n\nTable of Contents\ncompanies, including ours. We are not aware that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a cyber-security breach or other act, however, some of our clients may have been affected by third-party breaches, which could increase their risks of identity theft, credit card fraud and other fraudulent activity that could involve their accounts with us.\nSecurity breaches in our internet banking activities could further expose us to possible liability and damage our reputation\n. Increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third-party technologies (including browsers and operating systems) or other developments could result in a compromise or breach of the technology, processes and controls that we use to prevent fraudulent transactions and to protect data about us, our clients and underlying transactions. Any compromise of our security could deter customers from using our internet banking services that involve the transmission of confidential information. We rely on standard internet security systems to provide the security and authentication necessary to effect secure transmission of data. Although we have developed and continue to invest in systems and processes that are designed to detect and prevent security breaches and cyber-attacks and periodically test our security, these precautions may not protect our systems from compromises or breaches of our security measures, and could result in losses to us or our clients, our loss of business and/or clients, damage to our reputation, the incurrence of additional expenses, disruption to our business, our inability to grow our online services or other businesses, additional regulatory scrutiny or penalties, or our exposure to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition and results of operations.\nOur security measures may not protect us from system failures or interruptions\n. While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers. While the Company selects third-party vendors carefully, it does not control their actions. If our third-party providers encounter difficulties, including\u00a0those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher transaction volumes, cyber-attacks and security breaches or if we otherwise have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our ability to deliver products and services to our customers and otherwise conduct our business operations could be adversely impacted. Replacing these third-party vendors could also entail significant delay and expense. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.\nWe cannot assure that such breaches, failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third parties on which we rely. We may not be insured against all types of losses as a result of third-party failures and insurance coverage may be inadequate to cover all losses resulting from breaches, system failures or other disruptions. If any of our third-party service providers experience financial, operational or technological difficulties, or if there is any other disruption in our relationships with them, we may be required to identify alternative sources of such services, and we cannot assure that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all. Further, the occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability. Any of these occurrences could have a materially adverse effect on our financial condition and results of operations.\nThe board of directors oversees the risk management process, including the risk of cybersecurity, and engages with management on cybersecurity issues.\nOur business may be adversely affected by an increasing prevalence of fraud and other financial crimes.\nAs a bank, we are susceptible to fraudulent activity that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Nationally, reported incidents of fraud and other financial crimes have increased. We have also experienced losses due to apparent fraud and other financial crimes. While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur.\n40\n\n\nTable of Contents\nRisks Related to Accounting Matters\nThe Company\u2019s reported financial results depend on management\u2019s selection of accounting methods and certain assumptions and estimates, which, if incorrect, could cause unexpected losses in the future.\nThe Company\u2019s accounting policies and methods are fundamental to how the Company records and reports its financial condition and results of operations. The Company\u2019s management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management\u2019s judgment regarding the most appropriate manner to report the Company\u2019s financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances, yet might result in the Company\u2019s reporting materially different results than would have been reported under a different alternative.\nCertain accounting policies are critical to presenting the Company\u2019s financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting estimates include, but are not limited to the allowance for loan losses, the valuation of investment securities, goodwill valuation and the calculation of income taxes, including tax provisions and realization of deferred tax assets; and the fair value of assets and liabilities. Because of the uncertainty of estimates involved in these matters, the Company may be required, among other things, to significantly increase the allowance for loan losses, sustain credit losses that are significantly higher than the reserve provided, and/or record a write-off of goodwill as a result of impairment. \u00a0For more information, refer to \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates\u201d contained in this Form 10-K.\n \nWe may experience future goodwill impairment, which could reduce our earnings.\nWe performed our annual goodwill impairment test as of October 31, 2022, and the test concluded that recorded goodwill was not impaired. Our assessment of the fair value of goodwill is based on an evaluation of current purchase transactions, discounted cash flows from forecasted earnings, our current market capitalization, and a valuation of our assets. Our evaluation of the fair value of goodwill involves a substantial amount of judgment. If our judgment was incorrect, or if events or circumstances change, and an impairment of goodwill was deemed to exist, we would be required to write down our goodwill resulting in a charge to earnings, which would adversely affect our results of operations, perhaps materially; however, it would have no impact on our liquidity, operations or regulatory capital. We performed a qualitative assessment of goodwill at March 31, 2023 and concluded that recorded goodwill was not impaired. Our test of goodwill for potential impairment is based on a qualitative assessment by management that takes into consideration macroeconomic conditions, industry and market conditions, cost or margin factors, financial performance and share price.\nRisks Related to our Business and Industry General\nWe rely on other companies to provide key components of our business infrastructure.\nWe rely on numerous external vendors to provide us with products and services necessary to maintain our day-to-day operations. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements. The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements because of changes in the vendor\u2019s organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could be disruptive to our operations, which in turn could have a material negative impact on our financial condition and results of operations. We also could be adversely affected to the extent such an agreement is not renewed by the third-party vendor or is renewed on terms less favorable to us. Additionally, the bank regulatory agencies expect financial institutions to be responsible for all aspects of our vendors\u2019 performance, including aspects which they delegate to third parties. Disruptions or failures in the physical infrastructure or operating systems that support our business and clients, or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and services could result in client attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.\n41\n\n\nTable of Contents\nWe will be required to transition from the use of LIBOR in the future.\nWe have junior subordinated debentures indexed to LIBOR to calculate the interest rate. ICE Benchmark Administration, the authorized and regulated administrator of LIBOR, \u00a0ended publication of the one-week and two-month U.S. Dollar (\u201cUSD\u201d) LIBOR tenors on December 31, 2021 and the remaining USD LIBOR tenors will end publication in June 2023. Financial services regulators and industry groups have collaborated to develop alternate reference rate indices or reference rates. The transition to a new reference rate requires changes to contracts, risk and pricing models, valuation tools, systems, product design and hedging strategies. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR (with the exception of overnight repurchase agreements, which are expected to be based on the Secured Overnight Financing Rate, or SOFR). The language in our LIBOR-based contracts and financial instruments has developed over time and may have various events that trigger when a successor rate to the designated rate would be selected. If a trigger is satisfied, contracts and financial instruments may give the calculation agent discretion over the substitute index or indices for the calculation of interest rates to be selected. The implementation of a substitute index or indices for the calculation of interest rates under our agreements may result in incurring significant expenses in effecting the transition, may result in reduced loan balances if the substitute index or indices is not accepted and may result in disputes or litigation with customers and creditors over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations.\nIneffective liquidity management could adversely affect our financial results and condition.\nLiquidity is essential to our business. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments and our securities portfolio. Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans or investment securities, or other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the Washington or Oregon markets in which our loans are concentrated, negative operating results, or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry or deterioration in credit markets. Any decline in available funding in amounts adequate to finance our activities or on terms which are acceptable could adversely impact our ability to originate loans, invest in securities, meet our expenses or fulfill obligations such as repaying our borrowings or meeting deposit withdraw demands, any of which could, in turn, have a material adverse effect on our business, financial condition and results of operations. See \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity\u201d of this Form 10-K.\nAdditionally, collateralized public funds are bank deposits of state and local municipalities. These deposits are required to be secured by certain investment grade securities to ensure repayment, which on the one hand tends to reduce our contingent liquidity risk by making these funds somewhat less credit sensitive, but on the other hand reduces standby liquidity by restricting the potential liquidity of the pledged collateral. Although these funds historically have been a relatively stable source of funds for us, availability depends on the individual municipality\u2019s fiscal policies and cash flow needs.\nOur branching strategy may cause our expenses to increase faster than revenues.\nSince June 2020, we opened three new branches in Clark County, Washington and may open additional branches in our market area in the future. The success of our branch expansion strategy is contingent upon numerous factors, such as our ability to secure managerial resources, hire and retain qualified personnel and implement effective marketing strategies. The opening of new branches may not increase the volume of our loans and deposits as quickly or to the degree that we hope and opening new branches will increase our operating expenses. On average, de novo branches do not become profitable until three to four years after opening. Further, the projected timeline and the estimated dollar amounts involved in opening de novo branches could differ significantly from actual results. We may not successfully manage the costs and implementation risks associated with our branching strategy. Accordingly, any new branch may negatively impact our earnings for some period of time until the branch reaches certain economies of scale. Finally, there is a risk that our new branches will not be successful even after they have been established.\n42\n\n\nTable of Contents\nOur growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be very high.\nWe are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance. Accordingly, we cannot make assurances that we will be able to raise additional capital if needed on terms that are acceptable to us, or at all. If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. In addition, any additional capital we obtain may result in the dilution of the interests of existing holders of our common stock. Further, if we are unable to raise additional capital when required by our bank regulators, we may be subject to adverse regulatory action.\nIf we fail to meet the expectations of our stakeholders with respect to our environmental, social and governance (\u201cESG\u201d) practices, including those relating to sustainability, it may have an adverse effect on our reputation and results of operation. \u00a0\nOur reputation may also be negatively impacted by our diversity, equity and inclusion (\u201cDEI\u201d) efforts if they fall short of expectations. In addition, various private third-party organizations have developed ratings processes for evaluating companies on their approach to ESG and DEI matters. These ratings may be used by some investors to assist with their investment and voting decisions. Any unfavorable ratings may lead to reputational damage and negative sentiment among our investors and other stakeholders. Furthermore, increased ESG related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.\nCompetition with other financial institutions could adversely affect our profitability.\nAlthough we consider ourselves competitive in our market areas, we face intense competition in both making loans and attracting deposits. Price competition for loans and deposits might result in our earning less on our loans and paying more on our deposits, which reduces net interest income. Some of the institutions with which we compete have substantially greater resources than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability will depend upon our continued ability to compete successfully in our market areas.\nOur ability to retain and recruit key management personnel and bankers is critical to the success of our business strategy and any failure to do so could impair our customer relationships and adversely affect our business and results of operations.\nCompetition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the community banking industry where the Bank conducts its business.\u00a0The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy. Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing and technical personnel and upon the continued contributions of our management and personnel.\u00a0In particular, our success has been and continues to be highly dependent upon the abilities of key executives, including our President and Chief Executive Officer, and certain other employees.\u00a0Our ability to retain and grow our loans, deposits, and fee income depends upon the business generation capabilities, reputation, and relationship management skills of our lenders. If we were to lose the services of any of our bankers, including successful bankers employed by banks that we may acquire, to a new or existing competitor, or otherwise, we may not be able to retain valuable relationships and some of our customers could choose to use the services of a competitor instead of our services. In addition, our success has been and continues to be highly dependent upon the services of our directors, many of whom are at or nearing retirement age, and we may not be able to identify and attract suitable candidates to replace such directors.\n43\n\n\nTable of Contents\nManaging reputational risk is important to attracting and maintaining customers, investors and employees.\nThreats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality or operational failures due to integration or conversion challenges as a result of acquisitions we undertake, compliance deficiencies, and questionable or fraudulent activities of our customers. We have policies and procedures in place to protect our reputation and promote ethical conduct, but these policies and procedures may not be fully effective. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental regulation.\nWe rely on dividends from the Bank for substantially all of our revenue at the holding company level.\nRiverview is a separate legal entity from \u00a0its subsidiaries and does not have significant operations of its own. The long-term ability of Riverview to pay dividends to its stockholders and debt payments is based primarily upon the ability of the Bank to make capital distributions to Riverview, and also on the availability of cash at the holding company level. The availability of dividends from the Bank is limited by the Bank\u2019s earnings and capital, as well as various statutes and regulations. In the event the Bank is unable to pay dividends to us, we may not be able to pay dividends on our common stock or make payments on our outstanding debt. Consequently, the inability to receive dividends from the Bank could adversely affect our financial condition, results of operations, and future prospects. Also, our right to participate in a distribution of assets upon a subsidiary\u2019s liquidation or reorganization is subject to the prior claims of the subsidiary\u2019s creditors.\n\u200b\n44\n\n\nTable of Contents",
+  "item7": ">Item 7.\u00a0 Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\u200b\nGeneral\n\u200b\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Notes thereto contained in Item 8 of this Form 10-K and the other sections contained in this Form 10-K. \n\u200b\nCritical Accounting Estimates\nWe prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the audit committee of our Board of Directors. \nThe Company has identified policies that due to the significant level of judgement, estimation and assumptions inherent in those policies are critical to an understanding of the Company\u2019s consolidated financial statements. These policies include our accounting policies related to the methodology for the determination of the allowance for loan losses, the valuation of investment securities and goodwill valuations. The following is a discussion of the critical accounting estimates involved with those accounting policies.\nAllowance for Loan Losses\n\u200b\nThe allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses. The provision for loan losses reflects the amount required to maintain the allowance for loan losses at an appropriate level based upon management\u2019s evaluation of the adequacy of general and specific loss reserves. Determining the amount of the allowance for loan losses involves a high degree of judgment. Among the material estimates required to establish the allowance for loan losses are: overall economic conditions; value of collateral; strength of guarantors; loss exposure at default; the amount and timing of future cash flows on impaired loans; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Based on the analysis of the allowance for loan losses, the amount of the allowance for loan losses is increased by the provision for loan losses and decreased by a recapture of loan losses and are charged against current period earnings. \n\u200b\nThe allowance for loan losses is maintained at a level sufficient to provide for probable losses based on evaluating known and inherent risks in the loan portfolio and upon our continuing analysis of the factors underlying the quality of the loan portfolio. The allowance for loan losses is comprised of a general component, a specific component and an unallocated component. The general component is based on historical loss experience applied to loan segments adjusted by qualitative factors. These qualitative factors include: lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices; national and local economic trends and conditions; nature and volume of the portfolio and terms of loans; experience, ability, and depth of lending management and staff; volume and severity of past due, classified and non-accrual loans as well as other loan modifications; quality of the Company\u2019s loan review system; existence and effect of any concentrations of credit and changes in the level of such concentrations; changes in the value of underlying collateral; and other external factors. The specific component relates to loans that been evaluated for impairment because all contractual amounts of principal and interest will not be paid as scheduled. Based on this impairment analysis, a specific reserve may be established. An unallocated portion is established for uncertainties that may not be identified in either the general or specific component of the allowance for loan losses. The allowance for loan losses is based upon factors and trends identified by us at the time financial statements are prepared. Although we use the best information available, future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond our control. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance for loan losses are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not adversely impact our financial condition and results of operations.\n\u200b\n\u200b\n47\n\n\nTable of Contents\nValuation of Investment Securities. \n\u200b\nThe Company determines the estimated fair value of certain assets that are classified as Level 3 under the fair value hierarchy established under GAAP. These Level 3 assets are valued using significant unobservable inputs that are supported by little or no market activity and that are significant to the estimated fair value of the assets. These Level 3 assets are certain loans measured for impairment for which there is neither an active market for identical assets from which to determine fair value, nor is there sufficient, current market information about similar assets to use as observable, corroborated data for all significant inputs in a valuation model. Under these circumstances, the estimated fair values of these assets are determined using pricing models, discounted cash flow methodologies, appraisals, and other valuation methods in accordance with accounting standards, for which the determination of fair value requires significant management judgment or estimation.\nValuations using models or other techniques are dependent upon assumptions used for the significant inputs. Where market data is available, the inputs used for valuation reflect that information as of the valuation date. In periods of extreme volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process. Judgment is then applied in formulating those inputs.\nCertain loans included in the loan portfolio were deemed impaired at March 31, 2023. Accordingly, loans measured for impairment were classified as Level 3 in the fair value hierarchy as there is no active market for these loans. Measuring impairment of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Impairment was measured based on a number of factors, including recent independent appraisals which are further reduced for estimated selling costs or by estimating the present value of expected future cash flows, discounted at the loan\u2019s effective interest rate.\nFor additional information on our Level 1, 2 and 3 fair value measurements see Note 15 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.\n\u200b\nGoodwill Valuation\n\u200b\nGoodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is presumed to have an indefinite useful life and is tested, at least annually, for impairment at the reporting unit level. The Company has two reporting units, the Bank and the Trust Company, for purposes of evaluating goodwill for impairment. All of the Company\u2019s goodwill has been allocated to the Bank reporting unit. The Company performs an annual review in the third quarter of each fiscal year, or more frequently if indications of potential impairment exist, to determine if the recorded goodwill is impaired. If the fair value exceeds the carrying value, goodwill at the reporting unit level is not considered impaired and no additional analysis is necessary. If the carrying value of the reporting unit is greater than its fair value, there is an indication that impairment may exist and additional analysis must be performed to measure the amount of impairment loss, if any. The amount of impairment is determined by comparing the implied fair value of the reporting unit\u2019s goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination. Specifically, the Company would allocate the fair value to all of the assets and liabilities of the reporting unit, including unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, the Company would record an impairment charge for the difference.\nA significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; adverse action or assessment by a regulator; and unanticipated competition. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the Company\u2019s consolidated financial statements.\nThe Company performed its annual goodwill impairment test as of October 31, 2022. The goodwill impairment test involves a two-step process. Step one of the goodwill impairment test estimates the fair value of the reporting unit utilizing the allocation of corporate value approach, the income approach, the whole bank transaction approach and the market approach in order to derive an enterprise value of the Company. The allocation of corporate value approach applies the aggregate market value of the Company and divides it among the reporting units. A key assumption in this approach is the control premium applied to the aggregate market value. A control premium is utilized as the value of a company from the perspective of a controlling interest is generally higher than the widely quoted market price per share. The Company used an expected control premium of 30%, which was based on comparable transactional history. The income approach uses a reporting unit\u2019s projection of estimated operating results and cash flows that are discounted using a rate that reflects current market conditions. The projection uses management\u2019s best estimates of \n48\n\n\nTable of Contents\neconomic and market conditions over the projected period including growth rates in loans and deposits, estimates of future expected changes in net interest margins and cash expenditures. Assumptions used by the Company in its discounted cash flow model (income approach) included an annual revenue growth rate that approximated 2.0%, a net interest margin that approximated 3.7% and a return on assets that ranged from 1.22% to 1.30% (average of 1.26%). In addition to utilizing the above projections of estimated operating results, key assumptions used to determine the fair value estimate under the income approach were the discount rate of 18.33% utilized for our cash flow estimates and a terminal value estimated at 1.43 times the ending book value of the reporting unit. The Company used a build-up approach in developing the discount rate that included: an assessment of the risk-free interest rate, the rate of return expected from publicly traded stocks, the industry the Company operates in and the size of the Company. The whole bank transaction approach estimates fair value by applying key financial variables in transactions involving acquisitions of similar institutions. The market approach estimates fair value by applying tangible book value multiples to the reporting unit\u2019s operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting unit. In applying the market approach method, the Company selected four publicly traded comparable institutions. After selecting comparable institutions, the Company derived the fair value of the reporting unit by completing a comparative analysis of the relationship between their financial metrics listed above and their market values utilizing a market multiple of 1.0 times book value, a market multiple of 1.1 times tangible book value and an earnings multiple of 10 times. The Company calculated a fair value of its reporting unit of $192.0 million using the corporate value approach, $169.2 million using the income approach and $230.0 million using the market approach, with a final concluded value of $197.0 million, with equal weight given to the income approach, the market approach and the corporate value approach. The results of the Company\u2019s step one test indicated that the reporting unit\u2019s fair value was greater than its carrying value and therefore no impairment of goodwill exists.\nThe Company also completed a qualitative assessment of goodwill as of March 31, 2023 and concluded that it is more likely than not that the fair value of the Bank (the reporting unit), exceeds its carrying value at that date. Even though the Company determined that there was no goodwill impairment, a sustained decline in the value of its stock price as well as values of other financial institutions, declines in revenue for the Company beyond our current forecasts, significant adverse changes in the operating environment for the financial industry or an increase in the value of our assets without an increase in the value of the reporting unit may result in a future impairment charge.\nIt is also possible that changes in circumstances existing at the measurement date or at other times in the future, or in the numerous estimates associated with management\u2019s judgments, assumptions and estimates made in assessing the fair value of our goodwill, could result in an impairment charge of a portion or all of our goodwill. If the Company recorded an impairment charge, its financial position and results of operations would be adversely affected; however, such an impairment charge would have no impact on our liquidity, operations or regulatory capital.\nFor additional information concerning critical accounting policies, see Note 1 of the Notes to Consolidated Financial Statements contained in \"Item 8. Financial Statements and Supplementary Data.\" and the following:\nOperating Strategy and Selected Financial Information\nFiscal year 2024 marks the 100th anniversary for Riverview Bank, which opened for business in 1923. Our primary business strategy is to provide comprehensive banking and related financial services within our primary market area. The Company\u2019s goal is to deliver returns to shareholders by increasing higher-yielding assets (in particular, commercial real estate and commercial business loans), increasing core deposit balances, managing problem assets, reducing expenses, hiring experienced employees with a commercial lending focus and exploring expansion opportunities. The Company seeks to achieve these results by focusing on the following objectives:\nExecution of our Business Plan\n. The Company is focused on increasing its loan portfolio, especially higher yielding commercial and construction loans, and its core deposits by expanding its customer base throughout its primary market areas. While the Company historically emphasized residential real estate lending, since 1998 it has been diversifying its loan portfolio through the expansion of its commercial and construction loan portfolios. At March 31, 2023, commercial and construction loans represented 89.9% of total loans. Commercial lending, including commercial real estate loans, typically involves more credit risk than residential lending, justifying higher interest margins and fees on loans which can increase the loan portfolio\u2019s profitability. In addition, by emphasizing total relationship banking, the Company intends to deepen the relationships with its customers and increase individual customer profitability through cross-marketing programs, which allows the Company to better identify lending opportunities and services for customers. To build its core deposit base, the Company will continue to utilize additional product offerings, technology and a focus on customer service in working toward this goal. The Company will also continue to seek to expand its franchise through de novo branches, the selective acquisition of individual branches, loan purchases and whole bank \n49\n\n\nTable of Contents\ntransactions that meet its investment and market objectives. In this regard, the Company recently opened three new branches located in Clark County, Washington, to complement its existing branch network. \nMaintaining Strong Asset Quality\n. The Company believes that strong asset quality is a key to long-term financial success. The Company has actively managed delinquent loans and nonperforming assets by aggressively pursuing the collection of consumer debts, marketing saleable properties upon foreclosure or repossession, and through work-outs of classified assets and loan charge-offs. The Company\u2019s approach to credit management uses well defined policies and procedures and disciplined underwriting criteria resulting in our strong asset quality and credit metrics in fiscal year 2023. Although the Company intends to prudently increase the percentage of its assets consisting of higher-yielding commercial real estate, real estate construction and commercial business loans, which offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, the Company intends to manage credit exposure through the use of experienced bankers in these areas and a conservative approach to its lending.\nIntroduction of New Products and Services\n. The Company continuously reviews new products and services to provide its customers more financial options. All new technology and services are generally reviewed for business development and cost saving purposes. The Company continues to experience growth in customer use of its online banking services, where the Bank provides a full array of traditional cash management products as well as online banking products including mobile banking, mobile deposit, bill pay, e-statements, and text banking. The products are tailored to meet the needs of small to medium size businesses and households in the markets we serve. The Company intends to selectively add other products to further diversify revenue sources and to capture more of each customer\u2019s banking relationship by cross selling loan and deposit products and additional services, including services provided through the Trust Company to increase its fee income. Assets under management by the Trust Company totaled $890.6 million and $1.3 billion at March 31, 2023 and March 31, 2022, respectively. The Company also offers a third-party identity theft product to its customers. The identity theft product assists our customers in monitoring their credit and includes an identity theft restoration service.\nAttracting Core Deposits and Other Deposit Products\n.\n The Company offers personal checking, savings and money-market accounts, which generally are lower-cost sources of funds than certificates of deposit and are less likely to be withdrawn when interest rates fluctuate. To build its core deposit base, the Company has sought to reduce its dependence on traditional higher cost deposits in favor of stable lower cost core deposits to fund loan growth and decrease its reliance on other wholesale funding sources, including brokered deposits, FHLB advances and FRB borrowings. The Company believes that its continued focus on building customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit. In addition, the Company intends to increase demand deposits by growing business banking relationships through expanded product lines tailored to meet its target business customers\u2019 needs. The Company maintains technology-based products to encourage the growth of lower cost deposits, such as personal financial management, business cash management, and business remote deposit products, that enable it to meet its customers\u2019 cash management needs and compete effectively with banks of all sizes. Core branch deposits decreased $250.1 million\u00a0at March 31, 2023 compared to March 31, 2022 due to deposit pricing pressures in our markets, resulting in the Company\u2019s use of higher costing FHLB advances during fiscal 2023. Core branch deposits accounted for 97.5% of total deposits at March 31, 2023 compared to 96.8% at March 31, 2022.\nRecruiting and Retaining Highly Competent Personnel with a Focus on Commercial Lending\n.\n The Company\u2019s ability to continue to attract and retain banking professionals with strong community relationships and significant knowledge of its markets will be a key to its success. The Company believes that it enhances its market position and adds profitable growth opportunities by focusing on hiring and retaining experienced bankers focused on owner occupied commercial real estate and commercial lending, and the deposit balances that accompany these relationships. The Company emphasizes to its employees the importance of delivering exemplary customer service and seeking opportunities to build further relationships with its customers. The goal is to compete with other financial service providers by relying on the strength of the Company\u2019s customer service and relationship banking approach. The Company believes that one of its strengths is that its employees are also shareholders through the Company\u2019s ESOP and 401(k) plans.\nSelected Financial Data:\n The following financial condition data as of March 31, 2023 and 2022 and operating data and key financial ratios for the fiscal years ended March 31, 2023, 2022, and 2021 have been derived from the Company\u2019s audited consolidated financial statements. The information below is qualified in its entirety by the detailed information included elsewhere herein and should be read along with this \u00a0\u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and Item 8. \u201cFinancial Statements and Supplementary Data\u201d included in this Form 10-K.\n50\n\n\nTable of Contents\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAt March\u00a031,\u00a0\n\u200b\n\u200b\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n(In\u00a0thousands)\nFINANCIAL CONDITION DATA:\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal assets\n\u200b\n$\n 1,589,712\n\u200b\n$\n 1,740,096\nLoans receivable, net\n\u200b\n\u00a0\n 993,547\n\u200b\n\u00a0\n 975,885\nInvestment securities available for sale\n\u200b\n\u00a0\n 211,499\n\u200b\n\u00a0\n 165,782\nInvestment securities held to maturity\n\u200b\n\u00a0\n 243,843\n\u200b\n\u00a0\n 253,100\nCash and cash equivalents\n\u200b\n\u00a0\n 22,044\n\u200b\n\u00a0\n 241,424\nDeposits\n\u200b\n\u00a0\n 1,265,217\n\u200b\n\u00a0\n 1,533,878\nFHLB advances\n\u200b\n\u200b\n 123,754\n\u200b\n\u200b\n \u2014\nShareholders\u2019 equity\n\u200b\n\u00a0\n 155,239\n\u200b\n\u00a0\n 157,249\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nYear Ended March\u00a031,\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n(Dollars in thousands, except per share data)\nOPERATING DATA:\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nInterest and dividend income\n\u200b\n$\n 55,666\n\u200b\n$\n 49,825\n\u200b\n$\n 48,344\nInterest expense\n\u200b\n\u00a0\n 4,060\n\u200b\n\u00a0\n 2,200\n\u200b\n\u00a0\n 3,427\nNet interest income\n\u200b\n\u00a0\n 51,606\n\u200b\n\u00a0\n 47,625\n\u200b\n\u00a0\n 44,917\nProvision for (recapture of) loan losses\n\u200b\n\u00a0\n 750\n\u200b\n\u00a0\n (4,625)\n\u200b\n\u00a0\n 6,300\nNet interest income after provision for (recapture of) loan losses\n\u200b\n\u00a0\n 50,856\n\u200b\n\u00a0\n 52,250\n\u200b\n\u00a0\n 38,617\nOther non-interest income\n\u200b\n\u00a0\n 12,194\n\u200b\n\u00a0\n 12,744\n\u200b\n\u00a0\n 11,090\nNon-interest expense\n\u200b\n\u00a0\n 39,371\n\u200b\n\u00a0\n 36,718\n\u200b\n\u00a0\n 36,254\nIncome before income taxes\n\u200b\n\u00a0\n 23,679\n\u200b\n\u00a0\n 28,276\n\u200b\n\u00a0\n 13,453\nProvision for income taxes\n\u200b\n\u00a0\n 5,610\n\u200b\n\u00a0\n 6,456\n\u200b\n\u00a0\n 2,981\nNet income\n\u200b\n$\n 18,069\n\u200b\n$\n 21,820\n\u200b\n$\n 10,472\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nEarnings per share:\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\nBasic\n\u200b\n$\n 0.84\n\u200b\n$\n 0.98\n\u200b\n$\n 0.47\nDiluted\n\u200b\n\u00a0\n 0.83\n\u200b\n\u00a0\n 0.98\n\u200b\n\u00a0\n 0.47\nDividends per share\n\u200b\n\u00a0\n 0.240\n\u200b\n\u00a0\n 0.215\n\u200b\n\u00a0\n 0.200\n\u200b\n51\n\n\nTable of Contents\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAt\u00a0or\u00a0For\u00a0the\u00a0Years\u00a0Ended\u00a0March\u00a031,\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\nKEY FINANCIAL RATIOS:\n\u200b\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\nPerformance Ratios:\n\u200b\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\nReturn on average assets\n\u200b\n 1.08\n%\u00a0\u00a0\n 1.31\n%\u00a0\u00a0\n 0.74\n%\u00a0\u00a0\nReturn on average equity\n\u200b\n 11.71\n\u00a0\n 13.62\n\u00a0\n 6.91\n\u00a0\nDividend payout ratio \n(1)\n\u200b\n 28.92\n\u00a0\n 21.94\n\u00a0\n 42.55\n\u00a0\nInterest rate spread\n\u200b\n 3.12\n\u00a0\n 2.95\n\u00a0\n 3.27\n\u00a0\nNet interest margin\n\u200b\n 3.26\n\u00a0\n 3.03\n\u00a0\n 3.41\n\u00a0\nNon-interest expense to average assets\n\u200b\n 2.36\n\u00a0\n 2.20\n\u00a0\n 2.56\n\u00a0\nEfficiency ratio \n(2)\n\u200b\n 61.71\n\u00a0\n 60.82\n\u00a0\n 64.73\n\u00a0\nAverage equity to average assets\n\u200b\n 9.25\n\u00a0\n 9.58\n\u00a0\n 10.71\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAsset Quality Ratios:\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\nAllowance for loan losses to total loans at end of period\n\u200b\n 1.52\n\u00a0\n 1.47\n\u00a0\n 2.03\n\u00a0\nAllowance for loan losses to nonperforming loans\n\u200b\n 826.62\n\u00a0\n 65.72\n\u00a0\n 3,358.67\n\u00a0\nNet charge-offs (recoveries) to average outstanding loans during the period\n\u200b\n \u2014\n\u00a0\n \u2014\n\u00a0\n (0.03)\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nRatio of nonperforming assets to total assets\n\u200b\n 0.12\n\u00a0\n 1.27\n\u00a0\n 0.04\n\u00a0\nRatio of nonperforming loans to total loans\n\u200b\n 0.18\n\u00a0\n 2.23\n\u00a0\n 0.06\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCapital Ratios:\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\nTotal capital to risk-weighted assets\n\u200b\n 16.94\n\u00a0\n 16.38\n\u00a0\n 17.35\n\u00a0\nTier 1 capital to risk-weighted assets\n\u200b\n 15.69\n\u00a0\n 15.12\n\u00a0\n 16.09\n\u00a0\nCommon equity tier 1 capital to risk-weighted assets\n\u200b\n 15.69\n\u00a0\n 15.12\n\u00a0\n 16.09\n\u00a0\nLeverage ratio\n\u200b\n 10.47\n\u00a0\n 9.19\n\u00a0\n 9.63\n\u00a0\n\u200b\n(1)\nDividends per share divided by diluted earnings per share.\n(2)\nNon-interest expense divided by the sum of net interest income and non-interest income.\n\u200b\n\u200b\n52\n\n\nTable of Contents\nComparison of Financial Condition at March 31, 2023 and 2022\nCash and cash equivalents, including interest-earning accounts, totaled $22.0 million at March 31, 2023 compared to $241.4 million at March 31, 2022. The Company\u2019s cash balances typically fluctuate based upon funding needs, deposit activity and investment securities purchases. Based on the Company\u2019s asset/liability management program and liquidity objectives, the Company may deploy a portion of excess cash balances to purchase investment securities depending on the rate environment and other considerations. As a part of this strategy, the Company also invests a portion of its excess cash in short-term certificates of deposit held for investment, all of which are fully insured by the FDIC. Certificates of deposits held for investment totaled $249,000 at both March 31, 2023 and 2022.\nInvestment securities totaled $\n455.3 \nmillion and $418.9 million at March 31, 2023 and 2022, respectively. The increase was due to investment purchases, partially offset by normal pay downs, calls and maturities.\u00a0During the fiscal years ended March 31, 2023 and 2022, purchases of investment securities totaled $81.8 million and $224.6 million, respectively. The Company primarily purchases a combination of securities backed by government agencies (FHLMC, FNMA, SBA or GNMA). At March 31, 2023, the Company determined that none of its investment securities required an OTTI charge. In the third quarter of \u00a0fiscal \u00a02022, \u00a0the Company reassessed and transferred $85.8 million of U.S. government and agency securities from the available for sale classification to the held to maturity classification. The net unrealized after tax gain of $18,000 was deemed insignificant and the book balance of investment securities were transferred. No gains or losses were recognized at the time of the transfer. For additional information on the Company\u2019s investment securities, see Note 3 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.\n\u200b\nLoans receivable, net, totaled $993.5 million at March 31, 2023, compared to $975.9 million at March 31, 2022, an increase of $17.6 million. The increase was primarily attributed to increases in real estate construction loans of $23.6 million, commercial business loans of $4.8 million and real estate one-to-four family loans of $17.7 million. The increases in commercial business loans and real estate one-to-four family loans were attributable to the purchase of $28.7 million and $26.8 million of such loans, respectively. These increases were partially offset by decreases in commercial real estate, multi-family and land loans of $18.3 million, $4.4 million and $5.1 million, respectively, since March 31, 2022. In addition, these increases were offset by a decrease in SBA PPP loans related to forgiveness repayments. At March 31, 2023, SBA PPP loans, net of deferred fees which are included in the commercial business loan category were insignificant compared to $3.1 million at March 31, 2022. \nThe Company no longer originates real estate one-to-four family loans and will from time to time purchase these loans consistent with its asset/liability objectives. Additionally, the Company will purchase commercial business loans to supplement loan originations and diversify the commercial loan portfolio. These loans were originated by a third-party located outside of the Company\u2019s primary market area and totaled $26.2 million and $14.7 million at March 31, 2023 and 2022, respectively. The Company also purchases the guaranteed portion of SBA loans as a way to supplement loan originations, to further diversify its loan portfolio and earn a higher yield than earned on its cash or short-term investments. These SBA loans are originated through another financial institution located outside of the Company\u2019s primary market area and are purchased with servicing retained by the seller. \u00a0At March 31, 2023, the Company\u2019s purchased SBA loan portfolio was $55.5 million compared to $59.4 million at March 31, 2022. \u00a0\nGoodwill was $27.1 million at both March 31, 2023 and 2022. For additional information on our goodwill impairment testing, see \u201cGoodwill Valuation\u201d included in this Item 7.\nPrepaid expenses and other assets increased $3.6 million to $16.0 million at March 31, 2023 compared to $12.4 million at March 31, 2022. The increase was primarily due to a computer software contract for a new loan origination system that was executed in the fourth quarter of fiscal year 2023. \nDeposits decreased $268.7 million to $1.3 billion at March 31, 2023 compared to $1.5 billion at March 31, 2022 due to increased competition, pricing and an overall decrease in market liquidity. The decrease in deposits was attributable to reductions in non-interest-bearing accounts of $89.9 million, regular savings accounts of $84.9 million, money market accounts of $78.0 million and interest checking of $33.3 million. These decreases were partially offset by an increase of $17.5 million in certificates of deposit. \u00a0The Company had no wholesale-brokered deposits at March 31, 2023 and 2022. Core branch deposits accounted for 97.5% of total deposits at March 31, 2023 compared to 96.8% at March 31, 2022. The Company plans to continue its focus on core deposits and on building customer relationships as opposed to obtaining deposits through the wholesale markets.\n53\n\n\nTable of Contents\nFHLB advances increased to $123.8 million at March 31, 2023 and were comprised of overnight advances and a short-term borrowing of $73.8 million and $50.0 million, respectively. There were no outstanding FHLB advances at March 31, 2022. These FHLB advances were utilized to offset the decrease in deposit balances.\nShareholders\u2019 equity decreased $2.0 million to $155.2 million at March 31, 2023 from $157.2 million at March 31, 2022. The decrease was mainly attributable to the increase in the accumulated other comprehensive loss related to the change in unrealized holding losses on securities available for sale, net of tax, of $8.4 million, the repurchase of 975,666 shares of common stock totaling $6.7 million, and the payment of cash dividends totaling $5.2 million. These decreases were partially offset by net income of $18.1 million.\nComparison of Operating Results for the Years Ended March 31, 2023 and 2022\nNet Income.\n Net income was $18.1 million, or $0.83 per diluted share, for the fiscal year ended March 31, 2023, compared to $21.8 million, or $0.98 per diluted share, for the fiscal year ended March 31, 2022.\u00a0The Company\u2019s net income decreased primarily as a result of a provision for loan losses of $750,000 for the fiscal year ended March 31, 2023 compared to a $4.6 million recapture of loan losses for the fiscal year ended March 31, 2022. Non-interest expense increased to $39.4 million for the fiscal year ended March 31, 2023, compared to $36.7 million for the prior fiscal year as the Company recognized a $1.0 million gain on sale of premises and equipment during the fiscal year ended March 31, 2022, that was not present during the fiscal year ended March 31, 2023, as well as year over year increases in salary and employee benefits, occupancy and depreciation, and advertising and marketing expense. In addition,\n \nnon-interest income decreased $550,000 as a result of a decrease in fees and service charges and a $500,000 BOLI death benefit received during the fiscal year ended March 31, 2022 that was not present during the fiscal year ended March 31, 2023, partially offset by an increase in asset management fees.\nNet Interest Income.\n The Company\u2019s profitability depends primarily on its net interest income, which is the difference between the income it receives on interest-earning assets and the interest paid on deposits and borrowings. When the rate earned on interest-earning assets equals or exceeds the rate paid on interest-bearing liabilities, this positive interest rate spread will generate net interest income. The Company\u2019s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government legislation and regulation, and monetary and fiscal policies.\nNet interest income for fiscal year 2023 increased $4.0 million, or 8.4%, to $51.6 million compared to $47.6 million in fiscal year 2022. The net interest margin for the fiscal year ended March 31, 2023 was 3.26% compared to 3.03% for the prior fiscal year. The increase in the net interest margin was primarily attributable to both the higher average balance and yield on investment securities compared to the legacy investment securities portfolios and an increase in the average yield on interest-bearing deposits in other banks balances between the periods reflecting the lagging benefit of variable rate interest-earning assets beginning to reprice higher following recent increases in market interest rates.\nInterest and Dividend Income.\n Interest and dividend income increased $5.8 million to $55.7 million for the fiscal year ended March 31, 2023 from $49.8 million for the fiscal year ended March 31, 2022. The increase was primarily related to the increase in interest income on the investment securities portfolio due to the overall increase in average balance of and yield on investment securities. Interest income on investment securities increased $3.8 million to $9.0 million at March 31, 2023 compared to $5.2 million at March 31, 2022. This increase was also attributable to the increase of $665,000 on interest and fees earned on loans receivable for the fiscal year ended March 31, 2023 compared to the prior fiscal year due to the increase in the average balance of average net loans. The impact of the increase in the average net loans was offset by the decrease in the average yield on net loans by 28 basis points to 4.44% for the fiscal year ended March 31, 2023, predominantly from higher deferred SBA PPP loan fees recognized from SBA PPP loans that were forgiven. SBA PPP loans had a favorable impact on our loan yields when SBA PPP loans are forgiven and the remaining deferred fees are recognized which increase the average net loan yield for fiscal year ended March 31, 2022 that were not present for the fiscal year-ended March 31, 2023. Interest and dividend income included $102,000 and $3.0 million of interest and fees related to SBA PPP loans for the fiscal years ended March 31, 2023 and 2022, respectively. \u00a0The average balance of overnight cash balances positively impacted interest and dividend income due to the average yield on interest-bearing deposits at other banks which increased 161 basis points for fiscal year 2023 to 1.76% compared to 0.15% for fiscal year 2022. \n\u200b\n54\n\n\nTable of Contents\nInterest Expense.\n Interest expense for the fiscal year ended March 31, 2023 totaled $4.1 million, a $1.9 million or 84.5% increase from $2.2 million for the fiscal year ended March 31, 2022. The increase was primarily the result of an 18 basis point increase in the weighted average interest rate on interest-bearing liabilities and a $21.0 million increase in the average balance of FHLB advances for the fiscal year ended March 31, 2023 compared to the prior fiscal year. The weighted average interest rate on interest-bearing deposits increased to 0.16% for the fiscal year ended March 31, 2023 from 0.14% for the prior fiscal year. The average balance of interest-bearing deposits decreased $21.7 million to $965.7 million for the fiscal year ended March 31, 2023 compared to $987.5 million for the fiscal year ended March 31, 2022. Although the weighted average interest rate increased on interest-bearing deposits due to the overall increase in the interest rate environment, this increase was partially offset by the decrease in the average balance of interest-bearing deposits. \nInterest expense on borrowings increased $1.8 million for the fiscal year ended March 31, 2023 compared to the prior fiscal year due to an increase in the average balance of FHLB advances. The average balance of FHLB advances increased to $21.0 million for fiscal year ended March 31, 2023 compared to $3,000 for the same period in the prior year. The weighted average interest rate on FHLB advances increased to 4.88% for the fiscal year ended March 31, 2023 compared to 0.31% for the prior fiscal year\n. The weighted average interest rate on the junior subordinated debentures increased 281 basis points to 5.09% for the fiscal year ended March 31, 2023 compared to 2.28% for the prior fiscal year.\n\u200b\nProvision for Loan Losses.\n The Company recorded a provision for loan losses of $750,000 and a recapture of loan losses of $4.6 million for the fiscal years ended March 31, 2023 and 2022, respectively. The provision for loan losses for the fiscal year 2023 was due to an isolated loan downgrade that affected the allowance for loan losses. The recapture of loan losses for fiscal year 2022 was primarily due to the improving economic conditions associated with the COVID-19 pandemic since March 31, 2021. Any future decline in national and local economic conditions could result in a material increase in the allowance for loan losses and may adversely affect the Company\u2019s financial condition and results of operations.\nAt March 31, 2023, the Company had an allowance for loan losses of $15.3 million, or 1.52% of total loans, compared to $14.5 million, or 1.47% of total loans at March 31, 2022. Net recoveries were $36,000 for the fiscal year ended March 31, 2023 compared to net charge-offs of $30,000 for the fiscal year ended March 31, 2022. Net recoveries and net charge-offs to average net loans were insignificant for the years ended March 31, 2023 and 2022, respectively. \nImpaired loans are subjected to an impairment analysis to determine an appropriate reserve amount to be held against each loan. As of March 31, 2023, the Company had identified $629,000 of impaired loans. Because the significant majority of the impaired loans are collateral dependent, nearly all of the specific allowances are calculated based on the estimated fair value of the collateral. Of those impaired loans, $534,000 have no specific valuation allowance as their estimated net collateral value is equal to or exceeds the carrying amount of the loan, which in some cases is the result of previous loan charge-offs. The remaining impaired loan of $95,000 has a specific valuation allowance of $6,000. Charge-offs on these impaired loans totaled $85,000 from their original loan balances. Based on a comprehensive analysis, management deemed the allowance for loan losses adequate to cover probable losses inherent in the loan portfolio at March 31, 2023. See Note 5 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for additional information regarding the allowance for loan losses.\nNon-Interest Income.\n Non-interest income decreased $550,000 to $12.2 million for the fiscal year ended March 31, 2023 from $12.7 million for fiscal year 2022. The decrease is primarily due to a decrease in fees and service charges related to a decrease in brokered loan fees of $723,000. \u00a0These decreases are partially offset by an increase in asset management fees of $627,000 due to an increase in custody fees of $930,000 and trust tax preparation fees of $76,000 partially offset by a decrease in irrevocable trust fees of $342,000 and agency fees of $126,000 during the fiscal year ended March 31, 2023 compared to the fiscal year ended March 31, 2022. Additionally, non-interest income also included a BOLI death benefit on a former employee of $500,000 during the fiscal year ended March 31, 2022 that was not present for the fiscal year ended March 31, 2023. \n\u200b\n55\n\n\nTable of Contents\nNon-Interest Expense.\n Non-interest expense increased $2.7 million to $39.4 million for the year ended March 31, 2023 from $36.7 million for fiscal year 2022. The increase was primarily due to an increase in salaries and employee benefits of $347,000 for the fiscal year ended March 31, 2023 compared to the prior year and was mainly due to wage pressures, and the competitive landscape for attracting and retaining employees in the Company\u2019s primary market. Additionally, occupancy and depreciation expense for the fiscal year ended March 31, 2023 increased mainly due to an increase in rent expense, depreciation expense and repair and maintenance expense as the Company continues to update and modernize certain branch locations. In addition, the increase in non-interest expense is due to the recognition of a $1.0 million gain on sale of premises and equipment related to a former branch building during the fiscal year ended March 31, 2022, that was not present in the current fiscal year. Advertising and marketing expense increased $309,000 due to additional sponsorships and events as our local economy began to reopen when compared to the prior fiscal year. FDIC insurance premium expense increased $95,000 compared to the prior fiscal year primarily due to the increased FDIC assessment rate. These increases were partially offset by a decrease in data processing expense of $218,000 for fiscal year 2023 compared to the prior year due to a decreased cost associated with our core banking platform. \nIncome Taxes.\n The provision for income taxes was $5.6 million and $6.5 million for the fiscal years ended March 31, 2023 and 2022, respectively. The decrease in the provision for income taxes was due to lower pre-tax income for the fiscal year ended March 31, 2023 compared to the same period in the prior year. The effective tax rate was 23.7% for the fiscal year ended March 31, 2023 compared to 22.8% for the fiscal year ended March 31, 2022. The effective tax rate may be affected by the effects of apportioned income for state and local jurisdictions where we do business. The Company\u2019s effective tax rate for the fiscal year ended March 31, 2022 was lower than its historical effective tax rate due to a non-taxable BOLI death benefit of $500,000 that was not present for the fiscal year ended March 31, 2023. At March 31, 2023, the Company had a deferred tax asset of $10.3 million. As of March 31, 2023, management deemed that a deferred tax asset valuation allowance related to the Company\u2019s deferred tax asset was not necessary. See Note 11 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for further discussion of the Company\u2019s income taxes.\n\u200b\n56\n\n\nTable of Contents\nAverage Balance Sheet\n. The following table sets forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income earned on average interest-earning assets and interest expense paid on average interest-bearing liabilities, resultant yields, interest rate spread, ratio of interest-earning assets to interest-bearing liabilities and net interest margin. Average balances for a period have been calculated using daily average balances during such period. Non-accruing loans were included in the average loan amounts outstanding. Loan fees, net, of $2.4 million, $5.5 million and $4.5 million were included in interest income for the years ended March 31, 2023, 2022 and 2021, respectively.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nYears\u00a0Ended\u00a0March\u00a031,\u00a0\n\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\n\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\nInterest\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\nInterest\n\u200b\n\u00a0\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\nInterest\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u200b\nAverage\n\u200b\nand\n\u200b\nYield/\n\u200b\nAverage\n\u200b\nand\n\u200b\nYield/\n\u200b\nAverage\n\u200b\nand\n\u200b\nYield/\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nBalance\n\u00a0\u00a0\u00a0\u00a0\nDividends\n\u00a0\u00a0\u00a0\u00a0\nCost\n\u00a0\u00a0\u00a0\u00a0\nBalance\n\u00a0\u00a0\u00a0\u00a0\nDividends\n\u00a0\u00a0\u00a0\u00a0\nCost\n\u00a0\u00a0\u00a0\u00a0\nBalance\n\u00a0\u00a0\u00a0\u00a0\nDividends\n\u00a0\u00a0\u00a0\u00a0\nCost\n\u00a0\n\u200b\n\u200b\n(Dollars in thousands)\n\u00a0\nInterest-earning assets:\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nMortgage loans\n\u200b\n$\n 760,821\n\u200b\n$\n 34,694\n\u200b\n 4.56\n%\u00a0\u00a0\n$\n 696,700\n\u200b\n$\n 33,280\n\u200b\n 4.78\n%\u00a0\u00a0\n$\n 681,999\n\u200b\n$\n 33,989\n\u200b\n 4.98\n%\u00a0\u00a0\nNon-mortgage loans\n\u200b\n\u00a0\n 246,224\n\u200b\n\u00a0\n 10,050\n\u200b\n 4.08\n\u200b\n\u00a0\n 238,042\n\u200b\n\u00a0\n 10,799\n\u200b\n 4.54\n\u200b\n\u00a0\n 284,071\n\u200b\n\u00a0\n 11,509\n\u200b\n 4.05\n\u200b\nTotal net loans \n(1)\n\u200b\n\u00a0\n 1,007,045\n\u200b\n\u00a0\n 44,744\n\u200b\n 4.44\n\u200b\n\u00a0\n 934,742\n\u200b\n\u00a0\n 44,079\n\u200b\n 4.72\n\u200b\n\u00a0\n 966,070\n\u200b\n\u00a0\n 45,498\n\u200b\n 4.71\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nInvestment securities \n(2)\n\u200b\n\u00a0\n 472,396\n\u200b\n\u00a0\n 9,129\n\u200b\n 1.93\n\u200b\n\u00a0\n 345,869\n\u200b\n\u00a0\n 5,314\n\u200b\n 1.54\n\u200b\n\u00a0\n 156,723\n\u200b\n\u00a0\n 2,592\n\u200b\n 1.65\n\u200b\nInterest-bearing deposits in other banks\n\u200b\n\u00a0\n 100,694\n\u200b\n\u00a0\n 1,773\n\u200b\n 1.76\n\u200b\n\u00a0\n 291,897\n\u200b\n\u00a0\n 439\n\u200b\n 0.15\n\u200b\n\u00a0\n 194,456\n\u200b\n\u00a0\n 198\n\u200b\n 0.10\n\u200b\nOther earning assets\n\u200b\n\u00a0\n 3,696\n\u200b\n\u00a0\n 103\n\u200b\n 2.79\n\u200b\n\u00a0\n 2,560\n\u200b\n\u00a0\n 69\n\u200b\n 2.70\n\u200b\n\u00a0\n 2,860\n\u200b\n\u00a0\n 97\n\u200b\n 3.39\n\u200b\nTotal interest-earning assets\n\u200b\n\u00a0\n 1,583,831\n\u200b\n\u00a0\n 55,749\n\u200b\n 3.52\n\u200b\n\u00a0\n 1,575,068\n\u200b\n\u00a0\n 49,901\n\u200b\n 3.17\n\u200b\n\u00a0\n 1,320,109\n\u200b\n\u00a0\n 48,385\n\u200b\n 3.67\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNon-interest-earning assets:\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\nOffice properties and equipment, net\n\u200b\n\u00a0\n 19,621\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 18,933\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 18,469\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOther non-interest-earning assets\n\u200b\n\u00a0\n 63,511\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 77,135\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 77,775\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal assets\n\u200b\n$\n 1,666,963\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 1,671,136\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 1,416,353\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nInterest-bearing liabilities:\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nSavings accounts\n\u200b\n$\n 308,840\n\u200b\n$\n 219\n\u00a0\n 0.07\n%\u00a0\u00a0\n$\n 318,885\n\u200b\n$\n 247\n\u00a0\n 0.08\n%\u00a0\u00a0\n$\n 257,285\n\u200b\n$\n 418\n\u00a0\n 0.16\n%\u00a0\u00a0\nInterest checking accounts\n\u200b\n\u00a0\n 286,627\n\u200b\n\u00a0\n 89\n\u00a0\n 0.03\n\u200b\n\u00a0\n 279,053\n\u200b\n\u00a0\n 87\n\u00a0\n 0.03\n\u200b\n\u00a0\n 225,579\n\u200b\n\u00a0\n 85\n\u00a0\n 0.04\n\u200b\nMoney market accounts\n\u200b\n\u00a0\n 266,795\n\u200b\n\u00a0\n 415\n\u00a0\n 0.16\n\u200b\n\u00a0\n 272,161\n\u200b\n\u00a0\n 150\n\u00a0\n 0.06\n\u200b\n\u00a0\n 204,931\n\u200b\n\u00a0\n 153\n\u00a0\n 0.07\n\u200b\nCertificates of deposit\n\u200b\n\u00a0\n 103,484\n\u200b\n\u00a0\n 779\n\u00a0\n 0.75\n\u200b\n\u00a0\n 117,391\n\u200b\n\u00a0\n 940\n\u00a0\n 0.80\n\u200b\n\u00a0\n 129,928\n\u200b\n\u00a0\n 1,888\n\u00a0\n 1.45\n\u200b\nTotal interest-bearing deposits\n\u200b\n\u00a0\n 965,746\n\u200b\n\u00a0\n 1,502\n\u00a0\n 0.16\n\u200b\n\u00a0\n 987,490\n\u200b\n\u00a0\n 1,424\n\u00a0\n 0.14\n\u200b\n\u00a0\n 817,723\n\u200b\n\u00a0\n 2,544\n\u00a0\n 0.31\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nJunior subordinated debentures\n\u200b\n\u00a0\n 26,873\n\u200b\n\u00a0\n 1,368\n\u00a0\n 5.09\n\u200b\n\u00a0\n 26,789\n\u200b\n\u00a0\n 611\n\u00a0\n 2.28\n\u200b\n\u00a0\n 26,703\n\u200b\n\u00a0\n 667\n\u00a0\n 2.50\n\u200b\nFHLB advances\n\u200b\n\u200b\n 21,046\n\u200b\n\u200b\n 1,027\n\u200b\n 4.88\n\u200b\n\u200b\n 3\n\u200b\n\u200b\n \u2014\n\u200b\n 0.31\n\u200b\n\u200b\n 15,044\n\u200b\n\u200b\n 47\n\u200b\n 0.31\n\u200b\nOther interest-bearing liabilities\n\u200b\n\u00a0\n 2,271\n\u200b\n\u00a0\n 163\n\u00a0\n 7.18\n\u200b\n\u00a0\n 2,310\n\u200b\n\u00a0\n 165\n\u00a0\n 7.14\n\u200b\n\u00a0\n 2,350\n\u200b\n\u00a0\n 169\n\u00a0\n 7.19\n\u200b\nTotal interest-bearing liabilities\n\u200b\n\u00a0\n 1,015,936\n\u200b\n\u00a0\n 4,060\n\u00a0\n 0.40\n\u200b\n\u00a0\n 1,016,592\n\u200b\n\u00a0\n 2,200\n\u00a0\n 0.22\n\u200b\n\u00a0\n 861,820\n\u200b\n\u00a0\n 3,427\n\u00a0\n 0.40\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNon-interest-bearing liabilities:\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nNon-interest-bearing deposits\n\u200b\n\u00a0\n 480,029\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 476,203\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 387,579\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOther liabilities\n\u200b\n\u00a0\n 16,757\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 18,186\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 15,304\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal liabilities\n\u200b\n\u00a0\n 1,512,722\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 1,510,981\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 1,264,703\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nShareholders\u2019 equity\n\u200b\n\u00a0\n 154,241\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 160,155\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n 151,650\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal liabilities and shareholders\u2019 equity\n\u200b\n$\n 1,666,963\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 1,671,136\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 1,416,353\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNet interest income\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 51,689\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 47,701\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n$\n 44,958\n\u200b\n\u200b\n\u200b\nInterest rate spread\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n 3.12\n%\u00a0\u00a0\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n 2.95\n%\u00a0\u00a0\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n 3.27\n%\u00a0\u00a0\nNet interest margin\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n 3.26\n%\u00a0\u00a0\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n 3.03\n%\u00a0\u00a0\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n 3.41\n%\u00a0\u00a0\nRatio of average interest-earning assets to average interest-bearing liabilities\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n 155.90\n%\u00a0\u00a0\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n 154.94\n%\u00a0\u00a0\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n 153.18\n%\u00a0\u00a0\nTax-Equivalent Adjustment \n(3)\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 83\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 76\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n$\n 41\n\u200b\n\u200b\n\u200b\n\u200b\n(1)\nIncludes non-accrual loans.\n(2)\nFor purposes of the computation of average yield on investment securities available for sale, historical cost balances were utilized; therefore, the yield information does not give effect to changes in fair value that are reflected as a component of shareholders\u2019 equity.\n(3)\nTax-equivalent adjustment relates to non-taxable investment interest income calculated based on a combined federal and state tax rate of 24% for all three years.\n\u200b\n\u200b\n57\n\n\nTable of Contents\nRate/Volume Analysis\nThe following table sets forth the effects of changing rates and volumes on net interest income of the Company for the fiscal year ended March 31, 2023 compared to the fiscal year ended March 31, 2022, and the fiscal year ended March 31, 2022 compared to the fiscal year ended March 31, 2021. Information is provided with respect to: (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by change in volume). Variances that were insignificant have been allocated based upon the percentage relationship of changes in volume and changes in rate to the total net change (in thousands). The changes noted in the table below include tax equivalent adjustments, and as a result, will not agree to the amounts reflected on the Company\u2019s consolidated statements of income for the categories that have been adjusted to reflect tax equivalent income.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended March\u00a031,\u00a0\n\u200b\n\u200b\n2023\u00a0vs.\u00a02022\n\u200b\n2022\u00a0vs.\u00a02021\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nIncrease\u00a0(Decrease)\u00a0Due\u00a0to\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nIncrease\u00a0(Decrease)\u00a0Due\u00a0to\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nIncrease\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nVolume\n\u00a0\u00a0\u00a0\u00a0\nRate\n\u00a0\u00a0\u00a0\u00a0\n(Decrease)\n\u00a0\u00a0\u00a0\u00a0\nVolume\n\u00a0\u00a0\u00a0\u00a0\nRate\n\u00a0\u00a0\u00a0\u00a0\nIncrease\nInterest Income:\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\nMortgage loans\n\u200b\n$\n 2,986\n\u200b\n$\n (1,572)\n\u200b\n$\n 1,414\n\u200b\n$\n 705\n\u200b\n$\n (1,414)\n\u200b\n$\n (709)\nNon-mortgage loans\n\u200b\n\u00a0\n 365\n\u200b\n\u00a0\n (1,114)\n\u200b\n\u00a0\n (749)\n\u200b\n\u00a0\n (2,000)\n\u200b\n\u00a0\n 1,290\n\u200b\n\u00a0\n (710)\nInvestment securities \n(1)\n\u200b\n\u00a0\n 2,255\n\u200b\n\u00a0\n 1,560\n\u200b\n\u00a0\n 3,815\n\u200b\n\u00a0\n 2,906\n\u200b\n\u00a0\n (184)\n\u200b\n\u00a0\n 2,722\nInterest-bearing deposits in other banks\n\u200b\n\u00a0\n (464)\n\u200b\n\u00a0\n 1,798\n\u200b\n\u00a0\n 1,334\n\u200b\n\u00a0\n 121\n\u200b\n\u00a0\n 121\n\u200b\n\u00a0\n 242\nOther earning assets\n\u200b\n\u00a0\n 32\n\u200b\n\u00a0\n 2\n\u200b\n\u00a0\n 34\n\u200b\n\u00a0\n (9)\n\u200b\n\u00a0\n (20)\n\u200b\n\u00a0\n (29)\nTotal interest income\n\u200b\n\u00a0\n 5,174\n\u200b\n\u00a0\n 674\n\u200b\n\u00a0\n 5,848\n\u200b\n\u00a0\n 1,723\n\u200b\n\u00a0\n (207)\n\u200b\n\u00a0\n 1,516\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nInterest Expense:\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\nRegular savings accounts\n\u200b\n\u00a0\n (6)\n\u200b\n\u00a0\n (22)\n\u200b\n\u00a0\n (28)\n\u200b\n\u00a0\n 78\n\u200b\n\u00a0\n (249)\n\u200b\n\u00a0\n (171)\nInterest checking accounts\n\u200b\n\u00a0\n 2\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 2\n\u200b\n\u00a0\n 23\n\u200b\n\u00a0\n (21)\n\u200b\n\u00a0\n 2\nMoney market accounts\n\u200b\n\u00a0\n (3)\n\u200b\n\u00a0\n 268\n\u200b\n\u00a0\n 265\n\u200b\n\u00a0\n 26\n\u200b\n\u00a0\n (29)\n\u200b\n\u00a0\n (3)\nCertificates of deposit\n\u200b\n\u00a0\n (105)\n\u200b\n\u00a0\n (56)\n\u200b\n\u00a0\n (161)\n\u200b\n\u00a0\n (168)\n\u200b\n\u00a0\n (780)\n\u200b\n\u00a0\n (948)\nJunior subordinated debentures\n\u200b\n\u200b\n 2\n\u200b\n\u200b\n 755\n\u200b\n\u200b\n 757\n\u200b\n\u200b\n 2\n\u200b\n\u200b\n (58)\n\u200b\n\u200b\n (56)\nFHLB advances\n\u200b\n\u200b\n 1,027\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 1,027\n\u200b\n\u200b\n (47)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (47)\nOther interest-bearing liabilities\n\u200b\n\u00a0\n (3)\n\u200b\n\u00a0\n 1\n\u200b\n\u00a0\n (2)\n\u200b\n\u00a0\n (3)\n\u200b\n\u00a0\n (1)\n\u200b\n\u00a0\n (4)\nTotal interest expense\n\u200b\n\u00a0\n 914\n\u200b\n\u00a0\n 946\n\u200b\n\u00a0\n 1,860\n\u200b\n\u00a0\n (89)\n\u200b\n\u00a0\n (1,138)\n\u200b\n\u00a0\n (1,227)\nNet interest income\n\u200b\n$\n 4,260\n\u200b\n$\n (272)\n\u200b\n$\n 3,988\n\u200b\n$\n 1,812\n\u200b\n$\n 931\n\u200b\n$\n 2,743\n\u200b\n(1)\nInterest on municipal securities is presented on a fully tax-equivalent basis.\nAsset and Liability Management\nThe Company\u2019s principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates. The Company has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the difference between asset and liability maturities and interest rates. The principal element in achieving this objective is to increase the interest rate sensitivity of the Company\u2019s interest-earning assets and interest-bearing liabilities. Interest rate sensitivity increases by originating and purchasing portfolio loans with interest rates subject to periodic adjustment to market conditions and fixed rate loans with shorter terms to maturity. The Company relies on retail deposits as its primary source of funds, but also has access to FHLB advances, FRB borrowings, and other wholesale facilities, as needed. Management believes retail deposits reduce the effects of interest rate fluctuations because they generally represent a stable source of funds. As part of its interest rate risk management strategy, the Company promotes transaction accounts and certificates of deposit with terms up to ten years.\nThe Company has adopted a strategy that is designed to maintain or improve the interest rate sensitivity of assets relative to its liabilities. The primary elements of this strategy involve: the origination of adjustable rate loans; increasing commercial loans, consumer loans that are adjustable rate and other short-term loans as a portion of total net loans receivable because of their generally shorter terms and higher yields than real estate one-to-four family loans; matching asset and liability maturities; and investing in short-term securities. The strategy for liabilities has been to shorten the maturities for both deposits and borrowings. \n58\n\n\nTable of Contents\nThe longer-term objective is to increase the proportion of non-interest-bearing demand deposits, low interest- bearing demand deposits, money market accounts, and savings deposits relative to certificates of deposit to reduce our overall cost of funds.\nConsumer loans, such as home equity lines of credit and installment loans, commercial loans and construction loans typically have shorter terms and higher yields than real estate one-to-four family loans, and accordingly reduce the Company\u2019s exposure to fluctuations in interest rates. Adjustable interest rate loans totaled $403.6 million or 40.00% of total loans at March 31, 2023 as compared to $438.1 million or 44.23% at March 31, 2022. Although the Company has sought to originate adjustable rate loans, the ability to originate and purchase such loans depends to a great extent on market interest rates and borrowers\u2019 preferences. Particularly in lower interest rate environments, borrowers often prefer to obtain fixed-rate loans. See Item 1. \u201cBusiness - Lending Activities \u2013 Real Estate Construction \u201c and \u201c- Lending Activities - Consumer Lending.\u201d\nThe Company may also invest in short-term to medium-term U.S. Government securities as well as mortgage-backed securities issued or guaranteed by U.S. Government agencies. At March 31, 2023, the combined investment portfolio carried at $455.3 million had an average life of 6.1 years. Adjustable rate mortgage-backed securities totaled $3.7 million at March 31, 2023 compared to $5.5 million at March 31, 2022. See Item 1. \u201cBusiness \u2013 Investment Activities\u201d for additional information.\nLiquidity and Capital Resources\nLiquidity is essential to our business. The objective of the Bank\u2019s liquidity management is to maintain ample cash flows to meet obligations for depositor withdrawals, to fund the borrowing needs of loan customers, and to fund ongoing operations. Core relationship deposits are the primary source of the Bank\u2019s liquidity. As such, the Bank focuses on deposit relationships with local consumer and business clients who maintain multiple accounts and services at the Bank.\nLiquidity management is both a short and long-term responsibility of the Company\u2019s management. The Company adjusts its investments in liquid assets based upon management\u2019s assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits and (v) its asset/liability management program objectives. Excess liquidity is invested generally in interest-bearing overnight deposits and other short-term government and agency obligations. If the Company requires funds beyond its ability to generate them internally, it has additional diversified and reliable sources of funds with the FHLB, the FRB and other wholesale facilities. These sources of funds may be used on a long or short-term basis to compensate for a reduction in other sources of funds or on a long-term basis to support lending activities.\nThe Company\u2019s primary sources of funds are customer deposits, proceeds from principal and interest payments on loans, proceeds from the sale of loans, maturing securities, FHLB advances and FRB borrowings. While maturities and scheduled amortization of loans and securities are a predictable source of funds, deposit flows and prepayment of mortgage loans and mortgage-backed securities are greatly influenced by general interest rates, economic conditions and competition. Management believes that its focus on core relationship deposits coupled with access to borrowing through reliable counterparties provides reasonable and prudent assurance that ample liquidity is available. However, depositor or counterparty behavior could change in response to competition, economic or market situations or other unforeseen circumstances, which could have liquidity implications that may require different strategic or operational actions.\nThe Company must maintain an adequate level of liquidity to ensure the availability of sufficient funds for loan originations, deposit withdrawals and continuing operations, satisfy other financial commitments and take advantage of investment opportunities. During the fiscal year ended March 31, 2023, the Bank used its sources of funds primarily to fund loan commitments and investment purchases. At March 31, 2023, cash and cash equivalents, certificates of deposit held for investment and available for sale investment securities totaled $233.8 million, or 14.7% of total assets. Management believes that the Company\u2019s security portfolio is of high quality and its securities would therefore be marketable. The levels of these assets are dependent on the Company\u2019s operating, financing, lending, and investing activities during any given period. The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs; however, its primary liquidity management practice is to manage short-term borrowings, consistent with its asset/liability objectives. In addition to these primary sources of funds, the Bank has several secondary borrowing sources available to meet potential funding requirements, including FRB borrowings and FHLB advances. At March 31, 2023, the Bank had no advances from the FRB and maintains a credit facility with the FRB with available borrowing capacity of $57.4 million, subject to sufficient collateral. At March 31, 2023, FHLB advances totaled $123.8 million and the Bank had an available borrowing capacity of $315.4 million, subject to sufficient collateral and stock investment. At March 31, 2023, the Bank had sufficient unpledged collateral to allow it to utilize its available borrowing capacity from the FRB and the FHLB. Borrowing capacity may, however, fluctuate based on acceptability and risk rating of loan collateral and counterparties could adjust discount rates applied to such collateral at their discretion. \n59\n\n\nTable of Contents\nThe Bank Term Funding Program (BTFP) was created by the Federal Reserve to support and make additional funding available to eligible depository institutions to help banks meet the needs of their depositors. Riverview has registered and is eligible to utilize the BTFP. Riverview does not intend to utilize the BTFP, but could do so should the need arise. \nDuring the fiscal year ended March 31, 2023, deposits decreased $268.7 million. During the fiscal year ended March 31, 2022, deposits increased $187.8 million. An additional source of wholesale funding includes brokered certificates of deposit. While the Company has utilized brokered deposits from time to time, the Company historically has not extensively relied on brokered deposits to fund its operations. At March 31, 2023 and 2022, the Bank had no wholesale brokered deposits. The Bank also participates in the CDARS and ICS deposit products, which allow the Company to accept deposits in excess of the FDIC insurance limit for a depositor and obtain \u201cpass-through\u201d insurance for the total deposit. The Bank\u2019s CDARS and ICS balances were $22.8 million, or 1.8% of total deposits, and $66.3 million, or 4.3% of total deposits, at March 31, 2023 and 2022, respectively. The combination of all the Bank\u2019s funding sources gives the Bank available liquidity of $702.5 million, or 44.2% of total assets at March 31, 2023.\nAt March 31, 2023, the Company had total commitments of $144.4 million, which includes commitments to extend credit of $12.5 million, unused lines of credit totaling $93.7 million, undisbursed construction loans totaling $36.6 million, and standby letters of credit totaling $1.6 million. For additional information regarding future financial commitments, see Note 17 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K. The Company anticipates that it will have sufficient funds available to meet current loan commitments. Certificates of deposit that are scheduled to mature in less than one year from March 31, 2023 totaled $84.6 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. Offsetting these cash outflows are scheduled loan maturities of less than one year totaling $37.0 million at March 31, 2023.\nThe Company incurs capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment. The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations. Based on our current capital allocation objectives, during fiscal 2024 we expect cash expenditures of approximately $3.7 million for capital investment in premises and equipment.\nRiverview, as a separate legal entity from the Bank, must provide for its own liquidity. Sources of capital and liquidity for Riverview include distributions from the Bank and the issuance of debt or equity securities. Dividends and other capital distributions from the Bank are subject to regulatory notice. Management currently expects to continue the Company\u2019s current practice of paying quarterly cash dividends on its common stock subject to the Board of Directors\u2019 discretion to modify or terminate this practice at any time and for any reason without prior notice. The current quarterly common stock dividend rate is $0.06 per share, as approved by the Board of Directors, which management believes is a dividend rate per share which enables the Company to balance our multiple objectives of managing and investing in the Bank, \u00a0and returning a substantial portion of the Company\u2019s cash to its shareholders. Assuming continued payment during fiscal year 2024 at this rate of $0.06 per share, average total dividends paid each quarter would be approximately $1.3 million based on the number of the Company\u2019s outstanding shares at March 31, 2023. At March 31, 2023, Riverview had $5.5 million in cash to meet its liquidity needs.\nBank holding companies and federally-insured state-chartered banks are required to maintain minimum levels of regulatory capital. \u00a0At March 31, 2023, Riverview and the Bank were in compliance with all applicable capital requirements. \u00a0For additional information, see Note 13 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K and Item 1. Business \u2013 Regulation and Supervision of the Bank.\nNew Accounting Pronouncements\nFor a discussion of new accounting pronouncements and their impact on the Company, see Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.\n\u200b\n60\n\n\nTable of Contents",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk\nOur financial condition and operations are influenced significantly by general economic conditions, including the absolute level of interest rates as well as changes in interest rates and the slope of the yield curve. Our profitability is dependent to a large extent on our net interest income, which is the difference between the interest received from our interest-earning assets and the interest expense incurred on our interest-bearing liabilities.\u00a0Our activities, like all financial institutions, inherently involve the assumption of interest rate risk. Interest rate risk is the risk that changes in market interest rates will have an adverse impact on the institution\u2019s earnings and underlying economic value. Interest rate risk is determined by the maturity and repricing characteristics of an institution\u2019s assets, liabilities and off-balance-sheet contracts. Interest rate risk is measured by the variability of financial performance and economic value resulting from changes in interest rates. Interest rate risk is the primary market risk affecting our financial performance.\nOur Asset/Liability Management Committee (\u201cALCO\u201d) is responsible for monitoring and reviewing asset/liability processes and interest rate risk exposure to determine the level of risk appropriate given our operating environment, business plan strategies, performance objectives, capital and liquidity constraints, and asset and liability allocation alternatives; and to manage our interest rate risk consistent with regulatory guidelines and policies approved by the Board of Directors. Through such management, we seek to reduce the vulnerability of our earnings and capital position to changes in the level of interest rates. Our actions in this regard are taken under the guidance of the ALCO, which is comprised of members of our senior management. The ALCO closely monitors our interest sensitivity exposure, asset and liability allocation decisions, liquidity and capital positions, and local and national economic conditions and attempts to structure the loan and investment portfolios and funding sources to maximize earnings within acceptable risk tolerances.\nThe Company does not maintain a trading account for any class of financial instrument nor does it engage in hedging activities or purchase high-risk derivative instruments. Furthermore, the Company is not subject to foreign currency exchange rate risk or commodity price risk. For information regarding the sensitivity to interest rate risk of the Company\u2019s interest-earning assets and interest-bearing liabilities, see the tables under Item 1. \u201cBusiness \u2013 Lending Activities,\u201d \u201c\u2013 Investment Activities\u201d and \u201c\u2013 Deposit Activities and Other Sources of Funds\u201d.\nThe Company\u2019s principal financial objective is to achieve long-term profitability while limiting its exposure to fluctuating market interest rates. The Company intends to reduce risk where appropriate but accepts a degree of risk when warranted by economic circumstances. The Company has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates. The principal element in achieving this objective is to increase the interest rate sensitivity of the Company\u2019s interest-earning assets by retaining in its loan portfolio, short\u2013term loans and loans with interest rates subject to periodic adjustments.\nConsumer and commercial loans are originated and held in the loan portfolio as the short-term nature of these portfolio loans match durations more closely with the short-term nature of retail deposits such as interest checking, money market accounts and savings accounts. The Company relies on retail deposits as its primary source of funds. Management believes retail deposits reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds. As part of its interest rate risk management strategy, the Company promotes transaction accounts and certificates of deposit with longer terms to maturity. Except for immediate short-term cash needs, and depending on the current interest rate environment, FHLB advances will have short or long-term maturities. FRB borrowings have short-term maturities. For additional information, see Item 7. \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d contained herein.\nA number of measures are utilized to monitor and manage interest rate risk, including simulation modeling and traditional interest rate gap analysis. While both methods provide an indication of risk for a given change in interest rates, the simulation model is primarily used to assess the impact on earnings that changes in interest rates may produce. Key assumptions in the model include cash flows and maturities of financial instruments, changes in market conditions, loan volumes and pricing, deposit sensitivity, consumer preferences and management\u2019s capital leverage plans. These assumptions are inherently uncertain; therefore, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results may significantly differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and specific strategies among other factors.\n\u200b\n\u200b\n61\n\n\nTable of Contents\nThe following table shows the approximate percentage change in net interest income as of March 31, 2023 over a 12 and 24-month period under several instantaneous changes in interest rate scenarios:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nPercent\u00a0change\u00a0in\u00a0net\n\u200b\nPercent\u00a0change\u00a0in\u00a0net\n\u00a0\n\u200b\n\u200b\ninterest\u00a0income\u00a0(12\n\u200b\ninterest\u00a0income\u00a0(24\n\u00a0\nChange in interest rates\n\u00a0\u00a0\u00a0\u00a0\nmonths)\n\u00a0\u00a0\u00a0\u00a0\nmonths)\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nUp 300 basis points\n\u00a0\n (13.0)\n%\u00a0\u00a0\n (3.2)\n%\nUp 200 basis points\n\u00a0\n (9.1)\n%\u00a0\u00a0\n (0.9)\n%\nUp 100 basis points\n\u00a0\n (4.2)\n%\u00a0\u00a0\n 4.0\n%\nBase case\n\u00a0\n \u2014\n\u00a0\n 7.2\n%\nDown 100 basis points\n\u200b\n 0.4\n%\u00a0\u00a0\n 5.7\n%\nDown 200 basis points\n\u200b\n (0.1)\n%\u00a0\u00a0\n 2.3\n%\nDown 300 basis points\n\u00a0\n (1.6)\n%\u00a0\u00a0\n (2.8)\n%\n\u200b\nIn general, interest-earning assets reprice faster than interest-bearing liabilities in a given period. However, due to a number of loans in our loan portfolio with fixed interest rates, our net interest income will be negatively impacted in a rising interest rate environment. In a rising interest rate environment, net interest income will decrease in year one as set forth in the table above as our interest-bearing liabilities are expected to continue to increase faster than interest-earning assets. In a falling interest rate environment, our net interest income will be positively impacted in the first 100 basis point movement as our interest-bearing liabilities decrease faster in relation to our interest-earning assets. We attempt to limit our interest rate risk through managing the repricing characteristics of our assets and liabilities.\nAs with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as ARM loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Furthermore, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table.\n\u200b\n\u200b\n62\n\n\nTable of Contents\n\u200b",
+  "cik": "1041368",
+  "cusip6": "769397",
+  "cusip": ["769397100"],
+  "names": ["RIVERVIEW BANCORP INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1041368/000093905723000178/0000939057-23-000178-index.htm"
+}
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+++ b/GraphRAG/standalone/data/all/form10k/0000939930-23-000052.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. Business\nCompany Overview\nThis Annual Report on Form 10-K (this \"Annual Report\") is being filed by Pyxus International, Inc. (the \"Company,\" \"Pyxus,\" \"we,\" or \"us\"). Pyxus is a global agricultural company with 150 years of experience delivering value-added products and services to businesses and customers. The Company is a trusted provider of responsibly sourced, independently verified, sustainable, and traceable products and ingredients. The Company has one reportable segment for financial reporting purposes: Leaf. See \"\nNote 1. Basis of Presentation and Summary of \nSignificant\n \nAccounting Policies\n\" to the \"Notes to the Consolidated Financial Statements\" for additional information. \nLeaf Tobacco Operations\nOur leaf tobacco revenues are principally comprised of sales of processed leaf tobacco and fees charged for processing and related services to manufacturers of tobacco products. Our leaf tobacco operations deal primarily in flue-cured, burley, and oriental tobaccos that are used in international cigarette brands. \nWe purchase tobacco on five continents \nand ship to customers globally\n. We primarily purchase tobacco directly from suppliers. In those instances, we assume the risk of matching the quantities and grades required by our customers to the entire crop we must purchase under contract. \nOur arrangements with suppliers vary depending on our predictions of future supply and demand, local historical practice and availability of capital. In some locales, we purchase seeds, fertilizer, pesticides, and other products related to growing tobacco, which represent prepaid inventory, and issue them to suppliers with whom we have purchase contracts. The suppliers then utilize these inputs to grow tobacco, which we are contractually obligated to purchase as long as the supplier meets our specifications. The advances of inputs for the current crop generally include the original cost of the inputs plus a mark-up and interest as it is earned. Where contractually permitted, we charge interest to the suppliers during the period the current crop advance is outstanding. We account for our advances to tobacco suppliers using a cost accumulation model, which results in us reporting our advances at the lower of cost or recoverable amounts excluding the mark-up and interest. The mark-up and interest on our advances are recognized when the tobacco is delivered as a decrease in our cost of the current crop. Upon delivery of tobacco, part of the purchase price paid to the supplier is paid in cash and part through a reduction of the advance balance. The advances applied to the delivery are reclassified out of advances and into unprocessed inventory. Under longer-term arrangements with suppliers, we may advance or guarantee financing on suppliers' capital assets, which are also recovered through the delivery of tobacco to us by our suppliers.\nAs a result of various factors including weather, not all suppliers are able to settle the entire amount of advances through delivery of tobacco in a given crop year. Throughout the crop cycle, we monitor events that may impact the suppliers\u2019 ability to deliver tobacco. If we determine we will not be able to recover the original cost of the advances with deliveries of the current crop, or future crop deliveries, the unit cost of tobacco actually received is increased when unrecoverable costs are within a normal range or expensed immediately when they are above a normal range. The normal range is based on our historical results. We account for the unrecoverable costs in this manner to ensure only costs within a normal range are capitalized in inventory and costs that are above a normal range are expensed immediately as current period charges.\nWe process tobacco to meet each customer's specifications as to quality, yield, chemistry, particle size, moisture content and other characteristics. Unprocessed tobacco is a semi-perishable commodity. The processing of leaf tobacco facilitates shipping and prevents spoilage and is an essential service to our customers because the quality of processed leaf tobacco substantially affects the quality of the manufacturer\u2019s end product. Accordingly, we have located our production facilities in proximity to our principal sources of tobacco. We process tobacco in Company-owned and third-party facilities around the world, including in Argentina, Brazil, China, Guatemala, India, Indonesia, Jordan, Macedonia, Malawi, Tanzania, Thailand, Turkey, United States, and Zimbabwe. These facilities encompass leading export locations of flue-cured, burley and oriental tobaccos. After processing, whole leaves, bundles, strips or stems, and scrap where applicable, are separately packed in cases, bales, cartons or hogsheads for storage and shipment. Packed flue-cured, burley and oriental tobacco generally is transported in the country of origin by truck or rail, and exports are moved by ship. \nDuring the years ended March\u00a031, 2023 and 2022, approximately 65% and 64% of our total purchases for the respective period were from Brazil, China, Turkey, and the Africa region. We have entered into contracts, joint ventures and other arrangements for the purchase of tobacco grown in substantially all other countries that produce export-quality flue-cured and burley tobacco.\nKey Customers\nIn our leaf tobacco business, our primary customers are major consumer tobacco product manufacturers. Refer to \"\nNote 26. Segment Information\n\" to the \"Notes to Consolidated Financial Statements\" for additional information regarding customers, and \n4 \ntheir respective affiliates, that account for more than 10% of our annual revenues. Pyxus delivered approximately 31% of its tobacco sales to customers in Europe, approximately 18% to customers in China, and approximately 12% to customers in the United States for year ended March\u00a031, 2023. The remaining sales of leaf tobacco are to customers located in Asia, Africa, and other geographic regions of the world.\nCompetition\nLeaf tobacco industry competition is based primarily on the price charged for products and services as well as the merchant's ability to meet customer specifications in the buying, processing, residue compliance and financing of tobacco. The Company is one of only two global, publicly held leaf tobacco merchants. We hold a leading position in most major tobacco growing regions in the world, including the principal export markets for flue-cured, burley and oriental tobacco. In addition to the primary global independent leaf tobacco merchants, there are a number of other independent global, regional or national competitors. Local independent leaf merchants with low fixed costs and overhead also supply cigarette manufacturers. \nSeasonality\nThe purchasing and processing activities of our leaf tobacco business are seasonal. Tobacco purchases vary by market and tobacco variety. Tobacco grown in North America is purchased, processed, and marketed generally during the five-month period beginning in July and ending in November. Tobacco grown in South America is usually purchased, processed, and marketed from January through July and, for tobacco grown in Africa, from April through September. Other tobacco markets around the world have similar purchasing periods, although at different times of the year. During the purchasing, processing and marketing seasons, inventories of unprocessed tobacco, inventories of redried tobacco, and trade accounts receivable normally reach peak levels in succession. Current liabilities, particularly advances from customers, and short-term notes payable to banks, normally reach their peak in this period as a means of financing the seasonal expansion of current assets. At March 31, the end of our fiscal year, the seasonal components of our working capital reflect primarily the operations related to foreign-grown tobacco.\nTrack and Trace Technology\nIn connection with our leaf tobacco operations, the Company uses a proprietary \"track and trace\" platform, which we have branded as the SENTRI\n\u00ae\n, which we believe provides transparency into the lifecycle of agricultural products by monitoring information and obtaining data related to the growth, cultivation, harvest, processing, formulation, testing, and release of individual batches of products. By obtaining data on products at each stage of the supply chain, SENTRI\n\u00ae\n permits proactive decision-making for both the Company and its leaf tobacco customers. The key features of the SENTRI\n\u00ae\n includes:\n\u2022\nProduct Tracking\n: Data collection and tracking at various stages in the product lifecycle permits customers to gain an understanding of where products originate from, how they were produced, and the product testing data in order to understand ingredients and the product journey. \n\u2022\nControl and Visibility\n: With access to increased data regarding the supply chain, we are able to monitor quality control at various points in the product route to market.\n\u2022\nSustainability Commitments\n: SENTRI\n\u00ae\n incorporates visibility into the practices and procedures of the product supply chain.\n\u2022\nLot Number Tracking\n: We are able to track specific products through the manufacturing process by lot number with full visibility to our customers. This permits us and our customers to discover more about the product, its origin and other information relevant to quality control and product transparency.\n\u2022\nAgronomic Services\n: SENTRI\n\u00ae\n utilizes an experienced team of agronomists to track data and insights regarding growing practices.\nRegulation\nSee \"\nItem 1A. Risk Factors\n\" for a discussion of applicable government regulation of leaf tobacco.\nHuman Capital Management\nOur workforce is one of our most important stakeholder groups and is critical to achieving our purpose \u2013 to transform people\u2019s lives so that together we can grow a better world. The attraction, development and retention of talent enables us to make progress against our business strategy, and it is essential that we create and maintain a culture of conducting business in an ethical and responsible manner. It is for these reasons that we dedicate resources to employee engagement, focus on creating a safe workplace and recognizing employees for the results that they deliver. \nAs of March\u00a031, 2023, we employed approximately \n3,000 p\neople, excluding seasonal employees, in our worldwide operations. We maintain positive relationships with the Company\u2019s employees and their respective organizations. We have collective bargaining agreements in place in many of the countries in which we operate and we have long-term agreements in-place in certain jurisdictions to resolve disputes through binding arbitration. \n5 \nOversight and Management\nOur Human Resources department is responsible for managing employment-related matters, including recruiting and hiring, onboarding, compensation design and implementation, performance management, advancement and succession planning, and professional and learning development. Our Board of Directors provides oversight of various matters pertaining to our workforce. The Compensation Committee of the Board of Directors is responsible for executive compensation matters and oversight of the risks and programs related to talent management. Our Human Rights Policy and Code of Business Conduct highlight our commitment to diversity, inclusion, fairness, safety and equal opportunity in all aspects of employment. \nSupply Chain Human Rights Matters\nWe support efforts to address human rights concerns in the tobacco supply chain. For example, in our tobacco supply chain, we use on-farm good agricultural practices assessments to assess suppliers\u2019 compliance with labor practices. Our subsidiaries establish contract terms and conditions with tobacco suppliers related to issues such as forced and child labor, and they conduct social compliance due diligence throughout our tobacco-growing regions.\nEnvironmental Compliance\nWe are aware of the impact our business activities have on the environment, and we understand that climate change will have a long-term impact on our business, our employees, suppliers and the communities in which they live. We have committed to reducing our environmental impact from our operations and working with our contracted growers to apply sustainable agricultural methods and practices. Additional information regarding our activities related to our sustainability strategy can be found in our Sustainability Report, which is published on our website.\nCurrently, there are no material estimated capital expenditures related to environmental control facilities. In addition, there is no material effect on capital expenditures, results of operations or competitive position anticipated as a result of compliance with current or pending federal or state laws and regulations relating to protection of the environment.\nAvailable Information\nOur website is \nwww.pyxus.com\n. Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at \nhttp://investors.pyxus.com\n as soon as reasonably practicable after we file such material with, or furnish it to, the U.S. Securities and Exchange Commission (\"SEC\"). The information contained on our website shall not be deemed part of this annual report on Form 10-K. The SEC maintains a website \n(www.sec.gov\n) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.\nDevelopment of the Business\nA description of the general development of the Company's business is included in Item 1 of Part I of the Company's \nAnnual Report on Form 10-\nK for the fiscal year ended March \n31, 2022\n under the heading \"Company Overview\" and the paragraph immediately preceding such heading, which description is incorporated herein by reference.\nItem 1A. Risk Factors\nThe following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report. Any of the following risks could materially adversely affect our business, our operating results, our financial condition, and the actual outcome of matters as to which forward-looking statements are made in this Annual Report.\nRisks Related to Our Leaf Tobacco Operations\nOur reliance on a small number of significant customers may adversely affect our financial results.\nThe customers of our leaf tobacco business are manufacturers of cigarette and other tobacco products. Several of these customers individually may account for a significant portion of our sales in a normal year. \nFor the year ended March\u00a031, 2023, Philip Morris International Inc., China Tobacco International Inc., and \nBritish American Tobacco\n each accounted for more than 10% of our revenues from continuing operations. \nIn addition, tobacco product manufacturers have experienced consolidation and further consolidation among our customers could decrease such customers\u2019 demand for our leaf tobacco or processing services. The loss of any one or more of our significant customers could have a material adverse effect on our financial results.\nVertical integration by our customers could materially adversely affect our financial performance.\nDemand for our leaf tobacco or processing services could be materially reduced if cigarette manufacturers make the decision to significantly vertically integrate their operations, either through acquisition of our competitors, establishing new operations or contracting directly with suppliers. In general, our results of operations have not been adversely affected by vertical integration initiatives, and some customers have reversed certain aspects of their previous vertical integration of operations. However, further vertical integration by our customers could have a material adverse effect on our financial performance.\n6 \nGlobal shifts in sourcing customer requirements may negatively affect our organizational structure and asset base.\nShifts in sourcing of tobacco may occur as a result of currency fluctuations, including changes in currency exchange rates against the United States Dollar (\"USD\"), the imposition of tariffs and other changes in international trade policies. We may not be able to timely or efficiently adjust to shifts in sourcing origins, and adjusting to shifts may require changes in our production facilities in certain origins and changes in our fixed asset base. We have incurred, and may continue to incur, restructuring charges as we continue to adjust to shifts in sourcing. Adjusting our capacity and adjusting to shifts in sourcing may have an adverse impact on our ability to manage our costs and could have an adverse effect on our financial performance.\nOur financial results will vary according to growing conditions, customer indications, and other factors, which significantly impacts our ability to forecast our quarterly and annual financial performance.\nOur financial results may be significantly affected by fluctuations in tobacco growing seasons and crop sizes, which affect the supply of tobacco. Crop sizes may be affected by, among other things, crop infestation and disease, the volume of annual tobacco plantings and yields realized by suppliers, and suppliers' elections to grow crops other than tobacco. The cultivation period for tobacco is dependent upon a number of factors, including the weather and other natural events, such as hurricanes or tropical storms, and our processing schedule and results of operations for any quarterly period can be significantly altered by these factors. The unpredictability may be exacerbated by the effects of climate change, which could increase the likelihood or severity of disruptive weather events.\nThe cost of acquiring tobacco can fluctuate greatly due to crop sizes and increased competition in certain markets in which we purchase tobacco. For example, short crops in periods of high demand translate into higher average green prices, higher throughput costs and less volume to sell. Furthermore, large crops translate into lower average green prices, lower throughput costs and excess volume to sell.\nThe timing and unpredictability of customer indications, orders, and shipments cause us to keep tobacco in inventory, increase our risk, and result in variations in financial results. The timing of shipments can be materially impacted by shortages of containers and vessels for shipping, increased spot-prices for shipping leading vessel operators to reduce cargo allocations of our customers' containers covered by lower-priced, long-term shipping arrangements, as well as infrastructure and accessibility issues in ports we use for shipment. We may, from time to time in the ordinary course of business, keep a significant amount of processed tobacco in inventory for our customers to accommodate their inventory management and other needs. Sales recognition by us and our subsidiaries is based on the passage of ownership, usually with shipment of product. Because individual shipments may represent significant amounts of revenue, our financial results may vary significantly depending on our customers\u2019 needs and shipping instructions. These fluctuations result in varying volumes and sales in given periods, which also reduces your ability to compare our financial results in different periods or in the same periods in different years.\nLoss of confidence in us by our customers and suppliers may have a material adverse impact on our business, financial condition, results of operations, and cash flows. \nIf our customers and suppliers lose confidence in us, they may seek to establish alternative commercial relationships. In addition, in such circumstances, our suppliers, farmers, vendors, counterparties and service providers may seek to renegotiate the terms of our agreements, attempt to terminate their relationships with us or require financial assurances from us. If our suppliers, farmers, vendors, and other providers require stricter terms and conditions, we may not find these terms and conditions acceptable. Failure to timely obtain suitable inventory at competitive prices could materially adversely affect our businesses, financial condition, liquidity and results of operations.\nSuppliers who have historically grown tobacco may elect to grow other crops instead of tobacco, which affects the world supply of tobacco and may impact our financial performance.\nIncreases in the prices for other crops have led and may in the future lead suppliers who have historically grown tobacco to elect to grow these other, more profitable, items instead of tobacco. A decrease in the volume of tobacco available for purchase may increase the purchase price of such tobacco. As a result, we could experience an increase in tobacco crop acquisition costs, which may impact our financial performance.\nOur advancement of inputs to tobacco suppliers could expose us to losses.\nOur arrangements with suppliers vary depending on our predictions of future supply and demand, local historical practice and availability of capital. In some locales, we purchase seeds, fertilizer, pesticides, and other products related to growing tobacco, which represent prepaid inventory, and issue them to suppliers with whom we have purchase contracts. The suppliers then utilize these inputs to grow tobacco, which we are contractually obligated to purchase if they meet our specifications. These advances to tobacco suppliers are settled as part of the consideration paid upon the suppliers delivering us unprocessed tobacco at market prices. Two primary factors determine the market value of the tobacco suppliers deliver to us: the quantity of tobacco delivered and the quality of the tobacco delivered, both of which are subject to factors outside of our control at the time we make advances to suppliers. Unsatisfactory quantities or quality of the tobacco delivered could result in losses with respect to advances to our tobacco suppliers or the deferral of those advances.\n7 \nWhen we purchase tobacco directly from suppliers, we bear the risk that the tobacco will not meet our customers\u2019 quality and quantity requirements.\nIn countries where we contract directly with tobacco suppliers, we bear the risk that the tobacco delivered will not meet quality and quantity requirements of our customers. If the tobacco does not meet such market requirements, we may not be able to sell the tobacco we agreed to buy and may not be able to meet all of our customers\u2019 orders, which would have an adverse effect on our profitability and results of operations.\nWeather and other conditions can affect the marketability of our inventory, and climate change may adversely alter weather patterns in tobacco-growing regions.\nLike other agricultural products, the quality of tobacco is affected by weather and the environment, which can change the quality or size of the crop. If a weather event is particularly severe, such as a major drought or hurricane, the affected crop could be destroyed or damaged to an extent that it would be less desirable to our customers, which would result in a reduction in revenues. If such an event is also widespread, it could affect our ability to acquire the quantity of products required by customers. In addition, the potential impact of climate change is uncertain and may vary by geographic region. The possible effects, as described in various public accounts, could include changes in rainfall patterns, water shortages, changing storm patterns and intensities, and changing temperature levels, all of which may be of greater permanence than typical weather fluctuations. Some or all of these impacts could adversely affect the ability of farmers in the regions in which we source leaf tobacco to continue to produce crops of acceptable quality and in sufficient quantities. Their inability to do so could materially adversely affect our operations, results of operations and financial condition. \nIn addition, other items can affect the marketability of tobacco, including, among other things, the presence of:\n\u2022\nnon-tobacco related material;\n\u2022\ngenetically modified organisms; and\n\u2022\nexcess residues of pesticides, fungicides and herbicides.\nA significant event impacting the condition or quality of a large amount of the tobacco crops we buy could make it difficult for us to sell such tobacco or to fill our customers\u2019 orders.\nCompetition could erode our earnings.\nThe leaf tobacco industry is highly competitive. Competition is based primarily on the prices charged for products and services as well as the merchant\u2019s ability to meet customer specifications in the buying, processing, and financing of tobacco. The loss or substantial reduction of any large or significant customer could reduce our earnings. Although we are one of only two primary global independent publicly held leaf tobacco merchants, cigarette manufacturers also buy tobacco directly from local and regional suppliers. We also face increasing competition from new local and regional independent leaf merchants with low fixed costs and overhead and good local customer connections, where the new entrants have been able to capitalize in the global transition to those markets. Any of these sources of new competition may result in less tobacco available for us to purchase and process in the applicable markets.\nContinued high inflation may adversely affect our profitability and the demand for our leaf tobacco products.\nThe economies of the United States and other nations have recently experienced the highest levels of consumer price inflation in decades. Continued inflationary pressures may continue to increase our costs, including the cost of leaf tobacco that we purchase. If these increased costs cannot successfully be passed on to our customers, many of which have significant negotiating power, our profitability and results of operations may be adversely affected. In addition, since our leaf tobacco products are used in the manufacturing of tobacco consumer goods, consumer behavior that deprioritizes the purchase of tobacco consumer goods in response to inflationary increases in the price of such goods could result in reduced overall demand for consumer tobacco products and consequently for the leaf tobacco we provide to manufacturers, which could materially adversely affect our profitability, results of operations and financial position.\nRisks Related to the Scope of Our International Operations\nWe face increased risks of doing business due to the extent of our international operations.\nSome of the countries we do business in do not have stable economies or governments. Our international operations are subject to international business risks, including unsettled political conditions, uncertainty in the enforcement of legal obligations, including the collection of accounts receivable, fraud risks, expropriation, import and export restrictions, exchange controls, inflationary economies, currency risks, and risks related to the restrictions on repatriation of earnings or proceeds from liquidated assets of foreign subsidiaries. These risks are exacerbated in countries where we have advanced substantial sums or guaranteed local loans or lines of credit for the purchase of tobacco from suppliers. \nIn 2006, as a result of the political environment, economic instability, foreign currency controls, and governmental regulations in Zimbabwe, we deconsolidated our Zimbabwe subsidiary, Mashonaland Tobacco Company LTD (\"MTC\"). Subsequently, we determined that the significant doubt about our ability to control MTC was eliminated and reconsolidated MTC as of March 31, \n8 \n2016. The Company utilizes the Zimbabwe RTGS system for local transactions. RTGS is a local currency equivalent that is exchanged at a government specified rate with USD. To convert these units to USD, the Company must obtain foreign currency resources from the Reserve Bank of Zimbabwe, which are subject to the monetary and exchange control policy in Zimbabwe. If the foreign exchange restrictions and government-imposed controls become severe, we may have to reassess our ability to control MTC.\nIn recent years, economic problems in certain countries where we have international operations have received wide publicity related to devaluation and appreciation of the local currency and inflation, including the classification of the Argentina, Turkey, and Zimbabwe economies as highly inflationary. Devaluation and appreciation of the local currency and inflation can affect our purchase costs of tobacco and our processing costs. In addition, we conduct business with suppliers and customers in countries that have recently had or may be subject to dramatic political regime change. In the event of such dramatic changes in the government of such countries, we may be unable to continue to operate our business, or adequately enforce legal obligations, after the change in a manner consistent with prior practice.\nFurther, the imposition of governmental sanctions or other restrictions may preclude us from continuing to sell to certain customers or to source leaf tobacco from certain jurisdictions. For example, governmental sanctions imposed in response to the invasion of Ukraine by Russia have adversely affected sales to customers impacted by the sanctions. Similarly, the imposition of sanctions with respect to other jurisdictions, including sanctions imposed in response to conflict or threat of conflict in other regions could have a material adverse effect on our profitability, results of operations and financial position.\nWe are subject to the Foreign Corrupt Practices Act (the \"FCPA\") and we operate in jurisdictions that pose a high risk of potential FCPA violations.\nWe are subject to the FCPA, which generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations. Although our corporate policy prohibits foreign bribery and we have adopted procedures to promote compliance, we cannot assure you that our policy or procedures will work effectively all of the time or protect us against liability under the FCPA for actions taken by our agents, employees, and intermediaries with respect to our business or any businesses that we acquire. Failure to comply with the FCPA, other anti-corruption laws and other laws governing the conduct of business with government entities (including local laws) could lead to criminal and civil penalties and other remedial measures (including further changes or enhancements to our procedures, policies, and controls, the imposition of a compliance monitor at our expense and potential personnel changes and/or disciplinary actions), any of which could have an adverse impact on our business, financial condition, results of operations, and liquidity. Any investigation of any potential violations of the FCPA or other anti-corruption laws by U.S. or foreign authorities also could have an adverse impact on our business, financial condition, and results of operations.\nOur exposure to foreign tax regimes, and changes in U.S. or foreign tax regimes, could adversely affect our business.\nOur global exposure to tax regimes could adversely affect our business. We do business in countries that have tax regimes in which the rules are not clear, are not consistently applied and are subject to sudden change. Our earnings could be changed by the uncertain and changing nature of these tax regimes. Certain of our subsidiaries are and may in the future be subject to audit, investigation, or other tax controversies. While the outcome of such matters cannot be predicted with certainty, we do not currently expect that such matters will have a material adverse effect on our business or financial position. However, should one or more of these matters be resolved in a manner adverse to our current expectation, the effect on our results of operations for a particular fiscal reporting period could be material. \nFluctuations in foreign currency exchange and interest rates could adversely affect our results of operations.\nWe conduct our business in many countries around the world. Our business is generally conducted in USD, as is the business of the leaf tobacco industry as a whole. We generally must purchase tobacco in non-U.S. countries using local currency. As a result, local country operating costs, including the purchasing and processing costs for tobaccos, are subject to the effects of exchange fluctuations of the local currency against the USD. When the USD weakens against foreign currencies, our costs for purchasing and processing tobacco in such currencies increases. Although we operate in many non-U.S. countries and are exposed to fluctuations in the currencies of numerous foreign countries, exchange fluctuation in the Brazilian Real against the USD has the greatest potential for impact on our financial results. We attempt to reduce such currency risks by matching the timing of our working capital borrowing needs against the tobacco purchasing and processing funds requirements in the currency of the country where the tobacco is grown. Fluctuations in the value of foreign currencies can significantly affect our operating results.\nIn addition, the devaluation of foreign currencies has resulted and may in the future result in reduced purchasing power from customers whose capital resources are denominated in those currencies. We may incur a loss of business as a result of the devaluation of these currencies now or in the future.\n9 \nRisks Related to Other Aspects of Our Operations\nWe rely on internal and externally hosted information technology systems and disruption, failure, or security breaches of these systems could adversely affect our business.\nWe rely on information technology (\"IT\") systems, including systems hosted by service providers. For example, our enterprise resource planning system and our domestic employee payroll system are hosted by external service providers. Although we have disaster recovery plans and several intrusion preventive mitigating tools and services in-place, which are active inline services or are tested routinely, our portfolio of hardware and software products, solutions and services and our enterprise IT systems, including those hosted by service providers, may be vulnerable to damage or disruption caused by circumstances beyond our control, such as catastrophic events, power outages, natural disasters, computer system, or network failures, computer viruses or other malicious software programs, and cyber-attacks, including system hacking and other cyber-security breaches. The failure or disruption of our IT systems to perform as anticipated for any reason could disrupt our business and result in decreased performance, significant remediation costs, transaction errors, loss of data, processing inefficiencies, downtime, litigation, and the loss of suppliers or customers. A significant disruption or failure could have a material adverse effect on our business operations, financial performance, and financial condition.\nWe cannot assure you that material weaknesses will not be identified in the future.\nIn certain prior years, we identified material weaknesses in our internal control over financial reporting. Although we intend to continue to aggressively monitor and improve our internal controls, we cannot assure you that other material weaknesses will not occur in the future. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations or result in misstatements in our financial statements in amounts that could be material. Ineffective internal controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the value of our common stock and could also require additional restatements of our prior reported financial information. In addition, because we are not an \"accelerated filer\" under applicable SEC regulations, we are not required to obtain and present a report of our independent accounting firm with respect to the effectiveness of our internal control over financial reporting and we have not obtained such a report with respect to an evaluation of our internal controls as of March\u00a031, 2023 and, accordingly, no such report is included in this Form 10-K. \nRegulations regarding environmental matters may affect us by substantially increasing our costs and exposing us to potential liability.\nWe are subject to environmental, health, and safety laws and regulations in each jurisdiction in which we operate. Such regulations govern, among other things, emissions of pollutants into the air, wastewater discharges, waste disposal, the investigation and remediation of soil and groundwater contamination, and the health and safety of our employees. For example, our products and the raw materials used in its production processes are subject to numerous environmental laws and regulations. We may be required to obtain environmental permits from governmental authorities for certain of its current or proposed operations. We may not have been, nor may be able to be at all times, in full compliance with such laws, regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators.\nAs with other companies engaged in similar activities or that own or operate real property, we face inherent risks of environmental liability at our current and historical production sites. Certain environmental laws impose strict and, in certain circumstances, joint and several liability on current or previous owners or operators of real property for the cost of the investigation, removal or remediation of hazardous substances as well as liability for related damages to natural resources. In addition, we may discover new facts or conditions that may change our expectations or be faced with changes in environmental laws or their enforcement that would impose additional liabilities. Furthermore, our costs of complying with current and future environmental, health, and safety laws, or our liabilities arising from past or future releases of, or exposure to, regulated materials, may have a material adverse effect on our business, financial condition, and results of operations.\nIncreasing scrutiny and changing expectations from governments, as well as other stakeholders such as investors and customers, with respect to our environmental, social and governance (\"ESG\") policies, including sustainability policies, may impose additional costs on us or expose us to additional risks.\nGovernments, the non-governmental community, and industry increasingly understand the importance of implementing comprehensive environmental, labor, and governance practices. We are committed to implementing a robust sustainability management system, and we continue to implement what we believe are responsible ESG practices. Government regulations, however, could result in new or more stringent forms of ESG oversight and disclosures. These may lead to increased expenditures for environmental controls, land use restrictions, reporting, and other conditions, which could have an adverse effect on our results of operations.\nIn addition, a number of governments have implement or are considering implementing due diligence procedures to ensure strict compliance with environmental, labor, and government regulations. The European Union has proposed broad due diligence reporting requirements for all industries operating within Europe. The United States has called for a broader and more \n10 \nrobust approach to labor compliance in foreign jurisdictions, which could include some of our strategic origins. Due to general uncertainty regarding the timing, content, and extent of any such regulatory changes in the United States or abroad, we cannot predict the impact, if any, that these changes could have to our business, financial condition, and results of operations.\nOur e-liquids business faces inherent risk of exposure to product liability claims, regulatory action, and litigation if its products are alleged to have caused significant loss, injury, or death.\nAs a manufacturer and distributor of products that are ingested or otherwise consumed by humans, our e-liquids business faces the risk of exposure to product liability claims, regulatory action and litigation (including class proceedings and individual proceedings) if its products are alleged to have caused loss, injury or death. Our e-liquids business may be subject to these types of claims due to allegations that its products caused or contributed to injury, illness or death, made false, misleading or impermissible claims, failed to include adequate labeling and instructions for use or failed to include adequate warnings concerning possible side effects or interactions with other substances. Previously unknown adverse reactions resulting from human consumption of these e-liquids products alone or in combination with other medications or substances could also occur. In addition, the manufacture and sale of any ingested or consumable product involves a risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Our e-liquids business may in the future have to recall certain of its products as a result of potential contamination and quality assurance concerns. A product liability claim or regulatory action against our e-liquids business could result in increased costs and could adversely affect its reputation and goodwill with its consumers. We cannot assure you that product liability insurance can be maintained on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could result in the Company's becoming subject to significant liabilities that are uninsured.\nThe risk of class-based litigation (and individual litigation) for manufacturers and distributors of e-liquids and other vaping products, and others involved in the vaping industry, is significant, particularly in the face of increasing health and marketing concerns, the potential for product recalls or other product-related issues. The United States has a highly active plaintiffs\u2019 bar. Recent years have seen a number of purported class action lawsuits in the United States against manufacturers and distributors of e-liquids and other vaping products. These circumstances create enhanced risk and exposure for the Company given the nature of its operations, the products it manufactures, distributes and sells, and its business environment.\nRisks Related to Our Capital Structure\nWe may be unable to continue to access short-term operating credit lines to fund local operations on terms that are acceptable or at all.\nWe have historically financed our non-U.S. local leaf tobacco operations with short-term operating credit lines at the local level. These operating lines are typically seasonal in nature, corresponding to the tobacco crop cycle in that location. Certain of these facilities are uncommitted in that the lenders have the right to cease making loans or demand payment of outstanding loans at any time. Moreover, as these facilities mature, local lenders may not renew them or otherwise offer replacement financing facilities. If local lenders lose confidence in us, they may cease making loans or demand payment of outstanding loans with respect to uncommitted facilities or, with respect to committed facilities, decline to renew or extend existing facilities, or require stricter terms and conditions with respect to future facilities. We may not find these terms and conditions acceptable or they may overly restrict our ability to conduct our businesses successfully. An inability to maintain adequate financing to fund our non-U.S. local leaf tobacco operations in any significant location could result in a significant decline in our revenues, profitability and cash flow and may require us to exit operations in that jurisdiction.\nWe may not continue to have access to the capital markets to obtain long-term and short-term financing on acceptable terms and conditions.\nWe access the short-term capital markets and, from time to time, the long-term markets to obtain financing. Our access to, and the availability of acceptable terms and conditions of, such financing are impacted by many factors, including: (i) our credit ratings; (ii) the liquidity and volatility of the overall capital markets; and (iii) the current state of the economy, including the tobacco industry. There can be no assurances that we will continue to have access to the capital markets on terms acceptable to us.\nWe have substantial debt which may adversely affect us by limiting future sources of financing, interfering with our ability to pay interest, and principal on our indebtedness and subjecting us to additional risks.\nWe have a significant amount of indebtedness and debt service obligations. As of March\u00a031, 2023, we had approximately $1,001.0 million in aggregate principal amount of indebtedness. Our substantial debt could have important consequences, including:\n\u2022\nmaking it more difficult for us to satisfy our obligations with respect to our senior credit obligations and our other obligations;\n11 \n\u2022\nrequiring us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing the funds available for operations, working capital, capital expenditures, acquisitions, product development, and other purposes;\n\u2022\nlimiting our ability to obtain additional financing on satisfactory terms and to otherwise fund working capital, capital expenditures, debt refinancing, acquisitions, and other general corporate requirements;\n\u2022\nhampering our ability to adjust to changing market conditions;\n\u2022\nincreasing our vulnerability to general adverse economic and industry conditions;\n\u2022\nplacing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged;\n\u2022\nlimiting our flexibility in planning for, or reacting to, changes in our business, and the industries in which we operate; \n\u2022\nrestricting us from making strategic acquisitions or exploiting business opportunities; and\n\u2022\nexposing us to the risk of increased interest rates as borrowings under a substantial portion of our debt are subject to variable interest rates.\nWe require a significant amount of cash to service our indebtedness. Our ability to generate cash depends on many factors beyond our control.\nWe require a significant amount of cash to service our indebtedness and a substantial portion of our cash flow is required to fund the interest payments on our indebtedness. Our ability to service our indebtedness and to fund planned capital expenditures depends on our ability to generate cash. This is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control, including the continuing impact of shipping constraints related to the COVID-19 pandemic. Also, a substantial portion of our debt, including borrowings under our ABL credit facility, bears interest at variable rates. If market interest rates increase, variable-rate debt will create higher debt-service requirements, which would adversely affect our cash flow. We cannot assure you that our businesses will generate sufficient cash flow from operations or that future borrowings will be available to us under in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs.\nDespite current indebtedness levels, we may still be able to incur substantially more debt. This could exacerbate further the risks associated with our significant leverage.\nWe may be able to incur substantial additional indebtedness in the future to the extent permitted under our existing credit arrangements. As of March\u00a031, 2023, $414.3 million was available for borrowing under our short and long-term credit facilities. If new debt is added to our current debt levels, the risks discussed above could intensify.\nWe may not be able to refinance or renew our indebtedness or be able to borrow under our ABL credit facility or other future credit facilities, which may have a material adverse effect on our financial condition.\nWe may not be able to renew or refinance our ABL credit facility or other indebtedness, including our senior secured indebtedness, on substantially similar terms, or at all, including as a result of volatility and disruption of global credit markets. We may have to pay additional fees and expenses that we might not have to pay under normal circumstances, and we may have to agree to terms that could increase the cost of our debt structure. If we are unable to renew or refinance our ABL credit facility and other senior secured indebtedness on terms which are not materially less favorable than the terms currently available to us or obtain alternative or additional financing arrangements, we may not be able to repay the ABL credit facility, our senior secured indebtedness, or certain of our other indebtedness, which may result in a default under other indebtedness.\nFailure of foreign banks in which our subsidiaries deposit funds or the failure to transfer funds or honor withdrawals may affect our results of operations.\nFunds held by our foreign subsidiaries are often deposited in their local banks. In addition, we maintain deposit accounts with numerous financial institutions around the world in amounts that exceed applicable governmental deposit insurance levels. Banks in certain foreign jurisdictions may be subject to a higher rate of failure or may not honor withdrawals of deposited funds. In addition, the countries in which these local banks operate may lack sufficient regulatory oversight or suffer from structural weaknesses in the local banking system. Due to uncertainties and risks relating to the political stability of certain foreign governments, these local banks also may be subject to exchange controls and therefore unable to perform transfers of certain currencies. If our ability to gain access to these funds was impaired, it could have a material adverse effect on our results of operations. \nWe may not be able to achieve our stated goals, which may adversely affect our liquidity.\nWe face a number of risks, such as changes in economic conditions, pandemics, changes in the leaf tobacco market, changes in regulations affecting the tobacco industry, other changes in demand for our products, and increasing expenses. We may need to raise additional funds through public or private debt or equity financing or other various means to fund our business, both at a holding-company level and the local short-term credit lines that fund the operating needs of our non-U.S. local leaf tobacco subsidiaries. Our access to necessary financing may be limited, if it is available at all. Therefore, adequate funds may not be available when needed or may not be available on favorable terms, or at all. \n12 \nDevelopments with respect to our liquidity needs and sources of liquidity could result in a deficiency in liquidity.\nOur liquidity requirements are affected by various factors from our core tobacco leaf business, including crop seasonality, foreign currency and interest rates, green tobacco prices, customer mix and shipping requirements, crop size, and quality. Our leaf tobacco business is seasonal, and purchasing, processing, and selling activities have several associated peaks where cash on-hand and outstanding indebtedness may vary significantly during the fiscal year. We anticipate periods in the next twelve months during which our liquidity needs will approach the levels of our anticipated available cash and permitted borrowings under our credit facilities. Developments affecting our liquidity needs, including with respect to the foregoing factors, and sources of liquidity, including impacts affecting our cash flows from operations (including as a result of delays with respect to the anticipated timing of shipments of leaf tobacco, whether due to the impact of pandemics, customer preferences, or other reasons) and the availability of capital resources (including an inability to renew or refinance short-term operating lines of credit and other short-term indebtedness), may result in a deficiency in liquidity. To address a potential liquidity deficiency, we may continue to undertake plans to minimize cash outflows, which could include exiting operations that do not generate positive cash flow. It is possible that, depending on the occurrence of events affecting our liquidity needs and sources of liquidity, such plans may not be sufficient to adequately or timely address a liquidity deficiency.\nDerivative transactions may expose us to potential losses and counterparty risk.\nWe may, from time to time, enter into certain derivative transactions, including interest rate swaps and foreign exchange contracts. Changes in the fair value of these derivative financial instruments that are not accounted for as cash flow hedges are reported as income, and accordingly could materially affect our reported income in any period. In addition, the counterparties to these derivative transactions may be financial institutions or affiliates of financial institutions, and we would be subject to risks that these counterparties default under these transactions. In some of these transactions, our exposure to counterparty credit risk may not be secured by any collateral. Global economic conditions over the last few years have resulted in the actual or perceived failure or financial difficulties of many financial institutions, including bankruptcy. If one or more of the counterparties to one or more of our derivative transactions not secured by any collateral becomes subject to insolvency proceedings, we would become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under those transactions. We cannot assure you of the financial stability or viability of our counterparties.\nRisks Related to the Ownership of Our Common Stock\nCertain shareholders have the ability to exercise controlling influence on various corporate matters.\nTwo shareholders and their respective affiliates, Glendon Capital Management LP (together with its affiliates, the \"Glendon Investor\") and Monarch Alternative Capital LP (together with its affiliates, the \"Monarch Investor;\" the Glendon Investor and the Monarch Investor are together referred to as the \"Significant Shareholders\") beneficially own in the aggregate approximately 56% of our issued and outstanding common stock and, therefore, have significant control on the outcome of matters submitted to a vote of shareholders, including, but not limited to, electing directors and approving corporate transactions. Pursuant to the terms of a Shareholders Agreement dated as of August 24, 2020 among the Company and certain shareholders, including the Significant Shareholders, each of the Glendon Investor and the Monarch Investor has the right (depending on its continued ownership of a specified percentage of the outstanding shares of our common stock) to nominate up to two individuals for election as directors, and each of them and the other shareholders that are parties to the Shareholders Agreement have agreed to take all necessary action to elect such nominees as directors. Under our articles of incorporation, the affirmative vote of each of the Glendon Investor and the Monarch Investor, so long as it continues to maintain an Investor Percentage Interest (as defined in the Shareholders Agreement) of at least five percent, is required for the approval of any amendment to the articles of incorporation. It is our understanding that each of the Glendon Investor and the Monarch Investor hold a significant amount of our senior secured indebtedness. Circumstances may occur in which the interests of the Significant Shareholders could be in conflict with the interests of other shareholders, and the Significant Shareholders could have substantial influence to cause us to take actions that align with their interests. Should conflicts arise, we can provide no assurance that the Significant Shareholders would act in the best interests of other shareholders or that any conflicts of interest would be resolved in a manner favorable to our other shareholders.\nThe price of our common stock may be negatively impacted by factors that are unrelated to our operations.\nAlthough our common stock is currently listed for quotation on the OTC Markets, we understand that no securities brokerage firm is making a market in the Company\u2019s common stock. Trading through the OTC Markets is frequently thin and may be highly volatile. There is no assurance that a sufficient market will continue in our stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of the markets in which our businesses operate, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.\n13 \nRisks Related to the Tobacco Industry\nReductions in demand for consumer tobacco products could adversely affect our results of operations.\nThe tobacco industry, both in the United States and abroad, continues to face a number of issues that may reduce the consumption of cigarettes and adversely affect our business, sales volume, results of operations, cash flows and financial condition.\nThese issues, some of which are more fully discussed below, include:\n\u2022\ngovernmental actions seeking to ascribe to tobacco product manufacturers liability for adverse health effects associated with smoking and exposure to environmental tobacco smoke;\n\u2022\nsmoking and health litigation against tobacco product manufacturers;\n\u2022\nincreased consumer acceptance of electronic cigarettes;\n\u2022\ntax increases on consumer tobacco products;\n\u2022\npotential prohibition on the sale of menthol cigarettes in the United States;\n\u2022\ncurrent and potential actions by state attorneys general to enforce the terms of the Master Settlement Agreement, or MSA, between state governments in the United States and tobacco product manufacturers;\n\u2022\ngovernmental and private banks and restrictions on smoking;\n\u2022\nactual and proposed price controls and restrictions on imports in certain jurisdictions outside the United States;\n\u2022\nrestrictions on tobacco product manufacturing, marketing, advertising and sales;\n\u2022\nthe diminishing social acceptance of smoking;\n\u2022\nincreased pressure from anti-smoking groups;\n\u2022\nother tobacco product legislation that may be considered by Congress, the states, municipalities and other countries; and\n\u2022\nthe impact of consolidation among multinational cigarette manufacturers.\nLegislation and regulatory and other governmental initiatives could impose burdensome restrictions on the tobacco industry and reduce consumption of consumer tobacco products and demand for our services.\nThe Tobacco Control Act, which amended the Food, Drug, and Cosmetic Act, extends the authority of the FDA to regulate tobacco products. This act authorizes the FDA to adopt product standards for tobacco products, including the level of nicotine yield and the reduction or elimination of other constituents of the products, along with provisions for the testing of products against these standards. The act imposes further restrictions on advertising of tobacco products, authorizes the FDA to limit the sales of tobacco products to face-to-face transactions permitting the verification of the age of the purchaser, authorizes a study to determine whether the minimum age for the purchase of tobacco products should be increased and requires submission of reports from manufacturers of tobacco products to the FDA regarding product ingredients and other matters, including reports on health, toxicological, behavioral, or physiologic effects of tobacco products and their constituents. The act also mandates warning labels and requires packaging to indicate the percentage of domestically grown tobacco and foreign grown tobacco included in the product, although the FDA has issued guidance to the industry announcing its intent to enforce the latter requirements until further notice. The FDA has adopted regulations under the act establishing requirements for the sale, distribution, and marketing of cigarettes, as well as package warnings and advertising limitations.\nThe act directs the FDA to promulgate regulations requiring that the methods used in, and the facilities and controls used for, the manufacture, preproduction design validation, packing, and storage of a tobacco product conform to current good manufacturing practice. Regulations under the act do not apply to tobacco leaf that is not in the possession of a manufacturer of tobacco products, or to the producers of tobacco leaf, including tobacco suppliers, tobacco warehouses, and tobacco supplier cooperatives unless those entities are controlled by a tobacco product manufacturer, but do apply to our U.S. cut rag processing facility with respect to covered tobacco products.\nOn April 28, 2022, the FDA announced its proposals to adopt regulations to prohibit the manufacture, distribution, and sale in the United States of cigarettes having menthol as a characterizing flavor and all cigars having a characterizing flavor other than tobacco. According to the FDA\u2019s proposed rulemaking, sales of menthol-flavored cigarettes accounted for 34-36% of total cigarette sales in the U.S. in 2020. While we are unable to precisely estimate the portion of our sales of leaf tobacco in the U.S. that is used in the manufacture of menthol-flavored cigarettes, we believe a significant portion of our U.S. leaf tobacco sales are used for such purpose. In addition, a significant portion of the tobacco from our U.S. cut rag processing facility is used in the manufacture of flavored cigars. The FDA\u2019s proposed regulations are subject to public comment and may not be adopted exactly as proposed. In addition, if the proposed regulations are adopted, the extent of any reduction in consumer demand for tobacco products is uncertain, though such reduction could be significant.\nThe full impact of the act, including regulations adopted thereunder, the recently proposed regulations, and any further regulatory action to implement the act, is uncertain. However, if the effect of the act and FDA regulations under the act is a significant reduction in consumption of tobacco products, it could materially adversely affect our business, volume, results of operations, cash flows and financial condition.\n14 \nReports with respect to the harmful physical effects of cigarette smoking have been publicized for many years, and the sale, promotion and use of cigarettes continue to be subject to increasing governmental regulation. Since 1964, the Surgeon General of the United States and the Secretary of Health and Human Services have released a number of reports linking cigarette smoking with a broad range of health hazards, including various types of cancer, coronary heart disease and chronic lung disease, and recommending various governmental measures to reduce the incidence of smoking. More recent reports focus upon the addictive nature of cigarettes, the effects of smoking cessation, the decrease in smoking in the United States, the economic and regulatory aspects of smoking in the Western Hemisphere, and cigarette smoking by adolescents, particularly the addictive nature of cigarette smoking in adolescence. Numerous state and municipal governments have taken and others may take actions to diminish the social acceptance of smoking of tobacco products, including banning smoking in certain public and private locations.\nA number of foreign nations also have taken steps to restrict or prohibit cigarette advertising and promotion, to increase taxes on cigarettes and to discourage cigarette smoking. In some cases, such restrictions are more onerous than those in the United States. For example, advertising and promotion of cigarettes has been banned or severely restricted for a number of years in Australia, Canada, Finland, France, Italy, Singapore and other countries. Further, in February 2005, the World Health Organization (\"WHO\") treaty, the Framework Convention for Tobacco Control (\"FCTC\"), entered into force. This treaty, which the WHO reports has been signed or otherwise ratified by 181 nations, requires party nations to enact legislation that would require, among other things, specific actions to prevent youth smoking; restrict or prohibit tobacco product marketing; inform the public about the health consequences of smoking and the benefits of quitting; regulate the content of tobacco products; impose new package warning requirements including the use of pictorial or graphic images; eliminate cigarette smuggling and counterfeit cigarettes; restrict smoking in public places; increase and harmonize cigarette excise taxes; abolish duty-free tobacco sales; and permit and encourage litigation against tobacco product manufacturers.\nDue to the present regulatory and legislative environment, a substantial risk exists that tobacco product sales may decline. A significant decrease in worldwide tobacco consumption brought about by existing or future governmental laws and regulations would reduce demand for tobacco products and services and could have a material adverse effect on our results of operations.\nThe impact of potential regulations to prohibit the sale of cigarettes in the United States other than low-nicotine cigarettes, if they are adopted and become effective, is uncertain, but they could materially adversely affect our business, results of operations and financial condition.\nIn June 2022, the U.S. Food and Drug Administration (the \"FDA\") announced its plan to publish a proposed rule in 2023 that would prohibit the sale of cigarettes in the United States other than cigarettes having significantly reduced levels of nicotine. The definitive provisions of such a proposed rule have not yet been announced and any rule proposal is subject to public comment prior to being adopted by the FDA.\n \nAccordingly, the terms of any such final rule are uncertain and the date of effectiveness of such a rule is also uncertain.\n \nWhile the FDA announced that reducing the nicotine levels of cigarettes would reduce consumption of cigarettes by future generations and facilitate current smokers to stop consuming cigarettes, it is uncertain whether such potential regulations, if they are adopted and become effective, will have such effect.\n \nWhile the impact of such potential regulations on the Company is also uncertain, such regulations, if they are adopted and become effective, could materially adversely affect our business, results of operations and financial condition.\nGovernment actions can have a significant effect on the sourcing of tobacco. If some of the current efforts are successful, we could have difficulty obtaining sufficient tobacco to meet our customers\u2019 requirements, which could have an adverse effect on our performance and results of operations.\nA variety of government actions can have a significant effect on the sourcing and production of leaf tobacco. If some of the current proposed efforts are successful, we could have increased barriers to meeting our customers\u2019 requirements, which could have an adverse effect on our performance and results of operations.\nThe WHO, through the FCTC, has specifically issued policy options and recommendations to promote crop diversification initiatives and alternatives to growing leaf tobacco in countries whose economies depend upon tobacco production. If certain countries were to follow these policy recommendations and seek to eliminate or significantly reduce leaf tobacco production, we could encounter difficulty in sourcing leaf tobacco from these regions to fill customer requirements, which could have an adverse effect on our results of operations.\nCertain recommendations by the WHO, through the FCTC, may also cause shifts in customer usage of certain styles of tobacco. In countries such as Canada and Brazil and in the European Union, efforts have been taken to eliminate certain ingredients from the manufacturing process for tobacco products. The FCTC and national governments have also discussed formulating a strategy to place limitations on the level of nicotine allowed in tobacco and tobacco smoke. Such decisions could cause a change in requirements for certain styles of tobacco in particular countries. Shifts in customer demand from one type of tobacco to another could create sourcing challenges as requirements move from one origin to another.\nRegulations impacting our customers that change the requirements for leaf tobacco or restrict their ability to sell their products would inherently impact our business. We have implemented a proprietary \"track and trace\" system that gathers data on leaf \n15 \nproduct beginning at the farm level to assist our customers\u2019 collection of raw material information to support leaf traceability and customer testing requirements. Additionally, given our global presence, we also have the ability to source different types and styles of tobacco for our customers should their needs change due to regulation. Despite our capabilities, the extent to which governmental actions will affect our business, financial condition, results of operations and demand for our products and services will depend on future developments, which are highly uncertain and cannot be predicted. \nIn addition, continued government and public emphasis on environmental issues, including climate change, conservation, and natural resource management, could result in new or more stringent forms of regulatory oversight of industry activities, which may lead to increased levels of expenditures for environmental controls, land use restrictions affecting us or our suppliers, and other conditions that could have a material adverse effect on our business, financial condition, and results of operations. For example, certain aspects of our business generate carbon emissions. Regulatory restrictions on greenhouse gas emissions have been proposed in certain countries in which we operate. These may include limitations on such emissions, taxes or emission allowance fees on such emissions, various restrictions on industrial operations, and other measures that could affect land-use decisions, the cost of agricultural production, and the cost and means of processing and transporting our products. These actions could adversely affect our business, financial condition, and results of operations.\nWe have been subject to governmental investigations into, and litigation concerning, leaf tobacco industry buying and other payment practices.\nThe leaf tobacco industry, from time to time, has been the subject of government investigations regarding trade practices. For example, we were the subject of an investigation by the Antitrust Division of the United States Department of Justice into certain buying practices alleged to have occurred in the industry, we were named defendants in an antitrust class action litigation alleging a conspiracy to rig bids in the tobacco auction markets, and we were the subject of an administrative investigation into certain tobacco buying and selling practices alleged to have occurred within the leaf tobacco industry in some countries within the European Union, including Spain, Italy, Greece and potentially other countries.",
+  "item1a": ">Item 1A. Risk Factors\n\" and in our other filings with the Securities and Exchange Commission. Any forward-looking statement is qualified by reference to these cautionary statements. It is not possible to predict or identify all risks and uncertainties relevant to these forward-looking statements. Consequently, the risks and uncertainties identified in this Annual Report should not be considered a complete discussion of all potential risks or uncertainties. We do not undertake to update any forward-looking statement that we may make from time to time except as may be required by law.\nNon-GAAP Financial Measure\nOur financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (\"U.S. GAAP\"). However, we use net debt, a non-GAAP financial measure, to evaluate our financial condition. We believe that the presentation of this non-GAAP financial measure, when viewed as a supplement to our indebtedness reflected on our balance sheets prepared in accordance with U.S. GAAP, provides useful information to investors in evaluating our indebtedness. In addition, this non-GAAP measure addresses questions we routinely receive from analysts and investors and, in order to ensure that investors have access to similar data, we make this data available to the public. This non-GAAP measure should not be considered as an alternative to total debt or any other measure derived in accordance with U.S. GAAP. This non-GAAP measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for financial measures presented in accordance with U.S. GAAP. The presentation of our non-GAAP financial measures may change from time to time, including as a result of changed business conditions, new accounting rules, or otherwise. Further, our use of \"net debt\" may vary from the use of similarly-titled measures by other companies due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.\nExecutive Summary\nIn fiscal year 2023, we experienced the third consecutive year of La Ni\u00f1a weather patterns, which limited tobacco supplies and increased tobacco costs in certain markets. We utilized our global footprint to offset reduced production in these markets and were able to meet our customers' demand for sustainably grown compliant leaf in a short crop year. In addition, the Company overcame challenges with inflationary tobacco costs, increasing interest rates, and lingering geopolitical issues by growing revenue for the full year by 16.8% to $1.9 billion, improving gross margin per kilo by 13.0% to $0.61, and accelerating our operating cycle. We strategically utilized some of the funds generated by increased revenue and improvement in our operating \n17 \ncycle to partially repay the Company's outstanding indebtedness under the ABL Credit Facility as of March 31, 2023, which provides the Company with increased financial flexibility as we approach the buying cycle. \nIn February 2023, the Company successfully completed an exchange of its existing long-term debt with varying maturity dates for new long-term debt with maturity dates in 2027. Our new capital structure addresses approaching maturity dates, provides the Company with increased financial flexibility, and relief from certain restrictive covenants.\nOverview \nPyxus is a global agricultural company with 150 years of experience delivering value-added products and services to businesses and customers. The Company is a trusted provider of responsibly sourced, independently verified, sustainable, and traceable products and ingredients. The Company has one reportable segment for financial reporting purposes: Leaf. An All Other category is included for purposes of reconciliation of the results of the Leaf reportable segment to the consolidated results. See \"\nNote 1. Basis of Presentation and Summary of Significant Accounting Policies\n\" to the \"Notes to the Consolidated Financial Statements\" for additional information. \n18 \nResults of Operations \nYears Ended March\u00a031, 2023 and 2022\nConsolidated*\nYear Ended March 31, 2023\nYear Ended March 31, 2022\nChange\n(in millions)\n$\n%\nSales and other operating revenues\n$\n1,914.9\u00a0\n$\n1,639.9\u00a0\n$\n275.0\u00a0\n16.8\u00a0\nCost of goods and services sold\n1,653.9\u00a0\n1,412.8\u00a0\n241.1\u00a0\n17.1\u00a0\nGross profit\n261.0\u00a0\n227.1\u00a0\n33.9\u00a0\n14.9\u00a0\nGross profit as a percent of sales\n13.6\u00a0\n%\n13.8\u00a0\n%\nSelling, general, and administrative expenses\n$\n151.5\u00a0\n$\n142.0\u00a0\n9.5\u00a0\n6.7\u00a0\nOther expense, net\n11.0\u00a0\n3.1\u00a0\n7.9\u00a0\n254.8\u00a0\nRestructuring and asset impairment charges\n4.7\u00a0\n8.0\u00a0\n(3.3)\n(41.3)\nGoodwill impairment\n\u2014\u00a0\n32.2\u00a0\n(32.2)\n(100.0)\nOperating income\n93.8\u00a0\n41.7\u00a0\n52.1\u00a0\n124.9\u00a0\nLoss on deconsolidation/disposition of subsidiaries\n0.6\u00a0\n10.7\u00a0\n(10.1)\n(94.4)\nLoss on pension settlement\n2.6\u00a0\n\u2014\u00a0\n2.6\u00a0\n100.0\u00a0\nDebt retirement expense\n\u2014\u00a0\n2.0\u00a0\n(2.0)\n(100.0)\nInterest expense, net\n113.2\u00a0\n108.4\u00a0\n4.8\u00a0\n4.4\u00a0\nIncome tax expense\n34.1\u00a0\n12.6\u00a0\n21.5\u00a0\n170.6\u00a0\nIncome from unconsolidated affiliates, net\n18.5\u00a0\n10.0\u00a0\n8.5\u00a0\n85.0\u00a0\nNet income attributable to noncontrolling interests\n0.9\u00a0\n0.1\u00a0\n0.8\u00a0\n800.0\u00a0\nNet loss attributable to Pyxus International, Inc.\n$\n(39.1)\n$\n(82.1)\n$\n43.0\u00a0\n52.4\u00a0\n \nLeaf:\nSales and other operating revenues\n$\n1,812.2\u00a0\n$\n1,531.8\u00a0\n$\n280.4\u00a0\n18.3\u00a0\nTobacco costs\n1,474.0\u00a0\n1,233.7\u00a0\n240.3\u00a0\n19.5\u00a0\nTransportation, storage, and other period costs\n98.9\u00a0\n92.2\u00a0\n6.7\u00a0\n7.3\u00a0\nTotal cost of goods sold\n1,572.9\u00a0\n1,325.9\u00a0\n247.0\u00a0\n18.6\u00a0\nProduct revenue gross profit\n239.3\u00a0\n205.9\u00a0\n33.4\u00a0\n16.2\u00a0\nProduct revenue gross profit as a percent of sales\n13.2\u00a0\n%\n13.4\u00a0\n%\nKilos sold\n387.8\u00a0\n381.0\u00a0\n6.8\u00a0\n1.8\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0Average price per kilo\n$\n4.67\u00a0\n$\n4.02\u00a0\n$\n0.65\u00a0\n16.2\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0Average cost per kilo\n4.06\u00a0\n3.48\u00a0\n0.58\u00a0\n16.7\u00a0\nAverage gross profit per kilo\n0.61\u00a0\n0.54\u00a0\n0.07\u00a0\n13.0\u00a0\nProcessing and other revenues\n88.4\u00a0\n95.4\u00a0\n(7.0)\n(7.3)\nProcessing and other revenues costs of services sold\n64.0\u00a0\n65.9\u00a0\n(1.9)\n(2.9)\nProcessing and other gross margin\n24.4\u00a0\n29.5\u00a0\n(5.1)\n(17.3)\nProcessing and other gross margin as a percent of sales\n27.6\u00a0\n%\n30.9\u00a0\n%\nAll Other:\nSales and other operating revenues\n$\n14.3\u00a0\n$\n12.6\u00a0\n$\n1.7\u00a0\n13.5\u00a0\nCost of goods and services sold\n16.9\u00a0\n21.0\u00a0\n(4.1)\n(19.5)\nGross loss\n(2.6)\n(8.4)\n5.8\u00a0\n69.0\u00a0\nGross loss as a percent of sales\n(18.2)\n%\n(66.7)\n%\n*Dollar and percentage changes may not calculate exactly due to rounding\n19 \nSales and other operating revenues increased\u00a0$275.0 million, or 16.8%, to $1,914.9 million for the year ended March\u00a031, 2023 from $1,639.9 million for the year ended March\u00a031, 2022. This increase was \ndue \nto \na 16.2% increase in average price per kilo driven by higher tobacco prices\n \nand \na 1.8% increase in kilo\n volume primarily from Asia. \nCost of goods and services sold increased $241.1 million, or 17.1%, to $1,653.9\u00a0million for the year ended March\u00a031, 2023 from $1,412.8\u00a0million for the year ended March\u00a031, 2022. This increase was driven by a \n16.7% increase in a\nverage cost per kilo primarily due to undersupply conditions and inflation.\nGross profit as a percent of sales decreased to 13.6%\u00a0for the year ended March\u00a031, 2023 from 13.8% for the year ended March\u00a031, 2022. Average gross profit per kilo increased 13.0% primarily due to product mix in Asia and customer mix in North America.\nSelling, general, and administrative expenses increased $9.5 million, or 6.7%, to $151.5 million for the year ended March\u00a031, 2023 from $142.0 million for the year ended March\u00a031, 2022. This increase was primarily due to increased accrued bonus compensation, costs incurred in conjunction with the Debt Exchange Transactions, the normalization of travel expenses post-COVID, and rising healthcare costs. These increases were partially offset by lower legal and professional service fees driven by strategic cost cutting initiatives. Selling, general, and administrative expenses as a percent of sales decreased to 7.9% for the year ended March\u00a031, 2023 from 8.7% for the year ended March\u00a031, 2022. This decrease was related to increased sales and other operating revenues.\nOperating income of $93.8 million for the year ended March\u00a031, 2023 increased $52.1 million, or 124.9%, from operating income of $41.7 million for the year ended March\u00a031, 2022. This increase was mainly due to higher leaf sales and other operating revenues and increased average leaf gross margin per kilo.\nOther expense, net increased $7.9 million, or 254.8%, to $11.0 million for the year ended March\u00a031, 2023 from $3.1 million for the year ended March\u00a031, 2022. This increase was primarily due to higher utilization of securitization facilities. See \"\nNote 4. Other Expense, Net\n\" for additional information.\nGoodwill impairment charges of $32.2 million for the year ended March 31, 2022 were from the full write-off of the carrying value of goodwill for each of the Company's reporting units. See \"\nNote 13. Goodwill and Other Intangibles, Net\n\" for additional information.\nIncome tax expense increased \n$21.5 million, or 170.6%, to $34.1 million for the year ended March\u00a031, 2023 from $12.6 million for the year ended March\u00a031, 2022. This increase was primarily due to $20.8 million of non-recurring expense associated with a valuation allowance for deferred assets recognized in conjunction with the Debt Exchange Transactions. See \"\nNote 16. Debt Arrangements\n\" for additional information regarding the debt exchange transactions completed in February 2023.\n20 \nLiquidity and Capital Resources\nOverview\nOur primary sources of liquidity are cash generated from operations, short-term borrowings under our foreign seasonal lines of credit, availability under ABL Credit Facility (defined below), and cash collections from our securitized receivables. Our liquidity requirements are affected by various factors from our core tobacco leaf business, including crop seasonality, foreign currency and interest rates, green tobacco prices, customer mix, crop size, and quality. Our leaf tobacco business is seasonal, and purchasing, processing, and selling activities have several associated peaks where cash on-hand and outstanding indebtedness may vary significantly compared to year end. The first three quarters of our fiscal year generally represent the peak of our working capital requirements. \nWe believe our sources of liquidity will be sufficient to fund our anticipated operating needs for the next twelve months. During such time our liquidity needs for operations may approach the levels of our anticipated available cash and permitted borrowings under our credit facilities. Unanticipated developments affecting our liquidity needs, including with respect to the foregoing factors, and sources of liquidity, including impacts affecting our cash flows from operations and the availability of capital resources (including an inability to renew or refinance seasonal lines of credit), may result in a deficiency in liquidity. To address a potential liquidity deficiency, we may undertake plans to minimize cash outflows, which could include exiting operations that do not generate positive cash flow. It is possible that, depending on the occurrence of events affecting our liquidity needs and sources of liquidity, such plans may not be sufficient to adequately or timely address a liquidity deficiency.\nDebt Financing\nWe continue to finance our business with a combination of short-term and long-term seasonal credit lines, the long-term debt instruments and securities, advances from customers, and cash from operations when available. See \"\nNote 16. Debt Arrangements\n\" to the \"Notes to Consolidated Financial Statements\" for a summary of our short-term and long-term debt.\nWe continuously monitor and, as available, adjust funding sources as needed to enhance and drive various business opportunities. From time to time we may take steps to reduce our debt or otherwise improve our financial position. Such actions could include prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, and refinancing of debt. The amount of prepayments or the amount of debt that may be repurchased, refinanced, or otherwise retired, if any, will depend on market condition, trading levels of our debt, our cash position, compliance with debt covenants, and other considerations. \nSenior Secured Debt \nABL Credit Facility\nOn February 8, 2022, our wholly owned subsidiary, Pyxus Holdings, Inc. (\"Pyxus Holdings\"), certain subsidiaries of Pyxus Holdings (together with Pyxus Holdings, the \"Borrowers\"), and the Company and its wholly owned subsidiary, Pyxus Parent, Inc. (\"Pyxus Parent\"), as guarantors, entered into an ABL Credit Agreement (as amended, the \"ABL Credit Agreement\"), dated as of February 8, 2022, by and among Pyxus Holdings, as Borrower Agent, the Borrowers and parent guarantors party thereto, the lenders party thereto, and PNC Bank, National Association, as Administrative Agent and Collateral Agent, to establish an asset-based revolving credit facility (the \"ABL Credit Facility\"), the proceeds of which may be used to provide for the ongoing working capital and general corporate purposes of the Borrowers, the Company, Pyxus Parent, and their subsidiaries. The ABL Credit Facility may be used for revolving credit loans and letters of credit from time to time up to an initial maximum principal amount of $100.0 million, subject to the limitations described below in this paragraph. The ABL Credit Facility includes a $20.0 million uncommitted accordion feature that permits Pyxus Holdings, under certain conditions, to solicit the lenders under the ABL Credit Facility to provide additional revolving loan commitments to increase the aggregate amount of the revolving loan commitments under the ABL Credit Facility not to exceed a maximum principal amount of $120.0 million. The amount available under the ABL Credit Facility is limited by a borrowing base consisting of certain eligible accounts receivable and inventory, reduced by specified reserves, as follows:\n\u2022\n85% of eligible accounts receivable, plus \n\u2022\nthe lesser of (i) 85% of the book value of Eligible Extended Terms Receivables (as defined in the ABL Credit Agreement) and (ii) $5.0 million, plus\n\u2022\n90% of eligible credit insured accounts receivable, plus \n\u2022\nthe lesser of (i) 70% of eligible inventory valued at the lower of cost (based on a first-in first-out basis) and market value thereof (net of intercompany profits) or (ii) 85% of the net-orderly-liquidation value percentage of eligible inventory, minus\n\u2022\napplicable reserves. \nAt March 31, 2023, $75.0 million was available for borrowing under the ABL Credit Facility, after reducing availability by the aggregate borrowings under the ABL Credit Facility of $25.0 million outstanding on that date and the $20.0 million of \n21 \nDomestic Availability (as defined in the ABL Credit Agreement) required to be maintained. Weighted average borrowings outstanding under the ABL Credit Facility during the fiscal year ended March 31, 2023 were $70.2 million.\nThe ABL Credit Facility permits both base rate borrowings and borrowings based upon the Bloomberg-Short-Term Bank Yield Index rate (\"BSBY\"). Borrowings under the ABL Credit Facility bear interest at an annual rate equal to one, three, or six-month reserve-adjusted BSBY Rate plus 300 basis points or 200 basis points above base rate, as applicable, with a fee on unutilized commitments at an annual rate of 37.5 basis points. \nThe ABL Credit Agreement was amended on May 23, 2023, which extended the maturity of the ABL Credit Facility to February 8, 2027. The outstanding amount under the ABL Credit Facility is recorded as noncurrent as of March\u00a031, 2023.\nThe ABL Credit Facility may be prepaid from time to time, in whole or in part, without prepayment or premium, subject to a termination fee upon the permanent reduction of commitments under the ABL Credit Facility of 300 basis points for terminations in the first year after entry into the ABL Credit Agreement, 200 basis points for terminations in the second year and 100 basis points for termination in the third year.\n \nIn addition, customary mandatory prepayments of the loans under the ABL Credit Facility are required upon the occurrence of certain events including, without limitation, outstanding borrowing exposures exceeding the borrowing base, certain dispositions of assets outside of the ordinary course of business in respect of certain collateral securing the ABL Credit Facility and certain casualty and condemnation events. With respect to base rate loans, accrued interest is payable monthly in arrears and, with respect to BSBY loans, accrued interest is payable monthly and on the last day of any applicable interest period. \nThe Borrowers\u2019 obligations under the ABL Credit Facility (and certain related obligations) are (a) guaranteed by Pyxus Parent, and the Company and all of Pyxus Holdings\u2019 wholly owned domestic subsidiaries, and each of Pyxus Holdings\u2019 future wholly owned domestic subsidiaries is required to guarantee the ABL Credit Facility on a senior secured basis (collectively, the \"ABL Loan Parties\") and (b) secured by the collateral, as described below, which is owned by the ABL Loan Parties. \nCash Dominion. \nUnder the terms of the ABL Credit Facility, if (i) an event of default has occurred and is continuing, (ii) excess borrowing availability under the ABL Credit Facility (based on the lesser of the commitments thereunder and the borrowing base) (the \"Excess Availability\") falls below 10% of the total commitments under the ABL Credit Facility at such time, or (iii) Domestic Availability (as defined in the ABL Credit Agreement) being less than $20.0 million, the ABL Loan Parties will become subject to cash dominion, which will require daily prepayment of loans under the ABL Credit Facility with the cash deposited in certain deposit accounts of the ABL Loan Parties, including concentration accounts, and will restrict the ABL Loan Parties\u2019 ability to transfer cash from their concentration accounts to their disbursement accounts. Such cash dominion period (a \"Dominion Period\") shall end when (i) if arising as a result of a continuing event of default, such event of default ceases to exist, (ii) if arising as a result of non-compliance with the Excess Availability threshold, Excess Availability shall be equal to or greater than 10% of the total commitments under the ABL Credit Facility for a period of \n30\n consecutive days and no event of default is continuing, or (iii) if arising as a result of Domestic Availability being less than $20.0 million, Domestic Availability is greater than $20.0 million for a period of 30 consecutive days and no event of default is continuing.\nCovenants. \nThe ABL Credit Agreement governing the ABL Credit Facility contains (i) a springing covenant requiring that the Company\u2019s fixed charge coverage ratio be no less than 1.10 to 1.00 during any Dominion Period and (ii) a covenant requiring Domestic Availability greater than $20.0 million at all times until audited financial statements for fiscal year ending March\u00a031, 2023 are delivered under the ABL Credit Agreement. \nThe ABL Credit Agreement governing the ABL Credit Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company\u2019s ability to, among other things: \n\u2022\nincur additional indebtedness or issue disqualified stock or preferred stock; \n\u2022\nmake investments; \n\u2022\npay dividends and make other restricted payments; \n\u2022\nsell certain assets; \n\u2022\ncreate liens; \n\u2022\nenter into sale and leaseback transactions; \n\u2022\nconsolidate, merge, sell or otherwise dispose of all or substantially all of the Company\u2019s assets; \n\u2022\nenter into transactions with affiliates; and \n\u2022\ndesignate subsidiaries as Unrestricted Subsidiaries (as defined in the ABL Credit Agreement). \nOn March 31, 2023, the Borrowers were in compliance with all covenants under the ABL Credit Agreement. See \"\nNote 16. Debt Arrangements\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\n22 \nIntabex Term Loans\nPursuant to (i) an exchange offer (the \"DDTL Facility Exchange\") made to, and accepted by, holders of 100.0% of the outstanding term loans (the \"DDTL Term Loans\") under the Amended and Restated Term Loan Credit Agreement, effectuated pursuant to that certain Amendment and Restatement Agreement, dated as of June 2, 2022 (the \"DDTL Credit Agreement\"), by and among Intabex Netherlands B.V., as borrower (\"Intabex\"), the guarantors party thereto, the administrative agent and collateral agent thereunder, and the several lenders from time to time party thereto and (ii) an exchange offer (the \"Exit Facility Exchange\") made to, and accepted by, holders of 100.0%  of the outstanding term loans (the \"Exit Term Loans\") under the Exit Term Loan Credit Agreement, dated as of August 24, 2020 (the \"Exit Term Loan Credit Agreement\"), by and among Pyxus Holdings, as borrower, the guarantors party thereto, the administrative agent and collateral agent thereunder, and the several lenders from time to time party thereto, on February 6, 2023, Pyxus Holdings entered into the Intabex Term Loan Credit Agreement, dated as of February 6, 2023 (the \"Intabex Term Loan Credit Agreement\"), by and among, Pyxus Holdings, the guarantors party thereto, the lenders party thereto and Alter Domus (US) LLC (\"Alter Domus\"), as administrative agent and senior collateral agent. The Intabex Term Loan Credit Agreement established a term loan credit facility in an aggregate principal amount of approximately $189.0 million  (the \"Intabex Credit Facility\"), under which term loans in the full aggregate principal amount of the Intabex Credit Facility (the \"Intabex Term Loans\") were deemed made in exchange for (i) $100.0 million principal amount of the DDTL Term Loans, plus an additional $2.0 million on account of the exit fee payable under the DDTL Credit Agreement and (ii) approximately $87.0 million  principal amount of Exit Term Loans, representing 40.0%  of the outstanding principal amount thereof (including the applicable accrued and unpaid PIK interest thereon).\nThe Intabex Term Loans bear interest, at Pyxus Holdings\u2019 option, at either (i) a term SOFR rate (subject to a floor of 1.5%) plus 8.0% per annum or (ii) an alternate base rate plus 7.0% per annum. The Intabex Term Loans are stated to mature on December 31, 2027.\nThe Intabex Term Loans may be prepaid from time to time, in whole or in part, without prepayment or penalty. With respect to alternate base rate loans, accrued interest is payable quarterly in arrears on the last business day of each calendar quarter and, with respect to SOFR loans, accrued interest is payable on the last day of each applicable interest period but no less frequently than every three months.\nThe Intabex Term Loan Credit Agreement contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company\u2019s and its restricted subsidiaries\u2019 ability to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock; make investments; pay dividends and make other restricted payments; sell certain assets; incur liens; consolidate, merge, sell or otherwise dispose of all or substantially all their assets; enter into transactions with affiliates; designate subsidiaries as unrestricted subsidiaries; and, in the case of Intabex, undertake business activities and sell certain subsidiaries.\nOn March 31, 2023, Pyxus Holdings and the guarantors under the Intabex Term Loan Credit Agreement were in compliance with all covenants under the Intabex Term Loan Credit Agreement.  See \"\nNote 16. Debt Arrangements\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\nPyxus Term Loans\nPursuant to the Exit Facility Exchange, on February 6, 2023, Pyxus Holdings entered into the Pyxus Term Loan Credit Agreement, dated as of February 6, 2023 (the \"Pyxus Term Loan Credit Agreement\"), by and among, Pyxus Holdings, the guarantors party thereto, the lenders party thereto and Alter Domus, as administrative agent and senior collateral agent, to establish a term loan credit facility in an aggregate principal amount of approximately $130.5 million (the \"Pyxus Credit Facility\"), under which term loans in the full aggregate principal amount of the Pyxus Credit Facility (the \"Pyxus Term Loans\" and, together with the Intabex Term Loans, the \"New Term Loans\") were deemed made in exchange for 60.0% of the outstanding principal amount of Exit Term Loans (including the applicable accrued and unpaid PIK interest thereon).\nThe Pyxus Term Loans bear interest, at Pyxus Holdings\u2019 option, at either (i) a term SOFR rate (subject to a floor of 1.5%) plus 8.0% per annum or (ii) an alternate base rate plus 7.0% per annum. The Pyxus Term Loans are stated to mature on December 31, 2027.\nThe Pyxus Term Loans may be prepaid from time to time, in whole or in part, without prepayment or penalty. With respect to alternate base rate loans, accrued interest is payable quarterly in arrears on the last business day of each calendar quarter and, with respect to SOFR loans, accrued interest is payable on the last day of each applicable interest period but no less frequently than every three months.\nThe Pyxus Term Loan Credit Agreement contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company\u2019s and its restricted subsidiaries\u2019 ability to, among other things, incur additional indebtedness or issue disqualified stock or \n23 \npreferred stock; make investments; pay dividends and make other restricted payments; sell certain assets; incur liens; consolidate, merge, sell or otherwise dispose of all or substantially all their assets; enter into transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries.\nOn March 31, 2023, Pyxus Holdings and the guarantors under the Pyxus Term Loan Credit Agreement were in compliance with all covenants under the Pyxus Term Loan Credit Agreement. See \"\nNote 16. Debt Arrangements\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\n8.50% Senior Secured Notes due 2027\nPursuant to an exchange offer (the \"Notes Exchange\" and, together with the DDTL Facility Exchange and the Exit Facility Exchange, the \"Debt Exchange Transactions\") made by Pyxus Holdings and accepted by holders of approximately 92.7% of the aggregate principal amount of the outstanding 10.0% Senior Secured First Lien Notes due 2024 issued by Pyxus Holdings (the \"2024 Notes\") pursuant to that certain Indenture, dated as of August 24, 2020 (the \"2024 Notes Indenture\"), by and among Pyxus Holdings, the guarantors party thereto and the trustee, collateral agent, registrar and paying agent thereunder, on February 6, 2023, Pyxus Holdings issued approximately $260.5 million in aggregate principal amount of 8.5% Senior Secured Notes due December 31, 2027 (the \"2027 Notes\" and, together with the New Term Loans, the \"New Secured Debt\") to the exchanging holders of the 2024 Notes for an equal principal amount of 2024 Notes. The 2027 Notes were issued pursuant to the Indenture, dated as of February 6, 2023 (the \"2027 Notes Indenture\"), among Pyxus Holdings, the guarantors party thereto, and Wilmington Trust, National Association, as trustee, and Alter Domus, as collateral agent. \nThe 2027 Notes bear interest at a rate of 8.5% per annum, which interest is computed on the basis of a 360-day year comprised of twelve 30-day months. Interest accrues on the 2027 Notes from the date of issuance and is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2023. The 2027 Notes are stated to mature on December 31, 2027.\nAt any time from time to time, Pyxus Holdings may redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100.0% of the principal amount of 2027 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date.\nThe 2027 Notes Indenture contains customary affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company\u2019s and its restricted subsidiaries\u2019 ability to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock; make investments; pay dividends and make other restricted payments; sell certain assets; incur liens; consolidate, merge, sell or otherwise dispose of all or substantially all their assets; enter into transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries.\nOn March 31, 2023, Pyxus Holdings and the guarantors of the 2027 Notes were in compliance with all covenants under the 2027 Notes Indenture. See \"\nNote 16. Debt Arrangements\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\nGuarantees and Collateral\nThe obligations of Pyxus Holdings under the ABL Credit Agreement and the New Secured Debt are fully and unconditionally guaranteed by the Company, Pyxus Parent and all of the Company\u2019s domestic subsidiaries and certain of the Company\u2019s foreign subsidiaries, subject to certain limitations (the \"Senior Secured Debt Obligors\"). In addition, under the Intabex Term Loan Credit Facility, Intabex and Alliance One International Tabak B.V. (which were obligors under the DDTL Term Loans) also guarantee the Intabex Credit Facility (together, the \"Specified Intabex Obligors\") but do not guarantee the 2027 Notes, the Pyxus Term Loans or obligations under the ABL Credit Agreement. In addition, certain assets of the Specified Intabex Obligors (which were pledged as collateral for the DDTL Term Loans) are pledged as collateral to secure the Intabex Term Loans (the \"Intabex Collateral\") but do not secure the 2027 Notes, the Pyxus Term Loans or obligations under the ABL Credit Agreement.\nThe Senior Secured Debt Obligors\u2019 obligations under the ABL Credit Agreement are secured by (i) a first-priority senior lien the ABL Priority Collateral (as defined in the ABL/New Secured Debt Intercreditor Agreement (as defined below)), which includes certain accounts receivable and inventory and certain related intercompany notes, cash, deposit accounts, related general intangibles and instruments, certain other related assets and proceeds of the foregoing of the Senior Secured Debt Obligors, and (ii) a junior-priority lien on substantially all assets of the Senior Secured Debt Obligors other than certain exclusions and the ABL Priority Collateral. The New Secured Debt is secured by (i) a first-priority senior lien on substantially all assets of the Senior Secured Debt Obligors other than certain exclusions and the ABL Priority Collateral and (ii) a junior-priority lien on the ABL Priority Collateral. The Intabex Term Loans are further secured by a first-priority lien on the Intabex Collateral.  \nThe obligations under the New Secured Debt share a single lien, held by Alter Domus, as senior collateral agent (the \"Senior Collateral Agent\"), on the Collateral (as defined below) subject to the payment waterfall pursuant to the intercreditor \n24 \narrangements described below. See \"\nNote 16. Debt Arrangements\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\nIntercreditor Agreements \nThe priority of the obligations under the ABL Credit Agreement and the New Secured Debt are set forth in the two intercreditor agreements entered into in connection with consummation of the DDTL Facility Exchange, the Exit Facility Exchange and the Notes Exchange.\nABL/New Secured Debt Intercreditor Agreement\n. On February 6, 2023,  Pyxus Holdings, Inc., the guarantors party thereto, PNC Bank, National Association, as ABL Agent, Alter Domus, as Pyxus Term Loan Administrative Agent, Intabex Term Loan Administrative Agent and Senior Collateral Agent, and Wilmington Trust, National Association, as Senior Notes Trustee entered into an Amended and Restated ABL Intercreditor Agreement, dated as of February 6, 2023 (the \"ABL/New Secured Debt Intercreditor Agreement\") to provide for the intercreditor relationship between, (i) on one hand, the holders of obligations under the ABL Credit Facility, the guarantees thereof and certain related obligations and (ii) on the other hand, the holders of obligations under the New Secured Debt, the guarantees thereof and certain related obligations. Pursuant to the terms of the ABL/Term Loan/Notes Intercreditor Agreement, Pyxus Holdings\u2019 obligations under the ABL Credit Facility, the guarantees thereof and certain related obligations have first-priority senior liens on the ABL Priority Collateral, which includes certain accounts receivable and inventory and certain related intercompany notes, cash, deposit accounts, related general intangibles and instruments, certain other related assets of the foregoing entities and proceeds of the foregoing, with the obligations under the New Secured Debt having junior-priority liens on the ABL Priority Collateral. Pursuant to the ABL/New Secured Debt Intercreditor Agreement, Pyxus Holdings\u2019 collective obligations under the New Secured Debt, the guarantees thereof and certain related obligations have first-priority senior liens on the collateral that is not ABL Priority Collateral, including owned material real property in the United States, capital stock of subsidiaries owned directly by Pyxus Holdings or a guarantor (other than the Intabex Collateral), existing and after acquired intellectual property rights, equipment, related general intangibles and instruments and certain other assets related to the foregoing and proceeds of the foregoing, with the obligations under the ABL Credit Facility having junior-priority liens on such collateral, other than real property. The ABL Credit Facility is not secured by real property.\nNew Secured Debt Intercreditor Agreement\n. On February 6, 2023, the New Secured Debt Obligors, together with the representative for the holders of the New Secured Debt and the Senior Collateral Agent, entered into the Intercreditor and Collateral Agency Agreement, dated as of February 6, 2023 (the \"New Secured Debt Intercreditor Agreement\"), pursuant to which the Senior Collateral Agent, serves as joint collateral agent for the benefit of the holders of the 2027 Notes, the Pyxus Term Loans and the Intabex Term Loans with respect to all common collateral securing such indebtedness (the \"Collateral\"; which excludes Intabex Collateral). The New Secured Debt Intercreditor Agreement provides that Collateral or proceeds thereof received in connection with or upon the exercise of secured creditor remedies will be distributed (subject to the provisions described in the next paragraph) first to holders of the New Secured Debt on a pro rata basis based on the aggregate principal amount of each class of New Secured Debt, and then to holders of future junior debt secured by such Collateral on a pro rata basis based on the aggregate principal amount of each class of future junior debt (and in each case permitted refinancing indebtedness thereof).\nExercise of rights and remedies against the Collateral and certain rights in a bankruptcy or insolvency proceeding (including the right to object to debtor-in-possession financing or to credit bid) by the Senior Collateral Agent will be controlled first by the holders of a majority in principal amount of the New Term Loans (including, in any event, each holder holding at least 20.0% of the New Term Loans as of February 6, 2023, provided such holder holds at least 15.0% of the New Term Loans as of the date of determination), second, after repayment in full of the New Term Loans, by the holders of a majority in principal amount of the 2027 Notes and last, after repayment in full of the New Term Loans and the 2027 Notes, by holders of a majority in principal amount of any future junior debt secured by the Collateral. Any such future junior debt will be subject to certain customary waivers of rights in a bankruptcy or insolvency proceeding in favor of the Senior Collateral Agent, including, but not limited to, with respect to debtor-in-possession financing, adequate protection and credit bidding. See \"\nNote 16. Debt Arrangements\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\nRelated Party Transactions\nThe Company, Pyxus Parent and Pyxus Holdings (collectively, the \"Holding Companies\") entered into a Support and Exchange Agreement, effective as of December 27, 2022 (as amended, including by joinders thereto, the \"Support Agreement\"), with a group of creditors, including Glendon Capital Management LP, Monarch Alternative Capital LP, Nut Tree Capital Management, L.P., Intermarket Corporation and Owl Creek Asset Management, L.P. on behalf of certain funds managed by them and/or certain of their advisory clients, as applicable (collectively, the \"Supporting Holders\"), holding in aggregate:\n\u2022\napproximately 99.7% of the DDTL Term Loans outstanding under the DDTL Credit Agreement;\n\u2022\napproximately 68.1% of the Exit Term Loans outstanding under the Exit Term Loan Credit Agreement; and\n25 \n\u2022\napproximately 64.1% of the 2024 Notes outstanding under the 2024 Notes Indenture.\nPursuant to the Support Agreement, the Supporting Holders agreed to participate in the DDTL Facility Exchange, the Exit Facility Exchange and the Notes Exchange. Based on a Schedule 13D/A filed with the SEC on January 4, 2023 by Glendon Capital Management, L.P. (the \"Glendon Investor\"), Glendon Opportunities Fund, L.P. and Glendon Opportunities Fund II, L.P., Glendon Capital Management, L.P. reported beneficial ownership of 7,938,792 shares of the Company\u2019s common stock, representing approximately 31.8% of the outstanding shares of the Company\u2019s common stock. Based on a Schedule 13D/A filed with the SEC on January 23, 2023, by Monarch Alternative Capital LP (the \"Monarch Investor\"), MDRA GP LP and Monarch GP LLC, Monarch Alternative Capital LP reported beneficial ownership of 6,140,270 shares of the Company\u2019s common stock, representing approximately 24.6% of the outstanding shares of the Company\u2019s common stock. Based on a Schedule 13G/A filed with the SEC on February 10, 2022 by Owl Creek Asset Management, L.P. and Jeffrey A. Altman, Owl Creek Asset Management, L.P. is the investment manager of certain funds and reported beneficial ownership of 2,405,287 shares of the Company\u2019s common stock on December 31, 2021, representing approximately 9.6% of the outstanding shares of the Company\u2019s common stock. A representative of the Glendon Investor and a representative of the Monarch Investor served as directors of Pyxus at the time the Company and its applicable subsidiaries entered into the DDTL Credit Agreement, its predecessor agreement and the amendments thereto, and the Support Agreement, effected borrowings under the DDTL Credit Agreement and its predecessor agreement and commenced the Debt Exchange Transactions. The DDTL Credit Agreement, its predecessor agreement and the amendments thereto, any and all borrowings thereunder, the related guaranty transactions, the Support Agreement, the Debt Exchange Transactions, including the Intabex Term Loan Credit Agreement, the Intabex Term Loans, the Pyxus Term Loan Credit Agreement, the Pyxus Term Loans, the 2027 Notes and the 2027 Notes Indenture were approved, and determined to be on terms and conditions at least as favorable to the Company and its subsidiaries as could reasonably have been obtained in a comparable arm\u2019s-length transaction with an unaffiliated party, by a majority of the disinterested members of the Board of Directors of Pyxus. See \"\nNote 16. Debt Arrangements\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\n2024 Notes\nIn conjunction with the Notes Exchange, Pyxus Holdings received consents from requisite holders of 2024 Notes to amend the 2024 Notes Indenture, the 2024 Notes and the related intercreditor and security documents to, among other things, (i) eliminate most of the restrictive covenants and certain of the affirmative covenants in the 2024 Notes Indenture, (ii) eliminate the change of control repurchase obligation in the 2024 Notes Indenture, (iii) subordinate the 2024 Notes in right of payment to existing and future senior indebtedness (including the New Secured Debt), (iv) eliminate certain events of default and (v) release all of the collateral securing the 2024 Notes. On February 6, 2023, the relevant parties to the 2024 Notes Indenture entered into the Second Supplemental Indenture, dated as of February 6, 2023 (the \"2024 Notes Supplemental Indenture\"), to the 2024 Notes Indenture, pursuant to which the 2024 Notes Indenture, the 2024 Notes and the related intercreditor and security documents were amended to effect these changes.\nThe 2024 Notes bear interest at a rate of 10.0% per year, payable semi-annually in arrears in cash on February 15 and August 15 of each year. The 2024 Notes are stated to mature on August 24, 2024. At March 31, 2023, the remaining 2024 Notes outstanding is $19.9 million, net of a debt discount of $0.5 million. The total repayment amount due at maturity is $20.4 million.\nOn March 31, 2023, Pyxus Holdings and the guarantors of the 2024 Notes were in compliance with all covenants under the 2024 Notes Indenture, as amended by the 2024 Notes Supplemental Indenture. See \"\nNote 16. Debt Arrangements\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\nForeign Seasonal Lines of Credit\nExcluding its long-term credit arrangements, the Company has typically financed its non-U.S. operations with uncommitted short-term seasonal lines of credit arrangements with a number of banks. These operating lines are generally seasonal in nature, typically extending for a term of 180 to 365 days corresponding to the tobacco crop cycle in that location. These facilities are typically uncommitted in that the lenders have the right to cease making loans and demand repayment of loans at any time or at specified dates. These loans are generally renewed at the outset of each tobacco season. Certain of the foreign seasonal lines of credit are guaranteed by the Company and certain of its subsidiaries. At March\u00a031, 2023, the total borrowing capacity under individual foreign seasonal lines of credit range up to $131.8 million. At March\u00a031, 2023, the aggregate outstanding borrowings of the Company under these seasonal credit lines was approximately $365.1 million and approximately $332.3 million was available for borrowing under these seasonal credit lines, subject to limitations as provided under the ABL Credit Agreement and the agreements governing the New Secured Debt. The weighted average variable interest rate for these seasonal lines of credit for the year ended March\u00a031, 2023 was 6.8%. Certain of the foreign seasonal lines of credit, with aggregate outstanding borrowings at March\u00a031, 2023 of approximately $84.6 million, are secured by trade receivables and inventories as collateral. At March\u00a031, 2023, the Company and its subsidiaries were in compliance with the covenants associated with the short-term seasonal lines of credit.\n26 \nSeasonal liquidity beyond cash flow from operations is provided by our foreign seasonal lines of credit, advances from customers, and sales of accounts receivable. For the years ended March\u00a031, 2023 and 2022, our average short-term borrowings, aggregated peak short-term borrowings outstanding, and weighted-average interest rate on short-term borrowings were as\u00a0follows:\n(in millions)\nMarch 31, 2023\nMarch 31, 2022\nAverage short-term borrowings\n(1)\n$\n456.4\u00a0\n$\n393.1\u00a0\nAggregated peak short-term borrowings outstanding\n(1)\n$\n690.6\u00a0\n$\n559.4\u00a0\nWeighted-average interest rate on short-term borrowings\n6.8\u00a0\n%\n6.1\u00a0\n%\n(1)\n The Company utilized borrowings under the DDTL Facility during the year ended March 31, 2022 to fund a portion of its tobacco purchasing commitments.\nAggregated peak borrowings for the year ended March\u00a031, 2023 occurred during the\n first q\nuarter, which represents peak timing for green tobacco purchases and repayments being made in Africa and South America, due to increased borrowing capacity in certain markets. Borrowings during the prior year and in the current year were repaid with cash provided by operating activities. For further information on our debt financing as of March\u00a031, 2023, see \"\nNote 16. Debt Arrangements\n\" to the \"Notes to Consolidated Financial Statements\" for additional information. \nThe following summarizes our total borrowing capacity at March\u00a031, 2023 and 2022 under our short-term and long-term credit lines and letter of credit facilities and the remaining available amount after the reduction for outstanding borrowings and amounts reserved for outstanding letters of credit:\nMarch 31, 2023\nMarch 31, 2022\n(in millions)\nTotal Borrowing Capacity\nRemaining Amounts Available\nTotal Borrowing Capacity\nRemaining Amounts Available\nSenior Secured Credit Facilities:\nABL Credit Facility\n$\n100.0\u00a0\n$\n75.0\u00a0\n$\n100.0\u00a0\n$\n10.0\u00a0\nForeign seasonal lines of credit\n697.5\u00a0\n332.3\u00a0\n659.7\u00a0\n287.2\u00a0\nOther long-term debt\n0.6\u00a0\n0.1\u00a0\n0.7\u00a0\n0.4\u00a0\nLetters of credit\n18.6\u00a0\n6.9\u00a0\n13.5\u00a0\n4.5\u00a0\nTotal\n$\n816.7\u00a0\n$\n414.3\u00a0\n$\n773.9\u00a0\n$\n302.1\u00a0\nNet Debt\nWe refer to \"Net debt\", a non-GAAP measure, as total debt liabilities less cash and cash equivalents. We believe this non-GAAP financial measure is useful to monitor leverage and to evaluate changes to the Company's capital structure. A limitation associated with using net debt is that it subtracts cash and cash equivalents, and therefore, may imply that management intends to use cash and cash equivalents to reduce outstanding debt and that cash held in certain jurisdictions can be applied to repay obligations owing in other jurisdictions and without reduction for applicable taxes. In addition, net debt suggests that our debt obligations are less than the most comparable GAAP measure indicates.\n(in millions)\nMarch 31, 2023\nMarch 31, 2022\nNotes payable to banks\n$\n382.5\u00a0\n$\n378.6\u00a0\nCurrent portion of long-term debt\n(1)\n0.1\u00a0\n107.9\u00a0\nLong-term debt\n(2)\n618.4\u00a0\n580.5\u00a0\nTotal debt liabilities\n$\n1,001.0\u00a0\n$\n1,067.0\u00a0\nLess: Cash and cash equivalents\n(3)\n136.7\u00a0\n198.8\u00a0\nNet debt\n$\n864.3\u00a0\n$\n868.2\u00a0\n(1)\n The decrease in the current portion of long-term debt is due to the refinancing of the DDTL Term Loans on a long-term basis.\n(2)\n The increase in long-term debt is primarily due to the refinancing of the DDTL Term Loans on a long-term basis, partially offset by net repayments on the ABL Credit Facility.\n(3)\n The decrease in cash and cash equivalents is driven by net repayments on the ABL Credit Facility.\n27 \nWorking Capital\nThe following summarizes our working capital:\nChange\n(in millions except for current ratio)\nMarch 31, 2023\nMarch 31, 2022\n$\n%\nCash, cash equivalents, and restricted cash\n$\n138.9\u00a0\n$\n200.9\u00a0\n(62.0)\n(30.9)\nTrade and other receivables, net\n202.7\u00a0\n260.2\u00a0\n(57.5)\n(22.1)\nInventories and advances to tobacco\u00a0suppliers, net\n817.4\u00a0\n798.4\u00a0\n19.0\u00a0\n2.4\u00a0\nRecoverable income taxes\n5.8\u00a0\n7.9\u00a0\n(2.1)\n(26.6)\nPrepaid expenses and other current assets\n55.7\u00a0\n60.3\u00a0\n(4.6)\n(7.6)\nTotal current assets*\n$\n1,220.6\u00a0\n$\n1,327.6\u00a0\n(107.0)\n(8.1)\nNotes payable to banks\n$\n382.5\u00a0\n$\n378.6\u00a0\n3.9\u00a0\n1.0\u00a0\nAccounts payable\n170.3\u00a0\n179.0\u00a0\n(8.7)\n(4.9)\nAdvances from customers\n42.5\u00a0\n53.0\u00a0\n(10.5)\n(19.8)\nAccrued expenses and other current liabilities\n92.7\u00a0\n82.2\u00a0\n10.5\u00a0\n12.8\u00a0\nCurrent portion of long-term debt\n0.1\u00a0\n107.9\u00a0\n(107.8)\n(99.9)\nOther current liabilities\n$\n27.0\u00a0\n$\n13.7\u00a0\n13.3\u00a0\n97.1\u00a0\nTotal current liabilities\n$\n715.1\u00a0\n$\n814.4\u00a0\n(99.3)\n(12.2)\nCurrent ratio\n1.7 to 1\n1.6 to 1\nWorking capital\n$\n505.5\u00a0\n$\n513.2\u00a0\n(7.7)\n(1.5)\n*Amounts may not equal column totals due to rounding\nWorking capital decreased $7.7 million, or 1.5%, to $505.5 million as of  March\u00a031, 2023 from $513.2 million as of March\u00a031, 2022 due to a decrease in cash, cash equivalents, and restricted cash and a decrease in accounts receivable through higher utilization of securitization programs. Higher collections of cash through securitization facilities enabled us to purchase more expensive green tobacco inventories without significantly increasing borrowings under our seasonal foreign lines of credit, and the ability to partially repay the outstanding indebtedness under the ABL Credit Facility, which is classified as long-term debt. Current liabilities decreased mainly due to the refinancing of the DDTL Term Loans on a long-term basis.\nInventories\nThe following summarizes inventory committed to a customer and uncommitted inventory balances for processed tobacco:\n(in millions)\nMarch 31, 2023\nMarch 31, 2022\nCommitted\n$\n479.4\u00a0\n$\n471.9\u00a0\nUncommitted\n$\n19.0\u00a0\n$\n45.7\u00a0\nTotal processed tobacco\n$\n498.4\u00a0\n$\n517.6\u00a0\nProcessed tobacco decreased 19.2 million, or 3.7%, to $498.4 million as of March\u00a031, 2023 from $517.6 million as of March\u00a031, 2022 due to undersupply conditions in the global tobacco market and higher sales of inventories. See \"\nNote 1. Basis of Presentation and Summary of Significant Accounting Policies\n\" and \"\nNote 8. Inventories, Net\n\" to the \"Notes to Consolidated Financial Statements\" for further information.\nSources and Uses of Cash\nWe have typically financed our non-U.S. tobacco operations with uncommitted short-term foreign seasonal lines of credit. These foreign lines of credit are generally seasonal in nature, normally extending for a term of 180 to 365 days, corresponding to the tobacco crop cycle in that market. These short-term foreign seasonal lines of credit are typically uncommitted and provide lenders the right to cease making loans and demand repayment of loans. These short-term foreign seasonal lines of credit are typically renewed at the outset of each tobacco season. We maintain various other financing arrangements to meet the cash requirements of our businesses. See \"\nNote 16. Debt Arrangements\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\nWe utilize capital in excess of cash flow from operations to finance accounts receivable, inventory, and advances to tobacco suppliers in foreign countries. In addition, we may periodically elect to purchase, redeem, repay, retire, or cancel indebtedness prior to stated maturity under our various foreign credit lines.\n28 \nAs of March\u00a031, 2023 our cash, cash equivalents, and restricted cash was $138.9 million, of which $76.5\u00a0million was held in foreign jurisdictions and subject to exchange controls and tax consequences that could limit our ability to fully repatriate these funds. Fluctuation of the U.S. dollar versus many of the currencies in which we incur costs may have an impact on our working capital requirements. We will continue to monitor and hedge foreign currency costs, as needed.\nThe following summarizes our sources and uses of our cash flows:\n(in millions)\nYear Ended March 31, 2023\nYear Ended March 31, 2022\nTrade and other receivables\n$\n(111.9)\n$\n(261.9)\nInventories and advances to tobacco suppliers\n(21.1)\n(31.5)\nPayables and accrued expenses\n5.1\u00a0\n59.3\u00a0\nAdvances from customers\n(10.7)\n41.2\u00a0\nOther\n0.8\u00a0\n(5.9)\nNet cash used in operating activities\n$\n(137.8)\n$\n(198.8)\nCollections from beneficial interests in securitized trade receivables\n165.3\u00a0\n189.4\u00a0\nOther\n(10.4)\n(8.2)\nNet cash provided by investing activities\n$\n154.9\u00a0\n$\n181.2\u00a0\nNet proceeds of short-term borrowings\n5.2\u00a0\n9.2\u00a0\nProceeds from DDTL facility\n\u2014\u00a0\n117.6\u00a0\nNet (repayment of) proceeds from revolving loan facilities\n(65.0)\n21.9\u00a0\nOther\n(23.2)\n(25.4)\nNet cash (used in) provided by financing activities\n$\n(83.0)\n$\n123.3\u00a0\nIncrease (decrease) from exchange rate changes on cash\n3.5\u00a0\n(2.1)\n(Decrease) increase in cash, cash equivalents, and restricted cash\n$\n(62.4)\n$\n103.6\u00a0\nThe change in cash, cash equivalents, and restricted cash decreased $166.0\u00a0million for the fiscal year ended March\u00a031, 2023 compared to the fiscal year ended March\u00a031, 2022. The decrease was primarily from net repayments made on the outstanding indebtedness under the ABL Credit Facility in the current fiscal year, and proceeds from the DDTL Facility during the prior fiscal year that did not reoccur. These decreases were partially offset by improvements in trade accounts receivable due to higher sales and higher utilization of securitization facilities, which resulted in less cash used by operating activities.\nPlanned Capital Expenditures \nWe are estimating $21.1 \nmillion i\nn capital investments for fiscal 2024 for routine replacement of equipment, as well as investments in assets that will add value to the customer or increase efficiency.\nSecuritized Receivables\nWe sell trade receivables to unaffiliated financial institutions under multiple revolving trade accounts receivable securitization facilities. Under the first and second programs, we receive a discount from the face value of the receivable sold, less contractual dilutions which limit the amount that may be outstanding from any one particular customer and insurance reserves that also have the effect of limiting the risk attributable to any one customer. Our beneficial interests in the first and second facilities is subordinate to the purchaser of the receivables. Under the third and fourth programs, we receive an amount equal to the face value of the receivable sold, less a discount rate tied to a benchmark rate, which varies based on the invoice currency. See \"\nNote 17. Securitized Receivables\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\n29 \nAggregate Contractual Obligations and Commitments\nThe following summarizes our contractual cash obligations and other commercial commitments as of March\u00a031, 2023\n:\nPayments / Expirations by Fiscal Year\n(in millions)\nTotal\n2024\n\u00a0\u00a0\u00a0Years \n\u00a0\u00a0\u00a02025-2026\n\u00a0\u00a0\u00a0Years \n\u00a0\u00a0\u00a02027-2028\n\u00a0\u00a0\u00a0After \n\u00a0\u00a0\u00a02028\nLong-Term Debt Obligations \n(1)\n$\n618.4\u00a0\n$\n\u2014\u00a0\n$\n20.3\u00a0\n$\n598.1\u00a0\n$\n\u2014\u00a0\nShort-Term Debt Obligations \n(2)\n382.6\u00a0\n382.6\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nInterest on Debt Obligations \n(3)\n321.8\u00a0\n69.6\u00a0\n135.7\u00a0\n116.5\u00a0\n\u2014\u00a0\nPension and Postretirement Obligations\n68.0\u00a0\n7.0\u00a0\n13.8\u00a0\n13.4\u00a0\n33.8\u00a0\nOperating Lease Obligations\n52.2\u00a0\n13.0\u00a0\n15.3\u00a0\n10.1\u00a0\n13.8\u00a0\nTobacco and Other Purchase Obligations\n658.6\u00a0\n658.6\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nAmounts Guaranteed for Tobacco Suppliers\n152.0\u00a0\n152.0\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTotal Contractual Obligations and Other \n\u00a0\u00a0\u00a0\u00a0\u00a0Commercial Commitments\n$\n2,253.6\u00a0\n$\n1,282.8\u00a0\n$\n185.1\u00a0\n$\n738.1\u00a0\n$\n47.6\u00a0\n(1) \nOn May 23, 2023, the ABL Credit Agreement was amended to extend the maturity of the ABL Credit Facility to February 8, 2027.\n(2)\n Short-term debt obligations consist of the current portion of long-term debt and our seasonal foreign credit lines.\n(3)\n Interest obligations includes interest for long-term debt, including indebtedness under the ABL Credit Facility. The projected interest includes both fixed and variable rate debt. The variable rate used in the projections is the rate that was being charged on our variable rate debt as of March\u00a031, 2023.\nTobacco and Other Purchase Obligations\nTobacco purchase obligations result from contracts with suppliers, primarily in Africa, Europe, North America, and South America, to buy either specified quantities of tobacco or the supplier\u2019s total tobacco production. Amounts shown as tobacco purchase obligations are estimates based on projected purchase prices of the future crop tobacco. Payment of these obligations is net of our advances to these suppliers. Our tobacco purchase obligations do not exceed our projected requirements over the related terms and are in the normal course of business. Other purchase obligations consist primarily of purchase commitments of agricultural material. Tobacco and other purchase obligations increased $143.1 million, or 27.8%, from $515.5 million to $658.6 million primarily due to higher tobacco prices.\nAmounts Guaranteed for Tobacco Suppliers\nIn Africa and South America, we provide guarantees to ensure financing is available to our tobacco suppliers. In the event these suppliers should default, we would be responsible for repayment of the funds provided to these suppliers. We also provide guarantees for the financing of certain unconsolidated subsidiaries in Asia and South America. See \"\nNote 18. Guarantees\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\nTax and Repatriation Matters\nWe are subject to income tax laws in the countries in which we do business through wholly owned subsidiaries and through affiliates. We regularly review of the income tax requirements of each of our operations, file appropriate returns, and make appropriate income tax planning analyses.\nWe regularly evaluate the status of the accumulated unremitted earnings of each of our foreign subsidiaries. If the undistributed earnings are needed in the U.S., we may be required to pay state income and/or foreign local withholding taxes upon repatriation. We provide deferred income taxes, net of creditable foreign taxes, if applicable, on earnings that are not indefinitely invested. See \"\nNote 6. Income Taxes\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\nCritical Accounting Estimates\nThe preparation of financial statements and related disclosures in accordance with U.S. GAAP requires the use of estimates and assumptions that have an impact on the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities. Management considers an accounting estimate critical if it: (i) requires us to make judgments and estimates about matters that are inherently uncertain, (ii) it is important to an understanding of our financial condition or operating results, and (iii) has a material impact to the financial statements. \nWe base our estimates on currently available information, historical experience, and various other assumptions we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates. Management has discussed the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of the Board of Directors.\n \n30 \nManagement believes the following accounting estimates are most critical to our business operations and to an understanding of our financial condition and results of operations and reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements.\nIncome Taxes\nOur annual effective income tax rate is based on our jurisdictional mix of pretax income, statutory tax rates, exchange rates, and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex, subject to change, and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties under ASC 740. We record unrecognized tax benefits in multiple jurisdictions and evaluate the future potential outcomes of tax positions, based upon our interpretation of the country-specific tax law, and the likelihood of future settlement. We review our tax positions quarterly and adjust the balances as new information becomes available.\nDeferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise from temporary differences between the financial reporting and tax bases of assets and liabilities and from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions by assessing the impact from changes in or issuance of new tax law and the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely on estimates. To provide insight, we use our historical experience along with our short and long-range business forecasts. In addition, we make adjustments to historical data for objectively verifiable information where appropriate. \nWe believe it is more likely than not that a portion of the deferred income tax assets may expire as unused and have established a valuation allowance against them. Although realization is not assured for the remaining deferred income tax assets, we believe it is more likely than not such remaining deferred tax assets will be fully recoverable within the applicable statutory expiration periods. However, deferred tax assets could be reduced in the near term if estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable. See \"\nNote 6. Income Taxes\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\nPensions and Postretirement Health Care and Life Insurance Benefits\nThe valuation of our pension and other postretirement health care and life insurance plans requires the use of assumptions and estimates that are used to develop actuarial valuations of expenses, assets and liabilities. These assumptions include discount rates, investment returns, projected salary increases, benefits, and mortality rates. The significant assumptions used in the calculation of pension and postretirement obligations are:\n\u2022\nDiscount rate: The discount rate is based on investment yields available at the measurement date on high-quality fixed income obligations, such as those included in the Moody\u2019s Aa bond index.\n\u2022\nSalary increase assumption: The salary increase assumption reflects our expectations with respect to long-term salary increases of our workforce. Historical pay increases, expectations for the future, and anticipated inflation and promotion rates are considered in developing this assumption.\n\u2022\nCash balance crediting rate: Interest is credited on cash balance accounts based on the yield on one-year Treasury Constant Maturities plus 1%. The assumed crediting rate thus considers the discount rate, current treasury rates, current inflation rates, and expectations for the future.\n\u2022\nMortality rates: Mortality rates are based on gender-distinct group annuity mortality tables.\n\u2022\nExpected return on plan assets: The expected return reflects asset allocations, investment strategy, and our historical actual returns.\n\u2022\nTermination and retirement rates: Termination and retirement rates are based on standard tables reflecting past experience and anticipated future experience under the plan. No early retirement rates are used since benefits provided are actuarially equivalent and there are not early retirement subsidies in the plan.\n\u2022\nInflation:\n \nThe inflation assumption is based on an evaluation of external market indicators, including real gross domestic product growth and central bank inflation targets.\n\u2022\nExpected contributions: The expected amount and timing of contributions are based on an assessment of minimum requirements, cash availability, and other considerations (e.g., funded status, avoidance of regulatory premiums, and levies, and tax efficiency).\n\u2022\nHealth care cost trends: The health care cost trend assumptions are developed based on historical cost data, the near-term outlook, and an assessment of likely long-term trends.\nAssumptions are set at each year end and are generally not changed during the year unless there is a major plan event such as a curtailment or settlement that would trigger a plan remeasurement.\n31 \nManagement periodically reviews actual demographic experience as it compares to the actuarial assumptions. Changes in assumptions are made if there are significant deviations or if future expectations change significantly. Based upon anticipated changes in assumptions, pension and postretirement expense is expected to decrease by $3.1 million in the year ended March 31, 2024 as compared to March\u00a031, 2023. The cash contribution to our employee benefit plans during the year ended March\u00a031, 2023 was $11.3 million and is expected to be $7.0\n mil\nlion in fiscal 2024.\nThe effect of actual results differing from our assumptions are accumulated and amortized over future periods. Changes in other assumptions and future investment returns could potentially have a material impact on our pension and postretirement expenses and related funding requirements. The effect of a change in certain assumptions is shown below:\n(in thousands)\nEstimated Change \nin Projected\nBenefit Obligation \nIncrease (Decrease) \nEstimated Change in \nAnnual Expense \nIncrease (Decrease) \nChange in Assumption (Pension and Postretirement Plans)\n\u00a0\u00a0\u00a0\u00a0\u00a01% increase in discount rate\n$\n(7,719)\n$\n(143)\n\u00a0\u00a0\u00a0\u00a0\u00a01% decrease in discount rate\n$\n8,809\u00a0\n$\n94\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a01% increase in salary increase assumption\n$\n131\u00a0\n$\n35\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a01% decrease in salary increase assumption\n$\n(124)\n$\n(37)\n\u00a0\u00a0\u00a0\u00a0\u00a01% increase in rate of return on assets\n$\n(509)\n\u00a0\u00a0\u00a0\u00a0\u00a01% decrease in rate of return on assets\n$\n509\u00a0\nChanges in assumptions for other postretirement benefits are no longer applicable as the benefit is capped and no longer subject to inflation. See \"\nNote 21. Pension and Other Postretirement Benefits\n\" to the \"Notes to Consolidated Financial Statements\" for additional information.\nRecent Accounting Pronouncements Not Yet Adopted\nInformation with respect to recent accounting pronouncements not yet adopted is included in \"\nNote 2. New Accounting Standards\n\" to the \"Notes to Consolidated Financial Statements,\" which information is incorporated by reference herein.",
+  "item7": ">Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations\nForward-Looking Statements\nReaders are cautioned that the statements contained in this report regarding expectations of our performance or other matters that may affect our business, results of operations, or financial condition are \"forward-looking statements\" as defined in the Private Securities Litigation Reform Act of 1995. These statements, which are based on current expectations of future events, may be identified by the use of words such as \"strategy,\" \"expects,\" \"continues,\" \"plans,\" \"anticipates,\" \"believes,\" \"will,\" \"estimates,\" \"intends,\" \"projects,\" \"goals,\" \"targets,\" and other words of similar meaning. These statements also may be identified by the fact that they do not relate strictly to historical or current facts. If underlying assumptions prove inaccurate, or if known or unknown risks or uncertainties materialize, actual results could vary materially from those anticipated, estimated, or projected. Some of these risks and uncertainties include the risks, uncertainties, and other factors set forth in this Annual Report, including in \"",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk\nDerivatives policies\nHedging foreign exchange exposure using forward contracts are specifically contemplated to manage risk in accordance with management's policies and reduce the risks inherent in currency fluctuations. We do not utilize derivatives for speculative purposes or enter into market risk sensitive instruments for trading purposes. Derivatives are transaction specific such that a specific contract or invoice determines the amount, maturity, and other specifics of the hedge.\nForeign exchange rates\nOur business is generally conducted in USD, as is the business of the tobacco industry as a whole. However, local country operating costs, including the purchasing and processing costs for tobaccos, are subject to the effects of exchange fluctuations of the local currency against the USD. We attempt to minimize such currency risks by matching the timing of our working capital borrowing needs against the tobacco purchasing and processing funds requirements in the currency of the country where the tobacco is grown. Also, in some cases, our sales pricing arrangements with our customers allow adjustments for the effect of currency exchange fluctuations on local purchasing and processing costs. Fluctuations in the value of foreign currencies can significantly affect our operating results. In our cost of goods and services sold, we have recognized exchange losses of $5.2\u00a0million and $2.7\u00a0million for the years ended March\u00a031, 2023 and 2022, respectively. We recognized exchange (losses) gains of $(1.8)\u00a0million and $2.6\u00a0million related to tax balances in our tax expense for the years ended March\u00a031, 2023 and 2022, respectively. In addition, foreign currency fluctuations in the Euro and (U.K.) Sterling can significantly impact the currency translation adjustment component of accumulated other comprehensive income. We recognized gains (losses) of $1.7\u00a0million and $(4.2)\u00a0million for the years ended March\u00a031, 2023 and 2022, respectively, as a result of fluctuations in these currencies.\nOur consolidated SG&A expenses denominated in foreign currencies are subject to translation risks from currency exchange fluctuations. These foreign denominated expenses accounted for approximately $35.2\u00a0million, or 23.2%, of our total SG&A expenses for the year ended March\u00a031, 2023. A 10% change in the value of the USD relative to those currencies would have caused the reported value of those expenses to increase or decrease by approximately $3.5 million.\n32 \nInterest rates\nWe manage our exposure to interest rate risk through the proportion of fixed rate and variable rate debt in our total debt portfolio. A 1% change in variable interest rates would have increased or decreased our reported interest cost for the year ended March\u00a031, 2023 by approximatel\ny $8.6 million. \nA substantial portion of our borrowings are denominated in USD and bear interest at commonly quoted rates.",
+  "cik": "939930",
+  "cusip6": "018802",
+  "cusip": ["018802908", "018802958", "018802108"],
+  "names": ["ALLIANT ENERGY CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/939930/000093993023000052/0000939930-23-000052-index.htm"
+}
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+{
+  "item1": ">Item 1.  BUSINESS\nIntroduction \nDarden Restaurants, Inc. is a full-service restaurant company, and as of May\u00a028, 2023, we owned and operated 1,914 restaurants through subsidiaries in the United States and Canada under the Olive Garden\n\u00ae\n, LongHorn Steakhouse\n\u00ae\n, Cheddar\u2019s Scratch Kitchen\n\u00ae\n, Yard House\n\u00ae\n, The Capital Grille\n\u00ae\n, Seasons 52\n\u00ae\n, Bahama Breeze\n\u00ae\n, Eddie V\u2019s Prime Seafood\n\u00ae\n, and The Capital Burger\n\u00ae\n trademarks.  As of May\u00a028, 2023, we also had 69 restaurants operated by independent third parties pursuant to area development and franchise agreements.  The following table details the number of company-owned and operated restaurants, as well as those operated under franchise agreements, as of May\u00a028, 2023:    \nNumber of restaurants \nOlive\nGarden\nLongHorn\nSteakhouse\nCheddar\u2019s Scratch Kitchen\nYard House (1)\nThe\nCapital\nGrille\nSeasons 52\nBahama Breeze\nEddie V\u2019s\nThe Capital Burger\nTotal\nOwned and operated:\nUnited States\n897\n562\n180\n86\n62\n44\n42\n29\n4\n1,906\nCanada\n8\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n8\nTotal\n905\n562\n180\n86\n62\n44\n42\n29\n4\n1,914\nFranchised:\nUnited States (2)\n11\n18\n4\n\u2014\n\u2014\n\u2014\n1\n\u2014\n\u2014\n34\nLatin America\n29\n\u2014\n\u2014\n\u2014\n2\n\u2014\n\u2014\n\u2014\n\u2014\n31\nAsia\n2\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n2\nMiddle East\n1\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n1\nThe Caribbean\n1\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\n1\nTotal\n44\n18\n4\n\u2014\n2\n\u2014\n1\n\u2014\n\u2014\n69\n(1)\nIncludes two restaurants that are owned jointly by us and third parties, and managed by us.\n(2)\nIncludes Puerto Rico and Guam.\nDarden Restaurants, Inc. is a Florida corporation incorporated in March 1995, and is the parent company of GMRI, Inc., also a Florida corporation. GMRI, Inc. and certain other of our subsidiaries own and operate our restaurants. GMRI, Inc. was originally incorporated in March 1968 as Red Lobster Inns of America, Inc. We were acquired by General Mills, Inc. in 1970 and became a separate publicly held company in 1995 when General Mills distributed all of our outstanding stock to the stockholders of General Mills.  Our principal executive offices and restaurant support center are located at 1000 Darden Center Drive, Orlando, Florida 32837, telephone (407)\u00a0245-4000. Our corporate website address is \nwww.darden.com\n. We make our reports on Forms 10-K, 10-Q and 8-K, Section\u00a016 reports on Forms 3, 4 and 5, and all amendments to those reports available free of charge on our website the same day as the reports are filed with or furnished to the Securities and Exchange Commission. Information on our website is not deemed to be incorporated by reference into this Form 10-K. Unless the context indicates otherwise, all references to \u201cDarden,\u201d \u201cthe Company,\u201d \u201cwe,\u201d \u201cour\u201d or \u201cus\u201d include Darden Restaurants, Inc., GMRI, Inc. and our respective subsidiaries.\nOn June 14, 2023, we completed our acquisition of Ruth\u2019s Hospitality Group, Inc., a Delaware corporation (Ruth\u2019s), for  $21.50 per share in cash.  Ruth\u2019s is the owner, operator and franchisor of restaurants under the Ruth\u2019s Chris Steak House\n\u00ae\n trademark.  As the acquisition was subsequent to our fiscal year ended on May 28, 2023, there was no impact to our consolidated financial statements or operations.  As of the closing, Ruth\u2019s Chris Steak House had 155 locations around the globe, including 81 company-owned or company-operated restaurants and 74 franchised restaurants.  Because our acquisition of Ruth\u2019s was completed during the first quarter of fiscal 2024, the description of the business throughout this Item 1 does not include a description of Ruth\u2019s Chris Steak House unless specifically referenced herein.\nWe have a 52/53 week fiscal year ending the last Sunday in May. Our fiscal year \n2023\n ended May\u00a028, 2023 and consisted of 52 weeks, fiscal 2022 ended May\u00a029, 2022 and consisted of 52 weeks, and fiscal 2021 ended May\u00a030, 2021 and consisted of 52 weeks.\nThe following description of our business should be read in conjunction with the information in Part II of this report under the caption \u201cItem 7 - Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and \u201cItem 8 - Financial Statements and Supplementary Data.\u201d \n1\nCOVID-19 Pandemic and Other Impacts to our Operating Environment\nDuring fiscal 2022, increases in the number of cases of COVID-19 throughout the United States including the Omicron variant which significantly impacted our restaurants in the third quarter, subjected some of our restaurants to other COVID-19-related restrictions such as mask and/or vaccine requirements for team members, guests or both.\n \n Along with COVID-19, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and other cost of goods sold; these events further impacted the availability of team members needed to staff our restaurants and caused additional disruptions in our product supply chain.  During fiscal 2023, these events have continued to impact our operating results as wage and cost inflation continue to exceed recent norms.\nThe ongoing efforts to recover from the effects of the COVID-19 pandemic and its variants, along with other geopolitical and macroeconomic events could impact our restaurants through wage inflation, staffing challenges, product cost inflation and disruptions in the supply chain that impact our restaurants\u2019 ability to obtain the products needed to support their operations.\nSegment Information\nWe manage our restaurant brands in North America as operating segments. The brands operate principally in the U.S. within full-service dining. We aggregate our operating segments into reportable segments based on a combination of the size, economic characteristics and sub-segment of full-service dining within which each brand operates. We have four reportable segments: 1) Olive Garden, 2) LongHorn Steakhouse, 3) Fine Dining (which, as of the end of fiscal 2023, includes The Capital Grille and Eddie V\u2019s) and 4) Other Business (which includes Cheddar\u2019s Scratch Kitchen, Yard House, Bahama Breeze, Seasons 52, The Capital Burger and results from our franchise operations). External sales are derived principally from food and beverage sales, we do not rely on any major customers as a source of sales and the customers and long-lived assets of our reportable segments are predominantly in the U.S. There were no material transactions among reportable segments. \nRestaurant Brands\nOlive Garden\nOlive Garden is an internally-developed brand and \nis the largest full-service dining Italian restaurant operator in the United States. Olive Garden \noffers a variety of Italian foods featuring fresh ingredients presented simply with a focus on flavor and quality, and a broad selection of imported Italian wines. In 1982, Olive Garden opened its first restaurant in Orlando, Florida.  \n \nMost dinner menu entr\u00e9e prices range from $11.00 to $21.00, and most lunch menu entr\u00e9e prices range from $9.00 to $11.00. The price of each entr\u00e9e includes as much fresh salad or soup and breadsticks as a guest desires. During fiscal 2023, the average check per person (defined as total sales divided by number of entr\u00e9es sold) was approximately $22.50, with alcoholic beverages accounting for 5.3 percent of Olive Garden\u2019s sales. Olive Garden maintains dif\nferent menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections, as well as a smaller portioned, lower-priced children\u2019s menu. \nLongHorn Steakhouse\nLongHorn Steakhouse is a full-service steakhouse restaurant brand with locations primarily in the eastern United States, operating in an atmosphere inspired by the American West. LongHorn Steakhouse opened its first restaurant in 1981 and we acquired LongHorn Steakhouse in October 2007 as part of the \nRARE Hospitality International, Inc. (RARE) acquisition.\n LongHorn Steakhouse restaurants feature a variety of menu items including signature fresh steaks and chicken, as well as salmon, shrimp, ribs, pork chops and burgers.\nMost dinner menu entr\u00e9e prices range from $13.50 to $38.00, and most lunch menu entr\u00e9e prices range from $9.00 to $12.00. The price of most entr\u00e9es includes a side and/or salad and as much freshly baked bread as a guest desires. During fiscal 2023, the average check per person was approximately $25.50, with alcoholic beverages accounting for 8.9 percent of LongHorn Steakhouse\u2019s sales. LongHorn Steakhouse maintains different menus for dinner and lunch and different menus across its trade areas to reflect geographic differences in consumer preferences, \nprices and selections, as well as a smaller portioned, lower-priced children\u2019s menu.\nCheddar\u2019s Scratch Kitchen\nCheddar\u2019s Scratch Kitchen is a full-service restaurant brand operating primarily in Texas and throughout the southern, mid-western and mid-Atlantic regions of the United States. The casual dining menu features modern classics and American favorites cooked from scratch. Cheddar\u2019s Scratch Kitchen opened its first restaurant in 1979 and we acquired Cheddar\u2019s Scratch Kitchen in April 2017.\n2\nMost lunch and dinner menu entr\u00e9e prices range from $8.00 to $23.00.  During fiscal 2023, the average check per person was approximately $18.00, with alcoholic beverages accounting for 7.9 percent of Cheddar\u2019s Scratch Kitchen\u2019s sales. Cheddar\u2019s Scratch Kitchen features different menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections, \nas well as a smaller portioned, lower-priced children\u2019s menu\n.\nYard House\nYard House is a full-service restaurant brand operating in metropolitan areas across the United States and is known for great food, classic rock and over 100 draft beer offerings. The American menu includes more than 100 chef driven items with a wide range of appetizers, snacks, burgers and steaks, street tacos, salads, sandwiches and a generous selection of vegetarian dishes. Yard House opened its first restaurant in 1996 and we acquired Yard House in August 2012.  \nYard House design elements create a contemporary, yet casual, \u201ccome as you are\u201d environment.  Most lunch and dinner menu entr\u00e9e prices range from $10.00 to $48.00. During fiscal 2023, the average check per person was approximately $34.50, with alcoholic beverages accounting for 32.6 percent of Yard House\u2019s sales. Yard House maintains different menus and selections of craft beers across its trade areas to reflect geographic differences in consumer preferences, prices and selections, as well as a smaller portioned, lower-priced children\u2019s menu. \nThe Capital Grille\nThe Capital Grille is a fine dining restaurant brand with locations primarily in major metropolitan cities in the United States featuring relaxed elegance and style. The Capital Grille opened its first restaurant in 1990 and we acquired The Capital Grille in October 2007 as part of\n the RARE acquisition.\n Nationally acclaimed for dry aging steaks on the premises, the restaurants feature an award-winning wine list offering over 350 selections, personalized service, a comfortable club-like atmosphere, and premiere private dining rooms.\nMost dinner menu entr\u00e9e price\ns range from $35.00 to $95.00 and m\nost lunch menu entr\u00e9e p\nrices range from $20.00 to $49.00. Durin\ng fiscal 2023, the average check per person was approxi\nmately $97.00, with al\ncoholic beverages accounting for\n 26.9 percent\n of The Capital Grille\u2019s sales. The Capital Grille offers different menus for dinner and lunch and varies its wine list to reflect geographic differences in consumer preferences, prices and selections. \nSeasons 52\nSeasons 52 is an internally-developed full-service restaurant brand with a casually sophisticated, fresh grill and wine bar that offers a seasonally changing menu with all items under 595 calories. The menu includes an international collection of wines, featuring 52 wines available by the glass, along with exceptional signature handcrafted cocktails. In 2003, Seasons 52 opened its first restaurant in Orlando, Florida.  \nMost lunch and dinner menu entr\u00e9e prices range\n from $13.00 to $49.50. During fiscal 2023, the average check per person was approximately $49.50, with alcoholic beverages accounting for 23.8 percent of Seasons 52\u2019s sales. Seasons 52 maintains an all-day menu in addition to different seasonal offerings, a pared-down lunch menu and a happy-hour menu.\nBahama Breeze\nBahama Breeze is an internally-developed full-service restaurant brand operating primarily in the eastern United States that offers guests the feeling of a Caribbean escape, with food, drinks and atmosphere found in the islands. The menu features distinctive, Caribbean-inspired fresh seafood, chicken and steaks as well as handcrafted tropical cocktails. \nIn 1996, Bahama Breeze opened its first restaurant in Orlando, Florida.  \nMost lunch and dinner menu entr\u00e9e prices range from $9.00 to $25.00. During fiscal 2023, the average check per person was approximately $32.50, with alcoholic beverages accounting for 21.8 percent of Bahama Breeze\u2019s sales. Bahama Breeze maintains different menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections, as well as a smaller portioned, lower-priced children\u2019s menu. \nEddie V\u2019s\nEddie V\u2019s is a fine dining restaurant brand with locations in major metropolitan cities in the United States, with a sophisticated and contemporary ambiance, featuring live music trios nightly in the V Lounge. Dishes are artistically prepared and feature an ever-changing array of seasonal seafood, along with critically acclaimed prime steaks, hand cut and broiled to perfection.  The atmosphere provides an alluring dining experience reminiscent of a modern day Gatsby, infusing an indulgent experience with an irresistible vibe.  Eddie V\u2019s opened its first restaurant in 2000 and we acquired Eddie V\u2019s in November 2011. \n3\nMost dinner menu entr\u00e9e prices range from $38.00 to $107.00. During fiscal 2023, the average check per person was approximately $114.50, with alcoholic beverages accounting for 29.1 percent of Eddie V\u2019s sales. Eddie V\u2019s maintains different menus for dinner and varies its wine list to reflect geographic differences in consumer preferences, prices and selections. \nThe Capital Burger\nThe Capital Burger is an internally created, development-stage full-service restaurant concept with locations primarily in major metropolitan cities in the United States that offers guests a luxe burger experience. The Capital Burger opened its first restaurant in 2018. The menu features burgers made with a proprietary beef blend, sandwiches and appetizers. It is a bar-centric concept offering local craft beers, a unique wine list and spiked shakes. Multiple items take from the parentage of The Capital Grille, like the signature Stoli Doli, a pineapple-infused martini. \nMost lunch and dinner menu entr\u00e9e prices range from $17.00 to $39.00. During fiscal 2023, the average check per person was approximately $34.00, with alcoholic beverages accounting for 30.5 percent of The Capital Burger\u2019s sales.  The Capital Burger maintains an all-day menu in addition to a happy hour menu.\nThe following table shows our restaurant growth over the last five years and lists the number of restaurants owned and operated by each of our brands and concept as of the end of the fiscal years indicated and excludes Ruth\u2019s Chris Steak House since the information provided below is as of May 28, 2023.  The table excludes our restaurants operated by independent third parties pursuant to area development and franchise agreements. The final column in the table lists our total sales from continuing operations for the fiscal years indicated.\nFiscal\nYear\nOlive\nGarden\nLongHorn\nSteakhouse\nCheddar\u2019s Scratch Kitchen\nYard House\nThe\nCapital\nGrille\nSeasons\n52\nBahama\nBreeze\nEddie V\u2019s\nThe Capital Burger\nTotal\nRestaurants\nTotal\u00a0\nSales\n(\nin millions\n) (1)\n2019\n866\n514\n161\n79\n57\n44\n42\n21\n1\n1,785\n$8,510.4\n2020\n868\n522\n165\n81\n58\n44\n41\n23\n2\n1,804\n$7,806.9\n2021\n875\n533\n170\n81\n60\n44\n42\n26\n3\n1,834\n$7,196.1\n2022\n884\n546\n172\n85\n62\n45\n42\n28\n3\n1,867\n$9,630.0\n2023\n905\n562\n180\n86\n62\n44\n42\n29\n4\n1,914\n$10,487.8\n(1) During fiscal 2020 and 2021, many of our locations experienced restrictions on operations, including the ability to have dine-in operations and were subject to vaccine and/or mask mandates as a result of the COVID-19 pandemic.  \nStrategy\nWe believe that capable operators of strong multi-unit brands have the opportunity to increase their share of the restaurant industry\u2019s full-service segment. Generally, the restaurant industry is considered to be comprised of three segments: quick service, fast casual, and full-service. All of our restaurants fall within the full-service segment, which is highly fragmented and includes many independent operators and small chains. We believe we have strong brands, and that the breadth and depth of our experience and expertise sets us apart in the full-service restaurant industry. This collective capability is the product of investments over many years in areas that are critical to success in our business, including restaurant operations excellence, brand management excellence, supply chain, talent management and information technology, among other things.\nOur operating philosophy remains focused on strengthening the core operational fundamentals of the business by providing an outstanding guest experience rooted in culinary innovation, attentive service, engaging atmosphere, and integrated marketing. Darden enables each brand to reach its full potential by leveraging its scale, insights, and experience in a way that protects uniqueness and competitive advantages. Additionally, our brands can capitalize on data driven insights to deliver customized one-to-one customer relationship marketing. We hold ourselves accountable for operating our restaurants with a sense of urgency to achieve our commitments to all of our stakeholders.\n4\nRecent and Planned Restaurant Growth \nDuring fiscal 2023, we added 47 net new company-owned restaurants in the United States. Our fiscal 2023 actual restaurant openings and closings, fiscal 2024 projected openings, and approximate capital investment, square footage and dining capacity, by brand \n(4)\n, are shown below:\nActual - Fiscal 2023\nProjected - Fiscal 2024 (4)\nPro-Forma New Restaurants (4)\nRestaurant Openings\nRestaurant Closings\nNew Restaurant Openings\nCapital Investment\n\u00a0Range (1)\n\u00a0(in millions)\nApproximate Square Feet\n(2)\nApproximate Dining Seats\n(3)\nOlive Garden\n22\n1\n18-22\n$4.0\n-\n$5.8\n7,700\n250\nLongHorn Steakhouse\n18\n2\n15-18\n$3.3\n-\n$4.6\n5,700\n180\nCheddar\u2019s Scratch Kitchen\n10\n2\n4-5\n$4.0\n\u00a0-\n$5.3\n6,000\n210\nYard House \n2\n1\n2-3\n$7.0\n-\n$9.2\n11,000\n360\nThe Capital Grille\n2\n2\n2-4\n$8.5\n-\n$10.0\n10,000\n320\nSeasons 52\n1\n2\n0-1\n$6.0\n-\n$7.2\n9,000\n250\nBahama Breeze\n\u2014\n\u2014\n1-2\n$5.6\n-\n$7.0\n9,000\n350\nEddie V\u2019s\n1\n\u2014\n2-3\n$8.5\n-\n$10.0\n10,000\n320\nTotals\n56\n10\n46-53\n(1)\nIncludes cash investments for building, equipment, furniture and other construction costs; excludes internal capitalized overhead, pre-opening expenses, tenant allowance and future lease obligations. Olive Garden, LongHorn Steakhouse and Cheddar\u2019s Scratch Kitchen capital investments are based on costs associated with land-only leases; Yard House, The Capital Grille, Seasons 52, Bahama Breeze and Eddie V\u2019s capital investments are based on ground and building leases. Actual costs can vary significantly depending on the specific location.\n(2)\nIncludes all space under the roof, including the coolers and freezers; based on primary prototypes.\n(3)\nIncludes bar dining seats and patio seating, but excludes bar stools.\n(4)\nThe Capital Burger is a development-stage concept with limited pro-forma information, and as such, it is excluded from this table.  We project opening approximately 3-4 Ruth\u2019s Chris Steak House restaurants during fiscal 2024 which is captured in the total projected new restaurant openings above.\nWhile our objective is to continue to expand all of our restaurant brands, the actual number of openings for each of our brands for fiscal 2024 will depend on many factors, including our ability to recruit and train restaurant management and hourly personnel, locate appropriate sites, negotiate acceptable purchase or lease terms, obtain necessary local governmental permits, and complete construction.\nWe consider location to be a critical factor in determining a restaurant\u2019s long-term success, and we devote significant effort to the site selection process. Prior to entering a market, we conduct a thorough study to determine the optimal number and placement of restaurants. Our site selection process incorporates a variety of analytical techniques to evaluate key factors. These factors include trade area demographics, such as target population density and household income levels; competitive influences in the trade area; the site\u2019s visibility, accessibility and traffic volume; and proximity to activity centers such as shopping malls, hotel/motel complexes, offices and universities. Members of senior management evaluate, inspect and approve each restaurant site prior to its acquisition. Constructing and opening a new restaurant typically takes approximately 250 days on average after the site is acquired and permits are obtained.\nWe systematically review the performance of our restaurants to ensure that each one meets our standards. When a restaurant falls below minimum standards, we conduct a thorough analysis to determine the causes, and implement operational and marketing plans to improve that restaurant\u2019s performance. If performance does not improve to acceptable levels, the restaurant is evaluated for relocation, closing or conversion to one of our other brands. Permanent closures are typically due to economic changes in trade areas, the expiration of lease agreements, or site concerns. Accordingly, we continue to evaluate our site locations in order to minimize the risk of future closures or asset impairment charges. \n5\nRestaurant Operations\nWe believe that high-quality restaurant management is critical to our long-term success. Our restaurant management structure varies by brand and restaurant size. We issue detailed operations manuals covering all aspects of restaurant operations, as well as food and beverage manuals which detail the preparation procedures of our recipes. The restaurant management teams are responsible for the day-to-day operation of each restaurant and for ensuring compliance with our operating standards.\nThe management structures below describe our restaurant operations during the normal and fully operational conditions that were in place at the end of fiscal 2023. Since the recovery from the COVID-19 pandemic, the staffing levels at many of our restaurants have returned to pre-pandemic levels. \nEach Olive Garden restaurant is led by a General Manager, and each LongHorn Steakhouse and Cheddar\u2019s Scratch Kitchen restaurant is led by a Managing Partner. Each also has three to six additional managers, depending on the operating complexity and sales volume of the restaurant. In addition, each restaurant typically employs between 35 to 200 hourly team members, most of whom work part-time. Restaurant General Managers or Managing Partners report to a Director of Operations who is responsible for approximately five to eleven restaurants. Each Director of Operations reports to a Senior Vice President of Operations who is responsible for between 80 and 120 restaurants. Restaurants are visited regularly by operations management, including officer level executives, to help ensure strict adherence to all aspects of our standards and to solicit feedback on opportunities for improvement.\n \nEach Yard House and Bahama Breeze restaurant is led by a General Manager, and each The Capital Grille, Seasons 52, Eddie V\u2019s and The Capital Burger restaurant is led by a Managing Partner. Each also has three to ten additional managers. Each Yard House, The Capital Grille, Seasons 52 and Eddie V\u2019s restaurant has one executive chef and one to two sous chefs. The Capital Burger restaurant has one sous chef and each Bahama Breeze restaurant has one to three culinary managers.  In addition, each restaurant typically employs between 60 to 200 hourly team members, most of whom work part-time. The General Manager or Managing Partner of each restaurant reports directly to a Director of Operations, who has operational responsibility for approximately three to eleven restaurants. Restaurants are visited regularly by operations management, including officer level executives, to help ensure strict adherence to all aspects of our standards and to solicit feedback on opportunities for improvement.\nOur Learning and Development team in partnership with each brand\u2019s training leader, together with senior operations executives, is responsible for developing and maintaining our operations training programs. These efforts include an eight to twelve-week training program for management trainees and continuing development programs for all levels of leadership. The emphasis of the training and development programs varies by restaurant brand, but includes inclusive leadership, restaurant business management and culinary skills. We also use a highly structured training program to open new restaurants, including deploying training teams experienced in all aspects of restaurant operations. The opening training teams typically begin work one and a half weeks prior to opening and remain at the new restaurant for up to three weeks after the opening. They are re-deployed as appropriate to enable a smooth transition to the restaurant\u2019s operating staff.\nWe maintain performance measurement and incentive compensation programs for our management-level team members. We believe that our leadership position, strong results-oriented culture and various short-term and long-term incentive programs, including stock-based compensation, enhances our ability to attract and retain highly motivated restaurant managers.\nQuality Assurance \nOur Total Quality Department helps ensure that all restaurants provide safe, high-quality food in a clean and safe environment. \nThrough rigorous supplier and risk-based product evaluations, we purchase only products that meet or exceed our product specifications. We rely on independent third parties to inspect and evaluate our suppliers and distributors. Suppliers that produce \u201chigh-risk\u201d products are subject to a food safety evaluation by Darden personnel at least annually. We require our suppliers to maintain sound manufacturing practices and operate with comprehensive Hazard Analysis and Critical Control Point (HACCP) food safety programs and risk-based preventative controls adopted by the U.S. Food and Drug Administration. These programs focus on preventing hazards that could cause food-borne illnesses by applying scientifically-based controls to analyze hazards, identify and monitor critical control points, and establish corrective actions when monitoring shows that a critical limit has not been met.\nThird party auditors inspect each restaurant regularly throughout the year to assess food safety and sanitation practices. Our total quality team verifies the application of preventative controls through on-site support visits ensuring an effective and robust \n6\nfood safety system. Total quality managers provide support to operations staff with education and training in food safety and sanitation. The team also serves as a liaison to regulatory agencies on issues relating to food safety.\nPurchasing and Distribution\nOur ability to ensure a consistent supply of safe, high-quality food and supplies at competitive prices to all of our restaurant brands depends on reliable sources of procurement. Our purchasing staff sources, negotiates and purchases food and supplies from more than 1,500 suppliers whose products originate in more than 35 countries. Suppliers must meet our requirements and strict quality control standards in the development, harvest, catch and production of food products. Competitive bids, long-term contracts and strategic supplier relationships are routinely used to manage availability and cost of products.\nWe believe that our significant scale is a competitive advantage and our purchasing team leverages this purchasing capability. Our purchasing staff travels routinely within the United States and internationally to source top-quality food products at competitive prices.  We actively engage with and monitor our suppliers, both in person and remotely, including hosting virtual visits and audits.  We believe that we have established excellent long-term relationships with key suppliers and usually source our product directly from producers (not brokers or middlemen).  We actively support several national minority supplier organizations to ensure that we incorporate women- and minority-owned businesses in our purchasing decisions.\nWe have entered into long-term agreements with multiple third-party national distribution companies to deliver food and supplies to our restaurants. Under these arrangements we maintain ownership of the food and supplies inventory through our subsidiary Darden Direct Distribution, Inc. (Darden Direct).  This inventory is stored in distribution company warehouses that are wholly or primarily dedicated to Darden where practical to do so.  Because of the relatively rapid turnover of perishable food products, inventories in the restaurants have a modest aggregate dollar value in relation to sales.\nWe continue to drive automation of our supply chain by collaborating with our suppliers, logistics partners and distributors to improve optimization with information visibility and other technological advances.  These and other terms of Darden Direct\u2019s long-term supply agreements further enable our purchasing staff to integrate demand forecasts into our purchasing operations, driving efficiencies in our operations.\nAdvertising and Marketing\nIntegrated marketing is a key element of our strategy, and our scale enables us to be a leading advertiser in the full-service dining segment of the restaurant industry.\n \nOlive Garden leverages the efficiency of national advertising, on both traditional and streaming television, supplemented with additional targeted digital media investments.\n \nLongHorn Steakhouse uses digital advertising to build engagement and loyalty by market.\n \nCheddar\u2019s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze, Eddie V\u2019s and The Capital Burger do not use television advertising, but rely on local and digital marketing.\n \nOur restaurants appeal to a broad spectrum of consumers and we use advertising and marketing to build awareness and strengthen our brands\u2019 relevance.\n \nWe implement periodic promotions, as appropriate, to increase frequency of guest visits while maintaining overall profitability. We also rely on outdoor billboard and email advertising, as well as radio, digital coupons, search engine marketing and social media such as Facebook\u00ae and Instagram\u00ae, as appropriate, to attract, engage and retain our guests.\n \nWe have developed and consistently use sophisticated consumer marketing research techniques to monitor guest satisfaction and evolving food service trends and marketplace dynamics.\nIn fiscal 2023, we continued a multi-year effort to implement new technology platforms that allow us to digitally engage with our guests and team members and strengthen our marketing and analytics capabilities in an increasingly connected society.  We also continued making improvements to our online and mobile ordering and payment systems across all of our brands.\n \nIn addition, we continued working on developing sophisticated customer relationship management programs, data analytics and data-driven marketing approaches to effectively and efficiently target our existing and potential guests across our portfolio of brands.  This enables us to tailor our messaging and offerings depending on guest visit history, preferences and brand loyalty.\nHuman Capital\nWe prioritize our team members through our People Strategy that includes four strategic imperatives:\n\u2022\nHire - Attract and select diverse team members that reflect our values and are committed to our results-oriented culture;\n\u2022\nTrain - Teach team members to perform in today\u2019s environment and develop the skills to meet tomorrow\u2019s needs;\n7\n\u2022\nReward - Invest in compelling programs that recognize team members when goals are achieved and further motivate our culture of winning; and \n\u2022\nRetain - Keep team members engaged and motivated, ready to deliver results and grow their careers.\nWe closely track and assess a variety of metrics that help us to evaluate our performance on each of these imperatives.\nHire.  \nWe are committed to attracting, engaging, developing and retaining a workforce that mirrors the diversity of our guests and the communities in which we operate.  We track a variety of workforce statistics to help us understand the gender, racial and ethnic diversity of our team members.\n \nKey team member statistics as of the end of fiscal 2023 included the following:\nTotal team members (hourly and salaried)\n187,384\nTotal number of hourly team members\n177,164\nPercent of hourly team members \u2013 female\n58%\nPercent of hourly team members \u2013 members of racial or ethnic minority groups\n55%\nTotal number of new hires of hourly team members during fiscal 2023\n182,882\nPercent of hourly new hires \u2013 female\n57%\nPercent of hourly new hires \u2013 members of racial or ethnic minority groups\n57%\nIn addition to the gender, racial and ethnic diversity of our workforce, our team members are also very diverse in age; we employ members of five generations of the United States population: Traditionalists, Baby Boomers, Generation X, Millennials and Centennials.\n \nWe provide our EEO-1 report and additional details about our inclusion and diversity programs on our website at www.darden.com.\nTrain.\n \nWe succeed because of our people, and with our success come rewards, recognition and great opportunities for our team members.\n \nWe regularly invest in our team members\u2019 careers by providing the tools they need to succeed in their current roles, to grow personally and professionally, and to deliver exceptional experiences to our guests each day.\n \nWith thousands of leadership positions across our restaurants, we provide a pathway and training for thousands of individuals across the country to advance from entry-level jobs into management roles.\n \nIn fiscal 2023, 81% of the participants in our restaurant Manager In Training program were internal promotions and 100% of the new General Managers or Managing Partners were internal promotions.\nReward.\n  We believe that we provide working conditions and pay and benefits that compare favorably with those of our competitors. Most team members, other than restaurant management and corporate management, are paid on an hourly basis.\n \nWe offer our team members flexible work schedules and competitive pay and benefits, including paid sick leave and access to free counseling through our employee assistance program for team members and their families.\n \nWe regularly review our pay and benefits programs to identify and implement enhancements to the ways we reward our team members.\n \nIn January 2022, we announced that each hourly restaurant team member company-wide would earn a minimum hourly wage of at least $12 per hour, inclusive of tip income.  Also in January 2022, we began a new \"First Rewards\u201d program to provide a phantom stock grant worth $10,000 to newly promoted General Managers and Managing Partners, numbering approximately 300 annually, to reward these high-performing leaders and provide immediate alignment between their compensation and shareholder value creation.\n \nFurther, in fiscal 2023, the Darden Restaurants Foundation introduced the Next Course Scholarship program for children and dependents of our team members and in its inaugural year, the program awarded scholarships worth $3,000 each to nearly 100 children or dependents of Darden team members.\n \n In January 2023, we introduced a new benefit for restaurant team members called Fast Fluency \u2013 which offers Spanish-speaking team members the chance to learn English for free. \nNone of our team members are covered by a collective bargaining agreement.\n \nWe consider our team member relations to be good, with our employee engagement levels nearly double the United States average, as recently surveyed by Gallup, Inc.\nConsistent with our core values of respect, caring and teamwork, in fiscal 1999 we established a program called Darden Dimes to help fellow Darden team members in need.\n \nDarden Dimes provides short-term financial grants to team members experiencing financial need caused by unexpected emergencies or catastrophic natural disasters. Participating team members \n8\ndonate as little as 10 cents from each paycheck to the Darden Dimes fund, which raised and granted over $2.0 million in fiscal 2023.\nRetain.\n \nAs a full-service restaurant company, food is always top of mind, but our team members make the difference: they are at the heart of everything we do.\n \nWe believe the guest experience can never exceed the team member experience, so we strive to hire the best individuals and retain them by fostering an environment of respect and inclusion, where diversity of thought and background is valued and everyone has the opportunity to develop and grow their careers.\n \nIn addition, our geographic footprint often puts us in a position to offer our restaurant team members jobs in their current roles when personal circumstances require relocation.\nDarden\u2019s consolidated turnover rate for hourly team members during fiscal 2023 was 93%, one of the lowest rates in the restaurant industry. Each of our brands experienced a turnover rate during fiscal 2023 that was lower than the most recent relevant casual dining or fine dining turnover rate for their segment of the industry as reported in The People Report\nTM \nby Black Box Intelligence\nTM\n.\n \nDarden\u2019s consolidated restaurant management turnover rate of 19% was also significantly lower than the broader restaurant industry benchmark.  Our executive leadership (vice president and above) has an average of over 17 years of experience with Darden, while our restaurant General Managers and Managing Partners have an average of 14 years of experience with us. \nInformation Technology and Cybersecurity\nWe strive for leadership in the restaurant business by using technology as a competitive advantage and as an enabler of our strategy. We have implemented technology-enabled business solutions to improve financial control, cost management, guest service and employee effectiveness, as well as enable e-commerce. These solutions are designed to be used across restaurant brands, yet are flexible enough to meet the unique needs of each restaurant brand.  Our strategy is to fully integrate systems to drive operational efficiencies and enable restaurant teams to focus on restaurant operations excellence. Restaurant hardware and software support for all of our restaurant brands is provided or coordinated from the restaurant support center facility in Orlando, Florida. Our data center contains sufficient computing power to process information from all restaurants quickly and efficiently.  We leverage public cloud computing where appropriate to enhance our capabilities and to leverage scale.  Our information is processed in a secure environment to protect both our data and the physical computing assets. We guard against business interruption by maintaining a disaster recovery plan, which includes storing critical business information off-site, testing the disaster recovery plan annually and providing on-site power backup. We periodically engage third parties to perform cybersecurity audits utilizing the National Institute of Standards and Technology framework. We also engage third parties to conduct security reviews of our network, processes and systems on a regular basis.  We use internally developed proprietary software, cloud-based software as a service (SaaS), as well as purchased software, with proven, non-proprietary hardware.\nAll of our brands share a secure, robust digital platform with online ordering and other guest-facing capabilities. We also have deployed mobile applications with online ordering and other features for all of our casual dining brands and for most of our specialty restaurant brands. We successfully leverage these digital capabilities to address evolving guest needs. We will continue to invest in these platforms and applications to enhance the guest experience.  \nWe maintain a robust system of data protection and cybersecurity resources, technology and processes. We regularly evaluate new and emerging risks and ever-changing legal and compliance requirements. We make strategic investments to address these risks and compliance requirements to keep Company, guest and team member data secure. We monitor risks of sensitive information compromise at our business partners where relevant and reevaluate these risks on a periodic basis. We also perform annual and ongoing cybersecurity awareness training for our restaurant management and restaurant support center team members. In addition, we provide annual credit card handling training following Payment Card Industry (PCI) guidelines to all team members that handle guest credit cards.\nOur management believes that our current systems and practice of implementing regular updates positions us well to support current needs and future growth. We use a strategic information systems multi-year planning process that involves senior management and is integrated into our overall business planning. We provide data protection and cybersecurity reports to the Audit Committee of the Company\u2019s Board of Directors on a quarterly basis and periodically to the full Board of Directors. Information systems projects are prioritized based upon strategic, financial, regulatory, risk and other business advantage criteria.\nCompetition\nThe restaurant industry is intensely competitive with respect to the type and quality of food, price, service, restaurant location, personnel, brand, attractiveness of facilities, availability of carryout and home delivery, internet and mobile ordering \n9\ncapabilities and effectiveness of advertising and marketing. The restaurant business is often affected by changes in consumer tastes; national, regional or local economic conditions; demographic trends; traffic patterns; the type, number and location of competing restaurants; and consumers\u2019 discretionary purchasing power. We compete within each market with national and regional chains and locally-owned restaurants for guests, management and hourly personnel and suitable real estate sites. In addition, expanding product offerings at fast casual and quick-service restaurants and the convenience of home delivery services, together with negative economic conditions, could cause consumers to choose less expensive alternatives or reduce the frequency of their restaurant visits. We expect intense competition to continue in all of these areas.\nOther factors pertaining to our competitive position in the industry are addressed under the sections entitled \u201cPurchasing and Distribution,\u201d \u201cAdvertising and Marketing\u201d and \u201cInformation Technology and Cybersecurity\u201d in this Item\u00a01 and in our Risk Factors in Item\u00a01A of this Form 10-K.\nTrademarks and Service Marks\nWe regard our Olive Garden\n\u00ae\n, LongHorn Steakhouse\n\u00ae\n, Cheddar\u2019s Scratch Kitchen\n\u00ae\n, Yard House\n\u00ae\n, The Capital Grille\n\u00ae\n, Seasons 52\n\u00ae\n, Bahama Breeze\n\u00ae\n, Eddie V\u2019s Prime Seafood\n\u00ae\n, The Capital Burger\n\u00ae\n, Ruth\u2019s Chris Steak House\n\u00ae\n, Darden\n\u00ae \nand Darden Restaurants\n\u00ae \nservice marks, and other service marks and trademarks related to our restaurant businesses, as having significant value and as being important to our marketing efforts.  Our policy is to pursue registration of our important service marks and trademarks and to vigorously oppose any infringement of them.  Generally, with appropriate renewal and use, the registration of our service marks and trademarks will continue indefinitely.\nFranchises, Joint Ventures and New Business Development\nAs of May\u00a028, 2023, we operated 1,914 restaurants through subsidiaries in the United States and Canada. We own all of those locations, except for 2 restaurants managed by us and owned by joint ventures in which we hold a majority ownership.  We control the joint ventures\u2019 use of our service marks and the joint ventures pay management fees to us, which are not material to our consolidated financial statements.\nAs of May\u00a028, 2023, franchisees operated 34 franchised restaurants in the United States and 35 franchised restaurants outside of the United States.  We have area development, franchise and/or license agreements in place with unaffiliated operators to develop and operate Olive Garden, LongHorn Steakhouse, Cheddar\u2019s Scratch Kitchen, The Capital Grille and Bahama Breeze restaurants in the following regions:\n\u2022\nUnited States (including Puerto Rico and Guam),\n\u2022\nMexico, \n\u2022\nCentral and South America (Brazil, Costa Rica, Ecuador, El Salvador and Panama),\n\u2022\nPhilippines,\n\u2022\nAruba, and\n\u2022\nSaudi Arabia.\nThe open and operating franchised restaurants are all reflected in the table under the \u201cIntroduction\u201d section of this Item 1.  We do not have an ownership interest in any of these franchisees, but we receive fees under the area development and franchise agreements and royalty income under the franchise or license agreements.  The amount of income we derive from our franchise arrangements is not material to our consolidated financial statements.\nWe license the sales and distribution of several items including Olive Garden salad dressings, salad croutons and seasoning through various channels including wholesale distribution chains and major grocery chains.  The amount of income we derive from these licensing arrangements is not material to our consolidated financial statements.\nSeasonality\nOur sales volumes have historically fluctuated seasonally. Typically, our average sales per restaurant are highest in the winter and spring, followed by the summer, and lowest in the fall.  Holidays, changes in the economy, severe weather and similar conditions may impact sales volumes seasonally in some operating regions. Because of the historical seasonality of our business and these other factors, results for any fiscal quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.\n10\nGovernment Regulation\nWe are subject to various federal, state, local and international laws affecting our business.  Each of our restaurants must comply with licensing requirements and regulations by a number of governmental authorities, which include health, safety and fire agencies in the state or municipality in which the restaurant is located.  The development and operation of restaurants depend on selecting and acquiring suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations.  To date, we have not been significantly affected by any difficulty, delay or failure to obtain required licenses or approvals.\nDuring fiscal 2023, 11.2 percent of our sales were attributable to the sale of alcoholic beverages.  Regulations governing their sale require licensure by each site (in most cases, on an annual basis), and licenses may be revoked or suspended for cause at any time. These regulations relate to many aspects of restaurant operation, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, and storage and dispensing of alcoholic beverages.  As a result of the impact of the COVID-19 pandemic on restaurants, many states have modified their regulations to permit To Go sales of alcoholic beverages, and in some locations we now offer a variety of alcoholic beverages, including in bottles, from draft and mixed drinks To Go.  The failure of a restaurant to obtain or retain these alcoholic beverage licenses or to comply with regulations governing the sale of alcoholic beverages would adversely affect the restaurant\u2019s operations. We also are subject in certain states to \u201cdram shop\u201d statutes, which generally provide an injured party with recourse against an establishment that serves alcoholic beverages to an intoxicated person who then causes injury to himself or a third party.  We carry liquor liability coverage as part of our comprehensive general liability insurance.\nWe also are subject to federal and state minimum wage laws and other laws governing such matters as overtime, tip credits, working conditions, paid leave, safety standards, and hiring and employment practices.\nSince 1995, Darden has had a Tip Rate Alternative Commitment (TRAC) agreement with the Internal Revenue Service (IRS).\u00a0 TRAC requirements, which include increased educational and other efforts in each restaurant to increase the reporting compliance of employees with respect to cash tips, are applied across all of our brands.\u00a0 Compliance with TRAC requirements reduces the likelihood of potential employer-only FICA tax assessments related to cash tips that are unreported by employees at Darden\u2019s covered units.  Consistent with our long-standing agreement with the IRS, we work proactively with IRS personnel responsible for tip compliance to ensure that we are taking the appropriate steps to continue to meet our TRAC obligations.\n \u00a0\nIn 2023, the IRS issued a proposed revenue procedure that would establish the Service Industry Tip Compliance Agreement (SITCA) program and eliminate TRAC. We are working closely with the IRS as it finalizes its guidance.\nWe are subject to federal and state environmental regulations, but these rules have not had a material effect on our operations. During fiscal 2023, there were no material capital expenditures for environmental control facilities and no material expenditures for this purpose are anticipated.\nOur facilities must comply with the applicable requirements of the Americans with Disabilities Act of 1990 (ADA) and related state accessibility statutes.  Under the ADA and related state laws, we must provide equivalent service to disabled persons and make reasonable accommodation for their employment, and when constructing or undertaking significant remodeling of our restaurants, we must make those facilities accessible.\nWe are subject to federal and state regulations relating to employer-provided health insurance, but these rules have not had a material effect on our operations. \nWe are subject to laws and regulations relating to the preparation and sale of food, including regulations regarding product safety, nutritional content and menu labeling.  We are subject to laws and regulations requiring disclosure of calorie, fat, trans fat, salt and allergen content. \nWe are subject to laws relating to information security, privacy, cashless payments and consumer credit, protection and fraud.  An increasing number of governments and industry groups worldwide have established data privacy laws and standards for the protection of personal information, including social security numbers, financial information (including credit card numbers), and health information.  As a merchant and service provider of point-of-sale services, we are also subject to the Payment Card Industry Data Security Standard issued by the Payment Card Industry Council (PCI DSS).  \nWe are subject to anti-corruption laws in the United States and in the international jurisdictions where we do business, including the Foreign Corrupt Practices Act.  We are also subject to a variety of international laws relating to franchising and licensing of intellectual property in the various countries across the world where we are engaged in franchising our restaurant brands.\nSee Item\u00a01A \u201cRisk Factors\u201d below for a discussion of risks relating to federal, state and local regulation of our business, including in the areas of data privacy and environmental matters.\n11\nSustainability\nThe sustainability of our food sources and restaurant operations is a key component of providing great service and food to our guests. During fiscal 2023, we remained focused on our climate strategy, restaurant sustainability metrics and Darden\u2019s Animal Welfare Council. We will continue to adapt our sustainability approach with development or enhancement of integrated and strategic priorities in the near term across the enterprise, from the food we source to the operation of our restaurants. \nDarden manages energy and water conservation within our restaurant operations and engages with our supply chain partners on sustainability topics including climate, deforestation and animal welfare. In fiscal 2023, Darden expanded its assessment and disclosure of environmental metrics in our operations and extended value chain. Additional environmental indicators, including energy and water consumption, waste generation and diversion, as well as Scope 3 greenhouse gas emissions, are reported on our website at \nwww.darden.com/our-impact/communities/sustainability\n.\n \nGreenhouse Gas (GHG) Emissions\n(1)\nFiscal Year Ended\n(in metric tons CO2e)\nMay 29, 2022\nMay 30, 2021\nMay 31, 2020\nAverage Per Restaurant \n(2)\n412\n373\n(3)\n424\nTotal - Scope 1 and 2\n769,811\n(4)\n683,294\n774,200\n(1)\nGHG reporting is for the fiscal year preceding the year of this report and is not available for the current financial reporting period.  Above emissions are for owned and operated restaurants only.\n \nFranchises are accounted for in our Scope 3 inventory.\n(2)\nPer restaurant Intensity Ratio includes only Scope 1 and 2 totals (as defined in the Corporate Accounting and Reporting Standard of the GHG Protocol) divided by the total number of restaurants.\n(3)\nFiscal 2021 emissions reductions resulted from business impacts of the COVID-19 pandemic during fiscal 2021.\n(4)\nAPEX Companies, LLC. provided a statement of third-party verification to a limited assurance level for the above stated values for fiscal year 2022 in accordance with ISO Standard 14064-3 Second edition 2019-4 on greenhouse gases- Part 3: Specification with guidance for the verification and validation of GHG statements.\nWe shared Darden\u2019s Food Principles in 2016 to outline our commitment to guests in areas of sustainable sourcing, nutritional disclosure, food safety and animal welfare. Darden\u2019s Food Principles connect each of these strategic business efforts in a guest-centered platform, including sourcing and ingredient commitments to our guests. We have set commitments related to the following food attributes: animal welfare, chickens raised without medically-important antibiotics, cage-free eggs and gestation crate-free pork. We continue to work with our supplier partners to make progress toward these commitments and we provide annual updates on our efforts in the Sustainability section of our website, \nwww.darden.com\n.\nBuilding on our Food Principles, Darden established an Animal Welfare Policy that adopts an outcomes-based approach to continue to ensure high level of care for farm animals in the food supply chain. To implement this policy, we established an Animal Welfare Council consisting of leading academics and thought leaders with expertise in the care of animals in food supply chains.\n \nThe Council advises and supports the Company on our efforts to advance strategy and implementation of an outcomes-based approach to animal welfare, from supplier collaborations to reporting improvements. \nMore information about our sustainability strategy, our commitment to our guests on Food Principles and our progress to date is available at \nwww.darden.com\n.\nDarden Foundation and Community Affairs\nWe are recognized for a culture that rewards caring for and responding to people. That defines service for Darden.\n \nThe Darden Restaurants, Inc. Foundation (the Foundation) works to bring this spirit of service to life through its philanthropic support of charitable organizations across the country and support for the volunteer involvement of our team members. The Foundation does this by focusing its philanthropic efforts on programs that enhance the communities where our team members and guests live and work.\n \nIn addition, team members at our Restaurant Support Center are eligible for 16 hours per calendar year of paid time for approved community service activities during scheduled work hours.\nIn fiscal 2023, the Foundation awarded approximately $4.2 million in grants to national organizations as well as local nonprofits including Second Harvest Food Bank of Central Florida and the Heart of Florida United Way. These organizations \n12\nprovide service to the public through hunger relief, community engagement, disaster preparedness and the promotion of career opportunities in the culinary industry.\nThe Foundation continued to invest in mobile food pantry programs through its long-standing partnership with Feeding America.\n \nIn fiscal 2023, the Foundation awarded a $2.0 million grant to help fund 10 additional refrigerated box trucks to help Feeding America increase access to nutritious food and address transportation needs at food banks that are under-resourced and serve a high percentage of people of color.\n \nThe most recent donation marks a total of $16.3 million that the Foundation and Darden have contributed to the Feeding America network since 2010.\nOur support of Feeding America and the fight against hunger goes hand-in-hand with our Darden Harvest program, which began in 2003 as a mechanism for delivering fresh and healthy food to people who need it. Each day, our restaurants collect surplus, wholesome food that is not served to guests and, rather than discarding the food, they prepare it for donation to local nonprofit feeding partners. In fiscal 2023, Darden contributed approximately 5.3 million pounds of food, the equivalent of more than 4.4 million meals provided to people in need across the communities served by our restaurants. As an added benefit of the Darden Harvest program, we are able to divert millions of pounds of surplus food from waste streams every year.\nIn fiscal 2023, as part of Darden\u2019s continued commitment to inclusion and diversity, the Foundation donated an additional $500,000 to Boys & Girls Clubs of America to support the development and implementation of programming that will help youth embrace diversity and combat racial discrimination. The Youth for Unity curriculum will provide meaningful, action-oriented solutions to address social injustice and racial inequity and help foster the next generation of leaders, problem-solvers and advocates for change.\nThe Foundation\u2019s funding helps support the National Restaurant Association Educational Foundation\u2019s ProStart program, a national high school program that introduces students to the restaurant industry and provides them with an industry-driven curriculum on topics ranging from culinary techniques to management skills. The Foundation\u2019s fiscal 2023 contribution of $250,000 also supports the Restaurant Ready program to engage and encourage disconnected young people to pursue a path to employment and improve their quality of life.\nWe are also a proud member of the American Red Cross\u2019 Annual Disaster Giving Program, which enables the Red Cross to respond to the needs of individuals and families impacted by disasters anywhere in the United States. In fiscal 2023, the Foundation provided $500,000 to the American Red Cross for the program. In addition to financial support, our restaurants donate meals to feed first responders and victims of natural disasters. The Foundation also provided $250,000 to nonprofit organizations such as Volunteer Florida Foundation to support Hurricane Ian relief and recovery efforts.\nIn fiscal 2023, the Foundation launched the Next Course Scholarship program to help the children or dependents of Darden team members reach their educational goals. The Foundation has partnered with Scholarship America to administer the initiative, which provided scholarships for post-secondary education to children or dependents of eligible full-time and part-time Darden team members for the 2023-24 academic year. As a result, nearly 100 children or dependents of Darden team members were awarded scholarships worth $3,000 each. These team members represent more than 80 different restaurants across seven of our brands and 32 states.\nMore information about the Foundation and its efforts to enhance the quality of life in the communities where we do business is available on our website at \nwww.darden.com\n.",
+  "item1a": ">Item 1A. RISK FACTORS \nVarious risks and uncertainties could affect our business.  Any of the risks described below or elsewhere in this report or our other filings with the Securities and Exchange Commission could have a material impact on our business, financial condition or results of operations. It is not possible to predict or identify all risk factors.  Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. \n13\nRisks Relating to Inflation and Macroeconomic Disruption\nA failure to address cost pressures, including rising costs for commodities, labor, health care and utilities used by our restaurants, and a failure to effectively deliver cost management activities and achieve economies of scale in purchasing could compress our margins and adversely affect our sales and results of operations.\nOur results of operations depend significantly on our ability to anticipate and react to changes in the price and availability of food, ingredients, labor, health care, utilities, fuel and other related costs over which we may have little control.  We have experienced and continue to experience inflationary conditions with respect to most or all of these costs during fiscal 2023.  Operating margins for our restaurants are subject to changes in the price and availability of food commodities, including beef, pork, chicken, seafood, cheese, butter and produce.  The introduction of or changes to tariffs on imported food products, such as produce and seafood, could increase our costs and possibly impact the supply of those products.   We cannot predict whether we will continue to be able to anticipate and react to changing food costs by adjusting our purchasing practices, menu offerings, and menu prices, and a failure to do so could adversely affect our operating results.  We attempt to leverage our size to achieve economies of scale in purchasing, but there can be no assurances that we can always do so effectively.  We are also subject to the general risks of inflation.  \nIncreases in minimum wage, health care and other benefit costs may have a material adverse effect on our labor costs. We operate in many states and localities where the minimum wage is significantly higher than the federal minimum wage.  The market for labor in the United States is competitive and has resulted in pressure on wages and may continue to do so in the future.  Increases in minimum wage and market pressure may also result in increases in the wage rates paid for non-minimum wage positions.  Many states and localities are also passing laws regulating employment practices and working conditions which could have a material adverse effect on our labor costs in those areas.\nOur restaurants\u2019 operating margins are also affected by fluctuations in the price of utilities such as electricity and natural gas, whether as a result of inflation or otherwise, on which the restaurants depend for their energy supply.  In addition, interruptions to the availability of gas, electric, water or other utilities, whether due to aging infrastructure, weather conditions, fire, animal damage, trees, digging accidents, geopolitical impacts or other reasons largely out of our control, may adversely affect our operations.  Our inability to anticipate and respond effectively to an adverse change in any of these factors could have a significant adverse effect on our sales and results of operations.\nCertain economic and business factors and their impacts on the restaurant industry and other general macroeconomic factors including unemployment, energy prices and interest rates that are largely beyond our control may adversely affect consumer behavior and our results of operations.\nOur business results depend on a number of industry-specific and general economic factors, many of which are beyond our control.  The full-service dining sector of the restaurant industry is affected by changes in international, national, regional and local economic conditions, seasonal fluctuation of sales volumes, consumer spending patterns and consumer preferences, including changes in consumer tastes and dietary habits, and the level of consumer acceptance of our restaurant brands.  The performance of individual restaurants may also be adversely affected by factors such as demographic trends, severe weather including hurricanes, traffic patterns and the type, number and location of competing restaurants.\nGeneral economic conditions, including slow global recovery from the economic downturns related to the COVID-19 pandemic, geopolitical conditions and uncertainty about the strength or pace of economic recovery, have also adversely affected our results of operations and may continue to do so.  Economic recession, a protracted economic slowdown, a worsening economy, increased unemployment, increased energy prices, rising interest rates, a downgrade of the U.S. government\u2019s long-term credit rating, imposition of retaliatory tariffs on important U.S. imports and exports or other industry-wide cost pressures have affected and can continue to affect consumer behavior and spending for restaurant dining occasions and lead to a decline in sales and earnings.  Economic uncertainty has caused and may continue to cause guests to make fewer discretionary purchases, and any significant decrease in our guest traffic or average profit per transaction will negatively impact our financial performance.  In addition, if gasoline, natural gas, electricity and other energy costs remain at the current elevated levels or increase further, and credit card, home mortgage and other borrowing costs increase with rising interest rates, our guests may have lower disposable income and reduce the frequency of their dining occasions, may spend less on each dining occasion or may choose more inexpensive restaurants.\nFurthermore, we cannot predict the effects that actual or threatened armed conflicts, including the ongoing armed conflict in the Ukraine, terrorist attacks, efforts to combat terrorism, heightened security requirements, or a failure to protect information systems for critical infrastructure, such as the electrical grid and telecommunications systems, could have on our operations, the economy or consumer confidence generally. Any of these events could affect consumer spending patterns or result in increased costs for us due to security measures.\n14\nUnfavorable changes in the above factors or in other business and economic conditions affecting our guests could increase our costs, reduce traffic in some or all of our restaurants or impose practical limits on pricing, any of which could lower our profit margins and have a material adverse effect on our sales, financial condition and results of operations.\nRisks Related to Human Capital\nThe inability to hire, train, reward and retain restaurant team members and determine and maintain adequate staffing may impact our ability to achieve our operating, growth and financial objectives.\nOur long-term growth depends substantially on our ability to recruit and retain high-quality team members to work in and manage our restaurants.  Adequate staffing and retention of qualified restaurant team members is a critical factor impacting our guests\u2019 experience in our restaurants.  Maintaining adequate staffing in our existing restaurants and hiring and training staff for our new restaurants requires precise workforce planning which has been complicated by the tight labor market in the United States and on consumer preferences.  The market for the most qualified talent continues to be competitive and we must provide competitive wages, benefits and workplace conditions to maintain our most qualified team members. \n \nA shortage of qualified candidates who meet all legal citizenship or work authorization requirements, failure to recruit and retain new team members in a timely manner or higher than expected turnover levels all could affect our ability to open new restaurants, grow sales at existing restaurants or meet our labor cost objectives. An inability to adequately monitor and proactively respond to team member dissatisfaction could lead to poor guest satisfaction, higher turnover, litigation and unionization which could jeopardize our ability to meet our growth targets or impact our results of operations.\nA failure to recruit, develop and retain effective leaders or the loss or shortage of personnel with key capacities and skills could impact our strategic direction and jeopardize our ability to meet our business performance expectations and growth targets.\nOur future growth depends substantially on the contributions and abilities of key executives and other leadership team members. We must continue to recruit, retain and motivate management team members in order to achieve our current business objectives and support our projected growth.  Unplanned changes in senior management could expose us to significant changes in strategic direction and initiatives.  A failure to maintain appropriate organizational capacity and capability to support leadership excellence (adequate resources, innovative skill sets and expectations) and build adequate bench strength required for growth or a loss of key skill sets could jeopardize our ability to meet our business performance expectations and growth targets.\nWe may be subject to increased labor and insurance costs.\nOur restaurant operations are subject to United States and Canadian federal, state and local laws governing such matters as minimum wages, working conditions, overtime and tip credits.  As federal, state and local minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees, but also the wages paid to employees at wage rates that are above minimum wage.  Labor shortages, increased employee turnover and health care and other benefit or working condition regulations also have increased and may continue to increase our labor costs.  These increased costs could, in turn, lead us to increase our menu prices which could impact our sales. Conversely, if competitive pressures or other factors prevent us from offsetting increased labor costs by increases in menu prices, our profitability may decline. In addition, the current premiums that we pay for our insurance (including workers\u2019 compensation, general liability, property, health, and directors\u2019 and officers\u2019 liability) may increase at any time, thereby further increasing our costs.  The dollar amount of claims that we actually experience under our workers\u2019 compensation and general liability insurance, for which we carry high per-claim deductibles, may also increase at any time, thereby further increasing our costs. Further, the decreased availability of property and liability insurance has the potential to negatively impact the cost of premiums and the magnitude of uninsured losses.\nRisks Relating to Health and Safet\ny\nHealth concerns arising from food-related pandemics, outbreaks of flu, viruses or other diseases may have an adverse effect on our business.\nThe United States and other countries have experienced, or may experience in the future, outbreaks of viruses, such as the novel coronavirus that caused COVID-19, norovirus, avian flu or \u201cSARS,\u201d \u201cMERS,\u201d H1N1 or \u201cswine flu,\u201d or other diseases.  To the extent that a virus or disease is food-borne, or perceived to be food-borne, future outbreaks may adversely affect the price and availability of certain food products and cause our guests to eat less of a product, or could reduce public confidence in food handling and/or public assembly.  For example, public concern over avian flu may cause fear about the consumption of chicken, eggs and other products derived from poultry. The inability to serve poultry-based products would restrict our ability to provide a variety of menu items to our guests. If we change a restaurant menu in response to such concerns, we may lose guests who do not prefer the new menu, and we may not be able to attract a sufficient new guest base to produce the sales needed to make the restaurant profitable. We also may have different or additional competitors for our intended guests as a result of such a change and may not be able to successfully compete against such competitors.  If a virus is transmitted by human contact or respiratory \n15\ntransmission, our employees or guests could become infected, or could choose, or be advised, to avoid gathering in public places, any of which could adversely affect our restaurant guest traffic and our ability to adequately staff our restaurants, receive deliveries on a timely basis or perform functions at the corporate level. We also could be adversely affected if the World Health Organization and/or The United States Centers for Disease Control were to restrict travel to affected geographic areas where we source our products, thus possibly impacting the continuity of supply.  Additionally, jurisdictions in which we have restaurants may impose mandatory closures, seek voluntary closures or impose restrictions on operations.  Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or significant health risk may cause guests to choose other alternatives to dining out in our restaurants which may adversely affect our business.\nA failure to maintain food safety throughout the supply chain and food-borne illness concerns may have an adverse effect on our business.\nFood safety is a top priority, and we dedicate substantial resources to ensuring that our guests enjoy safe, quality food products.\u00a0 Even with strong preventative interventions and controls, food safety issues could be caused at the source or by food suppliers or distributors and, as a result, be out of our control and require prompt action to mitigate impact.\u00a0 In addition, regardless of the source or cause, any report of food-borne illnesses such as E. coli, hepatitis A, norovirus or salmonella, or other food safety issues including food tampering or contamination at one of our restaurants could adversely affect the reputation of our brands and have a negative impact on our sales. Even instances of food-borne illness, food tampering or food contamination occurring solely at restaurants of our competitors could result in negative publicity about the food service industry generally and adversely impact our sales. The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins.\nRisks Relating to Information Technology and Privacy\nWe rely heavily on information technology in our operations, and insufficient guest or employee facing technology or a failure to maintain a continuous and secure cyber network, free from material failure, interruption or security breach, could harm our ability to effectively operate our business and/or result in the loss of respected relationships with our guests or employees.\nWe rely heavily on information systems across our operations, including for e-commerce, marketing programs, employee engagement, management of our supply chain, the point-of-sale processing system in our restaurants, and various other processes and transactions. Our ability to effectively manage our business and coordinate the production, distribution and sale of our products depends significantly on the reliability, security and capacity of these systems.  In addition, we must effectively respond to changing guest expectations and new technological developments. Disruptions, failures or other performance issues with guest facing technology systems could impair the benefits that they provide to our business and negatively affect our relationship with our guests.  The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, a material network breach in the security of these systems as a result of a cyber attack, phishing attack, ransomware attack or any other failure to maintain a continuous and secure cyber network could result in substantial harm or inconvenience to the Company, our team members or guests.  This could include the theft of our intellectual property, trade secrets or sensitive financial information.  Some of these essential business processes that are dependent on technology are outsourced to third parties.  While we make efforts to ensure that our providers are observing proper standards and controls, we cannot guarantee that breaches or failures caused by these outsourced providers will not occur.  \nAny such failures or disruptions may cause delays in guest service, reduce efficiency in our operations, require significant capital investments to remediate the problem, result in customer, employee or advertiser dissatisfaction or otherwise result in negative publicity that could harm our reputation.  We could also be subjected to litigation, regulatory investigations or the imposition of penalties.  As information security laws and regulations change and cyber risks evolve, we may incur additional costs to ensure we remain in compliance and protect guest, employee and Company information.\nWe may incur increased costs to comply with privacy and data protection laws and, if we fail to comply or our systems are compromised, we could be subject to government enforcement actions, private litigation and adverse publicity.\nWe receive and maintain certain personal, financial and other information about our customers, employees, vendors and suppliers.  In addition, certain of our vendors receive and maintain certain personal, financial and other information about our employees and customers.  The use and handling, including security, of this information is regulated by evolving and increasingly demanding data privacy laws and regulations in various jurisdictions, as well as by certain third-party contracts and industry standards.  Complying with newly developed laws and regulations, which are subject to change and uncertain interpretations and may be inconsistent from jurisdiction to jurisdiction, may lead to a decline in guest engagement or cause us to incur substantial costs or modifications to our operations or business practices to comply.  In addition, if our security and information systems are compromised as a result of data corruption or loss, cyber attack or a network security incident, or if our employees or vendors fail to comply with these laws and regulations or fail to meet industry standards and this information is obtained by unauthorized \n16\npersons or used inappropriately, it could result in liabilities and penalties and could damage our reputation, cause interruption of normal business performance, cause us to incur substantial costs and result in a loss of customer confidence, which could adversely affect our results of operations and financial condition.  Additionally, we could be subject to litigation and government enforcement actions as a result of any such failure.\nRisks Relating to the Acquisition of Ruth\u2019s\nThe inability to successfully integrate Ruth\u2019s Chris Steak House into our business could harm our ability to achieve the sales growth, cost savings and other benefits we expect to be able to realize in the Ruth\u2019s Chris Steak House operations.\nOn June 14, 2023, we completed our acquisition of Ruth\u2019s, owner, operator and franchisor of Ruth\u2019s Chris Steak House restaurants. Our integration of the Ruth\u2019s Chris Steak House business into our operations is a complex and time-consuming process that may not be successful. The primary areas of focus for successfully combining the business of Ruth\u2019s Chris Steak House with our operations may include, among others: retaining and integrating management and other key employees and franchisees; integrating information, communications and other systems; and managing the growth of the combined company.\nEven if we successfully integrate the business of Ruth\u2019s Chris Steak House into our operations, there can be no assurance that we will realize the anticipated benefits. We acquired Ruth\u2019s Chris Steak House with the expectation that the acquisition would result in various benefits for the combined company including, among others, business and growth opportunities and significant synergies from increased efficiency in purchasing, distribution and other restaurant and corporate support. Increased competition and/or deterioration in business conditions may limit our ability to expand this business. As such, we may not be able to realize the synergies, goodwill, business opportunities and growth prospects anticipated in connection with the acquisition.\nRisks Related to the Restaurant Industry\nWe are subject to a number of risks relating to public policy changes and federal, state and local regulation of our business, including in the areas of environmental matters, minimum wage, employee benefit regulations, unionization, menu labeling, immigration requirements and taxes, and an insufficient or ineffective response to legislation or government regulation may impact our cost structure, operational efficiencies and talent availability. \nThe restaurant industry is subject to extensive federal, state, local and international laws and regulations.  The development and operation of restaurants depends to a significant extent on the selection and acquisition of suitable sites, which are subject to building, zoning, land use, environmental, traffic and other regulations and requirements.  We are subject to licensing and regulation by state and local authorities relating to health, sanitation, safety and fire standards and the sale of alcoholic beverages. We are subject to laws and regulations relating to the preparation and sale of food, including regulations regarding product safety, nutritional content and menu labeling. We are subject to federal, state, and local laws governing employment practices and working conditions.\u00a0 \u00a0These laws cover minimum wage rates, wage and hour practices, labor relations, paid and family leave, workplace safety, and immigration, among others.\u00a0 The myriad of laws and regulations being passed at the state and local level creates unique challenges for a multi-state employer as different standards apply to different locations, sometimes with conflicting requirements.\u00a0 We must continue to monitor and adapt our employment practices to comply with these various laws and regulations.\u00a0\nWe also are subject to federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the ADA.  Compliance with these laws and regulations can be costly and increase our exposure to litigation and governmental proceedings, and a failure or perceived failure to comply with these laws could result in negative publicity that could harm our reputation.  New or changing laws and regulations relating to union organizing rights and activities may impact our operations at the restaurant level and increase our labor costs. \nWe are subject to a variety of federal, state and local laws and regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. There also has been increasing focus by United States and overseas governmental authorities on other environmental matters, such as climate change, the reduction of greenhouse gases and water consumption. This increased focus may lead to new initiatives directed at regulating a yet to be specified array of environmental matters.  Legislative, regulatory or other efforts to combat climate change or other environmental concerns could result in future increases in the cost of raw materials, taxes, transportation and utilities, which could decrease our operating profits and necessitate future investments in facilities and equipment.\nWe are subject to laws relating to information security, cashless payments and consumer credit, protection and fraud.  Compliance with these laws and regulations can be costly, and any failure or perceived failure to comply with these laws or any breach of our systems could harm our reputation or lead to litigation, which could adversely affect our financial condition or results of operations.\n17\nThe impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations, or an insufficient or ineffective response to significant regulatory or public policy issues, could negatively impact our cost structure, operational efficiencies and talent availability, and therefore have an adverse effect on our results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Compliance with these laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings.\nWe face intense competition, and if we have an insufficient focus on competition and the consumer landscape, our business, financial condition and results of operations could be adversely affected.\nThe full-service dining sector of the restaurant industry is intensely competitive with respect to pricing, service, location, personnel, take-out and delivery options and type and quality of food, and there are many well-established competitors. We compete within each market with national and regional restaurant chains and locally-owned restaurants. We also face growing competition as a result of the trend toward convergence in grocery, deli and restaurant services, particularly in the supermarket industry which offers \u201cconvenient meals\u201d in the form of improved entr\u00e9es, side dishes or meal preparation kits from the deli or prepared foods sections. We compete primarily on the quality, variety and value perception of menu items. The number and location of restaurants, type of brand, quality and efficiency of service, attractiveness of facilities and effectiveness of advertising and marketing programs are also important factors. We anticipate that intense competition will continue with respect to all of these factors. If we are unable to continue to compete effectively, our business, financial condition and results of operations could be adversely affected.\nWe are subject to changes in consumer preferences that may adversely affect demand for food at our restaurants. \nConsumers are continually changing health and dietary preferences.  As a result, our diverse portfolio of restaurant brands are continually challenged to evolve our menu offerings to appeal to these changing customer preferences, while maintaining our brand character and retaining popular menu items.  During periods of high public health risk such as the COVID-19 pandemic, many consumers choose to order food To Go or for delivery rather than dining in at full-service restaurants.  If other future public health issues cause these preferences to increase, we may need to further adapt our offerings to respond to these additional changes.  New information or changes in dietary, nutritional, allergen or health guidelines or environmental or sustainability concerns, whether issued by government agencies, academic studies, advocacy organizations or similar groups, may cause some groups of consumers to select foods other than those that are offered by our restaurants.  If we fail to anticipate changing trends or other consumer preferences, our business, financial condition and results of operations could be adversely affected. \nOur inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could have a material adverse impact on our business.\n \nThe proliferation and utilization of existing and innovative social media platforms allows individuals and businesses access to a broad audience of consumers and other interested persons.\u00a0Many social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted.\u00a0Information posted on such platforms at any time may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects, or business.\u00a0\u00a0The harm may be immediate without affording us an opportunity for redress or correction.\u00a0\u00a0The dissemination of information online could harm our business, prospects, financial condition, and results of operations, regardless of the information\u2019s accuracy.\n\u00a0\nOur competitors are constantly expanding their use of social media and new social media platforms are rapidly being developed, potentially making more traditional social media platforms obsolete.  As a result, we need to continuously innovate and develop our social media strategies in order to maintain broad appeal with guests and brand relevance. As part of our marketing efforts, we rely on social media platforms and search engine marketing to attract and retain guests.  We also continue to invest in other digital marketing initiatives that allow us to reach our guests across multiple digital channels and build their awareness of, engagement with, and loyalty to our brands. These initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenues, increased employee engagement or brand recognition.  In addition, a variety of risks are associated with the use of social media, including the improper disclosure of proprietary information, negative comments about us, exposure of personally identifiable information, fraud, or out-of-date information.  The inappropriate use of social media vehicles by our guests or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation.\n18\nA failure to identify and execute innovative marketing and guest relationship tactics, ineffective or improper use of other marketing initiatives, and increased advertising and marketing costs could adversely affect our results of operations.\nIf our competitors increase their spending on advertising and promotions, if our advertising, media or marketing expenses increase, if our advertising and promotions become less effective than those of our competitors, or if we do not adequately leverage technology and data analytic capabilities needed to generate concise competitive insight, we could experience a material adverse effect on our results of operations.   A failure to sufficiently innovate, develop guest relationship initiatives, or maintain adequate and effective advertising could inhibit our ability to maintain brand relevance and drive increased sales.    \nAs part of our marketing efforts, we rely on social media platforms and search engine marketing to attract and retain guests.  These initiatives may not be successful, and pose a variety of other risks, as discussed above under the heading: \u201cOur inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could have a material adverse impact on our business.\u201d\nClimate change, adverse weather conditions and natural disasters could adversely affect our restaurant sales or results of operations.\nThe long-term effects of climate change and global warming will result in more severe, volatile weather or extended droughts, which could increase the frequency and duration of weather impacts on our operations.  Adverse weather conditions have in the past and may continue to impact guest traffic at our restaurants, cause the temporary underutilization of outdoor patio seating and, in more severe cases such as hurricanes, tornadoes, wildfires or other natural disasters, cause property damage and temporary closures, sometimes for prolonged periods, which could negatively impact our restaurant sales or costs.  Climate change and government regulation relating to climate change, including regulation of greenhouse gas emissions, could result in construction delays and increased costs, interruptions to the availability or increases in the cost of utilities, and shortages or interruptions in the supply or increases to the costs of food items and other supplies.  \nRisks Relating to Our Business Model and Strategy\nA majority of our restaurants are operated in leased properties and as a result, we are committed to long-term lease obligations that we may not be able to cancel if we want to close a restaurant location and we may be unable to renew the leases that we may want to extend at the end of their terms.\nAs of May\u00a028, 2023, 1,839 of our 1,914 restaurants operating in the United States and Canada operate in leased locations and the leases are generally non-cancellable for some period of time.  If we close a restaurant in a leased location, we may remain committed to perform our obligations under the applicable lease, which would include, among other things, payment of the base rent for the balance of the lease term. Additionally, the potential losses associated with our inability to cancel leases may result in our keeping open restaurant locations that are performing significantly below targeted levels. As a result, ongoing lease obligations at closed or underperforming restaurant locations could impair our results of operations.  In addition, at the end of the lease term and expiration of all renewal periods, we may be unable to renew the lease without substantial additional cost, if at all. As a result, we may be required to close or relocate a restaurant, which could subject us to construction and other costs and risks that may have an adverse effect on our operating performance.\nOur inability or failure to execute on a comprehensive business continuity plan following a major natural disaster such as a hurricane or manmade disaster, at our corporate facility could have a materially adverse impact on our business.\nMany of our corporate systems and processes and corporate support for our restaurant operations are centralized at one Florida location.\n\u00a0\nWe have disaster recovery procedures and business continuity plans in place to address most events of a crisis nature, including hurricanes and other natural or manmade disasters, and back up and off-site locations for recovery of electronic and other forms of data and information.\u00a0However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations and other breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition, results of operations and exposure to administrative and other legal claims.\nWe may lose sales or incur increased costs if our restaurants experience shortages, delays or interruptions in the delivery of food and other products from our third party vendors and suppliers.\nWe have a limited number of suppliers and distributors for certain of our products and services.  Shortages, delays or interruptions in the supply of food items and other supplies to our restaurants may be caused by severe weather; natural disasters such as hurricanes, tornadoes, floods, droughts, wildfires and earthquakes; macroeconomic conditions resulting in disruptions to the shipping and transportation industries; labor issues such as increased costs or worker shortages or other operational disruptions \n19\nat our suppliers, vendors or other service providers; the inability of our vendors or service providers to manage adverse business conditions, obtain credit or remain solvent; or other conditions beyond our control.  Such shortages, delays or interruptions could adversely affect the availability, quality and cost of the items we buy and the operations of our restaurants.  Supply chain disruptions have increased some of our costs and limited the availability of certain products for our restaurants and may continue to do so.  If we increase menu prices as a result of increased food costs or remove menu items due to shortages, such responses may negatively impact our sales.  If we temporarily close a restaurant or remove popular items from a restaurant\u2019s menu, that restaurant may experience a significant reduction in sales during the time affected by the shortage or thereafter as a result of our guests changing their dining habits.\nOur failure to drive both short-term and long-term profitable sales growth through brand relevance, operating excellence, opening new restaurants of existing brands, and acquiring new restaurant brands could result in poor financial performance.\nAs part of our business strategy, we intend to drive profitable sales growth by increasing same-restaurant sales at existing restaurants, continuing to expand our current portfolio of restaurant brands, and acquiring additional brands that can be expanded profitably. This strategy involves numerous risks, and we may not be able to achieve our growth objectives.  \nAt existing brands, we may not be able to maintain brand relevance and restaurant operating excellence to achieve sustainable same-restaurant sales growth and warrant new unit growth.  Existing brand short-term sales growth could be impacted if we are unable to drive near term guest count and sales growth, and long-term sales growth could be impacted if we fail to extend our existing brands in ways that are relevant to our guests.  A failure to innovate and extend our existing brands in ways that are relevant to guests and occasions in order to generate sustainable same-restaurant traffic growth and produce non-traditional sales and earnings growth opportunities, insufficient focus on our competition, or failure to adequately address declines in the casual dining industry, could have an adverse effect on our results of operations.  In addition, we may not be able to support sustained new unit growth or open all of our planned new restaurants, and the new restaurants that we open may not be profitable or as profitable as our existing restaurants. New restaurants typically experience an adjustment period before sales levels and operating margins normalize, and even sales at successful newly-opened restaurants generally do not make a significant contribution to profitability in their initial months of operation.  The opening of new restaurants can also have an adverse effect on guest counts and sales levels at existing restaurants. \nThe ability to open and profitably operate restaurants is subject to various risks, such as the identification and availability of suitable and economically viable locations, the negotiation of acceptable lease or purchase terms for new locations, the need to obtain all required governmental permits (including zoning approvals and liquor licenses) on a timely basis, the need to comply with other regulatory requirements, the availability of necessary contractors and subcontractors, the ability to meet construction schedules and budgets, the ability to manage union activities such as picketing or hand billing which could delay construction, increases in labor and building material costs, supply chain disruptions, the availability of financing at acceptable rates and terms, changes in patterns or severity of weather or other acts of God that could result in construction delays and adversely affect the results of one or more restaurants for an indeterminate amount of time, our ability to hire and train qualified management personnel and general economic and business conditions.  At each potential location, we compete with other restaurants and retail businesses for desirable development sites, construction contractors, management personnel, hourly employees and other resources.  If we are unable to successfully manage these risks, we could face increased costs and lower than anticipated sales and earnings in future periods.\nWe also may not be able to identify and successfully acquire and integrate additional brands that are as profitable as our existing restaurants or that provide potential for further growth.\nA lack of availability of suitable locations for new restaurants or a decline in the quality of the locations of our current restaurants may adversely affect our sales and results of operations.\nThe success of our restaurants depends in large part on their locations.  As demographic and economic patterns change, current locations may not continue to be attractive or profitable. Possible declines in neighborhoods where our restaurants are located or adverse economic conditions in areas surrounding those neighborhoods could result in reduced sales in those locations. In addition, desirable locations for new restaurant openings or for the relocation of existing restaurants may not be available at an acceptable cost when we identify a particular opportunity for a new restaurant or relocation.  The occurrence of one or more of these events could have a significant adverse effect on our sales and results of operations.\nWe may experience higher-than-anticipated costs or delays associated with the opening of new restaurants or with the closing, relocating and remodeling of existing restaurants, which may adversely affect our results of operations.\nOur sales and expenses can be impacted significantly by the number and timing of the opening of new restaurants and the closing, relocating and remodeling of existing restaurants.  We incur substantial pre-opening expenses each time we open a new \n20\nrestaurant and other expenses when we close, relocate or remodel existing restaurants.  The expenses of opening, closing, relocating or remodeling any of our restaurants may be higher than anticipated.  Increases in the time to procure or shortages of construction labor and materials and capital equipment, or permitting delays, may impact the time it takes to open new restaurants.  An increase in such expenses or delays in the timeline to complete construction could have an adverse effect on our results of operations.\nWe face a variety of risks associated with doing business with franchisees and licensees.\nCertain of our domestic and all of our international locations other than in Canada are operated by franchisees or licensees.  We believe that we have selected high-caliber operating partners and franchisees with significant experience in restaurant operations, and we are providing them with training and support.  However, the probability of opening, ultimate success and quality of any franchise or licensed restaurant rests principally with the franchisee or licensee.  If the franchisee or licensee does not successfully open and operate its restaurants in a manner consistent with our standards, or guests have negative experiences due to issues with food quality or operational execution, our brand values could suffer, which could have an adverse effect on our business.\nWe face a variety of risks associated with doing business with business partners and vendors in foreign markets.\nWe are making efforts to expand our brands overseas through licensing and franchising relationships.  There is no assurance that international operations will be profitable or that international growth will continue.  Our international operations are subject to all of the same risks associated with our domestic operations, as well as a number of additional risks. These include, among other things, international economic and political conditions, foreign currency fluctuations, and differing cultures and consumer preferences.  In addition, expansion into international markets could create risks to our brands and reputation. \nWe also are subject to governmental regulations throughout the world that impact the way we do business with our international franchisees and vendors. These include antitrust and tax requirements, anti-boycott regulations, import/export/customs regulations and other international trade regulations, the USA Patriot Act, the Foreign Corrupt Practices Act, and applicable local law.  Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition.\nVolatility in the market value of derivatives we may use to hedge exposures to fluctuations in commodity and broader market prices may cause volatility in our gross margins and net earnings.\nWe use or may use derivatives to hedge price risk for some of our principal ingredient, labor and energy costs, including but not limited to coffee, butter, wheat, soybean oil, pork, beef, diesel fuel, gasoline and natural gas. Changes in the values of these derivatives may be recorded in earnings currently, resulting in volatility in both gross margin and net earnings.  These gains and losses are reported as a component of cost of sales in our Consolidated Statements of Earnings included in our consolidated financial statements.\nVolatility in the United States equity markets affects our ability to efficiently hedge exposures to our market risk related to equity-based compensation awards.\nThe equity markets in the United States have experienced recent periods of volatility due to the\u00a0impacts of the COVID-19 pandemic, macroeconomic conditions, geopolitical concerns and the unpredictability of the recovery of the United States economy as a result of these factors.  Market volatility has contributed to and may continue to contribute to fluctuations in the Company\u2019s stock price. We have equity hedges in place to protect the Company from exposure to market risk related to future payout of equity-based compensation awards. However, because these hedges also net settle on a cash basis quarterly, we have been and may in the future be required to make cash payments at those quarterly settlement dates and the amounts of those payments are difficult to predict during periods of extreme volatility in the equity markets. These cash payments may ultimately be offset by payments to us from the hedge counterparties or reductions in expected payouts to employees when those equity hedges finally fully settle and the related equity awards pay out.\nFailure to protect our service marks or other intellectual property could harm our business.\nWe regard our Olive Garden\n\u00ae\n, LongHorn Steakhouse\n\u00ae\n, Cheddar\u2019s Scratch Kitchen\n\u00ae\n, Yard House\n\u00ae\n, The Capital Grille\n\u00ae\n, Seasons 52\n\u00ae\n, Bahama Breeze\n\u00ae\n, Eddie V\u2019s Prime Seafood\n\u00ae\n, Ruth\u2019s Chris Steak House\n\u00ae\n, The Capital Burger \n\u00ae\n, Darden\n\u00ae \nand Darden Restaurants\n\u00ae \nservice marks, and other service marks and trademarks related to our restaurant businesses, as having significant value and being important to our marketing efforts. We rely on a combination of protections provided by contracts, copyrights, patents, trademarks, service marks and other common law rights, such as trade secret and unfair competition laws, to protect our restaurants and services from infringement.  We have registered certain trademarks and service marks in the United States and foreign jurisdictions.  However, we are aware of names and marks identical or similar to our service marks being used \n21\nfrom time to time by other persons.  Although our policy is to oppose any such infringement, further or unknown unauthorized uses or other misappropriation of our trademarks or service marks could diminish the value of our brands and adversely affect our business.  In addition, effective intellectual property protection may not be available in every country in which we have or intend to open or franchise a restaurant.  Although we believe we have taken appropriate measures to protect our intellectual property, there can be no assurance that these protections will be adequate, and defending or enforcing our service marks and other intellectual property could result in the expenditure of significant resources.\nGeneral Risks\nLitigation, including allegations of illegal, unfair or inconsistent employment practices, may adversely affect our business, financial condition and results of operations.\nOur business is subject to the risk of litigation by employees, guests, suppliers, business partners, shareholders, government agencies or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation.  These actions and proceedings may involve allegations of illegal, unfair or inconsistent employment practices, including wage and hour violations and employment discrimination; guest discrimination; food safety issues including poor food quality, food-borne illness, food tampering, food contamination, and adverse health effects from consumption of various food products or high-calorie foods (including obesity); other personal injury; violation of \u201cdram shop\u201d laws (providing an injured party with recourse against an establishment that serves alcoholic beverages to an intoxicated party who then causes injury to himself or a third party); trademark infringement; violation of the federal securities laws; or other concerns.  The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify.  Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time.  The cost to defend litigation may be significant. There may also be adverse publicity associated with litigation that could decrease guest acceptance of our brands, regardless of whether the allegations are valid or we ultimately are found liable. Litigation could impact our operations in other ways as well.  Allegations of illegal, unfair or inconsistent employment practices, for example, could adversely affect employee acquisition and retention.  As a result, litigation may adversely affect our business, financial condition and results of operations.\nUnfavorable publicity, or a failure to respond effectively to adverse publicity, could harm our reputation and adversely impact our guest counts and sales.\nThe good reputation of our restaurant brands is a key factor in the success of our business.  Actual or alleged incidents at any of our restaurants could result in negative publicity that could harm our brands.  Even incidents occurring at restaurants operated by our competitors or in the supply chain generally could result in negative publicity that could harm the restaurant industry overall and, indirectly, our own brands.  Negative publicity may result from allegations of illegal, unfair or inconsistent employment practices, employee dissatisfaction, guest discrimination, illness, injury, or any of the other matters discussed above that could give rise to litigation.  Regardless of whether the allegations or complaints are valid, unfavorable publicity relating to a limited number of our restaurants, or to only a single restaurant, could adversely affect public perception of the entire brand.  Negative publicity also may result from health concerns including food safety and flu or virus outbreaks, publication of government or industry findings concerning food products, environmental disasters, crime incidents, data security breaches, scandals involving our employees, or operational problems at our restaurants, all of which could make our brands and menu offerings less appealing to our guests and negatively impact our guest counts and sales.  Adverse publicity and its effect on overall consumer perceptions of our brands, or our failure to respond effectively to adverse publicity, could have a material adverse effect on our business.\nDisruptions in the financial and credit markets may adversely impact consumer spending patterns and affect the availability and cost of credit.\nOur ability to make scheduled payments or to refinance our debt and to obtain financing for acquisitions or other general corporate and commercial purposes will depend on our operating and financial performance, which in turn is subject to prevailing economic conditions and to financial, business and other factors beyond our control. Turmoil in global credit markets could adversely impact the availability of credit already arranged, and the availability and cost of credit in the future. There can be no assurances that we will be able to arrange credit on terms we believe are acceptable or that permit us to finance our business with historical margins.  A lack of credit could have an adverse impact on certain of our suppliers, landlords and other tenants in retail centers in which we are located.  If these issues occur, they could negatively affect our financial results.  Any new disruptions in the financial markets may also adversely affect the U.S. and world economy, which could negatively impact consumer spending patterns. \n22\nImpairment of the carrying value of our goodwill or other intangible assets could adversely affect our financial condition and results of operations.\nGoodwill represents the difference between the purchase price of acquired companies and the related fair values of net assets acquired.  A significant amount of judgment is involved in determining if an indication of impairment of goodwill exists. Factors may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates.  Any adverse change in these factors could have a significant impact on the recoverability of these assets and negatively affect our financial condition and results of operations. We compute the amount of impairment by comparing the fair value of the reporting unit with the carrying amount of that reporting unit. We are required to record a non-cash impairment charge if the testing performed indicates that goodwill has been impaired.\nWe evaluate the useful lives of our other intangible assets, primarily the LongHorn Steakhouse\n\u00ae\n, Cheddar\u2019s Scratch Kitchen\n\u00ae\n,\n \nThe Capital Grille\n\u00ae\n, Yard House\n\u00ae \nand Eddie V\u2019s Prime Seafood\n\u00ae\n trademarks, to determine if they are definite or indefinite-lived.  Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets.\nAs with goodwill, we test our indefinite-lived intangible assets (primarily trademarks) for impairment annually and whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We cannot accurately predict the amount and timing of any impairments of these or other assets. Should the value of goodwill or other intangible assets become impaired, there could be an adverse effect on our financial condition and results of operations.\nChanges in tax laws and unanticipated tax liabilities could adversely affect our financial results.\nWe are primarily subject to income and other taxes in the United States. Our effective income tax rate and other taxes in the future could be adversely affected by a number of factors, including changes in the valuation of deferred tax assets and liabilities, changes in tax laws or other legislative changes and the outcome of income tax audits. Although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from our historical income tax provisions and accruals. The results of a tax audit could have a material effect on our results of operations or cash flows in the period or periods for which that determination is made. In addition, our effective income tax rate and our results may be impacted by our ability to realize deferred tax benefits and by any increases or decreases of our valuation allowances applied to our existing deferred tax assets. \nFailure of our internal controls over financial reporting and future changes in accounting standards may cause adverse unexpected operating results, affect our reported results of operations or otherwise harm our business and financial results.\nOur management is responsible for establishing and maintaining effective internal control over financial reporting.  Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud.  Our growth and acquisition of other restaurant companies with procedures not identical to our own could place significant additional pressure on our system of internal control over financial reporting.  Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud.  A significant financial reporting failure or material weakness in internal control over financial reporting could cause a loss of investor confidence and decline in the market price of our common stock, increase our costs, lead to litigation or result in negative publicity that could damage our reputation.\nA change in accounting standards can have a significant effect on our reported results and may affect our reporting of transactions before the change is effective.  New pronouncements and varying interpretations of pronouncements have occurred and may occur in the future.  Changes to existing accounting rules or the application of current accounting practices may adversely affect our reported financial results.  Additionally, our assumptions, estimates and judgments related to complex accounting matters could significantly affect our financial results. Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including but not limited to, revenue recognition, fair value of investments, impairment of long-lived assets, leases and related economic transactions, derivatives, pension and post-retirement benefits, intangibles, self-insurance, income taxes, property and equipment, unclaimed property laws and litigation, and stock-based compensation are highly complex and involve many subjective assumptions, estimates and judgments by us.  Changes in these rules or their interpretation or \n23\nchanges in underlying assumptions, estimates or judgments by us could significantly change our reported or expected financial performance.",
+  "item7": ">Item 7.\nMANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThis discussion and analysis below for Darden Restaurants, Inc. (Darden, the Company, we, us or our) should be read in conjunction with our consolidated financial statements and related financial statement notes included in Part II of this report under the caption \u201cItem 8 - Financial Statements and Supplementary Data.\u201d We operate on a 52/53-week fiscal year, which ends on the last Sunday in May. Fiscal 2023, which ended May\u00a028, 2023, and fiscal 2022, which ended May\u00a029, 2022, each consisted of 52 weeks.  \nOVERVIEW OF OPERATIONS \nOur business operates in the full-service dining segment of the restaurant industry.  At May\u00a028, 2023, we operated 1,914 restaurants through subsidiaries in the United States and Canada under the Olive Garden\n\u00ae\n, LongHorn Steakhouse\n\u00ae\n, Cheddar\u2019s Scratch Kitchen\n\u00ae\n, Yard House\n\u00ae\n, The Capital Grille\n\u00ae\n, Seasons 52\n\u00ae\n, Bahama Breeze\n\u00ae\n, Eddie V\u2019s Prime Seafood\n\u00ae\n, and The Capital Burger\n\u00ae\u00a0\u00a0\u00a0\u00a0\ntrademarks. We own and operate all of our restaurants in the United States and Canada, except for 2 joint venture restaurants managed by us and 34 franchised restaurants. We also have 35 franchised restaurants in operation located in Latin America, Asia, the Middle East and the Caribbean. All intercompany balances and transactions have been eliminated in consolidation.\nCOVID-19 Pandemic and Other Impacts to our Operating Environment\nDuring fiscal 2022, increases in the number of cases of COVID-19 throughout the United States including the Omicron variant which significantly impacted our restaurants in the third quarter, subjected some of our restaurants to COVID-19-related restrictions such as mask and/or vaccine requirements for team members, guests or both.\n \n Along with COVID-19, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and other cost of goods sold; these events further impacted the availability of team members needed to staff our restaurants and caused additional disruptions in our product supply chain.\nThe ongoing efforts to recover from the effects of the COVID-19 pandemic and its variants, along with other geopolitical and macroeconomic events, could impact our restaurants through wage inflation, staffing challenges, product cost inflation and disruptions in the supply chain that impact our restaurants\u2019 ability to obtain the products needed to support their operations.\nFiscal 2023 Financial Highlights\n\u2022\nTotal sales increased 8.9 percent to $10.49 billion in fiscal 2023 from $9.63 billion in fiscal 2022 driven by a blended same-restaurant sales increase of 6.8 percent and sales from 47 net new restaurants.\n\u2022\nReported diluted net earnings per share from continuing operations increased to $8.00 in fiscal 2023 from $7.40 in fiscal 2022, a 8.1 percent increase.\n\u2022\nNet earnings from continuing operations increased to $983.5 million in fiscal 2023 from $954.7 million in fiscal 2022, a 3.0 percent increase.\n\u2022\nNet loss from discontinued operations decreased to $1.6 million ($0.01 per diluted share) in fiscal 2023, from $1.9 million ($0.01 per diluted share) in fiscal 2022. When combined with results from continuing operations, our diluted net earnings per share was $7.99 for fiscal 2023 and $7.39 for fiscal 2022. \nOutlook\nOn June 14, 2023, we completed our acquisition of Ruth\u2019s, a Delaware corporation, for $21.50 per share in cash.  Ruth\u2019s is the owner, operator and franchisor of Ruth\u2019s Chris Steak House restaurants.\nWe expect fiscal 2024 sales from continuing operations to increase between 9.5 percent and 10.5 percent, driven by the addition of the Ruth\u2019s Chris Steak House restaurants to our portfolio, Darden same-restaurant sales growth of 2.5 percent to 3.5 percent, and sales from approximately 50 new restaurant openings. In fiscal 2024, we expect our annual effective tax rate to be 12 percent to 12.5 percent and we expect capital expenditures incurred to build new restaurants, remodel and maintain existing restaurants and technology initiatives to be between $550 million and $600 million.\n27\nRESULTS OF OPERATIONS FOR FISCAL 2023 AND 2022\nTo facilitate review of our results of operations, the following table sets forth our financial results for the periods indicated.  All information is derived from the consolidated statements of earnings for the fiscal years ended May\u00a028, 2023 and\u00a0May\u00a029, 2022: \nFiscal Year Ended\nPercent Change\n(in millions)\nMay 28, 2023\nMay 29, 2022\n2023 v. 2022\nSales\n$\n10,487.8\u00a0\n$\n9,630.0\u00a0\n8.9%\nCosts and expenses:\nFood and beverage\n3,355.9\u00a0\n2,943.6\u00a0\n14.0%\nRestaurant labor\n3,346.3\u00a0\n3,108.8\u00a0\n7.6%\nRestaurant expenses\n1,702.2\u00a0\n1,582.6\u00a0\n7.6%\nMarketing expenses\n118.3\u00a0\n93.2\u00a0\n26.9%\nGeneral and administrative expenses\n386.1\u00a0\n373.2\u00a0\n3.5%\nDepreciation and amortization\n387.8\u00a0\n368.4\u00a0\n5.3%\nImpairments and disposal of assets, net\n(10.6)\n(2.0)\nNM\nTotal operating costs and expenses\n$\n9,286.0\u00a0\n$\n8,467.8\u00a0\n9.7%\nOperating income\n$\n1,201.8\u00a0\n$\n1,162.2\u00a0\n3.4%\nInterest, net\n81.3\u00a0\n68.7\u00a0\n18.3%\nEarnings before income taxes\n$\n1,120.5\u00a0\n$\n1,093.5\u00a0\n2.5%\nIncome tax expense (1)\n137.0\u00a0\n138.8\u00a0\n(1.3)%\nEarnings from continuing operations\n$\n983.5\u00a0\n$\n954.7\u00a0\n3.0%\nLosses from discontinued operations, net of tax\n(1.6)\n(1.9)\n(15.8)%\nNet earnings\n$\n981.9\u00a0\n$\n952.8\u00a0\n3.1%\n(1) Effective tax rate\n12.2\u00a0\n%\n12.7\u00a0\n%\nNM- Percentage change not considered meaningful.\n28\nThe following table details the number of company-owned restaurants currently reported in continuing operations, compared with the number open at the end of fiscal 2022:\nMay 28, 2023\nMay 29, 2022\nOlive Garden\n905\u00a0\n884\u00a0\nLongHorn Steakhouse\n562\u00a0\n546\u00a0\nCheddar\u2019s Scratch Kitchen\n180\u00a0\n172\u00a0\nYard House\n86\u00a0\n85\u00a0\nThe Capital Grille\n62\u00a0\n62\u00a0\nSeasons 52\n44\u00a0\n45\u00a0\nBahama Breeze\n42\u00a0\n42\u00a0\nEddie V\u2019s\n \n29\u00a0\n28\u00a0\nThe Capital Burger\n4\u00a0\n3\u00a0\nTotal\n1,914\u00a0\n1,867\u00a0\nSALES \nThe following table presents our company-owned restaurant sales, U.S. same-restaurant sales (SRS) and average annual sales per restaurant by segment for the periods indicated:\nSales\nAverage Annual Sales per Restaurant (2)\nFiscal Year Ended\nPercent Change\nFiscal Year Ended\n(in millions)\nMay 28, 2023\nMay 29, 2022\nSRS (1)\nMay 28, 2023\nMay 29, 2022\nOlive Garden\n$\n4,877.8\u00a0\n$\n4,503.9\u00a0\n8.3\u00a0\n%\n6.7\u00a0\n%\n$\n5.5\u00a0\n$\n5.1\u00a0\nLongHorn Steakhouse\n$\n2,612.3\u00a0\n$\n2,374.3\u00a0\n10.0\u00a0\n%\n7.4\u00a0\n%\n$\n4.7\u00a0\n$\n4.4\u00a0\nFine Dining\n$\n830.8\u00a0\n$\n776.2\u00a0\n7.0\u00a0\n%\n5.7\u00a0\n%\n$\n9.2\u00a0\n$\n8.8\u00a0\nOther Business\n$\n2,166.9\u00a0\n$\n1,975.6\u00a0\n9.7\u00a0\n%\n7.0\u00a0\n%\n$\n6.0\u00a0\n$\n5.7\u00a0\n$\n10,487.8\u00a0\n$\n9,630.0\u00a0\n(1)\nSame-restaurant sales is a year-over-year comparison of each period\u2019s sales volumes for a 52-week year and is limited to restaurants that have been open, and operated by Darden, for at least 16 months.\n(2)\nAverage annual sales are calculated as sales divided by total restaurant operating weeks multiplied by 52 weeks; excludes franchise locations.\nOlive Garden\u2019s sales increase for fiscal 2023 was primarily driven by a U.S. same-restaurant sales increase combined with revenue from new restaurants.  The increase in U.S. same-restaurant sales in fiscal 2023 resulted from an 8.4 percent increase in average check, partially offset by a 1.6 percent decrease in same-restaurant guest counts. \nLongHorn Steakhouse\u2019s sales increase for fiscal 2023 was driven by a same-restaurant sales increase combined with revenue from new restaurants.  The increase in same-restaurant sales in fiscal 2023 resulted from a 1.2 percent increase in same-restaurant guest counts combined with a 6.1 percent increase in average check. \nFine Dining\u2019s sales increase for fiscal 2023 was driven by a same-restaurant sales increase combined with revenue from new restaurants.  The increase in same-restaurant sales in fiscal 2023 resulted from a 0.5 percent increase in same-restaurant guest counts combined with a 5.1 percent increase in average check.  \nOther Business\u2019s sales increase for fiscal 2023 was driven by a same-restaurant sales increase combined with revenue from new restaurants. The increase in same-restaurant sales in fiscal 2023 resulted from a 0.6 percent increase in same-restaurant guest counts combined with a 6.4 percent increase in average check.  \nCOSTS AND EXPENSES \nThe following table sets forth selected operating data as a percent of sales from continuing operations for the periods indicated.  This information is derived from the consolidated statements of earnings for the fiscal years ended May\u00a028, 2023 and\u00a0May\u00a029, 2022.\n29\nFiscal Year Ended\nMay 28, 2023\nMay 29, 2022\nSales\n100.0\u00a0\n%\n100.0\u00a0\n%\nCosts and expenses:\nFood and beverage\n32.0\u00a0\n30.6\u00a0\nRestaurant labor\n31.9\u00a0\n32.3\u00a0\nRestaurant expenses\n16.2\u00a0\n16.4\u00a0\nMarketing expenses\n1.1\u00a0\n1.0\u00a0\nGeneral and administrative expenses\n3.7\u00a0\n3.9\u00a0\nDepreciation and amortization\n3.7\u00a0\n3.8\u00a0\nImpairments and disposal of assets, net\n(0.1)\n\u2014\u00a0\nTotal operating costs and expenses\n88.5\u00a0\n%\n87.9\u00a0\n%\nOperating income\n11.5\u00a0\n%\n12.1\u00a0\n%\nInterest, net\n0.8\u00a0\n0.7\u00a0\nEarnings before income taxes\n10.7\u00a0\n%\n11.4\u00a0\n%\nIncome tax expense (benefit)\n1.3\u00a0\n1.4\u00a0\nEarnings from continuing operations\n9.4\u00a0\n%\n9.9\u00a0\n%\nTotal operating costs and expenses from continuing operations were $9.29 billion in fiscal 2023 and $8.47 billion in fiscal 2022.   \nFiscal 2023 Compared to Fiscal 2022: \n\u2022\nFood and beverage costs increased as a percent of sales primarily due to a 3.0% impact from inflation and a 0.8% impact from menu mix, partially offset by a 2.3% impact from pricing and other changes.\n\u2022\nRestaurant labor costs decreased as a percent of sales primarily due to a 1.5% impact from sales leverage and a 1.2% impact from increased productivity, partially offset by a 2.3% impact from inflation.\n\u2022\nRestaurant expenses decreased as a percent of sales primarily due to a 1.0% impact from pricing leverage, partially offset by a 0.3% impact from utility cost inflation, 0.2% impact from repairs and maintenance inflation, and 0.3% of inflation on other restaurant expenses.\n\u2022\nMarketing expenses increased as a percent of sales primarily due to increased marketing and media.\n\u2022\nGeneral and administrative expenses decreased as a percent of sales primarily due to a 0.3% impact from sales leverage.\n\u2022\nDepreciation and amortization expenses decreased as a percent of sales primarily due to sales leverage.\n\u2022\nImpairments and disposal of assets, net decreased as a percent of sales primarily due to gains recognized on the sale of five properties.\nINCOME TAXES \n The effective income tax rates for fiscal 2023 and 2022 for continuing operations were 12.2 percent and 12.7 percent, respectively.  During fiscal 2023, we had income tax expense of $137.0 million on earnings before income tax of $1.12 billion compared to income tax expense of $138.8 million on earnings before income taxes of $1.09 billion in fiscal 2022.  This change was primarily driven by the impact of federal tax credits.\nThe Inflation Reduction Act (IRA) was enacted on August 16, 2022. The IRA includes provisions imposing a 1 percent excise tax on share repurchases that occur after December 31, 2022 and introduces a 15 percent corporate alternative minimum tax (CAMT) on adjusted financial statement income.  The IRA excise tax and the CAMT are immaterial to our financial statements.\nNET EARNINGS AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS \nNet earnings from continuing operations for fiscal 2023 were $983.5 million ($8.00 per diluted share) compared with net earnings from continuing operations for fiscal 2022 of $954.7 million ($7.40 per diluted share). \n30\nNet earnings from continuing operations for fiscal 2023 increased 3.0 percent and diluted net earnings per share from continuing operations increased 8.1 percent compared with fiscal 2022.\nLOSS FROM DISCONTINUED OPERATIONS \nOn an after-tax basis, results from discontinued operations for fiscal 2023 were a net loss of $1.6 million ($0.01 per diluted share) compared with a net loss for fiscal 2022 of $1.9 million ($0.01 per diluted share).\nSEGMENT RESULTS\nWe manage our restaurant brands, Olive Garden, LongHorn Steakhouse, Cheddar\u2019s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze, Eddie V\u2019s and The Capital Burger in the U.S. and Canada as operating segments. We aggregate our operating segments into reportable segments based on a combination of the size, economic characteristics and sub-segment of full-service dining within which each brand operates. Our four reportable segments are: (1) Olive Garden, (2) LongHorn Steakhouse, (3) Fine Dining and (4) Other Business.  See Note 5 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report) for further details.\nOur management uses segment profit as the measure for assessing performance of our segments. The following table presents segment profit margin for the periods indicated:\nFiscal Year Ended\nChange\nSegment\nMay 28, 2023\nMay 29, 2022\n2023 vs 2022\nOlive Garden\n21.0%\n22.1%\n(110)\nBP\nLongHorn Steakhouse\n16.5%\n17.6%\n(110)\nBP\nFine Dining\n19.1%\n21.3%\n(220)\nBP\nOther Business\n13.9%\n15.2%\n(130)\nBP\nThe decrease in the Olive Garden segment profit margin for fiscal 2023 was driven primarily by higher food and beverage and marketing costs, offset by lower restaurant expenses, restaurant labor, and positive same-restaurant sales.  The decrease in the LongHorn Steakhouse segment profit margin for fiscal 2023 was driven primarily by higher food and beverage costs, partially offset by lower restaurant labor and positive same-restaurant sales. The decrease in the Fine Dining segment profit margin for fiscal 2023 was driven primarily by higher food and beverage costs, restaurant labor, and restaurant expenses, partially offset by positive same-restaurant sales.  The decrease in the Other Business segment profit margin for fiscal 2023 was driven primarily by higher food and beverage costs and restaurant labor, partially offset by positive same-restaurant sales.\nRESULTS OF OPERATIONS FOR FISCAL 2022 COMPARED TO FISCAL 2021\nFor a comparison of our results of operations for the fiscal years ended May\u00a029, 2022 and May\u00a030, 2021, see \u201cPart II, Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our annual report on Form 10-K for the fiscal year ended May\u00a029, 2022, filed with the SEC on July 22, 2022.\nSEASONALITY \nOur sales volumes have historically fluctuated seasonally. Typically, our average sales per restaurant are highest in the winter and spring, followed by the summer, and lowest in the fall.  Holidays, changes in the economy, severe weather and similar conditions may impact sales volumes seasonally in some operating regions. Because of the historical seasonality of our business and these other factors, results for any fiscal quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.\nIMPACT OF INFLATION \nWe attempt to minimize the annual effects of inflation through appropriate planning, operating practices and menu price increases. We are currently operating in a period of higher than usual inflation, led by food and beverage cost and labor inflation.  Food and beverage inflation is principally due to increased costs incurred by our vendors related to higher labor, transportation, packaging, and raw materials costs.  Some of the impacts of the inflation have been offset by menu price increases and other adjustments made during the year.  Whether we are able and/or choose to continue to offset the effects of inflation will determine to what extent, if any, inflation affects our restaurant profitability in future periods.\n31\nCRITICAL ACCOUNTING ESTIMATES\nWe prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. \nOur significant accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report).  Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. We consider the following estimates to be most critical in understanding the judgments that are involved in preparing our consolidated financial statements. \nLeases \nWe evaluate our leases at their inception to estimate their expected term, which commences on the date when we have the right to control the use of the leased property and includes the non-cancelable base term plus all option periods we are reasonably certain to exercise. Our judgment in determining the appropriate expected term and discount rate for each lease affects our evaluation of: \n\u2022\nThe classification and accounting for leases as operating versus finance; \n\u2022\nThe rent holidays and escalation in payments that are included in the calculation of the lease liability and related right-of-use asset; and\n\u2022\nThe term over which leasehold improvements for each restaurant facility are amortized. \nThese judgments may produce materially different amounts of lease liabilities and right-of-use assets recognized on our consolidated balance sheets, as well as depreciation, amortization, interest and rent expense recognized in our consolidated statements of earnings if different discount rates and expected lease terms were used. \nValuation of Long-Lived Assets \nLand, buildings and equipment, operating lease right-of-use assets and certain other assets, including definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; changes in expected useful life; unanticipated competition; slower growth rates, ongoing maintenance and improvements of the assets, or changes in the usage or operating performance.  Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements. Based on a review of operating results for each of our restaurants, given the current operating environment, the amount of net book value associated with lower performing restaurants that would be deemed at risk for impairment is not material to our consolidated financial statements.\nValuation and Recoverability of Goodwill and Trademarks \n We have nine reporting units, six of which have goodwill and seven of which have trademarks.  Goodwill and trademarks are not subject to amortization and goodwill has been assigned to reporting units for purposes of impairment testing. The reporting units are our restaurant brands. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements.  We review our goodwill and trademarks for impairment annually, as of the first day of our fourth fiscal quarter, or more frequently if indicators of impairment exist.\nWe estimate the fair value of each reporting unit using the best information available, including market information (also referred to as the market approach) and discounted cash flow projections (also referred to as the income approach). A market approach estimates fair value by applying sales or cash flow multiples to the reporting unit\u2019s operating performance.  The multiples are derived from observable market data of comparable publicly traded companies with similar operating and investment characteristics of the reporting units. The income approach uses a reporting unit\u2019s projection of estimated operating cash flows which are based on a combination of historical and current trends, organic growth expectations, and residual growth rate assumptions. These cash flows are discounted using a weighted-average cost of capital (WACC) that reflects current market conditions. We recognize a goodwill impairment loss when the fair value of the reporting unit is less than its carrying value.\nWe estimate the fair value of trademarks using the relief-from-royalty method, which requires assumptions related to projected sales from the reporting unit\u2019s projection of estimated operating cash flows; assumed royalty rates that could be payable \n32\nif we did not own the trademarks; and a discount rate based on an adjusted estimated WACC for each business unit. We recognize an impairment loss when the estimated fair value of the trademark is less than its carrying value.\nWe performed our annual impairment test of our goodwill and trademarks as of February 27, 2023 which was the first day of our fiscal 2023 fourth quarter. As of February 27, 2023, no impairment of goodwill or trademarks was indicated based on our testing. \nIf our assessment resulted in an impairment of our assets, including goodwill or trademarks, our financial position and results of operations would be adversely affected and our leverage ratio for purposes of our revolving credit agreement (Revolving Credit Agreement) would increase. A leverage ratio exceeding the maximum permitted under our Revolving Credit Agreement would be a default under our Revolving Credit Agreement.  At May 28, 2023, additional write-downs of goodwill, other indefinite-lived intangible assets, or any other assets in excess of approximately $1.01 billion would have been required to cause our leverage ratio to exceed the permitted maximum. As our leverage ratio is determined on a quarterly basis, and due to the seasonal nature of our business, a lesser amount of impairment in future quarters could cause our leverage ratio to exceed the permitted maximum. \nUnearned Revenues \nUnearned revenues primarily represent our liability for gift cards that have been sold but not yet redeemed. The estimated value of gift cards expected to remain unused is recognized over the expected period of redemption as the remaining gift card values are redeemed, generally over a period of 12 years. Utilizing this method, we estimate both the amount of breakage and the time period of redemption. If actual redemption patterns vary from our estimates, actual gift card breakage income may differ from the amounts recorded. We update our estimates of our redemption period and our breakage rate periodically and apply that rate to gift card redemptions on a prospective basis. Changing our breakage-rate estimates by 50 basis points would have resulted in an adjustment in our breakage income of approximately $3.3 million for\u00a0fiscal 2023.\nIncome Taxes \nWe estimate certain components of our provision for income taxes. These estimates include, among other items, depreciation and amortization expense allowable for tax purposes, allowable tax credits for items such as taxes paid on reported employee tip income, effective rates for state and local income taxes and the tax deductibility of certain other items. We adjust our annual effective income tax rate as additional information on outcomes or events becomes available. \nAssessment of uncertain tax positions requires judgments relating to the amounts, timing and likelihood of resolution. As described in Note 12 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report), the $23.0 million balance of unrecognized tax benefits at May\u00a028, 2023, includes $7.8 million related to tax positions for which it is reasonably possible that the total amounts could change during the next 12 months based on the outcome of examinations.  Of the $7.8 million, $5.7\u00a0million relates to items that would impact our effective income tax rate. \nLIQUIDITY AND CAPITAL RESOURCES \nTypically, cash flows generated from operating activities are our principal source of liquidity, which we use to finance capital expenditures for new restaurants and to remodel and maintain existing restaurants, to pay dividends to our shareholders and to repurchase shares of our common stock. Since substantially all of our sales are for cash and cash equivalents, and accounts payable are generally paid in 5 to 90 days, we are typically able to carry current liabilities in excess of current assets. \nWe currently manage our business and financial ratios to target an investment-grade bond rating, which has historically allowed flexible access to financing at reasonable costs. Our publicly issued long-term debt currently carries the following ratings:\n\u2022\nMoody\u2019s Investors Service \u201cBaa2\u201d; \n\u2022\nStandard\u00a0& Poor\u2019s \u201cBBB\u201d; and\n\u2022\nFitch \u201cBBB\u201d. \nOur commercial paper has ratings of:\n\u2022\nMoody\u2019s Investors Service \u201cP-2\u201d; \n\u2022\nStandard\u00a0& Poor\u2019s \u201cA-2\u201d; and \n\u2022\nFitch \u201cF-2\u201d.\nThese ratings are as of the date of the filing of this report and have been obtained with the understanding that Moody\u2019s Investors Service, Standard\u00a0& Poor\u2019s and Fitch will continue to monitor our credit and make future adjustments to these ratings to the extent warranted. The ratings are not a recommendation to buy, sell or hold our securities, may be changed, superseded or withdrawn at any time and should be evaluated independently of any other rating.\n33\nOn September 10, 2021, we entered into a $1\u00a0billion Revolving Credit Agreement (Revolving Credit Agreement) with Bank of America, N.A. (BOA), as administrative agent, and the lenders and other agents party thereto. The Revolving Credit Agreement is a senior unsecured credit commitment to the Company and contains customary representations and affirmative and negative covenants (including limitations on liens and subsidiary debt and a maximum consolidated lease adjusted total debt to total capitalization ratio of 0.75 to 1.00) and events of default usual for credit facilities of this type. The Revolving Credit Agreement replaced our prior $750.0\u00a0million revolving credit agreement, dated as of October 27, 2017 and amended as of March 25, 2020.\n \nAs of May\u00a028, 2023, we had no outstanding balances and we were in compliance with all covenants under the Revolving Credit Agreement.\nThe Revolving Credit Agreement matures on September 10, 2026, and the proceeds may be used for working capital and capital expenditures, the refinancing of certain indebtedness, certain acquisitions and general corporate purposes.\n \nDuring fiscal 2023, loans under the Revolving Credit Agreement bore interest at a rate of LIBOR plus a margin determined by reference to a ratings-based pricing grid (Applicable Margin), or the base rate (which is defined as the highest of the BOA prime rate, the Federal Funds rate plus 0.500 percent, and the Eurodollar Rate plus 1.00 percent) plus the Applicable Margin. Assuming a \u201cBBB\u201d equivalent credit rating level, the Applicable Margin under the Revolving Credit Agreement would have been 1.000 percent for LIBOR loans and 0.000 percent for base rate loans. \nEffective May 31, 2023, we entered into an amendment to the Revolving Credit Agreement (the \u201cAmendment\u201d.)  Pursuant to the terms of the Amendment, the Company, the administrative agent and the lenders have agreed to replace the LIBOR-based interest rate applicable to borrowings under the Credit Agreement with a Term SOFR-based interest rate in advance of the cessation of LIBOR, and make certain other conforming changes. All other material terms and conditions of the Credit Agreement were unchanged.  Effective May 31, 2023, loans under the Revolving Credit Agreement bear interest at a rate of (a) Term SOFR (which is defined, for the applicable interest period, as the Term SOFR Screen Rate two U.S. Government Securities Business Days prior to the commencement of such interest period with a term equivalent to such interest period) plus a Term SOFR adjustment of 0.10 percent plus the relevant margin determined by reference to a ratings-based pricing grid (Applicable Margin), or (b) the base rate (which is defined as the highest of the BOA prime rate, the Federal Funds rate plus 0.500 percent, and the Term SOFR plus 1.00 percent) plus the relevant Applicable Margin. Assuming a \u201cBBB\u201d equivalent credit rating level, the Applicable Margin under the Revolving Credit Agreement will be 1.00 percent for Term SOFR loans and 0.00 percent for base rate loans.\nAlso on May 31, 2023, the Company entered into a senior unsecured $600 million 3-year Term Loan Credit Agreement (Term Loan Agreement) with Bank of America, N.A., as administrative agent, the lenders and other agents party thereto, the material terms of which are consistent with the Credit Agreement, as amended.  The Term Loan Agreement provided for a single borrowing on any business day up to 90 days after May 31, 2023, and matures on the third anniversary of the funding date thereunder, June 14, 2023. \nOn June 14, 2023, we completed the acquisition of Ruth\u2019s.  We borrowed $600 million under the Term Loan Agreement to fund a portion of the approximately $715 million in consideration paid in connection with our acquisition of Ruth\u2019s.\nAs of May\u00a028, 2023, our outstanding long-term debt consisted principally of:\n\u2022\n$500.0 million of unsecured 3.850 percent senior notes due in May 2027;\n\u2022\n$96.3 million of unsecured 6.000 percent senior notes due in August 2035;\n\u2022\n$42.8 million of unsecured 6.800 percent senior notes due in October 2037; and\n\u2022\n$300.0 million of unsecured 4.550 percent senior notes due in February 2048.\nThe interest rate on our $42.8 million 6.800 percent senior notes due October 2037 is subject to adjustment from time to time if the debt rating assigned to such series of notes is downgraded below a certain rating level (or subsequently upgraded). The maximum adjustment is 2.000 percent above the initial interest rate and the interest rate cannot be reduced below the initial interest rate. As of May\u00a028, 2023, no such adjustments are made to this rate. \nThrough our shelf registration statement on file with the SEC, depending on conditions prevailing in the public capital markets, we may from time to time issue equity securities or unsecured debt securities in one or more series, which may consist of notes, debentures or other evidences of indebtedness in one or more offerings. \nFrom time to time, we or our affiliates, may repurchase our outstanding debt in privately negotiated transactions, open-market transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.\n34\nFrom time to time, we enter into interest rate derivative instruments to manage interest rate risk inherent in our operations. See Note 7 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report). \nA summary of our contractual obligations and commercial commitments at May\u00a028, 2023, is as follows: \n(in millions)\nPayments Due by Period\nContractual Obligations\nTotal\nLess Than \n1 Year\n1-3 \nYears\n3-5 \nYears\nMore\u00a0Than \n5 Years\nLong-term debt (1)\n$\n1,471.7\u00a0\n$\n41.6\u00a0\n$\n83.2\u00a0\n$\n563.9\u00a0\n$\n783.0\u00a0\nLeases (2)\n3,039.1\u00a0\n441.3\u00a0\n836.6\u00a0\n720.6\u00a0\n1,040.6\u00a0\nPurchase obligations (3)\n697.7\u00a0\n654.7\u00a0\n41.1\u00a0\n1.9\u00a0\n\u2014\u00a0\nBenefit obligations (4)\n383.7\u00a0\n32.5\u00a0\n68.3\u00a0\n73.2\u00a0\n209.7\u00a0\nUnrecognized income tax benefits (5)\n25.6\u00a0\n9.6\u00a0\n3.6\u00a0\n12.4\u00a0\n\u2014\u00a0\nTotal contractual obligations\n$\n5,617.8\u00a0\n$\n1,179.7\u00a0\n$\n1,032.8\u00a0\n$\n1,372.0\u00a0\n$\n2,033.3\u00a0\n(in millions)\nAmount of Commitment Expiration per Period\nOther Commercial Commitments\nTotal \nAmounts \nCommitted\nLess Than \n1 Year\n1-3 \nYears\n3-5 \nYears\nMore Than \n5 Years\nStandby letters of credit (6)\n$\n100.6\u00a0\n$\n100.6\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\nGuarantees (7)\n82.0\u00a0\n28.5\u00a0\n35.9\u00a0\n13.3\u00a0\n4.3\u00a0\nTotal commercial commitments\n$\n182.6\u00a0\n$\n129.1\u00a0\n$\n35.9\u00a0\n$\n13.3\u00a0\n$\n4.3\u00a0\n(1)\nIncludes interest payments associated with existing long-term debt. Excludes discount and issuance costs of $8.8 million. \n(2)\nIncludes non-cancelable future operating lease and finance lease commitments. \n(3)\nIncludes commitments for food and beverage items and supplies, capital projects, information technology and other miscellaneous items.\n(4)\nIncludes expected contributions associated with our supplemental defined benefit pension plan and payments associated with our postretirement benefit plan and our non-qualified deferred compensation plan through fiscal 2033.\n(5)\nIncludes interest on unrecognized income tax benefits of $2.7 million, $1.8 million of which relates to contingencies expected to be resolved within one year.\n(6)\nIncludes letters of credit for $85.3 million of workers\u2019 compensation and general liabilities accrued in our consolidated financial statements and letters of credit for $15.2 million of surety bonds related to other payments. \n(7)\nConsists solely of guarantees associated with leased properties that have been assigned to third parties and are primarily related to the disposition of Red Lobster in fiscal 2015.\n35\nOur adjusted debt to adjusted total capital ratio was 62 percent and 61 percent as of May\u00a028, 2023 and May\u00a029, 2022, respectively. Based on these ratios, we believe our financial condition is strong. We include the lease-debt equivalent and contractual lease guarantees in our adjusted debt to adjusted total capital ratio reported to shareholders, as we believe its inclusion better represents the optimal capital structure that we target from period to period and because it is consistent with the calculation of the covenant under our Revolving Credit Agreement. For fiscal 2023 and fiscal 2022, the lease-debt equivalent includes 6.00 times the total annual minimum rent for consolidated lease obligations of $424.3 million and $409.8 million, respectively. The composition of our capital structure is shown in the following table: \n(in millions, except ratios)\nMay 28, 2023\nMay 29, 2022\nCAPITAL STRUCTURE\nLong-term debt, excluding unamortized discount and issuance costs and fair value hedge\n939.1\u00a0\n939.1\u00a0\nTotal debt\n$\n939.1\u00a0\n$\n939.1\u00a0\nStockholders\u2019 equity\n2,201.5\u00a0\n2,198.2\u00a0\nTotal capital\n$\n3,140.6\u00a0\n$\n3,137.3\u00a0\nCALCULATION OF ADJUSTED CAPITAL\nTotal debt\n$\n939.1\u00a0\n$\n939.1\u00a0\nLease-debt equivalent\n2,545.8\u00a0\n2,459.0\u00a0\nGuarantees\n82.0\u00a0\n101.0\u00a0\nAdjusted debt\n$\n3,566.9\u00a0\n$\n3,499.1\u00a0\nStockholders\u2019 equity\n2,201.5\u00a0\n2,198.2\u00a0\nAdjusted total capital\n$\n5,768.4\u00a0\n$\n5,697.3\u00a0\nCAPITAL STRUCTURE RATIOS\nDebt to total capital ratio\n30\u00a0\n%\n30\u00a0\n%\nAdjusted debt to adjusted total capital ratio\n62\u00a0\n%\n61\u00a0\n%\nNet cash flows provided by operating activities from continuing operations were $1.55 billion and $1.26 billion in fiscal 2023 and 2022, respectively. Net cash flows provided by operating activities include net earnings from continuing operations of $983.5 million in fiscal 2023 and $954.7 million in fiscal 2022. Net cash flows provided by operating activities from continuing operations increased in fiscal 2023 primarily due to changes in working capital and higher net earnings from continuing operations.\nNet cash flows used in investing activities from continuing operations were $568.4 million and $389.0 million in fiscal 2023 and 2022, respectively.  Capital expenditures incurred principally for building new restaurants, remodeling existing restaurants, replacing equipment, and technology initiatives were $564.9 million in fiscal 2023, compared to $376.9 million in fiscal 2022.\nNet cash flows used in financing activities from continuing operations were $1.03 billion and $1.61 billion in fiscal 2023 and 2022, respectively. Net cash flows used in financing activities in fiscal 2023 included dividend payments of $589.8 million and share repurchases of $458.7 million, partially offset by proceeds from the exercise of employee stock options.  Net cash flows used in financing activities in fiscal 2022 included dividend payments of $563.0 million and share repurchases of $1.07 billion, partially offset by proceeds from the exercise of employee stock options.\nOur defined benefit and other postretirement benefit costs and liabilities are determined using various actuarial assumptions and methodologies prescribed under Financial Accounting Standards Board Accounting Standards Codification Topic 715, Compensation - Retirement Benefits and Topic 712, Compensation - Nonretirement Postemployment Benefits.  We expect to contribute approximately $0.4 million to our supplemental defined benefit pension plan and approximately $1.6 million to our postretirement benefit plan during fiscal 2024. \nWe are not aware of any trends or events that would materially affect our capital requirements or liquidity. We believe that our internal cash-generating capabilities, the potential issuance of equity or unsecured debt securities under our shelf registration statement and short-term commercial paper or drawings under our Revolving Credit Agreement should be sufficient to finance our capital expenditures, debt maturities and other operating activities through fiscal 2024. \n36\nOFF-BALANCE SHEET ARRANGEMENTS \nWe are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources. \nFINANCIAL CONDITION \nOur total current assets were $997.7 million at May\u00a028, 2023, compared with $1.18 billion at May\u00a029, 2022. The decrease was primarily due to decreases in prepaid income taxes and cash and cash equivalents.\nOur total current liabilities were $1.94 billion at May\u00a028, 2023 and $1.85 billion at May\u00a029, 2022. The increase was primarily due to increases in accounts payable and other current liabilities.\nAPPLICATION OF NEW ACCOUNTING STANDARDS \nSee Note 1 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report) for a discussion of recently issued accounting standards.",
+  "item7a": ">Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nWe are exposed to a variety of market risks, including fluctuations in interest rates, foreign currency exchange rates, compensation and commodity prices. To manage this exposure, we periodically enter into interest rate, foreign currency exchange instruments, equity forward and commodity derivative instruments for other than trading purposes.  See Notes 1 and 7 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report). \nWe use the variance/covariance method to measure value at risk, over time horizons ranging from one week to one year, at the 95 percent confidence level. At May\u00a028, 2023, our potential losses in future net earnings resulting from changes in equity forwards, commodity instruments and floating rate debt interest rate exposures were approximately $75.0 million over a period of one year. The value at risk from an increase in the fair value of all of our long-term fixed-rate debt, over a period of one year, was approximately $79.7 million. The fair value of our long-term fixed-rate debt outstanding as of May\u00a028, 2023, averaged $857.3 million, with a high of $893.7 million and a low of $798.0 million during fiscal 2023. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows by targeting an appropriate mix of variable and fixed-rate debt. \n37",
+  "cik": "940944",
+  "cusip6": "237194",
+  "cusip": ["237194105", "237194955", "237194905"],
+  "names": ["DARDEN RESTAURANTS INC", "Darden Restaurants"],
+  "source": "https://www.sec.gov/Archives/edgar/data/940944/000094094423000037/0000940944-23-000037-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\n \nBusiness\n\n\n\u00a0\n\n\nGraham Corporation (\"we,\" \"us,\" \"our\" or the \"Company\") is a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy and process industries.  For the defense industry, our equipment is used in nuclear and non-nuclear propulsion, power, fluid transfer, and thermal management systems.  For the space industry our equipment is used in propulsion, power and energy management systems and for life support systems.  We supply equipment for vacuum, heat transfer and fluid transfer applications used in energy and new energy markets including oil refining, cogeneration, and multiple alternative and clean power applications including hydrogen.  For the chemical and petrochemical industries, our heat transfer equipment is used in fertilizer, ethylene, methanol and downstream chemical facilities.\n\n\n\u00a0\n\n\nOur corporate headquarters is located with our production facilities in Batavia, New York, where surface condensers and ejectors are designed, engineered, and manufactured.  Our wholly-owned subsidiary, Barber-Nichols, LLC (\"BN\"), based in Arvada, Colorado, designs, develops and manufactures specialty turbomachinery products for the aerospace, cryogenic, defense and energy markets (see \"Acquisition\" below).  We also have wholly-owned foreign subsidiaries, Graham Vacuum and Heat Transfer Technology Co., Ltd. (\"GVHTT\"), located in Suzhou, China and Graham India Private Limited (\"GIPL\"), located in Ahmedabad, India.  GVHTT provides sales and engineering support for us in the People's Republic of China and management oversight throughout Southeast Asia. GIPL serves as a sales and market development office focusing on the refining, petrochemical and fertilizer markets in India and the Middle East.\n\n\n\u00a0\n\n\nWe were incorporated in Delaware in 1983 and are the successor to Graham Manufacturing Co., Inc., which was incorporated in New York in 1936.  Our stock is traded on the NYSE under the ticker symbol \"GHM\".\n\n\n\u00a0\n\n\nOur fiscal year ends on March 31 of each year.  We refer to our fiscal year, which ended March 31, 2023, as fiscal 2023.  Likewise, we refer to our fiscal years that ended March 31, 2022 and March 31, 2021 as fiscal 2022 and fiscal 2021, respectively.\n \n\n\n\u00a0\n\n\nAcquisition\n \n- On June 1, 2021, we acquired BN, a privately-owned designer and manufacturer of turbomachinery products for the aerospace, cryogenic, defense and energy markets located in Arvada, Colorado.  We believe that this acquisition furthered our growth strategy through market and product diversification, broadened our offerings to the defense and energy markets, and strengthened our presence in the defense sector.  The purchase price of $72,014 was comprised of shares of common stock, representing a value of $8,964, cash consideration of $61,150 and a contingent earn-out.  A total of $93,121 of assets were acquired including goodwill of $23,523 and other intangibles of $32,500.\n\n\nOur Products, Customers and Markets\n\n\n\u00a0\n\n\n\tWe manufacture critical, custom-engineered products with high quality and reliability including:\n\n\n\u2022\nDefense \n\n\n\uf0be\nPower plant systems\n - ejectors, surface condensers\n\n\n\uf0be\nTorpedo ejection, propulsion & power systems\n - turbines, alternators, regulators, pumps, blowers\n\n\n\uf0be\nThermal management systems\n - pumps, blowers, drive electronics\n\n\n\u2022\nSpace\n\n\n\uf0be\nRocket propulsion systems\n - turbopumps, fuel pumps\n\n\n\uf0be\nCooling systems\n - pumps, compressors, fans, blowers\n\n\n\uf0be\nLife support systems\n - fans, pumps, blowers\n\n\n\u2022\nEnergy\n\n\n\uf0be\nHeat transfer & vacuum systems\n - ejectors, process condensers, surface condensers, liquid ring pumps, heat exchangers, nozzles\n\n\n\uf0be\nPower generation systems\n - turbines, generators, compressors, pumps\n\n\n\uf0be\nThermal management systems\n - pumps, blowers, electronics\n\n\n\u2022\nChemical and Petrochemical Processing\n\n\n\uf0be\nHeat transfer & vacuum systems\n - ejectors, process condensers, surface condensers, liquid ring pumps, heat exchangers, nozzles\n\n\n\u00a0\n\n\nOur products are used in a wide range of applications, including:\n\n\n3\n\n\n\n\n\u00a0\n\n\n\u2022\nDefense \n\n\n\uf0be\nAircraft carrier program (CVN)\n\n\n\uf0be\nVirginia fast-attack submarine program (SSN)\n\n\n\uf0be\nColumbia and Ohio ballistic submarine program (SSBN)\n\n\n\uf0be\nU.S. Navy torpedoes\n\n\n\uf0be\nRefueling and overhaul replacement equipment\n\n\n\u2022\nSpace\n\n\n\uf0be\nNASA xEMU next-generation space suit and commercial derivatives\n\n\n\uf0be\nRelativity Space's Aeon program\n\n\n\uf0be\nVarious commercial space propulsion, fluid and heat transfer applications\n\n\n\u2022\nEnergy\n\n\n\uf0be\nconventional oil refining\n\n\n\uf0be\noil sands extraction and upgrading\n\n\n\uf0be\nethanol plants\n\n\n\uf0be\ncogeneration power plants\n\n\n\uf0be\ngeothermal and biomass power plants\n\n\n\uf0be\nconcentrated solar power\n\n\n\uf0be\nmolten salt reactor development\n\n\n\uf0be\nsmall modular nuclear reactor development\n\n\n\uf0be\nhydrogen fuel cell power\n\n\n\uf0be\nzero-emission aviation\n\n\n\u2022\nChemical and Petrochemical Processing\n\n\n\uf0be\nethylene, methanol and nitrogen producing plants \n\n\n\uf0be\nurea and fertilizer plants\n\n\n\uf0be\nplastics, resins and fibers plants\n\n\n\uf0be\ndownstream petrochemical plants\n\n\n\uf0be\ncoal-to-chemicals plants\n\n\n\uf0be\ngas-to-liquids plants\n\n\n \n\n\n\u2022\nCryogenic Fluid Processes\n\n\n\uf0be\nsuperconducting cable and magnet cooling\n\n\n\uf0be\nspace simulation chambers\n\n\n\uf0be\nhydrogen production, transportation, distribution, fueling\n\n\n\u00a0\n\n\n\u00a0\n\n\n\tOur principal customers include tier one and tier two suppliers to the defense and aerospace industry, refineries, petrochemical plants, large engineering companies that build installations for companies in the energy and process industries (or Engineering Procurement Contractors (\u201cEPCs\u201d), and original equipment manufacturers (\"OEM\").  A representative list of our customers include: Aerojet Rocketdyne, Air Liquide, Applied Research Laboratory at Pennsylvania State University, Aramco, Bechtel Plant Machinery Inc., Blue Origin, Boeing, CERN, China State-owned Refiners, Cummins, DuPont, Dow Chemical, General Atomics, General Dynamics, ExxonMobil, Fluor Corporation, Jacobs Engineering Group Inc., Kairos Power, Koch Fertilizer ENID LLC, Lockheed Martin, MHI Compressor International Corporation, NASA, Newport News Shipbuilding, Northrop Grumman, Oak Ridge National Laboratory, Raytheon Technologies, SAIC, Sierra Space, U.S. Navy, and United Launch Alliance.\n\n\n\u00a0\n\n\n\tOur products are sold by a team of sales engineers whom we employ directly.  Two customers each accounted for more than 10% of our revenue in the fiscal year ended March 31, 2023 (\"Fiscal 2023\").\n \nAs a result of our diversification efforts to more extensively support the U.S. Navy and the acquisition of BN, we have increased our concentration in domestic and defense sales.  Domestic sales accounted for approximately 81% of total sales in fiscal 2023, while sales to the defense industry were 42%.\n \n\n\n\u00a0\n\n\nOur backlog at March 31, 2023 was $301,734 compared with $256,536 at March 31, 2022.  For more information on this performance indicator see \"Orders and Backlog\" below.\n \n\n\nOur Strengths\n\n\n\tOur core strengths include:\n\n\n\u2022\nWe have a value-enhancing engineering sales and product development platform. \n We believe our customer-facing platform of technical sales, project estimating and application engineering are competitive advantages.  We have tools and \n\n\n4\n\n\n\n\n\u00a0\n\n\ncapabilities that we believe allow us to move quickly and comprehensively to meet the unique needs of our customers.  We believe that our early and deep involvement in our customers' projects adds significant value and is an important competitive differentiator in the long sales cycle industries we serve.  We believe customers need our engineering and fabrication expertise early in a project life cycle to understand how best to utilize our equipment in the optimization of their systems.\n \n\n\n\u2022\nWe are known for our strong capabilities to handle complex, custom orders\n.  The orders we receive are extremely complex.  In our markets, we believe that order administration, risk management, cost containment, quality control and engineering documentation are as important as the equipment itself.  We have developed order management capabilities to enable us to deliver high quality, engineered-to-order, as well as build-to-spec, process-critical equipment in a timely manner.  For our customers\u2019 complex, custom orders we typically manage very rigorous interaction between our project management teams and the end user or its engineering firm, as product design and quality requirements are finalized. Customers' supplier selection process begins by assessing these order management capabilities.\n\n\n\u2022\nWe maintain a responsive, flexible production environment.\n  Our operations teams are experienced at handling low volume, high mix orders of highly customized solutions.  While certain equipment in a product group may look similar, there are often subtle differences which are required to deliver the desired specification.  Also, during production it is not uncommon for customer-driven engineering changes to occur that alter the configuration of what had been initially released into production.  The markets we serve demand this flexible operating model.\n\n\n\u2022\nWe have the capability to manage outsourced production.\n  Effectively accessing the global fabrication supply chain expands our market reach, increases execution capacity and can improve competitiveness.  We use this capability for three primary reasons: 1. delivering a lower cost manufacturing option; 2. expanding capacity to execute an order to meet customer timing requirements; and 3. addressing localized content requirements.  We have proven capability to deliver our specialized product designs with outsourced fabrication that meets our high quality standards.\n\n\n\u2022\nWe provide robust technical support.\n  Our engineering and performance improvement personnel work with our customers to optimize the performance of our equipment, provide operator training and troubleshoot performance issues.  Technical expertise is important to our customers throughout the full product lifecycle and we believe their focus is on leveraging our equipment to maximize their systems' productivity.\n\n\n\u2022\nWe have a highly trained workforce\n.\n \nWe maintain a long-tenured, highly skilled and flexible workforce.  We support the development of our employees through programs such as our internal weld school, our partnerships with community colleges and other external training programs.  We continually strive to enhance our corporate culture, develop our employees and improve employee engagement. \n\n\n\u2022\nWe have the capability to manufacture to tight tolerances.  \nOur manufacturing abilities include the capability to fabricate to tight tolerances.  Additionally, we possess highly specialized manufacturing and electrochemical milling expertise on turbomachinery equipment.  This, combined with our strong quality control with objective quality evidence, provides us a unique competitive advantage.\n\n\nOur Strategy\n\n\nOur strategy is to build a diversified business that provides mission critical, high compliance products requiring exceptional engineering know-how and a highly-skilled and engaged workforce.  We expect to accomplish this by pursuing niche applications in markets with enduring tailwinds that reward differentiated engineered product and full lifecycle scope of work with higher margins. Over the last few years, we have transitioned from a highly cyclical energy business to a diversified company serving multiple markets including the defense, space and alternative energy industries.  Our long-term goal is to drive 8% to 10% average annualized revenue growth and low to mid-teen adjusted EBITDA margins by fiscal year 2027.  We expect to accomplish our goals through the development of our full lifecycle product model serving multiple markets while leveraging business unit synergies to optimize profitability and stability.  Additionally, we believe we must develop a highly engaged team that will drive continual improvement for the long term. Executed effectively, we expect our strategy to create more enduring, recurring opportunities and profitable growth.\n\n\n\u00a0\n\n\nDuring fiscal 2023, we stabilized our vacuum and heat transfer business and invested in growth of our turbomachinery business.  As we advance into fiscal 2024, we will continue to evolve our strategy to reduce our cyclicality and further diversify our opportunities as we develop technologies that help solve our customers\u2019 problems.  We are focusing our efforts to:\n \n\n\n\u2022\nPursue clearly defined markets where product and technology differentiation matters;\n\n\n5\n\n\n\n\n\u00a0\n\n\n\u2022\nDrive operational excellence while investing in process optimization including digital and automated tools;\n\n\n\u2022\nBuild an elite team of people passionate about their work; and\n\n\n\u2022\nEngage all stakeholders to capture value.\n\n\n\u00a0\n\n\nWe have not reconciled non-GAAP forward-looking adjusted EBITDA margin to its most directly comparable GAAP measure, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K.  Such reconciliation would require unreasonable efforts to estimate and quantify various necessary GAAP components largely because forecasting or predicting our future operating results is subject to many factors out of our control or not readily predictable.\n\n\n\u00a0\n\n\nCompetition\n\n\nOur business is highly competitive.  The principal bases on which we compete include technology, price, performance, reputation, delivery, and quality.  Our competitors listed in alphabetical order by market include:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNorth America\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nMarket\n\n\n\u00a0\n\n\nPrincipal Competitors\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNavy Nuclear Propulsion Program / Defense\n\n\n\u00a0\n\n\nDC Fabricators; Joseph Oat; PCC; Triumph Aerospace; Xylem\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRefining vacuum distillation\n\n\n\u00a0\n\n\nCroll Reynolds Company, Inc.; Gardner Denver, Inc.; GEA Wiegand GmbH\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nChemicals/petrochemicals\n\n\n\u00a0\n\n\nCroll Reynolds Company, Inc.; Gardner Denver, Inc.; Schutte Koerting\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTurbomachinery OEM \u2013 defense and aerospace/space\n\n\n\u00a0\n\n\nAmetek, Inc., Concepts NREC; Curtiss Wright; Florida Turbine Technologies; Honeywell; Kratos Defense & Security Solns\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTurbomachinery OEM \u2013 refining, petrochemical\n\n\n\u00a0\n\n\nDonghwa Entec Co., Ltd..; KEMCO; Oeltechnik GmbH\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTurbomachinery OEM \u2013 power and power producer\n\u00a0\n\n\n\u00a0\n\n\nHoltec; KEMCO; Maarky Thermal Systems; Thermal Engineering International (USA), Inc.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\ninternational\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nMarket\n\n\n\u00a0\n\n\nPrincipal Competitors\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRefining vacuum distillation\n\n\n\u00a0\n\n\nEdwards, Ltd.; Gardner Denver, Inc.; GEA Wiegand GmbH; Korting Hannover AG\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nChemicals/petrochemicals\n\n\n\u00a0\n\n\nCroll Reynolds Company, Inc.; Edwards, Ltd.; Gardner Denver, Inc.; GEA Wiegand GmbH; Korting Hannover AG; \nSchutte Koerting\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTurbomachinery OEM \u2013 refining, petrochemical\n\n\n\u00a0\n\n\nChem Process Systems; Donghwa Entec Co., Ltd.; Hangzhou Turbine Equipment Co., Ltd.; KEMCO; Mazda (India); \nOeltechnik GmbH\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTurbomachinery OEM \u2013 power and power producer\n\n\n\u00a0\n\n\nChem Process Systems; Holtec; KEMCO; Mazda (India); SPX Heat Transfer; Thermal Engineering International\n\n\n\n\n\n\n\u00a0\n\n\nIntellectual Property\t\n\n\nOur success depends in part on our ability to protect our proprietary technologies.  We rely on a combination of patent, copyright, trademark, trade secret laws and contractual confidentiality provisions to establish and protect our proprietary rights.  We also depend heavily on the brand recognition of the Graham and Barber-Nichols names in the marketplace.\n\n\n\u00a0\n\n\n6\n\n\n\n\n\u00a0\n\n\nAvailability of Raw Materials\n\n\nAs discussed more fully in Item 1A \u201cRisk Factors\u201d of this report, inflation has accelerated in the U.S. and globally due in part to global supply chain issues, a rise in energy prices, labor shortages, and strong consumer demand as economies continue to reopen from restrictions related to the COVID-19 pandemic.  Additionally, international conflicts and other geopolitical events, including the ongoing war between Russia and the Ukraine, have further contributed to increased supply chain costs due to shortages in raw materials, increased costs for transportation and energy, disruptions in supply chains, and heightened inflation.  The inflationary environment has increased the cost of our raw materials and labor, which impacted our financial results, especially given that a large percentage of our contracts are fixed-price in nature.  To help mitigate this risk, we place orders for raw materials when the purchase orders are received from the customer to lock-in raw material pricing.\n \n\n\nWorking Capital Practices\n\n\nOur business does not require us to carry significant amounts of inventory or materials beyond what is needed for work in process.  We negotiate progress payments from our customers on our large projects to finance costs incurred.  We do not provide rights to return goods, or payment terms to customers that we consider to be extended in the context of the industries we serve.  We do provide for warranty claims, which historically have not had a material impact on our results of operations.\n\n\nGovernment and Environmental Regulation\n\n\nWe are subject to a variety of laws, rules and regulations in numerous jurisdictions within the United States and in each of the countries where we conduct business.  We are committed to conducting our business in accordance with all applicable laws, rules and regulations.  These laws, rules and regulations cover several diverse areas including environmental matters, employee health and safety, data and privacy protection, foreign practices, and anti-trust provisions.  Compliance with governmental regulations did not have a material impact on our financial results during fiscal 2023, and is not expected to have, a material impact on our capital expenditures, results of operations or competitive position.\n\n\nWe believe that a focus on environmental stewardship is fundamental and integral to the work we do every day to serve our customers, create value for our stockholders, and benefit our global community.  We have taken steps at both our business units in Batavia, New York and Arvada, Colorado to improve energy efficiencies and air quality and manage water consumption and waste. These efforts are focused on reducing our impact on the environment.  We have enhanced our Environmental, Social and Governance (\"ESG\") strategy to align with the broader transformation of our business.  Our executive management team recognizes the importance of embedding environmental and social priorities within our business operations and approved an enhanced and modernized ESG strategy intended to drive additional progress on initiatives that promote sustainability and increase transparency.  We have also established an ESG working group, which is responsible for leading our ESG strategy and monitoring our corporate social responsibility and environmental sustainability initiatives.  We do not expect environmental costs or contingencies to be material or to have a material adverse effect on our financial performance.  Due to risks in these areas, we cannot provide assurance that we will not incur material costs or liabilities in the future, which could adversely affect us.\n \n\n\nSeasonality\n\n\nNo material part of our business is seasonal in nature.  However, our energy business is highly cyclical as it depends on the willingness of our customers to invest in major capital projects.  To help mitigate this risk, we have taken steps to diversify our business into the defense industry including the acquisition of BN.  For fiscal 2023, sales to the defense industry accounted for approximately 42% of our total sales compared with approximately 25% prior to the acquisition.  Conversely, sales to the refining industry, which are more cyclical in nature, represented approximately 17% of revenue in fiscal 2023 compared with approximately 40% prior to the acquisition.\n\n\nResearch and Development Activities\n\n\nDuring fiscal 2023, fiscal 2022 and fiscal 2021, we spent $4,144, $3,845 and $3,367, respectively, on research and development (\"R&D\") activities.  The majority of our R&D is funded by our customers and is specific to help solve our customers\u2019 problems in order to improve efficiencies, address challenging environments, or redesign for form and function. Additionally, we may be engineering new products and services for our customers and investing to improve existing products and services.\n\n\n\u00a0\n\n\nHuman Capital Resources\n\n\nAs of March 31, 2023, we had 538 employees.  We believe that our relationship with our employees is good.\n\n\nAt Graham, we believe our most important asset is our people.  We are committed to fostering and embracing a Graham community in which employees share a mutual understanding and respect for each other.  Our pledge to diversity and equality encompasses our commitment to create a work environment which embraces inclusion regardless of race, color, religion, gender, sexual\n \n\n\n7\n\n\n\n\n\u00a0\n\n\norientation, gender identity, national origin, age, genetic information, marital status, pregnancy, childbirth, disability, veteran status, medical conditions, or any protected status.\n \n\n\n\u2022\nDiversity: Our Management recognizes that a diverse workforce and a culture of equity and inclusion helps us compete more effectively for talent, sustain success as a business, and build an engaged employee base.  We encourage every one of our team members to form deeper relationships with those around them based on mutual respect, dignity, and understanding. \n\n\n\u2022\nEngagement: to encourage productive conversations within our organization, we have implemented employee surveys and an active engagement committee. \n\n\n\u2022\nDevelopment: We believe that employee development is vital to our continued success, and we support the development of our employees through programs such as our internal weld school training, our partnerships for external weld training, our tuition assistance program, our apprenticeship program, our external partnership with community colleges, and our management training and six sigma training classes.  \n\n\n\u2022\nHealth and Safety: We are dedicated to ensuring the health and safety of our team members by supporting the whole person.  Our dedicated global health and safety function is executed through our business unit safety committees to ensure that employees are trained and understand our best practices to create a safe and healthy workplace for all.  \n\n\n\u00a0\n\n\nCorporate Governance and Available Information\n \n\n\nWe maintain a website located at www.grahamcorp.com.  On our website, we provide links that contain the reports, proxy statements and other information we file electronically with the SEC.  Printed copies of all documents we file with the SEC are available free of charge for any stockholder who makes a request.  Such requests should be made to our Corporate Secretary at our corporate headquarters.  The other information found on our website is not part of this or any other report we file with, or furnish to, the SEC.\n \n\n\nIte\nm 1A.       Risk Factors\n\n\n \n\n\nOur business and operations are subject to numerous risks, many of which are described below and elsewhere in this Form 10-K.  If any of the events described below or elsewhere in this Form 10-K occur, our business and results of operations could be harmed.  Additional risks and uncertainties that are not presently known to us, or which we currently deem to be immaterial, could also harm our business and results of operations.\n\n\n \n\n\nRisks Related to the Impacts of Macroeconomic Events\n\n\nDisruptions or delays in our supply chains could adversely affect our results of operations and financial performance.\n\n\nThe raw materials that we source come from a wide variety of domestic and international suppliers.  Global sourcing of many of the products we sell is an important factor in our financial results.  Reliance on our suppliers for these products exposes us to volatility in the prices and availability of these materials.  Disruptions in our supply chain, especially for an extended period of time, could impact our ability to meet customer requirements and our financial performance could be materially and adversely impacted.\n\n\nMacroeconomic impacts, including rising inflation, a slowdown in the economy, or a recession or expectation of a recession, may result in increased costs of operations and negatively impact the credit and securities markets generally, which could have a material adverse effect on our results of operations and the market price of our common stock.\n\n\nCurrent and future conditions in the economy have an inherent degree of uncertainty and are impacted by political, market, health and social events or conditions.  As a result, it is difficult to estimate the level of growth or contraction for the economy as a whole and in the specific markets in which we participate.  Current economic uncertainty and market volatility, including volatility in the banking sector, is anticipated to continue as a result of higher inflation, increased interest rates, supply chain disruptions, fluctuating foreign currency exchange rates and other geopolitical events.  An inflationary environment can increase our cost of labor, as well as other operating costs, which may have a material and adverse impact on our financial results.  In addition, economic conditions could impact and reduce the number of customers who purchase our products or services as credit becomes more expensive or unavailable.  Although interest rates have increased and are expected to increase further, inflation may continue.  Further, increased interest rates could have a negative effect on the securities markets generally which may, in turn, have a material and adverse effect on the market price of our common stock.\n\n\nActual or perceived events involving banking volatility or limited liquidity, defaults or other adverse developments that affect national or international financial systems or financial services industry companies, may result in market-wide liquidity problems which could have a material and adverse impact on our available cash and results of operations.\n \n\n\nAt any point in time, we hold our cash and cash equivalents that we use to meet our working capital needs in deposit accounts at various financial institutions or financial services industry companies at levels that may exceed the applicable Federal Deposit Insurance Corporation (\"FDIC\") insurance limits or similar government guarantee programs.  While we monitor the cash balances in\n \n\n\n8\n\n\n\n\n\u00a0\n\n\nour operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institution or financial services industry company fails.  There is no guarantee that the FDIC, or the applicable deposit insurance, if any, in other countries in which we conduct significant business, will provide access to all or some uninsured funds in the event of the closure, default or non-performance of the financial institution or financial services industry company with which we have a relationship, or that they would do so in a timely manner.\n \n\n\nAdditionally, if any parties with whom we conduct business are unable to access funds with their financial institutions or financial services industry companies with which they have relationships, such parties may be unable to satisfy their obligations to us. To date, we have not experienced significant losses of cash in our operating accounts or our invested cash or cash equivalents as a result of any banking volatility; however, we can provide no assurances that access to our operating cash or invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.  Further, banking volatility or adverse developments impacting financial systems may make equity or debt financing more difficult to obtain, and additional equity or debt financing might not be available on reasonable terms, if at all.  Difficulties obtaining equity or debt financing could have a material adverse effect on our financial condition and results of operations.\n\n\nOur business, financial condition and results of operations have been and may continue to be adversely affected by public health issues, including the recent COVID-19 pandemic.\n\n\nOur business, financial condition and results of operations have been and in the future may be adversely affected as a result of a global health crisis, such as the COVID-19 pandemic.  A global health crisis could impact our employees, suppliers, customers, financing sources or others\u2019 ability to conduct business or negatively affect consumer and business confidence or the global economy. A public health crisis has affected, and could affect in the future, large segments of the global economy, including the markets we operate in, disrupting global supply chains, resulting in significant travel and transport restrictions, and creating significant disruption of the financial markets.  Economic uncertainty as a result of any global health crisis could negatively affect our business, suppliers, distribution channels, and customers, including as a result of business shutdowns or disruptions for an indefinite period of time, reduced operations, restrictions on shipping, fabricating or installing products, reduced consumer demand or customers\u2019 ability to make payments.  As a result of public health crises, we may experience additional operating costs due to increased challenges with our workforce (including as a result of illness, absenteeism or government orders), implement further precautionary measures to protect the health of our workforce, experience increased project cancellations or projects put on hold, and reduced access to supplies, capital, and fundamental support services (such as shipping and transportation).  Any resulting financial impact from a global health crisis cannot be fully estimated at this time, but may materially and adversely affect our business, financial condition, or results of operations.\n\n\nFor example, due to a potential reduction in throughput capacity related to a global pandemic, such as that experienced with the COVID-19 pandemic, we may not be able to deliver products to customers on a timely basis.  Certain contracts in our backlog may contain provisions for a buyer to recover liquidated damages if our delivery is past contractual delivery dates, and such liquidated damages claimed by a customer could adversely affect our financial performance.\n\n\nIn addition, we operate and compete globally and the response to global health crises by domestic and foreign governments has been and may be in the future varied and those differences may impact our competitiveness.  There are uncertain political climates in the regions where our subsidiaries operate, and governmental action in those regions may result in the temporary closure or limited operations of our subsidiaries.  Government assistance during a pandemic may also differ between private and public companies, which may provide an advantage to one compared with another.  This may affect our competitive position and could disrupt the market access and success of our business compared with other current or new competitors which could have a material adverse impact on our financial condition or results of operation.\n\n\nThe extent to which our operations may be impacted by any global health situation will depend largely on future developments which are highly uncertain and we are unable to predict the ultimate impact that it may have on our business, future results of operations, financial position or cash flows.  Even while government restrictions and responses to the COVID-19 pandemic have lessened, we may experience materially adverse impacts to our business due to any resulting supply chain disruptions, economic recession or depression.  Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown.  The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this section, any of which could have a material adverse effect on us.\n\n\nRisks Related to our Business\n \n\n\nWe may experience customer concentration risk related to strategic growth for U.S. Navy projects.\n\n\nDuring fiscal 2023, sales to the defense industry continued to grow and represented 42% of our business compared with 51% and 25% of sales to the defense industry in fiscal 2022 and 2021, respectively.  While these projects are spread across multiple contractors for the U.S. Navy, the end customer for these projects is the same.  This concentration of business could add additional risk to us should there be a disruption, short or long term, in the funding for these projects or our participation in the U.S. Navy Nuclear Propulsion program.\n\n\nThe size of our contracts with the U.S. Navy may produce volatility in short term financial results.\n\n\n9\n\n\n\n\n\u00a0\n\n\nWe believe our strategy to increase the penetration of U.S. Navy related opportunities, which are often much larger contracts than our commercial contracts, can, on occasion, be delayed before or during the revenue recognition cycle.  If we are unable to reallocate resources to other projects, we may see an increase in volatility in our near-term financial results and may impact our ability to effectively provide accurate investor guidance.\n\n\nEfforts to reduce large U.S. federal budget deficits could result in government cutbacks or shifts in focus in defense spending or in reduced incentives to pursue alternative energy projects, resulting in reduced demand for our products, which could harm our business and results of operations.\n\n\nOur business strategy calls for us to continue to pursue defense-related projects as well as projects for end users in the alternative energy markets in the U.S.  In recent years, the U.S. federal government has incurred large budget deficits. In the event that U.S. federal government defense spending is reduced or alternative energy related incentives are reduced or eliminated in an effort to reduce federal budget deficits, projects related to defense or alternative energy may decrease demand for our products.  The impact of such reductions could have a material adverse effect on our business and results of operations, as well as our growth opportunities.\n\n\nU.S. Navy orders are subject to annual government funding. A disruption in funding or a lapse in funding could materially and adversely impact our business.\n\n\nOne of our growth strategies is to increase our penetration of U.S. Navy-related opportunities.  Projects for the U.S. Navy and its contractors generally have a much longer order-to-shipment time period than our commercial orders.  The time between the awarding of an order to the completion of shipment can take three to seven years.  Annual government funding is required to continue the production of this equipment.  Disruption of government funding, short or long term, could impact the ability for us to continue our production activity on these orders.  Since this business is expected to increase as a percentage of our overall business, such a disruption, should it occur, could adversely impact the sales and profitability of our business.\n\n\nIn addition, the U.S. has previously experienced lapses in federal appropriations, which had, in the past, a short-term effect on our business.  Any such future lapse (each, a \"Government Shutdown\") could negatively affect our ability to ship finished products to customers.  We rely on federal government personnel, who are not able to perform their duties during a Government Shutdown, to conduct routine business processes related to the inspection and delivery of our products, process export licenses for us and perform other services for us that, when disrupted, may prevent us from timely shipping products outside the U.S.  If we are unable to timely ship our products outside the U.S., there could be a material adverse impact on our results of operations and business.  Moreover, our inability to ship products, or the perception by customers that we might not be able to timely ship our products in the future, may cause such customers to look to foreign competitors to fulfill their demand.  If our customers look to foreign competitors to source equipment of the type we manufacture, there could be a material and adverse impact on our results of operations and business.\n\n\nOur efforts to expand our U.S. Navy business and changes in the competitive environment for U.S. Navy procurement could materially and adversely impact our ability to grow this portion of our business.\n\n\nOver the past few years, we have expanded our business and the opportunities where we bid related to U.S. Navy projects.  Certain of our business expansions have relied, and in the future may rely, on awards or grants for capital expenditures related to build-outs to support this business.  If we are unable to meet the required milestone achievements for these build-outs in a timely way, we may be exposed to penalties or other added costs.\n\n\nIn addition, our increased market share has caused an adverse share position for some of our competitors for these products. Competitor response to our market penetration is possible.  Our customers may also raise concerns about their supplier concentration issues and the risk exposure related to this concentration.  As the U.S. Navy is looking to expand its fleet, there is also a risk that their facilities, their supply chain or our supply chain for raw materials, may not be able to support this expansion.  This could adversely impact our ability to grow this portion of our business.  Further, the bidding process related to these U.S. Navy projects requires us to devote a certain amount of time and resources to prepare bids and proposals and there is no assurance that we will recoup those investments.\n\n\nContract liabilities for large U.S. Navy contracts may be beyond our normal insurance coverage and a claim could have an adverse impact on our financial results.\n\n\nWe are diligent at managing ongoing risks related to projects and the requirements of our customers.  In addition, we secure business insurance coverage to minimize the impact of a major failure or liability related to our customers.  Due to certain U.S. government procurement policies, we may take on the risk of a liability for large U.S. Navy projects in excess of our insurance coverage and at a level which is higher than our commercial projects.  A claim related to one of these projects could have an adverse impact on our financial results.\n\n\n10\n\n\n\n\n\u00a0\n\n\nNew technology used by the ships for the U.S. Navy may delay projects and may impact our ability to grow this portion of our business.\n\n\nCertain U.S. Navy vessels are implementing new technologies, unrelated to any of the equipment that we provide.  If there is a complication or delay to any ship caused by this new technology, it may delay the procurement and fabrication of future vessels, which could have a negative impact on our business.\n\n\nZero defect and other unfavorable provisions in government contracts, some of which are customary, may subject our business to material limitations, restrictions and uncertainties and may have a material adverse impact on our financial condition and operating results.\n \n\n\nGovernment contracts contain provisions that provide the U.S. government with substantial rights and remedies, many of which are not typically found in commercial contracts, including provisions that allow the U.S. government to inspect our products and unilaterally determine whether additional work is required to be completed to remedy any deemed deficiencies; to terminate existing contracts, in whole or in part, for any reason or no reason; unilaterally reduce or modify the government\u2019s obligations under such contracts without our consent; decline to exercise an option to continue a contract or exercise an option to purchase only the minimum amount, if any, specified in a contract; take actions that result in a longer development timeline than expected; and change the course of a program in a manner that differs from the contract\u2019s original terms or from our desired plan.\n\n\nGenerally, government contracts, including our contracts with the U.S. Navy, contain provisions permitting unilateral termination or modification, in whole or in part, at the U.S. government\u2019s convenience.  Under general principles of government contracting law, if the U.S. government terminates a contract for convenience, the government contractor may recover only its incurred or committed costs, settlement expenses and profit on work completed prior to the termination.  If the U.S. government terminates a contract for default, the government contractor is entitled to recover costs incurred and associated profits on accepted items only and may be liable for excess costs incurred by the government in procuring undelivered items from another source.  In addition, government contracts normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions.  These requirements include, for example, unilateral inspection rights and the requirement that we complete additional work to remedy any deemed deficiency; specialized accounting systems unique to government contracts; mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent; mandatory internal control systems and policies; and mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs and environmental compliance requirements.  If we fail to maintain compliance with these requirements, we may be subject to potential contract liability and to termination of our government contracts.\n\n\nFurthermore, any agreements and subcontracts with third parties, including suppliers, consultants and other third-party contractors that we enter into in order to satisfy our contractual obligations pursuant to our agreements with the U.S. government must also be compliant with the terms of our government contract.  Negotiating and entering into such arrangements can be time-consuming and we may not be able to reach agreement with such third parties.  Any delay or inability to enter into such arrangements or entering into such arrangements in a manner that is non-compliant with the terms of our government contract, may result in violations of our contract.\n\n\nThe markets we serve include the petroleum refining and petrochemical industries.  These industries are both highly cyclical in nature and dependent on the prices of crude oil and natural gas.  As a result, volatility in the prices of oil and natural gas may negatively impact our operating results.\n \n\n\nA portion of our revenue is derived from the sale of our products to companies in the chemical, petrochemical, and petroleum refining industries, or to firms that design and construct facilities for these industries.  These industries are highly cyclical, and are subject to the prices of crude oil and natural gas.  The prices of crude oil and natural gas have historically had periods when they have been very volatile, as evidenced by the extreme volatility in oil prices over the past few years, in part due to the COVID-19 pandemic, the Ukraine-Russia war, and macroeconomic impacts.  During times of significant volatility in the market for crude oil or natural gas, our customers often refrain from placing orders until the market stabilizes and future demand projections are clearer.  If our customers refrain from placing orders with us, our revenue would decline and there could be a material adverse effect on our business and results of operations.  Further, our commercial customers in these markets confront competing budget priorities and may have more limited resources for the types of products and services we provide.  As a result, there may be fewer projects available for us to compete for and the pricing environment is anticipated to remain challenging.  A sustained deterioration in any of the chemical, petrochemical, and petroleum refining industries we serve, would materially and adversely harm our business and operating results because our customers would not likely have the resources necessary to purchase our products, nor would they likely have the need to build additional facilities or improve existing facilities.\n\n\n11\n\n\n\n\n\u00a0\n\n\nThe relative costs of oil, natural gas, nuclear power, hydropower and numerous forms of alternative energy production, and transitions in consumer demand toward different types of energy, may have a material and adverse impact on our business and operating results.\n\n\nGlobal and regional energy supply comes from many sources, including oil, natural gas, coal, hydro, nuclear, solar, wind, geothermal and biomass, among others.  A cost or supply shift among these sources could negatively impact our business opportunities.  A demand shift, where technological advances or consumer preferences favor the utilization of one or a few sources of energy may also impact the demand for our products.  Changes in consumer demand, including some driven by governmental and political preferences, toward electric, compressed natural gas, hydrogen vehicles and other alternative energy may impact our business.  We have products which can support certain technologies, while other technologies will not require our equipment.  If demand shifts in a manner that increases energy utilization outside of our traditional customer base or expertise, our business and financial results could be materially adversely affected.  In addition, governmental policy can affect the relative importance of various forms of energy sources.  For example, non-fossil based sources may receive government tax incentives to foster investment.  If these incentives become more prominent, our business and results of operations could suffer.\n\n\nClimate change and greenhouse gas regulations may affect our customers\u2019 investment decisions.\n \n\n\nDue to concern over the risk of climate change, a number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions.  These restrictions may affect our customers' abilities and willingness to invest in new facilities or to re-invest in current operations.  These requirements could impact the cost of our customers\u2019 products, lengthen project implementation times, and reduce demand for hydrocarbons, as well as shift hydrocarbon demand toward lower-carbon sources.  Any of the foregoing could adversely impact the demand for our products, which in turn could have an adverse effect on our business and results of operations.\n\n\nOur future success may be affected by our current and future indebtedness.\n\n\nUnder our loan agreements, as of March 31, 2023, we had $12,500 outstanding under our term loan with Bank of America, N.A. (\"Bank of America\").  We may borrow additional funds in the future to support our growth and working capital needs.  Pursuant to our loan agreements with Bank of America, we are required to provide financial information and reports while complying with other financial covenants.  On February 4, 2022, March 31, 2022 and June 7, 2022, we entered into amendment agreements with Bank of America that placed additional restrictive covenants on the Company and increased our borrowing costs.  In the future, should we be out of compliance with our bank agreement, there can be no assurance that we would be able to obtain additional waivers or renegotiate our credit facilities in a timely manner, on acceptable terms or at all.  If we were not able to obtain a covenant waiver under our debt facilities or renegotiate such facilities, we could be in default of such agreements, and in the event of such default our lender could demand immediate repayment of amounts outstanding.  There can be no assurance that we would have sufficient cash, or be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay such facility or facilities in the event of such demand.  As a result, the failure to obtain covenant waivers or renegotiate our facilities as described above would have a material adverse effect on us and our ability to service our debt obligations.\n\n\nOur business is highly competitive.  If we are unable to successfully implement our business strategy and compete against entities with greater resources than us or against competitors who have a relative cost advantage, we risk losing market share to current and future competitors.\n\n\nWe encounter intense competition in all of our markets.  Some of our present and potential competitors may have substantially greater financial, marketing, technical or manufacturing resources.  Our competitors may also be able to respond more quickly to new technologies or processes and changes in customer demands and they may be able to devote greater resources towards the development, promotion and sale of their products.  Certain competitors may also have a cost advantage compared to us due to their geography or changes in relative currency values and may compete against us based on price.  This may affect our ability to secure new business and maintain our level of profitability.  As our markets continue to grow, and new market opportunities expand, we could see a shift in pricing as a result of facing competitors with lower production costs, which may have a material adverse impact on our results of operations and financial results.  In addition, our current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties that increase their ability to address the needs of our customers.  Moreover, customer buying patterns can change if customers become more price sensitive and accepting of lower cost suppliers.  If we cannot compete successfully against current or future competitors, our business will be materially adversely affected.\n\n\nCustomer focus on short-term costs versus prioritizing quality and brand recognition, could harm our business and negatively impact our financial results.\n\n\nAlthough we have long-term relationships with many of our customers and with many engineering, procurement and construction companies, the project management requirements, pricing levels and costs to support each customer and customer type are often different.  Our customers have historically focused on the quality of the engineering and product solutions which we have provided to them, which may come at a higher cost.  Because our customers are unable to predict the length of the time period for the economic\n \n\n\n12\n\n\n\n\n\u00a0\n\n\nviability of their plants, there has been more of a focus on relative importance of cost versus quality which looks at short-term costs instead of total long-term cost of operations.\n \n\n\nIn addition, customers in emerging markets which are driving global demand growth may also place less emphasis on our high quality and brand name than do customers in the U.S. and certain other industrialized countries where we compete.  If we are forced to compete for business with customers that place less emphasis on quality and brand recognition than our current customers, our results of operations could be materially adversely affected.\n \n\n\nA change in the structure of our markets, including through consolidation, could harm our business and negatively impact our financial results.\n\n\nThere are strong and long-standing relationships throughout the supply chain between the many parties involved in serving the end user of our products.  A change in the landscape between engineering and procurement companies, original equipment suppliers, others in the supply chain, and/or with the end users could have a material adverse effect on our business and results of operations.  These changes, or others, might occur through industry consolidations such as mergers, acquisitions or other business partnerships, and could have a material impact on our business and negatively impact our financial results.\n \n\n\nThe loss of, or significant reduction or delay in, purchases by our largest customers could reduce our revenue and adversely affect our results of operations.\n \n\n\nWhile we may have only one or two customers that represent over 10% of revenue in any one year, a small number of customers have accounted for a substantial portion of our historical net sales.  For example, sales to our top ten customers, who can vary each year, accounted for 46%, 42% and 63% of consolidated net sales in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.  We expect that a limited number of customers will continue to represent a substantial portion of our sales for the foreseeable future.  The loss of any of our major customers, a decrease or delay in orders or anticipated spending by such customers, or a delay in the production of existing orders could materially adversely affect our revenues and results of operations.\n\n\nOur acquisition strategy may not be successful or may increase business risk.\n\n\nThe success of our acquisition strategy will depend, in part, on our ability to identify suitable companies or businesses to purchase and then successfully negotiate and close acquisition transactions.  In addition, our success depends in part on our ability to integrate acquisitions and realize the anticipated benefits from combining the acquisition with our historical business, operations and management.  We cannot provide any assurances that we will be able to complete any acquisitions and then successfully integrate the business and operations of those acquisitions without encountering difficulties, including unanticipated costs, issues or liabilities, difficulty in retaining customers and supplier or other relationships, failure to retain key employees, diversion of our management\u2019s attention, failure to integrate information and accounting systems or establish and maintain proper internal control over financial reporting.  Moreover, as part of the integration process, we must incorporate an acquisition\u2019s existing business culture and compensation structure with our existing business.  We also need to utilize key personnel who may be distracted from the core business.  If we are not able to efficiently integrate an acquisition\u2019s business and operations into our organization in a timely and efficient manner, or at all, the anticipated benefits of the acquisition may not be realized, or it may take longer to realize these benefits than we currently expect, either of which could have a material adverse effect on our business or results of operations.\n\n\nWe have foreign operations and a percentage of our sales occur outside of the U.S. As a result, we are subject to the economic, political, regulatory and other risks of international operations.\n\n\nFor fiscal 2023, 19% of our revenue was from customers located outside of the U.S.  Moreover, through our subsidiaries, we maintain a sales office in China and a sales and market development office in India.  We intend to continue to expand our international operations to the extent that suitable opportunities become available.  Our foreign operations and sales could be adversely affected as a result of:\n\n\n\u2022\nnationalization of private enterprises and assets;\n\n\n\u2022\ntrade policies incentivizing domestic trade over international trade;\n\n\n\u2022\npolitical or economic instability in certain countries and regions, such as the ongoing instability throughout the Middle East and/or portions of the former Soviet Union;\n\n\n\u2022\nthe global economic impact as a result of the COVID-19 pandemic or future global health concerns;\n\n\n\u2022\npolitical relationships between the U.S. and certain countries and regions;\n\n\n\u2022\ndifferences in foreign laws, including difficulties in protecting intellectual property and uncertainty in enforcement of contract rights;\n\n\n\u2022\nthe possibility that foreign governments may adopt regulations or take other actions that could directly or indirectly harm our business and growth strategy;\n\n\n13\n\n\n\n\n\u00a0\n\n\n\u2022\ncredit risks;\n\n\n\u2022\ncurrency fluctuations;\n\n\n\u2022\ntariff and tax increases;\n\n\n\u2022\nexport and import restrictions and restrictive regulations of foreign governments; \n\n\n\u2022\nshipping products during times of crisis or war;\n\n\n\u2022\nour failure to comply with U.S. laws regarding doing business in foreign jurisdictions, such as the Foreign Corrupt Practices Act; or\n\n\n\u2022\nother factors inherent in maintaining foreign operations.\n\n\nOur reputation, ability to do business and financial statements may be materially and adversely impacted by improper conduct by any of our employees, agents or business partners.\n\n\nWe cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by our employees, agents or business partners (or of businesses we acquire or partner with) that would violate U.S. laws or the laws of the applicable jurisdiction where we do business, including, among others, laws governing payments to government officials, bribery, fraud, kickbacks and false claims, pricing, sales and marketing practices, conflicts of interest, competition, export and import compliance, money laundering and data privacy.  In particular, the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business.  Any such improper actions or allegations of such acts could damage our reputation and subject us to civil or criminal investigations in the U.S. and in other jurisdictions and related shareholder lawsuits, if any, could lead to substantial civil and criminal, monetary and non-monetary penalties and could cause us to incur significant legal and investigatory fees.  In addition, we rely on our suppliers to adhere to our supplier standards of conduct and violations of such standards of conduct could occur that could have a material and adverse effect on our financial statements.\n\n\nThe impact of potential changes in customs and trade policies and tariffs imposed by the U.S. and those imposed in response by other countries, including China, as well as rapidly changing trade relations, could materially and adversely affect our business and results of operations.\n\n\nThe U.S. government has made proposals that are intended to address trade imbalances, which include encouraging increased production in the United States.  These proposals could result in increased customs duties and the renegotiation of some U.S. trade agreements.  Changes in U.S. and foreign governments\u2019 trade policies have resulted and may continue to result in tariffs on imports into, and exports from, the U.S.  In the past, the U.S. imposed tariffs on imports from several countries, including China, Canada, the European Union and Mexico.  In response, China, Canada and the European Union have proposed or implemented their own tariffs on certain exports from the U.S. into those countries.  Tariffs affecting our products and product components, including raw materials we use, particularly high-end steel and steel related products, may add significant costs to us and make our products more expensive. Potential future changes in trade policies could result in customers changing their behavior in project procurement, due to uncertainty related to timely execution and/or import and export restrictions.  As a result, our products could become less attractive to customers outside the U.S. due to U.S. import tariffs on our raw materials and our profit margins would be negatively impacted.  Accordingly, continued tariffs may weaken relationships with certain trading partners and may adversely affect our financial performance and results of operations.  When beneficial to us, we may consider alternate sourcing options, including offshore subcontracting, in order to minimize the impact of the tariffs.  Because we conduct aspects of our business in China through our subsidiary, potential reductions in trade with China and diminished relationships between China and the U.S., as well as the continued escalation of tariffs, could have a material adverse effect on our business and results of operations.\n\n\nThe operations of our subsidiary in China may be adversely affected by China\u2019s evolving economic, political and social conditions.\n \n\n\nWe conduct our business in China primarily through our wholly-owned subsidiary.  The results of operations and future prospects of our subsidiary in China may be adversely affected by, among other things, changes in China's political, economic and social conditions, including as a result of the COVID-19 pandemic, changes in the relationship between China and its western trade partners, changes in policies of the Chinese government, changes in laws and regulations or in the interpretation of existing laws and regulations, changes in foreign exchange regulations, measures that may be introduced to control inflation, such as interest rate increases and changes in the rates or methods of taxation.  In addition, changes in demand could result from increased competition from local Chinese manufacturers who have cost advantages or who may be preferred suppliers for Chinese end users.  Also, China's commercial laws, regulations and interpretations applicable to non-Chinese owned market participants, such as us, are continually changing.  These laws, regulations and interpretations could impose restrictions on our ownership or the operation of our interests in China and have a material adverse effect on our business and results of operations.\n\n\nIntellectual property rights are difficult to enforce in China and India, which could harm our business.\n \n\n\n14\n\n\n\n\n\u00a0\n\n\nCommercial law in China is relatively undeveloped compared with the commercial law in many of our other major markets and limited protection of intellectual property is available in China as a practical matter.  Similarly, proprietary information may not be afforded the same protection in India as it is in our other major markets with more comprehensive intellectual property laws. Although we take precautions in the operations of our subsidiaries to protect our intellectual property, any local design or manufacture of products that we undertake could subject us to an increased risk that unauthorized parties will be able to copy or otherwise obtain or use our intellectual property, which could harm our business.  We may also have limited legal recourse in the event we encounter patent or trademark infringers, which could have a material adverse effect on our business and results of operations.\n\n\nUncertainties with respect to the legal system in China may adversely affect the operations of our subsidiary in that country.\n\n\nOur subsidiary in China is subject to laws and regulations applicable to foreign investment in China.  There are uncertainties regarding the interpretation and enforcement of laws, rules and policies in China.  The legal system in China is based on written statutes, and prior court decisions have limited precedential value.  Because many laws and regulations are relatively new and the Chinese legal system is still evolving, the interpretations of many laws, regulations and rules are not always uniform.  Moreover, the relative inexperience of China's judiciary in many cases creates additional uncertainty as to the outcome of any litigation, and the interpretation of statutes and regulations may be subject to government policies reflecting domestic political agendas.  Finally, enforcement of existing laws or contracts based on existing law may be uncertain and sporadic.  For the preceding reasons, it may be difficult for us to obtain timely or equitable enforcement of laws ostensibly designed to protect companies like ours, which could have a material adverse effect on our business and results of operations.\n \n\n\nRegulation of foreign investment in India may adversely affect the operations of our Indian subsidiary.\n\n\nOur subsidiary in India is subject to laws and regulations applicable to foreign investment in India.  India regulates ownership of Indian companies by foreign entities.  These regulations may apply to our funding of our Indian operating subsidiary.  For example, the government of India has set out criteria for foreign investments in India, including requirements with respect to downstream investments by companies in India which are owned or controlled by foreign entities and the transfer of ownership or control of  companies in India in certain industries.  These requirements may adversely affect our ability to operate our Indian subsidiary.  There can be no assurance that we will be able to obtain any required approvals for future acquisitions, investments or operations in India, or that we will be able to obtain such approvals on satisfactory terms.\n\n\nChanges in U.S. and foreign energy policy regulations could adversely affect our business.\n\n\nEnergy policy in the U.S. and other countries where we sell our products is evolving rapidly and we anticipate that energy policy will continue to be an important legislative priority in the jurisdictions where we sell our products.  It is difficult, if not impossible, to predict the changes in energy policy that could occur, as they may be related to changes in political administration, public policy or other factors.  The elimination of, or a change in, any of the current rules and regulations in any of our markets could create a regulatory environment that makes our end users less likely to purchase our products, which could have a material adverse effect on our business.  Government subsidies or taxes, which favor or disfavor certain energy sources compared with others, could have a material adverse effect on our business and operating results.\n\n\nNear-term income statement impact from competitive contracts could adversely affect our operating results.\n\n\nDuring weaker market periods, we may choose to be more aggressive in pricing certain competitive projects to protect or gain market share or to increase the utilization of our facilities.  In these situations, it is possible that an incrementally profitable order, while increasing contribution, may be unprofitable from an accounting perspective when including fixed manufacturing costs.  In these situations, we are required to recognize the financial loss at the time of order acceptance, or as soon as our cost estimates are updated, whichever occurs first.  It is possible we may accumulate losses either on a large project or more than one project such that, in a short time period, for example a reporting quarter, these losses may have a meaningful impact on the earnings for that period.\n\n\nOur operating results could be adversely affected by customer contract cancellations and delays.\n\n\nAdverse economic or specific project conditions can lead to a project being placed on hold or cancelled by our customers.  We had one project cancelled in fiscal 2023 and no projects cancelled in fiscal 2022 or fiscal 2021.  We had no projects on hold at March 31, 2023.  As further discussed in Item 7 of Part II of this Annual Report on Form 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations, on April 4, 2023, Virgin Orbit Holdings, Inc. (\"Virgin Orbit\") commenced voluntary proceedings under Chapter 11 of the U.S. Bankruptcy Code (\"Chapter 11 Bankruptcy\").  As a result, we reversed approximately $4,000 of purchase orders and recorded approximately $2,500 of reserves for inventory and accounts receivable during fiscal 2023 related to Virgin Orbit, net of associated performance-based compensation.  As of March 31, 2023, we estimate that we have approximately $1,000 to $2,000 of additional exposure related to Virgin Orbit depending on the outcome of the bankruptcy proceedings, but currently do not expect any material financial impact to fiscal 2024 results.\n\n\nWe attempt to mitigate the risk of cancellation by structuring contracts with our customers to maximize the likelihood that progress payments made to us for individual projects cover the costs we have incurred.  As a result, we do not believe we have a significant cash exposure to projects which may be cancelled.  Open orders are reviewed continuously through communications with\n \n\n\n15\n\n\n\n\n\u00a0\n\n\ncustomers.  If it becomes evident to us that a project is delayed well beyond its original shipment date, management will move the project into \"placed on hold\" (i.e., suspended) category.  Furthermore, if a project is cancelled by our customer, it is removed from our backlog.\n\n\nThe value of our backlog as of March 31, 2023 was $301,734.  Our backlog can be significantly affected by the timing of large orders.  The amount of our backlog at March 31, 2023 is not necessarily indicative of future backlog levels or the rate at which our backlog will be recognized as sales.  Although historically the amount of modifications and terminations of our orders has not been material compared with our total contract volume, customers can, and sometimes do, terminate or modify their orders.  This generally occurs more often in times of end market or capital market turmoil.  We cannot predict whether cancellations will occur or accelerate in the future.  Although certain of our contracts in backlog may contain provisions allowing for us to assess cancellation charges to our customers to compensate us for costs incurred on cancelled contracts, cancellations of purchase orders or modifications made to existing contracts could substantially and materially reduce our backlog and, consequently, our future sales and results of operations.  Moreover, delay of contract execution by our customers can result in volatility in our operating results.\n\n\nOur current backlog contains a number of large orders from the U.S. Navy.  In addition, we are continuing to pursue business in this end market which offers large multi-year projects which have an added risk profile beyond that of our historic customer base.  A delay, long-term extension or cancellation of any of these projects could have a material adverse effect on our business and results of operations.\n\n\nFurther, certain defense contracts we secure may be designated a program of highest national priority requiring production preference over commercial orders which could impact our commercial backlog and result in production delays.  As a result, commercial customers could seek damages, including liquidated damages, as performance penalties and there may be a negative impact to the willingness of customers to place future orders with us due to a concern that orders may be subordinated to such contracts.\n\n\nOur customers\u2019 ability and willingness to make progress payments may be impacted by any extended downturn in their markets which could adversely impact their financial stability and increase the risk to us of uncollectable accounts receivables.\n\n\nThe financial strength of our customers can be impacted by a severe or lengthy downturn in their markets which could lead to additional risk in our ability to collect outstanding accounts receivables.  We attempt to mitigate this risk with the utilization of progress payments for many projects, but certain industries, end markets and geographies are not as willing to make progress payments.  Certain projects require a small portion of the total payments to be held until the customer's facility is fully operational, which can be in excess of one year beyond our delivery of equipment to them.  This additional time may add risk to our ability to collect on the outstanding accounts receivables.\n\n\nOur exposure to fixed-price contracts and the timely completion of such contracts could negatively impact our results of operations.\n \n\n\nA substantial portion of our sales is derived from fixed-price contracts, which may involve long-term fixed-price commitments by us to our customers.  While we believe our contract management processes are strong, we nevertheless could experience difficulties in executing large contracts, including but not limited to, estimating errors, cost overruns, supplier failures and customer disputes.  For example, in fiscal 2022, we experienced material cost overruns related to defense contracts at our Batavia, NY facility.  To the extent that any of our fixed-price contracts are delayed, our subcontractors fail to perform, contract counterparties successfully assert claims against us, the original cost estimates in these or other contracts prove to be inaccurate or the contracts do not permit us to pass increased costs on to our customers, our profitability may decrease or losses may be incurred which, in turn, could have a material adverse effect on our business and results of operations.  For our U.S. Navy projects, these fixed-priced contracts have order to shipment periods which can exceed five years.  This additional time-based risk, which we believe is manageable, nevertheless increases the likelihood of cost fluctuation, which could have a material adverse effect on our business and results of operation.\n\n\nWe may experience losses if we are unable to collect on our accounts receivables if our customers are unable or unwilling to pay their invoices in a timely manner or at all.\n\n\nOur customers, even those we have had a long-standing business relationship with, may at any time, experience economic hardship which could cause those customers to be unwilling or unable to pay their invoices in a timely manner or at all.  In addition, a number of our customers may have limited resources and may not have a history of creditworthiness that we can audit to determine reliability for payment of accounts receivable.  For example, many of our customers and the key players within the space industry have not yet achieved profitability, have incurred significant losses since inception, and may be unable to achieve profitability when expected, if at all, similar to Virgin Orbit as discussed above.  As such, our ability to predict and plan for future revenue and operations within the space industry is subject to risk.  Due to the variable nature of sales and orders within the space industry our future revenue and growth in the space industry is uncertain and may materially and adversely impact our results of operations.\n \n\n\nTo the extent a company is unable or unwilling to fulfill their obligations to us it could result in a material and adverse impact to our results of operations.  Even if they are financially solvent and stable and we are successful in securing a commercial relationship with them, their business plans for future programs may be inherently uncertain and unpredictable, and less structured than other companies.  If any of our customers suffers significant financial difficulties, insolvency or bankruptcy, they may be unable to pay us in a timely manner or at all.  It is also possible that our customers may contest their obligations to pay us, including under bankruptcy laws\n \n\n\n16\n\n\n\n\n\u00a0\n\n\nor otherwise.  Even if our customers do not contest their obligations to pay us, if our customers are unable to pay us in a timely manner, it could materially and adversely impact our ability to collect accounts receivable.  Moreover, we may have to negotiate significant discounts and/or extended financing terms with these customers in such a situation in an attempt to secure outstanding payments or partial payment.  Accordingly, if we are unable to collect upon our accounts receivable as they come due in an efficient and timely manner, our business, financial condition or results of operations may be materially and adversely affected.\n\n\nGiven our size and specialization of our business, if we lose any member of our management team and we experience difficulty in finding a qualified replacement, our business could be harmed.\n\n\nCompetition for qualified management and key technical and sales personnel in our industry is intense.  Moreover, our technology is highly specialized, and it may be difficult to replace the loss of any of our key technical and sales personnel.  Many of the companies with which we compete for management and key technical and sales personnel have greater financial and other resources than we do or are located in geographic areas which may be considered by some to be more desirable places to live.  If we are not able to retain any of our key management, technical or sales personnel, it could have a material adverse effect on our business and results of operations.\n \n\n\nWe rely on the performance of highly skilled personnel, including our engineering, production and technology professionals; if we are unable to retain or motivate key personnel or hire, retain and motivate qualified personnel, our business could be harmed.\n\n\nWe believe our success has depended, and continues to depend, on the efforts and talents of our highly skilled work force, including our specialized engineers, machinists, and welders.  Our ability to successfully pursue our growth strategy and compete effectively depends on our ability to attract, motivate and retain our personnel.  Competition for well-qualified employees in all aspects of our business, including our skilled production workers such as welders, machinists, and engineers, is intense, and it may be even more challenging to retain qualified personnel as many companies have moved to offer a remote or hybrid work environment, and considering the current period of heightened employee attrition in the United States and other countries.  In response to competition, rising inflation rates and labor shortages, we may need to adjust employee compensation, which could affect our operating costs and margins, as well as potentially cause dilution to existing stockholders.  We may also lose new employees to our competitors in any of our markets before we realize the benefit of our investment in recruiting and training them.  If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business would be materially and adversely affected.\n \n\n\nIf we become subject to product liability, warranty or other claims, our results of operations and financial condition could be adversely affected.\n\n\nThe manufacture and sale of our products exposes us to potential product liability claims, including those that may arise from failure to meet product specifications, misuse or malfunction of our products, design flaws in our products, or use of our products with systems not manufactured or sold by us.  For example, our equipment is installed in facilities that operate dangerous processes and the misapplication, improper installation or failure of our equipment may result in exposure to potentially hazardous substances, personal injury or property damage.  In addition, BN produces certain products in large quantities which could also expose us to potential product warranty and liability claims.\n\n\nProvisions contained in our contracts with customers that attempt to limit our damages may not be enforceable or may fail to protect us from liability for damages and we may not negotiate such contractual limitations of liability in certain circumstances.  Our insurance may not cover all liabilities and our historical experience may not reflect liabilities we may face in the future.  Our risk of liability may increase as we manufacture more complex or larger projects.  We also may not be able to continue to maintain such insurance at a reasonable cost or on reasonable terms, or at all.  Any material liability not covered by provisions in our contracts or by insurance could have a material adverse effect on our business and financial condition.\n \n\n\nFurthermore, if a customer suffers damage as a result of an event related to one of our products, even if we are not at fault, they may reduce their business with us.  We may also incur significant warranty claims which are not covered by insurance.  In the event a customer ceases doing business with us as a result of a product malfunction or defect, perceived or actual, or if we incur significant warranty costs in the future, there could be a material adverse effect on our business and results of operations.\n \n\n\nIf third parties infringe upon our intellectual property or if we were to infringe upon the intellectual property of third parties, we may expend significant resources enforcing or defending our rights or suffer competitive injury.\n\n\nOur success depends in part on our proprietary technology.  We rely on a combination of patent, copyright, trademark, trade secret laws and confidentiality provisions to establish and protect our proprietary rights.  If we fail to successfully enforce our intellectual property rights, our competitive position could suffer.  We may also be required to spend significant resources to monitor and police our intellectual property rights.  Similarly, if we were found to have infringed upon the intellectual property rights of others, our competitive position could suffer.  Furthermore, other companies may develop technologies that are similar or superior to our technologies, duplicate or reverse engineer our technologies or design around our proprietary technologies.  Any of the foregoing could have a material adverse effect on our business and results of operations.\n\n\n17\n\n\n\n\n\u00a0\n\n\nIn some instances, litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products infringe upon their intellectual property rights.  Any litigation or claims brought by or against us, whether with or without merit, could result in substantial costs to us and divert the attention of our management, which could materially harm our business and results of operations.  In addition, any intellectual property litigation or claims against us could result in the loss or compromise of our intellectual property and proprietary rights, subject us to significant liabilities, require us to seek licenses on unfavorable terms, prevent us from manufacturing or selling certain products or require us to redesign certain products, any of which could have a material adverse effect on our business and results of operations.\n \n\n\nWe are subject to foreign currency fluctuations which may adversely affect our operating results.\n\n\nWe are exposed to the risk of currency fluctuations between the U.S. dollar and the currencies of the countries in which we sell our products to the extent that such sales are not based in U.S. dollars - primarily the Chinese RMB and India INR.  Currency movements can affect sales in several ways, the foremost being our ability to compete for orders against foreign competitors that base their prices on relatively weaker currencies.  Strength of the U.S. dollar compared with the Euro, India, or Asian currencies may put us in a less competitive position.  Business lost due to competition for orders against competitors using a relatively weaker currency cannot be quantified.  In addition, cash can be adversely impacted by the conversion of sales made by us in a foreign currency to U.S. dollars.  While we may enter into currency exchange rate hedges from time to time to mitigate these types of fluctuations, we cannot remove all fluctuations or hedge all exposures and our earnings could be adversely impacted by changes in currency exchange rates.  In addition, if the counter-parties to such exchange contracts do not fulfill their obligations to deliver the contractual foreign currencies, we could be at risk for fluctuations, if any, required to settle the obligation.  Any of the foregoing could adversely affect our business and results of operations. At March 31, 2023, we held no forward foreign currency exchange contracts.\n\n\nSecurity threats and other sophisticated computer intrusions could harm our information systems, which in turn could harm our business and financial results.\n\n\nWe utilize information systems and computer technology throughout our business.  We store sensitive data, proprietary information and perform engineering designs and calculations on these systems.  Threats to these systems, and the laws and regulations governing security of data, including personal data, on information systems and otherwise held by companies is evolving and adding layers of complexity in the form of new requirements and increasing costs of attempting to protect information systems and data and complying with new cybersecurity regulations.  Information systems are subject to numerous and evolving cybersecurity threats and sophisticated computer crimes, which pose a risk to the stability and security of our information systems, computer technology, and business.  Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information systems and computer technology to sophisticated and targeted measures known as advanced persistent threats and ransomware.  The techniques used in these attacks change frequently and may be difficult to detect for periods of time and we may face difficulties in anticipating and implementing adequate preventative measures.  The potential consequences of a material cybersecurity incident and its effects include financial loss, reputational damage, litigation with third parties, theft of intellectual property, fines levied by the Federal Trade Commission or other government agencies, diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs due to the increasing sophistication and proliferation of threats, which in turn could adversely affect our competitiveness and results of operations.  A failure or breach in security could expose our company as well as our customers and suppliers to risks of misuse of information, compromising confidential information and technology, destruction of data, production disruptions, ransom payments, and other business risks which could damage our reputation, competitive position and financial results of our operations.  Further, our technology resources may be strained due to an increase in the number of remote users.  Cybersecurity laws and regulations continue to evolve, and are increasingly demanding, both in the U.S. and globally, which adds compliance complexity and may increase our costs of compliance and expose us to reputational damage or litigation, monetary damages, regulatory enforcement actions, or fines in one or more jurisdictions.  While we carry cyber insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.  In addition, defending ourselves against these threats may increase costs or slow operational efficiencies of our business.  If any of the foregoing were to occur, it could have a material adverse effect on our business and results of operations.\n \n\n\nOur enterprise resource planning system utilized at our facilities in Batavia, N.Y. is aging, and we may experience issues from implementation of a new enterprise resource planning system.\n\n\nWe have an enterprise resource planning system (\u201cERP\u201d) to assist with the collection, storage, management and interpretation of data from our business activities to support future growth and to integrate significant processes.  Our ERP at our Batavia, N.Y. operations is aging and we expect to begin implementing a new ERP during fiscal 2024.  ERP implementations are complex, distracting to the business and management, and time-consuming and involve substantial expenditures on system software and implementation activities, as well as changes in business processes.  Our ERP is critical to our ability to accurately maintain books and records, record transactions, provide important information to our management and prepare our consolidated financial statements. ERP implementations also require the transformation of business and financial processes in order to reap the benefits of the new ERP; any such transformation involves risks inherent in the conversion to a new computer system, including loss of information and potential disruption to our normal operations.  Any disruptions, delays or deficiencies in the design and implementation of a new ERP could adversely affect our ability to\n \n\n\n18\n\n\n\n\n\u00a0\n\n\nprocess orders, provide services and customer support, send invoices and track payments, fulfill contractual obligations or otherwise operate our business.  Additionally, if the ERP does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess it adequately could be delayed.  Further, we may not realize the benefits we anticipate should all or part of the ERP upgrade implementation process prove to be ineffective.  Accordingly, such events may disrupt or reduce the efficiency of our entire operations and have a material adverse effect on our operating results and cash flows.\n\n\nWe face potential liability from asbestos exposure and similar claims that could result in substantial costs to us as well as divert attention of our management, which could have a material adverse effect on our business and results of operations.\n\n\nWe are a defendant in a number of lawsuits alleging illnesses from exposure to asbestos or asbestos-containing products and seeking unspecified compensatory and punitive damages.  We cannot predict with certainty the outcome of these lawsuits or whether we could become subject to any similar, related or additional lawsuits in the future.  In addition, because some of our products are used in systems that handle toxic or hazardous substances, any failure or alleged failure of our products in the future could result in litigation against us.  For example, a claim could be made under various regulations for the adverse consequences of environmental contamination.  Any litigation brought against us, whether with or without merit, could result in substantial costs to us as well as divert the attention of our management, which could have a material adverse effect on our business and results of operations.\n\n\nMany of our large international customers are nationalized or state-owned businesses.  Any failure to comply with the United States Foreign Corrupt Practices Act could adversely impact our competitive position and subject us to penalties and other adverse consequences, which could harm our business and results of operations.\n\n\nWe are subject to the United States Foreign Corrupt Practices Act (\"FCPA\"), which generally prohibits U.S. companies from engaging in bribery or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business.  Recent years have seen a substantial increase in the global enforcement of anti-corruption laws, with more frequent voluntary self-disclosures by companies, aggressive investigations and enforcement proceedings by both the Department of Justice and the Securities and Exchange Commission resulting in record fines and penalties, increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals.  Many foreign companies, including some of our competitors, are not subject to these prohibitions.  Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in certain of the jurisdictions in which we may operate or sell our products.  We strictly prohibit our employees and agents from engaging in such conduct and have established procedures, controls and training to prevent such conduct from occurring.  However, we operate in many parts of the world that are recognized as having governmental corruption problems to some degree and where strict compliance with anti-corruption laws may conflict with local customs and practices, and it is possible that our employees or agents will engage in such conduct and that we might be held responsible.  Despite our training and compliance programs, we cannot assure you that our internal control policies and procedures always will protect us from unauthorized reckless or criminal acts committed by our employees or agents.  In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management.  If our employees or other agents are alleged or are found to have engaged in such practices, we could incur significant costs and suffer severe penalties or other consequences that may have a material adverse effect on our business, financial condition and results of operations.\n\n\nThe terms of our loan agreement restrict our ability to pay dividends, and we may not be able to pay dividends in the future.\n\n\nOur loan agreement with Bank of America contains terms that restrict our ability to declare or pay dividends.  Any determination by our Board of Directors regarding dividends in the future will depend on a variety of factors, including our future financial performance, organic growth opportunities, general economic conditions and financial, competitive, regulatory, and other factors, many of which are beyond our control.  There can be no guarantee that we will pay dividends in the future.\n \n\n\nProvisions contained in our certificate of incorporation and bylaws could impair or delay stockholders' ability to change our management and could discourage takeover transactions that some stockholders might consider to be in their best interests.\n\n\nProvisions of our certificate of incorporation and bylaws could impede attempts by our stockholders to remove or replace our management and could discourage others from initiating a potential merger, takeover or other change of control transaction, including a potential transaction at a premium over the market price of our common stock, that our stockholders might consider to be in their best interests.  Such provisions include:\n\n\n\u2022\nWe could issue shares of preferred stock with terms adverse to our common stock\n.  Under our certificate of incorporation, our Board of Directors is authorized to issue shares of preferred stock and to determine the rights, preferences and privileges of such shares without obtaining any further approval from the holders of our common stock.  We could issue shares of preferred stock with voting and conversion rights that adversely affect the voting power of the holders of our common stock, or that have the effect of delaying or preventing a change in control of our company.\n\n\n\u2022\nOnly a minority of our directors may be elected in a given year\n.  Our bylaws provide for a classified Board of Directors, with only approximately one-third of our Board elected each year.  This provision makes it more difficult to effect a change of control because at least two annual stockholder meetings are necessary to replace a majority of our directors.\n\n\n19\n\n\n\n\n\u00a0\n\n\n\u2022\nOur bylaws contain advance notice requirements\n.  Our bylaws also provide that any stockholder who wishes to bring business before an annual meeting of our stockholders or to nominate candidates for election as directors at an annual meeting of our stockholders must deliver advance notice of their proposals to us before the meeting.  Such advance notice provisions may have the effect of making it more difficult to introduce business at stockholder meetings or nominate candidates for election as director.  \n\n\n\u2022\nOur certificate of incorporation requires supermajority voting to approve a change of control transaction\n.  Seventy-five percent of our outstanding shares entitled to vote are required to approve any merger, consolidation, sale of all or substantially all of our assets and similar transactions if the other party to such transaction owns 5% or more of our shares entitled to vote.  In addition, a majority of the shares entitled to vote not owned by such 5% or greater stockholder are also required to approve any such transaction. \n\n\n\u2022\nAmendments to our certificate of incorporation require supermajority voting\n.  Our certificate of incorporation contains provisions that make its amendment require the affirmative vote of both 75% of our outstanding shares entitled to vote and a majority of the shares entitled to vote not owned by any person who may hold 50% or more of our shares unless the proposed amendment was previously recommended to our stockholders by an affirmative vote of 75% of our Board.  This provision makes it more difficult to implement a change to our certificate of incorporation that stockholders might otherwise consider to be in their best interests without approval of our Board.\n\n\n\u2022\nAmendments to our bylaws require supermajority voting\n.  Although our Board of Directors is permitted to amend our bylaws at any time, our stockholders may only amend our bylaws upon the affirmative vote of both 75% of our outstanding shares entitled to vote and a majority of the shares entitled to vote not owned by any person who owns 50% or more of our shares.  This provision makes it more difficult for our stockholders to implement a change they may consider to be in their best interests without approval of our Board.\n\n",
+  "item1a": ">Item 1A\n\n\nRisk Factors\n\n\n8\n\n\n\n\nItem 1B\n\n\nUnresolved Staff Comments\n\n\n20\n\n\n\n\n\n\nItem 2\n\n\nProperties\n\n\n21\n\n\n\n\n\n\nItem 3\n\n\nLegal Proceedings\n\n\n21\n\n\n\n\n\n\nItem 4\n\n\nMine Safety Disclosures\n\n\n21\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPART II\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nItem 5\n\n\nMarket for Registrant\u2019s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities\n\n\n22\n\n\n\n\n\n\nItem 6\n\n\nReserved\n\n\n22\n\n\n\n\n\n\nItem 7\n\n\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\n\n23\n\n\n\n\n\n\nItem 7A\n\n\nQuantitative and Qualitative Disclosures About Market Risk\n\n\n35\n\n\n\n\n\n\nItem 8\n\n\nFinancial Statements and Supplementary Data\n\n\n37\n\n\n\n\n\n\nItem 9\n\n\nChanges in and Disagreements with Accountants on Accounting and Financial Disclosure\n\n\n69\n\n\n\n\n\n\nItem 9A\n\n\nControls and Procedures\n\n\n69\n\n\n\n\n\n\nItem 9B\n\n\nOther Information\n\n\n70\n\n\n\n\n\n\nItem 9C\n\n\nDisclosure Regarding Foreign Jurisdictions That Prevent Inspections\n\n\n70\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPART III\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nItem 10\n\n\nDirectors, Executive Officers and Corporate Governance\n\n\n71\n\n\n\n\n\n\nItem 11\n\n\nExecutive Compensation\n\n\n71\n\n\n\n\n\n\nItem 12\n\n\nSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\n\n\n71\n\n\n\n\n\n\nItem 13\n\n\nCertain Relationships and Related Transactions, and Director Independence\n\n\n71\n\n\n\n\n\n\nItem 14\n\n\nPrincipal Accounting Fees and Services\n\n\n71\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPART IV\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nItem 15\n\n\nExhibits, Financial Statement Schedules\n\n\n72\n\n\n\n\n\n\nItem 16\n\n\nForm 10-K Summary\n\n\n75\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\n\n\u00a0\n\n\nCautionary Note R\negarding Forward-Looking Statements\n\n\n \n\n\nThis Annual Report on Form 10-K (the \"Form 10-K\") and other documents we file with the Securities and Exchange Commission (\"SEC\") include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements other than statements of historical fact are forward-looking statements for purposes of this Form 10-K.  These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results implied by the forward-looking statements.  Forward-looking statements are indicated by words such as \"anticipate,\" \"believe,\" \"continue,\" \"could,\" \"estimate,\" \"can,\" \"may,\" \"might,\" \"intend,\" \"expect,\" \"plan,\" \"goal,\" \"predict,\" \"project,\" \"outlook,\" \"encourage,\" \"potential,\" \"should,\" \"will,\" and similar words and expressions.\n \n\n\n \n\n\nForward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause our actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements including those described in the \"Risk Factors\" and elsewhere in this Form 10-K.  Undue reliance should not be placed on our forward-looking statements.  New risks and uncertainties arise from time to time and we cannot predict these events or how they may affect us and cause actual results to differ materially from those expressed or implied by our forward-looking statements.  Therefore, you should not rely on our forward-looking statements as predictions of future events.  When considering these risks, uncertainties and assumptions, you should keep in mind the cautionary statements contained in this Form 10-K and any documents incorporated herein by reference.  You should read this document and the documents that we reference in this Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect.  All forward-looking statements attributable to us are expressly qualified by these cautionary statements.\n\n\n \n\n\nAll forward-looking statements included in this Form 10-K are made only as of the date indicated or as of the date of this Form 10-K.  Except as required by law, we undertake no obligation to update or announce any revisions to forward-looking statements contained in this Form 10-K, whether as a result of new information, future events or otherwise.\n\n\n\u00a0\n\n\n2\n\n\n\n\n\u00a0\n\n\n \n\n\nPAR\nT I\n\n\n(Dollar amounts in thousands except per share data)\n\n\n\u00a0\n\n",
+  "item7": ">Item 7.\t       \nManagement's Discussion and Analysis of Financial Condition and Results of Operations\n\n\n                                                         (Amounts in thousands, except per share data)\n\n\nOverview\n \n\n\nWe are a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy and process industries.  We design and manufacture custom-engineered vacuum, heat transfer, pump and turbomachinery technologies.  For the defense industry, our equipment is used in nuclear and non-nuclear propulsion, power, fluid transfer, and thermal management systems.  For the space industry our equipment is used in propulsion, power and energy management systems and for life support systems.  We supply equipment for vacuum, heat transfer and fluid transfer applications used in energy and new energy markets including oil refining, cogeneration, and multiple alternative and clean power applications including hydrogen.  For the chemical and petrochemical industries, our heat transfer equipment is used in fertilizer, ethylene, methanol and downstream chemical facilities.\n\n\n\u00a0\n\n\nOur brands are built upon engineering expertise and close customer collaboration to design, develop, and produce mission critical equipment and systems that enable our customers to meet their economic and operational objectives.  Continual improvement of our processes and systems to ensure qualified and compliant equipment are hallmarks of our brand.  Our early engagement with customers and support until the end of service life are values upon which our brands are built.\n\n\n \n\n\nOur corporate headquarters is located with our production facilities in Batavia, New York, where surface condensers and ejectors are designed, engineered, and manufactured.  Our wholly-owned subsidiary, Barber-Nichols, LLC (\"BN\"), based in Arvada, Colorado, designs, develops and manufactures specialty turbomachinery products for the aerospace, cryogenic, defense and energy markets (see \"Acquisition\" below).  We also have wholly-owned foreign subsidiaries, Graham Vacuum and Heat Transfer Technology Co., Ltd. (\"GVHTT\"), located in Suzhou, China and Graham India Private Limited (\"GIPL\"), located in Ahmedabad, India.  GVHTT provides sales and engineering support for us in the People's Republic of China and management oversight throughout Southeast Asia. GIPL serves as a sales and market development office focusing on the refining, petrochemical and fertilizer markets in India and the Middle East.\n\n\nThis management's discussion and analysis of financial condition and results of operations omits a comparative discussion regarding the fiscal year ended March 31, 2022 versus the fiscal year ended March 31, 2021.  Such information is located in Item 7 \u2013 Management's Discussion and Analysis of Financial Condition and Results of Operations of our \nAnnual Report on Form 10-K for the fiscal year ended March 31, 2022\n.\n \n\n\nOur fiscal year ends on March 31 of each year.  We refer to our fiscal year, which ended March 31, 2023, as fiscal 2023.  Likewise, we refer to our fiscal years that ended March 31, 2022 and March 31, 2021, as fiscal 2022 and fiscal 2021, respectively.\n \n\n\n\u00a0\n\n\nAcquisition\n\n\nWe completed the acquisition of BN on June 1, 2021, which changed the composition of our end market mix. For fiscal 2023, sales to the defense and space industries were 55% of our business compared with approximately 25% of sales prior to the acquisition.  The remaining 45% of our fiscal 2023 sales came from the refining, chemical/petrochemical and other commercial markets.  These markets represented approximately 75% of our sales prior to the acquisition.\n \n\n\n \n\n\nThe BN transaction was accounted for as a business combination, which requires that assets acquired and liabilities assumed be recognized at their fair value as of the acquisition date.  The purchase price of $72,014 was comprised of 610 shares of common stock, representing a value of $8,964 at $14.69 per share, and cash consideration of $61,150.  The cash consideration was funded through cash on-hand and debt proceeds (See Note 2 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K).  The purchase agreement also included a contingent earn-out dependent upon certain financial measures of BN post-acquisition, pursuant to which the sellers were eligible to receive up to $14,000 in additional cash consideration. At June 30, 2021, a liability of $1,900 was recorded for the contingent earn-out.  In the second quarter of the fiscal 2022, the earn-out agreement was terminated and the contingent liability was reversed into other operating (income) expense, net, on our Consolidated Statement of Operations.  In connection with the termination of this earn-out agreement, we entered into a Performance Bonus Agreement (the \"Bonus Agreement\") to provide employees of BN with cash performance-based awards based on the achievement of BN performance objectives for fiscal years ending March 31, 2024, 2025, and 2026 and can range between $2,000 to $4,000 per year.\n \n\n\n \n\n\n23\n\n\n\n\n\u00a0\n\n\nKey Results\n\n\nKey results for fiscal 2023 include the following:\n\n\n\u2022\nNet sales of $157,118 for fiscal 2023 increased $34,304 or 28% over the prior year period across our diversified revenue base.  Approximately $8,900 of this increase was due to having two less months of BN results in fiscal 2022 compared to fiscal 2023. Net sales also benefitted from strong growth in aftermarket sales to the refining and petrochemical markets of approximately $5,000 in comparison to the prior year, as well as growth in our commercial space market, which was driven by newly awarded programs with several key industry players.  Additionally, our defense market sales benefitted from improved execution and pricing in fiscal 2023 versus fiscal 2022.   \n\n\n\u2022\nOn April 4, 2023, Virgin Orbit Holdings, Inc. (\"Virgin Orbit\") commenced voluntary proceedings under Chapter 11 of the U.S. Bankruptcy Code (\"Chapter 11 Bankruptcy\").  As a result, we recorded reserves of approximately $2,500 for accounts receivable and inventory related to Virgin Orbit during fiscal 2023, net of associated performance-based compensation, and reversed approximately $4,000 of purchase orders.  During fiscal 2023, approximately $5,300 of space revenue and $3,000 of space orders related to Virgin Orbit.  As of March 31, 2023, we have $0 included in backlog related to Virgin Orbit.  As of March 31, 2023, we estimate that we have approximately $1,000 to $2,000 of additional exposure related to Virgin Orbit depending on the outcome of the bankruptcy proceedings, but currently do not expect any material financial impact to fiscal 2024 results.\n\n\n\u2022\nResults for fiscal 2022 included the impact of first article U.S. Navy project labor and material cost overruns due to our strategic decision to take on additional costs in order to meet our customer's delivery schedules.  We estimate that these strategic decisions for first article projects impacted our results in fiscal 2022 by over $10,000.  In fiscal 2023, we completed four first article U.S. Navy projects, which were the source of many of the losses in fiscal 2022, and remain on schedule to complete the remaining two first article projects by the end of the second quarter of our fiscal year ended March 31, 2024 (\"fiscal 2024\"). \n\n\n\u2022\nNet income and net income per diluted share for fiscal 2023 were $367 and $0.03 per share, respectively, compared with a loss of $8,773 and $0.83 per share, respectively, for fiscal 2022.  This increase over the prior year was driven by our higher sales, an improved mix of sales related to higher margin projects (commercial space and aftermarket), improved execution, especially on our strategic U.S. Navy programs which resulted in losses in fiscal 2022, and strong cost discipline partially offset by the Virgin Orbit reserves discussed above.   \n\n\n\u2022\nAdjusted net income and adjusted net income per diluted share for fiscal 2023 were $2,519 and $0.24 per share, respectively, compared with an adjusted loss and adjusted loss per diluted share of $6,582 and $0.62 per share, respectively, for fiscal 2022. See \"Non-GAAP Measures\" below for important information about these measures and a reconciliation of adjusted net income (loss) and adjusted net income (loss) per diluted share to the comparable GAAP amount.\n\n\n\u2022\nOrders booked in fiscal 2023 were $202,686 compared to $143,875 in fiscal 2022 and were 129% of sales during fiscal 2023. This increase was primarily due to a $53,499 increase in defense orders and was primarily from repeat orders in strategic U.S. Navy programs.  We believe these repeat orders validate the investments we made, our position as a key supplier to the defense industry, and our customer\u2019s confidence in our execution.  Fiscal 2023 orders were also strong to the refining and petrochemical aftermarket, which increased 34% over the prior year, but were partially offset by lower large capital investment projects by our refining and petrochemical customers.  Fiscal 2023 orders also benefitted from newly awarded programs with several key commercial space and new energy customers.  For additional information see \"Orders and Backlog\" below. \n\n\n\u2022\nBacklog was $301,734 at March 31, 2023, compared with $256,537 at March 31, 2022.  This 18% increase was primarily due to the growth in orders received during 2023 in the defense and new energy markets.  Approximately 81% of our backlog at March 31, 2023 was to the defense industry, which we believe provides stability and visibility to our business.  For additional information see \"Orders and Backlog\" below.\n\n\n\u2022\nCash and cash equivalents at March 31, 2023 was $18,257, compared with $14,741 at March 31, 2022.  This increase was primarily due to cash provided by operating activities of $13,914, partially offset by net repayment of debt of $6,000 and $3,749 of capital expenditures as we began to invest in longer-term growth opportunities.  Cash provided by operating activities includes approximately $13,000 of customer deposits received for material purchases on a long-term U.S. Navy defense contracts that will be paid over the next twelve months as materials are received.  These cash receipts were partially offset by an increase in working capital, in particular unbilled revenue, which is expected to generate positive cash flow in fiscal 2024.\n\n\n\u2022\nIn fiscal 2023, we did not pay dividends to shareholders compared with $3,523 of dividends paid in fiscal 2022.  In the fourth quarter of fiscal 2022, we suspended our dividend in accordance with the terms of our credit agreement with Bank of America. There can be no guarantee that we will pay dividends in the future, and any determination by our board of directors with respect to \n\n\n24\n\n\n\n\n\u00a0\n\n\ndividends will depend on a variety of factors, including our future financial performance, organic growth and acquisition opportunities, general economic conditions and other factors, many of which are beyond our control.\n\n\n\u2022\nAt March 31, 2023, we had $0 outstanding on our line of credit and $10,016 available to be drawn under our line of credit subject to financial covenants under our credit facility.  We believe cash flow from operations, availability under our line of credit, along with our cash balances, provide us adequate financial flexibility to meet our obligations.  As of March 31, 2023, our bank leverage ratio calculated in accordance with our amended credit agreement was 2.1x and we were in compliance with all financial covenants of that agreement.  For additional information see \"Liquidity and Capital Resources\" below.\n\n\nCurrent Market Conditions\n \n\n\n \n\n\nDemand for our equipment and systems for the defense industry is expected to remain strong and continue to expand, based on our significant backlog, improved execution, long-standing relationship with the U.S. Navy, the strategic programs we are qualified on, the projected procurement of submarines, aircraft carriers and undersea propulsion and power systems and the solutions we provide.  In addition to U.S. Navy applications, we also provide specialty pumps, turbines, compressors and controllers for various fluid and thermal management systems used in Department of Defense radar, laser, electronics and power systems.  We have built a leading position, and in some instances a sole source position, for certain systems and equipment for the defense industry.\n\n\n \n\n\nOur traditional energy markets are undergoing significant transition.  While we expect that fossil fuels will continue to be an important component in the global energy industry for many years to come, there are significant changes in the priorities for capital investments by our customers and the regions in which those investments are being made.  We expect that the changes in the energy markets, which are influenced by conservation and the increasing use of alternative fuels, will lead to demand growth for fossil-based fuels that is less than the global growth rate.  Currently, opportunities in the energy markets outside North America have been greater than opportunities inside of North America, but opportunities outside of North America are highly competitive and pricing is challenging.  In those instances, we have been selective in the opportunities we have pursued in order to ensure we receive the proper returns.  Over the long-term, we anticipate that future investment by refiners in renewable fuels (e.g., renewable diesel), in existing refineries (e.g., to expand feedstock processing flexibility and to improve conversion of oil to refined products) to gain greater throughput, or to build new capacity (e.g., integrated refineries with petrochemical products capabilities), will continue to drive demand for our products and services.  The timing and catalyst for a recovery in these markets (crude oil refining and chemical/petrochemical) remains uncertain.  Accordingly, we believe that in the near term the quantity of projects available for us to compete for will remain low and that new project pricing will remain challenging.\n \n\n\n \n\n\nOf note, during fiscal 2023, we have experienced an increase in our aftermarket orders to the refining and petrochemical markets, primarily from the domestic market.  Aftermarket orders have historically been a leading indicator of future capital investment by our customers in their facilities for upgrades and expansions.  As such, we believe there is the possibility of a cyclical upturn following several years of reduced capital spending in a low oil price environment.  Additionally, the financial performance of some of our larger energy customers improved during fiscal 2023, which may provide funding for capital spending.  However, we do not expect the next cycle to be as robust as years past due to the factors discussed above.\n \n\n\n \n\n\nThe alternative and clean energy opportunities for our heat transfer, power production and fluid transfer systems are expected to continue to grow.  We assist in designing, developing and producing equipment for hydrogen production, distribution and fueling systems, concentrated solar power and storage, geothermal power and lithium production, and small modular nuclear systems.  We are positioning the Company to be a more significant contributor as these markets continue to develop.\n\n\n \n\n\nWe believe that chemical and petrochemical capital investment will continue to decouple from energy investment.  Over the long-term, we expect that population growth, an expanding global middle class, and an increasing desire for improved quality of life and access to consumer products will drive increased demand for industrial goods within the plastics and resins value chain along with fertilizers and related products.  As such, we expect investment in new global chemical and petrochemical capacity will improve and drive growth in demand for our products and services over the long-term.\n \n\n\n \n\n\nOur turbomachinery, pumps, and cryogenic products and market access provide revenue and growth potential in the commercial space/aerospace markets.  The commercial space market has grown and evolved rapidly, and we provide rocket engine turbopump systems and components to many of the key players in the industry.  We expect that in the long-term, extended space exploration will become more prevalent, and we anticipate that our thermal/fluid management and environmental control and life support system turbomachinery will play important roles.  We are also participating in future aerospace power and propulsion system development through supply of fluid and thermal management systems components.  Small power dense systems are imperative for these applications, and we believe our technology and expertise will enable us to achieve sales growth in this market as well.  For fiscal 2023, sales to the space industry represented 13% of our sales compared to 0% prior to the BN acquisition.  Sales and orders to the space industry are variable in nature and many of our customers, who are key players in the industry, have yet to achieve profitability and may be unable\n \n\n\n25\n\n\n\n\n\u00a0\n\n\nto continue operations without additional funding similar to Virgin Orbit.  Thus, future revenue and growth to this market can be uncertain and may negatively impact our business.\n\n\n \n\n\n \n\n\nThe chart below illustrates our strategy to increase our participation in the defense market.  The defense market comprised 81% of our total backlog at March 31, 2023 and generally have longer conversion times than our other markets.  We believe this strategy shift provides us more stability and visibility and is especially beneficial when our refining and petrochemical markets are weak.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26\n\n\n\n\n\u00a0\n\n\nResults of Operations\n\n\n\u00a0\n\n\nFor an understanding of the significant factors that influenced our performance, the following discussion should be read in conjunction with our consolidated financial statements and the notes to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K.\n \n\n\nThe following table summarizes our results of operations for the periods indicated:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended March 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n157,118\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n122,814\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n$\n\n\n25,408\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n9,129\n\n\n\u00a0\n\n\n\n\n\n\nGross profit margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.4\n\n\n%\n\n\n\n\n\n\nSG&A expense \n(1)\n\n\n\u00a0\n\n\n$\n\n\n24,158\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n21,299\n\n\n\u00a0\n\n\n\n\n\n\nSG&A as a percent of sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n17.3\n\n\n%\n\n\n\n\n\n\nNet income (loss)\n\n\n\u00a0\n\n\n$\n\n\n367\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(8,773\n\n\n)\n\n\n\n\n\n\nDiluted income (loss) per share\n\n\n\u00a0\n\n\n$\n\n\n0.03\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(0.83\n\n\n)\n\n\n\n\n\n\nTotal assets\n\n\n\u00a0\n\n\n$\n\n\n203,918\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n183,691\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nSelling, general and administrative expense is referred to as \"SG&A.\"\t\n\n\nFiscal 2023 Compared with Fiscal 2022\n\n\nThe following tables provides our net sales by product line and geographic region including the percentage of total sales and change in comparison to the prior year for each category and period presented:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nMarch 31,\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\n\n\n\nMarket\n\n\n2023\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\n\n\n\nRefining\n\n\n$\n\n\n27,270\n\n\n\u00a0\n\n\n\u00a0\n\n\n17\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n24,406\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n2,864\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n%\n\n\n\n\n\n\nChemical/Petrochemical\n\n\n\u00a0\n\n\n21,950\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,955\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,995\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38\n\n\n%\n\n\n\n\n\n\nSpace\n\n\n\u00a0\n\n\n21,180\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,744\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,436\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n269\n\n\n%\n\n\n\n\n\n\nDefense\n\n\n\u00a0\n\n\n65,327\n\n\n\u00a0\n\n\n\u00a0\n\n\n42\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n62,189\n\n\n\u00a0\n\n\n\u00a0\n\n\n51\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,138\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n%\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n21,391\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,520\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,871\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n47\n\n\n%\n\n\n\n\n\n\nNet sales\n\n\n$\n\n\n157,118\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n122,814\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n34,304\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGeographic Region\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnited States\n\n\n$\n\n\n127,519\n\n\n\u00a0\n\n\n\u00a0\n\n\n81\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n97,718\n\n\n\u00a0\n\n\n\u00a0\n\n\n80\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n29,801\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30\n\n\n%\n\n\n\n\n\n\nInternational\n\n\n\u00a0\n\n\n29,599\n\n\n\u00a0\n\n\n\u00a0\n\n\n19\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,096\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,503\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n%\n\n\n\n\n\n\nNet sales\n\n\n$\n\n\n157,118\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n122,814\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n34,304\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28\n\n\n%\n\n\n\n\n\n\nNet sales for fiscal 2023 were $157,118, an increase of 28% from fiscal 2022 and was across our diversified revenue base.  Approximately $8,900 of this increase was due to having two less months of BN results in fiscal 2022 compared to fiscal 2023.  Net sales also benefitted from strong growth in aftermarket sales to the refining and petrochemical markets of approximately $5,000 in comparison to the prior year, as well as growth in our commercial space market which was driven by newly awarded programs.  Additionally, our defense market sales benefitted from improved execution and pricing in fiscal 2023 versus fiscal 2022.  See also \"Current Market Conditions,\" above. For additional information on anticipated future sales and our markets, see \"Orders and Backlog\" below.\n\n\nOur gross margin for fiscal 2023 was 16.2% compared with 7.4% for fiscal 2022.  This increase was primarily due to an improved mix of sales related to higher margin projects (commercial space and aftermarket) and improved execution and pricing on defense contracts, partially offset by approximately $800 impact of Virgin Orbit reserves, net of applicable performance-based compensation, and higher overall incentive based compensation in comparison to the prior year.  Results for fiscal 2022 included the impact of first article Navy project labor and material cost overruns.  We estimate that the impact of these labor and material cost increases for first article Navy projects, was over $10,000 in fiscal 2022.  In fiscal 2023, we completed four first article U.S. Navy projects, which were the source of many of the losses in fiscal 2022, and remain on schedule to complete the remaining two first article projects by the end of the second quarter of fiscal 2024.  In addition to the above, fiscal 2023 included two additional months of operations from BN compared to fiscal 2022 which was acquired in June 2021.\n \n\n\nSG&A expense including amortization for fiscal 2023 was $24,447, up $3,148 compared with $21,299 for fiscal 2022. Approximately $1,400 of this increase was due to having two less months of BN results in fiscal 2022 compared to fiscal 2023, approximately $1,700 impact of Virgin Orbit reserves net of applicable performance-based compensation, as well as higher overall\n \n\n\n27\n\n\n\n\n\u00a0\n\n\nincentive compensation.  These increases were partially offset by cost savings and deferred initiatives, which included reducing the use of outside sales agents, cost management, and delayed hiring of non-critical positions.  Additionally, SG&A expense for fiscal 2022 included $562 of acquisition and integration costs incurred in connection with the BN acquisition.  As a result, SG&A expense as a percentage of sales for fiscal 2023 was 15.4% of sales compared with 17.3% of sales in the prior year period.\n \n\n\nDuring fiscal 2022, we terminated the BN contingent earn-out agreement and the contingent liability of $1,900 was reversed into other operating (income) expense, net, on our Consolidated Statement of Operations.  In connection with the termination of this earn-out agreement, we entered into a Bonus Agreement to provide employees of BN with cash performance-based awards based on results of BN for fiscal years ending March 31, 2024, 2025, and 2026.  Additionally, in fiscal 2022 we incurred $1,073 of severance costs related to the departure of our former Chief Executive Officer and former Chief Financial Officer, which was also recorded in other operating (income) expense, net.\n\n\nNet interest expense for fiscal 2023 was $939 compared to $400 in fiscal 2022 primarily due to borrowings related to the BN acquisition, as well as increased interest rates since the time of the acquisition.\n\n\nOur effective tax rate for fiscal 2023 was 35%, compared with 22% for fiscal 2022.  This increase was primarily due to discrete tax expense recognized in fiscal 2023 related to the vesting of restricted stock awards, as well as a higher mix of income in higher tax rate foreign jurisdictions.  Our expected effective tax rate for fiscal 2024 is approximately 22% to 23%.\n \n\n\nThe net result of the above is that net income and net income per diluted share for fiscal 2023 were $367 and $0.03 per share, respectively, compared with a loss of $8,773 and $0.83 per share, respectively, for fiscal 2022.  Adjusted net income and adjusted net income per diluted share for fiscal 2023 were $2,519 and $0.24 per share, respectively, compared with a loss of $6,582 and $0.62 per share, respectively, for fiscal 2022.  See \"Non-GAAP Measures\" below for important information about these measures and a reconciliation of adjusted net income (loss) and adjusted net income (loss) per diluted share to the comparable GAAP amount.\n\n\nNon-GAAP Measures\n\n\nAdjusted net income (loss) before net interest expense, income taxes, depreciation and amortization (\"EBITDA\"), adjusted net income (loss), and adjusted net income (loss) per diluted share are provided for information purposes only and are not measures of financial performance under accounting principles generally accepted in the U.S. (\"GAAP\").  Management believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information to investors and other users of our financial statements in evaluating the operating results of the Company.  In particular, those charges and credits that are not directly related to operating performance, and that are not a helpful measure of the performance of our underlying business particularly in light of their unpredictable nature.  These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for net income (loss) or net income (loss) per diluted share determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.  In addition, supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to net income (loss) or net income (loss) per diluted share determined in accordance with GAAP.  Adjusted EBITDA, adjusted net income (loss) and adjusted net income (loss) per diluted share are key metrics used by management and our board of directors to assess the Company\u2019s financial and operating performance and adjusted EBITDA is a basis for a portion of management's performance-based compensation.\n\n\n Adjusted EBITDA excludes charges for depreciation, amortization, net interest expense, taxes, acquisition related expenses, and other unusual/nonrecurring expenses.  Adjusted net income (loss) and adjusted net income (loss) per diluted share exclude intangible amortization, acquisition related expenses, other unusual/nonrecurring expenses and the related tax impacts of those adjustments.\n\n\n A reconciliation of adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per diluted share to net income (loss) in accordance with GAAP is as follows:\n\n\n28\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nMarch 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nNet income (loss)\n\n\n$\n\n\n367\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(8,773\n\n\n)\n\n\n\n\n\n\n\u00a0Acquisition related inventory step-up expense\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n95\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0Acquisition & integration costs\n\n\n\u00a0\n\n\n54\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n562\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0Change in fair value of contingent consideration\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,900\n\n\n)\n\n\n\n\n\n\n\u00a0CEO and CFO transition costs\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,182\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0Debt amendment costs\n\n\n\u00a0\n\n\n194\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n278\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0Net interest expense\n\n\n\u00a0\n\n\n939\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n400\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0Income taxes\n\n\n\u00a0\n\n\n194\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,443\n\n\n)\n\n\n\n\n\n\n\u00a0Depreciation & amortization\n\n\n\u00a0\n\n\n5,987\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,599\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted EBITDA\n\n\n$\n\n\n7,735\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(5,000\n\n\n)\n\n\n\n\n\n\nAdjusted EBITDA as a % of revenue\n\n\n\u00a0\n\n\n4.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4.1\n\n\n%)\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nMarch 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nNet income (loss)\n\n\n$\n\n\n367\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(8,773\n\n\n)\n\n\n\n\n\n\n\u00a0Acquisition related inventory step-up expense\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n95\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0Acquisition & integration costs\n\n\n\u00a0\n\n\n54\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n562\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0Amortization of intangible assets\n\n\n\u00a0\n\n\n2,476\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,522\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0Change in fair value of contingent consideration\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,900\n\n\n)\n\n\n\n\n\n\n\u00a0CEO and CFO transition costs\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,182\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0Debt amendment costs\n\n\n\u00a0\n\n\n194\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n278\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0Normalize tax rate\n(1)\n\n\n\u00a0\n\n\n(572\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(548\n\n\n)\n\n\n\n\n\n\nAdjusted net income (loss)\n\n\n$\n\n\n2,519\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(6,582\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGAAP diluted net income (loss) per share\n\n\n$\n\n\n0.03\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(0.83\n\n\n)\n\n\n\n\n\n\nAdjusted diluted net income (loss) per share\n\n\n$\n\n\n0.24\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(0.62\n\n\n)\n\n\n\n\n\n\nDiluted weighted average common shares outstanding\n\n\n\u00a0\n\n\n10,654\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,541\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(1)\n\u00a0Applies a normalized tax rate to non-GAAP adjustments, which are pre-tax, based upon the statutory tax rate of 21%.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\n\n\u00a0\n\n\nThe following discussion should be read in conjunction with our consolidated statements of cash flows and consolidated balance sheets appearing in Item 8 of Part II of this Annual Report on Form 10-K:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nMarch 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents\n\n\n\u00a0\n\n\n$\n\n\n18,257\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14,741\n\n\n\u00a0\n\n\n\n\n\n\nWorking capital\n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,904\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,796\n\n\n\u00a0\n\n\n\n\n\n\nWorking capital ratio\n(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.5\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nWorking capital equals current assets minus current liabilities.  \n\n\n(2)\nWorking capital ratio equals current assets divided by current liabilities.\n\n\nWe use the above ratios to assess our liquidity and overall financial strength.\n\n\nNet cash provided by operating activities for fiscal 2023 was $13,914 compared with $2,219 of cash used by operating activities for fiscal 2022.  This increase was primarily due to higher cash net income during fiscal 2023 than the comparable prior year period, partially offset by lower cash flow from net working capital.  Results for fiscal 2022 included the impact of our strategic decision to take on additional costs in order to meet our U.S. Navy customers delivery schedules.  We believe the increased level of repeat defense orders received during fiscal 2023 validates the investments we made, our position as a key supplier to the defense industry and our customer\u2019s confidence in our execution.  In fiscal 2023 we collected approximately $13,000 of customer deposits related to material purchases for\n \n\n\n29\n\n\n\n\n\u00a0\n\n\na large U.S. Navy order that will be paid over the next nine months as materials are received.  This increase in customer deposits was more than offset by increases in inventories and unbilled revenue due to growth and the timing of billing milestones.  Net repayment of debt for fiscal 2023 was $6,000 compared to a net borrowing of $18,500 for fiscal 2022 primarily due to the cash used for the acquisition of BN of $60,282.\n \n\n\nDividend payments and capital expenditures in fiscal 2023 were $0 and $3,749, respectively, compared with $3,523 and $2,324, respectively, for fiscal 2022.  In the fourth quarter of fiscal 2022, we suspended our dividend in accordance with the terms of our credit agreement with Bank of America.  There can be no guarantee that we will pay dividends in the future and any determination by our board of directors with respect to dividends will depend on a variety of factors, including our future financial performance, organic growth and acquisition opportunities, general economic conditions and other factors, many of which are beyond our control. Capital expenditures for fiscal 2024 are expected to be approximately $5,500 to $7,000.  Our fiscal 2024 capital expenditures are expected to be primarily for machinery and equipment, as well as for buildings and leasehold improvements to fund our growth and productivity improvement initiatives.  The majority of our planned capital expenditures are discretionary.  We estimate that our maintenance capital spend is approximately $2,000 per year.\n\n\n Cash and cash equivalents were $18,257 at March 31, 2023 compared with $14,741 at March 31, 2022, as cash provided by operating activities was used to fund capital expenditures and repayment of debt.  At March 31, 2023, approximately $6,968 of our cash and cash equivalents was used to secure our letters of credit and $2,618 of our cash was held by our subsidiaries in China and India.\n\n\n On June 1, 2021, we entered into a $20,000 five-year loan with Bank of America.  The term loan requires monthly principal payments of $167 through June 1, 2026, with the remaining principal amount plus all interest due on the maturity date.  The interest rate on the term loan is the applicable Bloomberg Short-Term Bank Yield Index (\"BSBY\"), plus 1.50%, subject to a 0.00% floor.\n \n\n\n On June 1, 2021, we entered into a five-year revolving credit facility with Bank of America that provided a $30,000 line of credit, including letters of credit and bank guarantees, expandable at our option and the bank's approval at any time up to $40,000.  As of March 31, 2023, there was $0 outstanding on the line of credit. Amounts outstanding under the facility agreement bear interest at a rate equal to BSBY plus 1.50%, subject to a 0.00% floor.  As of March 31, 2023, the BSBY rate was 4.92%. As of March 31, 2023, there was $5,874 letters of credit outstanding with Bank of America.\n \n\n\n Under the original term loan agreement and revolving credit facility, we covenanted to maintain a maximum total leverage ratio, as defined in such agreements, of 3.0 to 1.0, with an allowable increase to 3.25 to 1.0 for a period of twelve months following the closing of an acquisition.  In addition, we covenanted to maintain a minimum fixed charge coverage ratio, as defined in such agreements, of 1.2 to 1.0 and minimum margined assets, as defined in such agreements, of 100% of total amounts outstanding on the revolving credit facility, including letters of credit.  At December 31, 2021, we were out of compliance with our bank agreement covenants and were granted a waiver for noncompliance by Bank of America.\n \n\n\n We entered into amendment agreements with Bank of America since origination.  Under the amended agreements, we were not required to comply with the maximum total leverage ratio and the minimum fixed charge coverage ratio covenants contained in the original term loan agreement for the periods ending December 31, 2021 and March 31, June 30 and September 30, 2022.  The principal balance outstanding on the line of credit may not exceed $15,000, unless letters of credit exceed $11,500, in which case the limit is $17,000, until the compliance date.  The compliance date is defined as the date on which Bank of America has received all required financial information with respect to us for the fiscal year ending March 31, 2023 and no event of default exists.  In addition, on or before September 1, 2023 and at all times thereafter, all of our deposit accounts, except certain accounts, will be either subject to a deposit account control agreement or maintained with Bank of America.  We covenanted to maintain EBITDA, as defined in such amendment, of at least ($700) for the twelve-month period ending June 30, 2022 and $1,800 for the twelve-month period ending September 30, 2022; maintain a total maximum leverage ratio of 4.0 to 1.0 for the twelve-month period ending December 31, 2022 and 3.0 to 1.0 for the period ending March 31, 2023; and maintain liquidity, as defined in such amendment, of at least $10,000 prior to the occurrence of the compliance date and $20,000 from and after the occurrence of the compliance date. As of March 31, 2023, we were in compliance with the amended financial covenants of our loan agreement and our leverage ratio as calculated in accordance with the terms of the credit facility was 2.1x.  At March 31, 2023, the amount available under the revolving credit facility was $10,016 subject to the above liquidity and leverage covenants.\n \n\n\n We did not have any off-balance sheet arrangements as of March 31, 2023 other than letters of credit incurred in the ordinary course of business.\n\n\n We believe that cash generated from operations, combined with the liquidity provided by available financing capacity under our credit facility, will be adequate to meet our cash needs for the immediate future.\n\n\n\u00a0\n\n\n30\n\n\n\n\n\u00a0\n\n\nStockholders' Equity\n\n\nThe following discussion should be read in conjunction with our consolidated statements of changes in stockholders' equity that can be found in Item 8 of Part II of this Annual Report on Form 10-K.  The following table shows the balance of stockholders' equity on the dates indicated:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nMarch 31, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nMarch 31, 2022\n\n\n\u00a0\n\n\n\n\n\n\n$\n\n\n96,933\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n96,494\n\n\n\u00a0\n\n\n\n\n\n\nOrders and Backlog\n\n\nIn addition to the non-GAAP measures discussed above, management uses the following key performance metrics to analyze and measure the Company\u2019s financial performance and results of operations: orders, backlog, and book-to-bill ratio.  Management uses orders and backlog as measures of current and future business and financial performance and these may not be comparable with measures provided by other companies.  Orders represent written communications received from customers requesting the Company to provide products and/or services.  Backlog is defined as the total dollar value of net orders received for which revenue has not yet been recognized.  Management believes tracking orders and backlog are useful as it often times is a leading indicator of future performance.  In accordance with industry practice, contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer.\n \n\n\nThe book-to-bill ratio is an operational measure that management uses to track the growth prospects of the Company.  The Company calculates the book-to-bill ratio for a given period as net orders divided by net sales.\n\n\nGiven that each of orders, backlog and book-to-bill ratio is an operational measure and that the Company's methodology for calculating orders, backlog and book-to-bill ratio does not meet the definition of a non-GAAP measure, as that term is defined by the U.S. Securities and Exchange Commission, a quantitative reconciliation for each is not required or provided.\n\n\nThe following table provides our orders by market and geographic region including the percentage of total orders and change in comparison to the prior year for each category and period presented:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nMarch 31,\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\n\n\n\nMarket\n\n\n2023\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\n\n\n\nRefining\n\n\n$\n\n\n29,276\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n28,411\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n865\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\n\n\n\nChemical/Petrochemical\n\n\n\u00a0\n\n\n15,306\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n22,241\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,935\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-31\n\n\n%\n\n\n\n\n\n\nSpace\n\n\n\u00a0\n\n\n15,160\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,733\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,427\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41\n\n\n%\n\n\n\n\n\n\nDefense\n\n\n\u00a0\n\n\n116,714\n\n\n\u00a0\n\n\n\u00a0\n\n\n58\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n63,215\n\n\n\u00a0\n\n\n\u00a0\n\n\n44\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n53,499\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n85\n\n\n%\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n26,230\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,275\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,955\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n36\n\n\n%\n\n\n\n\n\n\nTotal orders\n\n\n$\n\n\n202,686\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n143,875\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n58,811\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGeographic Region\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnited States\n\n\n$\n\n\n167,984\n\n\n\u00a0\n\n\n\u00a0\n\n\n83\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n117,106\n\n\n\u00a0\n\n\n\u00a0\n\n\n81\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n50,878\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n43\n\n\n%\n\n\n\n\n\n\nInternational\n\n\n\u00a0\n\n\n34,702\n\n\n\u00a0\n\n\n\u00a0\n\n\n17\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,769\n\n\n\u00a0\n\n\n\u00a0\n\n\n19\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,933\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30\n\n\n%\n\n\n\n\n\n\nTotal orders\n\n\n$\n\n\n202,686\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n143,875\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n58,811\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41\n\n\n%\n\n\n\n\n\n\nOrders booked in fiscal 2023 were $202,686 compared to $143,875 in fiscal 2022. This increase was primarily driven by growth in defense, refining and petrochemical aftermarket, space, and new energy customers. Noteworthy orders during fiscal 2023 included the following:\n\n\n\u2022\n$116,714 from the defense industry driven by repeat orders for critical U.S. Navy programs including a $23,000 follow-on order to support the MK48 Mod 7 Heavyweight Torpedo program;\n\n\n\u2022\n$40,566 from the refining and petrochemical aftermarket; \n\n\n\u2022\n$15,160 of orders for highly engineered pumps and turbo pumps for a variety of applications and customers in the commercial space industry (of which approximately $3,000 were to Virgin Orbit);\n\n\n\u2022\nIncreased orders to the new energy market including hydrogen, solar, and geothermal with lithium extraction including a $5,000 order for a vacuum system for the Hell\u2019s Kitchen Stage 1 Project in the Imperial Valley of California; and\n\n\n\u2022\n$7.0 million for a vacuum system for a refinery in India.\n\n\n For fiscal 2023, our book-to-bill ratio was 1.3x.  We believe the increased level of repeat U.S. Navy orders received during the fiscal year validates the investments we made, our position as a key supplier to the defense industry and our customer\u2019s confidence\n \n\n\n31\n\n\n\n\n\u00a0\n\n\nin our execution.  Additionally, we believe the strong aftermarket orders are significant because they historically have been a leading indicator of a cyclical upturn in capital project orders.  However, we do not expect the next cycle to be as robust as years past due to the factors discussed above under \"Current Market Conditions.\"  The increase in space orders for fiscal 2023 over fiscal 2022 was due to newly awarded programs, as well as having an additional two months of BN operations included in the results for fiscal 2023.\n \n\n\n Orders to the U.S. represented 83% of total orders for fiscal 2023 and is relatively consistent with the prior year.  These orders were primarily to the defense and space markets, which represented 58% and 7% of orders, respectively, and are U.S. based.\n\n\nThe following table provides our backlog by market, including the percentage of total backlog, for each category and period presented:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nMarch 31,\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nMarch 31,\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\n\n\n\nMarket\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\n\n\n\nRefining\n\n\n\u00a0\n\n\n$\n\n\n26,142\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n25,402\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n$\n\n\n740\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\n\n\n\nChemical/Petrochemical\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,842\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,647\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n%\n\n\n\u00a0\n\n\n(5,805\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-43\n\n\n%\n\n\n\n\n\n\nSpace\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,242\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,283\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n%\n\n\n\u00a0\n\n\n(3,041\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-27\n\n\n%\n\n\n\n\n\n\nDefense\n\n\n\u00a0\n\n\n\u00a0\n\n\n243,628\n\n\n\u00a0\n\n\n\u00a0\n\n\n81\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n194,758\n\n\n\u00a0\n\n\n\u00a0\n\n\n76\n\n\n%\n\n\n\u00a0\n\n\n48,870\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n%\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,880\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,447\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n%\n\n\n\u00a0\n\n\n4,433\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n39\n\n\n%\n\n\n\n\n\n\nTotal backlog\n\n\n\u00a0\n\n\n$\n\n\n301,734\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n256,537\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n$\n\n\n45,197\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n%\n\n\n\n\n\n\nBacklog was $301,734 at March 31, 2023, an increase of 18% compared with $256,537 at March 31, 2022.  Approximately 50% to 55% of orders currently in our backlog are expected to be converted to sales within one year and 25% to 30% after one year but within two years.  The majority of the orders that are expected to convert beyond twelve months are for the defense industry, specifically the U.S. Navy that have a long conversion cycle (up to six years).\n \n\n\nOutlook\n\n\nWe are providing the following fiscal 2024 outlook:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet Sales\n\n\n\u00a0\n\n\n$165 million to $175 million\n\n\n\n\n\n\nGross Profit\n\n\n\u00a0\n\n\n17% to 18% of sales\n\n\n\n\n\n\nSG&A Expenses\n(1)\n\n\n\u00a0\n\n\n15% to 16% of sales\n\n\n\n\n\n\nTax Rate\n\n\n\u00a0\n\n\n22% to 23%\n\n\n\n\n\n\nAdjusted EBITDA\n(2)\n\n\n\u00a0\n\n\n$10.5 million to $12.5 million\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(1)\n\u00a0Includes approximately $2 million to $3 million of BN performance bonus and approximately $0.5 million to $1.0 million of ERP conversion costs.\n\n\n\n\n\n\n(2)\n\u00a0Excludes approximately $2 million to $3 million of BN performance bonus and approximately $0.5 million to $1.0 million of ERP conversion costs.\n\n\n\n\n\n\nSee \"Cautionary Note Regarding Forward-Looking Statements\" and \"Non-GAAP Measures\" above for additional information about forward-looking statements and non-GAAP measures.  We have not reconciled non-GAAP forward-looking Adjusted EBITDA to its most directly comparable GAAP measure, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K.  Such reconciliation would require unreasonable efforts to estimate and quantify various necessary GAAP components largely because forecasting or predicting our future operating results is subject to many factors out of our control or not readily predictable.\n\n\nWe have made significant progress with the advancements in our business, which puts us ahead of schedule in achieving our fiscal 2027 goals. As a result, we now believe that we can achieve greater than $200 million in revenue (8% to 10% average annualized revenue growth) and adjusted EBITDA margins in the low to mid-teens in fiscal 2027.\n\n\n Our expectations for sales and profitability assume that we will be able to operate our production facilities at planned capacity, have access to our global supply chain including our subcontractors, do not experience significant global health related disruptions, and assumes no further impact from Virgin Orbit or any other unforeseen events.\n \n\n\nContingencies and Commitments\n\n\n\u00a0\n\n\nWe have been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in or accompanying our products.  We are a co-defendant with numerous other defendants in these lawsuits and intend to vigorously defend ourselves against these claims.  The claims in our current lawsuits are similar to those made in previous asbestos lawsuits that named us as a defendant.  Such previous lawsuits either were dismissed when it was shown that we had not supplied products to the plaintiffs\u2019 places of work, or were settled by us for immaterial amounts.\n\n\n \n\n\n32\n\n\n\n\n\u00a0\n\n\nAs of March 31, 2023, we are subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business.  Although the outcome of the lawsuits, legal proceedings or potential claims to which we are or may become a party cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made for the majority of the claims, we do not believe that the outcomes, either individually or in the aggregate, will have a material adverse effect on our results of operations, financial position or cash flows.\n\n\nCritical Accounting Policies\n\n\nThe discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements and the notes to consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K, which have been prepared in accordance with GAAP.\n\n\nCritical accounting policies are defined as those that reflect significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions.\n\n\nRevenue Recognition.  \nThe Company accounts for revenue in accordance with Accounting Standard Codification 606, \"Revenue from Contracts with Customers\" (\"ASC 606\").\n\n\nWe recognize revenue on all contracts when control of the product is transferred to the customer.  Control is generally transferred when products are shipped, title is transferred, significant risks of ownership have transferred, we have rights to payment, and rewards of ownership pass to the customer.  Customer acceptance may also be a factor in determining whether control of the product has transferred.  Although revenue on the majority of our contracts, as measured by number of contracts, is recognized upon shipment to the customer, revenue on larger contracts, which are fewer in number but generally represent the majority of revenue, is recognized over time as these contracts meet specific criteria in ASC 606.  Revenue from contracts that is recognized upon shipment accounted for approximately 26% of revenue in fiscal 2023.  Revenue from contracts that is recognized over time accounted for approximately 74% of revenue in fiscal 2023.  We recognize revenue over time when contract performance results in the creation of a product for which we do not have an alternative use and the contract includes an enforceable right to payment in an amount that corresponds directly with the value of the performance completed.  To measure progress towards completion on performance obligations for which revenue is recognized over time the Company utilizes an input method based upon a ratio of direct labor hours incurred to date to management\u2019s estimate of the total labor hours to be incurred on each contract, or cost incurred to date to management's estimate of the total cost to be incurred on each contract, or an output method based upon completion of operational milestones, depending upon the nature of the contract.\n \n\n\n\u00a0\n\n\nBusiness Combinations and Intangible Assets.  \nAssets and liabilities acquired in a business combination are recorded at their estimated fair values at the acquisition date.  The fair value of identifiable intangible assets is based upon detailed valuations that use various assumptions made by management.  Goodwill is recorded when the purchase price exceeds the estimated fair value of the net identifiable tangible and intangible assets acquired.  Definite lived intangible assets are amortized over their estimated useful lives and are assessed for impairment if certain indicators are present.  Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to impairment testing annually or earlier if an event or change in circumstances indicates that the fair value of a reporting unit or the indefinite lived asset may have been reduced below its carrying value.\n \n\n\n\u00a0\n\n\nPension and Postretirement Benefits.  \nDefined benefit pension and other postretirement benefit costs and obligations are dependent on actuarial assumptions used in calculating such amounts.  These assumptions are reviewed annually and include the discount rate, long-term expected rate of return on plan assets, salary growth, healthcare cost trend rate and other economic and demographic factors.  We base the discount rate assumption for our plans on the FTSE Pension Liability Above-Median AA-Index.  The long-term expected rate of return on plan assets is based on the plan\u2019s asset allocation, historical returns and expectations as to future returns that are expected to be realized over the estimated remaining life of the plan liabilities that will be funded with the plan assets.  The salary growth assumptions are determined based on long-term actual experience and future and near-term outlook.  The healthcare cost trend rate assumptions are based on historical cost and payment data, the near-term outlook, and an assessment of likely long-term trends.\n\n\nCritical Accounting Estimates and Judgments\n\n\nWe have evaluated the accounting policies used in the preparation of the consolidated financial statements and the notes to consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K and believe those policies to be reasonable and appropriate.\n\n\nWe believe that the most critical accounting estimates used in the preparation of our consolidated financial statements relate to labor hour estimates, total cost, and establishment of operational milestones which are used to recognize revenue over time, accounting\n \n\n\n33\n\n\n\n\n\u00a0\n\n\nfor contingencies, under which we accrue a loss when it is probable that a liability has been incurred and the amount can be reasonably estimated, accounting for business combinations and intangible assets, and accounting for pensions and other postretirement benefits.\n\n\nAs discussed above under the heading \"Critical Accounting Policies\", we recognize a majority of our revenue using an over-time recognition method.  The key estimate for the over-time recognition model is total labor, total cost and operational milestones to be incurred on each contract and to the extent that these estimates change, it may significantly impact revenue recognized in each period.\n\n\nContingencies, by their nature, relate to uncertainties that require us to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss.  For more information on these matters, see the notes to consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K.\n\n\nAs discussed above under the heading \"Critical Accounting Policies\", we allocate the purchase price of an acquired company, including when applicable, the acquisition date fair value of contingent consideration between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill.  Third party appraisal firms and other consultants are engaged to assist management in determining the fair values of certain assets acquired and liabilities assumed.  Estimating fair values requires significant judgments, estimates and assumptions, including but not limited to discount rates, future cash flows and the economic lives of trade names, technology, customer relationships, and property, plant and equipment.  These estimates are based on historical experience and information obtained from the management of the acquired company and are inherently uncertain.\n\n\n\u00a0\n\n\nDuring fiscal 2022, we completed the acquisition of BN for an aggregate purchase price of $72,014.  We identified and assigned value to identifiable intangible assets of customer relationships, technology and technical know-how, backlog and trade name, and estimated the useful lives over which these intangible assets would be amortized.  The estimates of fair values of these identifiable intangible assets were based upon discounted cash flow models, which include assumptions such as forecasted cash flows, customer attrition rates, discount rates, and royalty rates.  The fair value estimates resulted in identifiable intangible assets, in the aggregate, of $32,500.  The resulting goodwill, in the aggregate, from this acquisition was $23,523.  For more information on these matters, see the notes to consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K.\n \n\n\n\u00a0\n\n\nAccounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works.  To accomplish this, assumptions are made about inflation, investment returns, mortality, turnover, medical costs and discount rates.  These assumptions are reviewed annually.\n\n\n\u00a0\n\n\nThe discount rate used in accounting for pensions and other postretirement benefits expense (income) is determined in conjunction with our actuary by reference to a current yield curve and by considering the timing and amount of projected future benefit payments.  The discount rate assumption for fiscal 2023 was 3.66% for our defined benefit pension plans and 3.32% for our other postretirement benefit plan.  A reduction in the discount rate of 50 basis points, with all other assumptions held constant, would have increased fiscal 2023 net periodic benefit expense for our defined benefit pension plans and other postretirement benefit plan by approximately $290 and $0.2, respectively.\n\n\nThe expected return on plan assets assumption of 5.50% used in accounting for our pension plan is determined by evaluating the mix of investments that comprise plan assets and external forecasts of future long-term investment returns.  A reduction in the rate of return of 50 basis points, with other assumptions held constant, would have increased fiscal 2023 net periodic pension expense by approximately $197.\n\n\nDuring fiscal 2023 and fiscal 2022, the pension plan extinguished liabilities for vested benefits of certain participants through the purchase of nonparticipating annuity contracts with a third-party insurance company.  As a result of these transactions, in fiscal 2023 and fiscal 2022, the projected benefit obligation and plan assets each decreased $1,383 and $1,279, respectively.\n \n\n\nAs part of our ongoing financial reporting process, a collaborative effort is undertaken involving our managers with functional responsibilities for financial, credit, tax, engineering, manufacturing and benefit matters, and outside advisors such as lawyers, consultants and actuaries.  We believe that the results of this effort provide management with the necessary information on which to base their judgments and to develop the estimates and assumptions used to prepare the financial statements.\n\n\nWe believe that the amounts recorded in the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K related to revenue, contingencies, pensions, other postretirement benefits and other matters requiring the use of estimates and judgments are reasonable, although actual outcomes could differ materially from our estimates.\n\n\n34\n\n\n\n\n\u00a0\n\n\nNew Accounting Pronouncements\n\n\nIn the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Emerging Issues Task Force, the American Institute of Certified Public Accountants or any other authoritative accounting body to determine the potential impact they may have on our consolidated financial statements.  For discussion of the newly issued accounting pronouncements see ''Accounting and reporting changes'' in Note 1 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K.\n\n",
+  "item7a": ">Item 7A\n.   Quantitative and Qualitative Disclosures About Market Risk\n\n\nThe principal market risks (i.e., the risk of loss arising from market changes) to which we are exposed are foreign currency exchange rates, price risk, and interest rate risk.\n\n\n\u00a0\n\n\nThe assumptions applied in preparing the following qualitative and quantitative disclosures regarding foreign currency exchange rate, price risk and interest rate risk are based upon volatility ranges experienced by us in relevant historical periods, our current knowledge of the marketplace, and our judgment of the probability of future volatility based upon the historical trends and economic conditions of the markets in which we operate.\n\n\nForeign Currency\n\n\nInternational consolidated sales for fiscal 2023 were 19% of total sales.  Operating in markets throughout the world exposes us to movements in currency exchange rates.  Currency movements can affect sales in several ways, the foremost being our ability to compete for orders against foreign competitors that base their prices on relatively weaker currencies.  Business lost due to competition for orders against competitors using a relatively weaker currency cannot be quantified.  In addition, cash can be adversely impacted by the conversion of sales made by us in a foreign currency to U.S. dollars.  In fiscal 2023, substantially all sales by us and our wholly owned subsidiaries, for which we were paid, were denominated in the local currency of the respective subsidiary (U.S. dollars, Chinese RMB, or India INR).  For fiscal 2023, foreign currency exchange rate fluctuations reduced our cash balances by $208 primarily due to the strengthening of the U.S. dollar relative to the Chinese RMB and India INR.\n \n\n\nWe have limited exposure to foreign currency purchases.  In fiscal 2023, our purchases in foreign currencies represented 6% of the cost of products sold.  At certain times, we may enter into forward foreign currency exchange agreements to hedge our exposure against potential unfavorable changes in foreign currency values on significant sales and purchase contracts negotiated in foreign currencies.  Forward foreign currency exchange contracts were not used in fiscal 2023 and as of March 31, 2023, we held no forward foreign currency contracts.\n\n\nPrice Risk\n\n\nOperating in a global marketplace requires us to compete with other global manufacturers which, in some instances, benefit from lower production costs and more favorable economic conditions.  Although we believe that our customers differentiate our products on the basis of our manufacturing quality, engineering experience, and customer service, among other things, such lower production costs and more favorable economic conditions mean that our competitors are able to offer products similar to ours at lower prices.  In extreme market downturns, such as we recently experienced, we typically see depressed price levels.  Additionally, we have faced, and may continue to face, significant cost inflation, specifically in labor costs, raw materials, and other supply chain costs due to increased demand for raw materials and resources caused by the broad disruption of the global supply chain associated, including as a result of the impact of COVID-19.  International conflicts or other geopolitical events, including the ongoing war between Russia and the Ukraine, may further contribute to increased supply chain costs due to shortages in raw materials, increased costs for transportation and energy, disruptions in supply chains, and heightened inflation.  Further escalation of geopolitical tensions may also lead to changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain, and consequently our results of operations.  While there could ultimately be a material impact on our operations and liquidity, at the time of this report, the impact could not be determined.\n \n\n\nInterest Rate Risk\n\n\nIn connection with the BN acquisition, we entered into a $20,000 five-year term loan and a five-year revolving credit facility with Bank of America.  The term loan and revolving credit facility bear interest rates that are tied to BSBY, plus 1.50%, subject to a 0.00% floor.  As part of our risk management activities, we evaluate the use of interest rate derivatives to add stability to interest expense and to manage our exposure to interest rate movements.  As of March 31, 2023, we had $12,500 outstanding on our term loan, $0 outstanding on our revolving credit facility and no interest rate derivatives outstanding.  See ''Debt'' in Note 8 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information about our outstanding\n \n\n\n35\n\n\n\n\n\u00a0\n\n\ndebt.  A hypothetical one percentage point (100 basis points) change in the BSBY rate on the $12,500 of variable rate debt outstanding at March 31, 2023 would have an impact of approximately $125 on our interest expense for fiscal 2023.\n \n\n\n36\n\n\n\n\n\u00a0\n\n",
+  "cik": "716314",
+  "cusip6": "384556",
+  "cusip": ["384556106"],
+  "names": ["Graham"],
+  "source": "https://www.sec.gov/Archives/edgar/data/716314/000095017023026915/0000950170-23-026915-index.htm"
+}
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+{
+  "item1": ">ITEM 1. \nBUSINESS\n\n\nAs used herein, unless otherwise expressly stated or the context otherwise requires, all references to \u201cOrion,\u201d \u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d \u201cCompany\u201d and similar references are to Orion Energy Systems, Inc. and its consolidated subsidiaries.\n\n\nOverview\n\n\nWe provide state-of-the-art light emitting diode (\u201cLED\u201d) lighting systems, wireless Internet of Things (\u201cIoT\u201d) enabled control solutions, commercial and industrial electric vehicle \"EV\" charging infrastructure solutions and maintenance services. We help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service. We sell our products and services into many vertical markets within the broader commercial and industrial market segment. Primary verticals include: big box retail, manufacturing, warehousing/logistics, commercial office, federal and municipal government, healthcare and schools. Our services consist of turnkey installation (lighting and EV) and system maintenance. Virtually all of our sales occur within North America.\n\n\nOur principal lighting customers include large national account end-users, electrical distributors, electrical contractors and energy service companies (\u201cESCOS\u201d). Currently, a significant amount of our lighting products are manufactured at our leased production facility located in Manitowoc, Wisconsin, although as the LED and related IoT market continues to evolve, we are increasingly sourcing products and components from third parties in order to diversify our product offerings.\n\n\nWe differentiate ourselves from our competitors by offering very efficient light fixtures (measured in lumens per watt) coupled with our project management services to national account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration. In addition, we began to offer lighting and electrical maintenance services in fiscal 2021, which enable us to support a long-term business relationship with our customers. We completed the acquisition of Stay-Lite Lighting on January 1, 2022, which is intended to further expand our maintenance services capabilities. On October 5, 2022, we acquired Voltrek, which is intended to leverage our project management and maintenance expertise into the rapidly growing EV sector.\n\n\nOur lighting products consist primarily of LED lighting fixtures, many of which include IoT enabled control systems provided by third parties. We believe the market for LED lighting products continues to grow. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied by other lighting technologies.\n \n\n\nWe generally do not have long-term contracts with our customers for product or turnkey services that provide us with recurring annual revenue. However, our maintenance services contracts usually consist of multi-year arrangements. We typically generate substantially all of our lighting revenue from sales of lighting systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under global services or product purchasing agreements with major customers with sales completed on a purchase order basis. The loss of, or substantial reduction in sales to, any of our significant customers, or our current single largest customer, or the termination or delay of a significant volume of purchase orders by one or more key customers, could have a material adverse effect on our results of operations in any given future period.\n\n\nWe typically sell our lighting systems in replacement of our customers\u2019 existing lighting fixtures. We call this replacement process a \"retrofit\". We frequently sell our products and services directly to our customers and in many cases we provide design and installation as well as project management services. We also sell our lighting systems on a wholesale basis, principally to electrical distributors, electrical contractors and ESCOs to sell to their own customer bases.\n\n\nThe gross margins of our products can vary significantly depending upon the types of products we sell, with gross margins typically ranging from 10% to 50%. As a result, a change in the total mix of our sales among higher or lower gross margin products can cause our profitability to fluctuate from period to period.\n\n\nOur fiscal year ends on March 31. We refer to our current fiscal year which ended on March 31, 2023 as \"fiscal 2023\". We refer to our most recently completed fiscal year, which ended on March 31, 2022, as \u201cfiscal 2022\u201d, and our prior fiscal year which ended on\n \n\n\n6\n\n\n\n\n\u00a0\n\n\nMarch 31, 2021 as \"fiscal 2021\". Our fiscal first quarter of each fiscal year ends on June 30, our fiscal second quarter ends on September 30, our fiscal third quarter ends on December 31, and our fiscal fourth quarter ends on March 31.\n\n\nReportable Segments\n\n\nReportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker (\"CODM\") regularly reviews when allocating resources and assessing performance. Our CODM is our chief executive officer. Historically, we have had three reportable segments: Orion Services Group Division (\"OSG\"), Orion Distribution Services Division (\"ODS\"), and\n \nOrion U.S. Markets Division (\"USM\"). With the acquisition of Voltrek on October 5, 2022, we added a fourth reporting segment, Orion Electric Vehicle Charging Division (\u201cEV Division\u201d).\n \n\n\nFor financial results by reportable segment, please refer to Note 18 \u2013 Segment Data in our consolidated financial statements included in Item 8. of this Annual Report.\n\n\nOrion Services Group Division\n\n\nOur OSG segment (a) develops and sells lighting products and provides construction and engineering services for our commercial lighting and energy management systems and (b) provides retailers, distributors and other businesses with maintenance, repair and replacement services for the lighting and related electrical components deployed in their facilities. OSG provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers.\n\n\nOrion Distribution Services Division\n\n\nOur ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of North American broadline and electrical distributors and contractors.\n\n\nOrion U.S. Markets Division\n\n\nOur USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and contractors.\n \n\n\nOrion Electric Vehicle Charging Division\n\n\nOur EV Division offers leading electric vehicle charging expertise and provides EV turnkey installation solutions with ongoing support to all commercial verticals.\n\n\nOur Market Opportunity\n\n\nWe provide enterprise-grade LED lighting and energy management project solutions. We are primarily focused on providing commercial and industrial facilities lighting retrofit solutions in North America using solid-state LED technology. We believe the market for lighting products has shifted to LED lighting systems and continues to grow. We believe that LED lighting technology allows for better optical performance, significantly reduced energy consumption. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied by other technologies.\n \n\n\nOur lighting products deliver energy savings and efficiency gains to our commercial and industrial customers without compromising their quantity or quality of light. We estimate that our energy management systems reduce our customers\u2019 legacy lighting-related electricity costs by approximately 50% or greater, while maintaining their quantity of light after the reduced wattage and improving overall lighting quality when replacing traditional fixtures. Our customers with legacy lighting systems typically realize a one to four-year payback period, and most often 18 \u2013 24 months, from electricity cost savings generated by our lighting systems without considering utility incentives or government subsidies. Energy-efficient lighting systems are cost-effective and environmentally responsible solutions allowing end users to reduce operating expenses and their carbon footprint.\n\n\n7\n\n\n\n\n\u00a0\n\n\nWe serve government and private sector end-customers in the following primary markets: commercial office and retail, exterior area lighting and industrial applications.\n\n\nCommercial office and retail. \nOur commercial office and retail market includes commercial office buildings, retail store fronts, government offices, schools, hospitals and other buildings with traditional 10 to 12 foot ceiling heights.\n \n\n\nIndustrial applications. \nOur market for industrial facilities includes manufacturing facilities, distribution and warehouse facilities, government buildings and agricultural buildings. These facilities typically contain \"high-bay\" lighting fixtures for ceiling heights of 20-60 feet.\n \n\n\nCommercial and industrial facilities in the United States employ a variety of lighting technologies, including HID, traditional fluorescents, LED and incandescent lighting fixtures. We estimate that approximately 25-30% of this market still utilizes inefficient high intensity discharge (\"HID\") lighting technologies. Our lighting systems typically replace less efficient HID, HIF fixtures, and earlier generation of LED fixtures.\n \n\n\nExterior Area lighting. \nOur market for area lighting includes parking garages, surface lots, automobile dealerships and gas service stations.\n\n\n \nEV Charging Infrastructure:\n Our market for designing/engineering and installing EV charging systems (we do not make equipment) includes commercial and industrial customers including government. We focus largely on level 2 EV charging solutions for employee and guest charging of passenger vehicles and level 3 DC fast charge systems for fleet applications and high speed passenger vehicle charging.\n\n\nMaintenance Business:\n Our maintenance business services customers generally require third party lighting maintenance services. along with modest electrical maintenance service.\n\n\nWe believe that utilities within the United States recognize the importance of energy efficiency as an economical means to manage capacity constraints and as a low-cost alternative when compared to the construction costs of building new power plants. Accordingly, many of these utilities are continually focused on demand reduction through energy efficiency. According to our research of individual state and utility programs, utilities design and fund programs that promote or deliver energy efficiency through legislation, regulation or voluntary action. Our product sales are not solely dependent upon these incentive programs, but we do believe that these incentive programs provide an important benefit as our customers evaluate their out-of-pocket cash investments.\n\n\nOur Solution\n\n\nValue Proposition.\n We estimate our LED lighting systems generally reduce lighting-related electricity usage and costs by approximately 50% or greater, compared to legacy fixtures, while retaining the quantity of light, improving overall lighting quality and helping customers reduce their carbon footprint.\n\n\nMulti-Facility Roll-Out Capability.\n We offer our customers a single source, turnkey solution for project implementation in which we manage and maintain responsibility for entire multi-facility rollouts of our energy management solutions across North American commercial and industrial facility portfolios. This capability allows us to offer our customers an orderly, timely and scheduled process for recognizing energy reductions and cost savings.\n\n\nRapid Payback Period Retrofit Lighting.\n In most lighting retrofit projects where we replace HID and HIF fixtures, our customers typically realize a one to four year, but most often 18 \u2013 24 months, payback period on our lighting systems. These returns are achieved without considering utility incentives or government subsidies (although subsidies and incentives are continually being made available to our customers in connection with the installation of our systems that further shorten payback periods).\n\n\nEasy Installation, Implementation and Maintenance.\n Most of our fixtures are designed with a lightweight construction and modular plug-and-play architecture that allows for fast and easy installation, facilitates maintenance, and integration of other components of our energy management system. Our office LED Troffer Door Retrofit\n \n(\n\"\nLDR\nTM\n\") products are designed to allow for fast and easy installation without disrupting the ceiling space or the office workspace. We believe our system\u2019s design reduces installation time and\n \n\n\n8\n\n\n\n\n\u00a0\n\n\nexpense compared to other lighting solutions, which further improves our customers\u2019 return on investment. We also believe that our use of standard components reduces our customers\u2019 ongoing maintenance costs.\n\n\nExpanded Product Offerings.\n We are committed to continuing to develop LED product offerings in all of the markets we serve. Our third generation of ISON\u00ae class of LED interior fixture delivers a market leading up to 214 lumens per watt. This advancement means our customers can get more light with less energy, and sometimes fewer fixtures, than with any other product on the market. We have also recently launched a variety of new products, features and functionality targeting healthcare, food service, high and low temperature environments and other market segments. Our lighting products also may be configured to include IoT enabled control systems. In fiscal 2022, we introduced a product range under the brand PureMotion. These products circulate air for enhanced airflow, temperature comfort and energy savings. In addition, the PureMotion UVC products sanitize air in a safe UVC chamber that eliminates various airborne viruses, bacteria, mold and fungi. See \"Products and Services\" below. In addition, we offer lighting maintenance services on both a preventative and reactive basis to the commercial and industrial verticals. In October, 2022, we acquired Voltrek LLC, which offers leading EV charging expertise and provides turnkey EV installation solutions with ongoing support to all commercial verticals.\n\n\nEnvironmental Benefits.\n By allowing for the permanent reduction of electricity consumption, we believe our energy management systems significantly reduce indirect CO2 emissions that are a negative by-product of energy generation which help enable our customers to achieve their sustainability, energy savings and carbon footprint reduction goals.\n\n\nOur Competitive Strengths\n\n\nCompelling Value Proposition.\n By permanently reducing lighting-related electricity usage, our systems help enable our customers to achieve their sustainability, energy savings and carbon footprint reduction goals without compromising quantity and quality of light in their facilities. As a result, our products offer our customers a rapid return on their investment, without relying on government subsidies or utility incentives. We also help our customers with their mobility infrastructure needs supporting the transition to passenger and fleet EVs.\n\n\nComprehensive Project Management.\n We offer our customers a single source solution whereby we manage and are responsible for an entire retrofit lighting project, from initial site surveys and energy audits through to installation and controls integration and subsequent maintenance. Our ability to offer such comprehensive turnkey project management services, coupled with best-in-class customer service, allows us to deliver energy reductions and cost savings to our customers in timely, orderly and planned multi-facility rollouts nationwide. We believe one of our competitive advantages is our ability to deliver full turnkey LED lighting project capabilities. The success of this approach has resulted in what we call a \u201cCustomer for Life\u201d relationship with customers that encourages additional projects and maintenance services. Few LED lighting providers are organized to serve every step of a custom retrofit project in a comprehensive, non-disruptive and timely fashion, from custom fixture design and initial site surveys to final installations. Incrementally, we are also able to help customers deploy state-of-the-art IoT control systems that provide even greater long-term value from their lighting system investments.\n\n\nLarge and Growing Customer Base.\n We have developed a large and growing national customer base and have installed our products in commercial and industrial facilities across North America. We believe that the willingness of our blue-chip customers to install our products across multiple facilities represents a significant endorsement of our value proposition, which in turn helps us sell our energy management systems to new customers.\n \n\n\nInnovative Technology.\n We have developed a portfolio of United States patents primarily covering various elements of our products. We believe these innovations allow our products to produce more light output per unit of input energy compared to our competition. We also have patents pending that primarily cover various elements of our newly developed LED products and certain business methods. To complement our innovative energy management products, our integrated energy management services provide our customers with a turnkey solution either at a single facility or across their North American facility footprints. Our demonstrated ability to innovate provides us with significant competitive advantages. Our lighting products offer significantly more light output as measured in foot-candles of light delivered per watt of electricity consumed when compared to HID or traditional fluorescent fixtures. Beyond the benefits of our lighting fixtures, we believe that there is also an opportunity to utilize our system platform as a \u201cconnected ceiling\u201d or \u201csmart ceiling\u201d, or a framework or network that can support the installation and integration of other solutions on a digital\n \n\n\n9\n\n\n\n\n\u00a0\n\n\nplatform. This \u201csmart ceiling\u201d can be integrated with other technologies to collect data and manage assets and resources more efficiently. Our \u201cIndustrial Internet of Things\u201d, or IoT, enabled devices not only contain energy management control functions, but also have the ability to collect facility usage and traffic data as well as collect data from other facility mechanical systems, providing our customers with a path to digitization for their business operations. Our percentage of systems utilizing IoT enabled devices has grown significantly over the past few years and we expect this trend to continue.\n\n\nExpanded Sales and Distribution Network.\n In addition to selling directly to national accounts, electrical contractors and ESCOs, we sell our lighting products and services to electrical distributors through a North American network of independent lighting agencies. As of the end of fiscal 2023, we had 33 independent lighting agencies representing us in substantially all of North America. We intend to continue to selectively evaluate our sales network in the future, with a focus on geographic regions where we do not currently have a strong sales presence.\n\n\nOur Growth Strategies\n\n\nIn fiscal 2023, we continued to successfully capitalize on our capability of being a full service, turn-key provider of LED lighting and controls systems with design, build, installation and project management services, including being awarded large additional projects for a major national account. To build on this success, we are evolving our business strategy to further leverage this unique capability, along with a strong network of ESCO partners, agents and distributors to offer more products and services to our customers. We have adopted a \u201cCustomers for Life\u201d philosophy that broadens our view of platforms that can be offered to deliver our mission. Two new platforms that we recently added to our service offerings have been our maintenance services business, along with our EV charging station business. We intend to continue to pursue expanding our product and service offerings, organically and through potential acquisitions that could accelerate our progress.\n \n\n\nFocus on executing and marketing our turnkey LED retrofit capabilities to large national account customers. \nWe believe one of our competitive advantages is our ability to deliver full turnkey LED lighting project capabilities starting with energy audits and site assessments that lead to custom engineering and manufacturing through to fully managed installations. These attributes coupled with our superior customer service, high quality designs and expedited delivery responsiveness resulted in our contract to retrofit multiple locations for a significant single national account beginning in fiscal 2020 that continued into fiscal 2023.\n \n\n\nContinue Product Innovation. \nWe continue to innovate, developing lighting fixtures and features that address specific customer requirements, while also working to maintain a leadership position in energy efficiency, smart product design and installation benefits. For interior building applications, we recently expanded our product line to include a family of ceiling air movement solutions, some of which incorporate LED lighting and others which utilize ultraviolet C light waves to kill viruses, bacteria and germs. We also continue to deepen our capabilities in the integration of smart lighting controls. Our goal is to provide state-of-the-art lighting products with modular plug-and-play designs to enable lighting system customization from basic controls to advanced IoT capabilities.\n \n\n\nLeverage Orion\u2019s Smart Lighting Systems to Support Internet of Things Applications. \nWe believe we are ideally positioned to help customers to efficiently deploy new IoT controls and applications by leveraging the \u201cSmart Ceiling\u201d capabilities of their Orion solid state lighting system. IoT capabilities can include the management and tracking of facilities, personnel, resources and customer behavior, driving both sales and lowering costs. As a result, these added capabilities provide customers an even greater return on investment from their lighting system and make us an even more attractive partner, providing our customers with a path to digitization for their business operations.\n\n\nExpand Maintenance Service Offerings.\n We believe we can leverage our construction management process expertise to develop a high-quality, quick-response, multi-location maintenance service offering. Our experience with large national customers and our large installed base of fixtures positions us well to extend our maintenance services to historical customers, as well as to new customers. Development of this recurring revenue stream is making progress and we believe there is significant market opportunity.\n\n\nSupport success of our ESCO and agent driven distribution sales channels.\n We continue to focus on building our relationships and product and sales support for our ESCO and agent driven distribution channels. These efforts include an array of product and sales training efforts as well as the development of new products to cater to the unique needs of these sales channels.\n \n\n\n10\n\n\n\n\n\u00a0\n\n\n \nGrow EV Charging Installation Business.\n In fiscal 2023, we acquired Voltrek, a turnkey EV charging installation business. We believe there are significant growth opportunities in Voltrek\u2019s existing east coast geographic market, as well as on a national basis. We plan to focus our growth plans on cross selling our new EV charging solutions to our historical market channels and customers.\n\n\nProducts and Services\n\n\nOur primary focus has been the sale of our LED lighting fixtures with integrated controls technology and related installation services. We will continue to focus on these products and services, as well as on expanding our maintenance service offerings and our EV charging station solutions.\n \n\n\nCurrently, a significant amount of our lighting products are manufactured at our leased production facility location in Manitowoc, Wisconsin, although as the LED market continues to evolve, we also source products and components from third parties in order to have versatility in our product development. We are focused on researching, developing and/or acquiring new innovative LED products and technologies for the retrofit markets. We plan to continue developing creative new LED retrofit products in order to offer our customers a variety of integrated energy management services, such as system design, project management and installation.\n\n\nProducts\n\n\nThe following is a description of our primary products:\n\n\nInterior LED High Bay Fixture: \nOur LED interior high bay lighting products consist of our Harris high bay, Apollo\nTM\n high bay and ISON\u00ae high bay products. Our ISON\u00ae class of LED interior fixture offers a full package of premium features, including low total cost of ownership, optics that currently exceed competitors in terms of lumen package, delivered light, modularity and advanced thermal management. Our third generation of ISON\u00ae class of LED interior fixture delivers up to an exceptional 214 lumens per watt. This advancement means our customers can get more light with less energy, and sometimes fewer fixtures, compared to other products on the market. Our Apollo\nTM\n class of LED interior fixtures is designed for new construction and retrofit projects where initial cost is the largest factor in the purchase decision. Our Harris high bay is ideal for customers seeking a cost-effective solution to deliver energy savings and maintenance reductions. In addition, our LED interior lighting products are lightweight and easy to handle, which further reduces installation and maintenance costs and helps to build brand loyalty with electrical contractors and installers.\n\n\nSmart Lighting Controls.\n We offer a broad array of smart building control systems. These control systems provide both lighting control options (such as occupancy, daylight, or schedule control) and data intelligence capabilities for building managers to log, monitor, and analyze use of space, energy savings, and provide physical security of the space.\n \n\n\nThe LED Troffer Door Retrofit (LDR\nTM\n): \nThe LDR\nTM\n is designed to replace existing 4 foot by 2 foot and 2 foot by 2 foot fluorescent troffers that are frequently found in office or retail grid ceilings. Our LDR\nTM\n product is unique in that the LED optics and electronics are housed within the doorframe that allows for installation of the product in approximately one to two minutes. Our LDR\nTM\n product also provides reduced maintenance expenses based upon improved LED chips.\n\n\nIn addition, in October 2022, we acquired Voltrek LLC, which offers leading EV charging expertise and provides turnkey EV installation solutions with ongoing support to all commercial verticals. We believe there are significant growth opportunities in Voltrek\u2019s existing east coast geographic market, as well as on a national basis. We plan to focus our growth plans on cross selling our new EV charging solutions to our historical market channels and customers.\n\n\nOther Products.\n In fiscal 2022, we introduced a range of air movement products capable of virus elimination. We also offer our customers a variety of other LED fixtures to address their lighting and energy management needs, including fixtures designed for agribusinesses, parking lots, roadways, retail, mezzanine, outdoor applications and private label resale.\n\n\nWarranty Policy\n. Our warranty policy generally provides for a limited five-year warranty on our LED products, although we do offer warranties ranging up to 10 years for certain LED products. Ballasts, lamps, drivers, LED chips and other electrical components are excluded from our standard warranty as they are covered by separate warranties offered by the original equipment manufacturers.\n \n\n\n11\n\n\n\n\n\u00a0\n\n\nWe coordinate and process customer warranty inquiries and claims, including inquiries and claims relating to ballast and lamp components, through our customer service department.\n\n\nServices\n\n\nWe provide a range of fee-based lighting-related energy management services to our customers, including:\n\n\n\u2022 \ncomprehensive site assessment, which includes a review of the current lighting and controls including IoT enabled devices requirements and energy usage at the customer\u2019s facility;\n\n\n\u2022 \nsite field verification, or SFV, during which we perform a test implementation of our energy management system at a customer\u2019s facility;\n\n\n\u2022 \nutility incentive and government subsidy management, where we assist our customers in identifying, applying for and obtaining available utility incentives or government subsidies;\n\n\n\u2022 \nengineering design, which involves designing a customized system to suit our customers' facility lighting and energy management needs, and providing the customer with a written analysis of the potential energy savings and lighting and environmental benefits associated with the designed system;\n\n\n\u2022 \nproject management, which involves us working with the electrical contractor in overseeing and managing all phases of implementation from delivery through installation for a single facility or through multi-facility roll-outs tied to a defined project schedule;\n\n\n\u2022 \ninstallation services, for our products, which we provide through our national network of qualified third-party installers;\n\n\n\u2022 \ncomplete facility design commissioning of IoT enabled control devices\n\n\n\u2022 \nrecycling in connection with our retrofit installations, where we remove, dispose of and recycle our customer\u2019s legacy lighting fixtures; and\n\n\n\u2022 \nlighting and electrical system maintenance services both preventative and reactive in nature.\n\n\nWe also provide similar turnkey services to our EV customers that include site audit, engineering, grant filing, installation, commissioning and network services. Our maintenance business provides services that includes both preventative and reactive services. We also provide other services that comprise a small amount of our revenue. These services primarily include management and control of power quality and remote monitoring and control of our installed systems. We also sell and distribute replacement lamps and fixture components into the after-market.\n\n\nOur Customers\n\n\nWe primarily target commercial, institutional and industrial customers who have warehousing, retail, manufacturing and office facilities. In fiscal 2023, one customer accounted for 16.2% of our total revenue. In fiscal 2022, that same customer accounted for 49.1% of our total revenue, and in fiscal 2021, this same customer accounted for 56.0% of our total revenue. In fiscal 2024, we expect that our customer concentration will continue at the approximate level experienced in fiscal 2023. As we continue to diversify our customer base by expanding our reach to national accounts, ESCOs, the agent driven distribution channel, lighting maintenance customers and the EV market, we expect to continue to derive a significant percentage of our revenue from contracts with one or a few customers. These contracts are entered into in the ordinary course of business and typically provide that we will deliver products and services on a work order or purchase order basis and any purchase order may be terminated prior to shipment. Our maintenance work orders or contracts may be for discrete projects or may have multi-year terms. These contracts generally do not guarantee that the customer will buy our products or services.\n \n\n\nThe amount and concentration of our revenues with one or more customer may fluctuate on a year to year or quarter to quarter basis depending on the number of purchase orders issued by our customers. The loss of a significant customer or the termination of a material volume of purchase orders (or the underlying agreements) could have a material adverse effect on our results of operations.\n \n\n\n12\n\n\n\n\n\u00a0\n\n\nSales and Marketing\n\n\nWe sell our lighting products in one of three ways: (i) directly through our relationships with our national account partners or through Voltrek; (ii) indirectly through independent sales agencies and broadline North American distributors; and (iii) through ESCOs. Our ODS segment focuses on developing and expanding customer relationships with independent manufacturer\u2019s sales agents and broadline distributors. As of the end of fiscal 2023 we had 33 independent lighting agencies representing us in substantially all of North America expanding our reach with broadline distributors. We attempt to leverage the customer relationships of these distributors to further extend the geographic scope of our selling efforts. We work cooperatively with our indirect channels through participation in national trade organizations and by providing training on our sales methodologies.\n\n\nWe have historically focused our marketing efforts on traditional direct advertising, as well as developing brand awareness through customer education and active participation in trade shows and energy management seminars. These efforts have included participating in national, regional and local trade organizations, exhibiting at trade shows, executing targeted direct mail campaigns, advertising in select publications, public relations campaigns, social media and other lead generation and brand-building initiatives.\n\n\nCompetition\n\n\nThe market for energy-efficient lighting products, EV charging solutions and maintenance services is fragmented. We face strong competition primarily from manufacturers and distributors of lighting products and services as well as electrical contractors. We compete primarily on the basis of technology, cost, performance, quality, customer experience, energy efficiency, customer service and marketing support. We compete against other value-added resellers and electrical contractors in the EV charging market. We compete against a variety of service providers for lighting maintenance.\n\n\nThere are a number of lighting fixture manufacturers that sell LED products that compete with our lighting product lines. Lighting companies such as Acuity Brands, Inc., Signify Co., Cree, Inc., LSI Industries, Inc. and GE Current, a Daintree Company, are some of our main competitors within the commercial office, retail and industrial markets. We are also facing increased competition from manufacturers in low-cost countries.\n\n\nIntellectual Property\n\n\nAs of March 31, 2023, we had been issued over 100 United States patents and have applied for a number of additional United States patents. The patented and patent pending technologies cover various innovative elements of our products, including our HIF and LED fixtures. Our patented LDR\nTM\n product allows for a significantly quicker installation when compared to competitor's commercial office lighting products. Our smart lighting controls allow our lighting fixtures to selectively provide a targeted amount of light where and when it is needed most.\n\n\nWe believe that our patent portfolio as a whole is material to our business. We also believe that our patents covering our ability to manage the thermal and optical performance of our lighting products are material to our business, and that the loss of these patents could significantly and adversely affect our business, operating results and prospects.\n\n\nBacklog\n\n\nBacklog represents the amount of revenue that we expect to realize in the future as a result of firm, committed orders. Our backlog as of March 31, 2023 and March 31, 2022 totaled $17.2 million and $10.1 million, respectively. We generally expect our backlog to be recognized as revenue within one year. Backlog does not include any amounts for contracted maintenance services.\n\n\nManufacturing and Distribution\n\n\nWe lease an approximately 266,000 square foot primary manufacturing and distribution facility located in Manitowoc, Wisconsin, where most of our products are manufactured. We utilize both solar and wind power to support the energy requirements for our manufacturing facility, allowing us to reduce our carbon footprint.\n\n\n13\n\n\n\n\n\u00a0\n\n\nWe generally maintain a significant supply of raw material and purchased and manufactured component inventory. We contract with transportation companies to ship our products and manage all aspects of distribution logistics. We generally ship our products directly to the end user.\n\n\nResearch and Development\n\n\nOur research and development efforts are centered on developing new LED products and technologies and enhancing existing products. The products, technologies and services we are developing are focused on increasing end user energy efficiency and enhancing lighting output. Over the last three fiscal years, we have focused our development on additional LED products, resulting in our development and commercialization of several new suites of LED interior high bay products.\n\n\nWe operate research and development lab and test facilities in our Jacksonville, Florida and Manitowoc, Wisconsin locations.\n\n\nRegulatory Matters\n\n\nOur operations are subject to federal, state, and local laws and regulations governing, among other things, emissions to air, discharge to water, the remediation of contaminated properties and the generation, handling, storage, transportation, treatment, and disposal of, and exposure to, waste and other materials, as well as laws and regulations relating to occupational health and safety. We believe that our business, operations, and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations.\n\n\nState, county or municipal statutes often require that a licensed electrician be present and supervise each retrofit project. Further, all installations of electrical fixtures are subject to compliance with electrical codes in virtually all jurisdictions in the United States. In cases where we engage independent contractors to perform our retrofit projects, we believe that compliance with these laws and regulations is the responsibility of the applicable contractor.\n\n\nOur Corporate and Other Available Information\n\n\nWe were incorporated as a Wisconsin corporation in April 1996 and our corporate headquarters are located at 2210 Woodland Drive, Manitowoc, Wisconsin 54220. Our Internet website address is www.orionlighting.com. Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available through the investor relations page of our internet website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or the SEC. We are not including the information contained on our website as part of, or incorporating it by reference into, this report.\n\n\nHuman Capital\n\n\nAs of March 31, 2023, we had approximately 265 full-time employees. We also employ temporary employees in our manufacturing facility as demand requires. Our employees are not represented by any labor union, and we have never experienced a work stoppage or strike due to employee relations.\n\n\nWe are an employee-centric organization, maintaining a safe and respectful environment that provides opportunity for our employees.\n\n\nWe believe our employees are among our most important resources and are critical to our continued success. We focus significant attention on attracting and retaining talented and experienced individuals to manage and support our operations. We pay our employees competitively and offer a broad range of company-paid benefits, which we believe are competitive with others in our industry.\n\n\n14\n\n\n\n\n\u00a0\n\n\nWe are committed to hiring, developing and supporting a diverse and inclusive workplace. Our management teams and all of our employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace. We will not tolerate discrimination or harassment in any form. All of our employees must adhere to a code of conduct that sets standards for appropriate behavior and includes required annual training on preventing, identifying, reporting and stopping any type of unlawful discrimination.\n\n\n15\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A. RI\nSK FACTORS\n\n\nYou should carefully consider the risk factors set forth below and in other reports that we file from time to time with the Securities and Exchange Commission and the other information in this Annual Report on Form 10-K. The matters discussed in the following risk factors, and additional risks and uncertainties not currently known to us or that we currently deem immaterial, could have a material adverse effect on our business, financial condition, results of operations and future growth prospects and could cause the trading price of our common stock to decline.\n\n\n1. Risk Factor Summary\n \n\n\nOur business is subject to a number of risks and uncertainties, including those highlighted immediately following this summary. Some of these risks are summarized below:\n \n\n\n\u2022\nWe do not have major sources of recurring revenue and we depend upon a limited number of customers in any given period to generate a substantial portion of our revenue. The reduction of revenue from our most significant customer over the past three fiscal years has had, and the potential future loss of other significant customers or a major customer would likely have, a materially adverse effect on our results of operations, financial condition and cash flows. \n\n\n\u2022\nOur ability to replace the substantially reduced revenue from our prior most significant customer, regain and sustain our profitability and achieve our desired revenue and profitability goals depends on our ability to effectively and timely execute on our key strategic initiatives.\n\n\n\u2022\nWe may not realize the anticipated benefits of our recent acquisitions of Stay-Lite Lighting and Voltrek, and the integration of Stay-Lite Lighting and Voltrek may disrupt our business and management, which could adversely affect our business, financial condition or results of operations\n\n\n\u2022\nOur products use components and raw materials that may be subject to price fluctuations, shortages or interruptions of supply. \n\n\n\u2022\nOur ability to balance customer demand and production capacity and increased difficulty in obtaining permanent employee staffing could negatively impact our business. \n\u00a0\n\n\n\u2022\nWe increasingly rely on third-party manufacturers for the manufacture and development of our products and product components. \n\u00a0\n\n\n\u2022\nMacroeconomic pressures in the markets in which we operate or anticipate operating in the future may adversely affect our financial results.\n\u00a0\n\n\n\u2022\nOur existing liquidity and capital resources may not be sufficient to allow us to effectively pursue our evolving strategies, complete potential acquisitions or otherwise fund or sustain growth initiatives.\n\u00a0\n\n\n\u2022\nAdverse conditions in the global economy have negatively impacted, and could in the future negatively impact, our customers, suppliers and business. \n\n\n\u2022\nAs we evolve our business strategy to increase our focus on new product and service offerings, the nature of our business may be significantly changed, or transformed. \n\n\n\u2022\nOur continued emphasis on indirect distribution channels to sell our products and services to supplement our direct distribution channels has had limited success to date. \n\n\n\u2022\nThe success of our LED lighting retrofit solutions depends, in part, on our ability to claim market share away from our competitors. \n\n\n16\n\n\n\n\n\u00a0\n\n\n\u2022\nGovernment tariffs and other actions may adversely affect our business.\n\n\n\u2022\nThe reduction or elimination of investments in, or incentives to adopt, LED lighting or the elimination of, or changes in, policies, incentives or rebates in certain states or countries that encourage the use of LEDs over some traditional lighting technologies could cause the growth in demand for our products to slow. \n\n\n\u00a0\n\n\nRisks Related to Our Business\n\n\nOperational Risks\n\n\nWe do not have major sources of recurring revenue and we depend upon a limited number of customers in any given period to generate a substantial portion of our revenue. The reduction of revenue from our most significant customer over the past three fiscal years has had, and the potential future loss of other significant customers or a major customer would likely have, a materially adverse effect on our results of operations, financial condition and cash flows.\n\u00a0\n\n\nIn fiscal 2023, one customer accounted for 16.2% of our total revenue. In fiscal 2022, that same customer accounted for 49.1% of our total revenue, and in fiscal 2021, this same customer accounted for 56.0% of our total revenue. In fiscal 2024, we expect that our customer concentration will continue at the approximate level experienced in fiscal 2023. The reduction of revenue from this customer has had a material advent effect on our results of operations, financial condition and cash flow. We continue to attempt to replace this reduced revenue by diversifying our customer base and expanding our reach to national accounts, ESCOs, the agent driven distribution channel, lighting maintenance customers and the EV market, there is no assurance we will be successful in replacing this reduced revenue.\n\n\n\u00a0\n\n\nOur ability to replace the substantially reduced revenue from our prior most significant customer, regain and sustain profitability and achieve our desired revenue and profitability goals depends on our ability to effectively and timely execute on our key strategic initiatives.\n \n\n\nOur ability to replace the substantially reduced revenues from our prior most significant customer, regain profitability and achieve our desired revenue and profitability goals depends on how effectively and timely we execute on our following key strategic initiatives:\n \n\n\n\u2022\nexecuting and marketing our turnkey LED retrofit capabilities to large national account customers; \n\n\n\u2022\ncontinuing our product innovation; \n\n\n\u2022\nleveraging our smart lighting systems to support IoT applications; \n\n\n\u2022\ndeveloping our maintenance service offerings; \n\n\n\u2022\nsupporting the success of our ESCO and distribution sales channels; and \n\n\n\u2022\ncross selling our EV charging solutions to our historical sales channels and customers.\n\n\nWe also may identify and pursue additional strategic acquisition candidates that would help support these initiatives. There can be no assurance that we will be able to successfully implement these initiatives or, even if implemented, that they will result in the anticipated benefits to our business.\n\n\n17\n\n\n\n\n\u00a0\n\n\nWe may not realize the anticipated benefits of our recent acquisitions of Stay-Lite Lighting and Voltrek. The integrations of Stay-Lite Lighting and Voltrek may disrupt our business and management, which could adversely affect our business, financial condition or results of operations.\n\n\nEffective on January 1, 2022, we acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, Inc., a nationwide lighting and electrical maintenance service provider. On October 5, 2022, we acquired the equity interests of Voltrek, LLC an EV charging station solutions provider. We may acquire additional companies or enter into other business combinations or strategic initiatives in the future. We may not realize the anticipated benefits of the Stay-Lite or Voltrek acquisition or such other business combinations or acquisitions, and we may encounter substantial difficulties, costs and delays involved in integrating our operations with such businesses, including:\n\n\n\u2022\nExposure to unknown liabilities;\n\n\n\u2022\nPotential conflicts between business cultures;\n\n\n\u2022\nAdverse changes in business focus perceived by third-party constituencies;\n\n\n\u2022\nDisruption of our ongoing business;\n\n\n\u2022\nPotential conflicts in distribution, marketing or other important relationships;\n\n\n\u2022\nPotential constraints of management resources;\n\n\n\u2022\nInability to implement uniform standards, controls, procedures and policies;\n\n\n\u2022\nFailure to maximize our financial and strategic position;\n\n\n\u2022\nFailure to achieve planned synergies or expected financial results benefits;\n\n\n\u2022\nFailure to realize the potential of the acquired businesses' technologies, complete product development, or properly obtain or secure appropriate protection of intellectual property rights; and \n\n\n\u2022\nLoss of key employees and/or the diversion of management's attention from other ongoing business concerns.\n\n\nBusiness combinations and acquisitions of companies are inherently risky, and ultimately, if we do not complete the integration of Stay-Lite Lighting or Voltrek or other acquired businesses successfully and in a timely manner, we may not realize the anticipated benefits of such acquisitions to the extent anticipated, which could adversely affect our business, financial condition or results of operations.\n\n\nOur products use components and raw materials that may be subject to price fluctuations, shortages or interruptions of supply, including semiconductor chips. If we are unable to maintain supply sources of our components and raw materials or if our sources fail to satisfy our supply requirements, we may lose sales and experience increased component costs.\n\u00a0\n\n\nWe are vulnerable to price increases, as well as transportation and delivery delays, for components and raw materials that we require for our products, including aluminum, copper, certain rare earth minerals, semiconductor chips, power supplies and LED chips and modules. In particular, we utilize semiconductor chips in our LED lighting products and control sensors. For example, our ability to source semiconductor chips has been adversely affected in the recent past and could occur again. Difficulty in sourcing necessary components in the past has resulted in increased component delivery lead times, delays in our product production and increased costs to obtain components with available semiconductor chips. To the extent a semiconductor chip shortage occurs or our ability to acquire the parts necessary to conduct our business operations, such as other necessary finished goods, is materially affected, our production ability and results of operations will be adversely affected. \n\u00a0\n\n\nLimitations inherent within our supply chain of certain of our components, raw materials and finished goods, including competitive, governmental, and legal limitations, natural disasters, and other events, could impact costs and future increases in the costs of these items. For example, the adoption of new tariffs by the United States administration or by other countries and the ongoing impact of COVID-19 in China could continue to adversely affect our profitability and availability of raw materials and components, as there\n \n\n\n18\n\n\n\n\n\u00a0\n\n\ncan be no assurance that future price increases will be successfully passed through to customers or that we will be able to find alternative suppliers. Further, suppliers\u2019 inventories of certain components that our products require may be limited and are subject to acquisition by others and we may not, as a result, have the necessary inventory of parts and goods necessary to conduct our operations. We have in the past purchased excess quantities of certain components critical to our product manufacturing, but there is no guarantee that we will be able to follow or continue to follow this practice in the future. As a result, we have had, and may need to continue, to devote additional working capital to support component and raw material inventory purchases that may not be used over a reasonable period to produce saleable products, and we may be required to increase our excess and obsolete inventory reserves to account for these excess quantities, particularly if demand for our products does not meet our expectations. Also, any further delays, shortages or interruptions in the supply of our components or raw materials could further disrupt our operations. If any of these events occur, our results of operations, financial condition and cash flows could be materially adversely affected.\n \n\n\nOur ability to balance customer demand and production capacity and increased difficulty in obtaining permanent employee staffing could negatively impact our business.\n\n\nAs customer demand for our products changes, we must be able to adjust our production capacity, including increasing or decreasing our employee workforce, to meet demand. We are continually taking steps to address our manufacturing capacity needs for our products. If we are not able to increase or decrease our production capacity at our targeted rate or if there are unforeseen costs associated with adjusting our capacity levels, our ability to execute our operating plan could be adversely affected.\n \n\n\nWe have, in the past, experienced difficulty in hiring sufficient permanent employees to support our production demands. This circumstance has resulted in our increased reliance on temporary employee staffing to support our production operations. Temporary employees can be less reliable and require more ongoing training than permanent employees. These factors can adversely affect our operational efficiencies. This situation has also placed a significant burden on our continuing employees, has resulted in higher recruiting expenses as we have sought to recruit and train additional new permanent employees, and introduced increased instability in our operations to the extent responsibilities are reallocated to new or different employees. To the extent that we are unable to effectively hire a sufficient number of permanent employees, and our reliance on temporary staffing continues to increase, our operations and our ability to execute our operating plan could be adversely affected.\n\n\nOur inability to attract and retain key employees, our reseller network members or manufacturer representative agencies could adversely affect our operations and our ability to execute on our operating plan and growth strategy.\n\n\nWe rely upon the knowledge, experience and skills of key employees throughout our organization, particularly our senior management team, our sales group that requires technical knowledge or contacts in, and knowledge of, the LED industry, and our innovation and engineering team. In addition, our ability to attract talented new employees, particularly in our sales group and our innovation and engineering team, is also critical to our success. We also depend on our distribution channels and network of manufacturer sales representative agencies. If we are unable to attract and retain key employees, resellers, and manufacturer sales representative agencies because of competition or, in the case of employees, inadequate compensation or other factors, our results of operations and our ability to execute our operating plan could be adversely affected.\n\n\nIf our information technology systems security measures are breached or fail, our products may be perceived as not being secure, customers may curtail or stop buying our products, we may incur significant legal and financial exposure, and our results of operations, financial condition and cash flows could be materially adversely affected.\n\n\nOur information technology systems involve the storage of our confidential information and trade secrets, as well as our customers\u2019 personal and proprietary information in our equipment, networks and corporate systems. Security breaches expose us to a risk of loss of this information, litigation and increased costs for security measures, loss of revenue, damage to our reputation and potential liability. Security breaches or unauthorized access may result in a combination of significant legal and financial exposure, increased remediation and other costs, theft and/or unauthorized use or publication of our trade secrets and other confidential business information, damage to our reputation and a loss of confidence in the security of our products, services and networks that could have an adverse effect upon our business. While we take steps to prevent unauthorized access to our corporate systems, because the techniques used to obtain unauthorized access, disable or sabotage systems change frequently or may be designed to remain dormant until a triggering event, we may be unable to anticipate these techniques or implement adequate preventative measures. Further, the risk of a security breach or disruption, particularly through cyber attacks, or cyber intrusion, including by computer hackers, foreign governments, and cyber\n \n\n\n19\n\n\n\n\n\u00a0\n\n\nterrorists, has generally increased as cyber attacks have become more prevalent and harder to detect and fight against. In addition, hardware, software or applications we procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise network and data security. Any breach or failure of our information technology systems could result in decreased revenue, increased expenses, increased capital expenditures, customer dissatisfaction and potential lawsuits, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.\n\n\nSome of our existing information technology systems are in need of enhancement, updating and replacement. If our information technology systems fail, or if we experience an interruption in their operation, then our business, results of operations and financial condition could be materially adversely affected.\n\n\nThe efficient operation of our business is dependent on our information technology systems, some of which are in need of enhancement, updating and replacement. We rely on these systems generally to manage day-to-day operations, manage relationships with our customers, maintain our research and development data, and maintain our financial and accounting records. The failure of our information technology systems, our inability to successfully maintain, enhance and/or replace our information technology systems, or any compromise of the integrity or security of the data we generate from our information technology systems, could have a material adverse affect on our results of operations, disrupt our business and product development and make us unable, or severely limit our ability, to respond to customer demands. In addition, our information technology systems are vulnerable to damage or interruption from:\n\n\n\u2022\nearthquake, fire, flood and other natural disasters;\n\n\n\u2022\nemployee or other theft;\n\n\n\u2022\nattacks by computer viruses or hackers;\n\n\n\u2022\npower outages; and\n\n\n\u2022\ncomputer systems, internet, telecommunications or data network failure.\n\n\nAny interruption of our information technology systems could result in decreased revenue, increased expenses, increased capital expenditures, customer dissatisfaction and potential lawsuits, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.\n\n\nThe success of our business depends upon market acceptance of our energy management products and services.\n\n\nOur future success depends upon the continued market acceptance of our energy management products and services and obtaining additional project management retrofit contracts, as well as customer orders for new and expanded products and services to supplement our contract with our current single largest customer. If we are unable to convince current and potential new customers of the advantages of our lighting systems and energy management products and services, or our expanded product and services offerings, then our results of operations, financial condition and cash flows will likely be materially adversely affected. In addition, because the market for energy management products and services, as well as potential new customer uses for our products and services, is rapidly evolving, we may not be able to accurately assess the size of the market, and we may have limited insight into trends that may emerge and affect our business. If the market for our lighting systems and energy management products and services, as well as potential new customer uses for our products and services, does not continue to develop as we anticipate, or if the market does not accept our products or services, then our ability to grow our business could be limited and we may not be able to increase our revenue and our results of operations, financial condition and cash flows will likely be materially adversely affected.\n\n\nWe increasingly rely on third-party manufacturers for the manufacture and development of our products and product components.\n\n\nWe have increased our utilization of third-party manufacturers for the manufacture and development of our products and product components. Our results of operations, financial condition and cash flows could be materially adversely affected if our third-party manufacturers were to experience problems with product quality, credit or liquidity issues, or disruptions or delays in their manufacturing process or delivery of the finished products and components or the raw materials used to make such products and components.\n \n\n\n20\n\n\n\n\n\u00a0\n\n\nMacroeconomic pressures in the markets in which we operate or anticipate operating in the future may adversely affect our financial results.\n \n\n\nGeopolitical issues around the world can impact macroeconomic conditions in where we operate and where we anticipate operating in the future and could have a material adverse impact on our financial results. For example, the ultimate impact of the conflict in Ukraine on fuel prices, inflation, the global supply chain and other macroeconomic conditions is unknown and could materially adversely affect global economic growth, disrupting discretionary spending habits and generally decreasing demand for our products and services, including our planned retrofit project in Germany in fiscal 2024. While we do not purchase any of our significant raw materials directly from Russia, it is a significant global producer of fuel, nickel and copper. Disruptions in the markets for those inputs could negatively impact the macroeconomy. We cannot predict the extent or duration of sanctions in response to the conflict in Ukraine, nor can we predict the effects of legislative or other governmental actions or regulatory scrutiny of Russia and Belarus, Russia's other allies or other countries with which Russia has significant trade or financial ties, including China. The conflict in Ukraine may also continue to exacerbate geopolitical tensions globally.\n\n\nWe operate in a highly competitive industry and, if we are unable to compete successfully, our results of operations, financial condition and cash flows will likely be materially adversely affected.\n\n\nWe face strong competition, primarily from manufacturers and distributors of energy management products and services, as well as from ESCOs and electrical contractors. We are also facing increased competition from manufacturers in low-cost countries. We compete primarily on the basis of customer relationships, price, quality, energy efficiency, customer service and marketing support. Our products are in direct competition with the expanding availability of LED products, as well as other technologies in the lighting systems retrofit market.\n \n\n\nMany of our competitors are better capitalized than we are and have strong customer relationships, greater name recognition, and more extensive engineering, manufacturing, sales and marketing capabilities. In addition, the LED market has seen increased convergence in recent years, resulting in our competition gaining increased market share and resources. Competitors could focus their substantial resources on developing a competing business model or energy management products or services that may be potentially more attractive to customers than our products or services. In addition, we may face competition from other products or technologies that reduce demand for electricity. Our competitors may also offer energy management products and services at reduced prices in order to improve their competitive positions. Any of these competitive factors could make it more difficult for us to attract and retain customers, or require us to lower our average selling prices in order to remain competitive, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.\n\n\nIf we fail to establish and maintain effective internal controls over financial reporting, our business and financial results could be harmed.\n\n\nOur management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our consolidated financial statements or fraud. As of March 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that our internal controls for fiscal 2023 were designed and operating effectively. However, there can be no assurance that we will not experience a material weakness in our internal control over financial reporting in the future. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. A failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and in a timely manner or to detect and prevent fraud, could result in a restatement of our consolidated financial statements, and could also cause a loss of investor confidence and decline in the market price of our common stock.\n\n\nThe revenue growth of our EV Division ultimately depends on consumers\u2019 willingness to adopt electric vehicles in a market which is still in its early stages.\n\n\n The growth of our EV Division is highly dependent upon the adoption by consumers of EVs, and we are subject to a risk of any reduced demand for EVs. If the market for EVs does not gain broader market acceptance or develops slower than we expect, our\n \n\n\n21\n\n\n\n\n\u00a0\n\n\nbusiness, prospects, financial condition and operating results will be harmed. The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements, long development cycles for EV original equipment manufacturers, and changing consumer demands and behaviors. Factors that may influence the purchase and use of alternative fuel vehicles, specifically EVs, include:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u25cf\n\n\nperceptions about EV quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of EVs;\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u25cf\n\n\nthe limited range over which EVs may be driven on a single battery charge and concerns about running out of power while in use;\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u25cf\n\n\nconcerns regarding the stability of the electrical grid;\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u25cf\n\n\nimprovements in the fuel economy of the internal combustion engine;\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u25cf\n\n\nconsumers\u2019 desire and ability to purchase a luxury automobile or one that is perceived as exclusive;\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u25cf\n\n\nthe environmental consciousness of consumers;\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u25cf\n\n\nvolatility in the cost of oil and gasoline;\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u25cf\n\n\nconsumers\u2019 perceptions of the dependency of the United States on oil from unstable or hostile countries and the impact of international conflicts;\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u25cf\n\n\ngovernment regulations and economic incentives promoting fuel efficiency and alternate forms of energy;\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u25cf\n\n\naccess to charging stations, standardization of EV charging systems and consumers\u2019 perceptions about convenience and cost to charge an EV; and\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u25cf\n\n\nthe availability of tax and other governmental incentives to purchase and operate EVs or future regulation requiring increased use of nonpolluting vehicles.\n\n\n\n\n\n\nThe influence of any of the factors described above may negatively impact the widespread consumer adoption of EVs, which could materially and adversely affect our EV Division business, operating results, financial condition and prospects.\n\n\n \n\n\nOur business was, and could again in the future be, negatively impacted by the COVID-19 pandemic.\n\n\nThe COVID-19 pandemic disrupted business, trade, commerce, financial and credit markets in the United States and globally. Our business was adversely impacted by measures taken by customers, suppliers, government entities and others to control the spread of the virus beginning in March 2020, the last few weeks of our fiscal 2020, and continuing most significantly into the second quarter of fiscal 2021. During the third quarter of fiscal 2021, we experienced a rebound in business, with a full quarter of project installations for our largest customer, as well as installations for a new large specialty retail customer, and no significant COVlD-19 impacts. However, some customers continue to refrain from awarding new projects and potential future risks remain due to the COVID-19 pandemic. If the COVID-19 pandemic experiences a resurgence in markets recovering from the spread of COVID-19, or if another significant natural disaster or pandemic were to occur in the future, our results of operation would likely be materially adversely affected.\n \n\n\nFinancial Risks\n\n\n\u00a0\n\n\nOur existing liquidity and capital resources may not be sufficient to allow us to effectively pursue our evolving growth strategies, complete potential acquisitions or otherwise fund or sustain our growth initiatives.\n\n\nOur existing liquidity and capital resources may not be sufficient to allow us to effectively pursue our evolving growth strategies, complete potential acquisitions or otherwise fund or sustain our growth initiatives. If we require additional capital resources, we may\n \n\n\n22\n\n\n\n\n\u00a0\n\n\nnot be able to obtain sufficient equity capital and/or debt financing on acceptable terms or conditions, or at all. Factors affecting the availability to us of additional equity capital or debt financing on acceptable terms and conditions, or in sufficient amounts, include:\n\n\n\u2022\nOur operating loss in fiscal 2023;\n\n\n\u2022\nOur history of operating losses prior to our fiscal 2020;\n\n\n\u2022\nOur current and future financial results and condition;\n\n\n\u2022\nOur limited collateral availability;\n\n\n\u2022\nOur current customer concentration; \n\n\n\u2022\nThe market\u2019s, investors\u2019 and lenders' view of our company, industry and products;\n\n\n\u2022\nThe perception in the equity and debt markets of our ability to execute and sustain our business plan or achieve our operating results expectations; and\n\n\n\u2022\nThe price, volatility and trading volume and history of our common stock.\n\n\nOur inability to obtain the equity capital or debt financing necessary to pursue our evolving growth strategy could force us to scale back our growth initiatives or abandon potential acquisitions. If we are unable to pursue our evolving growth strategy and growth initiatives, our results of operations, financial condition and cash flows could be materially adversely affected.\n\n\n\u00a0\n\n\nWe do not have major sources of recurring revenue and we depend upon a limited number of customers in any given period to generate a substantial portion of our revenue. The reduction of revenue from our prior most significant customer has had, and the loss of other significant customers or a major customer would likely have, a materially adverse effect on our results of operations, financial condition and cash flows.\n\n\nWe do not have any significant long-term contracts with our customers that provide us with recurring revenue from period to period. We currently generate a substantial portion of our revenue by securing large retrofit and multi-facility roll-out projects from new and existing customers. As a result, our dependence on individual key customers can vary from period to period due to the significant size of some of our retrofit and multi-facility roll-out projects. Our top 10 customers accounted for approximately 48.9%, 69.4% and 80.0% respectively, of our total revenue for fiscal 2023, 2022 and 2021. In fiscal 2021, one customer accounted for 56.0% of our total revenue compared to 49.1% in fiscal 2022 and in fiscal 2023, this customer accounted for 16.2% of our total revenue. In fiscal 2024, we expect our customer concentration will continue at the approximate level experienced in fiscal 2023. The reduction in revenue from this customer over the past three fiscal years has had\n \na material adverse effect on our results of operations, financial condition and cash flows. While we continue to try to diversify and expand our customer base, there can be no assurance we will be successful doing so. We expect large retrofit and rollout projects to continue to remain a significant component of our total revenue.\n \n\n\nThe multi-location master retrofit agreements we have entered into with several of our key customers (including our current largest customer) generally require that the customer issue individual facility location work orders or purchase orders before we may install our products at that location. These master agreements do not guarantee that our key customers will make individual facility location purchases from us and they also generally allow any individual location purchase order or work order to be terminated prior to shipment. As a result, the relative amount and concentration of our revenues may fluctuate year over year and period over period depending on the number of purchase orders or work orders issued by our key customers, which may fluctuate due to factors such as our customers\u2019 capital expenditure budgets and general economic conditions. The loss of, or substantial reduction in sales to, any of our significant customers, or a major customer, or the termination or delay of a significant volume of purchase orders by one or more key customers, would likely have a material adverse effect on our results of operations, financial condition and cash flows in any given future period.\n\n\n\u00a0\n\n\nOur net operating loss carry-forwards provide a future benefit only if we regain sustained profitability and may be subject to limitation based upon ownership changes.\n \n\n\n23\n\n\n\n\n\u00a0\n\n\nWe have significant federal net operating loss carry-forwards and state net operating loss carry-forwards. If we are unable to regain sustained profitability, we will not be able to fully utilize these tax benefits. Furthermore, generally a change of more than 50% in the ownership of a company\u2019s stock, by value, over a three-year period constitutes an ownership change for federal income tax purposes. An ownership change may limit a company\u2019s ability to use its net operating loss carry-forwards attributable to the period prior to such change. As a result, our ability to use our net operating loss carry-forwards attributable to the period prior to such ownership change to offset taxable income could be subject to limitations in a particular year, which could potentially result in our increased future tax liability.\n \n\n\n\u00a0\n\n\nWe experienced a net loss in fiscal 2023 and, until fiscal 2020, we had a history of losses and negative cash flow. We may be unable to regain sustained profitability and positive cash flows in the future.\n\n\nWe experienced a net loss in fiscal 2023, and prior to fiscal 2020, we experienced net losses and negative cash flows for the prior five fiscal years. There is no guarantee that we will be able to regain or sustain profitability and positive cash flows in the future. Our inability to successfully regain or sustain our profitability and positive cash flows could materially and adversely affect our ability to pursue our evolving strategies and growth initiatives.\n \n\n\n\u00a0\n\n\nAdverse conditions in the global economy have negatively impacted, and could in the future negatively impact, our customers, suppliers and business.\n\n\nOur operations and financial performance are impacted by worldwide economic conditions. Uncertainty about global economic conditions has contributed to customers postponing purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors. The occurrence of these circumstances will likely have a material negative effect on demand for our products and services and, accordingly, on our results of operations, financial condition and cash flows. For example, any economic and political uncertainty caused by the United States tariffs imposed on other countries, and any corresponding tariffs from such other countries in response, may negatively impact demand and/or increase the cost for our products and components used in our products.\n \n\n\nThe new United States administration may pursue a wide range of monetary, regulatory and trade policies, including the continued imposition of the previous United States administration\u2019s tariffs on certain imports. Certain sourced finished products and certain of the components used in our products are impacted by tariffs imposed on China imports. Our efforts to mitigate the impact of added costs resulting from these tariffs include a variety of activities, such as sourcing from non-tariff impacted countries and raising prices. If we are unable to successfully mitigate the impacts of these tariffs and other trade policies, our results of operations, financial condition and cash flows may be materially adversely affected.\n \n\n\nIn addition, global economic and political uncertainty has led many customers to adopt strategies for conserving cash, including limits on capital spending. Our lighting systems are often purchased as capital assets and therefore are subject to our customers\u2019 capital availability. Uncertainty around such availability has led customers to delay their purchase decisions, which has elongated the duration of our sales cycles. Weak economic conditions in the past have adversely affected our customers\u2019 capital budgets, purchasing decisions and facilities managers and, as a result, have adversely affected our results of operations, financial condition and cash flows. The return to a recessionary state of the global economy could potentially have negative effects on our near-term liquidity and capital resources, including slower collections of receivables, delays of existing order deliveries, postponements of incoming orders and reductions in the number and volume of purchase orders received from key customers as a result of reduced capital expenditure budgets. Our business and results of operations will be adversely affected to the extent these adverse economic conditions affect our customers\u2019 purchasing decisions.\n\n\n24\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nWe are subject to financial and operating covenants in our credit agreement and any failure to comply with such covenants, or obtain waivers in the event of non-compliance, could limit our borrowing availability under the credit agreement, resulting in our being unable to borrow under our credit agreement and materially adversely impact our liquidity.\n\n\nOur credit agreement contains provisions that limit our future borrowing availability and sets forth other customary covenants, including certain restrictions on our ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, make investments, pay any dividend or distribution on our stock, redeem, repurchase or retire shares of our stock, or pledge or dispose of assets.\n\n\nThere can be no assurance that we will be able to comply with the financial and other covenants in our credit agreement. Our failure to comply with these covenants could cause us to be unable to borrow under the credit agreement and may constitute an event of default which, if not cured or waived, could result in the acceleration of the maturity of any indebtedness then outstanding under the credit agreement, which would require us to pay all amounts then outstanding. Such an event could materially adversely affect our financial condition and liquidity. Additionally, such events of non-compliance could impact the terms of any additional borrowings and/or any credit renewal terms. Any failure to comply with such covenants may be a disclosable event and may be perceived negatively. Such perception could adversely affect the market price for our common stock and our ability to obtain financing in the future.\n\n\n\u00a0\n\n\nStrategic Risks\n\n\nAs we evolve our business strategy to increase our focus on new product and service offerings, including our comprehensive energy management and maintenance services and our IoT, \u201csmart-building,\u201d \u201cconnected ceilings\u201d and other related technology, software and controls products and services, the nature of our business may be significantly changed, or transformed, and our results of operations, financial condition and cash flows may be materially adversely affected.\n\n\nOur future growth and profitability are tied in part to our ability to successfully bring to market new and innovative product and service offerings. We have begun to evolve our business strategy to focus on further expanding the nature and scope of our products and services offered to our customers. This further expansion of our products and services includes pursuing projects to develop recurring revenue streams, including beginning to offer lighting, electrical, heating and ventilation, and other energy maintenance services to large customers with numerous locations. Our expansion efforts also involve utilizing control sensor technology to collect data and assisting customers in the digitization of this data, along with other potential services. We have experienced recent success offering our comprehensive energy project management services to national account customers to retrofit their multiple locations. We also plan to pursue the expansion of our IoT \u201csmart-building\u201d and \u201cconnected ceiling\u201d and other related technology, software and controls products and services we offer to our customers. We have invested, and plan to continue to invest, significant time, resources and capital into expanding our offerings in these areas with no expectation that they will provide material revenue in the near term and without any assurance they will succeed or be profitable. In fact, these efforts have reduced our profitability, and will likely continue to do so, at least in the near term. Moreover, as we continue to explore, develop and refine new offerings, we expect that market preferences will continue to evolve, our offerings may not generate sufficient interest by end-user customers and we may be unable to compete effectively with existing or new competitors, generate significant revenues or achieve or maintain acceptable levels of profitability.\n \n\n\nIf we are successful in introducing new product and services offerings, including expanded energy management and maintenance services and products with new technology, software and controls, the nature of our business may significantly change or be transformed away from being principally lighting products focused. Additionally, our experience providing energy maintenance services and technology, software and controls products and services is limited. If we do not successfully execute our strategy or anticipate the needs of our customers, our credibility as a provider of energy maintenance services and technology, software and controls products could be questioned and our prospects for future revenue growth and profitability may never materialize.\n \n\n\nAs we expand our product and services offerings to new markets, the overall complexity of our business will likely increase at an accelerated rate and we may become subject to different market dynamics. The new markets into which we are expanding, or may expand, may have different characteristics from the markets in which we have historically competed. These different characteristics may include, among other things, rapidly changing technologies, different supply chains, different competitors and methods of competition,\n \n\n\n25\n\n\n\n\n\u00a0\n\n\nnew product development rates, client concentrations and performance and compatibility requirements. Our failure to make the necessary adaptations to our business model to address these different characteristics, complexities and new market dynamics could adversely affect our operating results.\n \n\n\nAccordingly, if we fail to successfully launch, manage and maintain our evolving business strategy, our future revenue growth and profitability would likely be limited and our results of operations, financial condition and cash flows would likely be materially adversely affected.\n\n\nOur evolving business strategies may include exploring potential acquisitions, including potential acquisitions that could significantly change, or even transform, the nature of our business. These potential acquisitions could be unsuccessful or consume significant resources, which could materially adversely affect our results of operations, financial condition and cash flows.\n\n\nWe may explore additional potential business acquisitions which could more quickly add expanded and different capabilities to our product and services offerings, including potential acquisitions that could significantly change, or even transform, the nature of our business. There can be no assurance that we will identify or successfully complete transactions with suitable acquisition candidates in the future. Similarly, there can be no assurance that our recently completed acquisitions will be successful. Acquisitions may involve significant cash expenditures, debt incurrence, stock issuances, operating losses and expenses that would otherwise be directed to investments in our existing business and could have a material adverse effect on our financial condition, results of operations and cash flows. To pursue acquisitions and other strategic transactions, we may need to raise additional debt and/or equity capital in the future, which may not be available on acceptable terms, in sufficient amounts or at all. In addition, we may issue new shares of our common stock as consideration in such transactions, which may have a dilutive impact on our existing shareholders and may also result in a reduction in the market price of our shares once those newly issued shares are resold in the market. In addition, acquisitions involve numerous other risks, including:\n \n\n\n\u2022\nthe failure of the acquired business to achieve its revenue or profit forecasts; \n\n\n\u2022\nthe business culture of the acquired business may not match well with our culture; \n\n\n\u2022\nour business strategies and focus may change in ways that adversely affect our results of operations; \n\n\n\u2022\ntechnological and product synergies, economies of scale and cost reductions from the acquisition may not occur as expected; \n\n\n\u2022\nunforeseen expenses, delays or conditions may result from the acquisition, including required regulatory approvals or consents; \n\n\n\u2022\npotential changes may result to our management team and/or board of directors; \n\n\n\u2022\nwe may acquire or assume unexpected liabilities or be subject to unexpected penalties or other enforcement actions or legal consequences; \n\n\n\u2022\nfaulty assumptions may be made regarding the macroeconomic environment or the integration process that form a basis for the acquisition; \n\n\n\u2022\nunforeseen difficulties, delays and costs may arise in integrating the acquired business\u2019s operations, processes and systems; \n\n\n\u2022\nhigher than expected investments may be required to implement necessary compliance processes and related systems, including information technology systems, accounting systems and internal controls over financial reporting; \n\n\n\u2022\nwe may fail to retain, motivate and integrate key management and other employees of the acquired business; \n\n\n\u2022\nhigher than expected costs may arise due to unforeseen changes in tax, trade, environmental, labor, safety, payroll or pension policies in any jurisdiction in which the acquired business conducts its operations; \n\n\n\u2022\nwe may adversely impact our sales channels and our sales channel partners; and \n\n\n\u2022\nwe may experience problems in retaining customers and integrating customer bases. \n\n\n26\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nMany of these factors will be outside of our control and any one of them could result in increased costs and reduced profitability, decreases in the amount of expected revenues and diversion of our management\u2019s time and attention. They may also delay, decrease or eliminate the realization of some or all of the benefits we anticipate when we enter into the transaction.\n \n\n\nOur management team has limited experience in, and limited time to dedicate to, pursuing, negotiating or integrating acquisitions. If we do identify suitable candidates, we may not be able to negotiate or consummate such acquisitions on favorable terms or at all. Any acquisitions we complete may not achieve their initially intended results and benefits, and may be viewed negatively by investors and other stakeholders.\n \n\n\nWe may undertake acquisitions financed in part through public offerings or private placements of debt or equity securities, including through the new issuance of our common stock or debt securities as consideration in an acquisition transaction. Such acquisition financing could result in dilution to our current shareholders, a decrease in our earnings and/or adversely affect our financial condition, liquidity or other leverage measures.\n \n\n\nIn addition to committing additional capital resources to complete any acquisitions, substantial additional capital may be required to operate the acquired businesses following their acquisition. Moreover, these acquisitions may result in significant financial losses if the intended objectives of the transactions are not achieved. Some of the businesses we may acquire may have significant operating and financial challenges, requiring significant additional capital commitments to overcome such challenges and adversely affecting our financial condition and liquidity.\n \n\n\nFailure to implement our acquisition strategy, including successfully integrating acquired businesses, could have a material adverse effect on our results of operations, financial condition and cash flows.\n\n\nOur continued emphasis on indirect distribution channels to sell our products and services to supplement our direct distribution channels has had limited success to date. If we are unable to attract, incentivize and retain our third-party distributors and sales agents, or our distributors and sales agents do not sell our products and services at the levels expected, our revenues could decline and our costs could increase.\n \n\n\nWe utilize manufacturer representative sales agencies that sell our products through distributors. Many of these sales agents and distributors are not exclusive, which means that these sales agents and distributors may sell other third-party products and services in direct competition with us. Since many of our competitors use sales agents and distributors to sell their products and services, competition for such agents and distributors is intense and may adversely affect our product pricing and gross margins. Additionally, due to mismanagement, industry trends, macro-economic developments, or other reasons, our sales agents and distributors may be unable to effectively sell our products at the levels desired or anticipated. In addition, we have historically relied on direct sales to sell our products and services, which were often made in competition with sales agents and distributors. In order to attract and form lasting partnerships with sales agents and distributors, we are attempting to overcome our historical perception as a direct sales competitor. As a result, we may have difficulty attracting and retaining sales agents and distributors and any inability to do so could have a negative effect on our ability to attract and obtain customers, which could have an adverse impact on our business.\n\n\nThe success of our business depends upon our adaptation to the quickly changing market conditions in the lighting industry and on market acceptance of our lighting retrofit solutions using LED and control technologies.\n\n\nThe market for lighting products has experienced a significant technology shift to LED lighting systems. In addition, we continue to explore utilizing our system platform as a \u201cconnected ceiling\u201d or \u201csmart ceiling\u201d, or a framework or network that can support the installation and integration of other business technology or data information solutions on our lighting platform.\n \n\n\nAs a result, our future success depends significantly upon the adoption rate of LED products within our primary markets, our ability to participate in this ongoing market trend and our ability to expand into complementary markets. To be an effective participant in the LED market, we must keep up with the evolution of LED and related technologies, which continue to move at a fast pace. We may be unable to successfully develop and market new products or services that keep pace with technological or industry changes, differentiate ourselves from our competition, satisfy changes in customer demands or comply with present or emerging government and\n \n\n\n27\n\n\n\n\n\u00a0\n\n\nindustry regulations and technology standards. The development and introduction of new products and services may result in increased warranty expenses and other new product and services introduction expenses. In addition, we will likely continue to incur substantial costs to research and develop new products and services, which will increase our expenses, without guarantee that our new products and services will be commercially viable. We may also spend time and resources to develop and release new products and services only to discover that a competitor has also introduced similar new products and services with superior performance, at a lower price or on better delivery terms. Moreover, if new sources of lighting or lighting-based solutions are developed, our current products and technologies could become less competitive or obsolete, which could result in reduced revenue, reduced earnings or increased losses, and/or inventory and other impairment charges.\n \n\n\nFinally, in connection with our historical primary focus on selling our LED products, we expect our results of operations to continue to fluctuate from quarter to quarter to the extent that customers delay purchasing decisions as they evaluate their return on investment from purchasing LED products compared to alternative lighting solutions, the pricing of LED products continues to fall and LED products continue to gain more widespread customer acceptance. Similarly, these circumstances have adversely impacted, and may continue to adversely impact, our product gross margins and our profitability from quarter to quarter.\n \n\n\nIf we are unable to achieve market acceptance of our lighting retrofit solutions using LED technologies and our system platform as a \u201cconnected ceiling\u201d or \u201csmart ceiling\u201d or realize the expected benefits from our focus on promoting new products and services, our results of operations, financial condition and cash flows will likely be materially adversely affected.\n\n\nOur financial performance is dependent on our ability to achieve growth in our average selling price of our products.\n\n\nThe gross margins of our products can vary significantly, with margins ranging from 10% to 50%. While we continue to implement our strategy of transitioning to higher-margin products and reducing the material cost of our products, a change in the total mix of our sales toward lower margin products, a decrease in the margins on our products as a result of competitive pressures driving down the average selling price of our products, lower sales volumes, and promotional programs to increase sales volumes could reduce our profitability and result in a material adverse effect on our results of operations, financial condition and cash flows. Furthermore, the average selling price of our products has been, and may be further, negatively impacted by market over-supply conditions, product feature cannibalization by competitors or component providers, low-cost non-traditional sales methods by new market entrants, and comparison of our retrofit fixture products with replacement lamp equivalents. While we have previously implemented general price increases applicable to many new product orders, there is no assurance that such price increases will be accepted by our customers or succeed in increasing the average selling price of our products. In our highly competitive lighting industry, we must be able to innovate and release new products on a regular basis with features and benefits that generate increases in our average selling price and average gross margin. There can be no assurance we will be successful in achieving these goals.\n\n\nThe success of our LED lighting retrofit solutions depends, in part, on our ability to claim market share away from our competitors. If we are unable to expand our customer base and increase sales in our targeted markets, our results of operations, financial condition and cash flows will likely be materially adversely affected.\n\n\nParticipants in the LED market who are able to quickly establish customer relationships and achieve market penetration are likely to gain a competitive advantage as the lighting retrofit solutions offered by us and our competitors generally have a product life of several years following installation. If we are unable to broaden our customer base and achieve greater market penetration in the LED market in a timely manner, we may lose the opportunity to market our LED products and services to significant portions of the lighting systems retrofit market for several years and may be at a disadvantage in securing future business opportunities from customers that have previously established relationships with one or more of our competitors. These circumstances could have a material adverse effect on our results of operations, financial condition and cash flows.\n\n\nIn addition, as we continue to seek to expand our customer base within our national account, agent and ESCO sales channels, our success will depend, in part, on our ability to attract and retain talent to execute on our sales model. If we are unable to attract and retain sufficient talent, we may be unable to broaden our customer base, which will adversely affect our results of operations, financial condition and cash flows.\n\n\n28\n\n\n\n\n\u00a0\n\n\nLegal, Regulatory and Compliance Risks\n\n\nOur retrofitting process frequently involves responsibility for the removal and disposal of components containing hazardous materials.\n\n\nWhen we retrofit a customer\u2019s facility, we typically assume responsibility for removing and disposing of its existing lighting fixtures. Certain components of these fixtures typically contain trace amounts of mercury and other hazardous materials. Older components may also contain trace amounts of polychlorinated biphenyls, or PCBs. We currently rely on contractors to remove the components containing such hazardous materials at the customer job site. The contractors then arrange for the disposal of such components at a licensed disposal facility. Failure by such contractors to remove or dispose of the components containing these hazardous materials in a safe, effective and lawful manner could give rise to liability for us, or could expose our workers or other persons to these hazardous materials, which could result in claims against us which may have a material adverse effect on our results of operations, financial condition and cash flows.\n\n\nGovernment tariffs and other actions may adversely affect our business.\n \n\n\nThe United States government has, from time to time, implemented various monetary, regulatory, and trade importation restraints, penalties, and tariffs. Certain sourced finished products and certain of the components used in our products have been impacted by tariffs imposed on China imports. Our efforts to mitigate the impact of added costs resulting from these government actions include a variety of activities, such as sourcing from non-tariff impacted countries and raising prices. If we are unable to successfully mitigate the impacts of these tariffs and other trade policies, our results of operations may be adversely affected. Any future policy changes that may be implemented by the current or future United States administration could have a negative consequence on our financial performance.\n \n\n\nThe reduction or elimination of investments in, or incentives to adopt, LED lighting or the elimination of, or changes in, policies, incentives or rebates in certain states or countries that encourage the use of LEDs over some traditional lighting technologies could cause the growth in demand for our products to slow, which could have a material adverse affect on our results of operations, financial condition and cash flows.\n\n\nReductions in (including as a result of any budgetary constraints), or the elimination of, government investment and favorable energy policies designed to accelerate the adoption of LED lighting could result in decreased demand for our products and adversely affect our results of operations, financial condition and cash flows. Further, if our products fail to qualify for any financial incentives or rebates provided by governmental agencies or utilities for which our competitors\u2019 products qualify, such programs may diminish or eliminate our ability to compete by offering products at lower prices than ours.\n\n\nChanges in government budget priorities and political gridlock, and future potential government shutdown, could negatively impact our results of operations, financial condition and cash flows.\n\n\nActual and perceived changes in governmental budget priorities, and future potential government shutdowns, could adversely affect our results of operations, financial condition and cash flows. Certain government agencies purchase certain products and services directly from us. When the government changes budget priorities, such as in times of war, financial crisis, or a changed administration, or reallocates spending to areas unrelated to our business, our results of operations, financial condition and cash flows can be negatively impacted. For example, demand and payment for our products and services may be affected by public sector budgetary cycles, funding authorizations or rebates. Funding reductions or delays, including delays caused by political gridlock, and future potential government shutdowns, could negatively impact demand and payment for our products and services. If any of these events occur, our results of operations, financial condition and cash flows could be materially adversely affected.\n \n\n\nProduct liability claims could adversely affect our business, results of operations and financial condition.\n\n\nWe face exposure to product liability claims in the event that our energy management products fail to perform as expected or cause bodily injury or property damage. Since virtually all of our products use electricity, it is possible that our products could result in injury, whether by product malfunctions, defects, improper installation or other causes. Particularly because our products often incorporate new technologies or designs, we cannot predict whether or not product liability claims will be brought against us in the future or result in negative publicity about our business or adversely affect our customer relations. Moreover, we may not have adequate\n \n\n\n29\n\n\n\n\n\u00a0\n\n\nresources in the event of a successful claim against us. A successful product liability claim against us that is not covered by insurance or is in excess of our available insurance limits could require us to make significant payments of damages and could materially adversely affect our results of operations, financial condition and cash flows.\n\n\nOur inability to protect our intellectual property, or our involvement in damaging and disruptive intellectual property litigation, could adversely affect our results of operations, financial condition and cash flows or result in the loss of use of the related product or service.\n\n\nWe attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as employee and third-party nondisclosure and assignment agreements. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our results of operations, financial condition and cash flows.\n\n\nWe own United States patents and patent applications for some of our products, systems, business methods and technologies. We offer no assurance about the degree of protection which existing or future patents may afford us. Likewise, we offer no assurance that our patent applications will result in issued patents, that our patents will be upheld if challenged, that competitors will not develop similar or superior business methods or products outside the protection of our patents, that competitors will not infringe upon our patents, or that we will have adequate resources to enforce our patents. Effective protection of our United States patents may be unavailable or limited in jurisdictions outside the United States, as the intellectual property laws of foreign countries sometimes offer less protection or have onerous filing requirements. In addition, because some patent applications are maintained in secrecy for a period of time, we could adopt a technology without knowledge of a pending patent application, and such technology could infringe a third party\u2019s patent.\n\n\nWe also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise learn of our unpatented technology. To protect our trade secrets and other proprietary information, we generally require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, our business could be materially adversely affected.\n\n\nWe rely on our trademarks, trade names, and brand names to distinguish our company and our products and services from our competitors. Some of our trademarks may conflict with trademarks of other companies. Failure to obtain trademark registrations could limit our ability to protect our trademarks and impede our sales and marketing efforts. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.\n\n\nIn addition, third parties may bring infringement and other claims that could be time-consuming and expensive to defend. Also, parties making infringement and other claims against us may be able to obtain injunctive or other equitable relief that could effectively block our ability to provide our products, services or business methods and could cause us to pay substantial damages. In the event of a successful claim of infringement against us, we may need to obtain one or more licenses from third parties, which may not be available at a reasonable cost, or at all. It is possible that our intellectual property rights may not be valid or that we may infringe upon existing or future proprietary rights of others. Any successful infringement claims could subject us to significant liabilities, require us to seek licenses on unfavorable terms, prevent us from manufacturing or selling products, services and business methods and require us to redesign or, in the case of trademark claims, re-brand our company or products, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.\n\n\nThe cost of compliance with environmental laws and regulations and any related environmental liabilities could adversely affect our results of operations, financial condition and cash flows.\n\n\nOur operations are subject to federal, state and local laws and regulations governing, among other things, emissions to air, discharge to water, the remediation of contaminated properties and the generation, handling, storage, transportation, treatment and disposal of, and exposure to, waste and other materials, as well as laws and regulations relating to occupational health and safety. These laws and regulations frequently change, and the violation of these laws or regulations can lead to substantial fines, penalties and other liabilities. The operation of our manufacturing facility entails risks in these areas and there can be no assurance that we will not incur material costs or liabilities in the future that could adversely affect our results of operations, financial condition and cash flows.\n\n\n30\n\n\n\n\n\u00a0\n\n\nRisks Related to Our Common Stock\n\n\nWe expect our quarterly revenue and operating results to fluctuate. If we fail to meet the expectations of market analysts or investors, the market price of our common stock could decline substantially, and we could become subject to securities litigation.\n\n\nOur quarterly revenue and operating results have fluctuated in the past and will likely vary from quarter to quarter in the future. Our results for any particular quarter are not an indication of our future performance. Our revenue and operating results may fall below the expectations of market analysts or investors in some future quarter or quarters. Our failure to meet these expectations could cause the market price of our common stock to decline substantially. If the price of our common stock is volatile or falls significantly below our current price, we may be the target of securities litigation. If we become involved in this type of litigation, regardless of the outcome, we could incur substantial legal costs, management\u2019s attention could be diverted from the operation of our business, and our reputation could be damaged, which could adversely affect our results of operations, financial condition and cash flows.\n\n\nIf securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.\n\n\nThe trading market for our common stock will continue to depend, in part, on the research reports that securities or industry analysts publish about us and our peer group companies. If these analysts do not continue to provide adequate research coverage or if one or more of the analysts who covers us downgrades our stock, lowers our stock\u2019s price target or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.\n\n\nThe price of our common stock has been, and may continue to be, volatile.\n \n\n\nHistorically, the market price of our common stock has fluctuated over a wide range, and it is likely that the price of our common stock will continue to be volatile in the future. The trading price of our common stock has ranged from $1.45 to $2.94 per share during the period from April 1, 2022 to March 31, 2023. The market price of our common stock could be impacted due to a variety of factors, including:\n \n\n\n\u2022 \nactual or anticipated fluctuations in our operating results or our competitors\u2019 operating results; \n\n\n\u2022 \nactual or anticipated changes in the growth rate of the general LED lighting industry, our growth rates or our competitors\u2019 growth rates; \n\n\n\u2022 \nconditions in the financial markets in general or changes in general economic conditions, including government efforts to mitigate the severe economic downturn resulting from the COVID-19 pandemic; \n\n\n\u2022 \nnovel and unforeseen market forces and trading strategies, such as the massive short squeeze rally caused by retail investors and social media activity affecting companies such as GameStop Corp.; \n\n\n\u2022 \nactual or anticipated changes in governmental regulation, including taxation and tariff policies; \n\n\n\u2022 \ninterest rate or currency exchange rate fluctuations; \n\n\n\u2022 \nour ability to forecast or report accurate financial results; and \n\n\n\u2022 \nchanges in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally. \n\n\nIn addition, due to one or more of the foregoing factors in one or more future quarters, our results of operations may fall below the expectations of securities analysts and investors. In the event any of the foregoing occur, the market price of our common stock could be highly volatile and may materially decline\n\n\n31\n\n\n\n\n\u00a0\n\n\nThe market price of our common stock could be adversely affected by future sales of our common stock in the public market by us or our executive officers and directors.\n\n\nWe and our executive officers and directors may from time to time sell shares of our common stock in the public market or otherwise. We cannot predict the size or the effect, if any, that future sales of shares of our common stock by us or our executive officers and directors, or the perception of such sales, will have on the market price of our common stock.\n\n\nWe are not currently paying dividends on our common stock and will likely continue not paying dividends for the foreseeable future.\n\n\nWe have never paid or declared any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to fund the continued development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, the terms of our existing revolving credit agreement restrict the payment of cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, contractual restrictions and other factors that our board of directors deems relevant. The restrictions on, and decision not to, pay dividends on our common stock may impact our ability to attract certain investors and raise funds, if necessary, in the capital markets.\n\n\nAnti-takeover provisions included in the Wisconsin Business Corporation Law, provisions in our amended and restated articles of incorporation or bylaws and the common share purchase rights that accompany shares of our common stock could delay or prevent a change of control of our company, which could adversely impact the value of our common stock and may prevent or frustrate attempts by our shareholders to replace or remove our current board of directors or management.\n\n\nA change of control of our company may be discouraged, delayed or prevented by certain provisions of the Wisconsin Business Corporation Law. These provisions generally restrict a broad range of business combinations between a Wisconsin corporation and a shareholder owning 15% or more of our outstanding common stock. These and other provisions in our amended and restated articles of incorporation, including our staggered board of directors and our ability to issue \u201cblank check\u201d preferred stock, as well as the provisions of our amended and restated bylaws and Wisconsin law, could make it more difficult for shareholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including to delay or impede a merger, tender offer or proxy contest involving our company or result in a lower price per share paid to our shareholders.\n \n\n\nIn addition, our employment arrangements with senior management provide for severance payments and accelerated vesting of benefits, including accelerated vesting of stock options and restricted stock awards, upon a change of control and a subsequent qualifying termination. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby adversely affecting the market price of our common stock. These provisions may also discourage or prevent a change of control or result in a lower price per share paid to our shareholders.\n\n",
+  "item7": ">ITEM 7. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS O\nF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\n\nThe following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and related notes included in this Annual Report on Form 10-K for the fiscal year ended March 31, 2023. See also \u201cForward-Looking Statements\u201d and Item 1A \u201cRisk Factors\u201d.\n\n\nOverview\n\n\nWe provide state-of-the-art light emitting diode (\u201cLED\u201d) lighting systems, wireless Internet of Things (\u201cIoT\u201d) enabled control solutions, project engineering, energy project management design and maintenance services and electric vehicle (\u201cEV\u201d) charging infrastructure solutions. We help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service. We research, design, develop, manufacture, market, sell, install, and implement energy management systems consisting primarily of high-performance, energy-efficient commercial and industrial interior and exterior LED lighting systems and related services. Our products are targeted for applications in primary market segments: commercial office and retail, area lighting, industrial applications and government, although we do sell and install products into other markets. Our services consist of turnkey installation and system maintenance. Virtually all of our sales occur within North America.\n\n\nOur lighting products consist primarily of LED lighting fixtures, many of which include IoT enabled control systems. Our principal lighting customers include large national account end-users, federal and state government facilities, large regional account end-users, electrical distributors, electrical contractors and energy service companies (\u201cESCOs\u201d). Currently, most of our lighting products are manufactured at our leased production facility located in Manitowoc, Wisconsin, although as the LED and related IoT market continues to evolve, we are increasingly sourcing products and components from third parties in order to provide versatility in our product development.\n\n\nWe differentiate ourselves from our competitors through offering comprehensive project management services to national account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration. In addition, we began to offer lighting and electrical maintenance services in fiscal 2021 which enables us to support a lifetime business relationship with our customer (which we call \u201cCustomers for Life\u201d). We completed the acquisition of Voltrek on October 5, 2022, which is intended to further expand our turnkey services capabilities as well as capitalize on the rapidly growing market for EV charging solutions. We completed the Stay-Lite Lighting acquisition on January 1, 2022, which is intended to further expand our maintenance services capabilities.\n\n\nWe believe the market for LED lighting products and related controls continues to grow. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied by other lighting technologies. Our LED lighting technologies have become the primary component of our revenue as we continue to strive to be a leader in the LED market.\n \n\n\nIn fiscal 2022, we continued to successfully capitalize on our capability of being a full service, turn-key provider of LED lighting and controls systems with design, build, installation and project management services, as we continued a very large project for a major national account. As a result of this success, we have begun to evolve our business strategy to focus on further expanding the nature and scope of our products and services offered to our customers. This further expansion of our products and services includes pursuing projects to develop recurring revenue streams, including providing lighting and electrical maintenance services and utilizing control sensor technology to collect data and assisting customers in the digitization of this data, along with other potential services. We also are pursuing the expansion of our IoT, \u201csmart-building\u201d and \u201cconnected ceiling\u201d and other related technology, software and controls products and services that we offer to our customers. While we currently intend to primarily pursue these expansion strategies organically, we also may explore potential additional business acquisitions, like our acquisition of Stay-Lite Lighting\n \nand Voltrek, which have more quickly added these types of expanded and different capabilities to our product and services offerings.\n\n\n35\n\n\n\n\n\u00a0\n\n\nWe generally do not have long-term contracts with our customers for product or turnkey services that provide us with recurring annual revenue. However, our maintenance services contracts usually consist of multi-year arrangements. We typically generate substantially all of our revenue from sales of lighting and control systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under master services or product purchasing agreements with major customers with sales completed on a purchase order basis. In addition, in order to provide quality and timely service under our multi-location master retrofit agreements we are required to make substantial working capital expenditures and advance inventory purchases that we may not be able to recoup if the agreements or a substantial volume of purchase orders under the agreements are delayed or terminated. The loss of, or substantial reduction in sales to, any of our significant customers, or our current single largest customer, or the termination or delay of a significant volume of purchase orders by one or more key customers, could have a material adverse effect on our results of operations in any given future period.\n \n\n\nWe typically sell our lighting systems in replacement of our customers\u2019 existing fixtures. We call this replacement process a \"retrofit\". We frequently engage our customer\u2019s existing electrical contractor to provide installation and project management services. We also sell our lighting systems on a wholesale basis, principally to electrical distributors and ESCOs to sell to their own customer bases.\n\n\nThe gross margins of our products can vary significantly depending upon the types of products we sell, with margins typically ranging from 10% to 50%. As a result, a change in the total mix of our sales among higher or lower margin products can cause our profitability to fluctuate from period to period.\n\n\nOur fiscal year ends on March 31. We refer to our just completed fiscal year, which ended on March 31, 2023, as \"fiscal 2023\", and our prior fiscal years which ended on March 31, 2022 and March 31, 2021 as \"fiscal 2022\" and \u201cfiscal 2021\u201d, respectively. Our fiscal first quarter of each fiscal year ends on June 30, our fiscal second quarter ends on September 30, our fiscal third quarter ends on December 31 and our fiscal fourth quarter ends on March 31.\n\n\nReportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker (\"CODM\") regularly reviews when allocating resources and assessing performance. Our CODM is our chief executive officer. We have four reportable segments: Orion Services Group Division (\"OSG\"), Orion Distribution Services Division (\"ODS\"), Orion U.S. Markets Division (\u201cUSM\u201d) and Orion Electric Vehicle Charging Division (\u201cEV Division\u201d).\n\n\n36\n\n\n\n\n\u00a0\n\n\nSelected Financial Data\n\n\nThe selected historical consolidated financial data are not necessarily indicative of future results.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended March 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n2020\n\n\n\u00a0\n\n\n\u00a0\n\n\n2019\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(in thousands, except per share amounts)\n\n\n\u00a0\n\n\n\n\n\n\nConsolidated statements of operations data:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProduct revenue\n\n\n\u00a0\n\n\n$\n\n\n57,210\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n91,889\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n87,664\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n113,352\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n56,261\n\n\n\u00a0\n\n\n\n\n\n\nService revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n20,173\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32,494\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29,176\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n37,489\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,493\n\n\n\u00a0\n\n\n\n\n\n\nTotal revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n77,383\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n124,383\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n116,840\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n150,841\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n65,754\n\n\n\u00a0\n\n\n\n\n\n\nCost of product revenue (1) (2) (7)\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,979\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n65,249\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n63,233\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n83,588\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n44,111\n\n\n\u00a0\n\n\n\n\n\n\nCost of service revenue (1) (3) (7)\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,893\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,222\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,483\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,130\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,091\n\n\n\u00a0\n\n\n\n\n\n\nTotal cost of revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,872\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n90,471\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n86,716\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n113,718\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n51,202\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,511\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33,912\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,124\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n37,123\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,552\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative expenses (1) (4) (7)\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,487\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,680\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,262\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,184\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,231\n\n\n\u00a0\n\n\n\n\n\n\nAcquisition related costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n765\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n512\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nSales and marketing expenses (1) (5) (7)\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,392\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,628\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,341\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,113\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,104\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development expenses (1) (7)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,852\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,701\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,685\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,716\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,374\n\n\n\u00a0\n\n\n\n\n\n\n(Loss) income from operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n(15,985\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,391\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,836\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,110\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,157\n\n\n)\n\n\n\n\n\n\nOther income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n56\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n80\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(339\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(80\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(127\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(279\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(493\n\n\n)\n\n\n\n\n\n\nAmortization of debt issue costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n(73\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(62\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(157\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(243\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(101\n\n\n)\n\n\n\n\n\n\nLoss on debt extinguishment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(90\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nDividend and interest income\n\n\n\u00a0\n\n\n\u00a0\n\n\n34\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\n\n\n\n(Loss) income before income tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16,363\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,250\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,518\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,621\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,660\n\n\n)\n\n\n\n\n\n\nIncome tax expense (benefit) (6)\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,978\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,159\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19,616\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n159\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n\u00a0\n\n\n\n\n\n\nNet (loss) income\n\n\n\u00a0\n\n\n$\n\n\n(34,341\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n6,091\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n26,134\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n12,462\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(6,674\n\n\n)\n\n\n\n\n\n\nNet (loss) income per share attributable to common\n\u00a0\u00a0\u00a0shareholders:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n\u00a0\n\n\n$\n\n\n(1.08\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n0.20\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.85\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.41\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(0.23\n\n\n)\n\n\n\n\n\n\nDiluted\n\n\n\u00a0\n\n\n$\n\n\n(1.08\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n0.19\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.83\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.40\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(0.23\n\n\n)\n\n\n\n\n\n\nWeighted-average shares outstanding:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,704\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,018\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,635\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,105\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29,430\n\n\n\u00a0\n\n\n\n\n\n\nDiluted\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,704\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,295\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,304\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,965\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29,430\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nIncludes stock-based compensation expense recognized under Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC Topic 718, as follows:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended March 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n2020\n\n\n\u00a0\n\n\n\u00a0\n\n\n2019\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(in thousands)\n\n\n\u00a0\n\n\n\n\n\n\nCost of product revenue\n\n\n\u00a0\n\n\n$\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\nCost of service revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,596\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n793\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n716\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n576\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n764\n\n\n\u00a0\n\n\n\n\n\n\nSales and marketing expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n54\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\nTotal stock-based compensation expense\n\n\n\u00a0\n\n\n$\n\n\n1,612\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n813\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n753\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n618\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n825\n\n\n\u00a0\n\n\n\n\n\n\n(2)\nFiscal 2020 includes expenses of $0.1 million related to restructuring. \n\n\n(3)\nFiscal 2020 includes expenses of $0.1 million related to restructuring. \n\n\n(4)\nFiscal 2020 includes expenses of $28 thousand related to restructuring. \n\n\n(5)\nFiscal 2020 includes expenses of $0.2 million related to restructuring. \n\n\n(6)\nFiscal 2021 includes tax benefit of $20.9 million related to the release of the valuation allowance on deferred tax assets. Fiscal 2023 includes tax expense of $17.8 million related to the recording of the valuation allowance on deferred tax assets.\n\n\n37\n\n\n\n\n\u00a0\n\n\n(7)\nFiscal 2022 includes an offset to payroll expenses of $1.6 million related to the anticipated employee retention payroll tax credit (\u201cpayroll tax credit\u201d), as expanded and extended by the American Rescue Plan Act of 2021, as follows:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended March 31, 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(in thousands)\n\n\n\u00a0\n\n\n\n\n\n\nCost of product revenue\n\n\n\u00a0\n\n\n$\n\n\n649\n\n\n\u00a0\n\n\n\n\n\n\nCost of service revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n144\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n273\n\n\n\u00a0\n\n\n\n\n\n\nSales and marketing expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n416\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n105\n\n\n\u00a0\n\n\n\n\n\n\nTotal payroll tax credit\n\n\n\u00a0\n\n\n$\n\n\n1,587\n\n\n\u00a0\n\n\n\n\n\n\nFiscal 2024 Outlook\n\n\nIn fiscal 2024, we plan on focusing on the following initiatives:\n\n\nExecuting and marketing our turnkey LED retrofit capabilities to large national account customers\n. We believe one of our competitive advantages is our ability to deliver full turnkey LED lighting project capabilities. These turnkey services were the principal reason we achieved significant recent revenue growth as we executed on our commitment to retrofit multiple locations for a major national account customer. Our success in the national account market segment centers on our turnkey design, engineering, manufacturing and project management capabilities, which represent a very clear competitive advantage for us among large enterprises seeking to benefit from the illumination benefits and energy savings of LED lighting across locations nationwide. We believe one of our competitive advantages is that we are organized to serve every step of a custom retrofit project in a comprehensive, non-disruptive and timely fashion, from custom fixture design and initial site surveys to final installations. We are also able to help customers deploy state-of-the-art control systems that provide even greater long-term value from their lighting system investments.\n\n\nLooking forward, we are focused on continuing to successfully execute on existing national account opportunities while also actively pursuing new national account opportunities that leverage our customized, comprehensive turnkey project solutions, and expanding our addressable market with high-quality, basic lighting systems to meet the needs of value-oriented customer segments served by our other market channels. Given our compelling value proposition, capabilities and focus on customer service, we are optimistic about our business prospects and working to build sales momentum with existing and new customers.\n \n\n\nContinued Product Innovation. \nWe continue to innovate, developing lighting fixtures and features that address specific customer requirements, while also working to maintain a leadership position in energy efficiency, smart product design and installation benefits. For interior building applications, we recently expanded our product line to include a family of ceiling air movement solutions, some of which incorporate LED lighting and others which utilize ultraviolet C light waves to kill viruses, bacteria and germs. We also continue to deepen our capabilities in the integration of smart lighting controls. Orion is launching a new line of exterior products in FY\u201924 Q2 designed to increase sales and market share in the application market. Our goal is to provide state-of-the-art lighting products with modular plug-and-play designs to enable lighting system customization from basic controls to advanced IoT capabilities.\n \n\n\nLeverage of our Smart Lighting Systems to Support Internet of Things Applications. \nWe believe we are ideally positioned to help customers to efficiently deploy new IoT controls and applications by leveraging the \u201cSmart Ceiling\u201d capabilities of their Orion solid state lighting system. IoT capabilities can include the management and tracking of facilities, personnel, resources and customer behavior, driving both sales and lowering costs. As a result, these added capabilities provide customers an even greater return on investment from their lighting system and make us an even more attractive partner. We plan to pursue the expansion of our IoT, \u201csmart-building\u201d and \u201cconnected ceiling\u201d and other related technology, software and controls products and services that we offer to our customers. While we intend to pursue these expansion strategies organically, we also are actively exploring potential business acquisitions which would more quickly add these types of expanded and different capabilities to our product and services offerings.\n\n\nIncrease our Maintenance Service Offerings. \nWe believe we can leverage our construction management process expertise to develop a high-quality, quick-response, multi-location maintenance service offering. Our experience with large national customers and our large installed base of fixtures positions us well to extend a maintenance offering to historical customers, as well as to new customers.\n \n\n\n38\n\n\n\n\n\u00a0\n\n\nDevelopment of this recurring revenue stream is making progress and we believe there is significant market opportunity. In fiscal 2021, we began providing energy maintenance services, and, on January 1, 2022, we completed the acquisition of Stay-Lite Lighting. The acquisition of Stay-Lite Lighting is intended to further increase our energy maintenance services capabilities.\n\n\n Support success of our ESCO and agent-driven distribution sales channels.\n We continue to focus on building our relationships and product and sales support for our ESCO and agent driven distribution channels. These efforts include an array of product and sales training efforts as well as the development of new products to cater to the unique needs of these sales channels.\n\n\nGrow EV Charging Installation Business.\n We acquired Voltrek, a turnkey EV charging installation business, in fiscal 2023. We believe there are significant growth opportunities in Voltrek\u2019s existing east coast geographic market, as well as on a national basis. We plan to focus our growth plans on maximizing the initial positive momentum realized in fiscal 2023 from our Voltrek acquisition and on cross selling our EV charging solutions into our historical market channels and customers.\n\n\nRecent Acquisitions\n\n\nAcquisition of Voltrek\n\n\nEffective on October 5, 2022, we acquired all of the outstanding membership interests of Voltrek LLC, a leading electric vehicle charging company that provides turnkey installation solutions with ongoing support to all commercial verticals. The initial purchase price consisted of $5.0 million cash and $1.0 million of stock. We will also pay an additional $3.0 million based on Voltrek's performance in fiscal 2023 and could pay up to an additional $3.5 million and $7.15 million in compensatory consideration if Voltrek exceeds certain earnings targets in fiscal 2024 and 2025, respectively. The acquisition was funded from existing cash and credit resources and has been operating as Voltrek, a division of Orion Energy Systems.\n\n\nAcquisition of Stay-Lite Lighting\n\n\nEffective on January 1, 2022, we acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, a nationwide lighting and electrical maintenance service provider, for a cash purchase price of $4.0 million. The acquisition was funded from existing cash resources. Stay-Lite Lighting has been operating as Stay-Lite, an Orion Energy Systems business. The acquisition accelerates the growth of our maintenance services offerings through our Orion Services Group, which provides lighting and electrical services to customers. Our fiscal 2023 results included a full year of operations of Stay-Lite Lighting.\n\n\nReplacing Reduced Revenue from Primary Customer\n\u00a0\n\n\nIn fiscal 2023, one customer accounted for 16.2% of our total revenue. In fiscal 2022, that same customer accounted for 49.1% of our total revenue, and in fiscal 2021, this same customer accounted for 56.0% of our total revenue. In fiscal 2024, we expect that our customer concentration will continue at the approximate level experienced in fiscal 2023. We continue to attempt to diversify our customer base by expanding our reach to national accounts, ESCOs, the agent driven distribution channel, lighting maintenance customers and the EV market, in order to replace this reduced level of revenue from our prior most significant customer.\n\u00a0\n\n\n39\n\n\n\n\n\u00a0\n\n\nResults of Operations: Fiscal 2023 versus Fiscal 2022\n\n\nThe following table sets forth the line items of our consolidated statements of operations and as a relative percentage of our total revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods (in thousands, except percentages):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended March 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\n% \nChange\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of\nRevenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of\nRevenue\n\n\n\u00a0\n\n\n\n\n\n\nProduct revenue\n\n\n\u00a0\n\n\n$\n\n\n57,210\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n91,889\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(37.7\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n73.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n73.9\n\n\n%\n\n\n\n\n\n\nService revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n20,173\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32,494\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(37.9\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.1\n\n\n%\n\n\n\n\n\n\nTotal revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n77,383\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n124,383\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(37.8\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\n\n\n\nCost of product revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,979\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n65,249\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(34.1\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n55.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n52.5\n\n\n%\n\n\n\n\n\n\nCost of service revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,893\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,222\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(33.0\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.3\n\n\n%\n\n\n\n\n\n\nTotal cost of revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,872\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n90,471\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(33.8\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n77.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n72.7\n\n\n%\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,511\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33,912\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(48.4\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n27.3\n\n\n%\n\n\n\n\n\n\nGeneral and administrative expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,487\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,680\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n66.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.4\n\n\n%\n\n\n\n\n\n\nAcquisition related costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n765\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n512\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n49.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.4\n\n\n%\n\n\n\n\n\n\nSales and marketing expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,392\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,628\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2.0\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.3\n\n\n%\n\n\n\n\n\n\nResearch and development expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,852\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,701\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.4\n\n\n%\n\n\n\n\n\n\n(Loss) income from operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n(15,985\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,391\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(20.7\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.7\n\n\n%\n\n\n\n\n\n\nOther income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.0\n\n\n%\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(339\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(80\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(323.8\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.4\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.1\n\n\n)%\n\n\n\n\n\n\nAmortization of debt issue costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n(73\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(62\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17.7\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.1\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.0\n\n\n)%\n\n\n\n\n\n\n(Loss) income before income tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16,363\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,250\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(21.1\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.6\n\n\n%\n\n\n\n\n\n\nIncome tax expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,978\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,159\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.7\n\n\n%\n\n\n\n\n\n\nNet (loss) income\n\n\n\u00a0\n\n\n$\n\n\n(34,341\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n6,091\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(44.4\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.9\n\n\n%\n\n\n\n\n\n\n* NM = Not Meaningful\n\n\nRevenue, Cost of Revenue and Gross Margin.\n Product revenue decreased by 37.7%, or $34.7 million, for fiscal 2023 versus fiscal 2022. Service revenue decreased by 37.9%, or $12.3 million, for fiscal 2023 versus fiscal 2022. The decrease in product revenue was primarily due to the completion of a significant project for our largest customer and delays in the commencement of certain projects partially offset by revenue associated with the Stay-Lite and Voltrek acquisitions. The decrease in service revenue was primarily due to the completion of the significant project for our largest customer partially offset by revenue association with the acquisition of Stay-Lite and Voltrek. Cost of product revenue decreased by 34.1%, or $22.3 million, in fiscal 2023 versus the comparable period in fiscal 2022. Cost of service revenue decreased by 33.0%, or $8.3 million, in fiscal 2023 versus fiscal 2022. The decreases were primarily because of decreases in revenue described above. Gross margin decreased to 22.6% of revenue in fiscal 2023 from 27.3% in fiscal 2022, due primarily to lower absorption of fixed costs on reduced revenue volume.\n \n\n\nOperating Expenses\n\n\nGeneral and Administrative.\n General and administrative expenses increased 66.8%, or $7.8 million, in fiscal 2023 compared to fiscal 2022. This comparative increase was primarily due to the acquisition of Stay-Lite Lighting and Voltrek, which included $4.0 million for compensatory Voltrek earn-out payments. In addition, there were lower employment costs in fiscal 2022 as a result of COVID-19 related actions and the payroll tax credit.\n \n\n\nAcquisition Related Costs\n. In fiscal 2023, we incurred acquisition costs of $0.8 million, primarily relating to the Voltrek acquisition. In fiscal 2022, we incurred acquisition expenses of $0.5 million relating to the acquisition of Stay-Lite Lighting.\n \n\n\nSales and Marketing.\n Our sales and marketing expenses decreased 2.0%, or $0.2 million, in fiscal 2023 compared to fiscal 2022. The decrease was primarily due to an decrease in commission expense on lower sales partially offset by expenses associated with the Stay-Lite Lighting and Voltrek businesses.\n \n\n\n40\n\n\n\n\n\u00a0\n\n\nResearch and Development.\n Research and development expenses increased 8.9%, or $0.2 million, in fiscal 2023 compared to fiscal 2022 .\n \n\n\nInterest Expense.\n Interest expense in fiscal 2023 increased by $0.2 million to $0.3 million primarily because of higher borrowings on Orion\u2019s credit facility and increased third party financing costs related to the sale of receivables.\n\n\nIncome Taxes.\n In fiscal 2023, we recognized tax expense of $18.0 million. In fiscal 2022, we recognized tax expense of $2.2 million. The fiscal 2023 expense was driven by a $17.8 million non-cash charge to increase the valuation allowance on a significant portion of our deferred tax assets. This resulted in substantially and disproportionately decreasing our reported net income and our earnings per share compared to our operating results. Historical and future comparisons to these amounts are not, and will not be, indicative of actual profitability trends for our business. Our fiscal 2022 income tax provision reflects a more normalized effective income tax rate. We do not expect to remit significant cash taxes for the next several years.\n\n\nResults of Operations: Fiscal 2022 versus Fiscal 2021\n\n\nThe following table sets forth the line items of our consolidated statements of operations and as a relative percentage of our total revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods (in thousands, except percentages):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended March 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\n% \nChange\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of\nRevenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of\nRevenue\n\n\n\u00a0\n\n\n\n\n\n\nProduct revenue\n\n\n\u00a0\n\n\n$\n\n\n91,889\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n87,664\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n73.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n75.0\n\n\n%\n\n\n\n\n\n\nService revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n32,494\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29,176\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.0\n\n\n%\n\n\n\n\n\n\nTotal revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n124,383\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n116,840\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\n\n\n\nCost of product revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n65,249\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n63,233\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n52.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n54.1\n\n\n%\n\n\n\n\n\n\nCost of service revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,222\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,483\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.1\n\n\n%\n\n\n\n\n\n\nTotal cost of revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n90,471\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n86,716\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n72.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n74.2\n\n\n%\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n33,912\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,124\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n27.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.8\n\n\n%\n\n\n\n\n\n\nGeneral and administrative expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,680\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,262\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.6\n\n\n%\n\n\n\n\n\n\nAcquisition related costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n512\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.0\n\n\n%\n\n\n\n\n\n\nSales and marketing expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,628\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,341\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.9\n\n\n%\n\n\n\n\n\n\nResearch and development expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,701\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,685\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.4\n\n\n%\n\n\n\n\n\n\nIncome from operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,391\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,836\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.9\n\n\n%\n\n\n\n\n\n\nOther income\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n56\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(98.2\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.0\n\n\n%\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(80\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(127\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n37.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.1\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.1\n\n\n)%\n\n\n\n\n\n\nAmortization of debt issue costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n(62\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(157\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n60.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.0\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.1\n\n\n)%\n\n\n\n\n\n\nLoss on debt extinguishment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(90\n\n\n)\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.1\n\n\n)%\n\n\n\n\n\n\nIncome before income tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,250\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,518\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.6\n\n\n%\n\n\n\n\n\n\nIncome tax expense (benefit)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,159\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19,616\n\n\n)\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16.8\n\n\n)%\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n6,091\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n26,134\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(76.7\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.4\n\n\n%\n\n\n\n\n\n\n* NM = Not Meaningful\n\n\n \n\n\nRevenue, Cost of Revenue and Gross Margin.\n Product revenue increased by 4.8%, or $4.2 million, for fiscal 2022 versus fiscal 2021. Service revenue increased by 11.4%, or $3.3 million, for fiscal 2022 versus fiscal 2021. The increase in product revenue was primarily due to multiple projects put on hold in the prior year as a result of COVID-19.\n \nThe increase in service revenue was primarily due to the acquisition of Stay-Lite Lighting. Cost of product revenue increased by 3.2%, or $2.0 million, in fiscal 2022 versus the comparable period in fiscal 2021. Cost of service revenue increased by 7.4%, or $1.7 million, in fiscal 2022 versus fiscal 2021. The\n \n\n\n41\n\n\n\n\n\u00a0\n\n\nincrease in product costs was primarily due to the increase in product revenue. Gross margin increased to 27.3% of revenue in fiscal 2022 from 25.8% in fiscal 2021, due primarily to cost management and a change in customer sales mix.\n \n\n\nOperating Expenses\n\n\nGeneral and Administrative.\n General and administrative expenses increased 3.7%, or $0.4 million, in fiscal 2022 compared to fiscal 2021. This comparative increase was primarily due to the acquisition of Stay-Lite Lighting and lower employment costs in fiscal 2021 as a result of COVID-19 related actions, partially offset by the payroll tax credit.\n \n\n\nAcquisition Related Costs\n. In fiscal 2022, we incurred acquisition expenses of $0.5 million relating to the acquisition of Stay-Lite Lighting.\n \n\n\nSales and Marketing.\n Our sales and marketing expenses increased 12.4%, or $1.3 million, in fiscal 2022 compared to fiscal 2021. The increase was primarily due to an increase in commission expense on higher sales and an increase in travel, both a result of COVID-19 restrictions in fiscal 2021, as well as a result of the acquisition of Stay-Lite Lighting.\n \n\n\nResearch and Development.\n Research and development expenses were essentially flat in fiscal 2022 compared to fiscal 2021 and also remained consistent as a percentage of sales between years.\n \n\n\nInterest Expense.\n Interest expense in fiscal 2022 decreased by 37.0%, or $47 thousand, from fiscal 2021. The decrease in interest expense was due to fewer sales of receivables.\n\n\nLoss on Debt Extinguishment\n. Loss on debt extinguishment in fiscal 2021 related to the write-off of fees incurred with respect to our prior credit facility, which was recognized upon execution of our new credit facility during the third quarter of fiscal 2021.\n\n\nIncome Taxes.\n In fiscal 2022, we recognized a tax expense of $2.2 million. In fiscal 2021, we recognized a tax benefit of $19.6 million. The benefit was driven by the release of the valuation allowance on a significant portion of our deferred tax assets. This resulted in substantially and disproportionately increasing our reported net income and our earnings per share compared to our operating results. Historical and future comparisons to these amounts are not, and will not be, indicative of actual profitability trends for our business. Our fiscal 2022 income tax provision reflects a more normalized effective income tax rate. We do not expect to remit significant cash taxes for the next several years.\n\n\nOrion Services Group Division\n\n\nOur OSG segment (a) develops and sells lighting products and provides construction and engineering services for our commercial lighting and energy management systems and (b) provides retailers, distributors and other businesses with maintenance, repair and replacement services for the lighting and related electrical components deployed in their facilities. OSG provides engineering, design and lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers.\n\n\nThe following table summarizes our OSG segment operating results (dollars in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended March 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nRevenues\n\n\n\u00a0\n\n\n$\n\n\n38,002\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n82,568\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n84,243\n\n\n\u00a0\n\n\n\n\n\n\nOperating (loss) income\n\n\n\u00a0\n\n\n$\n\n\n(6,982\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n6,462\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7,472\n\n\n\u00a0\n\n\n\n\n\n\nOperating margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n(18.4\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.9\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nFiscal 2023 Compared to Fiscal 2022\n \n\n\nOSG segment revenue decreased in fiscal 2023 by 54.0%, or $44.6 million, and operating income decreased $13.4 million to an operating loss, compared to fiscal 2022, due to an overall reduction in project volume performed for our largest customer, partially offset\n \n\n\n42\n\n\n\n\n\u00a0\n\n\nby revenue from the acquisition of Stay-Lite Lighting. This decrease led to a corresponding operating loss in this segment, as a result of decreased absorption of fixed costs.\n\n\nFiscal 2022 Compared to Fiscal 2021\n \n\n\nOSG segment revenue decreased in fiscal 2022 by 2.0%, or $1.7 million, and operating income decreased by 13.5%, or $1.0 million, compared to fiscal 2021, due to an overall reduction in project volume performed for our largest customer, partially offset by revenue from the acquisition of Stay-Lite Lighting.\n\n\nOrion Distribution Services Division\n \n\n\nOur ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of North American broadline and electrical distributors and contractors.\n\n\nThe following table summarizes our ODS segment operating results (dollars in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended March 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nRevenues\n\n\n\u00a0\n\n\n$\n\n\n15,395\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n22,209\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n21,122\n\n\n\u00a0\n\n\n\n\n\n\nOperating (loss) income\n\n\n\u00a0\n\n\n$\n\n\n(186\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n3,114\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,430\n\n\n\u00a0\n\n\n\n\n\n\nOperating margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1.2\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.5\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nFiscal 2023 Compared to Fiscal 2022\n \n\n\nODS segment revenue decreased $6.8 million, or 30.7%, and operating income decreased $3.3 million, or 106.0%, in fiscal 2023 compared to fiscal 2022 primarily due to reduced sales to a large global on-line retailer. Operating income in this segment decreased as a result of increased allocation of corporate costs.\n\n\nFiscal 2022 Compared to Fiscal 2021\n \n\n\nODS segment revenue in fiscal 2022 increased 5.1%, or $1.1 million, compared to fiscal 2021, primarily due to sales to a more diversified customer base. This sales increase led to a corresponding increase in operating income in this segment based on operating leverage.\n\n\nOrion U.S. Markets Division\n\n\nOur USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and contractors.\n\n\nThe following table summarizes our USM segment operating results (dollars in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended March 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nRevenues\n\n\n\u00a0\n\n\n$\n\n\n17,710\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n19,606\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11,475\n\n\n\u00a0\n\n\n\n\n\n\nOperating income\n\n\n\u00a0\n\n\n$\n\n\n1,605\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,963\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,683\n\n\n\u00a0\n\n\n\n\n\n\nOperating margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.7\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nFiscal 2023 Compared to Fiscal 2022\n \n\n\nUSM segment revenue decreased $1.9 million, or 9.7%, and operating income decreased by $2.4 million, or 59.5%, in fiscal 2023 compared to fiscal 2022, primarily due to a less diversified customer base. Operating income in this segment decreased as a result of lower revenue and increased allocation of corporate costs.\n\n\n43\n\n\n\n\n\u00a0\n\n\nFiscal 2022 Compared to Fiscal 2021\n \n\n\nUSM segment revenue increased $8.1 million, or 70.9%, and operating income increased by $2.3 million, or 135.5%, in fiscal 2022 compared to fiscal 2021, primarily due to the impact of COVID-19 on fiscal 2021 and an increased focus on sales opportunities in this segment.\n\n\nOrion EV Charging Division\n\n\nWe acquired Voltrek effective October 5, 2022, upon which it became an additional reporting segment. The results shown below are since the acquisition date and include the accrual of compensatory earn-out payments. Absent allocations and earn-out payment expenses, the EV Division had a positive effect on our consolidated earnings in fiscal 2023.\nThe following table summarizes our EV Division operations results (dollars in thousands):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended March 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nRevenues\n\n\n\u00a0\n\n\n$\n\n\n6,275\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nOperating (loss)\n\n\n\u00a0\n\n\n$\n\n\n(4,133\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nOperating margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n(65.9\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nEV Division revenue generated by Voltrek in fiscal 2023 was $6.3 million. Operating loss in this segment was primarily a result of $4.0 million earn-out expense included in general and administrative costs.\n\n\n Liquidity and Capital Resources\n\n\nOverview\n\n\nWe had $16.0 million in cash and cash equivalents as of March 31, 2023, compared to $14.5 million at March 31, 2022. Our cash position increased primarily as a result of a $10.0 million draw made on our Credit Facility, together with positive changes in working capital changes, partially offset by the results of our operations and the funding of our acquisition of Voltrek.\n\n\nAs of March 31, 2023, our borrowing base supported $17.3 million of availability under our Credit Facility, with $10.0 million drawn against that availability. As of March 31, 2022, no amounts were borrowed under the Credit Facility.\n\n\nAdditional information on our Credit Agreement can be found in the \u201cIndebtedness\u201d section located below.\n \n\n\nIn March 2023, we filed a universal shelf registration statement with the Securities and Exchange Commission. Under our shelf registration statement, we currently have the flexibility to publicly offer and sell from time to time up to $100 million of debt and/or equity securities. The filing of the shelf registration statement may help facilitate our ability to raise public equity or debt capital to expand existing businesses, fund potential acquisitions, invest in other growth opportunities, repay existing debt, or for other general corporate purposes.\n \n\n\nIn March 2021, we entered into an At Market Issuance Sales Agreement to undertake an \u201cat the market\u201d (ATM) public equity capital raising program pursuant to which we may offer and sell shares of our common stock, having an aggregate offering price of up to $50 million from time to time through or to the Agent, acting as sales agent or principal. No share sales have yet been effected pursuant to the ATM program through March 31, 2023.\n\n\nWe also are exploring various alternative sources of liquidity to help ensure that we will have the best allocation of investing capital to satisfy our working capital needs.\n \n\n\nOur future liquidity needs and forecasted cash flows are dependent upon many factors, including our relative revenue, gross margins, cash management practices, cost containment, working capital management, capital expenditures. While we believe that we\n \n\n\n44\n\n\n\n\n\u00a0\n\n\nwill likely have adequate available cash and equivalents and credit availability under our Credit Agreement to satisfy our currently anticipated working capital and liquidity requirements during the next 12 months and beyond based on our current cash flow forecast, there can be no assurance to that effect. If we experience significant liquidity constraints, we may be required to issue equity or debt securities, reduce our sales efforts, implement additional cost savings initiatives or undertake other efforts to conserve our cash.\n\n\nCash Flows\n\n\nThe following table summarizes our cash flows for our fiscal 2023, fiscal 2022 and fiscal 2021:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended March 31,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(in thousands)\n\n\n\u00a0\n\n\n\n\n\n\nOperating activities\n\n\n\u00a0\n\n\n$\n\n\n(2,291\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(113\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n1,729\n\n\n\u00a0\n\n\n\n\n\n\nInvesting activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,195\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,918\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(946\n\n\n)\n\n\n\n\n\n\nFinancing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,012\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n104\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10,141\n\n\n)\n\n\n\n\n\n\nIncrease (decrease) in cash and cash equivalents\n\n\n\u00a0\n\n\n$\n\n\n1,526\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(4,927\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(9,358\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\nCash Flows Related to Operating Activities.\n Cash provided by (used in) operating activities primarily consists of net loss adjusted for certain non-cash items, including depreciation, amortization of intangible assets, stock-based compensation, amortization of debt issue costs, provisions for reserves, and the effect of changes in working capital and other activities.\n\n\n\u00a0\n\n\nCash used in operating activities for fiscal 2023 was $2.3 million and consisted of our net loss of $34.3 million adjusted for non-cash expense items and net cash used in changes in operating assets of $32.1 million, the largest of which was a $17.8 million decrease in deferred income tax assets as a result of the valuation allowance.\n\n\nCash used in operating activities for fiscal 2022 was $0.1 million and consisted of a net income of $6.1 million adjusted for non-cash expense items of $5.0 million and offset by net cash used by changes in operating assets and liabilities of $11.2 million. Cash used by changes in operating assets and liabilities consisted primarily of decreases in accounts payable of $8.1 million and accrued liabilities of $6.9 million, partially offset by cash provided by a decrease in accounts receivable of $4.4 million, all caused by changes in business volume late in fiscal 2022 compared to late fiscal 2021.\n \n\n\nCash provided by operating activities for fiscal 2021 was $1.7 million and consisted of a net income adjusted for non-cash expense items of $9.1 million and net cash used by changes in operating assets and liabilities of $7.4 million. Cash used by changes in operating assets and liabilities consisted primarily of an increase in inventory of $5.3 million due to the release of new product lines and pre-ordering due to supply chain delays as a result of COVID-19, a decrease in accounts payable of $2.6 million due to the timing of payments, an increase in accounts receivable of $2.4 million due to the timing of billing and customer collections, and an increase in Revenue earned but not billed of $2.4 million due to timing on revenue recognition compared to invoicing. Cash provided by changes in operating assets and liabilities included an increase in accrued expenses of $5.8 million due to the timing of project completions and the receipt of invoices.\n\n\nCash Flows Related to Investing Activities.\n Cash used in investing activities in fiscal 2023 was $6.2 million and consisted primarily of the $5.6 million acquisition of Voltrek and $0.6 million purchases of property and equipment.\n\n\nCash used in investing activities in fiscal 2022 was $4.9 million and consisted primarily of the $4.0 million acquisition of Stay-Lite Lighting, and an investment of a non-controlling equity stake in ndustrial, Inc. of $0.5 million and purchases of property and equipment.\n\n\nCash used in investing activities in fiscal 2021 was $0.9 million and consisted primarily of purchases of property and equipment.\n\n\nCash Flows Related to Financing Activities. \nCash provided by financing activities in fiscal 2023 was $10.0 million which consisted of proceeds from the revolving credit facility.\n \n\n\n45\n\n\n\n\n\u00a0\n\n\nCash provided by financing activities in fiscal 2022 was $0.1 million.\n \n\n\nCash used in financing activities in fiscal 2021 was $10.1 million. This cash used consisted primarily of a net payment of $10.0 million under our Credit Facility.\n \n\n\nWorking Capital\n\n\nOur net working capital as of March 31, 2023 was $25.9 million, consisting of $50.4 million of current assets and $24.5 million of current liabilities. Our net working capital as of March 31, 2022 was $32.9 million, consisting of $51.2 million in current assets and $18.4 million in current liabilities. The change was primarily due to decreases in inventory and collection of the employee retention tax credit plus increases in accounts payable, accrued expenses and accounts receivable.\n\n\nOur net working capital as of March 31, 2021 was $26.2 million, consisting of $56.5 million in current assets and $30.4 million in current liabilities. The increase in our working capital from the fiscal 2021 year-end was primarily due to an overall reduction in project volume performed for our largest customer and partially offset by the acquisition of Stay-Lite Lighting.\n \n\n\nWe generally attempt to maintain at least a three-month supply of on-hand inventory of purchased components and raw materials to meet anticipated demand, as well as to reduce our risk of unexpected raw material or component shortages or supply interruptions. Because of recent supply chain challenges, we have been making additional incremental inventory purchases. Our accounts receivables, inventory and payables may increase to the extent our revenue and order levels increase\n\n\nIndebtedness\n\n\nRevolving Credit Agreement\n\n\nOur Credit Agreement provides for a five-year $25.0 million revolving credit facility (the \u201cCredit Facility\u201d) that matures on December 29, 2025. Borrowings under the Credit Facility are subject to a borrowing base requirement based on eligible receivables, inventory and cash. As of March 31, 2023, the borrowing base supported approximately $17.3 million of availability under the Credit Facility with $10.0 million drawn against that availability. As of March 31, 2022, no amounts were borrowed under the Credit Facility.\n\n\nThe Credit Agreement is secured by a first lien security interest in substantially all of our assets.\n\n\nBorrowings under the Credit Agreement are permitted in the form of LIBOR or prime rate-based loans and generally bear interest at floating rates plus an applicable margin determined by reference to our availability under the Credit Agreement. Among other fees, we are required to pay an annual facility fee of $15,000 and a fee of 25 basis points on the unused portion of the Credit Facility.\n\n\nThe Credit Agreement includes a springing minimum fixed cost coverage ratio of 1.0 to 1.0 when excess availability under the Credit Facility falls below the greater of $3.0 million or 15% of the committed facility. Currently, the required springing minimum fixed cost coverage ratio is not required.\n \n\n\nThe Credit Agreement also contains customary events of default and other covenants, including certain restrictions on our ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on our stock, redeem, retire or purchase shares of our stock, make investments or pledge or transfer assets. If an event of default under the Credit Agreement occurs and is continuing, then the lender may cease making advances under the Credit Agreement and declare any outstanding obligations under the Credit Agreement to be immediately due and payable. In addition, if we become the subject of voluntary or involuntary proceedings under any bankruptcy or similar law, then any outstanding obligations under the Credit Agreement will automatically become immediately due and payable.\n\n\nWe did not incur any early termination fees in connection with the termination of the Prior Credit Agreement, but did recognize a loss on debt extinguishment of $0.1 million on the write-off of unamortized debt issue costs related to the Prior Credit Agreement.\n\n\n46\n\n\n\n\n\u00a0\n\n\nCapital Spending\n\n\nOur capital expenditures are primarily for general corporate purposes for our corporate headquarters and technology center, production equipment and tooling and for information technology systems. Our capital expenditures totaled $0.7 million in fiscal 2023, $0.5 million in fiscal 2022 and $0.9 million in fiscal 2021. Our capital spending plans predominantly consist of investments related to maintenance fleet vehicles, new product development tooling and equipment and information technology systems, exclusive of any capital spending for potential acquisitions. We expect to finance these capital expenditures primarily through our existing cash, equipment secured loans and leases, to the extent needed, long-term debt financing, or by using our Credit Facility.\n\n\nInflation\n\n\nWe have experienced increases in various input costs including labor, components and transportation in the past year. In response, we have implemented multiple price increases, and we have substantially mitigated the inflationary pressures, such that our results from operations have not been materially affected by inflation. We are monitoring input costs and cannot currently predict the future impact to our operations by inflation.\n\n\nCritical Accounting Estimates\n\n\nThe discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make certain estimates and judgments that affect our reported assets, liabilities, revenue and expenses, and our related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an ongoing basis, including those related to revenue recognition, inventory valuation, collectability of receivables, stock-based compensation, warranty reserves and income taxes. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. A summary of our critical accounting estimates is set forth below.\n\n\nRevenue Recognition.\n We recognize revenue in accordance with the guidance in \u201cRevenue from Contracts with Customers\u201d (Topic 606) (\u201cASC 606\u201d) when control of the goods or services being provided (which we refer to as a performance obligation) is transferred to a customer at an amount that reflects the consideration we expect to receive in exchange for those goods or services. The amount of expected consideration includes estimated deductions and early payment discounts calculated based on historical experience, customer rebates based on agreed upon terms applied to actual and projected sales levels over the rebate period, and any amounts paid to customers in conjunction with fulfilling a performance obligation.\n\n\nIf there are multiple performance obligations in a single contract, the contract\u2019s total transaction price per GAAP is allocated to each individual performance obligation based on their relative standalone selling price. A performance obligation\u2019s standalone selling price is the price at which we would sell such promised good or service separately to a customer. We use an observable price to determine the stand-alone selling price for separate performance obligations or an expected cost-plus margin per GAAP approach when one is not available. The expected cost-plus margin per GAAP approach is used to determine the stand-alone selling price for the installation performance obligation and is based on average historical installation margin.\n\n\nRevenue derived from customer contracts which include only performance obligation(s) for the sale of lighting fixtures and components we manufacture, or source is classified as product revenue in the Consolidated Statements of Operations. The revenue for these transactions is recorded at the point in time when management believes that the customer obtains control of the products, generally either upon shipment or upon delivery to the customer\u2019s facility. This point in time is determined separately for each contract and requires judgment by management of the contract terms and the specific facts and circumstances concerning the transaction.\n\n\nRevenue from a customer contract which includes both the sale of Orion manufactured or sourced fixtures and the installation of such fixtures (which we refer to as a turnkey project) is allocated between each lighting fixture and the installation performance obligation based on relative standalone selling prices.\n\n\n47\n\n\n\n\n\u00a0\n\n\nRevenue from turnkey projects that is allocated to the single installation performance obligation is reflected in Service revenue. Service revenue is recorded over-time as we fulfill our obligation to install the light fixtures. We measure our performance toward fulfilling our performance obligations for installations using an output method that calculates the number of light fixtures completely removed and installed as of the measurement date in comparison to the total number of light fixtures to be removed and installed under the contract.\n\n\nRevenue from the maintenance offering that includes both the sale of Orion manufactured or sourced product and service is allocated between the product and service performance obligations based on relative standalone selling prices, and is recorded in Product revenue and Service revenue, respectively, in the Consolidated Statement of Operations. .\n\n\nThe sale of installation and services related to the EV charging business is presented in Service revenue. Revenue from the EV segment that includes both the sale of product and service is allocated between the product and service performance obligations based on relative standalone selling prices, and is recorded in Product revenue and Service revenue, respectively, in the Consolidated Statement of Operations.\n \n\n\nInventories.\n We review our inventory for obsolescence. If the net realizable value, which is based upon the estimated selling price, less estimated costs of completion, disposal, and transportation, falls below cost, then the inventory value is reduced to its net realizable value. Our inventory obsolescence reserves at March 31, 2023 were $1.8 million, or 8.9% of gross inventory, and $2.1 million, or 9.5% of gross inventory, at March 31, 2022.\n\n\nRecoverability of Long-Lived Assets.\n We evaluate long-lived assets such as property, equipment and definite lived intangible assets, such as patents, for impairment whenever events or circumstances indicate that the carrying value of the assets recognized in our financial statements may not be recoverable. Factors that we consider include whether there has been a significant decrease in the market value of an asset, a significant change in the way an asset is being utilized, or a significant change, delay or departure in our strategy for that asset, or a significant change in the macroeconomic environment, such as the impact of the COVID-19 pandemic. Our assessment of the recoverability of long-lived assets involves significant judgment and estimation. These assessments reflect our assumptions, which, we believe, are consistent with the assumptions hypothetical marketplace participants use. Factors that we must estimate when performing recoverability and impairment tests include, among others, forecasted revenue, margin costs and the economic life of the asset. If impairment is indicated, we determine if the total estimated future cash flows on an undiscounted basis are less than the carrying amounts of the asset or assets. If so, an impairment loss is measured and recognized.\n\n\nAs of December 31, 2022, due to a change in our forecast, a triggering event occurred requiring us to evaluate the long-lived assets in its enterprise asset group for impairment. The enterprise asset group includes the corporate assets that support the revenue producing activities of other asset groups. We performed the recoverability test for the asset group by comparing its carrying value to the group\u2019s expected future undiscounted cash flows. We concluded that the undiscounted cash flows of the long-lived asset group exceeded its carrying value. As such the asset group was deemed recoverable and no impairment was recorded.\n\u00a0\n\n\nOur impairment loss calculations require that we apply judgment in identifying asset groups, estimating future cash flows, determining asset fair values, and estimating asset\u2019s useful lives. To make these judgments, we may use internal discounted cash flow estimates, quoted market prices, when available, and independent appraisals, as appropriate, to determine fair value.\n\n\nIf actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be required to recognize future impairment losses which could be material to our results of operations.\n\n\nIndefinite Lived Intangible Assets and Goodwill.\n We test indefinite lived intangible assets and goodwill for impairment at least annually on the first day of our fiscal fourth quarter, or when indications of potential impairment exist. We monitor for the existence of potential impairment indicators throughout the fiscal year. Our annual impairment test may begin with a qualitative test to determine\n \n\n\n48\n\n\n\n\n\u00a0\n\n\nwhether it is more likely than not that an indefinite lived intangible asset's carrying value is greater than its fair value. If our qualitative assessment reveals that asset impairment is more likely than not, we perform a quantitative impairment test by comparing the fair value of the indefinite lived intangible asset to its carrying value. Alternatively, we may bypass the qualitative test and initiate impairment testing with the quantitative impairment test.\n\n\nWe performed a qualitative assessment in conjunction with our annual impairment test of our indefinite lived intangible assets and goodwill as of January 1, 2023. These qualitative assessments considered our operating results for the first nine months of fiscal 2023 in comparison to prior years as well as its anticipated fourth quarter results and fiscal 2023 plan. As a result of the conditions that existed as of the assessment date, an asset impairment was not deemed to be more likely than not and a quantitative analysis was not required.\n\n\nStock-Based Compensation.\n We currently issue restricted stock awards to our employees, executive officers and directors. Prior to fiscal 2015, we also issued stock options to these individuals. We apply the provisions of ASC 718, \nCompensation - Stock Compensation\n, to these restricted stock and stock option awards which requires us to expense the estimated fair value of the awards based on the fair value of the award on the date of grant. Compensation costs for equity incentives are recognized in earnings, on a straight-line basis over the requisite service period.\n\n\nAccounting for Income Taxes.\n As part of the process of preparing our consolidated financial statements, we are required to determine our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax expenses, together with assessing temporary differences resulting from recognition of items for income tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must reflect this increase as an expense within the tax provision in our statements of operations.\n\n\nOur judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our net deferred tax assets. We continue to monitor the realizability of our deferred tax assets and adjust the valuation allowance accordingly. Prior to fiscal 2021, we recorded a full valuation allowance against our net federal and net state deferred tax assets due to our cumulative three-year taxable losses. During fiscal 2021, we reduced our valuation allowance on the basis of our reassessment of the amount of our deferred tax assets that are more likely than not to be realized. During fiscal 2023, we reestablished a full valuation allowance on our net deferred tax assets due to end of the period of sustained profitability. In making these determinations, we considered all available positive and negative evidence, including projected future taxable income, tax planning strategies, recent financial performance and ownership changes.\n\n\nWe believe that past issuances and transfers of our stock caused an ownership change in fiscal 2007 that affected the timing of the use of our net operating loss carry-forwards, but we do not believe the ownership change affects the use of the full amount of the net operating loss carry-forwards. As a result, our ability to use our net operating loss carry-forwards attributable to the period prior to such ownership change to offset taxable income will be subject to limitations in a particular year, which could potentially result in increased future tax liability for us.\n\n\nAs of March 31, 2023, we had net operating loss carryforwards of approximately $71.4 million for federal tax purposes, $66.1 million for state tax purposes, and $0.8 million for foreign tax purposes. As of the fiscal 2018, this amount is inclusive of the entire loss carryforward on the filed returns.\n\n\nWe also had federal tax credit carryforwards of $1.3 million and state tax credit carryforwards of $0.3 million, which are reserved for as part of our valuation allowance. Of these tax attributes, $19.7 million of the federal and state net operating loss carryforwards are not subject to time restrictions on use but may only be used to offset 80% of future adjusted taxable income. The $120.2 million net operating loss and tax credit carryforwards will begin to expire in varying amounts between 2023 and 2033.\n \n\n\n49\n\n\n\n\n\u00a0\n\n\nWe recognize penalties and interest related to uncertain tax liabilities in income tax expense. Penalties and interest were immaterial as of the date of adoption and are included in unrecognized tax benefits.\n \n\n\nBy their nature, tax laws are often subject to interpretation. Further complicating matters is that in those cases where a tax position is open to interpretation, differences of opinion can result in differing conclusions as to the amount of tax benefits to be recognized under Financial Accounting Standards Board (\"FASB\") Accounting Standards Codification (\"ASC\") 740, Income Taxes. ASC 740 utilizes a two-step approach for evaluating tax positions. Recognition (Step 1) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (Step 2) is only addressed if Step 1 has been satisfied. Under Step 2, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon ultimate settlement. Consequently, the level of evidence and documentation necessary to support a position prior to being given recognition and measurement within the financial statements is a matter of judgment that depends on all available evidence. As of March 31, 2023, the balance of gross unrecognized tax benefits was approximately $0.2 million, all of which would reduce our effective tax rate if recognized. We believe that our estimates and judgments discussed herein are reasonable, however, actual results could differ, which could result in gains or losses that could be material.\n\n\nRecent Accounting Pronouncements\n\n\nSee Note 3 \u2013 Summary of Significant Accounting Policies to our accompanying audited consolidated financial statements for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on results of operations and financial condition.\n\n",
+  "item7a": ">Item 7A.\tQuantitative and Qualita\ntive Disclosure About Market Risk\n\n\nMarket risk is the risk of loss related to changes in market prices, including interest rates, foreign exchange rates and commodity pricing that may adversely impact our consolidated financial position, results of operations or cash flows.\n\n\nInflation.\n We have experienced increases in various input costs including labor, components and transportation in the past year. In response, we have implemented multiple price increases, and we have substantially mitigated the inflationary pressures, such that our results from operations have not been materially affected by inflation. We are monitoring input costs and cannot currently predict the future impact to our operations by inflation.\n\n\nForeign Exchange Risk.\n We face minimal exposure to adverse movements in foreign currency exchange rates. Our foreign currency losses for all reporting periods have been nominal.\n\n\nInterest Rate Risk.\n We do not believe that we are subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments. It is our policy not to enter into interest rate derivative financial instruments. As a result, we do not currently have any significant interest rate exposure.\n\n\nAs of March 31, 2023, we had $10 million of outstanding debt with floating interest rates.\n\n\nCommodity Price Risk.\n We are exposed to certain commodity price risks associated with our purchases of raw materials, most significantly our aluminum purchases. During fiscal 2023, we have experienced commodity price increases; however, as of the date of this report, we are not able to predict the future impact of on this risk. A hypothetical additional 20% increase in aluminum prices would have had a negative impact of $0.7 million on our net income in fiscal 2023.\n \n\n\n50\n\n\n\n\n\u00a0\n\n",
+  "cik": "1409375",
+  "cusip6": "686275",
+  "cusip": ["686275908", "686275108"],
+  "names": ["ORION ENERGY SYS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1409375/000095017023027474/0000950170-23-027474-index.htm"
+}
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+{
+  "item1": ">Item 1.  \nBusiness\n\n\nOverview\n\n\nNetApp, Inc. (NetApp, we, us or the Company) is a global cloud-led, data-centric software company. We were incorporated in 1992 and are headquartered in San Jose, California. Building on more than three decades of innovation, we give customers the freedom to manage applications and data across hybrid multicloud environments. Our portfolio of cloud services, and storage infrastructure, powered by intelligent data management software, enables applications to run faster, more reliably, and more securely, all at a lower cost.\n\n\nOur opportunity is defined by the durable megatrends of data-driven digital and cloud transformations. NetApp helps organizations meet the complexities created by rapid data and cloud growth, multi-cloud management, and the adoption of next-generation technologies, such as AI, Kubernetes, and modern databases. Our modern approach to hybrid, multicloud infrastructure and data management, which we term \u2018evolved cloud\u2019, provides customers the ability to leverage data across their entire estate with simplicity, security, and sustainability which increases our relevance and value to our customers.\n\n\nIn an evolved cloud state, the cloud is fully integrated into an organization\u2019s architecture and operations. Data centers and clouds are seamlessly united and hybrid multicloud operations are simplified, with consistency and observability across environments. The key benefits NetApp brings to an organization\u2019s hybrid multicloud environment are:\n\n\n\u2022\nOperational simplicity: NetApp\u2019s use of open source, open architectures and APIs, microservices, and common capabilities and data services facilitate the creation of applications that can run anywhere.\n\n\n\u2022\nFlexibility and consistency: NetApp makes moving data and applications between environments seamless through a common storage foundation across on-premises and multicloud environments.\n\n\n\u2022\nCyber resilience: NetApp unifies monitoring, data protection, security, governance, and compliance for total cyber resilience - with consistency and automation across environments. \n\n\n\u2022\nContinuous operations: NetApp uses AI-driven automation for continuous optimization to service applications and store stateless and stateful applications at the lowest possible costs.\n\n\n\u2022\nSustainability: NetApp has industry-leading tools to audit consumption, locate waste, and set guardrails to stop overprovisioning.\n\n\nProduct, Solutions and Services Portfolio\n \n\n\nNetApp's portfolio of cloud services and storage infrastructure is powered by intelligent data management software. Our operations are organized into two segments: Hybrid Cloud and Public Cloud.\n\n\n \n\n\nHybrid Cloud\n\n\nHybrid Cloud \noffers a portfolio of storage management and infrastructure solutions that help customers recast their traditional data centers into modern data centers with the power of the cloud. Our hybrid cloud portfolio is designed to operate with public clouds to unlock the potential of hybrid, multi-cloud operations. We offer a broad portfolio of cloud-connected all-flash, hybrid-flash, and object storage systems, powered by intelligent data management software. Hybrid Cloud is composed of software, hardware, and related support, as well as professional and other services.\n\n\nIntelligent data management software\n\n\nNetApp ONTAP\n software is our foundational technology that underpins NetApp's critical storage solutions in the data center and the cloud. ONTAP includes various data management and protection features and capabilities, including automatic ransomware protection against cyber-attacks, built-in data transport features, and storage efficiency capabilities. ONTAP provides the flexibility to design and deploy a storage environment across the broadest range of architectures \u2013 from on-premises, hybrid, public, and private clouds. It can be used in NAS, SAN, object environments, and software-defined storage (SDS) situations.\n\n\nData integrity and safety are at the heart of any company\u2019s data center. With NetApp\u2019s extensive software tools and utilities, customers can realize their business continuity goals with time, costs, and personnel savings. With \nNetApp Snapshot\n, customers can create and manage point-in-time file system copies with no performance impact and minimal storage consumption. This is important for continuous data protection of information in read-only, static, and immutable form. \nNetApp SnapCenter Backup Management\n \ns\noftware\n \nis designed to deliver high-performance backup and recovery for database and application workloads hosted on ONTAP storage. \nNetApp SnapMirror Data Replication\n software can replicate data at high speeds across environments. SnapMirror delivers\n \n\n\n6\n\n\n\n\n\u00a0\n\n\nrobust data management capabilities for virtualization, protecting critical data while providing the flexibility to move data between locations and storage tiers, including cloud service providers. \nNetApp SnapLock Data Compliance \nsoftware delivers high-performance disk-based data permanence for HDD and SSD deployments.\n \n\n\nNetApp Astra (Astra)\n is a fully managed application-aware data management service built for emerging Kubernetes workloads container infrastructures. Astra allows organizations to protect, recover, and move applications deployed on Kubernetes with no software to download, install, manage, or upgrade.\n \n\n\nStorage infrastructure\n \n\n\nNetApp All-Flash FAS (AFF A-Series)\n is a scale-out platform built for virtualized environments, combining low-latency performance via flash memory (also known as a solid-state storage disk) with best-in-class data management, built-in efficiencies, integrated data protection, multiprotocol support, and nondisruptive operations; cloud and on-premises. AFF A-Series, powered by ONTAP, allows customers to connect to clouds for more data services, data tiering, caching, and disaster recovery. The AFF A-Series has a portfolio of products designed for multiple markets and price/performance considerations, from smaller channel commercial market offerings to large-scale, global enterprises.\n\n\nNetApp QLC-Flash FAS (AFF C-Series) \nis NetApp\u2019s newest family of storage infrastructure solutions. AFF C-Series arrays are sustainable, scalable, and secure solutions for Tier 1 and Tier 2 applications. AFF C-series provides customers capacity flash performance and affordability, so that customers do not need to make compromises. The AFF C-Series is ideal for transitioning from hybrid/HDD to all-flash storage; running non-latency sensitive VMware database applications and file environments; and providing a solution for secondary storage targets for disaster recovery, backup, and tiering.\n \n\n\nNetApp Fabric Attached Storage (FAS)\n series\n \nare high-volume, high-capacity data storage devices powered by NetApp ONTAP. NetApp FAS Storage Arrays provide customers with a balance of performance and capacity running either disk drives or hybrid-flash configurations. FAS systems are suitable for secondary storage targets for disaster recovery, backup, and tiering.\n\n\nNetApp E/EF series\n is built for dedicated, high-bandwidth applications that need simple, fast SAN storage with enterprise-grade reliability. The E-Series is available as a hybrid-flash platform, while the EF-Series is all-flash. On the SANtricity storage operating system, the E/EF-Series storage appliances are designed for performance-sensitive workloads like real-time analytics, high performance computing, and databases.\n \n\n\nNetApp StorageGRID\n is a software-defined object storage solution for large archives, media repositories, and web data stores. Using the industry-standard object APIs like the Amazon Simple Storage Service (S3), the StorageGRID solution, running on the ElementOS data management storage operating system, is provided as a NetApp-branded storage solution and as a software-defined solution on third-party hardware.\n \n\n\n\u00a0\n\n\nPublic Cloud\n\n\nPublic Cloud\n offers a portfolio of products delivered primarily as-a-service, including related support. This portfolio includes cloud storage and data services and cloud operations services. Our enterprise-class solutions and services enable customers to control and manage storage in the cloud, consume high-performance storage services for primary workloads, and optimize cloud environments for cost and efficiency. These solutions and services are generally available on the leading public clouds, including Amazon AWS, Microsoft Azure, and Google Cloud Platform.\n \n\n\nCloud storage, data services, and software\n\n\nThe NetApp Cloud Volumes Platform is an integrated collection of cloud storage infrastructure and data services. The platform is anchored by \nNetApp Cloud Volumes ONTAP\n, a cloud-based software for customers who wish to manage their own cloud storage infrastructure. It is based on the same ONTAP data management software that underpins our storage infrastructure offerings. Fully managed cloud storage offerings are available natively on Microsoft Azure as \nAzure NetApp Files\n, on AWS as \nAmazon FSx for NetApp ONTAP\n, and on Google Cloud as \nNetApp Cloud Volumes Service for Google Cloud.\n \n\n\nManageability\n\n\nAt the heart of our public cloud storage and data service offerings is \nNetApp\n \nBlueXP\n. BlueXP is a unified control plane that enables customers to manage their entire data landscape through one single, SaaS-delivered point of control. NetApp BlueXP combines storage and data services via its unified control plane to change how hybrid, multicloud environments are managed, optimized, and controlled. An intuitive interface and powerful automation help decrease resource waste, complexity, and the risk of managing diverse environments. It brings customers operational simplicity in a complex world. Within BlueXP are standard and optional capabilities (services) which allow customers to control their data and operations.\n\n\n7\n\n\n\n\n\u00a0\n\n\nWith \nBlueXP Sync\n service, customers can migrate data to the cloud securely and efficiently. Customers can choose where to deploy primary workloads without re-architecting applications or databases. Customers also get a comprehensive, industry-leading portfolio of storage efficiency capabilities. Inline data compression, deduplication, compaction, and cloud tiering (\nBlueXP Tiering \nservice) work together to reduce storage costs and maximize data storage. \nNetApp Backup \nservice delivers seamless and cost-effective backup and restore capabilities for protecting and archiving cloud and on-premises data managed by ONTAP. \nBlueXP\n \nCompliance \nservice provides data discovery, mapping, and classification driven by artificial intelligence algorithms with automated controls and reporting for data privacy regulations such as the General Data Protection Regulation (GDPR), California Consumer Privacy Act (CCPA), and more. Lastly, the \nBlueXP Cache \nservice delivers fast and secure access to data for users by caching active data sets to distributed offices globally.\n \n\n\nCloud operations services\n\n\nNetApp Cloud Insights\n is an infrastructure monitoring tool that gives organizations visibility into their entire infrastructure. It can monitor, troubleshoot, and optimize costs across all resources, including public clouds and private data centers. Working in conjunction with the BlueXP manageability and control plane services, customers can have deep insights into their data operations.\n\n\nOur \nSpot by NetApp \nsuite of products delivers a platform for cloud operations, enabling customers to deploy and operate cloud applications reliably and securely in their choice of the cloud while reducing costs and complexity. Combining machine learning, predictive analytics, and cloud automation, the Spot platform continuously optimizes cloud infrastructure and operations to deliver scalable, reliable, and secure application infrastructure.\n\n\nAnother cloud operations service is \nInstaclustr\n, our platform that provides fully managed open-source databases, pipelines, and workflow applications delivered as a service. Instaclustr helps organizations deliver cloud-native applications at scale by operating and supporting their data infrastructure through its SaaS platform for those designing and building around open-source technologies.\n \n\n\nProfessional and Support Services\n\n\nNetApp and our certified services partners offer a comprehensive portfolio of assessment, design, implementation, migration, and proactive support services to help customers optimize the performance and efficiency of their on-premises and hybrid multicloud storage environments. Our portfolio of offerings include strategic consulting, professional, managed, and support services.\n \n\n\n\u2022\nNetApp strategic consulting services provide executive-level, high-touch consulting engagements to help organizations facilitate the alignment of their business and technology goals. Our proven expertise can help organizations define long-term data fabric strategies and operations models to drive IT initiatives for digital transformation.\n \n\n\n\u2022\nNetApp Professional Services provide the expertise to mitigate risk and streamline the design, implementation, migration, and integration of NetApp hybrid cloud solutions to realize the business benefits of new technology investments faster. Highly skilled services experts help enable secure, optimized environments that deliver the consistent, high-quality outcomes customers expect from the start.\n \n\n\n\u2022\nNetApp Managed Services optimize performance and efficiency in hybrid cloud and on-premises environments. Our NetApp experts use proven methodology and best practices to monitor, administer, operate, and optimize customer environments so their organization's IT staff is free to focus on initiatives to move the business forward.\n \n\n\n\u2022\nNetApp Keystone is our pay-as-you-grow, storage-as-a-service (STaaS) offering that delivers a seamless hybrid cloud experience for those preferring operating expense consumption models to upfront capital expense or leasing. With a unified management console and monthly bill for both on-premises and cloud data storage services, Keystone lets organizations provision and monitor, and even move storage spend across their hybrid cloud environment for financial and operational flexibility. \n\n\n\u2022\nNetApp Global Support supplies systems, processes, and people wherever needed to provide continuous operation in complex and critical environments, with an emphasis on proactive and preemptive technology support for operational continuity across the NetApp hybrid cloud. Personalized support options provide actionable intelligence to resolve problems faster, reduce downtime, and optimize performance of the entire NetApp ecosystem.\n\n\nSales, Principal Markets, and Distribution Channels\n\n\nWe market and sell our products and services in numerous countries throughout the world.  Our sales efforts are organized around the evolving needs of our current and targeted customers, and our marketing initiatives reflect this focus. NetApp uses a multichannel distribution strategy. We sell our products, solutions and services to end-user business customers and service providers through a direct sales force and an ecosystem of partners, including the leading cloud providers. Our marketing is focused on building our brand reputation, creating market awareness, communicating customer advantages and generating demand for our sales force and channel partners.\n\n\n8\n\n\n\n\n\u00a0\n\n\nOur diversified customer base spans industry segments and vertical markets such as energy, financial services, government, technology, internet, life sciences, healthcare services, manufacturing, media, entertainment, animation, video postproduction and telecommunications. NetApp focuses primarily on the enterprise storage and data management, cloud storage and cloud operations markets. We design our products to meet the evolving requirements of a hybrid, multicloud world, driven by digital transformation and cloud initiatives.\n\n\nOur partnerships with the industry\u2019s leading cloud, infrastructure, consulting, application, and reseller partners are created with one goal in mind: the success of our customers. Global enterprises, local businesses, and government installations look to NetApp and our ecosystem of partners to help maximize the business value of their IT and cloud investments.\n\n\nWe work with a wide range of partners for our customers, including technology partners, value-added resellers, system integrators, OEMs, service providers and distributors. During fiscal 2023, sales through our indirect channels represented 78% of our net revenues. Our global partner ecosystem is critical to NetApp\u2019s growth and success. We are continually strengthening existing partnerships and investing in new ones to ensure we are meeting the evolving needs of our customers.\n\n\nAs of April 28, 2023, our worldwide sales and marketing functions consisted of approximately 5,700 managers, sales representatives and technical support personnel. We have offices in approximately 25 countries. Sales to customers Arrow Electronics, Inc. and Tech Data Corporation accounted for 24% and 21% of our net revenues, respectively, in fiscal 2023. Information about sales to and accounts receivables from our major customers, segment disclosures, foreign operations and net sales attributable to our geographic regions is included in Note 15 \u2013 Segment, Geographic, and Significant Customer Information of the Notes to Consolidated Financial Statements.\n\n\nSeasonality\n\n\nWe have historically experienced a sequential decline in revenues in the first quarter of our fiscal year, as the sales organization spends time developing new business after higher close rates in the fourth quarter, and because sales to European customers are typically weaker during the summer months. We derive a substantial amount of our revenue in any given quarter from customer orders booked in the same quarter. Customer orders and revenues typically follow intra-quarter seasonality patterns weighted toward the back end of the quarter. If recurring services and cloud revenue continue to increase as a percentage of our total revenues, historical seasonal patterns may become less pronounced.\n\n\nBacklog\n\n\nWe manufacture products based on a combination of specific order requirements and forecasts of our customers\u2019 demand. Orders are generally placed by customers on an as-needed basis. A substantial portion of our products is sold on the basis of standard purchase orders that are cancelable prior to shipment without penalty. In certain circumstances, purchase orders are subject to change with respect to quantity of product or timing of delivery resulting from changes in customer requirements. Our business is characterized by seasonal and intra-quarter variability in demand, as well as short lead times and product delivery schedules. Accordingly, backlog at any given time may not be a meaningful indicator of future revenue.\n\n\nManufacturing and Supply Chain\n\n\nWe have outsourced manufacturing operations to third parties located in Fremont, California; San Jose, California; San Antonio, Texas; Guadalajara, Mexico; Schiphol Airport, The Netherlands; Tiszaujvaros, Hungary; Wuxi, China; Taoyuan City, Taiwan; and Singapore. These operations include materials procurement, commodity management, component engineering, test engineering, manufacturing engineering, product assembly, product assurance, quality control, final test, and global logistics. We rely on a limited number of suppliers for materials, as well as several key subcontractors for the production of certain subassemblies and finished systems. We strive to have multiple suppliers qualified to provide critical components where possible and have our products manufactured in a number of locations to mitigate our supply chain risk. Our strategy has been to develop close relationships with our suppliers, maximizing the exchange of critical information and facilitating the implementation of joint quality programs. We use contract manufacturers for the production of major subassemblies and final system configuration. This manufacturing strategy minimizes capital investments and overhead expenditures while creating flexibility for rapid expansion.\n\n\nWe are certified to the International Organization for Standardization (ISO) 9001:2015 and ISO 14001:2015 certification standards. We have been Tier 2 certified under the U.S. Customs and Border Protection\u2019s (CBP) Customs Trade Partnership Against Terrorism (CTPAT) program since January 2015.\n\n\nResearch and Development\n\n\nOur research and development team delivers innovation to help customers create an evolved cloud experience. Our R&D structure allows us to align and accelerate the execution of our strategies and roadmaps across product groups. We leverage our talent and shared IP for cloud- and hybrid-cloud solutions to remain agile to changing market conditions. Our R&D priorities are to help\n \n\n\n9\n\n\n\n\n\u00a0\n\n\ncustomers break down silos to simplify management, create consistency, and deliver observability across on premises and multiple cloud environments. We design our products and services from the ground up with cloud connectivity in mind, including tiering, disaster recovery, replication, bursting, and migration.\n\n\nWe conduct research and development activities in various locations throughout the world. Total research and development expenses were $956 million in fiscal 2023, and $881 million in each of fiscal 2022 and fiscal 2021. These costs consist primarily of personnel and related costs incurred to conduct product development activities. Although we develop many of our products internally, we also acquire technology through business combinations or through licensing from third parties when appropriate. We believe that technical leadership is essential to our success, and we expect to continue to commit substantial resources to research and development.\n\n\nCompetition\n\n\nWe operate in an industry in which there are rapid technological advances in hardware, software, and related services offerings. Cloud, digital transformation, and artificial intelligence initiatives are driving changes in customer and solution requirements.\n\n\nWe compete with many companies in the markets we serve. Our hybrid cloud solutions primarily compete with legacy IT and storage vendors. Some offer a broad spectrum of products, solutions and services and others offer a more limited set of storage- and data-management products, solutions or services. Additionally, public cloud providers offer customers storage as an operating expense which competes with more traditional storage offerings that customers acquire through capital expenditures. We both partner with and compete against cloud providers with our public cloud software and services. We rarely see legacy vendors competing in the cloud.\n\n\nWe compete with many companies in the cloud operations marketplace, including new companies (startups) and larger software companies who target developers, operations engineering (DevOps) and financial engineering (FinOps). Some companies have single point solutions that compete with one of our services and others are building platforms. Additionally public cloud providers offer similar services on their own cloud.\n\n\nWe face ongoing product and price competition in all areas of our business, including from both branded- and generic-product competitors.\n \n\n\nOur current and potential competitors may establish cooperative relationships among themselves or with third parties, including some of our partners. It is possible that new competitors or alliances among competitors might emerge and further increase competitive pressures.\n\n\nWe consider our software innovation, cloud integration, and technology partnerships key to our competitive differentiation. We believe our competitive advantage also includes the nature of the relationships we form with our customers and partners worldwide. We strive to deliver an outstanding experience in every interaction we have with our customers and partners through our product, service, and support offerings, which enables us to provide our customers a full range of expertise before, during and after their purchases.\n\n\nProprietary Rights\n\n\nWe generally rely on patent, copyright, trademark, trade secret and contract laws to establish and maintain our proprietary rights in our technology, products and services. While our intellectual property rights are important to our success, we believe that our business is not materially dependent on any particular patent, trademark, copyright, license or other individual intellectual property right. We have been granted, or own by assignment\n,\n well over two thousand U.S. patents, hundreds of pending U.S. patent applications, and many corresponding patents and patent applications in other countries. From time to time, we may make certain intellectual property available under an open source license. Our primary trademarks are NetApp and the NetApp design logo, which are registered trademarks in the U.S. and in many other countries.  In addition, we have trademarks and trademark registrations in the U.S. and other countries covering our various product or service names.\n\n\nWe generally enter into confidentiality agreements with our employees, resellers, distributors, customers, and suppliers. In addition, through various licensing arrangements, we receive certain rights to the intellectual property of others. We expect to maintain current licensing arrangements and to secure additional licensing arrangements in the future, as needed and to the extent available on reasonable terms and conditions, to support continued development and sales of our products and services. Some of these licensing arrangements require or may require royalty payments and other licensing fees. The amount of these payments and fees may depend on various factors, including but not limited to the structure of royalty payments; offsetting considerations, if any; and the degree of use of the licensed technology.\n\n\nThe industry in which we compete is characterized by rapidly changing technology, a large number of patents, and frequent claims and related litigation regarding intellectual property rights, and we may be exposed to various risks related to such claims or legal\n \n\n\n10\n\n\n\n\n\u00a0\n\n\nproceedings. If we are unable to protect our intellectual property, we may be subject to increased competition that could materially and adversely affect our business operations, financial condition, results of operations and/or cash flows.\n\n\nEnvironmental Disclosure\n\n\nWe are committed to the success of our customers and partners, to delivering value to our stockholders, and to positively affecting the communities where our employees work and live. We firmly believe that we can accomplish these objectives concurrently with our commitment to sound environmental management. We are committed to the reduction of greenhouse gas emissions; efficient use of natural resources; and minimizing, relative to the growth of the Company, the environmental impacts from our operations, products, and services, as well as complying with laws and regulations related to these areas.\n \n\n\nWe voluntarily measure, monitor, and publicly report our scope 1, scope 2, and scope 3 (partial) greenhouse gas emissions and water impacts to CDP, a global standardized mechanism by which companies report their greenhouse gas emissions and water impacts to customers and institutional investors. We continuously seek to optimize the energy efficiency of our buildings, labs, and data centers; and we have increased our use of renewable energy, especially at our facilities in Bangalore, India and Wichita, Kansas, both of which are powered almost exclusively by renewable energy.\n\n\nAt both the global and regional/state levels, various laws and regulations have been implemented or are under consideration to mitigate or report on the effects of climate change. Environmental laws are complex, change frequently, and have tended to become more stringent over time. However, it is often difficult to anticipate future regulations pertaining to environmental matters and to estimate their impacts on our operations. Based on current information, we believe that our primary risk related to climate change is the risk of increased energy costs. We are not currently subject to a cap-and-trade system or any other mitigation measures that could be material to our operations, nor are we aware of any such measures that will impact us in the near future. Additionally, we have implemented disaster recovery and business resiliency measures to mitigate the physical risks our facilities, business, and supply chain might face as a consequence of severe weather/climate-related phenomena such as earthquakes, floods, droughts, and other such natural occurrences.\n\n\nWe are subject to international, federal, state, and local regulations regarding workplace safety and protection of the environment. Various international, federal, state, and local provisions regulate the use and discharge of certain hazardous materials used in the manufacture of our products. Failure to comply with environmental regulations in the future could cause us to incur substantial costs, subject us to business interruptions or cause customers to cease purchasing from us. We strive to comply with all applicable environmental laws. All of our products meet the applicable requirements of the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH); Energy Related Products (ErP); Restriction of Hazardous Substances (RoHS); and China RoHS directives. We have a product take-back program and an e-waste scheme to comply with the EU directive on Waste Electrical and Electronic Equipment (WEEE), and Extended Producer Responsibility (EPR) regulations in India.\n\n\nWe have maintained an environmental management system since December 2004 that provides the framework for setting, monitoring, and continuously improving our environmental goals and objectives. As part of ISO 14001 requirements, we set local environmental performance goals, such as reducing energy use per square foot and minimizing waste generated on site, that are aligned with our overall corporate strategy. We also conduct periodic reviews and are subject to third-party audits of our operations, and we monitor environmental legislation and requirements to help make sure we are taking necessary measures to remain in compliance with applicable laws, not only in our operations but also for our products.\n\n\nHuman Capital\n\n\nWe take pride in, and believe our success depends on, attracting and retaining leading talent in the industry based on a culture-fit approach. From our inception, NetApp has worked to build a model company and has embraced a culture of openness and trust. Our employees are supported and encouraged to be innovative, and we communicate openly and transparently so that employees can focus on critical and impactful work that ties directly to our business strategy. We continue to invest in our global workforce to support diversity and inclusion and to support our employees\u2019 well-being and development.\n \n\n\nDiversity, Inclusion and Belonging\n\n\nWe believe diversity, inclusion and belonging leads to more innovation, better access to talent and improved business outcomes. Our strategies are intended to increase the demographic and cognitive diversity of our employee population, promote a culture of inclusion and to leverage such diversity to achieve business results. For more information about our commitment to diversity, inclusion and belonging, go to the \u201cDiversity Inclusion and Belonging\u201d section of our website.\n\n\nBenefits, Wellbeing and Engagement\n\n\nOur healthcare options offer competitive, comprehensive coverage for our employees and their families, including:\n \n\n\n11\n\n\n\n\n\u00a0\n\n\n\u2022\nNational medical plans,\n\n\n\u2022\nRegional medical plans,\n\n\n\u2022\nExpert advice from world-renowned doctors through our medical second opinion program,\n\n\n\u2022\nNational dental plans,\n\n\n\u2022\nNational vision plans with two levels of coverage to choose from and a\n\n\n\u2022\nRobust wellness program.\n\n\nInsurance and income protection\n. We provide life, accidental death and dismemberment and disability insurance programs. For additional peace of mind, we also offer supplemental insurance for our employees and their dependents.\n\n\nFinancial and savings programs.\n We offer flexible spending accounts, an employee stock purchase plan and a competitive 401(k) retirement plan with a company match. Our 401(k) plan gives employees more options to maximize retirement savings with pre-tax, Roth and after-tax contributions. We help our employees prepare for retirement by capitalizing on their total compensation and helping them save.\n\n\nFlexible Work.\n We offer a flexible work program (Thrive Everywhere) that allows employees, in consultation with their managers and teams, flexibility around where, when and how work is performed to deliver business outcomes, understanding that certain roles may be tied to specific locations or require an in-office presence due to business needs and job responsibilities, while others may be primarily virtual.\n\n\nEmployee Wellbeing.\n We provide a wide range of wellbeing programs and tools to ensure employees and their families have the resources they need when they need them. We offer emotional wellbeing resources and programs such as back-up child and elder care, student debt repayment, educational assistance, and legal services for employees and their dependents. NetApp also offers a variety of time-off programs to help support our employees who need time-off. Employees also have access to discounts and fitness centers.\n\n\nEngagement. \nOur Thrive Everywhere program is designed to help employees grow, develop and succeed at NetApp by encouraging an open and interactive culture, where individual needs are recognized and met, and Company goals are supported. For employees, growth goals are tied to corporate objectives and key results to ensure that employees are progressing and are supported by management teams.  Managers are encouraged to set aside time each quarter to conduct a two-way conversation with each team member to offer feedback, guidance and support on goals, priorities and career development. The Company also conducts surveys that gauge employee sentiment in areas like cross-functional collaboration, manager performance and inclusivity and create action plans to address concerns and amplify opportunities.\n \n\n\nGiving Back. \nThe NetApp Serves Program supports how our employees want to make a difference in the world. In 2022, more than 3,160 NetApp employees donated over 42,600 hours to serve their communities and make an impact around the world. The NetApp Serves Program encourages employees to volunteer through individual, team or company efforts.\n\n\nBoard Oversight of Human Capital Management\n\n\nOur Board of Directors plays an active role in overseeing the Company's human capital management strategy and programs. Our Talent and Compensation Committee provides oversight of our talent strategy and key programs related to corporate culture, workforce diversity and inclusion, talent acquisition, engagement, development and retention.\n \n\n\nEmployees\n\n\nAs of April 28, 2023, we had approximately 12,000 employees worldwide. None of our employees are represented by a labor union and we consider relations with our employees to be good.\n \n\n\nPlease visit our website for more detailed information regarding our human capital programs and initiatives. Nothing on our website shall be deemed incorporated by reference into this Annual Report on Form 10-K.\n\n\nInformation About Our Executive Officers\n\n\nOur executive officers and their ages as of June 10, 2023, were as follows:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nName\n\n\nAge\n\n\nPosition\n\n\n\n\n\n\nGeorge Kurian\n\n\n56\n\n\nChief Executive Officer\n\n\n\n\n\n\nC\u00e9sar Cernuda\n\n\n51\n\n\nPresident\n\n\n\n\n\n\n12\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nMichael J. Berry\n\n\n60\n\n\nExecutive Vice President and Chief Financial Officer\n\n\n\n\n\n\nHarvinder S. Bhela\n\n\n51\n\n\nExecutive Vice President and Chief Product Officer\n\n\n\n\n\n\nElizabeth M. O'Callahan\n\n\n54\n\n\nExecutive Vice President, Chief Legal Officer, and Corporate Secretary\n\n\n\n\n\n\nGeorge Kurian \nis the chief executive officer of NetApp, a position he has held since June 1, 2015. He joined our Board of Directors in June 2015. From September 2013 to May 2015, he was executive vice president of product operations, overseeing all aspects of technology strategy, product and solutions development across our portfolio. Mr. Kurian joined NetApp in April 2011 as the senior vice president of the storage solutions group and was appointed to senior vice president of the Data ONTAP group in December 2011. Prior to joining NetApp, Mr. Kurian held several positions with Cisco Systems from 2002 to 2011, including vice president and general manager of the application networking and switching technology group. Additional roles include vice president of product management and strategy at Akamai Technologies from 1999 to 2002, as well as a management consultant at McKinsey and Company and a leader on the software engineering and product management teams at Oracle Corporation. Mr. Kurian is a board member at Cigna Corporation, a global health services company, and holds a BS degree in electrical engineering from Princeton University and an MBA degree from Stanford University.\n\n\nC\u00e9sar Cernuda \ncame to NetApp in July 2020 as president and is responsible for leading the Company\u2019s global go-to-market organization spanning sales, marketing, services, support, and customer success. Mr. Cernuda joined NetApp after a long career at Microsoft that included various leadership roles. Mr. Cernuda is non-executive director and chairman of the ESG committee at Gestamp, an international group dedicated to automotive components. He is also on the advisory boards of Georgetown University\u2019s McDonough School of Business and the IESE Business School \u2013 University of Navarra. Mr. Cernuda is a graduate of the Harvard Business School Executive Leadership Program and the Program for Management Development at IESE Business School \u2013 University of Navarra, and he also completed the Leading Sustainable Corporations Programme at Oxford University\u2019s Sa\u00efd Business School. He earned his bachelor\u2019s degree in Business Administration from ESIC Business & Marketing School.\n\n\nMichael J. Berry \njoined NetApp in March 2020 as executive vice president and chief financial officer, overseeing the worldwide finance, investor relations, security and IT organizations. Mr. Berry has served as a chief financial officer for 16 years in both public and private companies including McAfee, FireEye, Informatica, and SolarWinds. Most recently he was executive vice president and chief financial officer at McAfee where he was responsible for all aspects of finance, including financial planning, accounting, tax and treasury, as well as operations and shared services. Mr. Berry is a board member of Rapid7 and Certinia, holding the chair of the audit committee position at each company. Mr. Berry holds a BS degree in finance from Augsburg University and an MBA degree in finance from the University of St. Thomas.\n\n\nHarvinder S. Bhela\n joined NetApp in January 2022 as executive vice president and chief product officer. He is responsible for leading NetApp\u2019s product and engineering teams and building our storage and data services products. Before joining NetApp, Mr. Bhela spent 25 years at Microsoft where he held multiple executive leadership positions. Most recently he served as corporate vice president of the Microsoft 365 Security, Compliance and Management business. Mr. Bhela holds a Bachelor of Engineering from the University of Mumbai and a Master of Science in Computer Science from the University of Minnesota.\n\n\nElizabeth M. O\u2019Callahan \nwas appointed executive vice president, chief legal officer, and corporate secretary in January 2022. Ms. O\u2019Callahan joined NetApp in 2013, and prior to her appointment as chief legal officer, Ms. O\u2019Callahan served as senior vice president and general counsel from May 2021 to December 2021, as vice president and deputy general counsel from May 2020 to April 2021, and as vice president, corporate legal from October 2013 to April 2020.  Ms. O\u2019Callahan has over 20 years of experience advising technology companies on a variety of matters, including corporate governance, securities law, mergers and acquisitions, capital markets transactions, corporate compliance and ethics, data privacy, intellectual property, and litigation. Before joining NetApp, Ms. O\u2019Callahan served in a senior legal role at Xilinx (since acquired by AMD). She began her legal career in private practice in Silicon Valley specializing in corporate law and business litigation. Ms. O\u2019Callahan holds a bachelor\u2019s degree from the University of California at Los Angeles and a J.D. from Santa Clara University.\n\n\nAdditional Information\n\n\nOur internet address is \nwww.netapp.com.\n We make available through our internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports and other documents filed or furnished pursuant to the Exchange Act of 1934, as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC.\n\n\nThe SEC maintains an internet site (\nwww.sec.gov\n) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.\n\n\n13\n\n\n\n\n\u00a0\n\n\nIt\nem 1A.  \nRisk Factors\n\n\nThe information included elsewhere in this Annual Report on Form 10-K should be considered and understood in the context of the following risk factors, which describe circumstances that may materially harm our future business, operating results or financial condition. The following discussion reflects our current judgment regarding the most significant risks we face. These risks can and will change in the future.\n\n\nRisks Related to Our Business and Industry\n\n\nOur business may be harmed by technological trends in our market or if we are unable to keep pace with rapid industry, technological and market changes.\n\n\nThe growth in our industry and the markets in which we compete is driven by the increase in demand for storage and data management solutions by consumers, enterprises and governments around the world, and the purchases of storage and data management solutions to address this demand. The rise in cloud usage and commensurate spending is driving customers to search for cloud operations solutions to lower costs and speed development. Despite these growth drivers, our markets could be adversely impacted by customers delaying purchases in the face of technology transitions, increasing adoption of substitute products and/or services, increased storage efficiency, and/or changing economic and business environments. For example, in fiscal 2023, we observed a slowdown in demand as a result of continuing global economic uncertainty. Additionally, customer requirements are evolving in the nascent cloud operations market, which could also adversely impact our opportunity. While customers are navigating through their information technology (IT) transformations, which leverage modern architectures and hybrid cloud environments, they are also looking for simpler solutions, and changing how they consume IT. This evolution is diverting spending towards transformational projects and architectures like flash, hybrid cloud, cloud storage, IT as a service, converged infrastructure, and software defined storage.\n \n\n\nOur business may be adversely impacted if we are unable to keep pace with rapid industry, technological or market changes or if our evolved cloud strategy is not accepted in the marketplace. As a result of these and other factors discussed in this report, our revenue may decline on a year-over-year basis, as it did in fiscal 2017 and 2020. The future impact of these trends on both short- and long-term growth patterns is uncertain. If the general historical rate of industry growth declines, if the growth rates of the specific markets in which we compete decline, and/or if the consumption model of storage changes and our new and existing products, services and solutions do not receive customer acceptance, our business, operating results, financial condition and cash flows could suffer.\n \n\n\nIf we are unable to develop, introduce and gain market acceptance for new products and services while managing the transition from older ones, or if we cannot provide the expected level of quality and support for our new products and services, our business, operating results, financial condition and cash flows could be harmed.\n\n\nOur future growth depends upon the successful development and introduction of new hardware and software products and services. Due to the complexity of storage software, cloud operations software, subsystems and appliances and the difficulty in gauging the engineering effort required to produce new products and services, such products and services are subject to significant technical and quality control risks.\n\n\nIf we are unable, for technological, customer reluctance or other reasons, to develop, introduce and gain market acceptance for new products and services, as and when required by the market and our customers, our business, operating results, financial condition and cash flows could be materially and adversely affected.\n\n\nNew or additional product and feature introductions, including new software and cloud offerings, such as Astra by NetApp, cloud operations services including Spot by NetApp, Instaclustr and Cloud Insights, and new hardware and all-flash storage products, including AFF A900 and AFF C-series, subject us to additional financial and operational risks, including our ability to forecast customer preferences and/or demand, our ability to successfully manage the transition from older products and solutions, our ability to forecast and manage the impact of customers\u2019 demand for new products, services and solutions or the products being replaced, and our ability to manage production capacity to meet the demand for new products and services. In addition, as existing customers transition from older products and solutions to new software and cloud offerings, the transition could take longer than expected, or the customer could decide to delay the transition, either of which could result in non-renewal of the new offerings or affect our ability to manage and forecast customer churn and expansion rates for new software and cloud offerings, as we saw in the fourth quarter of fiscal 2022. As new or enhanced products and services are introduced, we must avoid excessive levels of older product inventories and related components and ensure that new products and services can be delivered to meet customers\u2019 demands. Further risks inherent in the introduction of new products, services and solutions include the uncertainty of price-performance relative to products of competitors, competitors\u2019 responses to the introductions, delays in sales caused by the desire of customers to evaluate new products for extended periods of time and our partners\u2019 investment in selling our new products and solutions. If these risks are not managed effectively, we could experience material risks to our business, operating results, financial condition and cash flows.\n\n\n14\n\n\n\n\n\u00a0\n\n\nAs we enter new or emerging markets, we will likely increase demands on our service and support operations and may be exposed to additional competition. We may not be able to provide products, services and support to effectively compete for these market opportunities.\n\n\nOur sales and distribution structure makes forecasting revenues difficult and, if disrupted, could harm our business, operating results, financial condition and cash flows.\n\n\nOur business and sales models make revenues difficult to forecast. We sell to a variety of customers directly and through various channels, with a corresponding variety of sales cycles. The majority of our sales are made and/or fulfilled indirectly through channel partners, including value-added resellers, systems integrators, distributors, original equipment manufacturers (OEMs) and strategic business partners, which include public cloud providers. This structure significantly complicates our ability to forecast future revenue, especially within any particular fiscal quarter or year. Moreover, our relationships with our indirect channel partners and strategic business partners are critical to our success. The loss of one or more of our key indirect channel partners in a given geographic area or the failure of our channel or strategic partners, including public cloud providers, to promote our products could harm our operating results. Qualifying and developing new indirect channel partners typically requires a significant investment of time and resources before acceptable levels of productivity are met. If we fail to maintain our relationships with our indirect channel partners and strategic partners, including public cloud providers, if their financial condition, business or customer relationships were to weaken, if they fail to comply with legal or regulatory requirements, or if we were to cease to do business with them for these or other reasons, our business, operating results, financial condition and cash flows could be harmed.\n\n\nIncreasing competition and industry consolidation could harm our business, operating results, financial condition and cash flows.\n\n\nOur markets are intensely competitive and are characterized by fragmentation and rapidly changing technology. We compete with many companies in the markets we serve, including established public companies, newer public companies with a strong flash focus, and new market entrants addressing the growing opportunity for application data management for Kubernetes and cloud operations. Some offer a broad spectrum of IT products and services (full-stack vendors) and others offer a more limited set of products or services. Technology trends, such as hosted or public cloud storage, SaaS and flash storage are driving significant changes in storage architectures and solution requirements. Cloud service provider competitors provide customers storage for their data centers on demand, without requiring a capital expenditure, which meets rapidly evolving business needs and has changed the competitive landscape. We also now compete in the emerging cloud operations market, where growth is being driven by increased customer cloud usage and commensurate spend, but customer requirements are still evolving. There is no clear leader in this market.\n \n\n\nCompetitors may develop new technologies, products or services in advance of us or establish new business models, more flexible contracting models or new technologies disruptive to us. By extending our flash, cloud storage, converged infrastructure and cloud operations offerings, we are competing in new segments with both traditional competitors and new competitors, particularly smaller emerging storage and cloud operations vendors. The longer-term potential and competitiveness of these emerging vendors remains to be determined. In cloud and converged infrastructure, we also compete with large well-established competitors.\n\n\nIt is possible that new competitors or alliances among competitors might emerge and rapidly acquire significant market share or buying power. An increase in industry consolidation might result in stronger competitors that are better able to compete as full-stack vendors for customers and achieve increased economies of scale in the supply chain. In addition, current and potential competitors have established or might establish cooperative relationships among themselves or with third parties, including some of our partners or suppliers. For additional information regarding our competitors, see the section entitled \u201cCompetition\u201d contained in Part I, Item 1 \u2013 Business of this Form 10-K.\n\n\nGlobal economic and geopolitical conditions restrict our visibility and may harm our industry, business, and operating results, including our revenue growth and profitability, financial condition and cash flows.\n\n\nWe operate globally and as a result, our business, revenues and profitability are impacted by global economic and market conditions, including, among others, inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, tax rates, economic uncertainty, political instability, warfare, changes in laws, reduced consumer confidence and spending, and economic and trade barriers. Such factors may limit our ability to forecast future demand for our products and services, contribute to increased periodic volatility in the computer, storage and networking industries at large, as well as the IT market, impact availability of supplies and could constrain future access to capital for our suppliers, customers and partners. The impacts of these circumstances are global and pervasive, and the timing and nature of any ultimate resolution of these matters remain highly uncertain. Adverse macroeconomic conditions, including those identified above, could materially adversely impact the demand for our products and our operating results amid customer concerns over slowing demand for their products, reduced asset values, volatile energy costs, geopolitical issues, the availability and cost of credit and the stability and solvency of financial institutions, financial markets, businesses, local and state governments, and sovereign nations. For example, in fiscal 2023, global economic uncertainty had, and could continue to have, a material adverse impact on the demand for our products. Additionally, constraints in our supply chain in\n \n\n\n15\n\n\n\n\n\u00a0\n\n\nfiscal 2023, including higher component and freight costs, resulted, and may continue to result, in increased costs of revenue and delays in fulfillment of certain customer orders. Consequently, these concerns have challenged our business and we expect them to continue to challenge our business for the foreseeable future. All of these risks and conditions could materially adversely affect our future sales and operating results.\n\n\nTransition to consumption-based business models may adversely affect our revenues and profitability in other areas of our business and as a result may harm our business, operating results, financial condition and cash flows.\n\n\nWe offer customers a full range of consumption models, including the deployment of our software through our subscription and cloud-based Software as a Service (SaaS), and utility pricing and managed services offerings for our hardware and software systems. These business models continue to evolve, and we may not be able to compete effectively, generate significant revenues or maintain the profitability of our consumption-based offerings. Additionally, the increasing prevalence of cloud and SaaS delivery models offered by us and our competitors may unfavorably impact the pricing of our on-premise hardware and software offerings and could have a dampening impact on overall demand for our on-premise hardware and software product and service offerings, which could reduce our revenues and profitability, at least in the near term. If we do not successfully execute our consumption model strategy or anticipate the needs of our customers, our revenues and profitability could decline.\n\n\nAs customer demand for our consumption model offerings increases, we will experience differences in the timing of revenue recognition between our traditional hardware and software license arrangements (for which revenue is generally recognized in full at the time of delivery), relative to our consumption model offerings (for which revenue is generally recognized ratably over the term of the arrangement). We incur certain expenses associated with the infrastructure and marketing of our consumption model offerings in advance of our ability to recognize the revenues associated with these offerings.\n\n\nDue to the global nature of our business, risks inherent in our international operations could materially harm our business.\n\n\nA significant portion of our operations are located, and a significant portion of our revenues are derived, outside of the U.S. In addition, most of our products are manufactured outside of the U.S., and we have research and development, sales and service centers overseas. Accordingly, our business and future operating results could be adversely impacted by factors affecting our international operations including, among other things, local political or economic conditions, trade protection and export and import requirements, tariffs, local labor conditions, transportation costs, government spending patterns, acts of terrorism, international conflicts and natural disasters in areas with limited infrastructure and adverse public health developments. In particular, ongoing trade tensions between the U.S. and China could impact our business and operating results. For products we manufacture in Mexico, tensions between the U.S. and Mexico related to trade and border security issues could delay our shipments to customers, or impact pricing or our business and operating results. As a result of Russia\u2019s actions in the Ukraine, numerous countries and organizations have imposed sanctions and export controls, while businesses, including the Company, have limited or suspended Russian operations. Russia has likewise imposed currency restrictions and regulations and may further take retaliatory trade or other actions, including the nationalization of foreign businesses. These actions could impact our supply chain, pricing, business and operating results and expose us to cyberattacks. In addition, due to the global nature of our business, we are subject to complex legal and regulatory requirements in the U.S. and the foreign jurisdictions in which we operate and sell our products, including antitrust and anti-competition laws, and regulations related to data privacy, data protection, and cybersecurity. We are also subject to the potential loss of proprietary information due to piracy, misappropriation, or laws that may be less protective of our intellectual property rights than U.S. laws. Such factors could have an adverse impact on our business, operating results, financial condition and cash flows.\n\n\nWe face exposure to adverse movements in foreign currency exchange rates as a result of our international operations. These exposures may change over time as business practices evolve, and they could have a material adverse impact on our operating results, financial condition and cash flows. We utilize forward and option contracts in an attempt to reduce the adverse earnings impact from the effect of exchange rate fluctuations on certain assets and liabilities. Our hedging strategies may not be successful, and currency exchange rate fluctuations could have a material adverse effect on our operating results and cash flows. In addition, our foreign currency exposure on assets, liabilities and cash flows that we do not hedge could have a material impact on our financial results in periods when the U.S. dollar significantly fluctuates in relation to foreign currencies.\n\n\nMoreover, in many foreign countries, particularly in those with developing economies, it is a common business practice to engage in activities that are prohibited by NetApp's internal policies and procedures, or U.S. laws and regulations applicable to us, such as the Foreign Corrupt Practices Act. There can be no assurance that all our employees, contractors and agents, as well as those companies to which we outsource certain of our business operations, will comply with these policies, procedures, laws and/or regulations. Any such violation could subject us to fines and other penalties, which could have a material adverse effect on our business, operating results, financial condition and cash flows.\n\n\nOur acquisitions may not achieve expected benefits, and may increase our liabilities, disrupt our existing business and harm our operating results, financial condition and cash flows.\n\n\n16\n\n\n\n\n\u00a0\n\n\n   As part of our strategy, we seek to acquire other businesses and technologies to complement our current products and services, expand the breadth of our markets, or enhance our technical capabilities. For example, we acquired eight privately held companies from fiscal 2020 through the end of fiscal 2023. The benefits we have received, and expect to receive, from these and other acquisitions depend on our ability to successfully conduct due diligence, negotiate the terms of the acquisition and integrate the acquired business into our systems, procedures and organizational structure. Any inaccuracy in our acquisition assumptions or any failure to uncover or mitigate liabilities or risks associated with the acquisition, such as differing or inadequate cybersecurity and data privacy protection controls or contractual limitations of liability, and any failure to make the acquisition on favorable terms, integrate the acquired business or assets as and when expected, or retain key employees of the acquired company may reduce or eliminate the expected benefits of the acquisition to us, increase our costs, disrupt our operations, result in additional liabilities, investigations and litigation, and may also harm our strategy, our business and our operating results. The failure to achieve expected acquisition benefits may also result in impairment charges for goodwill and purchased intangible assets.\n\n\nIf we are unable to attract and retain qualified personnel, our business, operating results, financial condition and cash flows could be harmed.\n\n\nOur continued success depends, in part, on our ability to hire and retain qualified personnel and to advance our corporate strategy and preserve the key aspects of our corporate culture. Because our future success is dependent on our ability to continue to enhance and introduce new products and features, we are particularly dependent on our ability to hire and retain qualified engineers, including in emerging areas of technology such as artificial intelligence and machine learning. In addition, to increase revenues, we will be required to increase the productivity of our sales force and support infrastructure to achieve adequate customer coverage. Competition for qualified employees, particularly in the technology industry, is intense. We have periodically reduced our workforce, including reductions of approximately 6% and 8% announced in fiscal 2021 and the fourth quarter of fiscal 2023, respectively, and these actions may make it more difficult to attract and retain qualified employees. Our inability to hire and retain qualified management and skilled personnel, particularly engineers, salespeople and key executive management, could disrupt our development efforts, sales results, business relationships and/or our ability to execute our business plan and strategy on a timely basis and could materially and adversely affect our operating results, financial condition and cash flows.\n\n\nMany of our employees participate in our flexible work program (Thrive Everywhere), and work remotely on a full- or part-time basis. While Thrive Everywhere has been generally well received by employees, it may also create other challenges that impact our ability to attract and retain qualified personnel, including, but not limited to, some employees may prefer an in person work environment, decreased collaboration and communication among employees,  and reduced ability to maintain our corporate culture and workforce morale. If we are unable to effectively manage the risks and challenges associated with remote work, our business operations and financial performance may be adversely affected.\n \n\n\nEquity grants are a critical component of our current compensation programs as they support attraction and engagement of key talent and align employee interests with shareholders. A competitive broad-based equity compensation program is essential to compete for talent in both the hardware and software industries, in which competitors for talent provide a more significant portion of compensation via equity. If we reduce, modify or eliminate our equity programs or fail to grant equity competitively, we may have difficulty attracting and retaining critical employees.\n \n\n\nIn addition, because of the structure of our sales, cash and equity incentive compensation plans, we may be at increased risk of losing employees at certain times. For example, the retention value of our compensation plans decreases after the payment of periodic bonuses or the vesting of equity awards.\n\n\nWe often incur expenses before we receive related benefits, and expenses may be difficult to reduce quickly if demand declines.\n\n\nWe base our expense levels in part on future revenue expectations and a significant percentage of our expenses are fixed. It is difficult to reduce our fixed costs quickly, and if revenue levels are below our expectations, operating results could be adversely impacted. During periods of uneven growth or decline, we may incur costs before we realize the anticipated related benefits, which could also harm our operating results. We have made, and will continue to make, significant investments in engineering, sales, service and support, marketing and other functions to support and grow our business. We are likely to recognize the costs associated with these investments earlier than some of the related anticipated benefits, such as revenue growth, and the return on these investments may be lower, or may develop more slowly, than we expect, which could harm our business, operating results, financial condition and cash flows.\n\n\nInitiatives intended to make our cost structure, business processes and systems more efficient may not achieve the expected benefits and could inadvertently have an adverse effect on our business, operating results, financial condition and cash flows.\n\n\nWe continuously seek to make our cost structure and business processes more efficient, including by moving our business activities from higher-cost to lower-cost locations, outsourcing certain business processes and functions, and implementing changes to our business information systems. These efforts may involve a significant investment of financial and human resources and significant\n \n\n\n17\n\n\n\n\n\u00a0\n\n\nchanges to our current operating processes. For example, in fiscal 2024, we are implementing certain business information systems. We may encounter difficulties in implementing new business information systems or maintaining and upgrading existing systems and software. Such difficulties may lead to significant expenses or losses due to unexpected additional costs required to implement or maintain systems, disruption in business operations, loss of sales or profits, or disruption to our ability to timely and accurately process and report key aspects of our financial statements and, as a result, may have a material adverse effect on our business, results of operations, financial condition and prospects.\n\n\nIn addition, as we move operations into lower-cost jurisdictions and outsource certain business processes, we become subject to new regulatory regimes and lose control of certain aspects of our operations and, as a consequence, become more dependent upon the systems and business processes of third-parties. If we are unable to move our operations, outsource business processes or implement new business information systems in a manner that complies with local law and maintains adequate standards, controls and procedures, the quality of our products and services may suffer and we may be subject to increased litigation risk, either of which could have an adverse effect on our business, operating results and financial condition. Additionally, we may not achieve the expected benefits of these and other transformational initiatives, which could harm our business, operating results, financial condition and cash flows.\n\n\nWe are exposed to credit risks, our investment portfolio may experience fluctuations in market value or returns, and our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.\n \n\n\nWe maintain an investment portfolio of various holdings, types, and maturities. Credit ratings and pricing of our investments can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk or other factors. As a result, the value and liquidity of our investments and the returns thereon may fluctuate substantially. Unfavorable macroeconomic conditions, rising interest rates, or other circumstances could result in an economic slowdown and possibly cause a global recession. An economic slowdown or increased regional or global economic uncertainty may lead to failures of counterparties, including financial institutions, governments and insurers, which could result in a material decline in the value of our investment portfolio and substantially reduce our investment returns. We regularly maintain cash balances at large third-party financial institutions in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit of $250,000 and similar regulatory insurance limits outside the United States. If a depository institution where we maintain deposits fails or is subject to adverse conditions in the financial or credit markets, we may not be able to recover all of our deposits, which could adversely impact our operating liquidity and financial performance. Similarly, if our customers or partners experience liquidity issues as a result of financial institution defaults or non-performance where they hold cash assets, their ability to pay us may become impaired and could have a material adverse effect on our results of operations, including the collection of accounts receivable and cash flows.\n\n\nOur goals and disclosures related to environmental, social and governance (ESG) matters expose us to risks that could adversely affect our reputation and performance.\n \n\n\nWe have established and publicly announced ESG goals, including our commitment to reducing our greenhouse gas emissions and increasing our representation of women in our global workforce and underrepresented minorities in our US workforce. These statements reflect our current plans and aspirations and are not guarantees that we will be able to achieve them. Our failure to accomplish or accurately track and report on these goals on a timely basis, or at all, could adversely affect our reputation, financial performance and growth, and expose us to increased scrutiny from our stakeholders, the investment community as well as enforcement authorities.\n\n\nOur ability to achieve any ESG objective is subject to numerous risks, many of which are outside of our control, including the changing regulatory requirements affecting ESG standards or disclosures, our ability to recruit, develop and retain diverse talent in our labor markets, the locations and usage of our products and the implications on their greenhouse gas emissions and the success of our organic growth and acquisitions.\n\n\nStandards for tracking and reporting ESG matters continue to evolve. Our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and standards, may change from time to time or differ from those of others. This may result in a lack of consistent or meaningful comparative data from period to period or between the Company and other companies in the same industry. In addition, our processes and controls may not always comply with evolving standards for identifying, measuring and reporting ESG metrics, including ESG-related disclosures that may be required of public companies by the Securities and Exchange Commission, and such standards may change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in the future.\n\n\nIf our ESG practices do not meet evolving investor or other stakeholder expectations and standards, then our reputation, our ability to attract or retain employees, and our attractiveness as an investment, business partner, acquiror or supplier could be negatively impacted. Further, our failure or perceived failure to pursue or fulfill our goals and objectives or to satisfy various reporting standards on a timely basis, or at all, could have similar negative impacts or expose us to government enforcement actions and private litigation.\n\n\n18\n\n\n\n\n\u00a0\n\n\nRisks Related to Our Customers and Sales\n\n\nA portion of our revenues is generated by large, recurring purchases from various customers, resellers and distributors. A loss, cancellation or delay in purchases by any of these parties has negatively affected our revenues in the past, and could negatively affect our revenues in the future.\n\n\nA significant portion of our net revenues is generated through sales to a limited number of customers and distributors. We generally do not enter into binding purchase commitments with our customers, resellers and distributors for extended periods of time, and thus there is no guarantee we will continue to receive large, recurring orders from these customers, resellers or distributors. For example, our reseller agreements generally do not require minimum purchases, and our customers, resellers and distributors can stop purchasing and marketing our products at any time. In addition, unfavorable economic conditions may negatively impact the solvency of our customers, resellers and distributors or the ability of such customers, resellers and distributors to obtain credit to finance purchases of our products. If any of our key customers, resellers or distributors changes its pricing practices, reduces the size or frequency of its orders for our products, or stops purchasing our products altogether, our operating results, financial condition and cash flows could be materially adversely impacted.\n\n\nIf we are unable to maintain and develop relationships with strategic partners, our revenues may be harmed.\n\n\nOur growth strategy includes developing and maintaining strategic partnerships with major third-party software and hardware vendors to integrate our products into their products and also co-market our products with them. A number of our strategic partners are industry leaders that offer us expanded access to segments in which we do not directly participate. In particular, strategic partnerships with public cloud providers and other cloud service vendors are critical to the success of our cloud-based business. However, there is intense competition for attractive strategic partners, and these relationships may not be exclusive, may not generate significant revenues and may be terminated on short notice. For instance, some of our partners are also partnering with our competitors, which may increase the availability of competing solutions and harm our ability to grow our relationships with those partners. Moreover, some of our partners, particularly large, more diversified technology companies, including major cloud providers, are also competitors, thereby complicating our relationships. If we are unable to establish new partnerships or maintain existing partnerships, if our strategic partners favor their relationships with other vendors in the storage industry or if our strategic partners increasingly compete with us, we could experience lower than expected revenues, suffer delays in product development, or experience other harm to our business, operating results, financial condition and cash flows.\n\n\nOur success depends upon our ability to effectively plan and manage our resources and restructure our business in response to changing market conditions and market demand for our products, and such actions may have an adverse effect on our business, operating results, financial condition and cash flows.\n\n\nOur ability to successfully offer our products and services in a rapidly evolving market requires an effective planning, forecasting, and management process to enable us to effectively scale and adjust our business in response to fluctuating market opportunities and conditions.\n\n\nWe recently reorganized our sales resources, which included changes and additions to our sales leadership team, to gain operational efficiencies and improve the alignment of our resources with customer and market opportunities. We expect to continue developing our sales organization and go-to-market model towards these goals throughout fiscal 2024. The reorganization of our sales resources, and ongoing evolution of our go-to-market model, could result in short or long-term disruption of our sales cycles, may not produce the efficiencies and benefits desired, and could harm our operating results, financial condition and cash flows.\n \n\n\nWe have and may in the future undertake initiatives that could include reorganizing our workforce, restructuring, disposing of, and/or otherwise discontinuing certain products, facility reductions or a combination of these actions. Rapid changes in the size, alignment or organization of our workforce, including our business unit structure, structure of our sales team, and sales account coverage, could adversely affect our ability to develop, sell and deliver products and services as planned or impair our ability to realize our current or future business and financial objectives. Any decision to take these actions may result in charges to earnings associated with, among other things, inventory or other fixed, intangible or goodwill asset reductions (including, without limitation, impairment charges), workforce and facility reductions and penalties and claims from third-party resellers or users of discontinued products. Charges associated with these activities could harm our operating results. In addition to the costs associated with these activities, we may not realize any of the anticipated benefits of the underlying restructuring activities.\n\n\nReduced U.S. government demand could materially harm our business, operating results, financial condition and cash flows. In addition, we could be harmed by claims that we have or a channel partner has failed to comply with regulatory and contractual requirements applicable to sales to the U.S. government.\n\n\nThe U.S. government is an important customer for us. However, government demand is uncertain, as it is subject to political and budgetary fluctuations and constraints. Events such as the U.S. federal government shutdown from December 2018 to January 2019\n \n\n\n19\n\n\n\n\n\u00a0\n\n\nand continued uncertainty regarding the U.S. budget and debt levels have increased demand uncertainty for our products. In addition, like other customers, the U.S. government may evaluate competing products and delay purchasing in the face of the technology transitions taking place in the storage industry. If the U.S. government or an individual agency or multiple agencies within the U.S. government continue to reduce or shift their IT spending patterns, our operating results, including revenues may be harmed.\n\n\nSelling our products to the U.S. government, whether directly or through channel partners, also subjects us to certain regulatory and contractual requirements. Failure to comply with these requirements by either us or our channel partners could subject us to investigations, fines, and other penalties, which could materially harm our operating results and financial condition. As an example, the United States Department of Justice (DOJ) and the General Services Administration (GSA) have in the past pursued claims against and financial settlements with IT vendors, including us and several of our competitors and channel partners, under the False Claims Act and other statutes related to pricing and discount practices and compliance with certain provisions of GSA contracts for sales to the federal government. Although the DOJ and GSA currently have no claims pending against us, we could face claims in the future. Violations of certain regulatory and contractual requirements, including with respect to cybersecurity or affirmative action program requirements could also result in us being suspended or debarred from future government contracting. Any of these outcomes could have a material adverse effect on our business, operating results, financial condition and cash flows.\n \n\n\nIn response to increasing cybersecurity threats, the U.S. government has subjected IT vendors, including us, to certain additional requirements. As an example, the Executive Order on Improving the Nation\u2019s Cybersecurity (EO 14028), released in May 2021, outlines the U.S. government\u2019s plan to address software supply chain security for \u201ccritical software\u201d and other software. NetApp\u2019s products are categorized as critical software, requiring us to achieve compliance with the Secure Software Development Framework (SSDF) under NIST special publication 800-218. The current deadline for compliance is subject to the U.S. government\u2019s finalization of their common attestation form, and any products that cannot attest to compliance with the SSDF may result in delays or inability to execute contracts with customers, particularly with government entities.\n\n\nIf we do not achieve forecasted sales orders in any quarter, our operating results, financial condition and cash flows could be harmed.\n\n\nWe derive a majority of our revenues in any given quarter from orders booked in the same quarter. Orders typically follow intra-quarter seasonality patterns weighted toward the back end of the quarter. If we do not achieve the level, timing and mix of orders consistent with our quarterly targets and historical patterns, or if we experience cancellations of significant orders, our operating results, financial condition and cash flows could be harmed.\n\n\nOur gross margins may vary.\n\n\nOur gross margins reflect a variety of factors, including competitive pricing, component and product design, and the volume and relative mix of revenues from product, software support, hardware support and other services offerings. Increased component costs, increased pricing and discounting pressures, the relative and varying rates of increases or decreases in component costs and product prices, or changes in the mix of revenue or decreased volume from product, software support, hardware support and other services offerings could harm our revenues, gross margins or earnings. Our gross margins are also impacted by the cost of any materials that are of poor quality and our sales and distribution activities, including, without limitation, pricing actions, rebates, sales initiatives and discount levels, and the timing of service contract renewals.\n\n\nThe costs of third-party components comprise a significant portion of our product costs. While we generally have been able to manage our component and product design costs, we may have difficulty managing these costs if supplies of certain components become limited or component prices increase. Any such limitation could result in an increase in our product costs. An increase in component or design costs relative to our product prices could harm our gross margins and earnings.\n\n\nWe are exposed to the credit and non-payment risk of our customers, resellers and distributors, especially during times of economic uncertainty and tight credit markets, which could result in material losses.\n\n\nMost of our sales to customers are on an open credit basis, with typical payment terms of 30 days. We may experience increased losses as potentially more customers are unable to pay all or a portion of their obligations to us, particularly in the current macroeconomic environment when access to sources of liquidity may be limited. Beyond our open credit arrangements, some of our customers have entered into recourse and non-recourse financing leasing arrangements using third-party leasing companies. Under the terms of recourse leases, which are generally three years or less, we remain liable for the aggregate unpaid remaining lease payments to the third-party leasing companies in the event of end-user customer default. During periods of economic uncertainty, our exposure to credit risks from our customers increases. In addition, our exposure to credit risks of our customers may increase further if our customers and their customers or their lease financing sources are adversely affected by global economic conditions.\n\n\nRisks Related to Our Products and Services\n\n\nAny disruption to our supply chain could materially harm our business, operating results, financial condition and cash flows.\n\n\n20\n\n\n\n\n\u00a0\n\n\nWe do not manufacture certain components used in our products. We rely on third parties to manufacture critical components, as well as for associated logistics. Our lack of direct responsibility for, and control over, these elements of our business, as well as the diverse international geographic locations of our manufacturing partners and suppliers, creates significant risks for us, including, among other things:\n \n\n\n\u2022\nLimited number of suppliers for certain components; \n\n\n\u2022\nNo guarantees of supply and limited ability to control the quality, quantity and cost of our products or of their components; \n\n\n\u2022\nThe potential for binding price or purchase commitments with our suppliers at higher than market rates; \n\n\n\u2022\nLimited ability to adjust production volumes in response to our customers\u2019 demand fluctuations; \n\n\n\u2022\nLabor and political unrest at facilities we do not operate or own; \n\n\n\u2022\nGeopolitical disputes disrupting our supply chain; \n\n\n\u2022\nImpacts on our supply chain from adverse public health developments, including outbreaks of contagious diseases such as COVID-19; \n\n\n\u2022\nBusiness, legal compliance, litigation and financial concerns affecting our suppliers or their ability to manufacture and ship components in the quantities, quality and manner we require; and \n\n\n\u2022\nDisruptions due to floods, earthquakes, storms and other natural disasters, especially those caused by climate change, and particularly in countries with limited infrastructure and disaster recovery resources.\n\n\nSuch risks have subjected us, and could in the future subject us, to supply constraints, price increases and minimum purchase requirements and our business, operating results, financial condition and cash flows could be harmed. For example, the global shortage of critical product components in fiscal 2023 caused us to experience increased prices and extended lead times for certain critical components, such as semiconductors. Such shortages could reduce our flexibility to react to product mix changes and disrupt our production schedule. The risks associated with our outsourced manufacturing model are particularly acute when we transition products to new facilities or manufacturers, introduce and increase volumes of new products or qualify new contract manufacturers or suppliers, at which times our ability to manage the relationships among us, our manufacturing partners and our component suppliers, becomes critical. New manufacturers, products, components or facilities create increased costs and risk that we will fail to deliver high quality products in the required volumes to our customers. Any failure of a manufacturer or component supplier to meet our quality, quantity or delivery requirements in a cost-effective manner will harm our business, including customer relationships and as a result could harm our operating results, financial condition and cash flows.\n\n\nWe rely on a limited number of suppliers for critical product components.\n\n\nWe rely on a limited number of suppliers for drives and other components utilized in the assembly of our products, including certain single source suppliers, which has subjected us, and could in the future subject us, to price rigidity, periodic supply constraints, and the inability to produce our products with the quality and in the quantities demanded. Consolidation among suppliers, particularly within the semiconductor and storage media industries, has contributed to price volatility and supply constraints. When industry supply is constrained, or the supply chain is disrupted, as it was during the COVID-19 pandemic, our suppliers may allocate volumes away from us and to our competitors, all of which rely on many of the same suppliers as we do. Accordingly, our business, operating results, financial condition and cash flows may be harmed.\n\n\nIf a material cybersecurity or other security breach impacts our services or occurs on our systems, within our supply chain, or on our end-user customer systems, or if stored data is improperly accessed, customers may reduce or cease using our solutions, our reputation may be harmed and we may incur significant liabilities.\n \n\n\nWe store and transmit, and sell products and services that store and transmit, personal, sensitive and proprietary data related to our products, our employees, customers, clients and partners (including third-party vendors such as data centers and providers of SaaS, cloud computing, and internet infrastructure and bandwidth), and their respective customers, including intellectual property, books of record and personal information. It is critical to our business strategy that our infrastructure, products and services remain secure and are perceived by customers, clients and partners to be secure. There are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, state-sponsored intrusions, industrial espionage, human error and technological vulnerabilities. Material cybersecurity incidents or other security breaches could result in (1) unauthorized access to, or loss or unauthorized use, alteration, or disclosure of, such information; (2) litigation, indemnity obligations, government investigations and proceedings, and other possible liabilities; (3) negative publicity; and (4) disruptions to our internal and external operations. Any of these could damage our reputation\n \n\n\n21\n\n\n\n\n\u00a0\n\n\nand public perception of the security and reliability of our products, as well as harm our business and cause us to incur significant liabilities. In addition, a material cybersecurity incident or loss of personal information, or other material security breach could result in other negative consequences, including remediation costs, disruption of internal operations, increased cybersecurity protection costs and lost revenues.\n\n\nOur clients and customers use our platforms for the transmission and storage of sensitive data. We do not generally review the information or content that our clients and their customers upload and store, and we have no direct control over the substance of the information or content stored within our platforms. If our employees, or our clients, partners or their respective customers use our platforms for the transmission or storage of personal or other sensitive information, or our supply chain cybersecurity is compromised and our security measures are breached as a result of third-party action, employee error, malfeasance, stolen or fraudulently obtained log-in credentials or otherwise, our reputation could be damaged, our business may be harmed and we could incur significant liabilities.\n\n\nSecurity industry experts and US Government officials continue to emphasize risks to our industry. Cyber attacks and security breaches continue to increase, and of particular concern are supply-chain attacks against software development. We anticipate that cyberattacks will continue to increase in the future. We cannot give assurance that we will always be successful in preventing or repelling unauthorized access to our systems. We also may face delays in our ability to identify or otherwise respond to any cybersecurity incident or any other breach. Additionally, we use third-party service providers to provide some services to us that involve the storage or transmission of data, such as SaaS, cloud computing, and internet infrastructure and bandwidth, and they face various cybersecurity threats and also may suffer cybersecurity incidents or other security breaches.\n \n\n\nMany jurisdictions have enacted or are enacting laws requiring companies to notify regulators or individuals of data security incidents involving certain types of personal data. These mandatory disclosures regarding security incidents often lead to widespread negative publicity. Moreover, the risk of reputational harm may be magnified and/or distorted through the rapid dissemination of information over the internet, including through news articles, blogs, social media, and other online communication forums and services. Any security incident, loss of data, or other security breach, whether actual or perceived, or whether impacting us or our third-party service providers, could harm our reputation, erode customer confidence in the effectiveness of our data security measures, negatively impact our ability to attract new customers, cause existing customers to elect not to renew their support contracts or their SaaS subscriptions, or subject us to third-party lawsuits, regulatory fines or other action or liability, which could materially and adversely affect our business and operating results.\n\n\nThere can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. Our existing general liability insurance coverage, cybersecurity insurance coverage and coverage for errors and omissions may not continue to be available on acceptable terms or may not be available in sufficient amounts to cover one or more large claims, or our insurers may deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceeds available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, operating results, financial condition and cash flows.\n\n\nIf a data center or other third-party who relies on our products experiences a disruption in service or a loss of data, such disruption could be attributed to the quality of our products, thereby causing financial or reputational harm to our business.\n\n\nOur clients, including data centers, SaaS, cloud computing and internet infrastructure and bandwidth providers, rely on our products for their data storage needs. Our clients may authorize third-party technology providers to access their data on our systems. Because we do not control the transmissions between our clients, their customers, and third-party technology providers, or the processing of such data by third-party technology providers, we cannot ensure the complete integrity or security of such transmissions or processing. Errors or wrongdoing by clients, their customers, or third-party technology providers resulting in actual or perceived security breaches may result in such actual or perceived breaches being attributed to us.\n\n\nA failure or inability to meet our clients\u2019 expectations with respect to security and confidentiality through a disruption in the services provided by these third-party vendors, or the loss or alteration of data stored by such vendors, could result in financial or reputational harm to our business to the extent that such disruption or loss is caused by, or perceived by our customers to have been caused by, defects in our products. Moreover, the risk of reputational harm may be magnified and/or distorted through the rapid dissemination of information over the internet, including through news articles, blogs, social media, and other online communication forums and services. This may affect our ability to retain clients and attract new business.\n\n\n Failure to comply with new and existing laws and regulations relating to privacy, data protection, and information security could cause harm to our reputation, result in liability and adversely impact our business.\n\n\n \nOur business is subject to increasing regulation by various federal, state and international governmental agencies responsible for enacting and enforcing laws and regulations relating to privacy, data protection, and information security. For example, since the\n \n\n\n22\n\n\n\n\n\u00a0\n\n\neffective date of the EU\u2019s General Data Privacy Regulation in 2018, the Court of Justice of the European Union has issued rulings that have impacted how multinational companies must implement that law and the European Commission (EC) has published new regulatory requirements relating to cross-border data transfers applicable to multinational companies like NetApp. NetApp relies on a variety of compliance methods to transfer personal data of European Economic Area (EEA) individuals to other countries, including Binding Corporate Rules and Standard Contractual Clauses (SCCs). In June 2021, the EC imposed new SCC requirements which impose certain contract and operational requirements on NetApp and its contracting parties, including requirements related to government access transparency, enhanced data subject rights, and broader third-party assessments to ensure safeguards necessary to protect personal data transferred from NetApp or its partners to countries outside the EEA, requiring NetApp to revise customer and vendor agreements. In addition to the EU\u2019s General Data Privacy Regulation, other global governments have adopted new privacy and data protection laws.  In particular, the United Kingdom\u2019s exit from the EU has resulted in a parallel comprehensive privacy law known as the United Kingdom General Data Protection Regulation, which is similarly supplemented by other domestic data protection laws, such as the United Kingdom Data Protection Act 2018.\n\n\n The rapidly evolving regulatory framework in this area is likely to remain uncertain for the foreseeable future.  In addition, changes in the interpretation and enforcement of existing laws and regulations could impact our business operations and those of our partners, vendors and customers. Customers, privacy advocates and industry groups also may propose new and different self-regulatory standards or standards of care that may legally or contractually apply to us, and these standards may be subject to change. These factors create uncertainty and we cannot yet determine the impact such future laws, regulations and standards, or changes to such laws, regulations, or standards, or to their interpretation or enforcement, may have on our business or the businesses of our partners, vendors and customers. In addition, changes in the interpretation of existing laws and regulations could impact our business operations and those of our partners, vendors and customers.\n\n\n Because the interpretation and application of many laws and regulations relating to privacy, data protection and information security, along with industry standards, are uncertain, it is possible that relevant laws, regulations, or standards may be interpreted and applied in manners that are, or are alleged to be, inconsistent with our data management practices or the features of our products. Any failure, or perceived failure, by us or our business partners to comply with federal, state or international laws and regulations relating to privacy, data protection, and information security, commitments relating to privacy, data protection, and information security contained in our contracts, self-regulatory standards that apply to us or that third parties assert are applicable to us, or our policies or notices we post or make available could subject us to claims, investigations, sanctions, enforcement actions and other proceedings, disgorgement of profits, fines, damages, civil and criminal liability, penalties or injunctions.\n \n\n\nAdditionally, as a technology provider, our customers expect that we can demonstrate compliance with laws and regulations relating to privacy, data protection, and information security, and our inability or perceived inability to do so may adversely impact sales of our products and services, particularly to customers in highly-regulated industries. We have invested company resources in complying with new laws, regulations, and other obligations relating to privacy, data protection, and information security, and we may be required to make additional, significant changes in our business operations, all of which may adversely affect our revenue and our business overall. As a result of any inability to comply with such laws and regulations, our reputation and brand may be harmed, we could incur significant costs, and financial and operating results could be materially adversely affected, and we could be required to modify or change our products or our business practices, any of which could have an adverse effect on our business. Our business could be subject to stricter obligations, greater fines and private causes of action, including class actions, under the enactment of new laws and regulations relating to privacy, data protection, and information security, including but not limited to, the European Union General Data Protection Regulation, which provides for penalties of up to 20 million Euros or four percent of our annual global revenues, UK General Data Protection Regulation, which provides for penalties up to 15 million Pounds or four percent of our annual global revenue, the California Consumer Privacy Act and the California Privacy Rights Act, and other U.S. state-based regulation.\n\n\nIf our products or services are defective, or are perceived to be defective as a result of improper use or maintenance, our operating results, including gross margins, and customer relationships may be harmed.\n\n\nOur products and services are complex. We have experienced in the past, and expect to experience in the future, quality issues impacting certain products, and in the future, we could experience reliability issues with services we provide. Such quality and reliability issues may be due to, for example, our own designs or processes, the designs or processes of our suppliers, and/or flaws in third-party software used in our products. These types of risks are most acute when we are introducing new products. Quality or reliability issues have and could again in the future cause customers to experience outages or disruptions in service, data loss or data corruption. If we fail to remedy a product defect or flaw, we may experience a failure of a product line, temporary or permanent withdrawal from a product or market, damage to our reputation, loss of revenue, inventory costs or product reengineering expenses and higher ongoing warranty and service costs, and these occurrences could have a material impact on our gross margins, business and operating results. In addition, we exercise little control over how our customers use or maintain our products and services, and in some cases improper usage or maintenance could impair the performance of our products and services, which could lead to a perception of a quality or reliability issue. Customers may experience losses that may result from or are alleged to result from defects or flaws in our products and services, which could subject us to claims for damages, including consequential damages.\n\n\n23\n\n\n\n\n\u00a0\n\n\nChanges in regulations relating to our products or their components, or the manufacture, sourcing, distribution or use thereof, may harm our business, operating results financial condition and cash flows.\n\n\nThe laws and regulations governing the manufacturing, sourcing, distribution and use of our products have become more complex and stringent over time. For example, in addition to various environmental laws relating to carbon emissions, the use and discharge of hazardous materials and the use of certain minerals originating from identified conflict zones, many governments, including the U.S., the United Kingdom and Australia, have adopted regulations concerning the risk of human trafficking in supply chains which govern how workers are recruited and managed. We incur costs to comply with the requirements of such laws. Further, since our supply chain is complex, we may face reputational harm if our customers or other stakeholders conclude that we are unable to verify sufficiently the origins of the minerals used in the products we sell or the actions of our suppliers with respect to workers. As the laws and regulations governing our products continue to expand and change, our costs are likely to rise, and the failure to comply with any such laws and regulations could subject us to business interruptions, litigation risks and reputational harm.\n\n\nSome of our products are subject to U.S. export control laws and other laws affecting the countries in which our products and services may be sold, distributed, or delivered, and any violation of these laws could have a material and adverse effect on our business, operating results, financial condition and cash flows.\n\n\nDue to the global nature of our business, we are subject to import and export restrictions and regulations, including the Export Administration Regulations administered by the Commerce Department\u2019s Bureau of Industry and Security (BIS) and the trade and economic sanctions regulations administered by the Treasury Department\u2019s Office of Foreign Assets Control (OFAC). The U.S., through the BIS and OFAC, places restrictions on the sale or export of certain products and services to certain countries and persons, including most recently to Russia, Belarus and portions of Ukraine. These regulations have caused the Company to stop selling or servicing our products temporarily in restricted areas, such as Russia, Belarus and portions of Ukraine. The BIS and OFAC have also placed restrictions on dealing with certain \"blocked\u201d entities, such as Russia\u2019s federal security service (FSB), including the Company\u2019s filing of notifications to the FSB for exporting certain products to Russia. Violators of these export control and sanctions laws may be subject to significant penalties, which may include significant monetary fines, criminal proceedings against them and their officers and employees, a denial of export privileges, and suspension or debarment from selling products to the federal government. Our products could be shipped to those targets by third parties, including potentially our channel partners, despite our precautions.\n\n\nIf we were ever found to have violated U.S. export control laws, we may be subject to various penalties available under the laws, any of which could have a material and adverse impact on our business, operating results and financial condition. Even if we were not found to have violated such laws, the political and media scrutiny surrounding any governmental investigation of us could cause us significant expense and reputational harm. Such collateral consequences could have a material adverse impact on our business, operating results, financial condition and cash flows.\n\n\nOur failure to protect our intellectual property could harm our business, operating results, financial condition and cash flows.\n\n\nOur success depends significantly upon developing, maintaining and protecting our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality procedures and contractual provisions with employees, resellers, strategic partners and customers, to protect our proprietary rights. We currently have multiple U.S. and international patent applications pending and multiple U.S. and international patents issued. The pending applications may not be approved, and our existing and future patents may be challenged. If such challenges are brought, the patents may be invalidated. We may not be able to develop proprietary products or technologies that are patentable, and patents issued to us may not provide us with any competitive advantages and may be challenged by third parties. Further, the patents of others may materially and adversely affect our ability to do business. In addition, a failure to obtain and defend our trademark registrations may impede our marketing and branding efforts and competitive condition. Litigation may be necessary to protect our proprietary technology. Any such litigation may be time-consuming and costly. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the U.S. Our means of protecting our proprietary rights may not be adequate or our competitors may independently develop similar technology, duplicate our products, or design around patents issued to us or other intellectual property rights of ours. In addition, while we train employees in confidentiality practices and include terms in our employee and consultant agreements to protect our intellectual property, there is persistent risk that some individuals will improperly take our intellectual property after terminating their employment or other engagements with us, which could lead to intellectual property leakage to competitors and a loss of our competitive advantages.\n\n\nWe may be found to infringe on intellectual property rights of others.\n\n\nWe compete in markets in which intellectual property infringement claims arise in the normal course of business. Third parties have, from time to time, asserted intellectual property-related claims against us, including claims for alleged patent infringement brought by non-practicing entities. Such claims may be made against our products and services, our customers\u2019 use of our products\n \n\n\n24\n\n\n\n\n\u00a0\n\n\nand services, or a combination of our products and third-party products. We also may be subject to claims and indemnification obligations from customers and resellers with respect to third-party intellectual property rights pursuant to our agreements with them. If we refuse to indemnify or defend such claims, even in situations in which the third-party\u2019s allegations are meritless, then customers and resellers may refuse to do business with us.\n \n\n\nPatent litigation is particularly common in our industry. We have been, and continue to be, in active patent litigations with non-practicing entities. While we vigorously defend our ability to compete in the marketplace, there is no guarantee that, in patent or other types of intellectual property litigation, we will prevail at trial or be able to settle at a reasonable cost.  If a judge or jury were to find that our products infringe, we could be required to pay significant monetary damages and be subject to an injunction that could cause product shipment delays, require us to redesign our products, affect our ability to supply or service our customers, and/or require us to enter into compulsory royalty or licensing agreements.\n \n\n\nWe expect that companies in the enterprise storage and data management, cloud storage and cloud operations markets will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, and any such infringement claims discussed above, could be time consuming, result in costly litigation, cause suspension of product shipments or product shipment delays, require us to redesign our products, or require us to enter into royalty or licensing agreements, any of which could materially and adversely affect our operating results, financial condition and cash flows. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all.\n \n\n\nWe rely on software from third parties, and a failure to properly manage our use of third-party software could result in increased costs or loss of revenue.\n \n\n\nMany of our products are designed to include software licensed from third parties. Such third-party software includes software licensed from commercial suppliers and software licensed under public open source licenses. We have internal processes to manage our use of such third-party software. However, if we fail to adequately manage our use of third-party software, then we may be subject to copyright infringement or other third-party claims. If we are non-compliant with a license for commercial software, then we may be required to pay penalties or undergo costly audits pursuant to the license agreement. In the case of open-source software licensed under certain \u201ccopyleft\u201d licenses, the license itself may require, or a court-imposed remedy for non-compliant use of the open source software may require, that proprietary portions of our own software be publicly disclosed or licensed. This could result in a loss of intellectual property rights, increased costs, damage to our reputation and/or a loss of revenue.\n\n\nIn addition, many of our products use open-source software. Such open-source software generally does not provide any warranty or contractual protection, and may be susceptible to attack from bad actors. Further, open-source software may contain vulnerabilities, which may or may not be known at the time of our inclusion of the software in a product. If a vulnerability in such software is successfully exploited, we could be subject to damages including remediation costs, reputational damage and lost revenues.\n \n\n\nOur failure to adjust to emerging standards may harm our business.\n\n\nEmerging standards may adversely affect the UNIX\n\u00ae\n, Windows\n\u00ae\n and World Wide Web server markets upon which we depend. For example, we provide our open access data retention solutions to customers within the financial services, healthcare, pharmaceutical and government market segments, industries that are subject to various evolving governmental regulations with respect to data access, reliability and permanence in the U.S. and in the other countries in which we operate. If our products do not meet and continue to comply with these evolving governmental regulations in this regard, customers in these market and geographical segments will not purchase our products, and we may not be able to expand our product offerings in these market and geographical segments at the rates which we have forecasted.\n\n\nRisks Related to Our Securities\n\n\nOur stock price is subject to volatility.\n\n\nOur stock price is subject to changes in recommendations or earnings estimates by financial analysts, changes in investors' or analysts' valuation measures for our stock, changes in our capital structure, including issuance of additional debt, changes in our credit ratings, our ability to pay dividends and to continue to execute our stock repurchase program as planned and market trends unrelated to our performance.\n \n\n\nOur ability to pay quarterly dividends and to continue to execute our stock repurchase program as planned will be subject to, among other things, our financial condition and operating results, available cash and cash flows in the U.S., capital requirements, and other factors. Future dividends are subject to declaration by our Board of Directors, and our stock repurchase program does not obligate us to acquire any specific number of shares. However, if we fail to meet any investor expectations related to dividends and/or stock repurchases, the market price of our stock could decline significantly, and could have a material adverse impact on investor\n \n\n\n25\n\n\n\n\n\u00a0\n\n\nconfidence. Additionally, price volatility of our stock over a given period may cause the average price at which we repurchase our own stock to exceed the stock\u2019s market price at a given point in time.\n\n\nFurthermore, speculation in the press or investment community about our strategic position, financial condition, results of operations or business can cause changes in our stock price. These factors, as well as general economic and political conditions and the timing of announcements in the public market regarding new products or services, product enhancements or technological advances by our competitors or us, and any announcements by us of acquisitions, major transactions, or management changes may adversely affect our stock price.\n\n\nOur quarterly operating results may fluctuate materially, which could harm our common stock price.\n\n\nOur operating results have fluctuated in the past and will continue to do so, sometimes materially. All of the matters discussed in this Risk Factors section could impact our operating results in any fiscal quarter or year. In addition to those matters, we face the following issues, which could impact our quarterly results:\n \n\n\n\u2022\nSeasonality, such as our historical seasonal decline in revenues in the first quarter of our fiscal year and seasonal increase in revenues in the fourth quarter of our fiscal year;\n\n\n\u2022\nLinearity, such as our historical intra-quarter customer orders and revenue pattern in which a disproportionate percentage of each quarter\u2019s total orders and related revenue occur in the last month of the quarter; and\n\n\n\u2022\nUnpredictability associated with larger scale enterprise software license agreements which generally take longer to negotiate and occur less consistently than other types of contracts, and for which revenue attributable to the software license component is typically recognized in full upon delivery.\n\n\nIf our operating results fall below our forecasts and the expectations of public market analysts and investors, the trading price of our common stock may decline.\n \n\n\nThere are risks associated with our outstanding and future indebtedness.\n\n\nAs of April 28, 2023, we had $2.4 billion aggregate principal amount of outstanding indebtedness for our senior notes that mature at specific dates in calendar years 2024, 2025, 2027 and 2030. We may incur additional indebtedness in the future under existing credit facilities and/or enter into new financing arrangements. We may fail to pay these or additional future obligations, as and when required. Specifically, if we are unable to generate sufficient cash flows from operations or to borrow sufficient funds in the future to service or refinance our debt, our business, operating results, financial condition and cash flows will be harmed. Any downgrades from credit rating agencies such as Moody\u2019s Investors Service or Standard & Poor\u2019s Rating Services may adversely impact our ability to obtain additional financing or the terms of such financing and reduce the market capacity for our commercial paper. Furthermore, if prevailing interest rates or other factors result in higher interest rates upon any potential future financing, then interest expense related to the refinance indebtedness would increase.\n \n\n\nIn addition, all our debt and credit facility arrangements subject us to continued compliance with restrictive and financial covenants. If we do not comply with these covenants or otherwise default under the arrangements, we may be required to repay any outstanding amounts borrowed under these agreements. Moreover, compliance with these covenants may restrict our strategic or operational flexibility in the future, which could harm our business, operating results, financial condition and cash flows.\n\n\n\u00a0\n\n\nGeneral Risks\n \n\n\nOur business could be materially and adversely affected as a result of natural disasters, terrorist acts or other catastrophic events.\n\n\nWe depend on the ability of our personnel, inventories, equipment and products to move reasonably unimpeded around the world. Any political, military, terrorism, global trade, world health or other issue that hinders this movement or restricts the import or export of materials could lead to significant business disruptions. For example, in recent years, the COVID-19 pandemic impeded the mobility of our personnel, inventories, equipment and products and disrupted our business operations. Furthermore, any economic failure or other material disruption caused by natural disasters, including fires, floods, droughts, hurricanes, earthquakes, and volcanoes; power loss or shortages; environmental disasters; telecommunications or business information systems failures or break-ins and similar events could also adversely affect our ability to conduct business. As a result of climate change, we expect the frequency and impact of such natural disasters or other material disruptions to increase. If such disruptions result in cancellations of customer orders or contribute to a general decrease in economic activity or corporate spending on IT, or directly impact our marketing, manufacturing, financial and logistics functions, or impair our ability to meet our customer demands, our operating results and financial condition could be materially adversely affected. Our headquarters is located in Northern California, an area susceptible to earthquakes and wildfires. If any significant disaster were to occur there, our ability to operate our business and our operating results, financial condition and cash flows could be adversely impacted.\n\n\n26\n\n\n\n\n\u00a0\n\n\nWe could be subject to additional income tax liabilities.\n \n\n\nOur effective tax rate is influenced by a variety of factors, many of which are outside of our control. These factors include among other things, fluctuations in our earnings and financial results in the various countries and states in which we do business, changes to the tax laws in such jurisdictions and the outcome of income tax audits. Changes to any of these factors could materially impact our operating results, financial condition and cash flows.\n \n\n\nWe receive significant tax benefits from sales to our non-U.S. customers. These benefits are contingent upon existing tax laws and regulations in the U.S. and in the countries in which our international operations are located. Future changes in domestic or international tax laws and regulations or a change in how we manage our international operations could adversely affect our ability to continue realizing these tax benefits.\n \n\n\nMany countries around the world are beginning to implement legislation and other guidance to align their international tax rules with the Organisation for Economic Co-operation and Development\u2019s Base Erosion and Profit Shifting recommendations and related action plans that aim to standardize and modernize global corporate tax policy, including changes to cross-border tax, transfer-pricing documentation rules and nexus-based tax incentive practices. As a result, many of these changes, if enacted, could increase our worldwide effective tax rate and harm our operating results, financial condition and cash flows.\n \n\n\nOur effective tax rate could also be adversely affected by changes in tax laws and regulations and interpretations of such laws and regulations, which in turn would negatively impact our earnings and cash and cash equivalent balances we currently maintain. Additionally, our effective tax rate could also be adversely affected if there is a change in international operations, our tax structure and how our operations are managed and structured, and as a result, we could experience harm to our operating results and financial condition. For example, on August 16, 2022, the U.S. enacted the Inflation Reduction Act, which includes a corporate minimum tax and a 1% excise tax on net stock repurchases. We continue to evaluate the impacts of changes in tax laws and regulations on our business.\n \n\n\nWe are routinely subject to income tax audits in the U.S. and several foreign tax jurisdictions. If the ultimate determination of income taxes or at-source withholding taxes assessed under these audits results in amounts in excess of the tax provision we have recorded or reserved for, our operating results, financial condition and cash flows could be adversely affected.\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n\n\n\u00a0\n\n\nIt\nem 1B.  \nUnresolved Staff Comments\n\n\nNot applicable.\n\n\n\u00a0\n\n\nItem 2.  \nP\nroperties\n\n\nWe owned or leased, domestically and internationally, the following properties as of April 28, 2023.\n\n\nWe own approximately 0.8 million square feet of facilities in Research Triangle Park (RTP), North Carolina. In addition, we own 65 acres of undeveloped land. The RTP site supports research and development, global services and sales and marketing.\n\n\nWe own approximately 0.7 million square feet of facilities in Bangalore, India on 14 acres of land. The Bangalore site supports research and development, marketing and global services.\n\n\nWe lease approximately 0.3 million square feet of office space for our corporate headquarters located in San Jose, California. The San Jose site supports research and development, corporate general administration, sales and marketing, global services and operations.\n\n\nWe lease approximately 1.3 million square feet in other sales offices and research and development facilities throughout the U.S. and internationally. We expect that our existing facilities and those being developed worldwide are suitable and adequate for our requirements over at least the next two years.\n \n\n\n\u00a0\n\n\nIt\nem 3.  \nLegal Proceedings\n\n\nFor a discussion of legal proceedings, see Note 17 \u2013 Commitments and Contingencies of the Notes to Consolidated Financial Statements.\n\n\nIt\nem 4.  \nMine Safety Disclosures\n\n\nNot applicable.\n\n\n\u00a0\n\n\n\u00a0\n\n\n28\n\n\n\n\n\u00a0\n\n\nPA\nRT II\n\n\n\u00a0\n\n\n\u00a0\n\n\nIt\nem 5.  \nMarket for Registrant\u2019s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities\n\n\nThe Company\u2019s common stock is traded on the NASDAQ Stock Market LLC (NASDAQ) under the symbol NTAP.\n\n\nPrice Range of Common Stock\n\n\nThe price range per share of common stock presented below represents the highest and lowest intraday sales prices for the Company\u2019s common stock on the NASDAQ during each quarter of our two most recent fiscal years.\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nHigh\n\n\n\u00a0\n\n\n\u00a0\n\n\nLow\n\n\n\u00a0\n\n\n\u00a0\n\n\nHigh\n\n\n\u00a0\n\n\n\u00a0\n\n\nLow\n\n\n\u00a0\n\n\n\n\n\n\nFirst Quarter\n\n\n\u00a0\n\n\n$\n\n\n76.73\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n61.26\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n84.19\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n73.30\n\n\n\u00a0\n\n\n\n\n\n\nSecond Quarter\n\n\n\u00a0\n\n\n$\n\n\n79.09\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n60.56\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n94.69\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n78.05\n\n\n\u00a0\n\n\n\n\n\n\nThird Quarter\n\n\n\u00a0\n\n\n$\n\n\n75.19\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n58.08\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n96.81\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n82.50\n\n\n\u00a0\n\n\n\n\n\n\nFourth Quarter\n\n\n\u00a0\n\n\n$\n\n\n69.75\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n59.74\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n96.82\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n58.83\n\n\n\u00a0\n\n\n\n\n\n\nHolders\n\n\nAs of May 31, 2023 there were approximately 443 holders of record of our common stock.\n\n\nDividends\n\n\nThe Company paid cash dividends of $0.50 per outstanding common share in each quarter of fiscal 2023 and fiscal 2022 for an aggregate of $432 million and $446 million, respectively, and $0.48 per outstanding common share in each quarter of fiscal 2021 for an aggregate of $427 million. In the first quarter of fiscal 2024, the Company declared a cash dividend of $0.50 per share of common stock, payable on July 26, 2023 to shareholders of record as of the close of business on July 7, 2023.\n\n\n29\n\n\n\n\n\u00a0\n\n\nPerformance Graph\n\n\nThe following graph shows a comparison of cumulative total shareholder return, calculated on a dividend reinvested basis, of an investment of $100 for the Company, the S&P 500 Index, the S&P 500 Information Technology Index and the S&P 1500 Technology Hardware & Equipment Index for the five years ended April 28, 2023. The comparisons in the graphs below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock. The graph and related information shall not be deemed \u201csoliciting material\u201d or be deemed to be \u201cfiled\u201d with the SEC, nor shall such information be incorporated by reference into any past or future filing with the SEC, except to the extent that such filing specifically states that such graph and related information are incorporated by reference into such filing.\n\n\nCOMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN\n\n\nAmong NetApp, Inc., the S&P 500 Index, the S&P 500 Information Technology Index and the S&P 1500 Technology Hardware & Equipment Index*\n\n\n\u00a0\n\n\n *$100 invested on April 27, 2018 in stock or index, including reinvestment of dividends. Data points are the last day of each fiscal year for the Company\u2019s common stock and each of the indexes.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 2018\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 2019\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 2020\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 2023\n\n\n\u00a0\n\n\n\n\n\n\nNetApp, Inc.\n\n\n\u00a0\n\n\n$\n\n\n100.00\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n109.09\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n67.77\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n121.79\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n122.26\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n108.29\n\n\n\u00a0\n\n\n\n\n\n\nS&P 500 Index\n\n\n\u00a0\n\n\n$\n\n\n100.00\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n112.33\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n110.58\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n165.75\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n166.10\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n170.53\n\n\n\u00a0\n\n\n\n\n\n\nS&P 500 Information Technology Index\n\n\n\u00a0\n\n\n$\n\n\n100.00\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n121.88\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n139.72\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n222.24\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n226.45\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n244.75\n\n\n\u00a0\n\n\n\n\n\n\nS&P 1500 Technology Hardware & Equipment Index\n\n\n\u00a0\n\n\n$\n\n\n100.00\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n122.50\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n140.08\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n249.10\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n283.44\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n300.91\n\n\n\u00a0\n\n\n\n\n\n\nWe believe that a number of factors may cause the market price of our common stock to fluctuate significantly. See Item 1A. \u2013 Risk Factors.\n\n\n\u00a0\n\n\n30\n\n\n\n\n\u00a0\n\n\nPurchases of Equity Securities by the Issuer and Affiliated Purchasers\n\n\nThe following table provides information with respect to the shares of common stock repurchased by us during the three months ended April 28, 2023:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal Number of Shares\n\n\n\u00a0\n\n\n\u00a0\n\n\nApproximate Dollar\n \nValue\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal Number\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\n\n\n\u00a0\n\n\n\u00a0\n\n\nPurchased as Part of\n\n\n\u00a0\n\n\n\u00a0\n\n\nof Shares That May Yet\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nof Shares\n\n\n\u00a0\n\n\n\u00a0\n\n\nPrice\n \nPaid\n\n\n\u00a0\n\n\n\u00a0\n\n\nPublicly Announced\n\n\n\u00a0\n\n\n\u00a0\n\n\nBe Purchased Under The\n\n\n\u00a0\n\n\n\n\n\n\nPeriod\n\n\n\u00a0\n\n\nPurchased\n\n\n\u00a0\n\n\n\u00a0\n\n\nper Share\n\n\n\u00a0\n\n\n\u00a0\n\n\nProgram\n\n\n\u00a0\n\n\n\u00a0\n\n\nRepurchase Program\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Shares in thousands)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Shares in thousands)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Dollars in millions)\n\n\n\u00a0\n\n\n\n\n\n\nJanuary 28, 2023 - February 24, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n417\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n66.89\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n358,124\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n524\n\n\n\u00a0\n\n\n\n\n\n\nFebruary 25, 2023 - March 24, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n698\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n63.11\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n358,822\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n480\n\n\n\u00a0\n\n\n\n\n\n\nMarch 25, 2023 - April 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,222\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n63.85\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n360,044\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n402\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,337\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n65.09\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIn May 2003, our Board of Directors approved a stock repurchase program. As of April 28, 2023, our Board of Directors had authorized the repurchase of up to $15.1 billion of our common stock, and on May 26, 2023, authorized an additional $1.0 billion. Since inception of the program through April 28, 2023, we repurchased a total of 360 million shares of our common stock for an aggregate purchase price of $14.7 billion. Under this program, we may purchase shares of our outstanding common stock through solicited or unsolicited transactions in the open market, in privately negotiated transactions, through accelerated share repurchase programs, pursuant to a Rule 10b5-1 plan or in such other manner as deemed appropriate by our management. The stock repurchase program may be suspended or discontinued at any time.\n\n\n\u00a0\n\n\n31\n\n\n\n\n\u00a0\n\n\nIt\nem 6.  \n[Reserved]\n\n\n \n\n\n\u00a0\n\n\n32\n\n\n\n\n\u00a0\n\n\nIt\nem 7.  \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\n\nThe following discussion of our financial condition and results of operations should be read together with the financial statements and the accompanying notes set forth under Item 8. \u2013 Financial Statements and Supplementary Data. The following discussion also contains trend information and other forward-looking statements that involve a number of risks and uncertainties. The Risk Factors set forth in Item 1A. \u2013 Risk Factors are hereby incorporated into the discussion by reference.\n\n\nExecutive Overview\n\n\nOur Company\n \n\n\nNetApp is a global cloud-led, data-centric software company that empowers customers with hybrid multicloud solutions built for a better future. Building on more than three decades of innovation, we give customers the freedom to manage applications and data across hybrid multicloud environments. NetApp delivers value in simplicity, security, savings, and sustainability with automation and optimization for IT teams to thrive on premises, in the clouds, and everywhere in between. We are a proven leader in all-flash storage with the only storage OS natively available on the biggest clouds, and we believe we provide industry-leading protection and security, and innovative CloudOps services.\n \n\n\nIn a world of hybrid multicloud complexity, we envision a better IT experience\u2014an evolved cloud state where on-premises and cloud environments are united as one. We build solutions that drive faster innovation wherever our customers\u2019 data and applications live, with unified management and AI-driven optimization, giving organizations the freedom to do what\u2019s best for today\u2019s business and the flexibility to adapt for tomorrow. Our infrastructure, data, and application services are hybrid multicloud by design to deliver a unified experience that is integrated with the rich services of our cloud partners.\n \n\n\nOur operations are organized into two segments: Hybrid Cloud and Public Cloud.\n\n\nHybrid Cloud \noffers a portfolio of storage management and infrastructure solutions that help customers recast their traditional data centers into modern data centers with the power of the cloud. Our hybrid cloud portfolio is designed to operate with public clouds to unlock the potential of hybrid, multi-cloud operations. We offer a broad portfolio of cloud-connected all-flash, hybrid-flash, and object storage systems, powered by intelligent data management software. Hybrid Cloud is composed of software, hardware, and related support, as well as professional and other services.\n\n\nPublic Cloud \noffers a portfolio of products delivered primarily as-a-service, including related support. This portfolio includes cloud storage and data services and cloud operations services. Our enterprise-class solutions and services enable customers to control and manage storage in the cloud, consume high-performance storage services for primary workloads, and optimize cloud environments for cost and efficiency. These solutions and services are generally available on the leading public clouds, including Amazon AWS\n, \nMicrosoft Azure, and Google Cloud Platform.\n\n\nGlobal Business Environment\n\n\nMacroeconomic Conditions\n\n\nContinuing global economic uncertainty, political conditions and fiscal challenges in the U.S. and abroad have resulted and may continue to result in adverse macroeconomic conditions, including inflation, rising interest rates, foreign exchange volatility, slower growth and possibly a recession. In particular, in fiscal 2023, we experienced a weakened demand environment, characterized by cloud optimizations and increased budget scrutiny, which resulted in smaller deal sizes, longer selling cycles, and delays of some deals.\n\n\nIf these macroeconomic uncertainties persist or worsen in fiscal 2024, we may observe a further reduction in customer demand for our offerings, which could impact our operating results.\n\n\n33\n\n\n\n\n\u00a0\n\n\nSupply Chain\n\n\nSupply chain constraints, particularly in the first half of fiscal 2023, led to higher product component and freight costs in fiscal 2023 compared to fiscal 2022. Supply chain constraints also delayed our ability to fulfill certain customer orders during the first half of fiscal 2023.\n\n\nFinancial Results and Key Performance Metrics Overview\n\n\nThe following table provides an overview of key financial metrics for each of the last three fiscal years (in millions, except per share amounts and percentages):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nNet revenues\n\n\n\u00a0\n\n\n$\n\n\n6,362\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,318\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,744\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n$\n\n\n4,209\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,220\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,815\n\n\n\u00a0\n\n\n\n\n\n\nGross profit margin percentage\n\n\n\u00a0\n\n\n\u00a0\n\n\n66\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n67\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n66\n\n\n%\n\n\n\n\n\n\nIncome from operations\n\n\n\u00a0\n\n\n$\n\n\n1,018\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,157\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,031\n\n\n\u00a0\n\n\n\n\n\n\nIncome from operations as a percentage of net revenues\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n%\n\n\n\n\n\n\n(Benefit) provision for income taxes\n\n\n\u00a0\n\n\n$\n\n\n(208\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n158\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n232\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n1,274\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n937\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n730\n\n\n\u00a0\n\n\n\n\n\n\nDiluted net income per share\n\n\n\u00a0\n\n\n$\n\n\n5.79\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.09\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3.23\n\n\n\u00a0\n\n\n\n\n\n\nNet cash provided by operating activities\n\n\n\u00a0\n\n\n$\n\n\n1,107\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,211\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,333\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nDeferred revenue and financed unearned services revenue\n\n\n\u00a0\n\n\n$\n\n\n4,313\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,232\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\nNet revenues\n: Our net revenues increased approximately 1% in fiscal 2023 compared to fiscal 2022, due to an increase in services revenues, primarily driven by an increase in public cloud revenues.\n\n\n\u2022\nGross profit margin percentage:\n Our gross profit margin as a percentage of net revenues decreased less than one percentage point in fiscal 2023 compared to fiscal 2022 primarily due to the decrease in gross profit margins on product revenues.\n\n\n\u2022\nIncome from operations as a percentage of net revenues:\n Our income from operations as a percentage of net revenues decreased by two percentage points in fiscal 2023 compared to fiscal 2022, primarily due to a slightly lower gross profit margin percentage and an increase in restructuring charges.\n\n\n\u2022\n(Benefit) provision for income taxes:\n We had a benefit from income taxes in fiscal 2023, compared to a provision for income taxes in fiscal 2022, due to a discrete tax benefit of $524 million that resulted from an intra-entity asset transfer of certain intellectual property.\n\n\n\u2022\nNet income and Diluted net income per share:\n The increase in both net income and diluted net income per share in fiscal 2023 compared to fiscal 2022 reflect the factors discussed above. Higher net income and increased share repurchases in fiscal 2023 compared to fiscal 2022 favorably impacted diluted net income per share.\n\n\nStock Repurchase Program and Dividend Activity\n\n\nDuring fiscal 2023, we repurchased approximately 13 million shares of our common stock at an average price of $66.42 per share, for an aggregate purchase price of $850 million. We also declared aggregate cash dividends of $2.00 per share in fiscal 2023, for which we paid a total of $432 million.\n\n\nAcquisition\n\n\nOn May 20, 2022, we acquired all the outstanding shares of privately-held Instaclustr US Holding, Inc. (Instaclustr), a leading platform provider of fully managed open-source database, pipeline and workflow applications delivered as a service, for approximately $498 million.\n\n\nRestructuring Events\n\n\nDuring fiscal 2023, we executed several restructuring plans and recognized expenses totaling $120 million consisting primarily of employee severance-related costs.\n \n\n\n \n\n\n34\n\n\n\n\n\u00a0\n\n\nResults of Operations\n\n\nOur fiscal year is reported on a 52- or 53-week year that ends on the last Friday in April. An additional week is included in the first fiscal quarter approximately every six years to realign fiscal months with calendar months. Fiscal 2023, which ended on April 28, 2023, and fiscal 2022, which ended on April 29, 2022 were both 52-week years. Fiscal 2021, which ended on April 30, 2021 was a 53-week year, with 14 weeks included in its first quarter and 13 weeks in each subsequent quarter. Unless otherwise stated, references to particular years, quarters, months and periods refer to our fiscal years ended in April and the associated quarters, months and periods of those fiscal years\n.\n\n\nThe following table sets forth certain Consolidated Statements of Income data as a percentage of net revenues for the periods indicated:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRevenues:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProduct\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n52\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n52\n\n\n%\n\n\n\u00a0\n\n\n\n\n\n\nServices\n\n\n\u00a0\n\n\n\u00a0\n\n\n52\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet revenues\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCost of revenues:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCost of product\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCost of services\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n66\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n66\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating expenses:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSales and marketing\n\n\n\u00a0\n\n\n\u00a0\n\n\n29\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRestructuring charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAcquisition-related expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGain on sale or derecognition of assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3\n\n\n)\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n50\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome from operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOther income (expense), net\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)\n\n\n\u00a0\n\n\n\n\n\n\nIncome before income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n17\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(Benefit) provision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\nPercentages may not add due to rounding\n\n\nDiscussion and Analysis of Results of Operations\n\n\nNet Revenues (in millions, except percentages):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nNet revenues\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,362\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,318\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n5,744\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\n\n\n\n \n\n\nThe increase in net revenues for fiscal 2023 compared to fiscal 2022 was due to an increase in services revenue partially offset by a decrease in product revenues. Product revenues as a percentage of net revenues decreased by approximately four percentage points in fiscal 2023 compared to fiscal 2022, while services revenues as a percentage of net revenues increased by approximately four percentage points. Fluctuations in foreign currency exchange rates adversely impacted net revenues percent growth by approximately four percentage points in fiscal 2023 compared to fiscal 2022.\n\n\nThe increase in net revenues for fiscal 2022 compared to fiscal 2021 was due to an increase in both product revenues and services revenues, with revenues increasing despite the additional week in fiscal 2021. Product revenues and services revenues as a percentage of net revenues both remained relatively consistent in fiscal 2022 compared to fiscal 2021.\n\n\nSales through our indirect channels represented 78%, 77% and 77% of net revenues in fiscal 2023, 2022 and 2021, respectively.\n\n\nThe following customers, each of which is a distributor, accounted for 10% or more of net revenues:\n\n\n\u00a0\n\n\n35\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nArrow Electronics, Inc.\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n%\n\n\n\n\n\n\nTech Data Corporation\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n%\n\n\n\n\n\n\nProduct Revenues (in millions, except percentages):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nProduct revenues\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,049\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,284\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n2,991\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\n\n\n\nHardware (Non-GAAP)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,251\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,358\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,355\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n%\n\n\n\n\n\n\nSoftware (Non-GAAP)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,798\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,926\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,636\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n%\n\n\n\n\n\n\nHybrid Cloud\n\n\nProduct revenues are derived through the sale of our Hybrid Cloud solutions and consist of sales of configured all-flash array systems (including All-Flash FAS and QLC-Flash FAS) and hybrid systems, which are bundled hardware and software products, as well as add-on flash, disk and/or hybrid storage and related OS, StorageGrid, OEM products, NetApp HCI and add-on optional software.\n\n\nIn order to provide visibility into the value created by our software innovation and R&D investment, we disclose the software and hardware components of our product revenues. Software product revenues includes the OS software and optional add-on software solutions attached to our systems across our entire product set, while hardware product revenues include the non-software component of our systems across the entire set. Because our revenue recognition policy under GAAP defines a configured storage system, inclusive of the operating system software essential to its functionality, as a single performance obligation, the hardware and software components of our product revenues are considered non-GAAP measures. The hardware and software components of our product revenues are derived from an estimated fair value allocation of the transaction price of our contracts with customers, down to the level of the product hardware and software components. This allocation is primarily based on the contractual prices at which NetApp has historically billed customers for such respective components.\n \n\n\nTotal product revenues decreased in fiscal 2023 compared to fiscal 2022, primarily due to lower sales of all flash array systems, as a result of softening customer demand. Product revenues were also unfavorably impacted by foreign exchange rate fluctuations. These decreases were partially offset by an increase in sales of hybrid systems.\n\n\nTotal product revenues increased in fiscal 2022 compared to fiscal 2021, primarily driven by an increase in sales of all-flash array systems and, to a lesser extent, an increase in sales of StorageGrid, partially offset by a decrease in sales of NetApp HCI. Supply chain challenges related to the COVID-19 pandemic impeded our ability to fulfill certain customer orders in fiscal 2022, particularly in the fourth quarter.\n\n\nRevenues from the hardware component of product revenues represented 41%, 41% and 45% of product revenues in fiscal 2023, 2022 and 2021, respectively. The software component of product revenues represented 59%, 59% and 55% of product revenues in fiscal 2023, 2022 and 2021, respectively. The software component percentage of product revenues remained relatively flat in fiscal 2023 as compared to fiscal 2022 despite the decrease in sales of all-flash array systems, which contain a higher proportion of software components than other Hybrid Cloud products, primarily due to the mix of other Hybrid Cloud products sold. The increase in the software component percentage of product revenues in fiscal 2022 is primarily due to a higher mix of all-flash array systems sales.\n\n\nServices Revenues (in millions, except percentages):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nServices revenues\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,313\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,034\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n2,753\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\n\n\n\nSupport\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,419\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,344\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,277\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\n\n\n\nProfessional and other services\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n319\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n294\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n277\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n%\n\n\n\n\n\n\nPublic cloud\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n575\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n396\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n45\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n199\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n99\n\n\n%\n\n\n\n\n\n\n \n\n\nHybrid Cloud\n \n\n\nHybrid Cloud services revenues are derived from the sale of: (1) support, which includes both hardware and software support contracts (the latter of which entitle customers to receive unspecified product upgrades and enhancements, bug fixes and patch releases), and (2) professional and other services, which include customer education and training.\n\n\n36\n\n\n\n\n\u00a0\n\n\nSupport revenues increased in fiscal 2023 compared to fiscal 2022, despite the unfavorable impact from foreign exchange rate fluctuations, primarily due to a higher aggregate support contract value for our installed base in the current year.\n \n\n\nSupport revenues increased in fiscal 2022 compared to fiscal 2021, despite an extra week in the first quarter of fiscal 2021 that contributed approximately $40 million of additional revenues in that period, primarily due to a higher aggregate support contract value for our installed base in fiscal 2022 compared to fiscal 2021.\n\n\nProfessional and other services revenues increased in fiscal 2023 compared to fiscal 2022 primarily due to an increase in other services revenues. The increase in fiscal 2022 compared to fiscal 2021 was primarily due to an increase in demand from increased product sales.\n \n\n\nPublic Cloud\n \n\n\nPublic Cloud revenues are derived from the sale of public cloud offerings delivered primarily as-a-service, which include cloud storage and data services, and cloud operations services.\n\n\nPublic Cloud revenues increased in fiscal 2023 and fiscal 2022 compared to the respective prior years primarily due to growing customer demand for NetApp's diversified cloud offerings, coupled with overall growth in the cloud market, and the acquisitions of Instaclustr early in the first quarter of fiscal 2023 and CloudCheckr, Inc. (CloudCheckr) in the third quarter of fiscal 2022. The acquisition of Spot, Inc. (Spot) late in the first quarter of fiscal 2021 also contributed to the increase in Public Cloud revenues in fiscal 2022 compared to fiscal 2021.\n\n\nRevenues by Geographic Area:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nUnited States, Canada and Latin America (Americas)\n\n\n\u00a0\n\n\n\u00a0\n\n\n53\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n55\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n54\n\n\n%\n\n\n\n\n\n\nEurope, Middle East and Africa (EMEA)\n\n\n\u00a0\n\n\n\u00a0\n\n\n33\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n31\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n31\n\n\n%\n\n\n\n\n\n\nAsia Pacific (APAC)\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nPercentages may not add due to rounding\n\n\n\u00a0\n\n\nAmericas revenues consist of sales to Americas commercial and United States (U.S.) public sector markets. During fiscal 2023, Americas revenues were negatively impacted by adverse macroeconomic conditions which resulted in a weakened demand environment. Demand across geographies was relatively consistent in fiscal 2022 compared to fiscal 2021.\n \n\n\nCost of Revenues\n\n\nOur cost of revenues consists of:\n \n\n\n(1) cost of product revenues, composed of (a) cost of Hybrid Cloud product revenues, which includes the costs of manufacturing and shipping our products, inventory write-downs, and warranty costs, and (b) unallocated cost of product revenues, which includes stock-based compensation and amortization of intangibles, and;\n\n\n(2) cost of services revenues, composed of (a) cost of support revenues, which includes the costs of providing support activities for hardware and software support, global support partnership programs, and third party royalty costs, (b) cost of professional and other services revenues, (c) cost of public cloud revenues, constituting the cost of providing our Public Cloud offerings which includes depreciation and amortization expense and third party datacenter fees, and (d) unallocated cost of services revenues, which includes stock-based compensation and amortization of intangibles.\n \n\n\nCost of Product Revenues (in millions, except percentages):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nCost of product revenues\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,517\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,554\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n1,432\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n%\n\n\n\n\n\n\nHybrid Cloud\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,511\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,541\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,402\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\n\n\n\nUnallocated\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(54\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n30\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(57\n\n\n)%\n\n\n\n\n\n\n \n\n\nHybrid Cloud\n\n\n37\n\n\n\n\n\u00a0\n\n\nCost of Hybrid Cloud product revenues represented 50%, 47% and 47% of Hybrid Cloud product revenues in fiscal 2023, 2022 and 2021, respectively. Materials costs represented 94%, 93% and 91% of cost of Hybrid Cloud product revenues in fiscal 2023, 2022 and 2021, respectively.\n\n\nMaterials costs were approximately flat in fiscal 2023 compared to fiscal 2022 reflecting the decrease in product revenues, offset by higher component and freight costs as a result of supply chain challenges.\n \n\n\nHybrid Cloud product gross margins decreased by approximately three percentage points in fiscal 2023 compared to fiscal 2022 primarily due to higher component and freight costs and the adverse impacts of fluctuations in foreign currency exchange rates.\n\n\nMaterials costs increased by approximately $156 million in fiscal 2022 compared to fiscal 2021 reflecting the increase in product revenues in fiscal 2022, the mix of systems sold, and higher component and freight costs as a result of COVID-19 related supply chain challenges. Excess and obsolete inventory reserves were lower in fiscal 2022 compared to fiscal 2021.\n\n\nHybrid Cloud product gross margins remained relatively flat in fiscal 2022 compared to fiscal 2021 despite the increase in component and freight costs, which were offset primarily by a higher mix of all-flash array systems sales, which have higher margins than hybrid systems.\n\n\nUnallocated\n\n\nUnallocated cost of product revenues decreased in fiscal 2023 and fiscal 2022 compared to the respective prior year periods due to certain intangible assets becoming fully amortized.\n\n\nCost of Services Revenues (in millions, except percentages):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nCost of services revenues\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n636\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n544\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n497\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n%\n\n\n\n\n\n\nSupport\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n181\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n184\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n201\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8\n\n\n)%\n\n\n\n\n\n\nProfessional and other services\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n211\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n205\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n206\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n%\n\n\n\n\n\n\nPublic cloud\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n184\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n118\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n56\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n65\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n82\n\n\n%\n\n\n\n\n\n\nUnallocated\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n60\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n37\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n62\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n%\n\n\n\n\n\n\n \n\n\nHybrid Cloud\n\n\n \nCost of Hybrid Cloud services revenues, which are composed of the costs of support and professional and other services, increased slightly in fiscal 2023 compared to fiscal 2022 and decreased in fiscal 2022 compared to fiscal 2021. Cost of Hybrid Cloud services revenues represented 14%, 15% and 16% of Hybrid Cloud services revenues in fiscal 2023, 2022 and 2021, respectively.\n\n\nHybrid Cloud support gross margins were relatively consistent in fiscal 2023 compared to fiscal 2022, while they increased by one percentage point in fiscal 2022 compared to fiscal 2021 due to growth in support revenues achieved with a consistent cost base.\n\n\nPublic Cloud\n\n\nCost of Public Cloud revenues increased in fiscal 2023 and in fiscal 2022 compared to the respective prior years, reflecting the ongoing growth in Public Cloud revenues in each period. Public Cloud gross margins decreased by two percentage points in fiscal 2023 compared to fiscal 2022, primarily due to the mix of offerings provided. Public Cloud gross margins increased by three percentage points in fiscal 2022 compared to fiscal 2021, reflecting efficiencies from scaling our Public Cloud segment.\n \n\n\nUnallocated\n \n\n\nUnallocated cost of services revenues increased in fiscal 2023 and in fiscal 2022 compared to the respective prior years, due to our acquisitions of Instaclustr early in the first quarter of fiscal 2023 and CloudCheckr in the third quarter of fiscal 2022, which resulted in higher amortization expense from acquired intangible assets.\n\n\n\u00a0\n\n\n\u00a0\n\n\n38\n\n\n\n\n\u00a0\n\n\nOperating Expenses\n\n\nSales and Marketing, Research and Development and General and Administrative Expenses\n\n\nSales and marketing, research and development, and general and administrative expenses for fiscal 2023 totaled $3,050 million, or 48% of net revenues, relatively consistent with fiscal 2022. While fluctuations in foreign currency exchange rates adversely impacted net revenues in fiscal 2023 compared to fiscal 2022, they favorably impacted sales and marketing, research and development and general and administrative expenses by approximately 3% in fiscal 2023.\n\n\nSales and marketing, research and development, and general and administrative expenses for fiscal 2022 totaled $3,017 million, or 48% of net revenues, representing a decrease of two percentage points compared to fiscal 2021.\n\n\nCompensation costs represent the largest component of operating expenses. Included in compensation costs are salaries, benefits, other compensation-related costs, stock-based compensation expense and employee incentive compensation plan costs.\n\n\nTotal compensation costs included in sales and marketing, research and development and general and administrative expenses increased by $101 million, or 6%, during fiscal 2023 compared to fiscal 2022, primarily due to higher salaries, benefits and stock-based compensation expense, reflecting an increase in average headcount of 8%. The increase was partially offset by lower incentive compensation expense.\n\n\nTotal compensation costs included in operating expenses increased by $74 million, or 4%, during fiscal 2022 compared to fiscal 2021, primarily due to higher salaries, benefits and stock-based compensation expenses, reflecting a 3% increase in average headcount. This increase was partially offset by lower incentive compensation expense. Total compensation costs for fiscal 2021 includes the impact of an additional week in the first quarter of fiscal 2021.\n \n\n\nSales and Marketing (in millions, except percentages):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nSales and marketing expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,829\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,857\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n1,744\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n%\n\n\n\n\n\n\n \n\n\nSales and marketing expenses consist primarily of compensation costs, commissions, outside services, facilities and IT support costs, advertising and marketing promotional expense and travel and entertainment expense. The changes in sales and marketing expenses consisted of the following (in percentage points of the total change):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023 to Fiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022 to Fiscal 2021\n\n\n\u00a0\n\n\n\n\n\n\nCompensation costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\n\n\n\nCommissions\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nAdvertising and marketing promotional expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nTravel and entertainment\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nTotal change\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\nThe increase in compensation costs for fiscal 2023 compared to fiscal 2022 reflected an increase in average headcount of approximately 6%. The impact of the increase in headcount was partially offset by lower incentive compensation expense and the impact of foreign exchange rate fluctuations.\n\n\nThe increase in compensation costs in fiscal 2022 compared to fiscal 2021 reflected an increase in average headcount of approximately 5%, partially offset by the impact of one less week in fiscal 2022.\n \n\n\nThe decrease in commissions expense for fiscal 2023 compared to fiscal 2022 was primarily due to lower performance against sales goals\n.\n The increase in commissions expense in fiscal 2022 primarily reflected the increase in the average headcount of our sales team compared to fiscal 2021, partially offset by slightly lower attainment against sales goals than in fiscal 2021.\n \n\n\nAdvertising and marketing promotional expense decreased in fiscal 2023 compared to fiscal 2022, primarily due to lower spending on certain marketing programs.\n \n\n\nTravel and entertainment expense increased in fiscal 2023 and fiscal 2022 compared to the respective prior years, as COVID-19 related travel restrictions eased.\n\n\n39\n\n\n\n\n\u00a0\n\n\nResearch and Development (in millions, except percentages):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n956\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n881\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n881\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n%\n\n\n\n\n\n\n \n\n\nResearch and development expenses consist primarily of compensation costs, facilities and IT support costs, depreciation, equipment and software related costs, prototypes, non-recurring engineering charges and other outside services costs. Changes in research and development expense consisted of the following (in percentage points of the total change):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023 to Fiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022 to Fiscal 2021\n\n\n\u00a0\n\n\n\n\n\n\nCompensation costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)\n\n\n\n\n\n\nDevelopment projects and outside services\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nTotal change\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\nThe increase in compensation costs for fiscal 2023 compared to fiscal 2022 was primarily attributable to an increase in average headcount of 11%. The impact of the increase in headcount was partially offset by lower incentive compensation expense and the impact of foreign exchange rate fluctuations. The increase in development projects and outside services for fiscal 2023 compared to fiscal 2022 was primarily due to the higher spending on certain engineering projects.\n \n\n\nThe decrease in compensation costs for fiscal 2022 compared to fiscal 2021 was primarily due to lower incentive compensation expense, while average headcount was relatively consistent in each period. Compensation costs for fiscal 2022 also reflected the impact of one less week in fiscal 2022. The increase in development projects and outside services during fiscal 2022 compared to fiscal 2021 was primarily due to the higher spending on certain engineering projects.\n\n\nGeneral and Administrative (in millions, except percentages):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n265\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n279\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n257\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\nGeneral and administrative expenses consist primarily of compensation costs, professional and corporate legal fees, outside services and facilities and IT support costs. Changes in general and administrative expense consisted of the following (in percentage points of the total change):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023 to Fiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022 to Fiscal 2021\n\n\n\u00a0\n\n\n\n\n\n\nCompensation costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\n\n\n\nProfessional and legal fees and outside services\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\n\n\n\nFacilities and IT support costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\nTotal change\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nThe decrease in compensation costs in fiscal 2023 compared to fiscal 2022 was primarily attributable to lower incentive compensation expense, partially offset by the increase in salaries and stock-based compensation expenses. The increases in professional and legal fees and outside services expense in fiscal 2023 were primarily due to higher spending on certain business transformation projects. The decrease in facilities and IT support costs in fiscal 2023 was primarily related to lower spending for certain IT projects.\n\n\nThe increase in compensation costs in fiscal 2022 compared to fiscal 2021 were primarily attributable to a 4% increase in average headcount and higher stock-based compensation expense, which was partially offset by lower incentive compensation expense and the impact of one less week in fiscal 2022. The increases in professional and legal fees and outside services expense in fiscal 2022 were primarily due to higher spending on business transformation projects and an increase in legal fees. The decreases in facilities and IT support costs were primarily due to lower spending levels on IT projects.\n \n\n\n40\n\n\n\n\n\u00a0\n\n\n \nRestructuring Charges (in millions, except percentages):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nRestructuring charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n120\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n33\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n264\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n42\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(21\n\n\n)%\n\n\n\n\n\n\nIn an effort to reduce our cost structure and redirect resources to our highest return activities, in fiscal 2023, 2022 and 2021, we initiated a number of business realignment plans designed to streamline our business and focus on key strategic opportunities. These plans resulted in aggregate reductions of our global workforce of approximately 9% in fiscal 2023, 1% in fiscal 2022, and 6% in fiscal 2021, and aggregate charges of $120 million, $33 million and $42 million, respectively, consisting primarily of employee severance costs. The aggregate charges in fiscal 2023 and fiscal 2022 also included legal and tax-related consulting fees associated with the establishment of an international headquarters in Cork, Ireland. See Note 12 \u2013 Restructuring Charges of the Notes to Consolidated Financial Statements for more details regarding our restructuring plans.\n\n\nAcquisition-related Expense (in millions, except percentages):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nAcquisition-related expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n21\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n62\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n16\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19\n\n\n)%\n\n\n\n\n\n\nWe incurred $21 million, $13 million and $16 million of acquisition-related expenses, primarily consisting of legal and consulting fees, in fiscal 2023, fiscal 2022 and fiscal 2021, respectively, associated with our acquisition and subsequent integration of Instaclustr, CloudCheckr and Spot, respectively.\n\n\nGain on Sale or Derecognition of Assets (in millions, except percentages):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nGain on sale or derecognition of assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(156\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(100\n\n\n)%\n\n\n\n\n\n\nIn April 2021, we sold certain land and buildings located in Sunnyvale, California with an aggregate net book value of $210 million and received cash proceeds of $365 million, resulting in a gain, net of direct selling cost, and adjusted for below-market rent,  of $156 million.\n\n\nOther Income (Expense), Net (in millions, except percentages)\n\n\nThe components of other income (expense), net were as follows:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nInterest income\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n69\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n886\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(22\n\n\n)%\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(67\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(73\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(74\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)%\n\n\n\n\n\n\nOther, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n46\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4\n\n\n)\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n48\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(62\n\n\n)\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(69\n\n\n)\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\nNM - Not Meaningful\n\n\nInterest income increased in fiscal 2023 compared to fiscal 2022 primarily due to higher yields earned on our cash and investments.  Interest income decreased during fiscal 2022 and fiscal 2021 compared to the respective prior years due to both a reduction in the size of our investment portfolio and lower yields earned on the investments.\n \n\n\nInterest expense decreased in fiscal 2023 compared to fiscal 2022 due to the extinguishment of certain senior notes in the second quarter of fiscal 2023. Interest expense remained flat in fiscal 2022 compared to fiscal 2021 as the aggregate principal amount of our outstanding Senior Notes remained consistent.\n \n\n\n Other, net for fiscal 2023 includes $22 million of other income for non-refundable, up-front payments from customers in Russia for support contracts, which we were not able to fulfill due to imposed sanctions and for which we have no remaining legal obligation to perform. Other, net for fiscal 2023 also includes a $32 million gain recognized on our sale of a minority equity interest in a privately held company for proceeds of approximately $59 million. The remaining differences in Other, net for fiscal 2023 as compared to fiscal 2022 are primarily due to foreign exchange gains and losses year-over-year. The differences in Other, net during fiscal 2022 as compared to fiscal 2021 are partially due to foreign exchange gains and losses year-over-year. In fiscal 2021, other, net includes a $6 million gain recognized on our sale of a minority equity interest in a privately held company for proceeds of\n \n\n\n41\n\n\n\n\n\u00a0\n\n\napproximately $8 million. This benefit was more than offset by a $14 million loss recognized from the extinguishment of our Senior Notes due June 2021 in the first quarter of fiscal 2021.\n \n\n\nProvision for Income Taxes (in millions, except percentages):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nProvision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(208\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n158\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(232\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n232\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(32\n\n\n)%\n\n\n\n\n\n\n \nOur effective tax rate for fiscal 2023 was (19.5)% compared to 14.4% in fiscal 2022, primarily due to benefits resulting from an intra-entity asset transfer of certain IP, offset by discrete tax expense recorded as a result of the Danish Supreme Court ruling received January 9, 2023.\n \n\n\nDuring the second quarter of fiscal 2023, we completed an intra-entity asset transfer of certain IP to our international headquarters (the \u201cIP Transfer\u201d). The transaction resulted in a step-up of tax-deductible basis in the transferred assets, and accordingly, created a temporary difference where the tax basis exceeded the financial statement basis of such intangible assets, which resulted in the recognition of a discrete tax benefit and related deferred tax asset of $524 million during the second quarter of fiscal 2023. Management applied significant judgment when determining the fair value of the IP, which serves as the tax basis of the deferred tax asset. With the assistance of third-party valuation specialists, the fair value of the IP was determined principally based on the present value of projected cash flows related to the IP which reflects management\u2019s assumptions regarding projected revenues, earnings before interest and taxes, and a discount rate. The tax-deductible amortization related to the transferred IP rights will be recognized in future periods and any amortization that is unused in a particular year can be carried forward indefinitely. The deferred tax asset and the tax benefit were measured based on the enacted tax rates expected to apply in the years the asset is expected to be realized. We expect to realize the deferred tax asset resulting from the IP Transfer and will assess the realizability of the deferred tax asset quarterly. Any Organisation for Economic Co-operation and Development\u2019s (\u201cOECD\u201d) actions adopted internationally could impact our financial results in future periods. The impact of the transaction to net cash provided by or used in operating, investing and financing activities on the condensed consolidated statements of cash flows during fiscal 2023 was not material.\n\n\nDuring the third quarter of fiscal 2023, the Danish Supreme Court issued a non-appealable ruling on the distributions declared in 2005 and 2006. The Danish Supreme Court reversed the lower court's decision and ruled the 2005 dividend was subject to at-source dividend withholding tax while the smaller 2006 distribution would not be subject to withholding tax. We recorded $69 million of tax expense, which includes $23 million of withholding tax (which we paid in fiscal 2023) and $46 million of interest (which is included in accrued expenses in our consolidated balance sheet as of the end of fiscal 2023), associated with the Danish Supreme Court ruling as a discrete item during the third quarter of fiscal 2023.\n \n\n\nOur effective tax rate for fiscal 2022 was lower than the prior year primarily due to the inclusion of one-time benefits related to the prepayment of certain intercompany expenses. Additionally, the fiscal 2021 tax provision included the impact of taxes resulting from the integration of certain acquired companies.\n\n\n\u00a0\n\n\nLiquidity, Capital Resources and Cash Requirements\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions, except percentages)\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nCash, cash equivalents and short-term investments\n\n\n\u00a0\n\n\n$\n\n\n3,070\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,134\n\n\n\u00a0\n\n\n\n\n\n\nPrincipal amount of debt\n\n\n\u00a0\n\n\n$\n\n\n2,400\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,650\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\nThe following is a summary of our cash flow activities:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nNet cash provided by operating activities\n\n\n\u00a0\n\n\n$\n\n\n1,107\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,211\n\n\n\u00a0\n\n\n\n\n\n\nNet cash used in investing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,390\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(561\n\n\n)\n\n\n\n\n\n\nNet cash used in financing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,513\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,017\n\n\n)\n\n\n\n\n\n\nEffect of exchange rate changes on cash, cash equivalents and restricted cash\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(49\n\n\n)\n\n\n\n\n\n\nNet change in cash, cash equivalents and restricted cash\n\n\n\u00a0\n\n\n$\n\n\n(1,797\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(416\n\n\n)\n\n\n\n\n\n\n \n\n\n42\n\n\n\n\n\u00a0\n\n\nAs of April 28, 2023, our cash, cash equivalents and short-term investments totaled $3.1 billion, reflecting a decrease of $1.1 billion from April 29, 2022. The decrease was primarily due to $850 million used to repurchase shares of our common stock, $432 million used for the payment of dividends, $239 million in purchases of property and equipment, a $250 million repayment of our Senior Notes due December 2022, and $491 million, net of cash acquired, used for the acquisition of a privately-held company, partially offset by $1.1 billion of cash from operating activities. Net working capital was $1.2 billion as of April 28, 2023, a reduction of $779 million when compared to April 29, 2022, primarily due to the decrease in cash, cash equivalents and short-term investments discussed above.\n\n\nCash Flows from Operating Activities\n\n\nDuring fiscal 2023, we generated cash from operating activities of $1.1 billion, reflecting net income of $1.3 billion which was reduced by $606 million for non-cash deferred tax benefits and increased for non-cash depreciation and amortization expense of $248 million and non-cash stock-based compensation expense of $312 million.\n\n\nSignificant changes in assets and liabilities during fiscal 2023 included the following:\n\n\n\u2022\nAccounts receivable \ndecreased $260 million, reflecting lower billing in the fourth quarter of fiscal 2023 compared to the fourth quarter of fiscal 2022.\n\n\n\u2022\nAccounts payable \ndecreased by $207 million, primarily reflecting lower inventory purchases, and the timing of those purchases from, and payments to, our contract manufacturers.\n\n\n\u2022\nAccrued expenses \ndecreased by $103 million, primarily due to employee compensation payments related to fiscal 2022 incentive compensation and commissions plans.\n\n\nDuring fiscal 2022, we generated cash from operating activities of $1.2 billion, reflecting net income of $937 million, adjusted by non-cash depreciation and amortization of $194 million and non-cash stock-based compensation expense of $245 million.\n\n\nSignificant changes in assets and liabilities during fiscal 2022 included the following:\n\n\n\u2022\nAccounts receivable \nincreased $313 million, primarily reflecting less favorable shipping linearity in the fourth quarter of fiscal 2022 compared to the fourth quarter of fiscal 2021.\n\n\n\u2022\nDeferred revenue and financed unearned services \nincreased by $384 million, due to an increase in the aggregate contract value under software and hardware support contracts, primarily reflecting a higher mix of all-flash systems which carry a higher support dollar content than our other products.\n\n\n\u2022\nAccounts payable \nincreased by $181 million, primarily due to higher inventory purchase levels in fiscal 2022, and the timing of inventory purchases during the fourth quarter of each year.\n\n\n\u2022\nAccrued expenses \ndecreased by $111 million, primarily reflecting a reduction of income tax liabilities, and a decrease in accruals for incentive compensation and commissions plans.\n\n\nWe expect that cash provided by operating activities may materially fluctuate in future periods due to a number of factors, including fluctuations in our operating results, shipping linearity, accounts receivable collections performance, inventory and supply chain management, vendor payment initiatives, and the timing and amount of compensation, income taxes and other payments.\n\n\nCash Flows from Investing Activities\n\n\nDuring fiscal 2023, we used $719 million for the purchases of investments, net of maturities and sales, paid $491 million, net of cash acquired, for a privately-held company and $239 million for capital expenditures. Additionally, we received proceeds of $59 million from the sale of one of our minority investments in fiscal 2023.\n\n\nDuring fiscal 2022, we generated $45 million primarily from maturities of investments in available-for-sale securities, net of purchases, and paid $226 million for capital expenditures. We paid $380 million, net of cash acquired, for three privately-held companies.\n\n\n43\n\n\n\n\n\u00a0\n\n\nCash Flows from Financing Activities\n\n\nDuring fiscal 2023, cash flows used in financing activities totaled $1.5 billion and include $850 million for the repurchase of approximately 13 million shares of common stock, $432 million for the payment of dividends and $250 million to redeem our Senior Notes due in December 2022.\n\n\nDuring fiscal 2022, cash flows used in financing activities totaled $1.0 billion and included $600 million for the repurchase of approximately seven million shares of common stock and $446 million for the payment of dividends.\n\n\nKey factors that could affect our cash flows include changes in our revenue mix and profitability, our ability to effectively manage our working capital, in particular, accounts receivable, accounts payable and inventories, the timing and amount of stock repurchases and payment of cash dividends, the impact of foreign exchange rate changes, our ability to effectively integrate acquired products, businesses and technologies and the timing of repayments of our debt. Based on past performance and our current business outlook, we believe that our sources of liquidity, including cash, cash equivalents and short-term investments, cash generated from operations, and our ability to access capital markets and committed credit lines will satisfy our working capital needs, capital expenditures, investment requirements, stock repurchases, cash dividends, contractual obligations, commitments, principal and interest payments on our debt and other liquidity requirements associated with operations and meet our cash requirements for at least the next 12 months. However, in the event our liquidity is insufficient, we may be required to curtail spending and implement additional cost saving measures and restructuring actions or enter into new financing arrangements. We cannot be certain that we will continue to generate cash flows at or above current levels or that we will be able to obtain additional financing, if necessary, on satisfactory terms, if at all. For further discussion of factors that could affect our cash flows and liquidity requirements, see Item 1A. Risk Factors.\n \n\n\nLiquidity\n\n\nOur principal sources of liquidity as of April 28, 2023 consisted of cash, cash equivalents and short-term investments, cash we expect to generate from operations, and our commercial paper program and related credit facility.\n\n\nCash, cash equivalents and short-term investments consisted of the following (in millions):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents\n\n\n\u00a0\n\n\n$\n\n\n2,316\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,112\n\n\n\u00a0\n\n\n\n\n\n\nShort-term investments\n\n\n\u00a0\n\n\n\u00a0\n\n\n754\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n3,070\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,134\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\nAs of April 28, 2023 and April 29, 2022, $2.2 billion and $2.3 billion, respectively, of cash, cash equivalents and short-term investments were held by various foreign subsidiaries and were generally based in U.S. dollar-denominated holdings, while $0.9 billion and $1.8 billion, respectively, were available in the U.S.\n\n\nOur principal liquidity requirements are primarily to meet our working capital needs, support ongoing business activities, fund research and development, meet capital expenditure needs, invest in critical or complementary technologies through asset purchases and/or business acquisitions, service interest and principal payments on our debt, fund our stock repurchase program, and pay dividends, as and if declared. In the ordinary course of business, we engage in periodic reviews of opportunities to invest in or acquire companies or units in companies to expand our total addressable market, leverage technological synergies and establish new streams of revenue, particularly in our Public Cloud segment.\n\n\nThe principal objectives of our investment policy are the preservation of principal and maintenance of liquidity. We attempt to mitigate default risk by investing in high-quality investment grade securities, limiting the time to maturity and monitoring the counter-parties and underlying obligors closely. We believe our cash equivalents and short-term investments are liquid and accessible. We are not aware of any significant deterioration in the fair value of our cash equivalents or investments from the values reported as of April 28, 2023.\n\n\nOur investment portfolio has been and will continue to be exposed to market risk due to trends in the credit and capital markets. We continue to closely monitor current economic and market events to minimize the market risk of our investment portfolio. We routinely monitor our financial exposure to both sovereign and non-sovereign borrowers and counterparties. We utilize a variety of planning and financing strategies in an effort to ensure our worldwide cash is available when and where it is needed. We also have an automatic shelf registration statement on file with the Securities and Exchange Commission (SEC). We may in the future offer an additional unspecified amount of debt, equity and other securities.\n\n\n44\n\n\n\n\n\u00a0\n\n\nSenior Notes\n\n\nThe following table summarizes the principal amount of our Senior Notes as of April 28, 2023 (in millions):\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\n3.30% Senior Notes Due September 2024\n\n\n\u00a0\n\n\n$\n\n\n400\n\n\n\u00a0\n\n\n\n\n\n\n1.875% Senior Notes Due June 2025\n\n\n\u00a0\n\n\n\u00a0\n\n\n750\n\n\n\u00a0\n\n\n\n\n\n\n2.375% Senior Notes Due June 2027\n\n\n\u00a0\n\n\n\u00a0\n\n\n550\n\n\n\u00a0\n\n\n\n\n\n\n2.70% Senior Notes Due June 2030\n\n\n\u00a0\n\n\n\u00a0\n\n\n700\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n2,400\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\nInterest on the Senior Notes is payable semi-annually. For further information on the underlying terms, see Note 8 \u2013 Financing Arrangements of the Notes to Consolidated Financial Statements.\n\n\nOn September 15, 2022, we extinguished our 3.25% Senior Notes due December 2022 for an aggregate cash redemption price of $252 million, comprised of the principal and unpaid interest.\n\n\nCommercial Paper Program and Credit Facility\n\n\nWe have a commercial paper program (the Program), under which we may issue unsecured commercial paper notes. Amounts available under the Program may be borrowed, repaid and re-borrowed, with the aggregate face or principal amount of the notes outstanding under the Program at any time not to exceed $1.0 billion. The maturities of the notes can vary, but may not exceed 397 days from the date of issue. The notes are sold under customary terms in the commercial paper market and may be issued at a discount from par or, alternatively, may be sold at par and bear interest at rates dictated by market conditions at the time of their issuance. The proceeds from the issuance of the notes are used for general corporate purposes. No commercial paper notes were outstanding as of April 28, 2023.\n\n\nIn connection with the Program, we have a senior unsecured credit agreement with a syndicated group of lenders. The credit agreement, \nwhich was amended in May 2023 primarily to replace the London Interbank Offered Rate (LIBOR) with the Secured Overnight Financing Rate (SOFR) as the basis for establishing the interest rate applicable to certain borrowings under the agreement\n, provides for a $1.0 billion revolving unsecured credit facility, with a sublimit of $50 million available for the issuance of letters of credit on our behalf. The credit facility matures on January 22, 2026, with an option for us to extend the maturity date for two additional 1-year periods, subject to certain conditions. The proceeds of the loans may be used by us for general corporate purposes and as liquidity support for our existing commercial paper program. As of April 28, 2023, we were compliant with all associated covenants in the agreement.  No amounts were drawn against this credit facility during any of the periods presented.\n\n\nCapital Expenditure Requirements\n\n\nWe expect to fund our capital expenditures, including our commitments related to facilities, equipment, operating leases and internal-use software development projects over the next few years through existing cash, cash equivalents, investments and cash generated from operations. The timing and amount of our capital requirements cannot be precisely determined and will depend on a number of factors, including future demand for products, changes in the network storage industry, hiring plans and our decisions related to the financing of our facilities and equipment requirements. We anticipate capital expenditures for fiscal 2024 to be between $175 million and $225 million.\n\n\nTransition Tax Payments\n\n\nThe Tax Cuts and Jobs Act of 2017 imposed a mandatory, one-time transition tax on accumulated foreign earnings and profits that had not previously been subject to U.S. income tax. As of April 28, 2023, outstanding payments related to the transition tax are estimated to be approximately $303 million of which $88 million, $115 million and $100 million are expected to be paid during fiscal 2024, fiscal 2025 and fiscal 2026, respectively. During fiscal 2023, transition tax payments totaled $48 million. Our estimates for future transition tax payments, however, could change with further guidance or review from U.S. federal and state tax authorities or other regulatory bodies.\n\n\nDividends and Stock Repurchase Program\n\n\nOn May 26, 2023, we declared a cash dividend of $0.50 per share of common stock, payable on July 26, 2023 to holders of record as of the close of business on July 7, 2023.\n\n\n45\n\n\n\n\n\u00a0\n\n\nAs of April 28, 2023, our Board of Directors had authorized the repurchase of up to $15.1 billion of our common stock under our stock repurchase program. Under this program, we may purchase shares of our outstanding common stock through solicited or unsolicited transactions in the open market, in privately negotiated transactions, through accelerated share repurchase programs, pursuant to a Rule 10b5-1 plan or in such other manner as deemed appropriate by our management. The stock repurchase program may be suspended or discontinued at any time. Since the May 13, 2003 inception of this program through April 28, 2023, we repurchased a total of 360 million shares of our common stock at an average price of $40.89 per share, for an aggregate purchase price of $14.7 billion. As of April 28, 2023, the remaining authorized amount for stock repurchases under this program was $0.4 billion. On May 26, 2023 our Board of Directors authorized the repurchase of an additional $1.0 billion of our common stock.\n \n\n\nPurchase Commitments\n\n\nIn the ordinary course of business, we make commitments to third-party contract manufacturers and component suppliers to manage manufacturer lead times and meet product forecasts, and to other parties, to purchase various key components used in the manufacture of our products. In addition, we have open purchase orders and contractual obligations associated with our ordinary course of business for which we have not yet received goods or services. These off-balance sheet purchase commitments totaled $0.7\n \nbillion at April 28, 2023, of which $0.5 billion is due in fiscal 2024, with the remainder due thereafter.\n\n\nFinancing Guarantees\n\n\nWhile most of our arrangements for sales include short-term payment terms, from time to time we provide long-term financing to creditworthy customers. We have generally sold receivables financed through these arrangements on a non-recourse basis to third party financing institutions within 10 days of the contracts\u2019 dates of execution, and we classify the proceeds from these sales as cash flows from operating activities in our consolidated statements of cash flows. We account for the sales of these receivables as \u201ctrue sales\u201d as defined in the accounting standards on transfers of financial assets, as we are considered to have surrendered control of these financing receivables. We sold $38 million and $59 million of receivables during fiscal 2023 and 2022, respectively.\n\n\nIn addition, we enter into arrangements with leasing companies for the sale of our hardware systems products. These leasing companies, in turn, lease our products to end-users. The leasing companies generally have no recourse to us in the event of default by the end-user.\n \n\n\nSome of the leasing arrangements described above have been financed on a recourse basis through third-party financing institutions. Under the terms of recourse leases, which are generally three years or less, we remain liable for the aggregate unpaid remaining lease payments to the third-party leasing companies in the event of end-user customer default. These arrangements are generally collateralized by a security interest in the underlying assets. As of April 28, 2023 and April 29, 2022, the aggregate amount by which such contingencies exceeded the associated liabilities was not significant. To date, we have not experienced significant losses under our lease financing programs or other financing arrangements.\n\n\nWe have entered into service contracts with certain of our end-user customers that are supported by third-party financing arrangements. If a service contract is terminated as a result of our non-performance under the contract or our failure to comply with the terms of the financing arrangement, we could, under certain circumstances, be required to acquire certain assets related to the service contract or to pay the aggregate unpaid payments under such arrangements. As of April 28, 2023, we have not been required to make any payments under these arrangements, and we believe the likelihood of having to acquire a material amount of assets or make payments under these arrangements is remote. The portion of the financial arrangement that represents unearned services revenue is included in deferred revenue and financed unearned services revenue in our consolidated balance sheets\n.\n \n\n\nLegal Contingencies\n\n\nWe are subject to various legal proceedings and claims which arise in the normal course of business. See further details on such matters in Note 17 \u2013 Commitments and Contingencies of the Notes to Consolidated Financial Statements.\n\n\n\u00a0\n\n\nCritical Accounting Policies and Estimates\n\n\nOur consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP), which require management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses, and the disclosure of contingent assets and liabilities. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. We believe that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates and such differences may be material.\n\n\n46\n\n\n\n\n\u00a0\n\n\nThe summary of significant accounting policies is included in Note 1 \u2013 Description of Business and Significant Accounting Policies of the Notes to Consolidated Financial Statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. The accounting policies described below reflect the significant judgments, estimates and assumptions used in the preparation of the consolidated financial statements.\n\n\nRevenue Recognition\n\n\nOur contracts with customers often include the transfer of multiple products and services to the customer. In determining the amount and timing of revenue recognition, we assess which products and services are distinct performance obligations and allocate the transaction price, which may include fixed and/or variable amounts, among each performance obligation on a relative standalone selling price (SSP) basis. The following are the key estimates and assumptions and corresponding uncertainties included in this approach:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nKey Estimates and Assumptions\n\n\n\u00a0\n\n\n\u00a0\n\n\nKey Uncertainties\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\uf0b7\n\n\nWe evaluate whether products and services promised in our contracts with customers are distinct performance obligations that should be accounted for separately versus together.\n \n\n\n\u00a0\n\n\n\uf0b7\n\n\nIn certain contracts, the determination of our distinct performance obligations requires significant judgment. As our business and offerings to customers change over time, the products and services we determine to be distinct performance obligations may change. Such changes may adversely impact the amount of revenue and gross margin we report in a particular period.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\uf0b7\n\n\nIn determining the transaction price of our contracts, we estimate variable consideration based on the expected value, primarily relying on our history. In certain situations, we may also use the most likely amount as the basis of our estimate.\n\n\n\u00a0\n\n\n\uf0b7\n\n\nWe may have insufficient relevant historical data or other information to arrive at an accurate estimate of variable consideration using either the \u201cexpected value\u201d or \u201cmost likely amount\u201d method. Additionally, changes in business practices, such as those related to sales returns or marketing programs,   may introduce new forms of variable consideration, as well as more complexity and uncertainty in the estimation process.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\uf0b7\n\n\nIn contracts with multiple performance obligations, we establish SSPs based on the price at which products and services are sold separately. If SSPs are not observable through past transactions, we estimate them by maximizing the use of observable inputs including pricing strategy, market data, internally-approved pricing guidelines related to the performance obligations and other observable inputs.\n\n\n\u00a0\n\n\n\uf0b7\n\n\nAs our business and offerings evolve over time, modifications to our pricing and discounting methodologies, changes in the scope and nature of product and service offerings and/or changes in customer segmentation may result in a lack of consistency, making it difficult to establish and/or maintain SSPs. Changes in SSPs could result in different and unanticipated allocations of revenue in contracts with multiple performance obligations. These factors, among others, may adversely impact the amount of revenue and gross margin we report in a particular period.\n\u00a0\n\n\n\n\n\n\nInventory Valuation and Purchase Order Accruals\n\n\nInventories consist primarily of purchased components and finished goods and are stated at the lower of cost or net realizable value, which approximates actual cost on a first-in, first-out basis. A provision is recorded when inventory is determined to be in excess of anticipated demand or obsolete in order to adjust inventory to its estimated realizable value. The following are the key estimates and assumptions and corresponding uncertainties for estimating the value of our inventories:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nKey Estimates and Assumptions\n\n\n\u00a0\n\n\n\u00a0\n\n\nKey Uncertainties\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\uf0b7\n\n\nWe periodically perform an excess and obsolete analysis of our inventory. Inventories are written down based on excess and obsolete reserves determined primarily on assumptions about future demand forecasts and market conditions. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances\n \n\n\n\u00a0\n\n\n\uf0b7\n\n\nAlthough we use our best estimates to forecast future product demand, any significant unanticipated changes in demand, including due to macroeconomic uncertainties, or obsolescence related to technological developments, new product introductions, customer requirements, competition or other factors could have a significant impact on the valuation of our inventory. If actual market conditions are less favorable than\n \n\n\n\n\n\n\n47\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\ndo not result in the restoration or increase in that newly established cost basis.\n\n\n\u00a0\n\n\n\u00a0\n\n\nthose projected, additional write-downs and other charges against earnings that adversely impact gross margins may be required. If actual market conditions are more favorable, we may realize higher gross profits in the period when the written-down inventory is sold.\nWe are subject to a variety of environmental laws relating to the manufacture of our products. If there are changes to the current regulations, we may be required to make product design changes which may result in excess or obsolete inventory, which could adversely impact our operating results.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\uf0b7\n\n\nWe make commitments to our third-party contract manufacturers and other suppliers to manage lead times and meet product forecasts and to other parties to purchase various key components used in the manufacture of our products. We establish accruals for estimated losses on non-cancelable purchase commitments when we believe it is probable that the components will not be utilized in future operations.\n\n\n\u00a0\n\n\n\uf0b7\n\n\nIf the actual materials demand is significantly lower than our forecast, we may be required to increase our recorded liabilities for estimated losses on non-cancelable purchase commitments, including incremental commitments made in response to recent developments in the broader technology supply chain, which would adversely impact our operating results.\n\n\n\n\n\n\nGoodwill and Purchased Intangible Assets\n\n\nWe allocate the purchase price of acquisitions to identifiable assets acquired and liabilities assumed at their acquisition date fair values based on established valuation techniques. Goodwill represents the residual value as of the acquisition date, which in most cases is measured as the excess of the purchase consideration transferred over the net of the acquisition date fair values of the assets acquired and liabilities assumed.\n\n\nThe carrying values of purchased intangible assets are reviewed whenever events and circumstances indicate that the net book value of an asset may not be recovered through expected future cash flows from its use and eventual disposition. We periodically review the estimated remaining useful lives of our intangible assets. This review may result in impairment charges or shortened useful lives, resulting in charges to our consolidated statements of income.\n\n\nWe review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of one of our reporting units may exceed its fair value. The provisions of the accounting standard for goodwill allow us to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. For our annual goodwill impairment test in the fourth quarter of fiscal 2023, we performed a quantitative test and determined the fair value of each of our reporting units substantially exceeded its carrying amount, therefore, there was no impairment of goodwill.\n \n\n\n48\n\n\n\n\n\u00a0\n\n\nThe following are the key estimates and assumptions and corresponding uncertainties for estimating the value of our goodwill and purchased intangible assets:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nKey Estimates and Assumptions\n\n\n\u00a0\n\n\n\u00a0\n\n\nKey Uncertainties\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\uf0b7\n\n\nThe assessment of fair value for goodwill and purchased intangible assets is based on factors that market participants would use in an orderly transaction in accordance with the accounting guidance for the fair value measurement of nonfinancial assets.\nThe valuation of purchased intangible assets is principally based on estimates of the future performance and cash flows expected to be generated by the acquired assets from the acquired business.\n\n\n\u00a0\n\n\n\uf0b7\n\n\nWhile we employ experts to determine the acquisition date fair value of acquired intangibles, the fair values of assets acquired and liabilities assumed are based on significant management assumptions and estimates, which are inherently uncertain and highly subjective and as a result, actual results may differ from estimates. If different assumptions were to be used, it could materially impact the purchase price allocation. Volatile macroeconomic and market conditions have increased the level of uncertainty and subjectivity of certain management assumptions and estimates.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\uf0b7\n\n\nEvaluations of possible goodwill and purchased intangible asset impairment require us to make judgments and assumptions related to the allocation of our balance sheet and income statement amounts and estimate future cash flows and fair market values of our reporting units and assets.\n\n\n\u00a0\n\n\n\uf0b7\n\n\nIn response to changes in industry and market conditions, we could be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill or purchased intangible assets.\n \nAssumptions and estimates about expected future cash flows and the fair values of our reporting units and purchased intangible assets are complex and subjective. They can be affected by a variety of factors, including external factors such as the adverse impact of unanticipated changes in macroeconomic conditions, and technological changes or new product introductions from competitors. They can also be affected by internal factors such as changes in business strategy or in forecasted product life cycles and roadmaps. Our ongoing consideration of these and other factors could result in future impairment charges or accelerated amortization expense, which could adversely affect our operating results.\n\n\n\n\n\n\nIncome Taxes\n\n\nWe are subject to income taxes in the United States and numerous foreign jurisdictions. We compute our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets or liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.\n\n\nThe following are the key estimates and assumptions and corresponding uncertainties for our income taxes, including those specifically related to the intra-entity asset transfer of the IP to our international headquarters during fiscal 2023:\n\n\n\u00a0\n\n\n49\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nKey Estimates and Assumptions\n\n\n\u00a0\n\n\n\u00a0\n\n\nKey Uncertainties\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\uf0b7\n\n\nOur income tax provision is based on existing tax law and advanced pricing agreements or letter rulings we have with various tax authorities.\n \n\n\n\u00a0\n\n\n\uf0b7\n\n\nOur provision for income taxes is subject to volatility and could be adversely impacted by future changes in existing tax laws, such as a change in tax rate, possible U.S. changes to the taxation of earnings of our foreign subsidiaries, and uncertainties as to future renewals of favorable tax agreements and rulings.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\uf0b7\n\n\nThe determination of whether we should record or adjust a valuation allowance against our deferred tax assets is based on assumptions regarding our future profitability.\n\n\n\u00a0\n\n\n\uf0b7\n\n\nOur future profits could differ from current expectations resulting in a change to our determination as to the amount of deferred tax assets that are more likely than not to be realized. We could adjust our valuation allowance with a corresponding impact to the tax provision in the period in which such determination is made.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\uf0b7\n\n\nThe estimates for our uncertain tax positions are based primarily on company specific circumstances, applicable tax laws, tax opinions from outside firms and past results from examinations of our income tax returns.\n\n\n\u00a0\n\n\n\uf0b7\n\n\nSignificant judgment is required in evaluating our uncertain tax positions. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome or tax court rulings of these matters will not be different from that which is reflected in our historical tax provisions and accruals.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\uf0b7\n\n\nThe assessment of the fair value of the IP transferred to our international headquarters is based on factors that market participants would use in an orderly transaction in accordance with the accounting guidance for the fair value measurement of nonfinancial assets and transfer pricing principles from the Organisation for Economic Co-operation and Development.\n \nThe valuation of our IP is principally based on the present value of projected cash flows related to the IP which reflects management\u2019s assumptions regarding projected revenues, earnings before interest and taxes, and a discount rate.\n\n\n\u00a0\n\n\n\uf0b7\n\n\nWhile we employ experts to assist with the determination of the fair value of IP, its fair value is based on significant management assumptions and estimates, which are inherently uncertain and highly subjective, and as a result, actual results may differ from estimates. If different assumptions were to be used, it could materially impact the IP valuation. Volatile macroeconomic and market conditions have increased the level of uncertainty and subjectivity of certain management assumptions and estimates.\n\n\n\n\n\n\n\u00a0\n\n\nIt\nem 7A.  \nQuantitative and Qualitative Disclosures about Market Risk\n\n\nWe are exposed to market risk related to fluctuations in interest rates and foreign currency exchange rates. We use certain derivative financial instruments to manage foreign currency exchange risks. We do not use derivative financial instruments for speculative or trading purposes. All financial instruments are used in accordance with management-approved policies.\n\n\nInterest Rate Risk\n\n\nFixed Income Investments\n \u2014 As of April 28, 2023, we had fixed income debt investments of $754 million and certificates of deposit of $59 million. Our fixed income debt investment portfolio primarily consists of investments with original maturities greater than three months at the date of purchase, which are classified as available-for-sale investments. These fixed income debt investments, which consist primarily of corporate bonds and U.S. Treasury and government debt securities, and our certificates of deposit are subject to interest rate and interest income risk and will decrease in value if market interest rates increase. Conversely, declines in interest rates, including the impact from lower credit spreads, could have a material adverse impact on interest income for our investment portfolio. A hypothetical 100 basis point increase in market interest rates from levels as of April 28, 2023 would have resulted in a decrease in the fair value of our fixed-income securities of approximately $2 million. Volatility in market interest rates over time will cause variability in our interest income. We do not use derivative financial instruments in our investment portfolio.\n \n\n\nOur investment policy is to limit credit exposure through diversification and investment in highly rated securities. We further mitigate concentrations of credit risk in our investments by limiting our investments in the debt securities of a single issuer and by diversifying risk across geographies and type of issuer. We actively review, along with our investment advisors, current investment ratings, company-specific events and general economic conditions in managing our investments and in determining whether there is a significant decline in fair value that is other-than-temporary. We monitor and evaluate our investment portfolio on a quarterly basis for any other-than-temporary impairments.\n\n\nDebt\n \u2014 As of April 28, 2023 we have outstanding $2.4 billion aggregate principal amount of Senior Notes. We carry these instruments at face value less unamortized discount and issuance costs on our consolidated balance sheets. Since these instruments\n \n\n\n50\n\n\n\n\n\u00a0\n\n\nbear interest at fixed rates, we have no financial statement risk associated with changes in interest rates. However, the fair value of these instruments fluctuates when interest rates change. See Note 8 \u2013 Financing Arrangements of the Notes to Consolidated Financial Statements for more information.\n\n\nCredit Facility\n \u2014 We are exposed to the impact of changes in interest rates in connection with our $1.0 billion five-year revolving credit facility. Borrowings under the facility accrue interest at rates that vary based on certain market rates and our credit rating on our Senior Notes. Consequently, our interest expense would fluctuate with any changes in these market interest rates or in our credit rating if we were to borrow any amounts under the credit facility. As of April 28, 2023, no amounts were outstanding under the credit facility.\n\n\nForeign Currency Exchange Rate Risk\n\n\nWe hedge risks associated with certain foreign currency transactions to minimize the impact of changes in foreign currency exchange rates on earnings. We utilize foreign currency exchange forward contracts to hedge against the short-term impact of foreign currency fluctuations on certain foreign currency denominated monetary assets and liabilities. We also use foreign currency exchange forward contracts to hedge foreign currency exposures related to forecasted sales transactions denominated in certain foreign currencies. These derivatives are designated and qualify as cash flow hedges under accounting guidance for derivatives and hedging.\n\n\nWe do not enter into foreign currency exchange contracts for speculative or trading purposes. In entering into foreign currency exchange forward contracts, we have assumed the risk that might arise from the possible inability of counterparties to meet the terms of the contracts. We attempt to limit our exposure to credit risk by executing foreign currency exchange contracts with creditworthy multinational commercial banks. All contracts have a maturity of 12 months or less. See Note 11 \u2013 Derivatives and Hedging Activities of the Notes to Consolidated Financial Statements for more information regarding our derivatives and hedging activities.\n\n\n51\n\n\n\n\n\u00a0\n\n\nIt\nem 8.  \nFinancial Statements and Supplementary Data\n\n\nINDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n \n\n\n\n\n\n\nConsolidated Balance Sheets as of April 28, 2023 and April 29, 2022\n\n\n53\n\n\n\n\n\n\n \n\n\n \n\n\n\n\n\n\nConsolidated Statements of Income for the years ended April 28, 2023, April 29, 2022 and April 30, 2021\n\n\n54\n\n\n\n\n\n\n \n\n\n \n\n\n\n\n\n\nConsolidated Statements of Comprehensive Income for the years ended April 28, 2023, April 29, 2022 and April 30, 2021\n\n\n55\n\n\n\n\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nConsolidated Statements of Cash Flows for the years ended April 28, 2023, April 29, 2022 and April 30, 2021\n\n\n56\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nConsolidated Statements of Stockholders\u2019 Equity for the years ended April 28, 2023, April 29, 2022 and April 30, 2021\n\n\n57\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNotes to Consolidated Financial Statements\n\n\n58\n\n\n\n\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nReports of Independent Registered Public Accounting Firm (PCAOB ID No. \n34\n)\n\n\n88\n\n\n\n\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n52\n\n\n\n\n\u00a0\n\n\nNETAPP, INC.\n\n\nCONSOLIDATED B\nALANCE SHEETS\n\n\n(In millions, except par value)\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nASSETS\n\n\n\u00a0\n\n\n\n\n\n\nCurrent assets:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents\n\n\n\u00a0\n\n\n$\n\n\n2,316\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,112\n\n\n\u00a0\n\n\n\n\n\n\nShort-term investments\n\n\n\u00a0\n\n\n\u00a0\n\n\n754\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22\n\n\n\u00a0\n\n\n\n\n\n\nAccounts receivable\n\n\n\u00a0\n\n\n\u00a0\n\n\n987\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,230\n\n\n\u00a0\n\n\n\n\n\n\nInventories\n\n\n\u00a0\n\n\n\u00a0\n\n\n167\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n204\n\n\n\u00a0\n\n\n\n\n\n\nOther current assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n456\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n377\n\n\n\u00a0\n\n\n\n\n\n\nTotal current assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,680\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,945\n\n\n\u00a0\n\n\n\n\n\n\nProperty and equipment, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n650\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n602\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,759\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,346\n\n\n\u00a0\n\n\n\n\n\n\nOther intangible assets, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n181\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n142\n\n\n\u00a0\n\n\n\n\n\n\nOther non-current assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,548\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n991\n\n\n\u00a0\n\n\n\n\n\n\nTotal assets\n\n\n\u00a0\n\n\n$\n\n\n9,818\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10,026\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nLIABILITIES AND STOCKHOLDERS' EQUITY\n\n\n\u00a0\n\n\n\n\n\n\nCurrent liabilities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAccounts payable\n\n\n\u00a0\n\n\n$\n\n\n392\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n607\n\n\n\u00a0\n\n\n\n\n\n\nAccrued expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n857\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n925\n\n\n\u00a0\n\n\n\n\n\n\nCurrent portion of long-term debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n250\n\n\n\u00a0\n\n\n\n\n\n\nShort-term deferred revenue and financed unearned services revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,218\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,171\n\n\n\u00a0\n\n\n\n\n\n\nTotal current liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,467\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,953\n\n\n\u00a0\n\n\n\n\n\n\nLong-term debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,389\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,386\n\n\n\u00a0\n\n\n\n\n\n\nOther long-term liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n708\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n788\n\n\n\u00a0\n\n\n\n\n\n\nLong-term deferred revenue and financed unearned services revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,095\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,061\n\n\n\u00a0\n\n\n\n\n\n\nTotal liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,659\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,188\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCommitments and contingencies (Note 17)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nStockholders' equity:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPreferred stock, $\n0.001\n\u00a0par value, \n5\n\u00a0shares authorized; \nno\n\u00a0shares issued\n\u00a0\u00a0\u00a0or outstanding as of April 28, 2023 or April 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nCommon stock and additional paid-in capital, $\n0.001\n\u00a0par value, \n885\n\u00a0shares\n\u00a0\u00a0\u00a0authorized; \n212\n\u00a0and \n220\n\u00a0shares issued and outstanding as of April 28, 2023\n\u00a0\u00a0\u00a0and April 29, 2022, respectively\n\n\n\u00a0\n\n\n\u00a0\n\n\n945\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n760\n\n\n\u00a0\n\n\n\n\n\n\nRetained earnings\n\n\n\u00a0\n\n\n\u00a0\n\n\n265\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n122\n\n\n\u00a0\n\n\n\n\n\n\nAccumulated other comprehensive loss\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n51\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n44\n\n\n)\n\n\n\n\n\n\nTotal stockholders' equity\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,159\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n838\n\n\n\u00a0\n\n\n\n\n\n\nTotal liabilities and stockholders' equity\n\n\n\u00a0\n\n\n$\n\n\n9,818\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10,026\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nSee accompanying notes to consolidated financial statements.\n\n\n\u00a0\n\n\n53\n\n\n\n\n\u00a0\n\n\nNETAPP, INC.\n\n\nCONSOLIDATED STATEM\nENTS OF INCOME\n\n\n(In millions, except per share amounts)\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nRevenues:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProduct\n\n\n\u00a0\n\n\n$\n\n\n3,049\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,284\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,991\n\n\n\u00a0\n\n\n\n\n\n\nServices\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,313\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,034\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,753\n\n\n\u00a0\n\n\n\n\n\n\nNet revenues\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,362\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,318\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,744\n\n\n\u00a0\n\n\n\n\n\n\nCost of revenues:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCost of product\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,517\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,554\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,432\n\n\n\u00a0\n\n\n\n\n\n\nCost of services\n\n\n\u00a0\n\n\n\u00a0\n\n\n636\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n544\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n497\n\n\n\u00a0\n\n\n\n\n\n\nTotal cost of revenues\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,153\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,098\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,929\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,209\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,220\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,815\n\n\n\u00a0\n\n\n\n\n\n\nOperating expenses:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSales and marketing\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,829\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,857\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,744\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n\u00a0\n\n\n956\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n881\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n881\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n265\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n279\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n257\n\n\n\u00a0\n\n\n\n\n\n\nRestructuring charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n120\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n42\n\n\n\u00a0\n\n\n\n\n\n\nAcquisition-related expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\u00a0\n\n\n\n\n\n\nGain on sale or derecognition of assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n156\n\n\n)\n\n\n\n\n\n\nTotal operating expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,191\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,063\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,784\n\n\n\u00a0\n\n\n\n\n\n\nIncome from operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,018\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,157\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,031\n\n\n\u00a0\n\n\n\n\n\n\nOther income (expense), net\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n62\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n69\n\n\n)\n\n\n\n\n\n\nIncome before income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,066\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,095\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n962\n\n\n\u00a0\n\n\n\n\n\n\n(Benefit) provision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n208\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n158\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n232\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n1,274\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n937\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n730\n\n\n\u00a0\n\n\n\n\n\n\nNet income per share:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n\u00a0\n\n\n$\n\n\n5.87\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.20\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3.29\n\n\n\u00a0\n\n\n\n\n\n\nDiluted\n\n\n\u00a0\n\n\n$\n\n\n5.79\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.09\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3.23\n\n\n\u00a0\n\n\n\n\n\n\nShares used in net income per share calculations:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n\u00a0\n\n\n\u00a0\n\n\n217\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n223\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n222\n\n\n\u00a0\n\n\n\n\n\n\nDiluted\n\n\n\u00a0\n\n\n\u00a0\n\n\n220\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n229\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n226\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nSee accompanying notes to consolidated financial statements.\n\n\n54\n\n\n\n\n\u00a0\n\n\nNETAPP, INC.\n\n\nCONSOLIDATED STATEMENTS O\nF COMPREHENSIVE INCOME\n\n\n(In millions)\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n1,274\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n937\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n730\n\n\n\u00a0\n\n\n\n\n\n\nOther comprehensive (loss) income:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nForeign currency translation adjustments\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n17\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n\u00a0\n\n\n\n\n\n\nDefined benefit obligations:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDefined benefit obligation adjustments\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3\n\n\n)\n\n\n\n\n\n\nUnrealized gains on available-for-sale securities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnrealized holding losses arising during the period\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nUnrealized (losses) gains on cash flow hedges:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnrealized holding (losses) gains arising during the period\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n11\n\n\n)\n\n\n\n\n\n\nReclassification adjustments for losses (gains) included in \n\u00a0\u00a0\u00a0\u00a0net income\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\n\n\n\nOther comprehensive (loss) income\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n14\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\n\n\n\nComprehensive income\n\n\n\u00a0\n\n\n$\n\n\n1,267\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n923\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n742\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nSee accompanying notes to consolidated financial statements.\n\n\n55\n\n\n\n\n\u00a0\n\n\nNETAPP, INC.\n\n\nCONSOLIDATED STATEM\nENTS OF CASH FLOWS\n\n\n(In millions)\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nCash flows from operating activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n1,274\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n937\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n730\n\n\n\u00a0\n\n\n\n\n\n\nAdjustments to reconcile net income to net cash provided by\n\u00a0\u00a0\u00a0operating activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n248\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n194\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n207\n\n\n\u00a0\n\n\n\n\n\n\nNon-cash operating lease cost\n\n\n\u00a0\n\n\n\u00a0\n\n\n52\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n55\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n52\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n312\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n245\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n197\n\n\n\u00a0\n\n\n\n\n\n\nDeferred income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n606\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n144\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n6\n\n\n)\n\n\n\n\n\n\nGain on sale or derecognition of assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n156\n\n\n)\n\n\n\n\n\n\nOther items, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n67\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n54\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n\u00a0\n\n\n\n\n\n\nChanges in assets and liabilities, net of acquisitions of businesses:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAccounts receivable\n\n\n\u00a0\n\n\n\u00a0\n\n\n260\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n313\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n62\n\n\n\u00a0\n\n\n\n\n\n\nInventories\n\n\n\u00a0\n\n\n\u00a0\n\n\n37\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n90\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n31\n\n\n\u00a0\n\n\n\n\n\n\nOther operating assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n63\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n21\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n60\n\n\n)\n\n\n\n\n\n\nAccounts payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n207\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n181\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n11\n\n\n)\n\n\n\n\n\n\nAccrued expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n103\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n111\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n134\n\n\n\u00a0\n\n\n\n\n\n\nDeferred revenue and financed unearned services revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n46\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n384\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n193\n\n\n\u00a0\n\n\n\n\n\n\nLong-term taxes payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n76\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n45\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n57\n\n\n)\n\n\n\n\n\n\nOther operating liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\n\n\n\nNet cash provided by operating activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,107\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,211\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,333\n\n\n\u00a0\n\n\n\n\n\n\nCash flows from investing activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPurchases of investments\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,269\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n18\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5\n\n\n)\n\n\n\n\n\n\nMaturities, sales and collections of investments\n\n\n\u00a0\n\n\n\u00a0\n\n\n550\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n63\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n165\n\n\n\u00a0\n\n\n\n\n\n\nPurchases of property and equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n239\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n226\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n162\n\n\n)\n\n\n\n\n\n\nProceeds from sale of properties\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n371\n\n\n\u00a0\n\n\n\n\n\n\nAcquisitions of businesses, net of cash acquired\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n491\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n380\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n350\n\n\n)\n\n\n\n\n\n\nOther investing activities, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n59\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\nNet cash (used in) provided by investing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,390\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n561\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n\u00a0\n\n\n\n\n\n\nCash flows from financing activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProceeds from issuance of common stock under employee stock award plans\n\n\n\u00a0\n\n\n\u00a0\n\n\n108\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n105\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n98\n\n\n\u00a0\n\n\n\n\n\n\nPayments for taxes related to net share settlement of stock awards\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n84\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n74\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n42\n\n\n)\n\n\n\n\n\n\nRepurchase of common stock\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n850\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n600\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n125\n\n\n)\n\n\n\n\n\n\nRepayments of commercial paper notes, original maturities of three months or less, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n420\n\n\n)\n\n\n\n\n\n\nIssuances of debt, net of issuance costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,057\n\n\n\u00a0\n\n\n\n\n\n\nRepayments and extinguishment of debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n250\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n689\n\n\n)\n\n\n\n\n\n\nDividends paid\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n432\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n446\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n427\n\n\n)\n\n\n\n\n\n\nOther financing activities, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n8\n\n\n)\n\n\n\n\n\n\nNet cash (used in) provided by financing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,513\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,017\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n444\n\n\n\u00a0\n\n\n\n\n\n\nEffect of exchange rate changes on cash, cash equivalents and restricted cash\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n49\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n71\n\n\n\u00a0\n\n\n\n\n\n\nNet change in cash, cash equivalents and restricted cash\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,797\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n416\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,869\n\n\n\u00a0\n\n\n\n\n\n\nCash, cash equivalents and restricted cash:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBeginning of period\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,119\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,535\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,666\n\n\n\u00a0\n\n\n\n\n\n\nEnd of period\n\n\n\u00a0\n\n\n$\n\n\n2,322\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,119\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,535\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\nSee accompanying notes to consolidated financial statements.\n\n\n56\n\n\n\n\n\u00a0\n\n\nNETAPP, INC.\n\n\nCONSOLIDATED STATEMENTS \nOF STOCKHOLDERS\u2019 EQUITY\n\n\n(In millions, except per share amounts)\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nAccumulated\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nCommon Stock and\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAdditional Paid-in Capital\n\n\n\u00a0\n\n\n\u00a0\n\n\nRetained\n\n\n\u00a0\n\n\n\u00a0\n\n\nComprehensive\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nShares\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nEarnings\n\n\n\u00a0\n\n\n\u00a0\n\n\nLoss\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\n\n\n\nBalances, April 24, 2020\n\n\n\u00a0\n\n\n\u00a0\n\n\n219\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n284\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n42\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n242\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n730\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n730\n\n\n\u00a0\n\n\n\n\n\n\nOther comprehensive income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\n\n\n\nIssuance of common stock under employee\n\u00a0\u00a0\u00a0\u00a0stock award plans, net of taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n56\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n56\n\n\n\u00a0\n\n\n\n\n\n\nRepurchase of common stock\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n122\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n125\n\n\n)\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n197\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n197\n\n\n\u00a0\n\n\n\n\n\n\nCash dividends declared ($\n1.92\n\u00a0per\n\u00a0\u00a0\u00a0\u00a0common share)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n30\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n397\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n427\n\n\n)\n\n\n\n\n\n\nBalances, April 30, 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n222\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n504\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n211\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n30\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n685\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n937\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n937\n\n\n\u00a0\n\n\n\n\n\n\nOther comprehensive loss\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n14\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n14\n\n\n)\n\n\n\n\n\n\nIssuance of common stock under employee\n\u00a0\u00a0\u00a0\u00a0stock award plans, net of taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31\n\n\n\u00a0\n\n\n\n\n\n\nRepurchase of common stock\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n20\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n580\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n600\n\n\n)\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n245\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n245\n\n\n\u00a0\n\n\n\n\n\n\nCash dividends declared ($\n2.00\n\u00a0per\n\u00a0\u00a0\u00a0\u00a0common share)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n446\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n446\n\n\n)\n\n\n\n\n\n\nBalances, April 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n220\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n760\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n122\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n44\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n838\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,274\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,274\n\n\n\u00a0\n\n\n\n\n\n\nOther comprehensive loss\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\n\n\n\nIssuance of common stock under employee\n\u00a0\u00a0\u00a0\u00a0stock award plans, net of taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n\u00a0\n\n\n\n\n\n\nRepurchase of common stock\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n13\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n45\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n805\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n850\n\n\n)\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n312\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n312\n\n\n\u00a0\n\n\n\n\n\n\nCash dividends declared ($\n2.00\n\u00a0per\n\u00a0\u00a0\u00a0\u00a0common share)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n106\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n326\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n432\n\n\n)\n\n\n\n\n\n\nBalances, April 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n212\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n945\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n265\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n51\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n1,159\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nSee accompanying notes to consolidated financial statements.\n\n\n\u00a0\n\n\n\u00a0\n\n\n57\n\n\n\n\n\u00a0\n\n\nNETAPP, INC.\n\n\nNOTES TO CONSOLIDATED\n FINANCIAL STATEMENTS\n\n\n\u00a0\n\n\n\u00a0\n\n\n1. Description of Business and Significant Accounting Policies\nDescription of Business\n \u2014 NetApp, Inc. (we, us, or the Company) is a global cloud-led, data-centric software company that provides organizations the ability to manage and share their data across on-premises, private and public clouds. We provide a full range of enterprise-class software, systems and services solutions that customers use to modernize their infrastructures, build next generation data centers and harness the power of hybrid clouds.\nFiscal Year\n \u2014 Our fiscal year is reported on a 52- or 53-week year ending on the last Friday in April. An additional week is included in the first fiscal quarter approximately every six years to realign fiscal months with calendar months. Fiscal 2023, which ended on April 28, 2023, and fiscal 2022, which ended on April 29, 2022 were both 52-week years. Fiscal 2021, ending on April 30, 2021 was a 53-week year, with 14 weeks included in its first quarter and 13 weeks in each subsequent quarter. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company\u2019s fiscal years ended on the last Friday of April and the associated quarters, months and periods of those fiscal years\n.\nPrinciples of Consolidation\n \u2014 The consolidated financial statements include the Company and its subsidiaries. Intercompany accounts and transactions are eliminated in consolidation.\n \nUse of Estimates\n \u2014 The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include, but are not limited to, revenue recognition, reserves and allowances; inventory valuation; valuation of goodwill and intangibles; restructuring reserves; employee benefit accruals; stock-based compensation; loss contingencies; investment impairments; income taxes and fair value measurements. Actual results could differ materially from those estimates, the anticipated effects of which have been incorporated, as applicable, into management\u2019s estimates as of and for the year ended April 28, 2023.\nCash Equivalents\n \u2014 We consider all highly liquid debt investments with original maturities of three months or less at the time of purchase to be cash equivalents.\nAvailable-for-Sale Investments\n \u2014 We classify our investments in debt securities as available-for-sale investments. Debt securities primarily consist of corporate bonds, U.S. Treasury and government debt securities and certificates of deposit. These investments are primarily held in the custody of a major financial institution. A specific identification method is used to determine the cost basis of debt securities sold. These investments are recorded in the consolidated balance sheets at fair value.\nUnrealized gains and temporary losses, net of related taxes, are included in accumulated other comprehensive income (loss) (AOCI). Upon realization, those amounts are reclassified from AOCI to earnings. The amortization of premiums and discounts on the investments are included in our results of operations. Realized gains and losses are calculated based on the specific identification method.\nWe classify our investments as current or noncurrent based on the nature of the investments and their availability for use in current operations.\nOther-than-Temporary Impairments on Investments\n \u2014 All of our available-for-sale investments are subject to periodic impairment review. When the fair value of a debt security is less than its amortized cost, it is deemed impaired, and we assess whether the impairment is other-than-temporary. An impairment is considered other-than-temporary if (i) we have the intent to sell the security, (ii) it is more likely than not that we will be required to sell the security before recovery of the entire amortized cost basis, or (iii) we do not expect to recover the entire amortized cost basis of the security. If impairment is considered other-than-temporary based on condition (i) or (ii) described above, the entire difference between the amortized cost and the fair value of the debt security is recognized in the results of operations. If an impairment is considered other-than-temporary based on condition (iii) described above, the amount representing credit losses (defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security) is recognized in earnings, and the amount relating to all other factors is recognized in other comprehensive income (OCI).\n58\n\n\n\u00a0\nInventories\n \u2014 Inventories are stated at the lower of cost or net realizable value, which approximates actual cost on a first-in, first-out basis. We write down excess and obsolete inventory based on the difference between the cost of inventory and the estimated net realizable value. Net realizable value is estimated using management\u2019s best estimate of forecasts for future demand and expectations regarding market conditions. At the point of a loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts or circumstances do not result in the restoration or increase in that newly established basis. In addition, we record a liability for firm, non-cancelable and unconditional purchase commitments with contract manufacturers and suppliers for quantities in excess of our future demand forecasts consistent with our valuation of excess and obsolete inventory.\nProperty and Equipment\n \u2014 Property and equipment are recorded at cost.\n \nDepreciation and amortization is computed using the straight-line method, generally over the following periods:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nDepreciation Life\n\n\n\n\n\n\nBuildings and improvements\n\n\n\u00a0\n\n\n10\n\u00a0to \n40 years\n\n\n\n\n\n\nFurniture and fixtures\n\n\n\u00a0\n\n\n5\n\u00a0years\n\n\n\n\n\n\nComputer, production, engineering and other equipment\n\n\n\u00a0\n\n\n2\n\u00a0to \n3 years\n\n\n\n\n\n\nComputer software\n\n\n\u00a0\n\n\n3\n\u00a0to \n5 years\n\n\n\n\n\n\nLeasehold improvements\n\n\n\u00a0\n\n\nShorter of remaining lease term or useful life\n\n\n\n\n \nConstruction in progress will be depreciated over the estimated useful lives of the respective assets when they are ready for use. We capitalize interest on significant facility assets under construction and on significant software development projects. Interest capitalized during the periods presented was not material.\nSoftware Development Costs\n \u2014 The costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized in accordance with the accounting guidance for software. Because our current process for developing software is essentially completed concurrently with the establishment of technological feasibility, which occurs upon the completion of a working model, no costs have been capitalized for any of the periods presented.\nInternal-Use Software Development Costs\n \u2014 We capitalize qualifying costs, which are incurred during the application development stage, for computer software developed or obtained for internal-use and amortize them over the software\u2019s estimated useful life.\nBusiness Combinations\n \u2014 We recognize identifiable assets acquired and liabilities assumed at their acquisition date fair values, with the exception of contract assets and liabilities, which beginning in fiscal 2022, we recognize in accordance with our revenue recognition policy as if we had originally executed the customer contract. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date values of the assets acquired and liabilities assumed. While we use our best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that we identify adjustments to the preliminary purchase price allocation. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of income.\nGoodwill and Purchased Intangible Assets\n \u2014 Goodwill is recorded when the consideration paid for an acquisition exceeds the value of net tangible and intangible assets acquired. Purchased intangible assets with finite lives are generally amortized on a straight-line basis over their economic lives of\n three\n to \nfive years\n for developed technology, \ntwo\n to \nfive years\n for customer contracts/relationships, \ntwo\n to \nthree years\n for covenants not to compete and \ntwo\n to \nfive years\n for trademarks and trade names as we believe this method most closely reflects the pattern in which the economic benefits of the assets will be consumed. In-process research and development is accounted for as an indefinite lived intangible asset and is assessed for potential impairment annually until development is complete or when events or circumstances indicate that their carrying amounts might be impaired. Upon completion of development, in-process research and development is accounted for as a finite-lived intangible asset.\nThe carrying value of goodwill is tested for impairment on an annual basis in the fourth quarter of our fiscal year, or more frequently if we believe indicators of impairment exist. Triggering events for impairment reviews may be indicators such as adverse industry or economic trends, restructuring actions, lower projections of profitability, or a sustained decline in our market capitalization. For the purpose of impairment testing, we have two reporting units, which are the same as our two reportable segments. We initially conduct a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. The performance of the quantitative impairment test requires comparing the fair value of each reporting unit to its carrying amount, including goodwill. The fair value of each reporting unit is based on a combination of the income approach and the market approach.\n \n59\n\n\n\u00a0\nUnder the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on discrete forecast periods as well as terminal value determinations, and are derived based on forecasted revenue growth rates and operating margins. These cash flow projections are discounted to arrive at the fair value of each reporting unit. The discount rate used is based on the weighted-average cost of capital of comparable public companies adjusted for the relevant risk associated with business specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market approach, we estimate the fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with operating and investment characteristics similar to the reporting unit. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine the carrying amount of each reporting unit. \nAn impairment exists if the fair value of a reporting unit is lower than its carrying amount. The impairment loss is measured based on the amount by which the carrying amount of the reporting unit exceeds its fair value, with the recognized loss not to exceed the total amount of allocated goodwill. The fair value of each reporting unit has substantially exceeded its carrying amount in all periods presented.\nImpairment of Long-Lived Assets\n \u2014 We review the carrying values of long-lived assets whenever events and circumstances, such as reductions in demand, lower projections of profitability, significant changes in the manner of our use of acquired assets, or significant negative industry or economic trends, indicate that the net book value of an asset may not be recovered through expected future cash flows from its use and eventual disposition. If this review indicates that there is an impairment, the impaired asset is written down to its fair value, which is typically calculated using: (i) quoted market prices and/or (ii) expected future cash flows utilizing a discount rate. Our estimates regarding future anticipated cash flows, the remaining economic life of the products and technologies, or both, may differ materially from actual cash flows and remaining economic life. In that event, impairment charges or shortened useful lives of certain long-lived assets may be required, resulting in charges to our consolidated statements of income when such determinations are made.\nDerivative Instruments\n \u2014 Our derivative instruments, which are carried at fair value in our consolidated balance sheets, consist of foreign currency exchange contracts as described below:\nBalance Sheet Hedges\n \u2014 We utilize foreign currency exchange forward and option contracts to hedge against the short-term impact of foreign currency exchange rate fluctuations related to certain foreign currency denominated monetary assets and liabilities, primarily intercompany receivables and payables. These derivative instruments are not designated as hedging instruments and do not subject us to material balance sheet risk due to exchange rate movements because the gains and losses on these contracts are intended to offset the gains and losses in the underlying foreign currency denominated monetary assets and liabilities being hedged, and the net amount is included in earnings.\nCash Flow Hedges\n \u2014 We utilize foreign currency exchange forward contracts to hedge foreign currency exchange exposures related to forecasted sales transactions denominated in certain foreign currencies. These derivative instruments are designated and qualify as cash flow hedges and, in general, closely match the underlying forecasted transactions in duration. The effective portion of the contracts\u2019 gains and losses resulting from changes in fair value is recorded in AOCI until the forecasted transaction is recognized in the consolidated statements of income. When the forecasted transactions occur, we reclassify the related gains or losses on the cash flow hedges into net revenues. If the underlying forecasted transactions do not occur, or it becomes probable that they will not occur within the defined hedge period, the gains or losses on the related cash flow hedges are reclassified from AOCI and recognized immediately in earnings. We measure the effectiveness of hedges of forecasted transactions on a monthly basis by comparing the fair values of the designated foreign currency exchange forward purchase contracts with the fair values of the forecasted transactions.\nFactors that could have an impact on the effectiveness of our hedging programs include the accuracy of forecasts and the volatility of foreign currency markets. These programs reduce, but do not entirely eliminate, the impact of currency exchange movements. Currently, we do not enter into any foreign currency exchange forward contracts to hedge exposures related to firm commitments. Cash flows from our derivative programs are included under operating activities in the consolidated statements of cash flows.\nRevenue Recognition\n \u2014 We recognize revenue by applying the following five step approach.\n\u2022\nIdentification of the contract, or contracts, with a customer \u2014\n A contract with a customer is within the scope of ASC 606 when it meets all the following criteria:\n-\nIt is enforceable\n-\nIt defines each party\u2019s rights\n-\nIt identifies the payment terms\n-\nIt has commercial substance, and\n-\nWe determine that collection of substantially all consideration for goods or services that will be transferred is probable based on the customer\u2019s intent and ability to pay \n\u00a0\n60\n\n\n\u00a0\n\u2022\nIdentification of the performance obligations in the contract \n\u2014 Performance obligations promised in a contract are identified based on the goods or services (or a bundle of goods and services) that will be transferred to the customer that are distinct. \n\u00a0\n\u2022\nDetermination of the transaction price\n \n\u2014 The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer. \n\u00a0\n\u2022\nAllocation of the transaction price to the performance obligations in the contract\n \n\u2014 Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation.\n\u2022\nRecognition of revenue when, or as, we satisfy a performance obligation\n \n\u2014 We satisfy performance obligations either over time or at a point in time.\nCustomarily we have a purchase order from or executed contract with our customers that establishes the goods and services to be transferred and the consideration to be received.\n \nWe combine two or more contracts entered into at or near the same time with the same customer as a single contract if the contracts are negotiated as one package with a single commercial objective, if the amount of consideration to be paid on one contract depends on the price or performance of the other contract or if the goods and services promised in each of the contracts are a single performance obligation.\nOur contracts with customers may include hardware systems, software licenses, software support, hardware support, public cloud services and other services. Software support contracts entitle our customers to receive unspecified upgrades and enhancements on a when-and-if-available basis, and patch releases. Hardware support services include contracts for extended warranty and technical support with minimum response times. Other services include professional services and customer education and training services.\n \nWe identify performance obligations in our contracts to be those goods and services that are distinct. A good or service is distinct where the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from us, and is distinct in the context of the contract, where the transfer of the good or service is separately identifiable from other promises in the contract.\n \nIf a contract includes multiple promised goods or services, we apply judgment to determine whether promised goods or services are distinct. If they are not, we combine the goods and services until we have a distinct performance obligation. For example, a configured storage system inclusive of the operating system (OS) software essential to its functionality is considered a single performance obligation, while optional add-on software is a separate performance obligation. In general, hardware support, software support, and different types of professional services are each separate performance obligations.\nWe determine the transaction price of our contracts with customers based on the consideration to which we will be entitled in exchange for transferring goods or services. Consideration promised may include fixed amounts, variable amounts or both. We sell public cloud services either on a subscription basis or a consumption basis. We sell professional services either on a time and materials basis or under fixed price projects.\nWe evaluate variable consideration in arrangements with contract terms such as rights of return, potential penalties and acceptance clauses. We generally use the expected value method, primarily relying on our history, to estimate variable consideration. However, when we believe it to provide a better estimate, we use the most likely amount method. In either case, we consider variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Reassessments of our variable consideration may occur as historical information changes. Transaction prices are also adjusted for the effects of time value of money if the timing of payments provides either the customer or us a significant benefit of financing.\nContracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis. We determine standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price by maximizing the use of observable inputs including pricing strategy, market data, internally-approved pricing guidelines related to the performance obligations and other observable inputs. We regularly review standalone selling prices and maintain internal controls over the establishment and updates of these estimates. Variable consideration is also allocated to the performance obligations. If the terms of variable consideration relate to one performance obligation, it is entirely allocated to that obligation. Otherwise, it is allocated to all the performance obligations in the contract.\nWe \ntypically recognize revenue at a point in time upon the transfer of goods to a customer. Products we transfer at a point in time include our configured hardware systems, OS software licenses, optional add-on software licenses and add-on hardware. Services are typically transferred over time and revenue is recognized based on an appropriate method for measuring our progress toward\n \n61\n\n\n\u00a0\ncompletion \nof the performance obligation. Our stand-ready services, including both hardware and software support, are transferred ratably over the period of the contract. Our public cloud services are transferred either 1) for subscription arrangements, ratably over the subscription period or 2) for consumption-based arrangements, as actually consumed by the customer. For other services such as our fixed professional services contracts, we use an input method to determine the percentage of completion. That is, we estimate the effort to date versus the expected effort required over the life of the contract. \n \nDeferred Commissions \n\u2014\n \nWe capitalize sales commissions that are incremental direct costs of obtaining customer contracts for which revenue is not immediately recognized and classify them as current or non-current based on the terms of the related contracts. Capitalized commissions are amortized based on the transfer of goods or services to which they relate, typically over \none\n to \nthree years\n, and are also periodically reviewed for impairment. Amortization expense is recorded to sales and marketing expense in our consolidated statements of income.\nLeases\n \u2014 We determine if an arrangement is or contains a lease at inception, and we classify leases as operating or finance leases at commencement. In our consolidated balance sheets, operating lease right-of-use (ROU) assets are included in other non-current assets, while finance lease ROU assets are included in property and equipment, net. Lease liabilities for both types of leases are included in accrued expenses and other long-term liabilities. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments over that term.\n \n\u00a0\nOperating and finance lease ROU assets and liabilities are recognized at commencement based on the present value of lease payments over the lease term. ROU assets also include any lease payments made prior to lease commencement and exclude lease incentives. The lease term is the noncancelable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised. As the rate implicit in our leases is typically not readily determinable, in computing the present value of lease payments we generally use our incremental borrowing rate based on information available at the commencement date. Variable lease payments not dependent on an index or rate are expensed as incurred and not included within the calculation of ROU assets and lease liabilities. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.\nWe do not separate non-lease components from lease components for any class of leases, and we do not recognize ROU assets and lease liabilities for leases with a lease term of twelve months or less.\nForeign Currency Translation\n \u2014 For international subsidiaries whose functional currency is the local currency, gains and losses resulting from translation of these foreign currency financial statements into U.S. dollars are recorded in AOCI. For international subsidiaries where the functional currency is the U.S. dollar, gains and losses resulting from the process of remeasuring foreign currency financial statements into U.S. dollars are included in other (expense) income, net.\nBenefit Plans\n \u2014 We record actuarial gains and losses associated with defined benefit plans within AOCI and amortize net gains or losses in excess of 10 percent of the greater of the market value of plan assets or the plans' projected benefit obligation on a straight-line basis over the remaining estimated service life of plan participants. The measurement date for all defined benefit plans is our fiscal year end.\nStock-Based Compensation\n \u2014 We measure and recognize stock-based compensation for all stock-based awards, including employee stock options, restricted stock units (RSUs), including time-based RSUs and performance-based RSUs (PBRSUs), and rights to purchase shares under our employee stock purchase plan (ESPP), based on their estimated fair value, and recognize the costs in our financial statements using the straight-line attribution approach over the requisite service period for the entire award.\nThe fair value of employee time-based RSUs, and PBRSUs that include a performance condition, is equal to the market value of our common stock on the grant date of the award, less the present value of expected dividends during the vesting period, discounted at a risk-free interest rate. The fair value of PBRSUs that include a market condition is measured using a Monte Carlo simulation model on the date of grant.\nThe fair value of time-based RSUs, and PBRSUs that include a market condition, is not remeasured as a result of subsequent stock price fluctuations. When there is a change in management\u2019s estimate of expected achievement relative to the performance target for PBRSUs that include a performance condition, such as our achievement against a billings result average target, the change in estimate results in the recognition of a cumulative adjustment of stock-based compensation expense.\nOur expected term assumption is based primarily on historical exercise and post-vesting forfeiture experience. Our stock price volatility assumption is based on a combination of our historical and implied volatility. The risk-free interest rates are based upon United States (U.S.) Treasury bills with equivalent expected terms, and the expected dividends are based on our history and expected dividend payouts.\nWe account for forfeitures of stock-based awards as they occur.\n \n62\n\n\n\u00a0\nIncome Taxes\n \u2014 Deferred income tax assets and liabilities are provided for temporary differences that will result in tax deductions or income in future periods, as well as the future benefit of tax credit carryforwards. A valuation allowance reduces tax assets to their estimated realizable value.\n \nWe recognize the tax liability for uncertain income tax positions on the income tax return based on the two-step process prescribed in the interpretation. The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. Estimating these amounts requires us to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes line on the accompanying consolidated statements of income.\nNet Income per Share\n \u2014 Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted net income per share is computed giving effect to the weighted-average number of dilutive potential shares that were outstanding during the period using the treasury stock method. Potential dilutive common shares consist primarily of outstanding stock options, shares to be purchased under our employee stock purchase plan and unvested RSUs.\nTreasury Stock\n \u2014 We account for treasury stock under the cost method. Upon the retirement of treasury stock, we allocate the value of treasury shares between common stock, additional paid-in capital and retained earnings.\n\n\n2. Recent Accounting Pronouncements\nAlthough there are new accounting pronouncements issued or proposed by the FASB that we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements had or will have a material impact on our consolidated financial position, operating results, cash flows or disclosures.\n\n\n3. Concentration of Risk\nFinancial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, investments, foreign currency exchange contracts and accounts receivable. We maintain the majority of our cash and cash equivalents with several major financial institutions where the deposits exceed federally insured limits. Cash equivalents and short-term investments consist primarily of money market funds, U.S. Treasury and government debt securities and certificates of deposit, all of which are considered high investment grade. Our policy is to limit the amount of credit exposure through diversification and investment in highly rated securities. We further mitigate concentrations of credit risk in our investments by limiting our investments in the debt securities of a single issuer and by diversifying risk across geographies and type of issuer. General macroeconomic uncertainty has led to an increase in market volatility, however, management believes that the financial institutions that hold our cash, cash equivalents and investments are financially sound and, accordingly, are subject to minimal credit risk.\nBy entering into foreign currency exchange contracts, we have assumed the risk that might arise from the possible inability of counterparties to meet the terms of their contracts. The counterparties to these contracts are major multinational commercial banks, and we do not expect any losses as a result of counterparty defaults.\nWe sell our products primarily to large organizations in different industries and geographies. We do not require collateral or other security to support accounts receivable. In addition, we maintain an allowance for potential credit losses. To reduce credit risk, we perform ongoing credit evaluations on our customers\u2019 financial condition. We establish an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information, including the expected impact of macroeconomic disruptions, and, to date, such losses have been within management\u2019s expectations. Concentrations of credit risk with respect to trade accounts receivable are limited due to the wide variety of customers who are dispersed across many geographic regions.\nThere are no concentrations of business transacted with a particular market that would severely impact our business in the near term. However, we rely on a limited number of suppliers for certain key components and a few key contract manufacturers to manufacture most of our products; any disruption, or termination of these arrangements could materially adversely affect our operating results.\n\n\n4. Business Combinations\n\u00a0\nFiscal 2023 Acquisition\n\u00a0\nInstaclustr Acquisition\n63\n\n\n\u00a0\nOn May 20, 2022, we acquired all the outstanding shares of privately-held Instaclustr US Holding, Inc. (Instaclustr) for approximately $\n498\n million. Instaclustr is a leading platform provider of fully managed open-source database, pipeline and workflow applications delivered as-a-service.\nThe acquisition-date values of the assets acquired and liabilities assumed are as follows (in millions):\n \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\nCash\n\n\n\u00a0\n\n\n$\n\n\n4\n\n\n\u00a0\n\n\n\n\n\n\nIntangible assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n107\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill\n\n\n\u00a0\n\n\n\u00a0\n\n\n413\n\n\n\u00a0\n\n\n\n\n\n\nOther assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n19\n\n\n\u00a0\n\n\n\n\n\n\nTotal assets acquired\n\n\n\u00a0\n\n\n\u00a0\n\n\n543\n\n\n\u00a0\n\n\n\n\n\n\nLiabilities assumed\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n45\n\n\n)\n\n\n\n\n\n\nTotal purchase price\n\n\n\u00a0\n\n\n$\n\n\n498\n\n\n\u00a0\n\n\n\n\n\u00a0\nThe components of the intangible assets acquired were as follows (in millions, except useful life):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nEstimated useful life\n(years)\n\n\n\u00a0\n\n\n\n\n\n\nDeveloped technology\n\n\n\u00a0\n\n\n$\n\n\n55\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\n\n\n\nCustomer contracts/relationships\n\n\n\u00a0\n\n\n\u00a0\n\n\n50\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\n\n\n\nTrade name\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\nTotal intangible assets\n\n\n\u00a0\n\n\n$\n\n\n107\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nThe acquired net assets and assumed debt of Instaclustr were recorded at their estimated values. We determined the estimated values with the assistance of valuations and appraisals performed by third party specialists and estimates made by management. We expect to realize revenue synergies and anticipate opportunities for growth through the ability to leverage additional future products and capabilities. These factors, among others, contributed to a purchase price in excess of the estimated fair value of its identifiable net assets acquired, and as a result, we have recorded goodwill in connection with the acquisition. The goodwill is not deductible for income tax purposes.\n \nThe results of operations related to the acquisition of Instaclustr have been included in our consolidated statements of income from the acquisition date. Pro forma results of operations have not been presented because the impact from the acquisition was not material to our consolidated results of operations.\n\u00a0\nFiscal 2022 Acquisitions\n\u00a0\nFylamynt Acquisition\nOn February 18, 2022, we acquired all the outstanding shares of privately-held NeurOps Inc. (which operated under the name \"Fylamynt\") for approximately $\n27\n million in cash, of which $\n22\n million was paid at closing. The purchase price includes $\n5\n million related to an indemnity holdback provision, of which $\n4\n million was paid in the fourth quarter of fiscal 2023. Fylamynt is an innovative CloudOps automation technology company that enables customers to build, run, manage and analyze workflows securely in any cloud with little to no code.\nThe acquisition-date values of the assets acquired are as follows (in millions):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\nCash\n\n\n\u00a0\n\n\n$\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nDeveloped technology\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n\u00a0\n\n\n\n\n\n\nTotal assets acquired\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n\u00a0\n\n\n\n\n\n\nTotal purchase price\n\n\n\u00a0\n\n\n$\n\n\n27\n\n\n\u00a0\n\n\n\n\nCloudCheckr Acquisition\n \nOn November 5, 2021, we acquired all the outstanding shares of privately-held CloudCheckr Inc., (CloudCheckr) for approximately $\n347\n million in cash. CloudCheckr is a leading cloud optimization platform that provides cloud visibility and insights to lower costs, maintain security and compliance, and optimize cloud resources.\n \nThe acquisition-date values of the assets acquired and liabilities assumed are as follows (in millions):\n64\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\nCash\n\n\n\u00a0\n\n\n$\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\nIntangible assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n76\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill\n\n\n\u00a0\n\n\n\u00a0\n\n\n276\n\n\n\u00a0\n\n\n\n\n\n\nOther assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\n\n\n\nTotal assets acquired\n\n\n\u00a0\n\n\n\u00a0\n\n\n360\n\n\n\u00a0\n\n\n\n\n\n\nLiabilities assumed\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n13\n\n\n)\n\n\n\n\n\n\nTotal purchase price\n\n\n\u00a0\n\n\n$\n\n\n347\n\n\n\u00a0\n\n\n\n\n\u00a0\nThe components of the intangible assets acquired were as follows (in millions, except useful life):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nEstimated useful life\n(years)\n\n\n\u00a0\n\n\n\n\n\n\nDeveloped technology\n\n\n\u00a0\n\n\n$\n\n\n45\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\n\n\n\nCustomer contracts/relationships\n\n\n\u00a0\n\n\n\u00a0\n\n\n30\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\n\n\n\nTrade name\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\nTotal intangible assets\n\n\n\u00a0\n\n\n$\n\n\n76\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nData Mechanics Acquisition\nOn June 18, 2021, we acquired all the outstanding shares of privately-held Data Mechanics Inc. (Data Mechanics), a provider of managed platforms for big data processing and cloud analytics headquartered in Paris, France, for approximately $\n15\n million in cash\n.\n \nThe acquisition-date values of the assets acquired and liabilities assumed are as follows (in millions):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\nCash\n\n\n\u00a0\n\n\n$\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nDeveloped technology\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\n\n\n\nTotal assets acquired\n\n\n\u00a0\n\n\n\u00a0\n\n\n17\n\n\n\u00a0\n\n\n\n\n\n\nLiabilities assumed\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2\n\n\n)\n\n\n\n\n\n\nTotal purchase price\n\n\n\u00a0\n\n\n$\n\n\n15\n\n\n\u00a0\n\n\n\n\nThe acquired assets and assumed liabilities of Fylamynt, CloudCheckr and Data Mechanics were recorded at their estimated values. We determined the estimated values with the assistance of valuations and appraisals performed by third party specialists and estimates made by management. We expect to realize incremental revenue by offering continuous cost optimization and managed services from our existing capabilities to help customers improve their cloud resources and realize the benefits of cloud faster and at scale. We also anticipate opportunities for growth through the ability to leverage additional future products and capabilities. These factors, among others, contributed to a purchase price in excess of the estimated fair value of their identifiable net assets acquired, and as a result, we have recorded goodwill in connection with these acquisitions. The goodwill is not deductible for income tax purposes.\n \nThe results of operations related to the acquisitions of Fylamynt, CloudCheckr and Data Mechanics have been included in our consolidated statements of income from their respective acquisition dates. Pro forma results of operations have not been presented because the impact from these acquisitions was not material to our consolidated results of operations.\nFiscal 2021 Acquisitions\nSpot, Inc. Acquisition\nOn July 9, 2020, we acquired all the outstanding shares of privately-held Spot, Inc. (Spot), a provider of compute management cost optimization services on the public clouds based in Israel, for $\n340\n million in cash.\n \nThe acquisition-date values of the assets acquired and liabilities assumed are as follows (in millions):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\nCash\n\n\n\u00a0\n\n\n$\n\n\n24\n\n\n\u00a0\n\n\n\n\n\n\nIntangible assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n84\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill\n\n\n\u00a0\n\n\n\u00a0\n\n\n249\n\n\n\u00a0\n\n\n\n\n\n\nOther assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\n\n\n\nTotal assets acquired\n\n\n\u00a0\n\n\n\u00a0\n\n\n363\n\n\n\u00a0\n\n\n\n\n\n\nLiabilities assumed\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n23\n\n\n)\n\n\n\n\n\n\nTotal purchase price\n\n\n\u00a0\n\n\n$\n\n\n340\n\n\n\u00a0\n\n\n\n\n\u00a0\n65\n\n\n\u00a0\nThe components of the Spot intangible assets acquired were as follows (in millions, except useful life):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nEstimated useful life\n(years)\n\n\n\u00a0\n\n\n\n\n\n\nDeveloped technology\n\n\n\u00a0\n\n\n$\n\n\n53\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\n\n\n\nCustomer contracts/relationships\n\n\n\u00a0\n\n\n\u00a0\n\n\n28\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\n\n\n\nTrade name\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0Total intangible assets\n\n\n\u00a0\n\n\n$\n\n\n84\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nCloud Jumper Corporation Acquisition\nOn April 28, 2020, we acquired all the outstanding shares of privately-held Cloud Jumper Corporation (Cloud Jumper), a provider of virtual desktop infrastructure and remote desktop services solutions based in North Carolina, for $\n34\n million in cash.\nThe acquisition-date values of the assets acquired and liabilities assumed are as follows (in millions):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\nDeveloped technology\n\n\n\u00a0\n\n\n$\n\n\n16\n\n\n\u00a0\n\n\n\n\n\n\nCustomer contracts/relationships\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\n\n\n\nOther assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nTotal assets acquired\n\n\n\u00a0\n\n\n\u00a0\n\n\n35\n\n\n\u00a0\n\n\n\n\n\n\nLiabilities assumed\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1\n\n\n)\n\n\n\n\n\n\nTotal purchase price\n\n\n\u00a0\n\n\n$\n\n\n34\n\n\n\u00a0\n\n\n\n\nThe acquired assets and assumed liabilities of Spot and Cloud Jumper were recorded at their estimated values. We determined the estimated values with the assistance of valuations and appraisals performed by third party specialists and estimates made by management. We expect to realize revenue synergies, leverage and expand the existing Spot and Cloud Jumper sales channels and product development resources, and utilize their existing workforces. We also anticipate opportunities for growth through the ability to leverage additional future products and capabilities. These factors, among others, contributed to a purchase price in excess of the estimated fair value of their identifiable net assets acquired, and as a result, we have recorded goodwill in connection with both of these acquisitions. The goodwill is not deductible for income tax purposes.\nThe results of operations related to the acquisition of both Spot and Cloud Jumper have been included in our consolidated statements of income from their respective acquisition dates. Pro forma results of operations have not been presented because the impact from these acquisitions would not have been material to our consolidated results of operations.\n\n\n5. Goodwill and Purchased Intangible Assets, Net\nGoodwill activity is summarized as follows (in millions):\n \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\nBalance as of April 30, 2021\n\n\n\u00a0\n\n\n$\n\n\n2,039\n\n\n\u00a0\n\n\n\n\n\n\nAdditions\n\n\n\u00a0\n\n\n\u00a0\n\n\n307\n\n\n\u00a0\n\n\n\n\n\n\nBalance as of April 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,346\n\n\n\u00a0\n\n\n\n\n\n\nAdditions\n\n\n\u00a0\n\n\n\u00a0\n\n\n413\n\n\n\u00a0\n\n\n\n\n\n\nBalance as of April 28, 2023\n\n\n\u00a0\n\n\n$\n\n\n2,759\n\n\n\u00a0\n\n\n\n\nThe\n $\n413\n million addition to goodwill in fiscal 2023 was from the Instaclustr acquisition and was allocated to our Public Cloud segment.\nGoodwill by reportable segment as of April 28, 2023 is as follows (in millions):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\nHybrid Cloud\n\n\n\u00a0\n\n\n$\n\n\n1,714\n\n\n\u00a0\n\n\n\n\n\n\nPublic Cloud\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,045\n\n\n\u00a0\n\n\n\n\n\n\nTotal goodwill\n\n\n\u00a0\n\n\n$\n\n\n2,759\n\n\n\u00a0\n\n\n\n\n\u00a0\n66\n\n\n\u00a0\nPurchased intangible assets, net are summarized below (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nGross\n\n\n\u00a0\n\n\n\u00a0\n\n\nAccumulated\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet\n\n\n\u00a0\n\n\n\u00a0\n\n\nGross\n\n\n\u00a0\n\n\n\u00a0\n\n\nAccumulated\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAssets\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmortization\n\n\n\u00a0\n\n\n\u00a0\n\n\nAssets\n\n\n\u00a0\n\n\n\u00a0\n\n\nAssets\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmortization\n\n\n\u00a0\n\n\n\u00a0\n\n\nAssets\n\n\n\u00a0\n\n\n\n\n\n\nDeveloped technology\n\n\n\u00a0\n\n\n$\n\n\n212\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n107\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n105\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n157\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n65\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n92\n\n\n\u00a0\n\n\n\n\n\n\nCustomer contracts/relationships\n\n\n\u00a0\n\n\n\u00a0\n\n\n118\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n44\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n74\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n68\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n20\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\n\n\n\nOther purchased intangibles\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\nTotal purchased intangible assets\n\n\n\u00a0\n\n\n$\n\n\n336\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n155\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n181\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n229\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n87\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n142\n\n\n\u00a0\n\n\n\n\nAmortization expense for purchased intangible assets is summarized below (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\u00a0\n\n\nStatements of\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncome\nClassifications\n\n\n\n\n\n\nDeveloped technology\n\n\n\u00a0\n\n\n$\n\n\n42\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n33\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n41\n\n\n\u00a0\n\n\n\u00a0\n\n\nCost of revenues\n\n\n\n\n\n\nCustomer contracts/relationships\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\nOperating expenses\n\n\n\n\n\n\nOther purchased intangibles\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\nOperating expenses\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n68\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n46\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n49\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n \nAs of April 28, 2023, future amortization expense related to purchased intangible assets is as follows (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nFiscal Year\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\n2024\n\n\n\u00a0\n\n\n$\n\n\n57\n\n\n\u00a0\n\n\n\n\n\n\n2025\n\n\n\u00a0\n\n\n\u00a0\n\n\n55\n\n\n\u00a0\n\n\n\n\n\n\n2026\n\n\n\u00a0\n\n\n\u00a0\n\n\n39\n\n\n\u00a0\n\n\n\n\n\n\n2027\n\n\n\u00a0\n\n\n\u00a0\n\n\n29\n\n\n\u00a0\n\n\n\n\n\n\n2028\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n181\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n6. Supplemental Financial Information\nCash and cash equivalents (in millions):\nThe following table presents cash and cash equivalents as reported in our consolidated balance sheets, as well as the sum of cash, cash equivalents and restricted cash as reported on our consolidated statements of cash flows:\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents\n\n\n\u00a0\n\n\n$\n\n\n2,316\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,112\n\n\n\u00a0\n\n\n\n\n\n\nRestricted cash\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\u00a0\n\n\n\n\n\n\nCash, cash equivalents and restricted cash\n\n\n\u00a0\n\n\n$\n\n\n2,322\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,119\n\n\n\u00a0\n\n\n\n\nInventories (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nPurchased components\n\n\n\u00a0\n\n\n$\n\n\n65\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n131\n\n\n\u00a0\n\n\n\n\n\n\nFinished goods\n\n\n\u00a0\n\n\n\u00a0\n\n\n102\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n73\n\n\n\u00a0\n\n\n\n\n\n\nInventories\n\n\n\u00a0\n\n\n$\n\n\n167\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n204\n\n\n\u00a0\n\n\n\n\n\u00a0\n67\n\n\n\u00a0\nProperty and equipment, net (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nLand\n\n\n\u00a0\n\n\n$\n\n\n46\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n46\n\n\n\u00a0\n\n\n\n\n\n\nBuildings and improvements\n\n\n\u00a0\n\n\n\u00a0\n\n\n359\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n353\n\n\n\u00a0\n\n\n\n\n\n\nLeasehold improvements\n\n\n\u00a0\n\n\n\u00a0\n\n\n91\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n92\n\n\n\u00a0\n\n\n\n\n\n\nComputer, production, engineering and other equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,053\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n904\n\n\n\u00a0\n\n\n\n\n\n\nComputer software\n\n\n\u00a0\n\n\n\u00a0\n\n\n325\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n316\n\n\n\u00a0\n\n\n\n\n\n\nFurniture and fixtures\n\n\n\u00a0\n\n\n\u00a0\n\n\n84\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n76\n\n\n\u00a0\n\n\n\n\n\n\nConstruction-in-progress\n\n\n\u00a0\n\n\n\u00a0\n\n\n55\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n65\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,013\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,852\n\n\n\u00a0\n\n\n\n\n\n\nAccumulated depreciation and amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,363\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,250\n\n\n)\n\n\n\n\n\n\nProperty and equipment, net\n\n\n\u00a0\n\n\n$\n\n\n650\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n602\n\n\n\u00a0\n\n\n\n\nDepreciation and amortization expense related to property and equipment, net is summarized below (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30,\n2021\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization expense\n\n\n\u00a0\n\n\n$\n\n\n181\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n148\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n158\n\n\n\u00a0\n\n\n\n\n \nOther non-current assets (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nDeferred tax assets\n\n\n\u00a0\n\n\n$\n\n\n948\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n362\n\n\n\u00a0\n\n\n\n\n\n\nOperating lease ROU assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n281\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n294\n\n\n\u00a0\n\n\n\n\n\n\nOther assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n319\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n335\n\n\n\u00a0\n\n\n\n\n\n\nOther non-current assets\n\n\n\u00a0\n\n\n$\n\n\n1,548\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n991\n\n\n\u00a0\n\n\n\n\n Other non-current assets as of April 28, 2023 and April 29, 2022 include $\n80\n million and $\n73\n million, respectively, for our \n49\n% non-controlling equity interest in Lenovo NetApp Technology Limited (LNTL), a China-based entity that we formed with Lenovo (Beijing) Information Technology Ltd. in fiscal 2019. LNTL is integral to our sales channel strategy in China, acting as a distributor of our offerings to customers headquartered there, and involved in certain OEM sales to Lenovo. LNTL is also focused on localizing our products and services, and developing new joint offerings for the China market by leveraging NetApp and Lenovo technologies. Our sales to LNTL are conducted on terms equivalent to those prevailing in an arm\u2019s length transaction.\nAccrued expenses (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nAccrued compensation and benefits\n\n\n\u00a0\n\n\n$\n\n\n363\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n462\n\n\n\u00a0\n\n\n\n\n\n\nProduct warranty liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n17\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17\n\n\n\u00a0\n\n\n\n\n\n\nOperating lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n47\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n47\n\n\n\u00a0\n\n\n\n\n\n\nOther current liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n430\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n399\n\n\n\u00a0\n\n\n\n\n\n\nAccrued expenses\n\n\n\u00a0\n\n\n$\n\n\n857\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n925\n\n\n\u00a0\n\n\n\n\n \nOther long-term liabilities (in millions):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nLiability for uncertain tax positions\n\n\n\u00a0\n\n\n$\n\n\n144\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n131\n\n\n\u00a0\n\n\n\n\n\n\nIncome taxes payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n215\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n303\n\n\n\u00a0\n\n\n\n\n\n\nProduct warranty liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\n\n\n\nOperating lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n248\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n257\n\n\n\u00a0\n\n\n\n\n\n\nOther liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n93\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n88\n\n\n\u00a0\n\n\n\n\n\n\nOther long-term liabilities\n\n\n\u00a0\n\n\n$\n\n\n708\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n788\n\n\n\u00a0\n\n\n\n\n\u00a0\nDeferred revenue and financed unearned services revenue\n \n68\n\n\n\u00a0\n \nThe following table summarizes the components of our deferred revenue and financed unearned services balance as reported in our  consolidated balance sheets (in millions):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\n\n\n\nDeferred product revenue\n\n\n$\n\n\n18\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n31\n\n\n\u00a0\n\n\n\n\n\n\nDeferred services revenue\n\n\n\u00a0\n\n\n4,247\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,140\n\n\n\u00a0\n\n\n\n\n\n\nFinanced unearned services revenue\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n61\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n$\n\n\n4,313\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,232\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nReported as:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nShort-term\n\n\n$\n\n\n2,218\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,171\n\n\n\u00a0\n\n\n\n\n\n\nLong-term\n\n\n\u00a0\n\n\n2,095\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,061\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n$\n\n\n4,313\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,232\n\n\n\u00a0\n\n\n\n\nDeferred product revenue represents unrecognized revenue related to undelivered product commitments and other product deliveries that have not met all revenue recognition criteria. Deferred services revenue represents customer payments made in advance for services, which include software and hardware support contracts, certain public cloud services and other services. Financed unearned services revenue represents undelivered services for which cash has been received under certain third-party financing arrangements. See Note 17 \u2013 Commitments and Contingencies for additional information related to these arrangements.\nDuring the years ended April 28, 2023 and April 29, 2022, we recognized revenue of $\n2,171\n million and $\n2,062\n million, respectively, that was included in the deferred revenue and financed unearned services revenue balance at the beginning of the respective periods.\n \n As of April 28, 2023, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts that are unsatisfied or partially unsatisfied approximated our deferred revenue and unearned services revenue balance. Because customer orders are typically placed on an as-needed basis, and cancellable without penalty prior to shipment, orders in backlog may not be a meaningful indicator of future revenue and have not been included in this amount. We expect to recognize as revenue approximately \n51\n% of our deferred revenue and financed unearned services revenue balance in the next \n12\n months, approximately \n24\n% in the next 13 to 24 months, and the remainder thereafter.\n \nDeferred commissions\n \n The following table summarizes deferred commissions balances as reported in our consolidated balance sheets (in millions):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\n\n\n\nOther current assets\n\n\n$\n\n\n64\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n80\n\n\n\u00a0\n\n\n\n\n\n\nOther non-current assets\n\n\n\u00a0\n\n\n99\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n117\n\n\n\u00a0\n\n\n\n\n\n\nTotal deferred commissions\n\n\n$\n\n\n163\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n197\n\n\n\u00a0\n\n\n\n\nDuring the years ended April 28, 2023 and April 29, 2022, we recognized amortization expense from deferred commissions of $\n116\n million and $\n146\n million, respectively, and there were \nno\n impairment charges recognized.\nOther income (expense), net (in millions):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nInterest income\n\n\n\u00a0\n\n\n$\n\n\n69\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n9\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n67\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n73\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n74\n\n\n)\n\n\n\n\n\n\nOther, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n46\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4\n\n\n)\n\n\n\n\n\n\nOther income (expense), net\n\n\n\u00a0\n\n\n$\n\n\n48\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n62\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n69\n\n\n)\n\n\n\n\nOther, net for fiscal 2023 includes $\n22\n million of other income for non-refundable, up-front payments from customers in Russia for support contracts, which we were not able to fulfill due to imposed sanctions and for which we have no remaining legal obligation to perform. Other, net for fiscal 2023 also includes a $\n32\n million gain recognized on our sale of a minority equity interest in a privately held company for proceeds of approximately $\n59\n million.\n \n\u00a0\nStatements of cash flows additional information (in millions):\n\u00a0\nSupplemental cash flow information related to our operating leases is included in Note 9 \u2013 Leases. Non-cash investing and other supplemental cash flow information are presented below:\n\u00a0\n69\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nNon-cash Investing and Financing Activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCapital expenditures incurred but not paid\n\n\n\u00a0\n\n\n$\n\n\n12\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n22\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n15\n\n\n\u00a0\n\n\n\n\n\n\nLiabilities incurred to former owners of acquired business\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nSupplemental Cash Flow Information:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome taxes paid, net of refunds\n\n\n\u00a0\n\n\n$\n\n\n386\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n398\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n338\n\n\n\u00a0\n\n\n\n\n\n\nInterest paid\n\n\n\u00a0\n\n\n$\n\n\n65\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n67\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n57\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n7. Financial Instruments and Fair Value Measurements\nThe accounting guidance for fair value measurements provides a framework for measuring fair value on either a recurring or nonrecurring basis, whereby the inputs used in valuation techniques are assigned a hierarchical level. The following are the three levels of inputs to measure fair value:\nLevel 1\n: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.\nLevel 2:\n Inputs that reflect quoted prices for identical assets or liabilities in less active markets; quoted prices for similar assets or liabilities in active markets; benchmark yields, reported trades, broker/dealer quotes, inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.\nLevel 3:\n Unobservable inputs that reflect our own assumptions incorporated in valuation techniques used to measure fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.\nWe consider an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and consider an inactive market to be one in which there are infrequent or few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate, our own or the counterparty\u2019s non-performance risk is considered in measuring the fair values of liabilities and assets, respectively.\nInvestments\nThe following is a summary of our investments at their cost or amortized cost for the years ended April 28, 2023 and April 29, 2022 (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\n\n\n\nCorporate bonds\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n9\n\n\n\u00a0\n\n\n\n\n\n\nU.S. Treasury and government debt securities\n\n\n\u00a0\n\n\n\u00a0\n\n\n754\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\n\n\n\nMoney market funds\n\n\n\u00a0\n\n\n\u00a0\n\n\n794\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,166\n\n\n\u00a0\n\n\n\n\n\n\nCertificates of deposit\n\n\n\u00a0\n\n\n\u00a0\n\n\n59\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71\n\n\n\u00a0\n\n\n\n\n\n\nMutual funds\n\n\n\u00a0\n\n\n\u00a0\n\n\n36\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n36\n\n\n\u00a0\n\n\n\n\n\n\nTotal debt and equity securities\n\n\n\u00a0\n\n\n$\n\n\n1,643\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,295\n\n\n\u00a0\n\n\n\n\n \nThe fair value of our investments approximates their cost or amortized cost for both periods presented. Investments in mutual funds relate to the non-qualified deferred compensation plan offered to certain employees.\n70\n\n\n\u00a0\nAs of April 28, 2023, all our debt investments are due to mature in one year or less.\n \nFair Value of Financial Instruments\nThe following table summarizes our financial assets and liabilities measured at fair value on a recurring basis (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value Measurements at Reporting Date Using\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 1\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash\n\n\n\u00a0\n\n\n$\n\n\n1,463\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,463\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nMoney market funds\n\n\n\u00a0\n\n\n\u00a0\n\n\n794\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n794\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nCertificates of deposit\n\n\n\u00a0\n\n\n\u00a0\n\n\n59\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n59\n\n\n\u00a0\n\n\n\n\n\n\nTotal cash and cash equivalents\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,316\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,257\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n59\n\n\n\u00a0\n\n\n\n\n\n\nShort-term investments:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S. Treasury and government debt securities\n\n\n\u00a0\n\n\n\u00a0\n\n\n754\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n754\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nTotal short-term investments\n\n\n\u00a0\n\n\n\u00a0\n\n\n754\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n754\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0Total cash, cash equivalents and short-term investments\n\n\n\u00a0\n\n\n$\n\n\n3,070\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,011\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n59\n\n\n\u00a0\n\n\n\n\n\n\nOther items:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nMutual funds\n \n(1)\n\n\n\u00a0\n\n\n$\n\n\n7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nMutual funds\n \n(2)\n\n\n\u00a0\n\n\n$\n\n\n29\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n29\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nForeign currency exchange contracts assets\n \n(1)\n\n\n\u00a0\n\n\n$\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13\n\n\n\u00a0\n\n\n\n\n\n\nForeign currency exchange contracts liabilities\n \n(3)\n\n\n\u00a0\n\n\n$\n\n\n(\n4\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n4\n\n\n)\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value Measurements at Reporting Date Using\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 1\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash\n\n\n\u00a0\n\n\n$\n\n\n1,875\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,875\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nMoney market funds\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,166\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,166\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nCertificates of deposit\n\n\n\u00a0\n\n\n\u00a0\n\n\n71\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71\n\n\n\u00a0\n\n\n\n\n\n\nTotal cash and cash equivalents\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,112\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,041\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71\n\n\n\u00a0\n\n\n\n\n\n\nShort-term investments:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCorporate bonds\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\n\n\n\nU.S. Treasury and government debt securities\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nTotal short-term investments\n\n\n\u00a0\n\n\n\u00a0\n\n\n22\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\n\n\n\nTotal cash, cash equivalents and short-term investments\n\n\n\u00a0\n\n\n$\n\n\n4,134\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,054\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n80\n\n\n\u00a0\n\n\n\n\n\n\nOther items:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nMutual funds\n \n(1)\n\n\n\u00a0\n\n\n$\n\n\n6\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nMutual funds\n \n(2)\n\n\n\u00a0\n\n\n$\n\n\n30\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n30\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nForeign currency exchange contracts assets\n \n(1)\n\n\n\u00a0\n\n\n$\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\nForeign currency exchange contracts liabilities\n \n(3)\n\n\n\u00a0\n\n\n$\n\n\n(\n29\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n29\n\n\n)\n\n\n\n\n \n \n \n(1)\nReported as other current assets in the consolidated balance sheets\n(2)\nReported as other non-current assets in the consolidated balance sheets\n(3)\nReported as accrued expenses in the consolidated balance sheets\n\u00a0\n71\n\n\n\u00a0\nOur Level 2 debt instruments are held by a custodian who prices some of the investments using standard inputs in various asset price models or obtains investment prices from third-party pricing providers that incorporate standard inputs in various asset price models. These pricing providers utilize the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs like market transactions involving identical or comparable securities. We review Level 2 inputs and fair value for reasonableness and the values may be further validated by comparison to multiple independent pricing sources. In addition, we review third-party pricing provider models, key inputs and assumptions and understand the pricing processes at our third-party providers in determining the overall reasonableness of the fair value of our Level 2 debt instruments. As of April 28, 2023 and April 29, 2022, we have not made any adjustments to the prices obtained from our third-party pricing providers.\nFair Value of Debt\nAs of April 28, 2023 and April 29, 2022, the fair value of our long-term debt was approximately $\n2,206\n million and $\n2,491\n million, respectively. The fair value of our long-term debt was based on observable market prices in a less active market.\n\n\n\u00a0\n\n\n8. Financing Arrangements\nLong-Term Debt\nThe following table summarizes information relating to our long-term debt, which we collectively refer to as our Senior Notes (in millions, except interest rates):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nEffective Interest Rate\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n3.25% Senior Notes Due December 2022\n\n\n\u00a0\n\n\n3.43\n%\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n250\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n3.30% Senior Notes Due September 2024\n\n\n\u00a0\n\n\n3.42\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n400\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n400\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n1.875% Senior Notes Due June 2025\n\n\n\u00a0\n\n\n2.03\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n750\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n750\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n2.375% Senior Notes Due June 2027\n\n\n\u00a0\n\n\n2.51\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n550\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n550\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n2.70% Senior Notes Due June 2030\n\n\n\u00a0\n\n\n2.81\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n700\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n700\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal principal amount\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,400\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,650\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnamortized discount and issuance costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n11\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n14\n\n\n)\n\n\n\u00a0\n\n\n\n\n\n\nTotal senior notes\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,389\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,636\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nLess:  Current portion of long-term debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n250\n\n\n)\n\n\n\u00a0\n\n\n\n\n\n\nTotal long-term debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,389\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,386\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nSenior Notes\nOur $\n750\n million aggregate principal amount of \n1.875\n% Senior Notes due 2025, $\n550\n million aggregate principal amount of \n2.375\n% Senior Notes due 2027 and $\n700\n million aggregate principal amount of \n2.70\n% Senior Notes due 2030, were each issued in June 2020. Interest on each of these Senior Notes is payable semi-annually in June and December. Our \n3.30\n% Senior Notes, with a principal amount of $\n400\n million, were issued in September 2017 with interest paid semi-annually in March and September.\nOn September 15, 2022, we extinguished our \n3.25\n% Senior Notes due December 2022 for an aggregate cash redemption price of $\n252\n million, comprised of the principal and unpaid interest.\nOur Senior Notes, which are unsecured, unsubordinated obligations, rank equally in right of payment with any existing and future senior unsecured indebtedness.\nWe may redeem the Senior Notes in whole or in part, at any time at our option at specified redemption prices. In addition, upon the occurrence of certain change of control triggering events, we may be required to repurchase the Senior Notes under specified terms. The Senior Notes also include covenants that limit our ability to incur debt secured by liens on assets or on shares of stock or indebtedness of our subsidiaries; to engage in certain sale and lease-back transactions; and to consolidate, merge or sell all or substantially all of our assets. As of April 28, 2023, we were in compliance with all covenants associated with the Senior Notes.\n72\n\n\n\u00a0\nAs of April 28, 2023, our aggregate future principal debt maturities are as follows (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nFiscal Year\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\n2024\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\n2025\n\n\n\u00a0\n\n\n\u00a0\n\n\n400\n\n\n\u00a0\n\n\n\n\n\n\n2026\n\n\n\u00a0\n\n\n\u00a0\n\n\n750\n\n\n\u00a0\n\n\n\n\n\n\n2027\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\n2028\n\n\n\u00a0\n\n\n\u00a0\n\n\n550\n\n\n\u00a0\n\n\n\n\n\n\nThereafter\n\n\n\u00a0\n\n\n\u00a0\n\n\n700\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n2,400\n\n\n\u00a0\n\n\n\n\n \nCommercial Paper Program and Credit Facility\nWe have a commercial paper program (the Program), under which we may issue unsecured commercial paper notes. Amounts available under the Program, as amended in July 2017, may be borrowed, repaid and re-borrowed, with the aggregate face or principal amount of the notes outstanding under the Program at any time not to exceed $\n1.0\n billion. The maturities of the notes can vary, but may not exceed \n397\n days from the date of issue. The notes are sold under customary terms in the commercial paper market and may be issued at a discount from par or, alternatively, may be sold at par and bear interest at rates dictated by market conditions at the time of their issuance. The proceeds from the issuance of the notes are used for general corporate purposes. \nThere were \nno\n commercial paper notes outstanding as of April 28, 2023 or April 29, 2022.\nIn connection with the Program, \nwe have a senior unsecured credit agreement with a syndicated group of lenders. The credit agreement, \nwhich was amended in May 2023 primarily to replace the London Interbank Offered Rate (LIBOR) with the Secured Overnight Financing Rate (SOFR) as the basis for establishing the interest rate applicable to certain borrowings under the agreement, provides for a $\n1.0\n billion revolving unsecured credit facility, with a sublimit of $\n50\n million available for the issuance of letters of credit on our behalf. The credit facility matures on \nJanuary 22, 2026\n, with an option for us to extend the maturity date for \ntwo\n additional \n1\n-year periods, subject to certain conditions. The proceeds of the loans may be used by us for general corporate purposes and as liquidity support for our existing commercial paper program. As of April 28, 2023, we \nwere compliant with all associated covenants in the agreement\n.  \nNo\n amounts were drawn against this credit facility during any of the periods presented.\n \n\n\n\u00a0\n\n\n9. Leases\n\u00a0\nWe lease real estate, equipment and automobiles in the U.S. and internationally. Our real estate leases, which are responsible for the majority of our aggregate ROU asset and liability balances, include leases for office space, data centers and other facilities, and as of April 28, 2023, have remaining lease terms not exceeding 19 years. Some of these leases contain options that allow us to extend or terminate the lease agreement. Our equipment leases are primarily for servers and networking equipment and as of April 28, 2023, have remaining lease terms not exceeding \n4\n years. As of April 28, 2023, our automobile leases have remaining lease terms not exceeding \n4 \nyears. All our leases are classified as operating leases except for certain immaterial equipment finance leases.\n \nIn April 2021, we entered into a lease for our new corporate headquarters located in San Jose, California, which is comprised of approximately \nthree hundred thousand\n square feet of office space and requires future minimum undiscounted payments of approximately $\n180\n million over the initial \n11\n-year lease term. The lease agreement also provides us \ntwo\n successive renewal options, each for \nfive years\n. \nThe lease commenced during the first quarter of fiscal 2022.\n \n\u00a0\nThe components of lease cost related to our operating leases were as follows (in millions):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nOperating lease cost\n\n\n\u00a0\n\n\n$\n\n\n61\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n61\n\n\n\u00a0\n\n\n\n\n\n\nVariable lease cost\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n\u00a0\n\n\n\n\n\n\nTotal lease cost\n\n\n\u00a0\n\n\n$\n\n\n77\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n76\n\n\n\u00a0\n\n\n\n\n\u00a0\nVariable lease cost is primarily attributable to amounts paid to lessors for common area maintenance and utility charges under our real estate leases.\n\u00a0\nThe supplemental cash flow information related to our operating leases is as follows (in millions):\n73\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nCash paid for amounts included in the measurement of operating lease liabilities\n\n\n\u00a0\n\n\n$\n\n\n55\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n56\n\n\n\u00a0\n\n\n\n\n\n\nRight-of-use assets obtained in exchange for new operating lease obligations\n\n\n\u00a0\n\n\n$\n\n\n38\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n236\n\n\n\u00a0\n\n\n\n\n\u00a0\nThe supplemental balance sheet information related to our operating leases is as follows (in millions, except lease term and discount rate):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nOther non-current assets\n\n\n\u00a0\n\n\n$\n\n\n281\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n294\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating lease ROU assets\n\n\n\u00a0\n\n\n$\n\n\n281\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n294\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAccrued expenses\n\n\n\u00a0\n\n\n$\n\n\n47\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n47\n\n\n\u00a0\n\n\n\n\n\n\nOther long-term liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n248\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n257\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating lease liabilities\n\n\n\u00a0\n\n\n$\n\n\n295\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n304\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nWeighted Average Remaining Lease Term\n\n\n\u00a0\n\n\n9.4\n\u00a0years\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.6\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nWeighted Average Discount Rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.8\n\n\n%\n\n\n\n\nFuture minimum operating lease payments as of April 28, 2023 are as follows (in millions):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\n2024\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n53\n\n\n\u00a0\n\n\n\n\n\n\n2025\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n44\n\n\n\u00a0\n\n\n\n\n\n\n2026\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38\n\n\n\u00a0\n\n\n\n\n\n\n2027\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32\n\n\n\u00a0\n\n\n\n\n\n\n2028\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n\u00a0\n\n\n\n\n\n\nThereafter\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n149\n\n\n\u00a0\n\n\n\n\n\n\nTotal lease payments\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n343\n\n\n\u00a0\n\n\n\n\n\n\nLess: Interest\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n48\n\n\n)\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n295\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n10. Stockholders\u2019 Equity\nEquity Incentive Programs\nThe 2021 Plan\n \u2014 The 2021 Equity Incentive Plan (the 2021 Plan) was adopted by our Board of Directors and approved by the stockholders on September 10, 2021. The 2021 Plan replaced the 1999 Stock Option Plan (the 1999 Plan), and the 1999 Plan terminated effective as of September 11, 2021, except that the 1999 Plan will continue to govern awards outstanding thereunder as of the date of such plan\u2019s termination and such awards will continue in force and effect until terminated pursuant to their terms. The 2021 Plan provides for the granting of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, and performance awards to our employees, directors, and consultants.\nUnder the 2021 Plan, the Board of Directors may grant to employees, nonemployee directors, consultants and independent advisors options to purchase shares of our common stock during their period of service. The exercise price for an incentive stock option and a nonstatutory option cannot be less than \n100\n% of the fair market value of the common stock on the grant date. The 2021 Plan prohibits the repricing of any outstanding stock option or stock appreciation right after it has been granted or to cancel any outstanding stock option or stock appreciation right and immediately replace it with a new stock option or stock appreciation right with a lower exercise price unless approved by stockholders. RSUs granted under the 2021 Plan include time-based RSUs that generally vest over a \nfour-year\n period with \n25\n% vesting on the first anniversary of the grant date and \n6.25\n% vesting quarterly thereafter. The Compensation Committee of the Board of Directors (the Compensation Committee) has the discretion to use different vesting schedules. In addition, performance-based RSUs may be granted under the 2021 Plan and are subject to performance criteria and vesting terms specified by the Compensation Committee.\n As of April 28, 2023, \n1\n million shares were available for grant under the 2021 Plan.\n74\n\n\n\u00a0\nStock Options\nLess than \n1\n million stock options were outstanding as of April 28, 2023 and April 29, 2022.\n \nAdditional information related to our stock options is summarized below (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nIntrinsic value of exercises\n\n\n\u00a0\n\n\n$\n\n\n7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11\n\n\n\u00a0\n\n\n\n\n\n\nProceeds received from exercises\n\n\n\u00a0\n\n\n$\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n8\n\n\n\u00a0\n\n\n\n\n\n\nFair value of options vested\n\n\n\u00a0\n\n\n$\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5\n\n\n\u00a0\n\n\n\n\n\u00a0\nRestricted Stock Units\nIn fiscal 2023, 2022 and 2021, we granted PBRSUs to certain of our executives. Each PBRSU has performance-based vesting criteria (in addition to the service-based vesting criteria) such that the PBRSU cliff-vests at the end of either an approximate one, two or \nthree year\n performance period, which began on the date specified in the grant agreement and typically ends on the last day of the first, second or third fiscal year, respectively, following the grant date. The number of shares of common stock that will be issued to settle most of these PBRSUs at the end of the applicable performance and service period will range from \n0\n% to \n200\n% of a target number of shares originally granted. For half of the PBRSUs granted in fiscal 2023 and most of the PBRSUs granted in fiscal 2022 and fiscal 2021, the number of shares issued will depend upon our Total Stockholder Return (TSR) as compared to the TSR of a specified group of benchmark peer companies (each expressed as a growth rate percentage) calculated as of the end of the performance period. The fair values of these awards were fixed at grant date using a Monte Carlo simulation model. \nFor the remaining PBRSUs granted in fiscal 2023, \nthe number of shares issued will depend upon the Company's billings result average over the three-year performance period as compared to a predetermined billings target. Billings for purposes of measuring the performance of these PBRSUs means the total obtained by adding net revenues as reported on the Company's Consolidated Statements of Income to the amount reported as the change in deferred revenue and financed unearned services revenue on the Consolidated Statements of Cash Flows for the applicable measurement period, excluding the impact of fluctuations in foreign currency exchange rates.\n The fair values of these billings PBRSUs were established consistent with our methodology for valuing time-based RSUs, while compensation cost was recognized based on the probable outcome of the performance condition. The aggregate grant date fair value of all PBRSUs granted in fiscal 2023, 2022 and 2021 was $\n28\n million, $\n59\n million and $\n27\n million, respectively, and these amounts are being recognized to expense over the shorter of the remaining applicable performance or service periods.\n \nAs of April 28, 2023, April 29, 2022 and April 30, 2021, there were approximately \n1\n million PBRSUs outstanding.\nThe following table summarizes information related to RSUs, including PBRSUs, (in millions, except for fair value):\n \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nNumber of\nShares\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted-\nAverage\nGrant Date \nFair Value\n\n\n\u00a0\n\n\n\n\n\n\nOutstanding as of April 24, 2020\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n51.40\n\n\n\u00a0\n\n\n\n\n\n\nGranted\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n42.46\n\n\n\u00a0\n\n\n\n\n\n\nVested\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n44.74\n\n\n\u00a0\n\n\n\n\n\n\nForfeited\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n51.20\n\n\n\u00a0\n\n\n\n\n\n\nOutstanding as of April 30, 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n47.75\n\n\n\u00a0\n\n\n\n\n\n\nGranted\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n80.40\n\n\n\u00a0\n\n\n\n\n\n\nVested\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n48.91\n\n\n\u00a0\n\n\n\n\n\n\nForfeited\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n57.46\n\n\n\u00a0\n\n\n\n\n\n\nOutstanding as of April 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n64.09\n\n\n\u00a0\n\n\n\n\n\n\nGranted\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n59.87\n\n\n\u00a0\n\n\n\n\n\n\nVested\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n62.85\n\n\n\u00a0\n\n\n\n\n\n\nForfeited\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n61.99\n\n\n\u00a0\n\n\n\n\n\n\nOutstanding as of April 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n62.08\n\n\n\u00a0\n\n\n\n\n\u00a0\nWe primarily use the net share settlement approach upon vesting, where a portion of the shares are withheld as settlement of employee withholding taxes, which decreases the shares issued to the employee by a corresponding value. \nThe number and value of the shares netted for employee taxes are summarized in the table below (in millions):\n75\n\n\n\u00a0\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nShares withheld for taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nFair value of shares withheld\n\n\n\u00a0\n\n\n$\n\n\n84\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n74\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n42\n\n\n\u00a0\n\n\n\n\n \nEmployee Stock Purchase Plan\nEligible employees are offered shares through a \n24\n-month offering period, which consists of \nfour\n consecutive \n6\n-month purchase periods. Employees may purchase a limited number of shares of the Company\u2019s stock at a discount of up to \n15\n% of the lesser of the market value at the beginning of the offering period or the end of each 6-month purchase period. On September 10, 2021, the ESPP was amended to increase the shares reserved for issuance by \n3\n million shares of common stock. As of April 28, 2023, \n2\n million shares were available for issuance. \nThe following table summarizes activity related to the purchase rights issued under the ESPP (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nShares issued under the ESPP\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\nProceeds from issuance of shares\n\n\n\u00a0\n\n\n$\n\n\n107\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n104\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n90\n\n\n\u00a0\n\n\n\n\n\u00a0\nStock-Based Compensation Expense\nStock-based compensation expense is included in the consolidated statements of income as follows (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nCost of product revenues\n\n\n\u00a0\n\n\n$\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4\n\n\n\u00a0\n\n\n\n\n\n\nCost of hardware support and other services revenues\n\n\n\u00a0\n\n\n\u00a0\n\n\n19\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\n\n\n\nSales and marketing\n\n\n\u00a0\n\n\n\u00a0\n\n\n135\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n115\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n92\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n\u00a0\n\n\n111\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n75\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n64\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n42\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n\u00a0\n\n\n\n\n\n\nTotal stock-based compensation expense\n\n\n\u00a0\n\n\n$\n\n\n312\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n245\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n197\n\n\n\u00a0\n\n\n\n\nAs of April 28, 2023, total unrecognized compensation expense related to our equity awards was $\n606\n million, which is expected to be recognized on a straight-line basis over a weighted-average remaining service period of \n2.2\n years.\nValuation Assumptions\nThe valuation of RSUs and ESPP purchase rights and the underlying weighted-average assumptions are summarized as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nRSUs:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRisk-free interest rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.2\n\n\n%\n\n\n\n\n\n\nExpected dividend yield\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.4\n\n\n%\n\n\n\n\n\n\nWeighted-average fair value per share granted\n\n\n\u00a0\n\n\n$\n\n\n59.87\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n80.40\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n42.46\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nESPP:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nExpected term in years\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.2\n\n\n\u00a0\n\n\n\n\n\n\nRisk-free interest rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.2\n\n\n%\n\n\n\n\n\n\nExpected volatility\n\n\n\u00a0\n\n\n\u00a0\n\n\n36\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n37\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n47\n\n\n%\n\n\n\n\n\n\nExpected dividend yield\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.4\n\n\n%\n\n\n\n\n\n\nWeighted-average fair value per right granted\n\n\n\u00a0\n\n\n$\n\n\n21.28\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n24.75\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10.08\n\n\n\u00a0\n\n\n\n\n\u00a0\n76\n\n\n\u00a0\n\u00a0\nStock Repurchase Program\nAs of April 28, 2023, our Board of Directors has authorized the repurchase of up to $\n15.1\n billion of our common stock. Under this program, which we may suspend or discontinue at any time, we may purchase shares of our outstanding common stock through solicited or unsolicited transactions in the open market, in privately negotiated transactions, through accelerated share repurchase programs, pursuant to a Rule 10b5-1 plan or in such other manner as deemed appropriate by our management.\nThe following table summarizes activity related to this program (in millions, except per share amounts):\n \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nNumber of shares repurchased\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\nAverage price per share\n\n\n\u00a0\n\n\n$\n\n\n66.42\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n84.49\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n67.61\n\n\n\u00a0\n\n\n\n\n\n\nStock repurchases allocated to additional paid-in capital\n\n\n\u00a0\n\n\n$\n\n\n45\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n20\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\nStock repurchases allocated to retained earnings\n\n\n\u00a0\n\n\n$\n\n\n805\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n580\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n122\n\n\n\u00a0\n\n\n\n\n\n\nRemaining authorization at end of period\n\n\n\u00a0\n\n\n$\n\n\n402\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,252\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n352\n\n\n\u00a0\n\n\n\n\nSince the May 13, 2003 inception of our stock repurchase program through April 28, 2023, we repurchased a total of \n360\n million shares of our common stock at an average price of $\n40.89\n per share, for an aggregate purchase price of $\n14.7\n billion. On May 26, 2023 our Board of Directors authorized the repurchase of an additional $\n1.0\n billion of our common stock.\nPreferred Stock\nOur Board of Directors has the authority to issue up to \n5\n million shares of preferred stock and to determine the price, rights, preferences, privileges, and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. \nNo\n shares of preferred stock were issued or outstanding in any period presented.\nDividends\nThe following is a summary of our fiscal 2023, 2022 and 2021 activities related to dividends on our common stock (in millions, except per share amounts).\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nDividends per share declared\n\n\n\u00a0\n\n\n$\n\n\n2.00\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2.00\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1.92\n\n\n\u00a0\n\n\n\n\n\n\nDividend payments allocated to additional paid-in capital\n\n\n\u00a0\n\n\n$\n\n\n106\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n30\n\n\n\u00a0\n\n\n\n\n\n\nDividend payments allocated to retained earnings\n\n\n\u00a0\n\n\n$\n\n\n326\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n446\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n397\n\n\n\u00a0\n\n\n\n\n \nOn May 26, 2023, we declared a cash dividend of $\n0.50\n per share of common stock, payable on \nJuly 26, 2023\n to shareholders of record as of the close of business on \nJuly 7, 2023\n. The timing and amount of future dividends will depend on market conditions, corporate business and financial considerations and regulatory requirements. All dividends declared have been determined by the Company to be legally authorized under the laws of the state in which we are incorporated.\n77\n\n\n\u00a0\nAccumulated Other Comprehensive Income (Loss)\nChanges in accumulated other comprehensive income (loss) (AOCI) by component, net of tax, are summarized below (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nForeign\nCurrency\nTranslation\nAdjustments\n\n\n\u00a0\n\n\n\u00a0\n\n\nDefined\nBenefit\nObligation\nAdjustments\n\n\n\u00a0\n\n\n\u00a0\n\n\nUnrealized\nGains\n(Losses) on \nAvailable-\nfor-Sale\nSecurities\n\n\n\u00a0\n\n\n\u00a0\n\n\nUnrealized\nGains\n(Losses) on\nCash Flow Hedges\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\n\n\n\nBalance as of April 24, 2020\n\n\n\u00a0\n\n\n$\n\n\n(\n42\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n1\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n42\n\n\n)\n\n\n\n\n\n\nOCI before reclassifications, net of tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n11\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nAmounts reclassified from AOCI, net of tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\n\n\n\nTotal OCI\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\n\n\n\nBalance as of April 30, 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n27\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n30\n\n\n)\n\n\n\n\n\n\nOCI before reclassifications, net of tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n17\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\n\n\n\nAmounts reclassified from AOCI, net of tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\n\n\n\nTotal OCI\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n17\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n14\n\n\n)\n\n\n\n\n\n\nBalance as of April 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n44\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n44\n\n\n)\n\n\n\n\n\n\nOCI before reclassifications, net of tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n12\n\n\n)\n\n\n\n\n\n\nAmounts reclassified from AOCI, net of tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\n\n\n\nTotal OCI\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\n\n\n\nBalance as of April 28, 2023\n\n\n\u00a0\n\n\n$\n\n\n(\n48\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n3\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n51\n\n\n)\n\n\n\n\n\u00a0\nThe amounts reclassified out of AOCI are as follows (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\u00a0\n\n\nStatements of Income\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\nClassification\n\n\n\n\n\n\nRealized losses (gains) on cash flow hedges\n\n\n\u00a0\n\n\n$\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n7\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n11\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet revenues\n\n\n\n\n\n\nTotal reclassifications\n\n\n\u00a0\n\n\n$\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n7\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n11\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n11. Derivatives and Hedging Activities\nWe use derivative instruments to manage exposures to foreign currency risk. Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. The maximum length of time over which forecasted foreign currency denominated revenues are hedged is 12 months. The program is not designated for trading or speculative purposes. Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet their obligations under the terms of our agreements. We seek to mitigate such risk by limiting our counterparties to major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis. We also have in place master netting arrangements to mitigate the credit risk of our counterparties and to potentially reduce our losses due to counterparty nonperformance. We present our derivative instruments as net amounts in our consolidated balance sheets. The gross and net fair value amounts of such instruments were not material as of April 28, 2023 or April 29, 2022. All contracts have a maturity of less than 12 months.\nThe notional amount of our outstanding U.S. dollar equivalent foreign currency exchange forward contracts consisted of the following (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28,\n\u00a02023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29,\n\u00a02022\n\n\n\u00a0\n\n\n\n\n\n\nCash Flow Hedges\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nForward contracts purchased\n\n\n\u00a0\n\n\n$\n\n\n95\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n78\n\n\n\u00a0\n\n\n\n\n\n\nBalance Sheet Contracts\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nForward contracts sold\n\n\n\u00a0\n\n\n$\n\n\n965\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n841\n\n\n\u00a0\n\n\n\n\n\n\nForward contracts purchased\n\n\n\u00a0\n\n\n$\n\n\n96\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n129\n\n\n\u00a0\n\n\n\n\n \nThe effect of cash flow hedges recognized in net revenues is presented in the consolidated statements of comprehensive income and Note 10 \u2013 Stockholders\u2019 Equity.\n78\n\n\n\u00a0\nThe effect of derivative instruments not designated as hedging instruments recognized in other expense, net on our consolidated statements of income was as follows (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nGain (Loss) Recognized into Income\n\n\n\u00a0\n\n\n\n\n\n\nForeign currency exchange contracts\n\n\n\u00a0\n\n\n$\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n91\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n20\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n12. Restructuring Charges\nDuring the third quarter of fiscal 2023, management approved a restructuring plan to redirect resources to highest return activities and reduce costs. As a result, we recorded restructuring charges in the third quarter comprised of employee severance-related expenses. This plan reduced our global workforce by approximately \n8\n% and activities under this plan are substantially complete.\nIn the first quarter of fiscal 2023, \nwe executed a restructuring plan to redirect resources to highest return activities, which included a reduction in our global workforce of approximately \n1\n% and resulted in restructuring charges comprised primarily of employee severance-related costs\n. Activities under this plan are substantially complete.\nIn fiscal 2023, we also continued activities related to the establishment of an international headquarters in Cork, Ireland, which was initiated in the fourth quarter of fiscal 2022, and incurred restructuring charges consisting primarily of severance-related costs and legal and tax-related professional fees. Substantially all activities under this plan are complete.\nIn the first quarter of fiscal 2022, we executed a restructuring plan to reduce the amount of office space we occupied as we allow more employees to work remotely. In connection with the plan, we also reduced our global workforce by approximately \n1\n%. Charges related to the plan consisted primarily of office relocation costs, lease termination fees, and employee severance-related costs. Substantially all activities under the plan had been completed by the end of fiscal 2022.\n \nManagement has previously approved several restructuring actions in fiscal 2021, under which we reduced our global workforce by approximately \n6\n%. Charges related to these restructuring plans consisted primarily of employee severance-related costs. Substantially all activities under these plans were completed as of the end of fiscal 2021.\nActivities related to our restructuring plans are summarized as follows (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\n\n\n\nBalance as of April 24, 2020\n\n\n\u00a0\n\n\n$\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nNet charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n42\n\n\n\u00a0\n\n\n\n\n\n\nCash payments\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n42\n\n\n)\n\n\n\n\n\n\nBalance as of April 30, 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nNet charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n33\n\n\n\u00a0\n\n\n\n\n\n\nCash payments\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n31\n\n\n)\n\n\n\n\n\n\nBalance as of April 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\nNet charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n120\n\n\n\u00a0\n\n\n\n\n\n\nCash payments\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n87\n\n\n)\n\n\n\n\n\n\nBalance as of April 28, 2023\n\n\n\u00a0\n\n\n$\n\n\n36\n\n\n\u00a0\n\n\n\n\n\u00a0\nLiabilities for our restructuring activities are included in accrued expenses in our consolidated balance sheets.\n\n\n13. Income Taxes\nIncome before income taxes is as follows (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nDomestic\n\n\n\u00a0\n\n\n$\n\n\n420\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n546\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n433\n\n\n\u00a0\n\n\n\n\n\n\nForeign\n\n\n\u00a0\n\n\n\u00a0\n\n\n646\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n549\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n529\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n1,066\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,095\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n962\n\n\n\u00a0\n\n\n\n\n\u00a0\n79\n\n\n\u00a0\nThe (benefit) provision for income taxes consists of the following (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nCurrent:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFederal\n\n\n\u00a0\n\n\n$\n\n\n209\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n187\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n82\n\n\n\u00a0\n\n\n\n\n\n\nState\n\n\n\u00a0\n\n\n\u00a0\n\n\n39\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n55\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22\n\n\n\u00a0\n\n\n\n\n\n\nForeign\n\n\n\u00a0\n\n\n\u00a0\n\n\n150\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n60\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n134\n\n\n\u00a0\n\n\n\n\n\n\nTotal current\n\n\n\u00a0\n\n\n\u00a0\n\n\n398\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n302\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n238\n\n\n\u00a0\n\n\n\n\n\n\nDeferred:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFederal\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n44\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n125\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\n\n\n\nState\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n27\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\nForeign\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n559\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n14\n\n\n)\n\n\n\n\n\n\nTotal deferred\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n606\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n144\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n6\n\n\n)\n\n\n\n\n\n\n(Benefit) provision for income taxes\n\n\n\u00a0\n\n\n$\n\n\n(\n208\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n158\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n232\n\n\n\u00a0\n\n\n\n\n\u00a0\nDuring the second quarter of fiscal 2023, we completed an intra-entity asset transfer of certain IP to our international headquarters (the \u201cIP Transfer\u201d). The transaction resulted in a step-up of tax-deductible basis in the transferred assets, and accordingly, created a temporary difference where the tax basis exceeded the financial statement basis of such intangible assets, which resulted in the recognition of a discrete tax benefit and related deferred tax asset of $\n524\n million during the second quarter of fiscal 2023.  Management applied significant judgment when determining the fair value of the IP, which serves as the tax basis of the deferred tax asset. With the assistance of third-party valuation specialists, the fair value of the IP was determined principally based on the present value of projected cash flows related to the IP which reflects management\u2019s assumptions regarding projected revenues, earnings before interest and taxes, and a discount rate. The tax-deductible amortization related to the transferred IP rights will be recognized in future periods and any amortization that is unused in a particular year can be carried forward indefinitely. The deferred tax asset and the tax benefit were measured based on the enacted tax rates expected to apply in the years the asset is expected to be realized. We expect to realize the deferred tax asset resulting from the IP Transfer and will assess the realizability of the deferred tax asset quarterly. Any Organisation for Economic Co-operation and Development\u2019s (\u201cOECD\u201d) actions adopted internationally could impact our financial results in future periods.\n\u00a0\nIn September 2010, the Danish Tax Authorities issued a decision concluding that distributions declared in 2005 and 2006 by our Danish subsidiary were subject to Danish at-source dividend withholding tax. We did not believe that our Danish subsidiary was liable for such withholding tax and filed an appeal with the Danish Tax Tribunal. In December 2011, the Danish Tax Tribunal issued a ruling in favor of NetApp. The Danish tax examination agency appealed this decision at the Danish High Court (DHC) in March 2012. In February 2016, the DHC requested a preliminary ruling from the Court of Justice of the European Union (CJEU). In March 2018, the Advocate General issued an opinion which was largely in favor of NetApp. The CJEU was not bound by the opinion of the Advocate General and issued its preliminary ruling in February 2019. On May 3, 2021, the DHC reached a decision resulting in NetApp prevailing on the predominate distribution made in 2005. The smaller distribution made in 2006 was ruled in favor of the Danish Tax Authorities. On May 28, 2021, the Danish Tax Authorities appealed the DHC decision to the Danish Supreme Court. On January 9, 2023, the Danish Supreme Court reversed the lower court's decision and ruled the 2005 dividend was subject to withholding tax while the smaller 2006 distribution would not be subject to withholding tax. The Danish Supreme Court ruling on the distributions declared in 2005 and 2006 is non-appealable. During the third quarter of fiscal 2023, we recorded $\n69\n million of discrete tax expense, which includes $\n23\n million of withholding tax and $\n46\n million of interest, associated with the Danish Supreme Court ruling.\n80\n\n\n\u00a0\nThe provision for income taxes differs from the amount computed by applying the statutory federal income tax rate as follows (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nTax computed at federal statutory rate\n\n\n\u00a0\n\n\n$\n\n\n224\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n230\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n202\n\n\n\u00a0\n\n\n\n\n\n\nState income taxes, net of federal benefit\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23\n\n\n\u00a0\n\n\n\n\n\n\nForeign earnings in lower tax jurisdictions\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n43\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n46\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n26\n\n\n)\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n8\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development credits\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n24\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n18\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n13\n\n\n)\n\n\n\n\n\n\nBenefit for foreign derived intangible income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n49\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2\n\n\n)\n\n\n\n\n\n\nGlobal minimum tax on intangible income\n\n\n\u00a0\n\n\n\u00a0\n\n\n61\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19\n\n\n\u00a0\n\n\n\n\n\n\nTransition tax and related reserves\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nTax (benefits) charges from integration of acquired companies\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n27\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n23\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35\n\n\n\u00a0\n\n\n\n\n\n\nTax benefit due to IP Transfer\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n524\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nResolution of income tax matters \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n71\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n6\n\n\n)\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\n\n\n\n(Benefit) provision for income taxes\n\n\n\u00a0\n\n\n$\n\n\n(\n208\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n158\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n232\n\n\n\u00a0\n\n\n\n\n\u00a0\n(1)\nDuring fiscal 2023, we recognized tax expense related to a Danish Supreme Court decision related to withholding tax on a 2005 distribution as well as tax expense related to the currently in progress IRS audit of our fiscal 2018 and 2019 U.S. tax returns. During fiscal 2022, we recognized a tax benefit related to the lapse of statute of limitations for certain issues in our fiscal 2012 and 2013 state income tax returns. During fiscal 2021, we recognized a tax benefit related to the lapse of statutes of limitations for certain issues on our fiscal 2016 and 2017 federal income tax returns.\n  The components of our deferred tax assets and liabilities are as follows (in millions):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\n\n\n\nDeferred tax assets:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nReserves and accruals\n\n\n\u00a0\n\n\n$\n\n\n189\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n267\n\n\n\u00a0\n\n\n\n\n\n\nNet operating loss and credit carryforwards\n\n\n\u00a0\n\n\n\u00a0\n\n\n124\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n121\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n23\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23\n\n\n\u00a0\n\n\n\n\n\n\nDeferred revenue and financed unearned services revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n264\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n235\n\n\n\u00a0\n\n\n\n\n\n\nAcquired intangibles\n\n\n\u00a0\n\n\n\u00a0\n\n\n523\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nCapitalized research and development \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n111\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\n\n\n\nGross deferred tax assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,244\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n652\n\n\n\u00a0\n\n\n\n\n\n\nValuation allowance\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n113\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n111\n\n\n)\n\n\n\n\n\n\nDeferred tax assets, net of valuation allowance\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,131\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n541\n\n\n\u00a0\n\n\n\n\n\n\nDeferred tax liabilities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPrepaids and accruals\n\n\n\u00a0\n\n\n\u00a0\n\n\n94\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n108\n\n\n\u00a0\n\n\n\n\n\n\nAcquired intangibles\n\n\n\u00a0\n\n\n\u00a0\n\n\n66\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\n\n\n\nProperty and equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n50\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n39\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\u00a0\n\n\n\n\n\n\nTotal deferred tax liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n212\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n202\n\n\n\u00a0\n\n\n\n\n\n\nDeferred tax assets, net of valuation allowance and deferred tax liabilities\n\n\n\u00a0\n\n\n$\n\n\n919\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n339\n\n\n\u00a0\n\n\n\n\n\u00a0\n(1)\nAs required under the Tax Cuts and Jobs Act of 2017, research and development expenditures are capitalized and amortized beginning in our fiscal 2023.\n The valuation allowance increased by $\n2\n million in fiscal 2023. The increase is mainly attributable to corresponding changes in deferred tax assets, primarily certain state tax credit carryforwards.\nAs of April 28, 2023, we have federal net operating loss carryforwards of approximately $\n17\n million. In addition, we have gross state net operating loss and tax credit carryforwards of $\n13\n million and $\n135\n million, respectively. The majority of the state credit carryforwards are California research credits which are offset by a valuation allowance as we believe it is more likely than not that these credits will not be utilized. We also have $\n8\n million of foreign net operating losses and $\n30\n million of foreign tax credit carryforwards of which the majority were generated by our Dutch subsidiary and are fully offset by a valuation allowance. Certain acquired net operating loss carryforwards are subject to an annual limitation under Internal Revenue Code Section 382, but are expected to be realized with the exception of those which have a valuation allowance. \nThe \nstate and foreign net operating loss \n81\n\n\n\u00a0\ncarryforwards \nand credits will expire in various years from fiscal 2024 through 2042.\n The federal net operating loss carryforwards, the California research credit, and the Dutch foreign tax credit carryforwards do not expire.\nA reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nBalance at beginning of period\n\n\n\u00a0\n\n\n$\n\n\n220\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n221\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n211\n\n\n\u00a0\n\n\n\n\n\n\nAdditions based on tax positions related to the current year\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\u00a0\n\n\n\n\n\n\nAdditions for tax positions of prior years\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\n\n\n\nDecreases for tax positions of prior years\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nSettlements\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n10\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n8\n\n\n)\n\n\n\n\n\n\nBalance at end of period\n\n\n\u00a0\n\n\n$\n\n\n222\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n220\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n221\n\n\n\u00a0\n\n\n\n\n \nAs of April 28, 2023, we had $\n222\n million of gross unrecognized tax benefits, of which $\n144\n million has been recorded in other long-term liabilities. Unrecognized tax benefits of $\n144\n million, including penalties, interest and indirect benefits, would affect our provision for income taxes if recognized.\n \nWe recognized expense for increases to accrued interest and penalties related to unrecognized tax benefits in the income tax provision of approximately $\n7\n million, $\n4\n million and $\n1\n million, respectively, in fiscal 2023, fiscal 2022 and fiscal  2021. Accrued interest and penalties of $\n22\n million and $\n15\n million were recorded in the consolidated balance sheets as of April 28, 2023 and April 29, 2022, respectively.\nThe tax years that remain subject to examination for our major tax jurisdictions are shown below:\nFiscal Years Subject to Examination for Major Tax Jurisdictions at April 28, 2023\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n2016\n\u00a0\u2014 \n2023\n\n\n\u00a0\n\n\nUnited States \u2014 federal income tax\n\n\n\n\n\n\n2018\n\u00a0\u2014 \n2023\n\n\n\u00a0\n\n\nUnited States \u2014 state and local income tax\n\n\n\n\n\n\n2020\n\u00a0\u2014 \n2023\n\n\n\u00a0\n\n\nAustralia\n\n\n\n\n\n\n2018\n\u00a0\u2014 \n2023\n\n\n\u00a0\n\n\nGermany\n\n\n\n\n\n\n2007\n\u00a0\u2014 \n2023\n\n\n\u00a0\n\n\nIndia\n\n\n\n\n\n\n2017\n\u00a0\u2014 \n2023\n\n\n\u00a0\n\n\nThe Netherlands\n\n\n\n\n\n\n2016\n\u00a0\u2014 \n2023\n\n\n\u00a0\n\n\nCanada\n\n\n\n\n \nWe are currently undergoing various income tax audits in the U.S. and several foreign tax jurisdictions. Transfer pricing calculations are key topics under these audits and are often subject to dispute and appeals. We are effectively subject to federal tax examination adjustments for tax years ended on or after fiscal 2001, in that we have carryforward attributes from these years that could be subject to adjustment in the tax years of utilization.\nWe continue to monitor the progress of ongoing discussions with tax authorities and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. We engage in continuous discussion and negotiation with taxing authorities regarding tax matters in multiple jurisdictions. We believe that within the next 12 months, it is reasonably possible that either certain audits will conclude, certain statutes of limitations will lapse, or both. As a result of uncertainties regarding tax audits and their possible outcomes, an estimate of the range of possible impacts to unrecognized tax benefits in the next twelve months cannot be made at this time.\n As of April 28, 2023, we continue to record a deferred tax liability related to state taxes on unremitted earnings of certain foreign entities. We estimate the unrecognized deferred tax liability related to the earnings we expect to be indefinitely reinvested to be immaterial. We will continue to monitor our plans to indefinitely reinvest undistributed earnings of foreign subsidiaries and will assess the related unrecognized deferred tax liability considering our ongoing projected global cash requirements, tax consequences associated with repatriation and any U.S. or foreign government programs designed to influence remittances.\n\n\n\u00a0\n\n\n\u00a0\n\n\n14. Net Income per Share\n82\n\n\n\u00a0\nThe following is a calculation of basic and diluted net income per share (in millions, except per share amounts):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nNumerator:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n1,274\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n937\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n730\n\n\n\u00a0\n\n\n\n\n\n\nDenominator:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nShares used in basic computation\n\n\n\u00a0\n\n\n\u00a0\n\n\n217\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n223\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n222\n\n\n\u00a0\n\n\n\n\n\n\nDilutive impact of employee equity award plans\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\n\n\n\nShares used in diluted computation\n\n\n\u00a0\n\n\n\u00a0\n\n\n220\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n229\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n226\n\n\n\u00a0\n\n\n\n\n\n\nNet Income per Share:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n\u00a0\n\n\n$\n\n\n5.87\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.20\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3.29\n\n\n\u00a0\n\n\n\n\n\n\nDiluted\n\n\n\u00a0\n\n\n$\n\n\n5.79\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.09\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3.23\n\n\n\u00a0\n\n\n\n\n\u00a0\nSix\n and \nfour\n million shares from outstanding employee equity awards were excluded from the diluted net income per share calculations for fiscal 2023 and fiscal 2021, respectively, as their inclusion would have been anti-dilutive. \nNo\n potential shares from outstanding employee equity awards were excluded from the diluted net income per share calculation for fiscal 2022.\n\n\n\u00a0\n\n\n15. Segment, Geographic, and Significant Customer Information\nWe have two operating segments and two reportable segments for financial reporting purposes: Hybrid Cloud and Public Cloud. Our Chief Operating Decision Maker (CODM), who is our Chief Executive Officer, reviews certain financial information for components of our business, organized based on category of product/solution, to evaluate performance and allocate resources. The CODM measures performance of each segment based on segment revenue and segment gross profit. We do not allocate to our segments certain cost of revenues which we manage at the corporate level. These unallocated costs include stock-based compensation and amortization of intangible assets. We do not allocate assets to our segments.\n \nHybrid Cloud \noffers a portfolio of storage management and infrastructure solutions that help customers recast their traditional data centers with the power of cloud. This portfolio is designed to operate with public clouds to unlock the potential of hybrid, multi-cloud operations. Hybrid Cloud is composed of software, hardware, and related support, as well as professional and other services.\nPublic Cloud \noffers a portfolio of products delivered primarily as-a-service, including related support. This portfolio includes cloud storage and data services and cloud operations services. Public Cloud includes certain reseller arrangements in which the timing of our consideration follows the end user consumption of the reseller services.\nSegment Revenues and Gross Profit\nFinancial information by segment is as follows (in millions, except percentages):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nYear Ended April 28, 2023\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nHybrid Cloud\n\n\n\u00a0\n\n\n\u00a0\n\n\nPublic Cloud\n\n\n\u00a0\n\n\n\u00a0\n\n\nConsolidated\n\n\n\u00a0\n\n\n\n\n\n\nProduct revenues\n\n\n$\n\n\n3,049\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,049\n\n\n\u00a0\n\n\n\n\n\n\nSupport revenues\n\n\n\u00a0\n\n\n2,419\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,419\n\n\n\u00a0\n\n\n\n\n\n\nProfessional and other services revenues\n\n\n\u00a0\n\n\n319\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n319\n\n\n\u00a0\n\n\n\n\n\n\nPublic cloud revenues\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n575\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n575\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0Net revenues\n\n\n\u00a0\n\n\n5,787\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n575\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,362\n\n\n\u00a0\n\n\n\n\n\n\nCost of product revenues\n\n\n\u00a0\n\n\n1,511\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,511\n\n\n\u00a0\n\n\n\n\n\n\nCost of support revenues\n\n\n\u00a0\n\n\n181\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n181\n\n\n\u00a0\n\n\n\n\n\n\nCost of professional and other services revenues\n\n\n\u00a0\n\n\n211\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n211\n\n\n\u00a0\n\n\n\n\n\n\nCost of public cloud revenues\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n184\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n184\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0Segment cost of revenues\n\n\n\u00a0\n\n\n1,903\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n184\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,087\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Segment gross profit\n\n\n$\n\n\n3,884\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n391\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,275\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Segment gross margin\n\n\n\u00a0\n\n\n67.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n68.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n67.2\n\n\n%\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Unallocated cost of revenues\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n66\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total gross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,209\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total gross margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n66.2\n\n\n%\n\n\n\n\n\n\n1\n \nUnallocated cost of revenues are composed of $\n24\n\u00a0million of stock-based compensation expense and $\n42\n\u00a0million of amortization of intangible assets.\n\n\n\u00a0\n\n\n\n\n\u00a0\n83\n\n\n\u00a0\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nYear Ended April 29, 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nHybrid Cloud\n\n\n\u00a0\n\n\n\u00a0\n\n\nPublic Cloud\n\n\n\u00a0\n\n\n\u00a0\n\n\nConsolidated\n\n\n\u00a0\n\n\n\n\n\n\nProduct revenues\n\n\n$\n\n\n3,284\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,284\n\n\n\u00a0\n\n\n\n\n\n\nSupport revenues\n\n\n\u00a0\n\n\n2,344\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,344\n\n\n\u00a0\n\n\n\n\n\n\nProfessional and other services revenues\n\n\n\u00a0\n\n\n294\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n294\n\n\n\u00a0\n\n\n\n\n\n\nPublic cloud revenues\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n396\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n396\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0Net revenues\n\n\n\u00a0\n\n\n5,922\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n396\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,318\n\n\n\u00a0\n\n\n\n\n\n\nCost of product revenues\n\n\n\u00a0\n\n\n1,541\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,541\n\n\n\u00a0\n\n\n\n\n\n\nCost of support revenues\n\n\n\u00a0\n\n\n184\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n184\n\n\n\u00a0\n\n\n\n\n\n\nCost of professional and other services revenues\n\n\n\u00a0\n\n\n205\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n205\n\n\n\u00a0\n\n\n\n\n\n\nCost of public cloud revenues\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n118\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n118\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0Segment cost of revenues\n\n\n\u00a0\n\n\n1,930\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n118\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,048\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Segment gross profit\n\n\n$\n\n\n3,992\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n278\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,270\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Segment gross margin\n\n\n\u00a0\n\n\n67.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n70.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n67.6\n\n\n%\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Unallocated cost of revenues\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n50\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total gross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,220\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total gross margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n66.8\n\n\n%\n\n\n\n\n\n\n1\n \nUnallocated cost of revenues are composed of $\n17\n\u00a0million of stock-based compensation expense and $\n33\n\u00a0million of amortization of intangible assets.\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nYear Ended April 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nHybrid Cloud\n\n\n\u00a0\n\n\n\u00a0\n\n\nPublic Cloud\n\n\n\u00a0\n\n\n\u00a0\n\n\nConsolidated\n\n\n\u00a0\n\n\n\n\n\n\nProduct revenues\n\n\n$\n\n\n2,991\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,991\n\n\n\u00a0\n\n\n\n\n\n\nSupport revenues\n\n\n\u00a0\n\n\n2,277\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,277\n\n\n\u00a0\n\n\n\n\n\n\nProfessional and other services revenues\n\n\n\u00a0\n\n\n277\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n277\n\n\n\u00a0\n\n\n\n\n\n\nPublic cloud revenues\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n199\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n199\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0Net revenues\n\n\n\u00a0\n\n\n5,545\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n199\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,744\n\n\n\u00a0\n\n\n\n\n\n\nCost of product revenues\n\n\n\u00a0\n\n\n1,402\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,402\n\n\n\u00a0\n\n\n\n\n\n\nCost of support revenues\n\n\n\u00a0\n\n\n201\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n201\n\n\n\u00a0\n\n\n\n\n\n\nCost of professional and other services revenues\n\n\n\u00a0\n\n\n206\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n206\n\n\n\u00a0\n\n\n\n\n\n\nCost of public cloud revenues\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n65\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n65\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0Segment cost of revenues\n\n\n\u00a0\n\n\n1,809\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n65\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,874\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Segment gross profit\n\n\n$\n\n\n3,736\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n134\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,870\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Segment gross margin\n\n\n\u00a0\n\n\n67.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n67.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n67.4\n\n\n%\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Unallocated cost of revenues\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n55\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total gross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,815\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total gross margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n66.4\n\n\n%\n\n\n\n\n\n\n1\n \nUnallocated cost of revenues are composed of $\n14\n\u00a0million of stock-based compensation expense and $\n41\n\u00a0million of amortization of intangible assets.\n\n\n\u00a0\n\n\n\n\nGeographical Revenues and Certain Assets\nRevenues summarized by geographic region are as follows (in millions):\n \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nUnited States, Canada and Latin America (Americas)\n\n\n\u00a0\n\n\n$\n\n\n3,390\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,460\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,097\n\n\n\u00a0\n\n\n\n\n\n\nEurope, Middle East and Africa (EMEA)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,063\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,979\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,775\n\n\n\u00a0\n\n\n\n\n\n\nAsia Pacific (APAC)\n\n\n\u00a0\n\n\n\u00a0\n\n\n909\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n879\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n872\n\n\n\u00a0\n\n\n\n\n\n\nNet revenues\n\n\n\u00a0\n\n\n$\n\n\n6,362\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,318\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,744\n\n\n\u00a0\n\n\n\n\n \nAmericas revenues consist of sales to Americas commercial and U.S. public sector markets. Sales to customers inside the U.S. were $\n2,973\n million, $\n3,041\n million and $\n2,784\n million during fiscal 2023, 2022 and 2021, respectively.\n84\n\n\n\u00a0\nThe majority of our assets, excluding cash, cash equivalents, short-term investments and accounts receivable, were attributable to our domestic operations. \nThe following table presents cash, cash equivalents and short-term investments held in the U.S. and internationally in various foreign subsidiaries (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\n\n\n\nU.S.\n\n\n\u00a0\n\n\n$\n\n\n887\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,820\n\n\n\u00a0\n\n\n\n\n\n\nInternational\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,183\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,314\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n3,070\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,134\n\n\n\u00a0\n\n\n\n\n \nWith the exception of property and equipment, we do not identify or allocate our long-lived assets by geographic area. \nThe following table presents property and equipment information for geographic areas based on the physical location of the assets (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\n\n\n\nU.S.\n\n\n\u00a0\n\n\n$\n\n\n413\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n392\n\n\n\u00a0\n\n\n\n\n\n\nInternational\n\n\n\u00a0\n\n\n\u00a0\n\n\n237\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n210\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n650\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n602\n\n\n\u00a0\n\n\n\n\n\u00a0\nSignificant Customers\n \nThe following customers, each of which is a distributor, accounted for 10% or more of our net revenues:\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nArrow Electronics, Inc.\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n%\n\n\n\n\n\n\nTech Data Corporation\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n%\n\n\n\n\n\u00a0\nThe following customers accounted for 10% or more of accounts receivable:\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\n\n\n\nArrow Electronics, Inc.\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\n\n\n\nTech Data Corporation\n\n\n\u00a0\n\n\n\u00a0\n\n\n19\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n19\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n16. Employee Benefits and Deferred Compensation\nEmployee 401(k) Plan\nOur 401(k) Plan is a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating U.S. employees may defer a portion of their pre-tax earnings, up to the IRS annual contribution limit. We match \n100\n% of the first \n2\n% of eligible earnings an employee contributes to the 401(k) Plan, and then match \n50\n% of the next \n4\n% of eligible earnings an employee contributes. \nAn employee receives the full 4% match when he/she contributes at least \n6\n% of his/her eligible earnings, up to a maximum calendar year matching contribution of $\n6,000\n.\n \nOur employer matching contributions to the 401(k) Plan were as follows (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\n401(k) matching contributions\n\n\n\u00a0\n\n\n$\n\n\n33\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n31\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n29\n\n\n\u00a0\n\n\n\n\n\u00a0\nDeferred Compensation Plan\nWe \nhave a non-qualified deferred compensation plan that allows a group of employees within the U.S. to contribute base salary and commissions or incentive compensation on a tax deferred basis in excess of the IRS limits imposed on 401(k) plans. The marketable\n \n85\n\n\n\u00a0\nsecurities \nrelated to these investments are held in a Rabbi Trust. \nThe related deferred compensation plan assets and liabilities under the non-qualified deferred compensation plan were as follows (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\n\n\n\nDeferred compensation plan assets\n\n\n\u00a0\n\n\n$\n\n\n36\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n36\n\n\n\u00a0\n\n\n\n\n\n\nDeferred compensation liabilities reported as:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAccrued expenses\n\n\n\u00a0\n\n\n$\n\n\n7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6\n\n\n\u00a0\n\n\n\n\n\n\nOther long-term liabilities\n\n\n\u00a0\n\n\n$\n\n\n29\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n30\n\n\n\u00a0\n\n\n\n\n\u00a0\nDefined Benefit Plans\nWe maintain various defined benefit plans to provide termination and postretirement benefits to certain eligible employees outside of the U.S. We also provide disability benefits to certain eligible employees in the U.S. Eligibility is determined based on the terms of our plans and local statutory requirements.\nThe funded status of our defined benefit plans, which is recognized in other long-term liabilities in our consolidated balance sheets, was as follows (in millions):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nApril 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2022\n\n\n\u00a0\n\n\n\n\n\n\nFair value of plan assets\n\n\n\u00a0\n\n\n$\n\n\n44\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n39\n\n\n\u00a0\n\n\n\n\n\n\nBenefit obligations\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n75\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n69\n\n\n)\n\n\n\n\n\n\nUnfunded obligations\n\n\n\u00a0\n\n\n$\n\n\n(\n31\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n30\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n17. Commitments and Contingencies\nPurchase Orders and Other Commitments\nIn the ordinary course of business, we make commitments to third-party contract manufacturers and component suppliers to manage manufacturer lead times and meet product forecasts, and to other parties, to purchase various key components used in the manufacture of our products. A significant portion of our reported purchase commitments arising from these agreements consist of firm, non-cancelable, and unconditional commitments. As of April 28, 2023, we had $\n0.4\n billion in non-cancelable purchase commitments for inventory. We record a liability for firm, non-cancelable and unconditional purchase commitments for quantities in excess of our future demand forecasts consistent with the valuation of our excess and obsolete inventory. As of April 28, 2023 and April 29, 2022, such liability amounted to $\n15\n million and $\n18\n million, respectively, and is included in accrued expenses in our consolidated balance sheets. To the extent that such forecasts are not achieved, our commitments and associated accruals may change.\nIn addition to inventory commitments with contract manufacturers and component suppliers, we have open purchase orders and contractual obligations associated with our ordinary course of business for which we have not yet received goods or services. As of April 28, 2023, we had $\n0.3\n billion in other purchase obligations.\nOf the total $\n0.7\n billion in purchase commitments, $\n0.5\n billion is due in fiscal 2024, with the remainder due thereafter.\n \nFinancing Guarantees\nWhile most of our arrangements for sales include short-term payment terms, from time to time we provide long-term financing to creditworthy customers. We have generally sold receivables financed through these arrangements on a non-recourse basis to third party financing institutions within 10 days of the contracts\u2019 dates of execution, and we classify the proceeds from these sales as cash flows from operating activities in our consolidated statements of cash flows. We account for the sales of these receivables as \u201ctrue sales\u201d as defined in the accounting standards on transfers of financial assets, as we are considered to have surrendered control of these financing receivables. Provided all other revenue recognition criteria have been met, we recognize product revenues for these arrangements, net of any payment discounts from financing transactions, upon product acceptance. We sold $\n38\n million, $\n59\n million and $\n102\n million of receivables during fiscal 2023, 2022 and 2021, respectively.\n \nIn addition, we enter into arrangements with leasing companies for the sale of our hardware systems products. These leasing companies, in turn, lease our products to end-users. The leasing companies generally have no recourse to us in the event of default by the end-user and we recognize revenue upon delivery to the end-user customer, if all other revenue recognition criteria have been met.\n \n86\n\n\n\u00a0\nSome of the leasing arrangements described above have been financed on a recourse basis through third-party financing institutions. Under the terms of recourse leases, which are generally \nthree years\n or less, we remain liable for the aggregate unpaid remaining lease payments to the third-party leasing companies in the event of end-user customer default. These arrangements are generally collateralized by a security interest in the underlying assets. Where we provide a guarantee for recourse leases and collectability is probable, we account for these transactions as sales type leases. If collectability is not probable, the cash received is recorded as a deposit liability and revenue is deferred until the arrangement is deemed collectible. For leases that we are not a party to, other than providing recourse, we recognize revenue when control is transferred. As of April 28, 2023 and April 29, 2022, the aggregate amount by which such contingencies exceeded the associated liabilities was not significant. To date, we have not experienced significant losses under our lease financing programs or other financing arrangements.\nWe have entered into service contracts with certain of our end-user customers that are supported by third-party financing arrangements. If a service contract is terminated as a result of our non-performance under the contract or our failure to comply with the terms of the financing arrangement, we could, under certain circumstances, be required to acquire certain assets related to the service contract or to pay the aggregate unpaid financing payments under such arrangements. As of April 28, 2023, we have not been required to make any payments under these arrangements, and we believe the likelihood of having to acquire a material amount of assets or make payments under these arrangements is remote. The portion of the financial arrangement that represents unearned services revenue is included in deferred revenue and financed unearned services revenue in our consolidated balance sheets\n.\nLegal Contingencies\nWhen a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency.\nOn August 14, 2019, a purported securities class action lawsuit was filed in the United States District Court for the Northern District of California, naming as defendants NetApp and certain of our executive officers. The complaint alleged that the defendants violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and SEC Rule 10b-5, by making materially false or misleading statements with respect to our financial guidance for fiscal 2020, as provided on May 22, 2019, and further alleged unspecified damages based on the decline in the market price of our shares following the issuance of the revised guidance on August 1, 2019. On July 30, 2021, the parties entered into a memorandum of understanding providing for the settlement of the class action, pursuant to which NetApp agreed to pay approximately $2.0 million in connection with the settlement, which was accrued during the three months ended July 30, 2021. On September 1, 2022, the court held a final approval hearing, approved the stipulation of settlement (which contained no admission of liability, wrongdoing or responsibility by any of the parties and provided for the mutual release by all parties), and dismissed the case with prejudice.\nWe are subject to various legal proceedings and claims that arise in the normal course of business. We may, from time to time, receive claims that we are infringing third parties\u2019 intellectual property rights, including claims for alleged patent infringement brought by non-practicing entities. We are currently involved in patent litigations brought by non-practicing entities and other third parties. We believe we have strong arguments that our products do not infringe and/or the asserted patents are invalid, and we intend to vigorously defend against the plaintiffs\u2019 claims. However, there is no guarantee that we will prevail at trial and if a jury were to find that our products infringe, we could be required to pay significant monetary damages, and may cause product shipment delays or stoppages, require us to redesign our products, or require us to enter into royalty or licensing agreements.\n \nAlthough management at present believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations, cash flows, or overall trends, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could include significant monetary damages. In addition, in matters for which injunctive relief or other conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more products at all or in particular ways or requiring other remedies. An unfavorable outcome may result in a material adverse impact on our business, results of operations, financial position, cash flows and overall trends\n. \nNo\n material accrual has been recorded as of April 28, 2023 related to such matters.\n\n\n \n\n\n\u00a0\n\n\n87\n\n\n\n\n\u00a0\n\n\nREPORT OF INDEPENDENT REGIST\nERED PUBLIC ACCOUNTING FIRM\n\n\n\u00a0\n\n\nTo the stockholders and Board of Directors of NetApp, Inc.\n \n\n\n \n\n\nOpinion on the Financial Statements\n\n\nWe have audited the accompanying consolidated balance sheets of NetApp, Inc. and subsidiaries (the \"Company\") as of April 28, 2023 and April 29, 2022, the related consolidated statements of income, comprehensive income, cash flows and stockholders' equity, for each of the three years in the period ended April 28, 2023, and the related notes (collectively referred to as the \"financial statements\"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 28, 2023 and April 29, 2022, and the results of its operations and its cash flows for each of the three years in the period ended April 28, 2023, in conformity with accounting principles generally accepted in the United States of America.\n\n\nWe have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of April 28, 2023, based on criteria established in \nInternal Control \u2014 Integrated Framework (2013)\n issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 14, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.\n \n\n\n\u00a0\n\n\nBasis for Opinion\n\n\nThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\n\nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.\n\n\n\u00a0\n\n\nCritical Audit Matters\n\n\nThe critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.\n\n\nRevenue \u2014 Refer to Notes 1, 6, and 15 to the financial statements\n\n\nCritical Audit Matter Description\n\n\nCertain of the Company\u2019s revenue contracts with customers include multiple promises (such as cloud services, hardware systems, software licenses, software and hardware support, and other services). The Company typically negotiates contracts with its customers, and while many of these contracts contain standard terms and conditions, certain large enterprises and distributors may have customer specific terms and performance obligations due to the nature of the contracts.\n \n\n\nPursuant to accounting principles generally accepted in the United States of America, the Company is required to evaluate whether each performance obligation represents goods and services that are distinct. A good or service is distinct where the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company, and is distinct in the context of the contract, where the transfer of the good or service is separately identifiable from other promises in the contract. The evaluation of performance obligations can require significant judgment and could change the amount of revenue recognized in a given period.\n\n\nWe identified the evaluation of performance obligations in certain large enterprise and distributor contracts as a critical audit matter because of the judgment management makes in evaluating such contracts and the impact of such judgment on the amount of revenue recognized in a given period. This required a high degree of auditor judgment and an increased extent of testing.\n\n\n88\n\n\n\n\n\u00a0\n\n\nHow the Critical Audit Matter Was Addressed in the Audit\n\n\n   Our audit procedures related to the Company\u2019s evaluation of performance obligations for certain large enterprise and distributor contracts included the following, among others:\n\n\n\u2022\nWe tested the effectiveness of internal controls related to the review of large enterprise and distributor contracts specifically around the review of the terms and conditions and proper evaluation of performance obligations.\n\n\n\u2022\nWe evaluated management\u2019s significant accounting policies related to revenue recognition for reasonableness and compliance with generally accepted accounting principles.\n\n\n\u2022\nWe selected a sample of contracts for large enterprise and distributor customers and performed the following: \n\n\no\nObtained and read contract source documents, including master agreements, amendments, and other documents that were part of the contract. \n\n\no\nAssessed the terms and conditions in the contract source documents and evaluated the appropriateness of management\u2019s application of their accounting policies in the evaluation of performance obligations.\n\n\nIncome Taxes \u2014 Refer to Note 13 to the financial statements\n\n\nCritical Audit Matter Description\n\n\n   During the second quarter of fiscal 2023, the Company completed an intra-entity asset transfer of certain Intellectual Property (\u201cIP\u201d). The transaction resulted in a step-up of tax-deductible basis in the transferred assets, and accordingly, created a temporary difference where the tax basis exceeded the financial statement basis of such intangible assets, which resulted in the recognition of a discrete tax benefit and related deferred tax asset of $524 million.\n\n\n   The Company determined the fair value of the transferred IP based principally on the present value of projected cash flows related to the IP requiring management to make significant assumptions related to the discount rate and the forecast of future revenues and earnings before interest and taxes.\n\n\n   We identified the valuation of the IP as a critical audit matter because of the significant assumptions made by management to estimate the fair value of the IP. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value and tax transfer pricing specialists, when performing audit procedures to evaluate the reasonableness of management\u2019s estimates and assumptions related to the selection of the discount rate and forecasts of future revenues and earnings before interest and taxes.\n\n\nHow the Critical Audit Matter Was Addressed in the Audit\n\n\nOur audit procedures related to the discount rate and forecasted future revenues and earnings before interest and taxes used by management to estimate the fair value of the IP included the following, among others:\n \n\n\n\u2022\nWe tested the effectiveness of the control over management\u2019s valuation of the intra-entity IP transfer including management\u2019s selection of the discount rate and forecasts of future revenues and earnings before interest and taxes. \n\n\n\u2022\nWith the assistance of our fair value and tax transfer pricing specialists, we evaluated the reasonableness of the discount rate, including testing the source information underlying the determination of the discount rate, testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing those to the discount rate selected by management.\n\n\n\u2022\nWe evaluated management\u2019s ability to accurately forecast future revenues and earnings before interest and taxes by comparing actual results to management\u2019s historical forecasts. \n\n\n\u2022\nWe evaluated the reasonableness of management\u2019s forecasts of revenue and earnings before interest and taxes by comparing the forecasts to (1) historical results, (2) revenue growth and earnings before interest and taxes of comparable guideline public companies and (3) industry reports.\n \n\n\n/s/ \nDELOITTE & TOUCHE LLP\n\n\nSan Jose, California\n\n\nJune 14, 2023\n\n\n\u00a0\n\n\nWe have served as the Company's auditor since 1995.\n\n\n89\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\n\n\nTo the stockholders and Board of Directors of NetApp, Inc.\n\n\n\u00a0\n\n\nOpinion on Internal Control over Financial Reporting\n\n\n     We have audited the internal control over financial reporting of NetApp, Inc. and subsidiaries (the \"Company\") as of April 28, 2023, based on criteria established in \nInternal Control \u2014 Integrated Framework (2013)\n issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 28, 2023, based on criteria established in \nInternal Control \u2014 Integrated Framework (2013)\n issued by COSO.\n\n\n     We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended April 28, 2023, of the Company and our report dated June 14, 2023, expressed an unqualified opinion on those financial statements.\n\n\nBasis for Opinion\n \n\n\n     The Company\u2019s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management\u2019s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company\u2019s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\n\n     We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.\n\n\nDefinition and Limitations of Internal Control over Financial Reporting\n\n\n     A company\u2019s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company\u2019s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company\u2019s assets that could have a material effect on the financial statements.\n\n\n     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\n\n\n/s/ DELOITTE & TOUCHE LLP\n\n\nSan Jose, California\n\n\nJune 14, 2023\n\n\n\u00a0\n\n\n90\n\n\n\n\n\u00a0\n\n\nIt\nem 9.  \nChanges in and Disagreements with Accountants on Accounting and Financial Disclosure\n\n\nNone.\n\n\nIt\nem 9A.  \nControls and Procedures\n\n\n(a) Evaluation of Disclosure Controls and Procedures\n\n\nThe phrase \u201cdisclosure controls and procedures\u201d refers to controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the Exchange Act), such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission (SEC). Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure.\n\n\nUnder the supervision and with the participation of our management, including our CEO and CFO, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of April 28, 2023, the end of the fiscal period covered by this Annual Report on Form 10-K (the Evaluation Date). Based on this evaluation, our CEO and CFO concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.\n\n\n(b) Management\u2019s Report on Internal Control Over Financial Reporting\n\n\nOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\n\n\nUnder the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in \nInternal Control \u2014 Integrated Framework (2013)\n issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of April 28, 2023, our internal control over financial reporting was effective at the reasonable assurance level based on those criteria.\n\n\nThe effectiveness of our internal control over financial reporting as of April 28, 2023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is included in Part II, Item 8 of this Annual Report on Form 10-K.\n\n\n(c) Changes in Internal Control Over Financial Reporting\n\n\nThere has been no change in our internal control over financial reporting identified in connection with our evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act that occurred during the fourth quarter of fiscal 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.\n\n\nIt\nem 9B.  Other Information\n\n\nNone.\n \n\n\nItem 9C.  Disclosure Regarding Foreign Jurisdictions that Prevent Inspections\n\n\nNot Applicable.\n\n\n91\n\n\n\n\n\u00a0\n\n\nPA\nRT III\n\n\nIt\nem 10.  \nDirectors, Executive Officers and Corporate Governance\n\n\nThe information required by Item 10 with respect to our executive officers is incorporated herein by reference from the information under Item 1 \u2013 Business of Part I of this Annual Report on Form 10-K under the section entitled \u201cInformation About Our Executive Officers.\u201d The information required by Item 10 with respect to the Company\u2019s directors and corporate governance is incorporated herein by reference from the information provided under the headings \u201cElection of Directors\u201d and \u201cCorporate Governance,\u201d respectively, in the Proxy Statement for the 2023 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days of our year ended April 28, 2023. The information required by Item 405 of Regulation S-K is incorporated herein by reference from the information provided under the heading \u201cDelinquent Section 16(a) Reports\u201d in the Proxy Statement for the 2023 Annual Meeting of Stockholders, to the extent applicable.\n\n\nWe have adopted a written code of ethics that applies to our Board of Directors and all of our employees, including our principal executive officer and principal financial and accounting officer. A copy of the code of ethics, which we refer to as our \u201cCode of Conduct,\u201d is available on our website at \nhttp://netapp.com/us/media/code-of-conduct.pdf.\n We will post any amendments to or waivers from the provisions of our Code of Conduct on our website.\n\n\nIt\nem 11.  \nExecutive Compensation\n\n\nInformation regarding the compensation of executive officers and directors of the Company is incorporated by reference from the information under the headings \u201cExecutive Compensation and Related Information\u201d and \u201cDirector Compensation,\u201d respectively, in our Proxy Statement for the 2023 Annual Meeting of Stockholders (provided that the information under the heading \"Pay Versus Performance\" shall not be deemed to be incorporated by reference herein).\n\n\nIt\nem 12.  \nSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\n\n\nInformation regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from the information under the heading \u201cSecurity Ownership of Certain Beneficial Owners and Management\u201d in our Proxy Statement for the 2023 Annual Meeting of Stockholders.\n\n\nIt\nem 13.  \nCertain Relationships and Related Transactions, and Director Independence\n\n\nInformation regarding certain relationships and related transactions and director independence is incorporated by reference from the information under the headings \u201cCorporate Governance\u201d and \u201cCertain Transactions with Related Parties\u201d in our Proxy Statement for the 2023 Annual Meeting of Stockholders.\n\n\nIt\nem 14.  \nPrincipal Accountant Fees and Services\n\n\nThe information required by this item is incorporated by reference from the information under the caption \u201cAudit Fees\u201d in our Proxy Statement for the 2023 Annual Meeting of Stockholders.\n\n\nWith the exception of the information incorporated in Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K, NetApp\u2019s Proxy Statement is not deemed \u201cfiled\u201d as part of this Annual Report on Form 10-K.\n\n\nPA\nRT IV\n\n\nIt\nem 15.  \nExhibits, Financial Statement Schedules\n\n\n(a) Documents filed as part of this report\n\n\n \n(1) All Financial Statements\n\n\nSee index to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K\n\n\n(2) Financial Statement Schedules\n\n\nAll financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this Form 10-K.\n\n\n(3) Exhibits required by Item 601 of Regulation S-K\n\n\nThe information required by this Section (a)(3) of Item 15 is as follows:\n\n\n92\n\n\n\n\n\u00a0\n\n\nEXHIBIT INDEX\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncorporation by Reference\n\n\n\n\n\n\nExhibit No\n\n\n\u00a0\n\n\nDescription\n\n\n\u00a0\n\n\nForm\n\n\n\u00a0\n\n\nFile No.\n\n\n\u00a0\n\n\nExhibit\n\n\n\u00a0\n\n\nFiling Date\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n3.1\n\n\n\u00a0\n\n\nCertificate of Incorporation of the Company, as amended.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n3.1\n\n\n\u00a0\n\n\nSeptember 13, 2021\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n3.2\n\n\n\u00a0\n\n\nBylaws of the Company.\n\n\n\u00a0\n\n\n8-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n3.2\n\n\n\u00a0\n\n\nSeptember 13, 2021\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n4.1\n\n\n\u00a0\n\n\nIndenture dated December 12, 2012, by and between the Company and U.S. Bank National Association.\n\n\n\u00a0\n\n\n8-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n4.1\n\n\n\u00a0\n\n\nDecember 12, 2012\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n4.2\n\n\n\u00a0\n\n\nFirst Supplemental Indenture dated December 12, 2012, by and between the Company and U.S. Bank National Association.\n\n\n\u00a0\n\n\n8-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n4.2\n\n\n\u00a0\n\n\nDecember 12, 2012\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n4.3\n\n\n\u00a0\n\n\nThird Supplemental Indenture dated September 29, 2017 by and between the Company and U.S. Bank National Association.\n\n\n\u00a0\n\n\n8-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n4.2\n\n\n\u00a0\n\n\nSeptember 29, 2017\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n4.4\n\n\n\u00a0\n\n\nFourth Supplemental Indenture, dated June 22, 2020, by and between NetApp, Inc. and U.S. Bank National Association.\n\n\n\u00a0\n\n\n8-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n4.2\n\n\n\u00a0\n\n\nJune 22, 2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n4.5\n\n\n\u00a0\n\n\nDescription of Capital Stock of the Company.\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.1*\n\n\n\u00a0\n\n\nForm of Indemnification Agreement by and between the Company and each of its directors and executive officers.\n\n\n\u00a0\n\n\n8-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.1\n\n\n\u00a0\n\n\nMay 31, 2023\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.2*\n\n\n\u00a0\n\n\nForm of Change of Control Severance Agreement.\n\n\n\u00a0\n\n\n8-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.1\n\n\n\u00a0\n\n\nMay 22, 2019\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.3*\n\n\n\u00a0\n\n\nThe Company\u2019s Amended and Restated Executive Compensation Plan, as amended effective June 20, 2018.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.1\n\n\n\u00a0\n\n\nAugust 21, 2018\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.4*\n\n\n\u00a0\n\n\nThe Company\u2019s Deferred Compensation Plan.\n\n\n\u00a0\n\n\n8-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n2.1\n\n\n\u00a0\n\n\nJuly 7, 2005\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.5*\n\n\n\u00a0\n\n\nThe Company\u2019s Employee Stock Purchase Plan, as amended effective July 19, 2021.\n\n\n\u00a0\n\n\nDEF 14A\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\nAppendix B\n\n\n\u00a0\n\n\nJuly 30, 2021\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.6*\n\n\n\u00a0\n\n\nThe Company\u2019s Amended and Restated 1999 Stock Option Plan, as amended effective July 19, 2018.\n\n\n\u00a0\n\n\nDEF 14A\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\nAppendix A\n\n\n\u00a0\n\n\nAugust 1, 2018\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.7*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Agreement approved for use under the Company\u2019s amended and restated 1999 Stock Option Plan (Employees).\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.4\n\n\n\u00a0\n\n\nNovember 26, 2013\n\n\n\n\n\n\n93\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.8*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Agreement (Employees) approved for use under the Company\u2019s 1999 Stock option Plan, effective June 2019.\n\n\n\u00a0\n\n\n10-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.14\n\n\n\u00a0\n\n\nJune 15, 2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.9*\n\n\n\u00a0\n\n\nForm of Stock Option Agreement approved for use under the Company\u2019s amended and restated 1999 Stock Option Plan (Non-Employee Director Automatic Stock Option \u2014 Initial).\n\n\n\u00a0\n\n\n10-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.29\n\n\n\u00a0\n\n\nJuly 8, 2005\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.10*\n\n\n\u00a0\n\n\nForm of Stock Option Agreement approved for use under the Company\u2019s amended and restated 1999 Stock Option Plan (Non-Employee Director Automatic Stock Option \u2014 Annual).\n\n\n\u00a0\n\n\n10-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.28\n\n\n\u00a0\n\n\nJuly 8, 2005\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.11*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Agreement approved for use under the Company\u2019s amended and restated 1999 Stock Option Plan (Non-Employees Directors).\n\n\n\u00a0\n\n\n10-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.17\n\n\n\u00a0\n\n\nJune 18, 2010\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.12*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Agreement (Non-Employee Directors) approved for use under the Company\u2019s 1999 Stock Option Plan.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.2\n\n\n\u00a0\n\n\nFebruary 11, 2019\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.13*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Agreement (Non-Employee Directors) approved for use under the Company\u2019s 1999 Stock Option Plan, effective June 2019.\n\n\n\u00a0\n\n\n10-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.19\n\n\n\u00a0\n\n\nJune 15, 2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.14*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Agreement (Performance-Based) Total Stockholder Return approved for use under the Company\u2019s 1999 Stock Option Plan, effective June 2019.\n\n\n\u00a0\n\n\n10-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.23\n\n\n\u00a0\n\n\nJune 15, 2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.15*\n\n\n\u00a0\n\n\nSolidFire, Inc. 2016 Stock Incentive Plan.\n\n\n\u00a0\n\n\nS-8\n\n\n\u00a0\n\n\n333-209570\n\n\n\u00a0\n\n\n99.2\n\n\n\u00a0\n\n\nFebruary 17, 2016\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.16*\n\n\n\u00a0\n\n\nSpotinst Inc. 2016 Equity Incentive Plan.\n\n\n\u00a0\n\n\nS-8\n\n\n\u00a0\n\n\n333-248480\n\n\n\u00a0\n\n\n99.1\n\n\n\u00a0\n\n\nAugust 28, 2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.17*\n\n\n\u00a0\n\n\nThe Company's 2021 Equity Incentive Plan, effective September 10, 2021.\n\n\n\u00a0\n\n\nDEF 14A\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\nAppendix A\n\n\n\u00a0\n\n\nJuly 30, 2021\n\n\n\n\n\n\n94\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.18*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Agreement approved for use under the Company's 2021 Equity Incentive Plan (Employee), effective September 10, 2021\n.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.1\n\n\n\u00a0\n\n\nDecember 2, 2021\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.19*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Agreement approved for use under the Company's 2021 Equity Incentive Plan (Senior Executive), effective September 10, 2021.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.2\n\n\n\u00a0\n\n\nDecember 2, 2021\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.20*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Agreement (Performance Based) under the Company's 2021 Equity Incentive Plan, effective September 10, 2021.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.3\n\n\n\u00a0\n\n\nDecember 2, 2021\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.21*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Agreement approved for use under the Company's 2021 Equity Incentive Plan (Non-Employee Director), effective November 1, 2021.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.1\n\n\n\u00a0\n\n\nMarch 2, 2022\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.22*\n\n\n\u00a0\n\n\nPlexistor Ltd. Amended and Restated Global Share Incentive Plan (2014).\n\n\n\u00a0\n\n\nS-8\n\n\n\u00a0\n\n\n333-219061\n\n\n\u00a0\n\n\n99.1\n\n\n\u00a0\n\n\nJune 29, 2017\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.23*\n\n\n\u00a0\n\n\nCognigo Research Ltd. Amended and Restated Global Share Incentive Plan (2016).\n\n\n\u00a0\n\n\nS-8\n\n\n\u00a0\n\n\n333-232187\n\n\n\u00a0\n\n\n99.1\n\n\n\u00a0\n\n\nJune 18, 2019\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.24*\n\n\n\u00a0\n\n\nCloudCheckr Inc. Amended and Restated 2017 Stock Option and Grant Plan.\n\n\n\u00a0\n\n\nS-8\n\n\n\u00a0\n\n\n333-261465\n\n\n\u00a0\n\n\n99.1\n\n\n\u00a0\n\n\nDecember 2, 2021\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.25*\n\n\n\u00a0\n\n\nOutside Director Compensation Policy, effective November 1, 2021.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.2\n\n\n\u00a0\n\n\nMarch 2, 2022\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.26*\n\n\n\u00a0\n\n\nAmended and Restated Instaclustr US Holding, Inc. 2018 Stock Option Plan\n \n\n\n\u00a0\n\n\nS-8\n\n\n\u00a0\n\n\n333-265648\n\n\n\u00a0\n\n\n99.1\n\n\n\u00a0\n\n\nJune 16, 2022\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.27*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Agreement (Performance-Based) \u2013 Billings approved for use under the Company\u2019s 2021 Equity Incentive Plan, effective July 1, 2022\n \n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.28*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Agreement (Performance-Based) \u2013 Total Shareholder Return approved for use under the Company\u2019s 2021 Equity Incentive Plan, effective July 1, 2022\n \n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.29\n\n\n\u00a0\n\n\nNetApp, Inc. Executive Retiree Health Plan, as amended and restated.\n\n\n\u00a0\n\n\n8-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.1\n\n\n\u00a0\n\n\nNovember 21, 2016\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.30\n\n\n\u00a0\n\n\nAmended and Restated Credit Agreement, dated as of January 22, 2021, by and among the NetApp, Inc, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent.\n\n\n\u00a0\n\n\n8-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.1\n\n\n\u00a0\n\n\nJanuary 22, 2021\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.31\n\n\n\u00a0\n\n\nAmendment No.1 to Amended and Restated Credit Agreement, dated as of November 17, 2021, by and among the Company, the\n \n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.3\n\n\n\u00a0\n\n\nMarch 2, 2022\n\n\n\n\n\n\n95\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nlenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.32\n\n\n\u00a0\n\n\nAmendment No.2 to Amended and Restated Credit Agreement, dated as of May 3, 2023, by and among the Company, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent.\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.33\n\n\n\u00a0\n\n\nForm of Dealer Agreement between the Company, as issuer, and each Dealer.\n\n\n\u00a0\n\n\n8-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.2\n\n\n\u00a0\n\n\nDecember 12, 2016\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.34\n\n\n\u00a0\n\n\nAgreement of Purchase and Sale and Joint Escrow Instructions dated as of March 9, 2016 by and between the Company and Google Inc.\n\n\n\u00a0\n\n\n10-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.41\n\n\n\u00a0\n\n\nJune 22, 2016\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.35\n\n\n\u00a0\n\n\nFirst Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated as of March 11, 2016, by and between the Company and Google Inc.\n\n\n\u00a0\n\n\n10-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.42\n\n\n\u00a0\n\n\nJune 22, 2016\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.36\n\n\n\u00a0\n\n\nSecond Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated as of April 8, 2016, by and between the Company and Google Inc.\n\n\n\u00a0\n\n\n10-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.43\n\n\n\u00a0\n\n\nJune 22, 2016\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.37\n\n\n\u00a0\n\n\nAgreement of Purchase and Sale and Joint Escrow Instructions dated as of September 11, 2017 by and between the Company and Google Inc.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.2\n\n\n\u00a0\n\n\nNovember 29, 2017\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.38\n\n\n\u00a0\n\n\nFirst Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated as of October 2, 2017, by and between the Company and Google LLC.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.3\n\n\n\u00a0\n\n\nNovember 29, 2017\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.39\n\n\n\u00a0\n\n\nSecond Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated as of October 25, 2017, by and between the Company and Google LLC.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.4\n\n\n\u00a0\n\n\nNovember 29, 2017\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.40\n\n\n\u00a0\n\n\nThird Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated as of October 31, 2017, by and between the Company and Google LLC.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.1\n\n\n\u00a0\n\n\nFebruary 22, 2018\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.41\n\n\n\u00a0\n\n\nFourth Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated as of November 2, 2017,\n \n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.2\n\n\n\u00a0\n\n\nFebruary 22, 2018\n\n\n\n\n\n\n96\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nby and between the Company and Google LLC.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.42\n\n\n\u00a0\n\n\nFifth Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated as of November 8, 2017, by and between the Company and Google LLC.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.3\n\n\n\u00a0\n\n\nFebruary 22, 2018\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.43\n\n\n\u00a0\n\n\nSixth Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions dated as of November 10, 2017, by and between the Company and Google LLC.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.4\n\n\n\u00a0\n\n\nFebruary 22, 2018\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.44\n\n\n\u00a0\n\n\nSeventh Amendment to the Agreement of Purchase and Sale and Joint Escrow Instructions dated as of March 15, 2019 by and between the Company and Google LLC.\n\n\n\u00a0\n\n\n10-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.54\n\n\n\u00a0\n\n\nJune 18, 2019\n\n\n\n\n\n\n10.45\n\n\n\u00a0\n\n\nSeparation Agreement dated May 28, 2020 by and between the Company and Henri Richard.\n\n\n\u00a0\n\n\n10-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.57\n\n\n\u00a0\n\n\nJune 15, 2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.46\n\n\n\u00a0\n\n\nOffer Letter for employment at the Company to C\u00e9sar Cernuda, date March 23, 2020.\n\n\n\u00a0\n\n\n10-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.58\n\n\n\u00a0\n\n\nJune 15, 2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.47\n\u00a0\n\n\n\u00a0\n\n\nSenior Executive Employment Contract by and between NetApp Sales Spain S.L., a subsidiary of the Company, and Cesar Cernuda, effective January 1, 2021\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.1\n\n\n\u00a0\n\n\nJanuary 29, 2021\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.48\n\u00a0\n\n\n\u00a0\n\n\nOffer Letter for employment at the Company to Michael J. Berry, dated January 30, 2020.\n\n\n\u00a0\n\n\n10-Q\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n10.1\n\n\n\u00a0\n\n\nAugust 28, 2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.49\n\u00a0\n\n\n\u00a0\n\n\nUnderwriting Agreement, dated June 17, 2020, by and among the Company, Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, BofA Securities, Inc. and Morgan Stanley & Co. LLC.\n\n\n\u00a0\n\n\n8-K\n\n\n\u00a0\n\n\n000-27130\n\n\n\u00a0\n\n\n1.1\n\n\n\u00a0\n\n\nJune 17, 2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n21.1\n\n\n\u00a0\n\n\nSubsidiaries of the Company.\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n23.1\n\n\n\u00a0\n\n\n\u00a0\nConsent of Independent Registered Public Accounting Firm.\n\n\n\u00a0\n\n\n\u00a0\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n24.1\n\n\n\u00a0\n\n\nPower of Attorney (see signature page).\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n31.1\n\n\n\u00a0\n\n\nCertification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n97\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n31.2\n\n\n\u00a0\n\n\nCertification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n32.1\n\n\n\u00a0\n\n\nCertification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n32.2\n\n\n\u00a0\n\n\nCertification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.INS\n\n\n\u00a0\n\n\nInline XBRL Instance Document \u2013 the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.SCH\n\n\n\u00a0\n\n\nInline XBRL Taxonomy Extension Schema Document\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.CAL\n\n\n\u00a0\n\n\nInline XBRL Taxonomy Calculation Linkbase Document\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.DEF\n\n\n\u00a0\n\n\nInline XBRL Taxonomy Extension Definition Linkbase Document\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.LAB\n\n\n\u00a0\n\n\nInline XBRL Taxonomy Label Linkbase Document\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.PRE\n\n\n\u00a0\n\n\nInline XBRL Taxonomy Extension Presentation Linkbase Document\n\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u2014\n\n\n\n\n\n\n104\n\n\n\u00a0\n\n\nCover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n*\tIdentifies management plan or compensatory plan or arrangement.\n\n\n(p)\tIdentifies paper format filed exhibit.\n\n\n98\n\n\n\n\n\u00a0\n\n\nSIGNATURES\n\n\nPursuant to the requirements of Sec\ntion 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNETAPP, INC.\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nBy:\n\n\n\u00a0\n\n\n/s/  GEORGE KURIAN\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nGeorge Kurian\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nChief Executive Officer and Director\n(Principal Executive Officer and Principal Operating Officer)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDate:  June 14, 2023\n\n\n\n\n\n\nPOWER OF ATTORNEY\n\n\nKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints George Kurian and Michael J. Berry, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue thereof.\n\n\nPursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSignature\n\n\n\u00a0\n\n\nTitle\n\n\n\u00a0\n\n\nDate\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/  \nGEORGE KURIAN\n\n\n\u00a0\n\n\nChief Executive Officer and Director\n \n(Principal Executive Officer\nand Principal Operating Officer)\n\n\n\u00a0\n\n\nJune 14, 2023\n\n\n\n\n\n\nGeorge Kurian\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/  MICHAEL J. BERRY\n\n\n\u00a0\n\n\nExecutive Vice President and Chief Financial Officer (Principal Financial Officer)\n\n\n\u00a0\n\n\nJune 14, 2023\n\n\n\n\n\n\nMichael J. Berry\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/  \nROBERT PARKS\n\n\n\u00a0\n\n\nVice President and Chief Accounting Officer\n \n(Principal Accounting Officer)\n\n\n\u00a0\n\n\nJune 14, 2023\n\n\n\n\n\n\nRobert Parks\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/  \nT. MICHAEL NEVENS\n\n\n\u00a0\n\n\nChairman of the Board\n\n\n\u00a0\n\n\nJune 14, 2023\n\n\n\n\n\n\nT. Michael Nevens\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/  \nGERALD HELD\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nJune 14, 2023\n\n\n\n\n\n\nGerald Held\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/  KATHRYN M. HILL\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nJune 14, 2023\n\n\n\n\n\n\nKathryn M. Hill\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/  DEBORAH KERR\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nJune 14, 2023\n\n\n\n\n\n\nDeborah Kerr\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ SCOTT SCHENKEL\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nJune 14, 2023\n\n\n\n\n\n\nScott Schenkel\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/  \nGEORGE T. SHAHEEN\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nJune 14, 2023\n\n\n\n\n\n\nGeorge T. Shaheen\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n/s/ CARRIE PALIN\n \n\n\n\u00a0\n\n\n\u00a0\nDirector\n\n\n\u00a0\n\n\n\u00a0\nJune 14, 2023\n\n\n\n\n\n\nCarrie Palin\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/  \nDEEPAK AHUJA\n\n\n\u00a0\n\n\n\u00a0\nDirector\n\n\n\u00a0\n\n\n\u00a0\nJune 14, 2023\n\n\n\n\n\n\nDeepak Ahuja\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n99\n\n\n\n\n\n\n\n",
+  "item1a": ">Item 1A\n\n\n\u00a0\n\n\nRisk Factors\n\n\n\u00a0\n\n\n14\n\n\n\n",
+  "item7": ">Item 7\n\n\n\u00a0\n\n\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\n\n\u00a0\n\n\n33\n\n\n\n",
+  "item7a": ">Item 7A\n\n\n\u00a0\n\n\nQuantitative and Qualitative Disclosures About Market Risk\n\n\n\u00a0\n\n\n50\n\n\n\n",
+  "cik": "1002047",
+  "cusip6": "64110D",
+  "cusip": ["64110D954", "64110D904", "64110D104", "64110d104"],
+  "names": ["Netapp Inc", "NETAPP INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1002047/000095017023027948/0000950170-23-027948-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0000950170-23-029412.json b/GraphRAG/standalone/data/all/form10k/0000950170-23-029412.json
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index 0000000000..328f9d6207
--- /dev/null
+++ b/GraphRAG/standalone/data/all/form10k/0000950170-23-029412.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1.\n\n\n\u00a0\n\n\nBUSINESS\n\n\n\u00a0\n\n\n1\n\n\n\n",
+  "item1a": ">ITEM 1A.\n\n\n\u00a0\n\n\nRISK FACTORS\n\n\n\u00a0\n\n\n14\n\n\n\n",
+  "item7": ">Item 7. \nManagement\u2019s Discussion and Analysis of \nFinancial Condition and Results of Operations\n \n\n\nYou should read the following Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under Item 1A, \u201cRisk Factors\u201d and elsewhere in this report.\n\n\nThe results of our outdoor products and accessories business, which was previously reported as a separate business segment, are being presented as discontinued operations in the consolidated statements of income for all periods presented, See Note 3 \u2013 \nDiscontinued Operations \nto our consolidated financial statements for additional information regarding these discontinued operations. Unless otherwise indicated, any reference to income statement items in this Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations refers to results from continuing operations.\n \n\n\n2023 Highlights\n \n\n\nOur operating results for fiscal 2023 included the following:\n\n\n\u2022\nNet sales of $479.2 million represented a decrease of $384.9 million, or 44.5%, from our fiscal 2022 net sales. The decrease in net sales was primarily as a result of a return to more normalized demand from the historic pandemic-related demand that lasted from March 2020 through the beginning of fiscal 2022 combined with a reduction in inventory within the distribution channel.\n\n\n\u2022\nGross profit decreased $220.0 million, or 58.7%, from the prior fiscal year primarily as a result of lower sales volume. Gross margin decreased 11.1% from the prior fiscal year as a result of reduced sales volumes across nearly all product lines, combined with the impact of inflation, unfavorable fixed-cost absorption due to lower production volume, and expenses related to the Relocation. These unfavorable impacts were partially offset by decreased compensation costs and favorable inventory valuation adjustments caused by amortization of variance capitalization offset by an increase in excess and obsolescence reserves.  \n\n\n\u2022\nNet income was $36.9 million, or $0.80 per diluted share, compared with net income of $194.5 million, or $4.08 per diluted share, for the prior fiscal year. \n\n\n\u2022\nDuring fiscal 2023, we paid $18.3 million in dividends compared with $15.0 million in fiscal 2022.\n\n\n\u2022\nOn September 30, 2021, we announced the Relocation. In connection with the Relocation, we are building a new facility in Maryville. Our corporate headquarters, some of our Springfield manufacturing operations, a portion of our Deep River plastic injection molding facility, and our Columbia distribution operations will be relocated to Maryville. In total, we expect to incur capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of approximately $160.0 million to $170.0 million through the end of fiscal 2024. Through April 30, 2023, we had incurred $93.5 million of capital expenditures and $18.5 million of other restructuring charges related to the Relocation.\n\n\nKey Performance Indicators\n \n\n\nWe evaluate the performance of our business based upon operating profit, which includes net sales, cost of sales, selling and administrative expenses, and certain components of other income and expense. We also track our return on invested capital, and we use adjusted EBITDAS (earnings before interest, taxes, depreciation, amortization, and stock-based compensation expense, excluding certain non-operational items), which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of\n \n\n\n37\n\n\n\n\n\u00a0\n\n\nunderlying performance trends. We evaluate the performance of our products using measurements such as gross margin per unit produced, units produced per day, revenue by trade channel, and incoming orders per day.\n \n\n\nExternal Factors that Impact the Firearm Industry\n \n\n\nThe firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for companies within the industry. These factors include, among others, fears surrounding crime and terrorism; significant news events, such as those related to mass shootings; potential restrictions on the sale or makeup of firearms; actual and potential legislative, judicial, and regulatory actions; economic changes; and changes in the social and political environment, including congressional and presidential elections. See Item IA, \nRisk Factors, \nfor further discussion of external factors that impact the firearm industry. Although these external factors have created demand surges and volatility in the firearm market, and often make it difficult to predict demand, we believe that those external factors have also likely contributed to a long-term increase in consumer interest in firearms. We estimate that the annual domestic non-military firearm market is approximately $3.5 billion for handguns and $1.6 billion for long guns, excluding shotguns, based on the latest data for industry shipments as calculated by the National Shooting Sports Foundation, or NSSF, utilizing Firearms and Ammunition Excise Tax data for calendar year 2022. According to calendar 2021 reports by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, or ATF, the U.S. firearm manufacturing industry grew at a 3.7% compound annual growth rate in units from 2016 through 2021, although there has been wide variation among years (e.g., 2019 to 2020 grew 58.0%). We believe that this expanding base of consumers combined with our strong brand reputation and attractive price points lend support to our goal of continuing to increase our market share.\n\n\nResults of Operations\n \n\n\nNet Sales and Gross Profit\n\n\nThe following table sets forth certain information regarding net sales and gross profit for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nHandguns\n\n\n\u00a0\n\n\n$\n\n\n360,668\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n624,219\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(263,551\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-42.2\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n755,735\n\n\n\u00a0\n\n\n\n\n\n\nLong Guns\n\n\n\u00a0\n\n\n\u00a0\n\n\n74,230\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n189,467\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(115,237\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-60.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n253,340\n\n\n\u00a0\n\n\n\n\n\n\nOther Products & Services\n\n\n\u00a0\n\n\n\u00a0\n\n\n44,344\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n50,440\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,096\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-12.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n50,120\n\n\n\u00a0\n\n\n\n\n\n\nTotal net sales\n\n\n\u00a0\n\n\n$\n\n\n479,242\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n864,126\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(384,884\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-44.5\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n1,059,195\n\n\n\u00a0\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n324,705\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n489,562\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(164,857\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-33.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n610,212\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n$\n\n\n154,537\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n374,564\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(220,027\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-58.7\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n448,983\n\n\n\u00a0\n\n\n\n\n\n\n% of net sales (gross margin)\n\n\n\u00a0\n\n\n\u00a0\n\n\n32.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n43.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n42.4\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nThe following table sets forth certain information regarding units shipped by trade channel for the fiscal years ended April 30, 2023, 2022, and 2021 (units in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTotal Units Shipped\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n# Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nHandguns\n\n\n\u00a0\n\n\n\u00a0\n\n\n793\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,518\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(725\n\n\n)\n\n\n\u00a0\n\n\n-47.8%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,079\n\n\n\u00a0\n\n\n\n\n\n\nLong Guns\n\n\n\u00a0\n\n\n\u00a0\n\n\n148\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n363\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(215\n\n\n)\n\n\n\u00a0\n\n\n-59.2%\n\n\n\u00a0\n\n\n\u00a0\n\n\n524\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSporting Goods Channel Units Shipped\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n# Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nHandguns\n\n\n\u00a0\n\n\n\u00a0\n\n\n734\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,422\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(688\n\n\n)\n\n\n\u00a0\n\n\n-48.4%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,953\n\n\n\u00a0\n\n\n\n\n\n\nLong Guns\n\n\n\u00a0\n\n\n\u00a0\n\n\n137\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n342\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(205\n\n\n)\n\n\n\u00a0\n\n\n-59.9%\n\n\n\u00a0\n\n\n\u00a0\n\n\n508\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProfessional Channel Units Shipped\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n# Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nHandguns\n\n\n\u00a0\n\n\n\u00a0\n\n\n59\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n96\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(37\n\n\n)\n\n\n\u00a0\n\n\n-38.5%\n\n\n\u00a0\n\n\n\u00a0\n\n\n126\n\n\n\u00a0\n\n\n\n\n\n\nLong Guns\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10\n\n\n)\n\n\n\u00a0\n\n\n-47.6%\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n38\n\n\n\n\n\u00a0\n\n\nFiscal 2023 Net Sales and Gross Profit Compared with Fiscal 2022\n \n\n\nSales of our handguns decreased $263.6 million, or 42.2%, from fiscal 2022, primarily as a result of a return to more normalized demand from the historic pandemic-related demand that lasted from March 2020 through the beginning of fiscal 2022 as competing products became more available through the replenishment of depleted channel inventory, partially offset by net sales generated from increased shipments of new products, which represented 26.8% of sales in the period, combined with one price increase of 5% on select products. Handgun unit shipments into the sporting goods channel decreased 48.4% from fiscal 2022, while overall consumer demand decreased 3.3%, (as indicated by adjusted background checks for handguns reported to the National Instant Criminal Background Check System, or NICS). In addition, during the fiscal year, handgun inventory in our distribution channel declined by 44.4%, which negatively impacted our net sales.\n\n\nSales of our long guns decreased $115.2 million, or 60.8%, from fiscal 2022. Similar to handgun sales, this decrease was primarily a result of lower demand for the majority of our long gun products as competing products became more available through the replenishment of depleted channel inventory, partially offset by increased shipments of new products in the fiscal year, which represented 36.3% of sales in the period. Unit shipments into the sporting goods channel decreased 59.9% from fiscal 2022, while overall consumer demand for long guns decreased 5.9%, as indicated by NICS. In addition, during the fiscal year, long gun inventory in our distribution channel declined by 49.6%, which negatively impacted our net sales.\n\n\nWe believe that overall firearm demand remains healthy, as indicated by NICS data, but has normalized from the surge levels we experienced during much of calendar years 2020 and 2021. We believe our comparable shipments year over year underperformed in comparison to NICS primarily because of an over-replenishment of our channel inventory during the first three quarters of fiscal 2022, at which time channel inventory peaked, and which led to our distribution partners actively seeking to reduce inventory of our products during fiscal 2023.\n\n\nOther products and services sales decreased $6.1 million, or 12.1%, from fiscal 2022, primarily because of decreased sales of component parts and business-to-business sales, partially offset by increased sales of handcuffs.\n\n\nNew products, defined as any new SKU not shipped in the prior year, represented 25.8% of net sales for the 12 months ended April 30, 2023 and included three new pistols, one new modern sporting rifle, and many new product line extensions.\n \n\n\nGross margin for fiscal 2023 decreased by 11.1% from \nthe prior fiscal year, primarily because of a combination of reduced sales volumes across nearly all product lines, the impact of inflation on raw material and finished parts, which increased approximately 9.6% over the prior year, the impact of inflation on labor costs, particularly as it relates to entry level positions, unfavorable fixed-cost absorption due to lower production volume, and expenses related to employee severance, partially offset by decreased compensation costs and favorable inventory valuation adjustments caused by amortization of variance capitalization offset by an increase in excess and obsolescence reserves. We generally attempt to mitigate inflationary impacts with price increases, when and where possible, based on market dynamics, and process improvements, although our ability to utilize process improvements in recent periods has been constrained by factors related to the Relocation.\n\n\nOur inventory levels increased $40.5 million during fiscal 2023, as we slowly ramped down production to minimize impact to our employees and suppliers while replenishing stock to provide our customers with a more robust selection of inventory and position ourselves for potential increases in consumer demand and plan for the Relocation. During the second half of fiscal 2023, our inventory balances decreased $16.3 million. While inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results, it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted\n \n\n\n39\n\n\n\n\n\u00a0\n\n\nby many factors, including seasonality, new product introductions, news events, political events, and consumer tastes. We expect our inventories to remain elevated as we begin our transition to our new facility in Maryville.\n\n\nA discussion of our results of net sales and gross profit for fiscal 2022 compared to fiscal 2021 is included in Part II, Item 7. \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Annual Report on Form 10-K for fiscal 2022, filed with the SEC on June 23, 2022.\n\n\nOperating Expenses\n \n\n\nThe following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n$\n\n\n7,550\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7,262\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n288\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.0\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n7,480\n\n\n\u00a0\n\n\n\n\n\n\nSelling, marketing, and distribution\n\n\n\u00a0\n\n\n\u00a0\n\n\n36,976\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n43,156\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,180\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-14.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,603\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n61,604\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n72,493\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10,889\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-15.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n79,268\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating expenses\n\n\n\u00a0\n\n\n$\n\n\n106,130\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n122,911\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(16,781\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-13.7\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n129,351\n\n\n\u00a0\n\n\n\n\n\n\n% of net sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.2\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nFiscal 2023 Operating Expenses Compared with Fiscal 2022\n\n\nOperating expenses decreased $16.8 million from the prior fiscal year. Research and development expenses increased $288,000, primarily because of increased new product development costs, partially offset by decreased compensation-related costs. Selling, marketing, and distribution expenses decreased $6.2 million, primarily as a result of decreased compensation-related expenses, decreased co-op advertising expenses, decreased advertising costs, and decreased freight costs due to lower shipments, partially offset by increased spending on targeted customer promotions. General and administrative expenses decreased $10.9 million, primarily because of a decrease of $5.3 million in profit sharing expense, decreased profit-related compensation costs, lower costs associated with the Relocation, decreased legal-related expenses, and decreased bad debt expense, partially offset by increased travel and entertainment expenses. Fiscal 2023 general and administrative expenses were reduced by sublease income of $1.8 million, of which $1.6 million was reported in other income/(expense) in fiscal 2022.\n\n\nFiscal 2022 Operating Expenses Compared with Fiscal 2021\n\n\nOperating expenses decreased $6.4 million from the prior fiscal year. Research and development expenses decreased $218,000, primarily because of decreased compensation-related costs, driven by temporarily unfilled positions, we believe as a result of the Relocation. Selling, marketing, and distribution expenses increased $553,000, primarily as a result of increased digital advertising costs and expenses relating to industry shows, partially offset by decreased co-op advertising expenses on lower sales and decreased freight costs due to lower shipments. General and administrative expenses decreased $6.8 million, primarily because of a decrease of $7.0 million related to Separation costs incurred in the prior year, $5.2 million of lower compensation-related expenses primarily as a result of the synergy savings realized from the Separation, and a decrease of $1.5 million in depreciation expenses, partially offset by an increase of $5.6 million of costs associated with the Relocation and $1.4 million of increased legal-related expenses.\n\n\nOperating Income from Operations\n\n\nThe following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nOperating income from operations\n\n\n\u00a0\n\n\n$\n\n\n48,407\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n251,653\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(203,246\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-80.8\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n319,632\n\n\n\u00a0\n\n\n\n\n\n\n% of net sales (operating margin)\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n29.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.2\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n40\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023 Operating Income from Operations Compared with Fiscal 2022\n\n\n\u00a0\n\n\nOperating income from operations for fiscal 2023 decreased $203.2 million, or 80.8%, from the prior fiscal year, primarily because of reduced sales volumes across nearly all product lines, unfavorable fixed-cost absorption,  and increased spending on targeted customer promotions, partially offset by decreased profit sharing expense, decreased profit-related compensation costs, lower costs associated with the Relocation, decreased legal-related expenses,  decreased bad debt expense, favorable inventory valuation adjustments, and the change in classification of rental income.\n\n\nFiscal 2022 Operating Income from Operations Compared with Fiscal 2021\n\n\n\u00a0\n\n\nOperating income from operations for fiscal 2022 decreased $68.0 million, or 21.3%, from the prior fiscal year, primarily because of reduced sales volumes across nearly all product lines, unfavorable fixed-cost absorption, expenses incurred in relation to the Relocation, and increased legal costs. These unfavorable impacts were partially offset by lower promotional product spending, lower spend related to the Separation, decreased co-op advertising expenses, and decreased freight costs.\n\n\nOther Income\n\n\nThe following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nOther income\n\n\n\u00a0\n\n\n$\n\n\n150\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,868\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(2,718\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-94.8\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n2,252\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nOther income for fiscal 2023 decreased $2.7 million, or 94.8%, from the prior fiscal year, primarily as a result of the reclassification of sublease income to general and administrative expenses and interest expense, as applicable, in the current fiscal year.\n\n\nInterest (Expense)\n\n\nThe following table sets forth certain information regarding interest expense for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n$\n\n\n(331\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(2,135\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(1,804\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-84.5\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n(3,919\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\nInterest expense decreased by $1.8 million, or 84.5%, from the prior fiscal year primarily as a result of the reclassification of interest income on the sublease from other income combined with higher average interest rates paid on cash on deposit.\n\n\nIncome Tax Expense\n\n\nThe following table sets forth certain information regarding income tax expense for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax expense\n\n\n\u00a0\n\n\n$\n\n\n11,350\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n57,892\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(46,542\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-80.4\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n74,394\n\n\n\u00a0\n\n\n\n\n\n\n% of income from operations (effective tax rate)\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.4\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n41\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nWe recorded income tax expense of $11.4 million for fiscal 2023, $46.5 million lower than the prior fiscal year, primarily because of decreased profitability. The effective tax rates were 23.5% and 22.9% for fiscal 2023 and 2022, respectively.\n\n\n\u00a0\n\n\nWe recorded income tax expense of $57.9 million for fiscal 2022, $16.5 million lower than the prior fiscal year, primarily because of decreased profitability. The effective tax rates were 22.9% and 23.4% for fiscal 2022 and 2021, respectively.\n\n\n\u00a0\n\n\nNet Income\n\n\nThe following table sets forth certain information regarding net income and the related per share data for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands, except per share data):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n36,876\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n194,494\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(157,618\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-81.0\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n243,571\n\n\n\u00a0\n\n\n\n\n\n\nNet income per share\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n\u00a0\n\n\n$\n\n\n0.80\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.12\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(3.32\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-80.6\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n4.46\n\n\n\u00a0\n\n\n\n\n\n\nDiluted\n\n\n\u00a0\n\n\n$\n\n\n0.80\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.08\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(3.28\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-80.4\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n4.40\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nFiscal 2023 Net Income Compared with Fiscal 2022\n\n\n\u00a0\n\n\nNet income decreased $157.6 million, or $3.32 per diluted share, from the prior fiscal year for reasons outlined above.\n\n\nFiscal 2022 Net Income Compared with Fiscal 2021\n\n\n\u00a0\n\n\nNet income decreased $49.1 million, or $0.34 per diluted share, from the prior fiscal year for reasons outlined above.\n\n\nLiquidity and Capital Resources\n \n\n\nOur principal cash requirements are to (1) finance the growth of our operations, including working capital and capital expenditures, (2) fund the Relocation, and (3) return capital to our stockholders.  Capital expenditures for the Relocation, new product development, and repair and replacement of equipment represent important cash needs.\n\n\nThe following table sets forth certain cash flow information for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nOperating activities\n\n\n\u00a0\n\n\n$\n\n\n16,732\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n137,814\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(121,082\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-87.9\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n317,260\n\n\n\u00a0\n\n\n\n\n\n\nInvesting activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(89,781\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(24,116\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(65,665\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-272.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(22,261\n\n\n)\n\n\n\n\n\n\nFinancing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,877\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(105,987\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n111,864\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n105.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(303,758\n\n\n)\n\n\n\n\n\n\nTotal cash flow\n\n\n\u00a0\n\n\n$\n\n\n(67,172\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n7,711\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(74,883\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-971.1\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n(8,759\n\n\n)\n\n\n\n\n\n\nOperating Activities\n \n\n\nOperating activities represent the principal source of our cash flow.\n \n\n\nCash provided by operating activities was $16.7 million in fiscal 2023, or $121.1 million lower than the prior fiscal year. Cash from operating activities was negatively impacted by a $157.7 million reduction in net income, partially offset by an incremental $17.7 million decrease in inventory and an incremental $18.4 million increase in accounts payable.\n \n\n\nCash provided by operating activities was $137.8 million in fiscal 2022, or $179.4 million lower than the prior fiscal year. The fiscal 2022 cash from operating activities was negatively impacted by an incremental $83.4 million increase in inventory due to increased production capacity combined with reduced consumer demand, an incremental\n \n\n\n42\n\n\n\n\n\u00a0\n\n\n$52.5 million decrease in accounts payable due to lower operating activities, and the impact of paying the fiscal 2021 profit sharing in fiscal 2022. These unfavorable impacts were partially offset by an incremental $14.9 million increase in accrued expenses as a result of the payment of deferred federal excise tax liabilities during the first quarter of 2021, the fulfillment of performance obligations relating to sales promotions in the prior year, and a $9.9 million decrease in accounts receivable due to timing of shipments and customer payments.\n \n\n\nInvesting Activities\n \n\n\nCash used in investing activities in fiscal 2023 was $89.8 million, or $65.7 million higher than fiscal 2022. We recorded capital expenditures of $89.6 million for fiscal 2023, $65.6 million higher than fiscal 2022. Capital expenditures relating to the Relocation were $73.2 million for fiscal 2023, of which $513,000 is capitalized interest. Excluding spending related to the Relocation, we currently expect to spend between $20.0 million and $25.0 million on capital expenditures in fiscal 2024.\n \n\n\nAdditionally, as it relates to the Relocation, we currently expect to spend between $70.0 million and $75.0 million on capital expenditures in fiscal 2024, of which $50.0 million to $55.0 million is expected for the construction of the facility.\n\n\nCash used in investing activities in fiscal 2022 was $24.1 million, or $1.9 million higher than fiscal 2021 primarily due to cash used for capital expenditures.\n\n\nFinancing Activities\n \n\n\nCash provided by financing activities was $5.9 million in fiscal 2023 compared with cash used of $106.0 million in fiscal 2022. Cash provided by financing activities during fiscal 2023 was primarily a result of $25.0 million of borrowings under our revolving line of credit, partially offset by $18.3 million in dividend distributions.\n \n\n\nCash used in financing activities was $106.0 million in fiscal 2022, or $197.8 million lower than fiscal 2021. Cash used in financing activities during fiscal 2022 primarily included $90.0 million of share repurchases and $15.0 million in dividend distributions.\n\n\nFinance Lease\n \n \u2013 \nWe are a party to a material finance lease, the Missouri Lease, which is a $46.2 million lease for our Missouri distribution center that has an effective interest rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039. The building is pledged to secure the amounts outstanding. During fiscal 2023, we paid approximately $1.2 million in principal payments relating to the Missouri Lease. With the completion of the Separation, we entered into the Missouri Sublease. On July 16, 2022, we entered into an amendment to the Missouri Sublease, increasing the subleased space to 64.7% of the facility under the same terms as the Missouri Lease. On January 31, 2023, we entered into the Assignment and Assumption Agreement and the Amended and Restated Guaranty. We intend to terminate the Missouri Sublease on or around the effective date of the Assignment and Assumption Agreement. We recorded $2.3 million of income related to the Missouri Sublease, of which $1.1 million was recorded in general and administrative expenses and $1.2 million was recorded in interest income in our condensed consolidated statements of income.\n\n\nCredit Facilities\n \n\u2013 \nWe maintain an unsecured revolving line of credit with TD Bank, N.A. and other lenders, or the Lenders, which includes availability up to $100.0 million at any one time, or the Revolving Line. The revolving line provides for availability for general corporate purposes, with borrowings to bear interest at either the Base Rate or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio, as of April 30, 2023. The credit agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the revolving line). Each swingline loan bears interest at the Base Rate, plus an applicable margin based on our consolidated leverage ratio. In response to a Springing Lien Triggering Event (as defined in the credit agreement), we would be required to enter into certain documents that create in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents as legal, valid, and enforceable first priority lien on the collateral described therein. Subject to the satisfaction of certain terms and conditions described in the credit agreement, we have an option to increase the revolving line by an aggregate amount not exceeding $50.0 million. The revolving line matures on the earlier of August 24, 2025, or the date that is six months in advance of the earliest maturity of any permitted notes under the credit agreement.\n\n\n43\n\n\n\n\n\u00a0\n\n\nOn April 28, 2023, we entered into an amendment to our existing credit agreement to, among other things, replace LIBOR with SOFR as the interest rate benchmark and amend the definition of \"Consolidated Fixed Charge Coverage Ratio\" to exclude unfinanced capital expenditures in connection with the Relocation.\n\n\nAs of April 30, 2023, we had $25.0 million of borrowings outstanding on the Revolving Line, which bore interest at 6.62%, which was equal to the LIBOR rate plus an applicable margin.\n \n\n\nThe credit agreement for our credit facility contains financial covenants relating to maintaining maximum leverage and minimum debt service coverage. We were in compliance with all debt covenants as of April 30, 2023.\n\n\nShare Repurchase Programs\n \n\u2013\n On March 2, 2021, our board of directors authorized the repurchase of $100.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions until March 2022. Pursuant to this authorization, during fiscal 2021, we purchased 3,380,447 shares of our common stock for $60.0 million, utilizing cash on hand. During fiscal 2022, we completed this stock repurchase program by purchasing 1,967,420 of our common stock for $40.0 million, utilizing cash on hand. On June 15, 2021, our board of directors authorized the repurchase of an additional $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions, until August 2022. Pursuant to this authorization, during fiscal 2022, we completed this repurchase program by purchasing 2,788,152 shares of our common stock for $50.0 million, utilizing cash on hand. As of April 30, 2023, we had no authorized share repurchase programs. We did not purchase any shares of our common stock during fiscal 2023.\n \n\n\nAt April 30, 2023, we had $53.6 million in cash and cash equivalents on hand.\n \n\n\nBased upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations for the next 12 months.\n \n\n\nOur future capital requirements will depend on many factors, including net sales, the construction of the new facility in Maryville, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, and the costs to ensure access to adequate manufacturing capacity.\n \n\n\nInflation\n \n\n\nDuring fiscal 2023, inflationary pressures resulted in increases in the cost of certain of the components, parts, raw materials, and other supplies necessary for the production of our products, as well as labor costs.  We do not believe that inflation had a material impact on us during fiscal 2022 or 2021. We expect that there will be an increased impact from inflation during fiscal 2024.\n\n\nCritical Accounting Estimates\n\n\nManagement's discussion and analysis of financial condition and results of operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires that we make accounting estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements.  See Note 2  \u2014 Significant Accounting Policies for additional information.\n\n\nCritical accounting estimates are defined as those reflective of significant judgments, estimates, and uncertainties, which may result in materially different results under different assumptions and conditions. The Company believes the following are its critical accounting estimates:\n\n\nRevenue Recognition\n \n\n\nDescription\n: We recognize revenue in accordance with the provisions of Accounting Standards Update, or ASU, \nRevenue from Contracts with\n \nCustomers\n (Topic 606), which became effective for us on May 1, 2018. Generally,\n \n\n\n44\n\n\n\n\n\u00a0\n\n\nall performance obligations are satisfied and revenue is recognized when the risks and rewards of ownership have transferred to the customer, which is generally upon shipment but could be delayed until the receipt of customer acceptance.\n \n\n\nJudgments and Uncertainties\n: In some instances, sales include multiple performance obligations. These may include sales promotion programs that entitle customers to receive rebates or free goods based upon their purchase of our products. The fulfillment of these free goods is our responsibility. We recognize revenue proportionally as each performance obligation is satisfied, based on the relative transaction price of each product. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.\n\n\nOur product sales are generally sold free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 60 days of product shipment with a discount available in certain cases for early payment. In some instances, we may provide longer payment terms. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are always less than one year. In all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.\n\n\nSensitivity of Estimate to Change\n:\n \nThe liability relating to performance obligations is based on the estimated level of participation in the sales promotional program and the timing of the shipment of all products included in the promotional program.  For contracts with discounted terms, we determine the transaction price upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled.\n \n\n\nValuation of Goodwill,  Long-lived Tangible, and Intangible Assets\n \n\n\nDescription\n:\n \nWe evaluate the recoverability of long-lived assets, or asset groups, whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. When such evaluations indicate that the related future undiscounted cash flows are not sufficient to recover the carrying values of the assets, such carrying values are reduced to fair value and this adjusted carrying value becomes the asset\u2019s new cost basis. We determine fair value primarily using future anticipated cash flows that are directly associated with and are expected to arise as a direct result of the use and eventual disposition of the asset, or asset group, discounted using an interest rate commensurate with the risk involved.\n \n\n\nJudgments and Uncertainties\n: Determining whether impairment indicators exist and estimating the fair value of our goodwill, tangible and intangible assets requires significant judgment. Estimating the fair value of goodwill requires management to make assumptions and projections of future cash flows, revenues, earnings, discount rates, long term growth rates, and other factors.\n\n\nSensitivity of Estimate to Change\n: The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with our operating strategy. Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses.\n\n\nInventories\n\n\nDescription\n: We value inventories at the lower of cost, using the first-in, first-out, or FIFO, method, or net realizable value.\n \n\n\nJudgments and Uncertainties\n: An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a detailed review of inventory, past history, and expected future usage.\n \n\n\nSensitivity of Estimate to Change\n: The assumptions used to assess inventory valuation consider historical activity. Changes in these estimates can have a significant impact on the assessment of excess and obsolete inventory, which could result in material losses.\n\n\n45\n\n\n\n\n\u00a0\n\n\nWarranty\n \n\n\nDescription\n: We generally provide a limited one-year warranty and a lifetime service policy to the original purchaser of our new firearm products. We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value, at our option, without charge during the warranty period. We provide for estimated warranty obligations in the period in which we recognize the related revenue.\n \n\n\nJudgments and Uncertainties\n: We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We adjust accruals as warranty claims data and historical experience warrant. Should we experience actual claims and repair costs that are higher than the estimated claims and repair costs used to calculate the provision, our operating results for the period or periods in which such returns or additional costs materialize could be adversely impacted.\n\n\nSensitivity of Estimate to Change\n: The assumptions used to assess warranty consider historical trends. Changes in these estimates can have a significant impact on the assessment of warranty, which could result in material losses.\n\n\nRelocation\n\n\nDescription\n:\n \nAs part of the Relocation, we offered a severance and relocation package to every affected employee. The severance was, in part, based on the employee's service term, job function, and classification status, and required the employee to remain active and in good standing through their relocation date.\n\n\nJudgments and Uncertainties\n:\n \nIn accounting for severance and relocation costs, management must make a variety of assumptions and estimates, including, but not limited to, the number of employees that will meet all of the requirements to receive the severance and relocation package, the number of those employees that will be electing to relocate versus opt for severance, and the potential cost of self-insured benefits that may be incurred during any potential severance period. We consider current facts when determining these estimates.\n \n\n\nSensitivity of Estimate to Change\n: The liabilities relating to severance and relocation obligations is based on the number of employees affected by the Relocation, the number of employees that have decided to relocate, the estimated cost of benefits during the severance period, and the employees' terms of service and rates of pay as of the fiscal year end. Changes in these assumptions can have a significant impact on the estimate of these liabilities.\n\n\nRecent Accounting Pronouncements\n \n\n\nThe nature and impact of recent accounting pronouncements is discussed in Note 2 \u2014 \nSignificant Accounting Policies\n to our consolidated financial statements, which is incorporated herein by reference.\n \n\n\nOff-Balance Sheet Arrangements\n \n\n\nWe do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources. We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support or that engage in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected in our financial statements.\n \n\n\nI\ntem 7A. Quantitative and Qualitative Disclosures about Market Risk\n \n\n\nWe do not enter into any market risk sensitive instruments for trading purposes. Our principal market risk relates to the variable interest rate associated with our credit agreement, which consists of a $100.0 million revolving line of credit that bears interest at a variable rate equal to LIBOR or prime, at our election, plus an applicable margin based on our consolidated leverage ratio. For more information regarding our financing arrangements, see Note 5 \u2014 \nNotes, Loans Payable, and Financing Arrangements\n. As of April 30, 2023, we had $25.0 million of borrowings outstanding on the Revolving Line, which bore an interest rate of 6.62%, which is equal to the LIBOR rate plus an applicable margin. On April 28, 2023, we entered into an amendment to our existing credit agreement to, among other things, replace LIBOR with SOFR as the interest rate benchmark and amend the definition of \"Consolidated Fixed Charge Coverage Ratio\" to exclude unfinanced capital expenditures in connection with the Relocation.\n\n\n46\n\n\n\n\n\u00a0\n\n\nI\ntem 8. Financial Statements and Supplementary Data\n \n\n\nReference is made to our consolidated financial statements, the notes thereto, and the report thereon, commencing on page F-1 of this report, which financial statements, notes, and report are incorporated herein by reference.\n\n\nI\ntem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure\n \n\n\nNot applicable.\n \n\n\nI\ntem 9A. Controls and Procedures\n \n\n\nEvaluation of Disclosure Controls and Procedures\n \n\n\nWe maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC\u2019s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.\n\n\nOur management, under the supervision of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of April 30, 2023, the end of the period covered by this Annual Report on Form-10-K. Based on that evaluation, we have concluded that, as of the end of the period covered by this Annual Report on Form-10-K, our disclosure controls and procedures were effective to provide such reasonable assurance.\n\n\nManagement\u2019s Annual Report on Internal Control Over Financial Reporting\n\n\nEvaluation of Disclosure Controls and Procedures\n\n\nManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.\n\n\n\u00a0\n\n\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies may deteriorate.\n\n\n\u00a0\n\n\nManagement conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Based on that evaluation, management believes that our internal control over financial reporting was effective as of April 30, 2023.\n\n\n\u00a0\n\n\nThe effectiveness of our internal control over financial reporting as of April 30, 2023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, which also audited our consolidated financial statements for fiscal 2023. Deloitte & Touche LLP's report on our internal control over financial reporting is included herein.\n\n\nInherent Limitations on the Effectiveness of Controls and Procedures\n\n\nIn designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of\n \n\n\n47\n\n\n\n\n\u00a0\n\n\nachieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and we are is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.\n\n\nChanges in Internal Control over Financial Reporting\n \n\n\nThere was no change in our internal control over financial reporting that occurred during our fourth fiscal quarter of 2023 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.\n\n\nI\ntem 9B. Other Information\n \n\n\nNot applicable.\n\n\nItem 9C. D\nisclosure Regarding Foreign Jurisdictions that Prevent Inspections\n\n\nNot applicable.\n \n\n\n48\n\n\n\n\n\u00a0\n\n\nP\nART III\n \n\n\nI\ntem 10. Directors, Executive Officers and Corporate Governance\n \n\n\nThe information required by this Item relating to our directors and corporate governance is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2023 Annual Meeting of Stockholders. The information required by this Item relating to our executive officers is included in Item 1, \u201cBusiness \u2014 Executive Officers\u201d of this report.\n \n\n\nI\ntem 11. Executive Compensation\n \n\n\nThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2023 Annual Meeting of Stockholders.\n \n\n\nI\ntem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\n \n\n\nThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2023 Annual Meeting of Stockholders.\n \n\n\nI\ntem 13. Certain Relationships and Related Transactions, and Director Independence\n \n\n\nThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2023 Annual Meeting of Stockholders.\n \n\n\nI\ntem 14. Principal Accountant Fees and Services\n \n\n\nThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2023 Annual Meeting of Stockholders.\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n49\n\n\n\n\n\u00a0\n\n\nP\nART IV\n\n\nI\ntem 15. Exhibits and Financial Statement Schedules\n\n\n(a)\nFinancial Statements and Financial Statement Schedules \n\n\n(1)\nConsolidated Financial Statements are listed in the Index to Consolidated Financial Statements on page F-1 of this report. \n\n\n(2)\nAll schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because of the absence of the conditions under which they are required or because the information required is shown in the financial statements or notes above.  \n\n\n(b)\nExhibits \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nExhibit\nNumber\n\n\n\u00a0\n\n\nExhibit\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a02.13***\n\n\n\u00a0\n\n\nSeparation and Distribution Agreement, dated as of August 21, 2020, by and between the Registrant and American Outdoor Brands, Inc. (1)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a03.1\n\n\n\u00a0\n\n\nAmended and Restated Bylaws (2)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a03.4\n\n\n\u00a0\n\n\nSecond Amended and Restated Articles of Incorporation (3)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a03.9\n\n\n\u00a0\n\n\nCertificate of Withdrawal of Certificate of Designation (4)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a04.1\n\n\n\u00a0\n\n\nForm of Common Stock Certificate (5)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a04.2\n\n\n\u00a0\n\n\nDescription of Securities (13)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.51**\n\n\n\u00a0\n\n\nAgreement with Respect to Defense of Smith & Wesson: Firearms Litigation, dated as of November 11, 2004 (6)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.107*\n\n\n\u00a0\n\n\nSmith & Wesson Brands, Inc. Executive Severance Pay Plan (8)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.108*\n\n\n\u00a0\n\n\nAdoption Agreement to the Smith & Wesson Nonqualified Supplemental Deferred Compensation Plan (9)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.109*\n\n\n \n\n\nSmith & Wesson Nonqualified Supplemental Deferred Compensation Plan Document (9)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.110(a)*\n\n\n \n\n\n2013 Incentive Stock Plan (10)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.110(b)*\n\n\n\u00a0\n\n\n2022 Incentive Stock Plan (11)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.111(b)*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Award Grant Notice and Agreement to the 2013 Incentive Stock Plan for awards made beginning in April 2015 (12)\n\n\n\n\n\n\n50\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.111(c)*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Award Grant Notice and Agreement to the 2013 Incentive Stock Plan for awards made beginning in April 2020 (13)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.111(d)*\n\n\n\u00a0\n\n\nForm of Restricted Stock Unit Award Grant Notice and Agreement to the 2022 Incentive Stock Plan for awards made beginning in April 2023\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.112(b)*\n\n\n\u00a0\n\n\nForm of Performance Stock Unit Award Grant Notice and Agreement to the 2013 Incentive Stock Plan for awards made in 2020 (13)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.112(c)*\n\n\n\u00a0\n\n\nForm of Performance Stock Unit Award Grant Notice and Agreement to the 2013 Incentive Stock Plan for awards made beginning in 2021 (13)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.112(d)*\n\n\n\u00a0\n\n\nForm of Performance Stock Unit Award Grant Notice and Agreement to the 2022 Incentive Stock Plan for awards made beginning in 2023\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.114(a)\n\n\n \n\n\nLease Agreement, dated October 26, 2017, by and between Ryan Boone County, LLC and Smith & Wesson Corp. (14)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.114(b)\n\n\n\u00a0\n\n\nAssignment and Assumption of Lease Agreement, dated January 31, 2023, between Smith & Wesson Sales Company and American Outdoor Brands, Inc. (15)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.115(a)\n\n\n \n\n\nGuaranty, dated October 26, 2017, entered into by the Registrant (14)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.115(b)\n\n\n\u00a0\n\n\nAmended and Restated Guaranty, dated January 31, 2023 (15)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.119*\n\n\n \n\n\nEmployment Agreement, executed April 4, 2020 and effective as of January 15, 2020, by and between Mark P. Smith and the Registrant (16)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.121\n\n\n \n\n\nTransition Services Agreement dated as of August 21, 2020, by and between the Registrant and American Outdoor Brands, Inc (1)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.122\n\n\n \n\n\nTax Matters Agreement, dated as of August 21, 2020, by and between the Registrant and American Outdoor Brands, Inc. (1)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.123\n\n\n \n\n\nEmployee Matters Agreement, dated as of August 21, 2020, by and between the Registrant and American Outdoor Brands, Inc. (1)\n\n\n\n\n\n\n\u00a0\u00a010.124***\n\n\n \n\n\nTrademark License Agreement, dated as of August 24, 2020, by and between Smith & Wesson Inc. and AOB Products Company (1)\n\n\n\n\n\n\n\u00a0\u00a010.125***\n\n\n \n\n\nSublease, dated as of August 24, 2020, by and between the Smith & Wesson Sales Company and American Outdoor Brands, Inc. (1)\n\n\n\n\n\n\n\u00a0\u00a010.126***\n\n\n \n\n\nSupply Agreement, dated as of August 22, 2022, by and between Crimson Trace Corporation, as Supplier, and Smith & Wesson Inc.\n\n\n\n\n\n\n\u00a0\u00a010.127***\n\n\n \n\n\nSupply Agreement, dated as of August 22, 2022, by and between AOB Products Company, as Supplier, and Smith & Wesson Inc.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.128(a)***\n\n\n \n\n\nAmended and Restated Credit Agreement, dated as of August 24, 2020, by and among the Registrant, Smith & Wesson Sales Company, Smith & Wesson, Inc., the Guarantors, the Lenders, and TD Bank, N.A. (1)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.128(b)***\n\n\n\u00a0\n\n\nFirst Amendment to Amended and Restated Credit Agreement, dated as of April 28, 2023 (17)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.129*\n\n\n \n\n\nSeparation and Release Agreement, dated as of May 24, 2021, by and between Robert J. Cicero and the Registrant (18)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n51\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\u00a010.130\n\n\n\u00a0\n\n\nProject Agreement, dated September 30, 2021, by and among The Industrial Development Board of Blount County and the cities of Alcoa and Maryville, Tennessee, a public, nonprofit corporation organized and existing under the laws of the State of Tennessee and the Registrant (19)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.131*\n\n\n\u00a0\n\n\n2021 Employee Stock Purchase Plan (20)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.132***\n\n\n\u00a0\n\n\nStandard Design-Build Agreement and General Conditions, dated February 2, 2023, between Smith & Wesson Brands, Inc and The Christman Company (portions of the exhibit have been omitted) (15)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a010.133*\n\n\n\u00a0\n\n\nForm of Indemnity Agreement entered into with the following directors and executive officers: as of August 9, 2022 with Anita D. Britt, Fred M. Diaz, Kevin A. Maxwell, Deana L. McPherson, Barry M. Monheit, and Robert L. Scott; as of August 15, 2022 with Michael F. Golden; as of August 24, 2022 with Susan J. Cupero; as of August 25, 2022 with Denis G. Suggs and Mark P. Smith; and as of September 5, 2022 with John B. Furman (7)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a021.1\n\n\n \n\n\nSubsidiaries of the Registrant\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a023.1\n\n\n \n\n\nConsent of Deloitte & Touche LLP, an Independent Registered Public Accounting Firm\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a031.1\n\n\n \n\n\nRule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a031.2\n\n\n \n\n\nRule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a032.1\n\n\n \n\n\nSection 1350 Certification of Principal Executive Officer\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a032.2\n\n\n \n\n\nSection 1350 Certification of Principal Financial Officer\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.INS\n\n\n \n\n\nInline XBRL Instance Document \u2013 the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.SCH\n\n\n \n\n\nInline XBRL Taxonomy Extension Schema Document\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.CAL\n\n\n \n\n\nInline XBRL Taxonomy Extension Calculation Linkbase Document\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.DEF\n\n\n \n\n\nInline XBRL Taxonomy Extension Definition Linkbase Document\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.LAB\n\n\n \n\n\nInline XBRL Taxonomy Extension Label Linkbase Document\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.PRE\n\n\n \n\n\nInline XBRL Taxonomy Extension Presentation Linkbase Document\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n104\n\n\n\u00a0\n\n\nCover Page Interactive Data File (embedded within the Inline XBRL document)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n* Management contract or compensatory arrangement.\n \n\n\n** An application has been submitted to the Securities and Exchange Commission for confidential treatment, pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, of portions of this exhibit. These portions have been omitted from this exhibit.\n \n\n\n*** Certain schedules and exhibits have been omitted from this filing pursuant to Item 601(a) (5) of the Regulation S-K. We agree to furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request.\n\n\n(1)\nIncorporated by reference to the Registrant\u2019s Form 8-K filed with the SEC on August 26, 2020.\n\n\n(2)\nIncorporated by reference to the Registrant\u2019s Form 8-K filed with the SEC on March 3, 2023.\n\n\n(3)\nIncorporated by reference to the Registrant\u2019s Form 8-K filed with the SEC on April 12, 2019.\n\n\n(4)\nIncorporated by reference to the Registrant\u2019s Form 8-K filed with the SEC on October 1, 2013. \n\n\n(5)\nIncorporated by reference to the Registrant\u2019s Form 10-K filed with the SEC on June 19, 2020.\n\n\n(6)\nIncorporated by reference to the Registrant\u2019s Form 10-Q filed with the SEC on March 10, 2005.\n\n\n(7)\nIncorporated by reference to the Registrant\u2019s Form 10-Q filed with the SEC on September 8, 2022. \n\n\n(8)\nIncorporated by reference to the Registrant\u2019s Form 8-K filed with the SEC on June 9, 2020.\n\n\n(9)\nIncorporated by reference to the Registrant\u2019s Form 8-K filed with the SEC on December 20, 2013. \n\n\n52\n\n\n\n\n\u00a0\n\n\n(10)\nIncorporated by reference to the Registrant\u2019s Form S-8 filed with the SEC on December 20, 2013.\n\n\n(11)\nIncorporated by reference to Appendix A of the Registrant's Proxy Statement filed with the SEC on August 3, 2022.\n\n\n(12)\nIncorporated by reference to the Registrant\u2019s Form 10-K filed with the SEC on June 22, 2015.\n\n\n(13)\nIncorporated by reference to the Registrant\u2019s Form 10-K filed with the SEC on June 17, 2021.\n\n\n(14)\nIncorporated by reference to the Registrant\u2019s Form 8-K filed with the SEC on October 31, 2017.\n\n\n(15)\nIncorporated by reference to the Registrant\u2019s Form 8-K filed with the SEC on February 3, 2023.\n\n\n(16)\nIncorporated by reference to the Registrant\u2019s Form 8-K filed with the SEC on April 9, 2020.\n\n\n(17)\nIncorporated by reference to the Registrant\u2019s Form 8-K filed with the SEC on May 2, 2023.\n\n\n(18)\nIncorporated by reference to the Registrant\u2019s Form 8-K filed with the SEC on May 24, 2021.\n\n\n(19)\nIncorporated by reference to the Registrant\u2019s Form 8-K filed with the SEC on September 30, 2021.\n\n\n(20)\nIncorporated by reference to the Registrant\u2019s Form S-8 filed with the SEC on March 30, 2022.\n\n\nItem 16. Form 10-K Summary\n\n\nNot applicable.\n\n\n\u00a0\n\n\n53\n\n\n\n\n\u00a0\n\n\nS\nIGNATURES\n\n\n\u00a0\n\n\nPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\nSMITH & WESSON BRANDS, INC.\n\n\n\n\n\n\n/s/ Mark P. Smith\n\n\n\n\n\n\nMark P. Smith\nPresident and Chief Executive Officer\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nDate: June 22, 2023\n\n\nPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSignature\n\n\n\u00a0\n\n\nCapacity\n\n\n\u00a0\n\n\nDate\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Mark P. Smith\n\n\n \n\n\nPresident, Chief Executive Officer, and Director\n \n(Principal Executive Officer)\n\u00a0\n\n\n \n\n\nJune 22, 2023\n\n\n\n\n\n\nMark P. Smith\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Deana L. McPherson\n\n\n \n\n\n\u00a0Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Secretary\n \n(Principal Financial and Accounting Officer)\n\n\n \n\n\nJune 22, 2023\n\n\n\n\n\n\nDeana L. McPherson\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Robert L. Scott\n\n\n \n\n\nChairman of the Board\n\n\n \n\n\nJune 22, 2023\n\n\n\n\n\n\nRobert L. Scott\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Anita D. Britt\n\n\n \n\n\nDirector\n\n\n \n\n\nJune 22, 2023\n\n\n\n\n\n\nAnita D. Britt\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Fred M. Diaz\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nJune 22, 2023\n\n\n\n\n\n\nFred M. Diaz\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ John B. Furman\n\n\n \n\n\nDirector\n\n\n \n\n\nJune 22, 2023\n\n\n\n\n\n\nJohn B. Furman\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Barry M. Monheit\n\n\n \n\n\nDirector\n\n\n \n\n\nJune 22, 2023\n\n\n\n\n\n\nBarry M. Monheit\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Denis G. Suggs\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nJune 22, 2023\n\n\n\n\n\n\nDenis G. Suggs\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n54\n\n\n\n\n\u00a0\n\n\nI\nNDEX TO CONSOLIDATED FINANCIAL STATEMENTS\n \n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nPage\n\n\n\n\n\n\nReport of Independent Registered Public Accounting Firm\n\n\n\u00a0\n\n\nF-\n2\n\n\n\n\n\n\nConsolidated Balance Sheets as of April 30, 2023 and 2022\n\n\n\u00a0\n\n\nF-\n5\n\n\n\n\n\n\nConsolidated Statements of Income for the years ended April 30, 2023, 2022, and 2021\n\n\n\u00a0\n\n\nF-\n6\n\n\n\n\n\n\nConsolidated Statements of Changes in Stockholders\u2019 Equity for the years ended April 30, 2023, 2022, \nand 2021\n\n\n\u00a0\n\n\nF-\n7\n\n\n\n\n\n\nConsolidated Statements of Cash Flows for the years ended April 30, 2023, 2022, and 2021\n\n\n\u00a0\n\n\nF-\n8\n\n\n\n\n\n\nNotes to Consolidated Financial Statements\n\n\n\u00a0\n\n\nF-\n10\n\n\n\n\n\n\n\u00a0\n\n\nF-\n1\n\n\n\n\n\u00a0\n\n\nREPORT OF INDEPENDENT RE\nGISTERED PUBLIC ACCOUNTING FIRM\n\n\nTo the stockholders and the Board of Directors of Smith & Wesson Brands, Inc.\n \n\n\nOpinions on the Financial Statements and Internal Control over Financial Reporting\n\n\nWe have audited the accompanying consolidated balance sheets of Smith & Wesson Brands, Inc. and subsidiaries (the \"Company\") as of April 30, 2023 and 2022, the related consolidated statements of income, changes in stockholders' equity, and cash flows, for each of the three years in the period ended April 30, 2023, and the related notes (collectively referred to as the \"financial statements\"). We also have audited the Company\u2019s internal control over financial reporting as of April 30, 2023, based on criteria established in \nInternal Control \u2014 Integrated Framework (2013)\n issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).\n\n\nIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2023, based on criteria established in \nInternal Control \u2014 Integrated Framework (2013)\n issued by COSO.\n\n\nBasis for Opinions\n\n\nThe Company\u2019s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company\u2019s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\n\nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.\n\n\nOur audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.\n\n\nDefinition and Limitations of Internal Control over Financial Reporting\n\n\nA company\u2019s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company\u2019s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance\n \n\n\nF-\n2\n\n\n\n\n\u00a0\n\n\nregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company\u2019s assets that could have a material effect on the financial statements.\n\n\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\n\n\nCritical Audit Matters\n\n\nThe critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.\n\n\nProperty, Plant, and Equipment \u2013 Evaluation of Impairment as a result of the Relocation (Refer to Notes 4 and 16)\n\n\nCritical Audit Matter Description\n\n\nOn September 30, 2021, the Company announced their plan to move their headquarters and significant elements of its operations to Maryville in 2023, or the Relocation. As part of the Relocation, the Company intends to vacate and sublease their Missouri distribution facility. In addition, at or near the conclusion of its Deep River building lease in May 2024, the Company intends to relocate a portion of its plastic injection molding operations to Maryville and will evaluate selling the remaining molding operations utilized in their Connecticut operations to a third party.\n\n\nWe identified accounting implications of the Relocation as a critical audit matter because it is an impairment indictor for Property, Plant, and Equipment, including right of use assets because of the significant assumptions and judgments management makes when determining whether events or changes in circumstances have occurred indicating that the carrying amounts may not be recoverable. This required a high degree of auditor judgment when performing audit procedures to evaluate whether management appropriately identified impairment indicators and determined the recoverability of the assets.\n \n\n\nHow the Critical Audit Matter Was Addressed in the Audit\n\n\nOur audit procedures related to the evaluation of Property, Plant, and Equipment for impairment included the following, among others:\n \n\n\n\u2022\nWe tested the effectiveness of the controls over management\u2019s identification of possible impairment indicators and their analysis of whether the carrying amounts of Property, Plant, and Equipment are no longer recoverable. \n\n\n\u2022\nWe evaluated management\u2019s impairment analysis by:\n\n\n\u2022\nReviewing contracts including the assignment and assumption agreement to determine potential impairment indicators and compare those with management\u2019s identified indicators and analysis.\n\n\n\u2022\nInspecting Board of Director\u2019s minutes to determine Management\u2019s plans including determination of Property, Plant, and Equipment to be relocated or sold. \n\n\n\u2022\nEvaluating the recoverability of the right of use asset by taking into consideration the anticipated future cash flows of the sublease.\n\n\n\u2022\nObtaining written representations from Management regarding Management\u2019s plans and assumptions used in their impairment analysis.  \n\n\nF-\n3\n\n\n\n\n\u00a0\n\n\nOperating Expenses - Determination of Applicable Severance Charges as a result of the Relocation (Refer to Note 17)\n \n\n\nCritical Audit Matter Description\n\n\nOn September 30, 2021, the Company announced their plan to move their headquarters and significant elements of its operations to Maryville in 2023, or the Relocation. As part of the Relocation, the Company intends to vacate and sublease their Missouri distribution facility. In addition, at or near the conclusion of its Deep River building lease in May 2024, the Company intends to relocate a portion of their plastic injection molding operations to Maryville and will evaluate selling the remaining molding operations utilized in their Connecticut operations to a third party.\n\n\nWe identified the accounting for the Company\u2019s severance and relocation package as a critical audit matter because of the high degree of auditor judgment when performing audit procedures to evaluate the assumptions and judgments management utilized in determining its obligation.\n\n\nHow the Critical Audit Matter Was Addressed in the Audit\n\n\nOur audit procedures related to the accounting for applicable severance charges to Operating Expenses included the following, among others:\n \n\n\n\u2022\nWe tested the effectiveness of the controls over management\u2019s calculation and assumptions of the Relocation charges. \n\n\n\u2022\nWe tested management\u2019s calculation of Relocation charges by:\n\n\n\u2022\nReviewing management\u2019s communications to understand the terms and conditions of the relocation package. \n\n\n\u2022\nAgreeing inputs to source documents.\n\n\n\u2022\nChallenging management\u2019s assumptions of which employees are affected by the Relocation and who will be eligible for a Relocation package. \n\n\n\u2022\nVerifying the mathematical accuracy of management\u2019s calculation.\n\n\n/s/ Deloitte & Touche LLP\n\n\n \n\n\nHartford, Connecticut\n \n\n\nJune 22, 2023\n \n\n\nWe have served as the Company's auditor since 2014.\n\n\nF-\n4\n\n\n\n\n\u00a0\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n\n\nC\nONSOLIDATED BALANCE SHEETS\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAs of:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In\n \nthousands, except par value and share data)\n\n\n\u00a0\n\n\n\n\n\n\nASSETS\n\n\n\u00a0\n\n\n\n\n\n\nCurrent assets:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents\n\n\n\u00a0\n\n\n$\n\n\n53,556\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n120,728\n\n\n\u00a0\n\n\n\n\n\n\nAccounts receivable, net of allowances for credit losses of $\n23\n\u00a0on\n\u00a0\u00a0\u00a0April 30, 2023 and $\n36\n\u00a0on April 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n55,153\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n62,695\n\n\n\u00a0\n\n\n\n\n\n\nInventories\n\n\n\u00a0\n\n\n\u00a0\n\n\n177,118\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n136,660\n\n\n\u00a0\n\n\n\n\n\n\nPrepaid expenses and other current assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,917\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,569\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax receivable\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,176\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,945\n\n\n\u00a0\n\n\n\n\n\n\nTotal current assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n291,920\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n327,597\n\n\n\u00a0\n\n\n\n\n\n\nProperty, plant, and equipment, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n210,330\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n135,591\n\n\n\u00a0\n\n\n\n\n\n\nIntangibles, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,588\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,608\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,024\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,024\n\n\n\u00a0\n\n\n\n\n\n\nDeferred income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,085\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,221\n\n\n\u00a0\n\n\n\n\n\n\nOther assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,347\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,435\n\n\n\u00a0\n\n\n\n\n\n\nTotal assets\n\n\n\u00a0\n\n\n$\n\n\n541,294\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n497,476\n\n\n\u00a0\n\n\n\n\n\n\nLIABILITIES AND STOCKHOLDERS\u2019 EQUITY\n\n\n\u00a0\n\n\n\n\n\n\nCurrent liabilities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAccounts payable\n\n\n\u00a0\n\n\n$\n\n\n36,795\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n30,042\n\n\n\u00a0\n\n\n\n\n\n\nAccrued expenses and deferred revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n20,149\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,482\n\n\n\u00a0\n\n\n\n\n\n\nAccrued payroll and incentives\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,565\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,371\n\n\n\u00a0\n\n\n\n\n\n\nAccrued income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,831\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,673\n\n\n\u00a0\n\n\n\n\n\n\nAccrued profit sharing\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,203\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,543\n\n\n\u00a0\n\n\n\n\n\n\nAccrued warranty\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,670\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,838\n\n\n\u00a0\n\n\n\n\n\n\nTotal current liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n87,213\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n88,949\n\n\n\u00a0\n\n\n\n\n\n\nNotes and loans payable (Note 5)\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,790\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nFinance lease payable, net of current portion\n\n\n\u00a0\n\n\n\u00a0\n\n\n36,961\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n37,628\n\n\n\u00a0\n\n\n\n\n\n\nOther non-current liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,707\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,385\n\n\n\u00a0\n\n\n\n\n\n\nTotal liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n156,671\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n136,962\n\n\n\u00a0\n\n\n\n\n\n\nCommitments and contingencies (Note 16)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nStockholders\u2019 equity:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPreferred stock, $\n0.001\n\u00a0par value, \n20,000,000\n\u00a0shares authorized, \nno\n\u00a0shares\n\u00a0\u00a0\u00a0issued or outstanding\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nCommon stock, $\n0.001\n\u00a0par value, \n100,000,000\n\u00a0shares authorized, \n75,029,300\n\u00a0\u00a0\u00a0issued and \n45,988,930\n\u00a0shares outstanding on April 30, 2023 and \n74,641,439\n\u00a0\u00a0\u00a0shares issued and \n45,601,069\n\u00a0shares outstanding on April 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n75\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n75\n\n\n\u00a0\n\n\n\n\n\n\nAdditional paid-in capital\n\n\n\u00a0\n\n\n\u00a0\n\n\n283,666\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n278,101\n\n\n\u00a0\n\n\n\n\n\n\nRetained earnings\n\n\n\u00a0\n\n\n\u00a0\n\n\n523,184\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n504,640\n\n\n\u00a0\n\n\n\n\n\n\nAccumulated other comprehensive income\n\n\n\u00a0\n\n\n\u00a0\n\n\n73\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n73\n\n\n\u00a0\n\n\n\n\n\n\nTreasury stock, at cost (\n29,040,370\n\u00a0shares on April 30, 2023 and\n\u00a0\u00a0\u00a0April 30, 2022)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n422,375\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n422,375\n\n\n)\n\n\n\n\n\n\nTotal stockholders\u2019 equity\n\n\n\u00a0\n\n\n\u00a0\n\n\n384,623\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n360,514\n\n\n\u00a0\n\n\n\n\n\n\nTotal liabilities and stockholders' equity\n\n\n\u00a0\n\n\n$\n\n\n541,294\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n497,476\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nThe accompanying notes are an integral part of these consolidated financial statements.\n\n\nF-\n5\n\n\n\n\n\u00a0\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n\n\nC\nONSOLIDATED STATEMENTS OF INCO\nM\nE\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(In thousands, except per share data)\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n$\n\n\n479,242\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n864,126\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,059,195\n\n\n\u00a0\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n324,705\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n489,562\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n610,212\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n154,537\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n374,564\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n448,983\n\n\n\u00a0\n\n\n\n\n\n\nOperating expenses:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n7,550\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,262\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,480\n\n\n\u00a0\n\n\n\n\n\n\nSelling, marketing, and distribution\n\n\n\u00a0\n\n\n36,976\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n43,156\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,603\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n61,604\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n72,493\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n79,268\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating expenses\n\n\n\u00a0\n\n\n106,130\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n122,911\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n129,351\n\n\n\u00a0\n\n\n\n\n\n\nOperating income from continuing operations\n\n\n\u00a0\n\n\n48,407\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n251,653\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n319,632\n\n\n\u00a0\n\n\n\n\n\n\nOther income/(expense), net:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOther income/(expense), net\n\n\n\u00a0\n\n\n150\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,868\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,252\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense, net\n\n\n\u00a0\n\n\n(\n331\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,135\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,919\n\n\n)\n\n\n\n\n\n\nTotal other income/(expense), net\n\n\n\u00a0\n\n\n(\n181\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n733\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,667\n\n\n)\n\n\n\n\n\n\nIncome from continuing operations before income taxes\n\n\n\u00a0\n\n\n48,226\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n252,386\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n317,965\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax expense\n\n\n\u00a0\n\n\n11,350\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n57,892\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n74,394\n\n\n\u00a0\n\n\n\n\n\n\nIncome from continuing operations\n\n\n\u00a0\n\n\n36,876\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n194,494\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n243,571\n\n\n\u00a0\n\n\n\n\n\n\nDiscontinued operations:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome from discontinued operations, net of tax\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,478\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n$\n\n\n36,876\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n194,494\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n252,049\n\n\n\u00a0\n\n\n\n\n\n\nNet income per share:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic - continuing operations\n\n\n$\n\n\n0.80\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.12\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.46\n\n\n\u00a0\n\n\n\n\n\n\nBasic - net income\n\n\n$\n\n\n0.80\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.12\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.62\n\n\n\u00a0\n\n\n\n\n\n\nDiluted - continuing operations\n\n\n$\n\n\n0.80\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.08\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.40\n\n\n\u00a0\n\n\n\n\n\n\nDiluted - net income\n\n\n$\n\n\n0.80\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.08\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.55\n\n\n\u00a0\n\n\n\n\n\n\nWeighted average number of common shares outstanding:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n\u00a0\n\n\n45,844\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n47,227\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n54,613\n\n\n\u00a0\n\n\n\n\n\n\nDiluted\n\n\n\u00a0\n\n\n46,170\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n47,728\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n55,352\n\n\n\u00a0\n\n\n\n\n\n\nThe accompanying notes are an integral part of these consolidated financial statements.\n \n\n\nF-\n6\n\n\n\n\n\u00a0\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \n\n\nC\nONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS\u2019 EQUITY\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\nAccumulated\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nCommon\n\n\n\u00a0\n\n\n \n\n\nAdditional\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nOther\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nStock\n\n\n\u00a0\n\n\n \n\n\nPaid-In\n\n\n\u00a0\n\n\n \n\n\nRetained\n\n\n\u00a0\n\n\n\u00a0\n\n\nComprehensive\n\n\n\u00a0\n\n\n\u00a0\n\n\nTreasury Stock\n\n\n\u00a0\n\n\n\u00a0\n\n\nStockholders\u2019\n\n\n\u00a0\n\n\n\n\n\n\n(In thousands)\n\n\n\u00a0\n\n\nShares\n\n\n\u00a0\n\n\n \n\n\nAmount\n\n\n\u00a0\n\n\n \n\n\nCapital\n\n\n\u00a0\n\n\n \n\n\nEarnings\n\n\n\u00a0\n\n\n \n\n\nIncome\n\n\n\u00a0\n\n\n \n\n\nShares\n\n\n\u00a0\n\n\n \n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nEquity\n\n\n\u00a0\n\n\n\n\n\n\nBalance at April 30, 2020\n\n\n\u00a0\n\n\n\u00a0\n\n\n73,527\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n74\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n267,630\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n341,716\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n73\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n18,167\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n(\n222,375\n\n\n)\n\n\n \n\n\n$\n\n\n387,118\n\n\n\u00a0\n\n\n\n\n\n\nProceeds from exercise of employee stock options\n\n\n\u00a0\n\n\n\u00a0\n\n\n201\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,540\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,540\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation - continuing operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,706\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,706\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation - discontinued operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n184\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n184\n\n\n\u00a0\n\n\n\n\n\n\nShares issued under employee stock purchase plan\n\n\n\u00a0\n\n\n\u00a0\n\n\n205\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,614\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,614\n\n\n\u00a0\n\n\n\n\n\n\nIssuance of common stock under restricted\n\u00a0\u00a0\u00a0stock unit awards, net of shares surrendered\n\n\n\u00a0\n\n\n\u00a0\n\n\n289\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,243\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,243\n\n\n)\n\n\n\n\n\n\nRepurchase of treasury stock\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,118\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n110,000\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n110,000\n\n\n)\n\n\n\n\n\n\nDividends issued\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n8,223\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n8,223\n\n\n)\n\n\n\n\n\n\nSpin-off of outdoor products and accessories business\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n260,361\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n260,361\n\n\n)\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n252,049\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n252,049\n\n\n\u00a0\n\n\n\n\n\n\nBalance at April 30, 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n74,222\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n74\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n273,431\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n325,181\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n73\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n24,285\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n(\n332,375\n\n\n)\n\n\n \n\n\n$\n\n\n266,384\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,536\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,536\n\n\n\u00a0\n\n\n\n\n\n\nShares issued under employee stock purchase plan\n\n\n\u00a0\n\n\n\u00a0\n\n\n129\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,719\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,719\n\n\n\u00a0\n\n\n\n\n\n\nIssuance of common stock under restricted\n\u00a0\u00a0\u00a0stock unit awards, net of shares surrendered\n\n\n\u00a0\n\n\n\u00a0\n\n\n290\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,585\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,584\n\n\n)\n\n\n\n\n\n\nRepurchase of treasury stock\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,755\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n90,000\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n90,000\n\n\n)\n\n\n\n\n\n\nDividends issued\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n15,035\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n15,035\n\n\n)\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n194,494\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n194,494\n\n\n\u00a0\n\n\n\n\n\n\nBalance at April 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n74,641\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n75\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n278,101\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n504,640\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n73\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n29,040\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n(\n422,375\n\n\n)\n\n\n \n\n\n$\n\n\n360,514\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,102\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,102\n\n\n\u00a0\n\n\n\n\n\n\nShares issued under employee stock purchase plan\n\n\n\u00a0\n\n\n\u00a0\n\n\n175\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,528\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,528\n\n\n\u00a0\n\n\n\n\n\n\nIssuance of common stock under restricted\n\u00a0\u00a0\u00a0stock unit awards, net of shares surrendered\n\n\n\u00a0\n\n\n\u00a0\n\n\n213\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,065\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,065\n\n\n)\n\n\n\n\n\n\nDividends issued\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n18,333\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n18,333\n\n\n)\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n36,876\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n36,876\n\n\n\u00a0\n\n\n\n\n\n\nBalance at April 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n75,029\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n75\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n283,666\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n523,184\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n73\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n29,040\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n(\n422,375\n\n\n)\n\n\n \n\n\n$\n\n\n384,623\n\n\n\u00a0\n\n\n\n\n\n\nThe accompanying notes are an integral part of these consolidated financial statements.\n \n\n\nF-\n7\n\n\n\n\n\u00a0\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \n\n\nC\nONSOLIDATED STATEMENTS OF CASH FLOWS\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\nCash flows from operating activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome from continuing operations\n\n\n\u00a0\n\n\n$\n\n\n36,876\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n194,494\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n243,571\n\n\n\u00a0\n\n\n\n\n\n\nAdjustments to reconcile net income to net cash provided by operating activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,436\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,073\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,575\n\n\n\u00a0\n\n\n\n\n\n\n(Gain)/loss on sale/disposition of assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n55\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n625\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n154\n\n\n\u00a0\n\n\n\n\n\n\nProvision for (recoveries)/losses on notes and accounts receivable\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n27\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n689\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n739\n\n\n)\n\n\n\n\n\n\nImpairment of long-lived tangible assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n86\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nDeferred income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n6,864\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,125\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n447\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,102\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,536\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,706\n\n\n\u00a0\n\n\n\n\n\n\nChanges in operating assets and liabilities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAccounts receivable\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,569\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,058\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5,824\n\n\n)\n\n\n\n\n\n\nInventories\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n40,458\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n58,183\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,264\n\n\n\u00a0\n\n\n\n\n\n\nPrepaid expenses and other current assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n653\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,839\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n852\n\n\n)\n\n\n\n\n\n\nIncome taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n74\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n480\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,643\n\n\n)\n\n\n\n\n\n\nAccounts payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n8,606\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n26,957\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,540\n\n\n\u00a0\n\n\n\n\n\n\nAccrued payroll and incentives\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,194\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n10\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,933\n\n\n\u00a0\n\n\n\n\n\n\nAccrued profit sharing\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5,340\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n902\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,248\n\n\n\u00a0\n\n\n\n\n\n\nAccrued expenses and deferred revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,618\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n9,725\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n24,633\n\n\n)\n\n\n\n\n\n\nAccrued warranty\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n168\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n361\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,098\n\n\n)\n\n\n\n\n\n\nOther assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,789\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,561\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,579\n\n\n\u00a0\n\n\n\n\n\n\nOther non-current liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,677\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4,364\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,032\n\n\n\u00a0\n\n\n\n\n\n\nCash provided by operating activities - continuing operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,732\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n137,814\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n317,260\n\n\n\u00a0\n\n\n\n\n\n\nCash used in operating activities - discontinued operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,926\n\n\n)\n\n\n\n\n\n\nNet cash provided by operating activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,732\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n137,814\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n315,334\n\n\n\u00a0\n\n\n\n\n\n\nCash flows from investing activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRefunds on machinery and equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n310\n\n\n\u00a0\n\n\n\n\n\n\nPayments to acquire patents and software\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n334\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n283\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n632\n\n\n)\n\n\n\n\n\n\nProceeds from sale of property and equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n118\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n139\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n113\n\n\n\u00a0\n\n\n\n\n\n\nPayments to acquire property and equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n89,565\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n23,972\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n22,052\n\n\n)\n\n\n\n\n\n\nCash used in investing activities - continuing operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n89,781\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n24,116\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n22,261\n\n\n)\n\n\n\n\n\n\nCash used in investing activities - discontinued operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,143\n\n\n)\n\n\n\n\n\n\nNet cash used in investing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n89,781\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n24,116\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n23,404\n\n\n)\n\n\n\n\n\n\nCash flows from financing activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProceeds from loans and notes payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,000\n\n\n\u00a0\n\n\n\n\n\n\nCash paid for debt issuance costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n450\n\n\n)\n\n\n\n\n\n\nPayments on finance lease obligation\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,253\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,087\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n996\n\n\n)\n\n\n\n\n\n\nPayments on notes and loans payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n185,000\n\n\n)\n\n\n\n\n\n\nDistribution to discontinued operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n25,000\n\n\n)\n\n\n\n\n\n\nPayments to acquire treasury stock\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n90,000\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n110,000\n\n\n)\n\n\n\n\n\n\nDividend distribution\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n18,333\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n15,035\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n8,223\n\n\n)\n\n\n\n\n\n\nProceeds from exercise of options to acquire common\n\u00a0\u00a0\u00a0stock, including employee stock purchase plan\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,528\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,719\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,154\n\n\n\u00a0\n\n\n\n\n\n\nPayment of employee withholding tax related to\n\u00a0\u00a0\u00a0restricted stock units\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,065\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,584\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,243\n\n\n)\n\n\n\n\n\n\nCash provided by/(used in) financing activities - continuing operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,877\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n105,987\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n303,758\n\n\n)\n\n\n\n\n\n\nCash used in financing activities - discontinued operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n166\n\n\n)\n\n\n\n\n\n\nNet cash provided by/(used in) financing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,877\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n105,987\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n303,924\n\n\n)\n\n\n\n\n\n\nNet (decrease)/increase in cash and cash equivalents\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n67,172\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,711\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n11,994\n\n\n)\n\n\n\n\n\n\nCash and cash equivalents, beginning of period\n\n\n\u00a0\n\n\n\u00a0\n\n\n120,728\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n113,017\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n125,011\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents, end of period\n\n\n\u00a0\n\n\n$\n\n\n53,556\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n120,728\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n113,017\n\n\n\u00a0\n\n\n\n\n\n\nSupplemental disclosure of cash flow information\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\nCash paid for:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInterest\n\n\n\u00a0\n\n\n$\n\n\n2,148\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,219\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,306\n\n\n\u00a0\n\n\n\n\n\n\nIncome taxes\n\n\n\u00a0\n\n\n$\n\n\n18,208\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n59,183\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n80,874\n\n\n\u00a0\n\n\n\n\n\n\nThe accompanying notes are an integral part of these consolidated financial statements.\n\n\nF-\n8\n\n\n\n\n\u00a0\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n\n\nCONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)\n\n\nSupplemental Disclosure of Non-cash Investing and Financing Activities:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\nPurchases of property and equipment included in accounts payable\n\n\n\u00a0\n\n\n$\n\n\n15,767\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n408\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n746\n\n\n\u00a0\n\n\n\n\n\n\nMachinery and equipment on deposit placed into service\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,855\n\n\n\u00a0\n\n\n\n\n\n\nCapital lease included in accrued expenses and finance lease payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n767\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nThe accompanying notes are an integral part of these consolidated financial statements.\n\n\nF-\n9\n\n\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \n\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\n\n\u00a0\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \n\n\nN\nOTES TO CONSOLIDATED FINANCIAL STATEMENTS\n \n\n\n1. Organization\n \n We are one of the world\u2019s leading manufacturers and designers of firearms. We manufacture a wide array of handguns (including revolvers and pistols), long guns (including modern sporting rifles), handcuffs, firearm suppressors, and other firearm-related products for sale to a wide variety of customers, including firearm enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and throughout the world. We sell our products under the Smith & Wesson, M&P, and Gemtech brands. We manufacture our products at our facilities in Springfield, Massachusetts; Houlton, Maine; and Deep River, Connecticut. We also sell our manufacturing services to other businesses to attempt to level-load our factories. We sell those services under our Smith & Wesson and Smith & Wesson Precision Components brands. We plan to move our headquarters and certain of our manufacturing operations to a new facility being constructed in Maryville. See Note 16 \u2014 \nCommitments and Contingencies\n, for more information regarding this plan.\nOn November 13, 2019, we announced that we were proceeding with a plan to spin-off our outdoor products and accessories business and create an independent publicly traded company to conduct that business, or the Separation. On August 24, 2020, or the Distribution Date, we completed the Separation. See also Note 3 \u2014 \nDiscontinued Operations\n, for more information.\n \n\n\n2. Significant Accounting Policies\n \nUse of Estimates\n \u2014 The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the financial statement dates and the reported amounts of revenue and expenses during the reporting periods. Our significant estimates include the accrual for warranty, reserves for excess and obsolete inventory, rebates and other promotions, valuation of intangible assets, and costs associated with the Relocation. Actual results could differ from those estimates.\n \nPrinciples of Consolidation\n \u2014 The accompanying consolidated financial statements include the accounts of Smith & Wesson Brands, Inc. and its wholly owned subsidiaries, including Smith & Wesson Inc., Smith & Wesson Sales Company, and SWPC Plastics, LLC. In our opinion, all adjustments, which include only normal recurring adjustments necessary to fairly present the financial position, results of operations, changes in stockholders\u2019 equity, and cash flows at April 30, 2023 and 2022 and for the periods presented, have been included. All intercompany accounts and transactions have been eliminated in consolidation.\n \nFair Value of Financial Instruments\n \u2014 Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments not held for trading purposes, approximate the carrying values of such amounts because of their short-term nature or market rates of interest.\n \nCash and Cash Equivalents\n \u2014 We consider all highly liquid investments purchased with original maturities of \nthree months\n or less at the date of acquisition to be cash equivalents. We maintain our cash in bank deposit accounts that, at times, may exceed federally insured limits. We have not experienced any losses in such accounts. As of April 30, 2023, all of our accounts exceeded federally insured limits.\nFinancial Instruments \n\u2014 We account for derivative instruments under Accounting Standards Codification (\u201cASC\u201d) 815-10, \nFair Value Measurements and Disclosure Topic\n, which establishes accounting and reporting standards for derivative instruments and hedging activities and requires us to recognize these instruments as either assets or liabilities on the balance sheet and measure them at fair value. As of April 30, 2023, we did \nno\nt have any derivative instruments or any Level 2 or Level 3 financial instruments within the hierarchy. See Note 5 \u2013 \nNotes, Loans Payable, and Financing Arrangements\n for more information regarding our financial instruments.\n \nF-\n10\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nTrade Receivables\n \u2014 We extend credit to our domestic customers and some foreign distributors based on their financial condition. We sometimes offer discounts for early payment on invoices. When we believe the extension of credit is not advisable, we rely on either a prepayment or a letter of credit. We write off balances deemed uncollectible by us against our allowance for doubtful accounts. We estimate our allowance for doubtful accounts through current past due balances, knowledge of our customers\u2019 financial situations, and past payment history.\n \nConcentrations of Credit Risk\n \u2014 Financial instruments that potentially subject us to concentration of credit risk consist principally of cash, cash equivalents, and trade receivables. We place our cash and cash equivalents in overnight U.S. government securities. Concentrations of credit risk with respect to trade receivables are limited by the large number of customers comprising our customer base and their geographic and business dispersion. We perform ongoing credit evaluations of our customers\u2019 financial condition and generally do not require collateral.\n \nFor fiscal 2023, \ntwo\n of our customers each accounted for more than \n10\n% of our net sales, totaling \n22.8\n% of our net sales.  As of April 30, 2023, \nthree\n of our customers each accounted for more than \n10\n% of our accounts receivable, for a total of \n39.4\n%. For fiscal 2022, \none\n customer accounted for \n16.9\n% of our net sales. As of April 30, 2022, \ntwo\n of our customers each accounted for more than \n10\n% of our accounts receivable, for a total of \n36.8\n%. For fiscal 2021, \nfour\n of our customers each accounted for more than \n10\n% of our net sales, totaling \n45.0\n% of our net sales. As of April 30, 2021, \ntwo\n of these customers each accounted for more than \n10\n% of our accounts receivable, for a total of \n28.4\n%.\nInventories \n\u2014 We value inventories at the lower of cost, using the first-in, first-out, or FIFO method, or net realizable value. An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a detailed review of inventory, past history, and expected future usage.\n \nProperty, Plant, and Equipment\n \u2014 We record property, plant, and equipment, consisting of land, building, improvements, machinery, equipment, software, hardware, furniture, and fixtures, at cost and depreciate them using the straight-line method over their estimated useful lives. We charge expenditures for maintenance and repairs to earnings as incurred, and we capitalize additions, renewals, and betterments. Upon the retirement or other disposition of property and equipment, we remove the related cost and accumulated depreciation from the respective accounts and include any gain or loss in operations. We lease certain of our real estate, machinery, photocopiers, and vehicles under non-cancelable operating lease agreements, and we recognize expenses under our operating lease assets and liabilities at the commencement date based on the present value of lease payments over the lease term. The depreciable life of assets and leasehold improvements are based on the expected life of the lease. \nA summary of the estimated useful lives is as follows: \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nDescription\n\n\n\u00a0\n\n\nUseful Life\n\n\n\u00a0\n\n\n\n\n\n\nBuilding and improvements\n\n\n\u00a0\n\n\n\u00a0\n\n\n10 \nto \n40\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\n\nSoftware and hardware\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\u00a0to \n7\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\n\nMachinery and equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\u00a0to \n10\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\u00a0\nWe include tooling, dies, and fixtures as part of machinery and equipment and depreciate them over a period generally not exceeding \nten years\n.\n \nIntangible Assets\n \u2014 We record intangible assets at cost or based on the fair value of the assets acquired. Intangible assets consist of developed technology, customer relationships, trademarks, trade names, and patents. We amortize intangible assets over their estimated useful lives or in proportion to expected yearly revenue generated from the intangibles that were acquired.\n \nRevenue Recognition \n\u2014 We recognize revenue in accordance with the provisions of Accounting Standards Update, or ASU, \nRevenue from Contracts with Customers (Topic 606)\n, which became effective for us on May 1, 2018. Generally, all performance obligations are satisfied and revenue is recognized when the risks and rewards of ownership have transferred to the customer, which is generally upon shipment but could be delayed until the receipt of customer acceptance.\n \nIn some instances, sales include multiple performance obligations. The most common of these instances relates to sales promotion programs under which customers are entitled to receive free goods based upon their purchase of\n \nF-\n11\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nour products, which we have identified as a material right. The fulfillment of these free goods is our responsibility. In such instances, we allocate the revenue of the promotional sales based on the estimated level of participation in the sales promotional program and the timing of the shipment of all of the products included in the promotional program, including the free goods. We recognize revenue related to the material right proportionally as each performance obligation is satisfied. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.\n \nWe generally sell our products free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 60 days of product shipment with a discount available to some customers for early payment. Generally, framework contracts define the general terms of sales, including payment terms, freight terms, insurance requirements, and cancelation provisions. Purchase orders define the terms for specific sales, including description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled. In some instances, we provide longer payment terms, particularly as it relates to our fall dating programs for hunting sales, which represent payment terms due in the fall for certain orders of hunting products received in the spring and summer. As a result of utilizing practical expedience upon the adoption of ASC 606, we do not consider these extended terms to be a significant financing component of the contract because the payment terms are less than one year.\n In all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.\nResearch and Development\n \u2014 We engage in both internal and external research and development, or R&D, in order to remain competitive and to exploit possible untapped market opportunities. We approve prospective R&D projects after analysis of the cost and benefits associated with the potential product. Costs in R&D expense include, among other items, salaries, materials, utilities, and administrative costs.\nEarnings per Share\n \u2014 We calculate basic and diluted earnings per common share in accordance with the provisions of ASC 260-10,\n Earnings Per Share\n. Basic earnings per common share equals net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share equals net income divided by the weighted average number of common shares outstanding during the period, including the effect of outstanding stock options and other stock-based instruments if their effect is dilutive.\n \nThe following table provides a reconciliation of the net income amounts and weighted average number of common and common equivalent shares used to determine basic and diluted earnings per common share (in thousands, except per share data):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome from continuing operations\n\n\n$\n\n\n36,876\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n194,494\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n243,571\n\n\n\u00a0\n\n\n\n\n\n\nIncome from discontinued operations\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,478\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n$\n\n\n36,876\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n194,494\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n252,049\n\n\n\u00a0\n\n\n\n\n\n\nWeighted average shares outstanding \u2014 Basic\n\n\n\u00a0\n\n\n45,844\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n47,227\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n54,613\n\n\n\u00a0\n\n\n\n\n\n\nEffect of dilutive stock awards\n\n\n\u00a0\n\n\n326\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n501\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n739\n\n\n\u00a0\n\n\n\n\n\n\nWeighted average shares outstanding \u2014 Diluted\n\n\n\u00a0\n\n\n46,170\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n47,728\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n55,352\n\n\n\u00a0\n\n\n\n\n\n\nEarnings per share \u2014 Basic\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome from continuing operations\n\n\n$\n\n\n0.80\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.12\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.46\n\n\n\u00a0\n\n\n\n\n\n\nIncome from discontinued operations\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.16\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n$\n\n\n0.80\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.12\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.62\n\n\n\u00a0\n\n\n\n\n\n\nEarnings per share \u2014 Diluted\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome from continuing operations\n\n\n$\n\n\n0.80\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.08\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.40\n\n\n\u00a0\n\n\n\n\n\n\nIncome from discontinued operations\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.15\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n$\n\n\n0.80\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.08\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.55\n\n\n\u00a0\n\n\n\n\n\u00a0\nF-\n12\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nFor fiscal 2023, 2022, and 2021, the number of shares excluded from the computation of diluted earnings per share was \n30,307\n, \n43,530\n, and \n9,301\n, respectively, because the effect would be antidilutive.\nValuation of Long-lived Tangible and Intangible Assets\n \u2014 We evaluate the recoverability of long-lived assets, or asset groups, whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. When such evaluations indicate that the related future undiscounted cash flows are not sufficient to recover the carrying values of the assets, such carrying values are reduced to fair value and this adjusted carrying value becomes the asset\u2019s new cost basis. We determine fair value primarily using future anticipated cash flows that are directly associated with and are expected to arise as a direct result of the use and eventual disposition of the asset, or asset group, discounted using an interest rate commensurate with the risk involved.\n \nWe have significant long-lived tangible and intangible assets, which are susceptible to valuation adjustments as a result of changes in various factors or conditions. The most significant long-lived tangible and intangible assets, other than goodwill, are property, plant, and equipment, right of use assets, developed technology, customer relationships, patents, trademarks, and trade names. We amortize all finite-lived intangible assets either on a straight-line basis or based upon patterns in which we expect to utilize the economic benefits of such assets. We initially determine the values of intangible assets by a risk-adjusted, discounted cash flow approach. We assess the potential impairment of identifiable intangible assets and fixed assets whenever events or changes in circumstances indicate that the carrying values may not be recoverable and at least annually. Factors we consider important, which could trigger an impairment of such assets, include the following:\n \n\u2022\nsignificant underperformance relative to historical or projected future operating results; \n\u2022\nsignificant changes in the manner or use of the assets or the strategy for our overall business; \n\u2022\nsignificant negative industry or economic trends; \n\u2022\na significant decline in our stock price for a sustained period; and \n\u2022\na decline in our market capitalization below net book value. \nFuture adverse changes in these or other unforeseeable factors could result in an impairment charge that could materially impact future results of operations and financial position in the reporting period identified.\nIn accordance with ASC 350,\n Intangibles-Goodwill and Other,\n we test goodwill for impairment on an annual basis on February 1 and between annual tests if indicators of potential impairment exist. The impairment test compares the fair value of the operating units to their carrying amounts to assess whether impairment is present. We have reviewed the provisions of ASC 350-20, with respect to the criteria necessary to evaluate the number of reporting units that exist. Based on this review, following the Separation, we had concluded that we have one operating unit when reviewing ASC 350-20.\n \nWe review the fair value of our goodwill based on financial performance annually. As of our last valuation date, February 1, 2023, we had $\n19.0\n million of goodwill and its fair value significantly exceeded its carrying value, based on EBITDAS, cashflow, and market capitalization. Our assumptions related to the development of fair value could deviate materially from actual results and forecasts used to support asset carrying values may change in the future, which could result in non-cash charges that would adversely affect our financial results of operations.\n \nThe re-measurement of goodwill is classified as a Level 3 fair value assessment as described in Note 11 - \nFair Value Measurement, \ndue to the significance of unobservable inputs developed using company-specific information.\nIncome Taxes \u2013 \nWe use the asset and liability approach for financial accounting and reporting income taxes. The provision for income taxes is based upon income reported in the accompanying consolidated financial statements as required by ASC 740, \nIncome Taxes. \nWe \ndetermine our deferred tax assets and liabilities based on temporary differences between financial reporting and tax bases in assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We recognize the effect on deferred taxes of a change in tax rates in the period that includes the enactment date. In assessing the realization of our deferred tax assets, we consider whether it is more likely that not that the deferred tax assets will be realized. The ultimate realization of our deferred tax assets depends upon generating future taxable income during the periods in\n \nF-\n13\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nwhich \nour temporary differences become deductible and before our net operating loss carryforwards expire. We evaluate the recoverability of our deferred tax assets by assessing the need for a valuation allowance on a quarterly basis. If we determine that it is more likely than not that our deferred tax assets will not be recovered, we establish a valuation allowance against some or all of our deferred tax assets. Recording or reversing a valuation allowance could have a significant effect on our future results of operations and financial position.\nWarranty\n \u2014 We generally provide a limited one-year warranty and a lifetime service policy to the original purchaser of our new firearm products. We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value, at our option, without charge during the warranty period. We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We adjust accruals as warranty claims data and historical experience warrant. Should we experience actual claims and repair costs that are higher than the estimated claims and repair costs used to calculate the provision, our operating results for the period or periods in which such returns or additional costs materialize would be adversely impacted.\nFrom time to time, we have experienced certain manufacturing and design issues with respect to some of our firearms and have initiated some product recalls and safety alerts. In October 2021, we initiated a safety recall for M&P 12 shotguns manufactured prior to October 15, 2021 as a result of two field reports related to cracked barrels. This safety recall was limited to only M&P 12 shotguns manufactured prior to October 15, 2021 and was conducted to ensure there were no barrel anomalies or conditions that might adversely affect the safety, function, or performance of these shotguns. The remaining estimated cost of all recalls, safety alerts, and consumer advisories is $\n40,000\n, which is recorded in accrued warranty on our consolidated balance sheet as of April 30, 2023. The remaining balance relates to a general accrual related to standard warranty costs for products shipped in the ordinary course of business.\nWarranty expense for the fiscal years ended April 30, 2023, 2022, and 2021 amounted to $\n1.5\n million, $\n1.9\n million, and $\n5.2\n million, respectively.\nThe following table sets forth the change in accrued warranties, a portion of which is recorded as a non-current liability, in the fiscal years ended April 30, 2023, 2022, and 2021 (in thousands):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance as of April 30, 2021\n\n\n\u00a0\n\n\n$\n\n\n5,693\n\n\n\u00a0\n\n\n\n\n\n\nWarranties issued and adjustments to provisions\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,910\n\n\n\u00a0\n\n\n\n\n\n\nWarranty claims\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,730\n\n\n)\n\n\n\n\n\n\nBalance as of April 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,873\n\n\n\u00a0\n\n\n\n\n\n\nWarranties issued and adjustments to provisions\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,496\n\n\n\u00a0\n\n\n\n\n\n\nWarranty claims\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,364\n\n\n)\n\n\n\n\n\n\nBalance as of April 30, 2023\n\n\n\u00a0\n\n\n$\n\n\n4,005\n\n\n\u00a0\n\n\n\n\nSales and Promotional Related Expenses\n \u2014 We present product sales in our consolidated financial statements, net of customer promotional program costs that depend upon the volume of sales. For promotional program costs that do not depend on the volume of sales, we record promotional costs in cost of goods sold. The total of all our promotional programs amounted to $\n10.2\n million, $\n6.6\n million, and $\n10.5\n million for the fiscal years ended April 30, 2023, 2022, and 2021, respectively. We have a co-op advertising program at the retail level. We expensed sales and promotional related costs amounting to $\n2.7\n million, $\n4.3\n million, and $\n15.2\n million for fiscal 2023, 2022, and 2021, respectively, as selling and marketing expenses.\nShipping and Handling\n \u2014 In the accompanying consolidated financial statements, we included amounts billed to customers for shipping and handling in net sales. Inbound freight charges and internal transfer costs are included in cost of goods sold; however, costs incurred to distribute products to customers is included in selling, marketing, and distribution expenses.\n \nInsurance Reserves\n \u2014 In January 2020, we formed a wholly owned captive insurance company, which provides product liability insurance to us and our subsidiaries. We are self-insured through retentions or deductibles for the majority of our workers\u2019 compensation, automobile, general liability, product liability, and group health insurance programs. Self-insurance amounts vary up to $\n10.0\n million per occurrence; however, we believe the likelihood of reaching the maximum per occurrence limit is remote. We record our liability for estimated premiums and incurred losses in the accompanying consolidated financial statements on an undiscounted basis.\nF-\n14\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nRecently Issued Accounting Standards \n\u2014 There are no new accounting pronouncements that are expected to have a significant impact on our consolidated financial statements.\n \n\n\n3. Discontinued Operations\nOn August 24, 2020, at 12:01 a.m. Eastern Time, we completed the Separation of our wholly owned subsidiary, American Outdoor Brands, Inc., or AOUT. The Separation was treated as tax free for U.S. federal income tax purposes and was achieved through the transfer of all the assets and legal entities, subject to any related liabilities, associated with our outdoor products and accessories business to AOUT, or the Transfer, and the distribution of \n100\n% of the AOUT outstanding capital stock to holders of our common stock, or the Distribution, as of the close of business on August 10, 2020, or the Record Date. In connection with the Distribution, our stockholders received \none share of AOUT common stock for every four shares of our common\n stock held as of the close of business on the Record Date. Following the Distribution, AOUT became an independent, publicly traded company, and we retain no ownership interest in AOUT.\n \nFor further information relating to the Separation, please refer to our Annual Report on Form 10-K for fiscal year ended April 30, 2021, filed with the SEC on June 17, 2021.\nThe following table summarizes the major line items for the outdoor products and accessories business that are included in income from discontinued operations, net of tax, in the condensed consolidated statements of income:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n61,249\n\n\n\u00a0\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,147\n\n\n\u00a0\n\n\n\n\n\n\nOperating expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,458\n\n\n\u00a0\n\n\n\n\n\n\nOther income/(expense), net\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n112\n\n\n\u00a0\n\n\n\n\n\n\nIncome from discontinued operations before\n\u00a0\u00a0\u00a0income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,756\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax expense/(benefit)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,278\n\n\n\u00a0\n\n\n\n\n\n\nIncome from discontinued operations, net of tax\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,478\n\n\n\u00a0\n\n\n\n\n\n\n4. Leases\nWe lease certain of our real estate, machinery, equipment, photocopiers, and vehicles under non-cancelable operating lease agreements.\n \nWe recognize expenses for our operating lease assets and liabilities at the commencement date based on the present value of lease payments over the lease term. Our leases do not provide an implicit interest rate. We use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Our lease agreements do not require material variable lease payments, residual value guarantees, or restrictive covenants. For operating leases, we recognize expense on a straight-line basis over the lease term. Tenant improvement allowances are recorded as an offsetting adjustment included in our calculation of the respective right-of-use asset.\n \nMany of our leases include renewal options that enable us to extend the lease term. The execution of those renewal options is at our sole discretion and renewals are reflected in the lease term when they are reasonably certain to be exercised. The depreciable life of assets and leasehold improvements are limited by the expected lease term.\nF-\n15\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nThe amounts of assets and liabilities related to our operating and financing leases as of April 30, 2023 were as follows (in thousands):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nBalance Sheet Caption\n\n\n\u00a0\n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n\n\n\n\nOperating Leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRight-of-use assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,994\n\n\n\u00a0\n\n\n\n\n\n\nAccumulated amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4,153\n\n\n)\n\n\n\n\n\n\nRight-of-use assets, net\n\n\n\u00a0\n\n\nOther assets\n\n\n\u00a0\n\n\n$\n\n\n1,841\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCurrent liabilities\n\n\n\u00a0\n\n\nAccrued expenses and deferred revenue\n\n\n\u00a0\n\n\n$\n\n\n1,274\n\n\n\u00a0\n\n\n\n\n\n\nNon-current liabilities\n\n\n\u00a0\n\n\nOther non-current liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n801\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,075\n\n\n\u00a0\n\n\n\n\n\n\nFinance Leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRight-of-use assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n41,631\n\n\n\u00a0\n\n\n\n\n\n\nAccumulated depreciation\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n9,448\n\n\n)\n\n\n\n\n\n\nRight-of-use assets, net\n\n\n\u00a0\n\n\nProperty, plant, and equipment, net\n\n\n\u00a0\n\n\n$\n\n\n32,183\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCurrent liabilities\n\n\n\u00a0\n\n\nAccrued expenses and deferred revenue\n\n\n\u00a0\n\n\n$\n\n\n1,434\n\n\n\u00a0\n\n\n\n\n\n\nNon-current liabilities\n\n\n\u00a0\n\n\nFinance lease payable, net of current portion\n\n\n\u00a0\n\n\n\u00a0\n\n\n36,961\n\n\n\u00a0\n\n\n\n\n\n\nTotal finance lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n38,395\n\n\n\u00a0\n\n\n\n\nDuring fiscal\n 2023, we recorded $\n1.6\n million of operating lease costs, of which $\n99,000\n related to short-term leases that were not recorded as right-of-use assets. We recorded $\n2.2\n million of finance lease amortization and $\n1.9\n million of financing lease interest expense during fiscal 2023. As of April 30, 2023, our weighted average lease term and weighted average discount rate for our operating leases was \n2.8\n years and \n4.3\n%, respectively. As of April 30, 2023, our weighted average lease term and weighted average discount rate for our financing leases were \n15.3\n years and \n5.0\n%, respectively, and consisted primarily of our Missouri distribution center. The building is pledged to secure the amounts outstanding. The depreciable lives of right-of-use assets are limited by the lease term and are amortized on a straight-line basis over the life of the lease.\n \nOn October 26, 2017, we entered into (a) a lease agreement with Ryan Boone County, LLC, or the Original Missouri Landlord, concerning certain real property located in Boone County, Missouri on which we have been operating our distribution center, or the Missouri Lease, and (b) a guaranty in favor of the Original Missouri Landlord, or the Guaranty. With the completion of the Separation, we entered into a sublease under which AOUT subleases from us \n59.0\n% of our Missouri distribution center under the same terms as the Missouri Lease, or the Sublease. On July 16, 2022, we entered into an amendment to the Sublease, increasing the leased space to \n64.7\n% of the facility under the same terms as the Missouri Lease. On January 31, 2023, we entered into (i) an assignment and assumption agreement with AOUT, pursuant to which AOUT will assume all of our rights, entitlement, and obligations in, to, and under the Missouri Lease, in each case effective on January 1, 2024, subject to a number of conditions precedent, or the Assignment and Assumption Agreement, and (ii) an amended and restated guaranty in favor of RCS-S&W Facility, LLC, as successor in interest to the Original Missouri Landlord, pursuant to which Smith & Wesson Sales Company was added as a guarantor, or the Amended and Restated Guaranty. We intend to terminate the Sublease on or around the effective date of the Assignm\nent and Assumption Agreement. For the fiscal year April 30, 2023, income related to the Sublease was $\n2.3\n million, of which $\n1.1\n million was recorded in general and administrative expense and $\n1.2\n million was recorded in interest expense, net, in our condensed consolidated statements of income. In addition, we intend to occupy our Deep River f\nacility through the lease term. As of April 30, 2023, we do not believe there are any indications of impairment relating to these right-of-use assets.\nF-\n16\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nThe following table represents future expected undiscounted cashflows, based on the sublease agreement to AOUT, to be received on an annual basis for the next five years and thereafter, as of April 30, 2023 (in thousands):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nFiscal\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\n2024\n\n\n\u00a0\n\n\n$\n\n\n2,435\n\n\n\u00a0\n\n\n\n\n\n\n2025\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,180\n\n\n\u00a0\n\n\n\n\n\n\n2026\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,235\n\n\n\u00a0\n\n\n\n\n\n\n2027\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,292\n\n\n\u00a0\n\n\n\n\n\n\n2028\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,350\n\n\n\u00a0\n\n\n\n\n\n\nThereafter\n\n\n\u00a0\n\n\n\u00a0\n\n\n38,906\n\n\n\u00a0\n\n\n\n\n\n\nTotal future sublease receipts\n\n\n\u00a0\n\n\n\u00a0\n\n\n54,398\n\n\n\u00a0\n\n\n\n\n\n\nLess amounts representing interest\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n16,989\n\n\n)\n\n\n\n\n\n\nPresent value of sublease receipts\n\n\n\u00a0\n\n\n$\n\n\n37,409\n\n\n\u00a0\n\n\n\n\nFuture lease payments for all our operating and finance leases for succeeding fiscal years is as follows (in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\nOperating\n\n\n\u00a0\n\n\n\u00a0\n\n\nFinancing\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\n\n\n\n2024\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,381\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,323\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,704\n\n\n\u00a0\n\n\n\n\n\n\n2025\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n324\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,378\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,702\n\n\n\u00a0\n\n\n\n\n\n\n2026\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n301\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,433\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,734\n\n\n\u00a0\n\n\n\n\n\n\n2027\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n272\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,490\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,762\n\n\n\u00a0\n\n\n\n\n\n\n2028\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n125\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,416\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,541\n\n\n\u00a0\n\n\n\n\n\n\nThereafter\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38,906\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38,906\n\n\n\u00a0\n\n\n\n\n\n\nTotal future lease payments\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,403\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n55,946\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n58,349\n\n\n\u00a0\n\n\n\n\n\n\nLess amounts representing interest\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n328\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n17,551\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n17,879\n\n\n)\n\n\n\n\n\n\nPresent value of lease payments\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,075\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38,395\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n40,470\n\n\n\u00a0\n\n\n\n\n\n\nLess current maturities of lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,274\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,434\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,708\n\n\n)\n\n\n\n\n\n\nLong-term maturities of lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n801\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n36,961\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n37,762\n\n\n\u00a0\n\n\n\n\nDuring fiscal 2023, the cash paid for amounts included in the measurement of  liabilities and operating cash flows was $\n4.8\n million.\n\n\n5. Notes, Loans Payable, and Financing Arrangements\nCredit Facilities\n \u2014 On August 24, 2020, we and certain of our subsidiaries entered into an amended and restated credit agreement, or the Amended and Restated Credit Agreement, with certain lenders, including TD Bank, N.A., as administrative agent; TD Securities (USA) LLC and Regions Bank, as joint lead arrangers and joint bookrunners; and Regions Bank, as syndication agent. The Amended and Restated Credit Agreement is currently unsecured; however, should any Springing Lien Trigger Event (as defined in the Amended and Restated Credit Agreement) occur, we and certain of our subsidiaries would be required to execute certain documents in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents would have a legal, valid, and enforceable \u200efirst priority lien on the Collateral described therein.\n \n \nThe Amended and Restated Credit Agreement provides for a revolving line of credit of $\n100.0\n million at any one time, or the Revolving Line. \nThe Revolving Line bears interest at either the Base Rate (as defined in the Amended and Restated Credit Agreement) or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio.\n The Amended and Restated Credit Agreement also provides a swingline facility in the maximum amount of $\n5.0\n million at any one time (subject to availability under the Revolving Line). \nEach Swingline Loan (as defined in the Amended and Restated Credit Agreement) bears interest at the Base Rate, plus an applicable margin based on our Adjusted Consolidated Leverage Ratio (as defined in the Amended and Restated Credit Agreement)\n. Subject to the satisfaction of certain terms and conditions described in the Amended and Restated Credit Agreement, we have an option to increase the Revolving Line by an aggregate amount not exceeding $\n50.0\n million. The Revolving Line matures on the earlier of \nAugust 24, 2025\n or \nthe date that is six months in advance of the earliest maturity of any Permitted Notes (as defined in the Amended and Restated Credit Agreement) under the Amended and Restated Credit\n \nF-\n17\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nAgreement. \nOn April 28, 2023, we entered into an amendment to our existing credit agreement to, among other things, replace LIBOR with SOFR as the interest rate benchmark and amend the definition of \u201cConsolidated Fixed Charge Coverage Ration\u201d to exclude unfinanced capital expenditures in connection with the Relocation.\n \nAs of April 30, 2023, we had $\n25.0\n million of borrowings outstanding on the Revolving Line, which bore an interest rate of \n6.62\n%\n, which is equal to the LIBOR rate plus an applicable margin. As a result of the Relocation, as of April 30, 2023, $\n513,000\n of interest has been capitalized.\nThe Amended and Restated Credit Agreement contains customary limitations, including limitations on indebtedness, liens, fundamental changes to business or organizational structure, investments, loans, advances, guarantees, and acquisitions, asset sales, dividends, stock repurchases, stock redemptions, and the redemption or prepayment of other debt, and transactions with affiliates. We are also subject to financial covenants, including a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio. As of April 30, 2023, we were compliant with all required financial covenants.\nLetters of Credit\n \u2013 At April 30, 2023, we had outstanding letters of credit aggregating $\n2.6\n million, which included a $\n1.5\n million letter of credit to collateralize our captive insurance company.\n \nDebt Issuance Costs\n \u2014 During the fiscal years ended 2023 and 2022, we did not incur any debt issuance costs. We recorded, in notes payable, $\n450,000\n of debt issuance costs during fiscal 2021. The remaining costs are being amortized to expense over the life of the credit facility. In total, we amortized $\n89,560\n, $\n89,560\n, and $\n890,553\n to interest expense for all debt issuance costs in fiscal 2023, 2022, and 2021, respectively.\n \n\n\n6. Net Sales\nThe following table sets forth the breakdown of net sales for the fiscal years ended April 30, 2023, 2022, and 2021 (in thousands):\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFor the Years Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nHandguns\n\n\n$\n\n\n\u00a0\n\n\n360,668\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n624,219\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n755,735\n\n\n\u00a0\n\n\n\n\n\n\nLong Guns\n\n\n\u00a0\n\n\n\u00a0\n\n\n74,230\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n189,467\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n253,340\n\n\n\u00a0\n\n\n\n\n\n\nOther Products & Services\n\n\n\u00a0\n\n\n\u00a0\n\n\n44,344\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n50,440\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n50,120\n\n\n\u00a0\n\n\n\n\n\n\nTotal Net Sales\n\n\n\u00a0$\n\n\n\u00a0\n\n\n479,242\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0$\n\n\n\u00a0\n\n\n864,126\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0$\n\n\n\u00a0\n\n\n1,059,195\n\n\n\u00a0\n\n\n\n\nWe sell our products and services under our Smith & Wesson, Gemtech, and Smith & Wesson Precision Components brands. Depending upon the product or service, our customers primarily include distributors; federal, state, and municipal law enforcement agencies and officers; government and military agencies; businesses; and retailers.\n \nWe sell our products worldwide.\n The following table sets forth the breakdown of export net sales included in the above table. Our export net sales accounted for \n4\n%, \n3\n%, and \n2\n% of total net sales for the fiscal years ended April 30, 2023, 2022, and 2021, respectively (in thousands): \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\nFor the Years Ended April 30,\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nRegion\n\n\n2023\n\n\n\u00a0\n\n\n \n\n\n2022\n\n\n\u00a0\n\n\n \n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEurope\n\n\n$\n\n\n\u00a0\n\n\n6,569\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n\u00a0\n\n\n8,342\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n\u00a0\n\n\n5,742\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nAsia\n\n\n \n\n\n\u00a0\n\n\n5,411\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n3,899\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n7,255\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nLatin America\n\n\n \n\n\n\u00a0\n\n\n4,052\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n5,272\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n4,473\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nAll others international\n\n\n \n\n\n\u00a0\n\n\n3,736\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n8,014\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n4,382\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nTotal international net sales\n\n\n$\n\n\n\u00a0\n\n\n19,768\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n\u00a0\n\n\n25,527\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n21,852\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nF-\n18\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\n\n\n7. Advertising Costs\n \nWe expense advertising costs, primarily consisting of magazine advertisements, printed materials, television advertisements, digital advertisements, radio advertisements, and billboards, either as incurred or upon the first occurrence of the advertising. Advertising expense, included in selling, marketing, and distribution expenses, for the fiscal years ended April 30, 2023, 2022, and 2021, amounted to $\n14.7\n million, $\n17.5\n million, and $\n12.5\n million, respectively.\n\n\n8. Property, Plant, and Equipment\nThe following table summarizes property, plant, and equipment as of April 30, 2023 and 2022 (in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0April 30, 2022\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nMachinery and equipment\n\n\n$\n\n\n\u00a0\n\n\n308,852\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n299,318\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nSoftware and hardware\n\n\n\u00a0\n\n\n\u00a0\n\n\n49,569\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n47,918\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBuilding and improvements\n\n\n \n\n\n\u00a0\n\n\n40,131\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n38,552\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nLand and improvements\n\n\n \n\n\n\u00a0\n\n\n2,945\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n2,817\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nRight of use assets\n\n\n \n\n\n\u00a0\n\n\n41,631\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n40,986\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n443,128\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n429,591\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nLess: Accumulated depreciation and amortization\n\n\n \n\n\n\u00a0\n\n\n(\n334,383\n\n\n)\n\n\n \n\n\n\u00a0\n\n\n(\n306,350\n\n\n)\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n108,745\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n123,241\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nConstruction in progress\n\n\n \n\n\n\u00a0\n\n\n101,585\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n12,350\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nTotal property, plant, and equipment, net\n\n\n$\n\n\n\u00a0\n\n\n210,330\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n135,591\n\n\n\u00a0\n\n\n \n\n\n\n\n\u00a0\nDepreciation of tangible assets and amortization of software expense amounted to $\n31.0\n million $\n29.5\n million,  and $\n30.1\n million for the fiscal years ended April 30, 2023, 2022, and 2021, respectively.\nThe following table summarizes depreciation and amortization expense, which includes amortization of intangibles and debt financing costs, by line item for the fiscal years ended April 30, 2023, 2022, and 2021 (in thousands):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Years Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n$\n\n\n22,205\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n21,879\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n21,026\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n \n\n\n\u00a0\n\n\n529\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n484\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n519\n\n\n\u00a0\n\n\n\n\n\n\nSelling, marketing, and distribution\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,524\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n509\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n533\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative\n\n\n \n\n\n\u00a0\n\n\n7,088\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n7,111\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,606\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense\n\n\n \n\n\n\u00a0\n\n\n90\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n90\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n891\n\n\n\u00a0\n\n\n\n\n\n\nTotal depreciation and amortization\n\n\n\u00a0\n\n\n$\n\n\n31,436\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n30,073\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n31,575\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n9. Inventories\nThe following table sets forth a summary of inventories, net of reserves, stated at lower of cost or market, as of April 30, 2023 and 2022 (in thousands):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\nFinished goods\n\n\n\u00a0\n\n\n$\n\n\n93,705\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n58,460\n\n\n\u00a0\n\n\n\n\n\n\nFinished parts\n\n\n\u00a0\n\n\n\u00a0\n\n\n65,460\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n62,187\n\n\n\u00a0\n\n\n\n\n\n\nWork in process\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,821\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,304\n\n\n\u00a0\n\n\n\n\n\n\nRaw material\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,132\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,709\n\n\n\u00a0\n\n\n\n\n\n\nTotal inventories\n\n\n\u00a0\n\n\n$\n\n\n177,118\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n136,660\n\n\n\u00a0\n\n\n\n\n\u00a0\nF-\n19\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\n\n\n10. Accrued Expenses and Deferred Revenue\nThe following table sets forth other accrued expenses as of April 30, 2022 and 2021 (in thousands):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\nAccrued other\n\n\n\u00a0\n\n\n$\n\n\n4,597\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,959\n\n\n\u00a0\n\n\n\n\n\n\nAccrued taxes other than income\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,703\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,008\n\n\n\u00a0\n\n\n\n\n\n\nAccrued employee benefits\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,256\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,705\n\n\n\u00a0\n\n\n\n\n\n\nAccrued professional fees\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,596\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,997\n\n\n\u00a0\n\n\n\n\n\n\nAccrued rebates and promotions\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,649\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,243\n\n\n\u00a0\n\n\n\n\n\n\nAccrued distributor incentives\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,640\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,917\n\n\n\u00a0\n\n\n\n\n\n\nCurrent portion of finance lease obligation\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,434\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,158\n\n\n\u00a0\n\n\n\n\n\n\nCurrent portion of operating lease obligation\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,274\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,495\n\n\n\u00a0\n\n\n\n\n\n\nTotal accrued expenses and deferred revenue\n\n\n\u00a0\n\n\n$\n\n\n20,149\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,482\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n11. Fair Value Measurement\n \nWe follow the provisions of ASC 820-10,\n Fair Value Measurements and Disclosures Topic\n, or ASC 820-10, for our financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value under GAAP and requires expanded disclosures regarding fair value measurements. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.\n \nFinancial assets and liabilities recorded on the accompanying consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:\n \nLevel 1\n \u2014 Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access at the measurement date (examples include active exchange-traded equity securities, listed derivatives, and most U.S. Government and agency securities).\n \nOur cash and cash equivalents, which are measured at fair value on a recurring basis, totaled $\n53.6\n million and $\n120.7\n million as of April 30, 2023 and 2022, respectively. The carrying value of our revolving line of credit approximated the fair value as of April, 30, 2023. We utilized Level 1 of the value hierarchy to determine the fair values of these assets.\nLevel 2\n \u2014 Financial assets and liabilities whose values are based on quoted prices in markets in which trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 2 inputs include the following:\n \n\u2022\nquoted prices for identical or similar assets or liabilities in non-active markets (such as corporate and municipal bonds which trade infrequently); \n\u2022\ninputs other than quoted prices that are observable for substantially the full term of the asset or liability (such as interest rate and currency swaps); and \n\u2022\ninputs that are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability (such as certain securities and derivatives). \nLevel 3\n \u2014 Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect our assumptions about the assumptions a market participant would use in pricing the asset or liability.\n \nWe currently do \nno\nt have any Level 2 or Level 3 financial assets or liabilities as of April 30, 2023.\n\n\nF-\n20\n\n\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \n\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\n\n\u00a0\n\n\n12. Self-Insurance Reserves\nAs of April 30, 2023 and 2022, we had reserves for workers\u2019 compensation, product liability, and medical/dental costs totaling $\n9.2\n million and $\n8.7\n million, respectively, of which $\n2.6\n million and $\n3.1\n million, respectively, was classified as other non-current liabilities. As of April 30, 2023 and 2022, $\n6.6\n million and $\n5.6\n million, respectively, were included in accrued expenses or accounts payable on the accompanying consolidated balance sheets. In addition, as of April 30, 2023 and 2022, $\n663,000\n and $\n571,000\n, respectively, of workers\u2019 compensation recoverable was classified as other assets. While we believe these reserves to be adequate, it is possible that the ultimate liabilities will exceed such estimates.\n \nThe following table summarizes the activity in the workers\u2019 compensation, product liability, municipal liability, and medical/dental reserves in the fiscal years ended April 30, 2023 and 2022 (in thousands):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n2023\n\n\n\u00a0\n\n\n \n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nBeginning balance\n\n\n$\n\n\n\u00a0\n\n\n8,676\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n9,469\n\n\n\u00a0\n\n\n\n\n\n\nAdditional provision charged to expense\n\n\n \n\n\n\u00a0\n\n\n3,589\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n719\n\n\n\u00a0\n\n\n\n\n\n\nPayments\n\n\n \n\n\n\u00a0\n\n\n(\n3,026\n\n\n)\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n(\n1,512\n\n\n)\n\n\n\n\n\n\nEnding balance\n\n\n$\n\n\n\u00a0\n\n\n9,239\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n8,676\n\n\n\u00a0\n\n\n\n\nIt is our policy to provide an estimate for loss as a result of expected adverse findings or legal settlements on product liability, workers\u2019 compensation, and other matters when such losses are probable and are reasonably estimable. It is also our policy to accrue for reasonable estimable legal costs associated with defending such litigation. While such estimates involve a range of possible costs, we determine, in consultation with counsel, the most likely cost within such range on a case-by-case basis. We also record receivables from insurance carriers relating to these matters when their collection is probable. As of April 30, 2023 and 2022, we had accrued reserves for product litigation liabilities of $\n4.3\n million and $\n3.7\n million, respectively (of which $\n568,000\n and $\n895,000\n, respectively, was non-current), consisting entirely of expected legal defense costs. In addition, as of April 30, 2023, we did \nno\nt record any receivables from insurance carriers related to these liabilities. Prior to fiscal 2023, we had recorded receivables from insurance carriers related to these liabilities of $\n1.9\n million, nearly all of which has been classified as other assets.\n\n\n13. Stockholders\u2019 Equity\n \nTreasury Stock\n \nOn March 2, 2021, our Board of Directors authorized the repurchase of $\n100.0\n million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions. During fiscal 2021, we purchased \n3,380,447\n shares of our common stock for $\n60.0\n million under this authorization. During fiscal 2022, we completed this stock repurchase program by purchasing \n1,967,420\n of our common stock for $\n40.0\n million, utilizing cash on hand. On June 15, 2021, our Board of Directors authorized the repurchase of an additional $\n50.0\n million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions. Pursuant to this authorization, during fiscal 2022, we completed this repurchase program by purchasing \n2,788,152\n shares of our common stock for $\n50.0\n million, utilizing cash on hand. We did not purchase any shares of our common stock during fiscal 2023, and we do not have an authorized repurchase program as of April 30, 2023.\nIncentive Stock and Employee Stock Purchase Plans\n \nWe have \ntwo\n stock incentive plans: the 2013 Incentive Stock Plan and the 2022 Incentive Stock Plan. New grants under the 2013 Incentive Stock Plan have not been made since our stockholders approved the 2022 Incentive Stock Plan at our annual meeting of stockholders held on September 12, 2022. All new grants covering participants are issued under the 2022 Incentive Stock Plan.\n \nF-\n21\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nThe 2022 Incentive Stock Plan authorizes the issuance of \n1,000,000\n shares, plus any shares that were reserved and remained available for grant and delivery under the 2013 Incentive Stock Plan as of September 12, 2022, the effective date of the 2022 Incentive Stock Plan. The 2022 Incentive Stock Plan permits the grant of options to acquire common stock, restricted stock awards, restricted stock units, or RSUs, stock appreciation rights, bonus stock and awards in lieu of obligations, performance awards, and dividend equivalents. Our Board of Directors, or a committee of our board, administers the stock plans, selects recipients to whom awards are granted, and determines the grants to be awarded. Options granted under the stock plans are exercisable at a price determined by our Board of Directors or a committee of our board at the time of grant, but in no event, less than fair market value of our common stock on the effective date of the grant. Grants of options may be made to employees and directors without regard to any performance measures. All options issued pursuant to the stock plans are generally nontransferable and subject to forfeiture.\n \nUnless terminated earlier by our Board of Directors, the 2022 Incentive Stock Plan will terminate at the earliest of (1) the tenth anniversary of the effective date of the 2022 Incentive Stock Plan, or (2) such time as no shares of common stock remain available for issuance under the plan and we have no further rights or obligations with respect to outstanding awards under the plan. The date of grant of an award is deemed to be the effective date upon which our Board of Directors or a committee authorizes the granting of such award.\n \nExcept in specific circumstances, grants of stock options vest over a period of \nfour years\n and are exercisable for a period of \n10 \nyears after vesting. The 2022 Incentive Stock Plan also permits the grant of stock options to non-employees, which our Board of Directors or a committee has authorized in the past.\nThe number of shares and weighted average exercise prices of stock options for the fiscal years ended April 30, 2023, 2022, and 2021 are as follows:\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nShares\n\n\n\u00a0\n\n\n\u00a0\n\n\nExercise Price\n\n\n\u00a0\n\n\n\u00a0\n\n\nShares\n\n\n\u00a0\n\n\n\u00a0\n\n\nExercise Price\n\n\n\u00a0\n\n\n\u00a0\n\n\nShares\n\n\n\u00a0\n\n\n\u00a0\n\n\nExercise Price\n\n\n\u00a0\n\n\n\n\n\n\nOptions outstanding, beginning of year\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n200,667\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7.70\n\n\n\u00a0\n\n\n\n\n\n\nExercised during the period\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n200,667\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.67\n\n\n\u00a0\n\n\n\n\n\n\nOptions outstanding, end of period\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nWeighted average remaining contractual life\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOptions exercisable, end of period\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nWeighted average remaining contractual life\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nThere were \nno\n outstanding and exercisable stock options for fiscal 2023 and fiscal 2022. The aggregate intrinsic value of the options exercised for fiscal 2021 was $\n2.9\n million.\n \nThe following table summarizes stock compensation expense by line item for the fiscal years ended April 30, 2023, 2022, and 2021 (in thousands):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n$\n\n\n667\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n809\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n740\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n\u00a0\n\n\n80\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n61\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71\n\n\n\u00a0\n\n\n\n\n\n\nSelling, marketing, and distribution\n\n\n\u00a0\n\n\n\u00a0\n\n\n814\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n844\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n767\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,541\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,822\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,128\n\n\n\u00a0\n\n\n\n\n\n\nTotal stock-based compensation\n\n\n\u00a0\n\n\n$\n\n\n5,102\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,536\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,706\n\n\n\u00a0\n\n\n\n\nAs of April 30, 2023, there were \n998,364\n shares \navailable for grant under the 2022 Incentive Stock Plan. We use our unissued share pool for all shares issued for options, restricted stock awards, RSUs, performance share units,\n \nF-\n22\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nperformance-based \nrestricted stock units, or PSUs, and shares issued under our Employee Stock Purchase Plan, or ESPP.\n \nWe grant service-based RSUs to employees, consultants, and directors. The awards are made at no cost to the recipient. An RSU represents the right to acquire one share of our common stock and does not carry voting or dividend rights. Except in specific circumstances, RSU grants to employees and consultants generally vest over a period of three or \nfour years\n with \none-third \nor \none-fourth\n of the units vesting, respectively, on each anniversary date of the grant date. RSU grants to directors generally vest over a period of \none year\n with \none-twelfth\n of the units vesting each month. The aggregate fair value of our RSU grants is amortized to compensation expense over the applicable vesting period.\n \nWe grant PSUs to our executive officers. At the time of grant, we calculate the fair value of our PSUs using the Monte-Carlo simulation. We incorporate the following variables into the valuation model:\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nGrant date fair market value\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSmith & Wesson Brands, Inc\n\n\n$\n\n\n14.19\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n18.67\n\n\n\u00a0\n\n\n\u00a0\n\n\n$            \n16.99\n\u00a0- \n17.27\n\n\n\u00a0\n\n\n\n\n\n\nRussell 2000 Index\n\n\n$\n\n\n2,015.04\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,277.45\n\n\n\u00a0\n\n\n\u00a0\n\n\n$  \n1,526.46\n\u00a0- \n1,571.21\n\n\n\u00a0\n\n\n\n\n\n\nVolatility (a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSmith & Wesson Brands, Inc\n\n\n\u00a0\n\n\n64.77\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n62.33\n\n\n%\n\n\n\u00a0\n\n\n59.09\n% - \n61.34\n%\n\n\n\u00a0\n\n\n\n\n\n\nRussell 2000 Index\n\n\n\u00a0\n\n\n31.75\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.69\n\n\n%\n\n\n\u00a0\n\n\n27.62\n% - \n29.27\n%\n\n\n\u00a0\n\n\n\n\n\n\nCorrelation coefficient (b)\n\n\n\u00a0\n\n\n0.2094\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1540\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1242\n\u00a0- \n0.1302\n\n\n\u00a0\n\n\n\n\n\n\nRisk-free interest rate (c)\n\n\n\u00a0\n\n\n2.91\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.33\n\n\n%\n\n\n\u00a0\n\n\n0.16\n% - \n0.22\n%\n\n\n\u00a0\n\n\n\n\n\n\nDividend yield\n\n\n\u00a0\n\n\n2.26\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.07\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.95\n\n\n%\n\n\n\n\n\u00a0\n(a)\nExpected volatility is calculated over the most recent period that represents the remaining term of the performance period as of the valuation date, or \nthree years\n.\n \n(b)\nThe correlation coefficient utilizes the same historical price data used to develop the volatility assumptions.\n \n(c)\nThe risk-free interest rate is based on the yield of a zero-coupon U.S. Treasury bill, commensurate with the \nthree-year\n performance period.\n \n\u00a0\nThe PSUs vest, and the fair value of such PSUs are recognized, over the corresponding \nthree-year\n performance period. Our PSUs have a maximum aggregate award equal to \n200\n% of the target amount granted. Generally, the number of PSUs that may be earned depends upon the total stockholder return, or TSR, of our common stock compared with the TSR of the Russell 2000 Index, or RUT, over the three-year performance period. For PSUs, our stock must outperform the RUT by \n5\n% in order for the target award to vest. In addition, there is a cap on the number of shares that can be earned under our PSUs, which is equal to six times the grant-date value of each award.\nIn connection with the spin-off of AOUT and in accordance with the terms of the Employee Matters Agreement between us and AOUT, all outstanding PSU awards were adjusted such that the performance criteria relative to SWBI share price was modified to compare the market cap of SWBI for the 90 days subsequent to the original grant date to the combined market cap of SWBI and AOUT for the 90 days preceding the original vest date.  The change in the market cap will be compared to the change in the value of the Russell 2000 index for the same period.  In addition, a pro rata number of AOUT PSUs were granted at the time of the spin to each SWBI PSU recipient with the same terms as the underlying original SWBI PSU.\nIn certain circumstances, the vested awards will be delivered on the first anniversary of the applicable vesting date. We have applied a discount to the grant date fair value when determining the amount of compensation expense to be recorded for these RSUs and PSUs.\nDuring fiscal 2023, we granted \n108,736\n PSUs to certain of our executive officers. We also granted \n287,854\n service-based RSUs during fiscal 2023, including \n72,494\n RSUs to certain of our executive officers, \n56,497\n RSUs to our directors, and \n158,863\n RSUs to non-executive officer employees.\n \nF-\n23\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nDuring fiscal 2023, we canceled \n35,179\n service-based RSUs as a result of the service period condition not being met. We delivered \n202,859\n shares of common stock to current employees under vested RSUs with a total market value of $\n2.7\n million. In addition, in connection with a 2018 grant, which vested in fiscal 2022, we delivered \n83,586\n market-condition PSUs to certain of our executive officers and a former executive officer with a total market value of $\n1.2\n million. In addition, in connection with a 2019 grant, \n57,600\n PSUs vested to certain of our executive officers and a former executive officer, which resulted from achieving the maximum performance of \n200.0\n% of target for the original \n28,800\n PSUs granted.  Relating to this same grant, \n1,874\n shares were released to cover tax obligations on the vesting.\n \nDuring fiscal 2022, we granted \n73,913\n PSUs to certain of our executive officers and a former executive officer. We also granted \n184,767\n service-based RSUs during fiscal 2022, including \n65,518\n RSUs to certain of our executive officers and a former executive officer, \n42,702\n RSUs to our directors, and \n76,547\n RSUs to non-executive officer employees.\n \nDuring fiscal 2022, we canceled \n45,249\n service-based RSUs as a result of the service period condition not being met. We canceled \n40,869\n PSUs as a result of the service period condition not being met.  We delivered \n365,736\n shares of common stock to current employees under vested RSUs with a total market value of $\n7.5\n million. In addition, in connection with a 2018 grant, we vested \n86,400\n market-condition PSUs to certain of our executive officers and a former executive officer, which resulted from achieving the maximum performance of \n200.0\n% of target for the original \n43,200\n PSUs granted.  Related to this same grant, we released \n2,814\n market-condition PSUs to cover tax obligations as a result of the vesting.\nDuring fiscal 2021, we granted \n36,308\n PSUs to certain of our executive officers. We also granted \n234,007\n service-based RSUs during fiscal 2021, including \n68,461\n RSUs to certain of our executive officers, \n25,570\n RSUs to our directors, and \n139,976\n RSUs to non-executive officer employees.\n \nDuring fiscal 2021, we canceled \n88,365\n service-based RSUs, of which \n57,547\n RSUs was a result of the Separation, and \n30,818\n RSUs was as a result of the service period condition not being met. We canceled \n92,500\n PSUs of which \n28,800\n PSUs was a result of the spin-off and \n63,700\n was a result of the three-year stock performance targets were not being achieved. We delivered \n50,200\n shares of common stock to our former chief financial officer under vested PSUs with a total market value of $\n1.3\n million, under the terms of his retirement. We delivered \n357,345\n shares of common stock to current employees under vested RSUs with a total market value of $\n5.8\n million.\nThe grant date fair value of RSUs and PSUs that vested in fiscal 2023, 2022, and 2021 was $\n4.0\n million, $\n4.4\n million, and $\n5.9\n million, respectively.\n \nA summary of activity for unvested RSUs and PSUs for fiscal years 2023, 2022, and 2021 is as follows:\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal # of\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal # of\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal # of\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nRestricted\n\n\n\u00a0\n\n\n\u00a0\n\n\nGrant Date\n\n\n\u00a0\n\n\n\u00a0\n\n\nRestricted\n\n\n\u00a0\n\n\n\u00a0\n\n\nGrant Date\n\n\n\u00a0\n\n\n\u00a0\n\n\nRestricted\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nGrant\n \nDate\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nStock Units\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value\n\n\n\u00a0\n\n\n\u00a0\n\n\nStock Units\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value\n\n\n\u00a0\n\n\n\u00a0\n\n\nStock Units\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value\n\n\n\u00a0\n\n\n\n\n\n\nRSUs and PSUs outstanding, beginning of period\n\n\n\u00a0\n\n\n\u00a0\n\n\n830,813\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13.30\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n995,879\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11.14\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,313,974\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10.86\n\n\n\u00a0\n\n\n\n\n\n\nAwarded (a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n425,390\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.52\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n301,880\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.95\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n270,315\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.54\n\n\n\u00a0\n\n\n\n\n\n\nReleased\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n288,319\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.92\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n368,550\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.99\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n407,545\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.57\n\n\n\u00a0\n\n\n\n\n\n\nForfeited\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n35,179\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.17\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n98,396\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.29\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n180,865\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.18\n\n\n\u00a0\n\n\n\n\n\n\nRSUs and PSUs outstanding, end of period\n\n\n\u00a0\n\n\n\u00a0\n\n\n932,705\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13.14\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n830,813\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13.30\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n995,879\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11.14\n\n\n\u00a0\n\n\n\n\n_____________________\na)\nIncludes \n28,800\n PSUs that vested during the fiscal year in connection with achieving maximum performance targets for the 2019 grants.\nAs of April 30, 2023, there was $\n3.0\n million of unrecognized compensation cost related to unvested RSUs and PSUs. This cost is expected to be recognized over a weighted average remaining contractual term of \n1.3\n years.\n \nF-\n24\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nWe had an ESPP that commenced on September 26, 2011, or the 2011 ESPP, which authorized the sale of up to \n6,000,000\n of our common stock to employees. The 2011 ESPP continued in effect for a term of \n10\n years and expired with the offering period that ended March 31, 2022. All options and rights to participate in the 2011 ESPP are nontransferable and subject to forfeiture in accordance with the 2011 ESPP guidelines. As of April 30, 2022, we had issued \n1,948,334\n shares of common stock under the 2011 ESPP, all of which were purchased prior to April 30, 2022.  During fiscal 2022 and 2021, \n128,422\n and \n204,482\n shares were purchased under the 2011 ESPP, respectively.\nOn September 27, 2021, our stockholders approved our 2021 ESPP, which authorizes the sale of up to \n3,000,000\n shares of our common stock to employees. All options and rights to participate in our ESPP are nontransferable and subject to forfeiture in accordance with our ESPP guidelines. Our current ESPP will be implemented in a series of successive offering periods, each with a maximum duration of 12 months. If the fair market value, or FMV, per share of our common stock on any purchase date is less than the FMV per share on the start date of a 12-month offering period, then that offering period will automatically terminate, and a new 12-month offering period will begin on the next business day. Each offering period will begin on April 1 or October 1, as applicable, immediately following the end of the previous offering period. Payroll deductions will be on an after-tax basis, in an amount of not less than \n1\n% and not more than \n20\n% (or such greater percentage as the committee appointed to administer our ESPP may establish from time to time before the first day of an offering period) of a participant\u2019s compensation on each payroll date. The option exercise price per share will equal \n85\n% of the lower of the FMV on the first day of the offering period or the FMV on the exercise date. The maximum number of shares that a participant may purchase during any purchase period is \n12,500\n shares, or a total of $\n25,000\n in shares, based on the FMV on the first day of the offering period. Our ESPP will remain in effect until the earliest of (a) the exercise date that participants become entitled to purchase a number of shares greater than the number of reserved shares available for purchase under our ESPP, (b) such date as is determined by our board of directors in its discretion, or (c) March 31, 2022. In the event of certain corporate transactions, each option outstanding under our ESPP will be assumed or an equivalent option will be substituted by the successor corporation or a parent or subsidiary of such successor corporation. During fiscal 2023, \n175,047\n shares were purchased under the 2021 ESPP.\nWe measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. We calculate the fair value of our stock options issued to employees using the Black-Scholes model at the time the options were granted. That amount is then amortized over the vesting period of the option. With our ESPP, fair value is determined at the beginning of the purchase period and amortized over the term of each exercise period.\nThe following assumptions were used in valuing our ESPP purchases during the years ended April 30, 2023, 2022, and 2021:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n2023\n\n\n\u00a0\n\n\n \n\n\n2022\n\n\n\u00a0\n\n\n \n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nRisk-free interest rate\n\n\n\u00a0\n\n\n4.301\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n0.682\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n0.08\n\n\n%\n\n\n\n\n\n\nExpected term\n\n\n6 months\n\n\n\u00a0\n\n\n \n\n\n6 months\n\n\n\u00a0\n\n\n \n\n\n6 months\n\n\n\u00a0\n\n\n\n\n\n\nExpected volatility\n\n\n\u00a0\n\n\n49.18\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n60.62\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n70.93\n\n\n%\n\n\n\n\n\n\nDividend yield\n\n\n\u00a0\n\n\n3.59\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n1.85\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n1.17\n\n\n%\n\n\n\n\nWe estimate expected volatility using historical volatility for the expected term. The fair value of each stock option or ESPP purchase was estimated on the date of the grant using the Black-Scholes option pricing model (using the risk-free interest rate, expected term, expected volatility, and dividend yield variables, as noted in the above table). The total stock-based compensation expense, including stock options, purchases under our ESPP, and RSU and PSU awards, was $\n5.1\n million, $\n4.5\n million, and $\n4.7\n million, for fiscal years 2023, 2022, and 2021, respectively.\n \n\n\nF-\n25\n\n\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \n\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\n\n\u00a0\n\n\n14. Employer Sponsored Benefit Plans\nContributory Defined Investment Plan\n \u2014 \nWe offer two contributory defined investment plans covering substantially all employees, subject to service requirements. Employees may contribute up to \n100\n% of their annual pay, depending on the plan. We generally make discretionary matching contributions of up to \n50\n% of the first \n6\n% of employee contributions to the plan.\n We contributed $\n2.6\n million, $\n2.9\n million, and $\n2.9\n million for the fiscal years ended April 30, 2023, 2022, and 2021, respectively.\n \nNon-Contributory Profit Sharing Plan\n \u2014 We have a non-contributory profit sharing plan covering substantially all of our employees. Employees become eligible on May 1 following the completion of a full fiscal year of continuous service. Our contributions to the plan are discretionary. For fiscal 2023, we plan to contribute approximately $\n8.2\n million, which has been recorded in general and administrative costs. We contributed $\n13.5\n million and $\n14.4\n million for the fiscal years ended April 30, 2022 and 2021, respectively. Contributions are funded after the fiscal year-end.\n \n\n\n15. Income Taxes\nIncome tax expense/(benefit) from continuing operations consisted of the following (in thousands):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nCurrent:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFederal\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n16,259\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n52,843\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n64,417\n\n\n\u00a0\n\n\n\n\n\n\nState\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,955\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,174\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,530\n\n\n\u00a0\n\n\n\n\n\n\nTotal current\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,214\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n60,017\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n73,947\n\n\n\u00a0\n\n\n\n\n\n\nDeferred:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFederal\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n6,217\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,889\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n358\n\n\n\u00a0\n\n\n\n\n\n\nState\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n647\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n236\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n89\n\n\n\u00a0\n\n\n\n\n\n\nTotal deferred\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n6,864\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,125\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n447\n\n\n\u00a0\n\n\n\n\n\n\nTotal income tax expense\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n11,350\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n57,892\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n74,394\n\n\n\u00a0\n\n\n\n\nThe following table presents a reconciliation of the provision for income taxes from continuing operations at the statutory rate of \n21\n% to the provision/(benefit) in the consolidated financial statements (in thousands):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nFederal income taxes expected at the statutory rate\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n10,127\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n53,001\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n66,773\n\n\n\u00a0\n\n\n\n\n\n\nState income taxes, less federal income tax benefit\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,503\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,685\n\n\n\u00a0\n\n\n\n\n\n\nStock compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n136\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n749\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n578\n\n\n)\n\n\n\n\n\n\nBusiness meals and entertainment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n89\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n118\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n115\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development tax credit\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n265\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n300\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n297\n\n\n)\n\n\n\n\n\n\nNon-deductible separation expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n195\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n240\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n319\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n501\n\n\n\u00a0\n\n\n\n\n\n\nTotal income tax expense\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n11,350\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n57,892\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n74,394\n\n\n\u00a0\n\n\n\n\n\u00a0\nF-\n26\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nDeferred tax assets and liabilities related to temporary differences consisted of the following (in thousands):\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Years Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nDeferred Tax Assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInventory reserves\n\n\n\u00a0\n\n\n$\n\n\n7,495\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,187\n\n\n\u00a0\n\n\n\n\n\n\nAccrued expenses, including compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,764\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,138\n\n\n\u00a0\n\n\n\n\n\n\nNet operating loss carryforwards and tax credits\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,156\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,168\n\n\n\u00a0\n\n\n\n\n\n\nOperating lease liability\n\n\n\u00a0\n\n\n\u00a0\n\n\n473\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n866\n\n\n\u00a0\n\n\n\n\n\n\nProduct liability\n\n\n\u00a0\n\n\n\u00a0\n\n\n596\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n614\n\n\n\u00a0\n\n\n\n\n\n\nWorkers' compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n477\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n567\n\n\n\u00a0\n\n\n\n\n\n\nState bonus depreciation\n\n\n\u00a0\n\n\n\u00a0\n\n\n755\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n787\n\n\n\u00a0\n\n\n\n\n\n\nWarranty reserve\n\n\n\u00a0\n\n\n\u00a0\n\n\n913\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,111\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,551\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,356\n\n\n\u00a0\n\n\n\n\n\n\nSection 174 capitalized R&D expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,549\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n622\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n973\n\n\n\u00a0\n\n\n\n\n\n\nTotal deferred tax assets before valuation allowance\n\n\n\u00a0\n\n\n\u00a0\n\n\n22,351\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,767\n\n\n\u00a0\n\n\n\n\n\n\nValuation allowance\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,031\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,086\n\n\n)\n\n\n\n\n\n\nNet deferred tax assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,320\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,681\n\n\n\u00a0\n\n\n\n\n\n\nDeferred Tax Liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating lease right-of-use assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n420\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n806\n\n\n)\n\n\n\n\n\n\nProperty, plant & equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n8,847\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n12,049\n\n\n)\n\n\n\n\n\n\nIntangible assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,581\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,186\n\n\n)\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n387\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n419\n\n\n)\n\n\n\n\n\n\nTotal deferred tax liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n11,235\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n14,460\n\n\n)\n\n\n\n\n\n\nNet Deferred Tax Asset/(Liability)\n\n\n\u00a0\n\n\n$\n\n\n8,085\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,221\n\n\n\u00a0\n\n\n\n\nWe had \nno\n federal net operating losses as of April 30, 2023.\nWe had $\n17.7\n million in state net operating loss carryforwards as of both April 30, 2023 and 2022. The state net operating loss carryforwards will expire between \nApril 30, 2027\n and \nApril 30, 2040\n. We had $\n2.8\n million and $\n2.9\n million of state tax credit carryforwards as of April 30, 2023 and 2022, respectively. The state tax credit carryforwards will expire between \nApril 30, 2023\n and \nApril 30, 2025\n, with certain of these credits having no expiration date.\n \nAs of both April 30, 2023 and 2022, valuation allowances related to future deductible temporary differences were $\n957,000\n and $\n904,000\n, respectively and $\n2.2\n million and $\n2.3\n million were provided on our deferred tax assets for state net operating loss carryforwards and state tax credits, respectively, that we do not anticipate using prior to expiration.\nThe income tax provisions represent effective tax rates of \n23.5\n% and \n22.9\n% for fiscal 2023 and 2022, respectively.\n \nWith limited exception, we are subject to U.S. federal, state, and local income tax audits by tax authorities for fiscal years subsequent to April 30, 2018.\nAt April 30, 2023 and 2022, we have \nno\nt recorded any unrecognized tax benefits. We maintain an accounting policy of recording interest and penalties, if applicable, related to uncertain tax positions as a component of income taxes. As of April 30, 2023 and 2022, there were \nno\n interest and penalties accrued.\n\n\n16. Commitments and Contingencies\nLitigation\n \nIn \nJanuary 2018, Gemini Technologies, Incorporated, or Gemini, commenced an action against us in the U.S. District Court for the District of Idaho, or the District Court. The complaint alleges, among other things, that we\n \nF-\n27\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nbreached \nthe earn-out and other provisions of the asset purchase agreement and ancillary agreements between the parties in connection with our acquisition of the Gemtech business from Gemini. The complaint seeks a declaratory judgment interpreting various terms of the asset purchase agreement and damages in the sum of $\n18.6\n million. In May 2018, the District Court dismissed the complaint on the grounds of \nforum non conveniens\n. In June 2018, Gemini appealed the decision dismissing its complaint to the U.S. Court of Appeals for the Ninth Circuit, or the Ninth Circuit. In July 2019, the Ninth Circuit reversed the dismissal and remanded the case to the District Court to perform a traditional \nforum non conveniens\n analysis. In September 2019, the parties stipulated that they do not contest that the venue is proper in the District of Idaho. In November 2019, we filed an answer to Gemini\u2019s complaint and a counterclaim against Gemini and its stockholders at the time of the signing of the asset purchase agreement. Plaintiffs amended their complaint to add a claim of fraud in the inducement. In September 2021, Gemini filed a motion for summary judgment seeking to dismiss our counterclaim. In October 2021, we filed our opposition to Gemini\u2019s motion. On June 27, 2022, the court denied Gemtech's motion for summary judgment. We believe the claims asserted in the complaint have no merit, and we intend to aggressively defend this action.\nWe are a defendant in \nseven\n product liability cases and are aware of \neight\n other product liability claims, primarily alleging defective product design, defective manufacturing, or failure to provide adequate warnings. In addition, we are a co-defendant in a case filed in August 1999 by the city of Gary, Indiana, or the City, against numerous firearm manufacturers, distributors, and dealers seeking to recover monetary damages, as well as injunctive relief, allegedly arising out of the misuse of firearms by third parties. In January 2018, the Lake Superior Court, County of Lake, Indiana granted defendants\u2019 Motion for Judgment on the Pleadings, dismissing the case in its entirety. In February 2018, plaintiffs appealed the dismissal to the Indiana Court of Appeals. In May 2019, the Indiana Court of Appeals issued a decision, which affirmed in part and reversed in part and remanded for further proceedings, the trial court\u2019s dismissal of the City\u2019s complaint. In July 2019, defendants filed a Petition to Transfer jurisdiction to the Indiana Supreme Court. In November 2019, the Indiana Supreme Court denied defendants' petition to transfer and the case was returned to the trial court. Discovery remains ongoing.\nIn May 2018, we were named in an action related to the Parkland, Florida shooting that was filed in the Circuit Court, Broward County, Florida seeking a declaratory judgment that a Florida statute that provides firearm manufacturers and dealers immunity from liability when their legally manufactured and lawfully sold firearms are later used in criminal acts applies only to civil actions commenced by governmental agencies, not private litigants. In August 2018, we moved to dismiss the complaint on the grounds that it seeks an impermissible advisory opinion. In December 2018, the court granted defendants\u2019 motion to dismiss without prejudice and granted plaintiffs leave to amend their complaint. Later in December 2018, plaintiffs filed a Second Amended Complaint for Declaratory Relief and defendants filed a Motion to Dismiss Plaintiffs\u2019 Second Amended Complaint. In November 2019, the court granted defendants\u2019 motion to dismiss plaintiffs\u2019 second amended complaint, with prejudice. In June 2021, upon plaintiffs\u2019 motion, the Fourth District Court of Appeal of the State of Florida, or the Court of Appeal, ruled that the Circuit Court\u2019s order dismissing the case was not \u201cfinal and appealable\u201d and ordered the Circuit Court to enter a final order of dismissal. In July 2021, certain plaintiffs filed a notice of appeal to the Court of Appeal. On January 4, 2023, the Court of Appeal affirmed the trial court's dismissal of the case. On February 6, 2023, plaintiffs filed a notice of appeal to the Supreme Court of Florida. In March 2023, we filed a jurisdictional brief with the Supreme Court of Florida. On June 1, 2023, The Supreme Court of Florida denied the petition for review and provided that no motion for rehearing will be entertained.\nWe are a defendant in a putative class proceeding before the Ontario Superior Court of Justice in Toronto, Canada that was filed in \nDecember 2019\n. The action claims CAD$\n50\n million in aggregate general damages, CAD$\n100\n million in aggregate punitive damages, special damages in an unspecified amount, together with interest and legal costs. The named plaintiffs are \ntwo\n victims \nof a shooting that took place in Toronto in July 2018 and their family members. One victim was shot and injured during the shooting. The other victim suffered unspecified injuries while fleeing the shooting. The plaintiffs are seeking to certify a claim on behalf of classes that include all persons who were killed or injured in the shooting and their immediate family members. The plaintiffs allege negligent design and public nuisance. The case has not been certified as a class action. In July 2020, we filed a Notice of Motion for an order striking the claim and dismissing the action in its entirety. In February 2021, the court granted our motion in part, and dismissed the plaintiffs\u2019 claims in public nuisance and strict liability. The court declined to strike the negligent design claim and ordered that the claim proceed to a certification motion. In March 2021, we filed a motion for leave to appeal the court\u2019s refusal to strike the negligent design claim with the Divisional Court, Ontario Superior Court of Justice. In July 2021, plaintiffs filed a motion to stay our motion for leave to appeal with the Divisional Court,\n \nF-\n28\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\non \ngrounds that appeal is premature. In November 2021, the Divisional Court granted plaintiffs' motion, staying our motion for leave to appeal until 30 days after the decision on the balance of plaintiffs' certification motion. Plaintiffs\u2019 certification motion was extended by the court to January 2024.\n \nIn May 2020, we were named in an action related to the Chabad of Poway synagogue shooting that took place in April 2019. The complaint was filed in the Superior Court of the State of California, for the County of San Diego \u2013 Central, and asserts claims against us for product liability, unfair competition, negligence, and public nuisance. The plaintiffs allege they were present at the synagogue on the day of the incident and suffered physical and/or emotional injury. The plaintiffs seek compensatory and punitive damages, attorneys\u2019 fees, and injunctive relief. In September 2020, we filed a demurrer and motion to strike, seeking to dismiss plaintiffs\u2019 complaint. In July 2021, the court granted our motion in part, and reversed it in part, ruling that (1) the PLCAA barred plaintiffs\u2019 product liability action; (2) plaintiffs did not have standing to maintain an action under the Unfair Competition Law for personal injury related damages, but gave plaintiffs leave to amend to plead an economic injury; and (3) the PLCAA did not bar plaintiffs\u2019 ordinary negligence and public nuisance actions because plaintiffs had alleged that we violated 18 U.S.C. Section 922(b)(4), which generally prohibits the sale of fully automatic \u201cmachineguns.\u201d In August 2021, we filed a Petition for Writ of Mandate in the Court of Appeal of the State of California, Fourth Appellate District, Division One. In September 2021, the Court of Appeal denied our appeal. In February 2022, the court consolidated the case with three related cases, in which we are not a party. In March 2022, the court granted our motion, dismissing plaintiffs\u2019 Unfair Competition Law claim, without further leave to amend. Discovery is ongoing. On February 28, 2023, we filed a motion for summary judgment. On May 5, 2023, plaintiffs filed their opposition to our motion for summary judgment.  On May 12, 2023, we filed our reply to plaintiffs\u2019 opposition to our motion for summary judgment. On May 19, 2023, the court denied our motion for summary judgment without prejudice, and allowed plaintiffs time for additional, limited discovery. A hearing on our renewed motion for summary judgment is set for January 12, 2024, and the trial date has been moved to August 30, 2024.\nWe are a defendant in an action filed in the U.S. District Court for the District of Massachusetts. In August 2021, the Mexican Government filed an action against several U.S.-based firearms manufacturers and a firearms distributor, claiming defendants design, market, distribute, and sell firearms in ways they know routinely arm the drug cartels in Mexico. Plaintiff alleges, among other claims, negligence, public nuisance, design defect, unjust enrichment and restitution against all defendants and violation of the Massachusetts Consumer Protection Act against us alone, and is seeking monetary damages and injunctive relief. In November 2021, defendants filed motions to dismiss plaintiff's complaint. In January 2022, plaintiff filed its oppositions to our motions. Several amicus briefs were also filed with the court. In April 2022, a hearing was held on defendants\u2019 motions to dismiss. In September 2022, the district court granted defendants\u2019 motions to dismiss. In October 2022, plaintiff filed a notice of appeal with the U.S. Court of Appeals for the First Circuit. On March 14, 2023, plaintiff filed its appellant brief with the First Circuit. On May 11, 2023, defendants-appellees filed their responsive brief. Oral argument is scheduled for July 24, 2023.\nIn September 2022, we were named as defendants in 12 nearly identical, separate actions related to a shooting in Highland Park, Illinois on July 4, 2022. The complaints were filed in the Circuit Court of the Nineteenth Judicial Circuit in Lake County, Illinois and assert claims against us for negligence and for deceptive and unfair practices under the Illinois Consumer Fraud and Deceptive Business Practices Act. Plaintiffs also name as defendants the website and retailer that sold the firearm, the shooter, and the shooter\u2019s father. The plaintiffs allege they were present at a parade at the time of the incident and suffered physical and/or emotional injury. The plaintiffs seek compensatory damages, attorneys\u2019 fees and injunctive relief. We filed motions for removal of each case to the U.S. District Court for the Northern District of Illinois. In November 2022, we filed a motion to consolidate the cases for preliminary motion purposes. In December 2022, plaintiffs filed motions to remand the cases back to the state court. On January 20, 2023, we filed our opposition to plaintiffs\u2019 motion to remand.\nIn December 2022, the City of Buffalo, New York filed a complaint in the Supreme Court of the State of New York, County of Erie, against numerous manufacturers, distributors, and retailers of firearms. Later in December 2022, the City of Rochester, New York filed an almost identical complaint in the Supreme Court of the State of New York, County of Monroe, against the same defendants. The complaints allege violation of New York General Business Law, public nuisance, and deceptive business practices in violation of NY General Business Laws. In January 2023, we filed notices of removal of the cases to the US District Court. On March 24, 2023, defendants filed a motion to stay both cases pending a ruling by the U.S. Court of Appeals for the Second Circuit in the NSSF v. James case. On June\n \nF-\n29\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\n8, 2023, the court granted defendants\u2019 motions to consolidate and to stay pending resolution of the NSSF v. James appeal.\n \nWe believe that the various allegations as described above are unfounded, and, in addition, that any incident and any results from them or any injuries were due to negligence or misuse of the firearm by the claimant or a third party.\nIn March 2022, \ntwo\n plaintiffs, on behalf of a proposed class of current and former employees and temporary workers who worked at our Springfield facility from November 2018 to the present, filed a claim alleging non-payment of wages and overtime in violation of the Massachusetts Wage Act and Massachusetts Fair Wage Act. The case has not been certified as a class action. We believe the claims asserted in the complaint have no merit, and we intend to aggressively defend this action. Mediation is scheduled for June 23, 2023.\nIn addition, from time to time, we are involved in lawsuits, claims, investigations, and proceedings, including commercial, environmental, premises and employment matters, which arise in the ordinary course of business.\n \nThe relief sought in individual cases primarily includes compensatory and, sometimes, punitive damages. Certain of the cases and claims seek unspecified compensatory or punitive damages. In others, compensatory damages sought may range from less than $\n75,000\n to approximately $\n50.0\n million. In our experience, initial demands do not generally bear a reasonable relationship to the facts and circumstances of a particular matter. We believe that our accruals for product liability cases and claims are a reasonable quantitative measure of the cost to us of product liability cases and claims.\n \nWe are vigorously defending ourselves in the lawsuits to which we are subject. An unfavorable outcome or prolonged litigation could harm our business. Litigation of this nature also is expensive, time consuming, and diverts the time and attention of our management.\nWe monitor the status of known claims and the related product liability accrual, which includes amounts for defense costs for asserted and unasserted claims. After consultation with litigation counsel and a review of the merit of each claim, we have concluded that we are unable to reasonably estimate the probability or the estimated range of reasonably possible losses related to material adverse judgments related to such claims and, therefore, we have not accrued for any such judgments. In the future, should we determine that a loss (or an additional loss in excess of our accrual) is at least reasonably possible and material, we would then disclose an estimate of the possible loss or range of loss, if such estimate could be made, or disclose that an estimate could not be made. We believe that we have provided adequate accruals for defense costs.\n \nFor the fiscal years ended April 30, 2023, 2022, and 2021, we paid $\n988,000\n, $\n729,000\n, and $\n606,000\n, respectively, in defense and administrative costs relative to product liability and municipal litigation. In addition, during fiscal 2023 and 2021, we paid an aggregate of $\n1.5\n million and $\n65,000\n, respectively, in settlement fees related to product liability cases. During fiscal 2022, we made \nno\n payments related to settlement fees for product liability cases. As of April 30, 2023 and 2022, we had $\n1.6\n million and $\n815,000\n, respectively, accrued for settlement fees, that were paid subsequent to the corresponding year end.\n \nWe have recorded our liability for defense costs before consideration for reimbursement from insurance carriers. We have also recorded the amount due as reimbursement under existing policies from the insurance carriers as a receivable shown in other current assets and other assets.\n \nWe recognize gains and expenses for changes in our product liability provisions and municipal litigation liabilities. In fiscal 2023, we recorded expense of $\n176,000\n; in fiscal 2022, we recorded expense of $\n1.2\n million; and in fiscal 2021, we recorded expense of $\n388,000\n.\nAt this time, an estimated range of reasonably possible additional losses relating to unfavorable outcomes cannot be made.\nCommitments\nF-\n30\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nOn September 30, 2021, we announced our plan to move our headquarters and significant elements of our operations to Maryville in 2023, or the Relocation. In connection with the Relocation, we entered into a project agreement, or the Project Agreement, with The Industrial Development Board of Blount County and the cities of Alcoa and Maryville, Tennessee, a public, nonprofit corporation organized and existing under the laws of the state of Tennessee, or the IDB. \nPursuant to the Project Agreement, we represented to the IDB that we intend to incur, or cause to be incurred, no less than $120.0 million in aggregate capital expenditures on or before December 31, 2025, create no less than 620 new jobs, and sustain an average hourly wage of at least $\n25.97\n at the facility. Further, pursuant to the Project Agreement, we are required to, among other things, (A) execute a facility lease and an equipment lease with the IDB; (B) cause the construction of the new facility at our sole cost and expense to commence on or before May 31, 2022; (C) incur, or cause to be incurred, aggregate capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of not less than $\n120.0\n million on or before December 31, 2025; (D) cause the construction of the new facility to be substantially completed and for a certificate of occupancy to be issued therefore on or before December 31, 2023; (E) provide the IDB with a written report certified by one of our authorized officers, not later than January 31 of each year during the period between January 31, 2024 and January 31, 2031; and (F) make certain payments to IDB in the event that our actual capital expenditures, number of employees, or average hourly wage of such employees are less than our projections.\nOn February 2, 2023, we entered into a design-build agreement with The Christman Company, or Christman, related to the construction of our new distribution center and corporate office headquarters in Maryville, or the Construction Contract. The Construction Contract has an effective date of September 13, 2021 and incorporates the arrangements under which we and Christman have been proceeding. Pursuant to the Construction Contract, Christman is obligated to deliver certain services, including, among others, design phase services and construction phase services, and we are obligated to pay Christman for services performed. The parties to the Construction Contract have jointly agreed that Christman will perform and complete the Work (as defined therein) on a cost-plus basis for a guaranteed maximum price of $\n114,533,853\n, including contingencies. When adding the cost of machinery and equipment, we expect to spend between $\n160.0\n million and $\n170.0\n million through the end of fiscal 2024. The Construction Contract includes terms that are customary for contracts of this type, including with respect to indemnification and insurance. The Construction Contract lists certain contract milestones and guaranteed completion dates, and we will be entitled to liquidated damages under certain circumstances. Each party to the Construction Contract is entitled to terminate the Construction Contract under certain circumstances.\nAs part of the Relocation, on January 31, 2023, we entered into the Assignment and Assumption Agreement and the Amended and Restated Guaranty. Assets associated with certain of our assembly operations in Massachusetts and distribution operations in Missouri continue to be fully utilized, and we intend to either move those assets to Maryville at the appropriate time or sell or sublease those assets that will not be moved. Consequently, as of April 30, 2023, we do not believe we have an impairment related to the building or assets. Subsequent to the Relocation, we expect our Springfield facility will continue to remain an important part of our manufacturing activities with significant portions of the operations being unaffected by the Relocation.\nIn addition, we intend to relocate a portion of our plastic injection molding operations to Maryville and will evaluate selling the remaining molding operations utilized in our Connecticut operations to a third party. As of April 30, 2023, all plastic injection molding machinery and equipment was being utilized. Therefore, we could not determine an estimated range of reasonably possible losses associated with any impairment of such assets because we have not yet determined which assets may be sold.\nEnvironmental Remediation\n \nWe are subject to numerous federal, state, and local laws and regulations that regulate the health and safety of our workforce, including, but not limited to, those regulations monitored by the Occupational Health and Safety Administration, or OSHA, the National Fire Protection Association, and the Department of Public Health. Though not exhaustive, examples of applicable regulations include confined space safety, walking and working surfaces, machine guarding, and life safety.\n \nWe are also subject to numerous federal, state, and local environmental laws and regulations concerning, among other things, emissions in the air; discharges to land, surface, subsurface strata and water; and the generation, handling, storage, transportation, treatment, and disposal of hazardous wastes and other materials. These laws have required us\n \nF-\n31\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nto make significant expenditures of both a capital and expense nature. Several of the more significant federal laws applicable to our operations include the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, and the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act.\n \nWe have in place programs and personnel to monitor compliance with various federal, state, and local environmental regulations. In the normal course of our manufacturing operations, we are subject to governmental proceedings and orders pertaining to waste disposal, air emissions, and water discharges into the environment. We fund our environmental costs through cash flows from operations. We believe that we are in compliance with applicable environmental regulations in all material respects.\n \nWe are required to remediate hazardous waste at our facilities. Currently, we own a designated site in Springfield, Massachusetts that contains two release areas, which are the focus of remediation projects as part of the Massachusetts Contingency Plan, or MCP. The MCP provides a structured environment for the voluntary remediation of regulated releases. We may be required to remove hazardous waste or remediate the alleged effects of hazardous substances on the environment associated with past disposal practices at sites not owned by us. We have received notice that we are a potentially responsible party from the Environmental Protection Agency and/or individual states under CERCLA or a state equivalent at two sites.\nAs of April 30, 2023, and 2022, we did \nno\nt have an open environmental reserve recorded in our consolidated balance sheet.\n \nWhen the available information is sufficient to estimate the amount of liability, that estimate has been used. When the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used. We may not have insurance coverage for our environmental remediation costs. We have not recognized any gains from probable recoveries or other gain contingencies.\n \nBased on information known to us, we do not expect current environmental regulations or environmental proceedings and claims to have a material adverse effect on our consolidated financial position, results of operations, or cash flows. However, it is not possible to predict with certainty the impact on us of future environmental compliance requirements or the cost of resolving of future environmental health and safety proceedings and claims, in part because the scope of the remedies that may be required is not certain, liability under federal environmental laws is joint and several in nature, and environmental laws and regulations are subject to modification and changes in interpretation. There can be no assurance that additional or changing environmental regulation will not become more burdensome in the future and that any such development would not have a material adverse effect on our company.\n \nContracts\n \nEmployment Agreements \n\u2014 We have employment, severance, and change of control agreements with certain employees.\n\n\n17. Restructuring\nAs a result of the Relocation, $\n8.3\n and $\n10.2\n million of restructuring charges were recorded in fiscal 2023 and  fiscal 2022, respectively.\nThe following table summarizes restructuring charges by line item for fiscal 2023 and fiscal 2022 (in thousands):\nF-\n32\n\n\nSMITH & WESSON BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n$\n\n\n3,923\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,361\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nSelling, marketing, and distribution\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,055\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,294\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,280\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,590\n\n\n\u00a0\n\n\n\n\n\n\nTotal restructuring charges\n\n\n\u00a0\n\n\n$\n\n\n8,261\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10,245\n\n\n\u00a0\n\n\n\n\nThe components of the restructuring charges recorded in our consolidated income statement are as follows (in thousands):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Year Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nSeverance and employee-related benefits (a)(b)\n\n\n\u00a0\n\n\n$\n\n\n4,354\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,732\n\n\n\u00a0\n\n\n\n\n\n\nRelocation (a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,856\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n456\n\n\n\u00a0\n\n\n\n\n\n\nConsulting services\n\n\n\u00a0\n\n\n\u00a0\n\n\n473\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,628\n\n\n\u00a0\n\n\n\n\n\n\nEmployee relations\n\n\n\u00a0\n\n\n\u00a0\n\n\n349\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n368\n\n\n\u00a0\n\n\n\n\n\n\nOffice rent and equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n229\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n61\n\n\n\u00a0\n\n\n\n\n\n\nTotal restructuring charges\n\n\n\u00a0\n\n\n$\n\n\n8,261\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10,245\n\n\n\u00a0\n\n\n\n\n____________________________________\n(a)\nRecorded in accrued payroll and incentive\n(b)\nAmounts reported in Severance and employee-related benefits in fiscal year 2022 were reclassified to Relocation.\nThe following table summarizes the activity in the severance and employee-related benefits and relocation accruals for fiscal 2023 and fiscal 2022 (in thousands):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nSeverance and employee-related benefits\n\n\n\u00a0\n\n\n\u00a0\n\n\nRelocation\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\n\n\n\nAccrual at April 30, 2022\n\n\n\u00a0\n\n\n$\n\n\n5,732\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n456\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,188\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0Charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,354\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,856\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,210\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0Cash payments and settlements\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n32\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,566\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,598\n\n\n)\n\n\n\n\n\n\nAccrual at April 30, 2023 (a)\n\n\n\u00a0\n\n\n$\n\n\n10,054\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,746\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11,800\n\n\n\u00a0\n\n\n\n\n___________________________________\na)\nRecorded in accrued payroll and incentive\n\n\nF-\n33\n\n\n\n\n\n\n\n",
+  "item7a": ">ITEM 7A.\n\n\n\u00a0\n\n\nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\n\n\u00a0\n\n\n46\n\n\n\n",
+  "cik": "1092796",
+  "cusip6": "831754",
+  "cusip": ["831754106", "831754956", "831754906"],
+  "names": ["SMITH & WESSON BRANDS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1092796/000095017023029412/0000950170-23-029412-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. B\nusiness\n \n\n\nGeneral\n \n\n\nNicholas Financial, Inc. (\u201cNicholas Financial-Canada\u201d) is a Canadian holding company incorporated under the laws of British Columbia in 1986. The business activities of Nicholas Financial-Canada are currently conducted exclusively through its wholly-owned indirect subsidiary, Nicholas Financial, Inc., a Florida corporation (\u201cNicholas Financial\u201d). Nicholas Financial is a specialized consumer finance company engaged primarily in acquiring and servicing automobile finance installment contracts (\u201cContracts\u201d) for purchases of used and new automobiles and light trucks. Additionally, Nicholas Financial sells consumer-finance related products and, prior to the end of the third fiscal quarter of the fiscal year ended March 31, 2023, Nicholas Financial originated direct consumer loans (\u201cDirect Loans\u201d). Nicholas Data Services, Inc. (\u201cNDS\u201d), is a second Florida subsidiary of Nicholas Financial-Canada and it serves as the intermediate holding company for Nicholas Financial. NF Funding I, LLC (\u201cNF Funding I\u201d), was a wholly-owned, special purpose financing subsidiary of Nicholas Financial, but that subsidiary no longer served any purpose and, as a result, it was dissolved prior to the end of the fiscal year ended March 31, 2023.\n \n\n\nNicholas Financial-Canada, Nicholas Financial, and NDS are hereafter collectively referred to as the \u201cCompany\u201d.\n\n\nAll financial information herein is designated in United States dollars. References to \u201cfiscal 2023\u201d are to the fiscal year ended March 31, 2023 and references to \u201cfiscal 2022\u201d are to the fiscal year ended March 31, 2022.\n \n\n\nThe Company\u2019s principal executive offices are located at 26133 US HWY 19 North, Suite 300, Clearwater, Florida 33763, and its telephone number is (727) 726-0763.\n \n\n\nAvailable Information\n \n\n\nThe Company\u2019s filings with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, definitive proxy statements on Schedule 14A, current reports on Form 8-K, and any amendments to those reports filed pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, are made available free of charge through the Investor Center section of the Company\u2019s Internet website at \nhttp://www.nicholasfinancial.com\n as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. The Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Report. Copies of any materials the Company files with the SEC can also be obtained free of charge through the SEC\u2019s website at \nhttp://www.sec.gov\n.\n \n\n\nOperating Strategy\n \n\n\nThe Company announced on Form 8-K filed on November 3, 2022 a change in its operating strategy and\n\n\nrestructuring plan with the goal of reducing operating expenses and freeing up capital. As part of this plan, the\n\n\nCompany has shifted from a decentralized to a regionalized business model in which each of its originators focuses\n\n\non a specific region in the Company\u2019s smaller target market footprint, and the Company has entered into a loan\n\n\nservicing agreement with Westlake Portfolio Management, LLC (\u201cWPM\u201d, and, collectively with its affiliate,\n\n\nWestlake Capital Finance, LLC, \u201cWestlake\u201d). An affiliate of Westlake, Westlake Services, LLC, is the beneficial\n\n\nowner of approximately 6.8% of the Company\u2019s common stock.\n\n\nWhile the Company intends to continue Contract purchase and origination activities, albeit on a much smaller scale,\n\n\nits servicing, collections and recovery operations have been outsourced to Westlake. The Company has ceased all\n\n\noriginations of Direct Loans.\n\n\nThe Company anticipates that execution of its evolving restructuring plan will free up capital and permit the\n\n\nCompany to allocate excess capital to increase shareholder returns, whether by acquiring loan portfolios or\n\n\nbusinesses or by investing outside of the Company\u2019s traditional business. The overall timeframe and structure of the\n\n\nCompany\u2019s restructuring remains uncertain.\n\n\nAlthough the Company no longer employs the branch-based model, it remains committed to its core product of financing primary transportation to and from work for the subprime borrower through the local independent automobile dealership. The Company's strategy includes risk-based pricing (rate, yield, advance, term, collateral value) and a commitment to the underwriting discipline required for optimal portfolio performance. The Company\u2019s\n \n\n\n1\n\n\n\n\n\u00a0\n\n\nprincipal goals are to increase its profitability and its long-term shareholder value. During fiscal 2023, the Company focused on the following items:\n\n\n\u2022\nrestructuring the Company\u2019s business by downsizing and streamlining operations and reducing\nexpenses;\n\n\n\u2022\noutsourcing servicing, collections and recovery operations;\n\n\n\u2022\ndiscontinuing our local branch model in favor of a regionalized business model;\n\n\n\u2022\noptimizing our technology to better fit the Company\u2019s restructured operations; and\n\n\n\u2022\nterminating our live checks program for prospective new customers\n\n\n\u00a0\n\n\nIn fiscal 2023, the Company also restructured and consolidated its operations by closing all of its brick and mortar branch locations in 18 states \u2014 Alabama, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky, Michigan, Missouri, North Carolina, Nevada, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Utah, and Wisconsin. As a\n\n\nresult, as of March 31, 2023, the Company only had two offices in two states \u2013 its headquarters in Florida and its\n\n\ncentral business operations hub in North Carolina, and the Company expects to focus its business operations in the\n\n\nforeseeable future in seven states \u2014 Florida, Georgia, Ohio, Kentucky, Indiana, North Carolina, and South Carolina.\n\n\nDuring fiscal 2023, the Company did not have any completed bulk portfolio purchases. Although the Company did not complete any bulk portfolio purchases during fiscal 2023, the Company would consider pursuing one or more bulk portfolio purchases if and when any favorable opportunities present themselves.\n \n\n\nDuring fiscal 2022, the Company completed bulk portfolio purchases for a total of $3.1 million, with $1.2 million in the first quarter, $0.6 million in the second quarter, $1.1 million in the third quarter, and $0.2 million in the fourth quarter.\n\n\nAlthough the Company had been licensed to provide Direct Loans in 14 states \u2014 Alabama, Florida, Georgia (over $3,000), Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, and Tennessee during fiscal 2023 the Company has cancelled, not renewed, or otherwise terminated all of such Direct Loan licenses.\n\n\nConsequently, the Company has not originated any new Direct Loans since the end of the third quarter of fiscal 2023 and the Company does not intend to originate any new Direct Loans going forward. However, the Company expects its third-party service provider to continue to service the Company\u2019s existing Direct Loans. The Company\u2019s total Direct Loans portfolio comprises approximately 27% of its total portfolio, and the Company expects its total Direct Loans portfolio to be reduced over time as such Direct Loans are paid off for otherwise liquidated until there are no Direct Loans in the Company\u2019s portfolio, which at the current rate of such activity is expected to occur sometime during the fiscal year ending March 31, 2027.\n\n\nFollowing the restructuring and consolidation of the Company\u2019s operations, the Company does not expect to expand in either its current markets or any new markets.\n \n\n\nAutomobile Finance Business \u2013 Contracts\n \n\n\nThe Company is engaged in the business of providing financing programs, primarily to purchasers of used cars and light trucks who meet the Company\u2019s credit standards but who do not meet the credit standards of traditional lenders, such as banks and credit unions, because of the customer\u2019s credit history, job instability, the age of the vehicle being financed, or some other factor(s). Unlike lenders that look primarily to the credit history of the borrower in making lending decisions, typically financing new automobiles, the Company is willing to purchase Contracts for purchases made by borrowers who do not have a good credit history and for older model and high-mileage automobiles. In making decisions regarding the purchase of a particular Contract, the Company considers the following factors related to the borrower: current income; credit history; history in making installment payments for automobiles; current and prior job status; and place and length of residence. In addition, the Company examines its prior experience with Contracts purchased from the dealer from which the Company is purchasing the Contract, and the value of the automobile in relation to the purchase price and the term of the Contract.\n \n\n\nAs of the date of this Annual Report, the number of states in which the Company\u2019s automobile finance programs have been conducted has been reduced from 19 states during fiscal 2023 -  Alabama, Arizona, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky, Michigan, Missouri, North Carolina, Nevada, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Utah, and Wisconsin - to just six of such states continuing - Florida, Indiana, Kentucky,\n \n\n\n2\n\n\n\n\n\u00a0\n\n\nNorth Carolina, Ohio, and South Carolina. The Company acquires Contracts in these states through its originators who work from home in the states of Florida, Indiana, Kentucky, North Carolina, Ohio and South Carolina. As of March 31, 2023, the Company had non-exclusive agreements with approximately 3000 dealers, of which approximately 586 were active, for the purchase of individual Contracts that meet the Company\u2019s financing criteria. The Company considers a dealer agreement to be active if the contract is complete and executed. Each dealer agreement requires the dealer to originate Contracts in accordance with the Company\u2019s guidelines. Once a Contract is purchased by the Company, the dealer is no longer involved in the relationship between the Company and the borrower, other than through the existence of limited representations and warranties of the dealer in favor of the Company.\n \n\n\nA customer under a Contract typically makes a down payment, in the form of cash and/or trade-in, ranging from 5% to 35% of the sale price of the vehicle financed. The balance of the purchase price of the vehicle plus taxes, title fees and, if applicable, premiums for extended service contracts, GAP waiver coverage, roadside assistance plans, credit disability insurance and/or credit life insurance are generally financed over a period of 12 to 60 months. At approximately the time of origination, the Company purchases a Contract from an automobile dealer at a negotiated price that is less than the original principal amount being financed by the purchaser of the automobile. The Company refers to the difference between the negotiated price and the original principal amount being financed as the dealer discount. The amount of the dealer discount depends upon factors such as the age and value of the automobile and the creditworthiness of the customer. The Company has recommitted to maintaining pricing discipline and therefore places less emphasis on competition when pricing the discount. Generally, the Company will pay more (i.e., purchase the Contract at a smaller discount from the original principal amount) for Contracts as the credit risk of the customer improves. To date, the Contracts purchased by the Company have been purchased at discounts that range from 1% to 15% of the original principal amount of each Contract, with the typical average discount being between 6% and 8%. As of March 31, 2023, the Company\u2019s indirect loan portfolio consisted of Contracts purchased from a dealer or acquired through a bulk acquisition. Such Contracts are purchased without recourse to the dealer, however each dealer remains potentially liable to the Company for breaches of certain representations and warranties made by the dealer with respect to compliance with applicable federal and state laws and valid title to the vehicle. The Company\u2019s policy is to only purchase a Contract after the dealer has provided the Company with the requisite proof that (a) the Company has a first priority lien on the financed vehicle (or the Company has, in fact, perfected such first priority lien), (b) the customer has obtained the required collision insurance naming the Company as loss payee with a deductible of not more than $1,000 and (c) the Contract has been fully and accurately completed and validly executed. Once the Company has received and approved all required documents, it pays the dealer for the Contract and servicing of the Contract commences.\n \n\n\n\u00a0\n\n\n3\n\n\n\n\n\u00a0\n\n\nContract Procurement\n \n\n\nThe Company purchased Contracts in the states listed in the table below during the periods indicated. The Contracts purchased by the Company are predominantly for used vehicles; for the periods shown below, less than 1% were for new vehicles. The average model year collateralizing the portfolio as of March 31, 2023 was a 2012 vehicle. The dollar amounts shown in the table below represent the Company\u2019s finance receivables on Contracts purchased within the respective fiscal year:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nMaximum\nallowable\ninterest\n\n\n\u00a0\n\n\n\u00a0\n\n\nNumber of Branches on\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal year ended March 31, (In thousands)\n\n\n\u00a0\n\n\n\n\n\n\nState\n\n\n\u00a0\n\n\nrate (1)\n\n\n\u00a0\n\n\n\u00a0\n\n\nMarch 31, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nAlabama\n\n\n\u00a0\n\n\n18-36%(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,919\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,121\n\n\n\u00a0\n\n\n\n\n\n\nArizona\n\n\n\u00a0\n\n\n(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n128\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n343\n\n\n\u00a0\n\n\n\n\n\n\nFlorida\n\n\n\u00a0\n\n\n18-30%(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,410\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,886\n\n\n\u00a0\n\n\n\n\n\n\nGeorgia\n\n\n\u00a0\n\n\n18-30%(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,103\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,007\n\n\n\u00a0\n\n\n\n\n\n\nIdaho\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n343\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n828\n\n\n\u00a0\n\n\n\n\n\n\nIllinois\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,109\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,632\n\n\n\u00a0\n\n\n\n\n\n\nIndiana\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,363\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,878\n\n\n\u00a0\n\n\n\n\n\n\nKansas\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n75\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\nKentucky\n\n\n\u00a0\n\n\n18-25%(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,887\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,458\n\n\n\u00a0\n\n\n\n\n\n\nMichigan\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n549\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,947\n\n\n\u00a0\n\n\n\n\n\n\nMissouri\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,841\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,459\n\n\n\u00a0\n\n\n\n\n\n\nNevada\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,150\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,434\n\n\n\u00a0\n\n\n\n\n\n\nNorth Carolina\n\n\n\u00a0\n\n\n18-29%(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,989\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,997\n\n\n\u00a0\n\n\n\n\n\n\nOhio\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,345\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,495\n\n\n\u00a0\n\n\n\n\n\n\nPennsylvania\n\n\n\u00a0\n\n\n18-21%(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,139\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,441\n\n\n\u00a0\n\n\n\n\n\n\nSouth Carolina\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,932\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,432\n\n\n\u00a0\n\n\n\n\n\n\nTennessee\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,203\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,046\n\n\n\u00a0\n\n\n\n\n\n\nTexas\n\n\n\u00a0\n\n\n18-23%(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n594\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,762\n\n\n\u00a0\n\n\n\n\n\n\nUtah\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n102\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n460\n\n\n\u00a0\n\n\n\n\n\n\nWisconsin\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n344\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,178\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n47,526\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n85,804\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nThe maximum allowable interest rates are subject to change and vary based on the laws of the individual states. \n\n\n(2)\nNone of these states currently impose a maximum allowable interest rate with respect to the types and sizes of Contracts the Company purchases. The maximum rate which the Company will typically charge any customer in each of these states is 36% per annum. \n\n\n(3)\nThe maximum allowable interest rate in each of these states varies depending upon the model year of the vehicle being financed. In addition, Georgia does not currently impose a maximum allowable interest rate with respect to Contracts over $5,000. \n\n\nThe following table presents selected information on Contracts purchased by the Company:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal year ended March 31,\n(Purchases in thousands)\n\n\n\u00a0\n\n\n\n\n\n\nContracts\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nPurchases\n\n\n\u00a0\n\n\n$\n\n\n47,526\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n85,804\n\n\n\u00a0\n\n\n\n\n\n\nAverage APR\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.1\n\n\n%\n\n\n\n\n\n\nAverage dealer discount\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.9\n\n\n%\n\n\n\n\n\n\nAverage term (months)\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n47\n\n\n\u00a0\n\n\n\n\n\n\nAverage loan\n\n\n\u00a0\n\n\n$\n\n\n11,932\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11,002\n\n\n\u00a0\n\n\n\n\n\n\nNumber of Contracts purchased\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,040\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,793\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n4\n\n\n\n\n\u00a0\n\n\nDirect Loans\n \n\n\nEffective during the third quarter of fiscal 2023, the Company no longer originates any Direct Loans. Previous to that time, the Company originated Direct Loans in Alabama, Florida, Georgia (over $3,000), Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, and Tennessee. Direct Loans were loans originated directly between the Company and the consumer. These loans were typically for amounts ranging from $500 to $11,000 and are generally secured by a lien on an automobile, watercraft or other permissible tangible personal property. The average loan made during fiscal 2023 by the Company had an initial principal balance of approximately $4,300. Most of the Direct Loans were originated with current or former customers under the Company\u2019s automobile financing program. The typical Direct Loan represented a better credit risk than our typical Contract due to the customer\u2019s payment history with the Company, as well as their established relationship with the local branch staff. The size of the loan and maximum interest rate that may be (and is) charged varies from state to state. The Company considered the individual\u2019s income, credit history, job stability, and the value of the collateral offered by the borrower to secure the loan as the primary factors in determining whether an applicant would receive an approval for such loan. Additionally, because most of the Direct Loans made by the Company to date have been made to borrowers under Contracts previously purchased by the Company, the collection experience of the borrower under the Contract was a significant factor in making the underwriting decision. The Company\u2019s Direct Loan program was implemented in April 1995 and accounted for approximately 13% of the Company\u2019s annual consolidated revenues during the fiscal 2023.\n\n\nIn connection with its Direct Loan program, the Company also made available credit disability insurance, credit life insurance, and involuntary unemployment insurance coverage to customers through unaffiliated third-party insurance carriers. Approximately 63% of the Direct Loans outstanding as of March 31, 2023 elected to purchase third-party insurance coverage made available by the Company. The cost of this insurance to the customer, which included a commission for the Company, was included in the amount financed by the customer.\n \n\n\nThe following table presents selected information on Direct Loans originated by the Company:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal year ended March 31,\n(Originations in thousands)\n\n\n\u00a0\n\n\n\n\n\n\nDirect Loans\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nOriginations\n\n\n\u00a0\n\n\n$\n\n\n15,822\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n28,740\n\n\n\u00a0\n\n\n\n\n\n\nAverage APR\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.5\n\n\n%\n\n\n\n\n\n\nAverage term (months)\n\n\n\u00a0\n\n\n26\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26\n\n\n\u00a0\n\n\n\n\n\n\nAverage loan\n\n\n\u00a0\n\n\n$\n\n\n4,277\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,307\n\n\n\u00a0\n\n\n\n\n\n\nNumber of contracts originated\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,662\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,770\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nUnderwriting Guidelines\n \n\n\nThe Company\u2019s typical customer has a credit history that fails to meet the lending standards of most banks and credit unions. Some of the credit problems experienced by the Company\u2019s customers that resulted in a poor credit history include but are not limited to: prior automobile account repossessions, unpaid revolving credit card obligations, unpaid medical bills, unpaid student loans, prior bankruptcy, and evictions for nonpayment of rent. The Company believes that its customer profile is similar to that of its direct competitors.\n \n\n\nThe Company\u2019s process to approve the purchase of a Contract begins with the Company receiving a standardized credit application completed by the consumer which contains information relating to the consumer\u2019s background, employment, and credit history. The Company also obtains credit reports from Equifax and/or TransUnion, which are independent credit reporting services. The Company verifies the consumer\u2019s employment history, income, and residence. In most cases, consumers are interviewed via telephone by a Company application processor (usually the Branch Manager or Assistant Branch Manager when the Company employed its branch-based model, and the originators in the Company's regionalized business model after the branches were closed). The Company also considers the customer\u2019s prior payment history with the Company, if any, as well as the collateral value of the vehicle being financed.\n \n\n\nThe Company has established internal underwriting guidelines that were  used by its Branch Managers and internal underwriters when Contracts were purchased by the Company prior to the restructuring of its operations. The Company has adopted updated guidelines consistent with its post-restructuring operations, which guidelines are to be used by the Company\u2019s originators and internal underwriters when purchasing Contracts in the Company\u2019s\n \n\n\n5\n\n\n\n\n\u00a0\n\n\nregionalized business model. Any Contract that does not meet these guidelines must be approved by the senior management of the Company. In addition to a variety of administrative duties, the Company's management is responsible for monitoring compliance with the Company\u2019s underwriting guidelines as well as approving underwriting exceptions.\n \n\n\nWhen the Company was originating Direct Loans, the Company used similar criteria in analyzing a Direct Loan as it did in analyzing the purchase of a Contract. Lending decisions regarding Direct Loans were made based upon a review of the customer\u2019s loan application, income, credit history, job stability, and the value of the collateral offered by the borrower to secure the loan. To date, since the majority of the Company\u2019s Direct Loans have been made to individuals whose automobiles have been financed by the Company, the customer\u2019s payment history under his or her existing or past Contract was a significant factor in the lending decision.\n \n\n\nAfter reviewing the information included in the Contract or, when applicable, Direct Loan application and taking the other factors into account, the Company\u2019s loan origination system categorizes the customer using internally developed credit classifications from \u201c1,\u201d indicating higher creditworthiness, through \u201c4,\u201d indicating lower creditworthiness. Contracts are financed for individuals who fall within all four acceptable rating categories utilized, \u201c1\u201d through \u201c4\u201d. Usually a customer who falls within the two highest categories (i.e., \u201c1\u201d or \u201c2\u201d) is purchasing a two to five-year old, lower mileage used automobile, while a customer in any of the two lowest categories (i.e., \u201c3,\u201d or \u201c4\u201d) usually is purchasing an older, higher mileage automobile from an independent used automobile dealer.\n\n\nPrior to the closure of the Company\u2019s branches, the Company performed audits of its branches\u2019 compliance with Company underwriting guidelines. The Company audited branches on a schedule that was variable depending on the size of the branch, length of time a branch had been open, then current tenure of the Branch Manager, previous branch audit score, and then current and historical branch profitability. Additionally, field supervisions and audits were conducted by District Managers, Divisional Vice Presidents and Divisional Administrative Assistants to try to ensure operational and underwriting compliance throughout the former branch network.\n \n\n\nMonitoring and Enforcement of Contracts\n \n\n\nOn November 3, 2022, the Company entered into a loan servicing agreement with Westlake (the \u201cServicing\n\n\nAgreement\u201d). Under the Servicing Agreement, the Company will originate and acquire receivables and Westlake\n\n\nwill perform the servicing duties with respect to such receivables, including without limitation that Westlake shall\n\n\nmanage, service, administer and make collections on the receivables, including with respect to any repossession of\n\n\nany financed vehicle securing a receivable under which it is determined that payments thereunder are not likely to be\n\n\nresumed. Unless earlier terminated in accordance with its provisions, the Servicing Agreement shall expire upon the\n\n\nearliest to occur of (i) the date on which the Company sells, transfers or assigns all outstanding receivables to a third\n\n\nparty (including Westlake), (ii) the date on which the last receivable is repaid or otherwise terminated, or (iii) three\n\n\nyears from the closing date of the Servicing Agreement.\n\n\nThe Company requires each customer under a Contract to obtain and maintain collision insurance covering damage to the vehicle. Failure to maintain such insurance constitutes a default under the Contract, that would permit the repossession of the vehicle. To reduce potential loss due to insurance lapse, the Company has the contractual right to obtain collateral protection insurance through a third-party, which covers loss due to physical damage to a vehicle not covered by any insurance policy of the customer.\n\n\nThe servicer monitors compliance by the Company's customers with their obligations under Contracts and Direct Loans made by the Company and the servicer provides reports to the Company on such activity. These reports may be accessed throughout the Company by management personnel at computer terminals located in the Company's offices. These reports include delinquency reports, customer promise reports, vehicle information reports, purchase reports, dealer analysis reports, static pool reports, and repossession reports.\n \n\n\nA delinquency report is an aging report that provides basic information regarding each customer account and indicates accounts that are past due. The report includes information such as the account number, address of the customer, phone numbers of the customer, original term of the Contract, number of remaining payments, outstanding balance, due dates, date of last payment, number of days past due, scheduled payment amount, amount of last payment, total past due, and special payment arrangements or agreements.\n\n\nWhen an account becomes delinquent, the customer is promptly contacted to determine the reason for the delinquency and to determine if appropriate arrangements for payment can be made. If acceptable payment\n \n\n\n6\n\n\n\n\n\u00a0\n\n\narrangements can be made, the information is entered into a database and is used to generate a customer promises report, which is utilized for account follow up.\n \n\n\nThe servicer prepares a repossession report that provides information regarding repossessed vehicles and aids in disposing of repossessed vehicles. In addition to information regarding the customer, this report provides information regarding the date of repossession, date the vehicle was sold, number of days it was held in inventory prior to sale, year, make and model of the vehicle, mileage, payoff amount on the Contract, NADA book value, Black Book value, suggested sale price, location of the vehicle, original dealer and condition of the vehicle, as well as notes and other information that may be helpful.\n \n\n\nIf an account is 121 days delinquent and the related vehicle has not yet been repossessed, the account is charged-off and transferred to the servicer's loss prevention and recovery department. Once a vehicle has been repossessed, the related loan balance no longer appears on the delinquency report. Instead, the vehicle appears on the servicer's repossession report and is generally sold at auction.\n\n\nThe servicer also prepares a dealer report that provides information regarding each dealer from which the Company purchases Contracts. This report allows the Company to analyze the volume of business done with each dealer, the terms on which it has purchased Contracts from such dealer, as well as the overall portfolio performance of Contracts purchased from the dealer.\n \n\n\nThe Company is subject to seasonal variations within the subprime marketplace. While the APR, discount, and term remain consistent across quarters, write-offs and delinquencies tend to be lower while purchases tend to be higher in the fourth and first quarters of the fiscal year. The second and third quarters of the fiscal year tend to have higher write-offs and delinquencies, and a lower level of purchases. Despite the foregoing, during fiscal 2023 the fourth quarter had the most write-offs and delinquencies.\n\n\nMarketing and Advertising\n \n\n\nThe Company\u2019s Contract marketing efforts currently are directed primarily toward automobile dealers. The Company attempts to meet dealers\u2019 needs by offering highly responsive, cost-competitive, and service-oriented financing programs. The Company relies on its staff of originators to solicit agreements for the purchase of Contracts with automobile dealers based within the regions located in the seven states in which the Company conducts operations as of the date of this Annual Report. The Company provides dealers with information regarding itself and the general terms upon which the Company is willing to purchase Contracts. The Company uses web advertising, social media and print ads in dealer association publications for marketing purposes. The Company is a member and corporate sponsor of the National Independent Auto Dealers Association, which also gives it access to state-level associations. Its representatives attend conferences and events for both state and national associations to market its products directly to dealers in attendance.\n\n\nWhen the Company was originating Direct Loans, the Company solicited customers under its Direct Loan program primarily through direct mailings, followed by telephone calls to individuals who had a good credit history with the Company in connection with Contracts purchased by the Company. It also relied on other forms of electronic messaging and in-store advertising.\n \n\n\nComputerized Information System\n \n\n\nAll Company personnel are provided with real-time access to information. The Company has purchased or otherwise has access through its servicer to the specialized programs to monitor the Contracts and Direct Loans from inception. The Company\u2019s computer network encompasses both its corporate headquarters and its central business operations hub. See \u201cMonitoring and Enforcement of Contracts\u201d above for a summary of the different reports available to the Company.\n \n\n\nCompetition\n \n\n\nThe consumer finance industry is highly fragmented and highly competitive. Due to various factors, the competitiveness of the industry continues to increase as new competitors continue to enter the market and certain existing competitors continue to expand their operations. There are numerous financial service companies that\n \n\n\n7\n\n\n\n\n\u00a0\n\n\nprovide consumer credit in the markets served by the Company, including banks, credit unions, other consumer finance companies, and captive finance companies owned by automobile manufacturers and retailers. Increased competition for the purchase of Contracts enables automobile dealers to shop for the best price, which can result in an erosion in the dealer discounts from the initial principal amounts at which the Company is willing to purchase Contracts and higher advance rates. However, the Company instead focuses on purchasing Contracts that are priced to reflect the inherent risk level of the Contract, and sacrifices loan volume, if necessary, to maintain that pricing discipline. For the fiscal year ended March 31, 2023, the Company\u2019s average dealer discount on Contracts purchased decreased to 6.5%, compared to 6.9% for the fiscal year ended March 31, 2022. The table below shows the number\n \n\n\n8\n\n\n\n\n\u00a0\n\n\nand principal amount of Contracts purchased, average amount financed, average term, and average APR and discount for the periods presented:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nKey Performance Indicators on Contracts Purchased\n\n\n\u00a0\n\n\n\n\n\n\n(Purchases in thousands)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nNumber of\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFiscal Year\n\n\n\u00a0\n\n\n \n\n\nContracts\n\n\n\u00a0\n\n\n \n\n\nPrincipal Amount\n\n\n\u00a0\n\n\n \n\n\nAmount\n\n\n\u00a0\n\n\n \n\n\nAverage\n\n\n\u00a0\n\n\n \n\n\n \n\n\nAverage\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\nAverage\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0/Quarter\n\n\n\u00a0\n\n\n \n\n\nPurchased\n\n\n\u00a0\n\n\n \n\n\nPurchased#\n\n\n\u00a0\n\n\n \n\n\nFinanced*^\n\n\n\u00a0\n\n\n \n\n\nAPR*\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\nDiscount%*\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\nTerm*\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n4,040\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n47,526\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n11,932\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n22.5\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n6.5\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n127\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,579\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,433\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.2\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.2\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n49\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n383\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,511\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,778\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.4\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.8\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,595\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,082\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,964\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.7\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.4\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,935\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22,354\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,552\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.9\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.6\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n7,793\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n85,804\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n11,002\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n23.1\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n6.9\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n47\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,404\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,139\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,289\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.9\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n6.9\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n47\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,735\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,480\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,228\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.1\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.8\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n47\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,707\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,880\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,061\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.7\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n47\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,947\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n20,305\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,429\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.2\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n46\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n7,307\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n74,025\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n10,135\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n23.4\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n7.5\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n46\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,429\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n24,637\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n10,143\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n23.2\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n7.5\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n46\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,483\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,285\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,307\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.4\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n7.5\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n46\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,709\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,307\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,127\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.5\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n6.8\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n46\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,686\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,796\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,962\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.5\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n46\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2020\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n7,647\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n76,696\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n10,035\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n23.4\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n7.9\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n47\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,991\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n19,658\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n9,873\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n23.5\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n7.9\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n46\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n1,753\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n17,880\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n10,200\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n23.3\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n7.6\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n47\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n2,011\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n20,104\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n9,997\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n23.5\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n7.9\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n46\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n1,892\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n19,054\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n10,071\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n23.4\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n8.3\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n47\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nKey Performance Indicators on Direct Loans Originated\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(Originations in thousands)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nNumber of\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFiscal Year\n\n\n\u00a0\n\n\n \n\n\nContracts\n\n\n\u00a0\n\n\n \n\n\nPrincipal Amount\n\n\n\u00a0\n\n\n \n\n\nAmount\n\n\n\u00a0\n\n\n \n\n\nAverage\n\n\n\u00a0\n\n\n \n\n\n \n\n\nAverage\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0/Quarter\n\n\n\u00a0\n\n\n \n\n\nOriginated\n\n\n\u00a0\n\n\n \n\n\nOriginated#\n\n\n\u00a0\n\n\n \n\n\nFinanced*^\n\n\n\u00a0\n\n\n \n\n\nAPR*\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\nTerm*\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,662\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n15,822\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,277\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n30.4\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n26\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n245\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,080\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,128\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29.6\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,427\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,527\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,574\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.3\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,990\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,215\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,128\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.2\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,770\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n28,740\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,307\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.5\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n26\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,584\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,458\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,708\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,282\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,505\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,727\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.8\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,588\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,040\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,433\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n26\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,316\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,737\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,359\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.1\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,497\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14,148\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,131\n\n\n\u00a0\n\n\n\u00a0\n\n\n29.6075\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n753\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,284\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,362\n\n\n\u00a0\n\n\n\u00a0\n\n\n29.6\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,265\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,605\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,641\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.9\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n22\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n924\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,832\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,147\n\n\n\u00a0\n\n\n\u00a0\n\n\n29.23\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n555\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,427\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,373\n\n\n\u00a0\n\n\n\u00a0\n\n\n28.7\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n26\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2020\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n3,142\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n12,638\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n4,017\n\n\n\u00a0\n\n\n \n\n\n28.2\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n720\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,104\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,310\n\n\n\u00a0\n\n\n\u00a0\n\n\n28.6\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,137\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,490\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,949\n\n\n\u00a0\n\n\n\u00a0\n\n\n28.4\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n739\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n2,988\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n4,043\n\n\n\u00a0\n\n\n \n\n\n27.4\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n546\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n2,056\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n3,765\n\n\n\u00a0\n\n\n \n\n\n28.2\n\n\n\u00a0\n\n\n%\n\n\n \n\n\n\u00a0\n\n\n24\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n*Each average included in the tables is calculated as a simple average.\n\n\n\u00a0\n\n\n\n\n\n\n^Average amount financed is calculated as a single loan amount.\n\n\n\u00a0\n\n\n\n\n\n\n#Bulk portfolio purchase excluded for period-over-period comparability.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n9\n\n\n\n\n\u00a0\n\n\nThe Company\u2019s ability to compete effectively with other companies offering similar financing arrangements depends in part upon the Company maintaining close business relationships with dealers of used and new vehicles. No single dealer out of the approximately 586 dealers with which the Company currently has active contractual relationships represents a significant amount of the Company\u2019s business volume for any of the fiscal years ended March 31, 2023 or 2022.\n \n\n\nRegulation\n \n\n\nNumerous federal and state consumer protection laws and related regulations impose substantial requirements upon creditors and servicers involved in consumer finance. These laws include the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Gramm-Leach-Bliley Act, the Servicemembers Civil Relief Act, the Telephone Consumer Protection Act, state adaptations of the National Consumer Act and of the Uniform Consumer Credit Code and state lending acts, motor vehicle retail installment acts and other similar laws. Also, the laws of certain states impose finance charge ceilings and other restrictions on consumer transactions and require contract disclosures in addition to those required under federal law. These requirements impose specific statutory liabilities upon creditors who fail to comply with their provisions. In some cases, this liability could affect the ability of an assignee such as the Company to enforce consumer finance contracts such as the Contracts.\n\n\nThe Company\u2019s financing operations are subject to regulation, supervision and licensing under many federal, state and local statutes, regulations and ordinances. In addition, the Company and its service providers must comply with certain federal and state requirements in connection with the servicing and collection on Direct Loans and Contracts, and the repossession of vehicles securing Direct Loans and Contracts in the states in which the Company does business. The Company and its third-party service providers must comply with federal, state and local  regulatory regimes, including those applicable to consumer credit transactions. In particular, the Company may be subject to laws such as:\n \n\n\n\u2022\nState consumer statutory and regulatory requirements.\n Pursuant to state laws and regulations, on-site or off-site examinations can be conducted for any of our locations. Examinations monitor compliance with applicable regulations. These laws and regulations include, but are not limited to: licensure requirements, requirements for maintenance of proper records, fee requirements, maximum interest rates that may be charged on loans to finance used vehicles, and proper disclosure to customers regarding financing terms. These may also include state laws and regulations that impose requirements related to data privacy, credit discrimination, credit reporting, debt servicing and collection, and unfair or deceptive business practices. \n\n\n\u2022\nState licensing requirements.\n The Company must comply with state licensing requirements and varying compliance requirements in all the states in which it operates. The Company files a notification or obtains a license to acquire Contracts in each state in which it acquires Contracts. Furthermore, some states require dealers to maintain a Retail Installment Seller\u2019s License, and where applicable, the Company only conducts business with dealers who hold such a license. For Direct Loan activities, the Company obtained licenses, where required, from each state in which it offered consumer loans. \n\n\n\u2022\nFair Debt Collection Practices Act.\n The federal Fair Debt Collection Practices Act (\u201cFDCPA\u201d) provides guidelines and limitations on the conduct of third-party debt collectors and debt buyers when collecting consumer debt. While the FDCPA generally does not apply to first-party creditors collecting their own debts or to servicers when collecting debts that were current when servicing began, the Company uses the FDCPA as a guideline for all collections. The Company requires all vendors and third-party service providers that provide collection services on the Company\u2019s behalf to comply with the FDCPA to the extent applicable. The Company also complies with state and local laws that apply to creditors and provide guidance and limitations similar to the FDCPA.\n\n\n\u2022\nTruth in Lending Act.\n The Truth in Lending Act (\u201cTILA\u201d) requires the Company and the dealers it does business with to make certain disclosures to customers, including the terms of repayment, the total finance charge and the annual percentage rate charged on each Contract or Direct Loan. \n\n\n\u2022\nEqual Credit Opportunity Act.\n The Equal Credit Opportunity Act (\u201cECOA\u201d) prohibits creditors from discriminating against loan applicants on the basis of race, color, sex, age or marital status. Pursuant to Regulation B promulgated under the ECOA, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. \n\n\n10\n\n\n\n\n\u00a0\n\n\n\u2022\nElectronic Signatures in Global and National Commerce Act.\n The Electronic Signatures in Global and National Commerce Act requires the Company to provide consumers with clear and conspicuous disclosures before the consumer gives consent to authorize the use of electronic signatures, electronic contracts, and electronic records. \n\n\n\u2022\nFair Credit Reporting Act.\n The Fair Credit Reporting Act (\u201cFCRA\u201d) and similar state laws regulate the use of consumer reports and the reporting of information to credit reporting agencies. Specifically, the FCRA establishes requirements that apply to the use of \u201cconsumer reports\u201d and similar data, including certain notifications to consumers, including when an adverse action, such as a loan declination, is based on information contained in a consumer report. \n\n\n\u2022\nGramm-Leach-Bliley Act.\n The Gramm-Leach-Bliley Act (\u201cGLBA\u201d) requires the Company to maintain privacy with respect to certain consumer data in its possession and to periodically communicate with consumers on privacy matters. \n\n\n\u2022\nFederal Trade Commission Act. Section 5 of the Federal Trade Commission Act (the \u201cFTC Act\u201d) prohibits\nunfair and deceptive acts or practices in or affecting commerce.\n\n\n\u2022\nServicemembers Civil Relief Act.\n The Servicemembers Civil Relief Act (\u201cSCRA\u201d) requires the Company to reduce the interest rate charged on each loan to customers who have subsequently joined, enlisted, been inducted or called to active military duty and places limitations on collection and repossession activity. Under the terms of the SCRA, an obligor who enters the military service after the origination of that\nobligor\u2019s Direct Loan or Contract (including an obligor who is a member of the National Guard or is in\nreserve status at the time of the origination of the obligor\u2019s Direct Loan or Contract and is later called to\nactive duty) is entitled to have the interest rate reduced and capped at 6% per annum for the duration of the\nmilitary service, may be entitled to a stay of proceedings on foreclosures and similar actions and may have\nthe maturity of the loan or retail installment sale contract extended or the payments lowered and the\npayment schedule adjusted. In addition, pursuant to the laws of various states, under certain circumstances\nresidents thereof called into active duty with the National Guard or the reserves can apply to a court to\ndelay payments on loans or retail installment sale contracts such as the Direct Loans and the Contracts.\n\n\n\u2022\nMilitary Lending Act.\n The Military Lending Act requires the Company to limit the military annual percentage rate that the Company may charge to a maximum of 36 percent, requires certain disclosures to military consumers, and provides other substantive consumer protections on credit extended to Servicemembers and their families. \n\n\n\u2022\nElectronic Funds Transfer Act.\n The Electronic Funds Transfer Act (\u201cEFTA\u201d) prohibits the Company from requiring its customers to repay a loan or other credit by electronic funds transfer (\u201cEFT\u201d), except in limited situations which do not apply to the Company. The Company is also required to provide certain documentation to its customers when an EFT is initiated and to provide certain notifications to its customers with regard to preauthorized payments. \n\n\n\u2022\nTelephone Consumer Protection Act.\n The Telephone Consumer Protection Act governs the Company\u2019s practice of contacting customers by certain means (i.e., auto-dialers, pre-recorded or artificial voice calls on customers\u2019 land lines, fax machines and cell phones, including text messages). \n\n\n\u2022\nBankruptcy.\n Federal bankruptcy and related state laws may interfere with or affect the Company\u2019s ability to recover collateral or enforce a deficiency judgment. For example, in a Chapter 13 proceeding under the\nBankruptcy Code, a court may prevent a creditor from repossessing a motor vehicle and, as part of the\nrehabilitation plan, reduce the amount of the secured indebtedness to the market value of the motor vehicle\nat the time of bankruptcy, as determined by the court, leaving the party providing financing as a general\nunsecured creditor for the remainder of the indebtedness. A bankruptcy court may also reduce the monthly\npayments due under the related contract or change the rate of interest and time of repayment of the\nindebtedness.\n\n\n\u2022\nDodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (\u201cDodd-Frank Act\u201d). \nTitle X of the Dodd-Frank Act created the Consumer Financial Protection Bureau (\u201cCFPB\u201d), which has the authority to issue and enforce regulations under the federal \u201cenumerated consumer laws,\u201d including (subject to certain statutory limitations) FDCPA, TILA, ECOA, FCRA, GLBA and EFTA. The CFPB has rulemaking and enforcement authority over certain non-depository institutions, including the Company. The CFPB is specifically authorized, among other things, to take actions to prevent companies providing consumer financial products or services and their service providers from engaging in unfair, deceptive or abusive acts \n\n\n11\n\n\n\n\n\u00a0\n\n\nor practices in connection with consumer financial products and services, and to issue rules requiring enhanced disclosures for consumer financial products or services. Under the Dodd-Frank Act, the CFPB also may restrict the use of pre-dispute mandatory arbitration clauses in contracts between covered persons and consumers for a consumer financial product or service. The CFPB also has authority to interpret, enforce, and issue regulations implementing enumerated consumer laws, including certain laws that apply to the Company\u2019s business. The CFPB issued rules regarding the supervision and examination of non-depository \u201clarger participants\u201d in the automobile finance business. At this time, the Company is not deemed a larger participant.\n\n\n\u2022\nHolder Rule. The Federal Trade Commission\u2019s (the \u201cFTC\u201d) so-called \u201cHolder-in-Due-Course Rule\u201d (the\n\u201cHolder Rule\u201d), and equivalent state laws, make the Company or any other holder of a consumer credit\ncontract include the required notice and become subject to all claims and defenses that a borrower could\nassert against the seller of goods or services.\n\n\nFailure to comply with these laws or regulations could have a material adverse effect on the Company by, among other things, limiting the jurisdictions in which the Company may operate, restricting the Company\u2019s or its service provider's ability to realize the value of the collateral securing the Contracts, and making it more costly or burdensome to do business or resulting in potential liability. The volume of new or modified laws and regulations and the activity of agencies enforcing such law have increased in recent years in response to issues arising with respect to consumer lending. From time to time, legislation and regulations are enacted which increase the cost of doing business, limit or expand permissible activities or affect the competitive balance among financial services providers. Proposals to change the laws and regulations governing the operations and taxation of financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures and by various regulatory agencies. This legislation may change the Company\u2019s operating environment in substantial and unpredictable ways and may have a material adverse effect on the Company\u2019s business.\n \n\n\nIn particular, the Dodd-Frank Act and regulations promulgated thereunder, are likely to affect the Company\u2019s cost of doing business, may limit or expand the Company\u2019s permissible activities, may affect the competitive balance within the Company\u2019s industry and market areas and could have a material adverse effect on the Company. The Company\u2019s management continues to assess the Dodd-Frank Act\u2019s probable impact on the Company\u2019s business, financial condition and results of operations, and to monitor developments involving the entities charged with promulgating regulations thereunder. However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and on the Company in particular, is uncertain at this time.\n \n\n\nIn addition to the CFPB, other state and federal agencies have the ability to regulate aspects of the Company\u2019s business. For example, the Dodd-Frank Act provides a mechanism for state Attorneys General to investigate the Company. Additionally, the FTC has jurisdiction to investigate aspects of the Company\u2019s business. The Company expects that regulatory investigation by both state and federal agencies will continue and that the results of these investigations could have a material adverse impact on the Company.\n \n\n\nThe Holder Rule of the FTC has the effect of subjecting a seller, and certain related lenders and their assignees, in a consumer credit transaction to all claims and defenses which the obligor in the transaction could assert against the seller of the goods. Liability under the Holder Rule is limited to the amounts paid by the obligor under the contract, and the holder of the contract may also be unable to collect any balance remaining due thereunder from the obligor. The Holder Rule is generally duplicated by the Uniform Consumer Credit Code, other state statutes or the common law in certain states. Most of the Contracts will be subject to the requirements of the Holder Rule. Accordingly, the Company, as holder of the Contracts, will be subject to any claims or defenses that the purchaser of a financed vehicle may assert against the seller of the financed vehicle. Such claims are limited to a maximum liability equal to the amounts paid by the obligor on the Contract.\n\n\nDealers with which the Company does business must also comply with credit and trade practice statutes and regulations. Failure of these dealers to comply with such statutes and regulations could result in customers having rights of rescission and other remedies that could have a material adverse effect on the Company.\n \n\n\nThe sale of vehicle service contracts and other ancillary products by dealers in connection with Contracts assigned to the Company from dealers is also subject to state laws and regulations. As the Company is the holder of the Contracts that may, in part, finance these products, some of these state laws and regulations may apply to the Company\u2019s servicing and collection of the Contracts. Although these laws and regulations may not significantly affect the Company\u2019s business, there can be no assurance that insurance or other regulatory authorities in the\n \n\n\n12\n\n\n\n\n\u00a0\n\n\njurisdictions in which these products are offered by dealers will not seek to regulate or restrict the operation of the Company\u2019s business in these jurisdictions. Any regulation or restriction of the Company\u2019s business in these jurisdictions could materially adversely affect the income received from these products.\n \n\n\nThe Company\u2019s management believes that the Company maintains all requisite licenses and permits and is in material compliance with applicable local, state and federal laws and regulations. The Company periodically reviews its practices in an effort to ensure such compliance. Although compliance with existing laws and regulations has not had a material adverse effect on the Company\u2019s operations to date, given the increasingly complex regulatory environment, the increasing costs of complying with such laws and regulations, and the increasing risk of penalties, fines or other liabilities associated therewith, no assurances can be given that the Company is in material compliance with all of such laws or regulations or that the costs of such compliance, or the failure to be in such compliance, will not have a material adverse effect on the Company\u2019s business, financial condition or results of operations.\n \n\n\nFor more information, please refer to the risk factors titled \u201cFederal or state regulatory reform could have an adverse impact on the Company\u201d, \u201cOn October 5, 2017, the CFPB released the final rule Payday, Vehicle Title and Certain High-Cost Installment Loans under the Dodd Frank Act, which as adopted could potentially have a material adverse effect on our operations and financial performance\u201d, \u201cThe CFPB has broad authority to pursue administrative proceedings and litigation for violations of federal consumer financing laws\u201d, \u201cPursuant to the authority granted to it under the Dodd-Frank Act, the CFPB adopted rules that subject larger nonbank automobile finance companies to supervision and examination by the CFPB\u201d. Any such examination by the CFPB likely would have a material adverse effect on our operations and financial performance\u201d, \u201cOur use of vendors and our other ongoing third-party business relationships is subject to increasing regulatory requirements and attention\u201d, and \u201cWe are subject to many other laws and governmental regulations, and any material violations of or changes in these laws or regulations could have a material adverse effect on our financial condition and business operations\u201d, all of which are incorporated herein by reference.\n\n\nIn July 2020, the CFPB rescinded provisions of the Payday, Vehicle Title, and Certain High-Cost Installment Loans rule (the \"Rule\") governing the ability to repay requirements. The payment requirements took effect in June 2022. Any regulatory changes could have effects beyond those currently contemplated that could further materially and adversely impact our business and operations. Unless rescinded or otherwise amended, the Company will have to comply with the Rule\u2019s payment requirements if it continues to allow consumers to set up future recurring payments online for certain covered loans such that it meets the definition of having a \u201cleveraged payment mechanism\u201d under the Rule. If the payment provisions of the Rule apply, the Company will have to modify its loan payment procedures to comply with the required notices and mandated timeframes set forth in the final rule.\n\n\nHuman Capital Resources\n\n\nThe Company\u2019s management and various support functions are centralized at the Company\u2019s corporate headquarters in Clearwater, Florida. In connection with the closure of all of the Company\u2019s brick and mortar branch locations in 18 states, the Company\u2019s staff was significantly downsized during fiscal 2023, both as a result of layoffs and other voluntary and involuntary terminations. As a result, as of March 31, 2023, the Company employed a total of sixteen persons, of which six persons were employed at the Company\u2019s Clearwater Corporate office. None of the Company\u2019s employees are subject to a collective bargaining agreement, and the Company considers its relations with its employees generally to be good.\n\n\nWe are also committed to fostering, cultivating, and preserving a culture of diversity, equity, and inclusion (\u201cDE&I\u201d). We believe that the collective sum of the individual differences, life experiences, knowledge, inventiveness, self-expression, unique capabilities, and talent that our employees invest in their work represent a significant part of our culture, reputation, and achievement. We believe that an emphasis on DE&I drives value for our employees, customers, and shareholders, and that our DE&I commitment enables us to better serve our communities.\n\n\nIn fiscal 2023, the Company continued focusing on and invested in maintaining the health and safety of our employees in the midst of the COVID-19 pandemic.\n\n\nWe also offer our employees a variety of training and development opportunities. New employees complete a comprehensive training curriculum that focuses on the Company- and position-specific competencies needed to be\n \n\n\n13\n\n\n\n\n\u00a0\n\n\nsuccessful. The training includes a blended approach utilizing eLearning modules, hands-on exercises, webinars, and assessments. Training content is focused on our operating policies and procedures, as well as several key compliance areas.\n\n\n14\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A. Ris\nk Factors\n \n\n\nThe following factors, as well as other factors not set forth below, may adversely affect the business, operations, financial condition or results of operations of the Company (sometimes referred to in this section as \u201cwe\u201d \u201cus\u201d or \u201cour\u201d).\n \n\n\n\u00a0\n\n\nRisks Related to COVID-19\n\n\n\u00a0\n\n\nThe extent to which COVID-19 and measures taken in response thereto impact our business, results of operations and financial condition will continue to depend on factors outside of our control. COVID-19 has had and is likely to continue to have a material impact on our results of operations and financial condition and heightens many of our known risks.\n\n\n\u00a0\n\n\nThe outbreak of the global pandemic of COVID-19 and resultant economic effects of preventative measures taken across the United States and worldwide have been weighing on the macroeconomic environment, negatively impacting consumer confidence, employment rates and other economic indicators that contribute to consumer spending behavior and demand for credit. The extent to which COVID-19 impacts our business, results of operations and financial condition will continue to depend on factors outside of our control, which are highly uncertain and difficult to predict, including, but not limited to, the duration and spread of the outbreak in light of different levels of vaccination across the globe and new variants of the virus or additional waves of cases, its severity, actions to contain the virus or treat its impact, and whether the recently observable resumption of pre-pandemic economic and operating conditions in the United States can continue in light of inflationary pressure and higher insurance costs. For more information, see \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\u201d\n\n\n\u00a0\n\n\nIn addition, the spread of COVID-19 has caused us to modify our business practices (including restricting employee travel, developing social distancing plans for our employees and cancelling physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or as we determine is in the best interests of our employees, partners and customers. The outbreak has adversely impacted and may further adversely impact our workforce and operations and the operations of our partners, customers, suppliers and third-party vendors, throughout the time period during which the spread of COVID-19 continues and related restrictions remain in place, and even after the COVID-19 outbreak has subsided.\n\n\n\u00a0\n\n\nEven after the COVID-19 outbreak has subsided and despite the formal declaration of the end of the COVID-19 global health emergency by the World Health Organization in May 2023, our business may continue to experience materially adverse impacts as a result of the virus\u2019s economic impact, including the availability and cost of funding and any recession that has occurred or may occur in the future. There are no comparable recent events that provide guidance as to the effect COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change.\n\n\n\u00a0\n\n\nAdditionally, many of the other risk factors described below are heightened by the effects of the COVID-19 pandemic and related economic conditions, which in turn could materially adversely affect our business, financial condition, results of operations, access to financing and liquidity.\n\n\n\u00a0\n\n\nRisks Related to Our Business and Industry\n\n\nOur success is dependent on our ability to forecast the performance of our Contracts and remaining Direct Loans.\n\n\nWe have in the past experienced and may in the future experience high delinquency and loss rates in our portfolios. This has in the past reduced and may continue to reduce our profitability. In addition, our inability to accurately forecast and estimate the amount and timing of future collections could have a material adverse effect on our financial position, liquidity and results of operations.\n \n\n\nOur consolidated net loss for the year ended March 31, 2023 was $34.1 million as compared to net income of $3.0 million for the year ended March 31, 2022. Although our significant net loss during fiscal 2023 was largely attributable to our previously announced change in operating strategy and restructuring plan, our profitability usually\n \n\n\n15\n\n\n\n\n\u00a0\n\n\ndepends, to a material extent, on the performance of Contracts that we purchase. Historically, we have experienced higher delinquency rates than traditional financial institutions because substantially all of our Contracts and remaining Direct Loans are to non-prime borrowers, who are unable to obtain financing from traditional sources due primarily to their credit history. Contracts and Direct Loans made to these individuals generally entail a higher risk of delinquency, default, repossession, and higher losses than loans made to consumers with better credit.\n \n\n\nOur underwriting standards and collection procedures may not offer adequate protection against the risk of default, especially in periods of economic uncertainty. In the event of a default, the collateral value of the financed vehicle usually does not cover the outstanding Contract or Direct Loan balance and costs of recovery.\n\n\nOur ability to accurately forecast performance and determine an appropriate provision and allowance for credit losses is critical to our business and financial results. The allowance for credit losses is established through a provision for credit losses based on management\u2019s evaluation of the risk inherent in the portfolio, the composition of the portfolio, specific impaired Contracts and Direct Loans, and current economic conditions. Please see \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2013 Critical Accounting Estimates\u201d in Item 7 of this Form 10-K, which is incorporated herein by reference.\n \n\n\nThere can be no assurance that our performance forecasts will be accurate. In periods with changing economic conditions, such as is the case currently, accurately forecasting the performance of Contract and Direct Loans is more difficult. Our allowance for credit losses is an estimate, and if actual Contract and Direct Loan losses are materially greater than our allowance for credit losses, or more generally, if our forecasts are not accurate, our financial position, liquidity and results of operations could be materially adversely affected. For example, uncertainty surrounding the continuing economic impact of COVID-19 and the indirect effects of the conflict between Russia and Ukraine, whether through increases in the price of gasoline and other consumer goods or otherwise, on our customers has made historical information on credit losses slightly less reliable in the current environment, and there can be no assurances that we have accurately estimated loan losses.\n\n\nOther than limited representations and warranties made by dealers in favor of the Company, Contracts are purchased from the dealers without recourse, and we are therefore only able to look to the borrowers for repayment.\n \n\n\nIn June 2016, the Financial Accounting Standards Board (\u201cFASB\u201d) issued the ASU 2016-13 Financial Instruments\u2014Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Among other things, the amendments in this ASU require the measurement of all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The ASU also requires additional disclosures related to estimates and judgments used to measure all expected credit losses. For smaller reporting companies like us, the new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, and early adoption is permitted. The Company is evaluating the impact of the adoption of this ASU on the consolidated financial statements by collecting and analyzing data that will be needed to produce historical inputs, evaluating current conditions and reasonable and supportable forecasts, which are inputs into models created as a result of adopting this ASU. The Company believes the adoption of this ASU will likely result in an increase of between $0.9 million and $1.9 million to its allowance for credit losses.\n\n\nWe operate in an increasingly competitive market.\n \n\n\nThe non-prime consumer-finance industry is highly competitive, and the competitiveness of the market continues to increase as new competitors continue to enter the market and certain existing competitors continue to expand their operations and become more aggressive in offering competitive terms. There are numerous financial service companies that provide consumer credit in the markets served by us, including banks, credit unions, other consumer finance companies and captive finance companies owned by automobile manufacturers and retailers. Many of these competitors have substantially greater financial resources than us. In addition, some of our competitors often provide financing on terms more favorable to automobile purchasers or dealers than we offer. Many of these competitors also have long-standing relationships with automobile dealerships and may offer dealerships, or their customers,\n \n\n\n16\n\n\n\n\n\u00a0\n\n\nother forms of financing including dealer floor-plan financing and leasing, which are not provided by us. Providers of non-prime consumer financing have traditionally competed primarily on the basis of:\n \n\n\n\u2022\ninterest rates charged; \n\n\n\u2022\nthe quality of credit accepted; \n\n\n\u2022\ndealer discount; \n\n\n\u2022\namount paid to dealers relative to the wholesale book value; \n\n\n\u2022\nthe flexibility of Contract and Direct Loan terms offered; and \n\n\n\u2022\nthe quality of service provided. \n\n\nOur ability to compete effectively with other companies offering similar financing arrangements depends in part on our ability to maintain close relationships with dealers of used and new vehicles. We may not be able to compete successfully in this market or against these competitors. In recent years, it has become increasingly difficult for the Company to match or exceed pricing of its competitors, which has generally resulted in declining Contract acquisition rates during the 2022 and 2023 fiscal years.\n \n\n\nWe have focused on a segment of the market composed of consumers who typically do not meet the more stringent credit requirements of traditional consumer financing sources and whose needs, as a result, have not been addressed consistently by such financing sources. As new and existing providers of consumer financing have undertaken to penetrate our targeted market segment, we have experienced increasing pressure to reduce our interest rates, fees and dealer discounts. The Company\u2019s average dealer discount on Contracts purchased for the fiscal years ended March 31, 2023 and 2022 was 6.5% and 6.9%, respectively. The Company\u2019s average APR on Contracts purchased for the fiscal years ended March 31, 2023 and 2022, were 22.5% and 23.1%, respectively. These competitive factors continue to exist and may impact our ability to secure quality loans on our preferred terms in significant quantities.\n\n\nWe are particularly vulnerable to the effects of these practices because of our focus on providing financing with respect to used vehicles.\n \n\n\nOur business depends on our continued access to bank financing on acceptable terms.\n\n\nOn January 18, 2023, we entered into a new senior secured revolving credit facility (the \u201cCredit Facility\u201d) with Westlake Capital Finance, LLC (the \u201cLender\u201d), who is an affiliate of Westlake, the servicer of substantially all of our receivables. Our ability to access capital through our Credit Facility, or undertake a future facility, or other debt or equity transactions on economically favorable terms or at all, depends in large part on factors that are beyond our control, including:\n\n\n\u2022\nConditions in the securities and finance markets generally;\n\n\n\u2022\nA negative bias toward our industry;\n\n\n\u2022\nGeneral economic conditions and the economic health of our earnings, cash flows and balance sheet;\n\n\n\u2022\nSecurity or collateral requirements;\n\n\n\u2022\nThe credit quality and performance of our customer receivables;\n\n\n\u2022\nRegulatory restrictions applicable to us;\n\n\n\u2022\nOur overall business and industry prospects;\n\n\n\u2022\nOur overall sales performance, profitability, cash flow, balance sheet quality, and regulatory restrictions;\n\n\n\u2022\nOur ability to provide or obtain financial support for required credit enhancement;\n\n\n\u2022\nOur ability to adequately service our financial instruments;\n\n\n17\n\n\n\n\n\u00a0\n\n\n\u2022\nOur ability to meet debt covenant requirements; and\n\n\n\u2022\nPrevailing interest rates.\n\n\nOur Credit Facility is subject to certain defaults and negative covenants.\n\n\n\u00a0\n\n\nThe Credit Facility\u2019s loan documents contain customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, and sales of assets.  Such loan documents also restrict the Company\u2019s ability to make distributions to its shareholders or enter into certain fundamental transactions.  If an event of default occurs, the lender could increase borrowing costs, restrict our ability to obtain additional advances under the Credit Facility, accelerate all amounts outstanding under the Credit Facility, enforce their interest against collateral pledged under the Credit Facility or enforce such other rights and remedies as they have under the loan documents or applicable law as secured lenders.\n\n\nIf we prepay the loan and terminate the Credit Facility prior to its maturity date, then we would be obligated to pay the Lender a termination fee in an amount equal to a percentage of the average outstanding principal balance of the Credit Facility during the immediately preceding 90 days. If we were to sell our accounts receivable to a third party prior to the maturity date, then we would be obligated to pay the Lender a fee in an amount equal to a specified percentage of the proceeds of such sale.\n\n\nOur existing and future levels of indebtedness could adversely affect our financial health, ability to obtain financing in the future, ability to react to changes in our business and ability to fulfill our obligations under such indebtedness.\n \n\n\n\u00a0\n\n\nAs of March 31, 2023, we had aggregate outstanding indebtedness under our Credit Facility of $29.1 million compared to $55.0 million under our predecessor facility as of March 31, 2022. This level of indebtedness could:\n\n\n\u2022\nMake it more difficult for us to satisfy our obligations with respect to our outstanding notes and other indebtedness, resulting in possible defaults on and acceleration of such indebtedness;\n\n\n\u2022\nRequire us to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our indebtedness, thereby reducing the availability of such cash flows to fund working capital, acquisitions, capital expenditures and other general corporate purposes;\n\n\n\u2022\nLimit our ability to obtain additional financing for working capital, acquisitions, capital expenditures, debt service requirements and other general corporate purposes;\n\n\n\u2022\nLimit our ability to refinance indebtedness or cause the associated costs of such refinancing to increase;\n\n\n\u2022\nIncrease our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations (because our borrowings are at variable rates of interest); and\n\n\n\u2022\nPlace us at a competitive disadvantage compared to our competitors with proportionately less debt or comparable debt at more favorable interest rates which, as a result, may be better positioned to withstand economic downturns.\n\n\nOn May 27, 2020, the Company obtained a loan in the amount of $3.2 million from a bank in connection with the U.S. Small Business Administration\u2019s (\u201cSBA\u201d) Paycheck Protection Program (the \u201cPPP Loan\u201d). Pursuant to the Paycheck Protection Program, all or a portion of the PPP Loan may be forgiven if the Company used the proceeds of the PPP Loan for its payroll costs and other expenses in accordance with the requirements of the Paycheck Protection Program. The Company used the proceeds of the PPP Loan for payroll costs and other covered expenses and sought full forgiveness of the PPP Loan. The Company submitted a forgiveness application to Fifth Third Bank, the lender, on December 7, 2020 and submitted supplemental documentation on January 16, 2021. On December 27, 2021 SBA informed the Company that no forgiveness was granted. The Company filed an appeal with SBA on January 5, 2022. On May 6, 2022 the Office of Hearing and Appeals SBA (OHA) rendered a decision to deny the appeal. The Company subsequently repaid the outstanding principal of $3.2 million plus accrued and unpaid interest of $65 thousand on May 23, 2022.\n\n\n18\n\n\n\n\n\u00a0\n\n\nAny of the foregoing impacts of our level of indebtedness could have a material adverse effect on us.\n\n\nAn increase in market interest rates may reduce our profitability.\n\n\nOur long-term profitability may be directly affected by the level of and fluctuations in interest rates. Sustained, significant increases in interest rates may adversely affect our liquidity and profitability by reducing the interest rate spread between the rate of interest we receive on our Contracts and interest rates that we pay under our Credit Facility. As interest rates increase, our gross interest rate spread on new originations will generally decline since the rates charged on the Contracts originated or purchased from dealers generally are limited by statutory maximums, restricting our opportunity to pass on increased interest costs.\n\n\nCurrently, due to a number of factors including the ongoing conflict between Russia and Ukraine and supply chain problems caused in part by the COVID-19 pandemic, the global economy is experiencing inflationary pressures not seen in a significant period of time. We cannot predict the timing or the duration of any inflation.  More specifically, we cannot predict whether the inflationary pressure will reduce our interest rate spread and therefore our profitability.\n\n\nWe monitor the interest rate environment and, on occasion, enter into interest rate swap agreements relating to a portion of our outstanding debt. Such agreements effectively convert a portion of our floating-rate debt to a fixed-rate, thus reducing the impact of interest rate changes on our interest expense. However, we have not recently entered into new arrangements. We will continue to evaluate interest rate swap pricing and we may or may not enter into interest rate swap agreements in the future.\n\n\nWe have recently experienced turnover in our senior management. The loss of our key executives could have a material adverse effect on our business.\n\n\nOn May 6, 2022, the President and Chief Executive Officer of Nicholas Financial, Inc. (the \u201cCompany\u201d) informed the Board of Directors of the Company (the \u201cBoard\u201d) of his intention to resign his position as President and Chief Executive Officer, and to retire from the Board, in each case, effective as of May 9, 2022.\n\n\nOn May 10, 2022, the Company entered into a separation and release of claims agreement with the previous CEO.  Pursuant to the agreement, the previous CEO\u2019s resignation was effective as of May 9, 2022. In addition to unpaid salary and accrued vacation pay through May 9, 2022, the previous CEO was entitled to receive a severance payment of $131,250 and continuation of COBRA benefits for 4.5 months.  His restricted stock awards continue to be governed by the award agreements for each award, with all unvested restricted stock forfeited. The separation and release of claims agreement contains a one year non-compete provision that has elapsed, and prohibits the previous CEO from soliciting customers for one year, which has elapsed, and Company employees for two years, which continues through May 10, 2024.\n\n\nOn August 30, 2022 the Board appointed Michael Rost as the Chief Executive Officer, effective immediately. On September 14, 2022 the Company and Mr. Rost entered into an employment agreement with a term that continues until August 29, 2023, subject to automatic renewal for successive one-year terms. Mr. Rost has worked at the Company for more than 20 years. Prior to his appointment, Mr. Rost served as Interim CEO since May 2022, as Vice President of Branch Operations for the Company from April 2021 until May 2022, as Divisional Vice President from June 2018 until April 2021, as District Manager from December 2010 until June 2018, and as Branch Manager from December 2001 until December 2010.\n\n\nWe are subject to risks associated with litigation.\n\n\n\u00a0\n\n\nAs a consumer finance company, we are subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things:\n\n\n\u2022\nusury laws;\n\n\n\u2022\ndisclosure inaccuracies;\n\n\n\u2022\nwrongful repossession;\n\n\n\u2022\nviolations of bankruptcy stay provisions;\n\n\n\u2022\ncertificate of title disputes;\n\n\n19\n\n\n\n\n\u00a0\n\n\n\u2022\nfraud;\n\n\n\u2022\nbreach of contract; and\n\n\n\u2022\ndiscriminatory treatment of credit applicants.\n\n\nSome litigation against us could take the form of class action complaints by consumers. As the assignee of Contracts originated by dealers, we may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of actions can be substantial. The relief requested by the plaintiffs varies but may include requests for compensatory, statutory, and punitive damages. We also are periodically subject to other kinds of litigation typically experienced by businesses such as ours, including employment disputes and breach of contract claims. No assurances can be given that we will not experience material financial losses in the future as a result of litigation or other legal proceedings.\n\n\n\u00a0\n\n\nWe depend upon our relationships with our dealers.\n\n\n\u00a0\n\n\nOur business depends in large part upon our ability to establish and maintain relationships with reputable dealers who originate the Contracts we purchase. Although we believe we have been successful in developing and maintaining such relationships in the markets that we continue to service after the closing of all of our brick and mortar branches, such relationships are not exclusive, and many of them are not longstanding. There can be no assurances that we will be successful in maintaining such relationships or increasing the number of dealers with whom we do business, or that our existing smaller dealer base will continue to generate a volume of Contracts comparable to the volume of such Contracts historically generated by such dealers.\n\n\n\u00a0\n\n\nOur business is highly dependent upon general economic conditions.\n\n\n\u00a0\n\n\nWe are subject to changes in general economic conditions that are beyond our control. During periods of economic uncertainty, such as has existed for much of the past years, delinquencies, defaults, repossessions, and losses generally increase, absent offsetting factors. These periods also may be accompanied by decreased consumer demand for automobiles and declining values of automobiles securing outstanding loans, which weakens collateral coverage on our loans and increases the amount of a loss we would experience in the event of default. Because we focus on non-prime borrowers, the actual rates of delinquencies, defaults, repossessions, and losses on these loans are higher than those experienced in the general automobile finance industry and could be more dramatically affected by a general economic downturn. In addition, during an economic slowdown or recession, our servicing costs may increase without a corresponding increase in our servicing income. No assurances can be given that our underwriting criteria and collection methods to manage the higher risk inherent in loans made to non-prime borrowers will afford adequate protection against these risks. Any sustained period of increased delinquencies, defaults, repossessions, or losses, or increased servicing costs could have a material adverse effect on our business and financial condition.\n\n\n\u00a0\n\n\nFurthermore, in a low interest-rate environment such as has existed in the United States until recent years, the level of competition increases in the non-prime consumer-finance industry as new competitors enter the market and many existing competitors expand their operations. Such increased competition, in turn, has exerted increased pressure on us to reduce our interest rates, fees, and dealer discount rates in order to maintain our market share. Any further reductions in our interest rates, fees or dealer discount rates could have a material adverse impact on our profitability or financial condition.\n\n\n\u00a0\n\n\nThe auction proceeds received from the sale of repossessed vehicles and other recoveries are subject to fluctuation due to economic and other factors beyond our control.\n\n\n\u00a0\n\n\nIf a vehicle securing a Contract, is repossessed, it will typically be transported to an automobile auction for sale. Auction proceeds from the sale of repossessed vehicles and other recoveries are usually not sufficient to cover the outstanding balance of the Contract, and the resulting deficiency is charged off. In addition, there is, on average, approximately a 30-day lapse between the time of repossession of a vehicle and the time it is sold. The proceeds we receive from such sales under our servicing agreement depend upon various factors, including the supply of, and demand for, used vehicles at the time of sale. Such supply and demand are dependent on many factors. For example, during periods of economic uncertainty, the demand for used cars may soften, resulting in decreased auction\n \n\n\n20\n\n\n\n\n\u00a0\n\n\nproceeds to us from the sale of repossessed automobiles. Furthermore, depressed wholesale prices for used automobiles may result from significant liquidations of rental or fleet inventories, and from increased volume of trade-ins due to promotional financing programs offered by new vehicle manufacturers. Newer, more expensive vehicles securing our larger dollar loans are more susceptible to wholesale pricing fluctuations than are older vehicles and also experience depreciation at a much greater rate. Until the Company\u2019s portfolio has been successfully converted to primarily consisting of our target vehicle (primary transportation to and from work for the subprime borrower), the Company expects to be affected by softer auction activity and reduced vehicle values.\n\n\n\u00a0\n\n\nWe partially rely on third parties to deliver services, and failure by those parties to provide these services or meet contractual requirements could have a material adverse effect on our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nWe depend on third-party service providers for many aspects of our business operations, including loan origination, loan servicing, title processing, and online payments, which increases our operational complexity and decreases our control. We rely on these service providers to provide a high level of service and support, which subjects us to risks associated with inadequate or untimely service. If a service provider fails to provide the services that we require or expect, or fails to meet contractual requirements, such as service levels or compliance with applicable laws, a failure could negatively impact our business by adversely affecting our ability to process customers\u2019 transactions in a timely and accurate manner, otherwise hampering our ability to service our customers, or subjecting us to litigation or regulatory risk for poor vendor oversight. We may be unable to replace or be delayed in replacing these sources and there is a risk that we would be unable to enter into a similar agreement with an alternate provider on terms that we consider favorable or in a timely manner. Such a failure could have a material and adverse effect on our business, financial condition, and results of operations.\n\n\n\u00a0\n\n\nThe success of our business depends upon our ability to retain and attract a sufficient number of qualified employees.\n\n\n\u00a0\n\n\nAlthough we believe that we can attract and retain qualified and experienced personnel needed to conduct our business operations, no assurance can be given that we will be successful in doing so. Competition to hire personnel possessing the skills and experience required by us could contribute to an increase in our employee turnover rate. High turnover or an inability to attract and retain qualified personnel could have an adverse effect on our origination, delinquency, default, and net loss rates and, ultimately, our business and financial condition.\n\n\n\u00a0\n\n\nNatural disasters, acts of war, terrorist attacks and threats, or the escalation of military activity in response to these attacks or otherwise may negatively affect our business, financial condition, and results of operations.\n\n\n\u00a0\n\n\nNatural disasters (such as hurricanes), acts of war, terrorist attacks and the escalation of military activity in response to these attacks or otherwise may have negative and significant effects, such as disruptions in our operations, imposition of increased security measures, changes in applicable laws, market disruptions and job losses. Our headquarters are located in Clearwater, Florida and much of our revenue is generated in Florida. Florida is particularly susceptible to hurricanes. These events may have an adverse effect on the economy in general. Moreover, the potential for future terrorist attacks and the national and international responses to these threats could affect the business in ways that cannot be predicted. The effect of any of these events or threats could have a material adverse effect on our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nRisks Related to Regulation\n\n\n\u00a0\n\n\nFederal or state regulatory reform could have an adverse impact on the Company. The Dodd-Frank Act is extensive legislation that impacts financial institutions and other non-bank financial companies, such as the Company. In addition, the Dodd-Frank Act impacts the offering, marketing and regulation of consumer financial products and services. Many of the implementing regulations have been finalized, but in some cases, additional rulemaking has not yet been finalized. Until all of the implementing regulations have been issued, there can be no assurance that any new requirements will not have an adverse impact on the servicing of the Direct Loans and the Contracts or on the regulation and supervision of the Company.\n \n\n\n21\n\n\n\n\n\u00a0\n\n\nThe Dodd-Frank Act established the CFPB with broad authority over federal consumer financial laws and regulations (\u201cConsumer Financial Laws\u201d). In December 2020, the CFPB issued a final rule governing the activities of third-party debt collectors. The final rule was effective on November 30, 2021. While the final rule did not address first-party debt collectors, the CFPB has previously indicated that it would address this activity in a later rulemaking. It is unclear what effect, if any, the final rule or any subsequent changes may have on Direct Loans and Contracts or the servicer\u2019s practices, procedures and other servicing activities relating to Direct Loans and Contracts in ways that could reduce the associated recoveries.\n\n\nThe CFPB also issued a Compliance Bulletin in February 2022 stating its position that automobile loan holders and servicers are responsible for ensuring that their repossession-related practices, and the practices of their service providers do not violate applicable law, and the CFPB also described its intention to hold loan holders and servicers liable for unfair, deceptive, or abusive acts or practices related to the repossession of automobiles. In its Supervisory Highlights for Spring and Fall of 2022, the CFPB also identified certain auto loan servicing concerns, including the failure to ensure customers received add-on product refunds after events such as repossession or early payoff of the account. It is possible that the CFPB may bring enforcement actions against holders of automobile loans, such as the Company, and servicers, such as Westlake, in the future.\n \n\n\nIn addition, the FTC and state attorneys general have recently increased their scrutiny of motor vehicle dealers and auto lending, particularly with respect to antidiscrimination and deception concerns related to the prices of and fees charged in connection with automobile financing, including add-on products such as GAP insurance and extended warranties. Also, on June 23, 2022 the FTC issued a proposed rule that would (i) prohibit motor vehicle dealers from making certain misrepresentations in the course of selling, leasing, or arranging financing for motor vehicles, (ii) require accurate pricing disclosures in dealers\u2019 advertising and sales discussions, (iii) require dealers to obtain consumers\u2019 express, informed consent for charges, (iv) prohibit the sale of any add-on product or service that confers no benefit to the consumer, and (v) require dealers to keep records of advertisements and customer transactions. At this stage, it is unknown whether a final rule will be issued, the exact requirements of any final rule if issued or if any final rule would have a broader potential impact on auto lending practices, including the auto lending practices of the Company.\n\n\nFurther, changes to the regulatory framework in which the Company operates, including, for example, laws or regulations enacted to address the potential impacts of climate change (including laws which may adversely impact the auto industry in particular as a result of efforts to mitigate the factors contributing to climate change) or laws, regulations, executive orders or other guidance enacted in response to the COVID-19 pandemic, increased inflation or a recession or period of economic contraction or volatility could have a significant impact on the Company. See \u201cItem 1. Business \u2013 Regulation\u201d for additional information.\n\n\nOn October 5, 2017, the CFPB released the final rule Payday, Vehicle Title and Certain High-Cost Installment Loans under the Dodd Frank Act, which as adopted could potentially have a material adverse effect on our operations and financial performance.\n \n\n\nIn 2017, the CFPB adopted rules applicable to payday, title and certain high cost installment loans. The rules address the underwriting of covered short-term loans and longer-term balloon-payment loans, including payday and vehicle title loans, as well as related reporting and recordkeeping provisions. These provisions have become known as the \u201cmandatory underwriting provisions\u201d and include rules for lenders to follow to determine whether or not consumers have the ability to repay the loans according to their terms. On July 7, 2020, the CFPB released a new final rule that revoked the underwriting provisions of the rule but retained and ratified the payment provisions. Implementation of the rule\u2019s payment requirements may require changes to the Company\u2019s practices and procedures for such loans, which could materially and adversely affect the Company\u2019s ability to make such loans, the cost of making such loans, the Company\u2019s ability to, or frequency with which it could, refinance any such loans, and the profitability of such loans.  Additionally, the CFPB may target specific features of loans by rulemaking that could cause us to cease offering certain products, or adopt rules imposing new and potentially burdensome requirements and limitations with respect to any of our current or future lines of business, which could have a material adverse effect on our operations and financial performance. The CFPB could also implement rules that limit our ability to continue servicing our financial products and services.\n\n\nThe CFPB has broad authority to pursue administrative proceedings and litigation for violations of federal consumer financing laws.\n \n\n\n22\n\n\n\n\n\u00a0\n\n\nThe CFPB has the authority to obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief) and monetary penalties ranging from $6,323 per day for minor violations of Consumer Financial Laws (including the CFPB\u2019s own rules) to $31,616 per day for reckless violations and $1,264,622 per day for knowing violations. If we are subject to such administrative proceedings, litigation, orders or monetary penalties in the future, this could have a material adverse effect on our operations and financial performance. Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations under Title X, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions for the kind of cease and desist orders available to the CFPB (but not for civil penalties). If the CFPB or one or more state officials believe we have violated the foregoing laws, they could exercise their enforcement powers in ways that would have a material adverse effect on us. See \u201cItem 1. Business \u2013 Regulation\u201d for additional information.\n \n\n\nPursuant to the authority granted to it under the Dodd-Frank Act, the CFPB adopted rules that subject larger nonbank automobile finance companies to supervision and examination by the CFPB. Any such examination by the CFPB likely would have a material adverse effect on our operations and financial performance.\n \n\n\nThe CFPB\u2019s \u201clarger participant\u201d rule extends supervision and examination to any nonbank auto finance company that makes, acquires, or refinances 10,000 or more loans or leases in a year. Under the rule, those companies will be considered \u201clarger participants,\u201d and the CFPB may oversee their activity to ensure they are complying with Consumer Financial Laws. The Company does not meet the threshold of at least 10,000 aggregate annual direct loan originations, and therefore does not fall under the CFPB\u2019s supervisory authority. The CFPB issued rules regarding the supervision and examination of non-depository \u201clarger participants\u201d in the automobile finance business. The CFPB\u2019s stated objectives of such examinations are: to assess the quality of a larger participant\u2019s compliance management systems for preventing violations of Consumer Financial Laws; to identify acts or practices that materially increase the risk of violations of Consumer Financial Laws and associated harm to consumers; and to gather facts that help determine whether the larger participant engages in acts or practices that are likely to violate Consumer Financial Laws in connection with its automobile finance business. If we become a \u201clarger participant\u201d, we will be subject to examination by the CFPB for, among other things, ECOA compliance, TILA compliance, Consumer Leasing Act compliance, compliance with the Dodd-Frank Act\u2019s prohibition on unfair, deceptive or abusive acts or practices, and the adequacy of our compliance management systems.\n\n\nWe have continued to evaluate our existing compliance management systems. We expect this process to continue as the CFPB promulgates new and evolving rules and interpretations. Given the time and effort needed to establish, implement and maintain adequate compliance management systems and the resources and costs associated with being examined by the CFPB, such an examination could likely have a material adverse effect on our business, financial condition and profitability. Moreover, any such examination by the CFPB could result in the assessment of penalties, including fines, and other remedies which could, in turn, have a material effect on our business, financial condition, and profitability.\n \n\n\nOur use of vendors and our other ongoing third-party business relationships are subject to increasing regulatory requirements and attention\n.\n\n\nWe regularly use vendors and subcontractors as part of our business. We also depend on our substantial ongoing business relationships with our dealers, merchants, and other third parties. These types of third-party relationships, particularly with our dealer partners and our third-party servicing and collection vendors, are subject to increasingly demanding regulatory requirements and oversight by regulators. Regulators may expect certain non-bank entities to maintain an effective process for managing risks associated with vendor relationships, including compliance-related risks. In connection with this vendor risk management process, we may be expected to perform due diligence reviews of potential vendors, review their policies and procedures and internal training materials to confirm compliance-related focus, include enforceable consequences in contracts with vendors regarding failure to comply with consumer protection requirements, and take prompt action, including terminating the relationship, in the event that vendors fail to meet our expectations.\n \n\n\nRegulators may hold us responsible for deficiencies in our oversight and control of third-party relationships and in the performance of the parties with which we have these relationships. As a result, if our regulators conclude that we have not exercised adequate oversight and control over vendors and subcontractors or other ongoing third-party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines, as well as requirements for consumer remediation.\n\n\n23\n\n\n\n\n\u00a0\n\n\nWe are subject to many other laws and governmental regulations, and any material violations of or changes in these laws or regulations could have a material adverse effect on our financial condition and business operations.\n \n\n\nAs a provider of consumer financial services, the Company operates in a highly regulated environment. The Company is subject to state licensing requirements and state and federal laws and regulations. In addition, the Company may be subject to governmental and regulatory examinations, information gathering requests, and investigations from time to time at the state and federal levels. Compliance with applicable law is costly and can affect the Company\u2019s results of operations. Compliance requires forms, processes, procedures, controls and the infrastructure to support these requirements. Compliance may create operational constraints and place limits on pricing, as the laws and regulations in the financial services industry are designed primarily for the protection of consumers. Changes in laws and regulations could restrict the Company\u2019s ability to operate its business as currently operated, could impose substantial additional costs or require it to implement new processes, which could adversely affect the Company\u2019s business, prospects, financial performance or financial condition. The failure to comply with applicable laws and regulations could result in significant statutory civil and criminal fines, penalties, monetary damages, attorney or legal fees and costs, restrictions on the Company\u2019s ability to operate its business, possible revocation of licenses and damage to the Company\u2019s reputation, brand and valued customer relationships. Any such costs, restrictions, revocations or damage could adversely affect the Company\u2019s business, prospects, results of operations or financial condition. See \u201cItem 1. Business \u2013 Regulation\u201d for additional information.\n \n\n\nThe CFPB and the FTC may investigate the products, services and operations of credit providers, including banks and other finance companies engaged in auto finance activities. As a result of such investigations, the CFPB and the FTC have announced various enforcement actions against lenders in the past few years involving significant penalties, consent orders, cease and desist orders and similar remedies that, if applicable to the Company or the products, services and operations the Company offers, may require the Company to cease or alter certain business practices, which could have a material adverse effect on the Company\u2019s results of operations, financial condition, and liquidity. Supervision and investigations by these agencies may result in monetary penalties, increase the Company\u2019s compliance costs, require changes in its business practices, affect its competitiveness, impair its profitability, harm its reputation or otherwise adversely affect its business.\n\n\nOur financing operations are subject to regulation, supervision, and licensing under various other federal, state and local statutes and ordinances. In addition, the Company and its service providers must comply with certain federal and state requirements in connection with the servicing and collection on Direct Loans and Contracts, and the repossession of vehicles securing Direct Loans and Contracts in the states the Company does business. The various federal, state and local statutes, regulations, and ordinances applicable to our business govern, among other things:\n \n\n\n\u2022\nlicensing requirements; \n\n\n\u2022\nrequirements for maintenance of proper records; \n\n\n\u2022\npayment of required fees to certain states; \n\n\n\u2022\nmaximum interest rates that may be charged on loans to finance used and new vehicles; \n\n\n\u2022\ndebt collection practices; \n\n\n\u2022\nproper disclosure to customers regarding financing terms; \n\n\n\u2022\nprivacy regarding certain customer data; \n\n\n\u2022\ninterest rates on loans to customers; \n\n\n\u2022\nlate fees and insufficient fees charged; \n\n\n\u2022\ntelephone solicitation of Direct Loan customers; and \n\n\n\u2022\ncollection of debts from loan customers who have filed bankruptcy. \n\n\nWe believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable local, state and federal regulations. Our failure, or the failure by dealers who originate the Contracts we purchase, or the failure by our service providers, to maintain all requisite licenses and permits, and to comply with other regulatory requirements, could result in consumers having rights of rescission and other remedies that could have a material adverse effect on our financial condition. Furthermore, any changes in\n \n\n\n24\n\n\n\n\n\u00a0\n\n\napplicable laws, rules and regulations, such as the passage of the Dodd-Frank Act and the creation of the CFPB, may make our compliance therewith more difficult or expensive or otherwise materially adversely affect our business and financial condition.\n \n\n\nSome litigation against us could take the form of class action complaints by consumers. As the assignee of contracts originated by dealers, we may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of actions can be substantial. The relief requested by the plaintiffs varies but may include requests for compensatory, statutory, and punitive damages. We also are periodically subject to other kinds of litigation typically experienced by businesses such as ours, including employment disputes and breach of contract claims. No assurances can be given that we will not experience material financial losses in the future as a result of litigation or other legal proceedings.\n \n\n\nRisks Related to Privacy and Cybersecurity\n\n\nFailure to properly safeguard confidential customer information could subject us to liability, decrease our profitability, and damage our reputation.\n \n\n\nIn the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and personally identifiable information of our customers, on our computer networks, and share such data with third parties, including our service providers. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy.\n \n\n\nAny failure, interruption, or breach in our cyber security, including through employee misconduct or any failure of our back-up systems or failure to maintain adequate security surrounding customer information, could result in reputational harm, disruption in the management of our customer relationships, or the inability to originate, process and service our products. Further, any of these cyber security and operational risks could result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to lawsuits by customers for identity theft or other damages resulting from the misuse of their personal information and possible financial liability, any of which could have a material adverse effect on our results of operations, financial condition and liquidity. In addition, regulators may impose penalties or require remedial action if they identify weaknesses in our security systems, and we may be required to incur significant costs to increase our cyber security to address any vulnerabilities that may be discovered or to remediate the harm caused by any security breaches. As part of our business, we may share confidential customer information and proprietary information with clients, vendors, service providers, and business partners. The information systems of these third parties may be vulnerable to security breaches and we may not be able to ensure that these third parties have appropriate security controls in place to protect the information we share with them. If our confidential information is intercepted, stolen, misused, or mishandled while in possession of a third party, it could result in reputational harm to us, loss of customer business, and additional regulatory scrutiny, and it could expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our results of operations, financial condition, and liquidity. If any vendor fails to provide the services we require, fails to meet contractual requirements (including compliance with applicable laws and regulations), fails to maintain adequate data privacy controls and electronic security systems, or suffers a cyber-attack or other security breach, we could be subject to CFPB, FTC and other regulatory enforcement actions, claims from third parties, including our consumers, and suffer economic and reputational harm that could have an adverse effect on our business. Further, we may incur significant costs to resolve any such disruptions in service, which could adversely affect our business.\n\n\nProviders of consumer financial services are subject to specific requirements to protect consumer data. In 2021, the FTC updated its Safeguards Rule implementing Section 501(b) of GLBA, to set forth specific criteria relating to the safeguards that certain nonbank financial institutions must implement as a part of their information security programs. These safeguards, among other things, limit who can access customer information, require the use of encryption to secure such information, and require the designation of a single qualified individual to oversee an institution\u2019s information security program and report at least annually to the institution\u2019s board of directors or equivalent governing body. The CFPB recently issued Consumer Financial Protection Circular 2022-04, which warned that data security shortcomings could subject financial services companies to unfairness claims under the Consumer Financial Protection Act\u2014even if those firms comply with the GLBA Safeguards Rule, the primary data security regulation for non-bank financial institutions.\n\n\nWe rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to secure online transmission of confidential customer information. Advances in computer\n \n\n\n25\n\n\n\n\n\u00a0\n\n\ncapabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the algorithms that we use to protect sensitive customer data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend capital and other resources to protect against, or alleviate problems caused by, security breaches or other cybersecurity incidents. Although we have not experienced any material cybersecurity incidents to dates, there can be no assurance that a cyber-attack, security breach or other cybersecurity incident will not have a material adverse effect on our business, financial condition or results of operations in the future. Our security measures are designed to protect against security breaches, but our failure to prevent security breaches could subject us to liability, decrease our profitability and damage our reputation.\n\n\nRisks Related to our Common Stock\n\n\nOur stock is thinly traded, which may limit your ability to resell your shares.\n \n\n\nThe average daily trading volume of our common shares on the NASDAQ Global Select Market for the fiscal year ended March 31, 2023 was approximately 6,800 shares, which makes ours a thinly traded stock. Thinly traded stocks pose several risks for investors because they have wider spreads and less displayed size than other stocks that trade in higher volumes or an active trading market. Other risks posed by thinly traded stocks include difficulty selling the stock, challenges attracting market makers to make markets in the stock, and difficulty with financings. Our financial results, the introduction of new products and services by us or our competitors, and various factors affecting the consumer-finance industry generally may also have a significant impact on the market price of our common shares. In recent years, the stock market has experienced a high level of price and volume volatility, and market prices for the stocks of many companies, including ours, have experienced wide price fluctuations that have not necessarily been related to their operating performance. These risks could affect a shareholder\u2019s ability to sell their shares at the volumes, prices, or times that they desire.\n\n\nWe currently do not have any analysts covering our stock which could negatively impact both the stock price and trading volume of our stock.\n\n\n\u00a0\n\n\nThe trading market for our common stock will likely be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not currently have, and may never obtain, research coverage by financial analysts. If no or few analysts commence coverage of us, the trading price of our stock may not increase. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluation of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline. Furthermore, if our operating results fail to meet analysts\u2019 expectations our stock price would likely decline.\n\n\n\u00a0\n\n\n26\n\n\n\n\n\u00a0\n\n\nSome provisions of our Articles may deter third parties from acquiring us and diminish the value of our common stock.\n\n\nOur Articles provide for, among other things:\n\n\n\u2022\ndivision of our board of directors into three classes of directors serving staggered three-year terms;\n\n\n\u2022\nour ability to issue additional shares of common stock and to issue preferred stock with terms that our board of directors may determine, in each case without shareholder approval (unless required by law); and\n\n\n\u2022\nthe absence of cumulative voting in the election of directors.\n\n\n\u00a0\n\n\nThese provisions may discourage, delay or prevent a transaction involving a change in control of our Company that is in the best interest of our shareholders. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts. These provisions could also make it more difficult for shareholders to nominate directors for election to our board of directors and take other corporate actions.\n\n\nWe are a \u201csmaller reporting company\u201d as defined in SEC regulations, and the reduced disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to investors.\n\n\n\u00a0\n\n\nWe are a \u201csmaller reporting company\u201d as defined under SEC regulations and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies including, among other things, reduced financial disclosure requirements including being permitted to provide only two years of audited financial statements and reduced disclosure obligations regarding executive compensation. As a result, our shareholders may not have access to certain information that they may deem important. We could remain a smaller reporting company indefinitely. As a smaller reporting company, investors may deem our stock less attractive and, as a result, there may be less active trading of our common stock, and our stock price may be more volatile.\n\n\nGeneral Risk Factors\n\n\nWe have in the past had material weaknesses in our internal control over financial reporting. Failure to maintain an effective system of internal control over financial reporting and disclosure controls and procedures could lead to a loss of investor confidence in our financial statements and have an adverse effect on our stock price.\n\n\nWe may in the future discover areas of our internal financial and accounting controls and procedures that need improvement. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, regardless of how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.\n\n\nIf we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, investors could lose confidence in our reported financial information, which could lead to a decline in the market price of our common stock and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities.\n\n\nAdditionally, the existence of any material weakness could require management to devote significant time and incur significant expense to remediate any such material weakness and management may not be able to remediate any such material weakness in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause the holders of our common stock to lose confidence in our reported financial information, all of which could materially adversely affect our business and share price.\n\n\n27\n\n\n\n\n\u00a0\n\n\nWe may experience problems with integrated computer systems or be unable to keep pace with developments in technology or conversion to new integrated computer systems.\n \n\n\nWe use various technologies in our business, including telecommunication, data processing, and integrated computer systems. Technology changes rapidly. Our ability to compete successfully with other financing companies may depend on our ability to efficiently and cost-effectively implement technological changes. Moreover, to keep pace with our competitors, we may be required to invest in technological changes that do not necessarily improve our profitability.\n \n\n",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of\n Financial Condition and Results of Operations\n \n\n\nOverview\n \n\n\nNicholas Financial-Canada is a Canadian holding company incorporated under the laws of British Columbia in 1986. Nicholas Financial-Canada currently conducts its business activities exclusively through a wholly-owned indirect Florida subsidiary, Nicholas Financial. Nicholas Financial is a specialized consumer finance company engaged primarily in acquiring and servicing automobile finance installment contracts (\u201cContracts\u201d) for purchases of used and new automobiles and light trucks. To a lesser extent, prior to the end of the third fiscal quarter of the fiscal year ended March 31, 2023, Nicholas Financial also originated direct consumer loans (\u201cDirect Loans\u201d) and sold consumer-finance related products.  Nicholas Financial\u2019s financing activities represent a primary source of consolidated revenue for the fiscal years ended March 31, 2023 and 2022. A second Florida subsidiary, NDS, serves as an intermediate holding company for Nicholas Financial.\n\n\nNicholas Financial-Canada, Nicholas Financial, and NDS are collectively referred to herein as the \u201cCompany\u201d.\n\n\nIntroduction\n \n\n\nThe Company\u2019s consolidated revenues decreased from $49.8 million for the fiscal year ended March 31, 2022 to $44.3 million for the fiscal year ended March 31, 2023. The Company\u2019s diluted earnings per share decreased from $0.39 per share for the fiscal year ended March 31, 2022 to a net loss of $4.65 per share for the fiscal year ended March 31, 2023. The Company\u2019s operating income before income taxes decreased from $4.0 million for the year ended March 31, 2022 to a loss before income tax of $32.7 million for the year ended March 31, 2023. The decrease in profitability was primarily driven by an increase in the provision for credit losses from $6.0 million to $40.7 million and a decrease in average finance receivables from $178.7 million to $165.4 million for the years ended March 31, 2022 and 2023, respectively.\n\n\nThe Company\u2019s consolidated net income decreased from $3.0 million for the fiscal year ended March 31, 2022 to net loss of $34.1 million for the fiscal year ended March 31, 2023.\n\n\nThe gross portfolio yield of the portfolio for the fiscal years ended March 31, 2023 and 2022 was 26.76% and 27.86%, respectively. For the fiscal years ended March 31, 2023 and 2022, the average dealer discount decreased from 6.9% to 6.5% primarily as a result of market conditions in the 2023 fiscal year. The APR (and therefore overall yield) on new purchases declined in fiscal 2023 and fiscal 2022 to 22.2% from 22.9%, which was primarily driven by the Company\u2019s continuing commitment to its core principles of disciplined underwriting and risk-based pricing. Operating expenses as presented include restructuring costs of $4.8 million for the twelve months ended March 31,\n \n\n\n31\n\n\n\n\n\u00a0\n\n\n2023. Operating expenses net of restructuring costs as a percentage of average finance receivables would have been  16.7% for the twelve months ended March 31, 2023.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nPortfolio Summary\n\n\n\u00a0\n\n\nFiscal Year ended March 31,\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nAverage finance receivables (1)\n\n\n\u00a0\n\n\n$\n\n\n165,412\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n178,686\n\n\n\u00a0\n\n\n\n\n\n\nAverage indebtedness (2)\n\n\n\u00a0\n\n\n$\n\n\n54,214\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n67,684\n\n\n\u00a0\n\n\n\n\n\n\nInterest and fee income on finance receivables\n\n\n\u00a0\n\n\n\u00a0\n\n\n44,270\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n49,779\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,931\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,366\n\n\n\u00a0\n\n\n\n\n\n\nNet interest and fee income on finance receivables\n\n\n\u00a0\n\n\n$\n\n\n40,339\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n44,413\n\n\n\u00a0\n\n\n\n\n\n\nGross portfolio yield (3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.76\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n27.86\n\n\n%\n\n\n\n\n\n\nInterest expense as a percentage of average finance\n\u00a0\u00a0\u00a0receivables\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.38\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.00\n\n\n%\n\n\n\n\n\n\nProvision for credit losses as a percentage of average\n\u00a0\u00a0\u00a0finance receivables\n\n\n\u00a0\n\n\n\u00a0\n\n\n24.58\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.34\n\n\n%\n\n\n\n\n\n\nNet portfolio yield (3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.20\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.52\n\n\n%\n\n\n\n\n\n\nOperating expenses as a percentage of average finance\n\u00a0\u00a0\u00a0receivables\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.62\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.25\n\n\n%\n\n\n\n\n\n\nPre-tax yield as a percentage of average finance\n\u00a0\u00a0\u00a0receivables(4)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19.82\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.27\n\n\n%\n\n\n\n\n\n\nNet charge-off percentage (5)\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.86\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.13\n\n\n%\n\n\n\n\n\n\nFinance receivables\n\n\n\u00a0\n\n\n$\n\n\n128,170\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n178,786\n\n\n\u00a0\n\n\n\n\n\n\nAllowance percentage (6)\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.57\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.61\n\n\n%\n\n\n\n\n\n\nTotal reserves percentage (7)\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.98\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.62\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nAverage finance receivables represent the average of finance receivables throughout the period. \n\n\n(2)\nAverage indebtedness represents the average outstanding borrowings under the Credit Facility throughout the period.  Average indebtedness does not include the PPP loan.\n\n\n(3)\nGross portfolio yield represents interest and fee income on finance receivables as a percentage of average finance receivables. Net portfolio yield represents (a) interest and fee income on finance receivables minus (b) interest expense minus (c) the provision for credit losses, as a percentage of average finance receivables.\n\n\n(4)\nPre-tax yield represents net portfolio yield minus operating expenses (marketing, salaries, employee benefits, depreciation, and administrative), as a percentage of average finance receivables.\n\n\n(5)\nNet charge-off percentage represents net charge-offs (charge-offs less recoveries) divided by average finance receivables, outstanding during the period.\n\n\n(6)\nAllowance percentage represents the allowance for credit losses divided by finance receivables outstanding as of ending balance sheet date.\n\n\n(7)\nTotal reserves percentage represents the allowance for credit losses, unearned purchase price discount, and unearned dealer discounts divided by finance receivables outstanding as of ending balance sheet date.\n\n\nCritical Accounting Estimates\n\n\n\u00a0\n\n\nA critical accounting estimate is an estimate that: (i) is made in accordance with generally accepted accounting principles, (ii) involves a significant level of estimation uncertainty and (iii) has had or is reasonably likely to have a material impact on the Company\u2019s financial condition or results of operations.\n\n\nThe Company\u2019s critical accounting estimate relates to the allowance for credit losses. It is based on management\u2019s judgement of an amount that is adequate to absorb losses incurred in the existing portfolio. Because of the nature of the customers under the Company\u2019s Contracts and Direct Loan program, the Company considers the establishment of adequate reserves for credit losses to be imperative.\n\n\nThe Company takes into consideration the composition of the portfolio, current economic conditions, the estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts when determining management\u2019s estimate of probable credit losses and the adequacy of the\n \n\n\n32\n\n\n\n\n\u00a0\n\n\nallowance for credit losses. Management utilizes significant judgment in determining probable incurred losses and in identifying and evaluating qualitative factors. This approach aligns with the Company\u2019s lending policies and underwriting standards. If the allowance for credit losses is determined to be inadequate, then an additional charge to the provision is recorded to maintain adequate reserves based on management\u2019s evaluation of the risk inherent in the loan portfolio. Management believes that estimating the allowance for credit losses using the trailing twelve-month charge-off analysis accurately reflects portfolio performance adjusted for seasonality and encompasses historical collection practices. Under the current methodology the management continues to evaluate qualitative factors to support its allowance for credit losses. The Company examines the impact of macro-economic factors, such as year-over-year inflation, as well as portfolio performance characteristics, such as changes in the value of underlying collateral, level of nonperforming accounts, delinquency trends, and accounts with extended terms. As a result, the Company incorporated an additional $1.4 million as a qualitative component amount to its current estimate of adequate reserves.\n\n\nContracts are purchased from many different dealers and are all purchased on an individual Contract-by-Contract basis. Individual Contract pricing is determined by the automobile dealerships and is generally the lesser of the applicable state maximum interest rate, if any, or the maximum interest rate which the customer will accept. In most markets, competitive forces will drive down Contract rates from the maximum rate to a level where an individual competitor is willing to buy an individual Contract. The Company generally purchases Contracts on an individual basis. The Company has established internal underwriting guidelines that were used by its Branch Managers and internal underwriters when Contracts were purchased by the Company prior to the restructuring of its operations. The Company has adopted updated guidelines consistent with its post-restructuring operations, which guidelines are to be used by the Company\u2019s originators and internal underwriters when purchasing Contracts in the Company\u2019s regionalized business model. Any Contract that does not meet these guidelines must be approved by senior management of the Company. In addition to a variety of administrative duties, the Company\u2019s management is responsible for monitoring compliance with the Company\u2019s underwriting guidelines as well as approving underwriting exceptions.\n \n\n\nFiscal 2023 Compared to Fiscal 2022\n \n\n\nInterest and Fee Income on Finance Receivables\n \n\n\nInterest and fee income on finance receivables, predominantly finance charge income, decreased to $44.3 million in fiscal 2023 as compared to $49.8 million in fiscal 2022. The average finance receivables totaled $165.4 million for the fiscal year ended March 31, 2023, a decrease of 7.4% from $178.7 million for the fiscal year ended March 31, 2022. Purchasing volume decreased to $47.5 million in fiscal 2023 from $85.8 million in fiscal 2022. Purchasing volume decreased from fiscal 2022 primarily as a result of our focus on restructuring to a remote purchasing model.\n\n\nCompetition continued to affect the Company\u2019s ability to acquire Contracts at desired yields. The average APR on new Contract purchases was 22.5% for fiscal 2023 and 23.1% for fiscal 2022. Concurrently, the dealer discount on new Contract purchases decreased from 6.9% for fiscal 2022 to 6.5% for fiscal 2023, primarily as a result of competitive pressures. Overall, the Company maintains its strategy focused on risk-based pricing (rate, yield, advance, term, etc.) and a commitment to the underwriting discipline required for optimal portfolio performance.\n\n\nThe gross portfolio yield decreased to 26.76% for the fiscal year ended March 31, 2023 as compared to 27.86% for the fiscal year ended March 31, 2022. The gross portfolio yield decreased primarily as a result of the decrease in average finance receivables year over year.\n \n\n\nThe net portfolio yield decreased to (0.2)% for the fiscal year ended March 31, 2023 from 21.5% for the fiscal year ended March 31, 2022. The net portfolio yield decreased primarily due to an increase in the provision for credit losses as a percentage of finance receivables, as described under \u201cAnalysis of Credit Losses\u201d below.\n \n\n\nOperating Expenses\n \n\n\nOur operating expenses consisted primarily of servicing and administrative expenses, payroll and employee benefits, and marketing expenses. Operating expenses decreased to $32.5 million for the fiscal year ended March 31, 2023 compared to $34.4 million for the fiscal year ended March 31, 2022 as a result of restructuring initiatives undertaken by the Company.\n\n\n33\n\n\n\n\n\u00a0\n\n\nInterest Expense\n \n\n\nInterest expense decreased to $3.9 million for the fiscal year ended March 31, 2023, as compared to $5.4 million for the fiscal year ended March 31, 2022, due to a decrease in average outstanding debt, which was partly offset by a higher interest rate. The average outstanding debt during the year ended March 31, 2023 decreased to $54.2 million from $67.7 million during the year ended March 31, 2022. The following table summarizes the Company\u2019s average cost of borrowed funds for the fiscal years ended March 31:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nVariable interest under the line of credit and credit\n\u00a0\u00a0\u00a0facility\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.70\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.63\n\n\n%\n\n\n\n\n\n\nCredit spread under the line of credit and credit\n\u00a0\u00a0\u00a0facility\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.27\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.15\n\n\n%\n\n\n\n\n\n\nAverage cost of borrowed funds\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.97\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.78\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nAnalysis of Credit Losses\n \n\n\nThe following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts and Direct Loans for the fiscal years ended March 31:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the year ended March 31, 2023\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nIndirect\n\n\n\u00a0\n\n\n\u00a0\n\n\nDirect\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\n\n\n\nBalance at beginning of year\n\n\n\u00a0\n\n\n$\n\n\n1,961\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n988\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,949\n\n\n\u00a0\n\n\n\n\n\n\nProvision for credit losses\n\n\n\u00a0\n\n\n\u00a0\n\n\n37,125\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,533\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n40,658\n\n\n\u00a0\n\n\n\n\n\n\nCharge-offs\n\n\n\u00a0\n\n\n\u00a0\n\n\n(28,391\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,621\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(32,012\n\n\n)\n\n\n\n\n\n\nRecoveries\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,570\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n231\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,801\n\n\n\u00a0\n\n\n\n\n\n\nBalance at end of year\n\n\n\u00a0\n\n\n$\n\n\n16,265\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,131\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n17,396\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the year ended March 31, 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nIndirect\n\n\n\u00a0\n\n\n\u00a0\n\n\nDirect\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\n\n\n\nBalance at beginning of year\n\n\n\u00a0\n\n\n$\n\n\n6,001\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n153\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,154\n\n\n\u00a0\n\n\n\n\n\n\nProvision for credit losses\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,210\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,755\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,965\n\n\n\u00a0\n\n\n\n\n\n\nCharge-offs\n\n\n\u00a0\n\n\n\u00a0\n\n\n(13,515\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(980\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(14,495\n\n\n)\n\n\n\n\n\n\nRecoveries\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,265\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n60\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,325\n\n\n\u00a0\n\n\n\n\n\n\nBalance at end of year\n\n\n\u00a0\n\n\n$\n\n\n1,961\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n988\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,949\n\n\n\u00a0\n\n\n\n\n\n\nThe Company defines non-performing assets as accounts that are contractually delinquent for 60 or more days past due or Chapter 13 bankruptcy accounts. For these accounts, the accrual of interest income is suspended, and any previously accrued interest is reversed. Upon notification of a bankruptcy, an account is monitored for collection with other Chapter 13 accounts. In the event the debtors\u2019 balance is reduced by the bankruptcy court, the Company will record a loss equal to the amount of principal balance reduction. The remaining balance will be reduced as payments are received by the bankruptcy court. In the event an account is dismissed from bankruptcy, the Company will decide based on several factors, whether to begin repossession proceedings or allow the customer to begin making regularly scheduled payments.\n\n\nThe Company defines a Chapter 13 bankruptcy account as a Troubled Debt Restructuring (\u201cTDR\u201d). The Company records a specific reserve for Chapter 13 bankruptcy accounts which is considered a qualitative reserve to the allowance for credit losses. The Company records the reserve based on the expected collectability of the principal balance of the Chapter 13 Bankruptcy and the specific reserves recorded as of March 31, 2023 and March 31, 2022 was $241 thousand and $138 thousand, respectively.\n\n\nThe provision for credit losses increased to $40.7 million for the fiscal year ended March 31, 2023 from $6.0 million for the fiscal year ended March 31, 2022, due to an increase in net charge-off percentage from 5.13% to 15.86%.\n \n\n\n34\n\n\n\n\n\u00a0\n\n\nThe Company\u2019s allowance for credit losses also incorporates recent trends such as delinquency, non-performing assets, and bankruptcy. The Company believes that this approach reflects the current trends of incurred losses within the portfolio and better aligns the allowance for credit losses with the portfolio\u2019s performance indicators.\n \n\n\nNet charge-offs as a percentage of average finance receivables increased to 15.9% for the fiscal year ended March 31, 2023 from 5.1% for the fiscal year ended March 31, 2022, primarily reflecting the Company's analysis of portfolio its performance trends.\n \n\n\nThe delinquency percentage for Contracts more than thirty days past due, excluding Chapter 13 bankruptcy accounts, as of March 31, 2023 was 15.7%, an increase from 7.3% as of March 31, 2022. The delinquency percentage for Direct Loans more than thirty days past due, excluding Chapter 13 bankruptcy accounts, as of March 31, 2023 was 17.0%, an increase from 3.6% as of March 31, 2022. The delinquency percentage for both Contracts and Direct Loans increased as enhanced unemployment benefits and stimulus programs came to an end.\n\n\n\u00a0\n\n\nIn accordance with Company policies and procedures, certain borrowers qualify for, and the Company offers, one-month principal payment deferrals on Contracts and Direct Loans. For the fiscal years ended March 31, 2023 and March 31, 2022 the Company granted deferrals to approximately 37.3% and 11.8%, respectively, of total Contracts and Direct Loans. The increase in the total number of deferrals in fiscal 2023 compared to fiscal 2022 was primarily influenced by portfolio performance, including but not limited to, inflation, credit quality of loans purchased, competition at the time of Contract acquisition, and general economic conditions.\n\n\nIncome Taxes\n \n\n\nThe Company recorded a tax expense of approximately $1.0 million during fiscal 2022 compared to a tax expense of approximately $1.4 million during fiscal 2023. The Company\u2019s effective tax rate in fiscal 2022 was 25.9% compared to (4.3)% in fiscal 2023. For further discussion regarding income taxes see \n\u201cNote 7 \u2013 Income Taxes\u201d.\n \n\n\nLiquidity and Capital Resources\n \n\n\nThe Company\u2019s cash flows are summarized as follows:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year ended March 31,\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nCash provided by (used in):\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating activities\n\n\n\u00a0\n\n\n$\n\n\n(2,182\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n3,487\n\n\n\u00a0\n\n\n\n\n\n\nInvesting activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n29,894\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,862\n\n\n\u00a0\n\n\n\n\n\n\nFinancing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(32,033\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(35,551\n\n\n)\n\n\n\n\n\n\nNet increase (decrease) in cash\n\n\n\u00a0\n\n\n$\n\n\n(4,321\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(28,202\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\nOur major source of liquidity and capital is cash generated from our ongoing operations and our borrowing capacity under our Credit Facility.\n\n\nWe believe that our current cash balance, together with the future cash generated from operations and our borrowing capacity under our Credit Facility, will be sufficient to satisfy our requirements and plans for cash for the next 12 months. We also believe that future cash generated from operations and our borrowing capacity under our Credit Facility, will be sufficient to satisfy our requirements and plans for cash beyond the next 12 months. Our access to, and the availability of, financing on acceptable terms in the future will be affected by many factors including overall liquidity in the capital or credit markets, the state of the economy and our credit strength as viewed by potential lenders. We cannot provide assurances that we will have future access to the capital or credit markets on acceptable terms.\n\n\nOn January 18, 2023, Nicholas Financial and NDS (collectively, the \u201cBorrowers\u201d), two wholly-owned subsidiaries of Nicholas Financial-Canada, entered into a Loan and Security Agreement (the \u201cLoan Agreement\u201d) for a new senior secured revolving credit facility (the \u201cCredit Facility\u201d) with Westlake Capital Finance, LLC (the \u201cLender\u201d),\n \n\n\n35\n\n\n\n\n\u00a0\n\n\nwho is an affiliate of Westlake, the servicer of substantially all of the Company's receivables, pursuant to which the Lender is providing the Borrowers with a senior secured revolving credit facility in the principal amount of up to $50 million.\n\n\nThe availability of funds under the Credit Facility is generally limited to an advance rate of between 70% and 85% of the value of the Borrowers\u2019 eligible receivables. Outstanding advances under the Credit Facility will accrue interest at a rate equal to the secured overnight financing rate (SOFR) plus a specified margin, subject to a specified floor interest rate. Unused availability under the Credit Facility will accrue interest at a rate of 0.25% . The commitment period for advances under the Credit Facility is two years. We refer to the expiration of that time period as the \u201cMaturity Date.\u201d\n\n\nThe Loan Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, and sales of assets. The Loan Agreement also requires the Borrowers to maintain (i) a minimum tangible net worth equal to the lower of $40 million and an amount equal to 60% of the outstanding balance of the Credit Facility and (ii) an excess spread ratio of less than 8.0%.  Pursuant to the Loan Agreement, the Borrowers granted a security interest in substantially all of their assets as collateral for their obligations under the Credit Facility.  If an event of default occurs, the Lender could increase borrowing costs, restrict the Borrowers\u2019 ability to obtain additional advances under the Credit Facility, accelerate all amounts outstanding under the Credit Facility, enforce their interest against collateral pledged under the Loan Agreement or enforce such other rights and remedies as they have under the loan documents or applicable law as secured lenders.\n\n\nIf the Borrowers prepay the loan and terminate the Credit Facility prior to the Maturity Date, then the Borrowers would be obligated to pay the Lender a termination fee in an amount equal to a percentage of the average outstanding principal balance of the Credit Facility during the 90-day period immediately preceding such termination. If the Borrowers were to sell their accounts receivable to a third-party prior to the Maturity Date, then the Borrowers would be obligated to pay the Lender a fee in an amount equal to a specified percentage of the proceeds of such sale.\n\n\nThe proceeds of the Credit Facility were used in part to refinance the Company\u2019s existing indebtedness under the Loan and Security Agreement dated as of November 5, 2021 by and among the Borrowers, the lenders party thereto, and Wells Fargo Bank, N.A., as agent for lenders.\n\n\nOn May 27, 2020, the Company obtained a loan in the amount of $3.2 million from a bank in connection with the U.S. Small Business Administration\u2019s (\u201cSBA\u201d) Paycheck Protection Program (the \u201cPPP Loan\u201d). Pursuant to the Paycheck Protection Program, all or a portion of the PPP Loan may be forgiven if the Company used the proceeds of the PPP Loan for its payroll costs and other expenses in accordance with the requirements of the Paycheck Protection Program. The Company used the proceeds of the PPP Loan for payroll costs and other covered expenses and sought full forgiveness of the PPP Loan. The Company submitted a forgiveness application to Fifth Third Bank, the lender, on December 7, 2020 and submitted supplemental documentation on January 16, 2021. On December 27, 2021 SBA informed the Company that no forgiveness was granted. The Company filed an appeal with SBA on January 5, 2022. On May 6, 2022 the Office of Hearing and Appeals SBA (OHA) rendered a decision to deny the appeal. The Company subsequently repaid the outstanding principal of $3.2 million plus accrued and unpaid interest of $65 thousand on May 23, 2022.\n\n\nThe Company is currently evaluating its capital allocation goals and may in the future decide to change its mix of capital resources in an effort to achieve a higher dollar value of receivables for every dollar of equity capital invested.  To do so, the Company may, if so agreed with its lender, distribute future excess profits generated at its U.S. subsidiaries to the Company, or reinvest excess equity capital into its U.S. subsidiaries when opportunities warrant.  In addition, the Company may determine to continue its share repurchases at a higher volume than previously and/or acquire businesses or assets that are related or unrelated to its current business, including securities in publicly-held companies.   However, the Company is not limited to these alternatives.  In addition, the Company may determine not to pursue these or any other alternatives to change its capital allocation, for example because it determines that such path is not prudent in light of legal and tax requirements applying to the Company as a British Columbia company listed in the United States with primarily United States shareholders and, through its U.S. subsidiaries, exclusively United States operations.\n\n\n36\n\n\n\n\n\u00a0\n\n\nImpact of Inflation\n \n\n\nThe Company is affected by inflation primarily through increased operating costs and expenses including increases in interest rates. Inflationary pressures on operating costs and expenses historically have been largely offset by the Company\u2019s continued emphasis on stringent operating and cost controls, although no assurances can be given regarding the Company\u2019s ability to offset the effects of inflation in the future. Management believes the rise in inflation can impact the subprime borrower due to rising cost of housing, consumer goods, gas prices, etc. and believes it could have an impact on the performance and collectability of the portfolio.\n\n",
+  "item7a": ">Item 7A. Quantitative and Qualitat\nive Disclosure About Market Risk\n\n\nNot applicable.\n \n\n\n37\n\n\n\n\n\u00a0\n\n",
+  "cik": "1000045",
+  "cusip6": "65373J",
+  "cusip": ["65373J209"],
+  "names": ["NICHOLAS FINL INC BC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1000045/000095017023030037/0000950170-23-030037-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\n Business\n\n\nDescription of Business\n\n\nWe are a leading global supplier of custom engineered solutions with sales, engineering and manufacturing locations in North America, Europe, Middle East and Asia. We design, engineer and produce mechatronic products for Original Equipment Manufacturers (\u201cOEMs\u201d) utilizing our broad range of technologies for user interface, light-emitting diode (\u201cLED\u201d) lighting system, power distribution and sensor applications.\n \n\n\nOur solutions are found in the end markets of transportation (including automotive, commercial vehicle, e-bike, aerospace, bus and rail), cloud computing infrastructure, construction equipment, consumer appliance and medical devices.\n \n\n\nAcquisition of Nordic Lights Group Corporation\n\n\nOn April 20, 2023, we acquired 92.2% of the outstanding shares in Nordic Lights Group Corporation (\u201cNordic Lights\u201d) for  \u20ac121.8 million ($134.2 million) in cash. Nordic Lights is a premium provider of high-quality lighting solutions for heavy duty equipment and a public limited liability company incorporated in Finland with its shares admitted to trading on Nasdaq First North. The acquisition complements our own existing LED lighting solutions. In addition, the business aligns well with our inorganic growth framework given its focus on engineered solutions for OEMs, its industrial and non-auto transportation market exposure, and its customer and geographic diversity.\n \n\n\n From May 1, 2023 to June 16, 2023, we acquired an additional 7.2% of the outstanding shares of Nordic Lights for \u20ac9.3 million ($10.2 million) resulting in a current ownership of 99.4%. In May 2023, we initiated compulsory redemption proceedings for all remaining shares in Nordic Lights in accordance with Chapter 18 of the Finnish Companies Act. We expect the redemption proceedings to be completed by October 31, 2023. See Note 3, \u201cAcquisition\u201d to our consolidated financial statements in this Annual Report for further information.\n \n\n\nFiscal Year\n\n\nWe maintain our financial records on the basis of a 52 or 53-week fiscal year ending on the Saturday closest to April 30. Fiscal 2023 ended on April 29, 2023, fiscal 2022 ended on April 30, 2022 and fiscal 2021 ended on May 1, 2021, and each represented 52 weeks of results.\n\n\nOperating Segments\n \n\n\nOur business is managed, and our financial results are reported, based on the following four segments: Automotive, Industrial, Interface and Medical. See Note 15, \u201cSegment Information and Geographic Area Information\u201d to our consolidated financial statements in this Annual Report for further information.\n\n\nThe Automotive segment supplies electronic and electro-mechanical devices and related products to automobile OEMs, either directly or through their tiered suppliers. Our products include integrated center consoles, hidden switches, ergonomic switches, transmission lead-frames, complex insert molded solutions, LED-based lighting solutions, and sensors which incorporate magneto-elastic sensing, eddy current or other sensing technologies that monitor the operation or status of a component or system.\n\n\nThe Industrial segment manufactures external lighting solutions, including driving, work, and signal lights, industrial safety radio remote controls, braided flexible cables, current-carrying laminated and powder-coated busbars, high-voltage high current connector and contracts, custom power-product assemblies, such as our PowerRail\u00ae solution, high-current low-voltage flexible power cabling systems that are used in various markets and applications, including aerospace, cloud computing, commercial vehicles, construction equipment, industrial, military, power conversion and transportation.\n\n\nThe Interface segment provides a variety of copper-based transceivers and related accessories for the cloud computing hardware equipment and telecommunications broadband equipment markets, user interface solutions for the appliance, commercial food service, and point-of-sale equipment markets, and fluid-level sensors for the marine/recreational vehicle and sump pump markets.\n\n\nThe Medical segment is made up of our medical device business, Dabir Surfaces, Inc. (\u201cDabir Surfaces\u201d), our surface support technology aimed at pressure injury prevention. Dabir Surfaces has developed the technology for use by patients who are immobilized or otherwise at risk for pressure injuries, including patients undergoing long-duration surgical procedures.\n\n\nThe following table reflects the percentage of net sales by segment for the last three fiscal years.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 29, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 1, 2021\n\n\n\u00a0\n\n\n\n\n\n\nAutomotive\n\n\n\u00a0\n\n\n\u00a0\n\n\n62.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n67.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n69.4\n\n\n%\n\n\n\n\n\n\nIndustrial\n\n\n\u00a0\n\n\n\u00a0\n\n\n32.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n27.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n24.6\n\n\n%\n\n\n\n\n\n\nInterface\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.7\n\n\n%\n\n\n\n\n\n\nMedical\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.3\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nSales and Marketing\n\n\nThe majority of our sales activities are directed by sales managers who are supported by field application engineers and other technical personnel who work with customers to design our products into their systems. Our field application engineers also help us identify emerging markets and new products. Our products are primarily sold through our in-house sales staff. We also utilize independent manufacturers\u2019 and sales representatives with offices throughout the world. Information about our sales and operations in different geographic regions is summarized in Note 15, \u201cSegment Information and Geographic Area Information\u201d to our consolidated financial statements in this Annual Report. Sales are made primarily to OEMs, either directly or through their tiered suppliers, as well as to selling partners and distributors.\n\n\nSources and Availability of Materials\n\n\nThe principal materials that we purchase include application-specific integrated circuits, coil and bar stock, ferrous and copper alloy sheets, glass, LED displays, plastic molding resins, capacitors and resistors, precious metals, and silicon die castings. All of these items are available from several suppliers and we generally rely on more than one supplier for each item.\n\n\nRefer to Item 1A. \u201cRisk Factors\u201d in this Annual Report for risks related to supply chain issues, including the worldwide semiconductor supply shortage.\n \n\n\nIntellectual Property\n\n\nWe generally rely on patents, trade secrets, trademarks, licenses, and non-disclosure agreements to protect our intellectual property and proprietary products. We have been granted a number of patents in the U.S., Europe and Asia and have additional domestic and international patent applications pending related to our products. Our existing patents expire on various dates between 2023 and 2043. We seek patents in order to protect our interest in unique and critical products and technologies, including our magneto-elastic torque/force sensing, current sensing, displacement sensing, medical devices and radio-type products. We do not believe any single patent is material to our business, nor would the expiration or invalidity of any patent have a material adverse effect on our business or our ability to compete.\n\n\nSeasonality\n\n\nA significant portion of our business is dependent upon the automotive and commercial vehicle industries. Consequently, our Automotive and Industrial segments may experience seasonal fluctuations based on the sales and the production schedules of our customers.\n \n\n\nMajor Customers\n \n\n\nDuring fiscal 2023, our five largest customers accounted for approximately 49% of our consolidated net sales. Two customers in the Automotive segment represented more than 10% of our consolidated net sales at 18.7% and 10.8%. In general, these sales were for component parts used in particular vehicle models. Typically, our supply arrangement for each component part includes a blanket purchase order and production releases. In general, a blanket purchase order is issued for each part as identified by the customer part number. Each blanket purchase order includes standard terms and conditions, including price. In certain circumstances, we supply the requirements for a particular customer vehicle model for the life of the model, which can vary from three to seven years. Our customers order parts using production releases approved under the relevant blanket purchase order. The production releases include information regarding part quantities and delivery specifications.\n\n\nBacklog\n\n\nWe manufacture products based on a combination of specific order requirements and forecasts of our customers\u2019 demand. For many of our OEM customers, especially in the automotive and commercial vehicle markets, we have long-term supply arrangements where there is an expectation that we will supply products in future periods. However, these arrangements do not necessarily constitute firm orders and these OEM customers are not required to purchase any minimum amount of products from us and can sunset a program at any time. Firm orders are generally limited to authorized customer purchase orders which are typically based on customer release schedules. We fulfill these purchase orders as promptly as possible. We do not consider the dollar amount of such purchase order releases on hand and not processed at any point in time to be significant based upon the time frame involved. Accordingly, backlog at any given time might not be a meaningful indicator of future revenue.\n\n\nCompetition\n\n\nThe markets in which we operate are highly competitive and characterized by rapid changes due to technological improvements and developments. We compete with a large number of other manufacturers in each of our product areas and many of these competitors have greater resources and sales. Price, service and product performance are significant elements of competition in the sale of our products.\n\n\n3\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nResearch and Development\n \n\n\nWe maintain a research and development program involving a number of professional employees who devote a majority of their time to the enhancement of existing products and to the development of new products and processes. Research and development costs primarily relate to product engineering and design and development expenses and are classified as a component of costs of products sold on our consolidated statements of income. Expenditures for such activities amounted to $35.0 million for fiscal 2023, $35.7 million for fiscal 2022 and $37.1 million for fiscal 2021.\n\n\nGovernment Regulations\n\n\nOur worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments. Compliance with these laws, rules, and regulations has not had a material effect upon our capital expenditures, results of operations, or competitive position, and we do not currently anticipate material capital expenditures for environmental control facilities. Nevertheless, compliance with existing or future governmental regulations, including, but not limited to, those pertaining to international operations, environmental matters (including climate change), export controls, business acquisitions, consumer and data protection, employee health and safety, and regional quarantine requirements, could have a material impact on our business in subsequent periods. Refer to Item 1A. \u201cRisk Factors\u201d in this Annual Report for a discussion of these potential impacts.\n\n\nHuman Capital\n \n\n\nThe Human Resources function at Methode is an active and visible partner to the business at all levels. Our Chief Human Resources Officer reports directly to the Chief Executive Officer and interacts frequently with our Board of Directors. In fiscal 2024, our human capital focus will continue to be on talent acquisition and development, diversity and inclusion and employee health and safety.\n \n\n\nAs of April 29, 2023, we employed approximately 6,700 employees worldwide, substantially all of whom were employed full time with approximately 94% of these employees located outside the U.S. Our U.S. employees are not subject to any collective bargaining agreements although certain international employees are covered by national or local labor agreements.\n \n\n\nOur corporate culture is committed to doing business with integrity, teamwork, and performance excellence. Our management team and all our employees are expected to exhibit the principles of fairness, honesty, and integrity in the actions we undertake. Our employees must adhere to our Code of Conduct that addresses topics such as anti-corruption, discrimination, harassment, privacy, appropriate use of company assets and protecting confidential information. Our employees participate in annual training on preventing, identifying, reporting, and stopping any type of unlawful discrimination or unethical actions.\n\n\nTalent Acquisition, Development and Succession Planning\n\n\nWe strive to build a diverse and inclusive workforce through investments in talent development and retention strategies. Methode is an Equal Opportunity Employer and offers opportunities to all qualified job seekers. We focus significant attention on attracting and retaining talented and experienced individuals to manage and support our operations. When we hire new employees, we focus not just on the skills required for current positions, but the ever-changing complex skills and competencies that will be required as we move forward.\n \n\n\nWe have a global talent review and succession planning process designed to align our talent plans with the current and future strategies of the business. This includes the identification of key positions, assessment of internal talent and potential successors and plans for talent development. Our teams meet with leaders and team members across the company to develop action plans and goals focused on both personal and professional development.\n \n\n\nDiversity and Inclusion\n\n\nAt Methode Electronics, we strive to maintain a diverse and inclusive workforce that reflects our global customer base and the communities that we serve. We value every member of our workforce and want everyone to feel safe voicing their opinions and concerns. Our diversity goals apply to our entire organization, including leadership positions. We have diverse representation on our executive team and Board of Directors, with three out of twelve Board members being women.\n\n\nAs highlighted in our Diversity & Inclusion Statement (available on our corporate website), diversity and inclusion are business imperatives that will enable us to build and empower our future workforce. We embrace the diversity of our employees, including their unique backgrounds, experiences, thoughts, and talents. We also strive for diversity in leadership, which has the power to drive innovation and to encompass a wide variety of perspectives in company decision-making. We believe that an increased focus on diversity and inclusion will make us a more desirable workplace and will lead to improved business performance.\n\n\n4\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nHealth and Safety\n\n\nThe success of our business is connected to the well-being of our employees. We strive to maintain a work environment with a safety culture grounded on the premise of eliminating workplace incidents, risks, and hazards. We have processes to help eliminate safety events and to reduce their frequency and severity. The safety of our employees is a top priority and vital to our success and our employees are trained on safety-related topics.\n \n\n\nAs a global business, the communication on Environmental, Health and Safety (\u201cEHS\u201d) matters is conducted at the local level and in the local language. All our manufacturing locations structure compliance initiatives to adhere to their local environmental health and safety requirements. Site personnel provide new employee orientation and typically contractor induction training where relevant. Thereafter, relevant job-specific training is provided. Our site EHS personnel are also involved in the development of global EHS procedures and standards.\n \n\n\nBenefits and Compensation\n\n\nAs part of our efforts to attract and motivate our employees, we offer competitive compensation and benefits that may vary by region and employee-type. We provide compensation packages that include base salary/wages, and short and long-term incentives. We also provide employee benefits such as life, disability, and health (medical, dental, and vision) insurance, a 401(k) plan with a company match, paid time off, tuition reimbursement, military leave, and holiday pay. We believe those benefits are competitive within our industry.\n\n\nAvailable Information\n \n\n\nThrough our internet website at \nwww.methode.com\n, we make available, free of charge, copies of our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports, and other filings with the Securities and Exchange Commission (\u201cSEC\u201d), as soon as reasonably practicable after they are filed or furnished to the SEC. Our filings are also available on the SEC\u2019s website at \nwww.sec.gov\n. Also posted on our website, among other documents, are our Corporate Governance Guidelines, Code of Business Conduct, Anti-Corruption Policy, Insider Trading Policy, Conflict Minerals Policy, Supplier Code of Conduct and other governance policies, and the charters of the Audit Committee, Compensation Committee, Medical Products Committee, Nominating and Governance Committee and Technology Committee. Copies of these documents are also available free of charge by sending a request to Methode Electronics, Inc., 8750 West Bryn Mawr Avenue, Suite 1000, Chicago, Illinois 60631, Attention: Investor Relations Department. The references in this Annual Report to our website address or any third party\u2019s website address, including but not limited to the SEC\u2019s website, do not constitute incorporation by reference of the information contained in those websites and should not be considered part of this document unless otherwise expressly stated.\n\n",
+  "item1a": ">Item 1A. Ri\nsk Factors\n \n\n\nOur business, financial condition and results of operations are subject to various risks, including, but not limited to, those set forth below, which could cause actual results to vary materially from recent results or from anticipated future results. These risk factors should be considered together with information included elsewhere in this Annual Report.\n\n\n \n\n\nOperational and Industry Risks\n\n\nThe inability of our supply chain, or the supply chain of our customers, to deliver key components, such as semiconductors, could materially adversely affect our business, financial condition and results of operations and cause us to incur significant cost increases.\n\n\nOur products contain a significant number of components that we source globally. If our supply chain fails to deliver products to us, or to our customers, in sufficient quality and quantity on a timely basis, we will be challenged to meet our production schedules or could incur significant additional expenses for expedited freight and other related costs. Similarly, many of our customers are dependent on an ever-greater number of global suppliers to manufacture their products. These global supply chains have been, and may continue to be, adversely impacted by events outside of our control, including macroeconomic events, trade restrictions, economic recessions, energy prices and availability, political crises, labor relations issues, liquidity constraints, or natural occurrences. Any significant disruptions to such supply chains could materially adversely affect our business, financial condition and results of operations.\n\n\nMany of the industries we supply, including the automotive and commercial vehicle industries, are reliant on semiconductors. Globally, there is still some disruption in procuring certain semiconductors. The semiconductor supply chain is complex, with capacity constraints occurring throughout. There is significant competition within the automotive and commercial vehicle supply chains and with other industries to satisfy current and near-term requirements for semiconductors. We have worked and will continue to work closely with our suppliers and customers to minimize any potential adverse impacts of the semiconductor supply shortage and monitor the availability of semiconductor microchips and other component parts and raw materials, customer production schedules and any other supply chain inefficiencies that may arise. However, if we are not able to mitigate the semiconductor shortage impact, any direct or indirect supply chain disruptions may have a material adverse impact on our business, financial condition and results of operations.\n\n\n5\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nWe have experienced and may in the future experience supplier price increases that could negatively affect our business, financial condition and results of operations. The price increases are often driven by raw material pricing and availability, component or part availability, manufacturing capacity, industry allocations, logistics capacity, military conflicts, natural disasters or pandemics, and significant changes in the financial or business condition of our suppliers.\n\n\nThe COVID-19 pandemic has adversely affected, and may continue to adversely affect, our business, financial condition and results of operations. The extent of the effects of the COVID-19 pandemic or another future pandemic on our business depends on future events that continue to be highly uncertain and beyond our control.\n\n\nThe COVID-19 pandemic has had, and another pandemic in the future could have, a significant impact on our business, financial condition and results of operations. The COVID-19 pandemic, which began during our 2020 fiscal year, negatively impacted the global economy, disrupted consumer and customer demand and global supply chains, and created significant volatility and disruption of financial markets.  In response, many governmental authorities throughout the world implemented numerous measures aimed at containing and mitigating the effects of the COVID-19 pandemic, including travel bans and restrictions, quarantines, social distancing orders, \u201clock-down\u201d orders and shutdowns of non-essential activities. Although most of these measures have been lifted, they may be reinstated in the future in response to COVID-19 or future pandemics, endemics, or health emergencies. In fiscal 2023, COVID-19 outbreaks in China resulted in local or regional government-imposed lockdowns and restrictions, which impacted our manufacturing operations, customer production schedules and supply chains.\n \n\n\nWhile much of our customer demand and shipments have recovered from the impact of the COVID-19 pandemic, the extent to which any resurgence of the pandemic or other public health emergencies in the future impact our business will depend on a number of evolving factors, all of which are highly uncertain and cannot be predicted, including actions taken by governmental authorities to restrict business operations and social activity and impose travel restrictions, shifting consumer demand, the ability of our supply chain to deliver in a timely and cost-effective manner, the ability of our employees and manufacturing facilities to operate efficiently and effectively, the continued viability and financial stability of our customers and suppliers and future access to capital.\n\n\nThe COVID-19 pandemic and measures to reduce its spread may also impact many of our other risk factors discussed in this Annual Report, including customer demand, supply chain disruptions, availability of financing sources and risks of international operations. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business, financial condition and results of operations.\n\n\nWe are susceptible to trends and factors affecting the automotive and commercial vehicle industries.\n\n\nWe derive a substantial portion of our revenues from customers in the automotive and commercial vehicle industries. Factors negatively affecting these industries also negatively affect our business, financial condition and results of operations. Automotive sales and production are highly cyclical and, in addition to general economic conditions, also depend on other factors, such as consumer confidence and consumer preferences. Any adverse occurrence, including industry slowdowns, recession, rising interest rates, rising fuel costs, political instability, costly or constraining regulations, armed hostilities, terrorism, excessive inflation, prolonged disruptions in one or more of our customers\u2019 production schedules or labor disturbances or work stoppages, that results in a significant decline in sales volumes in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely affect our business, financial condition and results of operations.\n \n\n\nOur business, financial condition and results of operations may be adversely impacted by the effects of inflation.\n\n\nInflation has the potential to adversely affect our business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. There have been recent significant inflationary trends in the cost of components, materials, labor, freight costs and other expenses. These inflationary pressures could affect wages, the cost and availability of components and materials, and our ability to meet customer demand. Inflation may further exacerbate other risk factors discussed in this Annual Report, including customer demand, supply chain disruptions, availability of financing sources, and risks of international operations and the recruitment and retention of talent.\n\n\n6\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nThe loss or insolvency of our major customers, or a significant decline in the volume of products purchased by these customers, would adversely affect our future results.\n \n\n\nOur five largest customers accounted for approximately 49% of our consolidated net sales in fiscal 2023. Two customers in the Automotive segment represented more than 10% of our consolidated net sales at 18.7% and 10.8%. In certain cases, the sales to these customers are concentrated in a single product. The arrangements with our major customers generally provide for supplying their requirements for particular models, rather than for manufacturing a specific quantity of products. Such supply arrangements cover a period from one year to the life of the model, which is generally three to seven years. The loss of our major customers, or a decline in the production levels of these customers or particular models, could reduce our sales and thereby adversely affect our financial condition, operating results and cash flows. We also compete to supply products for successor models for our major customers and are subject to the risk that the customer will not select us to produce products on any such successor model, which could have a material adverse impact on our financial condition, operating results and cash flows. For example, we expect a significant program for a major EV customer to sunset in fiscal 2024.\n\n\nOur supply agreements with our OEM customers are generally requirements contracts, and a decline in the production requirements of any of our customers, and in particular our largest customers, could adversely impact our revenues and profitability.\n\n\nWe receive OEM purchase orders for specific components supplied for particular vehicles. In most instances our OEM customers agree to purchase their requirements for specific products but are not required to purchase any minimum amount of products from us. The contracts we have entered into with most of our customers have terms ranging from one year to the life of the model (usually three to seven years), although customers often reserve the right to terminate for convenience. Therefore, a significant decrease in demand for certain key models or group of related models sold by any of our major customers or the ability of a manufacturer to re-source and discontinue purchasing from us, for a particular model or group of models, could have a material adverse effect on us. For example, we expect a significant program for a major EV customer to sunset in fiscal 2024. To the extent that we do not maintain our existing level of business with our largest customers because of a decline in their production requirements or because the contracts expire or are terminated for convenience, we will need to attract new customers or win new business with existing customers, or our results of operations and financial condition will be adversely affected.\n\n\nOur inability to attract or retain key employees and a highly skilled workforce may have an adverse effect on our business, financial condition and results of operations.\n\n\nOur success depends upon the continued contributions of our executive officers and other key employees, many of whom have many years of experience with us and would be extremely difficult to replace. We must also attract and retain experienced and highly skilled engineering, sales and marketing and managerial personnel. Competition for qualified personnel is intense in our industries, and we may not be successful in hiring and retaining these people. If we lost the services of our executive officers or our other highly qualified and experienced employees or cannot attract and retain other qualified personnel, our business could suffer due to less effective management or less successful products due to a reduced ability to design, manufacture and market our products.\n\n\nPart of our workforce is unionized which could subject us to work stoppages.\n\n\nA portion of our workforce is unionized, primarily in Mexico and Finland. A prolonged work stoppage or strike at any facility with unionized employees could increase costs and prevent us from supplying customers. In addition, upon the expiration of existing collective bargaining agreements, we may not reach new agreements without union or works council action in certain jurisdictions, and any such new agreements may not be on terms satisfactory to us. If we are unable to negotiate acceptable collective bargaining agreements, we may become subject to union-initiated work stoppages, including strikes. Moreover, additional groups of currently non-unionized employees may seek union or works council representation in the future.\n\n\n7\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nThe global nature of our operations subjects us to political, economic and social risks that could adversely affect our business, financial condition and results of operations.\n\n\nSales to customers outside of the U.S. represented a substantial portion of our fiscal 2023 net sales. We expect our net sales in international markets to continue to represent a significant portion of our consolidated net sales. In addition, we have significant personnel, property, equipment and operations in a number of countries outside of the U.S., including Belgium, Canada, China, Egypt, Finland, India, Malta, Mexico and the United Kingdom. As of April 29, 2023, approximately 94% of our employees were located outside of the U.S. Our international operations subject us to a variety of political, economic, social and other risks, including:\n\n\n\u2022\ndiffering labor regulations and practices, including various minimum wage regulations;\n\n\n\u2022\nchanges in government policies, regulatory requirements and laws, including taxes, impacting our ability to manufacture, purchase or sell our products; \n\n\n\u2022\nfluctuations in currency exchange rates; \n\n\n\u2022\npolitical and economic instability (including changes in leadership and acts of terrorism and outbreaks of war); \n\n\n\u2022\nlonger customer payment cycles and difficulty collecting accounts receivable;\n\n\n\u2022\nexport duties, import controls, tariffs, and trade barriers (including quotas, sanctions and border taxes); \n\n\n\u2022\ngovernmental restrictions on the transfer of funds, including U.S. restrictions on the amount of cash that can be transferred to the U.S. without taxes or penalties; \n\n\n\u2022\ndiffering protections for our intellectual property; \n\n\n\u2022\ndiffering requirements under the various anti-bribery and anti-corruption regulations, including to the U.S. Foreign Corrupt Practices Act, the United Kingdom Bribery Act and the China Anti-Unfair Competition Law; \n\n\n\u2022\ncoordinating communications and logistics across geographic distances and multiple time zones; and\n\n\n\u2022\nrisk of governmental expropriation of our property. \n\n\nMany of the laws and regulations listed above are complex and often difficult to interpret and violations could result in significant criminal penalties or sanctions. Any of these factors may have an adverse effect on our international operations which could have a material adverse effect on our business, financial condition and results of operations.\n\n\nWe are dependent on the availability and price of raw materials.\n\n\nWe require substantial amounts of materials, including application-specific integrated circuits, coil and bar stock, ferrous and copper alloy sheets, extrusions, glass, LED displays, plastic molding resins, precious metals, silicon die castings and wire. The availability and prices of materials may be subject to curtailment or change due to, among other things, inflation, new laws or regulations, suppliers\u2019 allocations to other purchasers, supply chain disruptions, changes in exchange rates and worldwide price levels. Any change in the availability of, lead times for, or price for, these materials could materially adversely affect our business, financial condition and results of operations.\n\n\nOur inability, or our customers\u2019 inability, to effectively manage the timing, quality and cost of new program launches could adversely affect our financial performance.\n\n\nIn connection with the awarding of new business, we obligate ourselves to deliver new products that are subject to our customers' timing, performance and quality demands. Additionally, we must effectively coordinate the activities of numerous suppliers and our customers\u2019 personnel in order for the program launches of certain of our products to be successful. Given the complexity of new program launches, we may experience difficulties managing product quality, timeliness and associated costs. In addition, new program launches require a significant ramp up of costs; however, our sales related to these new programs generally are dependent upon the timing and success of our customers' introduction of new products. Our inability, or our customers' inability, to effectively manage the timing, quality and costs of these new program launches could adversely affect our financial condition and results of operations.\n\n\nOver the last several fiscal years, we have booked many EV-related programs. If we are unable to launch new products in a timely and cost-effective manner, our business, financial condition and results of operations could be materially adversely affected.\n\n\n8\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nOur businesses and the markets in which we operate are highly competitive and constantly evolving. If we are unable to compete effectively, our sales and profitability could decline.\n\n\nThe markets in which we operate are highly competitive. We compete with a large number of other manufacturers in each of our product areas and many of these competitors have greater resources and sales. Price, service and product performance are significant elements of competition in the sale of our products. Competition may intensify further if more companies enter the markets in which we operate. Our failure to compete effectively could have a material adverse effect on our business, financial condition and results of operations.\n\n\nThe global transportation industry is increasingly focused on the development of more fuel-efficient solutions, including electrification, to meet demands from consumers and governments worldwide to address climate change and an increased desire for environmentally sustainable solutions. If we do not respond appropriately, the evolution toward electrification and other energy sources could adversely affect our business. The evolution of the industry toward electrification has also attracted increased competition from entrants outside of the traditional automotive and commercial vehicle industries, some of whom may seek to provide products which compete with ours. Failure to innovate and to develop or acquire new and compelling products that capitalize upon new technologies in response to these evolving consumer preferences and demands could adversely affect our financial condition, operating results and cash flows.\n\n\nFuture price reductions and increased quality standards may reduce our profitability and have a material adverse effect on our business, financial condition and results of operations.\n\n\nOur supply arrangements with our customers typically require us to provide our products at predetermined prices. In some cases, these prices decline over the course of the arrangement and may require us to meet certain productivity and cost reduction targets. In addition, our customers may require us to share productivity savings in excess of our cost reduction targets. The costs that we incur in fulfilling these orders may vary substantially from our initial estimates. Unanticipated cost increases or the inability to meet certain cost reduction targets may occur as a result of several factors, including increases in the costs of labor, components or materials. In some cases, we are permitted to pass on to our customers the cost increases associated with specific materials. However, cost overruns that we cannot pass on to our customers could adversely affect our business, financial condition and results of operations.\n\n\nCertain of our customers have exerted and continue to exert considerable pressure on us to reduce prices and costs, improve quality and provide additional design and engineering capabilities. We may be unable to generate sufficient production cost savings in the future to offset required price reductions. Future price reductions, increased quality standards and the cost of adding additional engineering capabilities may reduce our profitability and have a material adverse effect on our business, financial condition and results of operations.\n\n\nOur ability to market our automotive and commercial vehicle products is subject to a lengthy sales cycle, which requires significant investment prior to reporting significant sales revenues, and there is no assurance that our products will be implemented in any particular vehicle.\n\n\nThe sales cycles for our automotive and commercial vehicle products are lengthy because the manufacturers must develop high degrees of assurance that the products they buy will meet their needs, interface correctly with the other parts of a vehicle and with the manufacturer\u2019s production and assembly process, and have minimal warranty, safety and service problems. While we currently have active development programs with various OEMs for a variety of our products, no assurance can be given that our products will be implemented in any particular vehicles. If our products are not selected after a lengthy development process, our business, financial condition and results of operations could be adversely affected.\n\n\nOur inability to capitalize on prior or future acquisitions or any decision to strategically divest one or more current businesses may adversely affect our business, financial condition and results of operations.\n\n\nWe have completed acquisitions and divestitures in the past, including most recently the acquisition of Nordic Lights in April 2023. We intend to continue to seek acquisitions to grow our businesses and may divest operations to focus on our core businesses. We may fail to derive significant benefits from such transactions. Also, if we fail to achieve sufficient financial performance from an acquisition, certain long-lived assets, such as property, plant and equipment and intangible assets, could become impaired and result in the recognition of an impairment loss.\n\n\nThe success of our acquisitions depends on our ability to:\n\n\n\u2022\nexecute the integration or consolidation of the acquired operations into our existing businesses;\n\n\n\u2022\ndevelop or modify the financial reporting and information systems of the acquired entity to ensure overall financial integrity and adequacy of internal control procedures;\n\n\n\u2022\nretain key personnel and key customers;\n\n\n\u2022\nidentify and take advantage of cost reduction opportunities; and\n\n\n\u2022\nfurther penetrate new and existing markets with the product capabilities we may acquire.\n\n\n9\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nIntegration of acquisitions may take longer than we expect and may never be achieved to the extent originally anticipated. Acquisitions may also increase our debt levels. This could result in lower than expected business growth or higher than anticipated costs. In addition, acquisitions or strategic divestitures may:\n\n\n\u2022\ncause a disruption in our ongoing business;\n\n\n\u2022\ncause dilution of our common stock;\n\n\n\u2022\ndistract our management from other ongoing business concerns; or\n\n\n\u2022\nunduly burden other resources in our company.\n\n\nOur profitability will suffer if we are unable to successfully integrate an acquisition, if the acquisition does not further our business strategy as we expected or if we do not achieve sufficient revenue to offset the increased expenses associated with any acquisition. We may overpay for, or otherwise not realize the expected return on, our investments, which could adversely affect our operating results and potentially cause impairments to assets that we record as a part of an acquisition including intangible assets and goodwill.\n\n\nOur customers may cancel their orders, change production quantities or locations or delay production.\n\n\nWe generally receive volume estimates, but not firm volume commitments from our customers, and may experience reduced or extended lead times in customer orders. Customers may cancel orders, change production quantities and delay production for a number of reasons. Cancellations, reductions or delays by a significant customer or by a number of customers may harm our results of operations by reducing the volumes of products we manufacture and sell, as well as by causing a delay in the recovery of our expenditures for inventory in preparation for customer orders, or by reducing our asset utilization, resulting in lower profitability.\n\n\nIn addition, we make key decisions based on our estimates of customer requirements, including determining the levels of orders that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements. Changes in demand for our customers\u2019 products may reduce our ability to estimate future customer requirements accurately. This may make it difficult to schedule production and maximize utilization of our manufacturing capacity. Anticipated orders may not materialize and delivery schedules may be deferred as a result of changes in demand for our products or our customers\u2019 products. We often increase staffing and capacity and incur other expenses to meet the anticipated demand of our customers. On occasion, customers may require rapid increases in production, which may stress our resources. Any significant decrease or delay in customer orders could have a material adverse effect on our business, financial condition and results of operations.\n\n\nWe manage our business based on projected future sales volume, which is highly dependent on information received from customers and general market data, and any inaccuracies or changes in such information could adversely affect our business, results of operations and financial condition.\n\n\nWe manage our business based upon projected future sales volumes, which are based upon many factors, including awarded business and assumptions of conversion rates thereof, customers\u2019 forecasts and general macroeconomic and industry market data. Our product revenues generally are based upon purchase orders issued by our customers, with updated production schedules for volume adjustments, and our customers generally do not guarantee sales volumes. As such, we typically do not have a backlog of firm orders at any point in time. In addition, awarded business may include business under arrangements that our customers have the right to terminate without penalty at any time. Further, our customers\u2019 forecasts are subject to numerous assumptions, and such forecasts often are changed rapidly with limited notice. Therefore, our actual sales volumes, and thus the ultimate amount of revenue that we derive from such sales, are not committed. We also must incur costs and make commitments well in advance of the receipt of orders and resulting revenues from customers. If actual production orders from our customers are not consistent with our projected future sales volumes, we could realize substantially less revenue and incur greater expenses over the life of vehicle programs. The receipt of orders and resulting revenues from customers is significantly affected by global automotive production levels.\n\n\n10\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nThe rate of adoption of EV\u2019s will have a significant impact on our business and the adoption cadence will inject additional variability to our forecasts\n\n\nOver the last several fiscal years, we have booked many EV-related programs, many of which will launch over our next three fiscal years. The accuracy of our forecasts will be impacted by the EV adoption rates in general and the take rate experienced by each of our OEM customers. Any significant variation in the adoption or take rates at our customers could impact the accuracy of our forecasts and could have a material adverse effect on our business, financial condition and results of operations.\n\n\nCertain of our EV customers are start-up or emerging companies which may present additional and different risks than with our more established customers. These customers do not have an extensive product history. As a result, there is less demonstration of market acceptance of their products, making it more difficult for us to forecast needs and requirements than with established customers. In addition, funding for such companies may be more difficult to obtain and these customer relationships may not continue or materialize to the extent we plan or previously experienced. This tightening of financing for start-up customers, together with many start-up customers\u2019 lack of prior operations and unproven product markets increase our credit risk, especially in trade accounts receivable and inventories. Although we perform ongoing credit evaluations of our customers and adjust our allowance for doubtful accounts receivable for all customers, including start-up customers and emerging companies, based on the information available, these allowances may not be adequate.\n \n\n\nA catastrophic event or other significant business interruption at any of our facilities could adversely affect our business, financial condition and results of operations.\n\n\nWeather conditions, natural disasters or other catastrophic events could cause significant disruptions at our manufacturing facilities or those of our major suppliers or customers. In such event, losses could be incurred and significant recovery time could be required to resume operations and our business, financial condition and results of operations could be materially adversely affected.\n\n\nWar, terrorism, geopolitical uncertainties (including the current military conflict between Russia and Ukraine), public health issues (such as the COVID-19 pandemic), and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on us, our suppliers, logistics providers, and customers. Our business operations could be subject to interruption by power shortages, terrorist attacks and other hostile acts, labor disputes, population lockdowns and other events beyond our control. Such events could decrease demand for our products or make it difficult or impossible for us to produce and deliver products to our customers, or to receive components from our suppliers. Should major public health issues, including pandemics, arise, we could be negatively affected by shutdowns, shelter in place orders, more stringent travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, and disruptions in the operations of our manufacturing partners and component suppliers. Any such business interruptions could materially affect our business, financial condition and results of operations.\n\n\nRussia\u2019s invasion of Ukraine and the resulting economic sanctions imposed by the international community have impacted the global economy and given rise to potential global security issues that may adversely affect international business and economic conditions. Although we have no operations in Russia or Ukraine, certain of our customers and suppliers have been negatively impacted by these events, which in turn has impacted markets where we do business, including Europe and Asia. These events have caused additional disruption in the supply chains, which were already experiencing disruption due to the impacts of the COVID-19 pandemic and may continue to impact demand for our products. The continuation of the military conflict between Russia and Ukraine could lead to other supply chain disruptions, increased inflationary pressures, and volatility in global markets and industries that could negatively impact our operations.\n \n\n\n \n\n\n11\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nTechnology and Intellectual Property Risks\n\n\nOur operations could be negatively impacted by IT service interruptions, data corruption or misuse, cyber-based attacks, or network security breaches.\n\n\nWe face certain security threats relating to the confidentiality and integrity of our information technology (\u201cIT\u201d) systems. Despite implementation of security measures, our IT systems may be vulnerable to damage from computer viruses, cyber-attacks and other unauthorized access, and these security breaches could result in a disruption to our operations. A material network breach of our IT systems could involve the theft of our and our customers' intellectual property or trade secrets which may be used by competitors to develop competing products. To the extent that any security breach results in a loss or damage to data, or inappropriate disclosure of confidential or proprietary information, it could cause significant damage to our reputation, affect our customer relations, lead to claims against us, increase our costs to protect against future damage and could result in a material adverse effect on our business, financial condition and results of operations.\n\n\nAny such disruption or security breach, as well as any action by us or our employees or contractors that might be inconsistent with the rapidly evolving data privacy and security laws and regulations applicable within the U.S. and elsewhere where we conduct business, could result in enforcement actions by U.S. states, the U.S. Federal government or foreign governments, liability or sanctions under data privacy laws that protect personally identifiable information, regulatory penalties, other legal proceedings such as but not limited to private litigation, the incurrence of significant remediation costs, disruptions to our development programs, business operations and collaborations, diversion of management efforts and damage to our reputation, which could harm our business and operations. Because of the rapidly changing nature of technology and the increasing sophistication of cybersecurity threats, our measures to prevent, respond to and minimize such risks may be unsuccessful. While we have secured cyber insurance to potentially cover certain risks associated with cyber incidents, there can be no assurance it will be sufficient to cover any such liability.\n\n\nIn particular, the General Data Privacy Regulation (\u201cGDPR\u201d) of the European Union creates a range of compliance obligations applicable to the collection, use, retention, security, processing and transfer of personal data in the European Union. The GDPR, which is wide-ranging in scope, imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of third-party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to countries such as the U.S., enhances enforcement authority and imposes large penalties for noncompliance.\n\n\nWe may be unable to keep pace with rapid technological changes, which could adversely affect our business, financial condition and results of operations.\n \n\n\nThe technologies relating to some of our products have undergone, and are continuing to undergo, rapid and significant changes. Specifically, end-markets for electronic components and assemblies are characterized by technological change, frequent new product introductions and enhancements, changes in customer requirements and emerging industry standards. These changes could render our existing products unmarketable before we can recover any or all of our research, development and other expenses. Furthermore, the life cycles of our products vary, may change and are sometimes difficult to estimate. If we are unable, for technological or other reasons, to develop and market new products or product enhancements in a timely and cost-effective manner, our business, financial condition and results of operations could be materially adversely affected.\n\n\nIf we are unable to protect our intellectual property or we infringe, or are alleged to infringe, on another person\u2019s intellectual property, our competitive position and results of operations may be adversely impacted.\n\n\nWe have numerous U.S. and foreign patents, trade secrets and license agreements covering certain of our products and manufacturing processes. Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our technology. Although we have been awarded, have filed applications for, or have been licensed under numerous patents in the U.S. and other countries, there can be no assurance concerning the degree of protection afforded by these patents or the likelihood that pending patents will be issued. The loss of certain patents and trade secrets could adversely affect our sales, margins or profitability.\n\n\nWe have and may become involved in litigation in the future to protect our intellectual property or because others may allege that we infringe on their intellectual property. These claims and any resulting lawsuit could subject us to liability for damages and invalidate our intellectual property rights. If an infringement claim is successfully asserted by a holder of intellectual property rights, we may be required to cease marketing or selling certain products, pay a penalty for past infringement and spend significant time and money to develop a non-infringing product or process or to obtain licenses for the technology, process or information from the holder. We may not be successful in the development of a non-infringing alternative, or licenses may not be available on commercially acceptable terms, if at all, in which case we may lose sales and profits. In addition, any litigation could be lengthy and costly and could materially adversely affect us even if we are successful in the litigation.\n\n\n12\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nLegal, Regulatory and Compliance Risks\n \n\n\nWe are subject to government regulations, including environmental, health, and safety laws and regulations, that expose us to potential financial liability.\n\n\nOur operations are regulated by a number of federal, state, local and international government regulations, including those pertaining to EHS that govern, among other things, air and water emissions, worker protection, and the handling, storage and disposal of hazardous materials. If we violate EHS laws and regulations, we could be liable for substantial fines, penalties, and costs of mandated remedial actions. Our environmental permits could also be revoked or modified, which could require us to cease or limit production at one or more of our facilities, thereby materially adversely affecting our business, financial condition and results of operations. EHS laws and regulations have generally become more stringent over time and could continue to do so, particularly in response to climate change concerns, imposing greater compliance costs and increasing risks and penalties associated with any violation, which also could materially adversely affect our business, financial condition and results of operations.\n\n\nWe operate our business on a global basis and changes to trade policy, including tariffs and customs regulations, could have a material and adverse effect on our business.\n\n\nWe manufacture and sell our products globally and rely on a global supply chain to deliver the required raw materials, components, and parts, as well as the final products to our customers. Existing free trade laws and regulations, such as the United States-Mexico-Canada Agreement, provide certain duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products, such as China, Egypt and Mexico, could have a material adverse effect on our business, financial condition and operating results. For instance, beginning in 2018, the U.S. and Chinese governments have imposed a series of significant incremental retaliatory tariffs to certain imported products. Most notably with respect to the automotive and commercial vehicle industries, the U.S. imposed tariffs on imports of certain steel, aluminum and automotive components, and China imposed retaliatory tariffs on imports of U.S. vehicles and certain automotive components. Depending upon their duration and implementation, as well as our ability to mitigate their impact, these tariffs and other regulatory actions could materially affect our business, including in the form of an increase in cost of goods sold, decreased margins, increased pricing for customers, and reduced sales.\n\n\nAn emphasis on global climate change and other Environmental, Social and Governance (\u201cESG\u201d) matters by various stakeholders could adversely impact our business and results of operations.\n \n\n\nIncreased public awareness and concern regarding environmental risks, including global climate change, may result in more international, regional and/or federal requirements, customer requirements, or industry standards to reduce or mitigate global warming and other environmental risks. These requirements, regulations or standards could mandate more restrictive requirements, such as stricter limits on greenhouse gas emissions and production of single use plastics and could increase costs relating to monitoring and reporting emissions data. In addition, the risks of climate change may impact manufacturing, product demand, the availability and cost of materials and natural resources, and sources and supply of energy, and could increase insurance and other operating costs. If environmental laws or regulations or industry standards are either changed or adopted and impose significant operational restrictions and compliance requirements upon us, our operations, our products or our customers, or if our operations are disrupted due to physical impacts of climate change, our business, financial condition and results of operations could be materially adversely affected.\n \n\n\nProducts we manufacture may contain design or manufacturing defects that could result in reduced demand for our products or services and liability claims against us.\n \n\n\nDespite our quality control and quality assurance efforts, defects may occur in the products we manufacture due to a variety of factors, including design or manufacturing errors, component failure or counterfeit parts. Product defects may result in delayed shipments and reduced demand for our products. We may be subject to increased costs due to warranty claims on defective products. Product defects may result in product liability claims against us where defects cause, or are alleged to cause, property damage, bodily injury or death. We may be required to participate in a recall involving products that are, or are alleged to be, defective. We carry insurance for certain legal matters involving product liability, however, we do not have coverage for all costs related to product defects or recalls and the costs of such claims, including costs of defense and settlement, may exceed our available coverage. Any such product defects or product liability claims could materially adversely affect our business, financial condition and results of operations.\n\n\n13\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nFinancial Risks\n\n\nWe have identified a material weakness in our internal control over financial reporting, and if we are unable to improve our internal controls, our financial results may not be accurately reported.\n \n\n\nAs disclosed in Item 9A, \u201cControls and Procedures,\u201d we identified a material weakness in our internal control over financial reporting related to revenue at one of our business units. The material weakness did not result in any material identified misstatements to the consolidated financial statements, and there were no changes to previously issued financial results. We are actively developing a remediation plan designed to address this material weakness, however, we cannot guarantee that these steps will be sufficient or that we will not have a material weakness in the future. This material weakness, or difficulties encountered in implementing new or improved controls or remediation, could prevent us from accurately reporting our financial results, result in material misstatements in our financial statements or cause us to fail to meet our reporting obligations. Failure to comply with Section 404 of the Sarbanes-Oxley Act of 2002 could negatively affect our business, financial condition and results of operations.\n\n\nWe have significant goodwill and other intangible assets, and future impairment of these assets could have a material adverse impact on our financial condition and results of operations.\n\n\nA significant portion of our long-term assets consists of goodwill and other intangible assets recorded as a result of past acquisitions. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The process of evaluating the potential impairment of goodwill and other intangible assets requires significant judgement. Negative industry or economic trends, including reduced estimates of future cash flows, disruptions to our business, slower growth rates, or lack of growth in our relevant business units, could lead to impairment charges against our goodwill and other intangible assets. In the event that we determine that our goodwill or other intangible assets are impaired, we may be required to record a significant charge to earnings that could adversely affect our financial condition and results of operations.\n\n\nWe have incurred indebtedness and our level of indebtedness and restrictions under our indebtedness could adversely affect our operations and liquidity.\n\n\nOur primary sources of liquidity are cash generated from operations and availability under our $750.0 million revolving credit facility. As of April 29, 2023, $305.4 million was outstanding under the revolving credit facility. Our senior unsecured credit agreement provides for variable rates of interest based on the currency of the borrowing and our leverage ratio and contains customary representations and warranties, financial covenants, restrictive covenants and events of default.\n\n\nOur senior unsecured credit agreement provides an option to increase the size of our revolving credit facility by an additional $250.0 million, subject to customary conditions and approval of the lenders providing the new commitments. There can be no assurance that lenders will approve additional commitments under current circumstances.\n\n\nOur senior unsecured credit agreement imposes various restrictions and covenants regarding the operation of our business, including covenants that require us to obtain the lenders\u2019 consent before we can, among other things and subject to certain exceptions: (i) incur additional indebtedness or additional liens on our property; (ii) consummate certain acquisitions, dispositions, mergers or consolidations; (iii) make any material change in the nature of our business; (iv) enter into certain transactions with our affiliates; or (v) repurchase or redeem any outstanding shares of our common stock or pay cash dividends to our stockholders when a default exists or certain financial covenants are not maintained.\n\n\nThe amount of our outstanding indebtedness could have an adverse effect on our operations and liquidity, including by, among other things: (i) making it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions, because we may not have sufficient cash flows to make our scheduled debt payments; (ii) causing us to use a larger portion of our cash flows to fund interest and principal payments, thereby reducing the availability of cash to fund working capital, product development, capital expenditures and other business activities; (iii) making it more difficult for us to take advantage of significant business opportunities, such as acquisition opportunities or other strategic transactions, and to react to changes in market or industry conditions; and (iv) limiting our ability to borrow additional monies in the future to fund the activities and expenditures described above and for other general corporate purposes as and when needed, which could force us to suspend, delay or curtail business prospects, strategies or operations.\n\n\nVariable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase.\n\n\nBorrowings under our senior unsecured credit agreement are at variable rates of interest and expose us to interest rate risk. If interest rates continue to increase, our debt service obligations on any variable rate indebtedness could increase even though the amount borrowed remained the same, which could adversely impact our results of operations. In order to manage our exposure to interest rate risk, we have entered into, and may continue to enter into, derivative financial instruments, typically interest rate swaps, involving the exchange of floating for fixed rate interest payments. If we are unable to enter into interest rate swaps, it may adversely impact our results of operations, and, even if we use these instruments to selectively manage risks, there can be no assurance that we will be fully protected against material interest rate fluctuations.\n\n\n14\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nA significant fluctuation between the U.S. dollar and other currencies could adversely impact our business, results of operations and financial condition.\n\n\nWe transact business in various foreign countries. We present our consolidated financial statements in U.S. dollars, but a portion of our revenues and expenditures are transacted in other currencies. As a result, we are exposed to fluctuations in foreign currencies. Additionally, we have currency fluctuation exposure arising from funds held in local currencies in foreign countries. Volatility in the exchange rates between the foreign currencies and the U.S. dollar could have an adverse effect on our business, financial condition and results of operations.\n\n\nPerformance-based awards under our long-term incentive plan may require significant adjustments to compensation expense which could have a material adverse impact on our results of operations.\n \n\n\nCompensation expense for the performance-based restricted stock awards (\u201cRSAs\u201d) and performance units (\u201cPerformance Units\u201d) awarded under our five-year long-term incentive program will be \u200erecognized over the vesting \u200eperiod based on the projected probability of achieving the relevant performance goals for fiscal 2025. As of April 29, 2023, we have not recorded any compensation expense for the RSAs or the Performance Units based on the probability assessment required under the accounting rules and regulations. At the threshold level of performance, the unrecorded amortization expense was $20.1 million. At the target level of performance, the unrecorded amortization expense was $26.8 million. Each quarter, we will continue assessing the probability of vesting for the RSAs and the Performance Units and will adjust the compensation expense as necessary. At such time, we may be required to record compensation \u200eexpense relating to prior periods, and such \u200ecompensation expense adjustment could be \u200ematerial to our results of operations.\u200e\n\n\nRestructuring activities may lead to additional costs and material adverse effects.\n\n\nIn the past, we have taken actions to restructure and optimize our production and manufacturing capabilities and efficiencies through relocations, consolidations, facility closings or asset sales. In the future, we may take additional restructuring actions including the consolidating or closing of facilities and the movement of production from one geographic region to another. These actions could result in impairment charges and various charges for such items as idle capacity, disposition costs and severance costs, in addition to normal or attendant risks and uncertainties. We may be unsuccessful in any of our current or future efforts to restructure or consolidate our business. Plans to minimize or eliminate any loss of revenues during restructuring or consolidation may not be achieved. These activities may have a material adverse effect on our business, financial condition and results of operations.\n\n\nChanges in our effective tax rate may adversely impact our results of operations.\n\n\nA number of factors may increase our effective tax rate, which could reduce our net income, including:\n\n\n\u2022\nthe adoption of Organization for Economic Cooperation and Development (\u201cOECD\u201d) Pillar Two framework, which sets out global minimum tax rules designed to ensure that large multinational businesses pay a minimum effective rate of tax of 15% on profits in all countries;\n\n\n\u2022\nthe jurisdictions in which profits are earned and taxed;\n\n\n\u2022\nchanges in the valuation of our deferred tax assets and liabilities;\n\n\n\u2022\nadjustments to income taxes upon finalization of tax returns;\n\n\n\u2022\nincreases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairments of goodwill and long-lived assets;\n\n\n\u2022\nchanges in available tax credits;\n\n\n\u2022\nchanges in tax laws or interpretation, including changes in the U.S. to the taxation of non-U.S. income and expenses; and\n\n\n\u2022\nchanges in U.S. generally accepted accounting principles (\u201cGAAP\u201d). \n\n\nOur judgments regarding the accounting for tax positions and the resolution of tax disputes may impact our results of operations and financial condition.\n\n\nSignificant judgment is required to determine our effective tax rate and evaluate our tax positions. We provide for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement criteria prescribed by applicable accounting standards. Fluctuations in federal, state and foreign taxes or a change to uncertain tax positions, including related interest and penalties, may impact our effective tax rate and results of operations. Additionally, we are subject to audits in the various taxing jurisdictions in which we conduct business. Based on the status of these audits and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate the impact of changes, if any, to previously recorded uncertain tax positions. Any negative or unexpected outcomes of these examinations and audits could have a material adverse impact on our results of operations and financial condition.\n\n\n \n\n\n\u00a0\n\n\n15\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of\n Financial Condition and Results of Operations\n\n\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included in this Annual Report. This discussion and analysis of our financial condition and results of operations also contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements because of a variety of factors, including those set forth under Item 1A. \n\u201c\nRisk Factors\u201d of this Annual Report. We undertake no duty to update any such forward-looking statements to conform to actual results or changes in our expectations.\n\n\nOverview\n \n\n\nWe are a leading global supplier of custom engineered solutions with sales, engineering and manufacturing locations in North America, Europe, Middle East and Asia. We design, engineer and produce mechatronic products for OEMs utilizing our broad range of technologies for user interface, LED lighting system, power distribution and sensor applications.\n \n\n\nOur solutions are found in the end markets of transportation (including automotive, commercial vehicle, e-bike, aerospace, bus and rail), cloud computing infrastructure, construction equipment, consumer appliance and medical devices. Our business is managed on a segment basis, with our four segments being Automotive, Industrial, Interface and Medical. For more information regarding the business and products of these segments, see Item 1. \u201cBusiness\u201d of this Annual Report.\n\n\nImpacts of Macroeconomic and Geopolitical Conditions\n \n\n\nAdverse macroeconomic conditions, including but not limited to inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, wage and commodity inflation, currency fluctuations and new or increased tariffs, could adversely affect demand for our products. In addition, the Russia/Ukraine conflict has resulted in, among other things, economic sanctions imposed by the international community which have impacted the global economy and given rise to potential global security issues that may adversely affect international business and economic conditions. Although we have no operations in Russia or Ukraine, certain of our customers and suppliers have been negatively impacted by these events, which in turn has impacted markets where we do business, including Europe and Asia. The economic sanctions imposed on Russia have further increased existing global supply chain, logistics, and inflationary challenges.\n \n\n\nUpdate on the Impact of COVID-19\n \n\n\nCOVID-19 has continued to evolve since it was declared a global pandemic by the World Health Organization in March 2020. We continue to evaluate the nature and extent of the ongoing impacts of COVID-19 on our business, operations, and financial results. Beginning late in the fourth quarter of fiscal 2022 and continuing into fiscal 2023, various regions in China, including regions where we and our customers have operations, were subjected to lockdowns imposed by governmental authorities to mitigate the spread of COVID-19 in those areas. The resulting industry-wide production interruptions adversely impacted our results of operations in fiscal 2023.\n\n\nGlobal Supply Chain Disruptions\n\n\nCertain direct and indirect adverse impacts of the COVID-19 pandemic have continued to date and are expected to continue in fiscal 2024, including the worldwide semiconductor supply shortage and global supply chain disruptions. In addition, we have experienced, and may continue to experience, business interruptions, including customer shutdowns and increased material and logistics costs and labor shortages. The semiconductor supply shortage is due, in part, to increased demand across multiple industries, including the automotive industry, resulting in a slowdown in their production schedules. The semiconductor supply shortage is also impacting our supply chain and our ability to meet demand at some of our non-automotive customers. We expect this semiconductor shortage to have a continued impact on our operating results and financial condition in fiscal 2024.\n \n\n\nAcquisition of Nordic Lights\n\n\nAs noted in Part I, Item 1 of this Annual Report, we acquired 92.2% of the outstanding shares of Nordic Lights on April 20, 2023. The results of operations of Nordic Lights are reported within the Industrial segment from the date of acquisition and were immaterial for fiscal 2023. See Note 3, \u201cAcquisition\u201d to our consolidated financial statements in this Annual Report for further information.\n \n\n\nRestructuring Actions\n\n\nIn fiscal 2023, we incurred restructuring costs of $1.0 million primarily related to asset impairment charges and severance. In fiscal 2022, we initiated a restructuring plan to consolidate one of our operations within the Industrial segment in response to logistics issues and tariffs. This action resulted in a facility shutdown and consolidation of activities into an existing location and the recognition of $3.6 million of restructuring costs. We may take additional restructuring actions in future periods based upon market conditions and industry trends.\n\n\n19\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nOutlook\n \n\n\nOur current expectations for fiscal 2024 are for net sales to be relatively flat compared to fiscal 2023 and lower net income. Fiscal 2024 sales estimates reflect the full-year inclusion of Nordic Lights and the roll-off of significant programs in the Automotive segment. We expect fiscal 2024 net income to be impacted by additional costs to support new program launches, market headwinds in the higher-margin Industrial segment, higher interest expense and less government assistance.\n \n\n\nConsolidated Results of Operations\n\n\nA detailed comparison of our results of operations between fiscal 2022 and fiscal 2021 can be found in Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in our fiscal 2022 Annual Report on Form 10-K filed with the SEC on June 23, 2022.\n\n\nThe table below compares our results of operations between fiscal 2023 and fiscal 2022:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended\n\n\n\u00a0\n\n\n\n\n\n\n(in millions)\n\n\n\u00a0\n\n\nApril 29, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n1,179.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,163.6\n\n\n\u00a0\n\n\n\n\n\n\nCost of products sold\n\n\n\u00a0\n\n\n\u00a0\n\n\n915.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n898.7\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n264.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n264.9\n\n\n\u00a0\n\n\n\n\n\n\nSelling and administrative expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n154.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n134.1\n\n\n\u00a0\n\n\n\n\n\n\nAmortization of intangibles\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.1\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.5\n\n\n\u00a0\n\n\n\n\n\n\nOther income, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2.4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10.3\n\n\n)\n\n\n\n\n\n\nIncome tax expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.3\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n77.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n102.2\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\nNet sales increased $16.0 million, or 1.4%, to $1,179.6 million in fiscal 2023, compared to $1,163.6 million in fiscal 2022. The increase was primarily due to higher sales in the Industrial segment, partially offset by lower sales in the Automotive segment. Net sales were unfavorably impacted by foreign currency translation of $57.3 million, primarily due to the strengthening of the U.S. dollar relative to the euro and Chinese renminbi. Net sales included customer cost recoveries from spot buys of materials and premium freight costs of $20.9 million in fiscal 2023, compared to $22.1 million in in fiscal 2022. Excluding the impact of foreign currency translation and customer cost recoveries, net sales increased $74.5 million, or 6.5%.\n\n\nCost of products sold\n\n\nCost of products sold increased $16.8 million, or 1.9%, to $915.5 million (77.6% of net sales) in fiscal 2023, compared to $898.7 million (77.2% of net sales) in fiscal 2022. Excluding foreign currency translation, cost of products sold increased $59.4 million. The increase was primarily due to higher material costs, as a result of an increase in sales volumes and material cost inflation, and higher salary and operating expenses, partially offset by lower restructuring costs. Restructuring costs included within cost of products sold were $0.4 million in fiscal 2023, compared to $1.3 million in fiscal 2022.\n \n\n\nGross profit margin\n\n\nGross profit margin was 22.4% of net sales in fiscal 2023, compared to 22.8% of net sales in fiscal 2022. The decrease was due to inflationary pressures on material and other manufacturing costs, partially offset by higher sales volumes.\n\n\nSelling and administrative expenses\n\n\nSelling and administrative expenses increased $20.8 million, or 15.5%, to $154.9 million (13.1% of net sales) in fiscal 2023, compared to $134.1 million (11.5% of net sales) in fiscal 2022. Excluding foreign currency translation, selling and administrative expenses increased $24.6 million. The increase was primarily due to $6.8 million of acquisition costs related to Nordic Lights, higher compensation expense, professional fees and travel expense, partially offset by lower restructuring costs. Restructuring costs included within selling and administrative expenses were $0.5 million in fiscal 2023, compared to $2.3 million in fiscal 2022.\n \n\n\nAmortization of intangibles\n\n\nAmortization of intangibles decreased $0.3 million, or 1.6%, to $18.8 million in fiscal 2023, compared to $19.1 million in fiscal 2022.\n \n\n\n20\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nInterest expense, net\n\n\nInterest expense, net was $2.7 million in fiscal 2023, compared to $3.5 million in fiscal 2022. The decrease was due to higher interest income of $3.2 million, partially offset by higher interest expense of $2.4 million. Interest income and interest expense increased due to higher interest rates.\n\n\nOther income, net\n\n\nOther income, net decreased $7.9 million to $2.4 million in fiscal 2023, compared to $10.3 million in fiscal 2022. Net foreign exchange losses were $7.1 million in fiscal 2023, compared to $1.9 million in fiscal 2022. Net foreign exchange losses were higher in fiscal 2023 due to lower efficiency in our foreign currency balance sheet remeasurement hedging program. In addition, net foreign exchange loss in fiscal 2023 included the recognition of $2.1 million of foreign exchange loss reclassified from accumulated other comprehensive income as the result of a reorganization of a foreign owned subsidiary.\n \n\n\nIn fiscal 2023, we received $9.7 million of government grants at certain of our international locations, compared to $11.1 million in fiscal 2022. Fiscal 2023 government grants include $6.3 million related to the COVID-19 pandemic and $3.4 million related to maintaining certain employment levels. Fiscal 2022 government grants primarily related to COVID-19 assistance.\n\n\nIncome tax expense\n\n\nIncome tax expense decreased $3.3 million, or 20.2%, to $13.0 million in fiscal 2023, compared to $16.3 million in fiscal 2022. Our effective tax rate increased to 14.4% in fiscal 2023, compared to 13.8% in fiscal 2022. In fiscal 2023, the effective income tax rate was favorably impacted by the amount of income earned in foreign jurisdictions with lower tax rates and a tax benefit of $7.3 million associated with the reorganization of a foreign owned subsidiary, partially offset by a reduction in foreign investment tax credits of $5.0 million and non-deductible acquisition costs of $1.4 million. In fiscal 2022, the effective income tax rate was favorably impacted by the amount of income earned in foreign jurisdictions with lower tax rates, the release of a valuation allowance of approximately $2.0 million due to a tax law change, and less U.S. tax on foreign income of $1.7 million attributable to lower earnings in non-U.S. jurisdictions, partially offset with non-deductible compensation of $2.1 million.\n \n\n\nNet income\n\n\nNet income decreased $25.1 million, or 24.6%, to $77.1 million in fiscal 2023, compared to $102.2 million in fiscal 2022. The impact of foreign currency translation decreased net income in fiscal 2023 by $10.3 million. Excluding foreign currency translation, net income decreased $14.8 million as a result of the reasons described above.\n\n\nOperating Segments\n\n\nAutomotive\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended\n\n\n\u00a0\n\n\n\n\n\n\n(in millions)\n\n\n\u00a0\n\n\nApril 29, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNorth America\n\n\n\u00a0\n\n\n$\n\n\n349.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n400.9\n\n\n\u00a0\n\n\n\n\n\n\nEurope, the Middle East & Africa (\"EMEA\")\n\n\n\u00a0\n\n\n\u00a0\n\n\n231.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n216.5\n\n\n\u00a0\n\n\n\n\n\n\nAsia\n\n\n\u00a0\n\n\n\u00a0\n\n\n156.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n164.1\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n736.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n781.5\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n$\n\n\n126.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n150.0\n\n\n\u00a0\n\n\n\n\n\n\nAs a percent of net sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n17.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.2\n\n\n%\n\n\n\n\n\n\nIncome from operations\n\n\n\u00a0\n\n\n$\n\n\n67.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n92.6\n\n\n\u00a0\n\n\n\n\n\n\nAs a percent of net sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.8\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCustomer cost recoveries:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNorth America\n\n\n\u00a0\n\n\n$\n\n\n9.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10.1\n\n\n\u00a0\n\n\n\n\n\n\nEMEA\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.6\n\n\n\u00a0\n\n\n\n\n\n\nAsia\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.5\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n14.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13.2\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n21\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nNet sales\n \n\n\nAutomotive segment net sales decreased $45.3 million, or 5.8%, to $736.2 million in fiscal 2023, compared to $781.5 million in fiscal 2022. Net sales were unfavorably impacted by foreign currency translation of $35.4 million and the roll-off of a major program in North America. Excluding foreign currency translation and customer cost recoveries, net sales decreased $10.7 million, or 1.4%.\n\n\nNet sales in North America decreased $51.9 million, or 12.9%, to $349.0 million in fiscal 2023, compared to $400.9 million in fiscal 2022. Excluding customer cost recoveries, net sales decreased $51.5 million primarily due to lower sales volumes from a major program roll-off. Net sales in EMEA increased $14.7 million, or 6.8%, to $231.2 million in fiscal 2023, compared to $216.5 million in fiscal 2022. The weaker euro, relative to the U.S. dollar, decreased net sales in EMEA by $23.3 million. Excluding foreign currency translation and customer cost recoveries, net sales in EMEA increased $36.9 million primarily due to higher sales volumes of user interface and switch products. Net sales in Asia decreased $8.1 million, or 4.9%, to $156.0 million in fiscal 2023, compared to $164.1 million in fiscal 2022. The weaker Chinese renminbi, relative to the U.S. dollar, decreased net sales in Asia by $12.1 million. Excluding foreign currency translation and customer cost recoveries, net sales in Asia increased $3.9 million primarily due to higher electric vehicle product sales volumes, partially offset by lower overhead console sales volumes.\n\n\nGross profit\n \n\n\nAutomotive segment gross profit decreased $23.8 million, or 15.9%, to $126.2 million in fiscal 2023, compared to $150.0 million in fiscal 2022. Excluding the impact of foreign currency translation, gross profit decreased $16.4 million. Gross profit margins decreased to 17.1% in fiscal 2023, from 19.2% in fiscal 2022. The decrease in gross profit margins was due to lower sales volumes and inflationary pressures on material and other manufacturing costs.\n \n\n\nIncome from operations\n\n\nAutomotive segment income from operations decreased $25.6 million, or 27.6%, to $67.0 million in fiscal 2023, compared to $92.6 million in fiscal 2022. Excluding the impact of foreign currency translation, income from operations decreased $21.2 million. The decrease was primarily due to lower gross profit and higher selling and administrative expenses. Selling and administrative expenses increased due to higher compensation expense, professional fees and travel expense.\n\n\nIndustrial\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended\n\n\n\u00a0\n\n\n\n\n\n\n(in millions)\n\n\n\u00a0\n\n\nApril 29, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n384.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n318.1\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n$\n\n\n127.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n101.5\n\n\n\u00a0\n\n\n\n\n\n\nAs a percent of net sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n33.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.9\n\n\n%\n\n\n\n\n\n\nIncome from operations\n\n\n\u00a0\n\n\n$\n\n\n93.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n67.1\n\n\n\u00a0\n\n\n\n\n\n\nAs a percent of net sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n24.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.1\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCustomer cost recoveries\n\n\n\u00a0\n\n\n$\n\n\n4.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7.6\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n Industrial segment net sales increased $66.8 million, or 21.0%, to $384.9 million in fiscal 2023, compared to $318.1 million in fiscal 2022. Net sales were unfavorably impacted by foreign currency translation of $21.9 million. Excluding the impact of foreign currency translation and customer cost recoveries, net sales increased $91.6 million, or 29.5%, primarily due to higher sales volumes of power distribution solutions for data centers and of commercial vehicle lighting solutions products.\n\n\nGross profit\n\n\nIndustrial segment gross profit increased $26.3 million, or 25.9%, to $127.8 million in fiscal 2023, compared to $101.5 million in fiscal 2022. Excluding the impact of foreign currency translation, gross profit increased $33.6 million. Gross profit margin increased to 33.2% in fiscal 2023, from 31.9% in fiscal 2022. The increase in gross profit margins was due to higher sales volumes and lower restructuring costs. Gross profit in fiscal 2022 included restructuring costs of $1.2 million, compared to $0.1 million in fiscal 2023.\n\n\nIncome from operations\n \n\n\nIndustrial segment income from operations increased $26.0 million, or 38.7%, to $93.1 million in fiscal 2023, compared to $67.1 million in fiscal 2022. Excluding the impact of foreign currency translation, income from operations increased $32.1 million. The increase was primarily due to higher gross profit, partially offset by an increase in selling and administrative expenses. Selling and administrative expenses in fiscal 2022 included restructuring costs of $2.2 million, compared to $0.4 million in fiscal 2023.\n\n\n22\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nInterface\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended\n\n\n\u00a0\n\n\n\n\n\n\n(in millions)\n\n\n\u00a0\n\n\nApril 29, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n54.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n59.8\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n$\n\n\n9.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n12.6\n\n\n\u00a0\n\n\n\n\n\n\nAs a percent of net sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.1\n\n\n%\n\n\n\n\n\n\nIncome from operations\n\n\n\u00a0\n\n\n$\n\n\n5.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n9.9\n\n\n\u00a0\n\n\n\n\n\n\nAs a percent of net sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.6\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCustomer cost recoveries\n\n\n\u00a0\n\n\n$\n\n\n2.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1.3\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\nInterface segment net sales decreased $4.9 million, or 8.2%, to $54.9 million in fiscal 2023, compared to $59.8 million in fiscal 2022. Excluding customer cost recoveries, net sales decreased $5.8 million, or 9.9%. The decrease was primarily due to lower sales volumes of appliance products which were negatively impacted by consumer demand, partially offset by higher sales volumes of digital data products.\n\n\nGross profit\n\n\n Interface segment gross profit decreased $3.3 million, or 26.2%, to $9.3 million in fiscal 2023, compared to $12.6 million in fiscal 2022. Gross profit margin decreased to 16.9% in fiscal 2023, from 21.1% in fiscal 2022. The decrease in gross profit margins was primarily due to lower sales volumes of appliance products.\n\n\nIncome from operations\n\n\n \nInterface segment income from operations decreased $4.4 million, or 44.4%, to $5.5 million in fiscal 2023, compared to $9.9 million in fiscal 2022. The decrease was due to lower gross profit and higher selling and administrative expenses, primarily compensation expense and professional fees.\n\n\nMedical\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended\n\n\n\u00a0\n\n\n\n\n\n\n(in millions)\n\n\n\u00a0\n\n\nApril 29, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n3.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.2\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n$\n\n\n(0.5\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(0.4\n\n\n)\n\n\n\n\n\n\nLoss from operations\n\n\n\u00a0\n\n\n$\n\n\n(6.1\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(5.5\n\n\n)\n\n\n\n\n\n\nNet sales\n\n\nMedical segment net sales decreased $0.6 million, or 14.3%, to $3.6 million in fiscal 2023, compared to $4.2 million in fiscal 2022. The decrease was due to lower product demand.\n\n\nGross profit\n\n\nMedical segment gross profit was a loss of $0.5 million in fiscal 2023, compared to a loss of $0.4 million in fiscal 2022. Gross profit decreased due to lower net sales.\n\n\nLoss from operations\n\n\nMedical segment loss from operations increased $0.6 million, or 10.9%, to $6.1 million in fiscal 2023, compared to $5.5 million in fiscal 2022. The increase in the loss was due to higher selling and administrative expenses, primarily higher marketing expenses.\n\n\nFinancial Condition, Liquidity and Capital Resources\n\n\nOur liquidity requirements are primarily to fund our business operations, including capital expenditures and working capital requirements, as well as to fund debt service requirements, dividends and stock repurchases. Our primary sources of liquidity are cash flows from operations, existing cash balances and borrowings under our senior unsecured credit agreement. We believe our liquidity position will be sufficient to fund our existing operations and current commitments for at least the next twelve months. However, if economic conditions remain impacted for longer than we expect due to inflationary pressure, supply chain disruptions, the COVID-19 pandemic, or other geopolitical risks, including the Russia-Ukraine war, our liquidity position could be severely impacted.\n\n\nAt April 29, 2023, we had $157.0 million of cash and cash equivalents, of which $146.3 million was held in subsidiaries outside the U.S. Cash held by these subsidiaries is used to fund operational activities and can be repatriated, primarily through the payment of dividends and the repayment of intercompany loans, without creating material additional income tax expense.\n\n\n23\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nShare Buyback Program\n\n\nOn March 31, 2021, the Board of Directors authorized the purchase of up to $100.0 million of our common stock. On June 16, 2022, the Board of Directors authorized an increase in the existing share buyback program of an additional $100.0 million, and extended the expiration of the program to June 14, 2024. Purchases may be made on the open market, in private transactions or pursuant to purchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934. As of April 29, 2023, a total of 2,790,375 shares had been purchased at a total cost of $119.3 million since the commencement of the share buyback program. As of April 29, 2023, the dollar value of shares that remained available to be purchased under this share buyback program was approximately $80.7 million.\n\n\nCredit Agreement\n\n\nOn October 31, 2022, we entered into a Second Amended and Restated Credit Agreement (the \u201cCredit Agreement\u201d) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders and other parties named therein. The Credit Agreement amends and restates the Amended and Restated Credit Agreement, dated September 12, 2018 and as previously amended (the \u201cPrior Credit Agreement\u201d), with Bank of America, N.A., as Administrative Agent, Swing Line Lender, and L/C Issuer, Wells Fargo Bank, National Association, as L/C Issuer, and the Lenders named therein. Among other things, the Credit Agreement (i) increased the multicurrency revolving credit commitments under the Prior Credit Agreement to $750,000,000, (ii) refinanced in full and terminated the term loan facility under the Prior Credit Agreement, and (iii) made certain other changes to the covenants, terms, and conditions under the Prior Credit Agreement. In addition, the Credit Agreement permits us to increase the revolving commitments and/or add one or more tranches of term loans under the Credit Agreement from time to time by up to an amount equal to (i) $250,000,000 plus (ii) an additional amount so long as the leverage ratio would not exceed 3.00:1.00 on a pro forma basis, subject to, among other things, the receipt of additional commitments from existing and/or new lenders. The Credit Agreement matures on October 31, 2027.\n\n\nAs of April 29, 2023, $305.4 million was outstanding under the revolving credit facility. We were in compliance with all covenants under the Credit Agreement as of April 29, 2023. For further information, see Note 10, \u201cDebt\u201d to the consolidated financial statements included in this Annual Report.\n\n\nCash Flows\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended\n\n\n\u00a0\n\n\n\n\n\n\n(in millions)\n\n\n\u00a0\n\n\nApril 29, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\nOperating activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n77.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n102.2\n\n\n\u00a0\n\n\n\n\n\n\nNon-cash items\n\n\n\u00a0\n\n\n\u00a0\n\n\n59.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n66.4\n\n\n\u00a0\n\n\n\n\n\n\nChanges in operating assets and liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3.5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(69.8\n\n\n)\n\n\n\n\n\n\nNet cash provided by operating activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n132.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n98.8\n\n\n\u00a0\n\n\n\n\n\n\nNet cash used in investing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(153.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(37.4\n\n\n)\n\n\n\n\n\n\nNet cash provided by (used in) financing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(114.6\n\n\n)\n\n\n\n\n\n\nEffect of foreign currency exchange rate changes on cash and cash equivalents\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8.0\n\n\n)\n\n\n\n\n\n\nDecrease in cash and cash equivalents\n\n\n\u00a0\n\n\n\u00a0\n\n\n(15.0\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(61.2\n\n\n)\n\n\n\n\n\n\nCash and cash equivalents at beginning of the period\n\n\n\u00a0\n\n\n\u00a0\n\n\n172.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n233.2\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents at end of the period\n\n\n\u00a0\n\n\n$\n\n\n157.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n172.0\n\n\n\u00a0\n\n\n\n\n\n\nOperating activities\n\n\nNet cash provided by operating activities increased $34.0 million to $132.8 million in fiscal 2023, compared to $98.8 million in fiscal 2022. The increase was due to lower cash outflows related to changes in operating assets and liabilities, partially offset by lower net income adjusted for non-cash items. The $3.5 million of cash outflows for operating assets and liabilities in fiscal 2023 was primarily due to higher accounts receivable, prepaid expenses and other assets, partially offset by lower inventory, and higher accounts payable and other liabilities.\n\n\nInvesting activities\n \n\n\nNet cash used in investing activities was $153.1 million in fiscal 2023, compared to $37.4 million in fiscal 2022. In fiscal 2023, we paid $114.6 million of cash, net of cash acquired, for the acquisition of Nordic Lights. Capital expenditures in fiscal 2023 were $42.0 million, compared to $38.0 million in fiscal 2022. We received $3.5 million of cash from the sale of property, plant and equipment in fiscal 2023.\n\n\n24\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nFinancing activities\n \n\n\nNet cash provided by financing activities was $3.2 million in fiscal 2023, compared to net cash used in financing activities of $114.6 million in fiscal 2022. In fiscal 2023, we paid $48.1 million of cash for the repurchase of our shares under our share buyback program, compared to $64.5 million in fiscal 2022. We paid cash dividends of $19.8 million in fiscal 2023, compared to $20.4 million in fiscal 2022. In fiscal 2023, we had net borrowings of $73.7 million primarily to fund the acquisition of Nordic Lights. In fiscal 2022, we had net repayments on our borrowings of $29.2 million. In connection with our Credit Agreement, we paid debt issuance costs of $3.2 million.\n\n\nContractual Obligations\n\n\nThe following table summarizes our significant known contractual cash obligations and commercial commitments as of April 29, 2023:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nPayments Due By Period\n\n\n\u00a0\n\n\n\n\n\n\n(in millions)\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\nLess than\n\u00a01 year\n\n\n\u00a0\n\n\n\u00a0\n\n\n1-3 years\n\n\n\u00a0\n\n\n\u00a0\n\n\n3-5 years\n\n\n\u00a0\n\n\n\u00a0\n\n\nMore than\n\u00a05 years\n\n\n\u00a0\n\n\n\n\n\n\nFinance leases\n\n\n\u00a0\n\n\n$\n\n\n0.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nOperating leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n33.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.8\n\n\n\u00a0\n\n\n\n\n\n\nDebt (1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n310.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n305.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.7\n\n\n\u00a0\n\n\n\n\n\n\nEstimated interest on debt (2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n73.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nDeferred compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.3\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n426.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n28.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n48.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n341.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n8.8\n\n\n\u00a0\n\n\n\n\n\n\n(1) Assumes the outstanding borrowings under the revolving credit facility will be repaid upon maturity of the credit agreement in October 2027.\n\n\n(2) Based on interest rates in effect as of April 29, 2023 (including the impact of interest rate swaps).\n\n\nOff-Balance Sheet Arrangements\n\n\nWe do not have any off-balance sheet arrangements as defined under SEC rules.\n\n\nLegal Matters\n \n\n\nFor several years, Hetronic Germany-GmbH and Hydronic-Steuersysteme-GmbH (the \u201cFuchs companies\u201d) served as our distributors for Germany, Austria and other central and eastern European countries pursuant to their respective intellectual property licenses and distribution and assembly agreements. We became aware that the Fuchs companies and their managing director, Albert Fuchs, had materially violated those agreements. As a result, we\n \nterminated all of our agreements with the Fuchs companies. On June 20, 2014, we filed a lawsuit against the Fuchs companies in the Federal District Court for the Western District of Oklahoma alleging material breaches of the distribution and assembly agreements and seeking damages, as well as various forms of injunctive relief. The defendants filed counterclaims alleging breach of contract, interference with business relations and business slander. On April 2, 2015, we amended our complaint against the Fuchs companies to add additional unfair competition and Lanham Act claims and to add additional affiliated parties.\n \n\n\nA trial with respect to the matter began in February 2020. During the trial, the defendants dismissed their one remaining counterclaim with prejudice. On March 2, 2020, the jury returned a verdict in favor of the Company. The verdict included approximately $102 million in compensatory damages and $11 million in punitive damages. On April 22, 2020, the Court entered a permanent injunction barring defendants from selling infringing products and ordering them to return Hetronic\u2019s confidential information. Defendants appealed entry of the permanent injunction. On May 29, 2020, the Court held defendants in contempt for violating the permanent injunction and entered the final judgment. Defendants appealed entry of the final monetary judgment as well. The appeal of the permanent injunction and the appeal of the final judgment were consolidated into a single appeal before the U.S. Court of Appeals for the Tenth Circuit. On August 24, 2021, the Tenth Circuit issued a decision affirming the lower court\u2019s ruling with the exception that it instructed the District Court to modify the injunction from the entire world to all of the countries in which Hetronic sells its products. On April 20 and 21, 2022, the District Court held a hearing related to modifying the injunction pursuant to the Tenth Circuit\u2019s opinion, and the parties have filed post-hearing briefs. The defendants also filed a petition for certiorari with the United States Supreme Court seeking to further appeal the extraterritorial application of the Lanham Act in this case. We opposed that petition. The Supreme Court requested the views of the Solicitor General on the petition for certiorari, and the Solicitor General recommended granting the petition. On November 4, 2022, the Supreme Court granted the petition. The Supreme Court heard arguments in this matter on March 21, 2023. At the conclusion of the hearing, the Supreme Court took the matter under advisement. Like any judgment, particularly a judgment involving defendants outside of the United States, there is no guarantee that we will be able to collect all or any portion of the judgment.\n\n\nWe incurred legal fees of $3.9 million, $3.3 million and $5.7 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively, related to the lawsuits. These amounts are included in the selling and administrative expenses and as part of the Industrial segment.\n\n\n25\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nCritical Accounting Policies and Estimates\n \n\n\nThe preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions that can affect amounts reported in the consolidated financial statements and notes. In preparing our consolidated financial statements, we have made our best estimates and judgments of certain amounts included in the consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. To the extent that there are differences between these estimates and actual results, our consolidated financial statements may be materially affected. Below are the estimates that we believe are critical to the understanding of our results of operations and financial condition. Other accounting policies are described in Note 1, \u201cDescription of Business and Summary of Significant Accounting Policies\u201d to the consolidated financial statements included in this Annual Report.\n\n\nRevenue recognition.\n Most of our revenue is recognized at a point in time. We have determined that the most definitive demonstration that control has transferred to a customer is physical shipment or delivery, depending on the contractual shipping terms, except for consignment transactions. Consignment transactions are arrangements where we transfer products to a customer location but retain ownership and control of such product until it is used by the customer. Revenue for consignment arrangements is recognized upon the customer\u2019s usage.\n\n\nRevenue associated with products which we believe have no alternative use, and where we have an enforceable right to payment, are recognized on an over time basis. Revenue is recognized based on progress to date, which is typically even over the production process through transfer of control to the customer.\n\n\nIn addition, from time to time, customers may negotiate annual price downs. Management has evaluated these price downs and determined that in some instances, these price downs give rise to a material right. In instances that a material right exists, a portion of the transaction price is allocated to the material right and recognized over the life of the contract.\n\n\nGoodwill.\n Goodwill is not amortized but is tested for impairment on at least an annual basis. Goodwill is evaluated at the reporting unit level by comparing the fair value of the reporting unit to its carrying amount including goodwill. An impairment of goodwill exists if the carrying amount of the reporting unit exceeds its fair value. The impairment loss is the amount by which the carrying amount exceeds the reporting unit\u2019s fair value, limited to the total amount of goodwill allocated to that reporting unit. In performing the goodwill impairment test, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount.\n \n\n\nQualitative factors include, but are not limited to, the results of prior year fair value calculations, the movement of our share price and market capitalization, the reporting unit and overall financial performance, and macroeconomic and industry conditions. We consider the qualitative factors and weight of the evidence obtained to determine if it is more likely than not that a reporting unit\u2019s fair value is less than the carrying amount. If, after assessing the qualitative factors, we were to determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative assessment is performed. We may also elect to proceed directly to the quantitative assessment without considering such qualitative factors.\n\n\nFor the quantitative assessment, we utilize either, or a combination of, the income approach and market approach to estimate the fair value of the reporting unit. The income approach uses a discounted cash flow method and the market approach uses appropriate valuation multiples observed for the reporting unit\u2019s guideline public companies. The determination of discounted cash flows are based on management\u2019s estimates of revenue growth rates and earnings before interest, taxes, depreciation and amortization (\u201cEBITDA\u201d) margins, taking into consideration business and market conditions for the countries and markets in which the reporting unit operates. We calculate the discount rate based on a market-participant, risk-adjusted weighted average cost of capital, which considers industry specific rates of return on debt and equity capital for a target industry capital structure, adjusted for risks associated with business size, geography and other factors specific to the reporting unit. Long-range forecasting involves uncertainty which increases with each successive period. Revenue growth rates and profitability assumptions, especially in the outer years, involve a greater degree of uncertainty.\n \n\n\nImpairment of long-lived assets. \nWe evaluate whether events and circumstances have occurred which indicate that the remaining estimated useful lives of our intangible assets, excluding goodwill, and other long-lived assets, may warrant revision or that the remaining balance of such assets may not be recoverable. If impairment indicators exist, we perform an impairment analysis by comparing the undiscounted cash flows resulting from the use of the asset group to the carrying amount. If the carrying amount exceeds the undiscounted cash flows, an impairment loss is recognized based on the excess of the asset\u2019s carrying amount over its fair value.\n\n\n26\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nIncome taxes.\n Our income tax expense and deferred tax assets and liabilities reflect management\u2019s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax provision and in evaluating income tax uncertainties.\n\n\nThe amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities. Our estimate of the potential outcome of any uncertain tax issue is subject to management\u2019s assessment of relevant risks, facts, and circumstances existing at that time. We use a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We record a liability for the difference between the benefit recognized and measured and tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. We report tax-related interest and penalties as a component of income tax expense.\n\n\nOur deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. We adjust these amounts to reflect changes in tax rates expected to be in effect when the temporary differences reverse. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We evaluate our ability to realize the tax benefits associated with deferred tax assets by assessing the adequacy of future expected taxable income, including the reversal of existing temporary differences, historical and projected operating results, and the availability of prudent and feasible tax planning strategies. The realization of tax benefits is evaluated by jurisdiction and the realizability of these assets can vary based on the character of the tax attribute and the carryforward periods specific to each jurisdiction. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would decrease income tax expense in the period a determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be recorded to income tax expense in the period such determination was made.\n\n\nWe provide for taxes that may be payable if undistributed earnings of overseas subsidiaries were to be remitted to the U.S., except for those earnings that\n \nwe consider to be permanently reinvested. Future sales of foreign subsidiaries are not exempt from capital gains tax in the U.S. We have no plans to dispose of any of our foreign subsidiaries and are not recording deferred taxes on outside basis differences in foreign subsidiaries for the sale of a foreign subsidiary.\n\n\nBusiness combinations. \nWe account for business combinations using the acquisition method of accounting whereby the identifiable assets and liabilities of the acquired business, as well as any noncontrolling interest in the acquired business, are recorded at their estimated fair values as of the date that we obtain control of the acquired business. Any purchase consideration in excess of the estimated fair values of the net assets acquired is recorded as goodwill. Acquisition-related expenses are expensed as incurred.\n\n\nDetermining the fair value of assets acquired and liabilities assumed requires management's judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, and market multiples, among other items. We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors. The valuation of assets acquired, and liabilities assumed requires a number of judgments and is subject to revision as additional information about the fair values becomes available. We recognize any adjustments to provisional amounts that are identified during the period not to exceed twelve months from the acquisition date in which the adjustments are determined. The results of operations of businesses acquired are included in the consolidated financial statements from their dates of acquisition.\n\n\nContingencies.\n We are subject to various investigations, claims and legal and administrative proceedings covering a wide range of matters that arise in the ordinary course of business activities. A significant amount of judgment and use of estimates is required to quantify our ultimate exposure in these matters. For those matters that we can estimate a range of loss, we have established reserves at levels within that range to provide for the most likely scenario based upon available information. The valuation of reserves for contingencies is reviewed on a quarterly basis to ensure that we are properly reserved. Reserve balances are adjusted to account for changes in circumstances for ongoing issues and the establishment of additional reserves for emerging issues. While we believe that the current level of reserves is adequate, changes in the future could impact these determinations.\n\n\nNew Accounting Pronouncements\n\n\nFor more information regarding new applicable accounting pronouncements, see Note 1, \u201cDescription of Business and Summary of Significant Accounting Policies\u201d to the consolidated financial statements included in this Annual Report.\n \n\n\n27\n\n\n\u00a0\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n",
+  "item7a": ">Item 7A. Quantitative and Qualita\ntive Disclosures About Market Risk\n\n\nWe are exposed to market risks from foreign currency exchange, interest rates, and commodity prices, which could affect our operating results, financial position and cash flows. We manage a portion of these risks through use of derivative financial instruments in accordance with our policies. We do not enter into derivative financial instruments for speculative or trading purposes.\n \n\n\nForeign currency risk\n\n\nWe are exposed to foreign currency risk on sales, costs and assets and liabilities denominated in currencies other than the U.S. dollar. We seek to manage our foreign exchange risk largely through operational means, including matching revenue with same-currency costs and assets with same-currency liabilities. We currently transact business in eight primary currencies worldwide, of which the most significant are the U.S. dollar, the euro, the Chinese renminbi and the Mexican peso.\n\n\nA portion of our balance sheet is exposed to foreign currency exchange rate fluctuations, which may result in non-operating foreign currency exchange gains or losses upon remeasurement. We use foreign currency forward contracts to provide an economic hedge against balance sheet exposure to certain monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary. The forward contracts have a maturity of less than three months and are not designated as hedging instruments. As of April 29, 2023, the notional value of these outstanding contracts was $59.9 million. These hedges are intended to reduce, but may not entirely eliminate, foreign currency exchange risk. The impact of a change in the foreign currency exchange rates on our foreign currency forward contracts will generally be offset against the gain or loss from the re-measurement of the underlying balance sheet exposure.\n\n\nThe translation of the assets and liabilities of our international subsidiaries is made using the foreign currency exchange rates as of the end of the reporting period. Translation adjustments are not included in determining net income but are included in accumulated other comprehensive income (loss) within shareholders\u2019 equity on the consolidated balance sheets until a sale or substantially complete liquidation of the net investment in the international subsidiary takes place. As of April 29, 2023, the cumulative net currency translation adjustments decreased shareholders\u2019 equity by $19.8 million. As described in Note 8, \"Derivative Financial Instruments and Hedging Activities\" to our consolidated financial statements included in this Annual Report, in order to manage certain translational exposure to the euro, we have designated euro-denominated borrowings of $145.4 million as a net investment hedge in our euro-denominated subsidiaries. We have also entered into a euro-denominated cross-currency swap which is designated as a net investment hedge in our euro-denominated subsidiaries. The effective portion of the gains or losses designated as net investment hedges are recognized within the cumulative translation adjustment component in the consolidated statements of comprehensive income to offset changes in the value of the net investment in these foreign currency-denominated operations.\n\n\nInterest rate risk\n \n\n\nWe are exposed to interest rate risk on borrowings under our Credit Agreement which are based on variable rates. As of April 29, 2023, we had $305.4 million of borrowings under our Credit Agreement. We manage our interest rate exposures through the use of interest rate swaps to effectively convert a portion of our variable-rate debt to a fixed rate. The notional amount of our interest rate swaps was $100.0 million as of April 29, 2023. Based on borrowings outstanding under our Credit Agreement at April 29, 2023, net of the interest rate swaps, we estimate that a 1% increase in interest rates would result in increased annual interest expense of $3.1 million.\n\n\nCommodity price risk\n\n\nWe are exposed to commodity price risk primarily on our raw material purchases. These raw materials are not rare or unique to our industry. The cost of copper, resins, and other commodities, such as fuel and energy, has fluctuated in recent years due to changes in global supply and demand. Our gross margins could be affected if these types of costs continue to fluctuate. We actively manage these raw material costs through global sourcing initiatives and price increases on our products where possible. However, in the short-term, further increases in raw material costs can be very difficult to fully offset with price increases because of contractual agreements with our customers, which would unfavorably impact our gross margins.\n\n",
+  "cik": "65270",
+  "cusip6": "591520",
+  "cusip": ["591520200", "591520900"],
+  "names": ["METHODE ELECTRS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/65270/000095017023030121/0000950170-23-030121-index.htm"
+}
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+++ b/GraphRAG/standalone/data/all/form10k/0000950170-23-030394.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1.\n\n\n\u00a0\n\n\nBUSINESS\n\n\n\u00a0\n\n\n6\n\n\n\n",
+  "item1a": ">ITEM 1A.\n\n\n\u00a0\n\n\nRISK FACTORS\n\n\n\u00a0\n\n\n22\n\n\n\n\nITEM 1B.\n\n\n\u00a0\n\n\nUNRESOLVED STAFF COMMENTS\n\n\n\u00a0\n\n\n45\n\n\n\n\n\n\nITEM 2.\n\n\n\u00a0\n\n\nPROPERTIES\n\n\n\u00a0\n\n\n45\n\n\n\n\n\n\nITEM 3.\n\n\n\u00a0\n\n\nLEGAL PROCEEDINGS\n\n\n\u00a0\n\n\n45\n\n\n\n\n\n\nITEM 4.\n\n\n\u00a0\n\n\nMINE SAFETY DISCLOSURES\n\n\n\u00a0\n\n\n45\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nPART II\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nITEM 5.\n\n\n\u00a0\n\n\nMARKET FOR REGISTRANT\u2019S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES\n\n\n\u00a0\n\n\n46\n\n\n\n\n\n\nITEM 6.\n\n\n\u00a0\n\n\nRESERVED\n\n\n\u00a0\n\n\n48\n\n\n\n\n\n\nITEM 7.\n\n\n\u00a0\n\n\nMANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\n\n\u00a0\n\n\n49\n\n\n\n\n\n\nITEM 7A.\n\n\n\u00a0\n\n\nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\n\n\u00a0\n\n\n57\n\n\n\n\n\n",
+  "item7": ">Item 7. \nManagement\u2019s Discussion and Analysis of \nFinancial Condition and Results of Operations\n \n\n\nYou should read the following Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our consolidated and combined financial statements and the related notes thereto contained elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under Item 1A, \u201cRisk Factors\u201d and elsewhere in this report.\n \n \n\n\nSet forth below is a comparison of the results of operations and changes in financial condition for the fiscal years ended April 30, 2023 and 2022. The comparison of, and changes between, the fiscal years ended April 30, 2022 and 2021 can be found within \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d included in our Form 10-K for the fiscal year ended April 30, 2022 filed with the SEC on July 14, 2022.\n\n\nBackground\n\n\nWe operate as one reporting segment. We analyze revenue streams in various ways, including customer group, brands, categories, and customer channels. However, this information does not include a full set of discrete financial information.\n \n\n\nThe following discussion and analysis includes references to net sales of our products in shooting sports and outdoor lifestyle categories. Our shooting sports category includes net sales of shooting accessories and our products used for personal protection. Our outdoor lifestyle category includes net sales of our products used in hunting, fishing, camping, rugged outdoor activities, and outdoor cooking.\n \n\n\nIn March 2022, we acquired substantially all of the assets of Grilla Grills, or Grilla, (including its branded products) from Fahrenheit Technologies, Inc., or FTI, for a purchase price of $27 million, subject to certain adjustments. Grilla is a provider of high-quality, barbecue grills; Wi-Fi-enabled wood pellet grills; smokers; accessories; and modular outdoor kitchens. We fully integrated Grilla into our business during fiscal 2023. Results of operations for the fiscal year ended April 30, 2022 include activity for the period subsequent to the acquisition date of Grilla.\n \n\n\nFiscal 2023 Highlights\n \n\n\nOur operating results for fiscal 2023 included the following:\n\n\n\u2022\nNet sales were $191.2 million, a decrease of $56.3 million, or 22.8%, from the prior fiscal year, reflecting a decrease in net sales for both our e-commerce channels and our traditional channels, partially offset by an increase in our own direct-to-consumer business.\n\n\n\u2022\nGross margin was 46.1%, a decrease of 10 basis points from the prior fiscal year. \n\n\n\u2022\nNet loss was $12.0 million, or ($0.90) per diluted share, compared with a net loss of $64.9 million, or ($4.66) per diluted share, for the prior fiscal year. The net loss in the prior fiscal year included a $67.8 million non-cash goodwill impairment charge.\n\n\n\u2022\nNon-GAAP Adjusted EBITDAS was $12.8 million, compared with $35.0 million for the prior fiscal year. See non-GAAP financial measure disclosures below for our reconciliation of non-GAAP Adjusted EBITDAS. \n\n\n\u2022\nWe repurchased 377,034 shares of our common stock, in the open market, for a total of $3.5 million during fiscal 2023 leaving $6.5 million available to be purchased under our authorized repurchase program.\n\n\nResults of Operations\n \n\n\nNet Sales and Gross Profit\n\n\nThe following table sets forth certain information regarding consolidated and combined net sales for the fiscal years ended April 30, 2023 and 2022 (dollars in thousands):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n191,209\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n247,526\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(56,317\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-22.8\n\n\n%\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n103,145\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n133,287\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(30,142\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-22.6\n\n\n%\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n$\n\n\n88,064\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n114,239\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(26,175\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-22.9\n\n\n%\n\n\n\n\n\n\n% of net sales (gross margin)\n\n\n\u00a0\n\n\n\u00a0\n\n\n46.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n46.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n49\n\n\n\n\n\u00a0\n\n\nThe following table sets forth certain information regarding trade channel net sales for the fiscal years ended April 30, 2023 and 2022 (dollars in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\ne-commerce channels\n\n\n\u00a0\n\n\n$\n\n\n87,219\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n97,418\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(10,199\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-10.5\n\n\n%\n\n\n\n\n\n\nTraditional channels\n\n\n\u00a0\n\n\n\u00a0\n\n\n103,990\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n150,108\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(46,118\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-30.7\n\n\n%\n\n\n\n\n\n\nTotal net sales\n\n\n\u00a0\n\n\n$\n\n\n191,209\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n247,526\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(56,317\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-22.8\n\n\n%\n\n\n\n\n\n\nOur e-commerce channels include net sales from customers that do not traditionally operate physical brick-and-mortar stores, but generate the majority of their revenue from consumer purchases from their retail websites. Our e-commerce channels also include our direct-to-consumer sales. Our traditional channels include customers that primarily operate out of physical brick-and-mortar stores and generate the large majority of revenue from consumer purchases in their brick-and-mortar locations.\n\n\nWe sell our products worldwide. The following table sets forth certain information regarding geographic makeup of net sales included in the above table for the fiscal years ended April 30, 2023 and 2022 (dollars in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nDomestic net sales\n\n\n\u00a0\n\n\n$\n\n\n182,299\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n234,803\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(52,504\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-22.4\n\n\n%\n\n\n\n\n\n\nInternational net sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,910\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,723\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,813\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-30.0\n\n\n%\n\n\n\n\n\n\nTotal net sales\n\n\n\u00a0\n\n\n$\n\n\n191,209\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n247,526\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(56,317\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-22.8\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nThe following table sets forth certain information regarding net sales categories for the fiscal years ended April 30, 2023 and 2022 (dollars in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nShooting sports\n\n\n\u00a0\n\n\n$\n\n\n88,885\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n128,180\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(39,295\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-30.7\n\n\n%\n\n\n\n\n\n\nOutdoor lifestyle\n\n\n\u00a0\n\n\n\u00a0\n\n\n102,324\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n119,346\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17,022\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-14.3\n\n\n%\n\n\n\n\n\n\nTotal net sales\n\n\n\u00a0\n\n\n$\n\n\n191,209\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n247,526\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(56,317\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-22.8\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nFiscal 2023 Net Sales Compared with Fiscal 2022\n\n\nTotal net sales decreased $56.3 million, or 22.8%, from the prior fiscal year.\n\n\nNet sales in our e-commerce channel decreased $10.2 million, or 10.5%, from the prior fiscal year, primarily as a result of lower net sales to the world\u2019s largest e-commerce retailer because of reduced demand primarily in our shooting sports category as well as their efforts to reduce their overall inventory. The lower net sales to our online retailers were partially offset by a 76.0% increase in our direct-to-consumer net sales over the prior year, primarily in our outdoor lifestyle products, which also include sales resulting from the acquisition of Grilla Grills. We believe the increase in our direct-to-consumer net sales represents the demand for our products in the market that are not typically hindered by retailer inventory management. Our brands that are only sold on our direct-to-consumer websites represented $24.4 million, or 28.0%, of fiscal 2023 total e-commerce channel net sales, which includes net sales from a business acquisition completed in the prior fiscal year.\n \n\n\n\u00a0\n\n\nNet sales in our traditional channels decreased $46.1 million, or 30.7%, from the prior fiscal year, primarily because of lower net sales for most of our products as a result of decreased orders from retailers, which we believe was caused by a combination of lower foot traffic because of less discretionary consumer spending and retailers\u2019 efforts to reduce their overall inventory levels. In addition, lower net sales of our shooting sports products to our OEM customers resulted in lower traditional channel net sales from the prior fiscal year.  We also believe the decrease in traditional channel net sales was a result of a build in traditional channel inventories of our products during the first fiscal quarter last year as certain customers accelerated their purchases to offset the possibility of delays caused by global supply chain disruptions. Our international net sales declined primarily because of reduced demand for our shooting sports products and timing of customer shipments.\n \n\n\nNew products, defined as any new SKU introduced over the prior two fiscal years, represented 25.5% of net sales for fiscal 2023 compared to 25.8% of net sales for fiscal 2022. We have a history of introducing over 200 new SKUs each year, the majority of which are introduced late in our third fiscal quarter.\n\n\n50\n\n\n\n\n\u00a0\n\n\nOur order backlog as of April 30, 2023 was $7.0 million, or $3.3 million higher than at the end of fiscal 2022. Although we generally fulfill the majority of our order backlog, we allow orders received that have not yet shipped to be cancelled, and therefore, our backlog may not be indicative of future sales.\n\n\nFiscal 2023 Cost of Sales and Gross Profit Compared with Fiscal 2022\n\n\nGross margin for fiscal 2023 decreased 10 basis points from the prior fiscal year, primarily because of lower sales volumes, product and customer mix, increased promotional product discounts that are consistent with pre-pandemic promotional discount levels, and increased expense related to provisions on inventory, partially offset by lower freight and tariff expenses from the planned reduction in inventory purchases and new product introductions that typically have higher gross margins.\n \n\n\nOperating Expenses\n \n\n\nThe following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2023 and 2022 (dollars in thousands):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n$\n\n\n6,361\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,501\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n860\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.6\n\n\n%\n\n\n\n\n\n\nSelling, marketing, and distribution\n\n\n\u00a0\n\n\n\u00a0\n\n\n51,791\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n56,168\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,377\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-7.8\n\n\n%\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,612\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41,244\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,368\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.3\n\n\n%\n\n\n\n\n\n\nImpairment of long-lived assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67,849\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(67,849\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-100.0\n\n\n%\n\n\n\n\n\n\nTotal operating expenses\n\n\n\u00a0\n\n\n$\n\n\n100,764\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n170,762\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(69,998\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-41.0\n\n\n%\n\n\n\n\n\n\n% of net sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n52.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n69.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFiscal 2023 Operating Expenses Compared with Fiscal 2022\n\n\nExcluding the impact of our non-cash goodwill impairment charge recorded during fiscal 2022, operating expenses in fiscal 2023 decreased $2.1 million compared with the prior fiscal year. Research and development expenses increased $860,000, primarily from increased consulting expenses; higher depreciation expense from new product tooling; and increased compensation-related expenses from additional headcount. Selling, marketing, and distribution expenses decreased $4.4 million, primarily because of lower sales volume-related expenses, lower advertising expenses, and reduced facility-related costs as a result of consolidating the Crimson Trace and Grilla operations into our headquarters in Columbia, Missouri. General and administrative expenses increased $1.4 million compared with the prior fiscal year primarily because of $1.2 million of legal and advisory fees associated with the completed cooperation agreement with a stockholder and $461,000 of increased standalone expenses, such as our information technology infrastructure costs, subscription and software costs, and insurance premium costs, partially offset by lower employee compensation-related expenses.\n\n\nOperating Loss\n\n\nThe following table sets forth certain information regarding operating loss for the fiscal years ended April 30, 2023 and 2022 (dollars in thousands):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nOperating (loss)/income\n\n\n\u00a0\n\n\n$\n\n\n(12,700\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(56,523\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n43,823\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-77.5\n\n\n%\n\n\n\n\n\n\n% of net sales (operating margin)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-6.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-22.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nFiscal 2023 Operating Income Compared with Fiscal 2022\n \n\n\nExcluding our non-cash goodwill impairment charge in fiscal 2022, we had a decrease of $24.0 million in operating income from the prior fiscal year. Operating income decreased primarily because of lower sales volumes and gross profit mentioned above.\n\n\nInterest Expense, Net\n\n\nThe following table sets forth certain information regarding interest expense, net for the fiscal years ended April 30, 2023 and 2022 (dollars in thousands):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense, net\n\n\n\u00a0\n\n\n$\n\n\n(761\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(324\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(437\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n134.9\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n51\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nInterest expense, net increased $437,000 from the prior fiscal year because of interest to service our borrowings on our revolving line of credit during fiscal 2023. We borrowed $25.0 million in March 2022 to help fund the acquisition of Grilla Grills in the prior fiscal year. We had $5.0 million of borrowings on our revolving line as of April 30, 2023.\n \n\n\nIncome Taxes\n \n\n\nThe following table sets forth certain information regarding income tax expense for the fiscal years ended April 30, 2023 and 2022 (dollars in thousands):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax (benefit)/expense\n\n\n\u00a0\n\n\n$\n\n\n(249\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n9,344\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(9,593\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-102.7\n\n\n%\n\n\n\n\n\n\n% of income from operations (effective tax rate)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-16.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.8\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nWe recorded an income tax benefit of $249,000 for fiscal 2023 because of lower operating profit compared to income tax expense of $9.3 million for fiscal 2022. Fiscal 2023 income tax benefit was primarily because of recording return to provision adjustments relating to the Federal and State tax returns filed for the prior fiscal year and the impact of refundable state tax credits. Fiscal 2022 income tax expense was primarily due to recording a full valuation allowance against our deferred tax assets. The effective tax rates were 2.0% and (16.8%) for fiscal 2023 and 2022, respectively.  Excluding the impact of the non-cash goodwill impairment charges and establishing the full valuation allowance against our deferred taxes, our effective tax rate for the fiscal year ended April 30, 2022 was 19.6%.\n\n\nNet Loss\n\n\nThe following table sets forth certain information regarding net loss and the related per share data for the fiscal years ended April 30, 2023 and 2022 (dollars in thousands, except per share data):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nNet loss\n\n\n\u00a0\n\n\n$\n\n\n(12,024\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(64,880\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n52,856\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-81.5\n\n\n%\n\n\n\n\n\n\nNet loss per share\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n\u00a0\n\n\n$\n\n\n(0.90\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(4.66\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n3.76\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-80.7\n\n\n%\n\n\n\n\n\n\nDiluted\n\n\n\u00a0\n\n\n$\n\n\n(0.90\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(4.66\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n3.76\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-80.7\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nFiscal 2023 Net Loss Compared with Fiscal 2022\n\n\nWe had a net loss of $12.0 million, or ($0.90) per diluted share in fiscal 2023. Excluding our non-cash goodwill impairment charge and related income tax effect in fiscal 2022, we had net income of $9.9 million, or $0.71 per diluted share. The decrease in net income from the prior fiscal year was primarily because of lower sales volumes and gross profit.\n \n\n\nNon-GAAP Financial Measure\n\n\nWe use GAAP net income as our primary financial measure. We use Adjusted EBITDAS, which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends, and it should be considered in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Adjusted EBITDAS is defined as GAAP net income/(loss) before interest, taxes, depreciation, amortization, and stock compensation expense. Our Adjusted EBITDAS calculation also excludes certain items we consider non-routine. We believe that Adjusted EBITDAS is useful to understanding our operating results and the ongoing performance of our underlying business, as Adjusted EBITDAS provides information on our ability to meet our capital expenditure and working capital requirements, and is also an indicator of profitability. We believe this reporting provides additional transparency and comparability to our operating results. We believe that the presentation of Adjusted EBITDAS is useful to investors because it is frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. We use Adjusted EBITDAS to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to neutralize our capitalization structure to compare our performance against that of other peer companies using similar measures, especially companies that are private. We also use Adjusted EBITDAS to supplement GAAP measures of performance to evaluate our performance in connection with compensation decisions. We believe it is useful to investors and analysts to evaluate this non-GAAP measure on the same basis as we use to evaluate our operating results.\n\n\n52\n\n\n\n\n\u00a0\n\n\nAdjusted EBITDAS is a non-GAAP measure and may not be comparable to similar measures reported by other companies. In addition, non-GAAP measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. We address the limitations of non-GAAP measures through the use of various GAAP measures. In the future, we may incur expenses or charges such as those added back to calculate Adjusted EBITDAS. Our presentation of Adjusted EBITDAS should not be construed as an inference that our future results will be unaffected by these items.\n \n\n\nThe following table sets forth our calculation of non-GAAP Adjusted EBITDAS for the fiscal years ended April 30, 2023 and 2022 (dollars in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFor the Years Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(Unaudited)\n\n\n\u00a0\n\n\n\n\n\n\nGAAP net loss\n\n\n$\n\n\n\u00a0\n\n\n(12,024\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n(64,880\n\n\n)\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n761\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n324\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax (benefit)/expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(249\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,344\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,048\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,967\n\n\n\u00a0\n\n\n\n\n\n\nStock compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,050\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,812\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill impairment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67,849\n\n\n\u00a0\n\n\n\n\n\n\nTechnology implementation\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,138\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,948\n\n\n\u00a0\n\n\n\n\n\n\nFair value inventory step-up\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n\u00a0\n\n\n\n\n\n\nAcquisition costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n47\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n599\n\n\n\u00a0\n\n\n\n\n\n\nFacility consolidation costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n866\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nStockholder cooperation agreement costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,177\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n40\n\n\n\u00a0\n\n\n\n\n\n\nNon-GAAP Adjusted EBITDAS\n\n\n$\n\n\n\u00a0\n\n\n12,814\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n35,030\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n \n\n\nHistorically, we have generated strong annual cash flow from operating activities. We have generated $45.5 million of cash from operating activities since the Separation in fiscal 2021. Our ability to fund our operating needs depends on our future ability to continue to generate positive cash flow from operations and obtain financing on acceptable terms. Based upon our history of generating strong cash flows, we believe we will be able to meet our short-term liquidity needs. We also believe we will meet known or reasonably likely future cash requirements through the combination of cash flows from operating activities, available cash balances, and available borrowings through our existing $75.0 million credit facility. If these sources of liquidity need to be augmented, additional cash requirements would likely be financed through the issuance of debt or equity securities; however, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms in the future.\n\n\nOur future capital requirements will depend on many factors, including net sales, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the capital needed to operate as an independent publicly traded company,  enhancements to our enterprise resource planning systems, and any acquisitions or strategic investments that we may determine to make. Further equity or debt financing may not be available to us on acceptable terms or at all. If sufficient funds are not available or are not available on acceptable terms, our ability to take advantage of unexpected business opportunities or to respond to competitive pressures could be limited or severely constrained.\n\n\nWe had $22.0 million and $19.5 million of cash equivalents on hand as of April 30, 2023 and 2022, respectively.\n\n\nWe expect to continue to utilize our cash flows to invest in our business, including research and development for new product initiatives; hiring additional employees; funding growth strategies, including any potential acquisitions; repaying our $5.0 million of borrowings under our revolving line of credit and any indebtedness we may incur over time; and repurchasing our common stock under our existing authorized repurchase programs.\n \n\n\n53\n\n\n\n\n\u00a0\n\n\nThe following table sets forth certain cash flow information for the fiscal years ended April 30, 2023 and 2022 (dollars in thousands):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nOperating activities\n\n\n\u00a0\n\n\n$\n\n\n30,706\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(17,953\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n48,659\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-271.0\n\n\n%\n\n\n\n\n\n\nInvesting activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,826\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(33,588\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,762\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-85.6\n\n\n%\n\n\n\n\n\n\nFinancing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(23,451\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,261\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(33,712\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-328.5\n\n\n%\n\n\n\n\n\n\nTotal cash flow\n\n\n\u00a0\n\n\n$\n\n\n2,429\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(41,280\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n43,709\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-105.9\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nOperating Activities\n \n\n\nOperating activities represent the principal source of our cash flow.\n \n\n\nCash generated in operating activities was $30.7 million for fiscal 2023 compared with cash usage of $18.0 million for the prior fiscal year. Cash generated in operating activities for fiscal 2023 was primarily impacted by $21.9 million of reduced inventory as a result of a planned reduction of inventory purchases during fiscal 2023 and a decrease in accounts receivable of $2.0 million as a result of lower sales volumes and timing of customer shipments. The cash generated in fiscal 2023 was partially offset by $1.3 million of reduced accounts payable due to timing of inventory shipments and $2.0 million of lower accrued payroll, incentives, and profit sharing primarily because of lower management incentive accruals.\n \n\n\nWe expect our inventory balance to increase in our first quarter of fiscal 2024 because of increased inventory purchases to support the fall hunting and winter holiday shopping seasons as well as inventory for new products that we expect to launch later in the year. Despite the expected increase in our first quarter of fiscal 2024, we expect our overall inventory balance to decline by the end of fiscal 2024 as compared to our inventory balance as of April 30, 2023.\n \n\n\nInvesting Activities\n \n\n\nCash used in investing activities was $4.8 million for fiscal 2023 compared with cash usage of $33.6 million for the prior fiscal year. This decrease was primarily because of the $27.0 million used to acquire Grilla Grills during fiscal 2022. We have incurred capital expenditures in fiscal 2023 and 2022 related to the development and implementation of our independent information technology infrastructure, including our new enterprise resource planning system, D365. We recorded spending of $2.0 million and $3.9 million of capital expenditures for fiscal 2023 and 2022, respectively, related to our development and implementation of our independent information technology infrastructure.\n\n\nFinancing Activities\n \n\n\nCash used in financing activities was $23.5 million in fiscal 2023 compared with cash provided by financing activities of $10.3 million in the prior fiscal year. Cash used in financing activities in fiscal 2023 was because of $20.2 million of payments on our revolving line of credit and $3.5 million of payments to repurchase our common stock under our authorized stock repurchase program. Cash provided by financing activity in fiscal 2022 was primarily from $25.2 million borrowings on our revolving line of credit used to acquire Grilla Grills, offset by $15.0 million to repurchase our common stock under an authorized stock repurchase program.\n\n\nCredit Facility\n\n\nOn August 24, 2020, we entered into a five-year financing arrangement consisting of a $50.0 million revolving line of credit secured by substantially all our assets, maturing five years from the start date, with available borrowings determined by a borrowing base calculation. The revolving line included an option to increase the credit commitment for an additional $15.0 million. The revolving line bore interest at a fluctuating rate equal to the Base Rate or LIBOR, as applicable, plus the applicable margin.\n \n\n\nOn March 25, 2022, we amended our secured loan and security agreement, or the Amended Loan and Security Agreement, increasing the revolving line of credit to $75.0 million, secured by substantially all our assets, maturing in March 2027, with available borrowings determined by a borrowing base calculation.  The amendment also includes an option to increase the credit commitment for an additional $15 million. The amended revolving line bears interest at a fluctuating rate equal to the Base Rate or the Secured Overnight Financing Rate, or SOFR, as applicable, plus the applicable margin. The applicable margin can range from a minimum of 0.25% to a maximum of 1.75% based on certain conditions as defined in the Amended Loan and Security Agreement. The financing arrangement contains covenants relating to minimum debt service\n \n\n\n54\n\n\n\n\n\u00a0\n\n\ncoverage. During fiscal 2022, we recorded $192,000 of additional debt issuance costs associated with entering into the Amended Loan and Security Agreement.\n \n\n\nAs of April 30, 2023, we had $5.0 million of borrowings outstanding on the revolving line of credit, which bore interest at 6.05%, equal to SOFR plus the applicable margin.\n \n\n\nInflation\n \n\n\nWe have been impacted by changes in prices of finished product inventory from our suppliers and logistics as well as other inflationary factors, such as increased interest rates and increased labor and overhead costs. We evaluate the need for price changes to offset these inflationary factors while taking into account the competitive landscape. Although we do not believe that inflation had a material impact on us during fiscal 2023, increased inflation in the future may have a negative effect on our ability to achieve certain expectations in gross margin and operating expenses. If we are unable to offset the negative impacts of inflation with increased prices, our future results from operations and cash flows would be materially impacted. Additionally, inflation may cause consumers to reduce discretionary spending, which could cause decreases in demand for our products.\n \n\n\nCritical Accounting Estimates\n \n\n\nRevenue Recognition\n \n\n\nWe recognize revenue for the sale of our products at the point in time when the control of ownership has transferred to the customer, which is generally upon shipment but could be delayed until the receipt of customer acceptance. The revenue recognized for the sale of our products reflect various sales adjustments for discounts, returns, allowances, and other customer incentives. These sales adjustments can vary based on market conditions, customer preferences, timing of customer payments, volume of products sold, and timing of new product launches. These adjustments require us to make reasonable estimates of the amount we expect to receive from the customer. We estimate sales adjustments by customer or by product category on the basis of our historical experience with similar contracts with customers, adjusted as necessary to reflect current facts and circumstances and our expectations for the future.\n \n\n\nValuation of Goodwill and Long-lived Intangible Assets\n\n\nAs of April 30, 2023 and 2022, we had no goodwill recorded on our consolidated balance sheet. In the instance we have recorded goodwill, we test goodwill for impairment on an annual basis on each February 1 and between annual tests if indicators of potential impairment exist.\n \n\n\nDuring the annual impairment review process, we have the option to first perform a qualitative assessment, commonly referred to as \u201cstep zero\u201d, over relative events and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value or to perform a quantitative assessment where we estimate the fair value of each reporting unit using both an income and market approach.\n \n\n\nIf the qualitative step zero analysis indicates that its more likely than not that the fair value is less than the carrying value, we will perform a step one analysis. When we perform a step one analysis to assess the recoverability of our goodwill, we determine the estimated fair value of our reporting unit and compare it to the carrying value of the reporting unit, including goodwill. The impairment test compares the fair value of our operating unit to its carrying amounts to assess whether impairment is present. We estimate the fair value of our operating unit using an equal weighting of the fair values derived from the income approach and the market approach because we believe a market participant would equally weight both approaches when valuing the operating unit. The income approach is based on the projected cash flows that are discounted to their present value using discount rates that consider the timing and risk of the forecasted cash flows. Fair value is estimated using internally developed forecasts and assumptions. The discount rate used is the average estimated value of a market participant\u2019s cost of capital and debt, derived using customary market metrics. Other significant assumptions include revenue growth rates, profitability projections, and terminal value growth rates. The market approach estimates fair values based on the determination of appropriate publicly traded market comparison companies and market multiples of revenue and earnings derived from those companies with similar operating and investment characteristics as the operating unit being valued. Finally, we compare and reconcile our overall fair value to our market capitalization in order to assess the reasonableness of the calculated fair values of our operating units. We recognize an impairment loss for goodwill if the implied fair value of goodwill is less than the carrying value.\n\n\nWe have reviewed the provisions of Accounting Standard Codification, or ASC, 350-20, with respect to the criteria necessary to evaluate the number of reporting units that exist.  Based on our review of ASC 350-20, we have determined that we have one operating unit.\n\n\n55\n\n\n\n\n\u00a0\n\n\nWe evaluate the recoverability of long-lived assets on an annual basis on February 1 or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. When such evaluations indicate that the related future undiscounted cash flows are not sufficient to recover the carrying values of the assets, such carrying values are reduced to fair value and this adjusted carrying value becomes the asset\u2019s new cost basis. We determine the initial fair value of our long-lived assets, primarily using future anticipated cash flows that are directly associated with and are expected to arise as a direct result of the use and eventual disposition of the asset, or asset group, discounted using an interest rate commensurate with the risk involved.\n \n\n\nInventories\n\n\nWe value inventories at the lower of cost, using the first-in, first-out, or FIFO, method, or net realizable value. We evaluate quantities that make up our current inventory against past and future demand and market conditions to determine excess or slow-moving inventory that may be sold below cost. For each product category, we estimate the market value of the inventory comprising that category based on current and projected selling prices. If the projected market value is less than cost, we will record a provision adjustment to reflect the lower value of the inventory. This methodology recognizes projected inventory losses at the time such losses are evident rather than at the time goods are actually sold. The projected market value of the inventory may decrease because of consumer preferences or loss of key contracts, among other events.\n \n\n\nIncome Tax Valuation Allowance\n\n\nWe periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets. The ultimate realization of net deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. We establish valuation allowances if it is more likely than not that we will be unable to realize our deferred income tax assets.\n \n\n\nIn making this determination, we consider available positive and negative evidence and make certain assumptions. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results, and tax planning strategies. Significant judgment is required in this analysis.\n\n\nWe determined in the prior fiscal period that it was more likely than not that the benefit from our net deferred tax assets will not be realized and accordingly we established a full valuation allowance recorded as an increase to income tax expense. In the current fiscal year, we continued to maintain a full valuation allowance based on the assessment that it is more likely than not that the benefit from our net deferred tax assets will not be realized. Our assessment involves estimates and assumptions about matters that are inherently uncertain, and unanticipated events or circumstances could cause actual results to differ from these estimates.\n \n\n\nEstimates may change as new events occur, estimates of future taxable income may increase during the expected reversal period of our deferred tax assets, or additional information becomes available. Should we change our estimate of the amount of deferred tax assets that we would be able to realize, a full or partial reversal of the valuation allowance could occur resulting in a decrease to the provision for income taxes in the period such a change in estimate is made. We will continue to assess the adequacy of the valuation allowance on a quarterly basis.\n\n\nRecent Accounting Pronouncements\n \n\n\nThe nature and impact of recent accounting pronouncements is discussed in Note 2 \u2014 \nSummary of\n \nSignificant Accounting Policies\n to our consolidated and combined financial statements, which is incorporated herein by reference.\n \n\n\n56\n\n\n\n\n\u00a0\n\n\nContractual Obligations and Commercial Commitments\n\n\nThe following table sets forth a summary of our material contractual obligations and commercial commitments as of April 30, 2023 (in thousands):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nLess Than\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nMore Than\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\n1 Year\n\n\n\u00a0\n\n\n\u00a0\n\n\n1-3 Years\n\n\n\u00a0\n\n\n\u00a0\n\n\n3-5 Years\n\n\n\u00a0\n\n\n\u00a0\n\n\n5 Years\n\n\n\u00a0\n\n\n\n\n\n\nLong-term debt obligations\n\n\n$\n\n\n\u00a0\n\n\n5,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n5,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nInterest on debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,563\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n399\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n798\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n366\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nOperating lease obligations\n\n\n\u00a0\n\n\n\u00a0\n\n\n37,541\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,251\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,419\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,445\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,426\n\n\n\u00a0\n\n\n\n\n\n\nPurchase obligations\n\n\n\u00a0\n\n\n\u00a0\n\n\n35,691\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35,691\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nTotal obligations\n\n\n$\n\n\n\u00a0\n\n\n79,795\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n38,341\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n5,217\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n9,811\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n26,426\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nAs of April 30, 2023, we had $5.0 million of borrowings outstanding on our revolving line of credit. We are required to make interest payments for the unused portion of our revolving line of credit in accordance with the financing arrangement. Future unused loan fee obligations are not included above, which could accumulate up to approximately $185,000 per year, under certain circumstances, until the maturity date in fiscal 2026.\n\n\nInterest on debt is based on outstanding debt as of April 30, 2023, and includes debt issue costs to be amortized over the life of the financing arrangement.  The interest rate used to calculate was 6.1% as of April 30, 2023.  See Note 10, \nDebt\n, for additional information.\n\n\nOperating lease obligations represent required minimum lease payments during the noncancelable lease term. Most real estate leases also require payments of related operating expenses such as taxes, insurance, utilities, and maintenance, which are not included above. See Note 4, \nLeases\n, for additional information.\n\n\nPurchase obligations represent binding commitments to purchase raw materials, contract production, and finished products that are payable upon delivery of the inventory. This obligation excludes the amount included in accounts payable at April 30, 2023 related to inventory purchases. Other obligations represent other binding commitments for the expenditure of funds, including (i) amounts related to contracts not involving the purchase of inventories, such as the noncancelable portion of service or maintenance agreements for management information systems, (ii) capital spending, and (iii) advertising.\n\n",
+  "item7a": ">Item 7A. Quantitative and Qualitat\nive Disclosures about Market Risk\n \n\n\nWe do not enter into any market risk sensitive instruments for trading purposes. We are exposed to risks in the ordinary course of business. We regularly assess and manage exposures to these risks through operating and financing activities. Our principal market risk relates to the variable interest rate associated with our Credit Facility, which consists of a $75.0 million revolving line of credit that bears interest at a fluctuating rate equal to the Base Rate or SOFR, as applicable, plus the applicable margin. As of April 30, 2023, we had $5.0 million of borrowings outstanding under the revolving line of credit.\n \n\n\nI\ntem 8. Financial Statements and Supplementary Data\n \n\n\nReference is made to the financial statements, the notes thereto, and the report thereon, commencing on page F-1 of this report, which financial statements, notes, and report are incorporated herein by reference.\n \n\n\nI\ntem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure\n \n\n\nNot applicable.\n\n\nI\ntem 9A. Controls and Procedures\n \n\n\nEvaluation of Disclosure Controls and Procedures\n \n\n\nWe maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC\u2019s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.\n\n\n57\n\n\n\n\n\u00a0\n\n\nOur management, under the supervision of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form-10-K. Based on that evaluation, we have concluded that, as of the end of the period covered by this Annual Report on Form-10-K, our disclosure controls and procedures were effective to provide such reasonable assurance.\n \n\n\nManagement\u2019s Annual Report on Internal Control over Financial Reporting\n\n\nOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company\u2019s assets that could have a material effect on the financial statements.\n \n\n\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies may deteriorate.\n\n\nManagement conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Tradeway Commission (the COSO Framework). Based on that evaluation, management believes that our internal control over financial reporting was effective as of April 30, 2023.\n \n\n\nThis annual report does not include an attestation report of our registered public accounting firm on our internal control over financial reporting due to an exemption established by the JOBS Act for \u201cemerging growth companies.\u201d\n\n\nInherent Limitations on the Effectiveness of Controls and Procedures\n\n\nIn designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and we are required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.\n\n\nChanges to Internal Control over Financial Reporting\n\n\nDuring our most recent fiscal quarter ended April 30, 2023, we had a change in our internal control over financial reporting that occurred as a result of our implementation of a new ERP system, D365, for one of our subsidiaries that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. The new ERP system for one of our subsidiaries replaced our legacy system in which a significant portion of our business transactions originate, are processed, and recorded. We have now transitioned all of our subsidiaries to D365. D365 is intended to provide us with enhanced transactional processing and management tools compared with our legacy system and is intended to enhance internal controls over financial reporting. We believe D365 will facilitate better transactional reporting and oversight, enhance our internal control over financial reporting, and function as an important component of our disclosure controls and procedures. Other than the change to our ERP system for one of our subsidiaries, there have been no changes in our internal control over financial reporting during our most recent fiscal quarter ended April 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.\n \n\n\n58\n\n\n\n\n\u00a0\n\n\nI\ntem 9B. Other Information\n \n\n\nNot applicable.\n\n\nIte\nm 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections\n \n\n\nNot applicable.\n\n\n59\n\n\n\n\n\u00a0\n\n\nP\nART III\n \n\n\nI\ntem 10. Directors, Executive Officers and Corporate Governance\n \n\n\nThe information required by this Item relating to our directors and corporate governance is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2023 Annual Meeting of Stockholders. The information required by this Item relating to our executive officers is included in Item 1, \u201cBusiness \u2014 Executive Officers\u201d of this report.\n \n\n\nI\ntem 11. Executive Compensation\n \n\n\nThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2023 Annual Meeting of Stockholders.\n \n\n\nI\ntem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\n \n\n\nThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2023 Annual Meeting of Stockholders.\n \n\n\nI\ntem 13. Certain Relationships and Related Transactions, and Director Independence\n \n\n\nThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2023 Annual Meeting of Stockholders.\n \n\n\nI\ntem 14. Principal Accountant Fees and Services\n \n\n\nThe information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2023 Annual Meeting of Stockholders.\n \n\n\n\u00a0\n\n\n60\n\n\n\n\n\u00a0\n\n\nP\nART IV\n\n\nI\ntem 15. Exhibits and Financial Statement Schedules\n\n\n(a) Financial Statements and Financial Statement Schedules\n \n\n\n(1) Consolidated and Combined Financial Statements are listed in the Index to Consolidated and Combined Financial Statements on page F-1 of this report.\n \n\n\n(b) Exhibits\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nriIncorporated by Reference\n\n\n\n\n\n\nExhibit\nNumber\n\n\n\u00a0\n\n\nExhibit\n\n\n\u00a0\n\n\nForm\n\n\nExhibit\n\n\nFiling Date\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n2.1\n\n\n\u00a0\n\n\nSeparation and Distribution Agreement, dated as of August 21, 2020, by and between Smith & Wesson Brands, Inc. and the Registrant\n\n\n\u00a0\n\n\n8-K\n\n\n2.1\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n3.1\n\n\n\u00a0\n\n\nAmended and Restated Certificate of Incorporation\n\n\n\u00a0\n\n\n8-K\n\n\n3.1\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n3.2\n\n\n\u00a0\n\n\nSecond Amended and Restated Bylaws\n\n\n\u00a0\n\n\n8-K\n\n\n3.2(a)\n\n\n9/27/2021\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n4.2\n\n\n\u00a0\n\n\nDescription of Securities\n\n\n\u00a0\n\n\n10-K\n\n\n4.2\n\n\n7/15/2021\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.1\n\n\n*\n\n\nTransition Services Agreement, dated as of August 21, 2020, by and between Smith & Wesson Brands, Inc. and the Registrant\n\n\n\u00a0\n\n\n8-K\n\n\n10.1\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.2\n\n\n*\n\n\nTax Matters Agreement, dated as of August 21, 2020, by and between Smith & Wesson Brands, Inc. and the Registrant\n\n\n\u00a0\n\n\n8-K\n\n\n10.2\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.3\n\n\n*\n\n\nEmployee Matters Agreement, dated as of August 21, 2020, by and between Smith & Wesson Brands, Inc. and the Registrant\n\n\n\u00a0\n\n\n8-K\n\n\n10.3\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.4\n\n\n*\n\n\nTrademark License Agreement, dated as of August 24, 2020, by and between Smith & Wesson Inc. and AOB Products Company, a wholly owned subsidiary of the Registrant\n\n\n\u00a0\n\n\n8-K\n\n\n10.4\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.5\n\n\n*\n\n\nSublease, dated as of August 24, 2020, by and between Smith & Wesson Sales Company and the Registrant\n\n\n\u00a0\n\n\n8-K\n\n\n10.5\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.6\n\n\n*\n\n\nAssignment and Assumption of Lease Agreement, dated as of January 31, 2023, by and between Smith & Wesson Sales Company (f/k/a Smith & Wesson Corp.) and the Registrant, and consented to by Smith & Wesson Brands, Inc.\n\n\n\u00a0\n\n\n8-K\n\n\n10.1\n\n\n2/1/2023\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.7\n\n\n*\n\n\nLease Agreement, dated as of October 26, 2017, by and between Ryan Boone County, LLC and Smith & Wesson Corp.\n\n\n\u00a0\n\n\n8-K\n\n\n10.2\n\n\n2/1/2023\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.8\n\n\n*\n\n\nFirst Amendment to Lease Agreement, dated October 25, 2018, by and among Ryan Boone County, LLC, Smith & Wesson Corp., and American Outdoor Brands Corporation\n\n\n\u00a0\n\n\n8-K\n\n\n10.3\n\n\n2/1/2023\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.9\n\n\n*\n\n\nSecond Amendment to Lease Agreement, dated as of January 31, 2019, by and among Ryan Boone County, LLC, American Outdoor Brands Sales Company (f/k/a Smith & Wesson Corp.), and American Outdoor Brands Corporation\n\n\n\u00a0\n\n\n8-K\n\n\n10.4\n\n\n2/1/2023\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.10\n\n\n*\n\n\nSupply Agreement, dated as of August 24, 2020, by and between Crimson Trace Corporation, a wholly owned subsidiary of the Registrant, as Supplier, and Smith & Wesson Inc.\n\n\n\u00a0\n\n\n8-K\n\n\n10.6\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.11\n\n\n*\n\n\nSupply Agreement, dated as of August 24, 2020, by and between AOB Products Company, a wholly owned subsidiary of the Registrant, as Supplier, and Smith & Wesson Inc.\n\n\n\u00a0\n\n\n8-K\n\n\n10.7\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.12\n\n\n+\n\n\n2020 Incentive Compensation Plan\n\n\n\u00a0\n\n\n8-K\n\n\n10.8\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.13\n\n\n+\n\n\nForm of Non-Qualified Stock Option Award Grant Notice and Agreement to the 2020 Incentive Compensation Plan\n\n\n\u00a0\n\n\n8-K\n\n\n10.9\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.14\n\n\n+\n\n\nForm of Restricted Stock Unit Award Grant Notice and Agreement to the 2020 Incentive Compensation Plan\n\n\n\u00a0\n\n\n8-K\n\n\n10.10\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n61\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n10.15\n\n\n+\n\n\nForm of Performance Stock Unit Award Grant Notice and Agreement to the 2020 Incentive Compensation Plan\n\n\n\u00a0\n\n\n8-K\n\n\n10.11\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.16\n\n\n+\n\n\n2020 Employee Stock Purchase Plan\n\n\n\u00a0\n\n\n8-K\n\n\n10.12\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.17\n\n\n+\n\n\nEmployment Agreement by and between the Registrant and Brian D. Murphy\n\n\n\u00a0\n\n\n8-K\n\n\n10.13\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.18\n\n\n+\n\n\nExecutive Severance Pay Plan\n\n\n\u00a0\n\n\n8-K\n\n\n10.14\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.19\n\n\n\u00a0\n\n\nForm of Indemnification Agreement entered into between the Registrant and the following directors and executive officers: As of August 24,2020 with Brian D. Murphy, H. Andrew Fulmer, Mary E. Gallagher, Gregory J. Gluchowski, Jr., Barry M. Monheit, and I. Marie Wadecki\n\n\n\u00a0\n\n\n8-K\n\n\n10.15\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.20\n\n\n \n\n\nLoan and Security Agreement, dated as of August 24, 2020, by and among AOB Products Company, Crimson Trace Corporation, American Outdoor Brands, Inc., Battenfeld Acquisition Company Inc., BTI Tools, LLC, Ultimate Survival Technologies, LLC, AOBC Asia Consulting, LLC, TD Bank, N.A., and the other banks, financial institutions, and other entities from time to time parties thereto\n\n\n\u00a0\n\n\n8-K\n\n\n10.16\n\n\n8/26/2020\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.21\n\n\n\u00a0\n\n\nAmendment No. 1 to Loan and Security Agreement, dated as of March 25, 2022, by and among AOB Products Company, Crimson Trace Corporation, American Outdoor Brands, Inc., Battenfeld Acquisition Company Inc., BTI Tools, LLC, Ultimate Survival Technologies, LLC, AOBC Asia Consulting, LLC, TD Bank, N.A., and the other banks, financial institutions, and other entities from time to time parties thereto\n\n\n\u00a0\n\n\n8-K\n\n\n10.1\n\n\n3/28/2022\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.22\n\n\n\u00a0\n\n\nCooperation Agreement, dated August 7, 2022, by and among the Engine Group and the Registrant\n\n\n\u00a0\n\n\n8-K\n\n\n10.1\n\n\n8/8/2022\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.23\n\n\n\u00a0\n\n\nFirst Amendment to Cooperation Agreement, dated May 24, 2023, by and among the Engine Group and the Registrant\n\n\n\u00a0\n\n\n8-K\n\n\n10.1\n\n\n5/26/2023\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n21.1\n\n\n#\n\n\nSubsidiaries of the Registrant\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n23.1\n\n\n#\n\n\nConsent of Grant Thornton LLP, an Independent Registered Public Accounting Firm\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n31.1\n\n\n#\n\n\nRule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n31.2\n\n\n#\n\n\nRule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n32.1\n\n\n##\n\n\nSection 1350 Certification of Principal Executive Officer\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n32.2\n\n\n##\n\n\nSection 1350 Certification of Principal Financial Officer\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.INS\n\n\n \n\n\nInline XBRL Instance Document \u2013 the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.SCH\n\n\n \n\n\nInline XBRL Taxonomy Extension Schema Document\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.CAL\n\n\n \n\n\nInline XBRL Taxonomy Extension Calculation Linkbase Document\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.DEF\n\n\n \n\n\nInline XBRL Taxonomy Extension Definition Linkbase Document\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.LAB\n\n\n \n\n\nInline XBRL Taxonomy Extension Label Linkbase Document\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n101.PRE\n\n\n \n\n\nInline XBRL Taxonomy Extension Presentation Linkbase Document\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n104\n\n\n\u00a0\n\n\nCover Page Interactive Data File (embedded within the Inline XBRL document)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n* Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request; provided, however, that the registrant may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished.\n \n\n\n+ Management contract or compensatory arrangement.\n\n\n# Filed herewith\n\n\n## Furnished herewith\n\n\nItem 16. \nForm 10-K Summary\n\n\nNone.\n\n\n62\n\n\n\n\n\u00a0\n\n\nS\nIGNATURES\n\n\nPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAMERICAN OUTDOOR BRANDS, INC.\n\n\n\n\n\n\n\u00a0\n\n\n/s/ Brian D. Murphy\n\n\n\n\n\n\n\u00a0\n\n\nBrian D. Murphy\nPresident and Chief Executive Officer\n\n\n\n\n\n\n\u00a0\n\n\nDate: June 28, 2023\n\n\nPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSignature\n\n\n\u00a0\n\n\nCapacity\n\n\n\u00a0\n\n\nDate\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Brian D. Murphy\n\n\n \n\n\nPresident and Chief Executive Officer (Principal Executive Officer)\n\n\n \n\n\nJune 28, 2023\n\n\n\n\n\n\nBrian D. Murphy\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ H. Andrew Fulmer\n\n\n \n\n\nExecutive Vice President, Chief Financial\nOfficer, and Treasurer (Principal Financial Officer)\n\n\n \n\n\nJune 28, 2023\n\n\n\n\n\n\nH. Andrew Fulmer\n\u00a0\n\n\n\n\n\n\n/s/ Barry M. Monheit\n\n\n \n\n\nChairman of the Board\n\n\n \n\n\nJune 28, 2023\n\n\n\n\n\n\nBarry M. Monheit\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Bradley T. Favreau\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nJune 28, 2023\n\n\n\n\n\n\nBradley T. Favreau\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Mary E. Gallagher\n\n\n \n\n\nDirector\n\n\n \n\n\nJune 28, 2023\n\n\n\n\n\n\nMary E. Gallagher\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Gregory J. Gluchowski, Jr.\n\n\n \n\n\nDirector\n\n\n \n\n\nJune 28, 2023\n\n\n\n\n\n\nGregory J. Gluchowski, Jr.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ Luis G. Marconi\n\n\n\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\nJune 28, 2023\n\n\n\n\n\n\nLuis G. Marconi\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n/s/ I. Marie Wadecki\n\n\n \n\n\nDirector\n\n\n \n\n\nJune 28, 2023\n\n\n\n\n\n\nI. Marie Wadecki\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n63\n\n\n\n\n\u00a0\n\n\nI\nNDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS\n \n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nPage\n\n\n\n\n\n\nReport of Independent Registered Public Accounting Firm (PCAOB ID Number \n248\n)\n\n\n\u00a0\n\n\nF-\n2\n\n\n\n\n\n\nConsolidated Balance Sheets as of April 30, 2023 and 2022\n\n\n\u00a0\n\n\nF-\n3\n\n\n\n\n\n\nConsolidated and Combined Statements of Operations and Comprehensive (Loss)/Income for the years ended April 30, 2023, 2022, and 2021\n\n\n\u00a0\n\n\nF-\n4\n\n\n\n\n\n\nConsolidated and Combined Statements of Equity for the years ended April 30, 2023, 2022, and 2021\n\n\n\u00a0\n\n\nF-\n5\n\n\n\n\n\n\nConsolidated and Combined Statements of Cash Flows for the years ended April 30, 2023, 2022, and 2021\n\n\n\u00a0\n\n\nF-\n6\n\n\n\n\n\n\nNotes to Consolidated and Combined Financial Statements\n\n\n\u00a0\n\n\nF-\n8\n\n\n\n\n\n\n\u00a0\n\n\nF-\n1\n\n\n\n\n\u00a0\n\n\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\n\n\n\u00a0\n\n\nBoard of Directors and Shareholders\n\n\nAmerican Outdoor Brands, Inc.\n\n\n\u00a0\n\n\nOpinion on the financial statements\n \n\n\nWe have audited the accompanying consolidated balance sheets of American Outdoor Brands, Inc. (a Delaware corporation) and subsidiaries (the \u201cCompany\u201d) as of April 30, 2023 and 2022, the related consolidated and combined statements of operations and comprehensive (loss)/income, equity, and cash flows for each of the three years in the period ended April 30, 2023, and the related notes (collectively referred to as the \u201cfinancial statements\u201d). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2023, in conformity with accounting principles generally accepted in the United States of America.\n\n\n\u00a0\n\n\nBasis for opinion\n \n\n\nThese financial statements are the responsibility of the Company\u2019s management. Our responsibility is to express an opinion on the Company\u2019s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (\u201cPCAOB\u201d) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n \n\n\n\u00a0\n\n\nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company\u2019s internal control over financial reporting. Accordingly, we express no such opinion.\n \n\n\n\u00a0\n\n\nOur audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.\n\n\n \n\n\n/s/ \nGRANT THORNTON LLP\n\n\n\u00a0\n\n\nWe have served as the Company\u2019s auditor since 2020.\n\n\n\u00a0\n\n\nHartford, Connecticut\n\n\nJune 28, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nF-\n2\n\n\n\n\n\u00a0\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n\n\nC\nONSOLIDATED BALANCE SHEETS\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAs of:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In\n \nthousands, except par value and share data)\n\n\n\u00a0\n\n\n\n\n\n\nASSETS\n\n\n\u00a0\n\n\n\n\n\n\nCurrent assets:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents\n\n\n\u00a0\n\n\n$\n\n\n21,950\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n19,521\n\n\n\u00a0\n\n\n\n\n\n\nAccounts receivable, net of allowance for credit losses of $\n125\n\u00a0on April 30, 2023\n\u00a0\u00a0\u00a0and $\n129\n\u00a0on April 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,846\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,879\n\n\n\u00a0\n\n\n\n\n\n\nInventories\n\n\n\u00a0\n\n\n\u00a0\n\n\n99,734\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n121,683\n\n\n\u00a0\n\n\n\n\n\n\nPrepaid expenses and other current assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,839\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,491\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax receivable\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,251\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,231\n\n\n\u00a0\n\n\n\n\n\n\nTotal current assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n157,620\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n179,805\n\n\n\u00a0\n\n\n\n\n\n\nProperty, plant, and equipment, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,488\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,621\n\n\n\u00a0\n\n\n\n\n\n\nIntangible assets, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n52,021\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n63,194\n\n\n\u00a0\n\n\n\n\n\n\nRight-of-use assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,198\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,884\n\n\n\u00a0\n\n\n\n\n\n\nOther assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n260\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n336\n\n\n\u00a0\n\n\n\n\n\n\nTotal assets\n\n\n\u00a0\n\n\n$\n\n\n243,587\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n277,840\n\n\n\u00a0\n\n\n\n\n\n\nLIABILITIES AND EQUITY\n\n\n\u00a0\n\n\n\n\n\n\nCurrent liabilities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAccounts payable\n\n\n\u00a0\n\n\n$\n\n\n11,544\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13,563\n\n\n\u00a0\n\n\n\n\n\n\nAccrued expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,741\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,853\n\n\n\u00a0\n\n\n\n\n\n\nAccrued payroll, incentives, and profit sharing\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,813\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,786\n\n\n\u00a0\n\n\n\n\n\n\nLease liabilities, current\n\n\n\u00a0\n\n\n\u00a0\n\n\n904\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,803\n\n\n\u00a0\n\n\n\n\n\n\nTotal current liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,002\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,005\n\n\n\u00a0\n\n\n\n\n\n\nNotes and loans payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,623\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,697\n\n\n\u00a0\n\n\n\n\n\n\nLease liabilities, net of current portion\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,064\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,076\n\n\n\u00a0\n\n\n\n\n\n\nOther non-current liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n34\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31\n\n\n\u00a0\n\n\n\n\n\n\nTotal liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n51,723\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n74,809\n\n\n\u00a0\n\n\n\n\n\n\nCommitments and contingencies (Note 16)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEquity:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPreferred stock, $\n0.001\n\u00a0par value, \n20,000,000\n\u00a0shares authorized, \nno\n\u00a0shares\n\u00a0\u00a0\u00a0issued or outstanding\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nCommon stock, $\n0.001\n\u00a0par value, \n100,000,000\n\u00a0shares authorized, \n14,447,149\n\u00a0shares\n\u00a0\u00a0\u00a0issued and \n13,233,151\n\u00a0shares outstanding on April 30, 2023 and \n14,240,290\n\u00a0\n\u00a0\u00a0\u00a0shares issued and \n13,403,326\n\u00a0shares outstanding on April 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n\u00a0\n\n\n\n\n\n\nAdditional paid in capital\n\n\n\u00a0\n\n\n\u00a0\n\n\n272,784\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n268,393\n\n\n\u00a0\n\n\n\n\n\n\nRetained deficit\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n62,375\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n50,351\n\n\n)\n\n\n\n\n\n\nTreasury stock, at cost (\n1,213,998\n\u00a0shares on April 30, 2023 and \n\u00a0\u00a0\u00a0\n836,964\n\u00a0shares on April 30, 2022)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n18,559\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n15,025\n\n\n)\n\n\n\n\n\n\nTotal equity\n\n\n\u00a0\n\n\n\u00a0\n\n\n191,864\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n203,031\n\n\n\u00a0\n\n\n\n\n\n\nTotal liabilities and equity\n\n\n\u00a0\n\n\n$\n\n\n243,587\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n277,840\n\n\n\u00a0\n\n\n\n\n\n\nThe accompanying notes are an integral part of these consolidated and combined financial statements.\n\n\nF-\n3\n\n\n\n\n\u00a0\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n\n\nCONSOLIDATED AND COMBINED STATEMENTS OF OP\nERATIONS AND COMPREHENSIVE (LOSS)/INCOME\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFor the Years ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(In thousands, except per share data)\n\n\n\u00a0\n\n\n\n\n\n\nNet sales (including $\n2.4\n\u00a0million of\n\u00a0\u00a0\u00a0related party sales for the four months of\n\u00a0\u00a0\u00a0our fiscal year 2021 prior to the Separation)\n\n\n$\n\n\n191,209\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n247,526\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n276,687\n\n\n\u00a0\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n103,145\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n133,287\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n149,859\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n88,064\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n114,239\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n126,828\n\n\n\u00a0\n\n\n\n\n\n\nOperating expenses:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n6,361\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,501\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,378\n\n\n\u00a0\n\n\n\n\n\n\nSelling, marketing, and distribution\n\n\n\u00a0\n\n\n51,791\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n56,168\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n56,773\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n42,612\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41,244\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41,182\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill impairment\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67,849\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating expenses\n\n\n\u00a0\n\n\n100,764\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n170,762\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n103,333\n\n\n\u00a0\n\n\n\n\n\n\nOperating (loss)/income\n\n\n\u00a0\n\n\n(\n12,700\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n56,523\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,495\n\n\n\u00a0\n\n\n\n\n\n\nOther income, net:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOther income, net\n\n\n\u00a0\n\n\n1,188\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,311\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n497\n\n\n\u00a0\n\n\n\n\n\n\nInterest (expense)/income, net\n\n\n\u00a0\n\n\n(\n761\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n324\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n300\n\n\n\u00a0\n\n\n\n\n\n\nTotal other income, net\n\n\n\u00a0\n\n\n427\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n987\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n797\n\n\n\u00a0\n\n\n\n\n\n\n(Loss)/income from operations before income taxes\n\n\n\u00a0\n\n\n(\n12,273\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n55,536\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,292\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax (benefit)/expense\n\n\n\u00a0\n\n\n(\n249\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,344\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,887\n\n\n\u00a0\n\n\n\n\n\n\nNet (loss)/income/comprehensive (loss)/income\n\n\n$\n\n\n(\n12,024\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n64,880\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n18,405\n\n\n\u00a0\n\n\n\n\n\n\nNet (loss)/income per share:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n$\n\n\n(\n0.90\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n4.66\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n1.31\n\n\n\u00a0\n\n\n\n\n\n\nDiluted\n\n\n$\n\n\n(\n0.90\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n4.66\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n1.29\n\n\n\u00a0\n\n\n\n\n\n\nWeighted average number of common shares\n\u00a0\u00a0\u00a0outstanding:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n\u00a0\n\n\n13,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,930\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,997\n\n\n\u00a0\n\n\n\n\n\n\nDiluted\n\n\n\u00a0\n\n\n13,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,930\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,225\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nThe accompanying notes are an integral part of these consolidated and combined financial statements.\n \n\n\nF-\n4\n\n\n\n\n\u00a0\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n\n\nC\nONSOLIDATED AND COMBINED STATEMENTS OF EQUITY\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nCommon Stock\n\n\n\u00a0\n\n\n\u00a0\n\n\nFormer Net Parent\n\n\n\u00a0\n\n\n \n\n\nAdditional\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nTreasury Stock\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nShares\n\n\n\u00a0\n\n\n \n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nCompany\nInvestment\n\n\n\u00a0\n\n\n \n\n\nPaid-In\nCapital\n\n\n\u00a0\n\n\n \n\n\nRetained\n(Deficit)/Earnings\n\n\n\u00a0\n\n\n \n\n\nShares\n\n\n\u00a0\n\n\n \n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\nEquity\n\n\n\u00a0\n\n\n\n\n\n\nBalance at April 30, 2020\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n224,098\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n224,098\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,876\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,529\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,405\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,486\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,486\n\n\n\u00a0\n\n\n\n\n\n\nShares issued under employee stock\n\u00a0\u00a0\u00a0purchase plan\n\n\n\u00a0\n\n\n\u00a0\n\n\n35\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n386\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n386\n\n\n\u00a0\n\n\n\n\n\n\nIssuance of common stock under \n\u00a0\u00a0\u00a0restricted stock unit awards, net of \n\u00a0\u00a0\u00a0tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n49\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n33\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n33\n\n\n)\n\n\n\n\n\n\nNet transfers from former Parent\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34,563\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34,563\n\n\n\u00a0\n\n\n\n\n\n\nIssuance of common stock and\n\u00a0\u00a0\u00a0reclassification of former net\n\u00a0\u00a0\u00a0parent company investment\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,975\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n262,537\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n262,523\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nBalance at April 30, 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,059\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n265,362\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14,529\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n279,905\n\n\n\u00a0\n\n\n\n\n\n\nNet loss\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n64,880\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n64,880\n\n\n)\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,812\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,812\n\n\n\u00a0\n\n\n\n\n\n\nShares issued under employee stock\n\u00a0\u00a0\u00a0purchase plan\n\n\n\u00a0\n\n\n\u00a0\n\n\n77\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n870\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n870\n\n\n\u00a0\n\n\n\n\n\n\nProceeds from exercise of stock\n\u00a0\u00a0\u00a0options\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\n\n\n\nIssuance of common stock under \n\u00a0\u00a0\u00a0restricted stock unit awards, net of \n\u00a0\u00a0\u00a0tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n101\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n656\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n656\n\n\n)\n\n\n\n\n\n\nRepurchase of treasury stock\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n837\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n15,025\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n15,025\n\n\n)\n\n\n\n\n\n\nBalance at April 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,240\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n268,393\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n50,351\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n837\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n15,025\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n203,031\n\n\n\u00a0\n\n\n\n\n\n\nNet loss\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n12,024\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n12,024\n\n\n)\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,050\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,050\n\n\n\u00a0\n\n\n\n\n\n\nShares issued under employee stock\n\u00a0\u00a0\u00a0purchase plan\n\n\n\u00a0\n\n\n\u00a0\n\n\n90\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n656\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n656\n\n\n\u00a0\n\n\n\n\n\n\nIssuance of common stock under \n\u00a0\u00a0\u00a0restricted stock unit awards, net of \n\u00a0\u00a0\u00a0tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n117\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n315\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n315\n\n\n)\n\n\n\n\n\n\nRepurchase of treasury stock\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n377\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,534\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,534\n\n\n)\n\n\n\n\n\n\nBalance at April 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,447\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n272,784\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n62,375\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,214\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n18,559\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n191,864\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nThe accompanying notes are an integral part of these consolidated and combined financial statements.\n \n\n\nF-\n5\n\n\n\n\n\u00a0\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n\n\nC\nONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFor the Years Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\nCash flows from operating activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet (loss)/income\n\n\n$\n\n\n(\n12,024\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n64,880\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n18,405\n\n\n\u00a0\n\n\n\n\n\n\nAdjustments to reconcile net income to net cash provided by/\n\u00a0\u00a0\u00a0(used in) operating activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\u00a0\n\n\n16,511\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,967\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,827\n\n\n\u00a0\n\n\n\n\n\n\nLoss on sale/disposition of assets\n\n\n\u00a0\n\n\n94\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n161\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n107\n\n\n\u00a0\n\n\n\n\n\n\n(Benefit from)/provision for credit losses on accounts receivable\n\n\n\u00a0\n\n\n(\n11\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n17\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n48\n\n\n)\n\n\n\n\n\n\nGoodwill impairment\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67,849\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nDeferred income taxes\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,683\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,103\n\n\n)\n\n\n\n\n\n\nStock-based compensation expense\n\n\n\u00a0\n\n\n4,050\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,812\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,910\n\n\n\u00a0\n\n\n\n\n\n\nChanges in operating assets and liabilities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAccounts receivable\n\n\n\u00a0\n\n\n2,044\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,591\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,343\n\n\n)\n\n\n\n\n\n\nInventories\n\n\n\u00a0\n\n\n21,949\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n41,431\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n14,297\n\n\n)\n\n\n\n\n\n\nPrepaid expenses and other current assets\n\n\n\u00a0\n\n\n652\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,393\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5,816\n\n\n)\n\n\n\n\n\n\nIncome taxes\n\n\n\u00a0\n\n\n(\n20\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,082\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n45\n\n\n)\n\n\n\n\n\n\nAccounts payable\n\n\n\u00a0\n\n\n(\n1,308\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4,521\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,632\n\n\n\u00a0\n\n\n\n\n\n\nAccrued payroll, incentives, and profit sharing\n\n\n\u00a0\n\n\n(\n1,973\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4,921\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,467\n\n\n\u00a0\n\n\n\n\n\n\nRight of use assets\n\n\n\u00a0\n\n\n1,645\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,650\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,337\n\n\n\u00a0\n\n\n\n\n\n\nAccrued expenses\n\n\n\u00a0\n\n\n888\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,140\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,691\n\n\n\u00a0\n\n\n\n\n\n\nOther assets\n\n\n\u00a0\n\n\n76\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n279\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\n\n\n\nLease liabilities\n\n\n\u00a0\n\n\n(\n1,870\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,831\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,543\n\n\n)\n\n\n\n\n\n\nOther non-current liabilities\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n205\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n130\n\n\n\u00a0\n\n\n\n\n\n\nNet cash provided by/(used in) operating activities\n\n\n\u00a0\n\n\n30,706\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n17,953\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n33,320\n\n\n\u00a0\n\n\n\n\n\n\nCash flows from investing activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAcquisition of businesses\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n27,000\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nPayments to acquire patents and software\n\n\n\u00a0\n\n\n(\n3,555\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,191\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n558\n\n\n)\n\n\n\n\n\n\nProceeds from sale of property and equipment\n\n\n\u00a0\n\n\n30\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nPayments to acquire property and equipment\n\n\n\u00a0\n\n\n(\n1,301\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,397\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,623\n\n\n)\n\n\n\n\n\n\nNet cash used in investing activities\n\n\n\u00a0\n\n\n(\n4,826\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n33,588\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4,181\n\n\n)\n\n\n\n\n\n\nCash flows from financing activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProceeds from loans and notes payable\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,170\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nPayments on notes and loans payable\n\n\n\u00a0\n\n\n(\n20,170\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nPayments to acquire treasury stock\n\n\n\u00a0\n\n\n(\n3,534\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n15,025\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nNet transfers from former parent\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,485\n\n\n\u00a0\n\n\n\n\n\n\nCash paid for debt issuance costs\n\n\n\u00a0\n\n\n(\n88\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n103\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n410\n\n\n)\n\n\n\n\n\n\nProceeds from exercise of options to acquire common stock, \n\u00a0\u00a0\u00a0including employee stock purchase plan\n\n\n\u00a0\n\n\n656\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n875\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n386\n\n\n\u00a0\n\n\n\n\n\n\nPayment of employee withholding tax related to restricted\n\u00a0\u00a0\u00a0stock units\n\n\n\u00a0\n\n\n(\n315\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n656\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n33\n\n\n)\n\n\n\n\n\n\nNet cash (used in)/provided by financing activities\n\n\n\u00a0\n\n\n(\n23,451\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,261\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,428\n\n\n\u00a0\n\n\n\n\n\n\nNet increase/(decrease) in cash and cash equivalents\n\n\n\u00a0\n\n\n2,429\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n41,280\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n60,567\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents, beginning of period\n\n\n\u00a0\n\n\n19,521\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n60,801\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n234\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents, end of period\n\n\n$\n\n\n21,950\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n19,521\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n60,801\n\n\n\u00a0\n\n\n\n\n\n\nSupplemental disclosure of cash flow information\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash paid for:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInterest\n\n\n$\n\n\n761\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n125\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n111\n\n\n\u00a0\n\n\n\n\n\n\nIncome taxes (net of refunds)\n\n\n$\n\n\n(\n73\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n3,819\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7,951\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nThe accompanying notes are an integral part of these consolidated and combined financial statements.\n\n\n\u00a0\n\n\n\u00a0\n\n\nF-\n6\n\n\n\n\n\u00a0\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n\n\nCONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS - (Continued)\n\n\nSupplemental Disclosure of Non-cash Investing and Financing Activities:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFor the Years Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\nPurchases of property and equipment and intangibles included in accounts payable\n\n\n$\n\n\n411\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,277\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n254\n\n\n\u00a0\n\n\n\n\n\n\nNon-cash transfers to/from former parent\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,398\n\n\n\u00a0\n\n\n\n\n\n\nChanges in right of use assets for operating lease obligations\n\n\n\u00a0\n\n\n1,959\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n158\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,940\n\n\n\u00a0\n\n\n\n\n\n\nChanges in lease liabilities for operating lease obligations\n\n\n\u00a0\n\n\n1,959\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n158\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,940\n\n\n\u00a0\n\n\n\n\n\n\nCharges of debt issuance costs included in accrued expenses\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n89\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nThe accompanying notes are an integral part of these consolidated and combined financial statement\n\n\nF-\n7\n\n\n\n\n\u00a0\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n\n\nN\nOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS\n \n\n\n1. Background, Description of Business, and Basis of Presentation\nBackground\nOn August 24, 2020, Smith & Wesson Brands, Inc., or our former parent, completed the spin-off of its outdoor products and accessories business, or the Separation, to our company (our \u201ccompany,\u201d \u201cwe,\u201d \u201cus,\u201d or \u201cour\u201d).\n The consolidated and combined financial statements for the period prior to the Separation do not necessarily reflect what the financial position, results of operations, and cash flows would have been had we operated as an independent, publicly traded company during the historical periods presented. For the period prior to the Separation, the combined financial statements were prepared on a \u201ccarve-out\u201d basis.\nDescription of Business\nWe are a leading provider of outdoor lifestyle products and shooting sports accessories encompassing hunting, fishing, outdoor cooking, camping, shooting, and personal security and defense products for rugged outdoor enthusiasts. We conceive, design, source, and sell our outdoor lifestyle products, including premium sportsman knives and tools for fishing and hunting; land management tools for hunting preparedness; harvesting products for post-hunt or post-fishing activities; outdoor cooking products; and camping, survival, and emergency preparedness products. We conceive, design, produce or source, and sell our shooting sports accessories, such as rests, vaults, and other related accessories; electro-optical devices, including hunting optics, firearm aiming devices, flashlights, and laser grips; and reloading, gunsmithing, and firearm cleaning supplies.  We develop and market all our products as well as manufacture some of our electro-optics products at our facility in Columbia, Missouri. We also contract for the manufacture and assembly of most of our products with third parties located in Asia.\n \nWe focus on our brands and the establishment of product categories in which we believe our brands will resonate strongly with the activities and passions of consumers and enable us to capture an increasing share of our overall addressable markets. Our owned brands include BOG, BUBBA, Caldwell, Crimson Trace, Frankford Arsenal, Grilla Grills, or Grilla, Hooyman, Imperial, LaserLyte, Lockdown, MEAT! Your Maker, Old Timer, Schrade, Tipton, Uncle Henry, ust, and Wheeler, and we license additional brands for use in association with certain products we sell, including M&P, Smith & Wesson, Performance Center by Smith & Wesson, and Thompson/Center.  In focusing on the growth of our brands, we organize our creative, product development, sourcing, and e-commerce teams into four brand lanes, each of which focuses on one of four distinct consumer verticals \u2013 Adventurer, Harvester, Marksman, and Defender \u2013 with each of our brands included in one of the brand lanes.\n \n\u2022\nOur Adventurer brands include products that help enhance consumers\u2019 fishing, outdoor cooking, and camping experiences.\n\u2022\nOur Harvester brands focus on the activities hunters typically engage in, including the activities to prepare for the hunt, the hunt itself, and the activities that follow a hunt, such as meat processing. \n\u2022\nOur Marksman brands address product needs arising from consumer activities that take place primarily at the shooting range and where firearms are cleaned, maintained, and worked on. \n\u2022\nOur Defender brands include products that are used by consumers in situations that require self-defense and products that help safely secure and store as well as maintain connectivity to those possessions that many consumers consider to be high value or high consequence. \nBasis of Presentation \u2013 Consolidated Financial Statements Subsequent to the Separation\nOur financial statements for the periods through the Separation date of August 24, 2020 are combined financial statements prepared on a \u201ccarve-out\u201d basis as discussed below. Our financial statements for all periods subsequent to August 24, 2020 are consolidated financial statements based on our reported results as a standalone company, and have been prepared in conformity with accounting principles generally accepted in the United States, or GAAP.\n \nBasis of Presentation \u2013 Combined Financial Statements Prior to the Separation\nFor the period prior to the Separation, the combined financial statements reflected the financial position, results of operations, and cash flows for the periods presented as historically managed by our former parent and were derived from the consolidated financial statements and accounting records of our former parent in accordance with GAAP.\nF-\n8\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nIn addition, for purposes of preparing the combined financial statements, prior to the Separation, on a \u201ccarve-out\u201d basis, a portion of our former parent\u2019s total corporate expenses was allocated to us based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional net revenue, employee headcount, delivered units, or square footage, as applicable. These expense allocations included the cost of corporate functions and resources provided by our former parent, including executive management, finance, accounting, legal, human resources, internal audit, and the related benefit costs associated with such functions, such as stock-based compensation and the cost of our former parent\u2019s Springfield, Massachusetts corporate headquarters. For the period prior to the Separation in fiscal 2021, we were allocated $\n2.7\n million for such corporate expenses, which were included within general and administrative expenses in the consolidated and combined statements of operations and comprehensive income. We were also allocated $\n1.9\n million of such distribution expenses, which were included within cost of sales; selling, marketing, and distribution expenses; and general and administrative expenses in the consolidated and combined statements of operations and comprehensive income.\n\n\n2. Summary of Significant Accounting Policies\nUse of Estimates\nIn preparing the consolidated and combined financial statements in accordance with GAAP, we make estimates and assumptions that affect amounts reported in the consolidated and combined financial statements and accompanying notes. Our significant estimates include provisions for excess and obsolete inventory, accruals for freight, duty, and tariff costs on international inventory purchases, valuation of goodwill and long-lived intangible assets, and realization of deferred tax assets. Actual results may differ from those estimates.\nPrinciples of Consolidation\nThe accompanying consolidated and combined financial statements include the accounts of our company and our wholly owned subsidiaries, including AOB Products Company, or AOBPC (formerly Battenfeld Technologies, Inc., or BTI), BTI Tools LLC, Crimson Trace Corporation, Ultimate Survival Technologies, LLC, or ust, and AOB Consulting (Shenzhen), Co., LTD. In our opinion, all adjustments, which include only normal recurring adjustments necessary to fairly present the financial position, results of operations, changes in equity, and cash flows at April 30, 2023, 2022, and 2021 and for the periods presented, have been included. All intercompany accounts and transactions have been eliminated in consolidation.\nFair Value of Financial Instruments\nUnless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments not held for trading purposes, approximate the carrying values of such amounts because of their short-term nature or market rates of interest.\nCash and Cash Equivalents\nWe consider all highly liquid investments purchased with original maturities of \nthree months\n or less at the date of acquisition to be cash equivalents.\nAccounts Receivable and Allowance for Estimated Credit Losses\nWe record trade accounts receivable at net realizable value that include estimated allowances for trade terms, sales incentive programs, discounts, markdowns, chargebacks, and returns as discussed under Revenue Recognition. We extend credit to our domestic customers and some foreign distributors based on their creditworthiness. We sometimes offer discounts for early payment on invoices. When we believe the extension of credit is not advisable, we rely on either a prepayment or a letter of credit. We write off balances deemed uncollectible by us against our allowance for credit loss accounts.\nWe maintain an allowance for credit losses related to accounts receivable for future expected credit losses resulting from the inability or unwillingness of our customers to make required payments. We estimate our allowance for credit losses based on relevant information such as historical experience, current conditions, and future expectation and in relation to a representative pool of assets consisting of a large number of customers with similar risk characteristics and similar financial assets. We adjust the allowance as appropriate to reflect differences in current conditions as well as changes in forecasted macroeconomic conditions.\nF-\n9\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nIn November 2020, we entered into a factoring arrangement with a financial institution specifically designed to factor trade receivables with a certain customer that has extended payment terms, which are traditional to the customer\u2019s industry. Under this factoring arrangement, from time to time, we sell this customer\u2019s trade receivables at a discount on a non-recourse basis. We account for these transactions as sales and cash proceeds are included in cash provided by operating activities in the statement of cash flows. During the fiscal year ended April 30, 2023, we recorded an immaterial amount of factoring fees related to factoring transactions, which are included in other (loss)/income, net on our consolidated and combined statement of operations.\nInventories\nWe state inventories at the lower of cost or net realizable value. We determine cost on the first-in, first-out method and net of discounts or rebates received from vendors. Provisions for potential non-saleable inventory due to excess stock or obsolescence are based upon a detailed review of inventory, past history, and expected future usage.\nProperty, Plant, and Equipment\nWe record property, plant, and equipment, consisting of leasehold improvements, machinery, equipment, hardware, furniture, and fixtures at cost and depreciate them using the straight-line method over their estimated useful lives. We recognize depreciation expense for leasehold improvements over the shorter of their estimated useful lives or the lease terms, and include them in depreciation and amortization expense. We charge expenditures for maintenance and repairs to earnings as incurred, and we capitalize additions, renewals, and betterments. Upon the retirement, or other disposition of property and equipment, we remove the related cost and accumulated depreciation from the respective accounts and include any gain or loss in operations. \nA summary of the estimated useful lives is as follows: \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nDescription\n\n\n\u00a0\n\n\nUseful Life\n\n\n\n\n\n\nMachinery and equipment\n\n\n\u00a0\n\n\n2\n\u00a0to \n10 years\n\n\n\n\n\n\nComputer and other equipment\n\n\n\u00a0\n\n\n2\n\u00a0to \n7\n\u00a0years\n\n\n\n\n\n\nLeasehold improvements\n\n\n\u00a0\n\n\n10\n\u00a0to \n20\n\u00a0years\n\n\n\n\nWe include tooling, dies, furniture, and fixtures as part of machinery and equipment and depreciate them over a period generally not exceeding \n10\n years.\n \nWe assess the recoverability of assets whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. We recognize an impairment loss if the carrying amount of a long-lived asset is not recoverable based on its undiscounted future cash flows. We measure the impairment loss as the difference between the carrying amount and the fair value of the asset.\nIntangible Assets\nWe record intangible assets at cost or based on the fair value of the assets acquired. Intangible assets consist of developed software and technology, customer relationships, trademarks, trade names, and patents. We amortize intangible assets over their estimated useful lives or in proportion to expected yearly revenue generated from the intangibles that were acquired.\n \nValuation of Goodwill and Long-lived Assets\nAs of April 30, 2023 and 2022, we had \nno\n goodwill recorded on our consolidated balance sheet. In the instance we have recorded goodwill, we test goodwill for impairment, in accordance with ASC 350, \nIntangibles Goodwill and Other\n, on an annual basis on February 1 and between annual tests if indicators of potential impairment exist.\n \nF-\n10\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nAs of our valuation date in fiscal 2022, we had $\n64.3\n million of goodwill. During the annual impairment review process, we performed a step one analysis to assess the recoverability of our goodwill. The step one analysis estimates the fair value of our reporting unit and compares it to the carrying value of the reporting unit, including goodwill, to assess whether impairment is present. We estimated the fair value of our operating unit using an equal weighting of the fair values derived from the income approach and the market approach because we believe a market participant would equally weight both approaches when valuing the operating unit. The income approach is based on the projected cash flows that are discounted to their present value using discount rates that consider the timing and risk of the forecasted cash flows. Fair value is estimated using internally developed forecasts and assumptions. The discount rate used is the average estimated value of a market participant\u2019s cost of capital and debt, derived using customary market metrics. Other significant assumptions include revenue growth rates, profitability projections, and terminal value growth rates. The market approach estimates fair values based on the determination of appropriate publicly traded market comparison companies and market multiples of revenue and earnings derived from those companies with similar operating and investment characteristics as the operating unit being valued. Finally, we compare and reconcile our overall fair value to our market capitalization in order to assess the reasonableness of the calculated fair values of our operating units. We recognize an impairment loss for goodwill if the implied fair value of goodwill is less than the carrying value. We completed a step one analysis as of February 1, 2022, and concluded there were no indicators of impairment.\n \nOn April 30, 2022, the decline in our stock price and market capitalization indicated a reduction of the fair value of our reporting unit. We determined this decline to be a triggering event, which indicated it was more likely than not that the fair values of these reporting units were less than the respective book values and required us to complete an additional step one analysis. Given the volatility in the financial markets, we believed a market participant would determine that the income approach would be a more prominent metric for determining the fair value of our operating unit and thus we used a \n75\n% weighting on the income approach and a \n25\n% weighting on the market approach when valuing our operating unit. As of our interim valuation date in the prior year, we had $\n67.8\n million of goodwill. Based on the results of the evaluation, we recorded a non-cash impairment charge of our entire $\n67.8\n million goodwill balance during our fourth quarter of fiscal 2022.\n \nOn March 23, 2020, we determined that our business was expected to be negatively impacted by several factors related to the COVID-19 pandemic, including a major online retail customer\u2019s decision to halt or delay most non-essential product orders, COVID-19-related supply chain issues, as well as COVID-19-related \u201cstay at home\u201d orders and sporting goods store closures, which reduced retail foot traffic in many states. Given the extreme market volatility, we relied solely on the income approach to derive the current value of our business. Based on these factors, we expected reduced cash flows in our business, and we believed this constituted a triggering event under generally accepted accounting principles. Based on the results of this evaluation, we recorded a $\n98.9\n million non-cash impairment of goodwill during our fourth quarter of fiscal 2020.\nOur assumptions related to the development of fair value could deviate materially from actual results and forecasts used to support asset carrying values and may change in the future, which could result in non-cash charges that would adversely affect our results of operations. The re-measurement of goodwill is classified as a Level 3 fair value assessment as described in Note 11 - Fair Value Measurement of the consolidated and combined financial statements, due to the significance of unobservable inputs developed using company-specific information.\nWe have reviewed the provisions of Accounting Standards Codification, or ASC, 350-20, with respect to the criteria necessary to evaluate the number of reporting units that exist.  Based on our review of ASC 350-20, we have determined that we have \none\n operating unit.\nWe have significant long-lived assets, which are susceptible to valuation adjustments as a result of changes in various factors or conditions. The most significant long-lived assets are developed technology, customer relationships, patents, trademarks, and trade names. We amortize all finite-lived assets either on a straight-line basis or based upon patterns in which we expect to utilize the economic benefits of such assets. We initially determine the values of assets by a risk-adjusted, discounted cash flow approach. We assess the potential impairment of identifiable assets whenever events or changes in circumstances indicate that the carrying values may not be recoverable and at least annually.\n \nF-\n11\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nWe evaluate the recoverability of long-lived assets on an annual basis on February 1 or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable in accordance with ASC 360, \nProperty, Plant, and Equipment\n. When such evaluations indicate that the related future undiscounted cash flows are not sufficient to recover the carrying values of the assets, such carrying values are reduced to fair value and this adjusted carrying value becomes the asset\u2019s new cost basis. We determine the initial fair value of our long-lived assets, primarily using future anticipated cash flows that are directly associated with and are expected to arise as a direct result of the use and eventual disposition of the asset, or asset group, discounted using an interest rate commensurate with the risk involved.  There was no indication of impairment of our long-lived assets in fiscal 2023. Based on the triggering event noted above, we evaluated the recoverability of our long-lived assets on April 30, 2022.  Based on the results of this evaluation, on an undiscounted cash flow basis, there was no indications of impairment of our long-lived assets.\nFuture adverse changes in these or other unforeseeable factors could result in an impairment charge that could materially impact future results of operations and financial position in the reporting period identified.\nBusiness Combinations\nWe allocate the purchase price, including any contingent consideration, of our acquisitions to the assets and liabilities acquired, including identifiable intangible assets, based on their fair values at the date of acquisition. The fair values are primarily based on third-party valuations using our own assumptions that require significant judgments and estimates. The purchase price allocated to intangibles is based on unobservable factors, including projected revenues, expenses, customer attrition rates, royalty rates, a weighted average cost of capital, among others. The weighted average cost of capital uses a market participant\u2019s cost of equity and after-tax cost of debt and reflects the risks inherent in the cash flows. The unobservable factors we use are based upon assumptions believed to be reasonable, but are also uncertain and unpredictable.  As a result, these estimates and assumptions may require adjustment in the future if actual results differ from our estimates.\nRevenue Recognition\nWe recognize revenue for the sale of our products at the point in time when the control of ownership has transferred to the customer. The transfer of control typically occurs at a point in time based on consideration of when the customer has (i) a payment obligation, (ii) physical possession of goods has been received, (iii) legal title to goods has passed, (iv) risks and rewards of ownership of goods has passed to the customer, and (v) the customer has accepted the goods. The timing of revenue recognition occurs either on shipment or delivery of goods based on contractual terms with the customer.  Revenue recorded excludes sales tax charged to retail customers as we are considered a pass-through conduit for collecting and remitting sales taxes.\n \nThe duration of contractual arrangements with customers in our wholesale channels is typically less than one year. Payment terms with customers are typically between \n20\n and \n90\n days, with a discount available in certain cases for early payment. For contracts with discounted terms, we determine the transaction price upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled. In some instances, we provide longer payment terms, particularly as it relates to our hunting dating programs, which represent payment terms due in the fall for certain orders of hunting products received in the spring and summer. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are less than one year.\nWe have elected to treat all shipping and handling activities as fulfillment costs and recognize the costs as distribution expenses at the time we recognize the related revenue. Shipping and handling costs billed to customers are included in net sales.\nThe amount of revenue we recognize reflects the expected consideration to be received for providing the goods or services to customers, which includes estimates for variable consideration. Variable consideration includes allowances for trade term discounts, chargebacks, and product returns. Estimates of variable consideration are determined at contract inception and reassessed at each reporting date, at a minimum, to reflect any changes in facts and circumstances. We apply the portfolio approach as a practical expedient and utilize the expected value method in determining estimates of variable consideration, based on evaluations of specific product and customer circumstances, historical and anticipated trends, and current economic conditions. We have co-op advertising program expense, which we record within advertising expense, in recognition of a distinct service that we receive from our customers at the retail level.\nF-\n12\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nDisaggregation of Revenue\nThe following table sets forth certain information regarding trade channel net sales for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):\n \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\ne-commerce channels\n\n\n\u00a0\n\n\n$\n\n\n87,219\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n97,418\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n10,199\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n10.5\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n108,726\n\n\n\u00a0\n\n\n\n\n\n\nTraditional channels\n\n\n\u00a0\n\n\n\u00a0\n\n\n103,990\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n150,108\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n46,118\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n30.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n167,961\n\n\n\u00a0\n\n\n\n\n\n\nTotal net sales\n\n\n\u00a0\n\n\n$\n\n\n191,209\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n247,526\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n56,317\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n22.8\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n276,687\n\n\n\u00a0\n\n\n\n\nOur e-commerce channels include net sales from customers that do not traditionally operate a physical brick-and-mortar store, but generate the majority of their revenue from consumer purchases at their retail websites. Our e-commerce channels also include our direct-to-consumer sales. Our traditional channels include customers that operate primarily out of physical brick and mortar stores and generate the large majority of their revenue from consumer purchases at their brick-and-mortar locations.\nWe sell our products worldwide. \nThe following table sets forth certain information regarding geographic makeup of net sales included in the above table for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nDomestic net sales\n\n\n\u00a0\n\n\n$\n\n\n182,299\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n234,803\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n52,504\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n22.4\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n267,573\n\n\n\u00a0\n\n\n\n\n\n\nInternational net sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,910\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,723\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,813\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n30.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,114\n\n\n\u00a0\n\n\n\n\n\n\nTotal net sales\n\n\n\u00a0\n\n\n$\n\n\n191,209\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n247,526\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n56,317\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n22.8\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n276,687\n\n\n\u00a0\n\n\n\n\nThe following table sets forth certain information regarding net sales in our shooting sports and outdoor lifestyle categories for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nShooting sports\n\n\n\u00a0\n\n\n$\n\n\n88,885\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n128,180\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n39,295\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n30.7\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n165,341\n\n\n\u00a0\n\n\n\n\n\n\nOutdoor lifestyle\n\n\n\u00a0\n\n\n\u00a0\n\n\n102,324\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n119,346\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n17,022\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n14.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n111,346\n\n\n\u00a0\n\n\n\n\n\n\nTotal net sales\n\n\n\u00a0\n\n\n$\n\n\n191,209\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n247,526\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n56,317\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n22.8\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n276,687\n\n\n\u00a0\n\n\n\n\nOur shooting sports category includes net sales of shooting accessories and our products used for personal protection. Our outdoor lifestyle category includes net sales of our products used in hunting, fishing, camping, rugged outdoor activities, and outdoor cooking.\n \nCost of Goods Sold\nCost of goods sold for our purchased finished goods includes the purchase costs and related overhead. We source most of our purchased finished goods from manufacturers in Asia. Cost of goods sold for our manufactured goods includes all materials, labor, and overhead costs incurred in the production process. Overhead includes all costs related to manufacturing or purchasing finished goods, including costs of planning, purchasing, quality control, depreciation, freight, duties, royalties, and shrinkage.\nResearch and Development\nWe engage in both internal and external research and development, or R&D, in order to remain competitive and to exploit potential untapped market opportunities. We approve prospective R&D projects after analysis of the costs and benefits associated with the potential product. Costs in R&D expense include salaries, materials, utilities, and administrative costs.\n \nAdvertising\nWe expense advertising costs, primarily consisting of digital, printed, or television advertisements, either as incurred or upon the first occurrence of the advertising. Advertising expense, included in selling, marketing, and distribution expenses, totaled $\n11.9\n million, $\n13.3\n million, and $\n14.4\n million in fiscal 2023, 2022, and 2021, respectively. We have co-op advertising program expense, which we record within advertising expense, in recognition of a distinct service that we receive from our customers at the retail level.\n \nF-\n13\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nWarranty\nWe generally provide either a limited lifetime, four-year, three-year, two-year, or one-year warranty program to the original purchaser of most of our products. We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value, at our option, without charge during the warranty period. We provide for estimated warranty obligations in the period in which we recognize the related revenue. We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We make adjustments to accruals as warranty claims data and historical experience warrant. Should we experience actual claims and repair costs that are higher than the estimated claims and repair costs used to calculate the provision, our operating results for the period or periods in which such returns or additional costs materialize could be adversely impacted.\n \nThe following table sets forth the change in accrued warranties, a portion of which is recorded as a non-current liability, in the fiscal years ended April 30, 2023, 2022, and 2021 (in thousands):\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0Beginning balance\n\n\n\u00a0\n\n\n\u00a0\n\n\n786\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n717\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n336\n\n\n\u00a0\n\n\n\n\n\n\nWarranties issued and adjustments to provisions\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,419\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n399\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,083\n\n\n\u00a0\n\n\n\n\n\n\nWarranties assumed in acquisition\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n150\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nWarranty claims\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,239\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n480\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n702\n\n\n)\n\n\n\n\n\n\n\u00a0Ending balance\n\n\n\u00a0\n\n\n\u00a0\n\n\n966\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n786\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n717\n\n\n\u00a0\n\n\n\n\n\u00a0\nRent Expense\nWe occasionally enter into non-cancelable operating leases for office space, distribution facilities, and equipment. Our leases for real estate have initial terms ranging from \none\n to \n18 years\n, generally with renewal options. Leases for equipment typically have initial terms ranging from \none\n to \n10 years\n. Most leases have fixed rentals, with many of the real estate leases requiring additional payments for real estate taxes and occupancy-related costs. We record rent expense for leases containing landlord incentives or scheduled rent increases on a straight-line basis over the lease term beginning with the earlier of the lease commencement date or the date we take possession or control of the leased premises. See Note 4 \n\u2013 Leases\n for more information.\n \nSelf-Insurance\nWe record our liability for estimated incurred losses, related to our self-insured group health insurance program, based on historical claim data in the accompanying consolidated financial statements on an undiscounted basis. While we believe these reserves to be adequate, it is possible that the ultimate liabilities will exceed such estimates. See Note 12 - \nSelf-Insurance Reserves\n for more information.\n \n(Loss)/Earnings per Share\nOn August 24, 2020, the date of consummation of the Separation, our former parent distributed \n13,975,104\n shares of our common stock, par value $\n0.001\n per share, to our former parent\u2019s stockholders of record as of August 10, 2020, or the Record Date. We utilize this share amount for the calculation of basic and diluted earnings per share for all periods presented prior to the Separation as all common stock was owned by our former parent prior to the Separation. These shares are treated as issued and outstanding at April 30, 2020 for purposes of calculating historical basic and diluted earnings per share. For periods prior to the Separation, it is assumed that there are \nno\n dilutive equity instruments as we had \nno\n stock-based awards outstanding.\nWe compute diluted earnings per share by giving effect to all potentially dilutive stock awards that are outstanding. For periods subsequent to the Separation, the computation of diluted earnings per share excludes the effect of the potential exercise of stock-based awards when the effect of the potential exercise would be anti-dilutive. There were \nno\n shares excluded from the computation of diluted earnings per share for the fiscal years ended April 30, 2023 and 2022, respectively. After the Separation, the weighted-average number of common shares outstanding for basic and diluted earnings per share for the fiscal year ended April 30, 2021 was based on the weighted-average number of actual common shares outstanding assuming the number of shares of AOUT common stock outstanding on August 24, 2020 had been outstanding at the beginning of the fiscal year ended April 30, 2021.\n \nF-\n14\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nThe following table provides a reconciliation of the net (loss)/income amounts and weighted average number of common and common equivalent shares used to determine basic and diluted (loss)/earnings per common share (in thousands, except per share data):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFor the Years Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nNet\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nPer Share\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nPer Share\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nPer Share\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nLoss\n\n\n\u00a0\n\n\n\u00a0\n\n\nShares\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nLoss\n\n\n\u00a0\n\n\n\u00a0\n\n\nShares\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncome\n\n\n\u00a0\n\n\n\u00a0\n\n\nShares\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\nBasic (loss)/earnings\n\n\n$\n\n\n\u00a0\n\n\n(\n12,024\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n(\n0.90\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n(\n64,880\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,930\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n(\n4.66\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n18,405\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,997\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n1.31\n\n\n\u00a0\n\n\n\n\n\n\nEffect of dilutive stock awards\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n228\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n0.02\n\n\n)\n\n\n\n\n\n\nDiluted (loss)/earnings\n\n\n$\n\n\n\u00a0\n\n\n(\n12,024\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n(\n0.90\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n(\n64,880\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,930\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n(\n4.66\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n18,405\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,225\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n1.29\n\n\n\u00a0\n\n\n\n\nStock-Based Compensation\nOur stock-based compensation awards consist of stock options, performance-based restricted stock units, or PSUs, and restricted stock units, or RSUs, all of which are based on our common shares. Compensation costs for all awards expected to vest are recognized over the vesting period, which generally vest annually in \nfour-year\n tranches, and are included in costs of goods sold; research and development; selling, marketing, and distribution; and general and administrative expenses in the consolidated and combined statements of operations and comprehensive income/(loss). Prior to the Separation, the combined statements of operations and comprehensive income/(loss) also include an allocation of our former parent's corporate and shared employee stock-based compensation expenses. See Note 13 \u2013 \nStock-Based Compensation\n for additional information.\nIncome Taxes\nWe account for income taxes in accordance with ASC 740, \nIncome Taxes \n(ASC 740). The provision for income taxes is based upon income reported in the accompanying consolidated and combined financial statements as required by ASC 740-10\n.\n We determine deferred tax assets and liabilities based on temporary differences between financial reporting and tax bases in assets and liabilities and measure them by applying enacted rates and laws expected to be in place when the deferred items become subject to income tax or deductible for income tax purposes. We recognize the effect on deferred taxes and liabilities of a change in tax rates in the period that includes the enactment date. In assessing the realization of our deferred income tax assets, we consider whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of our deferred income tax assets depends upon generating future taxable income during the periods in which our temporary differences become deductible and before our net operating loss carryforwards expire. We periodically evaluate the recoverability of our deferred income tax assets by assessing the need for a valuation allowance. If we determine that it is more likely than not that our deferred income tax assets will not be recovered, we establish a valuation allowance against some or all of our deferred income tax assets. Recording a valuation allowance could have a significant effect on our future results of operations and financial position. We determine unrecognized income tax benefits in accordance with ASC 740 on the basis of a two-step process in which first we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and second for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than \n50\n percent likely to be realized upon ultimate settlement with the related tax authority. Accrued income taxes in the consolidated and combined balance sheet includes unrecognized income tax benefits along with related interest and penalties, appropriately classified as current or noncurrent. We recognize interest and penalties related to unrecognized tax benefits as interest income/(expense) and other income/(expense), respectively, in the accompanying consolidated and combined statement of operations. All deferred tax assets and liabilities are classified as noncurrent in the consolidated and combined balance sheet.\nWe periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets. The ultimate realization of net deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. We establish valuation allowances if it is more likely than not that we will be unable to realize our deferred income tax assets.\n \nIn making this determination, we consider available positive and negative evidence and make certain assumptions. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results, and tax planning strategies. Significant judgment is required in this analysis.\nF-\n15\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nWe determined in the prior fiscal year that is more likely than not that the benefit from the Company\u2019s net deferred tax assets will not be realized and accordingly we established a full valuation allowance recorded as an increase to income tax expense. Our assessment involved estimates and assumptions about matters that are inherently uncertain, and unanticipated events or circumstances could cause actual results to differ from these estimates.\n \nEstimates may change as new events occur, estimates of future taxable income may increase during the expected reversal period of our deferred tax assets, or additional information becomes available. Should we change our estimate of the amount of deferred tax assets that we would be able to realize, a full or partial reversal of the valuation allowance could occur resulting in a decrease to the provision for income taxes in the period such a change in estimate is made. We will continue to assess the adequacy of the valuation allowance on a quarterly basis.\nPrior to the Separation, income taxes were allocated in a manner that is systematic, rational, and consistent with the broad principles of ASC 740. Prior to the Separation, our operations have been included in our former parent federal consolidated tax return, certain foreign tax returns, and certain state tax returns. For the purposes of the financial statements presented on a \u201ccarve-out\u201d basis, our income tax provisions were computed as if we filed separate tax returns (i.e., as if we had not been included in the consolidated income tax return group with our former parent). The separate return method applies ASC 740 to the combined financial statements of each member of a consolidated tax group as if the group member were a separate taxpayer. As a result, actual tax transactions included in the consolidated financial statements of our former parent may not be included in our consolidated and combined financial statements. Also, the tax treatment of certain items reflected in the consolidated and combined financial statements may not be reflected in the consolidated financial statements and tax returns of our former parent. It is conceivable that items such as net operating losses, other deferred taxes, uncertain tax positions, and valuation allowances may exist in the consolidated and combined financial statements that may or may not exist in our former parent\u2019s consolidated financial statements.\nSince our results, prior to the Separation, were included in our former parent consolidated tax returns, payments to certain tax authorities were made by our former parent and not by us. For tax jurisdictions in which we are included with our former parent in a consolidated tax filing, we do not maintain taxes payable to or from our former parent and the payments are deemed to be settled immediately with the legal entities paying the tax in the respective tax jurisdictions through changes in parent company investment.\n \nTax receivables in jurisdictions where we do not file a consolidated tax return with our former parent, such as certain state tax returns, are recorded as income tax receivable.\n \nDeferred income tax assets and liabilities, prior to the Separation, as presented in the combined balance sheet, reflect the net future tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.\n \nConcentration of Credit Risk\nFinancial instruments that potentially subject us to concentration of credit risk consist primarily of cash, cash equivalents, and trade receivables. We place our cash and cash equivalents in overnight U.S. government securities. Concentrations of credit risk with respect to trade receivables are limited by the large number of customers comprising our customer base and their geographic and business dispersion. We perform ongoing credit evaluations of our customers\u2019 financial condition and generally do not require collateral.\n \nFor the fiscal year ended April 30, 2023, 2022, and 2021, respectively, \none\n of our customers accounted for more than 10% of our net sales, accounting for $\n48.4\n million, or \n25.4\n%, $\n68.7\n million, or \n27.8\n%, and $\n76.3\n million, or \n27.6\n%, of our fiscal 2023, 2022, and 2021 net sales, respectively.\n \nAs of April 30, 2023 and 2022, respectively, \none\n of our customers exceeded 10% or more of our accounts receivable, accounting for $\n10.4\n million, or \n39.2\n%, and $\n8.8\n million, or \n30.6\n%, of our fiscal 2023 and 2022 accounts receivable, respectively.  We are not aware of any issues with respect to relationships with any of our top customers.\nWe source a majority of our purchased finished goods from Asia.\n \nF-\n16\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nShipping and Handling\nIn the accompanying consolidated and combined financial statements, we included amounts billed to customers for shipping and handling in net sales. We include costs relating to shipping and handling charges, including inbound freight charges and internal transfer costs, in cost of goods sold; however, costs incurred to distribute products to customers is included in distribution expenses.\nLegal and Other Contingencies\nWe periodically assess liabilities and contingencies in connection with legal proceedings and other claims that may arise from time to time. When we believe it is probable that a loss has been or will be incurred, we record an estimate of the loss in the consolidated and combined financial statements. We adjust estimates of losses when additional information becomes available or circumstances change. We disclose a contingent liability when we believe there is at least a reasonable possibility that a material loss may have been incurred.\n \nRecently Adopted Accounting Standards\nIn December 2019, FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12, an amendment of the FASB Accounting Standards Codification. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions for intraperiod tax allocations and deferred tax liabilities for equity method investments and adds guidance regarding whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We \nadopted\n ASU 2019-12 on \nMay 1, 2021\n, and the cumulative effect of the adoption was \nno\nt material to our consolidated and combined financial statements and related disclosures.\nIn March 2020, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, or ASU 2020-04, to provide temporary optional expedients and exceptions to the contract modifications, hedge relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04, which was \neffective\n upon issuance and may be applied through December 31, 2022, is applicable to all contracts and hedging relationships that reference the London Interbank Offered Rate (LIBOR), or any other reference rate expected to be discontinued. As a result of the amendment to the revolving line of credit agreement, see\n Note 10 - Debt\n, which uses SOFR as an interest rate option instead of LIBOR to calculate the applicable interest rate, the new guidance does \nno\nt have a material impact on our consolidated and combined financial statements and related disclosures.\n \n\n\n3. Acquisitions:\nGrilla Grills Acquisition\nIn fiscal 2022, we acquired substantially all of the assets of the Grilla Grills business of Fahrenheit Technologies, Inc., or FTI, for $\n27\n million, financed using a combination of existing cash balances and cash from a $\n25\n million draw on our revolving line of credit. Grilla is a provider of high-quality, barbecue grills; Wi-Fi-enabled wood pellet grills; smokers; accessories; and modular outdoor kitchens.\n \nWe accounted for the acquisition as a business combination using the acquisition method of accounting. The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of the consideration transferred over the estimated fair value of the net assets received was recorded as goodwill. The factors that contributed to the recognition of goodwill primarily relate to acquisition-driven anticipated cost savings and synergies. The assembled workforce is not recognized separate and apart from goodwill as it is neither separable nor contractual in nature. During the year ended April 30, 2022, we increased goodwill by $\n3.5\n million as a result of valuations related to the Grilla Grills acquisition, which was subsequently written off as we recorded a full impairment of our goodwill on April 30, 2022. The goodwill related to the Grilla Grills acquisition is deductible for tax purposes. The valuation of the assets acquired, and liabilities assumed in the Grilla Grills acquisition is complete.\nF-\n17\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nThe following table summarizes the final allocation of the purchase price for the Grilla Grills acquisition (in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nGrilla Grills Acquisition\n(as reported)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInventories\n\n\n\u00a0\n\n\n$\n\n\n5,956\n\n\n\u00a0\n\n\n\n\n\n\nProperty, plant, and equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n105\n\n\n\u00a0\n\n\n\n\n\n\nIntangibles\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,495\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,534\n\n\n\u00a0\n\n\n\n\n\n\nTotal assets acquired\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,090\n\n\n\u00a0\n\n\n\n\n\n\nAccounts payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n894\n\n\n\u00a0\n\n\n\n\n\n\nAccrued expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n46\n\n\n\u00a0\n\n\n\n\n\n\nAccrued warranty\n\n\n\u00a0\n\n\n150\n\n\n\u00a0\n\n\n\n\n\n\nTotal liabilities assumed\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,090\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n27,000\n\n\n\u00a0\n\n\n\n\nWe recorded $\n646,000\n of acquisition-related costs, including $\n47,000\n of acquisition-related costs incurred in fiscal 2023, which were recorded in general and administrative expenses.  Grilla generated $\n15.0\n million and $\n2.6\n million of net sales in fiscal 2023 and fiscal 2022, respectively.\nWe determined the fair market value of the intangible assets acquired in accordance with ASC 805 - \nBusiness Combinations\n and ASC 820 - \nFair Value Measurement\n and assigned a fair market value of $\n18.5\n million to tradenames at the acquisition date.  We amortize assets in proportion to expected yearly revenue generated from the intangibles that we acquire.  The weighted average life of tradenames acquired is \n6.5\n years.\n \nAdditionally, the following table reflects the unaudited pro forma results of operations assuming that the Grilla Grills acquisition had occurred on May 1, 2020 (in thousands, except per share data):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nFor the Year Ended \nApril 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Year Ended\nApril 30, 2021\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n$\n\n\n259,647\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n290,267\n\n\n\u00a0\n\n\n\n\n\n\nIncome from operations\n\n\n\u00a0\n\n\n10,050\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,959\n\n\n\u00a0\n\n\n\n\n\n\nNet income per share - diluted\n\n\n\u00a0\n\n\n0.58\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.33\n\n\n\u00a0\n\n\n\n\nThe unaudited pro forma income from operations for the years ended April 30, 2022 and 2021 has been adjusted to reflect increased cost of goods sold from the fair value step-up in inventory, which is expensed over the first inventory cycle, and the amortization of intangibles as if the Grilla Grills acquisition had occurred on May 1, 2020.  The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the actual results that would have been achieved had the Grilla Grills acquisition occurred as of May 1, 2020, or the results that may be achieved in future periods.\n\n\n4. Leases\nWe lease real estate, as well as other equipment, under non-cancelable operating lease agreements. We recognize expenses under our operating lease assets and liabilities at the commencement date based on the present value of lease payments over the lease terms. Our leases do not provide an implicit interest rate. We use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Our lease agreements do not require material variable lease payments, residual value guarantees, or restrictive covenants. For operating leases, we recognize expense on a straight-line basis over the lease term. We record tenant improvement allowances as an offsetting adjustment included in our calculation of the respective right-of-use asset.\nMany of our leases include renewal options that can extend the lease term. These renewal options are at our sole discretion and are reflected in the lease term when they are reasonably certain to be exercised. The depreciable life of assets and leasehold improvements are limited by the expected lease term.\nF-\n18\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nThe amounts of assets and liabilities related to our operating leases as of April 30, 2023 are as follows (in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\nOperating Leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRight-of-use assets\n\n\n\u00a0\n\n\n$\n\n\n26,999\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n27,475\n\n\n\u00a0\n\n\n\n\n\n\nAccumulated amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,801\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,591\n\n\n)\n\n\n\n\n\n\nRight-of-use assets, net\n\n\n\u00a0\n\n\n$\n\n\n24,198\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,884\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nLease liabilities, current portion\n\n\n\u00a0\n\n\n$\n\n\n904\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,803\n\n\n\u00a0\n\n\n\n\n\n\nLease liabilities, net of current portion\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,064\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,076\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating lease liabilities\n\n\n\u00a0\n\n\n$\n\n\n24,968\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n24,879\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nDuring the fiscal year ended April 30, 2023, we recorded $\n4.0\n million of operating lease costs, of which $\n132,000\n related to short-term leases.  During the fiscal year ended April 30, 2022, we recorded $\n3.9\n million of operating lease costs, of which $\n218,000\n related to short-term leases.  As of April 30, 2023, our weighted average lease term and weighted average discount rate for our operating leases was \n15.6\n years and \n5.4\n%, respectively. The operating lease costs, weighted average lease term, and weighted average discount rate are primarily driven by the sublease of our corporate office and warehouse facility in Columbia, Missouri through fiscal 2039. The depreciable lives of right-of-use assets are limited by the lease term and are amortized on a straight-line basis over the life of the lease.\nDuring the fiscal year ended April 30, 2023, we amended the existing operating lease for our corporate office and warehouse facility in Columbia, Missouri to expand our usable square footage in our warehouse. The term of the lease remains unchanged, through fiscal 2039. During the fiscal year ended April 30, 2023, we recorded a right-of-use asset and lease liability of $\n1.9\n million.\n\u00a0\nDuring the fiscal year ended April 30, 2023, an operating lease for warehouse and office space in Wilsonville, Oregon expired.\n \nDuring the fiscal year ended April 30, 2023, we entered into an Assignment and Assumption of Lease Agreement (the \"Assignment Agreement\") with our former parent company and RCS - S&W Facility, LLC to obtain the rights of lease to the entire facility in Columbia, Missouri, subject to certain conditions. For more information, refer to Note 16 - Commitments and Contingencies.\n\u00a0\nDuring the fiscal year ended April 30, 2023, an operating lease for a separate location in Columbia, Missouri expired.\n \nFuture lease payments for all our operating leases as of April 30, 2023, and for succeeding fiscal years, are as follows (in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nOperating\n\n\n\u00a0\n\n\n\n\n\n\n2024\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,251\n\n\n\u00a0\n\n\n\n\n\n\n2025\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,241\n\n\n\u00a0\n\n\n\n\n\n\n2026\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,178\n\n\n\u00a0\n\n\n\n\n\n\n2027\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,207\n\n\n\u00a0\n\n\n\n\n\n\n2028\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,238\n\n\n\u00a0\n\n\n\n\n\n\nThereafter\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,426\n\n\n\u00a0\n\n\n\n\n\n\nTotal future lease payments\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n37,541\n\n\n\u00a0\n\n\n\n\n\n\nLess amounts representing interest\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n12,573\n\n\n)\n\n\n\n\n\n\nPresent value of lease payments\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,968\n\n\n\u00a0\n\n\n\n\n\n\nLess current maturities of lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n904\n\n\n)\n\n\n\n\n\n\nLong-term maturities of lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n24,064\n\n\n\u00a0\n\n\n\n\n\u00a0\nF-\n19\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nDuring the fiscal year ended April 30, 2023, the cash paid for amounts included in the measurement of the liabilities and the operating cash flows was $\n1.9\n million.  During the fiscal year ended April 30, 2022, the cash paid for amounts included in the measurement of the liabilities and the operating cash flows was $\n1.8\n million.\n\n\n5. Inventory\nThe following table sets forth a summary of inventories stated at lower of cost or net realizable value, as of April 30, 2023 and 2022 (in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\nFinished goods\n\n\n\u00a0\n\n\n$\n\n\n90,906\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n110,650\n\n\n\u00a0\n\n\n\n\n\n\nFinished parts\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,818\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,353\n\n\n\u00a0\n\n\n\n\n\n\nWork in process\n\n\n\u00a0\n\n\n\u00a0\n\n\n66\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n194\n\n\n\u00a0\n\n\n\n\n\n\nRaw material\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,944\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,486\n\n\n\u00a0\n\n\n\n\n\n\nTotal inventories\n\n\n\u00a0\n\n\n$\n\n\n99,734\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n121,683\n\n\n\u00a0\n\n\n\n\nCertain of our suppliers in Asia require deposits to procure our inventory products prior to beginning the manufacturing process.  These deposits on our inventory varies by supplier and range from \n30\n% to \n100\n%.   For the fiscal years ended April 30, 2023 and 2022, we have recorded $\n4.3\n million and $\n3.9\n million, respectively, in prepaid expenses and other current assets on our consolidated balance sheet.\n \n\n\n6. Property, Plant, and Equipment\nThe following table summarizes property, plant, and equipment as of April 30, 2023 and 2022 (in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n \n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nMachinery and equipment\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n17,678\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n\u00a0\n\n\n17,664\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nComputer and other equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,865\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,095\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nLeasehold improvements\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n316\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n2,364\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n19,859\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n22,123\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nLess: Accumulated depreciation and amortization\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n(\n11,229\n\n\n)\n\n\n \n\n\n \n\n\n\u00a0\n\n\n(\n12,635\n\n\n)\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n8,630\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n9,488\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nConstruction in progress\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n858\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n1,133\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nTotal property, plant, and equipment, net\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n9,488\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n\u00a0\n\n\n10,621\n\n\n\u00a0\n\n\n \n\n\n\n\n\u00a0\nDepreciation expense for the fiscal years ended April 30, 2023, 2022, and 2021 was $\n2.7\n milli\non, $\n2.3\n million, \nand $\n3.0\n million, respectively.\n \nThe following table summarizes depreciation and amortization expense, which includes amortization of intangibles, by line item for the fiscal years ended April 30, 2023, 2022, and 2021 (in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Years Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n1,429\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n1,299\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n1,016\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n415\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n203\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n43\n\n\n\u00a0\n\n\n\n\n\n\nSelling, marketing, and distribution\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n362\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n510\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n114\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative (a)\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n14,305\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n14,955\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,653\n\n\n\u00a0\n\n\n\n\n\n\nTotal depreciation and amortization\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n16,511\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n16,967\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n19,826\n\n\n\u00a0\n\n\n\n\n\u00a0\n(a)\nGeneral and administrative expenses included $\n13.6\n million,\n $\n14.4\n million, a\nnd $\n16.8\n million of amortization for the fiscal years ended April 30, 2023, 2022, and 2021, respectively, which were recorded as a result of our acquisitions.\n\n\nF-\n20\n\n\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \n\n\nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\n\n\u00a0\n\n\n7. Intangible Assets\nThe following table summarizes intangible assets as of April 30, 2023 and 2022 (in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nGross\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nGross\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nCarrying\n\n\n\u00a0\n\n\n\u00a0\n\n\nAccumulated\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet Carrying\n\n\n\u00a0\n\n\n\u00a0\n\n\nCarrying\n\n\n\u00a0\n\n\n\u00a0\n\n\nAccumulated\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet Carrying\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmortization\n\n\n\u00a0\n\n\n \n\n\nAmount\n\n\n\u00a0\n\n\n \n\n\nAmount\n\n\n\u00a0\n\n\n \n\n\nAmortization\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\nCustomer relationships\n\n\n\u00a0\n\n\n$\n\n\n89,980\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n74,035\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n15,945\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n89,980\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n67,955\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n22,025\n\n\n\u00a0\n\n\n\n\n\n\nDeveloped software and technology\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n21,978\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,044\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,812\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n19,395\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,417\n\n\n\u00a0\n\n\n\n\n\n\nPatents, trademarks, and trade names\n\n\n\u00a0\n\n\n\u00a0\n\n\n68,943\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n44,042\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,901\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n68,663\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n39,030\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n29,633\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n189,945\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n140,055\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n49,890\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n184,455\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n126,380\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n58,075\n\n\n\u00a0\n\n\n\n\n\n\nPatents and software in development\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,701\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,701\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,689\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,689\n\n\n\u00a0\n\n\n\n\n\n\nTotal definite-lived intangible assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n191,646\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n140,055\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n51,591\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n189,144\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n126,380\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n62,764\n\n\n\u00a0\n\n\n\n\n\n\nIndefinite-lived intangible assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n430\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n430\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n430\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n430\n\n\n\u00a0\n\n\n\n\n\n\nTotal intangible assets\n\n\n\u00a0\n\n\n$\n\n\n192,076\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n140,055\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n52,021\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n189,574\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n126,380\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n63,194\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nWe amortize intangible assets with determinable lives over a weighted-average period of approximately \nfive years\n. The weighted-average periods of amortization by intangible asset class is approximately \nfive years\n for customer relationships, \nsix years\n for developed software and technology, and \nsix years\n for patents, trademarks, and trade names. Amortization expense amounted to $\n13.7\n million,\n $\n14.5\n million, a\nnd $\n16.8\n million for the fiscal years ended April 30, 2023, 2022, and 2021, respectively.\n \nThe following table represents future expected amortization expense as of April 30, 2023 (in thousands):\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nFiscal\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\n\n\n\n2024\n\n\n\u00a0\n\n\n$\n\n\n13,614\n\n\n\u00a0\n\n\n\n\n\n\n2025\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,312\n\n\n\u00a0\n\n\n\n\n\n\n2026\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,097\n\n\n\u00a0\n\n\n\n\n\n\n2027\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,753\n\n\n\u00a0\n\n\n\n\n\n\n2028\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,463\n\n\n\u00a0\n\n\n\n\n\n\nThereafter\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,651\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n49,890\n\n\n\u00a0\n\n\n\n\n\u00a0\nWe did \nno\nt record any impairment charges for long-lived intangible assets in the fiscal years ended April 30, 2023, 2022, and 2021, respectively, excluding the goodwill adjustments noted below.\n\n\n8. Goodwill\nChanges in goodwill are summarized as follows (in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nTotal\nGoodwill\n\n\n\u00a0\n\n\n\n\n\n\nBalance as of April 30, 2021\n\n\n$\n\n\n\u00a0\n\n\n64,315\n\n\n\u00a0\n\n\n\n\n\n\nAdjustments\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nAcquisitions\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,534\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill impairment\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n67,849\n\n\n)\n\n\n\n\n\n\nBalance as of April 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nAdjustments\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nBalance as of April 30, 2023\n\n\n$\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\u00a0\nAs of April 30, 2023, we have accumulated $\n177.2\n million of goodwill impairment charges since fiscal 2015 which includes all of our accumulated goodwill to date. Refer to Note 2 \u2013 \nSummary of Significant Accounting Policies\n for more details relating to these impairments.\n \n\n\nF-\n21\n\n\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \n\n\nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\n\n\u00a0\n\n\n9. Accrued Expenses\nThe following table sets forth other accrued expenses as of April 30, 2023 and 2022 (in thousands):\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\nAccrued sales allowances\n\n\n$\n\n\n2,453\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,392\n\n\n\u00a0\n\n\n\n\n\n\nAccrued freight\n\n\n\u00a0\n\n\n1,962\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,253\n\n\n\u00a0\n\n\n\n\n\n\nAccrued professional fees\n\n\n\u00a0\n\n\n1,106\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n951\n\n\n\u00a0\n\n\n\n\n\n\nAccrued commissions\n\n\n\u00a0\n\n\n1,072\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,175\n\n\n\u00a0\n\n\n\n\n\n\nAccrued warranty\n\n\n\u00a0\n\n\n966\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n786\n\n\n\u00a0\n\n\n\n\n\n\nAccrued employee benefits\n\n\n\u00a0\n\n\n568\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n312\n\n\n\u00a0\n\n\n\n\n\n\nAccrued taxes other than income\n\n\n\u00a0\n\n\n346\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n718\n\n\n\u00a0\n\n\n\n\n\n\nAccrued other\n\n\n\u00a0\n\n\n268\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n266\n\n\n\u00a0\n\n\n\n\n\n\nTotal accrued expenses\n\n\n$\n\n\n8,741\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7,853\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n10. Debt\nOn August 24, 2020, we entered into a financing arrangement consisting of a $\n50.0\n million revolving line of credit secured by substantially all our assets, maturing \nfive years\n from the closing date, with available borrowings determined by a borrowing base calculation. The revolving line included an option to increase the credit commitment by an additional $\n15\n million. The revolving line bore interest at a fluctuating rate equal to the Base Rate or LIBOR, as applicable, plus the applicable margin.\nOn March 25, 2022, we amended our secured loan and security agreement, or the Amended Loan and Security Agreement, increasing the revolving line of credit to $\n75\n million, secured by substantially all our assets, maturing in \nMarch 2027\n, with available borrowings determined by a borrowing base calculation. \nThe amendment also includes an option to increase the credit commitment by an additional $\n15\n million. The amended revolving line bears interest at a fluctuating rate equal to the Base Rate or Secured Overnight Financing Rate, or SOFR, as applicable, plus the applicable margin.\n The applicable margin can range from a minimum of \n0.25\n% to a maximum of \n1.75\n% based on certain conditions as defined in the Amended Loan and Security Agreement. The financing arrangement contains covenants relating to minimum debt service coverage.\nAs of April 30, 2023, we had $\n5.0\n million of borrowings outstanding on the revolving line of credit, which bore interest at \n6.05\n%, equal to SOFR plus the applicable margin.  The proceeds from the borrowings on our revolving line of credit were used to purchase the Grilla Grills branded products from FTI in fiscal 2022.\n \nIn fiscal 2023, we executed an irrevocable standby letter of credit for $\n1.7\n million to collateralize duty drawback bonds.  During the fiscal year ended April 30, 2023, \nno\n amounts have been drawn on the letter of credit.\n \n\n\n11. Fair Value Measurement\nWe follow the provisions of ASC 820-10, Fair Value Measurements and Disclosures Topic, or ASC 820-10, for our financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value under GAAP and requires expanded disclosures regarding fair value measurements. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.\nFinancial assets and liabilities recorded on the accompanying consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:\nLevel 1 \u2014 \nFinancial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access at the measurement date (examples include active exchange-traded equity securities, listed derivatives, and most U.S. Government and agency securities).\nOur cash and cash equivalents, which are measured at fair value on a recurring basis, totaled $\n22.0\n million as of April 30, 2023 and $\n19.5\n million as of April 30, 2022.  Cash and cash equivalents are reported at fair value based on market prices for identical assets in active markets, and therefore classified as Level 1 of the value hierarchy.\nF-\n22\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nLevel 2\n \u2014 Financial assets and liabilities whose values are based on quoted prices in markets in which trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 2 inputs include the following:\n\u2022\nquoted prices for identical or similar assets or liabilities in non-active markets (such as corporate and municipal bonds which trade infrequently);\n\u2022\ninputs other than quoted prices that are observable for substantially the full term of the asset or liability (such as interest rate and currency swaps); and\n\u2022\ninputs that are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability (such as certain securities and derivatives).\nThe carrying value of our revolving line of credit approximated the fair value, as of April 30, 2023, in considering Level 2 inputs within the hierarchy.\n \nLevel 3\n \u2014 Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect our assumptions about the assumptions a market participant would use in pricing the asset or liability.\n \nWe currently do \nno\nt have any Level 3 financial assets or liabilities as of April 30, 2023.\n\n\n\u00a0\n\n\n12. Self-Insurance Reserves\nDuring the fiscal year ended April 30, 2023, we transitioned to a self-insured group health insurance program.  Prior to this transition, we had fully guaranteed cost group health insurance programs.  We are now self-insured through retentions or deductibles with stop-loss insurance for medical claims that reach a certain limit per claim.  We record our liability for estimated incurred losses based on historical claim data in the accompanying consolidated financial statements on an undiscounted basis.  While we believe these reserves to be adequate, it is possible that the ultimate liabilities will exceed such estimates.\n \nThe following table summarizes the activity related to self-insurance reserves in the fiscal years ended April 30, 2023 and 2022 (in thousands):\n \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nFor the years ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n \n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nBeginning balance\n\n\n\u00a0\n\n\n$\n\n\n29\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n33\n\n\n\u00a0\n\n\n\n\n\n\nAdditional provisions charged to expense\n\n\n \n\n\n\u00a0\n\n\n2,094\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nPayments\n\n\n \n\n\n\u00a0\n\n\n(\n1,727\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4\n\n\n)\n\n\n\n\n\n\nEnding balance\n\n\n\u00a0\n\n\n$\n\n\n396\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n29\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n13. Equity\nTreasury Stock\nOn December 6, 2021, our Board of Directors authorized the repurchase of up to $\n15.0\n million of our common stock, subject to certain conditions, in the open market, or block purchases, executable through \nDecember 2023\n. During the fiscal year ended April 30, 2022, we completed this stock repurchase program by purchasing \n836,964\n shares of our common stock, in the open market, for a total of $\n15.0\n million under this authorization, utilizing cash on hand. We have recorded the shares we purchased, at cost, as a reduction of stockholders\u2019 equity on the consolidated balance sheet.\n \nOn September 30, 2022, our Board of Directors authorized the repurchase of up to $\n10.0\n million of our common stock, subject to certain conditions, in the open market, in block purchases, or in privately negotiated transactions, executable through \nSeptember 29, 2023\n. During the fiscal year ended April 30, 2023, under this authorization, we repurchased \n377,034\n shares of our common stock, in the open market, for $\n3.5\n million utilizing cash on hand.\nF-\n23\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nIncentive Stock and Employee Stock Purchase Plans\n \nPrior to the Separation, our employees participated in \ntwo\n of our former parent\u2019s sponsored incentive stock plans. All grants made prior to the Separation covering all participants were issued under those plans.\nCertain of our employees have participated in our former parent\u2019s 2013 Incentive Stock Plan. The following disclosures of stock-based compensation expense recognized by us, prior to the Separation, are based on grants related directly to our employees and an allocation of our former parent\u2019s corporate and shared employee stock-based compensation expenses. Accordingly, the amounts presented are not necessarily indicative of future awards and do not necessarily reflect the results that we would have experienced as an independent company for the periods presented.\nIn connection with the Separation, outstanding and vested awards granted to employees under our former parent\u2019s incentive stock plans were converted into our stock-based awards. Unvested awards held by our employees were converted into our stock-based awards. The ratio used to convert our former parent incentive plan awards was intended to preserve the aggregate intrinsic value of each award immediately after the Separation when compared to the aggregate intrinsic value immediately prior to the Separation. All performance-based restricted share units, or PSUs, outstanding on the Distribution Date were converted to PSUs using payout metrics based on a combination of actual performance through the Distribution Date and the target for the remainder of the performance period. Due to the conversion, we expect to incur $\n711,000\n of incremental stock-based compensation expense for our employees to be recognized over the awards' remaining vesting period.  As of April 30, 2023, the remaining vesting period was \n0.57\n years.\nPost-Separation, we have a stock incentive plan, or 2020 Incentive Compensation Plan, under which we can grant new awards to our employees and directors. Our 2020 Incentive Compensation Plan authorizes the issuance of awards covering up to \n1,397,510\n shares of our common stock. The plan permits the grant of options to acquire common stock, restricted stock awards, restricted stock units, or RSUs, stock appreciation rights, bonus stock and awards in lieu of obligations, performance awards, and dividend equivalents. Our Board of Directors, or a committee established by our Board of Directors, administers the plan, selects recipients to whom awards are granted, and determines the grants to be awarded. Stock options granted under the plan are exercisable at a price determined by our Board of Directors or a committee thereof at the time of grant, but in no event, less than fair market value of our common stock on the date granted. Grants of options may be made to employees and directors without regard to any performance measures. All options issued pursuant to the plan are generally nontransferable and subject to forfeiture.\nUnless terminated earlier by our Board of Directors, our 2020 Incentive Compensation Plan will terminate at the earliest of (1) the tenth anniversary of the effective date of our 2020 Incentive Compensation Plan, or (2) such time as \nno\n shares of common stock remain available for issuance under the plan and we have no further rights or obligations with respect to outstanding awards under the plan. The date of grant of an award is deemed to be the date upon which our Board of Directors or a committee thereof authorizes the granting of such award.\nExcept in specific circumstances, grants generally vest over a period of \nthree\n or \nfour years\n and grants of stock options are exercisable for a period of \n10 years\n. Our 2020 Incentive Compensation Plan also permits the grant of awards to non-employees.\nWe recognized $\n4.1\n million and $\n2.8\n million, respectively, of stock-based compensation expense for the fiscal years ended April 30, 2023 and 2022.\n \nWe recognized $\n2.9\n million of stock-based compensation expense for the fiscal year ended April 30, 2021. Of the total stock-based compensation we recognized for the period prior to the Separation, for the year ended April 30, 2021, $\n224,000\n related to allocations of our former parent\u2019s corporate and shared employee stock-based compensation expense.\n \nWe include stock-based compensation expense in the cost of sales, sales and marketing, research and development, and general and administrative expenses.\nWe grant RSUs to employees and directors. The awards are made at no cost to the recipient. An RSU represents the right to receive one share of our common stock and does not carry voting or dividend rights.\n Except in specific circumstances, \nRSU grants to employees generally vest over a period of \nfour years\n with one-fourth of the units vesting on each anniversary of the grant date.\n We amortize the aggregate fair value of our RSU grants to compensation expense over the vesting period. Awards that do not vest are forfeited.\nF-\n24\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nWe grant performance stock units, or PSUs, to our executive officers and certain other employees from time to time. At the time of grant, we calculate the fair value of our PSUs using the Monte-Carlo simulation. \nWe incorporate the following variables into the valuation model:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the years ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nGrant date fair market value\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAmerican Outdoor Brands, Inc.\n\n\n\u00a0\n\n\n$\n\n\n12.70\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n26.44\n\n\n\u00a0\n\n\n\n\n\n\nRussell 2000 Index\n\n\n\u00a0\n\n\n$\n\n\n1,882.91\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,277.45\n\n\n\u00a0\n\n\n\n\n\n\nVolatility (a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAmerican Outdoor Brands, Inc.\n\n\n\u00a0\n\n\n\u00a0\n\n\n49.04\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n47.78\n\n\n%\n\n\n\n\n\n\nRussell 2000 Index\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.75\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.69\n\n\n%\n\n\n\n\n\n\nCorrelation coefficient (b)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.50\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.46\n\n\n\u00a0\n\n\n\n\n\n\nRisk-free interest rate (c)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.91\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.33\n\n\n%\n\n\n\n\n\n\nDividend yield (d)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\n\n\u00a0\n(a)\nExpected volatility is calculated based on a peer group over the most recent period that represents the remaining term of the performance period as of the valuation date, or \nthree year\ns.\n \n(b)\nThe correlation coefficient utilizes the same historical price data used to develop the volatility assumptions.\n \n(c)\nThe risk-free interest rate is based on the yield of a zero-coupon U.S. Treasury bill, commensurate with the \nthree-year\n performance period.\n \n(d)\nWe do not expect to pay dividends in the foreseeable future.\n \nThe PSUs vest, and the fair value of such PSUs will be recognized, over the corresponding \nthree-year\n performance period. Our PSUs have a maximum aggregate award equal to \n200\n% of the target unit amount granted. Generally, the number of PSUs that may be earned depends upon the total stockholder return, or TSR, of our common stock compared with the TSR of the Russell 2000 Index, or the RUT, over the three-year performance period. For PSUs, our stock must outperform the RUT by \n5\n% in order for the target award to vest. In addition, there is a cap on the number of shares that can be earned under our PSUs, which is equal to six times the grant-date value of each award.\nDuring the fiscal year ended April 30, 2023, we granted an aggregate of \n311,676\n service based RSUs, including \n52,277\n RSUs to executive officers and \n259,399\n RSUs to non-executive officer employees and directors under our 2020 Incentive Compensation Plan.  We granted an aggregate of \n52,277\n PSUs to our executive officers during fiscal 2023.  In addition, in connection with a 2019 grant, we vested \n7,200\n PSUs (i.e., the target amount granted), which achieved \n200\n% of the maximum aggregate award possible, resulting in awards totaling \n14,400\n shares to certain of our executive officers and employees of our former parent that were granted as part of the Separation.  During the fiscal year ended April 30, 2023, we cancelled \n14,390\n RSUs as a result of the service condition not being met.  In connection with the vesting RSUs, during the fiscal year ended April 30, 2023, we delivered common stock to our employees, including executive officers and directors, with a total market value of $\n1.5\n million.\nDuring the fiscal year ended April 30, 2022, we granted an aggregate of \n77,251\n service based RSUs, including \n28,948\n RSUs to executive officers and \n48,303\n RSUs to non-executive officer employees and directors under our 2020 Incentive Compensation Plan.  We granted an aggregate of \n26,809\n PSUs to our executive officers during fiscal 2022.  In addition, in connection with a 2018 grant, we vested \n10,800\n PSUs (i.e., the target amount granted), which achieved \n200\n% of the maximum aggregate award possible, resulting in awards totaling \n21,600\n shares to certain of our executive officers and employees of our former parent that were granted as part of the Separation.  During the fiscal year ended April 30, 2022, we cancelled \n40,929\n RSUs, and \n24,565\n PSUs, as a result of the service condition not being met.  In connection with the vesting RSUs, during the fiscal year ended April 30, 2022, we delivered common stock to our employees, including executive officers and directors, with a total market value of $\n3.3\n million.\nDuring the fiscal year ended April 30, 2021, we granted an aggregate of \n166,319\n service based RSUs to executive officers, non-executive officer employees, and directors, and \n78,045\n PSUs to certain executive officers and employees under our 2020 Incentive Compensation Plan. During the fiscal year ended April 30, 2021, we cancelled \n2,994\n service based RSUs as a result of the service condition not being met. In connection with the vesting of RSUs, during the fiscal year ended April 30, 2021, we delivered common stock to employees and directors under our 2020 Incentive Compensation Plan with a total market value of $\n891,000\n.\nF-\n25\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nA summary of activity for unvested RSUs and PSUs under our 2020 Incentive Compensation Plan for the fiscal years ended April 30, 2023 and 2022 is as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Years Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal # of\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal # of\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nRestricted\n\n\n\u00a0\n\n\n\u00a0\n\n\nGrant Date\n\n\n\u00a0\n\n\n\u00a0\n\n\nRestricted\n\n\n\u00a0\n\n\n\u00a0\n\n\nGrant Date\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nStock Units\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value\n\n\n\u00a0\n\n\n\u00a0\n\n\nStock Units\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value\n\n\n\u00a0\n\n\n\n\n\n\nRSUs and PSUs outstanding, beginning of period\n\n\n\u00a0\n\n\n\u00a0\n\n\n349,774\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n15.93\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n427,519\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11.67\n\n\n\u00a0\n\n\n\n\n\n\nAwarded\n\n\n\u00a0\n\n\n\u00a0\n\n\n371,153\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.68\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n114,860\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.92\n\n\n\u00a0\n\n\n\n\n\n\nVested\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n145,958\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.62\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n127,111\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.57\n\n\n\u00a0\n\n\n\n\n\n\nForfeited\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n14,390\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.20\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n65,494\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.86\n\n\n\u00a0\n\n\n\n\n\n\nRSUs and PSUs outstanding, end of period\n\n\n\u00a0\n\n\n\u00a0\n\n\n560,579\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13.36\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n349,774\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n15.93\n\n\n\u00a0\n\n\n\n\n\u00a0\nAs of April 30, 2023, there was $\n2.3\n million of unrecognized compensation expense related to unvested RSUs and PSUs.  We expect to recognize this expense over a weighted average remaining contractual term of \n1.1\n years.\n \nWe have an employee stock purchase plan, or ESPP, which authorizes the sale of up to \n419,253\n shares of our common stock to employees. All options and rights to participate in our ESPP are nontransferable and subject to forfeiture in accordance with our ESPP guidelines. Our current ESPP will be implemented in a series of successive offering periods, each with a maximum duration of \n12\n months. If the fair market value per share of our common stock on any purchase date is less than the fair market value per share on the start date of a 12-month offering period, then that offering period will automatically terminate, and a new 12-month offering period will begin on the next business day. Each offering period will begin on April 1 or October 1, as applicable, immediately following the end of the previous offering period. Payroll deductions will be on an after-tax basis, in an amount of not less than \n1\n% and not more than \n20\n% (or such greater percentage as the committee appointed to administer our ESPP may establish from time to time before the first day of an offering period) of a participant\u2019s compensation on each payroll date. The option exercise price per share will equal \n85\n% of the lower of the fair market value on the first day of the offering period or the fair market value on the exercise date. The maximum number of shares that a participant may purchase during any purchase period is the greater of \n2,500\n shares, or a total of $\n25,000\n in shares, based on the fair market value on the first day of the offering period. Our ESPP will remain in effect until the earliest of (a) the exercise date that participants become entitled to purchase a number of shares greater than the number of reserved shares available for purchase under our ESPP, (b) such date as is determined by our Board of Directors in its discretion, or (c) the tenth anniversary of the effective date. In the event of certain corporate transactions, each option outstanding under our ESPP will be assumed or an equivalent option will be substituted by the successor corporation or a parent or subsidiary of such successor corporation.  During fiscal years ended April 30, 2023 and 2022, \n89,860\n shares and \n76,098\n shares, respectively, were purchased by our employees under our ESPP.\n \nWe measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. We amortize the fair value of the award over the vesting period of the option. Under the ESPP, fair value is determined at the beginning of the purchase period and amortized over the term of each exercise period.\n \nThe following assumptions were used in valuing ESPP purchases under our ESPP during the years ended April 30, 2023 and 2022:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nFor the years ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nRisk-free interest rate\n\n\n\u00a0\n\n\n3.97\n% - \n4.01\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.05\n% - \n0.09\n%\n\n\n\u00a0\n\n\n\n\n\n\nExpected term\n\n\n\u00a0\n\n\n6 months\n\u00a0- \n12 months\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\u00a0months - \n12\n\u00a0months\n\n\n\u00a0\n\n\n\n\n\n\nExpected volatility\n\n\n\u00a0\n\n\n51.9\n% - \n58.4\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n54.7\n% - \n56.7\n%\n\n\n\u00a0\n\n\n\n\n\n\nDividend yield\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\n\n\u00a0\nWe estimate expected volatility using historical volatility for the expected term. The fair value of each stock option or ESPP purchase was estimated on the date of the grant using the Black-Scholes option pricing model (using the risk-free interest rate, expected term, expected volatility, and dividend yield variables, as noted in the above table).\n \n\n\nF-\n26\n\n\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \n\n\nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\n\n\u00a0\n\n\n14. Employer Sponsored Benefit Plans\nContributory Defined Investment Plan\n \u2014 Our employees participate in a contributory defined investment plan, subject to service requirements.  Under the terms of the plan, employees may contribute from \n1\n% to \n30\n% of their annual pay and we generally make discretionary matching contributions of up to \n50\n% of the first \n6\n% of employee contributions to the plan. We contributed $\n500,000\n, $\n592,000\n, and $\n461,000\n for the fiscal years ended April 30, 2023, 2022, and 2021, respectively.\n \nNon-Contributory Profit-Sharing Plan\n \u2014 Our employees participate in our non-contributory profit-sharing plan upon meeting certain eligibility requirements. \nEmployees become eligible on May 1 following the completion of a full fiscal year of continuous service.\n Our contributions to the plan are discretionary. We did \nno\nt contribute to the plan for the fiscal year 2023.  For fiscal years 2022 and 2021, we contributed $\n984,000\n and $\n1.9\n million, respectively, which has been recorded in general and administrative costs. Contributions are funded after the fiscal year-end.\n \n\n\n15. Income Taxes\n \nPrior to the Separation, income taxes were calculated as if we file income tax returns on a standalone basis. Our U.S. operations and certain of our non-U.S. operations historically have been included in the tax returns of our former parent or its subsidiaries. We believe the assumptions supporting our allocation and presentation of income taxes on a separate return basis were reasonable.\n \nIncome tax expense/(benefit) from operations consists of the following (in thousands):\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Years Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nCurrent:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFederal\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n(\n126\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n2,356\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n8,356\n\n\n\u00a0\n\n\n\n\n\n\nState\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n123\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n302\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,085\n\n\n\u00a0\n\n\n\n\n\n\nForeign\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\n\n\n\nTotal current\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n249\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,661\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,445\n\n\n\u00a0\n\n\n\n\n\n\nDeferred:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDeferred federal\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,958\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,222\n\n\n)\n\n\n\n\n\n\nDeferred state\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n725\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n336\n\n\n)\n\n\n\n\n\n\nTotal deferred\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,683\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,558\n\n\n)\n\n\n\n\n\n\nTotal income tax expense/(benefit)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n(\n249\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n9,344\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n5,887\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nThe following table presents a reconciliation of the provision for income taxes from operations at statutory rates to the provision (benefit) in the consolidated and combined financial statements (in thousands):\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFor the Years Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nFederal income taxes expected at the statutory rate (a)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n(\n2,577\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n(\n11,663\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n5,101\n\n\n\u00a0\n\n\n\n\n\n\nState income taxes, less federal income tax benefit\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n303\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n633\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n586\n\n\n\u00a0\n\n\n\n\n\n\nStock compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n96\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n276\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n83\n\n\n)\n\n\n\n\n\n\nResearch and development tax credit\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n200\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n291\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n288\n\n\n)\n\n\n\n\n\n\nGoodwill impairment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,633\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nChange in deferred tax valuation allowance\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,600\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,200\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n241\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n135\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n374\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n330\n\n\n\u00a0\n\n\n\n\n\n\nTotal income tax expense/(benefit)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n(\n249\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n9,344\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n5,887\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n(a)\nWe had a federal statutory rate of \n21\n% in fiscal 2023, 2022, and 2021.\nF-\n27\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nDeferred tax assets (liabilities) related to temporary differences are the following (in thousands):\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nApril 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30, 2022\n\n\n\u00a0\n\n\n\n\n\n\nNon-current tax assets (liabilities):\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInventories\n\n\n$\n\n\n\u00a0\n\n\n1,574\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n1,594\n\n\n\u00a0\n\n\n\n\n\n\nAccrued expenses, including compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,446\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,805\n\n\n\u00a0\n\n\n\n\n\n\nProduct liability\n\n\n\u00a0\n\n\n\u00a0\n\n\n28\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29\n\n\n\u00a0\n\n\n\n\n\n\nWorkers' compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\u00a0\n\n\n\n\n\n\nWarranty reserve\n\n\n\u00a0\n\n\n\u00a0\n\n\n222\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n147\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,172\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n801\n\n\n\u00a0\n\n\n\n\n\n\nState bonus depreciation\n\n\n\u00a0\n\n\n\u00a0\n\n\n150\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n98\n\n\n\u00a0\n\n\n\n\n\n\nProperty, plant, and equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,577\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,949\n\n\n)\n\n\n\n\n\n\nIntangible assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,877\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,817\n\n\n\u00a0\n\n\n\n\n\n\nRight-of Use assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5,640\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5,570\n\n\n)\n\n\n\n\n\n\nRight-of Use lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,820\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,803\n\n\n\u00a0\n\n\n\n\n\n\nCapitalized R&D\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,340\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n15\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n141\n\n\n)\n\n\n\n\n\n\nLoss and credit carryforwards\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,636\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nLess valuation allowance\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n17,041\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n14,441\n\n\n)\n\n\n\n\n\n\nNet deferred tax asset/(liability) \u2014 total\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nAs of April 30, 2023, federal and state net operating loss, or NOL, carryforwards were $\n6.2\n million and $\n2.9\n million, respectively, and $\n200,000\n of federal research & development tax credits. The  tax-effected deferred tax assets recorded for federal and state NOL carryforwards were $\n1.3\n million and $\n139,000\n, respectively. Under legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act, or Tax Act, federal NOLs incurred in taxable years ending after December 31, 2017, may be carried forward indefinitely. The federal research and development credits of $\n200,000\n, which, if unused, will expire after \nApril 30, 2043\n.  State NOL carryforwards of $\n2.3\n million, which, if unused, will expire in years \nApril 30, 2033\n through \nApril 30, 2043\n. The remaining $\n605,000\n of the state NOL carryforwards may also be carried forward indefinitely.\nThere were \nno\n federal or state net operating loss carryforwards or credits as of April 30, 2022.\nAs of April 30, 2023, we continued to maintain a full valuation allowance of $\n17.0\n million against our net deferred income tax assets based on management's assessment that it was more likely than not that our deferred income tax assets will not be recovered. We will continue to evaluate the need for a valuation allowance on our deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances. As of April 30, 2022, we had established a full valuation allowance of $\n14.4\n million against our net deferred income tax assets based on management's assessment that it was more likely than not that our deferred income tax assets will not be recovered.\nThe income tax provisions (benefit) represent effective tax rates of \n2.0\n%, (\n16.8\n%) and \n24.2\n% for the fiscal year ended April 30, 2023, 2022, and 2021, respectivel\ny. Excluding the impact of the non-cash goodwill impairment charges, and establishing the full valuation allowance against our deferred taxes, our effective tax rate for the fiscal year ended April 30, 2022 was \n19.6\n%.\n \nU.S. income taxes have not been provided on $\n302,000\n of undistributed earnings of our foreign subsidiary since it is our intention to permanently reinvest such earnings offshore. If the earnings were distributed in the form of dividends, we would not be subject to U.S. tax as a result of the Tax Act but could be subject to foreign income and withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practical.\nAs of April 30, 2023 and 2022, we did \nno\nt have any gross tax-effected unrecognized tax benefits.\n \nF-\n28\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nWith limited exception, we are subject to U.S. federal, state, and local, or non-U.S. income tax audits by tax authorities for fiscal years subsequent to April 30, 2019. On March 7, 2023, the Internal Revenue Service (\u201cIRS\u201d) initiated an examination of our Federal income tax return filed for the tax period ended April 30, 2021.  We have evaluated our income tax positions using the more-likely-than-not threshold in order to determine the amount of tax benefits to be recognized in our consolidated financial statements. We do not anticipate any significant changes to the net amount of Federal income tax for the period under audit, accordingly we have not recorded any related income tax impacts at this time. However, if audit proceedings with the IRS cause us to believe that any our previously recognized tax positions no longer meet the more-likely-than-not threshold, the related benefit amount would be derecognized in the first financial reporting period in which that threshold is no longer met.\n\n\n16. Commitments and Contingencies\n \nLitigation\n \nFrom time to time, we are involved in lawsuits, claims, investigations, and proceedings, including those relating to product liability, intellectual property, commercial relationships, employment issues, and governmental matters, which arise in the ordinary course of business.\nFor the fiscal years ended April 30, 2023, 2022, and 2021, we did not incur any material expenses in defense and administrative costs relative to product liability litigation. In addition, we did not incur any settlement fees related to product liability cases in those fiscal years.\n \nContracts\n \nEmployment Agreements \n\u2014 We have employment, severance, and change of control agreements with certain officers and managers.\n \nOther Agreements\n \u2014 We have distribution agreements with various third parties in the ordinary course of business.\n \nLeases\n \nThe following summarizes our operating leases for office and/or manufacturing space:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nLocation of Lease\n\n\n\u00a0\n\n\nExpiration Date\n\n\n\n\n\n\nHolland, Michigan\n\n\n\u00a0\n\n\nJuly 31, 2023\n\n\n\n\n\n\nShenzhen, China\n\n\n\u00a0\n\n\nAugust 31, 2023\n\n\n\n\n\n\nPhoenix, Arizona\n\n\n\u00a0\n\n\nApril 30, 2024\n\n\n\n\n\n\nChicopee, Massachusetts\n\n\n\u00a0\n\n\nMay 31, 2025\n\n\n\n\n\n\nColumbia, Missouri\n\n\n\u00a0\n\n\nDecember 31, 2038\n\n\n\n\nAssignment and Assumption Agreement\nOn January 31, 2023, we entered an Assignment Agreement with our former parent company and RCS \u2013 S&W Facility, LLC to assign to us the rights of the tenant under the Lease Agreement, dated October 26, 2017, as amended by the First Amendment of Lease Agreement, dated October 25, 2018, and as further amended by the Second Amendment to Lease Agreement, dated January 31, 2019 (collectively, the \u201cLease\u201d), which assignment will be effective on January 1, 2024, subject to certain conditions.\nF-\n29\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nThe Lease covers approximately \n632,000\n square feet of building and surrounding property located at 1800 North Route Z, Columbia, Boone County, Missouri, or the Building where we currently sublease approximately \n361,000\n square feet from our former parent company, or the Sublease. If the conditions precedent set forth in the Assignment Agreement are satisfied, then effective on January 1, 2024, we will no longer be subject to the provisions and terms of the Sublease, but instead we will have use of the entire Building under the Lease. The Lease provides the tenant with an option to expand the Building by up to \n491,000\n additional square feet. The Lease term ends on \nNovember 26, 2038\n and, pursuant to the Assignment Agreement, \ndoes not provide for an extension of the term of the Lease\n. Upon the effectiveness of the Lease assignment, the total annual expense under the Lease, including base rent, is estimated at $\n3.7\n million, which represents an incremental $\n1.3\n million above our annual expense under the Sublease, which we expect will be entirely offset by savings from recent facility consolidations and efficiencies gained in our distribution processes. We expect an increase of $\n12.8\n million will be recorded as a right-of-use asset on our consolidated balance sheet, when effective. We also expect to receive tax and other incentives from federal, state, and local governmental authorities previously received by our former parent. Our former parent will guarantee the Lease through the end of the term.\nGain Contingency\nIn 2018, the United States imposed additional section 301 tariffs of up to \n25\n%, on certain goods imported from China. These additional section 301 tariffs apply to our sourced products from China and have added additional cost to us. We are utilizing the duty drawback mechanism to offset some of the direct impact of these tariffs, specifically on goods that we sold internationally. We are accounting for duty drawbacks as a gain contingency and may record any such gain from a reimbursement in future periods if and when the contingency is resolved.\n\n\n17. Segment Reporting\nWe have evaluated our operations under ASC 280-10-50-1 \u2013 Segment Reporting and have concluded that we are operating as \none\n segment based on several key factors, including the reporting and review process used by the chief operating decision maker, our Chief Executive Officer, who reviews only consolidated financial information and makes decisions to allocate resources based on those financial statements. We analyze revenue streams in various ways, including customer group, brands, product categories, and customer channels. However, this information does not include a full set of discrete financial information. In addition, although we currently sell our products under \n21\n distinct brands that are organized into \nfour\n brand lanes and include specific product sales that have identified revenue streams, these brand lanes are focused almost entirely on product development and marketing activities and do not qualify as separate reporting units under ASC 280-10-50-1. Other sales and customer focused activities, operating activities, and administrative activities are not divided by brand lane and, therefore, expenses related to each brand lane are not accumulated or reviewed individually. Our business is evaluated based upon a number of financial and operating measures, including sales, gross profit and gross margin, operating expenses, and operating margin.\nOur business includes our outdoor products and accessories products as well as our electro-optics products, which we develop, source, market, assemble, and distribute from our facility in Columbia, Missouri facility. We report operating costs based on the activities performed.\n\n\n18. Related Party Transactions\n \nPrior to the Separation, the combined financial statements were prepared on a standalone basis and were derived from the consolidated financial statements and accounting records of our former parent. The following discussion summarizes activity between us and the former parent prior to the Separation on August 24, 2020 (and its affiliates that are not part of the Separation).\nAllocation of General Corporate Expenses\nPrior to the Separation, the combined statements of operations and comprehensive income/(loss) included expenses for certain centralized functions and other programs provided and administered by our former parent that were charged directly to us. In addition, for purposes of preparing these combined financial statements on a carve-out basis, we have allocated a portion of the former parent's total corporate and selling, marketing, and distribution expenses to us. See Note 1 \u2013 \nBackground, Description of Business, and Basis of Presentation\n for a discussion of the methodology used to allocate corporate-related costs and selling, marketing, and distribution expenses for purposes of preparing these financial statements on a carve-out basis.\nF-\n30\n\n\nAMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES\n \nNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS \u2014 (Continued)\n\u00a0\nRelated Party Sales\n \nFor the period prior to the Separation in fiscal year 2021, our sales to our former parent totaled $\n2.4\n million during, which are included in net sales in the combined statements of operations and comprehensive income/(loss).\n \nNet Transfers To and From our former parent\nPrior to the Separation, our former parent utilized a centralized approach to cash management and financing its operations. Disbursements were made through centralized accounts payable systems, which were operated by our former parent. Cash receipts were transferred to centralized accounts, which were also maintained by our former parent. As cash was received and disbursed by our former parent, it was accounted for by us through the former parent company investment. Certain related party transactions between us and our former parent have been included within the former parent company investment in the combined balance sheets in the historical periods presented. All notes to and from our former parent were settled in connection with the Separation. The interest income and expense related to the activity with our former parent, which was historically included in our results prior to the Separation, is presented on a net basis in the combined statements of operations and comprehensive income/(loss). Interest income on the activity with our former parent was $\n424,000\n during the first four months of our fiscal year 2021, prior to the Separation.  The total effect of the settlement of these related party transactions is reflected as a financing activity in the consolidated and combined statements of cash flows.\n \n\n\nF-\n31\n\n\n\n\n\n\n\n",
+  "cik": "1808997",
+  "cusip6": "02875D",
+  "cusip": ["02875D109", "02875D909", "02875D959"],
+  "names": ["AMERICAN OUTDOOR BRANDS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1808997/000095017023030394/0000950170-23-030394-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0000950170-23-032298.json b/GraphRAG/standalone/data/all/form10k/0000950170-23-032298.json
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--- /dev/null
+++ b/GraphRAG/standalone/data/all/form10k/0000950170-23-032298.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. B\nusiness.\n\n\nOverview\n\n\nWe are a clinical stage pharmaceutical company focused on the discovery, development and commercialization of small molecule protease inhibitors for diseases with significant unmet need. We apply our insights into the chemistry and biology of proteases to develop orally delivered therapeutics with high selectivity, potency and bioavailability that we believe will make them successful treatments for diseases. We have used these capabilities to develop novel, small molecule plasma kallikrein inhibitors targeting the disease hereditary angioedema (\u201cHAE\u201d). We also are conducting preclinical development on a novel, oral Factor XIIa (\u201cFactor XIIa\u201d) inhibitor program, which we are initially advancing to provide a next generation of HAE therapeutics and which also offers the opportunity for expansion into other high unmet need indications in the future.\n\n\nHAE is a rare and potentially life-threatening, genetically-driven disease that features episodes of debilitating and often painful swelling in the skin, gastrointestinal tract or airways. Although multiple therapies have been approved for the disease, we believe people living with HAE are in need of alternatives that better meet their objectives for quality of life and ease of disease control. Other than one oral therapy approved for prophylaxis, currently marketed therapies are all administered by injection, which patients find challenging despite their efficacy because they are painful, time consuming to prepare and administer, and difficult to transfer and store. As a result, many attacks are treated too late to prevent significant symptoms, and a large percentage aren\u2019t treated at all, leading to needless suffering. We anticipate that there will be strong interest in safe and effective, orally delivered treatments, and our strategy is to develop oral drug candidates for both on-demand and prophylactic use with the goal of providing patients with a complete set of oral options to treat their disease.\n\n\nOur belief that our therapies could fundamentally transform the manner in which HAE is managed is based upon extensive and continuing research we conduct with patients, physicians and payers. Recently we have conducted research to further understand the process that people living with HAE follow when determining what therapy to use, how they treat their attacks and how often they do so. In our research, which we refer to as the HAE Attack Journey, we have discovered that people living with HAE carry their on-demand treatment only approximately 33% of the time and, for this reason and others, treat only about 50% of attacks. When patients do treat, we believe they tend to delay that treatment excessively for reasons including not having their treatment with them, injection-associated pain, and lack of a private area for treatment. As a result, our data indicate that a significant majority of patients experience attacks that are more severe and last longer than if they treated earlier. Patient surveys have indicated to us, in contrast, that if provided with an oral on-demand therapy, they would expect to carry it 95% of the time, would expect to treat 94% of attacks, and 93% of patients would expect to treat their attacks earlier. This is the reason we believe that an oral on-demand therapy could represent such a significant advance.\n\n\nWe have advanced our candidate sebetralstat into Phase 3 clinical development as a potential oral, on-demand therapy for HAE attacks. In February 2021 we announced data from a Phase 2 efficacy trial in which sebetralstat demonstrated statistically and clinically significant responses across all primary and secondary endpoints. Based upon these data, we completed an end-of-Phase 2 meeting with the United States (\u201cU.S.\u201d) Food and Drug Administration (\u201cFDA\u201d) in the fall of 2021 and initiated the Phase 3 KONFIDENT clinical trial in early 2022 that is intended to support submission of a New Drug Application (\u201cNDA\u201d). KONFIDENT is a double-blind, placebo-controlled, event-driven crossover trial in which approximately 84 patients will treat a total of three attacks: one each with 300 mg sebetralstat, 600 mg sebetralstat, and placebo, given in a randomized sequence. The study includes both adults and adolescents ages 12 and up, and allows patients to be on approved prophylactic regimens as well as on-demand only. All attack locations are eligible for treatment, including laryngeal attacks. The primary endpoint of the study is time to beginning of symptom relief assessed using the PGI-C scale. KONFIDENT is being conducted in approximately 60 sites in 20 countries. In July 2023, we announced that we reached our enrollment target of 114 patients in the study and as a result we expect data from KONFIDENT in the fourth quarter of 2023. If the trial is successful, we anticipate submitting an NDA to the FDA in the first half of 2024.\n \n\n\nIn August 2022, we initiated KONFIDENT-S, a two-year open-label extension trial assessing the long-term safety and tolerability profile of sebetralstat. In addition, this study is examining the potential use of sebetralstat as short-term prophylaxis in the setting of medical and dental procedures, where HAE attacks are known to be triggered. We also are developing an oral disintegrating tablet (\u201cODT\u201d) formulation of sebetralstat and have received FDA feedback on our proposed development program to support a supplemental NDA submission, which did not include a recommendation to conduct efficacy trials. We anticipate that the ODT formulation will follow the expected initial launch formulation in the U.S. and European Union (\u201cE.U.\u201d), although it may become the initial launch formulation in other geographies.\n\n\nSebetralstat has received Fast Track and Orphan Drug designation from the FDA, and Orphan Drug designation in the E.U. A Pediatric Investigational Plan (\u201cPIP\u201d) has also been approved by the European Medicines Agency (\u201cEMA\u201d) for sebetralstat.\n\n\n3\n\n\n\n\n\u00a0\n\n\nIn October 2022, we announced the termination of the Phase 2 KOMPLETE study for our potential HAE prophylactic treatment KVD824, due to elevations in liver enzymes observed in several patients during the trial. We remain uncertain as to the cause and the potential contribution of KVD824 to these elevations, but we do not anticipate further development of KVD824.\n\n\nOur oral Factor XIIa inhibitor program targets an enzyme that plays a key role in HAE, as the most upstream mechanism in the biochemical pathway that initiates HAE attacks. For this reason, we believe that inhibition of Factor XIIa will block the underlying causes of HAE attacks, including the uncontrolled generation of both plasma kallikrein and bradykinin which lead to swelling and pain. Clinical studies of an injectable Factor XIIa-inhibitory antibody have demonstrated a high degree of efficacy in preventing HAE attacks, and there are no known safety implications of long-term inhibition of this enzyme. We believe that our program has the potential to be the first orally delivered Factor XIIa inhibitor to enter clinical development, initially for HAE and over time for additional indications that are supported by scientific evidence. Our internal research team has discovered multiple series of low nanomolar potency Factor XIIa inhibitors that are both selective and orally bioavailable, and we continue to progress multiple compounds in IND-enabling studies. Concurrently, we have recently presented preclinical data supporting potential development in HAE as well as diabetic macular edema (\u201cDME\u201d) and thrombosis.\n \n\n\nStrategy\n\n\nKey elements of our strategy include:\n\n\n\u2022\nApply our deep scientific expertise in the area of serine proteases to develop novel oral therapies for indications with high unmet need.\n Our core scientific team has decades of experience working on protease inhibitors and developing compounds with high potency, selectivity and bioavailability. We have assembled a team of chemists and biologists who have demonstrated the ability to design and formulate multiple drug candidate programs from a broad variety of chemical classes, as indicated by our extensive intellectual property portfolio. Our initial focus is specifically on development of oral plasma kallikrein inhibitors for HAE and Factor XIIa inhibitors for HAE and other indications; however, we believe our scientific capabilities also can be applied to other proteases to develop therapies for diseases with high unmet need.\n\n\n\u2022\nDevelop multiple HAE product candidates to provide a full set of therapeutic options for patients. \nWe intend to develop drug candidates for both on-demand and prophylactic use to provide people living with HAE with a complete set of oral options to treat their disease. Our most advanced program for HAE is sebetralstat, for which we are currently conducting the Phase 3 KONFIDENT clinical trial to evaluate the safety and efficacy of sebetralstat as a potential oral, on-demand therapy for treatment of HAE attacks. We are also in the preclinical development stage with Factor XIIa inhibitor candidates as a potential next generation of oral prophylactic treatments that may further enhance treatment options for people living with HAE.  \n\n\n\u2022\nGrow our capabilities internally as well as through strategic partnerships. \nWe intend to retain ownership and control of our pipeline programs to key milestones and in certain markets. For certain indications, such as HAE, that can be addressed by a focused organization, we intend to keep all program rights and develop internal sales and marketing capabilities to commercialize the products in major markets. For programs that address larger markets or require greater infrastructure or resources, or for markets outside the U.S. and major E.U. countries, we may seek partners that can provide those capabilities. Decisions on whether, and when, to engage in partnerships or collaborations will be based upon our evaluations of the relative risks and rewards of those collaborations at each point in the development and commercialization cycle.\n\n\nPlasma Kallikrein in HAE\n \n\n\nPlasma kallikrein is a serine protease enzyme that is a key mediator of inflammation and edema. The body modulates the downstream inflammatory effects of plasma kallikrein through a circulating inhibitor protein called C1-esterase inhibitor (\u201cC1-INH\u201d). Most patients with HAE have a genetic mutation that leads to C1-INH deficiency, which results in an inability to control activated plasma kallikrein in affected tissues. This excessive activation leads to inflammation, edema, and pain.\n\n\n4\n\n\n\n\n\u00a0\n\n\nHereditary Angioedema\n \n\n\nDisease Overview\n\n\nHAE is a rare and potentially life-threatening genetic condition that occurs in about 1 in 10,000 to 1 in 50,000 people, according to published information from an HAE patient advocacy group. Excessive plasma kallikrein activation that is not sufficiently controlled by C1-INH leads to HAE attacks, which can vary with regard to the affected tissue or organ and severity. HAE attacks include episodes of intense swelling usually in the skin, gastrointestinal tract or airways. They often lead to temporary disfiguration of various body parts including the hands, feet, face, body trunk, and genitals. In addition, patients often have bouts of excruciating abdominal pain, nausea and vomiting that is caused by swelling in the intestinal wall. Airway swelling is particularly dangerous and can lead to death by asphyxiation. Untreated attacks can be functionally disabling and commonly take days to fully resolve.\n \n\n\nAttacks can occur spontaneously although they often are associated with triggers such as anxiety, stress, minor trauma, surgery, or illnesses. Trauma to the oral cavity caused by dental procedures makes HAE patients particularly vulnerable to airway attacks. The frequency of HAE attacks is highly variable, with some patients having attacks several times per week and others very infrequently. Population studies have shown that the mean number of attacks per month for patients is approximately two. Although life-threatening airway swelling is rare, published research suggests at least half of HAE patients have experienced at least one such attack and airway attacks remain a major cause of mortality in HAE patients. The severity of attacks is unpredictable and not related to their underlying frequency, and even most patients on long-term prophylaxis continue to experience breakthrough attacks on some basis.\n \n\n\nHAE is an autosomal dominant disease, meaning that a defect in only one copy of the gene leads to symptoms and that it occurs at similar rates in both males and females. The most common cause of HAE is a defect or mutation in the gene responsible for the production of C1-INH. C1-INH is a natural plasma-borne protein that is an inhibitor of multiple serine proteases in both the complement and kallikrein kinin systems. C1-INH is the predominant physiological inhibitor of plasma kallikrein, and thereby suppresses the generation of bradykinin, a potent hormone produced by plasma kallikrein, that activates its receptors on blood vessels to increase vascular leakage. Uncontrolled plasma kallikrein activity leads to the edema that is the hallmark of HAE.\n\n\nWhile HAE most often results from the inheritance of a defective gene from a parent, it is estimated that up to 25% of cases also arise from spontaneous mutations. Patients with C1-INH-related disease are classified as Type 1 or Type 2; Type 1 is the most common form and results in low levels of circulating C1-INH and Type 2 results in production of a low function protein. An additional form of HAE, currently referred to as normal C1-INH HAE, can occur in patients with normal levels of C1-INH for a variety of reasons including mutations in genes for Factor XII, plasminogen or angiopoetin, although in most cases a specific genetic abnormality isn\u2019t found. Selective plasma kallikrein inhibitors and a bradykinin receptor antagonist are approved therapies for HAE. As such, plasma kallikrein is a clinically validated target for HAE and previous studies have demonstrated that plasma kallikrein inhibition can both treat and prevent HAE attacks. There are currently no therapies specifically approved for normal C1-INH HAE.\n\n\n5\n\n\n\n\n\u00a0\n\n\nCurrent Treatments and Market Opportunities\n\n\nThere are a number of marketed and development stage therapeutics for HAE, both for prophylaxis as well as on-demand use. Lanadelumab (Takhzyro\n\u00ae\n) is a monoclonal antibody against plasma kallikrein indicated for prophylaxis to prevent attacks of HAE. The prescribing information recommends subcutaneous administration every two weeks, though dosing at more extended intervals may be considered in some patients. Ecallantide (Kalbitor\n\u00ae\n) is a small protein inhibitor of plasma kallikrein that is approved for treatment of acute attacks of HAE. While effective, ecallantide has been associated with cases of anaphylaxis and its labeling approval by the FDA includes a boxed warning limiting its administration to healthcare professionals with appropriate medical support to manage anaphylaxis and HAE, and requiring close monitoring of patients. Other therapies provide C1-INH replacement to control plasma kallikrein levels. Marketed C1-INH replacement therapies include Cinryze\n\u00ae\n and Haegarda\n\u00ae\n for prophylaxis, and Berinert\n\u00ae\n for treatment of acute attacks, all of which are purified from human plasma, and Ruconest\n\u00ae\n which is a recombinant product also for treatment of acute attacks. Icatibant (Firazyr\n\u00ae\n) is a synthetic peptide-based antagonist that blocks the activity of bradykinin and is indicated for treatment of acute attacks. All of these products are administered by injection, which is typically less convenient for patients and has the potential to reduce compliance. Berotralstat (ORLADEYO\n\u00ae\n) is an oral prophylactic treatment which was launched in 2021. As a result of the lifelong nature of HAE and the challenges related to taking many of the injected therapies, patient surveys consistently indicate an overwhelming desire of patients for an oral therapy. We believe that a safe and effective oral on-demand agent has the potential to transform treatment for this disease.\n \n\n\nWe believe a further future market opportunity may exist in treatment of normal C1-INH HAE. Estimates of the size of this patient population vary widely, but we believe that the nature of normal C1-INH HAE disease may make prophylaxis less attractive for these patients than a safe and rapidly effective, oral on-demand plasma kallikrein inhibitor therapy. There are no therapies currently approved specifically for normal C1-INH HAE.\n\n\nOur Portfolio of HAE Programs\n\n\nOur strategy is to evaluate and develop multiple oral molecules in pursuit of best-in-class therapies for HAE patients. The first of these product candidates being evaluated in late stage clinical trials is sebetralstat. A positive Phase 2 clinical trial for sebetralstat as a potential on-demand treatment for HAE attacks was completed in February 2021, and we are currently conducting the Phase 3 KONFIDENT clinical trial.\n\n\nSebetralstat\n\n\nEvidence from studies using therapies approved for the treatment of acute HAE attacks shows that earlier treatment has a powerful impact on the efficacy outcomes, and treatment guidelines strongly recommend early treatment of attacks. Despite clear evidence that early treatment markedly reduces attack severity and duration, treatment is often delayed. \nIn one outcome study of 207 HAE attacks, attack duration was 2.75-fold shorter when treatment was administered within 1 hour of attack onset (6.1 hours versus 16.8 hours (\np\n<0.001)), yet treatment was administered more than 1 hour after attack onset in nearly 60% of attacks, and for 30% of attacks treatment was administered more than five hours after attack onset. \nWe believe this delay in administration is due to many factors including the inconvenience of preparation and administration as well as the discomfort of injectable therapies. An oral therapy has the potential to overcome these limitations and lower the barrier for treatment for patients. The combination of the rapid uptake of sebetralstat to very high blood levels and the likelihood of earlier dosing by patients, could lead to much better disease management and prevention of attacks reaching the critical stage of significant swelling and discomfort. We therefore believe that a safe, oral on-demand treatment has the potential to become a preferred alternative for patients currently using injectable treatments, including both acute and prophylactic therapies.\n\n\nIn February 2021 we announced data from a Phase 2 efficacy trial in which sebestralstat demonstrated statistical and clinically significant responses across all primary and secondary endpoints. KVD900-201 was a double-blind, placebo-controlled, crossover trial investigating the safety and efficacy of a single dose of 600 mg sebetralstat as an on-demand treatment for HAE attacks in patients with Type 1 or Type 2 HAE. The trial met its primary endpoint comparing the time to use of rescue treatment within 12 hours on sebetralstat versus placebo (p=0.001) with rates of use at 12 hours of 15.1% following treatment with sebetralstat versus 30.2% after placebo. The trial also met all secondary endpoints: reduced worsening of attacks (p<0.0001; PGI-S or use of rescue) and reduced time to onset of symptom relief measured using both PGI-C (p<0.0001) and VAS (p<0.0001).\n\n\n6\n\n\n\n\n\u00a0\n\n\nBased upon these data, we completed an end-of-Phase 2 meeting with the FDA in the fall of 2021 and initiated the Phase 3 KONFIDENT clinical trial in early 2022 that is intended to support an NDA submission. KONFIDENT is a double-blind, placebo-controlled, event-driven crossover trial in which approximately 84 patients will treat a total of three attacks: one each with 300 mg sebetralstat, 600 mg sebetralstat, and placebo, given in a randomized sequence. The primary endpoint of the study is time to onset of symptom relief using the PGI-C scale. We agreed with the FDA that this is an appropriate primary endpoint for a registration-directed trial, and in the Phase 2 study, sebetralstat achieved this endpoint in a highly statistically significant manner. KONFIDENT is being conducted in approximately 60 sites in 20 countries. We have reached our target enrollment of 114 patients in the study, and expect data from KONFIDENT in the fourth quarter of 2023. If the trial is successful, we anticipate submitting an NDA in the first half of 2024.\n\n\nSebetralstat has received Fast Track and Orphan Drug designation from the FDA and has been granted Orphan Drug designation in the E.U. A PIP has also been approved by the EMA for sebetralstat.\n\n\nFactor XIIa\n\n\nFactor XIIa (\u201cFXIIa\u201d) is an enzyme that plays a key role in HAE as the most upstream mediator in the biochemical pathway that initiates HAE attacks. For this reason, we believe that inhibition of Factor XIIa will block the underlying mechanism of HAE attacks, including the uncontrolled generation of both plasma kallikrein and bradykinin which cause swelling and pain. Clinical studies of an injectable Factor XIIa-inhibitory antibody have demonstrated efficacy in preventing HAE attacks, and there are no published safety concerns of long-term inhibition of this enzyme. We believe that our program has the potential to be the first orally delivered Factor XIIa inhibitor to enter clinical development, initially for HAE and over time for additional indications that are supported by scientific evidence.\n\n\nOur goal is to develop an oral FXIIa inhibitor suitable for once-daily dosing and sustained suppression of kallikrein kinin system activation. Using X-ray structure-enabled drug design, we have identified multiple series of oral FXIIa inhibitors from structurally distinct discovery lineages. These series are designed to interact with different substrate pockets of the active catalytic domain of the FXIIa enzyme, thereby providing a high level of structural diversity in our portfolio of compounds.\n \n\n\nWe have presented pharmacology data for a FXIIa compound that demonstrates our ability to achieve plasma half-life consistent with once daily dosing to provide near complete inhibition of FXIIa-mediated plasma kallikrein generation and block high molecular weight kininogen cleavage that results in generation of bradykinin. We have also shown that orally administered FXIIa compounds can protect mice from angioedema. These findings that demonstrated the oral pharmacodynamic effects of a Factor XIIa inhibitor were reported at the European Academy of Allergy & Clinical Immunology in 2022. Additional studies have demonstrated that oral administration of Factor XIIa inhibitors can protect mice from arterial thrombosis induced by iron chloride, which further demonstrates target engagement. These results have been presented at the International Society of Thrombosis and Hemostasis in June 2023.\n\n\nIt is our expectation that this portfolio of compounds will provide multiple opportunities for the clinical development of a once-daily administered oral FXIIa inhibitor with efficacy comparable to leading injectable therapies for HAE prophylaxis. In addition, the diversity within our portfolio creates opportunities to identify oral FXIIa inhibitors that fulfill the target profile needed for the treatment of other FXIIa-mediated diseases, including thrombosis and other diseases associated with edema and inflammation.\n \n\n\nCompetition\n\n\nIn treating HAE, we expect to face competition from several FDA-approved therapeutics for both prophylactic and on-demand usage. These include Takhzyro\u00ae, marketed by Takeda Pharmaceuticals Company Limited (\u201cTakeda\u201d) in the U.S. and Europe for the prevention of angioedema attacks in adults and adolescents; Firazyr, marketed by Takeda in the U.S., Europe and certain other geographic territories for the treatment of acute angioedema attacks in adult patients; Kalbitor, an injectable plasma kallikrein inhibitor marketed by Takeda for the resolution of acute attacks in adolescent and adult HAE patients; Berinert, marketed by CSL Behring for treatment of acute abdominal, facial or laryngeal attacks of HAE in adults and adolescents, and Haegarda, also marketed by CSL Behring, for prophylaxis; Ruconest, marketed by Pharming Group for the treatment of acute angioedema attacks in adult patients; and Orladeyo, an oral prophylactic treatment marketed by BioCryst Pharmaceuticals, Inc. Firazyr became available as a generic drug in 2019 and is sold by multiple companies as generic icatibant for acute usage. We are also aware of other companies that are engaged in the clinical development of potential HAE treatments, including Pharvaris GmbH, Intellia Therapeutics, Inc., BioMarin Pharmaceutical Inc., and Ionis Pharmaceuticals, Inc.\n \n\n\n7\n\n\n\n\n\u00a0\n\n\nIntellectual Property\n\n\nOur success substantially depends on our ability to obtain and maintain patents and other forms of intellectual property rights for our product candidates, methods used to manufacture our product candidates and methods for treating patients using our product candidates, as well as our ability to preserve our trade secrets, to prevent third parties from infringing upon our proprietary rights and to operate without infringing upon the proprietary rights of others. Our patent portfolio includes patents and patent applications covering plasma kallikrein inhibitors (the \u201cplasma kallikrein portfolio\u201d), and patent applications covering FXIIa inhibitors (the \u201cFXIIa portfolio\u201d).\n\n\nIn the plasma kallikrein portfolio, as of April 30, 2023, we are the owner of, and intend to maintain, 16 U.S. patents expiring between 2034 and 2040, absent any extensions, as well as seven pending U.S. patent applications and one pending U.S. provisional application. Any patents issuing from the foregoing U.S. patent applications, or patents arising from applications claiming priority from the foregoing U.S. provisional applications, are expected to expire between 2034 and 2044, absent any adjustments or extensions. In the plasma kallikrein portfolio, as of April 30, 2023, we are the owner of, and intend to maintain, approximately 140 pending foreign applications and approximately 453 patents in foreign jurisdictions. Any issued patents, or those issuing from these foreign patent applications, are expected to expire between 2034 and 2041, absent any adjustments or extensions. In the plasma kallikrein portfolio, as of April 30, 2023, we also control and intend to maintain two pending international applications that, if issued, are expected to expire between 2042 and 2043, absent any adjustments or extensions.\n\n\nSebetralstat is an oral plasma kallikrein inhibitor, and is covered by U.S. patents, U.S. patent applications and U.S. provisional applications, and pending international applications covering composition of matter, methods of treatment, solid form and clinical formulations. The anticipated expiration dates of these patents, patents arising from those applications, or patents arising from applications claiming priority from provisional applications range from 2035 to 2044, absent any adjustments or extensions. Sebetralstat is also covered by EPO patents, European patent applications, and expected European patent applications claiming priority from U.S. provisional applications, covering composition of matter, medical use, solid form and clinical formulations. The anticipated expiration dates of these European patents, European patents arising from applications, or European patents arising from applications claiming priority from U.S. provisional applications range from 2035 to 2044 absent any extensions.\n\n\nIn the FXIIa portfolio, as of April 30, 2023, we are the owner of, and intend to maintain, four pending U.S. patent applications, six pending U.S. provisional applications, two pending international applications, and 34 pending foreign applications in multiple jurisdictions. Any patents issuing from the foregoing applications, or patents arising from applications claiming priority from U.S. provisional applications, in the FXIIa portfolio are expected to expire in between 2039 and 2044, absent any adjustments or extensions.\n\n\nPatents extend for varying periods according to the date of patent filing or grant and the legal term of patents in various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country.\n\n\nWe market or intend to market our products and services under various trademarks, and have obtained or are in the process of obtaining registered trademark protection for those trademarks in the U.S. and certain countries outside the U.S. We consider these trademarks to be valuable because of their contribution to the brand identification of our current and future products and services and for protection against counterfeits.\n \n\n\nAs of April 30, 2023, we are the owner of, and intend to maintain, trademark registrations for \u201cKALVISTA\u201d in six foreign countries as well as all E.U. member states via an E.U. Trade Mark (a unitary right covering all twenty-seven member states of the E.U.). We also own pending trademark applications and registrations for \u201cKALVISTA\u201d and the K Design in the U.S. and multiple foreign countries.\n\n\nWe also use other forms of protection, such as copyright and trade secret protection for our intellectual property, particularly where we do not believe patent protection is appropriate or obtainable. We require our employees, consultants, contractors and other advisors to execute nondisclosure and assignment of invention agreements upon commencement of their respective employment or engagement. In addition, we also require confidentiality or service agreements from third parties that receive confidential information or materials.\n\n\n8\n\n\n\n\n\u00a0\n\n\nGovernment Regulation and Product Approval\n\n\nGovernment authorities in the U.S., at the federal, state and local level, and in other countries and jurisdictions, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the U.S. and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.\n\n\nFDA Approval Process\n\n\nIn the U.S., pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (the \u201cFDC Act\u201d) and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Pharmaceutical products such as small molecule drugs and biological products, or biologics used for the prevention, treatment, or cure of a disease or condition of a human being are subject to regulation under the FDC Act. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as clinical hold, FDA refusal to approve pending NDAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.\n\n\nPharmaceutical product development for a new product or certain changes to an approved product in the U.S. typically involves nonclinical laboratory and animal tests, the submission to the FDA of an IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically take many years and the actual time required may vary substantially based upon the type, complexity, and novelty of the product or disease.\n\n\nA 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin. Clinical trials involve the administration of the investigational drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with Good Clinical Practice (\u201cGCP\u201d) an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; and (iii) under protocols detailing the objectives of the trial and the criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.\n\n\nThe FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions if it believes that the clinical trial either is not being conducted in accordance with FDA regulations or presents an unacceptable risk to the clinical trial patients. Imposition of a clinical hold may be full or partial. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board (\u201cIRB\u201d) for approval. The IRB will also monitor the clinical trial until completed. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB\u2019s requirements, or may impose other conditions.\n\n\nClinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the drug into patients, the product is tested to assess safety, dosage tolerance, metabolism, pharmacokinetics, pharmacological actions, side effects associated with drug exposure, and to obtain early evidence of a treatment effect if possible. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, determine optimal dose and regimen, and to identify common adverse effects and safety risks. If a drug demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain additional information about clinical effects and confirm efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit -risk relationship of the drug and to provide adequate information for the labeling of the product. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the safety and efficacy of the drug. In rare instances, a single Phase 3 trial may be sufficient when either (1) the trial is a large, multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible or (2) the single trial is supported by other confirmatory evidence.\n\n\n9\n\n\n\n\n\u00a0\n\n\nIn addition, the manufacturer of an investigational drug in a Phase 2 or Phase 3 clinical trial for a serious or life-threatening disease is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access to such investigational drug.\n\n\nAfter completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing and distribution of the product may begin in the U.S. The NDA must include the results of all nonclinical, clinical, and other testing and a compilation of data relating to the product's pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee. Under an approved NDA, the applicant is also subject to an annual program fee. These fees typically increase annually. An NDA for a drug that has been designated as an orphan drug is not subject to an application fee, unless the NDA includes an indication for other than a rare disease or condition. The FDA has 60 days from its receipt of an NDA to determine whether the application will be filed based on the FDA's determination that it is sufficiently complete to permit substantive review. Once the submission is filed, the FDA begins an in-depth review. The FDA has agreed to certain performance goals to complete the review of NDAs. Most applications are classified as Standard Review products that are reviewed within ten months of the date the FDA files the NDA; most applications classified as Priority Review are reviewed within six months of the date the FDA files the NDA. An NDA can be classified for Priority Review when the FDA determines the drug or biologic has the potential to treat a serious or life-threatening condition and, if approved, would be a significant improvement in safety or effectiveness compared to available therapies. The review process for both standard and priority reviews may be extended by the FDA for three or more additional months to consider certain late-submitted information or information intended to clarify information already provided in the NDA submission.\n\n\nThe FDA may also refer applications for novel drugs, as well as drugs that present difficult questions of safety or efficacy, to be reviewed by an advisory committee\u2014typically a panel that includes clinicians, statisticians and other experts\u2014for review, evaluation and a recommendation as to whether the NDA should be approved. The FDA is not bound by the recommendation of an advisory committee, but generally follows such recommendations.\n\n\nBefore approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with cGMP is satisfactory.\n\n\nAfter the FDA evaluates the NDA and completes any clinical and manufacturing site inspections, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the NDA submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application for approval. If, or when, those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. An approval letter authorizes commercial marketing and distribution of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy (\u201cREMS\u201d) to help ensure that the benefits of the drug outweigh the potential risks to patients. A REMS can include medication guides, communication plans for healthcare professionals, and elements to assure a product's safe use (\u201cETASU\u201d). An ETASU can include, but is not limited to, special training or certification for prescribing or dispensing the product, dispensing the product only under certain circumstances, special monitoring, and the use of patient-specific registries. The requirement for a REMS can materially affect the potential market and profitability of the product. Moreover, the FDA may require substantial post-approval testing and surveillance to monitor the product's safety or efficacy.\n\n\nOnce granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing. Changes to some of the conditions established in an approved NDA, including changes in indications, product labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or supplement to an approved NDA, before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing original NDAs.\n\n\nOrphan Drug Designation\n\n\nUnder the Orphan Drug Act, the FDA may grant orphan drug designation to drugs or biologics intended to treat a rare disease or condition \u2014 generally a disease or condition that affects fewer than 200,000 individuals in the U.S., or if it affects more than 200,000 individuals in the U.S., there is no reasonable expectation that the cost of developing, and making a product available in the U.S. for such disease or condition will be recovered from sales of the product.\n\n\n10\n\n\n\n\n\u00a0\n\n\nOrphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the drug and its potential orphan disease use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a particular active moiety to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the U.S. for that product in the approved indication. For large molecule drugs, sameness is determined based on the principal molecular structural features of a product.\n\n\nDuring the seven-year marketing exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. A product can be considered clinically superior if it is safer, more effective or makes a major contribution to patient care. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA user fee.\n\n\nFast Track Designation and Priority Review\n\n\nFDA is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment of a serious or life-threatening disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Fast track designation may be granted for products that are intended to treat a serious or life-threatening disease or condition for which there is no effective treatment and preclinical or clinical data demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to both the product and the specific indication for which it is being studied. Any product submitted to FDA for marketing, including under a fast track program, may be eligible for other types of FDA programs intended to expedite development and review, such as priority review.\n\n\nPriority review may be granted for products that are intended to treat a serious or life-threatening condition and, if approved, would provide a significant improvement in safety and effectiveness compared to available therapies. FDA will attempt to direct additional resources to the evaluation of an application designated for priority review in an effort to facilitate the review.\n\n\nDisclosure of Clinical Trial Information\n\n\nSponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information on the website www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of a clinical trial are then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of clinical trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of clinical development programs as well as clinical trial design.\n\n\nPediatric Information\n\n\nUnder the Pediatric Research Equity Act (\u201cPREA\u201d), NDAs, or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any drug with orphan product designation except a product with a new active ingredient that is a molecularly targeted cancer product intended for the treatment of an adult cancer and directed at a molecular target determined by FDA to be substantially relevant to the growth or progression of a pediatric cancer that is subject to an NDA submitted on or after August 18, 2020.\n\n\nThe Best Pharmaceuticals for Children Act (\u201cBPCA\u201d), provides a six-month extension of any patent or non-patent exclusivity for a drug if certain conditions are met. Conditions for exclusivity include the FDA\u2019s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications.\n\n\n11\n\n\n\n\n\u00a0\n\n\nPost-Approval Requirements\n\n\nOnce an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.\n\n\nAdverse event reporting and submission of periodic safety summary reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control, drug manufacture, packaging, and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects a drug's manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with required regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.\n\n\nThe Hatch-Waxman Amendments\n\n\nOrange Book Listing\n\n\nUnder the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch Waxman Amendments, NDA applicants are required to identify to FDA each patent whose claims cover the applicant\u2019s drug or approved method of using the drug. Upon approval of a drug, the applicant must update its listing of patents to the NDA in timely fashion and each of the patents listed in the application for the drug is then published in the FDA\u2019s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book.\n\n\nDrugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application (\u201cANDA\u201d). An ANDA provides for marketing of a drug product that has the same active ingredient(s), strength, route of administration, and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. An approved ANDA product is considered to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, preclinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved under the ANDA pathway are commonly referred to as \u201cgeneric equivalents\u201d to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug pursuant to each state\u2019s laws on drug substitution.\n\n\nThe ANDA applicant is required to certify to the FDA concerning any patents identified for the reference listed drug in the Orange Book. Specifically, the applicant must certify to each patent in one of the following ways: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. A certification that the new product will not infringe the already approved product\u2019s listed patents, or that such patents are invalid, is called a Paragraph IV certification. For patents listed that claim an approved method of use, under certain circumstances the ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents through a Paragraph IV certification, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA-holder and patentee(s) once the ANDA has been accepted for filing by the FDA (referred to as the \u201cnotice letter\u201d). The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice letter. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months from the date the notice letter is received, expiration of the patent, the date of a settlement order or consent decree signed and entered by the court stating that the patent that is the subject of the certification is invalid or not infringed, or a decision in the patent case that is favorable to the ANDA applicant.\n\n\n12\n\n\n\n\n\u00a0\n\n\nThe ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired. In some instances, an ANDA applicant may receive approval prior to expiration of certain non-patent exclusivity if the applicant seeks, and FDA permits, the omission of such exclusivity-protected information from the ANDA prescribing information.\n\n\nExclusivity\n\n\nUpon NDA approval of a new chemical entity (\u201cNCE\u201d) which is a drug that contains no active moiety that has been approved by FDA in any other NDA, that drug receives five years of marketing exclusivity during which FDA cannot receive any ANDA seeking approval of a generic version of that drug unless the application contains a Paragraph IV certification, in which case the application may be submitted one year prior to expiration of the NCE exclusivity. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA for a generic version of the drug may be filed before the expiration of the exclusivity period.\n\n\nCertain changes to an approved drug, such as the approval of a new indication, the approval of a new strength, and the approval of a new condition of use, are associated with a three-year period of exclusivity from the date of approval during which FDA cannot approve an ANDA for a generic drug that includes the change. In some instances, an ANDA applicant may receive approval prior to expiration of the three-year exclusivity if the applicant seeks, and FDA permits, the omission of such exclusivity-protected information from the ANDA package insert.\n\n\nPatent Term Extension\n\n\nThe Hatch Waxman Amendments permit a patent term extension as compensation for patent term lost during the FDA regulatory review process. Patent term extension, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product\u2019s approval date. After NDA approval, owners of relevant drug patents may apply for the extension. The allowable patent term extension is calculated as half of the drug\u2019s testing phase (the time between IND application and NDA submission) and all of the review phase (the time between NDA submission and approval) up to a maximum of five years. The time can be reduced for any time FDA determines that the applicant did not pursue approval with due diligence.\n\n\nThe U.S. Patent and Trademark Office (the \u201cUSPTO\u201d) in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. However, the USPTO may not grant an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than requested.\n\n\nThe total patent term after the extension may not exceed 14 years, and only one patent can be extended. The application for the extension must be submitted prior to the expiration of the patent, and for patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the USPTO must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.\n\n\nOther U.S. Healthcare Laws and Compliance Requirements\n\n\nIn the U.S., pharmaceutical and biotechnology company activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, the Centers for Medicare & Medicaid Services (\u201cCMS\u201d) other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General and the Office for Civil Rights), the U.S. Department of Justice (\u201cDOJ\u201d) and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, sales, marketing and scientific/educational grant programs, may have to comply with the anti-fraud and abuse provisions of the Social Security Act, the federal false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act (\u201cHIPAA\u201d) and similar state laws, each as amended, as applicable.\n\n\n13\n\n\n\n\n\u00a0\n\n\nThe federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering, recommending or arranging for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and/or formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor. In addition, the statutory exceptions and regulatory safe harbors are subject to change.\n\n\nAdditionally, the intent standard under the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the \u201cACA\u201d) to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act (discussed below).\n\n\nThe civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.\n\n\nFederal false claims laws, including the federal civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to, or approval by, the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes \u201cany request or demand\u201d for money or property presented to the U.S. government. In addition, manufacturers can be held liable under the civil False Claims Act even when they do not submit claims directly to government payors if they are deemed to \u201ccause\u201d the submission of false or fraudulent claims. Pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies' marketing of the product for unapproved, and thus generally non-reimbursable, uses and purportedly concealing price concessions in the pricing information submitted to the government for government price reporting purposes.\n\n\nHIPAA created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.\n\n\nAlso, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.\n\n\n14\n\n\n\n\n\u00a0\n\n\nData privacy and security regulations by both the federal government and the states in which business is conducted may also be applicable. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (\u201cHITECH\u201d), and its implementing regulations, imposes requirements relating to the privacy, security and transmission of individually identifiable health information. HIPAA requires covered entities to limit the use and disclosure of protected health information to specifically authorized situations, and requires covered entities to implement security measures to protect health information that they maintain in electronic form. Among other things, HITECH made HIPAA's security standards directly applicable to business associates, independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys\u2019 fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.\n\n\nAdditionally, the federal Physician Payments Sunshine Act within the ACA, and its implementing regulations, require that certain manufacturers of covered drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children's Health Insurance Program (with certain exceptions) report annually to CMS information related to certain payments or other transfers of value made or distributed to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), physician assistants, certain advance practices nurses and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members. The reported data is made available in searchable form on a public website on an annual basis. Failure to submit required information may result in civil monetary penalties.\n \n\n\nCommercial distribution of products requires compliance with state laws that require the registration of manufacturers and wholesale distributors of drugs in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. In addition, several states have enacted legislation requiring pharmaceutical and biotechnology companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. Certain local jurisdictions also require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Sales and marketing activities are also potentially subject to federal and state consumer protection and unfair competition laws.\n\n\nViolation of any of the federal and state healthcare laws described above or any other governmental regulations may result in penalties, including without limitation, significant civil, criminal and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in government programs, such as Medicare and Medicaid, imprisonment, injunctions, private \u201cqui tam\u201d actions brought by individual whistleblowers in the name of the government, refusal to enter into government contracts, oversight monitoring, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings.\n\n\n15\n\n\n\n\n\u00a0\n\n\nCoverage, pricing and reimbursement\n\n\nSignificant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In the U.S. and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the extent to which third party payors provide coverage, and establish adequate reimbursement levels for such products. In the U.S., third party payors include federal and state healthcare programs, private managed care providers, health insurers and other organizations. The process for determining whether a third party payor will provide coverage for a product may be separate from the process for setting the price of a product or for establishing the reimbursement rate that such a payor will pay for the product. Third party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication. Third party payors are increasingly challenging the price, examining the medical necessity and reviewing the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of its products, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor\u2019s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor\u2019s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Adequate third party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on its investment in product development.\n \n\n\nDifferent pricing and reimbursement schemes exist in other countries. In the E.U., governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines but monitor and control company profits. The downward pressure on health care costs has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.\n\n\nThe marketability of any product candidates for which we receive regulatory approval for commercial sale may suffer if the government and third party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the U.S. has increased and we expect will continue to increase the pressure on healthcare pricing. Coverage policies and third party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.\n\n\nU.S. Healthcare reform\n\n\nHealthcare reforms that have been adopted, and that may be adopted in the future, could result in further reductions in coverage and levels of reimbursement for pharmaceutical products, increases in rebates payable under U.S. government rebate programs and additional downward pressure on pharmaceutical product prices.\n \n\n\nRecently, healthcare reform initiatives culminated in the enactment of the Inflation Reduction Act (the \u201cIRA\u201d), in August 2022, which will, among other things, permit the Department of Health and Human Service (\u201cHHS\u201d) to negotiate the selling price of certain drugs that CMS reimburses under Medicare Part B and Part D, although only high-expenditure single-source drugs that have been approved for at least 7 years can be selected by CMS for negotiation, with the negotiated price taking effect two years after the selection year. The negotiated prices, which will first become effective in 2026, will be capped at a statutory ceiling price. Beginning in January 2023 for Medicare Part B and October 2022 for Medicare Part D, the IRA will also penalize drug manufacturers that increase prices of Medicare Part B and Part D drugs at a rate greater than the rate of inflation. The IRA permits the Secretary of HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. Manufacturers that fail to comply with the IRA may be subject to various penalties, including civil monetary penalties. The IRA also extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. These provisions will take effect progressively starting in 2023, although they may be subject to legal challenges.\n\n\n16\n\n\n\n\n\u00a0\n\n\nThe Foreign Corrupt Practices Act\n\n\nThe Foreign Corrupt Practices Act (\u201cFCPA\u201d) prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the U.S. to comply with accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.\n\n\nAdditional regulation\n\n\nIn addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern the use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.\n\n\nEurope / rest of world government regulation\n\n\nIn addition to regulations in the U.S., we are subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval of a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the U.S. have a similar process that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials. In the E.U., for example, a clinical trial application must be submitted to each country\u2019s national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the clinical trial application is approved in accordance with a country\u2019s requirements, clinical trial development may proceed. The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country in the E.U. In all cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.\n\n\nTo obtain regulatory approval of a drug product under E.U., United Kingdom (\u201cU.K.\u201d), and Swiss regulatory systems, we must submit a marketing authorization application (\u201cMAA\u201d). The documentation submitted to the FDA in support of an NDA in the U.S. is almost identical to that required in the E.U., U.K., and Switzerland, with the exception of, among other things, country-specific document requirements. For other countries outside of the E.U., U.K. and Switzerland, such as countries in Eastern Europe, the Middle East, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.\n\n\nIf we or our potential collaborators fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.\n\n\nOther regulations\n\n\nWe are subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.\n\n\n17\n\n\n\n\n\u00a0\n\n\nHuman Capital Resources\n\n\nAs of April 30, 2023, we had a total of 118 full-time employees, of whom 53 were located in the U.S., 61 were located in the U.K., 3 were located in Switzerland, and 1 located in Portugal. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages and consider our relations with employees to be good. We believe that our future success largely depends upon our continued ability to attract and retain highly skilled employees. We emphasize a number of measures and objectives in managing our human capital assets, and we provide our employees with competitive salaries and bonuses, opportunities for equity ownership, development programs that enable continued learning and growth and a robust employment package that promotes well-being across all aspects of their lives, including health care, retirement planning and paid time off. In July 2021, the Company adopted an Equity Inducement Plan in order to provide incentives to attract and motivate new employees through the grant of stock options and restricted share units.\n\n\nCorporate Information\n\n\nOur principal executive offices are located at 55 Cambridge Parkway, Suite 901 East, Cambridge, MA 02142, and our telephone number is (857) 999-0075. Our website address is www.kalvista.com. The information contained on, or that can be accessed through, our website is not a part of this report. We have included our website address in this report solely as an inactive textual reference.\n\n\nAvailable Information\n\n\nWe file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (\u201cSEC\u201d) under the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d), which are available on our corporate website at \nwww.kalvista.com\n as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at www.sec.gov. The information posted on or accessible through these websites are not incorporated into this filing.\n \n\n\n18\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A.\n \n\n\nSummary of Risk Factors\n\n\nAn investment in our common stock involves various risks, and prospective investors are urged to carefully consider the matters discussed in the section titled \u201cRisk Factors\u201d prior to making an investment in our common stock. These risks include, but are not limited to, the following:\n\n\n\u2022\nWe have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability.\n\n\n\u2022\nOur limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.\n\n\n\u2022\nWe will need substantial additional funding. If we are unable to raise capital when needed, we may need to delay, reduce or eliminate our product development programs or commercialization efforts.\n\n\n\u2022\nIf we are unable to successfully develop and commercialize one or more of our compounds, or if we experience significant delays in doing so, the business will be materially harmed.\n\n\n\u2022\nClinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.\n\n\n\u2022\nIf we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented and expenses for development of our product candidates could increase.\n\n\n\u2022\nIf we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.\n\n\n\u2022\nWe may seek orphan drug exclusivity for some of our product candidates, and we may be unsuccessful.\n\n\n\u2022\nA Fast Track designation by the FDA may not lead to a faster development or regulatory review or approval process and does not increase the likelihood that our product candidates will receive marketing approval.\n\n\n\u2022\nFailure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.\n\n\n\u2022\nEven if any of our product candidates receives marketing approval, we may fail to achieve the degree of market acceptance by physicians, patients, third party payors and others in the medical community necessary for commercial success.\n\n\n\u2022\nWe face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.\n\n\n\u2022\nThe insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.\n\n\n\u2022\nWe contract with third parties for the manufacture of our product candidates for preclinical and clinical testing and we expect to continue to do so for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products at an acceptable cost and quality, which could delay, prevent or impair our development or commercialization efforts.\n\n\n19\n\n\n\n\n\u00a0\n\n\n\u2022\nIf we are unable to obtain and maintain intellectual property protection for our technology and products or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.\n\n\n\u2022\nObtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.\n\n\n\u2022\nOur future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.\n\n\n\u2022\nWe expect to expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.\n\n\n\u2022\nOur stock price is volatile and our stockholders may not be able to resell shares of our common stock at or above the price they paid.\n\n\n\u2022\nShareholder activism could cause material disruption to our business.\n\n\n\u2022\nProvisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.\n\n\n\u2022\nUnstable or unfavorable global market and economic conditions may have adverse consequences on our business, financial condition and stock price.\n\n\n\u00a0\n\n\n20\n\n\n\n\n\u00a0\n\n\nRisk Factors\n\n\nInvesting in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including the consolidated financial statements, the notes thereto and the section entitled \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d included elsewhere in this Annual Report on Form 10-K before deciding whether to invest in shares of our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our stock could decline, and you could lose part or all of your investment.\n\n\nRisks Related to Our Business\n\n\nWe have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability.\n \n\n\nSince inception, we have incurred significant operating losses as we focused on our discovery efforts and developing our product candidates. We expect that it will be several years, if ever, before we have a product candidate ready for commercialization. To date, we have financed our operations primarily through sales of our stock and a previous option agreement with Merck and associated private placement. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:\n\n\n\u2022\ncontinue clinical development of our current product candidates;\n\n\n\u2022\nseek to identify additional product candidates;\n\n\n\u2022\nacquire or in-license other products and technologies or enter into collaboration arrangements with regards to product discovery;\n\n\n\u2022\ninitiate clinical trials for additional product candidates;\n\n\n\u2022\nseek marketing approvals for our product candidates that successfully complete clinical trials;\n\n\n\u2022\nestablish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;\n\n\n\u2022\nmaintain, expand and protect our intellectual property portfolio;\n\n\n\u2022\nhire additional personnel; \n\n\n\u2022\nadd operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and \n\n\n\u2022\ncontinue to incur increased costs as a result of operating as a public company.\n\n\nTo become and remain profitable, we must develop and eventually commercialize a product or products with significant market potential. This will require us to be successful in a range of challenging activities, including completing clinical trials of our product candidates, obtaining marketing approval for these product candidates and manufacturing, marketing and selling those products for which we may obtain marketing approval. We may never succeed in these activities and, even if we do, we may never generate revenues that are significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our business and could impair our ability to raise capital, maintain our discovery and preclinical development efforts, expand our business or continue our operations and may require us to raise additional capital that may dilute the ownership interest of common stockholders. A decline in the value of our business could also cause stockholders to lose all or part of their investment.\n\n\n21\n\n\n\n\n\u00a0\n\n\nOur limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.\n\n\nWe are a clinical stage company and our operations to date have been limited to organizing and staffing, business planning, raising capital, acquiring and developing the technology, identifying potential product candidates, and undertaking up to Phase 3 clinical studies of our most advanced product candidates. We have not yet demonstrated our ability to successfully complete large-scale, pivotal clinical trials, obtain marketing approvals, manufacture a commercial scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Substantial time is required to develop a new medicine from the time it is discovered to when it is available for treating patients. Consequently, any predictions made about our future success or viability based on our limited operating history to date may not be as accurate as they could be if we had a longer operating history.\n\n\nIn addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. Upon regulatory approval of our product candidates, we will need to transition from a company with a research focus to a company capable of supporting and scaling commercial activities. We may not be successful in such a transition.\n\n\nWe will need substantial additional funding. If we are unable to raise capital when needed, we may need to delay, reduce or eliminate our product development programs or commercialization efforts.\n\n\nWe expect our expenses to increase in parallel with our ongoing activities, particularly as we continue our discovery and preclinical development collaborations to identify new clinical candidates and initiate clinical trials of, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will need to obtain substantial additional funding for our continuing operations. If we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce or eliminate our discovery and preclinical development programs or any future commercialization efforts.\n\n\nRaising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.\n \n\n\nUntil such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings and debt financings. We do not have any committed external source of funds.\n \nTo the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.\n\n\nRisks Related to the Discovery and Development of Our Product Candidates\n \n\n\nIf we are unable to successfully develop and commercialize one or more of our compounds, or if we experience significant delays in doing so, the business will be materially harmed.\n\n\nWe currently do not have any products that have gained regulatory approval. We have invested substantially all of our efforts and financial resources in identifying potential drug candidates and funding our preclinical and clinical studies. Our ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our clinical stage product candidates.\n\n\nWe have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. For example, to execute our business plan, we will need to successfully:\n\n\n\u2022\nexecute ongoing clinical development activities; \n\n\n\u2022\ncomplete any clinical trials beyond Phase 2;\n\n\n\u2022\nmove other product candidates into late-stage development;\n\n\n22\n\n\n\n\n\u00a0\n\n\n\u2022\nobtain required regulatory approvals for the development and commercialization of one or more of our product candidates;\n\n\n\u2022\nmaintain, leverage and expand our intellectual property portfolio;\n\n\n\u2022\nmanufacture a commercial scale product or arrange for a third party to do so on our behalf;\n\n\n\u2022\nbuild and maintain robust sales, distribution and marketing capabilities for successful product commercialization, either on our own or in collaboration with strategic partners;\n\n\n\u2022\ngain market acceptance for one or more of our product candidates;\n\n\n\u2022\ndevelop and maintain any strategic relationships we elect to enter into; and \n\n\n\u2022\nmanage our spending as costs and expenses increase due to drug discovery, preclinical development, clinical trials, regulatory approvals and commercialization. \n\n\nIf we are unsuccessful in accomplishing these objectives, we may not be able to successfully develop and commercialize sebetralstat or other product candidates, and our business will suffer.\n\n\nClinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.\n\n\nWe have not yet commercialized our product candidates and the historical failure rate in clinical drug development of product candidates in our industry is high. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of its product candidates in humans. Clinical testing is expensive, difficult to design and implement and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Further, the results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive regulatory approval.\n\n\nWe may experience delays in our clinical trials and we do not know whether planned clinical trials will begin or enroll subjects on time, need to be redesigned or be completed on schedule, if at all. There can be no assurance that the FDA, Medicines & Healthcare products Regulatory Agency (the \u201cMHRA\u201d), the U.K. regulatory authority, or the European Medicines Agency (the \u201cEMA\u201d) will not put any of our product candidates on clinical hold in the future. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates. Clinical trials may be delayed, suspended or prematurely terminated for a variety of reasons, such as: \n\u00a0\n\n\n\u2022\ndelay or failure in reaching agreement with the FDA, MHRA, EMA or a comparable foreign regulatory authority on a trial design that we want to execute; \n\n\n\u2022\ndelay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical study; \n\n\n\u2022\ndelays in reaching, or failure to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;\n\n\n\u2022\ninability, delay, or failure in identifying and maintaining a sufficient number of trial sites, many of which may already be engaged in other clinical programs; \n\n\n\u2022\ndelay or failure in recruiting and enrolling suitable subjects to participate in a trial;\n\n\n23\n\n\n\n\n\u00a0\n\n\n\u2022\ndelay or failure in having subjects complete a trial or return for post-treatment follow-up;\n\n\n\u2022\ndelay or failure in data collections in connection with a clinical trial;\n\n\n\u2022\nclinical sites and investigators deviating from trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial; \n\n\n\u2022\nlack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct additional clinical studies and increased expenses associated with the services of its clinical research organizations (\u201cCROs\u201d) and other third parties; \n\n\n\u2022\nclinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us to conduct additional clinical trials or abandon product development programs; \n\n\n\u2022\nthe number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate; \n\n\n\u2022\nwe may experience delays or difficulties in the enrollment of patients that our product candidates are designed to target; \n\n\n\u2022\nour third party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; \n\n\n\u2022\nwe may have difficulty partnering with experienced CROs that can identify patients that our product candidates are designed to target and run our clinical trials effectively; \n\n\n\u2022\nthe cost of clinical trials of our product candidates may be greater than we anticipate; \n\n\n\u2022\nthere may be political factors surrounding the approval process, such as government shutdowns or political instability;\n\n\n\u2022\nthe supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; or \n\n\n\u2022\nthere may be changes in governmental regulations or administrative actions.\n\n\nIf we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:\n \n\n\n\u2022\nbe delayed in obtaining marketing approval for our product candidates; \n\n\n\u2022\nnot obtain marketing approval at all; \n\n\n\u2022\nobtain approval for indications or patient populations that are not as broad as intended or desired; \n\n\n\u2022\nobtain approval with labeling that includes significant use or distribution restrictions or safety warnings that would reduce the potential market for our products or inhibit our ability to successfully commercialize our products;\n\n\n\u2022\nbe subject to additional post-marketing restrictions and/or testing requirements; or \n\n\n\u2022\nhave the product removed from the market after obtaining marketing approval.\n\n\nOur product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any of our preclinical studies or clinical trials will need to be restructured or will be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.\n\n\n24\n\n\n\n\n\u00a0\n\n\nIf we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented and expenses for development of our product candidates could increase.\n\n\nWe may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials to demonstrate safety and efficacy. We do not know whether planned or ongoing clinical trials will enroll subjects in a timely fashion, require redesign of essential trial elements or be completed on our projected schedule. In particular, because we are focused on patients with HAE, which is a rare disease, our ability to enroll eligible patients in trials may be limited or may result in slower enrollment than we anticipate. In addition, competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors\u2019 product candidates. Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether.\n\n\nPatient enrollment is affected by many factors including:\n \n\n\n\u2022\nthe eligibility criteria for the study in question; \n\n\n\u2022\nthe perceived risks and benefits of the product candidate under study; \n\n\n\u2022\nthe efforts to facilitate timely enrollment in clinical trials; \n\n\n\u2022\nthe inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same disease indication;\n\n\n\u2022\nthe patient referral practices of physicians; \n\n\n\u2022\nthe proximity and availability of clinical trial sites for prospective patients; \n\n\n\u2022\nambiguous or negative interim results of our clinical trials, or results that are inconsistent with earlier results; \n\n\n\u2022\nfeedback from the FDA, MHRA, EMA, IRBs, data safety monitoring boards, or a comparable foreign regulatory authority, or results from earlier stage or concurrent preclinical and clinical studies, that might require modifications to the protocol; \n\n\n\u2022\ndecisions by the FDA, MHRA, EMA, IRBs, a comparable foreign regulatory authority or us, or recommendations by data safety monitoring boards, to suspend or terminate clinical trials at any time for safety issues or for any other reason; and \n\n\n\u2022\nunacceptable risk-benefit profile or unforeseen safety issues or adverse effects.\n\n\nEnrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of the company to decline and limit our ability to obtain additional financing.\n\n\nIf we do not achieve our projected development goals in the timeframes we announce and expect, the commercialization of our products may be delayed and, as a result, our stock price may decline.\n\n\nFrom time to time, we estimate the timing of the anticipated accomplishment of various scientific, clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. From time to time, we may publicly announce the expected timing of some of these milestones. All of these milestones are and will be based on numerous assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as publicly announced, or at all, the commercialization of our products may be delayed or never achieved and, as a result, our stock price may decline.\n\n\n25\n\n\n\n\n\u00a0\n\n\nIf serious adverse events or unacceptable side effects are identified during the development of our product candidates, we may need to abandon or limit the development of some of our product candidates.\n \n\n\nIf our product candidates are associated with undesirable effects in preclinical or clinical trials or have characteristics that are unexpected, we may need to interrupt, delay or abandon their development or limit development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In October 2022, we terminated a Phase 2 clinical trial of KVD824, which was being developed as a potential HAE prophylaxis therapy, due to elevated liver enzymes observed in multiple study patients. Although we have not conclusively determined that KVD824 was the cause of, or a significant contributor to, these elevations, we do not anticipate further development of KVD824. Our on-demand HAE program sebetralstat is still in clinical testing and we have not yet determined what, if any, significant side effects may occur from dosing. Additional or more severe side effects may be identified for all our programs through further clinical studies. These or other drug-related side effects could affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Any of these occurrences may significantly harm our business, financial condition and prospects.\n\n\nRisks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters\n \n\n\nIf we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.\n\n\nOur product candidates must be approved by the FDA pursuant to an NDA in the U.S. and by the EMA and similar regulatory authorities outside the U.S. prior to commercialization. The process of obtaining marketing approvals, both in the U.S. and abroad, is expensive and takes many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates and therapeutic indications involved. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We have not received approval to market any of our product candidates from regulatory authorities in any jurisdiction. Securing marketing approval requires the submission of extensive chemistry, manufacturing and preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate\u2019s safety and efficacy. Securing marketing approval also usually requires inspection of manufacturing facilities by the regulatory authorities and also audits of the clinical trial sites, data and CROs that have supported KalVista in the clinical development. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude us from obtaining marketing approval or prevent or limit commercial use. Regulatory authorities have substantial discretion in the approval process and may refuse to accept an application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may also cause delays in or prevent the approval of an application.\n\n\nFor example, the U.K. formally left the E.U. on January 31, 2020, often referred to as Brexit, and the transition period ended on December 31, 2020. Brexit has caused uncertainty in the current regulatory framework in Europe. For instance, Brexit has resulted in the EMA, moving from the U.K. to the Netherlands. The U.K. has now put in place legislation to cover the approval of new medicinal products in the U.K., including designations such as orphan designation, and a pediatric investigational plan. The requirements are similar to those in the E.U. and in many cases have adopted the same requirements. However, there are still adjustments being made to legislation. Any of these adjustments as a result of Brexit could result in significant delays and additional expense to our business. Any of the foregoing factors could have a material adverse effect on our business, results of operations, or financial condition.\n\n\nAny marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.\n\n\nIf we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired.\n\n\n26\n\n\n\n\n\u00a0\n\n\nAn Orphan Drug Designation by the FDA or EMA or MHRA does not increase the likelihood that our product candidates will receive marketing exclusivity.\n\n\nRegulatory authorities in some jurisdictions, including the U.S. and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a disease with a prevalence of fewer than 200,000 individuals in the U.S.\n\n\nGenerally, if a product with an orphan drug designation in a particular jurisdiction subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the authority in that jurisdiction from approving another marketing application for the same drug for the same indication during the period of exclusivity. The applicable period is seven years in the U.S. and ten years in Europe. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective, the criteria on which the orphan designation was originally issued no longer apply or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.\n\n\nThe FDA has granted orphan drug designation for sebetralstat. This designation may not effectively protect sebetralstat (or other drug products for which KalVista seeks Orphan Designation) from competition because the designation does not preclude different drugs from being approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that it is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.\n\n\nA Fast Track designation by the FDA may not lead to a faster development or regulatory review or approval process and does not increase the likelihood that our product candidates will receive marketing approval.\n \n\n\nThe FDA has granted fast track designation for sebetralstat for the treatment of HAE. We may also seek fast track designation for other indications or for some of our other product candidates. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA fast track designation. The FDA has broad discretion whether or not to grant this designation. Even if we believe a particular product candidate is eligible for this designation, we cannot assure that the FDA would decide to grant it. Even though we have received fast track designation for sebetralstat for the treatment of HAE, or even if we receive fast track designation for other indications or for our other product candidates, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Many drugs that have received fast track designation have failed to obtain drug approval.\n\n\nFailure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.\n\n\nIn order to market and sell our products in the U.K., E.U. and many other jurisdictions, we or our third party collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the U.S. generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the U.S., it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We, or our third party collaborators, may not obtain approvals from regulatory authorities outside the U.S. on a timely basis, if at all. Approval in any one jurisdiction does not ensure approval by regulatory authorities in other countries or jurisdictions, and likewise approval by one regulatory authority outside the U.S. does not ensure approval by regulatory authorities in any other countries or jurisdictions including the U.S. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market.\n\n\n27\n\n\n\n\n\u00a0\n\n\nAny product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.\n\n\nOur product candidates and the activities associated with their development and commercialization, including their testing, manufacture, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA, E.U., MHRA, Swiss and other regulatory authorities. In the U.S., these requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, including periodic inspections by the FDA and other regulatory authority, requirements regarding the distribution of samples to physicians and recordkeeping.\n \n\n\nThe FDA, or other regulatory authorities, may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers\u2019 communications regarding use of their products and if we promote our products beyond their approved indications, we may be subject to enforcement action for off-label promotion. Violations of the FDC Act relating to the promotion of prescription drugs may lead to investigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.\n\n\nIn addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:\n \n\n\n\u2022\nrestrictions on the labeling or marketing of a product; \n\n\n\u2022\nrestrictions on product distribution or use; \n\n\n\u2022\nrequirements to conduct post-marketing studies or clinical trials; \n\n\n\u2022\nwarning or untitled letters; \n\n\n\u2022\nwithdrawal of the products from the market; \n\n\n\u2022\nrefusal to approve pending applications or supplements to approved applications that we submit; \n\n\n\u2022\nrecall of products; \n\n\n\u2022\nfines, restitution or disgorgement of profits or revenues; \n\n\n\u2022\nsuspension or withdrawal of marketing approvals; \n\n\n\u2022\nrefusal to permit the import or export of our products; \n\n\n\u2022\nproduct seizure; or \n\n\n\u2022\ninjunctions or the imposition of civil or criminal penalties.\n\n\nNon-compliance with U.K. and E.U. requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with the U.K. and E.U.\u2019s requirements regarding the protection of personal information can also lead to significant penalties and sanctions.\n\n\n28\n\n\n\n\n\u00a0\n\n\nRecently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.\n \n\n\nIn the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval.\n \n\n\nAs an example, the ACA, was signed into law in 2010 but has been the subject of legislative and judicial efforts to modify, repeal or otherwise invalidate all or certain aspects of its provisions. The ACA mandated a substantial number of major changes to the healthcare system that impact our business, and several other pieces of legislation since then, as well as ongoing efforts, have continued to create a complicated planning and operating environment for companies in our industry.\n \n\n\nWe expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.\n \n\n\nLegislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA\u2019s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.\n\n\nGovernments outside the U.S. tend to impose strict price controls, which may adversely affect our revenues, if any.\n \n\n\nIn some countries, particularly the countries of the E.U. and the U.K., the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.\n\n\nIf we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.\n \n\n\nWe are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from its use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed its resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.\n\n\nAlthough we maintain workers\u2019 compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with the storage or disposal of biological, hazardous or radioactive materials.\n\n\nIn addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our discovery, preclinical development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.\n\n\n29\n\n\n\n\n\u00a0\n\n\nOur employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.\n\n\nAs with all companies, we are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we may establish, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a material and adverse effect on our business, financial condition, results of operations and prospects, including the imposition of significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of our operations, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, integrity oversight and reporting obligations, or reputational harm.\n\n\nRisks Related to the Commercialization of Our Product Candidates\n \n\n\nEven if any of our product candidates receives marketing approval, we may fail to achieve the degree of market acceptance by physicians, patients, third party payors and others in the medical community necessary for commercial success.\n \n\n\nIf any of our product candidates receives marketing approval, we may nonetheless fail to gain sufficient market acceptance by physicians, patients, third party payors and others in the medical community. In addition, physicians, patients and third party payors may prefer other novel products to ours. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:\n\n\n\u2022\nthe efficacy and safety and potential advantages and disadvantages compared to alternative treatments; \n\n\n\u2022\nthe ability to offer our products for sale at competitive prices; \n\n\n\u2022\nthe convenience and ease of administration compared to alternative treatments; \n\n\n\u2022\nthe willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; \n\n\n\u2022\nthe strength of our marketing and distribution support; \n\n\n\u2022\nthe availability of third party coverage and adequate reimbursement, including patient cost-sharing programs such as copays and deductibles; \n\n\n\u2022\nthe ability to develop or partner with third-party collaborators to develop companion diagnostics; \n\n\n\u2022\nFDA-approved labeling which may include restrictive safety and efficacy data, or may not include aspects of safety and efficacy that we believe are important; \n\n\n\u2022\nthe prevalence and severity of any side effects; and \n\n\n\u2022\nany restrictions on the use of our products together with other medications.\n\n\n30\n\n\n\n\n\u00a0\n\n\nIn addition, in order to commercialize any product candidates, we must build marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If we are unable to enter into such arrangements when needed on acceptable terms or at all, we may not be able to successfully commercialize any of our product candidates that receive regulatory approval or any such commercialization may experience delays or limitations. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses. Our estimates of the potential market opportunities for our products are informed by work that is not definitive and future analyses may lead to estimates that are higher or lower than these estimates than those provided at any given time, with respect to addressable patient populations. If our market opportunity is lower than anticipated, our business may suffer.\n\n\nWe face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.\n\n\nThe development and commercialization of new drug products is highly competitive. We face competition with respect to our current product candidates, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we are developing our product candidates. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.\n\n\nOur commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. In addition, our ability to compete may be affected in many cases by insurers or other third party payors seeking to encourage the use of generic products. Generic products are expected to become available over the coming years, potentially creating pricing pressure. If our product candidates achieve marketing approval, we expect that they will be priced at a significant premium over competitive generic products.\n\n\nMany of the companies against which we are competing or we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.\n\n\nThe insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.\n\n\nThe availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments. Sales of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third party payors. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.\n\n\n31\n\n\n\n\n\u00a0\n\n\nThere is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the U.S., the principal decisions about reimbursement for new medicines are typically made by the CMS, an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for fundamentally novel products such as ours, as there is no body of established practices and precedents for these new products. Reimbursement agencies in Europe may be more conservative than CMS. Outside the U.S., international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries has and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines under such systems are substantially lower than in the U.S. Other countries allow companies to fix their own prices for medicines, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the U.S., the reimbursement for our products may be reduced compared with the U.S. and may be insufficient to generate commercially reasonable revenues and profits.\n \n\n\nMoreover, increasing efforts by governmental and third party payors, in the U.S. and abroad, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products into the healthcare market.\n\n\nIn addition, many private payors contract with commercial vendors who sell software that provide guidelines that attempt to limit utilization of, and therefore reimbursement for, certain products deemed to provide limited benefit to existing alternatives. Such organizations may set guidelines that limit reimbursement or utilization of our products.\n\n\nOur ability to obtain services, reimbursement or funding may be impacted by possible reductions in federal spending in the U.S. as well as globally.\n\n\nU.S. federal government agencies currently face potentially significant spending reductions. Under the Budget Control Act of 2011, the failure of Congress to enact deficit reduction measures of at least $1.2 trillion for the years 2013 through 2021 triggered automatic cuts to most federal programs. These cuts would include aggregate reductions to Medicare payments to providers of up to two percent per fiscal year, which went into effect beginning on April 1, 2013 and will stay in effect through 2030 unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, which was enacted on January 1, 2013, among other things, reduced Medicare payments to several providers, including hospitals and imaging centers. The full impact on our business of these automatic cuts is uncertain. Additionally, the Coronavirus Aid, Relief, and Economic Security (\u201cCARES\u201d) Act enacted in 2020 provides financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended and reduced the 2% Medicare sequester from May 1, 2020 through June 30, 2022, and extended the sequester policy, through 2031, in order to offset the added expense of the 2020 cancellation. Moreover, the American Taxpayer Relief Act of 2012 among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.\n\n\nThe IRA, which was enacted in August 2022, will, among other things, allow HHS to negotiate the selling price of certain drugs and biologics that CMS reimburses under Medicare Part B and Part D, although only high-expenditure single-source drugs that have been approved for at least 7 years (11 years for biologics) can be selected by CMS for negotiation, with the negotiated price taking effect two years after the selection year. The negotiated prices, which will first become effective in 2026, will be capped at a statutory ceiling price. Beginning in January 2023 for Medicare Part B and October 2022 for Medicare Part D, the IRA will also penalize drug manufacturers that increase prices of Medicare Part B and Part D drugs at a rate greater than the rate of inflation. The IRA permits the Secretary of HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. Manufacturers that fail to comply with the IRA may be subject to various penalties, including civil monetary penalties. The IRA also extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. These provisions will take effect progressively starting in 2023, although they may be subject to legal challenges. For example, in June 2023, the drug price negotiation program for Medicare Parts B and D was challenged in federal court. It is unclear whether such litigation or other litigation, if brought, will be successful.\n\n\n32\n\n\n\n\n\u00a0\n\n\nIf government spending is reduced, anticipated budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes of Health to continue to function at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. These reductions may also impact the ability of relevant agencies to timely review and approve drug research and development, manufacturing, and marketing activities, which may delay our ability to develop, market and sell any products we may develop. Any reductions in government spending in countries outside the U.S. may also impact us negatively, such as by limiting the functioning of international regulatory agencies in countries outside the U.S. or by eliminating programs on which we may rely.\n\n\nProduct liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.\n\n\nWe face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:\n\n\n\u2022\ndecreased demand for any product candidates or products that we may develop;\n\n\n\u2022\ninjury to our reputation and significant negative media attention;\n\n\n\u2022\nwithdrawal of clinical trial participants;\n\n\n\u2022\nsignificant costs to defend the related litigation;\n\n\n\u2022\nsubstantial monetary awards to trial participants or patients;\n\n\n\u2022\nloss of revenue;\n\n\n\u2022\nreduced resources of our management to pursue our business strategy; and\n\n\n\u2022\nthe inability to commercialize any products that we may develop.\n\n\nWe currently hold $10 million in product liability insurance coverage in the aggregate, with a per incident limit of $10 million which may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage as we expand our clinical trials or if we commence commercialization of our product candidates. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.\n\n\nRisks Related to Our Dependence on Third Parties\n \n\n\nWe contract with third parties for the manufacture of our product candidates for preclinical and clinical testing and we expect to continue to do so for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products at an acceptable cost and quality, which could delay, prevent or impair our development or commercialization efforts.\n\n\nWe do not own or operate facilities for the manufacture of our product candidates, and we do not have any manufacturing personnel. We currently have no plans to build our own clinical or commercial scale manufacturing capabilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing and we do not have backup sources of supply established for our candidates. We review the manufacturing process for each of our candidates and assess the risk to supply and, as appropriate, establish multiple manufacturers and/or establish stock levels to support future activities and do not believe we are currently substantially dependent on any one third party. Despite the drug substance and product risk management, this reliance on third parties presents a risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.\n\n\n33\n\n\n\n\n\u00a0\n\n\nAny performance failure on the part of our existing or future manufacturers of drug substance or drug products could delay clinical development or marketing approval. If current suppliers cannot supply us with our Phase 2 requirements as agreed, we may be required to identify alternative manufacturers, which would lead us to incur added costs and delays in identifying and qualifying any such replacement.\n \n\n\nEven if we choose to self-manufacture, the formulation used in early studies frequently is not a final formulation for commercialization. Additional changes may be required by the FDA or other regulatory authorities on specifications and storage conditions. These may require additional studies and may delay our clinical trials.\n\n\nWe expect to rely on third party manufacturers or third party collaborators for the manufacture of commercial supply of any other product candidates for which our collaborators or we obtain marketing approval.\n\n\nWe also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue.\n\n\nWe may be unable to establish any agreements with third party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third party manufacturers, reliance on third party manufacturers entails additional risks, including:\n\n\n\u2022\nreliance on the third party for regulatory compliance and quality assurance; \n\n\n\u2022\nthe possible breach of the manufacturing agreement by the third party; \n\n\n\u2022\nthe possible misappropriation of our proprietary information, including trade secrets and know-how; and \n\n\n\u2022\nthe possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. \n\n\nThird party manufacturers may not be able to comply with cGMP, regulations or similar regulatory requirements outside the U.S. Our failure, or the failure of our third party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products.\n\n\nOur product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.\n\n\nOur current and anticipated future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.\n\n\n34\n\n\n\n\n\u00a0\n\n\nWe may not successfully engage in strategic transactions, including any additional collaborations we seek, which could adversely affect our ability to develop and commercialize product candidates, impact our cash position, increase our expenses and present significant distractions to our management. The terms of any collaborations may also have impacts on other aspects of our business.\n\n\nFrom time to time, we may consider strategic transactions, such as collaborations, acquisitions of companies, asset purchases and out- or in-licensing of product candidates or technologies that we believe will complement or augment our existing business. In particular, we will evaluate and, if strategically attractive, seek to enter into additional collaborations, including with major biotechnology or biopharmaceutical companies. The competition for collaborators is intense, and the negotiation process is time-consuming and complex. Any new collaboration may be on terms that are not optimal for us, and we may not be able to maintain any new collaboration if, for example, development or approval of a product candidate is delayed, sales of an approved product candidate do not meet expectations or the collaborator terminates the collaboration. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future strategic partners. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the strategic partner\u2019s resources and expertise, the terms and conditions of the proposed collaboration and the proposed strategic partner\u2019s evaluation of a number of factors. These factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the U.S., the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. Moreover, even if we acquire assets with promising markets or technologies, we may not be able to realize the benefit of acquiring such assets due to an inability to successfully integrate them with our existing technologies and we may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic acquisition that delay or prevent us from realizing their expected benefits or enhancing our business.\n\n\nWe cannot assure you that following any such collaboration, or other strategic transaction, we will achieve the expected synergies to justify the transaction. For example, such transactions may require us to incur non-recurring or other charges, increase our near- and long-term expenditures and pose significant integration or implementation challenges or disrupt our management or business. These transactions would entail numerous operational and financial risks, including exposure to unknown liabilities, disruption of our business and diversion of our management\u2019s time and attention in order to manage a collaboration or develop acquired products, product candidates or technologies, incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected collaboration, acquisition or integration costs, write-downs of assets or goodwill or impairment charges, increased amortization expenses, difficulty and cost in facilitating the collaboration or combining the operations and personnel of any acquired business, impairment of relationships with key suppliers, manufacturers or customers of any acquired business due to changes in management and ownership and the inability to retain key employees of any acquired business. Also, such strategic alliance, joint venture or acquisition may be prohibited. Collaborations may also have potential impact on other aspects of our business.\n \n\n\nAccordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete may be subject to the foregoing or other risks that would have a material and adverse effect on our business, financial condition, results of operations and prospects.\n\n\n35\n\n\n\n\n\u00a0\n\n\nWe have entered, and may in the future seek to enter, into collaborations with third parties for the development and commercialization of our product candidates. If we fail to enter into such collaborations, or such collaborations are not successful, we may not be able to capitalize on the market potential of our product candidates.\n\n\nBiopharmaceutical companies are our prior and likely future collaborators for any marketing, distribution, development, licensing or broader collaboration arrangements. We expect that in any future collaboration agreements, we would have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Moreover, our ability to generate revenues from these arrangements will depend on our collaborators\u2019 abilities to successfully perform the functions assigned to them in these arrangements. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for any collaboration will depend, among other things, upon our assessment of the collaborator\u2019s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator\u2019s evaluation of a number of factors. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay our development program or one or more of our other development programs, delay our potential development schedule or reduce the scope of research activities, or increase our expenditures and undertake discovery or preclinical development activities at our own expense. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development activities, we may not be able to further develop our product candidates or continue to develop our product candidates and our business may be materially and adversely affected.\n\n\nFuture collaborations we may enter into may involve the following risks:\n\n\n\u2022\ncollaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations;\n\n\n\u2022\ncollaborators may not perform their obligations as expected;\n\n\n\u2022\nchanges in the collaborators\u2019 strategic focus or available funding, or external factors, such as an acquisition, may divert resources or create competing priorities;\n\n\n\u2022\ncollaborators may delay discovery and preclinical development, provide insufficient funding for product development of targets selected by us, stop or abandon discovery and preclinical development for a product candidate, repeat or conduct new discovery and preclinical development for a product candidate;\n\n\n\u2022\ncollaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed than our products;\n\n\n\u2022\nproduct candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the development of its product candidates;\n\n\n\u2022\ncollaborators may not properly maintain or defend their intellectual property rights or intellectual property rights licensed to us or may use their proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;\n\n\n\u2022\ncollaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and\n\n\n\u2022\ncollaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates.\n\n\nAdditionally, subject to its contractual obligations to us, if a collaborator is involved in a business combination, the collaborator might deemphasize or terminate the development of any of our product candidates. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and the perception of us in the business and financial communities could be adversely affected.\n\n\n36\n\n\n\n\n\u00a0\n\n\nIf our collaborations do not result in the successful development of products or product candidates, product candidates could be delayed and we may need additional resources to develop product candidates. All of the risks relating to product development, regulatory approval and commercialization described in this proxy statement also apply to the activities of our collaborators.\n\n\nRisks Related to Our Intellectual Property\n \n\n\nIf we are unable to obtain and maintain intellectual property protection for our technology and products or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.\n \n\n\nOur success depends in large part on our ability to obtain and maintain patent protection in the U.S., the E.U., and other countries with respect to our proprietary technology and products. We seek to protect our proprietary position by filing patent applications in the U.S. and abroad related to our novel technologies and product candidates. This patent portfolio includes issued patents and pending patent applications covering compositions of matter and methods of use.\n \n\n\nThe patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions, and under the laws of certain jurisdictions, patents or other intellectual property rights may be unavailable or limited in scope. It is also possible that we will fail to identify patentable aspects of our discovery and preclinical development output before it is too late to obtain patent protection. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.\n \n\n\nThe patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the U.S. For example, India and China do not allow patents for methods of treating the human body. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. If a third party has also filed a U.S. patent application prior to the effective date of the relevant provisions of the America Invents Act (i.e. before March 16, 2013) covering our product candidates or a similar invention, we may have to participate in an adversarial proceeding, known as an interference, declared by the USPTO to determine priority of invention in the U.S. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the E.U., the U.S. and other countries may diminish the value of our patents or narrow the scope of our patent protection.\n\n\nMoreover, we may be subject to a third party preissuance submission of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.\n\n\nEven if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.\n\n\n37\n\n\n\n\n\u00a0\n\n\nThe issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the U.S. and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.\n \n\n\nThe risks described elsewhere pertaining to our patents and other intellectual property rights also apply to the intellectual property rights that we license, and any failure to obtain, maintain and enforce these rights could have a material adverse effect on our business. In some cases we may not have control over the prosecution, maintenance or enforcement of the patents that we license, and our licensors may fail to take the steps that we believe are necessary or desirable in order to obtain, maintain and enforce the licensed patents. Any inability on our part to protect adequately our intellectual property may have a material adverse effect on our business, operating results and financial position.\n\n\nObtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.\n\n\nPeriodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the U.S. in several stages over the lifetime of the patents and/or applications. We employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.\n\n\nWe may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.\n\n\nBecause competition in our industry is intense, competitors may infringe or otherwise violate our issued patents, patents of our licensors or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringed their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent\u2019s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. We may also elect to enter into license agreements in order to settle patent infringement claims or to resolve disputes prior to litigation, and any such license agreements may require us to pay royalties and other fees that could be significant. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure.\n \n\n\nThird parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.\n \n\n\nOur commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference or derivation proceedings before the USPTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future.\n \n\n\n38\n\n\n\n\n\u00a0\n\n\nIf we are found to infringe a third party\u2019s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys\u2019 fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.\n \n\n\nIf we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.\n\n\nIn addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We seek to protect our confidential proprietary information, in part, by entering into confidentiality and invention or patent assignment agreements with our employees and consultants, however, we cannot be certain that such agreements have been entered into with all relevant parties. Moreover, to the extent we enter into such agreements, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the U.S. are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate them, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.\n\n\nRisks Related to Employee Matters, Facilities, Managing Growth and Macroeconomic Conditions\n \n\n\nOur future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.\n \n\n\nWe are highly dependent on the research and development, clinical and business development expertise of the principal members of our management, scientific and clinical team. Although we have entered into employment letter agreements with our executive officers, each of them may terminate their employment with us at any time. We do not maintain \u201ckey person\u201d insurance for any of our executives or other employees. The loss of the services of any of our management team, other key employees and other scientific and medical advisors, and our inability to find suitable replacements, could result in delays in product development and harm our business.\n \n\n\nRecruiting and retaining qualified scientific, clinical, manufacturing, sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our discovery and preclinical development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to provide services to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.\n \n\n\n39\n\n\n\n\n\u00a0\n\n\nWe expect to expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.\n \n\n\nWe expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and, if any of our product candidates receive marketing approval, sales, marketing and distribution. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.\n \n\n\nBusiness disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.\n\n\nOur operations, and those of our CROs and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, such as the COVID-19 pandemic, and other natural or man-made disasters or business interruptions, for which we may not have insurance coverage. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers to produce and process our product candidates. Our ability to obtain supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. Our operations and financial condition could suffer in the event of a natural or man-made disaster near our headquarters in Cambridge, Massachusetts or our research facility in Porton Down, United Kingdom.\n\n\nOur failure to comply with privacy and data security laws, regulations and standards may cause our business to be materially adversely affected.\n\n\nWe are, and may increasingly become, subject to various laws and regulations, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. Personal privacy and data security have become significant issues in the U.S., Europe and in many other jurisdictions. The regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. We maintain a large quantity of sensitive information, including confidential business and patient health information in connection with our clinical development regarding the patients enrolled in our clinical trials. Any violations of these rules by us could subject us to civil and criminal penalties and adverse publicity and could harm our ability to initiate and complete clinical trials. We cannot provide assurance that current or future legislation will not prevent us from generating or maintaining personal data or that patients will consent to the use of their personal data (as necessary); either of these circumstances may prevent us from undertaking or publishing essential research and development, manufacturing, and commercialization, which could have a material adverse effect on our business, results of operations, financial condition, and prospects.\n \n\n\nThe myriad international and U.S. privacy and data breach laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. In many jurisdictions, enforcement actions and consequences for noncompliance are also rising. In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually applies to us. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, and adversely affect our business. Additionally, all of these evolving compliance and operational requirements impose significant costs, such as costs related to organizational changes, implementing additional protection technologies, training employees and engaging consultants, which are likely to increase over time. In addition, such requirements may require us to modify our data processing practices and policies, distract management or divert resources from other initiatives and projects, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.\n\n\n40\n\n\n\n\n\u00a0\n\n\nEnforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase. Any failure or perceived failure by us (or the third parties with whom we have contracted to process such information) to comply with applicable privacy and data security laws, policies or related contractual obligations, or any compromise of security that results in unauthorized access, use or transmission of, personal user information, could result in a variety of claims against us, including governmental enforcement actions and investigations, class action privacy litigation in certain jurisdictions and proceedings by data protection authorities, potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm. When such events occur, our reputation may be harmed, we may lose current and potential users and the competitive positions of our brand might be diminished, any or all of which could materially adversely affect our business, operating results, and financial condition. In addition, if our practices are not consistent or viewed as not consistent with legal and regulatory requirements, including changes in laws, regulations and standards or new interpretations or applications of existing laws, regulations and standards, we may become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, loss of export privileges, or severe criminal or civil sanctions, all of which may have a material adverse effect on our business, operating results, reputation, and financial condition.\n\n\nOur business and operations would suffer in the event of system failures, cyberattacks or a deficiency in our cybersecurity.\n \n\n\nOur internal computer systems and those of our CROs, collaborators and third parties on whom we rely are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Furthermore, we have little or no control over the security measures and computer systems of our third party collaborators. The risk of a security breach or disruption, particularly through cyberattacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. In addition, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information or other intellectual property. The costs to us or our CROs or other contractors or consultants we may utilize to mitigate network security problems, bugs, viruses, worms, phishing attempts, malicious software programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service and other harm to our business and our competitive position. For example, the loss of research data could delay development of our product candidates and the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and we may incur substantial costs to attempt to recover or reproduce the data. If any disruption or security breach resulted in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and/or the further development of our product candidates could be delayed or impaired.\n \n\n\nIn addition, such a breach may require notification to governmental agencies, the media or individuals pursuant to various federal and state privacy and security laws, if applicable, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing rules and regulations, as well as regulations promulgated by the Federal Trade Commission and state breach notification laws. We would also be exposed to a risk of loss or litigation and potential liability under laws, regulations and contracts that protect the privacy and security of personal information. We would also be exposed to a risk of loss or litigation and potential liability, which could materially adversely affect our business, reputation, results of operations, financial condition and prospects.\n\n\nWe also depend on our information technology infrastructure for communications among our personnel, contractors, consultants and vendors. System failures or outages could also compromise our ability to perform these functions in a timely manner, which could harm our ability to conduct business or delay our financial reporting.\n\n\nRisks Related to Ownership of Our Common Stock\n\n\nOur stock price is volatile and our stockholders may not be able to resell shares of our common stock at or above the price they paid.\n\n\nThe trading price of our common stock is highly volatile and could be subject to wide fluctuations in response to various factors, many of which are beyond our control. Factors affecting the market price of our common stock include those discussed in this \u201cRisk Factors\u201d section of this Annual Report on Form 10-K and others such as:\n\n\n\u2022\nannouncement of a strategic transaction or other significant events for us or our competitors;\n\n\n41\n\n\n\n\n\u00a0\n\n\n\u2022\nour decision to initiate a clinical trial or not to initiate a clinical trial;\n\n\n\u2022\nannouncements of significant changes in our business or operations, including the decision not to pursue drug development programs;\n\n\n\u2022\nadditions or departures of key personnel;\n\n\n\u2022\nadverse results or delays in clinical trials;\n\n\n\u2022\nchanges in reimbursement or third party coverage of treatments, or changes to treatment recommendations or guidelines applicable to treatment;\n\n\n\u2022\nannouncements relating to collaboration partnerships or other strategic transactions undertaken by us;\n\n\n\u2022\nannouncements of therapeutic innovations or new products by us or our competitors;\n\n\n\u2022\nadverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;\n\n\n\u2022\nchanges or developments in laws or regulations applicable to any of our product candidates;\n\n\n\u2022\nany adverse changes to our relationship with any manufacturers or suppliers;\n\n\n\u2022\nthe success of our testing and clinical trials;\n\n\n\u2022\nthe success of our efforts to acquire or license or discover additional product candidates;\n\n\n\u2022\nany intellectual property infringement actions in which we may become involved;\n\n\n\u2022\nannouncements concerning our competitors or the pharmaceutical industry in general;\n\n\n\u2022\nachievement of expected product sales and profitability;\n\n\n\u2022\nmanufacture, supply or distribution shortages;\n\n\n\u2022\nactual or anticipated fluctuations in our operating results;\n\n\n\u2022\nFDA or other regulatory actions affecting us or our industry or other healthcare reform measures in the U.S., the U.K. or the E.U.;\n\n\n\u2022\nchanges in financial estimates or recommendations by securities analysts;\n\n\n\u2022\ntrading volume of our common stock;\n\n\n\u2022\nsales of our common stock by us, our executive officers and directors or our stockholders in the future;\n\n\n\u2022\ngeneral economic and market conditions and overall fluctuations in the U.S. equity markets, including due to rising inflation and interest rates, labor shortages, supply chain issues, and global conflicts such as the war in Ukraine; and\n\n\n\u2022\nother events or factors, many of which are beyond our control.\n\n\nIn addition, the stock markets in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the\n \n\n\n42\n\n\n\n\n\u00a0\n\n\nattention of our management would be diverted from the operation of our business, which could seriously harm our financial position. Any adverse determination in litigation could also subject us to significant liabilities.\n\n\nWe incur significant costs as a result of operating as a public company, and our management devotes substantial time to compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, which could result in sanctions or other penalties that would harm our business.\n\n\nWe incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Exchange Act, and regulations regarding corporate governance practices. The listing requirements of The NASDAQ Global Market require that we satisfy certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel have devoted, and will continue to need to devote, a substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and regulations increase our legal and financial compliance costs and make some activities more time consuming and costly. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors\u2019 and officers\u2019 insurance, on acceptable terms.\n\n\nWe are subject to Section 404 of The Sarbanes-Oxley Act of 2002 (\u201cSection 404\u201d), and the related rules of the SEC which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. Section 404 requires an annual management assessment of the effectiveness of our internal control over financial reporting. Effective April 27, 2020, the SEC adopted amendments to the \u201caccelerated filer\u201d and \u201clarge accelerated filer\u201d definitions in Rule 12b-2 under the Securities and Exchange Act of 1934. The amendments exclude from the \u201caccelerated filer\u201d and \u201clarge accelerated filer\u201d definitions an issuer that is eligible to be a smaller reporting company and that had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available. We determined that our Company does not meet the accelerated or large accelerated filer definitions as of April 30, 2023. For so long as we remain a smaller reporting company and a non-accelerated filer, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies, including, but not limited to, not being required as a non-accelerated filer to comply with the auditor attestation requirements of Section 404(b). An independent assessment by our independent registered public accounting firm of the effectiveness of internal control over financial reporting could detect problems that our management\u2019s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.\n\n\nDuring the course of the review and testing of our internal control for the purpose of providing the reports required by these rules, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, as a public company we are required to file accurate and timely quarterly and annual reports with the SEC under the Exchange Act. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The NASDAQ Global Market or other adverse consequences that would materially harm our business.\n\n\nIn addition, if we lose our status as a \u201cnon-accelerated filer,\u201d we will be required to have our independent registered public accounting firm attest to the effectiveness of internal control over financial reporting. If our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are an accelerated filer or a large accelerated filer, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock could be negatively affected.\n\n\nShareholder Activism Could Cause Material Disruption to Our Business.\n\n\nPublicly traded companies have increasingly become subject to campaigns by activist investors advocating corporate actions such as actions related to environment, social and governance (\u201cESG\u201d) matters, financial restructuring, increased borrowing, dividends, share repurchases or even sales of assets or the entire company. Responding to proxy contests and other actions by such activist investors or others in the future could be costly and time-consuming, disrupt our operations and divert the attention of our\n \n\n\n43\n\n\n\n\n\u00a0\n\n\nboard of directors and senior management from the pursuit of our business strategies, which could adversely affect our results of operations and financial condition.\n\n\nProvisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.\n\n\nOur amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could significantly reduce the value of our shares to a potential acquirer or delay or prevent changes in control or changes in our management without the consent of our board of directors. The provisions in our charter documents include the following:\n\n\n\u2022\na classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;\n\n\n\u2022\nno cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;\n\n\n\u2022\nthe exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;\n\n\n\u2022\nthe required approval of at least 66 2/3% of the shares entitled to vote to remove a director for cause, and the prohibition on removal of directors without cause;\n\n\n\u2022\nthe ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;\n\n\n\u2022\nthe ability of our board of directors to alter our bylaws without obtaining stockholder approval;\n\n\n\u2022\nthe required approval of at least 66 2/3% of the shares entitled to vote at an election of directors to adopt, amend or repeal certain provisions of our bylaws and our amended and restated certificate of incorporation regarding the election and removal of directors;\n\n\n\u2022\na prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;\n\n\n\u2022\nthe requirement that a special meeting of stockholders may be called only by or at the direction of our board of directors pursuant to a resolution adopted by a majority of the total number of directors that our board of directors would have if there were no vacancies, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and\n\n\n\u2022\nadvance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders\u2019 meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer\u2019s own slate of directors or otherwise attempting to obtain control of us. In addition, these provisions would apply even if we were to receive an offer that some stockholders may consider beneficial.\n\n\nWe are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.\n\n\nClaims for indemnification by our directors and officers may reduce our available funds to satisfy successful third party claims against us and may reduce the amount of money available to us.\n\n\nOur amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.\n\n\n44\n\n\n\n\n\u00a0\n\n\nIn addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:\n\n\n\u2022\nwe will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person\u2019s conduct was unlawful.\n\n\n\u2022\nwe may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.\n\n\n\u2022\nwe are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.\n\n\n\u2022\nwe will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification.\n\n\n\u2022\nthe rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.\n\n\n\u2022\nwe may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.\n\n\nOur ability to use our net operating losses to offset future taxable income, if any, may be subject to certain limitations.\n\n\nIn general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an \u201cownership change\u201d (generally defined as a greater than 50-percentage-point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year period) is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. \nWe have experienced ownership changes that substantially limit our use of the NOLs available to us for U.S. federal income tax purposes. \nFor example, we believe we experienced an \u201cownership change\u201d within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended, in December 2022, and we continue to analyze the impact if any on our ability to utilize NOLs in the future. If we undergo additional ownership changes (some of which changes may be outside our control), our ability to utilize our NOLs could be further limited by Section 382 of the Code. Our NOLs may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs. Furthermore, our ability to utilize our NOLs is conditioned upon our attaining profitability and generating U.S. federal taxable income. We have incurred net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; thus, we do not know whether or when we will generate the U.S. federal taxable income necessary to utilize our NOLs.\n\n\nThe Tax Cuts and Jobs Act of 2017, or the TCJA, changed both the federal deferred tax value of the net operating loss carryforwards and the rules of utilization of federal net operating loss carryforwards. Under the TCJA, net operating loss carryforwards generated in years after 2017 will only be available to offset 80% of future taxable income in any single year but will not expire. However, the Coronavirus Aid, Relief, and Economic Security Act (the \u201cCARES Act\u201d) temporarily repealed the 80% taxable income limitation for tax years beginning before January 1, 2021; net operating loss carried forward generated from 2018 or later and carryforwards to taxable years beginning after December 31, 2020 will be subject to the 80% limitation. Also, under the CARES Act, net operating losses arising in 2018, 2019 and 2020 can be carried back 5 years.\n\n\n45\n\n\n\n\n\u00a0\n\n\nGeneral Risk Factors\n\n\nUnstable or unfavorable global market and economic conditions may have adverse consequences on our business, financial condition and stock price.\n\n\nOur results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Challenging or uncertain economic conditions including those related to global epidemics, pandemic, or contagious diseases, geopolitical turmoil, inflation, fluctuation in interest rates and foreign exchange rates, instability in the global banking system, disruptions in supply chains may adversely affect our general business strategy and stock price. In addition, a recession, depression or other sustained adverse market event could materially and adversely affect our business and the value of our common stock.\n\n\nFor example, on March 10, 2023, Silicon Valley Bank (\u201cSVB\u201d) was closed by the California Department of Financial Protection & Innovation and the Federal Deposit Insurance Corporation (the \u201cFDIC\u201d) was named receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. While the FDIC has taken steps to make whole all depositors of SVB, there is no assurance that similar guarantees will be made in the event of further bank closures and continued instability in the global banking system. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, then our ability to obtain financing may be threatened, which could have a material adverse effect on our business and financial condition. Moreover, events such as the closure of SVB, in addition to other global macroeconomic conditions, may cause further turbulence and uncertainty in the capital markets.\n\n\nIf the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon development plans. There is also a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget. In addition, regarding the current conflict in Ukraine, we do not have any clinical trial sites or operations in Ukraine or Russia. However, if the current conflict in the region continues, there is the potential for trial sites in other eastern European countries to slow or stop enrollment, or to be unable to administer our clinical trials.\n\n\nChanges in tax laws or tax rulings could materially affect our financial position, results of operations and cash flows.\n\n\nThe tax regimes we are subject to or operate under, including income and non-income taxes, are unsettled and may be subject to significant change. Changes in tax laws, regulations, or rulings, or changes in interpretations of existing laws and regulations, could materially affect our financial position and results of operations. For example, the 2017 Tax Cuts and Jobs Act (the \u201cTax Act\u201d) made broad and complex changes to the U.S. tax code, including changes to U.S. federal tax rates, additional limitations on the deductibility of interest, both positive and negative changes to the utilization of future net operating loss (\u201cNOL\u201d) carryforwards, allowing for the expensing of certain capital expenditures, and putting into effect the migration from a \u201cworldwide\u201d system of taxation to a more territorial system. Future guidance from the IRS with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. The CARES Act has already modified certain provisions of the Tax Act. The IRA, enacted on August 16, 2022, further amended the U.S. tax code, imposing a 15% minimum tax on \u201cadjusted financial statement income\u201d of certain corporations as well as an excise tax on the repurchase or redemption of stock by certain corporations, beginning in the 2023 tax year. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, the CARES Act, the IRA or any newly enacted federal tax legislation. The issuance of additional regulatory or accounting guidance related to the Tax Act could materially affect our tax obligations and effective tax rate in the period issued.\n \n\n\nAs we continue to expand internationally, we will be subject to other jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have an adverse impact on our liquidity and results of operations. In addition, the authorities in several jurisdictions could review our tax returns and impose additional tax, interest and penalties, which could have an impact on us and on our results of operations. In addition, many countries in Europe and a number of other countries and organizations, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could significantly increase our tax obligations in the countries where we do or intend to do business or require us to change the manner in which we operate our business.\n\n\n46\n\n\n\n\n\u00a0\n\n\nIf securities or industry analysts do not publish research or reports about our business, or if they issue an adverse opinion regarding our stock, our stock price and trading volume could decline.\n\n\nThe trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If any analysts who cover us issue an adverse regarding us, our business model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to meet the expectations of analysts, our stock price may decline. If any of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.\n\n\nWe do not currently intend to pay dividends on our common stock, and, consequently, our stockholders\u2019 ability to achieve a return on their investment will depend on appreciation in the price of our common stock.\n\n\nWe do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, our stockholders are not likely to receive any dividends on their common stock for the foreseeable future. Since we do not intend to pay dividends, our stockholders\u2019 ability to receive a return on their investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it.\n\n",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of\n Financial Condition and Results of Operations.\n\n\nThe following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the related notes that appear elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the \u201cSecurities Act\u201d), and Section 21E of the Exchange Act. These statements are often identified by the use of words such as \u201cmay,\u201d \u201cwill,\u201d \u201cexpect,\u201d \u201cbelieve,\u201d \u201canticipate,\u201d \u201cintend,\u201d \u201ccould,\u201d \u201cestimate,\u201d or \u201ccontinue,\u201d and similar expressions or variations. These statements are based on the belief and assumptions of our management based on information currently available to management, reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ materially from those discussed or implied in these forward-looking statements due to a number of factors, including, but not limited to, those set forth in the section entitled \u201cRisk Factors\u201d and elsewhere in this Annual Report on Form 10-K. You should review the risk factors for a more complete understanding of the risks associated with an investment in our securities. For further information regarding forward-looking statements, please refer to the \u201cSpecial Note Regarding Forward-Looking Statements\u201d at the beginning of Part I of this Annual Report on Form 10-K. Our fiscal year end is April 30, and references throughout this Annual Report to a given fiscal year are to the twelve months ended on that date.\n\n\nManagement Overview\n\n\nWe are a clinical stage pharmaceutical company focused on the discovery, development and commercialization of small molecule protease inhibitors for diseases with significant unmet need. We apply our insights into the chemistry and biology of proteases to develop orally delivered, small molecule inhibitors with high selectivity, potency and bioavailability that we believe will make them successful treatments for diseases. We have used these capabilities to develop small molecule plasma kallikrein inhibitors targeting the disease hereditary angioedema (\u201cHAE\u201d). We also are conducting preclinical development of a novel, oral Factor XIIa (\u201cFactor XIIa\u201d) inhibitor program, which initially is being advanced to provide a next generation of HAE therapeutics and which also offers the opportunity for expansion into other high unmet need indications in the future.\n\n\nOur most advanced program for HAE is sebetralstat, which is being developed as a potential on-demand oral therapy for treatment of HAE attacks. In March 2022 we initiated the KONFIDENT trial, a Phase 3 clinical study to evaluate the safety and efficacy of sebetralstat as a potential on-demand therapy for HAE attacks. In July 2023, we announced that we had reached our targeted enrollment of 114 patients, and data from this study is anticipated in the fourth quarter of 2023. If the trial is successful, we anticipate submitting an NDA to the FDA in the first half of 2024.\n\n\nIn October 2022, we announced the termination of the Phase 2 KOMPLETE study for our potential HAE prophylactic treatment KVD824, due to elevations in liver enzymes observed in several patients during the trial. We remain uncertain as to the cause and the potential contribution of KVD824 to these elevations, but we do not anticipate further development of KVD824.\n\n\nWe have devoted substantially all our efforts to research and development, including clinical trials of our product candidates. We have not completed the development of any product candidates. Pharmaceutical drug product candidates, like those being developed by us, require approvals from the FDA or foreign regulatory agencies prior to commercial sales. There can be no assurance that any product candidates will receive the necessary approvals and any failure to receive approval or delay in approval may have a material adverse impact on our business and financial results. We are subject to a number of risks and uncertainties similar to those of other life science companies developing new products, including, among others, the risks related to the necessity to obtain adequate additional financing, to successfully develop product candidates, to obtain regulatory approval of product candidates, to comply with government regulations, to successfully commercialize our potential products, to the protection of proprietary technology and to our dependence on key individuals.\n\n\nOn May 21, 2021, we entered into a \nControlled Equity Offering\nSM\n Sales Agreement with Cantor Fitzgerald & Co.\n (the \u201cSales Agreement\u201d), which established an at-the-market (\u201cATM\u201d) offering program pursuant to which we may offer and sell shares of our common stock from time to time. The Sales Agreement provides for the sale of shares of our common stock having an aggregate offering price of up to $100.0 million. We have conducted no sales through the ATM.\n\n\nOn December 23, 2022, we entered into subscription agreements with institutional investors to sell, in a registered direct offering, an aggregate of 9,484,199 shares of our common stock at a price of $6.00 per share and pre-funded warrants to purchase up to 182,470 shares of common stock at a price of $5.999 per pre-funded warrant. The purchase price per share of each pre-funded warrant represents the per share offering price for the common stock, less the $0.001 per share exercise price of each pre-funded warrant. The net proceeds from the registered direct offering, after deducting estimated expenses, were approximately $57.7 million.\n \n\n\n49\n\n\n\n\n\u00a0\n\n\nWe have funded operations primarily through the issuance of capital stock. As of April 30, 2023, we had an accumulated deficit of $343.1 million and hold $149.4 million of cash, cash equivalents and available for sale securities. Our working capital is anticipated to fund our operations for at least the next twelve months from the date the audited consolidated financial statements are issued.\n\n\nFinancial Overview\n\n\nRevenue\n\n\nWe have not generated any revenue in the current fiscal year. To date, we have not generated any revenues from the sale of products, and we do not have any products that have been approved for commercialization. We do not expect to generate product revenue unless and until we obtain regulatory approval for, and commercialize, one of our current or future product candidates.\n \n\n\nResearch and Development Expenses\n\n\nResearch and development expenses primarily consist of costs associated with our research activities, including the preclinical and clinical development of product candidates. We contract with clinical research organizations to manage our clinical trials under agreed upon budgets for each study, with oversight by our clinical program managers. All research and development costs are expensed as incurred.\n\n\nCosts for certain research and development activities, such as manufacturing development activities and clinical studies are recognized based on the contracted amounts adjusted for the percentage of work completed to date. Payments for these activities are based on the terms of the contractual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as prepaid or accrued expenses. We defer and capitalize non-refundable advance payments made for research and development activities until the related goods are delivered or the related services are performed.\n\n\nWe expect to continue to incur substantial expenses related to development activities for the foreseeable future as we conduct clinical development, manufacturing and toxicology studies. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials, additional drug manufacturing requirements, and later stage toxicology studies such as carcinogenicity studies. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success for each product candidate is affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability. Accordingly, we may never succeed in achieving marketing approval for any of our product candidates.\n\n\nCompletion dates and costs for clinical development programs as well as our research program can vary significantly for each current and future product candidate and are difficult to predict. As a result, we cannot estimate with any degree of certainty the costs associated with development of our product candidates at this point in time. We anticipate making determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early research programs, results of ongoing and future clinical trials, our ability to enter into collaborative agreements with respect to programs or potential product candidates, as well as ongoing assessments as to the commercial potential of each current or future product candidate.\n\n\nGeneral and Administrative Expenses\n\n\nGeneral and administrative expenses consist primarily of the costs associated with general management, obtaining and maintaining our patent portfolio, commercial planning, professional fees for accounting, auditing, consulting and legal services, and general overhead expenses.\n\n\nWe expect ongoing general and administrative expenses to increase in the future as we expand our operating activities, maintain and expand the patent portfolio and incur additional costs associated with the management of a public company and maintain compliance with exchange listing and requirements of the SEC. These potential increases will likely include management costs, legal fees, accounting fees, directors\u2019 and officers\u2019 liability insurance premiums and expenses associated with investor relations, among others.\n\n\n50\n\n\n\n\n\u00a0\n\n\nOther Income\n\n\nOther income consists of bank and investment interest, research and development tax credits from the U.K. government\u2019s tax incentive programs set up to encourage research and development in the U.K., realized and unrealized exchange rate gains/losses on cash held in foreign currencies and transactions settled in foreign currencies, and realized gains and losses from sales of marketable securities.\n\n\nIncome Taxes\n\n\nWe historically have incurred net losses and had no corporation tax liabilities. We file U.S. Federal tax returns, as well as certain state returns. We also file tax returns in the U.K. Under the U.K. government\u2019s research and development tax incentive scheme, we have incurred qualifying research and development expenses and filed claims for research and development tax credits in accordance with the relevant tax legislation. The research and development tax credits are paid out to us in cash and reported as other income.\n \n\n\nCritical Accounting Policies and Significant Judgments and Estimates\n\n\nOur management\u2019s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the U.S. (\u201cU.S. GAAP\u201d). The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our financial statements and the reported revenue and expenses during the reported periods. We evaluate these estimates and judgments, including those described below, on an ongoing basis. We base our estimates on historical experience, known trends and events, contractual milestones and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See also Note 2, Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Annual Report on Form 10-K, which discusses the significant assumptions used in applying our accounting policies. Those accounting policies and estimates that we deem to be critical are as follows:\n\n\nPreclinical and Clinical Trial Accruals\n\n\nWe base our accrued expenses related to clinical trials on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical trials on our behalf. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us and based on contracted amounts applied to the level of patient enrollment and activity according to the clinical trial protocol. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis.\n\n\nIf we do not identify costs that we have begun to incur, or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.\n\n\n51\n\n\n\n\n\u00a0\n\n\nResults of Operations\n\n\nThis section of this Annual Report on Form 10-K generally discusses fiscal years 2023 and 2022 items and year-to-year comparisons between fiscal years 2023 and 2022. Discussions of fiscal year 2022 items and year-to-year comparisons between fiscal years 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended April 30, 2022, which was filed with the SEC on July 7, 2022.\n\n\nYear Ended April 30, 2023 Compared to Year Ended April 30, 2022\n\n\nThe following table sets forth the key components of our results of operations for the years ended April 30, 2023 and 2022:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYears Ended\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30,\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(in thousands)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRevenue\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nOperating Expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n80,276\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n70,167\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,109\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,595\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,446\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,149\n\n\n\u00a0\n\n\n\n\n\n\nOther income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInterest, exchange rate gain and other income\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,964\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,274\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,690\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nRevenue\n. No revenue was recognized in the years ended April 30, 2023 or 2022.\n\n\nResearch and Development Expenses\n. Research and development expenses were $80.3 million in the year ended April 30, 2023 compared to $70.2 million in the prior year. The increase of $10.1 million was primarily due to increases in spending on sebetralstat of $3.5 million, personnel costs of $3.5 million, and preclinical activities of $4.3 million. These increases were offset by a decrease in spending on KVD824 of $1.2 million. The impact of exchange rates on research and development expenses was a decrease of approximately $7.7 million compared to the prior year, which is reflected in the figures above.\n\n\nResearch and development expenses by major programs or categories were as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYears Ended\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30,\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(in thousands)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProgram-specific costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSebetralstat\n\n\n\u00a0\n\n\n$\n\n\n27,037\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,493\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,544\n\n\n\u00a0\n\n\n\u00a0\n\n\n15%\n\n\n\n\n\n\nKVD824\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,651\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,879\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,228\n\n\n)\n\n\n\u00a0\n\n\n-10%\n\n\n\n\n\n\nUnallocated costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPersonnel\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,452\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,925\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,527\n\n\n\u00a0\n\n\n\u00a0\n\n\n18%\n\n\n\n\n\n\nPreclinical activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,136\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,870\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,266\n\n\n\u00a0\n\n\n\u00a0\n\n\n31%\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n80,276\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n70,167\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10,109\n\n\n\u00a0\n\n\n\u00a0\n\n\n14%\n\n\n\n\n\n\n\u00a0\n\n\nExpenses for the sebetralstat program increased primarily due to activities related to the ongoing Phase 3 KONFIDENT trial. We anticipate that these expenses will remain at or above current levels as this clinical trial progresses.\n\n\nExpenses for the KVD824 program decreased primarily due to the termination of the Phase 2 KOMPLETE clinical trial in October 2022. We anticipate that these expenses will cease in the near term as we do not anticipate any further development of KVD824.\n\n\nPersonnel expenses increased primarily due to higher research and development and medical headcount compared to the prior year. We anticipate that these expenses will continue to increase to support the growth of the ongoing clinical trials and preclinical activities.\n\n\n52\n\n\n\n\n\u00a0\n\n\nExpenses for preclinical activities increased primarily due to additional projects compared to the prior year. We anticipate that these expenses will continue to increase as we continue to progress our oral Factor XIIa inhibitor program and conduct other preclinical activities\n\n\nGeneral and Administrative Expenses\n. General and administrative expenses were $30.6 million in the year ended April 30, 2023 compared to $26.4 million in the prior fiscal year. The increase of $4.2 million was primarily due to increases of $3.9 million  in commercial strategy expenses, $0.8 million in investor and public relations expenses, and $0.7 million in insurance and other administrative expenses. These increases were offset by decreases in professional fees of $0.6 million and employee-related expenses of $0.6 million compared to the prior year. We anticipate that expenses will continue at or above current levels as we continue to support the growth of the Company.\n \n\n\nOther Income\n. Other income was $18.0 million for the year ended April 30, 2023 compared to $14.3 million in the prior fiscal year. The increase of $3.7 million was primarily due to an increase of $0.5 million in income from research and development tax credit, an increase of $1.1 million in interest income, an increase in foreign currency exchange rate gains of $1.6 million from transactions denominated in foreign currencies in our U.K. subsidiary, and a decrease in realized loss from available for sale securities of $0.4 million, compared to the prior year.\n\n\nLiquidity and Capital Resources\n\n\nSince inception, we have not generated any revenue from product sales and have incurred losses since inception and cash outflows from operating activities for the years ended April 30, 2023 and 2022. As of April 30, 2023, we had an accumulated deficit of $343.1 million and cash, cash equivalents and marketable securities totaling $149.4 million. We have not yet commercialized any of our product candidates, which are in various phases of preclinical and clinical development, and we do not expect to generate revenue from sales of any products for the foreseeable future, and will continue to incur net losses as we continue the research and development efforts on our product candidates, hire additional staff, including clinical, scientific, operational, and financial and management personnel.\n\n\nSources of Liquidity\n\n\nOn May 21, 2021, we filed a shelf registration statement on Form S-3 pursuant to which the Company may offer and sell securities having an aggregate public offering price of up to $300 million. In connection with the filing of the Registration Statement, we also entered into a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co. (the \u201c2021 Sales Agreement\u201d), through which we may offer and sell shares of our common stock under an at-the-market offering program having an aggregate offering of up to $100.0 million through Cantor Fitzgerald & Co., as our sales agent. We will pay the sales agents a commission of up to 3% of the gross proceeds of sales made through the 2021 Sales Agreement. During the twelve months ended April 30, 2023, we did not offer or sell any shares under the 2021 Sales Agreement.\n\n\nIn December 2022, we entered into subscription agreements with institutional investors to sell, in a registered direct offering, an aggregate of 9,484,199 shares of our common stock at a price of $6.00 per share and pre-funded warrants to purchase up to 182,470 shares of common stock at a price of $5.999 per pre-funded warrant (the \u201cOffering\u201d). The net proceeds from the Offering, after deducting estimated expenses, were approximately $57.7 million. As of April 30, 2023, no pre-funded warrants were exercised.\n \n\n\nCash Flows\n\n\nThe following table shows a summary of the net cash flow activity for the years ended April 30, 2023 and 2022:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYears Ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(in thousands)\n\n\n\u00a0\n\n\n\n\n\n\nCash flows used in operating activities\n\n\n\u00a0\n\n\n$\n\n\n(75,261\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(78,134\n\n\n)\n\n\n\n\n\n\nCash flows provided by investing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n41,415\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n57,860\n\n\n\u00a0\n\n\n\n\n\n\nCash flows provided by financing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n58,116\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,581\n\n\n\u00a0\n\n\n\n\n\n\nEffect of exchange rate changes on cash\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,236\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,167\n\n\n)\n\n\n\n\n\n\nNet (decrease) increase in cash and cash equivalents\n\n\n\u00a0\n\n\n$\n\n\n25,506\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(19,860\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n53\n\n\n\n\n\u00a0\n\n\nNet cash used in operating activities\n\n\nNet cash used in operating activities was $75.3 million for the year ended April 30, 2023 and primarily consisted of a net loss of $92.9 million adjusted for stock-based compensation of $9.9 million, an increase in the research and development tax credit receivable of $2.3 million, and other changes in net working capital. The research and development tax credit receivable increased due to higher eligible spending compared to the prior year. Net cash used in operating activities was $78.1 million for the year ended April 30, 2022 and primarily consisted of a net loss of $82.4 million adjusted for stock-based compensation of $11.1 million, an increase in the research and development tax credit receivable of $5.2 million, and other changes in net working capital.\n\n\nNet cash provided by investing activities\n\n\nNet cash provided by investing activities was $41.4 million for the year ended April 30, 2023 and consisted of sales and maturities of marketable securities of $140.9 million offset by purchases of marketable securities of $98.3 million and acquisitions of property and equipment of $1.2 million. Net cash used in investing activities was $57.9 million for the year ended April 30, 2022 and consisted of sales and maturities of marketable securities of $195.7 million offset by purchases of marketable securities of $136.9 million and acquisitions of property and equipment of $0.9 million.\n\n\nNet cash provided by financing activities\n\n\nNet cash provided by financing activities was $58.1 million for the year ended April 30, 2023 and primarily consisted of the $57.7 million in net proceeds from the December 2022 registered direct offering of common stock and pre-funded warrants. Net cash provided by financing activities was $1.6 million for the year ended April 30, 2022 and primarily consisted of  the issuance of common stock from equity incentive plans.\n\n\nOperating Capital Requirements\n\n\nTo date, we have not generated any revenues from the sale of products, and we do not have any products that have been approved for commercialization. We do not expect to generate significant product revenue unless and until we obtain regulatory approval for, and commercialize, one of our current or future product candidates. We anticipate that we will continue to incur losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, product candidates, and begin to commercialize any approved products. We are subject to all of the risks inherent in the development of new therapeutic products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We currently anticipate that, based upon our operating plans and existing capital resources, we have sufficient funding to operate for at least the next 12 months.\n\n\nUntil such time, if ever, as we can generate substantial revenues, we expect to finance our cash needs through a combination of equity and debt financings, collaborations, strategic partnerships and licensing arrangements. To the extent that additional capital is raised through the sale of stock or convertible debt securities, the ownership interest of existing stockholders will be diluted, and the terms of these newly issued securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing, if available, may involve agreements that include increased fixed payment obligations and covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, selling or licensing intellectual property rights and other operating restrictions that could adversely impact our ability to conduct business. Additional fundraising through collaborations, strategic partnerships or licensing arrangements with third parties may require us to relinquish valuable rights to product candidates, including our other technologies, future revenue streams or research programs, or grant licenses on terms that may not be favorable. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate product development or future commercialization efforts or grant rights to develop and commercialize other product candidates even if we would otherwise prefer to develop and commercialize such product candidates internally.\n\n\nOff-Balance Sheet Arrangements\n\n\nWe do not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.\n\n\nRecent Accounting Pronouncements\n\n\nA description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our consolidated financial statements.\n\n\n54\n\n\n\n\n\u00a0\n\n",
+  "item7a": ">Item 7A. Quantitative and Qualitat\nive Disclosures About Market Risk.\n\n\nInterest Rate Risk\n\n\nBecause of the short-term nature of the bank deposit arrangements, a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operations. We do not believe that our cash or cash equivalents have significant risk of default or illiquidity.\n\n\nWe invest in marketable securities in accordance with our investment policy. The primary objectives of our investment policy are to preserve capital, maintain proper liquidity to meet operating needs and maximize yields. We invest our excess cash in securities issued by financial institutions, commercial companies, and government agencies that management believes to be of high credit quality in order to limit the amount of credit exposure. Some of the securities we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate.\n\n\nOur investment exposure to market risk for changes in interest rates relates to the increase or decrease in the amount of interest income we can earn on our portfolio, changes in the market value of securities due to changes in interest rates and other market factors. Our investment portfolio includes only marketable securities and instruments with active secondary or resale markets to help ensure portfolio liquidity. An increase or decrease in interest rates along the entire interest rate yield curve would not significantly affect the fair value of our interest sensitive financial instruments, but may affect our future earnings and cash flows. We generally intend to hold our fixed income investments to maturity and therefore do not expect that our operating results, financial position or cash flows will be materially impacted due to a sudden change in interest rates. However, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates or other factors, such as changes in credit risk related to the securities\u2019 issuers. To minimize this risk, we schedule our investments to have maturities that coincide with our expected cash flow needs, thus avoiding the need to redeem an investment prior to its maturity date. Accordingly, we do not believe that we have material exposure to interest rate risk arising from our investments. We have not realized any significant losses from our investments.\n\n\nForeign Exchange Rate Risk\n\n\nWe maintain cash balances primarily in both U.S. Dollars (\u201cUSD\u201d) and British Pound Sterling (\u201cGBP\u201d) to fund ongoing operations and manage foreign exchange risk. Cash, cash equivalents and marketable securities as of April 30, 2023 was composed of $56.2 million in cash and cash equivalents which consisted of readily available checking and bank deposit accounts held primarily in both USD and GBP and $93.1 million of USD denominated marketable securities. As of April 30, 2023, 83% of cash and cash equivalents were held in USD and 17% in GBP. We currently incur significant expense denominated in foreign currencies, primarily in GBP. We do not currently engage in exchange rate hedging or other similar activities to address our exchange rate risk. A 10% change in the exchange rate would result in an immaterial net gain or loss.\n\n\nEffects of Inflation\n\n\nWe do not believe that inflation and changing prices had a significant impact on the results of operations for any periods presented herein.\n\n\n55\n\n\n\n\n\u00a0\n\n",
+  "cik": "1348911",
+  "cusip6": "483497",
+  "cusip": ["483497103", "483497903"],
+  "names": ["KALVISTA PHARMACEUTICALS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1348911/000095017023032298/0000950170-23-032298-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. Bu\nsiness.\n \n\n\nOverview\n \n\n\nOrganovo Holdings, Inc. (\u201cOrganovo Holdings,\u201d \u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d the \u201cCompany\u201d and \u201cour Company\u201d) is a biotechnology company that focuses on building high fidelity, 3D tissues that recapitulate key aspects of human disease. We use these models to identify gene targets responsible for driving the disease and intend to initiate drug discovery programs around these validated targets. We are initially focusing on the intestine and have ongoing 3D tissue development efforts in ulcerative colitis (\u201cUC\u201d) and Crohn\u2019s disease (\u201cCD\u201d). We intend to add additional tissues/diseases/targets to our portfolio over time. In line with these plans, we are building upon both our external and in-house scientific expertise, which will be essential to our drug development effort.\n \n\n\nWe use our proprietary technology to build functional 3D human tissues that mimic key aspects of native human tissue composition, architecture, function and disease. Our advances include cell type-specific compartments, prevalent intercellular tight junctions, and the formation of microvascular structures. We believe these attributes can enable critical complex, multicellular disease models that can be used to develop clinically effective drugs across multiple therapeutic areas.\n\n\nOur NovoGen Bioprinters\n\u00ae\n are automated devices that enable the fabrication of 3D living tissues comprised of mammalian cells. We believe that the use of our bioprinting platform as well as complementary 3D technologies will allow us to develop an understanding of disease biology that leads to validated novel drug targets and therapeutics to those targets to treat disease.\n \n\n\nThe majority of our current focus is on inflammatory bowel disease (\u201cIBD\u201d), including CD and UC.  We are creating high fidelity disease models, leveraging our prior work including the work found in our peer-reviewed publication on bioprinted intestinal tissues (\nMadden et al. Bioprinted 3D Primary Human Intestinal Tissues Model Aspects of Native Physiology and ADME/Tox Functions. iScience. 2018 Apr 27;2:156-167. doi: 10.1016/j.isci.2018.03.015.)  Our current understanding of intestinal tissue models and IBD disease models leads us to believe that we can create models that provide greater insight into the biology of these diseases than are generally currently available.  Using these disease models, we intend to identify and validate novel therapeutic targets.  After finding therapeutic drug targets, we will focus on developing novel small molecule, antibody, or other therapeutic drug candidates to treat the disease, and advance these drug candidates towards an Investigational New Drug (\u201cIND\u201d) filing and potential future clinical trials. We may also form partnerships around the development of targets or therapeutics for the treatment of IBD.\n \n\n\nIn March of 2023, we \nentered into and closed an asset purchase agreement with Metacrine, Inc to acquire their farnesoid X receptor (\"FXR\") program. FXR is a mediator of gastrointestinal (\"GI\") and liver diseases. FXR agonism has been tested in a variety of preclinical models of IBD.  The acquired program contains two clinically tested compounds and over 2,000 discovery or preclinical compounds.\n \n \n\n\nWe expect to broaden our work into additional therapeutic areas over time and are currently exploring specific tissues for development.  In our work to identify the areas of interest, we evaluate areas that might be better served with 3D disease models than currently available models as well as the commercial opportunity.\n\n\nWe hold a large and diverse patent portfolio related to our bioprinting platform and complementary 3D technologies. The strength of this patent portfolio, the fact that it was created early in the bioprinting revolution and growth in the bioprinting industry have made for an attractive business opportunity for us. We are now beginning to invest resources to explore and expand business and revenue opportunities from the leveraging of our patent portfolio.\n\n\nOur Platform Technology\n \n\n\nOur 3D human tissue platform is multifaceted. We approach each tissue agnostic to specific technologies, and intend to apply the best 3D technology to a given disease. We are developing novel disease models using high throughput systems, bioprinted and flow/stretch capable 3D systems as appropriate. Our proprietary NovoGen Bioprinters\n\u00ae\n and related technologies for preparing bio-inks and bioprinting multicellular tissues with complex architecture are grounded in over a decade of peer-reviewed scientific publications, deriving originally from research led by Dr. Gabor Forgacs, one of our founders and a former George H. Vineyard Professor of Biological Physics at the University of Missouri-Columbia (\u201cMU\u201d). We have a broad portfolio of intellectual property rights covering the principles, enabling instrumentation, applications, tissue constructs and methods of cell-based printing, including exclusive licenses to certain patented and patent pending technologies from MU and Clemson University. We own or exclusively license more than 160 patents and pending applications worldwide covering specific tissue designs, uses, and methods of manufacture.\n\n\nThe NovoGen Bioprinter\u00ae Platform\n \n\n\nOur NovoGen Bioprinters\n\u00ae\n are automated devices that enable the fabrication of 3D living tissues comprised of mammalian cells. A custom graphic user interface (\u201cGUI\u201d) facilitates the 3D design and execution of scripts that direct precision movement of multiple\n \n\n\n2\n\n\n\n\ndispensing heads to deposit defined cellular building blocks called bio-ink. Bio-ink can be formulated as a 100% cellular composition or as a mixture of cells and other matter (hydrogels, particles). Our NovoGen Bioprinters\n\u00ae\n can also dispense pure hydrogel formulations, provided the physical properties of the hydrogel are compatible with the dispensing parameters. Most typically, hydrogels are deployed to create void spaces within specific locations in a 3D tissue or to aid in the deposition of specific cell types. We are able to employ a wide variety of proprietary cell- and hydrogel-based bio-inks in the fabrication of tissues. Our NovoGen Bioprinters\n\u00ae\n also serve as important components of our tissue prototyping and manufacturing platform, as they are able to rapidly and precisely fabricate intricate small-scale tissue models for \nin vitro\n use as well as larger-scale tissues suitable for \nin vivo\n use.\n \n\n\nGeneration of bio-ink comprising human cells is the first step in our standard bioprinting. A wide variety of cells and cell-laden hydrogels can be formulated into bio-ink and bioprinted tissues, including cell lines, primary cells, and stem/progenitor cells. The majority of tissue designs employ two or more distinct varieties of bio-ink, usually comprised of cells that represent distinct compartments within a target tissue. For example, a 3D liver tissue might consist of two to three distinct bio-inks that are each made from a single cell type, a combination of cell types, and/or a combination of primary cells and one or more bio-inert hydrogels that serve as physical supports for the bioprinted tissue during its maturation period, or to transiently occupy negative spaces in a tissue design.\n \n\n\nResearch Collaborations\n \n\n\nWe continue to collaborate with several academic institutions by providing them with access to our NovoGen Bioprinters\n\u00ae\n for research purposes, including: Yale School of Medicine, Knight Cancer Institute at Oregon Health & Science University, and the University of Virginia. We believe that the use of our bioprinting platform by major research institutions may help to advance the capabilities of the platform and generate new applications for bioprinted tissues. In prior instances, an academic institution or other third party provided funding to support the academic collaborator\u2019s access to our technology platform. This funding was typically reflected as collaboration revenues in our financial statements. Our academic research collaborations typically involve both parties contributing resources directly to projects. We are not currently generating any revenues from these collaborations.\n\n\nIntellectual Property\n \n\n\nWe rely on a combination of patents, trademarks, trade secrets, confidential know-how, copyrights and a variety of contractual mechanisms such as confidentiality, material transfer, licenses, research collaboration, limited technology access, and invention assignment agreements, to protect our intellectual property. Our intellectual property portfolio for our core technology was initially built through licenses from MU and the Medical University of South Carolina. We subsequently expanded our intellectual property portfolio by filing our own patent and trademark applications worldwide and negotiating additional licenses and purchases.\n\n\nOn an ongoing basis we review and analyze our full intellectual property portfolio to align it with our current business needs, strategies and objectives.  Based on that ongoing review, selected patents and patent applications in various countries are or will be abandoned or allowed to lapse.  The numbers provided herein are reflective of those changes.\n\n\nWe solely own or hold exclusive licenses to 32 issued U.S. patents and more than 115 issued international patents in foreign jurisdictions including Australia, Canada, China, Denmark, France, Great Britain, Germany, Ireland, Japan, South Korea, Sweden, the Netherlands and Switzerland. We solely or jointly own or hold exclusive licenses to 17 pending U.S. patent applications and more than 5 pending international applications in foreign jurisdictions including Australia, Canada, China, the European Patent Office, Japan and South Korea. These patent families relate to our bioprinting technology and our engineered tissue products and services, including our various uses in areas of tissue creation, in vitro testing, utilization in drug discovery, and in vivo therapeutics.\n\n\n\u00a0\n\n\nIn connection with the recent acquisition of the FXR program from Metacrine, we acquired the related patent portfolio by way of assignment.  This includes filings on the lead candidate, FXR314, and selected filings on the prior candidate (no longer in development), FXR125. With respect to this FXR portfolio, we solely own 6 issued patents and 14 international patents in jurisdictions, including Australia, China, Eurasia, India, Israel, Mexico, Japan and South Africa. We solely own 8 pending U.S. patent applications and more than 50 pending international applications in foreign jurisdictions, including Argentina, Australia, Brazil, Chile, Canada, Eurasia, Europe, Israel, India, Japan, South Korea, Mexico, Philippines, Singapore, South Africa, Hong Kong and Taiwan.  These patent families relate to FXR125 and FXR314, including generic coverage, species coverage, methods of use, formulations and polymorph crystals.\n\n\nIn-Licensed Intellectual Property\n\n\nIn 2009 and 2010, we obtained world-wide exclusive licenses to intellectual property owned by MU and the Medical University of South Carolina, which now includes 7 issued U.S. patents, 2 pending U.S. applications and 16 issued international patents. Dr. Gabor Forgacs, one of our founders and a former George H. Vineyard Professor of Biophysics at MU, was one of the co-inventors of all of these works (collectively, the \u201cForgacs Intellectual Property\u201d). The Forgacs Intellectual Property provides us with intellectual property rights relating to cellular aggregates, the use of cellular aggregates to create engineered tissues, and the use of cellular aggregates to\n \n\n\n3\n\n\n\n\ncreate engineered tissue with no scaffold present. The intellectual property rights derived from the Forgacs Intellectual Property also enables us to utilize our NovoGen Bioprinter\n\u00ae\n to create engineered tissues.\n \n\n\nIn 2011, we obtained an exclusive license to a U.S. patent (U.S. Patent No. 7,051,654) owned by the Clemson University Research Foundation that provides us with intellectual property rights relating to methods of using ink-jet printer technology to dispense cells and relating to the creation of matrices of bioprinted cells on gel materials.\n \n\n\n\u00a0\n\n\nIn connection with the acquisition of the FXR program from Metacrine in 2023, we were assigned and assumed a license agreement with the Salk Institute for Biological Studies requiring milestone and royalty payments based on the development and commercialization of FXR314.\n\n\nThe patent rights we obtained through these exclusive licenses are not only foundational within the field of 3D bioprinting and FXR agonist therapies but provide us with favorable priority dates. We are required to make ongoing royalty payments under these exclusive licenses based on net sales of products and services that rely on the intellectual property we in-licensed. For additional information regarding our royalty obligations see \u201cNote 5. Collaborative Research, Development, and License Agreements\u201d in the Notes to the Consolidated Financial Statements included in this Annual Report.\n\n\nCompany Owned Intellectual Property\n\n\nIn addition to the intellectual property we have in-licensed, we have historically innovated and grown our intellectual property portfolio.\n\n\nWith respect to our bioprinting platform, we have 8 issued U.S. patents and 14 issued foreign patents directed to our NovoGen  Bioprinter\n\u00ae\n and methods of bioprinting: U.S. Patent Nos. 8,931,880; 9,149,952; 9,227,339; 9,315,043; 9,499,779; 9,855,369; 10,174,276, 10,967,560, 11,577,450, 11,577,451 and 11,413,805 ; Australia Patent Nos. 2011318437, 2015202836, 2016253591, 2013249569, and 2014296246; Canada Patent No. 2,812,766; China Patent Nos. ZL201180050831.4 and ZL201480054148.1; European Patent Nos. 2838985, 2629975, and 3028042; Japan Patent Nos. 6333231, 6566426 and 6842918, and Russian Patent No. 2560393. These issued patents and pending patent applications carry remaining patent terms ranging from over 12 years to just over 6 years. We have additional U.S. continuation applications pending in these families as well foreign counterpart applications in multiple countries.\n\n\nOur ExVive\u0099 Human Liver Tissue is protected by U.S. Patent Nos. 9,222,932, 9,442,105, 10,400,219 and 11,127,774; Australia Patent Nos. 2014236780 and 2017200691; and Canada Patent No. 2,903,844. Our ExVive\u0099 Human Kidney Tissue is protected by U.S. Patent Nos. 9,481,868, 10,094,821 and 10,962,526; Australian Patent No. 2015328173, Canadian Patent No. 2,962,778, European Patent No. 3204488 and Japan Patent No. 7021177. These issued patents and pending patent applications carry remaining patent terms ranging from over 14 years to just over 11 years. We have additional U.S. patent applications pending in these families, as well as foreign counterpart applications in multiple countries. We currently have pending numerous patent applications in the U.S. and globally that are directed to additional features on bioprinters, additional tissue types, their methods of fabrication, and specific applications.\n\n\nOur U.S. Patent Nos. 9,855,369 and 9,149,952, which relate to our bioprinter technology, were the subject of IPR proceedings filed by Cellink AB and its subsidiaries (collectively, \u201cBICO Group AB\u201d), one of our competitors. Likewise, U.S. Patent Nos. 9,149,952, 9,855,369, 8,931,880, 9,227,339, 9,315,043 and 10,967,560 (all assigned to Organovo, Inc.) and U.S. Patent Nos. 7,051,654, 8,241,905, 8,852,932 and 9,752,116 (assigned to Clemson University and the University of Missouri, respectively) were implicated in a declaratory judgment complaint filed against Organovo, Inc., our wholly owned subsidiary, by BICO Group AB and certain of its subsidiaries in the United States District Court for the District of Delaware. All of these matters have since been settled in a favorable manner for the Company. Specifically, on February 23, 2022, we announced an agreement of a non-exclusive license for BICO Group AB and its affiliate companies to Organovo\u2019s foundational patent portfolio in 3D bioprinting. For more information regarding these proceedings, see the section titled Part I, Item 3 of this Annual Report on Form 10-K.\n\n\nWith respect to our FXR agonist program covering FXR314 and FXR125, we have 6 issued U.S. patents and 14 issued foreign patents directed to composition of matter protection (generic and specific) for FXR314 and FXR125, as well claims directed to methods of treatment of GI diseases, formulations of FXR314 and polymorphs of the FXR314 molecule including United States Patent Nos.11,214,538, 10,705,712, 10,927,082, 10,961,198, 11,136,071 and 11,084,817, granted Australian Patent Nos. 2016323992 and 2018236275, Chinese Patent Nos. 201680066917 and 269065, Eurasian Patent Nos. 040003 and 040704, Israeli Patent Nos. 258011, 296068 and 296065, Indian Patent No. 380510, Japanese Patent Nos. 6905530 and 717709, Mexican Patent Nos. 386,752 and 397265 and South African Patent No. 2018/01750.  In addition, we have 8 pending U.S. patent applications and over 50 pending foreign patent applications, including U.S. Patent Application Nos. 18/156,069, 17/532,618, 18/174,393, 17/349,757, 17/276,787, 17/906,580, 17/906,582 and 17/906,585 and over 50 pending international patent applications in a number of countries including, Australia, Brazil, Canada, Chile, China, the Eurasian Patent Office, the European Patent Office, Israel, India, Japan, South Korea, Mexico, Singapore,\n \n\n\n4\n\n\n\n\nPhilippines and Hong Kong. These issued patents and pending patent applications carry remaining patent terms ranging from over 18 years to just over 15 years.\n \n\n\nEmployees and Human Capital\n\n\nAs of June 1, 2023, we had 24 employees, of which 15 are full-time. We have also retained some of our former employees as consultants, in addition to a number of expert consultants in specific scientific and operational areas. Our employees are not represented by labor unions or covered under any collective bargaining agreements. We consider our relationship with our employees to be good.\n\n\nOur human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees. The principal purposes of our equity incentive plans are to attract, retain and motivate selected employees, consultants and directors through the granting of equity-based compensation awards.\n\n\n5\n\n\n\n\nCorporate Information\n\n\nWe are operating the business of our subsidiaries, including Organovo, Inc., our wholly-owned subsidiary, which we acquired in February 2012. Organovo, Inc. was incorporated in Delaware in April 2007. Our common stock has traded on The Nasdaq Stock Market LLC under the symbol \u201cONVO\u201d since August 8, 2016 and our common stock currently trades on the Nasdaq Capital Market. Prior to that time, it traded on the NYSE MKT under the symbol \u201cONVO\u201d and prior to that was quoted on the OTC Market.\n\n\nOur principal executive offices are located at 11555 Sorrento Valley Rd, Suite 100, San Diego CA 92121 and our phone number is (858) 224-1000. Our Internet website can be found at http://www.organovo.com. The content of our website is not intended to be incorporated by reference into this Annual Report or in any other report or document that we file.\n\n\nAvailable Information\n \n\n\nOur investor relations website is located at \nhttp://ir.organovo.com\n. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d). Reports filed with the Securities and Exchange Commission (the \u201cSEC\u201d) pursuant to the Exchange Act, including annual and quarterly reports, and other reports we file, are available free of charge, through our website. The content of our website is not intended to be incorporated by reference into this Annual Report or in any other report or document that we file. We make them available on our website as soon as reasonably possible after we file them with the SEC. The reports we file with the SEC are also available on the SEC\u2019s website (\nhttp://www.sec.gov\n).\n\n\n\u00a0\n\n\n6\n\n\n\n",
+  "item1a": ">Item 1A. Ris\nk Factors.\n \n\n\nInvestment in our common stock involves a substantial degree of risk and should be regarded as speculative. As a result, the purchase of our common stock should be considered only by persons who can reasonably afford to lose their entire investment. Before you elect to purchase our common stock, you should carefully consider the risk and uncertainties described below in addition to the other information incorporated herein by reference. Additional risks and uncertainties of which we are unaware or which we currently believe are immaterial could also materially adversely affect our business, financial condition or results of operations. If any of the risks or uncertainties discussed in this Annual Report occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our common stock could decline, and you could lose all or part of your investment.\n\n\n\u00a0\n\n\nRisk Factor Summary\n \n\n\nBelow is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below and should be carefully considered, together with other information in this Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission before making investment decisions regarding our common stock.\n\n\n\u2022\nWe will incur substantial additional operating losses over the next several years as our research and development activities increase.\n\n\n\u2022\nUsing our platform technology to develop human tissues and disease models for drug discovery and development is new and unproven.\n\n\n\u2022\nAs we pursue drug development through 3D tissues and disease models, we will require access to a constant, steady, reliable supply of human cells to support our development activities.\n\n\n\u2022\nWe may require substantial additional funding. Raising additional capital would cause dilution to our existing stockholders and may restrict our operations or require us to relinquish rights to our technologies or to a product candidate.\n\n\n\u2022\nClinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes, and results of earlier studies and trials may not be predictive of future results. \n\n\n\u2022\nThe near and long-term viability of our drug discovery and development efforts will depend on our ability to successfully establish strategic relationships.\n\n\n\u2022\nCurrent and future legislation may increase the difficulty and cost of commercializing our drug candidates and may affect the prices we may obtain if our drug candidates are approved for commercialization.\n\n\n\u2022\nManagement has performed an analysis and concluded that substantial doubt exists about our ability to continue as a going concern. Separately, our independent registered public accounting firm has included in its opinion for the year ended March 31, 2023 an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern, which may hinder our ability to obtain future financing.\n\n\n\u2022\nAdditional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to curtail or cease our operations.\n\n\n\u2022\nWe have a history of operating losses and expect to incur significant additional operating losses.\n\n\n\u2022\nThere is no assurance that an active market in our common stock will continue at present levels or increase in the future.\n\n\n7\n\n\n\n\n\u2022\nThe price of our common stock may continue to be volatile, which could lead to losses by investors and costly securities litigation.\n\n\n\u2022\nPatents covering our products could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad.\n\n\n\u2022\nWe may be involved in lawsuits or other proceedings to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.\n\n\nRisks Related to our Business\n \n\n\nWe are a biotechnology company focusing on 3D bioprinting technology to develop human tissues and disease models for drug discovery and development, which is an unproven business strategy that may never achieve profitability.\n\n\nWe are focusing our efforts on utilizing our 3D bioprinting technology to develop human tissues and disease models for drug discovery and development. Our success will depend upon the viability of our platform technology and any disease models we develop, as well as on our ability to determine which drug candidates we should pursue. Our success will also depend on our ability to select an appropriate development strategy for any drug candidates we identify, including internal development or partnering or licensing arrangements with pharmaceutical companies. We may not be able to partner or license our drug candidates. We may never achieve profitability, or even if we achieve profitability, we may not be able to maintain or increase our profitability.\n\n\nWe will incur substantial additional operating losses over the next several years as our research and development activities increase.\n\n\nWe will incur substantial additional operating losses over the next several years as our research and development activities increase. The amount of future losses and when, if ever, we will achieve profitability are uncertain. Our ability to generate revenue and achieve profitability will depend on, among other things:\n\n\n\u2022\nsuccessfully developing human tissues and disease models for drug discovery and development that enable us to identify drug candidates;\n\n\n\u2022\nsuccessfully outsourcing certain portions of our development efforts;\n\n\n\u2022\nentering into partnering or licensing arrangements with pharmaceutical companies to further develop and conduct clinical trials for any drug candidates we identify;\n\n\n\u2022\nobtaining any necessary regulatory approval for any drug candidates we identify; and\n\n\n\u2022\nraising sufficient funds to finance our activities and long-term business plan.\n\n\n\u00a0\n\n\nWe might not succeed at any of these undertakings. If we are unsuccessful at one or more of these undertakings, our business, prospects, and results of operations will be materially adversely affected.\n \n\n\n\u00a0\n\n\nUsing our platform technology to develop human tissues and disease models for drug discovery and development is new and unproven.\n\n\nUtilizing our 3D bioprinting platform technology to develop human tissues and disease models for drug discovery and development will involve new and unproven technologies, disease models and approaches, each of which is subject to the risk associated with new and evolving technologies. To date, we have not identified or developed any drug candidates utilizing our new business model. Our future success will depend on our ability to utilize our 3D bioprinting platform to develop human tissues and disease models that will enable us to identify and develop viable drug candidates. We may experience unforeseen technical complications, unrecognized defects and limitations in our technology or our ability to develop disease models or identify viable drug candidates. These complications could materially delay or substantially increase the anticipated costs and time to identify and develop viable drug candidates, which would have a material adverse effect on our business and financial condition and our ability to continue operations.\n\n\nWe will face intense competition in our drug discovery efforts.\n \n\n\nThe biotechnology and pharmaceutical industry is subject to intense competition and rapid and significant technological change. There are many potential competitors for the disease indications we may pursue, including major drug companies, specialized biotechnology firms, academic institutions, government agencies and private and public research institutions. Many of these competitors have significantly greater financial and technical resources, experience and expertise in the following areas than we have, including:\n\n\n\u00a0\n\n\n\u2022\nresearch and technology development;\n\n\n8\n\n\n\n\n\u2022\ndevelopment of or access to disease models;\n\n\n\u2022\nidentification and development of drug candidates;\n\n\n\u2022\nregulatory processes and approvals; and\n\n\n\u2022\nidentifying and entering into agreements with potential collaborators.\n\n\n\u00a0\n\n\nPrincipal competitive factors in our industry include: the quality, scientific and technical support, management and the execution of drug development and regulatory approval strategies; skill and experience of employees, including the ability to recruit and retain skilled, experienced employees; intellectual property portfolio; range of capabilities, including drug identification, development and regulatory approval; and the availability of substantial capital resources to fund these activities.\n\n\nIn order to effectively compete, we may need to make substantial investments in our research and technology development, drug candidate identification and development, testing and regulatory approval and licensing and business development activities. There is no assurance that we will be successful in discovering effective drug candidates using our 3D bioprinted tissues or disease models. Our technologies and drug development plans also may be rendered obsolete or noncompetitive as a result of drugs, intellectual property, technologies, products and services introduced by competitors. Any of these risks may prevent us from building a successful drug discovery business or entering into a strategic partnership or collaboration related to, any drug candidates we identify on favorable terms, or at all.\n \n\n\nAs we pursue drug development through 3D tissues and disease models, we will require access to a constant, steady, reliable supply of human cells to support our development activities.\n\n\nAs we pursue drug development through 3D tissues and disease models, we will require access to a constant, steady, reliable supply of human cells to support our 3D tissue development activities. We purchase human cells from selected third-party suppliers based on quality assurance, cost effectiveness, and regulatory requirements. We need to continue to identify additional sources of qualified human cells and there can be no guarantee that we will be able to access the quantity and quality of raw materials needed at a cost-effective price. Any failure to obtain a reliable supply of sufficient human cells or a supply at cost effective prices would harm our business and our results of operations and could cause us to be unable to support our drug development efforts.\n\n\nOur business will be adversely impacted if we are unable to successfully attract, hire and integrate key additional employees or contractors.\n\n\nOur future success depends in part on our ability to successfully attract and then retain key additional executive officers and other key employees and contractors to support our drug discovery plans. Recruiting and retaining qualified scientific and clinical personnel is critical to our success. Competition to hire qualified personnel in our industry is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. If we are unable to attract and retain high quality personnel, our ability to pursue our drug discovery business will be limited, and our business, prospects, financial condition and results of operations may be adversely affected.\n\n\nWe may require substantial additional funding. Raising additional capital would cause dilution to our existing stockholders and may restrict our operations or require us to relinquish rights to our technologies or to a product candidate.\n\n\nWe currently do not have any committed external source of funds and do not expect to generate any meaningful revenue in the foreseeable future. Our existing cash, cash equivalents and interest thereon is expected to be sufficient to fund our projected operating requirements for at least the next 12 months. We have based these estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect if our operating plans change. If our board of directors decides that we should pursue further research and development activities than already proposed, we will require substantial additional funding to operate our proposed business, including expanding our facilities and hiring additional qualified personnel, and we would expect to finance these cash needs through a combination of equity offerings, debt financings, government or other third-party funding and licensing or collaboration arrangements.\n \n\n\n\u00a0\n\n\nTo the extent that we raise additional capital through the sale of equity or convertible debt, the ownership interests of our stockholders will be diluted. In addition, the terms of any equity or convertible debt we agree to issue may include liquidation or other preferences that adversely affect the rights of our stockholders. Convertible debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, and declaring dividends, and may impose limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Moreover, we have the ability to sell up to $28.3 million of additional shares of our common stock to the public through an \u201cat the market\u201d offering pursuant to a Sales Agreement that\n \n\n\n9\n\n\n\n\nwe entered into with H.C. Wainwright & Co., LLC and Jones Trading Institutional Services LLC on March 16, 2018 (the \"Sales Agreement\"). Any shares of common stock issued in the at-the-market offering will result in dilution to our existing stockholders.\n\n\nWe currently have an effective shelf registration statement on Form S-3 filed with the Securities and Exchange Commission (the \u201cSEC\u201d), which we may use to offer from time to time any combination of debt securities, common and preferred stock and warrants. On March 16, 2018, we entered into the Sales Agreement pursuant to which we have the ability to sell up to $28.3 million of additional shares of our common stock to the public through an \u201cat the market\u201d offering. In the event that the aggregate market value of our common stock held by non-affiliates (\u201cpublic float\u201d) is less than $75.0 million, the amount we can raise through primary public offerings of securities, including sales under the Sales Agreement, in any twelve-month period using shelf registration statements is limited to an aggregate of one-third of our public float. As of June 1, 2023, our public float was less than $75.0 million, and therefore we are limited to an aggregate of one-third of our public float in the amount we could raise through primary public offerings of securities in any twelve-month period using shelf registration statements. Although we would still maintain the ability to raise funds through other means, such as through the filing of a registration statement on Form S-1 or in private placements, the rules and regulations of the SEC or any other regulatory agencies may restrict our ability to conduct certain types of financing activities, or may affect the timing of and amounts we can raise by undertaking such activities.\n\n\nFurther, additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to curtail or cease our operations. Raising additional funding through debt or equity financing is likely to be difficult or unavailable altogether given the early stage of our technology and any drug candidates we identify. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline further and existing stockholders may not agree with our financing plans or the terms of such financings.\n \n\n\nClinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes, and results of earlier studies and trials may not be predictive of future results.\n \n\n\nBefore obtaining marketing approval from regulatory authorities for the sale of any drug candidates we identify, any such drug candidates must undergo extensive clinical trials to demonstrate the safety and efficacy of the drug candidates in humans. Human clinical testing is expensive and can take many years to complete, and we cannot be certain that any clinical trials will be conducted as planned or completed on schedule, if at all. We may elect to complete this testing, or some portion thereof, internally or enter into a partnering or development agreement with a pharmaceutical company to complete these trials. Our inability, or the inability of any third party with whom we enter into a partnering or development agreement, to successfully complete preclinical and clinical development could result in additional costs to us and negatively impact our ability to generate revenues or receive development or milestone payments. Our future success is dependent on our ability, or the ability of any pharmaceutical company with whom we enter into a partnering or development agreement, to successfully develop, obtain regulatory approval for, and then successfully commercialize any drug candidates we identify.\n \n\n\nAny drug candidates we identify will require additional clinical development, management of clinical, preclinical and manufacturing activities, regulatory approval in applicable jurisdictions, achieving and maintaining commercial-scale supply, building of a commercial organization, substantial investment and significant marketing efforts. We are not permitted to market or promote any of our drug candidates before we receive regulatory approval from the U.S. Food and Drug Administration (\u201cFDA\u201d) or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our drug candidates.\n \n\n\nWe, or any third party with whom we enter into a partnering or development agreement, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to earn development or milestone payments or for any drug candidates to obtain regulatory approval, including:\n\n\n\u00a0\n\n\n\u2022\ndelays in or failure to reach agreement on acceptable terms with prospective contract research organizations (\u201cCROs\u201d) and clinical sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;\n\n\n\u2022\nfailure to obtain sufficient enrollment in clinical trials or participants may fail to complete clinical trials;\n\n\n\u2022\nclinical trials of our drug candidates that may produce negative or inconclusive results, and as a result we, or any pharmaceutical company with who we enter into a partnering or development agreement, may decide, or regulators may require, additional clinical trials;\n\n\n\u2022\nsuspension or termination of clinical research, either by us, any third party with whom we enter into a partnering or development agreement, regulators or institutional review boards, for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;\n\n\n10\n\n\n\n\n\u2022\nadditional or unanticipated clinical trials required by regulators or institutional review boards to obtain approval or any drug candidates may be subject to additional post-marketing testing requirements to maintain regulatory approval;\n\n\n\u2022\nregulators may revise the requirements for approving any drug candidates, or such requirements may not be as anticipated;\n\n\n\u2022\nthe cost of clinical trials for any drug candidates may be greater than anticipated;\n\n\n\u2022\nthe supply or quality of any drug candidates or other materials necessary to conduct clinical trials of our drug candidates may be insufficient or inadequate or may be delayed; and\n\n\n\u2022\nregulatory authorities may suspend or withdraw their approval of a product or impose restrictions on its distribution;\n\n\nIf we, or any third party with whom we enter into a partnering or development agreement, experience delays in the completion of, or termination of, any clinical trial of any drug candidates that we develop, or are unable to achieve clinical endpoints due to unforeseen events, the commercial prospects of our drug candidates will be harmed, and our ability to develop milestones, development fees or product revenues from any of these drug candidates will be delayed.\n\n\nWe will rely upon third-party contractors and service providers for the execution of critical aspects of any future development programs. Failure of these collaborators to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of any future development programs.\n\n\nWe plan to outsource certain functions, tests and services to CROs, medical institutions and collaborators as well as outsource manufacturing to collaborators and/or contract manufacturers, and we will rely on third parties for quality assurance, clinical monitoring, clinical data management and regulatory expertise. We may elect, in the future, to engage a CRO to run all aspects of a clinical trial on our behalf. There is no assurance that such individuals or organizations will be able to provide the functions, tests, biologic supply or services as agreed upon or in a quality fashion and we could suffer significant delays in the development of our drug candidates or development programs.\n\n\nIn some cases, there may be only one or few providers of such services, including clinical data management or manufacturing services. In addition, the cost of such services could be significantly increased over time. We may rely on third parties and collaborators to enroll qualified patients and conduct, supervise and monitor our clinical trials. Our reliance on these third parties and collaborators for clinical development activities reduces our control over these activities. Our reliance on these parties, however, does not relieve us of our regulatory responsibilities, including ensuring that our clinical trials are conducted in accordance with Good Clinical Practice (\u201cGCP\u201d) regulations and the investigational plan and protocols contained in the regulatory agency applications. In addition, these third parties may not complete activities on schedule or may not manufacture under Current Good Manufacturing Practice (\u201ccGMP\u201d) conditions. Preclinical or clinical studies may not be performed or completed in accordance with Good Laboratory Practices (\u201cGLP\u201d) regulatory requirements or our trial design. If these third parties or collaborators do not successfully carry out their contractual duties or meet expected deadlines, obtaining regulatory approval for manufacturing and commercialization of our drug candidates may be delayed or prevented. We may rely substantially on third-party data managers for our clinical trial data. There is no assurance that these third parties will not make errors in the design, management or retention of our data or data systems. There is no assurance these third parties will pass FDA or regulatory audits, which could delay or prohibit regulatory approval.\n\n\nIn addition, we will exercise limited control over our third-party partners and vendors, which makes us vulnerable to any errors, interruptions or delays in their operations. If these third parties experience any service disruptions, financial distress or other business disruption, or difficulties meeting our requirements or standards, it could make it difficult for us to operate some aspects of our business.\n \n\n\nThe near and long-term viability of our drug discovery and development efforts will depend on our ability to successfully establish strategic relationships.\n\n\nThe near and long-term viability of our drug discovery and development efforts depend in part on our ability to successfully establish new strategic partnering, collaboration and licensing arrangements with biotechnology companies, pharmaceutical companies, universities, hospitals, insurance companies and or government agencies. Establishing strategic relationships is difficult and time-consuming. Potential partners and collaborators may not enter into relationships with us based upon their assessment of our technology or drug candidates or our financial, regulatory or intellectual property position. If we fail to establish a sufficient number of strategic relationships on acceptable terms, we may not be able to develop and obtain regulatory approval for our drug candidates or generate sufficient revenue to fund further research and development efforts. Even if we establish new strategic relationships, these relationships may never result in the successful development or regulatory approval for any drug candidates we identify for a number of reasons both within and outside of our control.\n\n\n11\n\n\n\n\nInvestors\u2019 expectations of our performance relating to environmental, social and governance factors may impose additional costs and expose us to new risks.\n\n\nThere is an increasing focus from certain investors, employees, regulators and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance (\u201cESG\u201d) factors. Some investors and investor advocacy groups may use these factors to guide investment strategies and, in some cases, investors may choose not to invest in\n \nour company if they believe our policies relating to corporate responsibility are inadequate. Third-party providers of corporate responsibility ratings and reports on companies have increased to meet growing investor demand for measurement of corporate responsibility performance, and a variety of organizations currently measure the performance of companies on such ESG topics, and the results of these assessments are widely publicized. Investors, particularly institutional investors, use these ratings to benchmark companies against their peers and if we are perceived as lagging with respect to ESG initiatives, certain investors may engage with us to improve ESG disclosures or performance and may also make voting decisions, or take other actions, to hold us and our board of directors accountable. In addition, the criteria by which our corporate responsibility practices are assessed may change, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. If we elect not to or are unable to satisfy such new criteria, investors may conclude that our policies with respect to corporate responsibility are inadequate. We may face reputational damage in the event that our corporate responsibility procedures or standards do not meet the standards set by various constituencies.\n\n\n\u00a0\n\n\nWe may face reputational damage in the event our corporate responsibility initiatives or objectives do not meet the standards set by our investors, stockholders, lawmakers, listing exchanges or other constituencies, or if we are unable to achieve an acceptable ESG or sustainability rating from third-party rating services. A low ESG or sustainability rating by a third-party rating service could also result in the exclusion of our common stock from consideration by certain investors who may elect to invest with our competition instead. Ongoing focus on corporate responsibility matters by investors and other parties as described above may impose additional costs or expose us to new risks. Any failure or perceived failure by us in this regard could have a material adverse effect on our reputation and on our business, share price, financial condition, or results of operations, including the sustainability of our business over time.\n\n\nUnstable market and economic conditions may have serious adverse consequences on our business, financial condition and share price.\n\n\nAs widely reported, in the past several years, global credit and financial markets have experienced volatility and disruptions, including, for example, severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurances that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and share price and could require us to delay or abandon clinical development plans.\n\n\nThe impact of the Russian invasion of Ukraine on the global economy, energy supplies and raw materials is uncertain, but may prove to negatively impact our business and operations.\n\n\nThe short and long-term implications of Russia\u2019s invasion of Ukraine are difficult to predict at this time. We continue to monitor any adverse impact that the outbreak of war in Ukraine and the subsequent institution of sanctions against Russia by the United States and several European and Asian countries may have on the global economy in general, on our business and operations and on the businesses and operations of our suppliers and other third parties with which we conduct business. For example, the continuing conflict has resulted and may continue to result in increased inflation, escalating energy prices and constrained availability, and thus increasing costs, of raw materials. We will continue to monitor this fluid situation and develop contingency plans as necessary to address any disruptions to our business operations as they develop. To the extent the war in Ukraine may adversely affect our business as discussed above, it may also have the effect of heightening many of the other risks described herein. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation; disruptions to our technology infrastructure, including through cyberattack, ransom attack, or cyber-intrusion; adverse changes in international trade policies and relations; disruptions in global supply chains; and constraints, volatility, or disruption in the capital markets, any of which could negatively affect our business and financial condition.\n\n\nRisks Related to Government Regulation\n\n\n\u00a0\n\n\n\u00a0\n\n\nIn the past, we have used hazardous chemicals, biological materials and infectious agents in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.\n\n\n\u00a0\n\n\n12\n\n\n\n\nOur product manufacturing, research and development, and testing activities have involved the controlled use of hazardous materials, including chemicals, biological materials and infectious disease agents. We cannot eliminate the risks of accidental contamination or the accidental spread or discharge of these materials, or any resulting injury from such an event. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our insurance coverage and our total assets. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and human health and safety matters. We were also subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, and the experimental use of animals. Our operations may have required that environmental permits and approvals be issued by applicable government agencies. If we failed to comply with these requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance.\n\n\n\u00a0\n\n\nIf we fail to obtain and sustain an adequate level of reimbursement for our potential products by third-party payors, potential future sales would be materially adversely affected.\n\n\nThere will be no viable commercial market for our drug candidates, if approved, without reimbursement from third-party payors. Reimbursement policies may be affected by future healthcare reform measures. We cannot be certain that reimbursement will be available for our current drug candidates or any other drug candidate we may develop. Additionally, even if there is a viable commercial market, if the level of reimbursement is below our expectations, our anticipated revenue and gross margins will be adversely affected.\n\n\nThird-party payors, such as government or private healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement rates from private health insurance companies vary depending on the Company, the insurance plan and other factors. Reimbursement rates may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. There is a current trend in the U.S. healthcare industry toward cost containment.\n\n\nLarge public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and challenge the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved healthcare products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price we might establish for products, which could result in product revenues being lower than anticipated. We believe our drugs will be priced significantly higher than existing generic drugs and consistent with current branded drugs. If we are unable to show a significant benefit relative to existing generic drugs, Medicare, Medicaid and private payors may not be willing to provide reimbursement for our drugs, which would significantly reduce the likelihood of our products gaining market acceptance.\n\n\nWe expect that private insurers will consider the efficacy, cost-effectiveness, safety and tolerability of our potential products in determining whether to approve reimbursement for such products and at what level. Obtaining these approvals can be a time consuming and expensive process. Our business, financial condition and results of operations would be materially adversely affected if we do not receive approval for reimbursement of our potential products from private insurers on a timely or satisfactory basis. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal intermediaries. Medicare Part D, which provides a pharmacy benefit to Medicare patients as discussed below, does not require participating prescription drug plans to cover all drugs within a class of products. Our business, financial condition and results of operations could be materially adversely affected if Part D prescription drug plans were to limit access to, or deny or limit reimbursement of, our drug candidates or other potential products.\n\n\nReimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries, the product cannot be commercially launched until reimbursement is approved. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. The negotiation process in some countries can exceed 12 months. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our products to other available therapies.\n\n\nIf the prices for our potential products are reduced or if governmental and other third-party payors do not provide adequate coverage and reimbursement of our drugs, our future revenue, cash flows and prospects for profitability will suffer.\n\n\nCurrent and future legislation may increase the difficulty and cost of commercializing our drug candidates and may affect the prices we may obtain if our drug candidates are approved for commercialization.\n\n\n13\n\n\n\n\nIn the U.S. and some foreign jurisdictions, there have been a number of adopted and proposed legislative and regulatory changes regarding the healthcare system that could prevent or delay regulatory approval of our drug candidates, restrict or regulate post-marketing activities and affect our ability to profitably sell any of our drug candidates for which we obtain regulatory approval.\n\n\nIn the U.S., the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (\u201cMMA\u201d) changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of this legislation could limit the coverage and reimbursement rate that we receive for any of our approved products. While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.\n\n\nIn addition, on August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, includes policies that are designed to have a direct impact on drug prices and reduce drug spending by the federal government, which shall take effect in 2023. Under the Inflation Reduction Act of 2022, Congress authorized Medicare beginning in 2026 to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars. This provision is limited in terms of the number of pharmaceuticals whose prices can be negotiated in any given year and it only applies to drug products that have been approved for at least 9 years and biologics that have been licensed for 13 years. Drugs and biologics that have been approved for a single rare disease or condition are categorically excluded from price negotiation. Further, the new legislation provides that if pharmaceutical companies raise prices in Medicare faster than the rate of inflation, they must pay rebates back to the government for the difference. The new law also caps Medicare out-of-pocket drug costs at an estimated $4,000 a year in 2024 and, thereafter beginning in 2025, at $2,000 a year.\n\n\n\u00a0\n\n\nIn March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the \u201cPPACA\u201d), was enacted. The PPACA was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The PPACA increased manufacturers\u2019 rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate amount for both branded and generic drugs and revised the definition of \u201caverage manufacturer price\u201d, which may also increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The legislation also expanded Medicaid drug rebates and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the rebates due on those drugs. The Centers for Medicare & Medicaid Services (\u201cCMS\u201d), which administers the Medicaid Drug Rebate Program, also has proposed to expand Medicaid rebates to the utilization that occurs in the territories of the U.S., such as Puerto Rico and the Virgin Islands. Further, beginning in 2011, the PPACA imposed a significant annual fee on companies that manufacture or import branded prescription drug products and required manufacturers to provide a 50% discount off the negotiated price of prescriptions filled by beneficiaries in the Medicare Part D coverage gap, referred to as the \u201cdonut hole.\u201d Legislative and regulatory proposals have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products.\n\n\nThere have been public announcements by members of the U.S. Congress, regarding plans to repeal and replace the PPACA and Medicare. For example, on December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017, which, among other things, eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the PPACA, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act of 2017, the remaining provisions of the PPACA are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit upheld the District Court\u2019s ruling with respect to the individual mandate but remanded the case to the District Court to consider whether other parts of the law can remain in effect. While the Texas District Court Judge has stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the PPACA will impact the law and our business.  We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our drug candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA\u2019s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing approval testing and other requirements.\n\n\nMoreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop new payment and delivery models, such as bundled payment models. In addition, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under government payor programs, and review the relationship between pricing and manufacturer patient programs. The U.S. Department of Health and Human Services has started soliciting feedback on some of these measures and, at the same time, is implementing others under its existing authority. For example, in May\n \n\n\n14\n\n\n\n\n2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy for Part B drugs beginning January 1, 2020. This final rule codified CMS\u2019s policy change that was effective January 1, 2019. While any proposed measures will require authorization through additional legislation to become effective, Congress has indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our drug candidates, if approved for commercialization.\n\n\nIn Europe, the United Kingdom formally withdrew from the European Union on January 31, 2020, and entered into a transition period that ended on December 31, 2020. A significant portion of the regulatory framework in the United Kingdom is derived from the regulations of the European Union. We cannot predict what consequences the recent withdrawal of the United Kingdom from the European Union will have on the regulatory frameworks of the United Kingdom or the European Union, or on our future operations, if any, in these jurisdictions, and the United Kingdom is in the process of negotiating trade deals with other countries. Additionally, the United Kingdom\u2019s withdrawal from the European Union may increase the possibility that other countries may decide to leave the European Union again.\n\n\nRisks Related to Our Capital Requirements, Finances and Operations\n\n\nManagement has performed an analysis and concluded that substantial doubt exists about our ability to continue as a going concern. Separately, our independent registered public accounting firm has included in its opinion for the year ended March 31, 2023 an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern, which may hinder our ability to obtain future financing.\n\n\nOur financial statements as of March 31, 2023 have been prepared under the assumption that we will continue as a going concern for the next twelve months. Management has performed an analysis and concluded that substantial doubt exists about our ability to continue as a going concern. Separately, our independent registered public accounting firm included in its opinion for the year ended March 31, 2023 an explanatory paragraph referring to our recurring losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, obtain government grants, reduce expenditures and generate significant revenue. Our financial statements as of March 31, 2023 do not include any adjustments that might result from the outcome of this uncertainty. The reaction of investors to the inclusion of a going concern statement by management and our auditors, and our potential inability to continue as a going concern, in future years could materially adversely affect our share price and our ability to raise new capital or enter into strategic alliances.\n\n\nAdditional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to curtail or cease our operations.\n\n\n\u00a0\n\n\nThere can be no assurance that we will be able to raise sufficient additional capital on acceptable terms or at all. Raising additional funding through debt or equity financing is likely to be difficult or unavailable altogether given the early stage of our therapeutic candidates. If such additional financing is not available on satisfactory terms, or is not available in sufficient amounts, we may be required to delay, limit or eliminate the development of business opportunities and our ability to achieve our business objectives, our competitiveness, and our business, financial condition and results of operations will be materially adversely affected. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders, increased fixed payment obligations and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline further and existing stockholders may not agree with our financing plans or the terms of such financings. In addition, if we seek funds through arrangements with collaborative partners, these arrangements may require us to relinquish rights to our technology or potential future product candidates or otherwise agree to terms unfavorable to us.\n\n\nWe have a history of operating losses and expect to incur significant additional operating losses.\n\n\n\u00a0\n\n\nWe have generated operating losses each year since we began operations, including $17.7 million and $11.5 million for the years ended March 31, 2023 and 2022, respectively. As of March 31, 2023, we had an accumulated deficit of $325.0 million. We expect to incur substantial additional operating losses over the next several years as our research and development activities increase.\n \n\n\nThe amount of future losses and when, if ever, we will achieve profitability are uncertain. Our ability to generate revenue and achieve profitability will depend on, among other things:\n\n\n\u00a0\n\n\n \n\n\n15\n\n\n\n\n\u2022\nsuccessfully developing human tissues and disease models for drug discovery and development that enable us to identify drug candidates;\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2022\nsuccessfully outsourcing certain portions of our development efforts;\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2022\nentering into collaboration or licensing arrangements with pharmaceutical companies to further develop and conduct clinical trials for any drug candidates we identify;\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2022\nobtaining any necessary regulatory approvals for any drug candidates we identify; and\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2022\nraising sufficient funds to finance our activities and long-term business plan.\n\n\n \n\n\nWe might not succeed at any of these undertakings. If we are unsuccessful at one or more of these undertakings, our business, prospects, and results of operations will be materially adversely affected. We may never generate significant revenue, and even if we do generate significant revenue, we may never achieve profitability.\n\n\nOur quarterly operating results may vary, which could negatively affect the market price of our common stock.\n\n\n\u00a0\n\n\nOur results of operations in any quarter may vary from quarter to quarter and are influenced by such factors as expenses related to:\n\n\n\u00a0\n\n\n\u2022\nevaluating and implementing strategic alternatives, technology licensing opportunities, potential collaborations, and other strategic transactions;\n\n\n\u2022\nlitigation; \n\n\n\u2022\nresearch and development expenditures, including commencement of preclinical studies and clinical trials; \n\n\n\u2022\nthe timing of the hiring of new employees, which may require payments of signing, retention or similar bonuses; and\n\n\n\u2022\nchanges in costs related to the general global economy.\n\n\n\u00a0\n\n\nWe believe that operating results for any particular quarter are not necessarily a meaningful indication of future results. Nonetheless, fluctuations in our quarterly operating results could negatively affect the market price of our common stock.\n\n\n\u00a0\n\n\nWe may identify material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements.\n\n\n\u00a0\n\n\nOur management team is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.\n\n\n\u00a0\n\n\nWe cannot assure you that we will not have material weaknesses or significant deficiencies in our internal control over financial reporting. If we identify any material weaknesses or significant deficiencies that may exist, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, and our stock price may decline materially as a result.\n\n\n\u00a0\n\n\nFuture strategic investments could negatively affect our business, financial condition and results of operations if we fail to achieve the desired returns on our investment.\n \n\n\n\u00a0\n\n\nOur ability to benefit from future external strategic investments depends on our ability to successfully conduct due diligence, evaluate prospective opportunities, and buy the equity of our target investments at acceptable market prices. Our failure in any of these tasks could result in unforeseen loses associated with the strategic investments.\n \n\n\n\u00a0\n\n\nWe may also discover deficiencies in internal controls, data adequacy and integrity, product quality, regulatory compliance, product liabilities or other undisclosed liabilities that we did not uncover prior to our investment, which could result in us becoming subject asset impairments, including potential loss of our investment capital. In addition, if we do not achieve the anticipated benefits of an external investment as rapidly as expected, or at all, investors or analysts may downgrade our stock.\n \n\n\n \n\n\nWe also expect to continue to carry out strategic investments that we believe are necessary to expand our business.  There are no assurances that such initiatives will yield favorable results for us. Accordingly, if these initiatives are not successful, our business, financial condition and results of operations could be adversely affected.  If these risks materialize, our stock price could be materially\n \n\n\n16\n\n\n\n\nadversely affected. Any difficulties in such investments could have a material adverse effect on our business, financial condition and results of operations.\n \n\n\n\u00a0\n\n\nOur business could be adversely impacted if we are unable to retain our executive officers and other key personnel.\n\n\n\u00a0\n\n\nOur future success will depend to a significant degree upon the continued contributions of our key personnel, especially our executive officers. We do not currently have long-term employment agreements with our executive officers or our other key personnel, and there is no guarantee that our executive officers or key personnel will remain employed with us. Moreover, we have not obtained key man life insurance that would provide us with proceeds in the event of the death, disability or incapacity of any of our executive officers or other key personnel. Further, the process of attracting and retaining suitable replacements for any executive officers and other key personnel we lose in the future would result in transition costs and would divert the attention of other members of our senior management from our existing operations. Additionally, such a loss could be negatively perceived in the capital markets. Finally, certain of our executives also provide services to Viscient Biosciences, Inc. (\u201cViscient\u201d). Executives that provide services to us and Viscient do not dedicate all of their time to us, as disclosed in our filings, and we may therefore compete with Viscient for the time commitments of our executive officers from time to time.\n\n\nWe may be subject to security breaches or other cybersecurity incidents that could compromise our information and expose us to liability.\n\n\n\u00a0\n\n\nWe routinely collect and store sensitive data (such as intellectual property, proprietary business information and personally identifiable information) for ourselves, our employees and our suppliers and customers. We make significant efforts to maintain the security and integrity of our computer systems and networks and to protect this information. However, like other companies in our industry, our networks and infrastructure may be vulnerable to cyber-attacks or intrusions, including by computer hackers, foreign governments, foreign companies or competitors, or may be breached by employee error, malfeasance or other disruption. Any such breach could result in unauthorized access to (or disclosure of) sensitive, proprietary or confidential information of ours, our employees or our suppliers or customers, and/or loss or damage to our data. Any such unauthorized access, disclosure, or loss of information could cause competitive harm, result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and/or cause reputational harm.\n\n\n\u00a0\n\n\nCompliance with global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally, and the failure to comply with such requirements could subject us to significant fines and penalties, which may have a material adverse effect on our business, financial condition and results of operations.\n\n\n \n\n\nThe regulatory framework for the collection, use, safeguarding, sharing, transfer, and other processing of information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Globally, virtually every jurisdiction in which we operate has established its own data security and privacy frameworks with which we must comply. For example, the collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the European Union, including personal health data, is subject to the EU General Data Protection Regulation (the \u201cGDPR\u201d), which took effect across all member states of the European Economic Area (the \u201cEEA\u201d) in May 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR increases our obligations with respect to clinical trials conducted in the EEA by expanding the definition of personal data to include coded data and requiring changes to informed consent practices and more detailed notices for clinical trial subjects and investigators. In addition, the GDPR imposes strict rules on the transfer of personal data to countries outside the European Union, including the United States, and, as a result, increases the scrutiny that clinical trial sites located in the EEA should apply to transfers of personal data from such sites to countries that are considered to lack an adequate level of data protection, such as the United States. The GDPR also permits data protection authorities to require destruction of improperly gathered or used personal information and/or impose substantial fines for violations of the GDPR, which can be up to four percent of global revenues or 20 million Euros, whichever is greater, and it also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. In addition, the GDPR provides that European Union member states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric or health data.\n\n\n \n\n\nFurther, Brexit has led and could also lead to legislative and regulatory changes and may increase our compliance costs. As of January 1, 2021 and the expiry of transitional arrangements agreed to between the United Kingdom and the European Union, data processing in the United Kingdom is governed by a United Kingdom version of the GDPR (combining the GDPR and the Data Protection Act 2018), exposing us to two parallel regimes, each of which authorizes similar fines and other potentially divergent enforcement actions for certain violations. On June 28, 2021, the European Commission adopted an Adequacy Decision for the United Kingdom, allowing for the relatively free exchange of personal information between the European Union and the United Kingdom, however, the European Commission may suspend the Adequacy Decision if it considers that the United Kingdom no longer provides for an adequate level of data protection. Other jurisdictions outside the European Union are similarly introducing or enhancing privacy and data security laws, rules and regulations.\n\n\n17\n\n\n\n\n \n\n\nSimilar actions are either in place or under way in the United States. There are a broad variety of data protection laws that are applicable to our activities, and a wide range of enforcement agencies at both the state and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws. The Federal Trade Commission and state Attorneys General all are aggressive in reviewing privacy and data security protections for consumers. New laws also are being considered at both the state and federal levels. For example, the California Consumer Privacy Act \u2014 which went into effect on January 1, 2020 \u2014 is creating similar risks and obligations as those created by the GDPR, though the California Consumer Privacy Act does exempt certain information collected as part of a clinical trial subject to the Federal Policy for the Protection of Human Subjects (the Common Rule). As of January 1, 2023, the California Consumer Privacy Act (as amended by the California Privacy Rights Act) is in full effect, with enforcement by California\u2019s dedicated privacy enforcement agency expected to start later in 2023. While California was first among the states in adopting comprehensive data privacy legislation similar to the GDPR, many other states are following suit. For example, four other states have adopted such laws, taking effect from January 1, 2023 (in Virginia) and throughout the next year in Utah, Colorado, and Connecticut. Many other states are considering similar legislation. A broad range of legislative measures also have been introduced at the federal level. Accordingly, failure to comply with federal and state laws (both those currently in effect and future legislation) regarding privacy and security of personal information could expose us to fines and penalties under such laws. There also is the threat of consumer class actions related to these laws and the overall protection of personal data. This is particularly true with respect to data security incidents, and sensitive personal information, including health and biometric data. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our reputation and business.\n\n\n \n\n\nGiven the breadth and depth of changes in data protection obligations, preparing for and complying with these requirements is rigorous and time intensive and requires significant resources and a review of our technologies, systems and practices, as well as those of any third-party collaborators, service providers, contractors or consultants that process or transfer personal data collected in the European Union. The GDPR, new state privacy laws and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information from our clinical trials, could require us to change our business practices and put in place additional compliance mechanisms, may interrupt or delay our development, regulatory and commercialization activities and increase our cost of doing business, and could lead to government enforcement actions, private litigation and significant fines and penalties against us and could have a material adverse effect on our business, financial condition and results of operations.\n\n\n \n\n\nWe and our partners may be subject to stringent privacy laws, information security laws, regulations, policies and contractual obligations related to data privacy and security, and changes in such laws, regulations, policies or how they are interpreted or changes in contractual obligations could adversely affect our business.\n\n\n \n\n\nThere are numerous U.S. federal and state data privacy and protection laws and regulations that apply to the collection, transmission, processing, storage and use of personally-identifying information, which among other things, impose certain requirements relating to the privacy, security and transmission of personal information. The legislative and regulatory landscape for privacy and data protection continues to evolve in jurisdictions worldwide, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. Failure to comply with any of these laws and regulations could result in enforcement action against us, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects.\n\n\n \n\n\nIf we are unable to properly protect the privacy and security of health-related information or other sensitive or confidential information in our possession, we could be found to have breached our contracts. Further, if we fail to comply with applicable privacy laws, including applicable HIPAA privacy and security standards, we could face significant administrative, civil and criminal penalties. Enforcement activity can also result in financial liability and reputational harm, and responses to such enforcement activity can consume significant internal resources. In addition, state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations that threaten the privacy of state residents.\n \n\n\nWe may experience conflicts of interest with Viscient Biosciences, Inc. with respect to business opportunities and other matters.\n\n\n\u00a0\n\n\nKeith Murphy, our Executive Chairman, is the Chief Executive Officer, Chairman and principal stockholder of Viscient, a private company that he founded in 2017 that is focused on drug discovery and development utilizing 3D tissue technology and multi-omics (genomics, transcriptomics, metabolomics). Jeffrey N. Miner and our Chief Scientific Officer, is a co-founder, the Chief Scientific Officer and a significant stockholder of Viscient. In addition, Adam Stern, Douglas Jay Cohen and David Gobel (through the Methuselah Foundation and the Methuselah Fund), members of our Board, have invested funds through a convertible promissory note in Viscient, but do not serve as an employee, officer or director of Viscient. Additional members of our Research and Development organization also work at Viscient, and we expect that additional employees or consultants of ours will also be employees of or consultants to Viscient. We use certain Viscient-owned facilities and equipment and allow Viscient to use certain of our facilities and equipment. During fiscal 2023, we provided services to Viscient, and we expect to continue to provide services to Viscient and enter into additional agreements with Viscient in the future.\n\n\n\u00a0\n\n\n18\n\n\n\n\nIn addition, we license, as well as cross-license, certain intellectual property to and from Viscient and expect to continue to do so in the future. In particular, pursuant to an Asset Purchase and Non-Exclusive Patent License Agreement with Viscient, dated November 6, 2019, as amended, we have provided a paid up, worldwide, irrevocable, perpetual, non-exclusive license to Viscient under certain of our patents and know-how to (a) make, have made, use, sell offer to sell, import and otherwise exploit the inventions and subject matter covered by certain patents regarding certain bioprinter devices and bioprinting methods, engineered liver tissues, engineered renal tissues, engineered intestinal tissue and engineered tissue for in vitro research use, (b) to use and internally repair the bioprinters, and (c) to make additional bioprinters for internal use only in connection with drug discovery and development research, target identification and validation, compound screening, preclinical safety, absorption, distribution, metabolism, excretion and toxicology (ADMET) studies, and in vitro research to complement clinical development of a therapeutic compound. Although we have entered, and expect to enter, into agreements and arrangements that we believe appropriately govern the ownership of intellectual property created by joint employees or consultants of Viscient and/or using our or Viscient\u2019s facilities or equipment, it is possible that we may disagree with Viscient as to the ownership of intellectual property created by shared employees or consultants, or using shared equipment or facilities.\n\n\n\u00a0\n\n\nOn December 28, 2020, we entered into an intercompany agreement with Viscient and Organovo, Inc., our wholly-owned subsidiary (the \u201cIntercompany Agreement\u201d). Pursuant to the Intercompany Agreement, we agreed to provide Viscient certain services related to 3D bioprinting technology, which includes, but is not limited to, histology services, cell isolation, and proliferation of cells, and Viscient agreed to provide us certain services related to 3D bioprinting technology, including bioprinter training, bioprinting services, and qPCR assays, in each case on payment terms specified in the Intercompany Agreement and as may be further determined by the parties. In addition, Viscient and we each agreed to share certain facilities and equipment and, subject to further agreement, to each make certain employees available for specified projects to the other party at prices to be determined in good faith by the parties. Under the Intercompany Agreement, each party will retain its own prior intellectual property and will obtain new intellectual property rights within their respectively defined fields of use.\n \n\n\nDue to the interrelated nature of Viscient with us, conflicts of interest may arise with respect to transactions involving business dealings between us and Viscient, potential acquisitions of businesses or products, the development and ownership of technologies and products, the sale of products, markets and other matters in which our best interests and the best interests of our stockholders may conflict with the best interests of the stockholders of Viscient. In addition, we and Viscient may disagree regarding the interpretation of certain terms of the arrangements we previously entered into with Viscient or may enter into in the future. We cannot guarantee that any conflict of interest will be resolved in our favor, or that, with respect to our transactions with Viscient, we will negotiate terms that are as favorable to us as if such transactions were with another third-party. In addition, executives that provide services to us and Viscient may not dedicate all of their time to us and we may therefore compete with Viscient for the time commitments of our executive officers from time to time.\n \n\n\nRisks Related to Our Common Stock and Liquidity Risks\n\n\n\u00a0\n\n\nWe could fail to maintain the listing of our common stock on the Nasdaq Capital Market, which could seriously harm the liquidity of our stock and our ability to raise capital or complete a strategic transaction.\n\n\n\u00a0\n\n\nThe Nasdaq Stock Market LLC (\u201cNasdaq\u201d) has established continued listing requirements, including a requirement to maintain a minimum closing bid price of at least $1 per share. If a company trades for 30 consecutive business days below such minimum closing bid price, it will receive a deficiency notice from Nasdaq. Assuming it is in compliance with the other continued listing requirements, Nasdaq would provide such company a period of 180 calendar days in which to regain compliance by maintaining a closing bid price at least $1 per share for a minimum of ten consecutive business days. There can be no assurance that we will continue to maintain compliance with the minimum bid price requirement or other listing requirements necessary for us to maintain the listing of our common stock on the Nasdaq Capital Market.\n \n\n\n \n\n\nA delisting from the Nasdaq Capital Market and commencement of trading on the Over-the-Counter Bulletin Board would likely result in a reduction in some or all of the following, each of which could have a material adverse effect on stockholders:\n\n\n\u00a0\n\n\n\u2022\nthe liquidity of our common stock;\n\n\n\u2022\nthe market price of our common stock (and the accompanying valuation of our Company);\n\n\n\u2022\nour ability to obtain financing or complete a strategic transaction;\n\n\n\u2022\nthe number of institutional and other investors that will consider investing in shares of our common stock;\n\n\n\u2022\nthe number of market markers or broker-dealers for our common stock; and\n\n\n\u2022\nthe availability of information concerning the trading prices and volume of shares of our common stock.\n\n\n\u00a0\n\n\nThere is no assurance that an active market in our common stock will continue at present levels or increase in the future.\n\n\n\u00a0\n\n\n19\n\n\n\n\nOur common stock is currently traded on the Nasdaq Capital Market, but there is no assurance that an active market in our common stock will continue at present levels or increase in the future. As a result, an investor may find it difficult to dispose of our common stock on the timeline and at the volumes they desire. This factor limits the liquidity of our common stock and may have a material adverse effect on the market price of our common stock and on our ability to raise additional capital.\n\n\nThe price of our common stock may continue to be volatile, which could lead to losses by investors and costly securities litigation.\n\n\n\u00a0\n\n\nThe trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:\n\n\n\u00a0\n\n\n\u2022\nannouncements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;\n\n\n\u2022\nour ability to execute on our new strategic plan;\n\n\n\u2022\nreduced government funding for research and development activities;\n\n\n\u2022\nactual or anticipated variations in our operating results;\n\n\n\u2022\nadoption of new accounting standards affecting our industry;\n\n\n\u2022\nadditions or departures of key personnel;\n\n\n\u2022\nsales of our common stock or other securities in the open market;\n\n\n\u2022\ndegree of coverage of securities analysts and reports and recommendations issued by securities analysts regarding our business;\n\n\n\u2022\nvolume fluctuations in the trading of our common stock; and\n\n\n\u2022\nother events or factors, many of which are beyond our control.\n\n\n\u00a0\n\n\nThe stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company\u2019s securities, securities class action litigation has often been initiated against such a company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management\u2019s attention and resources, which could harm our business and financial condition.\n\n\n\u00a0\n\n\nInvestors may experience dilution of their ownership interests because of the future issuance of additional shares of our capital stock.\n\n\n\u00a0\n\n\nWe are authorized to issue 200,000,000 shares of common stock and 25,000,000 shares of preferred stock. As of March 31, 2023, there were an aggregate of 11,426,737 shares of our common stock issued and outstanding and available for issuance on a fully diluted basis and no shares of preferred stock outstanding. That total for our common stock includes 2,650,405 shares of our common stock that may be issued upon the vesting of restricted stock units, the exercise of outstanding stock options, or is available for issuance under our equity incentive plans, and 58,426 shares of common stock that may be issued through our Employee Stock Purchase Plan (\u201cESPP\u201d).\n\n\n\u00a0\n\n\nIn the future, we may issue additional authorized but previously unissued equity securities to raise funds to support our continued operations and to implement our business plan. We may also issue additional shares of our capital stock or other securities that are convertible into or exercisable for our capital stock in connection with hiring or retaining employees, future acquisitions, or for other business purposes. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders may result. In addition, the future issuance of any such additional shares of capital stock may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of our common stock is currently traded on the Nasdaq Capital Market. Moreover, depending on market conditions, we cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or to our stockholders.\n\n\n\u00a0\n\n\nWe do not intend to pay dividends for the foreseeable future.\n\n\n\u00a0\n\n\nWe have paid no dividends on our common stock to date and it is not anticipated that any dividends will be paid to holders of our common stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of our business, it is currently anticipated that any earnings will be retained to finance our future expansion and for the implementation of our business plan. As an investor, you should take note of the fact that a lack of a dividend can further affect the market value of our stock and could significantly affect the value of any investment.\n\n\n\u00a0\n\n\n20\n\n\n\n\nAnti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.\n\n\n\u00a0\n\n\nOur Certificate of Incorporation, as amended (\u201cCertificate of Incorporation\u201d), and Amended and Restated Bylaws, as amended (\u201cBylaws\u201d) contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions:\n\n\n\u00a0\n\n\n\u2022\nauthorize the issuance of preferred stock which can be created and issued by our board of directors without prior stockholder approval, with rights senior to those of the common stock;\n\n\n\u2022\nprovide for a classified board of directors, with each director serving a staggered three-year term;\n\n\n\u2022\nprovide that each director may be removed by the stockholders only for cause;\n\n\n\u2022\nprohibit our stockholders from filling board vacancies, calling special stockholder meetings, or taking action by written consent; and\n\n\n\u2022\nrequire advance written notice of stockholder proposals and director nominations.\n\n\n\u00a0\n\n\nIn addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our Certificate of Incorporation, Bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.\n\n\nRisks Related to Our Intellectual Property\n\n\n\u00a0\n\n\nIf we are not able to adequately protect our proprietary rights, our business could be harmed.\n\n\n\u00a0\n\n\nOur success will depend to a significant extent on our ability to obtain patents and maintain adequate protection for our technologies, intellectual property and products and service offerings in the United States and other countries. If we do not protect our intellectual property adequately, competitors may be able to use our technologies and gain a competitive advantage.\n\n\n\u00a0\n\n\nTo protect our products and technologies, we, and our collaborators and licensors, must prosecute and maintain existing patents, obtain new patents and pursue other intellectual property protection. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technologies or from developing competing products and technologies. Moreover, the patent positions of many biotechnology and pharmaceutical companies are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, we cannot guarantee that:\n\n\n\u00a0\n\n\n\u2022\nany patent applications filed by us will issue as patents;\n\n\n\u2022\nthird parties will not challenge our proprietary rights, and if challenged that a court or an administrative board of a patent office will hold that our patents are valid and enforceable;\n\n\n\u2022\nthird parties will not independently develop similar or alternative technologies or duplicate any of our technologies by inventing around our claims;\n\n\n\u2022\nany patents issued to us will cover our technology and products as ultimately developed;\n\n\n\u2022\nwe will develop additional proprietary technologies that are patentable;\n\n\n\u2022\nthe patents of others will not have an adverse effect on our business; or\n\n\n\u2022\nas issued patents expire, we will not lose some competitive advantage.\n\n\n\u00a0\n\n\nAs previously disclosed, we have recommenced certain historical operations and are now focusing our future efforts on developing highly customized 3D human tissues as living, dynamic models for healthy and diseased human biology for drug development. Previously, we focused our efforts on developing our in vivo liver tissues to treat end-stage liver disease and a select group of life-threatening, orphan diseases, for which there were limited treatment options other than organ transplant. We also explored the development of other potential pipeline in vivo tissue constructs. As we focus our business on developing highly customized 3D human tissues, we may sell, discontinue, adjust or abandon certain patents and patent applications relating to our historical operations. There can be no assurance that we will be successful at such efforts or sell or otherwise monetize such assets on acceptable terms, if at all. There is also no guarantee that our remaining patents will be sufficiently broad to prevent others from using our technologies or from developing competing products and technologies.\n\n\n\u00a0\n\n\n21\n\n\n\n\nWe may not be able to protect our intellectual property rights throughout the world.\n\n\n\u00a0\n\n\nCertain foreign jurisdictions have an absolute requirement of novelty that renders any public disclosure of an invention immediately fatal to patentability in such jurisdictions. Therefore, there is a risk that we may not be able to protect some of our intellectual property in the United States or abroad due to disclosures, which we may not be aware of, by our collaborators or licensors. Some foreign jurisdictions prohibit certain types of patent claims, such as \u201cmethod-of-treatment/use-type\u201d claims; thus, the scope of protection available to us in such jurisdictions is limited.\n\n\n\u00a0\n\n\nMoreover, filing, prosecuting and defending patents on all of our potential products and technologies throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not sought or obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our future products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing.\n\n\n\u00a0\n\n\nMany companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.\n\n\n\u00a0\n\n\nPatents covering our products could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad.\n \n\n\n\u00a0\n\n\nThe issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. We may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office (the \u201cUSPTO\u201d), or become involved in opposition, derivation, revocation, reexamination, post-grant and \ninter partes\n review (\u201cIPR\u201d), or interference proceedings or other similar proceedings challenging our patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Moreover, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge our priority of invention or other features of patentability with respect to our patents and patent applications. Such challenges may result in loss of patent rights, in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology or products. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us.\n \n\n\nFor example, our U.S. Patent Nos. 9,855,369 and 9,149,952, which relate to our bioprinter technology, were the subject of IPR proceedings filed by Cellink AB and its subsidiaries (collectively, \u201cBICO Group AB\u201d), one of our competitors. Likewise, U.S. Patent Nos. 9,149,952, 9,855,369, 8,931,880, 9,227,339, 9,315,043 and 10,967,560 (all assigned to Organovo, Inc.) and U.S. Patent Nos. 7,051,654, 8,241,905, 8,852,932 and 9,752,116 (assigned to Clemson University and the University of Missouri, respectively) were implicated in a declaratory judgment complaint filed against Organovo, Inc., our wholly owned subsidiary, by BICO Group AB and certain of its subsidiaries in the United States District Court for the District of Delaware. All of these matters were eventually settled in February 2022.\n\n\nSome of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition or results of operations. We may become involved in lawsuits to protect or enforce our inventions, patents or other intellectual property or the patents of our licensors, which could be expensive and time consuming.\n\n\nIn addition, if we initiate legal proceedings against a third party to enforce a patent covering our products, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. Third parties may also raise claims challenging the validity or enforceability of our patents before administrative bodies in the United States or abroad, even outside the context of litigation, including through re-examination, post-grant review,\n \nIPR, interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions (e.g.,\n \n\n\n22\n\n\n\n\nopposition proceedings). Such proceedings could result in the revocation of, cancellation of or amendment to our patents in such a way that they no longer cover our products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our products. Such a loss of patent protection would have a material adverse effect on our business, financial condition, and results of operations.\n\n\n\u00a0\n\n\nWe may be involved in lawsuits or other proceedings to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.\n\n\n\u00a0\n\n\nCompetitors may infringe our patents or the patents of our collaborators or licensors or our licensors may breach or otherwise prematurely terminate the provisions of our license agreements with them. To counter infringement or unauthorized use, we may be required to file infringement claims or lawsuits, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our collaborators or licensors is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our other patent applications at risk of not issuing. Additionally, our licensors may continue to retain certain rights to use technologies licensed by us for research purposes. Patent disputes can take years to resolve, can be very costly and can result in loss of rights, injunctions or substantial penalties. Moreover, patent disputes and related proceedings can distract management\u2019s attention and interfere with running our business.\n\n\n\u00a0\n\n\nFurthermore, because of the potential for substantial discovery in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments which could harm our business.\n\n\n\u00a0\n\n\nAs more companies file patents relating to bioprinters and bioprinted tissues, it is possible that patent claims relating to bioprinters or bioprinted human tissue may be asserted against us. In addition, the drug candidates we pursue may also be pursued by other companies, and it is possible that patent claims relating to such drug candidates may also be asserted against us. Any patent claims asserted against us could harm our business. Moreover, we may face claims from non-practicing entities, which have no relevant product revenue and against whom our own patent portfolio may have no deterrent effect. Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation and diversion of resources, cause product shipment or delays or require us to enter into royalty or license agreements. These licenses may not be available on acceptable terms, or at all. Even if we are successful in defending such claims, infringement and other intellectual property litigation can be expensive and time-consuming to litigate and divert management\u2019s attention from our core business. Any of these events could harm our business significantly.\n\n\n\u00a0\n\n\nOur current and future research, development and commercialization activities also must satisfy the obligations under our license agreements. Any disputes arising under our license agreements could be costly and distract our management from the conduct of our business. Moreover, premature termination of a license agreement could have an adverse impact on our business.\n\n\n\u00a0\n\n\nIn addition to infringement claims against us, if third parties have prepared and filed patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the United States Patent and Trademark Office (\u201cPTO\u201d) to determine the priority of invention and opposition proceedings outside of the United States. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party.\n\n\n\u00a0\n\n\nThird parties may also attempt to initiate reexamination, post grant review or inter partes review of our patents or those of our collaborators or licensors in the PTO. We may also become involved in similar opposition proceedings in the European Patent Office or similar offices in other jurisdictions regarding our intellectual property rights with respect to our products and technology.\n\n\n\u00a0\n\n\nWe depend on license agreements with University of Missouri, Clemson University and the Salk Institute for Biological Studies  for rights to use certain patents, pending applications, and know how. Failure to comply with or maintain obligations under these agreements and any related or other termination of these agreements could materially harm our business and prevent us from developing or commercializing new product candidates.\n\n\n\u00a0\n\n\nWe are party to license agreements with University of Missouri, Clemson University and the Salk Institute for Biological Studies under which we were granted exclusive rights to patents and patent applications that are important to our business and to our ability to develop and commercialize our 3D tissue products fabricated using our NovoGen Bioprinters and our FXR314 agonist in gastrointestinal disease. Our rights to use these patents and patent applications and employ the inventions claimed in these licensed patents are subject to the continuation of and our compliance with the terms of our license agreements. If we were to breach the terms of these license agreements and the agreements were terminated as a result, our ability to continue to develop and commercialize our NovoGen Bioprinters, 3D tissue products and the FXR314 agonist and to operate our business could be adversely impacted.\n\n\n23\n\n\n\n\nWe may be unable to adequately prevent disclosure of trade secrets and other proprietary information.\n\n\nIn order to protect our proprietary and licensed technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, manufacturers, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of our confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Failure to obtain or maintain trade secret protection could adversely affect our competitive business position.\n\n\nWe may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.\n\n\nWe employ or engage individuals who were previously employed at other biopharmaceutical companies. Although we have no knowledge of any such claims against us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees\u2019 former employers or other third parties. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees. To date, none of our employees have been subject to such claims.\n\n\n\u00a0\n\n\nGeneral Risk Factors\n\n\nCompliance with the reporting requirements of federal securities laws can be expensive.\n\n\nWe are a public reporting company in the United States, and accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including the compliance obligations of the Sarbanes-Oxley Act of 2002 (\u201cSarbanes-Oxley Act\u201d). The costs of complying with the reporting requirements of the federal securities laws, including preparing and filing annual and quarterly reports and other information with the Securities and Exchange Commission (the \u201cSEC\u201d) and furnishing audited reports to stockholders, can be substantial.\n\n\nIf we fail to comply with the rules of Section 404 of the Sarbanes-Oxley Act related to accounting controls and procedures, or, if we discover material weaknesses and deficiencies in our internal control and accounting procedures, we may be subject to sanctions by regulatory authorities and our stock price could decline.\n\n\nSection 404 of the Sarbanes-Oxley Act (\u201cSection 404\u201d) requires that we evaluate and determine the effectiveness of our internal control over financial reporting. We believe our system and process evaluation and testing comply with the management certification requirements of Section 404. We cannot be certain, however, that we will be able to satisfy the requirements in Section 404 in all future periods. If we are not able to continue to meet the requirements of Section 404 in a timely manner or with adequate compliance, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC or Nasdaq. Any such action could adversely affect our financial results or investors\u2019 confidence in us and could cause our stock price to fall. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we identify deficiencies in our internal controls that are deemed to be material weaknesses, we may be required to incur significant additional financial and management resources to achieve compliance.\n\n\n24\n\n\n\n",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of\n Financial Condition and Results of Operations.\n \n\n\nThe following management\u2019s discussion and analysis of financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and the related notes. This management\u2019s discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause our actual results or events to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in section Item 1A. \u201cRisk Factors\u201d in this Annual Report. Except as required by applicable law we do not undertake any obligation to update our forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.\n\n\nOverview\n\n\nWe are a biotechnology company that is focusing on building high fidelity, 3D tissues that recapitulate key aspects of human disease. We use these models to identify gene targets responsible for driving the disease and intend to initiate drug discovery programs around these validated targets. We are initially focusing on the intestine and have ongoing 3D tissue development efforts in ulcerative colitis (\u201cUC\u201d) and Crohn\u2019s disease (\u201cCD\u201d). We intend to add additional tissues/diseases/targets to our portfolio over time. In line with these plans, we are building upon both our external and in-house scientific expertise, which will be essential to our drug development effort.\n\n\nWe use our proprietary technology to build functional 3D human tissues that mimic key aspects of native human tissue composition, architecture, function and disease. Our advances include cell type-specific compartments, prevalent intercellular tight junctions, and the formation of microvascular structures. Management believes these attributes can enable critical complex, multicellular disease models that can be used to develop clinically effective drugs across multiple therapeutic areas.\n\n\nOur NovoGen Bioprinters\n\u00ae\n are automated devices that enable the fabrication of 3D living tissues comprised of mammalian cells. We believe that the use of our bioprinting platform as well as complementary 3D technologies will allow us to develop an understanding of disease biology that leads to validated novel drug targets, and  therapeutics to those targets to treat disease.\n \n\n\nThe majority of our current focus is on inflammatory bowel disease (\u201cIBD\u201d), including CD and UC. We are creating high fidelity disease models, leveraging our prior work including the work found in our peer-reviewed publication on bioprinted intestinal tissues (\nMadden et al. Bioprinted 3D Primary Human Intestinal Tissues Model Aspects of Native Physiology and ADME/Tox Functions. iScience. 2018 Apr 27;2:156-167. doi: 10.1016/j.isci.2018.03.015.)  Our current understanding of intestinal tissue models and IBD models leads us to believe that we can create models that provide greater insight into the biology of these diseases than are generally currently available.  Using these disease models, we intend to identify and validate novel therapeutic targets. After finding therapeutic drug targets, we will focus on developing novel small molecule, antibody, or other therapeutic drug candidates to treat the disease, and advance these drug candidates towards an Investigational New Drug (\u201cIND\u201d) filing and potential future clinical trials. We may also form partnerships around the development of targets or therapeutics for the treatment of IBD.\n \n\n\nIn March of 2023, we \nentered into and closed an asset purchase agreement with Metacrine, Inc to acquire their farnesoid X receptor (\"FXR\") program. FXR is a mediator of GI and liver diseases. FXR agonism has been tested in a variety of preclinical models of IBD.  The acquired program contains two clinically tested compounds and over 2,000 discovery or preclinical compounds.\n \n\n\nWe expect to broaden our work into additional therapeutic areas over time and are currently exploring specific tissues for development. In our work to identify the areas of interest, we evaluate areas that might be better served with 3D disease models than currently available models as well as the commercial opportunity.\n\n\nWe hold a large and diverse patent portfolio related to our bioprinting platform and complementary 3D technologies. The strength of this patent portfolio, the fact that it was created early in the bioprinting revolution and growth in the bioprinting industry have made for an attractive business opportunity for us. We are now beginning to invest resources to explore and expand business and revenue opportunities from the leveraging of our patent portfolio.\n\n\nCritical Accounting Policies, Estimates, and Judgments\n\n\nOur financial statements are prepared in accordance with U.S. generally accepted accounting principles (\u201cGAAP\u201d). Any reference in this annual report to applicable guidance is meant to refer to the authoritative accounting principles generally accepted in the United States as found in the Accounting Standards Codification (\u201cASC\u201d) and Accounting Standards Updates (\u201cASU\u201d) of the Financial Accounting Standards Board (\u201cFASB\u201d). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments used in preparing our financial statements and related disclosures, none of which are considered critical. All estimates affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. These\n \n\n\n28\n\n\n\n\nestimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known.\n\n\nOur significant accounting policies are set forth in \u201cNote 1. Description of Business and Summary of Significant Accounting Policies\u201d in the Notes to Consolidated Financial Statements contained within this Annual Report. Of those policies, we believe that the policies discussed below may involve a higher degree of judgment and may be more critical to an accurate reflection of our financial condition and results of operations. Accounting policies regarding stock-based compensation are considered critical, as they require significant assumptions. If there is a difference between the assumptions used in determining our stock-based compensation expense and the actual factors that become known over time, specifically with respect to anticipated forfeitures, we may change the input factors used in determining stock-based compensation costs for future grants. These changes, if any, may materially impact our results of operations in the period such changes are made.\n\n\nStock-based compensation\n\n\nFor purposes of calculating stock-based compensation, we estimate the fair value of stock options and shares acquirable under our 2022 Equity Incentive Plan (\"2022 Plan\"), Amended and Restated 2012 Equity Incentive Plan (the \u201c2012 Plan\u201d), our 2016 Employee Stock Purchase Plan (the \u201cESPP\u201d) or our 2021 Inducement Equity Plan (the \u201cInducement Plan\u201d) using a Black-Scholes option-pricing model. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. Expected volatility is based on the Company-specific historical volatility rate. For certain options granted with vesting criteria contingent on market conditions, we engage with valuation specialists to calculate fair value and requisite service periods using Monte Carlo simulations. For certain options granted with vesting criteria contingent on pre-defined Company performance criteria, we periodically assess and adjust the expense based on the probability of achievement of such performance criteria. For shares acquirable under our ESPP, we use our Company-specific volatility rate. The expected life of the stock options is based on historical and other economic data trended into the future. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected terms of our stock options. The dividend yield assumption is based on our history and expectation of no dividend payouts. If factors change and we employ different assumptions, our stock-based compensation expense may differ significantly from what we have recorded in the past.\n \n\n\nFor purposes of calculating stock-based compensation, we estimate the fair value of restricted stock units (\u201cRSUs\u201d) with pre-defined performance criteria, based on the closing stock price on the date of grant. No exercise price or other monetary payment is required for receipt of the shares issued in settlement of the respective award; instead, consideration is furnished in the form of the participant\u2019s service to us.\n\n\nIf there is a difference between the assumptions used in determining our stock-based compensation expense and the actual factors that become known over time, we may change the input factors used in determining stock-based compensation costs for future grants. These changes, if any, may materially impact our results of operations in the period such changes are made.\n\n\nRevenue\n\n\nWe assess whether our license agreements are considered a contract with a customer under ASC Topic 606, Revenue from Contracts with Customers (\u201cTopic 606\u201d) or an arrangement with a collaborator subject to guidance under ASC Topic 808, Collaborative Arrangements (\u201cTopic 808\u201d). These agreements can include one or more of the following: (i) non-refundable upfront fees and (ii) royalties based on specified percentages of net product sales. At contract inception, we assess the goods or services agreed upon within each contract and assess whether each good or service is distinct and determine those that are performance obligations. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.\n\n\nFor the year ended March 31, 2023, the performance obligations assessed were sales-based royalties on a quarterly basis. We evaluate the performance obligation to determine if it can be satisfied at a point in time or over time. For agreements that include sales-based royalties, we estimate and recognize revenue in the period the underlying sales occur. Key factors considered in the estimate include sales of products that include the underlying licensed IP and the location of customers related to the jurisdictions of the licensed IP. In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.\n \n\n\n29\n\n\n\n\nDifferences in the allocation of the transaction price between delivered and undelivered performance obligations can impact the timing of revenue recognition but do not change the total revenue recognized under any agreement.\n\n\nResults of Operations\n\n\nComparison of the Years Ended March 31, 2023 and 2022\n\n\nThe following table summarizes our results of operations for the years ended March 31, 2023 and 2022 (in thousands, except percentages):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nYear Ended March 31,\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease (decrease)\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\n\n\n\nRevenues\n\n\n$\n\n\n370\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,500\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(1,130\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(75\n\n\n%)\n\n\n\n\n\n\nResearch and development\n\n\n$\n\n\n8,885\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,320\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,565\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n168\n\n\n%\n\n\n\n\n\n\nSelling, general and administrative\n\n\n$\n\n\n9,216\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n9,659\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(443\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n%)\n\n\n\n\n\n\nOther income\n\n\n$\n\n\n474\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n33\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n441\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,336\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nRevenues\n\n\nWe had $0.4 million of royalty revenue for the year ended March 31, 2023, compared to $1.5 million revenue for the year ended March 31, 2022. The $1.5 million of royalty revenue for the year ended March 31, 2022 was an upfront payment related to the licensing of certain intellectual property (\u201cIP\u201d). The $0.4 million of royalty revenue for the year ended March 31, 2023, was related to the sales-based royalty revenue earned from the aforementioned licensing of IP.\n \n\n\nResearch and Development Expenses\n\n\nThe following table summarizes our research and development expenses for the years ended March 31, 2023 and 2022 (in thousands, except percentages):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nYear Ended March 31,\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease (decrease)\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n$\n\n\n8,247\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,787\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,460\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n196\n\n\n%\n\n\n\n\n\n\nNon-cash stock-based compensation\n\n\n\u00a0\n\n\n473\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n419\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n54\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\u00a0\n\n\n165\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n114\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n51\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n45\n\n\n%\n\n\n\n\n\n\nTotal research and development expenses\n\n\n$\n\n\n8,885\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,320\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,565\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n168\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nResearch and development expenses increased by $5.6 million, or 168%, from approximately $3.3 million for the year ended March 31, 2022 to approximately $8.9 million for the year ended March 31, 2023, as we significantly increased research and development activities. Our full-time research and development staff increased from an average of nine employees for the year ended March 31, 2022 to an average of fifteen employees for the year ended March 31, 2023. Research and development activities consisted of $2.4 million in personnel related costs, $5.2 million in lab and research expenses, $1.0 million in facility costs, and $0.3 million in consulting fees, depreciation, and other miscellaneous expenses. Of the $5.2 million in lab and research expenses, $4.0 million relates to acquired in-process research and development (\"IPR&D\") of Metacrine's FXR program, related research data, and IP.\n \n\n\nSelling, General and Administrative Expenses\n\n\nThe following table summarizes our selling, general and administrative expenses for the years ended March 31, 2023 and 2022 (in thousands, except percentages):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nYear Ended March 31,\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease (decrease)\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\n\n\n\nSelling, general and administrative\n\n\n$\n\n\n7,184\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7,794\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(610\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8\n\n\n%)\n\n\n\n\n\n\nNon-cash stock-based compensation\n\n\n\u00a0\n\n\n1,904\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,837\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n%\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\u00a0\n\n\n128\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n357\n\n\n%\n\n\n\n\n\n\nTotal selling, general and administrative\n\u00a0\u00a0\u00a0expenses\n\n\n$\n\n\n9,216\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n9,659\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(443\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n%)\n\n\n\n\n\n\n\u00a0\n\n\nSelling, general and administrative expenses decreased approximately $0.4 million, or 5%, from $9.7 million for the year ended March 31, 2022 to approximately $9.2 million for the year ended March 31, 2023. Overall, the decrease year over year is due to a significant decrease in general corporate costs, most notably legal costs, as we were involved in litigation in fiscal 2022 which was resolved by the end of fiscal 2022. For the year ended March 31, 2022, we had an average of four full-time employees, which\n \n\n\n30\n\n\n\n\nincreased to an average of five full-time employees for the year ended March 31, 2023. Year over year, we had an increase in personnel related costs of approximately $0.4 million, an increase in consulting costs of approximately $0.3 million, an increase in depreciation and amortization of approximately $0.1 million. These increases were offset by a $1.2 million decrease in general corporate costs, mostly attributable to a decrease in legal costs related to litigation regarding patent enforcement that occurred and ended in fiscal 2022.\n \n\n\nOther Income (Expense)\n\n\nOther income was $0.5 million and less than $0.1 million for the years ended March 31, 2023 and March 31, 2022, respectively. For the year ended March 31, 2023, interest income was approximately $0.5 million, due to higher interest rates compared to prior years. For the year ended March 31, 2022, other income consisted of a sale of a bioprinter asset to an academic research institution as well as interest income.\n \n\n\nFinancial Condition, Liquidity and Capital Resources\n\n\nGoing forward, we intend to leverage our proprietary technology platform to develop therapeutic drugs. Our initial plan is to focus on IBD, including CD and UC with a goal of broadening our work into additional therapeutic areas over time.\n \n\n\nThe accompanying consolidated financial statements have been prepared on the basis that we are a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. As of March 31, 2023, we had cash and cash equivalents of approximately $15.3 million and an accumulated deficit of $325.0 million. As of March 31, 2022, we had cash and cash equivalents of $28.7 million and an accumulated deficit of $307.7 million. We had negative cash flows from operations of $12.4 million and $8.5 million for the years ended March 31, 2023 and 2022, respectively.\n\n\nAs of March 31, 2023, we had total current assets of approximately $17.0 million and current liabilities of approximately $3.7 million, resulting in working capital of $13.3 million. At March 31, 2022, we had total current assets of approximately $29.5 million and current liabilities of approximately $1.4 million, resulting in working capital of $28.1 million.\n \n\n\nThe following table sets forth a summary of the primary sources and uses of cash for the years ended March 31, 2023 and 2022 (in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nYear Ended March 31,\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nNet cash (used in) provided by:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating activities\n\n\n$\n\n\n(12,408\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(8,453\n\n\n)\n\n\n\n\n\n\nInvesting activities\n\n\n\u00a0\n\n\n(966\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(409\n\n\n)\n\n\n\n\n\n\nFinancing activities\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n205\n\n\n\u00a0\n\n\n\n\n\n\nNet decrease in cash, cash equivalents, and restricted cash\n\n\n$\n\n\n(13,374\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(8,657\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\nOperating activities\n\n\nNet cash used in operating activities was approximately $12.4 million and $8.5 million for the years ended March 31, 2023 and 2022, respectively. The $3.8 million increase in operating cash usage, for the year ended March 31, 2023, can be attributed primarily to an increase in our research and development activities. Operating cash usage includes $2.0 million of cash outflows for acquired IPR&D of Metacrine's FXR drug compound, related research data, and IP.\n\n\nInvesting activities\n\n\nNet cash used in investing activities was $1.0 million and $0.4 million for the years ended March 31, 2023 and 2022, respectively. The net cash used in investing activities for the year ended March 31, 2023 was attributed to $0.4 million of fixed asset purchases, $0.7 million of purchases of equity securities, net of sales, which was slightly offset by $0.1 million of investment income. The net cash used in investing activities for the year ended March 31, 2022 was related to the purchase of fixed assets.\n \n\n\nFinancing activities\n\n\nNet cash provided by financing activities was zero and $0.2 million for the years ended March 31, 2023 and 2022, respectively. The net cash provided for the year ended March 31, 2022, was primarily driven by at-the-market (\"ATM\") share offerings. Refer to \u201cOperations funding requirements\u201d below for further information regarding financing activities.\n\n\n31\n\n\n\n\nOperations funding requirements\n\n\nThrough March 31, 2023, we have financed our operations primarily through the sale of common stock through public and ATM offerings, the private placement of equity securities, from revenue derived from the licensing of intellectual property, products and research-based services, grants, and collaborative research agreements, and from the sale of convertible notes.\n \n\n\nOur ongoing cash requirements include research and development expenses, compensation for personnel, consulting fees, legal and accounting support, insurance premiums, facilities, maintenance of our intellectual property portfolio, license and collaboration agreements, listing on the Nasdaq Capital Market, and other miscellaneous fees to support our operations. We expect our total operating expense for the fiscal year ending March 31, 2024 to be between $12.0 million and $14.0 million. Based on our current operating plan and available cash resources, we will need substantial additional funding to support future operating activities. We have concluded that the prevailing conditions and ongoing liquidity risks faced by us raise substantial doubt about our ability to continue as a going concern for at least one year following the date these financial statements are issued. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.\n\n\n\u00a0\n\n\nWe previously had an effective shelf registration statement on Form S-3 (File No. 333-222929) (the \u201c2018 Shelf\u201d) that registered $100.0 million of common stock, preferred stock, warrants and units, or any combination of the foregoing, that was set to expire on February 22, 2021. On January 19, 2021, we filed a shelf registration statement on Form S-3 (File No. 333-252224) to register $150.0 million of common stock, preferred stock, debt securities, warrants and units, or any combination of the foregoing (the \u201c2021 Shelf\u201d) and a related prospectus. The 2021 Shelf registration statement was declared effective by the SEC on January 29, 2021 and replaced the 2018 Shelf at that time.\n\n\n \n\n\nOn March 16, 2018, we entered into a Sales Agreement (\u201cSales Agreement\u201d) with H.C. Wainwright & Co., LLC and Jones Trading Institutional Services LLC (each an \u201cAgent\u201d and together, the \u201cAgents\u201d). On January 29, 2021, we filed a prospectus supplement to the 2021 Shelf (the \u201cATM Prospectus Supplement\u201d), pursuant to which we could offer and sell, from time to time through the Agents, shares of our common stock in ATM sales transactions having an aggregate offering price of up to $50.0 million. Any shares offered and sold are issued pursuant to our 2021 Shelf.\n\n\n \n\n\nDuring the year ended March 31, 2023, we sold no shares of common stock in ATM offerings. As of March 31, 2023, we have sold an aggregate of 1,580,862 shares of common stock in ATM offerings under the ATM Prospectus Supplement, for gross proceeds of approximately $21.7 million. As of March 31, 2023, there was approximately $100.0 million available in future offerings under the 2021 Shelf, and approximately $28.3 million available for future offerings through our ATM program under the ATM Prospectus Supplement.\n\n\n\u00a0\n\n\nHaving insufficient funds may require us to relinquish rights to our technology on less favorable terms than we would otherwise choose. Failure to obtain adequate financing could adversely affect our operations. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business. We cannot be sure that additional financing will be available if and when needed, or that, if available, we can obtain financing on terms favorable to our stockholders. Any failure to obtain financing when required will have a material adverse effect on our business, operating results, and financial condition.\n\n\n\u00a0\n\n\nAs of March 31, 2023, we had 8,716,906 total issued and outstanding shares of common stock.\n\n\n\u00a0\n\n\nOn October 12, 2022, our stockholders and the Board of Directors (\"Board\") approved the 2022 Plan, and it became effective on that date. The 2022 Plan replaced the 2012 Plan on the effective date. Upon the effective date, we ceased granting awards under the 2012 Plan and any shares remaining available for future issuance under the 2012 Plan were cancelled and are no longer available for future issuance. The 2012 Plan continues to govern awards previously granted under it. At the time the Board approved the 2022 Plan, an aggregate of 1,363,000 shares of our common stock was initially reserved for issuance under the 2022 Plan. We committed to reducing the new 2022 Plan share reserve by the number of shares that were granted under the 2012 Plan and the Inducement Plan between July 25, 2022 and October 12, 2022. From July 25, 2022 to October 12, 2022, we issued 126,262 shares of common stock under the 2012 Plan. As a result, the number of shares reserved for future issuance under the 2022 Plan is 1,236,738 shares of common stock as of March 31, 2023. We also committed to reducing the aggregate number of shares of common stock issuable pursuant to the Inducement Plan from 750,000 shares to 51,000 shares (which includes 50,000 shares of its common stock issuable pursuant to an outstanding option to purchase common stock with an exercise price of $2.75 per share, leaving only 1,000 shares available for future issuance under the Inducement Plan) and the share reserve was reduced effective October 12, 2022.\n\n\n\u00a0\n\n\nThe 2022 Plan provides for the issuance of up to 1,236,738 shares of our common stock, of which 1,071,471 shares remain available for issuance as of March 31, 2023, to executive officers, directors, advisory board members, employees and consultants. The 2012 Plan, as amended, provided for the issuance of up to 2,327,699 shares of our common stock, of which no shares remain available for issuance as of March 31, 2023. Additionally, 75,000 shares of common stock have been reserved for issuance under the ESPP, of which 58,426 shares remain available for future issuance as of March 31, 2023. Finally, 51,000 shares of common stock have been reserved for issuances under our Inducement Plan, of which 1,000 remain available for future issuance as of March 31, 2023. In\n \n\n\n32\n\n\n\n\naggregate, issued and outstanding common stock and shares issuable under outstanding equity awards or reserved for future issuance under the 2022 Plan, the 2012 Plan, the Inducement Plan, and the ESPP total 11,426,737 shares of common stock as of March 31, 2023.\n\n\nEffect of Inflation and Changes in Prices\n\n\nManagement does not believe that inflation and changes in price will have a material effect on our operations.\n\n\n\u00a0\n\n\nRecent Accounting Pronouncements\n\n\nFor information regarding recently adopted and issued accounting pronouncements, see \u201cNote 13. Recent Accounting Pronouncements\u201d in the Notes to the Consolidated Financial Statements contained in this Annual Report.\n\n",
+  "item7a": ">Item 7A. Quantitative and Qualitati\nve Disclosures About Market Risk.\n \n\n\nWe invest our excess cash in short term, high quality interest bearing securities including US government and US government agency securities and high-grade corporate commercial paper. The primary objective of our investment activities is to preserve our capital for the purpose of funding our operations. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash, cash equivalents, and short-term investments in a variety of securities, including money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because the majority of our investments are comprised of cash and cash equivalents. We currently do not hedge interest rate exposure. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure. We have limited foreign currency risk exposure as our business operates primarily in U.S. dollars. We do not have significant foreign currency nor any other derivative financial instruments.\n\n\n33\n\n\n\n",
+  "cik": "1497253",
+  "cusip6": "68620A",
+  "cusip": ["68620A203"],
+  "names": ["ORGANOVO HLDGS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1497253/000095017023032889/0000950170-23-032889-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1.  \nBUSINESS\n\n\nAs used in this document, the terms \u201cCulp,\u201d the \u201ccompany,\u201d \u201cwe,\u201d \u201cour,\u201d and \u201cus\u201d refer to Culp, Inc. and its consolidated subsidiaries (unless the context indicates another meaning). The term \u201ccommon stock\u201d means the common stock of Culp, Inc., par value $.05 per share. The terms \u201cRead Window Products\u201d and \u201cRead\u201d refer to our wholly-owned subsidiary, Read Window Products, LLC.\n \n\n\nOver\nview\n\n\nCulp manufactures, sources, and markets mattress fabrics and sewn covers used for covering mattresses and foundations and other bedding products; and upholstery fabrics, including cut and sewn kits, primarily used in the production of upholstered furniture. The company competes in a business driven by fashion and product performance, and we strive to differentiate ourselves by placing a sustained focus on creativity and product innovation. In addition, we place great emphasis on providing excellent and dependable service to our customers. Our focused efforts to protect our financial strength have allowed us to maintain our position as a financially stable and trusted supplier of innovative fabrics to bedding and furniture manufacturers.\n\n\nWe believe Culp is one of the largest producers of mattress fabrics in North America and one of the largest marketers of upholstery fabrics for furniture in North America, measured by total sales. Our operations are classified into two operating segments \u2014 mattress fabrics and upholstery fabrics. The mattress fabrics business markets primarily knitted and woven fabrics, as well as sewn covers made from those fabrics, which are used in the production of bedding products, including mattresses, foundations, and mattress sets. The upholstery fabrics business markets a variety of fabric products that are used principally in the production of residential and commercial upholstered furniture, including sofas, recliners, chairs, loveseats, sectionals, sofa-beds, and office seating, as well as window treatment products and installation services for customers in the hospitality and commercial industries.\n \n\n\nCulp markets a variety of fabrics and other products in different categories to a global customer base, including fabrics produced at our manufacturing facilities and fabrics produced by other suppliers. As of the end of fiscal 2023, we had active production facilities located in North Carolina; Tennessee; Quebec, Canada; Shanghai, China; and Ouanaminthe, Haiti. We also source fabrics and cut and sewn kits from other manufacturers, located primarily in China, Vietnam, and Turkey, with substantially all of these products made specifically for Culp and created by Culp designers. In addition, we operate distribution centers in North Carolina, Canada, China, and Haiti to facilitate distribution of our fabric products, with additional distribution capabilities through strategic relationships in China, Turkey, and Vietnam.\n\n\nOver the past decade, the portion of total company sales represented by fabrics produced outside of the U.S. and Canada has increased, while sales of goods produced in the U.S. have decreased. This trend is related primarily to the upholstery fabrics segment, where substantially all of our sales now consist of fabrics produced in Asia. The mattress fabrics business remains primarily based in North America.\n \n\n\nTotal net sales in fiscal 2023 were $234.9 million. The mattress fabrics segment had net sales of $111.0 million (47% of total net sales), and the upholstery fabrics segment had net sales of $123.9 million (53% of total net sales).\n \n\n\nOur overall sales declined 20.3% during fiscal 2023, as compared to the prior year, with mattress fabric sales decreasing 27.1% and upholstery fabric sales decreasing 13.1%. This decline was driven primarily by a slowdown in consumer demand in the domestic mattress industry throughout year, as well as a slowdown in new retail business in the residential home furnishings industry.  The impact of this industry softness was exacerbated by high inventory levels at manufacturers and retailers during most of the year, which delayed the timing of shipments and new product roll outs.\n \n \n\n\nFiscal 2023 was a difficult year, but Culp navigated the challenges and maintained a solid financial position. Our associates around the world worked diligently to execute our product-driven strategy, with a focus on innovation, operational excellence, and exceptional service across our global platform. Throughout our 50 years in business, we have faced economic downturns and the various cyclical market challenges of competing in a dynamic global marketplace. One of our enduring strengths has been our ability to navigate these challenges and pursue a strategic direction that supports our business and meets the evolving needs of our valued customers.\n \n\n\nAdditional information about trends and developments in each of our business segments is provided in the \u201cSegments\u201d discussion below, as well as in our \u201cManagement\u2019s Discussion and Analysis\u201d in Part II, Section 7 of this report.\n\n\nGeneral In\nformation\n\n\nCulp, Inc. was organized as a North Carolina corporation in 1972 and made its initial public offering in 1983. Since 1997, our stock has been listed on the New York Stock Exchange and traded under the symbol \u201cCFI\u201d until July 13, 2017, at which time the Company\u2019s ticker symbol changed to \u201cCULP.\u201d Our fiscal year is the 52- or 53-week period ending on the Sunday closest to April 30. Our executive offices are located in High Point, North Carolina.\n\n\n2\n\n\n\n\n\u00a0\n\n\nCulp maintains a corporate website at www.culp.com. We will make this annual report and our other annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports available free of charge on our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the \u201cSEC\u201d). Copies of any materials we file or furnish with the SEC can also be obtained free of charge through the SEC\u2019s website at www.sec.gov. The information included on our website is not incorporated by reference into this annual report or any other reports we file with, or furnish to, the SEC.\n\n\nSegm\nents\n\n\nOur operations are classified into two business segments: mattress fabrics and upholstery fabrics. The following table sets forth certain information for each of our segments.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nSales by Fiscal Year ($ in Millions) and Percentage of Total\nCompany Sales\n\n\n\u00a0\n\n\n\n\n\n\nSegment\n\n\n\u00a0\n\n\nFiscal\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nMattress Fabrics\n\n\n\u00a0\n\n\n$\n\n\n111.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n47\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n152.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n52\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n157.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n53\n\n\n%\n\n\n\n\n\n\nUpholstery Fabrics\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNon-U.S.-Produced\n\n\n\u00a0\n\n\n\u00a0\n\n\n114.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n49\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n133.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n45\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n133.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n44\n\n\n%\n\n\n\n\n\n\nU.S.-Produced\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\n\n\n\nTotal Upholstery\n\n\n\u00a0\n\n\n\u00a0\n\n\n123.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n53\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n142.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n142.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n47\n\n\n%\n\n\n\n\n\n\nTotal company\n\n\n\u00a0\n\n\n$\n\n\n234.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n294.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n299.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nAdditional financial information about our operating segments can be found in Note 17 of the consolidated financial statements included in Item 8 of this report.\n\n\nMattress Fabrics.\n The mattress fabrics segment, also known as Culp Home Fashions, manufactures and markets mattress fabrics and sewn mattress covers to bedding manufacturers. These products include woven jacquard fabrics, knitted fabrics, and some converted fabrics. Culp Home Fashions has fabric manufacturing facilities located in Stokesdale, North Carolina, and St. Jerome, Quebec, Canada. Knitted fabrics are produced at both the Stokesdale and St. Jerome facilities, while jacquard (damask) fabric is produced solely at the St. Jerome facility. The majority of our finishing and inspection processes for mattress fabrics are conducted at the Stokesdale plant, while the St. Jerome plant provides additional capacity and a second location for these processes. Both of these facilities offer finished goods distribution capabilities, and the Stokesdale plant houses the division offices. The segment also sources mattress fabric products internally from Culp China, which is operated by our upholstery fabrics division, as well as from a supplier in Turkey, based on our own designs and production schedule.\n \n\n\nOur  mattress cover operation currently has a wholly-owned manufacturing platform in Haiti for production of cut and sewn mattress covers. This platform includes two leased facilities. We also utilize our Culp China platform, operated by our upholstery fabrics division, to source sewn mattress covers from third-party suppliers in Asia. During fiscal 2023, we completed a restructuring and rationalization of our U.S.-based cut and sewn cover platform, moving our research and development (\"R&D\") and prototyping capabilities from our location in High Point, North Carolina, to our owned facility in Stokesdale, North Carolina. The result of this move was the discontinuation of our higher-cost on shore production capabilities, with the closure of two leased facilities in High Point during the third quarter. We believe this platform restructuring will allow us to generate cost savings by utilizing our lower-cost mattress cover production and sourcing capabilities in Haiti and Asia, where we can scale operations to align with demand and continue to support the needs of our customers.\n \n\n\nDuring the past few years, we completed several multi-year capital projects for the mattress fabrics business, including consolidating certain operations, expanding capacity, improving efficiency and customer service, and maintaining our flexible approach to fabric sourcing. In fiscal 2019, we consolidated our weaving operations to one facility in Quebec, Canada, and expanded production of our sewn mattress covers in Haiti and China to meet customer demand in the growing boxed bedding market. Additionally, we continued to expand our design capabilities in fiscal 2019, launching new software and a library system for cataloging our products to drive marketing and enhance innovation. In fiscal 2020, we further enhanced our design and innovation platform by establishing a dedicated innovation team to develop and offer the latest technologies and forward-looking products, expanding our creative team to complement our innovation strategy, and releasing a new digital library, design simulations, and 3D image rendering capabilities to showcase our designs and marketing tools. We were able to leverage these new technologies during the COVID-19 pandemic, in the face of travel restrictions and canceled tradeshows, to continue showcasing our products and support our customers through virtual design collaboration. In fiscal 2021, we invested in additional knit machines and other equipment to expand fabric capacity in North America. We also enhanced our digital project management platform, which allows us to work with customers from concept ideation and 3D\n \n\n\n3\n\n\n\n\n\u00a0\n\n\nmapping to product life cycle management and final merchandising. In fiscal 2022, we expanded our leading-edge technology at our Canadian manufacturing facility with the addition of a sectional warper and lamination line.\n\n\nAfter eight consecutive years of growth, sales for the mattress fabrics segment declined in fiscal 2019 and fiscal 2020. The decline in fiscal 2019 was mainly attributable to the acceleration of low-priced mattress imports from China towards the end of fiscal 2018 and through the first three quarters of fiscal 2019, together with the increased acceptance by consumers of roll-packed/boxed bedding delivered through major online e-commerce channels. The decline in fiscal 2020 was primarily due to the significant disruption from the COVID-19 pandemic during the fourth quarter, as well as continued disruption in the domestic mattress industry relating to low-priced mattress imports that moved from China to other countries. Sales increased significantly in fiscal 2021, as compared to fiscal 2020, driven by the consumer focus on the home environment and overall comfort during the COVID-19 pandemic, combined with our ability to service this demand through our global platform. For fiscal 2022, sales declined slightly compared to the prior year primarily due to industry weakness in domestic mattress industry sales, especially during the fourth quarter, along with some disruption from COVID-related shutdowns. We believe this industry softness was mostly caused by inflationary pressures affecting consumer spending and a shift in demand from home goods to travel, leisure, and entertainment following a pulling forward of demand for home goods during the early years of the COVID-19 pandemic.\n \n\n\nThe decline in sales continued during fiscal 2023, driven by an ongoing slowdown in consumer demand, with mattress industry reports reflecting significant unit contraction during this period. The impact of this industry softness was exacerbated, especially during the first nine months of the year, by mattress manufacturers and retailers working through an excess of inventory, delaying the timing of shipments and new product roll outs. As a result, sales declined significantly in fiscal 2023 compared to the prior year. However, we were encouraged to see strong sequential and year-over-year improvement beginning in the fourth quarter, primarily driven by the roll out of new customer programs.\n\n\nDespite the challenging macro-economic conditions during fiscal 2023, we diligently worked to manage the aspects of our business that we can control, taking necessary steps to withstand current market challenges and position our business for renewed growth. During the second half of fiscal 2023, we began executing on a comprehensive business transformation plan, laying the foundation for operational improvement with new leadership and a restructured management team. Throughout the year, we focused on our product-driven strategy, with an emphasis on innovation, design creativity, and strengthening customer relationships. The strength and flexibility of our global manufacturing and sourcing operations in the U.S., Canada, Haiti, Asia, and Turkey allowed us to support the evolving needs of our mattress fabric and cover customers throughout the year. We believe the success of our mattress fabrics segment over the long term is due to our focus on these foundational values and strategic initiatives that allow us to meet changing customer demands.\n\n\nUpholstery Fabrics.\n The upholstery fabrics segment markets fabrics for residential and commercial furniture, including jacquard woven fabrics, velvets, micro denier suedes, woven dobbies, knitted fabrics, piece-dyed woven products, and polyurethane \u201cleather look\u201d fabrics. With the acquisition of Read Window Products at the end of fiscal 2018, this segment also markets window treatment products and installation services, including roller shades, drapery, hardware, and top-of-mattress soft goods, for customers in the hospitality and commercial industries.\n\n\nThe upholstery fabrics segment currently operates two manufacturing facilities in Shanghai, China. From these locations, we market a variety of upholstery fabrics and cut and sewn kits sourced from third-party producers, mostly in China and Vietnam. We utilize these facilities for design, finishing, warehousing, quality control, and inspection operations related to these products. We previously produced cut and sewn fabric kits in Shanghai, China. However, during fiscal 2023, based on market dynamics for cut and sewn products and the strength of our Asian supply chain, we rationalized and adjusted our model for this platform with the closure of our cut and sew facility. Additionally, during the third quarter of fiscal 2022, we commenced operation of a new leased facility in Ouanaminthe, Haiti, dedicated to the production of cut and sewn fabric kits. However, due to a decline in demand for these cut and sewn kits, we terminated the agreement to lease this new facility during the third quarter of fiscal 2023 and relocated a scaled-down upholstery cut and sew operation into our existing mattress cover facility also located in Ouanaminthe, Haiti. We believe these adjustments to our cut and sew platform will generate cost savings without sacrificing our ability to support our customers, grow our cut and sew business, and maintain our competitive advantages through our lower-cost manufacturing and sourcing operations in Asia and Haiti.\n \n\n\nWe continue to expand our marketing efforts to sell our upholstery fabrics products in countries other than the U.S., including the Chinese local market. Additionally, we fabricate a variety of window treatments, using mostly customer-supplied fabrics and materials, at our facility in Knoxville, Tennessee.\n \n\n\nOur upholstery fabrics business has moved from one that relied on a large fixed capital base that is difficult to adjust to a more flexible and scalable marketer of upholstery fabrics that meets changing levels of customer demand and tastes. At the same time, we have maintained control of the most important \u201cvalue added\u201d aspects of our business, such as design, finishing, quality control, and logistics. This strategic approach has allowed us to limit our investment of capital in fixed assets and control the costs of our products, while continuing to leverage our design and finishing expertise, industry knowledge, and important relationships.\n\n\n4\n\n\n\n\n\u00a0\n\n\nAfter increasing in the two prior years, sales declined in fiscal 2020 due to the severe disruption from the COVID-19 pandemic during the fourth quarter. In fiscal 2021, our sales recovered with strong growth, driven by increased industry demand in our residential business, as well as the benefits of product innovation and opportunities with new and existing customers.  This growth was partially offset by lower sales for our hospitality business, which remained under pressure due to pandemic-related disruptions affecting the travel and leisure industries. During fiscal 2022, sales increased slightly, reflecting generally solid demand for residential upholstery products for the first nine months of the year, as well as the impact of certain pricing and surcharge actions in effect during the year. This increase was offset by a significant drop in residential sales during the fourth quarter due to COVID-related shutdowns of our facilities in China throughout the month of April and, to a lesser extent, a slowdown in new business for the residential home furnishings industry during the fourth quarter.  During fiscal 2023, our sales declined moderately as a result of reduced demand for residential upholstery products, driven by an ongoing slowdown in the residential home furnishings industry, as well as high inventory levels at manufacturers and retailers during the first nine months of the year. This decline was partially offset by higher sales in our hospitality/contract business.\n \n\n\nDespite the industry softness in fiscal 2023, we maintained our sustained focus on product innovation, and our highly durable, stain resistant LiveSmart\u00ae performance fabrics, as well as our LiveSmart Evolve\u00ae performance plus sustainability fabrics, remained popular with both existing and new residential furniture customers. Demand for our hospitality/contract fabric business also remained solid for the year.\n \n\n\nWe believe the success of our upholstery fabrics segment over the longer term is due largely to a business strategy that has included: 1) innovation in a low-cost environment, 2) speed-to-market execution, 3) consistent quality, 4) reliable service and lead times, and 5) increased recognition of and reliance on the Culp brand. Our progress has been achieved through a unique business model that has enabled the upholstery fabrics segment to execute a strategy that we believe is clearly differentiated from our competitors. In this way, we have maintained our ability to provide furniture manufacturers with products from nearly every category of fabric for upholstered furniture and meet continually changing demand levels and consumer preferences. We have also implemented additional steps to grow net sales, including an emphasis on markets beyond residential furniture, such as the hospitality market. One result of these efforts was the acquisition of Read Window Products at the end of fiscal 2018, representing a significant expansion of our production capabilities in the hospitality market, along with the addition of window treatment installation services.\n\n\nOverview of Indu\nstry and Markets\n\n\nCulp markets products primarily to manufacturers and hospitality customers in three principal markets. The mattress fabrics segment supplies the bedding industry, which produces mattress sets (mattresses, box springs, foundations and top of bed components) and bedding accessory products. The upholstery fabrics segment primarily supplies the residential furniture industry and, to a lesser extent, the commercial furniture industry. The residential furniture market includes upholstered furniture sold to consumers for household use, including sofas, sofa-beds, chairs, recliners, and sectionals. The commercial furniture, fabrics, and window treatments market includes fabrics and window treatment products used in the hospitality industry (primarily hotels and motels); fabrics used for upholstered office seating and modular office systems sold primarily for use in offices and other institutional settings, as well as commercial textile wall coverings; and window treatments for commercial application. The principal industries into which the company sells products \u2013 the bedding industry and residential and commercial furniture industry \u2013 are described in more detail below. Currently, a great majority of our products are sold to manufacturers for end use in the U.S., and thus the discussions below are focused on that market.\n\n\nOverview of Be\ndding Industry\n\n\nThe bedding industry has contracted and expanded in recent years in accordance with the general economy, and, most recently in connection with impacts from the COVID-19 pandemic, although traditionally the industry has been relatively mature and stable. This is due in part to the fact that a majority of bedding industry sales are replacement purchases, which are less volatile than sales based on economic growth and new household formations. During the second half of fiscal 2022 and throughout fiscal 2023, the bedding industry experienced weakness in domestic mattress sales, with industry reports reflecting significant unit contraction. We believe this industry softness was mostly driven by inflationary pressures affecting consumer spending, especially for mattress products in the low to mid-range price points, and a shift in demand from home goods to travel, leisure, and entertainment following a pulling forward of demand for home goods during the early years of the COVID-19 pandemic. These factors are expected to continue affecting the bedding industry during fiscal 2024.\n \n\n\nUntil recently, the U.S. bedding industry has largely remained a North American-based business, with limited competition from imports. This dynamic has mainly been due to short lead times demanded by mattress manufacturers and retailers, the customized nature of product lines, the relatively low direct labor content in mattresses, and strong brand recognition. Imports of bedding into the U.S. had been increasing gradually, but this trend significantly accelerated in fiscal 2018 and 2019, especially for lower-priced bedding. China accounted for the largest share of the imported units during these years, but the level of mattress imports entering the U.S. from China began to substantially decline beginning in the fourth quarter of fiscal 2019 in connection with punitive anti-dumping duties imposed by the U.S. Department of Commerce. However, the level of mattress imports from other countries, including Vietnam, Cambodia, Indonesia, Thailand, and Turkey, among others, significantly increased during fiscal 2020 as imports from China declined. The result\n \n\n\n5\n\n\n\n\n\u00a0\n\n\nof the increase in imports during this period, and continuing into fiscal 2021, was a decline in sales for the major U.S. bedding manufacturers, which affected major suppliers to those manufacturers, including Culp.\n\n\nAs a result of the continued significant influx of low-priced imports that moved from China to other countries, the U.S. Department of Commerce imposed anti-dumping duties against seven countries, including Cambodia, Indonesia, Malaysia, Serbia, Thailand, Turkey, and Vietnam, during fiscal 2021. We believe the domestic mattress industry and, in turn, our business, began to realize some benefits from these duties during the second half of fiscal 2021 and continuing into fiscal 2022 and fiscal 2023.\n\n\nA key trend driving the bedding industry is the increased demand for roll-packed/compressed mattresses through both online and traditional sales channels. Consumer acceptance of boxed beds as a delivery mechanism continues to drive growth and increase market share for this product, increasing potential demand for sewn mattress covers. Another important trend is the increased awareness among consumers about the health benefits of better sleep, with an increased focus on the quality of bedding products and an apparent willingness on the part of consumers to upgrade their bedding. A further trend is the strong and growing emphasis on the design knitted or woven into mattress fabrics to appeal to the customer\u2019s visual attraction and perceived value of the mattress on the retail floor, as well as in online sales channels and advertisements. Mattress fabric design efforts are based on current trends in home decor and fashion. Additionally, the growth in non-traditional sources for retail mattress sales, such as online e-commerce channels and wholesale warehouse clubs, has the potential to increase overall consumption of goods due to convenience and high traffic volume, which in turn results in higher turnover of product. Among fabric types, knitted fabrics have continued to increase in popularity. Knitted fabric was initially used primarily on premium mattresses, but these products are now being placed increasingly on mattresses at mid-range to lower retail price points.\n\n\nOverview of Residential and C\nommercial Furniture Industry\n\n\nOverall demand for our products depends upon consumer demand for furniture and bedding products, which is subject to variations in the general economy, including current inflationary pressures affecting consumer spending; declines in consumer confidence; the negative economic impact of potential additional surges of the coronavirus; and other geopolitical events, such as the ongoing Russia/Ukraine war. Because purchases of furniture products are discretionary purchases for most individuals and businesses, demand for these products may be more easily influenced by economic trends than demand for other products. Economic downturns, higher unemployment rates, and uncertainty about future health and economic prospects can affect consumer spending habits and demand for home furnishings, which reduces the demand for our products and therefore can cause a decline in our sales and earnings. Sales of commercial furniture to businesses are also affected by these same factors. These market conditions, as well as the pace of recovery from these conditions, have been uneven in recent years. In general, sales of residential furniture are influenced significantly by the housing industry and by trends in home sales and household formations, while demand for commercial furniture generally reflects economic trends affecting businesses and office occupancy. During fiscal 2021, disruption relating to the COVID-19 pandemic positively affected sales trends, with the increased consumer focus on the home and travel restrictions shifting discretionary spending away from travel and leisure activities towards home furnishings and enhancing comfort within the home environment. This sales trend began to reverse during fiscal 2022, particularly during the second half of the year, as COVID-related travel and mask restrictions were lifted and consumers began to resume travel and leisure activities, and this reversal continued throughout fiscal 2023. Inflationary pressures also began to affect consumer spending during the second half of fiscal 2022 and continuing throughout fiscal 2023. Together, these trends have caused a slowdown in new business for the residential home furnishings industry that is expected to continue during fiscal 2024.\n\n\nThe sourcing of components and fully assembled furniture from overseas continues to play a major role in the furniture industry. By far, the largest source for these imports continues to be China. Imports of upholstery fabric, both in roll and in \u201ckit\u201d form, have also had a significant impact on the market for upholstery fabrics in recent years. Fabrics entering the U.S. from China and other low labor cost countries have resulted in increased price competition in the upholstery fabric and upholstered furniture markets.\n\n\nIn general, the residential furniture industry has been consolidating for several years. The result of this trend is fewer, but larger, customers for marketers of upholstery fabrics. Intense price competition continues to be an important consideration for both residential and commercial furniture.\n\n\nAdditionally, with the ongoing global trade dispute and other tensions between the U.S. and China, including the imposition of tariffs during fiscal 2019 and the possibility for additional tariffs on China imports, some of our customers began altering their supply chains away from China in late fiscal 2019. This trend has continued in recent years, including in fiscal 2023, as relations between the U.S. and China have further deteriorated. While we believe Asia remains a preferred location for sourcing of components, including fabric, we continue to diversify our sourcing strategies to develop additional geographic options to service our customers.\n\n\nProdu\ncts\n\n\nAs described above, our products include mattress fabrics and upholstery fabrics, which are our two identified operating segments. These fabrics are sold in roll form and as sewn mattress covers by the mattress fabrics segment, and in roll form and as cut and sewn kits by the upholstery fabrics segment.  Our upholstery segment products also include window treatments and related products.\n \n\n\n6\n\n\n\n\n\u00a0\n\n\nMattress Fabrics Segment\n\n\nMattress fabrics segment sales constituted 47% of our total net sales for fiscal 2023, compared with 52% for fiscal 2022.  The company has emphasized fabrics that have broad appeal at prices generally ranging from $1.50 to more than $10.00 per yard.\n \n\n\nUpholstery Fabrics Segment\n\n\nUpholstery fabrics segment sales totaled 53% of our sales for fiscal 2023, compared with 48% of for fiscal 2022. The company has emphasized fabrics that have broad appeal at \u201cgood\u201d and \u201cbetter\u201d prices, generally ranging from $3.00 to $16.00 per yard.\n \n\n\nCulp Product Categories by Segment\n\n\nWe market products in most categories of fabric that manufacturers currently use for bedding and furniture. We also market window treatment products to customers in the hospitality and commercial industries.  The following table indicates the product lines within each segment, and, with respect to the fabric products, a brief description of their characteristics.\n\n\nMattress Fabrics\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nWoven jacquards\n\n\nVarious patterns and intricate designs. Woven on complex looms using a variety of synthetic and natural yarns.\n\n\n\n\n\n\n \n\n\n \n\n\n\n\n\n\nConverted\n\n\nSuedes, pile and embroidered fabrics, and other specialty type products are sourced to offer diversity for higher end mattresses.\n\n\n\n\n\n\n \n\n\n \n\n\n\n\n\n\nKnitted fabric\n\n\nVarious patterns and intricate designs produced on special-width circular knit machines utilizing a variety of synthetic and natural yarns. Knitted mattress fabrics have inherent stretching properties and spongy softness, which conforms well with layered foam packages.\n\n\n\n\n\n\n \n\n\n \n\n\n\n\n\n\nSewn mattress covers\n\n\nCovers for bedding (primarily specialty beds), sewn from mattress fabrics produced by our facilities or sourced from others.\n\n\n\n\n\n\nUpholstery Fabrics\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nWoven jacquards\n\n\nElaborate, complex designs such as florals and tapestries in traditional, transitional, and contemporary styles. Woven on intricate looms using a wide variety of synthetic and natural yarns.\n\n\n\n\n\n\n \n\n\n \n\n\n\n\n\n\nWoven dobbies\n\n\nFabrics that use straight lines to produce geometric designs such as plaids, stripes, and solids in traditional and country styles. Woven on less complicated looms using a variety of weaving constructions and primarily synthetic yarns.\n\n\n\n\n\n\n \n\n\n \n\n\n\n\n\n\nVelvets\n\n\nSoft fabrics with a plush feel. Woven or knitted in basic designs, using synthetic yarns that are yarn dyed or piece dyed.\n\n\n\n\n\n\n \n\n\n \n\n\n\n\n\n\nSuedes\n\n\nFabrics woven or knitted using microdenier polyester yarns, which are piece dyed and finished, usually by sanding. The fabrics are typically plain or small jacquard designs, with some being printed. These are sometimes referred to as microdenier suedes.\n\n\n\n\n\n\n \n\n\n \n\n\n\n\n\n\nFaux leathers\n\n\nSueded or knitted base cloths which are overprinted with polyurethane, and composite products consisting of a base fabric that is coated with a top layer of polyurethane, which simulates the look and feel of leather.\n\n\n\n\n\n\n \n\n\n \n\n\n\n\n\n\nCut and sewn kits\n\n\nCovers made from various types of upholstery fabrics and cut and sewn to specifications of furniture manufacturing customers for use on specific furniture frames.\n\n\n\n\n\n\n\u00a0\n\n\nThrough our Read Window Products business, the upholstery fabrics segment also markets a variety of window treatment products and installation services for customers in the hospitality and commercial industries.  These products include roller & solar shades, drapery, roman shades and top treatments, hardware products, and soft goods such as duvet covers, bed skirts, bolsters and pillows.\n\n\n7\n\n\n\n\n\u00a0\n\n\nManufacturing\n and Sourcing\n\n\nMattress Fabrics Segment\n\n\nOur mattress fabrics segment operates three manufacturing plants, with one located in North Carolina (Stokesdale), one in St. Jerome, Quebec, Canada, and one in Ouanaminthe, Haiti.  Over the past ten fiscal years, we made capital expenditures of approximately $67 million to consolidate our production facilities and to modernize both knit and weaving equipment, enhance and provide knit and woven finishing capabilities, and expand capacity. The result has been an increase in manufacturing efficiency and reductions in operating costs, as well as expanded product offerings and capacity.\n\n\nKnitted fabrics are produced at both our Stokesdale facility and our St. Jerome plant, while production of jacquard mattress fabrics was consolidated into the St. Jerome facility during the fourth quarter of fiscal 2019. The majority of our finishing and inspection processes for mattress fabrics are conducted at the Stokesdale plant, with the St. Jerome plant providing additional capacity and a second location for these processes, along with distribution capabilities. We produce sewn mattress covers at our manufacturing facility in Haiti. In fiscal 2017, we entered into a 50/50 joint venture with a third party mattress cover provider to construct a leased location for our mattress cover operations in Haiti, and this joint venture facility began production of mattress covers for our business during the second quarter of fiscal 2018. We completed a 40,000-square foot expansion of this Haiti facility during the second quarter of fiscal 2021 to increase capacity, and during the fourth quarter of fiscal 2021, we acquired the remaining fifty percent ownership interest in this Haiti mattress cover business from our previous joint venture partner, giving us full control of the operation and expanded capacity to meet customer demand from this lower-cost, near-shore operation. We also have R&D and prototyping capabilities for sewn mattress covers at our Stokesdale facility.\n \n\n\nIn addition to the mattress fabrics and sewn covers manufactured by Culp, we have important supply arrangements in place that allow us to source mattress fabrics and sewn covers from strategic suppliers. We source some Culp-designed knitted fabrics, certain converted fabric products, and sewn mattress covers using our Culp China platform. We also source Culp-designed sewn mattress covers from a strategic supply relationship in Vietnam. Additionally, we source a portion of our woven jacquard fabric and knitted fabric from a supplier located in Turkey, based on designs and a production schedule created by Culp.\n \n\n\nUpholstery Fabrics Segment\n\n\nThe upholstery fabrics segment currently operates two manufacturing facilities in China. We also operated a facility in Haiti dedicated to the production of cut and sewn upholstery kits during the first half of fiscal 2023, but following the rationalization and restructuring of this operation during the second half of the fiscal year, we now operate a scaled down cut and sew operation within the company's existing mattress cover facility in Haiti. Additionally, we fabricate a variety of window treatments, using mostly customer-supplied fabrics and materials, at our Read Window Products facility in Knoxville, Tennessee.\n \n\n\nOur upholstery fabrics facilities in China are located within the same industrial area in Shanghai. At these facilities, we apply value-added finishing processes to fabrics sourced from a limited number of strategic suppliers in China, and we inspect sourced fabric there as well.\n \n\n\nOur upholstery fabrics cut and sew operation in Haiti uses sourced fabrics to produce cut and sewn kits designed to be placed on specific furniture frames designated by customers.\n \n\n\nA large portion of our upholstery fabric products, as well as certain elements of our production processes, are being sourced from outside suppliers. Our facilities in China provide a base from which to access a variety of products, including certain fabrics (such as micro denier suedes and polyurethane fabrics) that are not produced anywhere within the U.S. We have found opportunities to develop significant relationships with key overseas suppliers in China that allow us to source products on a cost-effective basis, while limiting our investment of capital in manufacturing assets. We source unfinished and finished fabrics, as well as cut and sewn kits, from a limited number of strategic suppliers in China who are willing to commit significant capacity to meet our needs while working with our product development team located in China to meet the demands of our customers. Beginning in late fiscal 2019, we also developed strategic supplier relationships in Vietnam for additional sourcing of our cut and sewn kits, which has allowed us to begin adjusting our supply chains to meet customer demands in conjunction with ongoing trade disputes between the U.S. and China. Additionally, beginning in fiscal 2022, we developed strategic supplier relationships in Turkey for additional sourcing of fabric products, providing further diversification in our supply chain. The majority of upholstery fabrics and materials used by our Read Window Products business to fabricate window treatments are customer-supplied. These materials are generally sourced by customers, and we also source a portion of other window treatment products such as hardware and roller shades, from outside suppliers in the U.S., Turkey, and China.\n\n\nProduct Design \nand Innovation\n\n\nConsumer tastes and preferences related to bedding, upholstered furniture, and window treatment products change over time. The use of new fabrics, creative designs, and special production finishes and technologies remains an important consideration for manufacturers\n \n\n\n8\n\n\n\n\n\u00a0\n\n\nand marketers to distinguish their products at retail and to capitalize on changes in preferred colors, patterns, textures, and performance properties. Culp\u2019s success is largely dependent on our ability to market fabrics and products with appealing designs and patterns, as well as performance properties such as cleanability, stain-resistance, cooling, sustainability, and health-related benefits. The process of developing new designs and innovative finishes involves maintaining an awareness of broad fashion and color trends, as well as wellness and other consumer trends, both in the United States and internationally.\n\n\nIn order to enhance our design and innovation creativity and advance the synergies between our mattress fabrics and upholstery fabrics segments, we launched a new innovation campus in downtown High Point, North Carolina, during fiscal 2022. This space combines our design, innovation, and sales teams for both businesses into a shared location to support collaboration across divisions and pull our top creative talent together to develop new products and technologies based on the latest consumer trends.\n \n\n\nMattress Fabrics Segment\n\n\nDesign innovation is a very important element of producing mattress fabrics. We invest significant resources to stay ahead of current design trends, including maintaining a trained and active design and innovation staff, investing in research and development activities such as participation in international design shows, and implementing systems for creating, cataloging, and simulating new designs. Price point delineation for our fabrics and our customers\u2019 finished mattress products is accomplished through fabric quality as well as variation in design. Consumers are drawn to the mattress that is the most visually appealing when walking into a retail showroom or viewing mattress products online, so this design variation, together with price point delineation, helps our customers merchandise different looks at various price points. Fiber differentiation also plays an important part in design. For example, rayon, organic cotton, and other special fibers, including recycled fibers promoting sustainability and fibers with cooling properties, are incorporated into the design process to allow the retailer to offer consumers additional benefits related to their sleeping experience. Similarly, many fabrics contain special production finishes that enhance fabric performance.\n\n\nMattress fabric designs are not routinely introduced on a scheduled season. Designs are typically introduced upon the request of the customer as they plan introductions of new products. Additionally, we work closely with our customers on new design offerings around the major furniture markets such as Las Vegas, Nevada, and High Point, North Carolina.\n\n\nUpholstery Fabrics Segment\n\n\nThe company has developed an upholstery fabrics design and product development team (with staff located in the U.S. and in China) with a primary focus on value in designing body cloths, while promoting style leadership with pillow fabrics and color. Our design staff travels regularly to international trade and design shows to maintain familiarity with current design and fashion trends. The team searches continually for new ideas and for the best sources of raw materials, yarns, and fabrics, utilizing a supply network located mostly in China. Using these design elements, they develop product offerings using ideas and materials that take both fashion trends and cost considerations into account to offer products designed to meet the needs of furniture manufacturers and ultimately the desires of consumers.\n\n\nUpholstery fabric designs are introduced at major fabric trade conferences that occur twice a year in the United States (June and December). In recent years we have become more aggressive in registering copyrights for popular fabric patterns and taking steps to discourage the illegal copying of our proprietary designs.\n\n\nDistri\nbution\n\n\nMattress Fabrics Segment\n\n\nMost of our mattress fabrics shipments originate from our facilities in Stokesdale, North Carolina, and we have additional distribution capabilities in Canada, China, and Haiti. Through arrangements with major customers and in accordance with industry practice, we maintain a significant inventory of mattress fabrics at our distribution facility in Stokesdale (\u201cmake to stock\u201d), so that products may be shipped to customers with short lead times and on a \u201cjust in time\u201d basis.\n\n\nUpholstery Fabrics Segment\n\n\nA majority of our upholstery fabrics are marketed on a \u201cmake to order\u201d basis and are shipped directly from our distribution facilities in Burlington, North Carolina, and Shanghai, China. We also have distribution capabilities in Vietnam and Turkey. In addition to \u201cmake to order\u201d distribution, an inventory of select fabric patterns is held at our distribution facilities in Burlington and Shanghai from which our customers can obtain quick delivery of sourced fabrics through a program known as \u201cCulp Express.\u201d We also have distribution capabilities for our \u201cCulp Express\u201d program to local customers in Canada through our mattress fabrics distribution facility in Quebec, Canada. Window treatment products sold through our Read Window Products business are done on a \u201cjob order\u201d basis, with manufactured products shipped directly from Read's manufacturing facility in Knoxville, Tennessee to the job installation site.\n \n\n\n9\n\n\n\n\n\u00a0\n\n\nSources and Availabil\nity of Raw Materials\n\n\nMattress Fabrics Segment\n\n\nRaw materials account for approximately 60%-70% of mattress fabric production costs. The mattress fabrics segment purchases primarily synthetic yarns (polyester, polypropylene, and rayon), certain greige (unfinished) goods, glue adhesives, laminates, dyes, and other chemicals. Most of these materials are available from several suppliers, and prices fluctuate based on supply and demand, the general rate of inflation, and particularly on the price of petrochemical products.\n \n\n\nThe mattress fabrics segment has generally not had significant difficulty in obtaining raw materials. During fiscal 2022, some of our outside suppliers faced extended delays and increased costs for raw materials, as well as COVID-19-related disruption that affected production. During fiscal 2023, we experienced better stability with suppliers relative to service and cost for most commodities. Our use of outside suppliers to source materials to produce mattress fabric and sewn covers makes the mattress fabrics segment vulnerable to price increases, delays, or production interruptions caused by problems within businesses that we do not control.\n\n\nUpholstery Fabrics Segment\n\n\nThe upholstery fabrics segment generally does not purchase raw materials directly, but raw materials, particularly synthetic yarns (polyester, acrylic, rayon, and polypropylene) and dyes, are important to our suppliers of finished and unfinished fabrics. Raw materials account for approximately 60%-70% of upholstery fabric manufacturing costs for products the company manufactures.\n \n\n\nIncreased reliance by both our U.S. and China upholstery operations on outside suppliers for basic production needs such as base fabrics, yarns, and finishing services has caused the upholstery fabrics segment to become more vulnerable to price increases, delays, or production interruptions caused by problems within businesses that we do not control.\n\n\nBoth Segments\n\n\nMany of our basic raw materials are petrochemical products or are produced from such products. For this reason, our raw material costs can be sensitive to changes in prices for petrochemicals and the underlying price of oil. Near the end of fiscal 2021, our raw material costs began to escalate primarily due to rising oil prices, a higher demand environment, and labor shortages. These pressures continued during fiscal 2022, with further increases in raw material costs, particularly during the second half of the year, due to the continued rise in oil prices and a higher demand environment.  During fiscal 2023, the cost of raw materials began to decline during the first half of the year due to lower oil prices and slowing global demand, but the higher costs and lower availability of labor remained challenging throughout the year.  Raw material costs were relatively stable during the second half of the year.\n \n\n\nSeason\nality\n\n\nOverall, demand for our products generally depends upon consumer demand for furniture and bedding products, which reflects sensitivity to overall economic conditions, including consumer confidence, unemployment rates, and housing market conditions. During the fourth quarter of fiscal 2020 and continuing into the first quarter of fiscal 2021, the bedding and furniture industries, including manufacturers and retail stores, were adversely affected by closures/restricted operations, supply chain disruption, and economic uncertainty due to the COVID-19 global pandemic. For the remainder of fiscal 2021, disruption relating to the COVID-19 pandemic positively affected sales trends, with the increased consumer focus on the home and travel restrictions shifting discretionary spending away from travel and leisure activities towards home furnishings and enhancing overall comfort within the home environment. However, this sales trend began to reverse during fiscal 2022, particularly during the second half of fiscal 2022 and continuing throughout fiscal 2023, as COVID-related travel and mask restrictions were lifted and consumers began to resume travel and leisure activities. Inflationary pressures also affected consumer spending on home goods during the second half of fiscal 2022 and continuing throughout fiscal 2023. Additionally, we believe consumer spending was further pressured in fiscal 2023 by other economic conditions, such as rising interest rates, the ongoing Russia/Ukraine conflict, and other economic indicators that affected consumer confidence. These impacts are not reflective of any seasonal trends in the bedding or furniture industries and are not an indicator that seasonal trends are changing for our business segments.\n\n\nMattress Fabrics Segment\n\n\nThe mattress fabrics business and the bedding industry in general are slightly seasonal, with sales being the highest in early spring and late summer, with another peak in mid-winter. However, these seasonality trends relate more to in-store retail sales and promotional events, whereas the growth in online sales, which began prior to the COVID-19 pandemic and increased during the pandemic, are less affected by in-store seasonality trends. It appears that during fiscal 2023, U.S. consumers began to return to pre-pandemic mattress buying habits, where mattresses are often purchased during major U.S. holidays.\n \n\n\n10\n\n\n\n\n\u00a0\n\n\nUpholstery Fabrics Segment\n\n\nThe upholstery fabrics business today is less seasonal than it once was. In the past, seasonality resulted from one-week closings of our manufacturing facilities and the facilities of most of our customers in the U.S. during our first and third fiscal quarters for the holiday weeks of July 4th and Christmas. This effect has become much less pronounced as the majority of our fabrics are produced or sold in locations outside of the U.S. The timing of the Chinese National Holiday in October and, to a larger extent, the Chinese New Year (which occurs in January or February each year), now have a more significant impact on upholstery sales than the U.S. holiday periods, often causing sales to be higher in advance of these Chinese holiday periods and sometimes lower during or immediately following the same periods (although notably this trend for the Chinese New Year holiday did not occur during fiscal 2023, with sales lower in advance of the holiday due to high customer inventory and reduced consumer demand, followed by an uptick in sales after the holiday as customer inventory levels began to normalize).\n \n\n\nCompet\nition\n\n\nCompetition for our products is high and is based primarily on price, design, quality, product performance, timing of delivery, and service.\n\n\nMattress Fabrics Segment\n\n\nThe mattress fabrics market is concentrated in a few relatively large suppliers, as well as some niche producers focusing mainly on knitted products. We believe our principal mattress fabric and mattress cover competitors are BekaertDeslee Textiles (fabric and mattress cover producer), Global Textile Alliance (fabric and mattress cover producer), and several smaller companies producing knitted fabrics, sewn covers, and other fabric, including companies in China supplying fabric and cover products to sub-contract manufacturers in the U.S. In addition, our bedding customers continue to face increasing competition from imports of finished beds, which indirectly compete with our mattress fabrics by replacing potential sales of our products to those customers.\n \n\n\nUpholstery Fabrics Segment\n\n\nIn the upholstery fabrics market, we compete against a large number of companies, ranging from a few large manufacturers comparable in size to the company to small producers and converters (companies who buy and re-sell fabrics, but have no manufacturing). We believe our principal upholstery fabric competitors are Dorell Fabrics Co., Morgan Fabrics, Richloom Fabrics, Specialty Textile, Inc. (or STI), and ZhongWang Fabrics, plus a large number of smaller competitors (both manufacturers and converters).\n\n\nThe trend in the upholstery fabrics industry to greater overseas competition and the entry of more converters has caused the upholstery fabrics industry to become substantially more fragmented in recent years, with lower barriers to entry. This has resulted in a larger number of competitors selling upholstery fabrics, with an increase in competition based on price.\n\n\nEnvironmental and \nOther Regulations\n\n\nWe are subject to various federal and state laws and regulations, including the Occupational Safety and Health Act (\u201cOSHA\u201d) and federal and state environmental laws, as well as similar laws governing our manufacturing facilities in China, Canada, and Haiti. We periodically review our compliance with these laws and regulations in an attempt to minimize the risk of violations.\n\n\nOur operations involve a variety of materials and processes that are subject to environmental regulation. Under current law, environmental liability can arise from previously owned properties, leased properties, and properties owned by third parties, as well as from properties currently owned and leased by the company. Environmental liabilities can also be asserted by adjacent landowners or other third parties in toxic tort litigation.\n\n\nIn addition, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (\u201cCERCLA\u201d), and analogous state statutes, liability can be imposed for the disposal of waste at sites targeted for cleanup by federal and state regulatory authorities. Liability under CERCLA is strict as well as joint and several.\n\n\nThe U.S. Congress is considering legislation to address climate change that is intended to reduce overall greenhouse gas emissions, including carbon dioxide. In addition, the U.S. Environmental Protection Agency has made a determination that greenhouse gas emissions may be a threat to human health and the environment. International agreements may also result in new regulations on greenhouse gas emissions. It is uncertain if, when, and in what form, a mandatory carbon dioxide emissions reduction program may be enacted either through legislation or regulation. However, if enacted, this type of program could materially increase our operating costs, including costs of raw materials, transportation, and electricity. It is difficult to predict the extent to which any new rules or regulations would affect our business, but we would expect the effect on our operations to be similar to that for other manufacturers, particularly those in our industry.\n\n\n11\n\n\n\n\n\u00a0\n\n\nWe are periodically involved in environmental claims or litigation and requests for information from environmental regulators. Each of these matters is carefully evaluated, and the company provides for environmental matters based on information presently available. Based on this information, we do not currently believe that environmental matters will have a material adverse effect on either the company\u2019s financial condition or results of operations. However, there can be no assurance that the costs associated with environmental matters will not increase in the future.\n\n\nHuman C\napital\n\n\nOur Employees\n \n\n\nAs of the end of fiscal 2023, we employed 1,333 people, a decrease of 249 employees as compared to the end of the prior fiscal year.  The mattress fabrics segments employed 759 people at fiscal year-end, a decrease of 186 employees, while the upholstery segment employed 543 people, a decrease of 60 employees from the prior year. The remaining employees comprise the company\u2019s shared services functions.\n\n\nThe decrease in the number of employees in the mattress fabrics segment in fiscal 2023, as compared to the prior year, was associated with the rationalization of our U.S.-based mattress fabrics cut and sew platform, which included the closure of two U.S. facilities associated with this business. The decrease in the number of employees in the upholstery fabrics segment in fiscal 2023, as compared to the prior year, was associated with the rationalization and restructuring of our upholstery cut and sew platform during the year, which included the closure of our Shanghai cut and sew facility, as well as the rationalization and relocation of our Haiti cut and sew operation into an existing mattress cover facility also located in Haiti.\n \n\n\nApproximately 478 employees work in the United States, and 855 are employed in international locations. We employ the vast majority of our employees on a full-time basis.\n\n\nThe hourly employees at our manufacturing facility in Canada (approximately 11% of our workforce) are represented by a local, unaffiliated union. The collective bargaining agreement for these employees expires on February 1, 2026. We are not aware of any efforts to organize any more of our employees, and we believe our employee relations are very good with both our unionized and non-unionized workforce. Our company-wide annual employee turnover rate was approximately 42% during the past fiscal year, compared to approximately 25% in the prior year.  The increase in our annual employee turnover compared to the prior fiscal year was driven mostly by the rationalization and restructuring our upholstery fabrics cut and sew operations in China and Haiti and our mattress fabrics cut and sew operation in the U.S.\n\n\nMission Statement and Values\n\n\nOur human resources department has adopted a mission statement that embodies our values and goals in the company\u2019s relationships with our employees. The mission statement is as follows:\n\n\nCulp HR Services is committed to providing outstanding employee support in a mutually respectful, safe, diverse, and collaborative environment through innovative programming that engages our associates and promotes the success of Culp, Inc.\n\n\nWe strive to maintain a welcoming and inclusive workplace. Discrimination on the basis of race, ethnicity, sex, age, religion, national origin, sexual orientation, gender, gender identity, genetic information, disability, veteran status, or other status protected by law, as well as sexual harassment or harassment of any kind, are not tolerated in our workplaces. Employees have multiple avenues available to report inappropriate behavior, including a dedicated \u201cHR Connection\u201d phone line. All reports of inappropriate behavior are promptly investigated and appropriate action is taken to prevent their recurrence. We also prohibit retaliation against individuals who, in good faith, report any violation of company policies, including unlawful discrimination or harassment.\n\n\nAlong with our mission statement and values, we act in accordance with our Code of Business Conduct and Ethics (\u201cCode of Conduct\u201d), which sets forth expectations and guidance for employees to make appropriate decisions. Our Code of Conduct covers topics such as conflicts of interest, fair dealing, protecting confidential information, appropriate use of company assets, compliance with laws (including, without limitation, anti-corruption and antitrust laws), workplace safety and environmental stewardship, and reporting Code of Conduct violations. The Code of Conduct reflects our commitment to operating in a fair, honest, ethical, and responsible manner, and also provides direction for reporting complaints in the event of alleged violations of our policies. Our executive officers and supervisors maintain \u201copen door\u201d policies, and any form of retaliation is strictly prohibited.\n \n\n\nWe also conduct regular training programs with our management and employee leaders to inform and refresh their knowledge about company policies and procedures pertaining to employment and human capital.\n\n\n12\n\n\n\n\n\u00a0\n\n\nEmployee Recruitment, Development, Engagement, and Wellness\n\n\nWe strive to attract, recruit, and retain employees through competitive compensation and benefit programs that are aligned with those of comparable industries and in the geographic areas where our facilities are located, and in compliance with local regulatory requirements. We also provide development opportunities that support career growth and maintain a wide variety of programs to engage with our employees and promote overall wellness. We believe these efforts support all of our personnel in the workplace and elsewhere in their lives, which in turn promotes employee satisfaction and retention.\n\n\nFor example, the \u201cCULPgrow\u201d program was launched in 2021 to provide employees with skills assessment and education assistance, such as GED, ESOL (English to Speakers of Other Languages), and computer literacy programs. The purpose of CULPgrow is to provide a workplace where every employee has the key resources they need to grow, develop, and reach their career goals. The program focuses on identifying the skills and goals of each employee, as well as ways the company can invest in their future and provide tools and resources that support their career advancement. It also provides resources such as financial educational assistance, as well as mentorship opportunities where employees can be matched with a company mentor and guided through pathways for success within the company.\n\n\nAdditionally, in fiscal 2022, the company held its first company-wide global giving initiative, with a program called \u201cShare the Love.\u201d The program involved employees in each of our geographic locations choosing a charitable endeavor to support, based on their knowledge of local cultural considerations and areas of need. For example, our U.S. and Canadian locations held food drives for donations to local food banks, while Culp China\u2019s facilities contributed to help cancer patients. Employees in Haiti made blankets in-house using Culp fabric and then donated them to a local orphanage and the local fire department. This program was continued in fiscal 2023, with additional support to local charitable endeavors from each of our geographic locations.\n\n\nOther examples of employee engagement initiatives include:\n\n\n\u2022\nWellness sessions on various health-related topics\n\n\n\u2022\nMeetings and video chats with senior management\n\n\n\u2022\nThe CulpVets program, which provides special recognition to military veterans\n\n\n\u2022\nEmployee awards and recognition programs\n\n\nThese engagement efforts and programs are continually refined and updated to meet the evolving needs of our workforce.\n \n\n\nSafety and Health\n\n\nThe safety and health of our employees is a fundamental priority at Culp. We maintain comprehensive safety monitoring and training programs, with regular reports to senior management on these topics. Our Behavior Based Safety initiative combines awareness programs, observation, and training to enhance continued compliance with safe and healthy practices in our facilities.\n\n\nEarly in the COVID-19 pandemic, comprehensive protocols were developed and followed to allow our manufacturing plants to reopen safely after mandatory shutdowns. When COVID-19 vaccines became available, we hosted vaccination clinics at several of our manufacturing facilities, providing access to vaccines not only for our employees, but also for their families and members of the local communities. Additional safety and health programs are planned for the future.\n\n\n\u00a0\n\n\nCustomers \nand Sales\n\n\nMattress Fabrics Segment\n\n\nMajor customers for our mattress fabrics include leading bedding manufacturers such as Serta-Simmons Bedding (SSB), Tempur + Sealy International (TSI), Casper, Corsicana, Sleep Number, and Ashley Furniture. Our mattress fabrics customers also include many small and medium-size bedding manufacturers.  No customers within the mattress fabrics segment accounted for more than 10% of the company's consolidated sales in fiscal 2023.\n\n\nUpholstery Fabrics Segment\n\n\nOur major customers for upholstery fabrics are leading manufacturers of upholstered furniture, including Ashley, Flexsteel, Kuka, La-Z-Boy (La-Z-Boy Residential and England), Southern Furniture Industries (Fusion and Southern Motion), Sudair, and Violino. Major customers for the company\u2019s fabrics for commercial furniture include Exemplis, HNI Corporation, and Travel + Leisure Co. (f/k/a\n \n\n\n13\n\n\n\n\n\u00a0\n\n\nWyndham Destinations). Our largest customer in the upholstery fabrics segment is La-Z-Boy Incorporated, which accounted for approximately 15% of the company\u2019s consolidated sales in fiscal 2023.\n \n\n\nThe following table sets forth our net sales by geographic area by amount and percentage of total net sales for the three most recent fiscal years.\n\n\nNet Sales by Ge\nographic Area\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnited States\n\n\n\u00a0\n\n\n$\n\n\n165,807\n\n\n\u00a0\n\n\n\u00a0\n\n\n70.6%\n\n\n\u00a0\n\n\n$\n\n\n204,454\n\n\n\u00a0\n\n\n\u00a0\n\n\n69.3%\n\n\n\u00a0\n\n\n$\n\n\n217,473\n\n\n\u00a0\n\n\n\u00a0\n\n\n72.6%\n\n\n\n\n\n\nNorth America (Excluding USA) \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n29,756\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.7%\n\n\n\u00a0\n\n\n\u00a0\n\n\n39,256\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.3%\n\n\n\u00a0\n\n\n\u00a0\n\n\n32,925\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.0%\n\n\n\n\n\n\nFar East and Asia\n(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,339\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.3%\n\n\n\u00a0\n\n\n\u00a0\n\n\n43,015\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.6%\n\n\n\u00a0\n\n\n\u00a0\n\n\n43,764\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.6%\n\n\n\n\n\n\nAll other areas\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,032\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.4%\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,114\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.8%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,558\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.9%\n\n\n\n\n\n\nSubtotal (International)\n\n\n\u00a0\n\n\n$\n\n\n69,127\n\n\n\u00a0\n\n\n\u00a0\n\n\n29.4%\n\n\n\u00a0\n\n\n$\n\n\n90,385\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.7%\n\n\n\u00a0\n\n\n$\n\n\n82,247\n\n\n\u00a0\n\n\n\u00a0\n\n\n27.4%\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n234,934\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0%\n\n\n\u00a0\n\n\n$\n\n\n294,839\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0%\n\n\n\u00a0\n\n\n$\n\n\n299,720\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0%\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nOf this amount, $24.9 million, $33.5 million, and $27.2 million are attributable to shipments to Mexico in fiscal 2023, 2022, and 2021, respectively.\n\n\n(2)\nOf this amount $20.0 million, $26.9 million, and $28.1 million are attributable to shipments to China in fiscal 2023, 2022, and 2021, respectively.\n\n\nSales attributed to individual countries are based upon the location that the company ships its products to for delivery to customers.\n\n\nFor additional segment information, including the geographic location of long-lived assets, see Note 18 in the consolidated financial statements.\n\n\nBack\nlog\n\n\nMattress Fabrics Segment\n\n\nThe backlog for the mattress fabric segment is not a reliable predictor of future shipments because the majority of sales for the mattress fabrics segment are on a just-in-time basis.\n\n\nUpholstery Fabrics Segment\n\n\nAlthough it is difficult to predict the amount of backlog that is \u201cfirm,\u201d we have reported the portion of the upholstery fabric backlog from customers with confirmed shipping dates within five weeks of the end of the fiscal year. On April 30, 2023, the portion of the upholstery fabric backlog with confirmed shipping dates prior to June 5, 2023, was $10.6 million, compared with $15.7 million as of the end of fiscal 2022 (for confirmed shipping dates prior to June 6, 2022).\n \n\n\nIntellectual Property\n\n\nWe currently hold, or have registration applications pending for, numerous trademarks and copyrights for various product and trade names, logos, and fabric designs in the United States and certain foreign countries. We view such intellectual property, along with any unregistered copyrights, trademarks, service marks, trade names, domain names, trade dress, trade secrets, and proprietary technologies, as an important part of our business, and we seek to diligently protect, monitor, and defend, through appropriate action, against their unauthorized use.\n\n\n14\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A.  RI\nSK FACTORS\n\n\nOur business is subject to a variety of risks and uncertainties. In addition to the matters described above under \u201cCautionary Statement Concerning Forward-Looking Information,\u201d set forth below are some of the risks and uncertainties that could cause a material adverse change in our results of operations, financial condition, or future prospects. The risks described below should be carefully considered, together with other information provided in this report, including Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements, including the related notes. The risks discussed below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us also may materially adversely affect our business, financial condition, or results of operations in future periods.\n \n\n\nMacroeconomic, Market, and Strategic Risks\n\n\nContinued economic and industry uncertainty could negatively affect our sales and earnings.\n\n\nOverall demand for our products depends upon consumer demand for furniture and bedding products, which is subject to cyclical variations in the general economy, including current inflationary pressures affecting consumer spending, declines in overall consumer confidence, recession and fears of recession, the negative economic impact of potential additional surges of the coronavirus, and other geopolitical events, such as the ongoing Russia/Ukraine war. Because purchases of furniture and bedding products may be considered discretionary purchases for most individuals and businesses, demand for these products may be more easily influenced by economic trends than demand for other products. Economic downturns, increases in unemployment rates, and uncertainty about future health and economic prospects can affect consumer spending habits and demand for discretionary items, including home furnishings, which reduces the demand for our products and therefore can cause a decline in our sales and earnings. In addition, the level of housing starts, sales of existing homes, trends in disposable income, changes in interest rates (particularly home mortgage rates), and availability of consumer credit, can also affect our business. While we saw an adverse impact from some of these measures due to the COVID-19 pandemic at the end of fiscal 2020 and the beginning of fiscal 2021, we experienced increased demand in our mattress fabrics segment and in the residential side of our upholstery fabrics segment for most of fiscal 2021, driven by greater consumer focus on the home environment and more discretionary spending being allocated to home furnishings in the face of travel restrictions and other pandemic-related factors. However, this trend began to reverse during fiscal 2022, particularly during the second half of the year, as COVID-related travel and mask restrictions were lifted and consumers began to resume travel and leisure activities. We believe the trend of increased consumer discretionary spending on travel, leisure, and entertainment, and away from home goods, continued throughout fiscal 2023. Inflationary pressures also began to affect consumer spending during the second half of fiscal 2022 and continuing throughout fiscal 2023. We are unable to predict how long these trends will last, or to what extent additional surges of the coronavirus or other geopolitical events may affect the economic and purchasing cycle for home furnishing products (and therefore affect demand for our products) over the short and long term.\n \n\n\nLoss of market share due to competition would result in declines in sales and could result in losses or decreases in earnings.\n\n\nOur business is highly competitive and fragmented, and we face significant competition from many competitors, both foreign and domestic. We compete with many other manufacturers of fabric, as well as converters who source fabrics from various producers and market them to manufacturers of furniture and bedding. In many cases, these fabrics are sourced from foreign suppliers who have a lower cost structure than the company. The highly competitive nature of our business in each of our segments means we are constantly subject to the risk of losing market share, which would likely result in a loss or decrease our future sales and earnings. As a result of increased competition, there have been deflationary pressures on the prices for many of our products, which make it more difficult to pass along increased operating costs such as raw materials, shipping, energy, foreign currency fluctuations, or labor in the form of price increases, which puts downward pressure on our profit margins. Also, the wide range of product offerings in our business can make it more difficult to differentiate our products through design, styling, finish, and other techniques.\n\n\nThe global COVID-19 pandemic significantly and adversely affected, and may again adversely affect, our business, financial position, results of operations, and cash flows.\n\n\nThe COVID-19 pandemic negatively affected the global and U.S. economy, severely disrupted global supply chains, and created significant volatility and disruption in financial markets, all of which negatively affected the bedding and home furnishings industries, our customers and suppliers, and our business. Many countries, including the countries in which we operate, as well as state and local governmental authorities, took various actions to mitigate the spread of COVID-19, including mandated closures of businesses, stay-at-home orders, quarantine and isolation requirements, travel restrictions, border closings, restrictions on public gatherings, social distancing measures, occupancy limits, and other safety measures. While these restrictions have now been lifted as conditions have improved, the restrictions adversely affected our business, results of operations, financial position, and cash flows.\n \n\n\nDue to government-mandated closure requirements near the end of March 2020, we shut down our facilities in Canada and Haiti for several weeks. At the same time, we experienced a rapid decline in demand as customers and retail stores began closing or substantially\n \n\n\n15\n\n\n\n\n\u00a0\n\n\nlimiting their operations. We took a number of measures in response to the increasingly challenging market conditions, including, among other things, repurposing a portion of our available operations to produce face masks, bedding covers, and fabrics for healthcare operations and consumer health; reducing operating costs by implementing temporary salary reductions, making workforce adjustments to align with demand, suspending merit pay increases, and eliminating the cash compensation paid to our board of directors; aggressively reducing expenses, capital expenditures, and discretionary spending, and working with our vendors and landlords to negotiate temporary terms. We also took steps to safeguard the health of our employees, customers, and the communities we serve, including implementing detailed cleaning and disinfecting processes at our facilities, instituting temperature checks, adhering to social distancing and mask protocols, suspending non-essential travel, restricting visitors, providing remote work opportunities where possible, and offering on-site vaccination clinics to our employees, their families, and the general public. We have continued to monitor and update these procedures, in accordance with CDC recommendations and other local laws and regulatory authorities, throughout the pandemic.\n \n\n\nWhile the COVID-19 pandemic continued to spread throughout the world during fiscal 2021, we did not experience additional closures of any of our operations, or any material closures of the operations of our suppliers, during the remainder of the fiscal year, following the initial shutdowns from the fourth quarter of fiscal 2020. However, during fiscal 2022, our upholstery fabrics business was materially affected by COVID-19 related shutdowns of our sourcing partners and customers in Vietnam throughout most of the second quarter, and our operations in China were shut down during the last month of the fourth quarter of fiscal 2022 and continuing to some extent during the first month of fiscal 2023, which prevented us from shipping goods in both our residential upholstery fabrics business and our sewn mattress cover business. In addition to these shutdowns, COVID-19 disruption affected our business during fiscal 2022, as well as the business of our customers and suppliers, due to employee absenteeism and labor shortages, pandemic-related effects on the availability and pricing of freight and raw material costs, and pandemic-related constraints on our customers\u2019 capacity due to supply chain disruption for non-fabric components. We did not experience additional closures of any of our operations, or any material closures of the operations of our suppliers, during the remainder of fiscal 2023.\n \n\n\nWhile the World Health Organization has now declared an official end to the COVID-19 global health emergency, future surges in the number of COVID-19 cases and preventative or protective actions that governmental authorities or we may take in response to such surges may have an adverse effect on our business or the business of our customers, suppliers, or distribution channels, including additional business shutdowns, reduced operations, restrictions on shipping or installing products, reduced consumer demand, reduced availability and/or higher pricing of materials, or the ability of our customers to make payments. In addition, responding to future case surges or restrictions could divert management\u2019s attention from our key strategic priorities, increase costs as we prioritize the health and safety of our employees and customers, cause us to reduce, delay, alter, or abandon strategic initiatives that may otherwise increase our long-term value, and otherwise disrupt our business operations.\n \n\n\nThe potential for future surges in the number of COVID-19 cases and the impact of such surges on our business depends on factors beyond our knowledge or control, including the duration and severity of such surges; actions taken to contain spread of the virus and mitigate the public health and economic effects; vaccine availability and effectiveness within the markets in which we operate; the impact on global supply chain conditions; employee absenteeism and labor shortages; and the short- and long-term disruption to the global economy, consumer confidence, demand for home furnishings products, unemployment, and the financial health of our customers, suppliers, and distribution channels. At this time, we cannot reasonably estimate the impact of such potential future COVID-19 surges on our business or on our future financial or operational results; however, the disruption could have a material adverse effect on our business, financial condition, results of operations, and cash flows over time. Furthermore, the impact of additional surges in COVID-19 may also exacerbate other risks discussed in this Item 1A \u2013 Risk Factors, any of which could have a material adverse effect on our operations.\n \n\n\nIn addition, if in the future there is an outbreak of another highly infectious disease or other health concern or epidemic, we may be subject to similar risks as those faced during the COVID-19 pandemic.\n\n\nOur operations are subject to risks of unsettled political conditions, civil unrest or instability, public health concerns or pandemics, natural or man-made disasters, acts of war, terrorism, and the effects of climate change, any one of which could adversely affect our business and results of operations.\n\n\nOur domestic and foreign operations are subject to risks of unsettled political conditions, civil unrest or instability, public health concerns or pandemics, natural or man-made disasters, acts of war, and terrorism. In addition, the effects of climate change and actions taken to combat climate change could exacerbate these risks, including by increasing the likelihood and severity of extreme weather events. Any of these risks, including without limitation civil unrest or instability in Haiti, China, or other countries where we operate, could cause disruption at our manufacturing or distribution facilities, or at the facilities of our suppliers and distribution channels, which could make servicing our customers more difficult and could reduce our sales, earnings, or both in the future.\n\n\n16\n\n\n\n\n\u00a0\n\n\nOperational Risks\n\n\nOur business may be adversely affected by increased tariffs or other changes in U.S. trade policy related to imported products, as well as violations of existing trade policies.\n\n\nMany of our products are manufactured or sourced outside of the United States. The U.S. government has imposed certain tariffs on imports from various countries, including China, where a significant amount of our products is produced. In the future, the U.S. Government may consider imposing additional tariffs or extending the timeline for continuation of existing tariffs. Any tariffs that result in increased costs of imported products and materials could require us to increase prices to our domestic customers or, if we are unable to do so, result in lowering our gross margins on products sold. As a result, the tariffs could have a material adverse effect on our results of operations.\n \n\n\nIn addition to tariffs, the U.S. government considers other proposals for substantial changes to its trade and tax policies, which could include import restrictions, increased import tariffs, changes to or withdrawal from existing trade agreements, and border-adjustment taxes, among other possible measures. Material changes in these policies could increase our tax obligations, require us to source materials from different regions, or increase prices to customers, which could adversely affect sales. Any significant change in U.S. trade or tax policy related to imported products could have a material adverse effect on our business and financial results.\n\n\nThere are also a number of trade regulations and duties currently in place to protect the U.S. textile industry against competition from low-priced foreign producers, such as those in China and Vietnam, but violations of these trade regulations and duties has had, and may in the future have, a material adverse effect on our operations. In May of 2019, the U.S. Department of Commerce imposed punitive anti-dumping measures against China mattress imports to address violations of trade regulations. Despite the imposition of these duties, if China producers move their production out of China, which we believe has already occurred, they may continue to engage in unfair competition in violation of trade regulations between the U.S. and other countries, or there may be a potential risk of illegal transshipments of mattress products into the United States, which involves circumventing the imposed duties by falsely claiming that mattresses are products of a particular country of origin to avoid paying higher duties. Also, if supply chains are moved out of China to countries without anti-dumping duties and producers continue to supply low-priced imports in violation of U.S. trade laws, and if illegal transshipments are not monitored and enforcement is not effective to limit them, these shipments could have a material adverse effect on the company\u2019s business, financial condition, results of operations or cash flows. During fiscal 2020, the U.S. mattress industry was affected by continued disruption relating to low-priced mattress imports that moved from China to other countries, which affected demand for our products. As a result, the U.S. Department of Commerce imposed anti-dumping duties on mattress imports from seven of these countries during fiscal 2021. We believe the domestic mattress industry and, in turn, our business, began to realize some benefits from these duties during the second half of fiscal 2021 and continuing into fiscal 2022 and fiscal 2023. However, despite the imposition of these duties, supply chains could move out of the affected countries to other countries without anti-dumping duties and continue supplying low-priced imports in violation of U.S. trade laws, or there may be a potential risk of illegal transshipments of mattress products from these countries to avoid paying the higher duties, which could negatively affect our business.\n \n\n\nGreater reliance on offshore operations and foreign sources of products or raw materials increases the likelihood of disruptions to our supply chain or our ability to deliver products to our customers on a timely basis.\n\n\nWe rely significantly on operations in distant locations, especially China. In addition, we have been purchasing a significant share of our products and raw materials from offshore sources, particularly Asia and Turkey. At the same time, our domestic manufacturing capacity for the upholstery fabrics segment continues to decline. These changes have caused us to rely on an extended supply chain and on a larger number of suppliers that we do not control, both of which are inherently subject to greater risks of delay or disruption. In addition, operations and sourcing in foreign areas are subject to the risk of changing local governmental rules, taxes, changes in import rules or customs, import restrictions, tariffs, shipping rates, potential political unrest and instability, coronavirus or other pandemic-related closure rules, or other threats that could disrupt or increase the costs of operating in foreign areas or sourcing products overseas. Additionally, changes in the value of the U.S. dollar versus other currencies can affect our financial results because a significant portion of our operations are located outside the United States. Strengthening of the U.S. dollar against other currencies could make our products less competitive on the basis of price in markets outside the United States, and strengthening of currencies in Canada and China could have a negative impact on our sales of products produced in those places. Any of the risks associated with foreign operations and sources could cause unanticipated increases in operating costs or disruptions in business, which could have a negative impact on our ultimate financial results.\n\n\nSpecifically with respect to sourcing products and raw materials from third-party suppliers in China, our ability to timely or successfully import such products or products made with such raw materials may be adversely affected by changes in U.S. laws.  For example, the U.S. Government has taken several steps to address forced labor concerns in the Xinjiang Uyghur Autonomous Region of China (\"XUAR\"), including sanctions on specific entities and individuals; withhold release orders (\"WROs\") issued by U.S. Customs and Border Protection (\"CBP\") that prohibit the entry of imports of certain items from XUAR; and the Uyghur Forced Labor Prevention Act (\"UFLPA\"), which went into effect in June 2022 and imposes a presumptive ban on the import of goods to the U.S. that are made, wholly or in part, in the XUAR or by persons that participate in certain programs in the XUAR that entail the use of forced labor. CBP\n \n\n\n17\n\n\n\n\n\u00a0\n\n\nhas published both a list of entities that are known to utilize forced labor and a list of commodities that are most at risk, such as cotton, tomatoes and silica-based products. The UFLPA specifically targets cotton and the apparel and textile industries as high-priority sectors for enforcement. None of our Chinese suppliers are located in the XUAR, and we prohibit our suppliers from doing business with or sourcing inputs from any company or entity that is restricted under U.S. or other applicable law. However, as a result of the UFLPA and WROs, products we import into the U.S. could be held for inspection by CBP based on a suspicion that such products or inputs used in such products originated from the XUAR or that they may have been produced by Chinese suppliers accused of participating in forced labor, pending our providing satisfactory evidence to the contrary. During fiscal 2023, we were subjected to a limited number of such CBP detentions and were successful in submitting satisfactory supply chain evidence to result in the release of all such detained good by CBP. These detentions have not resulted in any material impact on our business, supply chain,  customer relationships, or reputation. However, future detentions could result in unexpected (i) delays or rejections of products scheduled for delivery to us, which could in turn affect the timing or our ability to delivery products to our customers; (ii) supply chain disruptions and increased operating costs; (iii) damage to our customer relationships; and/or (iv) negative publicity that harms our reputation, any of which could have a material impact on our business and negatively affect our ultimate financial results.\n\n\nOur business faces several risks associated with doing business in China\n\n\nWe source a variety of fabrics, as well as cut and sewn upholstery kits and sewn mattress covers, from a limited number of strategic suppliers in China. We also operate two upholstery manufacturing facilities and two warehouse facilities in Shanghai, China. The Chinese economy is characterized by extensive state ownership, control, and regulation, and the political, legal, and economic climate in China is fluid and unpredictable. Therefore, our business is continually subject to the risk of changes in Chinese laws and regulations that could have an adverse effect on our suppliers and manufacturing operations. Any changes in policies governing tariffs, imports and exports, taxation, inflation, economic sanctions and export controls, environmental regulations, foreign currency exchange rates, the labor market, property, network security, intellectual property, and financial regulations could have an adverse effect on our business. Further, the Chinese legal system is continuing to develop and evolve, and the enforcement of rules and regulations is not always consistent or uniform. Moreover, any potential civil unrest, natural disasters, or other threats could disrupt or increase the costs of operating in China. The Chinese economy poses additional risks to our business, including fluctuating rates of inflation and currency exchange rates, a declining labor force participation rate, and rising employee wages. In addition, changes in the political climate or trade policy of the United States, such as increased duties, tariffs, or U.S. restrictions on Chinese imports, such as the UFLPA, may adversely affect our business. Our ability to operate in China has also been adversely affected by the COVID-19 pandemic, and may in the future be negatively affected by additional surges in the coronavirus or other diseases. For example, during the COVID-19 pandemic, China from time to time enforced broad lockdowns, which affected our ability to timely produce and ship products and affected the ability of our third-party suppliers and their supply chain to timely deliver products and materials. Any of the risks associated with our Chinese operations and sources could cause unanticipated increases in operating costs or disruptions in business, which could negatively affect our ultimate financial results.\n\n\nWe may have difficulty managing the outsourcing arrangements being used for products and services.\n\n\nWe rely on outside sources for various products and services, including yarn and other raw materials, greige (unfinished) fabrics, finished fabrics, cut and sewn upholstery kits, sewn mattress covers, and services such as weaving and finishing. Increased reliance on outsourcing lowers our capital investment and fixed costs, but it decreases the amount of control that we have over certain elements of our production capacity. Interruptions in our ability to obtain raw materials or other required products or services from our outside suppliers on a timely and cost-effective basis, especially if alternative suppliers cannot be immediately obtained, could disrupt our production and damage our financial results.\n\n\n18\n\n\n\n\n\u00a0\n\n\nWrite-offs or write-downs of assets would result in a decrease in our earnings and shareholders\u2019 equity.\n \n\n\nThe company has assets, primarily consisting of property, plant and equipment, right of use assets, inventory, and intangible assets, that may be subject to write-offs or write-downs. ASC Topic 360 establishes an impairment accounting model for long-lived assets, including property, plant, and equipment, right of use assets, and finite-lived intangible assets such as customer relationships and our non-compete agreement. It requires the company to assess these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recovered. In accordance with ASC Topic 330, management continuously examines inventory to determine if there are indicators that the carrying value exceeds its net realizable value. Experience has shown that the most significant of such indicators are the age of the inventory and planned discontinuances of certain patterns. ASC Topic 350 establishes an impairment model for indefinite-lived intangible assets, such as our tradename, which must be tested at least annually for impairment or whenever events or changes in circumstances indicate that the carrying value of the asset may not be recovered.\n\n\nIdentifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including market conditions, operating results, competition, and general economic conditions, requires significant judgment. Any of such future actions could result in charges that could have an adverse effect on our financial condition and results of operations, and there is no assurance that future write-downs of fixed assets or other intangible assets will not occur if business conditions were to deteriorate.\n\n\nAs a result of inventory impairment assessments conducted during fiscal 2023, we incurred non-cash inventory charges totaling $5.8 million, which represents a $2.9 million impairment charge associated with our mattress fabrics segment; a total of $2.8 million related to markdowns of inventory in both segments that were estimated based on our policy for aged inventory; and $98,000 for the loss on disposal and markdowns of inventory related to the exit of our cut and sewn upholstery fabrics operation located in Shanghai, China. We incurred non-cash inventory charges of $1.9 million and $882,000 during fiscal 2022 and 2021, respectively, which represent markdowns of inventory in both segments that were based on our policy of aged inventory. See Notes 5, 7, and  9 of the consolidated financial statements for further details of our assessments of impairment, conclusions reached, and the performance of our quantitative tests.\n \n\n\nWrite-offs and write-downs of our assets, including inventory, result in an immediate charge to our earnings, and can have a material adverse effect on our operating results and financial condition.\n\n\nChanges in the price, availability, and quality of raw materials could increase our costs or cause production delays and sales interruptions, which would result in decreased earnings.\n\n\nWe depend upon outside suppliers for most of our raw material needs, and we rely upon outside suppliers for component materials such as yarn, unfinished fabrics, and cut and sewn upholstery kits and mattress covers, as well as for certain services such as finishing and weaving. Fluctuations in the price, availability, and quality of these goods and services have had, and could continue to have, a negative effect on our production costs and ability to meet the demands of our customers, which can affect our ability to generate sales and earnings. In many cases, we are not able to pass through increased costs of raw materials or increased production costs to our customers through price increases. In particular, many of our basic raw materials are petrochemical products or are produced from such products. For this reason, our material costs are especially sensitive to changes in prices for petrochemicals and the underlying price of oil. Increases in prices for oil, petrochemical products or other raw materials and services provided by outside suppliers can significantly increase our costs and negatively affect our profit margins and earnings. During fiscal 2021, our raw material costs were mostly flat or slightly lower during the first three quarters of the year, but prices began to escalate during the fourth quarter primarily due to rising oil prices, a higher demand environment, and labor shortages. These pressures continued during fiscal 2022, with further increases in raw material costs, particularly during the second half of the year, due to the continued rise in oil prices and a higher demand environment. During fiscal 2023, the cost of raw materials began to decline during the first half of the year due to lower oil prices and slowing global demand, but the higher costs and lower availability of labor remained challenging throughout the year.  Raw material costs were relatively stable during the second half of fiscal 2023. However, the pressures that affect raw material costs may drive additional increases in raw material prices in the future.\n \n\n\nIncreases in energy costs increase our operating costs and could adversely affect earnings.\n\n\nHigher prices for electricity, natural gas, and fuel increase our production and shipping costs. A significant shortage, increased prices, or interruptions in the availability of these energy sources would increase the costs of producing and delivering products to our customers and would be likely to adversely affect our earnings. In many cases, we are not able to pass along the full extent of increases in our production costs to customers through price increases. Energy costs have varied significantly during recent fiscal years and remain a volatile element of our costs. Increases in energy costs could have a negative effect on our earnings.\n\n\n19\n\n\n\n\n\u00a0\n\n\nBusiness difficulties or failures of large customers could result in a decrease in our sales and earnings.\n\n\nWe currently have several customers that account for a substantial portion of our sales. In the mattress fabrics segment, several large bedding manufacturers have large market shares and comprise a significant portion of our mattress fabric sales. Although no mattress fabrics customers accounted for more than 10% of our consolidated net sales in fiscal 2023, in many recent years we have had one or more customers who did. In the upholstery fabrics segment, La-Z-Boy Incorporated accounted for approximately 15% of consolidated net sales during fiscal 2023, and several other large furniture manufacturers comprised a significant portion of sales. A business failure or other significant financial difficulty by one or more of our major customers, or the loss of one or more of these customers, could cause a significant loss in sales, an adverse effect on our earnings, and difficulty in collection of our trade accounts receivable. For example, on June 25, 2022, a major customer and its affiliates associated with our mattress fabrics segment announced that they filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code, and on January 23, 2023, another major customer and its affiliates associated with our mattress fabrics segment filed pre-planned voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Although we did not record any credit losses and have received payment in full regarding all outstanding accounts receivable with respect to each of these customers, a business failure or loss of either such customer and its affiliates, or a business failure or loss of one or more other major customers, could cause a decrease in our sales and an adverse effect on our earnings.\n \n\n\nAdditionally, as a result of the COVID-19 pandemic beginning in the fourth quarter of fiscal 2020, some customers experienced cash flow challenges and requested extended payment terms. During fiscal 2021, our customers returned to making payments based on normal credit terms, as opposed to the extended terms granted during the fourth quarter of fiscal 2020. However, if the negative economic impact of COVID-19 reemerges, or if another pandemic, recession or other major unexpected economic event occurs, we may not be able to collect amounts owed to us or such payment may only occur after significant delay. While we perform credit evaluations of our customers, those evaluations may not prevent uncollectible trade accounts receivable. Credit evaluations involve significant management diligence and judgment, especially in the current environment. If more customers than we anticipate experience liquidity issues, if payments are not received on a timely basis, or if a customer declares bankruptcy, we may have difficulty collecting amounts owed to us by these customers, which could adversely affect our sales, earnings, financial condition, and liquidity.\n\n\nIf we fail to anticipate and respond to changes in consumer tastes and fashion trends, our sales and earnings may decline.\n\n\nDemand for various types of upholstery fabrics and mattress coverings changes over time due to fashion trends and changing consumer tastes for furniture and bedding. Our success in marketing our fabrics depends upon our ability to anticipate and respond in a timely manner to fashion trends in home furnishings. If we fail to identify and respond to these changes, our sales of these products may decline. In addition, incorrect projections about the demand for certain products could cause the accumulation of excess raw material or finished goods inventory, which could lead to inventory mark-downs and decreases in earnings.\n\n\nIncreasing dependence on information technology systems comes with specific risks, including cybersecurity breaches and data leaks, which could have an adverse effect on our business.\n\n\nWe increasingly rely on technology systems and infrastructure. Additionally, we rely on third-party service providers in connection with the maintenance thereof and the execution of certain business processes. Greater dependence on technology systems heightens the risk of potential vulnerabilities from system failure and malfunction, breakdowns due to natural disasters, human error, unauthorized access, power loss, and other unforeseen events. Data privacy breaches by employees and others with or without authorized access to our systems poses risks that sensitive data may be permanently lost or leaked to the public or other unauthorized persons. With the growing use and rapid evolution of technology, including internet selling, cloud-based computing and mobile devices, there are additional risks of unintentional data leaks. There is also the risk of our exposure to theft of confidential information, intentional vandalism, industrial espionage, and a variety of cyber-attacks, including phishing attempts, covertly introducing malware to our computers and networks (or the computers and networks of our third-party providers), and impersonating authorized users, among other types of cyber-attacks, that could compromise our internal technology system, infrastructure, or result in data leakage in-house or at our third-party providers and business partners. Attempts to gain unauthorized access to our information technology systems have become increasingly more sophisticated over time, and while we seek to detect and investigate all security incidents and to prevent their recurrence, in some cases we might be unaware of an incident or its magnitude and effect. Failures of technology or related systems, cybersecurity incidents, or improper release of confidential information, could damage our business or subject us to unexpected liabilities, expenditures, and recovery time. Additionally, the devotion of additional resources to the security of our information technology systems in the future could significantly increase our operating costs or otherwise adversely affect our financial results. We continue to balance the risk of an electronic security breach resulting in the unauthorized release of confidential information with the cost to protect us against such a breach, and we have taken steps to ensure that losses arising from a breach would be covered in part by insurance that we carry, although the costs, potential monetary damages, and operational consequences of responding to cyber incidents and implementing remediation measures may be in excess of our insurance coverage or not covered at all by our insurance, and could have a material adverse effect on our operations and financial results to the extent losses are uninsured or exceed insurance recoveries and to the extent that such disruptions adversely impact our relationships with our customers or our business reputation. We have been a target of cybersecurity\n \n\n\n20\n\n\n\n\n\u00a0\n\n\nattacks in the past, and while such attacks have not resulted in a material impact on our operations, business, customer relationships, or reputation, such attacks could in the future.\n\n\nIn addition, we permit certain employees to work from home from time to time. Although we continue to implement strong physical and cybersecurity measures to ensure that our business operations remain functional and to ensure uninterrupted service to our customers, our systems and our operations remain vulnerable to cyberattacks and other disruptions due to the fact that employees may be working remotely, and we cannot be certain that our mitigation efforts will be effective.\n\n\nWe may not be able to recruit and retain key employees and skilled workers in a competitive labor market.\n\n\nIf we cannot successfully recruit and retain key employees and skilled workers or if we experience the unexpected loss of those employees, our operations may be negatively affected. A shortage of qualified personnel, along with cost inflation, may require us to enhance our compensation in order to compete effectively in the hiring and retention of qualified employees.\n\n\nIn addition, we are and will continue to be dependent upon our senior management team and other key personnel. Losing the services of one or more key members of our management team or other key personnel could adversely affect our operations. COVID-19 may also increase the risk that certain senior management executives or a member of the board of directors could become ill, causing them to be incapacitated or otherwise unable to perform their duties for an extended absence. Furthermore, because of the nature of the disease, multiple people working in proximity could also become ill simultaneously, which could result in the same department having extended absences. This could negatively affect the efficiency and effectiveness of processes and internal controls throughout the company.\n\n\nOur intellectual property rights may not prevent others from using our copyrights or trademarks in connection with the sale of competitive products. We may be subject to claims that our products or trademarks infringe intellectual property rights of others.\n\n\nWe currently hold, or have registration applications pending for, numerous trademarks and copyrights for various product and trade names, logos, and fabric designs in the United States and certain foreign countries.  We view such intellectual property, along with any unregistered copyrights, trademarks, service marks, trade names, domain names, trade dress, trade secrets, and proprietary technologies, as an important part of our business. These intellectual property rights may not provide adequate protection against infringement or piracy, may not prevent competitors from developing and marketing products that are similar or competitive with our fabric designs or other products, and may be costly and time-consuming to protect and enforce. In addition, the laws of some foreign countries may not protect our intellectual property rights and confidential information to the same extent as the laws of the United States. If we are unable to protect and enforce our intellectual property, we may be unable to prevent other companies from using our fabric designs or trademarks in connection with competitive products, which could adversely affect our sales, profitability, cash flows and financial condition.\n\n\nWe may be subject to claims that our products, advertising, or trademarks infringe the intellectual property rights of others. The defense of these claims, even if we are ultimately successful, may result in costly litigation, and if we are not successful in our defense, we could be subject to injunctions and liability for damages or royalty obligations, and our sales, profitability, cash flows and financial condition could be adversely affected.\n\n\nWe have made and expect to continue to make acquisitions, which could involve certain risks and uncertainties.\n\n\nAcquisitions have been and may continue to be an important element of our business strategy. Acquisitions involve numerous inherent challenges, such as properly evaluating acquisition opportunities, properly evaluating risks and other diligence matters, ensuring adequate capital availability, and balancing other resource constraints. There are risks and uncertainties related to acquisitions, including difficulties integrating acquired operations, technology, personnel, and financial and other systems; unrealized sales expectations from the acquired business; unrealized synergies and cost-savings; unknown or underestimated liabilities; diversion of management attention from running our existing businesses; and potential loss of key management employees of the acquired business. In addition, internal control over financial reporting of acquired companies may not be up to required standards. Our integration activities may place substantial demand on our management, operational resources, and financial and internal control systems. Customer dissatisfaction or performance problems with an acquired business, technology, service, or product could also have a material adverse effect on our reputation and business.\n\n\nRisks Related to Financing Our Operations\n\n\nWe may require funding from external sources, which may not be available at the levels we require or may cost more than we expect. As a result, our expenses and operating results could be negatively affected.\n\n\nWe regularly review and evaluate our liquidity and capital needs. Our available cash, cash equivalents, and cash flow from operations have been adequate to finance our operations and capital requirements in recent years. However, if we experience a sustained decline in\n \n\n\n21\n\n\n\n\n\u00a0\n\n\nrevenue, there may be periods in which we may require additional external funding to support our operations. Also, market interest rates have increased significantly since the beginning of fiscal 2023. If we have a need to incur debt under our credit facilities, the cost of borrowing could increase substantially over debt costs that we have previously incurred.\n \n\n\nAs of April 30, 2023, we had approximately $32.6 million in combined total borrowing availability under our domestic credit facility and our China credit facility. In January of 2023, we entered into a Second Amended and Restated Credit Agreement with respect to our domestic credit facility, which provides for a revolving credit facility up to a maximum principal amount of $35.0 million, secured by a lien on the company's assets. The amount available under this facility is limited by a borrowing base consisting of certain eligible accounts receivable and inventory of the company. In the event we require additional liquidity from our lenders that exceeds the availability under our credit facilities at such time, such funds may not be available to us. In addition, in the event we draw on any of our credit facilities, outstanding amounts may become immediately due and payable upon certain events of default, including a failure to comply with the financial covenants or certain other affirmative and negative covenants in the credit agreements. If we are unable to access additional credit at the levels we require, or the cost of credit is greater than expected, it could adversely affect our operating results or financial condition.\n\n\nLegal and Regulatory Risks\n\n\nWe are subject to litigation and environmental regulations that could adversely affect our sales and earnings.\n\n\nWe have been, and in the future may be, a party to legal proceedings and claims, including environmental matters, product liability, and employment disputes, some of which claim significant damages. We face the continual business risk of exposure to claims that our operations have caused personal injury or property damage, including the related risk of damage to our brand and reputation in conjunction with such claims. We maintain insurance against product liability claims and, in some cases, have indemnification agreements with regard to environmental claims, but there can be no assurance that these arrangements will continue to be available on acceptable terms or that such arrangements will be adequate for liabilities actually incurred. Given the inherent uncertainty of litigation, there can be no assurance that claims against the company will not have a material adverse impact on our earnings or financial condition. We are also subject to various laws and regulations in our business, including those relating to environmental protection and the discharge of materials into the environment. We could incur substantial costs as a result of noncompliance with or liability for cleanup or other costs or damages under environmental laws or other regulations.\n\n\nWe must comply with many governmental regulations applicable to our business, and changes in those regulations could adversely affect our business.\n\n\nOur products and raw materials are and will continue to be subject to regulation in the United States by various federal, state, and local regulatory authorities. In addition, other governments and agencies in other jurisdictions regulate the manufacture, sale, and distribution of our products and raw materials. Also, rules and restrictions regarding the importation of fabrics and other materials, including custom duties, tariffs, import restrictions (including, without limitation, the recent enactment of the UFLPA), quotas, banned substances, and other regulations, are continually changing. Environmental laws, labor laws, tax laws and regulations (including, without limitation, the Global Intangible Low Taxed Income (\u201cGILTI\u201d) tax provisions), data privacy laws, and other regulations continually affect our business. These rules and regulations can and do change from time to time, which can increase our costs and our taxes, or can require us to make changes in our manufacturing processes, product mix, sources of products and raw materials, or distribution. Changes in the rules and regulations applicable to our business may negatively affect our sales and earnings.\n\n",
+  "item7": ">ITEM 7.  MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF\n FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\n\nWe have prepared this Management\u2019s Discussion and Analysis as an aid to understanding our financial results. It should be read in conjunction with the consolidated financial statements and notes and other exhibits included elsewhere in this report. It also includes management\u2019s analysis of past financial results and certain potential risk factors that may affect future results, as well as approaches that may be used to manage those risks. See \u201cCautionary Note Regarding Forward-Looking Statements\u201d at the beginning of this report, together with the section of this report titled \u201cItem 1A. RISK FACTORS,\u201d for a discussion of factors that may cause results to differ materially.\n \n\n\nGeneral\n\n\nOur fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30. Fiscal 2023, 2022, and 2021 each included 52- weeks periods.\n \n\n\nOur operations are classified into two business segments: mattress fabrics and upholstery fabrics.\n \n\n\nMattress Fabrics\n\n\nThe mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. Currently, we have mattress fabric operations located in Stokesdale, North Carolina, and Quebec, Canada. During the last half of fiscal 2023, we rationalized our domestic cut and sewn cover platform, which included the termination of agreements to lease two facilities located in High Point, North Carolina, and moving our R&D and prototyping capabilities from these facilities to our facility located in Stokesdale, North Carolina.\n\n\nAdditionally, we acquired the remaining fifty percent ownership interest in our former unconsolidated joint venture located in Ouanaminthe, Haiti, during the fourth quarter of fiscal 2021. As a result, we are now the sole owner with full control of this cut and sewn mattress cover operation (see Note 2 of the consolidated financial statements for further details regarding this business combination).\n \n\n\nUpholstery Fabrics\n\n\nThe upholstery fabrics segment develops, sources, manufactures, and sells fabrics primarily to residential and commercial furniture manufacturers. We have upholstery fabric operations located in Shanghai, China, and Burlington, North Carolina. During the third quarter of fiscal 2022, we also commenced operation of a new leased facility in Ouanaminthe, Haiti dedicated to the production of cut and sewn upholstery kits. However, due to a decline in demand for upholstery cut and sewn kits, we terminated the agreement to lease this new facility during the third quarter of fiscal 2023 and relocated a scaled-down upholstery cut and sew operation into our existing mattress cover facility also located in Ouanaminthe, Haiti, during the fourth quarter of fiscal 2023.\n\n\nAdditionally, Read Window Products, LLC, a wholly-owned subsidiary with operations located in Knoxville, Tennessee, provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services for Read\u2019s products, to customers in the hospitality and commercial industries. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.\n \n\n\nImpact of COVID-19\n\n\nBeginning in the fourth quarter of fiscal 2020, we experienced a significant change in our business resulting from the COVID-19 pandemic. Due to government mandated closure requirements, we shut down our facilities in Canada and Haiti for several weeks, and most of our customers, as well as retail stores in the United States and around the globe, were similarly shut down or operating at significantly reduced capacity. Then in early fiscal 2021, as customer and retail stores began to re-open, we experienced a surge in demand, driven by accelerated demand in the bedding and residential home furnishings industries as consumers shifted their discretionary spending towards home products. Based on this surge, we saw strong growth in our mattress fabrics business and in our residential upholstery fabrics business for the remainder of fiscal 2021 and through much of fiscal 2022. We made several investments during this period that provided expanded capacity to support customers in our mattress fabrics and residential upholstery fabrics businesses. However, beginning in the fourth quarter of fiscal 2022 and continuing throughout fiscal 2023, we experienced a slowdown in demand, driven primarily by weakness in the domestic mattress industry and the residential home furnishings industry as consumer spending trends shifted to travel, leisure, and entertainment, and as inflation pressured consumer spending. This slowdown was exacerbated during much of fiscal 2023 as manufacturers and retailers worked through an excess of inventory, delaying the timing of shipments and new product roll outs. While we believe that our customers' inventory levels began to normalize during the fourth quarter of fiscal 2023, demand in both the mattress industry and the residential home furnishings industry remains soft, and this softness is\n \n\n\n28\n\n\n\n\n\u00a0\n\n\nexpected to continue affecting our business for some period. For further information on how COVID-19 has affected and may continue to affect our business and financial condition, see the Risk Factors set forth in Part I, Item 1A of this report.\n\n\n\u00a0\n\n\nExecutive Summary\n\n\nWe evaluate the operating performance of our business segments based upon (loss) income from operations before certain unallocated corporate expenses and other items that are not expected to occur on a regular basis, such as restructuring expense and restructuring related charges. Cost of sales in each business segment includes costs to develop, manufacture, or source our products, including costs such as raw material and finished good purchases, direct and indirect labor, overhead, and incoming freight charges. Unallocated corporate expenses primarily represent compensation and benefits for certain executive officers and their support staff, all costs associated with being a public company, amortization of intangible assets, and other miscellaneous expenses.\n \n\n\nResults of Operations\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTwelve Months Ended\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\nApril 30,\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 1,\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n234,934\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n294,839\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(20.3\n\n\n)%\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,896\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n36,093\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(69.8\n\n\n)%\n\n\n\n\n\n\nGross profit margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(760) bp\n\n\n\u00a0\n\n\n\n\n\n\nSelling, general, and administrative expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n37,978\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35,415\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.2\n\n\n%\n\n\n\n\n\n\nRestructuring expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,396\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\n\n\n\n(Loss) income from operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n(28,478\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n678\n\n\n\u00a0\n\n\n\u00a0\n\n\nN.M\n\n\n\u00a0\n\n\n\n\n\n\nOperating margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12.1\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1230) bp\n\n\n\u00a0\n\n\n\n\n\n\nLoss before income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(28,390\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(325\n\n\n)\n\n\n\u00a0\n\n\nN.M\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,130\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,886\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.5\n\n\n%\n\n\n\n\n\n\nNet loss\n\n\n\u00a0\n\n\n\u00a0\n\n\n(31,520\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,211\n\n\n)\n\n\n\u00a0\n\n\nN.M\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nNet Sales\n\n\nOur consolidated net sales decreased 20.3% in fiscal 2023 compared with a year ago, with mattress fabric net sales decreasing 27.1% and upholstery fabric net sales decreasing 13.1%.\n \n\n\nThe decrease in net sales for our mattress fabrics segment during fiscal 2023 primarily reflects a slowdown in consumer demand in the domestic mattress industry. The impact of this industry softness was exacerbated, especially during the first nine months of the fiscal year, by mattress manufacturers and retailers continuing to work through an excess of inventory, delaying the timing of shipments and new product roll outs.\n \n\n\nThe decrease in upholstery fabrics net sales during fiscal 2023 primarily reflects reduced demand for our residential upholstery fabrics products, driven by a slowdown in new retail business in the residential home furnishings industry, as well as high inventory levels at manufacturers and retailers during the first nine months of the fiscal year. The decrease in net sales was partially offset by higher sales in our hospitality/contract fabric business, as well as receipt of a non-recurring payment relating to newly negotiated terms with a customer of the upholstery segment's Haiti cut and sew platform.\n \n\n\nSee the Segment Analysis located in the Results of Operations section below for further details.\n\n\n(Loss) Income Before Income Taxes\n \n\n\nOverall, our consolidated loss before income taxes was $(28.4) million for fiscal 2023, compared with loss before income taxes of $(325,000) for the prior year.\n \n\n\nOperating performance for fiscal 2023, as compared to the prior year, was primarily pressured by lower sales and operating inefficiencies due to these lower sales; labor challenges within our mattress fabrics business that resulted in increased employee training costs and operating inefficiencies, including quality issues; continued inflationary pressures; operating inefficiencies within the upholstery fabrics segment's cut and sew facility in Haiti due to lower demand; labor challenges and inflationary pressures affecting our Read business; and higher SG&A expense for the year due primarily to higher incentive compensation accrual.  It was also affected by (i) $2.9 million in impairment charges during the second quarter due to the write down of inventory to its net realizable value for our mattress fabrics segment; (ii) $2.6 million in losses from closeout sales of raw material and finished goods inventory during the second and third quarter\n \n\n\n29\n\n\n\n\n\u00a0\n\n\nfor our mattress fabrics segment; (iii) $2.8 million in markdowns of inventory due to our aged inventory policy for both our mattress fabrics and upholstery fabrics segment; (iv) $713,000 in restructuring and related charges associated with the closure of our upholstery fabric segment's cut and sew facility located in Shanghai, China, during the second quarter; and (v) $781,000 in restructuring charges associated with the rationalization of our upholstery fabrics cut and sew platform located in Ouanaminthe, Haiti, during the third and fourth quarters.  Performance for fiscal 2023 was favorably affected by the foreign exchange rate associated with our upholstery fabrics operation in China, as well as receipt of a $1.0 million non-recurring payment during the fourth quarter relating to newly negotiated terms with a customer of the upholstery segment's cut and sew platform in Haiti.\n\n\nSee the Segment Analysis located in the Results of Operations section below for further details.\n\n\nIncome Taxes\n\n\nWe recorded income tax expense of $3.1 million, or (11.0)% of loss before income taxes, for fiscal 2023, compared with income tax expense of $2.9 million, or (888.0)% of loss before income taxes, for fiscal 2022.\n \n\n\nOur consolidated effective income tax rate during fiscal 2023 was much more negatively affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as compared with fiscal 2022. During fiscal 2023, we incurred a significantly higher pre-tax loss from our U.S. operations totaling $(33.5) million, compared with $(7.6) million for fiscal 2022. As a result, a significantly higher income tax benefit was not recognized due to a full valuation allowance being applied against our U.S. net deferred income tax assets during fiscal 2023, as compared with fiscal 2022. In addition, almost all of our taxable income during fiscal 2023 and fiscal 2022 was earned by our foreign operations located in China and Canada, which have higher income rates than the U.S.\n\n\nWe also incurred a significantly higher consolidated pre-tax loss totaling $(28.4) million during fiscal 2023, as compared with a much lower consolidated pre-tax loss totaling $(325,000) during fiscal 2022. As a result, the principal differences between income tax expense at the U.S. federal income tax rate compared with the effective income tax rate reflected in the consolidated financial statements were more pronounced in fiscal 2022.\n\n\nDuring fiscal 2023 and fiscal 2022, we had income tax payments totaling $2.3 million and $3.1 million, respectively, which mostly represented income tax payments associated with our foreign operations located in China and Canada.\n \n\n\nRefer to Note 11 of the consolidated financial statements for further details regarding our provision for income taxes from operations.\n\n\nLiquidity\n\n\nAs of April 30, 2023, our cash and cash equivalents (\u201ccash\") totaled $21.0 million, an increase of $5.4 million, compared with $14.6 million as of May 1, 2022. This increase in cash was mostly due to (i) net cash provided by operating activities totaling $7.8 million and (ii) proceeds totaling $2.1 million from the sale of investments associated with our rabbi trust that sets aside funds for our deferred compensation plan, partially offset by (iii) capital expenditures of $2.1 million and (ii) contributions totaling $1.2 million to our rabbi trust.\n\n\nOur net cash provided by operating activities was $7.8 million during fiscal 2023, an increase of $25.2 million compared with net cash used in operating activities of $(17.4) million during fiscal 2022. This trend mostly reflects (i) a reduction of inventory related to the significant decline in net sales, improved alignment of inventory purchases with current customer demand trends, and promotional programs to reduce aged raw materials and finished goods inventory; (ii) an abnormally high decrease in accounts payable due to the COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, which decrease did not recur in fiscal 2023; (iii) annual incentive payments made during the first quarter of fiscal 2022 that did not recur during fiscal 2023, partially offset by (iv) an abnormally high decrease in accounts receivable due to COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, which such decrease did not recur in fiscal 2023, and (v) a decrease in net cash earnings during fiscal 2023 compared with fiscal 2022.\n\n\nAs of April 30, 2023, there were no outstanding borrowings under our lines of credit.\n \n\n\n30\n\n\n\n\n\u00a0\n\n\nDividend Program\n\n\nOn June 29, 2022, our board of directors announced the decision to suspend the company's quarterly cash dividend. We believed that preserving capital and managing our liquidity during fiscal 2023 was in the company\u2019s best interest to support future growth and the long-term interests of our shareholders. Accordingly, we did not make any dividend payments during fiscal 2023.\n\n\nDuring fiscal 2022, dividend payments totaled $5.5 million, which represented quarterly dividend payments ranging from $0.11 share to $0.115.\n\n\nOur board of directors has sole authority to determine if and when we will declare future dividends, and on what terms. We will continue to reassess our dividend policy each quarter. Future dividend payments will depend on earnings, capital requirements, financial condition, excess availability under our lines of credit, market and economic conditions, and other factors, including alternative investment opportunities.\n\n\nCommon Stock Repurchases\n\n\nIn March 2020, our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock. Under the common stock repurchase program, shares may be purchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise. The number of shares purchased and the timing of share purchases are based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.\n\n\nDuring fiscal 2023, we did not purchase any shares of common stock. As a result, as of April 30, 2023, $3.2 million is available for additional repurchases of our common stock. Despite the current share repurchase authorizations, the company does not expect to repurchase any shares through at least the first quarter of fiscal 2024.\n\n\nDuring fiscal 2022, we repurchased 121,688 shares of our common stock at a cost of $1.8 million.\n \n\n\nResults of Operations\n\n\nThe following table sets forth certain items in our consolidated statements of net loss as a percentage of net sales.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n(95.4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(87.8\n\n\n)\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.2\n\n\n\u00a0\n\n\n\n\n\n\nSelling, general and administrative expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12.0\n\n\n)\n\n\n\n\n\n\nRestructuring expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\n(Loss) income from operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.2\n\n\n\u00a0\n\n\n\n\n\n\nInterest income\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1\n\n\n\u00a0\n\n\n\n\n\n\nOther expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.5\n\n\n)\n\n\n\n\n\n\nLoss before income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.1\n\n\n)\n\n\n\n\n\n\nIncome tax expense *\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11.0\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(888.0\n\n\n)\n\n\n\n\n\n\nNet loss\n\n\n\u00a0\n\n\n\u00a0\n\n\n(13.4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1.1\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n*\tCalculated as a percentage of loss before income taxes.\n\n\n31\n\n\n\n\n\u00a0\n\n\n2023 compared with 2022\n\n\nSegment Analysis\n\n\nMattress Fabrics Segment\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTwelve Months Ended\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\nApril 30,\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 1,\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n110,995\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n152,159\n\n\n\u00a0\n\n\n\u00a0\n\n\n(27.1)%\n\n\n\u00a0\n\n\n\n\n\n\nGross (loss) profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,739\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,458\n\n\n\u00a0\n\n\n\u00a0\n\n\n(140.9)%\n\n\n\u00a0\n\n\n\n\n\n\nGross margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6.1\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1690) bp\n\n\n\u00a0\n\n\n\n\n\n\nSelling, general and administrative expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,942\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,246\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2.5)%\n\n\n\u00a0\n\n\n\n\n\n\n(Loss) income from operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n(18,681\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,212\n\n\n\u00a0\n\n\n\u00a0\n\n\nN.M.\n\n\n\u00a0\n\n\n\n\n\n\nOperating margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16.8\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1960) bp\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nNet Sales\n\n\nMattress fabrics sales decreased 27.1% in fiscal 2023 compared to the prior year. This decrease reflects a material slowdown in consumer demand in the domestic mattress industry throughout the year. We believe this slowdown was primarily due to inflationary pressures affecting consumer spending, as well as a shift in demand from home goods to travel, leisure, and entertainment following a pulling forward of demand for home goods during the early years of the COVID-19 pandemic. The impact of this industry softness was exacerbated, especially during the first nine months of the fiscal year, by mattress manufacturers and retailers working through an excess of inventory, delaying the timing of shipments and new product roll outs. However, we began the roll out of some new customer programs near the end of the third quarter and these roll outs continued during the fourth quarter, driving both year-over-year and sequential improvement for the fourth quarter.\n\n\nDuring fiscal 2023, we maintained a continued focus on inventory reductions and cash generation, while executing our product-driven strategy with an ongoing emphasis on innovation, design creativity, and customer relationships. The strength and flexibility of our global manufacturing and sourcing operations in the U.S., Canada, Haiti, Asia, and Turkey also enabled us to support the evolving needs of our mattress fabrics and cover customers throughout the year.\n \n\n\nDuring the second half of the year, we initiated a comprehensive business transformation plan focused on long-term improvement in areas that include quality, sales, marketing, and operational processes; supply chain optimization; employee engagement; and organizational structure. With execution being led by new leadership and a restructured management team, we believe this plan will lay the foundation for steady, sequential improvement in this business. Although the pace of this improvement will be affected by recovery in the overall macroeconomic environment, we believe our market position is growing, and we are optimistic about additional program launches expected during the calendar 2023 year.\n \n\n\nLooking ahead, we expect the current macro environment will continue to affect consumer spending trends for some time, resulting in ongoing industry softness that may reduce demand for our mattress fabrics and cover products. We expect these conditions are likely to pressure results through at least the first quarter of fiscal 2024. Additionally, the potential ongoing impacts of Russia\u2019s invasion of Ukraine, as well as impacts from possible additional surges in the coronavirus, remain unknown and depend on factors beyond our knowledge or control. Either of these situations could cause disruption that could adversely affect our operations and financial performance.\n\n\nGross Profit and Operating Income\n\n\nThe decrease in mattress fabrics profitability during fiscal 2023, as compared to fiscal 2022, was primarily due to lower sales; operating inefficiencies arising from these lower sales; labor challenges resulting in increased employee training costs and operating inefficiencies, including quality issues; and higher raw material costs. Other factors pressuring the year included $2.9 million in impairment charges during the second quarter due to the write down of inventory to its net realizable value; $2.6 million in losses from closeout sales of raw material and finished goods inventory, and $386,000 in markdowns of inventory based on our policy for aged inventory.\n \n\n\nWe completed a restructuring and rationalization of our U.S.-based cut and sewn cover platform during the third quarter of fiscal 2023, moving our R&D and prototyping capabilities from our High Point, North Carolina, location to our facility in Stokesdale, North Carolina. The result of this move was the discontinuation of our higher-cost on-shore production capabilities, with closures of our two leased facilities in High Point, North Carolina, during the third quarter. We believe this platform restructuring will allow us to generate cost savings by utilizing our lower-cost mattress cover production and sourcing capabilities in Haiti and Asia, where we can scale operations to align with demand and continue to support the needs of our customers.\n \n\n\n32\n\n\n\n\n\u00a0\n\n\nWe expect the ongoing industry softness affecting sales volumes will affect profitability through at least the first quarter of fiscal 2024, although we believe these headwinds will be mitigated to some extent by our ongoing efforts to improve operational efficiencies and control internal costs, as well as our continued roll out of new products priced in line with current costs. We will consider further adjustments to right-size and restructure our operations as necessary to align with current demand levels, as well as additional reasonable pricing actions as competitive conditions permit to further mitigate and manage inflation.\n\n\nSegment Assets\n\n\nSegment assets consist of accounts receivable, inventory, property, plant, and equipment, and right of use assets.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\nApril 30,\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 1,\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nAccounts receivable\n\n\n\u00a0\n\n\n$\n\n\n12,396\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n9,865\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.7\n\n\n%\n\n\n\n\n\n\nInventory\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,674\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n39,028\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(34.2\n\n\n)%\n\n\n\n\n\n\nProperty, plant & equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n33,749\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38,731\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12.9\n\n\n)%\n\n\n\n\n\n\nRight of use assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,308\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,469\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(33.5\n\n\n)%\n\n\n\n\n\n\nTotal mattress fabrics segment assets\n\n\n\u00a0\n\n\n$\n\n\n74,127\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n91,093\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(18.6\n\n\n)%\n\n\n\n\n\n\n\u00a0\n\n\nRefer to Note 17 of the consolidated financial statements for disclosures regarding determination of our segment assets.\n\n\n\u00a0\n\n\nAccounts Receivable\n\n\nAs of April 30, 2023, accounts receivable increased by $2.5 million, or 25.7%, compared with May 1, 2022. This increase primarily reflects slower cash collections, as we had an unfavorable mix of higher sales volume with customers with longer credit terms during the fourth quarter of fiscal 2023 as compared with the fourth quarter of fiscal 2022. As a result, days' sales outstanding for this segment increased to 37 days for the fourth quarter of fiscal 2023, up from 30 days for the fourth quarter of fiscal 2022. In addition, this increase reflects an increase in net sales during the fourth quarter of fiscal 2023 compared with the fourth quarter of fiscal 2022. Net sales for the fourth quarter of fiscal 2023 were $30.7 million, an increase of 3.1%, compared with th net sales of $29.8 million during the fourth quarter of fiscal 2022.\n\n\nInventory\n\n\nAs of April 30, 2023, inventory decreased by $13.4 million, or 34.2%, compared with May 1, 2022. This trend reflects (i) a decline in inventory purchases reflecting the 27.1% decrease in net sales during fiscal 2023 as compared with fiscal 2022, (ii)  $3.2 million in non-cash charges recorded during fiscal 2023, which includes $2.9 million related to a write-down of inventory to its net realizable value and $386,000 related to markdowns of inventory estimated based on our policy for aged inventory, (iii) improved alignment of inventory purchases with current customer demand trends, and (iv) promotional programs to reduce aged raw materials and finished goods inventory; partially offset by (v)  higher raw material, labor, and overhead costs stemming from inflationary pressures.\n\n\nInventory turns were 4.4 for the fourth quarter of fiscal 2023, compared with 2.9 for the fourth quarter of fiscal 2022.\n\n\nProperty, Plant, & Equipment\n\n\nAs of April 30, 2023, property, plant, and equipment decreased by $5.0 million, or 12.9%, compared with May 1, 2022. This decrease represents our concerted effort to reduce capital spending due to current and expected macroeconomic conditions. As a result, depreciation expense totaling $6.1 million exceeded our capital expenditures of $1.1 million during fiscal 2023.\n\n\nThe $33.7 million as of April 30, 2023, represents property, plant, and equipment of $22.7 million, $10.4 million, and $608,000 located in the U.S., Canada, and Haiti, respectively. The $38.7 million as of May 1, 2022, represents property, plant, and equipment of $25.6 million, $12.4 million, and $757,000 located in the U.S., Canada, and Haiti, respectively.\n \n\n\n33\n\n\n\n\n\u00a0\n\n\nRight of Use Assets\n\n\nAs of April 30, 2023, right of use assets decreased by $1.2 million, or 33.5%, compared with May 1, 2022. Right of use assets have steadily decreased due to rent expense incurred over the terms of the respective lease agreements, as well as the termination of two lease agreements related to the closure of our mattress cover operation located in High Point, North Carolina, during fiscal 2023.\n\n\nThe $2.3 million as of April 30, 2023, represents right of use assets of $1.5 million and $766,000 located in Haiti and Canada, respectively. The $3.5 million as of May 1, 2022, represents right of use assets of $2.0 million, $1.2 million, and $291,000 located in Haiti, the U.S., and Canada, respectively.\n \n\n\nUpholstery Fabrics Segment\n\n\nNet Sales\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTwelve Months Ended\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\nApril 30,\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 1,\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nNon-U.S. Produced\n\n\n\u00a0\n\n\n$\n\n\n114,589\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n92\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n133,271\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n93\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(14.0\n\n\n)%\n\n\n\n\n\n\nU.S. Produced\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,350\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,409\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.6\n\n\n)%\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n123,939\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n142,680\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(13.1\n\n\n)%\n\n\n\n\n\n\n\u00a0\n\n\nUpholstery fabrics sales decreased 13.1% in fiscal 2023 compared to the prior year. This decrease reflects reduced demand for our residential upholstery fabric products, driven by a slowdown in new retail business in the residential home furnishings industry, as well as high inventory levels at manufacturers and retailers during the first nine months of the year.\n \n\n\n\u00a0\n\n\nThe decrease in net sales for fiscal 2023 was partially offset by higher sales in our hospitality/contract business compared to the prior year, as well as receipt of a $1.0 million non-recurring payment during the fourth quarter relating to newly negotiated terms with a Haiti cut and sew customer.\n \n\n\n\u00a0\n\n\nLooking ahead, we expect the slowdown in new retail business for the residential home furnishings industry may affect demand for our residential business for some period of time. Despite this challenge, we believe our business is well positioned for the long term with our product-driven strategy and innovative product offerings, including our popular portfolio of LiveSmart\u00ae performance products, as well as our flexible Asian platform and our long-term supplier relationships.\n \n\n\n\u00a0\n\n\nNotably, the potential ongoing impact of Russia\u2019s invasion of Ukraine, as well as the economic and health effects from possible additional surges in the coronavirus, remain unknown and depend on factors beyond our control. At this time, we cannot reasonably estimate the impact on our upholstery fabrics segment, but we note that if conditions worsen in either of these situations, including additional COVID-related shutdowns of our China operations, the impact on our operations, and/or on our suppliers, customers, consumers, and the global economy, could adversely affect our financial performance.\n\n\nGross Profit and Operating Income\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTwelve Months Ended\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\nApril 30,\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 1,\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n$\n\n\n17,733\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n19,635\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9.7\n\n\n)%\n\n\n\n\n\n\nGross profit margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n50\n\n\nbp\n\n\n\n\n\n\nSelling, general and administrative expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,739\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,009\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.3\n\n\n%\n\n\n\n\n\n\nRestructuring expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,396\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\n\n\n\nIncome from operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,994\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,626\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(64.6\n\n\n)%\n\n\n\n\n\n\nOperating margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(230) bp\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nThe decrease in upholstery fabrics profitability for fiscal 2023, as compared to the prior year, primarily reflects lower residential sales; $2.5 million in markdowns of inventory based on our policy for aged inventory; operating inefficiencies in our cut and sew operation in Haiti due to reduced demand; and labor challenges and inflationary pressures affecting our Read business during the year. These pressures were partially offset by a significantly more favorable foreign exchange rate associated with our operations in China; receipt of a $1.0 million non-recurring payment during the fourth quarter relating to newly negotiated terms with a customer of our Haiti cut\n \n\n\n34\n\n\n\n\n\u00a0\n\n\nand sew platform;  and lower overhead costs resulting from the restructuring of our cut and sew platforms in China and Haiti during fiscal 2023, as described in more detail below.\n\n\n\u00a0\n\n\nBased on market dynamics for cut and sewn products and the strength of our Asian supply chain, we took action during the second quarter of fiscal 2023 to restructure and adjust our model for this platform with the closure of our cut and sew facility located in Shanghai, China. We believe this move will allow us to reduce our operating costs while maintaining our ability to support our customers, grow our cut and sew business, and maintain our competitive advantages through our lower-cost manufacturing and sourcing operations in Asia and Haiti.\n \n\n\n\u00a0\n\n\nWe also took action during the third quarter of fiscal 2023 to rationalize and consolidate our cut and sew upholstery kit platform in Haiti, based on ongoing demand weakness for cut and sewn products. This restructuring better aligns our capacity and costs with current demand levels for upholstery kits. We believe this move, which included terminating a lease and relocating a scaled-down operation into an existing facility for our mattress cover business, will allow us to reduce our operating costs without sacrificing our ability to support our customers.\n \n\n\n \n\n\nLooking ahead, the residential home furnishings industry remains under pressure due to shifting consumer spending trends and inflation affecting overall consumer spending. As a result, we expect lower sales volumes in our residential business will continue to affect our profitability. However, for fiscal 2024, we expect to benefit from a rationalized Haiti operation, improved inventory management, a solid hospitality/contract fabric business, and improvement in our Read business. We will also continue our ongoing cost reduction efforts and will consider further adjustments to right-size and restructure our operations as necessary to align with current demand levels, while maintaining our ability to service our customers.\n \n\n\n \n\n\nRestructuring Activities\n \n\n\n\u00a0\n\n\nSecond Quarter of Fiscal 2023 - China\n \n\n\n\u00a0\n\n\nDuring the second quarter of fiscal 2023, we closed our cut and sew upholstery fabrics operation located in Shanghai, China, which included the termination of an agreement to lease a building. This strategic action, along with the further use of our Asian supply chain, was our response to declining consumer demand for cut and sewn products, by adjusting our operating costs to better align with the lower demand. As a result of this strategic action, we recorded restructuring expense and restructuring related charges totaling $713,000. These charges represent employee termination benefits of $468,000, loss from the disposal and markdowns of inventory of $98,000, impairment loss associated with equipment of $80,000, lease termination costs of $47,000, and other associated costs of $20,000. Of the total $713,000, $615,000 and $98,000 were recorded to restructuring expense and cost of sales, respectively, in the fiscal 2023 Consolidated Statement of Net Loss.\n \n\n\n\u00a0\n\n\nThird and Fourth Quarters of Fiscal 2023 - Haiti\n \n\n\n\u00a0\n\n\nEffective January 24, 2023, we entered into an agreement to terminate a lease (\"the Termination Agreement\") of a facility (the \"Terminated Facility\") located in Ouanaminthe, Haiti, that was used solely for the production of cut and sewn kits associated with our upholstery fabrics segment. As a result, we relocated production of cut and sewn upholstery kits into another existing facility that is also located in Ouanaminthe, Haiti, and leased by an affiliate that produces mattress covers at this facility. As a result, we will produce both upholstery cut and sewn kits and mattress covers in this location. We believe this strategic action will realign our capacity and costs with current demand levels, while still allowing us to support our customers and scale for additional capacity if conditions improve.\n \n\n\n\u00a0\n\n\nBased on the terms of the Termination Agreement, we vacated and returned possession of the Terminated Facility to the lessor, and a third party lessee took possession of the Terminated Facility and agreed to pay us $2.4 million over a period commencing April 1, 2023, through December 31, 2029, for the right to use the Terminated Facility. The terms of the Termination Agreement fully and unconditionally released and discharged us from all of our remaining obligations under the original lease for the Terminated Facility.\n \n\n\n\u00a0\n\n\nAs a result of this strategic action, we recorded restructuring expense of $781,000 during the third and fourth quarters of fiscal 2023, which represents lease termination costs of $434,000, an impairment loss regarding leasehold improvements totaling $277,000, employee termination benefits of $39,000, and other associated costs of $31,000.\n \n\n\n\u00a0\n\n\nThe following summarizes our restructuring expense and restructuring related charges that were associated with both of our restructuring activities noted above for fiscal 2023:\n\n\n\u00a0\n\n\n35\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\n\n\n\nEmployee termination benefits\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n507\n\n\n\u00a0\n\n\n\n\n\n\nLease termination costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n481\n\n\n\u00a0\n\n\n\n\n\n\nImpairment loss - leasehold improvements and equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n357\n\n\n\u00a0\n\n\n\n\n\n\nLoss on disposal and markdowns of inventory\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n98\n\n\n\u00a0\n\n\n\n\n\n\nOther associated costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n51\n\n\n\u00a0\n\n\n\n\n\n\nRestructuring expense and restructuring related charges (1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,494\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1) Of the total $1.5 million, $1.4 million and $98,000 were recorded to restructuring expense and cost of sales, respectively, in the    fiscal 2023 Consolidated Statement of Net Loss.\n\n\nSegment Assets\n\n\nSegment assets consist of accounts receivable, inventory, property, plant, and equipment, and right of use assets.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\nApril 30,\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 1,\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nAccounts receivable\n\n\n\u00a0\n\n\n$\n\n\n12,382\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n12,361\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.2\n\n\n%\n\n\n\n\n\n\nInventory\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,406\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,529\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(29.5\n\n\n)%\n\n\n\n\n\n\nProperty, plant & equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,671\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,030\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17.7\n\n\n)%\n\n\n\n\n\n\nRight of use assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,618\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,124\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(67.8\n\n\n)%\n\n\n\n\n\n\n\u00a0\u00a0Total upholstery fabrics segment assets\n\n\n\u00a0\n\n\n$\n\n\n36,077\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n50,044\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(27.9\n\n\n)%\n\n\n\n\n\n\n\u00a0\n\n\nAccounts Receivable\n\n\nAs of April 30, 2023, accounts receivable remained flat compared with May 1, 2022. This trend reflects faster cash collections as we had a favorable mix of higher sales volume with customers with shorter credit terms during the fourth quarter of fiscal 2023 compared with the fourth quarter of fiscal 2022. As a result, days' sales outstanding for this segment decreased to 33 days for the fourth quarter of fiscal 2023, down from 40 days for the fourth quarter of fiscal 2022. The faster cash collections that occurred during the fourth quarter of fiscal 2023 were partially offset by an increase in net sales during the fourth quarter of fiscal 2023, as compared with the fourth quarter of fiscal 2022. Net sales for the fourth quarter of fiscal 2023 were $30.7 million, an increase of of $3.6 million, or 13.1%, compared with net sales of $27.2 million during the fourth quarter of fiscal 2022.\n \n\n\nInventory\n\n\nAs of April 30, 2023, inventory decreased by $8.1 million, or 29.5%, compared with May 1, 2022. This trend reflects (i) a decline in inventory purchases reflecting the 13.1% decrease in net sales during fiscal 2023 compared with fiscal 2022, (ii) a $2.6 million non-cash charge recorded during fiscal 2023, which includes $2.5 million of markdowns of inventory estimated based on our policy for aged inventory and $98,000 that was associated with the loss on disposal and markdowns of inventory related to the exit from our cut and sew upholstery fabrics operation located in Shanghai, China, (iii) improved alignment of inventory purchases with current customer demand trends, and (iv) promotional programs to reduce aged raw materials and finished goods inventory; partially offset by (v) higher raw material, labor, and overhead costs stemming from inflationary pressures.\n \n\n\nInventory turns were 4.8 during the fourth quarter of fiscal 2023, compared with 3.0 for the fourth quarter of fiscal 2022.\n\n\nProperty, Plant, & Equipment\n\n\nAs of April 30, 2023, property, plant, and equipment decreased by $359,000, or 17.7%, compared with May 1, 2022. This decrease represents our concerted effort to reduce capital spending due to current and expected macroeconomic conditions. As a result, depreciation expense totaling $795,000 exceeded our capital expenditures of $467,000 during fiscal 2023.\n\n\nThe $1.7 million as of April 30, 2023, represents property, plant, and equipment of $974,000, $592,000, and $105,000 located in the U.S., Haiti, and China, respectively. The $2.0 million as of May 1, 2022, represents property, plant, and equipment of $1.0 million, $756,000, and $255,000 located in the U.S., Haiti, and China, respectively.\n \n\n\nRight of Use Assets\n\n\nAs of April 30, 2023, our right of use assets decreased by $5.5 million, or 67.8%, compared with May 1, 2022. This decrease mostly resulted from (i) six-month forgiveness of rent payments associated with COVID-19 relief permitted by the Chinese government for all building lease agreements located in Shanghai, China, (ii) the termination of a building lease agreement in connection with the exit from\n \n\n\n36\n\n\n\n\n\u00a0\n\n\nour cut and sew operation located in Shanghai, China, and (iii) the termination of a building lease agreement in connection with the rationalization of our cut and sew upholstery fabrics operation located in Ouanaminthe, Haiti.\n\n\nThe $2.6 million as of April 30, 2023, represents right of use assets of $1.5 million and $1.1 million located in China and the U.S., respectively. The $8.1 million as of May 1, 2022, represents right of use assets of $3.7 million, $2.6 million, and $1.8 million located in China, Haiti, and the U.S., respectively.\n \n\n\nOther Income Statement Categories\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTwelve Months Ended\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\nApril 30,\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 1,\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nSelling, general, and administrative expenses\n\n\n\u00a0\n\n\n$\n\n\n37,978\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n35,415\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.2\n\n\n%\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(100.0\n\n\n)%\n\n\n\n\n\n\nInterest income\n\n\n\u00a0\n\n\n\u00a0\n\n\n531\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n373\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n42.4\n\n\n%\n\n\n\n\n\n\nOther expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n443\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,359\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(67.4\n\n\n)%\n\n\n\n\n\n\n\u00a0\n\n\nSelling, General, and Administrative Expenses\n\n\n\u00a0\n\n\nThe increase in selling, general, and administrative expenses during fiscal 2023, as compared with fiscal 2022, is mostly due to higher incentive compensation expense that relates to our annual bonuses, reflecting the achievement of favorable financial results in relation to pre-established free cash flow performance targets pertaining solely to the upholstery fabrics segment and the executive shared services reporting unit.\n\n\nInterest Expense\n\n\nInterest expense reflects our historically low level and short duration of borrowings outstanding.\n\n\nInterest Income\n\n\nThe increase in interest income is due primarily to higher market interest rates earned during fiscal 2023, compared with fiscal 2022.\n\n\nOther Expense\n\n\nManagement is required to assess certain economic factors to determine the currency of the primary economic environment in which our foreign subsidiaries operate. Based on our assessments, the U.S. dollar was determined to be the functional currency of our operations located in China and Canada.\n\n\nOther expense during fiscal 2023 decreased $916,000, or 67.4%, compared with fiscal 2022. This decrease primarily relates to more favorable foreign currency exchange rates applied against our balance sheet accounts denominated in Chinese Renminbi to determine the corresponding U.S. dollar financial reporting amounts. During fiscal 2023, we reported a foreign exchange rate gain of $588,000 associated with our operations located in China, compared with a foreign exchange rate loss of $(104,000) incurred during fiscal 2022.   In addition, we incurred a realized loss totaling $450,000 on the sale of our remaining short-term available-for-sale and held-to-maturity investments that mostly occurred during the fourth quarter of fiscal 2022, which realized loss did not recur during fiscal 2023.\n\n\nThe $588,000 foreign exchange rate gain related to our operations located in China was mostly non-cash, and was mostly offset by $355,000 of  income tax expense, which will increase our income tax payments and withholding tax payments associated with future earnings and profits repatriated from our operations located in China to the company's U.S. parent. This income tax expense of $355,000 was associated with taxable foreign exchange rate gains based on less favorable foreign currency exchange rates applied against balance sheet accounts denominated in U.S. dollars to determine the corresponding Chinese Renminbi local currency amounts. The foreign exchange rate gains incurred on our U.S. dollar denominated balance sheet accounts associated with our operations located in China are considered taxable income, as we incur income tax expense and pay income taxes in China\u2019s local currency.\n\n\nIncome Taxes\n\n\nEffective Income Tax Rate & Income Tax Expense\n\n\nWe recorded income tax expense of $3.1 million, or (11.0)% of loss before income taxes, during fiscal 2023, compared with income tax expense of $2.9 million, or (888.0)% of loss before income taxes, during fiscal 2022.\n \n\n\n37\n\n\n\n\n\u00a0\n\n\nThe following schedule summarizes the principal differences between income tax expense at the federal income tax rate and the effective income tax rate reflected in the consolidated financial statements:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nU.S. federal income tax rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.0\n\n\n%\n\n\n\n\n\n\nvaluation allowance\n\n\n\u00a0\n\n\n\u00a0\n\n\n(24.0\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(56.3\n\n\n)\n\n\n\n\n\n\nglobal intangible low taxed income tax (GILTI)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(540.9\n\n\n)\n\n\n\n\n\n\nforeign tax rate differential\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4.0\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(206.2\n\n\n)\n\n\n\n\n\n\nincome tax effects of Chinese foreign exchange gains and losses\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.9\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(20.6\n\n\n)\n\n\n\n\n\n\nwithholding taxes associated with foreign tax jurisdictions\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2.4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(172.8\n\n\n)\n\n\n\n\n\n\nuncertain income tax positions\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n105.4\n\n\n\u00a0\n\n\n\n\n\n\nU.S. state income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.5\n\n\n\u00a0\n\n\n\n\n\n\nstock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3.3\n\n\n)\n\n\n\n\n\n\nother (3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(35.8\n\n\n)\n\n\n\n\n\n\nconsolidated effective income tax rate (1) (2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11.0\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(888.0\n\n\n)%\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nOur consolidated effective income tax rate during fiscal 2023 was much more negatively affected by the mix of earnings and losses between our U.S. operations and foreign subsidiaries, as compared with fiscal 2022. During fiscal 2023, we incurred a significantly higher pre-tax loss from our U.S. operations totaling $(33.5) million, compared with $(7.6) million for fiscal 2022. As a result, a significantly higher income tax benefit was not recognized due to a full valuation allowance being applied against our U.S. net deferred income tax assets during fiscal 2023, as compared with fiscal 2022. In addition, almost all of our taxable income for each of fiscal 2023 and 2022 was earned by our foreign operations located in China and Canada, which have higher income tax rates than the U.S.\n\n\n\u00a0\n\n\n(2)\nDuring fiscal 2023, we incurred a significantly higher consolidated pre-tax loss totaling $(28.4) million, compared with a much lower consolidated pre-tax loss totaling $(325,000) during fiscal 2022. As a result, the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced for fiscal 2022, as compared with fiscal 2023.\n\n\n(3)\n\u201cOther\u201d for all periods presented represents miscellaneous adjustments that pertain to U.S. permanent differences such as meals and entertainment and income tax provision to return adjustments.\n\n\nGILTI\n\n\nFiscal 2022\n\n\nEffective July 20, 2020, the U.S. Treasury Department finalized and enacted previously proposed regulations regarding the GILTI tax provisions of the Tax Cuts and Jobs Act of 2017 (\u201cTCJA\u201d). With the enactment of these final regulations, we became eligible for an exclusion from GILTI if we meet the provisions of the GILTI High-Tax exception included in these final regulations on a jurisdiction-by-jurisdiction basis. To meet the provisions of the GILTI High-Tax exception, the tested foreign entity\u2019s effective income tax rate related to current year\u2019s earnings must be higher than 90% of the U.S. Federal income tax rate of 21% (i.e.,18.9%).\n \n\n\nWe did not meet the GILTI High-Tax exception for the 2021 tax year regarding our operations located in China. This was due primarily to significant income tax deductible foreign exchange losses that significantly lowered income tax expense associated with current year\u2019s earnings. As a result, the current effective income tax rate was lower than the required 18.9% current effective income tax rate to meet the GILTI High-Tax exception. Consequently, we incurred a non-cash income tax charge of $1.8 million, which charge was fully offset by a $1.8 million non-cash income tax benefit due to a corresponding reversal of our full valuation allowance associated with our U.S. net deferred income tax assets.\n\n\nWe did not meet the GILTI High-Tax exception for the 2022 tax year regarding our foreign operations located in Canada and Haiti. With regard to Canada, we placed several significant capital projects into service during fiscal 2022, and therefore, were eligible for a significant amount of income tax deductible accelerated depreciation. As a result, our current year\u2019s income tax expense was much lower than prior years, and therefore, our current effective income tax rate was lower than the required 18.9% current effective income tax rate to meet the GILTI High-Tax exception. For our operations in Haiti, taxable income or losses are not subject to income tax, as we are located in an economic zone that permits a 0% income tax rate for the first fifteen years of operations, for which we have nine years remaining. Since our operations located in Haiti are not subject to income tax, our current effective income tax rate was 0%, which is lower than the required 18.9% current effective income tax rate to meet the GILTI High-Tax exception. Although our operations located in Canada and Haiti did not meet the GILTI High-Tax exception, we incurred a nominal amount of GILTI tax for the 2022 tax\n \n\n\n38\n\n\n\n\n\u00a0\n\n\nyear, as the losses subject to GILTI tax from our Haitian operations mostly offset the income subject to GILTI tax from our Canadian operation.\n\n\nFiscal 2023\n\n\nWe do not expect to pay GILTI tax for the 2023 tax year, as we expect to meet the GILTI High-Tax exception regarding our operations located in China and Canada, and we incurred taxable losses associated with our operations located in Haiti.\n\n\nDeferred Income Taxes \u2013 Valuation Allowance\n\n\nWe evaluate the realizability of our deferred income taxes to determine if a valuation allowance is required. We assess whether a valuation allowance should be established based on the consideration of all available evidence using a \u201cmore-likely-than-not\u201d standard, with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law.\n\n\nAs of April 30, 2023, we evaluated the realizability of our U.S. net deferred income tax assets to determine if a full valuation allowance was still required. Based on our assessment, we determined we still have a recent history of significant cumulative U.S. pre-tax losses, in that we experienced U.S. pre-tax losses during each of the last three fiscal years. In addition, we are currently expecting U.S. pre-tax losses to continue into fiscal 2024. As a result of the significant weight of this negative evidence, we believe it is more-likely-than-not that our U.S. net deferred income tax assets will not be fully realizable, and therefore we provided for a full valuation allowance against our U.S. net deferred income tax assets totaling $18.7 million as of April 30, 2023.\n\n\nRefer to Note 11 of the consolidated financial statements for additional disclosures regarding the valuation allowance against our U.S. net deferred income taxes.\n \n\n\nDeferred Income Taxes \u2013 Undistributed Earnings from Foreign Subsidiaries\n\n\nWe assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company, and whether we are required to a record a deferred income tax liability for those undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. As of April 30, 2023, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings from our foreign subsidiaries would not be reinvested indefinitely and therefore, would be eventually distributed to our U.S. parent company. The conclusion reached from our assessment is consistent with prior years. Accordingly, as of April 30, 2023, we recorded a deferred income tax liability associated with our undistributed earnings from foreign subsidiaries of $4.2 million.\n\n\nRefer to Note 11 of the consolidated financial statements for additional disclosures regarding our deferred income tax liability associated with the undistributed earnings from our foreign subsidiaries.\n\n\nUncertainty in Income Taxes\n\n\nAn unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the end of the reporting period, or if the position is effectively settled through examination, negotiation, or litigation, or if the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time.\n\n\nAs of April 30, 2023, we had a $1.2 million total gross unrecognized income tax benefit that primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions. At this time, significant change associated with this income tax benefit is not expected within the next fiscal year.\n\n\nU.S. federal and state income tax returns filed by us remain subject to examination for income tax years 2019 and subsequent. Canadian federal income tax returns filed by us remain subject to examination for income tax years 2019 and subsequent. Canadian provincial (Quebec) income tax returns filed by us remain subject to examination for income tax years 2019 and subsequent. Income tax returns associated with our operations located in China are subject to examination for income tax year 2018 and subsequent.\n\n\nRefer to Note 11 of the consolidated financial statements for disclosures and additional information regarding our uncertain income tax positions.\n\n\n39\n\n\n\n\n\u00a0\n\n\nIncome Taxes Paid\n\n\nThe following table sets forth income taxes paid by jurisdiction:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnited States Federal - Transition Tax\n\n\n\u00a0\n\n\n\u00a0\n\n\n265\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n266\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nChina - Income Taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,831\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,036\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nChina - Withholding Taxes Associated with Earnings\n\u00a0\u00a0\u00a0\u00a0and Profits Distribution to U.S. Parent\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n487\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCanada - Income Taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n228\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n311\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n2,324\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFuture Liquidity\n\n\n\u00a0\n\n\nWe are currently projecting annual cash income tax payments of approximately $2.5 million for fiscal 2024, compared with $2.3 million and $3.1 million for fiscal 2023 and fiscal 2022, respectively. Our estimated cash income tax payments for fiscal 2024 are management\u2019s current projections only and can be affected by actual earnings from our foreign subsidiaries located in China and Canada versus annual projections; changes in the foreign exchange rates associated with our operations located in China in relation to the U.S. dollar; the timing of when we will repatriate earnings and profits from China; and the timing of when significant capital projects will be placed into service, which determines the deductibility of accelerated depreciation.\n\n\n\u00a0\n\n\nAdditionally, we currently do not expect to incur any income taxes in the U.S. on a cash basis during fiscal 2024 due to (i) the immediate expensing of U.S. capital expenditures, and (ii) our existing U.S. federal net operating loss carryforwards. In accordance with the TCJA, we will be required to pay annual U.S. federal transition tax payments as follows: FY 2024 - $499,000; FY 2025- $665,000; and FY 2026 - $831,000.\n\n\n2022 compared with 2021\n\n\nFor a comparison of our results of operations for the fiscal years ended May 1, 2022, and May 2, 2021, see \u201cPart II, Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our annual report on Form 10-K for the fiscal year ended May 1, 2022, filed with the SEC on July 15, 2022.\n \n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\n\nOverall\n\n\nCurrently, our sources of liquidity include cash and cash equivalents (\"cash\"), cash flow from operations, and amounts available under our revolving credit lines. As of April 30, 2023, we believe our cash of $21.0 million, cash flow from operations, and the current availability under our revolving credit lines totaling $32.6 million (Refer to Note 10 of the consolidated financial statements for further details) will be sufficient to fund our foreseeable business needs, capital expenditures, commitments, and contractual obligations.\n\n\nAs of April 30, 2023, our cash totaled $21.0 million, an increase of $5.4 million compared with $14.6 million as of May 1, 2022. The increase in cash was mostly due to (i) net cash provided by operating activities totaling $7.8 million and (ii) proceeds totaling $2.1 million from the sale of investments associated with our rabbi trust that sets aside funds for our deferred compensation plan, partially offset by (iii) capital expenditures of $2.1 million and (iv) contributions totaling $1.2 million to our rabbi trust.\n\n\nOur net cash provided by operating activities was $7.8 million during fiscal 2023, an increase of $25.2 million compared with net cash used in operating activities of $(17.4) million during fiscal 2022. This trend mostly reflects (i) a reduction of inventory related to the significant decline in net sales, improved alignment of inventory purchases with current customer demand trends, and promotional programs to reduce aged raw materials and finished goods inventory; (ii) an abnormally high decrease in accounts payable due to the COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, which decrease did not recur during fiscal 2023; (iii) annual incentive payments made during the first quarter of fiscal 2022 that did not recur during fiscal 2023, partially offset by (iv) an abnormally high decrease in accounts receivable due to COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, which decrease did not recur during fiscal 2023, and (v) a decrease in net cash earnings during fiscal 2023 compared with fiscal 2022.\n\n\nAs of April 30, 2023, there were no outstanding borrowings under our lines of credit.\n \n\n\n40\n\n\n\n\n\u00a0\n\n\nThe income taxes we pay also affect our liquidity. See the above section titled \u201c\nIncome Taxes Paid\n\u201d of this Item 7 \u2013 MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION for further details.\n\n\nOur cash may be adversely affected by factors beyond our control, such as (i) customer demand trends, (ii) supply chain disruptions, (iii) rising interest rates and inflation, (iv) world events (including the Russian-Ukraine war), and (v) the continuing uncertainty associated with COVID-19. These factors could cause delays in receipt of payment on accounts receivable and could increase cash disbursements due to rising prices.\n\n\nBy Geographic Area\n\n\nA summary of our cash by geographic area follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30,\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 1,\n\n\n\u00a0\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nUnited States\n\n\n\u00a0\n\n\n$\n\n\n9,769\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,430\n\n\n\u00a0\n\n\n\n\n\n\nChina\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,669\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,502\n\n\n\u00a0\n\n\n\n\n\n\nCanada\n\n\n\u00a0\n\n\n\u00a0\n\n\n281\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n267\n\n\n\u00a0\n\n\n\n\n\n\nHaiti\n\n\n\u00a0\n\n\n\u00a0\n\n\n236\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n341\n\n\n\u00a0\n\n\n\n\n\n\nCayman Islands\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n20,964\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14,550\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nDividend Program\n\n\nOn June 29, 2022, our board of directors announced the decision to suspend the company's quarterly cash dividend. We believed that preserving capital and managing our liquidity during fiscal 2023 was in the company\u2019s best interest to support future growth and the long-term interests of our shareholders.  Accordingly, we did not make any dividend payments during fiscal 2023.\n\n\nDuring fiscal 2022, dividend payments totaled $5.5 million, which represented quarterly dividend payments ranging from $0.11 share to $0.115.\n\n\nOur board of directors has sole authority to determine if and when we will declare future dividends, and on what terms. We will continue to reassess our dividend policy each quarter. Future dividend payments will depend on earnings, capital requirements, financial condition, excess availability under our lines of credit, market and economic conditions, and other factors, including alternative investment opportunities.\n\n\nCommon Stock Repurchases\n\n\nIn March 2020, our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock. Under the common stock repurchase program, shares may be purchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise. The number of shares purchased and the timing of share purchases are based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.\n\n\nDuring fiscal 2023, we did not purchase any shares of common stock. As a result, as of April 30, 2023, $3.2 million is available for additional repurchases of our common stock. Despite the current share repurchase authorizations, the company does not expect to repurchase any shares through at least the first quarter of fiscal 2024.\n\n\nDuring fiscal 2022, we repurchased 121,688 shares of our common stock at a cost of $1.8 million.\n \n\n\nWorking Capital\n\n\nOperating Working Capital\n\n\nOperating working capital (accounts receivable and inventories, less deferred revenue, accounts payable-trade, and accounts payable-capital expenditures) was $39.2 million as of April 30, 2023, compared with $67.7 million as of May 1, 2022. Operating working capital turnover was 4.6 during the fourth quarter of fiscal 2023 compared with 5.2 during the fourth quarter fiscal 2022. The decrease in working capital was mostly due to the significant decrease in inventory during fiscal 2023 compared with fiscal 2022, as described in the Inventory\n \nsection below.\n \n\n\n41\n\n\n\n\n\u00a0\n\n\nAccounts Receivable\n\n\nAccounts receivable as of April 30, 2023, were $24.8 million, an increase of $2.6 million, or 11.5%, compared with $22.2 million as of May 1, 2022. This trend reflects an increase in net sales during the fourth quarter of fiscal 2023 compared with the fourth quarter of fiscal 2022. Net sales for the fourth quarter of fiscal 2023 were $61.4 million, an increase of $4.5 million, or 7.9%, compared with net sales of $56.9 million during the fourth quarter of fiscal 2022. The increase in net sales for the fourth quarter of fiscal 2023 compared with fiscal 2022 is primarily due to the COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, which shutdowns did not recur during the fourth quarter of fiscal 2023.\n\n\nDays\u2019 sales outstanding were 35 days for the fourth quarter of fiscal 2023 and 2022, respectively.\n\n\nInventory\n\n\nInventories as of April 30, 2023, were $45.1 million, a decrease of $21.5 million, or 32.3%, compared with $66.6 million as of May 1, 2022. This trend reflects (i) a decline in inventory purchases reflecting a 20.3% decrease in net sales during fiscal 2023 compared with fiscal 2022; (ii) a $5.8 million non-cash inventory charge recorded during fiscal 2023, which includes a $2.9 million impairment charge associated with our mattress fabrics segment, $2.8 million of markdowns of inventory estimated based on our policy for aged inventory, and $98,000 that was associated with the loss on disposal and markdowns of inventory related to the exit from our cut and sew upholstery fabrics operation located in Shanghai, China; (iii) improved alignment of inventory purchases with current customer demand trends; and (iv) promotional programs to reduce aged raw materials and finished goods inventory, partially offset by (v) higher raw material, labor, and overhead costs stemming from inflationary pressures.\n \n\n\nInventory turns were 4.7 for the fourth quarter of fiscal 2023, compared with 3.1 for the fourth quarter of fiscal 2022.\n\n\nAccounts Payable\n\n\nAccounts payable - trade were $29.4 million as of April 30, 2023, an increase of $9.3 million, or 46.5%, compared with $20.1 million as of May 1, 2022. This increase in accounts payable - trade is primarily due to the COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, which shutdowns did not recur during the fourth quarter of fiscal 2023.\n \n\n\nFinancing Arrangements, Commitments and Contingencies, and Contractual Obligations\n\n\nRevolving Credit Agreements\n\n\nCurrently, we have revolving credit agreements with banks for our U.S. parent company and our operations located in China.\n \n\n\nAs of April 30, 2023, we did not have any outstanding borrowings associated with our revolving credit agreements.\n\n\nOur loan agreements require, among other things, that we maintain compliance with certain financial covenants. As of April 30, 2023, we were in compliance with these financial covenants.\n\n\nRefer to Note 10 of the consolidated financial statements for further disclosure regarding our revolving credit agreements.\n\n\nLeases\n \n\n\nRefer to Note 12 of the consolidated financial statements for disclosure of our lease obligations, which includes a five-year maturity schedule.\n\n\nCapital Expenditures\n\n\nAs of April 30, 2023, and May 1, 2022, we had total amounts due regarding capital expenditures totaling $56,000 and $473,000, respectively, which pertained to outstanding vendor invoices, none of which were financed.\n \n\n\nUncertain Income Tax Positions\n\n\nAs of April 30, 2023, we had $1.2 million of total gross unrecognized tax benefits, which primarily relate to double taxation under applicable income tax treaties with foreign tax jurisdictions. The outcome of these income tax uncertainties is dependent upon various matters including tax examinations, legal proceedings, competent authority proceedings, changes in regulatory tax laws, or interpretations of those tax laws, or expiration of statutes of limitation. As a result of these inherent uncertainties, we cannot reasonably estimate the timing of payment on this amount, if any.\n\n\n42\n\n\n\n\n\u00a0\n\n\nCapital Expenditures and Depreciation Expense\n\n\nCapital expenditures on a cash basis were $2.1 million during fiscal 2023, compared with $5.7 million during fiscal 2022. Capital spending during fiscal 2023 primarily related to our mattress fabrics segment, and decreased compared with fiscal 2022 as a result of our concerted effort to conserve cash and reduce capital spending due to current and expected macroeconomic conditions.\n \n\n\nDepreciation expense was $6.8 million during fiscal 2023, compared with $7.0 million during fiscal 2022. Depreciation expense for fiscal 2023 and fiscal 2022 mostly related to our mattress fabrics segment.\n\n\nFor fiscal 2024, cash capital expenditures are still expected to focus primarily on maintenance level capital spending centered on our mattress fabrics segment, but are expected to increase modestly as compared to fiscal 2023.  Funding for capital expenditures is expected to be primarily from cash provided by operating activities.\n\n\nHandling Costs\n\n\nWe record warehousing costs in SG&A expenses. These costs were $4.2 million during fiscal 2023 and $4.3 million during fiscal 2022. Warehousing costs include the operating expenses of our various finished goods distribution centers, such as personnel costs, utilities, building rent and material handling equipment, and lease expense. Had these costs been included in cost of sales, gross profit would have been $6.7 million, or 2.8% of net sales, during fiscal 2023, and $31.8 million, or 10.8% of net sales, during fiscal 2022.\n\n\nInflation\n\n\nAny significant increase in our raw material costs, utility/energy costs, and general economic inflation could have a material adverse impact on the company, because competitive conditions have limited our ability to pass significant operating increases on to customers.\n \n\n\nNear the end of fiscal 2021, our raw material costs began to escalate primarily due to rising oil prices, a higher demand environment, and labor shortages. These pressures continued during fiscal 2022, with further increases in raw material costs, particularly during the second half of the year. While the cost of raw materials began to decline during the first half of fiscal 2023 year due to lower oil prices and slowing global demand, the higher costs and lower availability of labor remained challenging throughout the year.\n\n\nInflationary pressures also affected consumer spending during the second half of fiscal 2022 and continuing throughout fiscal 2023, causing a slowdown in business in the mattress industry and residential home furnishings industry. This slowdown caused reduced demand for our mattress and residential upholstery fabrics products during this period.\n\n\nCritical Accounting Estimates\n\n\nU.S. generally accepted accounting principles require us to make estimates and assumptions that affect our reported amounts in the consolidated financial statements and accompanying notes. Our estimates are based on (i) currently known facts and circumstances, (ii) prior experience, (iii) assessments of probability, (iv) forecasted financial information, and (v) assumptions that management believes to be reasonable but that are inherently uncertain and unpredictable. We use our best judgment when measuring these estimates, and if warranted, use external advice. Due to the uncertain and unpredictable nature of our estimates, actual results could differ from the estimates that were previously reported in our consolidated financial statements.\n\n\nAs of April 30, 2023, we believe the following list represents our critical accounting estimates that have or are reasonably likely to have a material effect on our financial condition or results of operations. For a discussion of all our significant accounting policies, including our critical accounting policies, refer to Note 1 of the consolidated financial statements.\n\n\nInventory Valuation\n\n\nWe operate as a \u201cmake-to-order\u201d and \u201cmake-to-stock\u201d business. Although management closely monitors demand for each product category to decide which patterns and styles to hold in inventory, the availability of low-cost imported products and shifts in consumer preferences and styles subject the company to markdowns of inventory.\n\n\nManagement continually examines inventory to determine if there are indicators that the carrying value exceeds its net realizable value. Historical experience has shown that the most significant indicator that would require inventory markdowns is the age of the inventory and the planned discontinuance of certain fabric patterns. As a result, we provide inventory valuation markdowns based upon set percentages for inventory aging categories of six, nine, twelve, and fifteen-months that are determined based on historical experience and judgment. Also, we provide inventory valuation write-downs based on the planned discontinuation of certain products based on current market values at the time of assessment compared with their current carrying values. While management believes that adequate markdowns for inventory have been made in the consolidated financial statements, significant unanticipated changes in demand or changes in consumer tastes and preferences could result in additional inventory markdowns in the future.\n\n\n43\n\n\n\n\n\u00a0\n\n\nAs of April 30, 2023, and May 1, 2022, the reserve for inventory markdowns was $11.8 million and $7.3 million, respectively.\n\n\nRefer to Note 5 of the consolidated financial statements for additional disclosures regarding our assessments and conclusions reached regarding substantial losses resulting from the subsequent measurement of inventory.\n\n\nIncome Taxes \u2013 Valuation Allowance\n\n\nWe evaluate the realizability of our deferred income taxes to determine if a valuation allowance is required. We are required to assess whether a valuation allowance should be established based on the consideration of all available evidence using a \u201cmore-likely-than-not\u201d standard, with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law.\n\n\nTo determine if a valuation allowance is required or needs to be subsequently reversed, we use significant judgment when considering the effect of all positive and negative evidence identified and giving weight to that evidence. The weight given to the potential effect of positive and negative evidence is based on the extent to which it can be objectively verified. Our judgments are often based on estimates that are derived from (i) forecasted financial information, (ii) assumptions on when certain taxable or deductible events will occur, and (iii) interpretation of complex income tax laws and regulations.\n\n\nAs of April 30, 2023, we recorded a full valuation allowance against all our U.S. net deferred income tax assets totaling $18.7 million.\n \n\n\nRefer to Note 11 of the consolidated financial statements for additional disclosures regarding our assessments and conclusions reached regarding our valuation allowance as of April 30, 2023.\n\n\nStock-Based Compensation\n \n\n\nWe are required to recognize compensation expense for all stock-based compensation awards in the financial statements, with the cost measured at the grant date fair value.\n \n\n\nCompensation expense for performance-based restricted stock units is recognized based on an assessment each reporting period of the probability of whether or not certain performance targets will be met and how many shares are expected to be earned as of the end of the vesting period. If certain targets are not expected to be achieved, compensation expense will not be recorded, and any previously recognized compensation expense will be reversed. Determining the probability of the vesting of our performance-based restricted stock units requires judgment, including assumptions used to forecast future financial results. While our forecasts of future financial results represent management\u2019s best estimates, these involve inherent uncertainties. As a result, if we revised our assumptions and estimates during the vesting period, our stock-based compensation expense could be materially different than previously expected.\n\n\nWe estimate the fair value of our performance-based restricted stock units that have a market condition using a Monte Carlo valuation model. The Monte Carlo valuation model incorporates inputs and complex assumptions that include (i) the closing price of our common stock at the respective grant date, (ii) expected volatility of our common stock, (iii) expected volatility and correlation coefficient of our peer companies that are approved by the Compensation Committee of our board of directors, (iv) risk-free interest rate, and (v) dividend yield. The determination of the inputs and complex assumptions used, and the application of the Monte Carlo valuation model, requires significant judgment by management and advice from an external advisor.\n\n\nWe recorded $1.1 million, $1.1 million, and $1.3 million of compensation expense within selling, general, and administrative expense for our equity-based awards in fiscal 2023, 2022, and 2021, respectively.\n\n\nAdoption of New Accounting Pronouncements\n\n\nRefer to Note 1 of the consolidated financial statements for recently adopted accounting pronouncements for fiscal 2023.\n\n\nRecently Issued Accounting Standards\n\n\nRefer to Note 1 of the consolidated financial statements for recently issued accounting pronouncements for fiscal 2024 and beyond.\n\n\n44\n\n\n\n\n\u00a0\n\n",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND\n QUALITATIVE DISCLOSURES\n\n\nABOUT MARKET RISK\n\n\nInterest Rates\n\n\nWe are exposed to market risk from changes in interest rates on our revolving credit agreements.\n\n\nEffective January 19, 2023, we entered into a second amended and restated U.S. revolving credit agreement (the \"Amended Agreement\") to establish an asset-based revolving credit facility that required interest to be charged at a rate (applicable interest rate of 6.3% as of April 30, 2023) calculated using an applicable margin over Federal Reserve Bank of New York's secured overnight fund rate (SOFR), as defined in the Amended Agreement. As of April 30, 2023, there were no outstanding borrowings under the Amended Agreement.\n\n\nOur revolving credit line associated with our operations located in China bears interest at a rate determined by the Chinese government at the time of borrowing. As of April 30, 2023, there were no borrowings outstanding under our revolving credit agreement associated with our operations located in China.\n\n\nForeign Currency\n\n\nWe are exposed to market risk from changes in the value of foreign currencies for our subsidiaries domiciled in Canada and China. We try to maintain a natural hedge by keeping a balance of our assets and liabilities denominated in the local currency of our subsidiaries domiciled in Canada and China. However, there is no assurance that we will be able to continually maintain this natural hedge. Our foreign subsidiaries use the U.S. dollar as their functional currency. A substantial portion of the company\u2019s imports purchased outside the U.S. are denominated in U.S. dollars. A 10% change in the above exchange rates as of April 30, 2023, would not have materially affected our results of operations or financial position.\n\n\n45\n\n\n\n\n\u00a0\n\n",
+  "cik": "723603",
+  "cusip6": "230215",
+  "cusip": ["230215105"],
+  "names": ["CULP INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/723603/000095017023032929/0000950170-23-032929-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\n \nBusiness\n\n\n\u00a0\n\n\nUnless we state otherwise or the context otherwise requires, the terms \u201cPaychex,\u201d \u201cwe,\u201d \u201cus,\u201d \u201cour\u201d and the \u201cCompany\u201d refer to Paychex, Inc., a Delaware corporation, and its consolidated subsidiaries.\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nWe are a leading provider of human capital management (\u201cHCM\u201d) solutions for human resources (\u201cHR\u201d), payroll, benefits, and insurance for small- to medium-sized businesses and their employees across the U.S. and parts of Europe. We offer a comprehensive portfolio of HCM technology and HR advisory solutions that help our clients navigate the evolving challenges of HR.\n \n\n\n\u00a0\n\n\nPaychex was incorporated in Delaware in 1979 and has a fiscal year that ends May 31st. We maintain our corporate headquarters in Rochester, New York, and serve clients throughout the U.S. and parts of Europe. As of May 31, 2023, we served approximately 740,000 payroll and PEO clients.\n \n\n\n\u00a0\n\n\nFor any organization, a key function is effective HCM, which requires both resources and expertise. Organizations are faced with complex and ever-changing requirements, including diverse and complicated federal, state, and local regulations across multiple jurisdictions. In addition, the workplace is rapidly changing as employees increasingly become mobile, work remotely, and expect a user experience similar to consumer-oriented applications. We specialize in helping small- to medium-sized businesses who do not have the resources or expertise to adapt to the constantly evolving environment.\n\n\n\u00a0\n\n\nPaychex offers a wide range of solutions \u2013 including HR outsourcing, HCM technology, payroll processing, retirement and insurance solutions \u2013 allowing us to customize our offering to the client's business, whether it is small or large, simple or complex. We believe that we have the breadth of solutions to cover the spectrum of the employee life cycle, but we also allow integration with some of the most popular HR, accounting, point-of-sale, and productivity applications on the market today.\n \n\n\n\u00a0\n\n\nOur comprehensive solutions allow our clients to manage their workforces effectively from hire to retire. We provide leading-edge HCM technology, coupled with human expertise, to make complex HR, payroll, and benefits issues simple for our clients. The key features of our solutions are:\n\n\n\u2022\nComprehensive cloud-based platform optimized to meet the HR and payroll needs of small- and medium-sized organizations;\n\n\n\u2022\nStreamlined workforce management that combines technology with flexible support options;\n\n\n\u2022\nModern, mobile, and intuitive user experience and self-service capabilities;\n\n\n\u2022\nScalable and customizable platform that allows clients the ability to add services as they grow;\n\n\n\u2022\nSoftware as a service, or \u201cSaaS\u201d, delivery model that reduces total cost of ownership for our clients; and \n\n\n\u2022\nExpertise in HR and payroll with our technology backed by over 250 compliance experts and approximately 700 HR business professionals.\n\n\n\u00a0\n\n\nWe market our solutions through our direct and virtual sales forces which are supported by various corporate lead generation and marketing initiatives. Over 50% of our revenues are gained from our services beyond payroll processing.\n \n\n\n\u00a0\n\n\nCompany Strategy\n\n\n\u00a0\n\n\nOur strategy is to be the leading provider of HCM solutions for HR, payroll, benefits, and insurance by being an essential partner to small- and medium-sized businesses. We believe that successfully executing this strategy will lead to strong, long-term financial performance. We intend to strengthen and extend our position as a leading provider through continued investments in both our innovative technology and HR advisory solutions. Key elements of our strategy include:\n\n\n\u00a0\n\n\n\u2022\nProviding industry-leading, integrated technology\n. \nWe continue to invest significantly in our proprietary, award-winning Paychex Flex\n\u00ae\n platform and mobility applications to maximize efficiency and functionality for our clients and their employees. \n\n\n\u2022\nDelivering superior client experiences.\n \nOur flexible and technology-enabled service model allows us to provide a personalized experience for our clients and their employees. We continue to invest in artificial intelligence (\"AI\") and self-service capabilities to allow clients and their employees easy, intuitive, and flexible service how, when, and where they want it. \n\n\n3\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u2022\nExpanding our leadership in HR.\n We have a comprehensive suite of value-added HR solutions for our clients and their employees. Our solutions include industry leading HR technology with comprehensive HR outsourcing delivered by approximately 700 HR business professionals. Our unique combination of industry leading HR technology and HR advisory solutions sets us apart in the industry. \n\n\n\u2022\nGrowing our client base.\n We believe we operate in a significantly under-penetrated and growing market, with untapped potential to expand within our current target markets. We have made substantial investments in new demand generation and sales tools and expanding certain areas of our sales force. We continue to focus on sales productivity with the intent of increasing our market share across all our solutions.\n\n\n\u2022\nEngaging in strategic acquisitions\n.\n We utilize acquisitions, when appropriate, as a means to expand our portfolio, enter new markets or increase our scale. We will continue to evaluate and monitor potential acquisitions and target acquisitions that are in alignment with our overall strategy.\n\n\n\u00a0\n\n\nOur Solutions\n\n\n\u00a0\n\n\nOur solutions bring together payroll and HCM software with HR and compliance expertise, along with flexible, personalized, and technology-enabled support capabilities. Clients have the option of doing payroll online using our SaaS technology, outsourcing to our payroll specialists, or using a combination of these methods. Payroll is integrated with HCM software modules for clients who have more complex HR needs. We also provide comprehensive HR outsourcing through our administrative services organization (\u201cASO\u201d) and PEO solutions. The integration of leading-edge technology and flexible support options allows us to meet our clients\u2019 needs how, when, and where they want.\n\n\n\u00a0\n\n\nWe closely monitor the evolving challenges and needs of small- and medium-sized businesses, and proactively aid our clients in navigating macroeconomic challenges, legislative changes, and other complexities they face. In the fiscal year ended May 31, 2023 (\u201cfiscal 2023\u201d), top challenges for employers were macroeconomic pressures including inflation and interest rates, maintaining sufficient staffing levels, providing appropriate employee development, keeping technology current, and ensuring legal and regulatory compliance.\n \n\n\n\u00a0\n\n\nWe provide a unique blend of innovative technology solutions, backed by our extensive compliance and HR expertise, that help customers more effectively hire, engage, train, and retain top talent in this challenging workforce environment. As businesses operate in a tight labor market, having an online portal for employee self-service that is intuitive and easy-to-use helps increase employee retention and efficiency for our customers. We continue to invest in our technology, enhancing our solutions to continuously improve the customer and employee experiences from hiring and onboarding through employee retention.\n \n\n\n\u00a0\n\n\nHCM Technology:\n \nPaychex Flex is our proprietary HCM SaaS platform that provides seamless workforce management throughout the employee life cycle from recruiting and hiring to retirement through an integrated suite of solutions including recruiting, onboarding, HR, time and attendance and employee benefits. It utilizes a single cloud-based platform, with single client and employee records. Clients can select the modules they need and easily customize solutions as they grow. In addition, Paychex Flex presents function-focused analytics throughout the platform, providing HR leaders with data to make more informed business decisions. Paychex Flex uses a device-independent design throughout the HCM suite, which allows full functionality of all application components, regardless of device or screen size. We believe our Paychex mobile solutions add greater value and convenience for our clients and their employees by allowing them instant access on their mobile device, and we have experienced strong growth in mobile and self-service usage over the past year.\n\n\n\u00a0\n\n\nHR and Compliance Expertise:\n Paychex supports its HCM software solutions with 50+ years of experience. We have approximately 700 HR business professionals who are dedicated to our clients and have the experience and training to provide HR best practices and advice. Our HR business partners are available to provide our ASO and PEO clients with specific guidance on HR issues. In addition, we have over 250 compliance professionals who are in real-time contact with tax agencies and regulators to understand upcoming or newly enacted laws and regulations and advocate for our clients\u2019 interests. The contributions of these compliance experts are intended to ensure that our HCM solutions are updated timely to adhere to regulations and to help our clients stay in compliance.\n\n\n\u00a0\n\n\nTechnology-Enabled Client Service:\n Paychex Flex also provides technology-enabled service with options that include self-service, a 24/7 dedicated service center, an individual payroll specialist, and integrated service via a multi-product service center. In addition, medium-sized clients can utilize a relationship manager for more personalized service. This flexible platform services our small- to medium-sized clients and a portion of our PEO business.\n \n\n\n4\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u00a0\n\n\nWithin Paychex Flex, we leverage embedded AI to assist our clients. Our Paychex Flex Intelligence Engine allows individual preference on learning style - via written how-to-documents, tutorial-style video vignettes, or a guided interactive tour. The Paychex Flex Intelligence Engine also includes the Flex Assistant, a customer service chatbot that can answer questions across thousands of topics and provides access to over 1,200 instructional resources. At any time, a live Paychex agent is just a click away, with the entire chat conversation available in real-time to provide a more personalized service experience. The Flex Assistant consistently handles nearly two-thirds of questions that would otherwise reach a payroll/HR functionary or a customer service representative, with high satisfaction scores.\n \n\n\n\u00a0\n\n\nThe platform embeds self-service capabilities that empower client employees to manage their HR and benefits information from any location, on any device. These self-service capabilities allow for greater access and convenience for client employees and greater productivity for clients.\n\n\n\u00a0\n\n\nOur Clients\n\n\n\u00a0\n\n\nPaychex has HR solutions to fit the needs of any small- to medium-sized business, from do-it-yourself payroll to comprehensive HR outsourcing. The target market for our integrated HCM solutions is small- to medium-sized businesses. Within this space, we serve a diverse client base operating in a broad range of industries throughout the U.S. and parts of Europe. The flexibility and scalability of our solutions allow our clients to select the best solution that meets their needs. We utilize service agreements and arrangements with clients that generally do not contain specified contract periods and may be terminated by either party with 30-days notice of termination. We believe client retention is a useful indicator of client satisfaction with our solutions and support. For fiscal 2023, client retention was in the range of 82% to 83% of our beginning client base.\n \n\n\n\u00a0\n\n\nWe support our small-business clients, reducing the complexity and risk of running their own payroll, while ensuring greater accuracy with up-to-date tax rates and regulatory information. We simplify their payroll with a combination of our solutions and customer support options for a quick and easy payday. Clients may choose to have our service team handle everything for them, or process payroll themselves utilizing our proprietary, robust SaaS Paychex Flex platform and our SurePayroll\n\u00ae\n SaaS-based solutions. Both solutions allow users to process payroll when they want, how they want, and on any device (desktop, tablet, and mobile phone).\n\n\n\u00a0\n\n\nWhile Paychex Flex is our primary SaaS-based platform utilized by the majority of our clients for their HCM needs, there are some clients that use other platforms, including SurePayroll clients, and certain PEO clients.\n \n\n\n\u00a0\n\n\nBoth our small- and medium-sized clients can choose one of our comprehensive HR outsourcing services, which include ASO and PEO solutions, and participate in our benefits offerings, which include our insurance and retirement services. Our insurance services simplify the insurance process to make it easy to find plans with the features and affordability to meet the client\u2019s needs. Our retirement services solutions offer many plan design options to meet the client\u2019s requirements, as well as investment options.\n\n\n\u00a0\n\n\nDescription of Solutions\n\n\n\u00a0\n\n\nWithin our HCM solutions we offer a comprehensive portfolio of HCM technology and HR advisory solutions that allow our clients to meet their diverse HR and payroll needs. Clients can select solutions on an \u00e1 la carte basis or as part of various solution bundles. Our offerings often leverage the information gathered in our base payroll processing service, allowing us to provide comprehensive outsourcing services covering the HCM spectrum.\n\n\n\u00a0\n\n\nOur portfolio of solutions is comprised of the following:\n \n\n\n\u00a0\n\n\nManagement Solutions:\n\n\n\u00a0\n\n\n\u2022\nPayroll processing solutions:\n Our payroll processing solutions include the calculation, preparation, and delivery of employee payroll checks; production of internal accounting records and management reports; preparation of federal, state, and local payroll tax returns; and collection and remittance of clients\u2019 payroll obligations.\n\n\n5\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2022\nPayroll tax administration solutions:\n Payroll tax administration solutions provide for accurate preparation and timely filing of quarterly and year-end tax returns, as well as the electronic transfer of funds to the applicable federal, state, and local tax or regulatory agencies. In connection with these services, we electronically collect payroll taxes from clients\u2019 bank accounts, typically on payday, prepare and file the applicable tax returns, and remit taxes to the applicable tax or regulatory agencies on the respective due dates. These taxes are typically paid between one and 30 days after receipt of collections from clients, with some items extending up to 90 days. We handle regulatory correspondence, amendments, and penalty and interest disputes.\n\n\n\u00a0\n\n\n\u2022\nEmployee payment solutions:\n Our employee payment solutions provide an employer the option of paying their employees by direct deposit, payroll debit card, a check drawn on a Paychex account (Readychex\n\u00ae\n), or a check drawn on the employer\u2019s account and electronically signed by us. For each of the first three methods, we electronically collect net payroll from the clients\u2019 bank accounts, typically one business day before payday, and provide payment to the employees on payday. Our Readychex solution provides a cost-effective solution that offers the benefit of convenient, one-step payroll account reconciliation for employers.\n\n\n\u00a0\n\n\nWe also allow employers to opt for more flexible pay options. Same day ACH functionality is also available for clients using direct deposit, allowing employers the flexibility to pay employees via direct deposit on the same day they initiate payroll. In addition, we are giving business owners the ability to leverage real-time payments to process payroll and deliver net pay to their employees immediately for time worked. Pay-on-demand functionality enables an employee to request access to a portion of earned pay before the scheduled pay date, which is deposited into a traditional bank account or a third-party account.\n\n\n\u00a0\n\n\n\u2022\nRegulatory compliance solutions:\n We offer new-hire reporting solutions, which enable clients to comply with federal and state requirements to report information on newly hired employees. This information aids the government in enforcing child support orders and minimizes fraudulent unemployment and workers\u2019 compensation insurance claims. Our garnishment processing solution provides deductions from employees\u2019 pay, forwards payments to third-party agencies, including those that require electronic payments, and tracks the obligations to fulfillment. These solutions enable employers to comply with legal requirements and reduce the risk of penalties. We also offer comprehensive solutions to help employers and employees with certain mandates under the Affordable Care Act (\u201cACA\u201d), which sets forth specific coverage and reporting requirements that employers must meet. \n\n\n\u00a0\n\n\n\u2022\nHR solutions:\n Our ASO offers businesses a combined package that includes payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and both virtual and on-site availability of a professionally trained HR representative, among other services. Paychex HR Essentials is a lower touch solution that provides support to our clients over the phone or online to help manage employee-related topics. \n\n\n\u00a0\n\n\n\u2022\nRetirement solutions administration: \nOur retirement solutions line offers a variety of options to employers, including 401(k) plans, 401(k) SIMPLE plans, SIMPLE IRAs, 401(k) plans with safe harbor provisions, owner-only 401(k) plans, Pooled Employer Plans, profit sharing plans, and money purchase plans. These solutions provide plan implementation, ongoing compliance with government regulations, employee and employer reporting, participant and employer online access, electronic funds transfer, and other administrative services. Auto enrollment is an optional plan feature that allows employers to automatically enroll employees in their company\u2019s 401(k) plan and increase overall plan participation. Clients may choose from a group of pre-defined fund selections or customize their investment options within their plan. We are the largest 401(k) recordkeeper for small businesses in the U.S. Our large-market retirement services include relationships with financial advisors.\n\n\n\u00a0\n\n\n\u2022\nHR administration solutions:\n We offer cloud-based HR administration software solutions for employee benefits management and administration, time and attendance reporting, recruiting, and onboarding. These services include: \n\n\n\u00a0\n\n\n\u2022\nPaychex HR Online offers powerful tools for managing employee personnel information, performance management, HR compliance and reporting. Our Learning Management solution complements our performance management tool. When combined with our workflow and approval engine, we offer businesses the flexibility to capture ongoing performance feedback, recommend and enroll employees in specific training courses, and leverage automated workflows to track progress and approve compensation changes tied to performance.\n\n\n\u2022\nDigital communication solutions, including Paychex Flex HR Connect and HR Conversations, which helps strengthen connections and keep workers engaged no matter their work location. Paychex Flex HR Connect \n\n\n6\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nprovides the ability to digitally submit questions, requests, and incident reports directly to HR through an easy-to-use workflow. HR Conversations enables managers and HR leaders to initiate communications with employees, and enhancements to performance assessments allow for 360-degree feedback digitally within the tool.\n\n\n\u2022\nBenefits administration software solution that manages the employee-benefit enrollment process for both open-enrollment and life events. \n\n\n\u2022\nTime and attendance solutions, including our integrated Paychex Flex Time software, provide timekeeping, scheduling, and workforce analytics. The InVision\nTM\n IRIS Time Clock, a biometric clock that scans the iris, provides fast and accurate time capture. Paychex Flex Time also works with wearable technology to allow for employees to clock in and out using their smartwatch.\n\n\n\u2022\nApplicant tracking suite provides technology solutions that streamline, simplify, and drive the applicant workflow and onboarding process for companies of all sizes. \n\n\n\u00a0\n\n\n\u2022\nOther HR solutions and support:\n We offer the outsourcing of plan administration under section 125 of the Internal Revenue Code, allowing employees to use pre-tax dollars to pay for certain health insurance benefits and health and dependent care expenses not covered by insurance. All required implementation, administration, compliance, claims processing and reimbursement, and coverage tests are provided with these services. We offer state unemployment insurance solutions, which provide clients with prompt processing for all claims, appeals, determinations, change statements, and requests for separation documents. \n\n\n\u00a0\n\n\n\u2022\nBusiness services:\n We offer various business solutions for small- to medium-sized businesses. Our wholly owned subsidiary, Paychex Advance, LLC, provides a portfolio of solutions to the temporary staffing industry, including payroll funding (via the purchase of accounts receivable) and outsourcing services, which include payroll processing, invoicing, and tax preparation. Employee Retention Tax Credit Service, which proactively helps businesses retroactively identify tax credits available under the COVID-19 Cares Act, based on wages already paid, and file amended returns to claim the credit. In addition, through partnerships with third-party providers, we provide clients opportunities for solutions such as payment processing services, financial programs, and a small-business loan resource center.\n\n\n\u00a0\n\n\nPEO and Insurance Solutions:\n\n\n\u00a0\n\n\n\u2022\nPEO solutions:\n Our licensed PEO subsidiaries offer businesses a combined package that includes payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and both virtual and on-site availability of a professionally trained HR representative, among other services. What differentiates our PEO solutions from our ASO solutions is that we serve as a co-employer of our clients\u2019 employees and assume the risks and rewards of certain workers\u2019 compensation insurance and certain health insurance offerings. We are certified under the Small Business Efficiency Act to provide PEO solutions. We offer the PEO Protection Plus Package, which helps business owners protect their bottom line from unforeseen costs, including cyberattacks and employee lawsuits, as exposure to these risks rapidly increased during the COVID-19 pandemic and other economic concerns.\n\n\n\u00a0\n\n\n\u2022\nInsurance solutions: \nOur licensed insurance agency, Paychex Insurance Agency, Inc., provides insurance through a variety of carriers, allowing employers to expand their employee benefit and corporate offerings at an affordable cost. Insurance offerings include property and casualty coverage such as workers\u2019 compensation, business-owner policies, cybersecurity protection, commercial auto, and health and benefits coverage, including health, dental, vision, and life. Our insurance solutions simplify the insurance process to make it easy to find plans with the features and affordability to meet the client\u2019s needs. With access to numerous top national and regional insurance carriers, our professional insurance agents have access to a wide selection of plans from which they can best match the insurance needs of small businesses. Additionally, clients have the option to integrate their insurance plans with Paychex payroll processing for easy, accurate plan administration.\n\n\n\u00a0\n\n\nSales and Marketing\n\n\n\u00a0\n\n\nWe market and sell our solutions and support primarily through our direct sales force based in the markets we serve. Our direct sales force includes sales representatives who have defined geographical territories and specialize within our portfolio of solutions. Our sales representatives are also supported by marketing, advertising, public relations, trade shows, and telemarketing programs. Our virtual sales force manages inbound sales leads for the under twenty employee space, sales in areas without a direct sales force presence, and sales of various ancillary solutions.\n\n\n\u00a0\n\n\n7\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nIn addition to our direct selling and marketing efforts, we utilize other indirect sales channels such as our relationships with existing clients, certified public accountants (\u201cCPAs\u201d), and banks for new client referrals. More than 50% of our new small-market payroll clients (excluding business acquisitions) come from these referral sources. Our dedicated business development group drives sales through banking, national associations, and franchise channels. We also utilize digital marketing as a means to market our services.\n\n\n\u00a0\n\n\nWe have a long-standing partnership with the American Institute of Certified Public Accountants (\u201cAICPA\u201d) as the preferred payroll provider for its AICPA Business Solutions\nTM\n Program. Our current partnership agreement with the AICPA is in place through September 2025. We also partner with numerous state CPA society organizations.\n\n\n\u00a0\n\n\nOur website is available at www.paychex.com. It is a cost-efficient channel that serves as a source of leads and new sales, while complementing the efforts of our direct and virtual sales forces. The website allows us to market to existing and prospective clients that want to learn more about our solutions and support, and offers information about our core lines of business: human resources (www.paychex.com/human-resources), payroll (www.paychex.com/payroll), benefits (www.paychex.com/employee-benefits), and insurance (www.paychex.com/business-insurance).\n\n\n\u00a0\n\n\nPaychex also builds on its reputation as an expert in the HCM industry by providing education and assistance primarily to businesses and the CPA community. We provide free webinars, podcasts, white papers, and other information on our website to inform businesses on the impact of regulatory change as well as HR and business best practices. Paychex WORX, available at www.paychex.com/worx, is a digital destination for insightful resources useful for businesses at every stage, from entrepreneur to enterprise. Paychex WORX highlights our expertise and ability to help businesses of all sizes with a wide range of HR and financial information for current clients and prospects alike.\n \n\n\n\u00a0\n\n\nWe also track current regulatory issues that impact the business community and provide regulatory updates. We issue small business trend reports through our Paychex | IHS Markit Small Business Employment Watch. Our Paychex Accountant Knowledge Center is a free online resource available through our website that brings valuable information and time-saving online tools to accounting professionals. Through Paychex Flex, AccountantHQ offers access to authorized client payroll and HR data and key account contacts, along with an extensive accountant resource library. AccountantHQ drives efficiency by putting accountants in the best position possible to easily access critical client payroll and HR data, as well as powerful reporting tools.\n \n\n\n\u00a0\n\n\nMarkets and Competition\n\n\n\u00a0\n\n\nWe remain focused on servicing small- to medium-sized businesses based upon the growth potential that we believe exists in the markets we serve. Our internal database source indicates that in the U.S., there are approximately 8 million employer firms in our target markets.\n\n\n\u00a0\n\n\nThe market for HCM services is highly competitive and fragmented. We have one primary national competitor and we also compete with other national, international, regional, local, and online service providers. In addition to traditional payroll processing and HR service providers, we compete with in-house payroll and HR systems and departments. Payroll and HR systems and software are sold by many vendors. Our solutions also compete with a variety of providers of HR services, such as retirement services companies, insurance companies, HR and benefits consulting firms, and national and regional PEOs.\n\n\n\u00a0\n\n\nCompetition in the payroll processing and HR services industry is primarily based on service responsiveness, product quality and reputation, including ease of use and accessibility of technology, breadth of service and product offerings, and price. We believe we are competitive in each of these areas. We believe that our leading-edge technology and mobility applications, combined with personalized support provided by industry professionals and our technology-enabled solution capabilities, distinguishes us from our competitors.\n\n\n\u00a0\n\n\nSoftware Maintenance and Development\n\n\n\u00a0\n\n\nThe ever-changing mandates of federal, state, and local tax and regulatory agencies require us to regularly update our proprietary software to provide payroll and HR services to our clients. We are continually engaged in developing enhancements to and maintaining our various software platforms to meet the changing requirements of our clients and the marketplace. We continue to enhance our SaaS solutions and mobility applications to offer our users an integrated and unified experience. Continued enhancement of the client and client employee experience is important to our future success.\n\n\n\u00a0\n\n\n8\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nHuman Capital\n\n\n\u00a0\n\n\nWe believe our ability to attract and retain qualified employees in all areas of our business is critical to our future success and growth. We strive to foster a diverse, equitable, and inclusive (\u201cDE&I\u201d) workplace; attract, retain, and develop talented employees; and keep them safe. In fiscal 2023, we were a signatory to the CEO Action for Diversity & Inclusion pledge, the single largest business-led initiative to advance DE&I in the workplace. We also created a new DE&I leadership position to ensure that our efforts in building and sustaining a diverse culture of inclusion are realized.\n\n\n\u00a0\n\n\nFor detailed information regarding our human capital activities, we encourage investors to visit our Corporate Responsibility website page at https://www.paychex.com/corporate/corporate-responsibility. We have also made our Environmental, Social and Governance (\u201cESG\u201d) report available on our website. The information contained on our website and in our ESG report is not and should not be viewed as being incorporated by reference into this Form 10-K.\n\n\n\u00a0\n\n\nOur Employees:\n As of May 31, 2023, we employed approximately 16,600 people, primarily in the U.S. and on a full-time basis. None of our employees were covered by collective bargaining agreements. We have not experienced a strike or similar work stoppage, and we consider our relations with our employees to be good.\n \n\n\n\u00a0\n\n\nPaychex Culture\n: Our core cultural values (\u201cPaychex Values\u201d) are designed to guide decision making aligned to the expectations of clients, stockholders, regulators, employees, and the multiple communities in which we operate and to reflect our continuing commitment to DE&I. The Paychex Values are:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nIntegrity\n\n\nAccountability\n\n\nInnovation\n\n\n\n\n\n\nPartnership\n\n\nRespect\n\n\nService\n\n\n\n\n\n\n\u00a0\n\n\nEach of these values guide our decision-making process and are critical to our ongoing success. All employees are required to verify their understanding and observance of these values during our annual \u201cRight Way\u201d training, review these values with management during periodic performance discussions, and are further encouraged to attend ongoing training during the year. Volunteer \u201cCulture Champions\u201d throughout the Company also help promote these values daily. We encourage employee feedback through our employee engagement surveys, as described below. This approach empowers our employees and allows us to make a positive impact in the communities we work and serve. As a result of our commitment to these principles, in 2023 we were recognized by Ethisphere, a global leader in defining and advancing the standards of ethical business practices, as one of the World\u2019s Most Ethical Companies. We have achieved this recognition 15 times, and consecutively since 2012. In addition, we were also recognized by Forbes as a Best Employer for Diversity for 2023.\n\n\n\u00a0\n\n\nTalent Acquisition and Development:\n We compete for talent along with our direct competitors and other companies in the geographic areas we serve. We invest significant resources to attract and retain top talent. Our Talent Acquisition Team, in conjunction with certain third-party partners, have developed comprehensive processes to identify and recruit accomplished professionals.\n \n\n\n\u00a0\n\n\nOnce hired, our world-class Training Department provides functional training for payroll and HCM specialists and sales associates and also offers personal training, professional development, and leadership-development programs. As a result of our efforts, we have been recognized as one of the top training organizations in the world with a 2023 Training APEX Award presented by Training magazine. Paychex ranked number five on the prestigious list for the second year. This is also the Company's 22\nnd\n consecutive appearance on the list that identifies organizations that excel at training and employee development.\n\n\n\u00a0\n\n\nComprehensive Compensation and Benefits: \nWe are committed to providing a fair wage and a total rewards package that allows our employees to be their best in every area of their lives.\n \nWe regularly review employee salaries to ensure we are competitive in the industry and offer financial benefits such as a 401(k) plan, employee stock purchase plan, tuition assistance, scholarships for children of employees, and financial education. We are also committed to rewarding employees with comprehensive and competitive benefits and well-being package which includes medical, prescription, dental, and vision insurance, short- and long-term disability, employee assistance program, paid family leave, and a variety of well-being programs. For fiscal 2023, compensation-related expenses accounted for approximately 60% of our total expenses.\n \n\n\n\u00a0\n\n\nEmployee Well-being Initiatives: \nIn addition to providing a comprehensive compensation and benefits package, we are committed to providing a safe and healthy workplace for our employees. Healthier employees are at lower risk of injury from workplace related exposures, perform work more safely with lower rates of absenteeism, experience better job performance, and can live their lives more fully outside of work. Our well-being program is a robust program focusing on the physical, emotional, community, career, and financial health of our employees.\n \n\n\n9\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u00a0\n\n\nOur award-winning well-being initiatives offer a wide variety of services, tools, and resources that can help employees achieve their health goals using a holistic approach. In addition, we sponsor onsite health screenings, Red Cross blood donation events, flu vaccination clinics, vaping and tobacco cessation, weight management, resiliency training, meditation and yoga classes, and a variety of other programs. Similar to our Culture Champions, we also promote the use of \u201cWell-Being Champions\u201d - Paychex employees who serve as a liaison between the Employee Well-Being Program and their team members. Our employees\u2019 financial well-being is equally important, so we have developed programs for financial education and support. We maintain procedures for events such as fires, severe weather, medical emergencies, and active shooters, as well as other important information related to general workforce safety.\n\n\n\u00a0\n\n\nIn recognizing the ever-growing diversity of our workplace, we annually celebrate Paychex Culture Day. This is an additional paid day off for employees to celebrate and recognize a holiday that is significant to them. This is just one of the many ways we celebrate our unique heritages, and it reflects our Company's commitment to DE&I and flexibility.\n\n\n\u00a0\n\n\nEmployee Engagement\n: We regularly ask our employees to share their views on working at Paychex through company-wide engagement surveys. Facilitated internally by our Human Resources Organizational Development Team, the survey methodology is periodically updated to reflect currents trends and issues including company direction and strategy, DE&I, individual development, collaboration, and our Paychex Values. A third-party administers the survey in order to maintain confidentiality of responses.\u202fWe use the survey responses to help inform management and assist in developing programs and policies that will maintain and promote Paychex Values.\n\n\n\u00a0\n\n\nIntellectual Property\n\n\n\u00a0\n\n\nWe own or license and use a number of trademarks, trade names, copyrights, service marks, trade secrets, computer programs and software, and other intellectual property rights. Collectively, our intellectual property rights are material to the conduct of our business. Where it is determined to be appropriate, we take measures to protect our intellectual property rights, including, but not limited to, confidentiality/non-disclosure agreements or policies with employees, vendors, and others; license agreements with licensees and licensors of intellectual property; and registration of certain trademarks. We believe that the \u201cPaychex\u201d name, trademark, and logo are of material importance to us.\n\n\n\u00a0\n\n\nSeasonality\n\n\n\u00a0\n\n\nThere is no significant seasonality to our business. However, during our third fiscal quarter, which ends in February, the number of new payroll clients, new retirement services clients, and new worksite employees associated with our ASO and PEO businesses tends to be higher than during the rest of the fiscal year, primarily because many businesses prefer to start using our services at the beginning of a calendar year. In addition, calendar year-end transaction processing and client funds activity are traditionally higher during our third fiscal quarter due to year-end bonus payments, additional year-end services, and the preparation and delivery of end-of year reporting requirements.\n \n\n\n\u00a0\n\n\nAvailable Information\n\n\n\u00a0\n\n\nWe are subject to the informational and reporting requirements of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d). Therefore, we file periodic reports, proxy statements, and other information with the SEC. The SEC maintains a website (www.sec.gov) that includes our reports, proxy statements, and other information.\n \n\n\n\u00a0\n\n\nOur corporate website, www.paychex.com, provides materials for investors and information about our services. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other SEC filings, as well as any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are made available, free of charge, on our website as soon as reasonably practicable after such reports have been filed with or furnished to the SEC. The information on our website is not incorporated by reference into our Form 10-K. Also, copies of our Annual Report to Stockholders and Proxy Statement, to be issued in connection with our 2023 Annual Meeting of Stockholders, will be made available, free of charge, upon written request submitted to Paychex, Inc., c/o Corporate Secretary, 911 Panorama Trail South, Rochester, New York 14625-2396.\n \n\n\n10\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A. Risk Factors\n\n\n\u00a0\n\n\nOur future results of operations are subject to risks and uncertainties that could cause actual results to differ materially from historical and current results, and from our projections. The following risk factors represent our current view of some of the most important risks facing our business and are important to understanding our business. These are not the only risks we face. Additional factors not presently known to us or that we currently deem to be immaterial also may adversely affect, possibly to a material extent, our business, cash flows, financial condition, or results of operations in future periods. In addition, refer to the cautionary note regarding forward-looking statements at the beginning of Part I of this Form 10-K.\n\n\n \n\n\nBusiness and Operational Risks\n\n\n\u00a0\n\n\nWe may not be able to keep pace with changes in technology or provide timely enhancements to our solutions and support.\n \n\n\n\u00a0\n\n\nThe market for our solutions is characterized by rapid technological advancements, changes in customer requirements, frequent new product introductions and enhancements, and changing industry standards. To maintain our growth strategy, we must adapt and respond to technological advances and technological requirements of our clients. Our future success will depend on our ability to: enhance our current solutions and introduce new solutions in order to keep pace with solutions offered by our competitors, including the successful utilization of artificial intelligence and machine learning solutions; enhance capabilities and increase the performance of our internal systems, particularly our systems that meet our clients\u2019 requirements; and adapt to technological advancements and changing industry standards. We continue to make significant investments related to the development of new technology. If our systems become outdated, it may negatively impact our ability to meet performance expectations related to quality, time to market, cost and innovation relative to our competitors. The failure to provide a more efficient and user-friendly customer-facing digital experience across internet and mobile platforms as well as in physical locations may adversely impact our business and operating results. There can be no assurance that our efforts to update and integrate systems will be successful. If we do not integrate and update our systems in a timely manner, or if our investments in technology fail to provide the expected results, there could be a material adverse effect to our business and results of operations. The failure to continually develop enhancements and use of technologies such as robotics and other workflow automation tools, natural language processing, and artificial intelligence/machine learning may impact our ability to increase the efficiency of and reduce costs associated with operational risk management and compliance activities.\n\n\n\u00a0\n\n\nWe may experience software defects, undetected errors, and development delays, which could damage our relationship with clients, decrease our potential profitability and expose us to liability.\n\n\n\u00a0\n\n\nOur solutions rely on software and computing systems that can encounter development delays, and the underlying software may contain undetected errors, viruses or defects. Defects in our solutions and errors or delays caused by our solutions could result in additional development costs, diversion of technical and other resources from our other development efforts, loss of credibility with current or potential clients, harm to our reputation and exposure to liability. In addition, we rely on technologies and software supplied by third parties that may also contain undetected errors, viruses or defects that could have a material adverse effect on our business, financial condition, results of operations and cash flows.\n\n\n\u00a0\n\n\nWe could be subject to reduced revenues, increased costs, liability claims, or harm to our competitive position as a result of cyberattacks, security vulnerabilities or Internet disruptions.\n \n\n\n\u00a0\n\n\nWe rely upon information technology (\u201cIT\u201d) networks, cloud-based platforms, and systems to process, transmit, and store\n \nelectronic information, and to support a variety of business processes, some of which are provided by third-party vendors. Cyberattacks and security threats are a\n \nrisk to our business and reputation. A cyberattack, unauthorized intrusion, malicious software infiltration, network disruption or outage, corruption of data, or theft\n \nof personal or other sensitive information, could have a material adverse effect on our business operations or that of our clients, result in liability or regulatory\n \nsanction, or cause harm to our business and reputation and result in a loss in confidence in our ability to serve clients all of which could have a material adverse\n \neffect on our business. The rapid speed of disruptive innovations involving cyberattacks, security vulnerabilities and Internet disruptions enabled by new and\n \nemerging technologies may outpace our organization's ability to compete and/or manage the risk appropriately. In addition, cybercriminals may seek to engage in payment-related fraud or by more frequently attempting to gain access to our systems\n \nthrough phishing or other means. Furthermore, security industry experts and government officials have warned about the risks of hackers and cyberattacks targeting IT products and businesses. Because techniques used to obtain unauthorized access or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.\n\n\n\u00a0\n\n\n11\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nData Security and Privacy Leaks\n: We collect, use, and retain increasingly large amounts of personal information about our clients, employees of our clients, and our employees, including: bank account, credit card, and social security numbers, tax return information, health care information, retirement account information, payroll information, system and network passwords, and other sensitive personal and business information. At the same time, the continued occurrence of high-profile cyber and ransomware attacks and data breaches provides evidence of an external environment increasingly hostile to information security. We may be particularly targeted for cyberattack because of the amount and type of personal and business information that we collect, use, and retain. Vulnerabilities, threats, and more sophisticated and targeted computer crimes pose a risk to the security of our systems and networks, and the confidentiality, availability, and integrity of our data. Furthermore, if any of our solutions contains a software vulnerability, the vulnerability may be exploited to obtain access to our data or our clients\u2019 data.\n\n\n\u00a0\n\n\nOur service platforms enable our clients to store and process personal data on premises or, increasingly, in a cloud-based environment that we host. The security of our IT infrastructure is an important consideration in our customers\u2019 purchasing decisions. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, are increasingly more complex and sophisticated and may be difficult to detect for long periods of time, we may be unable or fail to anticipate these techniques or implement adequate or timely preventative or responsive measures. As cyber threats continue to evolve, we are focused on ensuring that our operating environments safeguard and protect personal and business information. We may be required to invest significant additional resources to comply with evolving cybersecurity regulations and to modify and enhance our information security and controls, and to investigate and remediate any security vulnerabilities. While we have security systems and IT infrastructure in place designed to detect and protect against unauthorized access to such information, if our security measures are breached, either internally or externally, our business could be substantially harmed, and we could incur significant liabilities. Any such breach or unauthorized access could negatively affect our ability to attract new clients, cause existing clients to terminate their agreements with us, result in reputational damage, and subject us to lawsuits, regulatory fines, or other actions or liabilities which could materially and adversely affect our business and operating results. Third-parties, including vendors that provide services for our operations, could also be a source of security risk to us in the event of a failure of their own security systems and infrastructure.\n \n\n\n\u00a0\n\n\nData Loss and Business Interruption:\n If our systems are disrupted or fail for any reason, including Internet or systems failure, or if our systems are infiltrated by unauthorized persons, both the Company and our clients could experience data loss, financial loss, harm to reputation, or significant business interruption. Hardware, applications, and services, including cloud-based services, that we develop or procure from third-party vendors may contain defects in design or other problems that could compromise the integrity and availability of our services. Any delays or failures caused by network outages, software or hardware failures, or other data processing disruptions, could result in our inability to provide services in a timely fashion or at all. The speed to closure of significant cybersecurity incidents may be influenced by the cooperation of governmental or law enforcement agencies. We may be required to incur significant costs to protect against damage caused by disruptions or security breaches in the future. Such events may expose us to unexpected liability, litigation, regulatory investigation and penalties, loss of clients\u2019 business, unfavorable impact to business reputation, and there could be a material adverse effect on our business and results of operations.\n\n\n\u00a0\n\n\nIn the event of a catastrophe, our business continuity plan may fail, which could result in the loss of client data and adversely interrupt operations.\n \n\n\n\u00a0\n\n\nOur operations are dependent on our ability to protect our infrastructure against damage from catastrophe or natural disaster, unauthorized security breach, power loss, telecommunications failure, terrorist attack or act of war, public health emergency, pandemic, or other events that could have a significant disruptive effect on our operations. Climate-related weather disasters, including hurricanes, flooding, snowstorms, and severe rainstorms, could also threaten the business continuity of our operations. We have a business continuity plan in place in the event of system failure due to any of these events. Our business continuity plan has been tested in the past by circumstances of severe weather, including hurricanes, floods, snowstorms, and rainstorms and has been successful. However, these past successes are not an indicator of success in the future. If the business continuity plan is unsuccessful in a disaster recovery scenario, we could potentially lose client data or experience material adverse interruptions to our operations or delivery of services to our clients.\n\n\n\u00a0\n\n\nWe may be adversely impacted by any failure of third-party service providers to perform their functions.\n \n\n\n\u00a0\n\n\nAs part of providing services to clients, we rely on a number of third-party service providers. Service providers include, but are not limited to, couriers used to deliver client payroll checks, banks used to electronically transfer funds from clients to their employees, and information technology vendors servicing cloud-based platforms. Failure by these service providers, for any reason, to deliver their services in a timely manner and in compliance with applicable laws and regulations could result in material interruptions to our operations, impact client relations, and result in significant penalties or liabilities to us.\n\n\n12\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u00a0\n\n\nWe may be exposed to additional risks related to our co-employment relationship within our PEO business.\n \n\n\n\u00a0\n\n\nMany federal and state laws that apply to the employer-employee relationship do not specifically address the obligations and responsibilities of the \u201cco-employment\u201d relationship within our PEO business. State and federal positions regarding co-employment relationships are in a constant state of flux and change with varying degrees of impact on our operations. We cannot predict when changes will occur or forecast whether any future changes will be favorable or unfavorable to our operations. There is a possibility that we may be subject to liability for violations of employment or discrimination laws by our clients and acts or omissions of client employees, who may be deemed to be our agents, even if we do not participate in any such acts or violations. Although our agreements with clients provide that they will indemnify us for any liability attributable to their own or their employees\u2019 conduct, we may not be able to effectively enforce or collect such contractual obligations. In addition, we could be subject to liabilities with respect to our employee benefit plans if it were determined that we are not the \u201cemployer\u201d under any applicable state or federal laws. Incurring additional liabilities related to our PEO business may adversely affect our results of operations.\n\n\n\u00a0\n\n\nWe may be adversely impacted by changes in health insurance and workers\u2019 compensation rates and underlying claims trends.\n \n\n\n\u00a0\n\n\nWithin our PEO business, we maintain health and workers\u2019 compensation insurance covering worksite employees. The insurance costs are impacted by claims experience and are a significant portion of our PEO costs. If we experience a sudden or unexpected increase in claims activity, our costs could increase. In addition, in the event of expiration or cancellation of existing contracts, we may not be able to secure replacement contracts on competitive terms, if at all. Also, as a co-employer in the PEO, we assume or share many of the employer-related responsibilities associated with health care reform, which may result in increased costs. Increases in costs not incorporated into service fees timely or fully could have a material adverse effect on our results of operations. Incorporating cost increases into service fees could also impact our ability to attract and retain clients.\n\n\n\u00a0\n\n\nWe made and may continue to make acquisitions that involve numerous risks and uncertainties.\n \n\n\n\u00a0\n\n\nAcquisitions subject us to risks, including increased debt, assumption of unforeseen liabilities, and difficulties in integrating operations. Successful integration involves many challenges, including the difficulty of developing and marketing new solutions and support, our exposure to unforeseen liabilities of acquired companies, and the loss of key employees of an acquired business. The integration and conversion of our acquired operations or other future acquisitions, if any, could result in increased operating costs if the anticipated synergies of operating these businesses as one are not achieved, a loss of strategic opportunities if management is distracted by the integration process, and a loss of customers if our service levels drop during or following the integration process. In addition, an acquisition could adversely impact cash flows and/or operating results, and dilute stockholder interests, for many reasons, including charges to our income to reflect the impairment of acquired intangible assets including goodwill, interest costs and debt service requirements for any debt incurred in connection with an acquisition, and any issuance of securities in connection with an acquisition or new business venture that dilutes or lessens the rights of our current stockholders. If the integration of any or all of our acquisitions or future acquisitions is not successful, it could have a material adverse impact on our operating results and stock price.\n\n\n\u00a0\n\n\nFinancial Risks\n\n\n\u00a0\n\n\nOur clients could have insufficient funds to cover payments we made on their behalf, resulting in financial loss to us.\n \n\n\n\u00a0\n\n\nAs part of our payroll processing service, we are authorized by our clients to transfer money from their accounts to fund amounts owed to their employees and various taxing authorities. It is possible that we could be held liable for such amounts in the event the client has insufficient funds to cover them. We have in the past, and may in the future, make payments on our clients\u2019 behalf for which we may not be reimbursed, resulting in loss to us. If a significant number of our clients are unable to cover payments we make on their behalf, our results of operations will be materially adversely impacted.\n\n\n\u00a0\n\n\nOur interest earned on funds held for clients may be impacted by changes in government regulations mandating the amount of tax withheld or timing of remittance.\n \n\n\n\u00a0\n\n\nWe receive interest income from investing client funds collected but not yet remitted to applicable tax or regulatory agencies or to client employees.\n \nA change in regulations either decreasing the amount of taxes to be withheld or allowing less time to remit taxes to applicable tax or regulatory agencies could\n \nadversely impact interest income.\n\n\n13\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u00a0\n\n\nCertain of our debt agreements contain covenants that may constrain the operation of our business, and our failure to comply with these covenants could have a material adverse effect on our financial condition.\n\n\n\u00a0\n\n\nThe Note Purchase and Guarantee Agreement (the \u201cAgreement\u201d) that we entered into in January 2019\n \nin connection with our acquisition of Oasis Outsourcing Group Holdings, L.P., contains covenants which may restrict our flexibility to operate our business. These covenants include restrictions regarding the incurrence of liens and indebtedness, substantial changes in the general nature of our business and our subsidiaries (taken as a whole), certain merger\n \ntransactions, certain sales of assets and other matters, all subject to certain exceptions. The Agreement also contains financial covenants, which are reviewed for\n \ncompliance on a quarterly basis, that require us not to exceed a maximum leverage ratio of 3.5:1.0 and a minimum interest coverage ratio of 2.0:1.0. In\n \naddition, certain of our indebtedness may not exceed 20% of our consolidated stockholders\u2019 equity. If we do not comply with these covenants, it could result in\n \nmaterial adverse effects on our operating results and our financial condition.\n\n\n\u00a0\n\n\nLegal, Regulatory and Political Risks\n\n\n\u00a0\n\n\nOur business, services, and financial condition may be adversely impacted by changes in government regulations and policies.\n\n\n\u00a0\n\n\nMany of our services, particularly payroll tax administration services, employee benefit plan administration services, and PEO services are designed according to government regulations that often change. Changes in regulations could affect the extent and type of benefits employers are required, or may choose, to provide employees or the amount and type of taxes employers and employees are required to pay. Such changes could reduce or eliminate the need for some of our services and substantially decrease our revenue. The addition of complex added requirements could also increase our cost of doing business.\n\n\n\u00a0\n\n\nOur business and reputation may be adversely impacted if we fail to comply with U.S. and foreign laws and regulations.\n \n\n\n\u00a0\n\n\nOur services are subject to various laws and regulations, including, but not limited to, the SECURE Act 2.0, data privacy regulations, and anti-money laundering rules. The growth of our international operations also subjects us to additional risks, such as compliance with foreign laws and regulations. The enactment of new laws and regulations, modifications of existing laws and regulations, or the adverse application or interpretation of new or existing laws or regulations can adversely affect our business. Failure to update our services to comply with modified or new legislation in the areas of payment networks, health care reform and retirement plans as well as failure to educate and assist our clients regarding this legislation could adversely impact our business reputation and negatively impact our client base. Failure to comply with anti-money laundering laws and regulations, which require us to develop and implement risk-based anti-money laundering programs, and maintain transaction records, could result in civil and criminal penalties and adversely impact our business reputation.\n \n\n\n\u00a0\n\n\nWe are required to comply with regulations administered by multi-national bodies and governmental agencies worldwide including, but not limited to, the economic sanctions and embargo programs administered by the Office of Foreign Assets Control (\u201cOFAC\u201d), and the Foreign Corrupt Practices Act (\u201cFCPA\u201d). OFAC places restrictions on the sale or export of certain products and services to certain countries and persons. A violation of a sanction or embargo program, or of the FCPA, or similar laws prohibiting certain payments to governmental officials, could subject us, and individual employees, to a regulatory enforcement action as well as significant civil and criminal penalties which could adversely impact our business and operations.\n\n\n\u00a0\n\n\nOur reputation, results of operations, or financial condition may be adversely impacted if we fail to comply with data privacy laws and regulations.\n \n\n\n\u00a0\n\n\nOur solutions require the storage and transmission of proprietary and confidential information of our clients and their employees, including personal or identifying information, as well as geolocation and biometric data. Certain solutions are enhanced with the use of artificial intelligence and machine learning. Our solutions are subject to various complex government laws and regulations on the federal, state, and local levels, including those governing personal privacy, as well as ethical considerations. In the U.S., we are subject to rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Family Medical Leave Act of 1993, the ACA, federal and state labor and employment laws, and state data breach notification and data privacy laws, such as the California Consumer Privacy Act, as amended. Our European operations are subject to the European Union\u2019s General Data Privacy Regulation. Failure to comply with such laws and regulations could result in the imposition of consent orders or civil and criminal penalties, including fines, which could damage our reputation and have an adverse effect on our results of operations or financial condition. We could be subject to litigation or reputational risk if we or our third-party providers fail to utilize data practices sufficient to safeguard proprietary, confidential, and personal or identifying information. The regulatory\n \n\n\n14\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nframework for privacy issues is rapidly evolving and future enactment of more restrictive laws, rules, or regulations and/or future enforcement actions or investigations could have a materially adverse impact on us through increased costs or restrictions on our business and noncompliance could result in regulatory penalties and significant legal liability.\n\n\n\u00a0\n\n\nFailure to protect our intellectual property rights may harm our competitive position and litigation to protect our intellectual property rights or defend against third-party allegations of infringement may be costly.\n \n\n\n\u00a0\n\n\nDespite our efforts to protect our intellectual property and proprietary information, we may be\n \nunable to do so effectively in all cases. Our intellectual property could be wrongfully acquired as a result of a cyberattack or other wrongful conduct by employees\n \nor third-parties. To the extent that our intellectual property is not protected effectively by trademarks, copyrights, patents, or other means, other parties with\n \nknowledge of our intellectual property, including former employees, may seek to exploit our intellectual property for their own and others\u2019 advantage. Competitors\n \nmay also misappropriate our trademarks, copyrights or other intellectual property rights or duplicate our technology and solutions. Any significant impairment or\n \nmisappropriation of our intellectual property or proprietary information could harm our business and our brand and may adversely affect our ability to compete.\n \nThird parties may claim that we are infringing on their intellectual property rights. To the extent we seek to enforce or must defend our intellectual property rights\n \nwith litigation, we could incur significant expenses and/or be required to pay substantial damages. We may also be obligated to indemnify our customers or\n \nvendors in connection with claims or litigation. The litigation to enforce or defend our intellectual property rights could be costly and time-consuming.\n\n\n\u00a0\n\n\nWe are involved in litigation from time to time arising from the operation of our business and, as such, we could incur substantial judgments, fines, legal fees, or other costs.\n \n\n\n\u00a0\n\n\nWe are sometimes the subject of complaints or litigation from customers, employees, or other third-parties for various actions. From time to\n \ntime, we are involved in litigation involving claims related to, among other things, breach of contract, tortious conduct, and employment and labor law matters. The\n \ndamages sought against us in some of these litigation proceedings could be substantial. Although we maintain liability insurance for some litigation claims, if one\n \nor more of the claims were to greatly exceed our insurance coverage limits or if our insurance policies do not cover a claim, this could have a material adverse\n \neffect on our business, financial condition, results of operations, and cash flows.\n\n\n\u00a0\n\n\nGeneral Risk Factors\n \n\n\n\u00a0\n\n\nOur business, results of operations, and financial condition may be impacted by macroeconomic and/or political factors of the U.S. and global economy and such impact could be materially adverse.\n \n\n\n\u00a0\n\n\nWe and our clients are subject to the impacts related to inflationary pressure, the recent instability of the banking environment, and other macroeconomic and/or political events. Banking volatility may subject us and our clients to losses on uninsured funds and may make equity or debt financing more difficult to obtain, and additional equity or debt financing might not be available on reasonable terms, if at all. Additionally, our business is substantially dependent on our clients\u2019 continued use of our solutions and support, and our results of operations will decline if our clients are no longer willing or able to use them. Our clients are sensitive to negative changes in economic conditions. If they cease operations or file for bankruptcy protection, we may not be paid for services we already provided, and our client base will shrink, which will lower our revenue. If under financial pressure, our clients may determine that they are no longer willing to pay for the solutions and support we provide, which would reduce our revenue. Our clients may decrease their workforce, which would decrease their demand for our services. Because of spending constraints on our clients and competition in the industry, we may face pricing pressure on our services and challenges in onboarding new clients, which would reduce revenue and ultimately impact our results of operations. Furthermore, if the third-party service providers we rely on are unable to perform their services for us and our clients, our operations could be materially disrupted, and we could face significant penalties or liabilities.\n\n\n\u00a0\n\n\nWe may be adversely impacted by volatility in the political and economic environment.\n \n\n\n\u00a0\n\n\nTrade, monetary and fiscal policies, and political and economic conditions may substantially change, and credit markets may experience periods of constriction and variability. Additionally, instability in the banking environment may adversely affect our business. These conditions may impact our business due to lower transaction volumes or an increase in the number of clients going out of business. Further, rising inflation may negatively impact our business, raise costs and reduce profitability. Current or potential clients may decide to reduce their spending on payroll and other outsourcing services. In addition, new business formation may be affected by an inability to obtain credit.\n\n\n\u00a0\n\n\n15\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nWe invest our funds held for clients in high quality, investment-grade marketable available-for-sale (\u201cAFS\u201d) securities, money markets, and other cash equivalents. We also invest our corporate funds in short- to intermediate-term instruments. Funds held for clients and corporate investments are subject to general market, interest rate, credit, and liquidity risks. These risks may be exacerbated during periods of unusual financial market volatility and inflationary pressure. The interest we earn on funds held for clients and corporate investments may decrease as a result of a decline in funds available to invest or lower interest rates. In addition, during periods of volatility in the credit markets, certain types of investments may not be available to us or may become too risky for us to invest in, further reducing the interest we may earn on client funds. If we are unable to reinvest our AFS securities when they mature, our interest income earned and investment portfolio would be reduced. If we sell AFS securities to satisfy short-term funding requirements, we may recognize losses, which would further reduce the interest income earned on funds held for clients and corporate investments.\n\n\n\u00a0\n\n\nConstriction in the credit markets may impact the availability of financing, even to borrowers with the highest credit ratings. Historically, we have periodically borrowed against available credit arrangements to meet short-term liquidity needs. However, should we require additional short-term liquidity during days of large outflows of client funds, a credit constriction may limit our ability to access those funds or the flexibility to obtain them at interest rates that would be acceptable to us. Growth in services for funding payrolls of our clients in the temporary staffing industry may be constricted if access to financing becomes limited. In addition, our ability to grow through significant acquisitions may be limited. See also \u201cItem 7A. Quantitative and Qualitative Disclosures About Market Risk.\u201d If all of these financial and economic circumstances were to remain in effect for an extended period of time, there could be a material adverse effect on our results of operations and financial condition.\n\n\n\u00a0\n\n\nWe may not be able to attract and retain qualified people, which could impact the quality of our services and customer satisfaction.\n \n\n\n\u00a0\n\n\nOur success, growth, and financial results depend in part on our continuing ability to attract, retain, and motivate highly qualified and diverse personnel at all levels, including management, technical, compliance, and sales personnel. Competition for these individuals can be intense, and we may not be able to retain our key people, or attract, assimilate, or retain other highly-qualified individuals in the future, which could harm our future success.\n\n\n\u00a0\n\n\nIn the event we receive negative publicity, our reputation and the value of our brand could be harmed, and clients may not use our solutions and support, which may have a material adverse effect on our business.\n \n\n\n\u00a0\n\n\nWe are committed to good corporate citizenship, which is reflected in our company culture and core values. Disclosure of our corporate governance practices including our ESG initiatives, may draw negative publicity from stakeholders.\n\n\n\u00a0\n\n\nNegative publicity relating to events or activities attributed to us, our policies, our corporate employees, or others associated with us, whether or not justified, may tarnish our reputation and reduce the value of our brand. If we are unable to maintain quality HCM and employee benefit-related solutions and PEO and insurance solutions, our reputation with our clients may be harmed and the value of our brand may diminish. In addition, if\n \nour brand is negatively impacted, it may have a material adverse effect on our business, including challenges retaining clients or attracting new clients and\n \nrecruiting talent and retaining employees.\n \n\n\n\u00a0\n\n",
+  "item7": ">Item 7\n\n\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\n\n20\n\n\n\u00a0\n\n\n\n",
+  "item7a": ">Item 7A\n\n\nQuantitative and Qualitative Disclosures About Market Risk\n\n\n33\n\n\n\u00a0\n\n\n\n",
+  "cik": "723531",
+  "cusip6": "704326",
+  "cusip": ["704326107", "704326907", "704326957"],
+  "names": ["PAYCHEX INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/723531/000095017023032988/0000950170-23-032988-index.htm"
+}
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+{
+  "item1": ">ITEM 1.\n \nB\nUSINESS\n \n\n\nOverview\n \n\n\nFedEx Corporation (\u201cFedEx\u201d) was incorporated in Delaware on October 2, 1997 to serve as the parent holding company and provide strategic direction to the FedEx portfolio of companies. FedEx provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce, and business services, offering integrated business solutions through operating companies competing collectively, operating collaboratively, and innovating digitally as one FedEx. These companies are included in the following reportable business segments:\n \n\n\n\u00a0\n\n\n\u0095    \nFedEx Express\n: Federal Express Corporation (\u201cFedEx Express\u201d) is the world\u2019s largest express transportation company, offering time-definite delivery to more than 220 countries and territories, connecting markets that comprise more than 99% of the world\u2019s gross domestic product.\n \n\n\n\u00a0\n\n\n\u0095    \nFedEx Ground\n: FedEx Ground Package System, Inc. (\u201cFedEx Ground\u201d) is a leading North American provider of small-package ground delivery services. FedEx Ground provides low-cost, day-certain service to any business address in the U.S. and Canada, as well as residential delivery to 100% of U.S. residences through its FedEx Home Delivery service. FedEx Ground Economy specializes in the consolidation and delivery of high volumes of low-weight, less time-sensitive business-to-consumer packages.\n \n\n\n\u00a0\n\n\n\u0095    \nFedEx Freight\n: FedEx Freight Corporation (\u201cFedEx Freight\u201d) is a leading North American provider of less-than-truckload (\u201cLTL\u201d) freight transportation services across all lengths of haul to businesses and residences. Within the contiguous U.S., FedEx Freight offers FedEx Freight Priority, when speed is critical to meet a customer\u2019s supply chain needs; FedEx Freight Economy, when a customer can trade time for cost savings; and FedEx Freight Direct, a service to meet the needs of the growing e-commerce market for delivery of big and bulky products to or through the door for residences and businesses. FedEx Freight also offers freight delivery service to most points in Puerto Rico and the U.S. Virgin Islands.\n \n\n\n\u00a0\n\n\n\u0095    \nFedEx Services\n: FedEx Corporate Services, Inc. (\u201cFedEx Services\u201d) provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office functions that support our operating segments.\n \n\n\n\u00a0\n\n\nThe FedEx Dataworks, Inc. (\u201cFedEx Dataworks\u201d) operating segment is focused on creating solutions to transform the digital and physical experiences of our customers and team members. ShopRunner, Inc. (\u201cShopRunner\u201d) was merged into FedEx Dataworks during 2023. Additionally, the FedEx Office and Print Services, Inc. (\u201cFedEx Office\u201d) operating segment provides document and business services and retail access to our package transportation businesses and the FedEx Logistics, Inc. (\u201cFedEx Logistics\u201d) operating segment provides customs brokerage and global ocean and air freight forwarding through FedEx Trade Networks Transport & Brokerage, Inc. (\u201cFedEx Trade Networks Transport & Brokerage\u201d) and integrated supply chain management solutions through FedEx Supply Chain Distribution System, Inc. (\u201cFedEx Supply Chain\u201d). FedEx Dataworks, FedEx Office, and FedEx Logistics are included in \u201cCorporate, other, and eliminations\u201d in our segment reporting. For more information about FedEx Dataworks, FedEx Office, and FedEx Logistics, please see \u201cFedEx Dataworks Operating Segment,\u201d \u201cFedEx Office Operating Segment,\u201d and \u201cFedEx Logistics Operating Segment.\u201d\n \n\n\n \n\n\nFor more information about our reportable segments, please see \u201cBusiness Segments.\u201d For financial information concerning our reportable segments, refer to \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d and \u201cItem 8. Financial Statements and Supplementary Data\u201d of this Annual Report.\n\n\n\u00a0\n\n\nOur website is located at \nfedex.com\n. Detailed information about our services, e-commerce tools and solutions, and environmental, social, and governance (\u201cESG\u201d) initiatives can be found on our website. In addition, we make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all exhibits and amendments to such reports available, free of charge, through our website, as soon as reasonably practicable on the day they are filed with or furnished to the SEC. The Investor Relations page of our website, \ninvestors.fedex.com, \ncontains a significant amount of information about FedEx, including our SEC filings and financial and other information for investors. The information that we post on the Investor Relations page of our website could be deemed to be material information. We encourage investors, the media, and others interested in FedEx to visit this website from time to time, as information is updated and new information is posted. The information on our website, however, is not incorporated by reference in, and does not form part of, this Annual Report.\n \n\n\n\u00a0\n\n\n- \n2\n -\n\n\n\n\n\u00a0\n\n\nExcept as otherwise specified, any reference to a year indicates our fiscal year ended May 31 of the year referenced. References to our transportation segments include, collectively, the FedEx Express segment, the FedEx Ground segment, and the FedEx Freight segment.\n\n\n\u00a0\n\n\nOne FedEx and Network 2.0\n\n\n\u00a0\n\n\nIn the fourth quarter of 2023, we announced \u201cone FedEx\u201d, a consolidation plan to ultimately bring FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies into Federal Express Corporation, becoming a single company operating a unified, fully integrated air-ground network under the respected FedEx brand. FedEx Freight will continue to provide LTL freight transportation services as a stand-alone and separate company under Federal Express Corporation. The organizational redesign will be implemented in phases with full implementation expected in June 2024. One FedEx will help facilitate our DRIVE transformation program to improve long-term profitability, including Network 2.0, the multi-year effort to improve the efficiency with which FedEx picks up, transports, and delivers packages in the U.S. and Canada.\n \n\n\n\u00a0\n\n\nWe have announced the implementation of Network 2.0 in more than 20 markets, including the phased transition of all FedEx Ground operations and personnel in Canada to FedEx Express beginning in April 2024. Under Network 2.0, FedEx will continue to utilize both employees and contracted service providers. See \u201cBusiness Segments\u201d below, \u201cItem 1A. Risk Factors,\u201d and \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report for more information on one FedEx, Network 2.0, and DRIVE.\n\n\n\u00a0\n\n\nStrategy\n \n\n\n\u00a0\n\n\nThe collective FedEx brand gives us our competitive edge. Further, our strategy allows us to manage our business as a portfolio, in the long-term best interest of the enterprise. As a result, we base decisions on capital investment and service additions or enhancements upon achieving the highest overall long-term return on capital for our business as a whole. We focus on making appropriate investments in the technology and assets necessary to optimize our long-term earnings performance and cash flow. Our business strategy also provides flexibility in structuring our network to align with varying macroeconomic conditions and customer demand for the market segments in which they operate, allowing us to leverage and manage change. Volatility, uncertainty, and evolution have become the norms in the global transportation market, and we are able to use our flexibility to accommodate changing conditions in the global economy.\n\n\n \n\n\nOver the last 50 years, we built networks that have created a differentiated and unmatched portfolio of services while continuously evolving to meet the changing needs of our customers and the market. We made significant investments in our service network in recent years to build out our infrastructure and services to meet increased e-commerce demand. Through one FedEx and Network 2.0, we are building a simplified experience to better serve our customers with enhanced capabilities and transforming to operate with more flexibility, efficiency, and intelligence. One FedEx and Network 2.0 will leverage the strength of our networks, people, and assets in more efficient ways, enabling a distinct focus on air and international volume while facilitating a more holistic approach to how we move packages on the ground.\n\n\n \n\n\nInnovation inspired our start at FedEx 50 years ago, and it is fueling our future as we combine logistics with digital intelligence. Leveraging the capabilities of FedEx Dataworks, developments in data and technology are facilitating the execution of our DRIVE transformation by creating new opportunities to improve our operational efficiency by optimizing our existing physical capacity and staffing. See \u201cBusiness Segments\u201d below for more information. Additionally, the size and scale of our global network gives us key insights into global supply chains and trends. This foundation provides an immense amount of data we can use to build better insights, improve the customer experience, and differentiate our service offering. To fully harness the power of this data, FedEx Dataworks is focused on putting our data into context and using it to enhance the efficiency of the FedEx network and our customers\u2019 supply chains, as well as the end-to-end experience of our customers.\n \n\n\n \n\n\n\u201cSafety Above All\u201d is the first and foremost value in every aspect of our business. We are committed to making our workplaces and communities safer for our team members, customers, and the public. This philosophy is embedded in our day-to-day work through rigorous policies, continual education and engagement, and investments in technology designed to prevent accidents.\n\n\n \n\n\nThrough our global transportation, information technology, and retail networks, we help to facilitate an ongoing and unprecedented expansion of customer access \u2014 to goods, services, and information. We believe it would be extremely difficult, costly, and time-consuming to replicate our global network, which reflects decades of investment, innovation, and expertise, includes the world\u2019s largest all-cargo air fleet, and connects more than 99% of the world\u2019s gross domestic product. We continue to position our company and team members to facilitate and capitalize on this access and to achieve stronger long-term growth, productivity, and profitability.\n\n\n \n\n\n- \n3\n -\n\n\n\n\n\u00a0\n\n\nDuring 2023 and early 2024, we introduced and expanded a number of innovative solutions, advanced important long-term business initiatives, and made other important investments that benefit our customers, team members, communities, and other stakeholders, including:\n\n\n\u00a0\n\n\n\u0095    Launching DRIVE, a comprehensive program to improve our long-term profitability, including Network 2.0, the multi-year effort to improve the efficiency with which FedEx picks up, transports, and delivers packages in the U.S. and Canada.\n\n\n\u00a0\n\n\n\u0095    Announcing one FedEx, our consolidation plan to ultimately bring FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies into Federal Express Corporation, becoming a single company operating a unified, fully integrated air-ground network.\n\n\n\u00a0\n\n\n\u0095    Expanding Picture Proof of Delivery to 90% of global residential deliveries.\n\n\n\u00a0\n\n\n\u0095    Improving service at FedEx Express and FedEx Ground through the reopening and completion of intra-European road hubs and continued enhancements to route optimization and package handler scheduling technologies.\n\n\n\u00a0\n\n\n\u0095    Offering FedEx Consolidated Returns in the U.S., a low-priced, customer-friendly e-commerce returns option facilitated through supply chain services offered by FedEx Logistics and FedEx Office.\n\n\n\u00a0\n\n\n\u0095    Introducing FedEx Sustainability Insights in the U.S., a cloud-based engine that harnesses scan data from our global logistics network to enhance customer access to emissions information.\n\n\n\u00a0\n\n\n\u0095    Exceeding our FedEx Cares 50 by 50 goal of positively impacting 50 million people around the world by our 50\nth\n anniversary in April 2023.\n\n\nReputation and Responsibility\n \n\n\n\u00a0\n\n\nFedEx is one of the most trusted and respected companies in the world, and the FedEx brand name is a powerful sales and marketing tool. Among the many reputation awards we received during 2023, FedEx ranked 18\nth  \nin \nFORTUNE\n magazine\u2019s \u201cWorld\u2019s Most Admired Companies\u201d list \u2014 the 23\nrd\n consecutive year FedEx has ranked among the top 20 in the \nFORTUNE\n Most Admired Companies list, with 15 of those years ranking among the top 10. We also retained our position as the highest ranked delivery company on the \u201cWorld\u2019s Most Admired Companies\u201d list. \nAdditionally, in 2023 Ethisphere, a global leader in defining and advancing the standards of ethical business practices, named FedEx as one of the World\u2019s Most Ethical Companies\u00ae.\n \n\n\n\u00a0\n\n\nAlong with a strong reputation among customers and the general public, FedEx is widely acknowledged as a great place to work. For example, in 2023 FedEx was named the 21\nst\n best workplace overall in \nFORTUNE\n magazine\u2019s list of the \u201cWorld\u2019s Best Workplaces.\u201d\n \n\n\n\u00a0\n\n\nThe success of our efforts is built on our sound ESG practices, which are aligned with our strategic focus. Our 2023 ESG Report is available at \nfedex.com/en-us/sustainability/reports.html\n. This report details progress toward our ESG strategies, goals, and initiatives and our approach toward industry leadership in ESG to support our strategy and values. Information in our ESG Report is not incorporated by reference in, and does not form part of, this Annual Report.\n\n\n\u00a0\n\n\nWe remain committed to helping lift local economies by investing in people and communities where we live and work. In the U.S., this includes seeking diverse suppliers and strengthening our supply chain by sourcing from small, minority-, and women-owned businesses. We are also proud of our long-standing history of supporting and fostering relationships with organizations that are working to make our society more equitable and just, such as the National Association for the Advancement of Colored People and the National Civil Rights Museum.\n \n\n\nHuman Resource Management\n\n\n\u00a0\n\n\nOur Culture\n\n\n \n\n\nAt FedEx, it is our people\u2014our greatest asset\u2014that stand at the heart of our success and are the foundation of our strong reputation. Our exemplary human network defines who we are and what kind of business we want to be. Ultimately, our success depends on our people\u2019s talent, dedication, and well-being. We strive to recruit, retain, develop, and support our team members as we grow globally. \nThe Compensation and Human Resources Committee of our Board of Directors reviews and discusses with management our key human resource management strategies and programs, including company culture and diversity, equity, and inclusion (\u201cDEI\u201d).\n\n\n- \n4\n -\n\n\n\n\n\u00a0\n\n\n \n\n\nThroughout our 50-year history, the FedEx culture has driven our success. \nOur five culture values\n\u2014\ntake care of each other, commit to do good, drive business results, own outstanding, and create what\u2019s next\n\u2014unify all our operating companies and empower us to support our strategy and values. These values are grounded in our Quality Driven Management system, the Purple Promise to make every FedEx experience outstanding, and our People\u2013Service\u2013Profit philosophy, which we bring to life by:\n \n\n\n\u00a0\n\n\n\u0095     Prioritizing safety.\n\n\n\u0095     Taking care of our team members.\n\n\n\u0095     Embracing DEI so everyone feels appreciated and valued.\n\n\n\u0095     Delivering excellence and value for our customers and stockholders.\n\n\n\u0095     Acting with integrity in all that we do.\n\n\n\u0095     Supporting our communities.\n\n\n\u0095     Helping shape a better world.\n\n\n\u0095     Growing profitably to reinvest in our team members and business.\n\n\nUltimately, our success depends on the talent, dedication, and well-being of our people. As we grow, we strive to recruit, retain, develop, and provide advancement opportunities for our team members. We continually work to make FedEx an inclusive, equitable, and growth-focused workplace where all team members have the opportunity to flourish.\n\n\n\u00a0\n\n\nHealth and Safety\n\n\n \n\n\nOur highest priority is the well-being, health, and safety of all our employees. Our \u201cSafety Above All\u201d philosophy is the first and foremost value in every aspect of our business and is key to maintaining a successful and safe business. Our detailed safety policies, education, and technology investments are embedded into our day-to-day work and help us follow through on our commitment to make our workplaces and communities safer for our team members, customers, and communities. The Governance, Safety, and Public Policy Committee of our Board of Directors oversees our safety strategies, policies, programs, and practices.\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nDiversity, Equity, and Inclusion Creates Opportunity\n \nWe believe that DEI delivers a better future for all team members, customers, suppliers, and communities. As a global business, we value the diversity of perspectives, backgrounds, and experiences of our people and recognize DEI is essential to our success and the communities we serve. DEI fosters collaboration, enables us to recruit, retain, and develop a talented workforce, and underpins our business performance and sustainability. The continued integration of DEI into our business strategies and progress towards our DEI objectives supported our ability to respond to the challenging labor market our industry faced in recent years.\n \nFedEx has a long-standing commitment to fully embrace DEI throughout our organization, from the Board of Directors to every employee. This commitment is communicated through our DEI framework and four strategic pillars: Our People; Our Education and Engagement; Our Communities, Customers, and Suppliers; and Our Story. We continue to roll out programs to ensure our people are engaged and can develop at FedEx. The FedEx Ground workforce career track program, Purple Pathways, directly targets our most diverse population, frontline managers and package handlers, to support their career growth.\n \nTo further our transparency efforts regarding our workforce composition, we report the prior year\u2019s gender, racial, and ethnic composition of our U.S. workforce by EEO-1 job category, as set forth in the consolidated EEO-1 Reports filed by FedEx and its operating subsidiaries with the Equal Employment Opportunity Commission. These reports can be found on our DEI webpage at \nfedex.com/en-us/about/diversity-inclusion.html\n.\n\u00a0\nQuality of Life\n \nTo support the well-being of our employees and their families, we provide the resources they need to thrive at work and at home. All eligible full- and part-time team members are equipped with competitive benefits, including healthcare, wellness, paid sick leave, other flexible paid time off, and other benefits. To ensure our benefits and compensation stay competitive, we conduct periodic peer benchmarking and internal pay equity analyses.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n- \n5\n -\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAll eligible full- and part-time employees and their eligible dependents receive competitive health benefits. In the U.S., we cover approximately 70% of total eligible health and disability costs at the plan level for approximately 212,000 participating employees as of May 2023. Additionally, we offer competitive time-off that is based on feedback from our team members about what is important to them, and provide 24/7 confidential counseling services to support the mental health and well-being of our employees and their household members. We frequently communicate with employees on how to access these resources to promote their use across the enterprise, with an increased focus on mental health resources in recent years.\n\n\n\u00a0\n\n\nLearning and Development\n\n\n \n\n\nAt FedEx, we are committed to helping our team members grow and further develop their careers. We proactively evolve our operating companies\u2019 learning frameworks to meet emerging trends and align existing competencies to future capabilities and skillsets to future-proof talent needs. Our learning and development opportunities increase team member engagement, improve retention, and enhance the employee value proposition. Across the enterprise, we tailor our Core New Employee Orientation to best fit team member responsibilities in their local workplace. This onboarding experience covers topics such as safety, security, compliance, sustainability, and DEI. After orientation, the FedEx Learning Center is available with more than 25,000 online courses to enable a more efficient and convenient learning experience.\n\n\n \n\n\nWe are committed to supporting team members who wish to pursue higher education in a variety of ways. The Learning inspired by FedEx (LiFE) program \u2014 a partnership between multiple FedEx operating companies and The University of Memphis\u2014offers a suite of education benefits, including tuition-free, fully online degree options for over 30 associate\u2019s and bachelor\u2019s programs of study. Eligible employees include all FedEx Express employees at all hub and airport locations in the U.S. as well as all U.S.-based FedEx Logistics and FedEx Freight employees and all Memphis-based FedEx Supply Chain employees. In 2022, we expanded the LiFE program to include all majors The University of Memphis offers online and added mentoring opportunities. We are exploring opportunities to implement similar programs outside the U.S.\n\n\n \n\n\nTalent Acquisition, Engagement, and Turnover\n\n\n \n\n\nOur recruiting practices enable us to build a talented employee base representative of the communities we serve. We continue to refine our approach to talent acquisition through technology and other human resource management strategies, leveraging technology to make our hiring process more efficient. We value feedback from our team members and provide several avenues of engagement, such as annual surveys, employee networks, and direct feedback. These methods allow us to better understand employee concerns and expectations, and results from these engagements inform our future strategies. Annually, we conduct an engagement survey to measure employee insights on our culture, engagement, and diversity.\n\n\n \n\n\nWe work to provide employees with flexible work structures. Depending on the operating company and team member responsibilities, we use a flexible work model that allows our people to work in ways that make the most sense to them. We are constantly monitoring and adjusting our strategy as we learn of new developments and use survey data at the local, national, and enterprise levels to inform our strategy.\n \n\n\n \n\n\nGlobally, in 2022, we hired over 558,000 full- and part-time team members. Turnover for part-time team members, primarily package handlers at our sorting locations, was 205%, while full-time team member turnover was 32% in 2023. Turnover rates among part-time frontline workers in a number of industries are historically higher than among other employee groups. Within the ground transportation industry, many part-time workers pursue temporary employment opportunities that allow them to exit and re-enter the workforce more frequently based on their needs. These traditionally higher rates have recently been further exacerbated by the highly competitive labor market.\n\n\n \n\n\nOther Information\n\n\n \n\n\nAs of May 31, 2023, FedEx employed approximately 328,000 permanent full-time and approximately 201,000 permanent part-time employees, and FedEx Ground utilized nearly 7,000 contracted service providers.\n\n\n \n\n\nThe pilots at FedEx Express, who are a small number of its total employees, are represented by the Air Line Pilots Association, International (\u201cALPA\u201d) and are employed under a collective bargaining agreement that took effect on November 2, 2015. The agreement became amendable in November 2021. Bargaining for a successor agreement began in May 2021, and in November 2022 the National Mediation Board (\u201cNMB\u201d) began actively mediating the negotiations. In May 2023, FedEx Express reached a tentative successor agreement with ALPA. The tentative agreement was approved by ALPA\u2019s FedEx Express Master Executive Council in June 2023 and is being presented to FedEx Express\u2019s pilots for ratification during the first quarter of 2024. The ongoing ratification process has no effect on our operations.\n\n\n- \n6\n -\n\n\n\n\n\u00a0\n\n\n \n\n\nA small number of our other employees are members of unions. For additional information, see \u201cFedEx Express Segment\u201d and \u201cRegulation\u201d below and \u201cItem 1A. Risk Factors.\u201d\n\n\n\u00a0\n\n\nOur Community\n \n\n\n\u00a0\n\n\nFedEx is committed to actively supporting the communities we serve worldwide through the strategic investment of our people, resources, and network. Through FedEx Cares, our global community engagement program, we support non-profit organizations working to solve social challenges relevant to our business, customers, and team members. We pair donations with charitable shipping and access to our global network, team member volunteers, subject matter expertise, influence, and connections to meet social and business goals. We make our biggest investments in areas where we can address significant issues and apply our unique business capabilities. Real change takes significant investment, authentic support for communities, and a commitment to continuous learning. FedEx Cares focuses on three major giving pillars:\n\n\n\u00a0\n\n\n\u0095   \nDelivering for Good\n: Lending our global network and unparalleled logistics expertise to organizations with mission-critical needs in times of disaster and helping communities heal, learn, and thrive.\n \n\n\n\u00a0\n\n\n\u0095    \nGlobal Entrepreneurship\n: Advancing women and minority-owned small businesses globally through training and increased access to resources, capital, and new markets.\n\n\n\u00a0\n\n\n\u0095    \nSustainable Logistics\n: Accelerating process innovations such as public transportation and technological innovations such as natural carbon capture and clean energy to reduce the environmental impact of the logistics industry.\n \n\n\n\u00a0\n\n\nAdditionally, our commitments to DEI and team member volunteerism are foundational to FedEx Cares.\n\n\n\u00a0\n\n\nIn 2023 we exceeded our FedEx Cares 50 by 50 goal of positively impacting 50 million people around the world by our 50\nth\n anniversary in April 2023. We also launched a \u201c50 Days of Caring\u201d initiative leading up to the anniversary during which FedEx team members gave back to their communities through service projects around the world and created the FedEx Founder\u2019s Fund \u2014 a philanthropic endowment honoring Frederick W. Smith and his legacy as a business leader and changemaker in communities around the world. Additionally, FedEx supports communities throughout the U.S. with its FedEx Cares Employee Giving program.\n \n\n\n\u00a0\n\n\nWe believe the investments we make in our communities today, combined with team member engagement, set the stage for a brighter tomorrow. For additional information on our community involvement and our FedEx Cares strategy, visit \nfedexcares.com\n.\n\n\n\u00a0\n\n\nThe Environment\n \n\n\n\u00a0\n\n\nOur \u201cPractical Sustainability\u201d philosophy and \u201cReduce, Replace, Revolutionize\u201d approach guide our sustainability strategy. At FedEx, we recognize our business\u2019s effect on the environment and communities we serve, including greenhouse gas (\u201cGHG\u201d) criteria air pollutant emissions, noise pollution, and waste generation from packaging, and remain steadfast in our commitment to minimize these impacts. We are also cognizant of the effect climate change could have on our business operations. In our business planning and strategy, we consider events such as intensified weather, GHG emissions regulations, increased media and investor attention, and enhanced customer demands to address environmental challenges. FedEx has 50 years of experience proactively addressing unexpected situations, such as severe weather events, and we maintain system flexibility to minimize impacts on our customers. While climate change poses a strategic risk to our business and stakeholders, we recognize the opportunities it simultaneously creates around sustainable products and services that advance our customers\u2019 environmental goals.\n \n\n\n\u00a0\n\n\nWe align our assessment and reporting approach with the recommendations from the Global Reporting Initiative, Sustainability Accounting Standards Board, and the Task Force on Climate-related Financial Disclosures. Our approach is informed by the climate-related physical and transition risks we identify through our enterprise risk management process. Climate change-related risks and opportunities are assessed as part of our annual risk assessment process, and we continue to closely monitor public attitudes, geopolitical concerns, and global regulations.\n\n\n\u00a0\n\n\nIn 2021 we announced our goal to achieve carbon neutrality by calendar 2040 across our global operations\u2019 Scope 1 and Scope 2 GHG emissions and our Scope 3 contracted transportation emissions. To help reach this goal, we designated $2.0 billion of initial investment towards vehicle electrification, sustainable energy, and carbon sequestration, including a pledge of $100 million to Yale University to help establish the Yale Center for Natural Carbon Capture. In addition, we continue to leverage other approaches to reduce aircraft and vehicle emissions, such as increased interline usage at FedEx Express and intermodal rail usage at FedEx Ground and FedEx Freight.\n\n\n\u00a0\n\n\n- \n7\n -\n\n\n\n\n\u00a0\n\n\nVehicle Electrification\n\n\n\u00a0\n\n\nElectrifying a substantial portion of our global fleet of motorized vehicles is a crucial component of our path to carbon-neutral operations. We plan to transition the entire FedEx parcel pickup-and-delivery fleet to zero-tailpipe emissions electric vehicles by calendar 2040, using a phased approach to replace existing vehicles. For example, by calendar 2025, we expect 50% of FedEx Express global pickup-and-delivery vehicle purchases will be electric, rising to 100% of all purchases by calendar 2030, subject to availability.\n \n\n\n\u00a0\n\n\nFedEx Express continues to expand its electric vehicle fleet through its relationship with General Motors\u2019 BrightDrop, and has taken delivery of 500 BrightDrop electric vehicles as of June 2023. FedEx Ground is developing a comprehensive strategy to facilitate the electric vehicle transition for our independent service providers, and is implementing the necessary infrastructure at our facilities to provide charging solutions. Additionally, FedEx Freight is evaluating electric vehicle opportunities to define scalable solutions for its entire fleet.\n\n\n\u00a0\n\n\nWe are actively building the innovative charging infrastructure required to support our growing fleet of electric vehicles across our vast network of facilities, and continue to electrify forklifts, airport ground service equipment, and other non-road vehicles across our operating companies to reduce fuel and maintenance costs. We understand that challenges remain, including electric vehicle availability, electrification of certain vehicle classes due to operational needs, legislative changes, grid capacity, and certain operating conditions. For more information, see \u201cItem 1A. Risk Factors\u201d of this Annual Report.\n \n\n\n\u00a0\n\n\nFleet efficiency enables ongoing fuel, emissions, and cost reductions as the industry works to address these challenges. FedEx Express has established a goal to increase vehicle fleet efficiency by 50% from a 2005 baseline by calendar 2025. Through 2022, our efforts collectively resulted in a 40% improvement in FedEx Express vehicle fleet efficiency from our 2005 baseline.\n \n\n\n\u00a0\n\n\nSustainable Fuels\n\n\n\u00a0\n\n\nTo reduce aircraft and vehicle emissions, we continue to pursue viable, cost-effective alternative fuels. Our global fleet of over 6,200 alternative fuel vehicles includes hybrid, electric, liquified or compressed natural gas, liquified petroleum gas, and hydrogen fuel cell vehicles, and we will continue to grow our alternative fuel fleet in the coming years, subject to availability. Decarbonizing heavyweight transportation is more challenging than parcel pickup-and-delivery vehicles due to the required mileage range and the time needed to refuel or charge. We continue to explore alternative fuels for certain vehicles not easily electrifiable.\n \n\n\n\u00a0\n\n\nWe have also established a goal of obtaining 30% of our annual jet fuel usage from blends of alternative fuels by calendar 2030. The U.S. government has passed legislation in recent years to incentivize production, and the EU recently adopted legislation implementing sustainable aviation fuel mandates. We understand the challenges the industry faces in deploying sustainable aviation fuel at scale and recognize other solutions may be needed to help the aviation industry improve efficiency and reduce emissions. To help accelerate solutions, we are members of the First Movers Coalition, participating in the Aviation Sector working group, a global initiative working to decarbonize hard-to-abate industrial sectors, including the aviation industry.\n\n\n\u00a0\n\n\nAircraft Fuel Conservation and Fleet Modernization\n\n\n\u00a0\n\n\nWe continuously work to reduce the environmental impact of our aircraft fleet. Since 2005, we reduced our overall aircraft emissions intensity by 28%, primarily due to our ongoing FedEx Fuel Sense and aircraft modernization initiatives. Our global FedEx Fuel Sense program, which accounted for 13 million gallons of jet fuel savings in 2022, enables us to reduce the cost of fuel use and associated GHG emissions.\n \n\n\n\u00a0\n\n\nAdditionally, our commitment to modernizing our aircraft fleet lowers costs, enhances reliability and operational adaptability, improves fuel efficiency, and reduces emissions intensity. During 2023, we retired our MD-10-30 fleet and accelerated the retirement of our MD-11 fleet to the end of 2028. See the \u201cResults of Operations and Outlook \u2014 Consolidated Results \u2014 Goodwill and Other Asset Impairment Charges\u201d section of \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report for more information on aircraft retirements during 2023.\n \n\n\n\u00a0\n\n\nWe took delivery of two Boeing 777 Freighter (\u201cB777F\u201d) aircraft in 2023, and plan to deploy an additional six B777F aircraft during 2024 and 2025. Similarly, we took delivery of 14 Boeing 767-300 Freighter (\u201cB767F\u201d) aircraft in 2023, and plan to deploy an additional 24 B767F aircraft during 2024 and 2025. Delays could impact these timelines. We also continue to deploy new ATR 72-600F aircraft for shorter feeder routes to replace our aging ATR-42 aircraft and Cessna SkyCourier 408 cargo aircraft to help reduce the number of planes needed per feeder route and further improve our fuel efficiency. For more information about our expected future aircraft deliveries, see \u201cItem 2. Properties\u201d of this Annual Report under the caption \u201cFedEx Express Segment\u201d and Note 17 of the accompanying consolidated financial statements.\n\n\n\u00a0\n\n\n- \n8\n -\n\n\n\n\n\u00a0\n\n\nFacilities\n\n\n\u00a0\n\n\nWe aim to continuously improve the sustainability, reduce the environmental impact, and increase the efficiency of our more than 5,000 air and ground hubs, local stations, freight service centers, and retail locations. While our energy demand is increasing to support electric vehicle deployment and charging infrastructure, we have increased our focus on facility energy management and off-site renewable energy procurement strategies to overcome this challenge. Energy management systems are essential to increasing efficiency at our facilities through monitoring, regulating, and optimizing our lighting, heating, ventilation, and air-conditioning equipment. In 2022, we generated on- and off-site solar energy at 29 locations across our operating companies.\n \n\n\n\u00a0\n\n\nWe adopt the Leadership in Energy and Environmental Design (\u201cLEED\u201d) standard in the U.S. and the Building Research Establishment Environmental Assessment Method (\u201cBREEAM\u201d) in Europe to guide efficient facility design when appropriate. FedEx Express and FedEx Freight seek LEED certification on all new construction, and in total FedEx has 44 LEED-certified facilities and 13 BREEAM-certified facilities across our operating companies.\n \n\n\n\u00a0\n\n\nTo reduce our operational waste footprint, we implement waste and recycling management processes in the U.S. We prioritize reducing our waste generation and recycling the waste we do produce.\n\n\n\u00a0\n\n\nSustainable Customer Solutions\n\n\n\u00a0\n\n\nFedEx works to minimize packaging materials, optimize customer package size and weight, increase shipping efficiency, and maximize recyclability to reduce the environmental impacts of packaging materials and transporting goods. We offer end-to-end sustainability for customers by supplying sustainable packaging solutions and exploring carbon-neutral shipping opportunities. FedEx-branded cardboard packaging is 100% recyclable and contains an average of 36% recycled content. During 2022, 64% of FedEx-branded packaging was third-party certified and all paper purchased by FedEx Office was from vendors with responsible forest-management practices.\n\n\n\u00a0\n\n\nIn 2023, we introduced the FedEx Sustainability Insights tool in the U.S., which built upon our previous Customer Emissions Calculator, to increase accessibility for our customers and suppliers to estimate CO\n2\ne shipping emissions at package and account levels. Created by FedEx Dataworks, this cloud-based engine uses near-real time FedEx network data to estimate CO\n2\ne emissions for both individual tracking numbers and \nfedex.com \naccounts. Users can view historical emissions data by account as well as search by tracking number with their \nfedex.com\n login.\n \n\n\n\u00a0\n\n\nFor additional information on the ways we are minimizing our impact on the environment, see \nfedex.com/en-us/sustainability.html\n.\n\n\n\u00a0\n\n\nGovernance\n \n\n\n\u00a0\n\n\nThe FedEx Board of Directors is comprised of a majority of independent directors and is committed to the highest quality corporate governance and accountability to stockholders. Our Board of Directors periodically reviews all aspects of our governance policies and practices, including our Corporate Governance Guidelines (the \u201cGuidelines\u201d) and our Code of Conduct, in light of best practices and makes whatever changes it deems appropriate to further our longstanding commitment to the highest standards of corporate governance. The Guidelines and the Code of Conduct, which apply to all of our directors, officers, and employees, including our principal executive officer and senior financial officers, are available under the ESG heading under \u201cGovernance\u201d on the Investor Relations page of our website at \ninvestors.fedex.com\n. We will post under the ESG heading on the Investor Relations page of our website information regarding any amendment to, or waiver from, the provisions of the Code of Conduct to the extent such disclosure is required.\n \n\n\n\u00a0\n\n\nBusiness Segments\n \n\n\n\u00a0\n\n\nThe following describes in more detail the operations of each of our principal operating segments:\n \n\n\n\u00a0\n\n\nFedEx Express Segment\n \n\n\n\u00a0\n\n\nFedEx Express\n \n\n\n\u00a0\n\n\nOverview\n \n\n\n\u00a0\n\n\nFedEx Express invented express distribution 50 years ago in 1973 and remains the industry leader, providing rapid, reliable, time-definite delivery of packages and freight to more than 220 countries and territories through an integrated global network.\n \n\n\n \n\n\n- \n9\n -\n\n\n\n\n\u00a0\n\n\nFedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight, connecting markets that generate more than 99% of the world\u2019s gross domestic product through door-to-door, customs-cleared service, historically with a money-back guarantee. As of July 13, 2023, the money-back guarantee remains suspended for certain FedEx Express services in order to balance our focus on service and safety. FedEx Express\u2019s unmatched air route authorities and extensive transportation infrastructure, combined with leading-edge information technologies, make it the world\u2019s largest express transportation company. As of May 31, 2023, FedEx Express employed approximately 245,000 employees and had approximately 70,000 drop-off locations (including FedEx Office stores and FedEx OnSite locations, such as nearly 17,000 Walgreens, Dollar General, and Albertsons stores), 700 aircraft, and more than 82,000 vehicles in its global network.\n\n\n\u00a0\n\n\nFedEx Express also provides time-critical shipment services through FedEx Custom Critical, Inc. (\u201cFedEx Custom Critical\u201d) and cross-border enablement and technology solutions and e-commerce transportation solutions.\n\n\n\u00a0\n\n\nServices\n \n\n\n\u00a0\n\n\nFedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight. FedEx Express offers three U.S. domestic overnight package delivery services: FedEx First Overnight, FedEx Priority Overnight, and FedEx Standard Overnight. FedEx SameDay service is available 365 days a year throughout all 50 states for urgent shipments up to 150 pounds. FedEx Express also offers U.S. express overnight and deferred freight services to handle the needs of the time-definite freight market.\n \n\n\n\u00a0\n\n\nInternational express and deferred package delivery is available to more than 220 countries and territories, with a variety of time-definite services to meet distinct customer needs. FedEx International Economy provides time-definite delivery typically in two to five business days. FedEx International First provides time-definite delivery to select postal codes in more than 25 countries and territories, with delivery to select U.S. ZIP Codes as early as 8:00 a.m. from more than 90 countries and Caribbean islands in one or two business days, delivery by 10:00 a.m. in one business day from the U.S. to Canada, and by 11:00 a.m. in one business day from the U.S. to Mexico. FedEx Express also offers domestic pickup-and-delivery services within certain non-U.S. countries, including France, the United Kingdom, Australia, Brazil, Italy, Canada, Mexico, Poland, India, China, and South Africa. In addition, FedEx Express offers comprehensive international express and deferred freight services, real-time tracking, and advanced customs clearance.\n\n\n\u00a0\n\n\nOur FedEx International Priority service provides end-of-day time-definite delivery in one to three business days to more than 220 countries and territories, and our FedEx International Priority Express service provides midday time-definite delivery in one to three business days to more than 25 countries and territories. Additionally, FedEx International Connect Plus, a contractual e-commerce service currently available from nearly 60 origin countries to over 195 destination countries, provides day-definite delivery typically within two to five business days.\n\n\n\u00a0\n\n\nFor information regarding FedEx Express e-commerce tools and solutions, such as FedEx Delivery Manager and FedEx Returns Technology, see \u201cFedEx Services Segment \u2014 Customer-Driven Technology \u2014 E-Commerce Solutions.\u201d\n \n\n\nInternational Expansion\n \n\n\nOver the years, FedEx Express has added capabilities in important international markets that have given us more robust transportation networks. Our 2016 acquisition of TNT Express accelerated our European and global growth; substantially enhanced our global footprint through TNT Express\u2019s lower-cost road networks in Europe, the Middle East, and Asia; and expanded our capabilities and solutions for our customers. The completion of the physical network integration of TNT Express into FedEx Express in 2022 and consolidation of flights into our Paris hub allow us to significantly improve operational efficiency, and the reopening and completion of central European road hubs in Duiven, The Netherlands and Novara, Italy in 2023 have improved our intra-European service.\n \n\n\n\u00a0\n\n\nWe also have expanded our capabilities in the Asia-Pacific markets, including through the establishment of our Asia-Pacific hub at the Guangzhou Baiyun International Airport in southern China; our North Pacific regional hub at the Kansai International Airport in Osaka, Japan, which serves as a consolidation point for shipments from northern Asia to the U.S.; and our International Express and Cargo Hub in Shanghai at Shanghai\u2019s Pudong International Airport. During 2020, we added 14 new Asia-Pacific origin markets for FedEx International First service to the U.S. and Canada. These developments allow us to continue to better serve our global customers doing business in the Asia-Pacific markets. In 2022, FedEx Express entered into a strategic alliance with Delhivery, a leading logistics and supply chain services company in India.\n \n\n\n\u00a0\n\n\nTo facilitate the use of our growing international network, we offer a full range of international trade consulting services and a variety of online tools that enable customers to more easily determine and comply with international shipping requirements.\n\n\n\u00a0\n\n\n- \n10\n -\n\n\n\n\n\u00a0\n\n\nU.S. Postal Service Agreement\n \n\n\n\u00a0\n\n\nPursuant to an agreement with the U.S. Postal Service (\u201cUSPS\u201d) that expires on September 29, 2024, FedEx Express provides airport-to-airport transportation of USPS First Class Mail, Priority Mail Express, and Priority Mail within the U.S. FedEx Express also provides transportation and delivery for the USPS\u2019s international delivery service called Global Express Guaranteed under a separate agreement. For more information about our relationship with the USPS, see \u201cItem 1A. Risk Factors\u201d of this Annual Report.\n \n\n\n\u00a0\n\n\nPricing\n \n\n\n\u00a0\n\n\nFedEx Express periodically publishes updates to the list prices for the majority of its services in its Service Guides. In general, shipping rates are based on the service selected, origin, destination, weight, size, any ancillary service charge, and whether the customer charged the shipment to a FedEx account. Effective January 2, 2023, FedEx Express implemented a 6.9% average list price increase for U.S. domestic, U.S. export, and U.S. import services.\n \n\n\n\u00a0\n\n\nIn order to manage demand and capacity constraints in connection with the COVID-19 pandemic, between April 2020 and November 2020 FedEx Express implemented temporary surcharges on all international package and airfreight shipments. These surcharges continued as peak surcharges beginning in November 2020 and remain in effect. Additionally, beginning in June 2020 FedEx Express has implemented a series of peak surcharges generally applying to U.S. domestic shipments that are oversized or require additional handling, and to residential packages for customers meeting a certain volume threshold. Specific applicable surcharges have been adjusted periodically since their implementation, and higher surcharges were applied during the 2023 holiday peak season. Effective January 16, 2023, the U.S. domestic holiday peak surcharges were no longer in effect for residential shipments, and peak surcharges for shipments that are oversized or require additional handling were adjusted downward.\n \n\n\n\u00a0\n\n\nFedEx Express has an indexed fuel surcharge for U.S. domestic and U.S. outbound shipments and for shipments originating internationally, where legally and contractually possible. FedEx Express fuel surcharges are adjusted on a weekly basis. The fuel surcharge is based on a weekly fuel price from ten days prior to the week in which it is assessed. Effective April 4, 2022, the tables used to determine U.S. domestic fuel surcharges at FedEx Express were updated. Effective January 30, 2023, the tables used to determine certain international fuel surcharges at FedEx Express were updated. See the \u201cResults of Operations and Outlook \u2014 Consolidated Results \u2014 Fuel\u201d section of \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report for more information.\n \n\n\n\u00a0\n\n\nOperations\n \n\n\n\u00a0\n\n\nFedEx Express\u2019s primary sorting facility, located in Memphis, serves as the center of the company\u2019s multiple hub-and-spoke system. A second national hub facility is located in Indianapolis. We are making investments over multiple years in our facilities to expand and modernize our Indianapolis hub and modernize our Memphis World Hub. See the \u201cFinancial Condition \u2014 Liquidity Outlook\u201d section of \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report for more information. In addition to these national hubs, FedEx Express operates regional hubs in Fort Worth, Newark, Oakland, and Greensboro and major metropolitan sorting facilities in Chicago and Los Angeles.\n \n\n\n\u00a0\n\n\nFacilities in Anchorage, Paris, Cologne, Guangzhou, and Osaka serve as sorting facilities for express package and freight traffic moving to and from Asia, Europe, and North America. Additional major sorting and freight handling facilities are located at Narita Airport in Tokyo and Stansted Airport outside London. The facilities in Paris, Cologne, Guangzhou, and Osaka are also designed to serve as regional hubs for their respective market areas. A facility in Miami \u2014 the Miami Gateway Hub \u2014 serves our South Florida, Latin American, and Caribbean markets. A central air hub near Liege, Belgium connects specific large European markets. In addition to its worldwide air network, FedEx Express operates road networks in North America, Europe, the Middle East, Asia, Australia, and South America. FedEx Express\u2019s unique European road network connects more than 45 countries and territories through 28 transit hubs and more than 700 stations.\n \n\n\n\u00a0\n\n\nThroughout its worldwide network, FedEx Express operates city stations and employs a staff of customer service agents, cargo handlers, and couriers who pick up and deliver shipments in the station\u2019s service area. In some international areas, independent agents (\u201cGlobal Service Participants\u201d) have been selected to complete deliveries and to pick up packages. For more information about our sorting and handling facilities, see \u201cItem 2. Properties\u201d of this Annual Report under the caption \u201cFedEx Express Segment.\u201d\n \n\n\n\u00a0\n\n\nIn connection with our DRIVE initiatives and through collaborations with FedEx Dataworks, we are transforming and optimizing the FedEx Express network to be more agile and efficient, including through the deployment of digital assets that allow us to more effectively balance the use of FedEx aircraft and Global Service Participants and implementation of a single daily dispatch of couriers within the U.S. domestic network.\n\n\n\u00a0\n\n\n- \n11\n -\n\n\n\n\n\u00a0\n\n\nFedEx Office offers retail access to FedEx Express shipping services at all of its retail locations. FedEx Express also has alliances with certain other retailers to provide in-store drop-off sites, including at nearly 17,000 Walgreens, Dollar General, and Albertsons stores. Our unstaffed FedEx Drop Boxes provide customers the opportunity to drop off packages in office buildings, shopping centers, and corporate or industrial parks.\n\n\n\u00a0\n\n\nFuel Supplies and Costs\n \n\n\n\u00a0\n\n\nDuring 2023, FedEx Express purchased jet fuel from various suppliers under contracts that vary in length and which provide for estimated amounts of fuel to be delivered. The fuel represented by these contracts is purchased at market prices. We do not have any jet fuel hedging contracts. See \u201cPricing\u201d above.\n \n\n\n\u00a0\n\n\nThe following table sets forth FedEx Express\u2019s costs for jet fuel and its percentage of FedEx Corporation consolidated revenues for the last five fiscal years:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nFiscal Year\n\n\n\u00a0\n\n\nTotal Jet\nFuel Cost\n(in millions)\n\n\n\u00a0\n\n\n\u00a0\n\n\nPercentage of Consolidated\nRevenue\n\n\n\u00a0\n\n\n\n\n\n\n2023\n\n\n\u00a0\n\n\n$\n\n\n4,515\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.0\n\n\n%\n\n\n\n\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,867\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.1\n\n\n\u00a0\n\n\n\n\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,065\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.5\n\n\n\u00a0\n\n\n\n\n\n\n2020\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,265\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.3\n\n\n\u00a0\n\n\n\n\n\n\n2019\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,847\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.1\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nMost of FedEx Express\u2019s vehicle fuel needs are satisfied by retail purchases with various discounts.\n \n\n\n\u00a0\n\n\nCompetition\n \n\n\n\u00a0\n\n\nAs described in \u201cItem 1A. Risk Factors\u201d of this Annual Report, the express package and freight markets are both highly competitive and sensitive to price and service, especially in periods of little or no macroeconomic growth. The ability to compete effectively depends upon price, frequency, reliability, capacity and speed of scheduled service, ability to track packages, extent of geographic coverage, innovative service offerings, and the fit within the customer\u2019s overall supply chain.\n \n\n\n\u00a0\n\n\nCompetitors within the U.S. include other package delivery concerns, principally United Parcel Service, Inc. (\u201cUPS\u201d), passenger airlines offering express package services, regional delivery companies, air freight forwarders, and the USPS. FedEx Express\u2019s principal international competitors are DHL, UPS, DPD (a subsidiary of France\u2019s La Poste\u2019s GeoPost), General Logistics Systems (a Royal Mail-owned parcel delivery group), foreign postal authorities, passenger airlines, air freight forwarders, regional carriers, and all-cargo airlines. FedEx Express also competes with startup companies that combine technology with crowdsourcing to focus on local market needs. In addition, some high-volume package shippers, such as Amazon.com, are developing and implementing in-house delivery capabilities and utilizing independent contractors for deliveries, and may be considered competitors. For example, Amazon.com has established a network of hubs, aircraft, and vehicles and has expressed an intention to offer its internal delivery capabilities broadly to third parties. Many of FedEx Express\u2019s international competitors are government-owned, -controlled, or -subsidized carriers, which may have greater resources, lower costs, less profit sensitivity, and more favorable operating conditions than FedEx Express. For more information, see \u201cItem 1A. Risk Factors\u201d of this Annual Report.\n\n\n\u00a0\n\n\nEmployees\n \n\n\n\u00a0\n\n\nJohn A. Smith is the President and Chief Executive Officer \u2014 U.S. and Canada Ground Operations of FedEx Express and Richard W. Smith is the President and Chief Executive Officer \u2014 Airline and International of FedEx Express. As of May 31, 2023, FedEx Express employed approximately 188,000 permanent full-time and approximately 56,000 permanent part-time employees.\n \n\n\n \n\n\nThe pilots of FedEx Express, who are a small number of its total employees, are represented by ALPA and are employed under a collective bargaining agreement that took effect in November 2015. The collective bargaining agreement became amendable in November 2021. Bargaining for a successor agreement began in May 2021, and in November 2022 the NMB began actively mediating the negotiations. In May 2023, FedEx Express reached a tentative successor agreement with ALPA. The tentative agreement was approved by ALPA\u2019s FedEx Express Master Executive Council in June 2023 and is being presented to FedEx Express\u2019s pilots for ratification during the first quarter of 2024. The ongoing ratification process has no effect on our operations.\n\n\n \n\n\n- \n12\n -\n\n\n\n\n\u00a0\n\n\nIn addition to our pilots at FedEx Express, certain of FedEx Express\u2019s non-U.S. employees are unionized. In June 2022, the Transport Workers Union filed an application with the NMB requesting an election to represent approximately 130 Global Operations Control (\u201cGOC\u201d) specialists who perform flight dispatching functions in FedEx Express\u2019s GOC center. The NMB dismissed the application in December 2022. FedEx Express believes its employee relations are excellent. See \u201cItem 1A. Risk Factors\u201d of this Annual Report for more information.\n \n\n\n\u00a0\n\n\nFedEx Custom Critical\n \n\n\n\u00a0\n\n\nFedEx Custom Critical provides a range of expedited, time-specific freight-shipping services throughout the U.S., Canada, and Mexico. Among its services are Surface Expedite, providing exclusive-use shipping and time-definite services; Air Expedite, offering an array of expedited air solutions to meet customers\u2019 critical delivery times; and White Glove Services, for shipments that require extra care in handling, temperature control, or specialized security. Service from FedEx Custom Critical is available 24 hours a day, 365 days a year. FedEx Custom Critical continuously monitors shipments through an integrated proprietary shipment-control system, including two-way satellite communications on exclusive-use shipments.\n \n\n\n\u00a0\n\n\nFedEx Ground Segment\n \n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nBy leveraging the FedEx brand, maintaining a low-cost structure, and efficiently using information technology and advanced automation systems, FedEx Ground continues to enhance its competitive position as a leading provider of business and residential ground package delivery services. As of July 13, 2023, the money-back guarantee for all FedEx Ground services remains suspended in order to balance our focus on service and safety. FedEx Ground serves customers in the North American small-package market, focusing on business and residential delivery of packages weighing up to 150 pounds. Ground service is provided to 100% of the continental U.S. population and overnight service of up to 400 miles to nearly 100% of the continental U.S. population. Service is also provided to nearly 100% of the Canadian population. In addition, FedEx Ground offers service to Alaska and Hawaii through a ground and air network operation coordinated with other transportation providers. FedEx Ground provides seven-day-per-week residential delivery to more than half of the U.S. population. See \u201cOne FedEx and Network 2.0\u201d above for information regarding the transition of all FedEx Ground operations and personnel in Canada to FedEx Express beginning in April 2024.\n\n\n\u00a0\n\n\nThe company offers FedEx Home Delivery service, which reaches 100% of U.S. residences. FedEx Home Delivery is dedicated to meeting the delivery needs of residential customers and provides routine Saturday and evening delivery and premium options such as day-specific, appointment, and signature delivery. Sunday delivery is provided for more than half of the U.S. population. FedEx Home Delivery brings unmatched services to residential shippers and their customers and is the first residential ground package delivery service to have offered a money-back guarantee. FedEx Ground Economy service is available for the consolidation and delivery of high volumes of low-weight, less time-sensitive business-to-consumer packages to any residential address or PO Box in the U.S.\n \n\n\n\u00a0\n\n\nPricing\n\n\n\u00a0\n\n\nFedEx Ground periodically publishes updates to the list prices for the majority of its services in its Service Guide. In general, U.S. shipping rates are based on the service selected, origin, destination, weight, size, any ancillary service charge, and whether the customer charged the shipment to a FedEx account. Effective January 2, 2023, FedEx Ground and FedEx Home Delivery implemented a 6.9% average list price increase. FedEx Ground Economy average list prices also increased.\n\n\n\u00a0\n\n\nTo manage demand and capacity constraints in connection with the COVID-19 pandemic, beginning in June 2020 FedEx Ground implemented a series of surcharges generally applying to shipments that are oversized, unauthorized, or require additional handling; to residential packages for customers meeting a certain volume threshold; and to FedEx Ground Economy shipments. Specific applicable surcharges have been adjusted periodically since their implementation, and higher surcharges were applied during the 2023 holiday peak season. Effective January 16, 2023, the holiday peak surcharges were no longer in effect for residential shipments, and peak surcharges for shipments that are oversized or require additional handling were adjusted downward.\n \n\n\n\u00a0\n\n\nFedEx Ground has an indexed fuel surcharge, which is adjusted on a weekly basis. The fuel surcharge is based on a weekly fuel price from two weeks prior to the week in which it is assessed. Effective April 4, 2022, the tables used to determine fuel surcharges at FedEx Ground were updated. See the \u201cResults of Operations and Outlook \u2014 Consolidated Results \u2014 Fuel\u201d section of \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report for more information.\n\n\n\u00a0\n\n\n- \n13\n -\n\n\n\n\n\u00a0\n\n\nOperations\n\n\n\u00a0\n\n\nFedEx Ground operates a highly flexible network of over 700 sortation and distribution facilities, including more than 160 fully automated stations, in the U.S. and Canada as of May 31, 2023. FedEx Ground conducts its operations primarily with more than 100,000 vehicles owned or leased by independent service providers. To provide FedEx Home Delivery service and FedEx Ground Economy service, FedEx Ground leverages its pickup operation and hub and linehaul network.\n\n\n\u00a0\n\n\nFollowing a network expansion in recent years that substantially increased FedEx Ground\u2019s daily capacity through the addition of new facilities featuring the latest automated sorting technology as well as the expansion or relocation of existing hubs and other facilities, in 2023 the company rationalized its operations in response to lower volumes by consolidating sorts and cancelling several planned network capacity projects, continuing to manage staffing levels effectively, and reducing Sunday delivery operations.\n \n\n\n\u00a0\n\n\nFedEx Ground continues to leverage opportunities to maximize utilization of existing facilities and deploy new technologies to enhance operational efficiency. Advanced automated unloading and sorting technology is used to streamline the handling of millions of packages daily. FedEx Ground yard management systems, which interact with GPS tags on each trailer and create geofences around FedEx Ground facilities, automatically notify the control center when a trailer arrives and departs. Using overhead laser and six-sided camera-based bar code scan technology, hub conveyors electronically guide packages to their appropriate destination chute, where they are loaded for transport to their respective destination stations for local delivery.\n \n\n\n\u00a0\n\n\nThrough collaboration with FedEx Dataworks, FedEx Ground is implementing dynamic scheduling tools to match sort staffing headcount with volumes and is introducing capabilities to allow certain packages to bypass station sortation and proceed directly to vehicles, which helps to maximize station capacity. Dock modernization efforts enabled by FedEx Dataworks, including a new network operating plan that uses machine learning and algorithms to develop more detailed and accurate volume forecasts, are enhancing productivity at FedEx Ground in furtherance of our DRIVE initiatives. Additionally, the company is testing autonomous, driverless technologies in the handling of large, non-conveyable packages, as well as artificial intelligence-enabled robotic product sortation systems to sort small packages.\n\n\n\u00a0\n\n\nAdvanced route optimization technology leveraging the capabilities of FedEx Dataworks provides service providers near real-time data that can be used to plan efficient delivery routes and make decisions about vehicle mix and workforce. Additionally, software systems and internet-based applications are deployed to offer customers new ways to connect internal package data with external delivery information. FedEx Ground provides shipment tracing and proof-of-delivery signature functionality through the FedEx website, \nfedex.com\n. For additional information regarding FedEx Ground e-commerce tools and solutions, including FedEx Delivery Manager and FedEx Returns Technology, see \u201cFedEx Services Segment \u2014 Customer-Driven Technology \u2014 E-Commerce Solutions.\u201d\n \n\n\n\u00a0\n\n\nFedEx Ground has introduced new vehicle safety technologies and incentives for adoption by its service providers, as well as new eligibility standards for drivers employed by service providers. Additionally, FedEx Ground has made significant operational enhancements to ensure safe and reliable handling of large and heavy items. These changes include designing new facilities, adding equipment to certain facilities, and making other operational adjustments.\n \n\n\n\u00a0\n\n\nFedEx Office offers retail access to FedEx Ground shipping services at all of its retail locations. FedEx Ground is also available as a service option at all FedEx Authorized ShipCenters and other FedEx OnSite locations, including at nearly 17,000 Walgreens, Dollar General, and Albertsons stores.\n \n\n\n\u00a0\n\n\nAs of May 31, 2023, FedEx Ground employed approximately 56,000 permanent full-time and approximately 136,000 permanent part-time employees. In addition, FedEx Ground contracts with nearly 7,000 independent small businesses to conduct its linehaul and pickup-and-delivery operations, as the use of these service providers is well suited to the needs of the ground delivery business and its customers.\n \n\n\n\u00a0\n\n\nFedEx Ground is defending lawsuits in which it is alleged that FedEx Ground should be treated as an employer or joint employer of drivers employed by service providers engaged by FedEx Ground. We continue to believe that FedEx Ground is not an employer or joint employer of the drivers of these independent businesses. The status of the drivers employed by these service providers could be further challenged in connection with our one FedEx consolidation plan. For a description of these proceedings, see \u201cItem 1A. Risk Factors\u201d of this Annual Report and Note 18 of the consolidated financial statements included in \u201cItem 8. Financial Statements and Supplementary Data\u201d of this Annual Report.\n\n\n\u00a0\n\n\n- \n14\n -\n\n\n\n\n\u00a0\n\n\nScott L. Ray is the President of FedEx Ground. FedEx Ground is headquartered in the Pittsburgh, Pennsylvania area, and its primary competitors are UPS, the USPS, and regional delivery carriers. FedEx Ground also competes with startup companies that combine technology with crowdsourcing to focus on local market needs. In addition, some high-volume package shippers, such as Amazon.com, are developing and implementing in-house delivery capabilities and utilizing independent contractors for deliveries. For example, Amazon.com has established a network of hubs and vehicles and has expressed an intention to offer its internal delivery capabilities broadly to third parties. For more information, see \u201cItem 1A. Risk Factors\u201d of this Annual Report.\n\n\n\u00a0\n\n\nFedEx Freight Segment\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nFedEx Freight is a leading North American provider of LTL freight services, offering choice, simplicity, and reliability to meet the needs of LTL shippers \u2014 FedEx Freight Priority, when speed is critical to meet a customer\u2019s supply chain needs; FedEx Freight Economy, when a customer can trade time for cost savings; and FedEx Freight Direct, a service to meet the needs of the growing e-commerce market for delivery of big and bulky products to or through the door for residences and businesses. Through one comprehensive network of service centers and advanced information systems, FedEx Freight provides service to virtually every U.S. ZIP Code (including Alaska and Hawaii) with industry-leading transit times. FedEx Freight Priority has the fastest published transit times of any nationwide LTL service. Internationally, FedEx Freight Canada offers FedEx Freight Priority service, serving most points in Canada, as well as FedEx Freight Priority and FedEx Freight Economy service between Canada and the U.S. In addition, FedEx Freight serves Mexico, Puerto Rico, and the U.S. Virgin Islands via alliances. As of July 13, 2023, the money-back guarantee for all FedEx Freight services remains suspended in order to balance our focus on service and safety.\n\n\n\u00a0\n\n\nThrough its many service offerings, FedEx Freight can match customers\u2019 time-critical needs with industry-leading transit times. With the expansion of FedEx electronic solutions, LTL shippers have the convenience of a single shipping and tracking solution for FedEx Freight, FedEx Express, and FedEx Ground. These solutions make freight shipping easier and provide customers easy access to their account information. The FedEx Freight Advance Notice feature available on FedEx Freight Priority shipments uses the company\u2019s innovative technology systems to proactively notify FedEx Freight customers via the internet, e-mail, or fax when a shipment may be delayed beyond its estimated delivery date, providing customers with greater visibility and control of their LTL freight shipments. Customers can also process cross-border LTL shipments to and from Canada and Mexico, as well as intra-Canada and -Mexico shipments, through FedEx Ship Manager at \nfedex.com\n, FedEx Ship Manager Software, FedEx Ship Manager Server, and FedEx Web Services. Additionally, FedEx Freight A.M. Delivery offers freight delivery by 10:30 a.m. within and between the U.S. and Canada. FedEx Freight also offers LTL Select, a free cloud-based, multi-carrier transportation management system that provides customers with visibility into all available carriers and their pricing in one location, as well as the ability to book service and make payments. FedEx Freight uses radio frequency identification technology and customized software to improve shipment visibility on its docks and enhance custodial control at the handling unit level.\n\n\n\u00a0\n\n\nFedEx Freight Direct addresses the growing e-commerce market for big and bulky products. It has four delivery service levels to meet customer needs, with basic and basic by appointment to-the-door services available to nearly 100% of the U.S. population and standard and premium through-the-door services available to 90% of the continental U.S. population, as well as flexible delivery windows, end-to-end visibility, proactive notifications, and returns services with flexible pickup windows and label-less options.\n\n\n\u00a0\n\n\nAs of May 31, 2023, the FedEx Freight segment was operating nearly 30,000 vehicles from a network of approximately 390 service centers and had approximately 43,000 employees. The company plans to close and consolidate approximately 30 locations in the first quarter of 2024, and conducted several rounds of furloughs to match staffing with volume levels in 2023. Lance D. Moll is the President and Chief Executive Officer of FedEx Freight, which is based in Memphis, Tennessee. FedEx Freight\u2019s primary competitors are YRC Worldwide Inc. (which includes YRC Regional Transportation and YRC Freight), XPO Logistics, Inc., Old Dominion Freight Line, Inc., ABF Freight (an ArcBest company), SAIA, Inc., and TFI International Inc.\n\n\n\u00a0\n\n\nWe are currently bargaining with the International Brotherhood of Teamsters at one FedEx Freight facility.\n \n\n\n\u00a0\n\n\nPricing\n\n\n\u00a0\n\n\nFedEx Freight periodically publishes updates to the list prices for the majority of its services in its 100 Rules Tariff. In general, shipping rates are based on the service selected, origin, destination, weight, class, any ancillary service charge, and whether the customer charged the shipment to a FedEx account. On January 2, 2023, FedEx Freight implemented a 6.9% average list price increase for customers who use FXF PZONE and FXF EZONE rates and a 7.9% average list price increase for customers who use FXF 1000 and FXF 501. These increases apply for shipments within the U.S. and between the contiguous U.S. and Canada.\n \n\n\n\u00a0\n\n\n- \n15\n -\n\n\n\n\n\u00a0\n\n\nIn order to manage demand and capacity constraints, beginning in July 2021 FedEx Freight implemented a peak surcharge applying to specific delivery points within the U.S. The peak surcharge has been adjusted periodically since implementation. Effective November 15, 2021, FedEx Freight increased applicable length surcharges. Effective January 17, 2022, FedEx Freight added a surcharge that applies when a pickup is performed and no shipment is tendered to the carrier. Effective January 16, 2023, FedEx Freight changed the extreme length surcharge to a tier-based length structure. The company continues to explore ways to modernize freight pricing including through dimension-in-motion technology, which more accurately captures freight profile and improves its ability to cost and price shipments.\n\n\n\u00a0\n\n\nFedEx Freight has an indexed fuel surcharge, which is adjusted on a weekly basis. The fuel surcharge is based on a weekly fuel price from two days prior to the day in which it is assessed. Effective April 4, 2022, the tables used to determine fuel surcharges at FedEx Freight were updated. See the \u201cResults of Operations and Outlook \u2014 Consolidated Results \u2014 Fuel\u201d section of \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report for more information.\n \n\n\n\u00a0\n\n\nFedEx Services Segment\n\n\n\u00a0\n\n\nFedEx Services provides our other companies with sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain other back-office support. Through FedEx Services, we provide a convenient single point of access for many customer support functions, enabling us to more effectively sell the entire portfolio of transportation services and to help ensure a consistent and outstanding experience for our customers.\n \n\n\n\u00a0\n\n\nBrie A. Carere and Robert B. Carter each serve as the Co-President and Co-Chief Executive Officer of FedEx Services, which is based in Memphis, Tennessee. As of May 31, 2023, the FedEx Services segment had approximately 15,000 employees.\n \n\n\n\u00a0\n\n\nCustomer-Driven Technology\n \n\n\n\u00a0\n\n\nFedEx is a world leader in technology, and FedEx founder Frederick W. Smith\u2019s vision that \u201cthe information about a package is as important as the delivery of the package itself\u201d remains at the core of our comprehensive technology strategy. We strive to build technology solutions that will solve our customers\u2019 business problems with simplicity, convenience, speed, and reliability. Additionally, FedEx stands at the nexus of digital and physical networks, a crucial intersection for the success of e-commerce deliveries. We continue to expand our e-commerce convenience network and explore innovative alternatives to help customers and businesses deliver. During 2023 we continued to advance a major information technology transition from traditional mainframe computing to cloud-based systems, which is delivering significant benefits in terms of flexibility, security, speed to market, and resiliency. See \u201cFedEx Dataworks Operating Segment\u201d below for more information on the solutions we are creating to \u201cInnovate for Tomorrow.\u201d\n\n\n\u00a0\n\n\nShipping Management and Precision Tracking\n\n\n\u00a0\n\n\nThe \nfedex.com\n website is widely recognized for its speed, ease of use, and customer-focused features. The advanced tracking capability within FedEx Tracking provides customers with a consolidated view of inbound and outbound shipments. Additionally, an advanced machine learning and artificial intelligence model developed by FedEx Dataworks has enhanced tracking capabilities on \nfedex.com, \ndelivering greater estimated delivery date accuracy, including updates for early or delayed shipments. FedEx Virtual Assistant on \nfedex.com \nis an artificial-intelligence-enabled service that provides answers to customer shipping questions, allowing our customer service representatives and sales professionals to focus on higher-value customer interactions.\n \n\n\n\u00a0\n\n\nSenseAware, a FedEx innovation currently available in 135 countries worldwide, allows customers to stay connected to their critical shipments by providing real-time updates regarding current location, precise temperature, relative humidity, barometric pressure readings, light exposure, and shock events. Additionally, FedEx SenseAware ID is a lightweight sensor-based logistics device that delivers a new level of precision tracking. The enhanced location visibility provided by FedEx SenseAware ID is creating opportunities for FedEx customers to reimagine their supply chains through real-time updates on a package\u2019s location within the FedEx Express network. FedEx is currently expanding access to FedEx SenseAware ID and plans to eventually make FedEx SenseAware ID available for a broad range of premium FedEx Express services.\n\n\n\u00a0\n\n\nFedEx Mobile is a suite of solutions including the FedEx mobile application, FedEx mobile website, and SMS text messaging. The FedEx Mobile app provides convenience for recipients to track packages and access FedEx Delivery Manager to customize home deliveries. Shippers can easily get rates and estimated delivery times and swiftly create a shipping label. All users can quickly find the nearest FedEx location for Hold at Location or drop-off. It is available on Android\u0099 and Apple devices. The FedEx Mobile app has expanded to more than 220 countries and territories and 40 languages. SMS Notifications allows customers to track or follow a package via text messaging, and it is currently available in five countries.\n \n\n\n- \n16\n -\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAdditionally, our FedEx Ship Manager suite of solutions, which was modernized in 2023, offers a wide range of options to help our customers manage their parcel and LTL shipping and associated processes.\n \n\n\n\u00a0\n\n\nE-Commerce Solutions\n\n\n\u00a0\n\n\nFedEx Delivery Manager allows our U.S. residential customers to customize home deliveries to fit their schedule by providing a range of options to schedule dates, locations, and times of delivery. Additionally, FedEx Returns Technology, a comprehensive solution for returns management, provides high-volume merchants and e-tailers complete visibility into returns and an easy way to track shipments, manage inventory, analyze returns trends, and make more informed decisions based on shoppers\u2019 returns behaviors. In 2023 we launched FedEx Consolidated Returns in the U.S., a low-priced, easy e-commerce solution for low-weight returns facilitated through supply chain services offered by FedEx Logistics and FedEx Office. Through FedEx Consolidated Returns, shoppers who purchased from participating merchants can drop off the items they wish to return with no box or label required at approximately 2,000 FedEx Office locations. The returned items will then be consolidated with other returns and processed through FedEx Logistics and sent back to the merchants via a less-than-truckload option.\n\n\n\u00a0\n\n\nFedEx OnSite, our retail convenience network, utilizes third-party retailers to receive and hold packages for FedEx customers. The FedEx OnSite network has grown to include nearly 17,000 Walgreens, Dollar General, and Albertsons stores in addition to our approximately 2,000 FedEx Office locations. In addition to allowing for an easy returns and drop-off experience for shoppers, the FedEx OnSite network is well positioned to serve as a \u201cbuy online, pickup in store\u201d network for small and medium merchants without brick-and-mortar locations. We have also added FedEx Returns Technology to the Walgreens retail network, which allows for in-store printing of return shipping labels and eliminates the need to include a return label in every package.\n\n\n\u00a0\n\n\nWe have expanded e-commerce delivery options for retailers with FedEx Extra Hours, a service that enables participating retailers to fulfill e-commerce orders into the evening and receive late pickups by FedEx Express, with next-day local delivery and two-day shipping to any address in the continental U.S. FedEx Extra Hours, which is currently available to select customers, allows retailers to extend evening order cutoff times by five to eight hours, with some as late as midnight, depending on their current order fulfillment process.\n\n\n\u00a0\n\n\nIn June 2022, FedEx announced the launch of Picture Proof of Delivery for express and ground residential deliveries in the U.S. and Canada that are released without a signature. The capability has expanded to 90% of global residential deliveries.\n\n\n\u00a0\n\n\nThrough innovative partnerships, FedEx Dataworks seeks to open pathways to e-commerce and empower customers with differentiated insights and tools. In 2021, we announced a multi-year collaboration with Adobe, starting with the integration of ShopRunner with Adobe Commerce\u2019s Magento platform. By integrating their online storefronts with ShopRunner, Adobe merchants are able to offer seamless checkout, two-day shipping, easy returns, and exclusive offers to shippers. The collaboration also gives merchants access to FedEx post-purchase logistics intelligence, allowing for better management of supply chains. In 2022, we announced a multi-year partnership with Salesforce that integrates Salesforce Commerce Cloud and Salesforce Order Management with innovative capabilities from FedEx and ShopRunner. In January 2022, FedEx and Microsoft announced a new cross-platform logistics solution for e-commerce aimed at increasing merchant competitiveness in the e-commerce space by improving customer engagement and providing enhanced shipping options, which was made available to customers in the U.S. in 2023. Additionally, in June 2022 FedEx and FourKites announced a strategic alliance to provide businesses with new, more robust real-time supply chain visibility capabilities. In November 2022, we announced a strategic alliance with Cart.com to create integrated solutions that help address some of the biggest e-commerce challenges.\n\n\n\u00a0\n\n\nAutonomous Solutions\n\n\n\u00a0\n\n\nFedEx is exploring the use of autonomous delivery technology within its operations. In 2022, we announced a multi-year, multi-phase agreement to test Nuro\u2019s next-generation autonomous delivery vehicle within FedEx operations. The collaboration with Nuro will explore various use cases for on-road autonomous vehicle logistics such as multi-stop and appointment-based deliveries.\n \n\n\n\u00a0\n\n\nIn 2022, we began a pilot program with Aurora Innovation, Inc. (\u201cAurora\u201d) and PACCAR Inc. to test Aurora\u2019s autonomous driving technology in PACCAR autonomous vehicle platform-equipped trucks within FedEx linehaul operations. Additionally, FedEx Express is developing plans to test Elroy Air\u2019s autonomous air cargo system within the company\u2019s middle-mile logistics operations, moving shipments between sortation locations. We are also working with major national retailers, fast food restaurants, and drug stores to help assess different customers\u2019 autonomous delivery needs. In 2023, FedEx ended the research and development program for Roxo, the FedEx SameDay Bot, to prioritize these other nearer-term opportunities.\n\n\n- \n17\n -\n\n\n\n\n\u00a0\n\n\nMarketing\n\n\nThe FedEx brand name symbolizes outstanding service, reliability, and speed. Emphasis is continually placed on promoting and protecting the FedEx brand, one of our most important assets. As a result, FedEx is one of the most widely recognized brands in the world. In addition to television, print, and digital advertising, we promote the FedEx brand through sponsorships and special events. For example, FedEx sponsors:\n\n\n\u00a0\n\n\n\u0095     The UEFA Champions League, which is broadcast in over 200 countries and territories worldwide.\n\n\n\u00a0\n\n\n\u0095     The season-long FedExCup competition on the PGA Tour, and the FedEx St. Jude Championship, a PGA Tour event that has raised millions of dollars for St. Jude Children\u2019s Research Hospital and is one of three annual FedExCup playoff events.\n\n\n\u00a0\n\n\n\u0095     The #11 Joe Gibbs Racing Toyota Camry driven by Denny Hamlin in the NASCAR Cup Series.\n\n\n\u00a0\n\n\nAdditionally, FedEx is the \u201cOfficial Delivery Service Sponsor\u201d and \u201cOfficial Office Services Provider\u201d of the NFL, through which we conduct events and other activities to promote the FedEx brand, such as the \u201cFedEx Air & Ground\u201d NFL Players of the Week and Players of the Year Awards.\n\n\nInformation Security\n\n\n\u00a0\n\n\nFedEx Services has a team of highly qualified professionals dedicated to securing information about our customers\u2019 shipments and protecting our customers\u2019, vendors\u2019, and employees\u2019 privacy, and we strive to provide a safe, secure online environment for our customers. We are committed to compliance with applicable information security laws, regulations, and industry standards. For a description of risks related to information security, see \u201cItem 1A. Risk Factors\u201d of this Annual Report.\n\n\n\u00a0\n\n\nFedEx Dataworks Operating Segment\n\n\n\u00a0\n\n\nThe FedEx Dataworks operating segment is focused on putting our data into context and using it to enhance the efficiency of the FedEx network and our customers\u2019 supply chains, as well as the end-to-end experience of our customers. The size and scale of our global network gives us a bird\u2019s-eye view of global supply chains and trends and provides an immense amount of data. As the digital twin of our physical network and a key enabler of our DRIVE transformation, FedEx Dataworks leverages this information to allow us to work differently through a more technology-enabled, data-driven approach. See \u201cFedEx Express Segment \u2014 FedEx Express \u2014 Operations\u201d and \u201cFedEx Ground Segment \u2014 Operations\u201d above for information regarding how FedEx Dataworks is enabling the transformation and optimization of our physical network at FedEx Express and FedEx Ground. FedEx Dataworks is also helping to build out a dynamic pricing infrastructure, which enabled 2023 holiday peak residential surcharges to adjust dynamically based on an individual customer\u2019s weekly peaking factor, and exploring and implementing ways for predictive anomaly detection to improve revenue quality.\n\n\n\u00a0\n\n\nFedEx Surround allows business customers to enhance visibility into its supply chain by leveraging data to provide near-real-time analytics into shipment tracking, which will drive more precise logistics and inventory management. FedEx Dataworks is helping to facilitate an open and collaborative e-commerce ecosystem that helps merchants provide seamless end-to-end experiences for their customers. ShopRunner is an e-commerce platform that directly connects brands and merchants with online shoppers. ShopRunner\u2019s data-driven marketing and omnichannel enablement capabilities also help brands and merchants acquire high-value customers and accelerate their digital innovation by using ShopRunner\u2019s e-commerce platform. We believe the complementary nature of ShopRunner\u2019s pre-purchase offerings combined with FedEx\u2019s post-purchase logistics intelligence enables brands and merchants to attract and engage consumers at scale by providing innovative online shopping experiences. In November 2022, ShopRunner announced the launch of its new mobile application. For additional information regarding FedEx Dataworks e-commerce partnerships, tools, and solutions, see \u201cFedEx Services Segment \u2014 Customer-Driven Technology \u2014 E-Commerce Solutions.\u201d\n \n\n\n\u00a0\n\n\nSriram Krishnasamy is the President and Chief Executive Officer of FedEx Dataworks, which is based in Memphis, Tennessee. As of May 31, 2023, FedEx Dataworks had approximately 400 employees. FedEx Dataworks is an operating segment that is included in \u201cCorporate, other, and eliminations\u201d in our segment reporting.\n\n\n\u00a0\n\n\nFedEx Office Operating Segment\n\n\n\u00a0\n\n\nAs of May 31, 2023, FedEx Office operated approximately 2,000 customer-facing stores, providing convenient access to printing and shipping expertise with reliable service.\n \n\n\n\u00a0\n\n\n- \n18\n -\n\n\n\n\n\u00a0\n\n\nThe FedEx Office brick-and-mortar network features retail stores, FedEx Office locations inside Walmart stores, manufacturing plants, corporate on-site print centers, and on-site business centers at colleges and universities, hotels, convention centers, corporate campuses, and healthcare campuses. Many of these locations are open later in the evenings to accommodate urgent printing projects and delivery drop-offs. FedEx Office has designed a suite of printing and shipping management solutions that are flexible and scalable, allowing customers to meet their unique printing and shipping needs. The network provides an adaptable cost model helping to save time, labor, and overhead by freeing up resources and avoiding fixed costs associated with large-scale printing and e-commerce parcel volumes. This is especially valuable to our enterprise customers looking to outsource their print supply chain. Services include digital printing, professional finishing, document creation, design services, direct mail, signs and graphics, custom-printed boxes, copying, computer rental, free Wi-Fi, corporate print solutions, expedited U.S. passport processing and renewal through a collaboration with a registered U.S. passport agency, and fully digital notarization services through FedEx Office Online Notary.\n \n\n\n\u00a0\n\n\nWith the FedEx Office Print On Demand solution, customers can use their laptops or mobile devices to design their print needs or access their personal cloud accounts, and print directly to any FedEx Office location in the U.S., or have their order delivered right to their door. Customers also have the flexibility of using FedEx Office\u2019s Print & Go solutions to print at self-serve locations from USBs, the cloud, or through email. Print & Go solutions allow customers to access files using popular cloud providers Google Drive\u0099, Box, Microsoft OneDrive\u00ae, and from FedEx Office\u2019s own My Online Documents, making printing easy.\n \n\n\n\u00a0\n\n\nFedEx Office has prioritized e-commerce and digital offerings as a growth opportunity for the enterprise/large, medium, and small business customers we serve. FedEx Office has partnered with a content and creative design platform to form a digital design-to-print marketplace offering millions of images and illustrations, an extensive library of templates, and a simple drag-and-drop interface to create custom business materials from \nfedex.com \non any device, with next-day printing on many requests available at FedEx Office stores. Additionally, FedEx Office has partnered with a leading marketing solutions company to introduce an online branded promotional products marketplace that allows businesses to customize and purchase high-quality promotional products. FedEx Office has also made investments in new machines and technology, enhancing capabilities in narrow format color, grand format, large format, color management, enhanced finishing, and other technologies.\n\n\n\u00a0\n\n\nFedEx Office provides customers convenient access to the full range of FedEx Express and FedEx Ground shipping services. Customers may have their FedEx Express and FedEx Ground packages delivered to any FedEx Office customer-facing location nationwide through the Hold at FedEx Location service, free of charge, and may redirect packages to these locations through Redirect to Hold or AutoRedirect to Hold services. FedEx Office facilitates e-commerce and returns through FedEx Returns Technology, which allows for in-store printing of return shipping labels. Through FedEx Consolidated Returns, which we launched in 2023, shoppers who purchased from participating merchants can drop off the items they wish to return with no box or label required at a FedEx Office location. For information regarding FedEx Consolidated Returns, see \u201cFedEx Services Segment \u2014 Customer-Driven Technology \u2014 E-Commerce Solutions.\u201d We discontinued FedEx SameDay City operations during 2023.\n\n\n\u00a0\n\n\nFedEx Office also offers packing services, and packing supplies and boxes are included in its retail offerings. By allowing customers to have items professionally packed by specially trained FedEx Office team members and then shipped using FedEx Ground day-definite shipping or time-definite global FedEx Express shipping services, FedEx Office offers a complete \u201cpack-and-ship\u201d solution.  FedEx Office also offers FedEx Pack Plus, which includes custom box building capabilities and techniques; a robust assortment of specialty boxes; and additional packing supplies, equipment, and tools to serve our customers\u2019 needs.\n\n\n\u00a0\n\n\nAlmost all FedEx Office locations provide local pickup-and-delivery service for print jobs completed by FedEx Office. A FedEx courier picks up a customer\u2019s print job at the customer\u2019s location and then returns the finished product to the customer. Options and services vary by location.\n \n\n\n\u00a0\n\n\nBrian D. Philips is the President and Chief Executive Officer of FedEx Office, which is based in Plano, Texas. As of May 31, 2023, FedEx Office had approximately 12,000 employees. FedEx Office is an operating segment that is included in \u201cCorporate, other, and eliminations\u201d in our segment reporting.\n\n\n\u00a0\n\n\nFedEx Logistics Operating Segment\n\n\n\u00a0\n\n\nThe FedEx Logistics operating segment plays a key role within the FedEx portfolio with a comprehensive suite of integrated logistics solutions, providing air and ocean cargo transportation, specialty transportation, customs brokerage, and trade management tools and data through FedEx Trade Networks Transport & Brokerage, as well as third party logistics and supply chain solutions through FedEx Supply Chain. FedEx Logistics has the unique ability to leverage the power of the FedEx transportation networks as well as its global network of service providers. Additionally, FedEx Logistics provides international trade advisory services.\n\n\n\u00a0\n\n\n- \n19\n -\n\n\n\n\n\u00a0\n\n\nPatrick Moebel is the President and Chief Executive Officer of FedEx Logistics, which is based in Memphis, Tennessee. As of May 31, 2023, the FedEx Logistics organization had approximately 21,000 employees. FedEx Supply Chain has a small number of employees who are members of unions. FedEx Logistics is an operating segment that is included in \u201cCorporate, other, and eliminations\u201d in our segment reporting.\n\n\n\u00a0\n\n\nFedEx Trade Networks Transport & Brokerage\n\n\n\u00a0\n\n\nFedEx Trade Networks Transport & Brokerage provides international trade services, specializing in customs brokerage, global ocean and air freight forwarding, and managed transportation. Additionally, FedEx Trade Networks Transport & Brokerage provides customs clearance services for FedEx Express at its major U.S. hub facilities and border customs clearance for FedEx Ground and FedEx Freight. FedEx Trade Networks Transport & Brokerage also offers global door-to-door air charter solutions collaborating with FedEx Express and U.S. import door-to-door less-than-container-load ocean solutions collaborating with FedEx Freight.\n\n\n\u00a0\n\n\nAs trade throughout the world grows, so does the FedEx Trade Networks Transport & Brokerage solutions portfolio. As of May 31, 2023, FedEx Trade Networks Transport & Brokerage operated approximately 122 offices and facilities in 33 countries and territories throughout North America and in Africa, Asia-Pacific, Europe, India, Latin America, the Middle East, and Australia/New Zealand. FedEx Trade Networks Transport & Brokerage maintains a network of air and ocean freight-forwarding service providers and has entered into strategic alliances to provide services in certain countries in which it does not have owned offices.\n\n\n\u00a0\n\n\nFedEx Trade Networks Transport & Brokerage offers customized trade solutions that enable improved compliance practices through FedEx Trade Solutions.\n\n\n\u00a0\n\n\nFedEx Supply Chain\n \n\n\n\u00a0\n\n\nFedEx Supply Chain is a supply chain solutions provider specializing in Product Lifecycle Logistics\n\u00ae \nfor technology, retail, consumer and industrial goods, and healthcare industries. With approximately 15,000 employees at 82 facilities as of May 31, 2023, FedEx Supply Chain provides a comprehensive range of integrated logistics services to enable growth, minimize cost, mitigate supply chain risk, and improve customer services. Service offerings include inbound logistics, warehousing and distribution, fulfillment, contract packaging and product configuration, systems integration, returns process and disposition, test, repair, refurbishment, and product liquidation.\n \n\n\n\u00a0\n\n\nFedEx Fulfillment is an e-commerce solution that helps small and medium-sized businesses fulfill orders from multiple channels, including websites and online marketplaces, and manage inventory for their retail stores. The FedEx Fulfillment platform is designed to be an easy-to-use and all-in-one logistics solution through which customers have complete visibility into their products, giving them an easy way to track items, manage inventory, analyze trends, and make more informed decisions by better understanding shoppers\u2019 spending behaviors.\n\n\nSeasonality\n\n\n\u00a0\n\n\nFor information on the seasonality of our business, see the \u201cResults of Operations and Outlook \u2014 Consolidated Results \u2014 Seasonality of Business\u201d section of \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report.\n\n\nTrademarks\n\n\n\u00a0\n\n\nThe \u201cFedEx\u201d trademark, service mark, and trade name are essential to our worldwide business. FedEx, FedEx Express, FedEx Ground, FedEx Freight, FedEx Services, FedEx Office, FedEx Logistics, FedEx Dataworks, FedEx Trade Networks Transport & Brokerage, FedEx Supply Chain, FedEx Custom Critical, and ShopRunner, among others, are trademarks, service marks, and trade names of Federal Express Corporation or the respective companies for which registrations, or applications for registration, are on file, as applicable. We have authorized, through licensing arrangements, the use of certain of our trademarks, service marks, and trade names by our contractors and Global Service Participants to support our business. In addition, we license the use of certain of our trademarks, service marks, and trade names on promotional items for the primary purpose of enhancing brand awareness.\n \n\n\nRegulation\n \n\n\n\u00a0\n\n\nAir\n. Under the Federal Aviation Act of 1958, as amended (the \u201cFederal Aviation Act\u201d), both the U.S. Department of Transportation (\u201cDOT\u201d) and the Federal Aviation Administration (\u201cFAA\u201d) exercise regulatory authority over FedEx Express.\n \n\n\n\u00a0\n\n\n- \n20\n -\n\n\n\n\n\u00a0\n\n\nThe FAA\u2019s regulatory authority relates primarily to operational aspects of air transportation, including aircraft standards and maintenance, as well as personnel and ground facilities, which may from time to time affect the ability of FedEx Express to operate its aircraft in the most efficient manner. FedEx Express holds an air carrier certificate granted by the FAA pursuant to Part 119 of the federal aviation regulations. This certificate is of unlimited duration and remains in effect so long as FedEx Express maintains its standards of safety and meets the operational requirements of the regulations.\n \n\n\n\u00a0\n\n\nThe DOT\u2019s authority relates primarily to economic aspects of air transportation. The DOT\u2019s jurisdiction extends to aviation route authority and to other regulatory matters, including the transfer of route authority between carriers. FedEx Express holds various certificates issued by the DOT, authorizing FedEx Express to engage in U.S. and international air transportation of property and mail on a worldwide basis. These certificates will remain in effect as we maintain our economic fitness to perform all-cargo services in connection with our one FedEx consolidation plan.\n\n\n\u00a0\n\n\nUnder the Aviation and Transportation Security Act of 2001, as amended, the Transportation Security Administration (\u201cTSA\u201d), an agency within the Department of Homeland Security, has responsibility for aviation security. The TSA requires FedEx Express to comply with a Full All-Cargo Aircraft Operator Standard Security Plan, which contains evolving and strict security requirements. These requirements are not static, but change periodically as the result of regulatory and legislative requirements, imposing additional security costs and creating a level of uncertainty for our operations. It is reasonably possible that these rules or other future security requirements could impose material costs on us.\n \n\n\n\u00a0\n\n\nFedEx Express participates in the Civil Reserve Air Fleet (\u201cCRAF\u201d) program. Under this program, the U.S. Department of Defense may requisition for military use certain of FedEx Express\u2019s wide-bodied aircraft in the event of a declared need, including a national emergency. FedEx Express is compensated for the operation of any aircraft requisitioned under the CRAF program at standard contract rates established each year in the normal course of awarding contracts. Through its participation in the CRAF program, FedEx Express is entitled to bid on peacetime military cargo charter business. FedEx Express, together with a consortium of other carriers, currently contracts with the U.S. government for such charter flights.\n \n\n\n\u00a0\n\n\nSee \u201cItem 1A. Risk Factors\u201d of this Annual Report for discussion of regulations related to pilots, including the proposed pilot flight and duty time regulations, that could affect our business.\n\n\n\u00a0\n\n\nGround\n. The ground transportation performed by FedEx Express is integral to its air transportation services. The enactment of the Federal Aviation Administration Authorization Act of 1994 abrogated the authority of states to regulate the rates, routes, or services of intermodal all-cargo air carriers and most motor carriers. States may now only exercise jurisdiction over safety and insurance. FedEx Express is registered in those states that require registration.\n \n\n\n\u00a0\n\n\nThe operations of FedEx Ground, FedEx Freight, and FedEx Custom Critical in interstate commerce are currently regulated by the DOT and the Federal Motor Carrier Safety Administration, which retain limited oversight authority over motor carriers. Federal legislation preempts regulation by the states of rates, routes, and services in interstate freight transportation.\n \n\n\n\u00a0\n\n\nLike other interstate motor carriers, our operations, including those at FedEx Express, are subject to certain DOT safety requirements governing interstate operations. In addition, vehicle weight and dimensions remain subject to both federal and state regulations.\n\n\n\u00a0\n\n\nInternational\n. FedEx Express\u2019s international authority permits it to carry cargo and mail from points in its U.S. route system to numerous points throughout the world. The DOT regulates international routes and practices and is authorized to investigate and take action against discriminatory treatment of U.S. air carriers abroad. The right of a U.S. carrier to serve foreign points is subject to the DOT\u2019s approval and generally requires a bilateral agreement between the U.S. and the foreign government. In addition, the carrier must then be granted the permission of such foreign government to provide specific flights and services. The regulatory environment for global aviation rights may from time to time impair the ability of FedEx Express to operate its air network in the most efficient manner, and efficient operations often utilize open skies provisions of aviation agreements. Additionally, global air cargo carriers, such as FedEx Express, are subject to current and potential additional aviation security regulation by U.S. and foreign governments.\n \n\n\n\u00a0\n\n\nOur operations outside of the U.S., such as FedEx Express\u2019s international domestic operations, are also subject to current and potential regulations, including certain postal regulations and licensing requirements, that restrict, make difficult, and sometimes prohibit, the ability of foreign-owned companies such as FedEx Express to compete effectively in parts of the international domestic transportation and logistics market.\n \n\n\n\u00a0\n\n\n- \n21\n -\n\n\n\n\n\u00a0\n\n\nCommunication\n. Because of the extensive use of radio and other communication facilities in its aircraft and ground transportation operations, FedEx Express is subject to the Federal Communications Commission Act of 1934, as amended. Additionally, the Federal Communications Commission (\u201cFCC\u201d) regulates and licenses FedEx Express\u2019s activities pertaining to satellite communications, and also manages the spectrum allocation and licensing process. The FCC recently expanded the use of the 3.7 to 4.2 gigahertz (\u201cGHz\u201d) spectrum band, which has historically been reserved for aviation, to support the implementation of \u201c5G\u201d cellular networks across the U.S. In December 2021, following concerns of potential interference with aircraft radio altimeters by the expanded use of the 3.7 to 4.2 GHz spectrum band, the FAA issued airworthiness directives prohibiting U.S. aircraft operators from operating at U.S. airports affected by 5G cellular networks without radio altimeter retrofits or other enhancements unless authorized via an alternative means of compliance. FedEx Express\u2019s U.S. air operations continued to operate with minimal interruption due to the FAA\u2019s issuance of alternative means of compliance while the company modified its fleet to comply with the directives. In June 2022, the FAA announced its expectation that U.S. aircraft operators have radio altimeter retrofits or other enhancements in place by July 2023. As of July 1, 2023, FedEx Express\u2019s U.S. air operations are in compliance with the airworthiness directives, and we do not expect any subsequent operational disruptions from \u201c5G\u201d cellular network implementation.\n\n\n\u00a0\n\n\nEnvironmental\n.\n \n\n\n\u00a0\n\n\nNoise\n:\n \nPursuant to the Federal Aviation Act, the FAA, with the assistance of the U.S. Environmental Protection Agency (\u201cEPA\u201d), is authorized to establish standards governing aircraft noise. FedEx Express\u2019s aircraft fleet is in compliance with current noise standards of the federal aviation regulations. In addition to federal regulation of aircraft noise, certain airport operators have local noise regulations, which limit aircraft operations by type of aircraft and time of day. These regulations have had a restrictive effect on FedEx Express\u2019s aircraft operations in some of the localities where they apply but do not have a material effect in any of FedEx Express\u2019s significant markets. Congress\u2019s passage of the Airport Noise and Capacity Act of 1990 established a National Noise Policy, which enabled FedEx Express to plan for noise reduction and better respond to local noise constraints. FedEx Express\u2019s international operations are also subject to noise regulations in certain of the countries in which it operates.\n \n\n\n\u00a0\n\n\nGreenhouse Gas Emissions\n:\n \nConcern over climate change, including the effect of global warming, has led to significant U.S. and international legislative and regulatory efforts to limit GHG emissions, including our aircraft and vehicle engine emissions. Increasingly, state and local governments are also considering GHG regulatory requirements. Compliance with such regulation and the associated potential cost is complicated by the fact that various countries and regions are following different approaches to the regulation of climate change. In 2016, the International Civil Aviation Organization (\u201cICAO\u201d) formally adopted a global, market-based emissions offset program known as the Carbon Offsetting and Reduction Scheme for International Aviation (\u201cCORSIA\u201d). This program established a goal for the aviation industry to achieve carbon neutral growth in international aviation beginning in calendar 2021. Any growth above a global industry emissions baseline would need to be addressed using either eligible carbon offset credits or qualifying sustainable aviation fuel purchases. The baseline was originally set as an average of calendar 2019 and calendar 2020 emissions. In 2023, due to the effects of COVID-19 on the airline industry, the ICAO adopted a new baseline of 85% of calendar 2019 emissions. To date, however, while the U.S. Congress is considering proposals to afford the DOT and FAA full authority to implement the market-based measures of CORSIA, the U.S. has not fully implemented CORSIA. In the interim, we continue to voluntarily report our emissions data to the FAA.\n\n\n\u00a0\n\n\nOther ICAO member states are moving forward with implementing CORSIA, and have taken additional action to reduce aircraft GHG emissions. For example, both the EU and the United Kingdom have implemented regulations to include aviation in the Emissions Trading Scheme (\u201cETS\u201d). For the EU, under these regulations any airline with flights originating or landing in the European Economic Area (\u201cEEA\u201d) is subject to the ETS. Beginning in calendar 2012, airlines including FedEx were required to purchase emissions allowances or, alternatively, purchase qualifying sustainable aviation fuel if they exceeded the number of free allowances allocated under the ETS. While the current scope of ETS has been limited to apply only to flights within the EEA through calendar 2026, the EU adopted legislation in 2023 requiring that a study be conducted in July 2026 reassessing whether the European Commission should propose to expand the scope of ETS to include international flights from the EEA based on CORSIA implementation and performance.\n\n\n\u00a0\n\n\nWe expect compliance with CORSIA and the ETS to increase FedEx operating expenses. The amount of such increase will ultimately depend on a number of factors, including the number of our flights subject to CORSIA and the ETS, the fuel efficiency of our fleet, the average growth of the aviation sector, our ability to utilize sustainable aviation fuels in the future and the price of such fuels, and the price of eligible emission units, offsets, or allowances required to be purchased by FedEx.\n \n\n\n\u00a0\n\n\n- \n22\n -\n\n\n\n\n\u00a0\n\n\nAdditionally, in 2017, ICAO adopted new carbon dioxide emissions standards that would apply not only to new aircraft types as of calendar 2020, but also to new deliveries of currently in-production aircraft types from calendar 2023. ICAO established a production cutoff date of January 1, 2028 for aircraft that do not comply with these standards. The standards are considered to be especially stringent for larger aircraft weighing over 60 tons. In 2021, the EPA adopted its own aircraft and aircraft engine GHG emissions standards, which are aligned with the 2017 ICAO emissions standards, and the FAA is advancing its own conforming rulemaking to implement the standards through its aircraft certification process. In the past, the U.S. Congress has also considered bills that would regulate GHG emissions, and some form of federal climate change legislation is possible in the future. In 2021 the U.S. reentered the Paris climate accord, an agreement among 197 countries to reduce GHG emissions. The effect of the reentry on future U.S. policy regarding GHG emissions and on other GHG regulation is uncertain. Additionally, the extent to which other countries implement that agreement could have an adverse direct or indirect effect on our business.\n\n\n\u00a0\n\n\nHazardous Substances\n: In calendar 2022, the EPA proposed regulations to categorize certain per- and polyfluoroalkyl substances (\u201cPFAS\u201d) as \u201chazardous substances\u201d under the Comprehensive Environmental Response, Compensation, and Liability Act (\u201cCERCLA\u201d). Numerous U.S. states, including California, have adopted additional regulations governing these substances. PFAS are used in a wide variety of consumer and industrial products, including the firefighting foams approved for use by the FAA to extinguish fuel-based fires at airports and refineries. The EPA\u2019s proposed rule, once finalized, could subject airports, airlines, and refineries to potential liability for cleanup of historical PFAS contamination. We could incur remediation costs for currently and formerly operated facilities. While the impact of this rulemaking on our business and results of operations cannot currently be predicted, we remain committed to transitioning to PFAS-free materials for fire suppression in accordance with the framework outlined by the FAA in May 2023.\n\n\n\u00a0\n\n\nWe are also subject to international, federal, state, and local environmental laws and regulations relating to, among other things, the shipment of dangerous goods and contingency planning for spills of petroleum products. Additionally, we are subject to numerous regulations dealing with underground fuel storage tanks, hazardous waste handling, vehicle and equipment emissions and noise, and the discharge of effluents from our properties and equipment. FedEx Express has an environmental management system based on International Standardization 14001 designed to maintain compliance with these regulations and minimize our operational environmental footprint, and certified all U.S. airport locations in 2022.\n \n\n\n\u00a0\n\n\nExport Controls\n. \nIn recent years, the U.S. government has increased the number of companies and persons subject to U.S. export control regulations. Such regulations can restrict the types of items that FedEx customers are permitted to ship to certain entities, and in some instances may prohibit FedEx from serving certain entities altogether. Violations of these regulations can result in significant monetary and other penalties. For example, the Export Control Reform Act of 2018 (the \u201cECRA\u201d) and its implementing regulations, the Export Administration Regulations (the \u201cEARs\u201d), hold carriers such as FedEx strictly liable for shipments that may violate the EARs without requiring evidence that the carriers had knowledge of any violations. Violations of the ECRA can result in criminal penalties of up to $1 million and civil penalties of $305,000 (or twice the value of the transaction) per individual violation. FedEx is investing in improvements and updates to its export control compliance programs. However, the heightened focus on export controls by the U.S. government increases FedEx\u2019s exposure to potential regulatory penalties and could result in higher compliance costs.\n \n\n\n\u00a0\n\n\nCustoms\n. \nOur activities, including customs brokerage and freight forwarding, are subject to regulation by U.S. Customs and Border Protection and the TSA within the Department of Homeland Security (customs brokerage and security issues), the U.S. Federal Maritime Commission (ocean freight forwarding), and the DOT (air freight forwarding). Our offshore operations are subject to similar regulation by the regulatory authorities of foreign jurisdictions.\n \n\n\n\u00a0\n\n\nLabor\n. \nAll U.S. employees at FedEx Express are covered by the Railway Labor Act of 1926, as amended (the \u201cRLA\u201d), while labor relations within the U.S. at our other companies are governed by the National Labor Relations Act of 1935, as amended (the \u201cNLRA\u201d). Under the RLA, groups that wish to unionize must do so across nationwide classes of employees. The RLA also requires mandatory government-led mediation of contract disputes supervised by the NMB before a union can strike or an employer can replace employees or impose contract terms. This part of the RLA helps minimize the risk of strikes that would shut down large portions of the economy. Under the NLRA, employees can unionize in small localized groups, and government-led mediation is not a required step in the negotiation process.\n \n\n\n\u00a0\n\n\nThe RLA was originally passed to govern railroad and express carrier labor negotiations. As transportation systems evolved, the law expanded to cover airlines, which are now the dominant national transportation systems. As an air express carrier with an integrated air/ground network, FedEx Express and its employees have been covered by the RLA since the founding of the company. The purpose of the RLA is to offer employees a process by which to unionize (if they choose) and engage in collective bargaining while also protecting global commerce from damaging work stoppages and delays. Specifically, the RLA ensures that an entire transportation system, such as at FedEx Express, cannot be shut down by the actions of a local segment of the network.\n \n\n\n\u00a0\n\n\n- \n23\n -\n\n\n\n\n\u00a0\n\n\nThe U.S. Congress has, in the past, considered adopting changes in labor laws that would make it easier for unions to organize units of our employees. For example, there is always a possibility that Congress could remove most FedEx Express employees from the jurisdiction of the RLA, thereby exposing the FedEx Express network to sporadic labor disputes and the risk that small groups of employees could disrupt the entire air/ground network. This jurisdiction could be challenged in connection with our one FedEx consolidation plan. In addition, federal and state governmental agencies, such as the NMB and the National Labor Relations Board (\u201cNLRB\u201d), have and may continue to take actions that could make it easier for our employees, and employees of service providers contracting with FedEx Ground, to organize under the RLA or NLRA. For a description of these and other potential labor law changes, see \u201cItem 1A. Risk Factors\u201d of this Annual Report.\n\n\n\u00a0\n\n\nData Protection\n. There has recently been heightened regulatory and enforcement focus relating to the collection, use, retention, transfer, and processing of personal data in the U.S. (at both the state and federal level) and internationally. For more information regarding data protection regulation, see \u201cItem 1A. Risk Factors\u201d of this Annual Report.\n \n\n\n- \n24\n -\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A. RIS\nK FACTORS\n\n\n\u00a0\n\n\nIn addition to the other information set forth in this Annual Report, you should carefully consider the following factors, which could materially affect our business, results of operations, financial condition, and the price of our common stock. Additional risks not currently known to us or that we currently deem to be immaterial also may materially affect our business, results of operations, financial condition, and the price of our common stock.\n\n\nMacroeconomic and Market Risks\n\n\n\u00a0\n\n\nWe are directly affected by the state of the global economy and geopolitical developments.\n While macroeconomic risks apply to most companies, we are particularly vulnerable. The transportation industry is highly cyclical and especially susceptible to trends in economic activity. Our primary business is to transport goods, so our business levels are directly tied to the purchase and production of goods and the rate of growth of global trade \u2014 key macroeconomic measurements influenced by, among other things, inflation and deflation, supply chain disruptions, interest rates and currency exchange rates, labor costs and unemployment levels, fuel and energy prices, public health crises, inventory levels, buying patterns and disposable income, debt levels, and credit availability. When individuals and companies purchase and produce fewer goods, we transport fewer goods, and as companies move manufacturing closer to consumer markets and expand the number of distribution centers, we transport goods shorter distances, which adversely affects our yields and profitability. Certain manufacturers and retailers are making investments to produce and house goods in closer proximity to supply chains and consumers in connection with recent macroeconomic, geopolitical, and public health developments. Additionally, consumer spending has shifted from goods to services, and in 2023 we saw a customer preference for slower, less costly shipping services. We expect these trends to continue. Further, the scale of our operations and our relatively high fixed-cost structure, particularly at FedEx Express, make it difficult to quickly adjust to match shifting volume levels, which negatively affected our results of operations in 2023. For more information, see \u201cOur businesses are capital intensive, and we must make capital decisions based upon projected volume levels.\u201d below.\n \n\n\n\u00a0\n\n\nOur results in 2023 were adversely impacted by lower global volumes due to weak economic conditions. We are experiencing a decline in demand for our transportation services as inflation and interest rate increases are negatively affecting consumer and business spending. Additionally, we are experiencing higher costs to serve through higher fuel prices, wage rates, purchased transportation costs, and other direct operating expenses such as operational supplies. During 2024, we expect macroeconomic conditions to continue to negatively affect customer demand for our services. See Item 7. \u201cManagement\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report for additional information.\n\n\n\u00a0\n\n\nMoreover, given the nature of our business and our global operations, political, economic, and other conditions in foreign countries and regions, including international taxes, government-to-government relations, the typically more volatile economies of emerging markets, and geopolitical risks such as the ongoing conflict between Russia and Ukraine, may adversely affect our business and results of operations. We have suspended all services in Ukraine and Belarus. We also temporarily idled our operations in Russia and reduced our presence to the minimum required for purposes of maintaining a legal presence with active transport licenses. While we do not expect this conflict to have a direct material effect on our business or results of operations, the broader consequences of this conflict, which may include further sanctions, embargoes, regional instability, and geopolitical shifts; airspace bans relating to certain routes, or strategic decisions to alter certain routes; potential retaliatory action by the Russian government against us as a result of our idling of operations in Russia, including nationalization of foreign businesses in Russia; increased tensions between the United States and countries in which we operate; and the extent of the conflict\u2019s effect on our business and results of operations as well as the global economy, cannot be predicted.\n\n\n\u00a0\n\n\nTo the extent the current conflict between Russia and Ukraine, or subsequent similar conflicts between or among other nations, adversely affects our business, it may also have the effect of heightening many other risks disclosed in this Annual Report, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, disruptions to our global technology infrastructure, including through cyberattack or cyber-intrusion, ransomware attack, or malware attack; adverse changes in international trade policies; our ability to maintain or increase our prices, including our fuel surcharges in response to rising fuel costs; our ability to implement and execute our business strategy, particularly with regard to our FedEx Express international business; disruptions in global supply chains, which can limit the access of FedEx and our service providers to vehicles and other key capital resources and increase our costs and could affect our ability to achieve our goal of carbon neutrality for our global operations by calendar 2040; our ability to maintain our strong reputation and the value of the FedEx brand; terrorist activities targeting transportation infrastructure; our exposure to foreign currency fluctuations; and constraints, volatility, or disruption in the capital markets. Geopolitical uncertainty negatively affected operations at FedEx Express in recent years.\n \n\n\n- \n25\n -\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAdditional changes in international trade policies and relations could significantly reduce the volume of goods transported globally and adversely affect our business and results of operations. \nThe U.S. government has taken certain actions that have negatively affected U.S. trade, including imposing tariffs on certain goods imported into the U.S. Additionally, several foreign governments have imposed tariffs on certain goods imported from the U.S. These actions contributed to weakness in the global economy that adversely affected our results of operations in recent years. Any further changes in U.S. or international trade policy, including tariffs, export controls, quotas, embargoes, or sanctions, could trigger additional retaliatory actions by affected countries, resulting in \u201ctrade wars\u201d and further increased costs for goods transported globally, which may reduce customer demand for these products if the parties having to pay tariffs or other anti-trade measures increase their prices, or in trading partners limiting their trade with countries that impose such measures. Political uncertainty surrounding international trade and other disputes could also have a negative effect on business and consumer confidence and spending. Such conditions could have an adverse effect on our business, results of operations, and financial condition, as well as on the price of our common\n \nstock.\n\n\n\u00a0\n\n\nAdditionally, the U.S. government has taken action to limit the ability of domestic companies to engage in commerce with certain foreign entities under certain circumstances, and foreign governments may investigate our compliance with these restrictions. Furthermore, given the nature of our business and our global recognizability, foreign governments may target FedEx by limiting the ability of foreign entities to do business with us in certain instances, imposing monetary or other penalties or taking other retaliatory action, which could have an adverse effect on our business, results of operations, and financial condition, as well as on the price of our common stock.\n\n\n\u00a0\n\n\nOur transportation businesses are affected by the price and availability of jet and vehicle fuel.\n We must purchase large quantities of fuel to operate our aircraft and vehicles, and the price and availability of fuel is beyond our control and can be highly volatile. In addition, our purchased transportation expense is affected by fuel costs. To date, we have been mostly successful in mitigating over time the expense effect of higher fuel costs through our indexed fuel surcharges, as the amount of the surcharges is closely linked to the market prices for fuel. If we are unable to maintain or increase our fuel surcharges because of competitive pricing pressures or some other reason, fuel costs could adversely affect our operating results. See \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report for more information. As of May 31, 2023, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.\n\n\n\u00a0\n\n\nEven if we are able to offset the cost of fuel with our surcharges, high fuel surcharges could move our customers away from our higher-yielding express services to our lower-yielding deferred or ground services or even reduce customer demand for our services altogether. In addition, disruptions in the supply of fuel could have a negative effect on our ability to operate our transportation networks. The following factors may affect fuel supply and could result in shortages and price increases in the future: weather-related events; natural disasters; political disruptions or wars involving oil-producing countries; economic sanctions imposed against oil-producing countries or specific industry participants; changes in governmental policy concerning fuel production, transportation, taxes, or marketing; changes in refining capacity; environmental concerns; cyberattacks; and public and investor sentiment. Several of these factors combined to constrain fuel supply in 2023, and we expect such conditions to continue to be present in 2024.\n\n\nOperating Risks\n\n\n\u00a0\n\n\nThe failure to successfully execute our DRIVE transformation program, including Network 2.0, and our one FedEx consolidation plan in the expected time frame and at the expected cost may adversely affect our future results. \nIn the first quarter of fiscal 2023, FedEx announced our DRIVE transformation program to improve long-term profitability, including Network 2.0, the multi-year effort to improve the efficiency with which FedEx picks up, transports, and delivers packages in the U.S. and Canada. In the fourth quarter of 2023, FedEx announced one FedEx, a consolidation plan to ultimately bring FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies into Federal Express Corporation. See \u201cItem 1. Business\u201d and \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report for more information. These entities currently operate as separate and independent businesses and networks. There can be no assurances that these businesses and networks can successfully be consolidated and fully integrated as planned. It is possible that the consolidation and integration process could result in higher than currently expected costs, less-than-expected savings, the loss of customers, the disruption of ongoing businesses, union organizing, litigation, the loss of key FedEx employees or service providers, or other unexpected issues. It is also possible that the overall process will take longer than currently anticipated. Additionally, the following issues, among others, must be addressed in order to realize the anticipated timing and projected benefits of our DRIVE transformation and one FedEx consolidation plan:\n \n\n\n\u00a0\n\n\n\u0095     combining the physical networks and operations of FedEx Express and FedEx Ground, including consolidating the companies\u2019 linehaul and pickup-and-delivery operations, and corporate functions;\n \n\n\n\u00a0\n\n\n\u0095     our ability to maintain coverage of U.S. employees at FedEx Express under the RLA and manage challenges to the employment status of drivers employed by service providers engaged by FedEx Ground, in addition to other labor-related risks;\n\n\n- \n26\n -\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u0095     integrating, consolidating, and implementing new administrative and back-office support functions, information-technology infrastructure, and computer systems of the respective companies;\n \n\n\n\u00a0\n\n\n\u0095     integrating and restructuring the corporate entities;\n\n\n\u00a0\n\n\n\u0095     integrating and unifying the offerings and services available to historical FedEx Express and FedEx Ground customers;\n\n\n\u00a0\n\n\n\u0095     harmonizing the companies\u2019 operating practices, employee development and compensation programs, internal controls, and other policies, procedures, and processes;\n\n\n\u00a0\n\n\n\u0095     maintaining existing agreements with customers and service providers and avoiding delays in entering into new agreements with prospective customers and service providers;\n \n\n\n\u00a0\n\n\n\u0095     legal challenges by FedEx Ground service providers or government agencies seeking to slow or stop plans related to Network 2.0 or our one FedEx consolidation;\n \n\n\n\u00a0\n\n\n\u0095     addressing possible differences in business backgrounds, corporate cultures, and management philosophies;\n \n\n\n\u00a0\n\n\n\u0095     addressing employee issues so as to promote retention and maintain efficient and effective labor and employee relations;\n \n\n\n\u00a0\n\n\n\u0095     maintaining access to ports of call and railroads for intermodal support;\n\n\n\u00a0\n\n\n\u0095     managing the movement of certain positions to different locations;\n \n\n\n\u00a0\n\n\n\u0095     obtaining any required regulatory licenses, operating authority, or contractual consents; and\n\n\n\u00a0\n\n\n\u0095     managing unforeseen increased expenses or delays associated with the consolidation and integration process.\n\n\n \n\n\nWe may not be able to achieve the expected operational efficiencies and network flexibility, alignment of our cost base with demand, cost savings and reductions to our permanent cost structure, and other benefits from our DRIVE transformation and one FedEx consolidation plan. The actual amount and timing of costs to be incurred and related cost savings and reductions to our permanent cost structure resulting from these initiatives and enhancements may differ from our current expectations and estimates. These initiatives and enhancements could also result in asset impairment charges and changes to our tax liabilities and deferred tax balances. If we are not able to successfully implement our DRIVE transformation and one FedEx consolidation plan, our future financial results will suffer and we may not be able to achieve our financial performance goals.\n \n\n\n\u00a0\n\n\nAll of these factors could adversely affect FedEx\u2019s results of operations and negatively affect the price of our common stock. In addition, at times the attention of certain members of our management may be focused on the DRIVE transformation and one FedEx consolidation plan and diverted from day-to-day business operations, which may disrupt our business.\n \n\n\n\u00a0\n\n\nA significant data breach or other disruption to our technology infrastructure could disrupt our operations and result in the loss of critical confidential information, adversely affecting our reputation, business, or results of operations. \nOur ability to attract and retain customers, efficiently operate our businesses, execute our DRIVE transformation and one FedEx consolidation plan, and compete effectively depends in part upon the sophistication, security, and reliability of our technology network, including our ability to provide features of service that are important to our customers, to protect our confidential business information and the information provided by our customers, and to maintain customer confidence in our ability to protect our systems and to provide services consistent with their expectations. For example, we rely on information technology to receive package-level information in advance of physical receipt of packages, to track items that move through our delivery systems, to efficiently plan deliveries, to clear shipments through customs, to execute billing processes, and to track and report financial and operational data. We are subject to risks imposed by data breaches and operational disruptions, including through cyberattack or cyber-intrusion, ransomware attack, or malware attack by computer hackers, foreign governments and state-sponsored actors, cyber terrorists and activists, cyber criminals, malicious employees or other insiders of FedEx or third-party service providers, and other groups and individuals. Data breaches and other technology disruptions of companies and governments continue to increase as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased and we, our customers, and third parties increasingly store and transmit data by means of connected information technology systems. Additionally, risks such as code anomalies, \u201cActs of God,\u201d transitional challenges in migrating operating company functionality to our FedEx enterprise automation platforms, data leakage, cyber-fraud, and human error pose a direct threat to our products, services, systems, and data and could result in unauthorized or block legitimate access to sensitive or confidential data regarding our operations, customers, employees, and suppliers, including personal information.\n \n\n\n- \n27\n -\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nThe technology infrastructure of acquired businesses, as well as their practices related to the use and maintenance of data, could also present issues that we were not able to identify prior to the acquisition. For example, ShopRunner, which we acquired in 2021, collects and stores certain personal data of its merchants and their buyers, its partners, consumers with whom it has a direct relationship, and users of its applications. Additionally, it uses third-party service providers and subprocessors to help deliver services to merchants and their buyers. These service providers and subprocessors may store or access personal data, including payment information and/or other confidential information. The foregoing factors increase the risk of data incidents and the amount of potential exposure in the event of a data breach.\n \n\n\n\u00a0\n\n\nWe also depend on and interact with the technology and systems of third parties, including our customers and third-party service providers such as cloud service providers and delivery services. Such third parties may host, process, or have access to information we maintain about our company, customers, employees, and vendors or operate systems that are critical to our business operations and services. Like us, these third parties are subject to risks imposed by data breaches, cyberattacks, and other events or actions that could damage, disrupt, or close down their networks or systems. We have security processes, protocols, and standards in place, including contractual provisions requiring such security measures, that are applicable to such third parties and are designed to protect information that is held by them, or to which they have access, as a result of their engagements with us. Nevertheless, a cyberattack could defeat one or more of such third parties\u2019 security measures, allowing an attacker to obtain information about our company, customers, employees, and vendors or disrupt our operations. These third parties may also experience operational disruptions or human error that could result in unauthorized access to sensitive or confidential data regarding our operations, customers, employees, and suppliers, including personal information.\n\n\n\u00a0\n\n\nA disruption to our complex, global technology infrastructure, including those affecting our computer systems and websites, could result in the loss of confidential business or customer information, require substantial repairs or replacements, resulting in significant costs, and lead to the temporary or permanent transfer by customers of some or all of their business to our competitors. The foregoing could harm our reputation and adversely affect our operations, customer service, and results of operations. Additionally, a security breach could require us to devote significant management resources to address the problems created. These types of adverse effects could also occur in the event the confidentiality, integrity, or availability of company and customer information was compromised due to a data loss by FedEx or a trusted third party. We or the third parties with which we share information may not discover any security breach and loss of information for a significant period of time after the security breach occurs.\n \n\n\n\u00a0\n\n\nWe have invested and continue to invest in technology security initiatives, information-technology risk management, business continuity, and disaster recovery plans, including investments to retire and replace end-of-life systems. The development and maintenance of these measures is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly more frequent, intense, and sophisticated. Despite our efforts, we are not fully insulated from data breaches, technology disruptions, data loss, and cyber-fraud, which could adversely affect our competitiveness and results of operations. See \u201cItem 1A. Risk Factors\u201d of our Annual Report on Form 10-K for the year ended May 31, 2021 for information regarding the 2017 NotPetya cyberattack at TNT Express and immaterial cyber incidents we experienced in 2017 and 2018. Additionally, we have experienced continual attempts by cyber criminals, some of which have been successful, to gain access to customer accounts for the purposes of fraudulently diverting and misappropriating items being transported in our network. None of these fraudulent cyber activities caused a material disruption to our systems or resulted in any material costs to FedEx.\n \n\n\n\u00a0\n\n\nWhile we have significant security processes and initiatives in place, we may be unable to detect or prevent a breach or disruption in the future. Additionally, while we have insurance coverage designed to address certain aspects of cyber risks in place, we cannot be certain that we will continue to be able to obtain excess insurance coverage in amounts we deem sufficient, our insurance carriers will pay on our insurance claims, or we will not experience a claim for which coverage is not provided. See \u201cOur business is subject to complex and evolving U.S. and foreign laws and regulations regarding data protection.\u201d below for additional information on risks related to legal and regulatory developments with respect to data protection. A significant number of our employees as well as customers and others with whom we do business continue to work remotely or in hybrid models, which may heighten these risks. These risks may also be heightened by our DRIVE transformation, including Network 2.0, and one FedEx consolidation plan.\n\n\n- \n28\n -\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nWe are self-insured for certain costs associated with our operations, and insurance and claims expenses could have a material adverse effect on us. \nWe are self-insured up to certain limits that vary by operating company and type of risk for costs associated with workers\u2019 compensation claims, vehicle accidents, property and cargo loss, general business liabilities, and benefits paid under employee disability programs. Our self-insurance accruals are primarily based on estimated costs determined by actuarial methods. Estimated costs include consideration of a variety of factors and related assumptions such as the severity of claims, frequency and volume of claims, healthcare inflation, seasonality, and plan designs, which may be subject to a high degree of variability. However, the use of any estimation technique in this area is inherently sensitive given the magnitude of claims involved and the length of time until the ultimate cost is known, which may be several years. Material increases in the magnitude of claims, changes to healthcare costs, accident frequency and severity, insurance retention levels, judgment and settlement amounts, associated legal expenses, and other factors could result in unfavorable differences between actual self-insurance costs and our reserve estimates. As a result, our insurance and claims costs could continue to increase materially which could adversely affect our results of operations and financial condition. During 2023, higher self-insurance accruals negatively affected our results of operations. See \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report for more information.\n\n\n\u00a0\n\n\nAs a supplement to our self-insurance program, we maintain coverage with excess insurance carriers for potential losses that exceed the amounts we self-insure. Periodically, we evaluate the level of insurance coverage and adjust insurance levels based on risk tolerance, risk volatility, and premium expense. Although we believe our aggregate insurance limits should be sufficient to cover our historic claims amounts, the commercial trucking industry has experienced a wave of blockbuster or so-called \u201cnuclear\u201d verdicts, including some instances in which juries have awarded hundreds of millions of dollars to those injured in accidents and their families. See Note 9 of the unaudited condensed consolidated financial statements included in \u201cItem 1. Financial Statements\u201d of our Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2022 for information regarding the 2015 jury award of approximately $160 million in compensatory damages in a lawsuit related to a vehicle accident involving a driver employed by a service provider engaged by FedEx Ground, subsequent court affirmation of the award in 2018 and 2022, and our pursuit of reimbursement from insurers of our payment of approximately $210 million of pre- and post-judgment interest. Given this recent trend, it is possible that additional claims could exceed our aggregate coverage limits. If another claim were to exceed our aggregate insurance coverage, we would bear the excess in addition to our other self-insured amounts.\n\n\n\u00a0\n\n\nGiven the current claims environment, the amount of coverage available from excess insurance carriers is decreasing, the premiums for this excess coverage are increasing significantly, and excess insurance carriers are challenging insurance claims more frequently. Accordingly, our excess insurance and claims expenses may continue to increase, or we could further increase our self-insured retention as policies are renewed or replaced. Our results of operations and financial condition could continue to be adversely affected if our costs or losses significantly exceed our aggregate coverage limits, we are unable to obtain excess insurance coverage in amounts we deem sufficient, our insurance carriers fail to pay on our insurance claims, or we experience a claim for which coverage is not provided.\n\n\n\u00a0\n\n\nThe effects of a widespread outbreak of an illness or any other communicable disease or public health crisis on our business, results of operations, and financial condition are highly unpredictable. \nA widespread outbreak of an illness or any other communicable disease or public health crisis, including new variants of COVID-19, could have varying effects on the demand for our services, our business operations, and the global economy and supply chains. The extent of the effect of such an event on our business, results of operations, and financial condition, as well as the global economy, will be dictated by developments that cannot be predicted, such as its duration and spread; the success of efforts to contain it and treat its effects, such as travel bans and restrictions, quarantines, shelter-in-place orders, business and government shutdowns, and other restrictions; the possibility of additional subsequent widespread outbreaks and variant strains and the effect of actions taken in response; and the resulting effects on the economic conditions in the global markets in which we operate. We have now shifted to operating in a more stable post-COVID-19 environment with less restrictions, which resulted in consumers returning to near pre-pandemic shopping patterns during 2023.\n\n\n\u00a0\n\n\nOur business is labor and capital intensive in nature, which may require us to incur higher costs to operate our networks during such an event. If we are unable to remain agile and flex our networks to align with shipping volumes, customer needs, disrupted global supply chains and other network inefficiencies, market demands, and operating conditions, or are unable to continuously respond to evolving governmental policies, our business operations could be negatively affected, which could have a further adverse effect on our results of operations. Further, due to the size, scope, and geographically dispersed nature of our operations, the expenses we incur to protect the health and safety of our team members and customers may be higher than similar expenses incurred by companies in other industries.\n\n\n- \n29\n -\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTo the extent a widespread outbreak of an illness or any other communicable disease or public health crisis adversely affects our business and financial results, it may also have the effect of heightening many other risks described in this section, any of which could materially and adversely affect our business, results of operations, and financial condition. Such risks include, but are not limited to, additional changes in the state of the global economy and international trade policies and relations; our ability to execute our DRIVE transformation and one FedEx consolidation plan, implement our business strategy, and effectively respond to changes in market dynamics and customer preferences; our strong reputation and the value of the FedEx brand; our ability to meet our labor and purchased transportation needs while controlling related costs; changes in the business and financial soundness of the USPS; our ability to achieve our goal of carbon neutrality for our global operations by calendar 2040; and the effect of litigation or claims from customers, team members, suppliers, regulators, or other third parties relating to the crisis or our actions in response.\n\n\n\u00a0\n\n\nSee \u201cDescription of Business Segments  \u2014 Trends Affecting Our Business\u201d under \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report, as well as \u201cItem 1A. Risk Factors\u201d and \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of our Annual Reports on Form 10-K for the years ended May 31, 2020, May 31, 2021, and May 31, 2022, for information regarding the COVID-19 pandemic and its effects on our business, results of operations, and financial condition.\n\n\n\u00a0\n\n\nThe transportation infrastructure continues to be a target of terrorist activities.\n Because transportation assets continue to be a target of terrorist activities, governments around the world are adopting or are considering adopting stricter security requirements that will increase operating costs and potentially slow service for businesses, including those in the transportation industry. These security requirements are not static, but change periodically as the result of regulatory and legislative requirements, imposing additional security costs and creating a level of uncertainty for our operations. For example, the TSA requires FedEx Express to comply with a Full All-Cargo Aircraft Operator Standard Security Plan, which contains evolving and strict security requirements. Additionally, the ICAO\u2019s standard that previously allowed a member state to permit carriers and other entities to determine, without government oversight, which shippers and shipments are secure for purposes of putting those shipments on all-cargo aircraft was modified effective July 1, 2021. As a result, we are now required to undertake additional security measures for international outbound shipments. It is reasonably possible that these rules or other future security requirements could impose material costs on us or slow our service to our customers. The effects on our operations of avoiding areas of the world, including airspace, in which there are geopolitical conflicts and the targeting of aircraft by parties to those conflicts can also be significant. Moreover, a terrorist attack directed at FedEx or other aspects of the transportation infrastructure could disrupt our operations and adversely affect demand for our services.\n \n\n\nStrategic Risks\n\n\n\u00a0\n\n\nFailure to successfully implement our business strategy and effectively respond to changes in market dynamics and customer preferences will cause our future financial results to suffer. \nWe are making significant investments and other decisions in connection with our long-term business strategy, such as those related to our DRIVE transformation, including Network 2.0, and one FedEx consolidation plan. See \u201cThe failure to successfully execute our DRIVE transformation, including Network 2.0, and one FedEx consolidation plan in the expected time frame and at the expected cost may adversely affect our future results.\u201d above and\n \n\u201cItem 1. Business\u201d and \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report for additional information. Such initiatives and enhancements may require us to make significant capital expenditures or incur significant expenses. We have also incurred, and may continue to incur, increased operating expenses in connection with certain changes to our business strategy. We may not be able to derive the expected operational efficiencies and network flexibility, alignment of our cost base with demand, cost savings and reductions to our permanent cost structure, and other benefits from our strategic investments and other decisions.\n \n\n\n\u00a0\n\n\nFurther, in developing our business strategy, we make certain assumptions including, but not limited to, those related to customer demand and the mix of services to be purchased by our customers, the future rate of e-commerce growth and inventory restocking, passenger airline cargo capacity, competition, and the global economy, and actual market, economic, and other conditions may be different from our assumptions. As technology, customer behavior, and market conditions continue to evolve, it is important that we maintain the relevance of our brand and service offerings to our customers. If we are not able to successfully implement our business strategy and effectively respond to changes in market dynamics and customer preferences, our future financial results will suffer. For additional discussion, see \u201cItem 1. Business\u201d of this Annual Report under the caption \u201cStrategy.\u201d\n\n\n- \n30\n -\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nOur businesses are capital intensive, and we must make capital decisions based upon projected volume levels.\n We make significant investments in aircraft, package handling facilities, vehicles, technology, sort equipment, acquired companies, and other assets to support our transportation and business networks. The amount and timing of capital investments depend on various factors, including our anticipated volume growth. We must make commitments to purchase or modify aircraft years before the aircraft are actually needed. We must predict volume levels and fleet requirements and make commitments for aircraft based on those projections. Missing our projections could result in too much or too little capacity relative to our shipping volumes. Overcapacity could lead to below-market asset dispositions or write-downs, as well as negatively affect operating margins, and undercapacity could negatively affect service levels. Difficulties in quickly adjusting our operations and fixed-cost structure to match shifting volume levels, particularly at FedEx Express, negatively affected our results of operations in 2023. Additionally, see \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition \u2014 Results of Operations and Outlook \u2014 Consolidated Results \u2014 Goodwill and Other Asset Impairment Charges\u201d of this Annual Report for information regarding a noncash impairment charge recorded in the fourth quarter of 2023 in connection with our decision to permanently retire certain aircraft and related engines from service.\n\n\n\u00a0\n\n\nWe depend on our strong reputation and the value of the FedEx brand.\n The FedEx brand name symbolizes high-quality service, reliability, and speed. FedEx is one of the most widely recognized, trusted, and respected brands in the world, and the FedEx brand is one of our most important and valuable assets. In addition, we have a strong reputation among customers, team members, and the general public for high standards of social and environmental responsibility and corporate governance and ethics. The FedEx brand name and our corporate reputation are powerful sales, marketing, and recruitment tools, and we devote significant resources to promoting and protecting them. Adverse publicity (whether or not justified) relating to activities by our team members or others with whom we do business, such as customer service mishaps, accidents, catastrophes, or incidents involving aircraft, vehicles, or facilities operated by us or our service providers; low safety or service levels; data breaches or technology infrastructure disruptions; noncompliance with laws and allegations or claims that result in litigation; the shipment of certain items pursuant to our obligation as a common carrier operating under federal law; labor relations and workforce reductions; our advertising campaigns, sponsorship arrangements, or marketing programs; our political activities and expenditures; our executive compensation practices; or use of artificial intelligence could tarnish our reputation and reduce the value of our brand. With the increase in the use of social media outlets such as Facebook, YouTube, Instagram, Twitter, and TikTok, adverse publicity can be disseminated quickly and broadly without context, making it increasingly difficult for us to effectively respond. Certain forms of technology also allow users to alter images, videos, and other information relating to FedEx and present the information in a false or misleading manner. Further, our actual or perceived position or lack of position on environmental, social, political, public policy, or other sensitive issues, and any perceived lack of transparency about those matters, could harm our reputation with certain groups, including our customers, team members, governments, and regulatory bodies. Damage to our reputation and loss of brand equity could reduce demand for our services and/or create difficulties in retaining and recruiting employee talent, and thus have an adverse effect on our financial condition, liquidity, and results of operations, as well as require additional resources to rebuild our reputation and restore the value of our brand.\n \n\n\n\u00a0\n\n\nChanges in the business or financial soundness of the USPS, including strategic changes to its operations to reduce its reliance on the air network of FedEx Express, are likely to have an adverse effect on our results of operations and financial condition.\n The USPS is the largest customer of FedEx Express, which provides domestic air transportation services for the USPS\u2019s First Class Mail, Priority Mail Express, and Priority Mail and transportation and delivery for the USPS\u2019s international delivery service. See \u201cItem 1. Business\u201d of this Annual Report under \u201cFedEx Express Segment\u201d for more information.\n\n\n\u00a0\n\n\nPursuant to previously announced plans to restructure its operations, the USPS continues to implement strategic changes to its operations to reduce its reliance on the air network of FedEx Express, which negatively affected our results of operations in 2023. FedEx Express expects lower volumes from the USPS in 2024. Additional changes in the USPS\u2019s business, including further structural changes to its operations, network, volume levels, service offerings, service commitments, or pricing, could have additional negative effects on our revenue, results of operations, and financial condition. Further, the USPS\u2019s contract with FedEx Express for domestic services expires on September 29, 2024, and there is no assurance that the contract will be renewed on terms that are commercially acceptable to FedEx. Additionally, a decision by the USPS to terminate the contract early could negatively affect our profitability.\n\n\n- \n31\n -\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nWe face intense competition.\n The transportation and business services markets are both highly competitive and sensitive to price and service, especially in periods of little or no macroeconomic growth. Some of our competitors have more financial resources and competitive advantages than we do, appear willing to operate at little or no margin to gain market share, or they are owned, controlled, or subsidized by foreign governments, which enables them to raise capital more easily. We also compete with regional transportation providers that operate smaller and less capital-intensive transportation networks and startup companies that combine technology with flexible labor solutions such as crowdsourcing to focus on local market needs. In addition, some high-volume package shippers are developing and implementing in-house delivery capabilities and utilizing independent contractors for deliveries, which could in turn reduce our revenues and market share. For example, Amazon.com has established a network of hubs, aircraft, and vehicles and has expressed an intention to offer its internal delivery capabilities broadly to third parties. See \u201cItem 1. Business\u201d of this Annual Report for additional information.\n\n\n\u00a0\n\n\nWe believe we compete effectively with these companies \u2013 for example, by providing more reliable service at compensatory prices. However, the existence of an irrational pricing environment could limit our ability not only to maintain or increase our prices (including our fuel surcharges in response to rising fuel costs), but also to maintain or grow our revenues and market share. While we believe we compete effectively through our current and planned service offerings, if our current competitors or potential future competitors offer a broader range of services or better service levels, more effectively bundle their services, or offer services at lower prices, it could impede our ability to maintain or grow our market share. Continued transportation industry consolidation may further increase competition. Moreover, if high-volume package shippers further develop or expand internal capabilities for the services we provide, it may reduce our revenue and could negatively affect our financial condition and results of operations. These effects could be exacerbated if high-volume package shippers offer such capabilities to third parties. News regarding such developments or expansions could also negatively affect the price of our common stock.\n \n\n\n\u00a0\n\n\nAdditionally, advancements in technology, such as advanced safety systems; automated package sorting, handling, and delivery; autonomous delivery; third-party supply chain insight and management; artificial intelligence; vehicle platooning; alternative fuel vehicles; and digitization of freight services, may necessitate that we increase investments in order to remain competitive, and our customers may not be willing to accept higher rates to cover the cost of these investments.\n\n\n\u00a0\n\n\nOur inability to execute and effectively operate, integrate, leverage, and grow acquired businesses and realize the anticipated benefits of acquisitions, joint ventures, and strategic alliances and investments could materially adversely affect us.\n Our strategy for long-term growth, productivity, and profitability depends in part on our ability to make prudent strategic acquisitions and investments, form joint ventures or strategic alliances, and realize the expected benefits from these transactions. We regularly acquire businesses, enter into strategic alliances, and make investments across the more than 220 countries and territories in which we provide services.\n\n\n \n\n\nAcquisitions and other strategic transactions involve special commercial, customer, accounting, regulatory, compliance, information technology, human resources, cultural, and other risks, including the potential assumption of unanticipated liabilities and contingencies. Additionally, we may be required to make significant capital expenditures and/or incur certain operating expenses following the completion of certain transactions, which may be higher than initially expected. For example, existing and future customer data in the systems and business of FedEx and ShopRunner may not be ultimately interoperable, or may not be interoperable without significant added expense.\n \n\n\n\u00a0\n\n\nWhile we expect our past and future acquisitions and strategic transactions to enhance our value proposition to customers and improve our business and long-term profitability, there can be no assurance that we will realize our expectations within the time frame we have established, if at all, or that we can continue to support the value we allocate to acquired businesses, including their goodwill or other intangible assets. We have previously incurred goodwill impairment charges related to certain of our acquisitions, some of which have been material, and may incur additional goodwill impairment charges in the future. See \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition \u2014 Results of Operations and Outlook \u2014 Consolidated Results \u2014 Goodwill and Other Asset Impairment Charges\u201d of this Annual Report for information regarding a noncash impairment charge recorded in the fourth quarter of 2023 related to the ShopRunner acquisition.\n\n\n- \n32\n -\n\n\n\n\n\u00a0\n\n\nHuman Resource Management Risks\n\n\n\u00a0\n\n\nOur failure to attract and retain employee talent, meet our purchased transportation needs, or maintain our company culture, as well as increases in labor and purchased transportation costs, could adversely affect our business and results of operations. \nOur success depends upon the efforts and abilities of our high-quality employees, many of whom are longstanding FedEx team members. Difficulties in motivating, rewarding, recruiting, and retaining employee talent, including successors to members of senior management; the unexpected loss of such individuals resulting in the depletion of our institutional knowledge base; and/or our inability to successfully transition key roles could have an adverse effect on our business, results of operations, reputation, and the price of our common stock. We also regularly seek to hire a large number of part-time and seasonal workers, and FedEx Ground utilizes contracted service providers to conduct its linehaul and pickup-and-delivery operations.\n\n\n\u00a0\n\n\nCertain positions at FedEx have historically experienced high turnover rates, which can lead to increased recruiting, training, and retention costs. Additionally, our company culture is important to providing high-quality customer service and having a productive workforce and could be adversely affected by our growing operations and other factors. If we fail to maintain the strength of our company culture, our competitive ability and our business may be harmed.\n \n\n\n\u00a0\n\n\nOur business is labor intensive in nature, and our ability to meet our labor and purchased transportation needs while controlling related costs is generally subject to numerous external factors, including the availability of qualified service providers and persons in the markets where we and our contracted service providers operate and unemployment levels within these markets, prevailing and competitive wage rates and other benefits, health and other insurance costs, inflation, fuel and energy prices and availability, behavioral changes, adoption of new or revised employment and labor laws and regulations (including increased minimum wage requirements) or government programs, safety levels of our operations, our reputation within the labor and transportation markets, changes in the business or financial soundness of service providers, interest in contracting with FedEx, the effect of a widespread public health crisis, the availability of child care, and vaccine mandates that may be announced in jurisdictions in which our businesses and service providers operate. Additionally, certain service providers (acting collectively or in coordination in some instances) may seek to increase financial rates or modify contract terms and may refuse to provide service to FedEx in connection with such initiatives.\n\n\n\u00a0\n\n\nOur inability to effectively meet our labor and purchased transportation needs can increase our costs, hinder our ability to execute our business strategy, negatively affect service levels, and adversely affect our business and results of operations. Certain of these risks may be heightened by our DRIVE transformation, including Network 2.0, and one FedEx consolidation plan.\n\n\n\u00a0\n\n\nLabor organizations attempt to organize groups of our employees from time to time, and potential changes in labor laws could make it easier for them to do so.\n If we are unable to maintain positive relationships with our employees and to avoid having labor organizations organize groups of our employees, our operating costs could significantly increase and our operational flexibility could be significantly reduced. Despite continual organizing attempts by labor unions, other than the pilots at FedEx Express and drivers at one FedEx Freight facility, our U.S. employees have thus far chosen not to unionize (we acquired FedEx Supply Chain in 2015, which already had a small number of employees who are members of unions). Additionally, certain of FedEx Express\u2019s non-U.S. employees are unionized. For information regarding the tentative successor agreement FedEx Express reached with the union representing the pilots of FedEx Express in May 2023, see \u201cItem 1. Business\u201d of this Annual Report under the caption \u201cFedEx Express Segment \u2014 FedEx Express \u2014 Employees.\u201d\n \n\n\n\u00a0\n\n\nLabor unions have recently attempted to organize employees at businesses and in industries that have not traditionally been unionized, and in certain instances have been successful. Such attempts could continue in 2024. Additionally, the U.S. Congress has, in the past, considered adopting changes in labor laws that would make it easier for unions to organize units of our employees. For example, there is always a possibility that Congress could remove most FedEx Express employees from the jurisdiction of the RLA. Additionally, this jurisdiction could be challenged in connection with our one FedEx consolidation plan. For additional discussion of the RLA, see \u201cItem 1. Business\u201d of this Annual Report under the caption \u201cRegulation.\u201d Such legislation or challenge could expose our customers to the type of service disruptions that the RLA was designed to prevent \u2014 local work stoppages in key areas that interrupt the timely flow of shipments of time-sensitive, high-value goods throughout our global network. Such disruptions could threaten our ability to provide competitively priced shipping options and ready access to global markets.\n \n\n\n\u00a0\n\n\n- \n33\n -\n\n\n\n\n\u00a0\n\n\nThere is also the possibility that Congress could pass other labor legislation that could adversely affect our companies, such as FedEx Ground and FedEx Freight, whose employees are governed by the NLRA. In addition, federal and state governmental agencies, such as the NMB and the NLRB, have and may continue to take actions that could make it easier for our employees, as well as our vendor and supplier workforces, to organize under the RLA or NLRA. Finally, changes to federal or state laws, regulations, rules, judicial or administrative precedent, or guidance governing employee classification could affect the status of FedEx Ground\u2019s service providers as independent employers of drivers. If FedEx Ground is deemed to be an employer or joint employer of the drivers of these service providers, labor organizations could more easily organize these individuals, our operating costs could increase materially, and we could incur significant capital outlays and experience adverse effects to service levels.\n \n\n\n\u00a0\n\n\nFedEx Ground contracts with service providers to conduct its linehaul and pickup-and-delivery operations, and the status of these service providers as direct and exclusive employers of drivers providing these services is being challenged.\n We are defending joint-employer cases where it is alleged that FedEx Ground should be treated as an employer or joint employer of the drivers employed by service providers engaged by FedEx Ground. We incur certain costs, including legal fees, in defending the status of service providers engaged by FedEx Ground as direct employers of their drivers. We continue to believe that FedEx Ground is not an employer or joint employer of the drivers of these independent businesses. However, adverse determinations in these matters or regulatory developments could, among other things, entitle service providers\u2019 drivers to certain wage payments and penalties from the service providers and FedEx Ground, and result in employment and withholding tax and benefit liability for FedEx Ground. The status of the drivers employed by these service providers could be further challenged in connection with our one FedEx consolidation plan.\n \n\n\n\u00a0\n\n\nProposed pilot flight and duty time regulations could impair our operations and impose substantial costs on us\n. \nIn 2010, the FAA proposed regulations that would change the flight and duty time rules applicable to all-cargo air carriers. When the FAA issued final regulations in 2011 (the \u201c2011 regulations\u201d), all-cargo carriers, including FedEx Express, were exempt from these new requirements. Instead, all-cargo carriers were required to continue complying with previously enacted flight and duty time rules and allowed to pursue the development of fatigue risk management systems to develop fatigue mitigations unique to each operation. In 2012, the FAA reaffirmed the exclusion of all-cargo carriers from the 2011 regulations, and litigation in the U.S. Court of Appeals for the District of Columbia affirmed the FAA\u2019s decision. However, this issue remains a policy priority for certain labor groups, and the U.S. Congress periodically considers legislation that, if adopted, would require all-cargo carriers to comply with the 2011 regulations. Required compliance with the 2011 regulations would make it more difficult to avoid pilot fatigue and could impose substantial costs on us in order to maintain operational reliability.\n\n\n\u00a0\n\n\nIncreasing costs, the volatility of costs and funding requirements, and other legal mandates for employee benefits, especially pension and healthcare benefits, could adversely affect our results of operations, financial condition, and liquidity. \nWe sponsor programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans, and postretirement healthcare plans. The costs of providing pension and other retirement benefit plans are dependent on numerous assumptions, such as discount rates, expected long-term investment returns on plan assets, future salary increases, employee turnover, mortality, and retirement ages. Changes in actuarial assumptions and differences between the assumptions and actual values, as well as significant declines in the value of investments that fund our pension and other postretirement plans, if not offset or mitigated by a decline in plan liabilities, could increase pension and other postretirement expense, and we could be required from time to time to fund the pension plans with significant amounts of cash. Such cash funding obligations could adversely affect our results of operations and liquidity. Additionally, the rules for pension and retirement benefit plan accounting are complex, involve numerous assumptions, and can produce volatility in our results of operations, financial condition, and liquidity. For example, our fourth quarter mark-to-market (\u201cMTM\u201d) retirement plans accounting adjustment resulted in a pre-tax, noncash gain of $650 million in 2023 ($493 million, net of tax, or $1.92 per diluted share) and a loss of $1.6 billion in 2022 ($1.2 billion, net of tax, or $4.49 per diluted share). For additional information on our MTM retirement plans accounting adjustments, see \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u2014Results of Operations and Outlook\u2014Consolidated Results\u2014Retirement Plans MTM Adjustments\u201d and Note 13 of the consolidated financial statements included in \u201cItem 8. Financial Statements and Supplementary Data\u201d of this Annual Report.\n\n\n- \n34\n -\n\n\n\n\n\u00a0\n\n\nEnvironmental, Climate, and Weather Risks\n\n\nWe may be affected by global climate change or by legal, regulatory, or market responses to such change. \nConcern over climate change, including the effect of global warming, has led to significant U.S. and international legislative and regulatory efforts to limit GHG emissions, including our aircraft and vehicle engine emissions. Increasingly, state and local governments are also considering GHG regulatory requirements. Compliance with such regulation and the associated potential cost is complicated by the fact that various countries and regions are following different approaches to the regulation of climate change. Increased regulation regarding GHG emissions, especially aircraft or vehicle engine emissions, could impose substantial costs on us, especially at FedEx Express. These costs include an increase in the cost of the fuel and other energy we purchase and capital and impairment costs associated with updating or replacing our aircraft or vehicles prematurely. Until the timing, scope, and extent of such possible regulation becomes known, we cannot predict its effect on our cost structure or our operating results. It is reasonably possible, however, that it could materially increase our operating expenses and have an adverse direct or indirect effect on our business, if instituted. For additional discussion of regulatory responses to climate change, including CORSIA and the Paris climate accord, see \u201cItem 1. Business\u201d of this Annual Report under the caption \u201cRegulation.\u201d We may also incur additional expenses as a result of U.S. and international regulators requiring additional disclosures regarding GHG emissions.\n\n\nMoreover, even without such regulation, increased awareness and any adverse publicity in the global marketplace about the GHGs emitted by companies in the airline and transportation industries could harm our reputation and reduce customer demand for our services, especially our air express services. Finally, given the broad and global scope of our operations and our susceptibility to global macroeconomic trends, we are particularly vulnerable to the physical risks of climate change that could affect all of humankind, such as shifts in weather patterns and world ecosystems.\n \n\n\n\u00a0\n\n\nWe may be unable to achieve or demonstrate progress on our goal of carbon neutrality for our global operations by calendar 2040.\n\n\nIn 2021, we announced a goal to achieve carbon neutrality for our global operations by calendar 2040. Achievement of this goal depends on our execution of operational strategies relating to vehicle electrification; sustainable fuels; aircraft fuel conservation and fleet modernization; facilities; and sustainable customer solutions.\n \n\n\n\u00a0\n\n\nExecution of these strategies, as well as demonstrable progress on and achievement of our calendar 2040 goal, is subject to risks and uncertainties, many of which are outside of our control. These risks and uncertainties include, but are not limited to: our ability to successfully implement our business strategy, effectively respond to changes in market dynamics and achieve the anticipated benefits and associated cost savings of such strategies and actions; the availability and cost of, and our ability to acquire, alternative fuel vehicles, alternative fuels, fuel-efficient aircraft, global electrical charging infrastructure, off-site renewable energy, and other materials and components, many of which are not presently in existence or available at scale; unforeseen production, design, operational, and technological difficulties; the outcome of research efforts and future technology developments, including the ability to scale projects and technologies on a commercially competitive basis such as carbon sequestration and/or other related processes; compliance with, and changes or additions to, global and regional regulations, taxes, charges, mandates, or requirements relating to GHG emissions, carbon costs, or climate-related goals; labor-related regulations and requirements that restrict or prohibit our ability to impose requirements on third parties who provide contracted transportation for our transportation networks; the availability of incentives to enhance the production and affordability of alternative fuel vehicles, alternative fuels, global electrical charging infrastructure, and other materials and components; adapting products to customer preferences and customer acceptance of sustainable supply chain solutions and potentially increased prices for our services; and the actions of competitors and competitive pressures.\n\n\n\u00a0\n\n\nThere is no assurance that we will be able to successfully execute our strategies and achieve or demonstrate progress on our calendar 2040 goal of carbon neutrality for our global operations. Additionally, we may determine that it is in our best interests to prioritize other business, social, governance, or sustainable investments and/or initiatives (including our DRIVE transformation program, including Network 2.0, and one FedEx consolidation plan) over the achievement of our calendar 2040 goal based on economic, regulatory, or social factors, business strategy, or other reasons. Failure to achieve or demonstrate progress on our calendar 2040 goal could damage our reputation and customer and other stakeholder relationships. Further, given investors\u2019 and banks\u2019 increased focus related to ESG matters, such a failure could cause large stockholders to reduce their ownership of FedEx common stock and limit our access to financing. Such conditions could have an adverse effect on our business, results of operations, and financial condition, as well as on the price of our common stock.\n\n\n- \n35\n -\n\n\n\n\n\u00a0\n\n\nOur inability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography could adversely affect our business and results of operations.\n While we operate several integrated networks with assets distributed throughout the world, there are concentrations of key assets within our networks that are exposed to adverse weather conditions or localized risks from natural or manmade disasters such as earthquakes, volcanoes, wildfires, hurricanes, tornadoes, floods, severe winter weather, conflicts or unrest, terrorist attacks, or other disturbances, actual or threatened. Additionally, shifts in weather patterns caused by climate change could increase the frequency, severity, or duration of certain adverse weather conditions. Prolonged interruptions or disruptions at a key location such as our FedEx Express Memphis World Hub or one of our information-technology centers could adversely affect our business and results of operations. We also may incur significant costs to reestablish or relocate these functions. Moreover, resulting economic dislocations, including supply chain and fuel disruptions, could adversely affect demand for our services resulting in an adverse effect on our business and results of operations.\n\n\nOther Legal, Regulatory, and Miscellaneous Risks\n\n\nGovernment regulation and enforcement are evolving and unfavorable changes could harm our business. \nWe are subject to regulation under a wide variety of U.S. federal, state, and local and non-U.S. government regulations, laws, policies, and actions. There can be no assurance that such regulations, laws, policies, and actions will not be changed in ways that will decrease the demand for our services, subject us to escalating costs, or require us to modify our business models and objectives (such as our DRIVE transformation program, including Network 2.0, and one FedEx consolidation plan), harming our financial results. In particular, legislative, regulatory, or other actions that U.S. and non-U.S. governments have undertaken or could take in areas such as data privacy and sovereignty, the use of new technology, taxes, foreign exchange intervention in response to currency volatility, currency controls that could restrict the movement of liquidity from particular jurisdictions, trade controls, tariffs, quotas, embargoes, or sanctions in the U.S. or other countries, complex economic sanctions, import and export controls, customs standards, additional security or workplace and transportation health and safety requirements, labor and employment standards (including with respect to our pilots), worker classification, joint employment and benefits, government contracting, regulated commodities, environmental or emission standards, and accounting may have an adverse effect on our results of operations, financial condition, capital requirements, effective tax rate, and service levels. For additional discussion, see \u201cItem 1. Business\u201d of this Annual Report under the caption \u201cRegulation.\u201d Additionally, the current U.S. presidential administration and various U.S. federal and state regulatory bodies have indicated a desire to reform various aspects of existing laws, regulations, and enforcement priorities and strategies that could, among other things, lead to comprehensive tax reform, broadly increase the U.S. minimum wage, make it easier for unions to organize our U.S. employees or the employees of our service providers, and alter the employment relationship between service providers engaged by FedEx Ground and the drivers employed by those service providers.\n \n\n\n\u00a0\n\n\nWe could be subject to adverse changes in regulations and interpretations or challenges to our tax positions.\n We are subject to taxation in the U.S. and numerous foreign jurisdictions. From time to time, changes in tax laws or regulations may be enacted that could significantly affect our overall tax liabilities and our effective tax rate. U.S. and foreign governmental agencies maintain focus on the taxation of multinational companies, including statutory tax rates, global minimum taxes (such as the framework agreed to by members of the Organization for Economic Cooperation and Development in 2022), digital taxes, and transactions between affiliated companies. Such changes may require new and complex computations to be performed, significant judgments, estimates, and calculations to be made, and the preparation and analysis of information not previously relevant or regularly produced.\n\n\n\u00a0\n\n\nStandard-setting bodies could interpret or issue guidance on how provisions of certain tax laws and regulations will be applied or otherwise administered that is different from our interpretation, and we may be required to make adjustments to amounts that we have recorded that may adversely affect our results of operations and financial condition. See \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u2014Results of Operations and Outlook\u2014Consolidated Results\u2014Income Taxes\u201d of this Annual Report for additional information regarding ongoing tax examinations and challenges. Additionally, see \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u2014Critical Accounting Estimates\u2014Income Taxes\u201d of this Annual Report for information regarding estimates and potential adjustments related to our tax positions.\n\n\n\u00a0\n\n\n- \n36\n -\n\n\n\n\n\u00a0\n\n\nOur business is subject to complex and evolving U.S. and foreign laws and regulations regarding data protection. \nThere has recently been heightened regulatory and enforcement focus relating to the collection, use, retention, transfer, and processing of personal data in the U.S. (at both the state and federal level) and internationally, including the EU\u2019s General Data Protection Regulation, the California Privacy Rights Act, the Virginia Consumer Data Protection Act, and other similar laws that have been or will be enacted by other jurisdictions. In addition, China and certain other jurisdictions have enacted more stringent data localization requirements. An actual or alleged failure to comply with applicable U.S. or foreign data protection laws, regulations, or other data protection standards may expose us to litigation (including, in some instances, class action litigation), fines, sanctions, or other penalties, which could harm our reputation and adversely affect our business, results of operations, and financial condition. This regulatory environment is increasingly challenging, based on discretionary factors, and difficult to predict. Consequently, compliance with all applicable regulations in the various jurisdictions in which we do business may present material obligations and risks to our business, including significantly expanded compliance burdens, costs, and enforcement risks; require us to make extensive system or operational changes; or adversely affect the cost or attractiveness of the services we offer. All of these evolving compliance and operational requirements, as well as the uncertain interpretation and enforcement of laws, impose significant costs and regulatory risks that are likely to increase over time. Developing privacy legislation within the U.S. may also create limitations or added requirements on the use of personal data by FedEx Dataworks and the other FedEx operating companies.\n\n\nThe regulatory environment for global aviation or other transportation rights may affect our operations and increase our operating costs.\n Our extensive air network is critical to our success. Our right to serve foreign points is subject to the approval of the DOT and generally requires a bilateral agreement between the U.S. and foreign governments. In addition, we must obtain the permission of foreign governments to provide specific flights and services. Our operations outside of the U.S., such as FedEx Express\u2019s international domestic operations, are also subject to current and potential regulations, including certain postal regulations and licensing requirements, that restrict, make difficult, and sometimes prohibit, the ability of foreign-owned companies such as FedEx Express to compete effectively in parts of the international domestic transportation and logistics market. Regulatory or executive actions affecting global aviation or transportation rights or a failure to obtain or maintain aviation or other transportation rights in important international markets could impair our ability to operate our networks. Further, our ability to obtain or maintain aviation or other transportation rights internationally may be adversely affected by changes in international trade policies and relations.\n\n\nWe are subject to other extensive regulatory and legal compliance requirements that may result in significant costs. For instance, the FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures in order to comply. High-profile accidents, catastrophes, or incidents involving aircraft may trigger increased regulatory and legal compliance requirements. These requirements can be issued with little or no notice, or can otherwise affect our ability to efficiently or fully utilize our aircraft, and in some instances have resulted in the temporary grounding of aircraft types altogether. Further, our business may be adversely affected when government agencies and air traffic control and other systems they oversee cease to operate as expected, including due to partial shutdowns, sequestrations, or similar events. Lapses in government operations may result in, among other things, disruptions in the ability of government agencies to grant required regulatory approvals. For additional discussion, see \u201cItem 1. Business\u201d of this Annual Report under the caption \u201cRegulation.\u201d\n \n\n\nWe are also subject to other risks and uncertainties, including:\n \n\n\n\u00a0\n\n\n\u0095   our ability to mitigate the technological, operational, legal and regulatory, and reputational risks related to autonomous technology and artificial intelligence;\n\n\n\u00a0\n\n\n\u0095     the increasing costs of compliance with federal, state, and foreign governmental agency mandates (including the Foreign Corrupt Practices Act and the U.K. Bribery Act) and defending against inappropriate or unjustified enforcement or other actions by such agencies;\n\n\n\u00a0\n\n\n\u0095     changes in foreign currency exchange rates, especially in the euro, Chinese yuan, British pound, Canadian dollar, Hong Kong dollar, Australian dollar, Japanese yen, and Mexican peso, which can affect our sales levels and foreign currency sales prices;\n\n\n\u00a0\n\n\n\u0095     loss or delay in the collection of accounts receivable;\n\n\n\u00a0\n\n\n\u0095     any liability resulting from and the costs of defending against class-action, derivative, and other litigation, such as wage-and-hour, joint employment, securities, vehicle accident, and discrimination and retaliation claims, claims related to our reporting and disclosure of climate change and other ESG topics, and any other legal or governmental proceedings, including the matters discussed in Note 18 of the consolidated financial statements included in \u201cItem 8. Financial Statements and Supplementary Data\u201d of this Annual Report;\n \n\n\n\u00a0\n\n\n- \n37\n -\n\n\n\n\n\u00a0\n\n\n\u0095     adverse rulings on appeals and in other future judicial decisions, subsequent adverse jury findings, and changes in judicial precedent;\n\n\n\u00a0\n\n\n\u0095     the sufficiency of insurance coverage we purchase;\n\n\n\u00a0\n\n\n\u0095     the effect of technology developments on our operations and on demand for our services, and our ability to continue to identify and eliminate unnecessary information-technology redundancy and complexity throughout the organization;\n\n\n\u00a0\n\n\n\u0095     disruptions in global supply chains, which can limit the access of FedEx and our service providers to vehicles and other key capital resources and increase our costs;\n\n\n\u00a0\n\n\n\u0095     difficulties experienced by the companies with which we contract to fly smaller regional \u201cfeeder\u201d aircraft in attracting and retaining pilots, which could cause a reduction of service offered to certain locations, service disruptions, increased costs of operations, and other difficulties;\n\n\n\u00a0\n\n\n\u0095     the United Kingdom\u2019s exit from the EU (\u201cBrexit\u201d), including the economic, operational, regulatory, and financial effects of any post-Brexit trade deal between the United Kingdom and EU;\n\n\n\u00a0\n\n\n\u0095     governmental underinvestment in transportation infrastructure, which could increase our costs and adversely affect our service levels due to traffic congestion, prolonged closure of key thoroughfares, or sub-optimal routing of our vehicles and aircraft;\n\n\n\u00a0\n\n\n\u0095     stockholder activism, which could divert the attention of management and our board of directors from our business, hinder execution of our business strategy, give rise to perceived uncertainties as to our future, and cause the price of our common stock to fluctuate significantly;\n \n\n\n\u00a0\n\n\n\u0095     successful completion of our planned stock repurchases; and\n\n\n\u00a0\n\n\n\u0095     constraints, volatility, or disruption in the capital markets, our ability to maintain our current credit ratings, commercial paper ratings, and senior unsecured debt and pass-through certificate credit ratings, and our ability to meet credit agreement financial covenants.\n\n",
+  "item7": ">ITEM 7. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF\n RESULTS OF OPERATIONS AND FINANCIAL CONDITION\n \n\n\nORGANIZATION OF INFORMATION\n \n\n\nThis Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition (\u201cMD&A\u201d) of FedEx Corporation (\u201cFedEx\u201d or the \u201cCompany\u201d) is composed of three major sections: Results of Operations and Outlook, Financial Condition, and Critical Accounting Estimates. These sections include the following information:\n \n\n\n\u2022\nResults of operations includes an overview of our consolidated 2023 results compared to 2022 results. This section also includes a discussion of key actions and events that impacted our results, as well as our outlook for 2024. Discussion and analysis of 2021 results and year-over-year comparisons between 2022 results and 2021 results can be found in \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of our Annual Report on Form 10-K (\u201cAnnual Report\u201d) for the year ended May 31, 2022. \n\n\n- \n45\n -\n\n\n\n\n\u00a0\n\n\n\u2022\nThe overview is followed by a discussion of both historical operating results and our outlook for 2024, as well as a financial summary and analysis for each of our transportation segments. \n\n\n\u2022\nOur financial condition is reviewed through an analysis of key elements of our liquidity and capital resources, financial commitments, and liquidity outlook for 2024. \n\n\n\u2022\nCritical accounting estimates discusses those financial statement elements that we believe are most important to understanding the material judgments and assumptions incorporated in our financial results. \n\n\nThe discussion in MD&A should be read in conjunction with the other sections of this Annual Report, particularly \u201cItem 1. Business,\u201d \u201cItem 1A. Risk Factors,\u201d and \u201cItem 8. Financial Statements and Supplementary Data.\u201d\n\n\nDESCRIPTION OF BUSINESS SEGMENTS\n\n\nWe provide a broad portfolio of transportation, e-commerce, and business services through companies competing collectively, operating collaboratively, and innovating digitally as one FedEx. Our primary operating companies are Federal Express Corporation (\u201cFedEx Express\u201d), the world\u2019s largest express transportation company; FedEx Ground Package System, Inc. (\u201cFedEx Ground\u201d), a leading North American provider of small-package ground delivery services; and FedEx Freight Corporation (\u201cFedEx Freight\u201d), a leading North American provider of less-than-truckload (\u201cLTL\u201d) freight transportation services. These companies represent our major service lines and, along with FedEx Corporate Services, Inc. (\u201cFedEx Services\u201d), constitute our reportable segments. Our FedEx Services segment provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office functions that support our operating segments. The operating costs of the FedEx Services segment are allocated to the business units it serves. See \u201cReportable Segments\u201d for further discussion and refer to \u201cItem 1. Business\u201d for a more detailed description of each of our operating companies and information regarding our \u201cone FedEx\u201d consolidation plan to ultimately bring FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies into Federal Express Corporation.\n \n\n\nThe key indicators necessary to understand our operating results include:\n \n\n\n\u2022\nthe overall customer demand for our various services based on macroeconomic factors and the global economy; \n\n\n\u2022\nthe volumes of transportation services provided through our networks, primarily measured by our average daily volume and shipment weight and size; \n\n\n\u2022\nthe mix of services purchased by our customers; \n\n\n\u2022\nthe prices we obtain for our services, primarily measured by yield (revenue per package or pound or revenue per shipment or hundredweight for LTL freight shipments); \n\n\n\u2022\nour ability to manage our cost structure (capital expenditures and operating expenses) to match shifting volume levels; and \n\n\n\u2022\nthe timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges. \n\n\nTrends Affecting Our Business\n\n\nThe following trends significantly impact the indicators discussed above, as well as our business and operating results. See the risk factors identified under Part I, Item 1A. \u201cRisk Factors\u201d for more information. Additionally, see \u201cResults of Operations and Outlook \u2013 Consolidated Results \u2013 Outlook\u201d and \u201cResults of Operations and Outlook \u2013 Financial Condition \u2013 Liquidity Outlook\u201d below for additional information on efforts we are taking to mitigate adverse trends.\n\n\nMacroeconomic Conditions\n\n\nWhile macroeconomic risks apply to most companies, we are particularly vulnerable. The transportation industry is highly cyclical and especially susceptible to trends in economic activity. Our primary business is to transport goods, so our business levels are directly tied to the purchase and production of goods and the rate of growth of global trade. Our results in 2023 were adversely impacted by lower global volumes due to weak economic conditions.\n \n\n\nCOVID-19 Pandemic and Supply Chain\n\n\nThe coronavirus (\u201cCOVID-19\u201d) pandemic had varying impacts on the demand for our services and our business operations and has contributed to global supply chain disruptions. During the first half of 2023, we continued to be affected by COVID-19 lockdowns in Asia, which impacted both manufacturing and supply chains. We have now shifted to operating in a more stable post-COVID-19\n \n\n\n- \n46\n -\n\n\n\n\n\u00a0\n\n\nenvironment with less restrictions, which resulted in consumers returning to near pre-pandemic shopping patterns during 2023. As global supply chains stabilized during 2023, we experienced improvements in the availability of labor and vehicles, trailers, and other package handling equipment.\n\n\nInflation and Interest Rates\n\n\nGlobal inflation is well above historical levels, impacting all areas of our business. Additionally, global interest rates continue to rise in an effort to curb inflation. We are experiencing a decline in demand for our transportation services as inflation and interest rate increases are negatively affecting consumer and business spending. Additionally, we are experiencing higher costs to serve through higher fuel prices, wage rates, purchased transportation costs, and other direct operating expenses such as operational supplies. We expect inflation and high interest rates to continue to negatively affect our results in 2024.\n \n\n\nFuel\n\n\nWe must purchase large quantities of fuel to operate our aircraft and vehicles, and the price and availability of fuel is beyond our control and can be highly volatile. The timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges can significantly affect our operating results either positively or negatively in the short-term. Higher fuel prices drove an increase in yields through higher fuel surcharges and an increase in fuel expense during 2023 at all of our transportation segments.\n\n\nGeopolitical Conflicts\n\n\nGiven the nature of our business and our global operations, geopolitical conflicts may adversely affect our business and results of operations. The conflict between Russia and Ukraine that began in February 2022 continues as of the date of this Annual Report. The safety of our team members in Ukraine is our top priority. As we focus on the safety of our team members, we have suspended all services in Ukraine and Belarus. We also temporarily idled our operations in Russia and reduced our presence to the minimum required for purposes of maintaining a legal presence with active transport licenses. As a result, we incurred an immaterial amount of severance and other related expenses in 2023, which is included in business optimization expenses at FedEx Express. While we do not expect this conflict to have a direct material impact on our business or results of operations, the broader consequences are adversely affecting the global economy and fuel prices generally and may also have the effect of heightening other risks disclosed under Part I, Item 1A. \u201cRisk Factors.\u201d See \u201cResults of Operations and Outlook \u2013 Consolidated Results \u2013 Business Optimization and Realignment Costs\u201d below for additional information.\n\n\n- \n47\n -\n\n\n\n\n\u00a0\n\n\nRESULTS OF O\nPERATIONS AND OUTLOOK\n\n\nMany of our operating expenses are directly affected by revenue and volume levels, and we expect these operating expenses to fluctuate on a year-over-year basis consistent with changes in revenue and volumes. Therefore, the discussion of operating expense captions focuses on the key drivers and trends affecting expenses other than those factors strictly related to changes in revenue and volumes. The line item \u201cOther operating expense\u201d includes costs associated with outside service contracts (such as temporary labor, security, and facility services and cargo handling), insurance, professional fees, operational supplies, and bad debt.\n \n\n\nExcept as otherwise specified, references to years indicate our fiscal year ended May 31, 2023 or ended May 31 of the year referenced, and comparisons are to the corresponding period of the prior year. References to our transportation segments include, collectively, the FedEx Express segment, the FedEx Ground segment, and the FedEx Freight segment.\n \n\n\nCONSOLIDATED RESULTS\n \n\n\nThe following table compares summary operating results (dollars in millions, except per share amounts) for the years ended May 31:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\nPercent Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nConsolidated revenue\n\n\n\u00a0\n\n\n$\n\n\n90,155\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n93,512\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4\n\n\n)\n\n\n\u00a0\n\n\n\n\n\n\nOperating income (loss):\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Express segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,064\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,922\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(64\n\n\n)\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Ground segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,140\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,642\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Freight segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,925\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,663\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCorporate, other, and eliminations\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,217\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(982\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(24\n\n\n)\n\n\n\u00a0\n\n\n\n\n\n\nConsolidated operating income\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,912\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,245\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(21\n\n\n)\n\n\n\u00a0\n\n\n\n\n\n\nOperating margin:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Express segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(390\n\n\n)\n\n\nbp\n\n\n\n\n\n\nFedEx Ground segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n140\n\n\n\u00a0\n\n\nbp\n\n\n\n\n\n\nFedEx Freight segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n17.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n260\n\n\n\u00a0\n\n\nbp\n\n\n\n\n\n\nConsolidated operating margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(130\n\n\n)\n\n\nbp\n\n\n\n\n\n\nConsolidated net income\n\n\n\u00a0\n\n\n$\n\n\n3,972\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,826\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDiluted earnings per share\n\n\n\u00a0\n\n\n$\n\n\n15.48\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14.33\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nThe following table shows changes in revenue and operating results by reportable segment for 2023 compared to 2022 (in millions):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear-over-Year Changes\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nRevenue\n\n\n\u00a0\n\n\n\u00a0\n\n\nOperating Results\n(1)\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Express segment\n\n\n\u00a0\n\n\n$\n\n\n(3,071\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(1,858\n\n\n)\n\n\n\n\n\n\nFedEx Ground segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n275\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n498\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Freight segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n262\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Services segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nCorporate, other, and eliminations\n\n\n\u00a0\n\n\n\u00a0\n\n\n(709\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(235\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(3,357\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(1,333\n\n\n)\n\n\n\n\n\n\n(1)\nThe following is a summary of the effects of the (costs) benefits of certain items affecting our financial results for the years ended May 31 (in millions):\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nItems affecting Operating Income:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBusiness optimization and realignment costs\n\n\n\u00a0\n\n\n$\n\n\n(309\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(278\n\n\n)\n\n\n\n\n\n\nGoodwill and other asset impairment charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n(117\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Ground legal matters\n\n\n\u00a0\n\n\n\u00a0\n\n\n(35\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(210\n\n\n)\n\n\n\n\n\n\nTNT Express integration expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(132\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(461\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(620\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nItems affecting Net Income:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nMark-to-market (\u201cMTM\u201d) retirement plans accounting    \n\u00a0\u00a0\u00a0adjustments, net of tax\n\n\n\u00a0\n\n\n$\n\n\n493\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(1,199\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n493\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(1,199\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n- \n48\n -\n\n\n\n\n\u00a0\n\n\nOverview\n \n\n\nOur operating results for 2023 were negatively affected by macroeconomic conditions, including inflation well above historical levels, and elevated global interest rates. In response to market conditions, we implemented cost reductions and focused on yield improvement to partially mitigate the effect of volume declines. Cost reductions included reducing flight hours, temporarily parking and retiring aircraft, improving productivity, delaying and reducing certain peak wage programs, consolidating and closing sorts, canceling network capacity projects, and reducing select Sunday operations. The impact of cost actions lagged volume declines, particularly in the first half of 2023 and at FedEx Express, resulting in elevated operating expenses relative to demand. Additionally, our results in the first half of 2023 were negatively impacted by service challenges at FedEx Express.\n\n\nOperating income in 2023 includes $70 million ($54 million, net of tax, or $0.21 per diluted share) of asset impairment charges associated with the decision to permanently retire certain aircraft and related engines at FedEx Express, and also includes $47 million ($44 million, net of tax, or $0.17 per diluted share) of goodwill and other asset impairment charges associated with the ShopRunner, Inc. (\u201cShopRunner\u201d) acquisition at FedEx Dataworks, Inc. (\u201cFedEx Dataworks\u201d). See the \u201cGoodwill and Other Asset Impairment Charges\u201d section of this MD&A for more information.\n\n\nOperating income in 2023 includes $273 million ($209 million, net of tax, or $0.81 per diluted share) of expenses associated with our DRIVE business optimization strategy announced in the first quarter of 2023, and also includes business realignment costs of $36 million ($27 million, net of tax, or $0.11 per diluted share) associated with our workforce reduction plan in Europe announced in 2021. Operating income in 2022 includes $278 million ($214 million, net of tax, or $0.80 per diluted share) of costs under this program. See the \u201cBusiness Optimization and Realignment Costs\u201d section of this MD&A for more information.\n\n\nOperating income includes a $35 million charge ($26 million, net of tax, or $0.10 per diluted share) in 2023 related to a FedEx Ground legal matter and a $210 million charge ($160 million, net of tax, or $0.60 per diluted share) in 2022 related to pre- and post-judgment interest in connection with a separate FedEx Ground legal matter. The amounts are included in \u201cCorporate, other, and eliminations.\u201d\n \n\n\nOperating expenses in 2022 include $132 million ($103 million, net of tax, or $0.39 per diluted share) of TNT Express integration expenses.\n\n\nNet income includes a pre-tax, noncash gain of $650 million in 2023 ($493 million, net of tax, or $1.92 per diluted share) and a loss of $1.6 billion in 2022 ($1.2 billion, net of tax, or $4.49 per diluted share) associated with our MTM retirement plans accounting adjustments. See the \u201cRetirement Plans MTM Adjustments\u201d section of this MD&A and Note 13 of the accompanying consolidated financial statements.\n \n\n\nNet income in 2023 includes a $46 million ($0.18 per diluted share) tax expense from a revaluation of certain foreign tax assets. In 2022, we recognized a $142 million ($0.53 per diluted share) tax benefit related to revisions of prior-year tax estimates for actual tax return results. See the \u201cIncome Taxes\u201d section of this MD&A and Note 12 of the accompanying consolidated financial statements.\n \n\n\nIn December 2021, our Board of Directors authorized a stock repurchase program of up to $5 billion of FedEx common stock. As part of the repurchase program, we entered into an accelerated share repurchase (\u201cASR\u201d) agreement with a bank in October 2022, which was completed in December 2022, to repurchase an aggregate of $1.5 billion of our common stock. Share repurchases had a benefit of $0.34 per diluted share in 2023. See Note 1 of the accompanying consolidated financial statements and the \u201cFinancial Condition\u2014Liquidity\u201d section of this MD&A for additional information on our stock repurchase program.\n\n\n- \n49\n -\n\n\n\n\n\u00a0\n\n\nThe following graphs for FedEx Express, FedEx Ground, and FedEx Freight show selected volume trends (in thousands) for the years ended May 31:\n\n\n\u00a0\n\n\n(1)\nInternational domestic average daily package volume relates to our international intra-country operations. International export average daily package volume relates to our international priority and economy services.\n\n\n(2)\nGround commercial average daily volume is calculated on a 5-day-per-week basis, while home delivery and economy average daily package volumes are calculated on a 7-day-per-week basis. 2020 and 2021 statistical information has been revised to conform to the current year presentation. \n\n\n(3)\nInternational average daily freight pounds relate to our international priority, economy, and airfreight services.\n\n\n- \n50\n -\n\n\n\n\n\u00a0\n\n\nThe following graphs for FedEx Express, FedEx Ground, and FedEx Freight show selected yield trends for the years ended May 31:\n \n\n\n\u00a0\n\n\n(1)\nInternational export revenue per package relates to our international priority and economy services. International domestic revenue per package relates to our international intra-country operations. \n\n\n(2)\nInternational freight revenue per pound relates to our international priority, economy, and airfreight services.\n\n\n- \n51\n -\n\n\n\n\n\u00a0\n\n\nRevenue\n \n\n\nRevenue decreased 4% in 2023 primarily due to global volume declines at all of our transportation segments, partially offset by yield improvement, including higher fuel surcharges.\n \n\n\nFedEx Express revenue decreased 7% in 2023 due to lower global volume and unfavorable foreign currency, partially offset by yield improvement, including higher fuel surcharges. Revenue at Corporate, other, and eliminations decreased due to lower yields and volumes at FedEx Trade Networks Transport & Brokerage, Inc. FedEx Ground revenue and FedEx Freight revenue each increased 1% in 2023, primarily due to yield improvement, including higher fuel surcharges, partially offset by lower volume.\n \n\n\nGoodwill and Other Asset Impairment Charges\n\n\nIn the fourth quarter of 2023, we made the decision to permanently retire from service 12 Boeing MD-11F aircraft and 25 related engines, four Boeing 757-200 aircraft and one related engine, and two Airbus A300-600 aircraft and eight related engines, to align with the plans of FedEx Express to modernize its aircraft fleet, improve its global network, and better align air network capacity to match current and anticipated shipment volumes. As a consequence of this decision, a noncash impairment charge of $70 million ($54 million, net of tax, or $0.21 per diluted share) was recorded in the fourth quarter. All of these aircraft were temporarily idled and not in revenue service.\n\n\nIn the fourth quarter of 2023, we also recorded a noncash impairment charge of $36 million ($36 million, net of tax, or $0.14 per diluted share) for all of the goodwill attributable to FedEx Dataworks. The key factors contributing to the goodwill impairment were underperformance of the ShopRunner business during 2023, including base business erosion, and the failure to attain the level of operating synergies and revenue and profit growth anticipated at the time of acquisition. Based on these factors, our outlook for the business changed in the fourth quarter of 2023. We also recorded an $11 million ($8 million, net of tax, or $0.03 per diluted share) noncash intangible asset impairment charge related to the ShopRunner acquisition at FedEx Dataworks. For additional information regarding these impairment charges, see the \u201cCritical Accounting Estimates\u201d section of this MD&A and Note 4 of the accompanying consolidated financial statements.\n\n\nBusiness Optimization and Realignment Costs\n\n\nIn the second quarter of 2023, FedEx announced DRIVE, a comprehensive program to improve the company\u2019s long-term profitability. This program includes a business optimization plan to drive efficiency among our transportation segments and lower our overhead and support costs. We plan to consolidate our sortation facilities and equipment, reduce pickup-and-delivery routes, and optimize our enterprise linehaul network by moving beyond discrete collaboration to an end-to-end optimized network through Network 2.0.\n\n\nIn the fourth quarter of 2023, we announced one FedEx, a consolidation plan to ultimately bring FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies into Federal Express Corporation, becoming a single company operating a unified, fully integrated air-ground network under the respected FedEx brand. FedEx Freight will continue to provide LTL freight transportation services as a stand-alone and separate company under Federal Express Corporation. The organizational redesign will be implemented in phases with full implementation expected in June 2024. One FedEx will help facilitate our DRIVE transformation program to improve long-term profitability.\n\n\nWe have announced the implementation of Network 2.0 in more than 20 markets, including the phased transition of all FedEx Ground operations and personnel in Canada to FedEx Express beginning in April 2024. Under Network 2.0, FedEx will continue to utilize both employees and contracted service providers.\n\n\nWe incurred costs associated with our business optimization activities of $273 million ($209 million, net of tax, or $0.81 per diluted share) in 2023. These costs were primarily related to consulting services, severance, professional fees, and idling our operations in Russia. These business optimization costs are included in Corporate, other, and eliminations and FedEx Express. The identification of these costs as business optimization-related expenditures is subject to our disclosure controls and procedures. We expect the pre-tax cost of our business optimization activities to be approximately $500 million in 2024 and approximately $2.0 billion through 2025. The timing and amount of our business optimization expenses may change as we revise and implement our plans.\n\n\nIn 2021, FedEx Express announced a workforce reduction plan in Europe related to the network integration of TNT Express. The plan affected approximately 5,000 employees in Europe across operational teams and back-office functions and was completed during 2023. We incurred costs of $36 million ($27 million, net of tax, or $0.11 per diluted share) in 2023 and $278 million ($214 million, net of tax, or $0.80 per diluted share) in 2022 associated with our business realignment activities. These costs are related to certain employee severance arrangements. Payments under this program totaled approximately $118 million in 2023 and approximately $225 million in 2022. The pre-tax cost of our business realignment activities was approximately $430 million through 2023. We expect savings from our business realignment activities to be approximately $275 million on an annualized basis beginning in 2024.\n\n\n- \n52\n -\n\n\n\n\n\u00a0\n\n\nOperating Expenses\n \n\n\nThe following table compares operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the years ended May 31:\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nPercent\n\n\n\u00a0\n\n\n\u00a0\n\n\nPercent of Revenue\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n(1)\n\n\n\u00a0\n\n\n\n\n\n\nOperating expenses:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSalaries and employee benefits\n\n\n\u00a0\n\n\n$\n\n\n31,019\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n32,058\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n34.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n34.3\n\n\n%\n\n\n\n\n\n\nPurchased transportation\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,790\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,118\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n24.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.8\n\n\n\u00a0\n\n\n\n\n\n\nRentals and landing fees\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,738\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,712\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.0\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,176\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,970\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.2\n\n\n\u00a0\n\n\n\n\n\n\nFuel\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,909\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,115\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.5\n\n\n\u00a0\n\n\n\n\n\n\nMaintenance and repairs\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,357\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.6\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill and other asset impairment charges\n(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n117\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nBusiness optimization and realignment costs\n(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n309\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n278\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.3\n\n\n\u00a0\n\n\n\n\n\n\nOther\n(4)\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,828\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,644\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.6\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n85,243\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n87,267\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n94.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n93.3\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating income\n\n\n\u00a0\n\n\n$\n\n\n4,912\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,245\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(21\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.7\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nIncludes TNT Express integration expenses of $132 million in 2022.\n\n\n(2)\nIncludes goodwill and other asset impairment charges in 2023 associated with the FedEx Express and FedEx Dataworks operating segments.\n\n\n(3)\nIncludes costs associated with our DRIVE program in 2023 and the workforce reduction plan in Europe in 2023 and 2022. \n\n\n(4)\nIncludes a $35 million charge in 2023 related to a FedEx Ground legal matter and a $210 million charge in 2022 related to pre- and post-judgment interest in connection with a separate FedEx Ground legal matter.\n\n\nOperating income declined in 2023 primarily due to lower volumes at each of our transportation segments, partially offset by yield improvement, including higher fuel surcharges. Cost reduction efforts such as reducing flight hours, temporarily parking and retiring aircraft, improving productivity, delaying and reducing certain peak wage programs, consolidating and closing sorts, canceling network capacity projects, and reducing select Sunday operations partially mitigated the effects of volume declines on our results.\n \n\n\nGlobal inflation drove higher operating expenses related to salaries and employee benefits and other operating expenses in 2023. In addition, higher self-insurance and bad debt accruals contributed to an increase in other operating expense in 2023.\n\n\nWe recognized $70 million of asset impairment charges associated with the decision to permanently retire certain aircraft and related engines at FedEx Express. Our 2023 results also include $47 million of goodwill and other asset impairment charges in the fourth quarter of 2023 associated with the ShopRunner acquisition at FedEx Dataworks. For additional information regarding these impairment charges, see the \u201cGoodwill and Other Asset Impairment Charges\u201d and \u201cCritical Accounting Estimates\u201d sections of this MD&A and Note 4 of the accompanying consolidated financial statements.\n\n\nFuel\n \n\n\nWe apply a fuel surcharge on our air and ground services, most of which are adjusted on a weekly basis. The fuel surcharge is based on a weekly fuel price from ten days prior to the week in which it is assessed. Some FedEx Express international fuel surcharges are updated on a monthly basis. We routinely review our fuel surcharges and periodically update the tables used to determine our fuel surcharges at all of our transportation segments.\n \n\n\nWhile fluctuations in fuel surcharge percentages can be significant from period to period, fuel surcharges represent one of the many individual components of our pricing structure that impact our overall revenue and yield. Additional components include the mix of services sold, the base price, and extra service charges we obtain for these services and level of pricing discounts offered.\n \n\n\nFuel expense increased 16% during 2023 due to higher fuel prices, partially offset by a decline in fuel usage. In addition to variability in usage and market prices, the manner in which we purchase fuel also influences our results. For example, our contracts for jet fuel purchases at FedEx Express are tied to various indices, including the U.S. Gulf Coast index. While many of these indices are aligned, each index may fluctuate at a different pace, driving variability in the prices paid for jet fuel. Furthermore, under these contractual arrangements, approximately 70% of our jet fuel is purchased based on the index price for the preceding week, with the remainder of our purchases tied primarily to the index price for the preceding month and preceding day, rather than based on daily spot rates. These contractual provisions mitigate the impact of rapidly changing daily spot rates on our jet fuel purchases.\n \n\n\n- \n53\n -\n\n\n\n\n\u00a0\n\n\nBecause of the factors described above, our operating results may be affected should the market price of fuel suddenly change by a significant amount or change by amounts that do not result in an adjustment in our fuel surcharges, which can significantly affect our earnings either positively or negatively in the short-term. For more information, see \u201cItem 1A. Risk Factors.\u201d\n\n\nOther Income and Expense\n \n\n\nOther retirement plans income (expense) increased primarily due to a noncash MTM gain of $650 million in 2023 compared to a $1.6 billion loss in 2022 (described below). In addition, interest income increased $145 million in 2023 primarily due to an increase in interest rates, partially offset by a decrease in other income of $120 million related to changes in the value of equity investments.\n \n\n\nRetirement Plans MTM Adjustments\n \n\n\nIn 2023, we incurred a pre-tax, noncash MTM gain of $650 million ($493 million, net of tax, or $1.92 per diluted share), related to the year-end actuarial adjustments of pension and postretirement healthcare plans\u2019 assets and liabilities. These actuarial adjustments were due to higher discount rates, partially offset by lower than expected asset returns and demographic experience.\n\n\nIn 2022, we incurred a pre-tax, noncash MTM loss of $1.6 billion ($1.2 billion, net of tax, or $4.49 per diluted share), which includes a net loss of $1.3 billion ($1.0 billion, net of tax, or $3.76 per diluted share) related to the year-end actuarial adjustments of pension and postretirement healthcare plans\u2019 assets and liabilities. These actuarial adjustments were due to lower than expected asset returns, demographic experience, and an update to the mortality assumption, partially offset by higher discount rates.\n\n\nAdditionally, in 2022, we incurred a pre-tax, noncash MTM net loss of $260 million ($195 million, net of tax, or $0.73 per diluted share) in the second quarter of 2022, of which $224 million was related to the termination of the TNT Express Netherlands Pension Plan. Effective October 1, 2021, the responsibility of all pension assets and liabilities of this plan was transferred to a separate, multi-employer pension plan. The remaining $36 million net loss was related to the U.S. FedEx Freight Pension Plan and consisted of a $75 million MTM loss due to a lower discount rate in the second quarter of 2022, partially offset by a $39 million curtailment gain.\n\n\nFor more information, see the \u201cCritical Accounting Estimates\u201d section of this MD&A and Note 1 and Note 13 of the accompanying consolidated financial statements.\n \n\n\nIncome Taxes\n \n\n\nOur effective tax rate was 25.9% for 2023, compared to 21.9% for 2022. The 2023 tax provision was negatively impacted by an expense of $46 million related to a write-down and valuation allowance on certain foreign tax credit carryforwards due to operational changes which impacted the determination of the realizability of the deferred tax asset. The 2023 tax provision was also negatively impacted by lower earnings in certain non-U.S. jurisdictions.\n\n\nThe 2022 tax provision includes a benefit of $142 million related to revisions of prior year tax estimates for actual tax return results. The 2022 tax provision was also favorably impacted by changes in our corporate legal entity structure.\n \n\n\nWe are subject to taxation in the U.S. and various U.S. state, local, and foreign jurisdictions. We are currently under examination by the Internal Revenue Service (\u201cIRS\u201d) for the 2016 through 2019 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next 12 months and could result in a change in our balance of unrecognized tax benefits. However, we believe we have recorded adequate amounts of tax, including interest and penalties, for any adjustments expected to occur.\n \n\n\nDuring 2021, we filed suit in U.S. District Court for the Western District of Tennessee challenging the validity of a tax regulation related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act (\u201cTCJA\u201d). Our lawsuit seeks to have the court declare this regulation invalid and order the refund of overpayments of U.S. federal income taxes for 2018 and 2019 attributable to the denial of foreign tax credits under the regulation. We have recorded a cumulative benefit of $223 million through 2023 attributable to our interpretation of the TCJA and the Internal Revenue Code. On March 31, 2023, the District Court ruled that the regulation is invalid and contradicts the plain terms of the tax code. We continue to work towards obtaining a final judgment for the applicable refund amounts due to the regulation being invalid. Once the District Court enters a final judgment, the U.S. government could file an appeal with the U.S. Court of Appeals for the Sixth Circuit. If we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded.\n\n\nFor more information on income taxes, see the \u201cCritical Accounting Estimates\u201d section of this MD&A and Note 12 of the accompanying consolidated financial statements.\n \n\n\n- \n54\n -\n\n\n\n\n\u00a0\n\n\nEquity Investment\n\n\nAs of May 31, 2023, we do not have any equity investments that are material to our financial position or results of operations. For more information on equity investments, see Note 1 of the accompanying consolidated financial statements.\n\n\nOutlook\n\n\nDuring 2024, we expect macroeconomic conditions to continue to negatively impact customer demand for our services. However, we expect operating income improvement in 2024 as a result of our DRIVE program initiatives focused on aligning our cost base with demand, reducing our permanent cost structure, and increasing the flexibility of our network. We expect international export yield declines and reduced customer demand for our U.S. freight product at FedEx Express to negatively impact revenue and operating income in 2024. In addition, we expect expense headwinds in 2024 related to higher global inflation and variable incentive compensation.\n\n\nSee the \u201cBusiness Optimization and Realignment Costs\u201d section of this MD&A for additional information on our DRIVE program and other cost savings initiatives.\n\n\nOur capital expenditures for 2024 are expected to be approximately $5.7 billion, a decrease of $0.5 billion from 2023, as we continue to reduce our capital intensity relative to revenue. We expect lower aircraft spend and reduced capacity investment to be partially offset by investments to optimize our networks and modernize our facilities. Our expected capital expenditures for 2024 include our continued investments in the expansion and modernization of the FedEx Express Indianapolis hub and modernization of the FedEx Express Memphis World Hub.\n\n\nWe will continue to evaluate our investments in critical long-term strategic projects to ensure our capital expenditures are expected to generate high returns on investment and are balanced with our outlook for global economic conditions. For additional details on key 2024 capital projects, refer to the \u201cFinancial Condition \u2013 Capital Resources\u201d and \u201cFinancial Condition \u2013 Liquidity Outlook\u201d sections of this MD&A.\n\n\nThe uncertainty of a slowing global economy, global inflation well above historical levels, geopolitical challenges including the ongoing conflict between Russia and Ukraine, and the impact these factors will have on the rate of growth of global trade, supply chains, fuel prices, and our business in particular, make any expectations for 2024 inherently less certain. See \u201cItem 1A. Risk Factors\u201d for more information.\n\n\nSee \u201cForward-Looking Statements\u201d, \u201cItem 1A. Risk Factors\u201d, \u201cTrends Affecting Our Business\u201d, and \u201cCritical Accounting Estimates\u201d for a discussion of these and other potential risks and uncertainties that could materially affect our future performance.\n\n\nSeasonality of Business\n \n\n\nOur businesses are cyclical in nature, as seasonal fluctuations affect volumes, revenue, and earnings. Historically, the U.S. express package business experiences an increase in volumes in late November and December. International business, particularly in the Asia-to-U.S. market, peaks in October and November in advance of the U.S. holiday sales season. Our first and third fiscal quarters, because they are summer vacation and post winter-holiday seasons, have historically experienced lower volumes relative to other periods. Normally, the fall is the busiest shipping period for FedEx Ground, while late December, June and July are the slowest periods. For FedEx Freight, the spring and fall are the busiest periods and the latter part of December through February is the slowest period. Shipment levels, operating costs, and earnings for each of our companies can also be adversely affected by inclement weather, particularly the impact of severe winter weather in our third fiscal quarter. See \u201cItem 1A. Risk Factors\u201d for more information.\n\n\nRECENT ACCOUN\nTING GUIDANCE\n \n\n\nSee Note 2 of the accompanying consolidated financial statements for a discussion of recent accounting guidance.\n\n\n- \n55\n -\n\n\n\n\n\u00a0\n\n\nREPORTABLE\n SEGMENTS\n \n\n\nFedEx Express, FedEx Ground, and FedEx Freight represent our major service lines and, along with FedEx Services, constitute our reportable segments. Our reportable segments include the following businesses:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nFedEx Express Segment\n\n\nFedEx Express (express transportation, small-package ground delivery, and freight transportation)\n\n\n\n\n\n\n\u00a0\n\n\nFedEx Custom Critical, Inc. (time-critical transportation)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Ground Segment\n\n\nFedEx Ground (small-package ground delivery)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Freight Segment\n\n\nFedEx Freight (LTL freight transportation)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Services Segment\n\n\nFedEx Services (sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and back-office functions)\n\n\n\n\n\n\n\u00a0\n\n\nIn the fourth quarter of 2023, FedEx announced one FedEx, a consolidation plan to ultimately bring FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies into Federal Express Corporation, becoming a single company operating a unified, fully integrated air-ground network under the respected FedEx brand. The organizational redesign will be implemented in phases with full implementation expected in June 2024. During the implementation process in fiscal 2024, each of our current reportable segments will continue to have discrete financial information that will be regularly reviewed when evaluating performance and making resource allocation decisions, and aligns with our management reporting structure and our internal financial reporting. In the first quarter of fiscal 2025, when the consolidation plan has been completed, we expect to begin reporting a resegmented structure that will align with an updated management reporting structure and how management will evaluate performance and make resource allocation decisions under one FedEx.\n\n\nFEDEX SERVI\nCES SEGMENT\n\n\nThe FedEx Services segment provides direct and indirect support to our operating segments, and we allocate all of the net operating costs of the FedEx Services segment to reflect the full cost of operating our businesses in the results of those segments. We review and evaluate the performance of our transportation segments based on operating income (inclusive of FedEx Services segment allocations). For the FedEx Services segment, performance is evaluated based on the effect of its total allocated net operating costs on our operating segments.\n \n\n\nOperating expenses for each of our transportation segments include the allocations from the FedEx Services segment to the respective transportation segments. These allocations include charges and credits for administrative services provided between operating companies. The allocations of net operating costs are based on metrics such as relative revenue or estimated services provided. We believe these allocations approximate the net cost of providing these functions. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.\n\n\nCOR\nPORATE, OTHER, AND ELIMINATIONS\n\n\nCorporate and other includes corporate headquarters costs for executive officers and certain legal and finance functions, including certain other costs and credits not attributed to our core business, as well as certain costs associated with developing our \u201cinnovate digitally\u201d strategic pillar through our FedEx Dataworks operating segment. FedEx Dataworks is focused on creating solutions to transform the digital and physical experiences of our customers and team members. ShopRunner, Inc. was merged into FedEx Dataworks during 2023.\n\n\nAlso included in Corporate and other is the FedEx Office and Print Services, Inc. operating segment, which provides an array of document and business services and retail access to our customers for our package transportation businesses, and the FedEx Logistics, Inc. operating segment, which provides integrated supply chain management solutions, specialty transportation, customs brokerage, and global ocean and air freight forwarding.\n \n\n\nThe results of Corporate, other, and eliminations are not allocated to the other business segments.\n\n\n- \n56\n -\n\n\n\n\n\u00a0\n\n\nIn 2023, the decrease in operating results in Corporate, other, and eliminations was primarily due to lower operating income at FedEx Logistics due to decreased revenue and an increase in bad debt, partially offset by decreased purchased transportation expense. Additionally, operating results in Corporate, other, and eliminations were negatively impacted by higher professional fees and outside service contract spend at FedEx Dataworks. The comparison of operating loss between 2023 and 2022 at Corporate, other, and eliminations is affected by goodwill and other asset impairment charges of $47 million associated with the ShopRunner acquisition at FedEx Dataworks in 2023.\n\n\nCertain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment in order to optimize our resources. For example, during 2023 FedEx Ground provided delivery support for certain FedEx Express packages as part of our last-mile optimization efforts, and FedEx Freight provided road and intermodal support for both FedEx Ground and FedEx Express. In addition, FedEx Express is working with FedEx Logistics to secure air charters and other cargo space for U.S. customers. Billings for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenue of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenue and expenses are eliminated in our consolidated results and are not separately identified in the following segment information because the amounts are not material.\n\n\n- \n57\n -\n\n\n\n\n\u00a0\n\n\nFEDEX EXPRES\nS SEGMENT\n \n\n\nFedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority, deferred, and economy services, which provide delivery on a time-definite or day-definite basis. The following table compares revenue, operating expenses, operating income (dollars in millions), operating margin, and operating expenses as a percent of revenue for the years ended May 31:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nPercent Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRevenue:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPackage:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S. overnight box\n\n\n\u00a0\n\n\n$\n\n\n8,916\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n9,084\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S. overnight envelope\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,980\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,971\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S. deferred\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,128\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,330\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal U.S. domestic package revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,024\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,385\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInternational priority\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,939\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,130\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInternational economy\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,911\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,838\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal international export package revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,850\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,968\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInternational domestic\n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,043\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,340\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal package revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n33,917\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35,693\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFreight:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S.\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,906\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,041\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInternational priority\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,060\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,840\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(20\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInternational economy\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,510\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,653\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInternational airfreight\n\n\n\u00a0\n\n\n\u00a0\n\n\n166\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n177\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal freight revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,642\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,711\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12\n\n\n)\n\n\n\u00a0\n\n\nPercent of Revenue\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,184\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,410\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16\n\n\n)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nTotal revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,743\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n45,814\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\n\n\n\nOperating expenses:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSalaries and employee benefits\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,899\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,435\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n37.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35.9\n\n\n\u00a0\n\n\n\n\n\n\nPurchased transportation\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,629\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,322\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.8\n\n\n\u00a0\n\n\n\n\n\n\nRentals and landing fees\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,310\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,568\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.6\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,105\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,007\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.4\n\n\n\u00a0\n\n\n\n\n\n\nFuel\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,122\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,418\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.6\n\n\n\u00a0\n\n\n\n\n\n\nMaintenance and repairs\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,120\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.6\n\n\n\u00a0\n\n\n\n\n\n\nAsset impairment charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n70\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nBusiness optimization and realignment costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n47\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n278\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(83\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.6\n\n\n\u00a0\n\n\n\n\n\n\nIntercompany charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,896\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,997\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.4\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,601\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,747\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.7\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n41,679\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,892\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n97.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n93.6\n\n\n%\n\n\n\n\n\n\nOperating income\n\n\n\u00a0\n\n\n$\n\n\n1,064\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,922\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(64\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(390\n\n\n)\n\n\nbp\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nInternational domestic revenue relates to our international intra-country operations.\n\n\n- \n58\n -\n\n\n\n\n\u00a0\n\n\nThe following table compares selected statistics (in thousands, except yield amounts) for the years ended May 31:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nPercent Change\n\n\n\u00a0\n\n\n\n\n\n\nPackage Statistics\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAverage daily package volume (ADV):\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S. overnight box\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,259\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,421\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11\n\n\n)\n\n\n\n\n\n\nU.S. overnight envelope\n\n\n\u00a0\n\n\n\u00a0\n\n\n465\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n506\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8\n\n\n)\n\n\n\n\n\n\nU.S. deferred\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,063\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,262\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16\n\n\n)\n\n\n\n\n\n\nTotal U.S. domestic ADV\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,787\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,189\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(13\n\n\n)\n\n\n\n\n\n\nInternational priority\n\n\n\u00a0\n\n\n\u00a0\n\n\n708\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n786\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10\n\n\n)\n\n\n\n\n\n\nInternational economy\n\n\n\u00a0\n\n\n\u00a0\n\n\n278\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n277\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nTotal international export ADV\n\n\n\u00a0\n\n\n\u00a0\n\n\n986\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,063\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7\n\n\n)\n\n\n\n\n\n\nInternational domestic\n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,805\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,954\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8\n\n\n)\n\n\n\n\n\n\nTotal ADV\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,578\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,206\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10\n\n\n)\n\n\n\n\n\n\nRevenue per package (yield):\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S. overnight box\n\n\n\u00a0\n\n\n$\n\n\n27.77\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n25.07\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\n\n\n\nU.S. overnight envelope\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.71\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.28\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\n\n\n\nU.S. deferred\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.91\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.56\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n\u00a0\n\n\n\n\n\n\nU.S. domestic composite\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.54\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.15\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\n\n\n\nInternational priority\n\n\n\u00a0\n\n\n\u00a0\n\n\n60.62\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n60.54\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nInternational economy\n\n\n\u00a0\n\n\n\u00a0\n\n\n41.12\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n40.13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\nInternational export composite\n\n\n\u00a0\n\n\n\u00a0\n\n\n55.13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n55.21\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nInternational domestic\n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.78\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.71\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\nComposite package yield\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.85\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.56\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\n\n\n\nFreight Statistics\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAverage daily freight pounds:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S.\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,735\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,935\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(15\n\n\n)\n\n\n\n\n\n\nInternational priority\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,435\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,671\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19\n\n\n)\n\n\n\n\n\n\nInternational economy\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,591\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,978\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12\n\n\n)\n\n\n\n\n\n\nInternational airfreight\n\n\n\u00a0\n\n\n\u00a0\n\n\n998\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,160\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(14\n\n\n)\n\n\n\n\n\n\nTotal average daily freight pounds\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,759\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,744\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(14\n\n\n)\n\n\n\n\n\n\nRevenue per pound (yield):\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S.\n\n\n\u00a0\n\n\n$\n\n\n1.69\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1.50\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\n\n\n\nInternational priority\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.21\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.26\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\n\n\n\nInternational economy\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.56\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.54\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\n\n\n\nInternational airfreight\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.65\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.60\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\n\n\n\nComposite freight yield\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.26\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.23\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\n(1)\nInternational domestic statistics relate to our international intra-country operations.\n\n\nFedEx Express Segment Revenue\n\n\nFedEx Express segment revenue decreased 7% in 2023 primarily due to decreased global volume and unfavorable exchange rates, partially offset by yield improvement.\n\n\nTotal average daily package volume decreased 10% in 2023, and total average daily freight pounds decreased 14% in 2023, due to reduced demand for our services, primarily resulting from macroeconomic conditions. Volume declines were partially offset by yield improvement, including increases in composite package yield of 6% and composite freight yield of 2% in 2023. The 6% increase in composite package yield was primarily due to a U.S. domestic package yield increase of 12%, driven by higher base yields and fuel surcharges. Unfavorable exchange rates negatively impacted all international package and freight product yields in 2023.\n\n\nFedEx Express Segment Operating Income\n \n\n\nFedEx Express segment operating income decreased 64% in 2023 primarily due to global volume declines, partially offset by yield improvement and lower operating expenses. During 2023, we implemented cost reductions to mitigate the impact of volume declines, including reducing flight hours, temporarily parking and retiring aircraft, improving productivity, and consolidating routes and closing sorts. The impact of these reductions, while improving throughout the year, lagged volume declines, and operating expenses remained high relative to demand. Currency exchange rates had a negative effect on revenue and a positive effect on expenses, resulting in a slightly negative effect on operating income in 2023.\n \n\n\n- \n59\n -\n\n\n\n\n\u00a0\n\n\nFuel expense increased 16% in 2023 due to a 27% increase in fuel prices, partially offset by a 9% decline in total fuel gallons. Purchased transportation expense decreased 11% in 2023 primarily due to favorable exchange rates and lower utilization, partially offset by higher rates charged by third-party providers. Salaries and employee benefits expense decreased 3% in 2023 primarily due to decreased staffing to align with lower volume, favorable currency exchange rates, and lower variable incentive compensation, partially offset by increased wage rates. Rentals and landing fees expense decreased 10% in 2023 primarily due to decreased aircraft leases and favorable currency exchange rates. Other operating expense decreased 2% in 2023 primarily due to favorable currency exchange rates and lower outside service contract expense, partially offset by higher bad debt expense. Maintenance and repairs expense decreased 6% in 2023 primarily due to lower aircraft maintenance resulting from an increase in aircraft temporarily parked.\n\n\nDuring 2023, we recorded asset impairment charges of $70 million associated with the decision to permanently retire certain aircraft and related engines. See \u201cGoodwill and Other Asset Impairment Charges\u201d above for more information. Additionally, FedEx Express segment results include business realignment costs of $36 million in 2023 associated with our workforce reduction plan in Europe. We recognized $278 million of costs in 2022 under this program. FedEx Express segment results also include business optimization costs of $11 million in 2023, which includes costs associated with idling our business in Russia. See the \u201cBusiness Optimization and Realignment Costs\u201d section of this MD&A for more information.\n \n\n\nFedEx Express segments results include $115 million of TNT Express integration expenses in 2022.\n\n\nFEDEX GROUN\nD SEGMENT\n \n\n\nFedEx Ground service offerings include day-certain delivery to businesses in the U.S. and Canada and to 100% of U.S. residences. The following table compares revenue, operating expenses, operating income (dollars in millions), operating margin, selected package statistics (in thousands, except yield amounts), and operating expenses as a percent of revenue for the years ended May 31:\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nPercent Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nPercent of Revenue\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nRevenue\n\n\n\u00a0\n\n\n$\n\n\n33,507\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n33,232\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\n\n\n\nOperating expenses:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSalaries and employee benefits\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,737\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,101\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.4\n\n\n\u00a0\n\n\n\n\n\n\nPurchased transportation\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,597\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,232\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n43.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n45.8\n\n\n\u00a0\n\n\n\n\n\n\nRentals\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,661\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,410\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.2\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,020\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n919\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.8\n\n\n\u00a0\n\n\n\n\n\n\nFuel\n\n\n\u00a0\n\n\n\u00a0\n\n\n36\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1\n\n\n\u00a0\n\n\n\n\n\n\nMaintenance and repairs\n\n\n\u00a0\n\n\n\u00a0\n\n\n634\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n584\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.7\n\n\n\u00a0\n\n\n\n\n\n\nIntercompany charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,961\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,954\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.9\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,721\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,358\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.1\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,367\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,590\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n90.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n92.0\n\n\n%\n\n\n\n\n\n\nOperating income\n\n\n\u00a0\n\n\n$\n\n\n3,140\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,642\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n140\n\n\n\u00a0\n\n\nbp\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAverage daily package volume (ADV)\n(1)\n:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGround commercial\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,361\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,549\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nHome delivery\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,021\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,223\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEconomy\n\n\n\u00a0\n\n\n\u00a0\n\n\n781\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,130\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(31\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal ADV\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,163\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,902\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRevenue per package (yield)\n\n\n\u00a0\n\n\n$\n\n\n11.70\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10.64\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nGround commercial ADV is calculated on a 5-day-per-week basis, while home delivery and economy ADV are calculated on a 7-day-per-week basis.\n\n\nFedEx Ground Segment Revenue\n\n\nFedEx Ground segment revenue increased 1% in 2023 primarily due to yield improvement, partially offset by lower volumes.\n\n\nFedEx Ground yield increased 10% in 2023 primarily due to higher fuel and other surcharges, and a mix shift towards higher-yielding business-to-consumer products. Total average daily volume decreased 7% in 2023 due to reduced demand for our services, primarily resulting from macroeconomic conditions.\n\n\n- \n60\n -\n\n\n\n\n\u00a0\n\n\nFedEx Ground Segment Operating Income\n \n\n\nFedEx Ground segment operating income increased 19% in 2023 primarily due to yield improvement, including higher fuel surcharges, partially offset by lower volume and higher other operating and rentals expense. The 2023 results benefited from certain cost reductions to mitigate the effect of volume declines, primarily a delay and reduction in peak wage programs, the consolidation and closing of certain sort and linehaul operations, cancellation of network capacity projects, and reduced Sunday delivery coverage.\n \n\n\nPurchased transportation expense decreased 4% in 2023 primarily due to lower volumes, partially offset by lower productivity and higher fuel prices. Salaries and employee benefits decreased 5% in 2023 primarily due to decreased staffing to align with lower volume and lower variable incentive compensation, partially offset by higher wage rates. Other operating expense increased 11% in 2023 primarily due to higher self-insurance accruals and higher outside service contracts expense. Rentals and depreciation expense increased 18% and 11%, respectively, in 2023 due to the completion of previously committed multi-year expansion projects.\n\n\nFEDEX FREIGH\nT SEGMENT\n \n\n\nFedEx Freight LTL service offerings include priority services when speed is critical and economy services when time can be traded for savings. The following table compares revenue, operating expenses, operating income (dollars in millions), operating margin, selected statistics, and operating expenses as a percent of revenue for the years ended May 31:\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nPercent\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nPercent of Revenue\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nRevenue\n\n\n\u00a0\n\n\n$\n\n\n9,632\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n9,532\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\n\n\n\nOperating expenses:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSalaries and employee benefits\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,002\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,140\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n43.4\n\n\n\u00a0\n\n\n\n\n\n\nPurchased transportation\n\n\n\u00a0\n\n\n\u00a0\n\n\n731\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n976\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(25\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.2\n\n\n\u00a0\n\n\n\n\n\n\nRentals\n\n\n\u00a0\n\n\n\u00a0\n\n\n266\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n245\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.6\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n387\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n406\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.3\n\n\n\u00a0\n\n\n\n\n\n\nFuel\n\n\n\u00a0\n\n\n\u00a0\n\n\n748\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n662\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.0\n\n\n\u00a0\n\n\n\n\n\n\nMaintenance and repairs\n\n\n\u00a0\n\n\n\u00a0\n\n\n318\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n274\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.9\n\n\n\u00a0\n\n\n\n\n\n\nIntercompany charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n526\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n517\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.4\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n729\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n649\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.8\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,707\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,869\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n80.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n82.6\n\n\n%\n\n\n\n\n\n\nOperating income\n\n\n\u00a0\n\n\n$\n\n\n1,925\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,663\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n17.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n260\n\n\n\u00a0\n\n\nbp\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAverage daily shipments (in thousands):\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPriority\n\n\n\u00a0\n\n\n\u00a0\n\n\n70.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n79.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEconomy\n\n\n\u00a0\n\n\n\u00a0\n\n\n29.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal average daily shipments\n\n\n\u00a0\n\n\n\u00a0\n\n\n99.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n111.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nWeight per shipment (pounds):\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPriority\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,027\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,092\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEconomy\n\n\n\u00a0\n\n\n\u00a0\n\n\n912\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n947\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nComposite weight per shipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n993\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,050\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRevenue per shipment:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPriority\n\n\n\u00a0\n\n\n$\n\n\n363.85\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n320.76\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEconomy\n\n\n\u00a0\n\n\n\u00a0\n\n\n417.50\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n368.08\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nComposite revenue per shipment\n\n\n\u00a0\n\n\n$\n\n\n379.76\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n334.57\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRevenue per hundredweight:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPriority\n\n\n\u00a0\n\n\n$\n\n\n35.44\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n29.38\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEconomy\n\n\n\u00a0\n\n\n\u00a0\n\n\n45.78\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38.86\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nComposite revenue per hundredweight\n\n\n\u00a0\n\n\n$\n\n\n38.26\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n31.88\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\nFedEx Freight Segment Revenue\n \n\n\nFedEx Freight segment revenue increased 1% in 2023 primarily due to yield improvement, partially offset by lower volumes.\n \n\n\nRevenue per shipment increased 14% in 2023 primarily due to continued focus on revenue quality, including higher fuel surcharges, partially offset by lower weight per shipment. Average daily shipments decreased 11% in 2023 due to reduced demand for our services, primarily resulting from macroeconomic conditions.\n \n\n\n- \n61\n -\n\n\n\n\n\u00a0\n\n\nFedEx Freight Segment Operating Income\n \n\n\nFedEx Freight segment operating income increased 16% in 2023 driven by yield improvement, including higher fuel surcharges, partially offset by lower volumes. Additionally, FedEx Freight results were positively affected by initiatives to align costs to volumes and a gain on the sale of a facility during the third quarter of 2023.\n\n\nIn 2023, FedEx Freight continued to manage linehaul costs by increasing utilization of company linehaul, resulting in a shift of costs from purchased transportation to salaries and employee benefits expense. Purchased transportation expense decreased 25% in 2023 primarily due to lower volumes and reduced utilization due to the shift to company linehaul. Salaries and employee benefits expense decreased 3% in 2023 primarily due to decreased staffing to align with lower volume and lower variable incentive compensation, partially offset by higher wage rates and increased company linehaul utilization. Fuel expense increased 13% in 2023 primarily due to increased fuel prices, partially offset by lower volume. Other operating expense increased 12% in 2023 primarily due to higher self-insurance accruals and bad debt expense. Maintenance and repairs expense increased 16% in 2023 primarily due to higher costs associated with vehicle parts, outside vendor labor, and facility maintenance.\n\n\nFINANCIAL \nCONDITION\n\n\nLIQUID\nITY\n \n\n\nCash and cash equivalents totaled $6.9 billion at May 31, 2023 and May 31, 2022. The following table provides a summary of our cash flows for the years ended May 31 (in millions):\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nOperating activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n3,972\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,826\n\n\n\u00a0\n\n\n\n\n\n\nRetirement plans mark-to-market adjustments\n\n\n\u00a0\n\n\n\u00a0\n\n\n(650\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,578\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill and other asset impairment charges\n\n\n\u00a0\n\n\n\u00a0\n\n\n117\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nBusiness optimization and realignment costs, net of payments\n\n\n\u00a0\n\n\n\u00a0\n\n\n23\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n53\n\n\n\u00a0\n\n\n\n\n\n\nOther noncash charges and credits\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,526\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,494\n\n\n\u00a0\n\n\n\n\n\n\nChanges in assets and liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,140\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,119\n\n\n)\n\n\n\n\n\n\nCash provided by operating activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,848\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,832\n\n\n\u00a0\n\n\n\n\n\n\nInvesting activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCapital expenditures\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,174\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,763\n\n\n)\n\n\n\n\n\n\nPurchase of investments\n\n\n\u00a0\n\n\n\u00a0\n\n\n(84\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(147\n\n\n)\n\n\n\n\n\n\nProceeds from asset dispositions and other\n\n\n\u00a0\n\n\n\u00a0\n\n\n84\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n94\n\n\n\u00a0\n\n\n\n\n\n\nCash used in investing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,174\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,816\n\n\n)\n\n\n\n\n\n\nFinancing activities:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPrincipal payments on debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n(152\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(161\n\n\n)\n\n\n\n\n\n\nProceeds from stock issuances\n\n\n\u00a0\n\n\n\u00a0\n\n\n231\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n184\n\n\n\u00a0\n\n\n\n\n\n\nDividends paid\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,177\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(793\n\n\n)\n\n\n\n\n\n\nPurchase of treasury stock\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,500\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,248\n\n\n)\n\n\n\n\n\n\nOther, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)\n\n\n\n\n\n\nCash used in financing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,597\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,019\n\n\n)\n\n\n\n\n\n\nEffect of exchange rate changes on cash\n\n\n\u00a0\n\n\n\u00a0\n\n\n(118\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(187\n\n\n)\n\n\n\n\n\n\nNet (decrease) increase in cash and cash equivalents\n\n\n\u00a0\n\n\n$\n\n\n(41\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(190\n\n\n)\n\n\n\n\n\n\nCash and cash equivalents at end of period\n\n\n\u00a0\n\n\n$\n\n\n6,856\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,897\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nCash Provided by Operating Activities. \nCash flows from operating activities decreased $1.0 billion in 2023 primarily due to lower net income (net of noncash items), as well as a decrease in accounts payable and legal settlements, partially offset by a decrease in accounts receivable.\n\n\nCash Used in Investing Activities\n. Capital expenditures were 9% lower in 2023 primarily due to decreased spending on aircraft. See \u201cCapital Resources\u201d below for a more detailed discussion of capital expenditures during 2023.\n\n\nFinancing Activities\n. In December 2021, our Board of Directors authorized a stock repurchase program of up to $5 billion of FedEx common stock. As part of the repurchase program, we completed an ASR agreement with a bank in the third quarter of 2023 to repurchase an aggregate of $1.5 billion of our common stock. A total of 9.2 million shares were repurchased under the agreement.\n \n\n\n- \n62\n -\n\n\n\n\n\u00a0\n\n\nDuring 2022, as part of the repurchase program, we completed an ASR agreement with a bank to repurchase an aggregate of $1.5 billion of our common stock, and 6.1 million shares were delivered. We also repurchased an additional 2.8 million shares of our common stock during 2022.\n \n\n\nThe following table provides a summary of repurchases of our common stock for the periods ended May 31 (dollars in millions, except per share amounts):\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\nNumber of\nShares\nPurchased\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\nPrice Paid\nper Share\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\nPurchase\nPrice\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\nNumber of\nShares\nPurchased\n\n\n\u00a0\n\n\n\u00a0\n\n\nAverage\nPrice Paid\nper Share\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\nPurchase\nPrice\n\n\n\u00a0\n\n\n\n\n\n\nCommon stock repurchases\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,180,752\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n163.39\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,500\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,857,202\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n253.85\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,248\n\n\n\u00a0\n\n\n\n\n\n\nAs of May 31, 2023, $2.6 billion remains available to be used for repurchases under the program authorized in December 2021, which is the only program that currently exists. Shares under the program may be repurchased from time to time in the open market or in privately negotiated transactions. The program does not have an expiration date and may be suspended or discontinued at any time. See Note 1 of the accompanying consolidated financial statements for additional information.\n\n\nCAPITAL RE\nSOURCES\n \n\n\nOur operations are capital intensive, characterized by significant investments in aircraft, package handling and sort equipment, vehicles and trailers, technology, and facilities. The amount and timing of capital investments depend on various factors, including pre-existing contractual commitments, anticipated volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, availability of satisfactory financing, and actions of regulatory authorities.\n \n\n\nThe following table compares capital expenditures by asset category and reportable segment for the years ended May 31 (in millions):\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nPercent Change\n\n\n\u00a0\n\n\n\n\n\n\nAircraft and related equipment\n\n\n\u00a0\n\n\n$\n\n\n1,684\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,273\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(26\n\n\n)\n\n\n\n\n\n\nPackage handling and ground support equipment\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,851\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,737\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\u00a0\n\n\n\n\n\n\nVehicles and trailers\n\n\n\u00a0\n\n\n\u00a0\n\n\n719\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n717\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nInformation technology\n\n\n\u00a0\n\n\n\u00a0\n\n\n802\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n851\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6\n\n\n)\n\n\n\n\n\n\nFacilities and other\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,118\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,185\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6\n\n\n)\n\n\n\n\n\n\nTotal capital expenditures\n\n\n\u00a0\n\n\n$\n\n\n6,174\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,763\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Express segment\n\n\n\u00a0\n\n\n$\n\n\n3,055\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,637\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16\n\n\n)\n\n\n\n\n\n\nFedEx Ground segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,995\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,139\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7\n\n\n)\n\n\n\n\n\n\nFedEx Freight segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n556\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n319\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n74\n\n\n\u00a0\n\n\n\n\n\n\nFedEx Services segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n431\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n565\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(24\n\n\n)\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n137\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n103\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33\n\n\n\u00a0\n\n\n\n\n\n\nTotal capital expenditures\n\n\n\u00a0\n\n\n$\n\n\n6,174\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,763\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\nCapital expenditures decreased $0.6 billion during 2023 primarily due to decreased spending on aircraft and related equipment at FedEx Express.\n\n\nGUARANTOR FINANCIAL IN\nFORMATION\n\n\n\u00a0\n\n\nWe are providing the following information in compliance with Rule 13-01 of Regulation S-X, \u201cFinancial Disclosures about Guarantors and Issuers of Guaranteed Securities\u201d with respect to our senior unsecured debt securities and Pass-Through Certificates, Series 2020-1AA (the \u201cCertificates\u201d).\n\n\nThe $19.2 billion principal amount of the senior unsecured notes were issued by FedEx under a shelf registration statement and are guaranteed by certain direct and indirect subsidiaries of FedEx (\u201cGuarantor Subsidiaries\u201d). FedEx owns, directly or indirectly, 100% of each Guarantor Subsidiary. The guarantees are (1) unsecured obligations of the respective Guarantor Subsidiary, (2) rank equally with all of their other unsecured and unsubordinated indebtedness, and (3) are full and unconditional and joint and several. If we sell, transfer, or otherwise dispose of all of the capital stock or all or substantially all of the assets of a Guarantor Subsidiary to any person that is not an affiliate of FedEx, the guarantee of that Guarantor Subsidiary will terminate, and holders of debt securities will no longer have a direct claim against such subsidiary under the guarantee.\n\n\n- \n63\n -\n\n\n\n\n\u00a0\n\n\nAdditionally, FedEx fully and unconditionally guarantees the payment obligation of FedEx Express in respect of the $840 million principal amount of the Certificates. See Note 6 of the accompanying consolidated financial statements for additional information regarding the terms of the Certificates.\n\n\nThe following tables present summarized financial information for FedEx (as Parent) and the Guarantor Subsidiaries on a combined basis after transactions and balances within the combined entities have been eliminated.\n \n\n\nParent and Guarantor Subsidiaries\n\n\nThe following table presents the summarized balance sheet information as of\n \nMay 31, 2023 (in millions):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nCurrent Assets\n\n\n\u00a0\n\n\n$\n\n\n10,758\n\n\n\u00a0\n\n\n\n\n\n\nIntercompany Receivable\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,566\n\n\n\u00a0\n\n\n\n\n\n\nTotal Assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n89,947\n\n\n\u00a0\n\n\n\n\n\n\nCurrent Liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,933\n\n\n\u00a0\n\n\n\n\n\n\nIntercompany Payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nTotal Liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,837\n\n\n\u00a0\n\n\n\n\n\n\nThe following table presents the summarized statement of income information as of May 31, 2023 (in millions):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nRevenue\n\n\n\u00a0\n\n\n$\n\n\n67,133\n\n\n\u00a0\n\n\n\n\n\n\nIntercompany Charges, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,946\n\n\n)\n\n\n\n\n\n\nOperating Income\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,733\n\n\n\u00a0\n\n\n\n\n\n\nIntercompany Charges, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n174\n\n\n\u00a0\n\n\n\n\n\n\nIncome Before Income Taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,102\n\n\n\u00a0\n\n\n\n\n\n\nNet Income\n\n\n\u00a0\n\n\n$\n\n\n3,884\n\n\n\u00a0\n\n\n\n\n\n\nThe following tables present summarized financial information for FedEx (as Parent Guarantor) and FedEx Express (as Subsidiary Issuer) on a combined basis after transactions and balances within the combined entities have been eliminated.\n \n\n\nParent Guarantor and Subsidiary Issuer\n\n\nThe following table presents the summarized balance sheet information as of May 31, 2023 (in millions):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nCurrent Assets\n\n\n\u00a0\n\n\n$\n\n\n4,408\n\n\n\u00a0\n\n\n\n\n\n\nIntercompany Receivable\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nTotal Assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n70,016\n\n\n\u00a0\n\n\n\n\n\n\nCurrent Liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,100\n\n\n\u00a0\n\n\n\n\n\n\nIntercompany Payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,011\n\n\n\u00a0\n\n\n\n\n\n\nTotal Liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n48,246\n\n\n\u00a0\n\n\n\n\n\n\nThe following table presents the summarized statement of income information as of May 31, 2023 (in millions):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nRevenue\n\n\n\u00a0\n\n\n$\n\n\n23,861\n\n\n\u00a0\n\n\n\n\n\n\nIntercompany Charges, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,507\n\n\n)\n\n\n\n\n\n\nOperating Income\n\n\n\u00a0\n\n\n\u00a0\n\n\n482\n\n\n\u00a0\n\n\n\n\n\n\nIntercompany Charges, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n217\n\n\n\u00a0\n\n\n\n\n\n\nIncome Before Income Taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,881\n\n\n\u00a0\n\n\n\n\n\n\nNet Income\n\n\n\u00a0\n\n\n$\n\n\n2,869\n\n\n\u00a0\n\n\n\n\n\n\nLIQUIDITY \nOUTLOOK\n\n\nIn response to current business and economic conditions as referenced above in the \u201cOutlook\u201d section of this MD&A, we are continuing to actively manage and optimize our capital allocation to mitigate the impact of the slowing economy, inflationary pressures, and geopolitical conflicts. We held $6.9 billion in cash at May 31, 2023 and have $3.5 billion in available liquidity under our $2.0 billion five-year credit agreement (the \u201cFive-Year Credit Agreement) and $1.5 billion three-year credit agreement (the \u201cThree-Year Credit Agreement\u201d and together with the Five-Year Credit Agreement, the \u201cCredit Agreements\u201d), and we believe that our cash and cash equivalents, cash flow from operations, and available financing sources are adequate to meet our liquidity needs, which include operational requirements, expected capital expenditures, voluntary pension contributions, dividend payments, and stock repurchases.\n\n\n- \n64\n -\n\n\n\n\n\u00a0\n\n\nAs announced on June 20, 2023, we expect to repurchase $2.0 billion of our common stock in 2024. We executed an ASR agreement with a bank in June 2023 to repurchase an aggregate of $500 million of our common stock with a completion date no later than August 2023.\n\n\nOur cash and cash equivalents balance at May 31, 2023 includes $2.6 billion of cash in foreign jurisdictions associated with our permanent reinvestment strategy. We are able to access the majority of this cash without a material tax cost and do not believe that the indefinite reinvestment of these funds impairs our ability to meet our U.S. domestic debt or working capital obligations.\n\n\nOur capital expenditures for 2024 are expected to be approximately $5.7 billion, a decrease of $0.5 billion from 2023, as we continue to reduce our capital intensity relative to revenue. We expect lower aircraft spend and reduced capacity investment to be partially offset by investments to optimize our networks and modernize our facilities. Included within our expected 2024 capital expenditures are our continued investments in the expansion and modernization of the FedEx Express Indianapolis hub and modernization of the FedEx Express Memphis World Hub, which are expected to total $1.5 billion each over the life of each project. Our expected capital expenditures for 2024 also include $1.5 billion for delivery of aircraft and related equipment and progress payments toward future aircraft deliveries at FedEx Express.\n \n\n\nWe have additional obligations as part of our ordinary course of business, beyond those committed for capital expenditures, which consist of debt obligations, lease obligations, and obligations and commitments for purchases of goods and services. Refer to Note 6, Note 7, and Note 17 of the accompanying consolidated financial statements for more information. In addition, we have certain tax positions that are further discussed in Note 12 of the accompanying consolidated financial statements. We do not have any guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.\n \n\n\nWe have several aircraft modernization programs under way that are supported by the purchase of Boeing 777 Freighter and Boeing 767-300 Freighter aircraft. These aircraft are significantly more fuel-efficient per unit than the aircraft types previously utilized, and these expenditures are necessary to achieve significant long-term operating savings and to replace older aircraft. Our ability to delay the timing of these aircraft-related expenditures is limited without incurring significant costs to modify existing purchase agreements.\n \n\n\nWe have a shelf registration statement filed with the Securities and Exchange Commission (\u201cSEC\u201d) that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock and allows pass-through trusts formed by FedEx Express to sell, in one or more future offerings, pass-through certificates.\n\n\nThe Five-Year Credit Agreement expires in March 2026 and includes a $250 million letter of credit sublimit. The Three-Year Credit Agreement expires in March 2025. The Credit Agreements are available to finance our operations and other cash flow needs. See Note 6 of the accompanying consolidated financial statements for a description of the terms and significant covenants of the Credit Agreements.\n \n\n\nWe made a voluntary contribution of $200 million to our tax-qualified U.S. domestic pension plans (\u201cU.S. Pension Plans\u201d) in June 2023 and anticipate making $600 million of additional voluntary contributions during the remainder of 2024. There are currently no required minimum contributions to our U.S. Pension Plans based on current funded status and credit balance due to cumulative excess voluntary pension contributions, which exceeds $3.0 billion. The credit balance is subtracted from plan assets to determine the minimum funding requirements. Therefore, we could eliminate all required contributions to our principal U.S. Pension Plans for several years if we were to choose to waive part of that credit balance in any given year. Our U.S. Pension Plans have ample funds to meet expected benefit payments.\n \n\n\nOn April 5, 2023, our Board of Directors declared a quarterly cash dividend of $1.26 per share of common stock. The dividend was paid on July 3, 2023 to stockholders of record as of the close of business on June 12, 2023. Each quarterly dividend payment is subject to review and approval by our Board of Directors, and we evaluate our dividend payment amount on an annual basis. There are no material restrictions on our ability to declare dividends, nor are there any material restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans, or advances.\n\n\nStandard & Poor\u2019s has assigned us a senior unsecured debt credit rating of BBB, a Certificates rating of AA-, a commercial paper rating of A-2, and a ratings outlook of \u201cstable.\u201d Moody\u2019s Investors Service has assigned us an unsecured debt credit rating of Baa2, a Certificates rating of Aa3, a commercial paper rating of P-2, and a ratings outlook of \u201cstable.\u201d If our credit ratings drop, our interest expense may increase. If our commercial paper ratings drop below current levels, we may have difficulty utilizing the commercial paper market. If our senior unsecured debt credit ratings drop below investment grade, our access to financing may become limited.\n \n\n\n- \n65\n -\n\n\n\n\n\u00a0\n\n\nCRITICAL ACCOUNT\nING ESTIMATES\n \n\n\nThe preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a complex, global corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and new or better information.\n \n\n\nThe estimates discussed below include the financial statement elements that are either the most judgmental or involve the selection or application of alternative accounting policies and are material to our results of operations and financial condition. Management has discussed the development and selection of these critical accounting estimates with the Audit and Finance Committee of our Board of Directors and with our independent registered public accounting firm.\n \n\n\nRETIREME\nNT PLANS\n\n\nThe rules for pension accounting are complex and can produce volatility in our earnings, financial condition, and liquidity. Our defined benefit pension and postretirement benefit plans are measured using actuarial techniques that reflect management\u2019s assumptions for expected returns on assets (\u201cEROA\u201d), discount rate, and demographic experience such as salary increases, expected retirement, mortality, employee turnover, and future increases in healthcare costs. Differences between these assumptions and actual experience are recognized in our earnings through MTM accounting. The components of the MTM adjustments for the period ended May 31 are as follows (presented as (gain) loss in millions):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nActual versus expected return on assets\n\n\n\u00a0\n\n\n$\n\n\n2,492\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,109\n\n\n\u00a0\n\n\n\n\n\n\nDiscount rate change\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,395\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,486\n\n\n)\n\n\n\n\n\n\nDemographic experience:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Current year actuarial loss\n\n\n\u00a0\n\n\n\u00a0\n\n\n142\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n504\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Change in future assumptions\n\n\n\u00a0\n\n\n\u00a0\n\n\n110\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n314\n\n\n\u00a0\n\n\n\n\n\n\nTermination of TNT Express Netherlands pension plan\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n224\n\n\n\u00a0\n\n\n\n\n\n\nPension plan amendments, including curtailment gains\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(87\n\n\n)\n\n\n\n\n\n\nTotal MTM (gain) loss\n\n\n\u00a0\n\n\n$\n\n\n(650\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n1,578\n\n\n\u00a0\n\n\n\n\n\n\nOur annual MTM adjustment is highly sensitive to the discount rate and EROA assumptions, which are as follows:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nU.S. Pension Plans\n\n\n\u00a0\n\n\n\u00a0\n\n\nInternational Pension Plans\n\n\n\u00a0\n\n\n\u00a0\n\n\nPostretirement Healthcare Plans\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nDiscount rate used to determine benefit\n\u00a0\u00a0\u00a0obligation\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.20\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.25\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.21\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.09\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.37\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.35\n\n\n%\n\n\n\n\n\n\nDiscount rate used to determine net periodic \n\u00a0\u00a0\u00a0benefit cost\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.25\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.23\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.09\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.83\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.35\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.81\n\n\n\u00a0\n\n\n\n\n\n\nExpected long-term rate of return on assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.50\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.50\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.26\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.39\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nThe following sensitivity analysis shows the impact of a 50-basis-point change in the EROA and discount rate assumptions for our largest pension plan and the resulting increase (decrease) in our projected benefit obligation (\u201cPBO\u201d) as of May 31, 2023 and expense for the year ended May 31, 2023 (in millions):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n50 Basis\nPoint Increase\n\n\n\u00a0\n\n\n\u00a0\n\n\n50 Basis\nPoint Decrease\n\n\n\u00a0\n\n\n\n\n\n\nPension Plan\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEROA:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0Effect on pension expense\n\n\n\u00a0\n\n\n$\n\n\n(123\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n123\n\n\n\u00a0\n\n\n\n\n\n\nDiscount Rate:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Effect on pension expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10\n\n\n)\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Effect on PBO\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,436\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,582\n\n\n\u00a0\n\n\n\n\n\n\nSee Note 13 of the accompanying consolidated financial statements for further information about our retirement plans.\n \n\n\n- \n66\n -\n\n\n\n\n\u00a0\n\n\nINCOM\nE TAXES\n\n\nWe are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our income taxes are a function of our income, tax planning opportunities available to us, statutory tax rates, and the income tax laws in the various jurisdictions in which we operate. These tax laws are complex and subject to different interpretations by us and the respective governmental taxing authorities. As a result, significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. Also, our effective tax rate is significantly affected by the earnings generated in each jurisdiction, so unexpected fluctuations in the geographic mix of earnings could significantly impact our tax rate. Our intercompany transactions are based on globally accepted transfer pricing principles, which align profits with the business operations and functions of the various legal entities in our international business.\n \n\n\nWe evaluate our tax positions quarterly and adjust the balances as new information becomes available. These evaluations are based on factors including, but not limited to, changes in facts or circumstances, changes in tax laws or their interpretations, audit activity, and changes in our business. In addition, management considers the advice of third parties in making conclusions regarding tax consequences.\n \n\n\nTax contingencies arise from uncertainty in the application of tax rules throughout the many jurisdictions in which we operate. Despite our belief that our tax return positions are consistent with applicable tax laws, taxing authorities could challenge certain positions. We record tax benefits for uncertain tax positions based upon management\u2019s evaluation of the information available at the reporting date. To be recognized in the financial statements, a tax benefit must be at least more likely than not of being sustained based on the technical merits. The benefit for positions meeting the recognition threshold is measured as the largest benefit more likely than not of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Significant judgment is required in making these determinations and adjustments to unrecognized tax benefits may be necessary to reflect actual taxes payable upon settlement.\n \n\n\nDeferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies. These sources of income rely heavily on estimates to make this determination, and as a result there is a risk that these estimates will have to be revised as new information is received. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. We believe we will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets in our consolidated balance sheets that are not subject to valuation allowances. We record the taxes for global intangible low-taxed income as a period cost.\n\n\nOur income tax positions are based on currently enacted tax laws. As further guidance is issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, any resulting changes to our estimates will be treated in accordance with the relevant accounting guidance.\n \n\n\nFor more information, see the \u201cIncome Taxes\u201d section of this MD&A and Note 12 of the accompanying consolidated financial statements.\n \n\n\nSELF-INSURAN\nCE ACCRUALS\n \n\n\nOur self-insurance reserves are established for estimates of ultimate loss on all incurred claims, including incurred-but-not-reported claims. Components of our self-insurance reserves included in this critical accounting estimate are workers\u2019 compensation claims, vehicle accidents, property and cargo loss, general business liabilities, and benefits paid under employee disability programs. These reserves are primarily based on the actuarially estimated cost of claims incurred as of the balance sheet date. These estimates include judgment about severity of claims, frequency and volume of claims, healthcare inflation, seasonality, and plan designs. The use of any estimation technique in this area is inherently sensitive given the magnitude of claims involved and the length of time until the ultimate cost is known, which may be several years.\n\n\nWe believe our recorded obligations for these expenses are consistently measured on a conservative basis. Nevertheless, changes in  accident frequency and severity, healthcare costs, insurance retention levels, and other factors can materially affect the estimates for these liabilities and affect our results of operations. Self-insurance accruals reflected in our balance sheet for the period ended May 31 are as follows (in millions):\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nShort-Term\n\n\n\u00a0\n\n\n$\n\n\n1,730\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,646\n\n\n\u00a0\n\n\n\n\n\n\nLong-Term\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,339\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,889\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Total\n\n\n\u00a0\n\n\n$\n\n\n5,069\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,535\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n- \n67\n -\n\n\n\n\n\u00a0\n\n\nA five-percent reduction or improvement in the assumed claim severity used to estimate our self-insurance accruals would result in an increase or decrease of approximately $250 million in our reserves and expenses as of and for the year ended May 31, 2023. For more information, see \u201cItem 1A. Risk Factors\u201d of this Annual Report.\n\n\nLONG-LIVED\n ASSETS\n \n\n\nUSEFUL LIVES AND SALVAGE VALUES\n. Our business is capital intensive, with approximately 60% of our owned assets invested in our transportation and information system infrastructures.\n \n\n\nThe depreciation or amortization of our capital assets over their estimated useful lives, and the determination of any salvage values, requires management to make judgments about future events. Because we utilize many of our capital assets over relatively long periods (the majority of aircraft costs are depreciated over 15 to 30 years), we periodically evaluate whether adjustments to our estimated service lives or salvage values are necessary to ensure these estimates properly match the economic use of the asset. These evaluations consider usage, maintenance costs, and economic factors that affect the useful life of an asset. This evaluation may result in changes in the estimated lives and residual values used to depreciate our aircraft and other equipment.\n \n\n\nFor our aircraft, we consider actual experience with the same or similar aircraft types and future volume projections in estimating the useful lives and expected salvage values. We typically assign no residual value due to the utilization of our aircraft in cargo configuration, which results in little to no value at the end of their useful life. These estimates affect the amount of depreciation expense recognized in a period and, ultimately, the gain or loss on the disposal of the asset. Changes in the estimated lives of assets will result in an increase or decrease in the amount of depreciation recognized in future periods and could have a material impact on our results of operations (as described below). Historically, gains and losses on disposals of operating equipment have not been material. However, such amounts may differ materially in the future due to changes in business levels, technological obsolescence, accident frequency, regulatory changes, and other factors beyond our control.\n \n\n\nIMPAIRMENT.\n As of May 31, 2023, the FedEx Express global air network included a fleet of 700 aircraft (including 293 supplemental aircraft) that provide delivery of packages and freight to more than 220 countries and territories through a wide range of U.S. and international shipping services. While certain aircraft are utilized in primary geographic areas (U.S. versus international), we operate an integrated global network, and utilize our aircraft and other modes of transportation to achieve the lowest cost of delivery while maintaining our service commitments to our customers. Because of the integrated nature of our global network, our aircraft are interchangeable across routes and geographies, giving us flexibility with our fleet planning to meet changing global economic conditions and maintain and modify aircraft as needed.\n \n\n\nBecause of the lengthy lead times for aircraft manufacture and modifications, we must anticipate volume levels and plan our fleet requirements years in advance, and make commitments for aircraft based on those projections. Furthermore, the timing and availability of certain used aircraft types (particularly those with better fuel efficiency) may create limited opportunities to acquire these aircraft at favorable prices in advance of our capacity needs. These activities create risks that asset capacity may exceed demand. At May 31, 2023, we had three purchased aircraft that were not yet placed into service.\n \n\n\nWe evaluate our long-lived assets used in operations for impairment when events and circumstances indicate that the undiscounted cash flows to be generated by that asset group are less than the carrying amounts of the asset group and may not be recoverable. If the cash flows do not exceed the carrying value, the asset must be adjusted to its current fair value. We operate integrated transportation networks, and accordingly, cash flows for most of our operating assets are assessed at a network level, not at an individual asset level for our analysis of impairment. Further, decisions about capital investments are evaluated based on the impact to the overall network rather than the return on an individual asset. We make decisions to remove certain long-lived assets from service based on projections of reduced capacity needs or lower operating costs of newer aircraft types, and those decisions may result in an impairment charge. Assets held for disposal must be adjusted to their estimated fair values less costs to sell when the decision is made to dispose of the asset and certain other criteria are met. The fair value determinations for such aircraft may require management estimates, as there may not be active markets for some of these aircraft. Such estimates are subject to revision from period to period.\n \n\n\nIn the fourth quarter of 2023, we made the decision to permanently retire from service 12 Boeing MD-11F aircraft and 25 related engines, four Boeing 757-200 aircraft and one related engine, and two Airbus A300-600 aircraft and eight related engines, to align with the plans of FedEx Express to modernize its aircraft fleet, improve its global network, and better align air network capacity to match current and anticipated shipment volumes. As a consequence of this decision, a noncash impairment charge of $70 million ($54 million, net of tax, or $0.21 per diluted share) was recorded in the fourth quarter. All of these aircraft were temporarily idled and not in revenue service.\n\n\nIn addition, in the fourth quarter of 2023, FedEx Express made the decision to accelerate the retirement of 46 MD-11F aircraft and related engines to aid in our fleet modernization, improve our global network, and better align air network capacity of FedEx Express to match current and anticipated shipment volumes. As a result of this decision, we expect a net increase of approximately $12 million in depreciation expense in 2024 with the expense impact in 2025 being immaterial.\n \n\n\n- \n68\n -\n\n\n\n\n\u00a0\n\n\nIn the normal management of our aircraft fleet, we routinely idle aircraft and engines temporarily due to maintenance cycles and adjustments of our network capacity to match seasonality and overall customer demand levels. Temporarily idled assets are classified as available-for-use, and we continue to record depreciation expense associated with these assets. These temporarily idled assets are assessed for impairment and remaining life on a quarterly basis. The criteria for determining whether an asset has been permanently removed from service (and, as a result, is potentially impaired) include, but are not limited to, our global economic outlook and the impact of our outlook on our current and projected volume levels, including capacity needs during our peak shipping seasons; the introduction of new fleet types or decisions to permanently retire an aircraft fleet from operations; and changes to planned service expansion activities. At May 31, 2023, we had 11 aircraft temporarily idled. These aircraft have been idled for an average of five months and are expected to return to revenue service in order to meet expected demand.\n \n\n\nDuring the fourth quarter of 2023, we reviewed long-lived assets at FedEx Dataworks for impairment. Based on our reviews, we recognized an $11 million ($8 million, net of tax, or $0.03 per diluted share) asset impairment charge related to an intangible asset from the ShopRunner acquisition. For more information, see Note 4 of the accompanying consolidated financial statements.\n\n\nLEASES\n. We utilize operating leases to finance certain of our aircraft, facilities, and equipment. Such arrangements typically shift the risk of loss on the residual value of the assets at the end of the lease period to the lessor. In accordance with the new lease accounting standard adopted in 2020, we had $18 billion in operating lease liabilities and $17 billion in related right-of-use assets on the balance sheet as of May 31, 2023. The weighted-average remaining lease term of all operating leases outstanding at May 31, 2023 was 9.5 years.\n \n\n\nOur leases generally contain options to extend or terminate the lease. We reevaluate our leases on a regular basis to consider the economic and strategic incentives of exercising the renewal options, and how they align with our operating strategy. Therefore, substantially all the renewal option periods are not included within the lease term and the associated payments are not included in the measurement of the right-of-use asset and lease liability as the options to extend are not reasonably certain at lease commencement. Short-term leases with an initial term of 12 months or less are not recognized in the right-to-use asset and lease liability on the consolidated balance sheets.\n \n\n\nThe lease liabilities are measured at the lease commencement date and determined using the present value of the minimum lease payments not yet paid and our incremental borrowing rate, which approximates the rate at which we would borrow, on a collateralized basis, over the term of a lease in the applicable currency environment. The interest rate implicit in the lease is generally not determinable in transactions where we are the lessee.\n\n\nThe determination of whether a lease is accounted for as a finance lease or an operating lease requires management to make estimates primarily about the fair value of the asset and its estimated economic useful life. In addition, our evaluation includes ensuring we properly account for build-to-suit lease arrangements and making judgments about whether various forms of lessee involvement during the construction period allow the lessee to control the underlying leased asset during the construction period. We believe we have well-defined and controlled processes for making these evaluations, including obtaining third-party appraisals for material transactions to assist us in making these evaluations.\n \n\n\nGOODWILL\n. We had $6.4 billion of recorded goodwill at May 31, 2023 and $6.5 billion of recorded goodwill at May 31, 2022 from our business acquisitions, representing the excess of the purchase price over the fair value of the net assets acquired. Several factors give rise to goodwill in our acquisitions, such as the expected benefits from synergies of the combination and the existing workforce of the acquired business.\n \n\n\nGoodwill is reviewed at least annually for impairment. In our evaluation of goodwill impairment, we perform a qualitative assessment that requires management judgment and the use of estimates to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity has an unconditional option to bypass the qualitative assessment for any reporting unit and proceed directly to performing the quantitative goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. We performed both qualitative and quantitative assessments of goodwill in the fourth quarter of 2023 and 2022. This included comparing the fair value of the reporting unit to its carrying value (including attributable goodwill). Fair value is estimated using standard valuation methodologies (principally the income or market approach classified as Level 3 within the fair value hierarchy) incorporating market participant considerations and management\u2019s assumptions on revenue growth rates, operating margins, discount rates, and expected capital expenditures. Estimates used by management can significantly affect the outcome of the impairment test. Changes in forecasted operating results and other assumptions could materially affect these estimates.\n \n\n\nAs part of our qualitative assessment, we consider changes in the macroeconomic environment such as the general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, and other developments in equity and credit markets.\n \n\n\n- \n69\n -\n\n\n\n\n\u00a0\n\n\nThe market approach uses observable market data of comparable public companies to estimate fair value utilizing financial metrics such as operating value to earnings before interest, taxes, depreciation, and amortization. We apply judgment to select appropriate comparison companies based on the business operations, growth, size, and risk profile relative to our reporting units. Changes to our selection of comparable companies may result in changes to the estimates of fair value of our reporting units.\n\n\nIn connection with our annual impairment testing of goodwill conducted in the fourth quarter of 2023, we recorded an impairment charge of $36 million ($36 million, net of tax, or $0.14 per diluted share) for all of the goodwill attributable to our FedEx Dataworks reporting unit. The key factors contributing to the goodwill impairment were underperformance of the ShopRunner business during 2023, including base business erosion, and the failure to attain the level of operating synergies and revenue and profit growth anticipated at the time of acquisition. Based on these factors, our outlook for the business changed in the fourth quarter of 2023.\n\n\nOur other reporting units with significant recorded goodwill include FedEx Express, FedEx Ground, and FedEx Freight. We evaluated these reporting units during the fourth quarters of 2023 and 2022 and the estimated fair value of each of these reporting units exceeded their carrying values as of the end of 2023 and 2022; therefore, we do not believe that any of these reporting units were impaired as of the balance sheet dates.\n\n\nLEGAL AND OTHER\n \nCONTINGE\nNCIES\n \n\n\nWe are subject to various loss contingencies in connection with our operations. Contingent liabilities are difficult to measure, as their measurement is subject to multiple factors that are not easily predicted or projected. Further, additional complexity in measuring these liabilities arises due to the various jurisdictions in which these matters occur, which makes our ability to predict their outcome highly uncertain. Moreover, different accounting rules must be employed to account for these items based on the nature of the contingency. Accordingly, significant management judgment is required to assess these matters and to make determinations about the measurement of a liability, if any. Certain pending loss contingencies are described in Note 18 of the accompanying consolidated financial statements. In the opinion of management, the aggregate liability, if any, of individual matters or groups of related matters not specifically described in Note 18 is not expected to be material to our financial position, results of operations, or cash flows. The following describes our methods and associated processes for evaluating these matters.\n \n\n\nBecause of the complex environment in which we operate, we are subject to numerous legal proceedings and claims, including those relating to general commercial matters, governmental enforcement actions, employment-related claims, vehicle accidents, and FedEx Ground\u2019s service providers. Accounting guidance for contingencies requires an accrual of estimated loss from a contingency, such as a non-income tax or other legal proceeding or claim, when it is probable (i.e., the future event or events are likely to occur) that a loss has been incurred and the amount of the loss can be reasonably estimated. This guidance also requires disclosure of a loss contingency matter when, in management\u2019s judgment, a material loss is reasonably possible or probable.\n \n\n\nDuring the preparation of our financial statements, we evaluate our contingencies to determine whether it is probable, reasonably possible, or remote that a liability has been incurred. A loss is recognized for all contingencies deemed probable and estimable, regardless of amount. For unresolved contingencies with potentially material exposure that are deemed reasonably possible, we evaluate whether a potential loss or range of loss can be reasonably estimated.\n\n\nOur evaluation of these matters is the result of a comprehensive process designed to ensure that accounting recognition of a loss or disclosure of these contingencies is made in a timely manner and involves our legal and accounting personnel, as well as external counsel where applicable. The process includes regular communications during each quarter and scheduled meetings shortly before the completion of our financial statements to evaluate any new legal proceedings and the status of existing matters.\n\n\nIn determining whether a loss should be accrued or a loss contingency disclosed, we evaluate, among other factors:\n \n\n\n\u2022\nthe current status of each matter within the scope and context of the entire lawsuit or proceeding (e.g., the lengthy and complex nature of class-action matters); \n\n\n\u2022\nthe procedural status of each matter; \n\n\n\u2022\nany opportunities to dispose of a lawsuit on its merits before trial (i.e., motion to dismiss or for summary judgment); \n\n\n\u2022\nthe amount of time remaining before a trial date; \n\n\n\u2022\nthe status of discovery; \n\n\n\u2022\nthe status of settlement, arbitration, or mediation proceedings; and \n\n\n\u2022\nour judgment regarding the likelihood of success prior to or at trial. \n\n\n- \n70\n -\n\n\n\n\n\u00a0\n\n\nIn reaching our conclusions with respect to accrual of a loss or loss contingency disclosure, we take a holistic view of each matter based on these factors and the information available prior to the issuance of our financial statements. Uncertainty with respect to an individual factor or combination of these factors may impact our decisions related to accrual or disclosure of a loss contingency, including a conclusion that we are unable to establish an estimate of possible loss or a meaningful range of possible loss. We update our disclosures to reflect our most current understanding of the contingencies at the time we issue our financial statements. However, events may arise that were not anticipated and the outcome of a contingency may result in a loss to us that differs materially from our previously estimated liability or range of possible loss.\n \n\n\nDespite the inherent complexity in the accounting and disclosure of contingencies, we believe that our processes are robust and thorough and provide a consistent framework for management in evaluating the potential outcome of contingencies for proper accounting recognition and disclosure.\n \n\n",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATI\nVE DISCLOSURES ABOUT MARKET RISK\n \n\n\nINTEREST RATES. \nWhile we currently have market risk sensitive instruments related to interest rates, we do not have significant exposure to changing interest rates on our long-term debt. As disclosed in Note 6 to the accompanying consolidated financial statements, we had outstanding fixed-rate long-term debt (exclusive of finance leases) with an estimated fair value of $17.5 billion at May 31, 2023 and outstanding fixed-rate long-term debt (exclusive of finance leases) with an estimated fair value of $18.8 billion at May 31, 2022. Market risk for long-term debt is estimated as the potential decrease in fair value resulting from a hypothetical 10% increase in interest rates and amounts to approximately $743 million as of May 31, 2023 and approximately $518 million as of May 31, 2022. The underlying fair values of our long-term debt were estimated based on quoted market prices or on the current rates offered for debt with similar terms and maturities.\n \n\n\nWe have interest rate risk with respect to our pension and postretirement benefit obligations. Changes in interest rates impact our liabilities associated with these retirement plans, as well as the amount of pension and postretirement benefit expense recognized. Declines in the value of plan assets could diminish the funded status of our pension plans and potentially increase our requirement to make contributions to the plans. Substantial investment losses on plan assets would also increase net pension expense. See the \u201cCritical Accounting Estimates \u2014 Retirement Plans\u201d section of \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition\u201d of this Annual Report for more information.\n\n\nFOREIGN CURRENCY.\n While we are a global provider of transportation, e-commerce, and business services, the majority of our transactions during the periods presented in this Annual Report are denominated in U.S. dollars. The principal foreign currency exchange rate risks to which we are exposed are in the euro, Chinese yuan, British pound, Canadian dollar, Hong Kong dollar, Australian dollar, Japanese yen, and Mexican peso. Historically, our exposure to foreign currency fluctuations is more significant with respect to our revenue than our expenses, as a significant portion of our expenses are denominated in U.S. dollars, such as aircraft and fuel expenses. Foreign currency fluctuations had a slightly negative impact on operating income in 2023 and a slightly positive impact on operating income in 2022. However, favorable foreign currency fluctuations also may have had an offsetting impact on the price we obtained or the demand for our services, which is not quantifiable. At May 31, 2023, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which our transactions are denominated would result in a decrease in expected operating income of approximately $236 million for 2024. This theoretical calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar, which is not consistent with our actual experience in foreign currency transactions. In addition to the direct effects of changes in exchange rates, fluctuations in exchange rates also affect the volume of sales or the foreign currency sales price as competitors\u2019 services become more or less attractive. The sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices.\n \n\n\nWe maintain derivative financial instruments to manage foreign currency fluctuations related to probable future transactions and cash flows denominated in currencies other than the currency of the transacting entity which impacts our exposure to foreign currency exchange risk. These derivatives are not designated as hedges and are accounted for at fair value with any profit or loss recorded in income, which was immaterial for 2023 and 2022.\n \n\n\nCOMMODITY.\n While we have market risk for changes in the price of jet and vehicle fuel, this risk is largely mitigated by our indexed fuel surcharges. For additional discussion of our indexed fuel surcharges, see the \u201cResults of Operations and Outlook \u2014 Consolidated Results \u2014 Fuel\u201d section of \u201cItem 7. Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition.\u201d\n \n\n\n- \n71\n -\n\n\n\n\n\u00a0\n\n",
+  "cik": "1048911",
+  "cusip6": "31428X",
+  "cusip": ["31428x106", "31428X906", "31428X106", "31428X956"],
+  "names": ["FedEx Corp", "FEDEX CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1048911/000095017023033201/0000950170-23-033201-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.  \nBusiness.\n\n\nTHE COMPANY\n\n\nRPM International Inc., a Delaware corporation, succeeded to the reporting obligations of RPM, Inc., an Ohio corporation, following a 2002 reincorporation transaction. RPM, Inc. was originally incorporated in 1947 under the name Republic Powdered Metals, Inc. and changed its name to RPM, Inc. in 1971.\n \n\n\nAs used herein, the terms \u201cRPM,\u201d the \u201cCompany,\u201d \u201cwe,\u201d \u201cour\u201d and \u201cus\u201d refer to RPM International Inc. and all our consolidated subsidiaries, unless the context indicates otherwise. Our principal executive offices are located at 2628 Pearl Road, Medina, Ohio 44256, and our telephone number is (330) 273-5090.\n\n\nBUSINESS\n\n\nOur subsidiaries manufacture, market and sell various specialty chemical product lines, including high-quality specialty paints, infrastructure rehab and repair products, protective coatings, roofing systems, sealants and adhesives, focusing on the maintenance and improvement needs of the industrial, specialty and consumer markets. Our family of products includes those marketed under brand names such as API, Carboline, CAVE, DAP, Day-Glo, Dri-Eaz, Dryvit, Euclid, EUCO, Fibergrate, Fibregrid, Fibrecrete, Flecto, Flowcrete, Gator, Grupo PV, Hummervoll, illbruck, Kemtile, Key Resin, Nudura, Mohawk, Prime Resins, Rust-Oleum, Specialty Polymer Coatings, Stonhard, Strathmore, TCI, Toxement, Tremco, Tuf-Strand, Universal Sealants, Viapol, Watco and Zinsser.  As of May 31, 2023, our subsidiaries marketed products in approximately 164 countries and territories and operated manufacturing facilities in approximately 121 locations in Argentina, Australia, Belgium, Brazil, Canada, Chile, China, Colombia, France, Germany, India, Italy, Malaysia, Mexico, The Netherlands, New Zealand, Norway, Poland, South Africa, South Korea, Spain, Sweden, Turkey, the United Arab Emirates, the United Kingdom, and the United States. Approximately 29% of our sales are generated in international markets through a combination of exports to and direct sales in foreign countries. For the fiscal year ended May 31, 2023, we recorded net sales of $7.3 billion.\n\n\nAvailable Information\n\n\nOur Internet website address is www.rpminc.com. We make available free of charge on or through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission.\n\n\nSegment Information\n\n\nOur business is divided into four reportable segments: the Construction Products Group (\u201cCPG\u201d) reportable segment, Performance Coatings Group (\u201cPCG\u201d) reportable segment, Consumer Group (\u201cConsumer\u201d) reportable segment and Specialty Products Group (\u201cSPG\u201d) reportable segment.  These four reportable segments also represent our operating segments.\n \n\n\nWithin each operating segment, we manage product lines and businesses which generally address common markets, share similar economic characteristics, utilize similar technologies and can share manufacturing or distribution capabilities.  The table below describes the breakdown of the percentage of consolidated net sales and description of the product lines/business for each of our four reportable segments:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nName of Reportable\nSegment\n\n\nPercentage of\nConsolidated Net Sales\n\n\nDescription of Product Lines/Businesses\n\n\n\n\n\n\nCPG\n\n\nApproximately 36%\n\n\nConstruction sealants and adhesives, coatings and chemicals, roofing systems, concrete admixture and repair products, building envelope solutions, insulated cladding, flooring systems, and weatherproofing solutions\n\n\n\n\n\n\nPCG\n\n\nApproximately 18%\n\n\nHigh-performance flooring solutions, corrosion control and fireproofing coatings, infrastructure repair systems, fiberglass reinforced plastic gratings, drainage systems, and raised-flooring systems for outdoor environments\n\n\n\n\n\n\nConsumer\n\n\nApproximately 35%\n\n\nRust-preventative, special purpose, and decorative paints, caulks, sealants, primers, contact cement, cleaners, flooring systems and sealers, woodcare coatings and other branded consumer products\n\n\n\n\n\n\nSPG\n\n\nApproximately 11%\n\n\nIndustrial cleaners, restoration services equipment, colorants, nail enamels, exterior finishes, edible coatings and specialty glazes for pharmaceutical and food industries, and other specialty original equipment manufacturer (\u201cOEM\u201d) coatings\n\n\n\n\n\n\nSee Note R, \u201cSegment Information,\u201d to the Consolidated Financial Statements, for financial information relating to our four reportable segments and financial information by geographic area.\n\n\n3\n\n\n\n\n\u00a0\n\n\nCPG Segment\n\n\nOur CPG segment products and services are sold throughout North America and also account for the majority of our international sales. Our construction product lines and services are sold directly to manufacturers, contractors, distributors and end-users, including industrial manufacturing facilities, concrete and cement producers, public institutions and other commercial customers. Our CPG segment generated $2.6 billion in net sales for the fiscal year ended May 31, 2023 and includes the following major product lines and brand names:\n\n\n\u2022\nwaterproofing, coatings and traditional roofing systems used in building protection, maintenance and weatherproofing applications marketed under our Tremco, AlphaGuard, AlphaGrade, BURmastic, OneSeal, POWERply, THERMastic, TremPly, TremLock, Vulkem and TREMproof brand names; \n\n\n\u2022\nin collaboration with companies from the PCG and SPG reportable segments respectively, Fibergrate and Legend Brands, retrofit structural panels, fiberglass reinforced plastic (\u201cFRP\u201d) and metal TremSafe rooftop safety solutions, and RoofTec cleaning and RoofTec drying services;\n\n\n\u2022\nsealants, air barriers, tapes and foams that seal and insulate joints in various construction assemblies and glazing assemblies marketed under our Tremco, Dymonic, ExoAir, illbruck and Spectrem brand names; \n\n\n\u2022\nnew residential home weatherization systems marketed under our TUFF-N-DRI, Watchdog Waterproofing and Enviro-Dri brand names; \n\n\n\u2022\nspecialized roofing, building maintenance and related services performed by our Weatherproofing Technologies Incorporated (WTI) subsidiary, as well as our Weatherproofing Technologies Canada (WTC) subsidiary that include: turnkey general contracting projects, general roofing repairs, roof restorations, building asset management programs, diagnostic services, indoor air quality audits, HVAC restorations, job-site inspections, TremCare maintenance programs, customized warranty solutions and offerings;\n\n\n\u2022\nsealing and bonding solutions for windows and doors, facades, interiors and exteriors under our illbruck TremGlaze brand name; \n\n\n\u2022\nsubfloor preparation, leveling screeds for flooring and waterproofing applications under our Tremco and Isocrete brand names;\n\n\n\u2022\nin-plant glazing solutions and structural glazing under our Tremco brand name; \n\n\n\u2022\nhigh-performance resin flooring systems, polyurethane & MMA waterproof coatings, epoxy floor paint and coatings, concrete repair and protection products and decorative concrete for industrial and commercial applications sold under our Flowcrete and Key Resins brand names;\n\n\n\u2022\nrolled asphalt roofing materials, waterproofing products, and chemical admixtures marketed under our Viapol, Vandex and Betumat brand names; \n\n\n\u2022\nconcrete and masonry admixtures, concrete fibers, cement grinding aids, cement performance enhancers, curing and sealing compounds, structural grouts and mortars, epoxy adhesives, polyurethane foams, floor hardeners and toppings, joint fillers, industrial and architectural coatings, decorative color/stains/stamps, and a comprehensive selection of restoration materials marketed under the Euclid, CAVE, Conex, Toxement, Viapol, Dural, EUCO, Eucon, Eucem, Fiberstrand, Increte Systems, Plastol, Sentinel, Speed Crete, Tuf-Strand, Prime Gel, Prime Bond, Prime Coat, Prime Guard, Prime Rez, Prime Flex and Tremco PUMA Expansion Joint System brand names; \n\n\n\u2022\nsolutions for fire stopping and intumescent coatings for steel structures under our Firetherm brand now all transitioned to Nullifire, Veda and TREMStop brand names; \n\n\n\u2022\nadhesive & sealant solutions for the manufacturing industries under our Pactan brand name; \n\n\n\u2022\ninsulated building cladding materials (exterior insulating and finishing systems, \u201cEIFS\u201d) under our Dryvit and NewBrick brand names;\n\n\n\u2022\ninsulated concrete form (\u201cICF\u201d) wall systems and engineered buck framing systems and ICF bracing systems marketed and sold under the Nudura, PreBuck, and Giraffe brand names; and\n\n\n\u2022\nfoam joint sealants for commercial construction manufactured and marketed under the Schul brand name;\n\n\n\u2022\nexpansion joint covers and fire-stopping solutions for horizontal and vertical linear joints under the Veda brand.\n\n\n4\n\n\n\n\n\u00a0\n\n\nPCG Segment\n\n\nOur PCG segment products and services are sold throughout North America, as well as internationally, and are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. Our PCG segment generated $1.3 billion in net sales for the fiscal year ended May 31, 2023 and includes the following major product lines and brand names:\n\n\n\u2022\nhigh-performance polymer flooring products and services for industrial, institutional and commercial facilities, as well as offshore and marine structures and cruise, ferry and navy ships marketed under our Stonhard, Hummervoll, Kemtile, Liquid Elements and API brand names; \n\n\n\u2022\nhigh-performance, heavy-duty corrosion-control coatings, containment linings, railcar linings, fireproofing and soundproofing products and heat and cryogenic insulation products for a wide variety of industrial infrastructure and oil and gas-related applications marketed under our Carboline, Specialty Polymer Coatings, Nullifire, Charflame, Firefilm, A/D Fire, Strathmore, Thermo-Lag, Plasite, Perlifoc, Dudick, Farbocustic and Southwest brand names; \n\n\n\u2022\nspecialty construction products and services for bridge expansion joints, structural bearings, bridge decks, highway markings, protective coatings, trenchless pipe rehabilitation equipment and asphalt and concrete repair products marketed under our USL, Pitchmastic PMB, Nufins, Visul, Fibrecrete, Texacrete, Fibrejoint, Samiscreed, Prime Resins, Logiball and Epoplex brand names;\n\n\n\u2022\nfiberglass reinforced plastic gratings and shapes used for industrial platforms, staircases, walkways and raised flooring systems utilizing adjustable polypropylene pedestals marketed under our Fibergrate, Chemgrate, Corgrate, Fibregrid, Safe-T-Span and Bison brand names; and\n\n\n\u2022\namine curing agents, reactive diluents, specialty epoxy resins and other intermediates under our Arnette Polymers brand name. \n\n\nConsumer Segment\n\n\nOur Consumer segment manufactures and markets professional use and do-it-yourself (\u201cDIY\u201d) products for a variety of mainly residential applications, including home improvement and personal leisure activities. Our Consumer segment\u2019s major manufacturing and distribution operations are located primarily in North America, along with a few locations in Europe, Australia and South America.  Consumer segment products are sold directly to mass merchandisers, home improvement centers, hardware stores, residential construction suppliers, paint stores, craft shops and to other customers through distributors. Our Consumer segment generated $2.5 billion in net sales in the fiscal year ended May 31, 2023 and is composed of the following major product lines and brand names:\n\n\n\u2022\na broad line of coating products to protect and decorate a wide variety of surfaces for the DIY and professional markets which are sold under several brand names, including Rust-Oleum, Stops Rust, American Accents, Painter\u2019s Touch, Universal, Industrial Choice, Rust-Oleum Automotive, Sierra Performance, Hard Hat, TOR, Mathys, CombiColor, Noxyde, MultiSpec and Tremclad;\n\n\n\u2022\nspecialty products targeted to solve problems for the paint contractor and the DIYer for applications that include surface preparation, mold and mildew prevention, wallpaper removal and application, and waterproofing, sold under our Zinsser, B-I-N, Bulls Eye 1-2-3, Cover Stain, DIF, FastPrime, Sealcoat, Gardz, Perma-White, Shieldz, Watertite and Okon brand names;\n\n\n\u2022\na line of woodcare products for interior and exterior applications for the DIY and professional markets that are sold under the Varathane, Watco and Wolman brand names;\n\n\n\u2022\ncleaners sold under the Krud Kutter, Mean Green, Concrobium, Whink and Jomax brand names;\n\n\n\u2022\nconcrete restoration and flooring systems for the DIY and professional floor contractor markets sold under the Epoxy Shield, Rock Solid, Seal Krete and Concrete Saver brand names;\n\n\n\u2022\nmetallic and faux finish coatings marketed under our Modern Masters brand name;\n\n\n\u2022\ntile and stone sealants and cleaners under our Miracle Sealants brand name;\n\n\n\u2022\na broad line of finishing products for the DIY and professional markets including abrasives for hand and power sanding, cutting, grinding and surface refinishing marketed under the Gator, Finish 1\nst\n and Zip Sander brand names;\n\n\n\u2022\nan assortment of other products, including hobby paints and cements marketed under our Testors brand name; and\n\n\n\u2022\na complete line of caulks, sealants, adhesives, insulating foam, spackling, glazing, and other general patch and repair products for home construction, repair and remodeling marketed through a wide assortment of DAP branded products, including, but not limited to, \u201833\u2019, \u201853\u2019, \u20181012\u2019, 4000, 7000, Alex, Alex Fast Dry, Alex Plus, Alex Ultra, Alex Flex, AMP, Barrier Foam, Beats The Nail, Blend-Stick, Blockade, DAPtex, Draftstop, DryDex, Dynaflex 230, Dynaflex Ultra, \n\n\n5\n\n\n\n\n\u00a0\n\n\nDynagrip, Eclipse, Elastopatch, Extreme Stretch, Fast \u2018N Final, FastPatch, Fire Break, Kwik Seal, Kwik Seal Plus, Kwik Seal Ultra, Max Fill, Mono, Mouse Shield, No Warp, Patch-N-Paint, Plastic Wood, Platinum Patch, Power Point, RapidFuse, Seal \u2018N Peel, SIDE Winder, Silicone Plus, Silicone Max, SMARTBOND, Storm Bond, TankBond, Touch\u2019N Foam Pro, Touch\u2019N Seal, Ultra Clear, and Weldwood.\n\n\nSPG Segment\n\n\nOur SPG segment products are sold throughout North America and internationally, primarily in Europe.  Our SPG product lines are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. The SPG segment generated $0.8 billion in net sales for the fiscal year ended May 31, 2023 and includes the following major product lines and brand names:\n\n\n\u2022\nfluorescent colorants and pigments marketed under our Day-Glo and Radiant brand names;\n\n\n\u2022\nshellac-based-specialty coatings for industrial and pharmaceutical uses, edible glazes, food coatings and ingredients marketed under our Mantrose-Haeuser, NatureSeal, Profile Food Ingredients and Holton Food Products brand names;\n\n\n\u2022\nfire and water damage restoration products marketed under the Dri-Eaz, Unsmoke and ODORx brand names;\n\n\n\u2022\nprofessional carpet cleaning and disinfecting products marketed under the Sapphire Scientific, Chemspec and Prochem brand names;\n\n\n\u2022\nfuel additives marketed under our ValvTect brand name;\n\n\n\u2022\nwood treatments marketed under our Kop-Coat and TRU CORE brand names;\n\n\n\u2022\npleasure marine coatings marketed under our Pettit, Woolsey, Z-Spar and Tuffcoat brand names;\n\n\n\u2022\nwood coatings and touch-up products primarily for furniture and interior wood applications marketed under our FinishWorks, Mohawk, and Morrells brand names;\n\n\n\u2022\na variety of products for specialized applications, including powder coatings for exterior and interior applications marketed under our TCI brand name; and\n\n\n\u2022\nnail enamel, polish and coating components for the personal care industry.\n\n\nForeign Operations\n\n\nFor the fiscal year ended May 31, 2023, our foreign operations accounted for approximately 28.5% of our total net sales, excluding any direct exports from the United States. Our direct exports from the United States were approximately 0.9% of our total net sales for the fiscal year ended May 31, 2023. In addition, we receive license fees and royalty income from numerous international license agreements, and we also have several joint ventures, which are accounted for under the equity method, operating in various foreign countries. We have manufacturing facilities in Argentina, Australia, Belgium, Brazil, Canada, Chile, China, Colombia, France, Germany, India, Italy, Malaysia, Mexico, The Netherlands, New Zealand, Norway, Poland, South Africa, South Korea, Spain, Sweden, Turkey, the United Arab Emirates and the United Kingdom. We also have sales offices or warehouse facilities in Costa Rica, the Czech Republic, the Dominican Republic, Estonia, Finland, Guatemala, Hong Kong, Hungary, Indonesia, Ireland, Namibia, Oman, Pakistan, Panama, Peru, Philippines, Puerto Rico, Qatar, Singapore, Slovakia, Switzerland, Thailand and Vietnam. Information concerning our foreign operations is set forth in Management\u2019s Discussion and Analysis of Results of Operations and Financial Condition.\n\n\nCompetition\n\n\nWe conduct our business in highly competitive markets, and all of our major products face competition from local, regional, national and multi-national firms. Our markets, however, are fragmented, and we do not face competition across all of our products from any one competitor in particular. Several of our competitors have access to greater financial resources and larger sales organizations than we do. While third-party figures are not necessarily available with respect to the size of our position in the market for each of our products, we believe that we are a major producer of caulks, sealants, insulating foams, patch-and-repair products for the general consumer as well as for the residential building trade; roofing systems; urethane sealants and waterproofing materials; aluminum coatings; cement-based coatings; hobby paints; small project paints; industrial-corrosion-control products; fireproofing; consumer rust-preventative coatings; polymer floorings; fluorescent coatings and pigments; fiberglass-reinforced-plastic gratings; nail polish; water and fire damage restoration products; carpet cleaning truck-mount systems and shellac-based coatings. However, we do not believe that we have a significant share of the total protective coatings market (on a world-wide basis). The following is a summary of the competition that our key products face in the various markets in which we compete:\n\n\nPaints, Coatings, Adhesives and Sealants Products\n\n\nThe market for paints, coatings, adhesives and sealants has experienced significant consolidation over the past several decades. However, the market remains fragmented, which creates further consolidation opportunities for industry participants. Many leading suppliers tend to focus on coatings, while other companies focus on adhesives and sealants. Barriers to market entry are relatively high for new market\n \n\n\n6\n\n\n\n\n\u00a0\n\n\nentrants due to the lengthy intervals between product development and market acceptance, the importance of brand identity and the difficulty in establishing a reputation as a reliable supplier of these products. Most of the suppliers, including us, who provide these items have a portfolio of products that span across a wide variety of applications.\n\n\nConsumer Home Improvement Products.\n  Within our Consumer reportable segment, we generally serve the home improvement market with products designed for niche architectural, rust-preventative, decorative and special purpose paint and caulking and sealing applications. The products we sell for home improvement include those sold under our Rust-Oleum, Varathane, Watco, Zinsser, DAP, and Touch\u2019N Foam brand names. Leading manufacturers of home improvement-related coatings, adhesives and sealants market their products to DIY users and contractors through a wide range of distribution channels. These distribution channels include direct sales to home improvement centers, mass merchandisers, hardware and paint stores, and sales through distributors and sales representative organizations. Competitors in this market generally compete for market share by marketing and building upon brand recognition, providing customer service and developing new products based on customer needs.\n\n\nIndustrial Protective Coatings Products.\n  Anti-corrosion protective coatings and fireproofing must withstand the destructive elements of nature and operating processes under harsh environments and conditions. Our protective industrial coating products are marketed primarily under our Carboline, Specialty Polymer Coatings, Plasite, Nullifire, Firefilm, Charflame, A/D Fire, Strathmore, Thermo-lag, Perlifoc, Epoplex, and Farbocustic brand names. Some of the larger consumers of high-performance protective and corrosion control coatings, fireproofing and intumescent steel coatings are the oil and gas, pulp and paper, petrochemical, shipbuilding, high-rise building construction, public utility and bridge and highway industries, water and wastewater treatment plants, and electronics manufacturing facilities. These markets are highly fragmented. We and our competitors compete for market share by supplying a wide variety of high-quality products and by offering customized solutions.\n\n\nRoofing Systems Products\n\n\nIn the roofing industry, re-roofing applications have historically accounted for over three-quarters of U.S. demand, with the remainder generated by new roofing applications.  Our primary roofing brand, Tremco, was founded in 1928 on the principle of \u201ckeeping good roofs good,\u201d and then, by extension, ensuring \u201croofing peace of mind\u201d for our customers. We define the market in two segments: (a) restoration and re-roofing or (b) new roofing.  We market our systems and services for all of the most common roofing applications.  Our roofing systems and services provide high performance and value.  High performance ensures a long service life and ease of maintenance.  High value ensures low total cost of ownership due to ease of installation, landfill avoidance, roof longevity, elimination of facility and occupant disruption, and utilization of sustainable materials and systems. Whether a project is a restoration, re-roof or new construction, our goal is always to help create a facility that is safe, dry, comfortable, and energy efficient for its occupants.\n\n\nConstruction Products\n\n\nFlooring Systems Products.\n  Polymer flooring systems are used in industrial, commercial and, to a lesser extent, residential applications to provide a smooth, seamless surface that is impervious to penetration by water and other substances while being easy to clean and maintain. These systems are particularly well-suited for clean environments such as pharmaceutical, food and beverage and healthcare facilities. In addition, the fast installation time and long-term durability of these systems and products make them ideal for industrial floor repair and restoration. Polymer flooring systems are based on epoxy, polyurethane and methyl methacrylate resins. Most of these flooring systems are applied during new construction, but there is also a significant repair and renovation market. Key performance attributes in polymer flooring systems that distinguish competitors for these applications include static control, chemical resistance, contamination control, durability and aesthetics. We market our flooring systems under the Stonhard, Flowcrete, Key Resin, Euclid, Liquid Elements, Hummervoll, Kemtile, API and Dudick brand names.\n\n\nFiberglass Reinforced Plastic (\u201cFRP\u201d) Grating and Structural Composites.\n  FRP grating and railings are used primarily in industrial and, to a lesser extent, commercial applications. FRP exhibits many specialized features, which make it a beneficial alternative to traditional steel or aluminum. These include a high strength-to-weight ratio, high corrosion resistance, electrical and thermal non-conductivity, and molded-in color, which eliminates the need for repainting. FRP is used for rooftop safety, platforms, walkways and stairs for a variety of applications, including those in the food and beverage, chemical processing, water-wastewater, pulp and paper, commercial roofing, commercial sealants and waterproofing, and offshore oil and gas industries. Structural composites include high-density polypropylene pedestal systems for raised flooring applications in outdoor environments.  Key attributes that differentiate competitors in these markets include product quality, depth of product line, and design-and-fabrication services. Our products for these applications are sold under our Fibergrate, Chemgrate, Corgrate, Fibregrid, Safe-T-Span and Bison brand names.\n\n\nSealants, Waterproofing, Concrete and Masonry Products.\n  Sealants, which include urethane, silicone, latex, butyl and hybrid technology products, are designed to be installed in construction joints for the purpose of providing a flexible air and water-tight seal. Waterproof coatings, usually urethane or asphalt based, are installed in exposed and buried applications to waterproof and protect concrete. Structural and traffic tolerant membranes, expansion joints and bearings are used in a variety of applications for bridge deck construction and restoration and the protection and preservation of balconies, pedestrian walkways and parking structures.  In the concrete and masonry additives market, a variety of chemicals and fibers can be added to concrete and masonry to improve the processability, performance, or appearance of these products. Chemical admixtures for concrete are typically grouped according to their functional characteristics, such as water-reducers, set controllers, superplasticizers and air-entraining agents. Curing and sealing\n \n\n\n7\n\n\n\n\n\u00a0\n\n\ncompounds, structural grouts, epoxy adhesives, injection resins, floor hardeners and toppings, joint fillers, industrial and architectural coatings, decorative color/stains/stamps, and a comprehensive selection of restoration materials are used to protect, repair or improve new or existing concrete structures used in the construction industry, and rehabilitation and repair of roads, highways, bridges, pipes and other infrastructure. The key attributes that differentiate competitors for these applications include quality assurance, on-the-job consultation and value-added, highly engineered products. We primarily offer products marketed under our Tremco, EUCO, Toxement, Viapol, Betumat, CAVE, Vandex, illbruck, Tamms, AlphaGuard, AlphaGrade, OneSeal, PowerPly, TremPly, TremLock, Vulkem, TREMproof, Dymonic, Increte, TUFF-N-DRI, Universal Sealants, Nufins, Pitchmastic PMB, Visul, Fibrecrete, Texacrete, Fibrejoint, Samiscreed, Prime Rez, Prime Gel, Prime Guard, Prime Coat, Prime Bond, Prime Flex, Logiball, Watchdog Waterproofing, PSI, Tuf-Strand, Ekspan, Sealtite and HydroStop brand names for this line of business.\n\n\nBuilding Wall, Cladding and Envelope Systems. \n CPG's collective products and systems are a single source for new construction, renovation and restoration. We take a fully tested systems approach in standing behind its whole building warranty, providing a single point of responsibility for customer peace of mind.\n \n\n\nIntellectual Property\n\n\nOur intellectual property portfolios include valuable patents, trade secrets and know-how, domain names, trademarks, trade and brand names. In addition, through our subsidiaries, we continue to conduct significant research and technology development activities. Among our most significant intangibles are our Rust-Oleum\n\u00ae\n, Carboline\n\u00ae\n, DAP\n\u00ae\n, illbruck\n\u00ae\n and Tremco\n\u00ae\n trademarks.\n\n\nRust-Oleum Corporation and some of our other subsidiaries own more than 860 trademark registrations or applications in the United States and numerous other countries for the trademark \u201cRust-Oleum\n\u00ae\n\u201d and other trademarks covering a variety of rust-preventative, decorative, general purpose, specialty, industrial and professional products sold by Rust-Oleum Corporation and related companies.\n\n\nCarboline Company and some of our other subsidiaries own more than 510 trademark registrations or applications in the United States and numerous other countries covering the products sold by the Carboline Company and related companies, including two United States trademark registrations for the trademark \u201cCarboline\n\u00ae\n\u201d.\n\n\nDAP Global, Inc. and other subsidiaries of the Company own nearly 400 trademark registrations or applications in the United States and numerous other countries for the \u201cDAP\n\u00ae\n\u201d trademark, the \u201cPutty Knife design\u201d trademark and other trademarks covering products sold under the DAP brand and related brands.\n\n\nTremco CPG Inc. and some of our other subsidiaries own more than 90 registrations or applications for the trademark \u201cTremco\n\u00ae\n\u201d in the United States and numerous countries covering a variety of roofing, sealants and coating products. There are also many other trademarks of Tremco CPG Inc. and some of our other subsidiaries that are the subject of registrations or applications in the United States and numerous other countries, bringing the total number of registrations and applications covering products sold under the Tremco brand and related brands to more than 1,000.\n\n\nOur other principal product trademarks include: 2X Ultra Cover\n\u00ae\n, AlphaGuard\n\u00ae\n, Alumanation\n\u00ae\n, Betumat\u0099, B-I-N\n\u00ae\n, Bitumastic\n\u00ae\n, Bulls Eye 1-2-3\n\u00ae\n, Chemgrate\n\u00ae\n, Dri-Eaz\n\u00ae\n, Dymonic\n\u00ae\n, EnerEDGE\n\u00ae\n, Enviro-Dri\n\u00ae\n, EUCO\n\u00ae\n, ExoAir\n\u00ae\n, Flecto\u0099, Fibergrate\n\u00ae\n, Floquil\n\u0099\n, Paraseal\n\u00ae\n, Permaroof\nTM\n, Plasite\n\u00ae\n, Proglaze\n\u00ae\n, Sanitile\n\u00ae\n, Sealtite\n\u0099\n, Solargard\n\u00ae\n, Spectrem\n\u00ae\n, Stonblend\n\u00ae\n, Stonclad\n\u00ae\n, Stonhard\n\u00ae\n, Stonlux\n\u00ae\n, Stonshield\n\u00ae\n, Testors\n\u00ae\n, TREMproof\n\u00ae\n, TUFF-N-DRI\n\u00ae\n, Varathane\n\u00ae\n, Viapol\u0099, Vulkem\n\u00ae\n, Watchdog Waterproofing\n\u00ae\n, Woolsey\n\u00ae\n, Zinsser\n\u00ae\n and Z-Spar\n\u00ae\n; and, in Europe, API\n\u00ae\n, Perlifoc\n\u00ae\n, Hummervoll\n\u00ae\n, USL\n\u00ae\n, Nufins\n\u00ae\n, Pitchmastic PMB\n\u00ae\n, Visul\n\u00ae\n, Flowcrete\n\u00ae,\n Nullifire\n\u00ae\n, Radglo\n\u00ae\n and Martin Mathys\u0099. Our trademark registrations are valid for a variety of different terms of up to 15 years, and may be renewable as long as the trademarks continue to be used and all other local conditions for renewal are met.  Our trademark registrations are maintained and renewed on a regular basis as required.\n \n\n\nRaw Materials\n\n\nThe cost and availability of raw materials, including packaging, materially impact our financial results.  We obtain raw materials from a number of suppliers.  Many of our raw materials are petroleum-based derivatives, minerals and metals.  The cost of raw materials has in the past experienced, and likely will continue to experience, periods of volatility which could increase the cost of manufacturing our products.  Under normal market conditions, these materials are generally available on the open market from a variety of producers; however, shortages have occurred and continue to be a possibility.  Interruptions in the supply of raw materials could have a significant impact on our ability to produce products.\n \n\n\nThroughout fiscal 2023, we experienced inflation in raw materials. While costs of some raw materials have stabilized, we expect that inflation of some materials will potentially create headwinds impacting our results into fiscal 2024.\n \n\n\nAdditionally, changes in international trade duties and other aspects of international trade policy, both in the United States and abroad, could materially impact the cost and availability of raw materials.  Any increase in material costs that are not offset by an increase in our prices could have an adverse effect on our business, financial position, results of operations or cash flows.\n \n\n\nSeasonal Factors\n\n\nOur business is dependent, to a significant extent, on external weather factors. We historically experience stronger sales and operating results in our first, second and fourth fiscal quarters, which are the three-month periods ending August 31, November 30 and May 31, respectively, while we have experienced weaker performance in our third fiscal quarter.\n\n\n8\n\n\n\n\n\u00a0\n\n\nCustomers\n\n\nSales to our ten largest Consumer segment customers, such as DIY home centers, on a combined basis represented approximately 25%, 22%, and 24% of our total net sales for each of the fiscal years ended May 31, 2023, 2022 and 2021, respectively. Except for sales to these customers, our business is not dependent upon any one customer or small group of customers but is largely dispersed over a substantial number of customers.\n\n\nResearch and Development\n\n\nOur research and development work is performed at various laboratory locations. During fiscal years 2023, 2022 and 2021, approximately $86.6 million, $80.5 million and $77.6 million, respectively, was charged to expense for research and development activities. In addition to this laboratory work, we view our field technical service as being integral to the success of our research activities. Our research and development activities and our field technical service costs are both included as part of our selling, general and administrative expenses.\n\n\nEnvironmental Matters\n\n\nWe value and respect our place in the world as a steward of the built environment and aspire to make the world a better place for our customers, associates, shareholders and the communities in which we live and operate through compliance with the environmental laws and regulations as well as fostering our own internal initiatives related to the environment and our social impact. In 2022 we launched our Building a Better World program.  This program focuses on three pillars: Our People, Our Products and Our Processes.\n \n\n\nWe also established our Building a Better World Oversight Committee, overseen by our Governance and Nominating Committee of our Board of Directors, which is responsible for the direction of our sustainability efforts. The Building a Better World Oversight Committee has three additional subcommittees, each focused on one of the pillars of the Building a Better World program and reporting up to the Building a Better World Oversight Committee.  At the management level, day-to-day implementation of our environmental, social and governance (\u201cESG\u201d) initiatives is led by our Vice President \u2013 Compliance and Sustainability, Associate General Counsel.\n\n\nWe are subject to a broad range of laws and regulations dealing with environmental, health and safety issues for the various locations around the world in which we conduct our business. These laws and regulations include, but are not limited to, the following major areas:\n\n\n\u2022\nthe sale, export, generation, storage, handling, use and transportation of hazardous materials;\n\n\n\u2022\nregulations related to greenhouse gas emissions, energy or climate change;\n\n\n\u2022\nthe emission and discharge of hazardous materials into the soil, water and air; and\n\n\n\u2022\nthe health and safety of our associates.\n\n\nFor information regarding environmental accruals, see Note P, \u201cContingencies and Accrued Losses,\u201d to the Consolidated Financial Statements.  For more information concerning certain environmental matters affecting us, see \u201cItem 3 \u2014 Legal Proceedings \u2014 Environmental Proceedings\u201d in this Annual Report on Form 10-K.\n\n\nHuman Capital\n\n\nWe understand that our company is only as strong as the team behind it. With the consistent support and dedication of leadership at all levels, we foster a workplace that supports our associates as individuals and helps them thrive in their current positions and strive to accomplish their future aspirations. Our human capital management strategy includes sustainable best practices in professional development, benefits, health and safety, and community involvement in an effort to continue to hire the best associates and retain them throughout the course of their careers. We measure satisfaction through our annual Engagement Survey, through which participants are able to express their opinion and provide comments and suggestions.\n\n\nTalent Development\n\n\nIt is critical to our long-term success to develop our internal talent. Our Global Organizational Leadership Development (\u201cGOLD\u201d) Team is charged with creating a leadership-led learning culture across RPM. The GOLD Team has developed several training programs to support development which include Leaders of the Future, RPM University, Strategic Leader Staff Rides, and partnering with the Center for Creative Leadership.  Since the inception of these programs the Company has seen many participants advance their careers, and the retention of participants has been greater than 85%.\n\n\nBenefits\n\n\nOur leadership has long understood that to attract and retain top talent, and to share the benefits of a successful business, we must maintain a premium benefits program for our associates. For U.S. associates, we offer an attractive benefits package, including defined benefit pension plans, medical, telehealth, tuition reimbursement and an employer-matched 401(k). We also offer an Employee Assistance Program (\u201cEAP\u201d) which focuses on behavioral health and also provides resources for financial and legal matters. Mental health support is key to associates, who may get support through the EAP as well as through telehealth and our health plans.\n\n\n9\n\n\n\n\n\u00a0\n\n\nSimilar ancillary benefits are offered to our Canadian associates, and associates of our other foreign subsidiaries receive benefits coverage, to the extent deemed appropriate, through plans that meet local requirements.\n \n\n\nDiversity & Inclusion\n\n\nAt RPM, we are committed to fostering, cultivating and preserving a culture of diversity and inclusion. We support this commitment and provide associate resources through Respect at RPM, a program that reinforces our core values of operating with transparency, trust and respect. The program emphasizes the importance of diversity and inclusion at RPM and across all our operations; and supports associate growth and development. We have built our workforce with a commitment to create a diverse and inclusive culture. We recruit, select, hire and develop individuals based on their qualifications and skills. All associates and other parties involved in the employment relationship are required to comply with RPM\u2019s Code of Conduct and are prohibited from discriminating against individuals during all stages of employment or hiring, including decisions involving recruitment, promotion, transfer, assignment, training, termination and lay-offs, working conditions, wage and salary administration, associate benefits and application of policies. We prohibit any inappropriate conduct or behavior against others, including discrimination perpetrated by associates, supervisors, customers or vendors, and strictly prohibit retaliation and harassment, as set forth in our Code of Conduct and Hotline and Non-Retaliation Policy.\n\n\nHealth & Safety\n\n\nWe follow many best practices to ensure our associates come to work feeling empowered to safely do their jobs. As part of our EH&S management system, we continuously educate and train to institutionalize our health and safety values, set and monitor health and safety objectives, conduct regular risk assessments and process hazard and root cause analysis, and actively enforce incident prevention and reporting policies. In addition, we conduct EH&S compliance audits annually that are prioritized based on high-risk processes, facilities with recent expansion or process changes and to cover any new acquisitions.\n\n\nAssociates\n \n\n\nAs of May 31, 2023, we employed 17,274 persons, of whom approximately 959 were represented by unions under contracts which expire at varying times in the future.  We believe that all relations with associates and their unions are good.\n\n\n10\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A.  \nRi\nsk Factors.\n\n\nAs a global company of paint, coatings, roofing, construction and related products, we operate in a business environment that includes risks. Each of the risks described in this section could adversely affect the results of our operations, our financial position and/or our liquidity. Additionally, while the following factors are considered to be the more significant risk factors, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted risk factors may present significant additional obstacles which may adversely affect our businesses and our results.  Therefore, you should carefully consider these risk factors, as well as the other information contained in this Annual Report on Form 10-K, in evaluating us, our business and your investment in us as they could cause our actual results or financial condition to differ materially from those projected in our forward-looking statements.\n\n\nECONOMIC AND STRATEGIC RISKS\n\n\nOur operations and financial condition have been and could continue to be adversely affected by global and regional economic\n \nconditions in ways we may not be able to predict or control.\n\n\nOur operations and financial condition have been and could continue to be adversely affected by global or regional economic conditions if markets decline in the future, whether related to a public health crisis similar to the Covid pandemic, the Russian invasion of Ukraine, higher inflation or interest rates, recession, natural disasters, impacts of and issues related to climate change, business disruptions, our ability to adequately staff operations or otherwise. Office building utilization, higher mortgage rates, and the continued shift in consumer spending to online shopping, may negatively impact office, residential, and retail construction.  Additionally, escalation in interest rates, in conjunction with banking failures, may lead to financial institutions being more prudent with capital deployment and tightening lending, especially in relation to construction and real estate development. As a result, future construction activity could decrease due to a lack of financing availability, and financial distress in this sector could be further exacerbated by a lack of refinancing options available for existing real estate loans when they mature in the upcoming months. Any future economic declines may result in decreased revenue, gross margins, earnings or growth rates or difficulty in managing inventory levels or collecting customer receivables. We also have experienced, and could continue to experience, labor inflation, increased competitive pricing pressure, raw material inflation and availability issues resulting in difficulties meeting customer demand. In addition, customer difficulties in the future could result from economic declines, decreased purchasing power, public health crisis similar to the Covid pandemic, the cyclical nature of their respective businesses, such as in the oil and gas industry, or otherwise and, in turn, result in decreases in product demand, increases in bad debt write-offs, decreases in timely collection of accounts receivable and adjustments to our allowance for credit losses, resulting in material reductions to our revenues and net earnings.\n\n\nGlobal economic and capital market conditions may cause our access to capital to be more difficult in the future and/or costs to secure such capital more expensive.\n\n\nWe may need new or additional financing in the future to provide liquidity to conduct our operations, expand our business or refinance existing indebtedness. Any sustained weakness in general economic conditions and/or U.S. or global capital markets could adversely affect our ability to raise capital on favorable terms or at all. From time to time we have relied, and we may also rely in the future, on access to financial markets as a source of liquidity for working capital requirements, acquisitions and general corporate purposes. Our access to funds under our credit facility is dependent on the ability of the financial institutions that are parties to that facility to meet their funding commitments. Those financial institutions may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time. Moreover, the obligations of the financial institutions under our credit facility are several and not joint and, as a result, a funding default by one institution does not need to be made up by the others. Longer term volatility and continued disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation of financial institutions, reduced alternatives or failures of significant financial institutions could adversely affect our access to the liquidity needed for our businesses in the longer term. Such disruptions could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged.\n\n\nVolatility in the equity markets or interest rates could substantially increase our pension costs and required pension contributions.\n\n\nWe sponsor qualified defined benefit pension plans and various other nonqualified postretirement plans. The qualified defined benefit pension plans are funded with trust assets invested in a diversified portfolio of debt and equity securities and other investments. Among other factors, changes in interest rates, investment returns and the market value of plan assets can (i) affect the level of plan funding; (ii) cause volatility in the net periodic pension cost; and (iii) increase our future contribution requirements. A significant decrease in investment returns or the market value of plan assets or a significant change in interest rates could increase our net periodic pension costs and adversely affect our results of operations. A significant increase in our contribution requirements with respect to our qualified defined benefit pension plans could have an adverse impact on our cash flow.\n\n\n11\n\n\n\n\n\u00a0\n\n\nA public health crisis could cause disruptions to our operations which could adversely affect our business in the future.\n\n\nA significant public health crisis could cause disruptions to our operations similar to the effects of the Covid pandemic. The Covid pandemic had a negative effect on our business, results of operations, cash flows and financial condition. It affected our business due to the impact on the global economy, including its effects on transportation networks, raw material availability, production efforts and customer demand for our products.  Our ability to predict and respond to future changes resulting from potential health crisis is uncertain. Even after a public health crisis subsides, there may be long-term effects on our business practices and customers in economies in which we operate that could severely disrupt our operations and could have a material adverse effect on our business, results of operations, cash flows and financial condition.  As we cannot predict the duration, scope or severity of future pandemics, the negative financial impact to our results cannot be reasonably estimated and could be material.\n \n\n\nTerrorist activities and other acts of violence or war and other disruptions have negatively impacted in the past, and could negatively impact in the future, the United States and foreign countries, the financial markets, the industries in which we compete, our operations and profitability.\n\n\nTerrorist activities, acts of violence or war and other disruptions have contributed to economic instability in the United States and elsewhere, and acts of terrorism, cyber-terrorism, violence or war could affect the industries in which we compete, our ability to purchase raw materials, adequately staff our operations, manufacture products or sell or distribute products, which could have a material adverse impact on our financial condition and results of operations.\n\n\nAdverse weather conditions and natural disasters, including those related to the impacts of climate change, may reduce the demand for some of our products, impair our ability to meet our demand for such products or cause supply chain disruptions which could have a negative effect on our operations and sales.\n\n\nFrom time to time, extreme weather conditions, including natural disasters, and those related to the impacts of climate change, have had a negative effect on our operations and sales.  Unusually cold or rainy weather, especially during the general construction and exterior painting season, could have an adverse effect on sales. As a result, we have historically experienced weaker sales and net income in our third fiscal quarter (December through February) in comparison to our performance during our other fiscal quarters. Events such as destructive wildfires, extreme storms or temperatures and increased flooding or other natural disasters could damage our facilities, leading to production or distribution challenges which could have a negative effect on our sales.\n\n\nThe impacts of these risks to our suppliers may also have a detrimental effect on the sales, manufacturing, and distribution of our products, including raw material shortages and increased costs.  Any such effect on sales may result in a reduction in earnings or cash flow.\n\n\nSignificant foreign currency exchange rate fluctuations may harm our financial results.\n\n\nWe conduct business in various regions throughout the world and are therefore subject to market risk due to changes in the exchange rates of foreign currencies in relation to the U.S. dollar.  Because our Consolidated Financial Statements are presented in U.S. dollars, increases or decreases in the value of the U.S. dollar relative to other currencies in which we transact business could materially adversely affect our net revenues, earnings and the carrying values of our assets located outside the United States.\n \n\n\nFINANCIAL RISKS\n\n\nThe use of accounting estimates involves judgment and could impact our financial results.\n\n\nThe preparation of financial statements in conformity with Generally Accepted Accounting Principles (\u201cGAAP\u201d) requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.  Our most critical accounting estimates are described in Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations under \u201cCritical Accounting Policies and Estimates.\u201d Additionally, as discussed in Note P, \u201cContingencies and Accrued Losses,\u201d of the Notes to Consolidated Financial Statements, we make certain estimates, including decisions related to legal proceedings and various loss reserves.  These estimates and assumptions involve the use of judgment, and therefore, actual financial results may differ.\n \n\n\nThe results of our annual testing of goodwill and as-required interim testing of goodwill and other long-lived assets have required, and in the future may require, that we record impairment charges.\n\n\nAs of May 31, 2023, we had approximately $1.8 billion in goodwill and other intangible assets. The Accounting Standards Codification (\u201cASC\u201d) section 350, \"Intangibles \u2013 Goodwill and Other,\" requires that goodwill be tested at least on an annual basis, or more frequently as impairment indicators arise, using either a qualitative assessment or a fair-value approach at the reporting unit level. We perform our annual required impairment tests, which involve the use of estimates related to the fair market values of the reporting units with which goodwill is associated, as of the first day of our fourth fiscal quarter. The evaluation of our long-lived assets for impairment includes determining whether indicators of impairment exist, this is a subjective process that considers both internal and external factors. The impairment assessment evaluation requires the use of significant judgment regarding estimates and assumptions surrounding future results of operations and cash flows.\n \n\n\n12\n\n\n\n\n\u00a0\n\n\nIn connection with our Margin Achievement Plan 2025 (\"MAP 2025\") operating improvement initiative, during the fiscal third quarter ended February 28, 2023, due to declining profitability and regulatory headwinds, management decided to restructure the Universal Sealants (\u201cUSL\u201d) reporting unit within our PCG segment, and is correspondingly exploring strategic alternatives for our infrastructure services business within the United Kingdom (\u201cU.K.\u201d). Due to this decision, we determined that an interim goodwill impairment assessment, as well as an impairment assessment for our other long-lived assets were required. Accordingly, we recorded an impairment loss totaling $36.7 million for the impairment of goodwill and an impairment loss of $2.5 million for the impairment of an indefinite-lived tradename in our USL reporting unit during fiscal 2023. We did not record any impairments for our definite-lived long-lived assets as a result of this assessment.\n\n\nOur required annual impairment testing for goodwill and indefinite-lived intangible assets, which we performed during the fourth quarters of the fiscal years ended May 31, 2023, 2022 and 2021 did not result in an impairment charge. For discussion of the approach for, and results of, our interim and annual impairment testing for goodwill and indefinite lived intangible assets for all periods presented, please refer to the headings entitled \u201cGoodwill\u201d and \u201cOther Long-Lived Assets\u201d within the \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and \u201cCritical Accounting Policies and Estimates\u201d sections located in \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operation\u201d as well as Note A(11), \"Summary of Significant Accounting Policies - Goodwill and Other Intangible Assets,\" and Note C, \"Goodwill and Other Intangible Assets,\" to our Consolidated Financial Statements as presented below.\n\n\nIn the future, if global economic conditions were to decline significantly, or if our reporting units experience significant declines in business, we may incur additional, substantial goodwill and other intangible asset impairment charges. The amount of any such impairment charge could have a material adverse effect on our results of operations.\n \n\n\nOur significant amount of indebtedness could have a material adverse impact on our business.\n\n\nOur total debt was approximately $2.7 billion at May 31, 2023 and 2022, which compares with $2.1 billion in stockholders\u2019 equity at May 31, 2023. Our level of indebtedness could have important consequences.  For example, it could:\n\n\n\u2022\nrequire us to dedicate a material portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the cash flow available to fund working capital, capital expenditures, acquisitions, dividend payments, stock repurchases or other general corporate requirements;\n\n\n\u2022\nresult in a downgrade of our credit rating, which would increase our borrowing costs, adversely affect our financial results, and make it more difficult for us to raise capital;\n\n\n\u2022\nrestrict our operational flexibility and reduce our ability to conduct certain transactions, since our credit facility contains certain restrictive financial and operating covenants;\n\n\n\u2022\nlimit our flexibility to adjust to changing business and market conditions, which would make us more vulnerable to a downturn in general economic conditions; and\n\n\n\u2022\nhave a material adverse effect on our short-term liquidity if large debt maturities occur in close succession.\n\n\nWe cannot assure you that our business always will be able to make timely or sufficient payments of our debt.  Should we fail to comply with covenants in our debt instruments, such failure could result in an event of default which, if not cured or waived, would have a material adverse effect on us.\n\n\nOPERATIONAL RISKS\n\n\nOperating improvement initiatives could cause us to incur significant expenses and impact the trading value of our common stock.\n\n\nOn May 31, 2021, we formally concluded our 2020 Margin Acceleration Plan (\"MAP to Growth\") operating improvement program, which resulted in significant changes in our organizational and operational structure impacting most of our companies. In August 2022, we approved and announced our MAP 2025. MAP 2025 is a multi-year restructuring plan to build on the achievements of MAP to Growth. Our MAP 2025 operating improvement program may result in significant changes in our organizational and operational structure. We have taken actions and may continue to take additional actions during future periods, in furtherance of these or other operating improvement initiatives. We may incur further expenses as a result of these actions, and we also may experience disruptions in our operations, decreased productivity and unanticipated associate turnover and the objectives of our operating improvement initiatives may not be achieved. The occurrence of any of these or other related events associated with our operating improvement initiatives could adversely affect our operating results and financial condition.\n \n\n\n13\n\n\n\n\n\u00a0\n\n\nFluctuations in the supply and cost of raw materials may negatively impact our financial results.\n\n\nThe cost and availability of raw materials, including packaging, materially impact our financial results.  We obtain raw materials from a number of suppliers.  Many of our raw materials are petroleum-based derivatives, minerals and metals.  The cost of raw materials has in the past experienced, and likely will continue to experience, periods of volatility which have, and could in the future, increase the cost of manufacturing our products.  Under normal market conditions, raw materials are generally available on the open market from a variety of sources; however, our suppliers may be impacted by social and environmental regulations and expectations, including regulations related to climate change, adverse weather conditions, pandemics, trade policy, energy availability or civil unrest, resulting in shortages or price volatility.  Interruptions in the supply of raw materials or sources of energy could have a significant impact on our ability or cost to produce products.\n \n\n\nCost and adequate supply of raw materials is managed by establishing contracts, procuring from multiple sources, and identifying alternative materials or technology; however, the unavailability of raw materials or increased prices of raw materials that we are unable to pass along to our customers could have a material adverse effect on our business, financial condition, results of operations or cashflows.\n \n\n\nAdditionally, changes in international trade duties, tariffs, sanctions and other aspects of international trade policy, both in the United States and abroad, could materially impact the cost of raw materials.  Any increase in materials that is not offset by an increase in our prices could have a material adverse effect on our business, financial condition, results of operations or cash flows.\n \n\n\nThe markets in which we operate are highly competitive and some of our competitors\n \nare much larger than we are and may have greater financial resources than we do.\n\n\nThe markets in which we operate are fragmented, and we do not face competition from any one company across all our product lines. However, any significant increase in competition, resulting from the consolidation of competitors, may cause us to lose market share or compel us to reduce prices to remain competitive, which could result in reduced gross profit margins. Increased competition may also impair our ability to grow or to maintain our current levels of revenues and earnings. Companies that compete in our markets include Akzo Nobel, Axalta Coating Systems Ltd., Carlisle Companies Inc., H.B. Fuller, Masco Corporation, PPG Industries, Inc., The Sherwin-Williams Company and Sika AG. Several of these companies are much larger than we are and may have greater financial resources than we do. Increased competition with these or other companies could prevent the institution of price increases or could require price reductions or increased spending to maintain our market share, any of which could adversely affect our results of operations.\n\n\nOur success depends upon our ability to attract and retain key associates and the succession of senior management.\n\n\nOur success largely depends on the performance of our management team and other key associates. If we are unable to attract and retain talented, highly qualified senior management and other key associates (including the ability to identify and attract key international associates), our business, results of operations, cash flows and financial condition could be adversely affected. In addition, if we are unable to effectively provide for the succession of senior management, including our Chief Executive Officer, our business, results of operations, cash flows and financial condition may be adversely affected. While we follow a disciplined, ongoing succession planning process and have succession plans in place for senior management and other key associates, these do not guarantee that the services of qualified senior executives will continue to be available to us at particular moments in time.\n\n\nWe depend on a number of large customers for a significant portion of our net sales and, therefore, significant declines in the level of purchases by any of these key customers could harm our business.\n\n\nSome of our operating companies, particularly in the Consumer reportable segment, face a substantial amount of customer concentration. Our key customers in the Consumer reportable segment include Ace Hardware, Amazon, Do It Best, The Home Depot, Inc., Lowe\u2019s, Menards, Orgill, True Value, W.W. Grainger, and Wal-Mart. Within our Consumer segment, sales to these customers accounted for approximately 67%, 64% and 65% of net sales for the fiscal years ended May 31, 2023, 2022 and 2021, respectively.  On a consolidated basis, sales to these customers across all of our reportable segments accounted for approximately 25%, 22% and 24% of our consolidated net sales for the fiscal years ended May 31, 2023, 2022 and 2021, respectively.  Sales to The Home Depot, Inc. represented less than 10% of our consolidated net sales for fiscal 2023, 2022, and 2021, and 23%, 25% and 26% of our Consumer segment net sales for fiscal 2023, 2022 and 2021, respectively.  If we were to lose one or more of our key customers, experience a delay or cancellation of a significant order, incur a significant decrease in the level of purchases from any of our key customers, or experience difficulty in collecting amounts due from a key customer, our net revenues could decline materially and our operating results could be reduced materially.\n\n\n14\n\n\n\n\n\u00a0\n\n\nIf our efforts in acquiring and integrating other companies or product lines or establishing joint ventures fail, our business may not grow.\n\n\nAs an important part of our growth strategy, we intend to continue pursuing acquisitions of complementary businesses or products and creating joint ventures. Our ability to continue to grow in this manner depends upon our ability to identify, negotiate and finance suitable acquisitions or joint venture arrangements. Execution of our acquisition strategy with respect to some companies or product lines could fail or could result in unanticipated costs to us that were not apparent despite our due diligence efforts, either of which could hinder our growth or adversely impact our results of operations.  In addition, acquisitions and their subsequent integration involve a number of risks, including, but not limited to:\n\n\n\u2022\ninaccurate assessments of disclosed liabilities and the potentially adverse effects of undisclosed liabilities;\n\n\n\u2022\nunforeseen difficulties in assimilating acquired companies, their products, and their culture into our existing business;\n\n\n\u2022\nunforeseen delays in realizing the benefits from acquired companies or product lines, including projected efficiencies, cost savings, revenue synergies and profit margins;\n\n\n\u2022\nunforeseen diversion of our management\u2019s time and attention from other business matters;\n\n\n\u2022\nunforeseen difficulties resulting from insufficient prior experience in any new markets we may enter;\n\n\n\u2022\nunforeseen difficulties in retaining key associates and customers of acquired businesses;\n\n\n\u2022\nincreased risk to our cybersecurity landscape; and\n\n\n\u2022\nincreases in our indebtedness and contingent liabilities, which could in turn restrict our ability to raise additional capital when needed or to pursue other important elements of our business strategy.\n\n\nWe derive a significant amount of our revenues from foreign markets, which subjects us to additional business risks that could adversely affect our results of operations.\n\n\nOur foreign manufacturing operations accounted for approximately 28.5% of our net sales for the fiscal year ended May 31, 2023, not including exports directly from the United States which accounted for approximately 0.9% of our net sales for fiscal 2023. We plan to continue to grow our international operations and the growth and maintenance of such operations could be adversely affected by a public health crises, the Russian invasion of Ukraine, war, changes in social, political and economic conditions, inflation rates, trade protection measures, restrictions on foreign investments and repatriation of earnings, changing intellectual property rights, difficulties in staffing and managing foreign operations and changes in regulatory requirements that restrict the sales of our products or increase our costs. Our ability to effectively manage our foreign operations may pose significant risks that could adversely affect our results of operations, cash flow, liquidity or financial condition.\n \n\n\nData privacy, cybersecurity, and artificial intelligence considerations could impact our business.\n\n\nWe rely on information technology systems, including tools that utilize artificial intelligence, and applications to conduct our business, including recording and processing transactions, administering human resource activities and associate benefits, manufacturing, marketing, and selling our products, researching and developing new products, maintaining and growing our businesses, and supporting and communicating with our associates, customers, suppliers and other stakeholders. The importance of such systems has increased due to many of our associates working remotely. Some of these systems and applications are operated by third parties. Additionally, we, ourselves and through our third parties, collect and process personal, confidential, and sensitive data about our business, which may include information about our customers, associates, suppliers, distributors and others. Some of this data is stored, accessible or transferred internationally. If we do not allocate and effectively manage the resources necessary to build, sustain, and protect an appropriate information technology infrastructure, or we do not effectively implement system upgrades in a timely manner, our business or financial results could be negatively impacted.\n\n\nThe interpretation and application of cybersecurity, artificial intelligence, biometric, and privacy laws, rules and regulations around the world applicable to our business (collectively, the \u201cData Protection Laws\u201d) are uncertain and evolving. It is possible that the Data Protection Laws may be interpreted and applied in a manner that is inconsistent with our data practices.  Complying with these various laws is difficult and could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. In addition, many tools and resources we use integrate or will integrate some form of artificial intelligence which has the potential to result in bias, miscalculations, data errors, intellectual property infringement and unintended consequences. It is possible that the information technology tools we use may negatively affect our reputation, disrupt our operations, or have a material impact on our financial results.\n\n\nFurther, although we have implemented internal controls and procedures designed to manage compliance with the Data Protection Laws and protect our data, there can be no assurance that our controls will prevent a breach or that our procedures will enable us to be fully compliant with all Data Protection Laws. Cyber-attacks or breaches due to security vulnerabilities, associate error, supplier or third-party error, malfeasance or other disruptions may still occur. We have been and may in the future be subject to attempts to gain unauthorized access to our information technology systems and/or applications.\n\n\n15\n\n\n\n\n\u00a0\n\n\nWe have experienced data security incidents that have disrupted our operations, but which did not have a material impact on our financial results.\n \n\n\nThese risks may be increased as a result of an increase in remote work, a public health crisis similar to the Covid pandemic or foreign affairs such as the Russian invasion of Ukraine. In addition, it is not possible to predict the impact on our business of the future loss, alteration or misappropriation of information related to us, our associates, former associates, customers, suppliers or others. A violation of, or failure to comply with, the Data Protection Laws, a cyber-attack or a security breach of our systems could lead to negative publicity, legal claims, extortion, ransom, theft, modification or destruction of proprietary information or key information, damage to or inaccessibility of critical systems, manufacture of defective products, production downtimes, operational disruptions, data breach claims, privacy violations and other significant costs, which could adversely affect our reputation, financial condition and results of operations.\n\n\nOur business and financial condition could be adversely affected if we are unable to protect our material trademarks and other proprietary information or there is a loss in the actual or perceived value of our brands.\n\n\nWe have numerous valuable patents, trade secrets and know-how, domain names, trademarks and trade names, including certain marks that are significant to our business, which are identified under Item 1 of this Annual Report on Form 10-K. Despite our efforts to protect our trademarks, trade secrets and other proprietary rights from unauthorized use or disclosure, other parties may attempt to disclose or use them without our authorization; such unauthorized use or disclosure could negatively impact our business and financial condition.\n\n\nSimilarly, the reputations of our branded products depend on numerous factors, including the successful advertising and marketing of our brand names, consumer acceptance, continued trademark validity, the availability of similar products from our competitors, and our ability to maintain product quality, technological advantages and claims of superior performance. Furthermore, the prevalence of social media increases our risk of receiving negative commentary that could damage the perception of our brands. A loss of a brand or in the actual or perceived value of our brands could limit or reduce the demand for our products and could negatively impact our business and financial condition.\n\n\nAlthough we have insurance, it may not cover every potential risk associated with our operations.\n\n\nAlthough we maintain insurance of various types to cover many of the risks and hazards that apply to our operations, our insurance may not cover every potential risk associated with our operations. The occurrence of a significant event, the risks of which are not fully covered by insurance, could have a material adverse effect on our financial condition and results of operations. Moreover, no assurance can be given that we will be able to maintain adequate insurance in the future at rates and with terms and conditions we consider reasonable.\n\n\nIf our efforts to achieve stated sustainability goals, targets or objectives fail, our business and reputation may be adversely affected.\n\n\nWe might fail to effectively address increased attention or expectations from the media, stockholders, activists and other stakeholders on climate change and related environmental sustainability matters. Such failure, or the perception that we have failed to act responsibly with respect to such matters or to effectively respond to new or additional regulatory requirements regarding climate change, whether or not valid, could result in adverse publicity and negatively affect our business and reputation. In addition, we have established and publicly announced goals to reduce our impact on the environment and, in the future may establish and publicly announce other goals or commitments associated with our sustainability initiatives. Our ability to achieve any stated goal, target or objective is subject to numerous factors and conditions, many of which are outside of our control, including evolving regulatory requirements. Furthermore, standards for tracking and reporting such matters continue to evolve. Our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and standards, may change from time to time or differ from those of others. Methodologies for reporting this data may be updated and previously reported data may be adjusted to reflect improvement in availability and quality of data, changing assumptions, changes in the nature and scope of our operations and other changes in circumstances, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in the future. If we fail to achieve, are perceived to have failed, or are delayed in achieving these goals and commitments, it could negatively affect investor confidence in us, as well as expose us to government enforcement actions and private litigation.\n\n\n16\n\n\n\n\n\u00a0\n\n\nLEGAL AND REGULATORY RISKS\n\n\nThe industries in which we operate expose us to inherent risks of legal and warranty claims and other litigation-related costs, which could adversely impact our business.\n\n\nWe face an inherent risk of legal claims if the exposure to, or the failure, use, or misuse of our products results, or is alleged to result, in bodily injury and/or property damage. In the course of our business, we are subject to a variety of inquiries and investigations by regulators, as well as claims and lawsuits by private parties, including those related to product liability, product claims regarding asbestos or other chemicals or materials in our products, warranties, the environment, employment matters, contracts, service contracts, intellectual property and commercial matters, which due to their uncertain nature may result in losses, some of which may be material.  We are defending claims and class action lawsuits, and could be subject to future claims and lawsuits, in which significant financial damages are alleged.  These matters could consume material financial resources to defend and be a distraction to management.  Some, but not all, of such matters are insured.  We offer warranties on many of our products, as well as long term warranty programs at certain of our businesses and, as a result, from time to time we may experience higher levels of warranty expense, which is typically reflected in selling, general and administrative expenses. The nature and extent to which we use hazardous or flammable materials in our manufacturing processes creates risk of damage to persons and property that, if realized, could be material.\n\n\nCompliance with environmental, health and safety laws and regulations could subject us to unforeseen future expenditures or liabilities, which could have a material adverse effect on our business.\n\n\nWe are subject to numerous, complicated and often increasingly stringent environmental, health and safety laws and regulations, including those developed in response to climate change, in the jurisdictions where we conduct business and sell our products. Governmental and regulatory authorities impose various laws and regulations on us that relate to environmental protection, the use, sale, transportation, import and export of certain chemicals or hazardous materials, and various health and safety matters, including the discharge of pollutants into the air and water, the handling, use, treatment, storage and clean-up of solid and hazardous wastes, the use of certain chemicals in product formulations, and the investigation and remediation of soil and groundwater affected by hazardous substances and those related to climate change. These laws and regulations include the Clean Air Act, the Clean Water Act, RCRA, CERCLA, TSCA, DSL, REACH and many other federal, state, provincial, local and international statutes. These laws and regulations often impose strict, retroactive and joint and several liability for the costs of, and damages resulting from, not addressing our, or our predecessors\u2019 past or present facilities and third-party disposal sites. We are currently undertaking remedial activities at a number of our properties and could be subject to future liability as yet unknown, but that could be material.\n \n\n\nWe have not always been and may not always be in full compliance with all environmental, health and safety laws and regulations in every jurisdiction in which we conduct our business. In addition, if we violate or fail to comply with environmental, health and safety laws (including related to permitting), we could be fined or otherwise sanctioned by regulators, including enjoining or curtailing operations or sales, remedial or corrective measures, installing pollution control equipment, or other actions. We have been and also could in the future be liable for consequences arising out of human exposure to hazardous substances or chemicals of concern relating to our products or operations. Accordingly, we cannot guarantee that we will not be required to make additional expenditures to remain in or to achieve compliance with environmental, health or safety laws or changes in stakeholder preferences or expectations in the future or that any such additional expenditures will not have a material adverse effect on our business, financial condition, results of operations or cash flows. If regulatory permits or registrations are delayed, restricted, or rejected, subsequent operations at our businesses could be delayed or restricted, which could have an adverse effect on our results of operations.\n\n\nOur businesses are subject to varying domestic and foreign laws and regulations that may restrict or adversely impact our ability to conduct our business.\n\n\nOur businesses are subject to varying domestic and foreign laws and regulations that may restrict or adversely impact our ability to conduct our business.  These include securities, environmental, health, safety, tax, competition and anti-trust, insurance, service contract and warranty, trade controls, data security, anti-corruption, anti-money laundering, wage and hour employment and privacy laws and regulations.  These laws and regulations change from time to time and thus may result in increased risk and costs to us related to our compliance therewith.  From time-to-time regulators review our compliance with applicable laws. We have not always been, and may not always be, in full compliance with all laws and regulations applicable to our business and, thus enforcement actions, fines and private litigation claims and damages, which could be material, may occur, notwithstanding our belief that we have in place appropriate risk management and compliance programs to mitigate these risks.\n\n\n17\n\n\n\n\n\u00a0\n\n\nWe could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws of other countries, as well as trade sanctions administered by the office of Foreign Assets Control and the Department of Commerce.\n\n\nThe U.S. Foreign Corrupt Practices Act and similar anti-bribery laws of other countries generally prohibit companies and their intermediaries from making improper payments to governmental officials or others for the purpose of obtaining or retaining business or for other unfair advantage. Our policies mandate compliance with anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices.\n \n\n\nWe are required to comply with U.S. regulations on trade sanctions and embargoes administered by the U.S. Department of the Treasury, Office of Foreign Assets Control, the Commerce Department and similar multi-national bodies and governmental agencies worldwide, which are complex and often changing.  A violation thereof could subject us to regulatory enforcement actions, including a loss of export privileges and significant civil and criminal penalties and fines.\n\n\nAlthough we have internal controls and procedures designed to ensure compliance with these laws, there can be no assurance that our controls and procedures will prevent a violation of these laws.  Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations, financial condition, and cash flows.\n\n\n We could be adversely affected by or incur liability for the actions or inaction of our third parties.\n\n\nWe vet and monitor our business partners and companies that we engage in an effort to ensure that the business practices of those third parties are in compliance with applicable laws and regulations and industry best practices, including applying appropriate technical security measures, safeguarding human rights and preventing illegal trade.  In the event one of our third parties experiences a data breach, is found to have violated applicable laws or regulations, or the business practices of the third party come under public scrutiny, we could be subject to legal claims, fines and reputational damage related to the third-party relationship.  In the event any third-party legal violation or business practice requires us to severe the third-party relationship, we could also experience an impact on our services, operations or our ability to obtain raw materials for our products.\n\n\nOur operations are subject to the effect of global tax law changes, some of which have been, and may be in the future, retroactive in application.\n\n\nOur operations are subject to various federal, state, local and foreign tax laws and regulations which govern, among other things, taxes on worldwide income. Any potential tax law changes may, for example, increase applicable tax rates, have retroactive application, or impose stricter compliance requirements in the jurisdictions in which we operate, which could reduce our consolidated net earnings.\n\n\nIn response to, for instance, an economic crisis or recession, governments may revise tax laws, regulations or official interpretations in ways that could have a significant impact on us, including modifications that could, for example, reduce the profits that we can effectively realize from our non-U.S. operations, or that could require costly changes to those operations, or the way in which they are structured. If changes in tax laws, regulations or interpretations were to significantly increase the tax rates on non-U.S. income, our effective tax rate could increase, our profits could be reduced, and if such increases were a result of our status as a U.S. company, could place us at a disadvantage to our non-U.S. competitors if those competitors remain subject to lower local tax rates.\n\n\nWe could be adversely affected by failure to comply with federal, state and local government procurement regulations and requirements.\n\n\nWe have contracts with and supply product to federal, state and local governmental entities and their contractors, and are required to comply with specific procurement regulations and other requirements relating to those contracts and sales.  Requirements in our contracts and those requirements flowed down to us in our capacity as a subcontractor or supplier, although customary in government contracts, may impact our performance and compliance costs.  Failure to comply with these regulations and requirements or to make required disclosures under contract could result in reductions of the value of contracts, contract modifications or termination for cause, adverse past performance ratings, actions under a federal or state false claims statutes, suspension or debarment from government contracting or subcontracting for a period of time and the assessment of penalties and fines, any of which could negatively impact our results of operations and financial condition and could have a negative impact on our reputation and ability to procure other government contracts in the future.\n\n",
+  "item7": ">Item 7. \nManagement\u2019s Discussion and Analysis of\n Financial Condition and Results of Operations\n.\n\n\nMANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF\n FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\n\nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\n\n\nOur financial statements include all of our majority-owned and controlled subsidiaries. Investments in less-than-majority-owned joint ventures over which we have the ability to exercise significant influence are accounted for under the equity method. Preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of our assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We continually evaluate these estimates, including those related to our allowances for doubtful accounts; reserves for excess and obsolete inventories; allowances for recoverable sales and/or value-added taxes; uncertain tax positions; useful lives of property, plant and equipment; goodwill and other intangible assets; environmental, warranties and other contingent liabilities; income tax valuation allowances; pension plans; and the fair value of financial instruments. We base our estimates on historical experience, our most recent facts and other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of our assets and liabilities. Actual results, which are shaped by actual market conditions, may differ materially from our estimates.\n\n\nWe have identified below the accounting policies and estimates that are the most critical to our financial statements.\n\n\nGoodwill\n\n\nWe test our goodwill balances at least annually, or more frequently as impairment indicators arise, at the reporting unit level. Our annual impairment assessment date has been designated as the first day of our fourth fiscal quarter.  Our reporting units have been identified at the component level, which is one level below our operating segments.\n\n\nWe follow the Financial Accounting Standards Board (\u201cFASB\u201d) guidance found in ASC 350 that simplifies how an entity tests goodwill for impairment. It provides an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, and whether it is necessary to perform a quantitative goodwill impairment test.\n\n\nWe assess qualitative factors in each of our reporting units that carry goodwill. Among other relevant events and circumstances that affect the fair value of our reporting units, we assess individual factors such as:\n\n\n\u2022\na significant adverse change in legal factors or the business climate;\n\n\n\u2022\nan adverse action or assessment by a regulator;\n\n\n\u2022\nunanticipated competition;\n\n\n\u2022\na loss of key personnel; and\n\n\n\u2022\na more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of.\n\n\nWe assess these qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. The quantitative process is required only if we conclude that it is more likely than not that a reporting unit\u2019s fair value is less than its carrying amount. However, we have an unconditional option to bypass a qualitative assessment and proceed directly to performing the quantitative analysis. We applied the quantitative process during our annual goodwill impairment assessments performed during the fourth quarters of fiscal 2023, 2022 and 2021.\n\n\nIn applying the quantitative test, we compare the fair value of a reporting unit to its carrying value. If the calculated fair value is less than the current carrying value, then impairment of the reporting unit exists. Calculating the fair value of a reporting unit requires our use of estimates and assumptions. We use significant judgment in determining the most appropriate method to establish the fair value of a reporting unit. We estimate the fair value of a reporting unit by employing various valuation techniques, depending on the availability and reliability of comparable market value indicators, and employ methods and assumptions that include the application of third-party market value indicators and the computation of discounted future cash flows determined from estimated cashflow adjustments to a reporting unit\u2019s annual projected earnings before interest, taxes, depreciation and amortization (\u201cEBITDA\u201d), or adjusted EBITDA, which adjusts for one-off items impacting revenues and/or expenses that are not considered by management to be indicative of ongoing operations.  Our fair value estimations may include a combination of value indications from both the market and income approaches, as the income approach considers the future cash flows from a reporting unit\u2019s ongoing operations as a going concern, while the market approach considers the current financial environment in establishing fair value.\n\n\nIn applying the market approach, we use market multiples derived from a set of similar companies. In applying the income approach, we evaluate discounted future cash flows determined from estimated cashflow adjustments to a reporting unit\u2019s projected EBITDA. Under this approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. In applying the discounted cash flow methodology utilized in the income approach, we rely on a number of factors, including future business plans, actual and forecasted operating results, and market data. The significant assumptions employed under this method include discount rates; revenue growth rates, including assumed terminal growth rates; and operating margins used to project future cash flows for a reporting unit. The discount rates utilized reflect market-based estimates of capital costs and discount rates adjusted for management\u2019s\n \n\n\n22\n\n\n\n\n\u00a0\n\n\nassessment of a market participant\u2019s view with respect to other risks associated with the projected cash flows of the individual reporting unit.  Our estimates are based upon assumptions we believe to be reasonable, but which by nature are uncertain and unpredictable.\n\n\nConclusion on Annual Goodwill Impairment Tests\n\n\nAs a result of the annual impairment assessments performed for fiscal 2023, 2022 and 2021, there were no goodwill impairments.\n\n\nImpairment Charge Recorded in the Third Quarter of Fiscal 2023\n\n\nAlthough no impairment charge was recorded during these periods related to the annual impairment test, we did record a goodwill impairment charge in fiscal 2023. As previously reported, we announced our MAP 2025 operational improvement initiative in August 2022. Due to the challenged macroeconomic environment we evaluated certain business restructuring actions, specifically our go to market strategy for operating in Europe. During the third quarter ended February 28, 2023, due to declining profitability and regulatory headwinds, management decided to restructure the USL reporting unit within our PCG segment and is correspondingly exploring strategic alternatives for our infrastructure services business within the U.K., which represents approximately 30%\n \nof annual revenues of the reporting unit.\n\n\nDue to this decision, we determined that an interim goodwill impairment assessment was required, as well as an impairment assessment for our other long-lived assets. Accordingly, we recorded an impairment loss totaling $36.7 million for the impairment of goodwill in our USL reporting unit during fiscal 2023. Refer to Note C, \u201cGoodwill and Other Intangible Assets,\u201d to the Consolidated Financial Statements for additional details on this goodwill impairment charge.\n\n\nChanges in the Composition of Reporting Units in the Fourth Quarter of Fiscal 2023\n\n\nSubsequent to our annual impairment assessment, in the fourth quarter of fiscal 2023 and in connection with our MAP 2025 initiative, the Viapol business within our CPG segment was realigned from our Sealants reporting unit to our Euclid reporting unit. We performed an interim goodwill impairment assessment for both of the impacted reporting units using a quantitative assessment. Based on this assessment, we concluded that the estimated fair values exceeded the carrying values for these reporting units, and accordingly, no goodwill impairment was identified as a result of this realignment.\n\n\nOther Long-Lived Assets\n\n\nWe assess identifiable, amortizable intangibles and other long-lived assets for impairment whenever events or changes in facts and circumstances indicate the possibility that the carrying values of these assets may not be recoverable over their estimated remaining useful lives. Factors considered important in our assessment, which might trigger an impairment evaluation, include the following:\n\n\n\u2022\nsignificant under-performance relative to historical or projected future operating results;\n\n\n\u2022\nsignificant changes in the manner of our use of the acquired assets;\n\n\n\u2022\nsignificant changes in the strategy for our overall business; and\n\n\n\u2022\nsignificant negative industry or economic trends.\n\n\nMeasuring a potential impairment of amortizable intangibles and other long-lived assets requires the use of various estimates and assumptions, including the determination of which cash flows are directly related to the assets being evaluated, the respective useful lives over which those cash flows will occur and potential residual values, if any. If we determine that the carrying values of these assets may not be recoverable based upon the existence of one or more of the above-described indicators or other factors, any impairment amounts would be measured based on the projected net cash flows expected from these assets, including any net cash flows related to eventual disposition activities. The determination of any impairment losses would be based on the best information available, including internal estimates of discounted cash flows; market participant assumptions; quoted market prices, when available; and independent appraisals, as appropriate, to determine fair values. Cash flow estimates would be based on our historical experience and our internal business plans, with appropriate discount rates applied.\n \n\n\nAdditionally, we test all indefinite-lived intangible assets for impairment at least annually during our fiscal fourth quarter.  We follow the guidance provided by ASC 350 that simplifies how an entity tests indefinite-lived intangible assets for impairment.  It provides an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount before applying traditional quantitative tests.  We applied quantitative processes during our annual indefinite-lived intangible asset impairment assessments performed during the fourth quarters of fiscal 2023, 2022 and 2021.\n\n\nThe annual impairment assessment involves estimating the fair value of each indefinite-lived asset and comparing it with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, we record an impairment loss equal to the difference. Calculating the fair value of the indefinite-lived assets requires our significant use of estimates and assumptions. We estimate the fair values of our intangible assets by applying a relief-from-royalty calculation, which includes discounted future cash flows related to each of our intangible asset\u2019s projected revenues. In applying this methodology, we rely on a number of factors, including actual and forecasted revenues and market data.\n \n\n\n23\n\n\n\n\n\u00a0\n\n\nOur annual impairment test of our indefinite-lived intangible assets performed during fiscal 2023, 2022 and 2021 did not result in an impairment charge.\n\n\nAlthough no impairment losses were recorded during these periods related to the annual impairment test, we did record an intangible asset impairment charge in fiscal 2023. In connection with MAP 2025 and related to the goodwill impairment charge noted above, we determined that an interim impairment assessment for our other long-lived assets was required following management's decision to restructure the USL reporting unit within our PCG segment. Accordingly, we recorded an impairment loss totaling $2.5 million for the impairment of an indefinite-lived tradename in our USL reporting unit during fiscal 2023. We did not record any impairments for our definite-lived long-lived assets as a result of this assessment. Refer to Note C, \"Goodwill and Other Intangible Assets,\" to the Consolidated Financial Statements for further discussion.\n\n\nIncome Taxes\n\n\nOur provision for income taxes is calculated using the asset and liability method, which requires the recognition of deferred income taxes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain changes in valuation allowances. We provide valuation allowances against deferred tax assets if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.\n\n\nIn determining the adequacy of valuation allowances, we consider cumulative and anticipated amounts of domestic and international earnings or losses of the appropriate character, anticipated amounts of foreign source income, as well as the anticipated taxable income resulting from the reversal of future taxable temporary differences. We intend to maintain any recorded valuation allowances until sufficient positive evidence (for example, cumulative positive foreign earnings or capital gain income) exists to support a reversal of the tax valuation allowances.\n\n\nFurther, at each interim reporting period, we estimate an effective income tax rate that is expected to be applicable for the full year. Significant judgment is involved regarding the application of global income tax laws and regulations and when projecting the jurisdictional mix of income. Additionally, interpretation of tax laws, court decisions or other guidance provided by taxing authorities influences our estimate of the effective income tax rates. As a result, our actual effective income tax rates and related income tax liabilities may differ materially from our estimated effective tax rates and related income tax liabilities. Any resulting differences are recorded in the period they become known.\n\n\nAdditionally, our operations are subject to various federal, state, local and foreign tax laws and regulations that govern, among other things, taxes on worldwide income. The calculation of our income tax expense is based on the best information available, including the application of currently enacted income tax laws and regulations, and involves our significant judgment. The actual income tax liability for each jurisdiction in any year can ultimately be determined, in some instances, several years after the financial statements have been published.\n\n\nWe also maintain accruals for estimated income tax exposures for many different jurisdictions. Tax exposures are settled primarily through the resolution of audits within each tax jurisdiction or the closing of a statute of limitation. Tax exposures and actual income tax liabilities can also be affected by changes in applicable tax laws, retroactive tax law changes or other factors, which may cause us to believe revisions of past estimates are appropriate. Although we believe that appropriate liabilities have been recorded for our income tax expense and income tax exposures, actual results may differ materially from our estimates.\n\n\nContingencies\n\n\nWe are party to various claims and lawsuits arising in the normal course of business. Although we cannot precisely predict the amount of any liability that may ultimately arise with respect to any of these matters, we record provisions when we consider the liability probable and estimable. Our provisions are based on historical experience and legal advice, reviewed quarterly and adjusted according to developments.  In general, our accruals, including our accruals for environmental and warranty liabilities, discussed further below, represent the best estimate of a range of probable losses.  Estimating probable losses requires the analysis of multiple factors that often depend on judgments about potential actions by third parties, such as regulators, courts, and state and federal legislatures. Changes in the amounts of our loss provisions, which can be material, affect our Consolidated Statements of Income.  To the extent there is a reasonable possibility that potential losses could exceed the amounts already accrued, we believe that the amount of any such additional loss would be immaterial to our results of operations, liquidity and consolidated financial position.  We evaluate our accruals at the end of each quarter, or sometimes more frequently, based on available facts, and may revise our estimates in the future based on any new information that becomes available.\n\n\nOur environmental-related accruals are similarly established and/or adjusted as more information becomes available upon which costs can be reasonably estimated. Actual costs may vary from these estimates because of the inherent uncertainties involved, including the identification of new sites and the development of new information about contamination. Certain sites are still being investigated; therefore, we have been unable to fully evaluate the ultimate costs for those sites. As a result, accruals have not been estimated for certain of these sites and costs may ultimately exceed existing estimated accruals for other sites. We have received indemnities for potential environmental issues from purchasers of certain of our properties and businesses and from sellers of some of the properties or\n \n\n\n24\n\n\n\n\n\u00a0\n\n\nbusinesses we have acquired. If the indemnifying party fails to, or becomes unable to, fulfill its obligations under those agreements, we may incur environmental costs in addition to any amounts accrued, which may have a material adverse effect on our financial condition, results of operations or cash flows.\n\n\nWe offer warranties on many of our products, as well as long-term warranty programs at certain of our businesses, and thus have established corresponding warranty liabilities. Warranty expense is impacted by variations in local construction practices, installation conditions, and geographic and climate differences.  Although we believe that appropriate liabilities have been recorded for our warranty expense, actual results may differ materially from our estimates.\n\n\nPension and Postretirement Plans\n\n\nWe sponsor qualified defined benefit pension plans and various other nonqualified postretirement plans. The qualified defined benefit pension plans are funded with trust assets invested in a diversified portfolio of debt and equity securities and other investments. Among other factors, changes in interest rates, investment returns and the market value of plan assets can (i) affect the level of plan funding, (ii) cause volatility in the net periodic pension cost and (iii) increase our future contribution requirements. A significant decrease in investment returns or the market value of plan assets or a significant change in interest rates could increase our net periodic pension costs and adversely affect our results of operations. A significant increase in our contribution requirements with respect to our qualified defined benefit pension plans could have an adverse impact on our cash flow.\n\n\nChanges in our key plan assumptions would impact net periodic benefit expense and the projected benefit obligation for our defined benefit and various postretirement benefit plans. Based upon May 31, 2023 information, the following tables reflect the impact of a 1% change in the key assumptions applied to our defined benefit pension plans in the United States and internationally:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nU.S.\n\n\n\u00a0\n\n\n\u00a0\n\n\nInternational\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n1% Increase\n\n\n\u00a0\n\n\n\u00a0\n\n\n1% Decrease\n\n\n\u00a0\n\n\n\u00a0\n\n\n1% Increase\n\n\n\u00a0\n\n\n\u00a0\n\n\n1% Decrease\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDiscount Rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(Decrease) increase in expense in FY 2023\n\n\n\u00a0\n\n\n$\n\n\n(5.2\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n6.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(0.7\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n1.3\n\n\n\u00a0\n\n\n\n\n\n\n(Decrease) increase in obligation as of May 31, 2023\n\n\n\u00a0\n\n\n$\n\n\n(51.0\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n59.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(18.1\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n22.5\n\n\n\u00a0\n\n\n\n\n\n\nExpected Return on Plan Assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(Decrease) increase in expense in FY 2023\n\n\n\u00a0\n\n\n$\n\n\n(5.9\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n5.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(1.8\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n1.8\n\n\n\u00a0\n\n\n\n\n\n\n(Decrease) increase in obligation as of May 31, 2023\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\n\n\n\nCompensation Increase\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncrease (decrease) in expense in FY 2023\n\n\n\u00a0\n\n\n$\n\n\n6.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(5.3\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n0.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(0.8\n\n\n)\n\n\n\n\n\n\nIncrease (decrease) in obligation as of May 31, 2023\n\n\n\u00a0\n\n\n$\n\n\n22.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(20.6\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n5.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(4.5\n\n\n)\n\n\n\n\n\n\nBased upon May 31, 2023 information, the following table reflects the impact of a 1% change in the key assumptions applied to our various postretirement health care plans:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nU.S.\n\n\n\u00a0\n\n\n\u00a0\n\n\nInternational\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n1% Increase\n\n\n\u00a0\n\n\n\u00a0\n\n\n1% Decrease\n\n\n\u00a0\n\n\n\u00a0\n\n\n1% Increase\n\n\n\u00a0\n\n\n\u00a0\n\n\n1% Decrease\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDiscount Rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(Decrease) increase in expense in FY 2023\n\n\n\u00a0\n\n\n$\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(0.7\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n0.6\n\n\n\u00a0\n\n\n\n\n\n\n(Decrease) increase in obligation as of May 31, 2023\n\n\n\u00a0\n\n\n$\n\n\n(0.1\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n0.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(4.4\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n5.7\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n25\n\n\n\n\n\u00a0\n\n\nBUSINESS SEGMENT INFORMATION\n\n\nWe operate a portfolio of businesses and product lines that manufacture and sell a variety of specialty paints, protective coatings, roofing systems, flooring solutions, sealants, cleaners and adhesives. We manage our portfolio by organizing our businesses and product lines into four reportable segments as outlined below, which also represent our operating segments. Within each operating segment, we manage product lines and businesses which generally address common markets, share similar economic characteristics, utilize similar technologies and can share manufacturing or distribution capabilities. Our four operating segments represent components of our business for which separate financial information is available that is utilized on a regular basis by our chief operating decision maker in determining how to allocate the assets of the company and evaluate performance. These four operating segments are each managed by an operating segment manager, who is responsible for the day-to-day operating decisions and performance evaluation of the operating segment\u2019s underlying businesses. We evaluate the profit performance of our segments primarily based on income before income taxes, but also look to earnings (loss) before interest and taxes (\u201cEBIT\u201d), and/or adjusted EBIT, which adjusts for one-off items impacting revenues and/or expenses that are not considered by management to be indicative of ongoing operations, as a performance evaluation measure because interest income (expense), net is essentially related to corporate functions, as opposed to segment operations.\n \n\n\nOur CPG reportable segment products and services are sold throughout North America and also account for the majority of our international sales. Our construction product lines are sold directly to manufacturers, contractors, distributors and end-users, including industrial manufacturing facilities, concrete and cement producers, public institutions and other commercial customers. Products and services within this reportable segment include construction sealants and adhesives, coatings and associated chemicals, roofing systems, concrete admixture and repair products, building envelope solutions, insulated cladding and concrete forms, flooring systems, and weatherproofing solutions.\n \n\n\nOur PCG reportable segment products and services are sold throughout North America, as well as internationally, and are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. Products and services within this reportable segment include high-performance flooring solutions, corrosion control and fireproofing coatings, infrastructure repair systems, fiberglass reinforced plastic gratings and drainage systems.\n \n\n\nOur Consumer reportable segment manufactures and markets professional use and DIY products for a variety of mainly residential applications, including home improvement and personal leisure activities. Our Consumer reportable segment\u2019s major manufacturing and distribution operations are located primarily in North America, along with a few locations in Europe, Australia and South America. Our Consumer reportable segment products are primarily sold directly to mass merchandisers, home improvement centers, hardware stores, paint stores, craft shops and to other customers through distributors. The Consumer reportable segment offers products that include specialty, hobby and professional paints; caulks; adhesives; cleaners, sandpaper and other abrasives; silicone sealants and wood stains.\n\n\nOur SPG reportable segment products are sold throughout North America and internationally, primarily in Europe. Our SPG product lines are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. The SPG reportable segment offers products that include industrial cleaners, restoration services equipment, colorants, nail enamels, exterior finishes, edible coatings and specialty glazes for pharmaceutical and food industries, and other specialty OEM coatings.\n\n\nIn addition to our four reportable segments, there is a category of certain business activities and expenses, referred to as corporate/other, that does not constitute an operating segment. This category includes our corporate headquarters and related administrative expenses, results of our captive insurance companies, gains or losses on the sales of certain assets and other expenses not directly associated with any reportable segment. Assets related to the corporate/other category consist primarily of investments, prepaid expenses and headquarters\u2019 property and equipment. These corporate and other assets and expenses reconcile reportable segment data to total consolidated income before income taxes and identifiable assets.\n\n\nWe reflect income from our joint ventures on the equity method and receive royalties from our licensees.\n\n\nThe following table reflects the results of our reportable segments consistent with our management philosophy, and represents the information we utilize, in conjunction with various strategic, operational and other financial performance criteria, in evaluating the performance of our portfolio of product lines.\n\n\n26\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSEGMENT INFORMATION\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended May 31,\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nNet Sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCPG Segment\n\n\n\u00a0\n\n\n$\n\n\n2,608,872\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,486,486\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,076,565\n\n\n\u00a0\n\n\n\n\n\n\nPCG Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,333,567\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,188,379\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,028,456\n\n\n\u00a0\n\n\n\n\n\n\nConsumer Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,514,770\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,242,047\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,295,277\n\n\n\u00a0\n\n\n\n\n\n\nSPG Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n799,205\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n790,816\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n705,990\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n7,256,414\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,707,728\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,106,288\n\n\n\u00a0\n\n\n\n\n\n\nIncome Before Income Taxes (a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCPG Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome Before Income Taxes (a)\n\n\n\u00a0\n\n\n$\n\n\n309,683\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n396,509\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n291,773\n\n\n\u00a0\n\n\n\n\n\n\nInterest (Expense), Net (b)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,416\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,673\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,030\n\n\n)\n\n\n\n\n\n\nEBIT (c)\n\n\n\u00a0\n\n\n$\n\n\n318,099\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n403,182\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n299,803\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPCG Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome Before Income Taxes (a)\n\n\n\u00a0\n\n\n$\n\n\n133,757\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n139,068\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n90,687\n\n\n\u00a0\n\n\n\n\n\n\nInterest Income, Net (b)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,466\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n575\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n128\n\n\n\u00a0\n\n\n\n\n\n\nEBIT (c)\n\n\n\u00a0\n\n\n$\n\n\n132,291\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n138,493\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n90,559\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nConsumer Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome Before Income Taxes (a)\n\n\n\u00a0\n\n\n$\n\n\n378,157\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n175,084\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n354,789\n\n\n\u00a0\n\n\n\n\n\n\nInterest (Expense) Income, Net (b)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,372\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n266\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(242\n\n\n)\n\n\n\n\n\n\nEBIT (c)\n\n\n\u00a0\n\n\n$\n\n\n381,529\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n174,818\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n355,031\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSPG Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome Before Income Taxes (a)\n\n\n\u00a0\n\n\n$\n\n\n103,279\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n121,937\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n108,242\n\n\n\u00a0\n\n\n\n\n\n\nInterest Income (Expense), Net (b)\n\n\n\u00a0\n\n\n\u00a0\n\n\n68\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(86\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(284\n\n\n)\n\n\n\n\n\n\nEBIT (c)\n\n\n\u00a0\n\n\n$\n\n\n103,211\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n122,023\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n108,526\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCorporate/Other\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(Loss) Before Income Taxes (a)\n\n\n\u00a0\n\n\n$\n\n\n(275,494\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(225,799\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(177,053\n\n\n)\n\n\n\n\n\n\nInterest (Expense), Net (b)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(99,013\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(89,605\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(32,522\n\n\n)\n\n\n\n\n\n\nEBIT (c)\n\n\n\u00a0\n\n\n$\n\n\n(176,481\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(136,194\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(144,531\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nConsolidated\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet Income\n\n\n\u00a0\n\n\n$\n\n\n479,731\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n492,466\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n503,500\n\n\n\u00a0\n\n\n\n\n\n\nAdd: (Provision) for Income Taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(169,651\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(114,333\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(164,938\n\n\n)\n\n\n\n\n\n\nIncome Before Income Taxes (a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n649,382\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n606,799\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n668,438\n\n\n\u00a0\n\n\n\n\n\n\nInterest (Expense)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(119,015\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(87,928\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(85,400\n\n\n)\n\n\n\n\n\n\nInvestment Income (Expense), Net\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,748\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,595\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n44,450\n\n\n\u00a0\n\n\n\n\n\n\nEBIT (c)\n\n\n\u00a0\n\n\n$\n\n\n758,649\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n702,322\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n709,388\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(a)\nThe presentation includes a reconciliation of Income (Loss) Before Income Taxes, a measure defined by Generally Accepted Accounting Principles (\u201cGAAP\u201d) in the United States, to EBIT.\n\n\n(b)\nInterest income (expense), net includes the combination of interest (expense) and investment income (expense), net.\n\n\n(c)\nEBIT is a non-GAAP measure and is defined as earnings (loss) before interest and taxes.  We evaluate the profit performance of our segments based on income before income taxes, but also look to EBIT, or adjusted EBIT, as a performance evaluation measure because interest expense is essentially related to corporate functions, as opposed to segment operations.  We believe EBIT is useful to investors for this purpose as well, using EBIT as a metric in their investment decisions.  EBIT should not be considered an alternative to, or more meaningful than, income before income taxes as determined in accordance with GAAP, since EBIT omits the impact of interest in determining operating performance, which represent items necessary to our continued operations, given our level of indebtedness.  Nonetheless, EBIT is a key measure expected by and useful to our fixed income investors, rating agencies and the banking community, all of whom believe, and we concur, that this measure is critical to the capital markets' analysis of our segments' core operating performance.  We also evaluate EBIT because it is clear that movements in EBIT impact our ability to attract financing. Our underwriters and bankers consistently require inclusion of this measure in offering memoranda in conjunction with any debt underwriting or bank financing.  EBIT may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results.\n\n\n27\n\n\n\n\n\u00a0\n\n\nRESULTS OF OPERATIONS\n\n\nThe following discussion includes a comparison of Results of Operations and Liquidity and Capital Resources for the years ended May 31, 2023 and 2022. For comparisons of the years ended May 31, 2022 and 2021, see Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company\u2019s Annual Report on Form 10-K for the fiscal year ended May 31, 2022 as filed on July 25, 2022.\n\n\nNet Sales\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal year ended May 31,\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(In millions, except percentages)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\nGrowth\n\n\n\u00a0\n\n\nOrganic\nGrowth\n(1)\n\n\n\u00a0\n\n\nAcquisition & Divestiture\nImpact\n\n\n\u00a0\n\n\nForeign Currency\nExchange Impact\n\n\n\u00a0\n\n\n\n\n\n\nCPG Segment\n\n\n\u00a0\n\n\n$\n\n\n2,608.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,486.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.9\n\n\n%\n\n\n\u00a0\n\n\n6.8\n\n\n%\n\n\n\u00a0\n\n\n1.5\n\n\n%\n\n\n\u00a0\n\n\n-3.4\n\n\n%\n\n\n\n\n\n\nPCG Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,333.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,188.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.2\n\n\n%\n\n\n\u00a0\n\n\n15.5\n\n\n%\n\n\n\u00a0\n\n\n0.6\n\n\n%\n\n\n\u00a0\n\n\n-3.9\n\n\n%\n\n\n\n\n\n\nConsumer Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,514.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,242.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.2\n\n\n%\n\n\n\u00a0\n\n\n13.6\n\n\n%\n\n\n\u00a0\n\n\n0.4\n\n\n%\n\n\n\u00a0\n\n\n-1.8\n\n\n%\n\n\n\n\n\n\nSPG Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n799.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n790.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.1\n\n\n%\n\n\n\u00a0\n\n\n2.9\n\n\n%\n\n\n\u00a0\n\n\n-0.2\n\n\n%\n\n\n\u00a0\n\n\n-1.6\n\n\n%\n\n\n\n\n\n\nConsolidated\n\n\n\u00a0\n\n\n$\n\n\n7,256.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,707.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.2\n\n\n%\n\n\n\u00a0\n\n\n10.1\n\n\n%\n\n\n\u00a0\n\n\n0.8\n\n\n%\n\n\n\u00a0\n\n\n-2.7\n\n\n%\n\n\n\n\n\n\n(1) Organic growth includes the impact of price and volume.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOur CPG segment generated organic sales growth in the current year, driven by strength in restoration systems for roofing, facades and parking structures. Additionally, the segment's concrete admixtures and repair business benefited from market share gains and capital spending on infrastructure projects. Improved pricing in response to continued cost inflation also contributed to sales growth during the year. This growth was partially offset by deteriorating economic conditions and unfavorable foreign exchange translation in Europe, along with reduced demand for businesses that serve residential and certain commercial construction markets.\n\n\nOur PCG segment generated significant sales growth in nearly all the major business units in the segment when compared to the prior year. Performing particularly well were businesses that provide flooring systems, protective coatings, and fiberglass reinforced plastic grating, all of which were strategically well-positioned to benefit from growing vertical markets such as pharmaceuticals and industries reshoring their manufacturing, which includes semiconductor chip and electric vehicle assembly and battery manufacturing. This increase was also facilitated by strong demand in energy markets and price increases in response to continued cost inflation. Partially offsetting this growth was our bridgecare business, which suffered from economic decline and regulatory headwinds in Europe. Internationally, unfavorable foreign exchange translation was a headwind, but growth in emerging markets was strong in local currency.\n\n\nOur Consumer segment generated significant organic growth in comparison to the prior year due to improved raw material supply, particularly of alkyd-based resins secured through strategic investment in its supply chain, insourcing, and qualifying new suppliers. In addition, sales growth benefited from price increases to catch up with continued cost inflation and the prior year comparison when supply chain disruptions impacted raw material supply. This growth was partially offset by volume declines as retail customers were holding leaner inventories, consumer takeaway at retail declined and by unfavorable foreign exchange translation, particularly in Europe.\n\n\nOur SPG segment generated sales growth, particularly in those businesses serving the food coatings and additives market, as a result of strategically refocusing sales management and selling efforts. In addition, sales growth benefited from improved pricing in response to continued cost inflation. The segment's disaster restoration business also benefited from the response to Hurricane Ian and other inclement weather. This growth was offset by decreased demand at businesses serving OEM markets, many of which experienced customer destocking, and unfavorable foreign exchange translation. Additionally, the divestiture of our Guardian Protection Products, Inc. (\"Guardian\") business reduced sales versus the prior period.\n\n\nGross Profit Margin\n  Our consolidated gross profit margin of 37.9% of net sales for fiscal 2023 compares to a consolidated gross profit margin of 36.3% for the comparable period a year ago.  This gross profit margin increase of approximately 160 basis points (\"bps\") resulted primarily from higher selling prices catching up with continued cost inflation and savings from MAP initiatives, while the prior year's margin was reduced by inefficiencies from inconsistent raw material supply. Partially offsetting these improvements were continued inflation in raw materials and wages, along with reduced fixed-cost leverage due to lower overall demand and internal initiatives to normalize inventories.\n\n\nWe expect that headwinds related to wage inflation and reduced fixed-cost leverage due to lower overall demand will continue to be reflected in our results into early fiscal 2024. In addition, rising interest rates have negatively impacted construction activity, existing home sales, and overall economic activity, resulting in reduced customer demand which we expect to continue into the first quarter of fiscal 2024.\n\n\nSelling, General and Administrative (\u201cSG&A\u201d) Expenses  \nOur consolidated SG&A expense increased by approximately $167.8 million during fiscal 2023 versus fiscal 2022 and increased to 27.0% of net sales for fiscal 2023 from 26.7% of net sales for fiscal 2022. The restoration of travel expenses and advertising expenses, along with increases in variable costs associated with improved results, such as commission expense, were contributing factors. In addition, pay inflation, higher distribution costs, increased insurance costs, and a $27.0 million increase in professional fees associated with our MAP 2025 initiatives contributed to this increase, which was partially\n \n\n\n28\n\n\n\n\n\u00a0\n\n\noffset by the $20.0 million gain on business interruption insurance proceeds as described below in Note P, \"Contingencies and Other Accrued Losses,\" to the Consolidated Financial Statements. Additional SG&A expense incurred from companies recently acquired was approximately $14.4 million during fiscal 2023.\n\n\nOur CPG segment SG&A was approximately $41.2 million higher for fiscal 2023 versus fiscal 2022 and increased by 40 bps as a percentage of net sales. The increase in expense was mainly due to higher commission expense associated with higher sales, pay inflation, professional fees, distribution costs, as well as restoration of travel expenses compared to the prior year and investments in growth initiatives. Lastly, acquisitions generated additional SG&A expense of approximately $7.7 million.\n\n\nOur PCG segment SG&A was approximately $41.2 million higher for fiscal 2023 versus fiscal 2022 and increased slightly by 10 bps as a percentage of net sales.  The increase in expense as compared to the prior year period is mainly due to increased commissions, higher distribution costs, pay inflation, increased bad debt expense, along with restoration of travel expenses and investments in growth initiatives for diversification of its protective coatings business.\n\n\nOur Consumer segment SG&A increased by approximately $42.5 million during fiscal 2023 versus fiscal 2022 and decreased by 60 bps as a percentage of net sales.  The year-over-year increase in SG&A was attributable to increases in advertising and promotional expense, incentive-based compensation, increased distribution costs, pay inflation, and the restoration of travel expenses, partially offset by the $20.0 million gain on business interruption insurance included in SG&A as described below in Note P, \"Contingencies and Other Accrued Losses,\" to the Consolidated Financial Statements. Lastly, acquisitions contributed approximately $3.6 million of additional SG&A expense during the current period.\n \n\n\nOur SPG segment SG&A was approximately $18.7 million higher during fiscal 2023 versus fiscal 2022 and increased by 210 bps as a percentage of sales.  The increase in SG&A expense is attributable to pay inflation, along with the restoration of travel expenses and investments in growth initiatives across each of its business units.\n\n\nSG&A expenses in our corporate/other category of $168.0 million during fiscal 2023 increased by $24.2 million from $143.8 million recorded during fiscal 2022. The increase in SG&A was primarily attributable to a $24.5 million increase in professional fees related to MAP 2025 initiatives and increased insurance costs, partially offset by a decrease in stock compensation.\n\n\nThe following table summarizes the retirement-related benefit plans\u2019 impact on income before income taxes for the fiscal years ended May 31, 2023 and 2022, as the service cost component has a significant impact on our SG&A expense:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal year ended May 31,\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\n\n\n\nService cost\n\n\n\u00a0\n\n\n$\n\n\n49.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n54.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(5.2\n\n\n)\n\n\n\n\n\n\nInterest cost\n\n\n\u00a0\n\n\n\u00a0\n\n\n36.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.3\n\n\n\u00a0\n\n\n\n\n\n\nExpected return on plan assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n(44.7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(49.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.5\n\n\n\u00a0\n\n\n\n\n\n\nAmortization of:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPrior service (credit)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1\n\n\n\u00a0\n\n\n\n\n\n\nNet actuarial losses recognized\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.9\n\n\n\u00a0\n\n\n\n\n\n\nCurtailment/settlement losses\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1\n\n\n\u00a0\n\n\n\n\n\n\nTotal Net Periodic Pension & Postretirement Benefit Costs\n\n\n\u00a0\n\n\n$\n\n\n59.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n43.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n15.7\n\n\n\u00a0\n\n\n\n\n\n\nWe expect that pension and postretirement expense will fluctuate on a year-to-year basis, depending upon the investment performance of plan assets and potential changes in interest rates, both of which are difficult to predict in light of the lingering macroeconomic uncertainties associated with inflation, but which may have a material impact on our consolidated financial results in the future.  A decrease of 1% in the discount rate or the expected return on plan assets assumptions would result in $8.2 million and $7.7 million higher expense, respectively.  The assumptions and estimates used to determine the discount rate and expected return on plan assets are more fully described in Note N, \u201cPension Plans,\u201d and Note O, \u201cPostretirement Benefits,\u201d to our Consolidated Financial Statements. Further discussion and analysis of the sensitivity surrounding our most critical assumptions under our pension and postretirement plans is discussed above in \u201cCritical Accounting Policies and Estimates \u2014 Pension and Postretirement Plans.\u201d\n\n\nRestructuring Expense\n \n\n\nWe recorded $15.5 million of restructuring charges during fiscal 2023, of which $11.7 million related to our MAP 2025 initiative, which is a multi-year restructuring plan to build on the achievements of MAP to Growth and designed to improve margins by streamlining business processes, reducing working capital, implementing commercial initiatives to drive improved mix and salesforce effectiveness and improving operating efficiency. Initial phases of the plan have focused on commercial initiatives, operational efficiencies, and procurement. For fiscal 2023, we incurred $8.5 million related to severance and benefit costs and $0.7 million of facility closure costs associated with MAP 2025, and $2.5 million related to other restructuring costs associated with the impairment of an indefinite-lived tradename as described below in Note C, \"Goodwill and Other Intangible Assets,\" of the Consolidated Financial Statements. Most activities under MAP 2025 are anticipated to be completed by the end of fiscal year 2025.\n\n\nWe currently expect to incur approximately $11.0 million of future additional charges related to the implementation of MAP 2025.\n\n\n29\n\n\n\n\n\u00a0\n\n\nFor further information and details about MAP 2025, see Note B, \u201cRestructuring,\u201d to the Consolidated Financial Statements.\n \n\n\nInterest Expense\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal year ended May 31,\n\n\n\u00a0\n\n\n\n\n\n\n(In millions, except percentages)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n$\n\n\n119.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n87.9\n\n\n\u00a0\n\n\n\n\n\n\nAverage interest rate \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.08\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.16\n\n\n%\n\n\n\n\n\n\n(1) The interest rate increase was a result of higher market rates on the variable cost borrowings.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\nChange in interest\nexpense\n\n\n\u00a0\n\n\n\n\n\n\nAcquisition-related borrowings\n\n\n\u00a0\n\n\n$\n\n\n4.2\n\n\n\u00a0\n\n\n\n\n\n\nNon-acquisition-related average borrowings\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.5\n\n\n\u00a0\n\n\n\n\n\n\nChange in average interest rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.4\n\n\n\u00a0\n\n\n\n\n\n\nTotal Change in Interest Expense\n\n\n\u00a0\n\n\n$\n\n\n31.1\n\n\n\u00a0\n\n\n\n\n\n\nInvestment (Income) Expense, Net\n \n\n\nSee Note A(15), \"Summary of Significant Accounting Policies - Investment (Income) Expense, Net,\" to the Consolidated Financial Statements for details.\n\n\n(Gain) on Sales of Assets and Business, Net\n\n\nSee Note A(3), \"Summary of Significant Accounting Policies - Acquisitions/Divestitures,\" and Note M, \"Leases,\" to the Consolidated Financial Statements for details.\n\n\nOther Expense (Income), Net\n\n\nSee Note A(16), \"Summary of Significant Accounting Policies - Other Expense (Income), Net,\" to the Consolidated Financial Statements for details.\n\n\nIncome Before Income Taxes (\u201cIBT\u201d)\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal year ended May 31,\n\n\n\u00a0\n\n\n\n\n\n\n(In millions, except percentages)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n% of net\nsales\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n% of net\nsales\n\n\n\u00a0\n\n\n\n\n\n\nCPG Segment\n\n\n\u00a0\n\n\n$\n\n\n309.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.9\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n396.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.9\n\n\n%\n\n\n\n\n\n\nPCG Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n133.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n139.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.7\n\n\n%\n\n\n\n\n\n\nConsumer Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n378.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n175.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.8\n\n\n%\n\n\n\n\n\n\nSPG Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n103.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n121.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.4\n\n\n%\n\n\n\n\n\n\nNon-Op Segment\n\n\n\u00a0\n\n\n\u00a0\n\n\n(275.5\n\n\n)\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(225.8\n\n\n)\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nConsolidated\n\n\n\u00a0\n\n\n$\n\n\n649.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n606.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOn a consolidated basis, our increased earnings reflect our Consumer segment profitability approaching historical averages following supply chain disruptions in the prior year, which was partially offset by charges resulting from our MAP 2025 initiatives and the unfavorable impact of foreign exchange translation. Our CPG segment results reflect deteriorated macroeconomic conditions in Europe and reduced demand for businesses that serve residential and certain commercial construction markets. In addition, our prior year CPG segment results include a $41.9 million gain on the sale of certain real property assets. Our PCG segment results reflect the $39.2 million goodwill and intangible asset impairment charges, offset by improved pricing, volume growth and improved product mix, resulting from digital sales management tools. Our Consumer segment results reflect improved material supply which allowed for previously developed operating efficiencies to be realized, improved pricing to catch up with continued cost inflation and the $20.0 million gain on business interruption insurance. Our SPG segment results reflect decreased demand at businesses serving OEM markets, offset by improved pricing, increased operating efficiencies and the $24.7 million gain on the sale of its Guardian business.  Our Non-Op segment results reflect the unfavorable swing in pension non-service costs, along with increased interest expense and professional fees.\n \n\n\nIncome Tax Rate\n  The effective income tax rate was 26.1% for fiscal 2023 compared to an effective income tax rate of 18.8% for fiscal 2022.  Refer to Note H, \u201cIncome Taxes,\u201d to the Consolidated Financial Statements for the components of the effective income tax rates.\n\n\nNet Income\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal year ended May 31,\n\n\n\u00a0\n\n\n\n\n\n\n(In millions, except percentages and per share amounts)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n% of net\nsales\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n% of net\nsales\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n479.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.6\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n492.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.3\n\n\n%\n\n\n\n\n\n\nNet income attributable to RPM International Inc. stockholders\n\n\n\u00a0\n\n\n\u00a0\n\n\n478.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n491.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.3\n\n\n%\n\n\n\n\n\n\nDiluted earnings per share\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.72\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.79\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n30\n\n\n\n\n\u00a0\n\n\nLIQUIDITY AND CAPITAL RESOURCES\n\n\nOperating Activities\n\n\nApproximately $577.1 million of cash was provided by operating activities during fiscal 2023, compared with $178.7 million of cash provided by operating activities during fiscal 2022.  The net change in cash from operations includes the change in net income, which decreased by $12.7 million year over year.\n \n\n\nThe change in accounts receivable during fiscal 2023 provided approximately $92.7 million more cash than fiscal 2022. This resulted from the timing of sales in our CPG segment, which saw extraordinary growth at the end of fiscal 2022, resulting in strong collections in the current year. Average days sales outstanding (\u201cDSO\u201d) at May 31, 2023 increased to 66.9 days from 65.0 days at May 31, 2022.\n \n\n\nDuring fiscal 2023, the change in inventory used approximately $371.0 million less cash compared to our spending during fiscal 2022 as a result of our operating segments beginning to reduce inventory purchases and use safety stock built up in the prior year in response to supply chain outages and raw material inflation. Average days inventory outstanding (\u201cDIO\u201d) at May 31, 2023 increased to 106.0 days from 93.8 days at May 31, 2022.\n\n\nThe change in accounts payable during fiscal 2023 used approximately $217.3 million more cash than during fiscal 2022.  Accounts payable balances declined as raw material purchases declined due to supply chain improvement and internal initiatives to normalize inventory levels. Average days payables outstanding (\u201cDPO\u201d) decreased by approximately 3.0 days from 83.5 days at May 31, 2022 to 80.5 days at May 31, 2023.\n\n\nThe change in other accrued liabilities during fiscal 2023 used approximately $89.2 million less cash than during fiscal 2022 due principally to the increase in taxes payable.\n\n\nAdditionally, certain government entities located where we have operations enacted various pieces of legislation designed to help businesses weather the economic impact of Covid and ultimately preserve jobs.  Some of this legislation, such as the Coronavirus Aid, Relief, and Economic Relief Security Act in the United States, enabled employers to postpone the payment of various types of taxes over varying time horizons.  As of May 31, 2022, we had a total of $13.6 million accrued for such government payments which we paid during fiscal 2023. As of May 31, 2021, we had deferred $27.1 million of such government payments, $13.5 million of which we paid during fiscal 2022. During fiscal 2023, we did not defer any additional government payments that would have normally been paid during fiscal 2023.\n\n\nInvesting Activities\n\n\nFor fiscal 2023, cash used for investing activities decreased by $9.8 million to $249.7 million as compared to $259.5 million in the prior year period.  This year-over-year decrease in cash used for investing activities was mainly driven by a $79.9 million decrease in cash used for acquisitions. This was partially offset by decreases in proceeds from sales of assets and business, net, which provided $18.3 million less cash in fiscal 2023.\n\n\nIn addition to this, we utilized $32.0 million more cash in fiscal 2023 related to capital expenditures. Our capital expenditures facilitate our continued growth and our MAP 2025 initiatives, such as production and distribution efficiencies, introduction of new technology, and improvement of information systems. Additionally, these capital expenditures help facilitate expanding capacity, improving environmental health and safety capabilities, and enhancing our administration capabilities. We paid for capital expenditures of $254.4 million, $222.4 million, and $157.2 million during the periods ended May 31, 2023, 2022 and 2021, respectively.  We continued to increase our capital spending in fiscal 2023 in order to expand capacity to meet growing product demand and continue our growth initiatives.\n\n\nOur captive insurance companies invest their excess cash in marketable securities in the ordinary course of conducting their operations, and this activity will continue. Differences in the amounts related to these activities on a year-over-year basis are primarily attributable to the rebalancing of the portfolio, along with differences in the timing and performance of their investments balanced against amounts required to satisfy claims. At May 31, 2023 and 2022, the fair value of our investments in marketable securities totaled $148.3 million and $144.4 million, respectively.\n \n\n\nAs of May 31, 2023, approximately $196.8 million of our consolidated cash and cash equivalents were held at various foreign subsidiaries, compared with approximately $187.1 million as of May 31, 2022.  Undistributed earnings held at our foreign subsidiaries that are considered permanently reinvested will be used, for instance, to expand operations organically or for acquisitions in foreign jurisdictions.  Further, our operations in the United States generate sufficient cash flow to satisfy U.S. operating requirements.  Refer to Note H, \u201cIncome Taxes,\u201d to the Consolidated Financial Statements for additional information regarding unremitted foreign earnings.\n\n\nFinancing Activities\n\n\nFor fiscal 2023, cash used for financing activities increased by $358.6 million to $301.2 million as compared to $57.4 million provided by financing activities in the prior year period.  The overall increase in cash used for financing activities was driven principally by debt-related activities.  During fiscal 2023, we paid our $300 million 3.45% Notes due 2022. Refer to Note G, \u201cBorrowings,\u201d to the Consolidated Financial Statements for a discussion of significant debt-related activity that occurred in fiscal 2023 and 2022, significant components of our debt, and our available liquidity.\n \n\n\n31\n\n\n\n\n\u00a0\n\n\nThe following table summarizes our financial obligations and their expected maturities at May 31, 2023, and the effect such obligations are expected to have on our liquidity and cash flow in the periods indicated.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nContractual Obligations\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal Contractual\n\n\n\u00a0\n\n\n\u00a0\n\n\nPayments Due In\n\n\n\u00a0\n\n\n\n\n\n\n(In thousands)\n\n\n\u00a0\n\n\nPayment Stream\n\n\n\u00a0\n\n\n\u00a0\n\n\n2024\n\n\n\u00a0\n\n\n\u00a0\n\n\n2025-26\n\n\n\u00a0\n\n\n\u00a0\n\n\n2027-28\n\n\n\u00a0\n\n\n\u00a0\n\n\nAfter 2028\n\n\n\u00a0\n\n\n\n\n\n\nLong-term debt obligations\n\n\n\u00a0\n\n\n$\n\n\n2,689,138\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n175,422\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n250,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,013,716\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,250,000\n\n\n\u00a0\n\n\n\n\n\n\nFinance lease obligations\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,445\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,168\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,450\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n790\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n37\n\n\n\u00a0\n\n\n\n\n\n\nOperating lease obligations\n\n\n\u00a0\n\n\n\u00a0\n\n\n414,351\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71,801\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n112,786\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n80,991\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n148,773\n\n\n\u00a0\n\n\n\n\n\n\nOther long-term liabilities (1):\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInterest payments on long-term debt obligations\n\n\n\u00a0\n\n\n\u00a0\n\n\n943,759\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n84,033\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n156,226\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n121,550\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n581,950\n\n\n\u00a0\n\n\n\n\n\n\nContributions to pension and postretirement plans (2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n523,700\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,400\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,700\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n118,900\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n379,700\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n4,580,393\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n342,824\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n541,162\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,335,947\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,360,460\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nExcluded from other long-term liabilities are our gross long-term liabilities for unrecognized tax benefits, which totaled $5.4 million at May 31, 2023.  Currently, we cannot predict with reasonable reliability the timing of cash settlements to the respective taxing authorities related to these liabilities. \n\n\n(2)\nThese amounts represent our estimated cash contributions to be made in the periods indicated for our pension and postretirement plans, assuming no actuarial gains or losses, assumption changes or plan changes occur in any period.  The projection results assume the required minimum contribution will be contributed.  \n\n\nThe U.S. dollar fluctuated throughout the year and was stronger against other major currencies where we conduct operations at May 31, 2023 versus May 31, 2022, causing an unfavorable change in the accumulated other comprehensive income (loss) (refer to Note K, \u201cAccumulated Other Comprehensive Income (Loss),\u201d to the Consolidated Financial Statements) component of stockholders\u2019 equity of $69.9 million this year versus an unfavorable change of $95.1 million last year. The change in fiscal 2023 was in addition to favorable net changes of $4.6 million related to adjustments required for minimum pension and other postretirement liabilities, unfavorable changes of $1.8 million related to derivatives and unfavorable changes of $0.5 million related to unrealized losses on fixed income securities.\n\n\nStock Repurchase Program\n\n\nRefer to Note I, \u201cStock Repurchase Program,\u201d to the Consolidated Financial Statements for a discussion of our stock repurchase program.\n \n\n\nOff-Balance Sheet Arrangements\n\n\nWe do not have any off-balance sheet financings. We have no subsidiaries that are not included in our financial statements, nor do we have any interests in, or relationships with, any special-purpose entities that are not reflected in our financial statements.\n\n",
+  "item7a": ">Item 7A. \nQuantitative and Qualitat\nive Disclosures About Market Risk.\n\n\nQUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK\n\n\nWe are exposed to market risk from changes in interest rates and foreign currency exchange rates because we fund our operations through long- and short-term borrowings and denominate our business transactions in a variety of foreign currencies. We utilize a sensitivity analysis to measure the potential loss in earnings based on a hypothetical 1% increase in interest rates and a 10% change in foreign currency rates. A summary of our primary market risk exposures follows.\n\n\nInterest Rate Risk\n\n\nOur primary interest rate risk exposure results from our floating rate debt, including various revolving and other lines of credit (refer to Note G, \u201cBorrowings,\u201d to the Consolidated Financial Statements). If there was a 100-bps increase or decrease in interest rates it would have resulted in an increase or decrease in interest expense of $10.8 million and $4.4 million for fiscal 2023 and 2022, respectively. Our primary exposure to interest rate risk is movements in the Secured Overnight Financing Rate (SOFR) and European Short-Term Rate (ESTR).  At May 31, 2023, approximately 38.7% of our debt was subject to floating interest rates.\n\n\nForeign Currency Risk\n\n\nOur foreign sales and results of operations are subject to the impact of foreign currency fluctuations (refer to Note A(4), \u201cSummary of Significant Accounting Policies - Foreign Currency,\u201d to the Consolidated Financial Statements). Because our Consolidated Financial Statements are presented in U.S. dollars, increases or decreases in the value of the U.S. dollar relative to other currencies in which we transact business could materially adversely affect our net revenues, net income and the carrying values of our assets located outside the United States. Global economic uncertainty continues to exist.  Strengthening of the U.S. dollar relative to other currencies may adversely affect our operating results.\n\n\n32\n\n\n\n\n\u00a0\n\n\nIf the U.S. dollar were to strengthen, our foreign results of operations would be unfavorably impacted, but the effect is not expected to be material. A 10% change in foreign currency exchange rates would not have resulted in a material impact to net income for the years ended May 31, 2023 and 2022. We do not currently use financial derivative instruments for trading purposes, nor do we engage in foreign currency, commodity or interest rate speculation.\n \n\n\nFORWARD-LOOKING STATEMENTS\n\n\nThe foregoing discussion includes forward-looking statements relating to our business. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) global markets and general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital and the effect of changes in interest rates, and the viability of banks and other financial institutions; (b) the prices, supply and availability of raw materials, including assorted pigments, resins, solvents, and other natural gas- and oil-based materials; packaging, including plastic and metal containers; and transportation services, including fuel surcharges; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our businesses and risks related to the adequacy of our insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our foreign operations; (g) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with our ongoing acquisition and divestiture activities; (i) the timing of and the realization of anticipated cost savings from restructuring initiatives and the ability to identify additional cost savings opportunities; (j) risks related to the adequacy of our contingent liability reserves; (k) risks relating to a public health crisis similar to the Covid pandemic; (l) risks related to acts of war similar to the Russian invasion of Ukraine; (m) risks related to the transition or physical impacts of climate change and other natural disasters or meeting sustainability-related voluntary goals or regulatory requirements; (n) risks related to our use of technology, artificial intelligence, data breaches and data privacy violations; and (o) other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in our Form 10-K for the year ended May 31, 2023, as the same may be updated from time to time. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the filing date of this document.\n\n\n\u00a0\n\n\n33\n\n\n\n\n\u00a0\n\n",
+  "cik": "110621",
+  "cusip6": "749685",
+  "cusip": ["749685953", "749685903", "749685103"],
+  "names": ["RPM International", "RPM INTL INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/110621/000095017023034640/0000950170-23-034640-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1. B\nUSINESS\n\n\nGENERAL\n\n\nEmbracing Our Future\n\n\nMicrosoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more. We strive to create local opportunity, growth, and impact in every country around the world. We are creating the platforms and tools\n,\n powered by artificial intelligence (\u201c\nAI\n\u201d), that deliver better, faster, and more effective solutions to support small and large business competitiveness, improve educational and health outcomes, grow public-sector efficiency,  and empower human ingenuity. From infrastructure and data, to business applications and collaboration, we provide unique, differentiated value to customers.\n \n\n\nIn a world of increasing economic complexity, AI has the power to revolutionize many types of work. Microsoft is now innovating and expanding our portfolio with AI capabilities to help people and organizations overcome today\u2019s challenges and emerge stronger. Customers are looking to unlock value from their digital spend and innovate for this next generation of AI, while simplifying security and management. Those leveraging the Microsoft Cloud are best positioned to take advantage of technological advancements and drive innovation. Our investment in AI spans the entire company, from Microsoft Teams and Outlook, to Bing and Xbox, and we are infusing generative AI capability into our consumer and commercial offerings to deliver copilot capability for all services across the Microsoft Cloud.\n\n\nWe\u2019re committed to making the promise of AI real \u2013 and doing it responsibly. Our work is guided by a core set of principles: fairness, reliability and safety, privacy and security, inclusiveness, transparency, and accountability.\n \n\n\nWhat We Offer\n\n\nFounded in 1975, we develop and support software, services, devices, and solutions that deliver new value for customers and help people and businesses realize their full potential.\n\n\nWe offer an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and we provide solution support and consulting services. We also deliver relevant online advertising to a global audience.\n\n\nOur products include operating systems, cross-device productivity and collaboration applications, server applications, business solution applications, desktop and server management tools, software development tools, and video games. We also design and sell devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.\n\n\nThe Ambitions That Drive Us\n\n\nTo achieve our vision, our research and development efforts focus on three interconnected ambitions:\n\n\n\u2022\nReinvent productivity and business processes.\n\n\n\u2022\nBuild the intelligent cloud and intelligent edge platform.\n\n\n\u2022\nCreate more personal computing.\n\n\nReinvent Productivity and Business Processes\n\n\nAt Microsoft, we provide technology and resources to help our customers create a secure, productive work environment. Our family of products plays a key role in the ways the world works, learns, and connects.\n \n\n\n4\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nOur growth depends on securely delivering continuous innovation and advancing our leading productivity and collaboration tools and services, including Office 365, Dynamics 365, and LinkedIn. Microsoft 365 brings together Office 365, Windows, and Enterprise Mobility + Security to help organizations empower their employees with AI-backed tools that unlock creativity, increase collaboration, and fuel innovation, all the while enabling compliance coverage and data protection. Microsoft Teams is a comprehensive platform for work, with meetings, calls, chat, collaboration, and business process automation. Microsoft Viva is an employee experience platform that brings together communications, knowledge, learning, resources, and insights. Microsoft 365 Copilot combines next-generation AI with business data in the Microsoft Graph and Microsoft 365 applications.\n\n\nTogether with the Microsoft Cloud, Dynamics 365, Microsoft Teams, and our AI offerings bring a new era of collaborative applications that optimize business functions, processes, and applications to better serve customers and employees while creating more business value. Microsoft Power Platform is helping domain experts drive productivity gains with low-code/no-code tools, robotic process automation, virtual agents, and business intelligence. In a dynamic labor market, LinkedIn is helping professionals use the platform to connect, learn, grow, and get hired.\n \n\n\nBuild the Intelligent Cloud and Intelligent Edge\n \nPlatform\n\n\nAs digital transformation and adoption of AI accelerates and revolutionizes more business workstreams, organizations in every sector across the globe can address challenges that will have a fundamental impact on their success. For enterprises, digital technology empowers employees, optimizes operations, engages customers, and in some cases, changes the very core of products and services. We continue to invest in high performance and sustainable computing to meet the growing demand for fast access to Microsoft services provided by our network of cloud computing infrastructure and datacenters.\n\n\nOur cloud business benefits from three economies of scale: datacenters that deploy computational resources at significantly lower cost per unit than smaller ones; datacenters that coordinate and aggregate diverse customer, geographic, and application demand patterns, improving the utilization of computing, storage, and network resources; and multi-tenancy locations that lower application maintenance labor costs.\n\n\nThe Microsoft Cloud provides the best integration across the technology stack while offering openness, improving time to value, reducing costs, and increasing agility. Being a global-scale cloud, Azure uniquely offers hybrid consistency, developer productivity, AI capabilities, and trusted security and compliance. We see more emerging use cases and needs for compute and security at the edge and are accelerating our innovation across the spectrum of intelligent edge devices, from Internet of Things (\u201cIoT\u201d) sensors to gateway devices and edge hardware to build, manage, and secure edge workloads.\n \n\n\nOur AI platform, Azure AI, is helping organizations transform, bringing intelligence and insights to the hands of their employees and customers to solve their most pressing challenges. Organizations large and small are deploying Azure AI solutions to achieve more at scale, more easily, with the proper enterprise-level and responsible AI protections.\n\n\nWe have a long-term partnership with OpenAI, a leading AI research and deployment company. We deploy OpenAI\u2019s models across our consumer and enterprise products. As OpenAI\u2019s exclusive cloud provider, Azure powers all of OpenAI's workloads. We have also increased our investments in the development and deployment of specialized supercomputing systems to accelerate OpenAI\u2019s research.\n\n\nOur hybrid infrastructure offers integrated, end-to-end security, compliance, identity, and management capabilities to support the real-world needs and evolving regulatory requirements of commercial customers and enterprises. Our industry clouds bring together capabilities across the entire Microsoft Cloud, along with industry-specific customizations. Azure Arc simplifies governance and management by delivering a consistent multi-cloud and on-premises management platform.\n\n\nNuance, a leader in conversational AI and ambient intelligence across industries including healthcare, financial services, retail, and telecommunications, joined Microsoft in 2022. Microsoft and Nuance enable organizations to accelerate their business goals with security-focused, cloud-based solutions infused with AI.\n\n\nWe are accelerating our development of mixed reality solutions with new Azure services and devices. Microsoft Mesh enables organizations to create custom, immersive experiences for the workplace to help bring remote and hybrid workers and teams together.\n \n\n\n5\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nThe ability to convert data into AI drives our competitive advantage. The Microsoft Intelligent Data Platform is a leading cloud data platform that fully integrates databases, analytics, and governance. The platform empowers organizations to invest more time creating value rather than integrating and managing their data. Microsoft Fabric is an end-to-end, unified analytics platform that brings together all the data and analytics tools that organizations need.\n\n\nGitHub Copilot is at the forefront of AI-powered software development, giving developers a new tool to write code easier and faster so they can focus on more creative problem-solving. From GitHub to Visual Studio, we provide a developer tool chain for everyone, no matter the technical experience, across all platforms, whether Azure, Windows, or any other cloud or client platform.\n\n\nWindows also plays a critical role in fueling our cloud business with Windows 365, a desktop operating system that\u2019s also a cloud service. From another internet-connected device, including Android or macOS devices, users can run Windows 365, just like a virtual machine.\n\n\nAdditionally, we are extending our infrastructure beyond the planet, bringing cloud computing to space. Azure Orbital is a fully managed ground station as a service for fast downlinking of data.\n\n\nCreate More Personal Computing\n\n\nWe strive to make computing more personal, enabling users to interact with technology in more intuitive, engaging, and dynamic ways.\n \n\n\nWindows 11 offers innovations focused on enhancing productivity, including Windows Copilot with centralized AI assistance and Dev Home to help developers become more productive. Windows 11 security and privacy features include operating system security, application security, and user and identity security.\n \n\n\nThrough our Search, News, Mapping, and Browser services, Microsoft delivers unique trust, privacy, and safety features. In February 2023, we launched an all new, AI-powered Microsoft Edge browser and Bing search engine with Bing Chat to deliver better search, more complete answers, and the ability to generate content. Microsoft Edge is our fast and secure browser that helps protect users\u2019 data. Quick access to AI-powered tools, apps, and more within Microsoft Edge\u2019s sidebar enhance browsing capabilities.\n\n\nWe are committed to designing and marketing first-party devices to help drive innovation, create new device categories, and stimulate demand in the Windows ecosystem. The Surface family includes Surface Pro, Surface Laptop, and other Surface products.\n\n\nMicrosoft continues to invest in gaming content, community, and cloud services. We have broadened our approach to how we think about gaming end-to-end, from the way games are created and distributed to how they are played, including subscription services like Xbox Game Pass and new devices from third-party manufacturers so players can engage across PC, console, and mobile. In January 2022, we announced plans to acquire Activision Blizzard, Inc., a leader in game development and an interactive entertainment content publisher.\n \n\n\nOur Future Opportunity\n\n\nWe are focused on helping customers use the breadth and depth of the Microsoft Cloud to get the most value out of their digital spend while leading the new AI wave across our solution areas. We continue to develop complete, intelligent solutions for our customers that empower people to be productive and collaborate, while safeguarding businesses and simplifying IT management. Our goal is to lead the industry in several distinct areas of technology over the long term, which we expect will translate to sustained growth. We are investing significant resources in:\n\n\n\u2022\nTransforming the workplace to deliver new modern, modular business applications, drive deeper insights, and improve how people communicate, collaborate, learn, work, and interact with one another.\n\n\n\u2022\nBuilding and running cloud-based services in ways that utilize ubiquitous computing to unleash new experiences and opportunities for businesses and individuals.\n\n\n\u2022\nApplying AI and ambient intelligence to drive insights, revolutionize many types of work, and provide substantive productivity gains using natural methods of communication.\n\n\n6\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\n\u2022\nTackling security from all angles with our integrated, end-to-end solutions spanning security, compliance, identity, and management, across all clouds and platforms.\n\n\n\u2022\nInventing new gaming experiences that bring people together around their shared love for games on any devices and pushing the boundaries of innovation with console and PC gaming.\n\n\n\u2022\nUsing Windows to fuel our cloud business, grow our share of the PC market, and drive increased engagement with our services like Microsoft 365 Consumer, Microsoft  Teams, Microsoft  Edge, Bing, Xbox Game Pass, and more.\n\n\nOur future growth depends on our ability to transcend current product category definitions, business models, and sales motions.\n\n\nCorporate Social Responsibility\n\n\nCommitment to Sustainability\n\n\nMicrosoft\u2019s approach to addressing climate change starts with the sustainability of our own business. In 2020, we committed to being a carbon negative, water positive, and zero waste company by 2030.\n \n\n\nIn May 2023, we released our Environmental Sustainability Report which looked back at our progress during fiscal year 2022. We continued to make progress on our goals, with our overall emissions declining by 0.5 percent. While our Scope 1 and Scope 2 emissions continued to decline, Scope 3 emissions increased by 0.5 percent. Scope 3 represented 96 percent of our total emissions, resulting primarily from the operations of our suppliers and the use of our products across our customers.\n \n\n\nA few examples of our continued progress include:\n\n\n\u2022\nSigned new power purchase agreements, bringing our total portfolio of carbon-free energy to over 13.5 gigawatts.\n\n\n\u2022\nContracted for water replenishment projects that are estimated to provide more than 15.6 million cubic meters in volumetric water benefit over the lifetime of these projects.\n\n\n\u2022\nDiverted 12,159 metric tons of solid waste from landfills and incinerators across our direct operational footprint.\n\n\n\u2022\nProtected 12,270 acres of land in Belize \u2013 more than the 11,206 acres of land that we use around the world.\n\n\nMicrosoft has a role to play in developing and advancing new climate solutions, but we recognize that no solution can be offered by any single company, organization, or government. Our approach helps to support the sustainability needs of our customers and the global community. Our Microsoft Cloud for Sustainability, an environmental sustainability management platform that includes Microsoft Sustainability Manager, enables organizations to record, report, and reduce their Scope 1, 2, and 3 emissions. These digital tools can interoperate with business systems and unify data intelligence for organizations.\n\n\nAddressing Racial Injustice and Inequity\n\n\nWe are committed to addressing racial injustice and inequity in the United States for Black and African American communities and helping improve lived experiences at Microsoft, in employees\u2019 communities, and beyond. Our Racial Equity Initiative focuses on three multi-year pillars, each containing actions and progress we expect to make or exceed by 2025.\n\n\n\u2022\nStrengthening our communities: using data, technology, and partnerships to help improve the lives of Black and African American people in the United States, including our employees and their communities.\n\n\n\u2022\nEngaging our ecosystem: using our balance sheet and relationships with suppliers and partners to foster societal change and create new opportunities.\n\n\n\u2022\nIncreasing representation and strengthening inclusion: building on our momentum by adding a $150 million investment to strengthen inclusion and double the number of Black, African American, Hispanic, and Latinx leaders in the United States by 2025.\n\n\n7\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nIn fiscal year 2023, we collaborated with partners and worked within neighborhoods and communities to launch and scale a number of projects and programs, including:\n \n\n\n\u2022\nWorking with 103 unique organizations in 165 cities and counties on our Justice Reform Initiative to empower communities and advance racial equity and fairness in the justice system.\n\n\n\u2022\nIncreasing access to affordable broadband, devices, and digital literacy training across 14 geographies, including 11 cities and three states in the Black Rural south.\n\n\n\u2022\nGrowing our Nonprofit Tech Acceleration for Black and African American Communities program, which uses data, technology, and partnerships to help more than 2,000 local organizations to modernize and streamline operations.\n\n\n\u2022\nExpanding our Technology Education and Learning Support (\u201cTEALS\u201d) program to reach nearly 400 high schools in 21 communities to increase computer science opportunities for Black and African American students.\n\n\nWe exceeded our 2020 goal to double the percentage of our transaction volumes with Black- and African American-owned financial institutions by 2023. We are also increasing investment activity with Black- and African American-owned asset managers, which now represent 45 percent of our external manager group, enabling increased funds into local communities. We also met our goal of creating a $100 million program focused on mission-driven banks. We enriched our supplier pipeline, achieving our goal to spend $500 million with double the number of Black- and African American-owned suppliers. We also increased the number of identified partners in the Black Partner Growth Initiative by more than 250 percent, surpassing our initial goal.\n \n\n\nWe have made meaningful progress on representation and inclusion at Microsoft. As of June 2023, we are 93 percent of the way to our 2025 commitment to double the number of Black and African American people managers in the U.S. (below director level), and 107 percent of the way for Black and African American directors (people managers and individual contributors). We are 28 percent of the way for Hispanic and Latinx people managers (below director level) and 74 percent of the way for Hispanic and Latinx directors.\n\n\nInvesting in Digital Skills\n\n\nAfter helping over 80 million jobseekers around the world access digital skilling resources, we introduced a new Skills for Jobs initiative to support a more skills-based labor market, with greater flexibility and accessible learning paths to develop the right skills needed for the most in-demand jobs. Our Skills for Jobs initiative brings together learning resources, certification opportunities, and job-seeker tools from LinkedIn, GitHub, and Microsoft Learn, and is built on data insights drawn from LinkedIn\u2019s Economic Graph.\n \n\n\nWe also launched a national campaign to help skill and recruit 250,000 people into the cybersecurity workforce by 2025, representing half of the country\u2019s workforce shortage. To that end, we are making curriculum available free of charge to all of the nation\u2019s higher education institutions, providing training for new and existing faculty, and providing scholarships and supplemental resources to 25,000 students. We have expanded the cyber skills initiative to 27 additional countries that show elevated cyberthreat risks coupled with significant gaps in their cybersecurity workforces, partnering with nonprofits and other educational institutions to train the next generation of cybersecurity workers.\n\n\nGenerative AI is creating unparalleled opportunities to empower workers globally, but only if everyone has the skills to use it. To address this, in June 2023 we launched a new AI Skills Initiative to help everyone learn how to harness the power of AI. This includes a new LinkedIn learning pathway offering new coursework on learning the foundations of generative AI. We also launched a new global grant challenge to uncover new ways of training workers on generative AI and are providing greater access to digital learning events and resources for everyone to improve their AI fluency.\n\n\nHUMAN CAPITAL RESOURCES\n\n\nOverview\n\n\nMicrosoft aims to recruit, develop, and retain world-changing talent from a diversity of backgrounds. To foster their and our success, we seek to create an environment where people can thrive and do their best work. We strive to maximize the potential of our human capital resources by creating a respectful, rewarding, and inclusive work environment that enables our global employees to create products and services that further our mission.\n\n\n8\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nAs of June 30, 2023, we employed approximately 221,000 people on a full-time basis, 120,000 in the U.S. and 101,000 internationally. Of the total employed people, 89,000 were in operations, including manufacturing, distribution, product support, and consulting services; 72,000 were in product research and development; 45,000 were in sales and marketing; and 15,000 were in general and administration. Certain employees are subject to collective bargaining agreements.\n\n\nOur Culture\n\n\nMicrosoft\u2019s culture is grounded in growth mindset. This means everyone is on a continuous journey to learn and grow, operating as one company instead of multiple siloed businesses.\n \n\n\nOur employee listening systems enable us to gather feedback directly from our workforce to inform our programs and employee needs globally. Employees participate in our Employee Signals surveys, which cover a variety of topics such as thriving, inclusion, team culture, wellbeing, and learning and development. We also collect Daily Signals employee survey responses, giving us real-time insights into ways we can support our employees. In addition to Employee Signals and Daily Signals surveys, we gain insights through onboarding, exit surveys, internal Viva Engage channels, employee Q&A sessions, and our internal AskHR Service support.\n\n\nDiversity and inclusion are core to our business model, and we hold ourselves accountable for driving global systemic change in our workforce and creating an inclusive work environment. We support multiple highly active Employee Resource Groups for women, families, racial and ethnic minorities, military, people with disabilities, and employees who identify as LGBTQIA+, where employees can go for support, networking, and community-building. As described in our 2022 Proxy Statement, annual performance and compensation reviews of our senior leadership team include an evaluation of their contributions to employee culture and diversity. To ensure accountability over time, we publicly disclose our progress on a multitude of workforce metrics including:\n\n\n\u2022\nDetailed breakdowns of gender, racial, and ethnic minority representation in our employee population, with data by job types, levels, and segments of our business.\n\n\n\u2022\nOur EEO-1 report (equal employment opportunity).\n\n\n\u2022\nDisability representation.\n\n\n\u2022\nPay equity (see details below). \n\n\nTotal Rewards and Pay Equity\n\n\nWe develop dynamic, sustainable, market-driven, and strategic programs with the goal of providing a highly differentiated portfolio to attract, reward, and retain top talent and enable our employees to thrive. These programs reinforce our culture and values such as collaboration and growth mindset. Managers evaluate and recommend rewards based on, for example, how well we leverage the work of others and contribute to the success of our colleagues. We monitor pay equity and career progress across multiple dimensions. Our total compensation opportunity is highly differentiated and is market competitive.\n\n\nIn order to manage our costs in a dynamic, competitive environment, in fiscal year 2023 we announced that base salaries of salaried employees would remain at fiscal year 2022 levels. Pay increases continue to be available for rewards-eligible hourly and equivalent employees. We will continue our practice of investing in stock for all rewards-eligible employees, salaried and hourly, and investing in bonuses for all eligible employees.\n\n\n9\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nSince 2016, we have reported on pay equity as part of our annual Diversity and Inclusion report. In 2022, we reported that all racial and ethnic minority employees in the U.S. combined earn $1.008 for every $1.000 earned by their white counterparts, that women in the U.S. earn $1.007 for every $1.000 earned by their counterparts who are men, and that women outside the U.S. earn $1.002 for every $1.000 earned by their counterparts outside the U.S. who are men. In this year\u2019s report, we again expanded our pay equity data beyond the U.S. to report on 61 additional countries (up from 12 last year), representing 99.8% of our global Microsoft workforce.\n\n\nIn addition, we began reporting on unadjusted median pay in our annual report, comparing total pay amounts for all employees regardless of factors such as job title, level, or tenure. For employees who are eligible for rewards, the analysis showed that total pay for women is 89.6% of total pay for men in the U.S. and 86.2% outside of the U.S., and total pay for racial and ethnic minorities in the U.S. is 89.9% of total pay for white employees. As we continue to increase representation for women and racial and ethnic minorities at more senior levels, and continue to ensure pay equity for all, the gap between the medians will reduce.\n \n\n\nOur intended result is a global performance and development approach that fosters our culture, and competitive compensation that ensures equitable pay by role while supporting pay for performance.\n\n\nWellbeing and Hybrid Work\n\n\nMicrosoft is committed to supporting our employees\u2019 wellbeing while they are at work and in their personal lives. We have invested significantly in wellbeing, and offer a differentiated benefits package which includes many physical, emotional, and financial wellness programs including counseling through the Microsoft CARES Employee Assistance Program, mental wellbeing support, flexible fitness benefits, disability accommodations, savings and investment tools, adoption assistance, and back-up care for children and elders. Finally, our Occupational Health and Safety program helps ensure employees can stay safe while they are working.\n\n\nWe introduced Hybrid Workplace Flexibility Guidance to better support leaders, managers, and employees in hybrid work scenarios. Our ongoing survey data shows that 93% of employees value the flexibility related to work location, work site, and work hours, and 78% are satisfied with the quality of connection with co-workers. There is no one-size-fits-all approach to flexible work at Microsoft. As a company, we will continue to leverage data and research to inform decision making, balancing the needs of business, team, and individual.\n\n\nLearning and Development\n\n\nWe offer a range of learning opportunities, including personalized opportunities on our internal and external learning portals, in-classroom learning, required learning on compliance and company culture, on-the-job advancement opportunities, and manager coaching. We also provide customized manager learning, new employee orientation, and tools for operating in a flexible hybrid work environment.\n \n\n\nAll Microsoft employees globally access our single Viva Learning tool for both required and personal choice learning. This includes courses focused on our core principles and compliance matters, such as Business Conduct, Privacy, Security Foundations, and Harassment Prevention. We also deliver skills training for employees based on their profession and role discipline.\n\n\nWe have over 27,000 people managers, all of whom must complete between 20-33 hours of compulsory training on leadership and management and are assigned additional targeted training on an ongoing basis related to people management, compliance, and culture.\n \n\n\n10\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nOPERATING SEGMENTS\n\n\nWe operate our business and report our financial performance using three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Our segments provide management with a comprehensive financial view of our key businesses. The segments enable the alignment of strategies and objectives across the development, sales, marketing, and services organizations, and they provide a framework for timely and rational allocation of resources within businesses.\n\n\nAdditional information on our operating segments and geographic and product information is contained in Note 19 \u2013 Segment Information and Geographic Data of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).\n\n\nOur reportable segments are described below.\n\n\nProductivity and Business Processes\n\n\nOur Productivity and Business Processes segment consists of products and services in our portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises:\n\n\n\u2022\nOffice Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Microsoft 365 Copilot.\n\n\n\u2022\nOffice Consumer, including Microsoft 365 Consumer subscriptions, Office licensed on-premises, and other Office services.\n\n\n\u2022\nLinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.\n\n\n\u2022\nDynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, CRM (including Customer Insights), Power Apps, and Power Automate; and on-premises ERP and CRM applications.\n\n\nOffice Commercial\n\n\nOffice Commercial is designed to increase personal, team, and organizational productivity through a range of products and services. Growth depends on our ability to reach new users in new markets such as frontline workers, small and medium businesses, and growth markets, as well as add value to our core product and service offerings to span productivity categories such as communication, collaboration, analytics, security, and compliance. Office Commercial revenue is mainly affected by a combination of continued installed base growth and average revenue per user expansion, as well as the continued shift from Office licensed on-premises to Office 365.\n\n\nOffice Consumer\n\n\nOffice Consumer is designed to increase personal productivity and creativity through a range of products and services. Growth depends on our ability to reach new users, add value to our core product set, and continue to expand our product and service offerings into new markets. Office Consumer revenue is mainly affected by the percentage of customers that buy Office with their new devices and the continued shift from Office licensed on-premises to Microsoft 365 Consumer subscriptions. Office Consumer Services revenue is mainly affected by the demand for communication and storage through Skype, Outlook.com, and OneDrive, which is largely driven by subscriptions, advertising, and the sale of minutes.\n\n\n11\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nLinkedIn\n\n\nLinkedIn connects the world\u2019s professionals to make them more productive and successful and transforms the way companies hire, market, sell, and learn. Our vision is to create economic opportunity for every member of the global workforce through the ongoing development of the world\u2019s first Economic Graph, a digital representation of the global economy. In addition to LinkedIn\u2019s free services, LinkedIn offers monetized solutions: Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions. Talent Solutions provide insights for workforce planning and tools to hire, nurture, and develop talent. Talent Solutions also includes Learning Solutions, which help businesses close critical skills gaps in times where companies are having to do more with existing talent. Marketing Solutions help companies reach, engage, and convert their audiences at scale. Premium Subscriptions enable professionals to manage their professional identity, grow their network, find jobs, and connect with talent through additional services like premium search. Sales Solutions help companies strengthen customer relationships, empower teams with digital selling tools, and acquire new opportunities. LinkedIn has over 950 million members and has offices around the globe. Growth will depend on our ability to increase the number of LinkedIn members and our ability to continue offering services that provide value for our members and increase their engagement. LinkedIn revenue is mainly affected by demand from enterprises and professional organizations for subscriptions to Talent Solutions, Sales Solutions, and Premium Subscriptions offerings, as well as member engagement and the quality of the sponsored content delivered to those members to drive Marketing Solutions.\n \n\n\nDynamics\n\n\nDynamics provides cloud-based and on-premises business solutions for financial management, enterprise resource planning (\u201cERP\u201d), customer relationship management (\u201cCRM\u201d), supply chain management, and other application development platforms for small and medium businesses, large organizations, and divisions of global enterprises. Dynamics revenue is driven by the number of users licensed and applications consumed, expansion of average revenue per user, and the continued shift to Dynamics 365, a unified set of cloud-based intelligent business applications, including Power Apps and Power Automate.\n\n\nCompetition\n\n\nCompetitors to Office include software and global application vendors, such as Apple, Cisco Systems, Meta, Google, Okta, Proofpoint, Slack, Symantec, Zoom, and numerous web-based and mobile application competitors as well as local application developers. Apple distributes versions of its pre-installed application software, such as email and calendar products, through its PCs, tablets, and phones. Cisco Systems is using its position in enterprise communications equipment to grow its unified communications business. Meta offers communication tools to enable productivity and engagement within organizations. Google provides a hosted messaging and productivity suite. Slack provides teamwork and collaboration software. Zoom offers videoconferencing and cloud phone solutions. Okta, Proofpoint, and Symantec provide security solutions across email security, information protection, identity, and governance. Web-based offerings competing with individual applications have also positioned themselves as alternatives to our products and services. We compete by providing powerful, flexible, secure, integrated industry-specific, and easy-to-use productivity and collaboration tools and services that create comprehensive solutions and work well with technologies our customers already have both on-premises or in the cloud.\n\n\nLinkedIn faces competition from online professional networks, recruiting companies, talent management companies, and larger companies that are focusing on talent management and human resource services; job boards; traditional recruiting firms; and companies that provide learning and development products and services. Marketing Solutions competes with online and offline outlets that generate revenue from advertisers and marketers, and Sales Solutions competes with online and offline outlets for companies with lead generation and customer intelligence and insights.\n\n\nDynamics competes with cloud-based and on-premises business solution providers such as Oracle, Salesforce, and SAP.\n\n\n12\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nIntelligent Cloud\n\n\nOur Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business and developers. This segment primarily comprises:\n \n\n\n\u2022\nServer products and cloud services, including Azure and other cloud services; SQL Server, Windows Server, Visual Studio, System Center, and related Client Access Licenses (\u201cCALs\u201d); and Nuance and GitHub. \n\n\n\u2022\nEnterprise Services, including Enterprise Support Services, Industry Solutions (formerly Microsoft Consulting Services\n),\n and Nuance professional services. \n\n\nServer Products and Cloud Services\n\n\nAzure is a comprehensive set of cloud services that offer developers, IT professionals, and enterprises freedom to build, deploy, and manage applications on any platform or device. Customers can use Azure through our global network of datacenters for computing, networking, storage, mobile and web application services, AI, IoT, cognitive services, and machine learning. Azure enables customers to devote more resources to development and use of applications that benefit their organizations, rather than managing on-premises hardware and software. Azure revenue is mainly affected by infrastructure-as-a-service and platform-as-a-service consumption-based services, and per user-based services such as Enterprise Mobility + Security.\n\n\nAzure  AI offerings provide a competitive advantage as companies seek ways to optimize and scale their business with machine learning. Azure\u2019s purpose-built, AI-optimized infrastructure allows advanced models, including GPT-4 services designed for developers and data scientists, to do more with less. Customers can integrate large language models and develop the next generation of AI apps and services.\n\n\nOur server products are designed to make IT professionals, developers, and their systems more productive and efficient. Server software is integrated server infrastructure and middleware designed to support software applications built on the Windows Server operating system. This includes the server platform, database, business intelligence, storage, management and operations, virtualization, service-oriented architecture platform, security, and identity software. We also license standalone and software development lifecycle tools for software architects, developers, testers, and project managers. Server products revenue is mainly affected by purchases through volume licensing programs, licenses sold to original equipment manufacturers (\u201cOEM\u201d), and retail packaged products. CALs provide access rights to certain server products, including SQL Server and Windows Server, and revenue is reported along with the associated server product.\n\n\nNuance and GitHub include both cloud and on-premises offerings. Nuance provides healthcare and enterprise AI solutions. GitHub provides a collaboration platform and code hosting service for developers.\n \n\n\nEnterprise Services\n\n\nEnterprise Services, including Enterprise Support Services, Industry Solutions, and Nuance Professional Services, assist customers in developing, deploying, and managing Microsoft server solutions, Microsoft desktop solutions, and Nuance conversational AI and ambient intelligent solutions, along with providing training and certification to developers and IT professionals on various Microsoft products.\n\n\nCompetition\n\n\nAzure faces diverse competition from companies such as Amazon, Google, IBM, Oracle, VMware, and open source offerings. Azure\u2019s competitive advantage includes enabling a hybrid cloud, allowing deployment of existing datacenters with our public cloud into a single, cohesive infrastructure, and the ability to run at a scale that meets the needs of businesses of all sizes and complexities. Our AI offerings compete with AI products from hyperscalers such as Amazon Bedrock, Amazon CodeWhisperer, and Google AI, as well as products from other emerging competitors, many of which are also current or potential partners, including Meta\u2019s LLaMA2 and other open source solutions. Our Enterprise Mobility + Security offerings also compete with products from a range of competitors including identity vendors, security solution vendors, and numerous other security point solution vendors. We believe our cloud\u2019s global scale, coupled with our broad portfolio of identity and security solutions, allows us to effectively solve complex cybersecurity challenges for our customers and differentiates us from the competition.\n\n\n13\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nOur server products face competition from a wide variety of server operating systems and applications offered by companies with a range of market approaches. Vertically integrated computer manufacturers such as Hewlett-Packard, IBM, and Oracle offer their own versions of the Unix operating system preinstalled on server hardware. Nearly all computer manufacturers offer server hardware for the Linux operating system\n,\n and many contribute to Linux operating system development. The competitive position of Linux has also benefited from the large number of compatible applications now produced by many commercial and non-commercial software developers. A number of companies, such as Red Hat, supply versions of Linux.\n\n\nWe compete to provide enterprise-wide computing solutions and point solutions with numerous commercial software vendors that offer solutions and middleware technology platforms, software applications for connectivity (both Internet and intranet), security, hosting, database, and e-business servers. IBM and Oracle lead a group of companies focused on the Java Platform Enterprise Edition that competes with our enterprise-wide computing solutions. Commercial competitors for our server applications for PC-based distributed client-server environments include CA Technologies, IBM, and Oracle. Our web application platform software competes with open source software such as Apache, Linux, MySQL, and PHP. In middleware, we compete against Java vendors.\n \n\n\nOur database, business intelligence, and data warehousing solutions offerings compete with products from IBM, Oracle, SAP, Snowflake, and other companies. Our system management solutions compete with server management and server virtualization platform providers, such as BMC, CA Technologies, Hewlett-Packard, IBM, and VMware. Our products for software developers compete against offerings from Adobe, IBM, Oracle, and other companies, and also against open source projects, including Eclipse (sponsored by CA Technologies, IBM, Oracle, and SAP), PHP, and Ruby on Rails.\n \n\n\nWe believe our server products provide customers with advantages in performance, total costs of ownership, and productivity by delivering superior applications, development tools, compatibility with a broad base of hardware and software applications, security, and manageability.\n \n\n\nOur Enterprise Services business competes with a wide range of companies that provide strategy and business planning, application development, and infrastructure services, including multinational consulting firms and small niche businesses focused on specific technologies.\n \n\n\nMore Personal Computing\n\n\nOur More Personal Computing segment consists of products and services that put customers at the center of the experience with our technology. This segment primarily comprises:\n\n\n\u2022\nWindows, including Windows OEM licensing (\u201cWindows OEM\u201d) and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows IoT.\n\n\n\u2022\nDevices, including Surface, HoloLens, and PC accessories. \n\n\n\u2022\nGaming, including Xbox hardware and Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, third-party disc royalties, and other cloud services. \n\n\n\u2022\nSearch and news advertising, comprising Bing (including Bing Chat), Microsoft News, Microsoft Edge, and third-party affiliates.\n\n\nWindows\n\n\nThe Windows operating system is designed to deliver a more personal computing experience for users by enabling consistency of experience, applications, and information across their devices. Windows OEM revenue is impacted significantly by the number of Windows operating system licenses purchased by OEMs, which they pre-install on the devices they sell. In addition to computing device market volume, Windows OEM revenue is impacted by:\n \n\n\n\u2022\nThe mix of computing devices based on form factor and screen size.\n\n\n\u2022\nDifferences in device market demand between developed markets and growth markets.\n\n\n\u2022\nAttachment of Windows to devices shipped.\n\n\n14\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\n\u2022\nCustomer mix between consumer, small and medium businesses, and large enterprises.\n\n\n\u2022\nChanges in inventory levels in the OEM channel.\n\n\n\u2022\nPricing changes and promotions, pricing variation that occurs when the mix of devices manufactured shifts from local and regional system builders to large multinational OEMs, and different pricing of Windows versions licensed.\n\n\n\u2022\nConstraints in the supply chain of device components.\n\n\n\u2022\nPiracy.\n\n\nWindows Commercial revenue, which includes volume licensing of the Windows operating system and Windows cloud services such as Microsoft Defender for Endpoint, is affected mainly by the demand from commercial customers for volume licensing and Software Assurance (\u201cSA\u201d), as well as advanced security offerings. Windows Commercial revenue often reflects the number of information workers in a licensed enterprise and is relatively independent of the number of PCs sold in a given year.\n\n\nPatent licensing includes our programs to license patents we own for use across a broad array of technology areas, including mobile devices and cloud offerings.\n\n\nWindows IoT extends the power of Windows and the cloud to intelligent systems by delivering specialized operating systems, tools, and services for use in embedded devices.\n \n\n\nDevices\n\n\nWe design and sell devices, including Surface, HoloLens, and PC accessories. Our devices are designed to enable people and organizations to connect to the people and content that matter most using Windows and integrated Microsoft products and services. Surface is designed to help organizations, students, and consumers be more productive. Growth in Devices is dependent on total PC shipments, the ability to attract new customers, our product roadmap, and expanding into new categories.\n\n\nGaming\n\n\nOur gaming platform is designed to provide a variety of entertainment through a unique combination of content, community, and cloud services. Our exclusive game content is created through Xbox Game Studios, a collection of first-party studios creating iconic and differentiated gaming experiences. We continue to invest in new gaming studios and content to expand our intellectual property roadmap and leverage new content creators. These unique gaming experiences are the cornerstone of Xbox Game Pass, a subscription service and gaming community with access to a curated library of over 400 first- and third-party console and PC titles.\n\n\nThe gamer remains at the heart of the Xbox ecosystem. We are identifying new opportunities to attract gamers across a variety of different end points through our first- and third-party content and business diversification across subscriptions, ads, and digital stores. We\u2019ve seen new devices from third-party manufacturers along with key PC and mobile end points that help us empower gamers to play in a way that is most convenient to them. We are focused on growing the platform and expanding to new ecosystems to engage as many gamers as possible.\n \n\n\nXbox enables people to connect and share online gaming experiences that are accessible on Xbox consoles, Windows-enabled devices, and other devices. Xbox is designed to benefit users by providing access to a network of certified applications and services and to benefit our developer and partner ecosystems by providing access to a large customer base. Xbox revenue is mainly affected by subscriptions and sales of first- and third-party content, as well as advertising. Growth of our Gaming business is determined by the overall active user base through Xbox enabled content, availability of games, providing exclusive game content that gamers seek, the computational power and reliability of the devices used to access our content and services, and the ability to create new experiences through first-party content creators.\n \n\n\n15\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nSearch and News Advertising\n\n\nOur Search and news advertising business is designed to deliver relevant search, native, and display advertising to a global audience. Our Microsoft Edge browser and Bing Chat capabilities are key tools to enable user acquisition and engagement, while our technology platform enables accelerated delivery of digital advertising solutions. In addition to first-party tools, we have several partnerships with companies, such as Yahoo, through which we provide and monetize search offerings. Growth depends on our ability to attract new users, understand intent, and match intent with relevant content on advertising offerings.\n\n\nCompetition\n \n\n\nWindows faces competition from various software products and from alternative platforms and devices, mainly from Apple and Google. We believe Windows competes effectively by giving customers choice, value, flexibility, security, an easy-to-use interface, and compatibility with a broad range of hardware and software applications, including those that enable productivity.\n \n\n\nDevices face competition from various computer, tablet, and hardware manufacturers who offer a unique combination of high-quality industrial design and innovative technologies across various price points. These manufacturers, many of which are also current or potential partners and customers, include Apple and our Windows OEMs.\n\n\nXbox and our cloud gaming services face competition from various online gaming ecosystems and game streaming services, including those operated by Amazon, Apple, Meta, and Tencent. We also compete with other providers of entertainment services such as video streaming platforms. Our gaming platform competes with console platforms from Nintendo and Sony, both of which have a large, established base of customers. We believe our gaming platform is effectively positioned against, and uniquely differentiated from, competitive products and services based on significant innovation in hardware architecture, user interface, developer tools, online gaming and entertainment services, and continued strong exclusive content from our own first-party game franchises as well as other digital content offerings.\n\n\nOur Search and news advertising business competes with Google and a wide array of websites, social platforms like Meta, and portals that provide content and online offerings to end users.\n \n\n\nOPERATIONS\n \n\n\nWe have regional operations service centers that support our operations, including customer contract and order processing, billing, credit and collections, information processing, and vendor management and logistics. The center in Ireland supports the African, Asia-Pacific, European, and Middle East regions; and the centers in  Arlington, Virginia, Atlanta, Georgia, Charlotte, North Carolina, Fargo, North Dakota, Fort Lauderdale, Florida, Redmond, Washington, Reno, Nevada, and Puerto Rico support the American regions.\n\n\nIn addition to our operations centers, we also operate datacenters throughout each of these regions. We continue to identify and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services. Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units (\u201cGPUs\u201d) and other components.\n\n\nOur devices are primarily manufactured by third-party contract manufacturers. For the majority of our products, we have the ability to use other manufacturers if a current vendor becomes unavailable or unable to meet our requirements. However, some of our products contain certain components for which there are very few qualified suppliers. Extended disruptions at these suppliers could impact our ability to manufacture devices on time to meet consumer demand.\n\n\n16\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nRESEARCH AND DEVELOPMENT\n \n\n\nProduct and Service Development, and Intellectual Property\n \n\n\nWe develop most of our products and services internally through the following engineering groups.\n \n\n\n\u2022\nCloud and AI \n\u2013 focuses on making IT professionals, developers, partners, independent software vendors, and their systems more productive and efficient through development of Azure AI platform and cloud infrastructure, server, database, CRM, ERP, software development tools and services (including GitHub), AI cognitive services, and other business process applications and services for enterprises.\n\n\n\u2022\nStrategic Missions and Technologies\n \u2013 focuses on incubating technical products and support solutions with transformative potential for the future of cloud computing and continued company growth across quantum computing, Azure Space & Missions Engineering, telecommunications, and Microsoft Federal Sales and Delivery.\n\n\n\u2022\nExperiences and Devices\n \u2013 focuses on delivering high value end-user experiences across our products, services, and devices, including Microsoft 365, Windows, Microsoft Teams, Search (including Microsoft Edge and Bing Chat) and other advertising-based services, and the Surface line of devices.\n\n\n\u2022\nMicrosoft Security\n \u2013 focuses on delivering a comprehensive portfolio of services that protect our customers\u2019 digital infrastructure through cloud platform and application security, data protection and governance, identity and network access, and device management.\n \n\n\n\u2022\nTechnology and Research\n \u2013 focuses on fundamental research, product and business incubations, and forward-looking AI innovations that span infrastructure, services, and applications.\n\n\n\u2022\nLinkedIn\n \u2013 focuses on our services that transform the way professionals grow their network and find jobs and the way businesses hire, market, sell, and learn. \n\n\n\u2022\nGaming\n \u2013 focuses on developing hardware, content, and services across a large range of platforms to help grow our user base through game experiences and social interaction.\n\n\nInternal development allows us to maintain competitive advantages that come from product differentiation and closer technical control over our products and services. It also gives us the freedom to decide which modifications and enhancements are most important and when they should be implemented. We strive to obtain information as early as possible about changing usage patterns and hardware advances that may affect software and hardware design. Before releasing new software platforms, and as we make significant modifications to existing platforms, we provide application vendors with a range of resources and guidelines for development, training, and testing. Generally, we also create product documentation internally.\n \n\n\nWe protect our intellectual property investments in a variety of ways. We work actively in the U.S. and internationally to ensure the enforcement of copyright, trademark, trade secret, and other protections that apply to our software and hardware products, services, business plans, and branding. We are a leader among technology companies in pursuing patents and currently have a portfolio of over 70,000 U.S. and international patents issued and over 19,000 pending worldwide. While we employ much of our internally-developed intellectual property in our products and services, we also engage in outbound licensing of specific patented technologies that are incorporated into licensees\u2019 products. From time to time, we enter into broader cross-license agreements with other technology companies covering entire groups of patents. We may also purchase or license technology that we incorporate into our products and services. At times, we make select intellectual property broadly available at no or low cost to achieve a strategic objective, such as promoting industry standards, advancing interoperability, supporting societal and/or environmental efforts, or attracting and enabling our external development community. Our increasing engagement with open source software will also cause us to license our intellectual property rights broadly in certain situations.\n\n\nWhile it may be necessary in the future to seek or renew licenses relating to various aspects of our products and services, we believe, based upon past experience and industry practice, such licenses generally can be obtained on commercially reasonable terms. We believe our continuing research and product development are not materially dependent on any single license or other agreement with a third party relating to the development of our products.\n \n\n\n17\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nInvesting in the Future\n \n\n\nOur success is based on our ability to create new and compelling products, services, and experiences for our users, to initiate and embrace disruptive technology trends, to enter new geographic and product markets, and to drive broad adoption of our products and services. We invest in a range of emerging technology trends and breakthroughs that we believe offer significant opportunities to deliver value to our customers and growth for the company. Based on our assessment of key technology trends, we maintain our long-term commitment to research and development across a wide spectrum of technologies, tools, and platforms spanning digital work and life experiences, cloud computing, AI, devices, and operating systems.\n \n\n\nWhile our main product research and development facilities are located in Redmond, Washington, we also operate research and development facilities in other parts of the U.S. and around the world. This global approach helps us remain competitive in local markets and enables us to continue to attract top talent from across the world.\n \n\n\nWe plan to continue to make significant investments in a broad range of product research and development activities, and as appropriate we will coordinate our research and development across operating segments and leverage the results across the company.\n \n\n\nIn addition to our main research and development operations, we also operate Microsoft Research. Microsoft Research is one of the world\u2019s largest corporate research organizations, often working in close collaboration with top universities around the world, and is focused on advancing the state-of-the-art in computer science and a broad range of other disciplines. Our investment in fundamental research provides us a unique perspective on future trends and contributes to our innovation.\n \n\n\nDISTRIBUTION, SALES, AND MARKETING\n \n\n\nWe market and distribute our products and services through the following channels: OEMs, direct, and distributors and resellers. Our sales organization performs a variety of functions, including working directly with commercial enterprises and public-sector organizations worldwide to identify and meet their technology and digital transformation requirements; managing OEM relationships; and supporting system integrators, independent software vendors, and other partners who engage directly with our customers to perform sales, consulting, and fulfillment functions for our products and services.\n\n\nOEMs\n \n\n\nWe distribute our products and services through OEMs that pre-install our software on new devices and servers they sell. The largest component of the OEM business is the Windows operating system pre-installed on devices. OEMs also sell devices pre-installed with other Microsoft products and services, including applications such as Office and the capability to subscribe to Office 365.\n \n\n\nThere are two broad categories of OEMs. The largest category of OEMs are direct OEMs as our relationship with them is managed through a direct agreement between Microsoft and the OEM. We have distribution agreements covering one or more of our products with virtually all the multinational OEMs, including Dell, Hewlett-Packard, Lenovo, and with many regional and local OEMs. The second broad category of OEMs are system builders consisting of lower-volume PC manufacturers, which source Microsoft software for pre-installation and local redistribution primarily through the Microsoft distributor channel rather than through a direct agreement or relationship with Microsoft.\n \n\n\nDirect\n \n\n\nMany organizations that license our products and services transact directly with us through Enterprise Agreements and Enterprise Services contracts, with sales support from system integrators, independent software vendors, web agencies, and partners that advise organizations on licensing our products and services (\u201cEnterprise Agreement Software Advisors\u201d or \u201cESA\u201d). Microsoft offers direct sales programs targeted to reach small, medium, and corporate customers, in addition to those offered through the reseller channel. A large network of partner advisors support many of these sales.\n \n\n\nWe also sell commercial and consumer products and services directly to customers, such as cloud services, search, and gaming, through our digital marketplaces and online stores. Additionally, our Microsoft Experience Centers are designed to facilitate deeper engagement with our partners and customers across industries.\n \n\n\n18\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nDistributors and Resellers\n \n\n\nOrganizations also license our products and services indirectly, primarily through licensing solution partners (\u201cLSP\u201d), distributors, value-added resellers (\u201cVAR\u201d), and retailers. Although each type of reselling partner may reach organizations of all sizes, LSPs are primarily engaged with large organizations, distributors resell primarily to VARs, and VARs typically reach small and medium organizations. ESAs are also typically authorized as LSPs and operate as resellers for our other volume licensing programs. Microsoft Cloud Solution Provider is our main partner program for reselling cloud services.\n \n\n\nWe distribute our retail packaged products primarily through independent non-exclusive distributors, authorized replicators, resellers, and retail outlets. Individual consumers obtain these products primarily through retail outlets. We distribute our devices through third-party retailers. We have a network of field sales representatives and field support personnel that solicit orders from distributors and resellers and provide product training and sales support.\n \n\n\nOur Dynamics business solutions are also licensed to enterprises through a global network of channel partners providing vertical solutions and specialized services.\n \n\n\nLICENSING OPTIONS\n \n\n\nWe offer options for organizations that want to purchase our cloud services, on-premises software, and SA. We license software to organizations under volume licensing agreements to allow the customer to acquire multiple licenses of products and services instead of having to acquire separate licenses through retail channels. We use different programs designed to provide flexibility for organizations of various sizes. While these programs may differ in various parts of the world, generally they include those discussed below.\n \n\n\nSA conveys rights to new software and upgrades for perpetual licenses released over the contract period. It also provides support, tools, training, and other licensing benefits to help customers deploy and use software efficiently. SA is included with certain volume licensing agreements and is an optional purchase with others.\n\n\nVolume Licensing Programs\n\n\nEnterprise Agreement\n \n\n\nEnterprise Agreements offer large organizations a manageable volume licensing program that gives them the flexibility to buy cloud services and software licenses under one agreement. Enterprise Agreements are designed for medium or large organizations that want to license cloud services and on-premises software organization-wide over a three-year period. Organizations can elect to purchase perpetual licenses or subscribe to licenses. SA is included.\n \n\n\nMicrosoft Customer Agreement\n\n\nA Microsoft Customer Agreement is a simplified purchase agreement presented, accepted, and stored through a digital experience. A Microsoft Customer Agreement is a non-expiring agreement that is designed to support all customers over time, whether purchasing through a partner or directly from Microsoft.\n\n\nMicrosoft Online Subscription Agreement\n\n\nA Microsoft Online Subscription Agreement is\n \ndesigned for small and medium organizations that want to subscribe to, activate, provision, and maintain cloud services seamlessly and directly via the web. The agreement allows customers to acquire monthly or annual subscriptions for cloud-based services.\n\n\nMicrosoft Products and Services Agreement\n \n\n\nMicrosoft Products and Services Agreements are designed for medium and large organizations that want to license cloud services and on-premises software as needed, with no organization-wide commitment, under a single, non-expiring agreement. Organizations purchase perpetual licenses or subscribe to licenses. SA is optional for customers that purchase perpetual licenses.\n \n\n\n19\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nOpen Value\n\n\nOpen Value agreements are a simple, cost-effective way to acquire the latest Microsoft technology. These agreements are designed for small and medium organizations that want to license cloud services and on-premises software over a three-year period. Under Open Value agreements, organizations can elect to purchase perpetual licenses or subscribe to licenses and SA is included.\n \n\n\nSelect Plus\n \n\n\nA Select Plus agreement is designed for government and academic organizations to acquire on-premises licenses at any affiliate or department level, while realizing advantages as one organization. Organizations purchase perpetual licenses and SA is optional.\n \n\n\nPartner Programs\n \n\n\nThe Microsoft Cloud Solution Provider Program offers customers an easy way to license the cloud services they need in combination with the value-added services offered by their systems integrator, managed services provider, or cloud reseller partner. Partners in this program can easily package their own products and services to directly provision, manage, and support their customer subscriptions.\n\n\nThe Microsoft Services Provider License Agreement allows hosting service providers and independent software vendors who want to license eligible Microsoft software products to provide software services and hosted applications to their end customers. Partners license software over a three-year period and are billed monthly based on consumption.\n\n\nThe Independent Software Vendor Royalty Program enables partners to integrate Microsoft products into other applications and then license the unified business solution to their end users.\n\n\nCUSTOMERS\n\n\nOur customers include individual consumers, small and medium organizations, large global enterprises, public-sector institutions, Internet service providers, application developers, and OEMs. Our practice is to ship our products promptly upon receipt of purchase orders from customers; consequently, backlog is not significant.\n\n\nINFORMATION ABOUT OUR EXECUTIV\nE OFFICERS\n\n\nOur executive officers as of July 27, 2023 were as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nName\n\n\n \n\n\nAge\n\n\n \n\n\n \n\n\nPosition with the Company\n\n\n\n\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSatya Nadella\n\n\n \n\n\n \n\n\n55\n\n\n \n\n\n \n\n\nChairman and Chief Executive Officer\n\n\n\n\n\n\nJudson B. Althoff\n\n\n \n\n\n\u00a0\n\n\n50\n\n\n\u00a0\n\n\n \n\n\nExecutive Vice President and Chief Commercial Officer\n\n\n\n\n\n\nChristopher C. Capossela\n\n\n \n\n\n \n\n\n53\n\n\n \n\n\n \n\n\nExecutive Vice President and Chief Marketing Officer\n\n\n\n\n\n\nKathleen T. Hogan\n\n\n \n\n\n \n\n\n57\n\n\n \n\n\n \n\n\nExecutive Vice President and Chief Human Resources Officer\n\n\n\n\n\n\nAmy E. Hood\n\n\n \n\n\n \n\n\n51\n\n\n \n\n\n \n\n\nExecutive Vice President and Chief Financial Officer\n\n\n\n\n\n\nBradford L. Smith\n\n\n \n\n\n \n\n\n64\n\n\n \n\n\n \n\n\nVice Chair and President\n\n\n\n\n\n\nChristopher D. Young\n\n\n \n\n\n\u00a0\n\n\n51\n\n\n\u00a0\n\n\n \n\n\nExecutive Vice President, Business Development, Strategy, and Ventures\n\n\n\n\n\n\n \n\n\n\n\n\n\nMr. Nadella was appointed Chairman of the Board in June 2021 and Chief Executive Officer in February 2014. He served as Executive Vice President, Cloud and Enterprise from July 2013 until that time. From 2011 to 2013, Mr. Nadella served as President, Server and Tools. From 2009 to 2011, he was Senior Vice President, Online Services Division. From 2008 to 2009, he was Senior Vice President, Search, Portal, and Advertising. Since joining Microsoft in 1992, Mr. Nadella\u2019s roles also included Vice President of the Business Division. Mr. Nadella also serves on the Board of Directors of Starbucks Corporation.\n\n\nMr. Althoff was appointed Executive Vice President and Chief Commercial Officer in July 2021. He served as Executive Vice President, Worldwide Commercial Business from July 2017 until that time. Prior to that, Mr. Althoff served as the President of Microsoft North America. Mr. Althoff joined Microsoft in March 2013 as President of Microsoft North America.\n\n\n20\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nMr. Capossela was appointed Executive Vice President, Marketing and Consumer Business, and Chief Marketing Officer in July 2016. He had served as Executive Vice President, Chief Marketing Officer since March 2014.Since joining Microsoft in 1991, Mr. Capossela has held a variety of marketing leadership roles in the Consumer Channels Group, and in the Microsoft Office Division where he was responsible for marketing productivity solutions including Microsoft Office, Office 365, SharePoint, Exchange, Skype for Business, Project, and Visio.\n\n\nMs. Hogan was appointed Executive Vice President, Human Resources in November 2014. Prior to that Ms. Hogan was Corporate Vice President of Microsoft Services. She also served as Corporate Vice President of Customer Service and Support. Ms. Hogan joined Microsoft in 2003. Ms. Hogan also serves on the Board of Directors of Alaska Air Group, Inc.\n\n\nMs. Hood was appointed Executive Vice President and Chief Financial Officer in July 2013, subsequent to her appointment as Chief Financial Officer in May 2013. From 2010 to 2013, Ms. Hood was Chief Financial Officer of the Microsoft Business Division. Since joining Microsoft in 2002, Ms. Hood has also held finance-related positions in the Server and Tools Business and the corporate finance organization. Ms. Hood also serves on the Board of Directors of 3M Corporation.\n\n\nMr. Smith was appointed Vice Chair and President in September 2021. Prior to that, he served as President and Chief Legal Officer since September 2015. He served as Executive Vice President, General Counsel, and Secretary from 2011 to 2015, and served as Senior Vice President, General Counsel, and Secretary from 2001 to 2011. Mr. Smith was also named Chief Compliance Officer in 2002. Since joining Microsoft in 1993, he was Deputy General Counsel for Worldwide Sales and previously was responsible for managing the European Law and Corporate Affairs Group, based in Paris. Mr. Smith also serves on the Board of Directors of Netflix, Inc.\n\n\nMr. Young has served as Executive Vice President, Business Development, Strategy, and Ventures since joining Microsoft in November 2020. Prior to Microsoft, he served as the Chief Executive Officer of McAfee, LLC from 2017 to 2020, and served as a Senior Vice President and General Manager of Intel Security Group from 2014 until 2017, when he led the initiative to spin out McAfee into a standalone company. Mr. Young also serves on the Board of Directors of American Express Company.\n\n\n21\n\n\n\n\nPART I\n\n\nItem 1\n\n\n\u00a0\n\n\nAVAILABLE INFORMATION\n\n\nOur Internet address is www.microsoft.com. At our Investor Relations website, www.microsoft.com/investor, we make available free of charge a variety of information for investors. Our goal is to maintain the Investor Relations website as a portal through which investors can easily find or navigate to pertinent information about us, including:\n\n\n\u2022\nOur annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the Securities and Exchange Commission (\u201cSEC\u201d) at www.sec.gov.\n\n\n\u2022\nInformation on our business strategies, financial results, and metrics for investors.\n\n\n\u2022\nAnnouncements of investor conferences, speeches, and events at which our executives talk about our product, service, and competitive strategies. Archives of these events are also available.\n\n\n\u2022\nPress releases on quarterly earnings, product and service announcements, legal developments, and international news.\n\n\n\u2022\nCorporate governance information including our articles of incorporation, bylaws, governance guidelines, committee charters, codes of conduct and ethics, global corporate social responsibility initiatives, and other governance-related policies.\n\n\n\u2022\nOther news and announcements that we may post from time to time that investors might find useful or interesting.\n\n\n\u2022\nOpportunities to sign up for email alerts to have information pushed in real time.\n\n\nWe publish a variety of reports and resources related to our Corporate Social Responsibility programs and progress on our Reports Hub website, www.microsoft.com/corporate-responsibility/reports-hub, including reports on sustainability, responsible sourcing, accessibility, digital trust, and public policy engagement.\n \n\n\nThe information found on these websites is not part of, or incorporated by reference into, this or any other report we file with, or furnish to, the SEC. In addition to these channels, we use social media to communicate to the public. It is possible that the information we post on social media could be deemed to be material to investors. We encourage investors, the media, and others interested in Microsoft to review the information we post on the social media channels listed on our Investor Relations website.\n\n\n22\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nITEM 1A. RIS\nK FACTORS\n\n\nOur operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock.\n\n\nSTRATEGIC AND COMPETITIVE RISKS\n\n\nWe face intense competition across all markets for our products and services, which may lead to lower revenue or operating margins.\n\n\nCompetition in the technology sector\n\n\nOur competitors range in size from diversified global companies with significant research and development resources to small, specialized firms whose narrower product lines may let them be more effective in deploying technical, marketing, and financial resources. Barriers to entry in many of our businesses are low and many of the areas in which we compete evolve rapidly with changing and disruptive technologies, shifting user needs, and frequent introductions of new products and services. Our ability to remain competitive depends on our success in making innovative products, devices, and services that appeal to businesses and consumers.\n\n\nCompetition among platform-based ecosystems\n\n\nAn important element of our business model has been to create platform-based ecosystems on which many participants can build diverse solutions. A well-established ecosystem creates beneficial network effects among users, application developers, and the platform provider that can accelerate growth. Establishing significant scale in the marketplace is necessary to achieve and maintain attractive margins. We face significant competition from firms that provide competing platforms.\n\n\n\u2022\nA competing vertically-integrated model, in which a single firm controls the software and hardware elements of a product and related services, has succeeded with some consumer products such as personal computers, tablets, phones, gaming consoles, wearables, and other endpoint devices. Competitors pursuing this model also earn revenue from services integrated with the hardware and software platform, including applications and content sold through their integrated marketplaces. They may also be able to claim security and performance benefits from their vertically integrated offer. We also offer some vertically-integrated hardware and software products and services. To the extent we shift a portion of our business to a vertically integrated model we increase our cost of revenue and reduce our operating margins.\n\n\n\u2022\nWe derive substantial revenue from licenses of Windows operating systems on PCs. We face significant competition from competing platforms developed for new devices and form factors such as smartphones and tablet computers. These devices compete on multiple bases including price and the perceived utility of the device and its platform. Users are increasingly turning to these devices to perform functions that in the past were performed by personal computers. Even if many users view these devices as complementary to a personal computer, the prevalence of these devices may make it more difficult to attract application developers to our PC operating system platforms. Competing with operating systems licensed at low or no cost may decrease our PC operating system margins. Popular products or services offered on competing platforms could increase their competitive strength. In addition, some of our devices compete with products made by our original equipment manufacturer (\u201cOEM\u201d) partners, which may affect their commitment to our platform.\n\n\n\u2022\nCompeting platforms have content and application marketplaces with scale and significant installed bases. The variety and utility of content and applications available on a platform are important to device purchasing decisions. Users may incur costs to move data and buy new content and applications when switching platforms. To compete, we must successfully enlist developers to write applications for our platform and ensure that these applications have high quality, security, customer appeal, and value. Efforts to compete with competitors\u2019 content and application marketplaces may increase our cost of revenue and lower our operating margins. Competitors\u2019 rules governing their content and applications marketplaces may restrict our ability to distribute products and services through them in accordance with our technical and business model objectives.\n\n\n23\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nBusiness model competition\n\n\nCompanies compete with us based on a growing variety of business models.\n\n\n\u2022\nEven as we transition more of our business to infrastructure-, platform-, and software-as-a-service business model, the license-based proprietary software model generates a substantial portion of our software revenue. We bear the costs of converting original ideas into software products through investments in research and development, offsetting these costs with the revenue received from licensing our products. Many of our competitors also develop and sell software to businesses and consumers under this model.\n\n\n\u2022\nWe are investing in artificial intelligence (\u201cAI\u201d) across the entire company and infusing generative AI capabilities into our consumer and commercial offerings. We expect AI technology and services to be a highly competitive and rapidly evolving market. We will bear significant development and operational costs to build and support the AI capabilities, products, and services necessary to meet the needs of our customers. To compete effectively we must also be responsive to technological change, potential regulatory developments, and public scrutiny.\n\n\n\u2022\nOther competitors develop and offer free applications, online services, and content, and make money by selling third-party advertising. Advertising revenue funds development of products and services these competitors provide to users at no or little cost, competing directly with our revenue-generating products.\n\n\n\u2022\nSome companies compete with us by modifying and then distributing open source software at little or no cost to end users, using open source AI models,\n \nand earning revenue on advertising or integrated products and services. These firms do not bear the full costs of research and development for the open source products. Some open source products mimic the features and functionality of our products.\n\n\nThe competitive pressures described above may cause decreased sales volumes, price reductions, and/or increased operating costs, such as for research and development, marketing, and sales incentives. This may lead to lower revenue, gross margins, and operating income.\n\n\nOur increasing focus on cloud-based services presents execution and competitive risks.\n A growing part of our business involves cloud-based services available across the spectrum of computing devices. Our strategic vision is to compete and grow by building best-in-class platforms and productivity services that utilize ubiquitous computing and ambient intelligence to drive insights and productivity gains. At the same time, our competitors are rapidly developing and deploying cloud-based services for consumers and business customers. Pricing and delivery models are evolving. Devices and form factors influence how users access services in the cloud and sometimes the user\u2019s choice of which cloud-based services to use. Certain industries and customers have specific requirements for cloud services and may present enhanced risks.\n \nWe are devoting significant resources to develop and deploy our cloud-based strategies. The Windows ecosystem must continue to evolve with this changing environment. We embrace cultural and organizational changes to drive accountability and eliminate obstacles to innovation. Our intelligent cloud and intelligent edge offerings are connected to the growth of the Internet of Things (\u201cIoT\u201d), a network of distributed and interconnected devices employing sensors, data, and computing capabilities, including AI. Our success in driving ubiquitous computing and ambient intelligence will depend on the level of adoption of our offerings such as Azure, Azure AI, and Azure IoT Edge. We may not establish market share sufficient to achieve scale necessary to meet our business objectives.\n\n\nBesides software development costs, we are incurring costs to build and maintain infrastructure to support cloud computing services. These costs will reduce the operating margins we have previously achieved. Whether we succeed in cloud-based services depends on our execution in several areas, including:\n\n\n\u2022\nContinuing to bring to market compelling cloud-based experiences that generate increasing traffic and market share.\n\n\n\u2022\nMaintaining the utility, compatibility, and performance of our cloud-based services on the growing array of computing devices, including PCs, smartphones, tablets, gaming consoles, and other devices, as well as sensors and other IoT endpoints.\n\n\n\u2022\nContinuing to enhance the attractiveness of our cloud platforms to third-party developers.\n\n\n\u2022\nEnsuring our cloud-based services meet the reliability expectations of our customers and maintain the security of their data as well as help them meet their own compliance needs.\n\n\n\u2022\nMaking our suite of cloud-based services platform-agnostic, available on a wide range of devices and ecosystems, including those of our competitors.\n\n\n24\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nIt is uncertain whether our strategies will attract the users or generate the revenue required to succeed. If we are not effective in executing organizational and technical changes to increase efficiency and accelerate innovation, or if we fail to generate sufficient usage of our new products and services, we may not grow revenue in line with the infrastructure and development investments described above. This may negatively impact gross margins and operating income.\n\n\nSome users may engage in fraudulent or abusive activities through our cloud-based services. These include unauthorized use of accounts through stolen credentials, use of stolen credit cards or other payment vehicles, failure to pay for services accessed, or other activities that violate our terms of service such as cryptocurrency mining or launching cyberattacks. If our efforts to detect such violations or our actions to control these types of fraud and abuse are not effective, we may experience adverse impacts to our revenue or incur reputational damage.\n\n\nRISKS RELATING TO THE EVOLUTION OF OUR BUSINESS\n\n\nWe make significant investments in products and services that may not achieve expected returns.\n We will continue to make significant investments in research, development, and marketing for existing products, services, and technologies, including the Windows operating system, Microsoft 365, Bing, SQL Server, Windows Server, Azure, Office 365, Xbox, LinkedIn, and other products and services. In addition, we are focused on developing new AI platform services and incorporating AI into existing products and services.\n \nWe also invest in the development and acquisition of a variety of hardware for productivity, communication, and entertainment, including PCs, tablets, gaming devices, and HoloLens. Investments in new technology are speculative. Commercial success depends on many factors, including innovativeness, developer support, and effective distribution and marketing. If customers do not perceive our latest offerings as providing significant new functionality or other value, they may reduce their purchases of new software and hardware products or upgrades, unfavorably affecting revenue. We may not achieve significant revenue from new product, service, and distribution channel investments for several years, if at all. New products and services may not be profitable, and even if they are profitable, operating margins for some new products and businesses will not be as high as the margins we have experienced historically. We may not get engagement in certain features, like  Microsoft Edge, Bing, and Bing Chat, that drive post-sale monetization opportunities. Our data handling practices across our products and services will continue to be under scrutiny. Perceptions of mismanagement, driven by regulatory activity or negative public reaction to our practices or product experiences, could negatively impact product and feature adoption, product design, and product quality.\n\n\nDeveloping new technologies is complex. It can require long development and testing periods. Significant delays in new releases or significant problems in creating new products or services could adversely affect our revenue.\n\n\nAcquisitions, joint ventures, and strategic alliances may have an adverse effect on our business.\n We expect to continue making acquisitions and entering into joint ventures and strategic alliances as part of our long-term business strategy. For example, in March 2021 we completed our acquisition of ZeniMax Media Inc. for $8.1 billion, and in \nMarch 2022 we completed our acquisition of Nuance Communications, Inc. for $18.8 billion. In January 2022\n we announced a definitive agreement to acquire \nActivision Blizzard\n, Inc. for $68.7 billion. In January 2023 we announced the third phase of our OpenAI strategic partnership. Acquisitions and other transactions and arrangements involve significant challenges and risks, including that they do not advance our business strategy, that we get an unsatisfactory return on our investment, that they raise new compliance-related obligations and challenges, that we have difficulty integrating and retaining new employees, business systems, and technology, that they distract management from our other businesses, or that announced transactions may not be completed. If an arrangement fails to adequately anticipate changing circumstances and interests of a party, it may result in early termination or renegotiation of the arrangement. The success of these transactions and arrangements will depend in part on our ability to leverage them to enhance our existing products and services or develop compelling new ones, as well as acquired companies\u2019 ability to meet our policies and processes in areas such as data governance, privacy, and cybersecurity. It may take longer than expected to realize the full benefits from these transactions and arrangements such as increased revenue or enhanced efficiencies, or the benefits may ultimately be smaller than we expected. These events could adversely affect our consolidated financial statements.\n\n\n25\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nIf our goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings.\n We acquire other companies and intangible assets and may not realize all the economic benefit from those acquisitions, which could cause an impairment of goodwill or intangibles. We review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. We test goodwill for impairment at least annually. Factors that may be a change in circumstances, indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable, include a decline in our stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in industry segments in which we participate. We have in the past recorded, and may in the future be required to record, a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, negatively affecting our results of operations.\n\n\nCYBERSECURITY, DATA PRIVACY, AND PLATFORM ABUSE RISKS\n\n\nCyberattacks and security vulnerabilities could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position.\n\n\nSecurity of our information technology\n\n\nThreats to IT security can take a variety of forms. Individual and groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states, continuously undertake attacks that pose threats to our customers and our IT. These actors may use a wide variety of methods, which may include developing and deploying malicious software or exploiting vulnerabilities or intentionally designed processes  in hardware, software, or other infrastructure in order to attack our products and services or gain access to our networks and datacenters, using social engineering techniques to induce our employees, users, partners, or customers to disclose passwords or other sensitive information or take other actions to gain access to our data or our users\u2019 or customers\u2019 data, or acting in a coordinated manner to launch distributed denial of service or other coordinated attacks. Nation-state and state-sponsored actors can deploy significant resources to plan and carry out attacks. Nation-state attacks against us, our customers, or our partners may intensify during periods of intense diplomatic or armed conflict, such as the ongoing conflict in Ukraine. Inadequate account security or organizational security practices may also result in unauthorized access to confidential data. For example, system administrators may fail to timely remove employee account access when no longer appropriate. Employees or third parties may intentionally compromise our or our users\u2019 security or systems or reveal confidential information. Malicious actors may employ the IT supply chain to introduce malware through software updates or compromised supplier accounts or hardware.\n\n\nCyberthreats are constantly evolving and becoming increasingly sophisticated and complex, increasing the difficulty of detecting and successfully defending against them. We may have no current capability to detect certain vulnerabilities or new attack methods, which may allow them to persist in the environment over long periods of time. Cyberthreats can have cascading impacts that unfold with increasing speed across our internal networks and systems and those of our partners and customers. Breaches of our facilities, network, or data security could disrupt the security of our systems and business applications, impair our ability to provide services to our customers and protect the privacy of their data, result in product development delays, compromise confidential or technical business information harming our reputation or competitive position, result in theft or misuse of our intellectual property or other assets, subject us to ransomware attacks, require us to allocate more resources to improve technologies or remediate the impacts of attacks, or otherwise adversely affect our business.\n \nWe are also subject to supply chain cyberattacks where malware can be introduced to a software provider\u2019s customers, including us, through software updates.\n\n\nIn addition, our internal IT environment continues to evolve. Often, we are early adopters of new devices and technologies. We embrace new ways of sharing data and communicating internally and with partners and customers using methods such as social networking and other consumer-oriented technologies. Increasing use of generative AI models in our internal systems may create new attack methods for adversaries.\n \nOur business policies and internal security controls may not keep pace with these changes as new threats emerge, or emerging cybersecurity regulations in jurisdictions worldwide.\n\n\n26\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nSecurity of our products, services, devices, and customers\u2019 data\n\n\nThe security of our products and services is important in our customers\u2019 decisions to purchase or use our products or services across cloud and on-premises environments. Security threats are a significant challenge to companies like us whose business is providing technology products and services to others. Threats to our own IT infrastructure can also affect our customers. Customers using our cloud-based services rely on the security of our infrastructure, including hardware and other elements provided by third parties, to ensure the reliability of our services and the protection of their data. Adversaries tend to focus their efforts on the most popular operating systems, programs, and services, including many of ours, and we expect that to continue. In addition, adversaries can attack our customers\u2019 on-premises or cloud environments, sometimes exploiting previously unknown (\u201czero day\u201d) vulnerabilities, such as occurred in early calendar year 2021 with several of our Exchange Server on-premises products. Vulnerabilities in these or any product can persist even after we have issued security patches if customers have not installed the most recent updates, or if the attackers exploited the vulnerabilities before patching to install additional malware to further compromise customers\u2019 systems. Adversaries will continue to attack customers using our cloud services as customers embrace digital transformation. Adversaries that acquire user account information can use that information to compromise our users\u2019 accounts, including where accounts share the same attributes such as passwords. Inadequate account security practices may also result in unauthorized access, and user activity may result in ransomware or other malicious software impacting a customer\u2019s use of our products or services. We are increasingly incorporating open source software into our products. There may be vulnerabilities in open source software that may make our products susceptible to cyberattacks.\n \nAdditionally, we are actively adding new generative AI features to our services. Because generative AI is a new field, understanding of security risks and protection methods continues to develop; features that rely on generative AI may be susceptible to unanticipated security threats from sophisticated adversaries.\n\n\nOur customers operate complex IT systems with third-party hardware and software from multiple vendors that may include systems acquired over many years. They expect our products and services to support all these systems and products, including those that no longer incorporate the strongest current security advances or standards. As a result, we may not be able to discontinue support in our services for a product, service, standard, or feature solely because a more secure alternative is available. Failure to utilize the most current security advances and standards can increase our customers\u2019 vulnerability to attack. Further, customers of widely varied size and technical sophistication use our technology, and consequently may still\n \nhave limited capabilities and resources to help them adopt and implement state of the art cybersecurity practices and technologies. In addition, we must account for this wide variation of technical sophistication when defining default settings for our products and services, including security default settings, as these settings may limit or otherwise impact other aspects of IT operations and some customers may have limited capability to review and reset these defaults.\n\n\nCyberattacks may adversely impact our customers even if our production services are not directly compromised. We are committed to notifying our customers whose systems have been impacted as we become aware and have actionable information for customers to help protect themselves. We are also committed to providing guidance and support on detection, tracking, and remediation. We may not be able to detect the existence or extent of these attacks for all of our customers or have information on how to detect or track an attack, especially where an attack involves on-premises software such as Exchange Server where we may have no or limited visibility into our customers\u2019 computing environments.\n\n\nDevelopment and deployment of defensive measures\n\n\nTo defend against security threats to our internal IT systems, our cloud-based services, and our customers\u2019 systems, we must continuously engineer more secure products and services, enhance security, threat detection, and reliability features, improve the deployment of software updates to address security vulnerabilities in our own products as well as those provided by others, develop mitigation technologies that help to secure customers from attacks even when software updates are not deployed, maintain the digital security infrastructure that protects the integrity of our network, products, and services, and provide security tools such as firewalls, anti-virus software, and advanced security and information about the need to deploy security measures and the impact of doing so. Customers in certain industries such as financial services, health care, and government may have enhanced or specialized requirements to which we must engineer our products and services.\n\n\n27\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nThe cost of measures to protect products and customer-facing services could reduce our operating margins. If we fail to do these things well, actual or perceived security vulnerabilities in our products and services, data corruption issues, or reduced performance could harm our reputation and lead customers to reduce or delay future purchases of products or subscriptions to services, or to use competing products or services. Customers may also spend more on protecting their existing computer systems from attack, which could delay adoption of additional products or services. Customers, and third parties granted access to their systems, may fail to update their systems, continue to run software or operating systems we no longer support, or may fail timely to install or enable security patches, or may otherwise fail to adopt adequate security practices. Any of these could adversely affect our reputation and revenue. Actual or perceived vulnerabilities may lead to claims against us. Our license agreements typically contain provisions that eliminate or limit our exposure to liability, but there is no assurance these provisions will withstand legal challenges. At times, to achieve commercial objectives, we may enter into agreements with larger liability exposure to customers.\n\n\nOur products operate in conjunction with and are dependent on products and components across a broad ecosystem of third parties. If there is a security vulnerability in one of these components, and if there is a security exploit targeting it, we could face increased costs, liability claims, reduced revenue, or harm to our reputation or competitive position.\n\n\nDisclosure and misuse of personal data could result in liability and harm our reputation.\n As we continue to grow the number, breadth, and scale of our cloud-based offerings, we store and process increasingly large amounts of personal data of our customers and users. The continued occurrence of high-profile data breaches provides evidence of an external environment increasingly hostile to information security. Despite our efforts to improve the security controls across our business groups and geographies, it is possible our security controls over personal data, our training of employees and third parties on data security, and other practices we follow may not prevent the improper disclosure or misuse of customer or user data we or our vendors store and manage. In addition, third parties who have limited access to our customer or user data may use this data in unauthorized ways. Improper disclosure or misuse could harm our reputation, lead to legal exposure to customers or users, or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. Our software products and services also enable our customers and users to store and process personal data on-premises or, increasingly, in a cloud-based environment we host. Government authorities can sometimes require us to produce customer or user data in response to valid legal orders. In the U.S. and elsewhere, we advocate for transparency concerning these requests and appropriate limitations on government authority to compel disclosure. Despite our efforts to protect customer and user data, perceptions that the collection, use, and retention of personal information is not satisfactorily protected could inhibit sales of our products or services and could limit adoption of our cloud-based solutions by consumers, businesses, and government entities. Additional security measures we may take to address customer or user concerns, or constraints on our flexibility to determine where and how to operate datacenters in response to customer or user expectations or governmental rules or actions, may cause higher operating expenses or hinder growth of our products and services.\n\n\nWe may not be able to protect information in our products and services from use by others\n. LinkedIn and other Microsoft products and services contain valuable information and content protected by contractual restrictions or technical measures. In certain cases, we have made commitments to our members and users to limit access to or use of this information. Changes in the law or interpretations of the law may weaken our ability to prevent third parties from scraping or gathering information or content through use of bots or other measures and using it for their own benefit, thus diminishing the value of our products and services.\n\n\nAbuse of our platforms may harm our reputation or user engagement.\n\n\nAdvertising, professional, marketplace, and gaming platform abuses\n\n\nFor platform products and services that provide content or host ads that come from or can be influenced by third parties, including GitHub, LinkedIn, Microsoft Advertising, Microsoft News, Microsoft Store, Bing, and Xbox, our reputation or user engagement may be negatively affected by activity that is hostile or inappropriate. This activity may come from users impersonating other people or organizations including through the use of AI technologies, dissemination of information that may be viewed as misleading or intended to manipulate the opinions of our users, or the use of our products or services that violates our terms of service or otherwise for objectionable or illegal ends. Preventing or responding to these actions may require us to make substantial investments in people and technology and these investments may not be successful, adversely affecting our business and consolidated financial statements.\n\n\n28\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nOther digital safety abuses\n\n\nOur hosted consumer services as well as our enterprise services may be used to generate or\n \n disseminate harmful or illegal content in violation of our terms or applicable law. We may not proactively discover such content due to scale, the limitations of existing technologies, and conflicting legal frameworks. When discovered by users and others, such content may negatively affect our reputation, our brands, and user engagement. Regulations and other initiatives to make platforms responsible for preventing or eliminating harmful content online have been enacted, and we expect this to continue. We may be subject to enhanced regulatory oversight, civil or criminal liability, or reputational damage if we fail to comply with content moderation regulations, adversely affecting our business and consolidated financial statements.\n\n\nThe development of the IoT presents security, privacy, and execution risks. \nTo support the growth of the intelligent cloud and the intelligent edge, we are developing products, services, and technologies to power the IoT.  The IoT\u2019s great potential also carries substantial risks. IoT products and services may contain defects in design, manufacture, or operation that make them insecure or ineffective for their intended purposes. An IoT solution has multiple layers of hardware, sensors, processors, software, and firmware, several of which we may not develop or control. Each layer, including the weakest layer, can impact the security of the whole system. Many IoT devices have limited interfaces and ability to be updated or patched. IoT solutions may collect large amounts of data, and our handling of IoT data may not satisfy customers or regulatory requirements. IoT scenarios may increasingly affect personal health and safety. If IoT solutions that include our technologies do not work as intended, violate the law, or harm individuals or businesses, we may be subject to legal claims or enforcement actions. These risks, if realized, may increase our costs, damage our reputation or brands, or negatively impact our revenues or margins.\n\n\nIssues in the development and use of AI may result in reputational or competitive harm or liability\n. We are building AI into many of our offerings, including our productivity services, and we are also making AI available for our customers to use in solutions that they build. This AI may be developed by Microsoft or others, including our strategic partner, OpenAI. We expect these elements of our business to grow. We envision a future in which AI operating in our devices, applications, and the cloud helps our customers be more productive in their work and personal lives. As with many innovations, AI presents risks and challenges that could affect its adoption, and therefore our business. AI algorithms or training methodologies may be flawed. Datasets may be overbroad, insufficient, or contain biased information. Content generated by AI systems may be offensive, illegal, or otherwise harmful. Ineffective or inadequate AI development or deployment practices by Microsoft or others could result in incidents that impair the acceptance of AI solutions or cause harm to individuals, customers, or society, or result in our products and services not working as intended. Human review of certain outputs may be required. As a result of these and other challenges associated with innovative technologies, our implementation of AI systems could subject us to competitive harm, regulatory action, legal liability, including under new proposed legislation regulating AI in jurisdictions such as the European Union (\u201cEU\u201d), new applications of existing data protection, privacy, intellectual property, and other laws, and brand or reputational harm. Some AI scenarios present ethical issues or may have broad impacts on society. If we enable or offer AI solutions that have unintended consequences, unintended usage or customization by our customers and partners, or are controversial because of their impact on human rights, privacy, employment, or other social, economic, or political issues, we may experience brand or reputational harm, adversely affecting our business and consolidated financial statements.\n\n\n29\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nOPERATIONAL RISKS\n\n\nWe may have excessive outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure.\n Our increasing user traffic, growth in services, and the complexity of our products and services demand more computing power. We spend substantial amounts to build, purchase, or lease datacenters and equipment and to upgrade our technology and network infrastructure to handle more traffic on our websites and in our datacenters. Our datacenters depend on the availability of permitted and buildable land,  predictable energy, networking supplies, and servers, including graphics processing units (\u201cGPUs\u201d) and other components. The cost or availability of these dependencies could be adversely affected by a variety of factors, including the transition to a clean energy economy, local and regional environmental regulations, and geopolitical disruptions. These demands continue to increase as we introduce new products and services and support the growth and the augmentation of existing services such as Bing, Azure, Microsoft Account services, Microsoft 365, Microsoft Teams, Dynamics 365, OneDrive, SharePoint Online, Skype, Xbox, and Outlook.com through the incorporation of AI features and/or functionality. We are rapidly growing our business of providing a platform and back-end hosting for services provided by third parties to their end users. Maintaining, securing, and expanding this infrastructure is expensive and complex, and requires development of principles for datacenter builds in geographies with higher safety and reliability risks. It requires that we maintain an Internet connectivity infrastructure and storage and compute capacity that is robust and reliable within competitive and regulatory constraints that continue to evolve. Inefficiencies or operational failures, including temporary or permanent loss of customer data, insufficient Internet connectivity, insufficient or unavailable power supply, or inadequate storage and compute capacity, could diminish the quality of our products, services, and user experience resulting in contractual liability, claims by customers and other third parties, regulatory actions, damage to our reputation, and loss of current and potential users, subscribers, and advertisers, each of which may adversely impact our consolidated financial statements.\n\n\nWe may experience quality or supply problems.\n Our hardware products such as Xbox consoles, Surface devices, and other devices we design and market are highly complex and can have defects in design, manufacture, or associated software. We could incur significant expenses, lost revenue, and reputational harm as a result of recalls, safety alerts, or product liability claims if we fail to prevent, detect, or address such issues through design, testing, or warranty repairs.\n\n\nOur software products and services also may experience quality or reliability problems. The highly sophisticated software we develop may contain bugs and other defects that interfere with their intended operation. Our customers increasingly rely on us for critical business functions and multiple workloads. Many of our products and services are interdependent with one another. Each of these circumstances potentially magnifies the impact of quality or reliability issues. Any defects we do not detect and fix in pre-release testing could cause reduced sales and revenue, damage to our reputation, repair or remediation costs, delays in the release of new products or versions, or legal liability. Although our license agreements typically contain provisions that eliminate or limit our exposure to liability, there is no assurance these provisions will withstand legal challenge.\n\n\nThere are limited suppliers for certain device and datacenter components. Our competitors use some of the same suppliers and their demand for hardware components can affect the capacity available to us. If components are delayed or become unavailable, whether because of supplier capacity constraint, industry shortages, legal or regulatory changes that restrict supply sources, or other reasons, we may not obtain timely replacement supplies, resulting in reduced sales or inadequate datacenter capacity to support the delivery and continued development of our products and services. Component shortages, excess or obsolete inventory, or price reductions resulting in inventory adjustments may increase our cost of revenue. Xbox consoles, Surface devices, datacenter servers, and other hardware are assembled in Asia and other geographies that may be subject to disruptions in the supply chain, resulting in shortages that would affect our revenue and operating margins.\n\n\nLEGAL, REGULATORY, AND LITIGATION RISKS\n\n\nGovernment litigation and regulatory activity relating to competition rules may limit how we design and market our products.\n Government agencies closely scrutinize us under U.S. and foreign competition laws. Governments are actively enforcing competition laws and regulations, and this includes scrutiny in potentially large markets such as the EU, the U.S., and China. Some jurisdictions also allow competitors or consumers to assert claims of anti-competitive conduct. U.S. federal and state antitrust authorities have previously brought enforcement actions and continue to scrutinize our business.\n\n\n30\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nFor example, the European Commission (\u201cthe Commission\u201d) closely scrutinizes the design of high-volume Microsoft products and the terms on which we make certain technologies used in these products, such as file formats, programming interfaces, and protocols, available to other companies. Flagship product releases such as Windows can receive significant scrutiny under EU or other competition laws.\n \n\n\nOur portfolio of first-party devices continues to grow; at the same time our OEM partners offer a large variety of devices for our platforms. As a result, increasingly we both cooperate and compete with our OEM partners, creating a risk that we fail to do so in compliance with competition rules. Regulatory scrutiny in this area may increase. Certain foreign governments, particularly in China and other countries in Asia, have advanced arguments under their competition laws that exert downward pressure on royalties for our intellectual property.\n\n\nCompetition law regulatory actions and court decisions may result in fines or hinder our ability to provide the benefits of our software to consumers and businesses, reducing the attractiveness of our products and the revenue that comes from them. New competition law actions could be initiated, potentially using previous actions as precedent. The outcome of such actions, or steps taken to avoid them, could adversely affect us in a variety of ways, including\n \ncausing us to withdraw products from or modify products for certain markets, decreasing the value of our assets, adversely affecting our ability to monetize our products, or inhibiting our ability to consummate acquisition or impose conditions on acquisitions that may reduce their value.\n\n\nLaws and regulations relating to anti-corruption and trade could result in increased costs, fines, criminal penalties, or reputational damage.\n The Foreign Corrupt Practices Act (\u201cFCPA\u201d) and other anti-corruption laws and regulations (\u201cAnti-Corruption Laws\u201d) prohibit corrupt payments by our employees, vendors, or agents, and the accounting provisions of the FCPA require us to maintain accurate books and records and adequate internal controls. From time to time, we receive inquiries from authorities in the U.S. and elsewhere which may be based on reports from employees and others about our business activities outside the U.S. and our compliance with Anti-Corruption Laws. Periodically, we receive such reports directly and investigate them, and also cooperate with investigations by U.S. and foreign law enforcement authorities. An example of increasing international regulatory complexity is the EU Whistleblower Directive, initiated in 2021, which may present compliance challenges to the extent it is implemented in different forms by EU member states. Most countries in which we operate also have competition laws that prohibit competitors from colluding or otherwise attempting to reduce competition between themselves. While we devote substantial resources to our U.S. and international compliance programs and have implemented policies, training, and internal controls designed to reduce the risk of corrupt payments and collusive activity, our employees, vendors, or agents may violate our policies. Our failure to comply with Anti-Corruption Laws or competition laws could result in significant fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business, and damage to our reputation.\n\n\nIncreasing trade laws, policies, sanctions, and other regulatory requirements also affect our operations in and outside the U.S. relating to trade and investment. Economic sanctions in the U.S., the EU, and other countries prohibit most business with restricted entities or countries. U.S. export controls restrict Microsoft from offering many of its products and services to, or making investments in, certain entities in specified countries. U.S. import controls restrict us from integrating certain information and communication technologies into our supply chain and allow for government review of transactions involving information and communications technology from countries determined to be foreign adversaries. Supply chain regulations may impact the availability of goods or result in additional regulatory scrutiny. Periods of intense diplomatic or armed conflict, such as the ongoing conflict in Ukraine, may result in (1) new and rapidly evolving sanctions and trade restrictions, which may impair trade with sanctioned individuals and countries, and (2) negative impacts to regional trade ecosystems among our customers, partners, and us. Non-compliance with sanctions as well as general ecosystem disruptions could result in reputational harm, operational delays, monetary fines, loss of revenues, increased costs, loss of export privileges, or criminal sanctions.\n\n\n31\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nLaws and regulations relating to the handling of personal data may impede the adoption of our services or result in increased costs, legal claims, fines against us, or reputational damage. \nThe growth of our Internet- and cloud-based services internationally relies increasingly on the movement of data across national boundaries. Legal requirements relating to the collection, storage, handling, and transfer of personal data continue to evolve. For example, while the EU-U.S. Data Privacy Framework (\u201cDPF\u201d) has been recognized as adequate under EU law to allow transfers of personal data from the EU to certified companies in the U.S., the DPF is subject to further legal challenge which could cause the legal requirements for data transfers from the EU to be uncertain. EU data protection authorities have and may again block the use of certain U.S.-based services that involve the transfer of data to the U.S. In the EU and other markets, potential new rules and restrictions on the flow of data across borders could increase the cost and complexity of delivering our products and services.\n \n\n\nIn addition, the EU General Data Protection Regulation (\u201cGDPR\u201d), which applies to all of our activities conducted from an establishment in the EU or related to products and services offered in the EU, imposes a range of compliance obligations regarding the handling of personal data. More recently, the EU has been developing new requirements related to the use of data, including in the Digital Markets Act, the Digital Services Act, and the Data Act, that add additional rules and restriction on the use of data in our products and services. Engineering efforts to build and maintain capabilities to facilitate compliance with these laws involve substantial expense and the diversion of engineering resources from other projects. We might experience reduced demand for our offerings if we are unable to engineer products that meet our legal duties or help our customers meet their obligations under these and other data regulations, or if our implementation to comply makes our offerings less attractive. Compliance with these obligations depends in part on how particular regulators interpret and apply them. If we fail to comply, or if regulators assert we have failed to comply (including in response to complaints made by customers), it may lead to regulatory enforcement actions, which can result in significant monetary penalties, private lawsuits, reputational damage, blockage of international data transfers, and loss of customers. The highest fines assessed under GDPR have recently been increasing, especially against large technology companies. Jurisdictions around the world, such as China, India, and states in the U.S. have adopted, or are considering adopting or expanding, laws and regulations imposing obligations regarding the collection, handling, and transfer of personal data.\n\n\nOur investment in gaining insights from data is becoming central to the value of the services, including AI services, we deliver to customers, to operational efficiency and key opportunities in monetization, and to customer perceptions of quality. Our ability to use data in this way may be constrained by regulatory developments that impede realizing the expected return from this investment. Ongoing legal analyses, reviews, and inquiries by regulators of Microsoft practices, or relevant practices of other organizations, may result in burdensome or inconsistent requirements, including data sovereignty and localization requirements, affecting the location, movement, collection, and use of our customer and internal employee data as well as the management of that data. Compliance with applicable laws and regulations regarding personal data may require changes in services, business practices, or internal systems that result in increased costs, lower revenue, reduced efficiency, or greater difficulty in competing with foreign-based firms. Compliance with data regulations might limit our ability to innovate or offer certain features and functionality in some jurisdictions where we operate. Failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged noncompliant activity, as well as negative publicity and diversion of management time and effort.\n \n\n\nExisting and increasing legal and regulatory requirements could adversely affect our results of operations. \nWe are subject to a wide range of laws, regulations, and legal requirements in the U.S. and globally, including those that may apply to our products and online services offerings, and those that impose requirements related to user privacy, telecommunications, data storage and protection, advertising, and online content. Laws in several jurisdictions, including EU Member State laws under the European Electronic Communications Code, increasingly define certain of our services as regulated telecommunications services. This trend may continue and will result in these offerings being subjected to additional data protection, security, law enforcement surveillance, and other obligations. Regulators and private litigants may assert that our collection, use, and management of customer data and other information is inconsistent with their laws and regulations, including laws that apply to the tracking of users via technology such as cookies. New environmental, social, and governance laws and regulations are expanding mandatory disclosure, reporting, and diligence requirements. Legislative or regulatory action relating to cybersecurity requirements may increase the costs to develop, implement, or secure our products and services. Compliance with evolving digital accessibility laws and standards will require engineering and is important to our efforts to empower all people and organizations to achieve more. Legislative and regulatory action is emerging in the areas of AI and content moderation, which could increase costs or restrict opportunity. For example, in the EU, an AI Act is being considered, and may entail increased costs or decreased opportunities for the operation of our AI services in the European market.\n \n\n\n32\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nHow these laws and regulations apply to our business is often unclear, subject to change over time, and sometimes may be inconsistent from jurisdiction to jurisdiction. In addition, governments\u2019 approach to enforcement, and our products and services, are continuing to evolve. Compliance with existing, expanding, or new laws and regulations may involve significant costs or require changes in products or business practices that could adversely affect our results of operations. Noncompliance could result in the imposition of penalties or orders we cease the alleged noncompliant activity. In addition, there is increasing pressure from advocacy groups, regulators, competitors, customers, and other stakeholders across many of these areas. If our products do not meet customer expectations or legal requirements, we could lose sales opportunities or face regulatory or legal actions.\n\n\nWe have claims and lawsuits against us that may result in adverse outcomes.\n We are subject to a variety of claims and lawsuits. These claims may arise from a wide variety of business practices and initiatives, including major new product releases such as Windows, AI services,  significant business transactions, warranty or product claims,  employment practices, and regulation. Adverse outcomes in some or all of these claims may result in significant monetary damages or injunctive relief that could adversely affect our ability to conduct our business. The litigation and other claims are subject to inherent uncertainties and management\u2019s view of these matters may change in the future. A material adverse impact in our consolidated financial statements could occur for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable.\n\n\nOur business with government customers may present additional uncertainties. \nWe derive substantial revenue from government contracts. Government contracts generally can present risks and challenges not present in private commercial agreements. For instance, we may be subject to government audits and investigations relating to these contracts, we could be suspended or debarred as a governmental contractor, we could incur civil and criminal fines and penalties, and under certain circumstances contracts may be rescinded. Some agreements may allow a government to terminate without cause and provide for higher liability limits for certain losses. Some contracts may be subject to periodic funding approval, reductions, cancellations,  or delays which could adversely impact public-sector demand for our products and services. These events could negatively impact our results of operations, financial condition, and reputation.\n\n\nWe may have additional tax liabilities.\n We are subject to income taxes in the U.S. and many foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. For example, compliance with the 2017 United States Tax Cuts and Jobs Act (\u201cTCJA\u201d) and possible future legislative changes may require the collection of information not regularly produced within the company, the use of estimates in our consolidated financial statements, and the exercise of significant judgment in accounting for its provisions. As regulations and guidance evolve with respect to the TCJA or possible future legislative changes, and as we gather more information and perform more analysis, our results may differ from previous estimates and may materially affect our consolidated financial statements.\n\n\nWe are regularly under audit by tax authorities in different jurisdictions. Although we believe that our provision for income taxes and our tax estimates are reasonable, tax authorities may disagree with certain positions we have taken. In addition, economic and political pressures to increase tax revenue in various jurisdictions may make resolving tax disputes favorably more difficult. We are currently under Internal Revenue Service audit for prior tax years, with the primary unresolved issues relating to transfer pricing. The final resolution of those audits, and other audits or litigation, may differ from the amounts recorded in our consolidated financial statements and may materially affect our consolidated financial statements in the period or periods in which that determination is made.\n\n\nWe earn a significant amount of our operating income outside the U.S. A change in the mix of earnings and losses in countries with differing statutory tax rates, changes in our business or structure, or the expiration of or disputes about certain tax agreements in a particular country may result in higher effective tax rates for the company. In addition, changes in U.S. federal and state or international tax laws applicable to corporate multinationals, other fundamental law changes currently being considered by many countries, including in the U.S., and changes in taxing jurisdictions\u2019 administrative interpretations, decisions, policies, and positions may materially adversely impact our consolidated financial statements.\n\n\n33\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nINTELLECTUAL PROPERTY RISKS\n\n\nWe face risks related to the protection and utilization of our intellectual property that may result in our business and operating results may be harmed. \nProtecting our intellectual property rights and combating unlicensed copying and use of our software and other intellectual property on a global basis is difficult. Similarly, the absence of harmonized patent laws makes it more difficult to ensure consistent respect for patent rights.\n\n\nChanges in the law may continue to weaken our ability to prevent the use of patented technology or collect revenue for licensing our patents. Additionally, licensees of our patents may fail to satisfy their obligations to pay us royalties or may contest the scope and extent of their obligations. Finally, our increasing engagement with open source software will also cause us to license our intellectual property rights broadly in certain situations. If we are unable to protect our intellectual property, our revenue may be adversely affected.\n\n\nSource code, the detailed program commands for our operating systems and other software programs, is critical to our business. If our source code leaks, we might lose future trade secret protection for that code. It may then become easier for third parties to compete with our products by copying functionality, which could adversely affect our revenue and operating results. Unauthorized disclosure of source code also could increase the security risks described elsewhere in these risk factors.\n\n\nThird parties may claim that we infringe their intellectual property.\n From time to time, others claim we infringe their intellectual property rights. To resolve these claims, we may enter into royalty and licensing agreements on terms that are less favorable than currently available, stop selling or redesign affected products or services, or pay damages to satisfy indemnification commitments with our customers. Adverse outcomes could also include monetary damages or injunctive relief that may limit or prevent importing, marketing, and selling our products or services that have infringing technologies. We have paid significant amounts to settle claims related to the use of technology and intellectual property rights and to procure intellectual property rights as part of our strategy to manage this risk, and may continue to do so.\n\n\nGENERAL RISKS\n\n\nIf our reputation or our brands are damaged, our business and operating results may be harmed\n. Our reputation and brands are globally recognized and are important to our business. Our reputation and brands affect our ability to attract and retain consumer, business, and public-sector customers. There are numerous ways our reputation or brands could be damaged. These include product safety or quality issues, our environmental impact and sustainability, supply chain practices, or human rights record. We may experience backlash from customers, government entities, advocacy groups, employees, and other stakeholders that disagree with our product offering decisions or public policy positions. Damage to our reputation or our brands may occur from, among other things:\n \n\n\n\u2022\nThe introduction of new features, products, services, or terms of service that customers, users, or partners do not like.\n\n\n\u2022\nPublic scrutiny of our decisions regarding user privacy, data practices, or content. \n\n\n\u2022\nData security breaches, compliance failures, or actions of partners or individual employees. \n\n\nThe proliferation of social media may increase the likelihood, speed, and magnitude of negative brand events. If our brands or reputation are damaged, it could negatively impact our revenues or margins, or ability to attract the most highly qualified employees.\n\n\nAdverse economic or market conditions may harm our business.\n Worsening economic conditions, including inflation, recession, pandemic, or other changes in economic conditions, may cause lower IT spending and adversely affect our revenue. If demand for PCs, servers, and other computing devices declines, or consumer or business spending for those products declines, our revenue will be adversely affected.\n \n\n\nOur product distribution system relies on an extensive partner and retail network. OEMs building devices that run our software have also been a significant means of distribution. The impact of economic conditions on our partners, such as the bankruptcy of a major distributor, OEM, or retailer, could cause sales channel disruption.\n \n\n\nChallenging economic conditions also may impair the ability of our customers to pay for products and services they have purchased. As a result, allowances for doubtful accounts and write-offs of accounts receivable may increase.\n \n\n\n34\n\n\n\n\nPART I\n\n\nItem 1A\n\n\n\u00a0\n\n\nWe maintain an investment portfolio of various holdings, types, and maturities. These investments are subject to general credit, liquidity, market, and interest rate risks, which may be exacerbated by market downturns or events that affect global financial markets. A significant part of our investment portfolio comprises U.S. government securities. If global financial markets decline for long periods, or if there is a downgrade of the U.S. government credit rating due to an actual or threatened default on government debt, our investment portfolio may be adversely affected and we could determine that more of our investments have experienced a decline in fair value, requiring impairment charges that could adversely affect our consolidated financial statements.\n\n\nCatastrophic events or geopolitical conditions may disrupt our business.\n A disruption or failure of our systems or operations because of a major earthquake, weather event, cyberattack, terrorist attack, pandemic, or other catastrophic event could cause delays in completing sales, providing services, or performing other critical functions. Our corporate headquarters, a significant portion of our research and development activities, and certain other essential business operations are in the Seattle, Washington area, and we have other business operations in the Silicon Valley area of California, both of which are seismically active regions. A catastrophic event that results in the destruction or disruption of any of our critical business or IT systems, or the infrastructure or systems they rely on, such as power grids, could harm our ability to conduct normal business operations. Providing our customers with more services and solutions in the cloud puts a premium on the resilience of our systems and strength of our business continuity management plans and magnifies the potential impact of prolonged service outages in our consolidated financial statements.\n \n\n\nAbrupt political change, terrorist activity, and armed conflict, such as the ongoing conflict in Ukraine, pose a risk of general economic disruption in affected countries, which may increase our operating costs and negatively impact our ability to sell to and collect from customers in affected markets. These conditions also may add uncertainty to the timing and budget for technology investment decisions by our customers and may cause supply chain disruptions for hardware manufacturers. Geopolitical change may result in changing regulatory systems and requirements and market interventions that could impact our operating strategies, access to national, regional, and global markets, hiring, and profitability. Geopolitical instability may lead to sanctions and impact our ability to do business in some markets or with some public-sector customers. Any of these changes may negatively impact our revenues.\n\n\nThe occurrence of regional epidemics or a global pandemic, such as COVID-19, may adversely affect our operations, financial condition, and results of operations. The extent to which global pandemics impact our business going forward will depend on factors such as the duration and scope of the pandemic; governmental, business, and individuals' actions in response to the pandemic; and the impact on economic activity, including the possibility of recession or financial market instability. Measures to contain a global pandemic may intensify other risks described in these Risk Factors.\n\n\nWe may incur increased costs to effectively manage these aspects of our business. If we are unsuccessful, it may adversely impact our revenues, cash flows, market share growth, and reputation.\n\n\nThe long-term effects of climate change on the global economy and the IT industry in particular are unclear. Environmental regulations or changes in the supply, demand, or available sources of energy or other resources may affect the availability or cost of goods and services, including natural resources, necessary to run our business. Changes in climate where we operate may increase the costs of powering and cooling computer hardware we use to develop software and provide cloud-based services.\n\n\n35\n\n\n\n\nPART I\n\n",
+  "item1a": ">Item 1A\n\n\n\u00a0\n\n\nOur global business exposes us to operational and economic risks.\n Our customers are located throughout the world and a significant part of our revenue comes from international sales. The global nature of our business creates operational, economic, and geopolitical risks. Our results of operations may be affected by global, regional, and local economic developments, monetary policy, inflation, and recession, as well as political and military disputes. In addition, our international growth strategy includes certain markets, the developing nature of which presents several risks, including deterioration of social, political, labor, or economic conditions in a country or region, and difficulties in staffing and managing foreign operations. Emerging nationalist and protectionist trends and concerns about human rights, the environment, and political expression in specific countries may significantly alter the trade and commercial environments. Changes to trade policy or agreements as a result of populism, protectionism, or economic nationalism may result in higher tariffs, local sourcing initiatives, and non-local sourcing restrictions, export controls, investment restrictions, or other developments that make it more difficult to sell our products in foreign countries. Disruptions of these kinds in developed or emerging markets could negatively impact demand for our products and services,  impair our ability to operate in certain regions, or increase operating costs. Although we hedge a portion of our international currency exposure, significant fluctuations in foreign exchange rates between the U.S. dollar and foreign currencies may adversely affect our results of operations.\n \n\n\nOur business depends on our ability to attract and retain talented employees.\n Our business is based on successfully attracting and retaining talented employees representing diverse backgrounds, experiences, and skill sets. The market for highly skilled workers and leaders in our industry is extremely competitive. Maintaining our brand and reputation, as well as a diverse and inclusive work environment that enables all our employees to thrive, are important to our ability to recruit and retain employees. We are also limited in our ability to recruit internationally by restrictive domestic immigration laws. Changes to U.S. immigration policies that restrain the flow of technical and professional talent may inhibit our ability to adequately staff our research and development efforts. If we are less successful in our recruiting efforts, or if we cannot retain highly skilled workers and key leaders, our ability to develop and deliver successful products and services may be adversely affected. Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. How employment-related laws are interpreted and applied to our workforce practices may result in increased operating costs and less flexibility in how we meet our workforce needs. Our global workforce is predominantly non-unionized, although we do have some employees in the U.S. and internationally who are represented by unions or works councils. In the U.S., there has been a general increase in workers exercising their right to form or join a union. The unionization of significant employee populations could result in higher costs and other operational changes necessary to respond to changing conditions and to establish new relationships with worker representatives.\n\n\n36\n\n\n\n\nPART I\n\n\nItem 1B, 2, 3, 4\n\n\n\u00a0\n\n",
+  "item7": ">Item 7\n\n\n\u00a0\n\n\nSTATEMENT OF MANAGEMENT\u2019S RESPONSIBILITY FOR FINANCIAL STATEMENTS\n \n\n\nManagement is responsible for the preparation of the consolidated financial statements and related information that are presented in this report. The consolidated financial statements, which include amounts based on management\u2019s estimates and judgments, have been prepared in conformity with accounting principles generally accepted in the United States of America.\n \n\n\nThe Company designs and maintains accounting and internal control systems to provide reasonable assurance at reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing consolidated financial statements and maintaining accountability for assets. These systems are augmented by written policies, an organizational structure providing division of responsibilities, careful selection and training of qualified personnel, and a program of internal audits.\n \n\n\nThe Company engaged Deloitte & Touche LLP, an independent registered public accounting firm, to audit and render an opinion on the consolidated financial statements and internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).\n \n\n\nThe Board of Directors, through its Audit Committee, consisting solely of independent directors of the Company, meets periodically with management, internal auditors, and our independent registered public accounting firm to ensure that each is meeting its responsibilities and to discuss matters concerning internal controls and financial reporting. Deloitte & Touche LLP and the internal auditors each have full and free access to the Audit Committee.\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\nSatya Nadella\n\n\n\n\n\n\nChief Executive Officer\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nAmy E. Hood\n\n\n\n\n\n\nExecutive Vice President and Chief Financial Officer\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nAlice L. Jolla\n\n\n\n\n\n\nCorporate Vice President and Chief Accounting Officer\n\n\n\n\n\n\n\u00a0\n\n\n56\n\n\n\n\nPART II\n\n\nItem 7A\n\n\n\u00a0\n\n",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITAT\nIVE DISCLOSURES ABOUT MARKET RISK\n\n\nRISKS\n \n\n\nWe are exposed to economic risk from foreign exchange rates, interest rates, credit risk, and equity prices. We use derivatives instruments to manage these risks, however, they may still impact our consolidated financial statements.\n \n\n\nForeign Currencies\n \n\n\nCertain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency positions, including hedges. Principal currency exposures include the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar.\n \n\n\nInterest Rate\n \n\n\nSecurities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We manage the average maturity of the fixed-income portfolio to achieve economic returns that correlate to certain global fixed-income indices.\n \n\n\nCredit\n\n\nOur fixed-income portfolio is diversified and consists primarily of investment-grade securities. We manage credit exposures relative to broad-based indices to facilitate portfolio diversification.\n \n\n\nEquity\n \n\n\nSecurities held in our equity investments portfolio are subject to price risk.\n \n\n\nSENSITIVITY ANALYSIS\n\n\nThe following table sets forth the potential loss in future earnings or fair values, including associated derivatives, resulting from hypothetical changes in relevant market rates or prices:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRisk Categories\n\n\n\u00a0\n\n\nHypothetical Change\n\n\n \n\n\nJune 30,\n2023\n\n\n \n\n\n \n\n\nImpact\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nForeign currency \u2013 Revenue\n\n\n \n\n\n10% decrease in foreign exchange rates\n\n\n \n\n\n$\n\n\n(8,122\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\nEarnings\n\n\n \n\n\n\n\n\n\nForeign currency \u2013 Investments\n\n\n \n\n\n10% decrease in foreign exchange rates\n\n\n \n\n\n \n\n\n(29\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value\n\n\n \n\n\n\n\n\n\nInterest rate\n\n\n \n\n\n100 basis point increase in U.S. treasury interest rates\n\n\n \n\n\n \n\n\n(1,832\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value\n\n\n \n\n\n\n\n\n\nCredit\n \n\n\n \n\n\n100 basis point increase in credit spreads\n\n\n \n\n\n \n\n\n(354\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value\n\n\n \n\n\n\n\n\n\nEquity\n\n\n \n\n\n10% decrease in equity market prices\n\n\n \n\n\n \n\n\n(705\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\nEarnings\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n57\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nITEM 8. FINANCIAL STATE\nMENTS AND SUPPLEMENTARY DATA\n\n\nINC\nOME STATEMENTS\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions, except per share amounts)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRevenue:\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nProduct\n\n\n\u00a0\n\n\n$\n\n\n64,699\n\n\n \n\n\n \n\n\n$\n\n\n72,732\n\n\n \n\n\n \n\n\n$\n\n\n71,074\n\n\n \n\n\n\n\n\n\nService and other\n\n\n\u00a0\n\n\n\u00a0\n\n\n147,216\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n125,538\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n97,014\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n211,915\n\n\n \n\n\n \n\n\n\u00a0\n\n\n198,270\n\n\n \n\n\n \n\n\n\u00a0\n\n\n168,088\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCost of revenue:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProduct\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,804\n\n\n \n\n\n \n\n\n \n\n\n19,064\n\n\n \n\n\n \n\n\n \n\n\n18,219\n\n\n \n\n\n\n\n\n\nService and other\n\n\n\u00a0\n\n\n\u00a0\n\n\n48,059\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n43,586\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34,013\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal cost of revenue\n\n\n \n\n\n \n\n\n65,863\n\n\n \n\n\n \n\n\n \n\n\n62,650\n\n\n \n\n\n \n\n\n \n\n\n52,232\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGross margin\n\n\n \n\n\n \n\n\n146,052\n\n\n \n\n\n \n\n\n \n\n\n135,620\n\n\n \n\n\n \n\n\n \n\n\n115,856\n\n\n \n\n\n\n\n\n\nResearch and development\n\n\n \n\n\n \n\n\n27,195\n\n\n \n\n\n \n\n\n \n\n\n24,512\n\n\n \n\n\n \n\n\n \n\n\n20,716\n\n\n \n\n\n\n\n\n\nSales and marketing\n\n\n \n\n\n \n\n\n22,759\n\n\n \n\n\n \n\n\n \n\n\n21,825\n\n\n \n\n\n \n\n\n \n\n\n20,117\n\n\n \n\n\n\n\n\n\nGeneral and administrative\n\n\n \n\n\n \n\n\n7,575\n\n\n \n\n\n \n\n\n \n\n\n5,900\n\n\n \n\n\n \n\n\n \n\n\n5,107\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating income\n\n\n \n\n\n \n\n\n88,523\n\n\n \n\n\n \n\n\n \n\n\n83,383\n\n\n \n\n\n \n\n\n \n\n\n69,916\n\n\n \n\n\n\n\n\n\nOther income, net\n \n\n\n \n\n\n \n\n\n788\n\n\n \n\n\n \n\n\n \n\n\n333\n\n\n \n\n\n \n\n\n \n\n\n1,186\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome before income taxes\n\n\n \n\n\n \n\n\n89,311\n\n\n \n\n\n \n\n\n \n\n\n83,716\n\n\n \n\n\n \n\n\n \n\n\n71,102\n\n\n \n\n\n\n\n\n\nProvision for income taxes\n\n\n \n\n\n \n\n\n16,950\n\n\n \n\n\n \n\n\n \n\n\n10,978\n\n\n \n\n\n \n\n\n \n\n\n9,831\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n \n\n\n$\n\n\n72,361\n\n\n \n\n\n \n\n\n$\n\n\n72,738\n\n\n \n\n\n \n\n\n$\n\n\n61,271\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEarnings per share:\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nBasic\n\n\n \n\n\n$\n\n\n9.72\n\n\n \n\n\n \n\n\n$\n\n\n9.70\n\n\n \n\n\n \n\n\n$\n\n\n8.12\n\n\n \n\n\n\n\n\n\nDiluted\n\n\n \n\n\n$\n\n\n9.68\n\n\n \n\n\n \n\n\n$\n\n\n9.65\n\n\n \n\n\n \n\n\n$\n\n\n8.05\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nWeighted average shares outstanding:\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nBasic\n\n\n \n\n\n \n\n\n7,446\n\n\n \n\n\n \n\n\n \n\n\n7,496\n\n\n \n\n\n \n\n\n \n\n\n7,547\n\n\n \n\n\n\n\n\n\nDiluted\n\n\n \n\n\n \n\n\n7,472\n\n\n \n\n\n \n\n\n \n\n\n7,540\n\n\n \n\n\n \n\n\n \n\n\n7,608\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nRefer to accompanying notes.\n \n\n\n58\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nCOMPREHENSIVE IN\nCOME STATEMENTS\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n \n\n\n$\n\n\n72,361\n\n\n \n\n\n \n\n\n$\n\n\n72,738\n\n\n \n\n\n \n\n\n$\n\n\n61,271\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOther comprehensive income (loss), net of tax:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet change related to derivatives\n\n\n\u00a0\n\n\n \n\n\n(\n14\n\n\n)\n\n\n\u00a0\n\n\n \n\n\n6\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n19\n\n\n\u00a0\n\n\n\n\n\n\nNet change related to investments\n\n\n\u00a0\n\n\n \n\n\n(\n1,444\n\n\n)\n\n\n\u00a0\n\n\n \n\n\n(\n5,360\n\n\n)\n\n\n\u00a0\n\n\n \n\n\n(\n2,266\n\n\n)\n\n\n\n\n\n\nTranslation adjustments and other\n\n\n\u00a0\n\n\n \n\n\n(\n207\n\n\n)\n\n\n\u00a0\n\n\n \n\n\n(\n1,146\n\n\n)\n\n\n\u00a0\n\n\n \n\n\n873\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOther comprehensive loss\n\n\n \n\n\n \n\n\n(\n1,665\n\n\n)\n\n\n \n\n\n \n\n\n(\n6,500\n\n\n)\n\n\n \n\n\n \n\n\n(\n1,374\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nComprehensive income\n\n\n \n\n\n$\n\n\n70,696\n\n\n \n\n\n \n\n\n$\n\n\n66,238\n\n\n \n\n\n \n\n\n$\n\n\n59,897\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nRefer to accompanying notes.\n \n\n\n59\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nBALANCE\n SHEETS\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAssets\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nCurrent assets:\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nCash and cash equivalents\n\n\n \n\n\n$\n\n\n34,704\n\n\n \n\n\n \n\n\n$\n\n\n13,931\n\n\n \n\n\n\n\n\n\nShort-term investments\n\n\n \n\n\n \n\n\n76,558\n\n\n \n\n\n \n\n\n \n\n\n90,826\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\nTotal cash, cash equivalents, and short-term investments\n\n\n \n\n\n \n\n\n111,262\n\n\n \n\n\n \n\n\n \n\n\n104,757\n\n\n \n\n\n\n\n\n\nAccounts receivable, net of allowance for doubtful accounts of \n$\n650\n\u00a0and $\n633\n\n\n \n\n\n \n\n\n48,688\n\n\n \n\n\n \n\n\n \n\n\n44,261\n\n\n \n\n\n\n\n\n\nInventories\n\n\n \n\n\n \n\n\n2,500\n\n\n \n\n\n \n\n\n \n\n\n3,742\n\n\n \n\n\n\n\n\n\nOther current assets\n\n\n \n\n\n \n\n\n21,807\n\n\n \n\n\n \n\n\n \n\n\n16,924\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\nTotal current assets\n\n\n \n\n\n \n\n\n184,257\n\n\n \n\n\n \n\n\n \n\n\n169,684\n\n\n \n\n\n\n\n\n\nProperty and equipment, net of accumulated depreciation of \n$\n68,251\n \nand $\n59,660\n\n\n\u00a0\n\n\n \n\n\n95,641\n\n\n \n\n\n \n\n\n \n\n\n74,398\n\n\n \n\n\n\n\n\n\nOperating lease right-of-use assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,346\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,148\n\n\n\u00a0\n\n\n\n\n\n\nEquity investments\n\n\n \n\n\n \n\n\n9,879\n\n\n \n\n\n \n\n\n \n\n\n6,891\n\n\n \n\n\n\n\n\n\nGoodwill\n\n\n \n\n\n \n\n\n67,886\n\n\n \n\n\n \n\n\n \n\n\n67,524\n\n\n \n\n\n\n\n\n\nIntangible assets, net\n\n\n \n\n\n \n\n\n9,366\n\n\n \n\n\n \n\n\n \n\n\n11,298\n\n\n \n\n\n\n\n\n\nOther long-term assets\n\n\n \n\n\n \n\n\n30,601\n\n\n \n\n\n \n\n\n \n\n\n21,897\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\nTotal assets\n\n\n \n\n\n$\n\n\n411,976\n\n\n \n\n\n \n\n\n$\n\n\n364,840\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nLiabilities and stockholders\u2019 equity\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nCurrent liabilities:\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nAccounts payable\n\n\n \n\n\n$\n\n\n18,095\n\n\n \n\n\n \n\n\n$\n\n\n19,000\n\n\n \n\n\n\n\n\n\nCurrent portion of long-term debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,247\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,749\n\n\n\u00a0\n\n\n\n\n\n\nAccrued compensation\n\n\n \n\n\n \n\n\n11,009\n\n\n \n\n\n \n\n\n \n\n\n10,661\n\n\n \n\n\n\n\n\n\nShort-term income taxes\n\n\n \n\n\n \n\n\n4,152\n\n\n\u00a0\n\n\n \n\n\n \n\n\n4,067\n\n\n \n\n\n\n\n\n\nShort-term unearned revenue\n\n\n \n\n\n \n\n\n50,901\n\n\n \n\n\n \n\n\n \n\n\n45,538\n\n\n \n\n\n\n\n\n\nOther current liabilities\n\n\n \n\n\n \n\n\n14,745\n\n\n \n\n\n \n\n\n \n\n\n13,067\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\nTotal current liabilities\n\n\n \n\n\n \n\n\n104,149\n\n\n \n\n\n \n\n\n \n\n\n95,082\n\n\n \n\n\n\n\n\n\nLong-term debt\n\n\n \n\n\n \n\n\n41,990\n\n\n \n\n\n \n\n\n \n\n\n47,032\n\n\n \n\n\n\n\n\n\nLong-term income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,560\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,069\n\n\n\u00a0\n\n\n\n\n\n\nLong-term unearned revenue\n\n\n \n\n\n \n\n\n2,912\n\n\n \n\n\n \n\n\n \n\n\n2,870\n\n\n \n\n\n\n\n\n\nDeferred income taxes\n\n\n \n\n\n \n\n\n433\n\n\n \n\n\n \n\n\n \n\n\n230\n\n\n \n\n\n\n\n\n\nOperating lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,728\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,489\n\n\n\u00a0\n\n\n\n\n\n\nOther long-term liabilities\n\n\n \n\n\n \n\n\n17,981\n\n\n \n\n\n \n\n\n \n\n\n15,526\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal liabilities\n\n\n \n\n\n \n\n\n205,753\n\n\n \n\n\n \n\n\n \n\n\n198,298\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCommitments and contingencies\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nStockholders\u2019 equity:\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nCommon stock and paid-in capital \u2013 shares authorized \n24,000\n; outstanding \n7,432\n \nand \n7,464\n\n\n \n\n\n \n\n\n93,718\n\n\n \n\n\n \n\n\n \n\n\n86,939\n\n\n \n\n\n\n\n\n\nRetained earnings\n\n\n \n\n\n \n\n\n118,848\n\n\n \n\n\n \n\n\n \n\n\n84,281\n\n\n \n\n\n\n\n\n\nAccumulated other comprehensive loss\n\n\n \n\n\n \n\n\n(\n6,343\n\n\n)\n\n\n \n\n\n \n\n\n(\n4,678\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\nTotal stockholders\u2019 equity\n\n\n \n\n\n \n\n\n206,223\n\n\n \n\n\n \n\n\n \n\n\n166,542\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\nTotal liabilities and stockholders\u2019 equity\n\n\n \n\n\n$\n\n\n411,976\n\n\n \n\n\n \n\n\n$\n\n\n364,840\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nRefer to accompanying notes.\n \n\n\n60\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nCASH FLOWS S\nTATEMENTS\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperations\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nNet income\n\n\n \n\n\n$\n\n\n72,361\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n72,738\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n61,271\n\n\n\u00a0\n\n\n\n\n\n\nAdjustments to reconcile net income to net cash from operations:\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nDepreciation, amortization, and other\n\n\n \n\n\n \n\n\n13,861\n\n\n \n\n\n \n\n\n \n\n\n14,460\n\n\n \n\n\n \n\n\n \n\n\n11,686\n\n\n \n\n\n\n\n\n\nStock-based compensation expense\n\n\n \n\n\n \n\n\n9,611\n\n\n \n\n\n \n\n\n \n\n\n7,502\n\n\n \n\n\n \n\n\n \n\n\n6,118\n\n\n \n\n\n\n\n\n\nNet recognized losses (gains) on investments and derivatives\n\n\n \n\n\n \n\n\n196\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(\n409\n\n\n)\n\n\n \n\n\n \n\n\n(\n1,249\n\n\n)\n\n\n\n\n\n\nDeferred income taxes\n\n\n \n\n\n \n\n\n(\n6,059\n\n\n)\n\n\n \n\n\n \n\n\n(\n5,702\n\n\n)\n\n\n \n\n\n \n\n\n(\n150\n\n\n)\n\n\n\n\n\n\nChanges in operating assets and liabilities:\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nAccounts receivable\n\n\n \n\n\n \n\n\n(\n4,087\n\n\n)\n\n\n \n\n\n \n\n\n(\n6,834\n\n\n)\n\n\n \n\n\n \n\n\n(\n6,481\n\n\n)\n\n\n\n\n\n\nInventories\n\n\n \n\n\n \n\n\n1,242\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n(\n1,123\n\n\n)\n\n\n \n\n\n \n\n\n(\n737\n\n\n)\n\n\n\n\n\n\nOther current assets\n\n\n \n\n\n \n\n\n(\n1,991\n\n\n)\n\n\n \n\n\n \n\n\n(\n709\n\n\n)\n\n\n \n\n\n \n\n\n(\n932\n\n\n)\n\n\n\n\n\n\nOther long-term assets\n\n\n \n\n\n \n\n\n(\n2,833\n\n\n)\n\n\n \n\n\n \n\n\n(\n2,805\n\n\n)\n\n\n \n\n\n \n\n\n(\n3,459\n\n\n)\n\n\n\n\n\n\nAccounts payable\n\n\n \n\n\n \n\n\n(\n2,721\n\n\n)\n\n\n \n\n\n \n\n\n2,943\n\n\n\u00a0\n\n\n \n\n\n \n\n\n2,798\n\n\n\u00a0\n\n\n\n\n\n\nUnearned revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,535\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,109\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,633\n\n\n\u00a0\n\n\n\n\n\n\nIncome taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n358\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n696\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,309\n\n\n)\n\n\n\n\n\n\nOther current liabilities\n\n\n \n\n\n \n\n\n2,272\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n2,344\n\n\n\u00a0\n\n\n \n\n\n \n\n\n4,149\n\n\n\u00a0\n\n\n\n\n\n\nOther long-term liabilities\n\n\n \n\n\n \n\n\n553\n\n\n \n\n\n \n\n\n \n\n\n825\n\n\n \n\n\n \n\n\n \n\n\n1,402\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet cash from operations\n\n\n \n\n\n \n\n\n87,582\n\n\n \n\n\n \n\n\n \n\n\n89,035\n\n\n \n\n\n \n\n\n \n\n\n76,740\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFinancing\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nCash premium on debt exchange\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,754\n\n\n)\n\n\n\n\n\n\nRepayments of debt\n\n\n \n\n\n \n\n\n(\n2,750\n\n\n)\n\n\n \n\n\n \n\n\n(\n9,023\n\n\n)\n\n\n \n\n\n \n\n\n(\n3,750\n\n\n)\n\n\n\n\n\n\nCommon stock issued\n\n\n \n\n\n \n\n\n1,866\n\n\n \n\n\n \n\n\n \n\n\n1,841\n\n\n \n\n\n \n\n\n \n\n\n1,693\n\n\n \n\n\n\n\n\n\nCommon stock repurchased\n\n\n \n\n\n \n\n\n(\n22,245\n\n\n)\n\n\n \n\n\n \n\n\n(\n32,696\n\n\n)\n\n\n \n\n\n \n\n\n(\n27,385\n\n\n)\n\n\n\n\n\n\nCommon stock cash dividends paid\n\n\n \n\n\n \n\n\n(\n19,800\n\n\n)\n\n\n \n\n\n \n\n\n(\n18,135\n\n\n)\n\n\n \n\n\n \n\n\n(\n16,521\n\n\n)\n\n\n\n\n\n\nOther, net\n\n\n \n\n\n \n\n\n(\n1,006\n\n\n)\n\n\n \n\n\n \n\n\n(\n863\n\n\n)\n\n\n \n\n\n \n\n\n(\n769\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet cash used in financing\n\n\n \n\n\n \n\n\n(\n43,935\n\n\n)\n\n\n \n\n\n \n\n\n(\n58,876\n\n\n)\n\n\n \n\n\n \n\n\n(\n48,486\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInvesting\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nAdditions to property and equipment\n\n\n \n\n\n \n\n\n(\n28,107\n\n\n)\n\n\n \n\n\n \n\n\n(\n23,886\n\n\n)\n\n\n \n\n\n \n\n\n(\n20,622\n\n\n)\n\n\n\n\n\n\nAcquisition of companies, net of cash acquired, and purchases of intangible and other assets\n\n\n \n\n\n \n\n\n(\n1,670\n\n\n)\n\n\n \n\n\n \n\n\n(\n22,038\n\n\n)\n\n\n \n\n\n \n\n\n(\n8,909\n\n\n)\n\n\n\n\n\n\nPurchases of investments\n\n\n \n\n\n \n\n\n(\n37,651\n\n\n)\n\n\n \n\n\n \n\n\n(\n26,456\n\n\n)\n\n\n \n\n\n \n\n\n(\n62,924\n\n\n)\n\n\n\n\n\n\nMaturities of investments\n\n\n \n\n\n \n\n\n33,510\n\n\n \n\n\n \n\n\n \n\n\n16,451\n\n\n \n\n\n \n\n\n \n\n\n51,792\n\n\n \n\n\n\n\n\n\nSales of investments\n\n\n \n\n\n \n\n\n14,354\n\n\n \n\n\n \n\n\n \n\n\n28,443\n\n\n \n\n\n \n\n\n \n\n\n14,008\n\n\n \n\n\n\n\n\n\nOther, net\n\n\n \n\n\n \n\n\n(\n3,116\n\n\n)\n\n\n \n\n\n \n\n\n(\n2,825\n\n\n)\n\n\n \n\n\n \n\n\n(\n922\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet cash used in investing\n\n\n \n\n\n \n\n\n(\n22,680\n\n\n)\n\n\n \n\n\n \n\n\n(\n30,311\n\n\n)\n\n\n \n\n\n \n\n\n(\n27,577\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEffect of foreign exchange rates on cash and cash equivalents\n\n\n \n\n\n \n\n\n(\n194\n\n\n)\n\n\n \n\n\n \n\n\n(\n141\n\n\n)\n\n\n \n\n\n \n\n\n(\n29\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet change in cash and cash equivalents\n\n\n \n\n\n \n\n\n20,773\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(\n293\n\n\n)\n\n\n \n\n\n \n\n\n648\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents, beginning of period\n\n\n \n\n\n \n\n\n13,931\n\n\n \n\n\n \n\n\n \n\n\n14,224\n\n\n \n\n\n \n\n\n \n\n\n13,576\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents, end of period\n\n\n \n\n\n$\n\n\n34,704\n\n\n \n\n\n \n\n\n$\n\n\n13,931\n\n\n \n\n\n \n\n\n$\n\n\n14,224\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nRefer to accompanying notes.\n\n\n61\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nSTOCKHOLDERS\u2019 EQ\nUITY STATEMENTS\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions, except per share amounts)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCommon stock and paid-in capital\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nBalance, beginning of period\n\n\n \n\n\n$\n\n\n86,939\n\n\n \n\n\n \n\n\n$\n\n\n83,111\n\n\n \n\n\n \n\n\n$\n\n\n80,552\n\n\n \n\n\n\n\n\n\nCommon stock issued\n\n\n \n\n\n \n\n\n1,866\n\n\n \n\n\n \n\n\n \n\n\n1,841\n\n\n \n\n\n \n\n\n \n\n\n1,963\n\n\n \n\n\n\n\n\n\nCommon stock repurchased\n\n\n \n\n\n \n\n\n(\n4,696\n\n\n)\n\n\n \n\n\n \n\n\n(\n5,688\n\n\n)\n\n\n \n\n\n \n\n\n(\n5,539\n\n\n)\n\n\n\n\n\n\nStock-based compensation expense\n\n\n \n\n\n \n\n\n9,611\n\n\n \n\n\n \n\n\n \n\n\n7,502\n\n\n \n\n\n \n\n\n \n\n\n6,118\n\n\n \n\n\n\n\n\n\nOther, net\n\n\n \n\n\n \n\n\n(\n2\n\n\n)\n\n\n \n\n\n \n\n\n173\n\n\n\u00a0\n\n\n \n\n\n \n\n\n17\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, end of period\n\n\n \n\n\n \n\n\n93,718\n\n\n \n\n\n \n\n\n \n\n\n86,939\n\n\n \n\n\n \n\n\n \n\n\n83,111\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRetained earnings\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nBalance, beginning of period\n\n\n \n\n\n \n\n\n84,281\n\n\n\u00a0\n\n\n \n\n\n \n\n\n57,055\n\n\n\u00a0\n\n\n \n\n\n \n\n\n34,566\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n \n\n\n \n\n\n72,361\n\n\n \n\n\n \n\n\n \n\n\n72,738\n\n\n \n\n\n \n\n\n \n\n\n61,271\n\n\n \n\n\n\n\n\n\nCommon stock cash dividends\n\n\n \n\n\n \n\n\n(\n20,226\n\n\n)\n\n\n \n\n\n \n\n\n(\n18,552\n\n\n)\n\n\n \n\n\n \n\n\n(\n16,871\n\n\n)\n\n\n\n\n\n\nCommon stock repurchased\n\n\n \n\n\n \n\n\n(\n17,568\n\n\n)\n\n\n \n\n\n \n\n\n(\n26,960\n\n\n)\n\n\n \n\n\n \n\n\n(\n21,879\n\n\n)\n\n\n\n\n\n\nCumulative effect of accounting changes\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n(\n32\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, end of period\n\n\n \n\n\n \n\n\n118,848\n\n\n \n\n\n \n\n\n \n\n\n84,281\n\n\n \n\n\n \n\n\n \n\n\n57,055\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAccumulated other comprehensive income (loss)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nBalance, beginning of period\n\n\n \n\n\n \n\n\n(\n4,678\n\n\n)\n\n\n \n\n\n \n\n\n1,822\n\n\n \n\n\n \n\n\n \n\n\n3,186\n\n\n\u00a0\n\n\n\n\n\n\nOther comprehensive loss\n\n\n \n\n\n \n\n\n(\n1,665\n\n\n)\n\n\n \n\n\n \n\n\n(\n6,500\n\n\n)\n\n\n \n\n\n \n\n\n(\n1,374\n\n\n)\n\n\n\n\n\n\nCumulative effect of accounting changes\n\n\n\u00a0\n\n\n \n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, end of period\n\n\n \n\n\n \n\n\n(\n6,343\n\n\n)\n\n\n \n\n\n \n\n\n(\n4,678\n\n\n)\n\n\n \n\n\n \n\n\n1,822\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal stockholders\u2019 equity\n\n\n \n\n\n$\n\n\n206,223\n\n\n \n\n\n \n\n\n$\n\n\n166,542\n\n\n \n\n\n \n\n\n$\n\n\n141,988\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash dividends declared per common share\n\n\n \n\n\n$\n\n\n2.72\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2.48\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n2.24\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nRefer to accompanying notes.\n \n\n\n62\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nNOTES TO FINANCI\nAL STATEMENTS\n \n\n\nNOTE 1 \u2014 ACCOUNTING POLICIES\nAccounting Principles\n \nOur consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (\u201cGAAP\u201d).\nWe have recast certain prior period amounts to conform to the current period presentation. The recast of these prior period amounts had no impact on our consolidated balance sheets, consolidated income statements, or consolidated cash flows statements.\n \nPrinciples of Consolidation\n \nThe consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated.\n \nEstimates and Assumptions\n \nPreparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price (\u201cSSP\u201d) of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; product warranties; the fair value of and/or potential impairment of goodwill and intangible assets for our reporting units; product life cycles; useful lives of our tangible and intangible assets; allowances for doubtful accounts; the market value of, and demand for, our inventory; stock-based compensation forfeiture rates; when technological feasibility is achieved for our products; the potential outcome of uncertain tax positions that have been recognized in our consolidated financial statements or tax returns; and determining the timing and amount of impairments for investments. Actual results and outcomes may differ from management\u2019s estimates and assumptions due to risks and uncertainties.\nIn July 2022, we completed an assessment of the useful lives of our server and network equipment. Due to investments in software that increased efficiencies in how we operate our server and network equipment, as well\n as advances in technology, we determined we should increase the estimated useful lives of both server and network equipment from \nfour years\n to \nsix years\n. This change in accounting estimate was effective beginning fiscal year 2023. Based on the carrying amount of server and network equipment included in property and equipment, net as of June 30, 2022, the effect of this change in estimate for fiscal year 2023 was an increase in operating income of $\n3.7\n billion and net income of $\n3.0\n billion, or $\n0.40\n per both basic and diluted share.\nForeign Currencies\n \nAssets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income.\n \nRevenue\nProduct Revenue and Service and Other Revenue\n \nProduct revenue includes sales from operating systems, cross-device productivity and collaboration applications, server applications, business solution applications, desktop and server management tools, software development tools, video games, and hardware such as PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.\n \nService and other revenue includes sales from cloud-based solutions that provide customers with software, services, platforms, and content such as Office 365, Azure, Dynamics 365, and Xbox; solution support; and consulting services. Service and other revenue also includes sales from online advertising and LinkedIn.\n63\n\n\nPART II\nItem 8\n\u00a0\nRevenue Recognition\nRevenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.\n \nNature of Products and Services\nLicenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. In cases where we allocate revenue to software updates, primarily because the updates are provided at no additional charge, revenue is recognized as the updates are provided, which is generally ratably over the estimated life of the related device or license.\nCertain volume licensing programs, including Enterprise Agreements, include on-premises licenses combined with Software Assurance (\u201cSA\u201d). SA conveys rights to new software and upgrades released over the contract period and provides support, tools, and training to help customers deploy and use products more efficiently. On-premises licenses are considered distinct performance obligations when sold with SA. Revenue allocated to SA is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits, given that SA comprises distinct performance obligations that are satisfied over time.\n \nCloud services, which allow customers to use hosted software over the contract period without taking possession of the software, are provided on either a subscription or consumption basis. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract period. Revenue related to cloud services provided on a consumption basis, such as the amount of storage used in a period, is recognized based on the customer utilization of such resources. When cloud services require a significant level of integration and interdependency with software and the individual components are not considered distinct, all revenue is recognized over the period in which the cloud services are provided.\n \nRevenue from search advertising is recognized when the advertisement appears in the search results or when the action necessary to earn the revenue has been completed. Revenue from consulting services is recognized as services are provided.\n \nOur hardware is generally highly dependent on, and interrelated with, the underlying operating system and cannot function without the operating system. In these cases, the hardware and software license are accounted for as a single performance obligation and revenue is recognized at the point in time when ownership is transferred to resellers or directly to end customers through retail stores and online marketplaces.\n \nRefer to Note 19 \u2013 Segment Information and Geographic Data for further information, including revenue by significant product and service offering.\nSignificant Judgments\nOur contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided.\n64\n\n\nPART II\nItem 8\n\u00a0\nJudgment is required to determine the SSP for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.\n \nIn instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.\n \nDue to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, including the exercise pattern of certain benefits across our portfolio of customers.\n \nOur products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our products and services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Changes to our estimated variable consideration were not material for the periods presented.\nContract Balances and Other Receivables\n \nTiming of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record a receivable related to revenue recognized for multi-year on-premises licenses as we have an unconditional right to invoice and receive payment in the future related to those licenses.\n \nUnearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include SA and cloud services. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for consulting services to be performed in the future, LinkedIn subscriptions, Office 365 subscriptions, Xbox subscriptions, Windows post-delivery support, Dynamics business solutions, and other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service.\n \nRefer to Note 13 \u2013 Unearned Revenue for further information, including unearned revenue by segment and changes in unearned revenue during the period.\nPayment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days.\n In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced annually with revenue recognized upfront.\nAs of June 30, 2023 and 2022, long-term accounts receivable, net of allowance for doubtful accounts, was $\n4.5\n billion and $\n3.8\n billion, respectively, and is included in other long-term assets in our consolidated balance sheets.\nThe allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.\n \n65\n\n\nPART II\nItem 8\n\u00a0\nActivity in the allowance for doubtful accounts was as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, beginning of period\n\n\n \n\n\n$\n\n\n710\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n798\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n816\n\n\n \n\n\n\n\n\n\nCharged to costs and other\n\n\n \n\n\n \n\n\n258\n\n\n \n\n\n \n\n\n \n\n\n157\n\n\n \n\n\n\u00a0\n\n\n \n\n\n234\n\n\n \n\n\n\n\n\n\nWrite-offs\n\n\n \n\n\n \n\n\n(\n252\n\n\n)\n\n\n \n\n\n \n\n\n(\n245\n\n\n)\n\n\n\u00a0\n\n\n \n\n\n(\n252\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, end of period\n\n\n \n\n\n$\n\n\n716\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n710\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n798\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nAllowance for doubtful accounts included in our consolidated balance sheets:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30,\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAccounts receivable, net of allowance for doubtful accounts\n\n\n \n\n\n$\n\n\n650\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n633\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n751\n\n\n \n\n\n\n\n\n\nOther long-term assets\n\n\n \n\n\n \n\n\n66\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n77\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n47\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n716\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n710\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n798\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nAs of June 30, 2023 and 2022, other receivables related to activities to facilitate the purchase of server \ncomponents were $\n9.2\n billion and $\n6.1\n billion, respectively, and are included in other current assets in our consolidated balance sheets.\n \nWe record financing receivables when we offer certain of our customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of June 30, 2023 and 2022, our financing receivables, net were $\n5.3\n billion and $\n4.1\n billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets. We record an allowance to cover expected losses based on troubled accounts, historical experience, and other currently available evidence.\nAssets Recognized from Costs to Obtain a Contract with a Customer\nWe recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets in our consolidated balance sheets.\n \nWe apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include our internal sales organization compensation program and certain partner sales incentive programs as we have determined annual compensation is commensurate with annual sales activities.\nCost of Revenue\n \nCost of revenue includes: manufacturing and distribution costs for products sold and programs licensed; operating costs related to product support service centers and product distribution centers; costs incurred to include software on PCs sold by original equipment manufacturers (\u201cOEM\u201d), to drive traffic to our websites, and to acquire online advertising space; costs incurred to support and maintain cloud-based and other \nonline products and services, including datacenter costs and royalties; warranty costs; inventory valuation adjustments; costs associated with the delivery of consulting services; and the amortization of capitalized software development costs. Capitalized software development costs are amortized over the estimated lives of the products.\n \n66\n\n\nPART II\nItem 8\n\u00a0\nProduct Warranty\n \nWe provide for the estimated costs of fulfilling our obligations under hardware and software warranties at the time the related revenue is recognized. For hardware warranties, we estimate the costs based on historical and projected product failure rates, historical and projected repair costs, and knowledge of specific product failures (if any). The specific hardware warranty terms and conditions vary depending upon the product sold and the country in which we do business, but generally include parts and labor over a period generally ranging from 90 days to three years. For software warranties, we estimate the costs to provide bug fixes, such as security patches, over the estimated life of the software. We regularly reevaluate our estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary.\n \nResearch and Development\n \nResearch and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs and the amortization of purchased software code and services content. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products.\n \nSales and Marketing\n \nSales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs. Advertising costs are expensed as incurred. Advertising expense was $\n904\n million\n, $\n1.5\n billion, and $\n1.5\n billion in fiscal years 2023, 2022, and 2021, respectively.\n \nStock-Based Compensation\n \nCompensation cost for stock awards, which include restricted stock units (\u201cRSUs\u201d) and performance stock units (\u201cPSUs\u201d), is measured at the fair value on the grant date and recognized as expense, net of estimated forfeitures, over the related service or performance period. The fair value of stock awards is based on the quoted price of our common stock on the grant date less the present value of expected dividends not received during the vesting period. We measure the fair value of PSUs using a Monte Carlo valuation model. Compensation cost for RSUs is recognized using the straight-line method and for PSUs is recognized using the accelerated method.\nCompensation expense for the employee stock purchase plan (\u201cESPP\u201d) is measured as the discount the employee is entitled to upon purchase and is recognized in the period of purchase.\nEmployee Severance\nOn January 18, 2023, we announced a decision to reduce our overall workforce by approximately \n10,000\n jobs through the third quarter of fiscal year 2023. During the three months ended December 31, 2022, we recorded $\n800\n million of employee severance expenses related to these job eliminations as part of an ongoing employee benefit plan. These employee severance expenses were incurred as part of a corporate program, and were included in general and administrative expenses in our consolidated income statements and allocated to our segments based on relative gross margin. Refer to Note 19 \u2013 Segment Information and Geographic Data for further information.\nIncome Taxes\n \nIncome tax expense includes U.S. and international income taxes, and interest and penalties on uncertain tax positions. Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. Deferred tax assets are reported net of a valuation allowance when it is more likely than not that a tax benefit will not be realized. All deferred income taxes are classified as long-term in our consolidated balance sheets.\n \n67\n\n\nPART II\nItem 8\n\u00a0\nFinancial Instruments\nInvestments\nWe consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.\n \nDebt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in fair value, excluding credit losses and impairments, are recorded in other comprehensive income. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments.\nEquity investments with readily determinable fair values are measured at fair value. Equity investments without readily determinable fair values are measured using the equity method or measured at cost with adjustments for observable changes in price or impairments (referred to as the measurement alternative). We perform a qualitative assessment on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Changes in value are recorded in other income (expense), net.\n \nDerivatives\nDerivative instruments are recognized as either assets or liabilities and measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.\n \nFor derivative instruments designated as fair value hedges, gains and losses are recognized in other income (expense), net with offsetting gains and losses on the hedged items. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.\nFor derivative instruments designated as cash flow hedges, gains and losses are initially reported as a component of other comprehensive income and subsequently recognized in other income (expense), net with the corresponding hedged item. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.\n \nFor derivative instruments that are not designated as hedges, gains and losses from changes in fair values are primarily recognized in other income (expense), net.\n68\n\n\nPART II\nItem 8\n\u00a0\nFair Value Measurements\nWe account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:\n \n\u2022\nLevel 1\n \u2013 inputs are based upon unadjusted quoted prices for identical instruments in active markets. Our Level 1 investments include U.S. government securities, common and preferred stock, and mutual funds. Our Level 1 derivative assets and liabilities include those actively traded on exchanges. \n\u2022\nLevel 2\n \u2013 inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit spreads, foreign exchange rates, and forward and spot prices for currencies. Our Level 2 investments include commercial paper, certificates of deposit, U.S. agency securities, foreign government bonds, mortgage- and asset-backed securities, corporate notes and bonds, and municipal securities. Our Level 2 derivative assets and liabilities include certain cleared swap contracts and over-the-counter forward, option, and swap contracts.\n\u2022\nLevel 3\n \u2013 inputs are generally unobservable and typically reflect management\u2019s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 assets and liabilities include investments in corporate notes and bonds, municipal securities, and goodwill and intangible assets, when they are recorded at fair value due to an impairment charge. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities. \nWe measure equity investments without readily determinable fair values on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections.\n \nOur other current financial assets and current financial liabilities have fair values that approximate their carrying values.\nInventories\n \nInventories are stated at average cost, subject to the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. Net realizable value is the estimated selling price less estimated costs of completion, disposal, and transportation. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to cost of revenue.\n \nProperty and Equipment\n \nProperty and equipment is stated at cost less accumulated depreciation, and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: computer software developed or acquired for internal use, \nthree  years\n; computer equipment, \ntwo\n to \nsix \nyears\n; buildings and improvements, \nfive\n to \n15 years\n; leasehold improvements, \nthree\n to \n20 years\n; and furniture and equipment, \none\n to \n10 years\n. Land is not depreciated.\n \nLeases\nWe determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (\u201cROU\u201d) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our consolidated balance sheets.\n \n69\n\n\nPART II\nItem 8\n\u00a0\nROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.\n \nWe have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.\n \nGoodwill\n \nGoodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.\n \nIntangible Assets\n \nOur intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of benefit, ranging from \none\n to \n20 years\n. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.\n \n\n\nNOTE 2 \u2014 EARNINGS PER SHARE\nBasic earnings per share (\u201cEPS\u201d) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and stock awards.\n \nThe components of basic and diluted EPS were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions, except earnings per share)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet income available for common shareholders (A)\n\n\n \n\n\n$\n\n\n72,361\n\n\n \n\n\n \n\n\n$\n\n\n72,738\n\n\n \n\n\n \n\n\n$\n\n\n61,271\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nWeighted average outstanding shares of common stock (B)\n\n\n \n\n\n \n\n\n7,446\n\n\n \n\n\n \n\n\n \n\n\n7,496\n\n\n \n\n\n \n\n\n \n\n\n7,547\n\n\n \n\n\n\n\n\n\nDilutive effect of stock-based awards\n\n\n \n\n\n \n\n\n26\n\n\n \n\n\n \n\n\n \n\n\n44\n\n\n \n\n\n \n\n\n \n\n\n61\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCommon stock and common stock equivalents (C)\n\n\n \n\n\n \n\n\n7,472\n\n\n \n\n\n \n\n\n \n\n\n7,540\n\n\n \n\n\n \n\n\n \n\n\n7,608\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEarnings Per Share\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic (A/B)\n\n\n \n\n\n$\n\n\n9.72\n\n\n \n\n\n \n\n\n$\n\n\n9.70\n\n\n \n\n\n \n\n\n$\n\n\n8.12\n\n\n \n\n\n\n\n\n\nDiluted (A/C)\n\n\n \n\n\n$\n\n\n9.68\n\n\n \n\n\n \n\n\n$\n\n\n9.65\n\n\n \n\n\n \n\n\n$\n\n\n8.05\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nAnti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.\n\n\n70\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nNOTE 3 \u2014 OTHER INCOME (EXPENSE), NET\n \nThe components of other income (expense), net were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInterest and dividends income\n\n\n \n\n\n$\n\n\n2,994\n\n\n \n\n\n \n\n\n$\n\n\n2,094\n\n\n \n\n\n \n\n\n$\n\n\n2,131\n\n\n \n\n\n\n\n\n\nInterest expense\n\n\n \n\n\n \n\n\n(\n1,968\n\n\n)\n\n\n \n\n\n \n\n\n(\n2,063\n\n\n)\n\n\n \n\n\n \n\n\n(\n2,346\n\n\n)\n\n\n\n\n\n\nNet recognized gains on investments\n\n\n \n\n\n \n\n\n260\n\n\n \n\n\n \n\n\n \n\n\n461\n\n\n \n\n\n \n\n\n \n\n\n1,232\n\n\n \n\n\n\n\n\n\nNet gains (losses) on derivatives\n\n\n \n\n\n \n\n\n(\n456\n\n\n)\n\n\n \n\n\n \n\n\n(\n52\n\n\n)\n\n\n \n\n\n \n\n\n17\n\n\n\u00a0\n\n\n\n\n\n\nNet gains (losses) on foreign currency remeasurements\n\n\n \n\n\n \n\n\n181\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(\n75\n\n\n)\n\n\n \n\n\n \n\n\n54\n\n\n\u00a0\n\n\n\n\n\n\nOther, net\n\n\n \n\n\n \n\n\n(\n223\n\n\n)\n\n\n \n\n\n \n\n\n(\n32\n\n\n)\n\n\n \n\n\n \n\n\n98\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n788\n\n\n \n\n\n \n\n\n$\n\n\n333\n\n\n \n\n\n \n\n\n$\n\n\n1,186\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\nNet Recognized Gains (Losses) on Investments\n \nNet recognized gains (losses) on debt investments were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRealized gains from sales of available-for-sale securities\n\n\n \n\n\n$\n\n\n36\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n162\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n105\n\n\n\u00a0\n\n\n\n\n\n\nRealized losses from sales of available-for-sale securities\n\n\n \n\n\n \n\n\n(\n124\n\n\n)\n\n\n \n\n\n \n\n\n(\n138\n\n\n)\n\n\n \n\n\n \n\n\n(\n40\n\n\n)\n \n\n\n\n\n\n\nImpairments and allowance for credit losses\n\n\n \n\n\n \n\n\n(\n10\n\n\n)\n\n\n \n\n\n \n\n\n(\n81\n\n\n)\n\n\n \n\n\n \n\n\n(\n2\n\n\n)\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n(\n98\n\n\n)\n\n\n \n\n\n$\n\n\n(\n57\n\n\n)\n\n\n \n\n\n$\n\n\n63\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nNet recognized gains (losses) on equity investments were as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet realized gains on investments sold\n\n\n \n\n\n$\n\n\n75\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n29\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n123\n\n\n\u00a0\n\n\n\n\n\n\nNet unrealized gains on investments still held\n\n\n \n\n\n \n\n\n303\n\n\n\u00a0\n\n\n \n\n\n \n\n\n509\n\n\n\u00a0\n\n\n \n\n\n \n\n\n1,057\n\n\n\u00a0\n\n\n\n\n\n\nImpairments of investments\n\n\n \n\n\n \n\n\n(\n20\n\n\n)\n\n\n \n\n\n \n\n\n(\n20\n\n\n)\n\n\n \n\n\n \n\n\n(\n11\n\n\n)\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n358\n\n\n \n\n\n \n\n\n$\n\n\n518\n\n\n \n\n\n \n\n\n$\n\n\n1,169\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n71\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nNOTE 4 \u2014 INVESTMENTS\nInvestment Components\n \nThe components of investments were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\nFair Value\nLevel\n\n\n\u00a0\n\n\n\u00a0\n\n\nAdjusted\nCost Basis\n\n\n\u00a0\n\n\n\u00a0\n\n\nUnrealized\nGains\n\n\n\u00a0\n\n\n\u00a0\n\n\nUnrealized\nLosses\n\n\n\u00a0\n\n\n\u00a0\n\n\nRecorded\nBasis\n\n\n\u00a0\n\n\n\u00a0\n\n\nCash\nand Cash\nEquivalents\n\n\n\u00a0\n\n\nShort-term\nInvestments\n\n\n\u00a0\n\n\n\u00a0\n\n\nEquity\nInvestments\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nChanges in Fair Value Recorded in Other Comprehensive Income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCommercial paper\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n16,589\n\n\n \n\n\n \n\n\n$\n\n\n0\n\n\n \n\n\n \n\n\n$\n\n\n0\n\n\n \n\n\n \n\n\n$\n\n\n16,589\n\n\n \n\n\n \n\n\n$\n\n\n12,231\n\n\n \n\n\n \n\n\n$\n\n\n4,358\n\n\n \n\n\n \n\n\n$\n\n\n0\n\n\n \n\n\n\n\n\n\nCertificates of deposit\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n2,701\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n2,701\n\n\n \n\n\n \n\n\n \n\n\n2,657\n\n\n \n\n\n \n\n\n \n\n\n44\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n\n\n\n\nU.S. government securities\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 1\n\n\n\u00a0\n\n\n \n\n\n \n\n\n65,237\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,870\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n61,369\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,991\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n58,378\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n \n\n\n\n\n\n\nU.S. agency securities\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,703\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,703\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n894\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,809\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\nForeign government bonds\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n \n\n\n \n\n\n498\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n24\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n475\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n475\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n \n\n\n\n\n\n\nMortgage- and asset-backed securities\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n \n\n\n \n\n\n824\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n39\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n786\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n786\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n \n\n\n\n\n\n\nCorporate notes and bonds\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n \n\n\n \n\n\n10,809\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n583\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,234\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,234\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n \n\n\n\n\n\n\nCorporate notes and bonds\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n120\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n120\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n120\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\nMunicipal securities\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n \n\n\n \n\n\n285\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n18\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n268\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n261\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\nMunicipal securities\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 3\n\n\n\u00a0\n\n\n \n\n\n \n\n\n103\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n16\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n87\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n87\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal debt investments\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n99,869\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n4,550\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n95,332\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n18,780\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n76,552\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nChanges in Fair Value Recorded in Net Income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEquity investments\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 1\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10,138\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7,446\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,692\n\n\n \n\n\n\n\n\n\nEquity investments\n\n\n\u00a0\n\n\n\u00a0\n\n\nOther\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,187\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,187\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal equity investments\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n17,325\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7,446\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n9,879\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n 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net\n\u00a0(a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n121,141\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n34,704\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n76,558\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n9,879\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n72\n\n\nPART II\nItem 8\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\nFair Value\nLevel\n\n\n\u00a0\n\n\n\u00a0\n\n\nAdjusted\nCost Basis\n\n\n\u00a0\n\n\n\u00a0\n\n\nUnrealized\nGains\n\n\n\u00a0\n\n\n\u00a0\n\n\nUnrealized\nLosses\n\n\n\u00a0\n\n\n\u00a0\n\n\nRecorded\nBasis\n\n\n\u00a0\n\n\n\u00a0\n\n\nCash\nand Cash\nEquivalents\n\n\n\u00a0\n\n\nShort-term\nInvestments\n\n\n\u00a0\n\n\n\u00a0\n\n\nEquity\nInvestments\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nChanges in Fair Value Recorded in Other Comprehensive Income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCommercial paper\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n2,500\n\n\n \n\n\n \n\n\n$\n\n\n0\n\n\n \n\n\n \n\n\n$\n\n\n0\n\n\n \n\n\n \n\n\n$\n\n\n2,500\n\n\n \n\n\n \n\n\n$\n\n\n2,498\n\n\n \n\n\n \n\n\n$\n\n\n2\n\n\n \n\n\n \n\n\n$\n\n\n0\n\n\n \n\n\n\n\n\n\nCertificates of deposit\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n2,071\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n2,071\n\n\n \n\n\n \n\n\n \n\n\n2,032\n\n\n \n\n\n \n\n\n \n\n\n39\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n\n\n\n\nU.S. government securities\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 1\n\n\n\u00a0\n\n\n \n\n\n \n\n\n79,696\n\n\n \n\n\n \n\n\n \n\n\n29\n\n\n \n\n\n \n\n\n \n\n\n(\n2,178\n\n\n)\n\n\n \n\n\n \n\n\n77,547\n\n\n \n\n\n \n\n\n \n\n\n9\n\n\n \n\n\n \n\n\n \n\n\n77,538\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n\n\n\n\nU.S. agency securities\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n419\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n(\n9\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n410\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n410\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\nForeign government bonds\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n \n\n\n \n\n\n506\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n(\n24\n\n\n)\n\n\n \n\n\n \n\n\n482\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n482\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n\n\n\n\nMortgage- and asset-backed securities\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n \n\n\n \n\n\n727\n\n\n \n\n\n \n\n\n \n\n\n1\n\n\n \n\n\n \n\n\n \n\n\n(\n30\n\n\n)\n\n\n \n\n\n \n\n\n698\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n698\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n\n\n\n\nCorporate notes and bonds\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n \n\n\n \n\n\n11,661\n\n\n \n\n\n \n\n\n \n\n\n4\n\n\n \n\n\n \n\n\n \n\n\n(\n554\n\n\n)\n\n\n \n\n\n \n\n\n11,111\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n11,111\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n\n\n\n\nCorporate notes and bonds\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\nMunicipal securities\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n \n\n\n \n\n\n368\n\n\n \n\n\n \n\n\n \n\n\n19\n\n\n \n\n\n \n\n\n \n\n\n(\n13\n\n\n)\n\n\n \n\n\n \n\n\n374\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n374\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\nMunicipal securities\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 3\n\n\n\u00a0\n\n\n \n\n\n \n\n\n103\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n(\n6\n\n\n)\n\n\n \n\n\n \n\n\n97\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n97\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal debt investments\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n98,118\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n53\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n(\n2,814\n\n\n)\n\n\n \n\n\n$\n\n\n95,357\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,539\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n90,818\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nChanges in Fair Value Recorded in Net Income\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEquity investments\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 1\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n1,590\n\n\n \n\n\n \n\n\n$\n\n\n1,134\n\n\n \n\n\n \n\n\n$\n\n\n0\n\n\n \n\n\n \n\n\n$\n\n\n456\n\n\n \n\n\n\n\n\n\nEquity investments\n\n\n\u00a0\n\n\n\u00a0\n\n\nOther\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n6,435\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n6,435\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal equity investments\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n8,025\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,134\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,891\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n8,258\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n8,258\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\nDerivatives, net\n\u00a0(a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n111,648\n\n\n \n\n\n \n\n\n$\n\n\n13,931\n\n\n \n\n\n \n\n\n$\n\n\n90,826\n\n\n \n\n\n \n\n\n$\n\n\n6,891\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n(a)\nRefer to Note 5 \u2013 Derivatives for further information on the fair value of our derivative instruments.\n\u00a0\nEquity investments presented as \u201cOther\u201d in the tables above include investments without readily determinable fair values measured using the equity method or measured at cost with adjustments for observable changes in price or impairments, and investments measured at fair value using net asset value as a practical expedient which are not categorized in the fair value hierarchy. As of June 30, 2023 and 2022, equity investments without readily determinable fair values measured at cost with adjustments for observable changes in price or impairments were $\n4.2\n billion and $\n3.8\n billion, respectively.\n \n73\n\n\nPART II\nItem 8\n\u00a0\nUnrealized Losses on Debt Investments\n \nDebt investments with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair values were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n \n\n\nLess than 12 Months\n\n\n \n\n\n \n\n\n12 Months or Greater\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\nTotal\nUnrealized\nLosses\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\nFair Value\n\n\n \n\n\n \n\n\nUnrealized\nLosses\n\n\n \n\n\n \n\n\nFair Value\n\n\n \n\n\n \n\n\nUnrealized\nLosses\n\n\n \n\n\n \n\n\nTotal\nFair Value\n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30, 2023\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S. government and agency securities\n\n\n\u00a0\n\n\n$\n\n\n7,950\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n336\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n45,273\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n3,534\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n53,223\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n3,870\n\n\n)\n\n\n\n\n\n\nForeign government bonds\n\n\n\u00a0\n\n\n\u00a0\n\n\n77\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n391\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n19\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n468\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n24\n\n\n)\n\n\n\n\n\n\nMortgage- and asset-backed securities\n\n\n\u00a0\n\n\n\u00a0\n\n\n257\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n412\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n34\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n669\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n39\n\n\n)\n\n\n\n\n\n\nCorporate notes and bonds\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,326\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n49\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,336\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n534\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,662\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n583\n\n\n)\n\n\n\n\n\n\nMunicipal securities\n\n\n\u00a0\n\n\n\u00a0\n\n\n111\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n186\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n31\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n297\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n34\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n10,721\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n398\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n53,598\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n4,152\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n64,319\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n4,550\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nLess than 12 Months\n\n\n\u00a0\n\n\n\u00a0\n\n\n12 Months or Greater\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\nUnrealized\nLosses\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nUnrealized\nLosses\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nUnrealized\nLosses\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\nFair Value\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S. government and agency securities\n\n\n \n\n\n$\n\n\n59,092\n\n\n \n\n\n \n\n\n$\n\n\n(\n1,835\n\n\n)\n\n\n \n\n\n$\n\n\n2,210\n\n\n \n\n\n \n\n\n$\n\n\n(\n352\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n61,302\n\n\n \n\n\n \n\n\n$\n\n\n(\n2,187\n\n\n)\n\n\n\n\n\n\nForeign government bonds\n\n\n \n\n\n \n\n\n418\n\n\n \n\n\n \n\n\n \n\n\n(\n18\n\n\n)\n\n\n \n\n\n \n\n\n27\n\n\n \n\n\n \n\n\n \n\n\n(\n6\n\n\n)\n\n\n\u00a0\n\n\n \n\n\n445\n\n\n \n\n\n \n\n\n \n\n\n(\n24\n\n\n)\n\n\n\n\n\n\nMortgage- and asset-backed securities\n\n\n \n\n\n \n\n\n510\n\n\n \n\n\n \n\n\n \n\n\n(\n26\n\n\n)\n\n\n \n\n\n \n\n\n41\n\n\n \n\n\n \n\n\n \n\n\n(\n4\n\n\n)\n\n\n\u00a0\n\n\n \n\n\n551\n\n\n \n\n\n \n\n\n \n\n\n(\n30\n\n\n)\n\n\n\n\n\n\nCorporate notes and bonds\n\n\n \n\n\n \n\n\n9,443\n\n\n \n\n\n \n\n\n \n\n\n(\n477\n\n\n)\n\n\n \n\n\n \n\n\n786\n\n\n \n\n\n \n\n\n \n\n\n(\n77\n\n\n)\n\n\n\u00a0\n\n\n \n\n\n10,229\n\n\n \n\n\n \n\n\n \n\n\n(\n554\n\n\n)\n\n\n\n\n\n\nMunicipal securities\n\n\n\u00a0\n\n\n\u00a0\n\n\n178\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n12\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n74\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n252\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n19\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n69,641\n\n\n \n\n\n \n\n\n$\n\n\n(\n2,368\n\n\n)\n\n\n \n\n\n$\n\n\n3,138\n\n\n \n\n\n \n\n\n$\n\n\n(\n446\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n72,779\n\n\n \n\n\n \n\n\n$\n\n\n(\n2,814\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nUnrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Management does not believe any remaining unrealized losses represent impairments based on our evaluation of available evidence.\n \nDebt Investment Maturities\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\nAdjusted\nCost Basis\n\n\n \n\n\n \n\n\nEstimated\nFair Value\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30, 2023\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDue in one year or less\n\n\n \n\n\n$\n\n\n38,182\n\n\n \n\n\n \n\n\n$\n\n\n38,048\n\n\n \n\n\n\n\n\n\nDue after one year through five years\n\n\n \n\n\n \n\n\n47,127\n\n\n \n\n\n \n\n\n \n\n\n44,490\n\n\n \n\n\n\n\n\n\nDue after five years through 10 years\n\n\n \n\n\n \n\n\n13,262\n\n\n \n\n\n \n\n\n \n\n\n11,628\n\n\n \n\n\n\n\n\n\nDue after 10 years\n\n\n \n\n\n \n\n\n1,298\n\n\n \n\n\n \n\n\n \n\n\n1,166\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n99,869\n\n\n \n\n\n \n\n\n$\n\n\n95,332\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n74\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nNOTE 5 \u2014 DERIVATIVES\n \nWe use derivative instruments to manage risks related to foreign currencies, interest rates, equity prices, and credit; to enhance investment returns; and to facilitate portfolio diversification. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment.\n \nForeign Currencies\n \nCertain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency hedge positions.\n \nForeign currency risks related to certain non-U.S. dollar-denominated investments are hedged using foreign exchange forward contracts that are designated as fair value hedging instruments. Foreign currency risks related to certain Euro-denominated debt are hedged using foreign exchange forward contracts that are designated as cash flow hedging instruments.\nCertain options and forwards not designated as hedging instruments are also used to manage the variability in foreign exchange rates on certain balance sheet amounts and to manage other foreign currency exposures.\n \nInterest Rate\n \nInterest rate risks related to certain fixed-rate debt are hedged using interest rate swaps that are designated as fair value hedging instruments to effectively convert the fixed interest rates to floating interest rates.\nSecurities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We manage the average maturity of our fixed-income portfolio to achieve economic returns that correlate to certain broad-based fixed-income indices using option, futures, and swap contracts. These contracts are not designated as hedging instruments and are included in \u201cOther contracts\u201d in the tables below.\nEquity\n \nSecurities held in our equity investments portfolio are subject to market price risk. At times, we may hold options, futures, and swap contracts. These contracts are not designated as hedging instruments.\nCredit\n \nOur fixed-income portfolio is diversified and consists primarily of investment-grade securities. We use credit default swap contracts to manage credit exposures relative to broad-based indices and to facilitate portfolio diversification. These contracts are not designated as hedging instruments and are included in \u201cOther contracts\u201d in the tables below.\nCredit-Risk-Related Contingent Features\n \nCertain of our counterparty agreements for derivative instruments contain provisions that require our issued and outstanding long-term unsecured debt to maintain an investment grade credit rating and require us to maintain minimum liquidity of $\n1.0\n billion. To the extent we fail to meet these requirements, we will be required to post collateral, similar to the standard convention related to over-the-counter derivatives. As of June 30, 2023, our long-term unsecured debt rating was \nAAA\n, and cash investments were in excess of $\n1.0\n billion. As a result, no collateral was required to be posted.\n \n75\n\n\nPART II\nItem 8\n\u00a0\nThe following table presents the notional amounts of our outstanding derivative instruments measured in U.S. dollar equivalents:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\nJune 30,\n2023\n\n\n \n\n\n \n\n\nJune 30,\n2022\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDesignated as Hedging Instruments\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nForeign exchange contracts purchased\n\n\n\u00a0\n\n\n$\n\n\n1,492\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n635\n\n\n\u00a0\n\n\n\n\n\n\nInterest rate contracts purchased\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,078\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,139\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNot Designated as Hedging Instruments\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nForeign exchange contracts purchased\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,874\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,322\n\n\n\u00a0\n\n\n\n\n\n\nForeign exchange contracts sold\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,159\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,606\n\n\n\u00a0\n\n\n\n\n\n\nEquity contracts purchased\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,867\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,131\n\n\n\u00a0\n\n\n\n\n\n\nEquity contracts sold\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,154\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\nOther contracts purchased\n\n\n \n\n\n \n\n\n1,224\n\n\n\u00a0\n\n\n \n\n\n \n\n\n1,642\n\n\n \n\n\n\n\n\n\nOther contracts sold\n\n\n \n\n\n \n\n\n581\n\n\n\u00a0\n\n\n \n\n\n \n\n\n544\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nFair Values of Derivative Instruments\nThe following table presents our derivative instruments:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0(In millions)\n\n\n \n\n\nDerivative\nAssets\n\n\n \n\n\nDerivative\nLiabilities\n\n\n \n\n\nDerivative\nAssets\n\n\n \n\n\nDerivative\nLiabilities\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\nJune 30,\n2023\n\n\n \n\n\nJune 30,\n2022\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nDesignated as Hedging Instruments\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nForeign exchange contracts\n\n\n \n\n\n$\n\n\n34\n\n\n \n\n\n \n\n\n$\n\n\n(\n67\n\n\n)\n\n\n \n\n\n$\n\n\n0\n\n\n \n\n\n \n\n\n$\n\n\n(\n77\n\n\n)\n\n\n\n\n\n\nInterest rate contracts\n\n\n \n\n\n \n\n\n16\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n3\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nNot Designated as Hedging Instruments\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nForeign exchange contracts\n\n\n \n\n\n \n\n\n249\n\n\n \n\n\n \n\n\n \n\n\n(\n332\n\n\n)\n\n\n \n\n\n \n\n\n333\n\n\n \n\n\n \n\n\n \n\n\n(\n362\n\n\n)\n\n\n\n\n\n\nEquity contracts\n\n\n\u00a0\n\n\n\u00a0\n\n\n165\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n400\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n95\n\n\n)\n\n\n\n\n\n\nOther contracts\n\n\n \n\n\n \n\n\n5\n\n\n \n\n\n \n\n\n \n\n\n(\n6\n\n\n)\n\n\n \n\n\n \n\n\n15\n\n\n \n\n\n \n\n\n \n\n\n(\n17\n\n\n)\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nGross amounts of derivatives\n\n\n \n\n\n \n\n\n469\n\n\n \n\n\n \n\n\n \n\n\n(\n805\n\n\n)\n\n\n \n\n\n \n\n\n356\n\n\n \n\n\n \n\n\n \n\n\n(\n551\n\n\n)\n\n\n\n\n\n\nGross amounts of derivatives offset in the balance sheet\n\n\n \n\n\n \n\n\n(\n202\n\n\n)\n\n\n \n\n\n \n\n\n206\n\n\n \n\n\n \n\n\n \n\n\n(\n130\n\n\n)\n\n\n \n\n\n \n\n\n133\n\n\n \n\n\n\n\n\n\nCash collateral received\n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n(\n125\n\n\n)\n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n(\n75\n\n\n)\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nNet amounts of derivatives\n\n\n \n\n\n$\n\n\n267\n\n\n \n\n\n \n\n\n$\n\n\n(\n724\n\n\n)\n\n\n \n\n\n$\n\n\n226\n\n\n \n\n\n \n\n\n$\n\n\n(\n493\n\n\n)\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nReported as\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nShort-term investments\n\n\n \n\n\n$\n\n\n6\n\n\n \n\n\n \n\n\n$\n\n\n0\n\n\n \n\n\n \n\n\n$\n\n\n8\n\n\n \n\n\n \n\n\n$\n\n\n0\n\n\n \n\n\n\n\n\n\nOther current assets\n\n\n \n\n\n \n\n\n245\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n218\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n\n\n\n\nOther long-term assets\n\n\n \n\n\n \n\n\n16\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n\n\n\n\nOther current liabilities\n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n(\n341\n\n\n)\n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n(\n298\n\n\n)\n\n\n\n\n\n\nOther long-term liabilities\n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n(\n383\n\n\n)\n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n(\n195\n\n\n)\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n267\n\n\n \n\n\n \n\n\n$\n\n\n(\n724\n\n\n)\n\n\n \n\n\n$\n\n\n226\n\n\n \n\n\n \n\n\n$\n\n\n(\n493\n\n\n)\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\u00a0\nGross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected to offset were $\n442\n million and $\n804\n million, respectively, as of June 30, 2023, and $\n343\n million and $\n550\n million, respectively, as of June 30, 2022.\n \nThe following table presents the fair value of our derivatives instruments on a gross basis:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\nLevel 1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 2\n\n\n\u00a0\n\n\n\u00a0\n\n\nLevel 3\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDerivative assets\n\n\n\u00a0\n\n\n$\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n462\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n469\n\n\n\u00a0\n\n\n\n\n\n\nDerivative liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n805\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n805\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDerivative assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n349\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n356\n\n\n\u00a0\n\n\n\n\n\n\nDerivative liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n551\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n551\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n76\n\n\nPART II\nItem 8\n\u00a0\n\u00a0\nGains (losses) on derivative instruments recognized in other income (expense), net were as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nDesignated as Fair Value Hedging Instruments\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nForeign exchange contracts\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nDerivatives\n\n\n \n\n\n$\n\n\n0\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n49\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n193\n\n\n\u00a0\n\n\n\n\n\n\nHedged items\n\n\n \n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n(\n50\n\n\n)\n\n\n \n\n\n\u00a0\n\n\n(\n188\n\n\n)\n\n\n\n\n\n\nExcluded from effectiveness assessment\n\n\n \n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n30\n\n\n\u00a0\n\n\n\n\n\n\nInterest rate contracts\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nDerivatives\n\n\n \n\n\n\u00a0\n\n\n(\n65\n\n\n)\n\n\n \n\n\n\u00a0\n\n\n(\n92\n\n\n)\n\n\n \n\n\n\u00a0\n\n\n(\n37\n\n\n)\n\n\n\n\n\n\nHedged items\n\n\n \n\n\n\u00a0\n\n\n38\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n108\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n53\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDesignated as Cash Flow Hedging Instruments\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nForeign exchange contracts\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nAmount reclassified from accumulated other comprehensive income\n\n\n \n\n\n\u00a0\n\n\n61\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n(\n79\n\n\n)\n\n\n \n\n\n\u00a0\n\n\n17\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNot Designated as Hedging Instruments\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nForeign exchange contracts\n\n\n \n\n\n\u00a0\n\n\n(\n73\n\n\n)\n\n\n \n\n\n\u00a0\n\n\n383\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n27\n\n\n\u00a0\n\n\n\n\n\n\nEquity contracts\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n420\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n6\n\n\n)\n\n\n\n\n\n\nOther contracts\n\n\n \n\n\n\u00a0\n\n\n(\n41\n\n\n)\n\n\n \n\n\n\u00a0\n\n\n(\n85\n\n\n)\n\n\n \n\n\n\u00a0\n\n\n15\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nGains (losses), net of tax, on derivative instruments recognized in our consolidated comprehensive income statements were as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDesignated as Cash Flow Hedging Instruments\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nForeign exchange contracts\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nIncluded in effectiveness assessment\n\n\n \n\n\n$\n\n\n34\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n(\n57\n\n\n)\n\n\n \n\n\n$\n\n\n34\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nNOTE 6 \n\u2014\n INVENTORIES\nThe components of inventories were as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRaw materials\n\n\n \n\n\n$\n\n\n709\n\n\n \n\n\n \n\n\n$\n\n\n1,144\n\n\n \n\n\n\n\n\n\nWork in process\n\n\n \n\n\n \n\n\n23\n\n\n \n\n\n \n\n\n \n\n\n82\n\n\n \n\n\n\n\n\n\nFinished goods\n\n\n \n\n\n \n\n\n1,768\n\n\n \n\n\n \n\n\n \n\n\n2,516\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n2,500\n\n\n \n\n\n \n\n\n$\n\n\n3,742\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n77\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nNOTE 7 \u2014 PROPERTY AND EQUIPMENT\n \nThe components of property and equipment were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nLand\n\n\n \n\n\n$\n\n\n5,683\n\n\n \n\n\n \n\n\n$\n\n\n4,734\n\n\n \n\n\n\n\n\n\nBuildings and improvements\n\n\n \n\n\n \n\n\n68,465\n\n\n \n\n\n \n\n\n \n\n\n55,014\n\n\n \n\n\n\n\n\n\nLeasehold improvements\n\n\n \n\n\n \n\n\n8,537\n\n\n \n\n\n \n\n\n \n\n\n7,819\n\n\n \n\n\n\n\n\n\nComputer equipment and software\n\n\n \n\n\n \n\n\n74,961\n\n\n \n\n\n \n\n\n \n\n\n60,631\n\n\n \n\n\n\n\n\n\nFurniture and equipment\n\n\n \n\n\n \n\n\n6,246\n\n\n \n\n\n \n\n\n \n\n\n5,860\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal, at cost\n\n\n \n\n\n \n\n\n163,892\n\n\n \n\n\n \n\n\n \n\n\n134,058\n\n\n \n\n\n\n\n\n\nAccumulated depreciation\n\n\n \n\n\n \n\n\n(\n68,251\n\n\n)\n\n\n \n\n\n \n\n\n(\n59,660\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal, net\n\n\n \n\n\n$\n\n\n95,641\n\n\n \n\n\n \n\n\n$\n\n\n74,398\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\nDuring fiscal years 2023, 2022, and 2021, depreciation expense was $\n11.0\n billion, $\n12.6\n billion, and $\n9.3\n billion, respectively.\n Depreciation expense declined in fiscal year 2023 due to the change in estimated useful lives of our server and network equipment.\nAs of June 30, 2023, we have committed $\n13.5\n billion for the construction of new buildings, building improvements, and leasehold improvements, primarily related to datacenters.\n \n\n\nNOTE 8 \u2014 BUSINESS COMBINATIONS\n \nNuance Communications, Inc.\n \nOn \nMarch 4, 2022\n, we completed our acquisition of Nuance Communications, Inc. (\u201cNuance\u201d) for a total purchase price of $\n18.8\n billion, consisting primarily of cash. Nuance is a cloud and artificial intelligence (\u201cAI\u201d) software provider with healthcare and enterprise AI experience, and the acquisition will build on our industry-specific cloud offerings. The financial results of Nuance have been included in our consolidated financial statements since the date of the acquisition. Nuance is reported as part of our Intelligent Cloud segment.\nThe allocation of the purchase price to goodwill was completed as of December 31, 2022. \nThe major classes of assets and liabilities to which we have allocated the purchase price were as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill \n(a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n \n\n\n16,326\n\n\n\u00a0\n\n\n\n\n\n\nIntangible assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,365\n\n\n\u00a0\n\n\n\n\n\n\nOther assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n42\n\n\n\u00a0\n\n\n\n\n\n\nOther liabilities \n(b)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,972\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n18,761\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\n(a)\nGoodwill was assigned to our Intelligent Cloud segment and was primarily attributed to increased synergies that are expected to be achieved from the integration of Nuance. None of the goodwill is expected to be deductible for income tax purposes.\n(b)\nIncludes $\n986\n million of convertible senior notes issued by Nuance in 2015 and 2017, substantially all of which have been redeemed.\nFollowing are the details of the purchase price allocated to the intangible assets acquired:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions, except average life)\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted\nAverage Life\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCustomer-related\n\n\n\u00a0\n\n\n$\n\n\n2,610\n\n\n \n\n\n\u00a0\n\n\n9\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\n\nTechnology-based\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,540\n\n\n \n\n\n\u00a0\n\n\n5\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\n\nMarketing-related\n\n\n\u00a0\n\n\n\u00a0\n\n\n215\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n4,365\n\n\n \n\n\n\u00a0\n\n\n7\n\u00a0years\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\n78\n\n\nPART II\nItem 8\n\u00a0\nZeniMax Media Inc.\nOn \nMarch 9, 2021\n, we completed our acquisition of ZeniMax Media Inc. (\u201cZeniMax\u201d), the parent company of Bethesda Softworks LLC (\u201cBethesda\u201d), for a total purchase price of $\n8.1\n billion, consisting primarily of cash. The purchase price included $\n766\n million of cash and cash equivalents acquired. Bethesda is one of the largest, privately held game developers and publishers in the world, and brings a broad portfolio of games, technology, and talent to Xbox. The financial results of ZeniMax have been included in our consolidated financial statements since the date of the acquisition. ZeniMax is reported as part of our More Personal Computing segment.\nThe allocation of the purchase price to goodwill was completed as of December 31, 2021. The major classes of assets and liabilities to which we have allocated the purchase price were as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents\n\n\n \n\n\n \n\n\n$\n\n\n766\n\n\n \n\n\n\n\n\n\nGoodwill\n \n\n\n \n\n\n \n\n\n \n\n\n5,510\n\n\n \n\n\n\n\n\n\nIntangible assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,968\n\n\n\u00a0\n\n\n\n\n\n\nOther assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n121\n\n\n\u00a0\n\n\n\n\n\n\nOther liabilities\n\n\n \n\n\n \n\n\n \n\n\n(\n244\n\n\n)\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n \n\n\n \n\n\n \n\n\n$\n\n\n8,121\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\nGoodwill was assigned to our More Personal Computing segment. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of ZeniMax. None of the goodwill is expected to be deductible for income tax purposes.\nFollowing are details of the purchase price allocated to the intangible assets acquired:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions, except average life)\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted\nAverage Life\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTechnology-based\n\n\n\u00a0\n\n\n$\n\n\n1,341\n\n\n \n\n\n\u00a0\n\n\n4\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\n\nMarketing-related\n\n\n\u00a0\n\n\n\u00a0\n\n\n627\n\n\n \n\n\n\u00a0\n\n\n11\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n1,968\n\n\n \n\n\n\u00a0\n\n\n6\n\u00a0years\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\nActivision Blizzard, Inc.\nOn \nJanuary 18, 2022\n, we entered into a definitive agreement to acquire Activision Blizzard, Inc. (\u201cActivision Blizzard\u201d) for $\n95.00\n per share in an all-cash transaction valued at $\n68.7\n billion, inclusive of Activision Blizzard\u2019s net cash. Activision Blizzard is a leader in game development and an interactive entertainment content publisher. The acquisition will accelerate the growth in our gaming business across mobile, \nPC, console, and cloud gaming. The acquisition has been approved by Activision Blizzard\u2019s shareholders. We continue to work toward closing the transaction subject to obtaining required regulatory approvals and satisfaction of\n other customary closing conditions. Microsoft and Activision Blizzard have jointly agreed to extend the merger agreement through October 18, 2023 to allow for additional time to resolve remaining regulatory concerns.\n\n\nNOTE 9 \u2014 GOODWILL\n \nChanges in the carrying amount of goodwill were as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n\u00a0\n\n\nJune 30,\n2021\n\n\n \n\n\n \n\n\n\u00a0\n\n\nAcquisitions\n\n\n \n\n\n \n\n\n\u00a0\n\n\nOther\n\n\n \n\n\n \n\n\n\u00a0\n\n\nJune 30,\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nAcquisitions\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nOther\n\n\n \n\n\n \n\n\n\u00a0\n\n\nJune 30,\n2023\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProductivity and Business Processes\n\n\n \n\n\n$\n\n\n24,317\n\n\n \n\n\n \n\n\n$\n\n\n599\n\n\n \n\n\n \n\n\n$\n\n\n(\n105\n\n\n)\n\n\n \n\n\n$\n\n\n24,811\n\n\n \n\n\n \n\n\n$\n\n\n11\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(\n47\n\n\n)\n\n\n \n\n\n$\n\n\n24,775\n\n\n \n\n\n\n\n\n\nIntelligent Cloud\n\n\n \n\n\n \n\n\n13,256\n\n\n \n\n\n \n\n\n \n\n\n16,879\n\n\n \n\n\n \n\n\n \n\n\n47\n\n\n\u00a0\n\n\n \n\n\n \n\n\n30,182\n\n\n \n\n\n \n\n\n \n\n\n223\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n64\n\n\n\u00a0\n\n\n \n\n\n \n\n\n30,469\n\n\n \n\n\n\n\n\n\nMore Personal Computing\n\n\n \n\n\n \n\n\n12,138\n\n\n \n\n\n \n\n\n \n\n\n648\n\n\n \n\n\n \n\n\n \n\n\n(\n255\n\n\n)\n \n\n\n \n\n\n \n\n\n12,531\n\n\n \n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n\u00a0\n\n\n \n\n\n111\n\n\n\u00a0\n\n\n \n\n\n \n\n\n12,642\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n49,711\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n18,126\n\n\n \n\n\n \n\n\n$\n\n\n(\n313\n\n\n)\n\n\n \n\n\n$\n\n\n67,524\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n234\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n128\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n67,886\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\n79\n\n\nPART II\nItem 8\n\u00a0\nThe measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months. Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.\n \nAny change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are presented as \u201cOther\u201d in the table above. Also included in \u201cOther\u201d are business dispositions and transfers between segments due to reorganizations, as applicable.\n \nGoodwill Impairment\nWe test goodwill for impairment annually on May 1 at the reporting unit level, primarily using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital. We believe use of a discounted cash flow approach is the most reliable indicator of the fair values of the businesses.\n \nNo\n instances of impairment were identified in our May 1, 2023, May 1, 2022, or May 1, 2021 tests. As of June 30, 2023 and 2022, accumulated goodwill impairment was $\n11.3\n billion.\n\n\nNOTE 10 \n\u2014\n INTANGIBLE ASSETS\n \nThe components of intangible assets, all of which are finite-lived, were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\nGross\nCarrying\nAmount\n\n\n \n\n\n \n\n\nAccumulated\nAmortization\n\n\n \n\n\n \n\n\nNet Carrying\nAmount\n\n\n \n\n\n \n\n\nGross\nCarrying\nAmount\n\n\n \n\n\n\u00a0\n\n\nAccumulated\nAmortization\n\n\n \n\n\n \n\n\nNet Carrying\nAmount\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30,\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTechnology-based\n\n\n \n\n\n$\n\n\n11,245\n\n\n \n\n\n \n\n\n$\n\n\n(\n7,589\n\n\n)\n\n\n \n\n\n$\n\n\n3,656\n\n\n \n\n\n \n\n\n$\n\n\n11,277\n\n\n \n\n\n \n\n\n$\n\n\n(\n6,958\n\n\n)\n\n\n \n\n\n$\n\n\n4,319\n\n\n \n\n\n\n\n\n\nCustomer-related\n\n\n \n\n\n \n\n\n7,281\n\n\n \n\n\n \n\n\n \n\n\n(\n4,047\n\n\n)\n\n\n \n\n\n \n\n\n3,234\n\n\n \n\n\n \n\n\n \n\n\n7,342\n\n\n \n\n\n \n\n\n \n\n\n(\n3,171\n\n\n)\n\n\n \n\n\n \n\n\n4,171\n\n\n \n\n\n\n\n\n\nMarketing-related\n\n\n \n\n\n \n\n\n4,935\n\n\n \n\n\n \n\n\n \n\n\n(\n2,473\n\n\n)\n\n\n \n\n\n \n\n\n2,462\n\n\n \n\n\n \n\n\n \n\n\n4,942\n\n\n \n\n\n \n\n\n \n\n\n(\n2,143\n\n\n)\n\n\n \n\n\n \n\n\n2,799\n\n\n \n\n\n\n\n\n\nContract-based\n\n\n \n\n\n \n\n\n29\n\n\n \n\n\n \n\n\n \n\n\n(\n15\n\n\n)\n\n\n \n\n\n \n\n\n14\n\n\n \n\n\n \n\n\n \n\n\n16\n\n\n \n\n\n \n\n\n \n\n\n(\n7\n\n\n)\n\n\n \n\n\n \n\n\n9\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n23,490\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n(\n14,124\n\n\n)\n\n\n \n\n\n$\n\n\n9,366\n\n\n \n\n\n \n\n\n$\n\n\n23,577\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n(\n12,279\n\n\n)\n\n\n \n\n\n$\n\n\n11,298\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nNo material impairments of intangible assets were identified during fiscal years 2023, 2022, or 2021. We estimate that we have no significant residual value related to our intangible assets.\nThe components of intangible assets acquired during the periods presented were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\nAmount\n\n\n \n\n\n \n\n\nWeighted\nAverage Life\n\n\n \n\n\n \n\n\nAmount\n\n\n \n\n\n \n\n\nWeighted\nAverage Life\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTechnology-based\n\n\n \n\n\n$\n\n\n522\n\n\n \n\n\n \n\n\n \n\n\n7\n\u00a0years\n\n\n \n\n\n \n\n\n$\n\n\n2,611\n\n\n \n\n\n \n\n\n \n\n\n4\n\u00a0years\n\n\n \n\n\n\n\n\n\nCustomer-related\n\n\n \n\n\n\u00a0\n\n\n0\n\n\n \n\n\n \n\n\n \n\n\n0\n\u00a0years\n\n\n \n\n\n \n\n\n\u00a0\n\n\n2,837\n\n\n \n\n\n \n\n\n \n\n\n9\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\n\nMarketing-related\n\n\n \n\n\n \n\n\n7\n\n\n \n\n\n \n\n\n \n\n\n5\n\u00a0years\n\n\n \n\n\n \n\n\n \n\n\n233\n\n\n \n\n\n \n\n\n \n\n\n4\n\u00a0years\n\n\n \n\n\n\n\n\n\nContract-based\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\u00a0years\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n541\n\n\n \n\n\n \n\n\n \n\n\n6\n\u00a0years\n\n\n \n\n\n \n\n\n$\n\n\n \n5,681\n\n\n \n\n\n \n\n\n \n\n\n7\n\u00a0years\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\u00a0\nIntangible assets amortization expense was $\n2.5\n billion, $\n2.0\n billion, and $\n1.6\n billion for fiscal years 2023, 2022, and 2021, respectively.\n \n80\n\n\nPART II\nItem 8\n\u00a0\nThe following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2023:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ending June 30,\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n2024\n\n\n \n\n\n$\n\n\n2,363\n\n\n \n\n\n\n\n\n\n2025\n\n\n \n\n\n \n\n\n1,881\n\n\n \n\n\n\n\n\n\n2026\n\n\n \n\n\n \n\n\n1,381\n\n\n \n\n\n\n\n\n\n2027\n\n\n \n\n\n \n\n\n929\n\n\n \n\n\n\n\n\n\n2028\n\n\n \n\n\n \n\n\n652\n\n\n \n\n\n\n\n\n\nThereafter\n\n\n \n\n\n \n\n\n2,160\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n9,366\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nNOTE 11 \u2014 DEBT\n \nThe components of debt were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions, issuance by calendar year)\n\n\n \n\n\nMaturities\n(calendar year)\n\n\n \n\n\nStated Interest\nRate\n\n\n\u00a0\n\n\n \n\n\nEffective Interest\nRate\n\n\n\u00a0\n\n\nJune 30,\n2023\n\n\n \n\n\n \n\n\nJune 30,\n2022\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n2009\n\u00a0issuance of $\n3.8\n\u00a0billion\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2039\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5.20\n%\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5.24\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n520\n\n\n \n\n\n \n\n\n$\n\n\n520\n\n\n \n\n\n\n\n\n\n2010\n\u00a0issuance of $\n4.8\n\u00a0billion\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n2040\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n4.50\n%\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n4.57\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n486\n\n\n \n\n\n \n\n\n \n\n\n486\n\n\n \n\n\n\n\n\n\n2011\n\u00a0issuance of $\n2.3\n\u00a0billion\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n2041\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5.30\n%\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5.36\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n718\n\n\n \n\n\n \n\n\n \n\n\n718\n\n\n \n\n\n\n\n\n\n2012\n\u00a0issuance of $\n2.3\n\u00a0billion\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2042\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.50\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.57\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n454\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,204\n\n\n\u00a0\n\n\n\n\n\n\n2013\n\u00a0issuance of $\n5.2\n\u00a0billion\n \n\n\n \n\n\n \n\n\n2023\n\n\n\u2013\n\n\n2043\n\n\n \n\n\n \n\n\n3.63\n%\n\n\n\u2013\n\n\n4.88\n%\n\n\n\u00a0\n\n\n \n\n\n3.73\n%\n\n\n\u2013\n\n\n4.92\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n1,814\n\n\n \n\n\n \n\n\n \n\n\n2,814\n\n\n \n\n\n\n\n\n\n2013\n\u00a0issuance of \u20ac\n4.1\n\u00a0billion\n\n\n\u00a0\n\n\n\u00a0\n\n\n2028\n\n\n\u2013\n\n\n2033\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.63\n%\n\n\n\u2013\n\n\n3.13\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.69\n%\n\n\n\u2013\n\n\n3.22\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,509\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,404\n\n\n\u00a0\n\n\n\n\n\n\n2015\n\u00a0issuance of $\n23.8\n\u00a0billion\n \n\n\n \n\n\n \n\n\n2025\n\n\n\u2013\n\n\n2055\n\n\n \n\n\n \n\n\n2.70\n%\n\n\n\u2013\n\n\n4.75\n%\n\n\n\u00a0\n\n\n \n\n\n2.77\n%\n\n\n\u2013\n\n\n4.78\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n9,805\n\n\n \n\n\n \n\n\n \n\n\n10,805\n\n\n \n\n\n\n\n\n\n2016\n\u00a0issuance of $\n19.8\n\u00a0billion\n \n\n\n \n\n\n \n\n\n2023\n\n\n\u2013\n\n\n2056\n\n\n \n\n\n \n\n\n2.00\n%\n\n\n\u2013\n\n\n3.95\n%\n\n\n\u00a0\n\n\n \n\n\n2.10\n%\n\n\n\u2013\n\n\n4.03\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n9,430\n\n\n \n\n\n \n\n\n \n\n\n9,430\n\n\n \n\n\n\n\n\n\n2017\n\u00a0issuance of $\n17.0\n\u00a0billion\n \n\n\n \n\n\n \n\n\n2024\n\n\n\u2013\n\n\n2057\n\n\n \n\n\n \n\n\n2.88\n%\n\n\n\u2013\n\n\n4.50\n%\n\n\n\u00a0\n\n\n \n\n\n3.04\n%\n\n\n\u2013\n\n\n4.53\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n8,945\n\n\n \n\n\n \n\n\n \n\n\n8,945\n\n\n \n\n\n\n\n\n\n2020\n\u00a0issuance of $\n10.0\n\u00a0billion\n \n\n\n \n\n\n \n\n\n2050\n\n\n\u2013\n\n\n2060\n\n\n \n\n\n \n\n\n2.53\n%\n\n\n\u2013\n\n\n2.68\n%\n\n\n\u00a0\n\n\n \n\n\n2.53\n%\n\n\n\u2013\n\n\n2.68\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n10,000\n\n\n \n\n\n \n\n\n \n\n\n10,000\n\n\n \n\n\n\n\n\n\n2021\n\u00a0issuance of $\n8.2\n\u00a0billion\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n2052\n\n\n\u2013\n\n\n2062\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.92\n%\n\n\n\u2013\n\n\n3.04\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.92\n%\n\n\n\u2013\n\n\n3.04\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,185\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,185\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal face value\n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n52,866\n\n\n \n\n\n \n\n\n \n\n\n55,511\n\n\n \n\n\n\n\n\n\nUnamortized discount and issuance costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n438\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n471\n\n\n)\n\n\n\n\n\n\nHedge fair value adjustments \n(a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n106\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n68\n\n\n)\n\n\n\n\n\n\nPremium on debt exchange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5,085\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5,191\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n47,237\n\n\n \n\n\n \n\n\n \n\n\n49,781\n\n\n \n\n\n\n\n\n\nCurrent portion of long-term debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n5,247\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,749\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nLong-term debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n41,990\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n47,032\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\n(a)\nRefer to Note 5 \u2013 Derivatives for further information on the interest rate swaps related to fixed-rate debt.\nAs of June 30, 2023 and 2022, the estimated fair value of long-term debt, including the current portion, was $\n46.2\n billion and $\n50.9\n billion, respectively. The estimated fair values are based on Level 2 inputs.\n \nDebt in the table above is comprised of senior unsecured obligations and ranks equally with our other outstanding obligations. Interest is paid semi-annually, except for the Euro-denominated debt, which is paid annually. Cash paid for interest on our debt for fiscal years 2023, 2022, and 2021 was $\n1.7\n billion, $\n1.9\n billion, and $\n2.0\n billion, respectively.\n \n81\n\n\nPART II\nItem 8\n\u00a0\nThe following table outlines maturities of our long-term debt, including the current portion, as of June 30, 2023:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\n\n\n\nYear Ending June 30,\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n2024\n\n\n \n\n\n$\n\n\n5,250\n\n\n \n\n\n\n\n\n\n2025\n\n\n \n\n\n \n\n\n2,250\n\n\n \n\n\n\n\n\n\n2026\n\n\n \n\n\n \n\n\n3,000\n\n\n \n\n\n\n\n\n\n2027\n\n\n \n\n\n \n\n\n8,000\n\n\n \n\n\n\n\n\n\n2028\n\n\n \n\n\n \n\n\n0\n\n\n \n\n\n\n\n\n\nThereafter\n\n\n \n\n\n \n\n\n34,366\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n52,866\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n\u00a0\n\n\nNOTE 12 \u2014 INCOME TAXES\nProvision for Income Taxes\n \nThe components of the provision for income taxes were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCurrent Taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S. federal\n\n\n \n\n\n$\n\n\n14,009\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n8,329\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n3,285\n\n\n\u00a0\n\n\n\n\n\n\nU.S. state and local\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,322\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,679\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,229\n\n\n\u00a0\n\n\n\n\n\n\nForeign\n\n\n \n\n\n\u00a0\n\n\n6,678\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n6,672\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n5,467\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCurrent taxes\n\n\n \n\n\n$\n\n\n23,009\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n16,680\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n9,981\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDeferred Taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S. federal\n\n\n \n\n\n$\n\n\n(\n6,146\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n4,815\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n25\n\n\n\u00a0\n\n\n\n\n\n\nU.S. state and local\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n477\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,062\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n204\n\n\n)\n\n\n\n\n\n\nForeign\n\n\n \n\n\n\u00a0\n\n\n564\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n175\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDeferred taxes\n\n\n \n\n\n$\n\n\n(\n6,059\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n5,702\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n150\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProvision for income taxes\n\n\n \n\n\n$\n\n\n16,950\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n10,978\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n9,831\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n82\n\n\nPART II\nItem 8\n\u00a0\nU.S. and foreign components of income before income taxes were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nU.S.\n\n\n \n\n\n$\n\n\n52,917\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n47,837\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n34,972\n\n\n\u00a0\n\n\n\n\n\n\nForeign\n \n\n\n \n\n\n \n\n\n36,394\n\n\n \n\n\n \n\n\n \n\n\n35,879\n\n\n \n\n\n \n\n\n \n\n\n36,130\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome before income taxes\n\n\n \n\n\n$\n\n\n89,311\n\n\n \n\n\n \n\n\n$\n\n\n83,716\n\n\n \n\n\n \n\n\n$\n\n\n71,102\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nEffective Tax Rate\nThe items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFederal statutory rate\n\n\n \n\n\n \n\n\n21.0\n%\n\n\n\u00a0\n\n\n \n\n\n \n\n\n21.0\n%\n\n\n\u00a0\n\n\n \n\n\n \n\n\n21.0\n%\n\n\n\u00a0\n\n\n\n\n\n\nEffect of:\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\nForeign earnings taxed at lower rates\n\n\n \n\n\n \n\n\n(\n1.8\n)%\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(\n1.3\n)%\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(\n2.7\n)%\n\n\n\u00a0\n\n\n\n\n\n\nImpact of intangible property transfers\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3.9\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n%\n\n\n\u00a0\n\n\n\n\n\n\nForeign-derived intangible income deduction\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1.3\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1.1\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1.3\n)%\n\n\n\u00a0\n\n\n\n\n\n\nState income taxes, net of federal benefit\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.6\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.4\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.4\n%\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development credit\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1.1\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n0.9\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n0.9\n)%\n\n\n\u00a0\n\n\n\n\n\n\nExcess tax benefits relating to stock-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n0.7\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1.9\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2.4\n)%\n\n\n\u00a0\n\n\n\n\n\n\nInterest, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.8\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.5\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.5\n%\n\n\n\u00a0\n\n\n\n\n\n\nOther reconciling items, net\n\n\n \n\n\n \n\n\n0.5\n%\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(\n0.7\n)%\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(\n1.8\n)%\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEffective rate\n\n\n \n\n\n \n\n\n19.0\n%\n\n\n\u00a0\n\n\n \n\n\n \n\n\n13.1\n%\n\n\n\u00a0\n\n\n \n\n\n \n\n\n13.8\n%\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nIn the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico subsidiary to the U.S. The transfer of intangible properties resulted in a $\n3.3\n billion net income tax benefit in the first quarter of fiscal year 2022, as the value of future U.S. tax deductions exceeded the current tax liability from the U.S. global intangible low-taxed income (\u201cGILTI\u201d) tax.\n\u00a0\nWe have historically paid India withholding taxes on software sales through distributor withholding and tax audit assessments in India. In March 2021, the India Supreme Court ruled favorably in the case of Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax for companies in 86 separate appeals, some dating back to 2012, holding that software sales are not subject to India withholding taxes. Although we were not a party to the appeals, our software sales in India were determined to be not subject to withholding taxes. Therefore, we recorded a net income tax benefit of $\n620\n million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision impacting fiscal year \n1996\n through fiscal year \n2016\n.\n\u00a0\nThe decrease from the federal statutory rate in fiscal year 2023 is primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland. The decrease from the federal statutory rate in fiscal year 2022 is primarily due to the net income tax benefit related to the transfer of intangible properties, earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland, and tax benefits relating to stock-based compensation. The decrease from the federal statutory rate in fiscal year 2021 is primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland and Puerto Rico, tax benefits relating to stock-based compensation, and tax benefits from the India Supreme Court decision on withholding taxes. \nIn fiscal year 2023, our foreign regional operating center in Ireland, which is taxed at a rate lower than the U.S. rate, generated \n81\n% of our foreign income before tax. In fiscal years 2022 and 2021\n, our foreign regional operating centers in Ireland and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated \n71\n% and \n82\n% of our foreign income before tax. Other reconciling items, net consists primarily of tax credits and GILTI tax, and in fiscal year 2021, includes tax benefits from the India Supreme Court decision on withholding taxes. In fiscal years 2023, 2022, and 2021, there were no individually significant other reconciling items.\n83\n\n\nPART II\nItem 8\n\u00a0\nThe increase in our effective tax rate for fiscal year 2023 compared to fiscal year 2022 was primarily due to a $\n3.3\n billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of intangible properties and a decrease in tax benefits relating to stock-based compensation. The decrease in our effective tax rate for fiscal year 2022 compared to fiscal year 2021 was primarily due to a $\n3.3\n billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of intangible properties, offset in part by changes in the mix of our income before income taxes between the U.S. and foreign countries, as well as tax benefits in the prior year from the India Supreme Court decision on withholding taxes, an agreement between the U.S. and India tax authorities related to transfer pricing, and final Tax Cuts and Jobs Act (\u201cTCJA\u201d) regulations.\nThe components of the deferred income tax assets and liabilities were as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDeferred Income Tax Assets\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation expense\n\n\n \n\n\n$\n\n\n681\n\n\n \n\n\n \n\n\n$\n\n\n601\n\n\n \n\n\n\n\n\n\nAccruals, reserves, and other expenses\n\n\n \n\n\n \n\n\n3,131\n\n\n \n\n\n \n\n\n \n\n\n2,874\n\n\n \n\n\n\n\n\n\nLoss and credit carryforwards\n\n\n \n\n\n \n\n\n1,441\n\n\n \n\n\n \n\n\n \n\n\n1,546\n\n\n \n\n\n\n\n\n\nAmortization \n(a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,440\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,183\n\n\n\u00a0\n\n\n\n\n\n\nLeasing liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,041\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,557\n\n\n\u00a0\n\n\n\n\n\n\nUnearned revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,296\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,876\n\n\n\u00a0\n\n\n\n\n\n\nBook/tax basis differences in investments and debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n373\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\n\n\n\nCapitalized research and development \n(a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,958\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n473\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n \n\n\n \n\n\n489\n\n\n \n\n\n \n\n\n \n\n\n461\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDeferred income tax assets\n\n\n \n\n\n\u00a0\n\n\n30,850\n\n\n \n\n\n \n\n\n\u00a0\n\n\n23,571\n\n\n \n\n\n\n\n\n\nLess valuation allowance\n\n\n \n\n\n \n\n\n(\n939\n\n\n)\n\n\n \n\n\n \n\n\n(\n1,012\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDeferred income tax assets, net of valuation allowance\n\n\n \n\n\n$\n\n\n29,911\n\n\n \n\n\n \n\n\n$\n\n\n22,559\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDeferred Income Tax Liabilities\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBook/tax basis differences in investments and debt\n\n\n \n\n\n$\n\n\n0\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n(\n174\n\n\n)\n\n\n\n\n\n\nLeasing assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4,680\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4,291\n\n\n)\n\n\n\n\n\n\nDepreciation\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,674\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,602\n\n\n)\n\n\n\n\n\n\nDeferred tax on foreign earnings\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,738\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,104\n\n\n)\n\n\n\n\n\n\nOther\n\n\n \n\n\n \n\n\n(\n89\n\n\n)\n\n\n \n\n\n \n\n\n(\n103\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDeferred income tax liabilities\n\n\n \n\n\n$\n\n\n(\n10,181\n\n\n)\n\n\n \n\n\n$\n\n\n(\n9,274\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet deferred income tax assets\n\n\n \n\n\n$\n\n\n19,730\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n13,285\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nReported As\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOther long-term assets\n\n\n\u00a0\n\n\n$\n\n\n20,163\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13,515\n\n\n\u00a0\n\n\n\n\n\n\nLong-term deferred income tax liabilities\n\n\n \n\n\n \n\n\n(\n433\n\n\n)\n\n\n \n\n\n \n\n\n(\n230\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet deferred income tax assets\n\n\n \n\n\n$\n\n\n19,730\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n13,285\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n(a)\nProvisions enacted in the TCJA related to the capitalization\u202ffor tax purposes of\u202fresearch\u202fand development expenditures became effective on July 1, 2022. These provisions require us to capitalize research and development expenditures and amortize them on our U.S. tax return over five or fifteen years, depending on where research is conducted.\nDeferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or recovered.\n \nAs of June 30, 2023, we had federal, state, and foreign net operating loss carryforwards of $\n509\n million, $\n1.2\n billion, and $\n2.3\n billion, respectively. The federal and state net operating loss carryforwards \nhave varying expiration dates ranging\n from fiscal year \n2024\n \nto \n2043\n or indefinite carryforward periods\n, if not utilized. The majority of our foreign net operating loss carryforwards do not expire. Certain acquired net operating loss carryforwards are subject to an annual limitation but are expected to be realized with the exception of those which have a valuation allowance. As of June 30, 2023, we had $\n456\n million\n federal capital loss carryforwards for U.S. tax purposes from our acquisition of Nuance. The federal capital loss carryforwards are subject to an annual limitation and will expire in fiscal year \n2025\n.\n84\n\n\nPART II\nItem 8\n\u00a0\nThe valuation allowance disclosed in the table above relates to the foreign net operating loss carryforwards, federal capital loss carryforwards, and other net deferred tax assets that may not be realized.\n \nIncome taxes paid, net of refunds, were $\n23.1\n billion, $\n16.0\n billion, and $\n13.4\n billion in fiscal years 2023, 2022, and 2021, respectively.\n \nUncertain Tax Positions\nGross unrecognized tax benefits related to uncertain tax positions as of June 30, 2023, 2022, and 2021, were $\n17.1\n \nbillion, $\n15.6\n billion, and $\n14.6\n billion, respectively, which were primarily included in long-term income taxes in our consolidated balance sheets. If recognized, the resulting tax benefit would affect our effective tax rates for fiscal years 2023, 2022, and 2021 by $\n14.4\n \nbillion, $\n13.3\n billion, and $\n12.5\n billion, respectively.\nAs of June 30, 2023, 2022, and 2021, we had accrued interest expense related to uncertain tax positions of $\n5.2\n billion, $\n4.3\n billion, and $\n4.3\n billion, respectively, net of income tax benefits. The provision for income taxes for fiscal years 2023, 2022, and 2021 included interest expense related to uncertain tax positions of $\n918\n million, $\n36\n million, and $\n274\n million, respectively, net of income tax benefits.\nThe aggregate changes in the gross unrecognized tax benefits related to uncertain tax positions were as follows:\n \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBeginning unrecognized tax benefits\n\n\n \n\n\n$\n\n\n15,593\n\n\n \n\n\n \n\n\n$\n\n\n14,550\n\n\n \n\n\n \n\n\n$\n\n\n13,792\n\n\n \n\n\n\n\n\n\nDecreases related to settlements\n\n\n \n\n\n \n\n\n(\n329\n\n\n)\n\n\n \n\n\n \n\n\n(\n317\n\n\n)\n\n\n \n\n\n \n\n\n(\n195\n\n\n)\n\n\n\n\n\n\nIncreases for tax positions related to the current year\n\n\n \n\n\n \n\n\n1,051\n\n\n \n\n\n \n\n\n \n\n\n1,145\n\n\n \n\n\n \n\n\n \n\n\n790\n\n\n \n\n\n\n\n\n\nIncreases for tax positions related to prior years\n\n\n \n\n\n \n\n\n870\n\n\n \n\n\n \n\n\n \n\n\n461\n\n\n \n\n\n \n\n\n \n\n\n461\n\n\n \n\n\n\n\n\n\nDecreases for tax positions related to prior years\n\n\n \n\n\n \n\n\n(\n60\n\n\n)\n\n\n \n\n\n \n\n\n(\n246\n\n\n)\n\n\n \n\n\n \n\n\n(\n297\n\n\n)\n\n\n\n\n\n\nDecreases due to lapsed statutes of limitations\n\n\n \n\n\n \n\n\n(\n5\n\n\n)\n\n\n \n\n\n \n\n\n0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(\n1\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEnding unrecognized tax benefits\n\n\n \n\n\n$\n\n\n17,120\n\n\n \n\n\n \n\n\n$\n\n\n15,593\n\n\n \n\n\n \n\n\n$\n\n\n14,550\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nWe settled a portion of the Internal Revenue Service (\u201cIRS\u201d) audit for tax years \n2004\n to \n2006\n in fiscal year 2011. In February 2012, the IRS withdrew its 2011 Revenue Agents Report related to unresolved issues for tax years 2004 to 2006 and reopened the audit phase of the examination. We also settled a portion of the IRS audit for tax years \n2007\n to \n2009\n in fiscal year 2016, and a portion of the IRS audit for tax years \n2010\n to \n2013\n in fiscal year 2018. In the second quarter of fiscal year 2021, we settled an additional portion of the IRS audits for tax years \n2004\n to \n2013\n and made a payment of $\n1.7\n billion, including tax and interest. We remain under audit for tax years \n2004\n to \n2017\n.\nAs of June 30, 2023, the primary unresolved issues for the IRS audits relate to transfer pricing, which could have a material impact in our consolidated financial statements when the matters are resolved. We believe our allowances for income tax contingencies are adequate. We have not received a proposed assessment for the unresolved key transfer pricing issues. We do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months.\nWe are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years \n1996\n to \n2022\n, some of which are currently under audit by local tax authorities. The resolution of each of these audits is not expected to be material to our consolidated financial statements.\n \n\n\n85\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nNOTE 13 \u2014 UNEARNED REVENUE\n \nUnearned revenue by segment was as follows:\n \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProductivity and Business Processes\n\n\n\u00a0\n\n\n$\n\n\n27,572\n\n\n \n\n\n \n\n\n$\n\n\n24,558\n\n\n \n\n\n\n\n\n\nIntelligent Cloud\n\n\n \n\n\n \n\n\n21,563\n\n\n \n\n\n \n\n\n \n\n\n19,371\n\n\n \n\n\n\n\n\n\nMore Personal Computing\n\n\n \n\n\n \n\n\n4,678\n\n\n \n\n\n \n\n\n\u00a0\n\n\n4,479\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n53,813\n\n\n \n\n\n \n\n\n$\n\n\n48,408\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\nChanges in unearned revenue were as follows:\n \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30, 2023\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, beginning of period\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n48,408\n\n\n \n\n\n\n\n\n\nDeferral of revenue\n\n\n\u00a0\n\n\n \n\n\n \n\n\n123,935\n\n\n \n\n\n\n\n\n\nRecognition of unearned revenue\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(\n118,530\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, end of period\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n53,813\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nRevenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $\n229\n billion as of June 30, 2023, of which $\n224\n billion is related to the commercial portion of revenue. We expect to recognize approximately \n45\n% of this revenue over the next \n12\n months and the remainder thereafter.\n\n\nNOTE 14 \n\u2014\n LEASES\n \nWe have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. Our leases have remaining lease terms of less than \n1\n year to \n18\n years, some of which include options to extend the leases for up to \n5\n years, and some of which include options to terminate the leases within \n1\n year.\n \nThe components of lease expense were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating lease cost\n\n\n \n\n\n$\n\n\n2,875\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n2,461\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n2,127\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFinance lease cost:\n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAmortization of right-of-use assets\n\n\n \n\n\n$\n\n\n1,352\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n980\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n921\n\n\n\u00a0\n\n\n\n\n\n\nInterest on lease liabilities\n\n\n \n\n\n \n\n\n501\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n429\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n386\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal finance lease cost\n\n\n \n\n\n$\n\n\n1,853\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n1,409\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n1,307\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nSupplemental cash flow information related to leases was as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash paid for amounts included in the measurement of lease liabilities:\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating cash flows from operating leases\n\n\n \n\n\n$\n\n\n2,706\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,368\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,052\n\n\n\u00a0\n\n\n\n\n\n\nOperating cash flows from finance leases\n\n\n \n\n\n\u00a0\n\n\n501\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n429\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n386\n\n\n\u00a0\n\n\n\n\n\n\nFinancing cash flows from finance leases\n\n\n \n\n\n\u00a0\n\n\n1,056\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n896\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n648\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRight-of-use assets obtained in exchange for lease obligations:\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,514\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,268\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,380\n\n\n\u00a0\n\n\n\n\n\n\nFinance leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,128\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,234\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,290\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n86\n\n\nPART II\nItem 8\n\u00a0\nSupplemental balance sheet information related to leases was as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions, except lease term and discount rate)\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30,\n\n\n\u00a0\n\n\n2023\n\n\n \n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating Leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating lease right-of-use assets\n\n\n\u00a0\n\n\n$\n\n\n14,346\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13,148\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOther current liabilities\n\n\n\u00a0\n\n\n$\n\n\n2,409\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,228\n\n\n\u00a0\n\n\n\n\n\n\nOperating lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,728\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,489\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating lease liabilities\n\n\n\u00a0\n\n\n$\n\n\n15,137\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13,717\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFinance Leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProperty and equipment, at cost\n\n\n\u00a0\n\n\n$\n\n\n20,538\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n17,388\n\n\n\u00a0\n\n\n\n\n\n\nAccumulated depreciation\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4,647\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,285\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProperty and equipment, net\n\n\n\u00a0\n\n\n$\n\n\n15,891\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14,103\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOther current liabilities\n\n\n\u00a0\n\n\n$\n\n\n1,197\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,060\n\n\n\u00a0\n\n\n\n\n\n\nOther long-term liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,870\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,842\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal finance lease liabilities\n\n\n\u00a0\n\n\n$\n\n\n17,067\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14,902\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nWeighted Average Remaining Lease Term\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\u00a0years\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\n\nFinance leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\u00a0years\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\u00a0years\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nWeighted Average Discount Rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.9\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.1\n%\n\n\n\u00a0\n\n\n\n\n\n\nFinance leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.4\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.1\n%\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nThe following table outlines maturities of our lease liabilities as of June 30, 2023:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ending June 30,\n\n\n \n\n\nOperating\n\u00a0Leases\n\n\n \n\n\n \n\n\nFinance\n\u00a0Leases\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n2024\n\n\n \n\n\n$\n\n\n2,784\n\n\n \n\n\n \n\n\n$\n\n\n1,747\n\n\n \n\n\n\n\n\n\n2025\n\n\n \n\n\n \n\n\n2,508\n\n\n \n\n\n \n\n\n \n\n\n2,087\n\n\n \n\n\n\n\n\n\n2026\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,142\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,771\n\n\n\u00a0\n\n\n\n\n\n\n2027\n\n\n \n\n\n \n\n\n1,757\n\n\n \n\n\n \n\n\n \n\n\n1,780\n\n\n \n\n\n\n\n\n\n2028\n\n\n \n\n\n \n\n\n1,582\n\n\n \n\n\n \n\n\n \n\n\n1,787\n\n\n \n\n\n\n\n\n\nThereafter\n\n\n \n\n\n \n\n\n6,327\n\n\n \n\n\n \n\n\n \n\n\n11,462\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal lease payments\n\n\n \n\n\n\u00a0\n\n\n17,100\n\n\n \n\n\n \n\n\n \n\n\n20,634\n\n\n \n\n\n\n\n\n\nLess imputed interest\n\n\n \n\n\n \n\n\n(\n1,963\n\n\n)\n\n\n \n\n\n \n\n\n(\n3,567\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n15,137\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n17,067\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nAs of June 30, 2023, we have additional operating and finance leases, primarily for datacenters, that have not yet commenced of $\n7.7\n billion and $\n34.4\n billion, respectively. These operating and finance leases will commence between fiscal year 2024 and fiscal year 2030 with lease terms of \n1\n year to \n18\n years.\n\n\n\u00a0\n\n\n87\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nNOTE 15 \u2014 CONTINGENCIES\nU.S. Cell Phone Litigation\n \nMicrosoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a defendant in 46 lawsuits, including 45 lawsuits filed in the Superior Court for the District of Columbia by individual plaintiffs who allege that radio emissions from cellular handsets caused their brain tumors and other adverse health effects. We assumed responsibility for these claims in our agreement to acquire Nokia\u2019s Devices and Services business and have been substituted for the Nokia defendants. Nine of these cases were filed in 2002 and are consolidated for certain pre-trial proceedings; the remaining cases are stayed. In a separate 2009 decision, the Court of Appeals for the District of Columbia held that adverse health effect claims arising from the use of cellular handsets that operate within the U.S. Federal Communications Commission radio frequency emission guidelines (\u201cFCC Guidelines\u201d) are pre-empted by federal law. The plaintiffs allege that their handsets either operated outside the FCC Guidelines or were manufactured before the FCC Guidelines went into effect. The lawsuits also allege an industry-wide conspiracy to manipulate the science and testing around emission guidelines.\n \nIn 2013, the defendants in the consolidated cases moved to exclude the plaintiffs\u2019 expert evidence of general causation on the basis of flawed scientific methodologies. In 2014, the trial court granted in part and denied in part the defendants\u2019 motion to exclude the plaintiffs\u2019 general causation experts. The defendants filed an interlocutory appeal to the District of Columbia Court of Appeals challenging the standard for evaluating expert scientific evidence. In October 2016, the Court of Appeals issued its decision adopting the standard advocated by the defendants and remanding the cases to the trial court for further proceedings under that standard. The plaintiffs have filed supplemental expert evidence, portions of which were stricken by the court.  A hearing on general causation took place in September of 2022. In April of 2023, the court granted defendants\u2019 motion to strike the testimony of plaintiffs\u2019 experts that cell phones cause brain cancer and entered an order excluding all of plaintiffs\u2019 experts from testifying.\nIrish Data Protection Commission Matter\nIn 2018, the Irish Data Protection Commission (\u201cIDPC\u201d) began investigating a complaint against LinkedIn as to whether LinkedIn\u2019s targeted advertising practices violated the recently implemented European Union General Data Protection Regulation (\u201cGDPR\u201d). Microsoft cooperated throughout the period of inquiry. In April 2023, the IDPC provided LinkedIn with a non-public preliminary draft decision alleging GDPR violations and proposing a fine. Microsoft intends to challenge the preliminary draft decision. There is no set timeline for the IDPC to issue a final decision.\nOther Contingencies\n \nWe also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact in our consolidated financial statements, these matters are subject to inherent uncertainties and management\u2019s view of these matters may change in the future.\n \nAs of June 30, 2023, we accrued aggregate legal liabilities of $\n617\n million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $\n600\n million in aggregate beyond recorded amounts are reasonably possible. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact in our consolidated financial statements for the period in which the effects become reasonably estimable.\n \n\n\n88\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nNOTE 16 \n\u2014\n STOCKHOLDERS\u2019 EQUITY\n \nShares Outstanding\n \nShares of common stock outstanding were as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, beginning of year\n\n\n \n\n\n \n\n\n7,464\n\n\n \n\n\n \n\n\n \n\n\n7,519\n\n\n \n\n\n \n\n\n \n\n\n7,571\n\n\n \n\n\n\n\n\n\nIssued\n\n\n \n\n\n \n\n\n37\n\n\n \n\n\n \n\n\n \n\n\n40\n\n\n \n\n\n \n\n\n \n\n\n49\n\n\n \n\n\n\n\n\n\nRepurchased\n\n\n \n\n\n \n\n\n(\n69\n\n\n)\n\n\n \n\n\n \n\n\n(\n95\n\n\n)\n\n\n \n\n\n \n\n\n(\n101\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, end of year\n\n\n \n\n\n \n\n\n7,432\n\n\n \n\n\n \n\n\n \n\n\n7,464\n\n\n \n\n\n \n\n\n \n\n\n7,519\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\nShare Repurchases\nOn September 18, 2019, our Board of Directors approved a share repurchase program authorizing up to $\n40.0\n billion in share repurchases. This share repurchase program commenced in February 2020 and was completed in November 2021.\nOn September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $\n60.0\n billion in share repurchases. This share repurchase program commenced in November 2021, following completion of the program approved on September 18, 2019, has no expiration date, and may be terminated at any time. As of June 30, 2023, $\n22.3\n billion remained of this $\n60.0\n billion share repurchase program.\nWe repurchased the following shares of common stock under the share repurchase programs:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\nShares\n\n\n \n\n\n \n\n\nAmount\n\n\n \n\n\n \n\n\nShares\n\n\n \n\n\n \n\n\nAmount\n\n\n\u00a0\n\n\n \n\n\nShares\n\n\n\u00a0\n\n\n \n\n\nAmount\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFirst Quarter\n\n\n \n\n\n \n\n\n17\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n4,600\n\n\n \n\n\n \n\n\n \n\n\n21\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n6,200\n\n\n \n\n\n \n\n\n \n\n\n25\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n5,270\n\n\n \n\n\n\n\n\n\nSecond Quarter\n\n\n \n\n\n \n\n\n20\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n4,600\n\n\n \n\n\n \n\n\n \n\n\n20\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n6,233\n\n\n \n\n\n \n\n\n \n\n\n27\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n5,750\n\n\n \n\n\n\n\n\n\nThird Quarter\n\n\n \n\n\n \n\n\n18\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n4,600\n\n\n\u00a0\n\n\n \n\n\n \n\n\n26\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n7,800\n\n\n\u00a0\n\n\n \n\n\n \n\n\n25\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n5,750\n\n\n\u00a0\n\n\n\n\n\n\nFourth Quarter\n\n\n \n\n\n \n\n\n14\n\n\n \n\n\n \n\n\n \n\n\n4,600\n\n\n\u00a0\n\n\n \n\n\n \n\n\n28\n\n\n \n\n\n \n\n\n \n\n\n7,800\n\n\n\u00a0\n\n\n \n\n\n \n\n\n24\n\n\n \n\n\n \n\n\n \n\n\n6,200\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n \n\n\n69\n\n\n \n\n\n \n\n\n$\n\n\n18,400\n\n\n \n\n\n \n\n\n \n\n\n95\n\n\n \n\n\n \n\n\n$\n\n\n28,033\n\n\n \n\n\n \n\n\n \n\n\n101\n\n\n \n\n\n \n\n\n$\n\n\n22,970\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\n89\n\n\nPART II\nItem 8\n\u00a0\nAll repurchases were made using cash resources. Shares repurchased during fiscal year 2023 and the fourth and third quarters of fiscal year 2022 were under the share repurchase program approved on September 14, 2021. Shares repurchased during the second quarter of fiscal year 2022 were under the share repurchase programs approved on both September 14, 2021 and September 18, 2019. All other shares repurchased were under the share repurchase program approved on September 18, 2019. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $\n3.8\n billion, $\n4.7\n billion, and $\n4.4\n billion for fiscal years 2023, 2022, and 2021, respectively.\nDividends\n \nOur Board of Directors declared the following dividends:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nDeclaration Date\n\n\nRecord Date\n \n\n\n\u00a0\n\n\n\u00a0\n\n\nPayment Date\n \n\n\n\u00a0\n\n\nDividend\nPer Share\n \n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\nFiscal Year 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(In millions)\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSeptember 20, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nNovember 17, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nDecember 8, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.68\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,066\n\n\n\u00a0\n\n\n\n\n\n\nNovember 29, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nFebruary 16, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nMarch 9, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.68\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,059\n\n\n\u00a0\n\n\n\n\n\n\nMarch 14, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 18, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nJune 8, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.68\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,054\n\n\n\u00a0\n\n\n\n\n\n\nJune 13, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nAugust 17, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nSeptember 14, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.68\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,054\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2.72\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n20,233\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nFiscal Year 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSeptember 14, 2021\n\n\n \n\n\n\u00a0\n\n\nNovember 18, 2021\n\n\n \n\n\n \n\n\n \n\n\nDecember 9, 2021\n\n\n \n\n\n \n\n\n$\n\n\n0.62\n\n\n \n\n\n \n\n\n$\n\n\n4,652\n\n\n \n\n\n\n\n\n\nDecember 7, 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\nFebruary 17, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nMarch 10, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.62\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,645\n\n\n\u00a0\n\n\n\n\n\n\nMarch 14, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 19, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nJune 9, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.62\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,632\n\n\n\u00a0\n\n\n\n\n\n\nJune 14, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nAugust 18, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nSeptember 8, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.62\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,621\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2.48\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n18,550\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nThe dividend declared on June 13, 2023 was included in other current liabilities as of June 30, 2023.\n \n\n\n\u00a0\n\n\n90\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nNOTE 17 \u2014 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)\nThe following table summarizes the changes in accumulated other comprehensive income (loss) by component\n:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n\u00a0\n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDerivatives\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, beginning of period\n\n\n\u00a0\n\n\n$\n\n\n(\n13\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n19\n\n\n)\n\n\n \n\n\n$\n\n\n(\n38\n\n\n)\n \n\n\n\n\n\n\nUnrealized gains (losses), net of tax of \n$\n9\n, $(\n15\n), and $\n9\n\n\n\u00a0\n\n\n \n\n\n34\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(\n57\n\n\n)\n\n\n \n\n\n \n\n\n34\n\n\n\u00a0\n\n\n\n\n\n\nReclassification adjustments for (gains) losses included in other income (expense), net\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n61\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n79\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n17\n\n\n)\n\n\n\n\n\n\nTax expense (benefit) included in provision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n16\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAmounts reclassified from accumulated other comprehensive income (loss)\n\n\n\u00a0\n\n\n \n\n\n(\n48\n\n\n)\n\n\n \n\n\n \n\n\n63\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(\n15\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet change related to derivatives, net of tax of \n$(\n4\n)\n, $\n1\n, and $\n7\n\n\n\u00a0\n\n\n \n\n\n(\n14\n\n\n)\n\n\n \n\n\n \n\n\n6\n\n\n\u00a0\n\n\n \n\n\n \n\n\n19\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, end of period\n\n\n\u00a0\n\n\n$\n\n\n(\n27\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(\n13\n\n\n)\n\n\n \n\n\n$\n\n\n(\n19\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInvestments\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, beginning of period\n\n\n\u00a0\n\n\n$\n\n\n(\n2,138\n\n\n)\n \n\n\n \n\n\n$\n\n\n3,222\n\n\n \n\n\n \n\n\n$\n\n\n5,478\n\n\n \n\n\n\n\n\n\nUnrealized losses, net of tax of \n$(\n393\n)\n, $(\n1,440\n), and $(\n589\n)\n\n\n\u00a0\n\n\n \n\n\n(\n1,523\n\n\n)\n\n\n \n\n\n \n\n\n(\n5,405\n\n\n)\n\n\n \n\n\n \n\n\n(\n2,216\n\n\n)\n \n\n\n\n\n\n\nReclassification adjustments for (gains) losses included in other income (expense), net\n\n\n\u00a0\n\n\n\u00a0\n\n\n99\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n57\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n63\n\n\n)\n\n\n\n\n\n\nTax expense (benefit) included in provision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n20\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n12\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAmounts reclassified from accumulated other comprehensive income (loss)\n\n\n\u00a0\n\n\n\u00a0\n\n\n79\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n45\n\n\n\u00a0\n\n\n \n\n\n \n\n\n(\n50\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet change related to investments, net of tax of \n$(\n373\n)\n, $(\n1,428\n), and $(\n602\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,444\n\n\n)\n\n\n \n\n\n \n\n\n(\n5,360\n\n\n)\n\n\n \n\n\n \n\n\n(\n2,266\n\n\n)\n \n\n\n\n\n\n\nCumulative effect of accounting changes\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, end of period\n\n\n\u00a0\n\n\n$\n\n\n(\n3,582\n\n\n)\n\n\n \n\n\n$\n\n\n(\n2,138\n\n\n)\n\n\n \n\n\n$\n\n\n3,222\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTranslation Adjustments and Other\n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, beginning of period\n\n\n\u00a0\n\n\n$\n\n\n(\n2,527\n\n\n)\n\n\n \n\n\n$\n\n\n(\n1,381\n\n\n)\n\n\n \n\n\n$\n\n\n\u00a0\u00a0(\n2,254\n\n\n)\n\n\n\n\n\n\nTranslation adjustments and other, net of tax of \n$\n0\n, $\n0\n, and $(\n9\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n207\n\n\n)\n\n\n \n\n\n \n\n\n(\n1,146\n\n\n)\n\n\n \n\n\n \n\n\n873\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBalance, end of period\n\n\n\u00a0\n\n\n$\n\n\n(\n2,734\n\n\n)\n\n\n \n\n\n$\n\n\n(\n2,527\n\n\n)\n\n\n \n\n\n$\n\n\n(\n1,381\n\n\n)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAccumulated other comprehensive income (loss), end of period\n\n\n\u00a0\n\n\n$\n\n\n(\n6,343\n\n\n)\n\n\n \n\n\n$\n\n\n(\n4,678\n\n\n)\n\n\n \n\n\n$\n\n\n1,822\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nNOTE 18 \u2014 EMPLOYEE STOCK AND SAVINGS PLANS\nWe grant stock-based compensation to employees and directors. Awards that expire or are canceled without delivery of shares generally become available for issuance under the plans. We issue new shares of Microsoft common stock to satisfy vesting of awards granted under our stock plans. We also have an ESPP for all eligible employees.\nStock-based compensation expense and related income tax benefits were as follows:\n \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation expense\n\n\n \n\n\n$\n\n\n9,611\n\n\n \n\n\n \n\n\n$\n\n\n7,502\n\n\n \n\n\n \n\n\n$\n\n\n6,118\n\n\n \n\n\n\n\n\n\nIncome tax benefits related to stock-based compensation\n\n\n \n\n\n\u00a0\n\n\n1,651\n\n\n \n\n\n \n\n\n\u00a0\n\n\n1,293\n\n\n \n\n\n \n\n\n\u00a0\n\n\n1,065\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\nStock Plans\nStock awards entitle the holder to receive shares of Microsoft common stock as the award vests. Stock awards generally vest over a service period of \nfour years\n or \nfive years\n.\n \n91\n\n\nPART II\nItem 8\n\u00a0\nExecutive Incentive Plan\n \nUnder the Executive Incentive Plan, the Compensation Committee approves stock awards to executive officers and certain senior executives. RSUs generally vest ratably over a service period of \nfour years\n. PSUs generally vest over a performance period of \nthree years\n. The number of shares the PSU holder receives is based on the extent to which the corresponding performance goals have been achieved.\nActivity for All Stock Plans\n \nThe fair value of stock awards was estimated on the date of grant using the following assumptions:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\n\n\n\nYear ended June 30,\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDividends per share (quarterly amounts)\n\n\n \n\n\n$\n\n\n0.62\n\u00a0\u2013 \n0.68\n\n\n \n\n\n$\n\n\n\u00a0\n\n\n0.56\n\u00a0\u2013 \n0.62\n\n\n \n\n\n \n\n\n$\n\n\n0.51\n\u00a0\u2013 \n0.56\n\n\n \n\n\n\n\n\n\nInterest rates\n\n\n \n\n\n \n\n\n2.0\n% \u2013 \n5.4\n%\n\n\n \n\n\n \n\n\n \n\n\n0.03\n% \u2013 \n3.6\n%\n\n\n \n\n\n \n\n\n \n\n\n0.01\n% \u2013 \n1.5\n%\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\n\n\n\n\u00a0\nDuring fiscal year 2023, the following activity occurred under our stock plans:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nShares\n\n\n \n\n\n \n\n\nWeighted Average\nGrant-Date Fair\nValue\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\n\n\n\nStock Awards\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNonvested balance, beginning of year\n\n\n\u00a0\n\n\n\u00a0\n\n\n93\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n227.59\n\n\n\u00a0\n\n\n\n\n\n\nGranted \n(a)\n\n\n \n\n\n \n\n\n56\n\n\n \n\n\n \n\n\n\u00a0\n\n\n252.59\n\n\n \n\n\n\n\n\n\nVested\n\n\n \n\n\n \n\n\n(\n44\n\n\n)\n\n\n \n\n\n\u00a0\n\n\n206.90\n\n\n \n\n\n\n\n\n\nForfeited\n\n\n \n\n\n \n\n\n(\n9\n\n\n)\n\n\n \n\n\n\u00a0\n\n\n239.93\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNonvested balance, end of year\n\n\n \n\n\n \n\n\n96\n\n\n \n\n\n \n\n\n$\n\n\n250.37\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\n(a)\nIncludes \n1\n million, \n1\n million, and \n2\n million of PSUs granted at target and performance adjustments above target levels for fiscal years 2023, 2022, and 2021, respectively.\n\u00a0\nAs of June 30, 2023, total unrecognized compensation costs related to stock awards were $\n18.6\n billion. These costs are expected to be recognized over a weighted average period of \nthree years\n. The weighted average grant-date fair value of stock awards granted was $\n252.59\n, $\n291.22\n, and $\n221.13\n for fiscal years 2023, 2022, and 2021, respectively. The fair value of stock awards vested was $\n11.9\n billion, $\n14.1\n billion, and $\n13.4\n billion, for fiscal years 2023, 2022, and 2021, respectively. As of June 30, 2023, an aggregate of \n164\n million shares were authorized for future grant under our stock plans.\nEmployee Stock Purchase Plan\n \nWe have an ESPP for all eligible employees. Shares of our common stock may be purchased by employees at three-month intervals at \n90\n% of the fair market value on the last trading day of each three-month period. Employees may purchase shares having a value not exceeding \n15\n% of their gross compensation during an offering period.\n \nEmployees purchased the following shares during the periods presented:\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(Shares in millions)\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nShares purchased\n\n\n \n\n\n \n\n\n7\n\n\n \n\n\n \n\n\n \n\n\n7\n\n\n \n\n\n \n\n\n \n\n\n8\n\n\n \n\n\n\n\n\n\nAverage price per share\n\n\n \n\n\n$\n\n\n245.59\n\n\n \n\n\n \n\n\n$\n\n\n259.55\n\n\n \n\n\n \n\n\n$\n\n\n207.88\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\nAs of June 30, 2023, \n74\n million shares of our common stock were reserved for future issuance through the ESPP.\n \n92\n\n\nPART II\nItem 8\n\u00a0\nSavings Plans\n \nWe have savings plans in the U.S. that qualify under Section 401(k) of the Internal Revenue Code, and a number of savings plans in international locations. Eligible U.S. employees may contribute a portion of their salary into the savings plans, subject to certain limitations. We match a portion of each dollar a participant contributes into the plans. Employer-funded retirement benefits for all plans were $\n1.6\n billion, $\n1.4\n billion, and $\n1.2\n billion in fiscal years 2023, 2022, and 2021, respectively, and were expensed as contributed.\n\n\nNOTE 19 \u2014 SEGMENT INFORMATION AND GEOGRAPHIC DATA\nIn its operation of the business, management, including our chief operating decision maker, who is also our Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with GAAP. During the periods presented, we reported our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.\n \nWe have recast certain prior period amounts to conform to the way we internally manage and monitor our business.\nOur reportable segments are described below.\n \nProductivity and Business Processes\n \nOur Productivity and Business Processes segment consists of products and services in our portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises:\n\u2022\nOffice Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Microsoft 365 Copilot.\n\u2022\nOffice Consumer, including Microsoft 365 Consumer subscriptions, Office licensed on-premises, and other Office services.\n\u2022\nLinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.\n\u2022\nDynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, CRM (including Customer Insights), Power Apps, and Power Automate; and on-premises ERP and CRM applications.\nIntelligent Cloud\n \nOur Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business and developers. This segment primarily comprises:\n \n\u2022\nServer products and cloud services, including Azure and other cloud services; SQL Server, Windows Server, Visual Studio, System Center, and related Client Access Licenses (\u201cCALs\u201d); and Nuance and GitHub. \n\u2022\nEnterprise Services, including Enterprise Support Services, Industry Solutions (formerly Microsoft Consulting Services), and Nuance professional services. \nMore Personal Computing\nOur More Personal Computing segment consists of products and services that put customers at the center of the experience with our technology. This segment primarily comprises:\n\u2022\nWindows, including Windows OEM licensing and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows Internet of Things.\n\u2022\nDevices, including Surface, HoloLens, and PC accessories.\n93\n\n\nPART II\nItem 8\n\u00a0\n\u2022\nGaming, including Xbox hardware and Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, third-party disc royalties, and other cloud services.\n\u2022\nSearch and news advertising, comprising Bing (including Bing Chat), Microsoft News, Microsoft Edge, and third-party affiliates.\nRevenue and costs are generally directly attributed to our segments. However, due to the integrated structure of our business, certain revenue recognized and costs incurred by one segment may benefit other segments. Revenue from certain contracts is allocated among the segments based on the relative value of the underlying products and services, which can include allocation based on actual prices charged, prices when sold separately, or estimated costs plus a profit margin. Cost of revenue is allocated in certain cases based on a relative revenue methodology. Operating expenses that are allocated primarily include those relating to marketing of products and services from which multiple segments benefit and are generally allocated based on relative gross margin.\nIn addition, certain costs are incurred at a corporate level and allocated to our segments. These allocated costs \n \ngenerally include legal, including settlements and fines, information technology, human resources, finance, excise taxes, field selling, shared facilities services, customer service and support\n,\n and severance incurred as part of a corporate program. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated and is generally based on relative gross margin or relative headcount.\nSegment revenue and operating income were as follows during the periods presented:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRevenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProductivity and Business Processes\n\n\n\u00a0\n\n\n$\n\n\n69,274\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n63,364\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n53,915\n\n\n\u00a0\n\n\n\n\n\n\nIntelligent Cloud\n\n\n\u00a0\n\n\n\u00a0\n\n\n87,907\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n74,965\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,728\n\n\n\u00a0\n\n\n\n\n\n\nMore Personal Computing\n\n\n\u00a0\n\n\n\u00a0\n\n\n54,734\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,941\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n54,445\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n211,915\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n198,270\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n168,088\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating Income\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProductivity and Business Processes\n\n\n \n\n\n$\n\n\n34,189\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n29,690\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n24,351\n\n\n\u00a0\n\n\n\n\n\n\nIntelligent Cloud\n\n\n \n\n\n\u00a0\n\n\n37,884\n\n\n \n\n\n \n\n\n \n\n\n33,203\n\n\n\u00a0\n\n\n \n\n\n \n\n\n26,471\n\n\n \n\n\n\n\n\n\nMore Personal Computing\n\n\n \n\n\n\u00a0\n\n\n16,450\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n20,490\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n19,094\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n88,523\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n83,383\n\n\n\u00a0\n\n\n \n\n\n$\n\n\n69,916\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\nNo sales to an individual customer or country other than the United States accounted for more than 10% of revenue for fiscal years 2023, 2022, or 2021.\n \nRevenue, classified by the major geographic areas in which our customers were located, was as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnited States \n(a)\n\n\n \n\n\n$\n\n\n106,744\n\n\n \n\n\n \n\n\n$\n\n\n100,218\n\n\n \n\n\n \n\n\n$\n\n\n83,953\n\n\n \n\n\n\n\n\n\nOther countries\n\n\n \n\n\n \n\n\n105,171\n\n\n \n\n\n \n\n\n \n\n\n98,052\n\n\n \n\n\n \n\n\n \n\n\n84,135\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n211,915\n\n\n \n\n\n \n\n\n$\n\n\n198,270\n\n\n \n\n\n \n\n\n$\n\n\n168,088\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\u00a0\n(a)\nIncludes billings to OEMs and certain multinational organizations because of the nature of these businesses and the impracticability of determining the geographic source of the revenue.\n \n94\n\n\nPART II\nItem 8\n\u00a0\nRevenue, classified by significant product and service offerings, was as follows:\n \n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nYear Ended June 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nServer products and cloud services\n\n\n\u00a0\n\n\n$\n\n\n79,970\n\n\n \n\n\n \n\n\n$\n\n\n67,350\n\n\n \n\n\n \n\n\n$\n\n\n52,589\n\n\n \n\n\n\n\n\n\nOffice products and cloud services\n\n\n \n\n\n \n\n\n48,728\n\n\n \n\n\n \n\n\n\u00a0\n\n\n44,862\n\n\n \n\n\n \n\n\n \n\n\n39,872\n\n\n \n\n\n\n\n\n\nWindows\n\n\n \n\n\n \n\n\n21,507\n\n\n \n\n\n \n\n\n \n\n\n24,732\n\n\n \n\n\n \n\n\n \n\n\n22,488\n\n\n \n\n\n\n\n\n\nGaming\n\n\n \n\n\n \n\n\n15,466\n\n\n\u00a0\n\n\n \n\n\n \n\n\n16,230\n\n\n\u00a0\n\n\n \n\n\n \n\n\n15,370\n\n\n \n\n\n\n\n\n\nLinkedIn\n\n\n \n\n\n\u00a0\n\n\n15,145\n\n\n\u00a0\n\n\n \n\n\n\u00a0\n\n\n13,816\n\n\n\u00a0\n\n\n \n\n\n \n\n\n10,289\n\n\n \n\n\n\n\n\n\nSearch and news advertising\n\n\n \n\n\n \n\n\n12,208\n\n\n \n\n\n \n\n\n\u00a0\n\n\n11,591\n\n\n \n\n\n \n\n\n\u00a0\n\n\n9,267\n\n\n \n\n\n\n\n\n\nEnterprise Services\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,722\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,407\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,943\n\n\n\u00a0\n\n\n\n\n\n\nDevices\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,521\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,306\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,143\n\n\n\u00a0\n\n\n\n\n\n\nDynamics\n\n\n \n\n\n \n\n\n5,437\n\n\n \n\n\n \n\n\n \n\n\n4,687\n\n\n \n\n\n \n\n\n \n\n\n3,754\n\n\n \n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n211\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n289\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n373\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n211,915\n\n\n \n\n\n \n\n\n$\n\n\n198,270\n\n\n \n\n\n \n\n\n$\n\n\n168,088\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\nOur Microsoft Cloud revenue, which includes Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties, was $\n111.6\n billion, $\n91.4\n billion, and $\n69.1\n billion in fiscal years 2023, 2022, and 2021, respectively. These amounts are primarily included in Server products and cloud services, Office products and cloud services, LinkedIn, and Dynamics in the table above.\nAssets are not allocated to segments for internal reporting presentations. A portion of amortization and depreciation is included with various other costs in an overhead allocation to each segment. It is impracticable for us to separately identify the amount of amortization and depreciation by segment that is included in the measure of segment profit or loss.\nLong-lived assets, excluding financial instruments and tax assets, classified by the location of the controlling statutory company and with countries over 10% of the total shown separately, were as follows:\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nJune 30,\n\n\n \n\n\n2023\n\n\n \n\n\n \n\n\n2022\n\n\n \n\n\n \n\n\n2021\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnited States\n\n\n \n\n\n$\n\n\n114,380\n\n\n \n\n\n \n\n\n$\n\n\n106,430\n\n\n \n\n\n \n\n\n$\n\n\n76,153\n\n\n \n\n\n\n\n\n\nIreland\n\n\n \n\n\n \n\n\n16,359\n\n\n \n\n\n \n\n\n \n\n\n15,505\n\n\n \n\n\n \n\n\n \n\n\n13,303\n\n\n \n\n\n\n\n\n\nOther countries\n\n\n \n\n\n \n\n\n56,500\n\n\n \n\n\n \n\n\n \n\n\n44,433\n\n\n \n\n\n \n\n\n \n\n\n38,858\n\n\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n \n\n\n$\n\n\n187,239\n\n\n \n\n\n \n\n\n$\n\n\n166,368\n\n\n \n\n\n \n\n\n$\n\n\n128,314\n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n \n\n\n \n\n\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n95\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nREPORT OF INDEPENDENT REGIST\nERED PUBLIC ACCOUNTING FIRM\n\n\nTo the Stockholders and the Board of Directors of Microsoft Corporation\n \n\n\nOpinion on the Financial Statements\n\n\nWe have audited the accompanying consolidated balance sheets of Microsoft Corporation and subsidiaries (the \"Company\") as of June 30, 2023 and 2022, the related consolidated statements of income, comprehensive income, cash flows, and stockholders' equity, for each of the three years in the period ended June 30, 2023, and the related notes (collectively referred to as the \"financial statements\"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.\n\n\nWe have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2023, based on criteria established in \nInternal Control \u2014 Integrated Framework (2013)\n issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 27, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.\n\n\nBasis for Opinion\n\n\nThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\n\nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.\n\n\nCritical Audit Matters\n\n\nThe critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.\n\n\nRevenue Recognition \u2013 Refer to Note 1 to the financial statements\n\n\nCritical Audit Matter Description\n\n\nThe Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company offers customers the ability to acquire multiple licenses of software products and services, including cloud-based services, in its customer agreements through its volume licensing programs.\n\n\n96\n\n\n\n\nPART II\n\n\nItem 8\n\n\n\u00a0\n\n\nSignificant judgment is exercised by the Company in determining revenue recognition for these customer agreements, and includes the following:\n\n\n\u2022\nDetermination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together, such as software licenses and related services that are sold with cloud-based services.\n\n\n\u2022\nThe pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.\n\n\n\u2022\nIdentification and treatment of contract terms that may impact the timing and amount of revenue recognized (e.g., variable consideration, optional purchases, and free services). \n\n\n\u2022\nDetermination of stand-alone selling prices for each distinct performance obligation and for products and services that are not sold separately.\n\n\nGiven these factors and due to the volume of transactions, the related audit effort in evaluating management's judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.\n\n\nHow the Critical Audit Matter Was Addressed in the Audit\n\n\nOur principal audit procedures related to the Company's revenue recognition for these customer agreements included the following:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u0095\n\n\nWe tested the effectiveness of controls related to the identification of distinct performance obligations, the determination of the timing of revenue recognition, and the estimation of variable consideration.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u0095\n\n\nWe evaluated management's significant accounting policies related to these customer agreements for reasonableness.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u0095\n\n\nWe selected a sample of customer agreements and performed the following procedures:\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n-\n\n\nObtained and read contract source documents for each selection, including master agreements, and other documents that were part of the agreement.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n-\n\n\nTested management's identification and treatment of contract terms.\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n-\n\n\nAssessed the terms in the customer agreement and evaluated the appropriateness of management's application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u0095\n\n\nWe evaluated the reasonableness of management's estimate of stand-alone selling prices for products and services that are not sold separately.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u0095\n\n\nWe tested the mathematical accuracy of management's calculations of revenue and the associated timing of revenue recognized in the financial statements.\n\n\n\n\n\n\nIncome Taxes \u2013 Uncertain Tax Positions \u2013 Refer to Note 12 to the financial statements\n\n\nCritical Audit Matter Description\n\n\nThe Company's long-term income taxes liability includes uncertain tax positions related to transfer pricing issues that remain unresolved with the Internal Revenue Service (\"IRS\"). The Company remains under IRS audit, or subject to IRS audit, for tax years subsequent to 2003. While the Company has settled a portion of the IRS audits, resolution of the remaining matters could have a material impact on the Company's financial statements.\n \n\n\nConclusions on recognizing and measuring uncertain tax positions involve significant estimates and management judgment and include complex considerations of the Internal Revenue Code, related regulations, tax case laws, and prior-year audit settlements. Given the complexity and the subjective nature of the transfer pricing issues that remain unresolved with the IRS, evaluating management's estimates relating to their determination of uncertain tax positions required extensive audit effort and a high degree of auditor judgment, including involvement of our tax specialists.\n\n\n97\n\n\n\n\nPART II\n\n",
+  "cik": "789019",
+  "cusip6": "594918",
+  "cusip": ["594918954", "594918104", "594918904"],
+  "names": ["MICROSOFT CORP", "MICROSOFT CORP PUT"],
+  "source": "https://www.sec.gov/Archives/edgar/data/789019/000095017023035122/0000950170-23-035122-index.htm"
+}
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+++ b/GraphRAG/standalone/data/all/form10k/0000950170-23-035840.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1. B\nusiness\n\n\nGeneral\n\n\nRichardson Electronics, Ltd. (the \"Company\", \"we\", \"our\") is a leading global manufacturer of engineered solutions, power grid and microwave tubes and related consumables; power conversion and RF and microwave components; high-value replacement parts, tubes and service training for diagnostic imaging equipment; and customized display solutions. Nearly 60% of our products are manufactured in LaFox, Illinois, Marlborough, Massachusetts or Donaueschingen, Germany, or by one of our manufacturing partners throughout the world. All our partners manufacture to our strict specifications and per our supplier code of conduct. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. The Company\u2019s strategy is to provide specialized technical expertise and \u201cengineered solutions\u201d based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair through its global infrastructure.\n\n\nOur fiscal year 2023 began on May 29, 2022 and ended on May 27, 2023, our fiscal year 2022 began on May 30, 2021 and ended on May 28, 2022 and our fiscal year 2021 began on May 31, 2020 and ended on May 29, 2021.  Unless otherwise noted, all references to a particular year in this document shall mean the fiscal year for such period.\n\n\nCOVID-19 Update\n\n\nWhile the immediate impacts of the COVID-19 pandemic have been assessed, the long-term effects of the disruption, including supply chain disruption, and resulting impact on the global economy and capital markets remain unpredictable, and depend on future developments, such as the possible resurgence of the virus, variant strains of the virus, vaccine availability and effectiveness, and future government actions in response to the crisis. The residual impact of the COVID-19 pandemic and its effects on supply chains and general economic conditions continues to evolve. The COVID-19 pandemic and its residual negative impact on general economic conditions has had and continues to have a negative effect on our business, results of operations, cash flows, gross margins as a percentage of net sales (particularly within our Canvys segment). While the Company did not experience sales declines during fiscal year 2023 as a direct result of the pandemic, the residual economic impact from the pandemic continued to negatively impact our gross margins as a percentage of net sales in our Canvys segment.\n\n\nIt is likely that the pandemic will continue to affect our business for an indeterminable period of time due to the impact on the global economy, including with respect to transportation networks and supply chains, the availability of raw materials, production efforts and customer demand for our products. We have experienced and continue to experience component delays which negatively impact our product development schedule.\n \n\n\nManagement continues to monitor the impact of global economic factors on its financial condition, liquidity, operations, suppliers, industry and workforce. Our ability to predict and respond to future changes resulting from the Covid pandemic is uncertain. Even after the Covid pandemic fully subsides, there may be continued long-term effects on our business practices and customers in economies in which we operate that could severely disrupt our operations and could have a material adverse effect on our business, results of operations, cash flows and financial condition. As we cannot predict the duration, scope or severity of the Covid pandemic, the negative financial impact to our results cannot be reasonably estimated and could be material.\n\n\nGovernment Regulations\n\n\nWe are subject to a variety of federal, state, local and foreign laws and regulatory requirements relating to our operations. These laws and regulations, which differ among jurisdictions, include, among others, those related to financial and other disclosures, accounting standards, privacy and data protection, cybersecurity, intellectual property, corporate governance, tax, trade, antitrust, employment, import/export, anti-corruption, and environmental regulatory compliance. Expenditures relating to such regulations are made in the ordinary course of our business and do not represent material expenditures and we further do not currently expect that compliance with such laws will require us to make material additional expenditures, however, there is no assurance that existing or future laws and regulations applicable to our operations, products, and services will not have a material adverse effect on our business.\n\n\n4\n\n\n\n\n\u00a0\n\n\nAmong others, we are subject to a variety of data protection laws that change frequently and have requirements that vary from jurisdiction to jurisdiction. We are subject to significant compliance obligations under privacy laws such as the General Data Protection Regulation in the European Union and an expanding list of comprehensive state privacy and/or cybersecurity laws in the United States. Failure to comply with these laws and regulations subjects us to potential regulatory enforcement activity, fines, private litigation including class actions, reputational impacts, and other costs. Our efforts to comply with privacy and data security laws and regulations complicate our operations and add to our costs.\n\n\n We are also subject to various domestic and international export, trade and anti-corruption laws, such as include the Arms Export Control Act, the International Traffic in Arms Regulations (\u201cITAR\u201d), the Export Administration Regulations (\u201cEAR\u201d), anti-money laundering laws and regulations and the trade and trade sanctions laws and regulations administered by the Office of the United States Trade Representative and the United States Department of the Treasury\u2019s Office of Foreign Assets Control. Violations of these laws and regulations may result in severe criminal or civil sanctions and penalties.\n\n\n Our operations also are subject to numerous laws and regulations governing health and safety aspects of our operations, or otherwise relating to environmental protection. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of remedial or corrective action requirements, and the imposition of injunctions to prohibit certain activities or force future compliance.\n\n\nFor more information on risks related to the laws and regulations to which we are subject, see the relevant discussions throughout \"Item 1A, Risk Factors\" of this Annual Report on Form 10-K.\n\n\n \nGeography\n\n\nWe currently have operations in the following major geographic regions: North America, Asia/Pacific, Europe and Latin America. Selected financial data attributable to each segment and geographic region for fiscal 2023, fiscal 2022 and fiscal 2021 is set forth in Note 10, \nSegment and Geographic Information\n, of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.\n\n\nBusiness Segments\n\n\nThe Company began reporting the results for its new Green Energy Solutions (\"GES\") segment in the first quarter of fiscal 2023 due to its focus on power applications that support the green energy market. The GES segment has been carved out of our existing Power and Microwave Technologies (\u201cPMT\u201d) segment. Accordingly, the Company is reporting its financial performance based on four operating and reportable segments for fiscal 2023. The results for fiscal 2022 and fiscal 2021 presented herein were adjusted to reflect the presentation of the new GES segment separately from the PMT segment.\n\n\nThe four operating and reportable segments for fiscal 2023, fiscal 2022 and fiscal 2021 are defined as follows:\n\n\nPower and Microwave Technologies\n \n\n\nPower and Microwave Technologies combines our core engineered solutions capabilities, power grid and microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner and authorized distributor, PMT\u2019s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair\u2014all through our existing global infrastructure. PMT\u2019s focus is on products for power, RF and microwave applications for customers in 5G, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.\n\n\nPMT represents leading manufacturers of electron tubes and RF, Microwave and power components used in semiconductor manufacturing equipment, RF and wireless and industrial power applications. Among the suppliers\n \n\n\n5\n\n\n\n\n\u00a0\n\n\nPMT supports are Amperex, CDE, CPI, Draloric, Eimac, General Electric, Hitachi, Jennings, L3, MACOM, National, NJRC, Ohmite, Qorvo, Thales, Toshiba and Vishay.\n\n\nPMT\u2019s inventory levels reflect our commitment to maintain an inventory of a broad range of products for customers who are buying products for replacement of components used in critical equipment and designing in new technologies. PMT also sells a number of products representing trailing edge technology. While the market for these trailing edge technology products is declining, PMT is increasing its market share. PMT often buys products it knows it can sell ahead of any supplier price increases and extended lead times. As manufacturers for these products exit the business, PMT has the option to purchase a substantial portion of their remaining inventory.\n\n\nPMT has distribution agreements with many of its suppliers; most of these agreements provide exclusive distribution rights that often include global coverage. The agreements are typically long term, and usually contain provisions permitting termination by either party if there are significant breaches that are not cured within a reasonable period. Although some of these agreements allow PMT to return inventory periodically, others do not, in which case PMT may have obsolete inventory that they cannot return to the supplier.\n\n\nPMT\u2019s suppliers provide warranty coverage for the products and allow return of defective products, including those returned to PMT by its customers. For information regarding the warranty reserves, see Note 3, \nSignificant Accounting Policies and Disclosures\n, of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.\n\n\nIn addition to third party products, we sell proprietary products principally under certain trade names we own including \nAmperex\n\u00ae, \nCetron\n\u00ae\n \nand\n National\u00ae\n. Our proprietary products include thyratrons and rectifiers, power tubes, ignitrons, magnetrons, phototubes, microwave generators, Ultracapacitor modules and liquid crystal display monitors. The materials used in the manufacturing process consist of glass bulbs and tubing, nickel, stainless steel and other metals, plastic and metal bases, ceramics and a wide variety of fabricated metal components. These materials are generally readily available, but some components may require long lead times for production, and some materials are subject to shortages or price fluctuations based on supply and demand.\n\n\nGreen Energy Solutions\n\n\nGreen Energy Solutions combines our key technology partners and engineered solutions capabilities to design and manufacture innovative products for the fast-growing energy storage market and power management applications. As a designer, manufacturer, technology partner and authorized distributor, GES\u2019s strategy is to provide specialized technical expertise and engineered solutions using our core design engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair\u2014all through our existing global infrastructure. GES\u2019s focus is on products for numerous green energy applications such as wind, solar, hydrogen and Electric Vehicles, and other power management applications that support green solutions such as synthetic diamond manufacturing.\n\n\nCanvys\n\n\nCanvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages and certification services. We partner with both private label manufacturing companies and leading branded hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.\n\n\nWe have long-standing relationships with key component and finished goods manufacturers and several key ISO 9001 and ISO 13485 certified Asian display manufacturers that manufacture products to our specifications. We believe supplier relationships, combined with our engineering design and manufacturing capabilities and private label partnerships, allow us to maintain a well-balanced and technologically advanced offering of customer specific display solutions.\n\n\n6\n\n\n\n\n\u00a0\n\n\nHealthcare\n\n\nHealthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we believe we can help our customers improve efficiency while lowering the cost of healthcare delivery.\n\n\nSales and Product Management\n\n\nWe have employees, as well as authorized representatives who are not our employees, selling our products primarily in regions where we do not have a direct sales presence.\n\n\nWe offer various credit terms to qualifying customers as well as cash in advance and credit card terms. We establish credit limits for each customer and routinely review delinquent and aging accounts.\n\n\nDistribution\n\n\nWe maintain over 100,000 part numbers in our product inventory database and we estimate that more than 90% of orders received by 6:00 p.m. local time are shipped complete the same day for stock product. Customers can access our products on our websites, www.rell.com, www.rellhealthcare.com, www.canvys.com, www.rellpower.com, www.relltubes.com and www.rellaser.com, through electronic data interchange, or by telephone. Customer orders are processed by our regional sales offices and supported primarily by one of our distribution facilities in LaFox, Illinois; Fort Mill, South Carolina; Amsterdam, Netherlands; Marlborough, Massachusetts; Donaueschingen, Germany; or Singapore, Singapore. We also have satellite warehouses in Sao Paulo, Brazil; Shanghai, China; Bangkok, Thailand; and Hook, United Kingdom. Our data processing network provides on-line, real-time interconnection of all sales offices and central distribution operations, 24 hours per day, seven days per week. Information on stock availability, pricing in local currency, cross-reference information, customers and market analyses are obtainable throughout the entire distribution network. The content of our websites is not deemed to be incorporated by reference in this report filed with the Securities and Exchange Commission.\n\n\nInternational Sales\n\n\nDuring fiscal 2023, we made approximately 58% of our sales outside the United States. We continue to pursue new international sales to further expand our geographic reach.\n\n\nMajor Customers\n\n\nSales to one customer in our PMT segment totaling $31.2 million accounted for 12 percent of the Company\u2019s consolidated net sales in fiscal 2023. No one customer accounted for more than 10 percent of the Company\u2019s consolidated net sales for fiscal 2022 and fiscal 2021. See Note 10, \nSegment and Geographic Information\n, of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.\n\n\n7\n\n\n\n\n\u00a0\n\n\nHuman Capital Resources\n\n\nRecruitment & Staffing\n \n\n\nThe future success of our Company depends on our ability to attract, hire, motivate, retain and further develop top talent, including highly skilled technical, management and sales personnel. The skills, experience and industry knowledge of our employees significantly benefit our operations and performance. Competition for such personnel is intense and the salary, benefits and other costs to employ the right personnel may impact our results and performance.\n\n\nAs of May 27, 2023, we employed 485 individuals, which included 451 full-time individuals and 34 part-time individuals. Of these, 329 full-time and 15 part-time were in the United States and 122 full-time and 19 part-time were located internationally. All of our employees are non-union.\n\n\n The Company offers employees a competitive compensation program, designed to recognize and reward both individual and company performance, which includes a base pay, variable compensation programs, and health, well being and retirement programs to meet the needs of our employees.\n \n\n\nDiversity, Equity, Inclusion & Belonging\n\n\n\u00a0\n\n\nWe are an international company with offices and personnel located around the world. We understand, respect, and value the similarities as well as the differences of our employees. Our human capital is a critical asset that enables us to serve and support our global customer base. Our effectiveness in maximizing the talents of people of different backgrounds, experiences, and perspectives is key to our continued global success. Fostering, cultivating, and preserving a culture of diversity, equity, inclusion, and belonging is a key priority for the Company. We seek to embrace and encourage our employees\u2019 differences in age, disability, ethnicity, family or marital status, gender identity or expression, language, national origin, physical and mental ability, political affiliation, race, religion, sexual orientation, socio-economic status, veteran status, and other characteristics that make our employees unique.\n \n\n\nManagement has identified Diversity, Equity, Inclusion, and Belonging (\u201cDEI&B\u201d) as a priority for our Company. Significant positive change requires careful planning, leadership, resources, and coordination. The Company established a DEI&B committee to plan and implement changes to achieve our goal of being a more diverse and inclusive organization. The DEI&B committee has been charged with making recommendations about how we, as a company, can promote and act upon the Company\u2019s initiatives in this area. The committee will identify priorities based on employee input and incorporate these into the Company\u2019s strategic plans, work to establish accountability and methods of measuring our progress and provide appropriate communications about our plans and achievements to our stakeholders. To date, DEI&B initiatives have focused on the following:\n\n\n\u2022\nExpanded the Board of Directors to include a female director\n\n\n\u2022\nIncreased DEI&B awareness throughout the Company through education and involvement\n\n\n\u2022\nAdded socially responsible funds to our 401K Plan \n\n\n\u2022\nProviding regular training, communication, activities, and surveys regarding DEI&B matters to our employees\n\n\nWebsite Access to SEC Reports\n\n\nWe maintain an Internet website at www.rell.com. Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 are accessible through our website, free of charge, as soon as reasonably practicable after these reports are filed electronically with the Securities and Exchange Commission. Interactive Data Files pursuant to Rule 405 of Regulation S-T, of these filing dates, formatted in Extensible Business Reporting Language (\u201cXBRL\u201d) are accessible as well. To access these reports, go to our website at www.rell.com. Information relating to our corporate governance, including our Code of Conduct (including any related amendments or waivers) and information concerning our executive officers, directors and Board committees (including committee charters) is also available on our website. The foregoing information regarding our website is provided for convenience and the content of our website is not deemed to be incorporated by reference in this report filed with the Securities and Exchange Commission. Additionally, the SEC maintains an internet site through which our reports, proxy and information statements and our other SEC filings can be located; the address of that site is \nhttp://www.sec.gov\n.\n\n\n8\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A. R\nisk Factors\n\n\n\u00a0\n\n\nInvestors should carefully consider the following risk factors in addition to the other information included and incorporated by reference in this Annual Report on Form 10-K that we believe are applicable to our businesses and the industries in which we operate. While we believe we have identified the key risk factors affecting our businesses, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our results of operations.\n\n\nBusiness and Operational Risks\n\n\nWe may not achieve our plan for sales growth and margin targets.\n\n\nWe have established both margin and expense targets to grow our sales with new and existing customers. If we do not achieve our growth objectives, the complexity of our global infrastructure makes it difficult to leverage our fixed cost structure to align with the size of our operations. Factors that could have a significant effect on our ability to achieve these goals include the following:\n\n\n\u2022\nFailure to achieve our sales and margin growth objectives in our product lines and business units;\n\n\n\u2022\nFailure to implement or properly execute our growth strategies, including failures to identify, consummate and successfully integrate acquisitions and/or other opportunities to diversify, extend and expand our business;\n\n\n\u2022\nDeclining gross margin reflecting competitive pricing pressures or product mix; and\n\n\n\u2022\nLimitations on our ability to leverage our support-function cost structure while maintaining an adequate structure to achieve our growth objectives.\n\n\nWe have historically incurred significant charges for inventory obsolescence and may incur similar charges in the future.\n\n\nWe maintain significant inventories in an effort to ensure that customers have a reliable source of supply. Our products generally support industrial machinery powered by tube technology. As technology evolves and companies replace this capital equipment, the market for our products potentially declines. In addition, the market for many of our other products changes rapidly resulting from the development of new technologies, evolving industry standards, frequent new product introductions by some of our suppliers and changing end-user demand, which can contribute to the decline in value or obsolescence of our inventory. We do not have many long-term supply contracts with our customers. If we fail to anticipate the changing needs of our customers or we do not accurately forecast customer demand, our customers may not place orders with us, and we may accumulate significant inventories of products that we may be unable to sell or return to our vendors. This may result in a decline in the value of our inventory.\n\n\nWe face competitive pressures that could have a material adverse effect on our business.\n\n\nOur overall competitive position depends on a number of factors including price, engineering capability, vendor representation, product diversity, lead times and the level of customer service. There are very few vacuum tube competitors in the markets we serve. There are also a limited number of Chinese manufacturers whose ability to produce vacuum tubes has progressed over the past several years. The most significant competitive risk comes from technical obsolescence. Canvys faces many competitors in the markets we serve. Increased competition may result in price reductions, reduced margins or a loss of market share, any of which could materially and adversely affect our business, operating results and financial condition. As we expand our business and pursue our growth initiatives, we may encounter increased competition from current and/or new competitors. Our failure to maintain and enhance our competitive position could have a material adverse effect on our business.\n \n\n\n9\n\n\n\n\n\u00a0\n\n\nWe are dependent on a limited number of vendors to supply us with essential products.  Disruptions to the supply chain could adversely impact our business.\n\n\nThe products we supply are currently produced by a relatively small number of manufacturers. One of our suppliers represented 11% of our total cost of sales during fiscal year 2023. Our success depends, in large part, on maintaining current vendor relationships and developing new relationships. To the extent that our significant suppliers are unwilling or unable to continue to do business with us, extend lead times, limit supplies due to capacity constraints or other factors, there could be a material adverse effect on our business.\n \n\n\nFurther, as a result of COVID-19 and its effects, we experienced some residual COVID-19 related component delays impacting new product development schedules. The global markets have generally suffered, and are continuing to suffer, from material disruptions to certain supply chains. Changes in our relationships with suppliers, shortages in availability of materials, production delays, regulatory restrictions, public health crises, or other supply chain disruptions, whether due to our suppliers or customers, could have a material adverse effect on our operations and results. Increases in the costs of supplies could result in manufacturing interruptions, delays, inefficiencies or our inability to market products. In addition, our profit margins would decrease if prices of purchased raw materials, component parts or finished goods increase and we are unable to pass on those increases to our customers. As various locations have seen recovery from COVID-19, there have been increases in demand, which have, in turn, created significant disruption to the global supply chain. These disruptions have been further exacerbated by other events and conditions, including the conflict between Russia and Ukraine, which have  adversely affected our ability to receive goods on a timely basis and increased our material costs. Short-term or sustained increases in market demand may exceed our suppliers\u2019 production capacity or otherwise strain our supply chain. Our failure, or our suppliers\u2019 failure, to meet the demand for raw materials and components could adversely affect our business and results of operations. Further disruptions to the supply chain because of the COVID-19 pandemic and its continuing residual impact, or other world or domestic events could materially adversely impact our operations and business. While we actively monitor and take steps to mitigate supply chain risk, there can be no assurance that our mitigation plans will prevent disruptions that may arise from shortages of materials that we use in the production of our products.\n\n\nWe rely heavily on information technology systems that, if not properly functioning, could materially adversely affect our business.\n\n\nWe rely on our information technology systems to process, analyze and manage data to facilitate the purchase, manufacture, and distribution of our products, as well as to receive, process, bill and ship orders on a timely basis. A significant disruption or failure in the design, operation, security or support of our information technology systems could significantly disrupt our business.\n\n\nOur information technology systems may be subject to cyber attacks, security breaches, computer hacking, as well as other damage, disruptions or shutdowns. Experienced computer programmers and hackers may be able to penetrate our security controls and misappropriate or compromise sensitive personal, proprietary or confidential information, create system disruptions or cause shutdowns. They also may be able to develop and deploy viruses, worms and other malicious software programs that attack our systems or otherwise exploit any security vulnerabilities. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as usernames, passwords or other information in order to gain access to our customers\u2019 data or our data, including our intellectual property and other confidential business information, employee information or our information technology systems. Our systems and the data stored on those systems may also be vulnerable to security incidents or security attacks, acts of vandalism or theft, coordinated attacks by activist entities, misplaced or lost data, human errors or other similar events that could negatively affect our systems and its data, as well as the data of our business partners. Further, third parties, such as hosted solution providers, that provide services to us, could also be a source of security risk in the event of a failure of their own security systems and infrastructure.\n\n\nWe have experienced cybersecurity incidents in the past, but none of these incidents, individually or in the aggregate, has had a material adverse effect on our business, reputation, operations or products. The Company implemented various information technology protections designed to detect and reduce cybersecurity incidents, although there can be no assurance that our protections will be successful. The Company also regularly evaluates its protections against cybersecurity incidents, including in response to specific threats and as part of the Company's information security program. There can be no assurance, however, that the Company will be able to prevent or remediate all future cybersecurity incidents or that the cost associated with responding to any such incident or impact\n \n\n\n10\n\n\n\n\n\u00a0\n\n\nof such incident will not be significant or material. Further, our remediation efforts may not be successful and could result in interruptions, delays or cessation of service, and loss of existing or potential suppliers or customers. In addition, breaches of our security measures and the unauthorized dissemination of sensitive personal, proprietary or confidential information about us, our business partners or other third parties could expose us to significant potential liability and reputational harm. As threats related to cyber attacks develop and grow, we may also find it necessary to make further investments to protect our data and infrastructure, which may impact our profitability. As a global enterprise, we could also be negatively impacted by existing and proposed laws and regulations, as well as government policies and practices related to cybersecurity, privacy, data localization and data protection.\n\n\nOur products may be found to be defective, or our services performed may result in equipment or product damage and, as a result, warranty and/or product liability claims may be asserted against us.\n\n\nWe sell many of our components at prices that are significantly lower than the cost of the equipment or other goods in which they are incorporated. Because a defect or failure in a product could give rise to failures in the equipment that incorporates them, we may face claims for damages that are disproportionate to the revenues and profits we receive from the components involved in the claims. While we typically have provisions in our agreements with our suppliers that hold the supplier accountable for defective products, and we and our suppliers generally exclude consequential damages in our standard terms and conditions, our ability to avoid such liabilities may be limited as a result of various factors, including the inability to exclude such damages due to the laws of some of the countries where we do business. Our business could be adversely affected as a result of a significant quality or performance issues in the components sold by us if we are required to pay for the damages. Although we have product liability insurance, such insurance is limited in coverage and amount.\n\n\nSubstantial defaults by our customers on our accounts receivable or the loss of significant customers could have a significant negative impact on our business.\n\n\nWe extend credit to our customers. The failure of a significant customer or a significant group of customers to timely pay all amounts due could have a material adverse effect on our financial condition and results of operations. The extension of credit involves considerable judgment and is based on management\u2019s evaluation of factors that include such things as a customer\u2019s financial condition, payment history and the availability of collateral to secure customers\u2019 receivables. The risks associated with extending credit to our customers could be exacerbated by economic weakness and market disruption.\n\n\nFailure to successfully implement our growth initiatives, or failure to realize the benefits expected from these initiatives if implemented, may create ongoing operating losses or otherwise adversely affect our business, operating results and financial condition.\n\n\nOur growth strategy focuses on expanding our Green Energy Solutions, our healthcare and our power conversion businesses. We may be unable to implement our growth initiatives or strategic priorities or reach profitability in the near future or at all, due to many factors, including factors outside of our control. We also cannot be certain that executing on our strategy will generate the benefits we expect. If we fail to execute successfully on our strategic priorities, if we pursue strategic priorities that prove to be unsuccessful, or if our investments in these growth initiatives do not yield anticipated returns for any reason, our business, financial position, results of operations and cash flows may be materially and adversely affected.\n \n\n\nWe may not be successful in identifying, consummating and integrating future acquisitions, if any.\n\n\nWe may not be able to identify attractive acquisition candidates or complete the acquisition of identified candidates at favorable prices and upon advantageous terms. Also, acquisitions are accompanied by risks, such as potential exposure to unknown liabilities and the possible loss of key employees and customers of the acquired business. In addition, we may not obtain the expected benefits or cost savings from acquisitions. Acquisitions are subject to risks associated with financing the acquisition, and integrating the operations, personnel and systems of the acquired businesses. If any of these risks materialize, they may result in disruptions to our business and the diversion of management time and attention, which could increase the costs of operating our existing or acquired businesses or negate the expected benefits of the acquisitions.\n\n\n11\n\n\n\n\n\u00a0\n\n\nEconomic weakness and uncertainty and other challenges could adversely affect our revenues and gross margins.\n\n\nOur revenues and gross profit margins depend significantly on global economic conditions, the demand for our products and services and the financial condition of our customers. Economic weakness and uncertainty have in the past, and may in the future, result in decreased revenues and gross profit margins. Economic uncertainty also makes it more difficult for us to forecast overall supply and demand with a great deal of confidence. Financial turmoil affecting the banking system and financial markets could result in tighter credit markets and lower levels of liquidity in some financial markets. The effects of a tightened credit environment could include the insolvency of key vendors or their inability to obtain credit to finance development and/or manufacture products resulting in product delays as well as the inability of customers to obtain credit to finance operations and/or customer insolvencies. Spending and the timing thereof by our customers may have a significant impact on our results and, where such spending is delayed or canceled, it could have a material negative impact on our operating results. Current global economic conditions remain uncertain and challenging. Weakness in the markets in which we operate could negatively impact our revenue and operating expenses, and consequently have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that we will continue recovery in the near future; nor is there any assurance that worldwide economic volatility will not continue or worsen.\n\n\nFurther, challenges in the supply chain and disruptions in our logistics capability could further negatively impact our gross profit margins.  See \u201cWe are dependent on a limited number of vendors to supply us with essential products. Further, disruptions to the supply chain could adversely impact our business\u201d and \u201cMajor disruptions to our logistics capability or to the operations of our key vendors or customers could have a material adverse impact on our operations.\u201d\n\n\nProlonged periods of inflation could increase costs, have an adverse effect on general economic conditions and impact consumer spending, which could impact our profitability and have a material adverse effect on our business and results of operations.\n\n\nInflation has risen on a global basis and the United States has recently experienced historically high levels of inflation. If the inflation rate continues to increase, it can also push up the costs of labor and other expenses. There is no assurance that our revenues will increase at the same rate to maintain the same level of profitability. Inflation and government efforts to combat inflation, such as raising the benchmark interest rate, could increase market volatility and have an adverse effect on the financial market and general economic conditions. Such adverse conditions could negatively impact demand for our products, which could adversely affect our profitability, results of operations and cash flow.\n\n\nOur business and results of operations are subject to a broad range of uncertainties arising out of world and domestic events.\n\n\nGlobal and regional economic uncertainty continues to exist, including uncertainty relating to the Covid pandemic and the Russian invasion of Ukraine. Our operations could be adversely affected by global or regional economic conditions if markets decline in the future, whether related to the Covid pandemic, the Russian invasion of Ukraine, higher inflation or interest rates, recession, natural disasters, impacts of and issues related to climate change, business disruptions, our ability to adequately staff operations or otherwise.   Any future economic declines may result in decreased revenue, gross margins, earnings or growth rates or difficulty in managing inventory levels or collecting customer receivables. We also have experienced, and expect to continue to experience, increased competitive pricing pressure, raw material inflation and availability issues resulting in difficulties meeting customer demand. In addition, customer difficulties in the future could result from economic declines, the Covid pandemic, the cyclical nature of their respective businesses, such as in the oil and gas industry, or otherwise and, in turn, result in decreases in product demand, increases in bad debt write-offs, decreases in timely collection of accounts receivable and adjustments to our allowance for credit losses, resulting in material reductions to our revenues and net earnings.\n\n\n12\n\n\n\n\n\u00a0\n\n\nMajor disruptions to our logistics capability or to the operations of our key vendors or customers could have a material adverse impact on our operations.\n\n\n \nWe operate our global logistics services through specialized and centralized distribution centers. We depend on third party transportation service providers for the delivery of products to our customers. A major interruption or disruption in service at any of our distribution centers, or a disruption at the operations of any of our significant vendors or customers, for any reason, including reasons beyond our control (such as natural disasters, pandemics or other health crises (such as COVID-19), work stoppages, power loss, cyber attacks, incidents of terrorism or other significant disruptions of services from our third party providers) could cause cancellations or delays in a significant number of shipments to customers and, as a result, could have a severe impact on our business, operations and financial performance. Further, challenges within global logistics networks, including shortages of shipping containers, international port congestion, and trucking shortages and freight capacity constraints have resulted in delays in receiving key manufacturing components and increased order backlogs and transportation costs. Such logistical disruption may cause us to incur higher costs and may also result in longer lead times for our customers. Uncertainties related to the magnitude and duration of global supply chain disruptions have adversely affected, and may continue to adversely affect, our business. If we are unable to recover a substantial portion of the increase in material and transportation costs from our customers through price adjustments and/or surcharges, our business or results of operations could be adversely affected. We may also experience an increase in order cancellations if any such pricing actions are not accepted by our customers.\n\n\nRisks Related to International Operations\n\n\nInternational operations represent a significant percentage of our business and present a variety of risks that could impact our results.\n \n\n\nBecause we source and sell our products worldwide, our business is subject to risks associated with doing business internationally. These risks include the costs and difficulties of managing foreign entities, limitations on the repatriation and investment of funds, cultural differences that affect customer preferences and business practices, unstable political or economic conditions, geopolitical risks and demand or supply reactions from events that could include political crises and conflict (such as the Russian invasion of Ukraine), war, a major terrorist attack, natural disasters, actual or threatened public health emergencies (such as COVID-19, including virus variants and resurgences and responses to those developments such as continued or new government-imposed lockdowns and travel restrictions), trade protection measures and import or export licensing requirements, monetary policy, inflation, economic growth, recession, commodity prices, currency volatility, currency controls, and changes in tax laws.\n\n\nWe also face exposure to fluctuations in foreign currency exchange rates because we conduct business outside of the United States. Price increases caused by currency exchange rate fluctuations may make our products less competitive or may have an adverse effect on our margins. Our international revenues and expenses generally are derived from sales and operations in currencies other than the U.S. dollar. Accordingly, when the U.S. dollar strengthens in relation to the base currencies of the countries in which we sell our products, our U.S. dollar reported net revenue and income would decrease. We currently do not engage in any currency hedging transactions. We cannot predict whether foreign currency exchange risks inherent in doing business in foreign countries will have a material adverse effect on our operations and financial results in the future. Further, global economic conditions may cause volatility and disruptions in the capital and credit markets. Negative or uncertain financial and macroeconomic conditions may have a significant adverse impact on our sales, profitability and results of operations.\n\n\nFinancial Risks\n\n\nThere is a possible risk of identifiable intangible asset impairment, which could reduce the value of our assets and reduce our net income in the year in which the write-off occurs.\n\n\nOur intangible assets could become impaired, which could reduce the value of our assets and reduce our net income in the year in which the write-off occurs. We ascribe value to certain intangible assets which consist of customer lists and trade names resulting from acquisitions. An impairment charge on intangible assets would be incurred in the event that the fair value of the intangible assets is less than their current carrying values. We evaluate whether events have occurred that indicate all, or a portion, of the carrying amount of intangible assets may no longer be recoverable. If this is the case, an impairment charge to earnings would be necessary.\n \n\n\n13\n\n\n\n\n\u00a0\n\n\nOur indebtedness and restrictive covenants under our credit facility could limit our operational and financial flexibility.\n \n\n\n \nWe may incur indebtedness in the future under our credit facility with PNC Bank NA. Our ability to make interest and scheduled principal payments on any such indebtedness and operate within restrictive covenants could be adversely impacted by changes in the availability, terms and cost of capital, changes in interest rates or changes in our credit ratings or our outlook. These changes could increase our cost of business, limiting our ability to pursue acquisition opportunities, react to market conditions and meet operational and capital needs, thereby placing us at a competitive disadvantage.\n \n\n\nLegal and Regulatory Risks\n\n\nWe may be subject to intellectual property rights claims, which are costly to defend, could require payment of damages or licensing fees, and/or could limit our ability to use certain technologies in the future.\n\n\nSubstantial litigation and threats of litigation regarding intellectual property rights exist in the display systems and electronics industries. From time to time, third parties, including certain companies in the business of acquiring patents with the intention of aggressively seeking licensing revenue from purported infringers, have asserted and may in the future assert patent and/or other intellectual property rights to technologies that are important to our business. In any dispute involving products that we have sold, our customers could also become the target of litigation. We are obligated in many instances to indemnify and defend our customers if the products we sell are alleged to infringe any third party\u2019s intellectual property rights. In some cases, depending on the nature of the claim, we may be able to seek indemnification from our suppliers for our self and our customers against such claims, but there is no assurance that we will be successful in obtaining such indemnification or that we are fully protected against such claims. Any infringement claim brought against us, regardless of the duration, outcome or size of damage award, could result in substantial cost, divert our management\u2019s attention, be time consuming to defend, result in significant damage awards, cause product shipment delays, or require us to enter into royalty or other licensing agreements. See Note 11, \nRisks and Uncertainties\n, of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information regarding specific legal matters related to our patents.\n\n\nAdditionally, if an infringement claim is successful, we may be required to pay damages or seek royalty or license arrangements which may not be available on commercially reasonable terms. The payment of any such damages or royalties may significantly increase our operating expenses and harm our operating results and financial condition. Also, royalty or license arrangements may not be available at all. We may have to stop selling certain products or certain technologies, which could affect our ability to compete effectively.\n\n\nPotential lawsuits, with or without merit, may divert management\u2019s attention, and we may incur significant expenses in our defense. In addition, we may be required to pay damage awards or settlements, become subject to injunctions or other equitable remedies, or determine to abandon certain lines of business, that may cause a material adverse effect on our results of operations, financial position and cash flows.\n\n\nWe may incur substantial operational costs or be required to change our business practices to comply with data privacy and data protection laws and regulations around the world.\n\n\nWe are subject to many privacy and data protection laws and regulations in various jurisdictions, which continue to evolve rapidly. The EU\u2019s General Data Protection Regulation (\u201cGDPR\u201d) includes operational requirements for companies that receive or process personal data of residents of the European Union, including more robust documentation requirements for data protection compliance programs. Specifically, the GDPR imposes numerous privacy-related requirements for companies operating in the EU, including greater control for data subjects, increased data portability for EU consumers and data breach notification requirements.\n\n\nComplying with the GDPR may cause us to incur substantial operational costs or require us to change our business practices in ways that we cannot currently predict. Despite our efforts to bring our practices into compliance with the GDPR, we may not be successful. Non-compliance could result in proceedings against us by governmental entities, customers, data subjects or others. Fines of up to 20 million euros or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, may be imposed for violations of certain of the GDPR\u2019s requirements.\n\n\n14\n\n\n\n\n\u00a0\n\n\nIn addition, several other jurisdictions in the U.S. and around the world have enacted privacy laws or regulations similar to GDPR. For instance, California enacted the California Consumer Privacy Act (\u201cCCPA\u201d), effective January 1, 2020 which gives consumers many of the same rights as those available under GDPR. Several laws similar to the CCPA have been proposed in the United States at both the federal and state level. The effects of, and costs incurred in connection with complying with, the GDPR, the CCPA and other data privacy laws and regulations may be significant and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. Any actual or perceived failures to comply with the GDPR, the CCPA or other data privacy laws or regulations, or related contractual or other obligations, or any perceived privacy rights violation, could lead to investigations, claims and proceedings by governmental entities and private parties, damages for contract breach, and other significant costs, penalties and other liabilities, as well as harm to our reputation and market position.\n \n\n\nOur international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt practices, the violation of which could adversely affect our operations.\n\n\nWe are subject to applicable export control laws and regulations of the United States and other countries. United States laws and regulations applicable to us include the Arms Export Control Act, the International Traffic in Arms Regulations (\u201cITAR\u201d), the Export Administration Regulations (\u201cEAR\u201d), anti-money laundering laws and regulations and the trade and trade sanctions laws and regulations administered by the Office of the United States Trade Representative and the United States Department of the Treasury\u2019s Office of Foreign Assets Control. The import and export of our products are subject to international trade agreements, the modification or repeal of which could impact our business. The U.S. government agencies responsible for administering EAR and ITAR have significant discretion in the interpretation and enforcement of these regulations. Violations of these laws or regulations could result in significant additional sanctions including fines, more onerous compliance requirements, more extensive debarments from export privileges, loss of authorizations needed to conduct aspects of our international business and criminal penalties and may harm our ability to enter contracts with customers who have contracts with the U.S. government. A violation of the laws or the regulations enumerated above could materially adversely affect our business, reputation, financial condition and results of operations.\n\n\nOngoing changes to tariffs and trade relations may adversely affect our business.\n\n\nOur international operations are subject to changing tariffs and developments in trade relations. The U.S. government has made statements and taken certain actions that have led to, and may in the future lead to, further changes to U.S. and international trade policies, including recently imposed tariffs affecting certain products exported by a number of U.S. trading partners, including China. For example, during 2018, the U.S. and China each imposed new tariffs, and announced further proposed tariffs, on various products imported from China and the U.S., respectively. Between July 2018 and September 2018, the Office of the United States Trade Representative imposed tariffs of 10% and 25% on three product lists totaling approximately $250 billion in Chinese imports.  In May 2019, there was an announcement of the United States government\u2019s imposition of a 25% tariff on a range of products exported from China to the U.S. on or after May 10, 2019. \nThese lists include\n some of our products.\n\n\nSubsequently, in January 2020, the U.S. and China signed a \u201cphase one\u201d trade deal, accompanied by a U.S. decision to cancel a plan to increase tariffs on an additional list of Chinese products and to reduce the tariffs imposed on May 13, 2019 from 15% to 7.5% effective February 14, 2020. Currently, the majority of tariff exclusions granted have expired and many of the additional tariffs on Chinese origin goods remain, as do concerns over the stability of bilateral trade relations, particularly given the limited scope of the phase one agreement.\n\n\nIt is possible that further tariffs may be imposed on imports of our products, including by other countries, or that our business will be impacted by changing trade relations among countries. This may cause us to raise prices or make changes to our operations, any of which could adversely impact demand for our products, our costs, customers, suppliers and/or the United States economy or certain sectors thereof and, thus, to adversely impact our businesses and results of operations. Given the evolving nature of trade relations, the impact on our operations and results is uncertain and could be significant. We can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful. To the extent that our supply chain, costs, sales or profitability are negatively affected by the tariffs or other trade actions, our business, financial condition and results of operations may be materially adversely affected.\n\n\n15\n\n\n\n\n\u00a0\n\n\nOwnership Risks\n\n\nA single stockholder controls a majority of the Company's voting stock.\n \n\n\n \n\n\nAs of July 25, 2023, Edward J. Richardson, our Chairman, Chief Executive Officer and President, beneficially owned approximately 98% of the outstanding shares of our Class B common stock, representing approximately 62% of the voting power of the outstanding common stock. This share ownership permits Mr. Richardson to exert control over the outcome of stockholder votes, including votes concerning the election of directors, by-law amendments, possible mergers, corporate control contests and other significant corporate transactions.\n\n\n \n\n\nGeneral Risk Factors\n\n\n \n\n\nFailure to attract and retain key skilled personnel could hurt operations.\n\n\n Our success depends to a large extent upon the continued services of key management personnel, particularly Mr. Richardson. While we have employment contracts in place with several of our executive officers, we nevertheless cannot be assured that we will retain our key employees and the loss of service of any of these officers or key management personnel could have a material adverse effect on our business growth and operating results.\n\n\n Our future success will require an ability to attract and retain qualified employees. Competition for such key personnel is intense and we cannot be assured that we will be successful in attracting and retaining such personnel. We cannot make assurances that key personnel will not depart in the future. Changes in the cost of providing employee benefits in order to attract and retain personnel, including changes in health care costs, could lead to increased costs in any of our operations.\n\n\n \n\n\nIf we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls over financial reporting, we may not be able to detect fraud or report our financial results accurately or timely.\n\n\nAn effective internal control environment is necessary for us to produce reliable financial reports and is an important part of our effort to prevent financial fraud. We are required to periodically evaluate the effectiveness of the design and operation of our internal controls over financial reporting. Based on these evaluations, we may conclude that enhancements, modifications or changes to internal controls are necessary or desirable. While management evaluates the effectiveness of our internal controls on a regular basis, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including fraud, collusion, management override and failure in human judgment. In addition, control procedures are designed to reduce rather than eliminate business risks.\n\n\n \n\n\nIf we fail to maintain an effective system of internal controls, or if management or our independent registered public accounting firm discovers material weaknesses in our internal controls, we may be unable to produce reliable financial reports or prevent fraud. In addition, we may be subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission or NASDAQ. Any such actions could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.\n\n\nIf we are deemed to be an investment company, we will be required to meet burdensome compliance requirements and restrictions on our activities.\n\n\nWe have had significant cash and investments. If we are deemed to be an \u201cinvestment company\u201d as defined under the Investment Company Act of 1940 (the \u201cInvestment Company Act\u201d), the nature of our investments may be subject to various restrictions. We do not believe that our principal activities subject us to the Investment Company Act. If we are deemed to be subject to the Investment Company Act, compliance with required additional regulatory burdens would increase our operating expenses.\n\n\n16\n\n\n\n\n\u00a0\n\n\nEvolving expectations around corporate responsibility practices, specifically related to environmental, social and governance (\u201cESG\u201d) matters, may expose us to reputational and other risks.\n\n\nInvestors, stockholders, customers, suppliers and other third parties are increasingly focusing on ESG and corporate social responsibility endeavors and reporting. Certain institutional investors, investment funds, other influential investors, customers, suppliers and other third parties are also increasingly focused on ESG practices. Companies that do not adapt to or comply with the evolving investor or stakeholder expectations and standards, or which are perceived to have not responded appropriately, may suffer from reputational damage and result in the business, financial condition and/or stock price of a company being materially and adversely affected. Further, this increased focus on ESG issues may result in new regulations and/or third-party requirements that could adversely impact our business, or certain shareholders reducing or eliminating their holdings of our stock. Additionally, an allegation or perception that the Company has not taken sufficient action in these areas could negatively harm our reputation.\n\n\n \n\n\nOur stock price may be volatile.\n\n\nOur stock price has fluctuated in the past and may experience declines in the future as a result of the volatile nature of the stock market, developments in our business and/or factors outside of our control including certain of the risk factors discussed in this report. Many factors may cause the market price for our common stock to change, including: (i) our operating results as compared to investors\u2019 expectations in any period, (ii) market perceptions concerning our future earnings prospects, (iii) adverse changes in general market conditions or economic trends and (iv) changes or events in our industry or the world, such as market reactions to public health issues (including the COVID-19 pandemic), natural disasters, changes in global, national, or regional economies, inflation, governmental policies, political unrest, military action and armed conflicts (such as the 2022 Russian invasion of Ukraine), terrorist activities, political and social turmoil, civil unrest and other crises.\n\n",
+  "item7": ">ITEM 7. Management\u2019s Discussion and Analysis of\n Financial Condition and Results of Operations\n\n\nThe following discussion should be read in conjunction with the consolidated financial statements and related notes.\n\n\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations (\u201cMD&A\u201d) is intended to assist the reader in better understanding our business, results of operations, financial condition, changes in financial condition, critical accounting policies and estimates and significant developments. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes appearing elsewhere in this filing. This section is organized as follows:\n\n\n\u2022\nBusiness Overview\n\n\n\u2022\nResults of Operations\n - an analysis and comparison of our consolidated results of operations for the fiscal years ended May 27, 2023, May 28, 2022 and May 29, 2021, as reflected in our Consolidated Statements of Comprehensive Income.\n\n\n\u2022\nLiquidity, Financial Position and Capital Resources\n - a discussion of our primary sources and uses of cash for the fiscal years ended May 27, 2023, May 28, 2022 and May 29, 2021, and a discussion of changes in our financial position.\n\n\nBusiness Overview\n\n\nRichardson Electronics, Ltd. is a leading global manufacturer of engineered solutions, power grid and microwave tubes and related consumables; power conversion and RF and microwave components; high-value replacement parts, tubes and service training for diagnostic imaging equipment; and customized display solutions. Nearly 60% of our products are manufactured in LaFox, Illinois, Marlborough, Massachusetts or Donaueschingen, Germany, or by one of our manufacturing partners throughout the world. All our partners manufacture to our strict specifications and per our supplier code of conduct. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. The Company\u2019s strategy is to provide specialized technical expertise and \u201cengineered solutions\u201d based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair through its global infrastructure.\n\n\nSome of the Company's products are manufactured in China and are imported into the United States. The Office of the United States Trade Representative (\"USTR\") instituted additional 10% to 25% tariffs on the importation of a number of products into the United States from China effective July 6, 2018, with additional products added August 23, 2018 and September 24, 2018. These additional tariffs are a response to what the USTR considers to be certain unfair trade practices by China. A number of the Company's products manufactured in China are now subject to these additional duties of 25% when imported into the United States.\n\n\nManagement continues to work with its suppliers as well as its customers to mitigate the impact of the tariffs on our customers\u2019 markets. However, if the Company is unable to successfully pass through the additional cost of these tariffs, or if the higher prices reduce demand for the Company's products, it will have a negative effect on the Company's sales and gross margins.\n\n\nThe Company began reporting the results for its new Green Energy Solutions (\"GES\") segment in the first quarter of fiscal 2023 due to its focus on power applications that support the green energy market. The GES segment has been carved out of our existing Power and Microwave Technologies (\u201cPMT\u201d) segment. Accordingly, the Company is reporting its financial performance based on four operating and reportable segments. The results for fiscal 2022 and fiscal 2021 presented herein were adjusted to reflect the presentation of the new GES segment separately from the PMT segment.\n\n\n21\n\n\n\n\n\u00a0\n\n\nThe Company's four operating and reportable segments for fiscal 2023, fiscal 2022 and fiscal 2021 are defined as follows:\n\n\nPower and Microwave Technologies combines our core engineered solutions capabilities, power grid and microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner and authorized distributor, PMT\u2019s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair\u2014all through our existing global infrastructure. PMT\u2019s focus is on products for power, RF and microwave applications for customers in 5G, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.\n\n\nGreen Energy Solutions combines our key technology partners and engineered solutions capabilities to design and manufacture innovative products for the fast-growing energy storage market and power management applications. As a designer, manufacturer, technology partner and authorized distributor, GES\u2019s strategy is to provide specialized technical expertise and engineered solutions using our core design engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair\u2014all through our existing global infrastructure. GES\u2019s focus is on products for numerous green energy applications such as wind, solar, hydrogen and Electric Vehicles, and other power management applications that support green solutions such as synthetic diamond manufacturing.\n\n\nCanvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages and certification services. Our volume commitments are lower than the large display manufacturers, making us the ideal choice for companies with very specific design requirements. We partner with both private label manufacturing companies and leading branded hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.\n\n\nHealthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we believe we can help our customers improve efficiency while lowering the cost of healthcare delivery.\n\n\nWe currently have operations in the following major geographic regions: North America, Asia/Pacific, Europe and Latin America.\n\n\n22\n\n\n\n\n\u00a0\n\n\nResults of Operations\n\n\nOverview - Fiscal Year Ended May 27, 2023\n\n\n\u2022\nFiscal 2023 and fiscal 2022 both contained 52 weeks.\n\n\n\u2022\nNet sales during fiscal 2023 were $262.7 million, up 16.9%, compared to net sales of $224.6 million during fiscal 2022.\n\n\n\u2022\nGross margin was 31.9% of net sales during fiscal 2023, compared to 31.9% of net sales during fiscal 2022.\n\n\n\u2022\nSelling, general and administrative expenses were $58.7 million, or 22.4% of net sales, during fiscal 2023, compared to $55.7 million, or 24.8% of net sales, during fiscal 2022.\n\n\n\u2022\nOperating income during fiscal 2023 was $25.0 million, compared to an operating income of $16.0 million during fiscal 2022.\n\n\n\u2022\nOther income during fiscal 2023 was less than $0.1 million, compared to other expense of $0.2 million during fiscal 2022.\n\n\n\u2022\nNet income during fiscal 2023 was $22.3 million, compared to a net income of $17.9 million during fiscal 2022.\n\n\nNet Sales and Gross Profit Analysis\n\n\nNet sales by segment and percent change for fiscal 2023, fiscal 2022 and fiscal 2021 were as follows (\nin thousands\n):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet Sales\n\n\n\u00a0\n\n\nFY 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY23 vs. FY22\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY22 vs. FY21\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nPMT\n\n\n\u00a0\n\n\n$\n\n\n164,299\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n155,445\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n128,980\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.5\n\n\n%\n\n\n\n\n\n\nGES\n\n\n\u00a0\n\n\n\u00a0\n\n\n47,596\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22,611\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,300\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n110.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n172.4\n\n\n%\n\n\n\n\n\n\nCanvys\n\n\n\u00a0\n\n\n\u00a0\n\n\n39,331\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35,187\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29,319\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.0\n\n\n%\n\n\n\n\n\n\nHealthcare\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,432\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,377\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,338\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.1\n\n\n%\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n262,658\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n224,620\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n176,937\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.9\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nDuring fiscal 2023, consolidated net sales increased by 16.9% compared to fiscal 2022. Sales for PMT increased by 5.7%, GES sales increased by 110.5%. Canvys sales increased by 11.8% and Healthcare sales increased by 0.5%. The increase in PMT was mainly due to strong growth in the semi-wafer fabrication industry and the RF and microwave products for various applications. The increase in GES was primarily due to growth in related product sales to the wind turbine industry, as well as EV battery modules. The increase in Canvys was primarily due to strong sales in the North American market. The increase in Healthcare was primarily due to an increase in equipment sales.\n \n\n\nDuring fiscal 2022, consolidated net sales increased by 26.9% compared to fiscal 2021. Sales for PMT increased by 20.5%, GES sales increased by 172.4%, Canvys sales increased by 20.0% and Healthcare sales increased by 10.1%. The increase in PMT was mainly due to strong growth from our Power and Microwave Group (PMG) technology partners in various applications including power management and 5G infrastructure, and increased revenue from our Semiconductor Wafer Fabrication Equipment customers buying engineered solutions. We also had strong growth in various Electron Device (EDG) product lines. The increase in GES was primarily due to components for power management applications and niche products for wind turbines. The increase in Canvys was primarily due to strong sales in the European and North American markets. The increase in Healthcare was primarily due to strong part sales and increase in demand for the ALTA750\nTM\n tubes.\n\n\n23\n\n\n\n\n\u00a0\n\n\nGross profit by segment and percent of segment net sales for fiscal 2023, fiscal 2022 and fiscal 2021 were as follows (\nin thousands\n):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nGross Profit\n\n\n\u00a0\n\n\nFY 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY 2021\n\n\n\u00a0\n\n\n\n\n\n\nPMT\n\n\n\u00a0\n\n\n$\n\n\n54,089\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32.9\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n50,810\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32.7\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n43,546\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33.8\n\n\n%\n\n\n\n\n\n\nGES\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,719\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,231\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,405\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29.0\n\n\n%\n\n\n\n\n\n\nCanvys\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,375\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,252\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,274\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35.0\n\n\n%\n\n\n\n\n\n\nHealthcare\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,506\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,407\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,600\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.1\n\n\n%\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n83,689\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.9\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n71,700\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.9\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n58,825\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33.2\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nGross profit reflects the distribution and manufacturing product margin less manufacturing variances, inventory obsolescence charges, customer returns, scrap and cycle count adjustments, engineering costs and other provisions.\n\n\nConsolidated gross profit was $83.7 million during fiscal 2023, compared to $71.7 million during fiscal 2022. Consolidated gross margin as a percentage of net sales was 31.9 % for fiscal 2023, the same as the 31.9% during fiscal 2022, primarily due to favorable product mix for PMT, unfavorable product mix for GES, unfavorable product mix for Canvys and improved manufacturing absorption and decreased component scrap for Healthcare. Gross margin during fiscal 2023 included expense related to inventory provisions of $0.3 million for PMT, $0.1 million for Canvys and $0.1 million for Healthcare.\n\n\nConsolidated gross profit was $71.7 million during fiscal 2022, compared to $58.8 million during fiscal 2021. Consolidated gross margin as a percentage of net sales decreased to 31.9% during fiscal 2022, from 33.2% during fiscal 2021, primarily due to unfavorable product mix for PMT, favorable product mix for GES, higher freight costs and foreign exchange effects for Canvys and increased component scrap expenses for Healthcare. Gross margin during fiscal 2022 included expense related to inventory provisions for PMT of $0.4 million and $0.1 million for Healthcare.\n\n\nPower and Microwave Technologies\n\n\nNet sales for PMT increased 5.7% to $164.3 million during fiscal 2023 from $155.4 million during fiscal 2022. The increase was mainly due to strong growth in the semi-wafer fabrication industry for the first nine months and the RF and microwave products for various applications. Gross margin as a percentage of net sales increased to 32.9% during fiscal 2023 as compared to 32.7% during fiscal 2022, primarily due to product mix.\n\n\n\u00a0\n\n\nNet sales for PMT increased 20.5% to $155.4 million during fiscal 2022 from $129.0 million during fiscal 2021. The increase was mainly due to strong growth from our Power and Microwave Group (PMG) technology partners in various applications including power management and 5G infrastructure, and increased revenue from our Semiconductor Wafer Fabrication Equipment customers buying engineered solutions. We also had strong growth in various Electron Device (EDG) product lines. Gross margin as a percentage of net sales decreased to 32.7% during fiscal 2022 as compared to 33.8% during fiscal 2021, primarily due to product mix.\n\n\nGreen Energy Solutions\n\n\nNet sales for GES increased 110.5% to $47.6 million during fiscal 2023 from $22.6 million during fiscal 2022. The increase was mainly due to growth in related product sales to the wind turbine industry, as well as EV battery modules. Gross margin as a percentage of net sales decreased to 28.8% during fiscal 2023 as compared to 32.0% during fiscal 2022, primarily due to product mix.\n\n\n Net sales for GES increased 172.4% to $22.6 million during fiscal 2022 from $8.3 million during fiscal 2021. Sales increased primarily due to components for power management applications and niche products for wind turbines. Gross margin as a percentage of net sales increased to 32.0% during fiscal 2022 as compared to 29.0% during fiscal 2021, primarily due to product mix.\n\n\n\u00a0\n\n\n24\n\n\n\n\n\u00a0\n\n\n \nCanvys\n\n\nNet sales for Canvys increased 11.8% to $39.3 million during fiscal 2023, from $35.2 million during fiscal 2022. Sales increased primarily due to strong sales in the North American market. Gross margin as a percentage of net sales decreased to 31.5% during fiscal 2023 as compared to 32.0% during fiscal 2022 mainly due to product mix.\n\n\nNet sales for Canvys increased 20.0% to $35.2 million during fiscal 2022, from $29.3 million during fiscal 2021. Sales increased primarily due to strong sales in the European and North American markets. Gross margin as a percentage of net sales decreased to 32.0% during fiscal 2022 as compared to 35.0% during fiscal 2021 mainly due to increasing freight costs resulting from the COVID-19 pandemic and foreign currency effects.\n\n\nHealthcare\n\n\nNet sales for Healthcare increased 0.5% to $11.4 million during fiscal 2023, essentially unchanged from fiscal 2022. The slight increase in sales was primarily due to an increase in equipment sales, partially offset by decreases in part sales and CT tube sales. Gross margin as a percentage of net sales increased to 30.7% during fiscal 2023, compared to 21.2% during fiscal 2022. The increase was primarily due to improved manufacturing absorption and decreased component scrap expenses.\n \n\n\nNet sales for Healthcare increased 10.1% to $11.4 million during fiscal 2022, from $10.3 million during fiscal 2021. The increase in sales was primarily due to strong parts sales and an increase in demand for the ALTA 750D\nTM\n tubes. Gross margin as a percentage of net sales decreased to 21.2% during fiscal 2022, compared to 25.1% during fiscal 2021. The decrease was primarily due to increased component scrap expenses.\n\n\n \nSales by Geographic Area\n\n\nOn a geographic basis, our sales are categorized by destination: North America; Asia/Pacific; Europe; Latin America; and Other.\n \n\n\nNet sales by geographic area and percent change for fiscal 2023, fiscal 2022 and fiscal 2021 were as follows (\nin thousands\n):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet Sales\n\n\n\u00a0\n\n\nFY 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY23 vs. FY22\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY22 vs. FY21\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nNorth America\n\n\n\u00a0\n\n\n$\n\n\n112,214\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n98,527\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n73,625\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n33.8\n\n\n%\n\n\n\n\n\n\nAsia/Pacific\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,557\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n49,235\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n40,839\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.6\n\n\n%\n\n\n\n\n\n\nEurope\n\n\n\u00a0\n\n\n\u00a0\n\n\n62,017\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n64,435\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n52,549\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3.8\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.6\n\n\n%\n\n\n\n\n\n\nLatin America\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,924\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,439\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,651\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n132.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n28.9\n\n\n%\n\n\n\n\n\n\nOther \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(54\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n273\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(237.5\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(105.9\n\n\n%)\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n262,658\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n224,620\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n176,937\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.9\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nGross profit by geographic area and percent of geographic net sales for fiscal 2023, fiscal 2022 and fiscal 2021 were as follows (\nin thousands\n):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nFY 2021\n\n\n\u00a0\n\n\n\n\n\n\nGross Profit (Loss)\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of Net Sales\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of Net Sales\n\n\n\u00a0\n\n\n\u00a0\n\n\nAmount\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of Net Sales\n\n\n\u00a0\n\n\n\n\n\n\nNorth America\n\n\n\u00a0\n\n\n$\n\n\n43,580\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38.8\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n36,548\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n37.1\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n28,639\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38.9\n\n\n%\n\n\n\n\n\n\nAsia/Pacific\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,775\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,728\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,520\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33.1\n\n\n%\n\n\n\n\n\n\nEurope\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,760\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,215\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,958\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32.3\n\n\n%\n\n\n\n\n\n\nLatin America\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,735\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,340\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,405\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35.3\n\n\n%\n\n\n\n\n\n\nOther \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,161\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,131\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,697\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n83,689\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.9\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n71,700\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.9\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n58,825\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33.2\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nOther primarily includes net sales not allocated to a specific geographical region, unabsorbed value-add costs and other unallocated expenses.\n\n\n25\n\n\n\n\n\u00a0\n\n\nWe sell our products to customers in diversified industries and perform periodic credit evaluations of our customers\u2019 financial condition. Terms are generally on open account, payable net 30 days in North America, and vary throughout Asia/Pacific, Europe and Latin America. Estimates of credit losses are recorded in the financial statements based on monthly reviews of outstanding accounts.\n\n\nSelling, General and Administrative Expenses\n\n\nSelling, general and administrative expenses (\u201cSG&A\u201d) increased during fiscal 2023 to $58.7 million from $55.7 million during fiscal 2022. This increase in SG&A expense from fiscal 2022 was mainly due to higher employee compensation and travel expenses, partially offset by lower legal fees and a lower bad debt expense. SG&A as a percentage of sales decreased to 22.4% during fiscal 2023 as compared to 24.8% during fiscal 2022.\n\n\nSelling, general and administrative expenses decreased during fiscal 2022 to $55.7 million from $55.9 million during fiscal 2021. However, when considering the non-recurrence of the $1.6 million legal settlement in fiscal 2021, the SG&A expense for fiscal 2022 was $1.4 million or 2.6% higher than fiscal 2021. This increase in SG&A expense from fiscal 2021 was mainly due to higher employee compensation expenses including incentive expense, partially offset by lower legal fees. SG&A as a percentage of sales decreased to 24.8% during fiscal 2022 as compared to 31.6% during fiscal 2021.\n\n\nLegal Settlement \u2013 Fiscal 2021\n\n\nOn April 2, 2021, as part of a settlement where the Company did not admit liability, Richardson agreed to pay Varex Imaging Corporation (\u201cVarex\u201d) $1.6 million to settle alleged counts of patent infringement and claims of trade secret misappropriation. This settlement was recorded in selling, general and administrative expenses within the Consolidated Statements of Comprehensive Income for the third quarter of fiscal 2021.\n\n\nOther Income/Expense\n\n\nOther income was less than $0.1 million during fiscal 2023, compared to an expense of $0.2 million during fiscal 2022. Fiscal 2023 had $0.3 million of investment income compared to $0.1 million of investment income for fiscal 2022. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. The foreign exchange loss reported for fiscal 2023 totaled $0.3 million, unchanged from fiscal 2022. We currently do not utilize derivative instruments to manage our exposure to foreign currency.\n\n\nIncome Tax Provision\n\n\nOur income tax provision (benefit) during fiscal 2023, fiscal 2022 and fiscal 2021 was $2.7 million, ($2.2 million) and $0.7 million, respectively. The effective income tax rates during fiscal 2023, fiscal 2022 and fiscal 2021 were 10.8%, (13.7%) and 28.3%, respectively. The difference between the effective income tax rates as compared to the U.S. federal statutory rate of 21.0% during fiscal 2023, fiscal 2022 and fiscal 2021 was primarily driven by the impact of valuation allowance changes related to the realizability of our U.S. state and federal net deferred tax assets and changes in our geographical distribution of income (loss). In addition, the Company recognized both foreign tax and research and development tax credits in fiscal 2023.\n \n\n\nThe Inflation Reduction Act (the \"IRA\"), signed into law by President Biden on August 16, 2022, has several key corporate tax-related provisions, including a 15% creditable book minimum tax\n \non adjusted financial statement income (\u201cAFSI\u201d) of applicable corporations, clean energy tax incentives and 1% excise tax on certain corporate stock buybacks. The Company did not rise to the level of AFSI to be subject to the 15% creditable book minimal tax. The Company did not have a material impact from the IRA. The Creating Helpful Incentives to Produce Semiconductors Act of 2022 (the \"CHIPS Act\") was signed into law by President Biden on August 9, 2022, which created a new 25% investment tax credit for qualified property placed in service for semiconductor manufacturing. This production credit was not applicable to the Company.\n\n\nDuring the fourth quarter of fiscal 2023, the Company recorded research and development (\u201cR&D\u201d) tax credits of $0.9 million. These credits represent the expected U.S. federal and state credits to be claimed for fiscal 2020 through fiscal 2023. The Company has not previously recorded any benefit from an R&D tax credit due to the fact that the Company did not believe it was economically prudent to pursue these credits in prior years.\n \n\n\n26\n\n\n\n\n\u00a0\n\n\nFor taxable years beginning after December 31, 2021, taxpayers are required to capitalize certain R&D expenses and amortize them over five or fifteen years under IRC Section 174. This provision increased our taxable income for the year ended May 27, 2023, and resulted in additional cash tax payments for U.S. federal and state income taxes. This provision also generated a deferred tax asset for the year ended May 27, 2023.\n \n\n\nAs of May 27, 2023 and May 28, 2022 we have utilized all net deferred tax assets related to federal net operating loss (\u201cNOL\u201d) carryforwards. Net deferred tax assets related to domestic state NOL carryforwards at May 27, 2023 amounted to approximately $2.1 million, compared to $2.4 million at May 28, 2022. Net deferred tax assets related to foreign NOL carryforwards was $0.2 million as of May 27, 2023 compared to $0.4 million as of May 28, 2022, with various or indefinite expiration dates. We released the valuation allowance and have utilized $1.8 million of domestic net deferred tax asset related to foreign tax credit carryforwards as of May 27, 2023.\n \n\n\nWe have historically determined that undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S. The deferred tax liability on the outside basis difference is now primarily withholding tax on future dividend distributions. The deferred tax liability related to undistributed earnings of our foreign subsidiaries was less than $0.1 million in both fiscal 2023 and fiscal 2022.\n\n\nManagement assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to support a more likely than not assertion that its deferred tax assets will be realized. A significant component of objective evidence evaluated was the cumulative income or loss incurred in each jurisdiction over the three-year period ended May 27, 2023. We considered other positive evidence in determining the need for a valuation allowance in the U.S. including the subpart F and GILTI inclusions of our foreign earnings, the changes in our business performance in recent years and the utilization of federal NOLs. The weight of this positive evidence is sufficient to outweigh other negative evidence in evaluating our need for a valuation allowance in the U.S. federal jurisdiction. As a result of the positive evidence outweighing the negative evidence for the year ended May 28, 2022, we released the full valuation allowance on the U.S. federal and state deferred tax items.  In addition, in the year ended May 28, 2022, we partially released the valuation allowance on the state NOL deferred tax item, based on the amount of the NOLs that management believed it is more likely than not to realize. As of May 27, 2023, we have released $1.8 million of the valuation allowance on the deferred tax asset related to foreign tax credits based on positive evidence that arose during the fourth quarter of fiscal 2023 related to the foreign tax credit limitation calculation.\n \n\n\nAs of May 27, 2023, a valuation allowance of $1.4 million was recorded, representing the portion of the deferred tax asset that management does not believe is more likely than not to be realized. The valuation allowance as of May 28, 2022 was $3.5 million. The remaining valuation allowance relates to state NOLs ($0.2 million) and deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred ($1.3 million). The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.\n\n\nIncome taxes paid, including foreign estimated tax payments, were $4.8 million, $1.5 million and $0.1 million, during fiscal 2023, fiscal 2022 and fiscal 2021, respectively.\n\n\nIn the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2017 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local or non-U.S. tax jurisdictions. We were under examination for fiscal 2015 through fiscal 2018 in Germany. The audit was settled in the fourth quarter of fiscal 2022. In the second quarter of fiscal 2023, the Company paid the audit assessment for the fiscal 2015 through fiscal 2018 years.\n \nThe Company recorded a tax expense of less than $0.1 million due to receiving the final assessment for the German audit. The $0.1 million of uncertain tax positions recorded in prior quarters has been fully utilized as of May 27, 2023. Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany beginning in fiscal 2019 and the Netherlands beginning in fiscal 2021.\n\n\n27\n\n\n\n\n\u00a0\n\n\nThe Company did not record any uncertain tax positions as of May 27, 2023 as compared to $0.1 million as of May 28, 2022. The reserve for the German audits was reversed in fiscal 2023. We record penalties and interest related to uncertain tax positions in the income tax expense line item within the Consolidated Statements of Comprehensive Income. Accrued interest and penalties were included within the related tax liability line in the Consolidated Balance Sheets. We have not recorded a liability for interest and penalties as of May 27, 2023 or May 28, 2022.\n\n\nLiquidity, Financial Position and Capital Resources\n\n\nOur operations and cash needs have been primarily financed through income from operations and cash on hand.\n\n\nCash and cash equivalents were $25.0 million at May 27, 2023. Cash and cash equivalents by geographic area at May 27, 2023 consisted of $8.1 million in North America, $8.6 million in Europe, $1.5 million in Latin America and $6.8 million in Asia/Pacific. No funds were repatriated to the United States in fiscal 2023 from our foreign entities. Although the Tax Cuts and Jobs Act generally eliminated federal income tax on future cash repatriation to the United States, cash repatriation may be subject to state and local taxes, withholding or similar taxes. See Note 8, \nIncome Taxes\n, of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.\n\n\nCash, cash equivalents and investments were $40.5 million at May 28, 2022. Cash, cash equivalents and investments by geographic area at May 28, 2022 consisted of $25.7 million in North America, $6.0 million in Europe, $1.5 million in Latin America and $7.3 million in Asia/Pacific. We repatriated a total of $1.5 million to the United States in fiscal 2022 from our foreign entities. This amount includes $0.7 million in the first quarter from our entity in China, $0.3 million in the second quarter from our entity in Taiwan and $0.5 million in the third quarter from our entity in Japan.\n \n\n\nManagement continues to monitor the global situation on its financial condition, liquidity, operations, suppliers, industry and workforce. Our ability to predict and respond to future changes resulting from the Covid pandemic is uncertain. Even after the Covid pandemic fully subsides, there may be long-term effects on our business practices and customers in economies in which we operate that could severely disrupt our operations and could have a material adverse effect on our business, results of operations, cash flows and financial condition. As we cannot predict the duration, scope or severity of the Covid pandemic, the negative financial impact to our results cannot be reasonably estimated and could be material.\n\n\n  Based on past performance and current expectations, we believe that the existing sources of liquidity, including current cash, will provide sufficient resources to meet known capital requirements and working capital needs through the next twelve months. Additionally, while our future capital requirements will depend on many factors, including, but not limited to, the economy and the outlook for growth in our markets, we believe our existing sources of liquidity as well as our ability to generate operating cash flows will satisfy our future obligations and cash requirements.\n\n\nOn March 20, 2023, the Company established a senior, secured revolving credit facility agreement with a three-year term in an aggregate principal amount not to exceed $30 million, including a Swingline Loan sub-facility and a Letter of Credit sub-facility (collectively, the \"Revolving Credit Facility\") with PNC Bank. The Revolving Credit Facility is guaranteed by the Company's domestic subsidiaries. Proceeds of the borrowings under the Revolving Credit Facility are expected to be used for working capital and general corporate purposes of the Company and its subsidiaries. As of the date of this report, no amounts were outstanding under the Revolving Credit Facility.\n \n\n\n28\n\n\n\n\n\u00a0\n\n\nCash Flows from Operating Activities\n\n\nCash flow from operating activities primarily resulted from our net income adjusted for non-cash items and changes in our operating assets and liabilities.\n\n\nOperating activities utilized $8.2 million of cash during fiscal 2023. We had net income of $22.3 million during fiscal 2023, which included non-cash stock-based compensation expense of $0.9 million associated with the issuance of stock option awards and restricted stock awards, $0.5 million of inventory provisions and depreciation and amortization expense of $3.7 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities resulted in a use of cash of $35.5 million during fiscal 2023, mainly due to an increase in inventories of $30.5 million, a decrease in accounts payable and accrued liabilities of $4.4 million and an increase in prepaid expenses of $0.5 million. The majority of the inventory increase was to support our Electron tube, PMG, Green Energy Solutions, LaFox manufacturing and Healthcare businesses. The decrease in accounts payable and accrued liabilities was due to revenue recognition and timing.\n\n\nOperating activities provided $1.9 million of cash during fiscal 2022. We had net income of $17.9 million during fiscal 2022, which included non-cash stock-based compensation expense of $0.7 million associated with the issuance of stock option awards and restricted stock awards, $0.5 million of inventory provisions, and depreciation and amortization expense of $3.4 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities resulted in a use of cash of $16.5 million during fiscal 2022, primarily due to the increase in inventories of $20.6 million, an increase in accounts receivable of $6.2 million and an increase in prepaid expenses of $0.2 million. These uses of cash were partially offset by the increase in our accounts payable and accrued liabilities of $10.1 million. The majority of the inventory increase was to support our manufacturing, Canvys and PMG businesses. The increase in accounts receivable was primarily due to the sales increase in fiscal 2022. The increase in our accounts payable was due to higher inventory levels to support sales growth, and the increase in accrued liabilities was due to the higher employee compensation expenses and payroll taxes as well as increased deferred revenue.\n\n\nCash Flows from Investing Activities\n\n\nThe cash flow from investing activities consisted primarily of purchases and maturities of investments and capital expenditures.\n\n\nCash used by investing activities of $2.2 million during fiscal 2023 was mainly attributed to $7.4 million in capital expenditures with a $5.0 million offset for the maturities of a Certificate of Deposit (CD). Capital expenditures were primarily related to our LaFox manufacturing business and facility renovation, IT systems and the Healthcare business.\n\n\nCash used by investing activities of $8.1 million during fiscal 2022 was mainly attributed to the $5.0 million purchase of a Certificate of Deposit (CD) and $3.1 million in capital expenditures. Capital expenditures were primarily related to our manufacturing, Healthcare business and IT systems.\n\n\nOur purchases and proceeds from investments consist of time deposits and CDs. Purchasing of future investments may vary from period to period due to interest and foreign currency exchange rates.\n\n\n29\n\n\n\n\n\u00a0\n\n\nCash Flows from Financing Activities\n\n\nThe cash flow from financing activities primarily consists of cash dividends paid.\n\n\nCash provided by financing activities of $0.4 million during fiscal 2023 resulted primarily from the $3.8 million of proceeds from the issuance of common stock from stock option exercises and the $3.3 million used to pay dividends to shareholders.\n\n\nCash used in financing activities of $0.4 million during fiscal 2022 resulted primarily from the $3.2 million used to pay dividends to shareholders, partially offset by proceeds from the issuance of common stock from stock option exercises.\n\n\nAll future payments of dividends are at the discretion of the Board of Directors. Dividend payments will depend on earnings, capital requirements, operating conditions and such other factors that the Board may deem relevant.\n\n\nContractual Obligations\n\n\nContractual obligations are presented in the table below as of May 27, 2023 (\nin thousands\n):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nLess than \n1 year\n\n\n\u00a0\n\n\n\u00a0\n\n\n1 - 3\nyears\n\n\n\u00a0\n\n\n\u00a0\n\n\n4 - 5\nyears\n\n\n\u00a0\n\n\n\u00a0\n\n\nMore than\n5 years\n\n\n\u00a0\n\n\n\u00a0\n\n\nLess Interest\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\n\n\n\nLease obligations \n(1)\n\n\n\u00a0\n\n\n$\n\n\n1,147\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,393\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n35\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(118\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n2,457\n\n\n\u00a0\n\n\n\n\n\n\n(1)\nLease obligations are related to certain warehouse and office facilities under non-cancelable operating leases as well as financing leases.\n\n\nCritical Accounting Policies and Estimates\n\n\nThe preparation of financial statements in conformity with United States Generally Accepted Accounting Principles (\u201cGAAP\u201d) and pursuant to the rules and regulations of  the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities. Our assumptions, judgments and estimates are based on historical experience and various other factors deemed relevant. Actual results could be materially different from those estimates under different assumptions or conditions. We evaluate our assumptions, judgments and estimates on a regular basis. We also discuss our critical policies and estimates with the Audit Committee of the Board of Directors.\n\n\nWe believe the assumptions, judgments and estimates involved for the following have the greatest potential impact on our Consolidated Financial  Statements:\n\n\n\u2022\nAllowance for Doubtful Accounts  \n\n\n\u2022\nRevenue Recognition \n\n\n\u2022\nInventories, net\n\n\n\u2022\nIntangible and Long-Lived Assets\n\n\n\u2022\nLoss Contingences\n\n\n\u2022\nIncome Taxes\n\n\nAllowance for Doubtful Accounts\n\n\nOur allowance for doubtful accounts includes estimated losses that result from uncollectible receivables. The estimates are influenced by the following: continuing credit evaluation of customers\u2019 financial conditions; aging of receivables, individually and in the aggregate; a large number of customers which are widely dispersed across geographic areas; and collectability and delinquency history by geographic area. Significant changes in one or more of these considerations may require adjustments affecting net income and net carrying value of accounts receivable.\n \n\n\n30\n\n\n\n\n\u00a0\n\n\nRevenue Recognition\n\n\nOur customers are generally not resellers, but rather businesses that incorporate our products into their processes from which they generate an economic benefit. The goods are also distinct in that each item sold to the customer is clearly identified on both the purchase order and resulting invoice. Each product we sell benefits the customer independently of the other products. Each item on each purchase order from the customer can be used by the customer unrelated to any other products we provide to the customer.\n \n\n\n \n\n\nThe Company\u2019s revenue includes the following streams:\n\n\n\u2022\nManufacturing/assembly\n\n\n\u2022\nDistribution\n\n\n\u2022\nServices revenue\n\n\nManufacturing/assembly typically includes the products that are manufactured or assembled in our manufacturing facility. These products can either be built to the customer\u2019s prints/designs or are products that we stock in our warehouse to sell to any customer that places an order. The manufacturing business does not include a separate service bundled with the product sold or sold in addition to the product. Our contracts for customized products generally include termination provisions if a customer cancels its order. However, we recognize revenue at a point in time because the termination provisions normally do not require, upon cancellation, the customer to pay fees that are commensurate with the work performed. Each purchase order explicitly states the goods or service that we promise to transfer to the customer. The promises to the customer are limited only to those goods or service. The performance obligation is our promise to deliver both goods that were produced by the Company and resale of goods that we purchase from our suppliers. Our shipping and handling activities for destination shipments are performed prior to the customer obtaining control. As such, they are not a separate promised service. The Company elects to account for shipping and handling as activities to fulfill the promise to transfer the goods. The goods we provide to our customers are distinct in that our customers benefit from the goods we sell them through use in their own processes.\n \n\n\nDistribution typically includes products purchased from our suppliers, stocked in our warehouses and then sold to our customers. The distribution business does not include a separate service bundled with the product sold or sold on top of the product. Revenue is recognized when control of the promised goods is transferred to our customers, which is simultaneous with the title transferring to the customer, in an amount that reflects the transaction price consideration that we expect to receive in exchange for those goods. Control refers to the ability of the customer to direct the use of, and obtain substantially all of, the remaining benefits from the goods. Our transaction price consideration is fixed, unless otherwise disclosed below as variable consideration. Generally, our contracts require our customers to pay for goods after we deliver products to them. Terms are generally on open account, payable net 30 days in North America, and vary throughout Asia/Pacific, Europe and Latin America subject to customary credit checks.\n\n\nRepair, installation or training activities generate services revenue. The services we provide are relatively short in duration and are typically completed in one or two weeks. Therefore, at each reporting date, the amount of unbilled work is insignificant. The services revenue has consistently accounted for less than 5% of the Company\u2019s total revenues and is expected to continue at that level.\n\n\n \n\n\n \n\n\nInventories, net\n\n\nOur consolidated inventories are stated at the lower of cost and net realizable value, generally using a weighted-average cost method. Our net inventories include finished goods, raw materials and work-in-progress.\n\n\nWe do not anticipate any material risks or uncertainties related to possible future inventory write-downs. Provisions for obsolete or slow-moving inventories are recorded based upon regular analysis of stock rotation privileges, obsolescence, the exiting of certain markets and assumptions about future demand and market conditions. If future demand changes in an industry or market conditions differ from management\u2019s estimates, additional provisions may be necessary.\n\n\n31\n\n\n\n\n\u00a0\n\n\nIntangible and Long-Lived Assets\n\n\n Our intangible assets represent the fair value for trade name, customer relationships, non-compete agreements and technology acquired in connection with the acquisitions. Intangible assets are initially recorded at their fair market values determined by quoted market prices in active markets, if available, or recognized valuation models.\n\n\nWe review property and equipment, definite-lived intangible assets and other long-lived assets for impairment whenever adverse events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. We conduct annual reviews for idle and underutilized equipment and review business plans for possible impairment. If adverse events do occur, our impairment review is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of our assets and liabilities. This analysis requires management judgment with respect to changes in technology, the continued success of product lines and future volume, revenue and expense growth rates.\n \n\n\nLoss Contingencies\n\n\nWe accrue a liability for loss contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. If we determine that there is at least a reasonable possibility that a loss may have been incurred, we will include a disclosure describing the contingency.\n\n\nIncome Taxes\n\n\nWe recognize deferred tax assets and liabilities based on the differences between financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and determine the need for a valuation allowance based on a number of factors, including both positive and negative evidence. These factors include historical taxable income or loss, projected future taxable income or loss, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. In circumstances where we, or any of our affiliates, have incurred three years of cumulative losses which constitute significant negative evidence, positive evidence of equal or greater significance is needed to overcome the negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards.\n\n\n \nNew Accounting Pronouncements\n\n\nIn June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 (as amended by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and 2020-02) introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity\u2019s assumptions, models and methods for estimating expected credit losses. The new standard is effective for smaller reporting companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company will adopt in the first quarter of fiscal 2024 and the expected impact on the consolidated financial statements is not material.\n\n\n32\n\n\n\n\n\u00a0\n\n",
+  "item7a": ">ITEM 7A. Quantitative and Qualitat\nive Disclosures about Market Risk\n\n\nRisk Management and Market Sensitive Financial Instruments\n\n\nWe are exposed to many different market risks with the various industries we serve. The primary financial risk we are exposed to is foreign currency exchange, as certain operations, assets and liabilities of ours are denominated in foreign currencies. We manage these risks through normal operating and financing activities.\n\n\nForeign Currency Exposure\n\n\nEven though we take into account current foreign currency exchange rates at the time an order is taken, our financial statements, denominated in a non-U.S. functional currency, are subject to foreign exchange rate fluctuations.\n\n\nOur foreign denominated assets and liabilities are cash and cash equivalents, accounts receivable, inventory, accounts payable and intercompany receivables and payables, as we conduct business in countries of the European Union, Asia/Pacific and, to a lesser extent, Canada and Latin America. We do manage foreign exchange exposures by using currency clauses in certain sales contracts and we also have local debt to offset asset exposures. We have not used any derivative instruments nor entered into any forward contracts in fiscal 2023, fiscal 2022 or fiscal 2021.\n\n\nHad the U.S. dollar changed unfavorably 10% against various foreign currencies, foreign denominated net sales would have been lower by an estimated $12.2 million during fiscal 2023, an estimated $12.1 million during fiscal 2022 and an estimated $10.0 million during fiscal 2021. Total assets would have declined by an estimated $4.3 million as of the fiscal year ended May 27, 2023 and an estimated $4.2 million as of the fiscal year ended May 28, 2022, while the total liabilities would have decreased by an estimated $1.1 million as of the fiscal year ended May 27, 2023 and an estimated $1.0 million as of the fiscal year ended May 28, 2022.\n\n\nThe interpretation and analysis of these disclosures should not be considered in isolation since such variances in exchange rates would likely influence other economic factors. Such factors, which are not readily quantifiable, would likely also affect our operations. Additional disclosure regarding various market risks is set forth in Part I, Item 1A\n, Risk Factors\n, of our Annual Report on this Form 10-K.\n\n",
+  "cik": "355948",
+  "cusip6": "763165",
+  "cusip": ["763165907", "763165107"],
+  "names": ["RICHARDSON ELECTRS LTD"],
+  "source": "https://www.sec.gov/Archives/edgar/data/355948/000095017023035840/0000950170-23-035840-index.htm"
+}
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+{
+  "item1": ">Item 1. \u2014\n Business\n\n\n\u00a0\n\n\nGeneral Overview\n\n\n\u00a0\n\n\nWorthington Industries, is a corporation formed under the laws of the State of Ohio (collectively with the subsidiaries of Worthington Industries, \u201cwe,\u201d \u201cour,\u201d \u201cus,\u201d \u201cWorthington\u201d or the \u201cCompany\u201d). Founded in 1955, we are an industrial manufacturing company, focused on value-added steel processing, laser welded solutions, electrical steel laminations and manufactured consumer, building and sustainable mobility products. Our manufactured products include: pressure cylinders for liquefied petroleum gas (\u201cLPG\u201d), compressed natural gas (\u201cCNG\u201d), hydrogen, oxygen, refrigerant and other industrial gas storage; water well tanks for commercial and residential uses; hand torches and filled hand torch cylinders; propane-filled camping cylinders; helium-filled balloon kits; specialized hand tools and instruments; and drywall tools and related accessories; and, through our joint ventures, complete ceiling grid solutions; laser welded blanks; light gauge steel framing for commercial and residential construction; engineered cabs, operator stations and cab components.\n\n\nWe follow a people-first philosophy with earning money for our shareholders as our first corporate goal, which we seek to accomplish by optimizing existing operations, developing and commercializing new products and applications, and pursuing strategic acquisitions and joint ventures.\n\n\nOur fiscal year ends each May 31, with \u201cfiscal 2021\u201d ended May 31, 2021, \u201cfiscal 2022\u201d ended May 31, 2022, and \u201cfiscal 2023\u201d ended May 31, 2023.  Our fiscal quarters end on the final day of each August, November, February and May.\n\n\n\u00a0\n\n\nWe are headquartered at 200 West Old Wilson Bridge Road, Columbus, Ohio 43085, telephone (614) 438-3210. The common shares of Worthington Industries (the \u201ccommon shares\u201d) are traded on the New York Stock Exchange (\u201cNYSE\u201d) under the symbol WOR. We maintain a website at \nwww.worthingtonindustries.com\n. This uniform resource locator, or URL, is an inactive textual reference only and is not intended to incorporate our website into this Form 10-K. Worthington Industries\u2019 Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d), as well as Worthington Industries\u2019 definitive proxy materials for annual meetings of shareholders filed pursuant to Section 14 of the Exchange Act, are available free of charge, on or through our website, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.\n\n\n\u00a0\n\n\nSeparation of the Steel Processing Business\n\n\n\u00a0\n\n\nOn September 29, 2022, we announced our intention to complete the Separation, resulting in Worthington Steel becoming a stand-alone publicly traded company, through a generally tax-free pro rata distribution of 100% of the common shares of Worthington Steel to Worthington Industries\u2019 shareholders. The remaining company (\u201cNew Worthington\u201d) is expected to be comprised of our Consumer Products, Building Products and Sustainable Energy Solutions operating segments. While we currently intend to effect the distribution, subject to satisfaction of certain conditions, we have no obligation to pursue or consummate any disposition of our ownership interest in Worthington Steel, including through the distribution, by any specified date or at all. The distribution is subject to various conditions, including final approval by the Board; the completion of the transfer of assets and liabilities to Worthington Steel in accordance with the separation agreement; due execution and delivery of the agreements relating to the Separation; no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition in effect preventing the consummation of the Separation, the distribution or any of the related transactions; acceptance for listing on the NYSE of the common shares of Worthington Steel to be distributed, subject to official notice of distribution; completion of financing, and no other event or development having occurred or being in existence that, in the judgment of the Board, in its sole discretion, makes it inadvisable to effect the Separation, the distribution or the other related transactions.\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nRecent Business Developments\n\n\n\u2022\nOn June 2, 2022, we acquired Level 5 Tools, LLC (\u201cLevel5\u201d), a leading provider of drywall tools and related accessories. The total purchase price was approximately $56.1 million, with a potential earnout based on performance through calendar year 2024. Refer to \u201cNote Q \u2013 Acquisitions\u201d for additional information.\n\n\n\u2022\nOn August 3, 2022, we sold our 50% noncontrolling equity interest in ArtiFlex Manufacturing, LLC (\u201cArtiFlex\u201d) to the unaffiliated joint venture member for net proceeds of approximately $41.8 million, after adjustments for closing debt and final net working capital. Approximately $6.0 million of the total cash proceeds were attributed to real property in Wooster, Ohio, with a net book value of $6.3 million. This real property was owned by us and leased to ArtiFlex prior to closing of the transaction. During fiscal 2023, we recognized a pre-tax loss of $16.1 million in equity income related to the sale.\n\n\n\u2022\nOn September 29, 2022, we announced that the Board approved a plan to pursue the Separation of our Steel Processing business which we expect to complete by early 2024. This plan is referred to as \u201cWorthington 2024.\u201d Worthington 2024 will result in two independent, publicly-traded companies that are more specialized and fit-for purpose, with enhanced prospects for growth and value creation. We plan to effect the Separation via a distribution of the common shares of Worthington Steel, which is expected to be tax-free to shareholders of Worthington Industries for U.S. federal income tax purposes. Refer to \u201cNote A \u2013 Summary of Significant Accounting Policies\u201d for additional information.\n\n\n\u2022\nOn October 31, 2022, our consolidated joint venture, Worthington Specialty Processing (\u201cWSP\u201d), sold its remaining manufacturing facility, located in Jackson, Michigan, for net proceeds of approximately $21.3 million, resulting in a pre-tax gain of $3.9 million within restructuring and other (income) expense, net. Refer to \u201cNote F \u2013 Restructuring and Other (Income) Expense, Net\u201d for additional information.\n\n\n\u2022\nOn January 5, 2023, we announced the implementation of a Board transition plan, pursuant to which John H. McConnell II was appointed as a member of the Board, effective on January 4, 2023. As previously disclosed on January 4, 2023, John P. McConnell, Executive Chairman of Worthington Industries, notified the Board that he intended to step down from the Board in June 2023. On June 28, 2023, John P. McConnell notified the Board that he intends to defer his retirement and will remain on the Board to continue providing leadership to Worthington and the Board in preparation for the planned Separation. The effective date of John P. McConnell\u2019s retirement has not been fixed.\n\n\n\u2022\nOn February 2, 2023, we announced the senior leadership teams for New Worthington and Worthington Steel, which will be effective upon the completion of the planned Separation.\n\n\n\u2022\nOn June 28, 2023, the Board declared a quarterly dividend of $0.32 per common share payable on September 29, 2023, to Worthington Industries\u2019 shareholders of record on September 15, 2023.\n\n\n\u2022\nOn June 29, 2023, we terminated our revolving trade accounts receivable securitization facility allowing us to borrow up to $175.0 million (the \u201cAR Facility\u201d). See \u201cNote I \u2013 Debt and Receivables Securitization\u201d and \u201cNote V \u2013 Subsequent Events\u201d for additional information. \n\n\n\u2022\nOn July 28, 2023, we redeemed in full our $243.6 million aggregate principal amount of senior unsecured notes due April 15, 2026 (the \u201c2026 Notes\u201d). See \u201cNote I \u2013 Debt and Receivables Securitization\u201d and \u201cNote V \u2013 Subsequent Events\u201d for additional information. \n\n\nSegments\n\n\n\u00a0\n\n\nWe, together with our consolidated and unconsolidated affiliates, operate 72 manufacturing facilities in 21 states and 10 countries. Twenty-eight of these facilities are operated by our wholly-owned, consolidated subsidiaries. The remaining 44 facilities are operated by our consolidated joint ventures (14) and unconsolidated joint ventures (30).\n \n\n\n\u00a0\n\n\nOur operations are managed and reported principally on a products and services basis and are comprised of four operating segments: \u201cSteel Processing,\u201d \u201cConsumer Products,\u201d \u201cBuilding Products,\u201d and \u201cSustainable Energy Solutions.\u201d\n \n\n\n\u00a0\n\n\nWe hold equity positions in seven operating joint ventures, which are further discussed in the \nOur\n \nJoint Ventures\n section below. Of these, Spartan Steel Coating, L.L.C. (\u201cSpartan\u201d), TWB Company L.L.C. (\u201cTWB\u201d) and Worthington Samuel Coil Processing LLC (\u201cSamuel\u201d) are consolidated with their operating results reported within Steel Processing. We also own a 51% controlling interest in WSP, which became a non-operating joint venture on October 31, 2022, when the remaining net assets of WSP were sold. See \u201cNote F \u2013 Restructuring and Other (Income) Expense, Net\u201d for additional information.\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nDuring fiscal 2023, Steel Processing, Consumer Products, Building Products and Sustainable Energy Solutions served approximately 1,300, 2,000, 1,700, and 300 customers, respectively, located primarily in North America and Europe. International operations accounted for approximately 13% of our consolidated net sales during fiscal 2023 and were comprised primarily of sales to customers in Europe. Sales to one customer in the automotive industry accounted for 11.9% of our consolidated net sales in fiscal 2023.\n \n\n\n\u00a0\n\n\nRefer to the following segment descriptions and \u201cNote P \u2013 Segment Data\u201d for a full description of our reportable segments.\n\n\n\u00a0\n\n\nSteel Processing\n\n\n\u00a0\n\n\nSteel Processing is a value-added processor of carbon flat-rolled steel, a producer of laser welded solutions, and a provider of electrical steel laminations. This segment includes our three consolidated joint ventures, Samuel, Spartan, and TWB and one unconsolidated joint venture, Serviacero Worthington (see the \nOur Joint Ventures\n section below). We also own a 51% controlling interest in WSP, which became a non-operating joint venture on October 31, 2022. For fiscal 2023, fiscal 2022 and fiscal 2021, the percentage of our consolidated net sales generated by Steel Processing was approximately 71.1%, 75.0% and 64.9%, respectively.\n\n\n \n\n\nSteel Processing is one of the largest independent intermediate processors of carbon flat-rolled steel in the U.S. It occupies a niche in the steel industry by focusing on products requiring exact specifications. These products cannot typically be supplied as efficiently by steel mills to the end-users of these products.\n\n\n\u00a0\n\n\nSteel Processing, including Samuel, Spartan and TWB, operates 28 manufacturing facilities located in Ohio (9), Michigan (4), Tennessee (2), Kentucky (2), Indiana (1), Illinois (1), New York (1), Canada (2), China (1), India (1) and Mexico (4).\n \n\n\n\u00a0\n\n\nSteel Processing serviced approximately 1,300 customers during fiscal 2023 in many end markets including automotive, heavy truck, agriculture, construction, and energy. The automotive industry is one of the largest consumers of flat-rolled steel, and thus the largest end market for Steel Processing. During fiscal 2023, Steel Processing\u2019s top three customers represented approximately 31.0% of the operating segment\u2019s total net sales. With the acquisition of Tempel Steel Company (\u201cTempel\u201d) in fiscal 2022, our geographic operations expanded to include the Asia Pacific region.\n\n\n\u00a0\n\n\nSteel Processing buys coils of steel from integrated steel mills and mini-mills and processes them to the precise type, thickness, length, width, shape and surface quality required by customer specifications. Our product lines and processing capabilities include:\n\n\n\u2022\nCarbon Flat-Roll Steel Processing: \nWe perform a variety of value-added processes based on customer requirements including pickling, specialty re-rolling, hot dip galvanizing, blanking, slitting and cutting-to-length.\n\n\n\u2022\nElectrical Steel Laminations\n: We manufacture precision magnetic steel laminations for the automotive (including applications for electrified vehicles), industrial motor, generator, and transformer industries. We deliver precision manufacturing (including stamping, heat treating, core assembly, die casting, bonding, etc.), material sourcing, metallurgical analysis, engineering, prototyping and product design, tooling, and value-added capabilities to customers via a global manufacturing footprint.\n\n\n\u2022\nTailor Welded Products\n: These products are used by North American automotive customers to reduce weight, lower cost, improve material utilization, and consolidate parts. Our highly engineered products allow for flexible part design and ensure the right material is used in the right place.\n\n\no\nTailor Welded Blanks are made from individual sheets of steel of different thickness, strength and coating which are joined together by laser welding.\n\n\no\nAluminum Tailor Welded Blanks are processed using friction stir welding technology. Friction stir offers the widest range of formable welded properties for all automotive aluminum alloys.\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nSteel Processing also toll processes steel for steel mills, large end-users, service centers and other processors. Toll processing is different from typical steel processing in that the mill, end-user or other party retains title to the steel and has the responsibility for selling the end product. Toll processing allows us to earn a fee for services without incurring inventory costs. Our manufacturing facilities further benefit from the flexibility to scale between direct versus tolling services based on demand throughout the year.\n\n\n\u00a0\n\n\nThe steel processing industry is fragmented and highly competitive. There are many competitors, including other independent intermediate processors. Competition is primarily on the basis of price, product quality and the ability to meet delivery requirements. Technical service and support for material testing and customer-specific applications enhance the quality of products (see the \nTechnical Services\n section below). However, the extent to which technical service and support capability has improved Steel Processing\u2019s competitive position has not been quantified. Steel Processing\u2019s ability to meet tight delivery schedules is, in part, based on the proximity of our facilities to customers, suppliers and one another. The extent to which plant location has impacted Steel Processing\u2019s competitive position has not been quantified. Processed steel products are priced competitively, primarily based on market factors, including, among other things, market pricing, the cost and availability of raw materials, transportation and shipping costs, and overall economic conditions in the U.S. and abroad.\n\n\n\u00a0\n\n\nConsumer Products\n\n\n\u00a0\n\n\nConsumer Products consists of products in the tools, outdoor living and celebrations end markets sold under brands that include the following: Coleman\u00ae (licensed), Bernzomatic\u00ae, Balloon Time\u00ae, Mag-Torch\u00ae, General\u00ae, Garden-Weasel\u00ae, Pactool International\u00ae, Hawkeye\u0099, Worthington Pro Grade\u0099 and Level5\u00ae. These include propane-filled cylinders for torches, camping stoves and other applications, LPG cylinders, handheld torches, helium-filled balloon kits, specialized hand tools and instruments, and drywall tools and accessories sold primarily to mass merchandisers, retailers and distributors. LPG cylinders, which hold fuel for barbeque grills and recreational vehicle equipment, are also sold through cylinder exchangers.\n \n\n\n\u00a0\n\n\nWe use the registered trademarks described above to market certain products such as helium-filled balloon kits, fuel cylinders, handheld torches, LPG cylinders, camping fuel cylinders, and other tools. Each registered trademark has an original duration of 10 to 20 years, depending on the date it was registered and the country in which it is registered, and is subject to an indefinite number of renewals for a like period upon continued use and appropriate application. We intend to continue using the trade names and trademarks described above and to timely renew each of our registered trademarks that remains in use.\n\n\n\u00a0\n\n\nConsumer Products generated approximately 14.0%, 12.1% and 16.5% of our consolidated net sales in fiscal 2023, fiscal 2022 and fiscal 2021, respectively. Consumer Products serviced approximately 2,000 customers during fiscal 2023. Sales to the top customer represented approximately 21.0% of net sales for Consumer Products during fiscal 2023.\n \n\n\n\u00a0\n\n\nConsumer Products operates five manufacturing facilities located in Kansas (2), New Jersey, Ohio, and Wisconsin.\n\n\n\u00a0\n\n\nBuilding Products\n\n\n\u00a0\n\n\nBuilding Products sells refrigerant and LPG cylinders, well water and expansion tanks, and other specialty products, which are generally sold to gas producers, and distributors. Refrigerant gas cylinders are used to hold refrigerant gases for commercial, residential, and automotive air conditioning and refrigeration systems. LPG cylinders hold fuel for residential and light commercial heating systems, industrial forklifts and commercial/residential cooking (the latter, generally outside North America). Well water tanks and expansion tanks are used primarily in the residential market with certain products also sold to commercial markets. Specialty products include a variety of fire suppression tanks, chemical tanks, and foam and adhesive tanks. This segment also includes two unconsolidated joint ventures, WAVE and ClarkDietrich (see the \nOur Joint Ventures\n section below).\n \n\n\n\u00a0\n\n\nBuilding Products generated approximately 11.9%, 10.3% and 12.7% of our consolidated net sales in fiscal 2023, fiscal 2022 and fiscal 2021, respectively. Building Products serviced approximately 1,700 customers during fiscal 2023.\n\n\n \n\n\nBuilding Products operates six manufacturing facilities located in Kentucky, Maryland, Ohio (2), Rhode Island, and Portugal.\n \n\n\n\u00a0\n\n\nFor sales in the U.S. and Canada, our manufactured building products are designed to comply with U.S. Department of Transportation and Transport Canada specifications. Outside the U.S. and Canada, cylinders are manufactured according to European norm specifications, as well as various other international standards. Other products are produced to applicable industry standards including, as applicable, those standards issued by the American Petroleum Institute, the American Society of Mechanical Engineers and UL Solutions.\n\n\n \n\n\n\u00a0\n\n\n4\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nBuilding Products has one principal domestic competitor in the low-pressure LPG cylinder market, and there are a number of foreign competitors in the LPG cylinder, non-refillable refrigerant, and well water and expansion tank markets. We believe that this business has the largest market share in the domestic low-pressure cylinder market. In the other cylinder markets, there are several competitors. Building Products is a leading supplier to the European market for low-pressure non-refillable cylinders. Building Products generally has a strong competitive position for its industrial, energy, retail and specialty products, but competition varies on a product-by-product basis. As with our other operating segments, competition is based upon price, service and quality.\n \n\n\n\u00a0\n\n\nSustainable Energy Solutions\n\n\n\u00a0\n\n\nSustainable Energy Solutions, which is primarily based in Europe, sells onboard fueling systems and related services, as well as gas containment solutions and services for the storage, transport and distribution of industrial gases. Sustainable Energy Solutions operates three manufacturing facilities located in Austria, Germany, and Poland. This operating segment\u2019s products and services include high pressure and acetylene cylinders for life support systems and alternative fuel cylinders used to hold CNG and hydrogen for automobiles, buses, and light-duty trucks. Sustainable Energy Solutions has a number of foreign and domestic competitors in these markets.\n \n\n\n\u00a0\n\n\nSustainable Energy Solutions generated approximately 3.0%, 2.5% and 4.3% of our consolidated net sales in fiscal 2023, fiscal 2022 and fiscal 2021, respectively. Sustainable Energy Solutions serviced approximately 300 customers during fiscal 2023.\n\n\n\u00a0\n\n\nOther\n\n\n\u00a0\n\n\nDivested businesses historically reported within our legacy Pressure Cylinders segment, but no longer included in our management structure are presented within the \u201cOther\u201d category and include the following through the date of disposition: Structural Composites Industries, LLC (\u201cSCI\u201d) (until March 2021); Oil & Gas Equipment (until January 2021); and Cryogenic Storage and Cryo-Science (until October 2020). The Other category also includes certain income and expense items not allocated to our operating segments.\n \n\n\n\u00a0\n\n\nSegment Financial Data\n\n\n\u00a0\n\n\nFinancial information for the reportable segments is provided in \u201cNote P \u2013 Segment Data.\u201d\n \n\n\n\u00a0\n\n\nSources and Availability of Raw Materials\n \n\n\n\u00a0\n\n\nWe have developed strong relationships with our mill suppliers, who provide the quality materials we need, meet our quality and service requirements, and are able to offer competitive terms with regard to quality, pricing, delivery, and volumes purchased.\n\n\n\u00a0\n\n\nThe primary raw material we purchase is steel. We purchase steel in large quantities at regular intervals from major steel mills, both U.S. domestic and foreign. The amount purchased from any supplier varies from year to year depending on a number of factors including market conditions, then current relationships and prices and terms offered. In nearly all market conditions, steel is available from a few suppliers and generally any supplier relationship or contract can and has been replaced with little or no significant interruption to our business. During fiscal 2023, we purchased approximately 2.67 million tons of steel (66.1% hot-rolled, 20.2% cold-rolled and 13.7% galvanized) on a consolidated basis.\n \n\n\n\u00a0\n\n\nSteel is primarily purchased and processed by Steel Processing based on specific customer orders, while Consumer Products, Building Products, and Sustainable Energy Solutions purchase steel to meet production schedules. Raw materials are generally purchased in the open market on a negotiated basis. Supply contracts are also entered into, some of which have fixed pricing and some of which are indexed (monthly or quarterly).\n \n\n\n\u00a0\n\n\nDuring fiscal 2023, we purchased steel from the following major suppliers, in alphabetical order: AM-NS Calvert LLC; Cleveland-Cliffs Steel Inc.; NLMK Indiana; North Star BlueScope Steel, LLC; and Nucor Corporation.\n \n\n\n\u00a0\n\n\nFor certain raw materials, for example, zinc, there are limited suppliers and our purchases are generally at market prices. However, historically, we have been able to replace our supplier relationships or contracts with little or no significant interruption to our business. Major suppliers of zinc to Steel Processing in fiscal 2023 were, in alphabetical order: Concord Resources Limited; Glencore Ltd; Nexa Resources US Inc.; and Teck Resources Limited. Major suppliers of aluminum in fiscal 2023 were, in alphabetical order: Arconic Inc.; Meyer Aluminum Blanks, Inc.; Norsk Hydro ASA; Novelis Corporation; and Penn Aluminum International LLC. Approximately 41.30 million pounds of zinc and 4.22 million pounds of aluminum were purchased in fiscal 2023. We believe our supplier relationships are generally favorable.\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nTechnical Services\n \n\n\n\u00a0\n\n\nWe recognize the importance of the metallurgical and technical aspects of our value-added steel products. We believe we are a leader in the flat rolled steel market for providing metallurgical and steel processing solutions to meet our customers\u2019 customized material needs. We employ a staff of 20+ metallurgical engineers throughout the business and leverage their expertise to offer practical solutions on topics ranging from steelmaking and steel processing through downstream manufacturing. Our metallurgical engineers work in conjunction with internal quality teams to engage customers around problem solving, new product development and education. Laboratory facilities are equipped with a wide range of physical and chemical testing capabilities to support production, development needs, and high-level failure analyses. Tests are performed in accordance with specified industry standards. Data which is secured either through testing or online measurement systems are routed through analytics tools and analyzed by the team for process improvement, product performance and consistent quality.\n \n\n\n\u00a0\n\n\nTechnical Service personnel also work in conjunction with the sales force to specify components and materials required to fulfill customer needs. Laboratory facilities also perform metallurgical and chemical testing as dictated by International Organization for Standardization (\u201cISO\u201d), ASTM International, and other customer and industry specific requirements.\n\n\n\u00a0\n\n\nSeasonality and Backlog\n\n\n\u00a0\n\n\nSales for most of our products are generally strongest in our fourth fiscal quarter when our facilities generally operate at seasonal peaks. Historically, sales have generally been weaker in our third fiscal quarter, primarily due to reduced seasonal activity in the building products and construction industry, as well as customer plant shutdowns due to holidays, particularly in the automotive industry. We do not believe backlog is a significant indicator of our business.\n\n\n\u00a0\n\n\nOur Joint Ventures\n\n\n\u00a0\n\n\nAs part of our strategy to selectively develop new products, markets, and technological capabilities and to expand our international presence, while mitigating the risks and costs associated with those activities, as of May 31, 2023, we participated in seven operating joint ventures and one non-operating joint venture.\n\n\n\u00a0\n\n\nConsolidated\n\n\n\u2022\nSamuel is a 63%-owned joint venture with Samuel Manu-Tach Pickling Inc., that operates two pickling facilities in Ohio.\n\n\n\u2022\nSpartan is a 52%-owned joint venture that operates a cold-rolled, hot-dipped coating line for toll processing steel coils into galvanized, galvannealed and aluminized products intended primarily for the automotive industry. In addition to providing incremental coating capacity, this joint venture has served to expand our coating capabilities to included aluminized steel to serve new markets.\n\n\n\u2022\nTWB is a 55%-owned joint venture that supplies laser welded blanks, tailor welded aluminum blanks, laser welded coils and other laser welded products across North America for use primarily in the automotive industry for products such as inner-door panels, frame rails and pillars.  \n\n\n\u2022\nWSP, a 51%-owned joint venture with a subsidiary of U.S. Steel, became a non-operating joint venture on October 31, 2022, when WSP sold the remaining net assets of the joint venture. \n\n\n\u00a0\n\n\nUnconsolidated\n\n\n\u00a0\n\n\nSince we do not control the following four joint ventures, they are unconsolidated, and their results have been accounted for using the equity method. Accordingly, our investment is reflected on a single line on our consolidated balance sheets and our portion of their earnings is included as equity in net income of unconsolidated affiliates in our consolidated statements of earnings. Equity income is included in the measurement of segment profit as set forth in the table below. Refer to \u201cNote P - Segment Data\u201d for additional information. At May 31, 2023, we held noncontrolling investments in the affiliated companies labeled in the table below.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSteel Processing\n\n\nConsumer Products\n\n\n\u00a0\n\n\nBuilding Products\n\n\n\u00a0\n\n\nSustainable Energy Solutions\n\n\n\u00a0\n\n\nOther\n\n\n\n\n\n\nServiacero Worthington\n\n\nN/A\n\n\n\u00a0\n\n\nWAVE\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\nWorkhorse\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nClarkDietrich\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u2022\nClarkwestern Dietrich Building Systems LLC (\u201cClarkDietrich\u201d), a 25%-owned joint venture with CWBS-MISA, Inc., is an industry leader in the manufacture and supply of light gauge steel framing products in the U.S. ClarkDietrich manufactures a full line of drywall studs and accessories, structural studs and joists, metal lath and accessories, shaft wall studs and track, vinyl and finishing products used primarily in residential and commercial construction. ClarkDietrich operates 14 manufacturing facilities, one each in Connecticut, Georgia, Illinois, Maryland, Missouri and Canada and two each in California, Florida, Ohio, and Texas. \n\n\n\u2022\nServiacero Planos, S. de R.L. de C.V. (\u201cServiacero Worthington\u201d), a 50%-owned joint venture with Inverzer, S.A. de C.V., operates three steel processing facilities in Mexico, one each in Leon, Monterrey and Queretaro. Serviacero Worthington provides steel processing services, such as pickling, blanking, slitting, multi-blanking and cutting-to-length, to customers in a variety of industries including automotive, appliance and heavy equipment. \n\n\n\u2022\nTaxi Workhorse Holdings, LLC (\u201cWorkhorse\u201d), a 20%-owned joint venture with an affiliate of Angeles Equity Partners, LLC, is a non-captive designer and manufacturer of high-quality, custom-engineered open and enclosed cabs and operator stations and custom fabrications and packaging for heavy mobile equipment used primarily in the agricultural, construction, forestry, military and mining industries. Workhorse operates six manufacturing facilities, one each in Brazil, South Dakota and Tennessee and three in Minnesota. \n\n\n\u2022\nWorthington Armstrong Venture (\u201cWAVE\u201d), a 50%-owned joint venture with a subsidiary of Armstrong World Industries, Inc., is the largest of the four North American manufacturers of ceiling suspension systems for concealed and lay-in panel ceilings used in commercial and residential ceiling markets. It competes with the other North American manufacturers and numerous regional manufacturers. WAVE operates seven manufacturing facilities, one each in Georgia, Michigan, and Nevada and two each in California and Maryland.\n\n\n\u00a0\n\n\nSee \u201cNote D \u2013 Investments in Unconsolidated Affiliates\u201d for additional information about our unconsolidated joint ventures.\n\n\n\u00a0\n\n\nEnvironmental Matters\n\n\n\u00a0\n\n\nOur manufacturing facilities, like those of similar industries making similar products, are subject to many federal, state, local and foreign laws, and regulations, including those relating to the protection of our employees and the environment. In addition to the requirements of the state and local governments of the communities in which we operate, we must comply with federal health and safety regulations, the most significant of which are enforced by the Occupational Safety and Health Administration. We examine ways to improve safety, reduce emissions and waste, and decrease costs related to compliance with environmental and other government regulations. The cost of such activities, compliance or capital expenditures for environmental control facilities necessary to meet regulatory requirements are not estimable, but have not and are not anticipated to be material when compared with our overall costs and capital expenditures and, accordingly, are not anticipated to have a material effect on our financial position, results of operations, cash flows or the competitive position.\n \n\n\n \n\n\nOur commitment to environmental and social governance and sustainability includes putting people first by providing a supportive and inclusive environment built on a culture of engagement, and by working together to ensure the health and safety of our employees. At the corporate level, we maintain a fully dedicated department responsible for best-in-class environmental, health and safety initiatives and best practices across the Company. Twenty-three of our facilities hold ISO 14001 certifications, a highly recognized global standard for an effective Environmental Management System and our remaining facilities are managed to similar standards.\n\n\n \n\n\nWorthington complies with and works to exceed all applicable worker safety regulations in the U.S. as governed by the Occupational Safety and Health Administration (OSHA). Our U.S. facilities also hold certifications with various industry groups that require regular inspections including ISO. Our global sites meet or exceed all local regulations for worker safety and hold various accreditations, certifications, and registrations that require regular inspections.\n\n\n\u00a0\n\n\nPatents, Trademarks and Licenses\n\n\n\u00a0\n\n\nWe own several patents, trademarks, copyrights, trade secrets, and licenses to intellectual property owned by others. Although our patents, copyrights, trademarks, trade secrets, and other intellectual property rights are important to our success, we do not consider any single patent, trademark, copyright, trade secret or license to be of material importance to our business.\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nCorporate Responsibility\n\n\n\u00a0\n\n\nHuman Capital Management\n\n\n\u00a0\n\n\nAs of May 31, 2023, we had approximately 8,200 employees and our unconsolidated joint ventures employed approximately 2,300 additional employees. Of the aggregate of those groups, approximately 12% of those individuals are represented by collective bargaining units. We believe that our open-door policy has created an environment which fosters open communication and serves to cultivate the good relationships we have with our employees, including those covered by collective bargaining units.\n\n\n\u00a0\n\n\nIn line with our people-first philosophy, our employees have always been, and will always be, our most important asset. We operate under a set of core values that are rooted in our long-standing philosophy, which emphasizes the Golden Rule. These core values guide us as a company, including in our approach to human capital management. As such, we are continually focused on creating and maintaining a strong culture. Our culture provides employees with opportunities for personal and professional development, as well as community engagement, all of which we believe contribute to our overall success. We have repeatedly been recognized as a top place to work and we offer our employees competitive pay and above-market benefits, as compared to others in our industry, all while focusing on safety, wellness, and promoting a diverse and inclusive culture.\n\n\n\u00a0\n\n\nOur ability to successfully operate, grow our business and implement our business strategies is largely dependent on our ability to attract, train and retain talented personnel at all levels of our organization. As a result, we offer our employees competitive compensation and benefits, as compared to others in our industry, which include opportunities to participate in profit sharing plans. We also strive to provide our employees with continuous opportunities to learn the skills necessary to maximize their performance, and develop new skills that allow them to maximize their potential.\n\n\n\u00a0\n\n\nSafety, Health and Wellness\n\n\n\u00a0\n\n\nWe have always made the safety and well-being of our people a top priority, and we have regularly maintained an industry-leading safety record. For us, safety is about engagement, and our employees have adopted a culture where safety is everyone\u2019s responsibility, and not just the safety of our employees, but the safety of everyone who enters our facilities. We also provide our employees and their families with access to above-market benefits, as compared to others in our industry, including a parental leave benefit that offers all new parents the opportunity for paid time off. We have a broad array of other employee centered-benefits and programs, including a medical center, a pharmacy, chiropractic care, on-site fitness centers, free health screenings, health fairs, and other Company-wide and location-specific wellness events and challenges. We believe our investments in safety, health and wellness are key to supporting and protecting our most important asset, our people.\n\n\n\u00a0\n\n\nDiversity, Inclusion and Equity\n\n\n\u00a0\n\n\nWe believe that diversity, of all types, contributes to our success. We are committed to increasing the diversity of our employee base at all levels of our organization because we believe our differences make us better and that diverse thoughts and experiences drive innovation and produce better results. With our philosophy as our foundation, we are building an environment where diversity is valued, and where all employees feel they belong and are empowered to do their best work.\n \n\n\n\u00a0\n\n\nTo further such efforts, we have hired a Director of Diversity, Equity and Inclusion and established a Diversity, Equity and Inclusion Council (the \u201cCouncil\u201d) chaired by our Senior Vice President and Chief Human Resources Officer. The Council has developed a strategy where our diversity, inclusion and equity efforts are focused on strengthening four primary pillars: workforce, workplace, community and partnership. These pillars serve as a foundation for continually building and fostering an inclusive culture. We have also established certain employee resource groups (\u201cERGs\u201d) that each have executive sponsors, and are working to establish additional ERGs. These ERGs are not only being tasked with raising awareness, but also with offering mentoring and development opportunities to their members.\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A. \u2014 Risk Factors\n \n\n\n\u00a0\n\n\nOur future results and the market price for the common shares are subject to numerous risks, many of which are driven by factors that we cannot control or predict. The following discussion, as well as other sections of this Form 10-K, including \u201cPART II\u2014Item 7. \u2014 Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations,\u201d describe certain risks to our business, our results, our strategies and the common shares. Consideration should be given to the risk factors described below as well as those in the Safe Harbor Statement at the beginning of this Form 10-K, in conjunction with reviewing the forward-looking statements and other information contained in this Form 10-K. The risks described below are those that we have identified as material but are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies, such as market conditions, economic conditions, geopolitical events, changes in laws, rules, regulations or accounting rules, fluctuations in interest rates, terrorism, war or conflicts, major health concerns, natural disasters or other disruptions of expected business conditions.  Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, including our results of operations, liquidity and financial condition.\n\n\n\u00a0\n\n\nRisks Related to Our Business\n\n\n\u00a0\n\n\nGeneral Economic or Industry Downturns and Weakness\n\n\n\u00a0\n\n\nThe automotive and construction industries account for a significant portion of our net sales, and reduced demand from these industries could adversely affect our business.\n An overall downturn in the general economy, a disruption in capital and credit markets, high inflation, high unemployment, reduced consumer confidence or other factors, could cause reductions in demand from our end markets in general and, in particular, the automotive and construction end markets. If demand for the products we sell to the automotive, construction or other end markets which we supply were to be reduced, our sales, financial results and cash flows could be negatively affected.\n\n\n\u00a0\n\n\nWe face intense competition which may cause decreased demand, decreased market share and/or reduced prices for our products and services.\n Our businesses operate in industries that are highly competitive and have been subject to increasing consolidation of customers. Because of the range of the products and services we sell and the variety of markets we serve, we encounter a wide variety of competitors. Our failure to compete effectively and/or pricing pressures resulting from competition may adversely impact our businesses and financial results.\n\n\n\u00a0\n\n\nFinancial difficulties and bankruptcy filings by our customers could have an adverse impact on our businesses. \nIn past years, some customers have experienced, and some continue to experience, whether due to the COVID-19 pandemic, the war in Ukraine, inflationary pressures, or otherwise, challenging financial conditions. The financial difficulties of certain customers and/or their failure to obtain credit or otherwise improve their overall financial condition could result in changes within the markets we serve, including plant closings, decreased production, reduced demand, changes in product mix, unfavorable changes in the prices, terms or conditions we are able to obtain and other changes that may result in decreased purchases from us and otherwise negatively impact our businesses. These conditions also increase the risk that our customers may delay or default on their payment obligations to us. If the general economy or any of our markets decline, the risk of bankruptcy filings by and financial difficulties of our customers may increase. While we have taken and will continue to take steps intended to mitigate the impact of financial difficulties and potential bankruptcy filings by our customers, these matters could have a negative impact on our businesses.\n\n\n\u00a0\n\n\nRaw Material Pricing and Availability\n \n\n\n\u00a0\n\n\nOur operating results may be adversely affected by continued volatility in steel prices.\n Over the past three years, steel prices have increased significantly due to supplier consolidation, tight mill orders due to the COVID-19 pandemic, the war in Ukraine and tariffs on foreign steel. More recently, the volatility in the steel market resulted in steel prices rapidly decreasing before increasing again. If steel prices or other raw material prices were to decrease, competitive conditions or contractual obligations may impact how quickly we must reduce our prices to our customers, and we could be forced to use higher-priced raw materials then on hand to complete orders for which the selling prices have decreased, which results in inventory holding losses. Decreasing steel prices could also require us to write-down the value of our inventory to reflect current net realizable value.\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nOur operating results may be affected by fluctuations in raw material prices and our ability to pass on increases in raw material costs to our customers.\n Our principal raw material is flat-rolled steel, which we purchase from multiple primary steel producers. The steel industry as a whole has been cyclical, and at times availability and pricing can be volatile due to a number of factors beyond our control. These factors include general economic conditions, domestic and worldwide supply and demand, high inflation, the influence of hedge funds and other investment funds participating in commodity markets, curtailed production from major suppliers due to factors such as the closing or idling of facilities, COVID-19 or other pandemics, international conflicts, accidents or equipment breakdowns, repairs or catastrophic events, labor costs, shortages, strikes or other problems, competition, new laws and regulations, import duties, tariffs, energy costs, availability and cost of steel inputs (e.g., ore, scrap, coke and energy), foreign currency exchange rates and other factors described in the immediately following paragraph. This volatility, as well as any increases in raw material costs, could significantly affect our steel costs and adversely impact our financial results. To manage our exposure to market risk, where possible, we match our customer pricing terms to the pricing terms offered to us by our suppliers in order to minimize the impact of market fluctuations on our margins. However, should our suppliers increase the prices of our critical raw materials, we may not have alternative sources of supply. In addition, in an environment of increasing prices for steel and other raw materials, competitive conditions or contractual obligations may impact how much of the price increases we can pass on to our customers. To the extent we are unable to pass on future price increases in our raw materials to our customers, our financial results could be adversely affected.\n\n\n\u00a0\n\n\nThe costs of manufacturing our products and our ability to meet our customers\u2019 demands could be negatively impacted if we experience interruptions in deliveries of needed raw materials or supplies. \nIf, for any reason, our supply of flat-rolled steel or other key raw materials, such as aluminum, zinc, copper or helium, or other supplies is curtailed or we are otherwise unable to obtain the quantities we need at competitive prices, our business could suffer and our financial results could be adversely affected. Such interruptions could result from a number of factors, including a shortage of capacity in the supplier base of raw materials, energy or the inputs needed to make steel or other supplies, a failure of suppliers to fulfill their supply or delivery obligations, financial difficulties of suppliers resulting in the closing or idling of supplier facilities, other significant events affecting supplier facilities, significant weather events, those factors listed in the immediately preceding paragraph or other factors beyond our control like pandemics such as COVID-19. Further, the number of suppliers has decreased in recent years due to industry consolidation and the financial difficulties of certain suppliers, and this consolidation may continue.\n\n\n\u00a0\n\n\nAn increase in the spread between the price of steel and steel scrap prices can have a negative impact on our margins.\n No matter how efficient, our operations which use steel as a raw material, create some amount of scrap. The expected price of scrap compared to the price of the steel raw material is generally factored into pricing. Generally, as the price of steel increases, the price of scrap increases by a similar amount. When increases in scrap prices do not keep pace with the increases in the price of the steel raw material, it can have a negative impact on our margins.\n \n\n\n\u00a0\n\n\nInventories\n\n\n\u00a0\n\n\nOur businesses could be harmed if we fail to maintain proper inventory levels. \nWe are required to maintain sufficient inventories to accommodate the needs of our customers including, in many cases, short lead times and just-in-time delivery requirements. Although we typically have customer orders in hand prior to placement of our raw material orders for Steel Processing, we anticipate and forecast customer demand for each of our operating segments. We purchase raw materials on a regular basis in an effort to maintain our inventory at levels that we believe are sufficient to satisfy the anticipated needs of our customers based upon orders, customer volume expectations, historic buying practices and market conditions. Inventory levels in excess of customer demand may result in the use of higher-priced inventory to fill orders reflecting lower selling prices, if raw material prices have significantly decreased. For example, if steel prices decrease, we could be forced to use higher-priced steel then on hand to complete orders for which the selling price has decreased. These events could adversely affect our financial results. Conversely, if we underestimate demand for our products or if our suppliers fail to supply quality products in a timely manner, we may experience inventory shortages. Inventory shortages could result in unfilled orders, negatively impacting our customer relationships and resulting in lost revenues, which could harm our businesses and adversely affect our financial results.\n\n\n\u00a0\n\n\nCustomers and Suppliers\n\n\n\u00a0\n\n\nThe loss of significant volume from our key customers could adversely affect us. \nA significant loss of, or decrease in, business from any of our key customers could have an adverse effect on our sales and financial results if we cannot obtain replacement business. Also, due to consolidation in the industries we serve, including the automotive, construction and retail industries, our sales may be increasingly sensitive to deterioration in the financial condition of, or other adverse developments with respect to, one or more of our top customers. In addition, certain of our top customers may be able to exert pricing and other influences on us, requiring us to market, deliver and promote our products in a manner that may be more costly to us. We generally do not have long-term contracts with our customers. As a result, although our customers periodically provide notice of their future product needs and purchases, they generally purchase our products on an order-by-order basis, and the relationship, as well as particular orders, can be terminated at any time.\n\n\n\u00a0\n\n\n10\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u00a0\n\n\nMany of our key end markets, such as automotive and construction, are cyclical in nature.\n Many of our key end markets, such as automotive and construction, are cyclical and can be impacted by both market demand and raw material supply, particularly with respect to steel. The demand for our products is directly related to, and quickly impacted by, customer demand in our end markets, which can change as the result of changes in the general U.S. or worldwide economies and other factors beyond our control. Adverse changes in demand or pricing can have a negative effect on our businesses.\n\n\n\u00a0\n\n\nSignificant reductions in sales to any of the Detroit Three automakers, or to our automotive-related customers in general, could have a negative impact on our business. \nApproximately 52% of the fiscal 2023 net sales of our Steel Processing operating segment and a significant amount of the net sales of certain joint ventures are to automotive-related customers. Although we do sell to the domestic operations of foreign automakers and their suppliers, a significant portion of our automotive sales are to Ford, General Motors, and Stellantis North America (the \u201cDetroit Three automakers\u201d) and their suppliers. A reduction in sales for any of the Detroit Three automakers, as well as additional or prolonged idling of production facilities in response to supply chain constraints, has negatively impacted and could continue to negatively impact our business. In addition, certain automakers have begun using greater amounts of aluminum and smaller proportions of steel in some new models, thereby reducing the demand for certain of our products.\n\n\n\u00a0\n\n\nThe closing or relocation of customer facilities could adversely affect us.\n Our ability to meet delivery requirements and the overall cost of our products as delivered to customer facilities are important competitive factors. If customers close or move their production facilities further away from our manufacturing facilities which can supply them, it could have an adverse effect on our ability to meet competitive conditions, which could result in the loss of sales. Likewise, if customers move their production facilities outside the U.S., it could result in the loss of potential sales for us.\n\n\n\u00a0\n\n\nSales conflicts with our customers and/or suppliers may adversely impact us.\n In some instances, we may compete with one or more of our customers and/or suppliers in pursuing the same business. Such conflicts may strain our relationships with the parties involved, which could adversely affect our future business with them.\n\n\n\u00a0\n\n\nThe closing or idling of steel manufacturing facilities could have a negative impact on us. \nAs steel makers have reduced their production capacities by closing or idling production lines, whether due to COVID-19, the war in Ukraine or otherwise, the number of facilities from which we can purchase steel, in particular certain specialty steels, has decreased. Accordingly, if delivery from a supplier is disrupted, particularly with respect to certain types of specialty steel, it may be more difficult to obtain an alternate supply than in the past. These closures and disruptions could also have an adverse effect on our suppliers\u2019 on-time delivery performance, which could have an adverse effect on our ability to meet our own delivery commitments and may have other adverse effects on our businesses.\n\n\n\u00a0\n\n\nThe loss of key supplier relationships could adversely affect us. \nOver the years, we have developed relationships with certain steel and other suppliers which have been beneficial to us by providing more assured delivery and a more favorable all-in cost, which includes price and shipping costs. If any of those relationships were disrupted, it could have an adverse effect on delivery times and the overall cost, quality and availability of our products or raw materials, which could have a negative impact on our businesses. In addition, we do not have long-term contracts with any of our suppliers. If, in the future, we are unable to obtain sufficient amounts of steel and other materials at competitive prices and on a timely basis from our traditional suppliers, we may be unable to obtain these materials from alternative sources at competitive prices to meet our delivery schedules, which could have a material adverse impact on our results of operations.\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nOur businesses are highly competitive, and increased competition could negatively impact our financial results.\n Generally, the markets in which we conduct business are highly competitive. Our competitors include a variety of domestic and foreign companies in all major markets. Competition for most of our products is primarily on the basis of price, product quality and our ability to meet delivery requirements. Depending on a variety of factors, including raw material, energy, labor and capital costs, freight availability, government control of foreign currency exchange rates and government subsidies of foreign steel producers or competitors, our businesses may be materially adversely affected by competitive forces. Competition may also increase if suppliers to or customers of our industries begin to more directly compete with our businesses through new facilities, acquisitions or otherwise. As noted above, we can have conflicts with our customers or suppliers who, in some cases, supply the same products and services as we do. Increased competition could cause us to lose market share, increase expenditures, lower our margins or offer additional services at a higher cost to us, which could adversely impact our financial results.\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nMaterial or Component Substitution\n\n\n\u00a0\n\n\nIf steel prices increase compared to certain substitute materials, the demand for our products could be negatively impacted, which could have an adverse effect on our financial results.\n In certain applications, steel competes with other materials, such as aluminum (particularly in the automobile industry), cement and wood (particularly in the construction industry), composites, glass and plastic. Prices of all of these materials fluctuate widely, and differences between the prices of these materials and the price of steel may adversely affect demand for our products and/or encourage material substitution, which could adversely affect the prices of and demand for steel products. The higher cost of steel relative to certain other materials may make material substitution more attractive for certain uses.\n\n\n\u00a0\n\n\nIf increased government mileage and/or emissions standards for automobiles result in the substitution of other materials for steel, or electric motors for internal combustion engines, demand for our products could be negatively impacted, which could have an adverse effect on our financial results. \nDue to government requirements that manufacturers increase the fuel efficiency of automobiles, the automobile industry is exploring alternative materials to steel in order to decrease weight and increase mileage. In addition, in an effort to reduce emissions, the automobile industry is also shifting toward products that rely on electric motors instead of internal combustion engines. Although our product offerings include certain light weighting solutions and electric motor components, the substitution of lighter weight material for steel and/or electric motors for internal combustion engines in automobiles could adversely affect prices of and demand for our steel products.\n\n\n\u00a0\n\n\nFreight and Energy\n\n\n\u00a0\n\n\nIncreasing freight and energy costs could increase our operating costs or the costs of our suppliers, which could have an adverse effect on our financial results.\n The availability and cost of freight and energy, such as electricity, natural gas and diesel fuel, are important in the manufacture and transport of our products. Our operations consume substantial amounts of energy, and our operating costs generally increase when energy costs rise. Factors that may affect our energy costs include significant increases in fuel, oil or natural gas prices, unavailability of electrical power or other energy sources due to droughts, hurricanes or other natural causes or due to shortages resulting from insufficient supplies to serve customers, or interruptions in energy supplies due to equipment failure, international conflict or other causes. During periods of increasing energy and freight costs, we may be unable to fully recover our operating cost increases through price increases without reducing demand for our products. Our financial results could be adversely affected if we are unable to pass all of the cost increases on to our customers or if we are unable to obtain the necessary freight and/or energy. Also, increasing energy costs could put a strain on the transportation of our materials and products if the increased costs force certain transporters to discontinue their operations.\n\n\n\u00a0\n\n\nWe depend on third parties for freight services, and increases in the costs or the lack of availability of freight services can adversely affect our operations\n. We rely primarily on third parties for transportation of our products as well as delivery of our raw materials, primarily by truck and container ship. If, due to a lack of freight services, raw materials or products are not delivered to us in a timely manner, we may be unable to manufacture and deliver our products to meet customer demand. Likewise, if due to a lack of freight services, we cannot deliver our products in a timely manner, it could harm our reputation, negatively affect our customer relationships and have a material adverse effect on our results of operations. In addition, any increase in the cost of the transportation of raw materials or our products, as a result of increases in fuel or labor costs, higher demand for logistics services, international conflict or otherwise, may adversely affect our results of operations as we may not be able to pass such cost increases on to our customers.\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nThe COVID-19 Pandemic and Other Public Health Emergencies\n\n\n \n\n\nThe novel coronavirus (COVID-19) pandemic, as well as similar epidemics and other public health emergencies in the future, could have a material adverse effect on our business financial position, results of operations and cash flows. \nOur operations expose us to risks associated with pandemics, epidemics and other public health\n \nemergencies, such as the COVID-19 pandemic. Our operations were adversely impacted by the effects of the\n \nCOVID-19 pandemic in the form of lower demand from our automotive and heavy truck customers in fiscal 2020\n \ndue to the significant impacts of the various \u201cstay at home\u201d orders then in place and volatility in steel market\n \nprices in fiscal 2021 driven by idled mill capacity and supply chain disruptions. Further impacts of the\n \nCOVID-19 pandemic or other future public health emergencies may include, without limitation, potential\n \nsignificant volatility or continued decreases in the demand for our products, changes in customer and consumer\n \nbehavior and preferences, disruptions in or additional closures of our manufacturing operations or those of our\n \ncustomers and suppliers, disruptions within our supply chain, limitations on our employees\u2019 ability to work and\n \ntravel, potential financial difficulties of customers and suppliers, significant changes in economic or political\n \nconditions, and related volatility in the financial and commodity markets, including volatility in raw material and\n \nother input costs. The extent to which the COVID-19 pandemic, or other public health emergencies, impact our\n \nbusiness will depend on future developments, which cannot be predicted and are highly uncertain. Despite our\n \nefforts to manage the impacts, the degree to which the COVID-19 pandemic or future public health emergencies\n \nand related actions ultimately impact our business, financial position, results of operations and cash flows will\n \ndepend on factors beyond our control including the duration, extent and severity of any resurgence of COVID-19, the actions taken to contain COVID-19 or future public health emergencies and mitigate their public health effects, the impact on the U.S. and global economies and demand for our products, and to what extent normal economic and operating conditions resume. Future disruption to the global economy, as well as to the end markets our business serves, could result in material adverse effects on our business, financial position, results of operations and cash flows.\n\n\n\u00a0\n\n\nThe ongoing conflict between Russia and Ukraine may adversely affect our business and results of operations.\n\n\n \n\n\nSince early 2022, Russia and Ukraine have been engaged in active armed conflict\n. The length, impact and outcome of the ongoing conflict and its potential impact on our business is highly volatile and difficult to predict. It has and could continue to cause significant market and other disruptions (particularly for our operations in Europe), including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, trade disputes or trade barriers, changes in consumer or purchaser preferences, and increases in cyberattacks and espionage.\n\n\n\u00a0\n\n\nFurther, the broader consequences of the current conflict between Russia and Ukraine may also have the effect of heightening many other risks disclosed in our public filings, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, adverse effects on global macroeconomic conditions; increased volatility in the price and demand of iron, steel, oil, natural gas, and other commodities, increased exposure to cyberattacks; disruptions in global supply chains; and exposure to foreign currency fluctuations and potential constraints or disruption in the capital markets and our sources of liquidity.\n\n\n\u00a0\n\n\nWe do not conduct business, either directly or indirectly, in areas impacted by the conflict and, as such, we believe our exposure is principally limited to the impact of the war on macroeconomic conditions, including volatility in commodity and energy prices and supply. Our business was temporarily impacted in the spring of 2022, primarily in the form of higher market prices for steel due to a temporary supply disruption in a key input for our suppliers (pig iron), which has subsequently been resourced by our suppliers.\n\n\n \n\n\nInformation Systems\n\n\n\u00a0\n\n\nWe are subject to information system security risks and systems integration issues that could disrupt our operations. \nWe are dependent upon information technology and networks in connection with a variety of business activities including the distribution of information internally and to our customers and suppliers. This information technology is subject to potential damage or interruption from a variety of sources, including, without limitation, computer viruses, security breaches, and natural disasters. We could also be adversely affected by system or network disruptions if new or upgraded business management systems are defective, not installed properly or not properly integrated into operations. In addition, security breaches of our information systems could result in unauthorized disclosure or destruction of confidential or proprietary information, misappropriation of our assets, and/or loss of the functionality of our systems. These risks may be exacerbated by a partially remote workforce. Various measures have been implemented to manage our risks related to information system and network disruptions and to prevent attempts to gain unauthorized access to our information systems. While we undertake mitigating activities to counter these risks, a system or human failure could negatively impact our operations and financial results and cyberattacks could threaten the integrity of our trade secrets and sensitive intellectual property.\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nBusiness Disruptions\n\n\n\u00a0\n\n\nDisruptions to our business or the business of our customers or suppliers could adversely impact our operations and financial results\n.  Business disruptions, including materials resulting from shortages of supply or transportation, severe weather events (such as hurricanes, tsunamis, earthquakes, tornados, floods and blizzards), casualty events (such as explosions, fires or material equipment breakdown), acts of terrorism, international conflicts (such as the war in Ukraine), labor disruptions, the idling of facilities due to reduced demand (resulting from a downturn in economic activity or otherwise), pandemic disease such as COVID-19, or other events (such as required maintenance shutdowns), could cause interruptions to our businesses as well as the operations of our customers and suppliers. While we maintain insurance coverage that can offset some losses relating to certain types of these events, losses from business disruptions could have an adverse effect on our operations and financial results and we could be adversely impacted to the extent any such losses are not covered by insurance or cause some other adverse impact to us.\n\n\n\u00a0\n\n\nForeign Operations\n\n\n\u00a0\n\n\nEconomic, political and other risks associated with foreign operations could adversely affect our international financial results.\n Although the substantial majority of our business activity takes place in the U.S., we derive a portion of our revenues and earnings from operations in foreign countries, and we are subject to risks associated with doing business internationally. We have wholly-owned facilities in Austria, Canada, China, Germany, India, Mexico, Poland and Portugal and joint venture facilities in Brazil, Canada and Mexico and are active in exploring other foreign opportunities. The risks of doing business in foreign countries include, among other factors: the potential for adverse changes in the local political climate, in diplomatic relations between foreign countries and the U.S. or in government policies, laws or regulations; international conflicts; terrorist activity that may cause social disruption; logistical and communications challenges; costs of complying with a variety of laws and regulations; difficulty in staffing and managing geographically diverse operations; deterioration of foreign economic conditions; inflation and fluctuations in interest rates; foreign currency exchange rate fluctuations; foreign exchange restrictions; differing local business practices and cultural considerations; restrictions on imports and exports or sources of supply, including energy and raw materials; changes in duties, quotas, tariffs, taxes or other protectionist measures; and potential issues related to matters covered by the Foreign Corrupt Practices Act, regulations related to import/export controls, the Office of Foreign Assets Control sanctions program, anti-boycott provisions or similar laws. We believe that our business activities outside of the U.S. involve a higher degree of risk than our domestic activities, and any one or more of these factors could adversely affect our operating results and financial condition. In addition, global and regional economic conditions and the volatility of worldwide capital and credit markets have significantly impacted and may continue to significantly impact our foreign customers and markets. These factors may result in decreased demand in our foreign operations and have had significant negative impacts on our business. Refer to the \nGeneral Economic or Industry Downturns and Weakness\n risk factors herein for additional information concerning the impact of the global economic conditions and the volatility of capital and credit markets on our business.\n\n\n\u00a0\n\n\nJoint Ventures and Investments\n\n\n\u00a0\n\n\nA change in the relationship between the members of any of our joint ventures may have an adverse effect on that joint venture and our financial results\n. We have been successful in the development and operation of various joint ventures. We believe an important element in the success of any joint venture is a solid relationship between\n \nthe members of that joint venture. If there is a change in ownership, a change of control, a change in management\n \nor management philosophy, a change in business strategy or another event with respect to a member of a joint\n \nventure that adversely impacts the relationship between the joint venture members, it could adversely impact that\n \njoint venture and, therefore, adversely impact us. The other members in our joint ventures may also, as a result of financial or other reasons, be\n \nunable or unwilling to support actions that we believe are in the best interests of the respective joint ventures. In\n \naddition, joint ventures necessarily involve special risks. Whether or not we hold a majority interest or maintain\n \noperational control in a joint venture, the other members in our joint ventures may have economic or business\n \ninterests or goals that are inconsistent with our interests or goals. For example, because they are joint ventures,\n \nwe do not have full control of every aspect of the joint venture\u2019s business and/or certain significant decisions\n \nconcerning the joint venture, which may require certain approvals from the other members in our joint ventures,\n \nand the other members in our joint ventures may take action contrary to our policies or objectives with respect to our investments, or\n \nmay otherwise be unable or unwilling to support actions that we believe are in the best interests of the respective\n \njoint venture, each of which could have an adverse effect on that joint venture and our financial results.\n\n\n \n\n\n\u00a0\n\n\n14\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nAcquisitions\n\n\n\u00a0\n\n\nWe may be unable to successfully consummate, manage or integrate our acquisitions or our acquisitions may not meet our expectations. \nA portion of our growth has occurred through acquisitions. We may from time to time continue to seek attractive opportunities to acquire businesses, enter into joint ventures and make other investments that are complementary to our existing strengths. There are no assurances, however, that any acquisition opportunities will arise or, if they do, that they will be consummated, or that any needed additional financing for such opportunities will be available on satisfactory terms when required. In addition, acquisitions involve risks that the businesses acquired will not perform in accordance with expectations, that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect, that we may assume unknown liabilities from the seller, that the acquired businesses may not be integrated successfully and that the acquisitions may strain our management resources or divert management\u2019s attention from other business concerns. International acquisitions may present unique challenges and increase our exposure to the risks associated with foreign operations and countries. Also, failure to successfully integrate any of our acquisitions may cause significant operating inefficiencies and could adversely affect our operations and financial condition.  Even if the operations of an acquisition are integrated successfully, we may fail to realize the anticipated benefits of the acquisition, including the synergies, cost savings or growth opportunities that we expect. These benefits may not be achieved within the anticipated timeframe, or at all. Failing to realize the benefits could have a material adverse effect on our financial condition and results of operations.\n\n\n\u00a0\n\n\nCapital Expenditures and Capital Resources\n\n\n\u00a0\n\n\nOur business requires capital investment and maintenance expenditures, and our capital resources may not be adequate to provide for all of our cash requirements. \nMany of our operations are capital intensive. For the five-year period ended May 31, 2023, our total capital expenditures, including acquisitions and investment activity, were approximately $1.0 billion. Additionally, as of May 31, 2023, we were obligated to make aggregate operating and financing lease payments of $125.0 million and $6.0 million, respectively, under lease agreements. Our businesses also require expenditures for maintenance of our facilities. Additionally, growth in the electrical steel market will require a significant amount of strategic capital expenditures to meet market growth expectations. We currently believe that we have adequate resources (including cash and cash equivalents, cash provided by operating activities, and availability under existing credit facilities) to meet our cash needs for normal operating costs, capital expenditures, debt repayments, dividend payments, future acquisitions and working capital for our existing businesses. However, given the potential for challenges, uncertainty and volatility in the domestic and global economies and financial markets, there can be no assurance that our capital resources will be adequate to provide for all of our cash requirements.\n\n\n\u00a0\n\n\nLitigation\n\n\n\u00a0\n\n\nWe may be subject to legal proceedings or investigations, the resolution of which could negatively affect our results of operations and liquidity. \nOur results of operations or liquidity could be affected by an adverse ruling in any legal proceedings or investigations which may be pending against us or filed against us in the future. We are also subject to a variety of legal and compliance risks, including, without limitation, potential claims relating to product liability, product recall, privacy and information security, health and safety, environmental matters, intellectual property rights, taxes and compliance with U.S. and foreign export laws, anti-bribery laws, competition laws and sales and trading practices. While we believe that we have adopted appropriate risk management and compliance programs to address and reduce these risks, the global and diverse nature of our operations means that these risks will continue to exist and additional legal proceedings and contingencies may arise from time to time. An adverse ruling or settlement or an unfavorable change in laws, rules or regulations could have a material adverse effect on our financial condition, results of operations or liquidity.\n\n\n\u00a0\n\n\nClaims and Insurance\n\n\n\u00a0\n\n\nAdverse claims experience, to the extent not covered by insurance, may have an adverse effect on our financial results. \nWe self-insure most of our risks for product recall, cyber liability and pollution liability. We also self-insure a significant portion of our potential liability for workers\u2019 compensation, product liability, general liability, property liability, automobile liability and employee medical claims, and in order to reduce risk for these liabilities, we purchase insurance from highly-rated, licensed insurance carriers that cover most claims in excess of the applicable deductible or retained amounts. We also maintain reserves for the estimated cost to resolve certain open claims that have been made against us (which may include active product recall or replacement programs), as well as an estimate of the cost of claims that have been incurred but not reported. The occurrence of significant claims (including claims not covered by insurance or well in excess of insurance limits), our failure to adequately reserve for such claims, a significant cost increase to maintain our insurance or the failure of our insurance providers to perform could have an adverse impact on our financial condition and results of operations.\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nAccounting and Tax-Related Estimates\n\n\n\u00a0\n\n\nWe are required to make accounting and tax-related estimates, assumptions and judgments in preparing our consolidated financial statements, and actual results may differ materially from the estimates, assumptions and judgments that we use.\n In preparing our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (\u201cU.S. GAAP\u201d), we are required to make certain estimates and assumptions that affect the accounting for and recognition of assets, liabilities, revenues and expenses. These estimates and assumptions must be made because certain information that is used in the preparation of our consolidated financial statements is dependent on future events or cannot be calculated with a high degree of precision from data available to us. In some cases, these estimates and assumptions are particularly difficult to determine and we must exercise significant judgment. Some of the estimates, assumptions and judgments having the greatest amount of uncertainty, subjectivity and complexity are related to our accounting for bad debts, returns and allowances, inventory, self-insurance reserves, derivatives, stock-based compensation, deferred tax assets and liabilities and asset impairments. Our actual results may differ materially from the estimates, assumptions and judgments that we use, which could have a material adverse effect on our financial condition and results of operations.\n\n\n\u00a0\n\n\nOur internal controls could be negatively impacted if\n \na portion of our workforce continues to work remotely, as new processes, procedures, and controls could be required due to the changes in our business environment, which could negatively impact our internal control over financial reporting.\n\n\n\u00a0\n\n\nPrincipal Shareholder\n\n\n\u00a0\n\n\nThe principal shareholder of Worthington Industries may have the ability to exert significant influence in matters requiring a shareholder vote and could delay, deter or prevent a change in control of Worthington Industries. \nPursuant to the charter documents of Worthington Industries, certain matters such as those in which a person would attempt to acquire or take control of Worthington Industries, must be approved by the vote of the holders of common shares representing at least 75% of Worthington Industries\u2019 outstanding voting power. Approximately 35% of the outstanding common shares are beneficially owned, directly or indirectly, by John P. McConnell, our Executive Chairman. As a result of his beneficial ownership of these common shares, Mr. McConnell may have the ability to exert significant influence in these matters and other proposals upon which shareholders may vote.\n\n\n\u00a0\n\n\nEmployees\n\n\n\u00a0\n\n\nThe loss of, or inability to attract and retain, qualified personnel could adversely affect our business. \nOur ability to successfully operate, grow our business and implement our business strategies is largely dependent on the efforts, abilities and services of our employees. The loss of employees or our inability to attract, train and retain additional personnel could reduce the competitiveness of our business or otherwise impair our operations or prospects. Our future success will also depend, in part, on our ability to attract and retain qualified personnel, including engineers and other skilled technicians, who have experience in the application of our products and are knowledgeable about our business, markets and products.\n \n\n\n\u00a0\n\n\nIf we lose senior management or other key employees, our business may be adversely affected. \nWe cannot assure that we will be able to retain our existing senior management personnel or other key employees or attract additional qualified personnel when needed. The loss of any member of our management team could adversely impact our business and operations. We have not entered into any formal employment contracts with or other stand-alone change in control provisions relative to our executive officers. However, we do have certain change in control provisions in our various compensation plans. We may modify our management structure from time to time or reduce our overall workforce, which may create marketing, operational and other business risks.\n\n\n\u00a0\n\n\nCredit Ratings\n\n\n\u00a0\n\n\nRatings agencies may downgrade our credit ratings, which may make it more difficult for us to raise capital and could increase our financing costs. \nAny downgrade in our credit ratings may make raising capital more difficult, may increase the cost and affect the terms of future borrowings, may affect the terms under which we purchase goods and services and may limit our ability to take advantage of potential business opportunities. In addition, the interest rate on our revolving credit facility is tied to our credit ratings, and any downgrade of our credit ratings would likely result in an increase in the cost of borrowings under our revolving credit facility.\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nDifficult Financial Markets\n\n\n\u00a0\n\n\nIf we are required to raise capital in the future, we could face higher borrowing costs, less available capital, more stringent terms and tighter covenants or, in extreme conditions, an inability to raise capital. \nAlthough we currently have cash reserves, as well as adequate borrowing availability under our existing credit facilities and should be able to access other capital if needed, should those facilities become unavailable due to covenant or other defaults, or should financial markets tighten so that we otherwise cannot raise capital outside our existing facilities, or the terms under which we do so change, we may be negatively impacted. Any adverse change in our access to capital or the terms of our borrowings, including increased costs, could have a negative impact on our financial condition.\n\n\n\u00a0\n\n\nEnvironmental, Health and Safety\n\n\n\u00a0\n\n\nWe may incur additional costs related to environmental and health and safety matters. \nOur operations and facilities are subject to a variety of federal, state, local and foreign laws and regulations relating to the protection of the environment and human health and safety. Compliance with these laws and regulations and any changes therein may sometimes involve substantial operating costs and capital expenditures, and any failure to maintain or achieve compliance with these laws and regulations or with the permits required for our operations could result in increased costs and capital expenditures and potentially fines and civil or criminal sanctions, third-party claims for property damage or personal injury, cleanup costs or temporary or permanent discontinuance of operations. Over time, we and predecessor operators of our facilities have generated, used, handled and disposed of hazardous and other regulated wastes. Environmental liabilities, including cleanup obligations, could exist at our facilities or at off-site locations where materials from our operations were disposed of or at facilities we have divested, which could result in future expenditures that cannot be currently quantified and which could reduce our profits and cash flow. We may be held strictly liable for any contamination of these sites, and the amount of any such liability could be material. Under the \u201cjoint and several\u201d liability principle of certain environmental laws, we may be held liable for all remediation costs at a particular site, even with respect to contamination for which we are not responsible. In addition, changes in environmental and human health and safety laws, rules, regulations or enforcement policies could have a material adverse effect on our business, financial condition or results of operations.\n\n\n\u00a0\n\n\nSeasonality\n\n\n\u00a0\n\n\nOur operations have historically been subject to seasonal fluctuations that may impact our cash flows for a particular period. \nAlthough we experienced consistently strong demand for many of our products in each quarter of fiscal 2023, our sales are generally strongest in the fourth quarter of the fiscal year when all of our operating segments are normally operating at seasonal peaks, and our sales are generally weakest in the third quarter of the fiscal year, primarily due to reduced activity in the building and construction industry as a result of the colder, more inclement weather, as well as customer plant shutdowns in the automotive industry due to holidays. Our quarterly results may also be affected by the timing of large customer orders. Consequently, our cash flow from operations may fluctuate significantly from quarter to quarter. If, as a result of any such fluctuation, our quarterly cash flows were significantly reduced, we may be unable to service our indebtedness or maintain compliance with certain covenants under the documents governing our indebtedness. A default under any of the documents governing our indebtedness could prevent us from borrowing additional funds, limit our ability to pay interest or principal and allow our lenders to declare the amounts outstanding to be immediately due and payable and to exercise certain other remedies.\n\n\n\u00a0\n\n\nRisks Related to the Separation and Our Relationship with Worthington Steel\n\n\n\u00a0\n\n\nAs a separate, publicly-traded company, New Worthington may not enjoy the same benefits that we do when consolidated with Worthington Steel.\n\n\n\u00a0\n\n\nThere is a risk that, by separating Worthington Steel, New Worthington may become more susceptible to market fluctuations and other adverse events than if New Worthington and Worthington Steel remain combined. As a combined company, we have been able to enjoy certain benefits from our operating diversity, purchasing power and opportunities to pursue integrated strategies across our businesses. As separate, publicly-traded companies, New Worthington and Worthington Steel will not have similar diversity or integration opportunities and may not have similar purchasing power or access to capital markets.\n\n\n\u00a0\n\n\n\u00a0\n\n\n17\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nOur customers, prospective customers, suppliers or other companies with whom we conduct business may conclude that our financial stability as a separate, publicly-traded company is insufficient to satisfy their requirements for doing or continuing to do business with them.\n\n\n\u00a0\n\n\nSome of our customers, prospective customers, suppliers or other companies with whom we conduct business may conclude that our financial stability as a separate, publicly-traded company is insufficient to satisfy their requirements for doing or continuing to do business with them, or may require us to provide additional credit support, such as letters of credit or other financial guarantees. Any failure of parties to be satisfied with our financial stability could have a material adverse effect on our business, financial condition, results of operations and cash flows.\n\n\n\u00a0\n\n\nIf the distribution, together with certain related transactions, fails to qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the \u201cCode\u201d), New Worthington and its shareholders could incur significant tax liabilities.\n\n\n\u00a0\n\n\nThe distribution is conditioned upon, among other things, our receipt of an opinion of Latham & Watkins LLP, tax counsel to Worthington, regarding the qualification of the distribution, together with certain related transactions, as a reorganization under Sections 355 and 368(a)(1)(D) of the Code. The opinion of tax counsel will be based on, among other things, certain factual assumptions, representations and undertakings from New Worthington and Worthington Steel, including those regarding the past and future conduct of the companies\u2019 respective businesses and other matters. If any of these factual assumptions, representations, or undertakings are incorrect or not satisfied, we may not be able to rely on the opinion, and New Worthington and its shareholders could be subject to significant U.S. federal income tax liabilities. In addition, the opinion of tax counsel will not be binding on the U.S. Internal Revenue Service (the \u201cIRS\u201d) or the courts, and, notwithstanding the opinion of tax counsel, the IRS could determine on audit that the distribution does not so qualify or that the distribution should be taxable for other reasons, including as a result of a significant change in stock or asset ownership after the distribution.\n\n\n\u00a0\n\n\nIf the distribution is ultimately determined not to qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code, the distribution could be treated as a taxable disposition of common shares of Worthington Steel by New Worthington and as a taxable dividend or capital gain to the shareholders of New Worthington for U.S. federal income tax purposes. In such case, New Worthington and its shareholders that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities.\n \n\n\n\u00a0\n\n\nIn addition, we will undertake certain internal restructuring transactions in connection with the transfer of assets and liabilities to Worthington Steel in accordance with the separation agreement. Such internal restructuring transactions are intended to qualify as transactions that are generally tax-free for U.S. federal income tax purposes. If such internal restructuring transactions were to fail to qualify as transactions that are generally tax-free for U.S. federal income tax purposes, New Worthington and Worthington Steel could be subject to additional tax liabilities.\n\n\n\u00a0\n\n\nAfter the distribution, certain New Worthington executive officers and directors may have actual or potential conflicts of interest because of their equity interests in Worthington Steel.\n \n\n\n\u00a0\n\n\nBecause of their current or former positions with the Company, certain New Worthington executive officers and directors are expected to own equity interests in Worthington Steel. Ownership of common shares of Worthington Steel could create, or appear to create, potential conflicts of interest if we and Worthington Steel face decisions that could have implications for both Worthington Steel and New Worthington after the Separation.\n\n\n\u00a0\n\n\nWorthington Steel may compete with New Worthington.\n \n\n\n\u00a0\n\n\nWorthington Steel will not be restricted from competing with New Worthington. If Worthington Steel decides to engage in the type of business New Worthington conducts, it may be able to obtain a competitive advantage over New Worthington, which may cause New Worthington\u2019s business, financial condition and results of operations to be materially adversely affected.\n\n\n\u00a0\n\n\nWe may not achieve some or all of the expected benefits of the Separation, and the separation may adversely affect our business.\n\n\n\u00a0\n\n\nWe may not be able to achieve the full strategic and financial benefits expected to result from the Separation, or such benefits may be delayed or not occur at all. The Separation is expected to provide the following benefits, among others:\n\n\n\u00a0\n\n\n18\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u2022\nthe Separation will allow investors to separately value Worthington Steel and New Worthington based on our two distinct investment identities. The New Worthington business differs from Worthington Steel\u2019s business in several respects, such as the market for products and manufacturing processes. The Separation will enable investors to evaluate the merits, performance and future prospects of each company\u2019s respective businesses and to invest in each company separately based on their respective distinct characteristics;\n\n\n\u2022\nthe Separation will create an independent equity structure that will afford each company direct access to the capital markets and facilitate each company\u2019s ability to capitalize on its unique business and growth opportunities;\n\n\n\u2022\nthe Separation will facilitate incentive compensation arrangements for employees more directly tied to the performance of the relevant company\u2019s businesses, and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives;\n\n\n\u2022\nthe Separation will permit each company to concentrate its financial resources solely on its own operations without having to compete with each other for investment capital. This will provide each company with greater flexibility to invest capital in its businesses in a time and manner appropriate for its distinct strategy and business needs; and\n\n\n\u2022\nthe Separation will allow each company to more effectively pursue its distinct operating priorities and strategies and enable management of each company to focus on unique opportunities for long-term growth and profitability. The companies\u2019 separate management teams will also be able to focus on executing each company\u2019s differing strategic plans without diverting attention from the other\u2019s business.\n\n\n\u00a0\n\n\nThese and other anticipated benefits may not be achieved for a variety of reasons, including, among others:\n\n\n\u2022\nas a current part of Worthington, the New Worthington business benefits from Worthington\u2019s size and purchasing power in procuring certain goods, services and technologies. After the separation, as a separate entity, New Worthington may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those Worthington obtained prior to the separation. New Worthington may also incur costs for certain functions previously performed by Worthington, such as accounting, tax, legal, human resources and other general administrative functions that are higher than the amounts reflected in our historical financial statements, which could cause New Worthington\u2019s profitability to decrease;\n\n\n\u2022\nthe actions required to separate the companies\u2019 respective businesses could disrupt each company\u2019s operations;\n\n\n\u2022\ncertain costs and liabilities that were otherwise less significant to Worthington as a whole will be more significant for New Worthington and Worthington Steel as separate companies after the Separation;\n\n\n\u2022\nNew Worthington (and prior to the Separation, Worthington) will incur costs in connection with the transition to being a separate, publicly-traded company that may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring or reassigning personnel and costs to separate information systems; and\n\n\n\u2022\n(i) the Separation will require significant amounts of management\u2019s time and effort, which may divert management\u2019s attention from operating and growing our business, (ii) following the Separation, each company may be more susceptible to market fluctuations and other adverse events than if the companies were still combined and (iii) following the Separation, the companies\u2019 businesses will be less diversified than the combined businesses prior to the Separation.\n\n\n\u00a0\n\n\nIf some or all of the anticipated benefits from the Separation are not achieved as anticipated, or if such benefits are delayed, our business, operating results and financial condition could be adversely affected.\n\n\n\u00a0\n\n\nWe may have received better terms from unaffiliated third parties than the terms we will receive in our agreements with Worthington Steel.\n\n\n\u00a0\n\n\nThe agreements we will enter into with Worthington Steel in connection with the separation, including the separation agreement, transition services agreement, employee matters agreement, tax matters agreement and other commercial agreements were prepared in the context of the Separation while we were still a combined company. Accordingly, during the period in which the terms of those agreements were prepared, we did not have a separate or independent board of directors or a management team that was separate from or independent of Worthington Steel. As a result, the terms of those agreements may not reflect terms that would have resulted from arm\u2019s-length negotiations between unaffiliated third parties. Arm\u2019s-length negotiations between us and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms from the unaffiliated third party.\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n19\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nNew Worthington may fail to perform under various transaction agreements that will be executed as part of the Separation.\n\n\n\u00a0\n\n\nThe separation agreement and other agreements to be entered into in connection with the Separation will determine the allocation of assets and liabilities between New Worthington and Worthington Steel following the Separation and will include any necessary indemnifications related to liabilities and obligations. The transition services agreement will provide for the performance of certain services by each company for the benefit of the other for a period of time after the Separation. We will rely on Worthington Steel after the Separation to satisfy its performance and payment obligations under these agreements. If Worthington Steel is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses.\n \n\n\n\u00a0\n\n\nGeneral Risks\n\n\n\u00a0\n\n\nGeneral Economic or Industry Downturns and Weakness\n\n\n\u00a0\n\n\nOur industries are cyclical and weakness or downturns in the general economy or certain industries could have an adverse effect on our business. \nIf the domestic or global economies, or certain industry sectors of those economies that are key to our sales, contract or deteriorate, it could result in a corresponding decrease in demand for our products and negatively impact our results of operations and financial conditions.\n\n\n\u00a0\n\n\nVolatility in the U.S. and worldwide capital and credit markets could impact our end markets and result in negative impacts on demand, increased credit and collection risks and other adverse effects on our businesses. \nThe domestic and worldwide capital and credit markets have experienced significant volatility, disruptions and dislocations with respect to price and credit availability. These factors caused diminished availability of credit and other capital in our end markets, and for participants in, and the customers of, those markets. The effects of the financial crisis, recent bank failures, concerns over the economic impact of COVID-19, the war in Ukraine and inflationary pressures, continue to present risks to us, our customers or our suppliers. In particular, there is no guarantee that the credit markets or liquidity will not once again be restricted. Stricter lending standards may make it more difficult and costly for some firms to access the credit markets. Further, uncertainties in Europe, especially in light of the war in Ukraine, regarding the financial sector and sovereign debt and the potential impact on banks in other regions of the world will continue to weigh on global and domestic growth. Although we believe we have adequate access to several sources of contractually committed borrowings and other available credit facilities, these risks could restrict our ability to borrow money on acceptable terms in the credit markets and potentially affect our ability to draw on our credit facilities. In addition, restricted access to the credit markets could make it difficult, or in some cases, impossible for our suppliers and customers to borrow money to fund their operations. Lack of, or limited access to, capital would adversely affect our suppliers to produce the materials we need for our operations and our customers\u2019 ability to purchase our products or, in some cases, to pay for our products on a timely basis.\n\n\n\u00a0\n\n\nTax Laws and Regulations\n\n\n\u00a0\n\n\nTax increases or changes in tax laws or regulations could adversely affect our financial results. \nWe are subject to tax and related obligations in the jurisdictions in which we operate or do business, including state, local, federal and non-U.S. taxes. The taxing rules of the various jurisdictions in which we operate or do business often are complex and subject to varying interpretations. Tax authorities may challenge tax positions that we take or historically have taken and may assess taxes where we have not made tax filings or may audit the tax filings we have made and assess additional taxes. Some of these assessments may be substantial, and also may involve the imposition of penalties and interest.\n\n\n\u00a0\n\n\nIn addition, governments could change their existing tax laws, impose new taxes on us or increase the rates at which we are taxed in the future. The payment of substantial additional taxes, penalties or interest resulting from tax assessments, or the imposition of any new taxes, could materially and adversely impact our results of operations and financial condition. For example, President Biden has previously proposed to increase the federal corporate income tax rate and, if any such proposal were to be adopted, then the increase in the federal corporate income tax rate would adversely affect our results of operations in future periods.\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nLegislation and Regulations\n\n\n\u00a0\n\n\nCertain proposed legislation and regulations may have an adverse impact on the economy in general and in our markets specifically, which may adversely affect our businesses.\n Our businesses may be negatively impacted by a variety of new or proposed legislation or regulations. For example, legislation and regulations proposing increases in taxation on, or heightened regulation of, greenhouse gas emissions may result in higher prices for steel, higher prices for utilities required to run our facilities, higher fuel costs for us and our suppliers and distributors, limitations on our ability to produce, use or sell certain products and other adverse impacts. To the extent that new legislation or regulations increase our costs, we may not be able to fully pass these costs on to our customers without a resulting decline in sales and adverse impact to our profits. Likewise, to the extent new legislation or regulations would have an adverse effect on the economy, our markets or the ability of domestic businesses to compete against foreign operations, we could also be adversely impacted.\n\n\n\u00a0\n\n\nChanges to global data privacy laws and cross-border transfer requirements could adversely affect our businesses and operations. \nOur businesses depend on the transfer of data between our affiliated entities, to and from our business partners, and with third-party service providers, which may be subject to global data privacy laws and cross-border transfer restrictions. In particular, the European Union has implemented the General Data Protection Regulation (\u201cGDPR\u201d), which contains numerous requirements that must be complied with in connection with how we handle personal data related to our European-based operations and employees. A number of U.S. states have also introduced and passed legislation to expand data breach notification rules and to mirror some of the protections provided by GDPR. While we take steps to comply with these legal requirements, the volatility and changes to the applicability of those laws may impact our ability to effectively transfer data across borders in support of our business operations. Compliance with GDPR, or other regulatory standards, could also increase our cost of doing business and/or force us to change our business practices in a manner adverse to our businesses. In addition, violations of GDPR, or other privacy regulations, may result in significant fines, penalties and damage to our brands and businesses which could, individually or in the aggregate, materially harm our businesses and reputation.\n\n\n\u00a0\n\n\nSignificant changes to the U.S. federal government\u2019s trade policies, including new tariffs or the renegotiation or termination of existing trade agreements and/or treaties, may adversely affect our financial performance. \nIn recent years, the U.S. federal government has altered U.S. international trade policy and has indicated its intention to renegotiate or terminate certain existing trade agreements and treaties with foreign governments. The U.S. federal government\u2019s decision to implement new trade agreements, and/or withdraw or materially modify other existing trade agreements or treaties may adversely impact our business, customers and/or suppliers by disrupting trade and commercial transactions and/or adversely affect the U.S. economy or specific portions thereof.  Further, it is uncertain what impact COVID-19 and the reactions of governmental authorities and others thereto will have on international trade and what impact any changes in international trade will have on the economy or on the businesses of the Company and those of its customers and its suppliers.\n\n\n\u00a0\n\n\nAdditionally, the U.S. federal government has imposed tariffs on certain foreign goods, including on certain steel products imported into the U.S. Although such steel tariffs may benefit portions of our business, these tariffs, as well as country-specific or product-specific exemptions, may also lead to steel price fluctuations and retaliatory actions from foreign governments and/or modifications to the purchasing patterns of our customers that could adversely affect our business or the steel industry as a whole. In particular, certain foreign governments, including Canada, China and Mexico, as well as the European Union, have instituted or are considering imposing tariffs on certain U.S. goods, which previously contributed to increased raw material prices, but did not have a significant or recurring impact on our business. Restrictions on trade with foreign countries, imposition of customs duties or further modifications to U.S. international trade policy have the potential to disrupt our supply chain or the supply chains of our customers and to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof, potentially leading to negative effects on our business.\n\n\n\u00a0\n\n\nImpairment Charges\n\n\n\u00a0\n\n\nWeakness or instability in the general economy, our markets or our results of operations could result in future asset impairments, which would reduce our reported earnings and net worth. \nEconomic conditions remain fragile in some markets and the possibility remains that the domestic or global economies, or certain industry sectors that are key to our sales, may deteriorate. If certain of our operating segments are adversely affected by challenging economic and financial conditions, we may be required to record future impairments, which would negatively impact our results of operations.\n\n\n\u00a0\n\n",
+  "item7": ">Item 7. \u2013 Management\u2019s Discussion and Analysis o\nf Financial Condition and Results of Operations\n\n\n\u00a0\n\n\nSelected statements contained in this \u201cItem 7. \u2013 Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d (\u201cMD&A\u201d) constitute forward-looking statements, as that term is used in the PSLRA. Such forward-looking statements are based, in whole or in part, on management\u2019s beliefs, estimates, assumptions and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the \u201cSafe Harbor Statement\u201d in the beginning of this Form 10-K and \u201cPart I - Item 1A. - Risk Factors\u201d of this Form 10-K.\n\n\n\u00a0\n\n\nThis MD&A should be read in conjunction with our consolidated financial statements and the related Notes in this Form 10-K. This MD&A is designed to provide a reader with material information relevant to an assessment of our financial condition and results of operations and to allow investors to view the Company from the perspective of management. This MD&A is divided into seven main sections:\n\n\n\u00a0\n\n\n\u2022\nSeparation from the Steel Processing Business;\n\n\n\u2022\nBusiness Overview;\n\n\n\u2022\nRecent Business Developments;\n\n\n\u2022\nTrends and Factors Impacting our Performance;\n\n\n\u2022\nResults of Operations;\n\n\n\u2022\nLiquidity and Capital Resources; and\n\n\n\u2022\nCritical Accounting Estimates\n\n\n\u00a0\n\n\nSeparation from the Steel Processing Business\n\n\n\u00a0\n\n\nOn September 29, 2022, we announced our intention to complete the Separation, a spin-off of Worthington Steel, our existing Steel Processing business, into a stand-alone publicly traded company through a generally tax-free pro rata distribution of 100% of the common shares of Worthington Steel to Worthington Industries\u2019 shareholders. New Worthington, the remaining company, is expected to be comprised of our Consumer Products, Building Products and Sustainable Energy Solutions operating segments. While we currently intend to effect the distribution, subject to satisfaction of certain conditions, we have no obligation to pursue or consummate any dispositions of our ownership interest in Worthington Steel, including through the completion of the distribution, by any specified date or at all. The distribution is subject to various conditions, including final approval by the Board; the transfer of assets and liabilities to Worthington Steel in accordance with the separation agreement; due execution and delivery of the agreements relating to the Separation; no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition in effect preventing the consummation of the Separation, the distribution or any of the related transactions; acceptance for listing on the NYSE of the common shares of Worthington Steel to be distributed, subject to official notice of distribution; completion of financing, and no other event or development having occurred or being in existence that, in the judgment of the Board, in its sole discretion, makes it inadvisable to effect the Separation, the distribution or the other related transactions.\n\n\n \n\n\nBusiness Overview\n\n\n\u00a0\n\n\nWe are an industrial manufacturing company focused on value-added steel processing and manufactured consumer, building, and sustainable mobility products. Our manufactured products include: pressure cylinders for LPG, CNG, hydrogen, oxygen, refrigerant and other industrial gas storage; water well tanks for commercial and residential uses; hand torches and filled hand torch cylinders; propane-filled camping cylinders; helium-filled balloon kits; specialized hand tools and instruments; and drywall tools and related accessories; and, through our joint ventures, complete ceiling grid solutions; laser welded blanks; light gauge steel framing for commercial and residential construction; and engineered cabs, operator stations and cab components.\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nWe own controlling interests in the following consolidated operating joint ventures: Spartan, Samuel and TWB. We also own a controlling interest in WSP, which became a non-operating joint venture on October 31, 2022, when we completed the sale of the remaining net assets of the WSP joint venture. The net assets and operating results of these four joint ventures are consolidated with the equity owned by the minority joint venture member shown as \u201cnoncontrolling interests\u201d in our consolidated balance sheets, and the noncontrolling interest in net earnings and other comprehensive income (loss) (\u201cOCI\u201d) shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. Our remaining joint ventures, ClarkDietrich, Serviacero Worthington, WAVE and Workhorse, are unconsolidated and accounted for using the equity method. Our noncontrolling investment in ArtiFlex is also accounted for under the equity method, on a historical basis, through its divestiture on August 3, 2022, as discussed further under \nRecent Business Developments\n.\n \n\n\n \n\n\nOur operations are managed on a product and services basis and, in the case of our manufactured products, are organized around the key end markets. Our management structure consists of four reportable operating segments: Steel Processing, Consumer Products, Building Products, and Sustainable Energy Solutions. A discussion of each reportable segments is provided below:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nReportable Segments\n\n\nDescription\n\n\n\n\n\n\nSteel Processing\n\n\nThis segment is a value-added processor of carbon flat-rolled steel, a producer of laser welded solutions, and a provider of electrical steel laminations. This segment provides a diversified range of products and services that span a variety of end markets. It serves its customers primarily by processing flat-rolled steel coils, which it sources primarily from various North American integrated steel mills and mini-mills, into the precise type, thickness, length, width, shape, and surface quality required by customer specifications. It can sell steel on a direct basis, whereby it is exposed to the risk and rewards of ownership of the material while in our possession. Alternatively, it can also toll process steel under a fee for service arrangement whereby it processes customer-owned material. Its manufacturing facilities further benefit from the flexibility to scale between direct versus tolling services based on demand dynamics throughout the year. Steel Processing includes the operations of our three consolidated operating joint ventures (Spartan, Samuel and TWB) as well as our unconsolidated operating joint venture (Serviacero Worthington).\n \n\n\n\n\n\n\nConsumer Products\n\n\nThis segment consists of products in the tools, outdoor living and celebrations end markets with owned and licensed brands that include Coleman\u00ae, Bernzomatic\u00ae, Balloon Time\u00ae, Mag-Torch\u00ae, General\u00ae, Garden-Weasel\u00ae, Pactool International\u00ae, Hawkeye\u0099, Worthington Pro Grade\u0099 and Level5\u00ae. These include propane-filled cylinders for torches, camping stoves and other applications, certain LPG cylinders, handheld torches, helium-filled balloon kits, specialized hand tools and instruments, and drywall tools and accessories sold primarily to mass merchandisers, retailers and distributors. LPG cylinders, which hold fuel for barbeque grills and recreational vehicle equipment, are also sold through cylinder exchangers.\n\n\n\n\n\n\nBuilding Products\n\n\nThis segment sells refrigerant and LPG cylinders, well water and expansion tanks, and other specialty products which are generally sold to gas producers, and distributors. Refrigerant gas cylinders are used to hold refrigerant gases for commercial, residential, and automotive air conditioning and refrigeration systems. LPG cylinders hold fuel for residential and light commercial heating systems, industrial forklifts and commercial/residential cooking (the latter, generally outside North America). Well water tanks and expansion tanks are used primarily in the residential market with certain products also sold to commercial markets. Specialty products include a variety of fire suppression tanks, chemical tanks, and foam and adhesive tanks. Building Products also includes the results of two of our unconsolidated operating joint ventures (ClarkDietrich and WAVE).\n\n\n\n\n\n\nSustainable Energy Solutions\n\n\nThis segment, which is primarily based in Europe, sells onboard fueling systems and related services, as well as gas containment solutions and services for the storage, transport and distribution of industrial gases. Sustainable Energy Solutions operates three manufacturing facilities located in Austria, Germany, and Poland. This segment\u2019s products and services include high pressure and acetylene cylinders for life support systems and alternative fuel cylinders used to hold CNG and hydrogen for automobiles, buses, and light-duty trucks. Sustainable Energy Solutions has a number of foreign and domestic competitors in these markets.\n \n\n\n\n\n\n\n\u00a0\n\n\n28\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nOther\n\n\nCertain income and expense items incurred at the corporate level but not allocated to our operating segments are included in the \u201cOther\u201d category and consist primarily of expenses and reserves associated with our self-insurance programs, including risks associated with product, cyber, environmental, workers\u2019 compensation, and healthcare liabilities. Other also includes the results of our unconsolidated engineered cabs operating joint venture (Workhorse) as well as the results of ArtiFlex, on a historical basis, through its divestiture on August 3, 2022. Divested businesses that are no longer included in our management structure are also included in the \u201cOther\u201d category, including the following (through the date of disposal): Structural Composites Industries, LLC (\u201cSCI\u201d) (March 2021); Oil & Gas Equipment (January 2021); and Cryogenic Storage and Cryo-Science (October 2020).\n\n\n\n\n\n\n\u00a0\n\n\nRecent Business Developments\n\n\n\u2022\nOn June 2, 2022, we acquired Level5, a leading provider of drywall tools and related accessories. The total purchase price was approximately $56.1 million, with a potential earnout payment based on performance through calendar year 2024. Refer to \u201cNote Q \u2013 Acquisitions\u201d for additional information.\n\n\n\u2022\nOn August 3, 2022, we sold our 50% noncontrolling equity interest in ArtiFlex to the unaffiliated joint venture member for net proceeds of approximately $41.8 million, after adjustments for closing debt and final net working capital. Approximately $6.0 million of the total cash proceeds were attributed to real property in Wooster, Ohio, with a net book value of $6.3 million. This real property was owned by us and leased to ArtiFlex prior to closing of the transaction. During fiscal 2023, we recognized a pre-tax loss of $16.1 million in equity income related to the sale.\n\n\n\u2022\nOn September 29, 2022, we announced that the Board approved a plan to pursue the Separation of our Steel Processing business which we expect to complete by early 2024. This plan is referred to as \u201cWorthington 2024.\u201d Worthington 2024 will result in two independent, publicly-traded companies that are more specialized and fit-for-purpose, with enhanced prospects for growth and value creation. We plan to effect the Separation via a pro rata distribution of the common shares of Worthington Steel, which is expected to be tax-free to Worthington Industries\u2019 shareholders for U.S. federal income tax purposes. Refer to \u201cNote A \u2013 Summary of Significant Accounting Policies\u201d for additional information.\n\n\n\u2022\nOn October 31, 2022, our consolidated joint venture, WSP, sold its remaining manufacturing facility, located in Jackson, Michigan, for net proceeds of approximately $21.3 million, resulting in a pre-tax gain of $3.9 million within restructuring and other (income) expense, net. Refer to \u201cNote F \u2013 Restructuring and Other (Income) Expense, Net\u201d for additional information.\n\n\n\u2022\nOn January 5, 2023, we announced the implementation of a Board transition plan, pursuant to which John H. McConnell II was appointed as a member of the Board, effective on January 4, 2023. As previously disclosed on January 4, 2023, John P. McConnell, Executive Chairman of Worthington Industries, notified the Board that he intended to step down from the Board in June 2023. On June 28, 2023, John P. McConnell notified the Board that he intends to defer his retirement and will remain on the Board to continue providing leadership in preparation for the planned Separation. The effective date of John P. McConnell\u2019s retirement has not been fixed.\n\n\n\u2022\nOn February 2, 2023, we announced the senior leadership teams for New Worthington and Worthington Steel which will be effective upon the completion of the planned Separation.\n\n\n\u2022\nOn June 28, 2023, the Board declared a quarterly dividend of $0.32 per common share payable on September 29, 2023, to shareholders of record on September 15, 2023.\n\n\n\u2022\nOn June 29, 2023, we terminated our revolving trade accounts receivable securitization facility allowing us to borrow up to $175.0 million (the \u201cAR Facility\u201d). See \u201cNote I \u2013 Debt and Receivables Securitization\u201d and \u201cNote V \u2013 Subsequent Events\u201d for additional information. \n\n\n\u2022\nOn July 28, 2023, we redeemed in full our $243.6 million aggregate principal amount of senior unsecured notes due April 15, 2026 (the \u201c2026 Notes\u201d). See \u201cNote I \u2013 Debt and Receivables Securitization\u201d and \u201cNote V \u2013 Subsequent Events\u201d for additional information. \n\n\n\u00a0\n\n\n\u00a0\n\n\n29\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nTrends and Factors Impacting our Performance\n\n\n\u00a0\n\n\nThe industries in which we participate are fragmented and highly competitive. Given the broad base of products and services offered, specific competitors vary based on the target industry, product type, service type, size of program and geography. Competition is primarily on the basis of price, product quality and the ability to meet delivery requirements. Our products are priced competitively, primarily based on market factors, including, among other things, market pricing, the cost and availability of raw materials, transportation and shipping costs, and overall economic conditions in the U.S. and abroad.\n\n\n\u00a0\n\n\nGeneral Economic and Market Conditions\n\n\nWe sell our products and services to a diverse customer base and a broad range of end markets. The breakdown of our net sales by end market for fiscal 2023 and fiscal 2022 is illustrated in the following chart:\n\n\n\u00a0\n\n\n\u00a0\n\n\nThe automotive industry is one of the largest consumers of flat-rolled steel, and thus the largest end market for our Steel Processing operating segment. Approximately 52% of Steel Processing\u2019s net sales are to the automotive market. North American vehicle production, primarily by the Detroit Three automakers, has a considerable impact on the activity within the Steel Processing operating segment. The majority of the net sales of one of our unconsolidated joint ventures, Serviacero Worthington, is also to the automotive market.\n\n\n\u00a0\n\n\nApproximately 13% of the net sales in our Steel Processing operating segment are to the construction market. The construction market is also the predominant end market for our unconsolidated joint ventures within the Building Products operating segment, WAVE and ClarkDietrich. While the market price of steel significantly impacts these businesses, there are other key indicators that are meaningful in analyzing construction market demand, including the U.S. gross domestic product (\u201cU.S. GDP\u201d), the Dodge Index of construction contracts and, in the case of ClarkDietrich, trends in the relative prices of framing lumber and steel.\n\n\n\u00a0\n\n\nOur remaining net sales are to other markets such as agricultural, appliance, container, energy, heavy-truck, HVAC, and, with the fiscal 2022 addition of Tempel, the industrial electric motor, generator, and transformer industries. Given the many different products that make up these remaining net sales and the wide variety of end markets, it is very difficult to detail the key market indicators that drive this portion of our business. However, we believe that the trend in U.S. GDP growth is a good economic indicator for analyzing the demand of these end markets.\n\n\n\u00a0\n\n\n30\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u00a0\n\n\nU.S. GDP growth rate trends are generally indicative of the strength in demand and, in many cases, pricing for our products. A year-over-year increase in U.S. GDP growth rates is generally indicative of a stronger economy, which generally increases demand and pricing for our products. Conversely, declining U.S. GDP growth rates generally indicate a weaker economy, which generally decreases demand and pricing for our products. Changes in U.S. GDP growth rates can also signal changes in conversion costs related to production and in selling, general, and administrative expense (\u201cSG&A\u201d).\n\n\n\u00a0\n\n\nInflation has accelerated and government deficits and debt levels remain at high levels in many major markets. In the U.S., inflation rose at an annual rate of 4.0% in May 2023, down from 8.6% in May 2022. Inflationary pressures have been felt across our business in the form of higher input and conversion costs as well as higher overall SG&A expense. The U.S. Federal Reserve Board has pushed interest rates to the highest level in more than 15 years in an attempt to slow growth and reduce inflation. Rising interest rates could cause a significant economic downturn and impact various of the end markets that we serve as well as overall domestic steel demand. Despite the economic headwinds presented by a rising interest rate environment, demand remains steady in most of our end markets.\n\n\n\u00a0\n\n\nWe use the following information from the past three fiscal years to monitor our costs and demand in our major end markets:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023 vs. 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022 vs. 2021\n\n\n\u00a0\n\n\n\n\n\n\nU.S. GDP (% growth year-over-year) \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3.7\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.6\n\n\n%\n\n\n\n\n\n\nHot-Rolled Steel ($ per ton) \n(2)\n\n\n\u00a0\n\n\n$\n\n\n889\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,588\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n869\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(699\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n719\n\n\n\u00a0\n\n\n\n\n\n\nDetroit Three Auto Build (000's vehicles) \n(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,906\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,164\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,808\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n742\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(644\n\n\n)\n\n\n\n\n\n\nNo. America Auto Build (000's vehicles) \n(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,910\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,225\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,813\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,685\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,588\n\n\n)\n\n\n\n\n\n\nZinc ($ per pound) \n(4)\n\n\n\u00a0\n\n\n$\n\n\n1.40\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1.56\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1.15\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(0.16\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n0.41\n\n\n\u00a0\n\n\n\n\n\n\nNatural Gas ($ per mcf) \n(5)\n\n\n\u00a0\n\n\n$\n\n\n5.22\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.92\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2.49\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.30\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2.43\n\n\n\u00a0\n\n\n\n\n\n\nOn-Highway Diesel Fuel Prices ($ per gallon) \n(6)\n\n\n\u00a0\n\n\n$\n\n\n4.80\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3.99\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3.17\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.81\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.82\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n(1)\n \n2022 and 2021 figures based on revised actuals\n\n\n(2)\nCRU Hot-Rolled Index; period average\n\n\n(3)\nIHS Global (S&P)\n\n\n(4)\nLME Zinc; period average\n\n\n(5)\nNYMEX Henry Hub Natural Gas; period average\n\n\n(6)\nEnergy Information Administration; period average\n\n\n\u00a0\n\n\nSales to one Steel Processing customer in the automotive industry represented 11.9% and 13.2% of our consolidated net sales during fiscal 2023 and fiscal 2022, respectively. While our automotive business is largely driven by the production schedules of the Detroit Three automakers, our customer base is much broader and includes other domestic manufacturers and many of their suppliers. During fiscal 2023, vehicle production for the Detroit Three automakers was up 12%, while overall North American vehicle production was up 13%.\n\n\n\u00a0\n\n\nImpact of Raw Material Prices\n\n\n\u00a0\n\n\nThe market price of hot-rolled steel is one of the most significant factors impacting our selling prices and operating results. The steel industry as a whole has been cyclical, and at times availability and pricing can be volatile due to a number of factors beyond our control. This volatility can significantly affect our steel costs. In an environment of increasing prices for steel and other raw materials, competitive conditions or contractual obligations may impact how much of the price increases we can pass on to our customers. To the extent we are unable to pass on future price increases in our raw materials to our customers, our financial results could be adversely affected. Also, if steel prices decrease, in general, competitive conditions or contractual obligations may impact how quickly we must reduce our prices to our customers, and we could be forced to use higher-priced raw materials in our inventories to complete orders for which the selling prices have decreased. Declining steel prices could also require us to write-down the value of our inventories to reflect current market pricing. Further, the number of suppliers has decreased in recent years due to industry consolidation and the financial difficulties of certain suppliers, and consolidation may continue. Accordingly, if delivery from a major steel supplier is disrupted, it may be more difficult to obtain an alternative supply than in the past.\n\n\n\u00a0\n\n\nThe market price of our products is closely related to the price of Hot Rolled Coil (\u201cHRC\u201d). The benchmark price for HRC is primarily affected by the demand for steel and the cost of raw materials. Over the past three years, steel prices have increased significantly due to supplier consolidation, tight mill orders due to the COVID-19 pandemic, the war in Ukraine and tariffs on foreign steel. More recently, steel prices rapidly decreased before increasing again.\n\n\n \n\n\n\u00a0\n\n\n31\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nTo manage our exposure to market risk, we attempt to negotiate the best prices for steel and to competitively price products and services to reflect the fluctuations in market prices. We have used derivative financial instruments to manage a portion of our exposure to fluctuations in the cost of certain steel. These derivative financial instruments covered periods commensurate with known or expected exposures throughout fiscal 2023. The derivative financial instruments were executed with highly rated financial institutions.\n\n\n\u00a0\n\n\nThe following table presents the average quarterly market price per ton of hot-rolled steel during each of the past three fiscal years.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(Dollars per ton) \n(1)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n1st Quarter\n\n\n\u00a0\n\n\n$\n\n\n978\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,762\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n475\n\n\n\u00a0\n\n\n\n\n\n\n2nd Quarter\n\n\n\u00a0\n\n\n$\n\n\n742\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,888\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n625\n\n\n\u00a0\n\n\n\n\n\n\n3rd Quarter\n\n\n\u00a0\n\n\n$\n\n\n720\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,421\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,016\n\n\n\u00a0\n\n\n\n\n\n\n4th Quarter\n\n\n\u00a0\n\n\n$\n\n\n1,116\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,280\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,358\n\n\n\u00a0\n\n\n\n\n\n\nAnnual Avg.\n\n\n\u00a0\n\n\n$\n\n\n889\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,588\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n869\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n(1)\nCRU Hot-Rolled Index \n\n\n\u00a0\n\n\nNo matter how efficient, our operations, which use steel as a raw material, create some amount of scrap. The expected price of scrap compared to the price of the steel raw material is factored into pricing. Generally, as the price of steel increases, the price of scrap increases by a similar amount. When increases in scrap prices do not keep pace with the increases in the price of the steel raw material, it can have a negative impact on our margins.\n\n\n\u00a0\n\n\nCertain other commodities, such as copper, zinc, natural gas, helium and diesel fuel, represent a significant portion of our cost of goods sold, both directly through our plant operations and indirectly through transportation and freight expense.\n\n\n\u00a0\n\n\nResults of Operations\n\n\n\u00a0\n\n\nFiscal 2023 Compared to Fiscal 2022\n\n\n\u00a0\n\n\nThe tables throughout this section present, on a comparative basis, our consolidated results of operations for the past two fiscal years.\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions, except per common share amounts)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease/\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n4,916.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,242.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(325.8\n\n\n)\n\n\n\n\n\n\nOperating income\n\n\n\u00a0\n\n\n\u00a0\n\n\n212.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n329.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(116.9\n\n\n)\n\n\n\n\n\n\nEquity income\n\n\n\u00a0\n\n\n\u00a0\n\n\n161.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n213.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(52.6\n\n\n)\n\n\n\n\n\n\nNet earnings attributable to controlling interest\n\n\n\u00a0\n\n\n\u00a0\n\n\n256.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n379.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(122.9\n\n\n)\n\n\n\n\n\n\nEarnings per diluted common share attributable to controlling interest\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.19\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.44\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2.25\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\nNet Sales and Volume\n\n\n\u00a0\n\n\nThe following table provides a breakdown of consolidated net sales by operating segment, along with the respective percentage of the total of each, for the past two fiscal years.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease/\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\nSteel Processing\n\n\n\u00a0\n\n\n$\n\n\n3,497.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71.1\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n3,933.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n75.0\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n(435.1\n\n\n)\n\n\n\n\n\n\nConsumer Products\n\n\n\u00a0\n\n\n\u00a0\n\n\n686.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n636.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n49.8\n\n\n\u00a0\n\n\n\n\n\n\nBuilding Products\n\n\n\u00a0\n\n\n\u00a0\n\n\n586.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n541.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n44.3\n\n\n\u00a0\n\n\n\n\n\n\nSustainable Energy Solutions\n\n\n\u00a0\n\n\n\u00a0\n\n\n146.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n130.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.2\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Consolidated Net Sales\n\n\n\u00a0\n\n\n$\n\n\n4,916.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n5,242.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n(325.8\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n32\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u00a0\n\n\nThe following table provides volume by operating segment for the past two fiscal years.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease/\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\nSteel Processing (Tons)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,842,828\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,170,931\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(328,103\n\n\n)\n\n\n\n\n\n\nConsumer Products (Units)\n\n\n\u00a0\n\n\n\u00a0\n\n\n78,234,587\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n82,393,013\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,158,426\n\n\n)\n\n\n\n\n\n\nBuilding Products (Units)\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,532,434\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,707,258\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,174,824\n\n\n)\n\n\n\n\n\n\nSustainable Energy Solutions (Units)\n\n\n\u00a0\n\n\n\u00a0\n\n\n573,853\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n610,811\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(36,958\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\nSteel Processing \u2013 \nNet sales decreased $435.1 million from fiscal 2022 to $3.5 billion in fiscal 2023, as the impact of lower average selling prices more than offset the impact of the Tempel acquisition and a favorable shift in mix from toll tons to direct tons shipped. The mix of direct tons versus toll tons processed was 56% to 44% in fiscal 2023, compared to 51% to 49% in fiscal 2022. The shift in mix towards direct tons was driven primarily by lower tolling volume with our mill customers and the sale of WSP\u2019s remaining manufacturing facility on October 31, 2022.\n\n\n\u00a0\n\n\n\u2022\nConsumer Products \u2013 \nNet sales increased 7.8%, or $49.8 million, over fiscal 2022 to $686.3 million in fiscal 2023. The increase was driven by higher average selling prices, and, to a lesser extent, contributions from the June 2, 2022 acquisition of Level5. Excluding Level5 units shipped in fiscal 2023, overall volumes were down 7.1% from fiscal 2022, as retail customers reduced inventory levels resulting in lower customer orders.\n\n\n\u00a0\n\n\n\u2022\nBuilding Products \u2013 \nNet sales increased 8.2%, or $44.3 million, over fiscal 2022 to $586.1 million in fiscal 2023. The increase was driven by higher average selling prices and a favorable shift in product mix, partially offset by lower volume.\n\n\n\u00a0\n\n\n\u2022\nSustainable Energy Solutions \u2013 \nNet sales totaled $146.1 million in fiscal 2023, up 11.6%, or $15.2 million, over fiscal 2022, primarily due to higher average selling prices, partially offset by an unfavorable change in product mix.\n\n\n\u00a0\n\n\nGross Margin\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease/\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\nGross Margin\n\n\n\u00a0\n\n\n$\n\n\n663.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.5\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n714.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.6\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n(51.5\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\nGross margin decreased $51.5 million from fiscal 2022 to $663.3 million in fiscal 2023, as the impact of lower overall volumes and higher manufacturing expenses more than offset the favorable impact of higher average selling prices at Consumer Products and Building Products and the impact of acquisitions. Excluding the impact of acquisitions and divestitures, overall volumes were down across all of our operating segments while manufacturing expenses were up on continued inflationary pressures and higher fixed cost absorption.\n\n\n\u00a0\n\n\nSelling, General and Administrative Expense\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease/\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\nSelling, general and administrative expense\n\n\n\u00a0\n\n\n$\n\n\n428.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.7\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n399.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.6\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n29.3\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\nSG&A expense increased $29.3 million over fiscal 2022 due primarily to the impact of acquisitions and higher wages and benefits driven by continued inflationary pressures, partially offset by lower profit sharing and bonus expense to correspond with the decreases in operating income and equity income from fiscal 2022.\n\n\n\u00a0\n\n\nOther Operating Items\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease/\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\nImpairment of long-lived assets\n\n\n\u00a0\n\n\n$\n\n\n2.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(0.5\n\n\n)\n\n\n\n\n\n\nRestructuring and other income, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4.6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.5\n\n\n\u00a0\n\n\n\n\n\n\nSeparation costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n24.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24.0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n33\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u2022\nImpairment of long-lived assets in fiscal 2023 related primarily to a $1.8 million charge to write down production equipment at our Steel Processing facility in Taylor, Michigan to its estimated fair market value less costs to sell; $0.5 million related to changes in the intended use of certain fixed assets at our Building Products facility in Jefferson, Ohio; and $0.3 million related to our commitment to a plan to sell certain fixed assets at our Samuel toll processing facility in Cleveland, Ohio that were written down to fair value less costs to sell. Impairment charges in fiscal 2022 related to the write-down of certain production equipment at our Samuel facility in Twinsburg, Ohio that was determined to be below fair market value. Refer to \u201cNote E \u2013 Goodwill and Other Long-Lived Assets\u201d for additional information.\n\n\n\u00a0\n\n\n\u2022\nRestructuring and other income, net in fiscal 2023 was driven by gains realized from the sale of long-lived assets, including a $3.9 million gain realized from the sale of WSP\u2019s former manufacturing facility in Jackson, Michigan. Restructuring activity in fiscal 2022 resulted primarily from pre-tax gains from asset disposals with Steel Processing totaling $14.9 million. Refer to \u201cNote F \u2013 Restructuring and Other (Income) Expense, Net\u201d for additional information.\n\n\n\u00a0\n\n\n\u2022\nSeparation costs of $24.0 million reflect direct and incremental costs incurred in connection with the planned Separation, including audit, advisory, and legal costs. Refer to \u201cNote A - Summary of Significant Accounting Policies\u201d for additional information.\n\n\n\u00a0\n\n\nMiscellaneous Income (Expense), Net\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease/\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\nMiscellaneous income (expense), net\n\n\n\u00a0\n\n\n$\n\n\n(1.2\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n2.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(3.9\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\nMiscellaneous expense in fiscal 2023 was driven primarily by the annuitization of a portion of the total projected benefit obligation of the inactive Gerstenslager Company Bargaining Unit Employees\u2019 Pension Plan, as of the purchase date of the annuity contract, which resulted in a pre-tax, non-cash settlement charge of $4.8 million in the first quarter of fiscal 2023 to accelerate a portion of the overall deferred pension cost.\n\n\n\u00a0\n\n\nInterest Expense, Net\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease/\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense, net\n\n\n\u00a0\n\n\n$\n\n\n26.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n31.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(4.5\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\nInterest expense was $26.8 million in fiscal 2023, down $4.5 million from fiscal 2022 due to higher interest income, and to a lesser extent, the impact of lower average debt levels associated with short-term borrowings.\n\u00a0\n\n\nEquity Income\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease/\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\nWAVE\n\n\n\u00a0\n\n\n$\n\n\n85.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n87.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(1.5\n\n\n)\n\n\n\n\n\n\nClarkDietrich\n\n\n\u00a0\n\n\n\u00a0\n\n\n80.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n89.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8.6\n\n\n)\n\n\n\n\n\n\nServiacero Worthington\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(22.1\n\n\n)\n\n\n\n\n\n\nArtiFlex \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(13.7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(21.3\n\n\n)\n\n\n\n\n\n\nWorkhorse\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.8\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Total Equity Income\n\n\n\u00a0\n\n\n$\n\n\n160.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n213.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(52.7\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n(1)\nOn August 3, 2022, we sold our 50% noncontrolling equity interest in ArtiFlex. Activity for fiscal 2023 includes a $16.1 million pre-tax loss related to the sale.\n\n\n\u2022\nEquity income from unconsolidated joint ventures decreased $52.7 million from fiscal 2022 to $160.9 million due to a $16.1 million pre-tax loss related to the sale of our noncontrolling equity interest in ArtiFlex and lower contributions from WAVE, ClarkDietrich, and Serviacero. The lower contribution from Serviacero Worthington was primarily the result of reduced spreads driven by falling steel prices. We received cash distributions of $240.9 million from our unconsolidated joint ventures during fiscal 2023.\n\n\n\u00a0\n\n\n\u00a0\n\n\n34\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nIncome Taxes\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nEffective\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nEffective\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease/\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nTax Rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nTax Rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax expense\n\n\n\u00a0\n\n\n$\n\n\n76.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.9\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n115.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.3\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n(38.8\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\nIncome tax expense decreased $38.8 million from fiscal 2022 due to lower pre-tax earnings. Fiscal 2023 tax expense reflected an estimated annual effective income tax rate of 22.9% versus 23.3% in fiscal 2022. For additional information regarding our income taxes, refer to \u201cNote N \u2013 Income Taxes.\u201d\n\n\n\u00a0\n\n\nAdjusted EBIT\n\n\n\u00a0\n\n\nWe evaluate operating performance on the basis of adjusted earnings before interest and taxes (\u201cadjusted EBIT\u201d). EBIT, a non-GAAP financial measure, is calculated by adding interest expense and income tax expense to net earnings attributable to controlling interest. Adjusted EBIT excludes impairment and restructuring expense (income), but may also exclude other items, as described below, that management believes are not reflective of, and thus should not be included when evaluating the performance of our ongoing operations. Adjusted EBIT is a non-GAAP financial measure and is used by management to evaluate operating performance, engage in financial and operational planning and determine incentive compensation because we believe that this financial measure provides additional perspective on the performance of our ongoing operations. Additionally, management believes these non-GAAP financial measures provide useful information to investors because they allow for meaningful comparisons and analysis of trends in our businesses and enable investors to evaluate operations and future prospects in the same manner as management.\n\n\nThe following table provides a reconciliation of net earnings attributable to controlling interest to adjusted EBIT:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nNet earnings attributable to controlling interest\n\n\n\u00a0\n\n\n$\n\n\n256.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n379.4\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.3\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n76.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n115.0\n\n\n\u00a0\n\n\n\n\n\n\nEBIT\n\n\n\u00a0\n\n\n\u00a0\n\n\n359.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n525.7\n\n\n\u00a0\n\n\n\n\n\n\nImpairment of long-lived assets \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.0\n\n\n\u00a0\n\n\n\n\n\n\nRestructuring and other income, net \n(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2.7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11.2\n\n\n)\n\n\n\n\n\n\nSeparation costs \n(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n24.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\nPension settlement charge \n(4)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\nLoss on sale of investment in ArtiFlex \n(5)\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\nSale-leaseback gain in equity income \n(6)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted EBIT\n\n\n\u00a0\n\n\n$\n\n\n402.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n516.5\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n(1)\nImpairment charges are excluded because they do not occur in the ordinary course of our ongoing business operations, are inherently unpredictable in timing and amount, and are non-cash, so their exclusion facilitates the comparison of historical, current and forecasted financial results. Excludes the impact of the noncontrolling interests.\n\n\n(2)\nRestructuring activities consist of established programs that are not part of our ongoing operations, such as divestitures, closing or consolidating facilities, employee severance (including rationalizing headcount or other significant changes in personnel), and realignment of existing operations (including changes to management structure in response to underlying performance and/or changing market conditions). Excludes the impact of the noncontrolling interests.\n\n\n(3)\nReflects direct and incremental costs incurred in connection with the anticipated tax-free spin-off of our Steel Processing business, including audit, advisory, and legal costs and one-time costs to stand-up separate corporate functions.\n\n\n(4)\nDuring the first quarter of fiscal 2023, we completed the pension lift-out transaction to transfer a portion of the total projected benefit obligation of The Gerstenslager Company Bargaining Unit Employees\u2019 Pension Plan to a third-party insurance company, resulting in a non-cash settlement charge of $4.8 million to accelerate a portion of the overall deferred pension cost.\n\n\n(5)\nOn August 3, 2022, we sold our 50% noncontrolling equity investment in ArtiFlex, resulting in a pre-tax loss of $16.1 million in equity income related to the sale.\n\n\n(6)\nDuring the three months ended May 31, 2023, our unconsolidated engineered cabs joint venture, Workhorse, recognized a pre-tax gain of $10.3 million related to a sale-leaseback transaction. Our portion of this gain, which is recorded in equity income, was $2.1 million.\n\n\n\u00a0\n\n\n35\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u00a0\n\n\nThe following table provides a summary of adjusted EBIT by reportable segment, along with the respective percentage of the total of each reportable segment.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of Adjusted\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of Adjusted\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease/\n\n\n\u00a0\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nEBIT\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nEBIT\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\nSteel Processing\n\n\n\u00a0\n\n\n\u00a0\n\n\n121.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n203.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n39.4\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n(81.6\n\n\n)\n\n\n\n\n\n\nConsumer Products\n\n\n\u00a0\n\n\n\u00a0\n\n\n78.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n94.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16.3\n\n\n)\n\n\n\n\n\n\nBuilding Products\n\n\n\u00a0\n\n\n\u00a0\n\n\n204.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n50.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n216.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12.0\n\n\n)\n\n\n\n\n\n\nSustainable Energy Solutions\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6.3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1.2\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.2\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.8\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11.7\n\n\n)\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Total Adjusted EBIT\n\n\n\u00a0\n\n\n\u00a0\n\n\n402.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n516.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n(114.4\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\nSteel Processing \n\u2013 Adjusted EBIT was down $81.6 million from fiscal 2022 to $121.7 million in fiscal 2023, due to a $75.4 million decline in operating income and a $22.1 million decline in equity income from Serviacero Worthington, as lower average steel prices reduced spreads. Excluding impairment and restructuring activity, operating income was down $66.1 million from fiscal 2022 driven primarily by higher manufacturing expenses and the impact of lower overall volume, which reduced operating income by a combined $61.6 million. Direct spreads were down $5.9 million and include an estimated $70.5 million unfavorable swing related to estimated inventory holding losses of $48.7 million in fiscal 2023 compared to estimated inventory holding gains of $21.9 million in fiscal 2022.\n\n\n\u00a0\n\n\n\u2022\nConsumer Products \u2013 \nAdjusted EBIT was down $16.3 million from fiscal 2022 to $78.0 million in fiscal 2023, as the favorable impact of higher average selling prices was more than offset by lower volumes and higher input and production costs, including $2.7 million of incremental material cost related to Level5 inventory that was written-up to fair value at acquisition. Adjusted EBIT was also negatively impacted by $4.4 million of higher SG&A, excluding the impact of the Level5 acquisition, primarily due to inflationary pressure on wages and benefits and higher advertising expense.\n\n\n\u00a0\n\n\n\u2022\nBuilding Products \u2013 \nAdjusted EBIT decreased $12.0 million from fiscal 2022 to $204.6 million in fiscal 2023, primarily due to a $10.1 million decline in equity income, driven by lower volumes at ClarkDietrich that yielded an $8.6 million lower contribution compared to fiscal 2022.\n\n\n\u00a0\n\n\n\u2022\nSustainable Energy Solutions \u2013 \nAdjusted EBIT was $0.9 million in fiscal 2023, favorable by $7.2 million to fiscal 2022, driven by higher average selling prices, partially offset by higher input and production costs.\n\n\n\u00a0\n\n\nFiscal 2022 Compared to Fiscal 2021\n\n\n\u00a0\n\n\nFor a comparison of our results of operations for fiscal 2022 and fiscal 2021, see \u201cPart II \u2013 Item 7. \u2013 Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2013 Results of Operations \u2013 Fiscal 2022 Compared to Fiscal 2021\u201d of our Annual Report on Form 10-K for the fiscal year ended May 31, 2022, filed with the SEC on August 1, 2022.\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\n\n\u00a0\n\n\nDuring fiscal 2023, we generated $625.4 million of cash from operating activities, invested $86.4 million in property, plant and equipment, spent $56.1 million to acquire Level5, and generated net cash proceeds of $35.7 million from the sale of assets, as well as $35.8 million from the sale of our 50% noncontrolling equity interest in ArtiFlex. Additionally, we repaid $45.2 million of short-term borrowings and paid dividends of $59.2 million on the common shares. The following table summarizes our consolidated cash flows for each of the prior three fiscal years.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nNet cash provided by operating activities\n\n\n\u00a0\n\n\n$\n\n\n625.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n70.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n274.4\n\n\n\u00a0\n\n\n\n\n\n\nNet cash provided (used) by investing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(71.8\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(438.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n468.5\n\n\n\u00a0\n\n\n\n\n\n\nNet cash used by financing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(133.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(237.7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(249.8\n\n\n)\n\n\n\n\n\n\nIncrease (decrease) in cash and cash equivalents\n\n\n\u00a0\n\n\n\u00a0\n\n\n420.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(605.8\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n493.1\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents at beginning of period\n\n\n\u00a0\n\n\n\u00a0\n\n\n34.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n640.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n147.2\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents at end of period\n\n\n\u00a0\n\n\n$\n\n\n455.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n34.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n640.3\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n36\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u00a0\n\n\nWe believe we have access to adequate resources to meet the needs of our existing businesses for normal operating costs, mandatory capital expenditures, debt redemptions, dividend payments, and working capital, to the extent not funded by cash provided by operating activities, for at least 12 months and for the foreseeable future thereafter. These resources include cash and cash equivalents and unused committed lines of credit. These committed lines of credit had a total of $500 million of borrowing capacity available to be drawn as of May 31, 2023.\n\n\n\u00a0\n\n\nAlthough we do not currently anticipate a need, we believe that we could access the financial markets to be in a position to sell long-term debt or equity securities. However, the continuation of soft economic conditions and an uncertain interest rate environment could create volatility in the financial markets, which may impact our ability to access capital and the terms under which we can do so. During fiscal 2023, the financial markets experienced disruption due to certain bank failures. Given the diversification and credit profile of our exposure to bank counterparties, we do not foresee any material financial impact from this disruption. We will continue to monitor the economic environment and its impact on our operations and liquidity needs.\n\n\n\u00a0\n\n\nWe routinely monitor current operational requirements, financial market conditions, and credit relationships and we may choose to seek additional capital by issuing new debt and/or equity securities to strengthen our liquidity or capital structure. We are also in the process of evaluating our post-Separation capital structure. Should we seek additional capital, there can be no assurance that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing shareholders and/or increase our interest costs. We may also from time to time seek to retire or repurchase our outstanding debt through cash purchases, in open-market purchases, privately-negotiated transactions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transaction may or may not be material. On June 29, 2023, we redeemed in full our 2026 Notes. The redemption price approximated the par value of debt of $243.6 million plus accrued interest. See \u201cNote V \u2013 Subsequent Events\u201d for additional information.\n\n\n\u00a0\n\n\nOperating Activities\n\n\n\u00a0\n\n\nOur business is cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic and industry conditions. We rely on cash and short-term borrowings to meet cyclical increases in working capital needs. These needs generally rise during periods of increased economic activity or increasing raw material prices, requiring higher levels of inventory and accounts receivable. During economic slowdowns or periods of decreasing raw material costs, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable. Falling steel prices during fiscal 2023 led to a $152.8 million decrease in operating working capital (accounts receivable, inventory and accounts payable) at May 31, 2023.\n\n\n\u00a0\n\n\nNet cash provided by operating activities was $625.4 million during fiscal 2023 compared to $70.1 million in fiscal 2022, an increase of $555.3 million. The increase was primarily due to a $410.4 million change in operating working capital requirements in fiscal 2023, as compared to fiscal 2022, mainly driven by fluctuations in steel prices, which rose in 2022, then decreased in 2023. The remaining increase over fiscal 2022 was driven by higher cash dividends from our unconsolidated joint ventures, which were up $140.8 million.\n \n\n\n\u00a0\n\n\nInvesting Activities\n\n\n\u00a0\n\n\nNet cash used by investing activities was $71.8 million during fiscal 2023 compared to net cash used by investing activities of $438.2 million in fiscal 2022. Net cash used by investing activities in fiscal 2023 resulted from the purchase of the Level5 business on June 2, 2022, for $56.1 million, net of cash acquired, and capital expenditures of $86.4 million, partially offset by combined cash proceeds of $71.3 million from the sale of our 50% noncontrolling equity investment in ArtiFlex, and the sale of our WSP Jackson, Michigan facility and other long-lived assets. Net cash used by investing activities in fiscal 2022 resulted primarily from cash used to acquire certain assets of the Shiloh Industries\u2019 (\u201cShiloh\u201d) U.S. BlankLight \u00ae business on June 8, 2021, for $104.5 million and Tempel on December 1, 2021 for $272.2 million, and capital expenditures of $94.6 million.\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n37\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nCapital expenditures reflect cash used for investment in property, plant and equipment and is presented below by reportable segment (this information excludes cash flows related to acquisition and divestiture activity) for each of the prior three fiscal years:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nSteel Processing\n\n\n\u00a0\n\n\n$\n\n\n45.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n35.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n28.3\n\n\n\u00a0\n\n\n\n\n\n\nConsumer Products\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.3\n\n\n\u00a0\n\n\n\n\n\n\nBuilding Products\n\n\n\u00a0\n\n\n\u00a0\n\n\n17.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.7\n\n\n\u00a0\n\n\n\n\n\n\nSustainable Energy Solutions\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.7\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.2\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Total Capital Expenditures\n\n\n\u00a0\n\n\n$\n\n\n86.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n94.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n82.2\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nInvestment activities are largely discretionary and future investment activities could be reduced significantly, or eliminated, as economic conditions warrant. We assess acquisition opportunities as they arise, and any such opportunities may require additional financing. However, there can be no assurance that any such opportunities will arise, that any such acquisition opportunities will be consummated, or that any needed additional financing will be available on satisfactory terms if required.\n\n\n\u00a0\n\n\nFinancing Activities\n\n\nNet cash used by financing activities was $133.1 million in fiscal 2023 compared to $237.7 million in fiscal 2022. The change was primarily due to $45.2 million of net repayments of short-term borrowings in fiscal 2023 and the repurchase of 3.2 million of common shares at a cost of $180.2 million in fiscal 2022.\n\n\n\u00a0\n\n\nLong-term debt \u2013 \nOur senior unsecured long-term debt is rated \u201cinvestment grade\u201d by both Moody\u2019s Investors Service, Inc. and Standard & Poor\u2019s Ratings Group. We typically use the net proceeds from long-term debt for acquisitions, refinancing of outstanding debt, capital expenditures and general corporate purposes. As of May 31, 2023, we were in compliance with the covenants in our long-term debt agreements. Our long-term debt agreements do not include ratings triggers or material adverse change provisions.\n\n\n\u00a0\n\n\nShort-term borrowings \n\u2013\n \nOur short-term debt agreements do not include ratings triggers or material adverse change provisions. As of May 31, 2023, we were in compliance with the covenants in our short-term debt agreements.\n\n\n\u00a0\n\n\nWe maintain a $500.0 million multi-year revolving credit facility (the \u201cCredit Facility\u201d) with a group of lenders that matures in August 2026. Borrowings under the Credit Facility have maturities of up to one year. We have the option to borrow at rates equal to an applicable margin over the Simple SOFR, the Prime Rate of PNC Bank, National Association, or the Overnight Bank Funding Rate.  The applicable margin is determined by our credit rating. There were no borrowings outstanding under the Credit Facility at May 31, 2023.\n\n\n\u00a0\n\n\nAs discussed in \u201cNote H \u2013 Guarantees,\u201d we had in place $14.1 million in outstanding letters of credit for third-party beneficiaries as of May 31, 2023. No amounts were drawn against these outstanding letters of credit at May 31, 2023, and the fair value of these guarantee instruments, based on premiums paid, was not material.\n\n\n\u00a0\n\n\nOn May 19, 2022, we entered into the AR Facility allowing us to borrow up to $175.0 million. Pursuant to the terms of the AR Facility, certain of our subsidiaries were to sell or contribute all of their eligible accounts receivable and other related assets without recourse, on a revolving basis, to Worthington Receivables Company (\u201cWRC\u201d), a wholly-owned, consolidated, bankruptcy-remote indirect subsidiary. In turn, WRC was to sell, on a revolving basis, up to $175.0 million of undivided ownership interests in this pool of accounts receivable to a third-party bank. We were to retain an undivided interest in this pool and were to be subject to risk of loss based on the collectability of the receivables from this retained interest. Because the amount eligible to be sold was to exclude receivables more than 120 days past due, receivables offset by an allowance for doubtful accounts due to bankruptcy or other cause, concentrations over certain limits with specific customers and certain reserve amounts, we believed additional risk of loss would be minimal. As of May 31, 2023, there were no borrowings outstanding under the AR Facility, leaving $175.0 million then available for use. On June 29, 2023, we terminated the AR Facility as it was no longer needed. No early termination or other similar fees or penalties were paid in connection with the termination of the AR Facility.\n\n\n\u00a0\n\n\nCommon shares \u2013 \nDuring fiscal 2023, we declared dividends totaling $1.24 per common share at a quarterly rate of $0.31 per common share. During fiscal 2022, we declared dividends totaling $1.12 per common share at a quarterly rate of $0.28 per common share.  Dividends paid on the common shares totaled $59.2 million in fiscal 2023 compared to $57.2 million during fiscal 2022. On June 28, 2023, the Board declared a quarterly dividend of $0.32 per common share for the first quarter of fiscal 2024. The dividend is payable on September 29, 2023 to shareholders of record on September 15, 2023.\n\n\n\u00a0\n\n\nOn March 20, 2019, the Board authorized the repurchase of up to 6.6 million of the common shares.\n\n\n\u00a0\n\n\n38\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\n\u00a0\n\n\nOn March 24, 2021, the Board authorized the repurchase of up to an additional 5.6 million of the common shares, increasing the total number of common shares then authorized for repurchase to 10.0 million. The total number of common shares available for repurchase under these authorizations at May 31, 2023 was 6.1 million.\n\n\n\u00a0\n\n\nThese common shares may be repurchased from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be made on the open market or through privately-negotiated transactions.\n\n\n\u00a0\n\n\nDividend Policy\n\n\n\u00a0\n\n\nWe currently have no material contractual or regulatory restrictions on the payment of dividends. Dividends are declared at the discretion of the Board. The Board reviews the dividend quarterly and establishes the dividend rate based upon our financial condition, results of operations, capital requirements, current and projected cash flows, business prospects and other relevant factors. While we have paid a dividend every quarter since becoming a public company in 1968, there is no guarantee that payments of dividends will continue in the future.\n\n\n\u00a0\n\n\nRecently Adopted Accounting Standards\n\n\n\u00a0\n\n\nIn June 2016, amended accounting guidance was issued related to the measurement of credit losses on financial instruments. The amended accounting guidance changes the impairment model for most financial assets to require measurement and recognition of expected credit losses for financial assets held. The amended accounting guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Our adoption of this new accounting standard update in fiscal 2021 did not have a material impact on our consolidated financial position, results of operations, or cash flows. Additionally, there have been no changes to our significant accounting policies as disclosed in this Form 10-K as a result of the adoption of this new accounting guidance.\n\n\n\u00a0\n\n\nEnvironmental\n\n\n\u00a0\n\n\nWe do not believe that compliance with environmental laws has or will have a material effect on our capital expenditures, future results of operations or financial position or competitive position.\n\n\n\u00a0\n\n\nCritical Accounting Estimates\n\n\n\u00a0\n\n\nThe discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Critical accounting policies are defined as those that reflect our significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. Although actual results historically have not deviated significantly from those determined using our estimates, as discussed below, our consolidated financial position or results of operations could be materially different if we were to report under different conditions or to use different assumptions in the application of such policies. The following accounting estimates are considered to be the most critical to us, as these are the primary areas where financial information is subject to our estimates, assumptions and judgment in the preparation of our consolidated financial statements.\n\n\n\u00a0\n\n\nSee \u201cNote A \u2013 Summary of Significant Accounting Policies\u201d to our consolidated financial statements for further information on our significant accounting policies.\n\n\n\u00a0\n\n\n\u00a0\n\n\n39\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nImpairment of Indefinite-Lived Long-Lived Assets:\n\n\n\u00a0\n\n\nCritical estimate\n: Goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually, during the fourth fiscal quarter, or more frequently if events or changes in circumstances indicate that impairment may be present. Application of goodwill impairment testing involves judgment, including but not limited to, the identification of reporting units and estimation of the fair value of each reporting unit. A reporting unit is defined as an operating segment or one level below an operating segment. With the exception of Steel Processing, we test goodwill at the operating segment level as we have determined that the characteristics of the reporting units within each operating segment are similar and allow for their aggregation in accordance with the applicable accounting guidance. Steel Processing is comprised of three reporting units: Flat Rolled Steel Processing, Electrical Steel and Laser Welding.\n\n\n\u00a0\n\n\nFor goodwill and indefinite lived intangible assets, we test for impairment by first evaluating qualitative factors including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance. If there are no concerns raised from this evaluation, no further testing is performed. If, however, our qualitative analysis indicates it is more likely than not that the fair value is less than the carrying amount, a quantitative analysis is performed. The quantitative analysis compares the fair value of each reporting unit or indefinite-lived intangible asset to the respective carrying amount, and an impairment loss is recognized in our consolidated statements of earnings equivalent to the excess of the carrying amount over the fair value.\n\n\n\u00a0\n\n\nAssumptions and judgments\n: When performing a qualitative assessment, judgment is required when considering relevant events and circumstances that could affect the fair value of the indefinite lived intangible asset or reporting unit to which goodwill is assigned. Management considers whether events and circumstances such as a change in strategic direction and changes in business climate would impact the fair value of the indefinite lived intangible asset or reporting unit to which goodwill is assigned. If a quantitative analysis is required, assumptions are required to estimate the fair value to compare against the carrying value. Significant assumptions that form the basis of fair value can include discount rates, underlying forecast assumptions, and royalty rates. These assumptions are forward looking and can be affected by future economic and market conditions. Our qualitative review for fiscal 2023 did not indicate any impairment.\n\n\n\u00a0\n\n\nImpairment of Definite-Lived Long-Lived Assets\n:\n\n\n\u00a0\n\n\nCritical estimate\n: We review the carrying value of our long-lived assets, including intangible assets with finite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Impairment testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its respective carrying amount. If the sum of the undiscounted future cash flows exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amount of impairment, if any, to be recognized. An impairment loss is recognized to the extent that the carrying amount of the asset or asset group exceeds its fair value.\n\n\n\u00a0\n\n\nAssumptions and judgments\n: When performing the comparison of the sum of the undiscounted cash flows of the asset or asset group to its respective carrying amount, judgment is required when forming the basis for underlying cash flow forecast assumptions. If the second step of the impairment test is required, assumptions are required to estimate the fair value to compare against the carrying value. Significant assumptions that form the basis of fair value can include discount rates, underlying forecast assumptions, and royalty rates. These assumptions are forward looking and can be affected by future economic and market conditions.\n\n\n\u00a0\n\n\n\u00a0\n\n\n40\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nIncome Taxes\n\n\n\u00a0\n\n\nCritical estimate\n: In accordance with the authoritative accounting guidance, we account for income taxes using the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and deferred tax liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of our assets and liabilities. We evaluate the deferred tax assets to determine whether it is more likely than not that some, or a portion, of the deferred tax assets will not be realized, and provide a valuation allowance as appropriate. Changes in existing tax laws or rates could significantly impact the estimate of our tax liabilities.\n\n\n\u00a0\n\n\nAssumptions and judgments:\n Significant judgment is required in determining our tax expense and in evaluating our tax positions. In accordance with accounting literature related to uncertainty in income taxes, tax benefits from uncertain tax positions that are recognized in our consolidated financial statements are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. We have reserves for income taxes and associated interest and penalties that may become payable in future years as a result of audits by taxing authorities. It is our policy to record these in income tax expense. While we believe the positions taken on previously filed tax returns are appropriate, we have established the tax and interest reserves in recognition that various taxing authorities may challenge our positions. These reserves are analyzed periodically, and adjustments are made as events occur to warrant adjustment to the reserves, such as lapsing of applicable statutes of limitations, conclusion of tax audits, additional exposure based on current calculations, identification of new issues, and release of administrative guidance or court decisions affecting a particular tax issue. We have provided for the amounts we believe will ultimately result from these changes; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. Such differences will be reflected as increases or decreases to income tax expense in the period in which they are determined. See \u201cNote N \u2013 Income Taxes\u201d for further information.\n\n\n \n\n\nEmployee Pension Plans:\n\n\n\u00a0\n\n\nCritical estimate\n: Defined benefit pension and other post-employment benefit (\u201cOPEB\u201d) plan obligations are remeasured at least annually as of May 31 based on the present value of projected future benefit payments for all participants for services rendered to date. The measurement of projected future benefits is dependent on the provisions of each specific plan, demographics of the group covered by the plan, and other key measurement assumptions. The funded status of these benefit plans, which represents the difference between the benefit obligation and the fair value of plan assets, is calculated on a plan-by-plan basis. The benefit obligation and related funded status are determined using assumptions as of the end of each fiscal year. Net periodic benefit cost is included in other income (expense) in our consolidated statements of earnings, except for the service cost component, which is recorded in SG&A expense.\n\n\n\u00a0\n\n\nAssumptions and judgements\n: Certain key actuarial assumptions critical to the pension and post-retirement accounting estimates include expected long-term rate of return on plan assets, discount rates, projected health care cost trend rates, cost of living adjustments, and mortality rates. In developing future long-term return expectations for our benefit plans\u2019 assets, we formulate views on the future economic environment. We evaluate general market trends and historical relationships among a number of key variables that impact asset class returns such as expected earnings growth, inflation, valuations, yields, and spreads. We also consider expected volatility by asset class and diversification across classes to determine expected overall portfolio results given current and target allocations. Net periodic benefit costs, including service cost, interest cost, and expected return on assets, are determined using assumptions regarding the benefit obligation and the fair value of plan assets as of the beginning of each fiscal year.\n\n\n\u00a0\n\n\nHolding all other factors constant, a decrease in the discount rate by 0.25 percentage points would have increased the projected benefit obligation at May 31, 2023 by approximately $2.7 million. Also, holding all other factors constant, a decrease in the expected long-term rate of return on plan assets by 0.25 percentage points would have increased fiscal 2023 pension expense by approximately $0.2 million.\n\n\n\u00a0\n\n\nBusiness Combinations:\n \n\n\n\u00a0\n\n\nCritical estimate\n: We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. The determination of fair values of identifiable assets and liabilities requires significant judgments and estimates and the use of valuation techniques when market value is not readily available. For the valuation of intangible assets acquired in a business combination, we typically use an income approach. The purchase price allocated to the intangible assets is based on unobservable assumptions, inputs and estimates, including but not limited to, forecasted revenue growth rates, projected expenses, discount rates, customer attrition rates, royalty rates, and useful lives, among others.\n\n\n\u00a0\n\n\n\u00a0\n\n\n41\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nAssumptions and judgements\n: Significant assumptions, which vary by the class of asset or liability are forward looking and could be affected by future economic and market conditions. We engage third-party valuation specialists who review our critical assumptions and prepare the calculation of the fair value of acquired intangible assets in connection with significant business combinations. The excess of the purchase price over the fair values of identifiable assets acquired and liabilities assumed is recorded as goodwill. 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. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.\n\n\n\u00a0\n\n",
+  "item7a": ">Item 7A. \u2013 Quantitative and Qualita\ntive Disclosures About Market Risk\n\n\n\u00a0\n\n\nIn the normal course of business, we are exposed to various market risks. We continually monitor these risks and regularly develop appropriate strategies to manage them. Accordingly, from time to time, we may enter into certain financial and commodity-based derivative financial instruments. These instruments are used primarily to mitigate market exposure. Refer to \u201cNote R \u2013 Derivative Financial Instruments and Hedging Activities\u201d in the accompanying audited financial statements for additional information.\n\n\n\u00a0\n\n\nInterest Rate Risk\n\n\n\u00a0\n\n\nWe are exposed to changes in interest rates primarily as a result of our borrowing and investing activities to maintain liquidity and fund operations. The nature and amount of our long-term and short-term debt can be expected to fluctuate as a result of business requirements, market conditions and other factors. We manage exposures to interest rates using a mix of fixed and variable rate debt.  We use interest rate swap instruments to manage our exposure to interest rate movements.\n\n\n\u00a0\n\n\nWe entered into an interest rate swap in June 2017, in anticipation of the issuance of $200.0 million aggregate principal amount of senior unsecured notes due August 1, 2032 (the \u201c2032 Notes\u201d). Refer to \u201cNote I \u2013 Debt and Receivables Securitization\u201d for additional information regarding the 2032 Notes. The interest rate swap had a notional amount of $150.0 million to hedge the risk of changes in the semi-annual interest rate payments attributable to changes in the benchmark interest rate during the several days leading up to the issuance of the 15-year fixed-rate debt. Upon pricing of the 2032 Notes, the derivative financial instrument was settled resulting in a gain of approximately $3.1 million, which was reflected in accumulated other comprehensive income (loss) in our consolidated statements of equity and will be recognized in earnings, as a decrease to interest expense, over the life of the related 2032 Notes.\n\n\n\u00a0\n\n\nWe entered into an interest rate swap in March 2014, in anticipation of the issuance of the 2026 Notes. Refer to \u201cNote I \u2013 Debt and Receivables Securitization\u201d for additional information regarding the 2026 Notes. The interest rate swap had a notional amount of $150.0 million to hedge the risk of changes in the semi-annual interest payments attributable to changes in the benchmark interest rate during the several days leading up to the issuance of the 12-year fixed-rate debt. Upon pricing of the 2026 Notes, the derivative financial instrument was settled and resulted in a loss of approximately $3.1 million, a significant portion of which was reflected within accumulated other comprehensive income (loss) (\u201cAOCI\u201d) in our consolidated statements of equity and will be recognized in earnings, as an increase to interest expense, over the life of the related 2026 Notes. On July 28, 2023, we redeemed the 2026 Notes in full and released the then remaining amount deferred in AOCI associated with this interest rate swap.\n \n\n\n\u00a0\n\n\nForeign Currency Exchange Risk\n\n\n\u00a0\n\n\nThe translation of foreign currencies into U.S. dollars subjects us to exposure related to fluctuating foreign currency exchange rates. Derivative financial instruments are not used to manage this risk; however, we do make use of forward contracts to manage exposure to certain intercompany loans with our foreign affiliates as well as exposure to transactions denominated in a currency other than the related foreign affiliate\u2019s local currency. Such forward contracts limit exposure to both favorable and unfavorable foreign currency exchange rate fluctuations. At May 31, 2023, the difference between the contract and book value of these forward contracts was not material to our consolidated financial position, results of operations or cash flows. A 10% change in the foreign currency exchange rate to the U.S. dollar forward rate is not expected to materially impact our consolidated financial position, results of operations or cash flows. A sensitivity analysis of changes in the U.S. dollar exchange rate on these foreign currency-denominated contracts indicates that if the U.S. dollar uniformly weakened by 10% against all of these foreign currency exposures, the fair value of these forward contracts would not be materially impacted. Any resulting changes in fair value would be offset by changes in the underlying hedged balance sheet position. A sensitivity analysis of changes in the foreign currency exchange rates of our foreign locations indicates that a 10% increase in those rates would not have materially impacted our net results. The sensitivity analysis assumes a uniform shift in all foreign currency exchange rates. The assumption that foreign currency exchange rates change in uniformity may overstate the impact of changing foreign currency exchange rates on assets and liabilities denominated in a foreign currency.\n\n\n\u00a0\n\n\n\u00a0\n\n\n42\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n\nCommodity Price Risk\n\n\n\u00a0\n\n\nWe are exposed to market risk for price fluctuations on purchases of steel, natural gas, copper, zinc and other raw materials as well as our utility requirements. We attempt to negotiate the best prices for commodities and to competitively price products and services to reflect the fluctuations in market prices. Derivative financial instruments have been used to manage a portion of our exposure to fluctuations in the cost of certain commodities, including steel, natural gas, zinc, copper and other raw materials. These contracts covered periods commensurate with known or expected exposures throughout fiscal 2023. The derivative financial instruments were executed with highly rated financial institutions. No credit loss is anticipated.\n\n\n\u00a0\n\n\nA sensitivity analysis of changes in the price of hedged commodities indicates that a 10% decline in the market prices of steel, zinc, copper, natural gas or any combination of these would not have a material impact to the value of our hedges or our reported results.\n\n\n\u00a0\n\n\nThe fair values of our outstanding derivative positions at May 31, 2023 and 2022 are summarized below. Fair values of these derivative financial instruments do not consider the offsetting impact of the underlying hedged item.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(In millions)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nCommodity contracts\n\n\n\u00a0\n\n\n$\n\n\n(13.2\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n3.9\n\n\n\u00a0\n\n\n\n\n\n\nForeign currency exchange contracts\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.3\n\n\n)\n\n\n\n\n\n\nTotal Derivative Financial Instruments\n\n\n\u00a0\n\n\n$\n\n\n(13.2\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n3.6\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nSafe Harbor\n\n\n\u00a0\n\n\nQuantitative and qualitative disclosures about market risk include forward-looking statements with respect to management\u2019s opinion about risks associated with the use of derivative financial instruments. These statements are based on certain assumptions with respect to market prices and industry supply of, and demand for, steel products and certain raw materials. To the extent these assumptions prove to be inaccurate, future outcomes with respect to hedging programs may differ materially from those discussed in the forward-looking statements.\n\n\n\u00a0\n\n\n43\n\n\n\n\nTable of Contents\n\n\n\u00a0\n\n",
+  "cik": "108516",
+  "cusip6": "981811",
+  "cusip": ["981811102", "981811902", "981811952"],
+  "names": ["WORTHINGTON INDS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/108516/000095017023035904/0000950170-23-035904-index.htm"
+}
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+{
+  "item1": ">ITEM 1. BUSINESS\n \n\n\nNeogen Corporation and its subsidiaries develop, manufacture, and market a diverse line of products and services dedicated to food and animal safety. Our Food Safety segment consists primarily of diagnostic test kits and complementary products (e.g., culture media) sold to food producers and processors to detect dangerous and/or unintended substances in human food and animal feed, such as foodborne pathogens, spoilage organisms, natural toxins, food allergens, genetic modifications, ruminant by-products, meat speciation, drug residues, pesticide residues and general sanitation concerns. Our diagnostic test kits are generally easier to use and provide greater accuracy and speed than conventional diagnostic methods. The majority of these test kits are disposable, single-use, immunoassay and DNA detection products that rely on proprietary antibodies and RNA and DNA testing methodologies to produce rapid and accurate test results. Our expanding line of food safety products also includes genomics-based diagnostic technology and advanced software systems that help testers to objectively analyze and store their results and perform analysis on the results from multiple locations over extended periods.\n \n\n\nOn September 1, 2022, Neogen, 3M Company (\u201c3M\u201d) and Neogen Food Safety Corporation (\u201cNeogen Food Safety Corporation\u201d), a subsidiary created to carve out 3M\u2019s Food Safety Division (\u201c3M FSD\u201d, \u201cFSD\u201d), closed on a transaction combining 3M\u2019s FSD with Neogen in a Reverse Morris Trust transaction and Neogen Food Safety Corporation became a wholly owned subsidiary of Neogen (\u201cFSD transaction\u201d, the \"Transaction\"). Following the FSD transaction, pre-merger Neogen Food Safety Corporation stockholders own, in the aggregate, approximately 50.1% of the issued and outstanding shares of Neogen common stock, and pre-merger Neogen shareholders own, in the aggregate, approximately 49.9% of the issued and outstanding shares of Neogen common stock. See Note 3 \"Business Combinations\" to the consolidated financial statements for further discussion. FSD products are reported in the Food Safety segment.\n\n\nNeogen\u2019s Animal Safety segment is engaged in the development, manufacture, marketing, and distribution of veterinary instruments, pharmaceuticals, vaccines, topicals, parasiticides, diagnostic products, rodent control products, cleaners, disinfectants, insect control products and genomics testing services for the worldwide animal safety market. The majority of these consumable products are marketed through veterinarians, retailers, livestock producers, and animal health product distributors. Our line of drug detection products is sold worldwide for the detection of abused and therapeutic drugs in animals and animal products, and has expanded into the workplace and human forensic markets.\n \n\n\nNeogen\u2019s products are marketed by our sales personnel and distributors throughout the world. Our mission is to be the leading company in the development and marketing of solutions for food and animal safety. To meet this mission, a growth strategy consisting of the following elements has been developed: (i) increasing sales of existing products; (ii) introducing innovative products and services; (iii) growing international sales; and (iv) acquiring businesses and forming strategic alliances. We have been historically successful at increasing product sales organically, including international growth, and maintain an active acquisition program to identify and capitalize on opportunities to acquire new products, businesses or technology.\n \n\n\nNeogen Corporation was formed as a Michigan corporation in June 1981 and operations began in 1982. Our principal executive offices are located at 620 Lesher Place, Lansing, Michigan 48912-1595, and our telephone number is (517) 372-9200.\n \n\n\nNeogen\u2019s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports are available free of charge via our website (\nwww.neogen.com\n) as soon as reasonably practicable after such information is filed with, or furnished to, the United States Securities and Exchange Commission. The content of our website or the website of any third party that may be noted herein is not incorporated by reference in this Form 10-K.\n \n\n\n3\n\n\n\n\n\u00a0\n\n\nPRODUCTS\n \n\n\nProduct trademarks and registered trademarks owned by Neogen include:\n \n\n\nCORPORATE:\n \nNeogen\u00ae, Neogen flask (logo)\u00ae, Neogen and flask (logo)\u00ae, NeoCenter\u0099\n\n\nFOOD SAFETY:\n \nAccuClean\u00ae, AccuPoint\u00ae, AccuScan\u00ae, Acumedia\u00ae, Agri-Screen\u00ae, Alert\u00ae, ANSR\u00ae , Betastar\u00ae, BioLumix\u00ae, Ceralpha\u00ae, Clean-Trace\u00ae, Colitag\u0099, F.A.S.T.\u00ae, Freeze Watch\u00ae, GeneQuence\u00ae, Harlequin\u00ae, Iso-Grid\u00ae, Lab M\u00ae, Listeria Right Now\u0099, Megazyme\u00ae, Megazyme (design) \u00ae, MonitorMark\u00ae, MPNTray\u0099, NeoColumn\u0099, NeoNet\u00ae, NeoSeek\u0099, NEO-GRID\u00ae, Penzyme\u00ae, Petrifilm\u00ae, Raptor\u00ae, Reveal\u00ae, Soleris\u00ae, \u00b5PREP\u00ae, Veratox\u00ae\n \n\n\nLIFE SCIENCES:\n \nAlert\u00ae, K-Blue\u00ae, K-Gold\u00ae, NeoSal\u00ae\n \n\n\nANIMAL SAFETY:\n \nAcid-A-Foam\u0099, Ag-Tek\u00ae, AluShield\u0099, AquaPrime\u00ae, Assault\u00ae, Barnstorm\u00ae, BioCres\u0099 50,\n \nBioPhene\u0099, BioQuat\u0099, BotVax\u00ae, Breeder-Sleeve\u00ae, Calf Eze\u0099, Chem-Tech, Ltd.\u0099, Chem-Tech\u2019s CT logo (with circle)\u0099, Chlor-A-Foam\u0099, COMPANION\u0099, CT-511\u00ae, Cykill\u0099, D3\u0099 Needles, D3X\u0099, DC&R\u00ae, DeciMax\u00ae, Di-Kill\u00ae, Dr. Frank\u2019s\u00ae, Dy-Fly\u00ae, DX3\u0099, Dyne-O-Might\u00ae, ElectroJac\u00ae, ELISA Technologies (design)\u00ae, EqStim\u00ae, EquiSleeve\u0099, E-Z Catch\u00ae, Farm-Foam\u0099, Final-Fly-T\u00ae, Fly-Die Defense\u0099, Fly-Die Ultra\u0099, Fura-Zone\u00ae, Gene-Trak\u00ae, Horse Sense\u00ae, Ideal\u00ae, ImmunoRegulin\u00ae, Iodis\u00ae, Jolt\u00ae, LD-44T\u0099, LD-44Z\u0099, MACLEOD\u00ae, Maxi Sleeve\u00ae, MegaShot\u0099, Viroxide Super\u0099, Neogen\u00ae Viroxide Super and flask (design)\u00ae, NFZ\u0099, Nu Dyne\u00ae, PanaKare\u0099, Paradefense\u00ae, Parvosol\u00ae, Peraside\u0099, Place Pack\u00ae, PolyPetite\u0099, PolyShield\u0099, PolySleeve\u00ae, Preserve\u00ae, Preserve International\u00ae, Preserve International(design)\u00ae, Prima\u00ae, Prima Marc\u0099, Prima-Shot\u0099, Prima Tech\u00ae, Pro-Fix\u00ae, Pro-Flex\u00ae,Pro-Shot\u0099, Protectus\u0099, Provecta\u00ae, Provecta Advanced\u00ae, Prozap\u00ae, Prozap (stylized mark w/fancy Z)\u0099, PY-75\u0099, Ramik\u00ae, RenaKare\u0099, Rodex\u0099, Safe-T-Flex\u0099, Siloxycide\u00ae, Squire\u00ae, Standguard\u00ae, Stress-Dex\u00ae, SureBond\u00ae, SureKill\u00ae, Swine-O-Dyne\u00ae, Synergize\u00ae, Tetrabase\u00ae, Tetracid\u00ae, Tetradyne\u00ae, ThyroKare\u0099,Tri-Hist\u00ae, Triplox\u0099, Paradefense\u00ae, Turbocide\u00ae, Turbocide Gold\u00ae, Uniprim\u00ae, VAP-5\u0099, VAP-20\u0099, Vet-Tie\u0099, Vita-15\u0099, War Paint\u00ae, X-185\u0099\n \n\n\nGENOMICS:\n \nAviandx and Design\u00ae, Canine HealthCheck\u00ae, Canine HealthCheck and Design\u00ae, CatScan and Design\u00ae, EarlyBird Sex Identification\u00ae, Envigor\u0099, GeneSeek\u00ae, Genomic Profiler\u0099, Genomic Insight for Personalized Care\u0099, Igenity\u00ae, Infiniseek\u0099, Paw Print Genetics\u00ae, Paw Print Pedigrees\u00ae, SeekGain\u0099, SeekSire\u0099, Skimseek\u00ae, Early Warning\u0099\n \n\n\nLOGOTYPES:\n \nBioSentry barn logo\u00ae, BioSentry chicken logo\u00ae, BioSentry pig logo\u00ae, Circular design\u00ae, TurboCide\u00ae (stylized), D3 color mark \u2013 red\u00ae\n\n\nNeogen operates in two business areas: the Food Safety and Animal Safety segments. See the \u201cNotes to Consolidated Financial Statements\u201d section of this Form 10-K for financial information about our business segments and international operations.\n \n\n\nFood Safety Segment\n \n\n\nNeogen\u2019s Food Safety segment primarily is engaged in the production and marketing of diagnostic test kits and complementary products marketed to food and feed producers and processors to detect dangerous and/or unintended substances in food and animal feed, such as foodborne pathogens, spoilage organisms, natural toxins, food allergens, genetic modifications and general sanitation concerns. Our test kits are used to detect potential hazards or unintended substances in food and animal feed by testers ranging from small local grain elevators to the largest, best-known food and feed processors in the world, and numerous regulatory agencies. Along with detection of contaminants in foods, we also detect beneficial components in foods such as dietary fiber and carbohydrates. Neogen\u2019s products include tests for:\n \n\n\n4\n\n\n\n\n\u00a0\n\n\nMycotoxins.\n Grain producers and processors of all types and sizes use our Veratox, Agri-Screen, Reveal, Reveal Q+ and Reveal Q+ MAX tests to detect the presence of mycotoxins, including aflatoxin, aflatoxin M1, deoxynivalenol, fumonisin, ochratoxin, zearalenone, T-2/HT-2 toxin and ergot alkaloid, to help ensure product safety and quality in food and animal feed.\n \n\n\nFood allergens.\n The world\u2019s largest producers of cookies, crackers, candy, ice cream and many other betaprocessed foods use our Veratox, Alert, Reveal, Reveal 3-D and BioKits testing products to help protect their food-allergic customers from the inadvertent contamination of products with food allergens, including but not limited to peanut, milk, egg, almond, gliadin (gluten), soy, hazelnut and coconut residues. Also included in our food allergen testing portfolio are Allergen Protein Rapid Kits and Allergen Protein ELISA Kits, acquired as part of the FSD transaction in September of 2022.\n\n\nFoodborne pathogens.\n Meat and poultry processors, seafood processors, fruit and vegetable producers and many other market segments are the primary users of Neogen\u2019s ANSR and Reveal tests for foodborne bacteria, including \nE. coli\n O157:H7, \nSalmonella\n, \nListeria \nand\n Campylobacter\n. Neogen\u2019s ANSR pathogen detection system is an isothermal amplification reaction test method that exponentially amplifies the DNA of any bacteria present in food and environmental samples to detectable levels in 10 minutes. Combined with ANSR\u2019s single enrichment step, Neogen\u2019s pathogen detection method provides DNA-definitive results in a fraction of the time of other molecular detection methods. The Molecular Detection System, an isothermal DNA detection and bioluminescence device, and unique Molecular Detection Assays provide a total solution for fast and accurate pathogen detection, acquired as part of the FSD transaction in September 2022. Our \nListeria\n Right Now test detects the pathogen in less than 60 minutes without sample enrichment. Reveal\u2019s lateral flow device combines an immunoassay with chromatography for a rapid and accurate one-step result.\n \n\n\nSpoilage microorganisms.\n Neogen\u2019s Soleris products are used by food processors to identify the presence of spoilage organisms (e.g., yeast and mold) and other microbiological contamination in food. The systems measure microbial growth by monitoring biochemical reactions that generate a color change in the media as microorganisms grow. The sensitivity of the system allows detection in a fraction of the time needed for traditional methods, with less labor and handling time. Our NeoSeek genomics services utilize a novel application of metagenomics to determine all bacteria in a sample, without introducing biases from culture media, and without the need to generate a bacterial isolate for each possible microbe in a sample. The Microbial Luminescence System (MLS II), acquired in the September 2022 FSD transaction, is designed for the rapid detection of microbial contamination in dairy and dairy-related products, utilizing adenosine triphosphate (\"ATP\") bioluminescence technology.\n\n\nSanitation monitoring.\n Neogen manufactures and markets our AccuPoint Advanced rapid sanitation test to detect the presence of ATP, a chemical found in all living cells. Also included in our ATP sanitation monitoring portfolio is the Clean-Trace\u0099 hygiene monitoring system, acquired as part of the FSD transaction in September 2022. These easy-to-use and inexpensive tests use bioluminescence to quickly determine if a contact surface has been completely sanitized. When ATP comes into contact with reagents contained in the test device, a reaction takes place that produces light. More light is indicative of higher levels of ATP and a need for more thorough sanitation. Our worldwide customer base for ATP sanitation testing products includes food and beverage processors, the food service and healthcare industries, as well as many other users.\n \n\n\nSeafood contaminants.\n Neogen\u2019s specialty products for the seafood market include tests for histamine, a highly allergenic substance that occurs when certain species of fish begin to decay; and sulfite, an effective but potentially allergenic shrimp preservative.\n\n\nWaterborne microorganisms.\n Neogen offers the food and beverage industries, including water companies, several platforms for performing the microbial analysis of water. This includes Neogen\u2019s filter tests, which are a combination of Neogen Filter membrane filtration and Neogen Culture Media ampouled media, and an easy-to-use Colitag product. With Colitag, after an incubation period, the sample changes color in the presence of coliforms and fluoresces in the presence of \nE. coli\n.\n \n\n\n5\n\n\n\n\n\u00a0\n\n\nCulture media. \nNeogen Culture Media, formerly Neogen\u2019s Acumedia and Lab M products, offers culture media and prepared media for varied purposes, including traditional bacterial testing and the growth of beneficial bacteria, such as cultures for sausages and beer. Also included under Neogen Culture Media is the Petrifilm solution, acquired as part of the FSD transaction in September 2022. Petrifilm standard and rapid plates are all-in-one plating systems that serve as an efficient method for the detection and enumeration of various microorganisms. Our customers for culture media also include commercial and research laboratories and producers of pharmaceuticals, cosmetics and veterinary vaccines.\n \n\n\nFood quality diagnostics.\n Through the Ireland-based Megazyme, Ltd., Neogen supplies diagnostic kits and specialty enzymes used worldwide by quality control laboratories in the food, animal feed and beverage industries. Megazyme\u2019s validated assays and reagents are used across various food industries such as the grain, wine and dairy markets, to measure dietary fibers, complex carbohydrates, simple sugars and organic acids, such as lactose.\n\n\nSample handling.\n Neogen offers a range of sample handling products, acquired through the September 2022 FSD transaction. These innovative solutions are designed to make environmental and carcass sample collection and preparation more reliable and convenient than traditional methods. These products are manufactured to meet the highest quality standards and government regulations, maximizing accuracy, consistency and efficiency, while remaining cost efficient.\n\n\nDigital services. \nOur food safety and risk management software-as-a-service, Neogen Analytics, delivers a comprehensive Environmental Monitoring Program (EMP) automation solution for food companies. The software reduces risk by increasing the visibility of food safety testing results, elevating the ability to comply with and improve food safety standards. With the Corvium acquisition in February 2023, Neogen's capabilities expanded with additional services and modules to include data aggregation and digitalized workflow services for product testing and sanitation programs.\n \n\n\nLaboratory services.\n Neogen offers food safety analysis services in the United States (\"U.S.\"), United Kingdom (\"U.K.\") and India. These ISO-accredited laboratories offer a variety of fee-for-service tests for the food and feed industries.\n \n\n\nThe majority of Neogen\u2019s food safety test kits use immunoassay technology to rapidly detect target substances. Our ability to produce high-quality antibodies sets our products apart from immunoassay test kits produced and sold by other companies. Our kits are available in microwell formats, which allow for automated and rapid processing of a large number of samples, as well as lateral flow and other similar devices that provide distinct visual results. Typically, test kits use antibody-coated test devices and chemical reagents to indicate a positive or negative result for the presence of a target substance in a test sample. The simplicity of the tests makes them accessible to all levels of food producers, processors and handlers. Neogen also offers other testing methods and products to complement its immunoassay tests.\n \n\n\nOur test kits are generally based on internally developed technology, licensed technology, or technology that is acquired as a result of acquisitions. In fiscal 2023, the Food Safety segment incurred expense totaling $3,118 for royalties for licensed technology used in our products, including expense of $838 for allergen products and $489 for the pathogen product line. Generally, royalty rates are in the range of 2% to 10% of revenues on products containing the licensed technology. Some licenses involve technology that is exclusive to Neogen\u2019s use, while others are non-exclusive and involve technology licensed to multiple licensees.\n \n\n\nNeogen\u2019s international operations in the U.K., Europe, Mexico, Guatemala, Brazil, Argentina, Uruguay, Chile, China and India originally focused on food safety products, and each of these units reports through the Food Safety segment. In recent years, these operations have expanded to offer our complete line of products and services, including those usually associated with the Animal Safety segment, such as cleaners, disinfectants, rodent control, insect control, veterinary instruments and genomics services. These additional products and services are managed and directed by existing management at our international operations and report through the Food Safety segment.\n \n\n\nRevenues from Neogen\u2019s Food Safety segment accounted for 66.5%, 49.3%, and 50.0% of our total revenues for fiscal years ended May 31, 2023, 2022 and 2021, respectively.\n \n\n\n6\n\n\n\n\n\u00a0\n\n\nANIMAL SAFETY SEGMENT\n \n\n\nNeogen\u2019s Animal Safety segment is primarily engaged in the development, manufacture, marketing, and distribution of veterinary instruments, pharmaceuticals, vaccines, topicals, parasiticides, diagnostic products, a full suite of agricultural biosecurity products such as rodent control, cleaners, disinfectants and insect control, and genomics services.\n \n\n\nVeterinary instruments.\n Neogen markets a broad line of veterinary instruments and animal health delivery systems primarily under the Ideal brand name. Approximately 250 different products are offered, many of which are used to deliver animal health products, such as antibiotics and vaccines. Ideal\u2019s D3 and D3X Needles are stronger than conventional veterinary needles and are detectable by metal detectors at meat processing facilities \u2014 a potential market advantage in the safety-conscious beef and swine industries. Neogen\u2019s Prima product line consists of highly accurate devices used by farmers, ranchers and veterinarians to inject animals, provide topical applications and use for oral administration. The Prima line also includes products used in artificial insemination in the swine industry, animal identification products and handling equipment.\n \n\n\nVeterinary pharmaceuticals.\n Animal Safety\u2019s NeogenVet product line provides innovative, value-added, high quality products to the veterinary market. Top NeogenVet products include PanaKare, a digestive aid that serves as a replacement therapy where digestion of protein, carbohydrate and fat is inadequate due to exocrine pancreatic insufficiency; Natural Vitamin E-AD, which aids in the prevention and treatment of vitamin deficiencies in swine, cattle and sheep; RenaKare, a supplement for potassium deficiency in cats and dogs; and ThyroKare, a supplement used as replacement therapy for dogs with diminished thyroid function. Neogen also markets Uniprim, a veterinary antibiotic, and several companion animal parasiticides.\n \n\n\nVeterinary biologics.\n Neogen\u2019s BotVax B vaccine has successfully protected thousands of horses and foals against Type B botulism, commonly known as Shaker Foal Syndrome. Our product is the only USDA-approved vaccine for the prevention of Type B botulism in horses. Years of research and many thousands of doses have proven Neogen\u2019s EqStim immunostimulant to be safe and effective as a veterinarian-administered adjunct to conventional treatment of equine bacterial and viral respiratory infections. The Company\u2019s ImmunoRegulin product uses similar immunostimulant technology to aid in the treatment of pyoderma (a bacterial skin inflammation) in dogs.\n \n\n\nVeterinary OTC products.\n Animal Safety products offered by Neogen to the retail over-the-counter (OTC) market include Ideal brand veterinary instruments packaged for the retail market. OTC products also include Stress-Dex, an oral electrolyte replacer for performance horses, and Fura-Zone, for the prevention and treatment of surface bacterial infections in wounds, burns and cutaneous ulcers. Hoof care, disposables and artificial insemination supplies are marketed to the dairy and veterinary industries.\n \n\n\nRodent control products.\n Neogen\u2019s comprehensive line of proven rodent control products, sold under brand names such as Ramik, CyKill and Havoc, effectively address rodent problems of any size and serve as a critical component of an overall biosecurity plan for animal protein production operations. Neogen offers several active ingredients, including diphacinone, bromethalin, brodifacoum and zinc phosphide, formulated with food-grade ingredients to generate the highest acceptance and most palatable bait possible.\n \n\n\nCleaners and disinfectants.\n Used in animal and food production facilities, Neogen\u2019s cleaners and disinfectants, including Synergize, 904 Disinfectant, Acid-A-Foam, BioPhene, Neogen Viroxide Super, and Companion, can prevent disease outbreaks. The products are also used in the veterinary clinic market to maintain sanitary conditions and limit the potential hazards of bacteria, fungi and viruses. Neogen\u2019s water line cleaner and disinfectant products, including Peraside, NeoKlor, AquaPrime and Siloxycide, are used to clean water lines and provide continuous disinfection of a livestock facility\u2019s water supply.\n \n\n\n7\n\n\n\n\n\u00a0\n\n\nInsect control products.\n Neogen\u2019s highly effective insect control products utilize environmentally friendly technical formulas, and several are approved for use in food establishments and by pest control professionals in a wide range of environments. The Company\u2019s Prozap insect control brand is used in the large animal production industry, particularly with dairy and equine producers. Neogen\u2019s SureKill line of products is used by professionals to control a variety of insects, and the Company\u2019s StandGuard Pour-on solution is used for horn fly and lice control in beef cattle.\n \n\n\nAnimal genomics services.\n Neogen Genomics provides value-added services to leading agricultural genetics providers, large national cattle associations, companion animal breed registries and direct-to-consumer canine genetic test providers, university researchers, and numerous commercial beef and dairy cattle, swine, sheep and poultry producers. With state-of-the-art genomics laboratories and comprehensive bioinformatics to interpret genomics test results, Neogen Genomics offers identity and trait determination and analysis. Our technology employs high-density DNA genotyping and genomic sequencing for identity and trait analysis in a variety of important animal and agricultural plant species. Our extensive bioinformatics database identifies and predicts an animal\u2019s positive or negative traits based on DNA test results. This information has helped livestock producers increase the speed of genetic improvement in their herds and the overall performance and quality of their animals. Neogen\u2019s December 2021 acquisition of Genetic Veterinary Sciences, Inc. expanded the Company\u2019s portfolio through the addition of a number of genetic tests for companion animals, including dogs, cats and birds.\n \n\n\nLife sciences.\n Neogen\u2019s Life Science/Toxicology line of products include reagents and test kits for immunoassay production, life science research, and forensic and animal toxicology. Product offering includes a wide range of tests to provide solutions for drugs of abuse, including designer drugs and emerging drugs. The drug detection assays include over 100 test kits used to screen more than 300 drugs and their metabolites in various forensic matrices, including oral fluid, whole blood, urine, serum, plasma, meconium, and others. \nOur portfolio for life science research includes assays for detecting levels of hormones, steroids, lipoxins, and histamine in a wide range of samples and species types.\n Additionally, we offer reagents and unique colorimetric and chemiluminescent substrates for immunoassay production and research applications.\n\n\nMany of the products and services in the Animal Safety segment use licensed technology. In fiscal 2023, the Animal Safety segment incurred expense totaling $274 for royalties for licensed technology used in our products and services, including expense of $152 related to genomics services.\n \n\n\nNeogen\u2019s operation in Australia originally focused on providing genomics services and sales of animal safety products and reports through the Animal Safety segment. It has expanded to offer our complete line of products and services, including those usually associated with the Food Safety segment. These additional products are managed and directed by existing management at Neogen Australasia and report through the Animal Safety segment.\n \n\n\nRevenues from Neogen\u2019s Animal Safety segment accounted for 33.5%, 50.7%, and 50.0% of our total revenues for fiscal years ended May 31, 2023, 2022 and 2021, respectively.\n \n\n\nGENERAL SALES AND MARKETING\n \n\n\nNeogen is organized under two segments \u2014 Food Safety and Animal Safety. Within these segments, our sales efforts are generally organized by specific markets, and/or geography. During the fiscal year that ended May 31, 2023, we had approximately 41,000 customers for our products. As many of our customers are distributors and certain animal safety products are offered to the general retail market, the total number of end users of our products is considerably greater than 41,000. As of May 31, 2023, a total of 904 employees were assigned to sales and marketing functions, compared to 573 at the end of May 2022. During the fiscal years ended May 31, 2023, 2022 and 2021, no single customer or distributor accounted for 10% or more of our revenues.\n \n\n\n8\n\n\n\n\n\u00a0\n\n\nDOMESTIC SALES AND MARKETING\n \n\n\nFOOD SAFETY\n \n\n\nTo reach each customer and prospect with expertise and experience, Neogen has a staff of specialized food safety sales and technical service representatives assigned to specific markets or geographies. This staff sells our products directly to end users and also handles technical support issues that arise with customers.\n \n\n\nNeogen\u2019s food safety markets are primarily comprised of:\n \n\n\n\u2022\nMilling and grain\n, including grain elevators, feed mills, pet food manufacturers and grain inspection companies; \n\n\n\u2022\nMeat and poultry\n, including meat and poultry processors, producers of ready-to-eat meat and poultry products, and the USDA\u2019s Food Safety Inspection Service (FSIS); \n\n\n\u2022\nPrepared foods and ingredients\n, including flour millers, malters, bakeries, candy and confection manufacturers, manufacturers of prepared meals, nuts, spices, cookies, crackers and other snack foods; \n\n\n\u2022\nFruits and vegetables\n, including growers and processors of juice and packaged fresh cut grocery items; \n\n\n\u2022\nSeafood\n, including harvesters and processors of a wide variety of seafood products; \n\n\n\u2022\nDairy\n, including milk and yogurt processors; \n\n\n\u2022\nBeverage\n, including soft drink bottlers and beer and wine producers; \n\n\n\u2022\nWater, \nincluding food producers, water bottlers and municipal water departments; \n\n\n\u2022\nHealthcare\n, including hospitals and distributors to the healthcare industry; \n\n\n\u2022\nTraditional culture media markets\n, including commercial and research laboratories and producers of pharmaceuticals, cosmetics and veterinary vaccines; \n\n\n\u2022\nFood service\n, including fast food service establishments and retail grocery market chains; and \n\n\n\u2022\nDietary supplements\n, including producers and marketers of a wide variety of nutritional and holistic consumer products. \n\n\nANIMAL SAFETY\n \n\n\nNeogen\u2019s staff of specialized animal safety sales, marketing, customer and technical service representatives sell our products and services directly to consumers, dealers, veterinarians, distributors and other manufacturers and also handle technical support issues. Neogen further supports its distribution channels through product training, field support, various promotions and advertising.\n \n\n\nNeogen\u2019s animal safety markets are primarily comprised of:\n \n\n\n\u2022\nCompanion animal veterinarians\n; \n\n\n\u2022\nLivestock producers, veterinarians and breed associations\n;\n\n\n\u2022\nRetailers\n,\n \nincluding large farm and ranch retailers; \n\n\n\u2022\nBreeding and genetics companies\n, including large dairy artificial insemination providers, poultry and swine genetics companies and the aquaculture industry;\n\n\n\u2022\nDiagnostic labs and universities\n,\n \nincluding commercial and forensic testing laboratories; \n\n\n\u2022\nDistributors. \nTo expand the reach of its animal safety OTC and veterinary products, Neogen has a dedicated sales team that sells the Company\u2019s products to animal health product distributors;\n\n\n\u2022\nOther manufacturers and government agencies. \n\n\n9\n\n\n\n\n\u00a0\n\n\nINTERNATIONAL SALES AND MARKETING\n \n\n\nNeogen maintains Company-owned locations outside of the United States in 23 countries to provide a direct sales presence. We also maintain a network of distributors to reach countries where we do not have a direct presence.\n \n\n\nUK, Europe, Middle East, Africa and India.\n Neogen Europe, Ltd., headquartered in Ayr, Scotland, sells products and services to our network of customers and distributors throughout the U.K., Europe, the Middle East and Africa. Customers in the U.K., France, Germany, Italy, the Netherlands, United Arab Emirates (U.A.E.) and India are served by our employees. In other regions, customers generally are served by distributors managed by Neogen Europe personnel.\n \n\n\nNeogen Europe management also is responsible for various other manufacturing operations and service providers, including Quat-Chem, Ltd., Neogen Italia, Megazyme, Ltd., Delf, Ltd., and Abbott Analytical, Ltd. Neogen Europe has two additional manufacturing locations in Heywood and Liverpool, England, which manufacture culture media supplements and microbiology technologies.\n\n\nNeogen also operates an accredited laboratory in India, located in Kochi, in the state of Kerala, that performs food safety and water quality testing for food producers, major hotels and restaurants in its home region, as well as safety and quality analysis for the country\u2019s expanding nutraceutical market, and growing food export businesses.\n \n \n\n\nMexico, Central and South America. \nNeogen maintains offices and distribution facilities in Mexico, Guatemala, Brazil, Argentina, Chile, Uruguay and Colombia. Combined, the businesses distribute Neogen\u2019s products and offer genomics services throughout Mexico, Central and South America to distributors and end customers.\n \n\n\nNeogen do Brasil, headquartered near S\u00e3o Paulo, is also responsible for manufacturing, marketing and sales for Rogama, located in Pindamonhangaba, Brazil. This company operates a genomics testing laboratory (formerly named Deoxi) and develops, manufactures and markets rodent control and insect control products. Rogama offers registered pest control products to Brazil\u2019s agronomic, professional and retail markets.\n \n\n\nAsia Pacific. \nNeogen maintains offices in Japan, Korea, Thailand, China, Australia and New Zealand. Combined, the businesses distribute Neogen\u2019s products throughout the Asia Pacific region to distributors and end customers.\n \n\n\nOur Chinese subsidiary, located in Shanghai, also operates a genomics testing laboratory, focusing on swine, dairy and beef cattle markets. Neogen\u2019s Australasia subsidiary also operates a genomics testing laboratory, focusing on sheep and cattle markets in Australia and New Zealand.\n\n\nNeogen Canada.\n This business operates a genomics testing laboratory in Edmonton, Alberta.\n \n\n\nOther distributor partners.\n Outside of our physical locations, Neogen uses our own sales managers in both the Food Safety and Animal Safety segments to work closely with and coordinate the efforts of a network of approximately 800 distributors in more than 100 countries. The distributors provide local training and technical support, perform market research and promote Company products within designated countries around the world.\n \n\n\nSales to customers outside the United States accounted for 48.4%, 39.7%, and 39.1% of our total revenues for fiscal years ended May 31, 2023, 2022 and 2021, respectively. No individual foreign country contributed 10% or more of our revenues for those same periods.\n \n\n\n10\n\n\n\n\n\u00a0\n\n\nRESEARCH AND DEVELOPMENT\n \n\n\nNeogen has a strong commitment to its research and development activities. Our product development efforts are focused on the enhancement of existing products and on the development of new products that advance our business strategy. As of May 31, 2023, we employed 136 scientists and support staff in our worldwide research and development group, including immunologists, chemists and microbiologists. Research and development costs were approximately $26,039, $17,049, and $16,247 representing 3.2%, 3.2%, and 3.5% of total revenues in fiscal years 2023, 2022 and 2021, respectively. Management currently expects our future research and development expenditures to approximate 3% to 4% of total revenues annually.\n \n\n\nNeogen has ongoing development projects for several new and improved diagnostic tests and other complementary products for both the Food Safety and Animal Safety markets. Management expects that a number of these products will be commercially available at various times during fiscal years 2024 and 2025.\n \n\n\nCertain technologies used in some products manufactured and marketed by Neogen were acquired from or developed in collaboration with partners, independent scientists, governmental agencies, universities and other third parties. We have entered into agreements with these parties that provide for the payment of royalties based on sales of products that use the pertinent licensed technology. Royalties, expensed to sales and marketing, under these agreements amounted to $3,392, $1,999, and $2,129 in fiscal years 2023, 2022, and 2021, respectively.\n \n\n\nPROPRIETARY PROTECTION AND APPROVALS\n \n\n\nNeogen uses a variety of intellectual property approaches to protect the competitive position of its offerings, including the use of patents, trademarks, trade secrets, proprietary and confidential know-how, as well as branding and trademarks. Patent and trademark registration applications are submitted whenever appropriate. From its inception, Neogen has acquired and been granted numerous patents and trademark registrations and has numerous pending patents and trademark applications. Neogen\u2019s patent portfolio includes at least 48 U.S. patents, 404 patents in countries outside of the U.S., and 209 pending patent applications globally. Neogen\u2019s trademark estate includes 119 trademark registrations within the U.S., and 548 trademark registrations in countries outside of the U.S, and 24 trademark registration applications globally.\n\n\nWe do not expect the near-term expiration of any single patent to have a significant effect on future results of operations. Our offerings also are protected by trade secrets and proprietary know-how when appropriate. For example, many of our products employ unique antibodies capable of detecting microorganisms and other substances at minute levels. In some instances, we have chosen to keep confidential the methods and techniques used to manufacture and use those antibodies when trade secret and/or proprietary know-how protections are more appropriate.\n\n\nManagement believes that Neogen has adequate rights to commercialize our products. However, we are aware that substantial research is conducted at universities, governmental agencies and other companies throughout the world, and that it always is possible that patents have been applied for and could be granted that are relevant to technologies that may be used in our products. To the extent some of our products may now, or in the future, embody technologies protected by patents of others, we may need to obtain licenses to use such technologies to continue to sell the products. These licenses may not be available on commercially reasonable terms. Failure to obtain any such licenses could delay or prevent the sale of certain new or existing products. In addition, patent litigation is not uncommon. Accordingly, there can be no assurance that we will continue to have adequate rights to commercialize our new products or that we will avoid litigation.\n \n\n\nOne of the major areas affecting the success of biotechnology and pharmaceutical development involves the time, cost and uncertainty surrounding regulatory approvals. Neogen products requiring regulatory approval, which we currently have in place, include BotVax B, EqStim, ImmunoRegulin and Uniprim. Neogen\u2019s rodenticide, disinfectant, parasiticide and insecticide products are subject to registration in the United States and internationally.\n \n\n\n11\n\n\n\n\n\u00a0\n\n\nNeogen utilizes third-party validations and certifications on many of our products and associated methods to provide our customers with confidence that our products perform to specified levels. These include validation by, among others, the AOAC International, independently administered third-party, multi-laboratory collaborative studies, and approvals by the USDA Food Safety Inspection Service.\n \n\n\nPRODUCTION AND SUPPLY\n \n\n\nNeogen manufactures products in the U.S., the U.K., Ireland and Brazil and provides genomics services in the U.S., Scotland, Brazil, Australia, China and Canada. As of May 31, 2023, there were approximately 1,168 full-time employees assigned to manufacturing operations and providing services in these locations, operating on multiple shift schedules, with occasional 24/7 production during high-demand periods. Future demand increases could be accommodated by adding shifts. Management believes we could increase the current output of our primary product lines by using the current space available. However, to do so would require investment in additional equipment.\n \n\n\nFood safety diagnostics.\n Manufacturing of diagnostic tests for the detection of natural toxins, pathogens, food allergens and spoilage organisms, final kit assembly, quality assurance and shipping takes place at our facilities in Lansing, Michigan. Proprietary monoclonal and polyclonal antibodies for Neogen\u2019s diagnostic kits are produced on a regular schedule in our immunology laboratories in Lansing. Generally, the final assembly and shipment of diagnostic test kits to customers in Europe is performed in our Ayr, Scotland facility. Many of the Company\u2019s food safety diagnostic instruments and readers are produced by third-party vendors to our specifications, quality tested in Lansing, and then shipped to customers. Culture media products are manufactured in an ISO-approved facility in Lansing and in Heywood and Liverpool, England. Products are blended following strict formulations or custom blended to customer specifications and shipped directly to customers from Lansing and the U.K. The Heywood location produces prepared media plates, sterile liquid media, and other related products in ready-to-use format for food testing laboratories across the U.K. and Western Europe. Enzyme substrates are manufactured at Megazyme in Bray, Ireland. Our Clean-Trace product line is manufactured in Wales. Other FSD products are currently manufactured within 3M plants in the U.S. and Poland.\n \n\n\nAnimal health products.\n Manufacturing of animal health products, pharmacological diagnostic test kits, and test kits for drug residues takes place in our FDA-registered facilities in Lexington, Kentucky. In general, manufacturing operations including reagent manufacturing, quality assurance, final kit assembly and packaging are performed by Neogen personnel. Certain animal health products and veterinary instruments that are purchased finished or that are toll manufactured by third-party vendors are warehoused and shipped from our Kentucky facilities. Some veterinary instruments are produced in our facilities in Lansing and are then shipped to Kentucky for distribution to customers. Manufacturing of devices used for animal injections, topical applications and oral administration occurs in Kenansville, North Carolina.\n \n\n\nVeterinary biologics.\n Neogen maintains a Lansing-based USDA-approved manufacturing facility devoted to the production of the biologic products EqStim and ImmunoRegulin. \nP.acnes\n seed cultures are added to media and then subjected to several stages of further processing resulting in a finished product that is filled and packaged within the facility. Our BotVax B vaccine also is produced in the Lansing facility using Type B botulism seed cultures and a traditional fermentation process. All completed biologic products are then shipped to Neogen\u2019s Lexington facilities, where they are inventoried prior to distribution to customers.\n \n\n\nAgricultural genomics services.\n Neogen offers agricultural genomics laboratory services and bioinformatics at our locations in the U.S., Scotland, Brazil, Australia, China and Canada. Through our laboratory services and bioinformatics (primarily in beef and dairy cattle, pigs, sheep, poultry, horses and dogs), Neogen Genomics allows our customers to speed genetic improvement efforts, as well as identify economically important diseases.\n \n\n\nCleaners, disinfectants and rodent control products.\n Manufacturing of rodent control products and/or cleaners and disinfectants takes place in the following locations: Wisconsin, Tennessee, California, England and Brazil. Manufacturing of rodent control products consists of blending technical material (active ingredient) with bait consisting principally of various grains. Certain cleaners and disinfectants are manufactured in Neogen facilities, while others are purchased from other manufacturers for resale or toll manufactured by third parties.\n \n\n\nInsect control products.\n Neogen manufactures insect control products at its facilities in Iowa and Brazil.\n \n\n\n12\n\n\n\n\n\u00a0\n\n\nNeogen purchases component parts and raw materials from more than 1,000 suppliers. Though many of these items are purchased from a single source to achieve the greatest volume discounts, we believe we have identified acceptable alternative suppliers for most of our key components and raw materials where it is economically feasible to do so. There can be no assurance that we would avoid a disruption of supply in the event a supplier discontinues shipment of product. Shipments of higher volume products are generally accomplished within a 48-hour turnaround time. Our backlog of unshipped orders at any given time has historically not been significant.\n \n\n\nCOMPETITION\n \n\n\nAlthough competitors vary in individual markets, management knows of no single competitor that is pursuing Neogen\u2019s fundamental strategy of developing and marketing a broad line of products, ranging from disposable tests and culture media to veterinary pharmaceuticals and instruments for a large number of food safety and animal safety concerns. For each of our individual products or product lines, we face intense competition from companies ranging from small businesses to divisions of large multinational companies. Some of these organizations have substantially greater financial resources than Neogen. We compete primarily on the basis of ease of use, speed, accuracy and other performance characteristics of our products. The breadth of our product line, the effectiveness of our sales and customer service organizations, and pricing also are components in management\u2019s competitive strategy.\n \n\n\nFuture competition may become even more intense and could result from the development of new technologies, which could affect the marketability and profitability of Neogen\u2019s products. Our competitive position also depends on our ability to continue to develop proprietary products, attract and retain qualified scientific and other personnel, develop and implement production and marketing plans and protect the intellectual property for new products. Additionally, we must continue to generate or have access to adequate capital resources to execute our strategy.\n \n\n\nFOOD SAFETY:\n \n\n\nWith a large professional sales organization offering a comprehensive catalog of food safety solutions, management believes we maintain a general advantage over competitors offering only limited product lines. In most cases, Neogen sales and technical service personnel can offer unique insight into a customer\u2019s numerous safety and quality challenges, and offer testing and other solutions to help the customer overcome those challenges.\n \n\n\nCompetition for pathogen detection products includes traditional methods and antibody and genetic-based platforms; competition for natural toxins and allergen detection products includes instrumentation and antibody-based tests. While our offerings will not always compete on all platforms in all markets, the products we offer provide tests that can be utilized by most customers to meet their testing needs.\n \n\n\nIn addition to our extensive product offerings and robust distribution network, we focus our competitive advantage in the areas of customer service, product performance, speed, and ease of use of our products. Additionally, by aggressively maintaining Neogen\u2019s ability to produce at low cost, we believe that we can be competitive with new market entrants that may choose a low pricing strategy in an attempt to gain market share.\n \n\n\nANIMAL SAFETY:\n \n\n\nNeogen\u2019s Animal Safety segment faces no single competitor across the products and markets we serve. In the life sciences and toxicology markets, we compete against several other diagnostic and reagent companies with similar product offerings.\n \n\n\nIn the veterinary market, Neogen markets BotVax B, the only USDA-approved vaccine for the prevention of botulism Type B in horses. We compete on other key products through differentiated product performance and superior customer and technical support. With some of our products, we provide solutions as a lower cost alternative and also offer a private label option for our customers.\n \n\n\nCompetition in the rodent control market includes several companies of comparable size that offer products into similar market segments. The retail rodent control market is not dominated by a single brand. While the technical\n \n\n\n13\n\n\n\n\n\u00a0\n\n\nmaterials used by competing companies are similar, Neogen uses manufacturing and bait formula techniques, which we believe may better attract rodents to the product and thereby improves overall product performance.\n \n\n\nWithin the insect control market, Chem-Tech products specifically focus on the area of insect control for food and animal safety applications. There are several competitors offering similar products, however, we have a proprietary formulation chemistry that optimizes the delivery and safe application of insect control products at the customer\u2019s location. These products currently are only sold in the U.S. through a combination of direct sales and distributors.\n \n\n\nNumerous companies, including a number of large multinationals, compete for sales in the cleaner and disinfectant product segment. Neogen\u2019s broad line of products is sold around the world, primarily to assist in the cleaning and disinfecting of animal production facilities.\n \n\n\nIn addition to our extensive portfolio of animal safety products, Neogen also competes in the retail market by providing solutions to common retail problems, such as stock outs, wasted floor space, and inconsistent brand identity. We differentiate ourselves by offering planograms and convenient reordering systems to maximize turns and profitability for our retail customers.\n \n\n\nNeogen Genomics, a leading worldwide commercial animal genomics laboratory, employs cutting-edge technology in the area of genomics. The result of this technology allows the acceleration of natural selection through parentage testing and selective breeding of traits such as disease resistance, yield improvement and meat quality. Competition comes mainly from a number of service providers, some significantly larger than us as well as several smaller companies offering genomics services. Neogen Genomics is not involved in cloning or the development of transgenic animals.\n \n\n\nGOVERNMENT REGULATION\n \n\n\nA significant portion of Neogen\u2019s products and revenues are affected by the regulations of various domestic and foreign government agencies, including the U.S. Department of Agriculture (USDA), the Environmental Protection Agency (EPA), and the U.S. Food and Drug Administration (FDA). Changes in these regulations could affect revenues and/or costs of production and distribution.\n \n\n\nNeogen\u2019s development and manufacturing processes involve the use of certain hazardous materials, chemicals, and compounds. Management believes that our safety procedures for handling and disposing of such commodities comply with the standards prescribed by federal, state and local regulations. However, changes in such regulations or rules could involve significant costs to us and could be materially adverse to our business.\n \n\n\nThe rodent control products, insect control products, cleaners, disinfectants and sanitizers manufactured and distributed by Neogen are subject to EPA and various U.S. state regulations as well as other analogous agencies in the markets where we sell such products. In general, any international sale of our products also must comply with similar regulatory requirements in the country of destination. Each country has its own individual regulatory construct with specific requirements. To the best of our knowledge, Neogen products are compliant with applicable regulations in the countries where such products are sold.\n \n\n\nMany food safety diagnostic products do not require direct government approval. However, we have pursued voluntary approvals and certifications for a number of these products to enhance their marketability.\n \n\n\nNeogen\u2019s veterinary vaccine products and some pharmaceutical products require government approval to allow for lawful sales. The vaccine products are approved by the U.S. Department of Agriculture, Center for Veterinary Biologics (USDA-CVB) and analogous agencies in jurisdictions where sold. The pharmaceutical products are approved by the FDA and analogous agencies in jurisdictions where sold. The products, and the facilities in which they are manufactured, are in a position of good standing with all agencies. We have no warning letters based on any review of these products or facility inspections and are not aware of any reason why we could not manufacture and market such products in the future.\n \n\n\n14\n\n\n\n\n\u00a0\n\n\nOther animal safety and food safety products generally do not require additional registrations or approvals. However, Neogen\u2019s regulatory staff routinely monitors amendments to current regulatory requirements to ensure compliance.\n \n\n\nHUMAN CAPITAL MANAGEMENT\n \n\n\nOur people are a critical component in our continued success. As a team, they put Neogen\u2019s core values into action, while executing on key growth initiatives to maintain long-term sustainable growth. We strive to create a workplace of choice to attract, retain, and develop top talent to achieve our vision and deliver shareholder results. As of May 31, 2023, we employed 2,640 people worldwide, with 1,444 located in the U.S. and 1,196 international. We maintain good relations with both our union and non-union employees and have not experienced any work stoppages.\n\n\nThe Company is committed to fostering a diverse and inclusive workplace that attracts and retains exceptional talent. Through ongoing employee development, comprehensive compensation and benefits, and a focus on health, safety and employee wellbeing, the Company strives to help its employees in all aspects of their lives so they can do their best work.\n \n\n\nWorkplace Culture and Employee Engagement\n. We have established our One Neogen Pillars of Trust which are the principles that guide our decision-making every day: \u0095 Openness \u0095 Honesty \u0095 Credibility \u0095 Respect \u0095 Service. We value responsibility, consistency and integrity. Our Code of Conduct codifies our commitment to conducting business ethically.\n \n\n\nEquity, Diversity, Inclusion, and Belonging (EDIB).\n We strive to create an environment where colleagues feel valued and understand the important role we play in embracing diversity to improve the quality of our innovation, collaboration and relationships. We are dedicated to executing on our equity, diversity, inclusion and belonging initiatives.\n \n\n\nTalent Attraction, Development and Retention.\n We employ a variety of career development, employee benefits, policies and compensation programs designed to attract, develop and retain our colleagues. Employee benefits and policies are designed for diverse needs. We have internal programs designed to develop and retain talent, including career planning, leadership development programs, performance management and training programs.\n \n\n\nCompensation and Benefits\n. We strive to support our colleagues\u2019 well-being and enable them to achieve their best at work and at home. Our compensation and benefits programs are designed to be competitive and support colleague well-being, including physical and mental health, financial wellness, and family resources.\n \n\n\nEmployee Health and Safety\n. We are committed to ensuring a safe working environment for our colleagues. Our sites have injury prevention programs, and we strive to build on our safety culture. Our procedures emphasize the need for the cause of injuries to be investigated and for action plans to be implemented to mitigate potential recurrence. Our safety programs have resulted in strong safety performance.\n \n\n\nITEM 1A. RISK FACTORS\n \n\n\nInvesting in our securities involves a variety of risks and uncertainties, known and unknown, including, among others, those discussed below. Each of the following risks should be considered carefully, together with all the other information included in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes and in our other filings with the SEC. Furthermore, additional risks and uncertainty not presently known to us or that we currently believe to be immaterial also could adversely affect our business. Our business, results of operations, financial condition and cash flow could be materially and adversely affected by any of these risks or uncertainties.\n \n\n\n15\n\n\n\n\n\u00a0\n\n\nRISKS RELATING TO THE TRANSACTION WITH 3M CORPORATION\n \n\n\nWe may not realize the anticipated financial and other benefits, including growth opportunities, expected from the 3M Food Safety merger transaction.\n \n\n\nOn September 1, 2022, Neogen, 3M, and Neogen Food Safety Corporation, a wholly-owned subsidiary of 3M created to carve out 3M\u2019s FSD, closed on the Transaction combining 3M\u2019s FSD with Neogen in a Reverse Morris Trust transaction and Neogen Food Safety Corporation became a wholly owned subsidiary of Neogen. Following the Transaction, pre-merger Neogen Food Safety Corporation stockholders owned, in the aggregate, approximately 50.1% of the issued and outstanding shares of Neogen common stock, and pre-merger Neogen shareholders owned, in the aggregate, approximately 49.9% of the issued and outstanding shares of Neogen common stock.\n\n\nWe have realized and expect that we will continue to realize synergies, growth opportunities and other financial and operating benefits as a result of the Transaction. Our success in realizing these benefits, and the timing of their realization, depends, among other things, on the continued successful integration of the business operations of the 3M Food Safety business with Neogen. Even if we are able to integrate the 3M Food Safety business successfully, we cannot predict with certainty if or when the balance of these synergies, growth opportunities and other benefits will be realized, or the extent to which they will actually be achieved. For example, the benefits from the Transaction could be offset by costs incurred in integrating the 3M Food Safety business. Realization of any synergies, growth opportunities or other benefits could be affected by the factors described in other risk factors and a number of factors beyond our control, including, without limitation, general economic conditions, increased operating costs and regulatory developments.\n\n\nThe integration of the 3M Food Safety business with Neogen presents challenges, and the failure to successfully integrate the 3M Food Safety business could have a material adverse effect on our business, financial condition or results of operations.\n \n\n\nAlthough significant progress has been made to date in the integration of the 3M Food Safety business with Neogen, there is much that remains to be accomplished, particularly in the integration of the manufacturing operations of the 3M Food Safety business with Neogen. There is a significant degree of difficulty inherent in the process of integrating the 3M Food Safety business with Neogen. The difficulties include:\n \n\n\n\u2022\nthe integration of the 3M Food Safety business with Neogen\u2019s current businesses while carrying on the ongoing operations of all businesses; \n\n\n\u2022\nmanaging a significantly larger company than before the consummation of the Transaction; \n\n\n\u2022\nintegrating the business cultures of the 3M Food Safety business and Neogen, which could prove to be incompatible; \n\n\n\u2022\ncreating uniform standards, controls, procedures, policies and information systems and controlling the costs associated with such matters; \n\n\n\u2022\nthe ability to ensure the effectiveness of internal control over financial reporting across the combined company; \n\n\n\u2022\nintegrating certain manufacturing, information technology, purchasing, accounting, finance, sales, billing, human resources, payroll and regulatory compliance systems; and \n\n\n\u2022\nthe potential difficulty in retaining key officers and personnel of Neogen and the 3M Food Safety business. \n\n\n16\n\n\n\n\n\u00a0\n\n\nThe continued successful integration of the 3M Food Safety business cannot be assured. The failure to do so could have a material adverse effect on our business, financial condition or results of operations.\n \n\n\nPursuant to the terms of the Transaction, Neogen and formerly Neogen Food Safety Corporation will be restricted from taking certain actions that could adversely affect the intended tax treatment of the Transaction, and such restrictions could significantly impair Neogen\u2019s and Neogen Food Safety Corporation\u2019s ability to implement strategic initiatives that otherwise would be beneficial.\n \n\n\nThe Tax Matters Agreement executed in connection with the Transaction generally restricts Neogen and its affiliates from taking certain actions after the distribution of Neogen shares that could adversely affect the intended tax treatment of the Transaction. In particular:\n \n\n\nFor a two-year period following the distribution date, except as described below:\n \n\n\n\u2022\nNeogen Food Safety Corporation will continue the active conduct of its trade or business and the trade or business of certain Neogen Food Safety Corporation subsidiaries; \n\n\n\u2022\nNeogen Food Safety Corporation will not voluntarily dissolve or liquidate or permit certain Neogen Food Safety Corporation subsidiaries to voluntarily dissolve or liquidate; \n\n\n\u2022\nNeogen and Neogen Food Safety Corporation will not enter into any transaction or series of transactions (or any agreement, understanding or arrangement) as a result of which one or more persons would acquire (directly or indirectly) stock comprising 50% or more of the vote or value of Neogen Food Safety Corporation  or Neogen (taking into account the stock acquired pursuant to the merger); \n\n\n\u2022\nNeogen and Neogen Food Safety Corporation will not engage in certain mergers or consolidations; \n\n\n\u2022\nNeogen Food Safety Corporation will not, and will not permit certain Neogen Food Safety Corporation  subsidiaries to, sell, transfer or otherwise dispose of 30% or more of the gross assets of Neogen Food Safety Corporation such subsidiaries, the Neogen Food Safety Corporation group or the active trade or business of Neogen Food Safety Corporation or certain Neogen Food Safety Corporation subsidiaries, subject to certain exceptions;  \n\n\n\u2022\nNeogen and Neogen Food Safety Corporation will not, and will not permit certain Neogen Food Safety Corporation subsidiaries to, redeem or repurchase stock or rights to acquire stock, unless certain requirements are met; \n\n\n\u2022\nNeogen and Neogen Food Safety Corporation will not, and will not permit certain Neogen Food Safety Corporation subsidiaries to, amend their certificates of incorporation (or certain other organizational documents) or take any other action affecting the voting rights of any stock or stock rights of Neogen or Neogen Food Safety Corporation; and \n\n\n\u2022\nNeogen and Neogen Food Safety Corporation will not, and will not permit any member of the Neogen Food Safety Corporation group or Neogen to, take any other action that would, when combined with any other direct or indirect changes in ownership of Neogen Food Safety Corporation and Neogen stock (including pursuant to the merger), have the effect of causing one or more persons to acquire stock representing 50% or more of the vote or value of Neogen Food Safety Corporation or Neogen, or otherwise jeopardize the tax-free status of the Transaction;  \n\n\n\u2022\nduring the time period ending three years after the date of the distribution, Neogen Food Safety Corporation and Neogen also will be subject to certain restrictions relating to the SpinCo Business in Switzerland; and  \n\n\n\u2022\nAdditionally, none of Neogen Food Safety Corporation, Neogen or any member of Neogen Food Safety Corporation group or Neogen may: \n\n\no\ntake, or permit to be taken, any action that could reasonably be expected to jeopardize the qualification of certain Neogen Food Safety Corporation debt as a security under Section 361(a) of the Code (other than making any payment permitted or required by the terms of the Neogen Food Safety Corporation debt); \n\n\no\npermit any portion of certain nonqualified preferred stock to cease to be outstanding or modify the terms of such stock; \n\n\n17\n\n\n\n\n\u00a0\n\n\nunless, in each case, prior to taking any such action, Neogen and Neogen Food Safety Corporation shall have requested that 3M obtain, or request and receive 3M\u2019s prior written consent to obtain, an IRS ruling satisfactory to 3M in its reasonable discretion or provide 3M with an unqualified tax opinion satisfactory to 3M in its sole and absolute discretion to the effect that such action would not jeopardize the intended tax treatment of the Transaction, unless 3M waives such requirement. Failure to adhere to these requirements could result in tax being imposed on 3M for which Neogen and Neogen Food Safety Corporation could bear responsibility and for which Neogen and Neogen Food Safety Corporation could be obligated to indemnify 3M. Any such indemnification obligation would likely be substantial and would likely have a material adverse effect on Neogen. These restrictions could have a material adverse effect on Neogen\u2019s liquidity and financial condition, and otherwise could impair Neogen\u2019s and Neogen Food Safety Corporation\u2019s ability to implement strategic initiatives and Neogen Food Safety Corporation\u2019s and Neogen\u2019s indemnity obligation to 3M might discourage, delay or prevent a change of control that shareholders of Neogen may consider favorable.\n \n\n\nRISKS RELATING TO OUR BUSINESS AND INDUSTRY\n \n\n\nWe are subject to risks relating to existing international operations and expansion into new geographical markets.\n \n\n\nExpanding sales globally is part of our overall growth strategy, and we expect sales from outside the United States to continue to represent a significant portion of our revenue. In fiscal 2023, sales to customers outside of the U.S. accounted for 48.4% of our total revenue. Our international operations are subject to general risks related to such operations, including:\n \n\n\n\u2022\npolitical, social and economic instability and disruptions, including social unrest, geopolitical tensions, currency, inflation and interest rate uncertainties; \n\n\n\u2022\ngovernment export controls, economic sanctions, embargoes or trade restrictions; \n\n\n\u2022\nthe imposition of duties and tariffs and other trade barriers; \n\n\n\u2022\nlimitations on ownership and on repatriation or dividend of earnings; \n\n\n\u2022\ntransportation delays and interruptions; \n\n\n\u2022\nlabor unrest and current and changing regulatory environments; \n\n\n\u2022\nincreased compliance costs, including costs associated with disclosure requirements and related due diligence; \n\n\n\u2022\ndifficulties in staffing and managing multi-national operations; \n\n\n\u2022\nlimitations on our ability to enforce legal rights and remedies; \n\n\n\u2022\ncurrent products may not comply with product standards established by foreign regulatory bodies;\n\n\n\u2022\ndiffering labor regulations; \n\n\n\u2022\ndiminished protection of intellectual property in some countries; \n\n\n\u2022\naccess to or control of networks and confidential information due to local government controls and vulnerability of local networks to cyber risks; and \n\n\n\u2022\nfluctuations in foreign currency exchange rates. \n\n\n18\n\n\n\n\n\u00a0\n\n\nIf we are unable to successfully manage the risks associated with expanding our global business or adequately manage operational risks of our existing international operations, these risks could have a material adverse effect on our growth strategy into new geographical markets, our reputation, our business, results of operations, financial condition and cash flows. In addition, the impact of such risks could be outside of our control and could decrease our ability to sell products internationally, which could adversely affect our business, financial condition, results of operations or cash flows. For example, as a result of the ongoing military conflict between Russia and Ukraine and resulting heightened economic sanctions from the U.S. and the international community, we have discontinued sales into Russia and Belarus. The U.S. and other countries have imposed significant sanctions and could impose even wider sanctions and take other actions should the conflict further escalate. While it is difficult to anticipate the effect the sanctions announced to date could have on us, any further sanctions imposed or actions taken by the U.S. or other countries, including any expansion of sanctions beyond Russia and Belarus, could affect the global price and availability of raw materials, reduce our sales and earnings or otherwise have an adverse effect on our business and results of operations.\n \n\n\nOur business strategy is dependent on successfully promoting internal growth and identifying and integrating acquisitions.\n \n\n\nOur business has grown significantly over the past several years as a result of both internal growth and acquisitions of existing businesses and their products. Management initiatives may be attempted to augment internal growth, such as strengthening our presence in select markets, reallocating research and development funds to products with higher growth potential, development of new applications for our technologies, enhancing our service offerings, continuing key customer efforts, and finding new markets for our products. Failure of these management initiatives may have a material adverse effect on our operating results and financial condition.\n \n\n\nIdentifying and pursuing acquisition opportunities, integrating these acquisitions into our business and managing their growth requires a significant amount of management\u2019s time and skill. We cannot assure that we will be effective in identifying, integrating or managing future acquisition targets. Our failure to successfully integrate and manage a future acquisition could have a material adverse effect on our operating results and financial condition.\n \n\n\nWe may not be able to effectively manage our future growth, and if we fail to do so, our business, financial condition and results of operations could be adversely affected.\n \n\n\nWe rely significantly on our information systems\u2019 infrastructure to support our operations and a failure of these systems and infrastructure and/or a security breach of our information systems could damage our reputation and have an adverse effect on operations and results.\n \n\n\nWe rely on our information systems\u2019 infrastructure to integrate departments and functions, enhance our ability to service customers, improve our control environment, and manage our cost reduction initiatives. If a security breach or cyberattack of our information technology (\"IT\") networks and systems occurs, our operations could be interrupted. Any issues involving our critical business applications and infrastructure could adversely impact our ability to manage our operations and the customers we serve. Although we have controls and security measures in place to prevent such attacks, experienced computer hackers are increasingly organized and sophisticated. Malicious attack efforts operate on a large scale and sometimes offer targeted attacks as a paid-for service. In addition, the techniques used to access or sabotage networks change frequently and generally are not recognized until launched against a target.\n \n\n\n19\n\n\n\n\n\u00a0\n\n\nWe rely on several information systems throughout our company, as well as those of our third-party business partners, to provide access to our web-based products and services, keep financial records, analyze results of operations, process customer orders, manage inventory, process shipments to customers, store confidential or proprietary information and operate other critical functions. Although we employ system backup measures and engage in information system redundancy planning and processes, such measures, as well as our current disaster recovery plan, may be ineffective or inadequate to address all vulnerabilities. Further, our information systems and our business partners\u2019 and suppliers\u2019 information systems may be vulnerable to attacks by hackers and other security breaches, including computer viruses and malware, through the internet (including via devices and applications connected to the internet), email attachments and persons with access to these information systems, such as our employees or third parties with whom we do business. As information systems and the use of software and related applications by us, our business partners, suppliers and customers become more cloud-based, there has been an increase in global cybersecurity vulnerabilities and threats, including more sophisticated and targeted cyber-related attacks that pose a risk to the security of our information systems and networks and the confidentiality, availability and integrity of data and information.\n\n\nWhile we have implemented network security and internal control measures, including for the purpose of protecting our connected products and services from cyberattacks, and invested in our data and information technology infrastructure, there can be no assurance that these efforts will prevent a system disruption, attack, or security breach and, as such, the risk of system disruptions and security breaches from a cyberattack remains.\n \n\n\nIf our security and information systems are compromised, interrupted or destroyed, or employees fail to comply with the applicable laws and regulations, or the information we maintain is obtained by unauthorized persons or used inappropriately, it could adversely affect our business and reputation, as well as our results of operations, and could result in litigation, the imposition of regulatory sanctions or penalties, or significant expenditures to remediate any damage to persons whose personal information has been compromised.\n \n\n\nIn fiscal year 2022, we began the implementation of our global SAP enterprise resource planning (ERP) system at our U.S. locations, which includes upgrades to many of our existing operating and financial systems. Such an implementation is a major undertaking, both financially and from a management and personnel perspective. Should the remaining systems not be implemented successfully, or if the systems do not perform in a satisfactory manner once implementation is complete, our business and operations could be disrupted and our results of operations could be adversely affected, including our ability to report accurate and timely financial results.\n\n\nPandemics or disease outbreaks, such as the COVID-19 pandemic, have affected and could adversely affect our business, operation, results of operations and financial condition.\n \n\n\nThe COVID-19 pandemic negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial markets.\n\n\nDuring the course of the pandemic, we modified our business practices to comply with safety measures required by federal, state and local governments, as well as those we determined to be in the best interests of our employees and customers, including implementing social distancing, remote work, reducing employee travel, restricting building access and more. In the event of the renewed outbreak of COVID-19 or an outbreak of a different virus or disease, we could experience disruptions in our supply chain, operations, facilities and workforce which could cause delays in developing new products or negatively affect efficiency and productivity or our ability to market products and services, and, ultimately, our stock price and financial performance.\n \n\n\nAdditional future impacts to us may include, but are not limited to, material adverse effects on the demand for our products and services, our supply chain and sales and distribution channels, our cost structure and profitability. An extended period of global supply chain and economic disruption could materially affect our business, results of operations and financial condition.\n \n\n\n20\n\n\n\n\n\u00a0\n\n\nDisruption of our manufacturing and service operations could have an adverse effect on our financial condition and results of operations.\n \n\n\nOur facilities and our distribution systems are subject to catastrophic loss due to fire, flood, terrorism or other natural or man-made disasters. If any of our facilities were to experience a catastrophic loss, it could disrupt our operations, delay production, shipments and revenue and result in significant expenses to repair or replace the facility and/or distribution system. If such a disruption were to occur, we could breach agreements, our reputation could be harmed, and our business and operating results could be adversely affected. Although we carry insurance for property damage and business interruption, we do not carry insurance or financial reserves for interruptions or potential losses arising from terrorism. Economic conditions and uncertainties in global markets could adversely affect the cost and other terms upon which we are able to obtain third party insurance. If we are unable to obtain sufficient and cost-effective third-party insurance coverage, or to the extent we have elected to self-insure, we could be at greater risk that our operations will be harmed by a catastrophic loss.\n \n\n\nWe rely heavily on third-party package delivery services, and a significant disruption in these services or significant increases in prices could disrupt our ability to ship products, increase our costs and lower our profitability.\n \n\n\nWe ship a significant portion of our products to customers through independent package delivery companies, such as UPS, Federal Express and DHL. We also ship our products through other carriers, including national and regional trucking firms, overnight carrier services and the U.S. Postal Service. If one or more of these third-party package delivery providers were to experience a major work stoppage, preventing our products from being delivered in a timely fashion or causing us to incur additional shipping costs we could not pass on to our customers, our costs could increase and our relationships with some of our customers could be adversely affected. In addition, if one or more of our third-party package delivery providers were to increase prices, and we were not able to find comparable alternatives or make adjustments within our delivery network, our profitability could be adversely affected.\n \n\n\nOur dependence on suppliers could limit our ability to sell certain products or negatively affect our operating results.\n \n\n\nWe rely on third-party suppliers to provide raw materials and other components in our products, manufacture products that we do not manufacture ourselves and perform services that we do not provide ourselves. Because these suppliers are independent third parties with their own financial objectives, actions taken by them could have a negative effect on our results of operations. The risks of relying on suppliers include our inability to enter into contracts with third party suppliers on reasonable terms, inconsistent or inadequate quality control, relocation of supplier facilities, supplier work stoppages and suppliers\u2019 failure to comply with their contractual obligations. In addition, we currently purchase some raw materials and products from sole or single sources. Some of the products that we purchase from these sources are proprietary and, therefore, cannot be readily or easily replaced by alternative sources. Problems with suppliers and the supply chain could negatively impact our ability to supply the market, substantially decrease sales, lead to higher costs or damage our reputation with our customers.\n \n\n\n21\n\n\n\n\n\u00a0\n\n\nOur business sells many products through distributors, which present risks that could negatively affect our operating results.\n \n\n\nWe sell many of our products, both within and outside of the U.S., through independent distributors. As a result, we are dependent on distributors to sell our products and assist us in promoting and creating demand for our products. Our distributors sometimes offer products from several different companies, and those distributors may carry our competitors\u2019 products and promote our competitors\u2019 products over our own. We have limited ability, if any, to cause our distributors to devote adequate resources to promoting, marketing, selling and supporting our products. We cannot assure that we will be successful in maintaining and strengthening our relationships with our distributors or establishing relationships with new distributors who have the ability to market, sell, and support our products effectively. We may rely on one or more key distributors for a product or region, and the loss of one or more of these distributors could reduce our revenue. Distributors could face financial difficulties, including bankruptcy, which could impact our ability to collect our accounts receivable and negatively impact our financial results. In addition, violations of anti-bribery and anti-corruption or similar laws by our distributors could have a material impact on our business. Further, termination of a distributor relationship could result in increased competition in the applicable jurisdiction. Failing to manage the risks associated with our use of distributors could reduce sales, increase expenses and weaken our competitive position, which could have a negative impact on our operating results.\n \n\n\nIf we are unable to develop new products and technologies, our competitive position could be impaired, which could materially and adversely affect our sales and market share.\n\n\nThe markets in which we operate are characterized by changing technologies and the introduction of new products. As a result, our success is dependent upon our ability to develop or acquire new products and services on a cost-effective basis, to introduce them into the marketplace in a timely manner and to protect and maintain critical intellectual property assets related to these developments. Difficulties or delays in research, development or production of new products and technologies, or failure to gain market acceptance of new products and technologies, could significantly reduce future revenue and materially and adversely affect our competitive position. While we intend to continue to commit financial resources and effort to the development of new products and services, we may not be able to successfully differentiate our products and services from those of our competitors. Our customers may not consider our proposed products and services to be of value to them or may not view them as superior to our competitors\u2019 products and services. In addition, our competitors or customers could develop new technologies or products which address similar or improved solutions to our existing technologies. Further, we may not be able to adapt to evolving markets and technologies, develop new products, achieve and maintain technological advantages or protect technological advantages through intellectual property rights. If we do not successfully compete through the development and introduction of new products and technologies, our business, results of operations, financial condition and cash flows could be materially adversely affected.\n\n\nIf we fail to maintain a positive reputation or are unable to conduct effective sales and marketing, our prospects and financial condition could be adversely affected.\n\n\nWe believe that market awareness and recognition of our brands have contributed significantly to the success of our business. We also believe that maintaining and enhancing these brands, especially market perceptions of the quality of our products, is critical to maintaining our competitive advantage. If any of our products are subject to recall or are proven to be, or are claimed to be, ineffective or inaccurate for their stated purpose, then this could have a material adverse effect on our business, financial condition or results of operations. Also, because we are dependent on market perceptions, negative publicity associated with product quality or other adverse effects resulting from, or perceived to be resulting from, our products could have a material adverse impact on our business, financial condition and results of operations.\n\n\nOur sales and marketing efforts are anchored by promoting our products to potential customers. Therefore, our sales and marketing force, whether in-house sales representatives or third-party commercial partners, must possess an up-to-date understanding of industry trends and products, as well as promotion and communication skills. In addition, we have a network of third-party commercial partners that we use to sell or distribute our products.\n\n\n22\n\n\n\n\n\u00a0\n\n\nWhile we will continue to promote our brands to remain competitive, we may not be successful in doing so. If we are unable to increase or maintain the effectiveness and efficiency of our sales and marketing activities, or if we incur excessive sales expenses to do so, our business, financial condition and results of operations may be materially and adversely affected.\n\n\nWe could lose customers or generate lower revenue, operating profits and cash flows if there are significant increases in the cost of raw materials or if we are unable to obtain such raw materials or other components of our products.\n\n\nWe purchase raw materials and components for use in our products, which exposes us to volatility in prices for certain raw materials and products. Prices and availability of these raw materials are subject to substantial fluctuations that are beyond our control due to factors such as changing economic conditions, inflation, currency and commodity price fluctuations, tariffs, resource availability, transportation costs, weather conditions and natural disasters, political unrest and instability, and other factors impacting supply and demand pressures. Significant price increases for these supplies could adversely affect our operating profits. Current and future inflationary effects may be driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies. The COVID-19 pandemic, for example, resulted in raw material price inflation as well as supply chain constraints and disruptions. While we will generally attempt to mitigate the impact of increased raw materials prices by endeavoring to make strategic purchasing decisions, broadening our supplier base and passing along increased costs to customers, there may be a time delay between the increased raw material prices, the ability to increase the prices of products, and dependence on a sole or single source for certain materials and products. Additionally, we may be unable to increase the prices of products due to a competitor\u2019s pricing pressure or other factors, or may be unable to raise the price of our products in a manner that is proportional to the level of inflation, which would materially adversely affect our results of operations.\n\n\nCertain of our food safety product lines depend on a sole or single source suppliers and vendors. The ability of these third parties to deliver raw materials and products may also be affected by events beyond our control. In addition, public health threats, such as COVID-19, severe influenza and other highly communicable viruses or diseases could affect our supply of raw materials, by limiting our ability to transport raw materials from our vendors or increasing demand and competition for supplies, which could adversely affect our ability to obtain necessary raw materials for certain of our products. Any sustained interruption in our receipt of adequate raw materials, supply chain disruptions impacting the receipt or distribution of products, or disruption to key manufacturing sites\u2019 operations due to natural and other disasters or events or other legal or regulatory requirements, could result in a significant price increase in raw materials, or their unavailability, which could result in a loss of customers or otherwise adversely impact our business, results of operations, financial condition and cash flows.\n\n\nOur reputation, ability to do business and results of operations could be impaired by improper conduct by or disputes with any of our employees, agents or business partners and we have a compliance burden with respect to, and risk of violations of, anti-bribery, trade control, trade sanctions, anti-corruption and similar laws.\n\n\nOur operations require us to comply with a number of U.S. and international laws and regulations, including those governing payments to government officials, bribery, fraud, anti-kickback and false claims, competition, export and import compliance, money laundering and data privacy, as well as the improper use of proprietary information or social media. In particular, our international operations are subject to the regulations imposed by the Foreign Corrupt Practices Act and the United Kingdom Bribery Act 2010 as well as anti-bribery and anti-corruption laws of various jurisdictions in which we operate. While we strive to maintain high standards, we cannot provide assurance that our internal controls and compliance systems always will protect us from acts committed by our employees, agents or business partners that would violate such U.S. or international laws or regulations or fail to protect our confidential information. Any such violations of law or improper actions could subject us to civil or criminal investigations in the U.S. or other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties and related shareholder lawsuits, could lead to increased costs of compliance and could damage the our reputation, business, results of operations, financial condition and cash flows.\n\n\n23\n\n\n\n\n\u00a0\n\n\nTariffs and other trade measures could adversely affect our results of operations, financial position and cash flows.\n\n\nOur international operations subject us to discriminatory or conflicting tariffs and trade policies. Tariffs have and may continue to increase our material input costs, and any further trade restrictions, retaliatory trade measures and additional tariffs could result in higher input costs to our products. We may not be able to fully mitigate the impact of these increased costs or pass price increases on to our customers. While tariffs and other trade measures imposed by other countries on U.S. goods have not yet had a significant impact on our business or results of operations, we cannot predict further developments, and such existing or future tariffs could have a material adverse effect on our results of operations, financial position and cash flows.\n\n\nChanges in domestic and foreign governmental laws, regulations and policies, changes in statutory tax rates and laws, and unanticipated outcomes with respect to tax audits could adversely affect our business, profitability and reputation.\n\n\nOur domestic and international sales and operations are subject to risks associated with changes in laws, regulations and policies (including environmental and employment regulations, export/import laws, tax policies and other similar programs). Failure to comply with any of the foregoing laws, regulations and policies could result in civil and criminal, monetary and non-monetary penalties, as well as damage to our reputation. In addition, we cannot provide assurance that our costs of complying with new and evolving regulatory reporting requirements and current or future laws, including environmental protection, employment, data security, data privacy and health and safety laws, will not exceed our estimates. While these risks or the impact of these risks are difficult to predict, any one or more of them could adversely affect our business, results of operations and reputation.\n\n\nWe are subject to taxation in a number of jurisdictions. Accordingly, our effective tax rate is impacted by changes in the mix among earnings in countries with differing statutory tax rates. A material change in the statutory tax rate or interpretation of local law in a jurisdiction in which we have significant operations could adversely impact our effective tax rate and impact our financial results.\n\n\nOur tax returns are subject to audit and taxing authorities could challenge our operating structure, taxable presence, application of treaty benefits or transfer pricing policies. If changes in statutory tax rates or laws or audits result in assessments different from amounts estimated, our business, results of operations, financial condition and cash flows could be adversely affected. In addition, changes in tax laws could have an adverse effect on our customers, resulting in lower demand for our products and services.\n\n\nA deterioration in our future expected profitability or cash flows could result in an impairment of our recorded goodwill and intangible assets.\n \n\n\nWe have significant goodwill and intangible assets recorded on our consolidated balance sheet. The valuation and classification of these assets and the assignment of useful lives to intangible assets involve significant judgments and the use of estimates. Impairment testing of goodwill and intangible assets requires significant use of judgment and assumptions, particularly as it relates to the determination of fair market value. A decrease in the long-term economic outlook and future cash flows of our business could significantly impact asset values and potentially result in the impairment of intangible assets, including goodwill.\n \n\n\nThe markets for our products are extremely competitive, and our competitors could use existing resource advantages to our detriment.\n \n\n\nThe food and animal safety industries are subject to rapid and substantial changes in technology and are characterized by extensive research and development and intense competition. Our competitors and potential competitors may have greater financial, technical, manufacturing, marketing, research and development and management resources than us. These competitors could use their resources, reputations and ability to leverage existing customer relationships to provide a competitive advantage over us that could impact our results of operations. They might also succeed in developing products that are more reliable and effective than our products, are less costly than our products or provide alternatives to our products. If the products of a competitor are better able to meet our customers' requirements, then our operating results could be adversely affected.\n \n\n\n24\n\n\n\n\n\u00a0\n\n\nWe are dependent on the agricultural marketplace, which is affected by factors beyond our control.\n \n\n\nOur primary customers are in the agricultural and food production industries. Economic conditions affecting agricultural industries are cyclical and are dependent upon many factors outside of our control, including weather conditions, changes in consumption patterns or commodity prices. Any of these factors in the agricultural marketplace could affect our sales and overall financial performance.\n \n\n\nRISKS RELATED TO LIQUIDITY, INDEBTEDNESS AND THE CAPITAL MARKETS\n \n\n\nWe have incurred substantial indebtedness and our financial condition and operations may be adversely affected by a violation of financial and other covenants.\n\n\nWe have incurred substantial indebtedness and related debt service obligations, which could have important consequences, including:\n \n\n\n\u2022\nreduced flexibility in responding to changing business and economic conditions, and increased vulnerability to general adverse economic and industry conditions;\n\n\n\u2022\nreduced flexibility in planning for, or reacting to, changes in our business, the competitive environment and the markets in which we operate, and to technological and other changes; \n\n\n\u2022\nreduced access to capital and increasing borrowing costs generally or for any additional indebtedness to finance future operating and capital expenditures and for general corporate purposes; \n\n\n\u2022\nlowered credit ratings; \n\n\n\u2022\nreduced funds available for operations, capital expenditures and other activities; \n\n\n\u2022\nincreased vulnerability to increases in interest rates in general because a substantial portion of our indebtedness is expected to bear interest at floating rates; and\n\n\n\u2022\ncompetitive disadvantages relative to other companies with lower debt levels.\n\n\nOur Term Loan, comprised of our Revolving Facility and Term Loan Facility, contain customary affirmative and negative covenants. Some or, with respect to certain covenants, all of these agreements include financial covenants based on leverage and cash interest expense coverage ratios and limitations to make certain investments, declare or pay dividends or distributions on capital stock, redeem or repurchase capital stock and certain debt obligations, incur liens, incur indebtedness, or merge, make certain acquisitions or sales of assets.\n \n\n\nThe Senior Notes governing our senior unsecured indebtedness also include customary events of default. A violation of any of these covenants or agreements could result in a default under these contracts, which could permit the lenders or note holders, as applicable, to accelerate repayment of any borrowings or notes outstanding at that time and levy on the collateral granted in connection with the Senior Notes. A default or acceleration under the Senior Notes governing the senior unsecured indebtedness could result in defaults under our other debt agreements and could adversely affect our ability to operate our business, our subsidiaries' ability to operate their respective businesses and our results of operations and financial condition.\n \n\n\nThe available capacity under our Revolving Facility could be limited by our covenant ratios under certain conditions. An increase in the applicable leverage ratio, as a result of decreased earnings or otherwise, could result in reduced access to capital under our Revolving Facility, which is a significant component of our total available liquidity.\n\n\n25\n\n\n\n\n\u00a0\n\n\nOur quarterly or annual operating results are subject to significant fluctuations.\n \n\n\nWe have experienced, and may experience in the future, significant fluctuations in our quarterly or annual operating results. The mix of products sold and the acceptance of new products, in addition to other factors such as cost increases, could contribute to this variability. We have few long-term customer contracts and operate primarily with purchase orders. Substantially all our product revenue in each period results from orders received in that period. In addition, our expense levels are based, in part, on our expectation of future revenue levels. Therefore, a shortfall in expected revenue could result in a disproportionate decrease in our net income.\n \n\n\nThe market price of our common stock could be highly volatile.\n \n\n\nThe trading price of our common stock could be volatile. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as other general economic, market or political conditions, could reduce the market price of our common stock rapidly and unexpectedly, despite our operating performance. Factors that could impact the market price of our common stock include the factors described in this \u201cRisk Factors\u201d section and elsewhere in this Annual Report on Form 10-K, as well as:\n \n\n\n\u2022\nPublic announcements (including the timing of these announcements) regarding our business, financial performance, acquisitions and prospects or new products or services, product enhancements or technological advances by our competitors or us; \n\n\n\u2022\nTrading activity in our stock, including transactions by us, our executive officers and directors, and significant shareholders; trading activity that results from the ordinary course rebalancing of stock indices in which we may be included, such as the S&P Mid-Cap 400 Index; trading activity related to our inclusion in, or removal from, any stock indices; and short-interest in our common stock, which could be significant from time to time; \n\n\n\u2022\nInvestor perception of us and the industry and markets in which we operate, including changes in earnings estimates or buy/sell recommendations by securities analysts; and whether or not we meet earnings estimates of securities analysts who follow us; and \n\n\n\u2022\nGeneral financial, domestic, international, economic and market conditions, including overall fluctuations in the U.S. equity markets, which may experience extreme volatility that, in some cases, is unrelated or disproportionate to the operating performance of particular companies. \n\n\nOur business could be adversely affected by fluctuations in the global capital markets.\n\n\nOur business and financial results are affected by fluctuations in the global financial markets, including interest rates and currency exchange rates. The exposure to fluctuations in currency exchange rates takes on different forms. International revenues and costs are subject to the risk that fluctuations in exchange rates could adversely affect our reported revenues and profitability when translated into U.S. dollars for financial reporting purposes. These fluctuations could also adversely affect the demand for products and services provided by us. Failure to respond timely to these fluctuations, or failure to effectively hedge these risks when possible, could lead to a material adverse impact on our results of operations and financial condition.\n \n\n\nWe cannot assure investors that we will make dividend payments in the future.\n\n\nDividend payments to our shareholders depend upon a number of factors, including our results of operations, cash flows and financial position, contractual restrictions and other factors considered relevant by our Board of Directors. We have not historically paid dividends to our shareholders, and there is no assurance that we will declare and pay, or have the ability to declare and pay, any dividends on our common stock in the future.\n \n\n\n26\n\n\n\n\n\u00a0\n\n\nCertain shareholders could attempt to influence changes within Neogen, which could adversely affect our operations, financial condition and the value of our common stock.\n\n\nOur shareholders may from time-to-time seek to acquire a controlling stake in Neogen, engage in proxy solicitations, advance shareholder proposals or otherwise attempt to effect changes. Campaigns by shareholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term shareholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist shareholders can be costly and time-consuming, and could disrupt our operations and divert the attention of our Board of Directors and senior management from the pursuit of our business strategies. These actions could adversely affect our operations, financial condition and the value of our common stock.\n\n\nGENERAL RISK FACTORS\n \n\n\nWe have identified a material weakness in our internal control over financial reporting, and if we are unable to improve our internal controls, our financial results may not be accurately reported.\n \n\n\nAs disclosed in Item 9A, \u201cControls and Procedures,\u201d we identified material weaknesses in our internal control over financial reporting related to ineffective information technology general controls, our period-end invoice accrual procedures, and ineffective operation of management review controls related to the accounting, valuation and purchase price allocation of the Company\u2019s acquisition and associated goodwill. The material weaknesses did not result in any material identified misstatements to the consolidated financial statements, and there were no changes to previously issued financial results. We are actively developing a remediation plan designed to address these material weaknesses, however, we cannot guarantee that these steps will be sufficient or that we will not have material weaknesses in the future. These material weaknesses, or difficulties encountered in implementing new or improved controls or remediation, could prevent us from accurately reporting our financial results, result in material misstatements in our financial statements or cause us to fail to meet our reporting obligations. Failure to comply with Section 404 of the Sarbanes-Oxley Act of 2002 could negatively affect our business, financial condition and results of operations.\n\n\nOur success is highly dependent on our ability to obtain protection for the intellectual property used in our products; these products could be the subject of patent infringement challenges.\n \n\n\nOur success and ability to compete depends, in part, on our ability to protect, in the U.S. and other countries, our products by establishing and maintaining intellectual property rights capable of protecting our technology and products. Patent applications filed by us may not result in the issuance of patents or, if granted, may not be granted in a form that will be commercially advantageous to us. Even if granted, patents can be challenged, narrowed, invalidated, or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of time we have patent protection for our products. We also cannot assure that our nondisclosure agreements, together with trade secrets and other common law rights, will provide meaningful protection for our trade secrets and other proprietary information. Moreover, the laws of some foreign jurisdictions may not protect intellectual property rights to the same extent as in the U.S., and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. If we encounter such difficulties or we are otherwise precluded from effectively protecting our intellectual property rights domestically or in foreign jurisdictions, we could incur substantial costs and our business, including our business prospects, could be substantially harmed.\n \n\n\nFrom time to time, we have received notices alleging that our products infringe third-party proprietary rights. Whether the manufacture, sale, or use of current products, or whether any products under development would, upon commercialization, infringe any patent claim cannot be known with certainty unless and until a court interprets a patent claim and its validity in the context of litigation. The outcome of infringement litigation is subject to substantial uncertainties, and also the testimony of experts as to technical facts upon which experts may reasonably disagree. Our defense of an infringement litigation lawsuit could result in significant expense. Regardless of the outcome, infringement litigation could significantly disrupt our marketing, development and commercialization efforts, divert management\u2019s attention and consume our financial resources. In the event that we are found to infringe any valid claim in a patent held by a third party, we could, among other things, be required to:\n \n\n\n\u2022\nPay damages, including up to treble damages and the other party\u2019s attorneys\u2019 fees, which may be substantial; \n\n\n27\n\n\n\n\n\u00a0\n\n\n\u2022\nCease the development, manufacture, importation, use and sale of products that infringe the patent rights of others, through a court-imposed injunction; \n\n\n\u2022\nExpend significant resources to redesign our technology so that it does not infringe others\u2019 patent rights, or develop or acquire non-infringing intellectual property, which may not be possible; \n\n\n\u2022\nDiscontinue manufacturing or other processes incorporating infringing technology; and/or \n\n\n\u2022\nObtain licenses to the infringed intellectual property, which may not be available to us on acceptable terms, or at all. \n\n\nAny development or acquisition of non-infringing products, technology or licenses could require the expenditure of substantial time and other resources and could have a material adverse effect on our business and financial results. If we are required to, but cannot, obtain a license to valid patent rights held by a third party, we would likely be prevented from commercializing the relevant product, or from further manufacture, sale or use of the relevant product.\n \n\n\nWe are subject to substantial governmental regulation.\n \n\n\nA portion of our products and facilities are regulated by various domestic and foreign government agencies including the U.S. Department of Agriculture, the U.S. Food and Drug Administration and the Environmental Protection Agency. A significant portion of our revenue is derived from products used to monitor and detect the presence of substances that are regulated by various government agencies. Furthermore, our growth could result in substantial liability to us and be adversely affected by the implementation of new regulations. The costs of compliance or failure to comply with any obligations related to these laws or regulations could adversely impact our business, including suspension or cessation of our operations, restrictions on our ability to expand at our present locations or require us to make significant capital expenditures or incur other significant expenses.\n \n\n\nFailure to attract, retain and develop personnel, including for key management positions, could have an adverse impact on our results of operations, financial condition and cash flows.\n\n\nOur growth, profitability and effectiveness in conducting our operations and executing our strategic plans depend in part on our ability to attract, retain and develop qualified personnel and align them with appropriate opportunities for key management positions and support for strategic initiatives. Our loss of any of our key employees could have a material adverse effect on us. We have not executed long-term employment agreements with any of these employees and do not expect to do so in the foreseeable future. We compete with employers in various industries for sales, manufacturing, technical services or other personnel, and this competition to hire may increase and the availability of qualified personnel may be reduced. If we are unsuccessful in our efforts to attract and retain qualified personnel, our business, results of operations, financial condition, cash flows and competitive position could be adversely affected. Additionally, we could miss opportunities for growth and efficiencies. We cannot assure that we will be able to retain our existing personnel or attract additional qualified persons when required and on acceptable terms.\n \n\n\nOur business may be subject to product or service liability claims.\n \n\n\nThe manufacturing and distribution of our products or performance of our services involves an inherent risk of liability claims being asserted against us. Regardless of whether we are ultimately determined to be liable or our products are determined to be defective, we could incur significant legal expenses not covered by insurance. In addition, product or service liability litigation could damage our reputation and impair our ability to market our products and services, regardless of the outcome. Litigation also could impair our ability to retain product liability insurance or make our insurance more expensive. Although we currently maintain liability insurance, we cannot assure that we will be able to continue to obtain such insurance on acceptable terms, or that such insurance will provide adequate coverage against all potential claims. If we are subject to an uninsured or inadequately insured product or services liability claim, our business, financial condition and results of operations could be adversely affected.\n \n\n\nChanging political conditions could adversely impact our business and financial results.\n \n\n\nChanges in the political conditions in markets in which we manufacture, sell or distribute our products could be difficult to predict and could affect our business and financial results adversely. In addition, results of elections, referendums or other political processes in certain markets in which our products are manufactured, sold, or\n \n\n\n28\n\n\n\n\n\u00a0\n\n\ndistributed could create uncertainty regarding how existing governmental policies, laws and regulations may change, including with respect to sanctions, taxes, the movement of goods, services, capital and people between countries and other matters. The potential implications of such uncertainty, which include, among others, exchange rate fluctuations, trade barriers and market contraction, could adversely affect our business and financial results.\n \n\n\nClimate change, or legal, regulatory or market measures to address climate change could materially adversely affect our financial condition and business operations.\n \n\n\nClimate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present risks to our future operations from natural disasters and extreme weather conditions, such as hurricanes, tropical storms, blizzards, tornadoes, earthquakes, wildfires or flooding. Such extreme weather conditions could pose physical risks to our facilities and disrupt our operations and impair our critical systems, and may impact raw material sourcing, manufacturing operations, the distribution of our products and our operational costs. Damage or destruction of our facilities may result in losses that exceed our insurance coverage. The impacts of climate change on global water resources may result in water scarcity, which could in the future impact our ability to access sufficient quantities of water in certain locations and result in increased costs. Concern over climate change could result in new legal or regulatory requirements designed to mitigate the effects of climate change on the environment. If such laws or regulations are more stringent than current legal or regulatory requirements, we may experience increased compliance burdens and costs to meet the regulatory obligations.\n\n\nOur business could be adversely impacted by an inability to meet the expectations of our stakeholders related to environmental, social and governance (ESG) objectives.\n \n\n\nVarious stakeholders, including customers, suppliers, providers of debt and equity capital, regulators, and those in the workforce, are increasing their expectations of companies to do their part to combat global climate change and its impact and to conduct their operations in an environmentally sustainable and socially responsible manner with appropriate oversight by senior leadership. We have made certain public commitments to reduce emissions, conserve resources at our various facilities and further develop a diverse, equitable and inclusive culture. A failure to respond to the expectations and initiatives of our stakeholders or to achieve the commitments we have made, could result in damage to our reputation and relationships with various stakeholders, as well as adversely impact our financial condition due to volatility in the cost or availability of capital, difficultly obtaining new business, or entering into new supplier relationships, a possible loss of market share on our current product portfolio, or difficulty attracting and retaining a skilled workforce.\n\n\nTax legislation could materially adversely affect our financial results and tax liabilities.\n \n\n\nOur business is subject to tax-related external conditions, such as tax rates, tax laws, and regulations, changing political environments in the U.S. and foreign jurisdictions that impact tax examination, assessment and enforcement approaches. In addition, changes in tax laws including further regulatory developments arising from U.S. tax reform legislation and/or regulations around the world could result in a tax expense or benefit recorded to our consolidated statement of earnings. In connection with guidance such as the Base Erosion and Profit Shifting (BEPS) Integrated Framework provided by Organization for Economic Cooperation and Development (OECD), determination of multi-jurisdictional taxation rights and the rate of tax applicable to certain types of income may be subject to potential change. Due to uncertainty of the regulation changes and other tax-related factors stated above, it is currently not possible to assess the ultimate impact of these actions on our financial statements.\n \n\n\nAlthough we believe that our historical tax positions are sound and consistent with applicable laws, regulations and existing precedent, there can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge. Income tax audits associated with the allocation of income and other complex issues could result in significant income tax adjustments that could negatively impact our future operating results.\n \n\n\n29\n\n\n\n\n\u00a0\n\n",
+  "item1a": "ITEM 1A. RISK FACTORS, our financial condition and results of operations could be adversely affected by currency fluctuations.\n \n\n\nThe following table sets forth the potential loss in future earnings or fair values, resulting from hypothetical changes in relevant market rates or prices:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nRisk Category\n\n\n\u00a0\n\n\nHypothetical Change\n\n\n\u00a0\n\n\nMay 31, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nImpact\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nForeign Currency \u2014 Revenue\n\n\n\u00a0\n\n\n10% Decrease in exchange rates\n\n\n\u00a0\n\n\n$\n\n\n39,844\n\n\n\u00a0\n\n\n\u00a0\n\n\nEarnings\n\n\n\n\n\n\nForeign Currency \u2014 Hedges\n\n\n\u00a0\n\n\n10% Decrease in exchange rates\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,550\n\n\n\u00a0\n\n\n\u00a0\n\n\nFair Value\n\n\n\n\n\n\nInterest Income\n\n\n\u00a0\n\n\n10% Decrease in interest rates\n\n\n\u00a0\n\n\n\u00a0\n\n\n434\n\n\n\u00a0\n\n\n\u00a0\n\n\nEarnings\n\n\n\n\n\n\nInterest Expense\n\n\n\u00a0\n\n\n10% Increase in interest rates\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,125\n\n\n\u00a0\n\n\n\u00a0\n\n\nEarnings\n\n\n\n\n\n\n\u00a0\n\n\nITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA\n \n\n\nThe response to this item is submitted in a separate section of this report starting on page F-1.\n \n\n\nITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE\u2014NONE\n \n\n\nITEM 9A. CONTROLS AND PROCEDURES\n \n\n\nEvaluation of Disclosure Controls and Procedures\n \n\n\nAn evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 (e) under the Securities Exchange Act of 1934) as of May 31, 2023. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 (the \u201cExchange Act\u201d) is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure the information required to be disclosed in the reports that are filed or submitted under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.\n \n\n\n\u00a0\n\n\nBased on management\u2019s evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were\n \nnot effective as of May 31, 2023, because of the material weaknesses described below.\n \n\n\n \n\n\n45\n\n\n\n\n\u00a0\n\n\nManagement\u2019s Report on Internal Control over Financial Reporting\n \n\n\nManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13-a-15(f) and 15d-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.\n\n\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\n\n\nOn September 1, 2022, we completed our merger with Neogen Food Safety Corporation, a wholly owned subsidiary of 3M that was created to carve out 3M\u2019s Food Safety Division. We are in the process of evaluating the existing controls and procedures of 3M's Food Safety Division and integrating it into our internal control over financial reporting. In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management\u2019s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, management has excluded the business that we acquired from our assessment of the effectiveness of internal control over financial reporting as of May 31, 2023. The business that we acquired in 3M's Food Safety Division represented approximately 82% of the Company\u2019s total assets as of May 31, 2023, 34% of the Company\u2019s revenues and 29% of the Company\u2019s operating income for the year ended May 31, 2023.\n \n\n\nUnder the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of May 31, 2023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control\u2014Integrated Framework (2013). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.\n\n\nManagement\u2019s assessment of the Company\u2019s internal control over financial reporting identified the following material weaknesses that existed as of May 31, 2023:\n \n\n\n\u2022\nWe identified a material weakness in internal control related to ineffective information technology general controls (ITGCs) in the areas of user access and change management over certain information technology (IT) systems that support the Company\u2019s financial reporting processes. Specifically, we did not design and maintain: (i) sufficient logical access controls to ensure appropriate segregation of duties and adequately restrict user and privileged access to financial applications, programs and data to appropriate Company personnel; (ii) program change management controls to ensure that information technology program and data changes affecting financial information technology applications and underlying accounting records are identified, tested, authorized and implemented appropriately. As a result, manual business process controls that are dependent on the affected ITGCs were also deemed ineffective, because they could have been adversely impacted to the extent that they rely upon information and configurations from the affected IT systems.  \n\n\n\u2022\nWe identified a material weakness in internal control related to ineffective period-end invoice accrual controls that are designed to ensure the completeness and accuracy of accrued expenses and accrued capital assets. \n\n\n46\n\n\n\n\n\u00a0\n\n\n\u2022\nWe identified a material weakness in internal control related to ineffective operation of management review controls related to the accounting, valuation and purchase price allocation of the Company\u2019s acquisitions and associated goodwill. Specifically, we did not maintain adequate documentation supporting the precision of the operating effectiveness of certain associated management review controls.\n\n\nThese control deficiencies create a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis, and therefore, we concluded that the deficiencies represent material weaknesses. As a result of these material weaknesses, management has concluded that our internal control over financial reporting was not effective as of May 31, 2023.\n\n\nFollowing identification of these material weaknesses and prior to filing this Annual Report on Form 10-K, we completed additional procedures and concluded that our consolidated financial statements included in this Form 10-K have been prepared in accordance with U.S. GAAP and fairly present, in all material respects, the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Form 10-K.\n \n\n\nThe Company\u2019s independent registered public accounting firm, BDO USA, P.A., which has audited and reported on our consolidated financial statements, issued an attestation report on the effectiveness of the Company\u2019s internal control over financial reporting as of May 31, 2023, which is included in this annual report below.\n\n\nPlan of Remediation\n\n\nManagement has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. The Company continues to provide additional training to personnel and put in place additional quality control measures around its processes and the retention and documentation of evidence of control activities.\n \n\n\nWhen fully implemented and operational, we believe that these actions will remediate the underlying causes of the material weaknesses and strengthen our internal control over financial reporting. The material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.\n \n\n\nAs we implement these remediation efforts, we may determine that additional steps may be necessary to remediate the material weaknesses. We cannot provide assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. We will continue to assess the effectiveness of our remediation efforts in connection with our evaluations of internal control over financial reporting.\n\n\nChanges in Internal Control over Financial Reporting\n \n\n\nOther than the material weaknesses and related remediation efforts described above, and any changes resulting from the business combination described above, no changes in our internal control over financial reporting were identified as having occurred during the quarter ended May 31, 2023 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.\n \n\n\n \n\n\n47\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nReport of Independent Registered Public Accounting Firm\n \n\n\nShareholders and Board of Directors\n \n\n\nNeogen Corporation\n \n\n\nLansing, Michigan\n \n\n\nOpinion on Internal Control over Financial Reporting\n \n\n\nWe have audited Neogen Corporation\u2019s (the \u201cCompany\u2019s\u201d) internal control over financial reporting as of May 31, 2023, based on criteria established in Internal Control \u2013 Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the \u201cCOSO criteria\u201d). In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of May 31, 2023, based on the COSO criteria. We do not express an opinion or any other form of assurance on management\u2019s statements referring to any corrective actions taken by the Company after the date of management\u2019s assessment.\n\n\nWe also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (\u201cPCAOB\u201d), the consolidated balance sheets of the Company as of May 31, 2023 and 2022, the related consolidated statements of income (loss), comprehensive income, stockholders\u2019 equity, and cash flows for each of the three years in the period ended May 31, 2023, and the related notes and our report dated August 15, 2023 expressed an unqualified opinion thereon.\n \n\n\nBasis for Opinion\n \n\n\nThe Company\u2019s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management\u2019s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company\u2019s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n \n\n\nWe conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.\n \n\n\nA material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company\u2019s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses have been identified and described in management\u2019s assessment. These material weaknesses related to management\u2019s failure to design and maintain effective controls over financial reporting, specifically related to the following: (1) information technology general controls in the areas of user access and change management over certain information technology systems that support the Company\u2019s financial reporting processes, (2) period-end invoice accrual controls and (3) management review controls related to the accounting, valuation and purchase price allocation of the Company\u2019s acquisitions and associated goodwill. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated August 15, 2023 on those consolidated financial statements.\n\n\nAs indicated in the accompanying \u201cItem 9A, Changes in Internal Control over Financial Reporting\u201d, management\u2019s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of 3M\u2019s Food Safety Division, which was acquired on September 1, 2022, and which is included in the consolidated balance sheet of the Company as of May 31, 2023, and the related consolidated statements of income (loss), comprehensive income, stockholders\u2019 equity, and cash flows for the year then ended. 3M\u2019s Food Safety Division constituted 82% of total assets as of May 31, 2023, and 34% and 29% of revenues and operating\n \n\n\n48\n\n\n\n\n\u00a0\n\n\nincome, respectively, for the year then ended. Management did not assess the effectiveness of internal control over financial reporting of 3M\u2019s Food Safety Division because of the timing of the acquisition which was completed on September 1, 2022. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of 3M\u2019s Food Safety Division.\n\n\nDefinition and Limitations of Internal Control over Financial Reporting\n \n\n\nA company\u2019s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company\u2019s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company\u2019s assets that could have a material effect on the financial statements.\n \n\n\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\n \n\n\n/s/ BDO USA, P.A.\n \n\n\nGrand Rapids, Michigan\n \n\n\nAugust 15, 2023\n\n\n \n\n\n49\n\n\n\n\n\u00a0\n\n\nITEM 9B. OTHER INFORMATION\u2014NONE\n \n\n\nITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS\u2014NOT APPLICABLE\n \n\n\n \n\n\n50\n\n\n\n\n\u00a0\n\n\nPART III\n \n\n\nITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE\n \n\n\nInformation regarding the Company and certain corporate governance matters appearing under the captions \u201cProposal 1 \u2014 Election of Directors,\u201d \u201cInformation About the Board and Corporate Governance Matters,\u201d and \u201cAdditional Information-Delinquent Section 16(a) Reports\u201d is incorporated by reference to Neogen\u2019s 2023 proxy statement to be filed within 120 days of May 31, 2023.\n \n\n\nWe have adopted a Code of Conduct that applies to our directors, officers, and employees. This Code of Conduct is available on our website at \nhttps://www.Neogen.com/globalassets/pdfs/corporate-governance-sec-and-investor-information/codeofconduct.pdf\n. We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver from, a provision of the code of conduct for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website.\n \n\n\nInformation About Our Officers and Executive Officers\n \n\n\nThe officers of Neogen serve at the discretion of the Board of Directors. The names and titles of our officers as of May 31, 2023 are set forth below.\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nName\n\n\n\u00a0\n\n\nPosition with the Company\n\n\n\u00a0\n\n\nYear Joined\nthe Company\n\n\n\n\n\n\nJohn E. Adent\n\n\n\u00a0\n\n\nPresident & Chief Executive Officer\n\n\n\u00a0\n\n\n2017\n\n\n\n\n\n\nRobert S. Donofrio, Ph.D.\n\n\n\u00a0\n\n\nChief Scientific Officer\n\n\n\u00a0\n\n\n2016\n\n\n\n\n\n\nDouglas E. Jones\n\n\n\u00a0\n\n\nChief Operating Officer\n\n\n\u00a0\n\n\n2020\n\n\n\n\n\n\nJason W. Lilly, Ph.D.\n\n\n\u00a0\n\n\nVice President, Americas & Australia/New Zealand\n\n\n\u00a0\n\n\n2005\n\n\n\n\n\n\nJulie L. Mann\n\n\n\u00a0\n\n\nChief Human Resources Officer\n\n\n\u00a0\n\n\n2017\n\n\n\n\n\n\nDavid H. Naemura\n\n\n\u00a0\n\n\nChief Financial Officer\n\n\n\u00a0\n\n\n2022\n\n\n\n\n\n\nSteven J. Quinlan\n\n\n\u00a0\n\n\nVice President, Finance\n\n\n\u00a0\n\n\n2011\n\n\n\n\n\n\nAmy M. Rocklin, Ph.D.\n\n\n\u00a0\n\n\nChief Legal & Compliance Officer\n\n\n\u00a0\n\n\n2021\n\n\n\n\n\n\n\u00a0\n\n\nInformation concerning the officers of Neogen follows:\n \n\n\nJohn E. Adent, age 55, joined Neogen as Chief Executive Officer on July 17, 2017 and was then named President on September 22, 2017. Prior to joining Neogen, Mr. Adent served as the Chief Executive Officer of Animal Health International, Inc., formerly known as Lextron, Inc., from 2004 to 2015, also serving as its President during that time. Animal Health International was sold to Patterson Companies, Inc. in 2015, and Mr. Adent served as the Chief Executive Officer of the $3.3 billion Animal Health Division of Patterson Animal Health from that period until his resignation on July 1, 2017. Mr. Adent began his career with management responsibilities for Ralston Purina Company, developing animal feed manufacturing and sales operations in China and the Philippines. When Ralston Purina spun off that business to Agribrands, he continued his management role in the European division in Spain and Hungary, serving as managing director of the Hungarian operations. He left Ralston Purina in 2004.\n \n\n\nDr. Robert S. Donofrio, age 50, joined Neogen in February 2016 as Director of Microbiology Research and Development, and was promoted to Director of Food Safety Research and Development in December 2016. In April 2018, Dr. Donofrio was named Vice President, Food Safety Research and Development and then named Vice President, Research and Development in September 2018. In 2022, Dr. Donofrio was named Chief Scientific Officer. Prior to joining Neogen, he worked for 15 years at NSF International in various positions of increasing responsibility, including Director of Microbiology and Molecular Biology and Director of Applied Research, where he led efforts in grant research and method development with partners in academia, industry and government. At Neogen, Dr. Donofrio is responsible for our worldwide research activities.\n \n\n\n51\n\n\n\n\n\u00a0\n\n\nDouglas E. Jones, age 53, joined Neogen as Chief Commercial Officer on August 17, 2020; in 2022, he was named Chief Operating Officer. Prior to joining Neogen, Mr. Jones served as the President of the Companion Animal Division at Patterson Companies from 2016 to August 2020. Prior to joining Patterson, Mr. Jones served as the Head of Business Operations for the North American Merial Animal Health Division of Sanofi. Mr. Jones began his career as a management consultant with the North Highland Company and PriceWaterhouseCoopers, focusing on commercial transformation and strategy projects in the pharmaceutical, healthcare distribution and high-tech industries.\n \n\n\nDr. Jason W. Lilly, age 49, joined Neogen in June 2005 as Market Development Manager for Food Safety. In June 2009, he moved to the Corporate Development group. He was named Vice President of Corporate Development in December 2011, responsible for the identification and acquisition of new business opportunities for the Company. In January 2019, Dr. Lilly was named Vice President, International Business, responsible for Neogen\u2019s operations outside of the U.S. and Canada. In May 2023, Dr. Lilly was named Vice President, Americas & Australia/New Zealand, with responsibility for all commercial business in those regions. He also has strategic and operational oversight of our global genomics business. Prior to joining Neogen, he served in various technical sales and marketing roles at Invitrogen Corporation.\n \n\n\nJulie L. Mann, age 58, joined Neogen in 2017 as Director of Human Resources and was promoted to Senior Director of Human Resources in June 2019. In 2020, Ms. Mann was named Chief Human Resources Officer, with responsibilities for people-focused programs and initiatives for Neogen\u2019s worldwide employees. Ms. Mann has more than 30 years of experience focused on all aspects of strategic human resources including talent acquisition, compensation and benefits, employee development and employee relations. Prior to joining Neogen, Ms. Mann held the positions of Director, Talent Acquisition at Holland, a logistics company, and Director, People Services Consulting at Herman Miller.\n \n\n\nDavid H. Naemura, age 54, joined Neogen in November 2022 as Chief Financial Officer. Previously, Mr. Naemura served as the Senior Vice President and Chief Financial Officer of Vontier Corporation from February 2020 until November 2022. Mr. Naemura served as Chief Financial Officer of Gates Industrial Corporation from March 2015 to January 2020. Prior to his time at Gates Industrial Corporation, Mr. Naemura served as Vice President of Finance and Group Chief Financial Officer at Danaher Corporation from April 2012 to March 2015, and previously served as Danaher Corporation\u2019s Test & Measurement Communications Platform Chief Financial Officer from January 2009 to April 2012. Prior to 2009, Mr. Naemura was employed by Tektronix Corporation from August 2000 to January 2009, including during its acquisition by Danaher Corporation in 2007.\n\n\n\u00a0\n\n\nSteven J. Quinlan, age 60, joined Neogen in January 2011 as Vice President & Chief Financial Officer and was also Corporate Secretary until March 2021. Mr. Quinlan announced his retirement in September 2022 and Mr. Naemura was subsequently appointed as Chief Financial Officer, beginning in November 2022. For the remainder of fiscal year 2023, Mr. Quinlan continued to serve the Company as Vice President of Finance and is continuing to work on special projects through the end of the 2023 calendar year. Prior to his retirement announcement, Mr. Quinlan was responsible for all internal and external financial reporting for Neogen, and managed the accounting, information technology, corporate purchasing, treasury and investor relations functions. Mr. Quinlan came to Neogen following 19 years at Detrex Corporation (1992-2010), the last eight years serving as Vice President-Finance, CFO and Treasurer. He was on the audit staff at the public accounting firm Price Waterhouse (now PricewaterhouseCoopers) from 1985-1989.\n\n\nAmy M. Rocklin, Ph.D., age 51, joined Neogen in March 2021 as Vice President, General Counsel & Corporate Secretary. In 2022, Dr. Rocklin was named Chief Legal & Compliance Officer. In this role, she is responsible for all legal and compliance matters and also leads the regulatory, quality and ESG functions. Dr. Rocklin also serves as the Corporate Secretary. Prior to joining Neogen, Dr. Rocklin was Division Vice President, Corporate Law at Corning Incorporated. In her nearly ten years at Corning, she held multiple leadership positions within Corning\u2019s Law Department, including Director of Law, M&A and Emerging Innovations. Before Corning, Dr. Rocklin held leadership positions at Smiths Group plc and was in private practice at the law firm of Foley & Lardner LLP.\n \n\n\n \n\n\n52\n\n\n\n\n\u00a0\n\n\nITEM 11. EXECUTIVE COMPENSATION\n \n\n\nThe information required by this Item, and pursuant to Regulation 14A of the Exchange Act, is incorporated by reference from the sections entitled \u201cCompensation Discussion and Analysis\u201d, \u201cCompensation Committee Report\u201d, \u201cExecutive Compensation\u201d, \u201cInformation About the Board and Corporate Governance Matters-Compensation Committee Interlocks and Insider Participation\u201d, \u201cCEO Pay Ratio\u201d, and \u201cCompensation of Directors\u201d in the Company\u2019s definitive Proxy Statement to be filed within 120 days of May 31, 2023.\n \n\n\nITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS\n \n\n\nThe information required by this Item, and pursuant to Regulation 14A of the Exchange Act, is incorporated by reference from the section entitled \u201cSecurity Ownership of Certain Beneficial Owners, Directors and Management\u201d in the Company\u2019s definitive Proxy Statement to be filed within 120 days of May 31, 2023.\n \n\n\nITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE\n \n\n\nThe information required by this Item, and pursuant to Regulation 14A of the Exchange Act, is incorporated by reference from the section entitled \u201cInformation about the Board and Corporate Governance Matters-Independent Directors,\u201d \u201cBoard Committees\u201d and \u201cCertain Relationships and Related Party Transactions\u201d in the Company\u2019s definitive Proxy Statement to be filed within 120 days of May 31, 2023.\n \n\n\nITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES\n \n\n\nThe information required by this Item, and pursuant to Regulation 14A of the Exchange Act, is incorporated by reference from the section entitled \u201cProposal 3 \n\u2014 \nRatification of the Appointment of the Company\u2019s Independent Registered Public Accounting Firm\u201d in the Company\u2019s definitive Proxy Statement to be filed within 120 days of May 31, 2023.\n \n\n\n53\n\n\n\n\n\u00a0\n\n\nPART IV\n \n\n\nITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES\n \n\n\n(a) (1) and (2) and (c). The response to this portion of ITEM 15 is submitted as a separate section of this report starting on page F-1.\n \n\n\n(a) (3) and (b). The Exhibits, listed on the accompanying Exhibit Index on page 40, are incorporated herein by reference.\n \n\n\nITEM 16. FORM 10-K SUMMARY \u2014 NONE\n \n\n\n \n\n\nNeogen Corporation\n \n\n\nAnnual Report on Form 10-K\n \n\n\nYear Ended May 31, 2023\n \n\n\nEXHIBIT INDEX\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nEXHIBIT NO.\n\n\n\u00a0\n\n\nDESCRIPTION\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n2.1\n\n\n\u00a0\n\n\nAgreement and Plan of Merger, dated as of December  13, 2021, by and among 3M Company, Neogen Food Safety Corporation, Neogen Corporation and Nova RMT Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Neogen Corporation on December 15, 2021).\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n2.2\n\n\n\u00a0\n\n\nSeparation and Distribution Agreement, dated as of December  13, 2021, by and among 3M Company, Neogen Food Safety Corporation and Neogen Corporation (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Neogen Corporation on December 15, 2021).\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n2.3\n\n\n\u00a0\n\n\nAmendment No. 1 to the Separation and Distribution Agreement, dated as of August 31, 2022, by and among 3M Company, Neogen Food Safety Corporation and Neogen Corporation (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022).\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n2.4\n\n\n\u00a0\n\n\nAsset Purchase Agreement, dated as of December 13, 2021, by and between 3M Company and Neogen Corporation (incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K filed by Neogen Corporation on December 15, 2021).\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n3.1\n\n\n\u00a0\n\n\nCertificate of Amendment to Articles of Incorporation filed on October 11, 2010 (incorporated by reference to Exhibit 3.2 filed with the Registrant\u2019s Annual Report on Form 10-K filed on July 30, 2020).\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n3.2\n\n\n\u00a0\n\n\nRestated Articles of Incorporation, as amended on November 23, 2011 (incorporated by reference to Exhibit 3.1 filed with the Registrant\u2019s Quarterly Report on Form 10-Q filed December 30, 2011).\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n3.3\n\n\n\u00a0\n\n\nCertificate of Amendment to Articles of Incorporation filed on November 20, 2018 (incorporated by reference to Exhibit 3 filed with the Registrant\u2019s Quarterly Report on Form 10-Q filed December 28, 2018).\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n3.4\n\n\n\u00a0\n\n\nCertificate of Amendment to Articles of Incorporation of Neogen Corporation filed on March 14, 2022 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Neogen Corporation on March 17, 2022).\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n3.5\n\n\n\u00a0\n\n\nCertificate of Amendment to Articles of Incorporation of Neogen Corporation filed on September 1, 2022 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022).\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n3.6\n\n\n\u00a0\n\n\nBy-Laws, as amended (incorporated by reference to Exhibit 3.2 to the Registrant\u2019s Quarterly Report on Form 10-Q filed April 14, 2000).\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n3.7\n\n\n\u00a0\n\n\nAmendment to the By-Laws, as amended (incorporated by reference to Exhibit 3.2 to the Registrant\u2019s Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022).\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n4.1\n\n\n\u00a0\n\n\nSenior Notes Indenture for 8.625% Senior Notes due 2030, dated as of July 20, 2022, among Neogen Food Safety Corporation, as issuer, the guarantors party thereto from time to time, and U.S.\n \n\n\n\n\n\n\n54\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nEXHIBIT NO.\n\n\n\u00a0\n\n\nDESCRIPTION\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nBank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 10.10 to Neogen\u2019s Registration Statement on Form S-4 (Registration No. 333-263667), filed with the SEC on July 27, 2022).\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n4.2\n\n\n\u00a0\n\n\nSupplemental Indenture, dated as of September 1, 2022, among Neogen Food Safety Corporation (f/k/a Neogen Food Safety Corporation), as issuer, U.S. Bank Trust Company, National Association, as trustee, Neogen Corporation and certain of its subsidiaries (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022).\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n10.1\n\n\n\u00a0\n\n\nTax Matters Agreement, dated as of September 1, 2022, by and among 3M Company, Neogen Food Safety Corporation and Neogen Corporation (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022).\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n10.2\n\n\n\u00a0\n\n\nIntellectual Property Cross-License Agreement, dated as of September 1, 2022, by and between 3M Company and Neogen Food Safety Corporation (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022).\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.3\n\n\n\u00a0\n\n\nTrademark Transitional License Agreement, dated as of September 1, 2022, by and among 3M Company, 3M Innovative Properties Company, Neogen Corporation and Neogen Food Safety Corporation (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022).\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.4\n\n\n\u00a0\n\n\nTransition Services Agreement, dated as of September 1, 2022, by and among 3M Company, Neogen Food Safety Corporation and Neogen Corporation (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022).\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.5\n\n\n\u00a0\n\n\nTransition Distribution Services Agreement, dated as of September 1, 2022, by and among 3M Company, Neogen Food Safety Corporation and Neogen Corporation (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022).\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.6\n\n\n\u00a0\n\n\nTransition Contract Manufacturing Agreement, dated as of September 1, 2022, by and among 3M Company, Neogen Food Safety Corporation and Neogen Corporation (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022).\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.7\n\n\n\u00a0\n\n\nClean-Trace(TM) Distribution Agreement, dated as of September 1, 2022, by and between 3M Company and Neogen Food Safety Corporation (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022).\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.8\n\n\n\u00a0\n\n\nReal Estate License Agreement, dated as of September 1, 2022, by and among certain subsidiaries of Neogen Corporation, 3M Company and certain of its subsidiaries (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed by Neogen Corporation on September 1, 2022).\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n10.9\n\n\n\u00a0\n\n\nCredit Agreement, dated as of June 30, 2022, among Neogen Food Safety Corporation, as borrower, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, and joined thereto as of September 1, 2022 by Neogen Corporation, as a borrower (incorporated by reference to Exhibit 10.9 to Neogen\u2019s Registration Statement on Form S-4 (Registration No. 333-263667), filed with the SEC on July 27, 2022).\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n21\n\n\n\u00a0\n\n\nListing of Subsidiaries\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n23\n\n\n\u00a0\n\n\nConsent of Independent Registered Public Accounting Firm BDO USA, P.A.\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n24\n\n\n\u00a0\n\n\nPower of Attorney\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n31.1\n\n\n\u00a0\n\n\nSection 302 Certification of Principal Executive Officer\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n31.2\n\n\n\u00a0\n\n\nSection 302 Certification of Principal Financial Officer\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n32\n\n\n\u00a0\n\n\nCertification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002\n \n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n101.INS\n\n\n\u00a0\n\n\nInline XBRL Instance Document\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n101.SCH\n\n\n\u00a0\n\n\nInline XBRL Taxonomy Extension Schema Document\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n101.CAL\n\n\n\u00a0\n\n\nInline XBRL Taxonomy Extension Calculation Linkbase Document\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n101.DEF\n\n\n\u00a0\n\n\nInline XBRL Taxonomy Extension Definition Document\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n101.LAB\n\n\n\u00a0\n\n\nInline XBRL Taxonomy Extension Label Linkbase Document\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n55\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nEXHIBIT NO.\n\n\n\u00a0\n\n\nDESCRIPTION\n \n\n\n\n\n\n\n101.PRE\n\n\n\u00a0\n\n\nInline XBRL Taxonomy Extension Presentation Linkbase Document\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n \n\n\n\n\n\n\n104\n\n\n\u00a0\n\n\nCover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)\n\n\n\n\n\n\n56\n\n\n\n\n\u00a0\n\n\nSIGNATURES\n\n\nPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\nNEOGEN CORPORATION\n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n\u00a0By:\n\n\n/s/ John E. Adent\n \n\n\nBy:\n\n\n/s/ David H. Naemura\n \n\n\n\n\n\n\n \n\n\nJohn E. Adent, President & Chief\n\n\n \n\n\nDavid H. Naemura,\n \n\n\n\n\n\n\n \n\n\nExecutive Officer\n\n\n \n\n\nChief Financial Officer\n\n\n\n\n\n\n \n\n\n(Principal Executive Officer)\n\n\n \n\n\n(Principal Financial & Accounting Officer)\n\n\n\n\n\n\nDated: August 15, 2023\n\n\nPursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSignature\n \n\n\nTitle\n \n\n\nDate\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\nPresident & Chief Executive Officer\n\n\n \n\n\n\n\n\n\n/s/ John E. Adent\n \n\n\n(Principal Executive Officer)\n\n\nAugust 15, 2023\n\n\n\n\n\n\nJohn E. Adent\n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\nChief Financial Officer\n\n\n \n\n\n\n\n\n\n/s/ David H. Naemura\n \n\n\n(Principal Financial & Accounting Officer)\n\n\nAugust 15, 2023\n\n\n\n\n\n\nDavid H. Naemura\n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n*\n \n\n\nChairman of the Board of Directors\n\n\nAugust 15, 2023\n\n\n\n\n\n\nJames C. Borel\n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n*\n \n\n\nDirector\n\n\nAugust 15, 2023\n\n\n\n\n\n\nWilliam T. Boehm, Ph.D.\n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n*\n \n\n\nDirector\n\n\nAugust 15, 2023\n\n\n\n\n\n\nJeffrey D. Capello\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n*\n \n\n\nDirector\n\n\nAugust 15, 2023\n\n\n\n\n\n\nRonald D. Green, Ph.D.\n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n*\n \n\n\nDirector\n\n\nAugust 15, 2023\n\n\n\n\n\n\nAashima Gupta\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n*\n \n\n\nDirector\n\n\nAugust 15, 2023\n\n\n\n\n\n\nRaphael A. Rodriguez\n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n*\n \n\n\nDirector\n\n\nAugust 15, 2023\n\n\n\n\n\n\nJames P. Tobin\n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n*\n \n\n\nDirector\n\n\nAugust 15, 2023\n\n\n\n\n\n\nDarci L. Vetter\n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n57\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSignature\n \n\n\nTitle\n \n\n\nDate\n \n\n\n\n\n\n\n*\n \n\n\nDirector\n\n\nAugust 15, 2023\n\n\n\n\n\n\nCatherine E. Woteki, Ph.D.\n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\n \n\n\n \n\n\n \n\n\n\n\n\n\n*By:\n\n\n/s/ John E. Adent\n \n\n\n \n\n\n \n\n\n\n\n\n\n \n\n\nJohn E. Adent, Attorney-in-fact\n\n\n \n\n\nAugust 15, 2023\n\n\n\n\n\n\n58\n\n\n\n\n\u00a0\n\n\nANNUAL REPORT ON FORM 10-K\n \n\n\nITEM 15 (a)(1)(a)(2) and (c)\n \n\n\nLIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES\n \n\n\nYEAR ENDED MAY 31, 2023\n \n\n\nNEOGEN CORPORATION\n \n\n\nLANSING, MICHIGAN\n \n\n\nFORM 10-K\u2014ITEM 15(a)(1) AND (2) AND 15(c)\n \n\n\nLIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES\n \n\n\nThe following consolidated financial statements of Neogen Corporation and subsidiaries are included below and incorporated in ",
+  "item7": ">ITEM 7. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n \n\n\nThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.\n \n\n\nIn addition, any forward-looking statements represent management\u2019s views only as of the day this Form 10-K was first filed with the Securities and Exchange Commission and should not be relied upon as representing management\u2019s views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change.\n \n\n\nTRENDS AND UNCERTAINTIES\n \n\n\nDuring fiscal 2023, we experienced higher than normal input cost inflation, including increases in certain raw materials, labor costs and supply chain pressure that negatively impacted operating results. Pricing actions taken during fiscal 2022 and 2023 mitigated some, but not all, of the inflationary pressures on the business. Ongoing inflation also could have an impact on our customer\u2019s purchasing decisions and order patterns. We estimate inflation will continue to affect us in fiscal year 2024, although at a decreasing rate compared to the prior two fiscal years.\n \n\n\nAlthough we have no operations in or direct exposure to Russia, Belarus and Ukraine, we have experienced intermittent shortages in materials and increased costs for transportation, energy and raw materials due, in part, to the negative impact of the Russia-Ukraine military conflict, which began in February 2022, on the global economy. Our European operations and customer base have been adversely impacted by the conflict. As the conflict continues or worsens, it may further impact our business, financial condition or results of operations during fiscal year 2024.\n \n\n\nWhile the impact of the COVID-19 global pandemic was more modest in fiscal 2023, it continued to impact our business operations and financial results, particularly in the first half of the fiscal year in Asia. A number of our product lines were negatively impacted due to vendor disruptions, border closures, shipping issues and labor shortages. Broadly speaking, many of our markets have recovered or are recovering from the pandemic, as supply chain difficulties and shipping costs have decreased. A renewed outbreak of COVID-19 could result in further uncertainty and business disruptions. However, the current trend is positive and negative impacts appear to be moderating.\n \n\n\nOverall, the impact of inflation, the Russia-Ukraine military conflict and COVID-19 remains uncertain. We continue to evaluate the nature and extent to which these issues impact our business, including supply chain, labor availability and attrition, consolidated results of operations, financial condition and liquidity. We expect these issues to continue to impact us throughout fiscal year 2024.\n \n\n\nCRITICAL ACCOUNTING ESTIMATES\n \n\n\nThe discussion and analysis of our financial condition and results of operations are based on the consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including but not limited to, those related to receivable allowances, inventories and intangible assets. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.\n \n\n\nThe following critical accounting estimates reflect management\u2019s more significant judgments used in the preparation of the consolidated financial statements.\n \n\n\n \n\n\n32\n\n\n\n\n\u00a0\n\n\nIncome Taxes\n \n\n\nWe account for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carryforwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax expense represents the change in net deferred income tax assets and liabilities during the year. The determination of income subject to income tax in each tax paying jurisdiction requires us to apply transfer pricing guidelines for certain intercompany transactions.\n \n\n\nOur tax rate is subject to adjustment over the balance of the year due to, among other things, income tax rate changes by governments; the jurisdictions in which our profits are determined to be earned and taxed; changes in the valuation of our deferred tax assets and liabilities; adjustments to our interpretation of transfer pricing standards; changes in available tax credits or other incentives; changes in stock-based compensation expense; changes in tax laws or the interpretation of such tax laws; and changes in U.S. generally accepted accounting principles.\n \n\n\nAlthough we believe our tax estimates are reasonable and we prepare our tax filings in accordance with all applicable tax laws, the final determination with respect to any audit, and any related litigation, could be materially different from our estimates or from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments.\n \n\n\nAs of May 31, 2023, the Company has approximately $153 million of undistributed earnings in its foreign subsidiaries. Approximately $41 million of these earnings are no longer considered permanently reinvested. The incremental tax cost to repatriate these earnings to the U.S. is immaterial. The Company has not provided deferred taxes on approximately $112 million of undistributed earnings from non-U.S. subsidiaries as of May 31, 2023 which are indefinitely reinvested in operations. Based on historical experience, as well as management\u2019s future plans, earnings from these subsidiaries will continue to be re-invested indefinitely for future expansion and working capital needs. On an annual basis, we evaluate the current business environment and whether any new events or other external changes might require future evaluation of the decision to indefinitely re-invest these foreign earnings. It is not practical to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.\n\n\nAdditionally, the company has elected to treat Global Intangible Low Tax Income (\u201cGILTI\u201d), as a period cost, and therefore, has not recognized deferred taxes for basis differences that may reverse as GILTI tax in future years.\n\n\nBusiness Combinations and Customer Relationships Intangibles\n\n\nWe utilize the acquisition method of accounting for business combinations. This method requires, among other things, that results of operations of acquired companies are included in Neogen\u2019s results of operations beginning on the respective acquisition dates and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Any excess of the fair value of consideration transferred over the fair values of the net assets acquired is recognized as goodwill.\n \n\n\nAs described in Note 3 \"Business Combinations\" to the consolidated financial statements, on September 1, 2022, we completed a transaction combining 3M\u2019s food safety division with Neogen in a Reverse Morris Trust transaction for consideration of approximately $3.2 billion, which resulted in recording of a customer relationships intangible assets valued at $1.17 billion. We determined the fair value of the acquired customer relationships intangible assets by applying the multi-period excess earnings method, which involved the use of significant estimates and assumptions related to forecasted revenue growth rate and customer attrition rate. Valuation specialists were used to develop and evaluate the appropriateness of the multi-period excess earnings method, our discount rates, our attrition rate and our fair value estimates using our cash flow projections.\n\n\nThe fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred.\n \n\n\n33\n\n\n\n\n\u00a0\n\n\nOur estimates of fair value are based on assumptions believed to be reasonable at that time. If we made different estimates or judgments, it could result in material differences in the fair values of the net assets acquired.\n \n\n\nGoodwill\n \n\n\nWe record goodwill when the purchase price of acquired businesses exceeds the value of their identifiable net tangible and intangible assets acquired. We periodically evaluate goodwill for impairment in accordance with the accounting guidance for goodwill and other indefinite-lived intangibles that are not amortized. We review our goodwill for impairment annually during the fourth quarter. In addition, we review goodwill for impairment whenever adverse events or changes in circumstances indicate a possible impairment.\n\n\nThis review is performed at the reporting unit level, and involves a comparison of the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess carrying value over fair value.\n \n\n\nIn performing goodwill impairment testing, we utilize a third-party valuation specialist to assist management in determining the fair value of our reporting units. Fair value of each reporting unit is estimated based on a combination of discounted cash flows and the use of pricing multiples derived from an analysis of comparable public companies multiplied against historical and/or anticipated financial metrics of each reporting unit. These calculations contain uncertainties as they require management to make assumptions including, but not limited to, market comparables, future cash flows of the reporting units, and appropriate discount and long-term growth rates.\n\n\nDuring fiscal year 2023, our business was organized into two reporting units: Food Safety and Animal Safety. The determination of our reporting units and impairment indicators also require us to make significant judgments.\n\n\nAs a result of our test in the fourth quarter of fiscal year 2023, we determined that the fair value of our reporting units exceeded their respective carrying values. As such, the annual impairment analysis resulted in no impairment in fiscal year 2023.\n \n\n\n \n\n\n34\n\n\n\n\n\u00a0\n\n\nRESULTS OF OPERATIONS\n \n\n\nHistorical Periods\n\n\nRefer to \nPart II - Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended May 31, 2022\n for discussion of the Results of Operations, Segment Results of Operations, and Financial Condition and Liquidity for the year ended May 31, 2022 compared to the year ended May 31, 2021, which is incorporated by reference herein.\n\u00a0\n\n\nExecutive Overview\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n(in thousands, except earnings per share)\n\n\n\u00a0\n\n\nMay 31, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 31, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nConsolidated\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRevenues, net\n\n\n\u00a0\n\n\n$\n\n\n822,447\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n527,159\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n56\n\n\n%\n\n\n\n\n\n\nCore Sales Growth\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n%\n\n\n\n\n\n\nFood Safety\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRevenues, net\n\n\n\u00a0\n\n\n$\n\n\n546,797\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n259,979\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n110\n\n\n%\n\n\n\n\n\n\nCore Sales Growth\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n%\n\n\n\n\n\n\nAnimal Safety\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nRevenues, net\n\n\n\u00a0\n\n\n$\n\n\n275,650\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n267,180\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\n\n\n\nCore Sales Growth\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n%\n\n\n\n\n\n\n% of International Sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n40\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEffective Tax Rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3.8\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet Income\n\n\n\u00a0\n\n\n$\n\n\n(22,870\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n48,307\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-147\n\n\n%\n\n\n\n\n\n\nEarnings per Diluted Share\n\n\n\u00a0\n\n\n$\n\n\n(0.12\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n0.45\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash from Operations\n\n\n\u00a0\n\n\n$\n\n\n41,028\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n68,038\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\nFood Safety fiscal year 2023 core sales exclude revenues from the acquisitions of Corvium (February 2023), 3M FSD (September 2022), Thai-Neo Biotech (July 2022), and Delf/Abbott Analytical (November 2021) and also excludes the impact of changes in currency rates. \n\n\n\u2022\nFood Safety revenues include $279.5 million from 3M FSD, which we combined with on September 1, 2022. All of the global revenue from this business is reported within the Food Safety segment. \n\n\n\u2022\nAnimal Safety fiscal year 2023 core sales exclude revenues from the acquisitions of Genetic Veterinary Sciences (December 2021) and CAPInnoVet (September 2021) and also excludes the impact of changes in currency rates. \n\n\nInternational Revenue\n\n\nNeogen\u2019s international revenues were $398.4 million in fiscal year 2023, compared to $209.3 million in fiscal 2022, an increase of 90%. Revenues from 3M FSD drove the international sales increase. Since September 1, 2022, 67% of 3M FSD revenues were international sales, compared to Neogen\u2019s historical average of approximately 40%.\n\n\n \n\n\n35\n\n\n\n\n\u00a0\n\n\nRevenue changes, expressed in percentages, for fiscal 2023 compared to the prior year are as follows for the legacy business at each of our international locations:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nRevenue\nChange\nUSD\n\n\n\u00a0\n\n\n\u00a0\n\n\nRevenue\nChange\nLocal Currency\n\n\n\u00a0\n\n\n\n\n\n\nU.K. Operations (including Neogen Italia)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n%\n\n\n\n\n\n\nMegazyme\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n%\n\n\n\n\n\n\nBrazil Operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\n\n\n\nNeogen Latinoamerica\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n%\n\n\n\n\n\n\nNeogen Argentina\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n48\n\n\n%\n\n\n\n\n\n\nNeogen Uruguay\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9\n\n\n)%\n\n\n\n\n\n\nNeogen Chile\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n%\n\n\n\n\n\n\nNeogen China\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4\n\n\n)%\n\n\n\n\n\n\nNeogen India\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\n\n\n\nNeogen Canada\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\n\n\n\nNeogen Australasia\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nExcluding the December 2021 acquisition of Delf, sales at our U.K. operations increased 5% in local currency, which was led by increased sample volume in the pig and poultry markets. In local currency, revenue in Brazil increased 10% in fiscal 2023, driven by strong sales of the company\u2019s natural toxin test kits, including tests to detect aflatoxin in corn, as well as increases in insect and rodent control products, and genomics testing. In local currency, Neogen Latinoamerica revenues rose by 4% in fiscal 2023, led by our diagnostic testing portfolio and culture media.\n \n\n\n\u00a0\n\n\nChina\u2019s revenue decreased 4% in local currency, which was primarily the result of COVID-19 lockdowns in the first half of the fiscal year. In local currency, revenue at Neogen Australasia increased 11% in fiscal 2023, led by increased sales of bovine genomic services.\n\n\nService Revenue\n\n\nService revenue, which consists primarily of genomics services to animal protein and companion animal markets, was $107.4 million in fiscal 2023, an increase of 5% over prior fiscal year sales of $102.5 million. The increase was primarily driven by growth in the U.S. beef and companion animal markets for genomics testing and higher sales of our Neogen Analytics software as a service (SaaS) product. These increases were partially offset by COVID-related shutdowns in China in the first half of fiscal 2023 and lower genomics sales to the U.S. porcine and poultry markets, as two significant customer shifted to lower-cost competitors.\n\n\n \n\n\nREVENUES\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nYear Ended\n\n\n\u00a0\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\nMay 31, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nMay 31, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nFood Safety:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNatural Toxins, Allergens & Drug Residues\n\n\n\u00a0\n\n\n$\n\n\n82,567\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n79,395\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n%\n\n\n\n\n\n\nBacterial & General Sanitation\n\n\n\u00a0\n\n\n\u00a0\n\n\n134,934\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n47,282\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n185\n\n\n%\n\n\n\n\n\n\nCulture Media & Other\n\n\n\u00a0\n\n\n\u00a0\n\n\n267,178\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n75,278\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n255\n\n\n%\n\n\n\n\n\n\nRodent Control, Insect Control & Disinfectants\n\n\n\u00a0\n\n\n\u00a0\n\n\n39,655\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35,691\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\n\n\n\nGenomics Services\n\n\n\u00a0\n\n\n\u00a0\n\n\n22,463\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22,333\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n%\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n546,797\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n259,979\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n110\n\n\n%\n\n\n\n\n\n\nAnimal Safety:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nLife Sciences\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,254\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,685\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\n\n\n\nVeterinary Instruments & Disposables\n\n\n\u00a0\n\n\n\u00a0\n\n\n63,843\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n63,938\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\n\n\n\nAnimal Care & Other\n\n\n\u00a0\n\n\n\u00a0\n\n\n39,068\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n39,805\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)%\n\n\n\n\n\n\nRodent Control, Insect Control & Disinfectants\n\n\n\u00a0\n\n\n\u00a0\n\n\n87,423\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n83,610\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n%\n\n\n\n\n\n\nGenomics Services\n\n\n\u00a0\n\n\n\u00a0\n\n\n79,062\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n74,142\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n%\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n275,650\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n267,180\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\n\n\n\nTotal Revenue, net\n\n\n\u00a0\n\n\n$\n\n\n822,447\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n527,159\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n56\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n36\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended May 31, 2023 Compared to Year Ended May 31, 2022\n \n\n\nFood Safety:\n \n\n\nNatural Toxins, Allergens & Drug Residues \u2013 \nRevenues in this category increased 4% in fiscal 2023. Excluding sales of the acquired allergen product line from 3M FSD, sales in this category decreased 3% due to a large decline in sales of drug residue test kits that were largely discontinued in fiscal 2023.\n \n\n\nBacterial & General Sanitation \u2013 \nSales in this category increased 185% in fiscal 2023 compared to the prior fiscal year. Excluding the contribution of the Clean-Trace\u00ae line of general sanitation products and the pathogen test kit product line, both acquired from 3M FSD, organic sales in this category were flat for the full year. A 3% increase in sales of our Soleris line of spoilage detection consumables was offset by a decline in sales of our AccuPoint line of general sanitation products, primarily caused by lack of supply of critical components for our reader.\n \n\n\nCulture Media & Other \u2013 \nSales in this category increased 255% in fiscal 2023 compared to the prior fiscal year, driven primarily from revenues resulting from 3M FSD. Excluding sales of the Petrifilm indicator organism and sample handling product lines acquired in the Transaction, sales rose 7% for the year. Culture media revenues rose 13%, primarily due to a large custom order in the third quarter of the year. Additionally, sales of our Neogen Analytics software as a service platform increased significantly during the year, with approximately 250 sites now on contract.\n \n\n\nRodent Control, Insect Control & Disinfectants \u2013 \nSales of products in this category sold through our Food Safety operations increased 11% in fiscal 2023 compared to the prior fiscal year. Excluding the November 2021 acquisition of Delf, the increase was 4%, led by higher sales of cleaners and disinfectants in China.\n \n\n\nGenomics Services \u2013 \nSales of genomics services sold through our Food Safety operations increased 1% in fiscal 2023 compared to the prior fiscal year, with increases in beef business in Brazil and the U.K. partially offset by a decline in sample volumes in China, as the first half of the fiscal year was negatively impacted by COVID-19 shutdowns.\n \n\n\n \n\n\nAnimal Safety:\n \n\n\nLife Sciences \u2013 \nSales in this category increased 10% in fiscal 2023 compared to the prior fiscal year, primarily due to higher demand from customers purchasing substrates and reagents used in clinical diagnostic test kits.\n \n\n\nVeterinary Instruments & Disposables \u2013 \nSales in this category were flat in fiscal 2023 compared to the prior fiscal year, as significant increases in cohesive wrap business won in the second half of the year were offset by lower sales of veterinary instruments, reflecting difficult comparisons to large stocking orders of needles and syringes in the prior year from new business earned in that period.\n \n\n\nAnimal Care & Other \u2013 \nSales of these products decreased 2% in fiscal 2023 compared to the prior fiscal year. Lower sales of vitamin injectables and veterinary antibiotics, primarily due to supply constraints, more than offset a 7% increase in sales of vaccines and biologics products and a 4% increase in sales of small animal supplements.\n\n\nRodent Control, Insect Control & Disinfectants \u2013 \nSales in this category increased 5% in fiscal 2023, compared to the prior fiscal year. Cleaner and disinfectants sales rose 11% on new business earned, insect control product sales increased 6%, and rodenticide revenues increased 1%, each compared to the prior year.\n \n\n\nGenomics Services \u2013 \nSales in this category increased 7% in fiscal 2023 compared to the prior fiscal year. Excluding the December 2021 acquisition of Genetic Veterinary Sciences, the growth was 2%. Growth was led by increases in beef and dairy cattle testing in the U.S., Canada and Australia, and strength in domestic companion animal revenues. These increases were partially offset by declines in porcine and poultry testing revenues, due to the loss of two large customer to lower cost competitors.\n \n\n\n37\n\n\n\n\n\u00a0\n\n\nGROSS MARGIN\n\n\nGross margin, expressed as a percentage of sales, was 49.4% during fiscal year 2023 compared to 46.1% during the prior fiscal year. The increase was primarily due to the incremental revenues from the 3M FSD merger, which generated gross margin higher than the legacy company average margin. Within each reporting segment, increased raw material costs pressured gross margins in certain product lines. However, freight costs declined significantly during the comparative period particularly benefitting the Animal Safety segment, although they remained higher than pre-pandemic levels in some areas. Pricing actions taken during the year also mitigated the impact of cost increases.\n \n\n\nOPERATING EXPENSES\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nSales and Marketing\n\n\n\u00a0\n\n\n$\n\n\n141,222\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n84,604\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67\n\n\n%\n\n\n\n\n\n\nGeneral and Administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n201,179\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n82,742\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n143\n\n\n%\n\n\n\n\n\n\nResearch and Development\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,039\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,049\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n53\n\n\n%\n\n\n\n\n\n\nTotal Operating Expense\n\n\n\u00a0\n\n\n$\n\n\n368,440\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n184,395\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\n\n\n\nOperating expenses were $368.4 million during fiscal year 2023, compared to $184.4 million during the prior fiscal year. The increase was primarily the result of $58.2 million of legal, consulting and other expenses related to the 3M FSD transaction and incremental ongoing expenses resulting from the employees who conveyed over to Neogen from 3M FSD and the amortization of intangible assets acquired in the Transaction.\n \n\n\nSales and Marketing:\n \n\n\nSales and marketing expenses were $141.2 million during fiscal year 2023, compared to $84.6 million during the prior fiscal year. The increase in expense was due primarily to $45.4 million in costs incurred for the 3M FSD business, primarily consisting of compensation and related expenses for the conveying 3M FSD sales and marketing team, and the charges for transition services provided by 3M FSD. These invoicing and distribution services will be provided under contract for a period of up to 18 months, concluding by March 1, 2024. The remainder of the increase during the year was due primarily to higher personnel related spending in the legacy business, the result of headcount additions and compensation increases. In addition, travel, trade shows and other customer facing activities continued to increase during the year with the easing of COVID-19 restrictions and greater willingness by customers to interact.\n \n\n\n \nGeneral and Administrative:\n \n\n\nGeneral and administrative expenses were $201.2 million during fiscal year 2023, compared to $82.7 million during the prior fiscal year. The current fiscal year included $58.2 million in transaction fees and integration expenses resulting from the 3M FSD transaction and $60.9 million in amortization of intangible assets acquired in the Transaction. Remaining increases for the year were primarily the result of additional personnel hired to accommodate the increased size and complexity of the organization, compensation increases across the organization, the issuance of share based compensation grants, software license fees and other information technology infrastructure investments. Fiscal year 2022 included $25.6 million of 3M FSD-related transaction fees.\n \n\n\nResearch and Development:\n \n\n\nResearch and development expense was $26.0 million in fiscal year 2023, compared to $17.0 million during the prior fiscal year. The increase was primarily the result of $8.4 million of ongoing costs associated with the conveying 3M FSD employees.\n\n\n \n\n\nOPERATING INCOME\n \n \n\n\nOperating income was $37.5 million during fiscal year 2023, compared to operating income of $58.6 million in the prior fiscal year. Expressed as a percentage of sales, operating income was 4.6% during fiscal year 2023 and 11.1% during fiscal year 2022. Operating income, both in dollars and expressed as a percentage of sales, declined compared to the prior year period primarily due to transaction costs resulting from the 3M FSD transaction and amortization of the intangible assets acquired.\n \n\n\n38\n\n\n\n\n\u00a0\n\n\nOTHER (EXPENSE) INCOME\n \n\n\nOther (Expense) Income for the previous two fiscal years consisted of the following:\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nInterest income\n\n\n\u00a0\n\n\n$\n\n\n3,166\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,339\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(55,961\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(72\n\n\n)\n\n\n\n\n\n\nForeign currency transactions\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,322\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(40\n\n\n)\n\n\n\n\n\n\nLoss on sale of minority interest\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,516\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\nLoss on investment\n\n\n\u00a0\n\n\n\u00a0\n\n\n(500\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\nContingent consideration adjustments\n\n\n\u00a0\n\n\n\u00a0\n\n\n300\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n220\n\n\n\u00a0\n\n\n\n\n\n\nOther\n\n\n\u00a0\n\n\n\u00a0\n\n\n276\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n142\n\n\n\u00a0\n\n\n\n\n\n\nTotal Other Income\n\n\n\u00a0\n\n\n$\n\n\n(59,557\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n1,589\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nThe net interest expense recorded during fiscal year 2023 was the result of debt incurred to fund the 3M FSD transaction. In fiscal 2022, the Company had no debt outstanding. Interest income relates to earnings on our marketable securities portfolio. Higher yields on the portfolio were partially offset by lower balances in fiscal year 2023. Other expense resulting from foreign currency transactions was the result of changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate. The increase in expense during fiscal year 2023 was due to U.S. dollar denominated intercompany loans incurred in our international subsidiaries as the result of the 3M FSD transaction on September 1, 2022. Due to our acquisition of Corvium, Inc. in February 2023, we recorded a loss of $1.5 million in fiscal year 2023 on dissolution of our minority interest in that company. Finally, we recorded a loss on investment during fiscal year 2023 related to our investment interest of a start-up entity that was encountering liquidity issues.\n \n\n\n \n\n\nPROVISION FOR INCOME TAXES\n \n \n\n\nIncome tax expense during fiscal year 2023 was $0.8 million, compared to $11.9 million in the prior fiscal year, primarily resulting from the additional pre-tax loss due to the 3M FSD acquisition, share-based compensation, and foreign rate differential. This was offset primarily by an increase in GILTI income and nondeductible transaction costs.\n \n\n\nThe total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of May 31, 2023 and May 31, 2022 are $1.1 million and $0.8 million, respectively. The increase in unrecognized tax benefits is primarily associated with the combined 3M FSD, including positions for transfer pricing and research and development credits.\n \n\n\nNET INCOME AND INCOME PER SHARE\n \n \n\n\nNet loss was $22.9 million during fiscal year 2023, compared to net income of $48.3 million in the prior fiscal year. The decrease in earnings was primarily the result of $56.0 million of interest expense from the $1 billion in debt incurred in the Transaction, $59.8 million of transaction fees and integration expenses, and $60.9 million in incremental amortization expenses related to 3M FSD intangibles.\n \n\n\n39\n\n\n\n\n\u00a0\n\n\nNON-GAAP FINANCIAL MEASURES\n \n\n\nThis report includes certain financial information of Neogen that differs from what is reported in accordance with GAAP. These non-GAAP financial measures consist of EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, adjusted net income and adjusted earnings per share. These non-GAAP financial measures are included in this report because management believes that they provide investors with additional useful information to measure the performance of Neogen, and because these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties as common performance measures to compare results or estimate valuations across companies in Neogen\u2019s industries.\n \n\n\nEBITDA\n \n\n\nWe define EBITDA as net income before interest, income taxes, and depreciation and amortization. We present EBITDA as a performance measure because it may allow for a comparison of results across periods and results across companies in the industries in which Neogen operates on a consistent basis, by removing the effects on operating performance of (a) capital structure (such as the varying levels of interest expense and interest income), (b) asset base and capital investment cycle (such as depreciation and amortization) and (c) items largely outside the control of management (such as income taxes). EBITDA also forms the basis for the measurement of Adjusted EBITDA (discussed below).\n \n\n\nAdjusted EBITDA\n \n\n\nWe define Adjusted EBITDA as EBITDA, adjusted for share-based compensation and certain transaction fees and expenses. We present Adjusted EBITDA because it provides an understanding of underlying business performance by excluding the following:\n \n\n\n\u2022\nShare-based compensation\n. We believe it is useful to exclude share-based compensation to better understand the long-term performance of our core business and to facilitate comparison with the results of peer companies.\n \n\n\n\u2022\nFX translation gain/(loss) on loan revaluation.\n We exclude the revaluation impacts of foreign currency fluctuations on our intercompany loan balances.\n\n\n\u2022\nCertain transaction fees and expenses.\n We exclude fees and expenses related to certain transactions because they are outside of Neogen\u2019s underlying core performance. These fees and expenses include deal related professional and legal fees and foreign currency transactions. \n \n\n\n\u2022\nImpairment and scrap of discontinued product lines.\n We exclude expenses associated with impairments and inventory scrap amounts related to certain discontinued product lines. \n \n\n\n\u2022\nOther one-time adjustments. \nWe exclude one-time adjustments recorded within operating or other (expense) income to better understand the long-term performance of our core business.\n\n\nAdjusted EBITDA margin\n \n\n\nWe define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of total revenues. We present Adjusted EBITDA margin as a performance measure to analyze the level of Adjusted EBITDA generated from total revenue.\n \n\n\nAdjusted Net Income\n \n\n\nWe define Adjusted Net Income as Net Income, adjusted for share-based compensation, FX translation gain/(loss) on loan revaluation, certain transaction fees and expenses, impairment and scrap of discontinued product lines and other one-time adjustments, all of which are tax effected.\n \n\n\nAdjusted Earnings per Share\n \n\n\nWe define Adjusted Earnings per Share as Adjusted Net Income divided by diluted average shares outstanding.\n \n\n\n40\n\n\n\n\n\u00a0\n\n\nThese non-GAAP financial measures are presented for informational purposes only. EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share are not recognized terms under GAAP and should not be considered in isolation or as a substitute for, or superior to, net income (loss), operating income, cash flow from operating activities or other measures of financial performance. This information does not purport to represent the results Neogen would have achieved had any of the transactions for which an adjustment is made occurred at the beginning of the periods presented or as of the dates indicated. This information is inherently subject to risks and uncertainties. It may not give an accurate or complete picture of Neogen\u2019s financial condition or results of operations for the periods presented and should not be relied upon when making an investment decision.\n \n\n\nThe use of the terms EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share may not be comparable to similarly titled measures used by other companies or persons due to potential differences in the method of calculation.\n \n\n\nThese non-GAAP financial measures have limitations as analytical tools. For example, for EBITDA-based metrics:\n \n\n\n\u2022\nthey do not reflect changes in, or cash requirements for, Neogen\u2019s working capital needs; \n\n\n\u2022\nthey do not reflect Neogen\u2019s tax expense or the cash requirements to pay taxes; \n\n\n\u2022\nthey do not reflect the historical cash expenditures or future requirements for capital expenditures or contractual commitments; \n\n\n\u2022\nthey do not reflect any cash requirements for future replacements of assets that are being depreciated and amortized; and \n\n\n\u2022\nthey may be calculated differently from other companies in Neogen\u2019s industries limiting their usefulness as comparative measures. \n\n\nA reader should compensate for these limitations by relying primarily on the financial statements of Neogen and using these non-GAAP financial measures only as a supplement to evaluate Neogen\u2019s performance.\n \n\n\nFor each of these non-GAAP financial measures below, we are providing a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure.\n \n\n\nReconciliation between net income and EBITDA and Adjusted EBITDA is as follows:\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nYear ended May 31\n\n\n\u00a0\n\n\n\n\n\n\n(in thousands)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nNet (Loss) Income\n\n\n\u00a0\n\n\n$\n\n\n(22,870\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n48,307\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n60,882\n\n\n\u00a0\n\n\n\n\n\n\nNet income margin %\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2.8\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.0\n\n\n%\n\n\n\n\n\n\nProvision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n828\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,900\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,386\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n88,377\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,694\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,041\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense (income), net\n\n\n\u00a0\n\n\n\u00a0\n\n\n52,795\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,267\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,614\n\n\n)\n\n\n\n\n\n\nEBITDA\n\n\n\u00a0\n\n\n$\n\n\n119,130\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n82,634\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n94,695\n\n\n\u00a0\n\n\n\n\n\n\nShare-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,177\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,154\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,437\n\n\n\u00a0\n\n\n\n\n\n\nFX transaction loss (gain) on loan revaluation\n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,226\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nCertain transaction fees and integration costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,812\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,581\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,085\n\n\n\u00a0\n\n\n\n\n\n\nContingent consideration adjustments\n\n\n\u00a0\n\n\n\u00a0\n\n\n(300\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nRestructuring\n\n\n\u00a0\n\n\n\u00a0\n\n\n475\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nLoss on sale of minority interest\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,516\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nLoss on investment\n\n\n\u00a0\n\n\n\u00a0\n\n\n500\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nImpairment and scrap of discontinued product lines\n(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,639\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nInventory step-up charge\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,245\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted EBITDA\n\n\n\u00a0\n\n\n$\n\n\n205,420\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n115,369\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n104,217\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted EBITDA margin %\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.2\n\n\n%\n\n\n\n\n\n\n(1)\n Net foreign currency transaction loss (gain) associated with the revaluation of non-functional currency intercompany loans established in connection with FSD transaction.\n \n\n\n41\n\n\n\n\n\u00a0\n\n\n(2)\n \nExpenses associated with intangible asset impairments and inventory scrap amounts related to certain discontinued product lines.\n \n\n\nAdjusted EBITDA increased $90.1 million in fiscal year 2023 compared to fiscal year 2022, primarily due to earnings generated from the 3M FSD business, which combined with Neogen on September 1, 2022. Expressed as a percentage of revenue, adjusted EBITDA was 25.0% in fiscal year 2023 compared to 21.9% in fiscal year 2022. Increases in the margin reflect the higher margin products sold by the 3M FSD business, which was not a part of the Company in the prior fiscal year.\n \n\n\nReconciliation between net income and Adjusted Net Income and earnings per share and Adjusted Earnings per Share are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\nYear ended May 31\n\n\n\u00a0\n\n\n\n\n\n\n(in thousands, except earnings per share)\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nNet Income (Loss)\n\n\n\u00a0\n\n\n$\n\n\n(22,870\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n48,307\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n60,882\n\n\n\u00a0\n\n\n\n\n\n\nEarnings per diluted share\n\n\n\u00a0\n\n\n$\n\n\n(0.12\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n0.45\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.57\n\n\n\u00a0\n\n\n\n\n\n\nAmortization of acquisition-related intangibles\n\n\n\u00a0\n\n\n\u00a0\n\n\n68,690\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,235\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,271\n\n\n\u00a0\n\n\n\n\n\n\nShare-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,177\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,154\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,437\n\n\n\u00a0\n\n\n\n\n\n\nFX transaction loss (gain) on loan revaluation\n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,226\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nCertain transaction fees and integration costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,812\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,581\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,085\n\n\n\u00a0\n\n\n\n\n\n\nContingent consideration adjustments\n\n\n\u00a0\n\n\n\u00a0\n\n\n(300\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nRestructuring\n\n\n\u00a0\n\n\n\u00a0\n\n\n475\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nLoss on sale of minority interest\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,516\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nLoss on investment\n\n\n\u00a0\n\n\n\u00a0\n\n\n500\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nImpairment and scrap of discontinued product lines\n(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,639\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nInventory step-up charge\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,245\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nOther adjustments\n(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,864\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nEstimated tax effect of above adjustments\n(4)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(32,323\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9,017\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,904\n\n\n)\n\n\n\n\n\n\nAdjusted Net Income\n\n\n\u00a0\n\n\n$\n\n\n105,651\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n79,260\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n74,771\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted Earnings per Share\n\n\n\u00a0\n\n\n$\n\n\n0.56\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.73\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.70\n\n\n\u00a0\n\n\n\n\n\n\n(1) \nNet foreign currency transaction loss (gain) associated with the revaluation of non-functional currency intercompany loans established in connection with the 3M FSD transaction.\n \n\n\n(2) \nExpenses associated with intangible asset impairments and inventory scrap amounts related to certain discontinued product lines.\n \n\n\n(3) \nIncome tax benefit associated with non-deductible transaction costs that were recognized as expense in prior periods.\n \n\n\n(4) \nTax effect of adjustments is calculated using projected effective tax rates for each applicable item.\n \n\n\nAdjusted Net Income increased $26.4 million during the twelve months ended May 31, 2023 due to the higher Adjusted EBITDA.\n\n\n42\n\n\n\n\n\u00a0\n\n\nFUTURE OPERATING RESULTS\n \n\n\nNeogen Corporation\u2019s future operating results involve a number of risks and uncertainties. Actual events or results may differ materially from those discussed in this report. Factors that could cause or contribute to such differences include, but are not limited to, the factors discussed below as well as those discussed elsewhere in this report. Management\u2019s ability to grow the business in the future depends upon our ability to successfully implement various strategies, including:\n \n\n\n\u2022\ndeveloping, manufacturing and marketing new products with new features and capabilities, and having those new products successfully accepted in the marketplace; \n\n\n\u2022\nexpanding our markets by fostering increased use of our products by customers; \n\n\n\u2022\nmaintaining or increasing gross and net operating margins in changing cost environments; \n\n\n\u2022\nstrengthening operations and sales and marketing activities in geographies outside of the U.S.; \n\n\n\u2022\ndeveloping and implementing new technology development strategies; and \n\n\n\u2022\nidentifying and completing acquisitions that enhance existing product categories or create new products or services, and successfully integrating completed acquisitions, including the FSD transaction. \n\n\nFINANCIAL CONDITION AND LIQUIDITY\n \n\n\nAs of May 31, 2023, the overall cash, cash equivalents and marketable securities position of Neogen was $245.6 million. During the fiscal year ended 2023, cash generated from operating activities was $41.0 million, compared to $68.0 million generated in fiscal 2022. The decrease was primarily the result of 3M FSD transaction costs and the addition of FSD accounts receivable. Cash flow from investing activities was $201.0 million during the fiscal year ended 2023, which was primarily the result of proceeds from the sale of marketable securities of $266.8 million. This was partially offset by purchases of property, equipment and non-current intangible assets of $65.8 million. Cash flow for financing activities was $118.1 million during the fiscal year ended 2023, which was primarily the result of the Company paying down $100 million of the $1 billion in debt taken on to enact the FSD transaction.\n \n\n\nNet accounts receivable balances were $153.3 million as of May 31, 2023 compared to $99.7 million as of May 31, 2022. Days\u2019 sales outstanding, a measurement of the time it takes to collect receivables, for the legacy business was 57 days as of May 31, 2023, compared to 62 days as of May 31, 2022. The increase in receivables is primarily attributable to the recording of FSD customer balances, currently managed by 3M as a transition service.\n\n\nAs part of transition services agreements between the Company and 3M, related to the merger of the Food Safety business, 3M is invoicing our customers for products that 3M is manufacturing and shipping on our behalf. As of May 31, 2023, there were $57.3 million in customer receivables billed by 3M on our behalf. The Company is working collaboratively with 3M on managing the credit risk associated with the former FSD customers during the period while 3M is providing transition invoicing and distribution services to the Company.\n \n\n\nNet inventory was $133.8 million as of May 31, 2023, an increase of $11.5 million, compared to $122.3 million as of May 31, 2022. The higher inventory levels are primarily the result of ongoing inflationary pressures on raw materials at our legacy businesses and raw material inventories purchased to support the FSD. Supply chain issues have moderated throughout fiscal 2023, and we continue to monitor our key raw materials to ensure adequate stock on hand.\n \n\n\nDebt and Liquidity\n\n\nOn September 1, 2022, Neogen, 3M, and Neogen Food Safety Corporation, a subsidiary of 3M created to carve out 3M\u2019s Food Safety business, closed on the Transaction that previously was announced in December 2021, combining 3M\u2019s Food Safety business with Neogen in a Reverse Morris Trust transaction.\n \n\n\n43\n\n\n\n\n\u00a0\n\n\nOn June 30, 2022, Neogen Food Safety Corporation entered into a credit agreement consisting of a five-year senior secured term loan facility in the amount of $650 million and a five-year senior secured revolving facility in the amount of $150 million (collectively, the \u201cCredit Facilities\u201d), which became available in connection with the merger and related transactions. The loan facility was funded to Neogen Food Safety Corporation on August 31, 2022, and upon the effectiveness of the merger on September 1, 2022, became Neogen\u2019s obligation. Financial covenants include maintaining specified levels of funded debt to EBITDA and debt service coverage. Pricing for the term loan is term SOFR plus 235 basis points. The Credit Facilities, together with the Notes described below, represent the financing incurred in connection with the merger of the 3M FSD with Neogen. In September 2022, we paid down $60 million in principal on the term loan and paid an additional $40 million in principal on the term loan in December 2022, in order to decrease the outstanding debt balance.\n\n\nOn July 20, 2022, Neogen Food Safety Corporation closed on an offering of $350 million aggregate principal amount of 8.625% senior notes due 2030 (the \u201cNotes\u201d) in a private placement at par. The Notes were initially issued by Neogen Food Safety Corporation to 3M and were transferred and delivered by 3M to the selling securityholder in the offering, in satisfaction of certain of 3M\u2019s existing debt. Neogen Food Safety Corporation did not receive any proceeds from the sale of the Notes by the selling securityholder. Prior to the distribution of the shares of Neogen Food Safety Corporation\u2019s common stock to 3M stockholders, the Notes were guaranteed on a senior unsecured basis by 3M. Upon consummation of such distribution, 3M was released from all obligations under its guarantee. Upon the effectiveness of the merger on September 1, 2022, the Notes became guaranteed on a senior unsecured basis by Neogen and certain wholly-owned domestic subsidiaries of Neogen.\n \n\n\nIn addition to the 3M transaction described above, our future cash generation and borrowing capacity may not be sufficient to meet cash requirements to fund the operating business, repay debt obligations, construct new manufacturing facilities, commercialize products currently under development or execute our future plans to acquire additional businesses, technology and products that fit within our strategic plan. Accordingly, we may be required, or may choose, to issue additional equity securities or enter into other financing arrangements for a portion of our future capital needs. There is no guarantee that we will be successful in issuing additional equity securities or entering into other financing arrangements.\n \n\n\nWe are subject to certain legal and other proceedings in the normal course of business that have not had, and, in the opinion of management, are not expected to have, a material effect on our results of operations or financial position.\n \n\n\n \n\n\nContractual Obligations \nAs of May 31, 2023, we have the following contractual obligations due by period:\n \n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nLess than\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nMore than\n\n\n\u00a0\n\n\n\n\n\n\n(dollars in thousands)\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\n1 year\n\n\n\u00a0\n\n\n\u00a0\n\n\n1-3 years\n\n\n\u00a0\n\n\n\u00a0\n\n\n4-5 years\n\n\n\u00a0\n\n\n\u00a0\n\n\n5 years\n\n\n\u00a0\n\n\n\n\n\n\nLong-Term Debt\n\n\n\u00a0\n\n\n$\n\n\n900,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n550,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n350,000\n\n\n\u00a0\n\n\n\n\n\n\nInterest obligations\n\n\n\u00a0\n\n\n\u00a0\n\n\n351,649\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n69,162\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n125,956\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n92,047\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n64,484\n\n\n\u00a0\n\n\n\n\n\n\nOperating Leases\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,895\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,542\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,739\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,729\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,885\n\n\n\u00a0\n\n\n\n\n\n\nPurchase Obligations \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n100,148\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n95,620\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,411\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n117\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n$\n\n\n1,365,692\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n168,324\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n136,106\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n644,893\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n416,369\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nPurchase obligations are primarily purchase orders for future inventory and capital equipment purchases. \n\n\nWe continue to make investments in our business and operating facilities. Our preliminary estimate for capital expenditures related to our legacy operations in fiscal 2024 is $30 to $40 million. We also expect to spend approximately $120 million over the next two fiscal years to construct a manufacturing facility in Lansing, Michigan to produce a significant portion of the acquired FSD products and to add additional production capacity for projected growth of existing product lines. Additionally, we expect to spend approximately $30 million over the next two fiscal years to implement a new enterprise resource planning solution.\n \n\n\nNEW ACCOUNTING PRONOUNCEMENTS\n \n\n\nSee discussion of any New Accounting Pronouncements in Note 1 to consolidated financial statements.\n \n\n\n44\n\n\n\n\n\u00a0\n\n",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS\n \n\n\nWe have interest rate and foreign exchange rate risk exposure but no long-term fixed rate investments. Our primary interest rate risk is due to potential fluctuations of interest rates for our variable rate borrowings.\n \n\n\nForeign exchange risk exposure arises because we market and sell our products throughout the world. Revenues in certain foreign countries as well as certain expenses related to those revenues are transacted in currencies other than the U.S. dollar. As such, our operating results are exposed to changes in exchange rates. When the U.S. dollar weakens against foreign currencies, the dollar value of revenues denominated in foreign currencies increases. When the U.S. dollar strengthens, the opposite situation occurs. Additionally, previously invoiced amounts can be positively or negatively affected by changes in exchange rates in the course of collection. We use derivative financial instruments to help manage the economic impact of fluctuations in certain currency exchange rates. These contracts are adjusted to fair value through earnings.\n \n\n\nNeogen has assets, liabilities, and operations outside of the U.S. Our investments in foreign subsidiaries are considered long-term. As discussed in ",
+  "cik": "711377",
+  "cusip6": "640491",
+  "cusip": ["640491956", "640491106", "640491906"],
+  "names": ["NEOGEN CORP", "NEOG"],
+  "source": "https://www.sec.gov/Archives/edgar/data/711377/000095017023042861/0000950170-23-042861-index.htm"
+}
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+{
+  "item1": ">Item 1. B\nusiness\n \n\n\nPerformance Food Group Company (\u201cwe,\u201d \u201cour,\u201d \u201cus,\u201d \u201cthe Company,\u201d or \u201cPFG\u201d), through its subsidiaries, markets and distributes more than 250,000 food and food-related products from 142 distribution centers to over 300,000 customer locations across North America. Our more than 35,000 employees serve a diverse mix of customers, from independent and chain restaurants to schools, business and industry locations, hospitals, vending distributors, office coffee service distributors, retailers, convenience stores, and theaters. We source our products from various suppliers and serve as an important partner to our suppliers by providing them access to our broad customer base. In addition to the products we offer to our customers, we provide value-added services by allowing our customers to benefit from our industry knowledge, scale, and expertise in the areas of product selection and procurement, menu development, and operational strategy.\n \n\n\n\u00a0\n\n\nOn September 1, 2021, we completed the acquisition of Core-Mark Holding Company, Inc. (\"Core-Mark\"). As a result, we expanded our convenience business, which now includes operations in Canada. Refer to Note 4. \nBusiness Combinations\n within the Notes to Consolidated Financial Statements included in Part II, Item 8. \nFinancial Statements \n\"(\"Item 8\") for additional details regarding the acquisition of Core-Mark.\n\n\n\u00a0\n\n\nOur business, our industry and the U.S. economy are influenced by a number of general macroeconomic factors, including, but not limited to, changes in the rate of inflation and fuel prices, interest rates, supply chain disruptions, labor shortages, and the effects of health epidemics and pandemics. We continue to actively monitor the impacts of the evolving macroeconomic and geopolitical landscape on all aspects of our business. The Company and our industry may face challenges related to product and fleet supply, increased product and logistics costs, access to labor supply, and lower disposable incomes due to inflationary pressures and macroeconomic conditions. The extent to which these challenges will affect our future financial position, liquidity, and results of operations remains uncertain. For further information on the risks posed to our business, please see Item 1A.\n\n\nOur Segments\n \n\n\n\u00a0\n\n\nBased on the Company\u2019s organization structure and how the Company\u2019s management reviews operating results and makes decisions about resource allocation, the Company has three reportable segments: Foodservice, Vistar, and Convenience. Corporate & All Other is comprised of corporate overhead and certain operating segments that are not considered separate reportable segments based on their size. This also includes the operations of the Company\u2019s internal logistics unit responsible for managing and allocating inbound logistics revenue and expense.\n\n\nFoodservice\n. Foodservice offers a \u201cbroad line\u201d of products, including custom-cut meat and seafood, as well as products that are specific to our customers\u2019 menu requirements. Foodservice operates a network of 78 distribution centers, each of which is run by a business team who understands the local markets and the needs of its particular customers and who is empowered to make decisions on how best to serve them. This segment serves over 175,000 customer locations.\n \n\n\nThe Foodservice segment markets and distributes food and food-related products to independent restaurants, chain restaurants, and other institutional \u201cfood-away-from-home\u201d locations. Independent customers predominantly include family dining, bar and grill, pizza and Italian, and fast casual restaurants. We seek to increase the mix of our total sales to independent customers because they typically use more value-added services, particularly in the areas of product selection and procurement, market trends, menu development, and operational strategy and also use more of our proprietary-branded products (\u201cPerformance Brands\u201d), which are our highest margin products. As a result, independent customers generate higher gross profit per case that more than offsets the generally higher supply chain costs that we incur in serving these customers. Chain customers are multi-unit restaurants with five or more locations and include fine dining, family and casual dining, fast casual, and quick serve restaurants, as well as hotels, healthcare facilities, and other multi-unit institutional customers. Our Foodservice segment\u2019s chain customers include regional businesses requiring short-haul routes as well as national businesses requiring long-haul routes, including many of the most recognizable family and casual dining restaurant chains. Sales to chain customers are typically lower gross margin but have larger deliveries than those to independent customers.\n\n\nWe offer our customers a broad product assortment that ranges from \u201ccenter-of-the-plate\u201d items (such as beef, pork, poultry, and seafood), frozen foods, refrigerated products, and dry groceries to disposables, cleaning and kitchen supplies, and related products used by our customers. In addition to the products we offer, we provide value-added services by enabling our customers to benefit from our industry knowledge, scale, and expertise in the areas of product selection and procurement, menu development, and operational strategy.\n \n\n\n3\n\n\n\n\n\u00a0\n\n\nOur products consist of Performance Brands, as well as nationally branded products and products bearing our customers\u2019 brands. Our Performance Brands typically generate higher gross profit per case than other brands. Nationally branded products are attractive to chain, independent, and other customers seeking recognized national brands in their operations and complement sales of our Performance Brand products. Some of our chain customers, particularly those with national distribution, develop exclusive stock keeping units (\u201cSKU\u201d) specifications directly with suppliers and brand these SKUs. We purchase these SKUs directly from suppliers and receive them into our distribution centers, where they are mixed with other SKUs and delivered to the chain customers\u2019 locations.\n\n\nVistar\n. Vistar is a leading national distributor of candy, snacks, and beverages to vending and office coffee service distributors, retailers, theaters, and hospitality providers. The segment provides national distribution of candy, snacks, beverages, and other items to over 75,000 customer locations from our network of 25 Vistar distribution centers.\n \n\n\nVending operators comprise Vistar\u2019s largest channel, where we distribute a broad selection of vending machine products to the operators\u2019 depots, from which they distribute products and stock machines. Additionally, Vistar is a leading distributor of products to theater chains as well as in the office coffee service channel. Vistar has successfully built upon our national platform to broaden the channels we serve to include hospitality venues, concessionaires, airport gift shops, college bookstores, corrections facilities, and impulse locations in various brick and mortar big box retailers nationwide. Merchant\u2019s Marts are cash-and-carry operators where customers generally pick up orders rather than having them delivered. Vistar\u2019s scale in these channels enhances our ability to procure a broad variety of products for our customers. Vistar distribution centers deliver to vending and office coffee service distributors and directly to most theaters and various other locations. The distribution model also includes a \u201cpick and pack\u201d capability, which utilizes third-party carriers and Vistar\u2019s SKU variety to sell to customers whose order sizes are too small to be served effectively by our delivery network. We believe these capabilities, in conjunction with the breadth of our inventory, are differentiating and allow us to serve many distinct customer types.\n\n\nConvenience\n. The Convenience segment is one of the largest foodservice and wholesaler consumer products distributors in the convenience retail industry. Convenience offers a full range of products, marketing programs and technology solutions to approximately 50,000 customer locations in the United States and Canada. The Convenience segment's customers include traditional convenience stores, drug stores, mass merchants, grocery stores, liquor stores and other specialty and small format stores that carry convenience products. Convenience's product offering includes cigarettes, other tobacco products, alternative nicotine products, candy, snacks, food, including fresh products, groceries, dairy, bread, beverages, general merchandise and health and beauty care products. Convenience operates a network of 39 distribution centers in the U.S. and Canada (excluding two distribution facilities it operates as a third-party logistics provider). There are 35 distribution centers located in the U.S. and four located in Canada.\n\n\nThe Company had no customers that comprised more than 10% of consolidated net sales for fiscal 2023, fiscal 2022, or fiscal 2021.\n\n\nSuppliers\n\n\nWe source our products from various suppliers and serve as an important partner to our suppliers by providing them access to our broad customer base. Many of our suppliers provide products to each of our reportable segments, while others sell to only one segment. Our supplier base consists principally of large corporations that sell their national brands, our Performance Brands, and sometimes both. We also buy from smaller suppliers, particularly on a regional basis, and particularly those that specialize in produce and other perishable commodities. Many of our suppliers provide sales material and sales call support for the products that we purchase.\n \n\n\nPricing\n \n\n\nOur pricing to customers is either set by contract with the customer or is priced at the time of order. If the price is by contract, then it is either based on a percentage markup over cost or a fixed markup per unit, and the unit may be expressed either in cases or pounds of product. If the pricing is set at time of order, the pricing is agreed to between our sales associate and the customer and is typically based on a product cost that fluctuates weekly or more frequently.\n \n\n\nIf contracts are based on a fixed markup per unit or pound, then our customers bear the risk of cost fluctuations during the contract life. In the case of a fixed markup percentage, we typically bear the risk of cost deflation or the benefit of cost inflation. If pricing is set at the time of order, we have the current cost of goods in our inventory and typically pass cost increases or decreases to our customers. We generally do not lock in or otherwise hedge commodity costs or other costs of goods sold except within certain customer contracts where the customer bears the risk of cost fluctuation. We believe that our pricing mechanisms provide us with significant insulation from fluctuations in the cost of goods that we sell. Our inventory turns, on average, every three-and-a-half weeks, which further protects us from cost fluctuations.\n \n\n\n4\n\n\n\n\n\u00a0\n\n\nWe seek to minimize the effect of higher diesel fuel costs both by reducing fuel usage and by taking action to offset higher fuel prices. We reduce usage by designing more efficient truck routes and by increasing miles per gallon through on-board computers that monitor and adjust idling time and maximum speeds and through other technologies. We seek to manage fuel prices through diesel fuel surcharges to our customers and through the use of costless collars. As of July 1, 2023, we had collars in place for approximately 27% of the gallons we expect to use over the 12 months following July 1, 2023.\n \n\n\nCompetition\n\n\nThe foodservice distribution industry is highly competitive. Certain of our competitors have greater financial and other resources than we do. Furthermore, there are two large broadline distributors, Sysco, and US Foods, with national footprints. In addition, there are numerous regional, local, and specialty distributors. These smaller distributors often align themselves with other smaller distributors through purchasing cooperatives and marketing groups to enhance their geographic reach, private label offerings, overall purchasing power, cost efficiencies, and to assemble delivery networks for national or multi-regional distribution. We often do not have exclusive service agreements with our customers and our customers may switch to other distributors if those distributors can offer lower prices, differentiated products, or customer service that is perceived to be superior. We believe that most purchasing decisions in the foodservice business are based on the quality and price of the product and a distributor\u2019s ability to fill orders completely and accurately and to provide timely deliveries.\n \n\n\nWe believe we have a competitive advantage over regional and local broadline distributors through economies of scale in purchasing and procurement, which allow us to offer a broad variety of products (including our proprietary Performance Brands) at competitive prices to our customers. Our customers benefit from our ability to provide them with extensive geographic coverage as they continue to grow. We believe we also benefit from supply chain efficiency, including a growing inbound logistics backhaul network that uses our collective distribution network to deliver inbound products across business segments; best practices in warehousing, transportation, and risk management; the ability to benefit from the scale of our purchases of items not for resale, such as trucks, construction materials, insurance, banking relationships, healthcare, and material handling equipment; and the ability to optimize our networks so that customers are served from the most efficient distribution centers, which minimizes the cost of delivery. We believe these efficiencies and economies of scale provide opportunities for improvements in our operating margins when combined with an incremental fixed-cost advantage.\n \n\n\nSeasonality\n \n\n\nHistorically, the food-away-from-home and foodservice distribution industries are seasonal, with lower profit in the first quarter of each calendar year. Consequently, we may experience lower operating profit during our third fiscal quarter, depending on the timing of acquisitions, if any.\n \n\n\nTrademarks and Trade Names\n \n\n\nWe have numerous perpetual trademarks and trade names that are of significant importance, including Core-Mark, West Creek, Silver Source, Braveheart 100% Black Angus, Empire\u2019s Treasure, Brilliance, Heritage Ovens, Village Garden, Guest House, Piancone, Luigi\u2019s, Ultimo, Corazo, Assoluti, Peak Fresh Produce, Roma, First Mark, and Nature\u2019s Best Dairy. Although in the aggregate these trademark and trade names are material to our results of operations, we believe the loss of a trademark or trade name individually would not have a material adverse effect on our results of operations. The Company does not have any material patents or licenses.\n \n\n\nHuman Capital Resources\n\n\nOur vision is to create the best experience for our associates and the best outcomes for our Company, customers, and communities. One of our primary strategies is to attract, train, develop, and retain talented individuals who feel empowered to fully contribute their diverse backgrounds, experiences, and innovative ideas to the success of the Company. We also recognize the importance of keeping our associates safe and healthy, as well as giving them a voice and listening to their concerns and suggestions. Below, we discuss our efforts to achieve these objectives.\n\n\nAssociates. \nAs of July 1, 2023, our employee population (including employees of our consolidated subsidiaries) totaled over 35,000 full-time and part-time employees in North America. Of that total, approximately 99% were employed on a full-time basis, and approximately 71% were non-exempt, or paid on an hourly basis.\n \n\n\nCompensation and Benefits. \nWe believe our base wages and salaries, which we review annually, are fair and competitive with the external labor markets in which our associates work. We offer incentive programs that provide cash-bonus opportunities to\n \n\n\n5\n\n\n\n\n\u00a0\n\n\nencourage and reward participants for the Company\u2019s achievement of financial and other key performance metrics and strengthen the connection between pay and performance. We also grant equity compensation awards that vest over time through our long-term incentive plan to eligible associates to align such associates\u2019 incentives with the Company\u2019s long-term strategic objectives and the interests of our stockholders.\n\n\nWe offer competitive benefits to our associates, including paid vacation and holidays, family leave, disability insurance, life insurance, healthcare, adoption assistance, tuition reimbursement, dependent care flexible spending accounts, a 401(k) plan with a company match, and an Employee Stock Purchase Plan. Additionally, we offer an Employee Assistance Program that includes professional support for associates to balance the stress of personal and professional demands at home, in the office, in distribution centers and on the road.\n\n\nWorkforce Diversity.\n We are committed to building an inclusive culture, where internal stakeholders feel heard, seen and included. With the active engagement of PFG\u2019s Senior Leadership, we implemented a Diversity, Inclusion & Belonging (DI&B) strategy to guide us, making education and representation a priority. We established a goal to have candidate pool diversity for senior leadership positions. We introduced Associate Resource Groups (ARGs) for women and Black/African American associates. Our ARG investment is intended to broaden inclusivity, building a strong sense of belonging and community. We also use cultural awareness and education campaigns to bring our strategy to life. Our Vice President of DI&B also provides regular updates to the Company's Board of Directors (\u201cBoard of Directors\u201d). With five out of 11 members of the Board representing gender and ethnic diversity, our commitment to ensure workforce diversity is reflected at every level of the organization connects to our social responsibility and business imperatives.\n\n\nLearning and Development. \nWe have an enterprise-wide learning and development strategy that has allowed us to build a lifelong learning culture by focusing on attracting, retaining and preparing our workforce for success in current roles and developing our future leaders. We enable a purposeful career journey by supporting associates in mastering their current roles and preparing for future career paths. Using a blended approach of instructor-led and self-paced training, our associates are provided role-specific training that is just-in-time, accessible and personalized. The learning journey for our associates starts with an onboarding experience and continues with individual development opportunities.\n \n\n\nOur E3 Leadership Development program is designed to provide leadership training opportunities for all levels of leadership, from entry level to executive, advancing leadership skills at every point of their career. This program is intended to create a passionate learning culture with current and future leaders who pursue innovation and embrace empathy.\n\n\nThrough our Learning Management System, we deliver a variety of required and optional on-demand learning modules that are linked to an associate\u2019s role with the Company, including those modules tied to safety and compliance, such as our Code of Business Conduct.\n \n\n\nAdditionally, our segments provide segment specific training opportunities that align and compliment the overall learning and development strategy. We are focused on empowering associates with the right training at the right time, throughout their career journey.\n\n\nHealth, Safety and Wellness. \nThe safety of our associates is paramount. Emphasis on training, safety awareness, behavioral based work observation practices, telematics, and culture is the foundation in our continuous effort to reduce workplace injuries and accidents. We continue to focus on the safety of our team members and the motoring public by identifying and addressing safety risks through education, coaching, and process changes, and by seeking out new systems and technology to help us continue our journey in keeping our associates safe and our Company compliant.\n\n\nEngagement. \nWe work to build, measure, and enhance associate engagement through a variety of communications and activities. We participate in, and celebrate, industry efforts such as the International Foodservice Distributors Association\u2019s Truck Driving Championship and Truck Driver Hall of Fame, highlight locally and internally/externally share significant achievements for our warehouse associates, and honor the diversity of our associates, along with our customers and communities, by celebrating heritage months throughout the year. Community support efforts, both local and national, such as Feeding American\u2019s Hunger Action Month, promoting Truckers Against Trafficking, and supporting American Red Cross disaster relief efforts also provide opportunities to engage our associates. In response to associate feedback, we identified and delivered a number of initiatives to strengthen the associate experience, including day one benefits, our leadership training program, driver and selector career pathing and enhanced communications channels.\n \n\n\nRegulation\n \n\n\nOur operations are subject to regulation by state and local health departments, the U.S. Department of Agriculture (the \u201cUSDA\u201d), and the U.S. Food and Drug Administration (the \u201cFDA\u201d), which generally impose standards for product quality and sanitation and are responsible for the administration of bioterrorism legislation affecting the foodservice industry. These government authorities regulate, among other things, the processing, packaging, storage, distribution, advertising, and labeling of our products. The FDA Food Safety Modernization Act (the \u201cFSMA\u201d) requires that the FDA impose comprehensive, prevention-based controls\n \n\n\n6\n\n\n\n\n\u00a0\n\n\nacross the food supply chain, further regulates food products imported into the United States, and provides the FDA with mandatory recall authority. The FSMA requires the FDA to undertake numerous rulemakings and to issue numerous guidance documents, as well as reports, plans, standards, notices, and other tasks. As a result, implementation of the legislation is ongoing and likely to take several years. Our seafood operations are also specifically regulated by federal and state laws, including those administered by the National Marine Fisheries Service, established for the preservation of certain species of marine life, including fish and shellfish. Our processing and distribution facilities must be registered with the FDA biennially and are subject to periodic government agency inspections. State and/or federal authorities generally inspect our facilities at least annually. The Federal Perishable Agricultural Commodities Act, which specifies standards for the sale, shipment, inspection, and rejection of agricultural products, governs our relationships with our fresh food suppliers with respect to the grading and commercial acceptance of product shipments. We are also subject to regulation by state authorities for the accuracy of our weighing and measuring devices. Our suppliers are also subject to similar regulatory requirements and oversight.\n \n\n\nThe failure to comply with applicable regulatory requirements could result in, among other things, administrative, civil, or criminal penalties or fines, mandatory or voluntary product recalls, warning or untitled letters, cease and desist orders against operations that are not in compliance, closure of facilities or operations, the loss, revocation, or modification of any existing licenses, permits, registrations, or approvals, or the failure to obtain additional licenses, permits, registrations, or approvals in new jurisdictions where we intend to do business, any of which could have a material adverse effect on our business, financial condition, or results of operations. These laws and regulations may change in the future and we may incur material costs in our efforts to comply with current or future laws and regulations or in any required product recalls.\n \n\n\nOur operations are subject to a variety of federal, state, and local laws and other requirements, including, employment practice standards for workers set by the U.S. Department of Labor, and relating to the protection of the environment and the safety and health of personnel and the public. These include requirements regarding the use, storage, and disposal of solid and hazardous materials and petroleum products, including food processing wastes, the discharge of pollutants into the air and water, and worker safety and health practices and procedures. In order to comply with environmental, health, and safety requirements, we may be required to spend money to monitor, maintain, upgrade, or replace our equipment; plan for certain contingencies; acquire or maintain environmental permits; file periodic reports with regulatory authorities; or investigate and clean up contamination. We operate and maintain vehicle fleets, and some of our distribution centers have regulated underground and aboveground storage tanks for diesel fuel and other petroleum products. Some jurisdictions in which we operate have laws that affect the composition and operation of our truck fleet, such as limits on diesel emissions and engine idling. A number of our facilities have ammonia- or freon-based refrigeration systems, which could cause injury or environmental damage if accidentally released, and many of our distribution centers have propane or battery powered forklifts. Proposed or recently enacted legal requirements, such as those requiring the phase-out of certain ozone-depleting substances and proposals for the regulation of greenhouse gas emissions, may require us to upgrade or replace equipment, or may increase our transportation or other operating costs. To date, our cost of compliance with environmental, health, and safety requirements has not been material. The discovery of contamination for which we are responsible, any accidental release of regulated materials, the enactment of new laws and regulations, or changes in how existing requirements are enforced could require us to incur additional costs or subject us to unexpected liabilities, which could have a material adverse effect on our business, financial condition, or results of operations.\n \n\n\nThe Surface Transportation Board and the Federal Highway Administration regulate our trucking operations. In addition, interstate motor carrier operations are subject to safety requirements prescribed in the U.S. Department of Transportation and other relevant federal and state agencies. Such matters as weight and dimension of equipment are also subject to federal and state regulations. We believe that we are in substantial compliance with applicable regulatory requirements relating to our motor carrier operations. Failure to comply with the applicable motor carrier regulations could result in substantial fines or revocation of our operating permits.\n \n\n\nAvailable Information\n \n\n\nWe file annual, quarterly, and current reports, proxy statements and other information with the SEC. Our filings with the SEC are available to the public on the SEC\u2019s website at www.sec.gov. Those filings are also available to the public on, or accessible through, our website for free via the \u201cInvestors\u201d section at www.pfgc.com. The information we file with the SEC or contained on or accessible through our corporate website or any other website that we may maintain is not incorporated by reference herein and is not part of this Form 10-K.\n \n\n\nWebsite and Social Media Disclosure\n \n\n\nWe use our website (www.pfgc.com) and our corporate Facebook account as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in\n \n\n\n7\n\n\n\n\n\u00a0\n\n\naddition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about PFG when you enroll your e-mail address by visiting the \u201cEmail Alerts\u201d section of our website at investors.pfgc.com. The contents of our website and social media channels are not, however, a part of this Form 10-K.\n \n\n",
+  "item1a": ">Item 1A. Ris\nk Factors\n \n\n\nRisks Relating to Our Business and Industry\n \n\n\n\u00a0\n\n\nPeriods of difficult economic conditions, a public health crisis, other macroeconomic events and heightened uncertainty in the financial markets affect consumer spending and confidence, which can adversely affect our business.\n\n\nThe foodservice industry is sensitive to national and regional economic conditions. Our business could be negatively impacted by reduced demand for our products related to unfavorable macroeconomic conditions triggered by developments beyond our control, including geopolitical events, health crises such as the COVID-19 pandemic, and other events that trigger economic volatility on a national or regional basis. In particular, deteriorating economic conditions and heightened uncertainty in the financial markets, inflationary pressure, an uncertain political environment, and supply chain disruptions, such as those the global economy is currently facing, negatively affect consumer confidence and discretionary spending. In fiscal 2023, product cost inflation contributed to an increase in selling price per case and an increase in net sales. However, sustained inflationary pressure and macroeconomic challenges could negatively affect consumer discretionary spending decisions within our customers\u2019 establishments, which could negatively impact our sales. The extent of any such effects on consumer spending depends in part on the magnitude and duration of such conditions, which cannot be predicted at this time.\n\n\nWe rely on third-party suppliers, and our business may be affected by interruption of supplies or increases in product costs.\n \n\n\nWe obtain substantially all of our foodservice and related products from third-party suppliers. We typically do not have long-term contracts with our suppliers. Although our purchasing volume can sometimes provide an advantage when dealing with suppliers, suppliers may not provide the foodservice products and supplies needed by us in the quantities and at the prices requested. Our suppliers may also be affected by higher costs to source or produce and transport food products, as well as by other related expenses that they pass through to their customers, which could result in higher costs for the products they supply to us. Because we do not control the actual production of most of the products we sell, we are also subject to material supply chain interruptions, delays caused by interruption in production, and increases in product costs, including those resulting from product recalls or a need to find alternate materials or suppliers, based on conditions outside our control. These conditions include labor shortages, work slowdowns, work interruptions, strikes or other job actions by employees of suppliers, government shutdowns, weather conditions or more prolonged climate change, crop conditions, product or raw material scarcity, water shortages, transportation interruptions, unavailability of fuel or increases in fuel costs, competitive demands, contamination with mold, bacteria or other contaminants, pandemics (such as the COVID-19 pandemic), natural disasters or other catastrophic events, including the outbreak of e. coli or similar food borne illnesses or bioterrorism in the United States, international hostilities, civil insurrection, and social unrest. Moreover, commodity prices continue to be volatile and have generally increased due to supply chain disruptions and labor and transportation shortages. Our inability to obtain adequate supplies of foodservice and related products as a result of any of the foregoing factors or otherwise could mean that we may not be able to fulfill our obligations to our customers and, as a result, our customers may turn to other distributors. Our inability to anticipate and react to changing food costs through our sourcing and purchasing practices in the future could also have a material adverse effect on our business, financial condition, or results of operations.\n\n\nWe face risks relating to labor relations, labor costs, and the availability of qualified labor.\n \n\n\nAs of July 1, 2023, we had more than 35,000 employees of whom approximately 1,600 were members of local unions associated with the International Brotherhood of Teamsters or other unions. Although our labor contract negotiations have in the past generally taken place with the local union representatives, we may be subject to increased efforts to engage us in multi-unit bargaining that could subject us to the risk of multi-location labor disputes or work stoppages that would place us at greater risk of being materially adversely affected by labor disputes. In addition, labor organizing activities could result in additional employees becoming unionized, which could result in higher labor costs. Although we have not experienced any significant labor disputes or work stoppages in recent history, and we believe we have satisfactory relationships with our employees, including those who are union members, increased unionization or a work stoppage because of our inability to renegotiate union contracts could have a material adverse effect on us. Further, potential changes in labor legislation and case law could result in current non-union portions of our workforce, including warehouse and delivery personnel, being subjected to greater organized labor influence. If additional portions of our workforce became subject to collective bargaining agreements, this could result in increased costs of doing business as we would become subject to mandatory, binding arbitration or labor scheduling, labor costs, and standards, which could reduce our operating flexibility.\n \n\n\nWe are subject to a wide range of labor costs. Because our labor costs are, as a percentage of net sales, higher than in many other industries, we may be significantly harmed by labor cost increases. In addition, labor is a significant cost for many of our\n \n\n\n8\n\n\n\n\n\u00a0\n\n\ncustomers in the U.S. food-away-from-home industry. Any increase in their labor costs, including any increases in costs as a result of increases in minimum wage requirements, wage inflation and/or increased overtime payments as a result of labor shortages, work slowdowns, work interruptions, strikes, or other job actions by employees of customers could reduce the profitability of our customers and reduce demand for our products.\n\n\n\u00a0\n\n\nWe rely heavily on our employees, particularly warehouse workers and drivers, and any significant shortage of qualified labor could significantly affect our business. Our recruiting and retention efforts and efforts to increase productivity may not be successful, and we could encounter a shortage of qualified labor in future periods. Any such shortage would decrease our ability to serve our customers effectively. Such a shortage would also likely lead to higher wages for employees and a corresponding reduction in our profitability. The current competitive labor market has impacted the Company\u2019s ability to hire and retain qualified labor, particularly warehouse workers and drivers, in certain geographies. See the discussion under \u201cHuman Capital Resources\u201d in Item 1, \u201cBusiness\u201d for additional information regarding our talent acquisition and talent management efforts in the context of these labor shortages.\n\n\nFurther, we continue to assess our healthcare benefit costs. Despite our efforts to control costs while still providing competitive healthcare benefits to our associates, significant increases in healthcare costs continue to occur, and we can provide no assurance that our cost containment efforts in this area will be effective. Our distributors and suppliers also may be affected by higher minimum wage and benefit standards, wage inflation and/or increased overtime payments as a result of labor shortages, work slowdowns, work interruptions, strikes, or other actions by their employees, which could result in higher costs for goods and services supplied to us. If we are unable to raise our prices or cut other costs to cover this expense, such increases in expenses could materially reduce our operating profit.\n\n\nA cyber security incident or other technology disruptions could negatively affect our business and our relationships with customers.\n \n\n\nWe rely upon information technology networks and systems to process, transmit, and store electronic information, and to manage or support virtually all of our business processes and activities. We also use mobile devices, social networking, and other online activities to connect with our employees, suppliers, business partners, and customers. These uses give rise to cybersecurity risks, including security breach, espionage, system disruption, theft, and inadvertent release of information. Our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers\u2019 and suppliers\u2019 personal information, private information about employees, and financial and strategic information about us and our business partners. We have implemented measures to prevent security breaches and other cyber incidents. However, we and our third-party providers experience cybersecurity incidents of varying degrees from time-to-time, including ransomware and phishing attacks, as well as distributed denial of service attacks and the theft of data. To date, interruption of our information technology networks and systems and unauthorized access or exfiltration of data have been infrequent and have not had a material impact on our operations. However, because cyber-attacks are increasingly sophisticated and more frequent, our preventative measures and incident response efforts may not be entirely effective. Additionally, a portion of our corporate employees work remotely using smartphones, tablets, and other wireless devices, which may further heighten these and other operational risks. Further, as we pursue our strategy to grow through acquisitions and to pursue new initiatives that improve our operations and cost structure, we are also expanding and improving our information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. Failure to adequately assess and identify cybersecurity risks associated with acquisitions and new initiatives would increase our vulnerability to such risks.\n \n\n\nThe theft, destruction, loss, misappropriation, release of sensitive and/or confidential information or intellectual property, or interference with our information technology systems or the technology systems of third parties on which we rely could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of customers, potential liability, remediation costs, and a competitive disadvantage.\n\n\nWe rely heavily on technology in our business and any technology disruption or delay in implementing new technology could adversely affect our business.\n \n\n\nThe foodservice distribution industry is transaction intensive. Our ability to control costs and to maximize profits, as well as to serve customers effectively, depends on the reliability of our information technology systems and related data entry processes. We rely on software and other technology systems, some of which are managed by third-party service providers, to manage significant aspects of our business, including making purchases, processing orders, managing our warehouses, loading trucks in the most efficient manner, and optimizing the use of storage space. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction errors, processing inefficiencies, and the loss of sales and customers, causing our business and results of operations to suffer. In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, power outages, systems failures, security breaches, cyber-attacks, and viruses. While we have invested and continue to invest in technology security initiatives and disaster\n \n\n\n9\n\n\n\n\n\u00a0\n\n\nrecovery plans, these measures cannot fully insulate us from technology disruptions that could have a material adverse effect on our business, financial condition, or results of operations.\n \n\n\nInformation technology systems evolve rapidly and in order to compete effectively we are required to integrate new technologies in a timely and cost-effective manner. If competitors implement new technologies before we do, allowing such competitors to provide lower priced or enhanced services of superior quality compared to those we provide, this could have a material adverse effect on our business, financial condition, or results of operations\n.\n \n\n\nCompetition in our industry is intense, and we may not be able to compete successfully.\n \n\n\nThe foodservice distribution industry is highly competitive. Certain of our competitors have greater financial and other resources than we do. Furthermore, there are two larger broadline distributors, Sysco and US Foods, with national footprints. In addition, there are numerous regional, local, and specialty distributors. These smaller distributors often align themselves with other smaller distributors through purchasing cooperatives and marketing groups to enhance their geographic reach, private label offerings, overall purchasing power, cost efficiencies, and to assemble delivery networks for national or multi-regional distribution. We often do not have exclusive service agreements with our customers and our customers may switch to other distributors if those distributors can offer lower prices, differentiated products, or customer service that is perceived to be superior. Such changes may occur particularly during periods of economic uncertainty or significant inflation. We believe that most purchasing decisions in the foodservice business are based on the quality and price of the product and a distributor\u2019s ability to fill orders completely and accurately and provide timely deliveries. Our current or potential, future competitors may be able to provide products or services that are comparable or superior to those provided by us or adapt more quickly than we do to evolving trends or changing market requirements. Accordingly, we may not be able to compete effectively against current and potential, future competitors, and increased competition may result in price reductions, reduced gross margins, and loss of market share, any of which could materially adversely affect our business, financial condition, or results of operations.\n \n\n\nWe operate in a low margin industry, which could increase the volatility of our results of operations.\n \n\n\nSimilar to other resale-based industries, the distribution industry is characterized by relatively low profit margins. These low profit margins tend to increase the volatility of our reported net income since any decline in our net sales or increase in our costs that is small relative to our total net sales or costs may have a material impact on our net income.\n \n\n\nVolatile food costs may have a direct impact upon our profitability.\n \n\n\nWe make a significant portion of our sales at prices that are based on the cost of products we sell plus a percentage markup. As a result, volatile food costs may have a direct impact upon our profitability. Our profit levels may be negatively affected during periods of product cost deflation, even though our gross profit percentage may remain relatively constant or even increase. Prolonged periods of product cost inflation also may have a negative impact on our profit margins and earnings to the extent such product cost increases are not passed on to customers because of their resistance to higher prices. For example, the impact of current economic conditions has resulted in inflation of 8.6% for fiscal 2023, which has increased our product costs and decreased profit margins. Furthermore, our business model requires us to maintain an inventory of products, and changes in price levels between the time that we acquire inventory from our suppliers and the time we sell the inventory to our customers could lead to unexpected shifts in demand for our products or could require us to sell inventory at lesser profit or a loss. In addition, product cost inflation may negatively affect consumer discretionary spending decisions within our customers\u2019 establishments, which could negatively impact our sales. Our inability to quickly respond to inflationary and deflationary cost pressures could have a material adverse impact on our business, financial condition, or results of operations.\n \n\n\nMany of our customers are not obligated to continue purchasing products from us.\n \n\n\nMany of our customers buy from us pursuant to individual purchase orders, and we often do not enter into long-term agreements with these customers. Because such customers are not obligated to continue purchasing products from us, that the volume and/or number of our customers\u2019 purchase orders may not remain constant or increase and we may be unable to maintain our existing customer base. Significant decreases in the volume and/or number of our customers\u2019 purchase orders or our inability to retain or grow our current customer base could have a material adverse effect on our business, financial condition, or results of operations.\n \n\n\n10\n\n\n\n\n\u00a0\n\n\nGroup purchasing organizations may become more active in our industry and increase their efforts to add our customers as members of these organizations.\n \n\n\nSome of our customers, particularly our larger customers, purchase their products from us through group purchasing organizations (\u201cGPOs\u201d) in an effort to lower the prices paid by these customers on their foodservice orders, and we have experienced some pricing pressure from these purchasers. These GPOs have also made efforts to include smaller, independent restaurants. If these GPOs are able to add a significant number of our customers as members, we may be forced to lower the prices we charge these customers in order to retain their business, which would negatively affect our business, financial condition, or results of operations. Additionally, if we are unable or unwilling to lower the prices we charge for our products to a level that is satisfactory to the GPOs, we may lose the business of those customers that are members of these organizations, which could have a material adverse effect on our business, financial condition, or results of operations.\n \n\n\nChanges in consumer eating habits could reduce the demand for our products.\n \n\n\nChanges in consumer eating habits (such as a decline in consuming food away from home, a decline in portion sizes, or a shift in preferences toward restaurants that are not our customers) could reduce demand for our products, which could adversely affect our business, financial condition, or results of operations. Consumer eating habits can be affected by a number of factors, including changes in attitudes regarding diet and health or new information regarding the health effects of consuming certain foods. There is a growing consumer preference for sustainable, organic, and locally grown products, and a shift towards plant-based proteins and/or animal proteins derived from animals that were humanely treated and antibiotic free. If consumer eating habits change significantly, we may be required to modify or discontinue sales of certain items in our product portfolio, and we may experience higher costs associated with the implementation of those changes. Changing consumer eating habits may also reduce the frequency with which consumers purchase meals outside of the home.\n\n\nAdditionally, changes in consumer eating habits may result in the enactment of laws and regulations that affect the ingredients and nutritional content of our food products, or laws and regulations requiring us to disclose the nutritional content of our food products. Compliance with these laws and regulations, as well as others regarding the ingredients and nutritional content of our food products, may be costly and time-consuming. Our inability to effectively respond to changes in food away from home consumer trends, consumer health perceptions or resulting new laws or regulations, or to adapt our menu offerings to trends in eating habits could have a material adverse effect on our business, financial condition, or results of operations.\n \n\n\nExtreme weather conditions and natural disasters may interrupt our business or our customers\u2019 businesses.\n \n\n\nMany of our facilities and our customers\u2019 facilities are located in areas that may be subject to extreme and occasionally prolonged weather conditions, including hurricanes, blizzards, earthquakes, and extreme heat or cold. Such extreme weather conditions, whether caused by global climate change or otherwise, could interrupt our operations and reduce the number of consumers who visit our customers\u2019 facilities in such areas. Furthermore, such extreme weather conditions may interrupt or impede access to our customers\u2019 facilities, all of which could have a material adverse effect on our business, financial condition, or results of operations.\n \n\n\nFluctuations in fuel prices and other transportation costs could harm our business.\n \n\n\nThe high cost of fuel can negatively affect consumer confidence and discretionary spending and, as a result, reduce the frequency and amount spent by consumers within our customers\u2019 establishments for food away from home. The high price of fuel and other transportation related costs, such as tolls, fuel taxes, and license and registration fees, can also increase the price we pay for products as well as the costs incurred by us to deliver products to our customers. Furthermore, both the price and supply of fuel are unpredictable and fluctuate based on events outside our control, including geopolitical developments (such as the war in the Ukraine), supply and demand for oil and gas, actions by the Organization of Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns, and environmental concerns. These factors, if occurring over an extended period of time, could have a material adverse effect on our sales, margins, operating expenses, or results of operations. For example, in fiscal 2023, the United States experienced significant increases in fuel prices and, as a result, the Company's fuel expense increased $30.8 million in fiscal 2023 compared to fiscal 2022.\n\n\nFrom time to time, we may enter into arrangements to manage our exposure to fuel costs. Such arrangements, however, may not be effective and may result in us paying higher than market costs for a portion of our fuel. In addition, while we have been successful in the past in implementing fuel surcharges to offset fuel cost increases, we may not be able to do so in the future.\n \n\n\nIn addition, compliance with current and future environmental laws and regulations relating to carbon emissions and the effects of global warming can be expected to have a significant impact on our transportation costs, which could have a material adverse effect on our business, financial condition, or results of operations.\n \n\n\n11\n\n\n\n\n\u00a0\n\n\nIf one or more of our competitors implements a lower cost structure, they may be able to offer lower prices to customers and we may be unable to adjust our cost structure in order to compete profitably.\n \n\n\nOver the last several decades, the retail food industry has undergone significant change as companies such as Walmart and Costco have developed a lower cost structure to provide their customer base with an everyday low-cost product offering. As a large-scale foodservice distributor, we have similar strategies to remain competitive in the marketplace by reducing our cost structure. However, if one or more of our competitors in the foodservice distribution industry adopted an everyday low-price strategy, we would potentially be pressured to lower prices to our customers and would need to achieve additional cost savings to offset these reductions. We may be unable to change our cost structure and pricing practices rapidly enough to successfully compete in such an environment.\n \n\n\nIf we fail to increase our sales in the highest margin portions of our business, our profitability may suffer.\n \n\n\nDistribution is a relatively low margin industry. The most profitable customers within the distribution industry are generally independent customers. In addition, our most profitable products are our Performance Brands. We typically provide a higher level of services to our independent customers and are able to earn a higher operating margin on sales to independent customers. Independent customers are also more likely to purchase our Performance Brands. Our ability to continue to penetrate this key customer type is critical to achieving increased operating profits. Changes in the buying practices of independent customers or decreases in our sales to independent customers or a decrease in the sales of our Performance Brands could have a material adverse effect on our business, financial condition, or results of operations.\n \n\n\nChanges in pricing practices of our suppliers could negatively affect our profitability.\n \n\n\nDistributors have traditionally generated a significant percentage of their gross margins from promotional allowances paid by their suppliers. Promotional allowances are payments from suppliers based upon the efficiencies that the distributor provides to its suppliers through purchasing scale and through marketing and merchandising expertise. Promotional allowances are a standard practice among suppliers to distributors and represent a significant source of profitability for us and our competitors. Any change in such practices that results in the reduction or elimination of promotional allowances could be disruptive to us and the industry as a whole and could have a material adverse effect on our business, financial condition, or results of operations.\n \n\n\nOur growth strategy may not achieve the anticipated results.\n \n\n\nOur future success will depend on our ability to grow our business, including through increasing our independent sales, expanding our Performance Brands, making strategic acquisitions, and achieving improved operating efficiencies as we continue to expand and diversify our customer base. Our growth and innovation strategies require significant commitments of management resources and capital investments and may not grow our net sales at the rate we expect or at all. As a result, we may not be able to recover the costs incurred in developing our new projects and initiatives or to realize their intended or projected benefits, which could have a material adverse effect on our business, financial condition, or results of operation.\n\n\nWe may not be able to realize benefits of acquisitions or successfully integrate the businesses we acquire.\n \n\n\nFrom time to time, we acquire businesses that are intended to broaden our customer base, and/or increase our capabilities and geographic reach. If we are unable to integrate acquired businesses successfully or to realize anticipated economic, operational, and other benefits and synergies in a timely manner, our profitability could be adversely affected. Integration of an acquired business may be more difficult when we acquire a business in a market in which we have limited expertise or with a company culture different from ours. A significant expansion of our business and operations, in terms of geography or magnitude, could strain our administrative and operational resources. Additionally, we may be unable to retain qualified management and other key personnel employed by acquired companies and may fail to build a network of acquired companies in new markets. We could face significantly greater competition from broadline foodservice distributors in these markets than we face in our existing markets.\n \n\n\nWe regularly evaluate opportunities to acquire other companies. To the extent our future growth includes acquisitions, we may not be able to obtain any necessary financing for such acquisitions, consummate such potential acquisitions effectively, effectively and efficiently integrate any acquired entities, or successfully expand into new markets.\n \n\n\nOur earnings may be reduced by amortization charges associated with any future acquisitions.\n \n\n\nAfter we complete an acquisition, we must amortize any identifiable intangible assets associated with the acquired company over future periods. We also must amortize any identifiable intangible assets that we acquire directly. Our amortization of these amounts reduces our future earnings in the affected periods.\n \n\n\n12\n\n\n\n\n\u00a0\n\n\nOur business is subject to significant governmental regulation, and costs or claims related to these requirements could adversely affect our business.\n \n\n\nOur operations are subject to regulation by state and local health departments, the USDA, and the FDA, which generally impose standards for product quality and sanitation and are responsible for the administration of bioterrorism legislation affecting the foodservice industry. These government authorities regulate, among other things, the processing, packaging, storage, distribution, advertising, and labeling of our products. The FSMA requires that the FDA impose comprehensive, prevention-based controls across the food supply, further regulates food products imported into the United States, and provides the FDA with mandatory recall authority. Our seafood operations are also specifically regulated by federal and state laws, including those administered by the National Marine Fisheries Service, established for the preservation of certain species of marine life, including fish and shellfish. Our processing and distribution facilities must be registered with the FDA biennially and are subject to periodic government agency inspections. State and/or federal authorities generally inspect our facilities at least annually. The Federal Perishable Agricultural Commodities Act, which specifies standards for the sale, shipment, inspection, and rejection of agricultural products, governs our relationships with our fresh food suppliers with respect to the grading and commercial acceptance of product shipments. We are also subject to regulation by state authorities for the accuracy of our weighing and measuring devices. Additionally, the Surface Transportation Board and the Federal Highway Administration regulate our trucking operations, and interstate motor carrier operations are subject to safety requirements prescribed by the U.S. Department of Transportation and other relevant federal and state agencies. Our suppliers are also subject to similar regulatory requirements and oversight. We have expanded the product lines of our Vistar segment to include hemp-based CBD products authorized under the 2018 Farm Bill. Sales of certain hemp-based CBD products are prohibited in some jurisdictions and the FDA and certain states and local governments may enact regulations that limit the marketing and use of such products. In the event that the FDA or state and local governments impose regulations on CBD products, we do not know what the impact would be on our products, and what costs, requirements, and possible prohibitions may be associated with such regulations. The failure to comply with applicable regulatory requirements could result in, among other things, administrative, civil, or criminal penalties or fines; mandatory or voluntary product recalls; warning or untitled letters; cease and desist orders against operations that are not in compliance; closure of facilities or operations; the loss, revocation, or modification of any existing licenses, permits, registrations, or approvals; or the failure to obtain additional licenses, permits, registrations, or approvals in new jurisdictions where we intend to do business, any of which could have a material adverse effect on our business, financial condition, or results of operations. These laws and regulations may change in the future and we could incur material costs in our efforts to comply with current or future laws and regulations or in any required product recalls.\n \n\n\nIn addition, our operations are subject to various federal, state, and local laws and regulations in many areas of our business, such as, minimum wage, overtime, wage payment, wage and hour and employment discrimination, harassment, immigration, human health and safety and relating to the protection of the environment, including those governing the discharge of pollutants into the air, soil, and water; the management and disposal of solid and hazardous materials and wastes; employee exposure to hazards in the workplace; and the investigation and remediation of contamination resulting from releases of petroleum products and other regulated materials. In the course of our operations, we operate, maintain, and fuel fleet vehicles; store fuel in on-site above and underground storage tanks; operate refrigeration systems; and use and dispose of hazardous substances and food wastes. We could incur substantial costs, including fines or penalties and third-party claims for property damage or personal injury, as a result of any violations of environmental or workplace safety laws and regulations or releases of regulated materials into the environment. In addition, we could incur investigation, remediation, or other costs related to environmental conditions at our currently or formerly owned or operated properties.\n \n\n\nFinally, we are subject to legislation, regulation and other matters regarding the marketing, distribution, sale, taxation and use of cigarette, tobacco and alternative nicotine products. For example, various jurisdictions have adopted or are considering legislation and regulations restricting displays and marketing of tobacco and alternative nicotine products, requiring the disclosure of ingredients used in the manufacture of tobacco and alternative nicotine products, and imposing restrictions on public smoking and vaping. In addition, the FDA has been empowered to regulate changes to nicotine yields and the chemicals and flavors used in tobacco and alternative nicotine products (including cigars, pipe and e-cigarette products), require ingredient listings be displayed on tobacco and alternative nicotine products, prohibit the use of certain terms that may attract youth or mislead users as to the risks involved with using tobacco and alternative nicotine products, as well as limit or otherwise impact the marketing of tobacco and alternative nicotine products by requiring additional labels or warnings that must be pre-approved by the FDA. Such legislation and related regulation are likely to continue to adversely impact the market for tobacco and alternative nicotine products and, accordingly, our sales of such products. Likewise, cigarettes and tobacco products are subject to substantial excise taxes.\n \nSignificant increases in cigarette-related taxes and/or fees have been proposed or enacted and are likely to continue to be proposed or enacted by various taxing jurisdictions within the U.S. These tax increases negatively impact consumption and may cause a shift in sales from premium brands to discount brands, illicit channels, or tobacco alternatives, such as electronic cigarettes, as smokers seek lower priced options. Furthermore, taxing jurisdictions have the ability to change or rescind credit terms currently extended for the remittance of taxes that we collect on their behalf. If these excise taxes are substantially increased, or credit terms are substantially reduced, it could have a material adverse effect on our business, financial condition, and results of operations.\n\n\n13\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nClimate change, or the legal, regulatory, or market measures being implemented to address climate change, could have an adverse impact on our business.\n \n\n\nThe effects of climate change may create financial and operational risks to our business, both directly and indirectly. There is an increased focus around the world by regulatory and legislative bodies at all levels towards policies relating to climate change and the impact of global warming, including the regulation of greenhouse gas (GHG) emissions, energy usage, and sustainability efforts. Increased compliance costs and expenses due to the impacts of climate change on our business, as well as additional legal or regulatory requirements regarding climate change or designed to reduce or mitigate the effects of carbon dioxide and other GHG emissions on the environment, particularly diesel engine emissions, may cause disruptions in, or an increase in the costs associated with, the running of our business, particularly with regard to our distribution and supply chain operations. These costs include an increase in the cost of the fuel and other energy we purchase, and capital costs associated with updating or replacing our vehicles prematurely. Moreover, compliance with any such legal or regulatory requirements may require that we implement changes to our business operations and strategy, which would require us to devote substantial time and attention to these matters and cause us to incur additional costs. We may not be able to accurately predict, prepare for, and respond to new kinds of technological innovations with respect to electric vehicles and other technologies that minimize emissions. Laws enacted to reduce GHG could also directly or indirectly affect our suppliers, which could adversely affect our business, financial condition, or results of operations. The effects of climate change, and legal or regulatory initiatives to address climate change, could have a long-term adverse effect on our business, financial condition, or results of operations.\n\n\n In addition, from time to time we establish and publicly announce goals and commitments related to corporate social responsibility matters, including those related to reducing our impact on the environment. For example, in 2023, we established goals for the reduction of GHG emissions, which include a target of reducing Scope 1 and 2 GHG emission intensity by 15% by 2030 from a 2021 base year. Our ability to meet this and other related goals depends in part on significant technological advancements with respect to the development and availability of reliable, affordable, and sustainable alternative solutions, including electric and other alternative fuel vehicles as well as alternative energy sources, which may not be developed or be available to us in the timeframe needed to achieve these goals. In addition, we may determine that it is in our best interests to prioritize other business, social, governance, or sustainable investments over the achievement of our current goals based on economic, regulatory or social factors, business strategy, or other factors. If we do not meet our publicly stated goals, then we may experience a negative reaction from the media, stockholders, activists, and other interested stakeholders, and any perception that we have failed to act responsibly regarding climate change, whether or not valid, could result in adverse publicity or legal challenges and negatively affect our business and reputation. While we remain committed to being responsive to climate change and reducing our carbon footprint, there can be no assurance that our goals and strategic plans to achieve those goals will be successful, that the costs related to climate transition will not be higher than expected, that the necessary technological advancements will occur in the timeframe we expect, or at all, or that proposed regulation or deregulation related to climate change will not have a negative competitive impact, any one of which could have a material adverse effect on our business, financial condition, or results of operations.\n\n\n\u00a0\n\n\nA significant portion of our sales volume is dependent upon the distribution of cigarettes and other tobacco products, sales of which are generally declining.\n\n\n\u00a0\n\n\nFollowing the acquisitions of Eby-Brown Company LLC (\u201cEby-Brown\u201d) and Core-Mark, a significant portion of our sales volume depends upon the distribution of cigarettes and other tobacco products. Due to increases in the prices of cigarettes, restrictions on cigarette manufacturers\u2019 marketing and promotions, increases in cigarette regulation and excise taxes, health concerns, increased pressure from anti-tobacco groups, the rise in popularity of tobacco alternatives, including electronic cigarettes and other alternative nicotine products, and other factors, cigarette consumption in the United States has been declining over the past few decades. In many instances, tobacco alternatives, such as electronic cigarettes, are not subject to federal, state, and local excise taxes like the sale of conventional cigarettes or other tobacco products. We expect consumption trends of legal cigarette products will continue to be negatively impacted by the factors described above. If we are unable to sell other products to make up for these declines in cigarette sales, our business, financial condition, or results of operations could be materially adversely affected.\n\n\nIf the products we distribute are alleged to cause injury or illness or fail to comply with governmental regulations, we may need to recall our products.\n \n\n\nThe products we distribute may be subject to product recalls, including voluntary recalls or withdrawals, if they are alleged to cause injury or illness (including food-borne illness such as e. coli, bovine spongiform, encephalopathy, hepatitis A, trichinosis, listeria, or salmonella) or if they are alleged to have been mislabeled, misbranded, or adulterated or to otherwise be in violation of governmental regulations. We may also voluntarily recall or withdraw products that we consider not to meet our quality standards, whether for taste, appearance, or otherwise, in order to protect our brand and reputation. If there is any future product withdrawal that results in substantial and unexpected expenditures, destruction of product inventory, damage to our reputation, or lost sales because of\n \n\n\n14\n\n\n\n\n\u00a0\n\n\nthe unavailability of the product for a period of time, our business, financial condition, or results of operations may be materially adversely affected.\n \n\n\nWe may be subject to or affected by product liability claims relating to products we distribute.\n \n\n\nWe may be exposed to product liability claims in the event that the use of the products we sell is alleged to cause injury or illness. While we believe we have sufficient primary and excess umbrella liability insurance with respect to product liability claims we cannot assure you that our limits are sufficient to cover all our liabilities. For example, punitive damages may not be covered by insurance. In addition, we may not be able to continue to maintain our existing insurance or obtain replacement insurance on comparable terms, and any replacement insurance or our current insurance may not continue to be available at a reasonable cost, or, if available, may not be adequate to cover all of our liabilities. We generally seek contractual indemnification and insurance coverage from parties supplying products to us, but this indemnification or insurance coverage is limited, as a practical matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by suppliers. If we do not have adequate insurance or contractual indemnification available, the liability relating to defective products could adversely affect our business, financial condition, or results of operations.\n \n\n\nAdverse judgments or settlements resulting from legal proceedings in which we may be involved in the normal course of our business could reduce our profits or limit our ability to operate our business.\n \n\n\nIn the normal course of our business, we are involved in various legal proceedings. The outcome of these proceedings cannot be predicted. If any of these proceedings were to be determined adversely to us or a settlement involving a payment of a material sum of money were to occur, it could materially and adversely affect our profits or ability to operate our business. Additionally, we could become the subject of future claims by third parties, including our employees; suppliers, customers, and other counterparties; our investors; or regulators. Any significant adverse judgments or settlements could reduce our profits and could limit our ability to operate our business. Further, we may incur costs related to claims for which we have appropriate third-party indemnity, but such third parties may fail to fulfill their contractual obligations.\n \n\n\nAdverse publicity about us, lack of confidence in our products or services, and other risks could negatively affect our reputation and our business.\n \n\n\nMaintaining a good reputation and public confidence in the safety of the products we distribute or services we provide is critical to our business, particularly to selling our Performance Brands products. Anything that damages our reputation, or the public\u2019s confidence in our products, services, facilities, delivery fleet, operations, or employees, whether or not justified, including adverse publicity about the quality, safety, or integrity of our products, could quickly affect our net sales and profits. Reports, whether true or not, of food-borne illnesses or harmful bacteria (such as e. coli, bovine spongiform encephalopathy, hepatitis A, trichinosis, listeria, or salmonella) and injuries caused by food tampering could also severely injure our reputation or negatively affect the public\u2019s confidence in our products. We may need to recall our products if they become adulterated. If patrons of our restaurant customers become ill from food-borne illnesses, our customers could be forced to temporarily close restaurant locations and our sales would be correspondingly decreased. In addition, instances of food-borne illnesses, food tampering, or other health concerns, such as flu epidemics or other pandemics (such as COVID-19), even those unrelated to the use of our products, or public concern regarding the safety of our products, can result in negative publicity about the foodservice distribution industry and cause our sales to decrease dramatically. In addition, a widespread health epidemic (such as COVID-19) or food-borne illness, whether or not related to the use of our products, as well as terrorist events may cause consumers to avoid public gathering places, like restaurants, or otherwise change their eating behaviors. Health concerns and negative publicity may harm our results of operations and damage the reputation of, or result in a lack of acceptance of, our products or the brands that we carry or the services that we provide.\n \n\n\nWe have experienced losses because of the inability to collect accounts receivable in the past and could experience increases in such losses in the future if our customers are unable to pay their debts to us when due.\n \n\n\nCertain of our customers have from time to time experienced bankruptcy, insolvency, and/or an inability to pay their debts to us as they come due. If our customers suffer significant financial difficulty, they may be unable to pay their debts to us timely or at all, which could have a material adverse effect on our results of operations. It is possible that customers may contest their contractual obligations to us under bankruptcy laws or otherwise. Significant customer bankruptcies could further adversely affect our net sales and increase our operating expenses by requiring larger provisions for bad debt expense. In addition, even when our contracts with these customers are not contested, if customers are unable to meet their obligations on a timely basis, it could adversely affect our ability to collect receivables. Further, we may have to negotiate significant discounts and/or extended financing terms with these customers in such a situation. If we are unable to collect upon our accounts receivable as they come due in an efficient and timely manner, our business, financial condition, or results of operations may be materially adversely affected.\n \n\n\n15\n\n\n\n\n\u00a0\n\n\nInsurance and claims expenses could significantly reduce our profitability.\n \n\n\nOur future insurance and claims expenses might exceed historic levels, which could reduce our profitability. We maintain high-deductible insurance programs covering portions of general and vehicle liability and workers\u2019 compensation. The amount in excess of the deductibles is insured by third-party insurance carriers, subject to certain limitations and exclusions. We also maintain self-funded group medical insurance.\n \n\n\nWe reserve for anticipated losses and expenses and periodically evaluate and adjust our claims reserves to reflect our experience. However, ultimate results may differ from our estimates, which could result in losses over our reserved amounts.\n \n\n\nAlthough we believe our aggregate insurance limits should be sufficient to cover reasonably expected claims costs, it is possible that the amount of one or more claims could exceed our aggregate coverage limits. Insurance carriers have raised premiums for many businesses in our industry, including ours, and our insurance and claims expense could continue to increase in the future. Our results of operations and financial condition could be materially and adversely affected if (1) total claims costs significantly exceed our coverage limits, (2) we experience a claim in excess of our coverage limits, (3) our insurance carriers fail to pay on our insurance claims, (4) we experience a claim for which coverage is not provided, or (5) a large number of claims may cause our cost under our deductibles to differ from historic averages.\n \n\n\nRisks Relating to Our Indebtedness\n \n\n\nOur substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or in our industry, expose us to interest rate risk to the extent of our variable rate debt, and prevent us from meeting our obligations under our indebtedness.\n \n\n\nAs of July 1, 2023, we had $4,010.0 million of indebtedness, including finance lease obligations. In addition, we had $2,673.8 million of availability under the Amended ABL Facility (as defined below under \"- \nManagement's Discussion and Analysis of Financial Condition and Results of Operations -- Financing Activities\n in Part II, Item 7 of this Form 10-K (\"Item 7\")\") after giving effect to $172.2 million of outstanding letters of credit and $99.7 million of lenders\u2019 reserves under the Amended ABL Facility.\n \n\n\nOur high degree of leverage could have important consequences for us, including:\n \n\n\n\u2022\nrequiring us to utilize a substantial portion of our cash flows from operations to make payments on our indebtedness, reducing the availability of our cash flows to fund working capital, capital expenditures, development activity, and other general corporate purposes; \n\n\n\u2022\nincreasing our vulnerability to adverse economic, industry, or competitive developments; \n\n\n\u2022\nexposing us to the risk of increased interest rates to the extent our borrowings are at variable rates of interest; \n\n\n\u2022\nmaking it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing our indebtedness; \n\n\n\u2022\nrestricting us from making strategic acquisitions or causing us to make non-strategic divestitures; \n\n\n\u2022\nlimiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, and general corporate or other purposes; and \n\n\n\u2022\nlimiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who, therefore, may be able to take advantage of opportunities that our leverage prevents us from exploiting. \n\n\nA substantial portion of our indebtedness is floating rate debt. As interest rates increase, our debt service obligations on such indebtedness increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. As a result of the discontinuation of the London Inter-Bank Offered Rate (\u201cLIBOR\u201d) as a reference rate on June 30, 2023, there is uncertainty as to whether the transition from LIBOR to the Secured Overnight Financing Rate (\u201cSOFR\u201d) or another reference rate will result in financial market disruptions or higher interest costs to borrowers, which could increase our interest expense and have an adverse effect on our business and results of operations. Our ABL Facility was recently amended to replace LIBOR with SOFR. SOFR is a relatively new reference rate and has a very limited history. The future performance of SOFR cannot be predicted based on its limited historical performance. Since the initial publication of SOFR in April 2018, changes in SOFR have, on occasion, been more volatile than changes in other benchmark or market rates, such as U.S. dollar LIBOR. Additionally, any successor rate to SOFR under the Amended ABL Facility may not have the same characteristics as SOFR or LIBOR. As a result, the consequences of the phase-out of LIBOR cannot be entirely predicted at this time.\n\n\n16\n\n\n\n\n\u00a0\n\n\nWe may elect to enter into interest rate swaps to reduce our exposure to floating interest rates as described below under \u201c\u2014\nWe may utilize derivative financial instruments to reduce our exposure to market risks from changes in interest rates on our variable rate indebtedness and we will be exposed to risks related to counterparty creditworthiness or non-performance of these instruments\n.\u201d However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.\n \n\n\nServicing our indebtedness will require a significant amount of cash. Our ability to generate sufficient cash depends on many factors, some of which are not within our control.\n \n\n\nOur ability to make payments on our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. To a certain extent, this ability is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. If we are unable to generate sufficient cash flow to service our debt and to meet our other commitments, we may need to restructure or refinance all or a portion of our debt, sell material assets or operations, or raise additional debt or equity capital. We may not be able to affect any of these actions on a timely basis, on commercially reasonable terms, or at all, and these actions may not be sufficient to meet our capital requirements. In addition, any refinancing of our indebtedness could be at a higher interest rate, and the terms of our existing or future debt arrangements may restrict us from effecting any of these alternatives. Our failure to make the required interest and principal payments on our indebtedness would result in an event of default under the agreement governing such indebtedness, which may result in the acceleration of some or all of our outstanding indebtedness.\n \n\n\nDespite our high indebtedness level, we and our subsidiaries will still be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness.\n \n\n\nWe and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial.\n \n\n\nThe agreements governing our outstanding indebtedness contain restrictions that limit our flexibility in operating our business.\n \n\n\nThe agreements governing our outstanding indebtedness contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit the ability of our subsidiaries to, among other things:\n \n\n\n\u2022\nincur, assume, or permit to exist additional indebtedness or guarantees; \n\n\n\u2022\nincur liens; \n\n\n\u2022\nmake investments and loans; \n\n\n\u2022\npay dividends, make payments, or redeem or repurchase capital stock; \n\n\n\u2022\nengage in mergers, liquidations, dissolutions, asset sales, and other dispositions (including sale leaseback transactions); \n\n\n\u2022\namend or otherwise alter terms of certain indebtedness; \n\n\n\u2022\nenter into agreements limiting subsidiary distributions or containing negative pledge clauses; \n\n\n\u2022\nengage in certain transactions with affiliates; \n\n\n\u2022\nalter the business that we conduct; \n\n\n\u2022\nchange our fiscal year; and \n\n\n\u2022\nengage in any activities other than permitted activities. \n\n\nAs a result of these restrictions, we are limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.\n \n\n\nA breach of any of these covenants could result in a default under one or more of these agreements, including as a result of cross default provisions, and, in the case of our ABL Facility, amounts due may be accelerated and the rights and remedies of the lenders may be exercised, including rights with respect to the collateral securing the obligations.\n \n\n\n17\n\n\n\n\n\u00a0\n\n\nWe utilize derivative financial instruments to reduce our exposure to market risks from changes in interest rates on our variable rate indebtedness, and we are exposed to risks related to counterparty credit worthiness or non-performance of these instruments.\n \n\n\nWe enter into pay-fixed interest rate swaps to limit our exposure to changes in variable interest rates. Such instruments may result in economic losses should interest rates decline to a point lower than our fixed rate commitments. We are exposed to credit-related losses, which could affect the results of operations in the event of fluctuations in the fair value of the interest rate swaps due to a change in the credit worthiness or non-performance by the counterparties to the interest rate swaps.\n \n\n",
+  "item7": ">Item 7. Management Discussion and Analysis of \nFinancial Condition and Results of Operations\n \n\n\nThe following discussion and analysis of our financial condition and results of operations should be read together with the audited Consolidated Financial Statements and the Notes thereto included in Item 8. Financial Statements and Supplementary Data of this Form 10-K. In addition to historical consolidated financial information, this discussion contains forward-looking statements that reflect our plans, estimates, and beliefs and involve numerous risks and uncertainties, including those described in Item 1A. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read \u201cSpecial Note Regarding Forward-Looking Statements\u201d in this Form 10-K.\n\n\nThe following includes a comparison of our consolidated results of operations, our segment results and financial position for fiscal years 2023 and 2022. For a comparison of our consolidated results of operations and financial position for fiscal years 2022 and 2021, see Item 7 of Part II, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Annual Report on Form 10-K for the fiscal year ended July 2, 2022, filed with the SEC on August 19, 2022. For a comparison of segment results for fiscal years 2022 and 2021, see Item 7 of Part II, \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" of our Annual Report on Form 10-K for the fiscal year ended July 2, 2022, filed with the SEC on August 19, 2022, as updated by Exhibit 99.1 of the Current Report filed on Form 8-K with the SEC on November 21, 2022.\n\n\nOur Company\n \n\n\nWe market and distribute over 250,000 food and food-related products to customers across the United States from approximately 142 distribution facilities to over 300,000 customer locations in the \u201cfood-away-from-home\u201d industry. We offer our customers a broad assortment of products including our proprietary-branded products, nationally branded products, and products bearing our customers\u2019 brands. Our product assortment ranges from \u201ccenter-of-the-plate\u201d items (such as beef, pork, poultry, and seafood), frozen foods, and groceries to candy, snacks, beverages, cigarettes, and other tobacco products. We also sell disposables, cleaning and kitchen supplies, and related products used by our customers. In addition to the products we offer to our customers, we provide value-added services by allowing our customers to benefit from our industry knowledge, scale, and expertise in the areas of product selection and procurement, menu development, and operational strategy.\n\n\nBased on the Company\u2019s organization structure and how the Company\u2019s management reviews operating results and makes decisions about resource allocation, the Company has three reportable segments: Foodservice, Vistar, and Convenience. Our Foodservice segment distributes a broad line of national brands, customer brands, and our proprietary-branded food and food-related products, or \u201cPerformance Brands.\u201d Foodservice sells to independent and multi-unit \u201cChain\u201d restaurants and other institutions such as schools, healthcare facilities, business and industry locations, and retail establishments. Our Chain customers are multi-unit restaurants with five or more locations and include some of the most recognizable family and casual dining restaurant chains. Our Vistar segment specializes in distributing candy, snacks, beverages, and other items nationally to vending, office coffee service, theater, retail, hospitality, and other channels. Our Convenience segment distributes candy, snacks, beverages, cigarettes, other tobacco products, food and foodservice related products and other items to convenience stores across North America. We believe that there are substantial synergies across our segments. Cross-segment synergies include procurement, operational best practices such as the use of new productivity technologies, and supply chain and network optimization, as well as shared corporate functions such as accounting, treasury, tax, legal, information systems, and human resources.\n\n\nThe Company\u2019s fiscal year ends on the Saturday nearest to June 30\nth\n.\n \nThis resulted in a 52-week year for fiscal 2023, a 52-week year for fiscal 2022 and a 53-week year for fiscal 2021. References to \u201cfiscal 2023\u201d are to the 52-week period ended July 1, 2023, references to \u201cfiscal 2022\u201d are to the 52-week period ended July 2, 2022, and references to \u201cfiscal 2021\u201d are to the 53-week period ended July 3, 2021.\n\n\nKey Factors Affecting Our Business\n \n\n\nOur business, our industry and the U.S. economy are influenced by a number of general macroeconomic factors, including, but not limited to, changes in the rate of inflation and fuel prices, interest rates, supply chain disruptions, labor shortages, and the effects of health epidemics and pandemics. We continue to actively monitor the impacts of the evolving macroeconomic and geopolitical landscape on all aspects of our business. The Company and our industry may face challenges related to product and fleet supply, increased product and logistics costs, access to labor supply, and lower disposable incomes due to inflationary pressures and macroeconomic conditions. The extent to which these challenges will affect our future financial position, liquidity, and results of operations remains uncertain.\n\n\n23\n\n\n\n\n\u00a0\n\n\nWe believe that our long-term performance is principally affected by the following key factors:\n\n\n\u2022\nChanging demographic and macroeconomic trends.\n Excluding the peak years of the COVID-19 pandemic, the share of consumer spending captured by the food-away-from-home industry has increased steadily for several decades. The share increases in periods of increasing employment, rising disposable income, increases in the number of restaurants, and favorable demographic trends, such as smaller household sizes, an increasing number of dual income households, and an aging population base that spends more per capita at foodservice establishments. The foodservice distribution industry is also sensitive to national and regional economic conditions, such as changes in consumer spending, changes in consumer confidence, and changes in the prices of certain goods.\n\n\n\u2022\nFood distribution market structure. \nThe food distribution market consists of a wide spectrum of companies ranging from businesses selling a single category of product (e.g., produce) to large national and regional broadline distributors with many distribution centers and thousands of products across all categories. We believe our scale enables us to invest in our Performance Brands, to benefit from economies of scale in purchasing and procurement, and to drive supply chain efficiencies that enhance our customers\u2019 satisfaction and profitability. We believe that the relative growth of larger foodservice distributors will continue to outpace that of smaller, independent players in our industry.\n\n\n\u2022\nOur ability to successfully execute our segment strategies and implement our initiatives.\n Our performance will continue to depend on our ability to successfully execute our segment strategies and to implement our current and future initiatives. The key strategies include focusing on independent sales and Performance Brands, pursuing new customers for our three reportable segments, expansion of geographies, utilizing our infrastructure to gain further operating and purchasing efficiencies, and making strategic acquisitions.\n\n\nHow We Assess the Performance of Our Business\n \n\n\nIn assessing the performance of our business, we consider a variety of performance and financial measures. The key measures used by our management are discussed below. The percentages on the results presented below are calculated based on rounded numbers.\n\n\nNet Sales\n\n\nNet sales is equal to gross sales, plus excise taxes, minus sales returns; minus sales incentives that we offer to our customers, such as rebates and discounts that are offsets to gross sales; and certain other adjustments. Our net sales are driven by changes in case volumes, product inflation that is reflected in the pricing of our products, and mix of products sold.\n\n\nGross Profit\n \n\n\nGross profit is equal to our net sales minus our cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration) and inbound freight. Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes.\n \n\n\nAdjusted EBITDA\n \n\n\nManagement measures operating performance based on our Adjusted EBITDA, defined as net income before interest expense, interest income, income and franchise taxes, and depreciation and amortization, further adjusted to exclude certain items that we do not consider part of our core operating results. Such adjustments include certain unusual, non-cash, non-recurring, cost reduction, and other adjustment items permitted in calculating covenant compliance under our credit agreement and indentures (other than certain pro forma adjustments permitted under our credit agreement and indentures governing the Notes due 2025, Notes due 2027, and Notes due 2029 relating to the Adjusted EBITDA contribution of acquired entities or businesses prior to the acquisition date). Under our credit agreement and indentures, our ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments, and making restricted payments is tied to ratios based on Adjusted EBITDA (as defined in our credit agreement and indentures). Our definition of Adjusted EBITDA may not be the same as similarly titled measures used by other companies.\n\n\nAdjusted EBITDA is not defined under GAAP, is not a measure of operating income, operating performance, or liquidity presented in accordance with GAAP, and is subject to important limitations. We use this measure to evaluate the performance of our business on a consistent basis over time and for business planning purposes. In addition, targets based on Adjusted EBITDA are among the measures we use to evaluate our management\u2019s performance for purposes of determining their compensation under our incentive plans. We believe that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities\n \n\n\n24\n\n\n\n\n\u00a0\n\n\nanalysts, investors, and other interested parties, including our lenders under our credit agreement and holders of our Notes due 2025, Notes due 2027, and Notes due 2029 in their evaluation of the operating performance of companies in industries similar to ours.\n\n\nAdjusted EBITDA has important limitations as analytical tools and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:\n \n\n\n\u2022\nexcludes certain tax payments that may represent a reduction in cash available to us; \n\n\n\u2022\ndoes not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;\n\n\n\u2022\ndoes not reflect changes in, or cash requirements for, our working capital needs; and \n\n\n\u2022\ndoes not reflect the significant interest expense, or the cash requirements, necessary to service our debt. \n\n\nIn calculating Adjusted EBITDA, we add back certain non-cash, non-recurring, and other items as permitted or required by our credit agreement and indentures. Adjusted EBITDA among other things:\n \n\n\n\u2022\ndoes not include non-cash stock-based employee compensation expense and certain other non-cash charges; and\n\n\n\u2022\ndoes not include acquisition, restructuring, and other costs incurred to realize future cost savings and enhance our operations.\n\n\nWe have included below reconciliations of Adjusted EBITDA to the most directly comparable measure calculated in accordance with GAAP for the periods presented.\n \n\n\n\u00a0\n\n\n25\n\n\n\n\n\u00a0\n\n\nResults of Operations and Adjusted EBITDA\n \n\n\nThe following table sets forth a summary of our results of operations and Adjusted EBITDA for the periods indicated (dollars in millions, except per share data):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 1, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 2, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 3, 2021\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n57,254.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n50,894.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n30,398.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,360.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n20,495.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67.4\n\n\n\u00a0\n\n\n\n\n\n\nCost of goods sold\n\n\n\u00a0\n\n\n\u00a0\n\n\n50,999.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n45,637.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,873.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,362.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,764.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n69.8\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,254.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,256.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,525.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n998.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,731.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n49.1\n\n\n\u00a0\n\n\n\n\n\n\nOperating expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,489.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,929.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,324.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n560.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,604.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n48.3\n\n\n\u00a0\n\n\n\n\n\n\nOperating profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n765.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n327.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n200.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n438.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n133.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n126.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n63.1\n\n\n\u00a0\n\n\n\n\n\n\nOther expense, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n218.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n182.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n152.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.0\n\n\n\u00a0\n\n\n\n\n\n\nOther, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(22.6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6.4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n116.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(253.1\n\n\n)\n\n\n\n\n\n\nOther expense, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n221.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n160.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n146.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n61.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.8\n\n\n\u00a0\n\n\n\n\n\n\nIncome before income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n544.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n167.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n54.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n376.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n225.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n112.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n205.5\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n146.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n54.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n92.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n168.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n40.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n290.0\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n397.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n112.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n40.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n284.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n253.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n176.4\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted EBITDA\n\n\n\u00a0\n\n\n$\n\n\n1,363.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,019.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n625.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n343.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n394.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n63.1\n\n\n\u00a0\n\n\n\n\n\n\nWeighted-average common shares outstanding:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n\u00a0\n\n\n\u00a0\n\n\n154.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n149.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n132.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.4\n\n\n\u00a0\n\n\n\n\n\n\nDiluted\n\n\n\u00a0\n\n\n\u00a0\n\n\n156.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n151.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n133.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.4\n\n\n\u00a0\n\n\n\n\n\n\nEarnings per common share:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n\u00a0\n\n\n$\n\n\n2.58\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.75\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.31\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1.83\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n244.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.44\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n141.9\n\n\n\u00a0\n\n\n\n\n\n\nDiluted\n\n\n\u00a0\n\n\n$\n\n\n2.54\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.74\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.30\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1.80\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n243.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.44\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n146.7\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nWe believe that the most directly comparable GAAP measure to Adjusted EBITDA is net income. The following table reconciles Adjusted EBITDA to net income for the periods presented:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal year ended\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 1, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 2, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 3, 2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In millions)\n\n\n\u00a0\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n397.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n112.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n40.7\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n218.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n182.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n152.4\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n146.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n54.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.0\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation\n\n\n\u00a0\n\n\n\u00a0\n\n\n315.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n279.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n213.9\n\n\n\u00a0\n\n\n\n\n\n\nAmortization of intangible assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n181.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n183.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n125.0\n\n\n\u00a0\n\n\n\n\n\n\nChange in LIFO reserve (1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n39.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n122.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n36.4\n\n\n\u00a0\n\n\n\n\n\n\nStock-based compensation expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n43.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n44.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.4\n\n\n\u00a0\n\n\n\n\n\n\nLoss (gain) on fuel derivatives\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(20.7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6.4\n\n\n)\n\n\n\n\n\n\nAcquisition, integration & reorganization expenses (2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n49.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.2\n\n\n\u00a0\n\n\n\n\n\n\nOther adjustments (3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.7\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted EBITDA\n\n\n\u00a0\n\n\n$\n\n\n1,363.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,019.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n625.3\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nIncludes a (decrease) in the last-in-first-out (\u201cLIFO\u201d) reserve of (19.2) million for Foodservice and an increase of $58.4 million for Convenience for fiscal 2023 compared to increases of $31.9 million for Foodservice and $91.0 million for Convenience for fiscal 2022 and increases of $11.8 million for Foodservice and $24.6 million for Convenience for fiscal 2021.\n\n\n(2)\nIncludes professional fees and other costs related to completed and abandoned acquisitions, costs of integrating certain of our facilities, and facility closing costs.\n\n\n(3)\nIncludes asset impairments, gains and losses on disposal of fixed assets, amounts related to favorable and unfavorable leases, foreign currency transaction gains and losses, franchise tax expense, and other adjustments permitted by our credit agreement.\n\n\n26\n\n\n\n\n\u00a0\n\n\nConsolidated Results of Operations\n \n\n\nFiscal year ended July 1, 2023 compared to fiscal year ended July 2, 2022\n \n\n\nNet Sales\n\n\nNet sales growth is primarily a function of acquisitions, case growth, pricing (which is primarily based on product inflation/deflation), and a changing mix of customers, channels, and product categories sold. Net sales increased $6.4 billion, or 12.5%, in fiscal 2023 compared to fiscal 2022.\n\n\nThe increase in net sales was primarily a result of the acquisition of Core-Mark in the first quarter of fiscal 2022 and an increase in selling price per case due to inflation and channel mix. The overall rate of product cost inflation declined throughout fiscal 2023 and was approximately 8.6% for fiscal 2023. Total case volume increased 5.8% in fiscal 2023 compared to fiscal 2022. Total organic case volume increased 1.6% in fiscal 2023 compared to the prior fiscal year.\n\n\nGross Profit\n \n\n\nGross profit increased $998.5 million, or 19.0%, in fiscal 2023 compared to fiscal 2022. The increase in gross profit was primarily driven by the acquisition of Core-Mark in the first quarter of fiscal 2022, a favorable shift in the mix of cases sold, including growth in the independent channel, and procurement related gains.\n \n\n\nOperating Expenses\n\n\nOperating expenses increased $560.1 million, or 11.4%, for fiscal 2023 compared to fiscal 2022. The increase in operating expenses were primarily driven by the acquisition of Core-Mark in the first quarter of fiscal 2022, as well as increases in personnel expense, fuel expense, and repairs and maintenance expense. Operating expenses include a $190.0 million increase in personnel expenses primarily related to wages, commissions and benefits, a $34.9 million increase in repairs and maintenance expense primarily related to transportation equipment and cloud-based information technology services and a $30.8 million increase in fuel expense primarily due to higher fuel prices for fiscal 2023 compared to the prior fiscal year. These increases were partially offset by a $10.2 million decrease for fiscal 2023 in professional fees primarily related to prior year acquisitions.\n\n\nDepreciation and amortization of intangible assets increased from $462.8 million in fiscal 2022 to $496.7 million in fiscal 2023, an increase of 7.3%. Depreciation of fixed assets and amortization of intangible assets increased as a result of the Core-Mark acquisition and a prior fiscal year acquisition within Foodservice.\n\n\nNet Income\n\n\nNet income was $397.2 million for fiscal 2023 compared to $112.5 million for fiscal 2022. This increase in net income was attributable to the $438.4 million increase in operating profit, partially offset by increases in income tax expense, interest expense and other, net. The increase in interest expense was primarily the result of an increase in the average interest rate in fiscal 2023 compared to the prior fiscal year. The increase in other, net primarily relates to changes in the fair value of fuel hedging derivatives.\n\n\nThe Company reported income tax expense of $146.8 million for fiscal 2023 compared to $54.6 million for fiscal 2022. Our effective tax rate in fiscal 2023 was 27.0% compared to 32.7% in fiscal 2022. The effective tax rate for fiscal 2023 differed from the prior fiscal years primarily due to a decrease in non-deductible acquisition-related expenses and state income tax expense as a percentage of book income.\n\n\n\u00a0\n\n\nSegment Results\n \n\n\n\u00a0\n\n\nThe Company has three reportable segments: Foodservice, Vistar, and Convenience. Management evaluates the performance of these segments based on various operating and financial metrics, including their respective sales growth and Adjusted EBITDA. Adjusted EBITDA is defined as net income before interest expense, interest income, income taxes, depreciation, and amortization and excludes certain items that the Company does not consider part of its segments\u2019 core operating results, including stock-based compensation expense, changes in the LIFO reserve, acquisition, integration and reorganization expenses, and gains and losses related to fuel derivatives. See Note 19. \nSegment Information\n of the consolidated financial statements in this Form 10-K.\n\n\n\u00a0\n\n\nCorporate & All Other is comprised of unallocated corporate overhead and certain operations that are not considered separate reportable segments based on their size. This also includes the operations of our internal logistics unit responsible for managing and allocating inbound logistics revenue and expense.\n\n\n\u00a0\n\n\nThe following provides a comparison of our segment results for fiscal years 2023 and 2022.\n \n\n\n27\n\n\n\n\n\u00a0\n\n\nThe following tables set forth net sales and Adjusted EBITDA by segment for the periods indicated (dollars in millions):\n \n\n\nNet Sales\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal year ended\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 1, 2023\n\n\n\u00a0\n\n\nJuly 2, 2022\n\n\n\u00a0\n\n\nJuly 3, 2021\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n%\n\n\n\n\n\n\nFoodservice\n\n\n\u00a0\n\n\n$28,490.6\n\n\n\u00a0\n\n\n$26,579.2\n\n\n\u00a0\n\n\n$21,890.0\n\n\n\u00a0\n\n\n$1,911.4\n\n\n\u00a0\n\n\n7.2\n\n\n\u00a0\n\n\n$4,689.2\n\n\n\u00a0\n\n\n21.4\n\n\n\n\n\n\nVistar\n\n\n\u00a0\n\n\n4,549.3\n\n\n\u00a0\n\n\n3,681.8\n\n\n\u00a0\n\n\n2,539.6\n\n\n\u00a0\n\n\n867.5\n\n\n\u00a0\n\n\n23.6\n\n\n\u00a0\n\n\n1,142.2\n\n\n\u00a0\n\n\n45.0\n\n\n\n\n\n\nConvenience\n\n\n\u00a0\n\n\n24,119.6\n\n\n\u00a0\n\n\n20,603.3\n\n\n\u00a0\n\n\n5,946.8\n\n\n\u00a0\n\n\n3,516.3\n\n\n\u00a0\n\n\n17.1\n\n\n\u00a0\n\n\n14,656.5\n\n\n\u00a0\n\n\n246.5\n\n\n\n\n\n\nCorporate & All Other\n\n\n\u00a0\n\n\n700.4\n\n\n\u00a0\n\n\n526.5\n\n\n\u00a0\n\n\n428.6\n\n\n\u00a0\n\n\n173.9\n\n\n\u00a0\n\n\n33.0\n\n\n\u00a0\n\n\n97.9\n\n\n\u00a0\n\n\n22.8\n\n\n\n\n\n\nIntersegment Eliminations\n\n\n\u00a0\n\n\n(605.2)\n\n\n\u00a0\n\n\n(496.7)\n\n\n\u00a0\n\n\n(406.1)\n\n\n\u00a0\n\n\n(108.5)\n\n\n\u00a0\n\n\n(21.8)\n\n\n\u00a0\n\n\n(90.6)\n\n\n\u00a0\n\n\n(22.3)\n\n\n\n\n\n\nTotal net sales\n\n\n\u00a0\n\n\n$57,254.7\n\n\n\u00a0\n\n\n$50,894.1\n\n\n\u00a0\n\n\n$30,398.9\n\n\n\u00a0\n\n\n$6,360.6\n\n\n\u00a0\n\n\n12.5\n\n\n\u00a0\n\n\n$20,495.2\n\n\n\u00a0\n\n\n67.4\n\n\n\n\n\n\n\u00a0\n\n\nAdjusted EBITDA\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal year ended\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 1, 2023\n\n\n\u00a0\n\n\nJuly 2, 2022\n\n\n\u00a0\n\n\nJuly 3, 2021\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n%\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n%\n\n\n\n\n\n\nFoodservice\n\n\n\u00a0\n\n\n$943.6\n\n\n\u00a0\n\n\n$786.5\n\n\n\u00a0\n\n\n$677.5\n\n\n\u00a0\n\n\n$157.1\n\n\n\u00a0\n\n\n20.0\n\n\n\u00a0\n\n\n$109.0\n\n\n\u00a0\n\n\n16.1\n\n\n\n\n\n\nVistar\n\n\n\u00a0\n\n\n325.3\n\n\n\u00a0\n\n\n193.0\n\n\n\u00a0\n\n\n84.8\n\n\n\u00a0\n\n\n132.3\n\n\n\u00a0\n\n\n68.5\n\n\n\u00a0\n\n\n108.2\n\n\n\u00a0\n\n\n127.6\n\n\n\n\n\n\nConvenience\n\n\n\u00a0\n\n\n328.8\n\n\n\u00a0\n\n\n257.1\n\n\n\u00a0\n\n\n36.4\n\n\n\u00a0\n\n\n71.7\n\n\n\u00a0\n\n\n27.9\n\n\n\u00a0\n\n\n220.7\n\n\n\u00a0\n\n\n606.3\n\n\n\n\n\n\nCorporate & All Other\n\n\n\u00a0\n\n\n(234.3)\n\n\n\u00a0\n\n\n(216.8)\n\n\n\u00a0\n\n\n(173.4)\n\n\n\u00a0\n\n\n(17.5)\n\n\n\u00a0\n\n\n(8.1)\n\n\n\u00a0\n\n\n(43.4)\n\n\n\u00a0\n\n\n(25.0)\n\n\n\n\n\n\nTotal Adjusted EBITDA\n\n\n\u00a0\n\n\n$1,363.4\n\n\n\u00a0\n\n\n$1,019.8\n\n\n\u00a0\n\n\n$625.3\n\n\n\u00a0\n\n\n$343.6\n\n\n\u00a0\n\n\n33.7\n\n\n\u00a0\n\n\n$394.5\n\n\n\u00a0\n\n\n63.1\n\n\n\n\n\n\n\u00a0\n\n\nSegment Results\u2014Foodservice\n \n\n\nFiscal year ended July 1, 2023 compared to fiscal year ended July 2, 2022\n\n\nNet Sales\n \n\n\nNet sales for Foodservice increased $1.9 billion, or 7.2%, from fiscal 2022 to fiscal 2023. This increase in net sales was driven by an increase in selling price per case as a result of inflation and a favorable shift in mix. The overall rate of product cost inflation declined throughout fiscal 2023 and was approximately 6.4% for fiscal 2023. Securing new and expanding business with independent customers resulted in organic independent case growth of 6.2% in fiscal 2023 compared to the prior fiscal year. For fiscal 2023, independent sales as a percentage of total segment sales were 39.3%.\n\n\nAdjusted EBITDA\n\n\nAdjusted EBITDA for Foodservice increased $157.1 million, or 20.0%, from fiscal 2022 to fiscal 2023. This increase was the result of an increase in gross profit, partially offset by an increase in operating expenses. Gross profit contributing to Foodservice\u2019s Adjusted EBITDA increased $389.9 million, or 11.3% in fiscal 2023 compared to the prior fiscal year. The increase in gross profit was driven by a favorable shift in the mix of cases sold to independent customers, including more Performance Brands products sold to independent customers, partially offset by an expected decrease in procurement gains as the rate of inflation declines.\n\n\nOperating expenses impacting Foodservice\u2019s Adjusted EBITDA increased by $233.2 million, or 8.7%, from fiscal 2022 to fiscal 2023. Operating expenses increased as a result of a prior year acquisition, a $122.4 million increase in personnel expenses primarily related to commissions, wages, and benefits, an increase in fuel expense of $22.5 million primarily as a result of an increase in fuel prices compared to the prior fiscal year, a $16.9 million increase in repairs and maintenance expense related to transportation equipment as the Company is waiting on replacement fleet compared to the prior fiscal year.\n\n\nDepreciation of fixed assets and amortization of intangible assets recorded in this segment increased from $260.0 million in fiscal 2022 to $279.8 million in fiscal 2023. Depreciation of fixed assets and amortization of intangible assets increased in fiscal 2023 as a result of a prior year acquisition, which included accelerated amortization of certain customer relationships, and an increase in transportation equipment under finance leases, partially offset by fully amortized intangible assets.\n\n\n28\n\n\n\n\n\u00a0\n\n\nSegment Results\u2014Vistar\n \n\n\nFiscal year ended July 1, 2023 compared to fiscal year ended July 2, 2022\n\n\nNet Sales\n \n\n\nNet sales for Vistar increased $867.5 million, or 23.6%, from fiscal 2022 to fiscal 2023. The increase in net sales was driven primarily by an increase in selling price per case as a result of inflation and channel mix, as well as case volume growth in the vending, office coffee service, office supply, theater, value stores, hospitality, and travel channels in fiscal 2023 compared to the prior fiscal year.\n\n\nAdjusted EBITDA\n \n\n\nAdjusted EBITDA for Vistar increased $132.3 million, or 68.5%, from fiscal 2022 to fiscal 2023. The increase was the result of an increase in gross profit, partially offset by an increase in operating expenses. Gross profit increased $172.0 million, or 28.0%, in fiscal 2023 compared to fiscal 2022, driven by a favorable shift in the mix of cases sold, growth in cases sold, and procurement related gains. Gross profit as a percentage of net sales increased from 16.7% for fiscal 2022 to 17.3% for fiscal 2023.\n\n\nOperating expenses impacting Vistar\u2019s Adjusted EBITDA increased $40.1 million, or 9.5%, for fiscal 2023 compared to the prior fiscal year. Operating expenses increased primarily as a result of the increased case volume described above, and the resulting impact on variable operational and selling expenses, including a $24.5 million increase in personnel expenses.\n\n\nDepreciation of fixed assets and amortization of intangible assets recorded in this segment decreased from $52.6 million in fiscal 2022 to $42.1 million in fiscal 2023 due to fully amortized intangible assets.\n\n\nSegment Results\u2014Convenience\n \n\n\nFiscal year ended July 1, 2023 compared to fiscal year ended July 2, 2022\n \n\n\nNet Sales\n \n\n\nNet sales for Convenience increased $3.5 billion, or 17.1%, from $20.6 billion for fiscal 2022 to $24.1 billion for fiscal 2023. Net sales related to cigarettes for fiscal 2023 was $14.9 billion, which includes $3.9 billion of excise taxes, compared to net sales of cigarettes of $13.2 billion, which includes $3.7 billion of excise taxes, for fiscal 2022. The increase in net sales for Convenience was driven primarily by the acquisition of Core-Mark in the first quarter of fiscal 2022, case growth in food and foodservice related products and an increase in selling price per case as a result of inflation.\n\n\nAdjusted EBITDA\n \n\n\nAdjusted EBITDA for Convenience increased $71.7 million, or 27.9%, from fiscal 2022 to fiscal 2023. This increase was a result of an increase in gross profit, partially offset by an increase in operating expenses driven by the acquisition of Core-Mark. Gross profit contributing to Convenience\u2019s Adjusted EBITDA increased $315.2 million, or 24.7%, for fiscal 2023 compared to the prior fiscal year as a result of the Core-Mark acquisition, procurement gains, and a favorable shift in product mix. Gross profit contributing to Convenience's Adjusted EBITDA as a percentage of net sales increased from 6.2% for fiscal 2022 to 6.6% for fiscal 2023.\n\n\n Operating expenses impacting Convenience\u2019s Adjusted EBITDA, increased $244.4 million, or 23.9%, for fiscal 2023 compared to the prior fiscal year. Operating expenses increased primarily as a result of the acquisition of Core-Mark and an increase in personnel expense in fiscal 2023 compared to the prior fiscal year.\n\n\nDepreciation and amortization of intangible assets recorded in this segment increased from $125.7 million in fiscal 2022 to $148.0 million in fiscal 2023. Depreciation of fixed assets and amortization of intangible assets primarily increased as a result of the Core-Mark acquisition.\n \n\n\n29\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nSegment Results\u2014Corporate & All Other\n \n\n\nFiscal year ended July 1, 2023 compared to fiscal year ended July 2, 2022\n\n\nNet Sales\n \n\n\nNet sales for Corporate & All Other increased $173.9 million from fiscal 2022 to fiscal 2023. The increase was primarily attributable to an increase in services provided to our other segments and a recent acquisition.\n\n\nAdjusted EBITDA\n \n\n\nAdjusted EBITDA for Corporate & All Other was a negative $234.3 million for fiscal 2023 compared to a negative $216.8 million for fiscal 2022. This decline in Adjusted EBITDA was primarily driven by a $15.4 million increase in professional fees related to consulting, audit and information technology services and maintenance and a $14.1 million increase in personnel expenses, primarily related to salaries and annual bonus for fiscal 2023 compared to the prior fiscal year.\n\n\nDepreciation and amortization of intangible assets recorded in this segment was $26.8 million in fiscal 2023 compared to $24.5 million in fiscal 2022.\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n \n\n\nWe have historically financed our operations and growth primarily with cash flows from operations, borrowings under our credit facility, operating and finance leases, and normal trade credit terms. We have typically funded our acquisitions with additional borrowings under our credit facility. Our borrowing levels are subject to seasonal fluctuations, typically with the lowest borrowing levels in the third and fourth fiscal quarters and the highest borrowing levels occurring in the first and second fiscal quarters. We borrow under our credit facility or pay it down regularly based on our cash flows from operating and investing activities. Our practice is to minimize interest expense while maintaining reasonable liquidity.\n \n\n\nAs market conditions warrant, we may from time to time seek to repurchase our securities or loans in privately negotiated or open market transactions, by tender offer or otherwise. Any such repurchases may be funded by incurring new debt, including additional borrowings under our credit facility. In addition, depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider other financing transactions, the proceeds of which could be used to refinance our indebtedness, make investments or acquisitions or for other purposes. Any new debt may be secured debt.\n\n\nOn November 16, 2022, the Board of Directors authorized a new share repurchase program for up to $300 million of the Company\u2019s outstanding common stock. This authorization replaced the previously authorized $250 million share repurchase program. The new share repurchase program has an expiration date of November 16, 2026 and may be amended, suspended, or discontinued at any time at the Company\u2019s discretion, subject to compliance with applicable laws. Repurchases under this program depend upon marketplace conditions and other factors, including compliance with the covenants in the agreements governing our existing indebtedness. During fiscal 2023, the Company repurchased 0.3 million shares of the Company's common stock for a total of $11.2 million. As of July 1, 2023, $288.8 million remained available for share repurchases.\n\n\nOur cash requirements over the next 12 months and beyond relate to our long-term debt and associated interest payments, operating and finance leases, and purchase obligations. For information regarding the Company\u2019s expected cash requirements related to long-term debt and operating and finance leases, see Note 8. \nDebt\n and Note 12. \nLeases\n, respectively, within the Notes to Consolidated Financial Statements included in Item 8. As of July 1, 2023, the Company had total purchase obligations of $163.4 million, which includes agreements for purchases related to capital projects and services in the normal course of business, for which all significant terms have been confirmed, as well as a minimum amount due for various Company meetings and conferences. Purchase obligations also include amounts committed to various capital projects in process or scheduled to be completed in the coming fiscal years. As of July 1, 2023, the Company had commitments of $109.8 million for capital projects related to warehouse expansion and improvements and warehouse equipment. The Company anticipates using cash flows from operations or borrowings under our credit agreement to fulfill these commitments. Amounts due under these agreements were not included in the Company\u2019s consolidated balance sheet as of July 1, 2023.\n\n\nWe do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.\n\n\n30\n\n\n\n\n\u00a0\n\n\nWe believe that our cash flows from operations and available borrowing capacity will be sufficient to meet our anticipated cash requirements over the next 12 months and beyond, to maintain sufficient liquidity for normal operating purposes, and to fund capital expenditures.\n\n\nAt July 1, 2023, our cash balance totaled $20.0 million, including restricted cash of $7.3 million, as compared to a cash balance totaling $18.7 million, including restricted cash of $7.1 million, at July 2, 2022.\n\n\nOperating Activities\n \n\n\nFiscal year ended July 1, 2023 compared to fiscal year ended July 2, 2022\n\n\nDuring fiscal 2023 and fiscal 2022, our operating activities provided cash flow of $832.1 million and $276.5 million, respectively. The increase in cash flows provided by operating activities in fiscal 2023 compared to fiscal 2022 was largely driven by higher operating income and less cash used to fund working capital in fiscal 2023. Toward the end of fiscal 2022, the Company made advanced purchases of $220.3 million of tobacco related inventory to take advantage of preferred pricing and as a result of one of the Company's cigarette suppliers shutting down for a system conversion.\n \n\n\nInvesting Activities\n \n\n\nFiscal year ended July 1, 2023 compared to fiscal year ended July 2, 2022\n\n\nCash used in investing activities totaled $294.6 million in fiscal 2023 compared to $1,861.5 million in fiscal 2022 . These investments consisted primarily of net cash paid for recent acquisitions of $63.8 million and $1,650.5 million for fiscal years 2023 and 2022 , respectively, along with capital purchases of property, plant, and equipment of $269.7 million and $215.5 million for fiscal years 2023 and 2022, respectively. In fiscal 2023, purchases of property, plant, and equipment primarily consisted of outlays for warehouse expansion and improvements, warehouse equipment, transportation equipment, and information technology. The following table presents the capital purchases of property, plant, and equipment by segment.\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal year ended\n\n\n\n\n\n\n(Dollars in millions)\n\n\n\u00a0\n\n\nJuly 1, 2023\n\n\n\u00a0\n\n\nJuly 2, 2022\n\n\n\u00a0\n\n\nJuly 3, 2021\n\n\n\n\n\n\nFoodservice\n\n\n\u00a0\n\n\n$191.4\n\n\n\u00a0\n\n\n$148.2\n\n\n\u00a0\n\n\n$99.9\n\n\n\n\n\n\nVistar\n\n\n\u00a0\n\n\n18.0\n\n\n\u00a0\n\n\n19.1\n\n\n\u00a0\n\n\n48.0\n\n\n\n\n\n\nConvenience\n\n\n\u00a0\n\n\n46.3\n\n\n\u00a0\n\n\n31.9\n\n\n\u00a0\n\n\n26.5\n\n\n\n\n\n\nCorporate & All Other\n\n\n\u00a0\n\n\n14.0\n\n\n\u00a0\n\n\n16.3\n\n\n\u00a0\n\n\n14.4\n\n\n\n\n\n\nTotal capital purchases of property, plant and equipment\n\n\n\u00a0\n\n\n$269.7\n\n\n\u00a0\n\n\n$215.5\n\n\n\u00a0\n\n\n$188.8\n\n\n\n\n\n\n\u00a0\n\n\nFinancing Activities\n \n\n\nDuring fiscal 2023, our financing activities used cash flow of $536.2 million, which consisted primarily of $454.4 million in net payments under our credit agreement.\n\n\nDuring fiscal 2022, our financing activities provided cash flow of $1,581.5 million, which consisted primarily of $1.0 billion in cash received from the issuance and sale of the Notes due 2029 and $1,019.7 million in net borrowings under our credit agreement, partially offset by $350.0 million in cash used for the repayment of the Notes due 2024.\n \n\n\nThe following describes our financing arrangements as of July 1, 2023:\n \n\n\nCredit Agreement:\n On April 17, 2023, PFGC, Inc. (\u201cPFGC), a wholly-owned subsidiary of the Company, and Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, entered into the First Amendment (\u201cFirst Amendment\u201d) to the existing Fifth Amended and Restated Credit Agreement (the \u201cABL Facility\u201d) with Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent, and the other lenders party thereto (as amended by the First Amendment, the \u201cAmended ABL Facility\u201d). The Amended ABL Facility has an aggregate principal amount available of $4.0 billion and matures September 17, 2026.\n \n\n\nPerformance Food Group, Inc., a wholly-owned subsidiary of PFGC, is the lead borrower under the Amended ABL Facility, which is jointly and severally guaranteed by, and secured by the majority of the assets of, PFGC and all material domestic direct and indirect wholly-owned subsidiaries of PFGC (other than the captive insurance subsidiary and other excluded subsidiaries). Availability for loans and letters of credit under the Amended ABL Facility is governed by a borrowing base, determined by the application of specified advance rates against eligible assets, including trade accounts receivable, inventory, owned real properties, and owned transportation equipment. The borrowing base is reduced quarterly by a cumulative fraction of the real properties and transportation\n \n\n\n31\n\n\n\n\n\u00a0\n\n\nequipment values. Advances on accounts receivable and inventory are subject to change based on periodic commercial finance examinations and appraisals, and the real property and transportation equipment values included in the borrowing base are subject to change based on periodic appraisals. Audits and appraisals are conducted at the direction of the administrative agent for the benefit and on behalf of all lenders.\n\n\nPrior to the First Amendment, borrowings under the ABL Facility bore interest, at Performance Food Group, Inc.\u2019s option, at (a) the Base Rate (defined as the greater of (i) the Federal Funds Rate in effect on such date plus 0.5%, (ii) the Prime Rate on such day, or (iii) one month LIBOR plus 1.0%) plus a spread, or (b) LIBOR plus a spread. The ABL Facility also provided for an unused commitment fee rate of 0.25% per annum.\n\n\nThe First Amendment, among other things, transitioned the benchmark interest rate for borrowings under the Amended ABL Facility from LIBOR to the term secured overnight funding rate (\u201cSOFR\u201d). As a result of the First Amendment, borrowings under the Amended ABL Facility bear interest, at Performance Food Group, Inc.\u2019s option, at (a) the Base Rate (defined as the greatest of (i) a floor rate of 0.00%, (ii) the federal funds rate in effect on such date plus 0.5%, (iii) the prime rate on such day, or (iv) one month Term SOFR (as defined in the Amended ABL Facility) plus 1.0%) plus a spread or (b) Adjusted Term SOFR (as defined in the Amended ABL Facility) plus a spread. The Amended ABL Facility also provides for an unused commitment fee at a rate of 0.250% per annum.\n\n\nThe following table summarizes outstanding borrowings, availability, and the average interest rate under the credit agreement in place as of the applicable date:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(Dollars in millions)\n\n\n\u00a0\n\n\nAs of July 1, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nAs of July 2, 2022\n\n\n\u00a0\n\n\n\n\n\n\nAggregate borrowings\n\n\n\u00a0\n\n\n$\n\n\n1,154.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,608.4\n\n\n\u00a0\n\n\n\n\n\n\nLetters of credit\n\n\n\u00a0\n\n\n\u00a0\n\n\n172.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n190.5\n\n\n\u00a0\n\n\n\n\n\n\nExcess availability, net of lenders\u2019 reserves of $99.7 and $104.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,673.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,201.1\n\n\n\u00a0\n\n\n\n\n\n\nAverage interest rate, excluding impact of interest rate swaps\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.35\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.89\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nThe Amended ABL Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i) $320.0 million and (ii) 10% of the lesser of the borrowing base and the revolving credit facility amount for five consecutive business days. The Amended ABL Facility also contains customary restrictive covenants that include, but are not limited to, restrictions on the loan parties\u2019 and their subsidiaries\u2019 abilities to incur additional indebtedness, pay dividends, create liens, make investments or specified payments, and dispose of assets. The Amended ABL Facility provides for customary events of default, including payment defaults and cross-defaults on other material indebtedness. If an event of default occurs and is continuing, amounts due under the Amended ABL Facility may be accelerated and the rights and remedies of the lenders may be exercised, including rights with respect to the collateral securing the obligations under such agreement.\n\n\nSenior Notes due 2025:\n On April 24, 2020, Performance Food Group, Inc. issued and sold $275.0 million aggregate principal amount of its 6.875% Senior Notes due 2025 (the \u201cNotes due 2025\u201d). The Notes due 2025 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2025 are not guaranteed by the Company.\n \n\n\nThe proceeds from the Notes due 2025 were used for working capital and general corporate purposes and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2025.\n \n\n\nThe Notes due 2025 were issued at 100.0% of their par value. The Notes due 2025 mature on May 1, 2025, and bear interest at a rate of 6.875% per year, payable semi-annually in arrears.\n \n\n\nUpon the occurrence of a change of control triggering event or upon the sale of certain assets in which Performance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2025 will have the right to require Performance Food Group, Inc. to repurchase each holder\u2019s Notes due 2025 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. Performance Food Group, Inc. may redeem all or part of the Notes due 2025 at a redemption price equal to 101.719% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 100% of the principal amount redeemed on May 1, 2024.\n\n\nThe indenture governing the Notes due 2025 contains covenants limiting, among other things, PFGC\u2019s and its restricted subsidiaries\u2019 ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC\u2019s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications.\n \n\n\n32\n\n\n\n\n\u00a0\n\n\nThe Notes due 2025 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2025 to become or be declared due and payable.\n\n\nSenior Notes due 2027\n: On September 27, 2019, PFG Escrow Corporation (the \u201cEscrow Issuer\u201d), a wholly-owned subsidiary of PFGC, issued and sold $1,060.0 million aggregate principal amount of its 5.500% Senior Notes due 2027 (the \u201cNotes due 2027\u201d). The Notes due 2027 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2027 are not guaranteed by the Company.\n\n\nThe proceeds from the Notes due 2027 along with an offering of shares of the Company\u2019s common stock and borrowings under the prior credit agreement, were used to fund the cash consideration for the acquisition of Reinhart Foodservice, L.L.C. (\u201cReinhart\u201d) and to pay related fees and expenses.\n\n\nThe Notes due 2027 were issued at 100.0% of their par value. The Notes due 2027 mature on October 15, 2027 and bear interest at a rate of 5.500% per year, payable semi-annually in arrears.\n\n\nUpon the occurrence of a change of control triggering event or upon the sale of certain assets in which Performance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2027 will have the right to require Performance Food Group, Inc. to repurchase each holder\u2019s Notes due 2027 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. Performance Food Group, Inc. may redeem all or part of the Notes due 2027 at a redemption price equal to 102.750% of the principal amount redeemed, plus accrued and unpaid interest. Beginning on October 15, 2023, Performance Food Group, Inc. may redeem all or part of the Notes due 2027 at a redemption price equal to 101.375% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to100% of the principal amount redeemed, plus accrued and unpaid interest on October 15, 2024.\n\n\nThe indenture governing the Notes due 2027 contains covenants limiting, among other things, PFGC\u2019s and its restricted subsidiaries\u2019 ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC\u2019s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2027 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2027 to become or be declared due and payable.\n\n\nSenior Notes due 2029\n: \nOn July 26, 2021, Performance Food Group, Inc. issued and sold $1.0 billion aggregate principal amount of its 4.250% Senior Notes due 2029 (the \u201cNotes due 2029\u201d). The Notes due 2029 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2029 are not guaranteed by the Company.\n \n\n\nThe proceeds from the Notes due 2029 were used to pay down the outstanding balance of the prior credit agreement, to redeem the $350.0 million aggregate principal amount of the 5.500% Senior Notes due 2024 (\u201cNotes due 2024\u201d), and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2029.\n\n\nThe Notes due 2029 were issued at 100.0% of their par value. The Notes due 2029 mature on August 1, 2029 and bear interest at a rate of 4.250% per year, payable semi-annually in arrears.\n \n\n\nUpon the occurrence of a change of control triggering event or upon the sale of certain assets in which Performance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2029 will have the right to require Performance Food Group, Inc. to repurchase each holder\u2019s Notes due 2029 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. Performance Food Group, Inc. may redeem all or part of the Notes due 2029 at any time prior to August 1, 2024, at a redemption price equal to 100% of the principal amount of the Notes due 2029 being redeemed plus a make-whole premium and accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, beginning on August 1, 2024, Performance Food Group, Inc. may redeem all or part of the Notes due 2029 at a redemption price equal to 102.125% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.163% and 100% of the principal amount redeemed on August 1, 2025, and August 1, 2026, respectively. In addition, at any time prior to August 1, 2024, Performance Food Group, Inc. may redeem up to 40% of the Notes due 2029 from the proceeds of certain equity offerings at a redemption price equal to 104.250% of the principal amount thereof, plus accrued and unpaid interest.\n \n\n\nThe indenture governing the Notes due 2029 contains covenants limiting, among other things, PFGC\u2019s and its restricted subsidiaries\u2019 ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other\n \n\n\n33\n\n\n\n\n\u00a0\n\n\ndistributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC\u2019s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2029 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2029 to become or be declared due and payable.\n \n\n\nThe Amended ABL Facility and the indentures governing the Notes due 2025, the Notes due 2027, and the Notes due 2029 contain customary restrictive covenants under which all of the net assets of PFGC and its subsidiaries were restricted from distribution to Performance Food Group Company, except for approximately $2,007.7 million of restricted payment capacity available under such debt agreements, as of July 1, 2023. Such minimum estimated restricted payment capacity is calculated based on the most restrictive of our debt agreements and may fluctuate from period to period, which fluctuations may be material. Our restricted payment capacity under other debt instruments to which the Company is subject may be materially higher than the foregoing estimate.\n\n\nAs of July 1, 2023, the Company was in compliance with all of the covenants under the Amended ABL Facility and the indentures governing the Notes due 2025, the Notes due 2027, and the Notes due 2029.\n \n\n\nTotal Assets by Segment\n\n\nTotal assets by segment discussed below exclude intercompany receivables between segments.\n\n\nTotal assets for Foodservice increased $56.3 million from $6,455.3 million as of July 2, 2022 to $6,511.6 million as of July 1, 2023. During this period, this segment increased its property, plant, and equipment and operating lease right-of-use assets, partially offset by a decrease in intangible assets.\n\n\nTotal assets for Vistar increased $159.0 million from $1,133.7 million as of July 2, 2022 to $1,292.7 million as of July 1, 2023. During this period, Vistar increased its inventory and accounts receivable.\n\n\nTotal assets for Convenience decreased $185.4 million from $4,411.6 million as of July 2, 2022 to $4,226.2 million as of July 1, 2023. During this period, this segment decreased its inventory and intangible assets.\n\n\nTotal assets for Corporate & All Other increased $91.1 million from $377.4 million as of July 2, 2022 to $468.5 million as of July 1, 2023. During this period, Corporate & All Other primarily increased its assets due to a recent immaterial acquisition.\n\n\nCritical Accounting Policies and Estimates\n \n\n\nCritical accounting policies and estimates are those that are most important to portraying our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Our most critical accounting policies and estimates include those that pertain to the allowance for doubtful accounts receivable, inventory valuation, insurance programs, income taxes, vendor rebates and promotional incentives, and acquisitions, goodwill and other intangible assets.\n \n\n\nAccounts Receivable\n \n\n\nAccounts receivable are comprised of trade receivables from customers in the ordinary course of business, are recorded at the invoiced amount, and primarily do not bear interest. Accounts receivable also includes other receivables primarily related to various rebate and promotional incentives with our suppliers. Receivables are recorded net of the allowance for credit losses on the accompanying consolidated balance sheets. We evaluate the collectability of our accounts receivable based on a combination of factors. We regularly analyze our significant customer accounts, and when we become aware of a specific customer\u2019s inability to meet its financial obligations to us, such as bankruptcy filings or deterioration in the customer\u2019s operating results or financial position, we record a specific reserve for bad debt to reduce the related receivable to the amount we reasonably believe is collectible. We also record reserves for bad debt for other customers based on a variety of factors, including the length of time the receivables are past due, macroeconomic considerations, and historical experience. If circumstances related to specific customers change, our estimates of the recoverability of receivables could be further adjusted.\n \n\n\n34\n\n\n\n\n\u00a0\n\n\nInventory Valuation\n \n\n\nOur inventories consist primarily of food and non-food products. The Company values inventories at the lower of cost or net realizable value using the first-in, first-out (\u201cFIFO\u201d) method and last-in, first-out (\"LIFO\") using the link chain technique of the dollar value method. FIFO was used for approximately 63% of total inventories at July 1, 2023. We adjust our inventory balances for slow-moving, excess, and obsolete inventories. These adjustments are based upon inventory category, inventory age, specifically identified items, and overall economic conditions.\n \n\n\nInsurance Programs\n \n\n\nWe maintain high-deductible insurance programs covering portions of general and vehicle liability and workers\u2019 compensation. The amounts in excess of the deductibles are fully insured by third-party insurance carriers, subject to certain limitations and exclusions. We also maintain self-funded group medical insurance. We accrue our estimated liability for these deductibles, including an estimate for incurred but not reported claims, based on known claims and past claims history. The estimated short-term portion of these accruals is included in Accrued expenses on our consolidated balance sheets, while the estimated long-term portion of the accruals is included in Other long-term liabilities. The provisions for insurance claims include estimates of the frequency and timing of claims occurrence, as well as the ultimate amounts to be paid. These insurance programs are managed by a third party, and the deductibles for general and vehicle liability and workers compensation are primarily collateralized by letters of credit and restricted cash.\n \n\n\nIncome Taxes\n \n\n\nWe follow Financial Accounting Standards Board (\u201cFASB\u201d) Accounting Standards Codification (\u201cASC\u201d) 740-10, \nIncome Taxes\u2014Overall\n, which requires the use of the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Future tax benefits, including net operating loss carryforwards, are recognized to the extent that realization of such benefits is more likely than not. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law, and closings of statutes of limitations. Such adjustments are reflected in the tax provision as appropriate. Income tax calculations are based on the tax laws enacted as of the date of the financial statements.\n\n\nVendor Rebates and Other Promotional Incentives\n \n\n\nWe participate in various rebate and promotional incentives with our suppliers, either unilaterally or in combination with purchasing cooperatives and other procurement partners, that consist primarily of volume and growth rebates, annual and multi-year incentives, and promotional programs. Consideration received under these incentives is generally recorded as a reduction of cost of goods sold. However, as described below, in certain limited circumstances the consideration is recorded as a reduction of operating expenses incurred by us. Consideration received may be in the form of cash and/or invoice deductions. Changes in the estimated amount of incentives to be received are treated as changes in estimates and are recognized in the period of change.\n \n\n\nConsideration received for incentives that contain volume and growth rebates, annual incentives, and multi-year incentives are recorded as a reduction of cost of goods sold. We systematically and rationally allocate the consideration for these incentives to each of the underlying transactions that results in progress by the Company toward earning the incentives. If the incentives are not probable and reasonably estimable, we record the incentives as the underlying objectives or milestones are achieved. We record annual and multi-year incentives when earned, generally over the agreement period. We use current and historical purchasing data, forecasted purchasing volumes, and other factors in estimating whether the underlying objectives or milestones will be achieved. Consideration received to promote and sell the supplier\u2019s products is typically a reimbursement of marketing costs incurred by the Company and is recorded as a reduction of our operating expenses. If the amount of consideration received from the suppliers exceeds our marketing costs, any excess is recorded as a reduction of cost of goods sold.\n \n\n\nAcquisitions, Goodwill, and Other Intangible Assets\n \n\n\nWe account for acquired businesses using the acquisition method of accounting. Our financial statements reflect the operations of an acquired business starting from the completion of the acquisition. Goodwill and other intangible assets represent the excess of cost of an acquired entity over the amounts specifically assigned to those tangible net assets acquired in a business combination. Other identifiable intangible assets typically include customer relationships, trade names, technology, non-compete agreements, and favorable lease assets. Goodwill and intangibles with indefinite lives are not amortized. Intangibles with definite lives are amortized on a straight-line basis over their useful lives, which generally range from two to twelve years. Annually, or when certain triggering events occur, the Company assesses the useful lives of its intangibles with definite lives. Certain assumptions, estimates, and\n \n\n\n35\n\n\n\n\n\u00a0\n\n\njudgments are used in determining the fair value of net assets acquired, including goodwill and other intangible assets, as well as determining the allocation of goodwill to the reporting units. Accordingly, we may obtain the assistance of third-party valuation specialists for the valuation of significant tangible and intangible assets. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management but that are inherently uncertain. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability), economic barriers to entry, a brand\u2019s relative market position, and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, that could affect the accuracy or validity of the estimates and assumptions.\n \n\n\nWe are required to test goodwill and other intangible assets with indefinite lives for impairment annually or more often if circumstances indicate. Indicators of goodwill impairment include, but are not limited to, significant declines in the markets and industries that buy our products, changes in the estimated future cash flows of its reporting units, changes in capital markets, and changes in its market capitalization.\n \n\n\nWe apply the guidance in FASB Accounting Standards Update (\u201cASU\u201d) 2011-08 \n\u201cIntangibles\u2014Goodwill and Other\u2014Testing Goodwill for Impairment,\u201d\n which provides entities with an option to perform a qualitative assessment (commonly referred to as \u201cstep zero\u201d) to determine whether further quantitative analysis for\n \nimpairment of goodwill is necessary. In performing step zero for our goodwill impairment test, we are required to make assumptions and judgments, including but not limited to the following: the evaluation of macroeconomic conditions as related to our business, industry and market trends, and the overall future financial performance of our reporting units and future opportunities in the markets in which they operate. If impairment indicators are\n \npresent after performing step zero, we would perform a quantitative impairment analysis to estimate the fair value of goodwill.\n \n\n\nDuring fiscal 2023 and fiscal 2022, we performed the step zero analysis for our goodwill impairment test and no further quantitative impairment test was deemed necessary for the Company's reporting units within its reportable segments. Based on the Company's assessment, there was an immaterial impairment of goodwill related to reporting units within the Corporate & All Other segment for fiscal 2023. No impairments were recorded in fiscal 2022 or fiscal 2021.\n\n\nRecently Issued Accounting Pronouncements\n \n\n\nRefer to Note 3. \nRecently Issued Accounting Pronouncements\n within the Notes to Consolidated Financial Statements included in Item 8 for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on the Company\u2019s consolidated financial statements.\n \n\n",
+  "item7a": ">Item 7A. Quantitative and Qualitat\nive Disclosures about Market Risk\n \n\n\nAll of our market sensitive instruments are entered into for purposes other than trading.\n \n\n\nInterest Rate Risk\n \n\n\nWe are exposed to interest rate risk related to changes in interest rates for borrowings under our Amended ABL Facility. Although we hedge a portion of our interest rate risk through interest rate swaps, any borrowings under our Amended ABL Facility in excess of the notional amount of the swaps will be subject to variable interest rates.\n \n\n\nAs of July 1, 2023, our subsidiary, Performance Food Group, Inc., had two interest rate swaps with a combined value of $450.0 million notional amount that were designated as cash flow hedges of interest rate risk. See Note 9. \nDerivatives and Hedging Activities\n within the Notes to Consolidated Financial Statements included in Item 8 for further discussion of these interest rate swaps.\n \n\n\nThe changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction impacts earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as hedged interest payments are made on our debt. During the next twelve months, we estimate that gains of approximately $15.3 million will be reclassified as an decrease to interest expense.\n \n\n\nBased on the fair values of these interest rate swaps as of July 1, 2023, a hypothetical 100 bps decrease in SOFR would result in a loss of $7.1 million and a hypothetical 100 bps increase in SOFR would result in a gain of $6.9 million within accumulated other comprehensive income.\n \n\n\nAssuming an average daily balance on our Amended ABL Facility of approximately $1.2 billion, approximately $350.0 million of our outstanding long-term debt is fixed through interest rate swap agreements over the next 12 months and approximately $0.8\n \n\n\n36\n\n\n\n\n\u00a0\n\n\nbillion represents variable-rate debt. A hypothetical 100 bps increase in SOFR on our variable-rate debt would lead to an increase of approximately $8.0 million in annual interest expense.\n\n\nFuel Price Risk\n \n\n\nWe seek to minimize the effect of higher diesel fuel costs both by reducing fuel usage and by taking action to offset higher fuel prices. We reduce usage by designing more efficient truck routes and by increasing miles per gallon through on-board computers that monitor and adjust idling time and maximum speeds and through other technologies. We seek to manage fuel prices through diesel fuel surcharges to our customers and through the use of costless collars or swap arrangements.\n \n\n\nAs of July 1, 2023, we had collars in place for approximately 27% of the gallons we expect to use over the twelve months following July 1, 2023. Any changes in fair value are recorded in the period of the change as unrealized gains or losses on fuel hedging instruments. A hypothetical 10% increase or decrease in expected diesel fuel prices would result in an immaterial gain or loss for these derivative instruments.\n \n\n\nOur fuel purchases occur at market prices. Using published market price projections for diesel and estimates of fuel consumption, a 10% hypothetical increase in diesel prices from the market price would result in a potential increase of approximately $28.1 million in fuel costs included in Operating expenses. As discussed above, this increase in fuel costs would be partially offset by fuel surcharges passed through to our customers.\n \n\n\n37\n\n\n\n\n\u00a0\n\n",
+  "cik": "1618673",
+  "cusip6": "71377A",
+  "cusip": ["71377a103", "71377A903", "71377A953", "71377A103"],
+  "names": ["PERFORMANCE FOOD GROUP CO", "PERFORMANCE FOOD GROUP ORD SHS"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1618673/000095017023043011/0000950170-23-043011-index.htm"
+}
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+{
+  "item1": ">ITEM 1.\tB\nUSINESS\n\n\nOverview\n\n\nWe are a leading worldwide developer and fabless supplier of premium mixed signal semiconductor solutions that enable people to engage with connected devices and data, engineering exceptional experiences throughout the home, at work, in the car and on the go.  We supply connectivity, sensors, and AI-enhanced processor solutions to original equipment manufacturers, or OEMs, that design Internet of Things (IoT) products and devices for automobiles, virtual reality, smartphones, tablets, and notebook computers.  Our current served markets include Internet of Things, or IoT, personal computer, or PC, and Mobile.  Our solutions either contain or consist of our wireless, voice and speech, video, fingerprint, authentication, display driver, or touch semiconductor solutions, which include our hardware, and, where applicable, firmware and software.\n \n\n\nOur website is located at \nwww.synaptics.com\n.  Through our website, we make available, free of charge, all our Securities and Exchange Commission, or SEC, filings, including our annual reports on Form 10-K, our proxy statements, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, as well as Form 3, Form 4, and Form 5 Reports for our directors, officers, and principal stockholders, together with amendments to those reports filed or furnished pursuant to Sections 13(a), 15(d), or 16 under the Securities Exchange Act of 1934, as amended, or the Exchange Act.  These reports are available on our website promptly after their electronic filing with the SEC.  You can also read these SEC filings and reports over the Internet at the SEC\u2019s website at www.sec.gov.  Our website also includes corporate governance information, including our Code of Conduct, our Code of Ethics for the Chief Executive Officer and Senior Financial Officers, and our Board Committee Charters.  The contents of our website, including the content contained in any website addresses or links included elsewhere in this report, are not incorporated into or deemed to be a part of this report.\n\n\nWe were initially incorporated in California in 1986 and were re-incorporated in Delaware in 2002.  Our fiscal year is the 52- or 53-week period ending on the last Saturday in June.  The fiscal years presented in this report were the 52-week periods ended June 24, 2023, June 25, 2022, and June 26, 2021.\n \n\n\nIoT Applications Market\n \n\n\nOur IoT market solutions broadly consist of wireless connectivity (Wi-Fi, Bluetooth and global positioning system, or GPS) products, System-on-Chip, or SoC, products, display and touch integrated circuits for use in automobiles, and a wide range of audio and video products and solutions. Our products enable smart devices at the edge of a network such as smart assistant speakers, over-the-top multimedia devices, wireless speakers, voice driven intelligent devices including those integrating far-field technology, personal voice and audio products, set-top boxes, video interface solutions for docking stations, high-speed connectivity for virtual reality devices, video surveillance, voice over IP SoCs, image processing solutions for use in printers, and fax modems.  In addition, our automotive solutions include over a decade of mass production experience in mature touch solutions and display drivers adapted from our mobile consumer business to meet automotive-grade quality standards.\n \n\n\nWithin the growing consumer IoT market, we continue to expand our footprint in various devices by bringing converged video, vision, audio, and voice technologies coupled with artificial intelligence and wireless connectivity capabilities. Our deep investment in far-field voice technology, our intellectual property portfolio for video, vision, audio and security, and our significant experience enabling Android-based platforms for service providers, coupled with our focus on enabling high performance, low power, and highly secure SoC solutions enable us to effectively serve our existing customers and position us to grow within the addressable market of consumer IoT devices.\n \n\n\nPC Product Applications Market\n\n\nWe provide custom and semi-custom product solutions for navigation, cursor control, access to devices or applications through fingerprint authentication, and human presence detection solutions, for many of the world\u2019s premier PC OEMs.  These functions are offered as both stand-alone and integrated touch pads plus fingerprint biometric solutions and as chipsets with integrated visual sensing software algorithms.  In addition to notebook applications, other PC product applications for our technology include peripherals, such as high-end keyboards and accessory touchpads.\n \n\n\nWe continue to expand our available product offerings through technology development enabling us to increase our product content within each notebook unit.  We are also applying our technologies to enable adoption of fingerprint recognition solutions to broaden our market opportunities. Based on the strength of our technology and engineering know-how, we believe we are well positioned to continue to take advantage of opportunities in the PC product applications market.\n\n\n1\n\n\n\n\n\u00a0\n\n\nMobile Product Applications Markets\n\n\nWe believe our intellectual property portfolio, engineering know-how, systems engineering experience, technological expertise, and experience in providing human experience product solutions to major OEMs position us to be a key technological enabler for multiple consumer electronic devices targeted to meet the mobile product applications markets.  Mobile product applications include smartphones, tablets, large touchscreen applications, as well as a variety of mobile, handheld, and entertainment devices.\n \n\n\nWe believe our existing technologies, our range of product solutions, and our emphasis on ease of use, advanced functionality, small size, low power consumption, durability, and reliability enable us to serve the markets for mobile product applications and other electronic devices.\n\n\nAcquisitions\n\n\nIn February 2023, we completed the acquisition of certain GPS developed technology intangible assets from Broadcom.  These assets expand and enhance our wireless connectivity technology product offerings to our customer base.\n \n\n\nIn October 2022, we completed the acquisition of Emza Visual Sense, Ltd., or Emza, a developer of ultra-low-power artificial intelligence visual sensing solutions.  Emza's technology extends our position in Edge AI and allows us to serve the personal computing market with a solution for human presence detection, or HPD.\n\n\nIn December 2021, we completed our merger with DSP Group, Inc, or DSPG, a global provider of voice processing and wireless chipset solutions for converged communications.  DSPG's capabilities in low power AI align with our vision of embedding more intelligence in connected devices.  The addition of DSPG's Ultra Low Energy, or ULE, wireless technology and Voice over IP, or VOIP, processing solutions enhances our ability to offer and deliver differentiated solutions to our customer base.\n\n\nOur Strategy\n\n\nOur objective is to continue to enhance our position as a leading supplier of premium semiconductor product solutions for each of the target markets in which we operate, including the IoT applications market, the PC product applications market, and the mobile product applications markets, with a key focus on expanding our market share.  Key aspects of our strategy to achieve this objective include those set forth below.\n\n\nExtend Our Technological Leadership\n\n\nWe plan to utilize our extensive intellectual property portfolio, engineering know-how, and technological expertise to extend the functionality of our current product solutions and offer new and innovative product solutions to customers across multiple markets.  We intend to continue utilizing our technological expertise to reduce the overall size, cost, and power consumption of our product solutions while increasing their applications, capabilities, and performance.  We plan to continue enhancing the ease of use and functionality of our solutions.  We plan to invest in our research and development efforts through our engineering activities, including advancement of existing technologies, the hiring of key engineering personnel, and strategic acquisitions and alliances.  We believe that these efforts will enable us to meet customer expectations and achieve our goal of supplying, on a timely and cost-effective basis, easy to use, functional human experience semiconductor product solutions to our target markets.\n\n\n2\n\n\n\n\n\u00a0\n\n\nFocus on and Grow in the IoT Market\n \n\n\nWe intend to capitalize on the growth of the IoT market including solutions for smart home and home automation, video delivery over wired and wireless, voice enabled assistants, virtual reality, video interface docking, and wearables.  We intend to build upon our existing innovative and intuitive and intelligent semiconductor product solutions portfolio and continue to address the evolving portability, connectivity, security, and functionality requirements of these new markets.  We will offer our solutions to existing and potential customers to enable increased functionality, reduced size, lower cost, simplified security, enhanced industrial design features, and to enhance the user experience of our OEMs\u2019 products.  We plan to utilize our existing technologies as well as aggressively pursue new technologies as new markets evolve that demand new solutions.\n\n\nPursue Strategic Relationships and Acquisitions\n\n\nWe intend to develop and expand our strategic relationships to enhance our ability to offer value-added semiconductor product solutions to our customers, penetrate new markets, and strengthen the technological leadership of our product solutions.  We also intend to evaluate the potential acquisitions of companies and assets in order to expand our technological expertise and to establish or strengthen our presence in selected target markets.\n \n\n\nFabless Semiconductor Manufacturing\n\n\nWe plan to selectively partner with foundries and backend processors to solidify our longstanding key supply chain relationships.  This strategy results in a scalable business model, enables us to concentrate on our core competencies of research and development and product design and engineering, and reduces our capital expenditures and working capital requirements.  Our fabless semiconductor manufacturing strategy allows us to maintain a variable cost model, in which we do not incur most of our manufacturing costs until our product solutions have been shipped and invoiced to our customers.\n\n\nProducts\n \n\n\nOur family of product solutions allows our customers to solve their interface needs and differentiate their products from those of their competitors.\n\n\n\u00a0\n\n\nVoice Over IP\n\n\nOur Digital Voice Family, or DVF, of SoC products is a comprehensive solution for developing affordable, scalable and power efficient VoIP, home and office products. DVF facilitates rapid introduction of embedded features into residential devices such as cordless IP and instant messaging phones. DVF enables development of low-power enterprise IP, analog terminal adapters, or ATAs, and home VoIP phones that offer superb acoustic echo cancellation, high-quality HD voice, multi-line capabilities, and an enhanced user interface. Built on an open platform with multi-ARM processors running on Linux OS, DVF includes IPfonePro\u0099, an extensive software development kit for IP phones and ATAs.\n\n\n\u00a0\n\n\nDECT Cordless\n\n\nOur Digital Enhanced Cordless Telecommunications, or DECT, SoC solutions provide integrated digital solutions and include all relevant digital baseband, analog interface and RF functionality. Enhanced with our hardware and software technologies, these chipsets are highly versatile and enable the development of an array of cordless telephony solutions that allow for faster time to market than alternative custom silicon and software offerings. This portfolio supports cordless phones, cordless headsets, remote controls, home DECT-enabled gateways, fixed-mobile convergence solutions and home automation devices.\n\n\nUltra-Low Power Edge AI\n\n\nOur ultra-low power edge AI platform includes a highly integrated edge AI SOC designed for battery powered wireless devices equipped with audio or camera capabilities for consumer and industrial IoT applications.  These solutions are designed for a wide range of power constrained IoT applications used in office buildings, retail, factories, warehouses, robotics, and smart homes and cities.\n \n\n\nWireless Connectivity\n \n\n\nOur wireless connectivity solutions include state-of-the-art Wi-Fi, Bluetooth, GPS, GNSS, and ULE to address broad IoT market applications including home automation, multimedia streamers, security sensors, surveillance cameras, wireless speakers, games, drones, printers, wearable and fitness devices, in addition to numerous other applications which require a wireless connection.\n \n\n\n3\n\n\n\n\n\u00a0\n\n\nAudioSmart\u00ae\n \n\n\nAudioSmart products bring forward optimum analog, mixed-signal and digital signal processor, or DSP, technologies for high-fidelity voice and audio processing. Our AudioSmart products include far-field voice technologies that enable accurate voice command recognition from a distance while disregarding other sounds, such as music, in order to activate smart devices such as smart speakers. AudioSmart also includes personal voice and audio solutions for high-performance headsets that enable active noise cancellation.\n \n\n\nConnectSmart\n\u0099\n \n\n\nOur ConnectSmart video interface IC portfolio offers a full range of high-speed video/audio/data connectivity solutions that are designed for linking CPUs/GPUs and various endpoints for applications including PC docking stations, travel docks, dongles, protocol converters and virtual reality head mounted displays.\n \n\n\nDisplayLink\n\u00ae\n\n\nOur DisplayLink products utilize highly efficient video encode/decode algorithms to deliver a semiconductor-based solution which transmits compressed video frames across low bandwidth connections. These solutions are used in PC docking applications, conference room video display systems, and video casting applications.\n\n\nVideoSmart\u0099\n \n\n\nOur VideoSmart series SoCs include CPUs running at up to 40K Dhrystone Million Instructions per Second, gaming-grade Graphics Processing Unit, or GPUs, voice, and neural network processing units, or NPU.  These powerful solutions combine a central processing unit, or CPU, NPU, and GPU, into a single software-enriched SoC. They enable smart multimedia devices including set-top boxes, or STB, over-the-top, or OTT, streaming devices, soundbars, surveillance cameras and smart displays.\n\n\nImagingSmart\n\u0099\n \n\n\nOur ImagingSmart solutions include a product portfolio that spans four distinct product areas including document and photo imaging controllers, digital video, fax, and modem solutions. ImagingSmart products leverage image processing IP, JPEG encoders and DSP technology to deliver a wide range of fax, modem, digital video and printer solutions for home, mobile and imaging applications.\n\n\nNatural ID\n\u00ae\n\n\nOur Natural ID family of capacitive-based fingerprint ID products is designed for use in notebook PCs, PC peripherals, automobiles, and other applications.  Thin form factors provide industrial design flexibility, while robust matching algorithms and anti-spoofing technology provide strong security.  Our Natural ID family of products spans a range of form factors, colors, and materials suitable for design on the front, back or side of a device.\n \n\n\nNatural ID products are designed to be compatible with Fast IDentity Online, or FIDO, protocols, enhancing security and interoperability with a broad range of solutions.  FIDO was formed to enhance online authentication by developing open, scalable technical standards to help facilitate the adoption of robust, easy to use authentication that reduces the reliance on passwords.  Natural ID products increase the security of automobile and PC products while maintaining ease of use for the customer.\n\n\nTouchPad\nTM\n\n\nOur TouchPad family of products, which can take the place of, and exceed the functionality of a mouse, consists of a touch-sensitive pad that senses the position and movement of one or more fingers on its surface through the measurement of capacitance.  Our TouchPad provides an accurate, comfortable, and reliable method for screen navigation, cursor movement, and gestures, and provides a platform for interactive input for both the consumer and corporate markets.  Our TouchPad solutions allow our OEMs to provide stylish, simple, user-friendly, and intuitive solutions to consumers.  Our TouchPad solutions also offer various advanced features, including scrolling, customizable tap zones, tapping and dragging of icons, and device interaction.\n\n\n4\n\n\n\n\n\u00a0\n\n\nSecurePad\nTM\n\n\nOur SecurePad integrates our Natural ID fingerprint sensor directly into the TouchPad area, improving usability and simplifying the supply chain for notebook PC manufacturers.\n\n\nClickPad\nTM\n\n\nOur ClickPad introduces a clickable mechanical design to the TouchPad solution, eliminating the need for physical buttons. The button-less design of our ClickPad allows for unique, intuitive industrial design and makes an excellent alternative to conventional input and navigation devices.  Our ClickPad is activated by pressing down on the internal tact switch to perform left-button or right-button clicks and provides tactile feedback similar to pressing a physical button.  The latest version of ClickPad features ClickEQ\nTM\n, a mechanical solution that provides uniform click depth to maximize the surface area available for gestures and improves click performance over hinged designs.\n\n\nForcePad\u00ae\n\n\nOur ForcePad is a thinner version of our ClickPad, which introduces a new dimension in control through the addition of variable force sensitivity.  ForcePad is designed to provide consistent performance across OEM models through its design intelligence and self-calibration features.  By detecting the amount of force applied, ForcePad is engineered to enable more intuitive and precise user interactions in operating system controls and applications.  Designed with thin and light notebooks in mind, ForcePad is 40% thinner than a conventional touch pad.\n \n\n\nClearPad\n\u00ae\n\n\nOur ClearPad family of products enables the user to interact directly with the display on electronic devices, such as mobile smartphones, tablets, and automobiles.  Our ClearPad has distinct advantages, including low-profile form factor; high reliability, durability, and accuracy; and low power consumption.  We typically sell our ClearPad solution as a chip, together with customer-specific firmware, to sensor manufacturers, OLED manufacturers or LCD manufacturers, to integrate into their touch-enabled products.\n \n\n\nClearView\nTM\n\n\nOur ClearView display driver products offer advanced image processing and low power technology for displays on electronic devices, including smartphones and tablets. ClearView products include adaptive image processing that works in concert with proprietary customization options to enable development of efficient and cost-effective high-performance solutions and faster time to market.  Our display driver products offer automatic regional control of color balance that optimizes light and dark areas of an image simultaneously, and sunlight readability enhancement capabilities that optimize image quality under various lighting conditions.  Our virtual reality bridge and virtual reality display driver integrated circuit, or DDIC, chips enable our customers to move to higher resolution and faster response displays.\n\n\nTouchView\nTM\n\n\nOur TouchView solutions include our TDDI products that combine two functions, a touch controller, and a display driver, into a single chip that incorporates all the features of our ClearView and ClearPad products.  TouchView products enable thinner form factors to help customers minimize component count and add flexibility to their industrial designs.  These products are used in large screen devices, including notebooks and tablets, and are also certified for automotive display applications.\n\n\nOther Products\n\n\nOther product solutions we offer include Dual Pointing Solutions, and TouchStyk\nTM\n.  Our dual pointing solutions offer TouchPad with a pointing stick in a single notebook computer, enabling users to select their interface of choice.  TouchStyk is a self-contained pointing stick module that uses capacitive technology similar to that used in our TouchPad.\n \n\n\nTechnologies\n \n\n\nWe have developed and own an extensive array of technologies, encompassing ASICs, firmware, software, mechanical and electrical designs, display systems, pattern recognition, touch-sensing technologies, fingerprint sensing, voice, audio, imaging, modem, and multimedia technologies.  We continue to develop technology in these areas.  We believe these\n \n\n\n5\n\n\n\n\n\u00a0\n\n\ntechnologies and the related intellectual property rights create barriers for competitors and allow us to provide high-value human experience semiconductor product solutions in a variety of high-growth markets.\n\n\nOur broad line of semiconductor product solutions is currently based upon the following key technologies:\n\n\n\u2022\nProprietary microcontroller technology; \n\n\n\u2022\nProprietary vector co-processor technology;\n\n\n\u2022\nMultimedia processing technology; \n\n\n\u2022\nVoice and audio technology;\n\n\n\u2022\nPattern recognition technology;\n\n\n\u2022\nDeep learning and neural network inferencing technology.\n\n\n\u2022\nMixed-signal integrated circuit technology;\n\n\n\u2022\nWireless connectivity technology;\n\n\n\u2022\nVideo interface and compression technology;\n\n\n\u2022\nImaging and modem technology;\n\n\n\u2022\nCapacitive position and force sensing technology;\n\n\n\u2022\nCapacitive active pen technology;\n\n\n\u2022\nMulti-touch technology; and\n\n\n\u2022\nDisplay systems and circuit technology.\n\n\nIn addition to these technologies, we develop firmware and device driver software that we incorporate into our products, which provide unique and advanced features.  In addition, our ability to integrate all our products to interface with major operating systems provides us with a competitive advantage.\n\n\nProprietary Microcontroller Technology\n.  One example of our microcontroller technology is our proprietary 16-bit microcontroller core that is embedded in the digital portion of our capacitive touch mixed signal ASICs, which is allowing us to optimize our ASICs for position sensing tasks.  Our embedded microcontroller provides great flexibility in customizing our products via firmware, which eliminates the need to design new circuitry for each new application.\n\n\nProprietary Vector Co-Processor Technology.\n  Our vector co-processor technology is designed for use in our ASICs, accompanying either one of our own proprietary microcontroller cores or a commercially available one.  The co-processor boosts an ASIC\u2019s computational performance by efficiently processing vectors of data for a range of mathematical operations.  This allows us to implement more computationally intensive algorithms within our firmware.\n\n\nMultimedia Processing Technology\n.  This technology allows us to create multimedia SoC products for set-top boxes, soundbars, digital personal assistants, smart displays, virtual reality, OTT, audio, and video.  Our video processing technology includes hardware and algorithms to reduce analog and digital noise, convert to different video formats, and enhance color and contrast.  Our products include security and secure encrypt/decrypt technology, including secure boot and hardware root of trust.\n\n\nVoice and Audio Technology.\n  This technology allows us to develop human experience and communication products based on voice and audio interaction.  The technology embodies a broad range of analog and mixed signal circuits expertise and audio signal processing algorithms, including:\n\n\n\u2022\nNoise suppression;\n\n\n\u2022\nAcoustic echo cancellation;\n\n\n\u2022\nActive noise cancellation;\n\n\n\u2022\nTrigger word detection;\n\n\n\u2022\nMid-field and far-field voice processing;\n\n\n6\n\n\n\n\n\u00a0\n\n\n\u2022\nAudio digital signal processor architecture;\n\n\n\u2022\nAudio codecs;\n\n\n\u2022\nAudio post processing;\n\n\n\u2022\nHigh performance audio analog-to-digital converters, or ADCs, and digital-to-analog converters, or DACs;\n\n\n\u2022\nAudio amplifiers;\n\n\n\u2022\nLow power audio processing; \n\n\n\u2022\nSpeaker protection; and\n\n\n\u2022\nProduct acoustic design.\n\n\nPattern Recognition Technology.  \nThis technology is a set of software algorithms and techniques for converting real world data, such as gestures and handwriting, into a digital form that can be recognized and manipulated within a computer.  Our technology provides reliable gesture decoding and handwriting recognition and can be used in other applications such as signature verification for a richer user experience.\n\n\nDeep Learning and Neural Network Inferencing Technology.  \nThis technology allows us to create and train deep neural networks for audio, image processing, video processing and computer vision functions.  Some of our products contain hardware designed to evaluate deep neural networks securely and with low latency.  We also have technology that allows us to compress our trained neural networks for more efficient AI-at-the-edge on our hardware.  These neural network algorithms improve the quality of the sensed data (for example, reduce the noise, or increase the resolution) as well as interpret the sensed data.\n\n\nMixed-Signal Integrated Circuit Technology\n.  This hybrid analog-digital integrated circuit technology combines the power of digital computation with the ability to interface with non-digital, real-world signals, such as the position of a finger or stylus on a surface.  Our patented design techniques permit us to utilize this technology to optimize our core ASIC engine for all our products.  Our mixed-signal technology consists of a broad portfolio of circuit expertise in areas such as the following:\n\n\n\u2022\nHigh-speed serial interfaces;\n\n\n\u2022\nAnalog-to-digital and digital-to-analog converters;\n\n\n\u2022\nElectromagnetic emissions suppression and susceptibility hardening;\n\n\n\u2022\nVery Large Scale Integrated, or VLSI, digital circuits with multiple clock and power domains; \n\n\n\u2022\nCommunications and signal processing circuits;\n\n\n\u2022\nPower management (switching converters, charge pumps, and LDOs);\n\n\n\u2022\nPrecision capacitance measurement;\n\n\n\u2022\nDisplay timing controllers, or TCONs.\n\n\nWireless Technology.  \nOur wireless connectivity solutions include discrete and integrated Wi-Fi and Bluetooth solutions, and satellite-based GPS/GNSS mobile navigation receivers. Wi-Fi allows devices on a local area network to communicate wirelessly, adding the convenience of mobility to the utility of high-speed data networks. We offer a family of high performance, low power Wi-Fi chipsets. We offer products which incorporate the latest Wi-Fi standards such as 802.11AX, which is known as Wifi-6 and Wifi-6E. Bluetooth is a low power technology that enables direct connectivity between devices. We offer a family of Bluetooth silicon and software solutions that enable customers to easily and cost-effectively add Bluetooth functionality to virtually any device, including Bluetooth 6.0 and Bluetooth Enterprise True Wireless Stereo (TWS). These solutions include combination chips that offer integrated Wi-Fi and Bluetooth functionality, which provides significant performance advantages over discrete solutions.\n \n\n\nWe also offer a family of GPS and GNSS semiconductor products, software, and location data services. These products are part of a broad location platform that enable customer devices to wirelessly communicate and receive precise location and navigational data from satellite constellations for use in various location services applications.\n\n\n7\n\n\n\n\n\u00a0\n\n\nAs part of our wireless technology, DECT based devices provide worldwide coverage for telephony applications, supporting most RF bands and cordless protocols standardized around the world.  This includes 1.7GHz -1.9GHz used in Europe, U.S., Korea, Japan and Latin America; and 2.4GHz \u2013 used in Japan, China, India and the U.S., along with other proprietary protocols for specific use cases.\n\n\nVideo Compression Technology\n.  Our video interface solutions include our ConnectSmart and DisplayLink portfolios, offering a full range of interface solutions that connect devices to external displays and support the latest versions of the most widely used protocols, connectors, and operating systems. Our flexible product lines for connecting devices combine high-performance interface with low power consumption and are designed for both commercial and consumer end-products. Our solutions have been broadly adopted by the top OEMs and original device manufacturers, or ODMs, to enable video expansion and protocol conversion, leverage high-end features, and deliver the bandwidth needed to drive multiple high-resolution external displays simultaneously.\n\n\nImaging and Modem Technology\n.  This technology allows us to create a family of SoC integrated circuits and software for printers, video cameras, fax machines and modems.  Key functional blocks include:\n\n\n\u2022\nImage processing hardware accelerators;\n\n\n\u2022\nPrinter imaging pipeline;\n\n\n\u2022\nInkjet, laser, and thermal print engine and motor control;\n\n\n\u2022\nScan/camera and peripheral control; and\n\n\n\u2022\nData and fax modem hardware and firmware.\n\n\nCapacitive Fingerprint Sensing Technology\n.  Our fingerprint sensing technology simplifies the system or application authentication process by substituting the user\u2019s fingerprint for the login name and password. Our capacitive fingerprint sensing technology provides for fingerprint authentication by scanning and matching an image of a user\u2019s fingerprint, as well as initial fingerprint enrollment.  Our sensing technology also incorporates spoof detection and includes many implementation choices including the back of the phone or PC, button integration, touchpad integration, and under glass.\n\n\nCapacitive Position and Force Sensing Technology\n.  Our Position Sensing technology provides a method for sensing the presence, position, and contact area of one or more fingers or a stylus on a flat or curved surface.  Our technology works with very light touch, supports full multi-touch capabilities, and provides highly responsive cursor navigation, scrolling, and selection.  It uses no moving parts, can be implemented under plastic or glass, and is extremely durable.  Our technology can also track one or more fingers in proximity to the touch surface. Our Force Sensing technology senses the direction and magnitude of a force applied to an object.  Our electronic circuitry determines the magnitude and direction of an applied force, permits very accurate sensing of tiny changes in capacitance, and minimizes electrical interference from other sources.  Our capacitive force sensing technology can be integrated with our position sensing technology.\n\n\nCapacitive Active Pen Technology\n.  This technology allows us to develop a pen that can be used for input on a capacitive touchscreen.  As well as generating a signal that allows the touchscreen to track the pen, additional data, such as the pen applied force and pen button states, are also communicated to the touchscreen device.  Information can also be communicated from the touchscreen to the pen.\n\n\nMulti-touch Technology.  \nThis technology allows us to create capacitive touch products that simultaneously track the presence, position, and other characteristics of multiple objects in contact with or in close proximity to a flat or curved touch surface.  It enables, for example, the recognition of multi-finger gestures, the tracking of a stylus position while the user\u2019s palm is also in contact with the touch surface, and the simultaneous interaction of multiple users with the same touch surface.\n\n\nDisplay Systems and Circuit Technology\n.  This technology enables us to develop optimized human experience semiconductor product solutions with improved compatibility with their application environments. This technology consists of mobile and large format display semiconductor expertise, including the following functional blocks:\n\n\n\u2022\nTCONs;\n\n\n\u2022\nThin-Film-Transistor, or TFT, gamma references;\n\n\n\u2022\nSmooth dimming and content adaptive brightness control;\n\n\n\u2022\nContrast enhancement;\n\n\n8\n\n\n\n\n\u00a0\n\n\n\u2022\nColor enhancement;\n\n\n\u2022\nGamma curve control;\n\n\n\u2022\nForce, touch, and display synchronization;\n\n\n\u2022\nLocal area active contrast optimization;\n\n\n\u2022\nAdaptive image compression and decompression;\n\n\n\u2022\nSub-pixel rendering;\n\n\n\u2022\nDemura compensation;\n\n\n\u2022\nRounded corner processing;\n\n\n\u2022\nFrame rate control;\n\n\n\u2022\nHigh-speed serial interfaces such as mobile industry processor interface display serial interface, or MIPI DSI, and Qualcomm mobile display digital interface, or MDDI; and\n\n\n\u2022\nDisplay power circuits such as inductive switchers, charge pumps, and LDOs.\n\n\nThis technology also enables us to develop advanced products that combine the functions of the display and touch sensing systems to enable highly integrated display and touch functionality with improved performance, thinner form factors, and lower system cost.\n\n\nOur latest addition to our automotive portfolio is an automotive-grade TDDI for indium gallium zinc oxide and amorphous silicon gate-in-panel displays and low-temperature polycrystalline panels up to 4K resolution.\n \n\n\nResearch and Development\n\n\nWe conduct ongoing research and development programs that focus on advancing our existing technologies, improving our current product solutions, developing new products, improving design and manufacturing processes, enhancing the quality and performance of our product solutions, and expanding our technologies to serve new markets.  Our goal is to provide our customers with innovative solutions that address their needs and improve their competitive positions.\n \n\n\nOur research and development programs focus on the development of accurate, easy to use, reliable, and intuitive human experiences for electronic devices.  We believe our innovative interface technologies can be applied to many diverse products, and we believe the interface is a key factor in the differentiation of many products.  AI-at-the-edge is a focus area for us in enabling better performance and enhancing user experience in many of these products.  We believe that our technologies enable us to provide customers with product solutions that have significant advantages over alternative technologies in terms of functionality, size, power consumption, durability, and reliability.  We also intend to pursue strategic relationships and acquisitions to enhance our research and development capabilities, leverage our technology, and shorten our time to market with new technological applications.\n\n\nOur research, design, and engineering teams frequently work directly with our customers to design custom solutions for specific applications.  We focus on enabling our customers to overcome their technical barriers and enhance the performance of their products.  We believe our engineering know-how and electronic systems expertise provide significant benefits to our customers by enabling them to concentrate on their core competencies of production and marketing.\n\n\nAs of the end of fiscal 2023, we employed 1,416 people in our technology, engineering, and product design functions in the United States, China, Taiwan, Japan, Israel, the United Kingdom, India, Germany, Poland, and Korea.\n \n\n\nIntellectual Property Rights\n\n\nOur success and ability to compete depend in part on our ability to maintain the proprietary aspects of our technologies and products.  We rely on a combination of patents, trademarks, trade secrets, copyrights, confidentiality agreements, and other statutory and contractual provisions to protect our intellectual property, but these measures may provide only limited protection.\n \n\n\nAs of June 2023, we held 2,583 active patents and 569 pending patent applications worldwide that expire between 2023 and 2043.  Collectively, these patents and patent applications cover various aspects of our key technologies, including those\n \n\n\n9\n\n\n\n\n\u00a0\n\n\nfor touch sensing, voice processing, secure biometrics, display drivers, touch and display integration, docks and adapters, video interfaces, wired and wireless connectivity, audio processing, video processing, edge computing, open AI tools, and computer vision.  Our proprietary firmware and software, including source code, are also protected by copyright laws and applicable trade secret laws.\n \n\n\nOur extensive array of technologies includes those related to ICs, firmware, software, and mechanical hardware.  Our products rely on a combination of these technologies, making it difficult to use any single technology as the basis for replicating our products.  Furthermore, the lengths of our customers\u2019 design cycles and the customizations required within the products we provide to our customers also serve to protect our intellectual property rights.\n\n\nCustomers\n\n\nOur customers include many of the world\u2019s largest mobile and PC OEMs, based on unit shipments, as well as many large IoT OEMs, automotive manufacturers and a variety of consumer electronics manufacturers.  Our demonstrated track record of technological leadership, design innovation, product performance, cost-effectiveness, and on-time deliveries have resulted in our leadership position in providing human experience semiconductor product solutions.  We believe our strong relationship with our OEM customers, many of which are also currently developing product solutions which are focused in several of our target markets, will continue to position us as a source of supply for their product offerings.\n\n\nWe generally supply our products to OEMs through their contract manufacturers, supply chain or distributors. We consider both the OEMs and their contract manufacturers or supply chain partners to be our customers, as well as in some cases, our distributors.  Both the OEMs and their partners may determine the design and pricing requirements and make the overall decision regarding the use of our human experience semiconductor product solutions in their products.  The contract manufacturers and distributors place orders with us for the purchase of our products, take title to the products purchased upon delivery by us, and pay us directly for those purchases.  The majority of these customers do not have return rights except for warranty provisions.\n\n\nSales and Marketing\n\n\nWe sell our product solutions for incorporation into the products of our OEM customers.  We generate sales through direct sales employees as well as outside sales representatives, distributors and value-added resellers.  Our sales personnel receive substantial technical assistance and support from our internal technical marketing and engineering resources because of the highly technical nature of our product solutions.  Sales frequently result from multi-level sales efforts that involve senior management, design engineers, and our sales personnel interacting with our customers' decision makers throughout the product development and order process.\n\n\nAs of the end of fiscal 2023, we employed 399 sales and marketing professionals.  We maintain customer support offices domestically and internationally, which are located in the U.S., Taiwan, China, India, Korea, Japan, United Kingdom and Switzerland.  In addition, we utilize value-added resellers and sales distributors that are primarily located in the U.S., China, Korea, Japan, Taiwan and Germany.\n\n\nInternational sales constituted nearly all of our revenue for each of fiscal 2023, 2022, and 2021. Approximately 63%, 66% and 68% of our sales in fiscal 2023, 2022 and 2021, respectively, were made to companies located in China and Taiwan that provide design and manufacturing services for major IoT, notebook computer, and mobile product applications OEMs.  Our sales are almost exclusively denominated in U.S. dollars.  This information should be read in conjunction with Note 15 Segment, Customers, and Geographic Information to the consolidated financial statements contained elsewhere in this report.\n\n\nManufacturing\n\n\nWe employ a fabless semiconductor manufacturing platform through third-party relationships.  We currently utilize third-party semiconductor wafer manufacturers to supply us with silicon wafers integrating our proprietary design specifications.  The completed silicon wafers are forwarded to third-party package and test processors for further processing into die and packaged ASICs, as applicable, which are then utilized in our custom module products or processed as our ASIC-based solution.\n\n\nAfter processing and testing, the die and ASICs are consigned to various contract manufacturers for assembly or are shipped directly to our customers.  During the assembly process, our die or ASIC is either combined with other components to complete the module for our custom product solutions or the ASIC is maintained as a standalone finished good.  The finished assembled product is subsequently shipped directly to our customers or by our contract manufacturers directly to our customers for integration into their products.\n\n\n10\n\n\n\n\n\u00a0\n\n\nWe believe our third-party manufacturing strategy provides a scalable business model, enables us to concentrate on our core competencies of research and development, technological advances, and product design and engineering, and reduces our capital investment.\n \n\n\nOur third-party contract manufacturers and semiconductor fabricators are predominately Asia-based organizations. We generally provide our contract manufacturers with six-month rolling forecasts of our production requirements.  As a result of recent supply constraints and capacity shortages affecting the global semiconductor industry, we have entered into long-term capacity and pricing agreements with some suppliers.  Our reliance on these parties exposes us to vulnerability owing to our dependence on a few sources of supply.  In some cases, we have alternative sources of suppliers to mitigate supplier risk; however, in the current environment, all of them could be constrained.  We may establish relationships with other contract manufacturers in order to reduce our dependence on any single source of supply.\n\n\nPeriodically, we purchase inventory from our contract manufacturers when a customer delays its delivery schedule or cancels its order.  In those circumstances in which our customer has cancelled its order and we purchase inventory from our contract manufacturers, we consider a write-down to reduce the carrying value of the inventory purchased to its net realizable value. We charge write-downs to reduce the carrying value of obsolete, slow moving, and non-usable inventory to its net realizable value and charge such write-downs to cost of revenue.  We also record a liability and charge to cost of revenue for estimated losses on inventory we are obligated to purchase from our contract manufacturers when such losses become probable from customer delays or order cancellations.  In addition, the impact of entering into long-term capacity agreements could create significant inventory write-down if the end customer demand substantially declines.\n\n\nCompetition\n\n\nIoT\n\n\nOur diverse SoC solutions integrate artificial intelligence hardware engines, video processing, far-field voice and linguistics processing products and are sold into market segments that offer significant potential growth, ranging from home automation applications, smart assistant platforms, surveillance cameras, to set-top-box/over-the-top, or STB/OTT platforms to a wide variety of embedded products in the broader IoT market. The markets for STB/OTT products, surveillance cameras, home automation, smart assistant solutions and embedded IoT products require strong technology innovation in silicon and software along with deep systems and systems engineering expertise. Our principal competition in these markets include Broadcom, MediaTek, NXP, AmLogic, and Ambarella, among others.\n \n\n\nWe provide voice processing silicon and software solutions for voice-enabled devices, consumer and commercial imaging, and next-generation audio applications. In addition to our voice solutions, we support the audio headphone and virtual reality head mounted display industry with universal serial bus-c, or USB-C, audio codec solutions for next generation wireless audio devices and wearables. Our competitors in the sale of audio products include Cirrus Logic, BES Technic, Realtek, and Qualcomm.\n \n\n\nOur wireless products for use in IoT application markets include our technologies such as Wi-Fi, Bluetooth, Wi-Fi-Bluetooth combinations, and GPS/GNSS support our customers\u2019 need to develop products which can wirelessly communicate to networks, remote control of edge-devices, machine-to-machine communication, among other purposes.  Our principal competition includes Infineon, Qualcomm, MediaTek, NXP, and Silicon Labs, among others.\n\n\nOur automotive products include touch, display driver, SmartBridge, and TDDI solutions for major automotive OEMs.  Our principal competitors for these products include Focaltech, Himax, Novatek Microelectronics and Microchip.  Our IoT video interface products are sold into PC and smartphone docks and wireless adapter market applications. Our principal competitors in the sale of IoT interface products are Parade, Megachips, and Realtek.\n \n\n\nWe also provide fax, modem and image processors and software solutions for printers, fax machines, point of sale terminals, and medical applications. Our principal competitors in these markets are Skyworks, Marvell, and Qbit.\n\n\nPC and Mobile\n\n\nOur touch, display and fingerprint-based semiconductor products are sold into markets for PC product applications, mobile product applications, and other electronic devices.  The markets for touchscreen products are characterized by rapidly changing technology and intense competition.  Our principal competition in the sale of touchscreen products includes Broadcom, Goodix, Focaltech, ST Micro and various other companies involved in human experience semiconductor product solutions.  Our principal competitors in the sale of notebook touch pads are Cirque Corporation, Elan Microelectronics and Goodix. Our principal competitors in the sale of display driver products for mobile product applications market include Novatek Microelectronics, Samsung LSI, LX Semicon and Raydium. Our principal competitors in the sale of display driver products for virtual reality applications market include Novatek Microelectronics and Samsung LSI Our principal competitors in the sale of fingerprint authentication solutions for PC product applications markets are Egis Technology, Elan Microelectronics, and Goodix.\n \n\n\n11\n\n\n\n\n\u00a0\n\n\nCorporate Social Responsibility\n\n\nWe strive to be a leading corporate citizen.  We uphold the most ethical standards in our business practices and policies, and we believe that sustainable corporate practices and consistent attention to social and governance priorities will help enhance long-term value for our stockholders. With guidance from our Board of Directors, our management team applies an integrated methodology to financial matters, corporate governance, and corporate responsibility, leading to increased accountability, better decision making and ultimately enhanced long-term value. This focus on the environment, social, and governance, or ESG, influences the way we consider our business goals and strategies.\n\n\nEnvironmental\n\n\nIn the last several years, we have improved our internal and external policies, better aligning our corporate actions with our commitment to a greener planet.  We have implemented internal green programs and initiatives to reinforce our commitment to minimizing natural resource consumption, improving sustainability, disposing of end-of-life products in an environmentally safe manner, reducing waste, and increasing reuse and recycling programs company-wide.  In addition, we recently completed a comprehensive review of Scope 3 GHG emissions across our Company.\n\n\nWe participate in the Climate Disclosure Program (CDP) and have also implemented a Supplier environmental conservation program.  We have set specific goals to reduce Scope 1 and Scope 2 GHG emissions, increase the use of renewable energy, and reduce waste generation at our facilities. These goals can be found on our website at \nwww.synaptics.com/corporate-environmental-policy\n. Our climate change management currently involves a focus on education, increasing internal awareness of climate change mitigation and impact reduction through on-going training and internal education.\n\n\nOur Chief Information Officer, or CIO, also acts as our Chief Sustainability Officer and has responsibility for our Global Workplace Resources function and executes our climate strategy and related issues. The CIO is responsible for assessing and leading the management of climate-related risks and opportunities, elevating stakeholder concerns and guiding the implementation of climate-related policies, programs and disclosures.  As a member of our senior executive team, the CIO is responsible for elevating climate topics to senior leadership and, ultimately, to the Board\u2019s Nominations and Corporate Governance Committee and Audit Committee.\n \n\n\nSocial\n\n\nOur employees and communities are the heart of our company, and we take pride in our social responsibility to them as well becoming better global citizens. We support our local communities through charitable causes and events, and we have numerous programs in place around the world that promote our commitments to diversity, equality of opportunity, non-discrimination, and the highest standards of human rights.\n \n\n\nWe support and contribute toward educational programs with the intent to help reduce social and economic inequalities.  Our employees are passionate about their communities, and we support global causes that they care about and volunteer toward.\n \n\n\nWe are committed to the use of a socially responsible supply chain.  We have adopted a supplier and vendor code of conduct, and businesses in our supply chain are contractually obligated to comply with and support the Responsible Business Alliance (RBA) Code of Conduct.  We expect suppliers and vendors to uphold the highest standards of human rights including anti-discrimination and humane treatment, freedom of association and collective bargaining, prevention of child labor, limits on working hours, minimum fair and living wage, worker feedback and grievance systems.  We expect suppliers to exercise due diligence on relevant minerals in their supply chains and to have a policy to reasonably assure that the tantalum, tin, tungsten, and gold in the products they manufacture does not directly or indirectly finance or benefit armed groups that perpetrate serious human rights abuses in the Democratic Republic of the Congo or an adjoining country. Our vendors and suppliers are also required to obtain and maintain all required health and safety permits, provide reasonable working and living conditions, have incident management systems and emergency preparedness and response protocols.\n\n\nGovernance\n\n\nWe are dedicated to supporting leading corporate governance and board practices to ensure oversight accountability and transparency in our business practices. We place a high value on ethical actions, individual integrity, and fair dealing in every aspect of what we do.  Our Board of Directors is responsible for overseeing our ESG policies and practices generally.  The Nominations and Corporate Governance Committee has oversight of ESG strategy and receives regular updates from management on our ESG performance.  The Audit Committee provides oversight of business risks and our company\u2019s Code of Business Conduct and Ethics.  Our Board of Directors receives periodic updates from Nominations and Corporate Governance Committee and management on our ESG performance.\n \n\n\nAccountability\n\n\nOur Board of Directors and management are strongly committed to our corporate responsibility policies and will continue to regularly evaluate these policies to ensure an effective outcome and strict adherence by our employees, suppliers, vendors, and partners.  We actively monitor and evaluate our internal compliance with our Code of Conduct and other corporate social responsibility policies and programs.\n\n\n12\n\n\n\n\n\u00a0\n\n\nHuman Capital\n\n\nOur company has been built on the collective contributions from people of many countries, religions, and ethnic backgrounds. People are our most critical asset and are the core component behind our success. We want to attract, develop, and retain the world\u2019s best talent.\n\n\nCompetition for talent in our industry is extremely intense. Our human resource strategy and programs are focused on attracting, engaging, developing and retaining this talent.  We believe our company attributes differentiate us and, in part, allow us to consistently retain our employees throughout fiscal year 2023, as our attrition rate continues to be lower than benchmark data. Our employee average tenure globally is 7.6 years.\n\n\nOur Board of Directors and Board committees provide oversight on certain workforce management matters including, among other aspects, management depth and strength assessment, diversity, equity, inclusion and belonging, and our employee survey results. The Audit Committee\u2019s oversight of business risks and our company\u2019s Code of Business Conduct and Ethics is relevant to human capital management. The Nominations and Corporate Governance Committee\u2019s oversight of ESG strategy includes talent attraction and retention and inclusion and diversity. The Compensation Committee provides oversight of our overall compensation philosophy, policies, and programs, and assesses whether our compensation establishes appropriate incentives for executive officers and other employees.\n\n\nAs of June 24, 2023, we employed 1,891 employees. Our workforce is distributed globally across 16 countries with 23% of our employees located in North America, 60% located in Asia Pacific and 17% located in Europe and the Middle East, or EMEA.\n\n\nCompetitive Compensation and Benefits\n\n\nWe provide competitive benefits related to health, wellness, mental health and family resources designed to meet the needs of our diverse global workforce. We have a robust pay for performance philosophy and compensation framework to reward high performance. We align executive compensation with our corporate strategies, business objectives and the creation of long-term value for our stockholders without encouraging unnecessary or excessive risk-taking.\n\n\nEngagement and Development\n\n\nWe strive to create exceptional employee experiences. Our focus is on creating a space for employees to do their best work and feel valued and engaged. As part of our dedication to and investment in our employees, we conduct organizational health surveys designed to assess employee engagement, leadership, work environment, and culture.\n\n\nEmployees have various opportunities to learn though technical, compliance and other professional trainings.  We offer career advancement opportunities to our employees and are focused on leadership development.  Investing in our employees and their professional development is a priority for our company.\n\n\nDiversity, Equity, Inclusion and Belonging\n\n\nWe embrace diversity and inclusion and strive to provide a rich environment with diverse skills, backgrounds and perspectives.  We strongly believe diverse teams are more innovative and productive. Our goal is to cultivate an environment that not only allows for, but also encourages, everyone to collaborate and participate equally to foster individual and company growth.  As of June 2023, 20% of global employees and 38% of our board of directors identified as female. We are committed to diversity, equity and inclusion.  Fiscal 2023 was a year of program development and growth around this topic including a comprehensive internal assessment, internal communications campaign, several diversity, equity, inclusion, and belonging events, and employee resource group development.\n\n\nCommunity Impact\n\n\nWe believe in giving back to the communities where our employees live and work. We provide opportunities for employees to donate or volunteer their time through various programs and charitable events. Our employees regularly participate in events focused on youth and underrepresented communities.\n\n\n13\n\n\n\n\n\u00a0\n\n\nInformation about our Executive Officers\n \n\n\nThe following table sets forth certain information regarding our executive officers as of August 11, 2023:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nName\n\n\n\u00a0\n\n\n\u00a0\n\n\nAge\n\n\n\u00a0\n\n\nPosition\n\n\n\n\n\n\nMichael Hurlston\n\n\n\u00a0\n\n\n56\n\n\n\u00a0\n\n\nPresident and Chief Executive Officer\n\n\n\n\n\n\nDean Butler\n\n\n\u00a0\n\n\n41\n\n\n\u00a0\n\n\nChief Financial Officer\n\n\n\n\n\n\nSaleel Awsare\n\n\n\u00a0\n\n\n58\n\n\n\u00a0\n\n\nSenior Vice President and General Manager, PC & Peripherals Divisions\n\n\n\n\n\n\nJohn McFarland\n\n\n\u00a0\n\n\n56\n\n\n\u00a0\n\n\nSenior Vice President, General Counsel and Secretary\n\n\n\n\n\n\nVikram Gupta\n\n\n\u00a0\n\n\n54\n\n\n\u00a0\n\n\nSenior Vice President and General Manager, IoT Processors and Chief Product Officer\n\n\n\n\n\n\nMichael Hurlston \nhas been the President and Chief Executive Officer of our company since August 19, 2019. Prior to joining our company, Mr. Hurlston served as the Chief Executive Officer and a member of the Board of Directors of Finisar Corporation (\u201cFinisar\u201d) from January 2018 to August 2019. Prior to joining Finisar, he served as Senior Vice President and General Manager of the Mobile Connectivity Products/Wireless Communications and Connectivity Division and held senior leadership positions in sales, marketing, and general management at Broadcom Limited (\u201cBroadcom\u201d) and its predecessor corporation from November 2001 through October 2017. Prior to joining Broadcom in 2001, Mr. Hurlston held senior marketing and engineering positions at Oren Semiconductor, Inc., Avasem, Integrated Circuit Systems, Micro Power Systems, Exar and IC Works from 1991 until 2001. Mr. Hurlston is a member of the board of directors of Flex Ltd.  Mr. Hurlston serves on the Board of Executive Trustees of the UC Davis Foundation and on the Dean\u2019s Executive Committee for the College of Engineering and the Dean\u2019s Advisory Counsel for the Graduate School of Management at the University of California, Davis.  Mr. Hurlston holds Bachelor of Science and Master of Science degrees in Electrical Engineering and a Master of Business Administration degree from the University of California, Davis.\n \n\n\nDean Butler \nhas been the Chief Financial Officer of our company since October 21, 2019. Prior to joining our company, Mr. Butler served as Vice President of Finance at Marvell Technology Inc. (\u201cMarvell\u201d) from July 2016 to October 2019. Prior to joining Marvell, he served as Controller of the Ethernet Switching Division at Broadcom from January 2015 through July 2016. Prior to joining Broadcom, Mr. Butler held senior finance positions at Maxim Integrated from May 2007 to December 2014. Mr. Butler holds a Bachelor of Business Administration degree in Finance from the University of Minnesota Duluth.\n\n\nSaleel Awsare \nhas been the Senior Vice President and General Manager of our PC and Peripherals unit since July 2020. Previously, Mr. Awsare was the Senior Vice President and General Manager of our IoT Division from April 2019 to July 2020 and the Senior Vice President of Corporate Marketing & Investor Relations from December 2018 until April 2019. Prior to joining our company as Corporate Vice President and General Manager of Audio & Imaging Products in July 2017, he was President of Conexant Systems, LLC (\u201cConexant\u201d) from March 2016 to July 2017, and Senior Vice President & General Manager of Audio & Imaging from April 2012 to March 2016. Synaptics acquired Conexant in July 2017. Prior to joining Conexant, Mr. Awsare served as President of Nuvoton Technology Corporation's (\u201cNuvoton\u201d) U.S. operations and General Manager of Nuvoton\u2019s audio and voice divisions from December 2008 to March 2012. Prior to joining Nuvoton, Mr. Awsare was the Executive Vice President and General Manager of mixed signal products for Winbond Electronics Corporation America (\u201cWinbond\u201d). Prior to joining Winbond, Mr. Awsare was a director of engineering for Information Storage Devices. Mr. Awsare is a member of the Board of Trustees of Stevens Institute of Technology. Mr. Awsare holds a Bachelor of Science degree in Electrical Engineering from Stevens Institute of Technology and a Master of Science degree in Engineering Management from Santa Clara University.\n\n\nVikram Gupta\n has been the SVP and GM of IoT Processors and Chief Product Officer since January 2023. Prior to joining Synaptics, Mr. Gupta was the SVP and GM of IoT Compute and Wireless Business Lines for Infineon Technologies, where he led the integration and transformation efforts for the $1B+ multi-site business with three product lines following Infineon\u2019s acquisition of Cypress Semiconductor, where he served as VP of Engineering of the IoT Business Unit. Prior to Cypress Semiconductor, Mr. Gupta navigated a progressive tenure with Broadcom, advancing in leadership and responsibility across both engineering and business. Earlier in his career he was a co-founder of Zeevo, a developer of system-on-chip solutions for Bluetooth and other wireless communications applications, which was ultimately purchased by Broadcom. He holds a Bachelor\u2019s Degree in Electrical and Electronics Engineering from Birla Institute of Technology & Science in India and a Master\u2019s Degree in Electrical Engineering from the University of Hawaii at Manoa.\n\n\nJohn McFarland \nhas been the Senior Vice President, General Counsel and Secretary of our company since November 2013. Prior to joining our company, Mr. McFarland served for nine years as the Executive Vice President, General Counsel and Secretary of Magnachip Semiconductor. Mr. McFarland spent his early career at law firms in Palo Alto, California, and\n \n\n\n14\n\n\n\n\n\u00a0\n\n\nSeoul, Korea. Mr. McFarland holds a Bachelor of Arts degree in Asian Studies, conferred with highest distinction from the University of Michigan, and a Juris Doctor degree from the University of California, Los Angeles, School of Law.\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A.\tRI\nSK FACTORS\n\n\nYou should carefully consider the following factors, together with all the other information included in this report, in evaluating our company and our business.\n\n\nRisks Related to Our Markets and Customers\n\n\nWe currently depend on our solutions for the IoT, PC, and mobile product applications markets for a substantial portion of our revenue, and any downturn in sales of these products would adversely affect our business, revenue, operating results, and financial condition.\n\n\nWe currently depend on our solutions for the IoT, PC, and mobile product applications markets for a substantial portion of our revenue. Any downturn in sales of our products into any of these markets would adversely affect our business, revenue, operating results, and financial condition.  Similarly, a softening of demand in any of these markets, or a slowdown of growth in any of these markets because of changes in customer preferences, the emergence of applications not including our solutions, or other factors would cause our business, operating results, and financial position to suffer.\n\n\nA significant portion of our sales comes from one or more large customers, the loss of which could harm our business, financial condition, and operating results.\n\n\nHistorically, we have relied on a limited number of customers for a substantial portion of our total revenue. If we lost key customers, or if key customers reduced or stopped placing orders for our high-volume products, our financial results could be adversely affected. Sales to one direct customer accounted for 10% or more of our net revenue in fiscal 2023.  During fiscal 2023, we had five OEM customers that integrated our products into their products representing approximately 37% of our revenue; we sold to these customers primarily indirectly through multiple distributors. Significant reductions in sales to our largest customers, the loss of other major customers, or a general decrease in demand for our products within a short period of time could adversely affect our revenue, financial condition, and business.\n\n\nWe sell to contract manufacturers that serve our OEM customers.  Any material delay, cancellation, or reduction of orders from any one or more of these contract manufacturers or the OEMs they serve could harm our business, financial condition, and operating results.  The adverse effect could be more substantial if our other customers do not increase their orders or if we are unsuccessful in generating orders for our solutions with new customers.  Many of these contract manufacturers sell to the same OEMs, and therefore our concentration with certain OEMs may be higher than with any individual contract manufacturer.  Concentration in our customer base may make fluctuations in revenue and earnings more severe and make business planning more difficult.\n\n\n\u00a0\n\n\nWe face risks related to recessions, inflation, stagflation\n \nand other macroeconomic conditions\n\n\nCustomer demand for our products may be impacted by weak macroeconomic conditions, inflation, stagflation, recessionary or lower-growth environments, rising interest rates, equity market volatility or other negative economic factors in the U.S. or other nations. For example, under these conditions or expectation of such conditions, our customers may cancel orders, delay purchasing decisions or reduce their use of our services. In addition, these economic conditions could result in higher inventory levels and the possibility of resulting excess capacity charges from our manufacturing partners if we need to slow production to reduce inventory levels. Further, in the event of a recession or threat of a recession, our manufacturing partners, suppliers, distributors, and other third-party partners may suffer their own financial and economic challenges, and as a result they may demand pricing accommodations, delay payment, or become insolvent, which could harm our ability to meet our customer demands or collect revenue or otherwise harm our business. Similarly, disruptions in financial and/or credit markets may impact our ability to manage normal commercial relationships with our manufacturing partners, customers, suppliers and creditors and might prevent us from accessing preferred sources of liquidity, and causing our borrowing costs to potentially increase. Thus, if general macroeconomic conditions, conditions in the semiconductor industry, or conditions in our customer end markets continue to deteriorate or experience a sustained period of weakness or slower growth, our business and financial results could be materially and adversely affected.\n\n\nIn addition, we are subject to risk from inflation and increasing market prices of certain components and supplies, which are incorporated into our end products or used by our manufacturing partners or suppliers to manufacture our end products. These components and supplies have, from time-to-time, become restricted.  Additionally, general market factors and conditions have in the past, and may in the future, affect pricing of such components and supplies (such as inflation or supply\n \n\n\n16\n\n\n\n\n\u00a0\n\n\nchain constraints). See also, \u201cOur gross margin and results of operations may be adversely affected in the future by a number of factors, including decreases in our average selling prices of products over time, shifts in our product mix, or price increases of certain components or third-party services due to inflation, supply chain constraints, or for other reasons.\u201d\n\n\nWe are exposed to industry downturns and cyclicality in our target markets that may result in fluctuations in our operating results.\n\n\nThe consumer electronics industry has experienced significant economic downturns at various times.  These downturns are characterized by diminished product demand, accelerated erosion of average selling prices, production overcapacity, and increased inventory and credit risk.  In addition, the consumer electronics industry is cyclical in nature.  We seek to reduce our exposure to industry downturns and cyclicality by providing design and production services for leading companies in rapidly expanding industry segments.  We may, however, experience substantial period-to-period fluctuations in future operating results because of general industry conditions or events occurring in the general economy.\n\n\nWe cannot assure you that our product solutions for new markets will be successful or that we will be able to continue to generate significant revenue from these markets.\n\n\nOur product solutions may not be successful in new markets. Various target markets for our product solutions, such as IoT, may develop slower than anticipated or could utilize competing technologies.  The markets for certain of these products depend in part upon the continued development and deployment of wireless and other technologies, which may or may not address the needs of the users of these products.\n\n\nOur ability to generate significant revenue from new markets will depend on various factors, including the following:\n\n\n\u2022\nthe development and growth of these markets;\n\n\n\u2022\nthe ability of our technologies and product solutions to address the needs of these markets, the price and performance requirements of OEMs, and the preferences of end users; and\n\n\n\u2022\nour ability to provide OEMs with solutions that provide advantages in terms of size, power consumption, reliability, durability, performance, and value-added features compared with alternative solutions.\n\n\nMany manufacturers of these products have well-established relationships with competitive suppliers.  Our ongoing success in these markets will require us to offer better performance alternatives to other solutions at competitive costs.  The failure of any of these target markets to develop as we expect, or our failure to serve these markets to a significant extent, will impede our sales growth and could result in substantially reduced earnings and a restructuring of our operations.  We cannot predict the size or growth rate of these markets or the market share we will achieve or maintain in these markets in the future.\n\n\nIf we fail to maintain and build relationships with our customers, or our customers\u2019 products that utilize our solutions do not gain widespread market acceptance, our revenue may stagnate or decline.\n\n\nWe do not sell any products to end users and we do not control or influence the manufacture, promotion, distribution, or pricing of the products that incorporate our solutions.  Instead, we design various solutions that our OEM customers incorporate into their products, and we depend on such OEM customers to successfully manufacture and distribute products incorporating our solutions and to generate consumer demand through marketing and promotional activities.  As a result of this, our success depends almost entirely upon the widespread market acceptance of our OEM customers\u2019 products that incorporate our solutions.  Even if our technologies successfully meet our customers' price and performance goals, our sales could decline or fail to develop if our customers do not achieve commercial success in selling their products that incorporate our solutions.\n\n\nWe must maintain our relationships with our existing customers and expand our relationships with OEMs in new markets. Our customers generally do not provide us with firm, long-term volume purchase commitments, opting instead to issue purchase orders that they can cancel, reduce, or delay, subject to certain limitations.  In order to meet the expectations of our customers, we must provide innovative solutions on a timely and cost-effective basis. This requires us to match our design and production capacity with customer demand, maintain satisfactory delivery schedules, and meet performance goals.  If we are unable to achieve these goals for any reason, our sales may decline or fail to develop, which would result in decreasing revenue.\n\n\nIn addition to maintaining and expanding our customer relationships, we must also identify areas of significant growth potential in other markets, establish relationships with OEMs in those markets, and assist those OEMs in developing products that incorporate our solutions.  Our failure to identify potential growth opportunities in the markets in which we operate, particularly in the IoT market, or our failure to establish and maintain relationships with OEMs in those markets, would prevent our business from growing in those markets.\n\n\n17\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nOur gross margin and results of operations may be adversely affected in the future by a number of factors, including decreases in our average selling prices of products over time, shifts in our product mix, or price increases of certain components or third-party services due to inflation, supply chain constraints, or other reasons.\n\n\nWe expect that the average unit selling prices of our products will continue to be subject to significant pricing pressures. In addition, our more recently introduced products tend to have higher associated costs because of initial overall development and production expenses. Therefore, over time, we may not be able to maintain or improve our gross margins. Our financial results could suffer if we are unable to offset any reductions in our average selling prices by other cost reductions through efficiencies, introduction of higher margin products and other means.\n\n\nTo attract new customers or retain existing customers, we may offer certain price concessions to certain customers, which could cause our average selling prices and gross margins to decline. In the past, we have reduced the average selling prices of our products in anticipation of future competitive pricing pressures, new product introductions by us or by our competitors and other factors. We expect to continue to have to reduce prices of existing products in the future. Moreover, because of the wide price differences across the markets we serve, the mix and types of performance capabilities of our products sold may affect the average selling prices of our products and have a substantial impact on our revenue and gross margin. We may enter new markets in which a significant amount of competition exists, and this may require us to sell our products with lower gross margins than we earn in our established businesses. If we are successful in growing revenue in these markets, our overall gross margin may decline. Fluctuations in the mix and types of our products may also affect the extent to which we are able to recover the fixed costs and investments associated with a particular product, and as a result may harm our financial results.\n\n\nAdditionally, because we do not operate our own manufacturing, assembly, testing or packaging facilities, we are not able to reduce our costs as rapidly as companies that operate their own facilities and our costs may even increase, which could also reduce our gross margins. Our gross margin could also be impacted, for example, by the following factors: increased costs (including increased costs caused by tariffs, inflation, higher interest rates, or supply chain constraints); loss of cost savings if parts ordering does not correctly anticipate product demand or if the financial health of either our manufacturers partners or our suppliers deteriorates; excess inventory, or inventory holding and obsolescence charges. In addition, we are subject to risks from fluctuating market prices of certain components, which are incorporated into our products or used by our suppliers to manufacture our products. Supplies of these components may from time-to-time become restricted, or general market factors and conditions such as inflation or supply chain constraints have in the past affected and may in the future affect pricing of such commodities. Any increase in the price of components used in our products will adversely affect our gross margins.\n\n\n\u00a0\n\n\nWe are subject to order and shipment uncertainties. If we are unable to accurately predict customer demand, we may hold excess or obsolete inventory, which would reduce our gross margin. Conversely, we may have insufficient inventory or be unable to obtain the supplies or contract manufacturing capacity to meet that demand, which would result in lost revenue opportunities and potential loss of market share as well as damaged customer relationships.\n\n\nWe typically sell products pursuant to purchase orders rather than long-term purchase commitments. Some of our customers have, and others may in the future, cancel or defer purchase orders on short notice without incurring a significant penalty. In addition, customers who have purchase commitments may not honor those commitments. Due to their inability to predict demand or other reasons during our fiscal 2023, some of our customers have accumulated excess inventories and, as a consequence, they either have deferred or they may defer future purchases of our products. We cannot accurately predict what or how many products our customers will need in the future. Anticipating demand is difficult because our customers face unpredictable demand for their own products and are increasingly focused more on cash preservation and tighter inventory management.\n\n\nWe place orders with our suppliers based on forecasts of customer demand and, in some instances, may establish buffer inventories to accommodate anticipated demand. Our forecasts are based on multiple assumptions, each of which may introduce error into our estimates. For example, our ability to accurately forecast customer demand may be impaired by the delays inherent in our customer\u2019s product development processes, which may include extensive qualification and testing of components included in their products, including ours. In many cases, they design their products to use components from multiple suppliers. This creates the risk that our customers may decide to cancel or change product plans for products incorporating our semiconductor solutions prior to completion, which makes it even more difficult to forecast customer demand. In addition, while many of our customers are subject to purchase orders or other agreements that do not allow for cancellation, there can be no assurance that these customers will honor these contract terms and cancellation of these orders may adversely affect our business operations and demand forecast which is the basis for us to have products made.\n\n\n18\n\n\n\n\n\u00a0\n\n\nOur products are incorporated into complex devices and systems, which creates supply chain cross-dependencies. Due to cross dependencies, supply chain disruptions have in the past, and may in the future, negatively impact the demand for our products. We have a limited ability to predict the timing of a supply chain correction. If we cannot predict future customer demand or supply chain disruptions, then we may hold excess or obsolete inventory. Moreover, significant supply chain disruption may negatively impact the timing of our product shipments and revenue shipment linearity, which may impact and extend our cash conversion cycle. In addition, the market share of our customers could be adversely impacted on a long-term basis due to any continued supply chain disruption, which could negatively affect our results of operations.\n \n\n\nIf we overestimate customer demand, our excess or obsolete inventory may increase significantly, which would reduce our gross margin and adversely affect our financial results. The risk of obsolescence and/or excess inventory is heightened for semiconductor solutions due to the rapidly changing market for these types of products. Conversely, if we underestimate customer demand or if insufficient manufacturing capacity is available, we would miss revenue opportunities and potentially lose market share and damage our customer relationships. In addition, any future significant cancellations or deferrals of product orders, or the return of previously sold products, could materially and adversely affect our profit margins, increase product obsolescence and restrict our ability to fund our operations.\n\n\nRisks Related to Our Supply Chain\n\n\nWe depend on third parties to maintain satisfactory manufacturing yields and delivery schedules, and their inability to do so could increase our costs, disrupt our supply chain, and result in our inability to deliver our products, which would adversely affect our operating results.\n\n\nWe depend on our contract manufacturers and semiconductor fabricators to maintain high levels of productivity and satisfactory delivery schedules at manufacturing and assembly facilities located primarily in Asia.  We provide our contract manufacturers with six-month rolling forecasts of our production requirements.  We generally do not, however, have long-term agreements with our contract manufacturers that guarantee production capacity, prices, lead times, or delivery schedules.  In our fiscal 2022, we faced manufacturing capacity constraints as a result of the supply constraints and capacity shortages affecting the global semiconductor industry that materially limited our ability to meet our customers\u2019 demand forecasts, thereby limiting our potential revenue growth during the fiscal year. As a result of the supply shortages, we have entered into long-term capacity and pricing agreements with certain of our suppliers.  If end customer demand declines, these long-term capacity agreements could result in significant write-downs of inventory.  On occasion, customers require rapid increases in production, which can strain our resources and reduce our margins.  Although we have been able to obtain increased production capacity from our third-party contract manufacturers in the past, there is no guarantee that our contract manufacturers will be able to increase production capacity to enable us to meet our customer demands in the future.  Our contract manufacturers also serve other customers, a number of which have greater production requirements than we do.  As a result, our contract manufacturers could determine to prioritize production capacity for other customers or reduce or eliminate deliveries to us on short notice.\n \n\n\nQualifying new contract manufacturers, and specifically semiconductor foundries, is time consuming and might result in unforeseen manufacturing and operations problems. We may also encounter lower manufacturing yields and longer delivery schedules in commencing volume production of new products that we introduce, which could increase our costs or disrupt our supply of such products.  The loss of relationships with our contract manufacturers or assemblers, or their inability to conduct their manufacturing and assembly services for us as anticipated in terms of capacity, cost, quality, and timeliness could adversely affect our ability to fill customer orders in accordance with required delivery, quality, and performance requirements, and adversely affect our operating results.\n\n\n19\n\n\n\n\n\u00a0\n\n\nShortages of components and materials may delay or reduce our sales and increase our costs, thereby harming our operating results.\n\n\nThe inability to obtain sufficient quantities of components and other materials necessary for the production of our products could result in reduced or delayed sales or lost orders.  Many of the materials used in the production of our products are available only from a limited number of foreign suppliers, particularly suppliers located in Asia.  In most cases, neither we nor our contract manufacturers have long-term supply contracts with these suppliers.  As a result, we are subject to increased costs, supply interruptions, and difficulties in obtaining materials.  Our customers also may encounter difficulties or increased costs in obtaining the materials necessary to produce their products into which our product solutions are incorporated. Future shortages of materials and components, including potential supply constraints of silicon, could cause delayed shipments and customer dissatisfaction, which may result in lower revenue.\n \n\n\nRisks Related to Product Development\n\n\nWe are subject to lengthy development periods and product acceptance cycles, which can result in development and engineering costs without any future revenue.\n\n\nWe provide solutions that are incorporated by OEMs into the products they sell.  OEMs make the determination during their product development programs whether to incorporate our solutions or pursue other alternatives.  This process requires us to make significant investments of time and resources in the design of solutions for our OEMs\u2019 products well before our customers introduce their products incorporating our interface solutions into the market, and before we can be sure that we will generate any significant sales to our customers or even recover our investment.  During a customer\u2019s entire product development process, we face the risk that our interfaces will fail to meet our customer\u2019s technical, performance, or cost requirements, or that our products will be replaced by competitive products or alternative technological solutions.  Even if we complete our design process in a manner satisfactory to our customer, the customer may delay or terminate its product development efforts.  The occurrence of any of these events could cause sales to not materialize, be deferred, or be cancelled, which could adversely affect our operating results.\n\n\nWe face intense competition that could result in our losing or failing to gain market share and suffering reduced revenue.\n\n\nWe serve intensely competitive markets that are characterized by price erosion, rapid technological change, and competition from major domestic and international companies.  This intense competition could result in pricing pressures, lower sales, reduced margins, and lower market share.  Depressed economic conditions, a slowdown in the markets in which we operate, the emergence of new products not including our product solutions, rapid changes in the markets in which we operate, and competitive pressures may result in lower demand for our product solutions and reduced unit margins.\n\n\nSome of our competitors have greater market recognition, larger customer bases, and substantially greater financial, technical, marketing, distribution, and other resources than we possess and that afford them greater competitive advantages.  As a result, they may be able to devote greater resources to the promotion and sale of products, negotiate lower prices for raw materials and components, deliver competitive products at lower prices, and introduce new product solutions and respond to customer requirements more quickly than we can.  Our competitive position could suffer if one or more of our customers determine not to utilize our custom engineered, total solutions approach and instead, decide to design and manufacture their own interfaces, contract with our competitors, or use alternative technologies.\n\n\nIf we do not keep pace with technological innovations, our products may not remain competitive and our revenue and operating results may suffer.\n\n\nWe operate in rapidly changing, highly competitive markets.  Technological advances, the introduction of new products and new design techniques could adversely affect our business unless we are able to adapt to changing conditions.  Technological advances could render our solutions less competitive or obsolete, and we may not be able to respond effectively to the technological requirements of evolving markets.  Therefore, we may be required to expend substantial funds for and commit significant resources to enhancing and developing new technology, which may include purchasing advanced design tools and test equipment, hiring additional highly qualified engineering and other technical personnel, and continuing and expanding research and development activities on existing and potential solutions.\n\n\nOur research and development efforts with respect to new technologies may not result in customer or market acceptance.  Some or all of those technologies may not successfully make the transition from the research and development stage to cost-effective production as a result of technology problems, competitive cost issues, yield problems, and other factors.  Even if we successfully complete a research and development effort with respect to a particular technology, our customers may decide not\n \n\n\n20\n\n\n\n\n\u00a0\n\n\nto introduce or may terminate products utilizing the technology for a variety of reasons, including difficulties with other suppliers of components for the products, superior technologies developed by our competitors and unfavorable comparisons of our solutions with these technologies, price considerations and lack of anticipated or actual market demand for the products.\n\n\nOur business could be harmed if we are unable to develop and utilize new technologies that address the needs of our customers, or our competitors or customers develop and utilize new technologies more effectively or more quickly than we can.  Any investments made to enhance or develop new technologies that are not successful could have an adverse effect on our net revenue and operating results.\n\n\nWe may not be able to enhance our existing product solutions and develop new product solutions in a timely manner.\n\n\nOur future operating results will depend to a significant extent on our ability to continue to provide new solutions that compare favorably with alternative solutions on the basis of time to introduction, cost, performance, and end user preferences.  Our success in maintaining existing customers, attracting new customers, and developing new business depends on various factors, including the following:\n\n\n\u2022\ninnovative development of new solutions for customer products;\n\n\n\u2022\nutilization of advances in technology;\n\n\n\u2022\nmaintenance of quality standards;\n\n\n\u2022\nperformance advantages;\n\n\n\u2022\nefficient and cost-effective solutions; and\n\n\n\u2022\ntimely completion of the design and introduction of new solutions.\n\n\nOur inability to enhance our existing product solutions and develop new product solutions on a timely basis could harm our operating results and impede our growth.\n\n\nIf we become subject to product returns or claims resulting from defects in our products, we may incur significant costs resulting in a decrease in revenue.\n\n\nWe develop complex products in an evolving marketplace and generally warrant our products for a period of 12 months from the date of delivery. Despite testing by us and our customers, defects may be found in existing or new products.   We handle product quality matters sustainably by working on a one-on-one basis with our customers.  We have never formally recalled a product or had a mass defect that affected an entire product line.  Nevertheless, manufacturing errors or product defects could result in a delay in recognition or loss of revenue, loss of market share, or failure to achieve market acceptance.  Additionally, defects could result in financial or other damages to our customers, causing us to incur significant warranty, support, and repair costs, and diverting the attention of our engineering personnel from key product development efforts.\n\n\nWe must finance the growth of our business and the development of new products, which could have an adverse effect on our operating results.\n\n\nTo remain competitive, we must continue to make significant investments in research and development, marketing, and business development.  Our failure to sufficiently increase our net revenue to offset these increased costs would adversely affect our operating results.\n\n\nFrom time-to-time, we may seek additional equity or debt financing to provide for funds required to expand our business, including through acquisitions.  We cannot predict the timing or amount of any such requirements at this time.  If such financing is not available to us on satisfactory terms, we may be unable to expand our business or to develop new business at the rate desired and our operating results may suffer.  If obtained, the financing itself carries risks including the following:  (i) debt financing increases expenses and must be repaid regardless of operating results; and (ii) equity financing, including the issuance of convertible notes or additional shares in connection with acquisitions, could result in dilution to existing stockholders and could adversely affect the price of our common stock.\n\n\n21\n\n\n\n\n\u00a0\n\n\nRisks Related to International Sales and Operations\n\n\nChanges to import, export and economic sanction laws may expose us to liability, increase our costs and adversely affect our operating results.\n \n\n\nAs a global company headquartered in the U.S., we are subject to U.S. laws and regulations, including import, export, and economic sanction laws. These laws may include prohibitions on the sale or supply of certain products to embargoed or sanctioned countries, regions, governments, persons, and entities, may require an export license prior to the export of the controlled item, or may otherwise limit and restrict the export of certain products and technologies.  Many of our customers, suppliers and contract manufacturers are foreign companies or have significant foreign operations. The imposition of new or additional economic and trade sanctions against our major customers, suppliers or contract manufacturers could result in our inability to sell to, and generate revenue from such customer, supplier, or contract manufacturer. As a result of restrictive export laws, our customers may also develop their own solutions to replace our products or seek to obtain a greater supply of similar or substitute products from our competitors that are not subject to these restrictions, which could material and adversely affect our business and operating results.\n \n\n\nIn addition, compliance with additional export regulations may result in increased costs to the company. Although we have an export compliance program, maintaining and adapting our export controls program to new and shifting regulations is expensive, time-consuming and requires significant management attention. Failure to comply with trade or economic sanctions could subject the company to legal liabilities and fines from the U.S. government. We must also comply with export restrictions and laws imposed by other countries affecting trade and investments. Although these restrictions and laws have not materially restricted our operations in the recent past, there is a significant risk that they could do so in the future, which would materially and adversely affect our business and operating results.\n \n\n\nChanges to international trade policy and rising concerns of international tariffs, including tariffs applied to goods traded between the U.S. and China, could materially and adversely affect our business and results of operations.\n\n\nMany of the materials used in the production of our products are available only from a limited number of foreign suppliers, particularly suppliers located in Asia.  The imposition of tariffs against foreign imports of certain materials could make it more difficult or expensive for us or our OEMs to obtain sufficient quantities of components and other materials necessary for the production of our products or products which incorporate our product solutions.  Any interruptions to supply could result in delay or cancellation of our products, which could adversely affect our business and operating results.\n \n\n\nIn addition, the institution of trade tariffs both globally and between the U.S. and China carry the risk that China\u2019s overall economic condition may be negatively affected, which could affect our China operations, including the manufacturing operations on which we rely in China. Further, imposition of tariffs could cause a decrease in the sales of our products to customers located in China or to our OEMs selling to customers in China, which could impact our business, revenue, and operating results.\n \n\n\n\u00a0\n\n\nInternational sales and manufacturing risks could adversely affect our operating results.\n\n\nOur manufacturing and assembly operations are primarily conducted in Taiwan, China, and Korea by contract manufacturers and semiconductor fabricators.  We have sales and logistics operations in Hong Kong, and sales and engineering design support operations in China, France, Germany, India, Israel, Japan, Korea, Poland, Switzerland, Taiwan, and the U.K.  These international operations expose us to various economic, political, regulatory, and other risks that could adversely affect our operations and operating results, including the following:\n\n\n\u2022\ndifficulties and costs of staffing and managing a multinational organization;\n\n\n\u2022\nunexpected changes in regulatory requirements;\n\n\n\u2022\ndiffering labor regulations;\n\n\n\u2022\ndiffering environmental laws and regulations, including in response to climate change;\n\n\n\u2022\npotentially adverse tax consequences;\n\n\n\u2022\npossible employee turnover or labor unrest;\n\n\n\u2022\ngreater difficulty in collecting accounts receivable;\n\n\n\u2022\nthe burdens and costs of compliance with a variety of foreign laws;\n\n\n\u2022\nthe volatility of currency exchange rates;\n\n\n22\n\n\n\n\n\u00a0\n\n\n\u2022\npotentially reduced protection for intellectual property rights;\n\n\n\u2022\npolitical or economic instability in certain parts of the world; and\n\n\n\u2022\nnatural disasters, including earthquakes or tsunamis.\n\n\nIf any of these risks associated with international operations materialize, our operations could significantly increase in cost or be disrupted, which would negatively affect our revenue and operating results.\n\n\nOur operating results could be adversely affected by fluctuations in the value of the U.S. dollar against foreign currencies.\n\n\nWe transact business predominantly in U.S. dollars, and we invoice and collect our sales in U.S. dollars.  A weakening of the U.S. dollar could cause our overseas vendors to require renegotiation of either the prices or currency we pay for their goods and services.  In the future, customers may negotiate pricing and make payments in non-U.S. currencies.  For fiscal 2023, approximately 13% of our costs were denominated in non-U.S. currencies, including British pounds, Canadian dollars, European Union euro, Hong Kong dollars, Indian rupee, New Taiwan dollars, Japanese yen, Korean won, Chinese yuan, Polish zloty, Israeli New Shekel, and Swiss francs.\n\n\nIf our overseas vendors or customers require us to transact business in non-U.S. currencies, fluctuations in foreign currency exchange rates could affect our cost of goods, operating expenses, and operating margins, and could result in exchange losses.  In addition, currency devaluation could result in a loss to us if we hold deposits of that currency.  Hedging foreign currencies can be difficult, especially if the currency is not freely traded.  We cannot predict the impact of future exchange rate fluctuations on our operating results.\n \n\n\nRisks Related to Our Employees\n\n\nWe depend on key personnel who would be difficult to replace, and our business will likely be harmed if we lose their services or cannot hire additional qualified personnel.\n\n\nOur success depends substantially on the efforts and abilities of our senior management and other key personnel.  The competition for qualified management and key personnel, especially engineers, is intense.  Although we maintain nondisclosure covenants with most of our key personnel, and our key executives have change of control severance agreements, we do not have employment agreements with many of them.  The loss of services of one or more of our key employees or the inability to hire, train, and retain key personnel, especially engineers and technical support personnel, and capable sales and customer-support employees outside the U.S., could delay the development and sale of our products, disrupt our business, and interfere with our ability to execute our business plan.\n\n\nIf we are unable to obtain stockholder approval of share-based compensation award programs or additional shares for such programs, we could be at a competitive disadvantage in the marketplace for qualified personnel or may be required to increase the cash element of our compensation program.\n\n\nCompetition for qualified personnel in our industry is extremely intense, particularly for engineering and other technical personnel.  Our compensation program, which includes cash and share-based compensation award components, has been instrumental in attracting, hiring, motivating, and retaining qualified personnel. Our success depends on our continued ability to use our share-based compensation programs to effectively compete for engineering and other technical personnel and professional talent without significantly increasing cash compensation costs.  In the future, if we are unable to obtain stockholder approval of our share-based compensation programs or additional shares for such programs, we could be at a competitive disadvantage in the marketplace for qualified personnel or we may be required to increase the cash elements of our compensation program to account for this disadvantage.\n\n\nRisks Related to Our Intellectual Property\n\n\nOur ability to compete successfully and continue growing as a company depends on our ability to adequately protect our proprietary technology and confidential information.\n\n\nWe protect our proprietary technology and confidential information through the use of patents, trade secrets, trademarks, copyrights, confidentiality agreements and other contractual provisions. The process of seeking patent protection is lengthy and expensive. Further, there can be no assurance that even if a patent is issued, that it will not be challenged, invalidated, or circumvented, or that the rights granted under the patents will provide us with meaningful protection or any commercial\n \n\n\n23\n\n\n\n\n\u00a0\n\n\nadvantage.  Failure to obtain trademark registrations could compromise our ability to fully protect our trademarks and brands and could increase the risk of challenge from third parties to our use of our trademarks and brands. Effective intellectual property protection may be unavailable or limited in some foreign countries in which we operate. In particular, the validity, enforceability and scope of protection of intellectual property in China, where we derive a significant portion of our net sales, and certain other countries where we derive net sales, are still evolving and historically, have not protected and may not protect in the future, intellectual property rights to the same extent as laws developed in the U.S.\n\n\nWe do not consistently rely on written agreements with our customers, suppliers, manufacturers, and other recipients of our technologies and products and therefore, some trade secret protection may be lost and our ability to enforce our intellectual property rights may be limited.  Confidentiality and non-disclosure agreements that are in place may not be adequate to protect our proprietary technologies or may be breached by other parties. Additionally, our customers, suppliers, manufacturers, and other recipients of our technologies and products may seek to use our technologies and products without appropriate limitations. In the past, we did not consistently require our employees and consultants to enter into confidentiality, employment, or proprietary information and invention assignment agreements.  Therefore, our former employees and consultants may try to claim some ownership interest in our technologies and products or may use our technologies and products competitively and without appropriate limitations. Unauthorized parties may attempt to copy or otherwise use aspects of our technologies and products that we regard as proprietary. Other companies, including our competitors, may independently develop technologies that are similar or superior to our technologies, duplicate our technologies, or design around our patents. If our intellectual property protection is insufficient to protect our intellectual property rights, we could face increased competition in the markets for our technologies and products.\n\n\nWe may pursue, and from time-to-time defend, litigation to enforce our intellectual property rights, to protect our trade secrets, and to determine the validity and scope of the proprietary rights of others.  Litigation whether successful or unsuccessful, could result in substantial costs and diversion of resources, which could have a material adverse effect on our business, financial condition, and operating results.\n\n\nAny claims that our technologies infringe the intellectual property rights of third parties could result in significant costs and have a material adverse effect on our business.\n\n\nWe cannot be certain that our technologies and products do not and will not infringe issued patents or other third-party proprietary rights.  Any claims, with or without merit, could result in significant litigation costs and diversion of resources, including the attention of management, and could require us to enter into royalty or licensing agreements, any of which could have a material adverse effect on our business. There can be no assurance that such licenses could be obtained on commercially reasonable terms, if at all, or that the terms of any offered licenses would be acceptable to us.  We may also have to pay substantial damages to third parties or indemnify customers or licensees for damages they suffer if the products they purchase from us or the technology they license from us violates any third-party intellectual property rights. An adverse determination in a judicial or administrative proceeding, or a failure to obtain necessary licenses to use such third-party technology could prevent us from manufacturing, using, or selling certain of our products, and there is no guarantee that we will be able to develop or acquire alternate non-infringing technology.\n\n\nIn addition, we license certain technology used in and for our products from third parties.  These third-party licenses are granted with restrictions, and there can be no assurances that such third-party technology will remain available to us on commercially acceptable terms. Any breach or violation of the terms and conditions specified in these license agreements could have significant adverse consequences on our operations and financial performance and may result in legal action, monetary penalties, or the termination of the license, which would impact our ability to offer certain products or services\n.\n\n\nIf third-party technology currently utilized in our products is no longer available to us on commercially acceptable terms, or if any third-party initiates litigation against us for alleged infringement of their proprietary rights, we may not be able to sell certain of our products and we could incur significant costs in defending against litigation or attempting to develop or acquire alternate non-infringing products, which would have an adverse effect on our operating results.\n\n\nRisks Related to Acquisitions\n\n\nAny acquisitions that we undertake could be difficult to integrate, disrupt our business, dilute stockholder value, and harm our operating results.\n\n\nWe expect to continue to pursue opportunities to acquire other businesses and technologies in order to complement our current solutions, expand the breadth of our markets, enhance our technical capabilities, or otherwise create growth opportunities.  We cannot accurately predict the timing, size, and success of any currently planned or future acquisitions.  We\n \n\n\n24\n\n\n\n\n\u00a0\n\n\nmay be unable to identify suitable acquisition candidates or to complete the acquisitions of candidates that we identify.  Increased competition for acquisition candidates or increased asking prices by acquisition candidates may increase purchase prices for acquisitions to levels beyond our financial capability or to levels that would not result in the returns required by our acquisition criteria.  Acquisitions may also become more difficult in the future as we or others acquire the most attractive candidates.  Unforeseen expenses, difficulties, and delays frequently encountered in connection with rapid expansion through acquisitions could inhibit our growth and negatively impact our operating results.  If we make any future acquisitions, we could issue stock that would dilute existing stockholders' percentage ownership, incur substantial debt, assume contingent liabilities, or experience higher operating expenses.\n\n\nWe may be unable to effectively complete an integration of the management, operations, facilities, and accounting and information systems of acquired businesses with our own; efficiently manage, combine or restructure the operations of the acquired businesses with our operations; achieve our operating, growth, and performance goals for acquired businesses; achieve additional revenue as a result of our expanded operations; or achieve operating efficiencies or otherwise realize cost savings as a result of anticipated acquisition synergies.  The integration of acquired businesses involves numerous risks, including the following:\n\n\n\u2022\nthe potential disruption of our core business;\n\n\n\u2022\nthe potential strain on our financial and managerial controls, reporting systems and procedures;\n\n\n\u2022\npotential unknown liabilities associated with the acquired business;\n\n\n\u2022\ncosts relating to liabilities which we agree to assume;\n\n\n\u2022\nunanticipated costs associated with the acquisition;\n\n\n\u2022\ndiversion of management\u2019s attention from our core business;\n\n\n\u2022\nproblems assimilating the purchased operations, technologies, or products;\n\n\n\u2022\nrisks associated with entering markets and businesses in which we have little or no prior experience;\n\n\n\u2022\nfailure of acquired businesses to achieve expected results;\n\n\n\u2022\nadverse effects on existing business relationships with suppliers and customers;\n\n\n\u2022\nfailure to retain key customers, suppliers, or personnel of acquired businesses;\n\n\n\u2022\nthe risk of impairment charges related to potential write-downs of acquired assets; and\n\n\n\u2022\nthe potential inability to create uniform standards, controls, procedures, policies, and information systems.\n\n\nWe cannot assure you that we would be successful in overcoming problems encountered in connection with any acquisitions, and our inability to do so could disrupt our operations, result in goodwill or intangible asset impairment charges, and adversely affect our business.\n\n\nPotential strategic alliances may not achieve their objectives, and the failure to do so could impede our growth.\n\n\nWe have entered, and we anticipate that we will continue to enter, into strategic alliances.  We continually explore strategic alliances designed to enhance or complement our technology or to work in conjunction with our technology; to provide necessary know-how, components, or supplies; and to develop, introduce, and distribute products utilizing our technology.  Certain strategic alliances may not achieve their intended objectives, and parties to our strategic alliances may not perform as contemplated.  The failure of these alliances to achieve their objectives may impede our ability to introduce new products and enter new markets.\n\n\nWe may incur material environmental liabilities as a result of prior operations at an acquired company.\n\n\n\u00a0\n\n\nIn connection with our acquisition in July 2017 of Conexant Systems, we agreed to assume certain environmental liabilities, including remediation of environmental impacts at a property formerly owned and operated by Conexant (the \u201cConexant Site\u201d) and for potential future claims alleging personal injury or property damage related to the environmental impacts at and about the Conexant Site. We continue to incur costs to investigate and remediate the Conexant Site\u2019s environmental impacts, and we are at risk for future personal injury and property damage claims related to the Conexant Site.  Various federal, state, and local authorities regulate the release of hazardous substances into the environment and can impose substantial fines if our remediation efforts at or about the Conexant Site fail or are deemed inadequate.  In addition, changes in laws, regulations and enforcement policies, the discovery of previously unknown contamination at the Conexant Site, the\n \n\n\n25\n\n\n\n\n\u00a0\n\n\nimplementation of new technology at the Conexant Site, or the establishment or imposition of stricter federal, state, or local cleanup standards or requirements with respect to the Conexant Site could require us to incur additional costs in the future that could have a negative effect on our financial condition or results of operations.\n \n\n\nRisks Factors Related to Our Indebtedness\n\n\nOur indebtedness could adversely affect our financial condition or operating flexibility and prevent us from fulfilling our obligations outstanding under our credit agreement, our 4.000% senior notes due 2029, or the Senior Notes, and other indebtedness we may incur from time-to-time.\n\n\nOn March 11, 2021, we completed the offering of the Senior Notes in the aggregate principal amount of $400.0 million, with a corresponding amendment and restatement of our credit agreement, or as amended and supplemented, the Credit Agreement, with the lenders party thereto, or the Lenders, and Wells Fargo Bank, National Association, or the Administrative Agent, as administrative agent for the Lenders. The Senior Notes include a mandatory semi-annual payment of a 4.000% coupon.  We are permitted under the indenture governing our Senior Notes and the Credit Agreement to incur additional debt under certain conditions, including additional secured debt.  If new debt were to be incurred in the future, the related risks that we now face could intensify.\n \n\n\nOur level of indebtedness could have important consequences on our future operations, including:\n\n\n\u2022\nmaking it more difficult for us to satisfy our payment and other obligations under the Notes, the Credit Agreement, or our other outstanding debt from time-to-time;\n\n\n\u2022\nrisking an event of default if we fail to comply with the financial and other covenants contained in the Notes indenture or the Credit Agreement, which could result in the Senior Notes or any outstanding bank debt becoming immediately due and payable and could permit the lenders under the Credit Agreement to foreclose on the assets securing such bank debt;\n\n\n\u2022\nsubjecting us to the risk of increased sensitivity to interest rate increases on our debt with variable interest rates, including the debt that we may incur under the Credit Agreement;\n\n\n\u2022\nreducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;\n\n\n\u2022\nlimiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy; and\n\n\n\u2022\nplacing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged.\n\n\nOur business may not generate sufficient cash flow from operations and future borrowings may not be available to us under the Credit Agreement, the indenture governing the Senior Notes or otherwise in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs.\n\n\nThe covenants in the Credit Agreement and Senior Notes impose restrictions that may limit our operating and financial flexibility.\n\n\nThe Credit Agreement includes certain covenants that limit (subject to certain exceptions) our ability to, among other things: (i) incur or guarantee additional indebtedness; (ii) incur or suffer to exist liens securing indebtedness; (iii) make investments; (iv) consolidate, merge or transfer all or substantially all of our assets; (v) sell assets; (vi) pay dividends or other distributions on, redeem or repurchase capital stock; (vii) enter into transactions with affiliates; (viii) amend, modify, prepay or redeem subordinated indebtedness; (ix) enter into certain restrictive agreements; and (x) engage in a new line of business. In addition, the Credit Agreement contains financial covenants that (i)  require the ratio of the amount of our consolidated total indebtedness to consolidated EBITDA to be less than certain maximum ratio levels, and (ii) require the ratio of the amount of our consolidated EBITDA to consolidated interest expense to be greater than a certain minimum ratio level.\n\n\nIf we violate these covenants and are unable to obtain waivers, our debt under the Credit Agreement would be in default and could be accelerated, and could permit, in the case of secured debt, the lenders to foreclose on our assets securing the Credit Agreement. If the indebtedness is accelerated, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. If our debt is in default for any reason, our cash flows, results of operations or financial condition could be materially and adversely affected. In addition, complying with these covenants may also cause us to take actions that may make it more\n \n\n\n26\n\n\n\n\n\u00a0\n\n\ndifficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.\n\n\nGeneral Risk Factors\n \n\n\nIf we fail to manage our growth effectively, our infrastructure, management, and resources could be strained, our ability to effectively manage our business could be diminished, and our operating results could suffer.\n\n\nThe failure to manage our planned growth effectively could strain our resources, which would impede our ability to increase revenue.  We have increased the number of our solutions in the past and may plan to further expand the number and diversity of our solutions and their use in the future.  Our ability to manage our planned diversification and growth effectively will require us to:\n\n\n\u2022\nsuccessfully hire, train, retain, and motivate additional employees, including employees outside the U.S.;\n\n\n\u2022\nefficiently plan, expand, or cost-effectively reduce our facilities to meet headcount requirements;\n\n\n\u2022\nenhance our global operational, financial, and management infrastructure; and\n\n\n\u2022\nexpand our development and production capacity.\n\n\nIn connection with the expansion and diversification of our product and customer base, we may increase our personnel and make other expenditures to meet demand for our expanding product offerings, including offerings in the IoT market, the PC applications market, and the mobile product applications market.  Any increase in expenses or investments in infrastructure and facilities in anticipation of future orders that do not materialize would adversely affect our profitability.  Our customers also may require rapid increases in design and production services that place an excessive short-term burden on our resources and the resources of our contract manufacturers.  An inability to quickly expand our development, design or production capacity or an inability of our third-party manufacturers to quickly expand development, design, or production capacity to meet this customer demand could result in a decrease to our revenue or operating results. If we cannot manage our growth effectively, our business and operating results could suffer.\n\n\n27\n\n\n\n\n\u00a0\n\n\nWe face risks associated with security breaches or cyberattacks.\n\n\nWe face risks associated with security breaches or cyberattacks of our computer systems or those of our third-party representatives, vendors, and service providers.  Although we have implemented security procedures and controls to address these threats, our systems may still be vulnerable to data theft, computer viruses, programming errors, ransomware, and other attacks by third parties, or similar disruptive problems.  If our systems, or systems owned by third parties affiliated with our company, were breached or attacked, the proprietary and confidential information of our company, our employees and our customers could be disclosed and we may be required to incur substantial costs and liabilities, including the following: liability for stolen assets or information; fines imposed on us by governmental authorities for failure to comply with privacy laws or for disclosure of any personally identifiable information as a part of such attack; costs of repairing damage to our systems; lost revenue and income resulting from any system downtime caused by such breach or attack; loss of competitive advantage if our proprietary information is obtained by competitors as a result of such breach or attack; increased costs of cyber security protection; costs of incentives we may be required to offer to our customers or business partners to retain their business; damage to our reputation; and expenses to rectify the consequences of the security breach or cyberattack.  In addition, any compromise of security from a security breach or cyberattack could deter customers or business partners from entering into transactions that involve providing confidential information to us.  As a result, any compromise to the security of our systems could have a material adverse effect on our business, reputation, financial condition, and operating results.\n\n\nIf tax laws change in the jurisdictions in which we do business or if we receive a material tax assessment in connection with an examination of our income tax returns, our consolidated financial position, results of operations and cash flows could be adversely affected.\n \n\n\nWe are subject to U.S. federal, state, and foreign income taxes in the various jurisdictions in which we do business. In addition, we are required to pay U.S. federal taxes on the operating earnings of certain of our foreign subsidiaries. Our future effective tax rates and the value of our deferred tax assets could be adversely affected by changes in tax laws in the U.S. or in the foreign jurisdictions in which we operate. In addition, we are subject to the examination of our income tax returns by the tax authorities in the jurisdictions in which we do business. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of highly complex tax laws.  Our results have in the past, and could in the future, include favorable and unfavorable adjustments to our estimated tax liabilities in the period a determination of such estimated tax liability is made or resolved, upon the filing of an amended return, upon a change in facts, circumstances, or interpretation, or upon the expiration of a statute of limitation.  While we believe we have adequately provided for reasonably foreseeable outcomes in connection with the resolution of income tax uncertainties, the resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our consolidated financial position, result of operations, or cash flows.\n\n\nWe are subject to governmental laws, regulations and other legal obligations related to privacy and data protection.\n\n\nWe collect, use, and store personally identifiable information, or PII, as part of our business and operations.  We are subject to federal, state, and international laws relating to the collection, use, retention, security, and transfer of PII.  The legislative and regulatory framework for privacy and data protection issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. The cost of complying with and implementing these privacy-related and data governance measures could be significant as they may create additional burdensome security, business process, business record or data localization requirements. The theft, loss or misuse of PII collected, used, stored or transferred by us, our any inability, or perceived inability, to adequately address privacy and data protection concerns, even if unfounded, or our failure to comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations, could result in additional cost and liability to us, including litigation, which could have an adverse effect on our business, operating results, cash flows, and financial condition.\n\n\nOur charter documents and Delaware law could make it more difficult for a third-party to acquire us and discourage a takeover.\n\n\nOur certificate of incorporation and the Delaware General Corporation Law contain provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of our company, even when such attempts may be in the best interests of our stockholders.  Our certificate of incorporation also authorizes our Board of Directors, without stockholder approval, to issue one or more series of preferred stock, which could have voting and conversion rights that adversely affect or dilute the voting power of the holders of our common stock.  Delaware law also imposes conditions on certain business combination transactions with \u201cinterested stockholders.\u201d  Our certificate of incorporation divides our Board of Directors into three classes, with one class to stand for election each year for a three-year term after the election.  The classification of directors tends to discourage a third-party from initiating a proxy solicitation or otherwise attempting to obtain control of our company and may maintain the incumbency of our Board of Directors, as this structure generally increases the difficulty of, or may delay, replacing a majority of directors.  Our certificate of incorporation authorizes our Board of Directors\n \n\n\n28\n\n\n\n\n\u00a0\n\n\nto fill vacancies or newly created directorships.  A majority of the directors then in office may elect a successor to fill any vacancies or newly created directorships, thereby increasing the difficulty of, or delaying a third-party\u2019s efforts in, replacing a majority of directors.\n\n\nThe market price of our common stock has been and may continue to be volatile.\n\n\nThe trading price of our common stock has been and may continue to be subject to wide fluctuations in response to various factors, including the following:\n\n\n\u2022\nvariations in our quarterly results;\n\n\n\u2022\nthe financial guidance we may provide to the public, any changes in such guidance, or our failure to meet such guidance;\n\n\n\u2022\nchanges in financial estimates by industry or securities analysts or our failure to meet such estimates;\n\n\n\u2022\nvarious market factors or perceived market factors, including rumors, whether or not correct, involving us, our customers, our suppliers, our competitors, or a potential acquisition of our company;\n\n\n\u2022\nannouncements of technological innovations by us, our competitors, or our customers;\n\n\n\u2022\nintroductions of new products or new pricing policies by us, our competitors, or our customers;\n\n\n\u2022\nacquisitions or strategic alliances by us, our competitors, or our customers;\n\n\n\u2022\nrecruitment or departure of key personnel;\n\n\n\u2022\nthe gain or loss of significant orders;\n\n\n\u2022\nthe gain or loss of significant customers;\n\n\n\u2022\nmarket conditions in our industry, the industries of our customers, and the economy as a whole;\n\n\n\u2022\nshort positions held by investors; \n\n\n\u2022\nnew federal and state laws and regulations affecting our industry; and\n\n\n\u2022\ngeneral financial market conditions or occurrences, including market volatility resulting from geopolitical risks, and rivalries, acts of war, terrorist attacks, cybersecurity attacks, health pandemics, financial market technological glitches and interruptions of trading activity.\n\n\nIn addition, stocks of technology companies have experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to these companies\u2019 operating performance.  Public announcements by technology companies concerning, among other things, their performance, accounting practices, or legal problems could cause the market price of our common stock to decline regardless of our actual operating performance.\n\n",
+  "item7": ">ITEM 7.\tMANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF\n FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\n\nForward-Looking Statements and Factors That May Affect Results\n\n\nYou should read the following discussion and analysis in conjunction with our financial statements and related notes contained elsewhere in this report.  This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions.  Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth elsewhere in this report and under Item 1A. Risk Factors.\n\n\nImpact of COVID-19\n\n\nMany of the restrictions and other containment measures implemented by governmental authorities in response to the COVID-19 pandemic have since been lifted or scaled back. We did not incur significant disruptions to our business or a materially negative impact on our consolidated results of operations and financial condition from the COVID-19 pandemic and our business was not severely impacted.\n \n\n\nOverview\n\n\nWe are a leading worldwide developer and fabless supplier of premium mixed signal semiconductor solutions changing the way humans engage with connected devices and data, engineering exceptional experiences throughout the home, at work, in the car and on the go. We believe our results to date reflect the combination of our customer focus and the strength of our intellectual property and our engineering know-how, which allow us to develop or engineer products that meet the demanding design specifications of our OEMs.\n\n\nWe recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services.  Most of our revenue is recognized at a point in time, either on shipment or delivery of the product, depending on customer terms and conditions. We also generate revenue from license-based arrangements. We license the rights to certain of our intellectual properties to customers granting them the right to manufacture and sell licensed products. For fiscal 2023, revenue from the IoT product applications market accounted for 70.0% of our net revenue, revenue from the PC product applications market accounted for 16.0% of our net revenue, and revenue from the mobile product applications market accounted for 14.0% of our net revenue.\n \n\n\nMany of our customers have manufacturing operations in China, and many of our OEM customers have established design centers in Asia. With our expanding global presence, including offices in China, France, Germany, Hong Kong, India, Israel, Japan, Korea, Poland, Switzerland, Taiwan, the U.K., and the U.S., we are well positioned to provide local sales, operational, and engineering support services to our existing customers, as well as potential new customers, on a global basis.\n \n\n\nOur manufacturing operations are based on a variable cost model in which we outsource all of our production requirements and generally drop ship our products directly to our customers from our contract manufacturers\u2019 facilities, eliminating the need for significant capital expenditures and allowing us to minimize our investment in inventories. This approach requires us to work closely with our contract manufacturers and semiconductor fabricators to ensure adequate production capacity to meet our forecasted volume requirements. As a result of recent supply constraints and capacity shortages affecting the global semiconductor industry, we have entered into long-term capacity and pricing agreements with some suppliers. We use third-party wafer manufacturers to supply wafers and third-party packaging manufacturers to package our proprietary ASICs. In certain cases, we rely on a single source or a limited number of suppliers to provide other key components of our products. Our cost of revenue includes all costs associated with the production of our products, including materials; logistics; amortization of intangibles related to acquired developed technology; backlog; supplier arrangements; manufacturing, assembly, royalties paid to third-party intellectual property providers and test costs paid to third-party manufacturers; and related overhead costs associated with our indirect manufacturing operations personnel. Additionally, we charge all warranty costs, losses on inventory purchase obligations, and write-downs to reduce the carrying value of obsolete, slow moving, and non-usable inventory to net realizable value, to cost of revenue.\n \n\n\nOur gross margin generally reflects the combination of the added value we bring to our OEM customers\u2019 products by meeting their custom design requirements and the impact of our ongoing cost-improvement programs. These cost-improvement programs include reducing materials and component costs and implementing design and process improvements. Our newly introduced products may have lower margins than our more mature products, which have realized greater benefits associated with our ongoing cost-improvement programs. As a result, new product introductions may initially negatively impact our gross margin.\n\n\n32\n\n\n\n\n\u00a0\n\n\nOur research and development expenses include costs for supplies and materials related to product development, as well as the engineering costs incurred to design ASICs and human experience solutions for OEM customers prior to and after our OEMs\u2019 commitment to incorporate those solutions into their products. In addition, we \nexpense in-process research and development projects acquired as part of a business acquisition, which have not yet reached technological feasibility, and which have no foreseeable alternative future use.\n We continue to commit to the technological and design innovation required to maintain our position in our existing markets, and to adapt our existing technologies or develop new technologies for new markets.\n \n\n\nSelling, general, and administrative expenses include expenses related to sales, marketing, and administrative personnel; internal sales and outside sales representatives\u2019 commissions; market and usability research; outside legal, accounting, and consulting costs; and other marketing and sales activities.\n \n\n\nAcquired intangibles amortization, included in operating expenses, consists primarily of amortization of customer relationship and tradenames intangible assets recognized under the purchase method for business combinations.\n\n\nRestructuring costs primarily reflect severance costs related to the restructuring of our operations to reduce operating expenses and gain efficiencies from our recent acquisitions. These headcount related costs were in cost of revenue, research and development, and selling, general and administrative expenses. See Note 16 Restructuring Activities\n \nto the consolidated financial statements contained elsewhere in this report.\n\n\nInterest and other expense, net, primarily reflects interest expense on our Senior Notes, Term Loan Facility and revolving line of credit as well as the amortization of debt issuance costs and discount on our debt, partially offset by interest income earned on our cash, cash equivalents and short-term investments.\n\n\nAcquisitions\n\n\n\u00a0\n\n\nBroadcom\n\n\nIn February 2023, we completed the acquisition of certain GPS developed technology intangible assets from Broadcom for an aggregate consideration of $30.0 million, which was paid in cash in the previous fiscal year.\n \n\n\n\u00a0\n\n\nEmza\n\n\nOn October 2022, we completed the acquisition of Emza Visual Sense, Ltd., or Emza, for total purchase consideration of $15.8 million.  Emza is a developer of ultra-low-power artificial intelligence visual sensing solutions.  Emza's technology extends our position in Edge AI and allows us to serve the personal computing market with a solution for human presence detection, or HPD. For further discussion of the Emza acquisition, see Note 4 Acquisitions, Divestiture and Investment included in the consolidated financial statements contained elsewhere in this report.\n \n\n\n33\n\n\n\n\n\u00a0\n\n\nCritical Accounting Policies and Estimates\n\n\nThe preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, cost of revenue, inventories, product warranty, share-based compensation costs, provision for income taxes, deferred income tax asset, valuation allowances, uncertain tax positions, tax contingencies, goodwill, intangible assets, investments, and contingencies.  We base our estimates on historical experience, applicable laws and regulations, and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.\n\n\nThe methods, estimates, interpretations, and judgments we use in applying our most critical accounting policies can have a significant impact on the results that we report in our consolidated financial statements. The SEC considers an entity\u2019s most critical accounting policies to be those policies that are both most important to the portrayal of the entity\u2019s financial condition and results of operations and those that require the entity\u2019s most difficult, subjective, or complex judgments, often as a result of the need to make assumptions and estimates about matters that are inherently uncertain.  We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:\n\n\n\u2022\nRevenue Recognition\n\n\n\u2022\nInventory Valuation\n\n\n\u2022\nBusiness Combinations\n\n\n\u2022\nIncome Taxes\n\n\n\u2022\nGoodwill\n\n\nRevenue Recognition\n\n\nOur revenue is primarily generated from the sale of ASIC chips, either directly to a customer or to a distributor. Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. All of our revenue, except an inconsequential amount, is recognized at a point in time, either on shipment or delivery of the product, depending on customer terms and conditions. We generally warrant our products for a period of 12 months from the date of sale and estimate probable product warranty costs at the time we recognize revenue as the warranty is considered an assurance warranty and not a performance obligation.  Non-product revenue is recognized over the same period of time such performance obligations are satisfied. We then select an appropriate method for measuring satisfaction of the performance obligations.\n \n\n\nRevenue from sales to distributors is recognized upon shipment of the product to the distributors (sell-in basis). Master sales agreements are in place with certain customers, and these agreements typically contain terms and conditions with respect to payment, delivery, warranty, and supply. In the absence of a master sales agreement, we consider a customer's purchase order or our standard terms and conditions to be the contract with the customer.\n\n\nRights to our intellectual property, or IP, are either sold or licensed to customers. Revenue recognition from the licensing of our IP is dependent on the nature and terms of each agreement. We recognize revenue from the licensing of our IP upon delivery of the IP if there are no substantive future obligations to perform under the arrangement. Sales-based or usage-based royalties from the license of IP are recognized at the later of the period the sale or usage occurs, or the satisfaction of the performance obligation to which some or all of the sales-based or usage-based royalties have been allocated.\n \n\n\n34\n\n\n\n\n\u00a0\n\n\nOur pricing terms are negotiated independently, on a stand-alone basis. In determining the transaction price, we evaluate whether the price is subject to refund or adjustment to determine the net consideration which we expect to receive for the sale of such products. In limited situations, we make sales to certain customers under arrangements where we grant stock rotation rights, price protection and price allowances; variable consideration associated with these rights is expected to be inconsequential. These adjustments and incentives are accounted for as variable consideration, classified as other current liabilities under the new revenue standard and are shown as customer obligations within Other Accrued Liabilities as disclosed in Note 1 Organization and Summary of Significant Accounting Policies to the consolidated financial statements contained elsewhere in this report. We estimate the amount of variable consideration for such arrangements based on the expected value to be provided to customers, and we do not believe that there will be significant changes to our estimates of variable consideration.  When incentives, stock rotation rights, price protection, volume discounts, or price allowances are applicable, they are estimated and recorded in the period the related revenue is recognized. Stock rotation reserves are based on historical return rates applied to distributor inventory subject to stock rotation rights and recorded as a reduction to revenue with a corresponding reduction to cost of goods sold for the estimated cost of inventory that is expected to be returned and recorded as prepaid expenses and other current assets.  In limited circumstances, we enter into volume-based tiered pricing arrangements and we estimate total unit volumes under such arrangement to determine the expected transaction price for the units expected to be transferred. Such arrangements are accounted for as contract liabilities within other accrued liabilities. Sales returns liabilities are recorded as refund liabilities within other accrued liabilities.\n \n\n\nOur accounts receivable balance is from contracts with customers and represents our unconditional right to receive consideration from customers. Payments are generally due within three months of completion of the performance obligation and subsequent invoicing and, therefore, do not include significant financing components. To date, there have been no material impairment losses on accounts receivable.\n \n\n\nWe invoice customers and recognize all of our revenue, except an inconsequential amount, at a point in time, either on shipment or delivery of the product, depending on customer terms and conditions. We account for shipping and handling costs as fulfillment costs before the customer obtains control of the goods. We continue to account for collection of all taxes on a net basis.\n \n\n\nWe incur commission expense that is incremental to obtaining contracts with customers. Sales commissions (which are recorded in the selling, general and administrative expense line item in the consolidated statements of operations) are expensed when the product is shipped because such commissions are owed after shipment.\n\n\nInventory Valuation\n\n\nWe state our inventories at the lower of cost or net realizable value.  We base our assessment of the ultimate realization of inventories on our projections of future demand and market conditions.  Sudden declines in demand, rapid product improvements, or technological changes, or any combination of these factors can cause us to have excess or obsolete inventories.  On an ongoing basis, we review for estimated excess, obsolete, or unmarketable inventories and write down our inventories to their net realizable value based on our forecasts of future demand and market conditions.  If actual market conditions are less favorable than our forecasts, additional inventory write-downs may be required.  The following factors influence our estimates: changes to or cancellations of customer orders, unexpected or sudden decline in demand, rapid product improvements, technological advances, and termination or changes by our OEM customers of any product offerings incorporating our product solutions.\n\n\nPeriodically, we purchase inventory from our contract manufacturers when a customer delays its delivery schedule or cancels its order.  In those circumstances, we record a write-down, if necessary, to reduce the carrying value of the inventory purchased to its net realizable value.  The effect of these write-downs is to establish a new cost basis in the related inventory, which we do not subsequently write up.  We also record a liability and charge to cost of revenue for estimated losses on inventory we are obligated to purchase from our contract manufacturers when such losses become probable from customer delays, order cancellations, or other factors.\n\n\nBusiness Combinations\n\n\nWe allocate the fair value of the purchase consideration of a business acquisition to the tangible assets, liabilities, and intangible assets acquired, including in-process research and development (\u201cIPR&D\u201d), based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. IPR&D is initially recorded at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, IPR&D is reclassified as an amortizable intangible asset and amortized over the asset\u2019s estimated useful life. Our valuation of acquired assets and assumed liabilities requires significant estimates, especially with respect to intangible assets. The valuation of intangible assets requires that we use valuation techniques such as the income approach that includes the use of a discounted cash flow model, which includes discounted cash flow scenarios and requires the following significant estimates: future expected revenue, expenses, capital expenditures and other costs, and\n \n\n\n35\n\n\n\n\n\u00a0\n\n\ndiscount rates. We estimate the fair value based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. Acquisition-related expenses and related restructuring costs are recognized separately from the business combination and are expensed as incurred.\n\n\nIncome Taxes\n\n\nWe estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual tax exposure together with assessing temporary differences resulting from the differing treatment of certain items for tax return and financial statement purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets.\n\n\nWe recognize income taxes using an asset and liability approach. This approach requires the recognition of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The measurement of current and deferred taxes is based on the provisions of enacted tax law and the effects of future changes in tax laws or rates are not anticipated.  Taxes payable on Global Intangible Low-Taxed Income, or GILTI, inclusions in the U.S. are recognized as a current period expense when incurred.\n\n\nEvaluating the need for a valuation allowance for deferred tax assets requires judgment and analysis of all positive and negative evidence available, including recent earnings history and taxable income in recent years, reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies to determine whether all or some portion of the deferred tax assets will not be realized. Using available evidence and judgment, we establish a valuation allowance for deferred tax assets when it is determined that it is more likely than not that they will not be realized. Valuation allowances have been provided primarily against state research and development credits and certain capital losses of foreign subsidiaries. A change in the assessment of the realizability of deferred tax assets may materially impact our tax provision in the period in which a change of assessment occurs.\n \n\n\nAs a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions. The taxation of our business is subject to the application of various and sometimes conflicting tax laws and regulations as well as multinational tax conventions. Our effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or losses, tax laws and regulations in various jurisdictions, tax incentives, the availability of tax credits and loss carryforwards, and the effectiveness of our tax planning strategies, which includes our estimates of the fair value of our intellectual property. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, and the evolution of regulations and court rulings and tax audits. There can be no assurance that we will accurately predict the outcome of audits, and the amounts ultimately paid on resolution of audits could be materially different than the amounts previously included in our income tax expense and therefore, could have a material impact on our tax provision, results of operations, and cash flows. Consequently, taxing authorities may impose tax assessments or judgments against us that could materially impact our tax liability and/or our effective income tax rate.\n\n\nWe are subject to income tax audits by the respective tax authorities in the jurisdictions in which we operate. We recognize the effect of income tax positions only if these positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is more than 50% likely to be realized. Changes in recognition or measurement with respect to our uncertain tax positions are reflected in the period in which a change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in income tax expense. The calculation of our tax liabilities involves the inherent uncertainty associated with complex tax laws. We believe we have adequately provided for in our financial statements additional taxes that we estimate to be required as a result of such examinations. While we believe that we have adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than our accrued position. Any unpaid tax liabilities, including the interest and penalties, are released pursuant to a final settlement with tax authorities, completion of audit or expiration of various statutes of limitation. The material jurisdictions in which we are subject to potential examination by tax authorities throughout the world include Japan, India, Hong Kong, Israel and the United States.\n\n\nThe recognition and measurement of income taxes payable or refundable, and deferred tax assets and liabilities require that we make certain estimates and judgments. Changes to these estimates or judgments may have a material effect on our income tax provision in a future period.\n\n\nGoodwill\n\n\nGoodwill is the excess of the aggregate of the consideration transferred over the identifiable assets acquired and liabilities assumed in connection with business combinations. Our reporting units are at the operating segment level. Our goodwill is contained within two reporting units: IoT, and Mobile/PC.\n\n\n36\n\n\n\n\n\u00a0\n\n\nWe perform our goodwill impairment analysis in the fourth quarter of each year and, if certain events or circumstances indicate that an impairment loss may have been incurred, on a more frequent basis. The analysis may include both qualitative and quantitative factors to assess the likelihood of an impairment, which occurs when the carrying value of a reporting unit exceeds its fair value. Significant judgment is required in estimating the fair value of our reporting units to determine if the fair values of those units exceed their carrying values and an impairment to goodwill is required when a quantitative goodwill impairment test is performed. The fair values of our reporting units are estimated using a combination of the income approach, which requires estimating the present value of expected future cash flows of a reporting unit, and the market approach, which uses various financial data and ratios of comparable companies to arrive at an estimated value for the reporting unit. Significant estimates and assumptions used in the income approach include assessments of macroeconomic conditions, projected growth rates of our reporting units in the near and long-term, expectations of our ability to execute on our roadmap, and the discount rate applied to cash flows. Significant estimates used in the market approach include the identification of comparable companies for each reporting unit, the determination of an appropriate control premium that a market participant would apply to a reporting unit, and the determination of appropriate multiples to apply to a reporting unit based on adjustments and consideration of specific attributes of that reporting unit.\n\n\nOur quantitative assessment for the current year indicated that the fair value of our reporting units substantially exceeded their carrying value.\n\n\n\u00a0\n\n\nTrends and Uncertainties\n\n\n\u00a0\n\n\nCurrent Economic Conditions\n \n\n\nThe impact of rising rates over the course of the past 18 months has had a material impact on many sectors of the economy leading to broad-based workforce reductions, a slowing or deferral of investment in information technology spending, and increased concern of a global recession. We believe the threat of global recession is the primary driver for the slowdown in orders from our customer base that we have experienced. During fiscal 2023, we experienced a broad reduction in demand in most of our product applications as many customers and channel partners continue to consume their accumulation of inventories, combined with customer requests to delay orders. Inflation in the costs of goods and services has not had a material impact on our results of operations, but rising inflation could increase our operating expenses and reduce our net income. Further, rising interest rates have increased our borrowing costs on our variable rate Term Loan Facility, which will continue to drive an increase in interest costs in future accounting periods and potentially limit our borrowing capacity if a future acquisition opportunity requiring financing presents itself.\n \n\n\n\u00a0\n\n\n37\n\n\n\n\n\u00a0\n\n\nResults of Operations\n\n\nThe following sets forth certain of our consolidated statements of operations data for fiscal 2023 and 2022 along with comparative information regarding the absolute and percentage changes in these amounts (in millions, except percentages):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n$ Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nIoT product applications\n\n\n\u00a0\n\n\n$\n\n\n946.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,100.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(154.6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(14.0\n\n\n%)\n\n\n\n\n\n\nPC product applications\n\n\n\u00a0\n\n\n\u00a0\n\n\n217.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n343.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(125.7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(36.6\n\n\n%)\n\n\n\n\n\n\nMobile product applications\n\n\n\u00a0\n\n\n\u00a0\n\n\n191.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n295.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(104.3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(35.3\n\n\n%)\n\n\n\n\n\n\nNet revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,355.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,739.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(384.6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(22.1\n\n\n%)\n\n\n\n\n\n\nGross margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n715.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n943.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(227.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(24.1\n\n\n%)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating expenses:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n\u00a0\n\n\n351.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n367.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4.4\n\n\n%)\n\n\n\n\n\n\nSelling, general, and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n175.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n168.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.9\n\n\n%\n\n\n\n\n\n\nAcquired intangibles amortization\n\n\n \n\n\n\u00a0\n\n\n35.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3.3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8.5\n\n\n%)\n\n\n\n\n\n\nRestructuring costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(18.3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(100.0\n\n\n%)\n\n\n\n\n\n\nOperating income\n\n\n\u00a0\n\n\n\u00a0\n\n\n154.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n350.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(196.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(56.0\n\n\n%)\n\n\n\n\n\n\nInterest and other income, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n27.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n806.7\n\n\n%\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(55.5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(30.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(25.3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n83.8\n\n\n%\n\n\n\n\n\n\nLoss on extinguishment of debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(100.0\n\n\n%)\n\n\n\n\n\n\nGain from sale and leaseback transaction\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5.4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(100.0\n\n\n%)\n\n\n\n\n\n\nIncome before provision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n126.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n320.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(194.5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(60.7\n\n\n%)\n\n\n\n\n\n\nProvision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n52.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n64.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(18.9\n\n\n%)\n\n\n\n\n\n\nEquity investment loss\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1.6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(100.0\n\n\n%)\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n\n\n73.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n257.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(183.9\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(71.4\n\n\n%)\n\n\n\n\n\n\nThe following sets forth certain of our consolidated statements of operations data as a percentage of net revenues for fiscal 2023 and 2022:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nPercentage\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nPoint\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\n\n\nIoT product applications\n\n\n\u00a0\n\n\n\u00a0\n\n\n69.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n63.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.5\n\n\n%\n\n\n\n\n\n\nPC product applications\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3.7\n\n\n%)\n\n\n\n\n\n\nMobile product applications\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n17.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2.8\n\n\n%)\n\n\n\n\n\n\nNet revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGross margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n52.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n54.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1.4\n\n\n%)\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating expenses:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.8\n\n\n%\n\n\n\n\n\n\nSelling, general, and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.2\n\n\n%\n\n\n\n\n\n\nAcquired intangibles amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.4\n\n\n%\n\n\n\n\n\n\nRestructuring costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1.1\n\n\n%)\n\n\n\n\n\n\nOperating income\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8.7\n\n\n%)\n\n\n\n\n\n\nInterest and other income, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.8\n\n\n%\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4.1\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1.7\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2.4\n\n\n%)\n\n\n\n\n\n\nLoss on extinguishment of debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.5\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.5\n\n\n%\n\n\n\n\n\n\nGain from sale and leaseback transaction\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.3\n\n\n%)\n\n\n\n\n\n\nIncome before provision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9.1\n\n\n%)\n\n\n\n\n\n\nProvision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.2\n\n\n%\n\n\n\n\n\n\nEquity investment loss\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.1\n\n\n%)\n\n\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9.4\n\n\n%)\n\n\n\n\n\n\n\u00a0\n\n\n38\n\n\n\n\n\u00a0\n\n\nFiscal 2023 Compared with Fiscal 2022\n\n\nNet Revenue.\n\n\nNet revenue was $1,355.1 million for fiscal 2023 compared with $1,739.7 for fiscal 2022, a decrease of $384.6 million, or 22.1%.  Of our fiscal 2023 net revenue, $946.3 million, or 69.8%, of net revenue was from the IoT product applications market, $217.3 million, or 16.0%, of net revenue was from the PC product applications market, and $191.5 million, or 14.2%, of net revenue was from the mobile product applications market.  The overall decrease in net revenue for fiscal 2023 was due to demand and inventory corrections in our market areas resulting in a decrease in revenues in all our product applications.  Net revenue from IoT product applications decreased $154.6 million, or 14.0%,  net revenue from PC product applications decreased $125.7 million, or 36.6%, and net revenue from mobile product applications decreased $104.3 million, or 35.3%.  The decrease in net revenue from IoT product applications was primarily driven by a 11.6% decrease in the units sold as well as a 2.7% decrease in average selling prices. The decrease in net revenue from PC product applications was driven by a 38.3% decrease in the units sold, partially offset by a 2.7% increase in average selling prices.  The decrease in mobile product applications was driven by a 29.3% decrease in the units sold as well as a 8.4% decrease in average selling prices.\n \n\n\nThe overall decrease in our revenues in fiscal 2023 compared to fiscal 2022 is the result of a broad reduction in demand in most of our product applications as many customers and channel partners continued to consume their accumulation of inventories, combined with customer requests to delay orders and downward pressure on product pricing.\n \n\n\nGross Margin.\n \n\n\nGross margin as a percentage of net revenue was 52.8%, or $715.9 million, for fiscal 2023 compared with 54.2%, or $943.1 million, for fiscal 2022.  The 140 basis point decrease in gross margin was primarily due to a decrease in units sold as well as an overall decline in average selling prices in all our product applications.\n\n\nBecause we sell our technology solutions in designs that are generally unique or specific to an OEM customer\u2019s application, gross margin varies on a product-by-product basis, making our cumulative gross margin a blend of our product specific designs.  We charge losses on inventory purchase obligations and write-downs to reduce the carrying value of obsolete, slow moving, and non-usable inventory to net realizable value (including warranty costs) to cost of revenue.\n\n\nOperating Expenses.\n\n\nResearch and Development Expenses.\n  Research and development expenses decreased $16.1 million, to $351.2 million, for fiscal 2023 compared with fiscal 2022.  The decrease in research and development expenses primarily reflected a $21.8 million decrease in variable compensation and a $17.0 million decrease in share-based compensation costs primarily related to our phantom stock awards.  The final vesting of our phantom stock awards occurred in the second quarter of fiscal 2023 and there are no phantom stock awards outstanding.  Total compensation costs associated with our phantom stock awards for fiscal 2023 and 2022 were $0.3 million and $27.2 million, respectively. These decreases were partially offset by an increase in payroll related costs of $17.8 million as a result of increases in headcount and an increase of $3.9 million in new product development activities.\n\n\nSelling, General, and Administrative Expenses.\n Selling, general, and administrative expenses increased $6.6 million, to $175.0 million, for fiscal 2023 compared with fiscal 2022.  The increase in selling, general, and administrative expenses primarily reflected a net increase of $6.8 million in share-based compensation costs.  The net increase in share-based compensation was a combination of increases in share-based compensation from equity awards granted during fiscal 2023, partially offset by decreases in phantom stock and performance-based stock awards year over year.  Payroll related costs increased $4.1 million as a result of increases in headcount.  The increase in selling, general and administrative expense was partially offset by a decrease of $11.2 million in variable compensation costs.\n\n\nAcquired Intangibles Amortization.\n  Acquired intangibles amortization reflects the amortization of intangibles acquired through recent acquisitions.  See Note 7 Goodwill and Acquired Intangible Assets to the consolidated financial statements contained elsewhere in this report.\n\n\n39\n\n\n\n\n\u00a0\n\n\nRestructuring Costs.\n Restructuring costs primarily reflect employee severance costs and facilities consolidation costs related to the restructuring of operations, improve efficiencies in our operational activities and gain synergies from acquisitions.  These headcount-related costs included personnel in operations, research and development, and selling, general and administrative functions.  There were no restructuring costs incurred during fiscal 2023.  Restructuring costs incurred in fiscal 2022 were $18.3 million.  See Note 16 Restructuring Activities to the consolidated financial statements contained elsewhere in this report.\n\n\nNon-Operating Income.\n\n\nInterest and Other Income, Net.\n  Interest and other income, net increased $24.2 million, to $27.2 million for fiscal 2023 compared with fiscal 2022.  The increase is due to higher interest rates on our cash, cash equivalents and short-term investments.\n\n\nInterest Expense.\n  Interest expense and amortization of debt issuance costs increased $25.3 million to $55.5 million during fiscal 2023 as compared to $30.2 million during fiscal 2022.  Interest expense on the $600 million incremental Term Loan Facility increased by $26.0 million during fiscal 2023 compared to the same period a year ago, as the interest rate on the Term Loan Facility increased by approximately 340 basis points period-over-period.  Additionally, the Term Loan Facility was funded in December 2021 and included approximately seven months of interest expense during fiscal 2022.  The interest expense on the Term Loan Facility during fiscal 2023 and 2022 was $36.2 million and $10.2 million, respectively.\n \n\n\nLoss on redemption of convertible notes\n. Loss on redemption of convertible notes represents the difference between fair value and the carrying value as of the redemption date of the convertible notes.  The loss on redemption of convertible notes for fiscal 2022 was $8.1 million.\n\n\nGain from sale and leaseback transaction\n. Gain from sale and leaseback transaction represents the gain from the sale of our headquarters buildings and properties located San Jose, California in fiscal 2022.  The gain from the sale and leaseback transaction for fiscal 2022 was $5.4 million.\n \n\n\nProvision for Income Taxes. \nThe provision for income taxes was $52.4 million and $64.6 million in fiscal 2023 and 2022, respectively, represented estimated federal, foreign, and state income taxes. The effective tax rate for fiscal 2023 diverged from the combined U.S. federal and state statutory tax rate primarily due to tax law changes becoming effective in our fiscal 2023, including non-creditable foreign withholding taxes resulting from the final foreign tax credit regulations published in January 2022 and the research and development capitalization rules increasing our GILTI, resulting from the U.S. Tax Cuts and Jobs Act of 2017, and non-deductible officer compensation, partially offset by the benefit of foreign income taxed at lower rates, and research credits. See \u201cNote 14 Income Taxes\u201d to the consolidated financial statements contained elsewhere in this report for the table reconciling the provision for income taxes from the federal statutory rate for fiscal 2023, 2022 and 2021.\n\n\nFiscal 2022 Compared with Fiscal 2021.\n\n\n\u00a0\n\n\nFor discussion related to the results of operations and changes in financial condition for fiscal 2022 compared to fiscal 2021, please refer to \u201cPart II, Item 7. Management\u2019s Discussion and Analysis of Financial Conditions and Results of Operations\u201d in our fiscal 2022 Form 10-K, which was filed with the SEC on August 22, 2022.\n\n\nLiquidity and Capital Resources\n\n\nOur cash and cash equivalents were $924.7 million as of the end of fiscal 2023 compared with $824.0 million as of the end of fiscal 2022, an increase of $100.7 million. The increase primarily reflected cash flows provided by operating activities of $331.5 million, offset by $221.3 million of cash used by financing activities.\n\n\nWe consider almost all earnings of our foreign subsidiaries as not indefinitely reinvested overseas and have made appropriate provisions for income or withholding taxes, that may result from a future repatriation of those earnings.  As of the end of fiscal 2023, $824.4 million of cash and cash equivalents was held by our foreign subsidiaries.  If these funds are needed for our operations in the U.S., we will be able to repatriate these funds without any further impact on our tax provision.\n\n\nCash Flows from Operating Activities.\n  For fiscal 2023, the $331.5 million in net cash provided by operating activities was primarily attributable to net income of $73.6 million plus adjustments for non-cash charges, including acquired intangibles amortization of $130.4 million, share-based compensation costs of $122.0 million, depreciation and amortization of $27.4 million, as well as other non-cash adjustments of $1.5 million, and a net change in operating assets and liabilities of $23.4 million.  The net change in operating assets and liabilities related primarily to a $161.3 million decrease in accounts receivable primarily related to a decrease in sales, a decrease of $24.6 million in inventories as we continued our efforts to control inventory spend while turning over the inventories we accumulated during the first half of fiscal 2023, a decrease of  $95.6 million in accounts payable due to timing of payments and a decrease of $45.4 in accrued compensation primarily related to decreases in our annual bonus accrual. Our days sales outstanding was 65 days in fiscal 2023 as compared to 61 days in fiscal 2022. Our inventory turns decreased to three times in fiscal 2023 from four times in fiscal 2022.\n \n\n\n40\n\n\n\n\n\u00a0\n\n\nFor fiscal 2022, the $462.7 million in net cash provided by operating activities was primarily attributable to net income of $257.5 million plus adjustments for non-cash charges, including acquired intangibles amortization of $123.5 million, share-based compensation costs of $100.8 million, depreciation and amortization of $24.0 million, as well as other non-cash adjustments of $24.2 million, and a net change in operating assets and liabilities of $18.9 million.  The net change in operating assets and liabilities related primarily to an $81.1 million increase in accounts receivable, an increase of $54.2 million in inventories, an increase of $23.2 million in accounts payable, an increase of $48.6 million in income taxes payable and an increase of $17.4 million in other accrued liabilities.  Our days sales outstanding was 61 days in fiscal 2022 as compared to 63 days in fiscal 2021. Our inventory turns decreased to four times in fiscal 2022 from seven times from fiscal 2021.\n \n\n\nCash Flows from Investing Activities.\n  Net cash used in investing activities for fiscal 2023 was $6.0 million and consisted primarily of $15.5 million used for the acquisition of businesses, net of cash and cash equivalents acquired, and $34.2 million used for the purchases of property and equipment; partially offset by $43.6 in proceeds from maturities and sales of our short-term investments.\n \n\n\nNet cash used in investing activities for fiscal 2022 was $482.7 million and consisted primarily of $501.1 million used for the acquisition of businesses, net of cash and cash equivalents acquired, and $31.1 million used for the purchases of property and equipment; partially offset by proceeds from sale and leaseback transaction of $55.9 million and $24.4 million in proceeds from sales of investments.\n \n\n\nCash Flows from Financing Activities.\n  Net cash used in financing activities for fiscal 2023 was $221.3 million and was primarily attributable to $183.5 million in repurchases of our common stock, $6.0 in debt repayments and $54.5 million used for payroll taxes for restricted stock units, or RSUs, market stock units, or MSUs, and performance stock units, or PSUs, partially offset by $17.6 million in proceeds from issuance of shares.\n\n\nOur net cash provided by financing activities for fiscal 2022 was $14.3 million and was primarily attributable to $600.0 million in proceeds from issuance of debt and $15.2 million in proceeds from issuance of shares, partially offset by $3.0 million of payment on debt, $67.3 million used for payroll taxes for restricted stock units, or RSUs, market stock units, or MSUs, and performance stock units, or PSUs, and $505.6 million used for payment for redemption of convertible notes.\n \n\n\nFor discussion related to the statement of cash flows for fiscal 2021, please refer to \u201cPart II, Item 7. Management\u2019s Discussion and Analysis of Financial Conditions and Results of Operations\u201d in our fiscal 2021 Form 10-K, which was filed with the SEC on August 23, 2021.\n\n\nCommon Stock Repurchase Program.\n As of the end of fiscal 2023, our Board of Directors had cumulatively authorized the purchase of up to an aggregate of $2.3 billion of our common stock pursuant to our common stock repurchase program through July 2025.  The program authorizes us to purchase our common stock in the open market or in privately negotiated transactions, depending upon market conditions and other factors. The number of shares purchased, and the timing of purchases is based on the level of our cash balances, general business and market conditions, and other factors, including alternative investment opportunities.  Common stock purchased under this program is held as treasury stock.  From April 2005 through the end of fiscal 2023, we purchased, net of issuances for settlement of our convertible notes, 30,116,439 shares of our common stock in the open market for an aggregate cost of $878.0 million. As of the end of fiscal 2023, the remaining available authorization under our common stock repurchase program was $893.9 million.\n\n\nSenior Notes. \nOn March 11, 2021, we completed an offering of $400.0 million aggregate principal amount of 4.0% senior notes due 2029, or the Senior Notes, in a private offering. The Senior Notes were issued pursuant to an Indenture, dated as of March 11, 2021, or the Indenture, by and among our company, the guarantors named therein and Wells Fargo Bank, National Association, as trustee. The Senior Notes requires bi-annual interest only payments.  In fiscal 2023, we paid interest expense of $16.0 million on the Senior Notes.\n\n\nBank Credit Facility. \nOn March 16, 2023, we entered into the Second Amendment to our Credit Agreement, dated March 11, 2021.  The Second Amendment replaces the LIBOR-based interest rate applicable to borrowings under the Credit Agreement with SOFR-based interest rate\n. \nOn July 28, 2023, we entered into the Third Amendment to our Credit Agreement, which provides that the consolidated interest coverage ratio financial covenant will only apply if, as of the last day of any fiscal quarter, our aggregate cash and cash equivalents are less than $450 million. The Credit Agreement provides for a revolving credit facility in a principal amount of up to $250 million, which includes a $20 million sublimit for letters of credit and a $25 million sublimit for swingline loans. Under the terms of the Credit Agreement, we may, subject to the satisfaction of certain conditions, request increases in the revolving credit facility commitments in an aggregate principal amount of up to $150 million to the extent existing or new lenders agree to provide such increased or additional commitments, as applicable.  Future proceeds under the revolving credit facility are available for working capital and general corporate purposes. As of June 2023, there was no balance outstanding under the revolving credit facility.\n \n\n\n41\n\n\n\n\n\u00a0\n\n\nTerm Loan Facility\n. In December 2021, we entered into that certain First Amendment and Lender Joinder Agreement to the Credit Agreement, to, among other things, establish a new $600.0 million incremental term loan facility, or the Term Loan Facility. The Term Loan Facility was advanced under the Credit Agreement to finance our DSPG acquisition.  The Term Loan Facility matures on December 2, 2028. Principal on the Term Loan Facility is payable in equal quarterly installments on the last day of each March, June, September and December of each year, beginning December 31, 2021, at a rate of 1.00% per annum, plus an applicable margin.  For the year-ended June 2023, we repaid $6.0 million of the principal outstanding on the Term Loan Facility.\n\n\nSee \u201cNote 8. Debt\u201d in the Notes to the Condensed Consolidated Financial Statements for additional information on our outstanding debt obligations.\n\n\n$100 Million Shelf Registration.\n  We have registered an aggregate of $100.0 million of common stock and preferred stock for issuance in connection with acquisitions, which shares generally will be freely tradeable after their issuance under Rule 145 of the Securities Act unless held by an affiliate of the acquired company, in which case such shares will be subject to the volume and manner of sale restrictions of Rule 144 of the Securities Act.\n\n\nWorking Capital Needs.\n  We believe our existing cash and cash equivalents, anticipated cash flows from operating activities, anticipated cash flows from financing activities, and available credit under our revolving credit facility, will be sufficient to meet our working capital and other cash requirements, including small tuck-in acquisitions, and our debt service obligations for at least the next 12 months. Our future capital requirements will depend on many factors, including our revenue, the timing and extent of spending to support product development efforts, costs associated with restructuring activities net of projected savings from those activities, costs related to protecting our intellectual property, the expansion of sales and marketing activities, timing of introduction of new products and enhancements to existing products, costs to ensure access to adequate manufacturing, costs of maintaining sufficient space for our workforce, the continuing market acceptance of our product solutions, our common stock repurchase program, and the amount and timing of our investments in, or acquisitions of, other technologies or companies. Further equity or debt financing may not be available to us on acceptable terms or at all. If sufficient funds are not available or are not available on acceptable terms, our ability to fund our future long-term working capital needs, take advantage of business opportunities or to respond to competitive pressures could be limited or severely constrained.\n \n\n\nThe undistributed earnings of our foreign subsidiaries are not currently required to meet our United States working capital and other cash requirements, but should we repatriate a portion of these earnings, we may be required to pay certain previously accrued state and foreign taxes, which would impact our cash flows.\n \n\n\nContractual Obligations and Commercial Commitments. \nThe following table sets forth a summary of our material contractual obligations and commercial commitments as of the end of fiscal 2023 (in millions):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nPayments due by period\n\n\n\u00a0\n\n\n\n\n\n\nContractual Obligations\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\nLess than\n1 year\n\n\n\u00a0\n\n\n\u00a0\n\n\n1-3\nYears\n\n\n\u00a0\n\n\n\u00a0\n\n\n3-5\nYears\n\n\n\u00a0\n\n\n\u00a0\n\n\nThereafter\n\n\n\u00a0\n\n\n\n\n\n\nLong-term debt \n(1)\n\n\n\u00a0\n\n\n$\n\n\n1,339.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n67.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n133.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n131.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,006.1\n\n\n\u00a0\n\n\n\n\n\n\nLeases\n\n\n\u00a0\n\n\n\u00a0\n\n\n62.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.1\n\n\n\u00a0\n\n\n\n\n\n\nPurchase obligations and other commitments \n(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n142.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n1,543.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n148.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n223.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n145.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,026.2\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nRepresents the principal and interest payable through the maturity date of the underlying contractual obligation.\n\n\n(2)\nPurchase obligations and other commitments include payments due for inventory purchase obligations with contract manufacturers, long-term software tool licenses, and other licenses. \n\n\nThe amounts in the table above exclude gross unrecognized tax benefits related to uncertain tax positions of $43.7 million. As of the end of fiscal 2023, we were unable to make a reasonably reliable estimate of when cash settlement with a taxing authority may occur in connection with our gross unrecognized tax benefit.\n \n\n\nWe do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to materially affect our financial condition, revenues or expenses, results of operations, liquidity, or capital resources.  We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support; engage in leasing, hedging, or research and development services; or have other relationships that expose us to liability that is not reflected in our financial statements.\n\n\n42\n\n\n\n\n\u00a0\n\n\nRecent Accounting Pronouncements\n\n\nPlease see \"Note 1 - Organization and Summary of Significant Accounting Policies - Accounting Pronouncements Issued But Not Yet Adopted\u201d in our Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this Annual Report on Form 10-K.\n\n\n\u00a0\n\n\n43\n\n\n\n\n\u00a0\n\n",
+  "item7a": ">ITEM 7A.\tQUANTITATIVE AND QUALITAT\nIVE DISCLOSURES ABOUT MARKET RISK\n\n\nWe are exposed to certain market risks in the ordinary course of our business. These risks primarily include:\n\n\nForeign Currency Exchange Risk\n \n\n\nOur total net revenue for fiscal 2023 and 2022 was denominated in U.S. dollars.  Costs denominated in foreign currencies were approximately 13% of our total costs in each of fiscal years 2023 and 2022.\n \n\n\nWe face the risk that our accounts payable and acquisition-related liabilities denominated in foreign currencies will increase if such foreign currencies strengthen quickly and significantly against the U.S. dollar. Approximately 12% and 2% of our accounts payable were denominated in foreign currencies in June 2023 and June 2022, respectively.\n\n\nTo provide an assessment of the foreign currency exchange risk associated with our foreign currency exposures within revenue, cost, and operating expenses, we performed a sensitivity analysis to determine the impact that an adverse change in exchange rates would have on our financial statements. A hypothetical weighted-average change of 10% in currency exchange rates would have changed our operating income before taxes by approximately $15.5 million and our net income by approximately $19.3 million for fiscal 2023, assuming no offsetting hedge positions.  However, this quantitative measure has inherent limitations. The sensitivity analysis disregards the possibility that U.S. dollar and other exchange rates can move in opposite directions and that gains from one currency may or may not be offset by losses from another currency.\n\n\nInterest Rate Risk on Cash, Cash Equivalents\n\n\nOur exposure to market risk for changes in interest rates relates primarily to our cash and cash equivalents and short-term investments. We do not use our investment portfolio for trading or other speculative purposes.  There have been no significant changes in the maturity dates and average interest rates for our cash equivalents subsequent to fiscal 2023.\n \n\n\nInterest Rate Risk on Debt\n\n\nWith our outstanding debt, we are exposed to various forms of market risk, including the potential losses arising from adverse changes in interest rates on our outstanding Term Loan.  See \u201cNote 8. Debt\u201d for further information. A hypothetical increase in the interest rate by 1% would result in an increase in annual interest expense by approximately $6.0 million.\n \n\n",
+  "cik": "817720",
+  "cusip6": "87157D",
+  "cusip": ["87157D909", "87157D109", "87157D959", "87157d109"],
+  "names": ["SYNAPTICS", "INC. CMN", "SYNAPTICS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/817720/000095017023043521/0000950170-23-043521-index.htm"
+}
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+{
+  "item1": ">Item 1.\t\nB\nusiness\n\n\nOur Company\n\n\nWe are a leader in performance marketplaces and technologies for the financial services and home services industries. Our approach to proprietary performance marketing technologies allows clients to engage high-intent digital media or traffic from a wide range of device types (e.g., mobile, desktop, tablet), in multiple formats or types of media (e.g., search engines, large and small media properties or websites, email), and in a wide range of cost-per-action, or CPA, forms. These forms of contact are the primary \u201cproducts\u201d we sell to our clients, and include qualified clicks, leads, calls, applications and customers. We specialize in customer acquisition for clients in high value, information-intensive markets, or \u201cverticals,\u201d including financial services and home services. Our clients include some of the world\u2019s largest companies and brands in those markets. The majority of our operations and revenue are in North America.\n\n\nWe generate revenue by delivering measurable online marketing results to our clients. The benefits to our clients include cost-effective and measurable customer acquisition costs, as well as management of highly targeted but also highly fragmented online media sources and access to our world-class proprietary technologies. We are predominantly paid on a negotiated or market-driven \u201cper click,\u201d \u201cper lead,\u201d or other \u201cper action\u201d basis that aligns with the customer acquisition cost targets of our clients. We bear the cost of paying Internet search companies, third-party media sources, strategic partners and other online media sources to generate qualified clicks, leads, calls, applications or customers for our clients.\n\n\nOur competitive advantages include our media buying power, proprietary technologies, extensive data and experience in performance marketing, and significant online media market share in the markets or verticals we serve. Our advantage in online media buying is key to our business model and comes from our ability to effectively segment and match high-intent, unbranded media or traffic \u2013 one of the largest sources of traffic for customer acquisition \u2013 to as many as hundreds of clients or client offerings and, in most cases, to match those visitors to multiple clients, which also satisfies the visitor\u2019s desire to choose among alternatives and to shop multiple offerings. Together, the ability to match more visitors in any given flow of traffic or media to a client offering, and to do so multiple times, adds up to a significant media buying advantage compared to individual clients or other buyers for these types of media.\n\n\nOur proprietary technologies have been developed over the past 24 years to allow us to best segment and match media or traffic, to deliver optimized results for our clients and to operate our high volume and highly complex channel cost-efficiently.\n \n\n\nOur extensive data and experience in performance marketing reflect the execution, knowledge and learning from billions of dollars of media spend on these campaigns over time. This is a steep and expensive learning curve. These learnings address millions of permutations of media sources, mix and order of creative and content merchandising, and approaches to the matching and segmentation of Internet visitors to optimize their experience and the results for clients. Together, these learnings allow us to run thousands of campaigns simultaneously and cost-effectively for our clients at acceptable media costs and margins to us.\n \n\n\nBecause of our deep expertise and capabilities in running financially successful performance marketing programs, we are able to effectively compete for sources and partners of high-intent, unbranded media, and our market share in our client verticals of this media is significant. Our media sources include owned-and-operated organic or search engine optimization (\u201cSEO\u201d) websites, targeted search engine marketing (\u201cSEM\u201d) or pay-per-click (\u201cPPC\u201d) campaigns, social media and mobile programs, internal email databases, call center operations, partnerships with large and small online media companies, and more. Our collective media presence results in engagement with a significant share of online visitors in those markets or verticals, which leads us to be included in client online media buys.\n\n\nWe were incorporated in California on April 16, 1999 and reincorporated in Delaware on December 31, 2009. We have been a pioneer in the development and application of measurable marketing on the Internet. Clients pay us for the actual opt-in actions by visitors or customers that result from our marketing activities on their behalf, versus traditional impression-based advertising and marketing models in which an advertiser pays for a broad audience\u2019s exposure to an advertisement.\n\n\nMarket Opportunity\n\n\nChange in marketing strategy and approach\n\n\nWe believe that marketing approaches are changing as budgets shift from offline, analog advertising media to digital advertising media such as Internet marketing. These changing approaches require a shift to fundamentally new competencies, including:\n\n\n4\n\n\n\n\n\u00a0\n\n\nFrom qualitative, impression-driven marketing to analytic, data-driven marketing\n\n\nGrowth in Internet marketing enables a more data-driven approach to advertising. The measurability of online marketing allows marketers to collect a significant amount of detailed data on the performance of their marketing campaigns, including the effectiveness of ad format and placement and user responses. This data can then be analyzed and used to improve marketing campaign performance and cost-effectiveness on substantially shorter cycle times than with traditional offline media.\n\n\nFrom account management-based client relationships to results-based client relationships\n\n\nMarketers are becoming increasingly focused on strategies that deliver specific, measurable results. For example, marketers are attempting to better understand how their marketing spending produces measurable objectives such as meeting their target marketing cost per new customer. As marketers adopt more results-based approaches, the basis of client relationships with their marketing services providers is shifting from being more account management-based to being more results-oriented.\n\n\nFrom marketing messages pushed on audiences to marketing messages pulled by self-directed audiences\n\n\nTraditional marketing messages such as television and radio advertisements are broadcast to a broad audience. The Internet enables more self-directed and targeted marketing. For example, when Internet visitors click on PPC search advertisements, they are expressing an interest in and proactively engaging with information about a product or service related to that advertisement. The growth of self-directed marketing, primarily through online channels, allows marketers to present more targeted and potentially more relevant marketing messages to potential customers who have taken the first step in the buying process, which can in turn increase the effectiveness of marketers\u2019 spending.\n\n\nFrom marketing spending focused on large media buys to marketing spending optimized for fragmented media\n\n\nWe believe that media is becoming increasingly fragmented and that marketing strategies are changing to adapt to this trend. There are millions of Internet websites, tens of thousands of which have significant numbers of visitors. While this fragmentation can create challenges for marketers, it also allows for improved audience segmentation and the delivery of highly targeted marketing messages, but innovative technologies and approaches are necessary to effectively manage marketing given the increasing complexity resulting from more media fragmentation.\n\n\nIncreasing complexity of online marketing\n\n\nOnline marketing is a dynamic and increasingly complex advertising medium. There are numerous online channels for marketers to reach potential customers, including search engines, Internet portals, vertical content websites, affiliate networks, display and contextual ad networks, email, video advertising, and social media. We refer to these and other marketing channels as media. Each of these channels may involve multiple ad formats and different pricing models, amplifying the complexity of online marketing. We believe that this complexity increases the demand for our vertical marketing and media services due to our capabilities and to our experience managing and optimizing online marketing programs across multiple channels. Also, marketers and agencies often lack our ability to aggregate offerings from multiple clients in the same industry vertical, an approach that allows us to cover a wide selection of visitor segments and provide more potential matches to visitor needs. This approach can allow us to convert more Internet visitors into qualified clicks, leads, calls, applications, or customers from targeted media sources, giving us an advantage when buying or monetizing that media.\n\n\n5\n\n\n\n\n\u00a0\n\n\nOur Business Model\n\n\nWe deliver measurable and cost-effective marketing results to our clients, typically in the form of qualified inquiries such as clicks, leads, calls, applications, or customers. Clicks, leads, calls, and applications can then convert into a customer or sale for clients at a rate that results in an acceptable marketing cost to them. We are typically paid by clients when we deliver qualified inquiries in the form of clicks, leads, calls, applications, or customers, as defined by our agreements with them. References to the delivery of customers means a sale or completed customer transaction (e.g., funded loans, bound insurance policies or customer appointments with clients). Because we bear the costs of media, our programs must result in attractive marketing costs to our clients at media costs and margins that provide sound financial outcomes for us. To deliver clicks, leads, calls, applications, and customers to our clients, generally we:\n\n\n\u2022\nown or access targeted media through business arrangements (e.g., revenue sharing arrangements with online publisher partners, large and small) or by purchasing media (e.g., clicks from major search engines);\n\n\n\u2022\nrun advertisements or other forms of marketing messages and programs in that media that result in consumer or visitor responses, typically in the form of clicks (by a consumer to further qualification or matching steps, or to online client applications or offerings), leads (e.g., consumer contact information), calls (from a consumer or to a consumer by our owned and operated or contracted call centers or by that of our clients or their agents), applications (e.g., for enrollment or a financial product), or customers (e.g., funded personal loans);\n\n\n\u2022\ncontinuously seek to display clients and client offerings to visitors or consumers that result in the maximum number of consumers finding solutions that can meet their needs and to which they will take action to respond, resulting in media buying efficiency (e.g., by segmenting media or traffic so that the most appropriate clients or client offerings can be displayed or \u201cmatched\u201d to each segment based on fit, response rates or conversion rates); and\n\n\n\u2022\nthrough technology and analytics, seek to optimize combination of objectives to satisfy the maximum number of shopping or researching visitors or consumers, deliver on client marketing objectives, effectively compete for online media, and generate a sound financial outcome for us.\n\n\nMedia cost, or the cost to attract targeted Internet visitors, is the largest cost input to producing the measurable marketing results we deliver to clients. Balancing our clients\u2019 customer acquisition cost and conversion objectives \u2014 or the rate at which the clicks, leads, calls, or applications that we deliver to them convert into customers \u2014 with our media costs and yield objectives, represents the primary challenge in our business model. We have been able to effectively balance these competing demands by focusing on our media sources and creative capabilities, developing proprietary technologies and optimization capabilities, and working to constantly improve segmentation and matching of visitors to clients through the application of our extensive data and experience in performance marketing. We also seek to mitigate media cost risk by working with third-party publishers and media owners predominantly on a revenue-share basis, which makes these costs variable and provides for risk management. Media purchased on a revenue-share basis has represented the majority of our media costs and of the Internet visitors we convert into qualified clicks, leads, calls, applications, or customers for clients, contributing significantly to our ability to maintain profitability.\n\n\nMedia and Internet visitor mix\n\n\nWe are a client-driven organization. We seek to be one of the largest providers of measurable marketing results on the Internet in the client industry verticals we serve by meeting the needs of clients for results, reliability and volume. Meeting those client needs requires that we maintain a diversified and flexible mix of Internet visitor sources due to the dynamic nature of online media. Our media mix changes with changes in Internet visitor usage patterns. We adapt to those changes on an ongoing basis, and also proactively adjust our mix of vertical media sources to respond to client- or vertical-specific circumstances and to achieve our financial objectives. Generally, our Internet visitor sources include:\n\n\n\u2022\nwebsites owned and operated by us, with content and offerings that are relevant to our clients\u2019 target customers;\n\n\n\u2022\nvisitors acquired from PPC advertisements purchased on major search engines and sent to our websites;\n\n\n\u2022\nthird-party media sources (including strategic partners) with whom we have a relationship and whose content or traffic is relevant to our clients\u2019 target customers;\n\n\n\u2022\nemail lists owned by us or by third-parties; and\n\n\n\u2022\nadvertisements run through online advertising networks, directly with major websites or portals, social media networks, or mobile networks.\n\n\n6\n\n\n\n\n\u00a0\n\n\nOur Strategy\n\n\nOur goal is to continue to be one of the largest and most successful performance marketing companies on the Internet, and eventually in other digitized media forms. We believe that we are in the early stages of a very large and long-term market opportunity. Our strategy for pursuing this opportunity includes the following key components:\n\n\n\u2022\nfocus on generating sustainable revenues by providing measurable value to our clients;\n\n\n\u2022\nbuild QuinStreet and our industry sustainably by behaving ethically in all we do and by providing quality content and website experiences to Internet visitors;\n\n\n\u2022\nremain vertically focused, choosing to grow through depth, expertise and coverage in our current client verticals; enter new client verticals selectively over time, organically and through acquisitions;\n\n\n\u2022\nbuild a world class organization, with best-in-class capabilities for delivering measurable marketing results to clients and high yields or returns on media costs;\n\n\n\u2022\ndevelop and evolve the best products, technologies and platform for managing successful performance marketing campaigns on the Internet; focus on technologies that enhance media yield, improve client results and achieve scale efficiencies;\n\n\n\u2022\nbuild and apply unique data advantages from running some of the largest campaigns over long periods of time in our client verticals, including the steep learning curves of what campaigns work best to optimize each media type and each client\u2019s results;\n\n\n\u2022\nbuild and partner with vertical content websites that attract high intent visitors in the client and media verticals we serve; and\n\n\n\u2022\nbe a client-driven organization and develop a broad set of media sources and capabilities to reliably meet client needs.\n\n\nClients\n\n\nIn fiscal years 2023, 2022 and 2021, we had one client, The Progressive Corporation, that accounted for 20%, 17% and 23% of net revenue. No other client accounted for 10% or more of net revenue in fiscal years 2023, 2022 and 2021. Our top 20 clients accounted for 52%, 51% and 58% of net revenue in fiscal years 2023, 2022 and 2021. Since our service was first offered in 2001, we have developed a broad client base with many multi-year relationships. We enter into Internet marketing contracts with our clients, most of which are cancelable with little or no prior notice. In addition, these contracts do not contain penalty provisions for cancellation before the end of the contract term.\n\n\nSales and Marketing\n\n\nWe have an internal sales team that consists of employees focused on signing new clients and account managers who maintain and seek to increase our business with existing clients. Our sales people and account managers are each focused on a particular client vertical so that they develop an expertise in the marketing needs of our clients in that particular vertical.\n\n\nTechnology and Infrastructure\n\n\nWe have developed a suite of technologies to manage, improve and measure the results of the marketing programs we offer our clients. We use a combination of proprietary and third-party software as well as hardware from established technology vendors. We use specialized software for client management, building and managing websites, acquiring and managing media, managing our third-party media sources, and using data and optimization tools to best match Internet visitors to our marketing clients. We have invested significantly in these technologies and plan to continue to do so to meet the demands of our clients and Internet visitors, to increase the scalability of our operations, and enhance management information systems and analytics in our operations. Our development teams work closely with our marketing and operating teams to develop applications and systems that can be used across our business. In fiscal years 2023, 2022 and 2021, we spent $28.9 million, $21.9 million and $19.3 million on product development.\n\n\nOur primary data center is at a third-party co-location center in San Francisco, California. All of the critical components of the system are redundant, and we have a backup data center in Las Vegas, Nevada. We have implemented these backup systems and redundancies to minimize the risk associated with earthquakes, fire, power loss, telecommunications failure, and other events beyond our control.\n\n\n7\n\n\n\n\n\u00a0\n\n\nIntellectual Property\n\n\nWe rely on a combination of patent, trade secret, trademark and copyright laws in the United States and other jurisdictions together with confidentiality agreements and technical measures to protect the confidentiality of our proprietary rights. To protect our trade secrets, we control access to our proprietary systems and technology and enter into confidentiality and invention assignment agreements with our employees and consultants and confidentiality agreements with other third-parties. QuinStreet is a registered trademark in the United States and other jurisdictions. We also have registered and unregistered trademarks for the names of many of our websites, and we own the domain registrations for many of our website domains.\n\n\nOur Competitors\n\n\nOur primary competition falls into two categories: advertising and direct marketing services agencies, and online marketing and media companies. We compete for business on the basis of a number of factors including return on marketing expenditures, price, access to targeted media, ability to deliver large volumes or precise types of customer prospects, and reliability.\n\n\nAdvertising and direct marketing services agencies\n\n\nOnline and offline advertising and direct marketing services agencies control the majority of the large client marketing spending for which we primarily compete. So, while they are sometimes our competitors, agencies are also often our clients. We compete with agencies to attract marketing budget or spending from offline forms to the Internet or, once designated to be spent online, to be spent with us versus the agency or by the agency with others. When spending online, agencies spend with us and with portals, other websites and ad networks.\n\n\nOnline marketing and media companies\n\n\nWe compete with other Internet marketing and media companies, in many forms, for online marketing budgets. Most of these competitors compete with us in one client vertical. Examples include LendingTree and MediaAlpha in the financial services client vertical. Some of our competition also comes from agencies or clients spending directly with larger websites or portals, including Google, Yahoo! and Microsoft.\n\n\nGovernment Regulation\n\n\nWe provide services through a number of different online and offline channels. As a result, we are subject to many federal and state laws and regulations, including restrictions on the use of unsolicited commercial email, such as the CAN-SPAM Act and state email marketing laws, and restrictions on the use of marketing activities conducted by telephone, including the Telemarketing Sales Rule and the Telephone Consumer Protection Act. Our business is also subject to federal and state laws and regulations regarding unsolicited commercial email, telemarketing, user privacy, search engines, Internet tracking technologies, direct marketing, data security, data privacy, pricing, sweepstakes, promotions, intellectual property ownership and infringement, trade secrets, export of encryption technology, acceptable content and quality of goods, and taxation, among others.\n\n\nIn addition, we provide services to a number of our clients that operate in highly regulated industries. In our financial services client vertical, our websites and marketing services are subject to various federal, state and local laws, including state licensing laws, federal and state laws prohibiting unfair acts and practices, and federal and state advertising laws. In addition, we are a licensed insurance agent in all fifty states. The costs of compliance with these regulations and new laws may increase in the future and any failure on our part to comply with such laws may subject us to significant liabilities.\n\n\nHuman Capital Resources\n\n\nOur business success depends on our people. We are committed to the development, attraction and retention of our employees. We are dedicated to our core principles and values which include: leading and taking ownership of results and growth, embracing new ideas and approaches as opportunities to improve our performance, striving to better understand and anticipate the needs of all stakeholders, and holding ourselves to high standards of performance and excellence. We strive to invest in professional learning and personal development opportunities that would develop talent and support personal, career and leadership growth. We hold ourselves accountable and we are committed to pay equity and parity. Our compensation philosophy is designed with both short- and long-term incentives. We prioritize the health, safety and wellness of our employees and strive to create an environment where our employees are productive and also physically and mentally healthy, safe and well. The health of our workforce remains our top priority while we work to ensure a safe work environment in our offices around the world.\n\n\n8\n\n\n\n\n\u00a0\n\n\nAs of June 30, 2023, we had 937 employees, which consisted of 270 employees in product development, 51 in sales and marketing, 45 in general and administration and 571 in operations. None of our employees are represented by a labor union.\n\n\nDiversity\n \n\n\nWe are committed to fostering, cultivating and preserving a culture of diversity and inclusion. We not only embrace diversity but also seek to build a culture that attracts, retains, and develops a diverse set of employees. We have demonstrated this commitment by: (1) adding Diversity as one of our core values, (2) producing our first gender and race demographic report, and (3) matching employee contributions to approved national associations and organizations ranging from legal advocacy to domestic support. We have also formed a Culture Committee to create inclusive and diverse events.\n \n\n\nEmployee Compensation\n \n\n\nWe provide comprehensive and competitive compensation packages to attract, reward and retain talented employees. Our employees\u2019 total compensation package includes market-competitive salary, bonuses or sales incentives, and equity awards, including restricted stock units and an employee stock purchase plan. We strive to be as transparent as possible about our compensation principles. We hold ourselves accountable and we are committed to pay equity and parity. Our compensation philosophy is designed with both short- and long-term incentives.\n \n\n\nDevelopment and Learning\n \n\n\nWe invest in the professional development and growth of all our employees and are strongly committed to our responsibility of providing development and growth opportunities to our employees through greater emphasis on internal mobility and fair and equitable talent practices.\n \n\n\nAvailable Information\n\n\nWe file reports with the Securities and Exchange Commission (\u201cSEC\u201d), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other filings required by the SEC. We make these reports and filings available free of charge on our website via the investor relations page on www.quinstreet.com as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. We also webcast our earnings calls and certain events we host with members of the investment community on our investor relations page at http://investor.quinstreet.com. The content of our website is not intended to be incorporated by reference into this report or in any other report or document we file, and any reference to this website and others included in this report is intended to be an inactive textual reference only.\n\n\nThe public may read and copy any materials we file with the SEC at the SEC\u2019s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.\n\n",
+  "item1a": ">Item 1A.\t\nRi\nsk Factors\n \n\n\nInvesting in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this periodic report. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition or results of operations could be adversely affected. In those cases, the trading price of our common stock could decline and you may lose all or part of your investment.\n\n\nSummary of Risks Associated with Our Business\n\n\nThe following is a summary of the principal factors that make an investment in our common stock speculative or risky. These risks, and others, are described in further detail below this summary.\n \n\n\n\u2022\nWe operate in an industry that is still developing and have a relatively new business model that is continually evolving, which makes it difficult to evaluate our business and prospects.\n\n\n\u2022\nA reduction in online marketing spend by our clients, a loss of clients or lower advertising yields may seriously harm our business, financial condition, and results of operations. In addition, a substantial portion of our revenue is generated from a \n\n\n9\n\n\n\n\n\u00a0\n\n\nlimited number of clients and, if we lose a major client, our revenue will decrease and our business and prospects may be harmed.\n\n\n\u2022\nWe depend on third-party media sources, including strategic partners, for a significant portion of our visitors. Any decline in the supply of media available through these third-party publishers\u2019 websites (including via regulatory action specific to those websites or to third-party media sources generally), or increase in the price of this media, could cause our revenue to decline or our cost to reach visitors to increase.\n\n\n\u2022\nWe are exposed to data privacy and security risks, particularly given that we gather, transmit, store and otherwise process personal information. If we fail to maintain adequate safeguards to protect the security, confidentiality and integrity of personal information, including any failure to develop, implement and support our technology infrastructure and assessment processes, we may be in breach of our commitments to our clients and consumers. Unauthorized or accidental access to or disclosure or use of confidential or proprietary data (including personal information) in our network systems, including via ransomware attacks, may cause us to incur significant expenses and may negatively affect our reputation and business.\n\n\n\u2022\nWe depend upon Internet search companies to direct a significant portion of visitors to our owned and operated and our third-party publishers\u2019 websites. Changes in search engine algorithms have in the past harmed, and may in the future harm, the websites\u2019 placements in both paid and organic search result listings, which may reduce the number of visitors to our owned and operated and our third-party publishers\u2019 websites and as a result, cause our revenue to decline.\n\n\n\u2022\nNegative changes in economic conditions and the regulatory environment have had in the past, and may in the future have, a material and adverse impact on our revenue, business and growth.\n\n\n\u2022\nAdverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our business, financial condition and results of operations.\n\n\n\u2022\nIf we fail to continually enhance and adapt our products asend services to keep pace with rapidly changing technologies and industry standards, we may not remain competitive and could lose clients or advertising inventory.\n\n\n\u2022\nOur results of operations have fluctuated in the past and may do so in the future, which makes our results of operations difficult to predict and could cause our results of operations to fall short of analysts\u2019 and investors\u2019 expectations.\n\n\n\u2022\nLimitations restricting our ability to market to users or collect and use data derived from user activities by technologies, service providers or otherwise could significantly diminish the value of our services and have an adverse effect on our ability to generate revenue.\n\n\n\u2022\nIf we do not adequately protect our intellectual property rights, our competitive position and business may suffer.\n\n\n\u2022\nWe are subject to risks with respect to counterparties, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.\n\n\n\u2022\nWe face risks and uncertainties related to the COVID-19 pandemic and its aftermath, which could significantly disrupt our operations and have a material adverse impact on our business, financial condition, operating results and cash flows. These risks and uncertainties could pertain to other viruses, pandemics or other such unforeseen and broad-based public health crises.\n\n\nRisks Related to Our Business and Industry\n\n\nWe operate in an industry that is still developing and have a relatively new business model that is continually evolving, which makes it difficult to evaluate our business and prospects.\n\n\nWe derive all of our revenue from the sale of online marketing and media services, which is still a developing industry that has undergone rapid and dramatic changes in its relatively short history and which is characterized by rapidly-changing Internet media and advertising technology, evolving industry standards, regulatory uncertainty, and changing visitor and client demands. In addition, our business model and product offerings continue to evolve. We believe that our implementation of our enhanced products and media strategies across our business is in a relatively early stage. As a result, we face risks and uncertainties such as but not limited to:\n\n\n\u2022\nour still developing industry and relatively new business model and products such as our QRP product for insurance agents;\n\n\n\u2022\nchanges in the general economic conditions and market dynamics in the United States, or in the specific markets in which we currently do business, including as a result of the COVID-19 pandemic and Russian-Ukraine military conflict;\n\n\n10\n\n\n\n\n\u00a0\n\n\n\u2022\nthe impact of the COVID-19 pandemic and its aftermath on us, our third-party publishers\u2019, and our clients\u2019 businesses, the extent of which continues to be uncertain and will depend on future actions and outcomes that are highly uncertain and cannot be predicted, including the duration and scope of any resurgences of the pandemic; business and individuals\u2019 actions in response to resurgences of the pandemic; further actions taken by governmental authorities to limit the human and economic impact of the pandemic (e.g., stimulus payments); the continued development, efficacy and distribution of vaccines for COVID-19; and the impact on economic activity including the length and depth of economic downturns or financial market instability that result from the pandemic;\n\n\n\u2022\nchanges in the regulatory enforcement or legislative environment;\n\n\n\u2022\nour dependence on the availability and affordability of quality media from third-party publishers and strategic partners;\n\n\n\u2022\nour dependence on Internet search companies to attract Internet visitors;\n\n\n\u2022\nour ability to accurately forecast our results of operations and appropriately plan our expenses;\n\n\n\u2022\nour ability to compete in our industry;\n\n\n\u2022\nour ability to manage cybersecurity risks and costs associated with maintaining a robust security infrastructure;\n\n\n\u2022\nour ability to continually optimize our websites to allow Internet visitors to access our websites through mobile devices;\n\n\n\u2022\nour ability to develop new services, enhancements and features to meet new demands from our clients; \n\n\n\u2022\nour ability to implement our enhanced products across our business and achieve client adoptions of such products; \n\n\n\u2022\nour ability to successfully complete acquisitions, divestitures and other business development transactions including our ability to enter into, and manage the relationship and risks associated with, strategic partnerships; and \n\n\n\u2022\nthe occurrence of, and our ability to successfully challenge, regulatory audits, investigations or allegations of noncompliance with laws.\n\n\nIf we are unable to address these risks, our business, results of operations and prospects could suffer.\n\n\nA reduction in online marketing spend by our clients, a loss of clients or lower advertising yields may seriously harm our business, financial condition and results of operations. In addition, a substantial portion of our revenue is generated from a limited number of clients and, if we lose a major client, our revenue will decrease and our business and prospects may be harmed.\n\n\nWe rely on clients\u2019 marketing spend on our owned and operated websites and on our network of third-party publisher and strategic partner websites. We have historically derived, and we expect to continue to derive, the majority of our revenue through the delivery of qualified inquiries such as clicks, leads, calls, applications and customers. One component of our platform that we use to generate client interest is our system of monetization tools, which is designed to match content with client offerings in a manner that optimizes revenue yield and end-user experience. Clients will reduce or stop spending marketing funds on our owned and operated websites or our third-party publisher and strategic partner websites if their investments do not generate marketing results and ultimately users or if we do not deliver advertisements in an appropriate and effective manner. The failure of our yield-optimized monetization technology to effectively match advertisements or client offerings with our content in a manner that results in increased revenue for our clients could have an adverse impact on our ability to maintain or increase our revenue from client marketing spend.\n\n\nEven if our content is effectively matched with advertisements or client offerings, our current clients may not continue to place marketing spend or advertisements on our websites. For example, macroeconomic conditions such as an economic downturn or a recession in the United States or other countries or public health crises such as the COVID-19 pandemic and the Russia-Ukraine military conflict have impacted and may continue to impact our clients\u2019 marketing spend in the short-term and potentially in the long-term. If any of our clients decide not to continue to place marketing spend or advertising on our owned and operated websites or on our third-party publisher or strategic partner websites, we could experience a rapid decline in our revenue over a relatively short period of time. Any factors that limit the amount our clients are willing to and do spend on marketing or advertising with us, or to purchase marketing results from us, could have a material adverse effect on our business, financial condition, operating results and cash flows.\n\n\nFurthermore, a substantial portion of our revenue is generated from a limited number of clients, including one client that accounted for 20% of our net revenue for fiscal year 2023. Our clients can generally terminate their contracts with us at any time or pause marketing spending without contract termination, and they do not have minimum spend requirements. Clients may also fail to renew their contracts or reduce their level of business with us, leading to lower revenue.\n\n\n11\n\n\n\n\n\u00a0\n\n\nIn addition, reductions in business by one or more significant clients has in the past triggered, and may in the future trigger, price reductions for other clients whose prices for certain products are determined in whole or in part by client bidding or competition which may reduce our ability to monetize media, further decreasing revenue. Any such future price or volume reductions, or drop in media monetization, could result in lower revenue or margin which could have a material adverse effect on our business, financial condition, operating results and cash flows. We expect that a limited number of clients will continue to account for a significant percentage of our revenue, and the loss of any one of these clients, or a material reduction in their marketing spending with us, could decrease our revenue and harm our business.\n\n\nWe depend on third-party media sources, including strategic partners, for a significant portion of our visitors. Any decline in the supply of media available through these third-party publishers\u2019 websites (including via regulatory action specific to those websites or to third-party media sources generally), or increase in the price of this media, could cause our revenue to decline or our cost to reach visitors to increase.\n\n\nA significant portion of our revenue is attributable to visitor traffic originating from third-party publishers (including strategic partners). In many instances, third-party publishers can change the media inventory they make available to us whether due to regulatory action affecting specific publishers or to third-party media generally at any time in ways that could impact our results of operations. In addition, third-party publishers may place significant restrictions on our offerings. These restrictions may prohibit advertisements from specific clients or specific industries, or restrict the use of certain creative content or formats. If a third-party publisher decides not to make its media channel or inventory available to us, decides to demand a higher revenue-share or places significant restrictions on the use of such inventory, we may not be able to find media inventory from other websites that satisfies our requirements in a timely and cost-effective manner. Consolidation of Internet advertising networks and third-party publishers could eventually lead to a concentration of desirable inventory on websites or networks owned by a small number of individuals or entities, which could limit the supply or impact the pricing of inventory available to us. In the past, we have experienced declines in our financial services client vertical primarily due to volume declines caused by losses of available media from third-party publishers acquired by competitors, changes in search engine algorithms which reduced or eliminated traffic from some third-party publishers and increased competition for quality media. We cannot assure you that we will be able to acquire media inventory that meets our clients\u2019 performance, price and quality requirements, in which case our revenue could decline or our operating costs could increase.\n\n\nWe are exposed to data privacy and security risks, particularly given that we gather, transmit, store and otherwise process personal information. If we fail to maintain adequate safeguards to protect the security, confidentiality and integrity of personal information, including any failure to develop, implement and support our technology infrastructure and assessment processes, we may be in breach of our commitments to our clients and consumers. Unauthorized or accidental access to or disclosure or use of confidential or proprietary data (including personal information) in our network systems, including via ransomware attacks, may cause us to incur significant expenses and may negatively affect our reputation and business.\n\n\nNearly all of our products and services are web-based, and online performance marketing is data-driven. As a result, the amount of data stored on our servers is substantial. We gather, transmit, store and otherwise process confidential and proprietary information about our users and marketing and media partners, including personal information. This information may include social security numbers, credit scores, credit card information, and financial and health information, some of which is held, managed or otherwise processed by our third-party vendors. As a result, we are subject to certain contractual terms, including third-party security reviews, as well as federal, state and foreign laws and regulations designed to protect personal information. Complying with these contractual terms and various laws and regulations is expensive and could cause us to incur substantial additional costs or require us to change our business practices in a manner adverse to our business. In addition, cybersecurity incidents, cyber-attacks and other breaches have been occurring globally at a more frequent and severe level, and are evolving in nature and will likely continue to increase in frequency and severity in the future. Our existing security measures may not be successful in preventing security breaches, cyber-attacks or other similar incidents. As we grow our business, we expect to continue to invest in technology services, hardware and software. Creating the appropriate security support for our technology platforms is expensive and complex, and our execution could result in inefficiencies or operational failures and increased vulnerability to security breaches, cyber-attacks and other similar incidents. We may also make commitments to our clients regarding our security practices in connection with clients\u2019 due diligence. If we do not adequately implement and enforce these security policies to the satisfaction of our clients, we could be in violation of our commitments to our clients and this could result in a loss of client confidence, damage to our reputation and loss of business. Despite our implementation of security measures and controls, our information technology and infrastructure are susceptible to circumvention by an internal party or third-party, such as electronic or physical computer break-ins, security breaches, attacks, malware, ransomware, viruses, social engineering (including phishing attacks), denial of service or information, fraud, employee error and other disruptions or similar incidents, including those perpetrated by criminals or nation state actors, that could result in, among other things, third parties gaining unauthorized access to our systems and data (including confidential, proprietary and personal information). Moreover, retaliatory acts by Russia in response to economic sanctions or other measures taken by the international community against Russia arising from the Russia-Ukraine military conflict could include an increased number or severity of cyber-attacks from Russia or its allies. We may be unable to anticipate all our vulnerabilities and\n \n\n\n12\n\n\n\n\n\u00a0\n\n\nimplement adequate preventative measures and, in some cases, we may not be able to immediately detect a security breach, cyber-attack or other similar incident. In the past, we have experienced security incidents involving access to our databases. Although to our knowledge no sensitive financial or personal information has been compromised and no statutory breach notification has been required, any future security incidents could result in the compromise of such data and subject us to liability or remediation expense or result in cancellation of client contracts. Any actual or alleged security breach, cyber-attack or other similar incident may also result in a misappropriation of our confidential or proprietary information (including personal information) or that of our users, clients and third-party publishers, which could result in legal and financial liability, regulatory intervention, and harm to our reputation. Any compromise of our security could limit the adoption of our products and services and have an adverse effect on our business.\n\n\nWe also face risks associated with security breaches, cyber-attacks and other similar incidents affecting third parties conducting business over the Internet. Consumers generally are concerned with data privacy and security on the Internet, and any publicized data privacy or security problems could negatively affect consumers\u2019 willingness to provide private information on the Internet generally, including through our services. Some of our business is conducted through third parties, which may gather, transmit, store and otherwise process information (including confidential, proprietary and personal information) about our users and marketing and media partners, through our infrastructure or through other systems. While we perform data privacy and security assessments on such third parties, it is important to note that if any such third party fails to adopt or adhere to adequate security procedures, or if despite such procedures its networks or systems are breached, information relating to our users and marketing and media partners may be lost or improperly accessed, used or disclosed. A security breach, cyber-attack or other similar incident experienced by any such third party could be perceived by consumers as a security breach of our systems and in any event could result in negative publicity, damage our reputation, expose us to risk of loss or litigation and possible liability and subject us to regulatory penalties and sanctions. In addition, such third-parties may not comply with applicable disclosure or contractual requirements, which could expose us to liability.\n \n\n\nSecurity concerns relating to our technological infrastructure, data privacy concerns relating to our data collection and processing practices and any perceived or public disclosure of any actual unauthorized or accidental access to or disclosure or use of personal information, whether through breach of our network or that of third parties with which we engage, by an unauthorized party or due to employee theft, misuse, or error, could harm our reputation, impair our ability to attract website visitors and to attract and retain our clients, result in a loss of confidence in the security of our products and services, or subject us to claims or litigation arising from damages suffered by consumers, and thereby harm our business and results of operations. In recent years, several major companies have experienced high-profile security breaches, cyber-attacks and other similar incidents that exposed their customers\u2019 personal information. In addition, we could incur significant costs for which our insurance policies may not adequately cover us and may be required to expend significant resources in protecting against cyber-attacks, security breaches and other similar incidents and to comply with the multitude of state, federal and foreign laws and regulations regarding data privacy, security and data breach notification obligations. We may need to increase our security-related expenditures to maintain or increase our systems\u2019 security or to address problems caused and liabilities incurred by security breaches, cyber-attacks and other similar incidents.\n\n\nWe depend upon Internet search companies to direct a significant portion of visitors to our owned and operated and our third-party publishers\u2019 websites. Changes in search engine algorithms have in the past harmed, and may in the future harm, the websites\u2019 placements in both paid and organic search result listings, which may reduce the number of visitors to our owned and operated and our third-party publishers\u2019 websites and as a result, cause our revenue to decline.\n\n\nOur success depends on our ability to attract online visitors to our owned and operated and our third-party publishers\u2019 websites and convert them into customers for our clients in a cost-effective manner. We depend on Internet search companies to direct a substantial share of visitors to our owned and operated and our third-party publishers\u2019 websites. Search companies offer two types of search results: organic and paid listings. Organic listings are displayed based solely on formulas designed by the search companies. Paid listings are displayed based on a combination of the advertiser\u2019s bid price for particular keywords and the search engines\u2019 assessment of the website\u2019s relevance and quality. If one or more of the search engines or other online sources on which we rely for purchased listings modifies or terminates its relationship with us, our expenses could rise, we could lose consumers, and traffic to our websites could decrease. Changes in how search engines elect to operate, including with respect to the breadth of keyword matching, could also have an adverse impact on our campaigns. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.\n\n\nOur ability to maintain or grow the number of visitors to our owned and operated and our third-party publishers\u2019 websites from search companies is not entirely within our control. Search companies frequently revise their algorithms and changes in their algorithms have in the past caused, and could in the future cause, our owned and operated and our third-party publishers\u2019 websites to receive less favorable placements. We have experienced fluctuations in organic rankings for a number of our owned and operated and our third-party publishers\u2019 websites and some of our paid listing campaigns have also been harmed by search engine algorithmic changes. Search companies could determine that our or our third-party publishers\u2019 websites\u2019 content is either not relevant or is of poor quality.\n\n\n13\n\n\n\n\n\u00a0\n\n\nIn addition, we may fail to optimally manage our paid listings, or our proprietary bid management technologies may fail. To attract and retain visitors, we use search engine optimization (\u201cSEO\u201d) which involves developing content to optimize ranking in search engine results. Our ability to successfully manage SEO efforts across our owned and operated websites and our third-party publishers\u2019 websites depends on our timely and effective modification of SEO practices implemented in response to periodic changes in search engine algorithms and methodologies and changes in search query trends. If we fail to successfully manage our SEO strategy, our owned and operated and our third-party publishers\u2019 websites may receive less favorable placement in organic or paid listings, which would reduce the number of visitors to our sites, decrease conversion rates and repeat business and have a detrimental effect on our ability to generate revenue. If visits to our owned and operated and our third-party publishers\u2019 websites decrease, we may need to use more costly sources to replace lost visitors, and such increased expense could adversely affect our business and profitability. Even if we succeed in driving traffic to our owned and operated websites, our third-party publishers\u2019 websites and our clients\u2019 websites, we may not be able to effectively monetize this traffic or otherwise retain users. Our failure to do so could result in lower advertising revenue from our owned and operated websites as well as third-party publishers\u2019 websites, which would have an adverse effect on our business, financial condition and results of operations.\n\n\nIn addition, if there are changes in the usage and functioning of search engines or decreases in consumer use of search engines, for example, as a result of the continued development of artificial intelligence technology, this could negatively impact our owned and operated and our third-party publishers\u2019 websites.\n\n\nNegative changes in the economic conditions and the regulatory environment have had in the past, and may in the future have, a material and adverse impact on our revenue, business and growth.\n\n\nAdverse macroeconomic conditions could cause decreases or delays in spending by our clients in response to consumer demand and could harm our ability to generate revenue and our results of operations. Changes in the macroeconomic or market conditions and changes in the regulatory environment have in the past affected, and may continue to negatively affect, our clients\u2019 businesses, marketing practices and budgets and, therefore, impact our business, financial condition, operating results and cash flows.\n \n\n\nWorldwide economic conditions remain uncertain due to various global disruptions, including geopolitical events, such as war, the threat of war (including collateral damage from cyberwarfare), or terrorist activity; natural disasters; power shortages or outages; major public health issues, including pandemics; and significant local, national, or global events capturing the attention of a large part of the population, which could prevent or hinder our, or third-party publishers\u2019 or our clients\u2019 ability to do business, increase our costs, and negatively affect our stock price. Adverse consequences resulting from increasing economic or political conflicts between the United States and China, Russia\u2019s invasion of Ukraine and the subsequent economic sanctions imposed by the U.S., NATO and other countries, and various other market issues may have broader implications on economies outside the region, including increased instability in the worldwide financial markets and economy, increases in inflation, recessionary economic cycles, and enhanced volatility in foreign currency exchange rates. These uncertainties may cause our clients or potential clients to delay or reduce spending, which could negatively impact our revenue and operating results and make it difficult for us to accurately plan future business activities.\n\n\nWe, our third-party publishers\u2019, and our clients\u2019 businesses operate in highly regulated industries, subject to many laws and regulatory requirements, including federal, state, and local laws and regulations regarding unsolicited commercial email, telemarketing, search engines, Internet tracking technologies, direct marketing, data privacy and security, pricing, sweepstakes, promotions, intellectual property ownership and infringement, trade secrets, export of encryption technology, acceptable content and quality of goods, and taxation, among others. Each of our financial services and other client verticals is also subject to various laws and regulations, and our marketing activities on behalf of our clients are regulated. Many of these laws and regulations are frequently changing and can be subject to vagaries of interpretation and emphasis, and the extent and evolution of future government regulation is uncertain. Keeping our business in compliance with or bringing our business into compliance with new laws and regulations, therefore, may be costly, affect our revenue and harm our financial results.\n\n\nFor example, we believe increased regulation may continue to occur in the area of data privacy and security, and laws and regulations applying to the solicitation, collection, retention, deletion, sharing, use and other processing of personal information. At the U.S. federal level, we are subject to the laws and regulations promulgated under the authority of the Federal Trade Commission, which regulates unfair or deceptive acts or practices (including with respect to data privacy and security). At the state level, we are subject to the California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act of 2020 (collectively, the \u201cCCPA\u201d). The CCPA requires covered businesses to, among other things, provide disclosures to California residents about their data collection, use, sharing and processing practices and, with limited business exceptions, the CCPA affords such individuals various rights with respect to their personal information, including to request deletion of personal information collected about them and to opt-out of certain personal information selling and sharing practices. A number of other states have enacted, or are considering enacting, comprehensive data privacy laws. In addition, laws in all 50 U.S. states require businesses to provide notice under certain circumstances to consumers whose personal information has been disclosed as a result of a data breach. Further, foreign laws and regulations such as the EU General\n \n\n\n14\n\n\n\n\n\u00a0\n\n\nData Protection Regulation (the \u201cEU GDPR\u201d), and the version thereof implemented into the laws of the United Kingdom following Brexit (the \u201cUK GDPR\u201d), may apply to our business and marketing activities that are offered to European Union and United Kingdom users. The EU GDPR and UK GDPR include a range of compliance obligations and penalties for non-compliance are significant. Although the substantive requirements of the UK GDPR are largely aligned with those of the EU GDPR, exposing us to burdens and risks comparable to the EU GDPR, that may change over time. Existing and new data privacy and security laws and regulations could affect, and may result in expenditures to ensure, our ability to store, use, share and otherwise process personal information in accordance with applicable laws and regulations. We also are, and in the future may become, subject to various other obligations relating to data privacy and security, including industry standards, external and internal policies, contracts and other obligations. Violations or alleged violations of laws and regulations, or any such obligations, by us, our third-party publishers, our clients or our third-party service providers on which we rely to process personal information on our behalf, could result in enforcement actions, litigation, damages, fines, criminal prosecution, unfavorable publicity, and restrictions on our ability to operate, any of which could have a material adverse effect on our business, financial condition, and results of operations. In addition, new laws or regulations (including amendments thereof or changes in enforcement of existing laws or regulations applicable to us or our clients) could affect the activities or strategies of us or our clients and, therefore, lead to reductions in their level of business with us or otherwise impact our business.\n\n\nAdditionally, in connection with our owned and our third-party publishers\u2019 telemarketing campaigns to generate traffic for our clients, we are subject to various state and federal laws regulating telemarketing communications (including SMS or text messaging), including the federal Telephone Consumer Protection Act (the \u201cTCPA\u201d), which requires prior express written consent for certain types of telemarketing calls. Our efforts to comply with the TCPA have not had a material impact on traffic conversion rates. However, depending on future traffic and product mix, it could potentially have a material effect on our revenue and profitability, including increasing our and our clients\u2019 exposure to enforcement actions and litigation. The TCPA regulations have resulted in an increase in individual and class action litigation against marketing companies for alleged TCPA violations. TCPA violations can result in significant financial penalties, including penalties or criminal fines imposed by the Federal Communications Commission (the \u201cFCC\u201d) or fines of up to $1,500 per violation imposed through private litigation or by state authorities. Additionally, we generate inquiries from users that provide a phone number, and a significant amount of revenue comes from calls made by our internal call centers as well as, in some cases, by third-party publishers\u2019 call centers. We also purchase a portion of inquiry data from third-party publishers and cannot guarantee that these third-parties will comply with applicable laws and regulations. Any failure by us or the third-party publishers on which we rely for telemarketing, email marketing, and other performance marketing activities to adhere to or successfully implement appropriate processes and procedures in response to existing laws and regulations and changing regulatory requirements could result in legal and monetary liability, significant fines and penalties, or damage to our reputation in the marketplace, any of which could have a material adverse effect on our business, financial condition, and results of operations. Furthermore, our clients may make business decisions based on their own experiences with the TCPA regardless of our products and the changes we implemented to comply with the new regulations. These decisions may negatively affect our revenue or profitability.\n\n\nChanges in regulations, or the regulatory environment, applicable to us or our media sources, third party publishers or clients could also have a material adverse effect on our business. For example, in March of 2023, the FCC issued a Report and Order and Further Notice of Public Rulemaking regarding Targeting and Eliminating Unlawful Text Messages. The proposed rules, among other things, would amend TCPA consent requirements to ban the practice of allowing a single consumer consent to be grounds for multiple marketers to deliver calls and text messages. If adopted, the proposed rules could have a material adverse impact on our media sources and our clients, especially smaller businesses, as these media sources and clients may not be able to continue to participate in, or may substantially reduce their participation in, the online advertising channel due to increased costs, technological compliance challenges and additional legal risks, including potential liabilities or claims relating to compliance. Decreased participation in online advertising by our media sources or clients as a result of the proposed rules could have a material adverse impact on our business, results of operation and financial condition, as it may reduce the availability to us of qualified inquiries. Moreover, our business could be materially and adversely affected directly by the FCC\u2019s proposed rules, as we also generate a substantial portion of our revenue from our own operation of websites to generate qualified inquiries. As of the date of this report, the FCC\u2019s proposed rules have been released for public comment only and have not been formally adopted. The final provisions and the timeline for its adoption are subject to changes and uncertainties. The final version of the FCC\u2019s proposed rules, if adopted, could contain additional provisions resulting in additional material adverse impacts on our business, including to our revenue and profitability. Additionally, compliance with the FCC\u2019s proposed rules, if adopted, and other future changes in laws may increase our compliance costs, and any failure by us or our media sources or clients to comply with such laws may subject us to significant liabilities.\n\n\nIn connection with our owned and our third-party publishers\u2019 email campaigns to generate traffic for our clients, we are subject to various state and federal laws regulating commercial email communications, including the federal CAN-SPAM Act. For example, in 2012, several of our clients were named defendants in a California Anti-Spam lawsuit relating to commercial emails which allegedly originated from us and our third-party publishers. While the matter was ultimately resolved in our clients\u2019 favor, we were nonetheless obligated to indemnify certain of our clients for the fees incurred in the defense of such matter. Further, foreign laws and regulations, such as the Canadian Anti-Spam Law, may also apply to our business activities to the extent we are doing business with or marketing to consumers in foreign jurisdictions. If we or any of our third-party publishers fail to comply with any provisions of these laws or\n \n\n\n15\n\n\n\n\n\u00a0\n\n\nregulations, we could be subject to regulatory investigation, enforcement actions and litigation, as well as indemnification obligations with respect to our clients. Any negative outcomes from such regulatory actions or litigation, including monetary penalties or damages, could have a material adverse effect on our financial condition, results of operation and reputation.\n \n\n\nFrom time to time, we are subject to audits, inquiries, investigations, claims of non-compliance and lawsuits by federal and state governmental agencies, regulatory agencies, attorneys general and other governmental or regulatory bodies, any of whom may allege violations of legal and regulatory requirements. For our dispositioned assets or businesses, we retain certain liabilities or obligations in connection with our pre-closing actions or omissions, contractual or otherwise. For example, in June 2012, we entered into an Assurance of Voluntary Compliance agreement following a civil investigation into certain of our marketing practices related to our education client vertical that was conducted by the attorneys general of a number of states; and, in the first quarter of fiscal year 2021, we dispositioned our education client vertical. Because our subsidiary CCM provides performance marketing agency and technology services to clients in financial services, education and other markets, we may still be subject to investigations, audits, inquiries, claims or litigation related to education. If any audits, inquiries, investigations, claims of non-compliance and lawsuits by federal and state governmental agencies, regulatory agencies, attorneys general and other governmental or regulatory bodies are unfavorable to us, we may be required to pay monetary fines or penalties or have restrictions placed on our business, which could materially adversely affect our business, financial condition, results of operations and cash flows.\n\n\nOur cash and cash equivalents may be exposed to banking institution risk.\n\n\nWhile we seek to minimize our exposure to third-party losses of our cash and cash equivalents, we hold our balances in a number of large financial institutions. Notwithstanding, those institutions are subject to risks, which may include failure or other circumstances that limit our access to deposits or other banking services. For example, on March 10, 2023, Silicon Valley Bank (\u201cSVB\u201d) was unable to continue their operations and the Federal Deposit Insurance Corporation (\u201cFDIC\u201d) was appointed as receiver for SVB. However, if further failures in financial institutions occur where we hold deposits, we could experience additional risk. Any such loss or limitation on our cash and cash equivalents would adversely affect our business.\n\n\nIn addition, in such circumstances we might not be able to receive timely payment from clients. We and they may maintain cash balances that are not insured or are in excess of the FDIC\u2019s insurance limit. Any delay in ours or our clients\u2019 ability to access funds could have a material adverse effect on our operations. If any parties with which we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties\u2019 ability to continue to fund their business and perform their obligations to us could be adversely affected, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.\n \n\n\nIf we fail to continually enhance and adapt our products and services to keep pace with rapidly changing technologies and industry standards, we may not remain competitive and could lose clients or advertising inventory.\n\n\nThe online media and marketing industry is characterized by rapidly changing standards, changing technologies, frequent new or enhanced product and service introductions and changing user and client demands. The introduction of new technologies and services embodying new technologies and the emergence of new industry standards and practices could render our existing technologies and services obsolete and unmarketable or require unanticipated investments in technology. We continually make enhancements and other modifications to our proprietary technologies as well as our product and service offerings. This includes expansion into new categories (e.g., health insurance). Our product changes may contain design or performance defects that are not readily apparent. Expanded category offerings may experience issues as we launch new products and services. If our proprietary technologies or our new or enhanced products and services fail to achieve their intended purpose or are less effective than technologies or products and services used by our competitors, our business could be harmed.\n\n\nOur future success will also depend in part on our ability to successfully adapt to rapidly changing online media formats and other technologies. If we fail to adapt successfully, we could lose clients or advertising inventory.\n\n\n16\n\n\n\n\n\u00a0\n\n\nOur results of operations have fluctuated in the past and may do so in the future, which makes our results of operations difficult to predict and could cause our results of operations to fall short of analysts\u2019 and investors\u2019 expectations.\n\n\nHistorically, quarterly and annual results of operations have fluctuated due to changes in our business, our industry and the general economic and regulatory climate. We expect our future results of operations to vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. For example, the COVID-19 pandemic and the Russian-Ukraine military conflict have in the short-run, and may over the longer term, make our results of operations difficult to predict, especially for our credit-driven businesses. Furthermore, changes in monetary or fiscal policy as the result of pandemics, military conflicts or otherwise may have consequences to our businesses, including our credit-driven businesses, which are unprecedented or otherwise difficult to predict. Our fluctuating results of operations could cause our performance and outlook to be below the expectations of securities analysts and investors, causing the price of our common stock to decline. Our business changes and evolves over time, and, as a result, our historical results of operations may not be useful to you in predicting our future results of operations. Factors that may increase the volatility of our results of operations include, but are not limited to, the following:\n\n\n\u2022\nchanges in client volume;\n\n\n\u2022\nloss of or reduced demand by existing clients and agencies;\n\n\n\u2022\nthe availability and price of quality media;\n\n\n\u2022\nconsolidation of media sources;\n\n\n\u2022\nseasonality;\n\n\n\u2022\ndevelopment and implementation of our media strategies and client initiatives;\n\n\n\u2022\nchanges in our revenue mix and shifts in margins related to changes in our media, client, or corporate development strategies;\n\n\n\u2022\nchanges in interest rates or increasing inflation;\n\n\n\u2022\nan economic recession in the United States or other countries;\n\n\n\u2022\nchanges in Internet search engine algorithms that affect our owned and operated and our third-party publishers\u2019 websites\u2019 ability to attract and retain Internet visitors; and\n\n\n\u2022\nregulatory and legislative changes, including economic sanctions imposed on governments or other third parties in regions in which we, our third-party publishers or our clients operate, or their interpretation or emphasis, in our and our clients\u2019 industries.\n\n\nAs a result of changes in our business model, increased investments, increased expenditures for certain businesses, products, services and technologies, we anticipate fluctuations in our adjusted EBITDA margin.\n\n\nWe have invested and expect to continue to invest in new businesses, products, markets, services and technologies, including more expensive forms of media. For example, we may expend significant resources in developing new products and technologies and made strategic outlays in, among other things, partnerships, which in the short term may have the effect of reducing our adjusted EBITDA margin. If we are unsuccessful in our monetization efforts with respect to new products and investments, we may fail to engage and retain users and clients. We may have insufficient revenue to fully offset liabilities and expenses in connection with these new products and investments and may experience inadequate or unpredictable return of capital on our investments. As a result of new products and investments, we may expect fluctuations in our adjusted EBITDA margin.\n\n\nTo maintain target levels of profitability, from time to time, we may restructure our operations or make other adjustments to our workforce. For example, in November 2016, we announced a corporate restructuring resulting in the reduction of approximately 25% of personnel costs.\n \n\n\n17\n\n\n\n\n\u00a0\n\n\nOur visitor traffic and our clients\u2019 spend can be impacted by interest rate volatility.\n\n\nVisitor traffic to our online platforms in our lending and banking client verticals may change as interest rates change. A decrease in interest rates may lead to more consumers looking to lower their borrowing costs. These consumers may visit our websites, websites within or outside our publisher network, or our clients\u2019 websites. To the extent consumers visit websites not in our network our lending client vertical may be adversely impacted. A decrease in interest rates may also reduce consumer demand for banking products. Interest rate increases may decrease demand for lending products but may not increase demand for banking products. Federal Reserve Board actions, regulations restricting the amount of interest and fees that may be charged to consumers, increased borrower default levels, tightening or uncertainty with respect to underwriting standards, and general market conditions affecting access to credit could also cause significant fluctuations in consumer behavior, as well as volatility in client spending and demand for media, each of which could have a material and adverse effect on our business.\n \n\n\nIf we fail to compete effectively against other online marketing and media companies and other competitors, we could lose clients and our revenue may decline.\n\n\nThe market for online marketing is intensely competitive, and we expect this competition to continue to increase in the future both from existing competitors and, given the relatively low barriers to entry into the market, from new competitors. We compete both for clients and for high-quality media. We compete for clients on the basis of a number of factors, including return on investment of clients\u2019 marketing spending, price and client service.\n\n\nWe compete with Internet and traditional media companies for high quality media and for a share of clients\u2019 overall marketing budgets, including:\n\n\n\u2022\nonline marketing or media services providers such as LendingTree and MediaAlpha in the financial services client vertical;\n\n\n\u2022\noffline and online advertising agencies;\n\n\n\u2022\nmajor Internet portals and search engine companies with advertising networks;\n\n\n\u2022\nother online marketing service providers, including online affiliate advertising networks and industry-specific portals or performance marketing services companies;\n\n\n\u2022\ndigital advertising exchanges, real-time bidding and other programmatic buying channels;\n\n\n\u2022\nthird-party publishers with their own sales forces that sell their online marketing services directly to clients;\n\n\n\u2022\nin-house marketing groups and activities at current or potential clients;\n\n\n\u2022\noffline direct marketing agencies;\n\n\n\u2022\nmobile and social media; and\n\n\n\u2022\ntelevision, radio and print companies.\n\n\nFinding, developing and retaining high quality media on a cost-effective basis is challenging because competition for web traffic among websites and search engines, as well as competition with traditional media companies, has resulted and may continue to result in significant increases in media pricing, declining margins, reductions in revenue and loss of market share. In addition, if we expand the scope of our services, we may compete with a greater number of websites, clients and traditional media companies across an increasing range of different services, including in vertical markets where competitors may have advantages in expertise, brand recognition and other areas. Internet search and social media companies with brand recognition have significant numbers of direct sales personnel and substantial proprietary advertising inventory and web traffic that provide a significant competitive advantage and have a significant impact on pricing for Internet advertising and web traffic. Some of these companies may offer or develop more vertically targeted products that match users with products and services and, thus, compete with us more directly. The trend toward consolidation in online marketing may also affect pricing and availability of media inventory and web traffic. Many of our current and potential competitors also have other competitive advantages over us, such as longer operating histories, greater brand recognition, larger client bases, greater access to advertising inventory on high-traffic websites and significantly greater financial, technical and marketing resources. As a result, we may not be able to compete successfully. Competition from other marketing service providers\u2019 online and offline offerings has affected and may continue to affect both volume and price, and, thus, revenue, profit margins and profitability. If we fail to deliver results that are superior to those that other online marketing service providers deliver to clients, we could lose clients and market share, and our revenue may decline.\n\n\n18\n\n\n\n\n\u00a0\n\n\nMany people are using mobile devices to access the Internet. If we fail to optimize our websites for mobile access with respect to user interfaces, we may not remain competitive and could lose clients or visitors to our websites.\n\n\nThe number of people who access the Internet through mobile devices such as smart phones and tablets has continued to increase dramatically in the past several years. Our online marketing services and content were originally designed for desktop or laptop computers. The shift from desktop or laptop computers to mobile devices could potentially deteriorate the user experience for mobile visitors to our websites and may make it more difficult for mobile visitors to respond to our offerings. For example, a user\u2019s experience on a mobile device with respect to user interfaces such as an online marketing website and content originally designed for desktop or laptop computers will be suboptimal unless such website and content are designed to accommodate and improve mobile access to ensure a positive user experience. It also requires us to develop new product offerings specifically designed for mobile devices, such as social media advertising opportunities. If we fail to optimize our websites cost effectively and improve the monetization capabilities of our mobile marketing services, we may not remain competitive, which may negatively affect our business and results of operations.\n\n\nThird-party publishers, strategic partners, vendors or their respective affiliates may engage in unauthorized or unlawful acts that could subject us to significant liability or cause us to lose clients and revenue.\n\n\nWe generate a significant portion of our web visitors from online media that we source directly from our third-party publishers\u2019 and strategic partners\u2019 owned and operated websites, as well as indirectly from the affiliates of our third-party publishers and strategic partners. We also rely on third-party call centers and email marketers. Some of these third-parties, strategic partners, vendors and their respective affiliates are authorized to use our clients\u2019 brands, subject to contractual restrictions. Any activity by third-party publishers, strategic partners, vendors or their respective affiliates which violates the marketing guidelines of our clients or that clients view as potentially damaging to their brands (e.g., search engine bidding on client trademarks), whether or not permitted by our contracts with our clients, could harm our relationship with the client and cause the client to terminate its relationship with us, resulting in a loss of revenue. Moreover, because we do not have a direct contractual relationship with the affiliates of our third-party publishers and strategic partners, we may not be able to monitor the compliance activity of such affiliates. If we are unable to cause our third-party publishers and strategic partners to monitor and enforce our clients\u2019 contractual restrictions on such affiliates, our clients may terminate their relationships with us or decrease their marketing budgets with us. In addition, we may also face liability for any failure of our third-party publishers, strategic partners, vendors or their respective affiliates to comply with regulatory requirements, as further described in the risk factor beginning, \u201cNegative changes in the economic conditions and the regulatory environment have had in the past, and may in the future have, a material and adverse impact on our revenue, business and growth.\u201d\n\n\nThe law is unsettled on the extent of liability that an advertiser in our position has for the activities of third-party publishers, strategic partners or vendors. In addition, certain of our contracts impose liability on us, including indemnification obligations, for the acts of our third-party publishers, strategic partners or vendors. We could be subject to costly litigation and, if we are unsuccessful in defending ourselves, we could incur damages for the unauthorized or unlawful acts of third-party publishers, strategic partners or vendors.\n\n\nIf we are unable to collect our receivables from our clients, our results of operations and cash flows could be adversely affected.\n\n\nWe expect to obtain payment from our clients for work performed and maintain an allowance against receivables for potential losses on client accounts. Actual losses on client receivables could differ from those that we currently anticipate and, as a result, we might need to adjust our allowances. We may not accurately assess the creditworthiness of our clients. Macroeconomic conditions, such as any evolving industry standards, economic downturns, changing regulatory conditions and changing visitor and client demands, could also result in financial difficulties for our clients, including insolvency or bankruptcy. As a result, this could cause clients to delay payments to us, request modifications to their payment arrangements that could extend the timing of cash receipts or default on their payment obligations to us. For example, in the third quarter of fiscal year 2019, we recorded a one-time charge of $8.7 million for bad debt expense related to a large former education client, which arose in part due to the U.S. Department of Education restricting one of its for-profit schools from participating in Title IV programs. If we experience an increase in the time to bill and collect for our services, our results of operations and cash flows could be adversely affected.\n\n\n19\n\n\n\n\n\u00a0\n\n\nWe rely on certain advertising agencies for the purchase of various advertising and marketing services on behalf of their clients. Such agencies may have or develop high-risk credit profiles, which may result in credit risk to us.\n\n\nA portion of our client business is sourced through advertising agencies and, in many cases, we contract with these agencies and not directly with the underlying client. Contracting with these agencies subjects us to greater credit risk than when we contract with clients directly. In many cases, agencies are not required to pay us unless and until they are paid by the underlying client. In addition, many agencies are thinly capitalized and have or may develop high-risk credit profiles. This credit risk may vary depending on the nature of an agency\u2019s aggregated client base. If an agency were to become insolvent, or if an underlying client did not pay the agency, we may be required to write off account receivables as bad debt. Any such write-offs could have a materially negative effect on our results of operations for the periods in which the write-offs occur.\n\n\nIf we do not effectively manage any future growth or if we are not able to scale our products or upgrade our technology or network hosting infrastructure quickly enough to meet our clients\u2019 needs, our operating performance will suffer and we may lose clients.\n\n\nWe have experienced growth in our operations and operating locations during certain periods of our history. This growth has placed, and any future growth may continue to place, significant demands on our management and our operational and financial infrastructure. Growth, if any, may make it more difficult for us to accomplish the following:\n\n\n\u2022\nsuccessfully scaling our technology to accommodate a larger business and integrate acquisitions;\n\n\n\u2022\nmaintaining our standing with key vendors, including third-party publishers and Internet search and social media companies;\n\n\n\u2022\nmaintaining our client service standards; and\n\n\n\u2022\ndeveloping and improving our operational, financial and management controls and maintaining adequate reporting systems and procedures.\n\n\nOur future success depends in part on the efficient performance of our software and technology infrastructure. As the numbers of websites, mobile applications and Internet users increase, our technology infrastructure may not be able to meet the increased demand. Unexpected constraints on our technology infrastructure could lead to slower website response times or system failures and adversely affect the availability of websites and the level of user responses received, which could result in the loss of clients or revenue or harm to our business and results of operations.\n\n\nIn addition, our personnel, systems, procedures and controls may be inadequate to support our future operations. The improvements required to manage growth may require us to make significant expenditures, expand, train and manage our employee base, and reallocate valuable management resources. We may spend substantial amounts to purchase or lease data centers and equipment, upgrade our technology and network infrastructure to handle increased traffic on our owned and operated websites and roll out new products and services. Any such expansion could be expensive and complex and could result in inefficiencies or operational failures. If we do not implement such expansions successfully, or if we experience inefficiencies and operational failures during their implementation, the quality of our products and services and our users\u2019 experience could decline. This could damage our reputation and cause us to lose current and potential users and clients. The costs associated with these adjustments to our architecture could harm our operating results. Accordingly, if we fail to effectively manage any future growth, our operating performance will suffer, and we may lose clients, key vendors and key personnel.\n\n\n20\n\n\n\n\n\u00a0\n\n\nInterruption or failure of our information technology and communications systems could impair our ability to effectively deliver our services, which could cause us to lose clients and harm our results of operations.\n\n\nOur delivery of marketing and media services depends on the continuing operation of our technology infrastructure and systems. Any damage to or failure of our systems could result in interruptions in our ability to deliver offerings quickly and accurately or process visitors\u2019 responses emanating from our various web presences. Interruptions in our service could reduce our revenue and profits, and our reputation could be damaged if users or clients perceive our systems to be unreliable. Our systems and operations are vulnerable to damage or interruption from earthquakes, floods, fires, or other natural disasters, power loss, terrorist attacks, break-ins, hardware or software failures, telecommunications failures, security breaches, cyber-attacks and other similar incidents, computer viruses or other attempts to harm our systems, and similar events. If the third-party data centers that we utilize were to experience a major power outage, we would have to rely on their back-up generators. These back-up generators may not operate properly through a major power outage and their fuel supply could also be inadequate during a major power outage or disruptive event. Furthermore, we do not currently have backup generators at our Foster City, California headquarters. Information systems such as ours may be disrupted by even brief power outages, or by the fluctuations in power resulting from switches to and from back-up generators. This could give rise to obligations to certain of our clients which could have an adverse effect on our results of operations for the period of time in which any disruption of utility services to us occurs.\n\n\nWe use two third-party colocation data centers; one in San Francisco, California and the other in Las Vegas, Nevada. We have implemented this infrastructure to minimize the risk associated with earthquakes, fire, power loss, telecommunications failure, and other events beyond our control at any single location; however, these services may fail or may not be adequate to prevent losses.\n\n\nAny unscheduled interruption in our service would result in an immediate loss of revenue. If we experience frequent or persistent system failures, the attractiveness of our technologies and services to clients and third-party publishers could be permanently harmed. The steps we have taken to increase the reliability and redundancy of our systems are expensive, reduce our operating margin and may not be successful in reducing the frequency or duration of unscheduled interruptions.\n\n\nAcquisitions, investments and divestitures could complicate operations, or could result in dilution and other harmful consequences that may adversely impact our business and results of operations.\n\n\nAcquisitions have historically been, and continue to be, an important element of our overall corporate strategy and use of capital. In addition, we regularly review and assess strategic alternatives in the ordinary course of business, including potential acquisitions, investments or divestitures. These potential strategic alternatives may result in a wide array of potential strategic transactions that could be material to our financial condition and results of operations. For example, we acquired Modernize, Inc. (\u201cModernize\u201d), Mayo Labs, LLC (\u201cMayo Labs\u201d) and FC Ecosystem, LLC (\u201cFCE\u201d) in fiscal year 2021, and acquired AmOne Corp. (\u201cAmOne\u201d), CloudControlMedia, LLC (\u201cCCM\u201d) and MyBankTracker.com, LLC (\u201cMBT\u201d) in fiscal year 2019. Furthermore, we divested our education client vertical in fiscal year 2021, and we divested our B2B client vertical, our businesses in Brazil consisting of \nQuinStreet Brasil Online Marketing e Midia Ltda (\u201cQSB\u201d) \nand VEMM, LLC (\u201cVEMM\u201d) along with its interests in EDB, and our mortgage client vertical in the second half of fiscal year 2020.\n \n\n\nAcquisitions, investments or divestitures, and the process of evaluating strategic alternatives, involves a number of risks and uncertainties. For example, the process of integrating an acquired company, business or technology has in the past created, and may create in the future, unforeseen operating challenges, risks and expenditures, including with respect to: (i) integrating an acquired company\u2019s accounting, financial reporting, management information and information security, human resource, and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not implemented; (ii) integrating the controls, procedures and policies at companies we acquire that are appropriate for a public company; and (iii) transitioning the acquired company\u2019s operations, users and customers onto our existing platforms. The success of our acquisitions and other investments will depend in part on our ability to successfully integrate and leverage them to enhance our existing products and services or develop compelling new ones. It may take longer than expected to realize the full benefits from these acquisitions or investments, such as increased revenue, enhanced efficiencies, or increased market share, or the benefits may ultimately be smaller than we expected. Our failure to address these risks or other problems encountered in connection with our acquisitions and investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities and harm our business generally.\n\n\nIn addition, evaluating, negotiating and completing strategic transactions, including acquisitions, investments or divestitures, may distract management from our other businesses and result in significant expenses. Moreover, we may invest significant resources towards evaluating and negotiating strategic alternatives that do not ultimately result in a strategic transaction.\n\n\n21\n\n\n\n\n\u00a0\n\n\nOur acquisitions or investments could also result in dilutive issuances of our equity securities, the incurrence of debt or deferred purchase price obligations, contingent liabilities, amortization expense, impairment of goodwill or restructuring charges, any of which could harm our financial condition or results. For example, under our acquisition agreement with MBT, the purchase consideration included $4.0 million in post-closing payments and an estimated fair value of contingent consideration of $1.5 million of which the contingent consideration was paid off in the third quarter of fiscal year 2020. Under our acquisition agreement with CCM, the purchase consideration included $7.5 million in post-closing payments and an estimated fair value of contingent consideration of $3.6 million. Under our acquisition agreement with AmOne, the purchase consideration included $8.0 million in post-closing payments. Under our acquisition agreement with Modernize, the purchase consideration included $27.5 million in post-closing payments. Under our acquisition agreement with Mayo Labs, the purchase consideration included $2.0 million in post-closing payments. Under our acquisition agreement with FCE, the purchase consideration included $4.0 million in post-closing payments and contingent consideration of up to an additional $9.0 million. Also, the anticipated benefit of many of our strategic transactions, including anticipated synergies, may not materialize. Employee retention may be adversely impacted as the result of acquisitions, and our ability to manage across multiple remote locations and business cultures could adversely affect the realization of anticipated benefits. In connection with a disposition of assets or a business, we may also agree to provide indemnification for certain potential liabilities or retain certain liabilities or obligations, which may adversely impact our financial condition or results.\n \n\n\nWe rely on call centers, Internet and data center providers, and other third-parties for key aspects of the process of providing services to our clients, and any failure or interruption in the services and products provided by these third-parties could harm our business.\n\n\nWe rely on internal and third-party call centers as well as third-party vendors, data centers and Internet providers. Notwithstanding disaster recovery and business continuity plans and precautions instituted to protect our clients and us from events that could interrupt delivery of services, there is no guarantee that such interruptions would not result in a prolonged interruption in our ability to provide services to our clients. Any temporary or permanent interruption in the services provided by our call centers or third-party providers could significantly harm our business.\n\n\nIn addition, any financial or other difficulties our third-party providers face may have negative effects on our business, the nature and extent of which we cannot predict. Other than our data privacy and security assessment processes, we exercise little control over our third-party vendors, which increases our vulnerability to problems with the services they provide. We license technology and related databases from third-parties to facilitate analysis and storage of data and delivery of offerings. We have experienced interruptions and delays in service and availability for data centers, bandwidth and other technologies in the past, and may experience more in the future. Any errors, failures, interruptions or delays experienced in connection with these third-party technologies and services could adversely affect our business and could expose us to liabilities to third-parties.\n\n\nOur quarterly revenue and results of operations may fluctuate significantly from quarter to quarter due to fluctuations in advertising spending, including seasonal and cyclical effects.\n\n\nIn addition to other factors that cause our results of operations to fluctuate, results are also subject to significant seasonal fluctuation. In particular, our quarters ending December 31 (our second fiscal quarter) are typically characterized by seasonal weakness. During that quarter, there is generally lower availability of media during the holiday period on a cost-effective basis and some of our clients have lower budgets. In our quarters ending March 31 (our third fiscal quarter), this trend generally reverses with better media availability and often new budgets at the beginning of the year for our clients with fiscal years ending December 31. Moreover, our lending clients\u2019 businesses are subject to seasonality. For example, our clients that offer home services products are historically subject to seasonal trends. These trends reflect the general patterns of the home services industry, which typically peak in the spring and summer seasons. Other factors affecting our clients\u2019 businesses include macro factors such as credit availability, the strength of the economy and employment. Any of the foregoing seasonal or cyclical trends, or the combination of them, may negatively impact our quarterly revenue and results of operations.\n \n\n\nFurthermore, advertising spend on the Internet, similar to traditional media, tends to be cyclical and discretionary as a result of factors beyond our control, including budgetary constraints and buying patterns of clients, as well as economic conditions affecting the Internet and media industry. For example, weather and other events have in the past led to short-term increases in insurance industry client loss ratios and damage or interruption in our clients\u2019 operations, either of which can lead to decreased client spend on online performance marketing. In addition, inherent industry specific risks (e.g., insurance industry loss ratios and cutbacks) and poor macroeconomic conditions such as high interest rates, inflationary environments as well as other short-term events could decrease our clients\u2019 advertising spending and thereby have a material adverse effect on our business, financial condition, operating results and cash flows.\n\n\n22\n\n\n\n\n\u00a0\n\n\nIf the market for online marketing services fails to continue to develop, our success may be limited, and our revenue may decrease.\n\n\nThe online marketing services market is relatively new and rapidly evolving, and it uses different measurements from traditional media to gauge its effectiveness. Some of our current or potential clients have little or no experience using the Internet for advertising and marketing purposes and have allocated only limited portions of their advertising and marketing budgets to the Internet. The adoption of online marketing, particularly by those companies that have historically relied upon traditional media for advertising, requires the acceptance of a new way of conducting business, exchanging information and evaluating new advertising and marketing technologies and services.\n\n\nIn particular, we are dependent on our clients\u2019 adoption of new metrics to measure the success of online marketing campaigns with which they may not have prior experience. Certain of our metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business. We present key metrics such as cost-per-click, cost-per-lead and cost-per-acquisition, some of which are calculated using internal data. We periodically review and refine some of our methodologies for monitoring, gathering and calculating these metrics. While our metrics are based on what we believe to be reasonable measurements and methodologies, there are inherent challenges in deriving our metrics. In addition, our user metrics may differ from estimates published by third-parties or from similar metrics of our competitors due to differences in methodology. If clients or publishers do not perceive our metrics to be accurate, or if we discover material inaccuracies in our metrics, it could negatively affect our business model and current or potential clients\u2019 willingness to adopt our metrics.\n\n\nWe may also experience resistance from traditional advertising agencies who may be advising our clients. We cannot assure you that the market for online marketing services will continue to grow. If the market for online marketing services fails to continue to develop or develops more slowly than we anticipate, the success of our business may be limited, and our revenue may decrease.\n\n\nWe could lose clients if we fail to detect click-through or other fraud on advertisements in a manner that is acceptable to our clients.\n\n\nWe are exposed to the risk of fraudulent clicks or actions on our websites or our third-party publishers\u2019 websites, which could lead our clients to become dissatisfied with our campaigns, and in turn, lead to loss of clients and related revenue. Click-through fraud occurs when an individual clicks on an ad displayed on a website or mobile application, or an automated system is used to create such clicks, with the intent of generating the revenue-share payment to the publisher rather than viewing the underlying content. Action fraud occurs when online lead forms are completed with false or fictitious information in an effort to increase a publisher\u2019s compensable actions. From time to time, we have experienced fraudulent clicks or actions. We do not charge our clients for fraudulent clicks or actions when they are detected, and such fraudulent activities could negatively affect our profitability or harm our reputation. If fraudulent clicks or actions are not detected, the affected clients may experience a reduced return on their investment in our marketing programs, which could lead the clients to become dissatisfied with our campaigns, and in turn, lead to loss of clients and related revenue. Additionally, from time to time, we have had to, and in the future may have to, terminate relationships with publishers whom we believed to have engaged in fraud. Termination of such relationships entails a loss of revenue associated with the legitimate actions or clicks generated by such publishers.\n\n\nLimitations restricting our ability to market to users or collect and use data derived from user activities by technologies, service providers or otherwise could significantly diminish the value of our services and have an adverse effect on our ability to generate revenue.\n\n\nWhen a user visits our websites, we use technologies, including \u201ccookies,\u201d to collect information such as the user\u2019s IP address. We also have relationships with data partners that collect and provide us with user data. We access and analyze this information in order to determine the effectiveness of a marketing campaign and to determine how to modify the campaign for optimization. The use of cookies is the subject of litigation, regulatory scrutiny and industry self-regulatory activities, including the discussion of \u201cdo-not-track\u201d technologies, guidelines and substitutes to cookies. With respect to industry self-regulatory activities, the leading web browsing companies have started or announced their intent to block or phase out third-party cookies from their web browsers.\n \nAdditionally, users are able to block or delete cookies from their browser. Periodically, certain of our clients and publishers seek to prohibit or limit our collection or use of data derived from the use of cookies.\n \n\n\n23\n\n\n\n\n\u00a0\n\n\nFurthermore, actions by service providers could restrict our ability to deliver Internet-based advertising. For example, if email service providers (\u201cESPs\u201d) categorize our emails as \u201cpromotional,\u201d then these emails may be directed to an alternate and less readily accessible section of a consumer\u2019s inbox. In the event ESPs materially limit or halt the delivery of our emails, or if we fail to deliver emails to consumers in a manner compatible with ESPs\u2019 email handling or authentication technologies, our ability to contact consumers through email could be significantly restricted. In addition, if we are placed on \u201cspam\u201d lists or lists of entities that have been involved in sending unwanted, unsolicited emails, or if internet service providers prioritize or provide superior access to our competitors\u2019 content, our business and results of operations may be adversely affected.\n \n\n\nInterruptions, failures or defects in our data collection systems, as well as data privacy and security concerns and regulatory changes or enforcement actions affecting our or our data partners\u2019 ability to collect user data, could also limit our ability to analyze data from, and thereby optimize, our clients\u2019 marketing campaigns. If our access to data is limited in the future, we may be unable to provide effective technologies and services to clients and we may lose clients and revenue.\n\n\nRisks Related to Our Intellectual Property\n\n\nIf we do not adequately protect our intellectual property rights, our competitive position and business may suffer.\n\n\nOur ability to compete effectively depends upon our proprietary systems and technology. We rely on patent, trade secret, trademark and copyright law, confidentiality agreements and technical measures to protect our proprietary rights. We enter into confidentiality agreements with our employees, consultants, independent contractors, advisors, client vendors and publishers. These agreements may not effectively prevent unauthorized disclosure of confidential information or unauthorized parties from copying aspects of our services or obtaining and using our proprietary information. For example, past or current employees, contractors or agents may reveal confidential or proprietary information. Further, these agreements may not provide an adequate remedy in the event of unauthorized disclosures or uses, and we cannot assure you that our rights under such agreements will be enforceable. Effective patent, trade secret, copyright and trademark protection may not be available in all countries where we currently operate or in which we may operate in the future. Some of our systems and technologies are not covered by any copyright, patent or patent application. We cannot guarantee that: (i) our intellectual property rights will provide competitive advantages to us; (ii) our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will be effective; (iii) our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak; (iv) any of the patent, trademark, copyright, trade secret or other intellectual property rights that we presently employ in our business will not lapse or be invalidated, circumvented, challenged, or abandoned; (v) competitors will not design around our protected systems and technology; or (vi) that we will not lose the ability to assert our intellectual property rights against others.\n\n\nWe have from time to time become aware of third-parties who we believe may have infringed our intellectual property rights. Such infringement or infringement of which we are not yet aware could reduce our competitive advantages and cause us to lose clients, third-party publishers or could otherwise harm our business. Policing unauthorized use of our proprietary rights can be difficult and costly. Litigation, while it may be necessary to enforce or protect our intellectual property rights, could result in substantial costs and diversion of resources and management attention and could adversely affect our business, even if we are successful defending such litigation on the merits. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties.\n\n\nThird-parties may sue us for intellectual property infringement, which, even if unsuccessful, could require us to expend significant costs to defend or settle.\n\n\nWe cannot be certain that our internally developed or acquired systems and technologies do not and will not infringe the intellectual property rights of others. In addition, we license content, software and other intellectual property rights from third-parties and may be subject to claims of infringement if such parties do not possess the necessary intellectual property rights to the products they license to us.\n \n\n\n24\n\n\n\n\n\u00a0\n\n\nIn addition, we have in the past, and may in the future, be subject to legal proceedings and claims that we have infringed the patents or other intellectual property rights of third-parties. These claims sometimes involve patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own intellectual property rights, if any, may therefore provide little or no deterrence. For example, in December 2012, Internet Patents Corporation (\u201cIPC\u201d) filed a patent infringement lawsuit against us in the Northern District of California alleging that some of our websites infringe a patent held by IPC. IPC is a non-practicing entity that relies on asserting its patents as its primary source of revenue. In addition, third-parties have asserted and may in the future assert intellectual property infringement claims against our clients, and we have agreed in certain circumstances to indemnify and defend against such claims. Any intellectual property-related infringement claims, whether or not meritorious and regardless of the outcome of the litigation, could result in costly litigation, could divert management resources and attention and could cause us to change our business practices. Should we be found liable for infringement, we may be required to enter into licensing agreements, if available on acceptable terms or at all, pay substantial damages, or limit or curtail our systems and technologies. Moreover, we may need to redesign some of our systems and technologies to avoid future infringement liability. Any of the foregoing could prevent us from competing effectively and increase our costs.\n\n\nAdditionally, the laws relating to use of trademarks on the Internet are unsettled, particularly as they apply to search engine functionality. For example, other Internet marketing and search companies have been sued for trademark infringement and other intellectual property-related claims for displaying ads or search results in response to user queries that include trademarked terms. The outcomes of these lawsuits have differed from jurisdiction to jurisdiction. We may be subject to trademark infringement, unfair competition, misappropriation or other intellectual property-related claims which could be costly to defend and result in substantial damages or otherwise limit or curtail our activities, and therefore adversely affect our business or prospects.\n\n\nAs a creator and a distributor of Internet content, we face potential liability and expenses for legal claims based on the nature and content of the materials that we create or distribute, including materials provided by our clients. If we are required to pay damages or expenses in connection with these legal claims, our results of operations and business may be harmed.\n\n\nWe display original content and third-party content on our websites and in our marketing messages. In addition, our clients provide us with advertising creative and financial information (e.g., insurance premium or credit card interest rates) that we display on our owned and operated websites and our third-party publishers\u2019 websites. As a result, we face potential liability based on a variety of claims, including defamation, negligence, deceptive advertising, copyright or trademark infringement. We are also exposed to risk that content provided by third-parties or clients is inaccurate or misleading, and for material posted to our websites by users and other third-parties. These claims, whether brought in the United States or abroad, could divert our management\u2019s time and attention away from our business and result in significant costs to investigate, defend, and respond to investigative demands, regardless of the merit of these claims. In addition, if we become subject to these types of claims and are not successful in our defense, we may be forced to pay substantial damages.\n\n\nRisks Related to the Ownership of Our Common Stock\n\n\nOur stock price has been volatile and may continue to fluctuate significantly in the future, which may lead to you not being able to resell shares of our common stock at or above the price you paid, delisting, securities litigation or hostile or otherwise unfavorable takeover offers.\n\n\nThe trading price of our common stock has been volatile since our initial public offering and may continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed in this \u201cRisk Factors\u201d section of this report and other factors such as:\n\n\n\u2022\nour ability to grow our revenues and adjusted EBITDA margin and to manage any such growth effectively;\n\n\n\u2022\nchanges in earnings estimates or recommendations by securities analysts;\n\n\n\u2022\nannouncements about our revenue, earnings or other financial results, including outlook, that are not in line with analyst expectations;\n\n\n\u2022\nnegative publicity about us, our industry, our clients or our clients\u2019 industries;\n\n\n\u2022\nan economic recession in the United States or other countries;\n\n\n\u2022\ngeopolitical and predominantly domestic as well as potentially international economic conditions in addition to public health crises such as the COVID-19 pandemic and geopolitical conflicts such as the Russia-Ukraine military conflict and resulting economic sanctions;\n\n\n25\n\n\n\n\n\u00a0\n\n\n\u2022\nour ability to find, develop or retain high quality targeted media on a cost-effective basis;\n\n\n\u2022\nrelatively low trading volume in our stock, which creates inherent volatility regardless of factors related to our business performance or prospects;\n\n\n\u2022\nthe sale of, or indication of the intent to sell, substantial amounts of our common stock by our directors, officers or substantial shareholders;\n\n\n\u2022\nstock repurchase programs;\n\n\n\u2022\nannouncements by us or our competitors of new services, significant contracts, commercial relationships, acquisitions or capital commitments;\n\n\n\u2022\nfluctuations in the stock price and operating results of our competitors or perceived competitors that operate in our industries; and\n\n\n\u2022\nour commencement of, involvement in, or a perceived threat of litigation or regulatory enforcement action.\n\n\nIn recent years, the stock market in general, and the market for technology and Internet-based companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. As a result of this volatility, you may not be able to sell your common stock at or above the price paid for the shares. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company\u2019s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management\u2019s attention and resources.\n\n\nMoreover, a low or declining stock price may make us attractive to hedge funds and other short-term investors which could result in substantial stock price volatility and cause fluctuations in trading volumes for our stock. A relatively low stock price may also cause us to become subject to an unsolicited or hostile acquisition bid which could result in substantial costs and a diversion of management attention and resources. In the event that such a bid is publicly disclosed, it may result in increased speculation and volatility in our stock price even if our board of directors decides not to pursue a transaction.\n\n\nIf securities or industry analysts do not publish research or reports about our business, or if they issue an adverse opinion regarding our stock, our stock price and trading volume could decline.\n\n\nThe trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us, our business or the industries or businesses of our clients. If any of the analysts issue an adverse opinion regarding our stock or if our actual results or forward outlook do not meet analyst estimates, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.\n\n\nWe cannot guarantee that our stock repurchase program will be fully consummated or that our stock repurchase program will enhance long-term stockholder value, and stock repurchases could increase the volatility of the price of our stock and could diminish our cash reserves.\n\n\nOur board of directors canceled the prior stock repurchase program that commenced in July 2017 and authorized a new stock repurchase program allowing the repurchase of up to $40.0 million worth of common stock. As of June 30, 2023, approximately $19.0 million remained available for stock repurchases pursuant to the board authorization. The timing and actual number of shares repurchased will depend on a variety of factors including the price, cash availability and other market conditions. The stock repurchase program, authorized by our board of directors, does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. The stock repurchase program could affect the price of our stock and increase volatility and may be suspended or terminated at any time, which may result in a decrease in the trading price of our stock. The existence of our stock repurchase program could also cause the price of our common stock to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our common stock. Additionally, repurchases under our stock repurchase program will diminish our cash reserves. There can be no assurance that any stock repurchases will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased such shares. Any failure to repurchase shares after we have announced our intention to do so may negatively impact our reputation and investor confidence in us and may negatively impact our stock price. Although our stock repurchase program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the program\u2019s effectiveness.\n\n\n26\n\n\n\n\n\u00a0\n\n\nWe may be subject to short selling strategies that may drive down the market price of our common stock.\n\n\nShort sellers may attempt to drive down the market price of our common stock. Short selling is the practice of selling securities that the seller does not own but may have borrowed with the intention of buying identical securities back at a later date. The short seller hopes to profit from a decline in the value of the securities between the time the securities are borrowed and the time they are replaced. As it is in the short seller\u2019s best interests for the price of the stock to decline, many short sellers (sometimes known as \u201cdisclosed shorts\u201d) publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects to create negative market momentum. Although traditionally these disclosed shorts were limited in their ability to access mainstream business media or to otherwise create negative market rumors, the rise of the Internet and technological advancements regarding document creation, videotaping and publication by weblog (\u201cblogging\u201d) have allowed many disclosed shorts to publicly attack a company\u2019s credibility, strategy and veracity by means of so-called \u201cresearch reports\u201d that mimic the type of investment analysis performed by large Wall Street firms and independent research analysts. These short attacks have, in the past, led to selling of shares in the market. Further, these short seller publications are not regulated by any governmental, self-regulatory organization or other official authority in the U.S. and they are not subject to certification requirements imposed by the Securities and Exchange Commission. Accordingly, the opinions they express may be based on distortions, omissions or fabrications. Companies that are subject to unfavorable allegations, even if untrue, may have to expend a significant amount of resources to investigate such allegations and/or defend themselves, including shareholder suits against the company that may be prompted by such allegations. We have in the past, and may in the future, be the subject of shareholder suits that we believe were prompted by allegations made by short sellers.\n \n\n\nSubstantial future sales of shares by our stockholders could negatively affect our stock price.\n\n\nSales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales, particularly sales by our directors, executive officers, and significant stockholders, may have on the prevailing market price of our common stock. Additionally, the shares of common stock subject to outstanding options under our equity incentive plans and the shares reserved for future issuance under our equity incentive plans, as well as shares issuable upon vesting of restricted stock awards, will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations.\n\n\nIf we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis or effectively prevent fraud could be impaired, which would adversely affect our ability to operate our business.\n\n\nIn order to comply with the Sarbanes-Oxley Act of 2002 (\u201cSOX Act\u201d), our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. We may in the future discover areas of our internal financial and accounting controls and procedures that need improvement. Our internal control over financial reporting will not prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system\u2019s objectives will be met. All control systems have inherent limitations, and, accordingly, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. If we are unable to maintain proper and effective internal controls, we may not be able to produce accurate financial statements on a timely basis, which could adversely affect our ability to operate our business and could result in regulatory action. If our estimates or judgements relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.\n\n\nIf we identify material weaknesses in our internal control over financial reporting or otherwise fail to maintain an effective system of internal control over financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected.\n\n\nWe must maintain effective internal control over financial reporting in order to accurately and timely report our results of operations and financial condition. In addition, the SOX Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting as of the end of our fiscal year, and the effectiveness of our disclosure controls and procedures quarterly. If we are not able to comply with the requirements of the SOX Act in a timely manner, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would diminish investor confidence in our financial reporting and require additional financial and management resources, each of which may adversely affect our business and operating results.\n\n\n27\n\n\n\n\n\u00a0\n\n\nIn fiscal years 2017 and 2016, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. While no material weaknesses were identified in our internal control over financial reporting as of June 30, 2023, we cannot assure you that we will not in the future identify material weaknesses. In addition, the standards required for a Section 404 assessment under the SOX Act may in the future require us to implement additional corporate governance practices and adhere to additional reporting requirements. Our management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that are or will be applicable to us as a public company. If we fail to discover material weaknesses in our internal controls or maintain effective internal controls over financial reporting, our business and reputation may be harmed and our stock price may decline.\n \n\n\nWe may be required to record a significant charge to earnings if our goodwill or intangible assets become impaired.\n\n\nWe have a substantial amount of goodwill and purchased intangible assets on our consolidated balance sheet as a result of acquisitions. The carrying value of goodwill represents the fair value of an acquired business in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of intangible assets with identifiable useful lives represents the fair value of relationships, content, domain names and acquired technology, among others, as of the acquisition date, and are amortized based on their economic lives. We are required to evaluate our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill that is expected to contribute indefinitely to our cash flows is not amortized, but must be evaluated for impairment at least annually. If necessary, a quantitative test is performed to compare the carrying value of the asset to its estimated fair value, as determined based on a discounted cash flow approach, or when available and appropriate, to comparable market values. If the carrying value of the asset exceeds its current fair value, the asset is considered impaired and its carrying value is reduced to fair value through a non-cash charge to earnings. Events and conditions that could result in impairment of our goodwill and intangible assets include adverse changes in the regulatory environment, a reduced market capitalization or other factors leading to reduction in expected long-term growth or profitability.\n \n\n\nGoodwill impairment analysis and measurement is a process that requires significant judgment. Our stock price and any estimated control premium are factors affecting the assessment of the fair value of our underlying reporting units for purposes of performing any goodwill impairment assessment. For example, our public market capitalization sustained a decline after December 31, 2012 and June 30, 2014 to a value below the net book carrying value of our equity, triggering the need for a goodwill impairment analysis. As a result of our goodwill impairment analysis, we recorded a goodwill impairment charge in those periods. Additionally, in the third quarter of fiscal year 2016, our stock price experienced volatility and our public market capitalization decreased to a value below the net book carrying value of our equity, triggering the need for an interim impairment test. While no impairment was recorded as a result of the interim impairment test, it is possible that in the future another event occurs that does require a material impairment charge. We will continue to conduct impairment analyses of our goodwill on an annual basis, unless indicators of possible impairment arise that would cause a triggering event, and we would be required to take additional impairment charges in the future if any recoverability assessments reflect estimated fair values that are less than our recorded values. Further impairment charges with respect to our goodwill or intangible assets could have a material adverse effect on our financial condition and results of operations.\n\n\nProvisions in our charter documents under Delaware law and in contractual obligations could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.\n\n\nOur amended and restated certificate of incorporation and bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors. These provisions include:\n\n\n\u2022\na classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;\n\n\n\u2022\nno cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;\n\n\n\u2022\nthe exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;\n\n\n\u2022\nthe ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;\n\n\n\u2022\na prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;\n\n\n28\n\n\n\n\n\u00a0\n\n\n\u2022\nthe requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and\n\n\n\u2022\nadvance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders\u2019 meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer\u2019s own slate of directors or otherwise attempting to obtain control of us.\n\n\nWe are also subject to certain anti-takeover provisions under Delaware law. Under Delaware law, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction.\n\n\nWe do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.\n\n\nWe have not declared or paid dividends on our common stock and we do not intend to do so in the near term. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock in the near term, and capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.\n \n\n\nGeneral Risk Factors\n \n\n\nWe face risks and uncertainties related to the COVID-19 pandemic and its aftermath, which could significantly disrupt our operations and which could have a material adverse impact on our business, financial condition, operating results and cash flows. These risks and uncertainties could pertain to other viruses, pandemics or other such unforeseen and broad-based public health crises.\n\n\nOur business has been and may continue to be adversely impacted by the effects of COVID-19 and its aftermath. In addition to negative macroeconomic effects on our business, decreased consumer demand for products offered by our clients, and reduced client budgets, the COVID-19 pandemic and any other related adverse public health developments have caused and may further cause declines in revenue and margin, and disruption to our business may continue or worsen over a prolonged period. The businesses of our clients and third-party media publishers (including strategic partners) have also been negatively affected and may continue to be disrupted by reduced demand, deteriorated consumer creditworthiness, delinquencies, absenteeism, quarantines, economic responses by the U.S. and other governments to limit the human and economic impact of the COVID-19 pandemic (e.g., stimulus payments) and restrictions on employees\u2019 ability to work, office closures and travel or health-related restrictions. In addition, our clients\u2019 businesses may continue to be disrupted in the aftermath of the pandemic if consumers spend less time researching and comparing online, which could represent decreased demand for the online products and services that we market for our clients. Depending on the magnitude and duration of such disruptions and their effect on client spending and/or the availability of quality media from third-party publishers including strategic partners, our business, financial condition, operating results and cash flows could be adversely affected.\n \n\n\nIn addition, COVID-19 and other disease outbreaks have adversely affected, and may continue to adversely affect, the economic and financial market stability within many countries, including in the United States, and could continue to negatively affect marketing and advertising spend in products offered by our clients or on media availability or performance. For example, certain companies that operate in the credit-driven markets such as credit cards and personal loans have seen and may continue to see reductions in near-term demand for our services due to the weakened, or additional weakening of, economic and employment conditions, and the uncertainty over the length and depth of the economic downturn. Such continuing effects of COVID-19, and other similar effects, have resulted and may continue to result in reduced marketing and advertising spend or drops in media availability or performance, which could have a material adverse effect on our business, financial condition, operating results and cash flows. There can be no assurance that any decrease in revenue or margin resulting from COVID-19 will be offset by increased revenue or margin in subsequent periods or that our business, financial condition, operating results and cash flows will remain consistent with pre-pandemic expectations and/or performances.\n \n\n\nFurthermore, we may experience disruptions to our business operations resulting from supply chain disruptions affecting auto insurance carrier budgets which could have a material adverse impact on our business, financial condition, operating results and cash flows.\n \n\n\n29\n\n\n\n\n\u00a0\n\n\nMoreover, to the extent the COVID-19 pandemic or any worsening of the global business and economic environment as a result thereof adversely affects our business, financial condition, operating results and cash flows, it may also have the effect of heightening or exacerbating many of the other risks described in these risk factors, such as those relating to a reduction in online marketing spend by our clients, a loss of clients or lower advertising yields, our dependence on third-party publishers including strategic partners, risks with respect to counterparties, annual and quarterly fluctuations in our results of operations, the impact of interest rate volatility on our visitor traffic, internal control over financial reporting, seasonal fluctuations, our ability to collect our receivables from our clients and risks relating to our ability to raise additional capital when and as needed. Even though the initial COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including as a result of economic downturns or recessions.\n\n\nGiven that the magnitude and duration of COVID-19\u2019s impact on our business and operations remain uncertain, the continued spread of COVID-19 (including the emergence and persistency of variants relating thereto) and the imposition of related public health containment measures and travel and business restrictions could have a material adverse impact on our business, financial condition, operating results and cash flows.\n\n\nWe are subject to risks with respect to counterparties, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.\n\n\nWe have entered into, and expect to enter into in the future, various contracts, including contracts with clients, third-party publishers and strategic partners, that subject us to counterparty risks. The ability and willingness of our counterparties to perform their obligations under any contract will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions including any economic downturn, public health crises including the COVID-19 pandemic, specific industry vertical conditions and the overall financial condition of the counterparty. As a result, clients, third-party publishers or strategic partners may seek to renegotiate the terms of their existing agreements with us, terminate their agreements with us for convenience (where permitted) or avoid performing their obligations under those agreements. Should a counterparty fail to honor its contractual obligations with us or terminate its agreements with us for convenience (where permitted), we could sustain significant losses or write-offs, or we could be involved in costly litigation to defend, enforce and protect our contractual rights, both of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.\n\n\nWe rely on our management team and other key employees, and the loss of one or more key employees could harm our business.\n\n\nOur success and future growth depend upon the continued services of our management team, including Douglas Valenti, Chief Executive Officer, and other key employees in all areas of our organization. From time to time, there may be changes in our key employees resulting from the hiring or departure of executives and employees, which could disrupt our business. We have, in the past, experienced declines in our business and a depressed stock price, making our equity and cash incentive compensation programs less attractive to current and potential key employees. If we lose the services of key employees or if we are unable to attract and retain additional qualified employees, our business and growth could suffer.\n\n\nDamage to our reputation could harm our business, financial condition and results of operations.\n\n\nOur business is dependent on attracting a large number of visitors to our owned and operated and our third-party publishers\u2019 websites and providing inquiries in the form of clicks, leads, calls, applications and customers to our clients, which depend in part on our reputation within the industry and with our clients. Certain other companies within our industry have in the past engaged in activities that others may view as unlawful or inappropriate. These activities by third-parties, such as spyware or deceptive promotions, may be seen as characteristic of participants in our industry and may therefore harm the reputation of all participants in our industry, including us.\n\n\nOur ability to attract visitors and, thereby, potential customers to our clients, also depends in part on our clients providing competitive levels of customer service, responsiveness and prices to such visitors. If our clients do not provide competitive levels of service to visitors, our reputation and therefore our ability to attract additional clients and visitors could be harmed.\n\n\nIn addition, from time to time, we may be subject to investigations, inquiries or litigation by various regulators, which may harm our reputation regardless of the outcome of any such action. For example, in 2012 we responded to a civil investigation conducted by the attorneys general of a number of states into certain of our former education client vertical marketing and business practices resulting in us entering into an Assurance of Voluntary Compliance agreement. Negative perceptions of our business may result in additional regulation, enforcement actions by the government and increased litigation, or harm to our ability to attract or retain clients, third-party publishers or strategic partners, any of which may affect our business and result in lower revenue.\n\n\n30\n\n\n\n\n\u00a0\n\n\nAny damage to our reputation, including from publicity from legal proceedings against us or companies that work within our industry, governmental proceedings, users impersonating or scraping our websites, unfavorable media coverage, consumer class action litigation, or the disclosure of security breaches, cyber-attacks or other similar incidents, could adversely affect our business, financial condition and results of operations.\n\n\nWe may need additional capital in the future to meet our financial obligations and to pursue our business objectives. Additional capital may not be available or may not be available on favorable terms and our business and financial condition could therefore be adversely affected.\n\n\nWhile we anticipate that our existing cash and cash equivalents and cash we expect to generate from future operations will be sufficient to fund our operations for at least the next 12 months, we may need to raise additional capital, including debt capital, to fund operations in the future or to finance acquisitions. If we seek to raise additional capital in order to meet various objectives, including developing future technologies and services, increasing working capital, acquiring businesses, and responding to competitive pressures, capital may not be available on favorable terms or may not be available at all. Lack of sufficient capital resources could significantly limit our ability to take advantage of business and strategic opportunities. Any additional capital raised through the sale of equity or debt securities with an equity component would dilute our stock ownership. If adequate additional funds are not available, we may be required to delay, reduce the scope of, or eliminate material parts of our business strategy, including potential additional acquisitions or development of new technologies.\n\n\nWe may face additional risks in conducting business in international markets.\n\n\nWe have entered into and exited certain international markets and may enter into international markets in the future, including through acquisitions. We have limited experience in marketing, selling and supporting our services outside of the United States, and we may not be successful in introducing or marketing our services abroad.\n \n\n\nThere are risks and challenges inherent in conducting business in international markets, such as:\n\n\n\u2022\nadapting our technologies and services to foreign clients\u2019 preferences and customs;\n\n\n\u2022\nsuccessfully navigating foreign laws and regulations, including marketing, data privacy and security, employment and labor regulations;\n\n\n\u2022\nchanges in foreign political and economic conditions, including as a result of the Russia-Ukraine military conflict;\n\n\n\u2022\ntariffs and other trade barriers, fluctuations in currency exchange rates and potentially adverse tax consequences;\n\n\n\u2022\nlanguage barriers or cultural differences;\n\n\n\u2022\nreduced or limited protection for intellectual property rights in foreign jurisdictions;\n\n\n\u2022\ndifficulties and costs in staffing, managing or overseeing foreign operations;\n\n\n\u2022\neducation of potential clients who may not be familiar with online marketing;\n\n\n\u2022\nchallenges in collecting accounts receivables; \n\n\n\u2022\nmonitoring and complying with economic sanctions, including those resulting from the Russia-Ukraine military conflict; and\n\n\n\u2022\nsuccessfully interpreting and complying with the U.S. Foreign Corrupt Practices Act and similar foreign anti-bribery laws, particularly when operating in countries with varying degrees of governmental corruption.\n\n\nIf we are unable to successfully expand and market our services abroad, our business and future growth may be harmed, and we may incur costs that may not lead to future revenue.\n\n",
+  "item7": ">Item 7.\t\nManagement\u2019s Discussion and Analys\nis of Financial Condition and Results of Operations\n\n\nYou should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in the sections titled \u201cCautionary Note on Forward-Looking Statements\u201d and \u201cRisk Factors.\u201d\n\n\nManagement Overview\n\n\nWe are a leader in performance marketplaces and technologies for the financial services and home services industries. We specialize in customer acquisition for clients in high value, information-intensive markets or \u201cverticals,\u201d including financial services and home services. Our clients include some of the world\u2019s largest companies and brands in those markets. The majority of our operations and revenue are in North America.\n\n\nWe deliver measurable and cost-effective marketing results to our clients, typically in the form of qualified inquiries such as clicks, leads, calls, applications, or customers. Clicks, leads, calls, and applications can then convert into a customer or sale for clients at a rate that results in an acceptable marketing cost to them. We are typically paid by clients when we deliver qualified inquiries in the form of clicks, leads, calls, applications, or customers, as defined by our agreements with them. References to the delivery of customers means a sale or completed customer transaction (e.g., funded loans, bound insurance policies or customer appointments with clients). Because we bear the costs of media, our programs must result in attractive marketing costs to our clients at media costs and margins that provide sound financial outcomes for us. To deliver clicks, leads, calls, applications, and customers to our clients, generally we:\n\n\n\u2022\nown or access targeted media through business arrangements (e.g., revenue sharing arrangements with online publisher partners, large and small) or by purchasing media (e.g., clicks from major search engines); \n\n\n\u2022\nrun advertisements or other forms of marketing messages and programs in that media that result in consumer or visitor responses, typically in the form of clicks (by a consumer to further qualification or matching steps, or to online client applications or offerings), leads (e.g., consumer contact information), calls (from a consumer or to a consumer by our owned and operated or contracted call centers or by that of our clients or their agents), applications (e.g., for enrollment or a financial product), or customers (e.g., funded personal loans);\n\n\n\u2022\ncontinuously seek to display clients and client offerings to visitors or consumers that result in the maximum number of consumers finding solutions that can meet their needs and to which they will take action to respond, resulting in media buying efficiency (e.g., by segmenting media or traffic so that the most appropriate clients or client offerings can be displayed or \u201cmatched\u201d to each segment based on fit, response rates or conversion rates); and\n\n\n\u2022\nthrough technology and analytics, seek to optimize combination of objectives to satisfy the maximum number of shopping or researching visitors or consumers, deliver on client marketing objectives, effectively compete for online media, and generate a sound financial outcome for us.\n\n\nOur primary financial objective has been and remains creating revenue growth from sustainable sources, at target levels of profitability. Our primary financial objective is not to maximize short-term profits, but rather to achieve target levels of profitability while investing in various growth initiatives, as we continue to believe we are in the early stages of a large, long-term market opportunity.\n\n\nOur business derives its net revenue primarily from fees earned through the delivery of qualified inquiries such as clicks, leads, calls, applications, or customers. Through a vertical focus, targeted media presence and our technology platform, we are able to deliver targeted, measurable marketing results to our clients.\n\n\nOur financial services client vertical represented 66%, 72% and 74% of net revenue in fiscal years 2023, 2022 and 2021. Our home services client vertical represented 33%, 27% and 23% of net revenue in fiscal years 2023, 2022 and 2021. Other revenue, which primarily includes our performance marketing agency and technology services, represented 1% of net revenue in fiscal years 2023, 2022 and 2021. In addition, revenue recognized from our divested former education client vertical represented 0%, 0% and 2% of net revenue for fiscal years 2023, 2022 and 2021. See Note 7, \nDivestitures,\n to our consolidated financial statements for more information related to the divestiture. We generated the majority of our revenue from sales to clients in the United States.\n\n\n38\n\n\n\n\n\u00a0\n\n\nTrends Affecting our Business\n\n\nClient Verticals\n\n\nOur financial services client vertical has been challenged by a number of factors in the past, including the limited availability of high quality media at acceptable margins caused by the acquisition of media sources by competitors, increased competition for high quality media and changes in search engine algorithms. These factors may impact our business in the future again. To offset this impact, we have enhanced our product set to provide greater segmentation, matching, transparency and right pricing of media that have enabled better monetization to provide greater access to high quality media sources. Moreover, we have entered into strategic partnerships and acquisitions to increase and diversify our access to quality media and client budgets.\n\n\nIn addition, within our financial services client vertical, we derive a significant amount of revenue from auto insurance carriers and the financial results depend on the performance of the auto insurance industry. For example, weather-related and supply chain events have led to increases in insurance industry loss ratios, which decreased our clients\u2019 advertising spending and thereby had a material adverse effect on our business.\n \n\n\nOn July 1, 2020, we completed the acquisition of Modernize, a leading home improvement performance marketing company, to broaden our customer and media relationships in the home services client vertical. Our home services client vertical has been expanding over the past several years, primarily driven by successful execution of growth initiatives and synergies with the Modernize acquisition.\n\n\nOur business also benefits from more spending by clients in digital media and performance marketing as digital marketing continues to evolve.\n\n\nAcquisitions\n\n\n Acquisitions have historically been, and continue to be, an important element of our overall corporate strategy and use of capital. We have completed several strategic acquisitions in the past, including the acquisitions of Modernize, Mayo Labs and FCE completed in fiscal year 2021, and the acquisitions of AmOne, CCM, and MBT completed in fiscal year 2019. For detailed information regarding our acquisitions, refer to Note 6, \nAcquisitions \nto our consolidated financial statements.\n\n\nDevelopment, Acquisition and Retention of High Quality Targeted Media\n\n\nOne of the primary challenges of our business is finding or creating media that is high quality and targeted enough to attract prospects for our clients at costs that provide a sound financial outcome for us. In order to grow our business, we must be able to find, develop, or acquire and retain quality targeted media on a cost-effective basis. Consolidation of media sources, changes in search engine algorithms and increased competition for available media has, during some periods, limited and may continue to limit our ability to generate revenue at acceptable margins. To offset this impact, we have developed new sources of media, including entering into strategic partnerships with other marketing and media companies and acquisitions. Such partnerships include takeovers of performance marketing functions for large web media properties; backend monetization of unmatched traffic for clients with large media buys; and white label products for other performance marketing companies. We have also focused on growing our revenue from call center, email, mobile and social media traffic sources.\n\n\nSeasonality\n \n\n\nOur results are subject to significant fluctuation as a result of seasonality. In particular, our quarters ending December 31 (our second fiscal quarter) are typically characterized by seasonal weakness. In our second fiscal quarters, there is generally lower availability of media during the holiday period on a cost-effective basis and some of our clients have lower budgets. In our quarters ending March 31 (our third fiscal quarter), this trend generally reverses with better media availability and often new budgets at the beginning of the year for our clients with fiscal years ending December 31.\n\n\nOur results are also subject to fluctuation as a result of seasonality in our clients\u2019 business. For example, revenue in our home services client vertical is subject to cyclical and seasonal trends, as the consumer demand for home services typically rises during the spring and summer seasons and declines during the fall and winter seasons. Other factors affecting our clients\u2019 businesses include macro factors such as credit availability in the market, interest rates, the strength of the economy and employment.\n\n\n39\n\n\n\n\n\u00a0\n\n\nRegulations\n\n\nOur revenue has fluctuated in part as a result of federal, state and industry-based regulations and developing standards with respect to the enforcement of those regulations. Our business is affected directly because we operate websites and conduct telemarketing and email marketing, and indirectly affected as our clients adjust their operations as a result of regulatory changes and enforcement activity that affect their industries.\n\n\nClients in our financial services vertical have been affected by laws and regulations and the increased enforcement of new and pre-existing laws and regulations. The effect of these regulations, or any future regulations, may continue to result in fluctuations in the volume and mix of our business with these clients.\n\n\nAn example of a regulatory change that may affect our business is the amendment of the Telephone Consumer Protection Act (the \u201cTCPA\u201d) that affects telemarketing calls. Our clients may make business decisions based on their own experiences with the TCPA regardless of our products and compliance practices. Those decisions may negatively affect our revenue and profitability.\n\n\nCOVID-19\n\n\nWe continue to monitor the impacts from the COVID-19 pandemic that may unfavorably affect our business, such as reductions in client spending on marketing and advertising, drops in media availability or performance, deteriorating consumer spending, fluctuations in interest rates, and credit quality of our receivables. The COVID-19 pandemic has affected and may continue to affect our business operations, including our employees, clients, publishers, business partners, and communities, and there is substantial uncertainty in the nature and degree of its continued effects over time. Even after the initial COVID-19 outbreak subsided, we have experienced and may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future. Furthermore, we may experience disruptions to our business operations resulting from supply chain disruptions and inflationary pressures affecting auto insurance carrier budgets which could have a material adverse impact on our business, financial condition, operating results and cash flows. Refer to Risk Factors (Part I, Item 1A of this Form 10-K) for a discussion of these factors and other risks.\n\n\n40\n\n\n\n\n\u00a0\n\n\nBasis of Presentation\n\n\nNet Revenue\n\n\nOur business generates revenue primarily from fees earned through the delivery of qualified inquiries such as clicks, leads, calls, applications, or customers. We deliver targeted and measurable results through a vertical focus, which includes our financial services client vertical and our home services client vertical. All remaining businesses that are not significant enough for separate reporting are included in other revenue. Our revenue recognized in fiscal year 2021 also included the revenue generated from our divested former education client vertical. See Note 7, \nDivestitures,\n to our consolidated financial statements for more information related to the divestiture.\n \n\n\nCost of Revenue\n\n\nCost of revenue consists primarily of media and marketing costs, personnel costs, amortization of intangible assets, depreciation expense and facilities expense. Media and marketing costs consist primarily of fees paid to third-party publishers, media owners or managers, or to strategic partners that are directly related to a revenue-generating event and of pay-per-click, or PPC, ad purchases from Internet search companies. We pay these third-party publishers, media owners or managers, strategic partners and Internet search companies on a revenue-share, a cost-per-lead, or CPL, or cost-per-click, or CPC, basis. Personnel costs include salaries, stock-based compensation expense, bonuses, commissions and related taxes, and employee benefit costs. Personnel costs are primarily related to individuals associated with maintaining our servers and websites, our call center operations, our editorial staff, client management, creative team, content, compliance group and media purchasing analysts. Costs associated with software incurred in the development phase or obtained for internal use are capitalized and amortized to cost of revenue over the software\u2019s estimated useful life.\n\n\nOperating Expenses\n\n\nWe classify our operating expenses into three categories: product development, sales and marketing, and general and administrative. Our operating expenses consist primarily of personnel costs and, to a lesser extent, professional services fees, facilities fees and other costs. Personnel costs for each category of operating expenses generally include salaries, stock-based compensation expense, bonuses, commissions and related taxes, and employee benefit costs.\n\n\nProduct Development. \nProduct development expenses consist primarily of personnel costs, facilities fees and professional services fees related to the development and maintenance of our products and media management platform.\n \n\n\nSales and Marketing.\n Sales and marketing expenses consist primarily of personnel costs, facilities fees and professional services fees. We are constraining expenses generally to the extent practicable.\n\n\nGeneral and Administrative.\n General and administrative expenses consist primarily of personnel costs of our finance, legal, employee benefits and compliance, technical support and other administrative personnel, accounting and legal professional services fees, facilities fees and bad debt expense.\n\n\nInterest and Other (Expense) Income, Net\n\n\nInterest and other (expense) income, net, consists primarily of interest expense, interest income, and other income and expense. Interest expense is related to imputed interest on post-closing payments related to our acquisitions. We have no borrowing agreements outstanding as of June 30, 2023; however interest expense could increase if, among other things, we enter into a new borrowing agreement to manage liquidity or make additional acquisitions through debt financing. Interest income represents interest earned on our cash and cash equivalents, which may increase or decrease depending on market interest rates and the amounts invested. Other income and expense includes gains and losses on foreign currency exchange, gains and losses on divestitures of subsidiaries, client verticals and assets that were not considered to be strategically important to our business, and other non-operating items.\n\n\n(Provision for) Benefit from Income Taxes\n\n\nWe are subject to tax in the United States as well as other tax jurisdictions or countries in which we conduct business. Earnings from our limited non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax.\n\n\n41\n\n\n\n\n\u00a0\n\n\nResults of Operations\n\n\nThe following table sets forth our consolidated statements of operations for the periods indicated:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended June 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands, except percentages)\n\n\n\u00a0\n\n\n\n\n\n\nNet revenue\n\n\n\u00a0\n\n\n$\n\n\n580,624\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n582,099\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n578,487\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\n\n\n\nCost of revenue \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n532,101\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n91.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n528,368\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n90.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n507,956\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n87.8\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n48,523\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n53,731\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n70,531\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.2\n\n\n\u00a0\n\n\n\n\n\n\nOperating expenses: \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProduct development\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,893\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,906\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,344\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.3\n\n\n\u00a0\n\n\n\n\n\n\nSales and marketing\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,542\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,042\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,991\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.9\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,904\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,501\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,270\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.6\n\n\n\u00a0\n\n\n\n\n\n\nOperating (loss) income\n\n\n\u00a0\n\n\n\u00a0\n\n\n(20,816\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3.6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,718\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.8\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,926\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.4\n\n\n\u00a0\n\n\n\n\n\n\nInterest income\n\n\n\u00a0\n\n\n\u00a0\n\n\n296\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n39\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(790\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,075\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,296\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.2\n\n\n)\n\n\n\n\n\n\nOther (expense) income, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n(52\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,660\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.9\n\n\n\u00a0\n\n\n\n\n\n\n(Loss) income before income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(21,362\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3.7\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,762\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1.0\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n29,329\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.1\n\n\n\u00a0\n\n\n\n\n\n\n(Provision for) benefit from income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(47,504\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n514\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,774\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1.0\n\n\n)\n\n\n\n\n\n\nNet (loss) income\n\n\n\u00a0\n\n\n$\n\n\n(68,866\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11.9\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n(5,248\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.9\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n23,555\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.1\n\n\n%\n\n\n\n\n\n\n \n\n\n(1)\nCost of revenue and operating expenses include stock-based compensation expense as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nCost of revenue\n\n\n\u00a0\n\n\n$\n\n\n7,923\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.4\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n7,475\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.3\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n8,997\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.6\n\n\n%\n\n\n\n\n\n\nProduct development\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,880\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,575\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,339\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.4\n\n\n\u00a0\n\n\n\n\n\n\nSales and marketing\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,298\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,378\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,459\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.4\n\n\n\u00a0\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,685\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,078\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,838\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.0\n\n\n\u00a0\n\n\n\n\n\n\nGross Profit\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended June 30,\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023 - 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022 - 2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet revenue\n\n\n\u00a0\n\n\n$\n\n\n580,624\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n582,099\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n578,487\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n%\n\n\n\n\n\n\nCost of revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n532,101\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n528,368\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n507,956\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n%\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n$\n\n\n48,523\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n53,731\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n70,531\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(24\n\n\n%)\n\n\n\n\n\n\n\u00a0\n\n\n42\n\n\n\n\n\u00a0\n\n\nNet Revenue\n \n\n\nNet revenue was approximately flat in fiscal year 2023 compared to fiscal year 2022. Revenue from our financial services client vertical decreased by $37.4 million, or 9%, due to a decrease in revenue in our insurance business associated with decreased spending by certain insurance carriers to address profitability concerns caused by higher incident rates, inflation, and higher costs to repair and replace vehicles. This was offset by an increase in revenue in our credit cards, personal loans and banking businesses due to increased media and client budgets. Revenue from our home services client vertical increased by $34.3 million, or 22%, primarily as a result of increased client budgets and successful execution of growth initiatives. Other revenue, which primarily includes performance marketing agency and technology services, contributed $7.8 million of revenue for fiscal year 2023, as compared to $6.2 million of revenue for fiscal year 2022.\n \n\n\nNet revenue increased by $3.6 million, or 1%, in fiscal year 2022 compared to fiscal year 2021. Revenue from our home services client vertical increased by $24.3 million, or 18%, primarily as a result of increased client budgets and the successful integration of the Modernize acquisition. Revenue from our financial services client vertical decreased by $9.7 million, or 2%, primarily due to a decrease in revenue in our insurance business associated with decreased spending by insurance carriers to address profitability concerns caused by higher incident rates, weather-related catastrophes, inflation, and higher costs to repair and replace vehicles. This is offset by an increase in revenue in our credit-driven businesses due to some economic recovery from the impact of the COVID-19 pandemic. Other revenue, which primarily includes performance marketing agency and technology services, contributed $6.2 million of revenue for fiscal year 2022, as compared to $5.5 million of revenue for fiscal year 2021. The divestiture of our former education client vertical, completed in fiscal year 2021, resulted in a decrease in revenue by $11.6 million for fiscal year 2022, as compared to fiscal year 2021.\n\n\nCost of Revenue and Gross Profit Margin\n \n\n\nCost of revenue increased by $3.7 million, or 1%, in fiscal year 2023 compared to fiscal year 2022. This was primarily driven by increased personnel costs of $16.4 million and increased amortization of intangible assets of $2.0 million, offset by decreased media and marketing costs of $15.9 million. The increase in personnel costs was mainly due to higher headcount, the impact of our annual salary increases, increased incentive compensation and increased stock-based compensation expense. The decrease in media and marketing costs was associated with higher mix of revenue derived from businesses with better media efficiency. Gross profit margin, which is the difference between net revenue and cost of revenue as a percentage of net revenue, was 8% in fiscal year 2023 compared to 9% in fiscal year 2022. The decrease in gross profit margin was primarily attributable to increased personnel costs as a percentage of revenue as we continue to invest in long-term growth initiatives and capabilities.\n\n\nCost of revenue increased by $20.4 million, or 4%, in fiscal year 2022 compared to fiscal year 2021. This was primarily driven by increased media and marketing costs of $15.4 million, increased personnel costs of $3.3 million and increased amortization of intangible assets of $0.5 million. The increase in media and marketing costs was associated with higher revenue volumes. The increase in personnel costs was mainly attributable to a higher headcount. The increase in amortization expense was primarily due to the acquisitions of intangible assets in fiscal year 2022. Gross profit margin was 9% in fiscal year 2022 compared to 12% in fiscal year 2021. The decrease in gross profit margin was primarily attributable to increased media and marketing costs as a percentage of revenue.\n\n\nOperating Expenses\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended June 30,\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023 - 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022 - 2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nProduct development\n\n\n\u00a0\n\n\n$\n\n\n28,893\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n21,906\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n19,344\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\n\n\n\nSales and marketing\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,542\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,042\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,991\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n%\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,904\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,501\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,270\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3\n\n\n%)\n\n\n\n\n\n\nOperating expenses\n\n\n\u00a0\n\n\n$\n\n\n69,339\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n58,449\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n56,605\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\n\n\n\nProduct Development Expenses\n \n\n\nProduct development expenses increased by $7.0 million, or 32%, in fiscal year 2023 compared to fiscal year 2022. This was primarily due to increased personnel costs of $6.4 million as a result of higher headcount and the impact of our annual salary increases as we continue to invest in long-term growth initiatives and capabilities, and increased professional services costs of $0.6 million.\n \n\n\n43\n\n\n\n\n\u00a0\n\n\nProduct development expenses increased by $2.6 million, or 13%, in fiscal year 2022 compared to fiscal year 2021. This was primarily due to increased personnel costs of $1.5 million as a result of higher headcount, and increased professional services costs of $0.7 million.\n\n\nSales and Marketing Expenses\n \n\n\nSales and marketing expenses increased by $1.5 million, or 14%, in fiscal year 2023 compared to fiscal year 2022. This was primarily due to increased personnel costs of $1.6 million as a result of higher headcount, the impact of our annual salary increases, and increased incentive compensation.\n\n\nSales and marketing expenses were approximately flat in fiscal year 2022 compared to fiscal year 2021.\n \n\n\nGeneral and Administrative Expenses\n \n\n\nGeneral and administrative expenses increased by $2.4 million, or 9%, in fiscal year 2023 compared to fiscal year 2022. This was primarily due to an allowance for bad debt expense of $2.0 million recorded in fiscal year 2023, and increased professional services costs of $0.7 million.\n\n\nGeneral and administrative expenses decreased by $0.8 million, or 3%, in fiscal year 2022 compared to fiscal year 2021. This was primarily due to an adjustment to contingent consideration of $0.9 million recorded in fiscal year 2022.\n \n\n\nInterest and Other (Expense) Income, Net\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended June 30,\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023 - 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022 - 2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInterest income\n\n\n\u00a0\n\n\n$\n\n\n296\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n39\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2860\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(74\n\n\n%)\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(790\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,075\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,296\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(27\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17\n\n\n%)\n\n\n\n\n\n\nOther (expense) income, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n(52\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,660\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(348\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(100\n\n\n%)\n\n\n\n\n\n\nInterest and other (expense) income, net\n\n\n\u00a0\n\n\n$\n\n\n(546\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(1,044\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n15,403\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(48\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(107\n\n\n%)\n\n\n\n\n\n\nInterest income relates to interest earned on our cash and cash equivalents in fiscal years 2023, 2022 and 2021.\n\n\nInterest expense decreased by $0.3 million, or 27%, in fiscal year 2023 compared to fiscal year 2022 primarily due to decreased imputed interest on a lower average outstanding balance of the post-closing payments related to our business acquisitions. Interest expense decreased by $0.2 million, or 17%, in fiscal year 2022 compared to fiscal year 2021 primarily due to decreased imputed interest on a lower average outstanding balance of the post-closing payments related to our business acquisitions.\n\n\nOther (expense) income, net, was immaterial in both fiscal years 2023 and 2022. Other (expense) income, net, was $16.7 million in fiscal year 2021 primarily due to \na gain of $16.6 million recognized from the divestiture of our education client vertical\n.\n\n\n(Provision for) Benefit from Income Taxes\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended June 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\n(Provision for) benefit from income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(47,504\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n514\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(5,774\n\n\n)\n\n\n\n\n\n\nEffective tax rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(222.4\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.7\n\n\n%\n\n\n\n\n\n\nWe recorded a provision for income taxes of $47.5 million in fiscal year 2023, primarily as a result of establishing a valuation allowance against the net deferred tax assets, which resulted in deferred federal and state income taxes of $47.1 million and current state and foreign income taxes of $0.4 million. The Company evaluated the need for a valuation allowance at year end by considering among other things, the nature, frequency and severity of current and cumulative losses, reversal of taxable temporary differences, tax planning strategies, forecasts of future profitability, and the duration of statutory carryforward periods based upon this analysis the Company determined that the significant negative evidence associated with cumulative losses in recent periods and current results outweighed the positive evidence as of June 30, 2023 and accordingly, the near-term realization of certain of these assets was deemed not more likely than not. The Company recorded a one-time non-cash charge to income tax expense in the current period.\n\n\n44\n\n\n\n\n\u00a0\n\n\nWe recorded a benefit from income taxes of $0.5 million in fiscal year 2022, primarily as a result of a net benefit for deferred federal and state income taxes of $0.9 million offset by current state and foreign income taxes of $0.4 million.\n\n\nWe recorded a provision for income taxes of $5.8 million in fiscal year 2021, primarily as a result of deferred federal and state income taxes of $5.3 million and current state and foreign taxes of $0.4 million.\n\n\nOur effective tax rate was (222.4%), 8.9%, and 19.7% in fiscal years 2023, 2022 and 2021. The increase in our effective tax rate for the fiscal year 2023 compared to fiscal year 2022 was primarily due to a one-time, non-cash charge to establish a valuation allowance for the net deferred tax assets.\n\n\nA provision of the Tax Cuts and Jobs Act (TCJA) is effective for us for the fiscal year ending June 30, 2023, creating a significant change to the treatment of research and experimental (R&E) expenditures under Section 174 of the IRC (Sec. 174 expenses). Historically, businesses have had the option of deducting research and development expenses in the year incurred or capitalizing and amortizing the costs over five years. The new TCJA provision, however, eliminates this option and requires Sec. 174 expenses associated with research conducted in the U.S. to be capitalized and amortized over a 5-year period. For expenses associated with research outside of the United States, Sec. 174 expenses are required to be capitalized and amortized over a 15-year period. This change in tax law did not have a material impact to cash taxes and the Company has accounted for a deferred tax asset related to these costs.\n \n\n\nIn the first quarter of fiscal year 2023, President Biden signed into law the CHIPS and Science Act and the Inflation Reduction Act. The new legislation provides tax incentives as well as imposes a 15% minimum tax on certain corporation\u2019s book income and a 1% excise tax on certain stock buybacks. The new legislation is effective for the Company in the third quarter of fiscal year 2023. The Company evaluated the new legislation and concluded it will not have a material impact on the consolidated financial statements.\n\n\nLiquidity and Capital Resources\n\n\nAs of June 30, 2023, our principal sources of liquidity consisted of cash and cash equivalents of $73.7 million and cash we expect to generate from future operations. Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. We believe our cash equivalents are liquid and accessible.\n\n\nOur short-term and long-term liquidity requirements primarily arise from our working capital requirements, capital expenditures, internal software development costs, repurchases of our common stock, and acquisitions from time to time. Our acquisitions also may have deferred purchase price components and contingent consideration which requires us to make a series of payments following the acquisition closing date. Our primary operating cash requirements include the payment of media costs, personnel costs, costs of information technology systems and office facilities. Our ability to fund these requirements will depend on our future cash flows, which are determined, in part, by future operating performance and are, therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control. Even though we may not need additional funds to fund anticipated liquidity requirements, we may still elect to obtain debt financing or issue additional equity securities for other reasons.\n\n\nWe believe that our principal sources of liquidity will be sufficient to satisfy our currently anticipated cash requirements through at least the next 12 months and thereafter for the foreseeable future.\n\n\nThe following table summarizes our cash flows for the periods indicated:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year Ended June 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\nNet cash provided by operating activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11,838\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n28,672\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n50,615\n\n\n\u00a0\n\n\n\n\n\n\nNet cash used in investing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(15,125\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9,225\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(36,457\n\n\n)\n\n\n\n\n\n\nNet cash used in financing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19,459\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(33,315\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11,312\n\n\n)\n\n\n\n\n\n\nNet Cash provided by Operating Activities\n\n\nCash flows from operating activities are primarily the result of our net (loss) income adjusted for depreciation and amortization, provision for or benefit from sales returns and doubtful accounts receivable, stock-based compensation expense, change in the fair value of contingent consideration, non-cash lease expense, gains and losses on divestitures of businesses, deferred income taxes and changes in working capital components.\n\n\nCash provided by operating activities was $11.8 million in fiscal year 2023, compared to cash provided by operating activities of $28.7 million in fiscal year 2022 and cash provided by operating activities of $50.6 million in fiscal year 2021.\n\n\n45\n\n\n\n\n\u00a0\n\n\nCash provided by operating activities in fiscal year 2023 consisted of net loss of $68.9 million, adjusted for non-cash adjustments of $86.7 million and changes in working capital accounts of $6.0 million. The non-cash adjustments primarily consisted of a one-time non-cash charge of $47.2 million to establish a valuation allowance for our deferred tax assets, depreciation and amortization of $19.2 million, and stock-based compensation expense of $18.8 million. The changes in working capital accounts were primarily attributable to a decrease in accrued liabilities of $7.1 million, an increase in prepaid expenses and other assets of $4.8 million, and a decrease in accounts payable of $4.8 million, offset by a decrease in accounts receivable of $10.9 million. The decreases in accounts receivable, accrued liabilities and accounts payable were primarily due to lower revenue levels in the two months ended June 30, 2023 as compared to the two months ended June 30, 2022, and the timing of receipts and payments. The increase in prepaid expenses and other assets was primarily due to increased prepayments made to third-party publishers\n.\n\n\nCash provided by operating activities in fiscal year 2022 consisted of net loss of $5.2 million, adjusted for non-cash adjustments of $33.8 million and changes in working capital accounts of $0.1 million. The non-cash adjustments primarily consisted of \ndepreciation and amortization of $17.0 million and stock-based compensation expense of $18.5 million\n. The changes in working capital accounts were primarily attributable to a decrease in accrued liabilities of $5.0 million and a decrease in accounts payable of $2.9 million, offset by a decrease in accounts receivable of $5.5 million and a decrease in prepaid expenses and other assets of $3.0 million. The decreases in accounts receivable, accrued liabilities and accounts payable were primarily due to lower revenue levels in the two months ended June 30, 2022 as compared to the two months ended June 30, 2021, and the timing of receipts and payments. The decrease in prepaid expenses and other assets was primarily due to the state tax refund\n of $3.3 million.\n\n\nCash provided by operating activities in fiscal year 2021 consisted of net income of $23.6 million, adjusted for non-cash adjustments of $24.2 million and changes in working capital accounts of $2.8 million. The non-cash adjustments primarily consisted of \nstock-based compensation expense of $19.6 million, depreciation and amortization of $16.2 million, and \na decrease in deferred tax assets of $5.4 million primarily due to provision for income taxes recorded in fiscal year 2021, offset by a gain of $16.6 million recognized from the divestiture of our education client vertical. The changes in working capital accounts were primarily attributable to an increase in accrued liabilities of $10.6 million, an increase in accounts payable of $6.6 million, and a decrease in prepaid expenses and other assets of $6.0 million, offset by an increase in accounts receivable of $20.1 million. The increases in accounts payable and accrued liabilities were due to the timing of payments. The decrease in prepaid expenses and other assets was primarily due to the refund of an \nunamortized prepaid expense of $5.3 million. \nThe increase in accounts receivable was due to the timing of receipts.\n \n \n\n\nNet Cash Used in Investing Activities\n\n\nCash flows from investing activities generally include capital expenditures, capitalized internal software development costs, acquisitions from time to time, business divestitures, and investment in equity securities.\n\n\nCash used in investing activities was $15.1 million in fiscal year 2023 compared to $9.2 million in fiscal year 2022 and $36.5 million in fiscal year 2021.\n\n\nCash used in investing activities in fiscal year 2023 was primarily due to capital expenditures and internal software development costs of $15.0 million.\n\n\nCash used in investing activities in fiscal year 2022 was primarily due to capital expenditures and internal software development costs of $7.5 million, and $1.8 million cash paid at the closing of two immaterial acquisitions completed in fiscal year 2022.\n\n\nCash used in investing activities in fiscal year 2021 was primarily due to payments for the acquisitions of Modernize, Mayo Labs and FCE, net of cash acquired, of $49.3 million, capital expenditures and internal software development costs of $5.1 million, and investment in equity securities of $4.0 million, offset by $21.9 million of cash received from the divestitures of our education client vertical and B2B client vertical.\n\n\nNet Cash Used in Financing Activities\n\n\nCash flows from financing activities generally include repurchases of common stock, payment of withholding taxes related to the release of restricted stock, net of share settlement, proceeds from the exercise of stock options and issuance of common stock under employee stock purchase plan, and post-closing payments related to business acquisitions.\n\n\nCash used in financing activities was $19.5 million in fiscal year 2023, compared to cash used in financing activities of $33.3 million in fiscal year 2022 and $11.3 million in fiscal year 2021.\n\n\n46\n\n\n\n\n\u00a0\n\n\nCash used in financing activities in fiscal year 2023 was due to payment of post-closing payments and contingent consideration related to acquisitions of $11.6 million, repurchases of common stock of $5.6 million, and the payment of withholding taxes related to the release of restricted stock, net of share settlement of $5.4 million, offset by proceeds from the issuance of common stock under the employee stock purchase plan and exercise of stock options of $3.2 million.\n\n\nCash used in financing activities in fiscal year 2022 was due to repurchases of common stock of $15.3 million, payment of post-closing payments and contingent consideration related to acquisitions of $12.6 million, and the payment of withholding taxes related to the release of restricted stock, net of share settlement of $7.3 million, offset by proceeds from the exercise of stock options of $1.9 million.\n\n\nCash used in financing activities in fiscal year 2021 was due to the payment of withholding taxes related to the release of restricted stock, net of share settlement of $8.0 million, and payment of post-closing payments and contingent consideration related to acquisitions of $7.7 million, offset by proceeds from the exercise of stock options of $4.4 million.\n\n\nOff-Balance Sheet Arrangements\n\n\nDuring the periods presented, we did not have any material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.\n \n\n\nContractual Obligations\n \n\n\nThe following table sets forth payments due under our contractual obligations as of June 30, 2023:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\u00a0\n\n\nLess\n \nthan \n1 Year\n\n\n\u00a0\n\n\n\u00a0\n\n\n1-3 Years\n\n\n\u00a0\n\n\n\u00a0\n\n\n3-5 Years\n\n\n\u00a0\n\n\n\u00a0\n\n\nMore than \n5 Years\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\nOperating leases\n\u00a0(1)\n\n\n\u00a0\n\n\n$\n\n\n18,593\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,521\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,121\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,285\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,666\n\n\n\u00a0\n\n\n\n\n\n\nPost-closing payment related to acquisitions \n(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,498\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,373\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,125\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nContingent consideration related to acquisitions \n(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,039\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,039\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nTotal\n\n\n\u00a0\n\n\n$\n\n\n37,130\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n18,933\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11,246\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,285\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,666\n\n\n\u00a0\n\n\n\n\n\n\n(1)\nWe lease various office facilities, including our corporate headquarters in Foster City, California. The terms of certain lease agreements include rent escalation provisions and tenant improvement allowances. \n\n\nIn February 2010, we entered into a lease agreement for our corporate headquarters located at 950 Tower Lane, Foster City, California with an expiration date in October 2018 and an option to extend the term of the lease twice by one additional year. In April 2018, the lease agreement was amended to extend the lease term through October 31, 2023, with an option to extend the term of the lease for an additional five years following the expiration date.  \t\n\n\nIn March 2023, the lease agreement was further amended, pursuant to which the corporate headquarters will be relocated to a different floor within the same building upon the expiration of the existing lease. The amended agreement will commence in fiscal year 2024, with undiscounted future minimum payment of $8.4 million and a lease term of five years. We have one option to extend the term of the lease for an additional three years.\n\n\n(2)\nIn accordance with the terms of the acquisitions completed in fiscal years 2022, 2021 and 2019 we are required to make post-closing payments and contingent consideration payments. See Note 6, \nAcquisitions,\n to our consolidated financial statements for more information on the post-closing payments and contingent consideration payments related to our business acquisitions. \n\n\nThe above table does not include approximately $2.6 million of long-term income tax liabilities for uncertainty in income taxes due to the fact that we are unable to reasonably estimate the timing of these potential future payments.\n \n\n\nCritical Accounting Policies and Estimates\n\n\nWe have prepared our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (\u201cGAAP\u201d). In doing so, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results may differ significantly from these estimates. Some of the estimates and assumptions\n \n\n\n47\n\n\n\n\n\u00a0\n\n\nwe are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances. On an ongoing basis, we reconsider and evaluate our estimates and assumptions.\n \n\n\nWe refer to these estimates and assumptions as critical accounting policies and estimates. We believe that the critical accounting policies listed below involve our more significant judgments, estimates and assumptions and, therefore, could have the greatest potential impact on our consolidated financial statements. In addition, we believe that a discussion of these policies is necessary to understand and evaluate the consolidated financial statements contained in this report.\n\n\nSee Note 2, \nSummary of Significant Accounting Principles\n, to our consolidated financial statements for further information on our critical and other significant accounting policies.\n\n\nRevenue Recognition\n\n\nWe generate our revenue primarily from fees earned through the delivery of qualified inquiries such as clicks, leads, calls, applications, or customers. We recognize revenue when we transfer control of promised goods or services to our clients in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We recognize revenue pursuant to the five-step framework contained in ASC 606, Revenue from Contracts with Customers: (i) identify the contract with a client; (ii) identify the performance obligations in the contract, including whether they are distinct in the context of the contract; (iii) determine the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligations.\n\n\nAs part of determining whether a contract exists, probability of collection is assessed on a client-by-client basis at the outset of the contract. Clients are subjected to a credit review process that evaluates the clients\u2019 financial position and the ability and intention to pay. If it is determined from the outset of an arrangement that the client does not have the ability or intention to pay, we will conclude that a contract does not exist and will continuously reassess our evaluation until we are able to conclude that a contract does exist.\n\n\nGenerally, our contracts specify the period of time as one month, but in some instances the term may be longer. However, for most of our contracts with clients, either party can terminate the contract at any time without penalty. Consequently, enforceable rights and obligations only exist on a day-to-day basis, resulting in individual daily contracts during the specified term of the contract or until one party terminates the contract prior to the end of the specified term.\n\n\nWe have assessed the services promised in our contracts with clients and have identified one performance obligation, which is a series of distinct services. Depending on the client\u2019s needs, these services consist of a specified or an unlimited number of clicks, leads, calls, applications, customers, etc. (hereafter collectively referred to as \u201cmarketing results\u201d) to be delivered over a period of time. We satisfy these performance obligations over time as the services are provided. We do not promise to provide any other significant goods or services to our clients.\n\n\nTransaction price is measured based on the consideration that we expect to receive from a contract with a client. Our contracts with clients contain variable consideration as the price for an individual marketing result varies on a day-to-day basis depending on the market-driven amount a client has committed to pay. However, because we ensure the stated period of our contracts does not generally span multiple reporting periods, the contractual amount within a period is based on the number of marketing results delivered within the period. Therefore, the transaction price for any given period is fixed and no estimation of variable consideration is required.\n\n\nIf a marketing result delivered to a client does not meet the contractual requirements associated with that marketing result, our contracts allow for clients to return a marketing result generally within 5-10 days of having received the marketing result. Such returns are factored into the amount billed to the client on a monthly basis and consequently result in a reduction to revenue in the same month the marketing result is delivered. No warranties are offered to our clients.\n\n\nWe do not allocate transaction price as we have only one performance obligation and our contracts do not generally span multiple periods. Taxes collected from clients and remitted to governmental authorities are not included in revenue. We elected to use the practical expedient which allows us to record sales commissions as expense as incurred when the amortization period would have been one year or less.\n\n\nWe bill clients monthly in arrears for the marketing results delivered during the preceding month. Our standard payment terms are 30-60 days. Consequently, we do not have significant financing components in our arrangements.\n\n\n48\n\n\n\n\n\u00a0\n\n\nSeparately from the agreements that we have with clients, we have agreements with Internet search companies, third-party publishers and strategic partners that we engage with to generate targeted marketing results for our clients. We receive a fee from our clients and separately pay a fee to the Internet search companies, third-party publishers and strategic partners. We evaluate whether we are the principal (i.e., report revenue on a gross basis) or agent (i.e., report revenue on a net basis). In doing so, we first evaluate whether we control the goods or services before they are transferred to the clients. If we control the goods or services before they are transferred to the clients, we are the principal in the transaction. As a result, the fees paid by our clients are recognized as revenue and the fees paid to our Internet search companies, third-party publishers and strategic partners are included in cost of revenue. If we do not control the goods or services before they are transferred to the clients, we are the agent in the transaction and recognize revenue on a net basis. We have one subsidiary, CCM, which provides performance marketing agency and technology services to clients in financial services, education and other markets, recognizing revenue on a net basis. Determining whether we control the goods or services before they are transferred to the clients may require judgment.\n \n\n\nStock-Based Compensation\n\n\nWe measure and record the expense related to stock-based transactions based on the fair values of stock-based payment awards, as determined on the date of grant. The fair value of restricted stock units with a service condition (\u201cservice-based RSU\u201d) is determined based on the closing price of our common stock on the date of grant. To estimate the fair value of stock options and purchase rights granted under the employee stock purchase plan (\u201cESPP\u201d), we selected the Black-Scholes option pricing model. The fair value of restricted stock units with a service and performance condition (\u201cperformance-based RSU\u201d) is determined based on the closing price of our common stock on the date of grant. Grant date as defined by ASC 718 is determined when the components that comprise the performance targets have been fully established. If a grant date has not been established, the compensation expense associated with the performance-based RSUs is re-measured at each reporting date based on the closing price of our common stock at each reporting date until the grant date has been established. In applying these models, our determination of the fair value of the award is affected by assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the award and the employees\u2019 actual and projected stock option exercise and pre-vesting employment termination behaviors. We estimate the expected volatility of our common stock based on our historical volatility over the expected term of the award. We have no history or expectation of paying dividends on our common stock. The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected term of the award.\n\n\nWe recognize stock-based compensation expense for options and service-based RSUs using the straight-line method, and for performance-based RSUs using the graded vesting method, based on awards ultimately expected to vest. We recognize stock-based compensation expense for the purchase rights granted under the ESPP using the straight-line method over the offering period. We estimate future forfeitures at the date of grant. On an annual basis, we assess changes to our estimate of expected forfeitures based on recent forfeiture activity. The effect of adjustments made to the forfeiture rates, if any, is recognized in the period that change is made.\n \n\n\nIncome Taxes\n \n\n\nThe Company accounts for income taxes using an asset and liability approach to record deferred taxes. The Company\u2019s deferred income tax assets represent temporary differences between the financial statement carrying amount and the tax basis of existing assets and liabilities that will result in deductible amounts in future years, including net operating loss carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. The Company regularly assess the realizability of our deferred tax assets. Judgment is required to determine whether a valuation allowance is necessary and the amount of such valuation allowance, if appropriate. The Company considers all available evidence, both positive and negative, to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating the need, or continued need, for a valuation allowance The Company considers, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, forecasts of future profitability, and the duration of statutory carryforward periods. Our judgment regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors.\n \n\n\nThe Company recognizes tax benefits from an uncertain tax position only if it is more likely than not, based on the technical merits of the position, that the tax position will be sustained on examination by the tax authorities. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties related to unrecognized tax benefits are recognized within income tax expense.\n\n\n49\n\n\n\n\n\u00a0\n\n\nBusiness Combinations\n\n\nWe account for business combinations using the acquisition method, which requires that the total consideration for each of the acquired business be allocated to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. During the measurement period, which may be 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.\n\n\nIn determining the fair value of assets acquired and liabilities assumed in a business combination, we used the income approach to value our most significant acquired assets. Significant assumptions relating to our estimates in the income approach include base revenue, revenue growth rate net of client attrition, projected gross margin, discount rates, projected operating expenses and the future effective income tax rates. The valuations of our acquired businesses have been performed by a third-party valuation specialist under our management\u2019s supervision. We believe that the estimated fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that marketplace participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates. Future changes in our assumptions or the interrelationship of those assumptions may negatively impact future valuations. In future measurements of fair value, adverse changes in discounted cash flow assumptions could result in an impairment of goodwill or intangible assets that would require a non-cash charge to the consolidated statements of operations and may have a material effect on our financial condition and operating results.\n\n\nAcquisition related costs are not considered part of the consideration, and are expensed as operating expenses as incurred. Contingent consideration, if any, is measured at fair value initially on the acquisition date as well as subsequently at the end of each reporting period until settlement at the end of the assessment period. We include the results of operations of the businesses acquired as of the beginning of the acquisition dates.\n\n\nGoodwill\n \n\n\nWe conduct a test for the impairment of goodwill at the reporting unit level on at least an annual basis and whenever there are events or changes in circumstances that would more likely than not reduce the estimated fair value of a reporting unit below its carrying value. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows and determining appropriate discount rates, growth rates, an appropriate control premium and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit which could trigger impairment.\n\n\nWe perform our annual goodwill impairment test on April 30 and conduct a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. In assessing the qualitative factors, we consider the impact of key factors such as changes in the general economic conditions, changes in industry and competitive environment, stock price, actual revenue performance compared to previous years, forecasts and cash flow generation. We had one reporting unit for purposes of allocating and testing goodwill for fiscal years 2023 and 2022. Based on the results of the qualitative assessment completed as of April 30, 2023 and 2022, there were no indicators of impairment.\n\n\nLong-Lived Assets\n\n\nWe evaluate long-lived assets, such as property and equipment and purchased intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If necessary, a quantitative test is performed that requires the application of judgment when assessing the fair value of an asset. When we identify an impairment, we reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. As of April 30, 2023 and 2022, we evaluated our long-lived assets and concluded there were no indicators of impairment.\n \n\n\nRecent Accounting Pronouncements\n\n\nSee Note 2, \nSummary of Significant Accounting Policies\n, to our consolidated financial statements for information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements.\n\n",
+  "item7a": ">Item 7A.\t\nQuanti\ntative and Qualitative Disclosures about Market Risk\n \n\n\n50\n\n\n\n\n\u00a0\n\n\nWe are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in inflation or interest rates.\n \n\n\nInterest Rate Risk\n \n\n\nWe invest our cash equivalents in money market funds. Cash and cash equivalents are held for working capital purposes and acquisition financing. We do not enter into investments for trading or speculative purposes. We believe that we do not have material exposure to changes in the fair value of these investments as a result of changes in interest rates due to the short-term nature of our investments. Declines in interest rates may reduce future investment income. A hypothetical decline of 1% in the interest rate on our investments would not have a material effect on our consolidated financial statements.\n \n\n\n51\n\n\n\n\n\u00a0\n\n",
+  "cik": "1117297",
+  "cusip6": "74874Q",
+  "cusip": ["74874q100", "74874Q900", "74874Q100"],
+  "names": ["QUINSTREET INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1117297/000095017023043659/0000950170-23-043659-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\n \nBusiness\n\n\nUnifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, \u201cUNIFI,\u201d the \u201cCompany,\u201d \u201cwe,\u201d \u201cus,\u201d or \u201cour\u201d), is a multinational company that manufactures and sells innovative recycled and synthetic products, made from polyester and nylon, primarily to other yarn manufacturers and knitters and weavers (UNIFI\u2019s \u201cdirect customers\u201d) that produce yarn and/or fabric for the apparel, hosiery, home furnishings, automotive, industrial, medical, and other end-use markets (UNIFI\u2019s \u201cindirect customers\u201d). We sometimes refer to these indirect customers as \u201cbrand partners.\u201d Polyester products include partially oriented yarn (\u201cPOY\u201d) and textured, solution and package dyed, twisted, beamed, and draw wound yarns, and each is available in virgin or recycled varieties. Recycled solutions, made from both pre-consumer and post-consumer waste, include plastic bottle flake (\u201cFlake\u201d), polyester polymer beads (\u201cChip\u201d), and staple fiber.  Nylon products include virgin or recycled textured, solution dyed, and spandex covered yarns.\n\n\nUNIFI maintains one of the textile industry\u2019s most comprehensive product offerings that includes a range of specialized, value-added and commodity solutions, with principal geographic markets in North America, Central America, South America, Asia, and Europe. UNIFI has direct manufacturing operations in four countries and participates in joint ventures with operations in Israel and the United States (the \u201cU.S.\u201d).\n\n\nUNIFI has three reportable segments based on the primary geographies in which UNIFI distributes its products:\n\n\n\u2022\nThe Americas Segment primarily sells recycled and synthetic products to yarn manufacturers, knitters and weavers that produce yarn and/or fabric for the apparel, hosiery, home furnishings, automotive, industrial, medical, and other end\u2011use markets principally in North and Central America.  The Americas Segment consists of sales and manufacturing operations in the U.S., El Salvador, and Colombia.\n\n\n\u2022\nThe Brazil Segment primarily sells recycled and synthetic products to knitters and weavers that produce fabric for the apparel, home furnishings, automotive, industrial, and other end-use markets principally in Brazil. The Brazil Segment includes a manufacturing location and sales offices in Brazil.\n\n\n\u2022\nThe Asia Segment primarily sells recycled and synthetic products to yarn manufacturers, knitters and weavers that produce fabric for the apparel, home furnishings, automotive, industrial, and other end-use markets principally in Asia and Europe. The Asia Segment has no manufacturing assets and includes sales organizations in China, Turkey, and Hong Kong.\n\n\nOther information for UNIFI\u2019s reportable segments is provided in Note 24, \u201cBusiness Segment Information,\u201d to the accompanying consolidated financial statements.\n \n\n\nStrategic Overview and Operating Results\n\n\nWe believe UNIFI\u2019s underlying performance during recent fiscal years reflects the strength of our global initiative to deliver differentiated solutions to customers and brand partners throughout the world. Our supply chain has been developed and enhanced in multiple regions around the globe, allowing us to deliver a diverse range of fibers and polymers to key customers in the markets we serve, especially apparel. These textile products are supported by quality assurance, product development, product and fabric certifications, hangtags, and co-marketing along with technical and customer service teams across UNIFI\u2019s operating subsidiaries. We have developed this successful operating platform by improving operational and business processes and deriving value from sustainability-based initiatives, including polyester and nylon recycling.\n\n\nThis platform has provided underlying growth in our core operations during recent fiscal years and has been augmented by significant capital investments that support the production and delivery of sustainable and innovative solutions. In order to achieve further growth, UNIFI is committed to investing strategically and synergistically in:\n\n\n\u2022\naccelerating innovation and high-quality manufacturing processes;\n\n\n\u2022\nexpanding the REPREVE\n\u00ae\n brand; \n\n\n\u2022\ngrowing market share in our major textile regions; and\n\n\n\u2022\npenetrating new markets and end-uses.\n\n\nWe believe that further commercial expansion will require a continued stream of new technology and innovation that generates products with meaningful consumer benefits. Along with our recycled platform, UNIFI has significant yarn technologies that provide optimal performance characteristics for today\u2019s marketplace, including moisture management, temperature moderation, stretch, ultra-violet protection, and fire retardation, among others. To achieve further growth, UNIFI remains focused on innovation, bringing to market the next wave of fibers and polymers for tomorrow\u2019s applications. As we invest and grow, sustainability remains at our core. We believe that increasing the awareness for recycled solutions in applications across fibers and polymers and furthering sustainability-based initiatives with like-minded brand partners will be key to our future success. We also believe that our manufacturing processes and our technical knowledge and capabilities will allow us to grow market share and develop new textile programs with new and existing customers. Ultimately, combining leading-edge innovation with our prominent, high-quality brand and agile regional business model will allow for underlying sales and profitability growth.\n\n\n\u00a0\n\n\n2\n\n\n\n\nOur recent efforts to alleviate competitive pressures from imported yarn into the U.S. are intended to complement our strategic initiatives and to stabilize the market share decline we have experienced in the U.S., while improving facility utilization and cost absorption. These efforts are further discussed below under the heading \u201cTrade Regulation and Rules of Origin.\u201d Execution on both our strategic and trade initiatives is expected to increase revenue and profitability.\n\n\nFiscal 2023 Financial Performance\n\n\nThe current economic environment and a significant decrease in textile product demand adversely impacted our consolidated sales and profitability in fiscal 2023. In addition to the current unfavorable economic environment and the inventory destocking measures taken by brands and retailers, the following pressures continued from fiscal 2022 into fiscal 2023: (i) the impact of inflation on consumer spending and our own manufacturing costs, (ii) rising interest rates, (iii) the Russia-Ukraine conflict, and (iv) supply chain volatility. As it pertains to the global business and the Americas Segment in particular, UNIFI will continue to monitor these and other aspects of the current economic environment and work closely with stakeholders to ensure business continuity and liquidity.\n\n\nIn fiscal 2023, the Brazil Segment's results decreased primarily due to the combination of high priced raw material inventory impacting gross margins in the first half of the fiscal year and decreasing market prices in Brazil due to low-cost import competition.\n\n\nIn fiscal 2023, the Asia Segment's results decreased primarily due to lower sales volumes in connection with weaker global demand. The Asia Segment is better able to withstand volatility in product demand due to its asset-light model and the lack of fixed cost absorption that can be unfavorable in times of weaker demand for asset intensive operations like our Americas and Brazil Segments.\n\n\nThe existing challenges and future uncertainty, particularly for global demand, labor productivity, and potential further inflation, could worsen and/or continue for prolonged periods, materially impacting our financial performance. The need for future selling price adjustments could impact our ability to retain current customer programs and compete successfully for new programs in certain regions.\n\n\nCash Deposits and Financial Institution Risk\n\n\nDuring fiscal 2023, certain regional bank crises and failures generated additional uncertainty and volatility in the financial and credit markets. UNIFI currently holds the vast majority of its cash deposits with large foreign banks in our associated operating regions, and management believes that it has the ability to repatriate cash to the U.S. relatively quickly. Accordingly, UNIFI has not modified its mix of financial institutions holding cash deposits, but UNIFI will continue to monitor the environment and current events to ensure any increase in concentration or credit risk is appropriately and timely addressed. Likewise, if any of the financial institutions within our credit facility or construction financing arrangement (\u201clending counterparties\u201d) are unable to perform on their commitments, our liquidity could be impacted. We actively monitor all lending counterparties, and none have indicated that they may be unable to perform on their commitments. In addition, we periodically review our lending counterparties, considering the stability of the institutions and other aspects of the relationships. Based on our monitoring activities, we currently believe our lending counterparties will be able to perform their commitments.\n\n\nRussia-Ukraine Conflict\n\n\nWe recognize the disruption to global markets and supply chains caused by Russia\u2019s invasion of Ukraine. While volatility and uncertainty continue, we have no significant customers or supply chain partners in the conflicted region, and we have not been directly impacted by the conflict. Indirectly, we recognize that additional or prolonged impacts to the petroleum or other global markets could cause further inflationary pressures to our raw material costs or unforeseen adverse impacts.\n\n\nCOVID-19 Pandemic\n\n\nBeginning in March 2020 with the World Health Organization\u2019s declaration of the COVID-19 outbreak as a global pandemic, the global economy experienced the negative effects of local, state and federal containment efforts.  These measures significantly reduced economic activity and demand for UNIFI\u2019s products from March 2020 to December 2020.\n\n\nIn an effort to protect the health and safety of our employees, customers and communities, UNIFI took proactive, aggressive actions that included implementing safety measures and cost reductions in both manufacturing and selling, general, and administrative  (\u201cSG&A\u201d) expenses without impacting our ability to service customers. Containment measures were relaxed in the U.S. in fiscal 2022 and are evaluated regularly against local, state, and federal recommendations.\n\n\nThroughout calendar 2020, the Asia Segment\u2019s overall performance and profitability was moderately impacted by the COVID-19 pandemic, while our Americas and Brazil Segments\u2019 operations were more adversely impacted, most notably in the June 2020 and September 2020 quarters during the most intense declines in global demand.\n\n\nDuring fiscal 2021, the local government in Sao Paolo, Brazil issued lockdown orders during late March 2021 that continued into April 2021 in an effort to slow the spread of COVID-19 resulting in store closings and manufacturing shutdowns. The restrictions caused an immediate disruption of our Brazil Segment\u2019s revenue during the quarantine period, although demand levels recovered at the end of fiscal 2021.\n\n\n3\n\n\n\n\nBeginning in March 2022, China implemented a strict COVID-19 zero-tolerance policy that included geographic markets near Suzhou, China, where our sales and administrative office is located.  Due to these severe lockdowns in China, the Asia Segment\u2019s results were adversely impacted, primarily during the fourth quarter of fiscal 2022 and the first half of fiscal 2023.\n \n\n\nWhile pandemic restrictions eased during fiscal 2023, reversion could adversely impact our operating results.\n\n\nUNIFI has been able to navigate the negative effects of the COVID-19 pandemic to minimize the overall impact to UNIFI for fiscal 2021, 2022, and 2023 as global demand and consumer spending levels were predominantly restored over fiscal 2021 and such economic levels did not decline within fiscal 2022.\n \n\n\nREPREVE\n\u00ae\n\n\nIn the early 2000s, by recycling our own production waste into useful polyester fibers, we took the first steps toward building an important supply chain with a focus on sustainability and environmental responsibility. After nearly two decades, our REPREVE brand has become the quintessential recycled fiber of choice for brand, retail, and textile partners around the globe. REPREVE\n \nis most commonly offered in the following fiber forms: polyester staple fiber, polyester filament, nylon staple fiber, and nylon filament, comprising our REPREVE Fiber platform. We also sell REPREVE Chip, which is a polyester resin product. Beyond the high quality, versatility, and breadth of application that REPREVE offers, UNIFI combines transparency, traceability, and certification for REPREVE products to support our customers\u2019 own sustainability narratives.\n\n\nREPREVE is our flagship and fastest growing brand. As part of our efforts to expand consumer brand recognition of REPREVE, UNIFI has developed recycling-focused sponsorships with various brand partners and other entities that span across sporting, music, and outdoor events. The increasing success and awareness of the REPREVE brand continues to provide new opportunities for growth, allowing for expansion into new end uses and markets for REPREVE, as well as continued growth of the brand with current customers.  This has driven traction with global brands and retailers who obtain value and lasting consumer interest from the innovation and sustainability aspects that REPREVE\n \nprovides. Expanding sales of REPREVE is an important component of our business strategy, and we expect to achieve improved margins and deeper relationships with customers accordingly.\n\n\nWe remain committed to sustainability. During fiscal 2023, we achieved a significant milestone by surpassing more than 35 billion recycled plastic bottles transformed since the inception of REPREVE.  In addition, in fiscal 2021 and 2023, we received comparably favorable Higg Materials Sustainability Index scores for REPREVE produced in the U.S., demonstrating that the brand\u2019s global warming potential is meaningfully better than conventional alternatives. Our dedication continues as we pursue our next goal of reaching the 50 billion recycled plastic bottles mark by December 2025. We will continue growing the business for our REPREVE products and believe our engagement and research and development work with brands and retailers continues to create new, worldwide sales opportunities.\n\n\nThe primary metric for tracking growth of the REPREVE brand is REPREVE Fiber sales. REPREVE Fiber represents UNIFI's collection of fiber products on its recycled platform, with or without added technologies. Of our consolidated net sales in fiscal 2021, 2022, and 2023, REPREVE Fiber sales comprised 37%, 36% and 30%, or $245,832, $293,080, and $186,161, respectively. The decline in such REPREVE Fiber sales for fiscal 2023 was driven primarily by weak global demand and lower sales volume for our Asia Segment.\n\n\nCapital Investments\n\n\nIn fiscal 2018, we completed a significant, three-year capital investment plan to increase our manufacturing capabilities and capacity, expand our technological foundation, and customize our asset base to improve our ability to deliver small-lot and high-value solutions. These investments were made primarily for the Americas Segment.\n\n\nMost notably, we made significant investments in the production and supply chain for REPREVE, including backward integration by building a bottle processing facility and additional production lines in the REPREVE Recycling Center.\n \n\n\nSubsequent to the multi-year capital investment plan, our capital investments ranged from approximately $15,000 to $25,000 each fiscal year, and most recently included making (i) further improvements in production capabilities and technological enhancements in the Americas and (ii) annual maintenance capital expenditures.\n\n\nFiscal 2021 through 2023 capital investments increased in connection with our planned investment of approximately $100,000 into the Americas and Brazil Segments for new eAFK Evo texturing machinery that has significant efficiency, productivity, and flexibility benefits over our legacy equipment. We are encouraged by the performance metrics surrounding the eAFK Evo texturing machines currently operating in our facilities, and we expect these upgrades to generate meaningful investment returns in the future when product demand recovers. When approximately 75% of the $100,000 project was completed in March 2023 and all related investments for the Brazil Segment had been completed, UNIFI negotiated a contract modification with the equipment vendor because of the weaker demand environment in fiscal 2023. The contract modification was executed at a cost to UNIFI of $623 and allows UNIFI to delay the remaining equipment purchases and installation activities for 18 months, such that approximately $25,000 of capital expenditures originally expected over the March 2023 to September 2024 period are now expected to occur over the September 2024 to March 2026 period. This action allows for improved short- and mid-term liquidity in light of the current subdued levels of sales and facility utilization and allows for a better matching of future capital expenditures with expected higher levels of future business activity.\n \n\n\n4\n\n\n\n\nIn fiscal 2024, we expect to invest between $14,000 and $16,000 in capital projects, including making further improvements in production capabilities and technological enhancements in the Americas and annual maintenance capital expenditures.\n \n\n\nNonetheless, as demonstrated in fiscal 2023, economic disruptions and other factors could adversely impact the speed at which we invest in capital projects, as we continue to prioritize liquidity, safety, and maintenance.\n\n\nShare Repurchases\n\n\nIn addition to capital investments and debt retirement, UNIFI may utilize excess cash for strategic share repurchases. On October 31, 2018, UNIFI announced that the Company's Board of Directors (the \u201cBoard\u201d) approved a share repurchase program (the \u201c2018 SRP\u201d) under which UNIFI is authorized to acquire up to $50,000 of its common stock. Under the 2018 SRP, purchases may be made from time to time in the open market at prevailing market prices or through private transactions or block trades. The timing and amount of repurchases will depend on market conditions, share price, applicable legal requirements, and other factors. The share repurchase authorization is discretionary and has no expiration date.\n\n\nAs of July 2, 2023, UNIFI had repurchased 701 shares at an average price of $15.90 per share, none of which occurred in fiscal 2023, leaving $38,859 available for repurchase under the 2018 SRP. UNIFI will continue to evaluate opportunities to use excess cash flows from operations or existing borrowings to repurchase additional stock, while maintaining sufficient liquidity to support its operational needs and to fund future strategic growth opportunities.\n\n\nDevelopments in Principal Markets\n\n\nAmericas\n\n\nOur operations in the U.S., El Salvador and Colombia utilize the Dominican Republic\u2014Central America Free Trade Agreement (\u201cCAFTA-DR\u201d) and the United States-Mexico-Canada Agreement (\u201cUSMCA\u201d). Prior to the establishment of the USMCA, we benefited from a similar, historical agreement known as the North American Free Trade Agreement (\u201cNAFTA\u201d).\n\n\nOver the last several years, apparel production experienced growth in the North and Central America regions, which comprise the principal markets for UNIFI\u2019s Americas Segment. The share of synthetic apparel production for these regions as a percentage of U.S. retail stabilized at approximately 18%. The CAFTA-DR region, which continues to be a competitive alternative to Asian supply chains for textile products, maintained its share of synthetic apparel supply to U.S. retailers. The relative share of synthetic apparel versus cotton apparel as a proportion of the overall apparel market increased and provided growth for the consumption of synthetic yarns within the CAFTA-DR region.\n\n\nDuring the last six fiscal years, several key drivers affected our financial results in the Americas. During fiscal 2018 and 2019, our operations in the U.S. were unfavorably impacted by (i) rising raw material costs and (ii) a surge of imported polyester textured yarn that depressed our pricing, market share, and fixed cost absorption. During fiscal 2020, our financial results began to improve following more stable import and raw material cost environments. However, the COVID-19 pandemic had a significant unfavorable impact to product demand and our annual profitability suffered accordingly. Near the end of fiscal 2020, we divested a minority interest investment and significantly improved our liquidity position, supporting business preservation and the ability to capture long-term growth opportunities. Throughout fiscal 2021, our businesses experienced sequential improvement alongside global demand and economic recovery, and we capitalized on profitable opportunities that fueled strong consolidated results. Throughout fiscal 2022 and 2023, we experienced adverse pressure from rising input costs and weakening manufacturing productivity. In addition, in fiscal 2023, the Americas Segment experienced lower volumes as a result of lower global demand in connection with the inventory destocking efforts of major brands and retailers. Looking ahead, we believe our operations remain well-positioned to capture long-term growth opportunities, and we are working to mitigate any potential recessionary impacts.\n\n\nBrazil\n\n\nUNIFI\u2019s Brazilian operations play a key role in our strategy. This segment is primarily impacted by (i) price pressures from imported fiber, fabric, and finished goods (similar to our U.S. operations), (ii) the inflation rate in Brazil, and (iii) changes in the value of the Brazilian Real (\u201cBRL\u201d).  Competition and economic and political volatility remain challenging conditions in South America, despite our strong performance in fiscal 2021 and 2022, thus UNIFI continues to (i) aggressively pursue mix enrichment and market share by working with customers to develop programs using our differentiated products, including REPREVE, and (ii) implement process improvements and manufacturing efficiency plans to help lower per-unit costs.  In addition, our installation of eAFK Evo machinery in Brazil has been highly successful in generating manufacturing efficiencies and the associated finished goods have been highly regarded by customers.\n\n\nAsia\n\n\nUNIFI\u2019s Asia operations remain an important part of our strategy due to the significant capacity and production that exists in Asia, which enhances our ability to service customers with global supply chains. Competition in the Asia region remains high; however, interest and demand for UNIFI\u2019s products in Asia have helped support strong underlying sales volumes in recent years. We are encouraged by programs undertaken with key brands and retailers that benefit from the diversification and innovation of our global portfolio and expect a rebound in the Asian market in the second half of fiscal 2024.\n\n\nLooking ahead, we expect to expand into additional markets in India, Europe, Africa, and the Middle East utilizing the asset-light supply chain and service model that has been successful for us in Asia.\n\n\n5\n\n\n\n\nAs we expand our operations outside of the Americas, we will continue to evaluate the level of capital investment required to support the needs of our customers and we intend to allocate our resources accordingly.\n\n\nIndustry Overview\n\n\nUNIFI operates in the textile industry and, within that broad category, the respective markets for yarns, fabrics, fibers, and end-use products, such as apparel and hosiery, automotive, industrial, medical, and home furnishings, among others.  Even though the textile industry is global, there are several distinctive regional or other geographic markets that often shape the business strategies and operations of participants in the industry.  Because of free trade agreements and other trade regulations entered into by the U.S. government, the U.S. textile industry, which is otherwise a distinctive geographic market on its own, is often considered in conjunction with other geographic markets or regions in North, South, and Central America.\n\n\nAccording to data compiled by PCI WoodMackenzie, a global leader in research and analysis for the polyester and raw material markets, global demand for polyester yarns has grown steadily since 1980. In calendar 2003, polyester replaced cotton as the fiber with the largest percentage of worldwide fiber sales.  Global polyester consumption has accounted for an estimated 56% of global fiber consumption, and global demand was projected to increase by approximately 3.0% to 3.5% annually through calendar 2025. Global nylon consumption accounts for an estimated 5% of global fiber consumption.  Additionally, due to the higher cost of nylon, the industry may transition certain products from nylon to polyester. The polyester and nylon fiber sectors together account for approximately 62% of North American textile consumption.\n\n\nAccording to the National Council of Textile Organizations, the U.S. textile and apparel industry\u2019s total shipments were approximately $65.8 billion for calendar 2022 as the U.S. textile and apparel industry exported nearly $34.0 billion of textile and apparel products.  The U.S. textile industry remains a large manufacturing employer.\n\n\nTrade Regulation and Rules of Origin\n\n\nThe duty rate on imports into the U.S. of finished apparel categories that utilize polyester and nylon yarns generally range from 16% to 32%. For many years, imports of fabric and finished goods into the U.S. have increased significantly from countries that do not participate in free trade agreements or trade preference programs, despite duties charged on those imports. The primary drivers for that growth were lower overseas operating costs, foreign government subsidization of textile industries, increased overseas sourcing by U.S. retailers, the entry of China into the World Trade Organization, and the staged elimination of all textile and apparel quotas. Although global apparel imports represent a significant percentage of the U.S. market, Regional FTAs (as defined below), which follow general \u201cyarn forward\u201d rules of origin, provide duty free advantages for apparel made from regional fibers, yarns and fabrics, allowing UNIFI opportunities to participate in this growing market.\n\n\nA significant number of UNIFI\u2019s customers in the apparel market produce finished goods that meet the eligibility requirements for duty-free treatment in the regions covered by the Americas Segment and the Colombia and Peru free trade agreements (collectively, the \u201cRegional FTAs\u201d). The Regional FTAs contain rules of origin requirements in order for covered products to be eligible for duty-free treatment. In the case of textiles such as fabric, yarn (such as POY), fibers (filament and staple), and certain garments made from them, the products are generally required to be fully formed within the respective regions. UNIFI is the largest filament yarn manufacturer, and one of the few producers of qualifying synthetic yarns, in the regions covered by the Regional FTAs.\n\n\nThe U.S.'s adoption of the USMCA in calendar 2020 did not significantly impact textile and apparel trade in the region.  The USMCA includes strong rules of origin and closed several loopholes in the NAFTA that allowed non-originating inputs, such as sewing thread, pocketing, and narrow elastic fabrics.\n\n\nU.S. legislation commonly referred to as the \u201cBerry Amendment\u201d stipulates that certain textile and apparel articles purchased by the U.S. Department of Defense must be manufactured in the U.S. and must consist of yarns and fibers produced in the U.S. UNIFI believes it is the largest producer of polyester and nylon filament yarns for Berry Amendment compliant purchasing programs.\n\n\nUNIFI refers to fibers sold with specific rules of origin requirements under the Regional FTAs and the Berry Amendment, as \u201cCompliant Yarns.\u201d  Approximately half of UNIFI\u2019s sales within the Americas Segment are sold as Compliant Yarns under the terms of the Regional FTAs or the Berry Amendment.\n\n\nUNIFI believes the requirements of the rules of origin and the associated duty-free cost advantages in the Regional FTAs, together with the Berry Amendment and the growing demand for supplier responsiveness and improved inventory turns, will ensure that a portion of the existing textile industry will remain based in the Americas. UNIFI expects that the region covered by the Americas Segment will continue to maintain its share of apparel production as a percentage of U.S. retail. UNIFI believes the remaining synthetic apparel production within these markets is more specialized and defensible, and, in some cases, apparel producers are bringing programs back to this region as part of a balanced sourcing strategy for certain brands and retailers.  Because UNIFI is the largest of only a few significant producers of Compliant Yarns under the Regional FTAs, UNIFI continues to leverage its eligibility status for duty-free processing to increase its share of business with regional and domestic fabric producers who ship their products into this region.\n\n\nOver the longer term, the textile industry in this region is expected to continue to be impacted by Asian supply chains where costs are much lower and regulation is limited.\n\n\n6\n\n\n\n\nImports of polyester textured yarn from China and India, which increased approximately 79% from calendar 2013 to 2017 and which continued to grow during calendar 2018, remained elevated during fiscal 2019 and created considerable pressure on our margins and competitiveness in the U.S.  Accordingly, in October 2018, UNIFI filed antidumping and countervailing duty cases with the U.S. Department of Commerce (the \u201cCommerce Department\u201d) and the U.S. International Trade Commission (the \u201cITC\u201d) alleging that dumped and subsidized imports of polyester textured yarn from China and India were causing material injury to the domestic polyester textured yarn industry.\n\n\nIn response to antidumping and countervailing duty cases filed with the Commerce Department and the ITC in October 2018, the Commerce Department announced on April 29, 2019 affirmative preliminary countervailing duty determinations on unfairly subsidized imports of polyester textured yarn from (i) China at rates of 32% or more and (ii) India at rates of 7% or more. Subsequently, the Commerce Department and the ITC completed their investigations and began imposing associated final duties on imports. Pursuant to the conclusion of these investigations, subject imports from China and India are assessed combined antidumping and countervailing duty rates of 97% and higher and 18% and higher, respectively, in addition to normal course duties in effect. The positive developments in our pursuit of relief from low-cost and subsidized imports are critical steps in our efforts to compete against imported yarns that have flooded the U.S. market in recent years.\n\n\nSubsequent to the completion of the trade initiatives against China and India, imports from Indonesia, Malaysia, Thailand, and Vietnam (the \u201cSubject Countries\u201d) seemingly replaced the imports from China and India and surged into the U.S. market. Subject import volume from the Subject Countries increased from calendar 2017 to calendar 2019 by over 80%. Similar to the adverse impacts of imports from China and India in previous years, the subject imports from the Subject Countries undersold the domestic industry, taking sales from, and exerting considerable downward pricing pressure on, yarns produced by UNIFI. Accordingly, UNIFI was again a petitioner to the Commerce Department and the ITC alleging dumping of polyester textured yarn in the U.S. market from the Subject Countries.\n\n\nIn December 2020, the ITC made affirmative determinations in its preliminary phase of antidumping duty investigations concerning polyester textured yarn from the Subject Countries. In May 2021, the Commerce Department announced preliminary antidumping duty rates on imports from the Subject Countries. In November 2021, the ITC determined that the U.S. textile industry was materially injured by reason of imports of polyester textured yarn from the Subject Countries, and in December 2021, the Commerce Department issued unanimous final antidumping duty orders on such imports. The applicable rates for the applicable countries range as follows: Indonesia, 7% to 26%; Malaysia, 8%; Thailand, 14% to 56%; and Vietnam, 2% to 22%.\n\n\nWhile the ultimate short-term and long-term impacts of these duties are not yet known, UNIFI expects these countervailing and antidumping duty rates to play a significant role in helping to normalize the competitive position of UNIFI\u2019s yarns in the U.S. market against the respective imported yarns.\n\n\nCompetition\n\n\nThe industry in which UNIFI operates is global and highly competitive.  UNIFI competes not only as a global yarn producer, but also as part of a regional supply chain for certain textile products.  For sales of Compliant Yarns, UNIFI competes with a limited number of foreign and domestic producers of polyester and nylon yarns.  For sales of non-Compliant Yarns, UNIFI competes with a larger number of foreign and domestic producers of polyester and nylon yarns that can meet the required customer specifications of quality, reliability, and timeliness. UNIFI is affected by imported textile, apparel, and hosiery products, which adversely impact demand for UNIFI\u2019s polyester and nylon products in certain of its markets.  Several foreign competitors have significant advantages, including lower wages, raw material costs, and capital costs and favorable foreign currency exchange rates against the U.S. Dollar (\u201cUSD\u201d), any of which could make UNIFI\u2019s products, or the related supply chains, less competitive. While competitors have traditionally focused on high-volume commodity products, they are now increasingly focused on specialty products that UNIFI historically has been able to leverage to generate higher margins.\n\n\nUNIFI\u2019s major competitors in the Americas region for polyester yarns are Aquafil O'Mara; United Textiles of America S.de R.L. de C.V.; NanYa Plastics Corp. of America (\u201cNanYa\u201d); AKRA, S.A. de C.V.; and C S Central America S.A. de C.V.\n\n\nUNIFI\u2019s major competitors in Brazil are traders of imported yarns and fibers.\n\n\nUNIFI\u2019s operations in Asia face competition from multiple yarn manufacturers in that region and identification of them is not feasible. However, much of our portfolio in the Asia region is advantaged by specialty and recycled products and a global sourcing and support model that assists in differentiation.\n\n\n7\n\n\n\n\nUNIFI\u2019s major competitors for nylon yarn sales in the U.S. are Sapona Manufacturing Company, Inc. and McMichael Mills, Inc.\n\n\nGlobally, competitors for our REPREVE products include recycled brands from Far Eastern New Century, Tiejin, Radici, and Polygenta.\n\n\nRaw Materials, Suppliers and Sourcing\n\n\nThe primary raw material supplier for the Americas Segment of virgin Chip and POY is NanYa.  For the Brazil Segment, Reliance Industries, Ltd. is the primary supplier of POY.  The primary suppliers of nylon raw materials for the Americas Segment are U.N.F. Industries Ltd. (\u201cUNF\u201d); UNF America, LLC (\u201cUNFA\u201d); The LYCRA Company; and Nilit Ltd.  Each of UNF and UNFA is a joint venture owned 50% by UNIFI.  Currently, there are multiple domestic and foreign suppliers available to fulfill UNIFI\u2019s sourcing requirements for its recycled products. The majority of plastic bottles we utilize in the U.S. are obtained in open-market transactions from various entities throughout the U.S., while our Asian subsidiaries source recycled materials from various countries and entities throughout Asia.\n\n\nFor its operations in the U.S., UNIFI produces and buys certain of its raw material fibers for Compliant Yarns from a variety of sources in both the U.S. and Israel, and UNIFI produces a portion of its Chip requirements in its REPREVE Recycling Center and purchases the remainder of such requirements from external suppliers for use in its domestic spinning facility to produce POY.  In addition, UNIFI purchases nylon and polyester products for resale from various suppliers.  Although UNIFI does not generally have difficulty obtaining its raw material requirements, UNIFI has, in the past, experienced interruptions or limitations in the supply of certain raw materials.\n\n\nUNIFI\u2019s bottle processing facility in Reidsville, North Carolina provides a high-quality source of Flake for the REPREVE Recycling Center as well as for sale to external parties. Combined with recent technological advancements in recycling, we believe the Flake produced at the bottle processing facility enhances our ability to grow REPREVE into other markets, such as nonwovens, carpet fiber, and packaging.\n \n\n\nThe prices of the principal raw materials used by UNIFI continuously fluctuate, and it is difficult or impossible to predict trends or upcoming developments.  During fiscal 2020 and 2021, UNIFI operated in a predominantly decreasing polyester raw material cost environment.  During fiscal 2022, UNIFI operated in a predominantly increasing polyester raw material cost environment.  During fiscal 2023, the prices of polyester raw materials used by UNIFI began to decrease from their peak during the summer of calendar 2022.\n\n\nWe consider the raw material price decreases during most of fiscal 2020 and fiscal 2021 to be the result of a decline in COVID-related global demand, while increasing raw material prices during the second half of fiscal 2021 and most of fiscal 2022 appeared to reflect global demand rebounds and inflationary pressures. We consider the raw material price decreases during most of fiscal 2023 to be the result of a decline in global demand.  The continuing volatility in global crude oil prices is likely to impact UNIFI\u2019s polyester and nylon raw material costs, but it is not possible to predict the timing or amount of the impact or whether the movement in crude oil prices will stabilize, increase, or decrease. In any event, UNIFI monitors these dynamic factors closely and does not currently engage in hedges of polyester or nylon raw materials.\n\n\nProducts, Technologies and Related Markets\n\n\nOur virgin and recycled products sold across all geographies range from specialty, value-added to commodity. We provide products to a variety of end-use markets, principally apparel, industrial, furnishings, and automotive.\n\n\nWe estimate consolidated net sales for fiscal 2023 were distributed across our primary end markets as listed below.\n\n\n\u2022\nApparel (including hosiery and footwear) represented approximately 65% of our consolidated net sales.\n\n\n\u2022\nIndustrial represented approximately 11% of our consolidated net sales, and includes medical, belting, tapes, filtration, ropes, protective fabrics, and awnings.\n\n\n\u2022\nFurnishings (including both contract and home furnishings) represented approximately 9% of our consolidated net sales, and are largely dependent upon the housing market, which, in turn, is influenced by consumer confidence and credit availability.\n\n\n\u2022\nAutomotive represented approximately 4% of our consolidated net sales.\n\n\n\u2022\nAll other markets represented approximately 11% of our consolidated net sales.\n\n\nUNIFI also adds value to the overall supply chain for textile products and increases consumer demand for UNIFI\u2019s own products through the development and introduction of branded yarns and technologies that provide unique sustainability, performance, comfort, and aesthetic advantages.  UNIFI\u2019s branded portion of its yarn portfolio continues to provide product differentiation to brand partners, mills, and consumers. UNIFI\u2019s branded yarns can be found in a variety of products of well-known international brands, retailers, and department stores.\n\n\nIn addition to the above brands and products, UNIFI combines its research and development efforts with the demands of customers and markets to develop innovative technologies that enhance yarn characteristics. Application of these technologies allows for various, separate benefits, including: water repellency, flame retardation, soil release, enhanced color-fastness achieved with less water use, and protection from ultra-violet rays, among other attributes.\n\n\n8\n\n\n\n\nAs we continue to diversify our portfolio beyond apparel and pursue new end markets, we expect to gain margin accretive sales and improve facility utilization.\n\n\nCustomers\n\n\nUNIFI\u2019s Americas Segment, Brazil Segment, and Asia Segment serve approximately 500, 400, and 600 customers, respectively, all in a variety of geographic markets. UNIFI\u2019s products are manufactured according to customer specifications and are shipped based upon customer order requirements.  Customer payment terms are generally consistent with prevailing industry practices for the geographies in which we participate.\n\n\nUNIFI\u2019s consolidated net sales are not materially dependent on a single direct customer and no single direct customer accounts for 10% or more of UNIFI\u2019s consolidated net sales. One direct customer, OIA Global, comprised 15% of the Asia Segment's sales in fiscal 2023. UNIFI\u2019s top 10 direct customers accounted for approximately 26% of consolidated net sales for fiscal 2023 and approximately 28% of receivables as of July 2, 2023.  However, UNIFI\u2019s consolidated net sales are dependent on demand from a relatively small number of brand partners.\n\n\nSales and Marketing\n\n\nUNIFI employs an internal sales force of approximately 60 persons operating out of sales offices primarily in the U.S., Brazil, China, El Salvador, Colombia, Turkey, and Europe.  UNIFI also relies on independent sales agents for sales in several other countries.  UNIFI seeks to create strong customer relationships and to build and strengthen those relationships throughout the supply chain.  Through frequent communications with customers, partnering in product development, and engaging key downstream brands and retailers, UNIFI has created significant pull-through sales and brand recognition for its products.  For example, UNIFI works with brands and retailers to educate and create demand for its products, including recent engagements involving REPREVE at multiple events and venues in the U.S.  UNIFI then works with key fabric mill partners to develop specific fabrics for those brands and retailers utilizing UNIFI products.  In many of these regards, UNIFI draws upon and integrates the resources of its research and development personnel.  In addition, UNIFI is enhancing co-branding activations with integrated point-of-sale and online marketing with popular brands and retailers to enable consumers to find REPREVE and other performance technology products in multiple retail channels.  Based on the establishment of many commercial and branded programs, this strategy has been successful for UNIFI.\n\n\nProduct Customization and Manufacturing Processes\n\n\nUNIFI uses advanced production processes to manufacture its high-quality products cost-effectively in North America, Central America, and Brazil and transfers relevant technical knowledge to its asset light operations in Asia for manufacture with trusted supply chain partners.  UNIFI believes that its flexibility and expertise in producing specialty recycled and synthetic products provide important development and commercialization advantages, in addition to the recent ability to integrate vertically with post-industrial and post-consumer materials.\n\n\nUNIFI produces Flake, Chip, and POY using recycled materials. In addition to its yarns manufactured from virgin polyester and nylon, UNIFI sells its recycled products externally or further processes them internally to add value for customers seeking recycled components. The REPREVE Bottle Processing Center in Reidsville, North Carolina produces Flake that can be sold externally or further processed internally at our REPREVE Recycling Center in Yadkinville, North Carolina. Recycled polyester Chip output from the REPREVE Recycling Center can be sold externally or further processed internally into polyester POY.\n\n\nAdditional processing of UNIFI\u2019s polyester POY includes texturing, dyeing, twisting, beaming, draw winding, and covering.  The texturing process involves the use of high-speed machines to draw, heat, and false-twist POY to produce yarn with different physical characteristics, depending on its ultimate end-use.  Texturing gives the yarn greater bulk, strength, stretch, consistent dye-ability, and a softer feel, thereby making it suitable for use in the knitting and weaving of fabric.  Solution dyeing and package dyeing allow for matching of customer-specific color requirements for yarns sold into various markets.  Twisting incorporates real twist into filament yarns, which can be sold for a variety of uses, such as sewing thread, home furnishings, and apparel.  Beaming places both textured and covered yarns onto beams to be used by customers in warp knitting and weaving applications.  The draw winding process utilizes heat and draws POY to produce mid-tenacity, flat yarns. Lastly, covering operations utilize a spandex core to produce yarns with more stretch, compression, or comfort.\n\n\nUNIFI\u2019s subsidiaries in Asia offer the same high-quality and innovative products and technologies through contract manufacturing arrangements with local manufacturers. This asset-light model allows for seamless integration of our products into the global supply chain of our customers. As we expand our Asian operations to meet the needs of our global customers, we will continue to leverage the asset-light model where the existing infrastructure can accommodate our highly technical processes, while continually evaluating the need for additional UNIFI assets in response to ever-changing market dynamics.\n\n\nResearch and Development\n\n\nUNIFI employs approximately 130 persons, primarily in the U.S., who work closely with UNIFI\u2019s customers, brand partners, and others to develop a variety of new yarns as well as improvements to the performance properties of existing yarns and fabrics. Among other things, UNIFI evaluates trends and uses the latest technology to create innovative yarns that meet the needs of evolving consumer preferences.  Most of UNIFI\u2019s branded yarns, including its flagship REPREVE brand, were derived from its research and development initiatives.\n\n\n9\n\n\n\n\nUNIFI also includes, as part of its research and development initiatives, the use of continuous improvement methodologies to increase its manufacturing and other operational efficiencies, both to enhance product quality and to derive cost savings.\n\n\nFor fiscal 2023, 2022, and 2021, UNIFI incurred $10,871, $12,103, and $11,483, respectively, in costs for research and development (including salaries and benefits of the personnel involved in those efforts).\n\n\nIntellectual Property\n\n\nUNIFI has numerous trademarks registered in the U.S. and in other countries and jurisdictions around the world.  Due to its current brand recognition and potential growth opportunities, UNIFI believes that its portfolio of registered REPREVE trademarks is its most significant trademark asset.  Ownership rights in registered trademarks typically do not expire if the trademarks are continued in use and properly protected under applicable law.\n\n\nUNIFI licenses certain trademarks, including Dacron\n\u00ae\n and Softec\u0099, from Invista S.a.r.l. (\u201cINVISTA\u201d).\n\n\nUNIFI also employs its innovative manufacturing know-how, methods, and processes to produce and deliver proprietary solutions to customers and brand partners.  UNIFI relies on the copyright and trade secret laws of the U.S. and other countries, as well as nondisclosure and confidentiality agreements, to protect these rights.\n\n\nHuman Capital\n\n\nAs of July 2, 2023, UNIFI had approximately 2,800 employees, which includes approximately 200 individuals working under temporary labor contracts.  The number of employees in each of the Americas, Brazil, and Asia Segments and the corporate office were approximately 2,000, 610, 90, and 100, respectively, at July 2, 2023.  While employees of our Brazil Segment are unionized, none of the labor forces employed by UNIFI\u2019s domestic or other foreign subsidiaries are currently covered by a collective bargaining agreement.  UNIFI believes the Company has a good relationship with its employees.\n\n\nWe believe in the importance of the retention, growth, and development of our employees. UNIFI endeavors to offer competitive compensation and benefits packages to our employees, as well as professional development opportunities to cultivate talent throughout the organization. We focus on employee health and safety initiatives, with thorough training and monitoring practices to enhance workplace safety. We also value people and ideas from varying backgrounds and are constantly striving to create a more diverse workforce and inclusive organization.\n\n\nGeographic Data\n\n\nGeographic information reported in conformance with U.S. generally accepted accounting principles (\u201cGAAP\u201d) is included in Note 24, \u201cBusiness Segment Information,\u201d to the accompanying consolidated financial statements.  Information regarding risks attendant to UNIFI\u2019s foreign operations is included in \u201cItem 1A. Risk Factors\u201d in this report.\n\n\nSeasonality\n\n\nUNIFI is not significantly impacted by seasonality; however, UNIFI typically experiences its highest sales volumes in the fourth quarter of its fiscal years.  Excluding the effects of fiscal years with 53 weeks rather than 52 weeks, the most significant effects on UNIFI\u2019s results of operations for particular periods during a year are due to planned manufacturing shutdowns by either UNIFI or its customers for certain holiday or traditional shutdown periods.\n\n\nBacklog\n\n\nUNIFI\u2019s level of unfilled orders is affected by many factors, including the timing of specific orders and the delivery time for specific products, as well as a customer\u2019s ability or inability to cancel the related order.  As such, UNIFI does not consider the amount of unfilled orders, or backlog, to be a meaningful indicator of expected levels of future sales or to be material to an understanding of UNIFI\u2019s business as a whole.\n\n\nWorking Capital\n\n\nUNIFI funds its working capital requirements through cash flows generated from operations, along with short-term borrowings, as needed.  For more detailed information, see \u201cLiquidity and Capital Resources\u201d in \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in this report.\n\n\n10\n\n\n\n\nInflation\n\n\nPrior to fiscal 2021, UNIFI\u2019s input costs had experienced steady and predictable increases. However, in calendar 2021 and 2022, UNIFI, along with many other textile manufacturers and a range of other industries, began to experience above-average inflationary pressures on a range of input costs, including, but not limited to, labor, freight, energy, and raw materials. Accordingly, we began implementing responsive selling price adjustments during both fiscal 2021 and 2022 to protect gross margins. In calendar 2023, UNIFI experienced a slight decline in these inflationary pressures, but some of these input costs were still above historical levels.  While our selling price adjustments have thus far been successful at mitigating much of the inflationary pressure that has occurred, further significant fluctuations in input costs may not be immediately recoverable via selling price adjustments and our gross margins could suffer. However, we monitor our input costs closely, and we expect to maintain our ability to respond quickly to cost fluctuations to minimize any potential adverse impacts to earnings.\n\n\nBeyond the current inflationary environment experienced in fiscal 2022 and 2023, UNIFI expects that costs could continue to rise long term for certain consumables used to produce and ship its products, as well as for its utilities and labor. UNIFI expects to mitigate the impacts of such rising costs through increased operational efficiencies and increased selling prices, but rising inflation could be a factor that negatively impacts UNIFI\u2019s profitability.\n\n\nIn the past, selling price adjustments were primarily associated with changes in the price of polyester and nylon raw materials, but the current environment requires that selling price adjustments accommodate significant increases in all categories of input costs, including packaging, supplies, additives, and labor. For the majority of our portfolio, we were able to implement selling price adjustments to protect gross margins in fiscal 2022. However, some selling price adjustments in the U.S. and Central America were not realized rapidly enough in fiscal 2022 to avoid temporary gross margin declines in certain portions of our portfolio. While we navigated the dynamic cost environment during fiscal 2021 through 2023 better than in earlier prior years, fixed cost absorption and manufacturing productivity have adversely impacted our gross margin and remain current headwinds to UNIFI\u2019s profitability, most notably in the Americas Segment.\n\n\nEnvironmental Matters\n\n\nUNIFI is subject to various federal, state, and local environmental laws and regulations limiting the use, storage, handling, release, discharge, and disposal of a variety of hazardous substances and wastes used in or resulting from its operations (and to potential remediation obligations thereunder).  These laws include the Federal Water Pollution Control Act, the Clean Air Act, the Resource Conservation and Recovery Act (including provisions relating to underground storage tanks), the Comprehensive Environmental Response, Compensation, and Liability Act, commonly referred to as \u201cSuperfund\u201d or \u201cCERCLA,\u201d and various state counterparts to such laws.  UNIFI\u2019s operations are also governed by laws and regulations relating to workplace safety and worker health, principally the Occupational Safety and Health Act and regulations issued thereunder, which, among other things, establish exposure standards regarding hazardous materials and noise standards and regulate the use of hazardous chemicals in the workplace.\n\n\nUNIFI believes that it has obtained, and is in compliance in all material respects with, all significant permits required to be issued by federal, state, or local law in connection with the operation of its business.  UNIFI also believes that the operation of its production facilities and its disposal of waste materials are substantially in compliance with applicable federal, state, and local laws and regulations, and that there are no material ongoing or anticipated capital expenditures associated with environmental control facilities necessary to remain in compliance with such provisions.  UNIFI incurs normal operating costs associated with the discharge of materials into the environment but does not believe that these costs are material or inconsistent with those of its domestic competitors.\n\n\nOn September 30, 2004, Unifi Kinston, LLC (\u201cUK\u201d), a subsidiary of Unifi, Inc., completed its acquisition of polyester filament manufacturing assets located in Kinston, North Carolina (\u201cKinston\u201d) from INVISTA.  The land for the Kinston site was leased pursuant to a 99-year ground lease (the \u201cGround Lease\u201d) with E.I. DuPont de Nemours (\u201cDuPont\u201d).  Since 1993, DuPont has been investigating and cleaning up the Kinston site under the supervision of the U.S. Environmental Protection Agency and the North Carolina Department of Environmental Quality (the \u201cDEQ\u201d) pursuant to the Resource Conservation and Recovery Act Corrective Action program.  The program requires DuPont to identify all potential areas of environmental concern (\u201cAOCs\u201d), assess the extent of containment at the identified AOCs and remediate the AOCs to comply with applicable regulatory standards.  Effective March 20, 2008, UK entered into a lease termination agreement associated with conveyance of certain assets at the Kinston site to DuPont.  This agreement terminated the Ground Lease and relieved UK of any future responsibility for environmental remediation, other than participation with DuPont, if so called upon, with regard to UK\u2019s period of operation of the Kinston site, which was from 2004 to 2008.  At this time, UNIFI has no basis to determine if or when it will have any responsibility or obligation with respect to the AOCs or the extent of any potential liability for the same. UK continues to own property (the \u201cKentec site\u201d) acquired in the 2004 transaction with INVISTA that has contamination from DuPont\u2019s prior operations and is monitored by DEQ. The Kentec site has been remediated by DuPont, and DuPont has received authority from DEQ to discontinue further remediation, other than natural attenuation.  Prior to transfer of responsibility to UK, DuPont and UK had a duty to monitor and report the environmental status of the Kentec site to DEQ. Effective April 10, 2019, UK assumed sole remediator responsibility of the Kentec site pursuant to its contractual obligations with INVISTA and received $180 of net monitoring and reporting costs due from DuPont.  In connection with monitoring, UK expects to sample and report to DEQ annually. At this time, UNIFI does not expect any active site remediation will be required but expects that any costs associated with active site remediation, if ever required, would likely be immaterial.\n\n\nJoint Ventures and Unconsolidated Affiliates\n\n\nUNIFI participates in two joint ventures that supply raw materials to the Americas Segment, one located in the U.S. and one in Israel.  As of July 2, 2023, UNIFI had $2,997 recorded for these investments in unconsolidated affiliates. Other information regarding UNIFI\u2019s unconsolidated affiliates is provided in \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and under the subheading \u201c\nInvestments in Unconsolidated Affiliates\n\u201d in Note 10, \"Other Non-Current Assets,\" to the accompanying consolidated financial statements.\n\n\n11\n\n\n\n\nAvailable Information\n\n\nUNIFI\u2019s website is \nwww.unifi.com\n.  Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d), as well as proxy statements and other information we file with, or furnish to, the SEC are available free of charge on our website. We make these documents available as soon as reasonably practicable after we electronically transmit them to the SEC. Except as otherwise stated in these documents, the information on our website or linked to or from our website is not a part of this report and is not incorporated by reference in this report or any of our other filings with the SEC. In addition, many of our corporate governance documents are available on our website, including our: Audit Committee Charter, Compensation Committee Charter, Corporate Governance and Nominating Committee Charter, Corporate Governance Guidelines, Code of Business Conduct and Ethics, Ethical Business Conduct Policy Statement, and Code of Ethics for Senior Financial and Executive Officers.  Copies of such materials, as well as any of our SEC reports and all amendments thereto, may also be obtained without charge by writing to Unifi, Inc., 7201 West Friendly Avenue, Greensboro, North Carolina 27410, Attention: Corporate Secretary.\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A.\n \nRisk Factors\n\n\nMany of the factors that affect UNIFI\u2019s business and operations involve risk and uncertainty. The factors described below are some of the risks that could materially negatively affect UNIFI\u2019s business, financial condition, results of operations, and cash flows. You should consider all such risks in evaluating UNIFI or making any investment decision involving UNIFI.\n\n\nStrategic Risks\n\n\nUNIFI faces intense competition from a number of domestic and foreign yarn producers and importers of foreign-sourced fabric, apparel, and other textile products. Because UNIFI and the supply chains in which UNIFI conducts its business do not typically operate on the basis of long-term contracts with textile customers or brand partners, these competitive factors could cause UNIFI\u2019s customers or brand partners to shift rapidly to other producers.\n\n\nUNIFI competes not only against domestic and foreign yarn producers, but also against importers of foreign-sourced fabric, apparel, and other textile products into the U.S. and other countries in which UNIFI does business, particularly in Brazil with respect to commodity yarn products. The primary competitive factors in the textile industry include price, quality, product styling, performance attributes and differentiation, brand reputation, flexibility and location of production and finishing, delivery time, and customer service. The needs of certain customers and brand partners and the characteristics of particular products determine the relative importance of these various factors. A large number of UNIFI\u2019s foreign competitors have significant competitive advantages that may include lower labor and raw material costs, production facilities in locations outside UNIFI\u2019s existing supply chain, government subsidies, and favorable foreign currency exchange rates against the USD. If any of these advantages increase, if new and/or larger competitors emerge in the future, or if UNIFI\u2019s brand reputation is detrimentally impacted, UNIFI\u2019s products could become less competitive, and its sales and profits may decrease as a result. In particular, devaluation of the Chinese currency against the USD could result in UNIFI\u2019s products becoming less competitive from a pricing standpoint and/or could result in the Americas region losing market share to Chinese imports, thereby adversely impacting UNIFI\u2019s sales and profits.  While foreign competitors have traditionally focused on commodity production, entities are now increasingly focused on value-added products and unbranded recycled products. Competition from unbranded recycled yarns has recently increased, and could drive market share losses for our flagship REPREVE brand. UNIFI may not be able to continue to compete effectively with foreign-made textile and apparel products, which would materially adversely affect its business, financial condition, results of operations or cash flows.  Similarly, to maximize their own supply chain efficiency, customers and brand partners sometimes request that UNIFI\u2019s products be produced and sourced from specific geographic locations that are in close proximity to the customer\u2019s fabric mills or that have other desirable attributes from the customer\u2019s perspective.  These locations are sometimes situated outside the footprint of UNIFI\u2019s existing global supply chain. If UNIFI is unable to move production based on customer requests or other shifts in regional demand, we may lose sales and experience an adverse effect on our business, financial condition, results of operations, or cash flows.\n\n\nA significant portion of our sales is dependent upon demand from a few large brand partners.\n\n\nUNIFI\u2019s strategy involves the sale of products and solutions to other yarn manufacturers and knitters and weavers (UNIFI\u2019s direct customers) that produce yarn and/or fabric for brands and retailers in the apparel, hosiery, home furnishings, automotive, industrial and other end-use markets (UNIFI\u2019s indirect customers).  We refer to these indirect customers as \u201cbrand partners.\u201d  Although we generally do not derive revenue directly from our brand partners, sales volumes to our direct customers are linked with demand from our brand partners because our direct sales generally form a part of our brand partners\u2019 supply chains.  A significant portion of our overall sales is tied to ongoing programs for a limited number of brand partners.  Our future operating results depend on both the success of our largest brand partners and on our success in diversifying our products and our indirect customer base.  Because we typically do not operate on the basis of long-term contracts, our customers and brand partners can cease incorporating our products into their own with little notice to us and with little or no penalty.  The loss of a large brand partner, and the failure to add new customers to replace the corresponding lost sales, would have a material adverse effect on our business, financial condition, results of operations, and cash flows.\n\n\n12\n\n\n\n\nSignificant price volatility of UNIFI\u2019s raw materials and rising energy costs may result in increased production costs.  UNIFI attempts to pass such increases in production costs on to its customers through responsive price increases.  However, any such price increases are effective only after a time lag that may span one or more quarters, during which UNIFI and its margins are negatively affected.\n\n\nPetroleum-based chemicals and recycled plastic bottles comprise a significant portion of UNIFI\u2019s raw materials. The prices for these products and related energy costs are volatile and dependent on global supply and demand dynamics, including geo-political risks.  While UNIFI enters into raw material supply agreements from time to time, these agreements typically provide index pricing based on quoted market prices. Therefore, supply agreements provide only limited protection against price volatility. UNIFI attempts to pass on to its customers increases in raw material costs, but at times it cannot. When it can, there is typically a time lag that adversely affects UNIFI and its margins during one or more quarters.  Certain customers are subject to an index-based pricing model in which UNIFI\u2019s prices are adjusted based on the change in the cost of certain raw materials in the prior quarter.  Pricing adjustments for other customers must be negotiated independently.  In ordinary market conditions in which raw material price increases have stabilized and sales volumes are consistent with traditional levels, UNIFI has historically been successful in implementing price adjustments within one to two fiscal quarters of the raw material price increase for its index priced customers and within two fiscal quarters of the raw material price increase for its non-index priced customers.  UNIFI has lost in the past (and expects that it may lose in the future) customers to its competitors as a result of price increases. In addition, competitors may be able to obtain raw materials at a lower cost due to market regulations that favor local producers in certain foreign locations where UNIFI operates, and certain other market regulations that favor UNIFI over other producers may be amended or repealed. Additionally, inflation can have a long-term impact by increasing the costs of materials, labor, and/or energy, any of which costs may adversely impact UNIFI\u2019s ability to maintain satisfactory margins. If UNIFI is not able to pass on such cost increases to customers in a timely manner (or if it loses a large number of customers to competitors as a result of price increases), the result could be material and adverse to its business, financial condition, results of operations, or cash flows.\n\n\nDepending on the price volatility of petroleum-based inputs, recycled bottles, and other raw materials, the price gap between virgin chip and recycled chip could make virgin raw materials more cost-effective than recycled raw materials, which could result in an adverse effect on UNIFI\u2019s ability to sell its REPREVE brand recycled products profitably.\n\n\nThe success of UNIFI\u2019s business is tied to the strength and reputation of its brands. If the reputation of one or more of our brands erodes significantly, it could have a material impact on our financial results.\n\n\nUNIFI has invested heavily in branding and marketing initiatives, and certain of our brands, particularly our REPREVE\n \nbrand, have widespread recognition.  Our financial success is directly dependent on the success of our brands.  The success of a brand can suffer if our marketing plans or product initiatives do not have the desired impact on a brand\u2019s image or its ability to attract consumers.  Our financial results could also be negatively impacted if one of our brands suffers substantial harm to its reputation due to a product recall, product-related litigation, the sale of counterfeit products, or other circumstances that tarnish the qualities and values represented by our brands.  Part of our strategy also includes the license of our trademarks to brand partners, customers, independent contractors, and other third parties.  For example, we license our REPREVE trademarks to brand partners that feature this trademark on their marketing materials as part of a co-branded environmental sustainability product narrative.  Although we make concerted efforts to protect our brands through quality control mechanisms and contractual obligations imposed on our licensees, there is a risk that some licensees might not be in full compliance with those mechanisms and obligations.  If the reputation of one or more of our brands is significantly eroded, it could adversely affect our sales, results of operations, cash flows, and/or financial condition.\n\n\nUNIFI\u2019s future success will depend in part on its ability to protect and preserve its intellectual property rights, and UNIFI\u2019s inability to enforce these rights could cause it to lose sales, reduce any competitive advantage it has developed, or otherwise harm its business.\n\n\nUNIFI\u2019s future success depends in part on its ability to protect and preserve its rights in the trademarks and other intellectual property it owns or licenses, including its proprietary know-how, methods, and processes. UNIFI relies on the trademark, copyright, and trade secret laws of the U.S. and other countries, as well as nondisclosure and confidentiality agreements, to protect its intellectual property rights. However, UNIFI may be unable to prevent third parties, employees, or contractors from using its intellectual property without authorization, breaching nondisclosure or confidentiality agreements, or independently developing technology that is similar to UNIFI\u2019s. The use of UNIFI\u2019s intellectual property by others without authorization may cause it to lose sales, reduce any competitive advantage UNIFI has developed, or otherwise harm its business.\n\n\n13\n\n\n\n\nFinancial Risks\n\n\nUNIFI has significant foreign operations, and its consolidated results of operations and business may be adversely affected by the risks associated with doing business in foreign locations, including the risk of fluctuations in foreign currency exchange rates.\n\n\nUNIFI has foreign operations in Brazil, China, Colombia, El Salvador, and Turkey and participates in joint ventures located in Israel and the U.S.  In addition, to help service its customers, UNIFI from time to time engages with third-party independent contractors to provide sales and distribution, manufacturing, and other operational and administrative support services in locations around the world. UNIFI serves customers throughout the Americas and Asia, as well as various countries in Europe. UNIFI\u2019s foreign operations are subject to certain political, tax, economic, and other uncertainties not encountered by its domestic operations that can materially impact UNIFI\u2019s supply chains or other aspects of its foreign operations. The risks of international operations include trade barriers, duties, exchange controls, national and regional labor strikes, social and political unrest, general economic risks, compliance with a variety of foreign laws (including tax laws), the difficulty of enforcing agreements and collecting receivables through foreign legal systems, taxes on distributions or deemed distributions to UNIFI or any of its U.S. subsidiaries, maintenance of minimum capital requirements, and import and export controls. UNIFI\u2019s consolidated results of operations and business could be adversely affected as a result of a significant adverse development with respect to any of these risks.\n\n\nThrough its foreign operations, UNIFI is also exposed to foreign currency exchange rate fluctuations. Fluctuations in foreign currency exchange rates will impact period-to-period comparisons of UNIFI\u2019s reported results. Additionally, UNIFI operates in countries with foreign exchange controls. These controls may limit UNIFI\u2019s ability to transfer funds from its international operations and joint ventures or otherwise to convert local currencies into USDs. These limitations could adversely affect UNIFI\u2019s ability to access cash from its foreign operations.\n\n\nIn addition, due to its foreign operations, a risk exists that UNIFI\u2019s employees, contractors, or agents could engage in business practices prohibited by U.S. laws and regulations applicable to the Company, such as the Foreign Corrupt Practices Act or the anti-bribery and corruption laws and regulations of other countries in which we do business.  UNIFI maintains policies prohibiting these practices but remains subject to the risk that one or more of its employees, contractors, or agents, specifically ones based in or from countries where such practices are customary, will engage in business practices in violation of these laws and regulations.  Any such violations, even if in breach of UNIFI\u2019s policies, could adversely affect its business or financial performance.\n\n\nUNIFI may be subject to greater tax liabilities.\n\n\nUNIFI is subject to income tax and other taxes in the U.S. and in numerous foreign jurisdictions. UNIFI\u2019s domestic and foreign income tax liabilities are dependent on the jurisdictions in which profits are determined to be earned and taxed. Additionally, the amount of taxes paid is subject to UNIFI\u2019s interpretation of applicable tax laws in the jurisdictions in which we operate. Changes in tax laws including further regulatory developments arising from U.S. tax reform legislation, judicial interpretations in the jurisdictions in which we operate, and\n \nmulti-jurisdictional changes enacted in response to the action items provided by the Organization for Economic Co-operation and Development could have an adverse effect on UNIFI\u2019s business, financial condition, operating results, and cash flows. Significant judgment, knowledge, and experience are required in determining our worldwide provision for income taxes.\n\n\nUNIFI requires cash to service its indebtedness and to fund capital expenditures and strategic initiatives, and its ability to generate sufficient cash for those purposes depends on many factors beyond its control.\n\n\nUNIFI\u2019s principal sources of liquidity are cash flows generated from operations and borrowings under its credit facility. UNIFI\u2019s ability to make payments on its indebtedness and to fund planned capital expenditures and strategic initiatives will depend on its ability to generate future cash flows from operations. This ability, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond UNIFI\u2019s control. The business may not generate sufficient cash flows from operations, and future borrowings may not be available to UNIFI in amounts sufficient to enable UNIFI to pay its indebtedness and to fund its other liquidity needs. Any such development would have a material adverse effect on UNIFI.\n\n\nDuring fiscal 2023, certain regional bank crises and failures generated additional uncertainty and volatility in the financial and credit markets. UNIFI currently holds the vast majority of its cash deposits with large foreign banks in our associated operating regions, and management believes that it has the ability to repatriate cash to the U.S. relatively quickly, although management recognizes that various inherent risks do exist in executing the repatriation of cash from foreign subsidiaries. If any of the financial institutions within our 2022 Credit Agreement or construction financing arrangement our lending counterparties are unable to perform on their commitments, our liquidity could be adversely impacted, and we may not be able to adequately fund our operations and pay our debts as they become due. We actively monitor all lending counterparties, and none have indicated that they may be unable to perform on their commitments. In addition, we periodically review our lending counterparties, considering the stability of the institutions and other aspects of the relationships. Based on our monitoring activities, we currently believe our lending counterparties will be able to perform their commitments.\n \n\n\nOperational Risks\n\n\nUNIFI depends on limited sources for certain of its raw materials, and interruptions in supply could increase its costs of production, cause production inefficiencies, or lead to a halt in production.\n\n\nUNIFI depends on a limited number of third parties for certain raw material supplies, such as POY, Chip, dyes, and chemicals. Although alternative sources of raw materials exist, UNIFI may not be able to obtain adequate supplies of such materials on acceptable terms, or at all, from other sources. UNIFI is dependent on USMCA/NAFTA, CAFTA-DR, and\n \nBerry Amendment qualified suppliers of raw materials for the production of Compliant Yarns. These suppliers are also at risk with their raw material supply chains. Any significant disruption or curtailment in the supply of any of its raw materials could cause UNIFI to reduce or cease its production for an extended\n \n\n\n14\n\n\n\n\nperiod, or require UNIFI to increase its pricing, any of which could have a material adverse effect on its business, financial condition, results of operations, or cash flows.\n\n\nA disruption at one of our facilities could harm our business and result in significant losses, lead to a decline in sales, and increase our costs and expenses.\n\n\nOur operations and business could be disrupted by natural disasters, industrial accidents, power or water shortages, extreme weather conditions, pandemics, and other man-made disasters or catastrophic events.  We carry commercial property damage and business interruption insurance against various risks, with limits we deem adequate, for reimbursement for damage to our fixed assets and resulting disruption of our operations.  However, the occurrence of any of these business disruptions could harm our business and result in significant losses, lead to a decline in sales, and increase our costs and expenses.  Any disruptions from these events could require substantial expenditures and recovery time to resume operations and could also have a material adverse effect on our operations and financial results to the extent losses are uninsured or exceed insurance recoveries and to the extent that such disruptions adversely impact our relationships with our customers.\n\n\nOur business and operations could suffer in the event of cybersecurity breaches.\n\n\nAttempts to gain unauthorized access to our information technology systems have become increasingly more sophisticated over time. These attempts, which might be related to industrial or other espionage, include covertly introducing malware to our computers and networks and impersonating authorized users, among others. We seek to detect and investigate all security incidents and to prevent their recurrence, but in some cases we might be unaware of an incident or its magnitude and effects. We carry cyber liability insurance against cyber attacks, with limits we deem adequate for the reimbursement for damage to our computers, equipment, and networks and resulting disruption of our operations. However, any disruption from a cyber attack could require substantial expenditures and recovery time in order to fully resume operations and could also have a material adverse effect on our operations and financial results to the extent losses are uninsured or exceed insurance recoveries and to the extent that such disruptions adversely impact our relationships with our customers. We have been a target of cybersecurity attacks in the past and, while such attacks have not resulted in a material impact on our operations, business, or customer relationships, such attacks could in the future.\n\n\nThe theft, unauthorized use, or publication of our intellectual property and/or confidential business information could harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives, or otherwise adversely affect our business. To the extent that any cybersecurity breach results in inappropriate disclosure of our customers\u2019 or brand partners\u2019 confidential information, we may incur significant liability and reputational harm as a result. In addition, devoting additional resources to the security of our information technology systems in the future could significantly increase the cost of doing business or otherwise adversely impact our financial results.\n\n\nA decline or change in general economic conditions, political conditions, and/or levels of consumer spending could cause a decline in demand for textile products, including UNIFI\u2019s products.\n\n\nUNIFI\u2019s products are used in the production of fabric primarily for the apparel, hosiery, home furnishings, automotive, industrial, and other end-use markets. Demand for furniture and other durable goods is often affected significantly by economic conditions that have global or regional industry-wide consequences. Demand for a number of categories of apparel also tends to be tied to economic cycles and customer preferences that affect the textile industry in general. Demand for textile products, therefore, tends to vary with the business cycles of the U.S. and other economies, as well as changes in global trade flows, and economic and political conditions.  Additionally, prolonged economic downturns that negatively impact UNIFI\u2019s results of operations and cash flows could result in future material impairment charges to write-down the carrying value of certain assets, including facilities and equipment, amortizable intangible assets, and equity affiliates.\n\n\nWe recognize the disruption to global markets and supply chains caused by Russia\u2019s invasion of Ukraine. While volatility and uncertainty continue, we have no significant customers or supply chain partners in the conflicted region, and we have not been directly impacted by the conflict. Indirectly, we recognize that additional or prolonged impacts to the petroleum or other global markets could cause further inflationary pressures to our raw material costs or unforeseen adverse impacts.\n\n\nChanges in consumer spending, customer preferences, fashion trends, and end-uses for UNIFI\u2019s products could weaken UNIFI\u2019s competitive position and cause UNIFI\u2019s products to become less competitive, and its sales and profits may decrease as a result.  Additionally, the end-consumer retail and apparel markets may continue to experience difficult conditions and other transformations, which could have an adverse effect on UNIFI\u2019s business and financial condition.\n\n\n15\n\n\n\n\nGeneral Risks\n\n\nUnfavorable changes in trade policies and/or violations of existing trade policies could weaken UNIFI\u2019s competitive position significantly and have a material adverse effect on its business.\n\n\nA number of markets within the textile industry in which UNIFI sells its products, particularly the apparel, hosiery, and home furnishings markets, are subject to intense foreign competition. Other markets within the textile industry in which UNIFI sells its products may in the future become subject to more intense foreign competition. There are currently a number of trade regulations and duties in place to protect the U.S. textile industry against competition from low-priced foreign producers, such as those in China, India, and Vietnam.  Political and policy-driven influences are subjecting international trade regulations to significant volatility. Future changes in such trade regulations or duties may make the price of UNIFI\u2019s products less attractive than the goods of its competitors or the finished products of a competitor in the supply chain, which could have a material adverse effect on UNIFI\u2019s business, financial condition, results of operations, or cash flows.  Such changes in import duties in the U.S. and other countries in which we operate might also result in increased direct and indirect costs on items imported to support UNIFI\u2019s operations and/or countervailing or responsive changes applicable to exports of our products outside the U.S.\n \n\n\nAccording to industry experts and trade associations, there has been a significant amount of illegal transshipments of POY and apparel products into the U.S. and into certain other countries in the Americas region in which UNIFI competes. Illegal transshipment involves circumventing duties by falsely claiming that textiles and apparel are products of a particular country of origin (or include yarn of a particular country of origin) to avoid paying higher duties or to receive benefits from regional free trade agreements, such as USMCA/NAFTA and CAFTA-DR. If illegal transshipments are not monitored, and if enforcement is not effective to limit them, these shipments could have a material adverse effect on UNIFI\u2019s business, financial condition, results of operations, or cash flows.\n\n\nIn order to compete effectively, we must attract, retain, and motivate qualified key employees, and our failure to do so could harm our business and our results of operations.\n\n\nIn order to compete effectively, we must attract and retain qualified employees.  Our future operating results and success depend on retaining key personnel and management as well as expanding our technical, sales and marketing, innovation, and administrative support.  The competition for qualified personnel is intense, particularly as it relates to hourly personnel in the domestic communities in which our manufacturing facilities are located.  We cannot be sure that we will be able to attract and retain qualified personnel in the future, which could harm our business and results of operations.\n\n\nCatastrophic or extraordinary events, including epidemics or pandemics such as the COVID-19 pandemic, could disrupt global economic activity and/or demand and negatively impact our financial performance and results of operations.\n\n\nThe COVID-19 pandemic negatively impacted the global economy, disrupted consumer spending, and affected global supply chains. Specifically, containment efforts in China have impacted our supply chain, negatively impacting the results of our Asia Segment.  The long-term impact on our businesses is currently unknown.\n\n\nUNIFI will continue to monitor the COVID-19 pandemic by prioritizing health and safety while delivering on customer demand. However, the COVID-19 pandemic could resurge or another epidemic or pandemic could arise, and, accordingly, could adversely affect our organization.\n\n\nThe risks associated with climate change, localized energy management initiatives, and other environmental impacts could negatively affect UNIFI\u2019s business and operations.\n\n\nUNIFI\u2019s business is susceptible to risks associated with climate change, including, but not limited to, disruptions to our supply chain, which could potentially impact the production and distribution of our products and the availability and pricing of raw materials. Increased frequency and intensity of weather events could lead to supply chain disruption, energy and resource rationing, or an adverse event at one of our manufacturing facilities or the facilities of our manufacturing partners. Further, regulatory responses to climate change could adversely affect our operations. For instance,  the recent energy management initiatives in China temporarily constrained global supply chains and reduced supplier and customer activity. Additionally, weaknesses in energy infrastructure could result in supply disruptions that could indirectly affect our operations and could adversely impact our results of operations and cash flows.\n\n\n\u00a0\n\n\n16\n\n\n\n",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis o\nf Financial Condition and Results of Operations\n\n\nThe following is management\u2019s discussion and analysis of certain significant factors that have affected UNIFI\u2019s operations, along with material changes in financial condition, during the periods included in the accompanying consolidated financial statements. Management\u2019s discussion and analysis should be read in conjunction with the remainder of this report, with the understanding that forward-looking statements may be present. A reference to a \u201cnote\u201d refers to the accompanying notes to consolidated financial statements.\n\n\nStrategic Priorities\n\n\nWe believe UNIFI\u2019s underlying performance during recent fiscal years reflects the strength of our global initiative to deliver differentiated solutions to customers and brand partners throughout the world. Our supply chain has been developed and enhanced in multiple regions around the globe, allowing us to deliver a diverse range of fibers and polymers to key customers in the markets we serve, especially apparel. These textile products are supported by quality assurance, product development, product and fabric certifications, hangtags, co-marketing, and technical and customer service teams across UNIFI\u2019s operating subsidiaries. We have developed this successful operating platform by improving operational and business processes and deriving value from sustainability-based initiatives, including polyester and nylon recycling.\n\n\nWe believe that further commercial expansion will require a continued stream of new technology and innovation that generates products with meaningful consumer benefits. Along with our recycled platform, UNIFI has significant yarn technologies that provide optimal performance characteristics for today\u2019s marketplace, including moisture management, temperature moderation, stretch, ultra-violet protection, and fire retardation, among others. To achieve further growth, UNIFI remains focused on innovation, bringing to market the next wave of fibers and polymers for tomorrow\u2019s applications. As we invest and grow, sustainability remains at our core. We believe that increasing the awareness for recycled solutions in applications across fibers and polymers and furthering sustainability-based initiatives with like-minded brand partners will be key to our future success. We also believe that our manufacturing processes and our technical knowledge and capabilities will allow us to grow market share and develop new textile programs with new and existing customers. Ultimately, we believe that combining leading-edge innovation with our prominent, high-quality brand and agile regional business model will allow for underlying sales and profitability growth.\n\n\nSignificant Developments and Trends\n\n\nDuring the last six fiscal years, several key drivers affected our financial results.\n \n\n\n\u2022\nDuring fiscal 2018 and 2019, our operations in the U.S. were unfavorably impacted by (i) rising raw material costs and (ii) a surge of imported polyester textured yarn that depressed our pricing, market share, and fixed cost absorption. \n\n\n\u2022\nDuring fiscal 2020, our financial results began to improve following more stable import and raw material cost environments. However, the COVID-19 pandemic had a significant unfavorable impact to product demand and our annual profitability suffered accordingly. Near the end of fiscal 2020, we divested a minority interest investment and significantly improved our liquidity position, supporting business preservation and the ability to capture long-term growth opportunities. \n\n\n\u2022\nThroughout fiscal 2021, our businesses experienced sequential improvement alongside global demand and economic recovery, and we capitalized on profitable opportunities that fueled strong consolidated results. \n\n\n\u2022\nThroughout fiscal 2022, we experienced adverse pressure from rising input costs and a weakening of labor productivity primarily in our domestic operations.   \n\n\n\u2022\nThroughout fiscal 2023, we experienced a downturn in global textile demand as brands and retailers began to destock their inventory levels. Looking ahead, we believe our operations remain well-positioned to capture long-term growth opportunities and we are working to mitigate any potential recessionary impacts.\n\n\nOnce global economic pressures subside, we believe incremental revenue for the Americas Segment will be generated from both the polyester textured yarn trade petitions, along with continued demand for innovative and sustainable products. The Asia Segment continues to capture demand for recycled products and serves as a significant component of future growth. The Brazil Segment has returned to more normalized levels of performance and is expected to maintain healthy volumes and margins following the current pressures from low-cost imports.  As the Asia market improves, the volume of low-cost Asian imports into Brazil is expected to decrease.\n\n\n21\n\n\n\n\nThe following developments and trends occurred or were occurring in fiscal 2023.\n\n\n\u2022\nDemand levels for the majority of our business lines in the Americas and Asia Segments experienced declines during fiscal 2023 as a result of lower global demand in connection with the inventory destocking efforts of major brands and retailers in addition to pandemic-related lockdowns in Asia, partially offset by higher selling prices in response to higher raw material and input costs.\n\n\n\u2022\nOur REPREVE family of products continued to gain momentum with brands, retailers, and mill partners who value sustainability and UNIFI\u2019s ability to produce leading-edge products with in-demand technologies.\n\n\n\u2022\nThe Americas Segment experienced weaker global demand, weak fixed cost absorption in connection with lower production, and overall higher raw material cost levels in beginning inventory, despite a decrease in raw material costs during fiscal 2023.\n\n\n\u2022\nThe Brazil Segment was able to capture market share from competitors, but incurred selling price pressures from lower cost imports.\n\n\n\u2022\nThe Asia Segment's sales growth slowed in fiscal 2023 due to a slowdown in global demand; however, there remains healthy demand for REPREVE, generating continued portfolio expansion.\n\n\nFluctuations in Raw Material Costs and Foreign Currency Exchange Rates\n\n\nRaw material costs represent a significant portion of UNIFI\u2019s product costs. The prices for the principal raw materials used by UNIFI continually fluctuate, and it is difficult or impossible to predict trends or upcoming developments.\n\n\nThe first half of fiscal 2021 included stable, lower raw material costs, while economic recovery, weather events, and supply chain challenges generated raw material cost increases during the second half of fiscal 2021 and the first half of fiscal 2022. For the majority of our portfolio, we were able to implement selling price adjustments throughout fiscal 2021 and 2022. However, recycled inputs in the U.S. experienced continued cost increases during fiscal 2022. Despite the responsive selling price increases, we still experienced meaningful gross profit pressure during fiscal 2022 and 2023, primarily from the U.S. labor shortage and speed at which input costs increased.\n\n\nThe continuing volatility in global crude oil prices is likely to impact UNIFI\u2019s polyester and nylon raw material costs.  While it is not possible to predict the timing or amount of the impact or whether the recent fluctuations in crude oil prices will stabilize, increase, or decrease, UNIFI monitors these dynamic factors closely. In addition, UNIFI attempts to pass on to its customers increases in raw material costs but due to market pressures, this is not always possible.  When price increases can be implemented, there is typically a time lag that adversely affects UNIFI and its margins during one or more quarters. Certain customers are subject to an index-based pricing model in which UNIFI\u2019s prices are adjusted based on the change in the cost of certain raw materials in the prior quarter.  Pricing adjustments for other customers must be negotiated independently.  In ordinary market conditions in which raw material cost increases have stabilized and sales volumes are consistent with traditional levels, UNIFI has historically been successful in implementing price adjustments within one or two fiscal quarters of the raw material price increase for all of its customers.\n\n\nUNIFI is also impacted by significant fluctuations in the value of the Brazilian Real (the \u201cBRL\u201d) and the Chinese Renminbi (the \u201cRMB\u201d), the local currencies for our operations in Brazil and China, respectively. Appreciation of the BRL and the RMB improves our net sales and gross profit metrics when the results of our subsidiaries are translated into USDs at comparatively favorable rates. However, such strengthening may cause adverse impacts to the value of USDs held in these foreign jurisdictions. UNIFI expects continued volatility in the value of the BRL and the RMB to impact our key performance metrics and actual financial results, although the magnitude of the impact is dependent upon the significance of the volatility, and it is not possible to predict the timing or amount of the impact.\n\n\nThe BRL to USD weighted average exchange rate was 5.17, 5.21, and 5.38 for fiscal 2023, 2022, and 2021, respectively. The RMB to USD weighted average exchange rate was 6.94, 6.45, and 6.60 for fiscal 2023, 2022, and 2021, respectively.\n\n\n22\n\n\n\n\nKey Performance Indicators and Non-GAAP Financial Measures\n\n\nUNIFI continuously reviews performance indicators to measure its success.  These performance indicators form the basis of management\u2019s discussion and analysis included below:\n\n\n\u2022\nsales volume and revenue for UNIFI and for each reportable segment;\n\n\n\u2022\ngross profit and gross margin for UNIFI and for each reportable segment;\n\n\n\u2022\nnet (loss) income and (loss) earnings per share (\"EPS\");\n\n\n\u2022\nSegment Profit, which equals segment gross (loss) profit plus segment depreciation expense;\n\n\n\u2022\nunit conversion margin, which represents unit net sales price less unit raw material costs, for UNIFI and for each reportable segment;\n\n\n\u2022\nworking capital, which represents current assets less current liabilities;\n\n\n\u2022\nEarnings Before Interest, Taxes, Depreciation and Amortization (\u201cEBITDA\u201d), which represents net (loss) income before net interest expense, income tax expense and depreciation and amortization expense;\n\n\n\u2022\nAdjusted EBITDA, which represents EBITDA adjusted to exclude, from time to time, certain other adjustments necessary to understand and compare the underlying results of UNIFI;\n\n\n\u2022\nAdjusted Net (Loss) Income, which represents net (loss) income calculated under GAAP, adjusted to exclude certain amounts which management believes do not reflect the ongoing operations and performance of UNIFI and/or for which exclusion may be necessary to understand and compare the underlying results of UNIFI;\n\n\n\u2022\nAdjusted EPS, which represents Adjusted Net (Loss) Income divided by UNIFI\u2019s weighted average common shares outstanding;\n\n\n\u2022\nAdjusted Working Capital, which equals receivables plus inventories and other current assets, less accounts payable and other current liabilities; and\n\n\n\u2022\nNet Debt, which represents debt principal less cash and cash equivalents.\n\n\nEBITDA, Adjusted EBITDA, Adjusted Net (Loss) Income, Adjusted EPS, Adjusted Working Capital, and Net Debt (collectively, the \u201cnon-GAAP financial measures\u201d) are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management\u2019s belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures. When applicable, management\u2019s discussion and analysis includes specific consideration for items that comprise the reconciliations of its non-GAAP financial measures.\n\n\nWe believe that these non-GAAP financial measures better reflect UNIFI\u2019s underlying operations and performance and that their use, as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets, among otherwise comparable companies.\n\n\nManagement uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of items (a) directly related to our asset base (primarily depreciation and amortization) and/or (b) that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures, and expand our business; and (iv) as one measure in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity because it serves as a high-level proxy for cash generated from operations and is relevant to our fixed charge coverage ratio.\n\n\nManagement uses Adjusted Net (Loss) Income and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions.\n\n\nManagement uses Adjusted Working Capital as an indicator of UNIFI\u2019s production efficiency and ability to manage inventories and receivables.\n\n\nManagement uses Net Debt as a liquidity and leverage metric to determine how much debt would remain if all cash and cash equivalents were used to pay down debt principal.\n\n\nSee \u201cNon-GAAP Reconciliations\u201d below for reconciliations of non-GAAP metrics to the most directly comparable GAAP metric.\n\n\n23\n\n\n\n\nReview of Results of Operations for Fiscal 2023, 2022 and 2021\n\n\nUNIFI\u2019s fiscal 2023 and 2021 each consisted of 52 weeks, while its fiscal 2022 consisted of 53 weeks. The additional week in fiscal 2022 included approximately $8,700 of net sales, an insignificant impact to gross profit, and approximately $400 of selling, general and administrative expenses.\n\n\nConsolidated Overview\n\n\nThe below tables provide:\n\n\n\u2022\nthe components of net (loss) income and the percentage increase or decrease over the prior fiscal year amounts,\n\n\n\u2022\na reconciliation from net (loss) income to EBITDA and Adjusted EBITDA, and\n\n\n\u2022\na reconciliation from net (loss) income to Adjusted Net (Loss) Income and Adjusted EPS.\n\n\nFollowing the tables is a discussion and analysis of the significant components of net (loss) income.\n\n\nNet (loss) income\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2021\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n623,527\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(23.6\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n815,758\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n667,592\n\n\n\u00a0\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n609,286\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n735,273\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n574,098\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,241\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(82.3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n80,485\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(13.9\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n93,494\n\n\n\u00a0\n\n\n\n\n\n\nSG&A\n\n\n\u00a0\n\n\n\u00a0\n\n\n47,345\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9.8\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n52,489\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n51,334\n\n\n\u00a0\n\n\n\n\n\n\nBenefit for bad debts\n\n\n\u00a0\n\n\n\u00a0\n\n\n(89\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(80.0\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(445\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(66.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,316\n\n\n)\n\n\n\n\n\n\nOther operating expense (income), net\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,856\n\n\n\u00a0\n\n\n\u00a0\n\n\nnm\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(158\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(103.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,865\n\n\n\u00a0\n\n\n\n\n\n\nOperating (loss) income\n\n\n\u00a0\n\n\n\u00a0\n\n\n(40,871\n\n\n)\n\n\n\u00a0\n\n\nnm\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,599\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(25.9\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n38,611\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,468\n\n\n\u00a0\n\n\n\u00a0\n\n\nnm\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,561\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(42.6\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,720\n\n\n\u00a0\n\n\n\n\n\n\nEarnings from unconsolidated affiliates\n\n\n\u00a0\n\n\n\u00a0\n\n\n(896\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n48.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(605\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(18.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(739\n\n\n)\n\n\n\n\n\n\nRecovery of non-income taxes, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\nnm\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n815\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(108.4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9,717\n\n\n)\n\n\n\n\n\n\n(Loss) income before income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(45,443\n\n\n)\n\n\n\u00a0\n\n\nnm\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,828\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(42.1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n46,347\n\n\n\u00a0\n\n\n\n\n\n\nProvision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n901\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(92.3\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,657\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(32.5\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,274\n\n\n\u00a0\n\n\n\n\n\n\nNet (loss) income\n\n\n\u00a0\n\n\n$\n\n\n(46,344\n\n\n)\n\n\n\u00a0\n\n\nnm\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n15,171\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(47.8\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n29,073\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nnm \u2013 not meaningful\n\n\nEBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)\n\n\nThe reconciliations of the amounts reported under GAAP for Net (Loss) Income to EBITDA and Adjusted EBITDA are as follows.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2021\n\n\n\u00a0\n\n\n\n\n\n\nNet (loss) income\n\n\n\u00a0\n\n\n$\n\n\n(46,344\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n15,171\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n29,073\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,468\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,561\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,720\n\n\n\u00a0\n\n\n\n\n\n\nProvision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n901\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,657\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,274\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization expense \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,020\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,986\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,293\n\n\n\u00a0\n\n\n\n\n\n\nEBITDA\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12,955\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n54,375\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n74,360\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAsset abandonment \n(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,247\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nContract modification costs \n(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n623\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nRecovery of non-income taxes, net\n\u00a0(4)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n815\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9,717\n\n\n)\n\n\n\n\n\n\nAdjusted EBITDA\n\n\n\u00a0\n\n\n$\n\n\n(4,085\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n55,190\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n64,643\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nWithin this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest expense, net. Within the accompanying consolidated statements of cash flows, amortization of debt issuance costs is reflected in depreciation and amortization expense. In fiscal 2023, interest expense, net includes $273 of loss on debt extinguishment.\n\n\n(2)\nIn fiscal 2023, UNIFI abandoned certain specialized machinery in the Americas and recorded an impairment charge. The impairment charge was recorded to reflect the lack of future positive cash flows associated with the machinery, following multiple years of investment recovery since its fiscal 2017 installation.\n\n\n(3)\nIn fiscal 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the scheduled receipt and installation of such equipment for approximately 18 months. UNIFI paid the associated vendor $623 to establish the 18-month delay.\n\n\n(4)\nIn fiscal 2021, UNIFI recorded a recovery of non-income taxes of $9,717 related to favorable litigation results for its Brazilian operations, generating overpayments that resulted from excess social program taxes paid in prior fiscal years. For fiscal 2022, UNIFI reduced the estimated benefit based on additional clarity and review of the recovery process.\n\n\n24\n\n\n\n\nAdjusted Net (Loss) Income and Adjusted EPS (Non-GAAP Financial Measures)\n\n\nThe tables below set forth reconciliations of (i) (Loss) Income before income taxes (\u201cPre-tax (Loss) Income\u201d), Provision for income taxes (\u201cTax Impact\u201d) and Net (Loss) Income to Adjusted Net (Loss) Income and (ii) Diluted EPS to Adjusted EPS.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nPre-tax Loss\n\n\n\u00a0\n\n\n\u00a0\n\n\nTax Impact\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet Loss\n\n\n\u00a0\n\n\n\u00a0\n\n\nDiluted EPS\n\n\n\u00a0\n\n\n\n\n\n\nGAAP results\n\n\n\u00a0\n\n\n$\n\n\n(45,443\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(901\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(46,344\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(2.57\n\n\n)\n\n\n\n\n\n\nAsset abandonment \n(1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,247\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,247\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.46\n\n\n\u00a0\n\n\n\n\n\n\nContract modification costs \n(2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n623\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n623\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.03\n\n\n\u00a0\n\n\n\n\n\n\nRecovery of income taxes\n\u00a0(3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,799\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,799\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.21\n\n\n)\n\n\n\n\n\n\nAdjusted results\n\n\n\u00a0\n\n\n$\n\n\n(36,573\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(4,700\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(41,273\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(2.29\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nWeighted average common shares outstanding\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,037\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nPre-tax Income\n\n\n\u00a0\n\n\n\u00a0\n\n\nTax Impact\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet Income\n\n\n\u00a0\n\n\n\u00a0\n\n\nDiluted EPS\n\n\n\u00a0\n\n\n\n\n\n\nGAAP results\n\n\n\u00a0\n\n\n$\n\n\n26,828\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(11,657\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n15,171\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.80\n\n\n\u00a0\n\n\n\n\n\n\nRecovery of non-income taxes, net\n\u00a0(4)\n\n\n\u00a0\n\n\n\u00a0\n\n\n815\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(257\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n558\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.03\n\n\n\u00a0\n\n\n\n\n\n\nRecovery of income taxes, net\n\u00a0(5)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,446\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,446\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.07\n\n\n)\n\n\n\n\n\n\nAdjusted results\n\n\n\u00a0\n\n\n$\n\n\n27,643\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(13,360\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n14,283\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n0.76\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nWeighted average common shares outstanding\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,868\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nPre-tax Income\n\n\n\u00a0\n\n\n\u00a0\n\n\nTax Impact\n\n\n\u00a0\n\n\n\u00a0\n\n\nNet Income\n\n\n\u00a0\n\n\n\u00a0\n\n\nDiluted EPS\n\n\n\u00a0\n\n\n\n\n\n\nGAAP results\n\n\n\u00a0\n\n\n$\n\n\n46,347\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(17,274\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n29,073\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1.54\n\n\n\u00a0\n\n\n\n\n\n\nRecovery of non-income taxes, net\n\u00a0(4)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9,717\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,304\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,413\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.34\n\n\n)\n\n\n\n\n\n\nAdjusted results\n\n\n\u00a0\n\n\n$\n\n\n36,630\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(13,970\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n22,660\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1.20\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nWeighted average common shares outstanding\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,856\n\n\n\u00a0\n\n\n\n\n\n\n(1)\nIn fiscal 2023, UNIFI abandoned certain specialized machinery in the Americas and recorded an impairment charge. The associated tax impact was estimated to be $0 due to a valuation allowance against net operating losses in the U.S. \n\n\n(2)\nIn fiscal 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the scheduled receipt and installation of such equipment in the U.S. and El Salvador for 18 months. UNIFI paid the associated vendor $623 to establish the 18-month delay. The associated tax impact was estimated to be $0 due to (i) a valuation allowance against net operating losses in the U.S. and (ii) UNIFI's effective tax rate in El Salvador.\n\n\n(3)\nIn fiscal 2023, UNIFI recorded a recovery of income taxes in connection with filing amended tax returns in Brazil relating to certain income taxes paid in prior fiscal years following favorable legal rulings in fiscal 2023.\n\n\n(4)\nIn fiscal 2021, UNIFI recorded a recovery of non-income taxes of $9,717 related to favorable litigation results for its Brazilian operations, generating overpayments that resulted from excess social program taxes paid in prior fiscal years. For fiscal 2022, UNIFI reduced the estimated benefit based on additional clarity and review of the recovery process.\n\n\n(5)\nIn fiscal 2022, UNIFI recorded a recovery of income taxes in Brazil regarding certain income taxes paid in prior fiscal years.\n\n\nNet Sales\n\n\nFiscal 2023 vs. Fiscal 2022\n\n\nConsolidated net sales for fiscal 2023 decreased by $192,231, or 23.6%, and consolidated sales volumes decreased 25.3%, compared to fiscal 2022. The decreases occurred primarily due to lower volumes in the Americas and Asia Segments as a result of lower global demand in connection with the inventory destocking efforts of major brands and retailers in addition to pandemic-related lockdowns in Asia, partially offset by higher selling prices in response to higher raw material and input costs.\n\n\nConsolidated weighted average sales prices increased 1.7%, primarily attributable to higher selling prices in response to higher input costs, partially offset by (a) competitive pricing pressures in Brazil and (b) a greater mix of Chip and Flake product sales in the Americas Segment.\n\n\nREPREVE Fiber products for fiscal 2023 comprised 30%, or $186,161, of consolidated net sales, down from 36%, or $293,080, for fiscal 2022. The lower volumes and net sales in the Asia Segment, which has the highest portion of REPREVE\n\u00ae\n Fiber sales as a percentage of segment net sales, was the main driver for the lower REPREVE\n\u00ae\n Fiber sales.\n\n\nFiscal 2022 vs. Fiscal 2021\n\n\nConsolidated net sales for fiscal 2022 increased by $148,166, or 22.2%, and consolidated sales volumes increased 2.7%, compared to fiscal 2021. The increases occurred primarily due to (i) higher selling prices in response to increasing raw material costs and (ii) underlying sales growth led by the Asia Segment and REPREVE products.\n\n\n25\n\n\n\n\nConsolidated weighted average sales prices increased 19.5%, primarily attributable to higher selling prices in response to increasing raw material costs.\n\n\nREPREVE Fiber products for fiscal 2022 comprised 36%, or $293,080, of consolidated net sales, down from 37%, or $245,832, for fiscal 2021. The decrease was primarily due to the pandemic lockdowns in China during the fourth quarter of fiscal 2022, reducing recycled product sales for the Asia Segment.\n\n\nGross Profit\n\n\nFiscal 2023 vs. Fiscal 2022\n\n\nGross profit for fiscal 2023 decreased by $66,244, or 82.3%, compared to fiscal 2022. Gross profit decreased as a result of the decline in net sales combined with weak fixed cost absorption for the Americas Segment, where utilization and productivity are materially impactful to gross profit. Although raw material costs for the Americas Segment decreased meaningfully in the current fiscal year, the associated benefit was muted by low production levels, weak demand, and higher priced raw material inventory impacting gross margins in the first half of the fiscal year.\n\n\n\u2022\nFor the Americas Segment, gross profit decreased due to weaker global demand, weak fixed cost absorption in connection with lower production, and overall higher raw material cost levels in beginning inventory, despite a decrease in raw material costs during fiscal 2023.\n\n\n\u2022\nFor the Brazil Segment, gross profit decreased primarily due to the combination of high priced raw material inventory impacting gross margins in the first half of the fiscal year and decreasing market prices in Brazil due to low-cost import competition.\n\n\n\u2022\nFor the Asia Segment, gross profit decreased primarily due to lower sales volumes in connection with weaker global demand and pandemic-related lockdowns in Asia.\n\n\nFiscal 2022 vs. Fiscal 2021\n\n\nGross profit for fiscal 2022 decreased by $13,009, or 13.9%, compared to fiscal 2021. Although we experienced a significant increase in net sales, input cost and labor challenges negatively impacted our Americas gross profit, primarily in the last nine months of fiscal 2022.\n\n\n\u2022\nFor the Americas Segment, gross profit decreased due to higher-than-expected input costs primarily for raw material, labor, packaging, and supplies, along with weaker labor productivity, offsetting the benefit from the restoration of U.S. demand following the worst months of the COVID-19 pandemic.\n\n\n\u2022\nFor the Brazil Segment, gross profit decreased primarily due to lower volumes and a more normalized market environment in fiscal 2022 following the exceptional performance of the Brazil Segment in fiscal 2021.\n\n\n\u2022\nFor the Asia Segment, gross profit increased primarily due to higher sales volumes.\n\n\nSG&A Expenses\n\n\nThe changes in SG&A expenses were as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSG&A for fiscal 2021\n\n\n\u00a0\n\n\n$\n\n\n51,334\n\n\n\u00a0\n\n\n\n\n\n\nNet increase in marketing expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,007\n\n\n\u00a0\n\n\n\n\n\n\nOther net increases\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,319\n\n\n\u00a0\n\n\n\n\n\n\nNet decrease in incentive and other compensation expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,171\n\n\n)\n\n\n\n\n\n\nSG&A for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n52,489\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSG&A for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n52,489\n\n\n\u00a0\n\n\n\n\n\n\nNet decrease in incentive expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,768\n\n\n)\n\n\n\n\n\n\nNet decrease in professional fees\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,104\n\n\n)\n\n\n\n\n\n\nNet decrease in marketing expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n(497\n\n\n)\n\n\n\n\n\n\nOther net decreases\n\n\n\u00a0\n\n\n\u00a0\n\n\n(775\n\n\n)\n\n\n\n\n\n\nSG&A for fiscal 2023\n\n\n\u00a0\n\n\n$\n\n\n47,345\n\n\n\u00a0\n\n\n\n\n\n\nFiscal 2023 vs. Fiscal 2022\n\n\nSG&A expenses decreased from fiscal 2022, primarily due to (i) lower equity compensation in fiscal 2023 and (ii) lower discretionary expenses, including marketing and advertising.\n\n\nFiscal 2022 vs. Fiscal 2021\n\n\nSG&A expenses increased from fiscal 2021, primarily due to higher discretionary expenses, including marketing, advertising, and travel, partially offset by lower incentive compensation for fiscal 2022.\n\n\n26\n\n\n\n\nBenefit for Bad Debts\n\n\nFiscal 2023 vs. Fiscal 2022\n\n\nThe benefit for bad debts decreased from a benefit of $445 in fiscal 2022 to a benefit of $89 in fiscal 2023.  There was no material activity in each fiscal year.\n\n\nFiscal 2022 vs. Fiscal 2021\n\n\nThe provision for bad debts decreased from a benefit of $1,316 in fiscal 2021 to a benefit of $445 in fiscal 2022.  The provision reflected no material activity in fiscal 2022.  Fiscal 2021 reflected lower-than-expected credit losses on outstanding receivables following the adverse effects of the COVID-19 pandemic on customer financial health.\n\n\nOther Operating Expense (Income), Net\n\n\nFiscal 2023 vs. Fiscal 2022\n\n\nOther operating expense (income), net was income of $158 in fiscal 2022 and expense of $7,856 in fiscal 2023, which includes foreign currency transaction gains in fiscal 2022 and 2023. Fiscal 2023 also includes (i) $8,247 of impairment related to the   abandonment of certain machinery constructed in fiscal 2017 and (ii) $623 paid to a vendor to facilitate an 18-month delay for equipment purchases.\n\n\nFiscal 2022 vs. Fiscal 2021\n\n\nOther operating (income) expense, net was expense of $4,865 in fiscal 2021 and income of $158 in fiscal 2022, which primarily reflects (i) foreign currency transaction gains in fiscal 2022 and transaction losses in fiscal 2021 and (ii) a predominantly non-cash loss on disposal of assets of $2,809 recorded in fiscal 2021.\n\n\nInterest Expense, Net\n\n\nFiscal 2023 vs. Fiscal 2022\n\n\nInterest expense, net increased from fiscal 2022 to fiscal 2023. The increase was attributable to higher debt principal following continued capital investments and higher interest rates in fiscal 2023.  Interest expense, net for fiscal 2023 included a $273 loss on debt extinguishment.\n\n\nFiscal 2022 vs. Fiscal 2021\n\n\nInterest expense, net decreased from fiscal 2021 to fiscal 2022. The decrease was attributable to greater interest income in fiscal 2022, primarily generated from foreign cash on deposit.\n\n\nEarnings from Unconsolidated Affiliates\n\n\nThere was no material activity for fiscal 2023, 2022, or 2021.\n\n\nRecovery of Non-Income Taxes, Net\n\n\nBrazilian companies are subject to various taxes on business operations, including turnover taxes used to fund social security and unemployment programs, commonly referred to as PIS/COFINS taxes.  UNIFI, along with numerous other companies in Brazil, challenged the constitutionality of certain state taxes historically included in the PIS/COFINS tax base.\n\n\nOn May 13, 2021, Brazil\u2019s Supreme Federal Court (the \u201cSFC\u201d) ruled in favor of taxpayers, and on July 7, 2021, the Brazilian Internal Revenue Service withdrew its existing appeal. Following the SFC decision, the federal government will not issue refunds for these taxes but will instead allow for the overpayments and associated interest to be applied as credits against future PIS/COFINS tax obligations.\n\n\nThere are no limitations or restrictions on UNIFI\u2019s ability to recover the associated overpayment claims as future income is generated. Thus, during fiscal 2021, UNIFI recorded a $9,717 recovery of non-income taxes comprised of an estimate of prior fiscal year PIS/COFINS overpayments of $6,167 and associated interest of $3,550.\n\n\nDuring fiscal 2022, UNIFI reduced the estimated recovery by $815 based on additional clarity and the review of the recovery process during the months following the associated SFC decision.\n\n\n27\n\n\n\n\nProvision for Income Taxes\n\n\nThe change in consolidated income taxes is as follows:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2021\n\n\n\u00a0\n\n\n\n\n\n\n(Loss) income before income taxes\n\n\n\u00a0\n\n\n$\n\n\n(45,443\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n26,828\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n46,347\n\n\n\u00a0\n\n\n\n\n\n\nProvision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n901\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,657\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,274\n\n\n\u00a0\n\n\n\n\n\n\nEffective tax rate\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2.0\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n43.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n37.3\n\n\n%\n\n\n\n\n\n\nThe effective tax rate is subject to variation due to a number of factors, including: variability in pre-tax and taxable income; the mix of income by jurisdiction; changes in deferred tax valuation allowances; and changes in statutes, regulations, and case law.  Additionally, the impacts of discrete and other rate impacting items are greater when income before income taxes is lower.\n\n\nFiscal 2023 vs. Fiscal 2022\n\n\nThe decrease in the effective tax rate from fiscal 2022 to fiscal 2023 is primarily attributable to lower income for foreign subsidiaries, in combination with the impact of further losses in the U.S. and the associated valuation allowance for deferred tax assets in the current period.  Additionally, a discrete tax benefit was recognized in the second quarter of fiscal 2023 related to the recovery of certain Brazilian income taxes paid in prior years.\n\n\nFiscal 2022 vs. Fiscal 2021\n\n\nThe increase in the effective tax rate from fiscal 2021 to fiscal 2022 is primarily attributable to (i) an increase in the valuation allowance in fiscal 2022 and (ii) a discrete benefit in fiscal 2021 for the retroactive GILTI high-tax exclusion.  These increases are partially offset by (i) lower U.S. tax on GILTI in in fiscal 2022 and (ii) a discrete benefit in fiscal 2022 related to a favorable SFC ruling in Brazil.\n\n\nNet (Loss) Income\n\n\nFiscal 2023 vs. Fiscal 2022\n\n\nNet loss for fiscal 2023 was $46,344, or $2.57 per diluted share, compared to net income of $15,171, or $0.80 per diluted share, for fiscal 2022. The decrease was primarily attributable to (i) the decrease in gross profit, (ii) the associated adverse impact of lower U.S. earnings on the effective tax rate in fiscal 2023, and (iii) the charge for asset abandonment of certain machinery in fiscal 2023, partially offset by a discrete tax benefit was recognized in the second quarter of fiscal 2023 related to the recovery of certain Brazilian income taxes paid in prior years.\n\n\nFiscal 2022 vs. Fiscal 2021\n\n\nNet income for fiscal 2022 was $15,171, or $0.80 per diluted share, compared to net income of $29,073, or $1.54 per diluted share, for fiscal 2021. The decrease in net income was primarily attributable to (i) lower gross profit, (ii) a higher effective tax rate in fiscal 2022, and (iii) the favorable impact of the recovery of non-income taxes in fiscal 2021.\n\n\nAdjusted EBITDA\n\n\nAdjusted EBITDA decreased from $55,190 for fiscal 2022 to ($4,085) for fiscal 2023, primarily in connection with the decrease in gross profit.\n\n\nAdjusted EBITDA decreased from $64,643 for fiscal 2021 to $55,190 for fiscal 2022, consistent with the decrease in gross profit.\n\n\nAdjusted Net (Loss) Income\n\n\nAdjusted Net (Loss) Income decreased from $14,283 for fiscal 2022 to ($41,273) for fiscal 2023, commensurate with lower gross profit and an unfavorable effective tax rate.\n\n\nAdjusted Net Income decreased from $22,660 for fiscal 2021 to $14,283 for fiscal 2022, commensurate with lower gross profit and an unfavorable effective tax rate.\n\n\n28\n\n\n\n\nSegment Overview\n\n\nFollowing is a discussion and analysis of the revenue and profitability performance of UNIFI\u2019s reportable segments for fiscal 2023, 2022, and 2021.\n\n\nAmericas Segment\n\n\nThe components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the prior period amounts for the Americas Segment are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2021\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n389,662\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19.3\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n483,085\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n386,779\n\n\n\u00a0\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n404,321\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11.8\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n458,617\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n350,373\n\n\n\u00a0\n\n\n\n\n\n\nGross (loss) profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n(14,659\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(159.9\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,468\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(32.8\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n36,406\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n22,044\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,153\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,054\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit\n\n\n\u00a0\n\n\n$\n\n\n7,385\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(83.8\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n45,621\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(20.6\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n57,460\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGross margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3.8\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.4\n\n\n%\n\n\n\n\n\n\nSegment margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.9\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSegment net sales as a percentage\n\u00a0\u00a0of consolidated amount\n\n\n\u00a0\n\n\n\u00a0\n\n\n62.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n59.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n57.9\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit as a\n\u00a0\u00a0percentage of consolidated amount\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n44.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n49.6\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nThe changes in net sales for the Americas Segment are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet sales for fiscal 2021\n\n\n\u00a0\n\n\n$\n\n\n386,779\n\n\n\u00a0\n\n\n\n\n\n\nNet change in average selling price and sales mix\n\n\n\u00a0\n\n\n\u00a0\n\n\n80,337\n\n\n\u00a0\n\n\n\n\n\n\nIncrease due to an additional week of sales in fiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,703\n\n\n\u00a0\n\n\n\n\n\n\nIncrease in sales volumes\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,266\n\n\n\u00a0\n\n\n\n\n\n\nNet sales for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n483,085\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet sales for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n483,085\n\n\n\u00a0\n\n\n\n\n\n\nDecrease in sales volumes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(92,593\n\n\n)\n\n\n\n\n\n\nDecrease due to an additional week of sales in fiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,703\n\n\n)\n\n\n\n\n\n\nNet change in average selling price and sales mix\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,873\n\n\n\u00a0\n\n\n\n\n\n\nNet sales for fiscal 2023\n\n\n\u00a0\n\n\n$\n\n\n389,662\n\n\n\u00a0\n\n\n\n\n\n\nThe decrease in net sales for the Americas Segment from fiscal 2022 to fiscal 2023 was primarily attributable to lower sales volumes following weaker global textile demand.\n\n\nThe increase in net sales for the Americas Segment from fiscal 2021 to fiscal 2022 was primarily attributable to (i) higher average selling prices in response to increasing input costs and (ii) an additional week of sales in fiscal 2022.\n\n\nThe changes in Segment Profit for the Americas Segment are as follows:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSegment Profit for fiscal 2021\n\n\n\u00a0\n\n\n$\n\n\n57,460\n\n\n\u00a0\n\n\n\n\n\n\nChange in underlying margins and sales mix\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12,918\n\n\n)\n\n\n\n\n\n\nIncrease in sales volumes\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,079\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n45,621\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n45,621\n\n\n\u00a0\n\n\n\n\n\n\nChange in underlying margins and sales mix\n\n\n\u00a0\n\n\n\u00a0\n\n\n(29,492\n\n\n)\n\n\n\n\n\n\nDecrease in sales volumes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,744\n\n\n)\n\n\n\n\n\n\nSegment Profit for fiscal 2023\n\n\n\u00a0\n\n\n$\n\n\n7,385\n\n\n\u00a0\n\n\n\n\n\n\nThe decrease in Segment Profit for the Americas Segment from fiscal 2022 to fiscal 2023 was primarily attributable to lower production volumes driving weaker fixed cost absorption in connection with lower sales volumes.  The difference in fiscal weeks was not meaningful to Segment Profit.\n\n\nThe decrease in Segment Profit for the Americas Segment from fiscal 2021 to fiscal 2022 was primarily attributable to the adverse impacts of higher input costs outpacing selling price adjustments and weaker labor productivity.  The difference in fiscal weeks was not meaningful to Segment Profit.\n\n\n29\n\n\n\n\nBrazil Segment\n\n\nThe components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the prior period amounts for the Brazil Segment are as follows:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2021\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n119,062\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5.6\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n126,066\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n95,976\n\n\n\u00a0\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n106,900\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n98,925\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n53.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n64,281\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,162\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(55.2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,141\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(14.4\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,695\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,035\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,500\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,315\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit\n\n\n\u00a0\n\n\n$\n\n\n14,197\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(50.4\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n28,641\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(13.2\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n33,010\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGross margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33.0\n\n\n%\n\n\n\n\n\n\nSegment margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34.4\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSegment net sales as a percentage\n\u00a0\u00a0of consolidated amount\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.4\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit as a percentage\n\u00a0\u00a0of consolidated amount\n\n\n\u00a0\n\n\n\u00a0\n\n\n37.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28.5\n\n\n%\n\n\n\n\n\n\n \n\n\nThe changes in net sales for the Brazil Segment are as follows:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet sales for fiscal 2021\n\n\n\u00a0\n\n\n$\n\n\n95,976\n\n\n\u00a0\n\n\n\n\n\n\nIncrease in average selling price and change in sales mix\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,343\n\n\n\u00a0\n\n\n\n\n\n\nFavorable foreign currency translation effects\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,757\n\n\n\u00a0\n\n\n\n\n\n\nIncrease in sales volumes\n\n\n\u00a0\n\n\n\u00a0\n\n\n990\n\n\n\u00a0\n\n\n\n\n\n\nNet sales for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n126,066\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet sales for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n126,066\n\n\n\u00a0\n\n\n\n\n\n\nDecrease in average selling price and change in sales mix\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19,862\n\n\n)\n\n\n\n\n\n\nIncrease in sales volumes\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,373\n\n\n\u00a0\n\n\n\n\n\n\nFavorable foreign currency translation effects\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,485\n\n\n\u00a0\n\n\n\n\n\n\nNet sales for fiscal 2023\n\n\n\u00a0\n\n\n$\n\n\n119,062\n\n\n\u00a0\n\n\n\n\n\n\nThe decrease in net sales for the Brazil Segment from fiscal 2022 to fiscal 2023 was primarily attributable to selling price pressures from low-priced imports. The Brazil Segment has undertaken aggressive pricing (i) against low-priced competitive imports and (ii) in the pursuit of greater market share.\n\n\nThe increase in net sales for the Brazil Segment from fiscal 2021 to fiscal 2022 was primarily attributable to higher selling prices associated with higher input costs and favorable foreign currency translation effects.\n\n\nThe changes in Segment Profit for the Brazil Segment are as follows:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSegment Profit for fiscal 2021\n\n\n\u00a0\n\n\n$\n\n\n33,010\n\n\n\u00a0\n\n\n\n\n\n\nDecrease in underlying margins\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,773\n\n\n)\n\n\n\n\n\n\nFavorable foreign currency translation effects\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,063\n\n\n\u00a0\n\n\n\n\n\n\nIncrease in sales volumes\n\n\n\u00a0\n\n\n\u00a0\n\n\n341\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n28,641\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n28,641\n\n\n\u00a0\n\n\n\n\n\n\nDecrease in underlying margins\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17,494\n\n\n)\n\n\n\n\n\n\nIncrease in sales volumes\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,594\n\n\n\u00a0\n\n\n\n\n\n\nFavorable foreign currency translation effects\n\n\n\u00a0\n\n\n\u00a0\n\n\n456\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit for fiscal 2023\n\n\n\u00a0\n\n\n$\n\n\n14,197\n\n\n\u00a0\n\n\n\n\n\n\nThe decrease in Segment Profit for the Brazil Segment from fiscal 2022 to fiscal 2023 was primarily attributable to an overall decrease in gross margin mainly due to the decrease in selling prices discussed above and the impact of higher raw material costs in beginning inventory.\n\n\nThe decrease in Segment Profit for the Brazil Segment from fiscal 2021 to fiscal 2022 was primarily attributable to an overall decrease in gross margin following the normalization of the competitive environment in Brazil, which was exceptionally favorable for the Brazil Segment during the fiscal 2021 economic recovery.\n\n\n30\n\n\n\n\nAsia Segment\n\n\nThe components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the prior period amounts for the Asia Segment are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2021\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n\u00a0\n\n\n$\n\n\n114,803\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(44.4\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n206,607\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n184,837\n\n\n\u00a0\n\n\n\n\n\n\nCost of sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n98,065\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(44.8\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n177,731\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n159,444\n\n\n\u00a0\n\n\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,738\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(42.0\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,876\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,393\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit\n\n\n\u00a0\n\n\n$\n\n\n16,738\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(42.0\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n28,876\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n25,393\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGross margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.7\n\n\n%\n\n\n\n\n\n\nSegment margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.7\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSegment net sales as a percentage\n\u00a0\u00a0of consolidated amount\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27.7\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit as a percentage\n\u00a0\u00a0of consolidated amount\n\n\n\u00a0\n\n\n\u00a0\n\n\n43.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.9\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nThe changes in net sales for the Asia Segment are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet sales for fiscal 2021\n\n\n\u00a0\n\n\n$\n\n\n184,837\n\n\n\u00a0\n\n\n\n\n\n\nChange in average selling price and sales mix\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,686\n\n\n\u00a0\n\n\n\n\n\n\nNet increase in sales volumes\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,298\n\n\n\u00a0\n\n\n\n\n\n\nFavorable foreign currency translation effects\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,786\n\n\n\u00a0\n\n\n\n\n\n\nNet sales for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n206,607\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet sales for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n206,607\n\n\n\u00a0\n\n\n\n\n\n\nNet decrease in sales volumes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(92,535\n\n\n)\n\n\n\n\n\n\nUnfavorable foreign currency translation effects\n\n\n\u00a0\n\n\n\u00a0\n\n\n(13,455\n\n\n)\n\n\n\n\n\n\nChange in average selling price and sales mix\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,186\n\n\n\u00a0\n\n\n\n\n\n\nNet sales for fiscal 2023\n\n\n\u00a0\n\n\n$\n\n\n114,803\n\n\n\u00a0\n\n\n\n\n\n\nThe decrease in net sales for the Asia Segment from fiscal 2022 to fiscal 2023 was primarily attributable to weaker global demand and pandemic-related lockdowns driving lower sales volumes, partially offset by a strong sales mix.\n\n\nThe increase in net sales for the Asia Segment from fiscal 2021 to fiscal 2022 was primarily attributable to the continued momentum of REPREVE-branded products contributing to underlying sales growth, partially offset by supply chain and shipping challenges in Asia in connection with pandemic-related lockdowns during the fourth quarter of fiscal 2022.\n\n\nThe changes in Segment Profit for the Asia Segment are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSegment Profit for fiscal 2021\n\n\n\u00a0\n\n\n$\n\n\n25,393\n\n\n\u00a0\n\n\n\n\n\n\nChange in underlying margins and sales mix\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,824\n\n\n\u00a0\n\n\n\n\n\n\nIncrease in sales volumes\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,140\n\n\n\u00a0\n\n\n\n\n\n\nFavorable foreign currency translation effects\n\n\n\u00a0\n\n\n\u00a0\n\n\n519\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n28,876\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit for fiscal 2022\n\n\n\u00a0\n\n\n$\n\n\n28,876\n\n\n\u00a0\n\n\n\n\n\n\nDecrease in sales volumes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12,885\n\n\n)\n\n\n\n\n\n\nUnfavorable foreign currency translation effects\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,981\n\n\n)\n\n\n\n\n\n\nChange in underlying margins and sales mix\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,728\n\n\n\u00a0\n\n\n\n\n\n\nSegment Profit for fiscal 2023\n\n\n\u00a0\n\n\n$\n\n\n16,738\n\n\n\u00a0\n\n\n\n\n\n\nThe decrease in Segment Profit for the Asia Segment from fiscal 2022 to fiscal 2023 follows the decline in net sales and sales volumes discussed above, as the comparable gross margin rate for the Asia Segment improved due to a stronger sales mix.\n\n\nThe increase in Segment Profit for the Asia Segment from fiscal 2021 to fiscal 2022 was primarily attributable to higher sales volumes with a stronger sales mix in fiscal 2022.\n\n\n31\n\n\n\n\nLiquidity and Capital Resources\n\n\nUNIFI\u2019s primary capital requirements are for working capital, capital expenditures, debt service and share repurchases.  UNIFI\u2019s primary sources of capital are cash generated from operations and borrowings available under the 2022 ABL Revolver (as defined below) of its credit facility.\n\n\nAs of July 2, 2023, all of UNIFI\u2019s $140,899 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, and 99% of UNIFI\u2019s cash and cash equivalents were held by its foreign subsidiaries. Cash and cash equivalents held by foreign subsidiaries may not be presently available to fund UNIFI\u2019s domestic capital requirements, including its domestic debt obligations. UNIFI employs a variety of strategies to ensure that its worldwide cash is available in the locations where it is needed.\n\n\nThe following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity, working capital and total debt obligations as of July 2, 2023 for domestic operations compared to foreign operations:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nDomestic\n\n\n\u00a0\n\n\n\u00a0\n\n\nForeign\n\n\n\u00a0\n\n\n\u00a0\n\n\nTotal\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents\n\n\n\u00a0\n\n\n$\n\n\n292\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n46,668\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n46,960\n\n\n\u00a0\n\n\n\n\n\n\nBorrowings available under financing arrangements\n\n\n\u00a0\n\n\n\u00a0\n\n\n55,735\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n55,735\n\n\n\u00a0\n\n\n\n\n\n\nLiquidity\n\n\n\u00a0\n\n\n$\n\n\n56,027\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n46,668\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n102,695\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nWorking capital\n\n\n\u00a0\n\n\n$\n\n\n89,758\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n132,307\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n222,065\n\n\n\u00a0\n\n\n\n\n\n\nTotal debt obligations\n\n\n\u00a0\n\n\n$\n\n\n140,899\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n140,899\n\n\n\u00a0\n\n\n\n\n\n\nFor fiscal 2023, cash generated from operations was $4,740 and, at July 2, 2023, excess availability under the 2022 ABL Revolver was $55,735.  Our liquidity position (calculated in the table above) remains elevated and is expected to be adequate to allow UNIFI to manage through the current macro-economic environment and to respond quickly to demand recovery.\n\n\nUNIFI considers $43,664 of its unremitted foreign earnings to be permanently reinvested to fund working capital requirements and operations abroad, and has therefore not recognized a deferred tax liability for the estimated future taxes that would be incurred upon repatriation. If these earnings were distributed in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, UNIFI could be subject to additional tax liabilities of approximately $11,592.\n\n\nLiquidity Considerations\n\n\nOperationally, UNIFI navigated the impact on liquidity of the COVID-19 pandemic by diligently managing the balance sheet and operational spending, in addition to utilizing cash received from a minority interest divestiture in April 2020. Following the COVID-19 pandemic, global demand recovery allowed for strong results and cash generation in fiscal 2021. However, inflationary pressures and demand uncertainty throughout fiscal 2022 and 2023 created risks to liquidity.\n\n\nFollowing the establishment of the 2022 Credit Agreement, UNIFI\u2019s cash and liquidity positions are considered sufficient to sustain its operations and meet its growth needs. However, further degradation in the macroeconomic environment could introduce additional liquidity risk and require UNIFI to limit cash outflows for discretionary activities while further utilizing available and additional forms of credit. Since the onset of the COVID-19 pandemic and the date of this report, we have not taken advantage of rent, lease or debt deferrals, forbearance periods, or other concessions; or relied on supply chain financing, structured trade payables, or vendor financing.\n\n\nAlthough short-term global demand appears somewhat uncertain, we do not currently anticipate that any adverse events or circumstances will place critical pressure on (i) our liquidity position; or (ii) our ability to fund our operations, capital expenditures, and expected business growth. Should global demand, economic activity, or input availability decline considerably for a prolonged period of time (for example, in connection with the Russia-Ukraine conflict or the macro-economic factors leading to inflation and a potential recession), UNIFI maintains the ability to (i) seek additional credit or financing arrangements and/or (ii) re-implement cost reduction initiatives to preserve cash and secure the longevity of the business and operations.\n\n\nAdditionally, UNIFI considers opportunities to repatriate existing cash to reduce debt and preserve or enhance liquidity. In fiscal 2023, we repatriated approximately $19,000 from our operations in Asia to the U.S. via an existing intercompany note and, after remitting the appropriate withholding taxes, utilized the cash to reduce our outstanding revolver borrowings, thereby increasing the availability. Management regularly evaluates such repatriations and believes that it has the ability to take additional, similar actions from time to time, as circumstances warrant.\n\n\nRecognizing the continuing weak demand environment, in the third quarter of fiscal 2023, UNIFI negotiated a contract modification with an equipment vendor from which significant capital expenditures had occurred and were planned to continue through September 2024. The contract modification was executed at a cost to UNIFI of $623 and allows UNIFI to delay the associated equipment purchases and installation activities for 18 months, such that approximately $25,000 of capital expenditures originally expected over the March 2023 to September 2024 period are now expected to occur over the September 2024 to March 2026 period. This action allows for (i) improved short- and mid-term liquidity in light of the current subdued levels of sales and facility utilization and (ii) a better matching of future capital expenditures with expected higher levels of future business activity.\n\n\nDuring fiscal 2024, we expect the majority of our capital will be deployed to support further working capital needs associated with recovering demand and product sales. Nonetheless, given the current global economic risks, we are prepared to act swiftly and diligently to ensure the vitality of the business.\n\n\n32\n\n\n\n\nDebt Obligations\n\n\nThe following table presents details for UNIFI\u2019s debt obligations:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted Average\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nScheduled\n\n\n\u00a0\n\n\nInterest Rate as of\n\n\n\u00a0\n\n\nPrincipal Amounts as of\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nMaturity Date\n\n\n\u00a0\n\n\nJuly 2, 2023\n\n\n\u00a0\n\n\nJuly 2, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 3, 2022\n\n\n\u00a0\n\n\n\n\n\n\nABL Revolver\n\n\n\u00a0\n\n\nOctober 2027\n\n\n\u00a0\n\n\n7.1%\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n18,100\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n41,300\n\n\n\u00a0\n\n\n\n\n\n\nABL Term Loan\n\n\n\u00a0\n\n\nOctober 2027\n\n\n\u00a0\n\n\n6.6%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n110,400\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n65,000\n\n\n\u00a0\n\n\n\n\n\n\nFinance lease obligations\n\n\n\u00a0\n\n\n(1)\n\n\n\u00a0\n\n\n4.8%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,767\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,261\n\n\n\u00a0\n\n\n\n\n\n\nConstruction financing\n\n\n\u00a0\n\n\n(2)\n\n\n\u00a0\n\n\n6.9%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,632\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n729\n\n\n\u00a0\n\n\n\n\n\n\nTotal debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n140,899\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n114,290\n\n\n\u00a0\n\n\n\n\n\n\nCurrent ABL Term Loan\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9,200\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10,000\n\n\n)\n\n\n\n\n\n\nCurrent portion of finance lease obligations\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,806\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,726\n\n\n)\n\n\n\n\n\n\nUnamortized debt issuance costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(289\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(255\n\n\n)\n\n\n\n\n\n\nTotal long-term debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n128,604\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n102,309\n\n\n\u00a0\n\n\n\n\n\n\n(1)\nScheduled maturity dates for finance lease obligations range from March 2025 to May 2028, as further outlined in Note 4, \u201cLeases.\u201d\n\n\n(2)\nRefer to the discussion below under the subheading \u201c\nConstruction Financing\n\u201d for further information.\n\n\nABL Facility and Amendments\n\n\nOn October 28, 2022, Unifi, Inc. and certain of its subsidiaries entered into a Second Amended and Restated Credit Agreement (the \u201c2022 Credit Agreement\u201d) with a syndicate of lenders. The 2022 Credit Agreement provides for a $230,000 senior secured credit facility (the \u201c2022 ABL Facility\u201d), including a $115,000 revolving credit facility (the \"2022 ABL Revolver\") and a term loan (the \"2022 ABL Term Loan\") that can be reset up to a maximum amount of $115,000, once per fiscal year, if certain conditions are met. The 2022 ABL Facility has a maturity date of October 28, 2027. The 2022 ABL Term Loan requires quarterly principal payments of $2,300 that began on February 1, 2023.  Borrowings under the 2022 ABL Facility bear interest at SOFR plus 0.10% plus an applicable margin of 1.25% to 1.75%, or the Base Rate (as defined in the 2022 Credit Agreement) plus an applicable margin of 0.25% to 0.75%, with interest paid most commonly on a monthly basis.\n\n\nIn connection with the 2022 Credit Agreement, UNIFI recorded a $273 loss on debt extinguishment to interest expense in the second quarter of fiscal 2023.\n\n\nPrior to entering into the 2022 Credit Agreement, Unifi, Inc. and certain of its subsidiaries maintained a similar credit agreement that established a $200,000 senior secured credit facility (the \u201cPrior ABL Facility\u201d), including a $100,000 revolving credit facility (the \u201cPrior ABL Revolver\u201d) and a term loan that could be reset up to a maximum amount of $100,000, once per fiscal year, if certain conditions were met (the \u201cPrior ABL Term Loan\u201d). The Prior ABL Facility had a maturity date of December 18, 2023 and the significant terms and conditions of the 2022 ABL Facility are nearly identical to those of the Prior ABL Facility.\n \n\n\nSimilar to the Prior ABL Facility, the 2022 ABL Facility is secured by a first-priority perfected security interest in substantially all owned property and assets (together with all proceeds and products) of Unifi, Inc., Unifi Manufacturing, Inc., and a certain subsidiary guarantor (collectively, the \u201cLoan Parties\u201d). It is also secured by a first-priority security interest in all (or 65% in the case of UNIFI\u2019s first-tier controlled foreign subsidiary, as required by the lenders) of the stock of (or other ownership interests in) each of the Loan Parties (other than Unifi, Inc.) and certain subsidiaries of the Loan Parties, together with all proceeds and products thereof.\n\n\nSimilar to the Prior ABL Facility, if excess availability under the 2022 ABL Revolver falls below the Trigger Level (as defined in the 2022 Credit Agreement), a financial covenant requiring the Loan Parties to maintain a fixed charge coverage ratio on a quarterly basis of at least 1.05 to 1.00 becomes effective. The Trigger Level as of July 2, 2023 was $22,540. In addition, the 2022 ABL Facility contains restrictions on particular payments and investments, including certain restrictions on the payment of dividends and share repurchases. Subject to specific provisions, the 2022 ABL Term Loan may be prepaid at par, in whole or in part, at any time before the maturity date, at UNIFI\u2019s discretion.\n\n\nSimilar to the Prior ABL Facility, the applicable margin is based on (i) the excess availability under the 2022 ABL Revolver and (ii) the consolidated leverage ratio, calculated as of the end of each fiscal quarter. UNIFI\u2019s ability to borrow under the 2022 ABL Revolver is limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventories and is subject to certain conditions and limitations. There is also a monthly unused line fee under the 2022 ABL Revolver of 0.25%.\n\n\nAs of July 2, 2023: UNIFI was in compliance with all financial covenants in the Credit Agreement; excess availability under the 2022 ABL Revolver was $55,735 and UNIFI had $0 of standby letters of credit. Management maintains the capability to improve the fixed charge coverage ratio utilizing existing foreign cash and cash equivalents.\n\n\nUNIFI had maintained three interest rate swaps to fix LIBOR at approximately 1.9% on $75,000 of variable-rate debt. Such swaps terminated in May 2022 and no interest rate swaps were in effect during fiscal 2023.\n\n\nUNIFI did not incur additional costs or administrative burdens during the transition from LIBOR to SOFR with the establishment of the 2022 Credit Agreement.\n\n\n33\n\n\n\n\nFinance Lease Obligations\n\n\nDuring fiscal 2023, UNIFI entered into finance lease obligations totaling $5,629 for texturing machines.  The maturity dates of these obligations occur during fiscal 2028 with interest rates between 4.4% and 6.2%.\n \n\n\nDuring fiscal 2022, UNIFI entered into finance lease obligations totaling $2,493 for texturing machines.  The maturity dates of these obligations occur during fiscal 2027 with interest rates between 3.0% and 4.4%.\n \n\n\nDuring fiscal 2021, UNIFI entered into finance lease obligations totaling $740 for certain transportation equipment.  The maturity date of these obligations is June 2025 with an interest rate of 3.8%.\n \n\n\nConstruction Financing\n\n\nIn May 2021, UNIFI entered into an agreement with a third party lender that provides for construction-period financing for certain texturing machinery included in our capital allocation plans. UNIFI records project costs to construction in progress and the corresponding liability to construction financing (within long-term debt). The agreement provides for monthly, interest-only payments during the construction period, at a rate of SOFR plus 1.25%, and contains terms customary for a financing of this type.\n \n\n\nEach borrowing under the agreement provides for 60 monthly payments, which will commence upon the completion of the construction period with a fixed interest rate of approximately SOFR plus 1.0% to 1.2%. In connection with this construction financing arrangement, UNIFI has borrowed a total of $9,755 and transitioned $8,123 of completed asset costs to finance lease obligations as of July 2, 2023.\n \n\n\nScheduled Debt Maturities\n\n\nThe following table presents the scheduled maturities of UNIFI\u2019s outstanding debt obligations for the following five fiscal years and thereafter.\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2024\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2025\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2026\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2027\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2028\n\n\n\u00a0\n\n\n\u00a0\n\n\nThereafter\n\n\n\u00a0\n\n\n\n\n\n\nABL Revolver\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n18,100\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nABL Term Loan\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,200\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,200\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,200\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,200\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n73,600\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nFinance lease obligations\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,806\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,779\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,401\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,902\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n879\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nTotal \n(1)\n\n\n\u00a0\n\n\n$\n\n\n12,006\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11,979\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11,601\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11,102\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n92,579\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1)\nTotal reported excludes $1,632 for construction financing, described above.\n\n\n\u00a0\n\n\nFurther discussion of the terms and conditions of the Credit Agreement and the Company\u2019s existing indebtedness is outlined in Note 12, \u201cLong-Term Debt,\u201d to the accompanying consolidated financial statements.\n\n\nNet Debt (Non-GAAP Financial Measure)\n\n\nThe reconciliations for Net Debt are as follows:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 2, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 3, 2022\n\n\n\u00a0\n\n\n\n\n\n\nLong-term debt\n\n\n\u00a0\n\n\n$\n\n\n128,604\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n102,309\n\n\n\u00a0\n\n\n\n\n\n\nCurrent portion of long-term debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,006\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,726\n\n\n\u00a0\n\n\n\n\n\n\nUnamortized debt issuance costs\n\n\n\u00a0\n\n\n\u00a0\n\n\n289\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n255\n\n\n\u00a0\n\n\n\n\n\n\nDebt principal\n\n\n\u00a0\n\n\n\u00a0\n\n\n140,899\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n114,290\n\n\n\u00a0\n\n\n\n\n\n\nLess: cash and cash equivalents\n\n\n\u00a0\n\n\n\u00a0\n\n\n46,960\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n53,290\n\n\n\u00a0\n\n\n\n\n\n\nNet Debt\n\n\n\u00a0\n\n\n$\n\n\n93,939\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n61,000\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n34\n\n\n\n\nWorking Capital and Adjusted Working Capital (Non-GAAP Financial Measures)\n\n\nThe following table presents the components of working capital and the reconciliation from working capital to Adjusted Working Capital:\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 2, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 3, 2022\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents\n\n\n\u00a0\n\n\n$\n\n\n46,960\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n53,290\n\n\n\u00a0\n\n\n\n\n\n\nReceivables, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n83,725\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n106,565\n\n\n\u00a0\n\n\n\n\n\n\nInventories\n\n\n\u00a0\n\n\n\u00a0\n\n\n150,810\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n173,295\n\n\n\u00a0\n\n\n\n\n\n\nIncome taxes receivable\n\n\n\u00a0\n\n\n\u00a0\n\n\n238\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n160\n\n\n\u00a0\n\n\n\n\n\n\nOther current assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,327\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,956\n\n\n\u00a0\n\n\n\n\n\n\nAccounts payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n(44,455\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(73,544\n\n\n)\n\n\n\n\n\n\nOther current liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12,932\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19,806\n\n\n)\n\n\n\n\n\n\nIncome taxes payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n(789\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,526\n\n\n)\n\n\n\n\n\n\nCurrent operating lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,813\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,190\n\n\n)\n\n\n\n\n\n\nCurrent portion of long-term debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12,006\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11,726\n\n\n)\n\n\n\n\n\n\nWorking capital\n\n\n\u00a0\n\n\n$\n\n\n222,065\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n243,474\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nLess: Cash and cash equivalents\n\n\n\u00a0\n\n\n\u00a0\n\n\n(46,960\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(53,290\n\n\n)\n\n\n\n\n\n\nLess: Income taxes receivable\n\n\n\u00a0\n\n\n\u00a0\n\n\n(238\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(160\n\n\n)\n\n\n\n\n\n\nLess: Income taxes payable\n\n\n\u00a0\n\n\n\u00a0\n\n\n789\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,526\n\n\n\u00a0\n\n\n\n\n\n\nLess: Current operating lease liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,813\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,190\n\n\n\u00a0\n\n\n\n\n\n\nLess: Current portion of long-term debt\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,006\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,726\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted Working Capital\n\n\n\u00a0\n\n\n$\n\n\n189,475\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n205,466\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nWorking capital decreased from $243,474 as of July 3, 2022 to $222,065 as of July 2, 2023, while Adjusted Working Capital decreased from $205,466 to $189,475, both primarily in connection with slower overall economic conditions and higher input costs. Working capital and Adjusted Working Capital are within the range of management\u2019s expectations based on the composition of the underlying business and global structure.\n\n\nThe decrease in cash and cash equivalents was primarily driven by capital expenditures and scheduled debt service. The decrease in receivables, net was primarily due to (i) a decrease in sales following lower global demand and (ii) a decrease in banker\u2019s acceptance notes held by our Asia Segment. The decrease in inventories was primarily attributable to a decline in raw material purchases and costs in fiscal 2023. The decrease in other current assets was primarily due to utilization of the fiscal 2021 recovery of non-income taxes in Brazil and lower vendor deposits. The decrease in accounts payable followed the decrease in inventories and production activity in fiscal 2023. The decrease in other current liabilities primarily reflects lower business activities and the routine timing differences for payroll and other operating expenses. Income taxes receivable and income taxes payable are immaterial to working capital and Adjusted Working Capital. The change in current operating lease liabilities and current portion of long-term debt were insignificant.\n\n\nCapital Projects\n\n\nIn fiscal 2023, UNIFI invested $36,434 in capital projects, primarily relating to (i) texturing machinery, (ii) further improvements in production capabilities and technological enhancements in the Americas, and (iii) routine annual maintenance capital expenditures.  Maintenance capital expenditures are necessary to support UNIFI\u2019s current operations, capacities, and capabilities and exclude expenses relating to repairs and costs that do not extend an asset\u2019s useful life.\n\n\nIn fiscal 2022, UNIFI invested $39,631 in capital projects, primarily relating to (i) texturing machinery, (ii) further improvements in production capabilities and technological enhancements in the Americas, and (iii) routine annual maintenance capital expenditures.\n\n\nIn fiscal 2021, UNIFI invested $21,178 in capital projects, primarily relating to (i) further improvements in production capabilities and technological enhancements in the Americas, (ii) texturing machines, and (iii) routine annual maintenance capital expenditures.\n \n\n\nIn fiscal 2024, UNIFI expects to invest between $14,000 and $16,000 in capital projects, including making (i) further improvements in production capabilities and technological enhancements in the Americas and (ii) annual maintenance capital expenditures.  UNIFI will seek to ensure maintenance capital expenditures are sufficient to allow continued production at high efficiencies.\n\n\nThe total amount ultimately invested for fiscal 2024 could be more or less than the currently estimated amount depending on the timing and scale of contemplated initiatives and is expected to be funded primarily with cash provided by operating activities and other borrowings. UNIFI expects recent and future capital projects to provide benefits to future profitability. The additional assets from these capital projects consist primarily of machinery and equipment.\n\n\n35\n\n\n\n\nShare Repurchase Program\n\n\nOn October 31, 2018, UNIFI announced that the Board approved the 2018 SRP under which UNIFI is authorized to acquire up to $50,000 of its common stock. Under the 2018 SRP, purchases will be made from time to time in the open market at prevailing market prices or through private transactions or block trades. The timing and amount of repurchases will depend on market conditions, share price, applicable legal requirements and other factors. The share repurchase authorization is discretionary and has no expiration date.\n\n\nAs of July 2, 2023, UNIFI had repurchased 701 shares of its common stock at an average price of $15.90 per share, leaving $38,859 available for repurchase under the 2018 SRP. UNIFI will continue to evaluate opportunities to use excess cash flows from operations or existing borrowings to repurchase additional stock, while maintaining sufficient liquidity to support its operational needs and to fund future strategic growth opportunities.\n\n\nLiquidity Summary\n\n\nUNIFI has met its historical liquidity requirements for working capital, capital expenditures, debt service requirements, and other operating needs from its cash flows from operations and available borrowings.  UNIFI believes that its existing cash balances, cash provided by operating activities, and credit facility will enable UNIFI to meet its foreseeable liquidity requirements.  Domestically, UNIFI\u2019s cash balances, cash provided by operating activities, and borrowings available under the 2022 ABL Revolver continue to be sufficient to fund UNIFI\u2019s domestic operating activities as well as cash commitments for its investing and financing activities.  For its foreign operations, UNIFI expects its existing cash balances, cash provided by operating activities, and available foreign financing arrangements will provide the needed liquidity to fund the associated operating activities and investing activities, such as future capital expenditures.  UNIFI\u2019s foreign operations in Asia and Brazil are in a position to obtain local country financing arrangements due to the operating results of each subsidiary.\n\n\nCash Provided by Operating Activities\n\n\nThe significant components of net cash provided by operating activities are summarized below. UNIFI analyzes net cash provided by operating activities utilizing the major components of the statements of cash flows prepared under the indirect method.\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal 2021\n\n\n\u00a0\n\n\n\n\n\n\nNet (loss) income\n\n\n\u00a0\n\n\n$\n\n\n(46,344\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n15,171\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n29,073\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,186\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,207\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,528\n\n\n\u00a0\n\n\n\n\n\n\nEquity in earnings of unconsolidated affiliates\n\n\n\u00a0\n\n\n\u00a0\n\n\n(896\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(605\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(739\n\n\n)\n\n\n\n\n\n\nImpairment for asset abandonment\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,247\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nRecovery of taxes, net\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,799\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n815\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9,717\n\n\n)\n\n\n\n\n\n\nNon-cash compensation expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,805\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,555\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,462\n\n\n\u00a0\n\n\n\n\n\n\nDeferred income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,788\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,119\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,087\n\n\n\u00a0\n\n\n\n\n\n\nSubtotal\n\n\n\u00a0\n\n\n\u00a0\n\n\n(15,589\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,024\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n52,694\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDistributions received from unconsolidated affiliates\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n750\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n750\n\n\n\u00a0\n\n\n\n\n\n\nChange in inventories\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,431\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(34,749\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(28,069\n\n\n)\n\n\n\n\n\n\nOther changes in assets and liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,102\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,645\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,306\n\n\n\u00a0\n\n\n\n\n\n\nNet cash provided by operating activities\n\n\n\u00a0\n\n\n$\n\n\n4,740\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n380\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n36,681\n\n\n\u00a0\n\n\n\n\n\n\nFiscal 2023 Compared to Fiscal 2022\n\n\nThe increase in operating cash flows was primarily due to reducing working capital associated with a decline in overall business activity in fiscal 2023, which was primarily offset by significantly weaker earnings.\n\n\nFiscal 2022 Compared to Fiscal 2021\n\n\nThe decrease in net cash provided by operating activities from fiscal 2021 to fiscal 2022 was primarily due to an increase in working capital associated with (i) higher raw material costs and consolidated sales activity driving higher inventory and accounts receivable balances and (ii) lower other current liabilities resulting from the payment of incentive compensation earned in fiscal 2021.\n \n\n\n36\n\n\n\n\nCash (Used) Provided by Investing Activities and Financing Activities\n\n\nFiscal 2023\n\n\nSignificant investing activities included $36,434 for capital expenditures, which primarily relate to texturing machinery along with production capabilities and technological enhancements in the Americas. Significant financing activities included $22,200 of net borrowings against the ABL Facility, along with $2,123 of payments on finance lease obligations during fiscal 2023.\n\n\nFiscal 2022\n\n\nSignificant investing activities included $39,631 for capital expenditures, which primarily relate to ongoing maintenance capital expenditures along with production capabilities and technological enhancements in the Americas. Significant financing activities included $28,800 of net borrowings against the ABL Facility, along with $3,707 of payments on finance lease obligations and $9,151 for share repurchases during fiscal 2022.\n\n\nFiscal 2021\n\n\nSignificant investing activities included (i) approximately $21,000 for capital expenditures that primarily relate to ongoing maintenance capital expenditures along with production capabilities and technological enhancements in the Americas and (ii) approximately $3,600 for intangible asset purchases in connection with two bolt-on asset acquisitions in an effort to expand our customer portfolios in the U.S.  Significant financing activities included $10,000 of net payments against the ABL Facility, along with $3,646 of payments on finance lease obligations.\n\n\nContractual Obligations\n\n\nIn addition to management\u2019s discussion and analysis surrounding our liquidity and capital resources, long-term debt, finance leases, operating leases, and the associated principal and interest components thereof, as of July 2, 2023, UNIFI\u2019s contractual obligations consisted of the following additional concepts and considerations.\n\n\n\u00a0\n\n\n1.\nCapital purchase obligations\n relate to contracts with vendors for the construction or purchase of assets, primarily for the normal course operations in our manufacturing facilities. Such obligations are approximately $6,000 and $19,000 for fiscal years 2024 and 2025, respectively.\n\n\n\u00a0\n\n\n2.\nPurchase obligations\n are agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Such obligations, predominantly related to ongoing operations and service contracts in support of normal course business, range from approximately $1,000 to $10,000 per annum and vary based on the renewal timing of specific commitments and the range of services received.\n\n\n\u00a0\n\n\n3.\nNon-capital purchase orders\n totaled approximately $74,000 at the end of fiscal 2023 and are expected to be settled in fiscal 2024.  Such open purchase orders are in the ordinary course of business for the procurement of (i) raw materials used in the production of inventory, (ii) certain consumables and outsourced services used in UNIFI\u2019s manufacturing processes, and (iii) selected finished goods for resale sourced from third-party suppliers.\n\n\n\u00a0\n\n\n4.\nOther balance sheet items\n are detailed within the notes to the consolidated financial statements, including, but not limited to, post-employment plan liabilities, unpaid invoice and contract amounts, and other balances and charges that primarily relate to normal course operations.\n\n\n\u00a0\n\n\nUNIFI does not engage in off-balance sheet arrangements and only enters into material contracts in the ordinary course of business and/or to hedge the associated risks (e.g. interest rate swaps).\n\n\nRecent Accounting Pronouncements\n\n\nIssued and Pending Adoption\n\n\nUpon review of each Accounting Standards Update (\u201cASU\u201d) issued by the Financial Accounting Standards Board (the \u201cFASB\u201d) through the date of this report, UNIFI identified no newly applicable accounting pronouncements that are expected to have a significant impact on UNIFI\u2019s consolidated financial statements.\n\n\nRecently Adopted\n\n\nThere have been no newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a significant impact on UNIFI\u2019s consolidated financial statements.\n\n\nOff-Balance Sheet Arrangements\n\n\nUNIFI is not a party to any off-balance sheet arrangements that have had, or are reasonably likely to have, a current or future material effect on UNIFI\u2019s financial condition, results of operations, liquidity or capital expenditures.\n\n\n37\n\n\n\n\nCritical Accounting Policies\n\n\nThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The SEC has defined a company\u2019s most critical accounting policies as those involving accounting estimates that require management to make assumptions about matters that are highly uncertain at the time and where different reasonable estimates or changes in the accounting estimate from quarter to quarter could materially impact the presentation of the financial statements. The following discussion provides further information about accounting policies critical to UNIFI and should be read in conjunction with Note 2, \u201cSummary of Significant Accounting Policies,\u201d to the accompanying consolidated financial statements.\n\n\nInventory Net Realizable Value Adjustment\n\n\nThe inventory net realizable value adjustment is established based on many factors, including: historical recovery rates, inventory age, expected net realizable value of specific products, and current economic conditions. Specific reserves are established based on a determination of the obsolescence of the inventory and whether the inventory cost exceeds net realizable value. Anticipating selling prices and evaluating the condition of the inventories require judgment and estimation, which may impact the resulting inventory valuation and gross margins. UNIFI uses current and historical knowledge to record reasonable estimates of its markdown percentages and expected sales prices. UNIFI believes it is unlikely that differences in actual demand or selling prices from those forecasted by management would have a material impact on UNIFI\u2019s financial condition or results of operations. UNIFI has not made any material changes to the methodology used in establishing its inventory net realizable value adjustment during the past three fiscal years.\n \nA plus or minus 10% change in the inventory net realizable value adjustment would not have been material to UNIFI\u2019s consolidated financial statements for the past three fiscal years.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 2, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nJuly 3, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nJune 27, 2021\n\n\n\u00a0\n\n\n\n\n\n\nNet realizable value adjustment\n\n\n\u00a0\n\n\n$\n\n\n(5,625\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(3,487\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(2,407\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n",
+  "item7a": ">Item 7A. Quantitative and Qualitat\nive Disclosures about Market Risk\n\n\nUNIFI is exposed to market risks associated with changes in interest rates, fluctuations in foreign currency exchange rates and raw material and commodity costs, which may adversely affect its financial position, results of operations or cash flows. UNIFI does not enter into derivative financial instruments for trading purposes, nor is it a party to any leveraged financial instruments.\n\n\nInterest Rate Risk\n\n\nUNIFI is exposed to interest rate risk through its borrowing activities. As of July 2, 2023, UNIFI had borrowings under its 2022 ABL Term Facility totaling $128,500. After considering UNIFI\u2019s outstanding debt obligations with fixed rates of interest, UNIFI\u2019s sensitivity analysis indicates that a 50-basis point increase in SOFR as of July 2, 2023 would result in an increase in annual interest expense of approximately $700.\n\n\nForeign Currency Exchange Rate Risk\n\n\nUNIFI conducts its business in various foreign countries and in various foreign currencies.  Each of UNIFI\u2019s subsidiaries may enter into transactions (sales, purchases, fixed purchase commitments, etc.) that are denominated in currencies other than the subsidiary\u2019s functional currency and thereby expose UNIFI to foreign currency exchange rate risk.  UNIFI may enter into foreign currency forward contracts to hedge this exposure.  UNIFI may also enter into foreign currency forward contracts to hedge its exposure for certain equipment or inventory purchase commitments.  As of July 2, 2023, UNIFI had no outstanding foreign currency forward contracts.\n\n\nA significant portion of raw materials purchased by the Brazil Segment are denominated in USDs, requiring UNIFI to exchange BRL for USD. A significant portion of sales and asset balances for the Asia Segment are denominated in USDs. During recent fiscal years, UNIFI has been negatively impacted by fluctuations of the BRL and the RMB.  Discussion and analysis surrounding the impact of fluctuations of the BRL and the RMB on UNIFI\u2019s results of operations are included above in \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\u201d UNIFI does not enter into foreign currency derivatives to hedge its net investment in its foreign operations.\n\n\nAs of July 2, 2023, foreign currency exchange rate risk concepts included the following:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nApproximate Amount or Percentage\n\n\n\u00a0\n\n\n\n\n\n\nPercentage of total consolidated assets held by UNIFI's subsidiaries outside the U.S. whose functional\n\u00a0\u00a0\u00a0currency is not the USD\n\n\n\u00a0\n\n\n\u00a0\n\n\n32\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents held outside the U.S.:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Denominated in USD\n\n\n\u00a0\n\n\n$\n\n\n18,137\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Denominated in RMB\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,275\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Denominated in BRL\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,441\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\u00a0\u00a0Denominated in other foreign currencies\n\n\n\u00a0\n\n\n\u00a0\n\n\n224\n\n\n\u00a0\n\n\n\n\n\n\nTotal cash and cash equivalents held outside the U.S.\n\n\n\u00a0\n\n\n$\n\n\n46,077\n\n\n\u00a0\n\n\n\n\n\n\nPercentage of total cash and cash equivalents held outside the U.S.\n\n\n\u00a0\n\n\n\u00a0\n\n\n98\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nCash and cash equivalents held inside the U.S. in USD by foreign subsidiaries\n\n\n\u00a0\n\n\n$\n\n\n591\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n38\n\n\n\n\nMore information regarding UNIFI\u2019s derivative financial instruments as of July 2, 2023 is provided in Note 18, \u201cFair Value of Financial Instruments and Non-Financial Assets and Liabilities,\u201d to the accompanying consolidated financial statements.\n\n\nRaw Material and Commodity Cost Risks\n\n\nA significant portion of UNIFI\u2019s raw material and energy costs are derived from petroleum-based chemicals.  The prices for petroleum and petroleum-related products and related energy costs are volatile and dependent on global supply and demand dynamics, including certain geo-political risks.  A sudden rise in the price of petroleum and petroleum-based products could have a material impact on UNIFI\u2019s profitability.  UNIFI does not use financial instruments to hedge its exposure to changes in these costs as management has concluded that the overall cost of hedging petroleum exceeds the potential risk mitigation.  The costs of the primary raw materials that UNIFI uses throughout all of its operations are generally based on USD pricing, and such materials are purchased at market or at fixed prices that are established with individual vendors as part of the purchasing process for quantities expected to be consumed in the ordinary course of business. UNIFI manages fluctuations in the cost of raw materials primarily by making corresponding adjustments to the prices charged to its customers.  Certain customers are subject to an index-based pricing model in which UNIFI\u2019s prices are adjusted based on the change in the cost of raw materials in the prior quarter.  Pricing adjustments for other customers must be negotiated independently.  UNIFI attempts to quickly pass on to its customers increases in raw material costs, but due to market conditions, this is not always possible. When price increases can be implemented, there is typically a time lag that adversely affects UNIFI\u2019s margins during one or more quarters.  In ordinary market conditions in which raw material price increases have stabilized and sales volumes are consistent with traditional levels, UNIFI has historically been successful in implementing price adjustments within one to two fiscal quarters of the raw material price increase for its index-priced customers and within two fiscal quarters of the raw material price increase for its non-index-priced customers.\n\n\nDuring fiscal 2020 and the first six months of fiscal 2021, UNIFI experienced a predominantly favorable, declining raw material cost environment, especially during calendar 2020 as the COVID-19 pandemic suppressed petroleum prices for several months.\n\n\nAs fiscal 2021 concluded, UNIFI experienced cost increases for raw materials, primarily related to (i) increases in petroleum prices and (ii) supply chain disruptions that occurred in Texas during February 2021 due to abnormally cold weather. Our raw material costs remained elevated in fiscal 2022 and 2023.  We have been able to implement responsive selling price adjustments for the majority of our portfolio, however our underlying gross margin has been pressured during fiscal 2022 and 2023. We expect the impact of recent selling price adjustments to improve margins in future periods. Nonetheless, such costs remain subject to the volatility described above and, should raw material costs increase unexpectedly, UNIFI\u2019s results of operations and cash flows are likely to be adversely impacted.\n\n\nCash Deposits and Financial Institution Risk\n\n\nDuring calendar 2023, certain regional bank crises and failures generated additional uncertainty and volatility in the financial and credit markets. UNIFI currently holds the vast majority of its cash deposits with large foreign banks in our associated operating regions, and management believes that it has the ability to repatriate cash to the U.S. relatively quickly. Accordingly, UNIFI has not modified its mix of financial institutions holding cash deposits, but UNIFI will continue to monitor the environment and current events to ensure any increase in concentration or credit risk is appropriately and timely addressed. Likewise, if any of the financial institutions within our 2022 Credit Agreement or construction financing arrangement (\u201clending counterparties\u201d) are unable to perform on their commitments, our liquidity could be impacted. We actively monitor all lending counterparties, and none have indicated that they may be unable to perform on their commitments. In addition, we periodically review our lending counterparties, considering the stability of the institutions and other aspects of the relationships. Based on our monitoring activities, we currently believe our lending counterparties will be able to perform their commitments.\n\n\nOther Risks\n\n\nUNIFI is also exposed to political risk, including changing laws and regulations governing international trade, such as quotas, tariffs and tax laws.  The degree of impact and the frequency of these events cannot be predicted.\n\n",
+  "cik": "100726",
+  "cusip6": "904677",
+  "cusip": ["904677200"],
+  "names": ["UNIFI INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/100726/000095017023044490/0000950170-23-044490-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0000950170-23-045222.json b/GraphRAG/standalone/data/all/form10k/0000950170-23-045222.json
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--- /dev/null
+++ b/GraphRAG/standalone/data/all/form10k/0000950170-23-045222.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1. B\nUSINESS\n \n\n\nWe are a leading innovator, designer, manufacturer, and marketer of recreational powerboats sold through our three brands, MasterCraft, Crest, and Aviara. Through these three brands, over the last five years, we have had leading market share positions in two of the fastest growing categories of the powerboat industry, ski/wake boats and pontoon boats, while also growing market share within the luxury day boat segment. As a leader in recreational marine, we strive to deliver the best on-water experience through innovative, high-quality products with a relentless focus on the consumer.\n\n\nOn September 2, 2022, the Company completed the sale of its NauticStar business. This business, which was previously reported as the Company's NauticStar segment until fiscal 2023, is being reported as discontinued operations for all periods presented. Consolidated financial information presented for all periods is related to the continuing operations. See Note 3 in Notes to Consolidated Financial Statements for more information on Discontinued Operations.\n\n\nOur Segments\n\n\nMasterCraft Segment\n\n\nOur MasterCraft segment consists of our MasterCraft brand, which manufactures premium ski/wake boats. The MasterCraft brand was founded in 1968 and evolved over the next 55 years to become the most award-winning ski/wake boat manufacturer in the world. Today, MasterCraft participates in the fastest growing category within the powerboat industry by producing the industry\u2019s premier competitive water ski, wakeboarding, and wake surfing performance boats. We believe the MasterCraft brand is known among boating enthusiasts for high performance, premier quality, and relentless innovation. We believe that the market recognizes MasterCraft as a premier brand in the powerboat industry due to the overall superior value proposition that our boats deliver to consumers. We work tirelessly every day to maintain this iconic brand reputation.\n \n\n\nCrest Segment\n\n\nOur Crest segment consists of our Crest brand, which manufactures pontoon boats. Crest participates in the second-fastest growing category in the powerboat industry. Crest, which we acquired in October 2018, was founded in 1957 and has grown to be one of the top producers of innovative, high-quality pontoon boats ranging from 20 to 27 feet. Crest\u2019s long-standing reputation for high-quality, standard features and content, and innovation provides Crest with strong dealer and consumer bases in its core geographic markets.\n \n\n\nAviara Segment\n\n\nOur Aviara segment consists of our Aviara brand, which manufactures luxury day boats. Aviara is a de novo brand, developed in-house, and focused on serving the luxury recreational day boat category of the powerboat industry. From its introduction in February 2019 through June 2023, Aviara expanded to three models between 32 feet and 40 feet in length, and in fiscal 2024, will expand to include a 28 foot model, all of which feature both outboard and sterndrive propulsion. Aviara boats feature distinct European styling and offer an elevated open water experience by fusing progressive style and effortless comfort in its modern luxury vessels.\n\n\nUnless the context otherwise requires, \u201cMasterCraft,\u201d \u201cCrest,\u201d and \u201cAviara,\u201d as used herein, refers to our segments as described above.\n\n\nOur Products\n\n\nWe design, manufacture, and sell premium recreational inboard ski/wake, outboard, and sterndrive boats that we believe deliver superior performance for water skiing, wakeboarding, and wake surfing, as well as general recreational boating. In addition, we offer various accessories, including trailers and aftermarket parts.\n\n\nOur MasterCraft portfolio of ProStar, XStar, X, XT, and NXT models are designed for the highest levels of performance, styling, and enjoyment for both recreational and competitive use. The ProStar, XStar and X models are geared towards the consumer seeking the most premium and highest performance boating experience that we offer, and generally command a price premium over our competitors\u2019 boats at retail prices ranging from approximately $185,000 to $320,000. The MasterCraft XT lineup is designed to offer ultimate flexibility to consumers with maximum customization and maximum performance at retail prices ranging from approximately $130,000 to $190,000. The NXT models offer the quality, performance, styling, and innovation of the MasterCraft brand to the entry-level consumer, with retail prices ranging from approximately $100,000 to $150,000. We have strategically designed and priced the MasterCraft NXT models to target the fast-growing entry-level consumer group that is distinct from our traditional consumer base, while maintaining our core MasterCraft brand attributes at profit margins comparable to our other offerings.\n \n\n\n2\n\n\n\n\n\u00a0\n\n\nOur Crest portfolio of pontoon boats are designed for the ultimate in comfort and recreational pleasure boating. Crest has continued to grow market share as it expands its distribution footprint. Crest\u2019s pontoon boats are designed to offer consumers the best in luxury, style and performance without compromise across a diverse model lineup ranging in length from 20 to 27 feet. The Signature Line is home to Crest\u2019s Classic models. The Premium Line boasts three Caribbean models with sleek lines, available tower options, unique color combinations and top-quality construction. The Ultimate Luxury Line represents the pinnacle of lavish amenities, featuring the Continental, Continental NX, and Savannah models. This lineup anticipates every need with thoughtful options, an industry-first integrated dual windshield and premium upholstery and audio upgrades. The Electric Line harmonizes industry innovations by introducing eco-friendly pontoon boats. The new Current model allows consumers to enjoy a new level of peace and relaxation with less noise and minimal emissions. Crest\u2019s retail prices range from approximately $35,000 to $220,000.\n \n\n\nOur Aviara portfolio of luxury recreational day boats was designed in-house with the vision to create pleasure crafts that defy compromise. The Aviara brand drew on MasterCraft\u2019s legacy of quality. Aviara\u2019s boat designs were inspired by four product design principles \u2013 Progressive Style, Elevated Control, Modern Comfort and Quality Details. Aviara\u2019s models consist of the AV32, a 32-foot luxury bowrider, the AV36, a 36-foot luxury bowrider, the AV40, the brand\u2019s flagship 40-foot luxury bowrider, and beginning in fiscal 2024, AV28, a 28-foot luxury bowrider, for the ultimate on-the-water experience. All models are available in either outboard or sterndrive propulsion, and Aviara\u2019s retail prices range from approximately $200,000 to over $1,300,000. We believe there will be significant model expansion opportunities for Aviara in the future.\n\n\nOur Dealer Network\n\n\nOur products are sold through extensive networks of independent dealers in North America and internationally. We target our distribution to the market category\u2019s highest performing dealers. The majority of our MasterCraft brand dealers are exclusive to our MasterCraft product lines within the ski/wake category, highlighting the commitment of our key dealers to the MasterCraft brand. Our other brands are generally served on a nonexclusive basis by their respective dealers.\n \n\n\nWe consistently review our distribution networks to identify opportunities to expand our geographic footprint and improve our coverage of the market. We constantly monitor the health and strength of our dealers by analyzing each dealer\u2019s retail sales and inventory and have established processes to identify under-performing dealers in order to assist them in improving their performance, to allow us to switch to a more effective dealer, or to direct product to markets with the greatest retail demand. These processes also allow us to better monitor dealer inventory levels and product turns and contribute to a healthier dealer network that is better able to stock and sell our products. We believe our outstanding dealer networks and our proactive approach to dealer management allow us to distribute our products more efficiently than our competitors and will help us capitalize on growth opportunities as our industry volumes continue to increase.\n\n\nFor fiscal 2023, the Company\u2019s top ten dealers accounted for approximately 40% of our net sales and one of our dealers individually accounted for 14.9%, or approximately $98.6 million.\n\n\nNorth America.\n As of June 30, 2023, our MasterCraft brand had a total of 108 dealers across 158 locations. Our Crest brand had a total of 148 dealers across 185 locations. Our Aviara brand is sold through a distribution network consisting of one dealer with 57 locations.\n\n\nOutside of North America. \nAs of June 30, 2023, through our MasterCraft brand, we had a total of 43 international dealers and 43 locations. Our Crest brand had two international dealers in two locations. Aviara had no international dealers. We define international dealers as those dealers with locations outside of North America. We are present in Europe, Australia, South America, Africa, Asia, including Hong Kong, and the Middle East. We generated 4.6%, 5.5%, and 5.1% of our net sales outside of North America in fiscal 2023, 2022, and 2021, respectively.\n\n\nDealer Relations\n\n\nWe have developed a system of financial incentives for our dealers based on achievement of key benchmarks. In addition, we provide our dealers with comprehensive sales training and a complete set of technology-based tools designed to help dealers maximize performance. Our dealer incentive program has been refined through years of experience with some of the key elements including wholesale rebates, retail rebates and promotions, other allowances, and floor plan interest reimbursement or cash discounts to encourage balanced production throughout the year.\n\n\nBeyond our incentive programs, we have developed a proprietary web-based management tool that is used by our dealers on a day-to-day basis to improve their own businesses as well as enhance communication with our factory and sales management teams. Our business-to-business application efficiently executes many critical functions, including warranty registrations, warranty claims, boat ordering and tracking, parts ordering, technical support, and inventory reporting. This system facilitates communication between our sales team and the dealer network and allows our manufacturing department to review consumer demand in real time.\n\n\n3\n\n\n\n\n\u00a0\n\n\nManufacturing\n\n\nMasterCraft boats and trailers are manufactured and lake-tested at our 310,000 square-foot facility located in Vonore, Tennessee. We believe MasterCraft has the only boat manufacturing facility to achieve compliance with all three of the ISO 9001 (Quality Management Systems), 14001 (Environmental Management Systems), and 18001 (International Occupational Health and Safety Management System) standards. Crest boats are manufactured at our 270,000 square-foot facility located in Owosso, Michigan. Aviara boats are manufactured at our 130,000 square-foot facility in Merritt Island, Florida.\n\n\nThe rigorous and consumer-centric attention to detail in the design and manufacturing of our products results in boats of high quality which provides an exceptional on water experience across all of our brands. Our dedication to quality permits our consumers to enjoy our products with confidence.\n\n\nOur boats are built through a continuous flow manufacturing process that encompasses fabrication, assembly, quality management, and testing. We manufacture certain components and subassemblies for our boats, such as upholstery, and procure other components from third-party vendors and install them on the boat. We have several exclusive supplier partnerships for certain critical components, such as aluminum billet, towers, and engine packages. For MasterCraft, we also build custom trailers that match the exact size and design-characteristics of our boats.\n\n\nSuppliers\n\n\nWe purchase a wide variety of raw materials from our supplier base, including resins, fiberglass, aluminum, lumber and steel, as well as parts and components such as engines and electronic controls. We maintain long-term contracts with certain strategic suppliers and informal arrangements with other suppliers.\n\n\nWe are focused on working with our supply chain partners to enable cost improvement, world-class quality, and continuous product innovation. We have engaged our key suppliers in collaborative preferred supplier relationships and have developed processes including annual cost reduction targets, regular reliability projects, and extensive product testing requirements to ensure that our suppliers produce to the highest levels of quality expected of our brands and at lowest total cost. These collaborative efforts begin at the design stage, as our key suppliers are integrated into design and development planning well in advance of launch, which allows us to control costs and to leverage the expertise of our suppliers in developing product innovations. We believe these collaborative relationships with our key strategic suppliers have contributed to significant improvements in product quality, innovation, and profitability.\n\n\nThe most significant components used in manufacturing our boats, based on cost, are engine packages. For our MasterCraft brand, Ilmor Engineering, Inc. (\u201cIlmor\u201d) is our exclusive engine supplier and for our Crest brand, Mercury Marine (\u201cMercury\u201d) is our largest engine supplier. For our Aviara brand, Mercury provides outboard engines and Ilmor provides sterndrive engines. We maintain strong and long-standing relationships with Ilmor and Mercury. During fiscal 2023, Ilmor was our largest overall supplier. In addition to ski/wake and sterndrive engines, Ilmor\u2019s affiliates produce engines used in a number of leading racing boats and race cars. We work closely with Ilmor to remain at the forefront of engine design, performance, and manufacturing. We believe our long-term relationships with our engine supplier partners is a key competitive advantage.\n\n\nResearch and Development, Product Development and Engineering\n\n\nWe are strategically and financially committed to innovation, as reflected in our dedicated product development and engineering groups and evidenced by our track record of new product and feature introduction. As of June 30, 2023, our product development and engineering group includes 67 professionals. These individuals bring to our product development efforts significant expertise across core disciplines, including boat design, computer-aided design, naval engineering, electrical engineering, and mechanical engineering. They are responsible for execution of all facets of our new product and innovation strategy, starting with design and development of new boat models and innovative features, engineering these designs for manufacturing, and integrating new boats and features into production. Our product development and engineering functions work closely with our Strategic Portfolio Management Team which includes senior leadership from Sales, Marketing and Finance, all working together to develop our long-term product and innovation strategies.\n\n\nWe have structured processes to obtain consumer, dealer, and management feedback to guide our long-term product lifecycle and portfolio planning. In addition, extensive testing and coordination with our manufacturing groups are important elements of our product development process, which we believe enable us to leverage the lessons from past launches and minimize the risk associated with the release of new products. Our strategy is to launch several new models each year, which will allow us to renew our product portfolio with innovative offerings at a rate that we believe will be difficult for our competitors to match without significant additional capital investments. In addition to our product strategy, we manage a separate innovation development process which allows us to design innovative new features for our boats in a disciplined manner and to launch these innovations in a more rapid time frame and with higher quality. These enhanced processes have reduced the time to market for our new product pipeline. Our research and product development expense for fiscal 2023, 2022, and 2021 was $8.3 million, $7.2 million, and $5.8 million, respectively.\n\n\n4\n\n\n\n\n\u00a0\n\n\nIntellectual Property\n\n\nWe rely on a combination of patent, trademark, and copyright protection, trade secret laws, confidentiality procedures, and contractual provisions to protect our rights in our brands, products, and proprietary technology. We also protect our vessel hull designs through vessel hull design registrations. This is an important part of our business and we intend to continue protecting our intellectual property. We currently hold more than 50 U.S. patents and more than 10 foreign patents, including utility and design patents for our transom surf seating, our DockStar handling system, and our SurfStar surf system technology among numerous other innovations. Provided that we comply with all statutory maintenance requirements, our patents are expected to expire between 2028 and 2041. We also have additional patent applications pending in the U.S. and worldwide. We also own in excess of 130 trademark registrations in various countries around the world, most notably for the MasterCraft, Crest, and Aviara names and/or logos, as well as numerous model names in MasterCraft\u2019s Star Series, X, XT, and NXT product families, and we have several pending applications for additional registrations. Such trademarks may endure in perpetuity on a country-by-country basis provided that we comply with all statutory maintenance requirements, including continued use of each trademark in each such country. In addition, we own 38 registered U.S. copyrights. Finally, we have registered more than 50 vessel hull designs with the U.S. Copyright Office, the most recent of which will remain in force through 2030.\n\n\nCompetitive Conditions and Position\n\n\nWe believe each of our brands are highly competitive and have a reputation for quality. We compete by operating, developing, and acquiring a diversified portfolio of leading brands focused on the fastest growing segments of the powerboat industry; focusing relentlessly on delivering the best overall ownership experience to consumers; developing and continuously improving highly efficient production techniques and methods which result in highly innovative products; distributing our products through extensive, consumer-centric independent dealer networks; and attracting, developing, and retaining high-performing employees.\n \n\n\nSignificant competition exists for each of our brands, and the markets in which we compete range from being relatively concentrated for the ski/wake category, to being fragmented for the pontoon category. As of December 2022, based on Statistical Surveys, Inc. (\u201cSSI\u201d) data, the top five brands accounted for approximately 71% of the ski/wake markets and approximately 50% for the pontoon market. Market participants also range from small, single-product businesses to large, diversified companies. In addition, we compete indirectly with businesses that offer alternative leisure products and activities.\n \n\n\nIn recent history, the MasterCraft brand has consistently competed for the leading market share position in the U.S. among manufacturers of ski/wake boats based on unit volume. As of December 2022, based on SSI data, the MasterCraft brand has the #1 market share in the ski/wake category with 20.8%. As of December 2022, based on SSI data, the Crest brand has the #9 market share in the aluminum pontoon category with 4.1%. As of December 2022, based on SSI data, the Aviara brand has the #7 market share in the 30-foot to 43-foot bowrider category with 6.3%.\n\n\nHuman Capital Resources\n\n\nWe have approximately 1,060 employees as of June 30, 2023, of whom 560 primarily work at our MasterCraft facility in Tennessee, 260 primarily work at our Crest facility in Michigan, and 240 primarily work at our Aviara facility in Florida. None of our employees are unionized or subject to collective bargaining agreements.\n\n\nOne of our strategic priorities is developing a high-performing work organization and work environment that is consumer-focused and attracts and retains superior employees. We strive to offer our employees career-specific tools, training, resources, and support development opportunities. We utilize a talent management process, which includes performance appraisal and development planning. We are also deeply invested in attracting and developing the next generation of workforce talent to the boating industry. We\u2019ve partnered with local community and technical colleges by developing training programs and donating boats and supplies to position graduates for jobs in the boating industry upon graduation.\n\n\nEmployee safety is always a top priority. We are focused on improving and innovating when it comes to the well-being of our dedicated workforce across our portfolio of brands. We take great care to ensure everyone at the Company is empowered to do their best work, in a safe and well-managed environment. We maintain clean, safe and healthy workplaces through our vigorous training programs and professional safety standards systems, including job hazard assessments and industrial hygiene and ventilation practices.\n\n\nOur compensation program is designed to facilitate high performance and generate results that will create value for our stockholders. We structure executive compensation to pay for performance, reward our executives with equity in the Company in order to align their interests with the interests of our stockholders and allow those employees to share in our stockholders\u2019 success, which we believe creates a performance culture, maintains morale and attracts, motivates and retains top talent.\n\n\nEnvironmental, Safety, and Regulatory Matters\n\n\nOur operations are subject to extensive and frequently changing federal, state, local, and foreign laws and regulations, including those concerning product safety, environmental protection, and occupational health and safety. We believe that our operations and products\n \n\n\n5\n\n\n\n\n\u00a0\n\n\nare in compliance with these regulatory requirements. Historically, the cost of achieving and maintaining compliance with applicable laws and regulations has not been material. However, we cannot provide assurance that future costs and expenses required for us to comply with such laws and regulations, including any new or modified regulatory requirements, or to address newly discovered environmental conditions, will not have a material adverse effect on our business, financial condition, operating results, or cash flows.\n\n\nWe have not been notified of and are otherwise currently not aware of any contamination at our current or former facilities for which we could be liable under environmental laws or regulations and we currently are not undertaking any remediation or investigation activities in connection with any contamination. However, future spills or accidents or the discovery of currently unknown conditions or non-compliances may give rise to investigation and remediation obligations or related liabilities and damage claims, which may have a material adverse effect on our business, financial condition, operating results, or cash flows.\n\n\nOther Information\n\n\nWe were incorporated under the laws of the State of Delaware under the name MCBC Holdings, Inc. on January 28, 2000. In July 2015, we completed an initial public offering of our common stock. Effective November 7, 2018, the name of the Company was changed from MCBC Holdings, Inc. to MasterCraft Boat Holdings, Inc. We maintain a website with the address www.mastercraft.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available, free of charge through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports as soon as reasonably practicable after we electronically file these materials with, or otherwise furnish them to, the SEC. We also use our website as a means of disclosing additional information, including for complying with our disclosure obligations under the SEC's Regulation FD (Fair Disclosure).\n\n\n6\n\n\n\n\n\u00a0\n\n\nITEM \n1A. RISK FACTORS\n\n\nRISK FACTORS\n \n\n\nOur operations and financial results are subject to certain risks and uncertainties, including those described below, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock.\n\n\nRisks Relating to Economic and Market Conditions\n\n\nGlobal economic conditions, particularly in the U.S., significantly affect our industry and business, and economic decline can materially impact our financial results.\n\n\nIn times of economic uncertainty or recession, consumers tend to have less discretionary income and to defer significant spending on non-essential items, which may adversely affect our financial performance. The economic uncertainty caused by (i) general economic conditions, (ii) the impact of inflation and rising interest rates, (iii) labor shortages, (iv) supply chain disruptions, (v) regional or global conflicts, (vi) public health crises, pandemics, or national emergencies and (vii) actions and stimulus measures adopted by local, state and federal governments may lead to unfavorable business outcomes. We continue to develop our portfolio of brands, but our business remains cyclical and sensitive to consumer spending on new boats.\n\n\nDeterioration in general economic conditions that in turn diminishes consumer confidence or discretionary income may reduce our sales, or we may decide to lower pricing for our products, which could adversely affect our financial results, including increasing the potential for future impairment charges. Further, our products are recreational, and consumers\u2019 limited discretionary income in times of economic hardship may be diverted to other activities that occupy their time, such as other forms of recreational, religious, cultural, or community activities. In addition, economic uncertainty may also increase certain costs of operation, such as financing costs, energy costs and insurance premiums, which in turn may impact our results of operations. We cannot predict the strength of global economies or the timing of economic recovery, either globally or in the specific markets in which we compete.\n\n\nInflation and rising interest rates could adversely affect our financial results.\n\n\nThe market prices of certain materials and components used in manufacturing our products, especially resins that are made with hydrocarbon feedstocks, fiberglass, aluminum, lumber, and steel, can be volatile. While, historically, inflation has not had a material effect on our results of operations, significant increases in inflation, particularly those related to wages and increases in the cost of raw materials, recently have, and may continue to have, an adverse impact on our business, financial condition, and results of operations.\n \n\n\nIn addition, new boat buyers often finance their purchases. Inflation, along with rising interest rates, could translate into an increased cost of boat ownership. Should inflation and increased interest rates continue to occur, prospective consumers may choose to forego or delay their purchases or buy a less expensive boat in the event credit is not available to finance their boat purchases.\n \n\n\nIn addition, as discussed in more detail below, rising interest rates could also incentivize dealers to reduce their inventory levels in order to reduce their interest exposure.\n\n\nRising interest rates may also increase the borrowing costs on new debt, which could affect the fair value of our investments.\n\n\nFiscal concerns and policy changes may negatively impact worldwide economic and credit conditions and adversely affect our industry, business, and financial condition.\n\n\nFiscal policy could have a material adverse impact on worldwide economic conditions, the financial markets, and availability of credit and, consequently, may negatively affect our industry, business, and overall financial condition. Consumers often finance purchases of our products, and as interest rates rise, the cost of financing the purchase also increases. While credit availability is adequate to support demand, interest rates began to rise significantly in the second half of fiscal 2022, and continued to rise throughout fiscal 2023. If credit conditions worsen and adversely affect the ability of consumers to finance potential purchases at acceptable terms and interest rates, it could result in a decrease in sales or delay improvement in sales.\n\n\nOur variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.\n\n\nBorrowings under our revolving credit facility and term loans are at variable rates of interest and expose us to interest rate risk. Reference rates used to determine the applicable interest rates for our debt began to rise significantly in the second half of fiscal 2022, and continued to rise throughout fiscal 2023. If interest rates continue to increase, the debt service obligations on our indebtedness will continue to increase even if the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our\n \n\n\n7\n\n\n\n\n\u00a0\n\n\nindebtedness, will correspondingly decrease. Please see Part II, Item 7A, \u201cQuantitative and Qualitative Disclosures about Market Risk\u201d for discussion of our market risk related to interest rates.\n\n\nAn increase in energy costs may materially adversely affect our business, financial condition, and results of operations.\n\n\nOur results of operations can be directly affected, positively and negatively, by volatility in the cost and availability of energy, which is subject to global supply and demand and other factors beyond our control. Prices for crude oil, natural gas and other energy supplies have been increasing and have been subject to high volatility, including as a result of geopolitical factors or otherwise. Further, the global clean energy movement may also reduce the availability of fossil fuels, which may in turn cause increases to energy costs. Higher energy costs result in increases in operating expenses at our manufacturing facilities, in the expense of shipping raw materials to our facilities, and in the expense of shipping products to our dealers. In addition, increases in energy costs may adversely affect the pricing and availability of petroleum-based raw materials, such as resins and foams that are used in our products. Higher fuel prices may also have an adverse effect on demand for our boats, as they increase cost of boat ownership and possibly affect product use. Higher fuel prices may also have an effect on consumer preferences causing a shift from traditional fuel-powered boats to electric boats.\n\n\nFluctuations in foreign currency exchange rates could adversely affect our results.\n\n\nWe sell products manufactured in the U.S. into certain international markets in U.S. dollars. The changing relationship of the U.S. dollar to foreign currencies has, from time to time, had a negative impact on our results of operations. Fluctuations in the value of the U.S. dollar relative to these foreign currencies can adversely affect the price of our products in foreign markets and the costs we incur to import certain components for our products. We will often attempt to offset these higher prices with increased discounts, which can lead to reduced net sales per unit.\n\n\nRisks Relating to Our Business\n\n\n\u00a0\n\n\nOur ability to adjust for demand in a rapidly changing environment may adversely affect our results of operations.\n\n\nThe seasonality of retail demand for our products, together with our goal of balancing production throughout the year, requires us to manage our manufacturing and allocate our products to our dealer network to address anticipated retail demand and manage demand fluctuations caused by macroeconomic conditions and other factors. In addition, our dealers must manage seasonal changes in consumer demand and inventory. Our business may experience difficulty in adapting to rapidly changing production and sales volumes. We may not be able to recruit or maintain sufficient skilled labor or our suppliers may not be able to deliver sufficient quantities of parts and components for us to match production with rapid changes in forecasted demand. In addition, consumers may pursue other recreational activities if dealer pipeline inventories fall too low and it is not convenient to purchase our products, consumers may purchase from competitors, or our fixed costs may grow in response to increased demand. A failure to adjust dealer pipeline inventory levels to meet demand could adversely impact our results of operations.\n \n In addition, if our dealers reduce their inventories in response to weakness in retail demand, we could be required to reduce our production, resulting in lower rates of absorption of fixed costs in our manufacturing and, therefore, lower margins. As a result, we must balance the economies of level production with seasonal retail sales patterns experienced by our dealers and other macroeconomic conditions. Failure to adjust manufacturing levels adequately may have a material adverse effect on our financial condition and results of operations.\n\n\nWe have a fixed cost base that will affect our profitability if our sales decrease.\n\n\nThe fixed cost levels of operating a powerboat manufacturer can put pressure on profit margins when sales and production decline. Our profitability depends, in part, on our ability to spread fixed costs over a sufficiently large number of products sold and shipped, and if we make a decision to reduce our rate of production, gross or net margins could be negatively affected. Consequently, decreased demand or the need to reduce production can lower our ability to absorb fixed costs and materially impact our financial condition or results of operations.\n\n\nWe may not be able to execute our manufacturing strategy successfully, which could cause the profitability of our products to suffer.\n\n\nOur manufacturing strategy is designed to improve product quality and increase productivity, while reducing costs and increasing flexibility to respond to ongoing changes in the marketplace. To implement this strategy, we must be successful in our continuous improvement efforts, which depend on the involvement of management, production employees, and suppliers. Any inability to achieve these objectives could adversely impact the profitability of our products and our ability to deliver desirable products to our consumers.\n\n\nIn addition, we have made strategic capital investments in capacity expansion activities to successfully capture growth opportunities and enhance product offerings, including brand relocation and plant expansions. Moving production to a different plant and expanding capacity at an existing facility involves risks, including difficulties initiating production within the cost and timeframe estimated, supplying product to customers when expected, integrating new products, and attracting sufficient skilled labor to handle additional production demands. If we fail to meet these objectives, it could adversely affect our ability to meet customer demand for products and\n \n\n\n8\n\n\n\n\n\u00a0\n\n\nincrease the cost of production versus projections, both of which could result in a significant adverse impact on operating and financial results. Additionally, plant expansion can result in manufacturing inefficiencies, additional expenses, including higher wages or severance costs, and cost inefficiencies, which could negatively impact financial results.\n\n\nAdverse weather conditions and climate change events can have a negative effect on revenues.\n\n\nChanges in seasonal weather conditions can have a significant effect on our operating and financial results. Sales of our boats are typically stronger just before and during spring and summer, and favorable weather during these months generally has had a positive effect on consumer demand. Conversely, unseasonably cool weather, excessive rainfall, or drought conditions during these periods can reduce or change the timing of demand. Climate change could have an impact on longer-term natural weather trends, resulting in environmental changes including, but not limited to, increases in severe weather, changing sea levels, changes in sea, land and air temperatures, poor water conditions, or reduced access to water, could disrupt or negatively affect our business.\n\n\nCatastrophic events, including natural and environmental disasters, acts of terrorism, or civil unrest, could have a negative effect on our operations and financial results.\n\n\nWe rely on the continuous operation of our manufacturing facilities in Vonore, Tennessee, Merritt Island, Florida, and Owosso, Michigan for the production of our products. Any natural disaster or other serious disruption to our facilities due to fire, snow, flood, earthquake, pandemics, civil insurrection or social unrest or any other unforeseen circumstance could adversely affect our business, financial condition, and results of operations. Hurricanes, floods, earthquakes, storms, and catastrophic natural or environmental disasters, as well as acts of terrorism or civil unrest, could disrupt our distribution channel, operations, or supply chain and decrease consumer demand. If a catastrophic event takes place in one of our major sales markets, our sales could be diminished. Additionally, if such an event occurs near our business locations, manufacturing facilities or key supplier facilities, business operations, and/or operating systems could be interrupted.\n \n\n\nWe could be uniquely affected by weather-related catastrophic events, as we have dealers and third-party suppliers located in regions of the United States that have been and may be exposed to damaging storms, such as hurricanes and tornados, floods and environmental disasters. Although preventative measures may help to mitigate damage, the damage and disruption resulting from natural and environmental disasters may be significant. Such disasters can disrupt our consumers, dealers, or suppliers, which can interrupt our operational processes and our sales and profits.\n \n\n\nOur ability to remain competitive depends on successfully introducing new products and services that meet consumer expectations.\n\n\nWe believe that our consumers look for and expect quality, innovation, and advanced features when evaluating and making purchasing decisions about products and services in the marketplace. Our ability to remain competitive and meet our growth objectives may be adversely affected by difficulties or delays in product development, such as an inability to develop viable new products, gain market acceptance of new products, generate sufficient capital to fund new product development, or obtain adequate intellectual property protection for new products. To meet ever-changing consumer demands, both timing of market entry and pricing of new products are critical. As a result, we may not be able to introduce new products that are necessary to remain competitive in all markets that we serve. Furthermore, we must continue to meet or exceed consumers' expectations regarding product quality and after-sales service or our operating results could suffer.\n\n\nOur financial results may be adversely affected by our third-party suppliers' increased costs or inability to adjust for our required production levels due to changes in demand or global supply chain disruptions.\n\n\nWe rely on a complex global supply chain of third parties to supply raw materials used in the manufacturing process, including resins, fiberglass, aluminum, lumber and steel, as well as product parts and components. The prices for these raw materials, parts, and components fluctuate depending on market conditions and, in some instances, commodity prices or trade policies, including tariffs. Substantial increases in the prices of raw materials, parts, and components would increase our operating costs, and could reduce our profitability if we are unable to recoup the increased costs through higher product prices or improved operating efficiencies. Similarly, if a critical supplier were to close its operations, cease manufacturing, or otherwise fail to deliver an essential component necessary to our manufacturing operations, that could detrimentally affect our ability to manufacture and sell our products, resulting in an interruption in business operations and/or a loss of sales.\n \n\n\nIn addition, engines used in the manufacturing processes of certain segments are available from a sole-source supplier. Other components used in our manufacturing process, such as boat windshields, towers, and surf tabs may only be available from a limited number of suppliers. Operational and financial difficulties that these or other suppliers may face in the future could adversely affect their ability to supply us with the parts and components we need, which could significantly disrupt our operations. It may be difficult to find a replacement supplier for a limited or sole source raw material, part, or component without significant delay or on commercially reasonable terms. In addition, an uncorrected defect or supplier's variation in a raw material, part, or component, either unknown to us or incompatible with our manufacturing process, could jeopardize our ability to manufacture products.\n\n\n9\n\n\n\n\n\u00a0\n\n\nSome additional supply chain disruptions that could impact our operations, impair our ability to deliver products to customers, and negatively affect our financial results include:\n\n\n\u2022\nan outbreak of disease or facility closures due to public health threats;\n\n\n\u2022\na deterioration of our relationships with suppliers;\n\n\n\u2022\nevents such as natural disasters, power outages, or labor strikes;\n\n\n\u2022\nfinancial or political instability in any of the countries in which our suppliers operate;\n\n\n\u2022\nfinancial pressures on our suppliers due to a weakening economy or unfavorable conditions in other end markets; \n\n\n\u2022\nsupplier manufacturing constraints and investment requirements; or\n\n\n\u2022\ntermination or interruption of supply arrangements.\n\n\nThese risks are exacerbated in the case of single-source suppliers, and the exclusive supplier of a key component could potentially exert significant bargaining power over price, quality, warranty claims, or other terms.\n\n\nWe continue to evaluate and shift production; consequently, our need for raw materials and supplies continues to fluctuate. Our suppliers must be prepared to shift operations and, in some cases, hire additional workers and/or expand capacity in order to fulfill our orders and those of other customers. Cost increases, defects, or sustained interruptions in the supply of raw materials, parts, or components due to delayed start-up periods, or sudden changes in requirements, our suppliers experience as they shift production efforts create risks to our operations and financial results. The Company has experienced periodic supply shortages and increases in costs to certain materials. We continue to address these issues by identifying alternative suppliers for key materials and components, working to secure adequate inventories of critical supplies, and continually monitoring the capabilities of our supplier base. In the future, however, we may experience shortages, delayed delivery, and/or increased prices for key materials, parts, and supplies that are essential to our manufacturing operations.\n\n\nOur business and operations are dependent on the expertise of our key contributors, our successful implementation of succession plans, and our ability to attract and retain management employees and skilled labor.\n\n\nThe talents and efforts of our employees, particularly key managers, are vital to our success. We have observed an overall tightening and increasingly competitive labor market in recent years, which could inhibit our ability to recruit, train and retain employees we require at efficient costs and could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees. Our management team has significant industry experience and would be difficult to replace. We may be unable to retain them or to attract other highly qualified employees. Failure to hire, develop, and retain highly qualified and diverse employee talent and to develop and implement an adequate succession plan for the management team could disrupt our operations and adversely affect our business and our future success. We perform an annual review of management succession plans with our board of directors, including reviewing executive officer and other important positions to substantially mitigate the risk associated with key contributor transitions, but we cannot ensure that all transitions will be implemented successfully.\n\n\nOur ability to continue to execute our growth strategy could potentially be adversely affected by the effectiveness of organizational changes. Any disruption or uncertainty resulting from such changes could have a material adverse impact on our business, results of operations, and financial condition.\n \n\n\nMuch of our future success depends on, among other factors, our ability to attract and retain skilled labor, which is critical to our operations. We may experience difficulty maintaining desired staffing levels due to increased competition for employees, higher employee turnover rates and low unemployment rates in many of the geographic areas in which we manufacture or distribute goods. We continually invest in automation and improve our efficiency, but availability and retention of skilled hourly workers remains critical to our operations. In order to manage this risk, we regularly monitor and make improvements to wages and benefit programs, as well as develop and improve recruiting, training, and safety programs to attract and retain an experienced and skilled workforce.\n\n\nWe depend on our network of independent dealers which creates additional risks.\n\n\nSubstantially all of our sales are derived from our network of independent dealers. Maintaining a reliable network of dealers is essential to our success. Our agreements with dealers in our networks typically provide for one-year terms, although some agreements have longer terms. The loss of one or more of these dealers could have a material adverse effect on our financial condition and results of operations. The number of dealers supporting our products and the quality of their marketing and servicing efforts are essential to our ability to generate sales. We face competition from other manufacturers in attracting and retaining independent boat dealers. Although our management believes that the quality of our products in the premium performance sport, outboard boat, and sterndrive boat industries should permit us to maintain our relationships with our dealers and our market share position, there can be no assurance that we will be able to maintain or improve our relationships with our dealers or our market share position. In addition, independent dealers in the\n \n\n\n10\n\n\n\n\n\u00a0\n\n\npowerboat industry have experienced significant consolidation in recent years, which could result in the loss of one or more of our dealers in the future if the surviving entity in any such consolidation purchases similar products from a competitor. A significant deterioration in the number or effectiveness of our dealers could have a material adverse effect on our business, financial condition, results of operations, and cash flows.\n\n\nAlthough at present we believe dealer health to be generally favorable, weakening demand for marine products could hurt our dealers\u2019 financial performance. In particular, reduced cash flow from decreases in sales and tightening credit markets could impair dealers' ability to fund operations. Inability to fund operations can force dealers to cease business, and we may be unable to obtain alternate distribution in the vacated market. An inability to obtain alternate distribution could unfavorably affect our net sales through reduced market presence. If economic conditions deteriorate, we anticipate that dealer failures or voluntary market exits would increase, especially if overall retail demand materially declines.\n \n\n\nOur dealers require adequate liquidity to finance their operations, including purchasing our products. Dealers are subject to numerous risks and uncertainties that could unfavorably affect their liquidity positions, including, among other things, continued access to adequate financing sources on a timely basis on reasonable terms. These financing sources are vital to our ability to sell products through our network of dealers. Many of our dealers have floor plan financing arrangements with third-party finance companies. Many factors, including creditworthiness of our dealers and overall aging and level of pipeline inventories, continue to influence the availability and terms of financing that our dealers are able to secure, which could cause dealers to shift the timing of purchases or reduce the total amount purchased in a given period of time, adversely affecting sales of our products. In addition, rising interest rates could also incentivize dealers to reduce their inventory levels in order to reduce their interest exposure, which may further adversely impact the sales of our products and our results of operations.\n\n\nWe may be required to repurchase inventory of certain dealers.\n\n\nFloor plan financing arrangements with third-party finance companies enable dealers to purchase our products. In connection with these agreements, we may have an obligation to repurchase our products from a finance company under certain circumstances. This obligation is triggered if a dealer defaults on its debt obligations to a finance company. In addition, applicable laws regulating dealer relations may also require us to repurchase our products from our dealers under certain circumstances. In such circumstances, we may not have any control over the timing or amount of any repurchase obligation nor have access to capital on terms acceptable to us to satisfy any repurchase obligation. If we were obligated to repurchase a significant number of units under any repurchase agreement or under applicable dealer laws, our business, operating results, financial condition and cash flows could be adversely affected.\n\n\nFuture declines in marine industry demand could cause an increase in repurchase activity or could require us to incur losses in excess of established reserves. In addition, our cash flow and loss experience could be adversely affected if repurchased inventory is not successfully distributed to other dealers in a timely manner, or if the recovery rate on the resale of the product declines. The finance companies could require changes in repurchase terms that would result in an increase in our contractual obligations.\n\n\nOur industry is characterized by intense competition, which affects our sales and profits.\n\n\nThe premium performance sport boat, outboard, and sterndrive boat categories and the powerboat industry as a whole are highly competitive for consumers and dealers. We also compete against consumer demand for used boats. Competition affects our ability to succeed in both the markets we currently serve and new markets that we may enter in the future. Competition is based primarily on brand name, price, product selection, and product performance. We compete with several large manufacturers that may have greater financial, marketing, and other resources than we do and who are represented by dealers in the markets in which we now operate and into which we plan to expand. We also compete with a variety of small, independent manufacturers. We cannot provide assurance that we will not face greater competition from existing large or small manufacturers or that we will be able to compete successfully with new competitors. Our failure to compete effectively with our current and future competitors would adversely affect our business, financial condition, and results of operations.\n\n\nWe compete with a variety of other activities for consumers\u2019 scarce leisure time.\n\n\nOur boats are used for recreational and sport purposes, and demand for our boats may be adversely affected by competition from other activities that occupy consumers\u2019 leisure time and by changes in consumer lifestyle, usage pattern, or taste. Similarly, an overall decrease in consumer leisure time may reduce consumers\u2019 willingness to purchase and enjoy our products.\n\n\nOur sales may be adversely impacted by increased consumer preference for used boats or the supply of new boats by competitors in excess of demand.\n\n\nDuring an economic downturn, we could experience a shift in consumer demand toward purchasing more used boats, primarily because prices for used boats are typically lower than retail prices for new boats. If this were to occur, it could have the effect of reducing demand among retail purchasers for our new boats. Also, while we have taken steps designed to balance production volumes for our boats with demand, our competitors could choose to reduce the price of their products, which could have the effect of reducing demand for our\n \n\n\n11\n\n\n\n\n\u00a0\n\n\nnew boats. In addition, as previously mentioned, a shift from traditional fuel-powered boats to electric boats, alternative fuel-powered boats, or other technologies could reduce demand for our boats. Reduced demand for new boats could lead to reduced sales by us, which could adversely affect our business, results of operations, and financial condition.\n\n\nSignificant product repair and/or replacement due to product warranty claims or product recalls could have a material adverse impact on our results of operations.\n\n\nWe provide a limited warranty for our products. We may provide additional warranties related to certain promotional programs, as well as warranties in certain geographical markets as determined by local regulations and market conditions.\n\n\nAlthough we employ quality control procedures, sometimes a product is distributed that needs repair or replacement. Our standard warranties require us or our dealers to repair or replace defective products during such warranty periods at no cost to the consumer. Historically, product recalls have been administered through our dealers and distributors. The repair and replacement costs we could incur in connection with a recall could adversely affect our business. In addition, product recalls could harm our reputation and cause us to lose consumers, particularly if recalls cause consumers to question the safety or reliability of our products.\n\n\nAn inability to identify and complete targeted acquisitions could negatively impact financial results.\n\n\nWe may in the future explore acquisitions and strategic alliances that will enable us to acquire complementary skills and capabilities, offer new products, expand our consumer base, enter new product categories or geographic markets, and obtain other competitive advantages. We cannot provide assurance, however, that we will identify acquisition candidates or strategic partners that are suitable to our business, obtain financing on satisfactory terms, or complete acquisitions or strategic alliances.\n \nIn managing our acquisition strategy, we conduct rigorous due diligence, involve various functions, and continually review target acquisitions, all of which we believe mitigates some of our acquisition risks. However, we cannot assure that suitable acquisitions will be identified or consummated or that, if consummated, they will be successful. Acquisitions include a number of risks, including our ability to project and evaluate market demand, realize potential synergies and cost savings, and make accurate accounting estimates, as well as diversion of management attention. Uncertainties exist in assessing the value, risks, profitability, and liabilities associated with certain companies or assets, negotiating acceptable terms, obtaining financing on acceptable terms, and receiving any necessary regulatory approvals. As we continue to grow, in part, through acquisitions, our success depends on our ability to anticipate and effectively manage these risks. Our failure to successfully do so could have a material adverse effect on our financial condition and results of operations.\n\n\nThe inability to successfully integrate acquisitions could negatively impact financial results.\n\n\nOur strategic acquisitions pose risks, such as our ability to project and evaluate market demand; maximize potential synergies and cost savings; make accurate accounting estimates; and achieve anticipated business objectives. Acquisitions we may complete in the future, present these and other integration risks, including:\n\n\n\u2022\nthe possibility that the expected synergies and value creation will not be realized or will not be realized within the expected time period;\n\n\n\u2022\nthe risk that unexpected costs and liabilities will be incurred;\n\n\n\u2022\ndiversion of management attention; and\n\n\n\u2022\ndifficulties retaining employees.\n\n\nIf we fail to timely and successfully integrate new businesses into existing operations, we may see higher costs, lost sales, or otherwise diminished earnings and financial results.\n\n\nNegative public perception of our products, our environmental, social and governance (ESG) practices or restrictions on the access or the use of our products in certain locations could materially adversely affect our business or results of operations.\n\n\nDemand for our products depends in part on their acceptance by the public. Public concerns about the environmental impact of our products or their perceived safety, or our ESG practices generally, could result in diminished public perception of the products we sell. Government, media, or activist pressure to limit emissions could also negatively impact consumers\u2019 perceptions of our products. Any decline in the public acceptance of our products could negatively impact their sales or lead to changes in laws, rules and regulations that prevent access to certain locations or restrict use or manner of use in certain areas or during certain times, which could also negatively impact sales. Any material decline in the public acceptance of our products could impact our ability to retain existing consumers or attract new ones which, in turn, could have a material adverse effect on our business, results of operations or financial condition.\n\n\nOur business operations could be negatively impacted by an outage or breach of our information technology systems, network disruptions, or a cybersecurity event.\n\n\n12\n\n\n\n\n\u00a0\n\n\nWe manage our business operations through a variety of information technology systems and their underlying infrastructure, which we continually enhance to increase efficiency and security. In addition to the disruptions in our information technology systems, cybersecurity threats and sophisticated and targeted cyberattacks pose a risk to our information technology systems. We have established security policies, processes, and defenses, including employee awareness training regarding phishing, malware, and other cyber risks, designed to help identify and protect against intentional and unintentional misappropriation or corruption of our information technology systems and information and disruption of our operations. Additionally, we maintain quarterly discussions with our board of directors to address cyber risks and system and process enhancements. Despite these efforts, our information technology systems may be damaged, disrupted, or shut down due to attacks by unauthorized access, malicious software, computer viruses, undetected intrusion, hardware failures, or other events, and in these circumstances our disaster recovery plans may be ineffective or inadequate. These breaches or intrusions could lead to business interruption, exposure of proprietary or confidential information, data corruption, damage to our reputation, exposure to legal and regulatory proceedings, and other costs. A security breach might also lead to violations of privacy laws, regulations, trade guidelines or practices related to our customers and associates and could result in potential claims from customers, associates, shareholders, or regulatory agencies. Any failure to maintain compliance with such laws, regulations, trade guidelines or practices may cause us to incur significant penalties and generate negative publicity, and may require us to change our business practices, increase our costs or otherwise adversely affect our business. Such events could adversely impact our reputation, business, financial position, results of operations, and cash flows. In addition, we could be adversely affected if any of our significant customers or suppliers experiences any similar events that disrupt their business operations or damage their reputation.\n\n\nWhile we maintain monitoring practices and protections of our information technology to reduce these risks and test our systems on an ongoing basis for potential threats, there can be no assurance that these efforts will prevent a cyber-attack or other security breach. We carry cybersecurity insurance to help mitigate the financial exposure and related notification procedures in the event of intentional intrusion; however, there can be no assurance that our insurance will adequately protect against potential losses that could adversely affect our business.\n\n\nWe rely on third parties for computing, storage, processing, and similar services. Any disruption of or interference with our use of these third-party services could have an adverse effect on our business, financial condition, and operating results.\n\n\nMany of our business systems reside on third-party outsourced cloud infrastructure providers. We are therefore vulnerable to service interruptions experienced by these providers and could experience interruptions, delays, or outages in service availability in the future due to a variety of factors, including infrastructure changes, human, hardware or software errors, hosting disruptions, and capacity constraints. While we have mitigation and service redundancy plans in place, outages and/or capacity constraints could still arise from a number of causes such as technical failures, natural disasters, fraud, or internal or third-party security attacks, which could negatively impact our ability to manufacture and/or operate our business.\n\n\nOur credit facilities contain covenants which may limit our operating flexibility; failure to comply with covenants may result in our lenders restricting or terminating our ability to borrow under such credit facilities.\n\n\nIn the past, we have relied on our existing credit facilities to provide us with adequate liquidity to operate our business. The availability of borrowing amounts under our credit facilities is dependent on compliance with the debt covenants set forth in our credit agreement. Violation of those covenants, whether as a result of operating losses or otherwise, could result in our lenders restricting or terminating our borrowing ability under our credit facilities. If our lenders reduce or terminate our access to amounts under our credit facilities, we may not have sufficient capital to fund our working capital and other needs, and we may need to secure additional capital or financing to fund our operations or to repay outstanding debt under our credit facilities. We cannot provide assurance that we will be successful in ensuring the availability of amounts under our credit facilities or in raising additional capital, or that any amount, if raised, will be sufficient to meet our cash needs or will be on terms as favorable as those which have been available to us historically. If we are not able to maintain our ability to borrow under our credit facilities, or to raise additional capital when needed, our business and operations will be materially adversely affected.\n\n\nActual or potential public health emergencies, epidemics, or pandemics, such as the COVID-19 pandemic, could have a material adverse effect on our business, results of operations, or financial condition.\n\n\nThe impact of actual or potential public health emergencies, epidemics, or pandemics on the Company, our suppliers, dealers, and consumers, and the general economy could be wide-ranging and significant, depending on the nature of the issue, governmental actions taken in response, and the public reaction. The impact of such events could include employee illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in economic activity, widespread unemployment, and supply chain interruptions, which collectively could cause significant disruptions to global economies and financial markets.\n\n\nIn addition, these events could result in future significant volatility in demand, positively or negatively, for our products. Demand volatility may be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, quarantine, or other travel restrictions; dealership closures due to illness or government restrictions; a reduction in boating activity as a result of governmental actions or self-quarantine measures; shifts in demand away from discretionary products; and reduced options for\n \n\n\n13\n\n\n\n\n\u00a0\n\n\nmarketing and promotion of products. If such events occur over a prolonged period, they could increase our costs and difficulty of operating our business, including accurately planning and forecasting for our operations and inventory levels, which may adversely impact our results.\n\n\nThe COVID-19 pandemic resulted in disruption, uncertainty, and volatility in the global financial and credit markets, and similar future events could to the same. Such volatility could impact our access to capital resources and liquidity in the future, including making credit difficult to obtain or only available on less favorable terms. The impact on our operations could also be material. For example, we could experience absenteeism caused by illness or quarantine measures. Additionally, we rely on original equipment manufacturers, dealers, and distributors to market and sell most of our products, and effects on their businesses or financial condition as a result of future pandemics could result in various adverse operational impacts including, but not limited to, lower sales, delayed cash payments, interrupted customer warranty service, and increased credit risk.\n\n\nRisks Relating to Intellectual Property\n\n\nOur success depends on the continued strength of our brands and the value of our brands, and sales of our products could be diminished if we, the athletes who use our products, or the sports and activities in which our products are used are associated with negative publicity.\n\n\nWe believe that our brands are a significant contributor to the success of our business and that maintaining and enhancing our brands is important to expanding our consumer and dealer base. Failure to continue to protect our brands may adversely affect our business, financial condition, and results of operations.\n\n\nNegative publicity, including that resulting from severe injuries or death occurring in the sports and activities in which our products are used, could negatively affect our reputation and result in restrictions, recalls, or bans on the use of our products. Further, actions taken by athletes associated with our products that harm the reputations of those athletes could also harm our brand image and adversely affect our financial condition. If the popularity of the sports and activities for which we design, manufacture, and sell products were to decrease as a result of these risks or any negative publicity, sales of our products could decrease, which could have an adverse effect on our net sales, profitability, and operating results. In addition, if we become exposed to additional claims and litigation relating to the use of our products, our reputation may be adversely affected by such claims, whether or not successful, including by generating potential negative publicity about our products, which could adversely impact our business and financial condition.\n\n\nOur intellectual property rights may be inadequate to protect our business.\n\n\nWe rely on a combination of patents, trademarks, copyrights, protected design, and trade secret laws; employee and third-party non-disclosure agreements; and other contracts to establish and protect our technology and other intellectual property rights. However, we remain subject to risks, including:\n\n\n\u2022\nthe steps we take to protect our proprietary technology may be inadequate to prevent misappropriation of our technology;\n\n\n\u2022\nthird parties may independently develop similar technology;\n\n\n\u2022\nagreements containing protections may be breached or terminated;\n\n\n\u2022\nwe may not have adequate remedies for breaches;\n\n\n\u2022\npending patent, trademark, and copyright applications may not be approved;\n\n\n\u2022\nexisting patent, trademark, copyright, and trade secret laws may afford limited protection;\n\n\n\u2022\na third party could copy or otherwise obtain and use our products or technology without authorization; or\n\n\n\u2022\nwe may be required to litigate to enforce our intellectual property rights, and we may not be successful. \n\n\nPolicing unauthorized use of our intellectual property is difficult and litigating intellectual property claims may result in substantial cost and divert management\u2019s attention.\n \n\n\nIn addition, we may be required to defend our products against patent or other intellectual property infringement claims or litigation. Besides defense expenses and costs, we may not prevail in such cases, forcing us to seek licenses or royalty arrangements from third parties, which we may not be able to obtain on reasonable terms, or subjecting us to an order or requirement to stop manufacturing, using, selling, or distributing products that included challenged intellectual property, which could harm our business and financial results.\n\n\nIf third parties claim that we infringe on their intellectual property rights, our financial condition could be adversely affected.\n\n\n14\n\n\n\n\n\u00a0\n\n\nWe face the risk of claims that we have infringed third parties\u2019 intellectual property rights. Any claims of patent or other intellectual property infringement, even those without merit, could be expensive and time consuming to defend, cause us to cease making, licensing, or using products that incorporate the challenged intellectual property, require us to redesign, re-engineer, or re-brand our products, if feasible, divert management\u2019s attention and resources, or require us to enter into royalty or licensing agreements in order to obtain the right to use a third party\u2019s intellectual property. Any royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement against us could result in our being required to pay significant damages, enter into costly license or royalty agreements, or stop the sale of certain products, any of which could have a negative impact on our business, financial condition, and results of operations. While we are not currently involved in any outstanding intellectual property litigation that we believe, individually or in the aggregate, will have a material adverse effect on our business, financial condition, or results of operations, we cannot predict the outcome of any pending litigation and an unfavorable outcome could have an adverse impact on our business, financial condition, or results of operations.\n\n\nRisks Relating to Our Regulatory, Accounting, Legal, and Tax Environment\n\n\nInternational tariffs could materially and adversely affect our business and results of operations.\n\n\nChanges in laws and policies governing foreign trade could adversely affect our business. The institution of global trade tariffs, trade sanctions, new or onerous trade restrictions, embargoes and other stringent government controls carries the risk of negatively affecting global economic conditions, which could have a negative impact on our business and results of operations. Also, certain foreign governments have imposed tariffs on certain U.S. goods and may take additional retaliatory trade actions stemming from the tariffs, which could increase the pricing of our products and result in decreased consumer demand for our products outside of the United States, which could materially and adversely affect our business and results of operations.\n\n\nIn addition, U.S. initiated tariffs on certain foreign goods, including raw materials, commodities, and products manufactured outside the United States that are used in our manufacturing processes may cause our manufacturing cost to rise, which would have a negative impact on our business and results of operations.\n\n\nAn impairment in the carrying value of goodwill, trade names, and other long-lived assets could negatively affect our consolidated results of operations and net worth.\n\n\nGoodwill and indefinite-lived intangible assets, such as our trade names, are recorded at fair value at the time of acquisition and are not amortized, but are reviewed for impairment at least annually or more frequently if impairment indicators arise. In evaluating the potential for impairment of goodwill and trade names, we make assumptions regarding future operating performance, business trends, and market and economic conditions. Such analyses further require us to make certain assumptions about sales, operating margins, growth rates, and discount rates. Uncertainties are inherent in evaluating and applying these factors to the assessment of goodwill and trade name recoverability. We could be required to evaluate the recoverability of goodwill or trade names prior to the annual assessment if we experience business disruptions, unexpected significant declines in operating results, a divestiture of a significant component of our business, or declines in market capitalization.\n\n\nWe also continually evaluate whether events or circumstances have occurred that indicate the remaining estimated useful lives of our definite-lived intangible assets and other long-lived assets may warrant revision or whether the remaining balance of such assets may not be recoverable. We use an estimate of the related undiscounted cash flow over the remaining life of the asset in measuring whether the asset is recoverable.\n\n\nAs of June 30, 2023, the balance of total goodwill and indefinite lived intangible assets was $54.5 million, which represents approximately 15 percent of total assets. If the future operating performance of either the Company or individual operating segments is not sufficient, we could be required to record non-cash impairment charges. Impairment charges could substantially affect our reported earnings in the periods such charges are recorded. In addition, impairment charges could indicate a reduction in business value which could limit our ability to obtain adequate financing in the future.\n\n\nCompliance with environmental, health, safety, and other regulatory requirements may increase costs and reduce demand for our products.\n\n\nWe are subject to federal, state, local, and foreign laws and regulations, including those concerning product safety, environmental protection, and occupational health and safety. Some of these laws and regulations require us to obtain permits and limit our ability to discharge hazardous materials into the environment. Failure to comply with these requirements could result in the assessment of fines and penalties, obligations to conduct remedial or corrective actions, or, in extreme circumstances, revocation of our permits or injunctions preventing some or all of our operations. In addition, the components of our boats must meet certain regulatory standards, including stringent air emission standards for boat engines. Failure to meet these standards could result in an inability to sell our boats in key markets, which would adversely affect our business. Moreover, compliance with these regulatory requirements could increase the cost of our products, which in turn, may reduce consumer demand.\n\n\n15\n\n\n\n\n\u00a0\n\n\nWhile we believe that we are in compliance with applicable federal, state, local, and foreign regulatory requirements, and hold all licenses and permits required thereunder, we cannot provide assurance that we will, at all times, be able to continue to comply with applicable regulatory requirements. Compliance with increasingly stringent regulatory and permit requirements may, in the future, cause us to incur substantial capital costs and increase our cost of operations, or may limit our operations, all of which could have a material adverse effect on our business or financial condition.\n\n\nOur manufacturing processes involve the use, handling, storage, and contracting for recycling or disposal of hazardous substances and wastes. The failure to manage or dispose of such hazardous substances and wastes properly could expose us to material liability or fines, including liability for personal injury or property damage due to exposure to hazardous substances, damages to natural resources, or for the investigation and remediation of environmental conditions. Under environmental laws, we may be liable for remediation of contamination at sites where our hazardous wastes have been disposed or at our current or former facilities, regardless of whether such facilities are owned or leased or regardless of whether we were at fault. While we do not believe that we are presently subject to any such liabilities, we cannot assure you that environmental conditions relating to our prior, existing, or future sites or operations or those of predecessor companies will not have a material adverse effect on our business or financial condition.\n\n\nAdditionally, we are subject to laws governing our relationships with employees, including, but not limited to, employment obligations and employee wage, hour, and benefits issues, such as health care benefits. Compliance with these rules and regulations, and compliance with any changes to current regulations, could increase the cost of our operations.\n\n\nWe manufacture and sell products that create exposure to potential claims and litigation.\n \n\n\nOur manufacturing operations and the products we produce could result in product quality, warranty, personal injury, property damage, and other issues, thereby increasing the risk of litigation and potential liability, as well as regulatory fines. We have in the past incurred such liabilities and may in the future be exposed to liability for such claims. We maintain product and general liability insurance of the types and in the amounts that we believe are customary for the industry. However, we may experience material losses in the future, incur significant costs to defend claims or issue product recalls, experience claims in excess of our insurance coverage or that are not covered by insurance, or be subjected to fines or penalties. Our reputation may be adversely affected by such claims, whether or not successful, including potential negative publicity about our products. In addition, if any of our products are, or are alleged to be, defective, we may be required to participate in a recall of that product if the defect or alleged defect relates to safety. These and other claims we may face could be costly to us and require substantial management attention.\n\n\nThe nature of our business exposes us to workers\u2019 compensation claims and other workplace liabilities.\n\n\nCertain materials we use require our employees to handle potentially hazardous or toxic substances. While our employees who handle these and other potentially hazardous or toxic materials receive specialized training and wear protective clothing, there is still a risk that they, or others, may be exposed to these substances. Exposure to these substances could result in significant injury to our employees and damage to our property or the property of others, including natural resource damage. Our personnel are also at risk for other workplace related injuries, including slips and falls. We have in the past been, and may in the future be, subject to fines, penalties, and other liabilities in connection with any such injury or damage. Although we currently maintain what we believe to be suitable and adequate insurance in excess of our self-insured amounts, we may be unable to maintain such insurance on acceptable terms or such insurance may not provide adequate protection against potential liabilities.\n\n\nIncreases in income tax rates or changes in income tax laws or enforcement could have a material adverse impact on our financial results.\n\n\nChanges in domestic and international tax legislation could expose us to additional tax liability. Although we monitor changes in tax laws and work to mitigate the impact of proposed changes, such changes may negatively impact our financial results. In addition, increases in individual income tax rates would negatively affect our potential consumers\u2019 discretionary income and could decrease the demand for our products.\n\n\nRisks Relating to Ownership of our Common Stock\n\n\nInefficient or ineffective allocation of capital could adversely affect our operating results and/or stockholder value.\n\n\nWe strive to allocate capital in a manner that enhances stockholder value, lowers our cost of capital, or demonstrates our commitment to return excess capital to stockholders, while maintaining our ability to invest in strategic growth opportunities. In July 2023, the board of directors of the Company authorized a new share repurchase program under which the Company may repurchase up to $50 million of its outstanding shares of common stock. The new authorization will become effective upon the expiration of the Company's existing $50 million share repurchase authorization. The Company intends to purchase shares under the repurchase authorization from time to time on the open market at the discretion of management, subject to strategic considerations, market conditions, and other factors. Repurchases under our share repurchase program will reduce the market liquidity for our stock, potentially affecting its trading volatility and price. Future share repurchases will also diminish our cash reserves, which may impact our ability to pursue attractive strategic\n \n\n\n16\n\n\n\n\n\u00a0\n\n\nopportunities. Therefore, if we do not properly allocate our capital or implement a successful cash management strategy, including with respect to returning value to our stockholders through this share repurchase authorization, we may fail to produce optimal financial results and experience a reduction in stockholder value.\n\n\nShareholders may be diluted by future issuances of common stock in connection with our incentive plans, acquisitions, or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.\n\n\nOur amended and restated certificate of incorporation authorizes us to issue shares of common stock and options, rights, warrants, and appreciation rights relating to common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise.\n\n\nAny common stock that we issue, including under our 2015 Incentive Award Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership of holders of our common stock.\n \n\n\nWe currently do not intend to pay dividends on our common stock.\n\n\nWhile we have paid dividends in the past, we currently have no intention to pay dividends on our common stock. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions, and other factors that our board of directors may deem relevant. Furthermore, our ability to declare and pay dividends may be limited by instruments governing future outstanding indebtedness we may incur.\n\n\nCertain activist shareholder actions could cause us to incur expense and hinder execution of our strategy.\n\n\nWe actively engage in discussions with our shareholders regarding further strengthening our Company and creating long-term shareholder value. This ongoing dialogue can include certain divisive activist tactics, which can take many forms. Some shareholder activism, including potential proxy contests, could result in substantial costs, such as legal fees and expenses, and divert management\u2019s and our board of director\u2019s attention and resources from our businesses and strategic plans. Additionally, public shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with dealers, distributors, or consumers, make it more difficult to attract and retain qualified personnel, and cause our stock price to fluctuate based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business. These risks could adversely affect our business and operating results.\n\n\n17\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A.\n \n\n\nRisk Factors\n\n\n\u00a0\n\n\n7\n\n\n\n\n\u00a0\n\n\nItem 1B.\n \n\n\nUnresolved Staff Comments\n\n\n\u00a0\n\n\n18\n\n\n\n\n\n\n\u00a0\n\n\nItem 2.\n \n\n\nProperties\n\n\n\u00a0\n\n\n18\n\n\n\n\n\n\n\u00a0\n\n\nItem 3.\n \n\n\nLegal Proceedings\n\n\n\u00a0\n\n\n18\n\n\n\n\n\n\n\u00a0\n\n\nItem 4.\n \n\n\nMine Safety Disclosures\n\n\n\u00a0\n\n\n18\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPART II\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nItem 5.\n \n\n\nMarket for Registrant\u2019s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities\n\n\n\u00a0\n\n\n19\n\n\n\n\n\n\n\u00a0\n\n\nItem 6.\n \n\n\nReserved\n\n\n\u00a0\n\n\n20\n\n\n\n\n\n\n\u00a0\n\n\nItem 7.\n \n\n\nManagement's Discussion and Analysis of Financial Condition and Results of Operations\n\n\n\u00a0\n\n\n21\n\n\n\n\n\n\n\u00a0\n\n\nItem 7A.\n \n\n\nQuantitative and Qualitative Disclosures about Market Risk\n\n\n\u00a0\n\n\n31\n\n\n\n\n\n\n\u00a0\n\n\nItem 8.\n \n\n\nFinancial Statements and Supplementary Data\n\n\n\u00a0\n\n\n31\n\n\n\n\n\n\n\u00a0\n\n\nItem 9.\n \n\n\nChanges in and Disagreements With Accountants on Accounting and Financial Disclosure\n\n\n\u00a0\n\n\n31\n\n\n\n\n\n\n\u00a0\n\n\nItem 9A.\n \n\n\nControls and Procedures\n\n\n\u00a0\n\n\n31\n\n\n\n\n\n\n\u00a0\n\n\nItem 9B.\n \n\n\nOther Information\n\n\n\u00a0\n\n\n32\n\n\n\n\n\n\n\u00a0\n\n\nItem 9C.\n\n\nDisclosure Regarding Foreign Jurisdictions That Prevent Inspections\n\n\n\u00a0\n\n\n32\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPART III\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nItem 10.\n \n\n\nDirectors, Executive Officers and Corporate Governance\n\n\n\u00a0\n\n\n33\n\n\n\n\n\n\n\u00a0\n\n\nItem 11.\n \n\n\nExecutive Compensation\n\n\n\u00a0\n\n\n33\n\n\n\n\n\n\n\u00a0\n\n\nItem 12.\n \n\n\nSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\n\n\n\u00a0\n\n\n33\n\n\n\n\n\n\n\u00a0\n\n\nItem 13.\n \n\n\nCertain Relationships and Related Transactions, and Director Independence\n\n\n\u00a0\n\n\n33\n\n\n\n\n\n\n\u00a0\n\n\nItem 14.\n \n\n\nPrincipal Accountant Fees and Services\n\n\n\u00a0\n\n\n33\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nPART IV\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nItem 15.\n \n\n\nExhibits, Financial Statement Schedules\n\n\n\u00a0\n\n\n34\n\n\n\n\n\n\n\u00a0\n\n\nItem 16.\n \n\n\nForm 10-K Summary\n\n\n\u00a0\n\n\n36\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nii\n\n\n\n\n\u00a0\n\n\nCAUTIONARY NOTE REGARDING F\nORWARD-LOOKING STATEMENTS\n \n\n\nThis Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Form 10-K that do not relate to matters of historical fact should be considered forward-looking statements, including but not limited to statements regarding our expected market share, business strategy, dealer network, anticipated financial results, and liquidity. We use words such as \u201ccould,\u201d \u201cmay,\u201d \u201cmight,\u201d \u201cwill,\u201d \u201cexpect,\u201d \u201clikely,\u201d \u201cbelieve,\u201d \u201ccontinue,\u201d \u201canticipate,\u201d \u201cestimate,\u201d \u201cintend,\u201d \u201cplan,\u201d \u201cproject,\u201d and other similar expressions to identify some forward-looking statements, but not all forward-looking statements include these words. All of our forward-looking statements involve estimates and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to the information described under the caption \u201cRisk Factors\u201d and elsewhere in this Form 10-K.\n\n\nThe forward-looking statements contained in this Form 10-K are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments, and other factors we believe are appropriate under the circumstances. You should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control), and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many important factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements. We believe these important factors include, but are not limited to, those described under \u201cRisk Factors\u201d and \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in this Form 10-K and our other filings with the Securities and Exchange Commission (\u201cSEC\u201d). Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements. In addition, new important factors that could cause our business not to develop as we expect may emerge from time to time.\n\n\nFurther, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this Form 10-K to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. The forward-looking statements contained herein should not be relied upon as representing our views as of any date subsequent to the filing date of this Form 10-K.\n\n\nBASIS OF PRE\nSENTATION\n\n\nOur fiscal year begins on July 1 and ends on June 30 with the interim quarterly reporting periods consisting of thirteen weeks. Therefore, the quarter end will not always coincide with the date of the end of the calendar month. We refer to our fiscal years based on the calendar-year in which they end. Accordingly, references to fiscal 2023, fiscal 2022 and fiscal 2021 represent our financial results for the fiscal years ended June 30, 2023, June 30, 2022, and June 30, 2021, respectively. For ease of reference, we identify our fiscal years in this Form 10-K by reference to the period from July 1 to June 30 of the year in which the fiscal year ends. For example, \u201cfiscal 2023\u201d refers to our fiscal year ended June 30, 2023.\n\n\nMasterCraft Boat Holdings, Inc. (the \u201cCompany\u201d), a Delaware corporation, operates primarily through its wholly-owned subsidiaries, MasterCraft Boat Company, LLC, MasterCraft Services, LLC, MasterCraft Parts, Ltd., MasterCraft International Sales Administration, Inc., Aviara Boats, LLC, Crest Marine, LLC, and NSB Boats, LLC. Unless the context otherwise requires, the Company and its subsidiaries collectively are referred to as the \u201cCompany,\u201d \u201cwe,\u201d or \u201cus\u201d in this Form 10-K.\n\n\n1\n\n\n\n\n\u00a0\n\n\nPART\n I\n \n\n",
+  "item7": ">ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF \nFINANCIAL CONDITION AND RESULTS OF OPERATIONS.\n\n\nThe following discussion and analysis should be read together with the sections entitled \u201cRisk Factors\u201d and the financial statements and the accompanying notes included elsewhere in this Form 10-K. In addition, the statements in this discussion and analysis regarding the performance expectations of our business, anticipated financial results, liquidity and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in \u201cCautionary Note Regarding Forward-Looking Statements\u201d and in \u201cRisk Factors\u201d above. Our actual results may differ materially from those contained in or implied by any forward-looking statements.\n\n\nThis section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this Annual Report on Form 10-K and can be found in Item 7 of the Company\u2019s \nAnnual Report on Form 10-K for the year ended June 30, 2022\n, which was filed with the SEC on September 9, 2022.\n\n\nKey Performance Measures\n\n\nFrom time to time we use certain key performance measures in evaluating our business and results of operations and we may refer to one or more of these key performance measures in this \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\u201d These key performance measures include:\n\n\n\u2022\nUnit sales volume\n \u2014 We define unit sales volume as the number of our boats sold to our dealers during a period.\n\n\n\u2022\nNet sales per unit\n \u2014 We define net sales per unit as net sales divided by unit sales volume.\n\n\n\u2022\nGross margin \n\u2014 We define gross margin as gross profit divided by net sales, expressed as a percentage.\n\n\n\u2022\nNet income margin \n\u2014 We define net income margin as net income from continuing operations divided by net sales, expressed as a percentage.\n\n\n\u2022\nAdjusted EBITDA\n \u2014 We define Adjusted EBITDA as net income from continuing operations, before interest, income taxes, depreciation, and amortization (\u201cEBITDA\u201d), as further adjusted to eliminate certain non-cash charges and unusual items that we do not consider to be indicative of our core/ongoing operations. For a reconciliation of EBITDA to Adjusted EBITDA, see \u201cNon-GAAP Measures\u201d below.\n\n\n\u2022\nAdjusted EBITDA margin \n\u2014 We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales, expressed as a percentage. For a reconciliation of Adjusted EBITDA margin to net income margin, see \u201cNon-GAAP Measures\u201d below.\n\n\n\u2022\nAdjusted Net Income\n \u2014 We define Adjusted Net Income as net income from continuing operations, adjusted to eliminate certain non-cash charges and other items that we do not consider to be indicative of our core/ongoing operations and adjusted for the impact to income tax expense related to non-GAAP adjustments. For a reconciliation of net income from continuing operations to Adjusted Net Income, see \u201cNon-GAAP Measures\u201d below.\n\n\nDiscontinued Operations\n\n\nOn September 2, 2022, the Company completed the sale of its NauticStar business. This business, which was previously reported as the Company's NauticStar segment until fiscal 2023, is being reported as discontinued operations for all periods presented. The Company's results for all periods presented, as discussed in Management's Discussion and Analysis, are presented on a continuing operations basis with prior year amounts recast to provide comparability. See Note 3 in Notes to Consolidated Financial Statements for more information on Discontinued Operations.\n\n\nFiscal 2023 Overview\n\n\nNet sales were up slightly during fiscal 2023 when compared to fiscal 2022. The increase was primarily due to higher pricing to offset inflationary cost pressures, partially offset by a decrease in wholesale volume, dealer incentives and less favorable model mix. We achieved our goal of rebalancing dealer inventories; however, due to a slowing retail environment, the number of wholesale units sold were lower when compared to prior year. Model mix trended towards smaller-sized models as more boats were sold as inventory stock versus retail-sold boats. Also, because of increased dealer inventories, higher interest rates, and an increasingly competitive retail environment, dealer incentives, which include floor plan financing costs and other incentives, have increased.\n\n\nGross margin declined during fiscal 2023 when compared to fiscal 2022. Offsetting the increased net sales discussed above were increased expenses related to material, labor and overhead inflation. Other contributory expenses included increased insurance premiums and warranty-related costs. Overall, including the impact of dealer incentives in net sales noted above, the gross margin percentage declined 60 basis points.\n\n\n21\n\n\n\n\n\u00a0\n\n\nOperating expenses slightly increased during fiscal 2023 when compared to fiscal 2022. Total selling, general and administrative expenses as a percentage of net sales remained relatively flat during fiscal 2023 when compared to the same prior year period.\n\n\nResults of Operations\n\n\nWe derived the consolidated statements of operations for the fiscal years ended June 30, 2023 and 2022 from our audited consolidated financial statements and related notes included elsewhere in this Form 10-K. Our historical results are not necessarily indicative of the results that may be expected in the future.\n\n\nConsolidated Results\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\n(Dollar amounts in thousands)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nConsolidated statements of operations\n:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNET SALES\n\n\n\u00a0\n\n\n$\n\n\n662,046\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n641,609\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n20,437\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.2\n\n\n%\n\n\n\n\n\n\nCOST OF SALES\n\n\n\u00a0\n\n\n\u00a0\n\n\n492,333\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n473,419\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,914\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.0\n\n\n%\n\n\n\n\n\n\nGROSS PROFIT\n\n\n\u00a0\n\n\n\u00a0\n\n\n169,713\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n168,190\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,523\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.9\n\n\n%\n\n\n\n\n\n\nOPERATING EXPENSES:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nSelling and marketing\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,808\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,869\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n939\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.3\n\n\n%\n\n\n\n\n\n\nGeneral and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n37,034\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n36,070\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n964\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.7\n\n\n%\n\n\n\n\n\n\nAmortization of other intangible assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,956\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,956\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.0\n\n\n%\n\n\n\n\n\n\nGoodwill impairment\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,100\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nTotal operating expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n52,798\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n51,995\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n803\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.5\n\n\n%\n\n\n\n\n\n\nOPERATING INCOME\n\n\n\u00a0\n\n\n\u00a0\n\n\n116,915\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n116,195\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n720\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.6\n\n\n%\n\n\n\n\n\n\nOTHER INCOME (EXPENSE):\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,679\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,471\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,208\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n82.1\n\n\n%\n\n\n\n\n\n\nInterest income\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,351\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,351\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nINCOME BEFORE INCOME TAX EXPENSE\n\n\n\u00a0\n\n\n\u00a0\n\n\n117,587\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n114,724\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,863\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.5\n\n\n%\n\n\n\n\n\n\nINCOME TAX EXPENSE\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,135\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,779\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n356\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.3\n\n\n%\n\n\n\n\n\n\nNET INCOME FROM CONTINUING OPERATIONS\n\n\n\u00a0\n\n\n$\n\n\n90,452\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n87,945\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,507\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.9\n\n\n%\n\n\n\n\n\n\nAdditional financial and other data:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnit sales volume:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nMasterCraft\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,407\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,596\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(189\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5.3\n\n\n%)\n\n\n\n\n\n\nCrest\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,836\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,156\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(320\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10.1\n\n\n%)\n\n\n\n\n\n\nAviara\n\n\n\u00a0\n\n\n\u00a0\n\n\n134\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34.0\n\n\n%\n\n\n\n\n\n\nConsolidated unit sales volume\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,377\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,852\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(475\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6.9\n\n\n%)\n\n\n\n\n\n\nNet sales:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nMasterCraft\n\n\n\u00a0\n\n\n$\n\n\n468,656\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n466,027\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,629\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.6\n\n\n%\n\n\n\n\n\n\nCrest\n\n\n\u00a0\n\n\n\u00a0\n\n\n141,247\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n140,859\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n388\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.3\n\n\n%\n\n\n\n\n\n\nAviara\n\n\n\u00a0\n\n\n\u00a0\n\n\n52,143\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34,723\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,420\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n50.2\n\n\n%\n\n\n\n\n\n\nConsolidated net sales\n\n\n\u00a0\n\n\n$\n\n\n662,046\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n641,609\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n20,437\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.2\n\n\n%\n\n\n\n\n\n\nNet sales per unit:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nMasterCraft\n\n\n\u00a0\n\n\n$\n\n\n138\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n130\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.2\n\n\n%\n\n\n\n\n\n\nCrest\n\n\n\u00a0\n\n\n\u00a0\n\n\n50\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n45\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.1\n\n\n%\n\n\n\n\n\n\nAviara\n\n\n\u00a0\n\n\n\u00a0\n\n\n389\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n347\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n42\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.1\n\n\n%\n\n\n\n\n\n\nConsolidated net sales per unit\n\n\n\u00a0\n\n\n\u00a0\n\n\n104\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n94\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.6\n\n\n%\n\n\n\n\n\n\nGross margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.2\n\n\n%\n\n\n\u00a0\n\n\n(60) bps\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nNet Sales.\n Net Sales increased 3.2 percent for fiscal 2023 when compared to fiscal 2022. The increase was a result of higher prices, partially offset by decreased sales volumes, increased dealer incentives, and less favorable model mix. Dealer incentives include higher floor plan financing costs as a result of increased dealer inventories and interest rates, and other incentives as the retail environment becomes more competitive.\n\n\nGross Margin.\n Gross Margin percentage declined 60 basis points during fiscal 2023 when compared to fiscal 2022. Lower margins were the result of higher costs related to material and overhead inflation, higher costs from dealer incentives, lower absorption due to decreased sales volumes, less favorable model mix, and increased warranty costs related to prior model year expenses, partially offset by higher prices and improved production efficiencies.\n\n\nOperating Expenses\n. Operating expenses increased 1.5 percent during fiscal 2023 when compared to the same prior year period. During fiscal 2022, a $1.1 million goodwill impairment charge was recorded in the Aviara segment, as discussed in Note 7 in the Notes to\n \n\n\n22\n\n\n\n\n\u00a0\n\n\nConsolidated Financial Statements. Selling, general and administrative expenses as a percentage of net sales were relatively flat during fiscal 2023 when compared to the same prior year period.\n\n\nInterest Expense.\n Interest expense increased $1.2 million primarily due to higher effective interest rates.\n\n\nInterest Income.\n Interest income of $3.4 million during fiscal 2023 is derived from investments in fiscal 2023 in a portfolio of fixed income securities as part of the Company's cash management strategy.\n\n\nIncome Tax Expense.\n Our consolidated effective income tax rate decreased to 23.1 percent for fiscal 2023 from 23.3 percent for fiscal 2022. See Note 10 in Notes to Consolidated Financial Statements for more information.\n\n\nSegment Results\n\n\nMasterCraft Segment\n\n\nThe following table sets forth MasterCraft segment results for the fiscal years ended:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(Dollar amounts in thousands)\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n$\n\n\n468,656\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n466,027\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,629\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.6\n\n\n%\n\n\n\n\n\n\nOperating income\n\n\n\u00a0\n\n\n101,324\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n105,341\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,017\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3.8\n\n\n%)\n\n\n\n\n\n\nPurchases of property, plant and equipment\n\n\n\u00a0\n\n\n17,414\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,642\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,772\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n162.2\n\n\n%\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnit sales volume\n\n\n\u00a0\n\n\n3,407\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,596\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(189\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5.3\n\n\n%)\n\n\n\n\n\n\nNet sales per unit\n\n\n$\n\n\n138\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n130\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.2\n\n\n%\n\n\n\n\n\n\nNet sales increased 0.6 percent during fiscal 2023, when compared to fiscal 2022. The increase was primarily driven by higher selling prices, partially offset by decreased sales volumes, less favorable model mix, and increased dealer incentives.\n\n\nOperating income decreased 3.8 percent during fiscal 2023, when compared to the same prior year period. The overall decrease was driven by higher costs from inflationary pressures, higher dealer incentives, less favorable model mix, decreased sales volumes, and increased warranty costs related to prior model year expenses, partially offset by favorable pricing.\n\n\nPurchases of property, plant, and equipment increased $10.8 million during fiscal 2023, when compared to fiscal 2022. The increase was due to capital spending focused on facility enhancements, strategic initiatives, and information technology.\n\n\nCrest Segment\n\n\nThe following table sets forth Crest segment results for the fiscal years ended:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(Dollar amounts in thousands)\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n$\n\n\n141,247\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n140,859\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n388\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.3\n\n\n%\n\n\n\n\n\n\nOperating income\n\n\n\u00a0\n\n\n20,106\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,892\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n214\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.1\n\n\n%\n\n\n\n\n\n\nPurchases of property, plant and equipment\n\n\n\u00a0\n\n\n7,149\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,193\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,956\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n70.5\n\n\n%\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnit sales volume\n\n\n\u00a0\n\n\n2,836\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,156\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(320\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10.1\n\n\n%)\n\n\n\n\n\n\nNet sales per unit\n\n\n$\n\n\n50\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n45\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.1\n\n\n%\n\n\n\n\n\n\nNet sales increased 0.3 percent during fiscal 2023, when compared to fiscal 2022, as a result of higher prices, and favorable model mix and options, partially offset by decreased unit volume and increased dealer incentives.\n\n\nOperating income increased 1.1 percent during fiscal 2023, when compared to the same prior year period. The increase was primarily due to higher selling prices, and favorable model mix and options, partially offset by higher costs from inflationary pressures, decreased unit volume, and increased dealer incentives.\n\n\nPurchases of property, plant, and equipment increased $3.0 million during fiscal 2023, when compared to the same prior-year period. The increase was primarily due to capital spending focused on capacity expansion.\n\n\n\u00a0\n\n\n23\n\n\n\n\n\u00a0\n\n\nAviara Segment\n\n\nThe following table sets forth Aviara segment results for the fiscal years ended:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(Dollar amounts in thousands)\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange\n\n\n\u00a0\n\n\n\u00a0\n\n\n% Change\n\n\n\u00a0\n\n\n\n\n\n\nNet sales\n\n\n$\n\n\n52,143\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n34,723\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n17,420\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n50.2\n\n\n%\n\n\n\n\n\n\nOperating loss\n\n\n\u00a0\n\n\n(4,515\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9,038\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,523\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n50.0\n\n\n%\n\n\n\n\n\n\nGoodwill impairment\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,100\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nPurchases of property, plant and equipment\n\n\n\u00a0\n\n\n5,760\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,461\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,299\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n294.3\n\n\n%\n\n\n\n\n\n\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nUnit sales volume\n\n\n\u00a0\n\n\n134\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34.0\n\n\n%\n\n\n\n\n\n\nNet sales per unit\n\n\n$\n\n\n389\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n347\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n42\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.1\n\n\n%\n\n\n\n\n\n\nNet sales increased 50.2 percent during fiscal 2023, when compared to fiscal 2022, mainly due to increased sales volume and higher selling prices, partially offset by higher dealer incentives.\n\n\nOperating loss decreased 50.0 percent for fiscal 2023, when compared to fiscal 2022. The change was primarily a result of higher prices, improved production efficiencies, and increased sales volume, partially offset by higher costs from inflationary pressures, and increased dealer incentives. Additionally, a goodwill impairment charge was recorded during the first quarter of fiscal 2022.\n\n\nPurchases of property, plant, and equipment increased $4.3 million during fiscal 2023, when compared to fiscal 2022. The increase was due to capital spending focused on capacity expansion and tooling.\n\n\nNon-GAAP Measures\n\n\nEBITDA, Adjusted EBITDA, EBITDA Margin, and Adjusted EBITDA Margin\n\n\nWe define EBITDA as net income from continuing operations, before interest, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted to eliminate certain non-cash charges or other items that we do not consider to be indicative of our core and/or ongoing operations. For the periods presented herein, these adjustments include share-based compensation, business development consulting costs, goodwill impairment, Aviara transition costs, and debt refinancing charges, as described in more detail below. We define EBITDA margin and Adjusted EBITDA margin as EBITDA and Adjusted EBITDA, respectively, expressed as a percentage of Net sales.\n \n\n\nAdjusted Net Income and Adjusted Net Income Per Share\n\n\nWe define Adjusted Net Income and Adjusted Net Income per share as net income from continuing operations adjusted to eliminate certain non-cash charges or other items that we do not consider to be indicative of our core and/or ongoing operations and reflecting income tax expense on adjusted net income before income taxes at our estimated annual effective tax rate. For the periods presented herein, these adjustments include other intangible asset amortization, share-based compensation, business development consulting costs, goodwill impairment, Aviara transition costs, and debt refinancing charges.\n\n\nEBITDA, Adjusted EBITDA, EBITDA margin, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income per share, which we refer to collectively as the Non-GAAP Measures, are not measures of net income or operating income as determined under accounting principles generally accepted in the United States, or U.S. GAAP. The Non-GAAP Measures are not measures of performance in accordance with U.S. GAAP and should not be considered as an alternative to net income, net income per share, or operating cash flows determined in accordance with U.S. GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of cash flow. We believe that the inclusion of the Non-GAAP Measures is appropriate to provide additional information to investors because securities analysts and investors use the Non-GAAP Measures to assess our operating performance across periods on a consistent basis and to evaluate the relative risk of an investment in our securities. We use Adjusted Net Income and Adjusted Net Income per share to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with U.S. GAAP, provides a more complete understanding of factors and trends affecting our business than does U.S. GAAP measures alone. We believe Adjusted Net Income and Adjusted Net Income per share assists our board of directors, management, investors, and other users of the financial statements in comparing our net income on a consistent basis from period to period because it removes certain non-cash items and other items that we do not consider to be indicative of our core and/or ongoing operations and reflecting income tax expense on adjusted net income before income taxes at our estimated annual effective tax rate. The Non-GAAP Measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:\n\n\n24\n\n\n\n\n\u00a0\n\n\n\u2022\nAlthough depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and the Non-GAAP Measures do not reflect any cash requirements for such replacements;\n\n\n\u2022\nThe Non-GAAP Measures do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;\n\n\n\u2022\nThe Non-GAAP Measures do not reflect changes in, or cash requirements for, our working capital needs;\n\n\n\u2022\nThe Non-GAAP Measures do not reflect our tax expense or any cash requirements to pay income taxes;\n\n\n\u2022\nThe Non-GAAP Measures do not reflect interest expense, or the cash requirements necessary to service interest payments on our indebtedness; and\n\n\n\u2022\nThe Non-GAAP Measures do not reflect the impact of earnings or charges resulting from matters we do not consider to be indicative of our core and/or ongoing operations, but may nonetheless have a material impact on our results of operations.\n\n\nIn addition, because not all companies use identical calculations, our presentation of the Non-GAAP Measures may not be comparable to similarly titled measures of other companies, including companies in our industry.\n\n\nDue to the effects of discontinued operations, as discussed above in \u201cPart I, Item 1. Business,\u201d the Company's non-GAAP financial measures are presented on a continuing operations basis, for all periods presented.\n\n\nThe following table presents a reconciliation of net income from continuing operations as determined in accordance with U.S. GAAP to EBITDA and Adjusted EBITDA, and net income from continuing operations margin (expressed as a percentage of net sales) to Adjusted EBITDA margin (expressed as a percentage of net sales) for the periods indicated:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of Net\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of Net\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n% of Net\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nsales\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\nsales\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\u00a0\n\n\nsales\n\n\n\n\n\n\nNet income from continuing operations\n\n\n\u00a0\n\n\n$\n\n\n90,452\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.7%\n\n\n\u00a0\n\n\n$\n\n\n87,945\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.7%\n\n\n\u00a0\n\n\n$\n\n\n58,438\n\n\n\u00a0\n\n\n\u00a0\n\n\n12.5%\n\n\n\n\n\n\nIncome tax expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,135\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,779\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,080\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,679\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,471\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,392\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nInterest income\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,351\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,569\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,731\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,368\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nEBITDA\n\n\n\u00a0\n\n\n\u00a0\n\n\n127,484\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.3%\n\n\n\u00a0\n\n\n\u00a0\n\n\n125,926\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.6%\n\n\n\u00a0\n\n\n\u00a0\n\n\n86,278\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.5%\n\n\n\n\n\n\nShare-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,656\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,510\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,932\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBusiness development consulting costs\n(a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n312\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill impairment\n(b)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAviara transition costs\n(c)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,150\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nDebt refinancing charges\n(d)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n769\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted EBITDA\n\n\n\u00a0\n\n\n$\n\n\n131,452\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.9%\n\n\n\u00a0\n\n\n$\n\n\n130,536\n\n\n\u00a0\n\n\n\u00a0\n\n\n20.3%\n\n\n\u00a0\n\n\n$\n\n\n92,129\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.8%\n\n\n\n\n\n\n\u00a0\n\n\n(a)\nRepresents non-recurring third-party costs associated with business development activities, primarily relating to consulting costs for evaluation and execution of internal growth and other strategic initiatives. The evaluation and execution of the internal growth and other strategic initiatives is a bespoke initiative, and the costs associated therewith do not constitute normal recurring cash operating expenses necessary to operate the Company's business.\n\n\n(b)\nRepresents a non-cash charge recorded in the Aviara segment for impairment of goodwill.\n\n\n(c)\nRepresents costs to transition production of the Aviara brand from Vonore, Tennessee to Merritt Island, Florida. Costs include duplicative overhead costs and costs not indicative of ongoing operations (such as training and facility preparation).\n\n\n(d)\nRepresents loss recognized upon refinancing the Company\u2019s debt in fiscal 2021. The loss is comprised of unamortized debt issuance costs related to the previously existing credit facility and third-party legal costs associated with the refinancing.\n\n\n\u00a0\n\n\n25\n\n\n\n\n\u00a0\n\n\nThe following table sets forth a reconciliation of net income from continuing operations as determined in accordance with U.S. GAAP to Adjusted Net Income for the periods indicated:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Dollars in thousands, except per share)\n\n\n\u00a0\n\n\n\n\n\n\nNet income from continuing operations\n\n\n\u00a0\n\n\n$\n\n\n90,452\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n87,945\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n58,438\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,135\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,779\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,080\n\n\n\u00a0\n\n\n\n\n\n\nAmortization of acquisition intangibles\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,849\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,849\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,849\n\n\n\u00a0\n\n\n\n\n\n\nShare-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,656\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,510\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,932\n\n\n\u00a0\n\n\n\n\n\n\nBusiness development consulting costs\n(a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n312\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill impairment\n(b)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nAviara transition costs\n(c)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,150\n\n\n\u00a0\n\n\n\n\n\n\nDebt refinancing charges\n(d)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n769\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted Net Income before income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n123,404\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n121,183\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n82,218\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted income tax expense\n(e)\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,383\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,872\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,910\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted Net Income\n\n\n\u00a0\n\n\n$\n\n\n95,021\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n93,311\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n63,308\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted Net Income per share:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic\n\n\n\u00a0\n\n\n$\n\n\n5.39\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5.06\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3.37\n\n\n\u00a0\n\n\n\n\n\n\nDiluted\n\n\n\u00a0\n\n\n$\n\n\n5.35\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5.01\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3.34\n\n\n\u00a0\n\n\n\n\n\n\nWeighted average shares used for the computation of\n(e)\n:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nBasic Adjusted Net Income per share\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,618,797\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,455,226\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,805,464\n\n\n\u00a0\n\n\n\n\n\n\nDiluted Adjusted Net Income per share\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,765,117\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,636,512\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,951,521\n\n\n\u00a0\n\n\n\n\n\n\nThe following table presents the reconciliation of net income from continuing operations per diluted share to Adjusted net income per diluted share for the periods presented:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\nNet income from continuing operations per diluted share\n\n\n\u00a0\n\n\n$\n\n\n5.09\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4.72\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3.08\n\n\n\u00a0\n\n\n\n\n\n\nImpact of adjustments:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nIncome tax expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.53\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.44\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.85\n\n\n\u00a0\n\n\n\n\n\n\nAmortization of acquisition intangibles\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.10\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.10\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.10\n\n\n\u00a0\n\n\n\n\n\n\nShare-based compensation\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.21\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.19\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.15\n\n\n\u00a0\n\n\n\n\n\n\nBusiness development consulting costs\n(a)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.02\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nGoodwill impairment\n(b)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.06\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\nAviara transition costs\n(c)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.11\n\n\n\u00a0\n\n\n\n\n\n\nDebt refinancing charges\n(d)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.04\n\n\n\u00a0\n\n\n\n\n\n\nAdjusted Net Income per diluted share before income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.95\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.51\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.33\n\n\n\u00a0\n\n\n\n\n\n\nImpact of adjusted income tax expense on net income per diluted share before income taxes\n(e)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1.60\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1.50\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.99\n\n\n)\n\n\n\n\n\n\nAdjusted Net Income per diluted share\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.35\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5.01\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3.34\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(a)\nRepresents non-recurring third-party costs associated with business development activities, primarily relating to consulting costs for evaluation and execution of internal growth and other strategic initiatives. The evaluation and execution of the internal growth and other strategic initiatives is a bespoke initiative, and the costs associated therewith do not constitute normal recurring cash operating expenses necessary to operate the Company's business.\n\n\n(b)\nRepresents a non-cash charge recorded in the Aviara segment for impairment of goodwill.\n\n\n(c)\nRepresents costs to transition production of the Aviara brand from Vonore, Tennessee to Merritt Island, Florida. Costs include duplicative overhead costs and costs not indicative of ongoing operations (such as training and facility preparation).\n\n\n(d)\nRepresents loss recognized upon refinancing the Company\u2019s debt in fiscal 2021. The loss is comprised of unamortized debt issuance costs related to the previously existing credit facility and third-party legal costs associated with the refinancing.\n\n\n(e)\nReflects income tax expense at a tax rate of 23.0% for each period presented.\n\n\n26\n\n\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\n\nOur primary liquidity and capital resource needs are to finance working capital, fund capital expenditures, service our debt, fund potential acquisitions, and fund our stock repurchase program. Our principal sources of liquidity are our cash balance, held-to-maturity securities, cash generated from operating activities, our revolving credit agreement and the refinancing and/or new issuance of long-term debt.\n \n\n\nCash and cash equivalents totaled $19.8 million as of June 30, 2023, a decrease of $14.4 million from $34.2 million as of June 30, 2022. Held-to-maturity securities totaled $91.6 million as of June 30, 2023. As of June 30, 2022, there were no outstanding held-to-maturity securities. As of June 30, 2023, we had no amounts outstanding under the Revolving Credit Facility, leaving $100.0 million of available borrowing capacity. Total debt outstanding under the Term Loan as of June 30, 2023 and June 30, 2022 was $53.7 million and $56.5 million, respectively. Refer to Note 9 \u2014 Long Term Debt in the Notes to Consolidated Financial Statements for further details.\n\n\nOn June 24, 2021, the board of directors of the Company authorized a stock repurchase program that allows for the repurchase of up to $50.0 million of our common stock during the three-year period ending June 24, 2024. During fiscal 2023 and fiscal 2022, the Company repurchased 872,055 shares and 975,161 shares of common stock for $22.9 million and $25.5 million, respectively, in cash, including related fees and expenses. As of June 30, 2023, there was $1.6 million of availability remaining under the stock repurchase program.\n\n\nOn July 24, 2023, the board of directors of the Company authorized a new share repurchase program under which the Company may repurchase up to $50 million of its outstanding shares of common stock. The new authorization will become effective upon the expiration of the Company's existing $50 million share repurchase authorization.\n\n\nWe believe our cash balance, investments, cash from operations, and our ability to borrow, will be sufficient to provide for our liquidity and capital resource needs.\n \n\n\nThe following table and discussion below relate to our cash flows from continuing operations for operating, investing, and financing activities:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n2021\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nTotal cash provided by (used in):\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nOperating activities\n\n\n\u00a0\n\n\n$\n\n\n136,824\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n82,378\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n73,961\n\n\n\u00a0\n\n\n\n\n\n\nInvesting activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(120,933\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12,296\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(25,219\n\n\n)\n\n\n\n\n\n\nFinancing activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(27,148\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(62,540\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17,773\n\n\n)\n\n\n\n\n\n\nNet change in cash from continuing operations\n\n\n\u00a0\n\n\n$\n\n\n(11,257\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n7,542\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n30,969\n\n\n\u00a0\n\n\n\n\n\n\nFiscal 2023 Cash Flow from Continuing Operations\n\n\nNet cash provided by operating activities was $136.8 million, primarily due to net income, as well as reductions of working capital. Working capital is defined as accounts receivable, income tax receivable, inventories, and prepaid expenses and other current assets net of accounts payable, income tax payable, and accrued expenses and other current liabilities as presented in the consolidated balance sheets, excluding the impact of acquisitions and non-cash adjustments. Favorable working capital change primarily consisted of an increase in accrued expenses and other current liabilities, and a decrease in accounts receivable, offset by a decrease in accounts payable, and an increase in prepaid expenses and other current assets. Accrued expenses and other current liabilities increased as a result of an increase in warranty costs and dealer incentives. Accounts receivable decreased primarily as a result of lower sales at the end of the period compared to the end of the prior-year period. Accounts payable decreased as a result of decreased production levels. Prepaid and other current assets increased primarily as a result of higher general insurance premiums.\n\n\nNet cash used in investing activities was $120.9 million, due to net investments in held-to-maturity securities of $90.6 million and $30.3 million of capital expenditures. Our capital spending was focused on tooling, capacity expansion, strategic initiatives, and information technology.\n\n\nNet cash used in financing activities was $27.1 million, which included net payments of $3.0 million on long-term debt and $22.9 million of stock repurchases.\n\n\nFiscal 2022 Cash Flow from Continuing Operations\n\n\nNet cash provided by operating activities was $82.4 million, mainly due to net income, partially offset by working capital usage. Working capital usage primarily consisted of an increase in inventory, accounts receivable and prepaid and other current assets, partially offset an increase in accrued expenses and other current liabilities and accounts payable. Inventory increased due to an increase in raw materials to support higher production volumes and to increase safety stock to manage supply chain risk. Accounts receivable increased due to increased sales. Prepaid and other current assets increased due to higher general insurance premiums. Accrued expenses and other\n \n\n\n27\n\n\n\n\n\u00a0\n\n\ncurrent liabilities increased due to an increase in warranty costs and dealer incentives. Accounts payable increased as a result of increased production levels.\n\n\nNet cash used in investing activities was $12.3 million, which included capital expenditures. Our capital spending was focused on expanding our capacity, maintenance capital, and investments in information technology.\n\n\nNet cash used in financing activities was $62.5 million, which included net payments of $36.7 million on long-term debt and $25.5 million of stock repurchases.\n\n\nOff-Balance Sheet Arrangements\n\n\nThe Company did not have any off-balance sheet financing arrangements as of June 30, 2023.\n\n\nContractual Obligations\n\n\nAs of June 30, 2023, the Company\u2019s material cash obligations were as follows:\n\n\nLong-Term Debt Obligations \n\u2014 See Note 9 \u2013 Long-Term Debt in the accompanying Notes to Consolidated Financial Statements for further information.\n\n\nInterest on Long-Term Debt Obligations \n\u2014\n \nAs of June 30, 2023, the Company has estimated total interest payments on its outstanding long-term debt obligations of $8.9 million, of which $4.0 million is due during the next 12 months. Interest on variable rate debt instruments was calculated using interest rates in effect for our borrowings as of June 30, 2023 and holding them constant for the life of the instrument.\n\n\nPurchase Commitments\n \u2014 As of June 30, 2023, the Company is committed to purchasing $28.5 million of engines, of which $19.5 million is committed during the next 12 months. See Note 12 in the accompanying Notes to Consolidated Financial Statements for more information.\n\n\nRepurchase Obligations \n\u2014 The Company has reserves to cover potential losses associated with repurchase obligations based on historical experience and current facts and circumstances. We incurred no material impact from repurchase events during fiscal 2023, 2022, or 2021. An adverse change in retail sales, however, could require us to repurchase boats repossessed by floor plan financing companies upon an event of default by any of our dealers, subject in some cases to an annual limitation. See Note 12 in the accompanying Notes to Consolidated Financial Statements for more information.\n\n\nIn addition to the above, we have unrecognized tax benefits that are not reflected here because the Company cannot predict when open income tax years will close with completed examinations. See Note 10 in Notes to Consolidated Financial Statements for more information.\n\n\nApplication of Critical Accounting Policies and Estimates\n\n\nSignificant accounting policies are described in the notes to the consolidated financial statements. In the application of these policies, certain estimates are made that may have a material impact on our financial condition and results of operations. Actual results could differ from those estimates and cause our reported net income to vary significantly from period to period. For additional information regarding these policies, see Note 1 \u2013 Significant Accounting Policies in Notes to Consolidated Financial Statements.\n\n\nAsset Impairment\n\n\nGoodwill\n\n\nThe Company reviews goodwill for impairment at its annual impairment testing date, which is June 30, and whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value. As part of the impairment tests, the Company may perform a qualitative, rather than quantitative, assessment to determine whether the fair values of its reporting units are \u201cmore likely than not\u201d to be greater than their carrying values. In performing this qualitative analysis, the Company considers various factors, including the effect of market or industry changes and the reporting units' actual results compared to projected results.\n\n\nIf the fair value of a reporting unit does not meet the \"more likely than not\" criteria discussed above, the impairment test for goodwill is a quantitative test. This test involves comparing the fair value of the reporting unit with its carrying value. If the fair value exceeds the carrying value, goodwill is not considered impaired. If the carrying amount exceeds the fair value then the goodwill is considered impaired and an impairment loss is recognized in an amount by which the carrying value exceeds the reporting unit\u2019s fair value, not to exceed the carrying amount of the goodwill allocated to that reporting unit.\n\n\n28\n\n\n\n\n\u00a0\n\n\nThe Company calculates the fair value of its reporting units considering both the income approach and market approach. The income approach calculates the fair value of the reporting unit using a discounted cash flow method. Internally forecasted future cash flows, which the Company believes reasonably approximate market participant assumptions, are discounted using a weighted average cost of capital (\u201cDiscount Rate\u201d) developed for each reporting unit. The Discount Rate is developed using market observable inputs, as well as considering whether or not there is a measure of risk related to the specific reporting unit\u2019s forecasted performance. Fair value under the market approach is determined for each reporting unit by applying market multiples for comparable public companies to the reporting unit\u2019s financial results. The key judgements in these calculations are the assumptions used in determining the reporting unit\u2019s forecasted future performance, including revenue growth and operating margins, as well as the perceived risk associated with those forecasts in determining the Discount Rate, along with selecting representative market multiples.\n\n\nAs discussed further in Note 7 to the Consolidated Financial Statements, during the year ended June 30, 2022, the Company performed a quantitative test and recognized a $1.1 million goodwill impairment charge related to its Aviara reporting unit. As of June 30, 2023, only the MasterCraft reporting unit has a goodwill balance. The fair value of this reporting unit substantially exceeds its carrying value.\n \n\n\nOther Intangible Assets\n\n\nThe Company's primary intangible assets other than goodwill are dealer networks and trade names acquired in business combinations. These intangible assets are initially valued using a methodology commensurate with the intended use of the asset. The dealer networks were valued using an income approach, which requires an estimate or forecast of the expected future cash flows from the dealer network through the application of the multi-period excess earnings approach. The fair value of trade names is measured using a relief-from-royalty approach, a variation of the income approach, which requires an estimate or forecast of the expected future cash flows. This method assumes the value of the trade name is the discounted cash flows of the amount that would be paid to third parties had the Company not owned the trade name and instead licensed the trade name from another company. The basis for future sales projections for these methods are based on internal revenue forecasts by reporting unit, which the Company believes represent reasonable market participant assumptions. The future cash flows are discounted using an applicable Discount Rate as well as any potential risk premium to reflect the inherent risk of holding a standalone intangible asset.\n\n\nThe key judgements in these fair value calculations, as applicable, are: assumptions used in developing internal revenue growth and dealer expense forecasts, assumed dealer attrition rates, the selection of an appropriate royalty rate, as well as the perceived risk associated with those forecasts in determining the Discount Rate.\n\n\nThe costs of amortizable intangible assets, including dealer networks, are recognized over their expected useful lives, approximately ten years for the dealer networks, using the straight-line method. Intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate long-lived assets as described below. Intangible assets not subject to amortization are assessed for impairment at least annually and whenever events or changes in circumstances indicate that it is more likely than not that an asset may be impaired. As part of the annual test, the Company may perform a qualitative, rather than quantitative, assessment to determine whether each trade name intangible asset is \u201cmore likely than not\u201d impaired. In performing this qualitative analysis, the Company considers various factors, including macroeconomic events, industry and market events and cost related events. If the \u201cmore likely than not\u201d criteria is not met, the impairment test for indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset with its carrying amount. An impairment loss is recognized for the amount by which the carrying value exceeds the fair value of the asset.\n\n\nAs discussed further in Note 3 to the Consolidated Financial Statements, during the year ended June 30, 2022, the Company  recognized $18.5 million in intangible asset impairment charges related to its indefinite lived intangible asset and its dealer network intangible asset within the NauticStar reporting unit. These charges are included in the loss from discontinued operations.\n\n\nLong-Lived Assets\n\n\nThe Company assesses the potential for impairment of its long-lived assets if facts and circumstances, such as declines in sales, earnings, or cash flows or adverse changes in the business climate, suggest that they may be impaired. A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life will also trigger a review for impairment. The Company performs its assessment by comparing the book value of the asset groups to the estimated future undiscounted cash flows associated with the asset groups. If any impairment in the carrying value of its long-lived assets is indicated, the assets would be adjusted to an estimate of fair value.\n\n\nAs discussed further in Note 3 to the Consolidated Financial Statements, during the year ended June 30, 2022, the Company recognized $5.3 million in long-lived asset impairment charges related to its NauticStar reporting unit.\n\n\nProduct Warranties\n \n\u2014 The Company offers warranties on the sale of certain products for periods of between one and five years from the date of retail sale. These warranties require us or our dealers to repair or replace defective products during the warranty period at no cost to the consumer. We estimate the costs that may be incurred under our basic limited warranty and record as a liability the amount\n \n\n\n29\n\n\n\n\n\u00a0\n\n\nof such costs at the time the product revenue is recognized. The key judgements that affect our estimate for warranty liability include the number of units sold, historical and anticipated rates of warranty claims and cost per claim. We periodically assess the adequacy of the recorded warranty liabilities and adjust the amounts as actual claims are determined or as changes in the obligations become reasonably estimable. We also adjust our liability for specific warranty matters when they become known and exposure can be estimated. Future warranty claims may differ from our estimate of the warranty liability, which could lead to changes in the Company\u2019s warranty liability in future periods.\n\n\nIncome Taxes\u2014\nWe are subject to income taxes in the United States of America and the United Kingdom. Our effective tax rates differ from the statutory rates, primarily due to a change in state taxes as a result of selling NauticStar, as further described in Note 10 in Notes to Consolidated Financial Statements.\n \n\n\nSignificant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, we cannot provide assurance that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.\n\n\nRevenue Recognition \n\u2014 The Company\u2019s revenue is derived primarily from the sale of boats and trailers, marine parts, and accessories to its independent dealers. The Company recognizes revenue when obligations under the terms of a contract are satisfied and control over promised goods is transferred to a customer. For substantially all sales, this occurs when the product is released to the carrier responsible for transporting it to a customer. The Company typically receives payment from the floor plan financing providers within 5 business days of shipment. Revenue is measured as the amount of consideration we expect to receive in exchange for a product. The Company offers dealer incentives that include wholesale rebates, retail rebates and promotions, floor plan reimbursement or cash discounts, and other allowances that are recorded as reductions of revenues in net sales in the consolidated statements of operations. The consideration recognized represents the amount specified in a contract with a customer, net of estimated incentives the Company reasonably expects to pay. The estimated liability and reduction in revenue for dealer incentives is recorded at the time of sale. Subsequent adjustments to incentive estimates are possible because actual results may differ from these estimates if conditions dictate the need to enhance or reduce sales promotion and incentive programs or if dealer achievement or other items vary from historical trends. Accrued dealer incentives are included in Accrued expenses and other current liabilities in the accompanying consolidated balance sheets.\n\n\nRebates and Discounts\n\n\nDealers earn wholesale rebates based on purchase volume commitments and achievement of certain performance metrics. The Company estimates the amount of wholesale rebates based on historical achievement, forecasted volume, and assumptions regarding dealer behavior. Rebates that apply to boats already in dealer inventory are referred to as retail rebates. The Company estimates the amount of retail rebates based on historical data for specific boat models adjusted for forecasted sales volume, product mix, dealer and consumer behavior, and assumptions concerning market conditions. The Company also utilizes various programs whereby it offers cash discounts or agrees to reimburse its dealers for certain floor plan interest costs incurred by dealers for limited periods of time, generally ranging up to nine months.\n\n\nOther Revenue Recognition Matters\n\n\nDealers generally have no right to return unsold boats. Occasionally, the Company may accept returns in limited circumstances and at the Company\u2019s discretion under its warranty policy. The Company may be obligated, in the event of default by a dealer, to accept returns of unsold boats under its repurchase commitment to floor plan financing providers, who are able to obtain such boats through foreclosure. The repurchase commitment is on an individual unit basis with a term from the date it is financed by the lending institution through the payment date by the dealer, generally not exceeding 30 months. The Company accounts for these arrangements as guarantees and recognizes a liability based on the estimated fair value of the repurchase obligation. The estimated fair value takes into account our estimate of the loss we will incur upon resale of any repurchases. The Company accrues the estimated fair value of this obligation based on the age of inventory currently under floor plan financing and estimated credit quality of dealers holding the inventory. Inputs used to estimate this fair value include significant unobservable inputs that reflect the Company\u2019s assumptions about the inputs that market participants would use and, therefore, this liability is classified within Level 3 of the fair value hierarchy. We incurred no material impact from repurchase events during fiscal 2023, 2022, or 2021. See Note 12 in Notes to Consolidated Financial Statements for more information on repurchase obligations.\n\n\n30\n\n\n\n\n\u00a0\n\n\nNew Accounting Pronouncements\n\n\nSee \u201cPart II, Item 8. Financial Statements and Supplementary Data\n \n\u2014 Note 1\n \n\u2014 Significant Accounting Policies\n \n\u2014 New Accounting Pronouncements.\u201d\n\n",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATI\nVE DISCLOSURES ABOUT MARKET RISK.\n \n\n\nMarket risk represents the risk of changes in the value of market risk sensitive instruments caused by fluctuations in foreign exchange rates, interest rates, and commodity prices. Changes in these factors could cause fluctuations in the results of our operations and cash flows. In the ordinary course of business, we are primarily exposed to inflation and interest rate risks.\n\n\nWe rely on third parties to supply raw materials used in the manufacturing process, including resins, fiberglass, aluminum, lumber, and steel, as well as product parts and components. The prices for these raw materials, parts, and components fluctuate depending on market conditions and, in some instances, commodity prices or trade policies, including tariffs. Substantial increases in the prices of raw materials, parts, and components would increase our operating costs, and could reduce our profitability if we are unable to recoup the increased costs through higher product prices or improved operating efficiencies.\n\n\nAs of June 30, 2023, we had $54.0 million of long-term debt outstanding, bearing interest at the effective interest rate of 6.50%. See Note 9 in Notes to Consolidated Financial Statements for more information regarding our long-term debt.\n\n\nA hypothetical 1% increase or decrease in interest rates would have resulted in a $0.6 million change to our interest expense for fiscal 2023.\n\n",
+  "cik": "1638290",
+  "cusip6": "57637H",
+  "cusip": ["57637H103"],
+  "names": ["MASTERCRAFT BOAT HLDGS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1638290/000095017023045222/0000950170-23-045222-index.htm"
+}
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+++ b/GraphRAG/standalone/data/all/form10k/0001001250-23-000112.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. Business \u2013 Information about our Executive Officers,\n will be included in our Proxy Statement for the 2023 Annual Meeting of Stockholders (the \u201c2023 Proxy Statement\u201d).\u00a0The 2023 Proxy Statement will be filed within 120 days after the close of the fiscal year ended June\u00a030, 2023 and such information is incorporated herein by reference.\nItem 11.\u00a0\u00a0\nExecutive Compensation\n.\nThe information required by this Item will be included in the 2023 Proxy Statement.\u00a0The 2023 Proxy Statement will be filed within 120 days after the close of the fiscal year ended June\u00a030, 2023 and such information is incorporated herein by reference.\nItem 12.\u00a0\n\u00a0Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.\nThe information required by this Item, not already provided under \nEquity Compensation Plan Information\n as set forth below, will be included in the 2023 Proxy Statement. The 2023 Proxy Statement will be filed within 120 days after the close of the fiscal year ended June 30, 2023 and such information is incorporated herein by reference.\nEquity Compensation Plan Information \nThe following table summarizes the equity compensation plans under which our securities may be issued as of June 30, 2023 and does not include grants made or cancelled and options exercised after such date. The securities that may be issued consist solely of shares of our Class A Common Stock and all plans were approved by stockholders of the Company. \nEquity Compensation Plan Information as of June 30, 2023\nPlan category\nNumber of securities to be issued upon exercise of outstanding options, warrants and rights\n(2)\nWeighted-average exercise price of outstanding options, warrants and rights\n(3)\nNumber of securities remaining available for future issuance under equity compensation plans \n(excluding securities reflected in the first column)\n(4)\nEquity compensation plans approved by security holders\n(1)\n10,351,905\n$184.41\n10,114,324\n(1)\nIncludes the Amended and Restated Fiscal 2002 Share Incentive Plan (the \u201c2002 Plan\u201d) and the Amended and Restated Non-Employee Director Share Incentive Plan (the \u201cDirector Plan\u201d).  \n(2)\nConsists of 7,497,084 shares issuable upon exercise of outstanding options, 1,789,851 shares issuable upon conversion of outstanding Restricted Stock Units, 601,845 shares issuable upon conversion of outstanding Performance Share Units (\u201cPSUs\u201d) (assuming maximum payout for unvested PSUs and PSUs vested as of June 30, 2023 pending approval by the Stock Plan Subcommittee of our Board of Directors), 112,680 shares issuable upon conversion of Share Units and 350,445 shares issuable upon conversion of Long-term PSUs, including P\nrice-vested units (\u201cPVUs\u201d)\n. \n(3)\nCalculated based upon outstanding options in respect of 7,497,084 shares of our Class A Common Stock. \n(4)\nThe 2002 Plan authorizes the grant of shares and benefits other than stock options. As of June 30, 2023, there were 9,684,436 shares of Class A Common Stock available for issuance under the 2002 Plan (subject to the approval by the Stock Plan Subcommittee of expected payouts for PSUs vested as of June 30, 2023). Shares underlying grants cancelled or forfeited under prior plans or agreements may be used for grants under the 2002 Plan. The Director Plan currently provides for an annual grant of options and stock units to non-employee directors. As of June 30, 2023, there were 429,888 shares available for issuance under the Director Plan.  \nIf all of the outstanding options, warrants, rights, stock units and share units, as well as the securities available for future issuance, included in the first and third columns in the table above were converted to shares of Class A Common Stock as of June 30, 2023, the total shares of Common Stock outstanding (i.e. Class A plus Class B) would increase 6% to 378,086,144. Of the outstanding options to purchase 7,497,084 shares of Class A Common Stock, options to purchase 3,354,289 shares have an exercise price less than $196.38, the closing price on June 30, 2023. Assuming the exercise of only in-the-money options, the total shares outstanding would increase by 1% to 360,974,204.\nItem 13.\u00a0\u00a0\nCertain Relationships and Related Transactions, and Director Independence.\nThe information required by this Item will be included in the 2023 Proxy Statement.\u00a0The 2023 Proxy Statement will be filed within 120 days after the close of the fiscal year ended June\u00a030, 2023 and such information is incorporated herein by reference.\nItem 14.\u00a0\u00a0\nPrincipal Accounting Fees and Services.\nThe information required by this Item will be included in the 2023 Proxy Statement.\u00a0The 2023 Proxy Statement will be filed within 120 days after the close of the fiscal year ended June\u00a030, 2023 and such information is incorporated herein by reference.\n59\nTable of Contents\nPART\u00a0IV\nItem 15.\u00a0\u00a0\nExhibits, Financial Statement Schedules.\n(a)\n1 and 2.\u00a0 Financial Statements and Schedules - See index on Page\u00a0F-1.\n3. Exhibits:\nExhibit\nNumber\nDescription\n3.1\nRestated Certificate of Incorporation, dated November\u00a016, 1995 (filed as Exhibit\u00a03.1 to our Annual Report on Form\u00a010-K filed on September\u00a015, 2003) (SEC File No.\u00a01-14064).*\n3.1a\nCertificate of Amendment of the Restated Certificate of Incorporation of The Est\u00e9e Lauder Companies Inc. (filed as Exhibit\u00a03.1 to our Current Report on Form\u00a08-K filed on November\u00a013, 2012) (SEC File No.\u00a01-14064).*\n3.2\nCertificate of Retirement of $6.50 Cumulative Redeemable Preferred Stock (filed as Exhibit\u00a03.2 to our Current Report on Form\u00a08-K filed on July\u00a019, 2012) (SEC File No.1-14064).*\n3.3\nAmended and Restated Bylaws (filed as Exhibit\u00a03.1 to our Current Report on Form\u00a08-K filed on May\u00a023, 2012) (SEC File No.\u00a01-14064).*\n4.1\nDescription of Securities Registered Pursuant to Section\u00a012 of the Securities Exchange Act of 1934.\n4.2\nIndenture, dated November\u00a05, 1999, between the Company and State Street Bank and Trust Company, N.A. (filed as Exhibit\u00a04 to Amendment No.\u00a01 to our Registration Statement on Form\u00a0S-3 (No.\u00a0333-85947) filed on November\u00a05, 1999) (SEC File No.\u00a01-14064).*\n4.3\nOfficers\u2019 Certificate, dated September\u00a029, 2003, defining certain terms of the 5.75% Senior Notes due 2033 (filed as Exhibit\u00a04.2 to our Current Report on Form\u00a08-K filed on September\u00a029, 2003) (SEC File No.\u00a01-14064).*\n4.4\nGlobal Note for 5.75% Senior Notes due 2033 (filed as Exhibit\u00a04.3 to our Current Report on Form\u00a08-K filed on September\u00a029, 2003) (SEC File No.\u00a01-14064).*\n4.5\nOfficers\u2019 Certificate, dated May\u00a01, 2007, defining certain terms of the 6.000% Senior Notes due 2037 (filed as Exhibit\u00a04.2 to our Current Report on Form\u00a08-K filed on May\u00a01, 2007) (SEC File No.\u00a01-14064).*\n4.6\nGlobal Note for 6.000% Senior Notes due 2037 (filed as Exhibit\u00a04.4 to our Current Report on Form\u00a08-K filed on May\u00a01, 2007) (SEC File No.\u00a01-14064).*\n4.7\nOfficers\u2019 Certificate, dated August\u00a02, 2012, defining certain terms of the 2.350% Senior Notes due 2022 (filed as Exhibit\u00a04.1 to our Current Report on Form\u00a08-K filed on August\u00a02, 2012) (SEC File No.\u00a01-14064).*\n4.8\nGlobal Note for the 2.350% Senior Notes due 2022 (filed as Exhibit\u00a04.3 to our Current Report on Form\u00a08-K filed on August\u00a02, 2012) (SEC File No.\u00a01-14064).*\n4.9\nOfficers\u2019 Certificate, dated August\u00a02, 2012, defining certain terms of the 3.700% Senior Notes due 2042 (filed as Exhibit\u00a04.2 to our Current Report on Form\u00a08-K filed on August\u00a02, 2012) (SEC File No.\u00a01-14064).*\n4.10\nGlobal Note for the 3.700% Senior Notes due 2042 (filed as Exhibit\u00a04.4 to our Current Report on Form\u00a08-K filed on August\u00a02, 2012) (SEC File No.\u00a01-14064).*\n4.11\nOfficers\u2019 Certificate, dated June\u00a04, 2015, defining certain terms of the 4.375% Senior Notes due 2045 (filed as Exhibit\u00a04.1 to our Current Report on Form\u00a08-K filed on June\u00a04, 2015) (SEC File No.\u00a01-14064).*\n4.12\nGlobal Note for the 4.375% Senior Notes due 2045 (filed as Exhibit\u00a04.2 to our Current Report on Form\u00a08-K filed on June\u00a04, 2015) (SEC File No.\u00a01-14064).*\n4.13\nOfficers\u2019 Certificate, dated May\u00a010, 2016, defining certain terms of the 4.375% Senior Notes due 2045 (filed as Exhibit\u00a04.3 to our Current Report on Form\u00a08-K filed on May\u00a010, 2016) (SEC File No.\u00a01-14064).*\n4.14\nGlobal Note for the 4.375% Senior Notes due 2045 (filed as Exhibit\u00a0B in Exhibit\u00a04.3 to our Current Report on Form\u00a08-K filed on May\u00a010, 2016) (SEC File No.\u00a01-14064).*\n4.15\nOfficers\u2019 Certificate, dated February\u00a09, 2017, defining certain terms of the 3.150% Senior Notes due 2027 (filed as Exhibit\u00a04.3 to our Current Report on Form\u00a08-K filed on February\u00a09, 2017) (SEC File No.\u00a01-14064).*\n4.16\nForm\u00a0of Global Note for the 3.150% Senior Notes due 2027 (included as Exhibit\u00a0A in Exhibit\u00a04.3 to our Current Report on Form\u00a08-K filed on February\u00a09, 2017) (SEC File No.\u00a01-14064).*\n4.17\nOfficers\u2019 Certificate, dated February\u00a09, 2017, defining certain terms of the 4.150% Senior Notes due 2047 (filed as Exhibit\u00a04.5 to our Current Report on Form\u00a08-K filed on February\u00a09, 2017) (SEC File No.\u00a01-14064).*\n4.18\nForm\u00a0of Global Note for the 4.150% Senior Notes due 2047 (included as Exhibit\u00a0A in Exhibit\u00a04.5 to our Current Report on Form\u00a08-K filed on February\u00a09, 2017) (SEC File No.\u00a01-14064).*\n60\nTable of Contents\nExhibit\nNumber\nDescription\n4.19\nOfficers\u2019 Certificate, dated November 21, 2019, defining certain terms of the 2.000% Senior Notes due 2024 (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on November 21, 2019) (SEC File No. 1-14064).*\n4.20\nForm of Global Note for the 2.000% Senior Notes due 2024 (included as Exhibit A in Exhibit 4.1 to our Current Report on Form 8-K filed on November 21, 2019) (SEC File No. 1-14064).*\n4.21\nOfficers\u2019 Certificate, dated November 21, 2019, defining certain terms of the 2.375% Senior Notes due 2029 (filed as Exhibit 4.3 to our Current Report on Form 8-K filed on November 21, 2019) (SEC File No. 1-14064).*\n4.22\nForm of Global Note for the 2.375% Senior Notes due 2029 (included as Exhibit A in Exhibit 4.3 to our Current Report on Form 8-K filed on November 21, 2019) (SEC File No. 1-14064).*\n4.23\nOfficers\u2019 Certificate, dated November 21, 2019, defining certain terms of the 3.125% Senior Notes due 2049 (filed as Exhibit 4.5 to our Current Report on Form 8-K filed on November 21, 2019) (SEC File No. 1-14064).*\n4.24\nForm of Global Note for the 3.125% Senior Notes due 2049 (included as Exhibit A in Exhibit 4.5 to our Current Report on Form 8-K filed on November 21, 2019) (SEC File No. 1-14064).*\n4.25\nOfficers\u2019 Certificate, dated April 13, 2020, defining certain terms of the 2.600% Senior Notes due 2030 (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on April 13, 2020) (SEC File No. 1-14064).*\n4.26\nForm of Global Note for the 2.600% Senior Notes due 2030 (included as Exhibit A in Exhibit 4.1 to our Current Report on Form 8-K filed on April 13, 2020) (SEC File No. 1-14064).*\n4.27\nOfficers\u2019 Certificate, dated March 4, 2021, defining certain terms of the 1.950% Senior Notes due 2031 (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on March 4, 2021) (SEC File No. 1-14064).*\n4.28\nForm of Global Note for the 1.950% Senior Notes due 2031 (included as Exhibit A in Exhibit 4.1 to our Current Report on Form 8-K filed on March 4, 2021) (SEC File No. 1-14064).*\n4.29\nOfficers\u2019 Certificate, dated May 12, 2023, defining certain terms of the 4.375% Senior Notes due 2028 (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on May 12, 2023) (SEC File No. 1-14064).*\n4.30\nForm of Global Note for the 4.375% Senior Notes due 2028 (included as Exhibit A in Exhibit 4.1 to our Current Report on Form 8-K filed on May 12, 2023) (SEC File No. 1-14064).*\n4.31\nOfficers\u2019 Certificate, dated May 12, 2023, defining certain terms of the 4.650% Senior Notes due 2033 (filed as Exhibit 4.3 to our Current Report on Form 8-K filed on May 12, 2023) (SEC File No. 1-14064).*\n4.32\nForm of Global Note for the 4.650% Senior Notes due 2033 (included as Exhibit A in Exhibit 4.3 to our Current Report on Form 8-K filed on May 12, 2023) (SEC File No. 1-14064).*\n4.33\nOfficers\u2019 Certificate, dated May 12, 2023, defining certain terms of the 5.150% Senior Notes due 2053 (filed as Exhibit 4.5 to our Current Report on Form 8-K filed on May 12, 2023) (SEC File No. 1-14064).*\n4.34\nForm of Global Note for the 5.150% Senior Notes due 2053 (included as Exhibit A in Exhibit 4.5 to our Current Report on Form 8-K filed on May 12, 2023) (SEC File No. 1-14064).*\n10.1\nStockholders\u2019 Agreement, dated November\u00a022, 1995 (filed as Exhibit\u00a010.1 to our Annual Report on Form\u00a010-K filed on September\u00a015, 2003) (SEC File No.\u00a01-14064).*\n10.1a\nAmendment No.\u00a01 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on October\u00a030, 1996) (SEC File No.\u00a01-14064).*\n10.1b\nAmendment No.\u00a02 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 1997) (SEC File No.\u00a01-14064).*\n10.1c\nAmendment No.\u00a03 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on April\u00a029, 1997) (SEC File No.\u00a01-14064).*\n10.1d\nAmendment No.\u00a04 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.1d to our Annual Report on Form\u00a010-K filed on September\u00a018, 2000) (SEC File No.\u00a01-14064).*\n10.1e\nAmendment No.\u00a05 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.1e to our Annual Report on Form\u00a010-K filed on September\u00a017, 2002) (SEC File No.\u00a01-14064).*\n10.1f\nAmendment No.\u00a06 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on January\u00a027, 2005) (SEC File No.\u00a01-14064).*\n10.1g\nAmendment No.\u00a07 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.7 to our Quarterly Report on Form\u00a010-Q filed on October\u00a030, 2009) (SEC File No.\u00a01-14064).*\n61\nTable of Contents\nExhibit\nNumber\nDescription\n10.2\nRegistration Rights Agreement, dated November\u00a022, 1995 (filed as Exhibit\u00a010.2 to our Annual Report on Form\u00a010-K filed on September\u00a015, 2003) (SEC File No.\u00a01-14064).*\n10.2a\nFirst Amendment to Registration Rights Agreement (originally filed as Exhibit\u00a010.3 to our Annual Report on Form\u00a010-K filed on September\u00a010, 1996) (re-filed as Exhibit\u00a010.2a to our Annual Report on Form\u00a010-K filed on August\u00a025, 2017) (SEC File No.\u00a01-14064).*\n10.2b\nSecond Amendment to Registration Rights Agreement (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on April\u00a029, 1997) (SEC File No.\u00a01-14064).*\n10.2c\nThird Amendment to Registration Rights Agreement (filed as Exhibit\u00a010.2c to our Annual Report on Form\u00a010-K filed on September\u00a017, 2001) (SEC File No.\u00a01-14064).*\n10.2d\nFourth Amendment to Registration Rights Agreement (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on January\u00a029, 2004) (SEC File No.\u00a01-14064).*\n10.3\nThe Estee Lauder Companies Retirement Growth Account Plan, as amended and restated, effective as of January\u00a01, 2019, as further amended through January 1, 2022 (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on February 3, 2022) (SEC File No.\u00a01-14064).*\u2020\n10.3a\nAmendment to amended and restated The Estee Lauder Companies Retirement Growth Account Plan, effective as of May 31, 2022 (filed as Exhibit 10.1 on our Quarterly Report on Form 10-Q filed on May 3, 2022) (SEC File No. 1-14064).*\u2020\n10.3b\nThe Estee Lauder Companies Retirement Growth Account Plan, as amended and restated, effective as of January 1, 2023 (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on February 2, 2023) (SEC File No. 1-14064).*\u2020\n10.4\nThe Estee Lauder Inc. Retirement Benefits Restoration Plan (filed as Exhibit\u00a010.5 to our Annual Report on Form\u00a010-K filed on August\u00a020, 2010) (SEC File No.\u00a01-14064).*\u2020\n10.5\nExecutive Annual Incentive Plan (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on November\u00a014, 2013) (SEC File No.\u00a01-14064).*\u2020\n10.5a\nExecutive Annual Incentive Plan (SEC File No. 1-14064).\u2020\n10.6\nEmployment Agreement with Tracey T. Travis (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on July\u00a020, 2012) (SEC File No.\u00a01-14064).*\u2020\n10.7\nEmployment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.8 to our Annual Report on Form\u00a010-K filed on September\u00a017, 2001) (SEC File No.\u00a01-14064).*\u2020\n10.7a\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.8a to our Annual Report on Form\u00a010-K filed on September\u00a017, 2002) (SEC File No.\u00a01-14064).*\u2020\n10.7b\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.2 to our Current Report on Form\u00a08-K filed on November\u00a017, 2005) (SEC File No.\u00a01-14064).*\u2020\n10.7c\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on February\u00a05, 2009) (SEC File No.\u00a01-14064).*\u2020\n10.7d\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.8 to our Quarterly Report on Form\u00a010-Q filed on October\u00a030, 2009) (SEC File No.\u00a01-14064).*\u2020\n10.7e\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.6 to our Quarterly Report on Form\u00a010-Q filed on November\u00a01, 2010) (SEC File No.\u00a01-14064).*\u2020\n10.7f\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.7f to our Annual Report on Form\u00a010-K filed on August\u00a020, 2015) (SEC File No.\u00a01-14064).*\u2020\n10.7g\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on May 1, 2020) (SEC File No. 1-14064).*\u2020\n10.8\nEmployment Agreement with William P. Lauder (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on September\u00a017, 2010) (SEC File No.\u00a01-14064).*\u2020\n10.8a\nAmendment to Employment Agreement with William P. Lauder (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on February\u00a027, 2013) (SEC File No.\u00a01-14064).*\u2020\n62\nTable of Contents\nExhibit\nNumber\nDescription\n10.9\nEmployment Agreement with Fabrizio Freda (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on February\u00a011, 2011) (SEC File No.\u00a01-14064).*\u2020\n10.9a\nAmendment to Employment Agreement with Fabrizio Freda and Stock Option Agreements (filed as Exhibit\u00a010.2 to our Current Report on Form\u00a08-K filed on February\u00a027, 2013) (SEC File No.\u00a01-14064).*\u2020\n10.10\nEmployment Agreement with Jane Hertzmark Hudis (filed as Exhibit 10.13 to our Annual Report on Form 10-K filed on August 24, 2022) (SEC File No. 1-14064).*\u2020\n10.11\nEmployment Agreement with Jane Lauder (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on May 3, 2023) (SEC File No. 1-14064).*\u2020\n10.12\nEmployment Agreement with Peter Jueptner (SEC File No. 1-14064).\u2020\n10.13\nForm\u00a0of Deferred Compensation Agreement (interest-based) with Outside Directors (filed as Exhibit\u00a010.14 to our Annual Report on Form\u00a010-K filed on September\u00a017, 2001) (SEC File No.\u00a01-14064).*\u2020\n10.13a\nForm\u00a0of Deferred Compensation Agreement (interest-based) with Outside Directors (including Election Form) (filed as Exhibit\u00a010.12a to our Annual Report on Form\u00a010-K filed on August\u00a024, 2018) (SEC File No.\u00a01-14064).*\u2020\n10.14\nForm\u00a0of Deferred Compensation Agreement (stock-based) with Outside Directors (filed as Exhibit\u00a010.15 to our Annual Report on Form\u00a010-K filed on September\u00a017, 2001) (SEC File No.\u00a01-14064).*\u2020\n10.14a\nForm\u00a0of Deferred Compensation Agreement (stock-based) with Outside Directors (including Election Form) (filed as Exhibit\u00a010.13a to our Annual Report on Form\u00a010-K filed on August\u00a024, 2018) (SEC File No.\u00a01-14064).*\u2020\n10.15\nThe Estee Lauder Companies Inc. Non-Employee Director Share Incentive Plan (as amended and restated on November\u00a09, 2007) (filed as Exhibit\u00a099.1 to our Registration Statement on Form\u00a0S-8 filed on November\u00a09, 2007) (SEC File No.\u00a01-14064).*\u2020\n10.15a\nThe Estee Lauder Companies Inc. Non-Employee Director Share Incentive Plan (as amended on July\u00a014, 2011) (filed as exhibit 10.15a to our Annual Report on Form\u00a010-K filed on August\u00a022, 2011) (SEC File No.\u00a01-14064).*\u2020\n10.15b\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Non-Employee Director Share Incentive Plan (filed as Exhibit\u00a010.2 to our Current Report on Form\u00a08-K filed on November\u00a016, 2015) (SEC File No.\u00a01-14064).*\u2020\n10.15c\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Non-Employee Director Share Incentive Plan (as of November\u00a01, 2017) (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on November\u00a01, 2017) (SEC File No.\u00a01-14064).*\u2020\n10.15d\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Non-Employee Director Share Incentive Plan (as of August 22, 2019) (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on October 31, 2019) (SEC File No. 1-14064).*\u2020\n10.15e\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Non-Employee Director Share Incentive Plan (as of July 13, 2021) (filed as Exhibit 10.15e to our Annual Report on Form 10-K filed on August 27, 2021) (SEC File No. 1-14064).*\u2020\n10.16\nSummary of Compensation For Non-Employee Directors of the Company (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on November\u00a01, 2013) (SEC File No.\u00a01-14064).*\u2020\n10.16a\nSummary of Compensation For Non-Employee Directors of the Company (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on November\u00a01, 2017) (SEC File No.\u00a01-14064).*\u2020\n10.16b\nSummary of Compensation For Non-Employee Directors of the Company (filed as Exhibit 10.16b to our Annual Report on Form 10-K filed on August 27, 2021) (SEC File No. 1-14064).*\u2020\n10.17\nForm\u00a0of Stock Option Agreement for Annual Stock Option Grants under Non-Employee Director Share Incentive Plan (including Form\u00a0of Notice of Grant) (filed as Exhibit\u00a099.2 to our Registration Statement on Form\u00a0S-8 filed on November\u00a09, 2007) (SEC File No.\u00a01-14064).*\u2020\n10.17a\nForm of Stock Option Agreement for Annual Stock Option Grants under the Amended and Restated Non-Employee Director Share Incentive Plan (including Form of Notice of Grant) (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on October 31, 2019) (SEC File No. 1-14064).*\u2020\n10.18\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (filed as Exhibit\u00a010.17 to our Annual Report on Form\u00a010-K filed on August\u00a017, 2012) (SEC File No.\u00a01-14064).*\u2020\n63\nTable of Contents\nExhibit\nNumber\nDescription\n10.18a\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on November\u00a016, 2015) (SEC File No.\u00a01-14064).*\u2020\n10.18b\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (filed as Exhibit\u00a010.16b to our Annual Report on Form\u00a010-K filed on August\u00a025, 2017) (SEC File No.\u00a01-14064).*\u2020\n10.18c\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on November 19, 2019) (SEC File No. 1-14064).*\u2020 \n10.18d\nForm\u00a0of Stock Option Agreement under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form\u00a0of Notice of Grant) (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on November\u00a02, 2012) (SEC File No.\u00a01-14064).*\u2020\n10.18e\nForm\u00a0of Stock Option Agreement under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form\u00a0of Notice of Grant) (filed as Exhibit\u00a010.16y to our Annual Report on Form\u00a010-K filed on August\u00a020, 2014) (SEC File No.\u00a01-14064).*\u2020\n10.18f\nForm\u00a0of Stock Option Agreement with Fabrizio Freda under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form\u00a0of Notice of Grant) (filed as Exhibit\u00a010.16z to our Annual Report on Form\u00a010-K filed on August\u00a020, 2014) (SEC File No.\u00a01-14064).*\u2020\n10.18g\nForm\u00a0of Stock Option Agreement under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form\u00a0of Notice of Grant) (filed as Exhibit\u00a010.16m to our Annual Report on Form\u00a010-K filed on August\u00a025, 2017) (SEC File No.\u00a01-14064).*\u2020\n10.18h\nForm\u00a0of Stock Option Agreement under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form\u00a0of Notice of Grant) (filed as Exhibit 10.17l to our Annual Report on Form 10-K filed on August 23, 2019) (SEC File No.\u00a01-14064).*\u2020\n10.18i\nPerformance Share Unit Award Agreement with Fabrizio Freda under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Notice of Grant) (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on September\u00a011, 2015) (SEC File No.\u00a01-14064).*\u2020\n10.18j\nPerformance Share Unit Award Agreement with Fabrizio Freda (2018) under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Notice of Grant) (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on February\u00a015, 2018) (SEC File No.\u00a01-14064).*\u2020\n10.18k\nForm of Performance Share Unit Award Agreement for Employees including Executive Officers under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant) (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on November 2, 2020) (SEC File No. 1-14064).*\u2020\n10.18l\nPrice-Vested Unit Award Agreement with Fabrizio Freda under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Notice of Grant) (filed as Exhibit 10.1 to our current Report on Form 8-K filed on March 16, 2021) (SEC File No. 1-14064).*\u2020\n10.18m\nPerformance Share Unit Award Agreement with Fabrizio Freda under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Notice of Grant) (filed as Exhibit 10.2 to our Current Report on Form 8-K filed on March 16, 2021) (SEC File No. 1-14064).*\u2020\n10.18n\nForm of Non-annual Performance Share Unit Award Agreement for Executive Officers under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant) (filed as Exhibit 10.18s to our Annual Report on Form 10-K filed on August 27, 2021) (SEC File No. 1-14064).*\u2020\n10.18o\nForm of Performance Share Unit Award Agreement for Employees including Executive Officers under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant) (filed as Exhibit 10.18t to our Annual Report on Form 10-K filed on August 27, 2021) (SEC File No. 1-14064).*\u2020\n10.18p\nForm of Restricted Stock Unit Award Agreement for Executive Officers under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant) (filed as Exhibit 10.18bb to our Annual Report on Form 10-K filed on August 28, 2020) (SEC File No. 1-14064).*\u2020\n10.18q\nForm of Restricted Stock Unit Award Agreement for Employees other than Executive Officers under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant) (filed as Exhibit 10.18cc to our Annual Report on Form 10-K filed on August 28, 2020) (SEC File No. 1-14064).*\u2020\n64\nTable of Contents\nExhibit\nNumber\nDescription\n10.18r\nForm of Non-annual Restricted Stock Unit Award Agreement for Executive Officers under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant) (filed as Exhibit 10.18dd to our Annual Report on Form 10-K filed on August 28, 2020) (SEC File No. 1-14064).*\u2020\n10.19\n$2.5 Billion Credit Facility, dated as of October 22, 2021, among The Est\u00e9e Lauder Companies Inc., the Eligible Subsidiaries of the Company, as defined therein, the lenders listed therein, and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on October 22, 2021) (SEC File No. 1-14064).*\n10.20\nServices Agreement, dated January\u00a01, 2003, among Estee Lauder Inc., Melville Management Corp., Leonard A. Lauder, and William P. Lauder (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 2010) (SEC File No.\u00a01-14064).*\n10.20a\nAgreement of Sublease, dated May 18, 2022, between Editions de Parfums LLC, Sublandlord and Melville Management Corporation, Subtenant (filed as Exhibit 10.21a to our Annual Report on Form 10-K filed on August 24, 2022)  (SEC File No. 1-14064).*\n10.21\nServices Agreement, dated November\u00a022, 1995, between Estee Lauder Inc. and RSL Investment Corp. (filed as Exhibit\u00a010.3 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 2010) (SEC File No.\u00a01-14064).*\n10.22\nAgreement of Sublease and Guarantee of Sublease, dated April\u00a01, 2005, among Aramis Inc., RSL Management Corp., and Ronald S. Lauder (filed as Exhibit\u00a010.4 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 2010) (SEC File No.\u00a01-14064).*\n10.22a\nFirst Amendment to Sublease, dated February\u00a028, 2007, between Aramis Inc. and RSL Management Corp. (filed as Exhibit\u00a010.5 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 2010) (SEC File No.\u00a01-14064).*\n10.22b\nSecond Amendment to Sublease, dated January\u00a027, 2010, between Aramis Inc. and RSL Management Corp. (filed as Exhibit\u00a010.6 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 2010) (SEC File No.\u00a01-14064).*\n10.22c\nThird Amendment to Sublease, dated November\u00a03, 2010, between Aramis Inc., and RSL Management Corp. (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on February\u00a04, 2011) (SEC File No.\u00a01-14064).*\n10.22d\nFourth Amendment to Sublease, dated March 4, 2020, between Aramis Inc. and RSL Management Corp. (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on May 1, 2020) (SEC File No. 1-14064).*\n10.23\nForm\u00a0of Art Loan Agreement between Lender and Estee Lauder Inc. (filed as Exhibit\u00a010.7 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 2010) (SEC file No.\u00a01-14064).*\n10.24\nCreative Consultant Agreement, dated April\u00a06, 2011, between Estee Lauder Inc. and Aerin Lauder Zinterhofer (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on April\u00a08, 2011) (SEC File No.\u00a01-14064).*\u2020\n10.24a\nFirst Amendment to Creative Consultant Agreement between Estee Lauder Inc. and Aerin Lauder Zinterhofer dated October\u00a028, 2014 (filed as Exhibit\u00a010.23a to our Annual Report on Form\u00a010-K filed on August\u00a020, 2015) (SEC File No. 1-14064).*\u2020\n10.24b\nSecond Amendment to Creative Consultant Agreement between Estee Lauder Inc. and Aerin Lauder Zinterhofer effective July\u00a01, 2016 (filed as Exhibit\u00a010.23b to our Annual Report on Form\u00a010-K filed on August\u00a024, 2016) (SEC File No.\u00a01-14064).*\u2020\n10.24c\nThird Amendment to Creative Consultant Agreement between Estee Lauder Inc. and Aerin Lauder Zinterhofer effective July 1, 2021 (filed as Exhibit 10.24c to our Annual Report on Form 10-K filed on August 27, 2021) (SEC File No. 1-14064).*\u2020\n10.25\nLicense Agreement, dated April\u00a06, 2011, by and among Aerin LLC, Aerin Lauder Zinterhofer and Estee Lauder Inc. (filed as Exhibit\u00a010.2 to our Current Report on Form\u00a08-K filed on April\u00a08, 2011) (SEC File No.\u00a01-14064).*\n10.25a\nFirst Amendment to the April\u00a06, 2011 License Agreement, dated January\u00a022, 2019, by and among Aerin LLC, Aerin Lauder Zinterhofer and Estee Lauder Inc. (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on May\u00a01, 2019) (SEC File No.\u00a01-14064).*\n10.25b\nSecond Amendment to the April\u00a06, 2011 License Agreement, dated February\u00a022, 2019, by and among Aerin LLC, Aerin Lauder Zinterhofer and Estee Lauder Inc. (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on May\u00a01, 2019) (SEC File No.\u00a01-14064).*\n21.1\nList of significant subsidiaries.\n65\nTable of Contents\nExhibit\nNumber\nDescription\n23.1\nConsent of PricewaterhouseCoopers LLP.\n24.1\nPower of Attorney.\n31.1\nCertification pursuant to Rule\u00a013a-14(a)\u00a0or 15d-14(a)\u00a0of the Securities Exchange Act of 1934, as adopted pursuant to Section\u00a0302 of the Sarbanes-Oxley Act of 2002 (CEO).\n31.2\nCertification pursuant to Rule\u00a013a-14(a)\u00a0or 15d-14(a)\u00a0of the Securities Exchange Act of 1934, as adopted pursuant to Section\u00a0302 of the Sarbanes-Oxley Act of 2002 (CFO).\n32.1\nCertification pursuant to 18 U.S.C. Section\u00a01350, as adopted pursuant to Section\u00a0906 of the Sarbanes-Oxley Act of 2002 (CEO). (furnished)\n32.2\nCertification pursuant to 18 U.S.C. Section\u00a01350, as adopted pursuant to Section\u00a0906 of the Sarbanes-Oxley Act of 2002 (CFO). (furnished)\n101.1\nThe following materials from The Est\u00e9e Lauder Companies Inc.\u2019s Annual Report on Form 10-K for the year ended June 30, 2023 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Earnings, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements\n104\nThe cover page from The Est\u00e9e Lauder Companies Inc.\u2019s Annual Report on Form 10-K for the year ended June\u00a030, 2023 is formatted in iXBRL\n____________________\n*\u00a0Incorporated herein by reference.\n\u2020\u00a0Exhibit\u00a0is a management contract or compensatory plan or arrangement.\nItem 16.\u00a0\u00a0\nForm\u00a010-K Summary.\nNone.\n66\nTable of Contents\nSIGNATURES\nPursuant to the requirements of Section\u00a013 or 15(d)\u00a0of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.\nTHE EST\u00c9E LAUDER COMPANIES INC.\nBy\n/s/ TRACEY T. TRAVIS\nTracey T. Travis\nExecutive Vice President\nand Chief Financial Officer\nDate: August 18, 2023\nPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.\nSignature\nTitle (s)\nDate\nFABRIZIO FREDA*\nPresident, Chief Executive Officer\nand a Director\n(Principal Executive Officer)\nAugust 18, 2023\nFabrizio Freda\nWILLIAM P. LAUDER*\nExecutive Chairman\nand a Director\nAugust 18, 2023\nWilliam P. Lauder\nLEONARD A. LAUDER*\nDirector\nAugust 18, 2023\nLeonard A. Lauder\nCHARLENE BARSHEFSKY*\nDirector\nAugust 18, 2023\nCharlene Barshefsky\nWEI SUN CHRISTIANSON*\nDirector\nAugust 18, 2023\nWei Sun Christianson\nANGELA WEI DONG*\nDirector\nAugust 18, 2023\nAngela Wei Dong\nPAUL J. FRIBOURG*\nDirector\nAugust 18, 2023\nPaul J. Fribourg\nJENNIFER HYMAN*\nDirector\nAugust 18, 2023\nJennifer Hyman\nJANE LAUDER*\nDirector\nAugust 18, 2023\nJane Lauder\nRONALD S. LAUDER*\nDirector\nAugust 18, 2023\nRonald S. Lauder\nARTURO NU\u00d1EZ*\nDirector\nAugust 18, 2023\nArturo Nu\u00f1ez\nRICHARD D. PARSONS*\nDirector\nAugust 18, 2023\nRichard D. Parsons\nLYNN FORESTER DE ROTHSCHILD*\nDirector\nAugust 18, 2023\nLynn Forester de Rothschild\nBARRY S. STERNLICHT*\nDirector\nAugust 18, 2023\nBarry S. Sternlicht\nJENNIFER TEJADA*\nDirector\nAugust 18, 2023\nJennifer Tejada\nRICHARD F. ZANNINO*\nDirector\nAugust 18, 2023\nRichard F. Zannino\n/s/ TRACEY T. TRAVIS\nExecutive Vice President and\nChief Financial Officer\n(Principal Financial and\nAccounting Officer)\nAugust 18, 2023\nTracey T. Travis\n___________________________________________\n*\u00a0By signing her name hereto, Tracey T. Travis signs this document in the capacities indicated above and on behalf of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed herewith.\nBy\n/s/ TRACEY T. TRAVIS\nTracey T. Travis\n(Attorney-in-Fact)\n67\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nINDEX TO CONSOLIDATED FINANCIAL STATEMENTS\n\u00a0\nPage\nFinancial Statements:\nManagement\u2019s Report on Internal Control Over Financial Reporting\nF-\n2\nReport of Independent Registered Public Accounting Firm (\nPricewaterhouseCoopers LLP\n,\n \nNew York, New York\n, Auditor Firm ID:\n \n238\n)\nF-\n3\nConsolidated Statements of Earnings\nF-\n6\nConsolidated Statements of Comprehensive Income\nF-\n7\nConsolidated Balance Sheets\nF-\n8\nConsolidated Statements of Equity and Redeemable Noncontrolling Interest\nF-\n9\nConsolidated Statements of Cash Flows\nF-\n10\nNotes to Consolidated Financial Statements\nF-\n11\nFinancial Statement Schedule:\nSchedule II - Valuation and Qualifying Accounts\nS-\n1\nAll other schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.\nF-1\nTable of Contents\nManagement\u2019s Report on Internal Control over Financial Reporting\nManagement of The Est\u00e9e Lauder Companies Inc. (including its subsidiaries) (the \u201cCompany\u201d) is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended).\nA company\u2019s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company\u2019s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company\u2019s assets that could have a material effect on the financial statements.\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\nUnder the supervision of and with the participation of the Chief Executive Officer and the Chief Financial Officer, the Company\u2019s management conducted an assessment of the effectiveness of the Company\u2019s internal control over financial reporting based on the framework and criteria established in \nInternal Control \u2013 Integrated Framework (2013)\n, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company\u2019s management has concluded that, as of June 30, 2023, the Company\u2019s internal control over financial reporting was effective.\nThe effectiveness of the Company\u2019s internal control over financial reporting as of June 30, 2023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears under the heading \u201cReport of Independent Registered Public Accounting Firm.\u201d \n/s/ Fabrizio Freda\n/s/ Tracey T. Travis\nFabrizio Freda\nTracey T. Travis\nPresident and Chief Executive Officer\nExecutive Vice President and Chief Financial Officer\nAugust\u00a018, 2023\nF-2\nTable of Contents\nReport of Independent Registered Public Accounting Firm\nTo the Stockholders and Board of Directors of The Est\u00e9e Lauder Companies Inc.\nOpinions on the Financial Statements and Internal Control over Financial Reporting\nWe have audited the accompanying consolidated balance sheets of The Est\u00e9e Lauder Companies Inc. and its subsidiaries (the \u201cCompany\u201d) as of June 30, 2023 and 2022, and the related consolidated statements of earnings, of comprehensive income, of equity and redeemable noncontrolling interest and of cash flows for each of the three years in the period ended June 30, 2023, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended June 30, 2023 appearing on page S-1 (collectively referred to as the \u201cconsolidated financial statements\u201d). We also have audited the Company's internal control over financial reporting as of June 30, 2023, based on criteria established in\n Internal Control - Integrated Framework\n (2013)\n \nissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).\nIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2023, based on criteria established in\n Internal Control - Integrated Framework \n(2013) issued by the COSO.\nBasis for Opinions\nThe Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management\u2019s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company\u2019s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.\nOur audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.\nDefinition and Limitations of Internal Control over Financial Reporting\nA company\u2019s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company\u2019s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company\u2019s assets that could have a material effect on the financial statements.\nF-3\nTable of Contents\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\nCritical Audit Matters\nThe critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.\nInterim Goodwill Impairment Assessment - Dr.Jart+ Reporting Unit\nAs described in Notes 2 and 6 to the consolidated financial statements, the Company\u2019s consolidated balance of goodwill was $2,486 million as of June 30, 2023, of which $304 million relates to the Dr.Jart+ reporting unit. Management assesses goodwill at least annually for impairment as of the beginning of the fiscal fourth quarter or more frequently if certain events or circumstances exist. Management concluded that the changes in circumstances in the reporting unit, along with increases in the weighted average cost of capital, triggered the need for an interim impairment review of the Company\u2019s goodwill. Management completed an interim quantitative impairment test for goodwill as of November 30, 2022. The fair value of the reporting unit was based upon an equal weighting of the income and market approaches. The significant assumptions used in these approaches include revenue growth rates and profit margins, terminal values, weighted average cost of capital used to discount future cash flows, and comparable market multiples.\nThe principal considerations for our determination that performing procedures relating to the interim goodwill impairment assessment - Dr.Jart+ reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management\u2019s significant assumptions related to revenue growth rates and weighted average cost of capital; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.\nAddressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management\u2019s goodwill impairment assessment, including controls over the valuation of the Dr.Jart+ reporting unit. These procedures also included, among others, (i) testing management\u2019s process for developing the fair value estimate of the reporting unit; (ii) evaluating the appropriateness of the income and market approaches; (iii) testing the completeness and accuracy of the underlying data used in the approaches; and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates and weighted average cost of capital. Evaluating management\u2019s assumption related to revenue growth rates involved evaluating whether the assumption was reasonable considering (i) the current and past performance of the reporting unit; (ii) the consistency with external market and industry data; and (iii) whether the assumption was consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the income approach and (ii) the reasonableness of the weighted average cost of capital significant assumption. \nAcquisition of 001 Del LLC - Valuation of TOM FORD Trademark Intangible Asset\nAs described in Notes 2, 5, and 6 to the consolidated financial statements, on April 28, 2023, the Company acquired 100% of the equity interests in 001 Del LLC, the sole owner of the TOM FORD brand and its related intellectual property. The acquisition has been accounted for as an asset acquisition as the fair value of the gross assets acquired is concentrated in the value of the TOM FORD trademark intangible asset. The Company recognizes assets acquired in an asset acquisition based on the cost to the Company on a relative fair value basis. The fair value of the trademark was determined using an income approach, specifically the relief-from-royalty method. The significant assumptions used to estimate the fair value were revenue growth rates, terminal value, beauty royalty savings, weighted average cost of capital used to discount future cash flows, and royalty rates. The total cost of the asset acquisition of $2,578 million was allocated to the TOM FORD trademark intangible asset.\nThe principal considerations for our determination that performing procedures relating to the valuation of the TOM FORD trademark intangible asset from the acquisition of 001 Del LLC  is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the trademark intangible asset acquired; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management\u2019s significant assumptions related to terminal value, beauty royalty savings, and weighted average cost of capital; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.\nF-4\nTable of Contents\nAddressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition, including controls over the valuation of the trademark intangible asset. These procedures also included, among others, (i) reading the purchase agreement; (ii) testing management\u2019s process for developing the fair value estimate; (iii) evaluating the appropriateness of the relief-from-royalty method; (iv) testing the completeness and accuracy of the underlying data used in the method; and (v) evaluating the reasonableness of the significant assumptions used by management related to terminal value, beauty royalty savings, and weighted average cost of capital. Evaluating management\u2019s assumptions related to terminal value and beauty royalty savings involved evaluating whether the assumptions were reasonable considering (i) the current and past performance of the brand; (ii) the consistency with external market data and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit.  Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the relief-from-royalty method and (ii) the reasonableness of the weighted average cost of capital significant assumption.\n/s/ PricewaterhouseCoopers LLP\nNew York, New York\nAugust 18, 2023\nWe have served as the Company\u2019s auditor since 2020.\nF-5\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nCONSOLIDATED STATEMENTS OF EARNINGS\n\u00a0\nYear Ended June 30\n(In millions, except per share data)\n2023\n2022\n2021\nNet sales\n$\n15,910\n\u00a0\n$\n17,737\n\u00a0\n$\n16,215\n\u00a0\nCost of sales\n4,564\n\u00a0\n4,305\n\u00a0\n3,834\n\u00a0\nGross profit\n11,346\n\u00a0\n13,432\n\u00a0\n12,381\n\u00a0\nOperating expenses\nSelling, general and administrative\n9,575\n\u00a0\n9,888\n\u00a0\n9,371\n\u00a0\nRestructuring and other charges\n55\n\u00a0\n133\n\u00a0\n204\n\u00a0\nGoodwill impairment\n\u2014\n\u00a0\n\u2014\n\u00a0\n54\n\u00a0\nImpairment of other intangible and long-lived assets\n207\n\u00a0\n241\n\u00a0\n134\n\u00a0\nTotal operating expenses\n9,837\n\u00a0\n10,262\n\u00a0\n9,763\n\u00a0\nOperating income\n1,509\n\u00a0\n3,170\n\u00a0\n2,618\n\u00a0\nInterest expense\n255\n\u00a0\n167\n\u00a0\n173\n\u00a0\nInterest income and investment income, net\n131\n\u00a0\n30\n\u00a0\n51\n\u00a0\nOther components of net periodic benefit cost\n(\n12\n)\n(\n2\n)\n12\n\u00a0\nOther income, net\n\u2014\n\u00a0\n1\n\u00a0\n847\n\u00a0\nEarnings before income taxes\n1,397\n\u00a0\n3,036\n\u00a0\n3,331\n\u00a0\nProvision for income taxes\n387\n\u00a0\n628\n\u00a0\n456\n\u00a0\nNet earnings\n1,010\n\u00a0\n2,408\n\u00a0\n2,875\n\u00a0\nNet earnings attributable to noncontrolling interests\n\u2014\n\u00a0\n(\n7\n)\n(\n12\n)\nNet loss (earnings) attributable to redeemable noncontrolling interest\n(\n4\n)\n(\n11\n)\n7\n\u00a0\nNet earnings attributable to The Est\u00e9e Lauder Companies Inc.\n$\n1,006\n\u00a0\n$\n2,390\n\u00a0\n$\n2,870\n\u00a0\nNet earnings attributable to The Est\u00e9e Lauder Companies Inc. per common share\nBasic\n$\n2.81\n\u00a0\n$\n6.64\n\u00a0\n$\n7.91\n\u00a0\nDiluted\n$\n2.79\n\u00a0\n$\n6.55\n\u00a0\n$\n7.79\n\u00a0\nWeighted-average common shares outstanding\nBasic\n357.9\n360.0\n362.9\nDiluted\n360.9\n364.9\n368.2\nSee notes to consolidated financial statements.\nF-6\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME\n\u00a0\nYear Ended June 30\n(In millions)\n2023\n2022\n2021\nNet earnings\n$\n1,010\n\u00a0\n$\n2,408\n\u00a0\n$\n2,875\n\u00a0\nOther comprehensive income (loss):\nNet cash flow hedge gain (loss)\n(\n11\n)\n91\n\u00a0\n(\n21\n)\nCross-currency swap contract loss\n(\n20\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\nRetirement plan and other retiree benefit adjustments\n(\n79\n)\n87\n\u00a0\n82\n\u00a0\nTranslation adjustments\n(\n127\n)\n(\n438\n)\n128\n\u00a0\nBenefit (provision) for income taxes on components of other comprehensive income\n51\n\u00a0\n(\n61\n)\n(\n10\n)\nTotal other comprehensive income (loss), net of tax\n(\n186\n)\n(\n321\n)\n179\n\u00a0\nComprehensive income\n824\n\u00a0\n2,087\n\u00a0\n3,054\n\u00a0\nComprehensive income attributable to noncontrolling interests:\nNet earnings\n\u2014\n\u00a0\n(\n7\n)\n(\n12\n)\nTranslation adjustments\n\u2014\n\u00a0\n4\n\u00a0\n(\n1\n)\nTotal comprehensive income attributable to noncontrolling interests\n\u2014\n\u00a0\n(\n3\n)\n(\n13\n)\nComprehensive loss (income) attributable to redeemable noncontrolling interest:\nNet loss (earnings)\n(\n4\n)\n(\n11\n)\n7\n\u00a0\nTranslation adjustments\n14\n\u00a0\n25\n\u00a0\n17\n\u00a0\nTotal comprehensive loss attributable to redeemable noncontrolling interest\n10\n\u00a0\n14\n\u00a0\n24\n\u00a0\nComprehensive income attributable to The Est\u00e9e Lauder Companies Inc.\n$\n834\n\u00a0\n$\n2,098\n\u00a0\n$\n3,065\n\u00a0\nSee notes to consolidated financial statements.\nF-7\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nCONSOLIDATED BALANCE SHEETS\n\u00a0\nJune 30\n(In millions, except share data)\n2023\n2022\nASSETS\n\u00a0\n\u00a0\nCurrent assets\n\u00a0\nCash and cash equivalents\n$\n4,029\n\u00a0\n$\n3,957\n\u00a0\nAccounts receivable, net\n1,452\n\u00a0\n1,629\n\u00a0\nInventory and promotional merchandise\n2,979\n\u00a0\n2,920\n\u00a0\nPrepaid expenses and other current assets\n679\n\u00a0\n792\n\u00a0\nTotal current assets\n9,139\n\u00a0\n9,298\n\u00a0\nProperty, plant and equipment, net\n3,179\n\u00a0\n2,650\n\u00a0\nOther assets\nOperating lease right-of-use assets\n1,797\n\u00a0\n1,949\n\u00a0\nGoodwill\n2,486\n\u00a0\n2,521\n\u00a0\nOther intangible assets, net\n5,602\n\u00a0\n3,428\n\u00a0\nOther assets\n1,212\n\u00a0\n1,064\n\u00a0\nTotal other assets\n11,097\n\u00a0\n8,962\n\u00a0\nTotal assets\n$\n23,415\n\u00a0\n$\n20,910\n\u00a0\nLIABILITIES AND EQUITY\nCurrent liabilities\nCurrent debt\n$\n997\n\u00a0\n$\n268\n\u00a0\nAccounts payable\n1,670\n\u00a0\n1,822\n\u00a0\nOperating lease liabilities\n357\n\u00a0\n365\n\u00a0\nOther accrued liabilities\n3,216\n\u00a0\n3,360\n\u00a0\nTotal current liabilities\n6,240\n\u00a0\n5,815\n\u00a0\nNoncurrent liabilities\nLong-term debt\n7,117\n\u00a0\n5,144\n\u00a0\nLong-term operating lease liabilities\n1,698\n\u00a0\n1,868\n\u00a0\nOther noncurrent liabilities\n1,943\n\u00a0\n1,651\n\u00a0\nTotal noncurrent liabilities\n10,758\n\u00a0\n8,663\n\u00a0\nCommitments and contingencies\nRedeemable Noncontrolling Interest\n832\n\u00a0\n842\n\u00a0\nEquity\nCommon stock, $\n.01\n par value; Class\u00a0A shares authorized: \n1,300,000,000\n at June\u00a030, 2023 and June\u00a030, 2022; shares issued: \n469,668,085\n at June\u00a030, 2023 and \n467,949,351\n at June\u00a030, 2022; Class\u00a0B shares authorized: \n304,000,000\n at June\u00a030, 2023 and June\u00a030, 2022; shares issued and outstanding: \n125,542,029\n at June\u00a030, 2023 and \n125,542,029\n at June\u00a030, 2022\n6\n\u00a0\n6\n\u00a0\nPaid-in capital\n6,153\n\u00a0\n5,796\n\u00a0\nRetained earnings\n13,991\n\u00a0\n13,912\n\u00a0\nAccumulated other comprehensive loss\n(\n934\n)\n(\n762\n)\n\u00a0\n19,216\n\u00a0\n18,952\n\u00a0\nLess: Treasury stock, at cost; \n237,590,199\n Class\u00a0A shares at June\u00a030, 2023 and \n236,435,830\n Class\u00a0A shares at June\u00a030, 2022\n(\n13,631\n)\n(\n13,362\n)\nTotal equity\n5,585\n\u00a0\n5,590\n\u00a0\nTotal liabilities, redeemable noncontrolling interest and equity\n$\n23,415\n\u00a0\n$\n20,910\n\u00a0\nSee notes to consolidated financial statements.\nF-8\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nCONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTEREST\nYear Ended June 30\n(In\u00a0millions, except per share data)\n2023\n2022\n2021\nCommon stock, beginning of year\n$\n6\n\u00a0\n$\n6\n\u00a0\n$\n6\n\u00a0\nStock-based compensation\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nCommon stock, end of year\n6\n\u00a0\n6\n\u00a0\n6\n\u00a0\nPaid-in capital, beginning of year\n5,796\n\u00a0\n5,335\n\u00a0\n4,790\n\u00a0\nCommon stock dividends\n4\n\u00a0\n3\n\u00a0\n3\n\u00a0\nStock-based compensation\n353\n\u00a0\n477\n\u00a0\n542\n\u00a0\nPurchase of shares from noncontrolling interests\n\u2014\n\u00a0\n(\n19\n)\n\u2014\n\u00a0\nPaid-in capital, end of year\n6,153\n\u00a0\n5,796\n\u00a0\n5,335\n\u00a0\nRetained earnings, beginning of year\n13,912\n\u00a0\n12,244\n\u00a0\n10,134\n\u00a0\nCommon stock dividends\n(\n927\n)\n(\n843\n)\n(\n757\n)\nNet earnings attributable to The Est\u00e9e Lauder Companies Inc.\n1,006\n\u00a0\n2,390\n\u00a0\n2,870\n\u00a0\nCumulative effect of adoption of new accounting standards\n\u2014\n\u00a0\n121\n\u00a0\n(\n3\n)\nRetained earnings, end of year\n13,991\n\u00a0\n13,912\n\u00a0\n12,244\n\u00a0\nAccumulated other comprehensive loss, beginning of year\n(\n762\n)\n(\n470\n)\n(\n665\n)\nOther comprehensive income (loss) attributable to The Est\u00e9e Lauder Companies Inc.\n(\n172\n)\n(\n292\n)\n195\n\u00a0\nAccumulated other comprehensive loss, end of year\n(\n934\n)\n(\n762\n)\n(\n470\n)\nTreasury stock, beginning of year\n(\n13,362\n)\n(\n11,058\n)\n(\n10,330\n)\nAcquisition of treasury stock\n(\n184\n)\n(\n2,130\n)\n(\n602\n)\nStock-based compensation\n(\n85\n)\n(\n174\n)\n(\n126\n)\nTreasury stock, end of year\n(\n13,631\n)\n(\n13,362\n)\n(\n11,058\n)\nTotal stockholders\u2019 equity \u2013 The Est\u00e9e Lauder Companies Inc.\n5,585\n\u00a0\n5,590\n\u00a0\n6,057\n\u00a0\nNoncontrolling interests, beginning of year\n\u2014\n\u00a0\n34\n\u00a0\n27\n\u00a0\nNet earnings attributable to noncontrolling interests\n\u2014\n\u00a0\n7\n\u00a0\n12\n\u00a0\nDistribution to noncontrolling interest holders\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n6\n)\nPurchase of shares from noncontrolling interests\n\u2014\n\u00a0\n(\n34\n)\n\u2014\n\u00a0\nTranslation adjustments and other, net\n\u2014\n\u00a0\n(\n7\n)\n1\n\u00a0\nNoncontrolling interests, end of year\n\u2014\n\u00a0\n\u2014\n\u00a0\n34\n\u00a0\nTotal equity\n$\n5,585\n\u00a0\n$\n5,590\n\u00a0\n$\n6,091\n\u00a0\nRedeemable noncontrolling interest, beginning of year\n$\n842\n\u00a0\n$\n857\n\u00a0\n$\n\u2014\n\u00a0\nAcquired redeemable noncontrolling interest\n\u2014\n\u00a0\n\u2014\n\u00a0\n881\n\u00a0\nNet earnings (loss) attributable to redeemable noncontrolling interest\n4\n\u00a0\n11\n\u00a0\n(\n7\n)\nTranslation adjustments\n(\n14\n)\n(\n25\n)\n(\n17\n)\nAdjustment of redeemable noncontrolling interest to redemption value\n\u2014\n\u00a0\n(\n1\n)\n\u2014\n\u00a0\nRedeemable noncontrolling interest, end of year\n$\n832\n\u00a0\n$\n842\n\u00a0\n$\n857\n\u00a0\nCash dividends declared per common share\n$\n2.58\n\u00a0\n$\n2.33\n\u00a0\n$\n2.07\n\u00a0\nSee notes to consolidated financial statements.\nF-9\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nCONSOLIDATED STATEMENTS OF CASH FLOWS\n\u00a0\nYear Ended June 30\n(In\u00a0millions)\n2023\n2022\n2021\nCash flows from operating activities\n\u00a0\n\u00a0\n\u00a0\nNet earnings\n$\n1,010\n\u00a0\n$\n2,408\n\u00a0\n$\n2,875\n\u00a0\nAdjustments to reconcile net earnings to net cash flows from operating activities:\nDepreciation and amortization\n744\n\u00a0\n727\n\u00a0\n651\n\u00a0\nDeferred income taxes\n(\n186\n)\n(\n149\n)\n(\n230\n)\nNon-cash stock-based compensation\n267\n\u00a0\n331\n\u00a0\n327\n\u00a0\nNet loss on disposal of property, plant and equipment\n13\n\u00a0\n8\n\u00a0\n23\n\u00a0\nNon-cash restructuring and other charges\n36\n\u00a0\n14\n\u00a0\n76\n\u00a0\nPension and post-retirement benefit expense\n53\n\u00a0\n78\n\u00a0\n95\n\u00a0\nPension and post-retirement benefit contributions\n(\n49\n)\n(\n56\n)\n(\n59\n)\nGoodwill, other intangible and long-lived asset impairments\n207\n\u00a0\n241\n\u00a0\n188\n\u00a0\nChanges in fair value of contingent consideration\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n2\n)\nGain on previously held equity method investment\n\u2014\n\u00a0\n(\n1\n)\n(\n847\n)\nOther non-cash items\n(\n8\n)\n(\n7\n)\n(\n20\n)\nChanges in operating assets and liabilities:\nDecrease (increase) in accounts receivable, net\n185\n\u00a0\n(\n10\n)\n(\n398\n)\nIncrease in inventory and promotional merchandise\n(\n64\n)\n(\n602\n)\n(\n140\n)\nDecrease (increase) in other assets, net\n26\n\u00a0\n(\n101\n)\n13\n\u00a0\nIncrease (decrease) in accounts payable\n(\n333\n)\n210\n\u00a0\n440\n\u00a0\nIncrease (decrease) in other accrued and noncurrent liabilities\n(\n129\n)\n1\n\u00a0\n695\n\u00a0\nDecrease in operating lease assets and liabilities, net\n(\n41\n)\n(\n52\n)\n(\n56\n)\nNet cash flows provided by operating activities\n1,731\n\u00a0\n3,040\n\u00a0\n3,631\n\u00a0\nCash flows from investing activities\nCapital expenditures\n(\n1,003\n)\n(\n1,040\n)\n(\n637\n)\nProceeds from purchase price refund\n\u2014\n\u00a0\n\u2014\n\u00a0\n32\n\u00a0\nPayments for acquired businesses, net of cash acquired\n\u2014\n\u00a0\n(\n3\n)\n(\n1,065\n)\nPurchases of other intangible assets\n(\n2,286\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\nPurchases of investments\n(\n8\n)\n(\n10\n)\n(\n42\n)\nSettlement of net investment hedges\n80\n\u00a0\n108\n\u00a0\n(\n152\n)\nNet cash flows used for investing activities\n(\n3,217\n)\n(\n945\n)\n(\n1,864\n)\nCash flows from financing activities\nProceeds (repayments) of current debt, net (Note 11)\n983\n\u00a0\n(\n4\n)\n(\n744\n)\nProceeds from issuance of long-term debt, net\n1,995\n\u00a0\n\u2014\n\u00a0\n596\n\u00a0\nDebt issuance costs\n(\n15\n)\n(\n1\n)\n(\n4\n)\nRepayments and redemptions of long-term debt\n(\n265\n)\n(\n18\n)\n(\n459\n)\nNet proceeds from stock-based compensation transactions\n88\n\u00a0\n151\n\u00a0\n215\n\u00a0\nPayment for acquisition of noncontrolling interest\n\u2014\n\u00a0\n(\n15\n)\n\u2014\n\u00a0\nPayments to acquire treasury stock\n(\n271\n)\n(\n2,309\n)\n(\n733\n)\nDividends paid to stockholders\n(\n925\n)\n(\n840\n)\n(\n753\n)\nPayments to noncontrolling interest holders for dividends\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n8\n)\nPayments of contingent consideration\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n2\n)\nNet cash flows provided by (used for) financing activities\n1,590\n\u00a0\n(\n3,036\n)\n(\n1,892\n)\nEffect of exchange rate changes on Cash and cash equivalents\n(\n32\n)\n(\n60\n)\n61\n\u00a0\nNet increase (decrease) in Cash and cash equivalents\n72\n\u00a0\n(\n1,001\n)\n(\n64\n)\nCash and cash equivalents at beginning of year\n3,957\n\u00a0\n4,958\n\u00a0\n5,022\n\u00a0\nCash and cash equivalents at end of year\n$\n4,029\n\u00a0\n$\n3,957\n\u00a0\n$\n4,958\n\u00a0\nSee notes to consolidated financial statements.\nF-10\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 1 - \nDESCRIPTION OF BUSINESS\nThe Est\u00e9e Lauder Companies Inc. manufactures, markets and sells skin care, makeup, fragrance and hair care products around the world.\u00a0Products are marketed under owned brand names, including:\u00a0Est\u00e9e Lauder, Aramis, Clinique, Lab Series, Origins, M\u00b7A\u00b7C, La Mer, Bobbi Brown Cosmetics\n,\n Aveda, Jo Malone London, Bumble and bumble, Darphin Paris, TOM FORD, Smashbox, Le Labo, Editions de Parfums Fr\u00e9d\u00e9ric Malle, GLAMGLOW, Kilian Paris, Too Faced, Dr.Jart+, and The Ordinary.\u00a0The Est\u00e9e Lauder Companies Inc. is also the global licensee of the AERIN and BALMAIN brand names for fragrances and cosmetics.\nNOTE 2 \u2013 \nSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES\nPrinciples of Consolidation\nThe accompanying consolidated financial statements include the accounts of The Est\u00e9e Lauder Companies Inc. and its subsidiaries (collectively, the \u201cCompany\u201d).\u00a0All significant intercompany balances and transactions have been eliminated.\nCertain amounts in the notes to the consolidated financial statements of prior years have been reclassified to conform to current year presentation.\nManagement Estimates\nThe preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (\u201cU.S. GAAP\u201d) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements.\u00a0Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, inventory, pension and other post-retirement benefit costs, business combinations and asset acquisitions, goodwill, other intangible assets and long-lived assets, income taxes, redeemable noncontrolling interest and Deciem Beauty Group Inc. (\u201cDECIEM\u201d) stock options.\u00a0Management evaluates the related estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate.\u00a0As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions.\u00a0Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.\nCurrency Translation and Transactions\nAll assets and liabilities of foreign subsidiaries and affiliates are translated at year-end rates of exchange, while revenue and expenses are translated at monthly average rates of exchange for the period.\u00a0Unrealized translation gains (losses), net of tax, reported as translation adjustments through other comprehensive income (loss) (\u201cOCI\u201d) attributable to The Est\u00e9e Lauder Companies Inc. were $(\n85\n) million, $(\n427\n) million and $\n147\n million, net of tax, in fiscal 2023, 2022 and 2021, respectively. For the Company\u2019s subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in earnings.\u00a0These subsidiaries are not material to the Company\u2019s consolidated financial statements or liquidity in fiscal 2023, 2022 and 2021.\nThe Company enters into foreign currency forward contracts and may enter into option contracts to hedge foreign currency transactions for periods consistent with its identified exposures. The Company also uses cross-currency swap contracts to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt. Additionally, the Company enters into foreign currency forward contracts to hedge a portion of its net investment in certain foreign operations, which are designated as net investment hedges. \nSee \nNote 12 \u2013 Derivative Financial Instruments\n for further discussion\n.\n The Company categorizes these instruments as entered into for purposes other than trading.\nThe accompanying consolidated statements of earnings include net exchange gains (losses) on foreign currency transactions of $\n57\n million, $(\n11\n) million and $(\n12\n) million in fiscal 2023, 2022 and 2021, respectively.\nF-11\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nCash and Cash Equivalents\nCash and cash equivalents include $\n66\n million and $\n1,883\n million of short-term time deposits at June\u00a030, 2023 and 2022, respectively.\u00a0The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.\nInvestments\nInvestments in the common stock of privately-held companies in which the Company has the ability to exercise significant influence, but less than a controlling financial interest, are accounted for under the equity method of accounting. For those equity securities without readily determinable fair values where the Company does not have the ability to exercise significant influence, the Company records them at cost, less impairment, plus/minus subsequent observable price changes, and performs an assessment each quarter to determine whether or not a triggering event has occurred that results in changes in fair value.\u00a0Collectively, these investments were not material to the Company\u2019s consolidated financial statements as of June\u00a030, 2023 and 2022 and are included in Other assets in the accompanying consolidated balance sheets.\nAccounts Receivable\nAccounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions.\u00a0Payment terms are short-term in nature and are generally less than one year.\nThe Company is required to measure credit losses based on the Company\u2019s estimate of expected losses rather than incurred losses, which generally results in earlier recognition of allowances for credit losses. The Company evaluates certain criteria, including aging and historical write-offs, the current economic condition of specific customers and future economic conditions of countries utilizing a consumption index to determine the appropriate allowance for credit losses. The Company writes-off receivables once it is determined that the receivables are no longer collectible and as allowed by local laws. See \nNote 14 \u2013 Revenue Recognition\n for additional information.\nInventory and Promotional Merchandise\nInventory and promotional merchandise only includes inventory considered saleable or usable in future periods, and is stated at the lower of cost or net realizable value, with cost being based on standard cost and production variances, which approximate actual cost on the first-in, first-out method.\u00a0Cost components include raw materials, componentry, direct labor and overhead (e.g., indirect labor, utilities, depreciation, purchasing, receiving, inspection and warehousing) as well as inbound freight.\u00a0Manufacturing overhead is allocated to the cost of inventory based on the normal production capacity.\u00a0Unallocated overhead during periods of abnormally low production levels are recognized as cost of sales in the period in which they are incurred.\u00a0Promotional merchandise is charged to expense at the time the merchandise is shipped to the Company\u2019s customers.\u00a0Included in inventory and promotional merchandise is an inventory obsolescence reserve, which represents the difference between the cost of the inventory and its estimated realizable value. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age and historical results.\u00a0In addition, and as necessary, specific reserves for future known or anticipated events may be established.\nF-12\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nDerivative Financial Instruments\nThe Company\u2019s derivative financial instruments are recorded as either assets or liabilities on the balance sheet and measured at fair value.\u00a0All derivatives are (i)\u00a0designated as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (\u201cfair value\u201d hedge), (ii)\u00a0designated as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (\u201ccash flow\u201d hedge), or (iii)\u00a0not designated as a hedging instrument.\u00a0Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge are recorded in current-period earnings, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on unrecognized firm commitments).\u00a0Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge of a forecasted transaction are recorded in OCI.\u00a0Gains and losses deferred in OCI are then recognized in current-period earnings when earnings are affected by the variability of cash flows of the hedged forecasted transaction (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings).\u00a0Changes in the fair value of derivative instruments not designated as hedging instruments are reported in current-period earnings. All derivative gains and losses relating to cash flow hedges and fair value hedges are recognized in the same income statement line as the hedged items. The Company also enters into foreign currency forward contracts to hedge a portion of its net investment in certain foreign operations, which are designated as net investment hedges. See \nNote 12 \u2013 Derivative Financial Instruments\n for further discussion.\nProperty, Plant and Equipment\nProperty, plant and equipment, including leasehold and other improvements that extend an asset\u2019s useful life or productive capabilities, are carried at cost less accumulated depreciation and amortization.\u00a0Costs incurred for computer software developed or obtained for internal use are capitalized during the application development stage and expensed as incurred during the preliminary project and post-implementation stages.\u00a0Capital costs incurred while an asset is being built are classified as Construction in progress and are reclassified to its respective asset class when placed into service. For financial statement purposes, depreciation is provided principally on the straight-line method over the estimated useful lives of the assets ranging from \n3\n to \n40\n years.\u00a0Leasehold improvements are amortized on a straight-line basis over the shorter of the lives of the respective leases or the expected useful lives of those improvements.\nBusiness Combinations and Asset Acquisitions\nThe Company evaluates whether a transaction meets the definition of a business. The Company first applies a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen test is met, the transaction is accounted for as an asset acquisition. If the screen test is not met, the Company further considers whether the set of assets or acquired entities have at a minimum, inputs and processes that have the ability to create outputs in the form of revenue. If the assets or acquired entities meet this criteria, the transaction is accounted for as a business combination. \nThe Company uses the acquisition method of accounting for acquired businesses. Under the acquisition method, the Company's consolidated financial statements reflect the operations of an acquired business starting from the closing date of the acquisition. The Company allocates the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. Any residual purchase price is recorded as goodwill. \nThe Company recognizes assets acquired in an asset acquisition based on the cost to the Company on a relative fair value basis, which includes transaction costs in addition to consideration transferred and liabilities assumed or issued as part of the transaction. Neither goodwill nor bargain purchase gains are recognized in an asset acquisition; any excess of consideration transferred over the fair value of the net assets acquired, or the opposite, is allocated to qualifying assets based on their relative fair values. \nThe determination of fair value, as well as the expected useful lives of certain assets acquired, requires management to make judgments and may involve the use of significant estimates, including assumptions with respect to estimated future cash flows, discount rates and valuation multiples from comparable publicly traded companies, among other things. See \nNote 5 \u2013 Business and Asset Acquisitions\n for further information.\nF-13\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nGoodwill and Other Indefinite-lived Intangible Assets\nGoodwill is calculated as the excess of the cost of purchased businesses over the fair value of their underlying net assets.\u00a0Other indefinite-lived intangible assets principally consist of trademarks.\u00a0Goodwill and other indefinite-lived intangible assets are not amortized.\nThe Company assesses goodwill and other indefinite-lived intangible assets at least annually for impairment as of the beginning of the fiscal fourth quarter or more frequently if certain events or circumstances exist.\u00a0The Company tests goodwill for impairment at the reporting unit level, which is one level below the Company\u2019s operating segments.\u00a0The Company identifies its reporting units by assessing whether the components of its operating segments constitute businesses for which discrete financial information is available and management of each operating segment regularly reviews the operating results of those components.\u00a0The Company makes certain judgments and assumptions in allocating assets and liabilities to determine carrying values for its reporting units. When testing goodwill for impairment, the Company has the option of first performing a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. The Company uses a single quantitative step when determining the subsequent measurement of goodwill by comparing the fair value of a reporting unit with its carrying amount and recording an impairment charge for the amount that the carrying amount exceeds the fair value, up to the total amount of goodwill allocated to that reporting unit.\u00a0When testing other indefinite-lived intangible assets for impairment, the Company also has the option of first performing a qualitative assessment to determine whether it is more-likely-than-not that the indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative test.\u00a0The quantitative impairment test for indefinite-lived intangible assets encompasses calculating the fair value of an indefinite-lived intangible asset and comparing the fair value to its carrying value.\u00a0If the carrying value exceeds the fair value, an impairment charge is recorded.\nSee \nNote 6 \u2013 Goodwill and Other Intangible Assets\n for further information.\nLong-Lived Assets\nThe Company reviews long-lived assets, primarily intangible assets subject to amortization, right-of-use assets and property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.\u00a0When such events or changes in circumstances occur, a recoverability test is performed comparing projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying value.\u00a0If the projected undiscounted cash flows are less than the carrying value, then an impairment charge would be measured and recorded for the excess of the carrying value over the fair value. Specifically for right-of-use assets, estimated fair value is based on discounting market rent using a real estate discount rate.\nLeases\nThe Company recognizes a lease liability and a related right-of-use (\u201cROU\u201d) asset at the commencement date for leases on its consolidated balance sheet, excluding short-term leases as noted below. The lease liability is equal to the present value of unpaid lease payments over the remaining lease term. The Company\u2019s lease term at the commencement date may reflect\u00a0options to extend\u00a0or\u00a0terminate\u00a0the lease when it is reasonably certain that such options will be exercised. To determine the present value of the lease liability, the Company uses an incremental borrowing rate, which is defined as the rate of interest that the Company would have to pay to borrow (on a collateralized basis over a similar term) an amount equal to the lease payments in similar economic environments. The ROU asset is based on the corresponding lease liability adjusted for certain costs such as initial direct costs, prepaid lease payments and lease incentives received. Both operating and finance lease ROU assets are reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. After an ROU asset is impaired, any remaining balance of the ROU asset is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life.\nAfter the lease commencement date, the Company evaluates lease modifications, if any, that could result in a change in the accounting for leases. For a lease modification, an evaluation is performed to determine if it should be treated as either a separate lease or a change in the accounting of an existing lease. In addition, significant changes in events or circumstances within the Company\u2019s control are assessed to determine whether a change in the accounting for leases is required.\nF-14\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nFor lease modifications that result in partial termination of the lease, the Company has elected the proportional method whereby the carrying amount of the ROU asset is decreased in proportion with the full or partial termination of the lease based on the adjustment to the carrying value of the lease liability. The difference between those adjustments is recognized in Selling, general and administrative expense in the accompanying consolidated statements of earnings at the effective date of the termination.\nCertain of the Company\u2019s leases provide for variable lease payments for the right to use an underlying asset that vary due to changes in facts and circumstances occurring after the commencement date, other than the passage of time. Variable lease payments that are dependent on an index or rate (e.g., Consumer Price Index) are included in the initial measurement of the lease liability, the initial measurement of the ROU asset, and the lease classification test based on the index or rate as of the commencement date. Any changes from the commencement date estimation of the index- and rate-based variable payments are expensed as incurred in the period of the change. Variable lease payments that are not known at the commencement date and are determinable based on the performance or use of the underlying asset\n,\n are not included in the initial measurement of the lease liability or the ROU asset, but instead are expensed as incurred. The Company\u2019s variable lease payments primarily include rents based on a percentage of sales in excess of stipulated levels, common area maintenance based on the percentage of the total square footage leased by the Company, as well as costs relating to embedded leases, such as third-party manufacturing agreements. \nCertain of the Company\u2019s contracts contain lease components as well as non-lease components, such as an agreement to purchase services. For purposes of allocating contract consideration, the Company does not separate the lease components from non-lease components for all asset classes. \nShort-term leases (i.e. leases with a term of 12 months or less) are not recorded as ROU assets or lease liabilities on the Company\u2019s consolidated balance sheets, and the related lease payments are recognized in net earnings on a straight-line basis over the lease term.\nFor certain leases relating to automobiles, information technology equipment and office equipment, the Company utilizes the portfolio approach. Under this approach, the Company combines and accounts for leases (as a portfolio) with similar characteristics (e.g., lease term, discount rates, etc.) as a single lease, provided its application is not materially different when compared to the application at the individual lease level.\nSee \nNote \n7\n \u2013 Leases\n for further information.\nConcentration of Credit Risk\nThe Company is a worldwide manufacturer, marketer and seller of skin care, makeup, fragrance and hair care products.\u00a0The Company\u2019s sales subject to credit risk are made primarily to retailers in its travel retail business, department stores, specialty multi-brand retailers and perfumeries. The Company grants credit to qualified customers. While the Company does not believe it is exposed significantly to any undue concentration of credit risk at this time, it continues to monitor its customers' abilities, individually and collectively, to make timely payments.\nRevenue Recognition\nPerformance Obligations \nThe Company recognizes revenue at a point in time when it satisfies a performance obligation by transferring control over a product and other promised goods and services to a customer. \nThe Company sells wholesale to customers in distribution channels that include department stores, travel retail, specialty-multi retailers, perfumeries, salons/spas and through various online sites operated by authorized retailers, including pure-play sites. The primary performance obligation related to these channels of distribution is product sales where revenue is recognized as control of the product transfers to the customer. In the Americas region, revenue is generally recognized at the time the product is made available and provided to the customer\u2019s carrier at the Company\u2019s location, and in the Europe, the Middle East & Africa and Asia/Pacific regions, revenue is generally recognized based upon the customer\u2019s receipt. \nF-15\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe Company also sells direct to consumers at Company-operated freestanding stores and online through Company-owned and operated e-commerce and m-commerce sites and through third-party online malls. At Company-operated freestanding stores, revenue is recognized when control of the product is transferred at the point of sale. Revenue from online sales is recognized when control of the product is transferred, generally based upon the consumer\u2019s receipt. \nIn connection with the sale of product, the Company may provide other promised goods and services that are deemed to be performance obligations. These are comprised of gift with purchase and purchase with purchase promotions, customer loyalty program obligations, gift cards and other promotional goods including samples and testers. \nThe Company offers a number of different loyalty programs to its customers across regions, brands and distribution channels including points-based programs, tier-based programs and other programs. Revenue is allocated between the saleable product revenue and the material right loyalty obligations based on relative standalone selling prices when the consumer purchases the products that are earning them the right to the future benefits. Deferred revenue related to the Company\u2019s loyalty programs is estimated based on the standalone selling price and is adjusted for an estimated breakage factor. Standalone selling price is determined primarily using the observable market price of the good or service benefit if it is sold by the Company or a cost plus margin approach for goods/services not directly sold by the Company. Breakage rates consider historical patterns of redemption and/or expiration. Revenue is recognized when the benefits are redeemed or expire. \nThe Company provides gift with purchase promotional products to certain customers generally without additional charge and also provides purchase with purchase promotional products to certain customers at a discount in relation to prices charged for saleable product. Revenue is allocated between saleable product, gift with purchase product and purchase with purchase product based on the estimated relative standalone selling prices. Revenue is deferred and ultimately recognized based on the timing differences, if any, between when control of promotional goods and control of the related saleable products transfer to the Company\u2019s customer (e.g., a third-party retailer), which is calculated based on the weighted-average number of days between promotional periods. The estimated standalone selling price allocated to promotional goods is based on a cost plus margin approach. \nIn situations where promotional products are provided by the Company to its customers at the same time as the related saleable product, such as shipments of samples and testers, the cost of these promotional products are recognized as a cost of sales at the same time as the related revenue is recognized and no deferral of revenue is required.\n \nThe Company also offers gift cards through Company-operated freestanding stores and Company-owned websites. The related deferred revenue is estimated based on expected breakage that considers historical patterns of redemption taking into consideration escheatment laws as applicable. \nProduct Returns, Sales Incentives and Other Forms of Variable Consideration \nIn measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer, the Company takes into account the related elements of variable consideration. Such elements of variable consideration include product returns and sales incentives, such as volume rebates and discounts, markdowns, margin adjustments and early-payment discounts. We also enter into arrangements containing other forms of variable consideration, including certain demonstration arrangements, for which the Company does not receive a distinct good or service or for which the Company cannot reasonably estimate the fair value of the good or service. For these types of arrangements, the adjustments to revenue are recorded at the later of when (i) the Company recognizes revenue for the transfer of the related goods or services to the customer, or (ii) the Company pays, or promises to pay, the consideration. \nFor the sale of goods with a right of return, the Company only recognizes revenue for the consideration it expects to be entitled to (considering the products to be returned) and records a sales return accrual within Other accrued liabilities for the amount it expects to credit back its customers. In addition, the Company recognizes an asset included in Inventory and promotional merchandise and a corresponding adjustment to Cost of sales for the right to recover goods from customers associated with the estimated returns. \nF-16\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe sales return accrual and corresponding asset include estimates that directly impact reported net sales. These estimates are calculated based on a history of actual returns, estimated future returns and information provided by retailers regarding their inventory levels. Consideration of these factors results in an estimate for anticipated sales returns that reflects increases or decreases related to seasonal fluctuations. In addition, as necessary, sales return accruals and the related assets may be established for significant future known or anticipated events. The types of known or anticipated events that are considered, and will continue to be considered, include the financial condition of the Company\u2019s customers, store closings by retailers, changes in the retail environment and the Company\u2019s decision to continue to support new and existing products. \nThe Company estimates sales incentives and other variable consideration using the most likely amount method and records accruals within Other accrued liabilities when control of the related product is transferred to the customer. Under this method, certain forms of variable consideration are based on expected sell-through results, which requires subjective estimates. These estimates are supported by historical results as well as specific facts and circumstances related to the current period.\nThe Company also enters into transactions and makes payments to certain of its customers related to demonstration, advertising and counter construction, some of which involve cooperative relationships with customers. These activities may be arranged either with unrelated third parties or in conjunction with the customer. To the extent the Company receives a distinct good or service in exchange for consideration and the fair value of the benefit can be reasonably estimated, the Company\u2019s share of the counter depreciation and the other costs of these transactions (regardless of to whom they were paid) are reflected in Selling, general and administrative expenses in the accompanying consolidated statements of earnings. \nSee \nNote 14 \u2013 Revenue Recognition \nfor further discussion\n.\n For revenue disaggregated by product category and geographic region, see \nNote 22 \u2013 Segment Data and Related Information\n.\nRoyalty Revenue - License Arrangements\nAs a result of the acquisition of the TOM FORD brand, the Company entered into license arrangements with the Marcolin Group (\u201cMarcolin\u201d) and Ermenegildo Zegna N.V. (\u201cZegna\u201d). As part of these arrangements, the Company licensed the TOM FORD trademark for eyewear (\u201cEyewear\u201d) to Marcolin and for fashionwear (\u201cFashion\u201d) to Zegna. Licensing the TOM FORD trademark to customers represents a new revenue-generating activity in the ordinary course of business for the Company. \nThe Company\u2019s performance obligation is to license the TOM FORD trademark to Marcolin and to Zegna, which grants them the right to access the symbolic intellectual property. The licensing arrangements stipulate that licensees must pay a sales-based royalty, with a guaranteed minimum, to the Company.  The Company satisfies its performance obligation over the license period, as the Company fulfills its promise to grant the licensees rights to use and benefit from the intellectual property as well as maintain the intellectual property. As such, revenue for both the Marcolin and Zegna arrangements is recognized over time. Royalty payments are collected on a quarterly basis. The Company expects the guaranteed minimum royalty amounts to be exceeded and, as a result, sales-based royalties will be recognized in the period in which the sales occur. The upfront payment received from Marcolin is recognized on a straight-line basis over the estimated economic life of the license. See \nNote 5 \u2013 Business and Asset Acquisitions \nand \nNote 14 - Revenue Recognition\n for further information regarding the acquisition of the TOM FORD brand.\nAdvertising and Promotion\nGlobal net advertising, merchandising, sampling, promotion and product development expenses of $\n3,711\n million, $\n3,877\n million and $\n3,710\n million in fiscal 2023, 2022 and 2021, respectively, are recorded in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and are expensed as incurred. The cost of certain promotional products, including samples and testers, are classified within Cost of sales.\n\u00a0\nResearch and Development\nResearch and development costs of $\n344\n million, $\n307\n million and $\n243\n million in fiscal 2023, 2022 and 2021, respectively, are recorded in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and are expensed as incurred.\nF-17\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nShipping and Handling\nShipping and handling expenses of $\n838\n million, $\n860\n million and $\n680\n million in fiscal 2023, 2022 and 2021, respectively, are recorded in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and include distribution center costs, promotional shipping costs, third-party logistics costs and outbound freight.\nRoyalty Fees - License Arrangements\nThe Company\u2019s license agreements provide the Company with worldwide rights to manufacture, market and sell beauty and beauty-related products (or particular categories thereof) using the licensors\u2019 trademarks.\u00a0The current license arrangements have an initial term of approximately \n5\n years to \n10\n years, and are renewable subject to the Company\u2019s compliance with the license agreement provisions.\u00a0As of June\u00a030, 2023, the remaining terms considering available renewal periods range from \n7\n years to approximately \n27\n years.\u00a0Under each license, the Company is required to pay royalties to the licensor, at least annually, based on net sales to third parties.\nCertain license agreements may require minimum royalty payments, incremental royalties based on net sales levels and minimum spending on advertising and promotional activities.\u00a0Royalty expenses are accrued in the period in which net sales are recognized while advertising and promotional expenses are accrued at the time these costs are incurred.\nStock-Based Compensation\nThe Company records stock-based compensation, measured at the fair value of the awards that are ultimately expected to vest, as an expense in the consolidated financial statements, net of estimated forfeitures.\u00a0All excess tax benefits and tax deficiencies related to share-based compensation awards are recorded as income tax expense or benefit in the accompanying consolidated statements of earnings.\nIncome Taxes\nThe Company calculates and provides for income taxes in each tax jurisdiction in which it operates.\u00a0As the application of various tax laws relevant to the Company\u2019s global business is often uncertain, significant judgment is required in determining the Company\u2019s annual tax expense and in evaluating the Company\u2019s tax positions.\u00a0The provision for income taxes includes the amounts payable or refundable for the current year, the effect of deferred taxes and impacts from uncertain tax positions.\nThe Company recognizes deferred tax assets and liabilities for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis, net operating losses, tax credit and other carryforwards.\u00a0Deferred tax assets and liabilities are measured using enacted tax rates when the assets and liabilities are expected to be realized or settled.\u00a0The Company regularly reviews deferred tax assets for realizability and establishes valuation allowances based on available evidence including historical operating losses, projected future taxable income, expected timing of the reversals of existing temporary differences, and appropriate tax planning strategies.\u00a0If the Company\u2019s assessment of the realizability of a deferred tax asset changes, an increase to a valuation allowance will result in a reduction of net earnings at that time, while the reduction of a valuation allowance will result in an increase of net earnings at that time.\u00a0\nF-18\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe Company provides tax reserves for U.S. federal, state, local and foreign tax exposures relating to periods subject to audit.\u00a0The development of reserves for these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective critical estimate.\u00a0The Company assesses its tax positions and records tax benefits for all years subject to examination based upon management\u2019s evaluation of the facts, circumstances, and information available at the reporting dates.\u00a0For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon settlement with a tax authority that has full knowledge of all relevant information.\u00a0For those tax positions where it is more-likely-than-not that a tax benefit will not be sustained, no tax benefit has been recognized in the consolidated financial statements.\u00a0The Company classifies applicable interest and penalties as a component of the provision for income taxes.\u00a0Although the outcome relating to these exposures is uncertain, in management\u2019s opinion adequate provisions for income taxes have been made for estimable potential liabilities emanating from these exposures.\u00a0If actual outcomes differ materially from these estimates, they could have a material impact on the Company\u2019s consolidated net earnings.\nRedeemable Noncontrolling Interest\nOn May 18, 2021, the Company acquired additional shares in Deciem Beauty Group Inc. (\n\u201cDECIEM\u201d\n), a Toronto-based skin care company. The Company originally acquired a minority interest in DECIEM in June 2017. The acquisition of additional shares increased the Company's equity interest and was considered a step acquisition. As part of the increase in the Company's investment, the Company was granted the right to purchase (\u201cCall Option\u201d), and granted the remaining investors a right to sell to the Company (\u201cPut Option\u201d), the remaining interests after a \nthree-yea\nr\n period, with a purchase price based on the future performance of DECIEM (the \u201cnet Put (Call) Option\u201d).\nAs a result of this redemption feature, the Company recorded redeemable noncontrolling interest, at its acquisition\u2011date fair value, that is classified as mezzanine equity in the accompanying consolidated balance sheets. The noncontrolling interest is adjusted each reporting period for income (loss) attributable to the noncontrolling interest. Each reporting period, a measurement period adjustment, if any, is then recorded to adjust the noncontrolling interest to the higher of either the redemption value, assuming it was redeemable at the reporting date, or its carrying value. If and when applicable, these adjustments are recorded in Paid-in capital and are not reflected in the accompanying consolidated statements of earnings. In addition, based on the Company's policy election, if the redemption value exceeds the fair value of the noncontrolling interest on a cumulative basis, a measurement period adjustment is recorded in Retained earnings and the Company will adjust Net earnings (loss) attributable to The Est\u00e9e Lauder Companies Inc. as it uses the two-class method when calculating earnings per common share. The fair value of the noncontrolling interest per share is calculated by incorporating significant assumptions including the starting equity value, revenue growth rates and earnings before interest, taxes, depreciation and amortization (\u201cEBITDA\u201d) and the following key assumptions into the Monte Carlo method: risk-free rate, term to mid of last twelve-month period, operating leverage adjustment, net sales discount rate, EBITDA discount rate, EBITDA volatility and net sales volatility. See \nNote 5 \u2013 Business and Asset Acquisitions\n for additional information regarding the redeemable noncontrolling interest.\nGovernment Assistance\nThe Company recognizes amounts received from government assistance programs as a reduction to cost of sales or operating expenses in the consolidated statements of earnings when there is reasonable assurance the Company will receive the amount and has met the conditions, if any, required by the government assistance program. Beginning in the second half of fiscal 2020, many governments in locations where the Company operates announced programs to assist employers whose businesses were impacted by the COVID-19 pandemic, including programs that provide rebates to incentivize employers to maintain employees on payroll who were unable to work for their usual number of hours.\n During fiscal 2022 and 2021, the Company qualified for and recorded $\n12\n\u00a0million and $\n84\n\u00a0million, respectively, in government assistance, which reduced Selling, general and administrative expenses by $\n9\n\u00a0million and $\n78\n\u00a0million, respectively, and Cost of sales by $\n3\n\u00a0million and $\n6\n\u00a0million, respectively. In fiscal 2023, the impact from government assistance programs was not material to the consolidated statement of earnings.\nF-19\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nRecently Issued Accounting Standards\nFASB ASU No. 2022-04 \u2013 Liabilities\u2014Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations\nIn September 2022, the FASB issued authoritative guidance which is intended to enhance the transparency surrounding the use of supplier finance programs. The guidance requires companies that use supplier finance programs to make annual disclosures about the program\u2019s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations.\nEffective for the Company\n \u2013 The guidance becomes effective for the Company\u2019s first quarter fiscal 2024 and is applied on a retrospective basis, except for the requirement to disclose rollforward information annually which is effective prospectively for the Company beginning in fiscal 2025. Early adoption is permitted. Annual disclosures, excluding the rollforward information, need to be provided in interim periods within the initial year of adoption.\nImpact on consolidated financial statements \u2013\n The Company has supplier financing arrangements and will apply the disclosure requirements as required by the amendments.\nReference Rate Reform (ASC Topic 848 \n\u201c\nASC 848\n\u201d\n)\nIn March 2020, t\nhe FAS\nB issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as the London Interbank Offered Rate (\u201cLIBOR\u201d) and applies to lease and other contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that reference LIBOR or another rate that is \nexpected to be discontinued as a result of reference rate reform.\nIn Janua\nry 2021, the FASB issued authoritative guidance that makes amendments to the new rules on accounting for reference rate reform. The amendments clar\nify that for all derivative instruments affected by the changes to interest rates used for discounting, margining or contract price alignment, regardless of whether they reference LIBOR or another rate expected to be discontinued as a result of reference rate reform, an entity may apply certain practical expedients in ASC 848.\nIn December 2022, the FASB issued authoritative guidance to defer the sunset date of ASC 848 from December 31, 2022 to December 31, 2024.\nEffective for the Company\n \u2013 This guidance can only be applied for a limited time through December 31, 2024.\nImpact on consolidated financial statements \u2013 \nThe Company completed its comprehensive evaluation of applying this guidance, and will adopt certain practical expedients for its interest rate swap agreements in the fiscal 2024 first quarter which is not expected to have a significant impact on its consolidated financial statements, including business processes and internal controls over financial reporting. The practical expedients that will be adopted permit its hedging relationships to continue without de-designation upon changes due to reference rate reform. Foreign currency forward contracts do not reference LIBOR and no practical expedients will be elected, but will be discounted using the Secured Overnight Financing Rate (SOFR). For existing lease, debt arrangements and other contracts, the Company will not adopt any ASC 848 practical expedients as it relates to these arrangements. \nNo other recently issued accounting pronouncements are expected to have a material impact on the Company\u2019s consolidated financial statements.\nF-20\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 3 \u2013 \nINVENTORY AND PROMOTIONAL MERCHANDISE\n \nInventory and promotional merchandise consists of the following:\nJune 30\n(In millions)\n2023\n2022\nRaw materials\n$\n876\n\u00a0\n$\n791\n\u00a0\nWork in process\n362\n\u00a0\n366\n\u00a0\nFinished goods\n1,404\n\u00a0\n1,449\n\u00a0\nPromotional merchandise\n337\n\u00a0\n314\n\u00a0\n\u00a0\n$\n2,979\n\u00a0\n$\n2,920\n\u00a0\nNOTE 4 \u2013 \nPROPERTY, PLANT AND EQUIPMENT \nProperty, plant and equipment consists of the following:\nJune 30\n(In millions)\n2023\n2022\nAssets (Useful Life)\n\u00a0\n\u00a0\nLand\n$\n70\n\u00a0\n$\n53\n\u00a0\nBuildings and improvements (\n10\n to \n40\n years)\n843\n\u00a0\n491\n\u00a0\nMachinery and equipment (\n3\n to \n10\n years)\n1,071\n\u00a0\n994\n\u00a0\nComputer hardware and software (\n4\n to \n10\n years)\n1,651\n\u00a0\n1,468\n\u00a0\nFurniture and fixtures (\n5\n to \n10\n years)\n136\n\u00a0\n129\n\u00a0\nLeasehold improvements\n2,310\n\u00a0\n2,246\n\u00a0\nConstruction in progress\n827\n\u00a0\n759\n\u00a0\n\u00a0\n6,908\n\u00a0\n6,140\n\u00a0\nLess accumulated depreciation and amortization\n(\n3,729\n)\n(\n3,490\n)\n\u00a0\n$\n3,179\n\u00a0\n$\n2,650\n\u00a0\nDepreciation and amortization of property, plant and equipment was $\n577\n million, $\n543\n million and $\n516\n million in fiscal 2023, 2022 and 2021, respectively.\u00a0Depreciation and amortization related to the Company\u2019s manufacturing process is included in Cost of sales and all other depreciation and amortization is included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings. See \nNote 7 \u2013 Leases\n for d\niscussion of property, plant and equipment impairments.\nF-21\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 5 \u2013 \nBUSINESS AND ASSET ACQUISITIONS\nAsset Acquisition\nFiscal 2023\nOn April 28, 2023, the Company acquired \n100\n% of the equity interests in 001 Del LLC (\u201c001\u201d) in exchange for $\n2,550\n\u00a0million in consideration (the \u201cTOM FORD Acquisition\u201d). 001 is the sole owner of the TOM FORD brand and its related intellectual property. The TOM FORD brand is a luxury brand created in 2005, and this acquisition is expected to further strengthen the Company\u2019s TOM FORD BEAUTY brand, which the Company has historically licensed, while simultaneously enabling the Company to create new licensing revenue streams. At the same time as the Company's transaction, affiliates of the Ermenegildo Zegna Group (\u201cZegna\u201d) separately purchased the interests in the TOM FORD fashion business that Zegna did not own (including the purchase of interests from the sellers of 001).\nThe TOM FORD Acquisition has been accounted for as an asset acquisition as the fair value of the gross assets acquired is concentrated in the value of the TOM FORD trademark intangible asset. The acquisition of 001 included existing license relationships for certain uses of the brand name, which were modified, terminated or otherwise renegotiated in connection with the transaction, and are discussed separately in \nNote 14 \u2013 Revenue Recognition\n. \nThe total cost of the asset acquisition is $\n2,578\n\u00a0million, inclusive of approximately $\n28\n\u00a0million of transaction related costs and $\n300\n\u00a0million of deferred consideration payable to the sellers included in Other noncurrent liabilities in the accompanying consolidated balance sheets as of June 30, 2023. Of the $\n300\n\u00a0million of deferred consideration payable to the sellers, $\n150\n\u00a0million is due in July 2025 and the remaining $\n150\n\u00a0million is due in July 2026.\nThe total cost of the asset acquisition was allocated to the TOM FORD trademark intangible asset. The Company determined that the TOM FORD trademark intangible asset has an indefinite life, and will not be amortized, but will be subject to impairment assessment at least annually, or more frequently if certain events or circumstances exist.\nBusiness Combination\nFiscal 2021\nOn May 18, 2021, the Company acquired additional shares in DECIEM, a Toronto-based skin care company, for $\n1,092\n\u00a0million in cash, including proceeds from the issuance of debt. DECIEM is a multi-brand beauty company with a brand portfolio that includes The Ordinary and NIOD. This acquisition is expected to further strengthen the Company\u2019s leadership position in prestige skin care, expand its global consumer reach and complement its business in the online and specialty-multi channels. The Company originally acquired a minority interest in DECIEM in June 2017. The minority interest was accounted for as an equity method investment, which had a carrying value of $\n65\n\u00a0million at the acquisition date. The acquisition of additional shares increased the Company's fully diluted equity interest from approximately \n29\n% to approximately \n76\n% and was considered a step acquisition. On a fully diluted basis, the DECIEM stock options, discussed below, approximated \n4\n% of the total capital structure. Accordingly, for purposes of determining the consideration transferred, the Company excluded the DECIEM stock options, which resulted in an increase in the Company\u2019s post-acquisition undiluted equity interest from approximately \n30\n% to approximately \n78\n% and the post-acquisition undiluted equity interest of the remaining noncontrolling interest holders of approximately \n22\n%. The Company remeasured the previously held equity method investment to its fair value of $\n913\n\u00a0million, resulting in the recognition of a gain of $\n848\n\u00a0million. The gain on the Company\u2019s previously held equity method investment is included in Other income, net in the accompanying consolidated statements of earnings for the year ended June 30, 2021. As part of the increase in the Company's investment, the Company was granted the right to purchase (\u201cCall Option\u201d), and granted the remaining investors a right to sell to the Company (\u201cPut Option\u201d), the remaining interests after a \nthree-year\n period, with a purchase price based on the future performance of DECIEM (the \u201cnet Put (Call) Option\u201d). As a result of this redemption feature, the Company recorded redeemable noncontrolling interest, at its acquisition\u2011date fair value, that is classified as mezzanine equity in the accompanying consolidated balance sheets at June 30, 2021. The accounting for the DECIEM business combination was finalized during the fiscal 2022 third quarter.\nF-22\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nA summary of the total consideration transferred, including immaterial measurement period adjustments was finalized during the fiscal 2022 third quarter and recorded as follows:\n(In millions)\nMarch 31, 2022\nCash paid\n$\n1,095\n\u00a0\nFair value of DECIEM stock options liability \n104\n\u00a0\nFair value of net Put (Call) Option\n233\n\u00a0\nTotal consideration for the acquired ownership interest (approximately \n47.9\n%)\n1,432\n\u00a0\nFair value of previously held equity method investment (approximately \n30.5\n%) \n913\n\u00a0\nFair value of redeemable noncontrolling interest (approximately \n21.6\n%)\n647\n\u00a0\nTotal consideration transferred (\n100\n%)\n$\n2,992\n\u00a0\nAs part of the acquisition of additional shares, DECIEM stock options were issued in replacement of and exchange for certain vested and unvested stock options previously issued by DECIEM. The total fair value of the DECIEM stock options of $\n295\n\u00a0million was recorded as part of the total consideration transferred, comprising of $\n191\n\u00a0million of Cash paid for vested options settled as of the acquisition date and $\n104\n\u00a0million reported as a stock options liability on the Company's consolidated balance sheet as it is not an assumed liability of DECIEM and is expected to be settled in cash upon completion of the exercise of the Put (Call). The acquisition-date fair value of the DECIEM stock options liability was calculated by multiplying the acquisition-date fair value by the number of DECIEM stock options replaced the day after the acquisition date. The stock options replaced consist of vested and partially vested stock options. See \nNote 18 \u2013 Stock Programs \nfor information relating to the DECIEM stock options.\nThe acquisition-date fair value of the previously held equity method investment was calculated by multiplying the gross-up of the total consideration for the acquired ownership interest of $\n2,992\n\u00a0million by the related effective previously held equity interest of approximately \n30.5\n%.\nThe acquisition-date fair value of the redeemable noncontrolling interest includes the acquisition-date fair value of the net Put (Call) Option of $\n233\n\u00a0million. The remaining acquisition-date fair value of the redeemable noncontrolling interest of $\n647\n\u00a0million was calculated by multiplying the gross-up of the total consideration for the acquired ownership interest of $\n2,992\n\u00a0million by the related noncontrolling interest of approximately \n21.6\n%. \nThe acquisition-date fair values of the DECIEM stock options and the net Put (Call) Option were calculated by incorporating significant assumptions including the starting equity value, revenue growth rates and EBITDA and the following key assumptions into the Monte Carlo Method:\nMay 18, 2021\nRisk-free rate\n0.50\n%\nTerm to mid of last twelve-month period\n2.54\n years\nOperating leverage adjustment\n0.45\nNet sales discount rate\n3.30\n%\nEBITDA discount rate\n6.80\n%\nEBITDA volatility\n38.30\n%\nNet sales volatility\n17.20\n%\nF-23\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe Company recorded an allocation of the total consideration transferred to the tangible and identifiable intangible assets acquired and liabilities assumed based on their fair value at the acquisition date. The total consideration transferred includes the cash paid at closing, the fair value of its previously held equity method investment, the fair value of the redeemable noncontrolling interest, including the fair value of the net Put (Call) Option, and the fair value of the DECIEM stock options liability. The excess of the total consideration transferred over the fair value of the net tangible and intangible assets acquired was recorded as goodwill. To determine the acquisition date estimated fair value of intangible assets acquired, the Company applied the income approach, specifically the multi-period excess earnings method for customer relationships and the relief-from-royalty method for trademarks. The significant assumptions used in these approaches include revenue growth rates and profit margins, terminal values, weighted average cost of capital used to discount future cash flows, and a customer attrition rate for customer relationships and royalty rates for trademarks. \nThe allocation of the total consideration transferred, including immaterial measurement period adjustments was finalized during the fiscal 2022 third quarter and recorded as follows:\n(In millions)\nMarch 31, 2022\nCash\n$\n35\n\u00a0\nAccounts receivable\n64\n\u00a0\nInventory\n190\n\u00a0\nOther current assets\n33\n\u00a0\nProperty, plant and equipment\n40\n\u00a0\nOperating lease right-of-use assets\n40\n\u00a0\nIntangible assets\n1,917\n\u00a0\nGoodwill\n1,296\n\u00a0\nDeferred income taxes\n8\n\u00a0\nTotal assets acquired\n3,623\n\u00a0\nAccounts payable\n21\n\u00a0\nOperating lease liabilities \n8\n\u00a0\nOther accrued liabilities\n78\n\u00a0\nDeferred income taxes\n479\n\u00a0\nLong-term operating lease liabilities \n45\n\u00a0\nTotal liabilities assumed\n631\n\u00a0\nTotal consideration transferred\n$\n2,992\n\u00a0\nThe results of operations for DECIEM and acquisition-related costs were not material to the Company's consolidated statements of earnings for the year ended June 30, 2021. Pro forma results of operations reflecting the acquisition of DECIEM are not presented, as the impact on the Company\u2019s consolidated financial results would not have been material.\nF-24\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 6 \u2013 \nGOODWILL AND OTHER INTANGIBLE ASSETS\nAs previously discussed in \nNote 5 - Business and Asset Acquisitions\n, in April 2023, the Company completed the TOM FORD Acquisition and recorded a non-amortizable intangible asset (trademark) of $\n2,578\n\u00a0million. \nThe trademark acquired in connection with the TOM FORD Acquisition is classified as level 3 in the fair value hierarchy. The fair value of the trademark was determined using an income approach, specifically the relief-from-royalty method. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. The significant assumptions used to estimate the fair value were revenue growth rates, terminal value, beauty royalty savings, the weighted average cost of capital used to discount future cash flows and royalty rates. The most significant unobservable input was the weighted average cost of capital used to discount future cash flows.\nAlso as discussed in \nNote 5 - Business and Asset Acquisitions,\n in May 2021 the Company increased its investment in DECIEM, which resulted in the inclusion of additional goodwill of $\n1,296\n\u00a0million, amortizable intangible assets (customer lists) of $\n701\n\u00a0million with amortization periods of \n7\n years to \n14\n years, and non-amortizable intangible assets (trademarks) of $\n1,216\n\u00a0million. Goodwill associated with the acquisition is primarily attributable to the future revenue growth opportunities associated with sales growth in the skin care category, as well as the value associated with DECIEM's assembled workforce. As such, the goodwill has been allocated to the Company\u2019s skin care product category. The goodwill recorded in connection with this acquisition is not deductible for tax purposes. \nThe intangible assets acquired in connection with the acquisition of DECIEM are classified as level 3 in the fair value hierarchy. The estimate of the fair values of the acquired amortizable intangible assets were determined using a multi-period excess earnings income approach by discounting the incremental after-tax cash flows over multiple periods. Fair value was determined under this approach by estimating future cash flows over multiple periods, as well as a terminal value, and discounting such cash flows at a rate of return that reflects the relative risk of the cash flows. The estimate of the fair values of the acquired intangible assets not subject to amortization were determined using an income approach, specifically the relief-from-royalty method. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset.\nF-25\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nGoodwill\nThe Company assigns goodwill of a reporting unit to the product categories in which that reporting unit operates at the time of acquisition.\u00a0\nThe following table presents goodwill by product category and the related change in the carrying amount:\n(In millions)\nSkin Care\nMakeup\nFragrance\nHair Care\nTotal\nBalance as of June 30, 2021\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nGoodwill\n$\n1,786\n$\n1,214\n$\n262\n$\n355\n$\n3,617\nAccumulated impairments\n(\n141\n)\n(\n830\n)\n(\n30\n)\n\u2014\n(\n1,001\n)\n\u00a0\n1,645\n384\n232\n355\n2,616\nGoodwill measurement period adjustment\n13\n\u2014\n\u2014\n\u2014\n13\nTranslation and other adjustments, goodwill\n(\n97\n)\n(\n98\n)\n(\n13\n)\n(\n2\n)\n(\n210\n)\nTranslation and other adjustments, accumulated impairments\n3\n98\n1\n\u2014\n102\n\u00a0\n(\n81\n)\n\u2014\n(\n12\n)\n(\n2\n)\n(\n95\n)\nBalance as of June 30, 2022\nGoodwill\n1,702\n1,116\n249\n353\n3,420\nAccumulated impairments\n(\n138\n)\n(\n732\n)\n(\n29\n)\n\u2014\n(\n899\n)\n\u00a0\n1,564\n384\n220\n353\n2,521\nTranslation and other adjustments, goodwill\n(\n38\n)\n\u2014\n5\n\u2014\n(\n33\n)\nTranslation and other adjustments, accumulated impairments\n(\n1\n)\n\u2014\n(\n1\n)\n\u2014\n(\n2\n)\n\u00a0\n(\n39\n)\n\u2014\n4\n\u2014\n(\n35\n)\nBalance as of June 30, 2023\nGoodwill\n1,664\n1,116\n254\n353\n3,387\nAccumulated impairments\n(\n139\n)\n(\n732\n)\n(\n30\n)\n\u2014\n(\n901\n)\n\u00a0\n$\n1,525\n$\n384\n$\n224\n$\n353\n$\n2,486\nOther Intangible Assets\nOther intangible assets primarily include trademarks and customer lists, as well as patents, and license arrangements resulting from or related to businesses and assets purchased by the Company.\u00a0Indefinite-lived intangible assets (e.g., trademarks) are not subject to amortization and are assessed at least annually for impairment during the fiscal fourth quarter or more frequently if certain events or circumstances exist.\u00a0Other intangible assets (e.g., customer lists) are amortized on a straight-line basis over their expected period of benefit, approximately \n7\n years to \n18\n years.\u00a0Intangible assets related to license agreements were amortized on a straight-line basis over their useful lives based on the terms of the respective agreements.\u00a0The costs incurred and expensed by the Company to extend or renew the term of acquired intangible assets during fiscal 2023 and 2022 were not material to the Company\u2019s results of operations.\nF-26\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nOther intangible assets consist of the following:\nJune 30, 2023\nJune 30, 2022\n(In millions)\nGross\nCarrying\nValue\nAccumulated\nAmortization\nTotal Net\nBook Value\nGross\nCarrying\nValue\nAccumulated\nAmortization\nTotal Net\nBook Value\nAmortizable intangible assets:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nCustomer lists, license agreements and other\n$\n2,030\n\u00a0\n$\n766\n\u00a0\n$\n1,264\n\u00a0\n$\n2,064\n\u00a0\n$\n628\n\u00a0\n$\n1,436\n\u00a0\nNon-amortizable intangible assets:\nTrademarks\n4,338\n\u00a0\n1,992\n\u00a0\nTotal intangible assets\n$\n5,602\n\u00a0\n$\n3,428\n\u00a0\nThe aggregate amortization expense related to amortizable intangible assets for fiscal 2023, 2022 and 2021 was $\n145\n million, $\n160\n million and $\n110\n million, respectively.\u00a0\nThe estimated aggregate amortization expense for each of the next five fiscal years is as follows:\n\u00a0\nFiscal\n(In millions)\n2024\n2025\n2026\n2027\n2028\nEstimated aggregate amortization expense\n$\n146\n\u00a0\n$\n146\n\u00a0\n$\n146\n\u00a0\n$\n129\n\u00a0\n$\n104\n\u00a0\nFiscal 2023 Impairment Analysis\nFor further policy information on the Company's policy relating to its impairment assessment of goodwill and other indefinite-lived intangible assets, see \nGoodwill and Other Indefinite-lived Intangible Assets\n within \nNote 2 \u2013 Summary of Significant Accounting Policies.\nDuring the fiscal 2023 second quarter, given the lower-than-expected results in the overall business, the Company revised the internal forecasts relating to its Smashbox reporting unit. The Company concluded that the changes in circumstances in the reporting unit triggered the need for an interim impairment review of its trademark intangible asset. The remaining carrying value of the trademark intangible asset was not recoverable and the Company recorded an impairment charge of $\n21\n\u00a0million reducing the carrying value to \nzero\n. \nDuring the fiscal 2023 second quarter, the Dr.Jart+ reporting unit experienced lower-than-expected growth within key geographic regions and channels that continue to be impacted by the spread of COVID-19 variants, resurgence in cases, and the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the financial performance of the reporting unit. In addition, due to macro-economic factors, Dr.Jart+ has experienced lower-than-expected growth within key geographic regions. The Too Faced reporting unit experienced lower-than-expected results in key geographic regions and channels coupled with delays in future international expansion to areas that continue to be impacted by COVID-19. As a result, the Company revised the internal forecasts relating to its Dr.Jart+ and Too Faced reporting units. Additionally, there were increases in the weighted average cost of capital for both reporting units as compared to the prior year annual goodwill and other indefinite-lived intangible asset impairment testing as of April 1, 2022. \nF-27\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe Company concluded that the changes in circumstances in the reporting units, along with increases in the weighted average cost of capital, triggered the need for interim impairment reviews of their trademarks and goodwill. These changes in circumstances were also an indicator that the carrying amounts of Dr.Jart+\u2019s and Too Faced\u2019s long-lived assets, including customer lists, may not be recoverable. Accordingly, the Company performed interim impairment tests for the trademarks and a recoverability test for the long-lived assets as of November 30, 2022. The Company concluded that the carrying value of the trademark intangible assets exceeded their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows and recorded an impairment charge of $\n100\n\u00a0million for Dr.Jart+ and $\n86\n\u00a0million for Too Faced. The Company concluded that the carrying amounts of the long-lived assets were recoverable. After adjusting the carrying values of the trademarks, the Company completed interim quantitative impairment tests for goodwill. As the estimated fair value of the Dr.Jart+ and Too Faced reporting units were in excess of their carrying values, the Company concluded that the carrying amounts of the goodwill were recoverable and did not record a goodwill impairment charge related to these reporting units. The fair values of these reporting units were based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting units. The significant assumptions used in these approaches include revenue growth rates and profit margins, terminal values, weighted average cost of capital used to discount future cash flows, comparable market multiples and royalty rates for trademarks. The most significant unobservable input used to estimate the fair values of the Dr.Jart+ and Too Faced trademark intangible assets was the weighted average cost of capital, which was \n11\n% and \n13\n%, respectively.\nA summary of the impairment charges for the twelve months ended June 30, 2023 and the remaining trademark and goodwill carrying values as of June 30, 2023, for each reporting unit, are as follows:\nImpairment Charges\nCarrying Value\n(In millions)\nTwelve Months Ended\nJune 30, 2023\nAs of June 30, 2023\nReporting Unit\nGeographic Region\nTrademarks\nGoodwill\nTrademarks\nGoodwill\nSmashbox\nThe Americas\n$\n21\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\nDr.Jart+\nAsia/Pacific\n100\n\u00a0\n\u2014\n\u00a0\n325\n\u00a0\n304\n\u00a0\nToo Faced\nThe Americas\n86\n\u00a0\n\u2014\n\u00a0\n186\n\u00a0\n13\n\u00a0\nTotal\n$\n207\n\u00a0\n$\n\u2014\n\u00a0\n$\n511\n\u00a0\n$\n317\n\u00a0\nThe impairment charges for the twelve months ended June 30, 2023 were reflected in the skin care product category for Dr.Jart+ and the makeup product category for Smashbox and Too Faced.\nFiscal 2022 Impairment Analysis\nDuring the fiscal 2022 third quarter, given the lower-than-expected results from international expansion to areas that continue to be impacted by COVID-19, the Company made revisions to the internal forecasts relating to its GLAMGLOW reporting unit. The Company concluded that the changes in circumstances in the reporting unit triggered the need for an interim impairment review of its trademark intangible asset. The remaining carrying value of the trademark intangible asset was not recoverable and the Company recorded an impairment charge of $\n11\n\u00a0million reducing the carrying value to \nzero\n. \nDuring the fiscal 2022 third quarter, given the lower-than-expected growth within key geographic regions and channels for Dr.Jart+ that continue to be impacted by the spread of COVID-19 variants and resurgence in cases and the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the financial performance of the brand, the lower than expected growth in key retail channels for DECIEM, and the lower than expected results from international expansion to areas that continue to be impacted by COVID-19 for Too Faced, the Company made revisions to the internal forecasts relating to its Dr.Jart+, DECIEM and Too Faced reporting units.\nF-28\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe Company concluded that the changes in circumstances in the reporting units triggered the need for interim impairment reviews of their trademarks and goodwill. These changes in circumstances were also an indicator that the carrying amounts of Dr.Jart+\u2019s, DECIEM\u2019s and Too Faced\u2019s long-lived assets, including customer lists, may not be recoverable. Accordingly, the Company performed interim impairment tests for the trademarks and a recoverability test for the long-lived assets as of February 28, 2022. The Company concluded that the carrying amounts of the long-lived assets were recoverable. For the Dr.Jart+ reporting unit, the Company also concluded that the carrying value of the trademark intangible asset exceeded its estimated fair value, which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded an \nimpairment charge\n of $\n205\n\u00a0million. For the Too Faced and DECIEM reporting units, as the carrying values of the trademarks did not exceed their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, the Company did not record impairment charges. The estimated fair values of Too Faced\u2019s and DECIEM's trademarks exceeded their carrying values by \n13\n% and \n3\n%, respectively. For the Too Faced and DECIEM trademark intangible assets, if all other assumptions are held constant, an increase of \n100\n basis points and \n50\n basis points, respectively, in the weighted average cost of capital would result in an impairment charge. After adjusting the carrying values of the trademarks, the Company completed interim quantitative impairment tests for goodwill. As the estimated fair value of the Dr.Jart+, DECIEM and Too Faced reporting units were in excess of their carrying values, the Company concluded that the carrying amounts of the goodwill were recoverable and did not record a goodwill impairment charge related to these reporting units. The fair values of these reporting units were based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting units. The significant assumptions used in these approaches include revenue growth rates and profit margins, terminal values, weighted average cost of capital used to discount future cash flows and royalty rates for trademarks. The most significant unobservable input used to estimate the fair value of the Dr.Jart+ trademark intangible asset was the weighted average cost of capital, which was \n10.5\n%.\nBased on the Company\u2019s annual goodwill and other indefinite-lived intangible asset impairment testing as of April 1, 2022, the Company determined that the carrying value of the Dr.Jart+ trademark exceeded its fair value. This determination was made based on updated internal forecasts. Given the lower-than-expected growth within key geographic regions and channels that continued to be impacted by the spread of COVID-19 variants, the resurgence in cases, regional lockdowns and the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the financial performance of the brand, the Company made revisions to the internal forecasts relating to the Dr.Jart+ reporting unit. These changes in circumstances were also indicators that the carrying amounts of their respective long-lived assets may not be recoverable. The Company concluded that the carrying value of the trademark intangible asset exceeded its estimated fair value, which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded an impairment charge of $\n25\n\u00a0million. The Company concluded that the carrying amount of the long-lived assets were recoverable. After adjusting the carrying value of the trademark, the Company completed a quantitative impairment test for goodwill. As the estimated fair value of the reporting unit was in excess of its carrying value, the Company concluded that the carrying amount of the goodwill was recoverable and did not record a goodwill impairment charge related to the reporting unit. The fair value of the reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting units. The significant assumptions used in these approaches include revenue growth rates and profit margins, terminal values, weighted average cost of capital used to discount future cash flows and royalty rates for trademarks. The most significant unobservable input used to estimate the fair value of the trademark intangible asset was the weighted average cost of capital, which was \n10.5\n%.\nF-29\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nA summary of the trademark impairment charges for the three and twelve months ended June 30, 2022 and the remaining carrying values as of June 30, 2022, for each reporting unit, are as follows:\n(In millions)\nImpairment Charges\nCarrying Value\nReporting Unit:\nGeographic Region\nThree Months Ended June 30, 2022\nTwelve Months Ended June 30, 2022\nAs of June 30, 2022\nGLAMGLOW\nThe Americas\n$\n\u2014\n\u00a0\n$\n11\n\u00a0\n$\n\u2014\n\u00a0\nDr.Jart+\nAsia/Pacific\n25\n\u00a0\n230\n\u00a0\n428\n\u00a0\nTotal\n$\n25\n\u00a0\n$\n241\n\u00a0\n$\n428\n\u00a0\nThe impairment charges for the three and twelve months ended June 30, 2022 were reflected in the skin care product category.\nFiscal 2021 Impairment Analysis\nDuring November 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the Company and lower than expected results from geographic expansion, the Company made further revisions to the internal forecasts relating to its GLAMGLOW reporting unit. The Company concluded that the changes in circumstances in this reporting unit triggered the need for an interim impairment review of its trademark and goodwill. These changes in circumstances were also an indicator that the carrying amounts of GLAMGLOW's long-lived assets, including customer lists, may not be recoverable. Accordingly, the Company performed an interim impairment test for the trademark and a recoverability test for the long-lived assets as of November 30, 2020. The Company concluded that the carrying value of the trademark for GLAMGLOW exceeded its estimated fair value, which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded an impairment charge of $\n21\n\u00a0million. In addition, the Company concluded that the carrying value of the GLAMGLOW customer lists intangible asset was fully impaired and recorded an impairment charge of $\n6\n\u00a0million. The fair value of all other long-lived assets of GLAMGLOW exceeded their carrying values and were not impaired as of November 30, 2020. After adjusting the carrying values of the trademark and customer lists intangible assets, the Company completed an interim quantitative impairment test for goodwill and recorded a goodwill impairment charge of $\n54\n\u00a0million, reducing the carrying value of goodwill for the GLAMGLOW reporting unit to \nzero\n. The fair value of the GLAMGLOW reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit. \nBased on the Company\u2019s annual goodwill and other indefinite-lived intangible asset impairment testing as of April 1, 2021, the Company determined that the carrying value of the GLAMGLOW and Smashbox trademarks exceeded their fair values. This determination was made based on updated internal forecasts, finalized and approved in June 2021, that reflected lower net sales growth projections due to a softer than expected retail environment for these brands, as well as the continued impacts relating to the uncertainty of the duration and severity of the COVID-19 pandemic. These changes in circumstances were also indicators that the carrying amounts of their respective long-lived assets may not be recoverable. The Company concluded that the carrying values of the trademarks exceeded their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded impairment charges. The Company concluded that the carrying amounts of the long-lived assets were recoverable. The carrying values of the customer lists and goodwill relating to the GLAMGLOW and Smashbox reporting units were \nzero\n as of November 30, 2020 and June 30, 2020, respectively.\nF-30\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nA summary of the impairment charges for the three and twelve months ended June 30, 2021 and the remaining trademark, customer lists and goodwill carrying values as of June 30, 2021, for each reporting unit, are as follows:\nImpairment Charges\n(In millions)\nThree Months Ended June 30, 2021\nTwelve Months Ended June 30, 2021\nCarrying Value as of June 30, 2021\nReporting Unit:\nProduct Category\nTrademark\nCustomer Lists\nGoodwill\nTrademark\nCustomer Lists\nGoodwill\nTrademark\nCustomer Lists\nGoodwill\nGLAMGLOW\nSkin care\n$\n25\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n46\n\u00a0\n$\n6\n\u00a0\n$\n54\n\u00a0\n$\n11\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\nSmashbox\nMakeup\n11\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n11\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n21\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nTotal\n$\n36\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n57\n\u00a0\n$\n6\n\u00a0\n$\n54\n\u00a0\n$\n32\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\nThe impairment charges for the three and twelve months ended June 30, 2021 were reflected in the Americas region.\n\u00a0\nNOTE 7 \u2013 \nLEASES\nFor further information on the Company's policies relating to leases see \nNote 2 \u2013 Summary of Significant Accounting Policies.\nThe Company has operating and finance leases primarily for real estate properties, including corporate offices, facilities to support the Company\u2019s manufacturing, assembly, research and development and distribution operations and retail stores, as well as information technology equipment, automobiles and office equipment, with remaining\u00a0terms of approximately \n1\n year to \n57\n years. Some of the Company\u2019s lease contracts include options to extend the leases for up to \n30\n years, while others include options to terminate the leases within \n25\n years.\nF-31\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nA summary of total lease costs and other information for the periods relating to the Company\u2019s finance and operating leases is as follows:\nJune 30\n(In millions)\n2023\n2022\n2021\nTotal lease cost\nFinance lease cost:\nAmortization of right-of-use assets\n$\n11\n\u00a0\n$\n12\n\u00a0\n$\n9\n\u00a0\nInterest on lease liabilities\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nOperating lease cost\n444\n\u00a0\n465\n\u00a0\n470\n\u00a0\nShort-term lease cost\n41\n\u00a0\n24\n\u00a0\n19\n\u00a0\nVariable lease cost\n213\n\u00a0\n332\n\u00a0\n301\n\u00a0\nTotal\n$\n709\n\u00a0\n$\n833\n\u00a0\n$\n799\n\u00a0\nOther information\nCash paid for amounts included in the measurement of lease liabilities\nOperating cash flows from operating leases\n$\n463\n\u00a0\n$\n506\n\u00a0\n$\n451\n\u00a0\nFinancing cash flows from finance leases\n$\n15\n\u00a0\n$\n18\n\u00a0\n$\n12\n\u00a0\nRight-of-use assets obtained in exchange for new operating lease liabilities\n$\n273\n\u00a0\n$\n279\n\u00a0\n$\n267\n\u00a0\nRight-of-use assets obtained in exchange for new finance lease liabilities\n$\n34\n\u00a0\n$\n10\n\u00a0\n$\n44\n\u00a0\nWeighted-average remaining lease term \u2013 finance leases\n14\n years\n3\n years\n3\n years\nWeighted-average remaining lease term \u2013 operating leases\n9\n years\n9\n years\n10\n years\nWeighted-average discount rate \u2013 finance leases\n0.4\n\u00a0\n%\n1.0\n\u00a0\n%\n1.1\n\u00a0\n%\nWeighted-average discount rate \u2013 operating leases\n2.5\n\u00a0\n%\n2.4\n\u00a0\n%\n2.3\n\u00a0\n%\nF-32\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe total future minimum lease payments, over the remaining lease term, relating to the Company\u2019s operating and finance leases for each of the next five fiscal years and thereafter is as follows:\n \n(In millions)\nOperating Leases\nFinance Leases\nFiscal 2024\n$\n399\n\u00a0\n$\n9\n\u00a0\nFiscal 2025\n362\n\u00a0\n5\n\u00a0\nFiscal 2026\n299\n\u00a0\n3\n\u00a0\nFiscal 2027\n236\n\u00a0\n2\n\u00a0\nFiscal 2028\n185\n\u00a0\n2\n\u00a0\nThereafter\n827\n\u00a0\n21\n\u00a0\nTotal future minimum lease payments\n2,308\n\u00a0\n42\n\u00a0\nLess imputed interest\n(\n253\n)\n\u2014\n\u00a0\nTotal\n$\n2,055\n\u00a0\n$\n42\n\u00a0\nOperating lease and finance lease liabilities included in the consolidated balance sheet are as follows:\nJune 30\n2023\n2022\n(In millions)\nOperating Leases\nFinance Leases\nOperating Leases\nFinance Leases\nTotal current liabilities\n$\n357\n\u00a0\n9\n\u00a0\n$\n365\n\u00a0\n$\n13\n\u00a0\nTotal noncurrent liabilities\n1,698\n\u00a0\n33\n\u00a0\n1,868\n\u00a0\n10\n\u00a0\nTotal\n$\n2,055\n\u00a0\n$\n42\n\u00a0\n$\n2,233\n\u00a0\n$\n23\n\u00a0\nThe ROU assets and lease liabilities related to finance leases are included in \nOther assets\n and in \nCurrent debt\n and \nLong-term debt\n, respectively, in the accompanying consolidated balance sheets as of June\u00a030, 2023 and 2022. \nDuring fiscal 2021, as a result of the continued challenging retail environment due to the COVID-19 pandemic, certain of the Company\u2019s freestanding stores experienced lower net sales and lower expectations of future cash flows. These changes were an indicator that the carrying amounts may not be recoverable. Accordingly, the Company performed a recoverability test by comparing projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying value. For those freestanding stores that failed step one of this test, the Company then compared the assets carrying values to their estimated fair values. Specifically, for the related ROU assets, the fair value was based on discounting market rent using a real estate discount rate. As a result, the Company recognized $\n71\n\u00a0million of long-lived asset impairments, included in \nImpairments of other intangible and long-lived assets\n, in the accompanying consolidated statements of earnings for the year ended June 30, 2021. The fiscal 2021 impairments related to other assets (i.e. rights associated with commercial operating leases) of $\n27\n\u00a0million, operating lease right-of-use assets of $\n25\n\u00a0million and the related property, plant and equipment in certain freestanding stores of $\n19\n\u00a0million. \nF-33\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nA summary of impairment charges is as follows:\n(In millions)\nYear Ended June 30, 2021\nProduct Category\nImpairment Charge\nSkin care\n$\n1\n\u00a0\nMakeup\n52\n\u00a0\nFragrance\n14\n\u00a0\nHair care\n4\n\u00a0\nOther\n\u2014\n\u00a0\nTotal\n$\n71\n\u00a0\nRegion\nThe Americas\n$\n23\n\u00a0\nEurope, the Middle East & Africa\n48\n\u00a0\nAsia/Pacific\n\u2014\n\u00a0\nTotal\n$\n71\n\u00a0\nNOTE 8 \u2013 \nCHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES\nDuring fiscal 2023, the Company incurred charges associated with the Post-COVID Business Acceleration Program restructuring activities as follows:\nSales\nReturns\n(included in\nNet Sales)\nCost of Sales\nOperating Expenses\nTotal\n(In millions)\nRestructuring\nCharges\nOther\nCharges\nPost-COVID Business Acceleration Program\n$\n27\n\u00a0\n$\n3\n\u00a0\n$\n35\n\u00a0\n$\n12\n\u00a0\n$\n77\n\u00a0\nThe types of activities included in restructuring and other charges, and the related accounting criteria, are described below.\nCharges associated with restructuring and other activities are not allocated to the Company's product categories or geographic regions because they are centrally directed and controlled, are not included in internal measures of product category or geographic region performance and result from activities that are deemed Company-wide initiatives to redesign, resize and reorganize select areas of the business.\nPost-COVID Business Acceleration Program\nOn August 20, 2020, the Company announced a \ntwo-year\n restructuring program, Post-COVID Business Acceleration Program (the \u201cPCBA Program\u201d), designed to realign the Company's business to address the dramatic shifts to its distribution landscape and consumer behaviors in the wake of the COVID-19 pandemic. The PCBA Program is designed to help improve efficiency and effectiveness by rebalancing resources to growth areas of prestige beauty. It is expected to further strengthen the Company by building upon the foundational capabilities in which the Company has invested.\nThe PCBA Program\u2019s main areas of focus include accelerating the shift to online with the realignment of the Company\u2019s distribution network reflecting freestanding store and certain department store closures, with a focus on North America and Europe, the Middle East & Africa; the reduction in brick-and-mortar point of sale employees and related support staff; and the redesign of the Company\u2019s regional branded marketing organizations, plus select opportunities in global brands and functions. This program is expected to position the Company to better execute its long-term strategy while strengthening its financial flexibility.\nF-34\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nAs of June 30, 2023, the Company estimated a net reduction over the duration of the PCBA Program in the range of \n2,800\n to \n3,200\n positions globally, including temporary and part-time employees. This reduction takes into account the elimination of some positions, retraining and redeployment of certain employees and investment in new positions in key areas. The Company also estimated the closure over the duration of the PCBA Program of approximately \n14\n% to \n17\n% of its freestanding stores globally, primarily in North America and Europe, the Middle East & Africa.\nThe Company approved specific initiatives under the PCBA Program through fiscal 2022 and has substantially completed those initiatives through fiscal 2023. Inclusive of approvals from inception through June 30, 2022, the Company estimates, as of June 30, 2023, that the PCBA Program will result in related restructuring and other charges totaling between $\n450\n\u00a0million and $\n480\n\u00a0million, before taxes. \nSpecific actions taken since the PCBA Program inception include:\n\u2022\nOptimize Digital Organization and Other Go-To-Market Organizations\n \u2013 The Company approved initiatives to enhance its go-to-market capabilities and shift more resources to support online growth. These actions are substantially complete and have resulted in a net reduction of the workforce, which includes position eliminations, the re-leveling of certain positions and an investment in new capabilities. \n\u2022\nOptimize Select Marketing, Brand and Global Functions\n \u2013 The Company has started to reduce its corporate and certain of its brand office footprints and is moving toward the future of work in a post-COVID-19 environment, by restructuring where and how its employees work and collaborate. In addition, the Company has approved initiatives to reduce organizational complexity and leverage scale across various Global functions. These actions are substantially complete and resulted in asset write-offs, employee severance, lease termination fees, and consulting and other professional services for the design and implementation of the future structures and processes. \n\u2022\nOptimize Distribution Network\n \u2013 To help restore profitability to pre-COVID-19 pandemic levels in certain areas of its distribution network and, as part of a broader initiative to be completed in phases, the Company has approved initiatives to close a number of underperforming freestanding stores, counters and other retail locations, mainly in certain affiliates across all geographic regions, including the Company's travel retail network. These closures reflect changing consumer behaviors including higher demand for online and omnichannel capabilities. These activities are substantially complete and resulted in product returns, termination of contracts, a net reduction in workforce, and inventory and other asset write-offs.\n\u2022\nExit of the Global Distribution of BECCA Products\n \u2013 In reviewing the Company's brand portfolio to improve efficiency and the sustainability of long-term investments, the decision was made to exit the global distribution of BECCA products due to its limited distribution, the ongoing decline in product demand and the challenging environment caused by the COVID-19 pandemic. These activities resulted in charges for the impairment of goodwill and other intangible assets, product returns, termination of contracts, and employee severance. The Company completed these initiatives during fiscal 2022.\n\u2022\nExit of Certain Designer Fragrance Licenses\n \u2013 In reviewing the Company\u2019s brand portfolio of fragrances and to focus on investing its resources on alternative opportunities for long-term growth and value creation globally, the Company announced that it would not be renewing its existing license agreements for the Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger and Ermenegildo Zegna product lines when their respective terms expire in June 2023. The Company negotiated early termination agreements with each of the licensors effective June 30, 2022 and continued to sell products under these licenses until such time. These actions resulted in asset write-offs, including charges for the impairment of goodwill, employee-related costs, and consulting and legal fees.\n\u2022\nBrand Transformation\n \u2013 In reviewing the Company\u2019s brand portfolio to accelerate growth within the makeup product category and to support long-term investments, the decision was made to strategically reposition Smashbox to capitalize on changing consumer preferences and to mitigate the impact caused by the COVID-19 pandemic on the brand. These actions are substantially complete and have primarily resulted in product returns and inventory write-offs.\nPCBA Program Restructuring and Other Charges\nRestructuring charges are comprised of the following:\nEmployee-Related Costs \u2013\n Employee-related costs are primarily comprised of severance and other post-employment benefit costs, calculated based on salary levels, prior service and other statutory minimum benefits, if applicable.\nF-35\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nAsset-Related Costs\n \u2013 Asset-related costs primarily consist of asset write-offs or accelerated depreciation related to long-lived assets in certain freestanding stores (including rights associated with commercial operating leases and operating lease right-of-use assets) that will be taken out of service prior to their existing useful life as a direct result of a restructuring initiative. These costs also include goodwill and other intangible asset impairment charges relating to the exit of the global distribution of BECCA products.\nContract Terminations\n \u2013 Costs related to contract terminations include continuing payments to a third party after the Company has ceased benefiting from the rights conveyed in the contract, or a payment made to terminate a contract prior to its expiration. \nOther Exit Costs\n \u2013 Other exit costs related to restructuring activities generally include costs to relocate facilities or employees, recruiting to fill positions as a result of relocation of operations, and employee outplacement for separated employees. \nOther charges associated with restructuring activities are comprised of the following:\nSales Returns and Cost of Sales\n \u2013 Product returns (offset by the related cost of sales) and inventory write-offs or write-downs as a direct result of an approved restructuring initiative to exit certain businesses or locations will be recorded as a component of Net sales and/or Cost of sales when estimable and reasonably assured. \nOther Charges\n \u2013 The Company approved other charges related to the design and implementation of approved initiatives, which are charged to Operating expenses as incurred and primarily include the following:\n\u2022\nConsulting and other professional services for organizational design of the future structures and processes as well as the implementation thereof;\n\u2022\nTemporary labor backfill;\n\u2022\nCosts to establish and maintain a PMO for the duration of the PCBA Program, including internal costs for employees dedicated solely to project management activities, and other PMO-related expenses incremental to the Company\u2019s ongoing operations (e.g., rent and utilities); and\n\u2022\nRecruitment and training costs for new and reskilled employees to acquire and apply the capabilities needed to perform responsibilities as a direct result of an approved restructuring initiative.\nThe Company records approved charges associated with restructuring and other activities once the relevant accounting criteria have been met. \nTotal cumulative charges recorded associated with restructuring and other activities for the PCBA Program were:\nSales\nReturns\n(included in\nNet Sales)\nCost of Sales\nOperating Expenses\nTotal\n(In millions)\nRestructuring\nCharges\nOther\nCharges\nTotal Charges\nFiscal 2021\n$\n14\n\u00a0\n$\n2\n\u00a0\n$\n201\n\u00a0\n$\n4\n\u00a0\n$\n221\n\u00a0\nFiscal 2022\n4\n\u00a0\n5\n\u00a0\n109\n\u00a0\n9\n\u00a0\n127\n\u00a0\nFiscal 2023\n27\n\u00a0\n3\n\u00a0\n35\n\u00a0\n12\n\u00a0\n77\n\u00a0\nCumulative through June 30, 2023\n$\n45\n\u00a0\n$\n10\n\u00a0\n$\n345\n\u00a0\n$\n25\n\u00a0\n$\n425\n\u00a0\nF-36\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\n(In millions)\nEmployee-\nRelated\nCosts\nAsset-\nRelated\nCosts\n(1)\nContract\nTerminations\nOther Exit\nCosts\nTotal\nRestructuring Charges (Adjustments)\nFiscal 2021\n$\n119\n\u00a0\n$\n75\n\u00a0\n$\n6\n\u00a0\n$\n1\n\u00a0\n$\n201\n\u00a0\nFiscal 2022\n84\n\u00a0\n11\n\u00a0\n13\n\u00a0\n1\n\u00a0\n109\n\u00a0\nFiscal 2023\n3\n\u00a0\n31\n\u00a0\n(\n2\n)\n3\n\u00a0\n35\n\u00a0\nCumulative through June 30, 2023\n$\n206\n\u00a0\n$\n117\n\u00a0\n$\n17\n\u00a0\n$\n5\n\u00a0\n$\n345\n\u00a0\n(1)\nAsset-related costs include fiscal 2021 goodwill and other intangible asset impairment charges of $\n13\n\u00a0million and $\n34\n\u00a0million, respectively, relating to the exit of the global distribution of BECCA products.\nChanges in accrued restructuring charges for the fiscal year ended June\u00a030, 2023 relating to the PCBA Program were:\n(In millions)\nEmployee-\nRelated\nCosts\nAsset-\nRelated\nCosts\nContract\nTerminations\nOther Exit\nCosts\nTotal\nCharges\n$\n119\n\u00a0\n$\n75\n\u00a0\n$\n6\n\u00a0\n$\n1\n\u00a0\n$\n201\n\u00a0\nCash payments\n(\n18\n)\n\u2014\n\u00a0\n(\n6\n)\n(\n1\n)\n(\n25\n)\nNon-cash asset write-offs\n\u2014\n\u00a0\n(\n75\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n75\n)\nBalance at June 30, 2021\n101\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n101\n\u00a0\nCharges\n84\n\u00a0\n11\n\u00a0\n13\n\u00a0\n1\n\u00a0\n109\n\u00a0\nCash payments\n(\n52\n)\n\u2014\n\u00a0\n(\n13\n)\n1\n\u00a0\n(\n64\n)\nNon-cash asset write-offs\n\u2014\n\u00a0\n(\n11\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n11\n)\nTranslation and other adjustments\n(\n8\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\n$\n(\n2\n)\n$\n(\n10\n)\nBalance at June 30, 2022\n125\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n125\n\u00a0\nCharges\n3\n\u00a0\n31\n\u00a0\n(\n2\n)\n3\n\u00a0\n$\n35\n\u00a0\nCash payments\n(\n40\n)\n\u2014\n\u00a0\n(\n1\n)\n(\n3\n)\n$\n(\n44\n)\nNon-cash asset write-offs\n\u2014\n\u00a0\n(\n31\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\n$\n(\n31\n)\nTranslation and other adjustments\n(\n7\n)\n\u2014\n\u00a0\n4\n\u00a0\n\u2014\n\u00a0\n$\n(\n3\n)\nBalance at June 30, 2023\n$\n81\n\u00a0\n$\n\u2014\n\u00a0\n$\n1\n\u00a0\n$\n\u2014\n\u00a0\n$\n82\n\u00a0\nAccrued restructuring charges at June\u00a030, 2023 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately $\n61\n million, $\n19\n million, and $\n2\n million for each of fiscal 2024, 2025 and 2026, respectively.\nF-37\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 9 \u2013 \nINCOME TAXES\nThe provision for income taxes is comprised of the following:\n\u00a0\nYear Ended June 30\n(In millions)\n2023\n2022\n2021\nCurrent:\n\u00a0\n\u00a0\n\u00a0\nFederal\n$\n141\n\u00a0\n$\n219\n\u00a0\n$\n197\n\u00a0\nForeign\n424\n\u00a0\n533\n\u00a0\n479\n\u00a0\nState and local\n8\n\u00a0\n25\n\u00a0\n10\n\u00a0\n\u00a0\n573\n\u00a0\n777\n\u00a0\n686\n\u00a0\nDeferred:\nFederal\n(\n105\n)\n(\n12\n)\n(\n129\n)\nForeign\n(\n77\n)\n(\n136\n)\n(\n100\n)\nState and local\n(\n4\n)\n(\n1\n)\n(\n1\n)\n\u00a0\n(\n186\n)\n(\n149\n)\n(\n230\n)\n\u00a0\n$\n387\n\u00a0\n$\n628\n\u00a0\n$\n456\n\u00a0\nEarnings before income taxes include amounts contributed by the Company\u2019s foreign operations of $\n1,818\n million, $\n2,248\n million and $\n3,127\n million for fiscal 2023, 2022 and 2021, respectively.\u00a0A portion of these earnings is taxed in the United States.\nOn August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act, with tax provisions primarily focused on implementing a 1% excise tax on share repurchases and a 15% corporate alternative minimum tax based on global adjusted financial statement income. The excise tax was effective beginning with the Company\u2019s third quarter of fiscal 2023 and did not have an impact on the Company\u2019s results of operations or financial position. The corporate alternative minimum tax will be effective beginning with the Company's first quarter of fiscal 2024. The Company continues to monitor developments and evaluate projected impacts, if any, of this provision to its consolidated financial statements.\nOn July 20, 2020, the U.S. government released final and proposed regulations under the global intangible low-taxed income (\u201cGILTI\u201d) provisions of the TCJA that provide for a high-tax exception to the GILTI tax. These regulations are retroactive to the original enactment of the GILTI tax provision, commencing with the Company's 2019 fiscal year. The Company has elected to apply the GILTI high-tax exception beginning with fiscal 2019 through 2022, and intends to make the election for fiscal 2023.\n \nF-38\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nA reconciliation of the U.S. federal statutory income tax rate to the Company\u2019s actual effective tax rate on earnings before income taxes is as follows:\nYear Ended June 30\n2023\n2022\n2021\nProvision for income taxes at statutory rate\n21.0\n\u00a0\n%\n21.0\n\u00a0\n%\n21.0\n\u00a0\n%\nIncrease (decrease) due to:\nState and local income taxes, net of federal tax benefit\n0.3\n\u00a0\n0.7\n\u00a0\n0.5\n\u00a0\nStock-based compensation arrangements \u2013 excess tax benefits, net\n(\n0.8\n)\n(\n2.7\n)\n(\n3.0\n)\nPreviously held equity method investment gain - DECIEM\n(1)\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n5.3\n)\nGILTI - High-Tax Exception election (adjustment for prior years)\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n1.4\n)\nTaxation of foreign operations\n8.6\n\u00a0\n1.4\n\u00a0\n1.8\n\u00a0\nIncome tax reserve adjustments\n(\n0.1\n)\n0.3\n\u00a0\n(\n0.2\n)\nNondeductible goodwill impairment charges\n\u2014\n\u00a0\n\u2014\n\u00a0\n0.1\n\u00a0\nOther, net\n(\n1.3\n)\n\u2014\n\u00a0\n0.2\n\u00a0\nEffective tax rate\n(2)\n27.7\n\u00a0\n%\n20.7\n\u00a0\n%\n13.7\n\u00a0\n%\n(1)\nIncluded in Other income, net in the accompanying consolidated statements of earnings for the fiscal year ended June 30, 2021.\n(2)\nFor fiscal 2023, the reconciling items between the Company's U.S. federal statutory income tax rate and the Company's actual effective tax rate were materially impacted by the decrease in earnings before income taxes from fiscal 2022 to fiscal 2023.\n \nIncome tax reserve adjustments represent changes in the Company\u2019s net liability for unrecognized tax benefits related to prior-year tax positions including the impact of tax settlements and lapses of the applicable statutes of limitations.\nAll excess tax benefits and tax deficiencies related to share-based compensation awards are recorded as income tax expense or benefit in the consolidated statements of earnings.\u00a0The Company recognized $\n11\n million, $\n82\n million and $\n99\n million of excess tax benefits, net as a reduction to the provision for income taxes in the accompanying consolidated statements of earnings for the fiscal year ended June\u00a030, 2023, 2022 and 2021, respectively.\nThe Company has $\n8,876\n million of undistributed earnings of foreign subsidiaries as of June\u00a030, 2023.\u00a0Included in this amount is $\n897\n million of earnings considered permanently reinvested and for which no deferred income taxes have been provided.\u00a0If these reinvested earnings were repatriated into the United States as dividends, the Company would be subject to approximately $\n55\n\u00a0million in taxes, primarily related to foreign withholding taxes as well as additional state and local income taxes. The Company historically had not provided for deferred income taxes on the undistributed earnings of certain foreign subsidiaries as they were considered indefinitely reinvested outside the United States. During the fourth quarter of fiscal 2023, in connection with a planned change in the Company's legal entity structure that exempts foreign withholding tax on certain undistributed earnings, the Company changed its assertion regarding its ability and intent to indefinitely reinvest undistributed earnings of certain foreign subsidiaries and determined that $\n5,548\n\u00a0million of undistributed earnings of such foreign subsidiaries are no longer considered indefinitely reinvested. The federal, state, local and foreign deferred income tax impact of this change is not material. \nF-39\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nSignificant components of the Company\u2019s deferred income tax assets and liabilities were as follows:\n\u00a0\nJune 30\n(In\u00a0millions)\n2023\n2022\nDeferred tax assets:\n\u00a0\n\u00a0\nCompensation-related expenses\n$\n189\n\u00a0\n$\n203\n\u00a0\nInventory obsolescence and other inventory related reserves\n75\n\u00a0\n59\n\u00a0\nRetirement benefit obligations\n60\n\u00a0\n42\n\u00a0\nVarious accruals not currently deductible\n225\n\u00a0\n269\n\u00a0\nNet operating loss, credit and other carryforwards\n225\n\u00a0\n192\n\u00a0\nUnrecognized state tax benefits and accrued interest\n12\n\u00a0\n13\n\u00a0\nLease liabilities\n479\n\u00a0\n504\n\u00a0\nResearch-related expenses\n200\n\u00a0\n121\n\u00a0\nOther differences between tax and financial statement values\n107\n\u00a0\n26\n\u00a0\n\u00a0\n1,572\n\u00a0\n1,429\n\u00a0\nValuation allowance for deferred tax assets\n(\n200\n)\n(\n185\n)\nTotal deferred tax assets\n1,372\n\u00a0\n1,244\n\u00a0\nDeferred tax liabilities:\nFixed assets and intangibles\n(\n264\n)\n(\n325\n)\nROU assets\n(\n432\n)\n(\n452\n)\nPartnership interest in DECIEM\n(\n404\n)\n(\n431\n)\nOther differences between tax and financial statement values\n(\n32\n)\n(\n33\n)\nTotal deferred tax liabilities\n(\n1,132\n)\n(\n1,241\n)\nTotal net deferred tax assets\n$\n240\n\u00a0\n$\n3\n\u00a0\nAs of June\u00a030, 2023, the Company had net deferred tax assets of $\n240\n million, of which $\n860\n\u00a0million is included in Other assets and $\n620\n\u00a0million is included in Other noncurrent liabilities in the accompanying consolidated balance sheets. As of June 30, 2022, the Company had net deferred tax assets of $\n3\n\u00a0million, of which $\n695\n\u00a0million is included in Other assets and $\n692\n\u00a0million is included in Other noncurrent liabilities in the accompanying consolidated balance sheets.\nAs of June\u00a030, 2023 and 2022, certain subsidiaries had $\n528\n\u00a0million and $\n523\n\u00a0million of foreign net operating loss carryforwards, respectively, the tax effect of which was $\n143\n\u00a0million and $\n136\n\u00a0million, respectively, as well as U.S. federal tax credit carryforwards of $\n79\n\u00a0million and $\n56\n\u00a0million, respectively. With the exception of $\n464\n\u00a0million of net operating losses with an indefinite carryforward period as of June 30, 2023, these net operating loss carryforwards expire at various dates through fiscal 2043. The tax credit carryforwards will begin to expire in fiscal 2031. \nThe Company has recorded a valuation allowance of $\n200\n\u00a0million and $\n185\n\u00a0million as of June 30, 2023 and 2022, respectively, principally against certain net operating loss carryforwards and tax credit carryforwards. A valuation allowance has been provided for those deferred tax assets for which, in the opinion of management, it is more-likely-than-not that the deferred tax assets will not be realized.\nAs of June\u00a030, 2023, 2022 and 2021, the Company had gross unrecognized tax benefits of $\n63\n million, $\n61\n million, and $\n62\n\u00a0million, respectively.\u00a0At June\u00a030, 2023, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $\n53\n million.\nThe Company classifies applicable interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.\u00a0The total gross accrued interest and penalty expense recorded during fiscal 2023, 2022 and 2021 in the accompanying consolidated statements of earnings was $\n2\n million, $\n4\n million and $\n2\n\u00a0million, respectively.\u00a0The total gross accrued interest and penalties in the accompanying consolidated balance sheets at June\u00a030, 2023 and 2022 was $\n15\n million and $\n14\n million, respectively.\u00a0\nF-40\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nA reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:\n\u00a0\nJune 30\n(In\u00a0millions)\n2023\n2022\n2021\nBeginning of the year balance of gross unrecognized tax benefits\n$\n61\n\u00a0\n$\n62\n\u00a0\n$\n70\n\u00a0\nGross amounts of increases as a result of tax positions taken during a prior period\n9\n\u00a0\n12\n\u00a0\n9\n\u00a0\nGross amounts of decreases as a result of tax positions taken during a prior period\n(\n5\n)\n(\n6\n)\n(\n10\n)\nGross amounts of increases as a result of tax positions taken during the current period\n4\n\u00a0\n7\n\u00a0\n8\n\u00a0\nAmounts of decreases in unrecognized tax benefits relating to settlements with taxing authorities\n(\n4\n)\n(\n12\n)\n(\n13\n)\nReductions to unrecognized tax benefits as a result of a lapse of the applicable statutes of limitations\n(\n2\n)\n(\n2\n)\n(\n2\n)\nEnd of year balance of gross unrecognized tax benefits\n$\n63\n\u00a0\n$\n61\n\u00a0\n$\n62\n\u00a0\nEarnings from the Company\u2019s global operations are subject to tax in various jurisdictions both within and outside the United States.\u00a0The Company participates in the U.S. Internal Revenue Service (the \u201cIRS\u201d) Compliance Assurance Program (\u201cCAP\u201d). The objective of CAP is to reduce taxpayer burden and uncertainty while assuring the IRS of the accuracy of income tax returns prior to filing, thereby reducing or eliminating the need for post-filing examinations.\nDuring the fourth quarter of fiscal 2023, the IRS completed its examination procedures with respect to fiscal 2022 under the IRS CAP. There was no impact to the Company\u2019s consolidated financial statements.\u00a0The Company expects to receive formal notification of the conclusion of the IRS CAP process for fiscal 2022 during fiscal 2024. As of June\u00a030, 2023, the compliance process was ongoing with respect to fiscal 2023.\nThe Company is currently undergoing income tax examinations and controversies in several state, local and foreign jurisdictions.\u00a0These matters are in various stages of completion and involve complex multi-jurisdictional issues common among multinational enterprises, including transfer pricing, which may require an extended period of time for resolution.\nDuring fiscal 2023, the Company concluded various state, local and foreign income tax audits and examinations while several other matters, including those noted above, were initiated or remained pending.\u00a0On the basis of the information available in this regard as of June\u00a030, 2023, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.\nF-41\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe tax years subject to examination vary depending on the tax jurisdiction.\u00a0As of June\u00a030, 2023, the following tax years remain subject to examination by the major tax jurisdictions indicated:\nMajor\u00a0Jurisdiction\nOpen\u00a0Fiscal\u00a0Years\n\u00a0\nBelgium\n2019 \u2013 2023\nCanada\n2019 \u2013 2023\nChina\n2020 \u2013 2023\nFrance\n2019 \u2013 2023\nGermany\n2017 \u2013 2023\nHong Kong\n2017 \u2013 2023\nItaly\n2019 \u2013 2023\nJapan\n2020 \u2013 2023\nKorea\n2021 - 2023\nSpain\n2018 \u2013 2023\nSwitzerland\n2020 \u2013 2023\nUnited Kingdom\n2022 \u2013 2023\nUnited States\n2022 \u2013 2023\nState of California\n2018 \u2013 2023\nState and City of New York\n2018 \u2013 2023\nThe Company is also subject to income tax examinations in numerous other state, local and foreign jurisdictions.\u00a0The Company believes that its tax reserves are adequate for all years subject to examination.\nNOTE 10 \u2013 \nOTHER ACCRUED AND NONCURRENT LIABILITIES\nOther accrued liabilities consist of the following:\nJune 30\n(In\u00a0millions)\n2023\n2022\nEmployee compensation\n$\n546\n\u00a0\n$\n693\n\u00a0\nAccrued sales incentives\n321\n\u00a0\n278\n\u00a0\nDeferred revenue\n323\n\u00a0\n312\n\u00a0\nOther\n2,026\n\u00a0\n2,077\n\u00a0\n$\n3,216\n\u00a0\n$\n3,360\n\u00a0\nAt June 30, 2023 and 2022, total Other noncurrent liabilities of $\n1,943\n\u00a0million and $\n1,651\n\u00a0million included $\n620\n\u00a0million and $\n692\n\u00a0million of deferred tax liabilities, respectively.\nF-42\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 11 \u2013 \nDEBT\nThe Company\u2019s current and long-term debt and available financing consist of the following:\n\u00a0\nDebt at June 30\nAvailable\u00a0financing\u00a0at\nJune\u00a030, 2023\n(In\u00a0millions)\n2023\n2022\nCommitted\nUncommitted\n5.150\n% Senior Notes, due May 15, 2053 (\"2053 Senior Notes\")\n$\n590\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n3.125\n% Senior Notes, due December 1, 2049 (\u201c2049 Senior Notes\u201d)\n636\n\u00a0\n636\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n4.150\n% Senior Notes, due March\u00a015, 2047 (\u201c2047 Senior Notes\u201d)\n494\n\u00a0\n494\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n4.375\n% Senior Notes, due June\u00a015, 2045 (\u201c2045 Senior Notes\u201d)\n454\n\u00a0\n454\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n3.700\n% Senior Notes, due August\u00a015, 2042 (\u201c2042 Senior Notes\u201d)\n247\n\u00a0\n247\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n6.000\n% Senior Notes, due May\u00a015, 2037 (\u201c2037 Senior Notes\u201d)\n295\n\u00a0\n294\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n5.75\n% Senior Notes, due October\u00a015, 2033 (\u201cOctober 2033 Senior Notes\u201d)\n198\n\u00a0\n197\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n4.650\n% Senior Notes, due May 15, 2033 (\"May 2033 Senior Notes\")\n695\n\u00a0\n\u2014\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n1.950\n% Senior Notes, due March 15, 2031 (\u201c2031 Senior Notes\u201d)\n550\n\u00a0\n561\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n2.600\n% Senior Notes, due April 15, 2030 (\"2030 Senior Notes\")\n589\n\u00a0\n613\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n2.375\n% Senior Notes, due December 1, 2029 (\u201c2029 Senior Notes\u201d)\n643\n\u00a0\n642\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n4.375\n% Senior Notes, due May 15, 2028 (\"2028 Senior Notes\")\n696\n\u00a0\n\u2014\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n3.150\n% Senior Notes, due March\u00a015, 2027 (\u201c2027 Senior Notes\u201d)\n499\n\u00a0\n498\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n2.000\n% Senior Notes, due December 1, 2024 (\u201c2024 Senior Notes\u201d)\n498\n\u00a0\n498\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n2.350\n% Senior Notes, due August\u00a015, 2022 (\u201c2022 Senior Notes\u201d)\n\u2014\n\u00a0\n250\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\nCommercial paper \n(1)\n988\n\u00a0\n\u2014\n\u00a0\n\u2014\u00a0\n1,500\n\u00a0\nOther long-term borrowings\n33\n\u00a0\n10\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\nOther current borrowings\n9\n\u00a0\n18\n\u00a0\n\u2014\u00a0\n161\n\u00a0\nRevolving credit facility\n\u2014\n\u00a0\n\u2014\n\u00a0\n2,500\n\u00a0\n\u2014\u00a0\n\u00a0\n8,114\n\u00a0\n5,412\n\u00a0\n$\n2,500\n\u00a0\n$\n1,661\n\u00a0\nLess current debt including current maturities\n(\n997\n)\n(\n268\n)\n\u00a0\n$\n7,117\n\u00a0\n$\n5,144\n\u00a0\n(1)\n Consists of $\n1,000\n\u00a0million principal and unamortized debt discount of $\n12\n\u00a0million.\nF-43\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\n \nAs of June\u00a030, 2023, the Company\u2019s long-term debt consisted of the following:\nNotes\n(10)\nIssue\u00a0Date\nPrice\nYield\nPrincipal\nUnamortized\nDebt\u00a0(Discount)\nPremium\nInterest rate\nswap\nadjustments\nDebt\nIssuance\nCosts\nSemi-annual\u00a0interest\npayments\n($\u00a0in millions)\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n2053 Senior Notes\nMay 2023\n99.455\n\u00a0\n%\n5.186\n\u00a0\n%\n$\n600\n\u00a0\n$\n(\n3\n)\n$\n\u2014\u00a0\n$\n(\n7\n)\nMay 15/November 15\n2049 Senior Notes\nNovember 2019\n98.769\n\u00a0\n3.189\n\u00a0\n650\n\u00a0\n(\n8\n)\n\u2014\u00a0\n(\n6\n)\nJune 1/December 1\n2047 Senior Notes\n(1)\nFebruary\u00a02017\n99.739\n\u00a0\n4.165\n\u00a0\n500\n\u00a0\n(\n1\n)\n\u2014\u00a0\n(\n5\n)\nMarch\u00a015/September\u00a015\n2045 Senior Notes\n(2)\nJune\u00a02015\n97.999\n\u00a0\n4.497\n\u00a0\n300\n\u00a0\n(\n5\n)\n\u2014\u00a0\n(\n3\n)\nJune\u00a015/December\u00a015\n2045 Senior Notes\n(2)\nMay\u00a02016\n110.847\n\u00a0\n3.753\n\u00a0\n150\n\u00a0\n14\n\u00a0\n\u2014\u00a0\n(\n2\n)\nJune\u00a015/December\u00a015\n2042 Senior Notes\nAugust\u00a02012\n99.567\n\u00a0\n3.724\n\u00a0\n250\n\u00a0\n(\n1\n)\n\u2014\u00a0\n(\n2\n)\nFebruary\u00a015/August\u00a015\n2037 Senior Notes\n(3)\nMay\u00a02007\n98.722\n\u00a0\n6.093\n\u00a0\n300\n\u00a0\n(\n2\n)\n\u2014\u00a0\n(\n3\n)\nMay\u00a015/November\u00a015\nOctober 2033 Senior Notes\n(4)\nSeptember\u00a02003\n98.645\n\u00a0\n5.846\n\u00a0\n200\n\u00a0\n(\n1\n)\n\u2014\u00a0\n(\n1\n)\nApril\u00a015/October\u00a015\nMay 2033 Senior Notes\n(9)\nMay 2023\n99.897\n\u00a0\n4.663\n\u00a0\n700\n\u00a0\n(\n1\n)\n\u2014\u00a0\n(\n4\n)\nMay 15/November 15\n2031 Senior Notes\n(5),(7)\nMarch 2021\n99.340\n\u00a0\n2.023\n\u00a0\n600\n\u00a0\n(\n4\n)\n(\n43\n)\n(\n3\n)\nMarch\u00a015/September\u00a015\n2030 Senior Notes\n(7)\nApril 2020\n99.816\n\u00a0\n2.621\n\u00a0\n700\n\u00a0\n(\n1\n)\n(\n107\n)\n(\n3\n)\nApril 15/October 15\n2029 Senior Notes\n(8)\nNovember 2019\n99.046\n\u00a0\n2.483\n\u00a0\n650\n\u00a0\n(\n4\n)\n\u2014\u00a0\n(\n3\n)\nJune 1/December 1\n2028 Senior Notes\nMay 2023\n99.897\n\u00a0\n4.398\n\u00a0\n700\n\u00a0\n(\n1\n)\n\u2014\u00a0\n(\n3\n)\nMay 15/November 15\n2027 Senior Notes\n(6)\nFebruary\u00a02017\n99.963\n\u00a0\n3.154\n\u00a0\n500\n\u00a0\n\u2014\n\u00a0\n\u2014\u00a0\n(\n1\n)\nMarch\u00a015/September\u00a015\n2024 Senior Notes\nNovember 2019\n99.421\n\u00a0\n2.122\n\u00a0\n500\n\u00a0\n(\n1\n)\n\u2014\u00a0\n(\n1\n)\nJune 1/December 1\n(1)\nIn November\u00a02016, in anticipation of the issuance of the 2047 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $\n350\n million at a weighted-average all-in rate of \n3.01\n%.\u00a0The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a gain in OCI of $\n3\n million that is being amortized against interest expense over the life of the 2047 Senior Notes.\u00a0As a result of the treasury lock agreements, the debt discount and debt issuance costs, the effective interest rate on the 2047 Senior Notes will be \n4.17\n% over the life of the debt.\n(2)\nIn April\u00a0and May\u00a02015, in anticipation of the issuance of the 2045 Senior Notes in June\u00a02015, the Company entered into a series of forward-starting interest rate swap agreements on a notional amount totaling $\n300\n million at a weighted-average all-in rate of \n2.38\n%.\u00a0The forward-starting interest rate swap agreements were settled upon the issuance of the new debt and the Company recognized a gain in OCI of $\n18\n million that will be amortized against interest expense over the life of the 2045 Senior Notes.\u00a0As a result of the forward-starting interest rate swap agreements, the debt discount and debt issuance costs, the effective interest rate on the 2045 Senior Notes will be \n4.216\n% over the life of the debt.\u00a0In May\u00a02016, the Company reopened this offering with the same terms and issued an additional $\n150\n million for an aggregate amount outstanding of $\n450\n million of 2045 Senior Notes.\n(3)\nIn April\u00a02007, in anticipation of the issuance of the 2037 Senior Notes, the Company entered into a series of forward-starting interest rate swap agreements on a notional amount totaling $\n210\n million at a weighted-average all-in rate of \n5.45\n%.\u00a0The forward-starting interest rate swap agreements were settled upon the issuance of the new debt and the Company recognized a loss in OCI of $\n1\n million that is being amortized to interest expense over the life of the 2037 Senior Notes.\u00a0As a result of the forward-starting interest rate swap agreements, the debt discount and debt issuance costs, the effective interest rate on the 2037 Senior Notes will be \n6.181\n% over the life of the debt.\n(4)\nIn May\u00a02003, in anticipation of the issuance of the 2033 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $\n195\n million at a weighted-average all-in rate of \n4.53\n%.\u00a0The treasury lock agreements were settled upon the issuance of the new debt and the Company received a payment of $\n15\n million that is being amortized against interest expense over the life of the 2033 Senior Notes.\u00a0As a result of the treasury lock agreements, the debt discount and debt issuance costs, the effective interest rate on the 2033 Senior Notes will be \n5.395\n% over the life of the debt.\n(5)\nIn March 2020, in anticipation of the issuance of the 2031 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $\n200\n\u00a0million at a weighted-average all-in rate of\u00a0\n0.84\n%. The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a gain in OCI of $\n11\n\u00a0million that is being amortized to interest expense over the life of the 2031 Senior Notes. As a result of the treasury lock agreements, as well as the debt discount and debt issuance costs, the effective interest rate on the 2031 Senior Notes will be\u00a0\n1.89\n% over the life of the debt.\n(6)\nIn November\u00a02016, in anticipation of the issuance of the 2027 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $\n450\n million at a weighted-average all-in rate of \n2.37\n%.\u00a0The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a gain in OCI of $\n2\n million that is being amortized against interest expense over the life of the 2027 Senior Notes.\u00a0As a result of the treasury lock agreements, the debt discount and debt issuance costs, the effective interest rate on the 2027 Senior Notes will be \n3.18\n% over the life of the debt.\n(7)\nThe Company entered into interest rate swap agreements with a notional amount totaling $\n700\n\u00a0million and $\n300\n\u00a0million to effectively convert the fixed rate interest on its outstanding 2030 Senior Notes and 2031 Senior Notes to variable interest rates based on \nthree months\n LIBOR plus a margin.\n(8)\nIn April and May 2019, in anticipation of the issuance of the 2029 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $\n500\n\u00a0million at a weighted-average all-in rate of\u00a0\n2.50\n%. The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a loss in OCI of $\n33\n\u00a0million that is being amortized to interest expense over the life of the 2029 Senior Notes. As a result of the treasury lock agreements, as well as the debt discount and debt issuance costs, the effective interest rate on the 2029 Senior Notes will be\u00a0\n3.15\n% over the life of the debt.\nF-44\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\n(9)\nIn December 2022 and March 2023, in anticipation of the issuance of the May 2033 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $\n575\n\u00a0million at a weighted-average all-in rate of \n3.57\n%. The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a loss in OCI of $\n5\n\u00a0million that is being amortized to interest expense over the life of the May 2033 Senior Notes. As a result of the treasury lock agreements, as well as the debt discount and debt issuance costs, the effective interest rate on the May 2033 Senior Notes will be\u00a0\n4.83\n% over the life of the debt.\n(10)\nThe Senior Notes contain certain customary covenants, including limitations on indebtedness secured by liens.\nIn January 2023, the Company entered into a $\n2,000\n\u00a0million senior unsecured revolving credit facility (the \u201c364-Day Facility\u201d) to support the Company's commercial paper program and for general corporate purposes, including to finance the Company's fiscal 2023 fourth quarter TOM FORD Acquisition. In January 2023, in connection with the 364-Day Facility, the Company increased its commercial paper program under which it may issue commercial paper in the United States from $\n2,500\n\u00a0million to $\n4,500\n\u00a0million. \nIn May 2023, the Company completed a public offering of $\n2,000\n\u00a0million, consisting of $\n700\n\u00a0million aggregate principal amount of its 2028 Senior Notes, $\n700\n\u00a0million aggregate principal amount of its May 2033 Senior Notes and $\n600\n\u00a0million aggregate principal amount of its 2053 Senior Notes. The Company used proceeds from this offering for general corporate purposes, including to repay outstanding commercial paper as it matured. \nIn June 2023, the Company decreased the size of its commercial paper program to $\n2,500\n\u00a0million and terminated the undrawn $\n2,000\n\u00a0million 364-Day Facility. \nAs of June 30, 2023 and August 11, 2023, the Company had $\n1,000\n\u00a0million and $\n785\n\u00a0million, respectively, outstanding under its commercial paper program, which may be refinanced on a periodic basis as it matures at the then-prevailing market interest rates. Proceeds from issuance of commercial paper with maturities greater than 90 days were $\n765\n\u00a0million during fiscal 2023. On August 14, 2023, the Company issued an additional $\n215\n\u00a0million of commercial paper under its commercial paper program. \nOn August 15, 2022, the Company repaid the outstanding principal balance of its $\n250\n\u00a0million \n2.35\n% Senior Notes with cash from operations.\nIn October\u00a02021, the Company replaced its $\n1,500\n million senior unsecured revolving credit facility that was set to expire in October\u00a02023 with a new $\n2,500\n million senior unsecured revolving credit facility (the \u201cNew Facility\u201d).\u00a0The New Facility expires on October\u00a022, 2026 unless extended for up to \ntwo\n additional years in accordance with the terms set forth in the agreement.\u00a0Up to the equivalent of $\n750\n million of the New Facility is available for multi-currency loans.\u00a0Interest rates on borrowings under the New Facility will be based on prevailing market interest rates in accordance with the agreement.\u00a0The costs incurred to establish the New Facility were not material. The New Facility has an annual fee of approximately $\n1\n million, payable quarterly, based on the Company\u2019s current credit ratings.\u00a0The New Facility contains a cross-default provision whereby a failure to pay other material financial obligations in excess of $\n175\n\u00a0million (after grace periods and absent a waiver from the lenders) would result in an event of default and the acceleration of the maturity of any outstanding debt under this facility.\u00a0The New Facility may be increased, at the election of the Company, by up to $\n500\n\u00a0million in accordance with the terms set forth in the agreement. At June\u00a030, 2023, \nno\n borrowings were outstanding under the New Facility.  \nThe Company maintains uncommitted credit facilities in various regions throughout the world.\u00a0Interest rate terms for these facilities vary by region and reflect prevailing market rates for companies with strong credit ratings.\u00a0During fiscal 2023 and 2022, the average amount outstanding was approximately $\n1\n million and $\n8\n million, respectively, and the annualized weighted-average interest rate incurred was approximately \n5.4\n% and \n10.2\n%, respectively.\nRefer to \nNote 16 \u2013 Commitments and Contingencies\n for the Company\u2019s projected debt service payments, as of June\u00a030, 2023, over the next five fiscal years.\nF-45\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 12 \u2013 \nDERIVATIVE FINANCIAL INSTRUMENTS\nThe Company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments.\u00a0The Company enters into foreign currency forward contracts, and may enter into option contracts, to reduce the effects of fluctuating foreign currency exchange rates. The Company also uses cross-currency swap contracts to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt.\u00a0In addition, the Company enters into interest rate derivatives to manage the effects of interest rate movements on the Company\u2019s aggregate liability portfolio, including potential future debt issuances.\u00a0The Company also enters into foreign currency forward contracts to hedge a portion of its net investment in certain foreign operations, which are designated as net investment hedges. The Company enters into the net investment hedges to offset the risk of changes in the U.S. dollar value of the Company\u2019s investment in these foreign operations due to fluctuating foreign exchange rates. Time value is excluded from the effectiveness assessment and is recognized under a systematic and rational method over the life of the hedging instrument in Selling, general and administrative expenses. The net gain or loss on net investment hedges is recorded within translation adjustments, as a component of AOCI on the Company\u2019s consolidated balance sheets, until the sale or substantially complete liquidation of the underlying assets of the Company\u2019s investment. The Company also enters into foreign currency forward contracts, and may use option contracts, not designated as hedging instruments, to mitigate the change in fair value of specific assets and liabilities on the consolidated balance sheets.\u00a0At June\u00a030, 2023, the notional amount of derivatives not designated as hedging instruments was $\n3,667\n million. The Company does not utilize derivative financial instruments for trading or speculative purposes.\u00a0Costs associated with entering into derivative financial instruments have not been material to the Company\u2019s consolidated financial results.\nFor each derivative contract entered into, where the Company looks to obtain hedge accounting treatment, the Company formally and contemporaneously documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, and how the hedging instruments\u2019 effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively.\u00a0This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions.\u00a0At inception, the Company evaluates the effectiveness of hedge relationships quantitatively, and has elected to perform, after initial evaluation, qualitative effectiveness assessments of certain hedge relationships to support an ongoing expectation of high effectiveness, if effectiveness testing is required.\u00a0If based on the qualitative assessment, it is determined that a derivative has ceased to be a highly effective hedge, the Company will perform a quantitative assessment to determine whether to discontinue hedge accounting with respect to that derivative prospectively.\nF-46\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe fair values of the Company\u2019s derivative financial instruments included in the consolidated balance sheets are presented as follows:\nAsset\u00a0Derivatives\nLiability\u00a0Derivatives\nFair\u00a0Value\u00a0\n(1)\nFair\u00a0Value\u00a0\n(1)\nJune 30\nJune 30\n(In\u00a0millions)\nBalance\u00a0Sheet\nLocation\n2023\n2022\nBalance\u00a0Sheet\nLocation\n2023\n2022\nDerivatives Designated as Hedging Instruments:\nForeign currency cash flow hedges\nPrepaid expenses and other current assets\n$\n56\n\u00a0\n$\n57\n\u00a0\nOther accrued liabilities\n$\n16\n\u00a0\n$\n1\n\u00a0\nCross-currency swap contracts\nPrepaid expenses and other current assets\n22\n\u00a0\n\u2014\n\u00a0\nOther accrued liabilities\n\u2014\n\u00a0\n\u2014\n\u00a0\nNet investment hedges\nPrepaid expenses and other current assets\n\u2014\n\u00a0\n107\n\u00a0\nOther accrued liabilities\n13\n\u00a0\n\u2014\n\u00a0\nInterest rate-related derivatives\nPrepaid expenses and other current assets\n\u2014\n\u00a0\n24\n\u00a0\nOther accrued liabilities\n150\n\u00a0\n115\n\u00a0\nTotal Derivatives Designated as Hedging Instruments\n78\n\u00a0\n188\n\u00a0\n179\n\u00a0\n116\n\u00a0\nDerivatives Not Designated as Hedging Instruments:\nForeign currency forward contracts\nPrepaid expenses and other current assets\n20\n\u00a0\n27\n\u00a0\nOther accrued liabilities\n20\n\u00a0\n104\n\u00a0\nTotal derivatives\n$\n98\n\u00a0\n$\n215\n\u00a0\n$\n199\n\u00a0\n$\n220\n\u00a0\n(1)\nSee \nNote 13 \u2013 Fair Value Measurements\n for further information about how the fair value of derivative assets and liabilities are determined.\nThe amounts of the gains and losses related to the Company\u2019s derivative financial instruments designated as hedging instruments that are included in the assessment of effectiveness are as follows:\nAmount of Gain (Loss)\nRecognized in OCI on Derivatives\nLocation of Gain \n(Loss) Reclassified\nAmount of Gain (Loss)\nReclassified from AOCI into\nEarnings\n(1)\nJune 30\nfrom AOCI into\nJune 30\n(In\u00a0millions)\n2023\n2022\nEarnings\n2023\n2022\nDerivatives in Cash Flow Hedging Relationships:\nForeign currency forward contracts\n$\n57\n\u00a0\n$\n69\n\u00a0\nNet sales\n$\n71\n\u00a0\n$\n3\n\u00a0\nInterest rate-related derivatives\n2\n\u00a0\n24\n\u00a0\nInterest expense\n(\n1\n)\n(\n1\n)\n59\n\u00a0\n93\n\u00a0\n70\n\u00a0\n2\n\u00a0\nDerivatives in Net Investment Hedging Relationships\n(2)\n:\nForeign currency forward contracts\n(3)\n(\n35\n)\n175\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nTotal derivatives\n$\n24\n\u00a0\n$\n268\n\u00a0\n$\n70\n\u00a0\n$\n2\n\u00a0\n(1)\nThe amount reclassified into earnings as a result of the discontinuance of cash flow hedges because probable forecasted transactions will no longer occur by the end of the original time period was not material.\n(2)\nDuring fiscal 2023 and 2022 the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $\n26\n million and $\n11\n million, respectively.\n(3)\nIncluded within translation adjustments as a component of AOCI on the Company\u2019s consolidated balance sheets.\nF-47\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\n \n\u00a0\n\u00a0\nAmount of Gain (Loss) Recognized in Earnings on Derivatives\n\u00a0\nLocation of Gain (Loss)\nJune 30\n(In millions)\n\u00a0Recognized in Earnings on Derivatives\n2023\n2022\nDerivatives in Fair Value Hedging\nRelationships:\n\u00a0\n\u00a0\n\u00a0\nCross-currency swap contracts\n(1)\nSelling, general and administrative\n$\n42\n\u00a0\n$\n\u2014\n\u00a0\nInterest rate swap contracts\n(2)\nInterest expense\n$\n(\n36\n)\n$\n(\n130\n)\n(1)\nChanges in the fair value representing hedge components included in the assessment of effectiveness of the cross-currency swap contracts are exactly offset by the change in the fair value of the underlying intercompany foreign currency denominated debt. The gain recognized in earnings from cross-currency swap contracts related to the amount excluded from effectiveness testing was $\n9\n\u00a0million.\n(2)\nChanges in the fair value of the interest rate swap agreements are exactly offset by the change in the fair value of the underlying long-term debt.\nAdditional information regarding the cumulative amount of fair value hedging gain (loss) recognized in earnings for items designated and qualifying as hedged items in fair value hedges is as follows:\n(In millions)\nLine Item in the Consolidated Balance Sheets in Which the Hedged Item is Included\nCarrying Amount of the\nHedged Liabilities\nCumulative Amount of Fair \nValue Hedging Gain (Loss) \nIncluded in the Carrying Amount of the Hedged Liability\nJune 30, 2023\nJune 30, 2023\nLong-term debt\n$\n843\n\u00a0\n$\n(\n150\n)\nIntercompany debt\n$\n\u2014\n\u00a0\n$\n42\n\u00a0\nF-48\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nAdditional information regarding the effects of fair value and cash flow hedging relationships for derivatives designated and qualifying as hedging instruments is as follows:\nJune 30\n\u00a0\n2023\n2022\n(In millions)\nNet Sales\nSelling, General and Administrative\nInterest Expense\nNet Sales\nSelling, General and Administrative\nInterest Expense\nTotal amounts of income and expense line items presented in the consolidated statements of earnings in which the effects of fair value and cash flow hedges are recorded\n$\n15,910\n\u00a0\n$\n9,575\n\u00a0\n$\n255\n\u00a0\n$\n17,737\n\u00a0\n$\n9,888\n\u00a0\n$\n167\n\u00a0\nThe effects of fair value and cash flow hedging relationships:\nGain (loss) on fair value hedge relationships \u2013 interest rate contracts:\nHedged item\nN/A\nN/A\n36\n\u00a0\nN/A\nN/A\n130\n\u00a0\nDerivatives designated as hedging instruments\nN/A\nN/A\n(\n36\n)\nN/A\nN/A\n(\n130\n)\nGain (loss) on fair value hedge relationships \u2013 cross-currency swap contracts:\nHedged item\nN/A\n(\n42\n)\nN/A\nN/A\n\u2014\n\u00a0\nN/A\nDerivatives designated as hedging instruments\nN/A\n42\n\u00a0\nN/A\nN/A\n\u2014\n\u00a0\nN/A\nLoss on cash flow hedge relationships \u2013 interest rate contracts:\nAmount of loss reclassified from AOCI into earnings\nN/A\nN/A\n(\n1\n)\nN/A\nN/A\n(\n1\n)\nGain on cash flow hedge relationships \u2013 foreign currency forward contracts:\nAmount of gain reclassified from AOCI into earnings\n71\n\u00a0\nN/A\nN/A\n3\n\u00a0\nN/A\nN/A\nN/A (Not applicable)\nThe amount of the gains and losses related to the Company\u2019s derivative financial instruments not designated as hedging instruments are presented as follows:\n\u00a0\n\u00a0\nAmount of Gain (Loss) \nRecognized in Earnings on Derivatives\n\u00a0\nLocation of Gain (Loss) \nJune 30\n(In millions)\nRecognized in Earnings on Derivatives\n2023\n2022\nDerivatives Not Designated as Hedging Instruments:\n\u00a0\n\u00a0\n\u00a0\nForeign currency forward contracts\nSelling, general and administrative\n$\n(\n10\n)\n$\n(\n35\n)\nF-49\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe Company's derivative instruments are subject to enforceable master netting agreements. These agreements permit the net settlement of these contracts on a per-institution basis; however, the Company records the fair value on a gross basis in its consolidated balance sheets based on maturity dates, including those subject to master netting arrangements. \nThe following table provides information as if the Company had elected to offset the asset and liability balances of derivative instruments, netted in accordance with various criteria in the event of default or termination as stipulated by the terms of netting arrangements with each of the counterparties:\nAs of June 30, 2023\nAs of June 30, 2022\n(In millions)\nGross Amounts of Assets / (Liabilities) Presented in Balance Sheet\nContracts Subject to Netting\nNet Amounts of Assets / (Liabilities)\nGross Amounts of Assets / (Liabilities) Presented in Balance Sheet\nContracts Subject to Netting\nNet Amounts of Assets / (Liabilities)\nDerivative Financial Contracts\nDerivative assets\n$\n98\n\u00a0\n$\n(\n53\n)\n$\n45\n\u00a0\n$\n215\n\u00a0\n$\n(\n104\n)\n$\n111\n\u00a0\nDerivative liabilities\n(\n199\n)\n53\n\u00a0\n(\n146\n)\n(\n220\n)\n104\n\u00a0\n(\n116\n)\nTotal\n$\n(\n101\n)\n$\n\u2014\n\u00a0\n$\n(\n101\n)\n$\n(\n5\n)\n$\n\u2014\n\u00a0\n$\n(\n5\n)\nCash Flow Hedges\nThe Company enters into foreign currency forward contracts, and may enter into foreign currency option contracts, to hedge anticipated transactions and receivables and payables denominated in foreign currencies, for periods consistent with the Company\u2019s identified exposures.\u00a0The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the cash flows that the Company receives from foreign subsidiaries.\u00a0The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as cash flow hedges and have varying maturities through the end of March 2025. Hedge effectiveness of the foreign currency forward contracts is based on the forward method, which includes time value in the effectiveness assessment. At June\u00a030, 2023, the Company had cash flow hedges outstanding with a notional amount totaling $\n1,981\n million.\nThe Company may enter into interest rate forward contracts to hedge anticipated issuance of debt for periods consistent with the Company\u2019s identified exposures.\u00a0The purpose of the hedging activities is to minimize the effect of interest rate movements on the cost of debt issuance.\nFor foreign currency hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued and gains and losses in AOCI are reclassified to Net sales when the underlying forecasted transaction occurs.\u00a0If it is probable that the forecasted transaction will no longer occur, then any gains or losses in AOCI are reclassified to current-period Net sales.\u00a0As of June\u00a030, 2023, the Company\u2019s foreign currency cash flow hedges were highly effective.\nThe estimated net gain on the Company\u2019s derivative instruments designated as cash flow hedges as of June\u00a030, 2023 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $\n25\n million.\u00a0The accumulated net gain on derivative instruments designated as cash flow hedges in AOCI was $\n79\n million and $\n90\n million as of June\u00a030, 2023 and 2022, respectively.\nFair Value Hedges\nThe Company enters into interest rate derivative contracts to manage the exposure to interest rate fluctuations on its funded indebtedness.\u00a0At June 30, 2023, the Company has interest rate swap agreements, with notional amounts totaling $\n700\n million and $\n300\n\u00a0million to effectively convert the fixed rate interest on its 2030 Senior Notes and 2031 Senior Notes, respectively, to variable interest rates based on \nthree-month\n LIBOR plus a margin.\u00a0These interest rate swap agreements are designated as fair value hedges of the related long-term debt, and the changes in the fair value of the interest rate swap agreements are exactly offset by the change in the fair value of the underlying long-term debt.\nF-50\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe Company enters into cross-currency swap contracts to manage the exposure of foreign exchange rate fluctuations on its intercompany foreign currency denominated debt. At June 30, 2023, the Company has cross-currency swap contracts with notional amounts totaling $\n491\n\u00a0million, to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt. The cross-currency swap contracts are designated as fair value hedges of the related intercompany debt, and the gains and losses representing hedge components included in the assessment of effectiveness are presented in the same income statement line item as the earnings effect of the hedged transaction. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis. The earnings recognition of excluded components is presented in the same income statement line item as the earnings effect of the hedged transaction. Any difference between the changes in the fair value of the excluded components and amounts recognized in earnings will be recognized in AOCI.\nThe estimated net gain on the Company\u2019s derivative instruments designated as fair value hedges as of June 30, 2023 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $\n14\n\u00a0million. The accumulated net loss on derivative instruments designated as fair value hedges in AOCI was $\n20\n\u00a0million as of June 30, 2023.\nNet Investment Hedges\nThe Company enters into foreign currency forward contracts, designated as net investment hedges, to hedge a portion of its net investment in certain foreign operations. The net gain or loss on these contracts is recorded within translation adjustments, as a component of AOCI on the Company\u2019s consolidated balance sheets. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the Company\u2019s net investment in these foreign operations. The net investment hedge contracts have varying maturities through the end of November 2023. Hedge effectiveness of the net investment hedge contracts is based on the spot method. At June\u00a030, 2023, the Company had net investment hedges outstanding with a notional amount totaling $\n1,082\n million.\nCredit Risk\nAs a matter of policy, the Company enters into derivative contracts only with counterparties that have a long-term credit rating of at least A- or higher by at least \ntwo\n nationally recognized rating agencies.\u00a0The counterparties to these contracts are major financial institutions.\u00a0Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of contracts in asset positions, which totaled $\n98\n million at June\u00a030, 2023. To manage this risk, the Company has strict counterparty credit guidelines that are continually monitored.\u00a0Accordingly, management believes risk of loss under these hedging contracts is remote.\nF-51\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 13 \u2013 \nFAIR VALUE MEASUREMENTS\nThe Company records certain of its financial assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date.\u00a0The accounting for fair value measurements must be applied to nonfinancial assets and nonfinancial liabilities that require initial measurement or remeasurement at fair value, which principally consist of assets and liabilities acquired through business combinations and goodwill, indefinite-lived intangible assets and long-lived assets for the purposes of calculating potential impairment.\u00a0The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.\u00a0The three levels of inputs that may be used to measure fair value are as follows:\nLevel\u00a01:\u00a0\u00a0\u00a0\u00a0Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.\nLevel\u00a02:\u00a0\u00a0\u00a0\u00a0Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.\nLevel\u00a03:\u00a0\u00a0\u00a0\u00a0Inputs reflect management\u2019s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument\u2019s valuation.\nThe following table presents the Company\u2019s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June\u00a030, 2023:\n(In millions)\nLevel 1\nLevel 2\nLevel 3\nTotal\nAssets:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nMoney market funds\n$\n3,241\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n3,241\n\u00a0\nForeign currency forward contracts\n\u2014\n\u00a0\n76\n\u00a0\n\u2014\n\u00a0\n76\n\u00a0\nCross-currency swap contracts\n\u2014\n\u00a0\n22\n\u00a0\n\u2014\n\u00a0\n22\n\u00a0\nTotal\n$\n3,241\n\u00a0\n$\n98\n\u00a0\n$\n\u2014\n\u00a0\n$\n3,339\n\u00a0\nLiabilities:\nForeign currency forward contracts\n$\n\u2014\n\u00a0\n$\n49\n\u00a0\n$\n\u2014\n\u00a0\n$\n49\n\u00a0\nInterest rate-related derivatives\n\u2014\n\u00a0\n150\n\u00a0\n\u2014\n\u00a0\n150\n\u00a0\nDECIEM stock options\n\u2014\n\u00a0\n\u2014\n\u00a0\n99\n\u00a0\n99\n\u00a0\nTotal\n$\n\u2014\n\u00a0\n$\n199\n\u00a0\n$\n99\n\u00a0\n$\n298\n\u00a0\nF-52\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe following table presents the Company\u2019s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June\u00a030, 2022:\n(In millions)\nLevel 1\nLevel 2\nLevel 3\nTotal\nAssets:\nMoney market funds\n$\n961\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n961\n\u00a0\nForeign currency forward contracts\n\u2014\n\u00a0\n191\n\u00a0\n\u2014\n\u00a0\n191\n\u00a0\nInterest rate-related derivatives\n\u2014\n\u00a0\n24\n\u00a0\n\u2014\n\u00a0\n24\n\u00a0\nTotal\n$\n961\n\u00a0\n$\n215\n\u00a0\n$\n\u2014\n\u00a0\n$\n1,176\n\u00a0\nLiabilities:\nForeign currency forward contracts\n$\n\u2014\n\u00a0\n$\n105\n\u00a0\n$\n\u2014\n\u00a0\n$\n105\n\u00a0\nInterest rate-related derivatives\n\u2014\n\u00a0\n115\n\u00a0\n\u2014\n\u00a0\n115\n\u00a0\nDECIEM stock options\n\u2014\n\u00a0\n\u2014\n\u00a0\n74\n\u00a0\n74\n\u00a0\nTotal\n$\n\u2014\n\u00a0\n$\n220\n\u00a0\n$\n74\n\u00a0\n$\n294\n\u00a0\nThe estimated fair values of the Company\u2019s financial instruments are as follows:\nJune 30\n2023\n2022\n(In millions)\nCarrying\nAmount\nFair\nValue\nCarrying\nAmount\nFair\nValue\nNonderivatives\nCash and cash equivalents\n$\n4,029\n\u00a0\n$\n4,029\n\u00a0\n$\n3,957\n\u00a0\n$\n3,957\n\u00a0\nCurrent and long-term debt\n8,114\n\u00a0\n7,665\n\u00a0\n5,412\n\u00a0\n5,139\n\u00a0\nDECIEM stock options\n99\n\u00a0\n99\n\u00a0\n74\n\u00a0\n74\n\u00a0\nDeferred consideration payable\n341\n338\n38\n38\nDerivatives\nCross-currency swap contracts - asset, net\n22\n22\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nForeign currency forward contracts \u2013 asset, net\n27\n\u00a0\n27\n\u00a0\n86\n\u00a0\n86\n\u00a0\nInterest rate-related derivatives \u2013 liability, net\n(\n150\n)\n(\n150\n)\n(\n91\n)\n(\n91\n)\nThe following table presents the Company\u2019s impairment charges for certain of its nonfinancial assets measured at fair value on a nonrecurring basis, classified as Level 3, during fiscal 2023, 2022 and 2021:\nFiscal 2023\n(In millions)\nImpairment charges\nDate of Fair Value Measurement\nFair Value\n(1)\nOther intangible assets, net (trademarks)\nDr.Jart+\n$\n100\n\u00a0\nNovember 30, 2022\n$\n325\n\u00a0\nToo Faced\n86\n\u00a0\nNovember 30, 2022\n186\n\u00a0\nSmashbox\n21\n\u00a0\nDecember 31, 2022\n\u2014\n\u00a0\nTotal\n$\n207\n\u00a0\n$\n511\n\u00a0\n(1)\nSee \nNote 6 \u2013 Goodwill and Other Intangible Assets\n for discussion of the valuation techniques used to measure fair value, the description of the inputs and information used to develop those inputs.\nF-53\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nFiscal 2022\n(In millions)\nImpairment charges\nDate of Fair Value Measurement\nFair Value\n(1)\nOther intangible assets, net (trademarks)\nGLAMGLOW\n$\n11\n\u00a0\nMarch 31, 2022\n$\n\u2014\n\u00a0\nDr.Jart+\n230\n\u00a0\nFebruary 28, 2022\nApril 1, 2022\n428\n\u00a0\nTotal\n$\n241\n\u00a0\n$\n428\n\u00a0\n(1)\nSee \nNote 6 \u2013 Goodwill and Other Intangible Assets \nfor discussion of the valuation techniques used to measure fair value, the description of the inputs and information used to develop those inputs.\nFiscal 2021\n(In\u00a0millions)\nImpairment\nCharges\nDate\u00a0of\u00a0Fair Value\nMeasurement\nFair\u00a0Value\n(1)\nGoodwill\nGLAMGLOW\n$\n54\n\u00a0\nNovember 30, 2020\n$\n\u2014\n\u00a0\nBECCA\n(2)\n13\n\u00a0\nFebruary 28, 2021\n\u2014\n\u00a0\nOther\n4\n\u00a0\nJune 30, 2021\n\u2014\n\u00a0\nTotal\n71\n\u00a0\n\u2014\n\u00a0\nOther intangible assets, net (trademark and customer lists)\nGLAMGLOW\n52\nNovember 30, 2020\nApril 1, 2021\n11\n\u00a0\nBECCA\n(2)\n34\nFebruary 28, 2021\n\u2014\n\u00a0\nSmashbox\n11\nApril 1, 2021\n21\n\u00a0\nTotal\n97\n\u00a0\n32\n\u00a0\nLong-lived assets\n71\n\u00a0\nMarch 31, 2021\nJune 30, 2021\n66\n\u00a0\nTotal\n$\n239\n\u00a0\n$\n98\n\u00a0\n(1)\nSee \nNote 6 \u2013 Goodwill and Other Intangible Assets\n for discussion of the valuation techniques used to measure fair value, the description of the inputs and information used to develop those inputs.\n(2)\nSee \nNote 8 \u2013 Charges Associated with Restructuring and Other Activities\n for further information relating to goodwill and other intangible asset impairment charges recorded in connection with the exit of the global distribution of BECCA products.\nThe following methods and assumptions were used to estimate the fair value of the Company\u2019s financial instruments for which it is practicable to estimate that value:\nCash and cash equivalents \u2013\n Cash and all highly-liquid securities with original maturities of three months or less are classified as cash and cash equivalents, primarily consisting of cash deposits in interest bearing accounts, time deposits and money market funds (classified within Level 1 of the valuation hierarchy).\u00a0Cash deposits in interest bearing accounts and time deposits are carried at cost, which approximates fair value, due to the short maturity of cash equivalent instruments.\nForeign currency forward contracts \u2013\n The fair values of the Company\u2019s foreign currency forward contracts were determined using an industry-standard valuation model, which is based on an income approach.\u00a0The significant observable inputs to the model, such as swap yield curves and currency spot and forward rates, were obtained from an independent pricing service. To determine the fair value of contracts under the model, the difference between the contract price and the current forward rate was discounted using LIBOR for contracts with maturities up to \n12\n months, and swap yield curves for contracts with maturities greater than \n12\n months.\nF-54\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nCross-currency swap contracts -\n The fair value of the Company\u2019s cross-currency swap contracts were determined using an industry-standard valuation model, which is based on the income approach. The significant observable inputs to the model, such as yield curves and currency spot and forward rates, were obtained from independent pricing services.\nInterest rate-related derivatives \u2013\n The fair values of the Company\u2019s interest rate contracts were determined using an industry-standard valuation model, which is based on the income approach.\u00a0The significant observable inputs to the model, such as treasury yield curves, swap yield curves and LIBOR forward rates, were obtained from independent pricing services.\nCurrent and long-term debt\n \u2013 The fair value of the Company\u2019s debt was estimated based on the current rates offered to the Company for debt with the same remaining maturities.\u00a0To a lesser extent, debt also includes finance lease obligations for which the carrying amount approximates the fair value.\u00a0The Company\u2019s debt is classified within Level 2 of the valuation hierarchy.\nDeferred consideration payable \n\u2013\n The deferred consideration payable as of June 30, 2023 consists primarily of deferred payments associated with the TOM FORD Acquisition. The fair value of the payments treated as deferred consideration payable are calculated based on the net present value of cash payments using an estimated borrowing rate based on quoted prices for a similar liability. The Company\u2019s deferred consideration payable is classified within Level 2 of the valuation hierarchy. Refer to \nNote 5 \u2013 Business and Asset Acquisitions\n for additional information associated with the TOM FORD Acquisition.\nDECIEM stock options\n \u2013 The stock option liability represents the employee stock options issued by DECIEM in replacement and exchange for certain vested and unvested DECIEM employee stock options previously issued by DECIEM, in connection with the Company's acquisition of DECIEM. The DECIEM stock options are subject to the terms and conditions of DECIEM's 2021 Stock Option Plan. The DECIEM stock option liability is measured using the Monte Carlo Method, which requires certain assumptions. Significant changes in the projected future operating results would result in a higher or lower fair value measurement. Changes to the discount rates or volatilities would have a lesser effect. These inputs are categorized as Level 3 of the valuation hierarchy. The DECIEM stock options are remeasured to fair value at each reporting date through the period when the options are exercised or repurchased (i.e., when they are settled), with an offsetting entry to compensation expense. See \nNote 5 \u2013 Business and Asset Acquisitions and Note 18 \u2013 Stock Programs \nfor discussion\n.\nChanges in the DECIEM stock option liability for the year ended June 30, 2023 are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and were as follows:\n(In millions)\nFair Value\nDECIEM stock option liability as of June 30, 2022\n$\n74\n\u00a0\nChanges in fair value, net of foreign currency remeasurements\n(1)\n22\n\u00a0\nTranslation adjustments and other, net\n3\n\u00a0\nDECIEM stock option liability as of June 30, 2023\n$\n99\n\u00a0\n(1)\nAmount inc\nludes expense attributable to graded vesting of stock opt\nions which is not material for the year ended June 30, 2023.\nF-55\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 14 \u2013 \nREVENUE RECOGNITION\nFor further information on the Company's policies relating to revenue recognition and accounts receivable see \nNote 2 \u2013 Summary of Significant Accounting Policies.\nAccounts Receivable\nAccounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $\n30\n million and $\n27\n million as of June\u00a030, 2023 and June\u00a030, 2022, respectively.\u00a0Payment terms are short-term in nature and are generally less than one year.\nChanges in the allowance for credit losses are as follows:\nJune 30\n(In millions)\n2023\n2022\nAllowance for credit losses, beginning of period\n$\n10\n\u00a0\n$\n20\n\u00a0\nProvision (adjustment) for expected credit losses\n6\n\u00a0\n(\n3\n)\nWrite-offs, net & other\n\u2014\n\u00a0\n(\n7\n)\nAllowance for credit losses, end of period\n$\n16\n\u00a0\n10\n\u00a0\nThe remaining balance of the allowance for doubtful accounts and customer deductions of $\n14\n\u00a0million and $\n17\n\u00a0million, as of June\u00a030, 2023 and June 30, 2022, respectively, relates to non-credit losses, which are primarily due to customer deductions.\nDeferred Revenue\nChanges in deferred revenue are as follows:\nJune 30\n(In millions)\n2023\n2022\nDeferred revenue, beginning of period\n$\n362\n\u00a0\n$\n371\n\u00a0\nRevenue recognized that was included in the deferred revenue balance at the beginning of the period\n(\n343\n)\n(\n285\n)\nRevenue deferred during the period\n538\n\u00a0\n284\n\u00a0\nOther\n15\n\u00a0\n(\n8\n)\nDeferred revenue, end of period\n$\n572\n\u00a0\n$\n362\n\u00a0\nThe increase in Revenue deferred during the period from fiscal 2022 to fiscal 2023 is driven by the Marcolin licensing arrangement, which consists of a $\n250\n\u00a0million non-refundable upfront payment which is classified as deferred revenue within Other accrued liabilities and Other noncurrent liabilities in the accompanying consolidated balance sheets. The upfront payment will be recognized on a straight-line basis over the estimated economic life of the license, which is \n20\n years.  The Company\u2019s deferred revenue balance related to the Marcolin licensing arrangement was $\n235\n\u00a0million at June 30, 2023.\nTransaction Price Allocated to the Remaining Performance Obligations\nAt June\u00a030, 2023, the combined estimated revenue expected to be recognized in the next \ntwelve months\n related to performance obligations for customer loyalty programs, gift with purchase promotions, purchase with purchase promotions, gift card liabilities, and the Marcolin license arrangement that are unsatisfied (or partially unsatisfied) is $\n323\n\u00a0million. The remaining balance of deferred revenue at June 30, 2023 will be recognized beyond the next \ntwelve months\n.\nF-56\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nRoyalty Revenue - License Arrangements\nAs of June 30, 2023, the remaining contractually guaranteed minimum royalty amounts due to the Company during future periods are as follows:\n(In millions)\nMinimum Remaining Royalties\nFiscal 2024\n$\n27\n\u00a0\nFiscal 2025\n$\n28\n\u00a0\nFiscal 2026\n$\n29\n\u00a0\nFiscal 2027\n$\n30\n\u00a0\nFiscal 2028\n$\n32\n\u00a0\nThereafter\n$\n194\n\u00a0\nThe royalty revenue associated with the TOM FORD Acquisition will be included within the The Americas region and within the other product category.\nNOTE 15 \u2013 \nPENSION, DEFERRED COMPENSATION AND POST-RETIREMENT BENEFIT PLANS\nThe Company maintains pension plans covering substantially all of its full-time employees for its U.S. operations and a majority of its international operations.\u00a0Several plans provide pension benefits based primarily on years of service and employees\u2019 earnings.\u00a0In certain instances, the Company adjusts benefits in connection with international employee transfers.\nRetirement Growth Account Plan (U.S.)\nThe Retirement Growth Account Plan is a trust-based, noncontributory qualified defined benefit pension plan.\u00a0The Company seeks to maintain appropriate funded percentages.\u00a0For contributions, the Company would seek to contribute an amount or amounts that would not be less than the minimum required by the Employee Retirement Income Security Act of 1974 (\u201cERISA\u201d), as amended, and subsequent pension legislation, and would not be more than the maximum amount deductible for income tax purposes.\nRestoration Plan (U.S.)\nThe Company also has an unfunded, non-qualified domestic noncontributory pension Restoration Plan to provide benefits in excess of Internal Revenue Code limitations.\nInternational Pension Plans\nThe Company maintains international pension plans, the most significant of which are defined benefit pension plans.\u00a0The Company\u2019s funding policies for these plans are determined by local laws and regulations.\u00a0The Company\u2019s most significant defined benefit pension obligations are included in the plan summaries below.\nPost-retirement Benefit Plans\nThe Company maintains a domestic post-retirement benefit plan which provides certain medical and dental benefits to eligible employees.\u00a0Employees hired after January\u00a01, 2002 are not eligible for retiree medical benefits when they retire.\u00a0Certain retired employees who are receiving monthly pension benefits are eligible for participation in the plan.\u00a0Contributions required and benefits received by retirees and eligible family members are dependent on the age of the retiree.\u00a0It is the Company\u2019s practice to fund a portion of these benefits as incurred and may provide discretionary funding for future liabilities up to the maximum amount deductible for income tax purposes.\nCertain of the Company\u2019s international subsidiaries and affiliates have post-retirement plans, although most participants are covered by government-sponsored or administered programs.\nF-57\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nPlan Summaries\nThe components of the above-mentioned plans as of and for the years ended June\u00a030 are summarized as follows:\n\u00a0\nPension\u00a0Plans\nOther\u00a0than\nPension\u00a0Plans\n\u00a0\nU.S.\nInternational\nPost-retirement\n(In\u00a0millions)\n2023\n2022\n2023\n2022\n2023\n2022\nChange in benefit obligation:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nBenefit obligation at beginning of year\n$\n922\n\u00a0\n$\n1,075\n\u00a0\n$\n562\n\u00a0\n$\n700\n\u00a0\n$\n177\n\u00a0\n$\n209\n\u00a0\nService cost\n37\n\u00a0\n46\n\u00a0\n27\n\u00a0\n31\n\u00a0\n1\n\u00a0\n2\n\u00a0\nInterest cost\n40\n\u00a0\n31\n\u00a0\n15\n\u00a0\n10\n\u00a0\n8\n\u00a0\n6\n\u00a0\nPlan participant contributions\n\u2014\n\u00a0\n\u2014\n\u00a0\n8\n\u00a0\n7\n\u00a0\n1\n\u00a0\n1\n\u00a0\nActuarial loss (gain)\n(\n30\n)\n(\n164\n)\n(\n51\n)\n(\n82\n)\n4\n\u00a0\n(\n29\n)\nForeign currency exchange rate impact\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n3\n)\n(\n64\n)\n(\n3\n)\n(\n2\n)\nBenefits, expenses, taxes and premiums paid\n(\n57\n)\n(\n66\n)\n(\n32\n)\n(\n39\n)\n(\n12\n)\n(\n10\n)\nPlan amendments\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n1\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nSettlements\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n4\n)\n(\n6\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\nSpecial termination benefits\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n4\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nBenefit obligation at end of year\n$\n912\n\u00a0\n$\n922\n\u00a0\n$\n522\n\u00a0\n$\n562\n\u00a0\n$\n176\n\u00a0\n$\n177\n\u00a0\nChange in plan assets:\nFair value of plan assets at beginning of year\n$\n838\n\u00a0\n$\n981\n\u00a0\n$\n579\n\u00a0\n$\n681\n\u00a0\n$\n14\n\u00a0\n$\n24\n\u00a0\nActual return on plan assets\n(\n42\n)\n(\n95\n)\n(\n38\n)\n(\n37\n)\n(\n1\n)\n(\n1\n)\nForeign currency exchange rate impact\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n7\n)\n(\n64\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\nEmployer contributions\n14\n\u00a0\n18\n\u00a0\n35\n\u00a0\n38\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nPlan participant contributions\n\u2014\n\u00a0\n\u2014\n\u00a0\n8\n\u00a0\n7\n\u00a0\n1\n\u00a0\n1\n\u00a0\nSettlements\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n4\n)\n(\n7\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\nBenefits, expenses, taxes and premiums paid from plan assets\n(\n57\n)\n(\n66\n)\n(\n32\n)\n(\n39\n)\n(\n12\n)\n(\n10\n)\nFair value of plan assets at end of year\n$\n753\n\u00a0\n$\n838\n\u00a0\n$\n541\n\u00a0\n$\n579\n\u00a0\n$\n2\n\u00a0\n$\n14\n\u00a0\nFunded status\n$\n(\n159\n)\n$\n(\n84\n)\n$\n19\n\u00a0\n$\n17\n\u00a0\n$\n(\n174\n)\n$\n(\n163\n)\nAmounts recognized in the Balance Sheet consist of:\nOther assets\n$\n\u2014\n\u00a0\n$\n26\n\u00a0\n$\n115\n\u00a0\n$\n125\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\nOther accrued liabilities\n(\n21\n)\n(\n20\n)\n(\n4\n)\n(\n3\n)\n(\n9\n)\n(\n1\n)\nOther noncurrent liabilities\n(\n138\n)\n(\n90\n)\n(\n92\n)\n(\n105\n)\n(\n165\n)\n(\n162\n)\nFunded status\n(\n159\n)\n(\n84\n)\n19\n\u00a0\n17\n\u00a0\n(\n174\n)\n(\n163\n)\nAccumulated other comprehensive loss (income)\n237\n\u00a0\n172\n\u00a0\n(\n9\n)\n(\n16\n)\n7\n\u00a0\n(\n1\n)\nNet amount recognized\n$\n78\n\u00a0\n$\n88\n\u00a0\n$\n10\n\u00a0\n$\n1\n\u00a0\n$\n(\n167\n)\n$\n(\n164\n)\nFor fiscal 2023, the $\n30\n\u00a0million actuarial gain relating to the U.S. pension plans was primarily due to the increase in the weighted average discount rate relating to the Retirement Growth Account Plan and the Restoration Plan from \n4.5\n% to \n5.3\n% and \n4.3\n% to \n5.2\n%, respectively.\nFor fiscal 2023, the $\n51\n\u00a0million actuarial gain relating to the International pension plans was primarily due to the increase in the weighted average discount rate from \n2.8\n% to \n3.7\n%.\nF-58\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nFor fiscal 2022, the $\n164\n\u00a0million actuarial gain relating to the U.S. pension plans was primarily due to the increase in the weighted average discount rate relating to the Retirement Growth Account Plan and the Restoration Plan from \n3.0\n% to \n4.5\n% and \n2.5\n% to \n4.3\n%, respectively.\nFor fiscal 2022, the $\n82\n\u00a0million actuarial gain relating to the International pension plans was primarily due to the increase in the weighted average discount rate from \n1.6\n% to \n2.8\n%.\n\u00a0\nPension\u00a0Plans\nOther\u00a0than\nPension\u00a0Plans\n\u00a0\nU.S.\nInternational\nPost-retirement\n($\u00a0in\u00a0millions)\n2023\n2022\n2021\n2023\n2022\n2021\n2023\n2022\n2021\nComponents of net periodic benefit cost:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nService cost\n$\n37\n\u00a0\n$\n46\n\u00a0\n$\n45\n\u00a0\n$\n27\n\u00a0\n$\n31\n\u00a0\n$\n36\n\u00a0\n$\n1\n\u00a0\n$\n2\n\u00a0\n$\n2\n\u00a0\nInterest cost\n40\n\u00a0\n31\n\u00a0\n31\n\u00a0\n15\n\u00a0\n10\n\u00a0\n10\n\u00a0\n8\n\u00a0\n6\n\u00a0\n6\n\u00a0\nExpected return on assets\n(\n57\n)\n(\n55\n)\n(\n53\n)\n(\n17\n)\n(\n13\n)\n(\n14\n)\n(\n1\n)\n(\n1\n)\n(\n1\n)\nAmortization of:\nActuarial loss\n3\n\u00a0\n15\n\u00a0\n20\n\u00a0\n(\n3\n)\n2\n\u00a0\n4\n\u00a0\n\u2014\n\u00a0\n1\n\u00a0\n\u2014\n\u00a0\nPrior service cost\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n1\n)\n(\n1\n)\n(\n1\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nSettlements\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n1\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nSpecial termination benefits\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n4\n\u00a0\n10\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nNet periodic benefit cost\n$\n23\n\u00a0\n$\n37\n\u00a0\n$\n43\n\u00a0\n$\n22\n\u00a0\n$\n33\n\u00a0\n$\n45\n\u00a0\n$\n8\n\u00a0\n$\n8\n\u00a0\n$\n7\n\u00a0\nAssumptions used to determine benefit obligations at June\u00a030\n(1)\n:\nDiscount rate\n5.20\n \u2013 \n5.30\n%\n4.30\n \u2013 \n4.50\n%\n2.50\n \u2013 \n3.00\n%\n1.00\n \u2013 \n9.00\n%\n0.75\n \u2013 \n9.00\n%\n0\n.50\n \u2013 \n7.25\n%\n5.00\n \u2013 \n10.75\n%\n4.50\n \u2013 \n9.75\n%\n2.70\n \u2013 \n9.00\n%\nRate of compensation increase\n2.50\n \u2013 \n8.00\n%\n2.50\n \u2013 \n8.00\n%\n2.50\n \u2013 \n8.00\n%\n1.75\n \u2013 \n5.00\n%\n1.50\n \u2013 \n5.00\n%\n1.00\n\u2013 \n5.00\n%\nN/A\nN/A\nN/A\nAssumptions used to determine net periodic benefit cost for the year ended June\u00a030\n(2)\n:\nDiscount rate\n4.30\n \u2013 \n4.50\n%\n2.50\n \u2013 \n3.00\n%\n2.50\n \u2013 \n3.00\n%\n.75\n \u2013 \n9.00\n%\n.50\n\u2013 \n7.25\n%\n.50\n \u2013 \n7.00\n%\n4.50\n \u2013 \n9.75\n%\n2.70\n \u2013 \n9.00\n%\n2.70\n \u2013 \n9.00\n%\nExpected return on assets\n6.25\n\u00a0\n%\n6.25\n\u00a0\n%\n6.25\n\u00a0\n%\n1.25\n \u2013 \n9.00\n%\n1.25\n \u2013 \n7.25\n%\n1.25\n \u2013 \n7.00\n%\n6.25\n\u00a0\n%\n6.25\n\u00a0\n%\n6.25\n\u00a0\n%\nRate of compensation increase\n2.50\n \u2013 \n8.00\n%\n2.50\n \u2013 \n8.00\n%\n2.50\n\u2013 \n8.00\n%\n\u2014\n \u2013 \n5.00\n%\n\u2014\n \u2013 \n5.00\n%\n1.00\n \u2013 \n5.50\n%\nN/A\nN/A\nN/A\n(1) \nThe weighted-average assumptions used to determine benefit obligations at June 30, 2023 were as follows: \na.\nDiscount rate - \n5.29\n% (U.S.), \n3.69\n% (International) and \n5.19\n% (Other than Pension Plans, Post-retirement)\nb.\nRate of compensation increase - \n2.50\n% - \n8.00\n%, graded (U.S.), \n3.08\n% (International) and N/A (Other than Pension Plans, Post-retirement)\n    The weighted-average assumptions used to determine benefit obligations at June 30, 2022 were as follows: \na.\nDiscount rate - \n4.48\n% (U.S.), \n2.77\n% (International) and \n4.68\n% (Other than Pension Plans, Post-retirement)\nb.\nRate of compensation increase - \n2.50\n% - \n8.00\n%, graded (U.S.), \n2.96\n% (International) and N/A (Other than Pension Plans, Post-retirement)\n(2) \nThe weighted-average assumptions used to determine net periodic benefit cost for the year ended June\u00a030, 2023 were as follows: \na.\nDiscount rate - \n4.48\n% (U.S.), \n2.77\n% (International) and \n4.68\n% (Other than Pension Plans, Post-retirement)\nb.\nExpected return on assets - \n6.25\n% (U.S.), \n2.95\n% (International) and N/A (Other than Pension Plans, Post-retirement)\nc.\nRate of compensation increase - \n2.50\n% - \n8.00\n%, graded (U.S.), \n2.96\n% (International) and N/A (Other than Pension Plans, Post-retirement)\n    The weighted-average assumptions used to determine net periodic benefit cost for the year ended June 30, 2022 were as follows: \na.\nDiscount rate - \n2.94\n% (U.S.), \n1.59\n% (International) and \n2.92\n% (Other than Pension Plans, Post-retirement)\nb.\nExpected return on assets - \n6.25\n% (U.S. and Other than Pension Plans, Post-retirement) and \n2.19\n% (International) \nc.\nRate of compensation increase - \n2.50\n% - \n8.00\n%, graded (U.S.), \n2.81\n% (International) and N/A (Other than Pension Plans, Post-retirement)\nF-59\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe discount rate for each plan used for determining future net periodic benefit cost is based on a review of highly rated long-term bonds.\u00a0The discount rate for the Company\u2019s Domestic Plans is based on a bond portfolio that includes only long-term bonds with an Aa rating, or equivalent, from a major rating agency.\u00a0The Company used an above-mean yield curve which represents an estimate of the effective settlement rate of the obligation, and the timing and amount of cash flows related to the bonds included in this portfolio are expected to match the estimated defined benefit payment streams of the Company\u2019s Domestic Plans.\u00a0For the Company\u2019s international plans, the discount rate in a particular country was principally determined based on a yield curve constructed from high quality corporate bonds in each country, with the resulting portfolio having a duration matching that particular plan.\u00a0In determining the long-term rate of return for a plan, the Company considers the historical rates of return, the nature of the plan\u2019s investments and an expectation for the plan\u2019s investment strategies.\nThe weighted-average interest crediting rate used to determine the benefit obligation and net periodic benefit cost relating to the Company\u2019s U.S. Retirement Growth Account Plan was \n4.00\n% and \n4.02\n% as of and for the years ended June\u00a030, 2023 and 2022, respectively. \nAssumed health care cost trend rates have a significant effect on the amounts reported for the health care plans.\u00a0The assumed weighted-average health care cost trend rate for the coming year is \n5.54\n% while the weighted-average ultimate trend rate of \n4.02\n% is expected to be reached in approximately \n17\n years to \n23\n years.\u00a0\nAmounts recognized in AOCI (before tax) as of June\u00a030, 2023 are as follows:\n\u00a0\nPension\u00a0Plans\nOther\u00a0than\nPension\u00a0Plans\n\u00a0\n(In\u00a0millions)\nU.S.\nInternational\nPost-retirement\nTotal\nNet actuarial losses (gains), beginning of year\n$\n170\n\u00a0\n$\n(\n13\n)\n$\n(\n1\n)\n$\n156\n\u00a0\nActuarial losses recognized\n68\n\u00a0\n4\n\u00a0\n7\n\u00a0\n79\n\u00a0\nAmortization and settlements included in net periodic benefit cost\n(\n3\n)\n2\n\u00a0\n\u2014\n\u00a0\n(\n1\n)\nTranslation adjustments\n\u2014\n\u00a0\n\u2014\n\u00a0\n1\n\u00a0\n1\n\u00a0\nNet actuarial losses (gains), end of year\n235\n\u00a0\n(\n7\n)\n7\n\u00a0\n235\n\u00a0\nNet prior service cost, beginning of year\n2\n\u00a0\n(\n3\n)\n\u2014\n\u00a0\n(\n1\n)\nAmortization included in net periodic benefit cost\n\u2014\n\u00a0\n1\n\u00a0\n\u2014\n\u00a0\n1\n\u00a0\nNet prior service cost, end of year\n2\n\u00a0\n(\n2\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\nTotal amounts recognized in AOCI\n$\n237\n\u00a0\n$\n(\n9\n)\n$\n7\n\u00a0\n$\n235\n\u00a0\nThe projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Company\u2019s pension plans at June\u00a030 are as follows:\n\u00a0\nPension\u00a0Plans\nOther than Pension Plans\n\u00a0\nRetirement\u00a0Growth\nAccount\nRestoration\nInternational\nPost-retirement\n(In\u00a0millions)\n2023\n2022\n2023\n2022\n2023\n2022\n2023\n2022\nProjected benefit obligation\n$\n807\n\u00a0\n$\n811\n\u00a0\n$\n105\n\u00a0\n$\n111\n\u00a0\n$\n522\n\u00a0\n$\n562\n\u00a0\n$\n176\n\u00a0\n$\n177\n\u00a0\nAccumulated benefit obligation\n$\n774\n\u00a0\n$\n777\n\u00a0\n$\n95\n\u00a0\n$\n100\n\u00a0\n$\n467\n\u00a0\n$\n507\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\nFair value of plan assets\n$\n753\n\u00a0\n$\n838\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n541\n\u00a0\n$\n579\n\u00a0\n$\n2\n\u00a0\n$\n14\n\u00a0\nInternational pension plans with projected benefit obligations in excess of the plans\u2019 assets had aggregate projected benefit obligations of $\n275\n million and $\n265\n million and aggregate fair value of plan assets of $\n179\n million and $\n156\n million at June\u00a030, 2023 and 2022, respectively.\u00a0International pension plans with accumulated benefit obligations in excess of the plans\u2019 assets had aggregate accumulated benefit obligations of $\n84\n million and $\n95\n million and aggregate fair value of plan assets of $\n3\n million and $\n6\n million at June\u00a030, 2023 and 2022, respectively.\nF-60\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe expected cash flows for the Company\u2019s pension and post-retirement plans are as follows:\nPension\u00a0Plans\nOther\u00a0than\nPension\u00a0Plans\n(In\u00a0millions)\nU.S.\nInternational\nPost-retirement\nExpected employer contributions for year ending June\u00a030,\u00a02024\n$\n72\n\u00a0\n$\n28\n\u00a0\n$\n9\n\u00a0\nExpected benefit payments for year ending June\u00a030,\n2024\n75\n\u00a0\n39\n\u00a0\n11\n\u00a0\n2025\n52\n\u00a0\n35\n\u00a0\n12\n\u00a0\n2026\n53\n\u00a0\n34\n\u00a0\n12\n\u00a0\n2027\n53\n\u00a0\n33\n\u00a0\n13\n\u00a0\n2028\n55\n\u00a0\n34\n\u00a0\n14\n\u00a0\nYears 2029 \u2013 2033\n314\n\u00a0\n163\n\u00a0\n73\n\u00a0\nPlan Assets\nThe Company\u2019s investment strategy for its pension and post-retirement plan assets is to maintain a diversified portfolio of asset classes with the primary goal of meeting long-term cash requirements as they become due.\u00a0Assets are primarily invested in diversified funds that hold equity or debt securities to maintain the security of the funds while maximizing the returns within each plan\u2019s investment policy.\u00a0The investment policy for each plan specifies the type of investment vehicles appropriate for the plan, asset allocation guidelines, criteria for selection of investment managers and procedures to monitor overall investment performance, as well as investment manager performance.\nThe Company\u2019s target asset allocation at June\u00a030, 2023 is as follows:\nPension\u00a0Plans\nOther\u00a0than\nPension\u00a0Plans\nU.S.\nInternational\nPost-retirement\nEquity\n39\n\u00a0\n%\n19\n\u00a0\n%\n39\n\u00a0\n%\nDebt securities\n50\n\u00a0\n%\n59\n\u00a0\n%\n50\n\u00a0\n%\nOther\n11\n\u00a0\n%\n22\n\u00a0\n%\n11\n\u00a0\n%\n100\n\u00a0\n%\n100\n\u00a0\n%\n100\n\u00a0\n%\nThe following is a description of the valuation methodologies used for plan assets measured at fair value:\nCash and Cash Equivalents \u2013\n Cash and all highly-liquid securities with original maturities of three months or less are classified as cash and cash equivalents, primarily consisting of cash deposits in interest bearing accounts, time deposits and money market funds.\u00a0These assets are classified within Level 1 of the valuation hierarchy.\nShort-term investment funds \u2013\n The fair values are determined using the Net Asset Value (\u201cNAV\u201d) provided by the administrator of the fund when the Company has the ability to redeem the assets at the measurement date.\u00a0These assets are classified within Level 2 of the valuation hierarchy.\u00a0For some assets the Company is utilizing the NAV as a practical expedient and those investments are not included in the valuation hierarchy.\nGovernment and agency securities \u2013\n The fair values are determined using third-party pricing services using market prices or prices derived from observable market inputs such as benchmark curves, broker/dealer quotes, and other industry and economic factors.\u00a0These investments are classified within Level 2 of the valuation hierarchy.\nF-61\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nCommingled funds \u2013\n The fair values of publicly traded funds are based upon market quotes and are classified within Level 1 of the valuation hierarchy.\u00a0The fair values for non-publicly traded funds are determined using the NAV provided by the administrator of the fund when the Company has the ability to redeem the assets at the measurement date.\u00a0These assets are classified within Level 2 of the valuation hierarchy.\u00a0When the Company is utilizing the NAV as a practical expedient those investments are not included in the valuation hierarchy.\u00a0These investments have monthly redemption frequencies with redemption notice periods ranging from \n10\n to \n30\n days.\u00a0There are no unfunded commitments related to these investments.\nInsurance contracts \u2013\n The fair values are based on negotiated value and the underlying investments held in separate account portfolios, as well as the consideration of the creditworthiness of the issuer.\u00a0The underlying investments are primarily government, asset-backed and fixed income securities.\u00a0Insurance contracts are generally classified as Level 3 as there are no quoted prices or other observable inputs for pricing.\nInterests in limited partnerships and hedge fund investments\n \u2013 The fair values are determined using the NAV provided by the administrator as a practical expedient, and therefore these investments are not included in the valuation hierarchy.\u00a0These investments have monthly and quarterly redemption frequencies with redemption notice periods ranging from \n30\n to \n90\n days.\u00a0Unfunded commitments related to these investments are de minimis.\nThe following table presents the fair values of the Company\u2019s pension and post-retirement plan assets by asset category as of June\u00a030, 2023:\n(In millions)\nLevel 1\nLevel 2\nLevel 3\nAssets\nMeasured\u00a0at\nNAV\nTotal\nCash and cash equivalents\n$\n2\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n2\n\u00a0\nShort-term investment funds\n\u2014\n\u00a0\n12\n\u00a0\n\u2014\n\u00a0\n3\n\u00a0\n15\n\u00a0\nGovernment and agency securities\n\u2014\n\u00a0\n139\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n139\n\u00a0\nCommingled funds\n332\n\u00a0\n547\n\u00a0\n\u2014\n\u00a0\n143\n\u00a0\n1,022\n\u00a0\nInsurance contracts\n\u2014\n\u00a0\n\u2014\n\u00a0\n8\n\u00a0\n\u2014\n\u00a0\n8\n\u00a0\nInterests in limited partnerships and hedge fund investments\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n110\n\u00a0\n110\n\u00a0\nTotal\n$\n334\n\u00a0\n$\n698\n\u00a0\n$\n8\n\u00a0\n$\n256\n\u00a0\n$\n1,296\n\u00a0\nThe following table presents the fair values of the Company\u2019s pension and post-retirement plan assets by asset category as of June\u00a030, 2022:\n(In\u00a0millions)\nLevel\u00a01\nLevel\u00a02\nLevel\u00a03\nAssets\nMeasured\u00a0at\nNAV\nTotal\nCash and cash equivalents\n$\n6\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n6\n\u00a0\nShort-term investment funds\n\u2014\n\u00a0\n59\n\u00a0\n\u2014\n\u00a0\n6\n\u00a0\n65\n\u00a0\nGovernment and agency securities\n\u2014\n\u00a0\n103\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n103\n\u00a0\nCommingled funds\n378\n\u00a0\n574\n\u00a0\n\u2014\n\u00a0\n144\n\u00a0\n1,096\n\u00a0\nInsurance contracts\n\u2014\n\u00a0\n\u2014\n\u00a0\n46\n\u00a0\n\u2014\n\u00a0\n46\n\u00a0\nInterests in limited partnerships and hedge fund investments\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n115\n\u00a0\n115\n\u00a0\nTotal\n$\n384\n\u00a0\n$\n736\n\u00a0\n$\n46\n\u00a0\n$\n265\n\u00a0\n$\n1,431\n\u00a0\nF-62\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe following table presents the changes in Level 3 plan assets:\nJune 30\n(In\u00a0millions)\n2023\n2022\nInsurance Contracts\n\u00a0\nBalance at beginning of year\n$\n46\n\u00a0\n$\n54\n\u00a0\nActual return on plan assets:\nRelating to assets still held at the reporting date\n(\n2\n)\n(\n3\n)\nPurchases, sales, issuances and settlements, net\n(\n35\n)\n1\n\u00a0\nForeign exchange impact\n(\n1\n)\n(\n6\n)\nBalance at end of year\n$\n8\n\u00a0\n$\n46\n\u00a0\n401(k)\u00a0Savings Plan (U.S.)\nThe Company\u2019s 401(k)\u00a0Savings Plan (\u201cSavings Plan\u201d) is a contributory defined contribution plan covering substantially all regular U.S. employees who have completed the hours and service requirements, as defined by the plan document.\u00a0Regular full-time employees are eligible to participate in the Savings Plan \nthirty days\n following their date of hire.\u00a0The Savings Plan is subject to the applicable provisions of ERISA.\u00a0The Company matches a portion of the participant\u2019s contributions after \none year\n of service under a predetermined formula based on the participant\u2019s contribution level.\u00a0The Company\u2019s contributions were $\n50\n million, $\n47\n million and $\n49\n million for fiscal 2023, 2022 and 2021, respectively.\u00a0Shares of the Company\u2019s Class\u00a0A Common Stock are not an investment option in the Savings Plan and the Company does not use such shares to match participants\u2019 contributions.\nDeferred Compensation\nThe Company has agreements with certain employees and outside directors who defer compensation.\u00a0The Company accrues for such compensation, and either interest thereon or for the change in the value of cash units.\u00a0The amounts included in the accompanying consolidated balance sheets under these plans were $\n58\n million and $\n74\n million as of June\u00a030, 2023 and 2022, respectively.\u00a0The expense (benefit) for fiscal 2023, 2022 and 2021 was $(\n7\n) million, $(\n33\n) million and $\n31\n million, respectively.\nF-63\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 16 \u2013 \nCOMMITMENTS AND CONTINGENCIES\nContractual Obligations\nThe following table summarizes scheduled maturities of the Company\u2019s contractual obligations for which cash flows are fixed and determinable as of June\u00a030, 2023:\n\u00a0\n\u00a0\nPayments\u00a0Due\u00a0in\u00a0Fiscal\n\u00a0\n(In\u00a0millions)\nTotal\n2024\n2025\n2026\n2027\n2028\nThereafter\nDebt service \n(1)\n$\n12,133\n\u00a0\n$\n1,267\n\u00a0\n$\n761\n\u00a0\n$\n256\n\u00a0\n$\n755\n\u00a0\n$\n939\n\u00a0\n$\n8,155\n\u00a0\nUnconditional purchase obligations\u00a0\n(2)\n2,738\n\u00a0\n1,829\n\u00a0\n202\n\u00a0\n254\n\u00a0\n231\n\u00a0\n96\n\u00a0\n126\n\u00a0\nGross unrecognized tax benefits and interest \u2013 current \n(3)\n3\n\u00a0\n3\n\u00a0\n\u2014\n\u2014\n\u2014\n\u2014\n\u2014\nTransition Tax payable\n(4)\n188\n\u00a0\n42\n\u00a0\n65\n\u00a0\n81\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nTotal contractual obligations\n(5)\n$\n15,062\n\u00a0\n$\n3,141\n\u00a0\n$\n1,028\n\u00a0\n$\n591\n\u00a0\n$\n986\n\u00a0\n$\n1,035\n\u00a0\n$\n8,281\n\u00a0\n(1)\nIncludes long-term and current debt and the related projected interest costs. Refer to \nNote 7 \u2013 Leases\n for information regarding future minimum lease payments relating to the Company\u2019s finance leases.\u00a0Interest costs on long-term and current debt in fiscal 2024, 2025, 2026, 2027, 2028 and thereafter are projected to be $\n267\n million, $\n261\n million, $\n256\n million, $\n255\n million, $\n239\n million and $\n2,555\n million, respectively.\u00a0Projected interest costs on variable rate instruments were calculated using market rates at June\u00a030, 2023.\n(2)\nUnconditional purchase obligations primarily include: inventory commitments, deferred consideration, capital expenditure commitments, information technology contract commitments, royalty payments pursuant to license agreements and advertising commitments.\u00a0Future royalty and advertising commitments were estimated based on planned future sales for the term that was in effect at June\u00a030, 2023, without consideration for potential renewal periods.\n(3)\nRefer to \nNote 9 \u2013 Income Taxes\n for information regarding unrecognized tax benefits.\u00a0As of June\u00a030, 2023, the noncurrent portion of the Company\u2019s unrecognized tax benefits, including related accrued interest and penalties, was $\n75\n million.\u00a0At this time, the settlement period for the noncurrent portion of the unrecognized tax benefits, including related accrued interest and penalties, cannot be determined and therefore was not included.\n(4)\nThe Transition Tax may be paid over an \neight-year\n period and this amount represents the remaining liability as of June\u00a030, 2023.\n(5)\nRefer to \nNote 7 \u2013 Leases\n for information regarding future minimum lease payments relating to the Company\u2019s operating leases.\nLegal Proceedings\nThe Company is involved, from time to time, in litigation and other legal proceedings incidental to its business, including product liability matters (including asbestos-related claims), advertising, regulatory, employment, intellectual property, real estate, environmental, trade relations, tax, and privacy.\u00a0Management believes that the outcome of current litigation and legal proceedings will not have a material adverse effect upon the Company\u2019s business, results of operations, financial condition or cash flows.\u00a0However, management\u2019s assessment of the Company\u2019s current litigation and other legal proceedings could change in light of the discovery of facts with respect to legal actions or other proceedings pending against the Company not presently known to the Company or determinations by judges, juries or other finders of fact which are not in accord with management\u2019s evaluation of the possible liability or outcome of such litigation or proceedings.\u00a0Reasonably possible losses in addition to the amounts accrued for such litigation and legal proceedings are not material to the Company\u2019s consolidated financial statements.\nF-64\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 17 \u2013 \nCOMMON STOCK\nAs of June\u00a030, 2023, the Company\u2019s authorized common stock consists of \n1,300\n million shares of Class\u00a0A Common Stock, par value $\n.01\n per share, and \n304\n\u00a0million shares of Class\u00a0B Common Stock, par value $\n.01\n per share.\u00a0Class\u00a0B Common Stock is convertible into Class\u00a0A Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of Class\u00a0A Common Stock for each share of Class\u00a0B Common Stock converted.\u00a0Holders of the Company\u2019s Class\u00a0A Common Stock are entitled to \none\n vote per share and holders of the Company\u2019s Class\u00a0B Common Stock are entitled to \nten\n votes per share.\nInformation about the Company\u2019s common stock outstanding is as follows:\n(Shares\u00a0in\u00a0thousands)\nClass\u00a0A\nClass\u00a0B\nBalance at June 30, 2020\n225,290.2\n\u00a0\n135,235.4\n\u00a0\nAcquisition of treasury stock\n(\n2,580.5\n)\n\u2014\n\u00a0\nConversion of Class\u00a0B to Class\u00a0A\n6,993.4\n\u00a0\n(\n6,993.4\n)\nStock-based compensation\n3,814.3\n\u00a0\n\u2014\n\u00a0\nBalance at June 30, 2021\n233,517.4\n\u00a0\n128,242.0\n\u00a0\nAcquisition of treasury stock\n(\n7,393.6\n)\n\u2014\n\u00a0\nConversion of Class\u00a0B to Class\u00a0A\n2,700.0\n\u00a0\n(\n2,700.0\n)\nStock-based compensation\n2,689.7\n\u00a0\n\u2014\n\u00a0\nBalance at June 30, 2022\n231,513.5\n\u00a0\n125,542.0\n\u00a0\nAcquisition of treasury stock\n(\n1,220.7\n)\n\u2014\n\u00a0\nConversion of Class\u00a0B to Class\u00a0A\n\u2014\n\u00a0\n\u2014\n\u00a0\nStock-based compensation\n1,785.1\n\u00a0\n\u2014\n\u00a0\nBalance at June 30, 2023\n232,077.9\n\u00a0\n125,542.0\n\u00a0\nThe Company is authorized by the Board of Directors to repurchase Class\u00a0A Common Stock in the open market or in privately negotiated transactions, depending on market conditions and other factors.\u00a0As of June\u00a030, 2023, the remaining authorized share repurchase balance was \n25.1\n million shares.\nThe following is a summary of cash dividends declared per share on the Company\u2019s Class\u00a0A and Class\u00a0B Common Stock during the year ended June\u00a030, 2023:\nDate Declared\nRecord Date\nPayable Date\nAmount per Share\nAugust 17, 2022\nAugust 31, 2022\nSeptember 15, 2022\n$\n.60\n\u00a0\nNovember 1, 2022\nNovember 30, 2022\nDecember 15, 2022\n$\n.66\n\u00a0\nFebruary 1, 2023\nFebruary 28, 2023\nMarch 15, 2023\n$\n.66\n\u00a0\nMay 2, 2023\nMay 31, 2023\nJune 15, 2023\n$\n.66\n\u00a0\nOn August 17, 2023, a dividend was declared in the amount of $\n.66\n per share on the Company's Class A and Class B Common Stock.\n \nThe dividend is payable in cash on September 15, 2023 to stockholders of record at the close of business on August 31, 2023.\nF-65\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 18 \u2013 \nSTOCK PROGRAMS\nAs of June\u00a030, 2023, the Company has \ntwo\n active equity compensation plans which include the Amended and Restated Fiscal 2002 Share Incentive Plan (the \u201cFiscal 2002 Plan\u201d) and the Amended and Restated Non-Employee Director Share Incentive Plan (collectively, the \u201cPlans\u201d).\u00a0These Plans currently provide for the issuance of approximately \n88.8\n million shares of Class\u00a0A Common Stock, which consist of shares originally provided for and shares transferred to the Fiscal 2002 Plan from other inactive plans and employment agreements, to be granted in the form of stock-based awards to key employees and non-employee directors of the Company.\u00a0As of June\u00a030, 2023, approximately \n10.1\n million shares of Class\u00a0A Common Stock were reserved and available to be granted pursuant to these Plans.\u00a0The Company may satisfy the obligation of its stock-based compensation awards with either new or treasury shares.\u00a0The Company\u2019s equity compensation awards include stock options, restricted stock units (\u201cRSUs\u201d), performance share units (\u201cPSUs\u201d), long-term PSUs, including long-term price-vested units (\u201cPVUs\u201d), and share units. \nTotal net stock-based compensation expense is attributable to the granting of and the remaining requisite service periods of stock options, RSUs, PSUs, long-term PSUs and share units.\u00a0Compensation expense attributable to net stock-based compensation is as follows:\nYear Ended June 30\n(In millions)\n2023\n2022\n2021\nCompensation expense\n(1)\n$\n267\n\u00a0\n$\n331\n\u00a0\n$\n327\n\u00a0\nIncome tax benefit\n$\n52\n\u00a0\n$\n51\n\u00a0\n$\n50\n\u00a0\n(1)\nExcludes compensation expense relating to liability-classified awards, including DECIEM stock options discussed below.\nAs of June\u00a030, 2023, the total unrecognized compensation cost related to unvested stock-based awards was $\n241\n million and the related weighted-average period over which it is expected to be recognized is approximately \none year\n.\nStock Options\nThe following is a summary of the status of the Company\u2019s stock options as of June\u00a030, 2023 and activity during the fiscal year then ended:\n(Shares in thousands)\nShares\nWeighted-\nAverage\nExercise\nPrice Per Share\nAggregate\nIntrinsic\nValue\n(1)\n(in millions)\nWeighted-Average\nContractual Life\nRemaining in Years\nOutstanding at June\u00a030, 2022\n7,171.8\n\u00a0\n$\n169.20\n\u00a0\nGranted at fair value\n1,234.8\n\u00a0\n246.01\n\u00a0\nExercised\n(\n739.0\n)\n119.56\n\u00a0\nExpired\n(\n41.4\n)\n283.87\n\u00a0\nForfeited\n(\n129.1\n)\n268.04\n\u00a0\nOutstanding at June\u00a030, 2023\n7,497.1\n\u00a0\n184.41\n\u00a0\n$\n318\n\u00a0\n6.0\nVested and expected to vest at June\u00a030, 2023\n7,440.5\n\u00a0\n183.78\n\u00a0\n$\n318\n\u00a0\n6.0\nExercisable at June\u00a030, 2023\n5,398.4\n\u00a0\n151.96\n\u00a0\n$\n318\n\u00a0\n5.0\n(1)\nThe intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.\nF-66\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe exercise period for all stock options generally may not exceed \nten years\n from the date of grant.\u00a0Stock option grants to individuals generally become exercisable in \nthree\n substantively equal tranches over a service period of up to \nfour years\n.\u00a0The Company attributes the value of option awards on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.\nThe following is a summary of the per-share weighted-average grant date fair value of stock options granted and total intrinsic value of stock options exercised:\nYear Ended June 30\n(In\u00a0millions,\u00a0except\u00a0per\u00a0share\u00a0data)\n2023\n2022\n2021\nPer-share weighted-average grant date fair value of stock options granted\n$\n79.09\n\u00a0\n$\n85.56\n\u00a0\n$\n54.83\n\u00a0\nIntrinsic value of stock options exercised\n$\n93\n\u00a0\n$\n276\n\u00a0\n$\n407\n\u00a0\nThe fair value of each of the Company's option grants were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:\n\u00a0\nYear Ended June 30\n\u00a0\n2023\n2022\n2021\nWeighted-average expected stock-price volatility\n30.8\n%\n27.3\n%\n26.1\n%\nWeighted-average expected option life\n6\n years\n6\n years\n8\n years\nAverage risk-free interest rate\n3.4\n%\n0.9\n%\n0.5\n%\nAverage dividend yield\n0.8\n%\n0.7\n%\n1.0\n%\nThe Company uses a weighted-average expected stock-price volatility assumption that is a combination of both current and historical implied volatilities of the underlying stock.\u00a0The implied volatilities were obtained from publicly available data sources.\u00a0For the weighted-average expected option life assumption, the Company considers the exercise behavior for past grants and models the pattern of aggregate exercises.\u00a0The average risk-free interest rate is based on the U.S. Treasury strip rate for the expected term of the options and the average dividend yield is based on historical experience. \nRestricted Stock Units\nThe Company granted RSUs in respect of approximately \n1.1\n million shares of Class A Common Stock during fiscal 2023 with a weighted-average grant date fair value per share of $\n246.20\n that, at the time of grant, are scheduled to vest as follows: \n0.4\n million in fiscal 2024, \n0.3\n million in fiscal 2025 and \n0.4\n million in fiscal 2026.\u00a0Vesting of RSUs granted is generally subject to the continued employment or the retirement of the grantees.\u00a0The RSUs are generally accompanied by dividend equivalent rights, payable upon settlement of the RSUs either in cash or shares (based on the terms of the particular award) and, as such, were generally valued at the closing market price of the Company\u2019s Class\u00a0A Common Stock on the date of grant.\nThe following is a summary of the status of the Company\u2019s RSUs as of June\u00a030, 2023 and activity during the fiscal year then ended:\n(Shares in thousands)\nShares\nWeighted-Average\nGrant Date\nFair Value Per Share\nNonvested at June\u00a030, 2022\n1,517.9\n\u00a0\n$\n272.26\n\u00a0\nGranted\n1,129.2\n\u00a0\n246.20\n\u00a0\nDividend equivalents\n17.5\n\u00a0\n266.01\n\u00a0\nVested\n(\n744.9\n)\n250.41\n\u00a0\nForfeited\n(\n129.8\n)\n269.67\n\u00a0\nNonvested at June\u00a030, 2023\n1,789.9\n\u00a0\n265.04\n\u00a0\nF-67\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nPerformance Share Units\nDuring fiscal 2023, the Company granted PSUs with a target payout of approximately \n0.1\n million shares of Class\u00a0A Common Stock with a weighted-average grant date fair value per share of $\n246.15\n, which will be settled in stock subject to the achievement of the Company\u2019s net sales, diluted net earnings per common share and return on invested capital goals for the \nthree\n fiscal years ending June 30, 2025, all subject to continued employment or the retirement of the grantees.\u00a0For PSUs granted, no settlement will occur for results below the applicable minimum threshold. PSUs are accompanied by dividend equivalent rights that will be payable in cash upon settlement of the PSUs and, as such, were valued at the closing market value of the Company\u2019s Class\u00a0A Common Stock on the date of grant.\n\u00a0\nIn September 2022, approximately \n0.2\n\u00a0million shares of the Company\u2019s Class\u00a0A Common Stock were issued, and related accrued dividends were paid, relative to the target goals set at the time of the issuance, in settlement of \n0.1\n\u00a0million PSUs with a performance period ended June 30, 2022.\nThe following is a summary of the status of the Company\u2019s PSUs as of June\u00a030, 2023 and activity during the fiscal year then ended:\n(Shares in thousands)\nShares\nWeighted-Average\nGrant Date\nFair Value Per Share\nNonvested at June\u00a030, 2022\n728.9\n\u00a0\n$\n188.49\n\u00a0\nGranted\n142.5\n\u00a0\n237.79\n\u00a0\nVested and issued\n(\n155.9\n)\n199.17\n\u00a0\nForfeited\n(\n350.3\n)\n128.30\n\u00a0\nNonvested at June\u00a030, 2023\n(1)\n365.2\n\u00a0\n260.90\n\u00a0\n(1) \nIncludes approximately \n0.1\n million PSUs with a performance period ended June 30, 2023 expected to be issued in August 2023.\n \nLong-term Performance Share Units\nDuring September 2015, the Company granted PSUs to the Company's Chief Executive Officer (\u201cCEO\u201d) with an aggregate target payout of \n387,848\n shares (in \nthree\n tranches of approximately \n129,283\n each) of the Company\u2019s Class\u00a0A Common Stock, generally subject to continued employment through the end of relative performance periods, which ended June 30, 2018, 2019, and 2020.\u00a0Since the Company achieved positive Net Earnings, as defined in the PSU award agreement, for the fiscal year ended June 30, 2016,\u00a0performance and vesting of each tranche was based on the Company achieving positive Cumulative Operating Income, as defined in the PSU award agreement, during the relative performance period.\u00a0Payment with respect to a tranche was made on the third anniversary of the last day of the respective performance period.\u00a0The PSUs are accompanied by dividend equivalent rights that was payable in cash at the same time as the payment of shares of Class\u00a0A Common Stock.\u00a0The grant date fair value of these PSUs of $\n30\n million was estimated using the closing stock price of the Company\u2019s Class\u00a0A Common Stock as of September 4, 2015, the date of grant.\u00a0As of June\u00a030, 2023, all \n387,848\n shares of the Company\u2019s Class\u00a0A Common Stock were issued, and the related dividends paid, in accordance with the terms of the grant, related to the performance periods ended June 30, 2018, 2019, and 2020.\nIn February 2018, the Company granted to the Company's CEO PSUs with an aggregate payout of \n195,940\n shares (in \ntwo\n tranches of \n97,970\n shares each) of the Company\u2019s Class\u00a0A Common Stock, generally subject to continued employment through the end of the respective performance periods ending June 30, 2021 and 2022.\u00a0No portion of the award will generally vest unless the Company has achieved positive Cumulative Operating Income, as defined in the performance share unit award agreement, during the relevant performance period.\u00a0Settlement, if any, with respect to both tranches will be made on September 3, 2024.\u00a0The PSUs are accompanied by dividend equivalent rights that will be payable in cash at the same time as any payment of shares of Class\u00a0A Common Stock.\u00a0The grant date fair value of these PSUs of $\n27\n million was estimated using the closing stock price of the Company\u2019s Class\u00a0A Common Stock as of the date of grant. Since the Company achieved positive Cumulative Operating Income, as defined in the PSU award agreement, and since the executive completed the requisite service, \n195,940\n shares of the Company\u2019s Class\u00a0A Common Stock are anticipated to be issued, and the related dividends to be paid, in accordance with the terms of the grant on September 3, 2024.\nF-68\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nIn March 2021, the Company granted to the Company\u2019s CEO PSUs with an aggregate payout of \n68,578\n shares of the Company's Class A Common Stock, to incentivize him to continue serving through at least June 30, 2024. Generally, no portion of this award will vest unless the Company has achieved positive Cumulative Operating Income, as defined in the performance share unit award agreement, during the relevant performance period, and delivery of shares of the Company\u2019s Class A Common Stock, if any, will be made on September 2, 2025. The PSUs are accompanied by dividend equivalent rights that will be payable in cash at the same time as any delivery of shares of the Company's Class A Common Stock. The aggregate grant date fair value of the PSUs of approximately $\n20\n\u00a0million was estimated using the closing stock price of the Company's Class A Common Stock on the date of grant. \nLong-term Price-Vested Units \nIn March 2021, the Company granted to the Company\u2019s CEO PVUs with an aggregate payout of \n85,927\n shares, divided into three tranches, of the Company's Class A Common Stock, to incentivize him to continue serving through at least June 30, 2024. Generally, no portion of this award will vest unless the Company has achieved positive Cumulative Operating Income, as defined in the price-vested unit award agreement, during the relevant performance period. In addition, the vesting of each tranche is contingent upon the Company\u2019s achievement of the respective stock price goal, which means that the average closing price per share of the Company\u2019s Class A Common Stock traded on the New York Stock Exchange be at or above the applicable stock price goal (noted in the table below) for \n20\n consecutive trading days during the applicable performance period. \nThe number of shares subject to each tranche of the price-vested unit award, as well as the stock price goals, service periods, performance periods and share delivery dates for each tranche are as follows:\nNumber \nof \nShares \nper \nTranche\nStock Price Goal \n(per Share)\nService Period\nPerformance Period for Stock Price Goal\nPerformance Period for Cumulative Operating Income Goal\nShare Delivery Date\nFirst tranche\n27,457\n\u00a0\n$\n323.03\n\u00a0\nMarch 11, 2021 - June 30, 2024\nMarch 11, 2021 - June 30, 2024\nJuly 1, 2021 - June 30, 2025\nSeptember 2, 2025\nSecond tranche\n28,598\n\u00a0\n$\n333.21\n\u00a0\nMarch 11, 2021 - June 30, 2024\nMarch 11, 2021 - June 30, 2024\nJuly 1, 2021 - June 30, 2025\nSeptember 2, 2025\nThird tranche\n29,872\n\u00a0\n$\n343.61\n\u00a0\nMarch 11, 2021 - June 30, 2024\nMarch 11, 2021 - June 30, 2024\nJuly 1, 2021 - June 30, 2025\nSeptember 2, 2025\nTotal shares\n85,927\n\u00a0\nThe Stock Price Goals (per Share) were all achieved during fiscal 2022 but delivery of the shares are still subject to achievement of the Cumulative Operating Income goal and other terms and conditions in accordance with the terms of the award agreement\n. \nGenerally, delivery of shares of the Company\u2019s Class A Common Stock, if any, will be made on September 2, 2025. The PVUs are accompanied by dividend equivalent rights that will be payable in cash at the same time as any delivery of shares of the Company's Class A Common Stock. The aggregate grant date fair value of the PVUs of approximately $\n20\n\u00a0million was estimated using the Monte Carlo Method, which requires certain assumptions. \nThe significant assumptions used for this award were as follows:\nExpected volatility\n31.8\n\u00a0\n%\nDividend yield\n0.8\n\u00a0\n%\nRisk-free interest rate\n0.4\n\u00a0\n%\nExpected term\n3.3\n years\nF-69\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nShare Units\nThe Company grants share units to certain non-employee directors under the Amended and Restated Non-Employee Director Share Incentive Plan.\u00a0The share units are convertible into shares of the Company\u2019s Class\u00a0A Common Stock as provided for in that plan.\u00a0Share units are accompanied by dividend equivalent rights that are converted to additional share units when such dividends are declared.\nThe following is a summary of the status of the Company\u2019s share units as of June\u00a030, 2023 and activity during the fiscal year then ended:\n(Shares in thousands)\nShares\nWeighted-Average\nGrant Date\nFair Value Per Share\nOutstanding at June 30, 2022\n121.9\n\u00a0\n$\n78.01\n\u00a0\nGranted\n5.4\n\u00a0\n233.46\n\u00a0\nDividend equivalents\n1.3\n\u00a0\n229.16\n\u00a0\nConverted\n(\n15.9\n)\n73.57\n\u00a0\nOutstanding at June 30, 2023\n112.7\n\u00a0\n87.84\n\u00a0\nCash Units\nCertain non-employee directors defer cash compensation in the form of cash payout share units, which are not subject to the Plans.\u00a0These share units are classified as liabilities and, as such, their fair value is adjusted to reflect the current market value of the Company\u2019s Class\u00a0A Common Stock.\u00a0The Company recorded $(\n8\n) million, $(\n5\n) million and $\n29\n million as compensation expense (income) to reflect additional deferrals and the change in the market value for fiscal 2023, 2022 and 2021, respectively.\nDECIEM Stock Options\nAs a result of the fiscal 2021 acquisition of additional shares of DECIEM, the Company has a stock option plan relating to its majority-owned subsidiary DECIEM (\u201cDECIEM Stock Option Plan\u201d). The DECIEM stock options were issued in replacement of and exchange for certain vested and unvested DECIEM employee stock options previously issued by DECIEM. The DECIEM stock options are subject to the terms and conditions of the DECIEM 2021 Stock Option Plan. As of June 30, 2023, all \n94,101\n post-combination options were vested.\nThe DECIEM stock options are liability-classified awards as they are expected to be settled in cash and are remeasured to fair value at each reporting date through date of settlement. Total stock-based compensation expense is attributable to the exchange or replacement of and the remaining requisite service period of stock options. The total stock option \nexpense (income)\n, net of foreign currency remeasurements, for the year ended June 30, 2023 and 2022 was $\n22\n\u00a0million and $(\n55\n)\u00a0million, respectively and the total stock option expense from the date of acquisition to June 30, 2021 was $\n40\n\u00a0million. There is no related income tax benefit on the DECIEM stock-based compensation expense. There were \nno\n DECIEM stock options exercised during the year ended June 30, 2023.\nF-70\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe following is a summary of the DECIEM stock option program as of June\u00a030, 2023 and changes during the fiscal year then ended:\n(Shares in thousands)\nShares\nWeighted-\nAverage\nExercise\nPrice Per Share\nAggregate\nIntrinsic\nValue\n(1)\n(in millions)\nWeighted-Average\nContractual Life\nRemaining in Years\nOutstanding at June\u00a030, 2022\n94.1\n\u00a0\n$\n60.11\n\u00a0\nGranted at fair value\n\u2014\n\u00a0\n\u2014\n\u00a0\nExercised\n\u2014\n\u00a0\nExpired\n\u2014\n\u00a0\nForfeited\n\u2014\n\u00a0\nOutstanding at June\u00a030, 2023\n94.1\n\u00a0\n58.48\n\u00a0\n$\n104\n\u00a0\n0.92\nVested at June\u00a030, 2023\n94.1\n\u00a0\n58.48\n\u00a0\n$\n104\n\u00a0\n0.92\nExercisable at June\u00a030, 2023\n\u2014\n\u00a0\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n\u2014\n(1)\nThe intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.\nStock options granted to individuals under the DECIEM Stock Option Plan vested between \ntwo\n to \nseven\n tranches over a service period of up to \ntwo years\n and as of June 30, 2023, all post-combination options were vested. The Company attributed the value of option awards under the DECIEM Stock Option Plan on a graded vesting basis where awards vested at specified rates over a specified period.\n \nThe following is a summary of the per-share weighted-average grant date fair value of stock options granted and total intrinsic value of stock options exercised:\nYear Ended June 30\n2023\n2022\n2021\nPer-share weighted-average grant date fair value of stock options granted\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n1,557\n\u00a0\nIntrinsic value of stock options exercised\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\n$\n\u2014\n\u00a0\nF-71\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe initial fair value of the DECIEM stock option liability was calculated using the acquisition date fair value multiplied by the number of options replaced (consisting of vested and partially vested stock options) on the day following the acquisition date. As discussed in \nNote 5 \u2013 Business and Asset Acquisitions, \nDECIEM stock options, with total fair value of $\n295\n\u00a0million, were reported as part of the total consideration transferred. The DECIEM stock options are reported as a stock option liability of $\n99\n\u00a0million in Other accrued liabilities and $\n74\n\u00a0million in Other noncurrent liabilities in the accompanying consolidated balance sheets at June 30, 2023 and June 30, 2022, respectively. \nThe fair value of the stock options were calculated by incorporating significant assumptions including the starting equity value, revenue growth rates and EBITDA and the following key assumptions into the Monte Carlo Method: \n\u00a0\nJune 30, 2023\nJune 30, 2022\nJune 30, 2021\nRisk-free rate\n4.90\n%\n3.20\n%\n0.50\n%\nTerm to mid of last twelve-month period\n0.46\n years\n1.42\n years\n2.42\n years\nOperating leverage adjustment\n0.45\n0.45\n0.45\nNet sales discount rate\n7.80\n%\n6.00\n%\n3.40\n%\nEBITDA discount rate\n11.30\n%\n9.40\n%\n6.90\n%\nEBITDA volatility\n32.00\n%\n33.90\n%\n37.70\n%\nNet sales volatility\n14.40\n%\n15.30\n%\n17.00\n%\nNOTE 19 \u2013 \nNET EARNINGS ATTRIBUTABLE TO THE EST\u00c9E LAUDER COMPANIES INC. PER COMMON SHARE\nNet earnings attributable to The Est\u00e9e Lauder Companies Inc. per common share (\u201cbasic EPS\u201d) is computed by dividing net earnings attributable to The Est\u00e9e Lauder Companies Inc. by the weighted-average number of common shares outstanding and shares underlying PSUs and RSUs where the vesting conditions have been met.\u00a0Net earnings attributable to The Est\u00e9e Lauder Companies Inc. per common share assuming dilution (\u201cdiluted EPS\u201d) is computed by reflecting potential dilution from stock-based awards.\nA reconciliation between the numerator and denominator of the basic and diluted EPS computations is as follows:\n\u00a0\nYear Ended June 30\n(In millions, except per share data)\n2023\n2022\n2021\nNumerator:\nNet earnings attributable to The Est\u00e9e Lauder Companies Inc.\n$\n1,006\n\u00a0\n$\n2,390\n\u00a0\n$\n2,870\n\u00a0\nDenominator:\nWeighted-average common shares outstanding \u2013 Basic\n357.9\n\u00a0\n360.0\n\u00a0\n362.9\n\u00a0\nEffect of dilutive stock options\n2.3\n\u00a0\n3.7\n\u00a0\n4.0\n\u00a0\nEffect of PSUs\n0.1\n\u00a0\n0.2\n\u00a0\n0.2\n\u00a0\nEffect of RSUs\n0.6\n\u00a0\n1.0\n\u00a0\n1.1\n\u00a0\nWeighted-average common shares outstanding \u2013 Diluted\n360.9\n\u00a0\n364.9\n\u00a0\n368.2\n\u00a0\nNet earnings attributable to The Est\u00e9e Lauder Companies Inc. per common share:\nBasic\n$\n2.81\n\u00a0\n$\n6.64\n\u00a0\n$\n7.91\n\u00a0\nDiluted\n$\n2.79\n\u00a0\n$\n6.55\n\u00a0\n$\n7.79\n\u00a0\nF-72\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nThe shares of Class\u00a0A Common Stock underlying stock options, RSUs and PSUs that were excluded in the computation of diluted EPS because their inclusion would be anti-dilutive were as follows:\nYear Ended June 30\n(In millions)\n2023\n2022\n2021\nStock options\n2.4\n\u00a0\n0.9\n\u00a0\n0.7\n\u00a0\nRSUs and PSUs\n0.1\n\u00a0\n0.1\n\u00a0\n0.1\n\u00a0\nAs of June\u00a030, 2023, 2022 and 2021, \n0.4\n million shares, \n0.7\n million shares and \n0.9\n million shares at target, respectively, of Class\u00a0A Common Stock underlying PSUs have been excluded from the calculation of diluted EPS because the number of shares ultimately issued is contingent on the achievement of certain performance targets of the Company, as discussed in \nNote 18 \u2013 Stock Programs\n.\nF-73\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 20 \u2013 \nACCUMULATED OTHER COMPREHENSIVE LOSS\nThe components of AOCI included in the accompanying consolidated balance sheets consist of the following:\nYear Ended June 30\n(In millions)\n2023\n2022\n2021\nNet derivative instruments, beginning of year\n$\n68\n\u00a0\n$\n(\n2\n)\n$\n14\n\u00a0\nGain (loss) on derivative instruments \n(1)\n48\n\u00a0\n93\n\u00a0\n(\n45\n)\nBenefit (provision) for deferred income taxes\n(\n11\n)\n(\n21\n)\n10\n\u00a0\nReclassification to earnings during the year:\nForeign currency forward contracts \n(2)\n(\n71\n)\n(\n3\n)\n22\n\u00a0\nInterest rate-related derivatives \n(3)\n1\n\u00a0\n1\n\u00a0\n2\n\u00a0\nCross-currency swap contracts \n(1)(4)\n(\n9\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\nBenefit (provision) for deferred income taxes on reclassification \n(5)\n18\n\u00a0\n\u2014\n\u00a0\n(\n5\n)\nNet derivative instruments, end of year\n44\n\u00a0\n68\n\u00a0\n(\n2\n)\nNet pension and post-retirement adjustments, beginning of year\n(\n114\n)\n(\n179\n)\n(\n244\n)\nChanges in plan assets and benefit obligations:\nNet actuarial gains (losses) recognized\n(\n79\n)\n71\n\u00a0\n60\n\u00a0\nPrior service credit recognized\n\u2014\n\u00a0\n(\n1\n)\n(\n1\n)\nTranslation adjustments\n(\n1\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\nBenefit (provision) for deferred income taxes\n17\n\u00a0\n(\n18\n)\n(\n12\n)\nAmortization and settlements included in net periodic benefit cost \n(6)\n:\nNet actuarial losses\n\u2014\n\u00a0\n18\n\u00a0\n24\n\u00a0\nNet prior service cost\n(\n1\n)\n(\n1\n)\n(\n1\n)\nSettlements\n1\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nProvision for deferred income taxes on reclassification \n(5)\n\u2014\n\u00a0\n(\n4\n)\n(\n5\n)\nNet pension and post-retirement adjustments, end of year\n(\n177\n)\n(\n114\n)\n(\n179\n)\nCumulative translation adjustments, beginning of year\n(\n716\n)\n(\n289\n)\n(\n435\n)\nReclassification to earnings during the year\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n1\n)\nTranslation adjustments \n(7)\n(\n112\n)\n(\n409\n)\n145\n\u00a0\nBenefit (provision) for deferred income taxes\n27\n\u00a0\n(\n18\n)\n2\n\u00a0\nCumulative translation adjustments, end of year\n(\n801\n)\n(\n716\n)\n(\n289\n)\nAccumulated other comprehensive loss\n$\n(\n934\n)\n$\n(\n762\n)\n$\n(\n470\n)\n(1)\nIncludes the gain recognized in AOCI from cross-currency swap contracts which represents the amount excluded from effectiveness testing.\n(2)\nAmounts recorded in Net Sales in the accompanying consolidated statements of earnings.\n(3)\nAmounts recorded in Interest expense in the accompanying consolidated statements of earnings.\n(4)\nAmounts recorded in Selling, general and administrative in the accompanying consolidated statements of earnings.\n(5)\nAmounts recorded in Provision for income taxes in the accompanying consolidated statements of earnings.\n(6)\nSee \nNote 15 \u2013 Pension, Deferred Compensation and Post-Retirement Benefit Plans \nfor additional information\n.\n(7)\nSee\u00a0\nNote 12 \u2013\u00a0Derivative Financial Instruments\n\u00a0for gains (losses) relating to net investment hedges.\nF-74\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 21 \u2013 \nSTATEMENT OF CASH FLOWS\nSupplemental cash flow information is as follows:\n\u00a0\nYear Ended June 30\n(In millions)\n2023\n2022\n2021\nCash:\nCash paid during the year for interest\n$\n235\n\u00a0\n$\n163\n\u00a0\n$\n166\n\u00a0\nCash paid during the year for income taxes\n$\n665\n\u00a0\n$\n760\n\u00a0\n$\n664\n\u00a0\nNon-cash investing and financing activities:\nCapitalized interest and asset retirement obligations incurred\n$\n13\n\u00a0\n$\n6\n\u00a0\n$\n3\n\u00a0\nDeferred consideration payable\n$\n300\n\u00a0\n$\n38\n\u00a0\n$\n\u2014\n\u00a0\nProperty, plant and equipment accrued but unpaid\n$\n246\n\u00a0\n$\n106\n\u00a0\n$\n97\n\u00a0\nNOTE 22 \u2013 \nSEGMENT DATA AND RELATED INFORMATION\nReportable operating segments include components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the \u201cChief Executive\u201d) in deciding how to allocate resources and in assessing performance.\u00a0As a result of the similarities in the manufacturing, marketing and distribution processes for all of the Company\u2019s products, much of the information provided in the consolidated financial statements is similar to, or the same as, that reviewed on a regular basis by the Chief Executive.\u00a0Although the Company operates in \none\n business segment, beauty products, management also evaluates performance on a product category basis. While the Company\u2019s results of operations are also reviewed on a consolidated basis, the Chief Executive reviews data segmented on a basis that facilitates comparison to industry statistics.\u00a0Accordingly, net sales, depreciation and amortization, and operating income are available with respect to the manufacture and distribution of skin care, makeup, fragrance, hair care and other products.\u00a0These product categories meet the definition of operating segments and, accordingly, additional financial data are provided below.\u00a0The other segment includes the sales and related results of ancillary products and services that do not fit the definition of skin care, makeup, fragrance and hair care, including royalty revenue associated with the license of the TOM FORD trademark as discussed in \nNote 14 - Revenue Recognition\n. Product category performance is measured based upon net sales before returns associated with restructuring and other activities, and earnings before income taxes, other components of net periodic benefit cost, interest expense, interest income and investment income, net, other income, net and charges associated with restructuring and other activities.\u00a0Returns and charges associated with restructuring and other activities are not allocated to the Company's product categories or geographic regions because they are centrally directed and controlled, are not included in internal measures of product category or geographic region performance and result from activities that are deemed Company-wide initiatives to redesign, resize and reorganize select areas of the business.\n\u00a0 \nThe accounting policies for the Company\u2019s reportable segments are substantially the same as those described in the summary of significant accounting policies, except for depreciation and amortization charges, which are allocated, primarily, based upon net sales.\u00a0The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; thus, no additional information is produced for the Chief Executive or included herein.\nF-75\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\n\u00a0\nYear Ended June 30\n(In\u00a0millions)\n2023\n2022\n2021\nPRODUCT CATEGORY DATA\n\u00a0\n\u00a0\n\u00a0\nNet sales:\n\u00a0\n\u00a0\n\u00a0\nSkin Care\n$\n8,202\n\u00a0\n$\n9,886\n\u00a0\n$\n9,484\n\u00a0\nMakeup\n4,516\n\u00a0\n4,667\n\u00a0\n4,203\n\u00a0\nFragrance\n2,512\n\u00a0\n2,508\n\u00a0\n1,926\n\u00a0\nHair Care\n653\n\u00a0\n631\n\u00a0\n571\n\u00a0\nOther\n54\n\u00a0\n49\n\u00a0\n45\n\u00a0\n15,937\n\u00a0\n17,741\n\u00a0\n16,229\n\u00a0\nReturns associated with restructuring and other activities\n(\n27\n)\n(\n4\n)\n(\n14\n)\nNet sales\n$\n15,910\n\u00a0\n$\n17,737\n\u00a0\n$\n16,215\n\u00a0\nDepreciation and amortization:\nSkin Care\n$\n383\n\u00a0\n$\n404\n\u00a0\n$\n330\n\u00a0\nMakeup\n211\n\u00a0\n213\n\u00a0\n210\n\u00a0\nFragrance\n117\n\u00a0\n89\n\u00a0\n78\n\u00a0\nHair Care\n31\n\u00a0\n20\n\u00a0\n31\n\u00a0\nOther\n2\n\u00a0\n1\n\u00a0\n2\n\u00a0\n$\n744\n\u00a0\n$\n727\n\u00a0\n$\n651\n\u00a0\nOperating income (loss) before charges associated with restructuring and other activities:\nSkin Care\n$\n1,204\n\u00a0\n$\n2,753\n\u00a0\n$\n3,036\n\u00a0\nMakeup\n(\n22\n)\n133\n\u00a0\n(\n384\n)\nFragrance\n440\n\u00a0\n456\n\u00a0\n215\n\u00a0\nHair Care\n(\n34\n)\n(\n28\n)\n(\n19\n)\nOther\n6\n\u00a0\n\u2014\n\u00a0\n(\n2\n)\n1,594\n\u00a0\n3,314\n\u00a0\n2,846\n\u00a0\nReconciliation:\nCharges associated with restructuring and other activities\n(\n85\n)\n(\n144\n)\n(\n228\n)\nInterest expense\n(\n255\n)\n(\n167\n)\n(\n173\n)\nInterest income and investment income, net\n131\n\u00a0\n30\n\u00a0\n51\n\u00a0\nOther components of net periodic benefit cost\n12\n\u00a0\n2\n\u00a0\n(\n12\n)\nOther income, net\n\u2014\n\u00a0\n1\n\u00a0\n847\n\u00a0\nEarnings before income taxes\n$\n1,397\n\u00a0\n$\n3,036\n\u00a0\n$\n3,331\n\u00a0\nF-76\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\n\u00a0\nYear Ended June 30\n(In\u00a0millions)\n2023\n2022\n2021\nGEOGRAPHIC DATA\n(1)\nNet sales:\nThe Americas\n$\n4,518\n\u00a0\n$\n4,623\n\u00a0\n$\n3,797\n\u00a0\nEurope, the Middle East\u00a0& Africa\n6,225\n\u00a0\n7,681\n\u00a0\n6,946\n\u00a0\nAsia/Pacific\n5,194\n\u00a0\n5,437\n\u00a0\n5,486\n\u00a0\n15,937\n\u00a0\n17,741\n\u00a0\n16,229\n\u00a0\nReturns associated with restructuring and other activities\n(\n27\n)\n(\n4\n)\n(\n14\n)\nNet sales\n$\n15,910\n\u00a0\n$\n17,737\n\u00a0\n$\n16,215\n\u00a0\nOperating income (loss):\nThe Americas\n$\n(\n73\n)\n$\n1,159\n\u00a0\n$\n518\n\u00a0\nEurope, the Middle East\u00a0& Africa\n843\n\u00a0\n1,360\n\u00a0\n1,335\n\u00a0\nAsia/Pacific\n824\n\u00a0\n795\n\u00a0\n993\n\u00a0\n1,594\n\u00a0\n3,314\n\u00a0\n2,846\n\u00a0\nCharges associated with restructuring and other activities\n(\n85\n)\n(\n144\n)\n(\n228\n)\nOperating income\n$\n1,509\n\u00a0\n$\n3,170\n\u00a0\n$\n2,618\n\u00a0\nTotal assets:\nThe Americas\n$\n13,292\n\u00a0\n$\n10,989\n\u00a0\n$\n11,387\n\u00a0\nEurope, the Middle East\u00a0& Africa\n5,985\n\u00a0\n5,781\n\u00a0\n5,907\n\u00a0\nAsia/Pacific\n4,138\n\u00a0\n4,140\n\u00a0\n4,677\n\u00a0\n$\n23,415\n\u00a0\n$\n20,910\n\u00a0\n$\n21,971\n\u00a0\nLong-lived assets\n(2)\n:\nThe Americas\n$\n2,593\n\u00a0\n$\n2,609\n\u00a0\n$\n2,521\n\u00a0\nEurope, the Middle East\u00a0& Africa\n1,202\n\u00a0\n1,133\n\u00a0\n1,314\n\u00a0\nAsia/Pacific\n1,181\n\u00a0\n857\n\u00a0\n635\n\u00a0\n$\n4,976\n\u00a0\n$\n4,599\n\u00a0\n$\n4,470\n\u00a0\n(1)\nThe net sales from the Company\u2019s travel retail business are included in the Europe, the Middle East & Africa region, with the exception of net sales of Dr.Jart+ in the travel retail channel that are reflected in Korea in the Asia/Pacific region. Operating income attributable to the travel retail sales included in Europe, the Middle East & Africa is included in that region and in The Americas. \n(2)\nIncludes property, plant and equipment, net and operating lease ROU assets.\nNet sales are predominantly attributed to a country within a geographic region based on the location of the customer.\u00a0The Company is domiciled in the United States.\u00a0Net sales in the United States, including net sales from travel retail locations, in fiscal 2023, 2022 and 2021 were $\n3,848\n million, $\n4,009\n million and $\n3,356\n million, respectively.\u00a0Net sales in mainland China, as well as net sales from travel retail locations, in fiscal 2023, 2022 and 2021 were approximately \n28\n%, \n34\n% and \n36\n% of consolidated net sales, respectively. In fiscal 2023 and 2022, net sales in Korea, including net sales from travel retail locations, were approximately \n10\n% and \n11\n%, respectively, and no other country represented greater than 10% of the Company\u2019s consolidated net sales.\u00a0\nThe Company\u2019s long-lived assets in the United States at June\u00a030, 2023, 2022 and 2021 were $\n2,136\n million, $\n2,153\n million and $\n2,075\n million, respectively.\nF-77\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nSCHEDULE II \u2013 VALUATION AND QUALIFYING ACCOUNTS\nThree Years Ended June\u00a030, 2023\n(In millions)\n\u00a0\n\u00a0\nAdditions\n\u00a0\n\u00a0\nDescription\nBalance\nat\u00a0Beginning\nof\u00a0Period\n(1)\nCharged\u00a0to\nCosts\u00a0and\nExpenses\n(2)\nCharged\u00a0to\nOther\nAccounts (a)\nDeductions\nBalance\nat\u00a0End\u00a0of\nPeriod\nReserves deducted in the balance sheet from the assets to which they apply:\nAllowance for doubtful accounts and customer deductions:\nYear ended June 30, 2023\n$\n27\n\u00a0\n$\n21\n\u00a0\n$\n\u2014\n\u00a0\n$\n18\n\u00a0\n(b)\n$\n30\n\u00a0\nYear ended June 30, 2022\n$\n40\n\u00a0\n$\n5\n\u00a0\n$\n\u2014\n\u00a0\n$\n18\n\u00a0\n(b)\n$\n27\n\u00a0\nYear ended June 30, 2021\n$\n63\n\u00a0\n$\n(\n5\n)\n$\n4\n\u00a0\n$\n22\n\u00a0\n(b)\n$\n40\n\u00a0\nDeferred tax valuation allowance:\nYear ended June 30, 2023\n$\n185\n\u00a0\n$\n36\n\u00a0\n$\n\u2014\n\u00a0\n$\n21\n\u00a0\n$\n200\n\u00a0\nYear ended June 30, 2022\n$\n168\n\u00a0\n$\n41\n\u00a0\n$\n\u2014\n\u00a0\n$\n24\n\u00a0\n$\n185\n\u00a0\nYear ended June 30, 2021\n$\n107\n\u00a0\n$\n61\n\u00a0\n$\n1\n\u00a0\n$\n1\n\u00a0\n$\n168\n\u00a0\n(a) \nFor the year ended June 30, 2021, \u201cCharged to Other Accounts\u201d includes the impact of the fiscal 2021 adoption of ASC 326 of $\n4\n\u00a0million, pre-tax.\n(b) \nIncludes amounts written-off, net of recoveries.\nS-1\nTable of Contents\nTHE EST\u00c9E LAUDER COMPANIES INC.\nINDEX TO EXHIBITS\nExhibit\nNumber\nDescription\n3.1\nRestated Certificate of Incorporation, dated November\u00a016, 1995 (filed as Exhibit\u00a03.1 to our Annual Report on Form\u00a010-K filed on September\u00a015, 2003) (SEC File No.\u00a01-14064).*\n3.1a\nCertificate of Amendment of the Restated Certificate of Incorporation of The Est\u00e9e Lauder Companies Inc. (filed as Exhibit\u00a03.1 to our Current Report on Form\u00a08-K filed on November\u00a013, 2012) (SEC File No.\u00a01-14064).*\n3.2\nCertificate of Retirement of $6.50 Cumulative Redeemable Preferred Stock (filed as Exhibit\u00a03.2 to our Current Report on Form\u00a08-K filed on July\u00a019, 2012) (SEC File No.1-14064).*\n3.3\nAmended and Restated Bylaws (filed as Exhibit\u00a03.1 to our Current Report on Form\u00a08-K filed on May\u00a023, 2012) (SEC File No.\u00a01-14064).*\n4.1\nDescription of Securities Registered Pursuant to Section\u00a012 of the Securities Exchange Act of 1934.\n4.2\nIndenture, dated November\u00a05, 1999, between the Company and State Street Bank and Trust Company, N.A. (filed as Exhibit\u00a04 to Amendment No.\u00a01 to our Registration Statement on Form\u00a0S-3 (No.\u00a0333-85947) filed on November\u00a05, 1999) (SEC File No.\u00a01-14064).*\n4.3\nOfficers\u2019 Certificate, dated September\u00a029, 2003, defining certain terms of the 5.75% Senior Notes due 2033 (filed as Exhibit\u00a04.2 to our Current Report on Form\u00a08-K filed on September\u00a029, 2003) (SEC File No.\u00a01-14064).*\n4.4\nGlobal Note for 5.75% Senior Notes due 2033 (filed as Exhibit\u00a04.3 to our Current Report on Form\u00a08-K filed on September\u00a029, 2003) (SEC File No.\u00a01-14064).*\n4.5\nOfficers\u2019 Certificate, dated May\u00a01, 2007, defining certain terms of the 6.000% Senior Notes due 2037 (filed as Exhibit\u00a04.2 to our Current Report on Form\u00a08-K filed on May\u00a01, 2007) (SEC File No.\u00a01-14064).*\n4.6\nGlobal Note for 6.000% Senior Notes due 2037 (filed as Exhibit\u00a04.4 to our Current Report on Form\u00a08-K filed on May\u00a01, 2007) (SEC File No.\u00a01-14064).*\n4.7\nOfficers\u2019 Certificate, dated August\u00a02, 2012, defining certain terms of the 2.350% Senior Notes due 2022 (filed as Exhibit\u00a04.1 to our Current Report on Form\u00a08-K filed on August\u00a02, 2012) (SEC File No.\u00a01-14064).*\n4.8\nGlobal Note for the 2.350% Senior Notes due 2022 (filed as Exhibit\u00a04.3 to our Current Report on Form\u00a08-K filed on August\u00a02, 2012) (SEC File No.\u00a01-14064).*\n4.9\nOfficers\u2019 Certificate, dated August\u00a02, 2012, defining certain terms of the 3.700% Senior Notes due 2042 (filed as Exhibit\u00a04.2 to our Current Report on Form\u00a08-K filed on August\u00a02, 2012) (SEC File No.\u00a01-14064).*\n4.10\nGlobal Note for the 3.700% Senior Notes due 2042 (filed as Exhibit\u00a04.4 to our Current Report on Form\u00a08-K filed on August\u00a02, 2012) (SEC File No.\u00a01-14064).*\n4.11\nOfficers\u2019 Certificate, dated June\u00a04, 2015, defining certain terms of the 4.375% Senior Notes due 2045 (filed as Exhibit\u00a04.1 to our Current Report on Form\u00a08-K filed on June\u00a04, 2015) (SEC File No.\u00a01-14064).*\n4.12\nGlobal Note for the 4.375% Senior Notes due 2045 (filed as Exhibit\u00a04.2 to our Current Report on Form\u00a08-K filed on June\u00a04, 2015) (SEC File No.\u00a01-14064).*\n4.13\nOfficers\u2019 Certificate, dated May\u00a010, 2016, defining certain terms of the 4.375% Senior Notes due 2045 (filed as Exhibit\u00a04.3 to our Current Report on Form\u00a08-K filed on May\u00a010, 2016) (SEC File No.\u00a01-14064).*\n4.14\nGlobal Note for the 4.375% Senior Notes due 2045 (filed as Exhibit\u00a0B in Exhibit\u00a04.3 to our Current Report on Form\u00a08-K filed on May\u00a010, 2016) (SEC File No.\u00a01-14064).*\n4.15\nOfficers\u2019 Certificate, dated February\u00a09, 2017, defining certain terms of the 3.150% Senior Notes due 2027 (filed as Exhibit\u00a04.3 to our Current Report on Form\u00a08-K filed on February\u00a09, 2017) (SEC File No.\u00a01-14064).*\n4.16\nForm\u00a0of Global Note for the 3.150% Senior Notes due 2027 (included as Exhibit\u00a0A in Exhibit\u00a04.3 to our Current Report on Form\u00a08-K filed on February\u00a09, 2017) (SEC File No.\u00a01-14064).*\n4.17\nOfficers\u2019 Certificate, dated February\u00a09, 2017, defining certain terms of the 4.150% Senior Notes due 2047 (filed as Exhibit\u00a04.5 to our Current Report on Form\u00a08-K filed on February\u00a09, 2017) (SEC File No.\u00a01-14064).*\n4.18\nForm\u00a0of Global Note for the 4.150% Senior Notes due 2047 (included as Exhibit\u00a0A in Exhibit\u00a04.5 to our Current Report on Form\u00a08-K filed on February\u00a09, 2017) (SEC File No.\u00a01-14064).*\nTable of Contents\nExhibit\nNumber\nDescription\n4.19\nOfficers\u2019 Certificate, dated November 21, 2019, defining certain terms of the 2.000% Senior Notes due 2024 (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on November 21, 2019) (SEC File No. 1-14064).*\n4.20\nForm of Global Note for the 2.000% Senior Notes due 2024 (included as Exhibit A in Exhibit 4.1 to our Current Report on Form 8-K filed on November 21, 2019) (SEC File No. 1-14064).*\n4.21\nOfficers\u2019 Certificate, dated November 21, 2019, defining certain terms of the 2.375% Senior Notes due 2029 (filed as Exhibit 4.3 to our Current Report on Form 8-K filed on November 21, 2019) (SEC File No. 1-14064).*\n4.22\nForm of Global Note for the 2.375% Senior Notes due 2029 (included as Exhibit A in Exhibit 4.3 to our Current Report on Form 8-K filed on November 21, 2019) (SEC File No. 1-14064).*\n4.23\nOfficers\u2019 Certificate, dated November 21, 2019, defining certain terms of the 3.125% Senior Notes due 2049 (filed as Exhibit 4.5 to our Current Report on Form 8-K filed on November 21, 2019) (SEC File No. 1-14064).*\n4.24\nForm of Global Note for the 3.125% Senior Notes due 2049 (included as Exhibit A in Exhibit 4.5 to our Current Report on Form 8-K filed on November 21, 2019) (SEC File No. 1-14064).*\n4.25\nOfficers\u2019 Certificate, dated April 13, 2020, defining certain terms of the 2.600% Senior Notes due 2030 (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on April 13, 2020) (SEC File No. 1-14064).*\n4.26\nForm of Global Note for the 2.600% Senior Notes due 2030 (included as Exhibit A in Exhibit 4.1 to our Current Report on Form 8-K filed on April 13, 2020) (SEC File No. 1-14064).*\n4.27\nOfficers\u2019 Certificate, dated March 4, 2021, defining certain terms of the 1.950% Senior Notes due 2031 (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on March 4, 2021) (SEC File No. 1-14064).*\n4.28\nForm of Global Note for the 1.950% Senior Notes due 2031 (included as Exhibit A in Exhibit 4.1 to our Current Report on Form 8-K filed on March 4, 2021) (SEC File No. 1-14064).*\n4.29\nOfficers\u2019 Certificate, dated May 12, 2023, defining certain terms of the 4.375% Senior Notes due 2028 (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on May 12, 2023) (SEC File No. 1-14064).*\n4.30\nForm of Global Note for the 4.375% Senior Notes due 2028 (included as Exhibit A in Exhibit 4.1 to our Current Report on Form 8-K filed on May 12, 2023) (SEC File No. 1-14064).*\n4.31\nOfficers\u2019 Certificate, dated May 12, 2023, defining certain terms of the 4.650% Senior Notes due 2033 (filed as Exhibit 4.3 to our Current Report on Form 8-K filed on May 12, 2023) (SEC File No. 1-14064).*\n4.32\nForm of Global Note for the 4.650% Senior Notes due 2033 (included as Exhibit A in Exhibit 4.3 to our Current Report on Form 8-K filed on May 12, 2023) (SEC File No. 1-14064).*\n4.33\nOfficers\u2019 Certificate, dated May 12, 2023, defining certain terms of the 5.150% Senior Notes due 2053 (filed as Exhibit 4.5 to our Current Report on Form 8-K filed on May 12, 2023) (SEC File No. 1-14064).*\n4.34\nForm of Global Note for the 5.150% Senior Notes due 2053 (included as Exhibit A in Exhibit 4.5 to our Current Report on Form 8-K filed on May 12, 2023) (SEC File No. 1-14064).*\n10.1\nStockholders\u2019 Agreement, dated November\u00a022, 1995 (filed as Exhibit\u00a010.1 to our Annual Report on Form\u00a010-K filed on September\u00a015, 2003) (SEC File No.\u00a01-14064).*\n10.1a\nAmendment No.\u00a01 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on October\u00a030, 1996) (SEC File No.\u00a01-14064).*\n10.1b\nAmendment No.\u00a02 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 1997) (SEC File No.\u00a01-14064).*\n10.1c\nAmendment No.\u00a03 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on April\u00a029, 1997) (SEC File No.\u00a01-14064).*\n10.1d\nAmendment No.\u00a04 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.1d to our Annual Report on Form\u00a010-K filed on September\u00a018, 2000) (SEC File No.\u00a01-14064).*\n10.1e\nAmendment No.\u00a05 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.1e to our Annual Report on Form\u00a010-K filed on September\u00a017, 2002) (SEC File No.\u00a01-14064).*\n10.1f\nAmendment No.\u00a06 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on January\u00a027, 2005) (SEC File No.\u00a01-14064).*\n10.1g\nAmendment No.\u00a07 to Stockholders\u2019 Agreement (filed as Exhibit\u00a010.7 to our Quarterly Report on Form\u00a010-Q filed on October\u00a030, 2009) (SEC File No.\u00a01-14064).*\nTable of Contents\nExhibit\nNumber\nDescription\n10.2\nRegistration Rights Agreement, dated November\u00a022, 1995 (filed as Exhibit\u00a010.2 to our Annual Report on Form\u00a010-K filed on September\u00a015, 2003) (SEC File No.\u00a01-14064).*\n10.2a\nFirst Amendment to Registration Rights Agreement (originally filed as Exhibit\u00a010.3 to our Annual Report on Form\u00a010-K filed on September\u00a010, 1996) (re-filed as Exhibit\u00a010.2a to our Annual Report on Form\u00a010-K filed on August\u00a025, 2017) (SEC File No.\u00a01-14064).*\n10.2b\nSecond Amendment to Registration Rights Agreement (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on April\u00a029, 1997) (SEC File No.\u00a01-14064).*\n10.2c\nThird Amendment to Registration Rights Agreement (filed as Exhibit\u00a010.2c to our Annual Report on Form\u00a010-K filed on September\u00a017, 2001) (SEC File No.\u00a01-14064).*\n10.2d\nFourth Amendment to Registration Rights Agreement (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on January\u00a029, 2004) (SEC File No.\u00a01-14064).*\n10.3\nThe Estee Lauder Companies Retirement Growth Account Plan, as amended and restated, effective as of January\u00a01, 2019, as further amended  through January 1, 2022 (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on February 3, 2022) (SEC File No.\u00a01-14064).*\u2020\n10.3a\nAmendment to amended and restated The Estee Lauder Companies Retirement Growth Account Plan, effective as of May 31, 2022 (filed as Exhibit 10.1 on our Quarterly Report on Form 10-Q filed on May 3, 2022) (SEC File No. 1-14064).*\u2020\n10.3b\nThe Estee Lauder Companies Retirement Growth Account Plan, as amended and restated, effective as of January 1, 2023 (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on February 2, 2023) (SEC File No. 1-14064).*\u2020\n10.4\nThe Estee Lauder Inc. Retirement Benefits Restoration Plan (filed as Exhibit\u00a010.5 to our Annual Report on Form\u00a010-K filed on August\u00a020, 2010) (SEC File No.\u00a01-14064).*\u2020\n10.5\nExecutive Annual Incentive Plan (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on November\u00a014, 2013) (SEC File No.\u00a01-14064).*\u2020\n10.5a\nExecutive Annual Incentive Plan (SEC File No. 1-14064).\u2020\n10.6\nEmployment Agreement with Tracey T. Travis (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on July\u00a020, 2012) (SEC File No.\u00a01-14064).*\u2020\n10.7\nEmployment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.8 to our Annual Report on Form\u00a010-K filed on September\u00a017, 2001) (SEC File No.\u00a01-14064).*\u2020\n10.7a\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.8a to our Annual Report on Form\u00a010-K filed on September\u00a017, 2002) (SEC File No.\u00a01-14064).*\u2020\n10.7b\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.2 to our Current Report on Form\u00a08-K filed on November\u00a017, 2005) (SEC File No.\u00a01-14064).*\u2020\n10.7c\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on February\u00a05, 2009) (SEC File No.\u00a01-14064).*\u2020\n10.7d\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.8 to our Quarterly Report on Form\u00a010-Q filed on October\u00a030, 2009) (SEC File No.\u00a01-14064).*\u2020\n10.7e\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.6 to our Quarterly Report on Form\u00a010-Q filed on November\u00a01, 2010) (SEC File No.\u00a01-14064).*\u2020\n10.7f\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit\u00a010.7f to our Annual Report on Form\u00a010-K filed on August\u00a020, 2015) (SEC File No.\u00a01-14064).*\u2020\n10.7g\nAmendment to Employment Agreement with Leonard A. Lauder (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on May 1, 2020) (SEC File No. 1-14064).*\u2020\n10.8\nEmployment Agreement with William P. Lauder (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on September\u00a017, 2010) (SEC File No.\u00a01-14064).*\u2020\n10.8a\nAmendment to Employment Agreement with William P. Lauder (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on February\u00a027, 2013) (SEC File No.\u00a01-14064).*\u2020\n10.9\nEmployment Agreement with Fabrizio Freda (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on February\u00a011, 2011) (SEC File No.\u00a01-14064).*\u2020\nTable of Contents\nExhibit\nNumber\nDescription\n10.9a\nAmendment to Employment Agreement with Fabrizio Freda and Stock Option Agreements (filed as Exhibit\u00a010.2 to our Current Report on Form\u00a08-K filed on February\u00a027, 2013) (SEC File No.\u00a01-14064).*\u2020\n10.10\nEmployment Agreement with Jane Hertzmark Hudis\n \n(filed as Exhibit 10.13 to our Annual Report on Form 10-K filed on August 24, 2022)\n (SEC File No. 1-14064).\n*\n\u2020\n10.11\nEmployment Agreement with Jane Lauder (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on May 3, 2023) (SEC File No. 1-14064).*\u2020\n10.12\nEmployment Agreement with Peter Jueptner (SEC File No. 1-14064).\u2020\n10.13\nForm\u00a0of Deferred Compensation Agreement (interest-based) with Outside Directors (filed as Exhibit\u00a010.14 to our Annual Report on Form\u00a010-K filed on September\u00a017, 2001) (SEC File No.\u00a01-14064).*\u2020\n10.13a\nForm\u00a0of Deferred Compensation Agreement (interest-based) with Outside Directors (including Election Form) (filed as Exhibit\u00a010.12a to our Annual Report on Form\u00a010-K filed on August\u00a024, 2018) (SEC File No.\u00a01-14064).*\u2020\n10.14\nForm\u00a0of Deferred Compensation Agreement (stock-based) with Outside Directors (filed as Exhibit\u00a010.15 to our Annual Report on Form\u00a010-K filed on September\u00a017, 2001) (SEC File No.\u00a01-14064).*\u2020\n10.14a\nForm\u00a0of Deferred Compensation Agreement (stock-based) with Outside Directors (including Election Form) (filed as Exhibit\u00a010.13a to our Annual Report on Form\u00a010-K filed on August\u00a024, 2018) (SEC File No.\u00a01-14064).*\u2020\n10.15\nThe Estee Lauder Companies Inc. Non-Employee Director Share Incentive Plan (as amended and restated on November\u00a09, 2007) (filed as Exhibit\u00a099.1 to our Registration Statement on Form\u00a0S-8 filed on November\u00a09, 2007) (SEC File No.\u00a01-14064).*\u2020\n10.15a\nThe Estee Lauder Companies Inc. Non-Employee Director Share Incentive Plan (as amended on July\u00a014, 2011) (filed as exhibit 10.15a to our Annual Report on Form\u00a010-K filed on August\u00a022, 2011) (SEC File No.\u00a01-14064).*\u2020\n10.15b\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Non-Employee Director Share Incentive Plan (filed as Exhibit\u00a010.2 to our Current Report on Form\u00a08-K filed on November\u00a016, 2015) (SEC File No.\u00a01-14064).*\u2020\n10.15c\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Non-Employee Director Share Incentive Plan (as of November\u00a01, 2017) (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on November\u00a01, 2017) (SEC File No.\u00a01-14064).*\u2020\n10.15d\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Non-Employee Director Share Incentive Plan (as of August 22, 2019) (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on October 31, 2019) (SEC File No. 1-14064).*\u2020\n10.15e\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Non-Employee Director Share Incentive Plan (as of July 13, 2021) (filed as Exhibit 10.15e to our Annual Report on Form 10-K filed on August 27, 2021) (SEC File No. 1-14064).*\u2020\n10.16\nSummary of Compensation For Non-Employee Directors of the Company (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on November\u00a01, 2013) (SEC File No.\u00a01-14064).*\u2020\n10.16a\nSummary of Compensation For Non-Employee Directors of the Company (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on November\u00a01, 2017) (SEC File No.\u00a01-14064).*\u2020\n10.16b\nSummary of Compensation For Non-Employee Directors of the Company (filed as Exhibit 10.16b to our Annual Report on Form 10-K filed on August 27, 2021) (SEC File No. 1-14064).*\u2020\n10.17\nForm\u00a0of Stock Option Agreement for Annual Stock Option Grants under Non-Employee Director Share Incentive Plan (including Form\u00a0of Notice of Grant) (filed as Exhibit\u00a099.2 to our Registration Statement on Form\u00a0S-8 filed on November\u00a09, 2007) (SEC File No.\u00a01-14064).*\u2020\n10.17a\nForm of Stock Option Agreement for Annual Stock Option Grants under the Amended and Restated Non-Employee Director Share Incentive Plan (including Form of Notice of Grant) (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on October 31, 2019) (SEC File No. 1-14064).*\u2020\n10.18\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (filed as Exhibit\u00a010.17 to our Annual Report on Form\u00a010-K filed on August\u00a017, 2012) (SEC File No.\u00a01-14064).*\u2020\nTable of Contents\nExhibit\nNumber\nDescription\n10.18a\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on November\u00a016, 2015) (SEC File No.\u00a01-14064).*\u2020\n10.18b\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (filed as Exhibit\u00a010.16b to our Annual Report on Form\u00a010-K filed on August\u00a025, 2017) (SEC File No.\u00a01-14064).*\u2020\n10.18c\nThe Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on November 19, 2019) (SEC File No. 1-14064).*\u2020\n10.18d\nForm\u00a0of Stock Option Agreement under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form\u00a0of Notice of Grant) (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on November\u00a02, 2012) (SEC File No.\u00a01-14064).*\u2020\n10.18e\nForm\u00a0of Stock Option Agreement under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form\u00a0of Notice of Grant) (filed as Exhibit\u00a010.16y to our Annual Report on Form\u00a010-K filed on August\u00a020, 2014) (SEC File No.\u00a01-14064).*\u2020\n10.18f\nForm\u00a0of Stock Option Agreement with Fabrizio Freda under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form\u00a0of Notice of Grant) (filed as Exhibit\u00a010.16z to our Annual Report on Form\u00a010-K filed on August\u00a020, 2014) (SEC File No.\u00a01-14064).*\u2020\n10.18g\nForm\u00a0of Stock Option Agreement under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form\u00a0of Notice of Grant) (filed as Exhibit\u00a010.16m to our Annual Report on Form\u00a010-K filed on August\u00a025, 2017) (SEC File No.\u00a01-14064).*\u2020\n10.18h\nForm\u00a0of Stock Option Agreement under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form\u00a0of Notice of Grant) \n(filed as Exhibit 10.17l to our Annual Report on Form 10-K filed on August 23, 2019) (SEC File No. 1-14064).*\u2020\n10.18i\nPerformance Share Unit Award Agreement with Fabrizio Freda under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Notice of Grant) (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on September\u00a011, 2015) (SEC File No.\u00a01-14064).*\u2020\n10.18j\nPerformance Share Unit Award Agreement with Fabrizio Freda (2018) under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Notice of Grant) (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on February\u00a015, 2018) (SEC File No.\u00a01-14064).*\u2020\n10.18k\nForm of Performance Share Unit Award Agreement for Employees including Executive Officers under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant) \n(filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on November 2, 2020) (SEC File No. 1-14064).*\u2020\n10.18l\nPrice-Vested Unit Award Agreement with Fabrizio Freda under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Notice of Grant) (filed as Exhibit 10.1 to our current Report on Form 8-K filed on March 16, 2021) (SEC File No. 1-14064).*\u2020\n10.18m\nPerformance Share Unit Award Agreement with Fabrizio Freda under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Notice of Grant) (filed as Exhibit 10.2 to our Current Report on Form 8-K filed on March 16, 2021) (SEC File No. 1-14064).*\u2020\n10.18n\nForm of Non-annual Performance Share Unit Award Agreement for Executive Officers under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant) (filed as Exhibit 10.18s to our Annual Report on Form 10-K filed on August 27, 2021 (SEC File No. 1-14064).*\u2020\n10.18o\nForm of Performance Share Unit Award Agreement for Employees including Executive Officers under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant) (filed as Exhibit 10.18t to our Annual Report on Form 10-K filed on August 27, 2021) (SEC File No. 1-14064).*\u2020\n10.18p\nForm of Restricted Stock Unit Award Agreement for Executive Officers under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant) (filed as Exhibit 10.18bb to our Annual Report on Form 10-K filed on August 28, 2020) (SEC File No. 1-14064).*\u2020\n10.18q\nForm of Restricted Stock Unit Award Agreement for Employees other than Executive Officers under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant) (filed as Exhibit 10.18cc to our Annual Report on Form 10-K filed on August 28, 2020) (SEC File No. 1-14064).*\u2020\nTable of Contents\nExhibit\nNumber\nDescription\n10.18r\nForm of Non-annual Restricted Stock Unit Award Agreement for Executive Officers under The Est\u00e9e Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (including Form of Notice of Grant) filed as Exhibit 10.18dd to our Annual Report on Form 10-K filed on August 28, 2020) (SEC File No. 1-14064). *\u2020\n10.19\n$2.5 Billion Credit Facility, dated as of October 22, 2021, among The Est\u00e9e Lauder Companies Inc., the Eligible Subsidiaries of the Company, as defined therein, the lenders listed therein, and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on October 22, 2021) (SEC File No. 1-14064).*\n10.20\nServices Agreement, dated January\u00a01, 2003, among Estee Lauder Inc., Melville Management Corp., Leonard A. Lauder, and William P. Lauder (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 2010) (SEC File No.\u00a01-14064).*\n10.20a\nAgreement of Sublease, dated May 18, 2022, between Editions de Parfums LLC, Sublandlord and Melville Management Corporation, Subtenant\n \n(filed as Exhibit 10.21a to our Annual Report on Form 10-K filed on August 24, 2022)\n \n (SEC File No. 1-14064).\n*\n10.21\nServices Agreement, dated November\u00a022, 1995, between Estee Lauder Inc. and RSL Investment Corp. (filed as Exhibit\u00a010.3 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 2010) (SEC File No.\u00a01-14064).*\n10.22\nAgreement of Sublease and Guarantee of Sublease, dated April\u00a01, 2005, among Aramis Inc., RSL Management Corp., and Ronald S. Lauder (filed as Exhibit\u00a010.4 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 2010) (SEC File No.\u00a01-14064).*\n10.22a\nFirst Amendment to Sublease, dated February\u00a028, 2007, between Aramis Inc. and RSL Management Corp. (filed as Exhibit\u00a010.5 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 2010) (SEC File No.\u00a01-14064).*\n10.22b\nSecond Amendment to Sublease, dated January\u00a027, 2010, between Aramis Inc. and RSL Management Corp. (filed as Exhibit\u00a010.6 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 2010) (SEC File No.\u00a01-14064).*\n10.22c\nThird Amendment to Sublease, dated November\u00a03, 2010, between Aramis Inc., and RSL Management Corp. (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on February\u00a04, 2011) (SEC File No.\u00a01-14064).*\n10.22d\nFourth Amendment to Sublease, dated March 4, 2020, between Aramis Inc. and RSL Management Corp. (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on May 1, 2020) (SEC File No. 1-14064).*\n10.23\nForm\u00a0of Art Loan Agreement between Lender and Estee Lauder Inc. (filed as Exhibit\u00a010.7 to our Quarterly Report on Form\u00a010-Q filed on January\u00a028, 2010) (SEC file No.\u00a01-14064).*\n10.24\nCreative Consultant Agreement, dated April\u00a06, 2011, between Estee Lauder Inc. and Aerin Lauder Zinterhofer (filed as Exhibit\u00a010.1 to our Current Report on Form\u00a08-K filed on April\u00a08, 2011) (SEC File No.\u00a01-14064).*\u2020\n10.24a\nFirst Amendment to Creative Consultant Agreement between Estee Lauder Inc. and Aerin Lauder Zinterhofer dated October\u00a028, 2014 (filed as Exhibit\u00a010.23a to our Annual Report on Form\u00a010-K filed on August\u00a020, 2015) (SEC File No. 1-14064).*\u2020\n10.24b\nSecond Amendment to Creative Consultant Agreement between Estee Lauder Inc. and Aerin Lauder Zinterhofer effective July\u00a01, 2016 (filed as Exhibit\u00a010.23b to our Annual Report on Form\u00a010-K filed on August\u00a024, 2016) (SEC File No.\u00a01-14064).*\u2020\n10.24c\nThird Amendment to Creative Consultant Agreement between Estee Lauder Inc. and Aerin Lauder Zinterhofer effective July 1, 2021(filed as Exhibit 10.24c to our Annual Report on Form 10-K filed on August 27, 2021) (SEC File No. 1-14064).*\u2020\n10.25\nLicense Agreement, dated April\u00a06, 2011, by and among Aerin LLC, Aerin Lauder Zinterhofer and Estee Lauder Inc. (filed as Exhibit\u00a010.2 to our Current Report on Form\u00a08-K filed on April\u00a08, 2011) (SEC File No.\u00a01-14064).*\n10.25a\nFirst Amendment to the April\u00a06, 2011 License Agreement, dated January\u00a022, 2019, by and among Aerin LLC, Aerin Lauder Zinterhofer and Estee Lauder Inc. (filed as Exhibit\u00a010.1 to our Quarterly Report on Form\u00a010-Q filed on May\u00a01, 2019) (SEC File No.\u00a01-14064).*\n10.25b\nSecond Amendment to the April\u00a06, 2011 License Agreement, dated February\u00a022, 2019, by and among Aerin LLC, Aerin Lauder Zinterhofer and Estee Lauder Inc. (filed as Exhibit\u00a010.2 to our Quarterly Report on Form\u00a010-Q filed on May\u00a01, 2019) (SEC File No.\u00a01-14064).*\n21.1\nList of significant subsidiaries.\nTable of Contents\nExhibit\nNumber\nDescription\n23.1\nConsent of PricewaterhouseCoopers LLP.\n24.1\nPower of Attorney.\n31.1\nCertification pursuant to Rule\u00a013a-14(a)\u00a0or 15d-14(a)\u00a0of the Securities Exchange Act of 1934, as adopted pursuant to Section\u00a0302 of the Sarbanes-Oxley Act of 2002 (CEO).\n31.2\nCertification pursuant to Rule\u00a013a-14(a)\u00a0or 15d-14(a)\u00a0of the Securities Exchange Act of 1934, as adopted pursuant to Section\u00a0302 of the Sarbanes-Oxley Act of 2002 (CFO).\n32.1\nCertification pursuant to 18 U.S.C. Section\u00a01350, as adopted pursuant to Section\u00a0906 of the Sarbanes-Oxley Act of 2002 (CEO). (furnished)\n32.2\nCertification pursuant to 18 U.S.C. Section\u00a01350, as adopted pursuant to Section\u00a0906 of the Sarbanes-Oxley Act of 2002 (CFO). (furnished)\n101.1\nThe following materials from The Est\u00e9e Lauder Companies Inc.\u2019s Annual Report on Form 10-K for the year ended June 30, 2023 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Earnings, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements\n104\nThe cover page from The Est\u00e9e Lauder Companies Inc.\u2019s Annual Report on Form 10-K for the year ended June 30, 2023 is formatted in iXBRL\n____________________\n*\u00a0Incorporated herein by reference.\n\u2020\u00a0Exhibit\u00a0is a management contract or compensatory plan or arrangement.\n\n",
+  "item1a": ">Item 1A.\u00a0 \nRisk Factors.\nThere are risks associated with an investment in our securities.\u00a0Please consider the following risks and all of the other information in this annual report on Form\u00a010-K and in our subsequent filings with the Securities and Exchange Commission (\u201cSEC\u201d).\u00a0Our business may also be adversely affected by risks and uncertainties not presently known to us or that we currently believe to be immaterial.\u00a0If any of the events contemplated by the following discussion of risks should occur or other risks arise or develop, our business, which includes our prospects, financial condition and results of operations, the trading prices of our securities and our reputation, may be adversely affected.\nRisks related to our Business and our Industry\nThe beauty business is highly competitive, and if we are unable to compete effectively our results will suffer.\nWe face vigorous competition from companies throughout the world, including multinational consumer product companies.\u00a0Some competitors have greater resources than we do, others are newer companies (some backed by private-equity investors), and some are competing in distribution channels where we are less represented.\u00a0In some cases, we may not be able to respond to changing business and economic conditions as quickly as our competitors.\u00a0Competition in the beauty business is based on a variety of factors including pricing of products, innovation, perceived value, service to the consumer, promotional activities, advertising, special events, new product introductions, e-commerce and m-commerce initiatives and other activities.\u00a0It is difficult for us to predict the timing and scale of our competitors\u2019 actions in these areas.\nOur ability to compete also depends on the continued strength of our brands, our ability to attract and retain key talent and other personnel, the efficiency of our manufacturing facilities and distribution network, and our ability to maintain and protect our intellectual property and those other rights used in our business.\u00a0Our Company has a well-recognized and strong reputation that could be negatively impacted by social media and many other factors.\u00a0If our reputation is adversely affected, our ability to attract and retain customers, consumers and employees could be impacted.\u00a0In addition, certain of our key retailers around the world market and sell competing brands or are owned or otherwise affiliated with companies that market and sell competing brands.\u00a0Our inability to continue to compete effectively in key countries around the world (e.g., China) could have a material adverse effect on our business.\nOur inability to anticipate and respond to market trends and changes in consumer preferences could adversely affect our financial results.\nOur continued success depends on our ability to anticipate, gauge and react in a timely and cost-effective manner to changes in consumer preferences for skin care, makeup, fragrance and hair care products, attitudes toward our industry and brands, as well as to where and how consumers shop.\u00a0We must continually work to develop, manufacture and market new products, maintain and adapt our \u201cHigh-Touch\u201d services to existing and emerging distribution channels, maintain and enhance the recognition of our brands, achieve a favorable mix of products, successfully manage our inventories, and modernize and refine our approach as to how and where we market and sell our products.\u00a0We recognize that consumer preferences cannot be predicted with certainty and can change rapidly, driven by the use of digital and social media by consumers and the speed by which information and opinions are shared.\u00a0If we are unable to anticipate and respond to challenges that we may face in the marketplace, trends in the market for our products and changing consumer demands and sentiment, our financial results will suffer.\u00a0In addition, from time to time, sales growth or profitability may be concentrated in a relatively small number of our brands, channels or countries (e.g., China).\u00a0If such a situation persists or one or more brands, channels or countries fails to perform as expected, there could be a material adverse effect on our business.\nIn certain key markets, such as the United States, we have seen a longer-term decline in retail traffic in our department store customers.\u00a0Consolidation or liquidation in the retail trade, from these or other factors, may result in us becoming increasingly dependent on key retailers and could result in an increased risk related to the concentration of our customers.\u00a0A severe, adverse impact on the business operations of our customers could have a corresponding material adverse effect on us.\u00a0If one or more of our largest customers change their strategies (including pricing or promotional activities), enter bankruptcy (or similar proceedings) or if our relationship with any large customer is changed or terminated for any reason, there could be a material adverse effect on our business. \n18\nTable of Contents\nOur future success depends, in part, on our ability to achieve our long-term strategy.\nAchieving our long-term strategy will require investment in new capabilities, brands, categories, distribution channels, supply chain facilities, technologies and emerging and more mature geographic markets (e.g., China).\u00a0These investments may result in short-term costs without any current sales and, therefore, may be dilutive to our earnings.\u00a0In addition, we may dispose of or discontinue select brands or streamline operations and incur costs or restructuring and other charges in doing so.\u00a0Although we believe that our strategy will lead to long-term growth in sales and profitability, we may not realize the anticipated benefits.\u00a0The failure to realize benefits, which may be due to our inability to execute plans, global or local economic conditions, competition, changes in the beauty industry and the other risks described herein, could have a material adverse effect on our business.\nAcquisitions and divestitures may expose us to additional risks.\nWe continuously review acquisition and strategic investment opportunities that would expand our current product offerings, our distribution channels, increase the size and geographic scope of our operations or otherwise offer growth and operating efficiency opportunities.\u00a0In addition, we periodically review our brand portfolio, and our strategy includes potential divestitures of certain brands as we rationalize product offerings. There can be no assurance that we will be able to identify these strategic actions and consummate such transactions on favorable terms.\u00a0\nAcquisitions including strategic investments or alliances entail numerous risks, which may include: (i) difficulties in integrating acquired operations or products, including the loss of key employees from, or customers, consumers or suppliers of, acquired businesses; (ii) diversion of management\u2019s attention from our existing businesses; (iii) adverse effects on existing business relationships with suppliers, customers and consumers of ours or the companies in which we invest; (iv) adverse impacts of margin and product cost structures different from those of our current mix of business; (v) reputational risks associated with the activities of the businesses that we acquire or in which we invest; and (vi) risks of entering distribution channels, categories or markets in which we have limited or no prior experience.\nIf required, the financing for these transactions could result in an increase in our indebtedness, dilute the interests of our stockholders or both.\u00a0The purchase price for some acquisitions may include additional amounts to be paid in cash in the future, a portion of which may be contingent on the achievement of certain future operating results of the acquired business.\u00a0If the performance of any such acquired business exceeds such operating results, then we may incur additional charges and be required to pay additional amounts.\nCompleted acquisitions typically result in additional goodwill and/or an increase in other intangible assets on our balance sheet. We are required at least annually, or as facts and circumstances exist, to test goodwill and other intangible assets with indefinite lives to determine if impairment has occurred.\u00a0We cannot accurately predict the amount and timing of any impairment of assets.\u00a0Should the value of goodwill or other intangible assets become impaired, there could be a material adverse effect on our business.\nOur failure to achieve the long-term plan for acquired businesses, as well as any other adverse consequences associated with our acquisition, divestiture and investment activities, could have a material adverse effect on our business.\nOur business could be negatively impacted by social impact and sustainability matters.\nThere is an increased focus from certain investors, customers, consumers, regulators, employees, and other stakeholders concerning social impact and sustainability and other ESG matters.\u00a0From time to time, we announce certain initiatives, including goals and commitments, regarding our focus areas, which include environmental and climate matters; packaging; sourcing; product formulation; social investments; and inclusion, diversity and equity.\u00a0We could fail, or be perceived to fail, in our achievement of such initiatives, or in accurately reporting our progress on such initiatives.\u00a0Such failures could be due to changes in our business (e.g., shifts in business among distribution channels or acquisitions). Moreover, the standards by which ESG efforts and related matters are measured are developing and evolving, and certain areas are subject to assumptions that could change over time. In addition, we could be criticized for the scope of our initiatives or goals or perceived as not acting responsibly in connection with these matters. Any such matters, or related ESG matters, could have a material adverse effect on our business.\n19\nTable of Contents\nA general economic downturn, or disruption in business conditions may affect our business including consumer purchases of discretionary items and/or the financial strength of our customers that are retailers, which could adversely affect our financial results.\nThe general level of consumer spending is affected by a number of factors, including general economic conditions, inflation, interest rates, energy costs, and consumer confidence generally, all of which are beyond our control.\u00a0Consumer purchases of discretionary items tend to decline during recessionary periods, when disposable income is lower, and may impact sales of our products.\u00a0A decline in consumer purchases of discretionary items also tends to impact our customers that are retailers.\u00a0We generally extend credit to a retailer based on an evaluation of its financial condition, usually without requiring collateral.\u00a0However, the financial difficulties of a retailer could cause us to curtail or eliminate business with that customer.\u00a0We may also assume more credit risk relating to the receivables from that retailer.\u00a0In the event of a retailer liquidation, we may incur additional costs if we choose to purchase the retailer\u2019s inventory of our products to protect brand equity. Our inability to collect receivables from our largest customers or from a group of customers could have a material adverse effect on our business.\u00a0\nIn addition, disruptions in local or global business conditions, for example, from events such as a pandemic or other health issues, geo-political or local conflicts, civil unrest, terrorist attacks, adverse weather conditions, climate changes or seismic events, can have a short-term and, sometimes, long-term impact on consumer spending.\nEvents that impact consumers\u2019 willingness or ability to travel or purchase our products while traveling may impact our business, including travel retail, a significant contributor to our overall results, and our strategy to market and sell products to international travelers at their destinations.\nA downturn in the economies of, or continuing recessions in, the countries where we sell our products or a disruption of business conditions in those countries could adversely affect consumer confidence, the financial strength of our retailers and our sales and profitability.\u00a0We are also cautious of foreign currency movements, including their impact on tourism.\u00a0Additionally, we continue to monitor the effects of the global macroeconomic environment; social, political and human rights issues; regulatory matters, including the imposition of tariffs or sanctions; geopolitical tensions; and global security issues.\nVolatility in the financial markets and a related economic downturn in key markets or markets generally throughout the world could have a material adverse effect on our business.\u00a0While we typically generate significant cash flows from our ongoing operations and have access to global credit markets through our various financing activities, credit markets may experience significant disruptions.\u00a0Deterioration in global financial markets or an adverse change in our credit ratings could make future financing difficult or more expensive.\u00a0If any financial institutions that are parties to our revolving credit facility or other financing arrangements, such as foreign exchange or interest rate hedging instruments, were to declare bankruptcy or become insolvent, they may be unable to perform under their agreements with us.\u00a0This could leave us with reduced borrowing capacity or unhedged against certain foreign currency or interest rate exposures which could have a material adverse effect on our business.\nOur success depends, in part, on the quality, efficacy and safety of our products.\nOur success depends, in part, on the quality, efficacy and safety of our products. If our products are found to be defective or unsafe, our product claims are found to be deceptive, or our products otherwise fail to meet our consumers\u2019 expectations, our relationships with customers or consumers could suffer, the appeal of our brands could be diminished, and we could lose sales and become subject to liability or claims, any of which could result in a material adverse effect on our business. In addition, counterfeit versions of some of our products may be sold by third parties, which may pose safety risks, may fail to meet consumers\u2019 expectations, and may have a negative impact on our business.\nOur success depends, in part, on our key personnel.\nOur success depends, in part, on our ability to retain our key personnel, including our executive officers and senior management team. The unexpected loss of, or misconduct by, one or more of our key employees could adversely affect our business. Our success also depends, in part, on our continuing ability to identify, hire, train and retain personnel across all levels of our business. Competition for employees can be intense. We may not be able to attract, assimilate or retain necessary personnel in the future, and our failure to do so could have a material adverse effect on our business. This risk may be exacerbated by the stresses associated with the implementation of our strategic plan and other initiatives, as well as by market conditions.\n20\nTable of Contents\nWe are subject to risks related to the global scope of our operations. \nWe operate on a global basis, with a substantial majority of our fiscal 2023 net sales and operating income generated outside the United States. We maintain offices in over 50 countries and have key operational facilities located inside and outside the United States that manufacture, warehouse or distribute goods for sale throughout the world. Our global operations are subject to many risks and uncertainties, including: (i) fluctuations in foreign currency exchange rates and the relative costs of operating in different places, which can affect our results of operations, the value of our foreign assets, the relative prices at which we and competitors sell products in the same markets, the cost of certain inventory and non-inventory items required in our operations, and the relative prices at which we sell our products in different markets; (ii) foreign or U.S. laws, regulations and policies, including restrictions on trade, immigration and travel, operations, and investments; currency exchange controls; restrictions on imports and exports, including license requirements; tariffs; sanctions; and taxes; (iii) lack of well-established or reliable legal and administrative systems in certain countries in which we operate; (iv) adverse weather conditions and natural disasters; (v) concentration of sales growth or profitability in one or more countries (e.g., China); and (vi) social, economic and geopolitical conditions, such as a pandemic, terrorist attack, war or other military action. These risks could have a material adverse effect on our business.\nA disruption in our operations, including supply chain, could adversely affect our business.\nAs a company engaged in manufacturing and distribution on a global scale, we are subject to the risks inherent in such activities. Such risks include industrial accidents, environmental events, strikes and other labor disputes, capacity constraints, disruptions in ingredient, material or packaging supply, as well as global shortages, disruptions in supply chain or information technology, loss or impairment of key manufacturing or distribution sites or suppliers, product quality control, safety, increase in commodity prices and energy costs, licensing requirements and other regulatory issues, as well as natural disasters, outages due to fire, floods, power loss, telecommunications failures, break-ins and other events or external factors over which we have no control. If such an event were to occur, it could have a material adverse effect on our business.\nWe use a wide variety of direct and indirect suppliers of goods and services from around the world. Some of our products rely on a single or a limited number of suppliers. Changes in the financial or business condition of our suppliers could subject us to losses or adversely affect our ability to bring products to market. Further, the failure of our suppliers to deliver goods and services in sufficient quantities, in compliance with applicable standards, and in a timely manner could adversely affect our customer service levels and overall business. In addition, any increases in the costs of goods and services for our business may adversely affect our profit margins if we are unable to pass along any higher costs in the form of price increases or otherwise achieve cost efficiencies in our operations.\n As we outsource functions, we become more dependent on the entities performing those functions.\nAs part of our long-term strategy, we are continually looking for opportunities to provide essential business services in a more cost-effective manner. In some cases, this requires the outsourcing of functions or parts of functions that can be performed more effectively by external service providers. These include certain information technology, supply chain, finance and human resource functions. The failure of one or more such providers to deliver the expected services, provide them on a timely basis or to provide them at the prices we expect may have a material adverse effect on our business. In addition, when we transition external service providers, we may experience challenges that could have a material adverse effect on our business.\nRisks related to Legal and Regulatory Matters\nChanges in laws, regulations and policies that affect our business could adversely affect our financial results.\nOur business is subject to numerous laws, regulations and policies around the world.\u00a0Changes in these laws, regulations and policies, including the interpretation or enforcement thereof, that affect our business could adversely affect our financial results.\u00a0These changes include accounting standards, as well as laws and regulations relating to tax matters, trade (including sanctions), data privacy (e.g., General Data Protection Regulation (GDPR)), cybersecurity, anti-corruption, advertising, marketing, manufacturing, distribution, customs matters, product registration, ingredients, chemicals, packaging, selective distribution, and environmental or climate change matters.\n21\nTable of Contents\nDisputes and other legal or regulatory proceedings could adversely affect our financial results.\nWe are, and may in the future become, party to litigation, other disputes or regulatory proceedings across a wide range of matters, including ones relating to product liability matters (including asbestos-related claims), advertising, regulatory, employment, intellectual property, real estate, environmental, trade relations, tax and privacy. In general, claims made by us or against us in litigation, disputes or other proceedings can be expensive and time consuming and could result in settlements, injunctions or damages that could significantly affect our business.\u00a0It is not possible to predict the final resolution of the litigation, disputes or proceedings to which we currently are or may in the future become party to, and the impact of certain of these matters could have a material adverse effect on our business\n.\nGovernment reviews, inquiries, investigations and actions could harm our business.\nAs we operate in various locations around the world, our operations are subject to governmental scrutiny and may be adversely impacted by the results of such scrutiny.\u00a0The regulatory environment with regard to our business is evolving, and officials often exercise broad discretion in deciding how to interpret and apply applicable regulations.\u00a0From time to time, we may receive formal and informal inquiries from various government regulatory authorities, as well as self-regulatory organizations, about our business and compliance with local laws, regulations or standards.\u00a0Any determination that our operations or activities, or the activities of our employees, are not in compliance with existing laws, regulations or standards could negatively impact us in a number of ways, including the imposition of substantial fines, interruptions of business, loss of supplier, vendor or other third-party relationships, termination of necessary licenses and permits, or similar results, all of which could potentially harm our business.\u00a0Regardless of the outcomes, these reviews, inquiries, investigations and actions could create negative publicity which could harm our business.\nRisks related to Technology and Cybersecurity Matters\nThe compromise or interruption of, or damage to, our information technology (including our operational technology and websites) by cybersecurity incidents, data security breaches, other security problems, design defects or system failures could have a material negative impact on our business.\nWe rely on information technology that supports our business processes, including research and development, product development, production, distribution, marketing, sales, order processing, consumer experiences, human resource management, finance and internal and external communications throughout the world. We have e-commerce, m-commerce and other Internet websites in the United States and many other countries. \nWe experience cybersecurity incidents of varying degrees on our information technology and, as a result, unauthorized parties have obtained in the past, and may obtain in the future, access to our systems and data (including unauthorized acquisition of such data). As we disclosed on July 18, 2023, and as noted in Part II, Item 7, Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations, an unauthorized third party gained access to some of our systems and data (including unauthorized acquisition of such data), which caused disruption to parts of our business operations and resulted in various expenses for investigation, remediation and other related matters.\nCybersecurity incidents at our Company have in the past resulted from, and may in the future result from, social engineering or impersonation of authorized users, and may also result from efforts to discover and exploit design flaws, bugs, security vulnerabilities or security weaknesses, intentional or unintentional acts by employees or other insiders with access privileges, intentional acts of vandalism or fraud by third parties and sabotage. In some instances, efforts to correct vulnerabilities or prevent incidents have in the past and may in the future reduce the functionality or performance of our information technology, which could negatively impact our business.  Cybersecurity incidents can be caused by ransomware, distributed denial-of-service attacks, worms, and other malicious software programs or other attacks, including the covert introduction of malware to our information technology, and the use of techniques or processes that change frequently, may be disguised or difficult to detect, or are designed to remain dormant until a triggering event, and may continue undetected for an extended period of time.  In addition, some of our suppliers, vendors, service providers, cloud solution providers and customers have in the past experienced, and may in the future experience, such incidents, which could in turn disrupt our business.  Insurance policies that may provide coverage with regard to such events may not cover any or all of the resulting financial losses.\n22\nTable of Contents\nAs part of our normal business activities, we collect and store certain information that is confidential, proprietary or otherwise sensitive, including personal information of consumers, customers, suppliers, service providers and employees. We share some of this information with certain third parties who assist us with business matters. Moreover, the success of our operations depends upon the secure transmission of confidential, proprietary or otherwise sensitive data, including personal information, over networks. Any unauthorized access or data acquisition, despite security measures in place to protect such data, or other failure on the part of us or third parties to maintain the security of such data could result in business disruption, damage to our reputation, financial obligations to third parties, legal obligations, fines, penalties, regulatory proceedings and private litigation with potentially large costs, and also could result in deterioration in confidence in our Company and other competitive disadvantages, and thus could have a material adverse effect on our business. \nIn addition, a cybersecurity incident could require that we expend significant additional resources on remediation, restoration and enhancement of our information technology.\nRisks related to our Securities and our Ownership Structure\nThe trading prices of our securities periodically may rise or fall based on the accuracy of predictions of our financial performance.\nOur business planning process is designed to maximize our long-term strength, growth and profitability, not to achieve an earnings target in any particular fiscal quarter.\u00a0We believe that this longer-term focus is in the best interests of the Company and our stockholders.\u00a0At the same time, however, we recognize that it may be helpful to provide investors with guidance as to our expectations regarding certain aspects of our business.\u00a0This could include forecasts of net sales, earnings per share and other financial metrics or projections.\u00a0We assume no responsibility to provide or update guidance, and any longer-term guidance we may provide is based on goals that we believe, at the time guidance is given, are reasonably attainable for growth and performance over a number of years.\u00a0We historically have paid dividends on our common stock and repurchased shares of our Class\u00a0A Common Stock; however, at times we have suspended the declaration of dividends and/or the repurchase of our Class A Common Stock. Going forward, at any time, we could stop, suspend or change the amounts of dividends or stop or suspend our stock repurchase program, and any such action could cause the market price of our stock to decline.\nIn all of our public statements when we make, or update, a forward-looking statement about our business, whether it be about net sales or earnings expectations or expectations regarding restructuring or other initiatives, or otherwise, we accompany such statements directly, or by reference to a public document, with a list of factors that could cause our actual results to differ materially from those we expect.\u00a0Such a list is included, among other places, in our earnings press release and in our periodic filings with the SEC (e.g., in our reports on Form\u00a010-K and Form\u00a010-Q).\u00a0These and other factors may make it difficult for us and for outside observers, such as research analysts, to predict what our earnings or other financial metrics, or business outcomes, will be in any given fiscal quarter or year.\nOutside analysts and investors have the right to make their own predictions of our business for any future period.\u00a0Outside analysts, however, have access to no more material information about our results or plans than any other public investor, and we do not endorse their predictions as to our future performance.\u00a0Nor do we assume any responsibility to correct the predictions of outside analysts or others when they differ from our own internal expectations.\u00a0If our actual results differ from those that outside analysts or others have been predicting, the market price of our securities could be affected.\u00a0Investors who rely on the predictions of outside analysts or others when making investment decisions with respect to our securities do so at their own risk.\u00a0We take no responsibility for any losses suffered as a result of such changes in the prices of our securities.\nWe are controlled by the Lauder family.\u00a0As a result, the Lauder family has the ability to prevent or cause a change in control or approve, prevent or influence certain actions by us.\nAs of August\u00a011, 2023, members of the Lauder family beneficially own, directly or indirectly, shares of the Company\u2019s Class\u00a0A Common Stock (with one vote per share) and Class\u00a0B Common Stock (with 10 votes per share) having approximately 84% of the outstanding voting power of the Common Stock.\u00a0In addition, there are four members of the Lauder family who are Company employees and members of our Board of Directors.\nAs a result of their stock ownership and positions at the Company, as well as our dual-class structure, the Lauder family has the ability to exercise significant control and influence over our business, including all matters requiring stockholder approval (e.g., the election of directors, amendments to the certificate of incorporation, and significant corporate transactions, such as a merger or other sale of our Company or its assets) for the foreseeable future.\u00a0In addition, if significant stock indices decide to prohibit the inclusion of companies with dual-class stock structures, the price of our Class\u00a0A Common Stock could be negatively impacted and could become more volatile.\n23\nTable of Contents\nWe are a \u201ccontrolled company\u201d within the meaning of the New York Stock Exchange rules\u00a0and, as a result, are relying on exemptions from certain corporate governance requirements that are designed to provide protection to stockholders of companies that are not \u201ccontrolled companies.\u201d\nThe Lauder family and their related entities own more than 50% of the total voting power of our common shares and, as a result, we are a \u201ccontrolled company\u201d under the New York Stock Exchange corporate governance standards.\u00a0As a controlled company, we are exempt under the New York Stock Exchange standards from the obligation to comply with certain New York Stock Exchange corporate governance requirements, including the requirements that (1)\u00a0a majority of our board of directors consists of independent directors; (2)\u00a0we have a nominating committee that is composed entirely of independent directors with a written charter addressing the committee\u2019s purpose and responsibilities; and (3)\u00a0we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee\u2019s purpose and responsibilities.\nWhile we have voluntarily caused our Board to have a majority of independent directors and the written charters of our Nominating and ESG Committee and Compensation Committee to have the required provisions, we are not requiring our Nominating and ESG Committee and Compensation Committee to be comprised solely of independent directors.\u00a0As a result of our use of the \u201ccontrolled company\u201d exemptions, investors will not have the same protection afforded to stockholders of companies that are subject to all of the New York Stock Exchange corporate governance requirements.",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2013 Financial Condition\n of the Company\u2019s Annual Report on Form\u00a010-K for the fiscal year ended June\u00a030, 2022 for the fiscal 2022 to fiscal 2021 comparative discussions.\nDividends\nFor a summary of quarterly cash dividends declared per share on our Class\u00a0A and Class\u00a0B Common Stock during the year ended June\u00a030, 2023 and through August\u00a011, 2023, see \nItem 8. Financial Statements and Supplementary Data \u2013 Note 17 \u2013 Common Stock\n. \nPension and Post-retirement Plan Funding\nSeveral factors influence the annual funding requirements for our pension plans.\u00a0For our domestic trust-based noncontributory qualified defined benefit pension plan (\u201cU.S. Qualified Plan\u201d), we seek to maintain appropriate funded percentages.\u00a0For any future contributions to the U.S. Qualified Plan, we would seek to contribute an amount or amounts that would not be less than the minimum required by the Employee Retirement Income Security Act of 1974, as amended, (\u201cERISA\u201d) and subsequent pension legislation, and would not be more than the maximum amount deductible for income tax purposes.\u00a0For each international plan, our funding policies are determined by local laws and regulations.\u00a0In addition, amounts necessary to fund future obligations under these plans could vary depending on estimated assumptions\n.\n\u00a0The effect of our pension plan funding on future operating results will depend on economic conditions, employee demographics, mortality rates, the number of participants electing to take lump-sum distributions, investment performance and funding decisions.\nFor the U.S. Qualified Plan, we maintain an investment strategy of matching the duration of a substantial portion of the plan assets with the duration of the underlying plan liabilities.\u00a0This strategy assists us in maintaining our overall funded ratio.\u00a0For fiscal 2023 and 2022, we met or exceeded all contribution requirements under ERISA regulations for the U.S. Qualified Plan.\u00a0We expect to make a $50 million discretionary contribution to the U.S. Qualified Plan in the first quarter of fiscal 2024. As we continue to monitor the funded status, we may decide to make additional cash contributions to the U.S. Qualified Plan or our post-retirement medical plan in the United States during fiscal 2024.\nThe following table summarizes actual and expected benefit payments and contributions for our other pension and post-retirement plans:\n\u00a0\nYear Ended June\u00a030\n(In millions)\nExpected 2024\n2023\n2022\nNon-qualified domestic noncontributory pension plan benefit payments\n$\n22\u00a0\n$\n14\u00a0\n$\n18\u00a0\nInternational defined benefit pension plan contributions\n$\n28\u00a0\n$\n35\u00a0\n$\n38\u00a0\nPost-retirement plan benefit payments\n$\n11\u00a0\n$\n13\u00a0\n$\n11\u00a0\nCommitments and Contingencies\nFor a discussion of our contingencies, see to \nItem 8. Financial Statements and Supplementary Data \u2013 Note 16 \u2013 Commitments and Contingencies (Contractual Obligations)\n.\n51\nTable of Contents\nContractual Obligations\nFor a discussion of our contractual obligations, see \nItem 8. Financial Statements and Supplementary Data \u2013 Note 16 \u2013 Commitments and Contingencies (Contractual Obligations)\n.\nDerivative Financial Instruments and Hedging Activities\nFor a discussion of our derivative financial instruments and hedging activities, see \nItem 8. Financial Statements and Supplementary Data \u2013 Note 12 \u2013 Derivative Financial Instruments\n.\nForeign Exchange Risk Management\nFor a discussion of foreign exchange risk management, see \nItem 8. Financial Statements and Supplementary Data \u2013 Note 12 \u2013 Derivative Financial Instruments (Cash Flow Hedges, Net Investment Hedges)\n.\nCredit Risk\nFor a discussion of credit risk, see \nItem 8. Financial Statements and Supplementary Data \u2013 Note 12 \u2013 Derivative Financial Instruments (Credit Risk)\n.\nMarket Risk\nWe address certain financial exposures through a controlled program of market risk management that includes the use of foreign currency forward contracts to reduce the effects of fluctuating foreign currency exchange rates and to mitigate the change in fair value of specific assets and liabilities on the balance sheet.\u00a0To perform a sensitivity analysis of our foreign currency forward contracts, we assess the change in fair values from the impact of hypothetical changes in foreign currency exchange rates.\u00a0A hypothetical 10% weakening of the U.S. dollar against the foreign exchange rates for the currencies in our portfolio would have resulted in a net decrease in the fair value of our portfolio of approximately $265 million and $259 million as of June\u00a030, 2023 and 2022, respectively.\u00a0This potential change does not consider our underlying foreign currency exposures.\nWe also enter into cross-currency swap contracts to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt. A hypothetical 10% weakening of the U.S. dollar against the foreign exchange rates for the currencies in our cross-currency swap contracts would have resulted in a net decrease in the fair value of our cross-currency swap contracts of approximately $49\u00a0million as of June 30, 2023.\nIn addition, we enter into interest rate derivatives to manage the effects of interest rate movements on our aggregate liability portfolio, including future debt issuances. Based on a hypothetical 100 basis point increase in interest rates, the estimated fair value of our interest rate derivatives would decrease by approximately $55 million and $41 million as of June\u00a030, 2023 and 2022, respectively. \nOur sensitivity analysis represents an estimate of reasonably possible net losses that would be recognized on our portfolio of derivative financial instruments assuming hypothetical movements in future market rates and is not necessarily indicative of actual results, which may or may not occur.\u00a0It does not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in our portfolio of derivative financial instruments during the year.\u00a0We believe, however, that any such loss incurred would be offset by the effects of market rate movements on the respective underlying transactions for which the derivative financial instrument was intended.\nOFF-BALANCE SHEET ARRANGEMENTS\nWe do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.\nRECENTLY ISSUED ACCOUNTING STANDARDS\nRefer to \nItem 8. Financial Statements and Supplementary Data \u2013 Note 2 \u2013 Summary of Significant Accounting Policies\n for discussion regarding the impact of accounting standards that were recently issued but not yet effective, on our consolidated financial statements.\n52\nTable of Contents\nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\nThe discussion and analysis of our financial condition at June\u00a030, 2023 and our results of operations for the three fiscal years ended June\u00a030, 2023 are based upon our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles (\u201cU.S. GAAP\u201d).\u00a0The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those financial statements.\u00a0These estimates and assumptions can be subjective and complex and, consequently, actual results could differ from those estimates.\u00a0We consider accounting estimates to be critical if both (i)\u00a0the nature of the estimate or assumption is material due to the levels of subjectivity and judgment involved, and (ii)\u00a0the impact within a reasonable range of outcomes of the estimate and assumption is material to the Company\u2019s financial condition.\u00a0Our critical accounting policies relate to Goodwill and Other Indefinite-lived Intangible Assets - Impairment Assessment, Income Taxes, and Asset Acquisition.\nManagement of the Company has discussed the selection of critical accounting policies and the effect of estimates with the Audit Committee of the Company\u2019s Board of Directors.\nGoodwill and Other Indefinite-lived Intangible Assets \u2013 Impairment Assessment\nGoodwill is calculated as the excess of the cost of purchased businesses over the fair value of their underlying net assets.\u00a0Other indefinite-lived intangible assets principally consist of trademarks.\u00a0Goodwill and other indefinite-lived intangible assets are not amortized.\nWhen testing goodwill and other indefinite-lived intangible assets for impairment, we have the option of first performing a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test.\u00a0If necessary, we can perform a single step quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and record an impairment charge for the amount that the carrying amount exceeds the fair value, up to the total amount of goodwill allocated to that reporting unit. \nFor fiscal 2023, we elected to perform the qualitative assessment for the goodwill in certain of our reporting units and other indefinite-lived intangible assets. This qualitative assessment included the review of certain macroeconomic factors and entity-specific qualitative factors to determine if it was more-likely-than-not that the fair values of its reporting units were below carrying value.\u00a0We considered macroeconomic factors including the global economic growth, general macroeconomic trends for the markets in which the reporting units operate and the intangible assets are employed, and the growth of the global prestige beauty industry.\u00a0In addition to these macroeconomic factors, among other things, we considered the reporting units\u2019 current results and forecasts, any changes in the nature of the business, any significant legal, regulatory, contractual, political or other business climate factors, changes in the industry/competitive environment, changes in the composition or carrying amount of net assets and its intention to sell or dispose of a reporting unit or cease the use of a trademark.\nFor fiscal 2023, a quantitative assessment was performed for the goodwill in certain of our reporting units and other indefinite-lived intangible assets. We engaged third-party valuation specialists and used industry accepted valuation models and criteria that were reviewed and approved by various levels of management. To determine the estimated fair value of the reporting units, we used an equal weighting of the income and market approaches. Under the income approach, we determined fair value using a discounted cash flow method, projecting future cash flows of each reporting unit, as well as a terminal value, and discounting such cash flows at a rate of return that reflected the relative risk of the cash flows. Under the market approach, we utilized market multiples from publicly traded companies with similar operating and investment characteristics as the reporting unit. The significant assumptions used in these two approaches include revenue growth rates and profit margins, terminal value, the weighted average cost of capital used to discount future cash flows and comparable market multiples. To determine the estimated fair value of other indefinite-lived intangible assets, we used an income approach, specifically the relief-from-royalty method. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. The significant assumptions used in this approach include revenue growth rates, terminal value, the weighted average cost of capital used to discount future cash flows and royalty rate. \n53\nTable of Contents\nFor fiscal 2022, we elected to perform the quantitative assessment for the goodwill in each of its reporting units and indefinite-lived intangible assets. We engaged a third-party valuation specialist and used industry accepted valuation models and criteria that were reviewed and approved by various levels of management.\u00a0To determine the estimated fair value of the reporting units, we used an equal weighting of the income and market approaches.\u00a0Under the income approach, we determined fair value using a discounted cash flow method, projecting future cash flows of each reporting unit, as well as a terminal value, and discounting such cash flows at a rate of return that reflected the relative risk of the cash flows.\u00a0Under the market approach, we utilized market multiples from publicly traded companies with similar operating and investment characteristics as the reporting unit.\u00a0The significant assumptions used in these two approaches include revenue growth rates and profit margins, terminal value, the weighted average cost of capital used to discount future cash flows and comparable market multiples.\u00a0To determine the estimated fair value of other indefinite-lived intangible assets, we used an income approach, specifically the relief-from-royalty method.\u00a0This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. The significant assumptions used in this approach include revenue growth rates, terminal value, the weighted average cost of capital used to discount future cash flows and royalty rate.\nFor further discussion of the methods used and factors considered in our estimates as part of the impairment testing for Goodwill and Other Indefinite-lived Intangible Assets, see \nItem 8. Financial Statements and Supplementary Data \u2013 Note 2 \u2013 Summary of Significant Accounting Policies\n, \nNote 6 \u2013 Goodwill and Other Intangible Assets\n.\nIncome Taxes\nWe calculate and provide for income taxes in each tax jurisdiction in which we operate.\u00a0As the application of various tax laws relevant to our global business is often uncertain, significant judgment is required in determining our annual tax expense and in evaluating our tax positions.\u00a0The provision for income taxes includes the amounts payable or refundable for the current year, the effect of deferred taxes and impacts from uncertain tax positions.\nWe recognize deferred tax assets and liabilities for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis, net operating losses, tax credit and other carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates when the assets and liabilities are expected to be realized or settled.\u00a0We regularly review deferred tax assets for realizability and establish valuation allowances based on available evidence including historical operating losses, projected future taxable income, expected timing of the reversals of existing temporary differences, and appropriate tax planning strategies.\u00a0If our assessment of the realizability of a deferred tax asset changes, an increase to a valuation allowance will result in a reduction of net earnings at that time, while the reduction of a valuation allowance will result in an increase of net earnings at that time.\nWe provide tax reserves for U.S. federal, state, local and foreign tax exposures relating to periods subject to audit.\u00a0The development of reserves for these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective critical estimate. We assess our tax positions and record tax benefits for all years subject to examination based upon management\u2019s evaluation of the facts, circumstances, and information available at the reporting dates.\u00a0For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon settlement with a tax authority that has full knowledge of all relevant information.\u00a0For those tax positions where it is more-likely-than-not that a tax benefit will not be sustained, no tax benefit has been recognized in the consolidated financial statements.\u00a0We classify applicable interest and penalties as a component of the provision for income taxes.\u00a0Although the outcome relating to these exposures is uncertain, in our opinion adequate provisions for income taxes have been made for estimable potential liabilities emanating from these exposures.\u00a0If actual outcomes differ materially from these estimates, they could have a material impact on our consolidated net earnings.\nFor further discussion of Income Taxes, see \nItem 8. Financial Statements and Supplementary Data \u2013 Note 2 \u2013 Summary of Significant Accounting Policies\n and \nNote 9 \u2013 Income Taxes\n.\nAsset Acquisition\nWe recognize assets acquired in an asset acquisition based on the cost to the Company on a relative fair value basis, which includes transaction costs in addition to consideration transferred and liabilities assumed or issued as part of the transaction. Neither goodwill nor bargain purchase gains are recognized in an asset acquisition; any excess of consideration transferred over the fair value of the net assets acquired, or the opposite, is allocated to qualifying assets based on their relative fair values. The determination of fair value, as well as the expected useful lives of certain assets acquired, requires management to make judgments and may involve the use of significant estimates, including assumptions with respect to estimated future cash flows and discount rates, among other things. Management estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.\n54\nTable of Contents\nDuring fiscal 2023, we acquired 100% of the equity interests in 001 Del LLC (\u201c001\u201d) in exchange for $2,550 million in consideration (the \u201cTOM FORD Acquisition\u201d). The TOM FORD Acquisition has been accounted for as an asset acquisition as the fair value of the gross assets acquired is concentrated in the value of the TOM FORD trademark intangible asset. The acquisition of 001 included existing license relationships for certain uses of the brand name, which were modified, terminated or otherwise renegotiated in connection with the transaction.\nThe total cost of the asset acquisition is $2,578 million and was allocated to the TOM FORD trademark.  We engaged a third-party valuation specialist and used an income approach, specifically the relief-from-royalty method, to determine the fair value of the TOM FORD trademark. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. The significant assumptions used to estimate the fair value were revenue growth rates, terminal value, beauty royalty savings, the weighted average cost of capital used to discount future cash flows and royalty rates. \nFor further discussion of Business Combinations and Asset Acquisitions, see \nItem 8. Financial Statements and Supplementary Data \u2013 Note 2 \u2013 Summary of Significant Accounting Policies\n, \nNote 5 \u2013 Business and Asset Acquisitions \nand \nNote 6 \u2013 Goodwill and Other Intangible Assets\n.\nCAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION\nWe and our representatives from time to time make written or oral forward-looking statements, including in this and other filings with the Securities and Exchange Commission, in our press releases and in our reports to stockholders, which may constitute \u201cforward-looking statements\u201d within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may address our expectations regarding sales, earnings or other future financial performance and liquidity, other performance measures, product introductions, entry into new geographic regions, information technology initiatives, new methods of sale, our long-term strategy, restructuring and other charges and resulting cost savings, and future operations or operating results.\u00a0These statements may contain words like \u201cexpect,\u201d \u201cwill,\u201d \u201cwill likely result,\u201d \u201cwould,\u201d \u201cbelieve,\u201d \u201cestimate,\u201d \u201cplanned,\u201d \u201cplans,\u201d \u201cintends,\u201d \u201cmay,\u201d \u201cshould,\u201d \u201ccould,\u201d \u201canticipate,\u201d \u201cestimate,\u201d \u201cproject,\u201d \u201cprojected,\u201d \u201cforecast,\u201d and \u201cforecasted\u201d or similar expressions.\u00a0Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, actual results may differ materially from our expectations. Factors that could cause actual results to differ from expectations include, without limitation:\n(1)\nincreased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses;\n(2)\nour ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in our business;\n(3)\nconsolidations, restructurings, bankruptcies and reorganizations in the retail industry causing a decrease in the number of stores that sell our products, an increase in the ownership concentration within the retail industry, ownership of retailers by our competitors or ownership of competitors by our customers that are retailers and our inability to collect receivables;\n(4)\ndestocking and tighter working capital management by retailers;\n(5)\nthe success, or changes in timing or scope, of new product launches and the success, or changes in timing or scope, of advertising, sampling and merchandising programs;\n(6)\nshifts in the preferences of consumers as to where and how they shop;\n(7)\nsocial, political and economic risks to our foreign or domestic manufacturing, distribution and retail operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States;\n(8)\nchanges in the laws, regulations and policies (including the interpretations and enforcement thereof) that affect, or will affect, our business, including those relating to our products or distribution networks, changes in accounting standards, tax laws and regulations, environmental or climate change laws, regulations or accords, trade rules\u00a0and customs regulations, and the outcome and expense of legal or regulatory proceedings, and any action we may take as a result;\n(9)\nforeign currency fluctuations affecting our results of operations and the value of our foreign assets, the relative prices at which we and our foreign competitors sell products in the same markets and our operating and manufacturing costs outside of the United States;\n55\nTable of Contents\n(10)\nchanges in global or local conditions, including those due to volatility in the global credit and equity markets, natural or man-made disasters, real or perceived epidemics, supply chain challenges, inflation, or increased energy costs, that could affect consumer purchasing, the willingness or ability of consumers to travel and/or purchase our products while traveling, the financial strength of our customers, suppliers or other contract counterparties, our operations, the cost and availability of capital which we may need for new equipment, facilities or acquisitions, the returns that we are able to generate on our pension assets and the resulting impact on funding obligations, the cost and availability of raw materials and the assumptions underlying our critical accounting estimates;\n(11)\nimpacts attributable to the COVID-19 pandemic, including disruptions to our global business;\n(12)\nshipment delays, commodity pricing, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities that manufacture our products or at our distribution or inventory centers, including disruptions that may be caused by the implementation of information technology initiatives, or by restructurings;\n(13)\nreal estate rates and availability, which may affect our ability to increase or maintain the number of retail locations at which we sell our products and the costs associated with our other facilities;\n(14)\nchanges in product mix to products which are less profitable;\n(15)\nour ability to acquire, develop or implement new information technology, including operational technology and websites, on a timely basis and within our cost estimates; to maintain continuous operations of our new and existing information technology; and to secure the data and other information that may be stored in such technologies or other systems or media;\n(16)\nour ability to capitalize on opportunities for improved efficiency, such as publicly-announced strategies and restructuring and cost-savings initiatives, and to integrate acquired businesses and realize value therefrom;\n(17)\nconsequences attributable to local or international conflicts around the world, as well as from any terrorist action, retaliation and the threat of further action or retaliation;\n(18)\nthe timing and impact of acquisitions, investments and divestitures; and\n(19)\nadditional factors as described in our filings with the Securities and Exchange Commission, including this Annual Report on Form\u00a010-K for the fiscal year ended June\u00a030, 2023.\nWe assume no responsibility to update forward-looking statements made herein or otherwise.",
+  "item7a": ">Item 7A.\u00a0\u00a0\nQuantitative and Qualitative Disclosures About Market Risk.\nThe information required by this item is set forth in Item 7 of this Annual Report on Form\u00a010-K under the caption \nLiquidity and Capital Resources \u2013 Market Risk\n and is incorporated herein by reference.",
+  "cik": "1001250",
+  "cusip6": "518439",
+  "cusip": ["518439104", "518439904", "518439954"],
+  "names": ["Estee Lauder Companies Inc. Class A", "LAUDER ESTEE COS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1001250/000100125023000112/0001001250-23-000112-index.htm"
+}
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+{
+  "item1": ">Item 1.  Business\nIncorporated in 1991, OpenText has grown to be a leader in Information Management offering a comprehensive line of Information Management products and services that power and protect businesses of all sizes. OpenText\u2019s Information Management solutions manage the creation, capture, use, analysis and lifecycle of structured and unstructured data. Our Information Management solutions are designed to help organizations extract value and insights from their information, secure that information and meet the growing list of privacy and compliance requirements. OpenText helps customers improve efficiencies, redefine business models and transform industries.\nOur products are available in private cloud, public cloud, off-cloud and application programming interface (API) cloud, or any combination thereof, to support the customer\u2019s preferred deployment option. In providing choice and flexibility, we strive to maximize the lifetime value of the relationship with our customers and support their information-led transformation journey. \nBusiness Overview and Strategy \nAbout OpenText\nOpenText is an Information Management company that provides software and services that empower digital businesses of all sizes to become more intelligent, connected, secure and responsible. The comprehensive OpenText Information Management platform and services provide secure and scalable solutions for global enterprises, SMBs, governments and consumers around the world. With critical tools and services for connecting and classifying data, OpenText accelerates customers\u2019 ability to deploy Artificial Intelligence (AI), automate work, and strengthen productivity. The benefits of interconnected information enable customers to enhance real-time decision-making, meet new compliance standards, manage across multi-cloud environments, and stay cyber resilient with secure data. With rising compliance standards for data management, security, environmental, sustainability, and inclusion factors, OpenText empowers customers with foresight and trust. \nOur products are fundamentally integrated into the operations and existing software systems of our customers\u2019 businesses, so customers can securely manage the complexity of information flow end-to-end. Through automation and AI, we connect, synthesize and deliver information when and where needed to drive new efficiencies, experiences and insights. We make information more valuable by connecting it to digital business processes, enriching it with insights, protecting and securing it throughout its entire lifecycle and leveraging it to create engaging digital experiences. Our solutions connect large digital supply chains, IT service management ecosystems, application development and delivery workflows, and processes in many industries including manufacturing, retail and financial services.\nOur solutions also enable organizations and consumers to secure their information so that they can collaborate with confidence, stay ahead of the regulatory technology curve and identify threats across their endpoints and networks. With a multi-layered security approach, we have a wide range of OpenText Cybersecurity solutions that power and protect at the data management layer, at the infrastructure and application layers, at the code, and at the edge, offering insights and threat intelligence across it all.\nOur investments in research and development (R&D) push product innovation, increasing the value of our offerings to our installed customer base and to new customers, which include Global 10,000 companies (G10K), SMBs and consumers. Our R&D leverages our existing investments in the OpenText Cloud with the aim of ensuring that all our cloud products provide our customers with insights, meet compliance regulations and provide a seamless experience across our portfolio. Businesses of all sizes rely on a combination of public and private clouds, managed cloud services and off-cloud solutions. Looking ahead, the destination for our customers is hybrid and multi-cloud and our innovation roadmap is designed to provide flexibility in all environments. On January 31, 2023, we completed the acquisition of all of the outstanding ordinary shares of Micro Focus International Limited, formerly Micro Focus International plc (Micro Focus), a leading provider of mission-critical software technology and services that help customers accelerate digital transformation.\nOur Products and Services\nWe leverage a common set of technologies, processes and systems to deliver our complete and integrated portfolio of Information Management solutions at scale to meet the demands and needs of a global market. Our solutions are marketed and delivered on the OpenText Cloud Platform, which supports customer deployments from private cloud to public cloud to off-cloud to API. Our architectural approach puts at the forefront the ability for customers to have the flexibility and customization they need in a hybrid multi-cloud world. The OpenText Cloud is a comprehensive Information Management platform consisting of six business clouds: our Content Cloud, Cybersecurity Cloud, \n7\nTable of Contents\nApplication Automation Cloud, Business Network Cloud, IT Operations Management Cloud and Analytics & AI Cloud. In addition to our six business clouds, we have the Developers Cloud to help unleash developer creativity.\nWith embedded AI and analytics, our solutions improve business insight, employee productivity, customer experiences, asset utilization, collaboration, supply chain efficiency and risk management. Our innovation roadmap is focused on investing a significant amount of our R&D in cloud and AI capabilities. This includes enhancing the capabilities and deployment options of the acquired Micro Focus products, growing our public cloud and API offerings, driving deep integrations through co-innovations with partners, integrating security, analytics and AI solutions throughout our offerings and investing to meet new compliance standards. Our platform offers multi-level, multi-role and multi-context security. Information is secured at the data level, by user-enrolled security, context rights and time-based security. We also provide encryption at rest for document-level security. Below is a listing of our Information Management solutions.\nFor the year ended June 30, 2023, total revenues is comprised of 45% from Content Cloud, 20% from Cybersecurity Cloud, 15% from Business Network Cloud, 10% from Application Automation Cloud, 5% from IT Operations Management Cloud and 5% from Analytics & AI Cloud, with revenues from Business Network Cloud and Cybersecurity Cloud primarily derived from Cloud revenues, and the remaining primarily derived from Customer support revenues.\nContent Cloud\nOur Content Cloud empowers customers to gain an information advantage through robust content management, improved integrations and intelligent automation. It connects content to the digital business eliminating silos and providing convenient, secure and compliant remote access to both structured and unstructured data, boosting productivity and insights and reducing risk. Our solutions manage the lifecycle, distribution, use and analysis of information across the organization, from capture through archiving and disposition.\nOur Content Services solutions range from content collaboration and intelligent capture to records management, collaboration, e-signatures and archiving, and are available off-cloud, on a cloud provider of the customer\u2019s choice, as a subscription in the OpenText Cloud, in a hybrid environment or as a managed service. Our Content Services solutions enable customers to capture data from paper, electronic files and other sources and transform it into digital content delivered directly into content management solutions, business processes and analytic applications. Our customers can protect critical historical information within a secure, centralized archiving solution. OpenText Content Services adhere to the Content Management Interoperability Services (CMIS) standard and support a broad range of operating systems, databases, application servers and applications.\nOur Content Services integrate with the applications that manage critical business processes, such as SAP\u00ae S/4HANA, SAP\u00ae SuccessFactors\u00ae, Salesforce\u00ae, Microsoft\u00ae Office 365\u00ae and other software systems and applications, establishing the foundation for intelligent business process and content workflow automation. By connecting unstructured content with structured data workflows, our Content Services allow users to have the content they need, when they need it, reducing errors, driving greater business insight and increasing efficiency.\nAlso within Content Cloud, our Experience Cloud powers smarter experiences that drive revenue growth and customer loyalty. Our Digital Experience solutions create, manage, track and optimize omnichannel interactions throughout the customer journey, from acquisition to retention, and integrate with systems of record including Salesforce\u00ae and SAP\u00ae. The OpenText Digital Experience platform enables businesses to gain insights into their \n8\nTable of Contents\ncustomer interactions and optimize them to improve customer lifetime value. The platform includes solutions and extensions that deliver highly personalized content and engagements along a continuous customer journey. With AI-powered analytics, the Experience Cloud can evaluate and deliver optimized user experiences at scale to ensure every point of interaction, whether physical or digital, on any device, is engaging and personalized.\nThe Experience Cloud platform includes a range of solutions from Customer Experience Management (CXM), Web Content Management (WCM), Digital Asset Management (DAM), Customer Analytics, AI & Insights, eDiscovery, Digital Fax, Omnichannel Communications, Secure Messaging, Voice of Customer (VoC), as well as customer journey, testing and segmentation.\nCybersecurity Cloud\nOur Cybersecurity solutions provide organizations with capabilities to protect, prevent, detect, respond and quickly recover from threats across endpoints, network, applications, IT infrastructure and data, all with AI-led threat intelligence. OpenText Cybersecurity aims to protect critical information and processes through threat intelligence, forensics, identity, encryption, and cloud-based application security.\nAt the data layer, OpenText Cybersecurity helps customers be cyber-resilient with uninterrupted access and protection of business data against cyber threats. With Carbonite Endpoint, Carbonite Server, Carbonite Cloud-to-Cloud Backup and Information Archiving, we help ensure customers have visibility across all endpoints, devices and networks, for proactive discovery of sensitive data, identification of threats and sound data collection for investigation.\nAt the infrastructure and application layer, OpenText Cybersecurity solutions help detect issues and respond to and remediate threats. Our full suite of capabilities includes Application Security (Fortify), Identity and Access Management (NetIQ), Email Encryption (Voltage), Security Information and Event Management (SIEM with ArcSight), Endpoint Detection Response (EDR), Network Detection Response (NDR), Managed Detection and Response (MDR) and Digital Forensics & Incident Response. OpenText delivers services, combining front-line experience with automation, AI technology and OpenText software to help organizations detect threats in real time. Moreover, our eDiscovery capabilities provide forensics and unstructured data analytics for searching and investigating data to manage legal obligations and organizational risks. For highly regulated organizations, these machine learning capabilities help drive compliance and timely responses in complex situations. From threat prevention to detection and response, data management to investigation and compliance, OpenText Cybersecurity offers solutions to keep business operations in a trusted state across endpoints, networks, clouds, email, webservers, firewalls and logs. \nAt the edge, we help customers protect endpoints, virtual machine platforms and browsers from rising cyber-attacks. With Webroot Endpoint Protection, Webroot Domain Name System (DNS) protection, Email Security by Zix, Security Awareness Training, MDR and Threat Hunting, our security solutions are directed to the SMB and consumers segments. We serve SMB together with our network of Managed Service Providers (MSPs) who help deploy OpenText solutions at scale.\nOpenText Cybersecurity solutions help secure operations using solutions with threat intelligence. Threat monitoring with BrightCloud, remote endpoint protection and automated cloud backup and recovery work together to protect employees and customer data while allowing organizations to prepare for, respond to and recover quickly from cyber-attacks. OpenText Cybersecurity products help find information, to effectively conduct investigations, manage risk and respond to incidents. \nBusiness Network Cloud\nOur Business Network Cloud provides a foundation for digital supply chains and secure e-commerce ecosystems. Our Business Network manages data within the organization and outside the firewall, connecting people, systems and Internet of Things (IoT) devices at a global scale for those seeking to digitize and automate their procure-to-pay and order-to-cash processes. For our customers, our Business Network Cloud offerings deliver streamlined connectivity, secure collaboration and real-time business intelligence in a single, unified platform. Organizations of all sizes can build global and sustainable supply chains, rapidly onboard new trading partners, comply with regional mandates, assess their credit quality and ethics scores, provide electronic invoicing and remove information silos across ecosystems and the extended enterprise.\nThe foundation of our Business Network Cloud is our Trading Grid, which connects businesses, trading partners, transportation and logistics companies, financial institutions and government organizations globally. OpenText offers a range of application-to-application, IoT, identity and access management, active applications and industry specific applications.\n We enable supply chain optimization, digital business integration, data management, messaging, security, communications and secure data exchange across an increasingly complex network of off-cloud and cloud applications, \n9\nTable of Contents\nconnected devices, systems and people. The Business Network Cloud can be accessed through our new multi-tenant, self-service Foundation offering or as a managed service to simplify the inherent complexities of business-to-business (B2B) data exchange. OpenText\u2019s Business Network Cloud offers insights that help drive operational efficiencies, accelerate time to transaction and improve customer satisfaction.\nIT Operations Management Cloud\nOur IT Operations Management Cloud helps customers increase service levels and deliver better experiences through a more holistic management of IT assets and applications across all types of infrastructures and environments. Within IT operations management, we power IT service management for automation and advancement of IT support and asset management (SMAX). We enable customers with better AI operations management with the capabilities of network operations management (NOM) and connected data management and observability (OpsBridge). We help customers manage vulnerabilities and deployment of patches within their IT landscape through server and network automation. Lastly, with the power of our universal discovery and automation tools that can manage distributed landscapes, we help customers better manage cloud costs and carbon footprints.\nAs OpenText integrates the Micro Focus portfolio, we expect that new innovations will drive the combination of IT service management and enterprise content management to enable IT service agents with the right content and insights. Bringing the AI operations portfolio onto the OpenText private cloud is anticipated to allow customers to take advantage of the discovery capabilities on top of a private network and within private data. AI enabled tools are expected to accelerate how customers can manage and control cloud costs and carbon footprints across multiple environments. OpenText solutions are built on the integrated, AI-based OPTIC Platform to ensure IT efficiency and performance.\nAnalytics & AI Cloud\nOpenText Analytics & AI Cloud solutions bring artificial intelligence with practical usage to provide organizations with actionable insights and better automation. We help organizations overcome enterprise data challenges through visualizations, advanced natural language processing and natural language understanding and integrated computer vision capabilities. With an open architecture, Analytics & AI can integrate with external AI services, such as Google Cloud or Azure.\nOur Analytics & AI solutions feature capabilities from data analytics (Vertica) to insights from new unstructured data types (IDOL) to visualization that can be applied to key processes (Magellan, LegalTech). Our solutions help organizations process data of all types from anywhere, at any speed, and transforms data into insights that can be used in workflows through applications. These capabilities can be consumed as a full stack analytics engine or as API components embedded in other custom OEM solutions.\nIn addition, we have embedded AI data analytics in all our major offerings. Information management in the cloud, secure and intelligent and at scale; customers will benefit from our enhanced offerings.\nOur AI and analytics capabilities within Content Cloud leverage structured or unstructured data to help organizations improve decision-making, gain operational efficiencies and increase visibility through interactive dashboards, reports and data visualizations. It leverages a comprehensive set of data analytics software, such as text mining, natural language processing, interactive visualizations and machine learning, to identify patterns, relationships, risks and trends that are used for predictive process automation and accelerated decision making. Our Magellan, Vertica, and IDOL solutions support composite AI for improved accuracy, and we help customers turn repositories of operational and experience information into clean and integrated \u201cdata lakes\u201d that can be mined by AI to extract useful knowledge and insight for our customers.\nApplication Automation Cloud\nThe OpenText Application Automation Cloud focuses on helping customers re-engineer processes and quickly adapt to complex needs to deliver seamless customer and employee applications. Our cloud ready solutions speed up the development of case and process-driven applications with low-code, drag-and-drop components, reusable building blocks and pre-built accelerators to build and deploy solutions more easily. The Application Automation Cloud provides performance to functional testing, and lifecycle management of applications with improved visibility. Moreover, our professional services team works with customers to simplify complex interactions among people, content, transactions and workflows across multiple systems of record to support a diverse range of use cases.\nWithin our applications automation space, we help customers move workloads into the cloud by integrating customer applications they have on mainframes and older infrastructures. From mainframe development tools to host connectivity, our products deliver value managing a fast-paced and ever-changing IT landscape. Customers can innovate \n10\nTable of Contents\nfaster, with lower risk, by transforming their core business applications, processes, and infrastructure\u2014from mainframe to cloud.\nDevelopers Cloud\nDevelopers can access API, cloud services and software development kits (SDK) from our six business cloud offerings, through the OpenText Developer Cloud, making it faster and easier to build, extend and customize Information Management applications. Our solutions help R&D teams engage with our community of developers to innovate and build custom applications. Our API solutions help developers accelerate new product development, utilize fewer resources and reduce time to delivery for their projects. With our Developer Cloud\u2019s language-neutral protocols and cloud API services, our customers can reduce infrastructure spend, improve time-to-market and minimize the time and effort required to add new capabilities.\nThe OpenText Developer Cloud delivers a broad and deep set of Information Management capability for organizations to extend their existing OpenText implementations or include our capabilities into their own custom solutions, such as for customer, supplier and partner collaboration. The Developer Cloud also includes IoT and threat intelligence capabilities for organizations to dynamically integrate multi-tiered supply chain communities and build solutions for greater efficiency, agility and new value-added services. Data security is embedded throughout our offerings so the developer can focus on building differentiated user experiences.\nOrganizations can gain an information advantage and quickly turn ideas into solutions with OpenText APIs to build, integrate and customize Information Management applications. OpenText APIs empower developers to focus on code-based innovation with a single, secure, infrastructure agnostic platform, freely available technical documentation and an open and engaged developer community to share knowledge and best practices to solve problems and create new solutions. Our innovation roadmap includes APIs as a deployment option for all new products.\nServices\nOpenText provides a range of customer solutions through professional and managed services, whether off-cloud, in the OpenText Cloud, in hybrid scenarios or other clouds, including our partners: Google Cloud Platform, Amazon Web Services (AWS) and Microsoft Azure. Our team provides full advisory, implementation, migration, operation and support services for our Information Management solutions to meet the needs of our customers. Cloud Managed Services aims to help keep customers current on the latest technology and to meet complex requirements, all with reduced burden on information technology staff and ensure optimal application management by trusted experts.\nWith OpenText Managed Services, organizations can focus resources on their core business priorities with the knowledge that their infrastructure, applications, integrations and upgrades are all managed, monitored and optimized for security, performance and compliance. Our Cloud Managed Services offering provides customers with a single point of contact and a single service level agreement for OpenText solutions managed in our partner\u2019s clouds.\nOur Strategy\nGrowth\nAs an organization, we are committed to \u201cTotal Growth\u201d, meaning we strive towards delivering value through organic initiatives, innovations and acquisitions. With an emphasis on increasing recurring revenues and expanding profitability, we believe our Total Growth strategy will ultimately drive cash flow growth, thus helping to fuel our innovation, broaden our go-to-market distribution and identify and execute strategic acquisitions. With strategic acquisitions, we are well positioned to expand our product portfolio and improve our ability to innovate and grow organically, which helps us to meet our long-term growth targets. Our Total Growth strategy is a durable model, that we believe will create both near and long-term shareholder value through organic and acquired growth, capital efficiency and profitability.\nAs a global leader in Information Management, we know customers need an integrated set of cloud products, solutions and services as a foundation for efficiency and growth. The cloud is a strategic business imperative that drives customers\u2019 investment in product innovation, business agility, operational efficiency and cost management. We are committed to continuing our investment in the OpenText Cloud to better suit the evolving needs of our customers.\nWe are committed to continuous innovation. Over the last three fiscal years, we have invested a cumulative total of $1.5 billion in R&D or 13.6% of cumulative revenue for that three-year period. On an annual basis, we continue to target to spend 14% to 16% of revenues on R&D expense. With our innovation roadmap delivered, we believe we have fortified our support for customer choice: private cloud, public cloud, off-cloud, and API cloud.\n11\nTable of Contents\nOur investments in R&D push product innovation, increasing the value of our offerings to our installed customer base and new customers, which includes G10K, enterprise companies, public sector agencies, mid-market companies, SMB and consumers. The G10K are the world\u2019s largest companies, ranked by estimated total revenues, as well as the world\u2019s largest governments and organizations. More valuable products, coupled with our established global partner program, lead to greater distribution and cross-selling opportunities which further help us to achieve organic growth. \nWe remain a value oriented and disciplined acquirer, having efficiently deployed $13.4 billion on acquisitions over the last 10 fiscal years. Mergers and acquisitions are one of our leading growth drivers. We look for companies that are situated within our total addressable markets.\nWe have developed a philosophy, the OpenText Business System, that is designed to create value by leveraging a clear set of operational mandates for integrating newly acquired companies and assets. We see our ability to successfully integrate acquired companies and assets into our business as a strength and pursuing strategic acquisitions is an important aspect to our Total Growth strategy. We expect to continue to acquire strategically, to integrate and innovate, and to deepen and strengthen our intelligent information platform for customers.\nWe regularly evaluate acquisition and divestiture opportunities and at any time may be at various stages of discussion with respect to such opportunities. For additional details on our acquisitions, please see \u201cAcquisitions During the Last Five Fiscal Years\u201d, elsewhere in Item 1 of this Annual Report on Form 10-K.\nOpenText Revenues\nOur business consists of four revenue streams: cloud services and subscriptions, customer support, license and professional service and other. For information regarding our revenues by significant geographic area for Fiscal 2023, Fiscal 2022 and Fiscal 2021, please see Note\u00a020 \u201cSegment Information\u201d to the Consolidated Financial Statements included in this Annual Report on Form 10-K.\nCloud Services and Subscriptions\nCloud services and subscriptions revenues consist of (i) software as a service (SaaS) offerings, (ii) APIs and data services, (iii) hosted services and (iv) managed service arrangements. These offerings allow customers to transmit a variety of content between various mediums and to securely manage enterprise information without the commitment of investing in related hardware infrastructure.\nOpenText expects the cloud to be our largest driver of growth. Supported by a global, scalable and secure infrastructure, OpenText Cloud Editions includes a foundational platform of technology services, and packaged business applications for industry and business processes. Managed services provide an end-to-end fully outsourced B2B integration solution to our customers, including program implementation, operational management and customer support.\nCustomer Support\nThe first year of our customer support offering is usually purchased by customers together with the license of our Information Management software products. Customer support is typically renewed on an annual basis and historically customer support revenues have been a significant portion of our total revenue. Through our OpenText customer support programs, customers receive access to software and security upgrades, a knowledge base, discussion boards, product information and an online mechanism to post and review \u201ctrouble tickets.\u201d Additionally, our customer support teams handle questions on the use, configuration and functionality of OpenText products and help identify software issues, develop solutions and document enhancement requests for consideration in future product releases.\nLicense\nLicense revenues consist of fees earned from the licensing of software products to our customers. Our license revenues are impacted by the strength of general economic and industry conditions, the competitive strength of our software products and our acquisitions. The decision by a customer to license our software products often involves a comprehensive implementation process across the customer\u2019s network or networks and the licensing and implementation of our software products may entail a significant commitment of resources by prospective customers.\n12\nTable of Contents\nProfessional Service and Other\nWe provide consulting and learning services to customers. Generally, these services relate to the implementation, training and integration of our licensed product offerings into the customer\u2019s systems.\nOur consulting services help customers build solutions that enable them to leverage their investments in our technology and in existing enterprise systems. The implementation of these services can range from simple modifications to meet specific departmental needs to enterprise applications that integrate with multiple existing systems.\nOur learning services consultants analyze our customers\u2019 education and training needs, focusing on key learning outcomes and timelines, with a view to creating an appropriate education plan for the employees of our customers who work with our products. Education plans are designed to be flexible and can be applied to any phase of implementation: pilot, roll-out, upgrade or refresher. OpenText learning services employ a blended approach by combining mentoring, instructor-led courses, webinars, eLearning and focused workshops.\nMarketing and Sales\nCustomers\nOur customer base consists of G10K organizations, enterprise companies, public sector agencies, mid-market companies, SMB and direct consumers. \nPartners and Alliances \nWe are committed to establishing relationships with the best resellers and technology and service providers to ensure customer success. Together as partners, we fulfill key market objectives to drive new business, establish a competitive advantage and create demonstrable business value.\nOur OpenText Partner Network offers five distinct programs: Strategic Partners, Global Systems Integrators, Resellers, Technology and Managed Service Providers. This creates an extended organization to develop technologies, repeatable service offerings and solutions that enhance the way our customers maximize their investment in our products and services. Through the OpenText Partner Network, we are extending market coverage, building stronger relationships and providing customers with a more complete local ecosystem of partners to meet their needs. Each distinct program is focused to provide valuable business benefits to the joint relationship.\nWe have a number of strategic partnerships that contribute to our success. These include the most prominent organizations in enterprise software, hardware and public cloud, with whom we work to enhance the value of customer investments. They include:\n\u2022\nSAP SE (SAP)\n: We partner with SAP on content services. The OpenText Suite for SAP solutions provides key business content within the context of SAP business processes providing enhanced efficiencies, reduced risk and better experiences for customers, employees and partners - accessible anywhere and anytime and available on and off-cloud.\n\u2022\nGoogle Cloud\n:\n We work together with Google Cloud to deploy our Information Management solutions on the Google Cloud Platform. This includes a containerized application architecture for flexible cloud or hybrid deployment models. Deploying our solutions on the Google Cloud Platform allows our customers to scale their deployments as their businesses demand. We offer our solutions as a managed service and selected products as a SaaS offering. \n\u2022\nAmazon Web Services (AWS)\n: Our collaboration offers businesses the opportunity to consume our Information Management solutions as fully managed services on AWS for cost savings, increased performance, scalability and security.\n\u2022\nMicrosoft Corporation (Microsoft)\n: Together with Microsoft, we enable customers to connect all aspects of their content infrastructure, integrating these into business processes and enable collaboration, management and governance on the most valuable asset - information. With the acquisition of Zix Corporation (Zix) in 2021, we extended our partnership with Microsoft by becoming one of their nine authorized Cloud Solutions Providers in the North American market.\n\u2022\nOracle Corporation (Oracle)\n:\n We develop innovative solutions for Oracle applications that enhance the experience and productivity of users working with these tools.\n\u2022\nSalesforce.com Corporation (Salesforce)\n: The company-to-company partnership between OpenText and Salesforce is focused on growing a full portfolio of Information Management solutions to complement the Salesforce ecosystem by uniting the structured and unstructured information experience.\n13\nTable of Contents\n\u2022\nDXC Technology Company (DXC)\n: \nWe partner with DXC to deliver mission critical IT services to global companies including testing solutions, application development and IT operations management for the optimization and modernization of data centers.\nGlobal Systems Integrators (GSIs) provide customers with digital transformational services around OpenText technologies. They are trained and certified on OpenText solutions and enhance the value of our offerings by providing technical credibility and complementary services to customers. Our GSIs include DXC, Accenture plc, Capgemini Technology Services SAS, Deloitte Consulting LLP, Hewlett Packard Enterprises and Tata Consultancy Services (TCS).\nOur partner program also enables MSPs, resellers, distributors and network and security vendors to grow through cloud-based cybersecurity, threat intelligence and backup and recovery solutions aimed at the SMB and consumer markets. We provide the industry-specific tools, services, training, integrations, certifications and platforms our partners need to ensure trust and reliability with their customer base.\nWe currently have over 22,000 MSPs in our network which provide a key go-to-market channel for us as MSPs act as intermediaries between the solutions vendors like OpenText and the SMB market. An MSP specializes in their local market and provides managed services to their clients.\nInternational Markets\nWe provide our product offerings worldwide.\n \nOur geographic coverage allows us to draw on business and technical expertise from a geographically diverse workforce, providing greater stability to our operations and revenue streams by diversifying our portfolio to better mitigate against the risks of a single geographically focused business.\nThere are inherent risks to conducting operations internationally. For more information about these risks, see \u201cRisk Factors\u201d included in Item\u00a01A of this Annual Report on Form\u00a010-K.\nCompetition\nThe market for our products and services is highly competitive, subject to rapid technological change and shifting customer needs and economic pressures. We compete with multiple companies, some that have single or narrow solutions and some that have a range of information management solutions, like us. Our primary competitor is International Business Machines Corporation (IBM), with numerous other software vendors competing with us in the Information Management sector, such as Box Inc., Hyland Software Inc., Alfresco Software Inc., ServiceNow Inc., Atlassian Corp., Splunk Inc., Gen Digital Inc. and Adobe Inc. In certain markets, OpenText competes with Oracle and Microsoft, who are also our partners. In addition, we also face competition from systems integrators that configure hardware and software into customized systems. Additionally, new competitors or alliances among existing competitors may emerge and could rapidly acquire additional market share. We expect that competition will increase because of ongoing software industry consolidation.\nWe believe that certain competitive factors affect the market for our software products and services, which may include: (i)\u00a0vendor and product reputation; (ii)\u00a0product quality, performance and price; (iii)\u00a0the availability of software products on multiple platforms; (iv) product scalability; (v)\u00a0product integration with other enterprise applications; (vi)\u00a0software functionality and features; (vii)\u00a0software ease of use; (viii)\u00a0the quality of professional services, customer support services and training; and (ix) the ability to address specific customer business problems. We believe the relative importance of each of these factors depends upon the concerns and needs of each specific customer.\nResearch and Development\nThe industry in which we compete is subject to rapid technological developments, evolving industry standards, changes in customer requirements and competitive new products and features. As a result, our success, in part, depends on our ability to continually enhance our existing products in a timely and efficient manner and to develop and introduce new products that meet customer needs while reducing total cost of ownership. \nTo achieve these objectives, we have made and expect to continue to make investments in research and development, through internal and third-party development activities, third-party licensing agreements and potentially through technology acquisitions. We expect a significant amount of our future R&D investment will be in cloud-based technologies.\nOur R&D expenses were $680.6 million for Fiscal 2023, $440.4\u00a0million for Fiscal 2022 and $421.4 million for Fiscal 2021. We believe our spending on research and development is an appropriate balance between managing our organic growth and results of operations. We expect to continue to invest in R&D to maintain and improve our products and services offerings.\n14\nTable of Contents\nAcquisitions During the Last Five Fiscal Years\nWe regularly evaluate acquisition opportunities within the Information Management market and at any time may be in various stages of discussions with respect to such opportunities.\nBelow is a summary of certain significant acquisitions we have made over the last five fiscal years.\n\u2022\nOn January 31, 2023, we acquired Micro Focus, a leading provider of mission-critical software technology and services that help customers accelerate digital transformations, for\n \n$6.2 billion (the Micro Focus Acquisition).\n\u2022\nOn December 23, 2021, we acquired Zix, a leader in SaaS based email encryption, threat protection and compliance cloud solutions for SMBs, for $894.5 million. \n\u2022\nOn November 24, 2021, we acquired all of the equity interest in Bricata Inc. (Bricata) for $17.8 million.\n\u2022\nO\nn March\u00a09, 2020, we acquired XMedius, a provider of secure information exchange and unified communication solutions, for $73.5 million.\n\u2022\nO\nn December\u00a024, 2019, we acquired Carbonite Inc. (Carbonite), a leading provider of cloud-based subscription backup, disaster recovery and endpoint security to SMB, consumers and a wide variety of partners, for $1.4 billion.\n\u2022\nO\nn December 2, 2019, we acquired certain assets and certain liabilities of Dynamic Solutions Group (The Fax Guys) for $5.1 million.\n\u2022\nO\nn January\u00a031, 2019, we acquired Catalyst, a leading provider of eDiscovery that designs, develops and supports market-leading cloud eDiscovery software, for $71.4 million.\n\u2022\nOn December 17, 2018, we acquired Liaison, a leading provider of cloud-based business to business integration, for $310.6 million.\nWe believe our acquisitions support our long-term strategy for growth, strengthen our competitive position, expand our customer base and provide greater scale to accelerate innovation, grow our earnings and provide superior shareholder value. We expect to continue to strategically acquire companies, products, services and technologies to augment our existing business.\nIntellectual Property Rights\nOur success and ability to compete depends in part on our ability to develop, protect and maintain our intellectual property and proprietary technology and to operate without infringing on the proprietary rights of others. Our software products are generally licensed to our customers on a non-exclusive basis for internal use in a customer\u2019s organization. We also grant rights to our intellectual property to third parties that allow them to market certain of our products on a non-exclusive or limited-scope exclusive basis for a particular application of the product(s) or to a particular geographic area.\nWe rely on a combination of copyright, patent, trademark and trade secret laws, non-disclosure agreements and other contractual provisions to establish and maintain our proprietary rights. We have obtained or applied for trademark registration for corporate and strategic product names in selected major markets. We have a number of U.S. and foreign patents and pending applications, including patents and rights to patent applications acquired through strategic transactions, which relate to various aspects of our products and technology. The duration of our patents is determined by the laws of the country of issuance and is typically 20 years from the date of filing of the patent application resulting in the patent. From time to time, we may enforce our intellectual property rights through litigation in line with our strategic and business objectives. While we believe our intellectual property is valuable and our ability to maintain and protect our intellectual property rights is important to our success, we also believe that our business as a whole is not materially dependent on any particular patent, trademark, license, or other intellectual property right.\nFor more information on the risks related to our intellectual property rights, see \u201cRisk Factors\u201d included in Item 1A of this Annual Report on Form 10-K.\nLooking Towards the Future \nIn Fiscal 2024 we intend to continue to implement strategies that are designed to: \nInvest in Innovation. \nWe believe we are well-positioned to develop additional innovative solutions to address the evolving market. We plan to continue investing in technology innovation by funding internal development, acquiring complementary technologies and collaborating with third parties.\nInvest in the Cloud.\n Today, the destination for innovation is the cloud. Businesses of all sizes rely on a combination of APIs, public and private clouds, managed services and off-cloud solutions. As a result, we are committed to continue to modernize our technology infrastructure and leverage existing investments in the OpenText Cloud. The combination of \n15\nTable of Contents\nOpenText cloud-native applications and managed services, together with the scalability and performance of our partner public cloud providers, offer more secure, reliable and compliant solutions to customers wanting to deploy cloud-based Information Management applications. OpenText Cloud Editions is designed to build additional flexibility and scalability for our customers: becoming cloud-native, connecting anything and extending capabilities quickly with multi-tenant SaaS applications and services.\nInvest in AI. \nWe believe that customers are seeking practical AI and OpenText is in a strong position to help customers discover the most prevailing use cases that leverage an interconnected source of all data types (content, business network, customer experience, IT service management, application development, asset management, IoT, etc.). We believe one of the greatest opportunities is to help customers leverage their operational and experience data with generative AI to discover new insights for efficiency and competitive advantages. We strive to co-innovate with customers by taking the proven concept of machine learning and applying it to their organizational needs.\nBroaden Global Presence\n. As customers become increasingly multi-national and as international markets continue to adopt Information Management solutions, we plan to further grow our brand, presence and partner networks in these new markets. We are focused on using our direct sales for targeting existing G10K customers and plan to address new geographies and SMB customers, jointly with our partners.\nBroaden Our Information Management Reach into the G10K. \nAs technologies and customers become more sophisticated, we intend to be a leader in expanding the definition of traditional market sectors. We continue to expand our direct sales coverage of the G10K as we focus on connecting this marquee customer base to our information platform.\nDeepen Existing Customer Footprint\n. We believe one of our greatest opportunities is to sell newly developed or acquired technologies to our existing customer base, and cross-sell historical OpenText products to newly acquired customers. We have significant expertise in a number of industry sectors and aim to increase our customer penetration based on our strong credentials. We are particularly focused on circumstances where the customer is looking to consolidate multiple vendors with solutions from a single source while addressing a broader spectrum of business problems or equally new or existing customers looking to take a more holistic approach to digital transformation.\nInvest in Technology Leadership.\n We believe we are well-positioned to develop additional innovative solutions to address the evolving market. We plan to continue investing in technology innovation by funding internal development, acquiring complementary technologies and collaborating with third-parties.\nDeepen Strategic Partnerships.\n OpenText is committed culturally, programmatically and strategically to be a partner-embracing company. Our partnerships with companies such as SAP SE, Google Cloud, AWS, Microsoft Corporation, Oracle Corporation, Salesforce.com Corporation and others serve as examples of how we are working together with our partners to create next-generation Information Management solutions and deliver them to market. We will continue to look for ways to create more customer value from our strategic partnerships.\nDeliver Organic Growth. \nWe are focused on investing and delivering on organic growth. The Information Management market is large and is expected to continue to grow and we expect cloud to be our leading growth driver. We have multiple initiatives that are designed to deliver organic growth including; guiding our customers along their cloud journey, investing in our mid-market channel and deepening our relationships with our partners and hyperscalers. As customers move into the cloud, it will facilitate cross-sell and upsell opportunities across the product portfolio and geographies.\nExecute on Deleveraging Goals. \nAs part of the Micro Focus Acquisition, the Company announced an initiative to deleverage our balance sheet through the repayment of outstanding debt instruments utilizing the free cash flows generated from our combined operations. We intend to maintain our dividend during our deleveraging initiatives which is aimed at enhancing our continued commitment to returning value to our shareholders.\nSelectively Pursue Acquisitions.\n We expect to continue to pursue strategic acquisitions to strengthen our service offerings in the Information Management market. Considering the continually evolving marketplace in which we operate, we regularly evaluate acquisition opportunities within the Information Management market and at any time may be in various stages of discussions with respect to such opportunities. We plan to continue to pursue acquisitions that complement our existing business, represent a strong strategic fit and are consistent with our overall growth strategy and disciplined financial management. We may also target future acquisitions to expand or add functionality and capabilities to our existing portfolio of solutions, as well as add new solutions to our portfolio.\n16\nTable of Contents\nHuman Capital\nOur Global Footprint\nOur ability to attract, retain and engage a diverse workforce committed to innovation, operational excellence and the OpenText mission and values across our global footprint is a cornerstone to our success.\nAs of June\u00a030, 2023, we employed a total of approximately 24,100 individuals, of which approximately 9,700 joined our workforce as part of the Micro Focus Acquisition. Of the total 24,100 individuals we employed as of June\u00a030, 2023, 9,050 or 38% are in the Americas, 5,750 or 24% are in EMEA and 9,300 or 38% are in Asia Pacific. Currently, we have employees in 45 countries enabling strong access to multiple talent pools while ensuring reach and proximity to our customers. Please see \u201cResults of Operations\u201d included in Item 7 of this Annual Report on Form 10-K for our definitions of geographic regions.\nThe approximate composition of our employee base is as follows: (i) 4,800 employees in sales and marketing, (ii)\u00a08,300 employees in product development, (iii) 3,700 employees in cloud services, (iv) 2,200 employees in professional services, (v)\u00a01,700 employees in customer support and (vi) 3,400 employees in general and administrative roles. \nWe believe that relations with our employees are strong. In certain jurisdictions, where it is customary to do so, a \u201cWorkers\u2019 Council\u201d or professional union represents our employees.\nEmployee Safety and Remote Work\nThe OpenText COVID-19 pandemic response program, Project Shield, evolved in Fiscal 2023 with the global lifting of COVID-19 safety restrictions. While active, Project Shield kept teams informed with comprehensive resources and current COVID-19 information, including a dedicated platform with helpful health and safety protocols for our employees returning to the office. \nAs of January 2023, all office-based employees were granted the flexibility to work from home up to 40% of their time. Project Shield worked alongside our internal teams to launch our flexible approach to return to the office. We continue to invest in software and hardware along with office redesign to support a flexible workforce where teams can collaborate and be productive. Using our offices in a purposeful way drives innovation, creativity and teamwork. Our past experiences continue to inform our future workplace standards and practices. See \u201cWe have a Flex-Office program, which subjects us to certain operational challenges and risks\u201d in Part I, Item 1A \u201cRisk Factors\u201d included elsewhere within this Annual Report on Form 10-K. \nEmployee Engagement\nWe regularly conduct employee research to understand perceptions in the areas of engagement, company strategy, personal impact, manager effectiveness, recognition, career development and equity, diversity and inclusion. Participation level and engagement have remained high. Throughout the phases of the global health pandemic, employee communication and listening strategies increased, including supplemental surveys ranging from topics of well-being, feedback from new hires on the quality of their onboarding and office re-opening plans.\nEnvironmental, Social and Corporate Governance\nThe OpenText Zero-In Initiative is our commitment to our global impact goals and initiatives related to ESG. We believe the future of growth is sustainable and inclusive, and we commit to zero footprint, zero barriers and achieving our commitments with zero compromise through our purposeful goals to achieve net-zero greenhouse gas (GHG) emissions by 2040, zero waste from operations by 2030 and to be majority ethnically diverse among employees by 2030 with equal gender representation in key roles and 40% women in leadership positions at all management levels.\nOur charitable giving program supports activities at the local and global level, focused on education, innovation,\n \ndisaster relief and the health and welfare of children and families. We\n \nalso provide employees three paid days off to volunteer and make an impact to the causes that matter most to them. In addition, we launched the Navigator Internship Program to create pathways to digital jobs for Indigenous and under-represented minority students.\nTo operate long-term, we need to ensure that our local communities and the natural environment are thriving. We are committed to mitigating any adverse environmental impacts of our business activities, which at a minimum means abiding by all environmental laws, regulations and standards that apply to us. Our Environmental Policy articulates our commitment to measuring and managing our environmental impact.\n \nWe integrate the consideration of environmental concerns and impacts into our everyday decision making and business activities. Externally, we promote sustainable \n17\nTable of Contents\nconsumption by developing and promoting environmentally sound technologies to support our customers\u2019 digital transformations, including transitioning to the cloud environment. Internally, we continue to develop, implement and manage company-wide environmental initiatives.\nSee \u201cIncreased attention from shareholders, customers and other key relationships regarding our CSR and ESG practices could impact our business activities, financial performance and reputation\u201d in Part I, Item 1A \u201cRisk Factors\u201d included elsewhere within this Annual Report on Form 10-K.\nEquity, Diversity and Inclusion (ED&I)\nWe are passionate about creating an inclusive environment where skilled and diverse employees thrive, deliver compelling innovations to our customers and provide shareholder value. We are committed to increasing equity in opportunity for all employees regardless of race, gender, sexual orientation, religion or other differences. \nAt OpenText, we have established a global Equity, Diversity and Inclusion steering committee to guide ED&I programs. We bring our ambition to life through impact teams made of employees who come together to recommend policies, programs and initiatives across a range of topics.\nOur impact teams are leading global initiatives with local impact which include: \n\u2022\nAwareness and Training: For employees and managers on matters such as inclusive leadership practices and diversity awareness;\n\u2022\nRecruiting: Platforms that are inclusive, diverse slates for key leadership roles and an increased focus on virtual work opportunities to widen recruiting talent and diversity;\n\u2022\nAdvancement: Internal career building opportunities, mentoring and networks;\n\u2022\nAdvocacy: Employee affinity groups, including \u201cBlack Employee Empowerment\u201d and \u201cWomen in Technology,\u201d fostering sponsorship, community and career conversations; and\n\u2022\nCivic Action: Focusing an ED&I lens on community outreach and engagement.\nCompensation and Benefits\nOur compensation philosophy is based on a set of principles that align with business strategy, reflect business and individual performance levels, consider market conditions to ensure competitiveness, demonstrate internal pay equity for similar roles and reflect the impact that economic conditions have on pay programs.\nOur compensation and benefit programs are regularly reviewed through an executive-sponsored governance process. Across the Company, we offer a wide variety of retirement and group benefits including medical, life and disability, which are designed to protect employees and their dependents against financial hardship due to illness or injury. Programs are designed to recognize the diversity of our work force and a range of well-being needs. We also have regional Employee Assistance Programs in many countries that provide 24/7 confidential counselling, support and access to resources for employees and their families. The OpenText Employee Stock Purchase Plan (ESPP) is a global benefit program that allows all eligible employees to purchase OpenText shares at a 15% discount and provides the opportunity for employees to strengthen their ownership in the Company while enjoying the benefits of potential share price appreciation. \nInternal equity is a cornerstone of our goals. Our pay programs are carefully designed and governed, from hiring practices to consistency in progression rates for common roles. In designing variable pay for performance awards, we focus only on measurable outcomes rather than subjective measures. This ensures true equity in opportunity and awards tied to business results.\nEmployee Education, Training and Compliance\nWe know that employees join OpenText for continuous learning, experience and credentials to shape their careers. Our strategies focus on ensuring strong technical credentials, building capabilities, new skills sets and a high duty of care in ensuring ethical, secure and compliant practices. All employees have internal access to certification on OpenText and partner products.\nLeaders and managers play a key role in the engagement of employees. From a focus on high quality interviewing and onboarding of new hires to the importance of career development planning, we foster a culture and value proposition of career development. Internal applications to job postings are highly encouraged. Our annual Career Week event focuses on career development planning and honing manager skills in developing teams. \n18\nTable of Contents\nWe offer an annual education reimbursement program to all employees globally. This program aligns with our commitment to support internal development, equal opportunity and mobility across all of our geographies, regardless of an employee\u2019s role, function or location. We have designed the education reimbursement program to meet the needs of all personalized development goals through programs that range from technical to business skills. \nAs part of our commitment to the highest standards of conduct, all employees and contractors participate in an annual formal Compliance and Data Security Training, including Code of Business Conduct and Ethics, Responsible Business Practices, Data Protection, Global Data Privacy Practices, Protecting Information and Preventing Sexual Harassment Training. These compliance programs ensure that we operate our business with integrity, following standard business ethics across the globe.\nAvailable Information\nOpenText Corporation was incorporated on June 26, 1991. Our principal office is located at 275 Frank Tompa Drive, Waterloo, Ontario, Canada N2L 0A1, and our telephone number at that location is (519)\u00a0888-7111. Our internet address is www.opentext.com. Our website is included in this Annual Report on Form 10-K as an inactive textual reference only. Except for the documents specifically incorporated by reference into this Annual Report, information contained on our website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered to be a part of this Annual Report. \nAccess to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form\u00a08-K and amendments to these reports filed with or furnished to the SEC may be obtained free of charge through the Investors section of our website at \ninvestors.opentext.com\n as soon as is reasonably practical after we electronically file or furnish these reports. In addition, our filings with the SEC may be accessed through the SEC\u2019s website at \nwww.sec.gov \nand our filings with the Canadian Securities Administrators (CSA) may be accessed through the CSA\u2019s System for Electronic Document Analysis and Retrieval (SEDAR) at \nwww.sedar.com\n. The SEC and SEDAR websites are included in this Annual Report on Form 10-K as inactive textual references only. Except for the documents specifically incorporated by reference into this Annual Report, information contained on the SEC or SEDAR websites is not incorporated by reference in this Annual Report on Form 10-K and should not be considered to be a part of this Annual Report. All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by applicable law.\nInvestors should note that we may announce information using our website, press releases, securities law filings, public conference calls, webcasts and the social media channels identified on the Investors section of our website (https://investors.opentext.com). Such social media channels may include the Company\u2019s or our CEO\u2019s blog, Twitter account or LinkedIn account. The information posted through such channels may be material. Accordingly, investors should monitor such channels in addition to our other forms of communication. Unless otherwise specified, such information is not incorporated into, or deemed to be a part of, our Annual Report on Form 10-K or in any other report or document we file with the SEC under the Securities Act, the Exchange Act or under applicable Canadian securities laws.\n19\nTable of Contents",
+  "item1a": ">Item 1A.  Risk Factors \nThe following important factors could cause our actual business and financial results to differ materially from our current expectations, estimates, forecasts and projections. These forward-looking statements contained in this Annual Report on Form 10-K or made elsewhere by management from time to time are subject to important risks, uncertainties and assumptions which are difficult to predict. The risks and uncertainties described below are not the only risks and uncertainties facing us. Additional risks not currently known to us or that we currently believe are immaterial may also impair our operating results, financial condition and liquidity. Our business is also subject to general risks and uncertainties that affect many other companies. The risks discussed below are not necessarily presented in order of importance or probability of occurrence. \nYou should read these risk factors in conjunction with the section entitled \u201cForward-Looking Statements\u201d in Part I of this Annual Report on Form 10-K, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in Part II, Item 7 of this Annual Report on Form 10-K and our consolidated financial statements and related notes in Part II, Item 8 of this Annual Report on Form 10-K.\nRisks Related to our Business and Industry\nIf we do not continue to develop technologically advanced products that successfully integrate with the software products and enhancements used by our customers, future revenues and our operating results may be negatively affected\nOur success depends upon our ability to design, develop, test, market, license, sell and support new software products and services and enhancements of current products and services on a timely basis in response to both competitive threats and marketplace demands. The software industry is increasingly focused on cloud computing, mobility, social media, SaaS and artificial intelligence, among other continually evolving shifts. In addition, our software products, services and enhancements must remain compatible with standard platforms and file formats. Often, we must integrate software licensed or acquired from third parties with our proprietary software to create new products or improve our existing products. If we are unable to achieve a successful integration with third party software, we may not be successful in developing and marketing our new software products, services and enhancements. If we are unable to successfully integrate third party software to develop new software products, services and enhancements to existing software products and services, or to complete the development of new software products and services which we license or acquire from third parties, our operating results will be materially adversely affected. In addition, if the integrated or new products or enhancements do not achieve acceptance by the marketplace, our operating results will be materially adversely affected. Moreover, if new industry standards emerge that we do not anticipate or adapt to, or, if alternatives to our services and solutions are developed by our competitors in times of rapid technological change, our software products and services could be rendered less competitive or obsolete, causing us to lose market share and, as a result, harm our business and operating results and our ability to compete in the marketplace.\nProduct development is a long, expensive and uncertain process, and we may terminate one or more of our development programs\nWe may determine that certain software product candidates or programs do not have sufficient potential to warrant the continued allocation of resources. Accordingly, we may elect to terminate one or more of our programs for such product candidates. If we terminate a software product in development in which we have invested significant resources, our prospects may suffer, as we will have expended resources on a project that does not provide a return on our investment, and may have missed the opportunity to have allocated those resources to potentially more productive uses, which may negatively impact our business, operating results and financial condition.\nOur investment in our current research and development efforts may not provide a sufficient or timely return\nThe development of information management software products is a costly, complex and time-consuming process, and the investment in information management software product development often involves a long wait until a return is achieved on such an investment. We are making, and will continue to make, significant investments in software research and development and related product and service opportunities. Investments in new technology and processes are inherently speculative. Commercial success depends on many factors, including the degree of innovation of the software products and services developed through our research and development efforts, sufficient support from our strategic partners and effective distribution and marketing. Accelerated software product introductions and short product life cycles require high levels of expenditures for research and development and the potential introduction of government regulation, including that related to the use of AI, may increase the costs of research and development. These expenditures may adversely affect our operating results if they are not offset by corresponding revenue increases. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts in order to maintain our competitive position. However, significant revenues from new software product and service investments may not be achieved for a number of years, if at all. Moreover, new software products \n20\nTable of Contents\nand services may not be profitable, and even if they are profitable, operating margins for new software products and services may not be as high as the margins we have experienced for our current or historical software products and services.\nIf our software products and services do not gain market acceptance, our operating results may be negatively affected\nWe intend to pursue our strategy of being a market leading consolidator for cloud-based information management solutions. We intend to grow the capabilities of our information management software offerings through our proprietary research and the development of new software product and service offerings, as well as through acquisitions. It is important to our success that we continue to enhance our software products and services in response to customer demand and to seek to set the standard for information management capabilities. The primary market for our software products and services is rapidly evolving, and the level of acceptance of products and services that have been released recently, or that are planned for future release to the marketplace, is not certain. If the markets for our software products and services fail to develop, develop more slowly than expected or become subject to increased competition, our business may suffer. As a result, we may be unable to: (i) successfully market our current products and services; (ii) develop new software products and services and enhancements to current software products and services; (iii) complete customer implementations on a timely basis; or (iv) complete software products and services currently under development. In addition, increased competition and transitioning from perpetual license sales to subscription-based business model could put significant pricing pressures on our products, which could negatively impact our margins and profitability. If our software products and services are not accepted by our customers or by other businesses in the marketplace, our business, operating results and financial condition will be materially adversely affected.\nFailure to protect our intellectual property could harm our ability to compete effectively\nWe are highly dependent on our ability to protect our proprietary technology. We rely on a combination of copyright, patent, trademark and trade secret laws, as well as non-disclosure agreements and other contractual provisions, to establish and maintain our proprietary rights. We intend to protect our intellectual property rights vigorously; however, there can be no assurance that these measures will, in all cases, be successful, and these measures can be costly and/or subject us to counterclaims, including challenges to the validity and enforceability of our intellectual property rights. Enforcement of our intellectual property rights may be difficult, particularly in some countries outside of North America in which we seek to market our software products and services. While Canadian and U.S. copyright laws, international conventions and international treaties may provide meaningful protection against unauthorized duplication of software, the laws of some foreign jurisdictions may not protect proprietary rights to the same extent as the laws of Canada or the United States. The absence of internationally harmonized intellectual property laws makes it more difficult to ensure consistent protection of our proprietary rights. Software piracy has been, and is expected to be, a persistent problem for the software industry, and piracy of our software products represents a loss of revenue to us. Where applicable, certain of our license arrangements have required us to make a limited confidential disclosure of portions of the source code for our software products, or to place such source code into escrow for the protection of another party. Despite the precautions we have taken, unauthorized third parties, including our competitors, may be able to copy certain portions of our software products or reverse engineer or obtain and use information that we regard as proprietary. Our competitive position may be adversely affected by our possible inability to effectively protect our intellectual property. In addition, certain of our products contain open source software. Licensees of open source software may be required to make public certain source code, to license proprietary software for free or to permit others to create derivative works of proprietary software. While we monitor and control the use of open source software in our products and in any third party software that is incorporated into our products, and try to ensure that no open source software is used in such a way that negatively affects our proprietary software, there can be no guarantee that such use does not occur inadvertently, which in turn, could harm our intellectual property position and have a material adverse effect on our business, results of operations and financial condition. Further, any undetected errors or defects in open source software could prevent the deployment or impair the functionality of our software products, delay the introduction of new solutions, or render our software more vulnerable to breaches or security attacks.\nOther companies may claim that we infringe their intellectual property, which could materially increase costs and materially harm our ability to generate future revenues and profits\nClaims of infringement (including misappropriation and/or other intellectual property violation) are common in the software industry and increasing as related legal protections, including copyrights and patents, are applied to software products. Although most of our technology is proprietary in nature, we do include certain third party and open source software in our software products. In the case of third-party software, we believe this software is licensed from the entity holding the intellectual property rights. While we believe that we have secured proper licenses for all material third-party intellectual property that is integrated into our products in a manner that requires a license, third parties have and may continue to assert infringement claims against us in the future. In particular, our efforts to protect our intellectual property through patent litigation may result in counterclaims of patent infringement by counterparties in such suits. Any such assertion, regardless of merit, may result in litigation or require us to obtain a license for the intellectual property rights of third parties. Such licenses \n21\nTable of Contents\nmay not be available, or they may not be available on commercially reasonable terms. In addition, as we continue to develop software products and expand our portfolio using new technology and innovation, our exposure to threats of infringement may increase. Any infringement claims and related litigation could be time-consuming and disruptive to our ability to generate revenues or enter into new market opportunities and may result in significantly increased costs as a result of our defense against those claims or our attempt to license the intellectual property rights or rework our products to avoid infringement of third-party rights. Typically, our agreements with our partners and customers contain provisions that require us to indemnify them for damages sustained by them as a result of any infringement claims involving our products. Any of the foregoing infringement claims and related litigation could have a material adverse impact on our business and operating results as well as on our ability to generate future revenues and profits.\nOur software products and services may contain defects that could harm our reputation, be costly to correct, delay revenues and expose us to litigation\nOur software products and services are highly complex and sophisticated and, from time to time, may contain design defects, software errors, hardware failures or other computer system failures that are difficult to detect and correct. Errors, defects and/or other failures may be found in new software products or services or improvements to existing products or services after delivery to our customers, including as a result of the introduction of new and emerging technologies such as AI. If these defects, errors and/or other failures are discovered, we may not be able to successfully correct them in a timely manner. In addition, despite the extensive tests we conduct on all our software products or services, we may not be able to fully simulate the environment in which our products or services will operate and, as a result, we may be unable to adequately detect the design defects or software or hardware errors that may become apparent only after the products are installed in an end-user\u2019s network, and only after users have transitioned to our services. The occurrence of errors, defects and/or other failures in our software products or services could result in the delay or the denial of market acceptance of our products and alleviating such errors, defects and/or other failures may require us to make significant expenditure of our resources. Customers often use our services and solutions for critical business processes and, as a result, any defect or disruption in our solutions, any data breaches or misappropriation of proprietary information or any error in execution, including human error or intentional third-party activity such as denial of service attacks or hacking, may cause customers to reconsider renewing their contracts with us. The errors in or failure of our software products and services could also result in us losing customer transaction documents and other customer files, causing significant customer dissatisfaction and possibly giving rise to claims for monetary damages. The harm to our reputation resulting from product and service errors, defects and/or other failures may be material. Since we regularly provide a warranty with our software products, the financial impact of fulfilling warranty obligations may be significant in the future. Our agreements with our strategic partners and end-users typically contain provisions designed to limit our exposure to claims. These agreements regularly contain terms such as the exclusion of all implied warranties and the limitation of the availability of consequential or incidental damages. However, such provisions may not effectively protect us against claims and the attendant liabilities and costs associated with such claims. Any claims for actual or alleged losses to our customers\u2019 businesses may require us to spend significant time and money in litigation or arbitration or to pay significant sums in settlements or damages. Defending a lawsuit, regardless of merit, can be costly and would divert management\u2019s attention and resources. Although we maintain errors and omissions insurance coverage and comprehensive liability insurance coverage, such coverage may not be adequate to cover all such claims. Accordingly, any such claim could negatively affect our business, operating results or financial condition.\nOur software products rely on the stability of infrastructure software that, if not stable, could negatively impact the effectiveness of our products, resulting in harm to our reputation and business\nOur development of Internet and intranet applications depends on the stability, functionality and scalability of the infrastructure software of the underlying intranet, such as the infrastructure software produced by Hewlett-Packard, Oracle, Microsoft and others. If weaknesses in such infrastructure software exist, we may not be able to correct or compensate for such weaknesses. If we are unable to address weaknesses resulting from problems in the infrastructure software such that our software products do not meet customer needs or expectations, our reputation, and consequently, our business, may be significantly harmed.\nRisks associated with the evolving use of the Internet, including changing standards, competition and regulation and associated compliance efforts, may adversely impact our business\nThe use of the Internet as a vehicle for electronic data interchange (EDI) and related services continues to raise numerous issues, including those relating to reliability, data security, data integrity and rapidly evolving standards. New competitors, including media, software vendors and telecommunications companies, offer products and services that utilize the Internet in competition with our products and services, which may be less expensive or process transactions and data faster and more efficiently. Internet-based commerce is subject to increasing regulation by Canadian, U.S. federal and state and foreign governments, including in the areas of data privacy and breaches and taxation. Laws and regulations relating to the solicitation, \n22\nTable of Contents\ncollection, processing or use of personal or consumer information could affect our customers\u2019 ability to use and share data, potentially reducing demand for Internet-based solutions and restricting our ability to store, process, analyze and share data through the Internet. Although we believe that the Internet will continue to provide opportunities to expand the use of our products and services, we cannot guarantee that our efforts to capitalize on these opportunities will be successful or that increased usage of the Internet for business integration products and services, increased competition or heightened regulation will not adversely affect our business, results of operations and financial condition.\nBusiness disruptions, including those arising from disasters, pandemics or catastrophic events, may adversely affect our operations\nOur business and operations are highly automated, and a disruption or failure of our systems may delay our ability to complete sales and to provide services. Business disruptions can be caused by several factors, including climate change, natural disasters, global health pandemics, terrorist attacks, power loss, telecommunications and system failures, computer viruses, physical attacks and cyber-attacks. A major disaster or other catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems, including our cloud services, could severely affect our ability to conduct normal business operations. We operate data centers in various locations around the world and although we have redundancy capability built into our disaster recovery plan, we cannot ensure that our systems and data centers will remain fully operational during and immediately after a disaster or disruption. We also rely on third parties that provide critical services in our operations and despite our diligence around their disaster recovery processes, we cannot provide assurances as to whether these third-party service providers can maintain operations during a disaster or disruption. Global climate change may also aggravate natural disasters and increase severe weather events that affect our business operations, thereby compelling us to build additional resiliency in order to mitigate their impact. Further, in the event of any future global health pandemic, certain measures or restrictions may be imposed or recommended by governments, public institutions and other organizations, which could disrupt economic activity and result in reduced commercial and consumer confidence and spending, increased unemployment, closure or restricted operating conditions for businesses, inflation, volatility in the global economy, instability in the credit and financial markets, labour shortages and disruption in supply chains. Any business disruption could negatively affect our business, operating results or financial condition.\nUnauthorized disclosures, cyber-attacks, breaches of data security and other information technology risks may adversely affect our operations\nMost of the jurisdictions in which we operate have laws and regulations relating to data privacy, security and protection of information. We have certain measures to protect our information systems against unauthorized access and disclosure of personal information and of our confidential information and confidential information belonging to our customers. We have policies and procedures in place dealing with data security and records retention. These measures and policies may change over time as laws and regulations regarding data privacy, security and protection of information change. However, there is no assurance that the security measures we have put in place will be effective in every case, and our response process to incidents may not be adequate, may fail to accurately assess the severity of an incident, may not be fast enough to prevent or limit harm, or may fail to sufficiently remediate an incident. Failures and breaches in security could result in a negative impact for us and for our customers, adversely affecting our and our customers\u2019 businesses, assets, revenues, brands and reputations, disrupting our operations and resulting in penalties, fines, litigation, regulatory proceedings, regulatory investigations, increase insurance premiums, remediation efforts, indemnification expenditures, reputational harm, negative publicity, lost revenues and/or other potential liabilities, in each case depending on the nature of the information disclosed. Security breaches could also affect our relations with our customers, damage our reputation and harm our ability to keep existing customers and to attract new customers. Some jurisdictions, including all U.S. states and the European Union (EU), have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data, and in some cases our agreements with certain customers require us to notify them in the event of a data security incident. Such mandatory disclosures could lead to negative publicity and may cause our current and prospective customers to lose confidence in the effectiveness of our data security measures. These circumstances could also result in adverse impact on the market price of our Common Shares. These risks to our business may increase as we expand the number of web-based and cloud-based products, systems and solutions we offer and as we increase the number of countries in which we operate.\nIn particular, we are increasingly relying on virtual environments and communications systems, which have been in recent years and may be in the future subjected to third-party vulnerabilities and security risks of increasing frequency, scope and potential harm. Malicious hackers may attempt to gain access to our network or data centers; steal proprietary information related to our business, products, systems, solutions, employees and customers; interrupt our systems and services or those of our customers or others; or attempt to exploit any vulnerabilities in our products, systems or solutions, and such acts may go undetected. Increased information technology security threats and more sophisticated cybercrimes and cyberattacks, including computer viruses and other malicious codes, ransomware, unauthorized access attempts, denial-of-service attacks, phishing, social engineering, hacking, and other types of attacks, pose a risk to the security and availability of our information technology \n23\nTable of Contents\nsystems, networks, products, solutions and services, including those that are managed, hosted, provided, or used by third parties (and which may not provide the same level of information security as our own products, systems or solutions), as well as the confidentiality, availability and integrity of our data and the data of our customers, partners, consumers, employees, stockholders, suppliers and others. Although we monitor our networks and continue to enhance our security protections, hackers are increasingly more sophisticated and aggressive and change tactics frequently, and our efforts may be inadequate to prevent or mitigate all incidents of data breach or theft. A series of issues may also be determined to be material at a later date in the aggregate, even if they may not be material individually at the time of their occurrence. Furthermore, it is possible that the risk of cyber-attacks and other data security breaches or thefts to us or our customers may increase due to global geo-political uncertainty, in particular such as the ongoing Russia-Ukraine conflict.\nIn addition, if data security is compromised, this could materially and adversely affect our operating results given that we have customers that use our systems to store and exchange large volumes of proprietary and confidential information and the security and reliability of our services are of significant importance to these customers. We have experienced attempts by third parties to identify and exploit product and services vulnerabilities, penetrate or bypass our security measures and gain unauthorized access to our or our customers\u2019 or service providers\u2019 cloud offerings and other products, systems or solutions. We may experience future security issues, whether due to human error or misconduct, system errors or vulnerabilities in our or our third-party service providers\u2019 products, systems or solutions. If our products, systems or solutions, or the products, systems or solutions of third-party service providers on whom we rely or may rely in the future, are attacked or accessed by unauthorized parties, it could lead to major disruption or denial of service and access to or loss, modification or theft of our and our customers\u2019 data, which may require us to spend material financial or other resources on correcting the breach and indemnifying the relevant parties and/or on litigation, regulatory investigations, regulatory proceedings, increased insurance premiums, lost revenues, penalties, reputational harm, negative publicity, fines and/or other potential liabilities. If third-party service providers fail to implement adequate data security practices or otherwise suffer a security breach, our or our customer\u2019s data may be improperly accessed, disclosed, used or otherwise lost, which could lead to reputational, business, operating and financial harms. Our efforts to protect against cyber-attacks and data breaches, including increased risks associated with work from home measures, may not be sufficient to prevent or mitigate such incidents, which could have material adverse effects on our reputation, business, operating results and financial condition\n.\nOur success depends on our relationships with strategic partners, distributors and third-party service providers and any reduction in the sales efforts by distributors, cooperative efforts from our partners or service from third party providers could materially impact our revenues\nWe rely on close cooperation with strategic partners for sales and software product development as well as for the optimization of opportunities that arise in our competitive environment. A portion of our license revenues is derived from the licensing of our software products through third parties. Also, a portion of our service revenues may be impacted by the level of service provided by third party service providers relating to Internet, telecommunications and power services. Our success will depend, in part, upon our ability to maintain access to and grow existing channels of distribution and to gain access to new channels if and when they develop. We may not be able to retain a sufficient number of our existing distributors or develop a sufficient number of future distributors. Distributors may also give higher priority to the licensing or sale of software products and services other than ours (which could include competitors\u2019 products and services) or may not devote sufficient resources to marketing our software products and services. The performance of third party distributors and third party service providers is largely outside of our control, and we are unable to predict the extent to which these distributors and service providers will be successful in either marketing and licensing or selling our software products and services or providing adequate Internet, telecommunication and power services so that disruptions and outages are not experienced by our customers. A reduction in strategic partner cooperation or sales efforts, a decline in the number of distributors, a decision by our distributors to discontinue the licensing of our software products or a decline or disruption in third party services could cause users and the general public to perceive our software products and services as inferior and could materially reduce our revenues. In addition, our financial results could be materially adversely affected if the financial condition of our distributors or third-party service providers were to weaken. Some of our distributors and third-party service providers may have insufficient financial resources and may not be able to withstand changes in business conditions, including economic weakness, industry consolidation and market trends.\nThe loss of licenses to resell or use third-party software or the lack of support or enhancement of such software could adversely affect our business\nWe currently depend upon a limited number of third-party software products. If such software products were not available, we might experience delays or increased costs in the development of our own software products. For a limited number of our product modules, we rely on software products that we license from third parties, including software that is integrated with internally developed software and which is used in our products to perform key functions. These third-party software licenses may not continue to be available to us on commercially reasonable terms and the related software may not \n24\nTable of Contents\ncontinue to be appropriately supported, maintained or enhanced by the licensors. The loss by us of the license to use, or the inability by licensors to support, maintain or enhance any such software, could result in increased costs, lost revenues or delays until equivalent software is internally developed or licensed from another third party and integrated with our software. Such increased costs, lost revenues or delays could adversely affect our business. For example, with our acquisition of Zix, we extended our partnership with Microsoft by becoming one of their authorized Cloud Solutions Providers in North America. If our key partners were to terminate our relationship, make an adverse change in their reseller program, change their product offerings or experience a major cyber-attack or similar event, it could reduce our revenues and adversely affect our business.\nCurrent and future competitors could have a significant impact on our ability to generate future revenues and profits\nThe markets for our software products and services are intensely competitive and are subject to rapid technological change and other pressures created by changes in our industry. The convergence of many technologies has resulted in unforeseen competitors arising from companies that were traditionally not viewed as threats to our market position. We expect competition to increase and intensify in the future as the pace of technological change and adaptation quickens and as additional companies enter our markets, including those competitors who offer solutions similar to ours, but offer it through a different form of delivery. Numerous releases of competitive products have occurred in recent history and are expected to continue in the future. We may not be able to compete effectively with current competitors and potential entrants into our marketplace. We could lose market share if our current or prospective competitors: (i) develop technologies that are perceived to be substantially equivalent or superior to our technologies; (ii) introduce new competitive products or services; (iii) add new functionality to existing products and services, including through new and emerging AI applications; (iv) acquire competitive products and services; (v) reduce prices; or (vi) form strategic alliances or cooperative relationships with other companies. If other businesses were to engage in aggressive pricing policies with respect to competing products, or if the dynamics in our marketplace resulted in increasing bargaining power by the consumers of our software products and services, we would need to lower the prices we charge for the products and services we offer. This could result in lower revenues or reduced margins, either of which may materially adversely affect our business and operating results. Moreover, our competitors may affect our business by entering into exclusive arrangements with our existing or potential customers, distributors or third-party service providers. Additionally, if prospective consumers choose methods of information management delivery different from that which we offer, our business and operating results could also be materially adversely affected.\nThe length of our sales cycle can fluctuate significantly which could result in significant fluctuations in revenues being recognized from quarter to quarter\nThe decision by a customer to license our software products or purchase our services often involves a comprehensive implementation process across the customer\u2019s network or networks. As a result, the licensing and implementation of our software products and any related services may entail a significant commitment of resources by prospective customers, accompanied by the attendant risks and delays frequently associated with significant technology implementation projects. Given the significant investment and commitment of resources required by an organization to implement our software products, our sales cycle may be longer compared to other companies within our own industry, as well as companies in other industries. Also, because of changes in customer spending habits, it may be difficult for us to budget, forecast and allocate our resources properly. In weak economic environments, such as a recession or slowdown, it is not uncommon to see reduced information technology spending. It may take several months, or even several quarters, for marketing opportunities to materialize, especially following a prolonged period of weak economic environment. If a customer\u2019s decision to license our software or purchase our services is delayed or if the implementation of these software products takes longer than originally anticipated, the date on which we may recognize revenues from these licenses or sales would be delayed. Such delays and fluctuations could cause our revenues to be lower than expected in a particular period and we may not be able to adjust our costs quickly enough to offset such lower revenues, potentially negatively impacting our business, operating results and financial condition.\nOur existing customers might cancel contracts with us, fail to renew contracts on their renewal dates and/or fail to purchase additional services and products, and we may be unable to attract new customers, which could adversely affect our operating results\nWe depend on our installed customer base for a significant portion of our revenues. We have significant contracts with our license customers for ongoing support and maintenance, as well as significant service contracts that provide recurring services revenues to us. In addition, our installed customer base has historically generated additional new license and services revenues for us. Service contracts are generally renewable at a customer\u2019s option and/or subject to cancellation rights, and there are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional services.\n25\nTable of Contents\nIf our customers cancel or fail to renew their service contracts or fail to purchase additional services or products, then our revenues could decrease, and our operating results could be materially adversely affected. Factors influencing such contract terminations and failure to purchase additional services or products could include changes in the financial circumstances of our customers, including as a result of any potential recession, dissatisfaction with our products or services, our retirement or lack of support for our legacy products and services, our customers selecting or building alternate technologies to replace our products or services, the cost of our products and services as compared to the cost of products and services offered by our competitors, acceptance of future price increases by us, including due to inflationary pressures, our ability to attract, hire and maintain qualified personnel to meet customer needs, consolidating activities in the market, changes in our customers\u2019 business or in regulation impacting our customers\u2019 business that may no longer necessitate the use of our products or services, general economic or market conditions, or other reasons. Further, our customers could delay or terminate implementations or use of our services and products or be reluctant to migrate to new products. Such customers will not generate the revenues we may have expected within the anticipated timelines, or at all, and may be less likely to invest in additional services or products from us in the future. We may not be able to adjust our expense levels quickly enough to account for any such revenue losses.\nConsolidation in the industry, particularly by large, well-capitalized companies, could place pressure on our operating margins which could, in turn, have a material adverse effect on our business\nAcquisitions by large, well-capitalized technology companies have changed the marketplace for our software products and services by replacing competitors that are comparable in size to our Company with companies that have more resources at their disposal to compete with us in the marketplace. In addition, other large corporations with considerable financial resources either have products and/or services that compete with our software products and services or have the ability to encroach on our competitive position within our marketplace. These companies have considerable financial resources, channel influence and broad geographic reach; thus, they can engage in competition with our software products and services on the basis of price, marketing, services or support. They also have the ability to introduce items that compete with our maturing software products and services. The threat posed by larger competitors and their ability to use their better economies of scale to sell competing products and/or services at a lower cost may materially reduce the profit margins we earn on the software products and services we provide to the marketplace. Any material reduction in our profit margin may have a material adverse effect on the operations or finances of our business, which could hinder our ability to raise capital in the public markets at opportune times for strategic acquisitions or for general operational purposes, which may then, in turn, prevent effective strategic growth or improved economies of scale or put us at a disadvantage to our better capitalized competitors.\nWe may be unable to maintain or expand our base of SMB and consumer customers, which could adversely affect our anticipated future growth and operating results\nWith the acquisitions of Carbonite and Zix, we have expanded our presence in the SMB market as well as the consumer market. Expanding in this market may require substantial resources and increased marketing efforts, different to what we are accustomed to historically. If we are unable to market and sell our solutions to the SMB market and consumers with competitive pricing and in a cost-effective manner, it may harm our ability to grow our revenues and adversely affect our anticipated future growth and operating results. In addition, SMBs frequently have limited budgets and are more likely to be significantly affected by economic downturns than larger, more established companies. As such, SMBs may choose to spend funds on items other than our solutions, particularly during difficult economic times, which may hurt our projected revenues, business financial condition and results of operations.\nOur sales to government clients expose us to business volatility and risks, including government budgeting cycles and appropriations, early termination, audits, investigations, sanctions and penalties\nWe derive revenues from contracts with U.S. and Canadian federal, state, provincial and local governments and other foreign governments and their respective agencies, which may terminate most of these contracts at any time, without cause. There is increased pressure on governments and their agencies, both domestically and internationally, to reduce spending. Further, our U.S. federal government contracts are subject to the approval of appropriations made by the U.S. Congress to fund the expenditures under these contracts. Similarly, our contracts with U.S. state and local governments, Canadian federal, provincial and local governments and other foreign governments and their agencies are generally subject to government funding authorizations. Additionally, government contracts are generally subject to audits and investigations that could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.\n26\nTable of Contents\nGeopolitical instability, political unrest, war and other global conflicts, including the Russia-Ukraine conflict, has affected and may continue to affect our business\nGeopolitical instability, political unrest, war and other global conflicts may result in adverse effects on macroeconomic conditions, including volatility in financial markets, adverse changes in trade policies, inflation, higher interest rates, direct and indirect supply chain disruptions, increased cybersecurity threats and fluctuations in foreign currency. These events may also impact our decision or limit our ability to conduct business in certain areas or with certain entities. For example, in response to the Russia-Ukraine conflict, we ceased all direct business in Russia and Belarus and with known Russian-owned companies. Sanctions and export controls have also been imposed by the United States, Canada and other countries in connection with Russia\u2019s military actions in Ukraine, including restrictions on selling or exporting goods, services or technology to certain regions, and travel bans and asset freezes impacting political, military, business and financial organizations and individuals in or connected with Russia. To support certain of our cloud customers headquartered in the United States or allied countries that rely on our network to manage their global business (including their business in Russia), we have nonetheless allowed these customers to continue to use our services to the extent that it can be done in strict compliance with all applicable sanctions and export controls. However, as the situation continues and the regulatory environment further evolves, we may adjust our business practices as required by applicable rules and regulations. Our compliance with sanctions and export controls could impact the fulfillment of certain contracts with customers and partners doing business in these affected areas and future revenue streams from impacted parties and certain countries. While our decision to cease all direct business in Russia and Belarus and with known Russian-owned companies has not had and is not expected to have a material adverse effect on our overall business, results of operations or financial condition, it is not possible to predict the broader consequences of this conflict or other conflicts, which could include sanctions, embargoes, regional instability, changes to regional trade ecosystems, geopolitical shifts and adverse effects on the global economy, on our business and operations as well as those of our customers, partners and third party service providers.\nThe restructuring of certain of our operations may be ineffective, may adversely affect our business and our finances, and we may incur additional restructuring charges in connection with such actions \nWe often undertake initiatives to restructure or streamline our operations, particularly during the period post-acquisition, such as the Micro Focus Acquisition Restructuring Plan (as defined below). We may incur costs associated with implementing a restructuring initiative beyond the amount contemplated when we first developed the initiative, and these increased costs may be substantial. Additionally, such costs would adversely impact our results of operations for the periods in which those adjustments are made. We will continue to evaluate our operations and may propose future restructuring actions as a result of changes in the marketplace, including the exit from less profitable operations, the decision to terminate products or services that are not valued by our customers or adjusting our workforce. Any failure to successfully execute these initiatives on a timely basis may have a material adverse effect on our business, operating results and financial condition.\nFor example, during the third quarter of Fiscal 2022, we made a strategic decision to implement restructuring activities to streamline our operations and further reduce our real estate footprint around the world (Fiscal 2022 Restructuring Plan). Such steps to reduce costs, and further changes we may make in the future, may negatively impact our business, operations and financial performance in a manner that is difficult to predict. \nFor more information on our Micro Focus Acquisition Restructuring Plan and our Fiscal 2022 Restructuring Plan, see Note\u00a018 \u201cSpecial Charges (Recoveries)\u201d to our Consolidated Financial Statements included in this Annual Report on Form 10-K.\nWe have a Flex-Office program, which subjects us to certain operational challenges and risks\nIn July 2022, we implemented a Flex-Office program in which a majority of our employees work a portion of their time in the office and a portion remotely. As a result, we continue to be subject to the challenges and risks of having a remote work environment, as well as new operational challenges and risks from having a flexible workforce. \nFor example, employing a remote work environment could affect employee productivity, including due to a lower level of employee oversight, health conditions or illnesses, disruptions due to caregiving or childcare obligations or slower or unreliable Internet access. OpenText systems, client, vendor and/or borrower data may be subject to additional risks presented by increased cyber-attacks and phishing activities targeting employees, vendors, third party service providers and counterparties in transactions, the possibility of attacks on OpenText systems or systems of employees working remotely as well as by decreased physical supervision. In addition, we may rely, in part, on third-party service providers to assist us in managing monitoring and otherwise carrying out aspects of our business and operations. Such events may result in a period of business disruption or reduced operations, which could materially affect our business, financial condition and results of operations. While our controls were not specifically designed to operate in a home environment, we believe that established internal controls over financial reporting continue to address all identified risk areas. \n27\nTable of Contents\nThe transition to a flexible workforce may also subject us to other operational challenges and risks. For example, our shift to a Flex-Office program may adversely affect our ability to recruit and retain personnel who prefer a fully remote or fully in-person work environment. Operating our business with both remote and in-person workers, or workers who work on flexible schedules, could have a negative impact on our corporate culture, decrease the ability of our employees to collaborate and communicate effectively, decrease innovation and productivity, or negatively affect employee morale. In addition, we have incurred costs related to our return to office planning and the transition to a flexible workforce, including due to reducing our real estate footprint around the world. If we are unable to effectively continue the transition to a flexible workforce, manage the cybersecurity and other risks of remote work, and maintain our corporate culture and employee morale, our financial condition and operating results may be adversely impacted.\nFor more information regarding the impact of business disruptions on our cybersecurity, see \u201cBusiness disruptions, including those arising from disasters, pandemics or catastrophic events, may adversely affect our operations.\u201d\nWe must continue to manage our internal resources during periods of company growth, or our operating results could be adversely affected\nThe information management market in which we compete continues to evolve at a rapid pace. We have grown significantly through acquisitions, including through the Micro Focus Acquisition, and, in conjunction with our plan to de-lever, may continue to review acquisition opportunities as a means of increasing the size and scope of our business. Our growth, coupled with the rapid evolution of our markets, has placed, and will continue to place, significant strains on our administrative and operational resources and increased demands on our internal systems, procedures and controls. Our administrative infrastructure, systems, procedures and controls may not adequately support our operations. In addition, our management may not be able to achieve the rapid, effective execution of the product and business initiatives necessary to successfully implement our operational and competitive strategy. If we are unable to manage growth effectively, our operating results will likely suffer, which may, in turn, adversely affect our business.\nIf we lose the services of our executive officers or other key employees or if we are not able to attract or retain top employees, our business could be significantly harmed\nOur performance is substantially dependent on the performance of our executive officers and key employees and there is a risk that we could lose their services. We do not maintain \u201ckey person\u201d life insurance policies on any of our employees. Our success is also highly dependent on our continuing ability to identify, hire, train, retain and motivate highly qualified management, technical, sales and marketing personnel. In particular, the recruitment and retention of top research developers and experienced salespeople, particularly those with specialized knowledge, remains critical to our success, including providing consistent and uninterrupted service to our customers. Competition for such people is intense, substantial and continuous, and we may not be able to attract, integrate or retain highly qualified technical, sales or managerial personnel in the future. In our effort to attract and retain critical personnel, and in responding to inflationary wage pressure, we may experience increased compensation costs that are not offset by either improved productivity or higher prices for our software products or services. In addition, the loss of the services of any of our executive officers or other key employees could significantly harm our business, operating results and financial condition.\nOur compensation structure may hinder our efforts to attract and retain vital employees\nA portion of our total compensation program for our executive officers and key personnel includes the award of options to buy our Common Shares. If the market price of our Common Shares performs poorly, such performance may adversely affect our ability to retain or attract critical personnel. In addition, any changes made to our stock option policies, or to any other of our compensation practices, which are made necessary by governmental regulations or competitive pressures, could adversely affect our ability to retain and motivate existing personnel and recruit new personnel. For example, any limit to total compensation that may be prescribed by the government or applicable regulatory authorities or any significant increases in personal income tax levels levied in countries where we have a significant operational presence may hurt our ability to attract or retain our executive officers or other employees whose efforts are vital to our success. Additionally, payments under our long-term incentive plans (the details of which are described in Item 11 of this Annual Report on Form 10-K) are dependent to a significant extent upon the future performance of our Company both in absolute terms and in comparison to similarly situated companies. Any failure to achieve the targets set under our long-term incentive plan could significantly reduce or eliminate payments made under this plan, which may, in turn, materially and adversely affect our ability to retain the key personnel paid under this plan.\n28\nTable of Contents\nIncreased attention from shareholders, customers and other key relationships regarding our CSR and ESG  practices could impact our business activities, financial performance and reputation\nShareholders, customers and other key relationships are placing a greater emphasis on CSR and ESG factors when evaluating companies for business and investment opportunities. We actively manage a broad range of CSR and ESG matters and annually publish a Corporate Citizenship Report regarding our policies and practices on a variety of CSR and ESG matters, including our: governance framework; community involvement; ED&I initiatives; employee health and safety; targets regarding greenhouse gas emissions, waste diversion and energy consumption; and practices relating to data privacy and information security. Our approach to and disclosure of CSR and ESG matters may result in increased attention from our shareholders, customers, employees, partners and suppliers, and such key relationships may not be satisfied with our approach to CSR and ESG as compared to their expectations and standards, which continue to evolve. Additionally, third-party organizations evaluate our approach to CSR and ESG, and an unfavorable rating on CSR or ESG from such organizations could lead to negative investor sentiment and reduced demand for our securities and damage to our reputation, as well as damage to our relationships with shareholders, customers, employees, partners and suppliers, which could have adverse effects on our reputation, business, operating results and financial condition. See \u201cChanges in the market price of our Common Shares and credit ratings of our outstanding debt securities could lead to losses for shareholders and debt holders.\u201d \nThe Company has disclosed the OpenText Zero-In Initiative, where we have committed to: (1) science-based GHG emissions target of 50% reduction by 2030, and net zero GHG emissions by 2040; (2) zero waste from operations by 2030; and (3) by 2030, a majority ethnically diverse staff, with 50/50 representation in key roles and 40% women in leadership positions at all management levels. Achieving our targets and ongoing compliance with evolving laws and regulatory requirements may cause us to reconfigure facilities and operations or adjust our existing processes. This could result in significant unexpected expenses, changes in our relationships with certain strategic partners, distributors and third-party service providers, loss of revenue and business disruption. We may not meet our goals in the manner or on such a timeline as initially contemplated, or at all, which would have adverse effects on our reputation, business, operating results and financial condition.\nFurther, we may incur additional costs and require additional resources to be able to collect reliable emissions and waste data (in part, due to unavailable third-party data or inconsistent industry standards on the measurement of certain data), measure our performance against our targets and adjust our disclosure in line with market expectations. We may also incur additional compliance costs under evolving ESG-related regulations across the world, including in the EU, the U.S. and Canada. If we fail to meet our ESG targets or other ESG criteria set by third parties on a timely basis, or at all, or fail to respond to any perceived ESG concerns, or regulators disagree with our procedures or standards, our business activities, financial performance and reputation may be adversely affected. \nRisks Related to Acquisitions\nAcquisitions, investments, joint ventures and other business initiatives may negatively affect our operating results\nThe growth of our Company through the successful acquisition and integration of complementary businesses is a critical component of our corporate strategy. As a result of the continually evolving marketplace in which we operate, we regularly evaluate acquisition opportunities and at any time may be in various stages of discussions with respect to such opportunities. We plan to continue to pursue acquisitions that complement our existing business, represent a strong strategic fit and are consistent with our overall growth strategy and disciplined financial management. We may also target future acquisitions to expand or add functionality and capabilities to our existing portfolio of solutions, as well as to add new solutions to our portfolio. We may also consider, from time to time, opportunities to engage in joint ventures or other business collaborations with third parties to address particular market segments. These activities create risks such as: (i) the need to integrate and manage the businesses and products acquired with our own business and products; (ii) additional demands on our resources, systems, procedures and controls; (iii) disruption of our ongoing business; and (iv) diversion of management\u2019s attention from other business concerns. Moreover, these transactions could involve: (i) substantial investment of funds or financings by issuance of debt or equity or equity-related securities; (ii) substantial investment with respect to technology transfers and operational integration; and (iii) the acquisition or disposition of product lines or businesses. Also, such activities could result in charges and expenses and have the potential to either dilute the interests of existing shareholders or result in the issuance or assumption of debt, which could have a negative impact on the credit ratings of our outstanding debt securities or the market price of our Common Shares. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources of our Company. Any such activity may not be successful in generating revenues, income or other returns to us, and the resources committed to such activities will not be available to us for other purposes. In addition, while we conduct due diligence prior to consummating an acquisition, joint venture or business collaboration, such diligence may not identify all material issues associated with such activities and we may be exposed to additional risk due to such acquisition, joint venture or business collaboration. We may also experience unanticipated difficulties identifying suitable or attractive acquisition candidates that are available for purchase at reasonable prices. Even if we are able to identify such candidates, we may be unable to consummate an acquisition on suitable terms or in the face of \n29\nTable of Contents\ncompetition from other bidders. Moreover, if we are unable to access capital markets on acceptable terms or at all, we may not be able to consummate acquisitions, or may have to do so on the basis of a less than optimal capital structure. Our inability (i) to take advantage of growth opportunities for our business or for our products and services, or (ii) to address risks associated with acquisitions or investments in businesses, may negatively affect our operating results and financial condition. Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges associated with any acquisition or investment activity, may materially adversely impact our results of operations and financial condition which, in turn, may have a material adverse effect on the market price of our Common Shares or credit ratings of our outstanding debt securities.\nWe may fail to realize all of the anticipated benefits of our acquisitions, including the Micro Focus Acquisition, or those benefits may take longer to realize than expected\nWe may be required to devote significant management attention and resources to integrating the business practices and operations of our acquisitions, including the acquisition of Micro Focus. As we integrate our acquisitions, we may experience disruptions to our business and, if implemented ineffectively, it could restrict the realization of the full expected benefits. The failure to meet the challenges involved in the integration process and to realize the anticipated benefits of our acquisitions could cause an interruption of, or loss of momentum in, our operations and could adversely affect our business, financial condition and results of operations.\nThe anticipated benefits we expect from having consummated the Micro Focus Acquisition are, necessarily, based on projections and assumptions about our combined business with Micro Focus, which may not materialize as expected or which may prove to be inaccurate. Our business and results of operations could be adversely affected if we are unable to realize the anticipated benefits from the Micro Focus Acquisition on a timely basis or at all, including realizing the anticipated synergies from the Micro Focus Acquisition in the anticipated amounts or at all and within the anticipated timeframes or cost expectations, including implementing the Micro Focus Acquisition Restructuring Plan. Achieving the benefits of the Micro Focus Acquisition will depend, in part, on our ability to integrate the business and operations of Micro Focus successfully and efficiently with our business. See \u201cWe may be unable to successfully integrate acquired businesses or do so within the intended timeframes, which could have an adverse effect on our financial condition, results of operations and business prospects.\u201d\nMany of these factors will be outside of our control and any one of them could result in increased costs, including restructuring charges, decreases in the amount of expected revenues and diversion of management\u2019s time and energy, which could adversely affect our business, financial condition and results of operations.\nWe may be unable to successfully integrate acquired businesses or do so within the intended timeframes, which could have an adverse effect on our financial condition, results of operations and business prospects\nOur ability to realize the anticipated benefits of acquired businesses, including the Micro Focus Acquisition, will depend, in part, on our ability to successfully and efficiently integrate acquired businesses and operations with our own. The integration of acquired businesses with our existing business will be complex, costly and time-consuming, and may result in additional demands on our resources, systems, procedures and controls, disruption of our ongoing business and diversion of management\u2019s attention from other business concerns. Although we cannot be certain of the degree and scope of operational and integration problems that may arise, the difficulties and risks associated with the integration of acquired businesses, which may be complex and time-consuming, may include, among others:\n\u2022\nthe increased scope and complexity of our operations;\n\u2022\ncoordinating geographically separate organizations, operations, relationships and facilities, including coordinating and integrating (i) independent research and development and engineering teams across technologies and product platforms to enhance product development while reducing costs and (ii) sales and marketing efforts to effectively position the combined company\u2019s capabilities and the direction of product development;\n\u2022\nintegrating (i) personnel with diverse business backgrounds, corporate cultures and management philosophies, and (ii) the standards, policies and compensation structures, as well as the complex systems, technology, networks and other assets, of the businesses;\n\u2022\nsuccessfully managing relationships with our strategic partners and combined supplier and customer base;\n\u2022\nimplementing expected cost synergies of the acquisitions, including expected cost synergies of $400 million relating to the Micro Focus Acquisition;\n\u2022\nretention of key employees;\n\u2022\nthe diversion of management attention from other important business objectives;\n\u2022\nthe possibility that we may have failed to discover obligations of acquired businesses or risks associated with those businesses during our due diligence investigations as part of the acquisition, which we, as a successor owner, may be responsible for or subject to; and\n30\nTable of Contents\n\u2022\nprovisions in contracts with third parties that may limit flexibility to take certain actions.\nAs a result of these difficulties and risks, we may not accomplish the integration of acquired businesses smoothly, successfully or within our budgetary expectations and anticipated timetables, which may result in a failure to realize some or all of the anticipated benefits of our acquisitions.\nAs a result of the Micro Focus Acquisition, the scope and size of our operations and business has substantially changed and will result in certain incremental risks to us. We cannot provide assurance that our expansion in scope and size will be successful\nThe Micro Focus Acquisition has substantially expanded the scope and size of our business by adding substantial assets and operations to our previously existing business. The anticipated future growth of our business will impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees. Our senior management\u2019s attention may be diverted from the management of daily operations and other important business objectives to the integration of the assets acquired in the Micro Focus Acquisition. Our ability to manage our business and growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. We may also encounter risks, costs and expenses associated with any undisclosed or other unanticipated liabilities and use more cash and other financial resources on integration and implementation activities than we expect. We may not be able to integrate the Micro Focus business into our existing operations on our anticipated timelines or realize the full expected economic benefits of the Micro Focus Acquisition, which may have a material adverse effect on our business, financial condition and results of operations. Further, as permitted by applicable rules and laws, we have excluded Micro Focus from the assessment of our internal control over financial reporting as of June 30, 2023. See \u201cItem 9A. Controls and Procedures.\u201d\nWe may also encounter risk, costs and expenses associated with preparing periodic reporting and consolidated financial statements now that the Micro Focus Acquisition has closed. The expansion of effective internal controls over financial reporting and adequate disclosure controls and procedures over the Micro Focus business will be necessary to provide reliable financial reports and reporting. Micro Focus identified a material weakness in its internal controls over financial reporting for the fiscal year ended October 31, 2021, which was subsequently remediated. In the course of applying our internal controls framework to the Micro Focus business we may identify other material weaknesses, significant deficiencies or other deficiencies, which could result in our determining we have a material weakness in internal controls over financial reporting, and lead to an adverse reaction in the financial markets and a material adverse effect on our business, financial condition, results of operation and prospects. Also, Micro Focus\u2019 historical financial statements were prepared in accordance with International Financial Reporting Standards and have not been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). Prior to the Micro Focus Acquisition, Micro Focus provided financial statements semi-annually, with a fiscal year end of October 31. Given such differences, it may be difficult for us to integrate systems in a timely fashion to continue to produce financial statements now that the Micro Focus Acquisition has closed.\nWe incurred significant transaction costs in connection with the Micro Focus Acquisition, and could incur unanticipated costs during the integration of Micro Focus that could adversely affect our results of operations\nWe incurred significant transaction costs in connection with the Micro Focus Acquisition, including payment of certain fees and expenses incurred in connection with the Micro Focus Acquisition and related transactions to obtain financing for the Micro Focus Acquisition, including entering into certain derivative transactions as further described herein. We have mark-to-market valuation adjustments for certain derivative transactions, based on foreign currency fluctuations. For more information on our mark-to-market derivatives, see Note\u00a017 \u201cDerivative Instruments and Hedging Activities\u201d and Note\u00a023 \u201cOther Income (Expense), Net\u201d to our Consolidated Financial Statements and in Part II, Item 7 \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\u201d Additional unanticipated costs may be incurred in the integration process. These could adversely affect our results of operations in the period in which such expenses are recorded or our cash flow in the period in which any related costs are actually paid.\nFurthermore, we have incurred and may continue to incur severance expenses and restructuring charges in connection with the Micro Focus Acquisition Restructuring Plan, which may, now that the Micro Focus Acquisition has closed, adversely affect our operating results in the period in which such expenses are recorded or our cash flow in the period in which any related costs are actually paid.\nFor more information on our transaction costs, see Note\u00a018 \u201cSpecial Charges (Recoveries)\u201d to our Consolidated Financial Statements included in this Annual Report on Form 10-K.\n31\nTable of Contents\nLoss of key personnel could impair the integration of acquired businesses, lead to loss of customers and a decline in revenues, or otherwise could have an adverse effect on our operations\nOur success as a combined business with any prior or future acquired businesses will depend, in part, upon our ability to retain key employees, especially during the integration phase of the businesses. It is possible that the integration process could result in current and prospective employees of ours and the acquired business to experience uncertainty about their future roles with us, which could have an adverse effect on our ability to retain or recruit key managers and other employees. If, despite our retention and recruiting efforts, key employees depart, the loss of their services and their experience and knowledge regarding our business or an acquired business could have an adverse effect on our future operating results and the successful ongoing operation of our businesses.\nBusinesses we acquire may have disclosure controls and procedures and internal controls over financial reporting, cybersecurity and compliance with data privacy laws that are weaker than or otherwise not in conformity with ours\nWe have a history of acquiring complementary businesses of varying size and organizational complexity and we may continue to engage in such acquisitions. Upon consummating an acquisition, we seek to implement our disclosure controls and procedures, our internal controls over financial reporting as well as procedures relating to cybersecurity and compliance with data privacy laws and regulations at the acquired company as promptly as possible. Depending upon the nature and scale of the business acquired, the implementation of our disclosure controls and procedures as well as the implementation of our internal controls over financial reporting at an acquired company may be a lengthy process and may divert our attention from other business operations. Our integration efforts may periodically expose deficiencies in the disclosure controls and procedures and internal controls over financial reporting as well as procedures relating to cybersecurity and compliance with data privacy laws and regulations of an acquired company that were not identified in our due diligence undertaken prior to consummating the acquisition; contractual protections intended to protect against any such deficiencies may not fully eliminate all related risks. If such deficiencies exist, we may not be in a position to comply with our periodic reporting requirements and, as a result, our business and financial condition may be materially harmed. Refer to Item 9A \u201cControls and Procedures\u201d, included elsewhere in this Annual Report on Form 10-K, for details on our internal controls over financial reporting for recent acquisitions.\nPro forma financial information may not be indicative of our financial condition or results following the Micro Focus Acquisition\nThe selected pro forma financial information with respect to the Micro Focus Acquisition contained in our public disclosure record is presented for illustrative purposes only as of its respective dates and may not be indicative of our current financial condition or results of operations. The selected unaudited pro forma financial information was derived from the respective historical financial statements of the Company and Micro Focus, and certain adjustments and assumptions were made as of such dates to give effect to the Micro Focus Acquisition. The information upon which these adjustments and assumptions were made was preliminary and these kinds of adjustments and assumptions are difficult to make with complete accuracy. Accordingly, the combined business, assets, results of operations and financial condition may differ significantly from those indicated in the unaudited pro forma financial information, and such variations may negatively impact our financial condition, results of operations and the market price of our Common Shares.\nRisks Related to Laws and Regulatory Compliance\nOur provision for income taxes and effective income tax rate may vary significantly and may adversely affect our results of operations and cash resources\nSignificant judgment is required in determining our provision for income taxes. Various internal and external factors may have favorable or unfavorable effects on our future provision for income taxes, income taxes receivable and our effective income tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, results of audits by tax authorities, changing interpretations of existing tax laws or regulations, changes in estimates of prior years\u2019 items, the impact of transactions we complete, future levels of research and development spending, changes in the valuation of our deferred tax assets and liabilities, transfer pricing adjustments, changes in the overall mix of income among the different jurisdictions in which we operate and changes in overall levels of income before taxes. For instance, the provision for income taxes from the Tax Cuts and Jobs Act of 2017, which requires capitalization and amortization of research and development costs starting Fiscal 2023, have materially increased cash taxes. Furthermore, new accounting pronouncements or new interpretations of existing accounting pronouncements, and/or any internal restructuring initiatives we may implement from time to time to streamline our operations, can have a material impact on our effective income tax rate.\nTax examinations are often complex as tax authorities may disagree with the treatment of items reported by us and our transfer pricing methodology based upon our limited risk distributor model, the result of which could have a material adverse effect on our financial condition and results of operations. Although we believe our estimates are reasonable, the ultimate \n32\nTable of Contents\noutcome with respect to the taxes we owe may differ from the amounts recorded in our financial statements, and this difference may materially affect our financial position and financial results in the period or periods for which such determination is made.\nThe United Kingdom (UK) tax authorities have challenged certain historic tax filing positions of Micro Focus. Based on Micro Focus\u2019 assessment of the value of the underlying tax benefit under dispute, and as supported by external professional advice, it believed that it had no liability in respect of these matters and therefore no tax charge was recorded in current or previous periods. Although the Company, after closing of the Micro Focus Acquisition, believes that assessment is reasonable, no assurance can be made regarding the ultimate outcome of these matters.\nThe Company is also subject to income taxes in numerous jurisdictions and significant judgment has been applied in determining its worldwide provision for income taxes, including historical Micro Focus matters related to the EU State Aid and UK tax authority challenge in respect of prior periods. The provision for income taxes may be impacted by various internal and external factors that could have favorable or unfavorable effects, including changes in tax laws, regulations and/or rates, results of audits, changing interpretations of existing tax laws or regulations, changes in estimates of prior years\u2019 items, the impact of transactions completed, the structuring of activities undertaken, the application of complex transfer pricing rules, changes in the valuation of deferred tax assets and liabilities, and changes in overall mix and levels of income before taxes. Further, due to Micro Focus\u2019 complex acquisitive history, we could become subject to additional tax audits in jurisdictions in which we have not historically been subject to examination. As a result, our worldwide provision for income taxes and any ultimate tax liability may differ from the amounts initially recorded and such differences could have an adverse effect on the combined company\u2019s financial condition and results of operations. \nFor further details on certain tax matters relating to the Company see Note\u00a014 \u201cGuarantees and Contingencies\u201d and Note\u00a015 \u201cIncome Taxes\u201d to the Consolidated Financial Statements included in this Annual Report on Form 10-K.\nAs part of the ongoing audit of our Canadian tax returns by the Canada Revenue Agency (CRA), we have received notices of, and are appealing, reassessments for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016, and the CRA has audited Fiscal 2017 and Fiscal 2018 and is auditing Fiscal 2019. An adverse outcome of these ongoing audits could have a material adverse effect on our financial position and results of operations\nAs part of its ongoing audit of our Canadian tax returns, the CRA has disputed our transfer pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016. Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of June\u00a030, 2023, in connection with the CRA\u2019s reassessments for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016, to be limited to penalties, interest and provincial taxes that may be due of approximately $76 million. As of June\u00a030, 2023, we have provisionally paid approximately $33\u00a0million in order to fully preserve our rights to object to the CRA\u2019s audit positions, being the minimum payment required under Canadian legislation while the matter is in dispute. This amount is recorded within \u201cLong-term income taxes recoverable\u201d on the Consolidated Balance Sheets as of June\u00a030, 2023.\nThe notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 would, as drafted, increase our taxable income by approximately $90 million to $100 million for each of those years, as well as impose a 10% penalty on the proposed adjustment to income. Audits by the CRA of our tax returns for fiscal years prior to Fiscal 2012 have been completed with no reassessment of our income tax liability.\nWe strongly disagree with the CRA\u2019s positions and believe the reassessments of Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 (including any penalties) are without merit, and we are continuing to contest these reassessments. On June 30, 2022, we filed a notice of appeal with the Tax Court of Canada seeking to reverse all such reassessments (including penalties) in full and the customary court process is ongoing.\nEven if we are unsuccessful in challenging the CRA\u2019s reassessments to increase our taxable income for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016, we have elective deductions available for those years (including carry-backs from later years) that would offset such increased amounts so that no additional cash tax would be payable, exclusive of any assessed penalties and interest, as described above.\nThe CRA has audited Fiscal 2017 and Fiscal 2018 on a basis that we strongly disagree with and are contesting. The focus of the CRA audit has been the valuation of certain intellectual property and goodwill when one of our subsidiaries continued into Canada from Luxembourg in July 2016. In accordance with applicable rules, these assets were recognized for tax purposes at fair market value as of that time, which value was supported by an expert valuation prepared by an independent leading accounting and advisory firm. CRA\u2019s position for Fiscal 2017 and Fiscal 2018 relies in significant part on the application of its positions regarding our transfer pricing methodology that are the basis for its reassessment of our fiscal years 2012 to 2016 described above, and that we believe are without merit. Other aspects of CRA\u2019s position for Fiscal 2017 and Fiscal 2018 conflict with the expert valuation prepared by the independent leading accounting and advisory firm that was used to support our original filing position. The CRA issued notices of reassessment in respect of Fiscal 2017 and Fiscal 2018 on a basis \n33\nTable of Contents\nconsistent with its proposal to reduce the available depreciable basis of these assets in Canada. On April 19, 2022, we filed our notice of objection regarding the reassessment in respect of Fiscal 2017 and on March 15, 2023, we filed our notice of objection regarding the reassessment in respect of Fiscal 2018. If we are ultimately unsuccessful in defending our position, the estimated impact of the proposed adjustment could result in us recording an income tax expense, with no immediate cash payment, to reduce the stated value of our deferred tax assets of up to approximately $470\u00a0million. Any such income tax expense could also have a corresponding cash tax impact that would primarily occur over a period of several future years based upon annual income realization in Canada. We strongly disagree with the CRA\u2019s position for Fiscal 2017 and Fiscal 2018 and intend to vigorously defend our original filing position. We are not required to provisionally pay any cash amounts to the CRA as a result of the reassessment in respect of Fiscal 2017 and Fiscal 2018 due to the utilization of available tax attributes; however, to the extent the CRA reassesses subsequent fiscal years on a similar basis, we expect to make certain minimum payments required under Canadian legislation, which may need to be provisionally made starting in Fiscal 2024 while the matter is in dispute. \nWe will continue to vigorously contest the adjustments to our taxable income and any penalty and interest assessments, as well as any reduction to the basis of our depreciable property. We are confident that our original tax filing positions were appropriate. Accordingly, as of the date of this Annual Report on Form 10-K, we have not recorded any accruals in respect of these reassessments or proposed reassessment in our Consolidated Financial Statements. The CRA is auditing Fiscal 2019, and may reassess Fiscal 2019 on a similar basis as Fiscal 2017 and Fiscal 2018. The CRA is also in preliminary stages of auditing Fiscal 2020.\nFor further details on these and other tax audits to which we are subject, see Note\u00a014 \u201cGuarantees and Contingencies\u201d and Note\u00a015 \u201cIncome Taxes\u201d to the Consolidated Financial Statements included in this Annual Report on Form 10-K.\nRisks associated with data privacy issues, including evolving laws and regulations and associated compliance efforts, may adversely impact our business\nOur business depends on the processing of personal data, including data transfer between our affiliated entities, to and from our business partners and customers, and with third-party service providers. The laws and regulations relating to personal data are constantly evolving, as federal, state and foreign governments continue to adopt new measures addressing data privacy and processing (including collection, storage, transfer, disposal and use) of personal data. Moreover, the interpretation and application of many existing or recently enacted privacy and data protection laws and regulations in the EU, UK, the U.S. and elsewhere are uncertain and fluid, and it is possible that such laws and regulations may be interpreted or applied in a manner that is inconsistent with our existing data management practices or the features of our products and services. Any such new laws or regulations, any changes to existing laws and regulations and any such interpretation or application may affect demand for our products and services, impact our ability to effectively transfer data across borders in support of our business operations or increase the cost of providing our products and services. Additionally, any actual or perceived breach of such laws or regulations may subject us to claims and may lead to administrative, civil or criminal liability, as well as reputational harm to our Company and our employees. We could also be required to fundamentally change our business activities and practices, or modify our products and services, which could have an adverse effect on our business.\nIn the U.S., various laws and regulations apply to the collection, processing, transfer, disposal, unauthorized disclosure and security of personal data. For example, data protection laws passed by all states within the U.S. require notification to users when there is a security breach for personal data. Additionally, the Federal Trade Commission (FTC) and many state attorneys general are interpreting federal and state consumer protection laws as imposing standards for the online collection, use, transfer and security of data. The U.S. Congress and state legislatures, along with federal regulatory authorities, have recently increased their attention to matters concerning personal data, and this has and may continue to result in new legislation which could increase the cost of compliance. For example, the California Consumer Privacy Act of 2018 came into effect on January 1, 2020 and was subsequently amended by the California Privacy Rights Act, which took effect January 1, 2023 (the foregoing, collectively, the CCPA). The CCPA requires companies that process information of California residents to make new disclosures to consumers about their data collection, use and sharing practices, allows consumers to access and request deletion of their data and opt out of certain data sharing with third parties and provides a new private right of action for data breaches. Violations of the CCPA are enforced by the California Attorney General with sizeable civil penalties, particularly for violations that impact large numbers of consumers. The CCPA also establishes a regulatory agency dedicated to enforcing the requirements of the CCPA. Comprehensive privacy laws in Colorado, Connecticut and Virginia also came into effect in 2023. Indiana, Iowa, Montana, Tennessee, Texas and Utah have similarly enacted broad laws relating to privacy, data protection and information security that will come into effect in the next few years, and Delaware and Oregon have passed comprehensive privacy laws that are awaiting enactment, further complicating our privacy compliance obligations through the introduction of increasingly disparate requirements across the various U.S. jurisdictions in which we operate. In addition to government regulation, privacy advocacy and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us or our clients.\nSome of our operations are subject to the EU\u2019s General Data Protection Regulation (the EU GDPR), which took effect from May 25, 2018, the General Data Protection Regulation as it forms part of retained EU law in the UK by virtue of the \n34\nTable of Contents\nEuropean Union (Withdrawal) Act 2018 and as amended by the Data Protection, Privacy and Electronic Communications (Amendments etc.) (EU Exit) Regulations 2019 (SI 2019/419) (the UK GDPR, and together with the EU GDPR, the GDPR), and the UK Data Protection Act 2018. The GDPR imposes a number of obligations for subject companies, and we will need to continue dedicating financial resources and management time to GDPR compliance. The GDPR enhances the obligations placed on companies that control or process personal data including, for example, expanded disclosures about how personal data is to be used, mechanisms for obtaining consent from data subjects, controls for data subjects with respect to their personal data (including by enabling them to exercise rights to erasure and data portability), limitations on retention of personal data and mandatory data breach notifications. Additionally, the GDPR places companies under obligations relating to data transfers and the security of the personal data they process. The GDPR provides that supervisory authorities in the EU and the UK may impose administrative fines for certain infringements of the GDPR of up to EUR 20,000,000 under the EU GDPR (or GBP 17,500,000 under the UK GDPR), or 4% of an undertaking\u2019s total, worldwide, annual turnover of the preceding financial year, whichever is higher. Individuals who have suffered damage as a result of a subject company\u2019s non-compliance with the GDPR also have the right to seek compensation from such company. Given the breadth of the GDPR, compliance with its requirements is likely to continue to require significant expenditure of resources on an ongoing basis, and there can be no assurance that the measures we have taken for the purposes of compliance will be successful in preventing violation of the GDPR. Given the potential fines, liabilities and damage to our reputation in the event of an actual or perceived violation of the GDPR, such a violation may have a material adverse effect on our business and operations. \nIn addition, the GDPR restricts transfers of personal data outside of the European Economic Area (EEA) and the UK to third countries deemed to lack adequate privacy protections unless an appropriate safeguard is implemented. In light of the July 2020 decision of the Court of Justice of the European Union in \nData Protection Commissioner vs Facebook Ireland Limited and Maximillian Schrems\n (C-311/118) (Schrems II) invalidating the EU-U.S. Privacy Shield Framework and the Irish Data Protection Authority\u2019s May 2023 decision to impose a fine of \u20ac1.2 billion on Meta Platforms, Inc. (Meta) regarding Meta\u2019s transfers of personal data to the U.S., there is potential uncertainty with respect to the legality of certain transfers of personal data from the European Economic Area (EEA) and the UK to so-called \u201cthird countries\u201d outside the EEA, including the U.S. and Canada. In addition to the increased legal risk in the event of any such transfers, additional costs might also need to be incurred in order to implement necessary safeguards to comply with GDPR. While the Court of Justice of the EU upheld the adequacy of the old standard contractual clauses (SCCs), a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, it made clear that reliance on them alone may not necessarily be sufficient in all circumstances. In June 2021, the European Commission issued new SCCs that must be used for relevant new data transfers, and existing SCCs must be migrated to the new SCCs by December 27, 2022. At the same time, the UK\u2019s Information Commissioner\u2019s Office released two new agreements governing international data transfers out of the UK that can be used from March 21, 2022: the International Data Transfer Agreement (IDTA) and the Data Transfer Addendum (Addendum). All existing contracts and any new contracts signed before September 21, 2022 can continue to use the old SCCs until March 21, 2024, after which the old SCCs must be replaced by either the IDTA or the Addendum in conjunction with the new SCCs. All contracts signed after September 21, 2022 must use either the IDTA or the Addendum in conjunction with the new SCCs. Additionally, on March 25, 2022, the U.S. and European Commission announced that they had agreed in principle to a new \u201cTrans-Atlantic Data Privacy Framework\u201d (the TDPF to enable trans-Atlantic data flows and address the concerns raised in the Schrems II decision. To implement the commitments of the U.S. under the TDPF, in October 2022, President Biden signed an Executive Order on Enhancing Safeguards for the United States Signals Intelligence Activities (the Executive Order). This subsequently prompted the European Commission to formally launch the process to adopt an adequacy decision based on the Executive Order in December 2022, and the adequacy decision was adopted on July 10, 2023. However, the TDPF is likely to be subject to legal challenges and may be struck down by the EU courts.\nOutside of the U.S., the EU and the UK, many jurisdictions have adopted or are adopting new data privacy laws that may impose further onerous compliance requirements, such as data localization, which prohibits companies from storing and/or processing outside the jurisdiction data relating to resident individuals. The proliferation of such laws within the jurisdictions in which we operate may result in conflicting and contradictory requirements, particularly in relation to evolving technologies such as cloud computing and AI. Any failure to successfully navigate the changing regulatory landscape could result in legal liability or impairment to our reputation in the marketplace, which could have a material adverse effect on our business, results of operations and financial condition.\nPrivacy-related claims or lawsuits initiated by governmental bodies, customers or other third parties, whether meritorious or not, could be time consuming, result in costly regulatory proceedings, litigation, penalties, fines, or other potential liabilities, or require us to change our business practices, sometimes in expensive ways. Unfavorable publicity regarding our privacy practices could damage our reputation, harm our ability to keep existing customers or attract new customers or otherwise adversely affect our business, assets, revenue and brands.\n35\nTable of Contents\nCertain of our products may be perceived as, or determined by the courts to be, a violation of privacy rights and related laws. Any such perception or determination could adversely affect our revenues and results of operations\nBecause of the nature of certain of our products, including those relating to digital investigations, potential customers and purchasers of our products or the general public may perceive that the use of these products results in violations of individual privacy rights. In addition, certain courts or regulatory authorities could determine that the use of our software solutions or other products is a violation of privacy laws, particularly in jurisdictions outside of the U.S. Any such determination or perception by potential customers and purchasers, the general public, government entities or the judicial system could harm our reputation and adversely affect our revenues and results of operations.\nAI and other machine learning technology is being integrated into some of our products, systems or solutions, which could present risks and challenges to our business\nAI and other machine learning technology is being integrated into some of our products, systems or solutions and could be a significant factor in future offerings. While AI can present significant benefits, it can also present risks and challenges to our business. Data sourcing, technology, integration and process issues, program bias into decision-making algorithms, security challenges and the protection of personal privacy could impair the adoption and acceptance of AI. If the output from AI in our products, systems or solutions are deemed to be inaccurate or questionable, or if the use of AI does not operate as anticipated or perform as promised, our business and reputation may be harmed. As the adoption of AI quickens, we expect competition to intensify and additional companies may enter our markets offering similar products, systems or solutions.We may not be able to compete effectively with our competitors and our strategy to integrate AI and other machine learning technology into our products, systems or solutions may also not be accepted by our customers or by other businesses in the marketplace.The integration of AI may also expose us to risks regarding intellectual property ownership and license rights, particularly if any copyrighted material is embedded in training models. The use of copyrighted materials in AI and other machine learning technology has not been fully interpreted by federal, state, or international courts and the regulatory framework for AI continues to evolve and remains uncertain. It is possible that new laws and regulations will be adopted in the jurisdictions in which we operate, or existing laws and regulations may be interpreted in new ways, that would affect the way in which AI and other machine learning technology is used in our products, systems or solutions. Further, the cost to comply with such laws or regulations, including court decisions, could be significant. The risks and challenges associated with integrating AI and other machine learning technology into our products, systems and solutions could adversely affect our business, financial condition and results of operations.\nRisks Related to our Financial Condition\nWe may not generate sufficient cash flow to satisfy our unfunded pension obligations\nThrough our acquisitions, we have assumed certain unfunded pension plan liabilities. We will be required to use the operating cash flow that we generate in the future to meet these obligations. As a result, our future net pension liability and cost may be materially affected by the discount rate used to measure these pension obligations and by the longevity and actuarial profile of the relevant workforce. A change in the discount rate may result in a significant increase or decrease in the valuation of these pension obligations, and these changes may affect the net periodic pension cost in the year the change is made and in subsequent years. We cannot assure that we will generate sufficient cash flow to satisfy these obligations. Any inability to satisfy these pension obligations may have a material adverse effect on the operational and financial health of our business.\nFor more information on our pension obligations, see Note\u00a012 \u201cPension Plans and Other Post Retirement Benefits\u201d to the Consolidated Financial Statements included in this Annual Report on Form 10-K.\nFluctuations in foreign currency exchange rates could materially affect our financial results\nOur Consolidated Financial Statements are presented in U.S. dollars. In general, the functional currency of our subsidiaries is the local currency. For each subsidiary, assets and liabilities denominated in foreign currencies are translated into U.S dollars at the exchange rates in effect at the balance sheet dates and revenues and expenses are translated at the average exchange rates prevailing during the month of the transaction. Therefore, increases or decreases in the value of the U.S. dollar against other major currencies affect our net operating revenues, operating income and the value of balance sheet items denominated in foreign currencies. In addition, unexpected and dramatic devaluations of currencies in developing, as well as developed, markets could negatively affect our revenues from, and the value of the assets located in, those markets.\nTransactional foreign currency gains (losses) are included in the Consolidated Statements of Income under the line item \u201cOther income (expense) net.\u201d See Item 8.  Financial Statements and Supplementary Data. While we use derivative financial instruments to attempt to reduce our net exposure to currency exchange rate fluctuations, fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies or the currencies of large developing \n36\nTable of Contents\ncountries, could materially affect our financial results. These risks and their potential impacts may be exacerbated by the Russia-Ukraine conflict and any policy changes, including those resulting from trade and tariff disputes. See \u201cGeopolitical instability, political unrest, war and other global conflicts, including the Russia-Ukraine conflict, has affected and may continue to affect our business.\u201d\nOur indebtedness could limit our operations and opportunities\nWe have a significant amount of indebtedness outstanding following closing the Micro Focus Acquisition. As of June\u00a030, 2023, we had $9.1 billion of total indebtedness. This level of indebtedness could have important consequences to our business, including, but not limited to:\n\u2022\nincreasing our debt service obligations, making it more difficult for us to satisfy our obligations;\n\u2022\nlimiting our ability to borrow additional funds for working capital, capital expenditures, acquisitions and other general purposes and increasing the cost of any such borrowing;\n\u2022\nincreasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions;\n\u2022\nexpose us to fluctuations in the interest rate environment because the interest rates under our credit facilities are variable; \n\u2022\nrequire us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, dividends and other general corporate purposes; \n\u2022\nlimiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;\n\u2022\npotentially placing us at a competitive disadvantage as compared to certain of our competitors that are not as highly leveraged; \n\u2022\nincreasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing; and\n\u2022\nrestricting us from pursuing certain business opportunities, including other acquisitions.\nAs of June\u00a030, 2023, our credit facilities consisted of a $3.585 billion term loan (Acquisition Term Loan), $1.0 billion term loan facility (Term Loan B) and a $750 million committed revolving credit facility (the Revolver). Borrowings under our credit facilities are secured by a first charge over substantially all of our assets, which security interests may limit our financial flexibility.\nRepayments made under the Acquisition Term Loan and Term Loan B are equal to 0.25% of the original principal amount in equal quarterly installments for the life of such loans, with the remainder due at maturity. The terms of the Acquisition Term Loan, Term Loan B and Revolver include customary restrictive covenants that impose operating and financial restrictions on us, including restrictions on our ability to take actions that could be in our best interests. These restrictive covenants include certain limitations on our ability to make investments, loans and acquisitions, incur additional debt, incur liens and encumbrances, consolidate, amalgamate or merge with any other person, dispose of assets, make certain restricted payments, including a limit on dividends on equity securities or payments to redeem, repurchase or retire equity securities or other indebtedness, engage in transactions with affiliates, materially alter the business we conduct, and enter into certain restrictive agreements. The Acquisition Term Loan, Term Loan B and Revolver includes a financial covenant relating to a maximum consolidated net leverage ratio, which could restrict our operations, particularly our ability to respond to changes in our business or to take specified actions. Our failure to comply with any of the covenants that are included in the Acquisition Term Loan, Term Loan B and Revolver could result in a default under the terms thereof, which could permit the lenders thereunder to declare all or part of any outstanding borrowings to be immediately due and payable.\nAs of June\u00a030, 2023, we also have $1.0\u00a0billion in aggregate principal amount of 6.90% Senior Secured Notes due 2027 (Senior Secured Notes 2027), $900 million in aggregate principal amount of 3.875% Senior Notes due 2028 (Senior Notes 2028), $850\u00a0million in aggregate principal amount of 3.875% Senior Notes due 2029 (Senior Notes 2029), $900 million in aggregate principal amount of 4.125% Senior Notes due 2030 (Senior Notes 2030) and $650\u00a0million in aggregate principal amount of our 4.125% senior unsecured notes due 2031 (Senior Notes 2031 and, together with the Senior Secured Notes due 2027, Senior Notes 2028, Senior Notes 2029 and Senior Notes 2030, the Senior Notes) outstanding, respectively issued in private placements to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Our failure to comply with any of the covenants that are included in the indentures governing the Senior Notes could result in a default under the terms thereof, which could result in all or a portion of the Senior Notes to be immediately due and payable.\nThe risks discussed above would be increased to the extent that we engage in additional acquisitions that involve the incurrence of material additional debt, or the acquisition of businesses with material debt, and such incurrences or acquisitions \n37\nTable of Contents\ncould potentially negatively impact the ratings or outlook of the rating agencies on our outstanding debt securities and the market price of our common shares.\nFor more information on our indebtedness, see Note\u00a011 \u201cLong-Term Debt\u201d to the Consolidated Financial Statements included in this Annual Report on Form 10-K.\nRisks Related to Ownership of our Common Stock\nOur revenues and operating results are likely to fluctuate, which could materially impact the market price of our Common Shares\nWe experience significant fluctuations in revenues and operating results caused by many factors, including:\n\u2022\nChanges in the demand for our software products and services and for the products and services of our competitors; \n\u2022\nThe introduction or enhancement of software products and services by us and by our competitors; \n\u2022\nMarket acceptance of our software products, enhancements and/or services; \n\u2022\nDelays in the introduction of software products, enhancements and/or services by us or by our competitors; \n\u2022\nCustomer order deferrals in anticipation of upgrades and new software products; \n\u2022\nChanges in the lengths of sales cycles; \n\u2022\nChanges in our pricing policies or those of our competitors; \n\u2022\nDelays in software product implementation with customers; \n\u2022\nChange in the mix of distribution channels through which our software products are licensed; \n\u2022\nChange in the mix of software products and services sold; \n\u2022\nChange in the mix of international and North American revenues; \n\u2022\nChanges in foreign currency exchange rates and applicable interest rates; \n\u2022\nFluctuations in the value of our investments related to certain investment funds in which we are a limited partner:\n\u2022\nAcquisitions and the integration of acquired businesses; \n\u2022\nRestructuring charges taken in connection with any completed acquisition or otherwise; \n\u2022\nOutcome and impact of tax audits and other contingencies;\n\u2022\nInvestor perception of our Company;\n\u2022\nChanges in earnings estimates by securities analysts and our ability to meet those estimates;\n\u2022\nChanges in laws and regulations affecting our business, including data privacy and cybersecurity laws and regulations;\n\u2022\nChanges in general economic and business conditions, including the impact of any potential recession, or direct and indirect supply chain disruptions and shortages; and \n\u2022\nChanges in general political developments, international trade policies and policies taken to stimulate or to preserve national economies. \nA general weakening of the global economy, a continued weakening of the economy in a particular region, economic or business uncertainty or changes in political developments, trade policies or policies implemented to stimulate or preserve economies could result in the cancellation of or delay in customer purchases. A cancellation or deferral of even a small number of license sales or services or delays in the implementation of our software products could have a material adverse effect on our business, operating results and financial condition. As a result of the timing of software product and service introductions and the rapid evolution of our business as well as of the markets we serve, we cannot predict whether patterns or trends experienced in the past will continue. For these reasons, you should not rely upon period-to-period comparisons of our financial results to forecast future performance. Our revenues and operating results may vary significantly, and this possible variance could materially reduce the market price of our Common Shares.\nChanges in the market price of our Common Shares and credit ratings of our outstanding debt securities could lead to losses for shareholders and debt holders\nThe market price of our Common Shares and credit ratings of our outstanding debt securities are subject to fluctuations. Such fluctuations in market price or credit ratings may continue in response to: (i) quarterly and annual variations in operating results; (ii) announcements of technological innovations or new products or services that are relevant to our industry; (iii) changes in financial estimates by securities analysts; (iv) changes to the ratings or outlook of our outstanding debt securities by rating agencies; (v) impacts of general economic and market conditions or (vi) other events or factors (including those events or \n38\nTable of Contents\nfactors noted in this Part I, Item 1A \u201cRisk Factors\u201d or in Part I, \u201cForward-Looking Statements\u201d of this Annual Report on 10-K). In addition, financial markets experience significant price and volume fluctuations that particularly affect the market prices of equity securities of many technology companies in particular due to concerns about increasing interest rates, rising inflation or any potential recession. These fluctuations have often resulted from the failure of such companies to meet market expectations in a particular quarter, and thus such fluctuations may or may not be related to the underlying operating performance of such companies. Broad market fluctuations or any failure of our operating results in a particular quarter to meet market expectations may adversely affect the market price of our Common Shares or the credit ratings of our outstanding debt securities. Additionally, short sales, hedging and other derivative transactions in our Common Shares and technical factors in the public trading market for our Common Shares may produce price movements that may or may not comport with macro, industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media sites), the amount and status of short interest in our Common Shares, access to margin debt, trading in options and other derivatives on our Common Shares and other technical trading factors. Occasionally, periods of volatility in the market price of a company\u2019s securities may lead to the institution of securities class action litigation against a company. If we are subject to such volatility in our market price, we may be the target of such securities litigation in the future. Such legal action could result in substantial costs to defend our interests and a diversion of management\u2019s attention and resources, each of which would have a material adverse effect on our business and operating results.\nGeneral Risks\nUnexpected events may materially harm our ability to align when we incur expenses with when we recognize revenues\nWe incur operating expenses based upon anticipated revenue trends. Since a high percentage of these expenses are relatively fixed, a delay in recognizing revenues from transactions related to these expenses (such a delay may be due to the factors described herein or it may be due to other factors) could cause significant variations in operating results from quarter to quarter and could materially reduce operating income. If these expenses are not subsequently matched by revenues, our business, financial condition, or results of operations could be materially and adversely affected.\nWe may fail to achieve our financial forecasts due to inaccurate sales forecasts or other factors\nOur revenues and particularly our new software license revenues are difficult to forecast, and, as a result, our quarterly operating results can fluctuate substantially. Sales forecasts may be particularly inaccurate or unpredictable given general economic and market factors. We use a \u201cpipeline\u201d system, a common industry practice, to forecast sales and trends in our business. By reviewing the status of outstanding sales proposals to our customers and potential customers, we make an estimate as to when a customer will make a purchasing decision involving our software products. These estimates are aggregated periodically to make an estimate of our sales pipeline, which we use as a guide to plan our activities and make internal financial forecasts. Our sales pipeline is only an estimate and may be an unreliable predictor of actual sales activity, both in a particular quarter and over a longer period of time. Many factors may affect actual sales activity, such as weakened economic conditions, including as a result of any potential recession, which may cause our customers and potential customers to delay, reduce or cancel information technology-related purchasing decisions, our decision to increase prices in response to rising inflation, and the tendency of some of our customers to wait until the end of a fiscal period in the hope of obtaining more favorable terms from us. If actual sales activity differs from our pipeline estimate, then we may have planned our activities and budgeted incorrectly, and this may adversely affect our business, operating results and financial condition. In addition, for newly acquired companies, we have limited ability to immediately predict how their pipelines will convert into sales or revenues following the acquisition and their conversion rate post-acquisition may be quite different from their historical conversion rate.\nOur international operations expose us to business, political and economic risks that could cause our operating results to suffer\nWe have significantly increased, and intend to continue to make efforts to increase, our international operations and anticipate that international sales will continue to account for a significant portion of our revenues. These international operations are subject to certain risks and costs, including the difficulty and expense of administering business and compliance abroad, differences in business practices, compliance with domestic and foreign laws (including without limitation domestic and international import and export laws and regulations and the Foreign Corrupt Practices Act, including potential violations by acts of agents or other intermediaries), costs related to localizing products for foreign markets, costs related to translating and distributing software products in a timely manner, costs related to increased financial accounting and reporting burdens and complexities, longer sales and collection cycles for accounts receivables, failure of laws or courts to protect our intellectual property rights adequately, local competition, and economic or political instability and uncertainties, including inflation, recession, interest rate fluctuations and actual or anticipated military or geopolitical conflicts. International operations also tend to be subject to a longer sales and collection cycle. In addition, regulatory limitations regarding the repatriation of earnings may adversely affect the transfer of cash earned from international operations. Significant international sales may also expose us to \n39\nTable of Contents\ngreater risk from political and economic instability, unexpected changes in Canadian, U.S. or other governmental policies concerning import and export of goods and technology, regulatory requirements, tariffs and other trade barriers. Additionally, international earnings may be subject to taxation by more than one jurisdiction, which may materially adversely affect our effective tax rate. Also, international expansion may be difficult, time consuming and costly. These risks and their potential impacts may be exacerbated by the Russia-Ukraine conflict. See \u201cGeopolitical instability, political unrest, war and other global conflicts, including the Russia-Ukraine conflict, has affected and may continue to affect our business\u201d As a result, if revenues from international operations do not offset the expenses of establishing and maintaining international operations, our business, operating results and financial condition will suffer.\nWe may become involved in litigation that may materially adversely affect us\nFrom time to time in the ordinary course of our business, we may become involved in various legal proceedings, including commercial, product liability, employment, class action and other litigation and claims, as well as governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management\u2019s attention and resources and cause us to incur significant expenses. Furthermore, because litigation is inherently unpredictable, the results of any such actions may have a material adverse effect on our business, operating results or financial condition.\nThe declaration, payment and amount of dividends will be made at the discretion of our Board of Directors and will depend on a number of factors\nWe have adopted a policy to declare non-cumulative quarterly dividends on our Common Shares. The declaration, payment and amount of any dividends will be made pursuant to our dividend policy and is subject to final determination each quarter by our Board of Directors in its discretion based on a number of factors that it deems relevant, including our financial position, results of operations, available cash resources, cash requirements and alternative uses of cash that our Board of Directors may conclude would be in the best interest of our shareholders. Our dividend payments are subject to relevant contractual limitations, including those in our existing credit agreements and to solvency conditions established by the Canada Business Corporations Act (CBCA), the statute under which we are incorporated. Accordingly, there can be no assurance that any future dividends will be equal or similar in amount to any dividends previously paid or that our Board of Directors will not decide to reduce, suspend or discontinue the payment of dividends at any time in the future.\nOur operating results could be adversely affected by any weakening of economic conditions\nOur overall performance depends in part on worldwide economic conditions. Certain economies have experienced periods of downturn as a result of a multitude of factors, including, but not limited to, turmoil in the credit and financial markets, concerns regarding the stability and viability of major financial institutions, declines in gross domestic product, increases in unemployment, volatility in commodity prices and worldwide stock markets, excessive government debt, disruptions to global trade or tariffs, inflation, higher interest rates and risks of recession and global health pandemics. The severity and length of time that a downturn in economic and financial market conditions may persist, as well as the timing, strength and sustainability of any recovery from such downturn, are unknown and are beyond our control. Recently, the Russia-Ukraine conflict, the inflationary environment and policy changes resulting from trade and tariff disputes have raised additional concerns regarding economic uncertainties. Moreover, any instability in the global economy affects countries in different ways, at different times and with varying severity, which makes the impact to our business complex and unpredictable. During such downturns, many customers may delay or reduce technology purchases. Contract negotiations may become more protracted, or conditions could result in reductions in the licensing of our software products and the sale of cloud and other services, longer sales cycles, pressure on our margins, difficulties in collection of accounts receivable or delayed payments, increased default risks associated with our accounts receivables, slower adoption of new technologies and increased price competition. In addition, deterioration of the global credit markets could adversely impact our ability to complete licensing transactions and services transactions, including maintenance and support renewals. Any of these events, as well as a general weakening of, or declining corporate confidence in, the global economy, or a curtailment in government or corporate spending, could delay or decrease our revenues and therefore have a material adverse effect on our business, operating results and financial condition.\nStress in the global financial system may adversely affect our finances and operations in ways that may be hard to predict or to defend against\nFinancial developments seemingly unrelated to us or to our industry may adversely affect us over the course of time. For example, material increases in applicable interest rate benchmarks may increase the interest expense for our credit facilities such as the Acquisition Term Loan, Term Loan B and Revolver that have variable rates of interest. Credit contraction in financial markets may hurt our ability to access credit in the event that we identify an acquisition opportunity or require significant access to credit for other reasons. Similarly, volatility in the market price of our Common Shares due to seemingly unrelated financial developments, such as a recession, inflation or an economic slowdown in the U.S. or internationally, could \n40\nTable of Contents\nhurt our ability to raise capital for the financing of acquisitions or other reasons. Potential price inflation caused by an excess of liquidity in countries where we conduct business may increase the cost we incur to provide our solutions and may reduce profit margins on agreements that govern the licensing of our software products and/or the sale of our services to customers over a multi-year period. A reduction in credit, combined with reduced economic activity, may adversely affect businesses and industries that collectively constitute a significant portion of our customer base such as the public sector. As a result, these customers may need to reduce their licensing of our software products or their purchases of our services, or we may experience greater difficulty in receiving payment for the licenses and services that these customers purchase from us. In addition, inflation is often accompanied by higher interest rates, which may cause additional economic fluctuation. Any of these events, or any other events caused by turmoil in world financial markets, may have a material adverse effect on our business, operating results and financial condition.",
+  "item7": ">Item\u00a07.  Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThis Annual Report on Form 10-K, including this Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section\u00a021E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), and Section\u00a027A of the U.S. Securities Act of 1933, as amended (the Securitie\ns \nAct\n), \nand is subject to the safe harbors created by those sections. All statements other than statements of historical facts are statements that could be deemed forward-looking statements.\nWhen used in this report, the words \u201canticipates\u201d, \u201cexpects\u201d, \u201cintends\u201d, \u201cplans\u201d, \u201cbelieves\u201d, \u201cseeks\u201d, \u201cestimates\u201d, \u201cmay\u201d, \u201ccould\u201d, \u201cwould\u201d, \u201cmight\u201d, \u201cwill\u201d and other similar language, as they relate to Open Text Corporation (OpenText or the Company), are intended to identify forward-looking statements under applicable securities laws. Specific forward-looking statements in this report include, but are not limited to, statements regarding: (i) our focus in the fiscal years beginning July 1, 2023 and ending June 30, 2024 (Fiscal 2024) and July 1, 2024 and ending June 30, 2025 (Fiscal 2025) on growth in earnings and cash flows; (ii) creating value through investments in broader Information Management capabilities; (iii) our future business plans and operations, and business planning process; (iv) business trends; (v) distribution; (vi) the Company\u2019s presence in the cloud and in growth markets; (vii) product and solution developments, enhancements and releases, the timing thereof and the customers targeted; (viii) the Company\u2019s financial condition, results of operations and earnings; (ix) the basis for any future growth and for our financial performance; (x) declaration of quarterly dividends; (xi) future tax rates; (xii) the changing regulatory environment; (xiii) annual recurring revenues; (xiv) research and development and related expenditures; (xv) our building, development and consolidation of our network infrastructure; (xvi) competition and changes in the competitive landscape; (xvii) our management and protection of intellectual property and other proprietary rights; (xviii) existing and foreign sales and exchange rate fluctuations; (xix) cyclical or seasonal aspects of our business; (xx) capital expenditures; (xxi) potential legal and/or regulatory proceedings; (xxii) acquisitions and their expected impact, including our ability to realize the benefits expected from the acquisitions and to successfully integrate the assets we acquire or utilize such assets to their full capacity, including in connection with the acquisition of Zix Corporation (Zix) and Micro Focus International Limited, formerly Micro Focus International plc, and its subsidiaries (Micro Focus) (see Note\u00a019 \u201cAcquisitions\u201d to our Consolidated Financial Statements for more details); (xxiii) tax audits; (xxiv) the expected impact of our decision to cease all direct business in Russia and Belarus and with known Russian-owned companies;(xxv) expected costs of the restructuring plans; (xxvi) targets regarding greenhouse gas emissions, waste diversion, energy consumption and Equity, Diversity and Inclusion (ED&I) initiatives; (xvii) integration of Micro Focus, resulting synergies and timing thereof; and (xxviii) other matters.\nIn addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking, and based on our current expectations, forecasts and projections about the operating environment, economies and markets in which we operate. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management\u2019s perception of historic trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The forward-looking statements contained in this report are based on certain assumptions including the following: (i) countries continuing to implement and enforce existing and additional customs and security regulations relating to the provision of electronic information for imports and exports; (ii) our continued operation of a secure and reliable business network; (iii) the stability of general political, economic and market conditions; (iv) our ability to manage inflation, including increased labour costs associated with attracting and retaining employees, and rising interest rates; (v) our continued ability to manage certain foreign currency risk through hedging; (vi) equity and debt markets continuing to provide us with access to capital; (vii) our continued ability to identify, source and finance attractive and executable business combination opportunities; (viii) our continued ability to avoid infringing third party intellectual property rights; and (ix) our ability to successfully implement our restructuring plans. Management\u2019s estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. We can give no assurance that such estimates, beliefs and assumptions will prove to be correct. \nForward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (i) our inability to realize successfully any anticipated synergy benefits from the acquisition of Micro Focus (Micro Focus Acquisition); (ii) the actual and potential impacts of the use of cash and incurrence of indebtedness, including the granting of security interests related to such debt; (iii) the change in scope and size of our operations as a result of the Micro Focus Acquisition; (iv) the uncertainty around expectations related to Micro Focus\u2019 business prospects; (v) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof; (vi) the possibility that we may be unable to successfully integrate the assets we acquire or fail to utilize such assets to their full capacity and not realize the benefits we expect from our acquired portfolios and businesses, including the acquisition of Zix and Micro Focus, (vii) the potential for the incurrence of or assumption of debt in connection with acquisitions, its \n48\nTable of Contents\nimpact on future operations and on the ratings or outlooks of rating agencies on our outstanding debt securities, and the possibility of not being able to generate sufficient cash to service all indebtedness; (viii) the possibility that the Company may be unable to meet its future reporting requirements under the Exchange Act, and the rules promulgated thereunder, or applicable Canadian securities regulation; (ix) the risks associated with bringing new products and services to market; (x) fluctuations in currency exchange rates (including as a result of the impact of any policy changes resulting from trade and tariff disputes) and the impact of mark-to-market valuation relating to associated derivatives; (xi) delays in the purchasing decisions of the Company\u2019s customers; (xii) competition the Company faces in its industry and/or marketplace; (xiii) the final determination of litigation, tax audits (including tax examinations in Canada, the United States or elsewhere) and other legal proceedings; (xiv) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, United States or international tax regimes; (xv) the possibility of technical, logistical or planning issues in connection with the deployment of the Company\u2019s products or services; (xvi) the continuous commitment of the Company\u2019s customers; (xvii) demand for the Company\u2019s products and services; (xviii) increase in exposure to international business risks including the impact of geopolitical instability, political unrest, war and other global conflicts, as we continue to increase our international operations; (xix) adverse macroeconomic conditions, including inflation, disruptions in global supply chains and increased labour costs; (xx) inability to raise capital at all or on not unfavorable terms in the future; (xxi) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities (including in connection with future acquisitions); and (xxii) potential changes in ratings or outlooks of rating agencies on our outstanding debt securities. Other factors that may affect forward-looking statements include, but are not limited to: (i) the future performance, financial and otherwise, of the Company; (ii) the ability of the Company to bring new products and services to market and to increase sales; (iii) the strength of the Company\u2019s product development pipeline; (iv) failure to secure and protect patents, trademarks and other proprietary rights; (v) infringement of third-party proprietary rights triggering indemnification obligations and resulting in significant expenses or restrictions on our ability to provide our products or services; (vi) failure to comply with privacy laws and regulations that are extensive, open to various interpretations and complex to implement; (vii) the Company\u2019s growth and other profitability prospects; (viii) the estimated size and growth prospects of the Information Management market; (ix) the Company\u2019s competitive position in the Information Management market and its ability to take advantage of future opportunities in this market; (x) the benefits of the Company\u2019s products and services to be realized by customers; (xi) the demand for the Company\u2019s products and services and the extent of deployment of the Company\u2019s products and services in the Information Management marketplace; (xii) the Company\u2019s financial condition and capital requirements; (xiii) system or network failures or information security, cybersecurity or other data breaches in connection with the Company\u2019s offerings or the information technology systems used by the Company generally, the risk of which may be increased during times of natural disaster or pandemic due to remote working arrangements; (xiv) failure to achieve our environmental goals on energy consumption, waste diversion and greenhouse gas emissions or our targets relating to ED&I initiatives; (xv) failure to attract and retain key personnel to develop and effectively manage the Company\u2019s business; and (xvi) the ability of the Company\u2019s subsidiaries to make distributions to the Company.\nReaders should carefully review Part I, Item 1A \u201cRisk Factors\u201d and other documents we file from time to time with the Securities and Exchange Commission (SEC) and other securities regulators. A number of factors may materially affect our business, financial condition, operating results and prospects. These factors include but are not limited to those set forth in Part I, Item 1A \u201cRisk Factors\u201d and elsewhere in this Annual Report on Form 10-K. Any one of these factors, and other factors that we are unaware of, or currently deem immaterial, may cause our actual results to differ materially from recent results or from our anticipated future results. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.\nThe following MD&A is intended to help readers understand our results of operations and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying Notes to our Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K.\nAll dollar and percentage comparisons made herein refer to the year ended June 30, 2023 compared with the year ended June 30, 2022, unless otherwise noted. Please refer to Part II, Item 7 of our Annual Report on Form 10-K for Fiscal 2022 for a comparative discussion of our Fiscal 2022 financial results as compared to Fiscal 2021.\nWhere we say \u201cwe\u201d, \u201cus\u201d, \u201cour\u201d, \u201cOpenText\u201d or \u201cthe Company\u201d, we mean Open Text Corporation or Open Text Corporation and its subsidiaries, as applicable.\n49\nTable of Contents\nEXECUTIVE OVERVIEW\nAt OpenText, we believe information and knowledge make business and people better. We are an Information Management company that provides software and services that empower digital businesses of all sizes to become more intelligent, connected, secure and responsible. Our innovations maximize the strategic benefits of data and content for our customers, strengthening their productivity, growth and competitive advantage.\nOur comprehensive Information Management platform and services provide secure and scalable solutions for global companies, small and medium-sized businesses (SMBs), governments and consumers around the world. We have a complete and integrated portfolio of Information Management solutions delivered at scale in the OpenText Cloud, helping organizations master modern work, automate application delivery and modernization, and optimize their digital supply chains. To do this, we bring together our Content Cloud, Cybersecurity Cloud, Business Network Cloud, IT Operations Management Cloud, Application Automation Cloud and Analytics & AI Cloud. We also accelerate information modernization with intelligent tools and services for moving off paper, automating classification and building clean data lakes for Artificial Intelligence (AI), analytics and automation.\nWe are fundamentally integrated into the parts of our customers\u2019 businesses that matter, so they can securely manage the complexity of information flow end to end. Through automation and AI, we connect, synthesize and deliver information where it is needed to drive new efficiencies, experiences and insights. We make information more valuable by connecting it to digital business processes, enriching it with analytics, protecting and securing it throughout its entire lifecycle, and leveraging it to create engaging experiences for employees, suppliers, developers, partners, and customers. Our solutions range from connecting large digital supply chains to managing HR processes to driving better IT service management in manufacturing, retail and financial services. \nOur solutions also enable organizations and consumers to secure their information so that they can collaborate with confidence, stay ahead of the regulatory technology curve, identify threats on any endpoint or across their networks, enable privacy, leverage eDiscovery and digital forensics to defensibly investigate and collect evidence, and ensure business continuity in the event of a security incident.\nOur initial public offering was on the NASDAQ in 1996 and we were subsequently listed on the Toronto Stock Exchange (TSX) in 1998. Our ticker symbol on both the NASDAQ and the TSX is \u201cOTEX.\u201d\nAs of June\u00a030, 2023, we employed a total of approximately 24,100 individuals, of which approximately 9,700 joined our workforce as part of the Micro Focus Acquisition. Of the total 24,100 individuals we employed as of June\u00a030, 2023, 9,050 or 38% are in the Americas, 5,750 or 24% are in EMEA and 9,300 or 38% are in Asia Pacific. Currently, we have employees in 45 countries enabling strong access to multiple talent pools while ensuring reach and proximity to our customers. Please see \u201cResults of Operations\u201d below for our definitions of geographic regions.\nPeriod-over-period comparisons presented here are significantly impacted by our Micro Focus Acquisition.\nFiscal 2023 Summary:\n\u2022\nTotal revenue was $4,485.0 million, up 28.4% compared to the prior fiscal year; up 32.2% after factoring in the unfavorable impact of $132.4 million of foreign exchange rate changes. The Micro Focus Acquisition contributed  $976.5 million of revenues. \n\u2022\nTotal annual recurring revenue, which we define as the sum of cloud services and subscriptions revenue and customer support revenue, was $3,615.5 million, up 26.2% compared to the prior fiscal year; up 29.7% after factoring in the unfavorable impact of $102.4 million of foreign exchange rate changes. \n\u2022\nCloud services and subscriptions revenue was $1,700.4 million, up 10.8% compared to the prior fiscal year; up 13.3% after factoring in the unfavorable impact of $38.6 million of foreign exchange rate changes. \n\u2022\nGAAP-based gross margin was 70.6% compared to 69.6% in the prior fiscal year.\n\u2022\nNon-GAAP-based gross margin was 76.1% compared to 75.6% in the prior fiscal year.\n\u2022\nGAAP-based net income attributable to OpenText was $150.4 million compared to $397.1 million in the prior fiscal year. The Micro Focus Acquisition contributed $94.7 million of GAAP-based net losses.\n\u2022\nNon-GAAP-based net income attributable to OpenText was $890.7 million compared to $876.2 million in the prior fiscal year.\n\u2022\nGAAP-based earnings per share (EPS), diluted, was $0.56 compared to $1.46 in the prior fiscal year.\n\u2022\nNon-GAAP-based EPS, diluted, was $3.29 compared to $3.22 in the prior fiscal year.\n\u2022\nAdjusted EBITDA, a non-GAAP measure, was $1,472.9 million compared to $1,265.0 million in the prior fiscal year.\n50\nTable of Contents\n\u2022\nOperating cash flow was $779.2 million for the year ended June 30, 2023, compared to $981.8 million in the prior fiscal year, down 20.6%.\n\u2022\nCash and cash equivalents were $1,231.6 million as of June\u00a030, 2023, compared to $1,693.7 million as of June\u00a030, 2022. \n\u2022\nAcquired Micro Focus for total consideration of $6.2 billion, inclusive of Micro Focus\u2019 cash, subject to final adjustments. \n\u2022\nIn connection with the financing of the Micro Focus Acquisition, we drew down the entire $3.585 billion of the Acquisition Term Loan (as defined below), issued $1\u00a0billion of Senior Secured Notes 2027 (as defined below) and drew down $450 million under the Revolver (as defined below). Subsequent to the closing of the Micro Focus Acquisition we repaid $175 million of the outstanding balance on the Revolver during the year ended June 30, 2023 and subsequently repaid $175 million on July 5, 2023.\n\u2022\nEnterprise cloud bookings were $527.7 million for the year ended June 30, 2023, compared to $482.0 million for the year ended June 30, 2022. We define Enterprise cloud bookings as the total value from cloud services and subscription contracts entered into in the fiscal year that are new, committed and incremental to our existing contracts, entered into with our enterprise-based customers.\nSee \u201cUse of Non-GAAP Financial Measures\u201d below for definitions and reconciliations of GAAP-based measures to Non-GAAP-based measures. See \u201cAcquisitions\u201d below for the impact of acquisitions on the period-to-period comparability of results.\nAcquisitions\nAs a result of the continually changing marketplace in which we operate, we regularly evaluate acquisition opportunities within our market and at any time may be in various stages of discussions with respect to such opportunities. \nAcquisition of Micro Focus\nOn January 31, 2023, we acquired all of the issued and to be issued share capital of Micro Focus for a total purchase price of $6.2 billion, inclusive of Micro Focus\u2019 cash and repayment of Micro Focus\u2019 outstanding indebtedness, subject to final adjustments. \nIn connection with the financing of the Micro Focus Acquisition, concurrent with the announcement of the acquisition on August 25, 2022, the Company entered into the Acquisition Term Loan and Bridge Loan (as defined below) as well as certain derivative transactions. On December 1, 2022, the Company issued and sold $1\u00a0billion in aggregate principal amount of 6.90% Senior Secured Notes due 2027 (Senior Secured Notes 2027), amended the Acquisition Term Loan and terminated the Bridge Loan. On January 31, 2023, we drew down the entire aggregate principal amount of $3.585 billion of the Acquisition Term Loan, net of original issuance discount and other fees, and drew down $450 million under the Revolver. We used these proceeds and cash on hand to fund the purchase price consideration and repayment of Micro Focus\u2019 outstanding indebtedness. In conjunction with the closing of the Micro Focus Acquisition, the deal-contingent forward contracts and non-contingent forward contract, as described in Note\u00a017 \u201cDerivative Instruments and Hedging Activities\u201d to our Consolidated Financial Statements were settled. See Note\u00a019 \u201cAcquisitions\u201d to our Consolidated Financial Statements for more details. The Micro Focus Acquisition has contributed to the growth in our revenues and significantly impacts period-over-period comparability.\nImpacts of Russia-Ukraine Conflict\nWe have ceased all direct business in Russia and Belarus and with known Russian-owned companies. To support certain of our cloud customers headquartered in the United States or allied countries that rely on our network to manage their global business (including their business in Russia), we have nonetheless allowed these customers to continue to use our services to the extent that it can be done in strict compliance with all applicable sanctions and export controls. However, we may adjust our business practices as required by applicable rules and regulations. While we do not expect our decision to cease all direct business in Russia and Belarus and with known Russian-owned companies to have a material adverse effect on our overall business, results of operations or financial condition, it is not possible to predict the broader consequences of this conflict, including adverse effects on the global economy, on our business and operations as well as those of our customers, partners and third party service providers. For more information, please see Part I, Item 1A \u201cRisk Factors\u201d included in this Annual Report on Form 10-K.\nOutlook for Fiscal 2024\nAs an organization, we are committed to \u201cTotal Growth\u201d, meaning we strive towards delivering value through organic initiatives, innovations and acquisitions. With an emphasis on increasing recurring revenues and expanding profitability, we \n51\nTable of Contents\nbelieve our Total Growth strategy will ultimately drive cash flow growth, thus helping to fuel our innovation, broaden our go-to-market distribution and identify and execute strategic acquisitions. With strategic acquisitions, we are well positioned to expand our product portfolio and improve our ability to innovate and grow organically, which helps us to meet our long-term growth targets. Our Total Growth strategy is a durable model, that we believe will create both near and long-term shareholder value through organic and acquired growth, capital efficiency and profitability.\nWe are committed to continuous innovation. Our investments in research and development (R&D) push product innovation, increasing the value of our offerings to our existing customer base and new customers, which includes Global 10,000 companies (G10K), SMBs and consumers. The G10K are the world\u2019s largest companies, ranked by estimated total revenues, as well as the world's largest governments and global organizations. More valuable products, coupled with our established global partner program, lead to greater distribution and cross-selling opportunities which further help us to achieve organic growth. Over the last three fiscal years, we have invested a cumulative total of $1.54\u00a0billion in R&D or 13.6% of cumulative revenue for that three-year period. On an annual basis, we continue to target to spend 14% to 16% of revenues on R&D expense. With our innovation roadmap delivered, we believe we have fortified our support for customer choice: private cloud, public cloud, off-cloud, and API cloud.\nLooking ahead, the destination for innovation is cloud. Businesses of all sizes rely on a combination of public and private clouds, managed services and off-cloud solutions. As a result, we are committed to continue to modernize our technology infrastructure and leverage our existing investments in the OpenText Cloud and programs to help customers off-cloud. The combination of OpenText cloud-native applications and managed services, together with the scalability and performance of our partner public cloud providers, offer more secure, reliable and compliant solutions to customers wanting to deploy cloud-based Information Management applications. The OpenText Cloud is designed to build additional flexibility and scalability for our customers: becoming cloud-native, connecting anything, and extending capabilities with multi-tenant SaaS applications and services.\nThe completion of the Micro Focus Acquisition during Fiscal 2023 has substantially expanded our scope and size by adding substantial assets and operations to our existing business. During Fiscal 2023, we incurred significant transaction costs in connection with the Micro Focus Acquisition. We have incurred and will continue to incur additional integration costs. As part of the Micro Focus Acquisition, the Company made a strategic decision to implement a restructuring plan that impacted its global workforce and further reduce its real estate footprint around the world in an effort to further streamline our operations, consistent with previously announced cost synergies of $400\u00a0million (Micro Focus Acquisition Restructuring Plan). The total size of the plan is expected to result in a reduction in the combined workforce of approximately 8%, or 2,000 employees, with an estimated cost of $135.0\u00a0million to $150.0\u00a0million, of which we incurred $72.3 million during Fiscal 2023. We expect the Micro Focus Acquisition Restructuring Plan to be completed by the end of Fiscal 2024. See also Part I, Item 1A, \u201cRisk Factors\u201d included within this Annual Report on Form 10-K. The Micro Focus Acquisition has a significant impact on period-over-period comparability as more fully discussed below.\nWe will continue to closely monitor the potential impacts of inflation with respect to wages, services and goods, concerns regarding any potential recession, rising interest rates, financial market volatility, and the Russia-Ukraine conflict on our business. See Part I, Item 1A, \u201cRisk Factors\u201d included within this Annual Report on Form 10-K.\nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\nThe preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time. Actual results may differ materially from those estimates. The policies listed below are areas that may contain key components of our results of operations and are based on complex rules requiring us to make judgments and estimates and consequently, we consider these to be our critical accounting policies. Some of these accounting policies involve complex situations and require a higher degree of judgment, either in the application and interpretation of existing accounting literature or in the development of estimates that affect our financial statements. The critical accounting policies which we believe are the most important to aid in fully understanding and evaluating our reported financial results include the following:\n(i)\nRevenue recognition, \n(ii)\nGoodwill, \n(iii)\nAcquired intangibles and\n(iv)\nIncome taxes.\nFor a full discussion of all our accounting policies, please see Note\u00a02 \u201cAccounting Policies and Recent Accounting Pronouncements\u201d to the Consolidated Financial Statements included in this Annual Report on Form 10-K.\n52\nTable of Contents\nRevenue recognition\nIn accordance with Accounting Standards Codification (ASC) Topic 606 \u201cRevenue from Contracts with Customers\u201d (Topic 606), we account for a customer contract when we obtain written approval, the contract is committed, the rights of the parties, including the payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Revenue is recognized when, or as, control of a promised product or service is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for our products and services (at its transaction price). Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on readily available information, which may include historical, current and forecasted information, taking into consideration the type of customer, the type of transaction and specific facts and circumstances of each arrangement. We report revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue producing transactions.\nWe have four revenue streams: cloud services and subscriptions, customer support, license and professional service and other.\nCloud services and subscriptions revenue\nCloud services and subscriptions revenue are from hosting arrangements where, in connection with the licensing of software, the end user does not take possession of the software, as well as from end-to-end fully outsourced business-to-business (B2B) integration solutions to our customers (collectively referred to as cloud arrangements). The software application resides on our hardware or that of a third party, and the customer accesses and uses the software on an as-needed basis. Our cloud arrangements can be broadly categorized as \u201cplatform as a service\u201d (PaaS), \u201csoftware as a service\u201d (SaaS), cloud subscriptions and managed services.\nPaaS/ SaaS/ Cloud Subscriptions (collectively referred to here as cloud-based solutions):\n We offer cloud-based solutions that provide customers the right to access our software through the internet. Our cloud-based solutions represent a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. These services are made available to the customer continuously throughout the contractual period. However, the extent to which the customer uses the services may vary at the customer\u2019s discretion. The payment for cloud-based solutions may be received either at inception of the arrangement, or over the term of the arrangement.\nThese cloud-based solutions are considered to have a single performance obligation where the customer simultaneously receives and consumes the benefit, and as such we recognize revenue for these cloud-based solutions ratably over the term of the contractual agreement. For example, revenue related to cloud-based solutions that are provided on a usage basis, such as the number of users, is recognized based on a customer\u2019s utilization of the services in a given period.\nAdditionally, a software license is present in a cloud-based solutions arrangement if all of the following criteria are met:\n(i)\nThe customer has the contractual right to take possession of the software at any time without significant penalty; and\n(ii)\nIt is feasible for the customer to host the software independent of us.\nIn these cases where a software license is present in a cloud-based solutions arrangement it is assessed to determine if it is distinct from the cloud-based solutions arrangement. The revenue allocated to the distinct software license would be recognized at the point in time the software license is transferred to the customer, whereas the revenue allocated to the hosting performance obligation would be recognized ratably on a monthly basis over the contractual term unless evidence suggests that revenue is earned, or obligations are fulfilled in a different pattern over the contractual term of the arrangement.\nManaged services:\n We provide comprehensive B2B process outsourcing services for all day-to-day operations of a customers\u2019 B2B integration program. Customers using these managed services are not permitted to take possession of our software and the contract is for a defined period, where customers pay a monthly or quarterly fee. Our performance obligation is satisfied as we provide services of operating and managing a customer\u2019s electronic data interchange (EDI) environment. Revenue relating to these services is recognized using an output method based on the expected level of service we will provide over the term of the contract.\nIn connection with cloud subscription and managed service contracts, we often agree to perform a variety of services before the customer goes live, such as, converting and migrating customer data, building interfaces and providing training. These services are considered an outsourced suite of professional services which can involve certain project-based activities. These services can be provided at the initiation of a contract, during the implementation or on an ongoing basis as part of the customer life cycle. These services can be charged separately on a fixed fee, a time and materials basis, or the costs associated may be recovered as part of the ongoing cloud subscription or managed services fee. These outsourced professional services are considered distinct from the ongoing hosting services and represent a separate performance obligation within our cloud subscription or managed services arrangements. The obligation to provide outsourced professional services is satisfied over \n53\nTable of Contents\ntime, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligations. For outsourced professional services, we recognize revenue by measuring progress toward the satisfaction of our performance obligation. Progress for services that are contracted for a fixed price is generally measured based on hours incurred as a portion of total estimated hours. As a practical expedient, when we invoice a customer at an amount that corresponds directly with the value to the customer of our performance to date, we recognize revenue at that amount.\nCustomer support revenue\nCustomer support revenue is associated with perpetual, term license and off-cloud subscription arrangements. As customer support is not critical to the customers\u2019 ability to derive benefit from their right to use our software, customer support is considered a distinct performance obligation when sold together in a bundled arrangement along with the software.\n Customer support consists primarily of technical support and the provision of unspecified updates and upgrades on a when-and-if-available basis. Customer support for perpetual licenses is renewable, generally on an annual basis, at the option of the customer. Customer support for term and subscription licenses is renewable concurrently with such licenses for the same duration of time. Payments for customer support are generally made at the inception of the contract term or in installments over the term of the maintenance period. Our customer support team is ready to provide these maintenance services, as needed, to the customer during the contract term. As the elements of customer support are delivered concurrently and have the same pattern of transfer, customer support is accounted for as a single performance obligation. The customer benefits evenly throughout the contract period from the guarantee that the customer support resources and personnel will be available to them, and that any unspecified upgrades or unspecified future products developed by us will be made available. Revenue for customer support is recognized ratably over the contract period based on the start and end dates of the maintenance term, in line with how we believe services are provided.\nLicense revenue\nOur license revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses, all of which are deployed on the customer\u2019s premises (off-cloud).\nPerpetual licenses\n: We sell perpetual licenses which provide customers the right to use software for an indefinite period of time in exchange for a one-time license fee, which is generally paid at contract inception. Our perpetual licenses provide a right to use intellectual property (IP) that is functional in nature and have significant stand-alone functionality. Accordingly, for perpetual licenses of functional IP, revenue is recognized at the point-in-time when control has been transferred to the customer, which normally occurs once software activation keys have been made available for download.\nTerm licenses and Subscription licenses:\n We sell both term and subscription licenses which provide customers the right to use software for a specified period in exchange for a fee, which may be paid at contract inception or paid in installments over the period of the contract. Like perpetual licenses, both our term licenses and subscription licenses are functional IP that have significant stand-alone functionality. Accordingly, for both term and subscription licenses, revenue is recognized at the point-in-time when the customer is able to use and benefit from the software, which is normally once software activation keys have been made available for download at the commencement of the term.\nProfessional service and other revenue\nOur professional services, when offered along with software licenses, consist primarily of technical and training services. Technical services may include installation, customization, implementation or consulting services. Training services may include access to online modules, or the delivery of a training package customized to the customer\u2019s needs. At the customer\u2019s discretion, we may offer one, all, or a mix of these services. Payment for professional services is generally a fixed fee or a fee based on time and materials. Professional services can be arranged in the same contract as the software license or in a separate contract.\nAs our professional services do not significantly change the functionality of the license and our customers can benefit from our professional services on their own or together with other readily available resources, we consider professional services distinct within the context of the contract.\nProfessional service revenue is recognized over time as long as: (i) the customer simultaneously receives and consumes the benefits as we perform them, (ii) our performance creates or enhances an asset the customer controls as we perform and (iii) our performance does not create an asset with an alternative use, and we have the enforceable right to payment.\nIf all the above criteria are met, we use an input-based measure of progress for recognizing professional service revenue. For example, we may consider total labour hours incurred compared to total expected labour hours. As a practical expedient, when we invoice a customer at an amount that corresponds directly with the value to the customer of our performance to date, we will recognize revenue at that amount.\n54\nTable of Contents\nMaterial rights\nTo the extent that we grant our customer an option to acquire additional products or services in one of our arrangements, we will account for the option as a distinct performance obligation in the contract only if the option provides a material right to the customer that the customer would not receive without entering into the contract. For example, if we give the customer an option to acquire additional goods or services in the future at a price that is significantly lower than the current price, this would be a material right as it allows the customer to, in effect, pay in advance for the option to purchase future products or services. If a material right exists in one of our contracts, then revenue allocated to the option is deferred and we would recognize that deferred revenue only when those future products or services are transferred or when the option expires.\nBased on history, our contracts do not typically contain material rights and when they do, the material right is not significant to our Consolidated Financial Statements.\nArrangements with multiple performance obligations\nOur contracts generally contain more than one of the products and services listed above. Determining whether goods and services are considered distinct performance obligations that should be accounted for separately or as a single performance obligation may require judgment, specifically when assessing whether both of the following two criteria are met:\n\u2022\nthe customer can benefit from the product or service either on its own or together with other resources that are readily available to the customer; and\n\u2022\nour promise to transfer the product or service to the customer is separately identifiable from other promises in the contract.\nIf these criteria are not met, we determine an appropriate measure of progress based on the nature of our overall promise for the single performance obligation.\nIf these criteria are met, each product or service is separately accounted for as a distinct performance obligation and the total transaction price is allocated to each performance obligation on a relative standalone selling price (SSP) basis.\nStandalone selling price\nThe SSP reflects the price we would charge for a specific product or service if it were sold separately in similar circumstances and to similar customers. In most cases we are able to establish the SSP based on observable data. We typically establish a narrow SSP range for our products and services and assess this range on a periodic basis or when material changes in facts and circumstances warrant a review.\nIf the SSP is not directly observable, then we estimate the amount using either the expected cost plus a margin or residual approach. Estimating SSP requires judgment that could impact the amount and timing of revenue recognized. SSP is a formal process whereby management considers multiple factors including, but not limited to, geographic or region-specific factors, competitive positioning, internal costs, profit objectives and pricing practices.\nTransaction Price Allocation\nIn bundled arrangements, where we have more than one distinct performance obligation, we must allocate the transaction price to each performance obligation based on its relative SSP. However, in certain bundled arrangements, the SSP may not always be directly observable. For instance, in bundled arrangements with license and customer support, we allocate the transaction price between the license and customer support performance obligations using the residual approach because we have determined that the SSP for licenses in these arrangements are highly variable. We use the residual approach only for our license arrangements. When the SSP is observable but contractual pricing does not fall within our established SSP range, then an adjustment is required, and we will allocate the transaction price between license and customer support based on the relative SSP established for the respective performance obligations.\nWhen two or more contracts are entered into at or near the same time with the same customer, we evaluate the facts and circumstances associated with the negotiation of those contracts. Where the contracts are negotiated as a package, we will account for them as a single arrangement and allocate the consideration for the combined contracts among the performance obligations accordingly.\nWe believe there are significant assumptions, judgments and estimates involved in the accounting for revenue recognition as discussed above and these assumptions, judgments and estimates could impact the timing of when revenue is recognized and could have a material impact on our Consolidated Financial Statements.\n55\nTable of Contents\nGoodwill\nGoodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. The carrying amount of goodwill is periodically reviewed for impairment (at a minimum annually) and whenever events or changes in circumstances indicate that the carrying value of this asset may not be recoverable.\nOur operations are analyzed by management and our chief operating decision maker (CODM) as being part of a single industry segment: the design, development, marketing and sales of Information Management software and solutions. Therefore, our goodwill impairment assessment is based on the allocation of goodwill to a single reporting unit.\nWe perform a qualitative assessment to test our reporting unit\u2019s goodwill for impairment. Based on our qualitative assessment, if we determine that the fair value of our reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, the quantitative assessment of the impairment test is performed. In the quantitative assessment, we compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired, and we are not required to perform further testing. If the carrying value of the net assets of our reporting unit exceeds its fair value, then an impairment loss equal to the difference, but not exceeding the total carrying value of goodwill allocated to the reporting unit, would be recorded.\nOur annual impairment analysis of goodwill was performed as of April 1, 2023. Our qualitative assessment indicated that there were no indications of impairment and therefore there was no impairment of goodwill required to be recorded for Fiscal 2023 (no impairments were recorded for Fiscal 2022 and Fiscal 2021, respectively).\nAcquired intangibles\nIn accordance with business combinations accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. Such valuations may require management to make significant estimates and assumptions, especially with respect to intangible assets. Acquired intangible assets typically consist of acquired technology and customer relationships.\nIn valuing our acquired intangible assets, we may make assumptions and estimates based in part on information obtained from the management of the acquired company, which may make our assumptions and estimates inherently uncertain. Examples of critical estimates we may make in valuing certain of the intangible assets that we acquire include, but are not limited to:\n\u2022\nfuture expected cash flows of our individual revenue streams;\n\u2022\nhistorical and expected customer attrition rates and anticipated growth in revenue from acquired customers;\n\u2022\nthe expected use of the acquired assets; and\n\u2022\ndiscount rates.\nAs a result of the judgments that need to be made, we obtain the assistance of independent valuation firms. We complete these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.\nAlthough we believe the assumptions and estimates of fair value we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain and subject to refinement. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill, if the changes are related to conditions that existed at the time of the acquisition. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments, based on events that occurred subsequent to the acquisition date, are recorded in our Consolidated Statements of Income.\nIncome taxes\nWe account for income taxes in accordance with ASC Topic 740, \u201cIncome Taxes\u201d (Topic 740).\nWe account for our uncertain tax provisions by using a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight of the available evidence indicates it is more likely than not, based solely on the technical merits, that the position will be sustained on audit, including the resolution of related appeals or litigation processes, if any. The second step is to measure the appropriate amount of the benefit to recognize. The amount of benefit to recognize is measured as the maximum amount which is more likely than not to be realized. The tax position is derecognized when it is no longer more likely than not that the position will be sustained on audit. On subsequent recognition and measurement, the maximum amount which is more likely than not to be recognized at each reporting date will represent the Company\u2019s best \n56\nTable of Contents\nestimate, given the information available at the reporting date, although the outcome of the tax position is not absolute or final. We recognize both accrued interest and penalties related to liabilities for income taxes within the \u201cProvision for (recovery of) income taxes\u201d line of our Consolidated Statements of Income.\nDeferred tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the Consolidated Financial Statements that will result in taxable or deductible amounts in future years. These temporary differences are measured using enacted tax rates. A valuation allowance is recorded to reduce deferred tax assets to the extent that we consider it is more likely than not that a deferred tax asset will not be realized. In determining the valuation allowance, we consider factors such as the reversal of deferred income tax liabilities, projected taxable income and the character of income tax assets and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax expense.\nThe Company\u2019s tax positions are subject to audit by local taxing authorities across multiple global subsidiaries and the resolution of such audits may span multiple years. Since tax law is complex and often subject to varied interpretations, it is uncertain whether some of the Company\u2019s tax positions will be sustained upon audit. Our assumptions, judgments and estimates relative to the current provision for income taxes considers current tax laws, our interpretations of current tax laws and possible outcomes of current and future audits conducted by domestic and foreign tax authorities. While we believe the assumptions and estimates that we have made are reasonable, such assumptions and estimates could have a material impact to our Consolidated Financial Statements upon ultimate resolution of the tax positions.\nFor additional details, please see Note\u00a015 \u201cIncome Taxes\u201d to the Consolidated Financial Statements included in this Annual Report on Form 10-K.\nRESULTS OF OPERATIONS\nThe following tables provide a detailed analysis of our results of operations and financial condition. For each of the periods indicated below, we present our revenues by product type, revenues by major geography, cost of revenues by product type, total gross margin, total operating margin, gross margin by product type and their corresponding percentage of total revenue. \nIn addition, we provide Non-GAAP measures for the periods discussed in order to provide additional information to investors that we believe will be useful as this presentation is in line with how our management assesses our Company\u2019s performance. See \u201cUse of Non-GAAP Financial Measures\u201d below for a reconciliation of GAAP-based measures to Non-GAAP-based measures.\nThe comparability of our operating results for the year ended June\u00a030, 2023 as compared to the year ended June\u00a030, 2022 was impacted by the recent Micro Focus Acquisition. Our total revenues increased by $991.1 million across all of our product types in the year ended June\u00a030, 2023, relative to the year ended June\u00a030, 2022, primarily due to revenue contributions from the Micro Focus Acquisition, offset by unfavorable impact of $132.4 million of foreign exchange rate changes. The Micro Focus Acquisition contributed $976.5 million to our total revenues during the year ended June\u00a030, 2023, of which $629.1 million related to customer support revenues and $219.6 million related to license revenues.\nTotal cost of revenues increased by $254.4 million in the year ended June\u00a030, 2023, relative to the year ended June\u00a030, 2022, primarily from additional cost of revenues of $279.3 million as a result of the Micro Focus Acquisition.\nTotal operating expenses increased by $865.2 million in the year ended June\u00a030, 2023, relative to the year ended June\u00a030, 2022, primarily from additional operating expenses of $761.5 million as a result of the Micro Focus Acquisition, of which $550.4 million was related to research and development, sales and marketing, and general and administrative expenses.\n57\nTable of Contents\nSummary of Results of Operations\nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nTotal Revenues by Product Type:\nCloud services and subscriptions\n$\n1,700,433\u00a0\n$\n165,416\u00a0\n$\n1,535,017\u00a0\n$\n127,572\u00a0\n$\n1,407,445\u00a0\nCustomer support\n1,915,020\u00a0\n584,055\u00a0\n1,330,965\u00a0\n(3,097)\n1,334,062\u00a0\nLicense\n539,026\u00a0\n180,675\u00a0\n358,351\u00a0\n(26,360)\n384,711\u00a0\nProfessional service and other\n330,501\u00a0\n60,990\u00a0\n269,511\u00a0\n9,614\u00a0\n259,897\u00a0\nTotal revenues\n4,484,980\u00a0\n991,136\u00a0\n3,493,844\u00a0\n107,729\u00a0\n3,386,115\u00a0\nTotal Cost of Revenues\n1,316,587\u00a0\n254,386\u00a0\n1,062,201\u00a0\n27,735\u00a0\n1,034,466\u00a0\nTotal GAAP-based Gross Profit\n3,168,393\u00a0\n736,750\u00a0\n2,431,643\u00a0\n79,994\u00a0\n2,351,649\u00a0\nTotal GAAP-based Gross Margin %\n70.6\u00a0\n%\n69.6\u00a0\n%\n69.4\u00a0\n%\nTotal GAAP-based Operating Expenses\n2,652,101\u00a0\n865,231\u00a0\n1,786,870\u00a0\n176,124\u00a0\n1,610,746\u00a0\nTotal GAAP-based Income from Operations\n$\n516,292\u00a0\n$\n(128,481)\n$\n644,773\u00a0\n$\n(96,130)\n$\n740,903\u00a0\n% Revenues by Product Type:\nCloud services and subscriptions\n37.9\u00a0\n%\n43.9\u00a0\n%\n41.6\u00a0\n%\nCustomer support\n42.7\u00a0\n%\n38.1\u00a0\n%\n39.4\u00a0\n%\nLicense\n12.0\u00a0\n%\n10.3\u00a0\n%\n11.3\u00a0\n%\nProfessional service and other\n7.4\u00a0\n%\n7.7\u00a0\n%\n7.7\u00a0\n%\nTotal Cost of Revenues by Product Type:\nCloud services and subscriptions\n$\n590,165\u00a0\n$\n78,452\u00a0\n$\n511,713\u00a0\n$\n29,895\u00a0\n$\n481,818\u00a0\nCustomer support\n209,705\u00a0\n88,220\u00a0\n121,485\u00a0\n(1,268)\n122,753\u00a0\nLicense\n16,645\u00a0\n3,144\u00a0\n13,501\u00a0\n(415)\n13,916\u00a0\nProfessional service and other\n276,888\u00a0\n59,993\u00a0\n216,895\u00a0\n19,712\u00a0\n197,183\u00a0\nAmortization of acquired technology-based intangible assets\n223,184\u00a0\n24,577\u00a0\n198,607\u00a0\n(20,189)\n218,796\u00a0\nTotal cost of revenues\n$\n1,316,587\u00a0\n$\n254,386\u00a0\n$\n1,062,201\u00a0\n$\n27,735\u00a0\n$\n1,034,466\u00a0\n% GAAP-based Gross Margin by Product Type:\nCloud services and subscriptions\n65.3\u00a0\n%\n66.7\u00a0\n%\n65.8\u00a0\n%\nCustomer support\n89.0\u00a0\n%\n90.9\u00a0\n%\n90.8\u00a0\n%\nLicense\n96.9\u00a0\n%\n96.2\u00a0\n%\n96.4\u00a0\n%\nProfessional service and other\n16.2\u00a0\n%\n19.5\u00a0\n%\n24.1\u00a0\n%\nTotal Revenues by Geography:\n \n(1)\nAmericas \n(2)\n$\n2,785,003\u00a0\n$\n597,374\u00a0\n$\n2,187,629\u00a0\n$\n118,546\u00a0\n$\n2,069,083\u00a0\nEMEA\n (3)\n1,310,016\u00a0\n283,815\u00a0\n1,026,201\u00a0\n(5,406)\n1,031,607\u00a0\nAsia Pacific\n (4)\n389,961\u00a0\n109,947\u00a0\n280,014\u00a0\n(5,411)\n285,425\u00a0\nTotal revenues\n$\n4,484,980\u00a0\n$\n991,136\u00a0\n$\n3,493,844\u00a0\n$\n107,729\u00a0\n$\n3,386,115\u00a0\n% Revenues by Geography:\nAmericas \n(2)\n62.1\u00a0\n%\n62.6\u00a0\n%\n61.1\u00a0\n%\nEMEA\n (3)\n29.2\u00a0\n%\n29.4\u00a0\n%\n30.5\u00a0\n%\nAsia Pacific\n (4)\n8.7\u00a0\n%\n8.0\u00a0\n%\n8.4\u00a0\n%\nOther Metrics:\nGAAP-based gross margin\n70.6\u00a0\n%\n69.6\u00a0\n%\n69.4\u00a0\n%\nNon-GAAP-based gross margin\n (5)\n76.1\u00a0\n%\n75.6\u00a0\n%\n76.1\u00a0\n%\nNet income, attributable to OpenText\n$\n150,379\u00a0\n$\n397,090\u00a0\n$\n310,672\u00a0\nGAAP-based EPS, diluted\n$\n0.56\u00a0\n$\n1.46\u00a0\n$\n1.14\u00a0\nNon-GAAP-based EPS, diluted\n (5)\n$\n3.29\u00a0\n$\n3.22\u00a0\n$\n3.39\u00a0\nAdjusted EBITDA \n(5)\n$\n1,472,917\u00a0\n$\n1,264,986\u00a0\n$\n1,315,033\u00a0\n_______________________________\n(1)\nTotal revenues by geography are determined based on the location of our direct end customer.\n(2)\nAmericas consists of countries in North, Central and South America.\n(3)\nEMEA primarily consists of countries in Europe, the Middle East and Africa.\n(4)\nAsia Pacific primarily consists of Japan, Australia, China, Korea, Philippines, Singapore, India and New Zealand.\n(5)\nSee \u201cUse of Non-GAAP Financial Measures\u201d (discussed later in this MD&A) for definitions and reconciliations of GAAP-based measures to Non-GAAP-based measures\n.\n58\nTable of Contents\nRevenues, Cost of Revenues and Gross Margin by Product Type\n1)\u00a0\u00a0\u00a0\u00a0Cloud Services and Subscriptions:\nCloud services and subscriptions revenues are from hosting arrangements where in connection with the licensing of software, the end user does not take possession of the software, as well as from end-to-end fully outsourced B2B integration solutions to our customers (collectively referred to as cloud arrangements). The software application resides on our hardware or that of a third party, and the customer accesses and uses the software on an as-needed basis via an identified line. Our cloud arrangements can be broadly categorized as PaaS, SaaS, cloud subscriptions and managed services. For the year ended June\u00a030, 2023, our cloud renewal rate, excluding the impact of Carbonite, Zix and Micro Focus was approximately 94%, consistent with the year ended June\u00a030, 2022.\nCost of Cloud services and subscriptions revenues is comprised primarily of third-party network usage fees, maintenance of in-house data hardware centers, technical support personnel-related costs and some third party royalty costs.\nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nCloud Services and Subscriptions:\nAmericas\n$\n1,287,731\u00a0\n$\n131,813\u00a0\n$\n1,155,918\u00a0\n$\n107,474\u00a0\n$\n1,048,444\u00a0\nEMEA\n305,293\u00a0\n30,469\u00a0\n274,824\u00a0\n18,625\u00a0\n256,199\u00a0\nAsia Pacific\n107,409\u00a0\n3,134\u00a0\n104,275\u00a0\n1,473\u00a0\n102,802\u00a0\nTotal Cloud Services and Subscriptions Revenues\n1,700,433\u00a0\n165,416\u00a0\n1,535,017\u00a0\n127,572\u00a0\n1,407,445\u00a0\nCost of Cloud Services and Subscriptions Revenues\n590,165\u00a0\n78,452\u00a0\n511,713\u00a0\n29,895\u00a0\n481,818\u00a0\nGAAP-based Cloud Services and Subscriptions Gross Profit\n$\n1,110,268\u00a0\n$\n86,964\u00a0\n$\n1,023,304\u00a0\n$\n97,677\u00a0\n$\n925,627\u00a0\nGAAP-based Cloud Services and Subscriptions Gross Margin %\n65.3\u00a0\n%\n66.7\u00a0\n%\n65.8\u00a0\n%\n% Cloud Services and Subscriptions Revenues by Geography:\nAmericas\n75.7\u00a0\n%\n75.3\u00a0\n%\n74.5\u00a0\n%\nEMEA\n18.0\u00a0\n%\n17.9\u00a0\n%\n18.2\u00a0\n%\nAsia Pacific\n6.3\u00a0\n%\n6.8\u00a0\n%\n7.3\u00a0\n%\nCloud services and subscriptions revenues increased by $165.4 million or 10.8% during the year ended June 30, 2023 as compared to the prior fiscal year; up 13.3% after factoring in the unfavorable impact of $38.6 million of foreign exchange rate changes. The increase was primarily driven by organic revenue growth, as well as partially driven by incremental revenues from the Micro Focus Acquisition over the comparative period. Geographically, the overall change was attributable to an increase in Americas of $131.8 million, an increase in EMEA of $30.5 million and an increase in Asia Pacific of $3.1 million.\nThere were 89 cloud services contracts greater than $1.0 million that closed during Fiscal 2023, compared to 98 contracts during Fiscal 2022.\nCost of Cloud services and subscriptions revenues increased by $78.5 million during the year ended June 30, 2023 as compared to the prior fiscal year. This was primarily due to an increase in labour-related costs of $40.0 million and an increase in third-party network usage fees of $37.8 million partially driven by incremental Cloud services and subscriptions cost of revenues from the Micro Focus Acquisition over the comparative period. Overall, the gross margin percentage on Cloud services and subscriptions revenues decreased to 65% from 67%.\n2)\u00a0\u00a0\u00a0\u00a0Customer Support:\nCustomer support revenues consist of revenues from our customer support and maintenance agreements. These agreements allow our customers to receive technical support, enhancements and upgrades to new versions of our software products when available. Customer support revenues are generated from support and maintenance relating to current year sales of software products and from the renewal of existing maintenance agreements for software licenses sold in prior periods. Therefore, changes in Customer support revenues do not always correlate directly to the changes in license revenues from period to period. The terms of support and maintenance agreements are typically twelve months, and are renewable, generally on an annual basis, at the option of the customer. Our management reviews our Customer support renewal rates on a quarterly basis, and we use these rates as a method of monitoring our customer service performance. For the year ended June\u00a030, 2023, our Customer support renewal rate was approximately 95%, compared to approximately 94% for the year ended June\u00a030, 2022, excluding the impact of Carbonite, Zix and Micro Focus.\n59\nTable of Contents\nCost of Customer support revenues is comprised primarily of technical support personnel and related costs, as well as third party royalty costs.\nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nCustomer Support Revenues:\nAmericas\n$\n1,081,192\u00a0\n$\n337,718\u00a0\n$\n743,474\u00a0\n$\n(250)\n$\n743,724\u00a0\nEMEA\n662,601\u00a0\n186,915\u00a0\n475,686\u00a0\n(5,872)\n481,558\u00a0\nAsia Pacific\n171,227\u00a0\n59,422\u00a0\n111,805\u00a0\n3,025\u00a0\n108,780\u00a0\nTotal Customer Support Revenues\n1,915,020\u00a0\n584,055\u00a0\n1,330,965\u00a0\n(3,097)\n1,334,062\u00a0\nCost of Customer Support Revenues\n209,705\u00a0\n88,220\u00a0\n121,485\u00a0\n(1,268)\n122,753\u00a0\nGAAP-based Customer Support Gross Profit\n$\n1,705,315\u00a0\n$\n495,835\u00a0\n$\n1,209,480\u00a0\n$\n(1,829)\n$\n1,211,309\u00a0\nGAAP-based Customer Support Gross Margin %\n89.0\u00a0\n%\n90.9\u00a0\n%\n90.8\u00a0\n%\n% Customer Support Revenues by Geography:\nAmericas\n56.5\u00a0\n%\n55.9\u00a0\n%\n55.7\u00a0\n%\nEMEA\n34.6\u00a0\n%\n35.7\u00a0\n%\n36.1\u00a0\n%\nAsia Pacific\n8.9\u00a0\n%\n8.4\u00a0\n%\n8.2\u00a0\n%\nCustomer support revenues increased by $584.1 million or 43.9% during the year ended June 30, 2023 as compared to the prior fiscal year; up 48.7% after factoring in the unfavorable impact of $63.8 million of foreign exchange rate changes. The increase was primarily driven by incremental Customer support revenues from the Micro Focus Acquisition over the comparative period. Geographically, the overall change was attributable to an increase in Americas of $337.7 million, an increase in EMEA of $186.9 million and an increase in Asia Pacific of $59.4 million.\nCost of Customer support revenues increased by $88.2 million during the year ended June 30, 2023 as compared to the prior fiscal year. This was primarily due to an increase in labour-related costs of $82.2 million and an increase in third-party network usage fees of $5.5 million driven by incremental Customer support cost of revenues from the Micro Focus Acquisition over the comparative period. Overall, the gross margin percentage on Customer support revenues decreased to 89% from 91%.\n3)\u00a0\u00a0\u00a0\u00a0License:\nOur License revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses. Our License revenues are impacted by the strength of general economic and industry conditions, the competitive strength of our software products\u00a0and our acquisitions. Cost of License revenues consists primarily of royalties payable to third parties.\nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nLicense Revenues:\nAmericas\n$\n270,809\u00a0\n$\n107,090\u00a0\n$\n163,719\u00a0\n$\n4,189\u00a0\n$\n159,530\u00a0\nEMEA\n199,627\u00a0\n37,892\u00a0\n161,735\u00a0\n(16,768)\n178,503\u00a0\nAsia Pacific\n68,590\u00a0\n35,693\u00a0\n32,897\u00a0\n(13,781)\n46,678\u00a0\nTotal License Revenues\n539,026\u00a0\n180,675\u00a0\n358,351\u00a0\n(26,360)\n384,711\u00a0\nCost of License Revenues\n16,645\u00a0\n3,144\u00a0\n13,501\u00a0\n(415)\n13,916\u00a0\nGAAP-based License Gross Profit\n$\n522,381\u00a0\n$\n177,531\u00a0\n$\n344,850\u00a0\n$\n(25,945)\n$\n370,795\u00a0\nGAAP-based License Gross Margin %\n96.9\u00a0\n%\n96.2\u00a0\n%\n96.4\u00a0\n%\n% License Revenues by Geography:\nAmericas\n50.2\u00a0\n%\n45.7\u00a0\n%\n41.5\u00a0\n%\nEMEA\n37.0\u00a0\n%\n45.1\u00a0\n%\n46.4\u00a0\n%\nAsia Pacific\n12.8\u00a0\n%\n9.2\u00a0\n%\n12.1\u00a0\n%\nLicense revenues increased by $180.7 million or 50.4% during the year ended June 30, 2023 as compared to the prior fiscal year; up 55.0% after factoring in the unfavorable impact of $16.4 million of foreign exchange rate changes. The increase was primarily driven by incremental License revenues from the Micro Focus Acquisition over the comparative period. Geographically, the overall change was attributable to an increase in Americas of $107.1 million, an increase in EMEA of $37.9 million and an increase in Asia Pacific of $35.7 million.\n60\nTable of Contents\nDuring Fiscal 2023, we closed 163 license contracts greater than $0.5 million, of which 71 contracts were greater than $1.0 million, contributing $211.3 million of License revenues. This was compared to 122 license contracts greater than $0.5 million during Fiscal 2022, of which 46 contracts were greater than $1.0 million, contributing $131.7 million of License revenues.\nCost of License revenues increased by $3.1 million during the year ended June 30, 2023 as compared to the prior fiscal year as a result of higher third-party technology costs primarily driven by incremental cost of License revenues from the Micro Focus Acquisition over the comparative period. Overall, the gross margin percentage on License revenues increased to 97% from 96%.\n4)\u00a0\u00a0\u00a0\u00a0Professional Service and Other:\nProfessional service and other revenues consist of revenues from consulting contracts and contracts to provide implementation, training and integration services (professional services). Other revenues consist of hardware revenues, which are included within the \u201cProfessional service and other\u201d category because they are relatively immaterial to our service revenues. Professional services are typically performed after the purchase of new software licenses.\u00a0Professional service and other revenues can vary from period to period based on the type of engagements as well as those implementations that are assumed by our partner network. \nCost of Professional service and other revenues consists primarily of the costs of providing integration, configuration and training with respect to our various software products. The most significant components of these costs are personnel-related expenses, travel costs and third-party subcontracting. \nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nProfessional Service and Other Revenues:\nAmericas\n$\n145,271\u00a0\n$\n20,753\u00a0\n$\n124,518\u00a0\n$\n7,133\u00a0\n$\n117,385\u00a0\nEMEA\n142,495\u00a0\n28,539\u00a0\n113,956\u00a0\n(1,391)\n115,347\u00a0\nAsia Pacific\n42,735\u00a0\n11,698\u00a0\n31,037\u00a0\n3,872\u00a0\n27,165\u00a0\nTotal Professional Service and Other Revenues\n330,501\u00a0\n60,990\u00a0\n269,511\u00a0\n9,614\u00a0\n259,897\u00a0\nCost of Professional Service and Other Revenues\n276,888\u00a0\n59,993\u00a0\n216,895\u00a0\n19,712\u00a0\n197,183\u00a0\nGAAP-based Professional Service and Other Gross Profit\n$\n53,613\u00a0\n$\n997\u00a0\n$\n52,616\u00a0\n$\n(10,098)\n$\n62,714\u00a0\nGAAP-based Professional Service and Other Gross Margin %\n16.2\u00a0\n%\n19.5\u00a0\n%\n24.1\u00a0\n%\n% Professional Service and Other Revenues by Geography:\nAmericas\n44.0\u00a0\n%\n46.2\u00a0\n%\n45.2\u00a0\n%\nEMEA\n43.1\u00a0\n%\n42.3\u00a0\n%\n44.4\u00a0\n%\nAsia Pacific\n12.9\u00a0\n%\n11.5\u00a0\n%\n10.4\u00a0\n%\nProfessional service and other revenues increased by $61.0 million or 22.6% during the year ended June 30, 2023 as compared to the prior fiscal year; up 27.7% after factoring in the unfavorable impact of $13.6 million of foreign exchange rate changes. The increase was primarily driven by incremental Professional service and other revenues from the Micro Focus Acquisition over the comparative period. Geographically, the overall change was attributable to an increase in EMEA of $28.5 million, an increase in Americas of $20.8 million and an increase in Asia Pacific of $11.7 million.\nCost of Professional service and other revenues increased by $60.0 million during the year ended June 30, 2023 as compared to the prior fiscal year. This was primarily due to an increase in labour-related costs of $58.1 million primarily driven by the incremental Professional service and other cost of revenues from the Micro Focus Acquisition over the comparative period. Overall, the gross margin percentage on Professional service and other revenues decreased to 16% from 20%.\n61\nTable of Contents\nAmortization of Acquired Technology-based Intangible Assets\nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nAmortization of acquired technology-based intangible assets \n$\n223,184\u00a0\n$\n24,577\u00a0\n$\n198,607\u00a0\n$\n(20,189)\n$\n218,796\u00a0\nAmortization of acquired technology-based intangible assets increased during the year ended June 30, 2023 by $24.6 million as compared to the prior fiscal year. This was due to an increase of $91.2 million relating to amortization of newly acquired technology-based intangible assets from the Micro Focus Acquisition, partly offset by a reduction of $68.8 million related to technology-based intangible assets from previous acquisitions becoming fully amortized.\nOperating Expenses\nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nResearch and development\n$\n680,587\u00a0\n$\n240,139\u00a0\n$\n440,448\u00a0\n$\n19,001\u00a0\n$\n421,447\u00a0\nSales and marketing\n948,598\u00a0\n271,480\u00a0\n677,118\u00a0\n54,897\u00a0\n622,221\u00a0\nGeneral and administrative\n419,590\u00a0\n102,505\u00a0\n317,085\u00a0\n53,564\u00a0\n263,521\u00a0\nDepreciation\n107,761\u00a0\n19,520\u00a0\n88,241\u00a0\n2,976\u00a0\n85,265\u00a0\nAmortization of acquired customer-based intangible assets\n326,406\u00a0\n109,301\u00a0\n217,105\u00a0\n561\u00a0\n216,544\u00a0\nSpecial charges (recoveries)\n169,159\u00a0\n122,286\u00a0\n46,873\u00a0\n45,125\u00a0\n1,748\u00a0\nTotal operating expenses\n$\n2,652,101\u00a0\n$\n865,231\u00a0\n$\n1,786,870\u00a0\n$\n176,124\u00a0\n$\n1,610,746\u00a0\n% of Total Revenues:\nResearch and development\n15.2\u00a0\n%\n12.6\u00a0\n%\n12.4\u00a0\n%\nSales and marketing\n21.2\u00a0\n%\n19.4\u00a0\n%\n18.4\u00a0\n%\nGeneral and administrative\n9.4\u00a0\n%\n9.1\u00a0\n%\n7.8\u00a0\n%\nDepreciation\n2.4\u00a0\n%\n2.5\u00a0\n%\n2.5\u00a0\n%\nAmortization of acquired customer-based intangible assets\n7.3\u00a0\n%\n6.2\u00a0\n%\n6.4\u00a0\n%\nSpecial charges (recoveries)\n3.8\u00a0\n%\n1.3\u00a0\n%\n0.1\u00a0\n%\nResearch and development expenses \nconsist primarily of payroll and payroll-related benefits expenses, contracted research and development expenses and facility costs. Research and development enables organic growth and improves product stability and functionality, and accordingly, we dedicate extensive efforts to update and upgrade our product offerings. The primary drivers are typically software upgrades and development.\nChange between Fiscal Years\nincrease (decrease)\n\u00a0\n(In thousands)\n2023 and 2022\n2022 and 2021\nPayroll and payroll-related benefits\n$\n152,915\u00a0\n$\n17,070\u00a0\nContract labour and consulting\n14,660\u00a0\n2,576\u00a0\nShare-based compensation\n21,964\u00a0\n7,263\u00a0\nTravel and communication\n1,363\u00a0\n294\u00a0\nFacilities\n45,791\u00a0\n(9,053)\nOther miscellaneous\n3,446\u00a0\n851\u00a0\nTotal change in research and development expenses\n$\n240,139\u00a0\n$\n19,001\u00a0\nResearch and development expenses increased by $240.1 million during the year ended June 30, 2023 as compared to the prior fiscal year, primarily as a result of the Micro Focus Acquisition. Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $152.9 million, facility-related expenses increased by $45.8 million, share-based compensation expense increased by $22.0 million and contract labour and consulting increased by $14.7 million. Overall, our research and development expenses, as a percentage of total revenues, increased to 15% compared to the prior fiscal year at 13%.\nOur research and development labour resources increased by 3,953 employees, from 4,326 employees at June\u00a030, 2022 to 8,279 employees at June\u00a030, 2023.\n62\nTable of Contents\nSales and marketing expenses \nconsist primarily of personnel expenses and costs associated with advertising, marketing events and trade shows. \nChange between Fiscal Years\nincrease (decrease)\n(In thousands)\n2023 and 2022\n2022 and 2021\nPayroll and payroll-related benefits\n$\n136,300\u00a0\n$\n38,613\u00a0\nCommissions\n38,142\u00a0\n6,993\u00a0\nContract labour and consulting\n7,670\u00a0\n2\u00a0\nShare-based compensation\n19,081\u00a0\n4,316\u00a0\nTravel and communication\n13,347\u00a0\n3,806\u00a0\nMarketing expenses\n29,076\u00a0\n9,579\u00a0\nFacilities\n23,168\u00a0\n(3,991)\nCredit loss expense (recovery)\n(94)\n(9,045)\nOther miscellaneous\n4,790\u00a0\n4,624\u00a0\nTotal change in sales and marketing expenses\n$\n271,480\u00a0\n$\n54,897\u00a0\nSales and marketing expenses increased by $271.5 million during the year ended June 30, 2023 as compared to the prior fiscal year, primarily as a result of the Micro Focus Acquisition. Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $136.3 million, commissions increased by $38.1 million, marketing expenses increased by $29.1 million, facility-related expenses increased by $23.2 million,  share-based compensation expense increased by $19.1 million and travel and communication expenses increased by $13.3 million. Overall, our sales and marketing expenses, as a percentage of total revenues, increased to 21% compared to the prior fiscal year at 19%. \nOur sales and marketing labour resources increased by 2,105 employees, from 2,710 employees at June\u00a030, 2022 to 4,815 employees at June\u00a030, 2023.\nGeneral and administrative expenses \nconsist primarily of payroll and payroll related benefits expenses, related overhead, audit fees, other professional fees, contract labour and consulting expenses and public company costs. \nChange between Fiscal Years\nincrease (decrease)\n(In thousands)\n2023 and 2022\n2022 and 2021\nPayroll and payroll-related benefits\n50,695\u00a0\n$\n47,831\u00a0\nContract labour and consulting\n15,827\u00a0\n5,294\u00a0\nShare-based compensation\n9,856\u00a0\n2,478\u00a0\nTravel and communication\n9,106\u00a0\n5,827\u00a0\nFacilities\n3,393\u00a0\n322\u00a0\nOther miscellaneous\n13,628\u00a0\n(8,188)\nTotal change in general and administrative expenses\n$\n102,505\u00a0\n$\n53,564\u00a0\nGeneral and administrative expenses increased by $102.5 million during the year ended June 30, 2023 as compared to the prior fiscal year, primarily as a result of the Micro Focus Acquisition. Payroll and payroll-related benefits, which is comprised of salaries, benefits and variable short-term incentives, increased by $50.7 million, contract labour and consulting increased by $15.8 million, other miscellaneous costs, which include professional fees such as legal, audit, and tax related expenses increased by $13.6 million, share-based compensation expense increased by $9.9 million and travel and communication expenses increased by $9.1 million. Overall, general and administrative expenses, as a percentage of total revenues, remained stable at 9% in both fiscal years.\n Our general and administrative labour resources increased by 1,425 employees, from 1,971 employees at June\u00a030, 2022 to 3,396 employees at June\u00a030, 2023, primarily as a result of the Micro Focus Acquisition.\n63\nTable of Contents\nDepreciation expenses:\nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nDepreciation\n$\n107,761\u00a0\n$\n19,520\u00a0\n$\n88,241\u00a0\n$\n2,976\u00a0\n$\n85,265\u00a0\nDepreciation expenses increased during the year ended June 30, 2023 by $19.5 million compared to the prior fiscal year, primarily as a result of the Micro Focus Acquisition. \nDepreciation expenses as a percentage of total revenue remained stable for the year ended June 30, 2023 at 2% compared to the prior fiscal year.\nAmortization of acquired customer-based intangible\n \nassets:\nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nAmortization of acquired customer-based intangible assets\n$\n326,406\u00a0\n$\n109,301\u00a0\n$\n217,105\u00a0\n$\n561\u00a0\n$\n216,544\u00a0\nAmortization of acquired customer-based intangible assets increased during the year ended June 30, 2023 by $109.3 million as compared to the prior fiscal year. This was due to an increase of $111.2 million relating to amortization of newly acquired customer-based intangible assets from the Micro Focus Acquisition, partly offset by a reduction of $9.8 million related to customer-based intangible assets from previous acquisitions becoming fully amortized.\nSpecial charges (recoveries):\nSpecial charges (recoveries) typically relate to amounts that we expect to pay in connection with restructuring plans, acquisition-related costs and other similar charges and recoveries. Generally, we implement such plans in the context of integrating acquired entities with existing OpenText operations and most recently in response to our return to office planning. Actions related to such restructuring plans are typically completed within a period of one year. In certain limited situations, if the planned activity does not need to be implemented, or an expense lower than anticipated is paid out, we record a recovery of the originally recorded expense to Special charges (recoveries).\nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nSpecial charges (recoveries)\n$\n169,159\u00a0\n$\n122,286\u00a0\n$\n46,873\u00a0\n$\n45,125\u00a0\n$\n1,748\u00a0\nSpecial charges (recoveries) increased by $122.3 million during the year ended June 30, 2023 as compared to the prior fiscal year. Restructuring activities increased by $55.5 million driven by the Micro Focus Restructuring Plan, acquisition related costs increased by $42.1 million primarily due to the Micro Focus Acquisition and other miscellaneous charges increased by $24.7 million, primarily driven by severance charges related to the Micro Focus Acquisition.\nFor more details on Special charges (recoveries), see Note\u00a018 \u201cSpecial Charges (Recoveries)\u201d to our Consolidated Financial Statements.\n64\nTable of Contents\nOther Income (Expense), Net\nThe components of other income (expense), net were as follows:\nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nForeign exchange gains (losses)\n (1)\n$\n56,599\u00a0\n$\n59,269\u00a0\n$\n(2,670)\n$\n(1,397)\n$\n(1,273)\nUnrealized losses on derivatives not designated as hedges \n(2)\n(128,841)\n(128,841)\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nRealized gains on derivatives not designated as hedges \n(3)\n137,471\u00a0\n137,471\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nOpenText share in net income (loss) of equity investees \n(4)\n(23,077)\n(81,779)\n58,702\u00a0\n(4,195)\n62,897\u00a0\nLoss on debt extinguishment \n(5)(6)\n(8,152)\n19,261\u00a0\n(27,413)\n(27,413)\n\u2014\u00a0\nOther miscellaneous income (expense)\n469\u00a0\n(30)\n499\u00a0\n689\u00a0\n(190)\nTotal other income (expense), net\n$\n34,469\u00a0\n$\n5,351\u00a0\n$\n29,118\u00a0\n$\n(32,316)\n$\n61,434\u00a0\n__________________________\n(1)\nThe year ended June 30, 2023 includes a foreign exchange gain of $36.6\u00a0million resulting from the delayed payment of a portion of the purchase consideration, settled on February 9, 2023, related to the Micro Focus Acquisition (see Note\u00a019 \u201cAcquisitions\u201d to our Consolidated Financial Statements for more details).\n(2)\nRepresents the unrealized losses on our derivatives not designated as hedges related to the financing of the Micro Focus Acquisition (see Note\u00a017 \u201cDerivative Instruments and Hedging Activities\u201d to our Consolidated Financial Statements for more details). \n(3)\nRepresents the realized gains on our derivatives not designated as hedges related to the financing of the Micro Focus Acquisition (see Note\u00a017 \u201cDerivative Instruments and Hedging Activities\u201d to our Consolidated Financial Statements for more details). \n(4)\nRepresents our share in net income (loss) of equity investees, which approximates fair value and subject to volatility based on market trends and business conditions, based on our interest in certain investment funds in which we are a limited partner. Our interests in each of these investees range from 4% to below 20% and these investments are accounted for using the equity method (see Note\u00a09 \u201cPrepaid Expenses and Other Assets\u201d to our Consolidated Financial Statements for more details). \n(5)\nOn December 1, 2022, we amended the Acquisition Term Loan and Bridge Loan to reallocate commitments under the Bridge Loan to the Acquisition Term Loan and terminated all remaining commitments under the Bridge Loan which resulted in a loss on debt extinguishment related to unamortized debt issuance costs (see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements for more details).\n(6)\nOn December 9, 2021, we redeemed the Senior Notes 2026 in full, which resulted in a loss on debt extinguishment of $27.4 million. Of this, $25.0 million related to the early termination call premium, $6.2 million related to unamortized debt issuance costs and ($3.8) million related to unamortized premium (see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements for more details).\nInterest and Other Related Expense, Net \nInterest and other related expense, net is primarily comprised of interest paid and accrued on our debt facilities, offset by interest income earned on our cash and cash equivalents.\nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nInterest expense related to total outstanding debt \n(1)\n$\n363,632\u00a0\n$\n212,063\u00a0\n$\n151,569\u00a0\n$\n5,923\u00a0\n$\n145,646\u00a0\nInterest income\n(53,486)\n(48,849)\n(4,637)\n(781)\n(3,856)\nOther miscellaneous expense \n(2)\n19,282\u00a0\n8,334\u00a0\n10,948\u00a0\n1,171\u00a0\n9,777\u00a0\nTotal interest and other related expense, net\n$\n329,428\u00a0\n$\n171,548\u00a0\n$\n157,880\u00a0\n$\n6,313\u00a0\n$\n151,567\u00a0\n__________________________\n(1)\nFor more details see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements.\n(2)\nOther miscellaneous expense primarily consists of  the amortization of debt discount and the debt issuance costs. For more details see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements. \nProvision for (recovery of) Income Taxes\nWe operate in several tax jurisdictions and are exposed to various foreign tax rates.\nYear Ended June 30,\n(In thousands)\n2023\nChange \nincrease (decrease)\n2022\nChange \nincrease (decrease)\n2021\nProvision for (recovery of) income taxes\n$\n70,767\u00a0\n$\n(47,985)\n$\n118,752\u00a0\n$\n(221,154)\n$\n339,906\u00a0\nThe effective tax rate increased to a provision of 32.0% for the year ended June 30, 2023, compared to a provision of 23.0% for the year ended June 30, 2022. Tax expense decreased from $118.8 million during the year ended June 30, 2022 to $70.8 million during the year ended June 30, 2023. The increase in the effective tax rate was driven by increases in withholding taxes, changes in valuation allowance, permanent differences related to foreign source income inclusions, and the impact of \n65\nTable of Contents\ninternal reorganizations, partially offset by lower pretax income, tax credits and permanent adjustments related to the preferential tax treatment of the mark-to-market gains on derivatives. The tax rate for the year ended June\u00a030, 2022 varied from the statutory rate due favorable permanent adjustments related to excess share-based compensation deductions, tax credits, and the reduction in the accrual on unremitted foreign earnings, partially offset by the impact of internal reorganizations and an increase in unrecognized tax benefits.\nBeginning July 1, 2022, as a result of the Tax Cuts and Jobs Act of 2017 (\u201cTax Act\u201d), our research and development expenditures are now being capitalized and amortized. For fiscal year 2023, the new regulations resulted in incremental cash tax payments of approximately $68 million. The actual impact on future cash flows from operations will primarily depend on if or when this legislation is deferred, modified, or repealed by the U.S. Congress and the amount of R&D expenditures paid or incurred in those respective years. We estimate the largest potential impact will be related to Fiscal 2023 cash flows fro\nm operations and that the impact in future years should gradually decrease over the respective amortization periods. \nThe Inflation Reduction Act and Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act (the Inflation Reduction Act) were signed into law in August 2022. The Inflation Reduction Act introduced new provisions, including a 15% corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion of adjusted financial statement income over a consecutive three-tax-year period. The corporate minimum tax will be effective for Fiscal 2024. We are currently evaluating the applicability and the effect of the new law to our financial results.\nFor information on certain potential tax contingencies, including the Canada Revenue Agency (CRA) matter, see Note\u00a014 \u201cGuarantees and Contingencies\u201d and Note\u00a015 \u201cIncome Taxes\u201d to our Consolidated Financial Statements. Please also see Part I, Item 1A, \u201cRisk Factors\u201d within this Annual Report on Form 10-K.\n66\nTable of Contents\nLIQUIDITY AND CAPITAL RESOURCES\nThe following tables set forth changes in cash flows from operating, investing and financing activities for the periods indicated: \n(In thousands)\n\u00a0\nAs of June 30, 2023\nChange \nincrease (decrease)\nAs of June 30, 2022\nChange \nincrease (decrease)\nAs of June\u00a030, 2021\nCash and cash equivalents\n$\n1,231,625\u00a0\n$\n(462,116)\n$\n1,693,741\u00a0\n$\n86,435\u00a0\n$\n1,607,306\u00a0\nRestricted cash \n(1)\n2,327\u00a0\n157\u00a0\n2,170\u00a0\n(324)\n2,494\u00a0\nTotal cash, cash equivalents and restricted cash\n$\n1,233,952\u00a0\n$\n(461,959)\n$\n1,695,911\u00a0\n$\n86,111\u00a0\n$\n1,609,800\u00a0\n__________________________\n(1)\nRestricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the Consolidated Balance Sheets (see Note\u00a09 \u201cPrepaid Expenses and Other Assets\u201d to our Consolidated Financial Statements for more details).\nYear Ended June 30,\n(In thousands)\n\u00a0\n2023\nChange\n2022\nChange\n2021\nCash provided by operating activities\n$\n779,205\u00a0\n$\n(202,605)\n$\n981,810\u00a0\n$\n105,690\u00a0\n$\n876,120\u00a0\nCash used in investing activities\n$\n(5,651,420)\n$\n(4,680,461)\n$\n(970,959)\n$\n(902,189)\n$\n(68,770)\nCash provided by (used in) financing activities\n$\n4,403,053\u00a0\n$\n4,264,597\u00a0\n$\n138,456\u00a0\n$\n1,063,003\u00a0\n$\n(924,547)\nCash and cash equivalents\nCash and cash equivalents primarily consist of balances with banks as well as deposits with original maturities of 90 days or less.\nWe continue to anticipate that our cash and cash equivalents, as well as available credit facilities, will be sufficient to fund our anticipated cash requirements for working capital, contractual commitments, capital expenditures, dividends and operating needs for the next twelve months. Any further material or acquisition-related activities may require additional sources of financing and would be subject to the financial covenants established under our credit facilities. For more details, see \u201cLong-term Debt and Credit Facilities\u201d below. \nAs of June\u00a030, 2023, we have recognized a provision of $28.3 million (June\u00a030, 2022\u2014$15.1 million) in respect of deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United States subsidiaries and planned periodic repatriations from certain German subsidiaries, that will be subject to withholding taxes upon distribution.\nCash flows provided by operating activities \nCash flows from operating activities decreased by $202.6 million during the year ended June 30, 2023, as compared to the same period in the prior fiscal year due to a decrease in net changes from working capital of $255.8 million, partially offset by an increase in net income after the impact of non-cash items of $53.2 million.\nDuring the fourth quarter of Fiscal 2023 we had a days sales outstanding (DSO) of 41 days, compared to our DSO of 43 days during the fourth quarter of Fiscal 2022. The per day impact of our DSO in the fourth quarter of Fiscal 2023 and Fiscal 2022 on our cash flows was $16.6 million and $10.0 million, respectively. In arriving at DSO, we exclude contract assets as these assets do not provide an unconditional right to the related consideration from the customer.\nCash flows used in investing activities\nOur cash flows used in investing activities is primarily on account of acquisitions and additions of property and equipment. \nCash flows used in investing activities increased by $4.68 billion during the year ended June 30, 2023, as compared to the same period in the prior fiscal year primarily due to consideration paid for acquisitions during Fiscal 2023, which includes cash paid for the Micro Focus Acquisition of $5.658 billion, as compared to the cash paid during Fiscal 2022 for the acquisition of Zix of $856.2 million and the acquisition of Bricata Inc. of $17.8 million.\n67\nTable of Contents\nCash flows provided by (used in) financing activities \nOur cash flows from financing activities generally consist of long-term debt financing and amounts received from stock options exercised by our employees and Employee Stock Purchase Plan (ESPP) purchases by our employees. These inflows are typically offset by scheduled and non-scheduled repayments of our long-term debt financing and, when applicable, the payment of dividends and/or repurchases of our Common Shares. \nCash flows provided by financing activities increased by $4.265 billion during the year ended June 30, 2023 as compared to the same period in the prior fiscal year. This is primarily due to the net impact of the following activities:\n(i)\n$3.427 billion increase in proceeds from the issuance of long-term debt and draw down on the Revolver;\n(ii)\n$657.1 million decrease in repayments of long-term debt and Revolver;\n(iii)\n$266.7 million related to less cash used in the repurchases of Common Shares and treasury stock; and\n(iv)\n$25.0 million relating to early call termination premium upon redemption of Senior Notes 2026 in Fiscal 2022 that did not occur in Fiscal 2023.\nThe increases in cash flows provided by financing activities above were partially offset by the following decreases:\n(i)\n$60.7 million increase in debt issuance costs;\n(ii)\n$27.9 million related to lower proceeds from the issuance of Common Shares for the exercise of options and the OpenText ESPP; and\n(iii)\n$21.9 million related to higher cash dividends paid to shareholders.\nCash Dividends\nDuring the year ended June 30, 2023, we declared and paid cash dividends of $0.9720 per Common Share in the aggregate amount of $259.5 million (year ended June 30, 2022 and 2021\u2014$0.8836 and $0.7770 per Common Share, respectively, in the aggregate amount of $237.7 million and $210.7 million, respectively).\nFuture declarations of dividends and the establishment of future record and payment dates are subject to final determination and discretion of the Board. See Item 5 \u201cDividend Policy\u201d included in this Annual Report on Form 10-K for more information.\nLong-term Debt and Credit Facilities\nSenior Unsecured Fixed Rate Notes\nSenior Notes 2031\nOn November 24, 2021, OpenText Holdings, Inc. (OTHI), a wholly-owned indirect subsidiary of the Company, issued $650\u00a0million in aggregate principal amount of 4.125% Senior Notes due 2031 guaranteed by the Company (Senior Notes 2031) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (Securities Act), and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2031 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022. Senior Notes 2031 will mature on December 1, 2031, unless earlier redeemed, in accordance with their terms, or repurchased.\nOTHI may redeem all or a portion of the Senior Notes 2031 at any time prior to December 1, 2026 at a redemption price equal to 100% of the principal amount of the Senior Notes 2031 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. OTHI may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2031, on one or more occasions, prior to December 1, 2024, using the net proceeds from certain qualified equity offerings at a redemption price of 104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. OTHI may, on one or more occasions, redeem the Senior Notes 2031, in whole or in part, at any time on and after December 1, 2026 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2031, dated as of November 24, 2021, among OTHI, the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S. trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2031 Indenture), plus accrued and unpaid interest, if any, to the redemption date. \nIf we experience one of the kinds of change of control triggering events specified in the 2031 Indenture, OTHI will be required to make an offer to repurchase the Senior Notes 2031 at a price equal to 101% of the principal amount of the Senior Notes 2031, plus accrued and unpaid interest, if any, to the date of purchase.\n68\nTable of Contents\nThe 2031 Indenture contains covenants that limit OTHI, the Company and certain of the Company\u2019s subsidiaries\u2019 ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of OTHI, the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2031; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2031 Indenture. The 2031 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2031 to be due and payable immediately.\nSenior Notes 2031 are guaranteed on a senior unsecured basis by the Company and the Company\u2019s existing and future wholly-owned subsidiaries (other than OTHI) that borrow or guarantee the obligations under our senior credit facilities. Senior Notes 2031 and the guarantees rank equally in right of payment with all of the Company\u2019s, OTHI\u2019s and the guarantors\u2019 existing and future senior unsubordinated debt and will rank senior in right of payment to all of the Company\u2019s, OTHI\u2019s and the guarantors\u2019 future subordinated debt. Senior Notes 2031 and the guarantees will be effectively subordinated to all of the Company\u2019s, OTHI\u2019s and the guarantors\u2019 existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt.\nThe foregoing description of the 2031 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2031 Indenture, which is filed as an exhibit to the Company\u2019s Current Report on Form 8-K filed with the SEC on November 24, 2021.\nFor further details relating to our debt, please see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements.\nSenior Notes 2030\nOn February 18, 2020 OTHI, a wholly-owned indirect subsidiary of the Company, issued $900 million in aggregate principal amount of 4.125% Senior Notes due 2030 guaranteed by the Company (Senior Notes 2030) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2030 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020. Senior Notes 2030 will mature on February 15, 2030, unless earlier redeemed, in accordance with their terms, or repurchased.\nOTHI may redeem all or a portion of the Senior Notes 2030 at any time prior to February 15, 2025 at a redemption price equal to 100% of the principal amount of the Senior Notes 2030 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. OTHI may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2030, on one or more occasions, prior to February 15, 2025, using the net proceeds from certain qualified equity offerings at a redemption price of 104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. OTHI may, on one or more occasions, redeem the Senior Notes 2030, in whole or in part, at any time on and after February 15, 2025 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2030, dated as of February 18, 2020, among OTHI, the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S. trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2030 Indenture), plus accrued and unpaid interest, if any, to the redemption date. \nIf we experience one of the kinds of change of control triggering events specified in the 2030 Indenture, OTHI will be required to make an offer to repurchase the Senior Notes 2030 at a price equal to 101% of the principal amount of the Senior Notes 2030, plus accrued and unpaid interest, if any, to the date of purchase.\nThe 2030 Indenture contains covenants that limit the Company, OTHI and certain of the Company\u2019s subsidiaries\u2019 ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of the Company, OTHI or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2030; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2030 Indenture. The 2030 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2030 to be due and payable immediately.\nSenior Notes 2030 are guaranteed on a senior unsecured basis by the Company and the Company\u2019s existing and future wholly-owned subsidiaries (other than OTHI) that borrow or guarantee the obligations under our senior credit facilities. Senior Notes 2030 and the guarantees rank equally in right of payment with all of the Company, OTHI and the guarantors\u2019 existing and future senior unsubordinated debt and will rank senior in right of payment to all of the Company, OTHI and the guarantors\u2019 future subordinated debt. Senior Notes 2030 and the guarantees will be effectively subordinated to all of the Company, OTHI \n69\nTable of Contents\nand the guarantors\u2019 existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt.\nThe foregoing description of the 2030 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2030 Indenture, which is filed as an exhibit to the Company\u2019s Current Report on Form 8-K filed with the SEC on February 18, 2020.\nFor further details relating to our debt, please see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements.\nSenior Notes 2029\nOn November 24, 2021, we issued $850\u00a0million in aggregate principal amount of 3.875% Senior Notes due 2029 (Senior Notes 2029) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2029 bear interest at a rate of 3.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022. Senior Notes 2029 will mature on December 1, 2029, unless earlier redeemed, in accordance with their terms, or repurchased. \nWe may redeem all or a portion of the Senior Notes 2029 at any time prior to December 1, 2024 at a redemption price equal to 100% of the principal amount of the Senior Notes 2029 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. We may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2029, on one or more occasions, prior to December 1, 2024, using the net proceeds from certain qualified equity offerings at a redemption price of 103.875% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. We may, on one or more occasions, redeem the Senior Notes 2029, in whole or in part, at any time on and after December 1, 2024 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2029, dated as of November 24, 2021, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S. trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2029 Indenture), plus accrued and unpaid interest, if any, to the redemption date. \nIf we experience one of the kinds of change of control triggering events specified in the 2029 Indenture, we will be required to make an offer to repurchase the Senior Notes 2029 at a price equal to 101% of the principal amount of the Senior Notes 2029, plus accrued and unpaid interest, if any, to the date of purchase.\nThe 2029 Indenture contains covenants that limit our and certain of our subsidiaries\u2019 ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2029; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2029 Indenture. The 2029 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2029 to be due and payable immediately.\nSenior Notes 2029 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our senior credit facilities. Senior Notes 2029 and the guarantees rank equally in right of payment with all of our and our guarantors\u2019 existing and future senior unsubordinated debt and will rank senior in right of payment to all of our and our guarantors\u2019 future subordinated debt. Senior Notes 2029 and the guarantees will be effectively subordinated to all of our and our guarantors\u2019 existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt. \nThe foregoing description of the 2029 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2029 Indenture, which is filed as an exhibit to the Company\u2019s Current Report on Form 8-K filed with the SEC on November 24, 2021.\nFor further details relating to our debt, please see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements.\n70\nTable of Contents\nSenior Notes 2028\nOn February 18, 2020 we issued $900 million in aggregate principal amount of 3.875% Senior Notes due 2028 (Senior Notes 2028) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2028 bear interest at a rate of 3.875% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020. Senior Notes 2028 will mature on February 15, 2028, unless earlier redeemed, in accordance with their terms, or repurchased.\nWe may redeem all or a portion of the Senior Notes 2028 at any time prior to February 15, 2023 at a redemption price equal to 100% of the principal amount of the Senior Notes 2028 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. We may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2028, on one or more occasions, prior to February 15, 2023, using the net proceeds from certain qualified equity offerings at a redemption price of 103.875% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. We may, on one or more occasions, redeem the Senior Notes 2028, in whole or in part, at any time on and after February 15, 2023 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2028, dated as of February 18, 2020, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S. trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2028 Indenture), plus accrued and unpaid interest, if any, to the redemption date.\nIf we experience one of the kinds of change of control triggering events specified in the 2028 Indenture, we will be required to make an offer to repurchase the Senior Notes 2028 at a price equal to 101% of the principal amount of the Senior Notes 2028, plus accrued and unpaid interest, if any, to the date of purchase.\nThe 2028 Indenture contains covenants that limit our and certain of our subsidiaries\u2019 ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) in the case of our non-guarantor subsidiaries, create, assume, incur or guarantee additional indebtedness of the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2028; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2028 Indenture. The 2028 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Notes 2028 to be due and payable immediately.\nSenior Notes 2028 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our senior credit facilities. Senior Notes 2028 and the guarantees rank equally in right of payment with all of our and our guarantors\u2019 existing and future senior unsubordinated debt and will rank senior in right of payment to all of our and our guarantors\u2019 future subordinated debt. Senior Notes 2028 and the guarantees will be effectively subordinated to all of our and our guarantors\u2019 existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt.\nThe foregoing description of the 2028 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2028 Indenture, which is filed as an exhibit to the Company\u2019s Current Report on Form 8-K filed with the SEC on February 18, 2020.\nFor further details relating to our debt, please see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements.\nSenior Notes 2026\nOn May 31, 2016 we issued $600 million in aggregate principal amount of 5.875% Senior Notes due 2026 (Senior Notes 2026) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2026 had interest at a rate of 5.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2016. Senior Notes 2026 would have matured on June 1, 2026.\nOn December 20, 2016, we issued an additional $250 million in aggregate principal amount by reopening our Senior Notes 2026 at an issue price of 102.75%. The additional notes had identical terms, were fungible with and were a part of a single series with the previously issued $600 million aggregate principal amount of Senior Notes 2026. The outstanding aggregate principal amount of Senior Notes 2026, after taking into consideration the additional issuance, was $850 million as of December 9, 2021.\nOn December 9, 2021, we redeemed Senior Notes 2026 in full at a price equal to 102.9375% of the principal amount plus accrued and unpaid interest to, but excluding, the redemption date. A portion of the net proceeds from the offerings of Senior Notes 2029 and Senior Notes 2031 was used to redeem Senior Notes 2026. Upon redemption, Senior Notes 2026 were cancelled, and any obligation thereunder was extinguished. The resulting loss of $27.4 million, consisting of $25.0 million \n71\nTable of Contents\nrelating to the early termination call premium, $6.2 million relating to unamortized debt issuance costs and $(3.8) million relating to unamortized premium, has been recorded as a component of Other income (expense), net in our Consolidated Statements of Income. See Note\u00a023 \u201cOther Income (Expense), Net\u201d to our Consolidated Financial Statements.\nFor further details relating to our debt, please see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements.\nSenior Secured Fixed Rate Notes\nSenior Secured Notes 2027\nOn December 1, 2022, we issued $1\u00a0billion in aggregate principal amount of Senior Secured Notes 2027 in connection with the financing of the Micro Focus Acquisition in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Secured Notes 2027 bear interest at a rate of 6.90% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2023. Senior Secured Notes 2027 will mature on December 1, 2027, unless earlier redeemed, in accordance with their terms, or repurchased.\nWe may redeem all or a portion of the Senior Secured Notes 2027 at any time prior to November 1, 2027 at a redemption price equal to the greater of (a) 100% of the principal amount of the Senior Secured Notes 2027 to be redeemed and (b) the net present value of the remaining scheduled payments of principal and interest thereon discounted to the Par Call Date less interest accrued to the date of redemption, plus accrued and unpaid interest to, but excluding, the redemption date. On or after the Par Call Date (as defined in the 2027 Indenture), the Company may redeem the Senior Secured Notes 2027, in whole or in part, at any time and from time to time, at a redemption price equal to 100% of the principal amount of the Senior Secured Notes 2027 being redeemed plus accrued and unpaid interest thereon to the redemption date.\nIf we experience one of the kinds of change of control triggering events specified in the indenture governing the Senior Secured Notes 2027 dated as of December 1, 2022, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S. trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2027 Indenture), we will be required to make an offer to repurchase the Senior Secured Notes 2027 at a price equal to 101% of the principal amount of the Senior Secured Notes 2027, plus accrued and unpaid interest, if any, to the date of purchase.\nThe 2027 Indenture contains covenants that limit our and certain of the Company\u2019s subsidiaries\u2019 ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) create, assume, incur or guarantee additional indebtedness of the Company or certain of the Company\u2019s subsidiaries without such subsidiary becoming a subsidiary guarantor of the Senior Secured Notes 2027; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of the Company\u2019s property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2027 Indenture. The 2027 Indenture also provides for certain events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Senior Secured Notes 2027 to be due and payable immediately.\nThe Senior Secured Notes 2027 are guaranteed on a senior secured basis by certain of the Company\u2019s subsidiaries and are secured with the same priority as the Company\u2019s senior credit facilities. The Senior Secured Notes 2027 and the related guarantees are effectively senior to all of the Company\u2019s and the guarantors\u2019 senior unsecured debt to the extent of the value of the Collateral (as defined in the 2027 Indenture) and are structurally subordinated to all existing and future liabilities of each of the Company\u2019s existing and future subsidiaries that do not guarantee the Senior Secured Notes 2027.\nThe foregoing description of the 2027 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2027 Indenture, which is filed as an exhibit to the Company\u2019s Current Report on Form 8-K filed with the SEC on December 1, 2022.\nFor further details relating to our debt, please see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements.\nTerm Loan B\nOn May 30, 2018, we entered into a credit facility, which provides for a $1 billion term loan facility with certain lenders named therein, Barclays Bank PLC (Barclays), as sole administrative agent and collateral agent, and as lead arranger and joint bookrunner (Term Loan B) and borrowed the full amount on May 30, 2018 to, among other things, repay in full the loans under our prior $800 million term loan credit facility originally entered into on January 16, 2014. Repayments made under Term Loan B are equal to 0.25% of the principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity.\nBorrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver, the Acquisition Term Loan and Senior Secured Notes 2027. Term Loan B has a seven-year term, maturing in \n72\nTable of Contents\nMay 2025. On June 6, 2023, we amended the Term Loan B to replace the LIBOR benchmark rate applicable to borrowings under Term Loan B with a SOFR benchmark rate.\nBorrowings under Term Loan B bear interest at a rate per annum equal to an applicable margin plus, at the borrower\u2019s option, either (1) the SOFR benchmark rate for the interest period relevant to such borrowing or (2) an alternate base rate (ABR). The applicable margin for borrowings under Term Loan B is 1.75%, with respect to SOFR advances and 0.75%, with respect to ABR advances. The interest on the current outstanding balance for Term Loan B is equal to 1.75% plus SOFR (subject to a 0.00% floor). As of June\u00a030, 2023, the outstanding balance on the Term Loan B bears an interest rate of 6.90%.\nTerm Loan B has incremental facility capacity of (i) $250 million plus (ii) additional amounts, subject to meeting a \u201cconsolidated senior secured net leverage\u201d ratio not exceeding 2.75:1.00, in each case subject to certain conditions. Consolidated senior secured net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, that is secured by our or any of our subsidiaries\u2019 assets, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges.\nUnder Term Loan B, we must maintain a \u201cconsolidated net leverage\u201d ratio of no more than 4.00:1.00 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. As of June\u00a030, 2023, our consolidated net leverage ratio, as calculated in accordance with the applicable agreement, was 3.49:1.00.\nFor further details relating to our debt, please see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements.\nRevolver\nOn October 31, 2019, we amended our committed revolving credit facility (the Revolver) to increase the total commitments under the Revolver from $450 million to $750 million as well as to extend the maturity from May 5, 2022 to October 31, 2024. Borrowings under the Revolver are secured by a first charge over substantially all of our assets, on a pari passu basis with Term Loan B, the Acquisition Term Loan and Senior Secured Notes 2027. The Revolver has no fixed repayment date prior to the end of the term. On June 6, 2023, we amended the Revolver to replace the LIBOR benchmark rate applicable to borrowings with a SOFR benchmark rate. Borrowings under the Revolver currently bear interest per annum at a floating rate of interest equal to Term SOFR plus the SOFR Adjustment (as defined in the Revolver) and a fixed margin dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%.\nUnder the Revolver, we must maintain a \u201cconsolidated net leverage\u201d ratio of no more than 4.00:1.00 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges.\nAs of June\u00a030, 2023, we had $275 million outstanding balance under the Revolver (June\u00a030, 2022\u2014nil). For the year ended June\u00a030, 2023, we recorded interest expense of $10.1 million relating to the Revolver (June\u00a030, 2022\u2014nil). In July 2023, the Company subsequently repaid $175 million drawn under the Revolver.\nFor further details relating to our debt, please see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements.\nAcquisition Term Loan\nOn December 1, 2022, we amended our first lien term loan facility (the Acquisition Term Loan), dated as of August 25, 2022, to increase the aggregate commitments under the senior secured delayed-draw term loan facility from an aggregate principal amount of $2.585 billion to an aggregate principal amount of $3.585 billion. During the third quarter of Fiscal 2023, the Company drew down $3.585 billion, net of original issuance discount of 3% and other fees, of which the net proceeds were used to fund the Micro Focus Acquisition (see Note\u00a019 \u201cAcquisitions\u201d to our Consolidated Financial Statements for more details).\nThe Acquisition Term Loan has a seven-year term from the date of funding, and repayments under the Acquisition Term Loan are equal to 0.25% of the principal amount in equal quarterly installments for the life of the Acquisition Term Loan, with the remainder due at maturity. Borrowings under the Acquisition Term Loan currently bear a floating rate of interest equal to Term SOFR plus the SOFR Adjustment (as defined in the Acquisition Term Loan) and applicable margin of 3.50%. As of June\u00a030, 2023, the outstanding balance on the Acquisition Term Loan bears an interest rate of 8.75%. As of June\u00a030, 2023, the Acquisition Term Loan bears an effective interest rate of 9.85%. The effective interest rate includes interest expense of $125.7 million and amortization of debt discount and issuance costs of $9.3 million.\nThe Acquisition Term Loan has incremental facility capacity of (i) $250 million plus (ii) additional amounts, subject to meeting a \u201cconsolidated senior secured net leverage\u201d ratio not exceeding 2.75:1.00, in each case subject to certain conditions. \n73\nTable of Contents\nConsolidated senior secured net leverage ratio is defined for this purpose as the proportion of the Company\u2019s total debt reduced by unrestricted cash, including guarantees and letters of credit, that is secured by the Company\u2019s or any of the Company\u2019s subsidiaries\u2019 assets, over the Company\u2019s trailing four financial quarter net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. Under the Acquisition Term Loan, we must maintain a \u201cconsolidated net leverage\u201d ratio of no more than 4.50:1.00 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of the Company\u2019s total debt reduced by unrestricted cash, including guarantees and letters of credit, over the Company\u2019s trailing four financial quarter net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges as defined in the Acquisition Term Loan. As of June\u00a030, 2023, our consolidated net leverage ratio, as calculated in accordance with the applicable agreement, was 3.49:1.\nThe Acquisition Term Loan is unconditionally guaranteed by certain subsidiary guarantors, as defined in the Acquisition Term Loan, and is secured by a first charge on substantially all of the assets of the Company and the subsidiary guarantors on a pari passu basis with the Revolver, Term Loan B and the Senior Secured Notes 2027.\nFor the year ended June 30, 2023, we recorded interest expense of $125.7 million, relating to the Acquisition Term Loan (year ended June 30, 2022\u2014 nil).\nThe foregoing description of the Acquisition Term Loan does not purport to be complete and is qualified in its entirety by reference to the full text of the Acquisition Term Loan, which is filed as an exhibit to the Company\u2019s Current Report on Form 8-K filed with the SEC on August 25, 2022.\nFor further details relating to our debt, please see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements.\nBridge Loan\nOn August 25, 2022, we entered into a bridge loan agreement (Bridge Loan) which provided for commitments of up to $2.0 billion to finance a portion of the repayment of Micro Focus\u2019 existing debt. On December 1, 2022, we entered into an amendment to the Bridge Loan that reallocated commitments under the Bridge Loan to the Acquisition Term Loan. In connection with the amendment to the Bridge Loan and the receipt of proceeds from the issuance of the Senior Secured Notes 2027, all remaining commitments under the Bridge Loan were reduced to zero and the Bridge Loan was terminated, which resulted in a loss on debt extinguishment of $8.2 million relating to unamortized debt issuance costs (see Note\u00a022 \u201cOther Income (Expense), Net\u201d to our Consolidated Financial Statements for more details).\nAs of June\u00a030, 2023, we had no borrowings under the Bridge Loan. For the year ended June 30, 2023, we did not record any interest expense relating to the Bridge Loan. \nThe foregoing description of the Bridge Loan does not purport to be complete and is qualified in its entirety by reference to the full text of the Bridge Loan, which is filed as an exhibit to the Company\u2019s Current Report on Form 8-K filed with the SEC on August 25, 2022.\nFor further details relating to our debt, please see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements.\nShelf Registration Statement \nOn December 6, 2021, we filed a universal shelf registration statement on Form S-3 with the SEC, which became effective automatically (the Shelf Registration Statement). The Shelf Registration Statement allows for primary and secondary offerings from time to time of equity, debt and other securities, including Common Shares, Preference Shares, debt securities, depositary shares, warrants, purchase contracts, units and subscription receipts. A short-form base shelf prospectus qualifying the distribution of such securities was concurrently filed with Canadian securities regulators on December 6, 2021. The type of securities and the specific terms thereof will be determined at the time of any offering and will be described in the applicable prospectus supplement to be filed separately with the SEC and Canadian securities regulators.\nShare Repurchase Plan / Normal Course Issuer Bid\nOn November 5, 2020, the Board authorized a share repurchase plan (the Fiscal 2021 Repurchase Plan), pursuant to which we were authorized to purchase in open market transactions, from time to time over the 12 month period commencing November 12, 2020, up to an aggregate of $350\u00a0million of our Common Shares on the NASDAQ Global Select Market, the TSX and/or other exchanges and alternative trading systems in Canada and/or the United States, if eligible, subject to applicable law and stock exchange rules. The price that we were authorized to pay for Common Shares in open market transactions was the market price at the time of purchase or such other price as was permitted by applicable law or stock exchange rules. \n74\nTable of Contents\nThe Fiscal 2021 Repurchase Plan was effected in accordance with Rule 10b-18. Purchases made under the Fiscal 2021 Repurchase Plan were subject to a limit of 13,618,774 shares (representing 5% of the Company\u2019s issued and outstanding Common Shares as of November 4, 2020). All Common Shares purchased by us pursuant to the Fiscal 2021 Repurchase Plan were cancelled.\nOn November 4, 2021, the Board authorized a share repurchase plan (the Fiscal 2022 Repurchase Plan), pursuant to which we were authorized to purchase in open market transactions, from time to time over the 12 month period commencing November 12, 2021, up to an aggregate of $350\u00a0million of our Common Shares on the NASDAQ Global Select Market, the TSX (as part of a Fiscal 2022 Normal Course Issuer Bid (NCIB)) and/or other exchanges and alternative trading systems in Canada and/or the United States, if eligible, subject to applicable law and stock exchange rules. The price that we paid for Common Shares in open market transactions was the market price at the time of purchase or such other price as was permitted by applicable law or stock exchange rules.\nThe Fiscal 2022 Repurchase Plan was effected in accordance with Rule 10b-18. All Common Shares purchased by us pursuant to the Fiscal 2022 Repurchase Plan were cancelled.\nDuring the year ended June 30, 2023, we did not repurchase and cancel any Common Shares (year ended June 30, 2022 and 2021\u2014 3,809,559 and 2,500,000 Common Shares for $177.0 million and $119.1 million, respectively). \nNormal Course Issuer Bid\nThe Company established the Fiscal 2021 NCIB in order to provide it with a means to execute purchases over the TSX as part of the overall Fiscal 2021 Repurchase Plan.\nThe TSX approved the Company\u2019s notice of intention to commence the Fiscal 2021 NCIB pursuant to which the Company was authorized to purchase Common Shares over the TSX for the period commencing November 12, 2020 until November 11, 2021 in accordance with the TSX\u2019s normal course issuer bid rules, including that such purchases were to be made at prevailing market prices or as otherwise permitted. Under the rules of the TSX, the maximum number of Common Shares that could be purchased in this period was 13,618,774 (representing 5% of the Company\u2019s issued and outstanding Common Shares as of November 4, 2020), and the maximum number of Common Shares that could be purchased on a single day was 143,424 Common Shares, which was 25% of 573,699 (the average daily trading volume for the Common Shares on the TSX for the six months ended October 31, 2020), subject to certain exceptions for block purchases, subject in any case to the volume and other limitations under Rule 10b-18.\nThe Company renewed the NCIB in Fiscal 2022 in order to provide it with a means to execute purchases over the TSX as part of the overall Fiscal 2022 Repurchase Plan.\nThe TSX approved the Company\u2019s notice of intention to commence the Fiscal 2022 NCIB pursuant to which the Company was authorized to purchase Common Shares over the TSX for the period commencing November 12, 2021 until November 11, 2022 in accordance with the TSX\u2019s normal course issuer bid rules, including that such purchases were to be made at prevailing market prices or as otherwise permitted. Under the rules of the TSX, the maximum number of Common Shares that could be purchased in this period was 13,638,008 (representing 5% of the Company\u2019s issued and outstanding Common Shares as of October 31, 2021), and the maximum number of Common Shares that could be purchased on a single day was 112,590 Common Shares, which is 25% of 450,361 (the average daily trading volume for the Common Shares on the TSX for the six months ended October 31, 2021), subject to certain exceptions for block purchases, subject in any case to the volume and other limitations under Rule 10b-18.\n75\nTable of Contents\nPensions\nAs of June\u00a030, 2023, our total unfunded pension plan obligations were $130.82 million, of which $4.50 million is payable within the next twelve months. We expect to be able to make the long-term and short-term payments related to these obligations in the normal course of operations. \nAnticipated pension payments under our defined benefit plans for the fiscal years indicated below are as follows:\nFiscal\u00a0years\u00a0ending June\u00a030,\n2024\n$\n13,115\u00a0\n2025\n13,221\u00a0\n2026\n14,258\u00a0\n2027\n16,146\u00a0\n2028\n17,745\u00a0\n2029 to 2033\n102,196\u00a0\nTotal\n$\n176,681\u00a0\nFor a detailed discussion on pensions, see Note\u00a012 \u201cPension Plans and Other Post Retirement Benefits\u201d to our Consolidated Financial Statements.\nCommitments and Contractual Obligations \nAs of June\u00a030, 2023, we have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows: \n\u00a0\nPayments due between\n\u00a0\nTotal\nJuly 1, 2023 - June 30, 2024\nJuly 1, 2024 - June 30, 2026\nJuly 1, 2026 - June 30, 2028\nJuly 1, 2028 and beyond\nLong-term debt obligations \n(1)\n$\n12,424,286\u00a0\n$\n648,414\u00a0\n$\n2,373,260\u00a0\n$\n2,948,038\u00a0\n$\n6,454,574\u00a0\nOperating lease obligations \n(2)\n411,394\u00a0\n105,685\u00a0\n144,062\u00a0\n90,267\u00a0\n71,380\u00a0\nFinance lease obligations \n(3)\n11,482\u00a0\n5,712\u00a0\n5,311\u00a0\n459\u00a0\n\u2014\u00a0\nPurchase obligations for contracts not accounted for as lease obligations \n176,440\u00a0\n52,588\u00a0\n108,346\u00a0\n15,506\u00a0\n\u2014\u00a0\n$\n13,023,602\u00a0\n$\n812,399\u00a0\n$\n2,630,979\u00a0\n$\n3,054,270\u00a0\n$\n6,525,954\u00a0\n________________________________________\n(1)\nIncludes interest up to maturity and principal payments. Please see Note\u00a011 \u201cLong-Term Debt\u201d to our Consolidated Financial Statements for more details.\n(2)\nRepresents the undiscounted future minimum lease payments under our operating leases liabilities and excludes sublease income expected to be received under our various sublease agreements with third parties. Please see Note\u00a06 \u201cLeases\u201d to our Consolidated Financial Statements for more details.\n(3)\nRepresents the undiscounted future minimum lease payments under our financing leases liabilities and excludes sublease income expected to be received under our various sublease agreements with third parties. Please see Note\u00a06 \u201cLeases\u201d to our Consolidated Financial Statements for more details.\nGuarantees and Indemnifications\nWe have entered into customer agreements which may include provisions to indemnify our customers against third party claims that our software products or services infringe certain third-party intellectual property rights and for liabilities related to a breach of our confidentiality obligations. We have not made any material payments in relation to such indemnification provisions and have not accrued any liabilities related to these indemnification provisions in our Consolidated Financial Statements. \nOccasionally, we enter into financial guarantees with third parties in the ordinary course of our business, including, among others, guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business. Such agreements have not had a material effect on our results of operations, financial position or cash flows. \n76\nTable of Contents\nLitigation\nWe are currently involved in various claims and legal proceedings.\nQuarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 \u201cLoss Contingencies\u201d (Topic 450-20). Specifically, this evaluation process includes the centralized tracking and itemization of the status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each matter in light of its merits and our experience with similar proceedings under similar circumstances.\nIf the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20. As of the date of this Annual Report on Form 10-K, the aggregate of such accrued liabilities was not material to our consolidated financial position or results of operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations. As described more fully below, we are unable at this time to estimate a possible loss or range of losses in respect of certain disclosed matters.\nContingencies\nCRA Matter\nAs part of its ongoing audit of our Canadian tax returns, the CRA has disputed our transfer pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016. Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of June\u00a030, 2023, in connection with the CRA\u2019s reassessments for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016, to be limited to penalties, interest and provincial taxes that may be due of approximately $76 million. As of June\u00a030, 2023, we have provisionally paid approximately $33\u00a0million in order to fully preserve our rights to object to the CRA\u2019s audit positions, being the minimum payment required under Canadian legislation while the matter is in dispute. This amount is recorded within \u201cLong-term income taxes recoverable\u201d on the Consolidated Balance Sheets as of June\u00a030, 2023.\nThe notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 would, as drafted, increase our taxable income by approximately $90 million to $100 million for each of those years, as well as impose a 10% penalty on the proposed adjustment to income. Audits by the CRA of our tax returns for fiscal years prior to Fiscal 2012 have been completed with no reassessment of our income tax liability.\nWe strongly disagree with the CRA\u2019s positions and believe the reassessments of Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 (including any penalties) are without merit, and we are continuing to contest these reassessments. On June 30, 2022, we filed a notice of appeal with the Tax Court of Canada seeking to reverse all such reassessments (including penalties) in full and the customary court process is ongoing.\nEven if we are unsuccessful in challenging the CRA\u2019s reassessments to increase our taxable income for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016, we have elective deductions available for those years (including carry-backs from later years) that would offset such increased amounts so that no additional cash tax would be payable, exclusive of any assessed penalties and interest, as described above.\nThe CRA has audited Fiscal 2017 and Fiscal 2018 on a basis that we strongly disagree with and are contesting. The focus of the CRA audit has been the valuation of certain intellectual property and goodwill when one of our subsidiaries continued into Canada from Luxembourg in July 2016. In accordance with applicable rules, these assets were recognized for tax purposes at fair market value as of that time, which value was supported by an expert valuation prepared by an independent leading accounting and advisory firm. CRA\u2019s position for Fiscal 2017 and Fiscal 2018 relies in significant part on the application of its positions regarding our transfer pricing methodology that are the basis for its reassessment of our fiscal years 2012 to 2016 described above, and that we believe are without merit. Other aspects of CRA\u2019s position for Fiscal 2017 and Fiscal 2018 conflict with the expert valuation prepared by the independent leading accounting and advisory firm that was used to support our original filing position. The CRA issued notices of reassessment in respect of Fiscal 2017 and Fiscal 2018 on a basis consistent with its proposal to reduce the available depreciable basis of these assets in Canada. On April 19, 2022, we filed our notice of objection regarding the reassessment in respect of Fiscal 2017 and on March 15, 2023, we filed our notice of objection regarding the reassessment in respect of Fiscal 2018. If we are ultimately unsuccessful in defending our position, the estimated impact of the proposed adjustment could result in us recording an income tax expense, with no immediate cash payment, to reduce the stated value of our deferred tax assets of up to approximately $470\u00a0million. Any such income tax expense could also have a corresponding cash tax impact that would primarily occur over a period of several future years based upon annual \n77\nTable of Contents\nincome realization in Canada. We strongly disagree with the CRA\u2019s position for Fiscal 2017 and Fiscal 2018 and intend to vigorously defend our original filing position. We are not required to provisionally pay any cash amounts to the CRA as a result of the reassessment in respect of Fiscal 2017 and Fiscal 2018 due to the utilization of available tax attributes; however, to the extent the CRA reassesses subsequent fiscal years on a similar basis, we expect to make certain minimum payments required under Canadian legislation, which may need to be provisionally made starting in Fiscal 2024 while the matter is in dispute. \nWe will continue to vigorously contest the adjustments to our taxable income and any penalty and interest assessments, as well as any reduction to the basis of our depreciable property. We are confident that our original tax filing positions were appropriate. Accordingly, as of the date of this Annual Report on Form 10-K, we have not recorded any accruals in respect of these reassessments or proposed reassessment in our Consolidated Financial Statements. The CRA is auditing Fiscal 2019, and may reassess Fiscal 2019 on a similar basis as Fiscal 2017 and Fiscal 2018. The CRA is also in preliminary stages of auditing Fiscal 2020.\nCarbonite Class Action Complaint\nOn August 1, 2019, prior to our acquisition of Carbonite, a purported stockholder of Carbonite filed a putative class action complaint against Carbonite, its former Chief Executive Officer, Mohamad S. Ali, and its former Chief Financial Officer, Anthony Folger, in the United States District Court for the District of Massachusetts captioned Ruben A. Luna, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19-cv-11662-LTS) (the Luna Complaint). The complaint alleges violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint generally alleges that the defendants made materially false and misleading statements in connection with Carbonite\u2019s Server Backup VM Edition, and seeks, among other things, the designation of the action as a class action, an award of unspecified compensatory damages, costs and expenses, including counsel fees and expert fees, and other relief as the court deems appropriate. On August 23, 2019, a nearly identical complaint was filed in the same court captioned William Feng, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19- cv-11808-LTS) (together with the Luna Complaint, the Securities Actions). On November 21, 2019, the district court consolidated the Securities Actions, appointed a lead plaintiff, and designated a lead counsel. On January 15, 2020, the lead plaintiff filed a consolidated amended complaint generally making the same allegations and seeking the same relief as the complaint filed on August 1, 2019. The defendants moved to dismiss the Securities Actions on March 10, 2020. On October 22, 2020, the district court granted with prejudice the defendants\u2019 motion to dismiss the Securities Actions. On November 20, 2020, the lead plaintiff filed a notice of appeal to the United States Court of Appeals for the First Circuit. On December 21, 2021, the United States Court of Appeals for the First Circuit issued a decision reversing and remanding the Securities Actions to the district court for further proceedings. The parties have completed discovery and defendants have filed a motion for summary judgment. The defendants remain confident in their position, believe the Securities Actions are without merit, and will continue to vigorously defend the matter.\nCarbonite vs Realtime Data\nOn February 27, 2017, before our acquisition of Carbonite, a non-practicing entity named Realtime Data LLC (Realtime Data) filed a lawsuit against Carbonite in the U.S. District Court for the Eastern District of Texas captioned Realtime Data LLC v. Carbonite, Inc. et al (No 6:17-cv-00121-RWS-JDL). Therein, it alleged that certain of Carbonite\u2019s cloud storage services infringe upon certain patents held by Realtime Data. Realtime Data\u2019s complaint against Carbonite sought damages in an unspecified amount and injunctive relief. On December 19, 2017, the U.S. District Court for the Eastern District of Texas transferred the case to the U.S. District Court for the District of Massachusetts (No. 1:17-cv-12499). Realtime Data has also filed numerous other patent suits on the same asserted patents against other companies. After a stay pending appeal in one of those suits, on January 21, 2021, the district court held a hearing to construe the claims of the asserted patents. As to the fourth patent asserted against Carbonite, on September 24, 2019, the U.S. Patent & Trademark Office Patent Trial and Appeal Board invalidated certain claims of that patent, including certain claims that had been asserted against Carbonite. The parties then jointly stipulated to dismiss that patent from this action. On August 23, 2021, in one of the suits against other companies, the District of Delaware (No. 1:17-cv-800), held all of the patents asserted against Carbonite to be invalid. Realtime Data has appealed that decision to the U.S. Court of Appeals for the Federal Circuit. We continue to vigorously defend the matter, and the U.S. District Court for the District of Massachusetts has issued a claim construction order. We have not accrued a loss contingency related to this matter because litigation related to a non-practicing entity is inherently unpredictable. Although a loss is reasonably possible, an unfavorable outcome is not considered by management to be probable at this time and we remain unable to reasonably estimate a possible loss or range of loss associated with this litigation.\nOther Matters\nPlease also see Part I, Item 1A, \u201cRisk Factors\u201d in this Annual Report on Form 10-K for Fiscal 2023, as well as Note\u00a015 \u201cIncome Taxes\u201d to the Consolidated Financial Statements included in this Annual Report on Form 10-K related to certain historical matters arising prior to the Micro Focus Acquisition.\n78\nTable of Contents\nOff-Balance Sheet Arrangements \nWe do not enter into off-balance sheet financing as a matter of practice, except for guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business.\n79\nTable of Contents\nUse of Non-GAAP Financial Measures\nIn addition to reporting financial results in accordance with U.S.\u00a0GAAP, the Company provides certain financial measures that are not in accordance with U.S. GAAP (Non-GAAP). These Non-GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the Company\u2019s definition may be different from similar Non-GAAP financial measures used by other companies and/or analysts and may differ from period to period. Thus, it may be more difficult to compare the Company\u2019s financial performance to that of other companies. However, the Company\u2019s management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of these Non-GAAP financial measures both in its reconciliation to the U.S.\u00a0GAAP financial measures and its Consolidated Financial Statements, all of which should be considered when evaluating the Company\u2019s results. \nThe Company uses these Non-GAAP financial measures to supplement the information provided in its Consolidated Financial Statements, which are presented in accordance with U.S. GAAP. The presentation of Non-GAAP financial measures is not meant to be a substitute for financial measures presented in accordance with U.S.\u00a0GAAP, but rather should be evaluated in conjunction with and as a supplement to such U.S.\u00a0GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the U.S.\u00a0GAAP measures with certain Non-GAAP measures defined below.\nNon-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, are consistently calculated as GAAP-based net income or earnings (loss) per share, attributable to OpenText, on a diluted basis, excluding the effects of the amortization of acquired intangible assets, other income (expense), share-based compensation, and special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to current period income, as further described in the tables below. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets and share-based compensation within cost of sales. Non-GAAP-based gross margin is calculated as Non-GAAP-based gross profit expressed as a percentage of total revenue. Non-GAAP-based income from operations is calculated as GAAP-based income from operations, excluding the amortization of acquired intangible assets, special charges (recoveries), and share-based compensation expense. \nAdjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently calculated as GAAP-based net income, attributable to OpenText, excluding interest income (expense), provision for (recovery of) income taxes, depreciation and amortization of acquired intangible assets, other income (expense), share-based compensation and special charges (recoveries).\nThe Company\u2019s management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term \u201cnon-operational charge\u201d is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company\u2019s management. These items are excluded based upon the way the Company\u2019s management evaluates the performance of the Company\u2019s business for use in the Company\u2019s internal reports and are not excluded in the sense that they may be used under U.S. GAAP. \nThe Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of Non-GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company\u2019s operating results and underlying operational trends. Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions and most recently in response to our return to office planning, that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company\u2019s \u201cSpecial charges (recoveries)\u201d caption on the Consolidated Statements of Income. Each restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will also better aid readers of financial statements in the understanding and comparability of the Company\u2019s operating results and underlying operational trends. \nIn summary, the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company\u2019s core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText\u2019s performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S.\u00a0GAAP measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results.\nThe following charts provide unaudited reconciliations of U.S.\u00a0GAAP-based financial measures to Non-GAAP-based financial measures for the following periods presented. The Micro Focus Acquisition significantly impacts period-over-period comparability.\n80\nTable of Contents\nReconciliation of selected GAAP-based measures to Non-GAAP-based measures \nfor the year ended June 30, 2023 \n(In thousands, except for per share data)\nYear Ended June 30, 2023\nGAAP-based Measures\nGAAP-based Measures \n% of Total Revenue\nAdjustments\nNote\nNon-GAAP-based Measures\nNon-GAAP-based Measures\n% of Total Revenue\nCost of revenues\nCloud services and subscriptions\n$\n590,165\u00a0\n$\n(10,664)\n(1)\n$\n579,501\u00a0\nCustomer support\n209,705\u00a0\n(3,627)\n(1)\n206,078\u00a0\nProfessional service and other\n276,888\u00a0\n(6,998)\n(1)\n269,890\u00a0\nAmortization of acquired technology-based intangible assets\n223,184\u00a0\n(223,184)\n(2)\n\u2014\u00a0\nGAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)\n3,168,393\u00a0\n70.6%\n244,473\u00a0\n(3)\n3,412,866\u00a0\n76.1%\nOperating expenses\nResearch and development\n680,587\u00a0\n(39,065)\n(1)\n641,522\u00a0\nSales and marketing\n948,598\u00a0\n(41,710)\n(1)\n906,888\u00a0\nGeneral and administrative\n419,590\u00a0\n(28,238)\n(1)\n391,352\u00a0\nAmortization of acquired customer-based intangible assets\n326,406\u00a0\n(326,406)\n(2)\n\u2014\u00a0\nSpecial charges (recoveries)\n169,159\u00a0\n(169,159)\n(4)\n\u2014\u00a0\nGAAP-based income from operations / Non-GAAP-based income from operations\n516,292\u00a0\n849,051\u00a0\n(5)\n1,365,343\u00a0\nOther income (expense), net\n34,469\u00a0\n(34,469)\n(6)\n\u2014\u00a0\nProvision for income taxes\n70,767\u00a0\n74,261\u00a0\n(7)\n145,028\u00a0\nGAAP-based net income / Non-GAAP-based net income, attributable to OpenText\n150,379\u00a0\n740,321\u00a0\n(8)\n890,700\u00a0\nGAAP-based EPS / Non-GAAP-based EPS-diluted, attributable to OpenText\n$\n0.56\u00a0\n$\n2.73\u00a0\n(8)\n$\n3.29\u00a0\n__________________________\n(1)\nAdjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.\n(2)\nAdjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.\n(3)\nGAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.\n(4)\nAdjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note\u00a018 \u201cSpecial Charges (Recoveries)\u201d to our Consolidated Financial Statements for more details.\n(5)\nGAAP-based and Non-GAAP-based income from operations stated in dollars.\n(6)\nAdjustment relates to the exclusion of other income (expense) from our Non-GAAP-based operating expenses as other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. Other income (expense) also includes unrealized and realized gains (losses) on our derivatives which are not designated as hedges. We exclude gains and losses on these derivatives as we do not believe they are reflective of our ongoing business and operating results.\n(7)\nAdjustment relates to differences between the GAAP-based tax provision rate of approximately 32% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and \u201cbook to return\u201d adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.\n81\nTable of Contents\n(8)\nReconciliation of GAAP-based net income to Non-GAAP-based net income:\nYear Ended June 30, 2023\nPer share diluted\nGAAP-based net income, attributable to OpenText\n$\n150,379\u00a0\n$\n0.56\u00a0\nAdd:\nAmortization\n549,590\u00a0\n2.03\u00a0\nShare-based compensation\n130,302\u00a0\n0.48\u00a0\nSpecial charges (recoveries)\n169,159\u00a0\n0.63\u00a0\nOther (income) expense, net\n(34,469)\n(0.13)\nGAAP-based provision for income taxes\n70,767\u00a0\n0.26\u00a0\nNon-GAAP-based recovery of income taxes\n(145,028)\n(0.54)\nNon-GAAP-based net income, attributable to OpenText\n$\n890,700\u00a0\n$\n3.29\u00a0\nReconciliation of Adjusted EBITDA\nYear Ended June 30, 2023\nGAAP-based net income, attributable to OpenText\n$\n150,379\u00a0\nAdd:\nProvision for income taxes\n70,767\u00a0\nInterest and other related expense, net\n329,428\u00a0\nAmortization of acquired technology-based intangible assets\n223,184\u00a0\nAmortization of acquired customer-based intangible assets\n326,406\u00a0\nDepreciation\n107,761\u00a0\nShare-based compensation\n130,302\u00a0\nSpecial charges (recoveries)\n169,159\u00a0\nOther (income) expense, net\n(34,469)\nAdjusted EBITDA\n$\n1,472,917\u00a0\n82\nTable of Contents\nReconciliation of selected GAAP-based measures to Non-GAAP-based measures \nfor the year ended June 30, 2022 \n(In thousands, except for per share data)\nYear Ended June 30, 2022\nGAAP-based Measures\nGAAP-based Measures \n% of Total Revenue\nAdjustments\nNote\nNon-GAAP-based Measures\nNon-GAAP-based Measures\n% of Total Revenue\nCost of revenues\nCloud services and subscriptions\n$\n511,713\u00a0\n$\n(5,285)\n(1)\n$\n506,428\u00a0\nCustomer support\n121,485\u00a0\n(2,399)\n(1)\n119,086\u00a0\nProfessional service and other\n216,895\u00a0\n(3,740)\n(1)\n213,155\u00a0\nAmortization of acquired technology-based intangible assets\n198,607\u00a0\n(198,607)\n(2)\n\u2014\u00a0\nGAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)\n2,431,643\u00a0\n69.6%\n210,031\u00a0\n(3)\n2,641,674\u00a0\n75.6%\nOperating expenses\nResearch and development\n440,448\u00a0\n(17,122)\n(1)\n423,326\u00a0\nSales and marketing\n677,118\u00a0\n(22,628)\n(1)\n654,490\u00a0\nGeneral and administrative\n317,085\u00a0\n(18,382)\n(1)\n298,703\u00a0\nAmortization of acquired customer-based intangible assets\n217,105\u00a0\n(217,105)\n(2)\n\u2014\u00a0\nSpecial charges (recoveries)\n46,873\u00a0\n(46,873)\n(4)\n\u2014\u00a0\nGAAP-based income from operations / Non-GAAP-based income from operations\n644,773\u00a0\n532,141\u00a0\n(5)\n1,176,914\u00a0\nOther income (expense), net\n29,118\u00a0\n(29,118)\n(6)\n\u2014\u00a0\nProvision for income taxes\n118,752\u00a0\n23,913\u00a0\n(7)\n142,665\u00a0\nGAAP-based net income / Non-GAAP-based net income, attributable to OpenText\n397,090\u00a0\n479,110\u00a0\n(8)\n876,200\u00a0\nGAAP-based EPS / Non-GAAP-based EPS-diluted, attributable to OpenText\n$\n1.46\u00a0\n$\n1.76\u00a0\n(8)\n$\n3.22\u00a0\n__________________________\n(1)\nAdjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.\n(2)\nAdjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.\n(3)\nGAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.\n(4)\nAdjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note\u00a018 \u201cSpecial Charges (Recoveries)\u201d to our Consolidated Financial Statements for more details.\n(5)\nGAAP-based and Non-GAAP-based income from operations stated in dollars.\n(6)\nAdjustment relates to the exclusion of other income (expense) from our Non-GAAP-based operating expenses as other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. \n(7)\nAdjustment relates to differences between the GAAP-based tax provision rate of approximately 23% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and \u201cbook to return\u201d adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.\n83\nTable of Contents\n(8)\nReconciliation of GAAP-based net income to Non-GAAP-based net income:\nYear Ended June 30, 2022\nPer share diluted\nGAAP-based net income, attributable to OpenText\n$\n397,090\u00a0\n$\n1.46\u00a0\nAdd:\nAmortization\n415,712\u00a0\n1.52\u00a0\nShare-based compensation\n69,556\u00a0\n0.26\u00a0\nSpecial charges (recoveries)\n46,873\u00a0\n0.17\u00a0\nOther (income) expense, net\n(29,118)\n(0.11)\nGAAP-based provision for income taxes\n118,752\u00a0\n0.44\u00a0\nNon-GAAP-based recovery of income taxes\n(142,665)\n(0.52)\nNon-GAAP-based net income, attributable to OpenText\n$\n876,200\u00a0\n$\n3.22\u00a0\nReconciliation of Adjusted EBITDA\nYear Ended June 30, 2022\nGAAP-based net income, attributable to OpenText\n$\n397,090\u00a0\nAdd:\nProvision for income taxes\n118,752\u00a0\nInterest and other related expense, net\n157,880\u00a0\nAmortization of acquired technology-based intangible assets\n198,607\u00a0\nAmortization of acquired customer-based intangible assets\n217,105\u00a0\nDepreciation\n88,241\u00a0\nShare-based compensation\n69,556\u00a0\nSpecial charges (recoveries)\n46,873\u00a0\nOther (income) expense, net\n(29,118)\nAdjusted EBITDA\n$\n1,264,986\u00a0\n84\nTable of Contents\nReconciliation of selected GAAP-based measures to Non-GAAP-based measures \nfor the year ended June\u00a030, 2021 \n(In thousands, except for per share data)\nYear Ended June\u00a030, 2021\nGAAP-based Measures\nGAAP-based Measures \n% of Total Revenue\nAdjustments\nNote\nNon-GAAP-based Measures\nNon-GAAP-based Measures\n% of Total Revenue\nCost of revenues\nCloud services and subscriptions\n$\n481,818\u00a0\n$\n(3,419)\n(1)\n$\n478,399\u00a0\nCustomer support\n122,753\u00a0\n(1,910)\n(1)\n120,843\u00a0\nProfessional service and other\n197,183\u00a0\n(2,565)\n(1)\n194,618\u00a0\nAmortization of acquired technology-based intangible assets\n218,796\u00a0\n(218,796)\n(2)\n\u2014\u00a0\nGAAP-based gross profit and gross margin (%) /\nNon-GAAP-based gross profit and gross margin (%)\n2,351,649\u00a0\n69.4%\n226,690\u00a0\n(3)\n2,578,339\u00a0\n76.1%\nOperating expenses\nResearch and development\n421,447\u00a0\n(9,859)\n(1)\n411,588\u00a0\nSales and marketing\n622,221\u00a0\n(18,312)\n(1)\n603,909\u00a0\nGeneral and administrative\n263,521\u00a0\n(15,904)\n(1)\n247,617\u00a0\nAmortization of acquired customer-based intangible assets\n216,544\u00a0\n(216,544)\n(2)\n\u2014\u00a0\nSpecial charges (recoveries)\n1,748\u00a0\n(1,748)\n(4)\n\u2014\u00a0\nGAAP-based income from operations / Non-GAAP-based income from operations\n740,903\u00a0\n489,057\u00a0\n(5)\n1,229,960\u00a0\nOther income (expense), net\n61,434\u00a0\n(61,434)\n(6)\n\u2014\u00a0\nProvision for income taxes\n339,906\u00a0\n(188,931)\n(7)\n150,975\u00a0\nGAAP-based net income / Non-GAAP-based net income, attributable to OpenText\n310,672\u00a0\n616,554\u00a0\n(8)\n927,226\u00a0\nGAAP-based EPS/ Non-GAAP-based EPS-diluted, attributable to OpenText\n$\n1.14\u00a0\n$\n2.25\u00a0\n(8)\n$\n3.39\u00a0\n__________________________\n(1)\nAdjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.\n(2)\nAdjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.\n(3)\nGAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.\n(4)\nAdjustment relates to the exclusion of special charges (recoveries) from our Non-GAAP-based operating expenses as special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results. See Note\u00a018 \u201cSpecial Charges (Recoveries)\u201d to our Consolidated Financial Statements for more details.\n(5)\nGAAP-based and Non-GAAP-based income from operations stated in dollars.\n(6)\nAdjustment relates to the exclusion of other income (expense) from our Non-GAAP-based operating expenses as other income (expense) generally relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results. \n(7)\nAdjustment relates to differences between the GAAP-based tax provision rate of approximately 52% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based net income. Such excluded items include amortization, share-based compensation, special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and \u201cbook to return\u201d adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. The GAAP-based tax provision rate for the year ended June\u00a030, 2021 includes an income tax provision charge from IRS settlements partially offset by a tax benefit from the release of unrecognized tax benefits due to the conclusion of relevant tax audits that was recognized during the second quarter of Fiscal 2021.\n85\nTable of Contents\n(8)\nReconciliation of GAAP-based net income to Non-GAAP-based net income:\nYear Ended June 30, 2021\nPer share diluted\nGAAP-based net income, attributable to OpenText\n$\n310,672\u00a0\n$\n1.14\u00a0\nAdd:\nAmortization\n435,340\u00a0\n1.59\u00a0\nShare-based compensation\n51,969\u00a0\n0.19\u00a0\nSpecial charges (recoveries)\n1,748\u00a0\n0.01\u00a0\nOther (income) expense, net\n(61,434)\n(0.22)\nGAAP-based provision for income taxes\n339,906\u00a0\n1.23\u00a0\nNon-GAAP-based recovery of income taxes\n(150,975)\n(0.55)\nNon-GAAP-based net income, attributable to OpenText\n$\n927,226\u00a0\n$\n3.39\u00a0\nReconciliation of Adjusted EBITDA\nYear Ended June 30, 2021\nGAAP-based net income, attributable to OpenText\n$\n310,672\u00a0\nAdd:\nProvision for income taxes\n339,906\u00a0\nInterest and other related expense, net\n151,567\u00a0\nAmortization of acquired technology-based intangible assets\n218,796\u00a0\nAmortization of acquired customer-based intangible assets\n216,544\u00a0\nDepreciation\n85,265\u00a0\nShare-based compensation\n51,969\u00a0\nSpecial charges (recoveries)\n1,748\u00a0\nOther (income) expense, net\n(61,434)\nAdjusted EBITDA\n$\n1,315,033\u00a0",
+  "item7a": ">Item\u00a07A.  Quantitative and Qualitative Disclosures About Market Risk\nWe are primarily exposed to market risks associated with fluctuations in interest rates on our term loans, revolving loans and foreign currency exchange rates.\nInterest rate risk\nOur exposure to interest rate fluctuations relates primarily to our Term Loan B, Revolver and Acquisition Term Loan. \nAs of June\u00a030, 2023, we had an outstanding balance of $947.5 million on the Term Loan B. Borrowings under the Term Loan B currently bear a floating rate of interest equal to Term SOFR plus the SOFR Adjustment (as defined in the Term Loan B) and applicable margin of 1.75%. As of June\u00a030, 2023, an adverse change of 100 basis points on the interest rate would have the effect of increasing our annual interest payment on Term Loan B by approximately $9.5 million, assuming that the loan balance as of June\u00a030, 2023 is outstanding for the entire period (June\u00a030, 2022\u2014$9.6 million).\nAs of June\u00a030, 2023, we had an outstanding balance of $275 million under the Revolver. Borrowings under the Revolver currently bear interest per annum at a floating rate of interest equal to Term SOFR plus the SOFR Adjustment (as defined in the Revolver) and a fixed margin dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%. As of June\u00a030, 2023, an adverse change of 100 basis points on the interest rate would have the effect of increasing our annual interest payment on the Revolver by approximately $2.8 million, assuming the loan balance as of June\u00a030, 2023 is outstanding for the entire period (June\u00a030, 2022\u2014nil).\n86\nTable of Contents\nAs of June\u00a030, 2023, we had an outstanding balance of $3.6 billion under the Acquisition Term Loan. Borrowings under the Acquisition Term Loan currently bear a floating rate of interest equal to Term SOFR plus the SOFR Adjustment (as defined in the Acquisition Term Loan) and applicable margin of 3.50%. As of June\u00a030, 2023, an adverse change of 100 basis points on the interest rate would have the effect of increasing our annual interest payment on the Acquisition Term Loan by approximately $35.7 million, assuming that the loan balance as of June\u00a030, 2023 is outstanding for the entire period (June\u00a030, 2022\u2014nil).\nForeign currency risk\nForeign currency transaction risk\nWe transact business in various foreign currencies. Our foreign currency exposures typically arise from intercompany fees, intercompany loans and other intercompany transactions that are expected to be cash settled in the near term and are transacted in non-functional currency. We expect that we will continue to realize gains or losses with respect to our foreign currency exposures. Our ultimate realized gain or loss with respect to foreign currency exposures will generally depend on the size and type of cross-currency transactions that we enter into, the currency exchange rates associated with these exposures and changes in those rates. We have hedged certain of our Canadian dollar foreign currency exposures relating to our payroll expenses in Canada.\nBased on the CAD foreign exchange forward contracts outstanding as of June\u00a030, 2023, a one cent change in the Canadian dollar to U.S. dollar exchange rate would have caused a change of $0.7 million in the mark-to-market valuation on our existing foreign exchange forward contracts (June\u00a030, 2022\u2014$0.5 million).\nAdditionally, in connection with the Micro Focus Acquisition, in August 2022, we entered into certain derivative transactions to meet certain foreign currency obligations related to the purchase price of the Micro Focus Acquisition, mitigate the risk of foreign currency appreciation in the GBP denominated purchase price and mitigate the risk of foreign currency appreciation in the EUR denominated existing debt held by Micro Focus. We entered into the following derivatives: (i) three deal-contingent forward contracts, (ii) a non-contingent forward contract, and (iii) EUR/USD cross currency swaps. In connection with the closing of the Micro Focus Acquisition the deal-contingent forward and non-deal contingent forward contracts were settled and we designated the 7-year EUR/USD cross currency swaps as net investment hedges.\nBased on the 5-year EUR/USD cross currency swaps outstanding as of June\u00a030, 2023, a one cent change in the Euro to U.S. dollar forward exchange rate would have caused a change of $7.3 million in the mark-to-market valuation on our existing cross currency swap (June\u00a030, 2022\u2014nil).\nBased on the 7-year EUR/USD cross currency swaps outstanding as of June\u00a030, 2023, a one cent change in the Euro to U.S. dollar forward exchange rate would have caused a change of $7.8 million in the mark-to-market valuation on our existing cross currency swaps (June\u00a030, 2022\u2014nil).\nForeign currency translation risk\nOur reporting currency is the U.S. dollar. Fluctuations in foreign currencies impact the amount of total assets and liabilities that we report for our foreign subsidiaries upon the translation of these amounts into U.S. dollars. In particular, the amount of cash and cash equivalents that we report in U.S. dollars for a significant portion of the cash held by these subsidiaries is subject to translation variance caused by changes in foreign currency exchange rates as of the end of each respective reporting period (the offset to which is recorded to accumulated other comprehensive income (loss) on our Consolidated Balance Sheets). \nThe following table shows our cash and cash equivalents denominated in certain major foreign currencies as of June\u00a030, 2023 (equivalent in U.S. dollar):\n(In thousands)\nU.S.\u00a0Dollar\n\u00a0Equivalent\u00a0at \nJune\u00a030, 2023\nU.S.\u00a0Dollar\n\u00a0Equivalent\u00a0at \nJune\u00a030, 2022\nEuro\n$\n200,282\u00a0\n$\n254,546\u00a0\nBritish Pound\n69,108\u00a0\n44,020\u00a0\nIndian Rupee\n57,199\u00a0\n38,247\u00a0\nSwiss Franc\n53,122\u00a0\n48,674\u00a0\nOther foreign currencies\n218,663\u00a0\n103,453\u00a0\nTotal cash and cash equivalents denominated in foreign currencies\n598,374\u00a0\n488,940\u00a0\nU.S. Dollar\n633,251\u00a0\n1,204,801\u00a0\nTotal cash and cash equivalents \n$\n1,231,625\u00a0\n$\n1,693,741\u00a0\nIf overall foreign currency exchange rates in comparison to the U.S. dollar uniformly weakened by 10%, the amount of \n87\nTable of Contents\ncash and cash equivalents we would report in equivalent U.S. dollars would decrease by $59.8 million (June\u00a030, 2022\u2014$48.9 million), assuming we have not entered into any derivatives discussed above under \u201cForeign Currency Transaction Risk.\u201d",
+  "cik": "1002638",
+  "cusip6": "683715",
+  "cusip": ["683715957", "683715906", "683715106"],
+  "names": ["OPEN TEXT CORP", "Open Text Corporation"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1002638/000100263823000022/0001002638-23-000022-index.htm"
+}
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+{
+  "item1": ">Item 1. \nBusiness. \nOverview \nFounded in 1904, Coty Inc. is one of the world\u2019s largest beauty companies with an iconic portfolio of brands across fragrance, color cosmetics, and skin and body care. \nOver the past few years we have been implementing a comprehensive transformation agenda (the \u201cTransformation Plan\u201d), focusing on our core go-to-market competencies, simplifying our capital structure and deleveraging our balance sheet. \nAs we transform the Company, we continue to make progress on our strategic priorities, including stabilizing and growing our consumer beauty brands through leading innovation and improved execution, accelerating our prestige fragrance brands and ongoing expansion into prestige cosmetics, building a comprehensive skincare portfolio leveraging existing brands, enhancing our e-commerce and direct-to-consumer (\u201cDTC\u201d) capabilities, expanding our presence in China and travel retail through prestige products and select consumer beauty brands, and establishing Coty as an industry leader in sustainability.\nIn fiscal 2021, we completed the sale of a majority stake in Coty\u2019s Professional and Retail Hair business, including the Wella, Clairol, OPI and ghd brands, (together, the \u201cWella Business\u201d). As of June 30, 2023, Coty owned a 25.9% stake in\nRainbow JVCO LTD and subsidiaries (together, \u201cWella\u201d or the \u201cWella Company\u201d). On July 18, 2023 we announced that we entered into a binding letter of intent to sell a 3.6% stake in Wella to investment firm IGF Wealth Management for $150.0. The closing of the transaction is subject to, among other things, completion of due diligence and the satisfaction of certain closing conditions, including the approval of the transaction by KKR. Assuming the transaction closes, we would retain 22.3% of the Wella Company.\nAll dollar amounts in the following discussion are in millions of United States (\u201cU.S.\u201d) dollars, unless otherwise indicated.\nSegments\nOperating and reportable segments (referred to as \u201csegments\u201d) reflect the way the Company is managed and for which separate financial information is available and evaluated regularly by the Company\u2019s chief operating decision maker (\u201cCODM\u201d) in deciding how to allocate resources and assess performance. The Company has designated its Chief Executive Officer as the CODM.\nFor segment financial information and information about our long-lived assets, see Note 5\u2014 Segment Reporting in the notes to our Consolidated Financial Statements, and for information about recent acquisitions or dispositions, see Note 4\u2014Business Combinations, Asset Acquisitions and Divestitures in the notes to our Consolidated Financial Statements.\n1\nBrands\n\u00a0\u00a0\u00a0\u00a0\nThe following chart reflects our iconic brand portfolio:\nConsumer Beauty\nPrestige\nAdidas\nBurberry\nBeckham\nCalvin Klein\nBiocolor*\nChloe\nBozzano*\nDavidoff\nBourjois*\nEscada*\nBruno Banani\nGucci\nCoverGirl*\nHugo Boss\nJovan*\nJil Sander\nMax Factor*\nJoop!*\nMexx\nKylie Jenner\nMonange*\nLancaster*\nNautica\nMarc Jacobs\nPaixao*\nMiu Miu\nRimmel*\nOrveda\nRisque*\nphilosophy*\nSally Hansen*\nSKKN BY KIM\nTiffany & Co.\n* Indicates an owned beauty brand.\nMarketing\nWe have a diverse portfolio of brands, some owned and some licensed, and we employ different models to create a distinct image and personality suited to each brand\u2019s equity, distribution, product focus and consumer. For our licensed brands, we work with licensors to promote brand image. Each of our brands is promoted with logos, packaging and advertising designed to enhance its image and the uniqueness of each brand. We manage our creative marketing work through a combination of our in-house teams and external agencies that design and produce the sales materials, social media strategies, advertisements and packaging for products in each brand. \nWe promote our brands through various channels to reach and engage beauty consumers, through traditional media, through in-store displays, on digital and social media, and through collaborations, product placements and events. In addition, we seek editorial coverage for products and brands in both traditional media and digital and social media to drive influencer amplification and to build brand equity. We also leverage our relationships with celebrities and on-line influencers to endorse certain of our products. Our marketing efforts benefit from cooperative advertising programs with retailers, often in connection with in-store marketing activities designed to engage consumers so that they try, or purchase, our products, including sampling and \u201cgift-with-purchase\u201d programs designed to stimulate product trials. \nWe have dedicated marketing and sales forces in most of our significant markets. These teams leverage local insights to strategically promote our brands and product offerings and tailor our creative marketing to fit local tastes and resonate with consumers most effectively. \nWe utilize in-depth brand and market data analytics to develop branding, merchandising and marketing execution strategies to maximize the consumer experience and build a better business. We continue to concentrate working media resources on select products, channels and markets, which we believe represents a significant opportunity for revenue and gross margin improvement, and to implement a tactical, in-store strategy for the others.\nDistribution Channels and Retail Sales\n2\nWe market, sell and distribute our products in approximately 126 countries and territories, with dedicated local sales forces in most of our significant markets. We have a balanced multi-channel distribution strategy which complements our product categories. Our mass beauty brands are primarily sold through hypermarkets, supermarkets, drug stores and pharmacies, mid-tier department stores, traditional food and drug retailers, and dedicated e-commerce retailers. The prestige products are primarily sold through prestige retailers, including perfumeries, department stores, e-retailers, direct-to-consumer websites and duty-free shops. We continue to focus on expanding our e-commerce and direct-to-consumer channels. We also sell our products through third-party distributors. In fiscal 2023, no retailer accounted for more than 10% of our global net revenues; however, certain retailers accounted for more than 10% of net revenues within certain geographic markets and segments. In fiscal 2023, Walmart, our top retailer, accounted for approximately 5% of total Coty Inc. net revenues from continuing operations. \nInnovation\nInnovation is a pillar of our business. We innovate through brand-building and new product lines, as well as through new technology. Our research and development teams work with our marketing and operations teams to identify recent trends and consumer needs and to bring products quickly to market. \nWe are continuously innovating to increase our sales by elevating our digital presence, including e-commerce and digital, social media and influencer marketing designed to build brand equity and consumer engagement. We have also focused our efforts on meeting evolving consumer shopping preferences and behaviors, both on-line and in-store. We have introduced new ways to customize the consumer experience, including using artificial intelligence-powered tools to provide personalized advice on selecting and using products, and augmented reality tools that invite customers to virtually try products with curated looks, tutorials and product recommendations. \nIn addition, we continuously seek to improve our products through research and development. Our basic and applied research groups, which conduct longer-term and \u201cblue sky\u201d research, seek to develop proprietary new technologies for first-to-market products and for improving existing products. This research and development is done both internally and through affiliations with various universities, technical centers, supply partners, industry associations and technical associations. A number of our products incorporate patented, patent-pending or proprietary technology. In addition, several of our products and/or packaging for our products are covered by design rights protections.\nOur principal research and development centers are located in the U.S. and Europe. See \u201cItem 2. Properties.\u201d\nWe do not perform, nor do we commission any third parties on our behalf to perform, testing of our products or ingredients on animals except where required by law. In the few jurisdictions requiring animal testing, we actively apply for exemptions and work with local authorities and organizations to authorize alternative methods of product testing.\nSupply Chain\nDuring fiscal year 2023, we continued to manufacture and package approximately 79% of our products, primarily in facilities located in the United States, Brazil, China and various countries in Europe. We recognize the importance of our employees at our manufacturing facilities and have in place programs designed to ensure operating safety. In addition, we implement programs designed to ensure that our manufacturing and distribution facilities comply with applicable environmental rules and regulations, as well as initiatives to support our sustainability goals. To capitalize on innovation and other supply chain benefits, we continue to utilize a network of third-party manufacturers on a global basis who produce approximately 21% of our finished products. \nThe principal raw materials used in the manufacture of our products are primarily essential oils, alcohols and specialty chemicals. The essential oils in our fragrance products are generally sourced from fragrance houses. As a result, we realize material cost savings and benefits from the technology, innovation and resources provided by these fragrance houses.\nWe purchase the raw materials for all our products from various third parties. We also purchase packaging components that are manufactured to our design specifications. We collaborate with our suppliers to meet our stringent design and creative criteria. We believe that we currently have adequate sources of supply for all our products. We review our supplier base periodically with the specific objectives of improving quality, increasing innovation and speed-to-market, ensuring supply sufficiency and reducing costs. \nWe have experienced disruptions in our supply chain from time to time, including in connection with our past restructuring efforts and, more recently due to global supply disruptions, and we work to anticipate and respond to actual and potential disruptions. In light of these challenges, we are continually benchmarking the performance of our supply chain, and we augment our supply base, adjust our distribution networks and manufacturing footprint, enhance our forecasting and planning capabilities and adjust our inventory strategy based upon the changing needs of the business. We continue to explore options to further optimize our supply chain operations. \n3\nCompetition\nThere is significant competition within each market where our products are sold. We compete against manufacturers and marketers of beauty products, salon professional nail products and personal care products. In addition to the established multinational brands against which we compete, small targeted niche brands continue to enter the beauty market. We also have competition from private label products sold by retailers.\nWe believe that we compete primarily on the basis of perceived value, including pricing and innovation, product efficacy, service to the consumer, promotional activities, advertising, special events, new product introductions, e-commerce initiatives, direct sales and other activities (including influencers). It is difficult for us to predict the timing, scale and effectiveness of our competitors\u2019 actions in these areas or the timing and impact of new entrants into the marketplace. For additional risks associated with our competitive position, see \u201cRisk Factors\u2014\nThe beauty industry is highly competitive, and if we are unable to compete effectively, our business, prospects, financial condition and results of operation could suffer\n\u201d. \nIntellectual Property\nWe generally own or license the trademark rights in key sales countries in Trademark International Class 3 (covering cosmetics and perfumery) for use in connection with our brands. When we license trademark rights we generally enter into long-term licenses, and we are generally the exclusive trademark licensee for all Class 3 trademarks as used in connection with our products. We or our licensors, as the case may be, actively protect the trademarks used in our principal products in the U.S. and significant markets worldwide. We consider the protection of our trademarks to be essential to our business.\nA number of our products also incorporate patented, patent-pending or proprietary technology in their respective formulations and/or packaging, and in some cases our product packaging is subject to copyright, trade dress or design protection. While we consider our patents and copyrights, and the protection thereof, to be important, no single patent or copyright, or group of related patents or copyrights, is material to the conduct of our business. \nProducts representing 63% of our fiscal 2023 net revenues from continuing operations are manufactured and marketed under exclusive license agreements granted to us for use on a worldwide and/or regional basis. As of June 30, 2023, we maintained 22 brand licenses. In addition, approximately 54% of our fiscal 2023 net revenues from continuing operations were attributable to prestige fragrance, of which approximately 88% was from our top seven prestige fragrance brands.\nOur licenses impose obligations and restrictions on us that we believe are common to many licensing relationships in the beauty industry, such as paying annual royalties on net sales of the licensed products, maintaining the quality of the licensed products and the image of the applicable trademarks, achievement of minimum sales levels, promotion of sales and qualifications and behavior of our suppliers, distributors and retailers. We believe that we are currently in material compliance with the terms of our material brand license agreements.\nOur license agreements have an average duration of over 25 years. Most brand licenses have renewal options for one or more terms, which can range from two to ten years. Certain brand licenses provide for automatic extensions, so long as minimum annual royalty payments are made, while renewal of others is contingent upon attaining specified sales levels or upon agreement of the licensor. None of our top seven  licenses, which account for approximately 88% of our prestige fragrance sales, are up for non-automatic renewal before 2028, with an average remaining duration of 13 years. We are currently in the process of renewing a smaller license which is up for renewal during fiscal 2024. For additional risks associated with our licensing arrangements, see \u201cRisk Factors\u2014\nOur brand licenses may be terminated if specified conditions are not met, and we may not be able to renew expiring licenses on favorable terms or at all\n\u201d and \u201cRisk Factors\u2014\nOur failure to protect our reputation, or the failure of our brand partners or licensors to protect their reputations, could have a material adverse effect on our brand images\n\u201d.\nHuman Capital\nWorkforce\n.\n \nAs of June 30, 2023, we had approximately 11,350 full-time employees in over 36 countries. In addition, we typically employ a large number of seasonal contractors during our peak manufacturing and promotional season. \nOur employees in the U.S. are not covered by collective bargaining agreements. Our employees in certain countries in Europe are subject to works council arrangements and collective bargaining agreements. We have not experienced a material strike or work stoppage in the U.S. or any other country where we have a significant number of employees.\nOur employees are a key source of competitive advantage and their actions, guided by our Code of Conduct and our global compliance program, \nBehave Beautifully\n, are critical to the long-term success of our business. We recognize the importance of our employees to our business and believe our relationship with our employees is satisfactory.\nEnvironmental, Social and Governance\nCoty\u2019s sustainability commitment, Beauty That Lasts, is a multi-pillared strategy which aims to contribute to a more sustainable and inclusive future. With a focus on products, planet and people we see sustainability as the ultimate driver of innovation.\n4\nWe report annually on our progress towards our sustainability targets through a separate sustainability report. Our sustainability reports and other information on our sustainability initiatives and achievements are available on our website. Changing circumstances, including evolving expectations for sustainability, or changes in standards and the way progress is measured, may lead to adjustments in, or the discontinuation of, our pursuit of certain goals, commitments, or initiatives (see additional discussion in \u201cForward-looking Statements\u2014\nCautionary Note Regarding Sustainability Information\n\u201d). The content of our sustainability reports and information on our website are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC.\nOn March 31, 2022, the SEC issued a proposed rule on climate-related disclosures by U.S. public companies. The proposed rule is not yet final. We are unable to predict if or when the rule will be finalized and the extent to which a final rule will apply or deviate from the proposal.\nThe Beauty of Our Product\nOur products have an important role to play in building a sustainable future for the beauty sector. To respond to evolving social and environmental challenges, sustainability is at the heart of our product creation, from design and development through to sourcing of materials.\nWe are changing the way we design, formulate and manufacture in order to minimize our environmental impact and create innovative products. Since 2020, we have an operational Beauty That Lasts Index in place, which is a qualitative tool for evaluating the social and environmental profile of new product developments. \nWe have ambition to reduce the amount of packaging we use across our portfolio, while sourcing from more sustainable sources. In fiscal 2023, we introduced refillable packaging solutions into our global portfolio, including Chlo\u00e9 Rose Naturelle Intense Eau de Parfum and Adidas Active Skin and Mind range of shower gels which delivered a packaging weight reduction compared to the original baseline body care range. In addition, we work to reduce the environmental impact of our product formulas and our new products, for example integrating carbon captured alcohol into our fragrances. In fiscal 2023, we launched Gucci, The Alchemist\u2019s Garden, Where My Heart Beats Eau de Parfum, which was the first globally distributed fragrance manufactured using 100% carbon captured alcohol.  \nWe recognize that sustainability efforts require collaboration which goes beyond our own organization. To that end we are members of several industry initiatives, including the Responsible Beauty Initiative and Responsible Mica Initiative, focused on responsible sourcing, and the Sustainable Packaging Initiative for Cosmetics, focused on creating common guidelines and tools for eco-design of packaging. We are also part of the EcoBeautyScore Consortium \u2013 a breakthrough initiative which aims to develop an industry-wide environmental scoring system for cosmetics products, with the aim of empowering consumers to make sustainable beauty choices.\nWe continue to evaluate and modify our processes and activities to further limit our impact on the environment as we implement our sustainability strategy.\nThe Beauty of Our Planet\nConserving and protecting the natural environment is a vital part of our responsibility as a business. We are committed to minimizing the environmental impact of our operations and preserving resources for generations to come. \nDuring fiscal year 2023, our greenhouse gas emissions targets were approved by the Science Based Target initiative. The targets cover our Greenhouse gas emissions for scopes 1 and 2, renewable electricity commitment and our greenhouse gas reduction for scope 3. We continue to focus on the implementation of these targets with the development of operational plans. We are currently implementing our climate strategy focusing on three focus areas: our product impact, our transportation and the impact of our own operations. \nIn fiscal 2023, we have extended existing efforts made on our supply chain sites (factories and distribution centers) to our R&D centers and Corporate Offices. Accordingly, our offices and R&D centers are developing energy reduction and transition plans. For example, our Paris Headquarter has now transitioned to renewable electricity and we have completed an extensive energy audit in our Amsterdam Headquarter with very positive results.  In our efforts to reduce our impacts on the environment, none of the waste from our factories and distribution centers was sent to landfill, while most was reused, recycled, or composted. We have implemented several measures to reduce water consumption across our plants and distribution centers.\nWhile certain projects are already in execution phase, other projects are in the early stages as we validate their feasibility and explore new ones to achieve our proposed targets. We continue to evaluate and modify our processes and activities to further limit our impact on the environment and to enable the deployment of our climate-related initiatives to meet our proposed targets.\n5\nThe Beauty of Our People\nWe are committed to playing our part in creating a more inclusive business and society. We celebrate diversity in all its forms and continue to work towards building a more inclusive business. We recognize the importance of diversity at a leadership level and throughout our whole organization, including diversity of gender, ethnicity, ability, background, religion, gender identity, and sexual orientation. Our Executive Committee and our Board of Directors are majority female. For associates, we rolled out a new training to broaden knowledge of our sustainability framework, Beauty That Lasts. This training introduced the three-pillared framework and included short modules on climate change and DE&I topics such as bias and microaggressions. In July 2022, we implemented a sustainability objective for all employees eligible to the bonus plans, as part of their annual goals. This applies for employees\u2019 fiscal 2023 bonuses. The accomplishment of these objectives is considered when assessing eligibility for annual bonuses.\nAs of October 2022, we were proud to achieve our commitment to pay equity for similar roles and performance, regardless of gender by reducing the gap in every level of our global management categories. To further gender equality within our business, we also launched a gender-neutral Parental Leave Policy. From November 2022, all employees, regardless of gender, have access to the same number of fully paid weeks of parental leave offered in their local region when starting or extending a family. \nWe also strive to reflect the communities we serve through our brands, which champion the diversity of beauty and beauty of diversity. In fiscal 2023, Sally Hansen & CoverGirl continued their multi-year partnership with LGBTQ advocacy organization GLAAD. Marc Jacobs Fragrance celebrates the third year of its partnerships with US-based NGO The Lesbian, Gay, Bisexual & Transgender Community Center (The Center) and second year with UK-based charity, akt.\nWe are committed to creating opportunities for our associates to develop skills, advance their careers and nurture their long-term employability. Our associates undergo an annual performance review process, and work with their manager to build customized development plans. We offer our employees a range of development activities, from learning formally through e-learning courses and trainings, and on the job. \nOur global Health and Safety Policy governs the management of work-related health and safety risks across all our manufacturing and distribution sites, including corporate offices. The policy, which is complemented by our Code of Conduct, sets out the principles that guide our approach to Health and Safety, as well as outlining responsibilities within the business.\nGovernment Regulation\nWe and our products are subject to regulation by various U.S. federal regulatory agencies as well as by various state and local regulatory authorities and by the applicable regulatory authorities in the countries in which our products are produced or sold. Such regulations principally relate to the ingredients, labeling, manufacturing, packaging, advertising and marketing and sales and distribution\n \nof our products. Because we have commercial operations overseas, we are also subject to the U.S. Foreign Corrupt Practices Act (the \u201cFCPA\u201d) as well as other countries\u2019 anti-corruption and anti-bribery regimes, such as the U.K. Bribery Act.\nWe are subject to numerous foreign, federal, provincial, state, municipal and local environmental, health and safety laws and regulations relating to, among other matters, safe working conditions, product stewardship and environmental protection, including those relating to emissions to the air, discharges to land and surface waters, generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste materials, and the registration and evaluation of chemicals. We maintain policies and procedures to monitor and control environmental, health and safety risks, and to monitor compliance with applicable environmental, health and safety requirements. Compliance with such laws and regulations pertaining to the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon our capital expenditures, earnings or competitive position. However, environmental and social responsibility laws and regulations have tended to become increasingly stringent and, to the extent regulatory changes occur in the future, they could result in, among other things, increased costs and risks of non-compliance for us. For example, certain states in the U.S., such as California, and the U.S. Congress have proposed legislation relating to chemical disclosure and other requirements related to the content of our products. For more information, see \u201cRisk Factors\u2014\nChanges in laws, regulations and policies that affect our business or products could adversely affect our business, financial condition and results of operations.\n\u201d\nSeasonality\nThe Company\u2019s sales generally increase during the second fiscal quarter as a result of increased demand associated with the winter holiday season. Financial performance, working capital requirements, sales, cash flows and borrowings generally experience variability during the three to six months preceding the holiday season. Product innovations, new product launches and the size and timing of orders from the Company\u2019s customers may also result in variability. However, the mix of product sales can vary considerably as a result of changes in seasonal and geographic demand for particular types of products, as well as other macroeconomic, operating and logistics-related factors, as evidenced by the impact of the COVID-19 pandemic.\n6\nAvailability of Reports\nWe make available financial information, news releases and other information on our website at www.coty.com. There is a direct link from our website to our SEC filings via the EDGAR database at www.sec.gov, where our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge as soon as reasonably practicable after we file such reports and amendments with, or furnish them to, the SEC. Stockholders may also contact Investor Relations at 350 Fifth Avenue, New York, New York 10118 or call 212-389-7300 to obtain hard copies of these filings without charge.\nWe use our website as a channel for routine distribution of important information, including news releases, presentations, and financial information. We have also posted on our website our: (i) Principles of Corporate Governance; (ii) Code of Conduct (and any amendments or waivers); (iii) Code of Conduct for Business Partners; (iv) Charters for the Audit and Finance Committee and Remuneration and Nomination Committee; and (vi) sustainability information, including information on our sustainability strategy, \nBeauty that Lasts\n, and our diversity, equity and inclusion strategy. The information on our website is not, and will not be deemed to be, a part of this annual report on Form 10-K or incorporated into any of our other filings with the SEC.",
+  "item1a": ">Item 1A. \nRisk Factors.\nYou should consider the following risks and uncertainties and all of the other information in this Annual Report on Form 10-K and our other filings in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. Our business and financial results may also be adversely affected by risks and uncertainties not presently known to us or that we currently believe to be immaterial. If any of the events contemplated by the following discussion of risks should occur or other risks arise or develop, our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities, may be materially and adversely affected. When used in this discussion, the term \u201cincludes\u201d and \u201cincluding\u201d means, unless the context otherwise indicates, including without limitation and the terms \u201cCoty,\u201d the \u201cCompany,\u201d \u201cwe,\u201d \u201cour,\u201d or \u201cus\u201d mean, unless the context otherwise indicates, Coty Inc. and its majority and wholly-owned subsidiaries.\nRisk Factor Summary \nWe are providing the following summary of the risk factors to enhance the readability and accessibility of our risk factor disclosures. We encourage you to carefully review the full risk factors discussed below in their entirety for additional information.\nSome of the factors that could materially and adversely affect our business, financial condition, results of operations or prospects include:\n\u2022\nThe beauty industry is highly competitive, and if we are unable to compete effectively, our business, prospects, financial condition and results of operations could suffer.\n\u2022\nFurther consolidation in the retail industry and shifting preferences in how and where consumers shop, including to e-commerce, may adversely affect our business, prospects, financial condition and results of operations.\n\u2022\nChanges in industry trends and consumer preferences could adversely affect our business, prospects, financial condition and results of operations.\n\u2022\nOur success depends, in part, on the quality, efficacy and safety of our products.\n\u2022\nOur failure to protect our reputation, or the failure of our brand partners or licensors to protect their reputations, could have a material adverse effect on our brand images.\n\u2022\nOur brand licenses may be terminated if specified conditions are not met, and we may not be able to renew expiring licenses on favorable terms or at all.\n\u2022\nIf we are unable to obtain, maintain and protect our intellectual property rights, in particular trademarks, patents and copyrights, or if our brand partners and licensors are unable to maintain and protect their intellectual property rights that we use in connection with our products, our ability to compete could be negatively impacted.\n\u2022\nOur success depends on our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property of third parties.\n\u2022\nOur business is subject to seasonal variability.\n\u2022\nOur success depends on our ability to achieve our global business strategies.\n7\n\u2022\nWe have incurred significant costs in connection with the integration of acquisitions and simplifying our business, and expect to incur costs in connection with the implementation of our global business strategies, that could affect our period-to-period operating results.\n\u2022\nOur new product introductions may not be as successful as we anticipate, which could have a material adverse effect on our business, prospects, financial condition and results of operations.\n\u2022\nWe may not be able to identify suitable acquisition targets and our acquisition activities and other strategic transactions may present managerial, integration, operational and financial risks, which may prevent us from realizing the full intended benefit of the acquisitions we undertake.\n\u2022\nWe face risks associated with our joint ventures and strategic partnership investments.\n\u2022\nOur goodwill and other assets have been subject to impairment and may continue to be subject to impairment in the future.\n\u2022\nA disruption in operations could adversely affect our business.\n\u2022\nWe outsource a number of functions to third-party service providers, and any failure to perform or other disruptions or delays at our third-party service providers could adversely impact our business, our results of operations or our financial condition. \n\u2022\nWe are increasingly dependent on information technology, and if we are unable to protect against service interruptions, corruption of our data and privacy protections, cyber-based attacks or network security breaches, our operations could be disrupted.\n\u2022\nOur success depends, in part, on our employees, including our key personnel.\n\u2022\nIf we underestimate or overestimate demand for our products and do not maintain appropriate inventory levels, our net revenues or working capital could be negatively impacted.\n\u2022\nWe are subject to risks related to our international operations.\n\u2022\nWe have taken on significant debt, and the agreements that govern such debt contain various covenants that impose restrictions on us, which may adversely affect our business.\n\u2022\nOur ability to service and repay our indebtedness will be dependent on the cash flow generated by our subsidiaries and events beyond our control.\n\u2022\nOur variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase.\n\u2022\nWe must successfully manage the impact of a general economic downturn, credit constriction, uncertainty in global economic or political conditions or other global events or a sudden disruption in business conditions which may affect consumer spending, global supply chain conditions and inflationary pressures and adversely affect our financial results.\n\u2022\nThe COVID-19 pandemic has had, and could continue to have, a negative impact on our business, financial condition, results of operations and cash flows.\n\u2022\nPrice inflation for labor, materials and services, further exacerbated by volatility in energy and commodity markets by the war in Ukraine, could adversely affect our business, results of operations and financial condition.\n\u2022\nVolatility in the financial markets could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\n\u2022\nFluctuations in currency exchange rates may negatively impact our financial condition and results of operations.\n\u2022\nWe are subject to legal proceedings and legal compliance risks, including talc-related litigation alleging bodily injury.\n\u2022\nChanges in laws, regulations and policies that affect our business or products could adversely affect our business, financial condition, results of operations, cash flows, as well as the trading price of our securities.\n\u2022\nOur operations and acquisitions in certain foreign areas expose us to political, regulatory, economic and reputational risks.\n\u2022\nOur employees or others may engage in misconduct or other improper activities including noncompliance with regulatory standards and regulatory requirements.\n\u2022\nViolations of our prohibition on harassment, sexual or otherwise, could result in liabilities and/or litigation.\n\u2022\nIf the Distribution (as defined below) or the acquisition of the P&G Beauty Business does not qualify for its intended tax treatment, in certain circumstances we are required to indemnify P&G for resulting tax-related losses under the tax matters agreement entered into in connection with the acquisition of the P&G Beauty Business dated October 1, 2016.\n\u2022\nWe are subject to risks related to our common stock and our stock repurchase program.\n8\n\u2022\nJABC Cosmetics B.V. (\u201cJABC\u201d) and its affiliates, through their ownership of approximately 53% of the outstanding shares of our Class A Common Stock, have the ability to effect and/or significantly influence certain decisions requiring stockholder approval, which may be inconsistent with the interests of our other stockholders. \n\u2022\nWe are a \u201ccontrolled company\u201d within the meaning of the New York Stock Exchange rules and, as a result, are entitled to rely on exemptions from certain corporate governance requirements that are designed to provide protection to stockholders of companies that are not \u201ccontrolled companies\u201d.\n\u2022\nThe dual-listing of our Class A Common Stock on the NYSE and on Euronext Paris\u2019s Professional Segment may adversely affect the liquidity and value of our Class A Common Stock.\nRisk Factors\nRisks related to our Business and Industry\nThe beauty industry is highly competitive, and if we are unable to compete effectively, our business, prospects, financial condition and results of operations could suffer.\nThe beauty industry is highly competitive and can change rapidly due to consumer preferences and industry trends, such as the expansion of digital channels, direct-to-consumer channels, new \u201cdisruptor\u201d trendy brands and advances in technology such as artificial intelligence. Competition in the beauty industry is based on several factors, including pricing, value and quality, product efficacy, packaging and brands, speed or quality of innovation and new product introductions, in-store presence and visibility, promotional activities (including influencers) and brand recognition, distribution channels, advertising, editorials and adaption to evolving technology and device trends, including via e-commerce initiatives.\n \nOur competitors include large multinational consumer products companies, private label brands and emerging companies, among others, and some have greater resources than we do or may be able to respond more quickly or effectively to changing business and economic conditions than we can. It is difficult for us to predict the timing and scale of our competitors\u2019 actions and their impact on the industry or on our business. For example, the fragrance category is being influenced by new product introductions, niche brands and growing e-commerce distribution. The color cosmetics category has been influenced by entry by new competitors and smaller competitors that are fast to respond to trends and engage with their customers through digital platforms, including using new or advancing technologies such as artificial intelligence and innovative in-store activations. Furthermore, e-commerce and the online retail industry is characterized by rapid technological evolution, changes in consumer requirements and preferences, frequent introductions of new products and services embodying new technologies and the emergence of new industry standards and practices and evolving regulatory regimes, any of which could render our existing technologies and systems obsolete. Our success will depend, in part, on our ability to identify, develop, acquire or license leading technologies useful in our business, and respond to technological advances and emerging industry standards and practices in a cost-effective and timely way. If we are unable to compete effectively on a global basis or in our key product categories or geographies, it could have an adverse impact on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nFurther consolidation in the retail industry and shifting preferences in how and where consumers shop, including to e-commerce, may adversely affect our business, prospects, financial condition and results of operations.\nSignificant consolidation in the retail industry has occurred during the last several years. The trend toward consolidation, particularly in developed markets such as the U.S. and Western Europe, has resulted in our becoming increasingly dependent on our relationships with, and the overall business health of, fewer key retailers that control an increasing percentage of retail locations, which trend may continue. For example,\n \ncertain retailers account for over 10% of our net revenues in certain geographies, including the U.S. Our success is dependent on our ability to manage our retailer relationships, including offering trade terms on mutually acceptable terms. Furthermore, increased online competition and declining in-store traffic has resulted, and may continue to result, in brick-and-mortar retailers closing physical stores, which could negatively impact our distribution strategies and/or sales if such retailers decide to significantly reduce their inventory levels for our products or to designate more shelf space to our competitors. Additionally, these retailers periodically assess the allocation of shelf space and have elected (and could further elect) to reduce the shelf space allocated to our products. Some of our brands, including CoverGirl, have experienced shelf space losses in the past, and such declines may continue or resume. Further consolidation and store closures, or reduction in inventory levels of our products or shelf space devoted to our products, could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities. We generally do not have long-term sales contracts or other sales assurances with our retail customers.\nConsumer shopping preferences have also shifted, and may continue to shift in the future, to distribution channels other than traditional retail in which we have more limited experience, presence and development, such as direct-to-consumer sales and e-commerce. In particular, expansion of our direct-to-consumer business presents challenges for logistics and fulfillment as well as additional regulatory compliance. If we are not successful in our efforts to expand distribution channels, including \n9\ngrowing our e-commerce activities, we will not be able to compete effectively. In addition, our entry into new categories and geographies has exposed, and may continue to expose, us to new distribution channels or risks about which we have less experience. Any change in our distribution channels, such as direct sales, could also expose us to disputes with distributors. If we are not successful in developing and utilizing these channels or other channels that future consumers may prefer, we may experience lower than expected revenues.\nChanges in industry trends and consumer preferences could adversely affect our business, prospects, financial condition and results of operations.\nOur success depends on our products\u2019 appeal to a broad range of consumers whose preferences cannot be predicted with certainty and may change rapidly, and on our ability to anticipate and respond in a timely and cost-effective manner to industry trends through product innovations, product line extensions and marketing and promotional activities, among other things. Product life cycles and consumer preferences continue to be affected by the rapidly increasing use and proliferation of social and digital media by consumers, and the speed with which information and opinions are shared. As product life cycles shorten, we must continually work to develop, produce and market new products, maintain and enhance the recognition of our brands and shorten our product development and supply chain cycles.\nIn addition, net revenues and margins on beauty products tend to decline as they advance in their life cycles, so our net revenues and margins could suffer if we do not successfully and continuously develop new products. This product innovation also can place a strain on our employees and our financial resources, including incurring expenses in connection with product innovation and development, marketing and advertising that are not subsequently supported by a sufficient level of sales. Furthermore, we cannot predict how consumers will react to any new products that we launch or to repositioning of our brands. Our successful product launches may not continue. The amount of positive or negative sales contribution of any of our products may change significantly within a period or from period to period. The above-referenced factors, as well as new product risks, could have an adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nThese risks have been exacerbated by the impact of general economic conditions such as inflationary pressures and the ongoing effects of COVID-19 on our business. Consumer spending habits and consumer confidence have shifted and may continue to change in light of re-imposition of containment measures (such as the lockdowns imposed in China), inflationary pressures, as well as changes in work practices and travel trends impacting the demand for our products.\nOur success depends, in part, on the quality, efficacy and safety of our products.\nProduct safety or quality failures, actual or perceived, or allegations of product contamination, even when false or unfounded, or inclusion of regulated ingredients could tarnish the image of our brands and could cause consumers to choose other products. Allegations of contamination, allergens or other adverse effects on product safety or suitability for use by a particular consumer, even if untrue, may require us from time to time to recall a product from all of the markets in which the affected production was distributed. Such issues or recalls and any related litigation could negatively affect our profitability and brand image.\nIn addition, government authorities and self-regulatory bodies regulate advertising and product claims regarding the performance and benefits of our products. These regulatory authorities typically require a reasonable basis to support any marketing claims. What constitutes a reasonable basis for substantiation can vary widely based on geography, and the efforts that we undertake to support our claims may not be deemed adequate for any particular product or claim. If we are unable to show adequate substantiation for our product claims, or our promotional materials make claims that exceed the scope of allowed claims for the classification of the specific product, regulatory authorities could take enforcement action or impose penalties, such as monetary consumer redress, requiring us to revise our marketing materials, amend our claims or stop selling or recalling certain products, all of which could harm our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities. Any regulatory action or penalty could lead to private party actions, which could further harm our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nIf our products are perceived to be defective or unsafe, or if they otherwise fail to meet our consumers\u2019 expectations, our relationships with customers or consumers could suffer, the appeal of one or more of our brands could be diminished, and we could lose sales or become subject to liability claims. In addition, safety or other defects in our competitors\u2019 products could reduce consumer demand for our own products if consumers view them to be similar or view the defects as symptomatic of the product category. Any of these outcomes could result in a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nOur failure to protect our reputation, or the failure of our brand partners or licensors to protect their reputations, could have a material adverse effect on our brand images.\n10\nOur ability to maintain our reputation is critical to our business and our various brand images. Our reputation could be jeopardized if we fail to maintain high standards for product quality and integrity (including should we be perceived as violating the law) or if we, or the third parties with whom we do business, do not comply with regulations or accepted practices and are subject to a significant product recall, litigation, or allegations of tampering, animal testing, use of certain ingredients (such as certain palm oil) or misconduct by executives, founders or influencers. Any negative publicity about these types of concerns or other concerns, whether actual or perceived or directed towards us or our competitors, may reduce demand for our products. Failure to comply with ethical, social, product, labor and environmental standards, or related political considerations, could also jeopardize our reputation and potentially lead to various adverse consumer actions, including boycotts. In addition, the behavior of our employees, including with respect to our employees\u2019 use of social media subjects us to potential negative publicity if such use does not align with our high standards and integrity or fails to comply with regulations or accepted practices. Furthermore, widespread use of digital and social media by consumers has greatly increased the accessibility of information and the speed of its dissemination. Negative or inaccurate publicity, posts or comments on social media, whether accurate or inaccurate, about us, our employees or our brand partners (including influencers) and licensors, our respective brands or our respective products, whether true or untrue, could damage our respective brands and our reputation.\nWe also devote time and resources to citizenship efforts that are consistent with our corporate values and are designed to strengthen our business and protect and preserve our reputation, including programs driving diversity, equity and inclusion, responsible sourcing, packaging and environmental sustainability. If these programs are not executed as planned, fail or be perceived to fail in our achievement of announced goals or initiatives (or are unable to accurately report on our progress) or suffer negative publicity, our reputation and results of operations or cash flows could be adversely impacted. In addition, we could be criticized for the scope of such initiatives or goals or perceived as not acting responsibly in connection with these matters.\nAdditionally, our success is also partially dependent on the reputations of our brand partners, influencers and licensors and the goodwill associated with their intellectual property. We often rely on our brand partners, influencers or licensors to manage and maintain their brands, but these licensors\u2019 reputation or goodwill may be harmed due to factors outside our control, which could be attributed to our other brands and have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities. Many of these brand licenses are with fashion houses, whose popularity may decline due to mismanagement, changes in fashion or consumer preferences, allegations against their management or designers or other factors beyond our control. Similarly, certain of our products bear the names and likeness of celebrities, whose brand or image may change without notice and who may not maintain the appropriate celebrity status or positive association among the consumer public to support projected sales levels. In addition, in the event that any of these licensors were to enter bankruptcy proceedings, we could lose our rights to use the intellectual property that the applicable licensors license to us.\nDamage to our reputation or the reputations of our brand partners or licensors or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations, financial condition and cash flows, as well as require additional resources to rebuild our reputation.\nOur brand licenses may be terminated if specified conditions are not met, and we may not be able to renew expiring licenses on favorable terms or at all.\nWe license trademarks for many of our product lines. Our brand licenses typically impose various obligations on us, including the payment of annual royalties, maintenance of the quality of the licensed products, achievement of minimum sales levels, promotion of sales and qualifications and behavior of our suppliers, distributors and retailers. We have breached, and may in the future breach, certain terms of our brand licenses. If we breach our obligations, our rights under the applicable brand license agreements could be terminated by the licensor and we could, among other things, have to pay damages, lose our ability to sell products related to that brand, lose any upfront investments made in connection with such license and sustain reputational damage. In addition, most brand licenses have renewal options for one or more terms, which can range from three to ten years. Certain brand licenses provide for automatic extensions, so long as minimum annual royalty payments are made, while renewal of others is contingent upon attaining specified sales levels or upon agreement of the licensor. While many of our licenses are long term, licenses relating to certain of our brands are up for renewal in the next few years, including one license up for renewal in fiscal 2024. We may not be able to renew expiring licenses on terms that are favorable to us or at all. We may also face difficulties in finding replacements for terminated or expired licenses. Each of the aforementioned risks could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nIf we are unable to obtain, maintain and protect our intellectual property rights, in particular trademarks, patents and copyrights, or if our brand partners and licensors are unable to maintain and protect their intellectual property rights that we use in connection with our products, our ability to compete could be negatively impacted.\n11\nOur intellectual property is a valuable asset of our business. Although certain of the intellectual property we use is registered in the U.S. and in many of the foreign countries in which we operate, there can be no assurances with respect to the continuation of such intellectual property rights, including our ability to further register, use or defend key current or future trademarks. Further, applicable law may provide only limited and uncertain protection, particularly in emerging markets, such as China.\nFurthermore, we may not apply for, or be unable to obtain, intellectual property protection for certain aspects of our business. Third parties have in the past, and could in the future, bring infringement, invalidity, co-inventorship, re-examination, opposition or similar claims with respect to our current or future intellectual property. Any such claims, whether or not successful, could be costly to defend, may not be sufficiently covered by any indemnification provisions to which we are party, divert management\u2019s attention and resources, damage our reputation and brands, and substantially harm our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities. Patent expirations may also affect our business. As patents expire, competitors may be able to legally produce and market products similar to the ones that were patented, which could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nIn addition, third parties may distribute and sell counterfeit or other infringing versions of our products, which may be inferior or pose safety risks and could confuse consumers or customers, which could cause them to refrain from purchasing our brands in the future or otherwise damage our reputation. In recent years, there has been an increase in the availability of counterfeit goods, including fragrances, in various markets by street vendors and small retailers, as well as on the Internet. The presence of counterfeit versions of our products in the market and of prestige products in mass distribution channels, including grey market products, could also dilute the value of our brands, force us and our distributors to compete with heavily discounted products, cause us to be in breach of contract (including license agreements), impact our compliance with distribution and competition laws in jurisdictions including the E.U. and China, or otherwise have a negative impact on our reputation and business, prospects, financial condition or results of operations. We are engaged in efforts to rationalize our wholesale distribution channel and continue efforts to reduce the amount of product diversion to the value and mass channels; however, stopping or significantly reducing such commerce could result in a potential adverse impact to our sales and net revenues, including to those customers who are selling our products to unauthorized retailers, or an increase in returns over historical levels.\nTo protect or enforce our intellectual property and other proprietary rights, we may initiate litigation or other proceedings against third parties, such as infringement suits, opposition proceedings or interference proceedings. Any lawsuits or proceedings that we initiate could be expensive, take significant time and divert management\u2019s attention from other business concerns, adversely impact customer relations and we may not be successful. Litigation and other proceedings may also put our intellectual property at risk of being invalidated or interpreted narrowly. In addition, while we maintain a robust anti-counterfeiting and brand enforcement program, bringing numerous actions against infringers every year, such efforts may not be successful. The occurrence of any of these events may have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nIn addition, many of our products bear, and the value of our brands is affected by, the trademarks and other intellectual property rights of our brand and joint venture partners and licensors. Our brand and joint venture partners\u2019 and licensors\u2019 ability to maintain and protect their trademark and other intellectual property rights is subject to risks similar to those described above with respect to our intellectual property. We do not control the protection of the trademarks and other intellectual property rights of our brand and joint venture partners and licensors and cannot ensure that our brand and joint venture partners and licensors will be able to secure or protect their trademarks and other intellectual property rights, which could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows, as well as the trading price of our securities.\nOur success depends on our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property of third parties.\nOur commercial success depends in part on our ability to operate without infringing, misappropriating or otherwise violating the trademarks, patents, copyrights and other proprietary rights of third parties. However, we cannot be certain that the conduct of our business does not and will not infringe, misappropriate or otherwise violate such rights. Moreover, our acquisition targets and other businesses in which we make strategic investments are often smaller or younger companies with less robust intellectual property clearance practices, and we may face challenges on the use of their trademarks and other proprietary rights. If we are found to be infringing, misappropriating or otherwise violating a third party trademark, patent, copyright or other proprietary rights, we may need to obtain a license, which may not be available in a timely manner on commercially reasonable terms or at all, or redesign or rebrand our products, which may not be possible or result in a significant delay to market or otherwise have an adverse commercial impact. We may also be required to pay substantial damages or be subject to a court order prohibiting us and our customers from selling certain products or engaging in certain \n12\nactivities, which could therefore have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows, as well as the trading price of our securities.\nOur business is subject to seasonal variability.\nOur sales generally increase during our second fiscal quarter as a result of increased demand by retailers associated with the winter holiday season. Accordingly, our financial performance, sales, working capital requirements, cash flow and borrowings generally experience variability during the three to six months preceding and during the holiday period. As a result of this seasonality, our expenses, including working capital expenditures and advertising spend, are typically higher during the period before a high-demand season. Consequently, any substantial decrease in, or inaccurate forecasting with respect to, net revenues during such periods of high demand including as a result of decreased customer purchases, increased product returns, production or distribution disruptions or other events (many of which are outside of our control), would prevent us from being able to recoup our earlier expenses and could have a material adverse effect on our financial condition, results of operations and cash flows, as well as the trading price of our securities.\nRisks Related to our Business Strategy and Organization\nOur success depends on our ability to achieve our global business strategies.\nOur future performance and growth depends on the success of our global business strategies, including our management team\u2019s ability to successfully implement them, including a focus on improving gross margin, deleveraging, and simplifying our business. The multi-year implementation of our transformation agenda and our global business strategies has resulted and is expected to continue\n \nto result in changes to business priorities and operations, capital allocation priorities, operational and organizational structure, and increased demands on management. Such changes could result in short-term and one-time costs without any current revenues, lost customers, reduced sales volume, higher than expected restructuring costs, loss of key personnel, additional supply chain disruptions, higher costs of supply and other negative impacts on our business. Implementation of our global business strategy may take longer than anticipated, and, once implemented, we may not realize, in full or in part, the anticipated benefits or such benefits may be realized more slowly than anticipated. The failure to realize benefits, which may be due to our inability to execute plans, delays in the implementation of our global business strategy, global or local economic conditions, competition, changes in the beauty industry and the other risks described herein, could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nOur strategy includes executing on our brand repositioning and continuing to focus our brand-building efforts on priority categories, channels and markets. In addition, we continue to prioritize our deleveraging objectives. In the future, we may dispose of or discontinue select brands and/or streamline operations, and dispose of select businesses or interests therein (including through strategic transactions or public offerings) and incur costs or restructuring and/or other charges in doing so. We may face risks of declines in brand performance and license terminations, due to expirations and/or allegations of breach or for other reasons, including with regard to any potentially divested or discontinued brands. If and when we decide to divest or discontinue any brands or lines of business, we cannot be sure that we will be able to locate suitable buyers or that we will be able to complete such divestitures (including through strategic transactions or public offerings) or discontinuances successfully, timely, at appropriate valuations and on commercially advantageous terms, or without significant costs, including relating to any post-closing purchase price adjustments or claims for indemnification. Any future divestitures and discontinuances could have, a dilutive impact on our earnings, create dis-synergies, and divert significant financial, operational and managerial resources from our existing operations and make it more difficult to achieve our operating and strategic objectives. We also cannot be sure of the effect such divestitures or discontinuances would have on the performance of our remaining business or ability to execute our global business strategies.\nWe have incurred significant costs in connection with the integration of acquisitions and simplifying our business, and expect to incur costs in connection with the implementation of our global business strategies, that could affect our period-to-period operating results.\nWe have incurred significant restructuring costs in the past, and, as we continue to implement our global business strategies and any future restructuring initiatives, we expect to continue to incur one-time cash costs. In the past, as we integrated acquisitions, including the transformational acquisition of the P&G Beauty Business, we experienced challenges, including supply chain disruptions, higher than expected costs and lost customers and related revenue and profits, and we could experience these or other challenges arising from the implementation of our global business strategies and any future restructuring initiatives. The cash usage associated with such, and similar, expenses has impacted and could continue to impact our ability to execute our business strategies, improve operating results and deleverage our balance sheet. \nIf our management is not able to effectively manage these initiatives, address fixed and other costs, we incur additional operating expenses or capital expenditures to realize synergies, simplifications and cost savings, or if any significant business activities are interrupted as a result of these initiatives, our business, prospects, financial condition, results of operations, cash \n13\nflows, as well as the trading price of our securities may be materially adversely affected. The amount and timing of the above-referenced charges and management distraction could further adversely affect our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities. In addition, the implementation of our global business strategies, any continuing or future restructuring initiatives and the integration of acquisitions may impact our ability to anticipate future business trends and accurately forecast future results.\nThe diversion of resources to the integration of the P&G Beauty Business, together with changes and turnover in our management teams as we reorganized our business, negatively impacted our fiscal 2018 and 2019 results. The implementation of our global business strategies could result in similar challenges. Although our global business strategies are intended to deliver meaningful, sustainable expense and cost management improvement, events and circumstances such as financial or strategic difficulties, significant employee turnover, business disruption and delays may occur or continue, resulting in new, unexpected or increased costs that could result in us not realizing all of the anticipated benefits of our global business strategies on our expected timetable or at all. In addition, we are executing many initiatives simultaneously, including changes to our operations and global strategy, which may result in further diversion of our resources, employee attrition and business disruption (including supply chain disruptions), and may adversely impact the execution of such initiatives. Any failure to implement our global business strategies and other initiatives in accordance with our expectations could adversely affect our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nOur new product introductions may not be as successful as we anticipate, which could have a material adverse effect on our business, prospects, financial condition and results of operations.\nWe must continually work to develop, produce and market new products and maintain a favorable mix of products in order to respond in an effective manner to changing consumer preferences. We continually develop our approach as to how and where we market and sell our products. In addition, we believe that we must maintain and enhance the recognition of our brands, which may require us to quickly and continuously adapt in a highly competitive industry to deliver desirable products and branding to our consumers. For example, as part of our global business strategies, we are instituting new objectives for our innovation efforts to support expansion of category coverage and sustainability. If these or other initiatives are not successful, our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities could be adversely impacted.\nWe have made changes and may continue to change our process for the continuous development and evaluation of new product concepts. In addition, each new product launch carries risks. For example, we may incur costs exceeding our expectations, our advertising, promotional and marketing strategies may be less effective than planned or customer purchases may not be as high as anticipated. In addition, we may experience a decrease in sales of certain of our existing products as a result of consumer preferences shifting to our newly-launched products or to the products of our competitors as a result of unsuccessful or unpopular product launches harming our brands. Also, initially successful launches may not be sustained. Any of these could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nAs part of our ongoing business strategy we expect that we will need to continue to introduce new products in our traditional product categories and channels, while also expanding our product launches into adjacent categories and channels in which we may have less operating experience. For example, we entered into strategic partnerships with Kylie Jenner and Kim Kardashian, both digital-native beauty businesses, we are continuing our expansion into prestige cosmetics, and we are building a comprehensive skincare portfolio leveraging existing and new brands. The success of product launches in these or adjacent product categories could be hampered by our relative inexperience operating in such categories and channels, the strength of our competitors or any of the other risks referred to herein. Our inability to introduce successful products in our traditional categories and channels or in these or other adjacent categories and channels could limit our future growth and have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nWe may not be able to identify suitable acquisition targets and our acquisition activities and other strategic transactions may present managerial, integration, operational and financial risks, which may prevent us from realizing the full intended benefit of the acquisitions we undertake.\nOur acquisition activities and other strategic transactions expose us to certain risks related to integration, including diversion of management attention from existing core businesses and substantial investment of resources to support integration. During the past several years, we have explored and undertaken opportunities to acquire other companies and assets as part of our growth strategy. For example, we completed five significant acquisitions in fiscal 2016 through fiscal 2018 (including the acquisition of the P&G Beauty Business in October 2016). We entered into a joint venture with Kylie Jenner in fiscal 2020 and a strategic partnership with Kim Kardashian in fiscal 2021. These assets represent a significant portion of our net assets, particularly the P&G Beauty Business. As we consider growth opportunities, we may continue to seek acquisitions that we believe strengthen our competitive position in our key segments and geographies or accelerate our ability to grow into adjacent \n14\nproduct categories and channels and emerging markets or which otherwise fit our strategy. There can be no assurance that we will be able to identify suitable acquisition candidates, be the successful bidder or consummate acquisitions on favorable terms, have the funds to acquire desirable acquisitions or otherwise realize the full intended benefit of such transactions. In addition, acquisitions could adversely impact our deleveraging strategy. \nThe assumptions we use to evaluate acquisition opportunities may prove to be inaccurate, and intended benefits may not be realized. Our due diligence investigations may fail to identify all of the problems, liabilities or other challenges associated with an acquired business which could result in increased risk of unanticipated or unknown issues or liabilities, including with respect to environmental, competition and other regulatory matters, and our mitigation strategies for such risks that are identified may not be effective. As a result, we may not achieve some or any of the benefits, including anticipated synergies or accretion to earnings or other financial measures, that we expect to achieve in connection with our acquisitions and joint ventures, or we may not accurately anticipate the fixed and other costs associated with such acquisitions and joint ventures, or the business may not achieve the performance we anticipated, which may materially adversely affect our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities. Any financing for an acquisition could increase our indebtedness or result in a potential violation of the debt covenants under our existing facilities requiring consent or waiver from our lenders, which could delay or prevent the acquisition, or dilute the interests of our stockholders. For example, in connection with the acquisition of the P&G Beauty Business, Green Acquisition Sub Inc., a wholly-owned subsidiary of the Company, was merged with and into Galleria, with Galleria continuing as the surviving corporation and a direct wholly-owned subsidiary of the Company (the \u201cGreen Merger\u201d) and pre-Green Merger holders of our stock were diluted to 46% of the fully diluted shares of common stock immediately following the Green Merger. In addition, acquisitions of foreign businesses, new entrepreneurial businesses and businesses in new distribution channels, such as our acquisition of the Brazilian personal care and beauty business of Hypermarcas S.A. (the \u201cHypermarcas Brands\u201d) and our joint venture with Kylie Jenner and our investment in the Kim Kardashian beauty business, entail certain particular risks, including potential difficulties in geographies and channels in which we lack a significant presence, difficulty in seizing business opportunities compared to local or other global competitors, difficulty in complying with new regulatory frameworks, the acquisition of new or unexpected liabilities, the adverse impact of fluctuating exchange rates and entering lines of business where we have limited or no direct experience. See \u201c\u2014Fluctuations in currency exchange rates may negatively impact our financial condition and results of operations\u201d and \u201c\u2014We are subject to risks related to our international operations.\u201d\nWe face risks associated with our joint ventures and strategic partnership investments.\nWe are party to several joint ventures and strategic partnership investments in both the U.S. and abroad. Going forward, we may acquire interests in more joint venture enterprises or other strategic partnerships to execute our business strategy by utilizing our partners\u2019 skills, experiences and resources. These joint ventures and investments involve risks that our joint venture or strategic investment partners may:\n\u2022\nhave economic or business interests or goals that are inconsistent with or adverse to ours;\n\u2022\ntake actions contrary to our requests or contrary to our policies or objectives, including actions that may violate applicable law;\n\u2022\nbe unable or unwilling to fulfill their obligations under the relevant joint venture agreements;\n\u2022\nhave financial or business difficulties;\n\u2022\ntake actions that may harm our reputation; or\n\u2022\nhave disputes with us as to the scope of their rights, responsibilities and obligations.\nIn certain cases, joint ventures and strategic partnership investments may present us with a lack of ability to fully control all aspects of their operations, including due to veto rights, and we may not have full visibility with respect to all operations, customer relations and compliance practices, among others.\nOur present or future joint venture and strategic partnership investment projects may not be successful. We have had, and in the future may have, disputes or encounter other problems with respect to our present or future joint venture or strategic investment partners or our joint venture or strategic partnership investment agreements may not be effective or enforceable in resolving these disputes or we may not be able to resolve such disputes and solve such problems in a timely manner or on favorable economic terms, or at all. Any failure by us to address these potential disputes or conflicts of interest effectively could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nOur goodwill and other assets have been subject to impairment and may continue to be subject to impairment in the future.\nWe are required, at least annually and sometimes on an interim basis, to test goodwill and indefinite-lived intangible assets to determine if any impairment has occurred. Impairment may result from various factors, including adverse changes in \n15\nassumptions used for valuation purposes, such as actual or projected revenue growth rates, profitability or discount rates. If the testing indicates that an impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill or indefinite intangible assets and the fair value of the goodwill or of indefinite-lived intangible assets. \nWe cannot predict the amount and timing of any future impairments, if any. We have experienced impairment charges with respect to goodwill, intangible assets or other items in connection with past acquisitions, and we may experience such charges in connection with such acquisitions or future acquisitions, particularly if business performance declines or expected growth is not realized or the applicable discount rate changes adversely. For example, in our continuing operations in fiscal 2022, we incurred impairment charges of $31.4, primarily related to impairments on indefinite-lived other intangible assets. It is possible that material changes in our business, market conditions, or market assumptions could occur over time. Any future impairment of our goodwill or other intangible assets could have an adverse effect on our financial condition and results of operations, as well as the trading price of our securities. For a further discussion of our impairment testing, please refer to \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations-Financial Condition-Liquidity and Capital Resources-Goodwill, Other Intangible Assets and Long-Lived Assets\u201d.\nRisks related to our Business Operations\nA disruption in operations could adversely affect our business.\nAs a company engaged in manufacturing and distribution on a global scale, we are subject to the risks inherent in such activities, including industrial accidents, environmental events, strikes and other labor disputes (including as to works councils), disruptions in supply chain or information systems, loss or impairment of key manufacturing sites or distribution centers, product quality control, safety, licensing requirements and other regulatory issues, as well as natural disasters, pandemics or outbreaks of contagious diseases, border disputes, acts of terrorism, armed conflicts such as the war in Ukraine and other geopolitical tensions, possible dawn raids, and other external factors over which we have no control. For example, in fiscal 2022, limited driver capacity and transportation delays impacted our U.S. distribution centers resulting in increased costs, including penalty payments to retailers for delayed product delivery. As we continue our implementation of our global business strategies (including our cost discipline activities and sustainability initiatives) and other restructuring activities, any additional or ongoing supply chain disruptions or delay in securing applicable approvals or consultations for such activities may impact our quarterly results. The loss of, or damage or disruption to, any of our manufacturing facilities or distribution centers could have a material adverse effect on our business, prospects, results of operations, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nWe manufacture and package a majority of our products. Raw materials, consisting chiefly of essential oils, alcohols, chemicals, containers and packaging components, are purchased from various third-party suppliers. The loss of multiple suppliers or a significant disruption or interruption in the supply chain, or our relationships with key suppliers due to our payment terms or otherwise, could have a material adverse effect on the manufacturing and packaging of our products. In the past year, inflationary pressures as well as global supply chain disruptions have caused significant volatility in the cost and availability of the raw materials and services (such as transportation) that we need to manufacture and distribute our products. In particular, increases in energy costs due to global geopolitical conditions, particularly in Europe, have impacted the cost and availability of raw materials, including glass and glass components and certain resins. Increases in the costs of raw materials or other commodities and transportation services may adversely affect our profit margins if we are unable to pass along any higher costs in the form of price increases or otherwise achieve cost efficiencies in manufacturing and distribution. In addition, failure by our third-party suppliers to comply with ethical, social, product, labor and environmental laws, regulations or standards, or their engagement in politically or socially controversial conduct, such as animal testing, could negatively impact our reputations and lead to various adverse consequences, including decreased sales and consumer boycotts. We are also subject to reporting requirements under The Dodd-Frank Wall Street Reform and Consumer Protection Act regarding the use of certain minerals mined from the Democratic Republic of Congo and adjoining countries and procedures pertaining to a manufacturer\u2019s efforts regarding the source of such minerals. SEC rules implementing these requirements may have the effect of reducing the pool of suppliers who can supply \u201cconflict free\u201d products, and we may not be able to obtain conflict free products or supplies in sufficient quantities for our operations. Likewise, we have faced, and may continue to face, constraints in the availability of certain raw materials that align with our sustainability goals, including responsibly sourced palm oil, mica and recycled materials. Since our supply chain is complex, we may face operational obstacles and reputational challenges with our customers and stockholders if we are unable to continue to sufficiently verify the origins for materials used in our products and packaging or if we are subject to additional supply chain diligence and disclosure regulations or other reporting obligations.\nThe above risks have been and may continue to be exacerbated by the impact of inflationary pressures, global supply chain disruptions and the ongoing effects of COVID-19 on our business, and our efforts to manage and remedy these impacts to the Company may not achieve results in accordance with our expectations or on the timelines we anticipate. \nWe outsource a number of functions to third-party service providers, and any failure to perform or other disruptions or delays at our third-party service providers could adversely impact our business, our results of operations or our financial condition. \n16\nWe have outsourced and may continue to outsource certain functions, including outsourcing of distribution functions, outsourcing of business processes (including certain financing and accounting functions), and third-party manufacturers, logistics and supply chain suppliers, and other suppliers, including third-party software providers, web-hosting and e-commerce providers, and we are dependent on the entities performing those functions. The failure of one or more such providers to provide the expected services, provide them on a timely basis or provide them at the prices we expect, \nthe failure of one or more of such providers to meet our performance standards and expectations, including with respect to data security, compliance with data protection and privacy laws, disruptions arising from the transition of functions to an outsourcing provider, \nor the costs incurred in returning these outsourced functions to being performed under our management and direct control, may have a material adverse effect on our results of operations or financial condition.\nWe are increasingly dependent on information technology, and if we are unable to protect against service interruptions, corruption of our data and privacy protections, cyber-based attacks or network security breaches, our operations could be disrupted.\nWe rely on information technology networks and systems, including the Internet, to process, transmit and store electronic and financial information, to manage a variety of business processes and activities, and to comply with regulatory, legal and tax requirements. We also increasingly depend on our information technology infrastructure for digital marketing activities, e\u2011commerce and for electronic communications among our locations, personnel, customers and suppliers around the world, including as a result of remote working in connection with flexible working arrangements. These information technology systems, some of which are managed by third parties that we do not control, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, cutover activities in our restructuring and simplification initiatives, power outages, hardware failures, telecommunication failures, user errors, catastrophic events or other problems. \nIn addition, our databases and systems and our third-party providers\u2019 databases and systems have been, and will likely continue to be, subject to advanced computer viruses or other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, social engineering, hacking and other cyber-attacks, the threat of which is increasing in frequency, intensity and duration. Such attacks have become increasingly difficult to detect, defend against or prevent and may originate from outside parties, hackers, criminal organizations or other threat actors, including nation states. As artificial intelligence (\u201cAI\u201d) capabilities improve and gain widespread use, we may experience cyberattacks created using artificial intelligence, which may be difficult to detect and mitigate against. These attacks could be designed with an AI tool to directly attack information systems with increased speed and/or efficiency than a human or create more effective phishing techniques. It is also possible for a threat to be introduced as a result of our customers and third-party providers using the output of an AI tool that includes a threat, such as introducing malicious code by incorporating AI generated source code. In addition, insider actors (malicious or otherwise) could cause technical disruptions and/or confidential data leakage. Our security efforts or the security efforts of our third-party providers may not be sufficient to prevent material breaches, operational incidents or other breakdowns to our or our third-party providers\u2019 information technology databases or systems.\nIf our information technology systems otherwise suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results. If not managed and mitigated effectively, these risks could increase in the future as we expand our digital capabilities and e-commerce activities, including through the use of new digital applications and technologies. There are further risks associated with the information systems of our joint ventures and of the companies we acquire, both in terms of systems compatibility, process controls, level of security and functionality. It may cost us significant time, money and resources to address these risks and if our systems were to fail or we are unable to successfully expand the capacity of these systems, or we are unable to integrate new technologies into our existing systems, our financial condition, results of operations and cash flows, as well as the trading price of our securities, may be adversely affected.\nWe are subject to an evolving body of federal, state and non-U.S. laws, regulations, guidelines, and principles regarding data privacy and security. A data breach or inability on our part to comply with such laws, regulations, guidelines, and principles or to quickly adapt our practices to reflect them as they develop, could potentially subject us to significant liabilities and reputational harm. Several governments, including the E.U., have regulations dealing with the collection and use of personal information obtained from their citizens, and regulators globally are also imposing greater monetary fines for privacy violations. For example, in the E.U. the GDPR became effective in May 2018, establishing requirements regarding the handling of personal data, and non-compliance with the GDPR may result in monetary penalties of up to 4% of worldwide revenue. Regulators, including the U.K.\u2019s Information Commissioner\u2019s Office, have actively enforced the law and imposed substantial fines, and are expected to continue to do so. In addition, five states in the United States (California, Virginia, Colorado, Utah and Connecticut) enacted a data privacy laws in 2020 and 2021 applicable to entities serving or employing state residents. Brazil enacted the General Data Protection Law (\u201cBrazil LGPD\u201d) regulating the processing of personal data, which became effective in August 2020. More recently, China enacted the Data Security Law and Personal Information Protection Law, which became effective in September 2021 and November 2021, respectively. These existing laws and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data and other personal information, require us to evaluate our current operations, information technology systems and data handling practices and implement enhancements \n17\nand adaptations where necessary to comply. Compliance with these laws, could greatly increase our operational costs or require us to adapt certain products, operations, processes or activities in otherwise suboptimal ways, to comply with the stricter regulatory requirements, such as efforts to meet consumer demand for personalized products and services, in jurisdictions where we operate. The regulations are complex and likely require adjustments to our operations. Any failure to comply with all such laws by us, our business partners or third-parties engaged by us could result in significant liabilities and reputational harm.\nIn addition, if we are unable to prevent or detect security breaches, or properly remedy them, we may suffer financial and reputational damage or penalties because of the unauthorized disclosure of confidential information belonging to us or to our partners, customers or suppliers, including personal employee, consumer or presenter information stored in our or third-party systems or as a result of the dissemination of inaccurate information. In addition, the unauthorized disclosure of nonpublic sensitive information could lead to the loss of intellectual property or damage our reputation and brand image or otherwise adversely affect our ability to compete.\nOur information technology systems, operations and security control frameworks require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems to keep pace with continuing changes in technology, legal and regulatory standards, cyber threats and the commercial opportunities that accompany the changing digital and data driven economy. From time to time, we undertake significant information technology systems projects, including enterprise resource planning updates, modifications, integrations and roll-outs, as well as separation and carve-out activities relating to dispositions. These projects may be subject to cost overruns and delays and may cause disruptions in our daily business operations. These cost overruns and delays and distractions as well as our reliance on certain third parties for certain business and financial information could impact our financial statements and could adversely impact our ability to run our business, correctly forecast future performance and make fully informed decisions. \nOur success depends, in part, on our employees, including our key personnel.\nOur success depends, in part, on our ability to identify, hire, train and retain our employees, including our key personnel, such as our executive officers and senior management team and our research and development and marketing personnel. Over the past few years we have experienced several changes to senior management and the composition of our board of directors, as well as the separation of the Wella Business, and we are still in the process of implementing our global business strategies, including cost reduction activities. Transition periods accompanying changes in leadership and changes due to business reorganization may result in uncertainty, impact business performance and strategies and retention of personnel. The unexpected loss of one or more of our key employees could adversely affect our business. Competition for highly qualified individuals can be intense, and although many of our key personnel have signed non-compete agreements, it is possible that these agreements would be unenforceable, in whole or in part, in some jurisdictions, permitting employees in those jurisdictions to transfer their skills and knowledge to the benefit of our competitors with little or no restriction. We may not be able to attract, assimilate or retain qualified personnel in the future, and our failure to do so could adversely affect our business. Further, other companies may attempt to recruit our key personnel and we may attempt to recruit their key personnel, even if bound by non-competes, which could result in diversion of management attention and our resources to litigation related to such recruitment. These risks may be exacerbated by the stresses associated with changes in our global business strategy, the implementation of our restructuring activities, any continued changes in our senior management team and other key personnel, and other initiatives. During fiscal 2023, we continued to experience an increasingly competitive labor market, increased employee turnover, and labor shortages in our extended supply chain. These challenges have resulted in, and could continue to result in, increased costs and could impact our ability to meet consumer demand, each of which may adversely affect our business and financial results.\nAs we continue to restructure our workforce from time to time (including with respect to our global business strategies and other business restructuring initiatives, as well as acquisitions and our overall growth strategy) and work with more brand partners and licensors, the risk of potential employment-related claims and disputes will also increase. As such, we or our partners may be subject to claims, allegations or legal proceedings related to employment matters including discrimination, harassment (sexual or otherwise), wrongful termination or retaliation, local, state, federal and non-U.S. labor law violations, injury, and wage violations. In addition, our employees in certain countries in Europe are subject to works council arrangements, exposing us to associated delays, works council claims and associated litigation. In the event we or our partners are subject to one or more employment-related claims, allegations or legal proceedings, we or our partners may incur substantial costs, losses or other liabilities in the defense, investigation, settlement, delays associated with, or other disposition of such claims. In addition to the economic impact, we or our partners may also suffer reputational harm as a result of such claims, allegations and legal proceedings and the investigation, defense and prosecution of such claims, allegations and legal proceedings could cause substantial disruption in our or our partners\u2019 business and operations, including delaying and reducing the expected benefits of any associated restructuring activities. We have policies and procedures in place to reduce our exposure to these risks, but such policies and procedures may not be effective and we may be exposed to such claims, allegations or legal proceedings.\n18\nIf we underestimate or overestimate demand for our products and do not maintain appropriate inventory levels, our net revenues or working capital could be negatively impacted.\nWe currently engage in a program seeking to improve control over our product demand and inventories. We have identified, and may continue to identify, inventories that are not saleable in the ordinary course, but our existing program or any future inventory management program may not be successful in improving our inventory control. Our ability to manage our inventory levels to meet demand for our products is important for our business. If we overestimate or underestimate demand for any of our products, we may not maintain appropriate inventory levels, we could have excess inventory that we may need to hold for a long period of time, write down, sell at prices lower than expected or discard, which could negatively impact our reputation, net sales, working capital or cash flows from working capital, or cause us to incur excess and obsolete inventory charges. We also could have inadequate inventories which could hinder our ability to meet demand. We have sought and continue to seek to improve our payable terms, which could adversely affect our relations with our suppliers.\nIn addition, we have significant working capital needs, as the nature of our business requires us to maintain inventories that enable us to fulfill customer demand. We generally finance our working capital needs through cash flows from operations and borrowings under our credit facilities. If we are unable to finance our working capital needs on the same or more favorable terms going forward, or if our working capital requirements increase and we are unable to finance the increase, we may not be able to produce the inventories required by demand, which could result in a loss of sales. In addition, we are reliant on our cash flows from operations to repay our indebtedness, which may impact the cash flows that are available for working capital needs. Our ability to generate and maintain sufficient cash levels also could impact our ability to reduce our indebtedness. \nThe above risks have been and may continue to be exacerbated by the impact of inflationary pressures and global supply chain disruptions and the ongoing effects of COVID-19 on our business, and our efforts to manage and remedy these impacts to the Company may not achieve results in accordance with our expectations or on the timelines we anticipate. \nWe are subject to risks related to our international operations.\nWe operate on a global basis, and approximately 69% of our net revenues from continuing operations in fiscal 2023, were generated outside North America. We have employees in more than 36 countries, and we market, sell and distribute our products in over 126 countries and territories. Our presence in such geographies has expanded as a result of our acquisitions, as well as organic growth, and we are exposed to risks inherent in operating in geographies in which we have not operated in or have been less present in the past.\nNon-U.S. operations are subject to many risks and uncertainties, including ongoing instability or changes in a country\u2019s or region\u2019s economic, regulatory or political conditions, including inflation, recession, interest rate fluctuations, sovereign default risk and actual or anticipated military or political conflicts (including any other change resulting from Brexit), labor market disruptions, sanctions, boycotts, new or increased tariffs, quotas, exchange or price controls, trade barriers or other restrictions on foreign businesses, our failure to effectively and timely implement processes and policies across our diverse operations and employee base and difficulties and costs associated with complying with a wide variety of complex and potentially conflicting regulations across multiple jurisdictions. Non-U.S. operations also increase the risk of non-compliance with U.S. laws and regulations applicable to such non-U.S. operations, such as those relating to sanctions, boycotts and improper payments. \nIn addition, sudden disruptions in business conditions as a consequence of events such as terrorist attacks, war or other military action or the threat of further attacks, pandemics or other crises or vulnerabilities or as a result of adverse weather conditions or climate changes, may have an impact on consumer spending, which could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nThe U.S. and the other countries in which our products are manufactured or sold have imposed and may impose additional quotas, duties, tariffs, retaliatory or trade protection measures, or other restrictions or regulations, or may adversely adjust prevailing quota, duty or tariff levels, which can affect both the materials that we use to manufacture or package our products and the sale of finished products. For example, in 2018, the E.U. imposed tariffs on certain prestige category products imported from the U.S., which impact the sale in the E.U. of certain of our products that are manufactured in the U.S. Similarly, the tariffs imposed by the U.S. on goods and materials from China are impacting materials we import for use in manufacturing or packaging in the U.S. Measures to reduce the impact of tariff increases or trade restrictions, including shifts of production among countries and manufacturers, geographical diversification of our sources of supply, adjustments in product or packaging design and fabrication, or increased prices, could increase our costs and delay our time to market or decrease sales. Other governmental action related to tariffs or international trade agreements has the potential to adversely impact demand for our products, our costs, customers, suppliers and global economic conditions and cause higher volatility in financial markets. The beauty industry has been impacted by ongoing uncertainty surrounding tariffs and import duties, and international trade relations generally. While we actively review existing and proposed measures to seek to assess the impact of them on our business, changes in tariff rates, import duties and other new or augmented trade restrictions could have a number of negative impacts on our business, including higher consumer prices and reduced demand for our products and higher input costs.\n19\nOn December 22, 2017, the President of the U.S. signed the Tax Act which made broad and complex changes to the U.S. tax laws that affect businesses operating internationally, and, as a result of elections in the United States, there could be additional significant changes in tax laws and regulations in the future. In addition, some foreign governments may enact tax laws in response to the Tax Act or other U.S. tax law changes that could result in further changes to global taxation and that could materially adversely affect our financial results, which could have a material adverse effect on our results of operations, financial condition and cash flows, as well as the trading price of our securities.\nRisks related to our Indebtedness \nWe have taken on significant debt, and the agreements that govern such debt contain various covenants that impose significant operating and financial restrictions on us, which may adversely affect our business.\nWe have a substantial amount of indebtedness. We may not be able to refinance our indebtedness in the future (1) on commercially reasonable terms, (2) on terms, including with respect to interest rates, as favorable as our current debt or (3) at all.\nAgreements that govern our indebtedness, including our credit agreement (as amended, the \u201c2018 Coty Credit Agreement\u201d), and the indentures governing our senior secured notes and our senior unsecured notes, impose significant operating and financial restrictions on our activities. These restrictions may limit or prohibit our ability and the ability of our restricted subsidiaries to, among other things:\n\u2022\nincur indebtedness or grant liens on our property;\n\u2022\ndispose of assets or equity;\n\u2022\nmake acquisitions or investments;\n\u2022\nmake dividends, distributions or other restricted payments;\n\u2022\neffect affiliate transactions;\n\u2022\nenter into sale and leaseback transactions; and\n\u2022\nenter into mergers, consolidations or sales of substantially all of our assets and the assets of our subsidiaries.\nIn addition, we are required to maintain certain financial ratios calculated pursuant to a financial maintenance covenant under the 2018 Coty Credit Agreement on a quarterly basis. For a further description of the 2018 Coty Credit Agreement and the covenants thereunder please refer to Note 15, \u201cDebt\u201d in the notes to our Consolidated Financial Statements.\nOur debt burden and the restrictions in the agreements that govern our debt could have important consequences, including increasing our vulnerability to general adverse economic and industry conditions; limiting our flexibility in planning for, or reacting to, changes in our business and our industry; requiring the dedication of a substantial portion of any cash flow from operations and capital investments to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund our operations, turnaround strategy, working capital, capital expenditures, future business opportunities and other general corporate purposes; exposing us to the risk of increased interest rates with respect to any borrowings that are at variable rates of interest; restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; limiting our ability to obtain additional financing for working capital, capital expenditures, research and development, debt service requirements, acquisitions and general corporate or other purposes; limiting our ability to adjust to changing market conditions; limiting our ability to take advantage of financing and other corporate opportunities; and placing us at a competitive disadvantage relative to our competitors who are less highly leveraged. Moreover, a material breach of the 2018 Coty Credit Agreement could result in the acceleration of all obligations outstanding under that agreement. \nOur ability to service and repay our indebtedness will be dependent on the cash flow generated by our subsidiaries and events beyond our control.\nPrevailing economic conditions and financial, business and other factors, many of which are beyond our control, may affect our ability to make payments on our debt and comply with other requirements under the 2018 Coty Credit Agreement and to meet our deleveraging objectives. In particular, due to the seasonal nature of the beauty industry, with the highest levels of consumer demand generally occurring during the holiday buying season in our second fiscal quarter, our subsidiaries\u2019 cash flow in the second half of the fiscal year may be less than in the first half of the fiscal year, which may affect our ability to satisfy our debt service obligations, including to service our senior secured notes, senior unsecured notes and the 2018 Coty Credit Agreement, and to meet our deleveraging objectives. If we do not generate sufficient cash flow to satisfy our covenants and debt service obligations, including payments on our senior secured notes, senior unsecured notes and under the 2018 Coty Credit Agreement, we may have to undertake additional cost reduction measures or alternative financing plans, such as refinancing or restructuring our debt; selling assets; reducing or delaying capital investments; modifying terms of agreements, \n20\nincluding timing of payments, with vendors, customers, and other third parties; or seeking to raise additional capital. The terms of the indentures governing our senior secured notes and senior unsecured notes, the 2018 Coty Credit Agreement or any existing debt instruments or future debt instruments that we may enter into may restrict us from adopting some of these alternatives. Our ability to restructure or refinance our debt will depend on the capital markets and other macroeconomic conditions and our financial condition at such time. Recent refinancings of our debt have resulted, and future refinancings or modifications of our debt could result, in higher interest rates and may require us to comply with more onerous covenants or reduce our borrowing capacity, which could further restrict our business operations. For example, the refinancing of certain portions of our debt in 2021 resulted in higher interest rates applicable to the newly issued senior secured notes, in part due to prevailing macroeconomic conditions and a decline in our credit ratings since our previous refinancing transactions in 2018. The inability of our subsidiaries to generate sufficient cash flow to satisfy our covenants and debt service obligations, including the inability to service our senior secured notes, senior unsecured notes and the 2018 Coty Credit Agreement, or to refinance our obligations on commercially reasonable terms, could have a material adverse effect on our business, financial condition, results of operations, profitability, cash flows or liquidity, as well as the trading price of our securities, and may impact our ability to satisfy our obligations in respect of our senior secured notes, senior unsecured notes and the 2018 Coty Credit Agreement.\nOur variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase.\nBorrowings under the 2018 Coty Credit Agreement are at variable rates of interest and expose us to interest rate risk. In the past year, inflation and other factors have resulted in an increase in interest rates generally, which has impacted our borrowing costs. If interest rates were to continue to increase, our debt service obligations on the variable rate indebtedness referred to above would increase even if the principal amount borrowed remained the same, and our net income and cash flows will correspondingly decrease. We are currently party to, and in the future, we may enter into additional, interest rate swaps that involve the exchange of floating for fixed rate interest payments, in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.\nIn addition, we have amended our 2018 Credit Agreement to allow us to reference the Secured Overnight Financing Rate (\u201cSOFR\u201d) as the primary benchmark rate for our variable rate indebtedness, in lieu of the London Interbank Offered Rate (\u201cLIBOR\u201d). SOFR is a relatively new reference rate and with a limited history, and changes in SOFR have, on occasion, been more volatile than changes in other benchmark or market rates. As a result, the amount of interest we may pay on our variable rate indebtedness is difficult to predict.\nRisks related to Macroeconomic Conditions and Market Risks\nWe must successfully manage the impact of a general economic downturn, credit constriction, uncertainty in global economic or political conditions or other global events or a sudden disruption in business conditions which may affect consumer spending, global supply chain conditions and inflationary pressures and adversely affect our financial results.\nGlobal events may impact our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities, and, as demonstrated by the impacts of COVID-19 and the war in Ukraine, such events can evolve rapidly and cause significant and pervasive disruptions to global economic and business conditions. We operate in an environment of slow overall growth in the segments and geographies in which we compete with increasing competitive pressure and changing consumer preferences, and global economic activity has been in decline as a result of  higher levels of unemployment, unprecedented levels of inflation, recessionary conditions and geopolitical conditions including the war in Ukraine and the ongoing effects of COVID-19. While prestige fragrances and skin care categories have experienced strong growth, declines in the retail mass color cosmetics, mass nail and mass fragrance categories in the U.S. and certain key markets in Western Europe continue to impact our business and financial results. Deterioration of social or economic conditions in Europe or elsewhere could reduce sales and could also impair collections on accounts receivable. For example, political and economic developments in the U.S., the U.K., Europe, Brazil and China have introduced uncertainty in the regulatory and business environment in which we operate (including potential increases in tariffs). These political and economic developments have resulted and could continue to result in changes to legislation or reformation of government policies, rules and regulations pertaining to trade. Such changes could have a significant impact on our business by increasing the cost of doing business, affecting our ability to sell our products and negatively impacting our profitability. \nAbrupt political change, terrorist activity, and armed conflict, such as the ongoing war in Ukraine and any escalation or expansion thereof, pose a risk of further general economic disruption in affected regions. Geopolitical change may result in changing regulatory systems and requirements and market interventions that could impact our operating strategies, access to national, regional and global markets (due to sanctions or otherwise), hiring, and profitability. For example, changes in the regulatory environment in China or geopolitical tensions impacting trade or operations in China could impact our growth strategy. Any of these changes may negatively impact our revenues. \nIn addition, our sales are affected by the overall level of consumer spending. The general level of consumer spending is affected by a number of factors, including general economic conditions (including potential recessions in one or more \n21\nsignificant economies), inflation, interest rates, government policies that affect consumers (such as those relating to medical insurance or income tax), energy costs and consumer confidence, each of which is beyond our control. Consumer purchases of discretionary and other items and services, including beauty products, tend to decline during recessionary periods, periods of high inflation and otherwise weak economic environments, when disposable income is lower. A decline in consumer spending would likely have a negative impact on our direct sales and could cause financial difficulties at our retailer and other customers. If consumer purchases decrease, we may not be able to generate enough cash flow to meet our debt obligations and other commitments and may need to refinance our debt, dispose of assets or issue equity to raise necessary funds. We cannot predict whether we would be able to undertake any of these actions to raise funds on a timely basis or on satisfactory terms or at all. The financial difficulties of a customer or retailer could also cause us to curtail or eliminate business with that customer or retailer. We may also decide to assume more credit risk relating to the receivables from our customers or retailers, which increases the possibility of late or non-payment of receivables. Our inability to collect receivables from a significant retailer or customer, or from a group of these customers, could have a material adverse effect on our business, prospects, results of operations, financial condition, results of operations, cash flows, as well as the trading price of our securities. If a retailer or customer were to go into liquidation, we could incur additional costs if we choose to purchase the retailer\u2019s or customer\u2019s inventory of our products to protect brand equity. These risks have been, and may continue to be, amplified by COVID-19, the war in Ukraine and related geopolitical conditions. \nThe COVID-19 pandemic has had, and could continue to have, a negative impact on our business, financial condition, results of operations and cash flows.\nThe COVID-19 pandemic and the\n actions taken by governments and third-parties in response\n have had, and continue to have, evolving and unpredictable impacts on global economies, financial markets and business practices. \n A resurgence of COVID-19, including any variants of the virus, or the outbreak of another pandemic, epidemic or infectious disease in one or more of the countries where we operate or our customers are located could result in varied government and third-party actions\n relating to, among other things, quarantines, facility closures, store closures \nor social distancing, resulting in further volatility and disparity in our results and operations across geographies and creating challenges for our ability to forecast demand. Our business has been, and may continue to be, negatively impacted by the COVID-19 pandemic in such countries. These impacts include, but are not limited to:\n\u2022\nReductions in demand or volatility in demand for one or more of our products, which, if prolonged, can further increase the difficulty of operating our business, including accurately planning and forecasting, and may adversely impact our results;\n\u2022\nInability to meet our customers\u2019 needs and achieve costs targets due to disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce, or other manufacturing and distribution capability;\n\u2022\nFailure of third parties on which we rely, including our suppliers, our customers, contract manufacturers, distributors, contractors, commercial banks, joint venture partners and external business partners, to meet their obligations to us or to timely meet those obligations, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may adversely impact our operations; or\n\u2022\nSignificant changes in the political conditions in markets in which we manufacture, sell or distribute our products, including government or third-party actions that limit or close our operating and manufacturing facilities or otherwise prevent consumers from having access to our products, restrict our employees\u2019 ability to travel or perform necessary business functions or otherwise prevent our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which could adversely impact our results.\nThese impacts have had, and could continue to have, a negative impact on our business, financial condition, results of operations and cash flows, as well as the trading price of our securities, and the duration and extent to which our future results of operations and overall financial performance may be impacted cannot be determined. Despite our ability to manage and remedy these impacts to the Company, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of any such disease outbreak, as well as the actions taken by governments or third-parties to contain its spread and mitigate its public health effects. For example, an increase of COVID-19 related cases in certain parts of China resulted in the re-imposition of widespread lockdowns and restrictions in mid-March 2022, which negatively impacted our results in China in the fourth quarter of fiscal 2022 due to reduced customer traffic and supply chain constraints. Ongoing impacts of COVID-19 have continued in China during fiscal 2023, and economic recovery in the region has been slower than predicted and may continue to be below pre-pandemic levels, which could adversely affect our strategy to expand our presence in China. \n22\nPrice inflation for labor, materials and services, further exacerbated by volatility in energy and commodity markets by the war in Ukraine, could adversely affect our business, results of operations and financial condition.\nWe experienced considerable price inflation in costs for labor, materials and services during fiscal 2022. We may not be able to continue to pass through inflationary cost increases and, if inflationary pressures are sustained, we may only be able to recoup a portion of our increased costs in future periods. Our ability to raise prices to reflect increased costs may also be limited by competitive conditions in the market for our products. The war in Ukraine and prolonged geopolitical conflict globally may continue to result in increased price inflation, escalating energy and commodity prices and increasing costs of materials and services (together with shortages or inconsistent availability of materials and services)\n,\n which may also have the effect of heightening many of our other risks, such as those relating to cyber security, supply chain disruption, volatility in prices and market conditions, our ability to forecast demand, and our ability to successfully implement our global business strategies, any of which could negatively affect our business, results of operations and financial condition. \nVolatility in the financial markets could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nWhile we currently generate significant cash flows from our ongoing operations and have access to global credit markets through our various financing activities, credit markets may experience significant disruptions. Deterioration in global financial markets, including as a result of global and regional economic conditions, COVID-19, the war in Ukraine and related geopolitical conditions, could make future financing difficult or more expensive. If any financial institutions that are parties to our credit facilities or other financing arrangements, such as interest rate or foreign currency exchange hedging instruments, were to declare bankruptcy or become insolvent, or experience other financial difficulty, they may be unable to perform under their agreements with us. In addition, the deterioration of the financial condition of any of the financial institutions that hold our short-term investments and cash deposits could negatively impact the value and liquidity of such investments and deposits. This could leave us with reduced borrowing capacity, could leave us unhedged against certain interest rate or foreign currency exposures or could reduce our access to our cash deposits, which could have an adverse impact on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nFluctuations in currency exchange rates may negatively impact our financial condition and results of operations.\nExchange rate fluctuations have affected and may in the future affect our results of operations, financial condition, reported earnings, the value of our foreign assets, the relative prices at which we and foreign competitors sell products in the same markets and the cost of certain inventory and non-inventory items required by our operations. The currencies to which we are exposed include the euro, the British pound, the Chinese yuan, the Polish zloty, the Brazilian real, the Australian dollar and the Canadian dollar. The exchange rates between these currencies and the U.S. dollar in recent years have fluctuated significantly and may continue to do so in the future. A depreciation of these currencies against the U.S. dollar would decrease the U.S. dollar equivalent of the amounts derived from foreign operations reported in our consolidated financial statements and an appreciation of these currencies would result in a corresponding increase in such amounts. The cost of certain items, such as raw materials, transportation and freight, required by our operations may be affected by changes in the value of the various relevant currencies. To the extent that we are required to pay for goods or services in foreign currencies, the appreciation of such currencies against the U.S. dollar would tend to negatively impact our financial condition and results of operations. Our efforts to hedge certain exposures to foreign currency exchange rates arising in the ordinary course of business may not successfully hedge the effect of such fluctuations.\nIn addition, a portion of our borrowings under the 2018 Coty Credit Agreement and senior notes indentures are denominated in euros and expose us to currency exchange rate risk. We have entered into derivative transactions in order to reduce currency exchange rate volatility. However, we may not enter into or maintain such derivatives with respect to all of our euro-denominated indebtedness, and any derivative transactions we enter into may not fully mitigate our currency exchange rate risk.\nLegal and Regulatory Risks\nWe are subject to legal proceedings and legal compliance risks, including talc-related litigation alleging bodily injury.\nWe are subject to a variety of legal proceedings and legal compliance risks in the countries in which we do business, including the matters described under the heading \u201cLegal Proceedings\u201d in Part I, Item 3 of this report. We are under the jurisdiction of regulators and other governmental authorities which may, in certain circumstances, lead to enforcement actions, changes in business practices, fines and penalties, the assertion of private litigation claims and damages. Some of these actions may also adversely impact our customer relationships, particularly to the extent customers were implicated by such proceedings. We are also subject to legal proceedings and legal compliance risks in connection with legacy matters involving the P&G Beauty Business, the Burberry fragrance business, Hypermarcas Brands, the Kylie Jenner business and the Kim Kardashian business that were previously outside our control and that we are now independently addressing, as well as retained liabilities relating to divested businesses, which may result in unanticipated or new liabilities. We also are involved in numerous lawsuits involving product liability issues, most involving allegations related to alleged asbestos in our talc-based cosmetic products, allegedly leading to mesothelioma. While we believe that we have valid defenses to these lawsuits, these risks will \n23\ncontinue to exist with respect to our business, and additional legal proceedings and other contingencies, the outcome and impact of which (including legal fees) cannot be predicted with certainty, will arise from time to time. In particular, the potential impact of talc-related litigation is highly uncertain, as nationwide trial results in similar cases filed against Coty and other manufacturers or retailers of cosmetic talc products have ranged from outright dismissals to very large settlements and jury awards of both compensatory and punitive damages. Additionally, our continued production and sale of talc-based cosmetic products could in the future subject us to additional legal claims related to the sale of one or more of our talc-based cosmetics products, including potential governmental inquiries, investigations, claims and consumer protection cases from state attorneys general. Any negative resolution of litigation to which we are subject to could have an adverse effect on our \nbusiness, prospects, financial condition, results of operations and cash flows.\nAs described under \u201cLegal Proceedings\u201d in this report, the consolidated class action lawsuit in connection with the Cottage Tender Offer and related Schedule 14D-9 has been resolved.\nIn addition, we are subject to pending tax assessment matters in Brazil relating to local sales tax credits for the 2016-2017 tax periods. Although we are seeking a favorable administrative decision on the related tax enforcement action, we may not be successful. See Note 26\u2014 Legal and Other Contingencies for more information regarding our potential tax obligations in Brazil.\nChanges in laws, regulations and policies that affect our business or products could adversely affect our business, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nOur business is subject to numerous laws, regulations and policies. Changes in the laws (both foreign and domestic), regulations and policies, including the interpretation or enforcement thereof, that affect, or will affect, our business or products, including those related to intellectual property, marketing, antitrust and competition, product liability, restrictions or requirements related to product content or formulation, labeling and packaging (including end-of-product-life responsibility), corruption, the environment or climate change (including increasing focus on the climate, water and waste impacts of operations and products), immigration, privacy, data protection, taxes, tariffs, trade and customs (including, among others, import and export license requirements, sanctions, boycotts, quotas, trade barriers, and other measures imposed by U.S. and foreign countries), restrictions on foreign investment, the outcome and expense of legal or regulatory proceedings, and any action we may take as a result, and changes in accounting standards, could adversely affect our financial results as well as the trading price of our securities. For example, the Tax Act, enacted in 2017, introduced broad and complex changes to the U.S. tax laws that affect businesses operating internationally, and future tax law changes and regulatory, administrative or legislative guidance could adversely affect our financial results. See \u201c\u2014We are subject to risks related to our international operations\u201d. In addition, increasing governmental and societal attention to environmental, social and governance matters, including expanding mandatory and voluntary reporting, diligence and disclosure on topics such as climate change, waste production, water usage, biodiversity, emerging technologies, human capital, labor, supply chain, and risk oversight, could expand the nature, scope and complexity of matters that we are required to control, assess and report. These and other rapidly changing laws, regulations, policies and related interpretations, as well as increased enforcement actions by various governmental and regulatory agencies, create challenges for us, including our compliance and ethics programs, may alter the environment in which we do business and may increase the ongoing costs of compliance, which could adversely impact our results of operations and cash flows. If we are unable to continue to meet these challenges and comply with all laws, regulations, policies and related interpretations, our reputation and our business results could be adversely impacted. \nWe are also subject to legal proceedings and legal compliance risks in connection with legacy matters related to acquired companies that were previously outside our control. Such matters may result in our incurring unanticipated costs that may negatively impact the financial contributions of such acquisitions at least in the periods in which such liability is incurred or require operational adjustments that affect our results of operations with respect to such investments. We may not have adequate or any insurance coverage for some of these legacy matters, including matters assumed in the acquisition of the P&G Beauty Business, the Hypermarcas Brands and the Burberry fragrance business, the joint venture with Kylie Jenner and the strategic partnership with Kim Kardashian. While we believe that we have adopted, and will adopt, appropriate risk management and compliance programs, the global nature of our operations and many laws and regulations to which we are subject mean that legal and compliance risks will continue to exist with respect to our business, and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, will arise from time to time, which could adversely affect our business, prospects, financial condition, results of operations and cash flows, as well as the trading price of our securities.\nOur operations and acquisitions in certain foreign areas expose us to political, regulatory, economic and reputational risks.\nWe operate on a global basis. Our employees, contractors and agents, business partners, joint ventures and joint venture partners and companies to which we outsource certain of our business operations, may take actions in violation of our compliance policies or applicable law. In addition, some of our acquisitions have required us to integrate non-U.S. companies that had not, until our acquisition, been subject to U.S. law or other laws to which we are subject.\n24\nIn many countries, particularly in those with developing economies, it may be common for persons to engage in business practices prohibited by the laws and regulations applicable to us. In addition, certain countries have laws that differ with those in the US, including relating to competition and product distribution, with which US and other personnel may be unfamiliar, thereby increasing the risk of non-compliance. We continue to enhance our compliance program, including as a result of acquisitions and changes in the regulatory environment, but our compliance program may encounter problems or may not be effective in ensuring compliance.\nFailure by us or our subsidiaries to comply with applicable laws or policies could subject us to civil and criminal penalties, cause us to be in breach of contract or damage to our or our licensors\u2019 reputation, each of which could materially and adversely affect our business, prospects, financial condition, cash flows, results of operations, as well as the trading price of our securities.\nIn addition, the U.S. has imposed and may impose additional sanctions at any time on countries where we sell our products. If so, our existing activities may be adversely affected, we may incur costs in order to come into compliance with future sanctions, depending on the nature of any further sanctions that may be imposed, or we may experience reputational harm and increased regulatory scrutiny. For example, in April 2022, following the imposition of additional sanctions against Russia and Russian interests in connection with the war in Ukraine, we announced our Board\u2019s decision to wind down the operations of our Russian subsidiary as a result of the war and the related sanctions. For a further discussion of the impact of the wind down, please refer to \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u2014Overview \u2014Russia-Ukraine War.\u201d\nWe are subject to the interpretation and enforcement by governmental agencies of other foreign laws, rules, regulations or policies, including any changes thereto, such as restrictions on trade, import and export license requirements, and tariffs and taxes (including assessments and disputes related thereto), which may require us to adjust our operations in certain areas where we do business. We face legal and regulatory risks in the U.S. and abroad and, in particular, cannot predict with certainty the outcome of various contingencies or the impact that pending or future legislative and regulatory changes may have on our business. It is not possible to gauge what any final regulation may provide, its effective date or its impact at this time. These risks could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.\nOur employees or others may engage in misconduct or other improper activities including noncompliance with regulatory standards and regulatory requirements.\nWe are exposed to the risk of fraud or other misconduct by our personnel or third parties such as independent contractors, agents or influencers. Misconduct by employees, independent contractors, influencers or agents could include inadvertent or intentional failures to comply with the laws and regulations to which we are subject or with our policies, provide accurate information to regulatory authorities, comply with ethical, social, product, labor and environmental standards, comply with fraud and abuse laws and regulations, report financial information or data accurately, or disclose unauthorized activities to us. In particular, our business is subject to laws, regulations and policies intended to prevent fraud, kickbacks, self-dealing, resale price maintenance and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Our current and former employees, influencers or independent contractors may also become subject to allegations of sexual harassment, racial and gender discrimination or other similar misconduct, which, regardless of the ultimate outcome, may result in adverse publicity that could significantly harm our company\u2019s brand, reputation and operations. Employee misconduct could also involve improper use of information obtained in the course of the employee\u2019s prior or current employment, which could result in legal or regulatory action and serious harm to our reputation.\nViolations of our prohibition on harassment, sexual or otherwise, could result in liabilities and/or litigation.\nWe prohibit harassment or discrimination in the workplace, in sexual or in any other form. This policy applies to all aspects of employment. Notwithstanding our conducting training and taking disciplinary action against alleged violations, we may encounter additional costs from claims made and/or legal proceedings brought against us, and, regardless of the ultimate outcome, we could suffer reputational harm.\nIf the Distribution (as defined below) or the acquisition of the P&G Beauty Business does not qualify for its intended tax treatment, in certain circumstances we are required to indemnify P&G for resulting tax-related losses under the tax matters agreement entered into in connection with the acquisition of the P&G Beauty Business dated October 1, 2016 (the \u201cTax Matters Agreement\u201d).\nIn connection with the closing of the acquisition of the P&G Beauty Business on October 1, 2016, we and P&G received written opinions from special tax counsel regarding the intended tax treatment of the merger, and The Procter & Gamble Company (\u201cP&G\u201d) received an additional written opinion from special tax counsel regarding the intended tax treatment of the distribution by P&G of its shares of Galleria Co. (\u201cGalleria\u201d) common stock to P&G shareholders by way of an exchange offer (the \u201cDistribution\u201d). The opinions were based on, among other things, certain assumptions and representations as to factual \n25\nmatters and certain covenants made by us, P&G, Galleria and Green Acquisition Sub Inc. The opinions are not binding on the Internal Revenue Service (\u201cIRS\u201d) or a court, and the IRS or a court may not agree with the opinions. \nUnder the Tax Matters Agreement, in certain circumstances and subject to certain limitations, we are required to indemnify P&G against tax-related losses (e.g., increased taxes, penalties and interest required to be paid by P&G) if the Distribution or the merger fails to qualify for its intended tax treatment, including if the Distribution becomes taxable to P&G as a result of the acquisition of a 50% or greater interest (by vote or value) in us as part of a plan or series of related transactions that included the Distribution or if such failure is attributable to a breach of certain representations and warranties by us or certain actions or omissions by us. If we are required to indemnify P&G in the event of a taxable Distribution, this indemnification obligation would be substantial and could have a material adverse effect on us, including with respect to our financial condition and results of operations. \nRisks Related to Ownership of Our Common Stock\nWe are subject to risks related to our common stock and our stock repurchase program.\nAny repurchases pursuant to our stock repurchase program, or a decision to discontinue our stock repurchase program, which may be discontinued at any time, could affect our stock price and increase volatility. In addition, the timing and actual number of any shares repurchased will depend on a variety of factors including the timing of open trading windows, price, corporate and regulatory requirements, an assessment by management and our board of directors of cash availability, capital allocation priorities, including deleveraging, and other market conditions. In addition, we have entered into forward repurchase transactions to begin hedging for a potential $200 million repurchase under our stock repurchase program currently planned for 2024 and an additional potential $196 million repurchase planned for 2025. These forward repurchase transactions expose us to additional risks related to the price of our common stock, including a potential true-up in cash upon specified changes in the price of our common stock. \nJAB Cosmetics B.V. (\u201cJABC\u201d) and its affiliates beneficially own approximately 53% of the fully diluted shares of our Class A Common Stock and, as such, have the ability to effect certain decisions requiring stockholder approval, which may be inconsistent with the interests of our other stockholders.\nAs a result of the completion of the Cottage Tender Offer in May 2019, JABC, through an affiliate, JAB Beauty B.V., owns approximately 53% of the outstanding shares of our Class A Common Stock. As a result, JABC has the ability to exercise control over certain decisions requiring stockholder approval, including the election of directors, amendments to our certificate of incorporation and approval of significant corporate transactions, such as a merger or other sale of the Company or our assets. In addition, several of the members of our Board of Directors are affiliated with JABC. Accordingly, JAB has significant influence over us and our decisions, including the appointment of management and any other action requiring a vote of our Board of Directors. In addition, this concentration of ownership may have the effect of delaying, preventing or deterring a change in control of us and may negatively affect the market price of our stock.\nJABC\u2019s interests may be different from or conflict with our interests or the interests of our other stockholders. JABC and its affiliates are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete indirectly with us. JABC or its affiliates may also pursue acquisition opportunities that are complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, JABC\u2019s obligations under its credit facility may cause JABC to take actions which may be inconsistent with your interests. Accordingly, the interests of JABC may not always coincide with our interests or the interests of other stockholders, and JABC may seek to cause us to take courses of action that, in its judgment, could enhance its investment in the Company but which might involve risks to our other stockholders or adversely affect us or our other stockholders.\nWe are a \u201ccontrolled company\u201d within the meaning of the New York Stock Exchange rules and, as a result, are entitled to rely on exemptions from certain corporate governance requirements that are designed to provide protection to stockholders of companies that are not \u201ccontrolled companies\u201d.\nFor so long as JABC and its affiliates own more than 50% of the total voting power of our common shares, we are a \u201ccontrolled company\u201d within the meaning of the New York Stock Exchange (\u201cNYSE\u201d) corporate governance standards. As a controlled company, we are exempt under the NYSE standards from the obligation to comply with certain NYSE corporate governance requirements, including the requirements:\n\u2022\nthat a majority of our board of directors consists of independent directors;\n\u2022\nthat we have a nominating committee that is composed entirely of independent directors with a written charter addressing the committee\u2019s purpose and responsibilities; and\n26\n\u2022\nthat we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee\u2019s purpose and responsibilities.\nIf we elect to rely on the controlled company exemptions, the procedures for approving significant corporate decisions could be determined by directors who have a direct or indirect interest in such decisions, and our stockholders would not have the same protections afforded to stockholders of other companies that are required to comply with all of the independence rules of the NYSE.\nThe dual-listing of our Class A Common Stock on the NYSE and on Euronext Paris\u2019s Professional Segment may adversely affect the liquidity and value of our Class A Common Stock.\nWe have announced our intention to apply to list our Class A Common Stock on Euronext Paris\u2019s Professional Segment. While the dual-listing of our Class A Common Stock is intended to promote additional liquidity for investors and provide greater access to our Class A Common Stock among investors in Europe who may be required to invest in Eurozone markets or certain currencies only, we cannot predict the effect of this dual-listing on the value of our Class A Common Stock on the NYSE and Euronext Paris\u2019s Professional Segment. To the contrary, the dual-listing of our Class A Common Stock may dilute the liquidity of these securities in one or both markets and may adversely affect the development of an active trading market for Class A Common Stock on Euronext Paris\u2019s Professional Segment. The price of our Class A Common Stock listed on Euronext Paris\u2019s Professional Segment could also be adversely affected by trading in our Class A Common Stock on the NYSE. In addition, currency fluctuations between the Euro and U.S. dollar may have an adverse impact on the value of our Class A Common Stock traded on Euronext Paris\u2019s Professional Segment. \nUpon the completion of the dual-listing, it is expected that there will be, at least initially, limited liquidity on the Euronext Paris market insofar as the probability is very low that a counterparty for a transaction in euros will arise. As of the date of this Annual Report, we have not appointed any market maker on the Euronext Paris market but may do so in the future. On this basis, the liquidity of our Class A Common Stock traded on Euronext Paris may be uncertain and investors on the Euronext Paris market may need to assess their ability to adjust the size of their position given the then trading liquidity prior to investing in our securities.",
+  "item7": ">Item 7. \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\nThe following discussion and analysis of the financial condition and results of operations of Coty Inc. and its consolidated subsidiaries, should be read in conjunction with the information contained in the Consolidated Financial Statements and related notes included elsewhere in this document. When used in this discussion, the terms \u201cCoty,\u201d the \u201cCompany,\u201d \u201cwe,\u201d \u201cour,\u201d or \u201cus\u201d mean, unless the context otherwise indicates, Coty Inc. and its majority and wholly-owned subsidiaries. The following discussion contains forward-looking statements. See \u201cForward-Looking Statements\u201d and \u201cRisk Factors\u201d for a discussion on the uncertainties, risks and assumptions associated with these statements as well as any updates to such discussion as may be included in subsequent reports we file with the SEC. Actual results may differ materially and adversely from those contained in any forward-looking statements. The following discussion includes certain non-GAAP financial measures. See \u201cOverview\u2014Non-GAAP Financial Measures\u201d for a discussion of non-GAAP financial measures and how they are calculated.\nAll dollar amounts in the following discussion are in millions of United States (\u201cU.S.\u201d) dollars, unless otherwise indicated.\nOVERVIEW\nWe are one of the world\u2019s largest beauty companies, with an iconic portfolio of brands across fragrance, color cosmetics, and skin and body care. We continue to make progress on our strategic priorities, including stabilizing and growing our Consumer Beauty brands through leading innovation and improved execution, accelerating our Prestige fragrance business and ongoing expansion into Prestige cosmetics, building a comprehensive skincare portfolio leveraging existing brands, enhancing our e-commerce and Direct-to-Consumer (\u201cDTC\u201d) capabilities, expanding our presence in China and travel retail through Prestige products and select Consumer Beauty brands, and establishing Coty as an industry leader in sustainability. Our brands empower people to express themselves freely, creating their own visions of beauty; and we are committed to making a positive impact on the planet.\nWe remain attentive to economic and geopolitical conditions that may materially impact our business. We continue to explore and implement risk mitigation strategies in the face of these unfolding conditions and remain agile in adapting to changing circumstances. Such conditions, including risks and uncertainties associated with the economy in China and the broader global economy, global inflation, and resulting impacts from the conflict between Russia and Ukraine, have or may have global implications that may impact the future performance and growth of our business in unpredictable ways.\nOur operations outside of the United States account for a significant portion of our revenues and expenses. As a result, a substantial portion of our total revenue and expenses are denominated in currencies other than the U.S. dollar. Exchange rates between certain of these currencies and the U.S. dollar have fluctuated significantly and may continue to do so in the future.\nOur revenues grew across both divisions in fiscal 2023 and benefited from price increases across our product portfolio despite stable year-over-year sales volumes and market share declines across certain major product categories. Fluctuations in foreign exchange rates may have a significant impact our operating results. During fiscal 2023, fluctuations in the U.S. dollar relative to certain other foreign currencies \u2013 such as the euro and British pound \u2013 reduced our reported revenue and expenses, such as those expenses principally related to cost of sales, fixed costs, and advertising and consumer promotional costs. Refer to Part I, Item 1A under the heading \u201cRisk Factors\u201d for a discussion of these factors and other risks.\n We expect that our net revenue for fiscal year 2024 will grow in the mid-to-high single digits versus the prior year, excluding the impact of foreign exchange and the early termination of the \nLacoste\n fragrance license.\nGlobal Supply Chain Challenges\nWe experienced global supply chain challenges resulting from industry-wide component shortages and transportation delays. These challenges have negatively impacted order fill rates across our product categories, particularly prestige fragrances where there has been demand growth, especially in North America and certain European countries.\nIn the second half of fiscal 2023 we saw sequential quarterly improvements in our order fill rates on a company-wide basis and continue to take steps to improve order fill rates and mitigate the impact of these constraints, including working closely with our suppliers to ensure the availability of components such as glass and metal, and building our inventory levels to meet demand. We expect to sustain the progress made this fiscal year, into the first quarter of fiscal 2024, or make incremental improvements to our order fill rates on a divisional and company-wide basis.\nInflation\nInflationary trends in certain markets and global supply chain challenges may negatively affect our sales and operating performance. We experienced the impact of inflation on material, logistical and other costs during fiscal 2023. We will continue to implement mitigation strategies and price increases to offset these trends; however, such measures may not fully offset the impact to our operating performance.\nRussia-Ukraine War\n31\nWe recognized total pre-tax gains of $17.0 in fiscal year 2023 related to our market exit of Russia primarily related to a bad debt accrual release due to better than expected collections. We also recognized $0.4 of income tax benefits. We anticipate that\n \nwe will incur an immaterial amount of\n \nadditional costs through completion of the wind down. Additionally, we anticipate derecognizing the cumulative translation adjustment balance pertaining to the Russian subsidiary. We have substantially completed our commercial activities in Russia. However, we anticipate that the process related to the liquidation of the Russian legal entity will take an extended period of time. \n32\nSelected Financial Data\n(in millions, except per share data)\nYear Ended June 30,\n2023\n2022\n2021\nNet revenues\n$\n5,554.1\u00a0\n$\n5,304.4\u00a0\n$\n4,629.9\u00a0\nGross profit\n3,547.3\u00a0\n3,369.2\u00a0\n2,768.2\u00a0\nRestructuring costs\n(6.5)\n(6.5)\n63.6\u00a0\nAcquisition- and divestiture-related costs\n\u2014\u00a0\n14.7\u00a0\n138.8\u00a0\nAsset impairment charges\n\u2014\u00a0\n31.4\u00a0\n\u2014\u00a0\nOperating income (loss)\n543.7\u00a0\n240.9\u00a0\n(48.6)\nInterest expense, net\n257.9\u00a0\n224.0\u00a0\n235.1\u00a0\nOther Income, net\n(419.0)\n(409.9)\n(43.9)\nIncome (loss) from continuing operations before income taxes\n704.8\u00a0\n426.8\u00a0\n(239.8)\nProvision (benefit) for income taxes on continuing operations\n181.6\u00a0\n164.8\u00a0\n(172.0)\nNet income (loss) from continuing operations\n523.2\u00a0\n262.0\u00a0\n(67.8)\nNet income (loss) from discontinued operations\n\u2014\u00a0\n5.7\u00a0\n(137.3)\nNet income (loss)\n523.2\u00a0\n267.7\u00a0\n(205.1)\nNet income (loss) attributable to Coty Inc.\n$\n508.2\u00a0\n$\n259.5\u00a0\n$\n(201.3)\nAmounts attributable to Coty Inc.:\nNet income (loss) from continuing operations attributable to common stockholders\n$\n495.0\u00a0\n$\n55.5\u00a0\n$\n(166.3)\nNet income (loss) from continuing operations attributable to common stockholders\n$\n495.0\u00a0\n$\n61.2\u00a0\n$\n(303.6)\nPer Share Data:\nNet income (loss) attributable to Coty Inc. per common share:\nBasic income (loss) from continuing operations\n$\n0.58\u00a0\n$\n0.07\u00a0\n$\n(0.22)\nBasic income (loss) for Coty Inc.\n$\n0.58\u00a0\n$\n0.08\u00a0\n$\n(0.40)\nDiluted income (loss) from continuing operations\n$\n0.57\u00a0\n$\n0.07\u00a0\n$\n(0.22)\nDiluted income (loss) for Coty Inc.\n$\n0.57\u00a0\n$\n0.08\u00a0\n$\n(0.40)\nWeighted-average common shares\nBasic\n849.0\u00a0\n820.6\u00a0\n764.8\u00a0\nDiluted\n886.5\u00a0\n834.1\u00a0\n764.8\u00a0\n(in millions)\nYear Ended June 30,\n2023\n2022\n2021\nConsolidated Statements of Cash Flows Data:\nNet cash provided by operating activities\n$\n625.7\u00a0\n$\n726.6\u00a0\n$\n318.7\u00a0\nNet cash (used in) provided by investing activities\n(118.2)\n269.7\u00a0\n2,441.9\u00a0\nNet cash (used in) financing activities\n(469.3)\n(1,034.0)\n(2,795.1)\n(in millions)\nAs of June 30,\n2023\n2022\n2021\nConsolidated Balance Sheets Data:\nCash and cash equivalents\n$\n246.9\u00a0\n$\n233.3\u00a0\n$\n253.5\u00a0\nTotal assets\n12,661.6\u00a0\n12,116.1\u00a0\n13,691.4\u00a0\nTotal debt, net of discount\n4,265.9\u00a0\n4,473.9\u00a0\n5,476.9\u00a0\nTotal Coty Inc. stockholders\u2019 equity\n3,811.1\u00a0\n3,154.5\u00a0\n2,860.7\u00a0\n33\nNon-GAAP Financial Measures\nTo supplement the financial measures prepared in accordance with GAAP, we use non-GAAP financial measures for continuing operations and Coty Inc. including Adjusted operating income (loss), Adjusted EBITDA, Adjusted net income (loss), and Adjusted net income (loss) attributable to Coty Inc. to common stockholders (collectively, the \u201cAdjusted Performance Measures\u201d). The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in tables below. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for or superior to, financial measures reported in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies, including companies in the beauty industry, may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.\nDespite the limitations of these non-GAAP financial measures, our management uses the Adjusted Performance Measures as key metrics in the evaluation of our performance and annual budgets and to benchmark performance of our business against our competitors. The following are examples of how these Adjusted Performance Measures are utilized by our management:\n\u2022\nstrategic plans and annual budgets are prepared using the Adjusted Performance Measures;\n\u2022\nsenior management receives a monthly analysis comparing budget to actual operating results that is prepared using the Adjusted Performance Measures; and\n\u2022\nsenior management\u2019s annual compensation is calculated, in part, by using some of the Adjusted Performance Measures.\nIn addition, our financial covenant compliance calculations under our debt agreements are substantially derived from these Adjusted Performance Measures.\nOur management believes that Adjusted Performance Measures are useful to investors in their assessment of our operating performance and the valuation of the Company. In addition, these non-GAAP financial measures address questions we routinely receive from analysts and investors and, in order to ensure that all investors have access to the same data, our management has determined that it is appropriate to make this data available to all investors. The Adjusted Performance Measures exclude the impact of certain items (as further described below) and provide supplemental information regarding our operating performance. By disclosing these non-GAAP financial measures, our management intends to provide investors with a supplemental comparison of our operating results and trends for the periods presented. Our management believes these measures are also useful to investors as such measures allow investors to evaluate our performance using the same metrics that our management uses to evaluate past performance and prospects for future performance. We provide disclosure of the effects of these non-GAAP financial measures by presenting the corresponding measure prepared in conformity with GAAP in our financial statements, and by providing a reconciliation to the corresponding GAAP measure so that investors may understand the adjustments made in arriving at the non-GAAP financial measures and use the information to perform their own analyses.\nAdjusted operating income/Adjusted EBITDA from continuing operations excludes restructuring costs and business structure realignment programs, amortization, acquisition- and divestiture-related costs and acquisition accounting impacts, stock-based compensation, and asset impairment charges and other adjustments as described below. For adjusted EBITDA, in addition to the preceding, we exclude adjusted depreciation as defined below. We do not consider these items to be reflective of our core operating performance due to the variability of such items from period-to-period in terms of size, nature and significance. They are primarily incurred to realign our operating structure and integrate new acquisitions, and implement divestitures of components of our business, and fluctuate based on specific facts and circumstances. Additionally, Adjusted net income attributable to Coty Inc. and Adjusted net income attributable to Coty Inc. per common share are adjusted for certain interest and other (income) expense items and preferred stock deemed dividends, as described below, and the related tax effects of each of the items used to derive Adjusted net income as such charges are not used by our management in assessing our operating performance period-to-period.\nAdjusted Performance Measures reflect adjustments based on the following items:\n\u2022\nCosts related to acquisition and divestiture activities: We have excluded acquisition- and divestiture-related costs and the accounting impacts such as those related to transaction costs and costs associated with the revaluation of acquired inventory in connection with business combinations because these costs are unique to each transaction. Additionally, for divestitures, we exclude write-offs of assets that are no longer recoverable and contract related costs due to the divestiture. The nature and amount of such costs vary significantly based on the size and timing of the acquisitions and divestitures, and the maturities of the businesses being acquired or divested. Also, the size, complexity and/or volume of past transactions, which often drives the magnitude of such expenses, may not be indicative of the size, complexity and/or volume of any future acquisitions or divestitures.\n34\n\u2022\nRestructuring and other business realignment costs: We have excluded costs associated with restructuring and business structure realignment programs to allow for comparable financial results to historical operations and forward-looking guidance. In addition, the nature and amount of such charges vary significantly based on the size and timing of the programs. By excluding the referenced expenses from our non-GAAP financial measures, our management is able to further evaluate our ability to utilize existing assets and estimate their long-term value. Furthermore, our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance. \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\u2022\nAsset impairment charges: We have excluded the impact of asset impairments as such non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.\n\u2022\nAmortization expense: We have excluded the impact of amortization of finite-lived intangible assets, as such non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance. Although we exclude amortization of intangible assets from our non-GAAP expenses, our management believes that it is important for investors to understand that such intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets. \n\u2022\nGain on sale and termination of brand assets: We have excluded the impact of gain on sale and termination of brand assets as such amounts are inconsistent in amount and frequency and are significantly impacted by the size of the sale and termination of brand assets.\n\u2022\nCosts related to market exit: We have excluded the impact of direct incremental costs related to our decision to wind down our business operations in Russia. We believe that these direct and incremental costs are inconsistent and infrequent in nature. Consequently, our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.\n\u2022\nGains on sale of real estate: We have excluded the impact of gains on sale of real estate as such amounts are inconsistent in amount and frequency and are significantly impacted by the size of the sale. Our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.\n\u2022\nStock-based compensation: Although stock-based compensation is a key incentive offered to our employees, we have excluded the effect of these expenses from the calculation of adjusted operating income and adjusted EBITDA. This is due to their primarily non-cash nature; in addition, the amount and timing of these expenses may be highly variable and unpredictable, which may negatively affect comparability between periods.\n\u2022\nDepreciation and Adjusted depreciation: Our adjusted operating income excludes the impact of accelerated depreciation for certain restructuring projects that affect the expected useful lives of Property, Plant and Equipment, as such charges vary significantly based on the size and timing of the programs. Further, we have excluded adjusted depreciation, which represents depreciation expense net of accelerated depreciation charges, from our adjusted EBITDA. Our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.\n\u2022\nOther (income) expense: We have excluded the impact of pension curtailment (gains) and losses and pension settlements as such events are triggered by our restructuring and other business realignment activities and the amount of such charges vary significantly based on the size and timing of the programs. Further, we have excluded the change in fair value of the investment in Wella, as our management believes these unrealized (gains) and losses do not reflect our underlying ongoing business, and the adjustment of such impact helps investors and others compare and analyze performance from period to period. We have excluded the gain on the exchange of Series B Preferred Stock. Such transactions do not reflect our operating results and we have excluded the impact as our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.\n\u2022\nNoncontrolling interest: This adjustment represents the after-tax impact of the non-GAAP adjustments included in Net income attributable to noncontrolling interests based on the relevant noncontrolling interest percentage.\n\u2022\nTax: This adjustment represents the impact of the tax effect of the pretax items excluded from Adjusted net income. The tax impact of the non-GAAP adjustments is based on the tax rates related to the jurisdiction in which the adjusted \n35\nitems are received or incurred. Additionally, adjustments are made for the tax impact of any intra-entity transfer of assets and liabilities. \n\u2022\nDeemed Preferred Stock Dividends: We have excluded preferred stock deemed dividends related to the First Exchange and the Second Exchange (as disclosed and defined in Note 13\u2014Equity Investments in our Annual Report on Form 10-K for fiscal 2023) from our calculation of adjusted net income attributable to Coty Inc. These deemed dividends are nonmonetary in nature, the transactions were entered into to simplify our capital structure and do not reflect our underlying ongoing business. Management believes that this adjustment helps investors and others compare and analyze our performance from period to period.\nConstant Currency\nWe operate on a global basis, with the majority of our net revenues generated outside of the U.S. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations. Therefore, to supplement financial results presented in accordance with GAAP, certain financial information is presented in \u201cconstant currency\u201d, excluding the impact of foreign currency exchange translations to provide a framework for assessing how our underlying businesses performed excluding the impact of foreign currency exchange translations. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We calculate constant currency information by translating current and prior-period results for entities reporting in currencies other than U.S. dollars into U.S. dollars using prior year foreign currency exchange rates. The constant currency calculations do not adjust for the impact of revaluing specific transactions denominated in a currency that is different to the functional currency of that entity when exchange rates fluctuate. The constant currency information we present may not be comparable to similarly titled measures reported by other companies.\nBasis of Presentation of Acquisitions, Divestitures, Terminations and Market Exit from Russia\nDuring the period when we complete an acquisition, divestiture, early license termination, or market exit, the financial results of the current year period are not comparable to the financial results presented in the prior year period. When explaining such changes from period to period and to maintain a consistent basis between periods, we exclude the financial contribution of: (i) the acquired brands or businesses in the current year period until we have twelve months of comparable financial results, and (ii) the divested brands or businesses or early terminated brands or markets exited in the prior year period, to maintain comparable financial results with the current fiscal year period. Acquisitions, divestitures, early license terminations, and market exits that would impact the comparability of financial results between periods presented in the Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations are shown in the table below. \nPeriod of acquisition, divestiture, termination, or market exit\nAcquisition, divestiture, termination, or market exit\nImpact on basis of 2023/2022 presentation\nImpact on basis of 2022/2021 presentation\nThird quarter fiscal 2023\nMarket Exit from Russia\nThird and fourth quarters fiscal 2022 net revenue excluded.\nn/a\nWhen used herein, the term \u201cAcquisitions,\u201d \u201cDivestitures,\u201d \u201cTerminations,\u201d and \u201cMarket Exit,\u201d refer to the financial contributions of the related acquisitions or divestitures, early license terminations, and market exits shown above, during the period that is not comparable as a result of such acquisitions or divestitures, early license terminations, and market exits. \nFinancial results for the Wella Business for fiscal year 2021 are presented as discontinued operations. \nUnless otherwise noted, the following section pertains to the results of continuing operations.\nNET REVENUES\nIn fiscal 2023, net revenues increased 5%, or $249.7, to $5,554.1 from $5,304.4 in fiscal 2022. Excluding net revenue from the second half of the prior period from Russia, net revenues increased 6% or $276.8 to $5,554.1 from $5,277.3, reflecting a positive price and mix impact of 11% partially offset by a negative foreign currency exchange translation impact of 5%.\nNet revenues grew across both our segments. The growth in our Consumer Beauty segment was due to positive performance across the body care, skincare, and color cosmetics categories. Growth in our Prestige segment was primarily due to the positive performance in the prestige fragrance category due to the continued success of fragrance brands such as\n Burberry, Calvin Klein, Hugo Boss, Gucci, \nand\n Marc Jacobs\n. Although, the prestige make up category was negatively impacted by COVID-19 related to the lockdowns in China in the earlier portion of the fiscal period, this category began to show recovery in the last quarter of the fiscal period. The overall increase in net revenues reflects the successful implementation of global price increases across all product categories, our product premiumization strategy, and positive overall market trends.\n36\nNet revenues also grew across all of our major geographic regions led by growth in the U.S. and Brazil. Additionally, there  was an increase in travel retail sales in all major regions due to increased leisure travel in the period.\nThe overall increase in net revenues was partially offset by the negative impact of foreign exchange headwinds on net revenues, primarily affecting the euro and British pound.\nOur ongoing exit from Russia impacted the overall change in our reported net revenues. Considering total fiscal year-to-date net revenues from Russia in both the current and prior year periods, the net negative impact on our fiscal year-to-date reported net revenue was approximately 1% on a consolidated basis, 1% for our Prestige division, and 1% for our Consumer Beauty division.\nIn fiscal 2022, net revenues increased 15%, or $674.5, to $5,304.4 from $4,629.9 in fiscal 2021, reflecting a positive price and mix impact of 10%, an increase in unit volume of 6%, partially offset by a negative foreign currency exchange translation impact of 1%. The increase in net revenues primarily reflects the reopening of stores across regions and increased leisure travel due to reduced COVID restrictions. The reduced travel restrictions have contributed to increased sales through travel retail channels. A number of countries continued to experience rolling lockdowns; however, these lockdowns were confined to certain localities. Increased foot traffic and demand had a favorable impact on both the Prestige and Consumer Beauty segments, with the highest impact on the Prestige segment. In addition, the Prestige segment benefited from various strong and successful launches such as \nGucci Flora, Burberry Hero, Tiffany Rose Gold, Hugo Boss The Scent\n and the relaunch of \nKylie cosmetics\n. The Consumer Beauty segment also experienced net revenue increase due to COVID-19 recovery and market share gains as a result of a repositioning and reinvestment in key color cosmetics brands. Furthermore, the continued growth of e-commerce across the regions and continued market growth in the U.S. and Europe contributed to the net revenue increase. China also contributed to net revenue increase despite a downturn in economic conditions due to increased COVID-19 restrictions impacting performance in the second half of the fiscal year.\nYear Ended June 30,\nChange %\n(in millions)\n2023\n2022\n2021\n2023/2022\n2022/2021\nNET REVENUES\nPrestige\n$\n3,420.5\u00a0\n$\n3,267.9\u00a0\n$\n2,720.8\u00a0\n5\u00a0\n%\n20\u00a0\n%\nConsumer Beauty\n2,133.6\u00a0\n2,036.5\u00a0\n1,909.1\u00a0\n5\u00a0\n%\n7\u00a0\n%\nTotal\n$\n5,554.1\n\u00a0\n$\n5,304.4\n\u00a0\n$\n4,629.9\n\u00a0\n5\n\u00a0\n%\n15\n\u00a0\n%\nPrestige\nIn fiscal 2023, net revenues in the Prestige segment increased 5%, or $152.6 to $3,420.5 from $3,267.9 in fiscal 2022. Excluding net revenue from the second half of the prior period from Russia, net revenues increased 6% or $169.0 to $3,420.5 from $3,251.5, reflecting a positive price and mix impact of 11% partially offset by a negative foreign currency exchange translation impact of 5%. The increase in net revenues primarily reflects:\n(i)\nthe continued success and growth of prestige fragrances, specifically \nBurberry Hero, Burberry Her, Calvin Klein, Hugo Boss Boss Bottled, Gucci Flora, \nand\n Marc Jacobs Daisy\n;\n(ii)\nthe positive pricing impact as a result of global price increases and in line with the overall premiumization strategy; \n(iii)\ngrowth in travel retail net revenues in all major regions due to increased leisure travel compared to the prior year; and\n(iv)\ngrowth in the U.S due to positive market trends and innovation in the prestige fragrance brands.\nThese increases were partially offset by:\n(i)\nlower net revenues in the Prestige makeup category impacted by a decline in\n Gucci\n makeup travel retail sales in the Asia Pacific region as a result of slow recovery from the lockdowns in China; and\n(ii)\u00a0\u00a0\u00a0\u00a0lower net revenues for \nphilosophy \ndue to less innovation and repositioning of the brand.\n37\nIn fiscal 2022, net revenues in the Prestige segment increased 20%, or $547.1, to $3,267.9 from $2,720.8 in fiscal 2021, reflecting an increase in unit volume of 18%, a positive price and mix impact of 4%, partially offset by a negative foreign currency exchange translation impact of 2%. The increase in net revenues primarily reflects: \n(i)\nan increase in net revenues driven by market growth in the U.S. and Europe amid a post COVID-19 recovery, as well as from the travel retail business in many localities, particularly in North America, Europe, and China, had reduced travel restrictions and reopened for leisure travel as they emerge from the COVID-19 pandemic;\n(ii)\u00a0\u00a0\u00a0\u00a0an increase in net revenues from the new launches of \nGucci Flora, Burberry Hero\n,\n Tiffany Rose Gold, CK Defy\n, \nHugo Boss The Scent, \nand the global relaunch of \nKylie cosmetics\n in the current fiscal year, as well as the continued success of \nGucci Makeup\n, \nGucci Guilty\n, \nBurberry Her\n, \nGucci Bloom\n, \nChloe Atelier des Fleurs\n, and \nMarc Jacobs Perfect\n;\n(iii)\u00a0\u00a0\u00a0\u00a0an increase in net revenues due to positive pricing impact and product mix as a result of global price increases and an overall premiumization strategy focusing on premium plus brands, selling new launches at higher prices, and reducing tail lines resulting in more optimized shelf space utilization; and\n(iv)\u00a0\u00a0\u00a0\u00a0an increase in net revenues due to the growth of e-commerce across the regions, distribution expansion in China, and additional shelf space in the U.S. retail stores.\nThese increases were partially offset by:\n(i)\nlower net revenues due to strategic initiatives to reduce sales through lower priced channels; \n(ii)\u00a0\u00a0\u00a0\u00a0lower net revenues in the last fiscal quarter from China due to increased COVID restrictions limiting travel and consumer spending;\n(iii) lower net revenues related to \nKylie Skin\n products due to less innovation in the current fiscal year; and \n(iv)\u00a0\u00a0\u00a0\u00a0a decrease in the U.S. net revenues for improvements in returns trends for \nphilosophy\n in the prior year.\nConsumer Beauty\nIn fiscal 2023, net revenues in the Consumer Beauty segment increased 5%, or $97.1, to $2,133.6 from $2,036.5 in fiscal 2022. Excluding net revenue from the second half of the prior period from Russia, net revenues increased 6% or $107.8 to $2,133.6 from $2,025.8, reflecting a positive price and mix impact of 10% partially offset by a negative foreign currency exchange translation impact of 4%. The increase in net revenues primarily reflects: \n(i)\nan increase in net revenues from color cosmetics brands, including \nCoverGirl \ndue to positive pricing impact and higher sell out resulting in lower returns and markdowns in the U.S., and\n Rimmel Manhattan \ndue to brand innovation and positive price and mix impact in major European markets, such as Germany, Austria and Switzerland, and Australia;\n(ii)\u00a0\u00a0\u00a0\u00a0an increase in net revenues from the skin and body care brands in Brazil due to strong category momentum, and positive product mix impact, as well as due to innovation in brands such as \nMonange \nand market share gains for\n Paixao\n; and\n(iii) due to price increases across the Consumer Beauty product portfolio.\nThese increases were partially offset by lower net revenues from the mass fragrance category, primarily due to negative foreign currency exchange translation impacts.\nIn fiscal 2022, net revenues in the Consumer Beauty segment increased 7%, or $127.4, to $2,036.5 from $1,909.1 in fiscal 2021, reflecting an increase in unit volume of 5%, and a positive price and mix impact of 3%, partially offset by a negative foreign currency exchange translation impact of 1%. The increase in net revenues primarily reflects: \n(i)\nan increase in net revenues due to market share gain from certain key color cosmetics brands as a result of new brand positioning and enhanced support for these brands;\n(ii)\u00a0\u00a0\u00a0\u00a0an increase in net revenues due to market recovery from COVID-19 and positive market share uplift in the color cosmetics and fragrance categories, increasing customer demand and store traffic, as well as a healthy growth in e-commerce, which positively impacted brands within the segment; and\n(iii)\u00a0\u00a0\u00a0\u00a0an increase in net revenues due to a reduction in sales returns, discounts and allowances, primarily as a result of actions implemented in connection to our Transformation Plan. These actions involved selectively reducing the level of incentives and price reductions on certain products, limiting the frequency and number of shelf resets in the period, and better focusing on planning for new products.\n38\nThese \nincrease\ns were partially offset by lower net revenues from \nBeyonc\u00e9\n and \nStetson\n as a result of license expiration. Also, the exit from the Russian market negatively impacted brands such as \nBourjois\n, which experienced a decline in net revenue, as well as \nMax Factor\n. In addition, nail category declines had a negative impact on our \nSally Hansen\n brand net revenue in the fourth quarter. This resulted from the closure of nail salons in the prior year due to COVID restrictions which increased demand for at-home nail care, positively impacting the nail category and the brand\u2019s net revenue in fiscal 2021.\nCOST OF SA\nLES\nIn fiscal 2023, cost of sales increased 4%, or $71.6, to $2,006.8 from $1,935.2 in fiscal 2022. Cost of sales as a percentage of net revenues decreased to 36.1% in fiscal 2023 from 36.5% in fiscal 2022 resulting in a gross margin percentage increase of approximately 40 basis points, primarily reflecting:\n(i)\napproximately 30 basis points primarily related to manufacturing and material costs due to productivity improvements;\n(ii)\u00a0\u00a0\u00a0\u00a0approximately 20 basis points related to designer license fees due to favorable royalty related activity; and\n(iii)\u00a0\u00a0\u00a0\u00a0approximately 10 basis points related to excess and obsolescence costs.\nThese increases were partially offset by approximately 20 basis points in increased freight costs.\nThe above includes the negative impact of inflation (principally for material costs) and the positive impact from pricing, estimated at approximately 200 basis points each.\nIn fisca\nl 2022, cost of sales increased 4%, or $73.5, to $1,935.2 from $1,861.7 in fiscal 2021. Cost of sales as a percentage of net revenues decreased to 36.5% in fiscal 2022 from 40.2% in fiscal 2021 resulting in a gross margin percentage increase of approximately 370 basis points primarily reflecting:\n(i)\napproximately 130 basis points related to positive product and category mix associated with increased contribution from higher margin Prestige products, reduced sales of products through lower priced channels, as well as price increases within our product portfolio;\n(ii)\u00a0\u00a0\u00a0\u00a0approximately 120 basis points related to favorable manufacturing fixed-cost absorption, a favorable impact on variable costs due to increased manufacturing efficiencies, improvements in productivity, as well as procurement and material cost optimization;\n(iii)\u00a0\u00a0\u00a0\u00a0approximately 60 basis points related to decreased excess and obsolescence expense on inventory due to improvements in the current fiscal year in forecasting sales and better focus on planning for new products, as well as the impact of greater sales volume in the fiscal year;\n(iv)\u00a0\u00a0\u00a0\u00a0approximately 30 basis points primarily related to reductions in Consumer Beauty, as a percentage of revenues, in promotional allowances and other trade spend items, which are recorded as adjustments to net sales;\n(v)\u00a0\u00a0\u00a0\u00a0approximately 20 basis points related to designer license fees due to a favorable impact associated with higher Prestige brand sales in the current year; and\n(vi)\u00a0\u00a0\u00a0\u00a0approximately 10 basis points related to freight expense, reflecting both the contribution from our cost savings measures as well as the increased volume of higher priced Prestige products sold.\nIncluded in the above is the negative impact of inflation on material, freight, and energy costs of approximately 120 basis points.\nSELLING, GENERAL AND ADMINISTRATIVE EXPENSES\nIn fiscal 2023, selling, general and administrative expenses decreased 2%, or $63.0, to $2,818.3 from $2,881.3 in fiscal 2022. Selling, general and administrative expenses as a percentage of net revenues decreased to 50.7% in fiscal 2023 from 54.3% in fiscal 2022, or approximately 360 basis points. This decrease was primarily due to: \n(i)\n130 basis points in stock-based compensation cost primarily related to a reduction in expense recognized in connection with a prior year's grant made to the CEO; \n(ii)\n100 basis points due to a decrease in advertising and consumer promotional costs as a percentage of net revenues primarily related to a reduction of working media in the fiscal period;\n(iii)\n100 basis points due to a decrease in administrative costs as a percentage of net revenues primarily due to lower depreciation expense related to fully depreciated IT equipment and lower consulting fees;\n(iv)\n70 basis points due to a decrease in bad debt expense as a percentage of net revenues; and\n39\n(v)\n40 basis points due to a decrease in logistics costs as a percentage of net revenues.\nThese decreases were partially offset by the following increases:\n(i)\n60 basis points due to unfavorable transactional impact from our exposure to foreign currency exchange fluctuations; and\n(ii)\n30 basis points due to gains on sale of real estate recorded in the comparative period, which represented a greater percentage of net revenues compared to the net gains recorded in the current period, which primarily related to the early termination of the\n Lacoste \nlicense.\nIn fiscal 2022, selling, general and administrative expenses increased 22%, or $518.1, to $2,881.3 from $2,363.2 in fiscal 2021. Selling, general and administrative expenses as a percentage of net revenues increased to 54.3% in fiscal 2022 from 51.0% in fiscal 2021, or approximately 330 basis points. This increase was primarily due to:\n(i)\n520 basis points due to increase in advertising and consumer promotional costs related to support for certain key brands and product launches, as well as increased store promotions coinciding with store reopenings as COVID restrictions ease; \n(ii)\n310 basis points in stock-based compensation primarily related to the CEO grant made on June 30, 2021; \n(iii)\n90 basis points primarily related to the write-down of working capital, long-term assets, as well as contract termination charges and legal costs, in connection with our decision to exit Russia; and\n(iv)\n30 basis points related to higher bad debt expense. \nThese increases were partially offset by the following decreases:\n(i)\n330 basis points in administrative costs primarily due to a decrease in compensation related to a reduction in employee headcount;\n(ii)\n220 basis points related to gains on sale of real estate; \n(iii)\n50 basis points related to lower logistics costs as a percentage of net revenue; and\n(iv)\n20 basis points related to sale of rights associated with certain brands distributed by a subsidiary in South Africa.\nOPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS\nIn fiscal 2023, operating income from continuing operations was $543.7 compared to a income of $240.9 in fiscal 2022. Operating income as a percentage of net revenues, improved to 9.8% in fiscal 2023 as compared to Operating income as a percentage of net revenues of 4.5% in fiscal 2022. The improved operating margin is largely driven by lower fixed costs as a percentage of net revenues, lower stock-based compensation as a percentage of net revenues, lower advertising and consumer promotional spending as a percentage of net revenues, and an asset impairment charge related to the impairment of indefinite-lived intangibles recorded in the prior period.\nIn fiscal 2022,\n operating income from continuing \noperations was $240.9 compared to a loss of $48.6 in fiscal 2021. Operating income as a percentage of net revenues, improved to 4.5% in fiscal 2022 as compared to Operating loss as a percentage of net revenues of (1.0)% in fiscal 2021. The improved operating margin is largely driven by lower cost of goods sold as a percentage of net revenues, a reduction in fixed costs, decrease in acquisition and divestiture related expenses, gains recognized on sale of real estate, lower amortization expense, decrease in restructuring expense, partially offset by an increase in advertising and consumer promotional costs, higher stock-based compensation and asset impairment charges related to the impairment of indefinite-lived intangibles.\n40\nOperating Income (Loss) by Segment\nYear Ended June 30,\nChange %\n(in millions)\n2023\n2022\n2021\n2023/2022\n2022/2021\nOperating income (loss) from continuing operations\nPrestige\n$\n483.7\u00a0\n$\n367.2\u00a0\n$\n158.1\u00a0\n32\u00a0\n%\n>100%\nConsumer Beauty\n63.3\u00a0\n9.5\u00a0\n26.9\u00a0\n>100%\n(65\u00a0\n%)\nCorporate\n(3.3)\n(135.8)\n(233.6)\n98\u00a0\n%\n42\u00a0\n%\nTotal\n$\n543.7\n\u00a0\n$\n240.9\n\u00a0\n$\n(48.6)\n>100%\n>100%\nPrestige \nIn fiscal 2023, operating income for Prestige was $483.7 compared to income of $367.2 in fiscal 2022. Operating margin improved to 14.1% of net revenues in fiscal 2023 as compared to 11.2% in fiscal 2022, driven primarily by lower fixed costs as a percentage of net revenues, lower cost of goods sold as a percentage of net revenues and lower amortization expense as a percentage of net revenues.\nIn fiscal 2022, operating income for Prestige was $367.2 compared to income of $158.1 in fiscal 2021. Operating margin improved to 11.2% of net revenues in fiscal 2022 as compared to 5.8% in fiscal 2021, driven primarily by higher sales volume, lower cost of goods sold as a percentage of net revenues, lower fixed costs as a percentage of net revenues and a decrease in amortization expense, partially offset by an increase in advertising and consumer promotional costs.\nConsumer Beauty\nIn fiscal 2023, operating income for Consumer Beauty was $63.3 compared to income of $9.5 in fiscal 2022. Operating margin improved to 3.0% of net revenues in fiscal 2023 as compared to 0.5% in fiscal 2022, driven by lower advertising and consumer promotional costs as a percentage of net revenues, an impairment charge related to the impairment of indefinite-lived intangibles recorded in the prior period, and lower fixed costs as a percentage of net revenues, partially offset by an increase in cost of sales as a percentage of net revenues.\nIn fiscal 2022, operating income for Consumer Beauty was $9.5 compared to income of $26.9 in fiscal 2021. Operating margin worsened to 0.5% of net revenues in fiscal 2022 as compared to 1.4% in fiscal 2021, driven by an increase in advertising and consumer promotional costs and asset impairment charges related to the impairment of indefinite-lived intangibles, partially offset by higher sales volume, a reduction in fixed costs, lower cost of goods sold as a percentage of net revenues, and a decrease in amortization expense.\nCorporate\nCorporate primarily includes expenses not directly relating to our operating activities. These items are included in Corporate since we consider them to be corporate responsibilities, and these items are not used by our management to measure the underlying performance of the segments.\nOperating loss for Corporate was $3.3, $135.8 and $233.6 in fiscal 2023, 2022 and 2021, respectively, as described under \u201cAdjusted Operating Income\u201d below. The operating loss of $3.3 in fiscal 2023 declined in comparison to the prior year primarily due to lower stock based compensation, a gain recognized due to the early termination of the \nLacoste\n fragrance license in the current period, and a reduction in acquisition and divestiture related costs, partially offset by a gain on sale of real estate recognized in the comparative period.\nThe operating loss of $135.8 in fiscal 2022 includes stock-based compensation, costs related to the Russia market exit, restructuring and other business realignment costs, acquisition and divestiture related costs, partially offset by a gains on the sale of real estate.\nThe operating loss of $233.6 in fiscal 2021 includes acquisition and divestiture related costs, restructuring and other business realignment costs, and stock-based compensation. \n41\nContinuing Operations by Segment\nWe believe that adjusted operating income (loss) from continuing operations by segment further enhances an investor\u2019s understanding of our performance. See \u201cOverview\u2014Non-GAAP Financial Measures.\u201d A reconciliation of reported operating income (loss) to Adjusted operating income is presented below, by segment: \nYear Ended June 30, 2023\n(in millions)\nReported\n(GAAP)\nAdjustments \n(a)\nAdjusted \n(Non-GAAP)\nAdjusted operating income (loss) from continuing operations\nPrestige\n$\n483.7\u00a0\n$\n151.4\u00a0\n$\n635.1\u00a0\nConsumer Beauty\n63.3\u00a0\n40.4\u00a0\n103.7\u00a0\nCorporate\n(3.3)\n3.3\u00a0\n\u2014\u00a0\nTotal\n$\n543.7\n\u00a0\n$\n195.1\n\u00a0\n$\n738.8\n\u00a0\nYear Ended June 30, 2022\n(in millions)\nReported\n(GAAP)\nAdjustments \n(a)\nAdjusted \n(Non-GAAP)\nAdjusted operating income (loss) from continuing operations\nPrestige\n$\n367.2\u00a0\n$\n162.9\u00a0\n$\n530.1\u00a0\nConsumer Beauty\n9.5\u00a0\n75.9\u00a0\n85.4\u00a0\nCorporate\n(135.8)\n135.8\u00a0\n\u2014\u00a0\nTotal\n$\n240.9\n\u00a0\n$\n374.6\n\u00a0\n$\n615.5\n\u00a0\nYear Ended June 30, 2021\n(in millions)\nReported\n(GAAP)\nAdjustments \n(a)\nAdjusted \n(Non-GAAP)\nAdjusted operating income (loss) from continuing operations\nPrestige\n$\n158.1\u00a0\n$\n201.2\u00a0\n$\n359.3\u00a0\nConsumer Beauty\n26.9\u00a0\n50.0\u00a0\n76.9\u00a0\nCorporate\n(233.6)\n233.6\u00a0\n\u2014\u00a0\nTotal\n$\n(48.6)\n$\n484.8\n\u00a0\n$\n436.2\n\u00a0\n(a)\nSee a reconciliation of reported operating income (loss) to adjusted operating income and a description of the adjustments under \u201cAdjusted Operating Income (Loss) from Continuing Operations for Coty Inc.\u201d below. All adjustments are reflected in Corporate, except for amortization and asset impairment charges on goodwill, regional indefinite-lived intangible assets, and finite-lived intangible assets, which are reflected in the Prestige and Consumer Beauty segments.\n42\nAdjusted Operating Income (Loss) and Adjusted EBITDA from Continuing Operations for Coty Inc.\nAdjusted operating income (loss) from continuing operations provides investors with supplementary information relating to our performance. See \u201cOverview\u2014Non-GAAP Financial Measures.\u201d Reconciliation of reported operating loss to adjusted operating income (loss) is presented below:\nYear Ended June 30,\nChange %\n(in millions)\n2023\n2022\n2021\n2023/2022\n2022/2021\nReported operating income (loss) from continuing operations\n$\n543.7\n\u00a0\n$\n240.9\n\u00a0\n$\n(48.6)\n>100%\n>100%\n% of Net revenues\n9.8\u00a0\n%\n4.5\u00a0\n%\n(1.0\u00a0\n%)\nAmortization expense\n191.8\u00a0\n207.4\u00a0\n251.2\u00a0\n(8\u00a0\n%)\n(17\u00a0\n%)\nRestructuring and other business realignment costs\n(6.3)\n4.7\u00a0\n67.0\u00a0\n<(100%)\n(93\u00a0\n%)\nStock-based compensation\n135.9\u00a0\n195.5\u00a0\n27.8\u00a0\n(30\u00a0\n%)\n>100%\nCosts related to acquisition and divestiture activities \n\u2014\u00a0\n14.7\u00a0\n138.8\u00a0\n(100\u00a0\n%)\n(89\u00a0\n%)\nAsset impairment charges\n\u2014\u00a0\n31.4\u00a0\n\u2014\u00a0\n(100\u00a0\n%)\nN/A\n(Gains) Costs related to market exit\n(17.0)\n45.9\u00a0\n\u2014\u00a0\n<(100%)\nN/A\nGains on sale and termination of brand assets\n(104.4)\n(9.5)\n\u2014\u00a0\n<(100%)\nN/A\nGains on sale of real estate\n(4.9)\n(115.5)\n\u2014\u00a0\n96\u00a0\n%\nN/A\nTotal adjustments to reported operating loss\n195.1\u00a0\n374.6\u00a0\n484.8\u00a0\n(48\u00a0\n%)\n(23)\n%\nAdjusted operating income from continuing operations\n$\n738.8\n\u00a0\n$\n615.5\n\u00a0\n$\n436.2\n\u00a0\n20\n\u00a0\n%\n41\n\u00a0\n%\n% of Net revenues\n13.3\u00a0\n%\n11.6\u00a0\n%\n9.4\u00a0\n%\n\u00a0\nAdjusted depreciation\n234.0\u00a0\n289.8\u00a0\n325.8\u00a0\n(19\u00a0\n%)\n(11)\n%\nAdjusted EBITDA\n$\n972.8\n\u00a0\n$\n905.3\n\u00a0\n$\n762.0\n\u00a0\n7\n\u00a0\n%\n19\n\u00a0\n%\n% of Revenues\n17.5\u00a0\n%\n17.1\u00a0\n%\n16.5\u00a0\n%\n2.3\u00a0\n%\n3.6\u00a0\n%\nIn fiscal 2023, adjusted operating income was $738.8 compared to income of $615.5 in fiscal 2022. Adjusted operating margin increased to 13.3% of net revenues in fiscal 2023 as compared to 11.6% in fiscal 2022. In fiscal 2023, adjusted EBITDA was $972.8 compared to $905.3 in fiscal 2022. Adjusted EBITDA margin increased to 17.5% of net revenues in 2023 as compared to 17.1% in fiscal 2022, primarily driven by lower fixed costs as a percentage of net revenues, and lower advertising and consumer promotional costs as a percentage of net revenues.\nIn fiscal 2022, adjusted operating income was $615.5 compared to an income of $436.2 in fiscal 2021. Adjusted operating margin increased to 11.6% of net revenues in fiscal 2022 as compared to 9.4% in fiscal 2021. In fiscal 2022, adjusted EBITDA was $905.3 compared to $762.0 in fiscal 2021. Adjusted EBITDA margin increased to 17.1% of net revenues in 2022 as compared to 16.5% in fiscal 2021, primarily driven by higher sales volume, lower cost of goods sold as a percentage of net revenues, and a reduction in fixed costs, partially offset by an increase in advertising and consumer promotional costs.\nAmortization Expense\nIn fiscal 2023, amortization expense decreased to $191.8 from $207.4 in fiscal 2022. In fiscal 2023, amortization expense of $151.4 and $40.4, was reported in the Prestige and Consumer Beauty respectively. In fiscal 2022, amortization expense of $162.9 and $44.5, was reported in the Prestige and Consumer Beauty segments, respectively. The decrease was primarily driven by certain license and collaboration agreements, which fully amortized in early fiscal 2023 and fiscal 2022.\nIn fiscal 2022, amortization expense decreased to $207.4 from $251.2 in fiscal 2021. In fiscal 2021, amortization expense of $201.2, $50.0, was reported in the Prestige and Consumer Beauty segments, respectively. The decrease was primarily driven by finite intangible assets that are fully amortized as of fiscal 2021.\nRestructuring and Other Business Realignment Costs \nWe continue to analyze our cost structure, including opportunities to simplify and optimize operations. In connection with the four-year Turnaround plan announced on July 1, 2019 to drive substantial improvement and optimization in our business, we have reached the end of the plan at the end of the fiscal period, however, we will continue looking for opportunities to improve our cost structure. Restructuring costs are initially based on estimates which may differ from actuals due to various factors including more than expected employee attrition and final negotiated severance packages. On May 11, 2020 we \n43\nannounced an expansion of the Turnaround Plan to further reduce fixed costs, the Transformation Plan. We incurred $517.7 of cash costs life-to-date as of June\u00a030, 2023, which have been recorded in Corporate.\nIn fiscal 2023, we incurred a credit in restructuring and other business structure realignment costs of $(6.3), as follows:\n\u2022\nWe incurred a credit in restructuring costs of $(6.5), related to the Transformation Plan, included in the Consolidated Statements of Operations and\n\u2022\nWe incurred business structure realignment costs of $0.2 primarily related to our Transformation Plan. This amount includes $0.9 reported in cost of sales in the Consolidated Statement of Operations, and a credit of $(0.7) reported in selling, general and administrative expenses.\nIn fiscal 2022, we incurred restructuring and other business structure realignment costs of $4.7, as follows:\n\u2022\nWe incurred a credit in restructuring costs of $(6.5) primarily related to the Transformation Plan, included in the Consolidated Statements of Operations. Included within the credit in restructuring costs is $(6.3) related to employee severances in connection with our exit of Russia; and\n\u2022\nWe incurred business structure realignment costs of $11.2 primarily related to our Transformation Plan and certain other programs. This amount includes $11.6 reported in cost of sales due to an increase in accelerated depreciation as part of Transformation Plan, and a credit of $(0.4) reported in selling, general and administrative expenses in the Consolidated Statement of Operations.\nIn fiscal 2021, we incurred restructuring and other business structure realignment costs of $67.0, as follows:\n\u2022\nWe incurred restructuring costs of $63.6 primarily related to the Transformation Plan, included in the Consolidated Statements of Operations; and\n\u2022\nWe incurred business structure realignment costs of $3.4 primarily related to our Transformation Plan and certain other programs. This amount includes $8.3 reported in cost of sales due to an increase in accelerated depreciation as part of Transformation Plan, and a credit of $(4.9) reported included in selling, general and administrative expenses, which is a result of changes in estimate, in the Consolidated Statement of Operations.\nIn all reported periods, all restructuring and other business realignment costs were reported in Corporate.\nStock-based compensation\nIn fiscal 2023, stock-based compensation was $135.9 as compared with $195.5 in fiscal 2022. The decrease in stock-based compensation is primarily related to a reduction in expense recognized in connection with a prior year's grant made to the CEO.\nIn fiscal 2022, stock-based compensation was $195.5 as compared with $27.8 in fiscal 2021.  The increase in stock-based compensation is primarily related to the CEO grant made on June 30, 2021.\nIn all reported periods, all costs related to stock-based compensation were reported in Corporate.\nAcquisition- and divestiture-related costs\nIn fiscal 2023, we incurred no costs related to acquisition- and divestiture-activities.\nIn fiscal 2022, we incurred $14.7 of acquisition- and divestiture-related costs which were associated with the Wella Transaction.\nIn fiscal 2021, we incurred $138.8 of acquisition- and divestiture-related costs, of which $135.8 were associated with the Wella Transaction, and $3.0 were consulting and legal costs associated with the Kim Kardashian Transaction.\nIn all reported periods, all acquisition- and divestiture-related costs were reported in Corporate, except where otherwise noted.\nAsset Impairment Charges\nIn fiscal 2023, we did not incur any asset impairment charges.\nIn fiscal 2022, we incurred $31.4 of asset impairment charges related to the impairment of indefinite-lived intangibles in connection with our decision to exit Russia, all of which was reported in Consumer Beauty.\nIn fiscal 2021, we did not incur any asset impairment charges. \nFor further detail as to the factors resulting in the asset impairment charges please see Note 12 \u2014Goodwill and Other Intangible Assets, net to the Consolidated Financial Statements.\u00a0\u00a0\u00a0\u00a0\n44\n(Gains) Costs Related to Market Exit\nIn fiscal 2023, we recognized gains of $(17.0) related to our decision to wind down our business operations in Russia which are included in Selling, general and administrative expenses and Cost of sales in the Consolidated Statements of Operations.\nIn fiscal 2022, we incurred costs of $45.9 related to our decision to wind down our business operations in Russia which are included in Selling, general and administrative expenses and Cost of sales in the Consolidated Statements of Operations.\nIn fiscal 2021, we did not recognize costs related to a market exit.\nGains on Sale and Termination of Brand Assets\nIn fiscal 2023, we recognized a gain of $104.4 related to the early termination of the \nLacoste\n fragrance license.\nIn fiscal 2022, we recognized a gain of $9.5 related to sale of brand assets in South Africa, which was reported in Corporate.\nIn fiscal 2021, we did not recognize any gain or loss on the sale and termination of brand assets.\nGains on Sale of Real Estate\nIn fiscal 2023, we recognized gains of $4.9 related to sale of real estate, which was reported in Corporate. \nIn fiscal 2022, we recognized gains of $115.5 related to sale of real estate, which was reported in Corporate.\nIn fiscal 2021, we did not recognize any gain or loss on the sale of real estate.\nAdjusted depreciation expense\nIn fiscal 2023, adjusted depreciation expense of $110.5 and $123.5 was reported in the Prestige and Consumer Beauty segments, respectively.\nIn fiscal 2022, adjusted depreciation expense of $138.7 and $151.1 was reported in the Prestige and Consumer Beauty segments, respectively. \nIn fiscal 2021, adjusted depreciation expense of $144.4 and $181.4, was reported in the Prestige and Consumer Beauty segments, respectively.\nINTEREST EXPENSE, NET \nNet interest expense was $257.9, $224.0, and $235.1 in fiscal 2023, fiscal 2022 and fiscal 2021, respectively. In fiscal year 2023, the increase in interest expense is primarily due to the impact of a higher average interest rate despite lower debt balances in the current period. In fiscal year 2022, the decrease in interest expense was primarily due to foreign currency exchange gains, offset by the impact of higher interest rates despite lower average debt balances.\nOTHER EXPENSE (INCOME), NET\nIn fiscal 2023, net other income was\u00a0$419.0, primarily related to a favorable adjustment for the unrealized gain in the Wella investment of $230.0 and unrealized gain on forward repurchase contracts of $196.9.\nIn fiscal 2022, net other income was\u00a0$409.9, primarily related to a favorable adjustment for the unrealized gain in the Wella investment of $403.9.\nIn fiscal 2021, net other income was $43.9, primarily related to a favorable adjustment for the unrealized gain in the Wella investment of $73.5, partially offset by write-off of deferred financing costs and debt discounts of $24.2 as a result of prepayments of the 2018 Coty Term A and B Facilities.\nINCOME TAXES \nThe following table presents our (benefit) provision for income taxes, and effective tax rates for the periods presented:\n2023\n2022\n2021\nProvision (benefit) for income taxes\n$\n181.6\n\u00a0\n$\n164.8\n\u00a0\n$\n(172.0)\nEffective income tax rate\n25.8\n\u00a0\n%\n38.6\n\u00a0\n%\n71.7\n\u00a0\n%\nThe effective income tax rate in fiscal 2023 is primarily due to the limitation on the deductibility of executive stock compensation, offset by fair value gains related to the investment in the Wella business at a lower tax rate.\n45\nThe effective income tax rate in fiscal 2022 is  primarily due to the limitation on the deductibility of executive stock compensation and tax costs associated with the Russia exit, offset by large fair value gains related to the investment in the Wella business at a lower rate.\nThe effective income tax rate in fiscal 2021 is primarily due to a preliminary benefit of $234.4 recorded as a result of a tax rate differential on the deferred taxes recognized on the transfer of assets and liabilities, following the Company\u2019s relocation of the main principal location from Geneva to Amsterdam. The overall value of the assets and liabilities transferred was negotiated with both the Swiss and Dutch Tax Authorities and per terms of the agreements, will be reevaluated after three years. The Company also recorded an expense of $130.0 related to an internal restructuring following the Wella divestiture, primarily intended to create a more efficient structure to hold its equity investment in Wella.\nThe effective rates vary from the U.S. Federal statutory rate of 21% due to the effect of (i) jurisdictions with different statutory rates, (ii) adjustments to our unrecognized tax benefits and accrued interest, (iii) non-deductible expenses, (iv) audit settlements and (v) valuation allowance changes. Our effective tax rate could fluctuate significantly and could be adversely affected to the extent earnings are lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates.\nReconciliation of Reported Income (Loss) Before Income Taxes to Adjusted Income (Loss) Before Income Taxes and Effective Tax Rates from Continuing Operations: \nYear Ended June 30, 2023\nYear Ended June 30, 2022\nYear Ended June 30, 2021\n(in millions)\n(Loss)/ income before income taxes\n(Benefit) provision for income taxes\nEffective tax rate\n(Loss)/ income before income taxes\n(Benefit) provision for income taxes\nEffective tax rate\n(Loss)/income before income taxes\n(Benefit)provision for income taxes\nEffective tax rate\nReported income (loss) before income taxes\n$\n704.8\n\u00a0\n$\n181.6\n\u00a0\n25.8\n\u00a0\n%\n$\n426.8\n\u00a0\n$\n164.8\n\u00a0\n38.6\n\u00a0\n%\n$\n(239.8)\n$\n(172.0)\n71.7\n\u00a0\n%\nAdjustments to reported operating income (loss) \n(a)\n195.1\u00a0\n374.6\u00a0\n484.8\u00a0\nChange in fair value of investment in Wella Business\n (e)\n(230.0)\n(403.9)\n(73.5)\nOther adjustments \n(f)\n0.2\u00a0\n(2.4)\n7.2\u00a0\nTotal Adjustments \n(b)(c)(d)\n(34.7)\n$\n(4.5)\n(31.7)\n(55.3)\n418.5\u00a0\n204.3\u00a0\nAdjusted income before income taxes\n$\n670.1\n\u00a0\n$\n177.1\n\u00a0\n26.4\n\u00a0\n%\n$\n395.1\n\u00a0\n$\n109.5\n\u00a0\n27.7\n\u00a0\n%\n$\n178.7\n\u00a0\n$\n32.3\n\u00a0\n18.1\n\u00a0\n%\n(a)\nSee a description of adjustments under \u201cAdjusted Operating Income (Loss) for Coty Inc.\u201d\n(b)\nThe tax effects of each of the items included in adjusted income are calculated in a manner that results in a corresponding income tax benefit/provision for adjusted income. In preparing the calculation, each adjustment to reported income is first analyzed to determine if the adjustment has an income tax consequence. The provision for taxes is then calculated based on the jurisdiction in which the adjusted items are incurred, multiplied by the respective statutory rates and offset by the increase or reversal of any valuation allowances commensurate with the non-GAAP measure of profitability. In connection with our decision to wind down our operations in Russia, we recognized tax charges related to certain direct incremental impacts of our decision, which are reflected in this amount, in fiscal 2023 and fiscal 2022.\n(c)\nThe total tax impact on adjustments includes a tax benefit of $0.4 and tax expense of $24.1 for fiscal 2023 and fiscal 2022, respectively, recorded as the result of the Company\u2019s exit from Russia.\n(d)\nThe total tax impact on adjustments in fiscal 2021 includes a $234.4 benefit recorded as the result of the tax rate differential on the deferred taxes recognized on the transfer of assets and liabilities, following the relocation of our main principal location from Geneva to Amsterdam on July 1, 2020. It also includes a $130.0 tax expense recorded as the result of an internal restructuring following the Wella divestiture, primarily intended to create a more efficient structure to hold its equity investment in Wella.\n(e)\nThe amount represents the realized and unrealized (gain) loss recognized for the change in fair value of the investment in Wella.\n(f)\nSee \u201cReconciliation of Reported Net Income (Loss) Attributable to Coty Inc. to Adjusted Net Income (Loss) Attributable to Coty Inc.\u201d\nThe adjusted effective tax rate was 26.4% compared to 27.7% in the prior-year period. The differences were primarily due to permanent adjustments and jurisdictional mix of income. Cash paid during the years ended June 30, 2023, 2022 and 2021, for income taxes was $58.6, $97.2 and $15.9, respectively. \n46\nNET INCOME (LOSS) ATTRIBUTABLE TO COTY INC.\nIn fiscal 2023, net income attributable to Coty Inc. was $508.2 compared to income of $259.5 in fiscal 2022. The net income increase was primarily driven by higher operating income, incremental net gains associated with forward repurchase contracts, contingent consideration gains associated with the sale of Wella, partially offset by a less favorable adjustment related to the unrealized gain in the Wella investment in the current year, higher net interest expense in the current year and an increase in the provision for income taxes in the current year compared to the prior year.\nIn fiscal 2022, net income attributable to Coty Inc. was $259.5 compared to a loss of $201.3 in fiscal 2021. The net income increase was primarily driven by higher operating income in the current year, a favorable adjustment of $403.9 related to the realized and unrealized gain in the Wella investment in the current year, and the loss on sale of the Wella Business, which was recorded in the comparative period, partially offset by a provision for income taxes in the current year compared to income tax benefit in the prior year. \nADJUSTED NET INCOME (LOSS) ATTRIBUTABLE TO COTY INC.\nWe believe that adjusted net income (loss) attributable to Coty Inc. provides an enhanced understanding of our performance. See \u201cOverview\u2014Non-GAAP Financial Measures.\u201d \nYear Ended June 30,\nChange %\n(in millions)\n2023\n2022\n2021\n2023/2022\n2022/2021\nNet income (loss) from Coty Inc. net of noncontrolling interests\n$\n508.2\n\u00a0\n$\n259.5\n\u00a0\n$\n(201.3)\n96\n\u00a0\n%\n>100%\nConvertible Series B Preferred Stock dividends\n (a)\n(13.2)\n(198.3)\n(102.3)\n93\u00a0\n%\n(94\u00a0\n%)\nReported net income (loss) attributable to Coty Inc.\n495.0\n\u00a0\n61.2\n\u00a0\n(303.6)\n>100%\n>100%\nAdjustments to reported operating income \n(b)\n195.1\u00a0\n374.6\u00a0\n486.3\u00a0\n(48\u00a0\n%)\n(23\u00a0\n%)\nAdjustments to Loss on Sale of Business\n\u2014\u00a0\n(6.1)\n246.4\u00a0\n100\u00a0\n%\n<(100%)\nChange in fair value of investment in Wella Business\n (c)\n(230.0)\n(403.9)\n(73.5)\n43\u00a0\n%\n<(100%)\nAdjustments to other expense (income)\n (d)\n0.2\u00a0\n(2.4)\n7.2\u00a0\n>100%\n<(100%)\nAdjustments to noncontrolling interest \n(e)\n \n(6.9)\n(7.0)\n(11.3)\n1\u00a0\n%\n38\u00a0\n%\nChange in tax provision due to adjustments to reported net income (loss) attributable to Coty Inc.\n4.5\u00a0\n55.7\u00a0\n(170.0)\n(92\u00a0\n%)\n>100%\nAdjustment for deemed Series B Preferred Stock dividends related to the First and Second Exchanges\n\u2014\u00a0\n160.0\u00a0\n\u2014\n\u00a0\n(100\u00a0\n%)\nN/A\nAdjusted net income attributable to Coty Inc.\n$\n457.9\n\u00a0\n$\n232.1\n\u00a0\n$\n181.5\n\u00a0\n97\n\u00a0\n%\n28\n\u00a0\n%\n% of Net revenues\n8.2\u00a0\n%\n4.4\u00a0\n%\n3.2\u00a0\n%\n\u00a0\nPer Share Data\nAdjusted weighted-average common shares\nBasic\n849.0\u00a0\n820.6\u00a0\n764.8\u00a0\nDiluted \n(a)(f)\n862.8\u00a0\n834.1\u00a0\n764.8\u00a0\nAdjusted net income attributable to Coty Inc. per common share\nBasic\n$\n0.54\u00a0\n$\n0.28\u00a0\n$\n0.24\u00a0\nDiluted\n (a)(f)\n$\n0.53\u00a0\n$\n0.28\u00a0\n$\n0.24\u00a0\n(a)\nDiluted EPS is adjusted by the effect of dilutive securities, including awards under the Company's equity compensation plans, the convertible Series B Preferred Stock and the Forward Repurchase Contracts. When calculating any potential dilutive effect of stock options, Series A Preferred Stock, restricted stock, PRSUs and RSUs, the Company uses the treasury method and the if-converted method for the Convertible Series B Preferred Stock and the Forward Repurchase Contracts. The treasury method typically does not adjust the net income attributable to Coty Inc., while the if-converted method requires an adjustment to reverse the impact of the preferred stock dividends and the impact of fair market value (gains)/losses for contracts with the option to settle in shares or cash, if dilutive, on net income applicable to common stockholders during the period.\n(b)\nSee a description of adjustments under \u201cAdjusted Operating Income (Loss) from Continuing Operations for Coty Inc.\u201d \n(c)\nIn fiscal 2023, 2022, and 2021, the amount represents the unrealized (gain) loss recognized for the change in fair value of the investment in Wella. \n(d)\nIn fiscal 2023, the amount includes the amortization of basis differences in certain equity method investments and pension curtailment gains. In fiscal 2022, the amount includes a net gain on the exchange of Series B Preferred Stock partially offset by the amortization of basis differences in certain equity method investments and pension curtailment losses. In fiscal 2021, the Company incurred losses of $13.8 \n47\ndue to the write-off of deferred financing fees related to the Wella sale, primarily offset by pension curtailment gains of $6.9 as a result of the Transformation Plan, which significantly reduced the expected years of future service for employees participating in our non-U.S. pension plans.\n(e)\nThe amounts represent the after-tax impact of the non-GAAP adjustments included in Net (loss) income attributable to noncontrolling interests based on the relevant noncontrolling interest percentage in the Consolidated Statements of Operations.\n(f)\nAs of June 30, 2023 and 2022, 23.7 and 65.4 million dilutive shares of Convertible Series B Preferred Stock were excluded in the computation of adjusted weighted-average diluted shares because their effect would be anti-dilutive. As of June 30, 2021, 171.1 million dilutive shares of RSUs and Convertible Series B Preferred Stock were excluded in the computation of adjusted weighted-average diluted shares because their effect would be anti-dilutive.\nDISCONTINUED OPERATIONS\nDue to the sale of the Wella Business on November 30, 2020, no net revenues or operating expenses from discontinued operations were recorded after November 30, 2020. As such, our results from discontinued operations for the fiscal year ended June 30, 2021 reflect only five months of operations.\nIn fiscal 2021, net revenues from discontinued operations was $986.3 and operating income was $220.8 in fiscal 2021. Net loss was $137.3 in fiscal 2021.\nThe loss on sale of the Wella Business was $246.4 in fiscal 2021. Factored into the loss on sale are the proceeds received from the sale of our majority interest in Wella, the book value of net assets sold and costs to sell. The book value of net assets sold was impacted by the seasonal effects on certain portions of the Wella Business during the months leading up to the sale, resulting in increases in the net assets sold. Additionally, certain legal and tax structuring matters were finalized in the final month of the closing of the transaction, resulting in a reduction to certain deferred tax assets and liabilities that were transferred at the date of sale and an increase in the tax liabilities retained by us. The loss on sale of the Wella Business also reflects certain purchase price working capital adjustments made during fiscal 2021. \nIn connection with the sale of a majority stake in the Wella Business, the Company recorded a tax cost of approximately $34.3 in fiscal 2021. This cost is a combination of cash taxes incurred as well as a deferred tax expense due to the utilization of net operating loss carryforwards, capital loss carryforwards, and foreign tax credits. \n48\nQuarterly Results of Operations Data\nThe following tables set forth our unaudited quarterly consolidated statements of operations data for each of the eight quarters in the periods ended June 30, 2023. We have prepared the quarterly consolidated statements of operations data on a basis consistent with the consolidated financial statements included in Part II, Item 8, \u201cFinancial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K. In the opinion of management, the financial information reflects all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of this data. This information should be read in conjunction with the consolidated financial statements and related notes included in Part II, Item 8, \u201cFinancial Statements and Supplementary Data\u201d in this Annual Report. The results of historical periods are not necessarily indicative of the results of operations for any future period.\nCondensed Consolidated Statements of Operations Data:\nFiscal 2023\nFiscal 2022\nThree Months Ended\nThree Months Ended\nJune 30,\nMarch 31,\nDecember 31,\nSeptember 30,\nJune 30,\nMarch 31,\nDecember 31,\nSeptember 30,\n(in millions, except per share data)\n2023\n2023\n2022\n2022\n2022\n2022\n2021\n2021\nNet revenues\n$\n1,351.6\u00a0\n$\n1,288.9\u00a0\n$\n1,523.6\u00a0\n$\n1,390.0\u00a0\n$\n1,168.3\u00a0\n$\n1,186.2\u00a0\n$\n1,578.2\u00a0\n$\n1,371.7\u00a0\nGross profit\n849.5\u00a0\n810.8\u00a0\n998.3\u00a0\n888.7\u00a0\n722.1\u00a0\n763.1\u00a0\n1,017.1\u00a0\n866.9\u00a0\nRestructuring costs\n(1.1)\n(1.3)\n(2.9)\n(1.2)\n(8.0)\n(6.8)\n(4.1)\n12.4\u00a0\nAcquisition-and divestiture-related costs\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n0.5\u00a0\n3.3\u00a0\n6.9\u00a0\n4.0\u00a0\nAsset impairment charges\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n31.4\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nOperating income (loss)\n129.0\u00a0\n43.5\u00a0\n199.3\u00a0\n171.9\u00a0\n(77.4)\n57.1\u00a0\n244.0\u00a0\n17.2\u00a0\nInterest expense, net\n72.2\u00a0\n58.8\u00a0\n61.0\u00a0\n65.9\u00a0\n40.4\u00a0\n62.9\u00a0\n60.9\u00a0\n59.8\u00a0\nIncome (Loss) from continuing operations before income taxes\n78.8\u00a0\n141.6\u00a0\n280.2\u00a0\n204.2\u00a0\n(280.8)\n54.8\u00a0\n309.3\u00a0\n343.5\u00a0\nProvision (benefit) for income taxes\n43.3\u00a0\n29.8\u00a0\n38.8\u00a0\n69.7\u00a0\n0.3\u00a0\n0.5\u00a0\n49.4\u00a0\n114.6\u00a0\nNet (loss) income from continuing operations\n35.5\u00a0\n111.8\u00a0\n241.4\u00a0\n134.5\u00a0\n(281.1)\n54.3\u00a0\n259.9\u00a0\n228.9\u00a0\nNet (loss) income from discontinued operations\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n1.2\u00a0\n0.7\u00a0\n3.8\u00a0\n\u2014\u00a0\nNet (loss) income attributable to noncontrolling interests\n(1.4)\n1.0\u00a0\n(1.4)\n\u2014\u00a0\n(2.8)\n(0.9)\n(0.9)\n(0.5)\nNet income attributable to redeemable noncontrolling interests\n4.0\u00a0\n2.4\u00a0\n4.5\u00a0\n5.9\u00a0\n4.4\u00a0\n2.3\u00a0\n3.2\u00a0\n3.4\u00a0\nNet (loss) income attributable to Coty Inc.\n$\n32.9\u00a0\n$\n108.4\u00a0\n$\n238.3\u00a0\n$\n128.6\u00a0\n$\n(281.5)\n$\n53.6\u00a0\n$\n261.4\u00a0\n$\n226.0\u00a0\nAmounts attributable to Coty Inc. common stockholders:\nConvertible Series B Preferred Stock dividends\n(3.3)\n(3.3)\n(3.3)\n(3.3)\n(3.3)\n(3.3)\n(68.7)\n(123.0)\nNet (loss) income from continuing operations attributable to common stockholders\n29.6\u00a0\n105.1\u00a0\n235.0\u00a0\n125.3\u00a0\n(286.0)\n49.6\u00a0\n188.9\u00a0\n103.0\u00a0\nNet (loss) income attributable to common stockholders\n$\n29.6\u00a0\n$\n105.1\u00a0\n$\n235.0\u00a0\n$\n125.3\u00a0\n$\n(284.8)\n$\n50.3\u00a0\n$\n192.7\u00a0\n$\n103.0\u00a0\nPer Share Data:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nWeighted-average common shares:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nBasic\n852.0\u00a0\n851.6\u00a0\n850.8\u00a0\n842.0\u00a0\n838.4\u00a0\n838.4\u00a0\n829.1\u00a0\n777.6\u00a0\nDiluted \n(a)\n864.7\u00a0\n865.2\u00a0\n886.8\u00a0\n882.2\u00a0\n838.4\u00a0\n852.9\u00a0\n842.7\u00a0\n787.7\u00a0\nDividends declared per common share\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\nNet (loss) income attributable to Coty Inc. per common share:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nBasic for Continuing Operations\n$\n0.03\u00a0\n$\n0.12\u00a0\n$\n0.28\u00a0\n$\n0.15\u00a0\n$\n(0.34)\n$\n0.06\u00a0\n$\n0.23\u00a0\n$\n0.13\u00a0\nBasic for Coty Inc\n$\n0.03\u00a0\n$\n0.12\u00a0\n$\n0.28\u00a0\n$\n0.15\u00a0\n$\n(0.34)\n$\n0.06\u00a0\n$\n0.23\u00a0\n$\n0.13\u00a0\nDiluted for Continuing Operations\n$\n0.03\u00a0\n$\n0.12\u00a0\n$\n0.27\u00a0\n$\n0.15\u00a0\n$\n(0.34)\n$\n0.06\u00a0\n$\n0.23\u00a0\n$\n0.13\u00a0\nDiluted for Coty Inc.\n$\n0.03\u00a0\n$\n0.12\u00a0\n$\n0.27\u00a0\n$\n0.15\u00a0\n$\n(0.34)\n$\n0.06\u00a0\n$\n0.23\u00a0\n$\n0.13\u00a0\n(a)\nThe outstanding stock options and Series A/A-1 Preferred Stock with purchase or conversion rights to purchase shares of Common Stock, RSUs and Convertible Series B Preferred Stock were excluded in the computation of diluted shares when their effect would be antidilutive. \n49\nFINANCIAL CONDITION \nLIQUIDITY AND CAPITAL RESOURCES\nOverview\nOur primary sources of funds include cash expected to be generated from operations, borrowings from issuance of debt and lines of credit provided by banks and lenders in the U.S. and abroad.\nOur cash flows are subject to seasonal variation throughout the year, including demands on cash made during our first fiscal quarter in anticipation of higher global sales during the second fiscal quarter and strong cash generation in the second fiscal quarter as a result of increased demand by retailers associated with the holiday season.\nOur principal uses of cash are to fund planned operating expenditures, capital expenditures, interest payments, dividends, share repurchases, any principal payments on debt, and from time to time, acquisitions, and business structure realignment expenditures. Working capital movements are influenced by the sourcing of materials related to the production of products. Cash and working capital management initiatives, including the phasing of vendor payments and factoring of trade receivables from time-to-time, may also impact the timing and amount of our operating cash flows.\nWe remain focused on deleveraging our balance sheet using cash flows generated from our operations. We continue to take steps to permanently reduce our debt, in order to reduce interest costs and improve our long term profitability and cash flows. In addition, our 25.9% investment in Wella gives us the opportunity for further permanent debt reductions, when our equity position is divested. On July 18, 2023 we announced that we entered into a binding letter of intent to sell a 3.6% stake in Wella to investment firm IGF Wealth Management for $150.0. The closing of the transaction is subject to, among other things, completion of due diligence and the satisfaction of certain closing conditions, including the approval of the transaction by KKR.  If the transaction closes, we intend to use the net proceeds to pay down a portion of the outstanding principal balance of our Revolving Credit Facility. Assuming the transaction closes, we would retain 22.3% of the Wella Company.\nVariable rate debt accounts for approximately 34% of our total debt outstanding as of June 30, 2023. We incurred higher average variable interest rates compared to the same period in the prior year. We have taken action to reduce variability in our interest payments including paying down variable interest rate debt outstanding under our 2018 Coty Term B Facility, issuing fixed rate bonds (as discussed in the Debt section below), and entering into floating to fixed interest rate swaps. Giving effect to transactions in July 2023 (as noted in the Debt section below) on our June 30, 2023 debt balances, the proportion of our fixed rate debt outstanding would have been approximately 84%. \nDuring the fiscal year, we terminated our licensing arrangement for Lacoste fragrances and received termination payments from the licensor totaling \u20ac87.8\u00a0million (approximately $93.9). We expect to receive an additional payment of \u20ac15.0\u00a0million (approximately $16.3) in fiscal 2024.  We used proceeds received to repay debt, as discussed below.\nWe continue to wind down the operations of our Russian subsidiary. We anticipate that we will incur an immaterial amount of additional costs through completion of the wind down, and future net cash costs of $10.0 to $20.0, which will be funded by our Russian subsidiary. The amount of future costs, including cash costs, will be subject to various factors, such as additional government regulation and the resolution of legal contingencies. We have substantially completed our commercial activities in Russia.\n However, we anticipate that the process related to the liquidation of the Russian legal entity will take an extended period of time.\n50\nWe continue to experience inflationary pressures in most markets resulting in higher commodity and supply chain costs, including material, freight, and energy costs, as well as higher costs for services and labor. Further, inflationary trends in certain markets and global supply chain challenges, including component shortages, may negatively affect our future sales and operating performance. Supply chain constraints may impact the availability of raw materials used to manufacture our products which may negatively impact our ability to meet customer demands, thereby impacting our cash flows and profitability. To mitigate the impact of these supply chain constraints on our ability to meet demand for our products, we have increased inventory levels throughout the year. We continue to monitor supply chain and other factors impacting our ability to meet demand and we will take the necessary actions to optimize our inventory levels in light of these factors.\nDebt \nWe are in the process of deleveraging our company and improving the maturity mix of our debt, including through refinancing or repayment of a portion of our debt. Actions that we have taken in fiscal 2023 and subsequently include the following.\nFiscal 2023\n\u2022\nSenior Notes\n \u2013 We completed cash tender offers and redeemed $77.0 of our 2026 Dollar Notes and \u20ac69.7 million (approximately $72.2) of our 2026 Euro Notes.\n\u2022\n2018 Term B Facility\n \u2013 We used proceeds associated with the termination of the Lacoste fragrances license to reduce the euro and U.S. dollar portions of the 2018 Term B Facility, in the amounts of \u20ac20.1 million (approximately $21.5) and $29.5, respectively.\nIn addition, on March 7, 2023, we amended the 2018 Coty Credit Agreement to effectuate the transition of the underlying variable interest rate from LIBOR to the Secured Overnight Financing Rate (\u201cSOFR\u201d). Interest payments on our debt agreements were not materially impacted by the transition to SOFR.\nFirst Quarter of Fiscal 2024\nJuly Transactions\n\u2022\n2018 Revolving Credit Facility\n \u2013 On July 11, 2023, we extended the maturity of the 2018 Revolving Credit Facility until July 2028. \n\u2022\nSenior Notes\n \u2013 On July 26, 2023, we completed a senior secured notes offering and received net proceeds of $740.6. The new senior secured notes are due in 2030 and bear an annual interest rate of 6.625%.\n\u2022\n2018 Term B Facility\n \u2013 At the time we completed the senior secured noted offering, we used net proceeds to fully repay our U.S. dollar variable interest rate loans outstanding and repay a pro-rata portion of our euro variable interest rate loans outstanding under our existing 2018 Term B Facility.\nAugust Transactions\n\u2022\nOn August 3, 2023, we repaid \u20ac408.0 million of debt outstanding under our 2018 Term B Facility.\nSee Note 15\u2014Debt in the notes to our Consolidated Financial Statements for additional information on our debt arrangements and prior period credit agreements, as well as definitions of capitalized terms. See Note 28\u2014Subsequent Events in the notes to our Consolidated Financial Statements for disclosures of transactions occurring after June 30, 2023.  \nA significant portion of our long-term debt maturities (excluding capital lease obligations) have been extended from fiscal 2024 and 2025 to fiscal 2029 and thereafter following the July 2023 transactions. Following the transactions over 99% of our aggregate debt maturities have been pushed out to fiscal 2026 and beyond.\nFactoring of Receivables \nFrom time to time, we supplement the timing of our cash flows through the factoring of trade receivables. In this regard, we have entered into factoring arrangements with financial institutions.\nThe net amount utilized under the factoring facilities was $202.9 and $179.3 as of June 30, 2023 and 2022, respectively. The aggregate amount of trade receivable invoices factored on a worldwide basis amounted to $1,579.2 and $1,041.2 in fiscal 2023 and 2022, respectively. Remaining balances due from factors amounted to $14.2 and $11.2 as of June 30, 2023 and 2022, respectively.\n51\nBusiness Combinations\nDuring fiscal 2023 and 2022, we did not enter into any business combinations or asset acquisitions.\nDuring fiscal 2021, we completed the acquisition of a 20% ownership interest in KKW Holdings and the related collaboration agreement. Total cash paid in the transaction totaled $200.0.\nFor additional information on our prior period activity from fiscal year 2022, see Note 4\u2014Business Combinations, Asset Acquisitions and Divestitures in the notes to our Consolidated Financial Statements.\nDispositions\nDuring fiscal 2023 and 2022, we did not enter into any business dispositions.\nDuring fiscal 2021, we completed the sale of a majority stake in the Wella Business (as discussed below).\nThe Wella Business Divestiture \nDuring fiscal 2021, we completed the sale of a majority stake in the Wella Business and received cash proceeds of $2,451.7 and retained an initial ownership stake of 40% in Wella. Additionally, during fiscal 2021, we entered into a post-closing purchase consideration adjustment agreement for the Wella Business sale and received advanced contingent proceeds of $34.0.\nDuring fiscal 2022, our ownership stake in the Wella Company was reduced to 25.9%.\nDuring fiscal 2023 and 2022, we earned $30.8 and $0.7, respectively of the contingent proceeds advanced to us from the sale of Wella. The remaining $2.5 is unearned as of June 30, 2023.\nFor additional information on our prior period business dispositions from fiscal year 2021, see Note 4\u2014Business Combinations, Asset Acquisitions and Divestitures in the notes to our Consolidated Financial Statements.\nCash Flows\nYear Ended June 30,\n(in millions)\n2023\n2022\n2021\nConsolidated Statements of Cash Flows Data\n (a)\n:\nNet cash provided by operating activities\n$\n625.7\u00a0\n$\n726.6\u00a0\n$\n318.7\u00a0\nNet cash (used in) provided by investing activities\n(118.2)\n269.7\u00a0\n2,441.9\u00a0\nNet cash (used in) financing activities\n(469.3)\n(1,034.0)\n(2,795.1)\n(a)\n Balances presented herein represent the cash flows of Coty Inc.\nNet cash provided by operating activities\nNet cash provided by operating activities was $625.7, $726.6 and $318.7 for fiscal 2023, 2022 and 2021, respectively.\nThe decrease in cash provided by operating activities of $100.9 in fiscal 2023 as compared with fiscal 2022 is primarily driven by an overall net decrease in cash from working capital partially offset by an increase in cash related net income. The net decrease in cash from working capital was mainly the result of changes in accrued expenses and other current liabilities and increased inventory levels in fiscal 2023, partially offset by positive impacts from changes in trade receivables.  The increase in cash related net income was due to an increase in net revenues and gross margin, and lower selling, general and administrative expenses in the current year compared to the prior year.  \nThe increase in cash provided by operating activities of $407.9 in fiscal 2022 as compared with fiscal 2021 is primarily driven by a year over year increase in cash related net income and overall increase in cash flows from changes in net working capital accounts. Higher net revenues in both segments, lower costs as percentage of revenues, lower costs for acquisition and divestiture related activities, and lower cash outflows associated with operating leases contributed to the higher year over year cash flows from operating activities which were partially offset by outflows from higher costs during fiscal 2022 for selling, general, and administrative expenses. Higher cash outflows during fiscal 2022 for net income tax payments is driven by the significant prior year tax overpayment collections and were primarily offset by lower year over year cash outflows for restructuring activity payments and payments for interest costs.\nNet cash (used in) provided by investing activities\n \nNet cash (used in) provided by investing activities was $(118.2), $269.7 and $2,441.9 for fiscal 2023, 2022 and 2021, respectively.\nThe decrease in cash flows from investing activities of $387.9 in fiscal 2023 as compared with fiscal 2022 was  mainly attributable to the prior year cash received from return of capital from one of our equity investments which did not reoccur \n52\nduring the year ended June 30, 2023.  Additionally, the prior year included higher proceeds from the sales of long-lived assets and the positive impact from the receipt of contingent proceeds related to the Wella Business tax credits partially offset with higher capital expenditures in the current year.\nThe decrease in cash flows provided by investing activities of $2,172.2 in fiscal 2022 as compared with fiscal 2021 was principally driven by higher cash proceeds associated with the sale of the discontinued Wella Business in the prior year. Cash proceeds from the sale of the business and related returns on capital associated with Coty\u2019s remaining stake in Wella whereby initial cash proceeds from the sale received were $2,374.1 in fiscal 2021 compared to the $34.0 proceeds from contingent consideration in the current fiscal year. Returns of capital from equity investments for Coty\u2019s remaining stake in Wella were $448.0 in prior year compared to $230.6 in the current year. Higher proceeds from the sale of other long lived assets in fiscal 2022 and outflows from the prior year related to the KKW Holdings asset acquisition and 20% equity investment helped to partially offset the year over year decrease in cash from investing activities\nNet cash (used in) financing activities\n \nNet cash (used in) financing activities was $(469.3), $(1,034.0) and $(2,795.1) for fiscal 2023, 2022 and 2021, respectively.\nThe decrease in cash used in financing activities of $564.7 in fiscal 2023 as compared to fiscal 2022 was primarily driven mainly by higher cash outflows in the prior year for net paydowns of the Company's revolving credit facility and other long term debt balances as well, as higher payments of deferred financing fees, and higher dividend payments on Series B Preferred Stock. Additionally, lower cash payments in the current year for the settlement of foreign currency contracts contributed to the overall decrease in use of cash but were partially offset by cash payments related to the Company's forward repurchase contracts.\nThe decrease in cash used in financing activities of $1,761.1 in fiscal 2022 as compared to fiscal 2021 was primarily driven by lower net cash outflows for repayments associated with the Company's revolving credit facility and other long term debt outstanding under the Company's Credit Agreement. The year over year change in the level of debt repayments is primarily attributable to the impact of the use of prior year proceeds from the sale of the Wella discontinued business being used to prepay more than $2,000.0 of the outstanding debt on the Company's term loan facilities. Net overall cash outflows also occurred in the current year but to a lesser extent and were offset by proceeds from the issuance of the 2029 Senior Secured Notes and the Brazilian Credit Facilities. Increases in cash outflows for the settlement of realized losses on foreign currency contracts in the current year and the prior year inflows from the issuance of Convertible Series B Preferred Stock only partially offset the impact of the year over year changes in debt activities\nDividends\nOn April 29, 2020, our Board of Directors suspended the payment of dividends, in keeping with our 2018 Coty Credit Agreement, as amended. As we focus on preserving cash, we expect to suspend the payment of dividends until we reach a Net debt to Adjusted earnings before interest, taxes, depreciation and amortization (\u201cAdjusted EBITDA\u201d) of 2x. Any determination to pay dividends in the future will be at the discretion of our Board of Directors.\nDividends on the Convertible Series B Preferred Stock are payable in cash, or by increasing the amount of accrued dividends on Convertible Series B Preferred Stock, or any combination thereof, at the sole discretion of the Company. After the expiration of applicable restrictions under the 2018 Coty Credit Agreement, as amended, we began to pay dividends on the Convertible Series B Preferred Stock in cash for the period ending June 30, 2021, and we expect to continue to pay such dividends in cash on a quarterly basis, subject to the declaration thereof by our Board of Directors. The terms of the Convertible Series B Preferred Stock restrict our ability to declare cash dividends on our common stock until all accrued dividends on the Convertible Series B Preferred Stock have been declared and paid in cash. During the twelve months ended June 30, 2023, the Board of Directors declared dividends on the Series B Preferred Stock of $13.2 of which $9.9 was paid and $3.3 was paid in July 2023.\nFor additional information on our dividends and dividend policy, respectively, see Note 23\u2014Equity and Convertible Preferred Stock in the notes to our Consolidated Financial Statements and Item 5, \u201cMarket for Registrant\u2019s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities\u2014Dividend Policy\u201d.\nTreasury Stock - Share Repurchase Program\nFor additional information on our Share Repurchase Program, see Note 23\u2014Equity and Convertible Preferred Stock in the notes to our Consolidated Financial Statements.\n53\nContractual Obligations and Commitments \nOur principal contractual obligations and commitments are presented below as of June\u00a030, 2023.\n(in millions)\nTotal\nPayments Due in Fiscal\nThereafter\n2024\n2025\n2026\n2027\n2028\nLong-term debt obligations\n$\n4,274.5\u00a0\n$\n55.1\u00a0\n$\n1,389.3\u00a0\n$\n2,330.1\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n500.0\u00a0\nInterest on long-term debt obligations \n(a)\n1,508.7\u00a0\n242.2\u00a0\n240.2\u00a0\n237.6\u00a0\n261.2\u00a0\n267.6\u00a0\n259.9\u00a0\nOperating lease obligations\n368.2\u00a0\n78.6\u00a0\n60.0\u00a0\n48.8\u00a0\n41.0\u00a0\n32.7\u00a0\n107.1\u00a0\nLicense agreements: \n(b)\nRoyalty payments\n505.0\u00a0\n132.3\u00a0\n68.7\u00a0\n60.8\u00a0\n43.8\u00a0\n39.0\u00a0\n160.4\u00a0\nOther contractual obligations \n(c)\n931.6\u00a0\n869.3\u00a0\n24.5\u00a0\n22.8\u00a0\n9.9\u00a0\n5.1\u00a0\n\u2014\u00a0\nOther long-term obligations:\nPension obligations (mandated) \n(d)\n15.6\u00a0\n3.0\u00a0\n3.1\u00a0\n3.1\u00a0\n3.2\u00a0\n3.2\u00a0\n\u2014\u00a0\nTotal\n$\n7,603.6\u00a0\n$\n1,380.5\u00a0\n$\n1,785.8\u00a0\n$\n2,703.2\u00a0\n$\n359.1\u00a0\n$\n347.6\u00a0\n$\n1,027.4\u00a0\n(a)\n Interest costs on our debt after consideration of our interest rate swap arrangements are determined based on interest rate forecast and assumptions of the amount of debt outstanding. A 25 basis-point increase in our variable interest rate debt would have increased our interest costs by $22.0 over the term of our long-term debt.\n(b)\n Obligations under license agreements relate to royalty payments and required advertising and promotional spending levels for our products bearing the licensed trademark. Royalty payments are typically made based on contractually defined net sales. However, certain licenses require minimum guaranteed royalty payments regardless of sales levels. Actual royalty payments are expected to be higher. Furthermore, early termination of any of these license agreements could result in potential cash outflows that have not been reflected above.\n(c)\n Other contractual obligations primarily represent advertising/marketing, manufacturing, logistics and capital improvements commitments. We also maintain several distribution agreements for which early termination could result in potential future cash outflows that have not been reflected above.\n(d)\n Represents future contributions to our pension and other postretirement benefit plans over the next five years mandated by local regulations or statutes. Subsequent funding requirements cannot be reasonably estimated as the return on plan assets in future periods, as well as future assumptions are not known.\nThe table above excludes obligations for uncertain tax benefits, including interest and penalties, of $218.6 as of June\u00a030, 2023, as we are unable to predict when, or if, any payments would be made. See Note 17\u2014Income Taxes in the notes to our Consolidated Financial Statements for additional information on our uncertain tax benefits. \nThe table excludes\u00a0$93.5\u00a0of RNCI which is reflected in Redeemable noncontrolling interest in the Consolidated Balance Sheet as of\u00a0June\u00a030, 2023\u00a0related to the 25.0% RNCI in our subsidiary in the Middle East (\u201cMiddle East Subsidiary\u201d). Given the provisions of the associated Put and Call rights, RNCI is redeemable outside of our control and is recorded in temporary equity. See Note 22\u2014Redeemable Noncontrolling Interests in the notes to our Consolidated Financial Statements for further discussion related to the calculation of the redemption value of this noncontrolling interest.\nThe table also excludes $142.4 of preferred stock, which is reflected in Convertible Series B Preferred Stock in the Consolidated Balance Sheet as of June\u00a030, 2023. Given the provisions of the associated Put rights, Convertible Series B Preferred Stock is redeemable outside of our control upon certain change of control events and is recorded in temporary equity. See Note 23\u2014Equity and Convertible Preferred Stock in the notes to our Consolidated Financial Statements for further discussion related to the calculation of the Convertible Series B Preferred Stock.\nContingencies\nFrom time to time, our Brazilian subsidiaries receive tax assessments from local, state, and federal tax authorities in Brazil. See Note 26\u2014Legal and Other Contingencies for more details on these tax assessments. In relation to the appeal of our Brazilian tax assessments, we have entered into surety bonds of R$423.8\u00a0million (approximately $87.3) as of June\u00a030, 2023. As of June\u00a030, 2023, we are in the early stages of administrative action and expect the judicial process in Brazil to take a number of years to conclude.\nDerivative Financial Instruments and Hedging Activities\nWe are exposed to foreign currency exchange fluctuations and interest rate volatility through our global operations. We utilize natural offsets to the fullest extent possible in order to identify net exposures. In the normal course of business, established policies and procedures are employed to manage these net exposures using a variety of financial instruments. We do not enter into derivative financial instruments for trading or speculative purposes.\nForeign Currency Exchange Risk Management\n54\nWe operate in multiple functional currencies and are exposed to the impact of foreign currency fluctuations. For foreign currency exposures, which primarily relate to receivables, inventory purchases and sales, payables and intercompany loans, derivatives are used to better manage the earnings and cash flow volatility arising from foreign currency exchange rate fluctuations. We recorded foreign currency gains (losses) of $(32.3), $3.3 and $(7.8) in fiscal 2023, 2022 and 2021, respectively, resulting from non-financing foreign currency exchange transactions which are included in their associated expense type and are included in the Consolidated Statements of Operations.  In July 2021, the Company entered into foreign exchange forward contracts to hedge up to 80% of our euro denominated external debt as part of management's strategy to minimize the impact of currency movements on those debt instruments. Net (losses) gains of $(12.2), $10.0 and $(6.8) in fiscal 2023, 2022 and 2021, respectively, resulting from financing foreign exchange currency transactions are included in Interest expense, net in the Consolidated Statements of Operations.\nExchange gains or losses are also partially offset through the use of qualified derivatives under hedge accounting, for which we record accumulated gains or losses in Accumulated other comprehensive income until the underlying transaction occurs at which time the gain or loss is reclassified into the respective account in the Consolidated Statements of Operations.\nWe have experienced and will continue to experience fluctuations in our net income as a result of balance sheet transactional exposures. We use a combination of foreign currency forward contracts and cross currency contracts to offset these exposures. As of June\u00a030, 2023, in the event of a 10% unfavorable change in the prevailing market rates of hedged foreign currencies versus the U.S. dollar, the change in fair value of all foreign exchange forward contracts and cross currency contracts would result in a $91.6 decrease in the fair value of these forward contracts, which would be offset by an increase in the underlying foreign currency exposures.\nInterest Rate Risk Management\nWe are exposed to interest rate risk that relates primarily to our indebtedness, which is affected by changes in the general level of the interest rates primarily in the U.S. and Europe. We periodically enter into interest rate swap agreements to facilitate our interest rate management activities. We have designated these agreements as cash flow hedges and, accordingly, applied hedge accounting. The effective changes in fair value of these agreements are recorded in AOCI/(L), net of tax, and ineffective portions are recorded in current- period earnings. Amounts in AOCI/(L) are subsequently reclassified to earnings as interest expense when the hedged transactions are settled. \nWe expect that both at the inception and on an ongoing basis, the hedging relationship between any designated interest rate hedges and underlying variable rate debt will be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge. If it is determined that a derivative is not highly effective, or that it has ceased to be a highly effective hedge, we will be required to discontinue hedge accounting with respect to that derivative prospectively. The corresponding gain or loss position of the ineffective hedge recorded to AOCI/(L) will be reclassified to current-period earnings.\nWe are exposed to changes in interest rates because of certain variable-rate debt discussed in Note 15\u2014Debt. If interest rates had been 10% higher and all other variables were held constant, Income (loss) from continuing operations before income taxes in fiscal 2023 would decrease by $8.4.\nAs of June\u00a030, 2023, we also had fixed-rate senior notes (the \u201cNotes\u201d) outstanding. Since our Notes bear interest at fixed rates and are carried at amortized cost, fluctuations in interest rates do not have any impact on our consolidated financial statements. However, the fair value of the Notes will fluctuate with movements in market interest rates, increasing in periods of declining interest rates and declining in periods of increasing interest rates.\nEquity Investment Risk\nOur equity investments are investments in equity securities of privately-held companies without readily determinable fair values, including an investment of approximately $1,060.0 that is valued using the fair value option and approximately $8.9 that is accounted for using the equity method as of June\u00a030, 2023. These investments are subject to a wide variety of market-related risks that could have a material impact on the carrying value of our holdings. We continually evaluate our equity investments in privately-held companies. See Note 13\u2014Equity Investments for additional information.\nIn addition to the above equity investments, we entered into certain forward repurchase contracts to start hedging for two potential $200.0 and $196.0 share buyback programs, in 2024 and 2025, respectively. These forward repurchase contracts are accounted for at fair value, with changes in the fair value recorded in Other income, net within the Consolidated Statements of Operations. Our primary exposure is the movements of our stock price during the contract period, which may be volatile and is likely to fluctuate due to a number of factors beyond our control. These factors include actual or anticipated fluctuations in the quarterly and annual results of our Company or of other peer companies in the industry, market perceptions concerning the macroeconomic, social or political developments, industry conditions, changes in government regulation and the securities market trends. We estimate that an immediate, hypothetical 10% decline in our stock price would result in a $60.9 decrease in the fair value of these forward repurchase contracts and reduce our Income (loss) from continuing operations before income \n55\ntaxes. Any realized gains or losses resulting from such fair value changes would occur if we elect to terminate the forward repurchase contracts prior to or on maturity. Refer to Note 23\u2014Equity and Convertible Preferred Stock.\nCredit Risk Management \nWe attempt to minimize credit exposure to counterparties by generally entering into derivative contracts with counterparties that have an \u201cA\u201d (or equivalent) credit rating. The counterparties to these contracts are major financial institutions. Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the fair value of contracts in net asset positions, which totaled $225.5 as of June\u00a030, 2023. Management believes risk of material loss under these hedging contracts is remote.\nInflation Risk \nWe experienced the impact of inflation on our business during the fiscal year. We believe that inflation may continue to  have an effect on our business, financial condition or results of operations in fiscal year 2024. Inflation may negatively impact our business by raising cost and reducing profitability and we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities. \nOff-Balance Sheet Arrangements\nWe had undrawn letters of credit of $7.2 and $14.3 and bank guarantees of $16.3 and $17.2 as of June\u00a030, 2023 and 2022, respectively.\nCritical Accounting Policies\nWe prepare our Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles. The preparation of these Consolidated Financial Statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. These estimates and assumptions can be subjective and complex and, consequently, actual results may differ from those estimates that would result in material changes to our operating results and financial condition. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our most critical accounting policies relate to revenue recognition, the fair value of equity investments, the assessment of goodwill, other intangible and long-lived assets for impairment, inventory and income taxes.\nOur management has discussed the selection of significant accounting policies and the effect of estimates with the Audit and Finance Committee of our Board of Directors.\nRevenue Recognition\nNet revenues comprise gross revenues less customer discounts and allowances, actual and expected returns (estimated based on an analysis of historical experience and position in product life cycle) and various trade spending activities. Trade spending activities represent variable consideration promised to the customer and primarily relate to advertising, product promotions and demonstrations, some of which involve cooperative relationships with customers. The costs of trade spend activities are estimated considering all reasonably available information, including contract terms with the customer, the Company\u2019s historical experience and its current expectations of the scope of the activities, and is reflected in the transaction price when sales are recorded. For additional information on our revenue accounting policies, see Note 2\u2014Summary of Significant Accounting Policies. Returns represented 2%, 2% and 2% of gross revenue after customer discounts and allowances in fiscal 2023, 2022 and 2021, respectively. Trade spending activities recorded as a reduction to gross revenue after customer discounts and allowances represent 10%, 10%, and 10%\u00a0in fiscal 2023, 2022 and 2021, respectively.\nOur sales return accrual reflects seasonal fluctuations, including those related to the holiday season in the first half of our fiscal year. This accrual is a subjective critical estimate that has a direct impact on reported net revenues, and is calculated based on history of actual returns, estimated future returns and information provided by retailers regarding their inventory levels. In addition, as necessary, specific accruals may be established for significant future known or anticipated events. The types of known or anticipated events that we have considered, and will continue to consider, include the financial condition of our customers, store closings by retailers, changes in the retail environment, and our decision to continue to support new and existing brands. If the historical data we use to calculate these estimates does not approximate future returns, additional allowances may be required.\nEquity Investments\nWe elected the fair value option to account for its investment in Wella to align with our strategy for this investment. The fair value is updated on a quarterly basis. The investments are classified within Level 3 in the fair value hierarchy because we estimate the fair value of the investments using a combination of the income approach, the market approach and private \n56\ntransactions, when applicable. Changes in the fair value of equity investments under the fair value option are recorded in Other income, net within the Consolidated Statements of Operations (see Note 13\u2014Equity Investments).\nSome of the inherent estimates and assumptions used in determining fair value of the Wella Company are outside the control of management, including interest rates, cost of capital, tax rates, credit ratings and industry growth. While we believe we have made reasonable estimates and assumptions to calculate the fair value of the Wella Company, it is possible changes could occur. As for the Wella Company, if in future years, the actual results are not consistent with our estimates and assumptions used to calculate fair value, we may be required to recognize additional adjustments.\nGoodwill, Other Intangible Assets and Long-Lived Assets\nGoodwill \nGoodwill is calculated as the excess of the cost of purchased businesses over the fair value of their underlying net assets. Other intangible assets consist of indefinite-lived trademarks. Goodwill and other indefinite-lived intangible assets are not amortized.\nWe assess goodwill at least annually as of May 1 for impairment, or more frequently, if certain events or circumstances warrant. We test goodwill for impairment at the reporting unit level, which is the same level as our reportable segments. We identify our reporting units by assessing whether the components of our reporting segments constitute businesses for which discrete financial information is available and management of each reporting unit regularly reviews the operating results of those components.\nWhen testing goodwill for impairment, we have the option of first performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as the basis to determine if it is necessary to perform a quantitative goodwill impairment test. In performing our qualitative assessment, we consider the extent to which unfavorable events or circumstances identified, such as changes in economic conditions, industry and market conditions or company specific events, could affect the comparison of the reporting unit\u2019s fair value with its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we are required to perform a quantitative impairment test. \nQuantitative impairment testing for goodwill is based upon the fair value of a reporting unit as compared to its carrying value. We make certain judgments and assumptions in allocating assets and liabilities to determine carrying values for our reporting units. The impairment loss recognized would be the difference between a reporting unit\u2019s carrying value and fair value in an amount not to exceed the carrying value of the reporting unit\u2019s goodwill. \nTesting goodwill for impairment requires us to estimate fair values of reporting units using significant estimates and assumptions. The assumptions made will impact the outcome and ultimate results of the testing. We use industry accepted valuation models and set criteria that are reviewed and approved by various levels of management and, in certain instances, we engage independent third-party valuation specialists. To determine fair value of the reporting unit, we used a combination of the income and market approaches, when applicable. We believe the blended use of both models, when applicable, compensates for the inherent risk associated with either model if used on a stand-alone basis, and this combination is indicative of the factors a market participant would consider when performing a similar valuation.\nUnder the income approach, we determine fair value using a discounted cash flow method, projecting future cash flows of each reporting unit, as well as a terminal value, and discounting such cash flows at a rate of return that reflects the relative risk of the cash flows. Under the market approach, when applicable, we utilize information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, which creates valuation multiples that are applied to the operating performance of the reporting units being tested, to value the reporting unit.\nThe key estimates and factors used in these approaches include revenue growth rates and profit margins based on our internal forecasts, our specific weighted-average cost of capital used to discount future cash flows, and comparable market multiples for the industry segment, when applicable, as well as our historical operating trends. Certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in actual and expected consumer consumption and demands, could result in changes to these assumptions and judgments. A revision of these assumptions could cause the fair values of the reporting units to fall below their respective carrying values, resulting in a non-cash impairment charge. Such charge could have a material effect on the Consolidated Statements of Operations and Balance Sheets.\nThere were no impairments of goodwill at our reporting units in fiscal 2023, 2022 or fiscal 2021.\nBased on the annual impairment test performed on May 1, 2023, we determined that the fair value of each of the reporting units exceeded their respective carrying values at that date by approximately 132.1% and 71.6% relating to the Prestige and Consumer Beauty reporting units, respectively. To determine the fair value of our reporting units, we have used annual revenue growth rates ranging from 3.0%-11.3% and 2.0%-9.2% for the Prestige and Consumer Beauty reporting units, respectively, and a discount rate of 9.75%.\n57\nSome of the inherent estimates and assumptions used in determining fair value of the reporting units are outside the control of management, including interest rates, cost of capital, tax rates, credit ratings and industry growth. While the Company believes it has made reasonable estimates and assumptions to calculate the fair values of the reporting units, it is possible changes could occur. As for all the Company\u2019s reporting units, if in future years, the reporting unit\u2019s actual results are not consistent with the Company\u2019s estimates and assumptions used to calculate fair value, the Company may be required to recognize material impairments to goodwill. The Company will continue to monitor its reporting units for any triggering events or other signs of impairment. The Company may be required to perform additional impairment testing based on changes in the economic environment, disruptions to the Company\u2019s business, significant declines in operating results of the Company\u2019s reporting units, further sustained deterioration of the Company\u2019s market capitalization, and other factors, which could result in impairment charges in the future. Although management cannot predict when improvements in macroeconomic conditions will occur, if consumer confidence and consumer spending decline significantly in the future or if commercial and industrial economic activity or the market capitalization deteriorates significantly from current levels, it is reasonably likely the Company will be required to record impairment charges in the future.\nOther Intangible Assets\nWe assess indefinite-lived other intangible assets (trademarks) at least annually as of May 1 for impairment, or more frequently if certain events occur or circumstances change that would more likely than not reduce the fair value of an indefinite-lived intangible asset below its carrying value. Trademarks are tested for impairment on a brand level basis.\nThe trademarks\u2019 fair values are based upon the income approach, primarily utilizing the relief from royalty methodology. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the trademark. An impairment loss is recognized when the estimated fair value of the intangible asset is less than the carrying value. Fair value calculation requires significant judgments in determining both the assets\u2019 estimated cash flows as well as the appropriate discount and royalty rates applied to those cash flows to determine fair value. Variations in economic conditions or a change in general consumer demand, operating results estimates or the application of alternative assumptions could produce significantly different results.\nThe carrying value of our indefinite-lived other intangible assets was $950.8 as of June\u00a030, 2023, and is comprised of trademarks for the following brands: CoverGirl of $327.4, Max Factor of $148.4, Sally Hansen of $159.4, philosophy of $124.0, Bourjois of $36.7 and other trademarks totaling $154.9.\nAs a result of the May 1, 2022 annual impairment test, total impairments on indefinite-lived other intangible assets of $31.4 were recorded. On May 1, 2023, we performed our annual impairment testing of indefinite-lived other intangible assets and determined that no adjustments to carrying values were required.\nAs of May 1, 2023, we determined that the fair value of our Max Factor and Bourjois trademarks exceeded their carrying values by approximately 6.8% and 10.5%, respectively, using annual revenue growth rates ranging from 2.0%-10.5% and 2.0%-8.2%, respectively, and a discount rate of 10.3%. The fair value of the Max Factor and Bourjois trademarks would fall below their carrying values if the average annual revenue growth rate decreased by approximately 55 basis points and 80 basis points, respectively, or the discount rate increased by 60 basis points and 90 basis points, respectively.\nThe fair values of the remaining indefinite-lived trademarks exceeded their carrying values by amounts ranging from 26% to 868%.\nSome of the inherent estimates and assumptions used in determining fair value of the indefinite-lived intangible assets are outside the control of management, including interest rates, cost of capital, tax rates, credit ratings and industry growth. While the Company believes it has made reasonable estimates and assumptions to calculate the fair values of the indefinite-lived intangible assets, it is possible changes could occur. As for the indefinite-lived intangible assets, the most significant assumptions used are the revenue growth rate and the discount rate, a decrease in the revenue growth rate or an increase in the discount rate could result in a future impairment. The Company will continue to monitor its indefinite-lived tradenames for any triggering events or other signs of impairment. The Company may be required to perform additional impairment testing based on changes in the economic environment, disruptions to the Company\u2019s business, significant declines in operating results of the Company\u2019s reporting units and/or tradenames, further sustained deterioration of the Company\u2019s market capitalization, and other factors, which could result in impairment charges in the future. Although management cannot predict when improvements in macroeconomic conditions will occur, if consumer confidence and consumer spending decline significantly in the future or if commercial and industrial economic activity or the market capitalization deteriorates significantly from current levels, it is reasonably likely the Company will be required to record impairment charges in the future.\nLong-Lived Assets\nLong-lived assets, including tangible and intangible assets with finite lives, are amortized over their respective lives to their estimated residual values and are also reviewed for impairment whenever certain triggering events may indicate impairment. When such events or changes in circumstances occur, a recoverability test is performed comparing projected \n58\nundiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying value. If the projected undiscounted cash flows are less than the carrying value, an impairment would be recorded for the excess of the carrying value over the fair value, which is determined by discounting future cash flows.\nDuring fiscal years 2023, 2022 and 2021, we recorded asset impairment charges of $4.3, $2.4 and $5.2, respectively, to Property and equipment, net and $1.1, $1.0 and $0.6, respectively to Operating lease right-of-use assets, primarily relating to the abandonment of equipment or leases no longer in use. These impairment charges are primarily recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations.\nInventory\nInventories include items which are considered salable or usable in future periods, and are stated at the lower of cost or net realizable value, with cost being based on standard cost which approximates actual cost on a first-in, first-out basis. Costs include direct materials, direct labor and overhead (e.g., indirect labor, rent and utilities, depreciation, purchasing, receiving, inspection and quality control) and in-bound freight costs. We classify inventories into various categories based upon their stage in the product life cycle, future marketing sales plans and the disposition process.\nWe also record an inventory obsolescence reserve, which represents the excess of the cost of the inventory over its estimated net realizable value, based on various product sales projections. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends, and requirements to support forecasted sales. In addition, and as necessary, we may establish specific reserves for future known or anticipated events. These estimates could vary significantly, either favorably or unfavorably, from the amounts that we may ultimately realize upon the disposition of inventories if future economic conditions, customer inventory levels, product discontinuances, sales return levels, competitive conditions or other factors differ from our estimates and expectations.\nIncome Taxes\nWe are subject to income taxes in the U.S. and various foreign jurisdictions. We account for income taxes under the asset and liability method. Therefore, income tax expense is based on reported income before income taxes, and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. Deferred taxes are recorded at currently enacted statutory tax rates and are adjusted as enacted tax rates change.\nA valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized based on currently available evidence. We consider how to recognize, measure, present and disclose in financial statements uncertain tax positions taken or expected to be taken on a tax return.\nWe are subject to tax audits in various jurisdictions. We regularly assess the likely outcomes of such audits in order to determine the appropriateness of liabilities for unrecognized tax benefits. We classify interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.\nFor unrecognized tax benefits, we first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. As the determination of liabilities related to unrecognized tax benefits, including associated interest and penalties, requires significant estimates to be made by us, there can be no assurance that we will accurately predict the outcomes of these audits, and thus the eventual outcomes could have a material impact on our operating results or financial condition and cash flows.\nUnrecognized tax benefits are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of examinations by tax authorities, developments in case law and closing of statute of limitations. Such adjustments are reflected in the provision for income taxes as appropriate. In addition, we are present in approximately 40 tax jurisdictions and we are subject to the continuous examination of our income tax returns by the Internal Revenue Service (IRS) and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.\nAs a result of the 2017 Tax Act changing the U.S. to a modified territorial tax system, the Company no longer asserts that any of its undistributed foreign earnings are permanently reinvested. We do not expect to incur significant withholding or state taxes on future distributions.\u00a0To the extent there remains a basis difference between the financial reporting and tax basis of an investment in a foreign subsidiary after the repatriation of the previously taxed income, the Company is permanently reinvested. A determination of the unrecognized deferred taxes related to these components is not practicable.\n59",
+  "item7a": ">Item 7A. \nQuantitative and Qualitative Disclosures About Market Risk.\nWe have operations both within the U.S. and internationally, and we are exposed to market risks in the ordinary course of our business, including the effect of foreign currency fluctuations, interest rate changes and inflation. Information relating to quantitative and qualitative disclosures about these market risks is set forth in under the captions \u201cForeign Currency Exchange Risk Management,\u201d \u201cInterest Rate Risk Management,\u201d and \u201cCredit Risk Management\u201d within Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u2014Liquidity and Capital Resources\u201d and is incorporated in this Item 7A by reference.",
+  "cik": "1024305",
+  "cusip6": "222070",
+  "cusip": ["222070203", "222070953", "222070903"],
+  "names": ["COTY INC-CL A", "COTY INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1024305/000102430523000060/0001024305-23-000060-index.htm"
+}
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+{
+  "item1": ">ITEM 1.\nBUSINESS\nOur Company\nMercury Systems, Inc. is a technology company that delivers processing power for the most demanding aerospace and defense missions. Headquartered in Andover, Massachusetts, our end-to-end processing platform enables a broad range of aerospace and defense programs, optimized for mission success in some of the most challenging and demanding environments. Processing technologies that comprise our platform include signal solutions, display, software applications, networking, storage and secure processing. Our innovative solutions are mission-ready, software-defined and open and modular, meeting our customers\u2019 cost and schedule needs today by allowing them to use or modify our products to suit their mission. Customers access our solutions via the Mercury Processing Platform, which encompasses the broad scope of our investments in technologies, companies, products, services and the expertise of our people. Ultimately, we connect our customers to what matters most to them. We connect commercial technology to defense, people to data and partners to opportunities. At the most human level, we connect what we do to our customers\u2019 missions; supporting the people for whom safety, security and protecting freedom are of paramount importance.\nAs a leading manufacturer of essential components, products, modules and subsystems, we sell to defense prime contractors, the U.S. government and original equipment manufacturers (\u201cOEM\u201d) commercial aerospace companies. Mercury has built a trusted, robust portfolio of proven product solutions, leveraging the most advanced commercial silicon technologies and purpose-built to exceed the performance needs of our defense and commercial customers. Customers add their own applications and algorithms to our specialized, secure and innovative products and pre-integrated solutions. This allows them to complete their full system by integrating with their platform, the sensor technology and, increasingly, the processing from Mercury. Our products and solutions are deployed in more than 300 programs with over 25 different defense prime contractors and commercial aviation customers. \nMercury\u2019s transformational business model accelerates the process of making new technology profoundly more accessible to our customers by bridging the gap between commercial technology and aerospace and defense applications on time constraints that matter. Our long-standing deep relationships with leading high-tech and other commercial companies, coupled with our high level of research and development (\u201cR&D\u201d) investments on a percentage basis of sales and industry-leading trusted and secure design and manufacturing capabilities, are the foundational tenets of this highly successful model. We are leading the development and adaptation of commercial technology for aerospace and defense solutions. From chip-scale to system scale and from data, including radio frequency (\u201cRF\u201d) to digital to decision, we make mission-critical technologies safe, secure, affordable and relevant for our customers. \n Our capabilities, technology, people and R&D investment strategy combine to differentiate Mercury in our industry. We maintain our technological edge by investing in critical capabilities and intellectual property (\u201cIP\u201d or \u201cbuilding blocks\u201d) in processing, leveraging open standards and open architectures to adapt quickly those building blocks into solutions for highly data-intensive applications, including emerging needs in areas such as artificial intelligence (\u201cAI\u201d).\nOur mission critical solutions are deployed by our customers for a variety of applications including command, control, communications, computers, intelligence, surveillance and reconnaissance (\u201cC4ISR\u201d), electronic intelligence, mission computing avionics, electro-optical/infrared (\u201cEO/IR\u201d), electronic warfare, weapons and missile defense, hypersonics and radar.  \nOur consolidated revenues, acquired revenues, net loss, diluted loss per share, adjusted earnings per share (\u201cadjusted EPS\u201d) and adjusted EBITDA for fiscal 2023 were $973.9 million, $25.1 million, $(28.3) million, $(0.50), $1.00 and $132.3 million, respectively. Our consolidated revenues, acquired revenues, net income, earnings per share (\"EPS\"), adjusted EPS and adjusted EBITDA for fiscal 2022 were $988.2 million, $6.0 million, $11.3 million, $0.20, $2.19 and $200.5 million, \n3\nTable of Contents\nrespectively. See the Non-GAAP Financial Measures section of this annual report for a reconciliation of our acquired revenues, adjusted EPS and adjusted EBITDA to the most directly comparable GAAP measures.\n1MPACT\nOn August 3, 2021, Mercury announced a companywide effort, called 1MPACT, to lay the foundation for the next phase of the Company\u2019s value creation at scale. Since fiscal year 2014, Mercury has completed 15 acquisitions, deploying $1.4 billion of capital and, as a result, dramatically scaled and transformed the business. Over this time, the Company has extracted substantial revenue and cost synergies from each of these individual acquisitions. The goal of 1MPACT is to achieve Mercury's full growth, margin expansion, adjusted EBITDA and free cash flow potential over the next five years. \n1MPACT was always intended to be a multi-year journey where Mercury builds on its operational competence until the behaviors and practices that came with 1MPACT simply become the way Mercury operates. On July 18, 2023, Mercury executed the planned evolution of our 1MPACT value creation initiative, embedding the processes and execution of 1MPACT into our Execution Excellence organization. The 1MPACT office has concluded its responsibilities, having successfully incorporated the principles behind 1MPACT into how Mercury thinks about continuous improvement at all levels of the organization. \nOur Business Strategy\nMercury\u2019s business strategy is based on a differentiated market position: we make trusted, secure, mission critical technologies profoundly more accessible to the aerospace and defense industry. The Mercury Processing Platform serves customers with cutting-edge commercial technology innovations, purpose built and mission-ready for aerospace and defense applications, through above average industry investment on a percentage basis in R&D. Our strategy is built to meet the aerospace and defense market\u2019s need for speed and affordability.\nOur ability to continue to improve our performance and deliver results demands we all align around the few actions that unlock the intrinsic value in the business. As such, we will focus on four areas that unlock our capacity to create value and reinvest for growth:\n1.\nDelivering Predictable Results \u2013\n Continuous improvement in the performance of our programs, transition our challenged development programs into production and mature our management systems and processes.\n2.\nBuilding a Thriving Organic Growth Engine \u2013\n Create a growth engine that is consistently bidding and winning new contracts to drive industry leading organic growth.\n3.\nExpanding Margins \u2013 \nDrive comprehensive cost management efforts corporate-wide including improvement in gross margins across all programs, facilitating clearer accountability and streamlining our structure and processes.\n4.\nDriving Cash Release \u2013 \nEnhance our cash flow conversion, including improvements in delivery and collection.\nOur strategies are built around our key strengths as a leading commercial technology company serving the aerospace and defense industry. Our strategies include innovation and investment in scaling existing capabilities, as well as augmenting our capabilities through an acquisition strategy designed to focus on adjacent technologies. We believe our investment in R&D is more than double that of our competitors on a percentage of sales. Our consistent strategies allow us to assist our customers, mostly defense prime contractors, to reduce program cost, minimize technical risk, stay on schedule and on budget and ensure trust and security in the supply chain. As a result, we have successfully penetrated strategic programs including Aegis, Patriot, Lower Tier Air & Missile Defense Sensor (\"LTAMDS\"), Surface Electronic Warfare Improvement Program (\u201cSEWIP\u201d), Terminal High Altitude Area Defense (\"THAAD\"), Predator, F-35, Reaper, F-18, F-16 SABR, E2-D Hawkeye, Paveway, Filthy Buzzard, PGK, P-8, Advanced Integrated Defensive Electronic Warfare Suite (\u201cAIDEWS\u201d), Common Display System (\u201cCDS\u201d), Aviation Mission Common Server (\"AMCS\") and WIN-T.\nWe are committed to continued investment and innovation in advanced new products and solutions development to maintain our competitive advantage, including in the fields of RF, analog-to-digital and digital-to-analog conversion, advanced multi- and many-core sensor processing systems including graphics processing units (\u201cGPUs\u201d), safety-critical design and engineering, processing for AI, embedded security, digital storage, digital radio frequency memory (\u201cDRFM\u201d) solutions, software-defined communications capabilities and advanced security technologies and capabilities. Concurrently, we leverage our engineering and development capabilities, including systems integration, to accelerate our strategy to become a commercial outsourcing partner to the large defense prime contractors as they seek the more rapid design, development and delivery of affordable, commercially-developed, open architecture solutions within the markets we serve. We invest in scalable manufacturing operations in the U.S. to enable rapid, cost-effective deployment of our microelectronics and secure processing solutions to our customers.\nOur commercial business model positions us to be compensated for non-recurring engineering which supplements our own internal R&D investment. We typically team concurrently with multiple defense prime contractors as they pursue new \n4\nTable of Contents\nbusiness with solutions they develop and market to the government, and engage with our customers early in the design cycle. Our engagement model can lead to long-term production revenue that continues after the initial services are delivered.\nWe have added capabilities, through both M&A and investment in organic growth, both horizontally \u2013 in adjacent markets \u2013 and vertically \u2013 adding more content. For example:\n\u2022\nFirst, transition to pre-integrated subsystems: Mercury has expanded capabilities, particularly in integrated subsystems related to defense threats and increased system complexity, which in turn has driven greater outsourcing to us from our prime defense contractor and OEM customers. \n\u2022\nSecond, expansion into new submarkets: Within the major markets Mercury serves we have moved, for example, into electronic warfare, weapons systems, acoustics submarkets, C4I and mission computing.\n\u2022\nThird, vertical expansion: As we continue to add content, we seek to apply technology to all computers on aerospace and defense platforms that require trusted, safe and secure processing.\n\u2022\nFourth, microelectronics: Our investment domestically in next-generation chiplet technology, from chip-scale to system scale.\nSince July 2015, we have added substantial capabilities to our technology portfolio including: embedded security, with the acquisitions of Lewis Innovative Technologies Inc. (\u201cLIT\u201d), custom microelectronics, RF and microwave solutions and embedded security, with the carve-out acquisition from Microsemi Corporation (the \u201cCarve-Out Business\u201d), The Athena Group, Inc. (\u201cAthena\u201d), Delta Microwave, LLC (\u201cDelta\u201d), Syntonic Microwave LLC (\u201cSyntonic\u201d), Pentek Technologies, LLC and Pentek Systems, Inc. (collectively, \u201cPentek\u201d) and Atlanta Micro, Inc. (\u201cAtlanta Micro\u201d); mission computing, safety-critical avionics and platform management and large area display technology with the CES Creative Electronic Systems, S.A. (\u201cCES\u201d), Richland Technologies, L.L.C. (\u201cRTL\u201d), GECO Avionics, LLC (\u201cGECO\u201d), American Panel Corporation (\u201cAPC\u201d), Physical Optics Corporation (\u201cPOC\u201d) and Avalex Technologies, LLC. (\u201cAvalex\u201d) acquisitions; and rugged servers, computers and storage systems with the acquisitions of Themis Computer (\u201cThemis\u201d) and Germane Systems, LC (\u201cGermane\u201d).\nWe believe we have built the most trusted, proven, contemporary portfolio of solutions and sub-systems that are purpose-built to meet or exceed our customers\u2019 most pressing high-tech needs. We are investing in mission-critical processing technologies embedded into the Mercury Processing Platform:\n\u2022\nSecurity\n.\u00a0\u00a0\u00a0\u00a0 Industry-leading embedded security capabilities, secure supply chain, U.S. manufacturing facilities and data management practices for highly sensitive missions.\n\u2022\nSignal\n. Broadband microwave technology, high-speed digitization, low-latency processing, purpose-built for mission-critical applications.\n\u2022\nDisplay\n. Smart, rugged, interactive, high-definition display technology optimized for the low-light, multi-angle viewing requirements of cockpits and armored vehicles.\n\u2022\nSoftware\n. Advanced open middleware and software facilitates rapid application porting on top of open mission systems architecture.\n\u2022\nNetworking\n. Open, interoperable and secure networking based on widely adopted commercial protocols and standards to enable connectivity from data to decision.\n\u2022\nStorage\n. Fast, radiation-tolerant and encrypted data-at-rest solutions to securely store the vast amounts of data produced by sophisticated edge sensors.\n\u2022\nCompute\n. High-performance, highly reliable, safe, secure and resilient computing leveraging the latest in commercial innovation from edge to cloud, ground to space.\nOur Solutions and Products\nWe deliver technology at the intersection of the high-tech and defense industries. The Mercury difference is driven by key \u201cdifferentiators\u201d we promise to deliver to all of our customers: Mission-Ready; Trusted and Secure; Software-Defined; and Open and Modular.\n\u2022\nMission-Ready: \nFit for purpose to meet the demanding needs of our customers' missions. Advanced thermal management and rugged packaging technology ensures optimal performance and reliable operation in the most challenging environments on earth and beyond. We deliver extended reliability and dependability through thermal management, component selection, environmental protection and testing.  \n\u2022\nTrusted and Secure\n: A trusted supply chain, with products designed and manufactured onshore. Advanced cryptography, secure boot and physical protection technologies like our BuiltSECURE technology can mitigate reverse engineering, deliver cyber resiliency and safeguard confidential data and IP against adversarial threats, even when a system has been compromised. We also design safety-certifiable BuiltSAFE processing systems up to the highest design assurance levels.\n5\nTable of Contents\n\u2022\nSoftware-Defined\n: Software enabled hardware for future proofing, rapid scaling, ease of maintenance and affordability. Flexible hardware architectures that are reconfigurable and upgradeable with software to extend the life of our systems and the platforms they are deployed on. Our model-based systems engineering (\u201cMBSE\u201d) design approach aims to significantly decrease the time and cost involved in developing and deploying military and aerospace platforms.\n\u2022\nOpen and Modular\n: \u201cPlug and play\u201d, upgradeable and scalable. A modular, open, systems architecture (\u201cMOSA\u201d) approach to system design maximizes technology reuse to dramatically reduce development time and cost. This open systems approach mitigates obsolescence risk while emphasizing commonality, interoperability and sustainability across platforms and domains. \nThe Mercury Processing Platform is designed to meet the full range of requirements in compute-intensive, signal processing, image processing and command and control applications. To maintain a competitive advantage, we seek to leverage technology investments across multiple product lines and product solutions. Examples of hardware products include small, custom microelectronics, embedded sensor processing subsystems, RF and microwave components, modules and subsystems, rugged servers and avionics mission computers.\nOur products are typically compute-intensive and require extremely high bandwidth and high throughput. These systems often must also meet significant size, weight and power (\u201cSWaP\u201d) constraints for use in aircraft, unmanned aerial vehicles (\u201cUAVs\u201d), ships and other platforms and be ruggedized for use in harsh environments. They are primarily used in both commercial aerospace applications, such as communications and ground radar air traffic control, as well as advanced defense and intelligence applications, including space-time adaptive processing, synthetic aperture radar, airborne early warning, command, control, communication and information systems, mission planning, image intelligence and signal intelligence systems. Our products transform the massive streams of digital data created in these applications into usable information in real time. The systems can scale from a few processors to thousands of processors.\nWe group our products into the following categories:\n\u2022\nComponents\n. Components represent the basic building blocks of an electronic system. They generally perform a single function such as switching, storing or converting electronic signals. Some examples include power amplifiers and limiters, switches, oscillators, filters, equalizers, digital and analog converters, chips, MMICs (monolithic microwave integrated circuits) and memory and storage devices.\n\u2022\nModules and Subassemblies\n. Modules and sub-assemblies combine multiple components to serve a range of complex functions, including processing, networking and graphics display. Typically delivered as computer boards or other packaging, modules and sub-assemblies are usually designed using open standards to provide interoperability when integrated in a subsystem. Examples of modules and sub-assemblies include embedded processing boards, switched fabrics and boards for high-speed input/output, digital receivers, graphics and video, along with multi-chip modules, integrated radio frequency and microwave multi-function assemblies and radio frequency tuners and transceivers.\n\u2022\nIntegrated Subsystems\n. Integrated subsystems bring components, modules and/or sub-assemblies into one system, enabled with software. Subsystems are typically, but not always, integrated within an open standards-based chassis and often feature interconnect technologies to enable communication between disparate systems. Spares and replacement modules and sub-assemblies are provided for use with subsystems sold by us. Our subsystems are deployed in sensor processing, aviation and mission computing and C4I applications.\nBy providing pre-integrated subsystems to our customers, we enable them to rapidly and cost-effectively port and adapt their applications to changing threats. This approach also saves our customers valuable time and expense, as their initial costs to integrate modules and components typically far exceed the costs of the individual product procurement. This benefit continues over time because we are continually investing R&D into our products. This allows us to provide our customers the latest technologies in our pre-integrated subsystems faster than they can typically do it themselves. We believe this is a better business and technology model to operate within, as it continues to provide value and benefits to us and our customers over time.\nTo address the current challenges facing the warfighter, our government and defense prime contractors, we have developed a new product architecture that supports a more dynamic, iterative, spiral development process by leveraging open architecture standards and leading-edge commercial technologies and products. Our open architecture is carried throughout our entire product line from the very small form-factor subsystems to the high-end, where ultimate processing power and reliability is of paramount importance to the mission. Our commercially-developed product capabilities cover the entire intelligence, surveillance and reconnaissance (\u201cISR\u201d) spectrum from acquisition and digitization of the signal, to processing of the signal, through the exploitation and dissemination of the information. We work continuously to improve our hardware technology with an eye toward optimization of SWaP demands. \nWe partner with global tech leaders to align technology roadmaps and deliver cutting-edge computing in scalable, field-deployable form factors that are fully configurable to each unique workload. We use the latest Intel\u00ae server-class processing \n6\nTable of Contents\nproducts, AMD Field Programmable Gate Arrays (\u201cFPGA\u201d), as well as NVIDIA GPU products in our embedded high-performance processing technologies. While this multi-computing and embedded processing technology is one of our core capabilities, the SWaP constraints inherent in high-performance embedded processing applications create unique challenges. For example, to deal with the heat build-up involved in fanless compact rugged subsystems, we introduced a key technology called Air Flow-By\u2122 that enables previously unattainable levels of processing power within a small footprint by effectively removing heat so server-class processors can perform at maximum designed power limits. In environments where air is limited, such as high-altitude operations, our Liquid-Flow-By\u2122 technology allows maximum server-class processor performance. These innovative cooling techniques allow full performance server-class processing in rugged environments enabling new and advanced modes of operation that enhance the multi-intelligence, situational awareness and electronic warfare capabilities in military platforms.\nEmbedded systems security has become a requirement for new and emerging military programs and our security solutions are a critical differentiator from our traditional competition. These security solutions, combined with our next-generation secure Intel\u00ae server-class product line, together with increasingly frequent mandates from the government to secure electronic systems for domestic and foreign military sales, position us well to capitalize on DoD program protection security requirements. Finally, our built-in security framework creates higher product differentiation, and drives greater program velocity, while lowering risk.\nOpen Standards Support\nMercury has a long history of driving modular open systems architectures and has remained committed to creating, advancing and adopting open standards for all our products, from our smallest components and connectors to our largest, high-performance, integrated multi-computer systems. With forty years of technology leadership within the high-performance embedded computing industry, we have pioneered or contributed to the development of many of the defense industry\u2019s current and emerging open standards, including standards such as RACEway, RapidIO, VXS, VPX, REDI and notably OpenVPX. These open standards allow system integrators to benefit from the interoperability of modules produced by multiple vendors. We also continue to be influential in the industry-standards organizations associated with our market segments. As a member of the VMEbus International Trade Association (\u201cVITA\u201d), the Sensor Open Systems Architecture (\u201cSOSA\u201d) initiative, the Future Airborne Capability Environment (\u201cFACE\u201d) consortium and the Vehicular Integration for C4ISR/EW Interoperability (\u201cVICTORY\u201d) consortium, among other standards bodies, Mercury is helping to guide the aerospace and defense industry toward greater openness and vendor interoperability, consistent with the DoD\u2019s focus on using MOSA in major programs.\nOur software is based on open standards and includes heterogeneous processor support with extensive highly-optimized math libraries, multi-computing switch fabric support, net-centric and system management enabling services, extended operating system services, board support packages and development tools. This software platform delivers on the performance required for highly tuned real-time operation with the flexibility of open standards that are an essential ingredient of technology insertion and software life-cycle support.\nAs the U.S. government mandates more outsourcing and open standards, a major shift is occurring within the defense prime contractor community towards procurement of integrated subsystems that enable quick application level porting through standards-based methodologies. We believe that our core expertise in this area is well aligned to capitalize on this trend. By leveraging our open architecture and high-performance modular product set, we provide defense prime contractors with rapid deployment and quick reaction capabilities through our professional services and systems integration offerings. This results in less risk for the defense prime contractors, shortened development cycles, quicker solution deployment and reduced life-cycle costs.\nCommitment to Deliver Uncompromised\nFor Mercury, this means ensuring our products and solutions have not been and cannot be tampered with, and that what we deliver to our customers is not compromised at any point during the development lifecycle, from procurement to manufacturing. Our holistic approach to deliver uncompromised includes:\n\u2022\nvigorously mitigating potential insider threats;\n\u2022\nproactively protecting our IT infrastructure with strong cybersecurity defenses;\n\u2022\neffectively managing and assessing our suppliers\u2019 controls; and\n\u2022\njudiciously controlling design information through the entire development process.\nWe are investing in digital transformation, insider trust, cybersecurity, supply chain management and trusted microelectronics, all integral to our commitment to being a leader in delivering uncompromised solutions to our customers.\n7\nTable of Contents\nRecent Acquisitions\nSince 2015 we have acquired and integrated 15 businesses. These acquisitions have expanded Mercury\u2019s technology portfolio with capabilities such as digital signal processing products, high-performance RF modules and components, rugged avionics and electronics, and safety-certifiable subsystems. The five acquisitions completed since July 1, 2019 are shown below.\nName of Acquired Entities\nDate of Acquisition\nAmerican Panel Corporation\nSeptember 23, 2019\nPhysical Optics Corporation\nDecember 30, 2020\nPentek Systems, Inc. and Pentek Technologies, LLC\nMay 27, 2021\nAvalex Technologies, LLC\nNovember 5, 2021\nAtlanta Micro, Inc.\nNovember 29, 2021\nOur Market Opportunity\nOur market opportunity is defined by the growing demand for domestically designed, sourced and manufactured electronics for critical aerospace, defense and intelligence applications. Our primary market positioning is centered on making commercially available technologies profoundly more accessible to the aerospace and defense sector, specifically as it relates to C4I systems, sensors and EW; and commercial markets, which include aerospace communications and other computing applications. We believe we are well-positioned in growing sustainable market segments of the aerospace and defense sector that rely on advanced technologies to improve warfighter capability and provide enhanced force protection capabilities. The acquisitions of the Carve-Out Business, Delta, Syntonic, Pentek and Atlanta Micro further improved our ability to compete successfully in these market segments by allowing us to offer an even more comprehensive set of closely related capabilities. The CES, RTL, GECO, APC, POC and Avalex acquisitions provided us new capabilities that substantially expanded our addressable market into defense platform management, mission computing and commercial aerospace markets that are aligned to our existing market focus. The additions of Themis and Germane provided us with new capabilities and positioned us with a significant footprint within the rugged server business. Our organic investments as well as the acquisitions of LIT, the Carve-Out Business and Athena added to our portfolio of embedded security products that can be leveraged across our business. Finally, our CES addition, due to its location in Geneva, Switzerland is helping to open more opportunities in international markets.\nWe believe there are a number of evolving trends that are reshaping our target markets and accordingly provide us with attractive growth opportunities. These trends include:\n\u2022\nThe aerospace and defense electronics market is expected to grow in 2023 and beyond. \nAccording to Renaissance Strategic Advisors (\u201cRSA\u201d), as of June 2023, the global aerospace and defense electronics market is estimated to be $148 billion in 2023, growing to $199 billion by 2028. Within this global market, RSA estimates that the total Tier 2 defense electronics market, which Mercury participates in, was approximately $48 billion in 2023, and will grow to $67 billion in 2028. The aerospace and defense electronics marketplace consists of two primary subsegments: (i) C4I and (ii) sensor and effector mission systems. C4I encompasses platform and mission management, which include avionics and vetronics, C2I, which includes command and control and intelligence, and dedicated communications processing. Sensor and effector mission systems are primarily different types of sensor modalities such as EW, radar, EO/IR and acoustics as well as weapons systems such as missiles and munitions. Within the global Tier 2 C4I market in which we participate, RSA estimated the market for 2023 to be $7.7 billion for platform and mission management, $9.7 billion for C2I and $10.2 billion for dedicated communications. RSA estimates the compound annual growth rate (\u201cCAGR\u201d) from 2023-2028 for these markets to be 5.9% for platform and mission management, 6.6% for C2I and 6.9% for dedicated communications. Within the global Tier 2 sensor and effector mission systems market in which we participate, RSA estimated the market for 2023 to be $6.0 billion for EW, $6.6 billion for radar, $2.7 billion for EO/IR, $1.4 billion for acoustics and $3.9 billion for weapons systems. RSA estimates the 2023-2028 CAGR for these markets to be 6.7% for EW, 6.5% for radar, 7.6% for EO/IR, 6.8% for acoustics and 8.4% for weapons systems. Within the context of the overall U.S. defense budget and spending for defense electronics specifically, we believe the C4ISR, EW, guided missiles and precision munitions and ballistic missile defense market segments have a high priority for future DoD spending. We continue to build on our strengths in the design and development of performance optimized electronic subsystems for these markets, and often team with multiple defense prime contractors as they bid for projects, thereby increasing our chance of a successful outcome. We expect to return to our above industry-average growth.\n\u2022\nThe rapidly expanding demand for tactical ISR is leading to significant growth in sensor data being generated, leading to even greater demand for the capability of our products to securely store and process data onboard platforms\n. An \n8\nTable of Contents\nincrease in the prevalence and resolution of ISR is generating significant growth in the associated data that needs to be stored and turned into information for the warfighter in a timely manner. In addition, several factors are driving the defense and intelligence industries to demand greater capability to collect, store and process data onboard the aircraft, UAVs, ships and other vehicles, which we refer to collectively as platforms. These factors include the limited communications bandwidth of existing platforms, the need for platforms that can operate more autonomously and possibly in denied communications environments, the need for platforms with increased persistence to enable them to remain in or fly above the battlefield for extended periods and the need for greater onboard processing capabilities. In addition, the advent of sophisticated AI algorithms is beginning to revolutionize the ability of sensor processing systems to intelligently and efficiently process and act upon these large data sets. Standard computing architectures and computing platforms currently do not offer the level of performance needed to optimize existing AI algorithms, creating an additional opportunity for advanced processing capabilities onboard the platform.\n\u2022\nRussia\u2019s invasion of Ukraine, rising tensions in the Asia-Pacific and continued threats from rogue states and violent extremists are contributing to the most challenging global threat environment since the Cold War. \nThis will likely result in a sea change in defense spending domestically and internationally. Our advisors estimate that U.S. growth, combined with increases in NATO defense budgets, could drive up to $1.5 trillion of additional spending over the next decade. This should lead to higher bookings for Mercury in the electronic systems associated with missiles, munitions and missile defense systems, unmanned systems, fixed wing and rotorcraft, ground vehicles and EW.\n \n\u2022\nA greater percentage of the value associated with future defense platforms will be driven by electronic systems content, and upgrades to existing platforms will focus on sensors, signal processing, sensor algorithms, multi-intelligence fusion and exploitation and computing and communications capability \u2013 all areas where Mercury participates. \nThese trends remain favorable in our view and the demand environment is improving due to urgent needs for warfighting capability at a more rapid pace than traditional defense prime contractors can easily react to, as demonstrated by our strong bookings and design wins, in fiscal 2023. We believe that our addressable market continues to increase, driven in large part by our strategic move into mission systems and potential to deliver innovative processing solutions at chip scale, and that primes will increasingly seek out our high-performance, cost-effective open architecture products.\n\u2022\nDefense procurement reform is causing the defense prime contractors to outsource more work to commercial companies and we believe that prime contractor outsourcing is our largest secular growth opportunity\n. RSA estimates that in 2023 the U.S. defense Tier 2 embedded computing and RF market addressable by suppliers such as Mercury was approximately $25 billion. RSA estimates that the U.S. defense prime contractors currently outsource only a small percentage of their work. On a global basis the Tier 2 embedded computing and RF market in 2023 was estimated by RSA to be $48 billion. The U.S. government is intensely focused on making systems more affordable and shortening their development time. In addition, the U.S. government is challenging defense prime contractors to leverage commercial technology wherever possible. This trend, along with a scarcity of technical and engineering talent in the market, is causing defense prime contractors to outsource to companies like Mercury, which we believe is our largest secular growth opportunity. As a merchant supplier of commercial technologies to the defense industry, we believe our products and subsystem solutions are often more affordable than solutions with the same functionality developed by a defense prime contractor. In addition, we believe our size, scale and stability in addition to the investments we have made in our domestic manufacturing capabilities and infrastructure, make us a more reliable and attractive outsourcing partner for our customers relative to smaller sub-scale providers. These factors are providing incentives for defense prime contractors to outsource more work to subcontractors with significant expertise and cost-effective technology capabilities and solutions, and we have transformed our business model over the last several years to address these long-term outsourcing trends and other needs.\n\u2022\nDoD security and program protection requirements are creating new opportunities for domestic sourcing and our advanced secure processing capabilities\n. The U.S. government is focused on ensuring that the U.S. military protects its defense electronic systems and the information held within them from nefarious activities such as tampering, reverse engineering and other forms of advanced attacks, including cyber. The requirement to add security comes at a time when the commercial technology world continues to offshore more of the design, development, manufacturing and support of such capabilities, making it more difficult to protect against embedded vulnerabilities, tampering, reverse engineering and other undesired activities. The DoD has a mandate to ensure both the provenance and integrity of the technology and its associated supply chain. These factors have created a unique opportunity for us to expand beyond sensor processing into the provision of technologies ranging from advanced secure processing subsystems to miniaturized custom microelectronics devices and capabilities for other onboard critical computing applications designed, developed, manufactured and supported in the U.S.A. In addition, advanced systems sold to foreign military buyers also require protection so that the technologies, techniques and data associated with them do not proliferate, which further enhances our market opportunity.\n9\nTable of Contents\n\u2022\nMercury is well-positioned to help address the need for DoD to access the latest commercial silicon, combined with the desire to ensure a trusted domestic supply of silicon technologies\n. In May 2023, DoD\u2019s National Defense Science and Technology Strategy listed microelectronics among its critical technology areas for investment. DoD\u2019s FY23 budget requested $3.3 billion to fund microelectronics research and development initiatives, a historically large increase in funding. Congress\u2019 passage of the Creating Helpful Incentives to Produce Semiconductors (\u201cCHIPS\u201d) act in August 2022, which will provide $2 billion for defense microelectronics, further amplifies the U.S. government\u2019s commitment to reinforcing the U.S. semiconductor supply chain. We believe Mercury is the leading provider of commercially developed silicon purpose-built for the specific requirements of aerospace and defense customers. This capability began with our 2016 acquisition of the Carve-Out Business, which included capabilities in trusted and secure microelectronics. Since the acquisition, we have made additional investments in security and advanced packaging, most notably our announced $15 million capital investment in fiscal year 2020 to expand our trusted custom microelectronics business in Phoenix, Arizona, to bring cutting-edge commercial silicon to the DoD. This initiative is specifically intended to bridge DoD technologies from monolithic ASIC designs, which are purpose-built for DoD but are deployed on legacy silicon designs, to heterogeneous \u201cchiplet\u201d architectures, which leverage best-of-breed silicon from commercial providers and packages the silicon for defense-specific applications, including the ability to embed security into the device itself.\nOur Competitive Strengths \nWe believe the following competitive strengths will allow us to take advantage of the evolving trends in our industry and successfully pursue our business strategy:\n\u2022\nSubsystem Solutions Provider for the C4ISR and Electronic Warfare Markets\n. Through our commercially developed, specialized processing subsystem solutions, we address the challenges associated with the collection and processing of massive, continuous streams of data and dramatically shorten the time that it takes to give information to U.S. armed forces at the tactical edge. Our solutions are specifically designed for flexibility and interoperability, allowing our products to be easily integrated into larger system-level solutions. Our ability to integrate subsystem-level capabilities allows us to provide solutions that effectively address the mission-critical challenges within the C4ISR market, including multi-intelligence data fusion and AI processing onboard the platform. We leverage our deep expertise in embedded multicomputing, embedded sensor processing, with the addition of our RF microwave and millimeter subsystems and components, along with strategic investments in research and development to provide solutions across the sensor processing chain.\n\u2022\nDiverse Mix of Stable, Growth Programs Aligned with DoD Funding Priorities\n. Our products and solutions have been deployed on more than 300 different programs and over 25 different defense prime contractors. We serve high priority markets for the DoD and foreign militaries, such as UAVs, ballistic missile defense, guided missiles and precision munitions, airborne reconnaissance, electronic warfare and have secured positions on mission-critical programs including Aegis, Predator and Reaper UAVs,\u00a0F-35\u00a0Joint Strike Fighter, LTAMDS, Patriot missile, SEWIP and Paveway. In addition, we consistently leverage our technology and capabilities across multiple programs, providing significant operating leverage and cost savings. Our acquisitions allow us to participate in a broader array of programs, many with key strategic customers of ours.\n\u2022\nWe are a leading technology company serving the aerospace and defense industry.\n\u00a0We have a portfolio of Open Standards Architecture (\u201cOSA\u201d) technology building blocks across the entire sensor processing chain. We offer embedded secure processing capabilities with advanced packaging and cooling technologies that ruggedize commercial technologies while allowing them to stay cool for reliable operation. These capabilities allow us to help our customers meet the demanding SWaP requirements of today\u2019s defense platforms. Our\u00a0pre-integrated\u00a0subsystems improve affordability by substantially reducing customer system integration costs and\u00a0time-to-market\u00a0for our solutions. System integration costs are one of the more substantial costs our customers bear in developing and deploying technologies in defense programs and platforms. Our\u00a0pre-integrated\u00a0solutions approach allows for more rapid and affordable modernization of existing platforms and faster deployment of new platforms.\nOur strengths in this area include our position as an early and leading advocate for OSA in defense, offering Intel\u00ae server class processing form factors across 3/6U OpenVPX, ATCA and rack-mount architectures and high density, secure solutions across multiple hardware architectures to seamlessly scale to meet our customers\u2019 SWaP requirements. In addition, we have a\u00a030-year\u00a0legacy of system management and system integration expertise that allows us to reduce technical risk, while improving affordability and interoperability. Our system integration expertise is a cornerstone in helping us support our customers in deploying\u00a0pre-integrated,\u00a0OSA subsystems.\nAs commercial technology companies have moved the design, development, manufacturing and support of their technologies offshore, the DoD is looking to domestic technology providers to develop a sustainable, U.S.-based trusted supply chain. Over several years we have been building out our capacity for domestic manufacturing through our Advanced \n10\nTable of Contents\nMicroelectronics Centers (\u201cAMCs\u201d). These facilities provide significant scale and capacity for our defense prime customers, who have been increasingly willing to outsource to partners with the scale needed to meet large program production requirements. In addition, our Phoenix, Arizona AMC is a Defense Microelectronics Activity (\u201cDMEA\u201d)-certified, trusted manufacturing facility, which represents a significant competitive advantage. Our Phoenix AMC also includes a surface mount technology manufacturing capability which we refer to as our U.S. Manufacturing Operations (\u201cUSMO\u201d).\n\u2022\nWe provide advanced, integrated security features for our products and subsystems, addressing an increasingly prevalent requirement for DoD program security\n. We offer secure processing expertise that is\u00a0built-in\u00a0to our\u00a0pre-integrated\u00a0subsystems. By doing this we are able to provide secure building blocks that allow our customers to also incorporate their own security capabilities. This assists our customers in ensuring program protection as they deploy critical platforms and programs, all in support of DoD missions. The acquisition of the\u00a0Carve-Out\u00a0Business brought us new security technologies and also allowed us to provide enhanced security capabilities in areas such as memory and storage devices. Our acquisitions of the\u00a0Carve-Out\u00a0Business, LIT and Athena also added to our portfolio of sophisticated firmware and software specifically designed to secure microelectronic devices that can be leveraged across our product portfolio.\n\u2022\nWe are pioneering a next generation defense business model\n. The DoD and the defense industrial base is currently undergoing a major transformation. Domestic political and budget uncertainty, geopolitical instability and evolving global threats have become constants. The defense budget remains under pressure and R&D and technology spending are often in budgetary competition with the increasing costs of military personnel requirements, health care costs and other important elements within the DoD and the federal budget generally. Finally, defense acquisition reform calls for the continued drive for innovation and competition within the defense industrial base, while also driving down acquisition costs. Our approach is built around a few key pillars:\n\u2022\nThe mission-ready products in our portfolio can be incorporated into aerospace and defense platforms in their standard commercial forms or customized to meet unique program requirements.\n\u2022\nWe continue to leverage our expertise in building pre-integrated subsystems in support of critical defense programs, driving out procurement costs by lowering integration expenses of our customers.\n\u2022\nWe have been a pioneer in driving OSA for both embedded computing and RF.\n\u2022\nThe DoD has asked defense industry participants to invest their own resources into R&D. This approach is a pillar of our business model.\n\u2022\nSecurity and program protection are now critical considerations for both program modernizations as well as for new program deployment. We are now in our fourth generation of building secure embedded processing solutions.\nWe have a next generation business model built to meet the emerging needs of the DoD.\n\u2022\nValue-Added Subsystem Solution Provider for Defense Prime Contractors\n. Because of the DoD\u2019s continuing shift toward a firm fixed price contract procurement model, an increasingly uncertain budgetary and procurement environment, and increased budget pressures from both the U.S. and allied governments, defense prime contractors are accelerating their move toward outsourcing opportunities to help mitigate the increased program and financial risk. Our differentiated secure sensor and safety-critical processing solutions offer meaningful capabilities upgrades for our customers and enable the rapid, cost-effective deployment of systems to the end customer. We believe our open architecture subsystems offer differentiated sensor processing and data analytics capabilities that cannot be easily replicated. Our solutions minimize program risk, maximize application portability and accelerate customers\u2019 time to market, all within a fixed-pricing contracting environment.\n\u2022\nDelivery of Platform-Ready Solutions for Classified Programs\n. We believe our integration work provides us with critical insights as we implement and incorporate key classified government intellectual property, including critical intelligence and signal processing algorithms, into advanced systems. This integration work provides us the opportunity to combine directly and integrate our technology building blocks along with our intellectual property into our existing embedded processing products and solutions, enabling us to deliver more affordable, platform-ready integrated ISR subsystems that leverage our OSA and address key government technology and procurement concerns. Our operations in this environment also help us identify emerging needs and opportunities to influence our future product development, so that critical future needs can be met in a timely manner with commercially-developed products and solutions.\n\u2022\nWe have invested in advanced, domestic design and manufacturing capabilities.\u00a0\nWe have prioritized investments to build our internal capabilities and capacity for defense electronics design and manufacturing in the U.S. These investments include the consolidation of a number of\u00a0sub-scale\u00a0microelectronics manufacturing facilities into our modern AMCs as well as the establishment of our USMO in Phoenix, Arizona. In addition to the consolidation of \n11\nTable of Contents\nfacilities into scalable engineering and manufacturing centers of excellence, we have made the necessary investments to outfit these facilities with modern, scalable and redundant tools and equipment to promote quality, efficiency, throughput and redundancy. In addition we invested in our information technology (\u201cIT\u201d) infrastructure and business systems to meet Defense Federal Acquisition Regulation Supplement (\u201cDFARS\u201d) requirements for cybersecurity. These investments taken together are intended to demonstrate our commitment to meeting DoD expectations for a trusted and secure defense industrial base. Our AMCs in Hudson, New Hampshire, West Caldwell, New Jersey, Oxnard, California, Huntsville, Alabama, Phoenix, Arizona and Torrance, California are strategically located near key customers and are purpose-built for the design, build and test of RF components and subsystems in support of a variety of key customer programs. Our USMO is built around scalable, repeatable, secure, affordable and predictable manufacturing. The USMO is a IPC1791 certified secure trusted site, certified to AS9100 quality standards and it utilizes Lean Six Sigma methodologies throughout manufacturing. The USMO is designed for efficient manufacturing, enabling our customers to access the best proven technology and high performing, secure processing solutions. This allows for the most repeatable product performance, while optimizing affordability and production responsiveness. \n\u2022\nLong-Standing Industry Relationships. \nWe have established long-standing relationships with defense prime contractors, the U.S. government and other key organizations in the defense industry over our 30 years in the defense electronics industry. Our top customers include Airbus, BAE Systems, Boeing, General Atomics, General Dynamics, L3Harris Technologies, Leonardo, Lockheed Martin Corporation, Northrop Grumman Corporation, RTX Corporation (formerly known as Raytheon Technologies) and the U.S. Navy. Over this period, we have become recognized for our ability to develop new technologies and meet stringent program requirements. We believe we are well-positioned to maintain these high-level customer engagements and enhance them through the additional relationships that our recently acquired businesses have with many of the same customers.\n\u2022\nOperational Execution Experience\n. The members of our leadership team possess extensive expertise within the aerospace, defense, and technology industries. Their collective history of building management systems and processes has consistently proven to successfully scale and grow a business to enhance overall returns. They also bring experience in effectively implementing operational transformations that deliver strong results and drive long-term value creation. Our leadership team is focused on operational execution, including setting clear priorities, developing the appropriate processes and systems, and delivering results. We are focused on four priorities to unlock capacity to create value and reinvest for growth. They include: delivering predictable results, build a thriving growth engine, expanding margins, and driving cash release. We are confident that we have assembled the necessary expertise to continue to grow and scale our business.\n\u2022\nMature M&A Origination and Execution Capability\n. We have a strong track-record of identifying and executing strategic acquisitions. Since July\u00a01, 2015 we have acquired 15 businesses, which are strategically aligned with Mercury, successfully completing integration of the earlier acquired businesses with the integration of the more recent acquisitions progressing well. We have established an internal team that brings decades of experience across more than 100 transactions. We have developed internal processes to identify and source strategic acquisitions on a proprietary basis and negotiated directly with owners on a number of acquisitions. Our internal capabilities include financial, legal and other transaction diligence, deal valuation and deal negotiations. \n\u2022\nProven M&A Integration Capability.\u00a0\nWe have developed the internal processes and capability to integrate acquired businesses to deliver value through revenue and cost synergies. Overseen by our Execution Excellence organization, we leverage our common cultures and values as well as common processes, business systems, tools, channels and manufacturing infrastructure to accelerate growth and improve profitability in our acquired businesses.\nCompetition\nWe operate in a highly competitive marketplace characterized by rapidly changing technology, frequent product performance improvements, increasing speed of deployment to align with warfighters\u2019 needs and evolving industry standards and requirements coming from our customers or the DoD. Competition typically occurs at the design stage of a prospective customer\u2019s product, where the customer evaluates alternative technologies and design approaches. We work with defense prime contractors as well as directly with the DoD. We help drive subsystem development and deployment in both classified and unclassified environments.\nThe principal competitive factors in our market are price/performance value proposition, available new products at the time of design win engagement, services and systems integration capability, effective marketing and sales efforts and reputation in the market. Our competitive strengths include rapid, innovative engineering in both hardware and software products, subsystem design expertise, advanced packaging capability to deliver the most optimized SWaP solution possible, our ability to respond rapidly to varied customer requirements and a track record of successfully supporting many high profile programs in the defense market. There are competitors in the different market segments and application types in which we participate. Some of these competitors are larger and have greater resources than us. Some of these competitors compete against us at purely a \n12\nTable of Contents\ncomponent or board-level, others at a subsystem level. We also compete with in-house design teams at our customers. The DoD as well as the defense prime contractors are pushing for more outsourcing of subsystem designs to mitigate risk and to enable concurrent design of the platform which ultimately leads to faster time to deployment. We have aligned our strategy to capitalize on that trend and are leveraging our long standing subsystem expertise to provide this value to our customers.\nResearch and Product Development\nOur R&D efforts are focused on developing new products and subsystems as well as enhancing existing hardware and software products in mission, signal and image processing. Our R&D goal is to fully exploit and maintain our technological lead in the high-performance, real-time sensor processing industry and in mission computing, microelectronics, platform management and other safety-critical applications. Total expenditures for research and development amounted to $108.8 million, $107.2 million and $113.5 million in fiscal years 2023, 2022 and 2021, respectively. As of June 30, 2023, we had 918 employees, including hardware and software architects and design engineers, primarily engaged in engineering and research and product development activities. These individuals, in conjunction with our sales team, also devote a portion of their time to assisting customers in utilizing our products, developing new uses for these products and anticipating customer requirements for new products.\nManufacturing  \nThe majority of our sales are produced in AS9100 quality system-certified facilities. The current scope of delivered hardware products includes commercial and industrial class printed circuit board assemblies (modules), complex chassis subsystems, rugged display system and servers and RF and microwave components and subsystems.\nOur Phoenix, Arizona facility manufactures our custom microelectronics products in an AS9100 quality system-certified facility while our USMO facility is an IPC1791 certified and DMEA-certified trusted manufacturing facility and is primarily focused on advanced secure system-on-chip design, assembly, packaging and test. Our Cypress, California, West Lafayette, Indiana, and Huntsville, Alabama facilities are AS9100 quality systems-certified facilities as well. Our Fremont, California and Alpharetta, Georgia facilities are ISO 9001:2015 quality systems-certified. Our Hudson, New Hampshire and Chantilly, Virginia locations are IPC1791 and AS9100 quality systems-certified facility. Our Andover, Massachusetts and Hudson, New Hampshire facilities design and assemble our processing products and are AS9100 quality systems-certified facilities. Our Andover, Massachusetts facility is also a DMEA-certified trusted design facility and is primarily focused on advanced security features for the processing product line. Our Geneva, Switzerland facility, the headquarters of Mercury's European operations, provides electronic design and manufacturing, maintenance and support services and is AS9100 and EASA Part 145 quality systems-certified. Our Silchester, England facility provides engineering, development and integration services and is AS9100 quality systems-certified.\nWe rely on both vertical integration and subcontracting to contract manufacturers to meet our manufacturing needs. Our USMO and Geneva facilities have the manufacturing capabilities to complete the assembly and testing for certain of our embedded multi-computing products. We subcontract as needed a portion of the assembly and testing for our other embedded multi-computing products to contract manufacturers in the U.S. to build to our specifications. Our printed circuit board assemblies and chassis subsystems\u2019 manufacturing operations also consist of materials planning and procurement, final assembly and test and logistics (inventory and traffic management). Our vertically integrated subsystem product solutions rely on strong relationships with strategic suppliers to ensure on-time delivery and high quality products. We manage supplier performance and capability through quality audits and stringent source, incoming and/or first article inspection processes. We have a comprehensive quality and process control plan for each of our products, which include a supply chain management program and the use of automated inspection and test equipment to assure the quality and reliability of our products. We perform most post sales service obligations (both warranty and other lifecycle support) in-house through a dedicated service and repair operation. We periodically review our contract manufacturing capabilities to ensure we are optimized for the right mix of quality, affordability, performance and on-time delivery.\nOur AMC in Phoenix, Arizona is built around scalable, repeatable, secure, affordable and predictable manufacturing. The high mix, low volume and high complexity/density nature of our products require speed and seamless interaction with all internal functions (as opposed to with an external contract manufacturer) which is a key value proposition of the USMO. The USMO is also designed for efficient showcasing to customers who at any point wish to access the best proven technology and high performing, secure electronics and processing manufacturing solutions within a broader product company such as Mercury. Proximity and interaction with our internal engineering organization is a significant benefit. This allows for the most repeatable product performance, while optimizing affordability and production responsiveness. The Phoenix AMC also provides manufacturing and assembly for SWaP-optimized multi-chip modules and system-in-package devices. We combine surface-mount, flip chip, die attach, wire bond and rugged 3D packaging on the same devices to provide a swap-optimized solution for our customers.\nThe Hudson, New Hampshire, West Caldwell, New Jersey and Oxnard, California facilities are specifically aimed at providing scalable manufacturing within our critical businesses. We leverage best practices in design, development, \n13\nTable of Contents\nmanufacturing and materials handling at these production and subsystems integration facilities. These facilities include the design, build and test of both RF and microwave components and subsystems in support of a variety of key customer programs.  Our Alpharetta, Georgia facility offers active matrix liquid crystal display systems which enhances the highly sophisticated man/machine interface. Our facility in Torrance, California is an AS9100 and AS9110C facility that offers Avionics Safety-Certifiable subsystems. Our facility in Upper Saddle River, New Jersey is ISO 9001:2015 certified and offers digital signal processing products. Our facility in Gulf Breeze, Florida is AS9100 certified and offers rugged avionics and electronics. Our facility in Norcross, Georgia is AS9100 certified and offers RF and microwave products. \nAlthough we generally use standard parts and components for our products, certain components, including custom designed ASICs, static random access memory, FPGAs, microprocessors and other third party chassis peripherals (single board computers, power supplies, blowers, etc.), are currently available only from a single source or from limited sources. \nWe also design, develop and manufacture DRFM units for a variety of modern electronic warfare applications, as well as radar environment simulation and test systems for defense and intelligence applications. We develop high performance signals intelligence payloads and EO/IR technologies for small UAV platforms as well as powerful onboard UAV processor systems for real-time wide area motion imagery.\nIntellectual Property and Proprietary Rights\nWe hold a broad collection of intellectual property rights to protect our proprietary technology and our brand.  This includes patents, designs, copyrights, trademarks and trade secrets in the U.S. and various foreign countries. Although we believe the ownership of such intellectual property rights is an important factor in differentiating our business and that our success depends in part on such ownership, we rely primarily on the innovation skills and technical expertise of our employees.\nWe regularly file patent and trademark applications and continuations to protect innovations arising from our research and development. We also rely on a combination of trade secret, copyright and trademark laws, as well as contractual agreements, to safeguard our proprietary rights in technology and products. In seeking to limit access to sensitive information to the greatest practical extent, we routinely enter into confidentiality and assignment of invention agreements with each of our employees and consultants and nondisclosure agreements with our customers and vendors.\nWe have licensed in the past, and expect that we may license in the future, certain of our rights to other parties. Some of our products are designed to include intellectual property owned by third parties. It may be necessary in the future to seek or renew licenses to various aspects of our products, processes and services.\nOver time, we have accumulated a meaningful portfolio of issued and registered intellectual property rights. No single intellectual property right is solely responsible for protecting our products, processes and services. We believe the duration of our intellectual property rights is adequate relative to the expected lives of our products, processes and services.\nBacklog\nAs of June 30, 2023, we had a backlog of orders aggregating approximately $1,139.8 million, of which $716.4 million is expected to be recognized as revenue within the next twelve months. As of July 1, 2022, backlog was approximately $1,037.7 million. Our backlog is comprised of accepted purchase orders for which a majority are fully funded. Orders included in backlog may be canceled or rescheduled by customers, although the customer may incur cancellation penalties depending on the timing of the cancellation. A variety of conditions, both specific to the individual customer and generally affecting the customer\u2019s industry, may cause customers to cancel, reduce or delay orders that were previously made or anticipated. We cannot assure the timely replacement of canceled, delayed or reduced orders. \nEmployees\nAt June 30, 2023, we employed a total of 2,596 people excluding contractors, including 918 in research and development, 154 in sales and marketing, 1,158 in manufacturing and customer support and 366 in general and administrative functions. We have 140 employees located in Europe and 2,456 located in the United States. We also use contractors on an as-needed basis.\nHuman Capital \nAt Mercury, our people are at the center of everything we do in driving Innovation That Matters\u00ae by and for People Who Matter. We recognize that Mercury will succeed only if our employees are engaged, given an opportunity to develop and provided with a safe workplace that values diverse perspectives from a population that represents our communities. Our Board of Directors provides oversight of our people practices, including regularly reviewing workforce metrics such as those described below. Additional data related to these metrics can be found on our website at www.mrcy.com under the Company \u2013 Environmental, Social and Governance tab (our \u201cWebsite\u201d).\n14\nTable of Contents\n\u2022\nEmployee Overview:\n As of June 30, 2023, we had 2,596 employees around the globe. Our primary operations are in the U.S. with 2,456 employees and we operate offices in 11 states. Mercury also has operations in Europe and Canada. No employees are covered by any collective bargaining or similar agreements. \n\u2022\nCulture and Employee Engagement:\n We believe our workplace culture drives engagement that turns ideas into action, delivering trusted and secure solutions at the speed of innovation. During the past fiscal year, four of our products were recognized among the most innovative solutions in aerospace and defense products and systems by the judges of the 2022 Military & Aerospace Electronics Innovators Awards program, marking the seventh consecutive year in which we have been recognized. Our investment in our employees extends to our workplaces. For fiscal 2023, we invested over $38.8 million to upgrade our locations to world-class facilities. We also encourage employees to give back to our communities. \nWe regularly seek employee input through engagement surveys, the results of which drive meaningful and timely action, as appropriate, from our leadership team and people leaders across the Company. Participation in our most recent employee engagement survey in April 2023 remained strong at 76%.\n\u2022\nTraining and Development: \nLife-long learning is encouraged at Mercury through our offering of LinkedIn Learning, tuition reimbursement and other employee development opportunities. We are deeply invested in building the next generation of engineers and scientists, with our internship and co-op programs. We offer a two-year engineering rotational program to recent graduates in electrical, firmware, software, RF and systems engineering disciplines. During the program, employees gain insight and experience rotating through multiple business units and engineering disciplines and upon program completion are matched with a position. Mercury also has formal  programs to further develop our leaders, at various levels: Mentor Programs, Mercury Managers Matter (for manager- and director-level employees); and Managing at Mercury (for supervisors, team leaders and new managers)\n\u2022\nPay and Benefits: \nWe seek competitiveness and fairness in total compensation with reference to external pay data and internal equity. We also offer a variety of well-being programs to support our employees and their families with healthy living. These programs include paid time off, paid parental leave, health insurance coverage, voluntary benefits (including pet insurance and caregiver support), company contributions to retirement savings and employee assistance and work-life programs. In addition, we offer employees less traditional benefits to support employee well-being such as access to fitness and meditation apps, as well as an online platform through which employees participate in healthy living challenges and earn financial rewards.\n\u2022\nEnvironmental, Health and Safety: \nOn our Website, we disclose environmental stewardship, quality and safety information, including OSHA injury data. We received a AAA MSCI ESG during 2021 and 2022, placing us in the top 3% of their ratings group for aerospace and defense.\n\u2022\nDiversity, Equity & Inclusion: \nOur Website discloses detailed workplace data surrounding our gender diversity, racial/ethnic diversity and turnover data. As of June 30, 2023, women and racially/ethnically diverse employees represented 29% and 43%, respectively, of Mercury\u2019s workforce. Development of a diverse talent pipeline is a business imperative at Mercury and critical to our ability to drive innovation and improve long-term results. We have established relationships with job networks and educational institutions to proactively attract a diverse pool of talent. Our employees are afforded opportunities to cultivate diversity, equity and inclusion both within Mercury and our industry. For example, Mercury sponsors, and our leaders participate in, the annual Simmons Leadership Conference which has the goal of \npreparing the next generation of female leaders and furthering equality in the workplace\n. Mercury has conducted pay equity assessments and made adjustments to pay levels for employees in protected classes, as appropriate, as a result of such assessments. \nCustomers\nRTX Corporation comprised 14%, 14%, and 19% of our revenues in each of the fiscal years 2023, 2022 and 2021, respectively. Lockheed Martin comprised 13%, 10%, and 15% of our revenues in each of the fiscal years 2023, 2022 and 2021, respectively. The United States Navy comprised less than 10%, 14% and 12% of our revenues in fiscal years 2023, 2022 and 2021, respectively. Northrop Grumman accounted for 11% of our revenues in fiscal 2023 and less than 10% in fiscal years 2022 and 2021, respectively. While sales to each of these customers comprise 10% or more of our annual revenue, the sales to these customers are spread across multiple programs and platforms. For the fiscal years ended 2023, 2022 and 2021, we had no single program that represented 10% or more of our revenues.\nCorporate Headquarters and Incorporation\nOur corporate headquarters is located in Andover, Massachusetts. Mercury Systems, Inc. was incorporated in Massachusetts in 1981.\n15\nTable of Contents\nFinancial Information about Geographic Scope\nInformation about revenue we receive within and outside the U.S. can be found in Note Q - Operating Segment, Geographic Information and Significant Customers - to the accompanying Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.\nWEBSITE\nWe maintain a website at \nwww.mrcy.com\n. We make available on our website, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, including exhibits and amendments to those reports filed or furnished pursuant to Section\u00a013(a) or 15(d) of the Securities Exchange Act of 1934 as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission (\u201cSEC\u201d). Our code of business conduct and ethics is also available on our website. We intend to disclose any future amendments to, or waivers from, our code of business conduct and ethics within four business days of the waiver or amendment through a website posting or by filing a current report on Form\u00a08-K with the SEC.\u00a0Information contained on our website does not constitute part of this report. Our reports filed with, or furnished to, the SEC are also available on the SEC\u2019s website at \nwww.sec.gov\n.\nInvestors and others should note that we announce material financial information using our website (\nwww.mrcy.com\n), SEC filings, press releases, public conference calls, webcasts, and social media, including Twitter (\ntwitter.com/mrcy\n and \ntwitter.com/mrcy_CEO\n) and LinkedIn (\nwww.linkedin.com/company/mercury-systems\n). Therefore, we encourage investors and others interested in Mercury to review the information we post on the social media and other communication channels listed on our website.",
+  "item1a": ">ITEM 1A.\u00a0\u00a0\u00a0\u00a0RISK FACTORS:\nRisks Related to Business Operations and Our Industry\nWe depend heavily on defense electronics programs that incorporate our products and services, which may be only partially funded and are subject to potential termination and reductions and delays in government spending.\nSales of our products and services, primarily as a subcontractor or team member with defense prime contractors, and in some cases directly, to the U.S. government and its agencies, as well as foreign governments and agencies, accounted for approximately 98%, 97% and 98% of our total net revenues in fiscal years 2023, 2022, and 2021, respectively. Our products and services are incorporated into many different domestic and international defense programs. Over the lifetime of a defense program, the award of many different individual contracts and subcontracts may impact our products\u2019 requirements. The funding of U.S. government programs is subject to Congressional appropriations. Although multiple-year contracts may be planned in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a program may continue for many years. Consequently, programs are often only partially funded initially, and additional funds are committed only as Congress makes further appropriations and prime contracts receive such funding. The reduction or delay in funding or termination of a government program in which we are involved could result in a loss of or delay in receiving anticipated future revenues attributable to that program and contracts or orders received. The U.S. government could reduce or terminate a prime contract under which we are a subcontractor or team member irrespective of the quality of our products or services. The termination of a program or the reduction in or failure to commit additional funds to a program in which we are involved could negatively impact our revenues and have a material adverse effect on our financial condition and results of operations. The U.S. defense budget frequently operates under a continuing budget resolution, which increases revenue uncertainty and volatility. For fiscal 2024 and beyond, the potential for gridlock in Congress, a continuing budget resolution, budget sequestration, a U.S. government shutdown, or the crowding out of defense funding due to historically high budget deficits or changes in national spending priorities toward non-defense budget items could adversely impact our revenues and increase uncertainty in our business and financial planning. \nEconomic conditions could adversely affect our business, results of operations, and financial condition.\nWorld economic conditions and financial markets have, at times, experienced turmoil which could have material adverse impacts on our financial condition or our ability to achieve targeted results of operations due to:\n\u2022\nreduced and delayed demand for our products;\n\u2022\nincreased risk of order cancellations or delays;\n\u2022\ndownward pressure on the prices of our products;\n\u2022\ngreater difficulty in collecting accounts receivable; and\n\u2022\nrisks to our liquidity, including the possibility that we might not have access to our cash and short-term investments or to our line of credit when needed.\n16\nTable of Contents\nFurther, the funding of the defense programs that incorporate our products and services is subject to the overall U.S.\u00a0government budget and appropriation decisions and processes, which are driven by numerous factors beyond our control, including geo-political, macroeconomic, public health and political conditions. We are unable to predict the likely duration and severity of adverse economic conditions in the United States and other countries, but the longer the duration or the greater the severity, the greater the risks we face in operating our business. The near-term potential for recessionary economic conditions and possible stagflation (persistent high inflation and stagnant economic demand) presents increased risks to our business. \nPrice inflation for labor and materials, further exacerbated in energy and commodity markets by the Russian invasion of Ukraine, could adversely affect our business, results of operations and financial condition.\nWe have experienced considerable price inflation in our costs for labor and materials during recent years, which adversely affected our business, results of operations and financial condition. We may not be able to pass through inflationary cost increases under our existing firm fixed price commercial item contracts and we may only be able to recoup a portion of our increased costs under our reimbursement-type contracts. Our ability to raise prices to reflect increased costs may be limited by competitive conditions in the market for our products and services. Russia\u2019s invasion of Ukraine, and prolonged conflict there, may continue to result in increased inflation, escalating energy and commodity prices and increasing costs of materials. We continue to work to mitigate such pressures on our business operations as they develop. To the extent the war in Ukraine continues to adversely affect our business as discussed above, it may also have the effect of heightening many of the other risks described herein, such as those relating to cyber security, supply chain, volatility in prices and market conditions, any of which could negatively affect our business and financial condition.\nThe loss of one or more of our largest customers, programs, or applications could adversely affect our results of operations.\nWe are dependent on a small number of customers for a large portion of our revenues. A significant decrease in the sales to or loss of any of our major customers would have a material adverse effect on our business and results of operations. In fiscal 2023, RTX Corporation accounted for 14% of our total net revenues, Lockheed Martin Corporation accounted for 13% of our total net revenues, and Northrop Grumman accounted for 11% of our total net revenues. In fiscal 2022, RTX Corporation accounted for 14% of our total net revenues, the U.S. Navy accounted for 14% of our total net revenues and Lockheed Martin Corporation accounted for 10% of our total net revenues. In fiscal 2021, RTX Corporation accounted for 19% of our total net revenues, Lockheed Martin Corporation accounted for 15% of our total net revenues and the U.S. Navy accounted for 12% of our total net revenues. Customers in the defense market generally purchase our products in connection with government programs that have a limited duration, leading to fluctuating sales to any particular customer in this market from year to year. In addition, our revenues are largely dependent upon the ability of customers to develop and sell products that incorporate our products. No assurance can be given that our customers will not experience financial, technical or other difficulties that could adversely affect their operations and, in turn, our results of operations. Additionally, on a limited number of programs the customer has co-manufacturing rights which could lead to a shift of production on such a program away from us which in turn could lead to lower revenues.\nGoing forward, we believe the F-35, Filthy Buzzard & Badger,  F/A-18, LTAMDS, THAAD and Aegis programs could be a large portion of our future revenues in the coming years, and the loss or cancellation of these programs could adversely affect our future results. Further, new programs may yield lower margins than legacy programs, which could result in an overall reduction in gross margins.\nIf we are unable to respond adequately to our competition or to changing technology, we may lose existing customers and fail to win future business opportunities. The emergence of commodity-type products as acceptable substitutes for certain of our products may cause customers to delay purchases or seek alternative solutions. \nThe markets for our products are highly competitive and are characterized by rapidly changing technology, frequent product performance improvements, and evolving industry standards. Competitors may be able to offer more attractive pricing, develop products with performance features that are superior to our products, or offer higher quality or superior on time delivery, resulting in reduced demand for our products. Recently, our on-time delivery has suffered due in part to supply chain volatility and unanticipated supplier decommits. We may be unable to keep pace with competitors\u2019 marketing and the lack of visibility in the marketplace may negatively impact design wins, bookings, and revenues. Customers may also decide to reduce costs and accept the least costly technically acceptable alternative to our products or services. In addition, customers may decide to insource products that they have outsourced to us. Due to the rapidly changing nature of technology, we may not become aware in advance of the emergence of new competitors into our markets. The emergence of new competitors in our markets could result in the loss of existing customers or programs and may have a negative impact on our ability to win future business. Perceptions of Mercury as a high-cost provider or for late deliveries could cause us to lose existing customers or programs or fail to win new business. Further, our lack of strong engagements with important government-funded laboratories (e.g. DARPA, MIT Lincoln Labs, MITRE) may inhibit our ability to become subsystem solution design partners with our defense prime customers.\n17\nTable of Contents\nOur products are often designed for operating under physical constraints such as limited space, weight, and electrical power. Furthermore, these products are often designed to be \u201crugged,\u201d that is, to withstand enhanced environmental stress such as extended temperature range, shock, vibration, and exposure to sand or salt spray. Historically these requirements have often precluded the use of less expensive, readily available commodity-type systems typically found in more benign non-military settings. With continued microprocessor evolution, low-end systems could become adequate to meet the requirements of an increased number of the lesser-demanding applications within our target markets. Commercial server manufacturers and other low-end single-board computer, or new competitors, may attempt to penetrate the high-performance market for aerospace and defense electronics systems. Factors that may increase the acceptability of commodity-type products in some aerospace and defense platforms include improvements in the physical properties and durability of such alternative products, combined with the relaxation of physical and ruggedness requirements by the military due to either a reevaluation of those requirements or the installation of products in a more highly environmentally isolated setting. These developments could negatively impact our revenues and have a material adverse effect on our business and operating results.\nCompetition from existing or new companies could cause us to experience downward pressure on prices, fewer customer orders, reduced margins, the inability to take advantage of new business opportunities and the loss of market share.\nWe compete in highly competitive industries, and our customers generally extend the competitive pressures they face throughout their respective supply chains. Additionally, our markets are facing increasing industry consolidation, resulting in larger competitors who have more market share putting more downward pressure on prices and offering a more robust portfolio of products and services. We are subject to competition based upon product design, performance, pricing, quality, on time delivery, and support services. Our product performance, engineering expertise, and product quality have been important factors in our growth. While we try to maintain competitive pricing on those products that are directly comparable to products manufactured by others, in many instances our products will conform to more exacting specifications and carry a higher price than analogous products. Many of our customers and potential customers have the capacity to design and internally manufacture products that are similar to our products. We face competition from research and product development groups and the manufacturing operations of current and potential customers, who continually evaluate the benefits of internal research, product development, and manufacturing versus outsourcing. Our defense prime contractor customers could decide to pursue one or more of our product development areas as a core competency and insource that technology development and production rather than purchase that capability from us as a supplier. This competition could result in fewer customer orders and a loss of market share.\nWe may be unable to obtain critical components from suppliers, which could disrupt or delay our ability to deliver products to our customers.\nSeveral components used in our products are currently obtained from sole-source suppliers. We are dependent on key vendors such as Xilinx, Inc., Intel Corporation and Microsemi for Field Programmable Gate Arrays (\u201cFPGA\u201d), on NXP Semiconductor for Application-Specific Integrated Circuits (\u201cASICs\u201d), Intel Corporation and NXP Semiconductor for processors, Micron Technology, Inc. for specific memory products and in general any sole-source microelectronics suppliers. Generally, suppliers may terminate their contracts with us without cause upon 30 days\u2019 notice and may cease offering their products upon 180 days\u2019 notice. If any of our sole-source suppliers limits or reduces the sale of these components, we may be unable to fulfill customer orders in a timely manner or at all. These sole-source and other suppliers are each subject to quality and performance issues, materials shortages, excess demand, reduction in capacity, and other factors that may disrupt the flow of goods to us or to our customers, which would adversely affect our business and customer relationships. There can be no assurance that these suppliers will continue to meet our requirements. If supply arrangements are interrupted, we may not be able to find another supplier on a timely or satisfactory basis. We may incur significant set-up costs and delays in manufacturing should it become necessary to replace any key vendors due to work stoppages, shipping delays, financial difficulties, natural or manmade disasters or other factors. In addition, our industry, along with many others, is continuing to face a shortage of semiconductors as well as extended lead times. We have experienced and are experiencing meaningful levels of semiconductor impact. The continuing shortage of semiconductors and other key components can cause a significant disruption to our production schedule. Unprecedented material lead times and supplier decommits have increased volatility in our operating and financial results, including lower revenue and higher inventory and unbilled receivables, as well as decreased cash flow. Carrying increased levels of inventory also increases our potential risk of future inventory obsolescence. \n18\nTable of Contents\nWe may not be able to effectively manage our relationships with contract manufacturers.\nWe may not be able to effectively manage our relationship with contract manufacturers, and the contract manufacturers may not meet future requirements for timely delivery. We rely on contract manufacturers to build hardware sub-assemblies for certain of our products in accordance with our specifications. During the normal course of business, we may provide demand forecasts to contract manufacturers several months prior to scheduled delivery of our products to customers. If we overestimate requirements, the contract manufacturers may assess cancellation penalties or we may be left with excess inventory, which may negatively impact our earnings. If we underestimate requirements, the contract manufacturers may have inadequate inventory, which could interrupt manufacturing of our products and result in delays in shipment to customers and revenue recognition. Contract manufacturers also build products for other companies, and they may not have sufficient quantities of inventory available or sufficient internal resources to fill our orders on a timely basis or at all.\nWe currently rely primarily on two contract manufacturers, Benchmark Electronics, Inc. and Omega Electronics Manufacturing Services. The failure of these contract manufacturers to fill our orders on a timely basis or in accordance with our customers\u2019 specifications could result in a loss of revenues and damage to our reputation. \nWe are exposed to risks associated with international operations and markets.\nWe market and sell products in international markets and have sales offices and manufacturing and/or engineering facilities and subsidiaries in Switzerland, Spain, the United Kingdom and Canada. Revenues from international operations accounted for 5%, 4% and 5%, of our total net revenues in fiscal 2023, 2022 and 2021, respectively. We also ship directly from our U.S. operations to international customers. There are inherent risks in transacting business internationally, including:\n\u2022\nchanges in applicable laws and regulatory requirements;\n\u2022\nexport and import restrictions, including export controls relating to technology and sanctioned parties;\n\u2022\ntariffs and other trade barriers;\n\u2022\nless favorable intellectual property laws;\n\u2022\ndifficulties in staffing and managing foreign operations;\n\u2022\nlonger payment cycles;\n\u2022\nproblems in collecting accounts receivable;\n\u2022\nadverse economic conditions in foreign markets;\n\u2022\npolitical instability;\n\u2022\nfluctuations in currency exchange rates, which may lead to lower operating margins, or may cause us to raise prices which could result in reduced revenues;\n\u2022\nexpatriation controls; and\n\u2022\npotential adverse tax consequences.\nThere can be no assurance that one or more of these factors will not have a material adverse effect on our future international activities and, consequently, on our business and results of operations.\nWe have a pension plan (the \u201cPlan\u201d) for Swiss employees, mandated by Swiss law. Since participants of the Plan are entitled to a defined rate of interest on contributions made, the Plan meets the criteria for a defined benefit plan under U.S. GAAP. The Plan, an independent pension fund, is part of a multi-employer plan with unrestricted joint liability for all participating companies and the economic interest in the Plan\u2019s overfunding or underfunding is allocated to each participating company based on an allocation key determined by the Plan. U.S. GAAP requires an employer to recognize the funded status of the defined benefit plan on the balance sheet, which we have presented in other long-term liabilities on our Consolidated Balance Sheets at June 30, 2023. The funded status may vary from year to year due to changes in the fair value of the Plan\u2019s assets and variations on the underlying assumptions in the Plan and we may have to record an increased liability as a result of fluctuations in the value of the Plan\u2019s assets.\u00a0As of June 30, 2023, we had a liability of $4.2 million in Other non-current liabilities representing the net under-funded status of the Plan.\nIn addition, we must comply with the Foreign Corrupt Practices Act, or the FCPA, and the anti-corruption laws of the countries in which we operate. Those laws generally prohibit the giving of anything of value to win business. The FCPA also generally requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect the transactions of the company and prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment. Under these anti-corruption laws, U.S. companies may be held liable for actions taken by strategic or local partners or representatives. If we or our intermediaries fail to comply with the requirements of international applicable anti-corruption laws, governmental \n19\nTable of Contents\nauthorities in the United States or the countries in which we operate could seek to impose civil and criminal penalties, or restrict or limit our ability to do business, which could have a material adverse effect on our business, results of operations, financial condition, and cash flows.\nIf we are unable to respond to technological developments and changing customer needs on a timely and cost-effective basis, our results of operations may be adversely affected.\nOur future success will depend in part on our ability to enhance current products and to develop new products on a timely and cost-effective basis to respond to technological developments and changing customer needs. Defense customers demand frequent technological improvements as a means of gaining military advantage. Military planners have historically funded significantly more design projects than actual deployments of new equipment, and those systems that are deployed tend to contain the components of the subcontractors selected to participate in the design process. To participate in the design of new defense electronics systems, we must demonstrate the ability to deliver superior technological performance on a timely and cost-effective basis. There can be no assurance that we will secure an adequate number of design wins in the future, that the equipment in which our products are intended to function will eventually be deployed in the field, or that our products will be included in such equipment if it eventually is deployed.\nThe design-in process is typically lengthy and expensive, and there can be no assurance that we will be able to continue to meet the product specifications of customers in a timely and adequate manner. In addition, any failure to anticipate or respond adequately to changes in technology, customer preferences and future order demands, or any significant delay in product developments, product introductions, or order volume, could negatively impact our financial condition and results of operations, including the risk of inventory obsolescence. Because of the complexity of our products, we have experienced delays from time to time in completing products on a timely basis. \nOur need for continued or increased investment in R&D may increase expenses and reduce our profitability.\nOur business is characterized by the need for continued investment in R&D. If we fail to invest sufficiently in R&D, our products could become less attractive to potential customers and our business and financial condition could be materially and adversely affected. As a result of the need to maintain spending levels in this area and the difficulty in reducing costs associated with R&D, our operating results could be materially harmed if our R&D efforts fail to result in new products or if revenues fall below expectations. As a result of our commitment to invest in R&D, spending levels of R&D expenses as a percentage of revenues may fluctuate in the future. In addition, defense prime contractors could increase their requirement for subcontractors, like us, to increase their share in the R&D costs for new programs and design wins.\nOur results of operations are subject to fluctuation from period to period and may not be an accurate indication of future performance.\nWhile our revenues are generated through the sale of products and services across more than 300 programs with no single program contributing more than 10% of our annual revenues, we have experienced fluctuations in operating results due to shifts in timing or quantities across certain of our larger programs. Customers specify delivery date requirements that coincide with their need for our products and services on the programs in which we participate. Because these customers may use our products and services in connection with a variety of defense programs or other projects with different sizes and durations, a customer\u2019s orders for one quarter generally do not indicate a trend for future orders by that customer or on that program. As such, we cannot always accurately plan our manufacturing, inventory and working capital requirements. As a result, if orders and shipments differ from what we predict, we may incur additional expenses and build excess inventory, which may require additional reserves and allowances and reduce our working capital and operational flexibility. Any significant change in our customers\u2019 purchasing patterns could have a material adverse effect on our operating results and reported earnings per share for a particular quarter. Results of operations in any period should not be considered indicative of the results to be expected for any future period.\nHigh quarterly book-ship ratios pressure our inventory and cash flow management, necessitating increased inventory balances to ensure quarterly revenue attainment. Increased inventory balances tie up additional capital, limiting our operational flexibility. Some of our customers may have become conditioned to wait until the end of a quarter to place orders in the expectation of receiving a discount. Customers conditioned to seek quarter-end discounts increase risk and uncertainty in our financial forecasting and decrease our margins and profitability.\nOur quarterly results may be subject to fluctuations resulting from other factors, including:\n\u2022\ndelays in completion of internal product development projects;\n\u2022\ndelays in shipping hardware and software or licensing design intellectual property;\n\u2022\ndelays in acceptance testing by customers;\n\u2022\na change in the mix of products sold;\n20\nTable of Contents\n\u2022\nchanges in customer or program order patterns;\n\u2022\nproduction delays due to quality problems;\n\u2022\nfailure to achieve or maintain quality certifications, such as AS9100;\n\u2022\ninability to scale quick reaction capability products due to low product volume;\n\u2022\nshortages and increased costs of components;\n\u2022\ndelays due to the implementation of new tariffs or other trade barriers;\n\u2022\nthe timing of product line transitions;\n\u2022\ndeclines in quarterly revenues from previous generations of products following announcement of replacement products containing more advanced technology; and\n\u2022\nchanges in estimates of completion on fixed price engagements, which represent a substantial and increasing percentage of our business.\nIn addition, from time to time, we have entered into contracts, referred to as development contracts, to engineer a specific solution based on modifications to standard products. Gross margins from development contract revenues are typically lower than gross margins from standard product revenues. We intend to continue to enter into development contracts and anticipate that the gross margins associated with development contract revenues will continue to be lower than gross margins from standard product sales.\nMany of our contracts require that our facilities remain certified at the AS91000 or ISO9001 level in order to ship products from the relevant facility. Failure to obtain or maintain the required certification may require a waiver by the customer for shipments to continue until the certification is obtained. There can be no assurance that we will receive any customer waivers if a required certification is lost or delayed. \nAnother factor contributing to fluctuations in our quarterly results is the fixed nature of expenditures on personnel, facilities, information technology and marketing programs. Expense levels for these programs are based, in significant part, on expectations of future revenues. If actual quarterly revenues are below management\u2019s expectations, our results of operations could be adversely affected.\nFurther, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The percentage of our total revenue using over time revenue accounting has increased in recent years due to M&A transactions and the movement in our business toward subsystem development. Over time revenue recognition is more reliant on estimates than the accounting for our component sales. Actual results could differ from those estimates, and changes in estimates in subsequent periods could cause our results of operations to fluctuate.\nWe rely on the significant experience and specialized expertise of our senior management, engineering and operational staff and must retain and attract qualified and highly skilled personnel to grow our business successfully.\nOur performance is substantially dependent on the continued services and performance of our senior management and our highly qualified team of engineers and operational staff, many of whom have numerous years of experience, specialized expertise in our industry and security clearances required for certain defense projects. If we are not successful in hiring and retaining such employees, we may not be able to extend or maintain our engineering and operational expertise and our future product development efforts could be adversely affected. Competition for hiring these employees is intense, especially individuals with specialized skills and security clearances required for our business, and we may be unable to hire and retain enough staff to implement our growth strategy or to perform on our existing commitments. Like our defense prime contractor customers, we face the potential for knowledge drain due to the continuing retirement of the older members of our engineering and operations workforce in the coming years.\nTo the extent that we lose experienced personnel, it is critical that we develop other employees, hire new qualified personnel and successfully manage the short and long-term transfer of critical knowledge and skills. We compete with commercial technology companies outside of the aerospace and defense industry for qualified technical positions as the number of qualified domestic engineers is decreasing and the number of available professionals is not keeping up with demand. To the extent that these companies grow at a faster rate or face fewer cost and product pricing constraints, they may be able to offer more attractive compensation and other benefits to candidates, including in the recruitment of our existing employees. In cases where the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting or training costs to attract and retain such employees. We also must manage leadership development and succession planning throughout our business. While we have processes in place for management transition and the transfer of knowledge and skills, the loss of key personnel, \n21\nTable of Contents\ncoupled with an inability to adequately train other personnel, hire new personnel, or transfer knowledge and skills, could significantly impact our ability to perform under our contracts and execute on new or growing programs.\nBeginning with the pandemic, a significant portion of our workforce began working remotely and we expect a significant portion will continue to work a hybrid schedule even as we transition more employees back to onsite work over time. We see many benefits to remote and hybrid work and have adopted new tools and processes to support the workforce. However, if we are unable to effectively adapt to this hybrid work environment long term, then we may experience a less cohesive workforce, increased attrition, reduced program performance and less innovation. In recent years, we have experienced unusually high employee attrition and our costs to retain employees increased.\nOur challenges in retaining key employees may be impacted by the termination of the Company\u2019s announced strategic review initiative in June 2023 and any unanticipated challenges with the transition of the Company\u2019s Chief Executive Officer and Chief Financial Officer roles, as we have recently appointed a new President and Chief Executive Officer and our new Chief Financial Officer joined us in mid July 2023. The decline in our stock price during 2023 may also increase employee retention risks.\nIf we experience a disaster or other business continuity problem, we may not be able to recover successfully, which could cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability.\nIf we experience a local or regional disaster or other business continuity problem, such as an earthquake, terrorist attack, pandemic or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our facilities and the proper functioning of our network, telecommunication and other business systems and operations. As we grow our operations, the potential for natural or man-made disasters, political, economic, or infrastructure instabilities, or other country- or region-specific business continuity risks increases.\nWe face various risks related to health pandemics such as COVID\n. \nWe face secondary and tertiary effects related to the pandemic, including disruptions in our supply chain, particularly for long lead time semiconductors. We continue to monitor the situation, assessing possible implications on our operations, supply chain, liquidity and cash flow and will continue taking actions to mitigate adverse consequences. \nRisks Related to M&A and Acquisition Integration\nImplementation of our growth strategy may not be successful, which could affect our ability to increase revenues and profits.\nOur growth strategy includes developing new products, adding new customers and programs within our existing markets, and entering new markets both domestically and internationally, developing our manufacturing capabilities, as well as identifying and integrating acquisitions and achieving revenue and cost synergies and economies of scale. Our ability to compete in new markets will depend upon several factors including, among others:\n\u2022\nour ability to create demand for products in new markets;\n\u2022\nour ability to respond to changes in our customers\u2019 businesses by updating existing products and introducing, in a timely fashion, new products which meet the needs of our customers;\n\u2022\nour ability to increase our market visibility and penetration with prime defense contractors, government agencies and government funded laboratories;\n\u2022\nthe quality of our new products;\n\u2022\nour ability to respond rapidly to technological changes; \n\u2022\nour ability to increase our in-house manufacturing capacity and utilization as well as our ability to deliver on schedule and on budget; and\n\u2022\nour ability to successfully integrate acquisitions and achieve revenue and cost synergies and economies of scale.\nThe failure to do any of the foregoing could have a material adverse effect on our business, financial condition, and results of operations. In addition, we may face competition in these new markets from various companies that may have substantially greater research and development resources, marketing and financial resources, manufacturing capability and/or customer support organizations.\nAcquisitions may adversely affect our financial condition.\nAs part of our strategy for growth, we may explore acquisitions or strategic alliances, which ultimately may not be completed or be beneficial to us. While we expect any acquisitions to result in synergies and other financial and operational \n22\nTable of Contents\nbenefits, we may be unable to realize these synergies or other benefits in the timeframe that we expect or at all. The integration process may be complex, costly and time consuming. Acquisitions may pose risks to our business, including:\n\u2022\nproblems and increased costs in connection with the integration of the personnel, operations, technologies, or products of the acquired businesses;\n\u2022\nlayering of integration activity due to multiple overlapping acquisitions;\n\u2022\nunanticipated issues, expenses, charges, or liabilities related to the acquisitions;\n\u2022\nfailure to implement our business plan for the combined business or to achieve anticipated increases in revenues and profitability;\n\u2022\ndiversion of management\u2019s attention from our organic business;\n\u2022\nadverse effects on business relationships with suppliers and customers, including the failure to retain key customers;\n\u2022\nacquired assets becoming impaired as a result of technical advancements or worse-than-expected performance by the acquired company;\n\u2022\nfailure to rationalize supply chain, manufacturing capacity, locations, logistics and operating models to achieve anticipated economies of scale, or disruptions to supply chain, manufacturing, or product design operations during the combination of facilities;\n\u2022\nfailure to rationalize business, information and communication systems and to expand the IT infrastructure and security protocols throughout the enterprise;\n\u2022\nvolatility associated with accounting for earn-outs in a given transaction;\n\u2022\nentering markets in which we have no, or limited, prior experience;\n\u2022\nenvironmental liabilities at current or previous sites of the acquired business;\n\u2022\npoor compliance programs pre-acquisition at acquired companies, which may lead to liabilities for violations, or impact the business acquired when placed under our compliance programs;\n\u2022\nunanticipated changes in applicable laws or regulations;\n\u2022\npotential loss of key employees; \n\u2022\nthe impact of any assumed legal proceedings; and \n\u2022\nadverse effects on our internal control over financial reporting before the acquiree's complete integration into our control environment.\nIn addition, in connection with any acquisitions or investments we could:\n\u2022\nissue stock that would dilute our existing shareholders;\n\u2022\nincur debt and assume liabilities;\n\u2022\nobtain financing on unfavorable terms, or not be able to obtain financing on any terms at all;\n\u2022\nincur amortization expenses related to acquired intangible assets or incur large and immediate write-offs;\n\u2022\nincur large expenditures related to office closures of the acquired companies, including costs relating to the termination of employees and facility and leasehold improvement charges resulting from our having to vacate the acquired companies\u2019 premises; and\n\u2022\nreduce the cash that would otherwise be available to fund operations or for other purposes.\nWe may not be able to maintain the levels of revenue, earnings, or operating efficiency that we and our prior acquisitions had achieved or might achieve separately. You should not place undue reliance on any anticipated synergies. In addition, our competitors could try to emulate our strategy, leading to greater competition for acquisition targets which could lead to larger competitors if they succeed in emulating our strategy.\n23\nTable of Contents\nWe may incur substantial indebtedness.\nOn February 28, 2022, we amended our existing revolving credit facility (\u201cthe Revolver\u201d) to increase and extend the borrowing capacity to a $1.1 billion, 5-year revolving credit line, with the maturity extended to February 28, 2027. As of June 30, 2023, we had $511.5 million of outstanding borrowings on the Revolver. The Revolver accrues interest, at our option, at floating rates tied to Secured Overnight Financing Rate (\"SOFR\") or the prime rate plus an applicable percentage. The applicable percentage is set at SOFR plus 1.25% and is established pursuant to a pricing grid based on our total net leverage ratio. We may be exposed to the impact of interest rate changes primarily through our borrowing activities. Subject to the limits contained in the Revolver, we may incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our debt could intensify. Specifically, our debt could have important consequences to our investors, including the following: \n\u2022\nmaking it more difficult for us to satisfy our obligations under our debt instruments, including, without limitation, the Revolver; and if we fail to comply with these requirements, an event of default could result; \n\u2022\nlimiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions, or other general corporate requirements; \n\u2022\nrequiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes; \n\u2022\nincreasing our vulnerability to general adverse economic and industry conditions; \n\u2022\nexposing us to the risk of increased interest rates as certain of our borrowings may have variable interest rates, which could increase the cost of servicing our financial instruments and could materially reduce our profitability and cash flows; \n\u2022\nlimiting our flexibility in planning for and reacting to changes in the industry in which we compete; \n\u2022\nplacing us at a disadvantage compared to other, less leveraged competitors; and \n\u2022\nincreasing our cost of borrowing.\nIn addition, the Revolver contains restrictive covenants that may limit our ability to engage in activities that are in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt. And, if we were unable to repay the amounts due and payable, the lenders under the Revolver could proceed against the collateral granted to them to secure that indebtedness. \nIncreases in interest rates would increase the cost of servicing our financial instruments with exposure to interest rate risk and could materially reduce our profitability and cash flows. Assuming that we had $100.0 million of floating rate debt outstanding, our annual interest expense would change by approximately $1.0 million for each 100 basis point increase in interest rates. We may also incur costs related to interest rate hedges, including the termination of any such hedges. As of June 30, 2023, we had a swap agreement in effect that fixed $300.0 million of the total $511.5 million of outstanding borrowings under the Revolver at a rate of 3.79%. The movement of interest rates would affect the value of such swap agreement. \nOur recent negative free cash flow, if not improved, could eventually lead to challenges in servicing our debt.\nWe have a significant amount of goodwill and intangible assets on our consolidated financial statements that are subject to impairment based upon future adverse changes in our business or prospects.\nAt June 30, 2023, the carrying values of goodwill and identifiable intangible assets on our balance sheet were $938.1\u00a0million and $298.1\u00a0million, respectively. We evaluate indefinite lived intangible assets and goodwill for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Indefinite lived intangible assets are impaired and goodwill impairment is indicated when their book value exceeds fair value. We also review finite-lived intangible assets and long-lived assets when indications of potential impairment exist, such as a significant reduction in undiscounted cash flows associated with the assets. Should the fair value of our long-lived assets decline because of reduced operating performance, market declines, or other indicators of impairment, a charge to operations for impairment may be necessary. The value of goodwill and intangible assets from the allocation of purchase price from our acquisitions will be derived from our business operating plans and is susceptible to an adverse change in demand, input costs or general changes in our business or industry and could require an impairment charge in the future.\nRisks Related to Legal, Regulatory and Compliance Matters\nWe face risks and uncertainties associated with defense-related contracts\nWhether our contracts are directly with the U.S. government, a foreign government, or one of their respective agencies, or indirectly as a subcontractor or team member, our contracts and subcontracts are subject to special risks. For example:\n24\nTable of Contents\n\u2022\nOur contracts with the U.S. and foreign governments and their defense prime contractors and subcontractors are subject to termination either upon default by us or at the convenience of the government or contractor if, among other reasons, the program itself has been terminated. Termination for convenience provisions generally only entitle us to recover costs incurred, settlement expenses and profit on work completed prior to termination.\n\u2022\nBecause we contract to supply goods and services to the U.S. and foreign governments and their prime and subcontractors, we compete for contracts in a competitive bidding process. We may not be awarded the contract if the pricing or product offering is not competitive, either at our level or the prime or subcontractor level. In the event we are awarded a contract, we are subject to protests by losing bidders of contract awards that can result in the reopening of the bidding process and changes in governmental policies or regulations and other political factors. We may be subject to multiple rebid requirements over the life of a defense program to continue to participate in such program, which can result in the loss of the program or significantly reduce our revenue or margin. Requirements for more frequent technology refreshes on defense programs may lead to increased costs and lower long-term revenues.\n\u2022\nConsolidation among defense industry contractors has resulted in a few large contractors with increased bargaining power relative to us. \n\u2022\nOur customers include U.S. government contractors who must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. government contracts. When we contract with the U.S. government, we must comply with these laws and regulations. A violation of these laws and regulations could result in the imposition of fines and penalties to us or our customers or the termination of our or their contracts with the U.S. government. As a result, there could be a delay in our receipt of orders from our customers, a termination of such orders, or a termination of contracts between us and the U.S. government.\n\u2022\nWe sell certain products and services to U.S. and international defense contractors or directly to the U.S. government on a commercial item basis, eliminating the requirement to disclose and certify cost data. To the extent that there are interpretations or changes in the Federal Acquisition Regulations (\u201cFAR\u201d) regarding the qualifications necessary to sell commercial items, there could be a material impact on our business and operating results. For example, there have been legislative proposals to narrow the definition of a \u201ccommercial item\u201d (as defined in the FAR) or to require cost and pricing data on commercial items that could limit or adversely impact our ability to contract under commercial item terms. Changes could be accelerated due to changes in our mix of business, in federal regulations, or in the interpretation of federal regulations, which may subject us to increased oversight by the Defense Contract Audit Agency (\u201cDCAA\u201d) for certain of our products or services. Such changes could also trigger contract coverage for a larger percentage of our contracts under the Cost Accounting Standards (\u201cCAS\u201d), further impacting our commercial operating model and requiring compliance with a defined set of business systems criteria. Failure to comply with applicable CAS requirements could adversely impact our ability to win future CAS-type contracts.\n\u2022\nWe are subject to the Department of Defense Cybersecurity Maturity Model Certification (\u201cCMMC\u201d) in connection with our defense work for the U.S. government and defense prime contractors. Inability to meet the qualifications to the CMMC and any amendments may increase our costs or delay the award of contracts if we are unable to certify that we satisfy such cybersecurity requirements at our Company level and into our supply chain.\n\u2022\nThe U.S. government or a defense prime contractor customer could require us to relinquish data rights to a product in connection with performing work on a defense contract, which could lead to a loss of valuable technology and intellectual property in order to participate in a government program.\n\u2022\nThe U.S. government or a defense prime contractor customer could require us to enter into cost reimbursable contracts that could offset our cost efficiency initiatives.\n\u2022\nWe anticipate that sales to our U.S. prime defense contractor customers as part of foreign military sales (\u201cFMS\u201d) programs will be an increasing part of our business going forward. These FMS sales combine several different types of risks and uncertainties highlighted above, including risks related to government contracts, risks related to defense contracts, timing and budgeting of foreign governments and approval from the U.S. and foreign governments related to the programs, all of which may be impacted by macroeconomic and geopolitical factors outside of our control. \n\u2022\nWe must comply with security requirements pursuant to 32 CFR Part 117, formerly known as the National Industrial Security Program Operating Manual, or NISPOM, and other U.S. government security protocols when accessing sensitive information. Many of our facilities maintain a facility security clearance and many of our employees maintain a personal security clearance to access sensitive information necessary to the performance of our work on certain U.S. government contracts and subcontracts. Failure to comply with such security requirements may subject us to civil or criminal penalties, loss of access to sensitive information, loss of a U.S. government contract or subcontract, or potentially debarment as a government contractor. \n\u2022\nWe may need to invest additional capital to build out higher level security infrastructure at certain of our facilities to capture new design wins on defense programs with higher level security requirements. In addition, we may need to invest in additional secure laboratory space to integrate efficiently subsystem level solutions and maintain quality assurance on current and future programs.\n25\nTable of Contents\nIf we are unable to continue to obtain U.S. government authorization regarding the export of our products, or if current or future export laws limit or otherwise restrict our business, we could be prohibited from shipping our products to certain countries, which would harm our ability to generate revenue.\nWe must comply with U.S. laws regulating the export of our products and technology. In addition, we are required to obtain a license from the U.S. government to export certain of our products and technical data as well as to provide technical services to foreign persons related to such products and technical data. We cannot be sure of our ability to obtain any licenses required to export our products or to receive authorization from the U.S. government for international sales or domestic sales to foreign persons including transfers of technical data or the provision of technical services. Likewise, our international operations are subject to the export laws of the countries in which they conduct business. Moreover, the export regimes and the governing policies applicable to our business are subject to change. If we cannot obtain required government approvals under applicable regulations in a timely manner or at all, we could be delayed or prevented from selling our products in certain jurisdictions, which could adversely affect our business and financial results. \nOur income tax provision and other tax liabilities may be insufficient if taxing authorities are successful in asserting tax positions that are contrary to our position. Increases in tax rates could impact our financial performance.\nFrom time to time, we are audited by various federal, state, local and foreign authorities regarding income tax matters. Significant judgment is required to determine our provision for income taxes and our liabilities for other taxes. Although we believe our approach to determining the appropriate tax treatment is supportable and in accordance with relevant authoritative guidance it is possible that the final tax authority will take a tax position that is materially different than that which is reflected in our income tax provision. Such differences could have an adverse effect on our income tax provision or benefit, in the reporting period in which such determination is made and, consequently, on our results of operations, financial position and/or cash flows for such period. Further, future increases in tax rates may adversely affect our financial results.\nOur products are complex, and undetected defects may increase our costs, harm our reputation with customers or lead to costly litigation.\nOur products are extremely complex and must operate successfully with complex products of our customers and their other vendors. Our products may contain undetected errors when first introduced or as we introduce product upgrades. The pressures we face to be the first to market new products or functionality and the elapsed time before our products are integrated into our customer's systems increases the possibility that we will offer products in which we or our customers later discover problems. We have experienced new product and product upgrade errors in the past and expect similar problems in the future. These problems may cause us to incur significant warranty costs and costs to support our service contracts and divert the attention of personnel from our product development efforts. Also, hostile third parties or nation states may try to install malicious code or devices into our products or software. Undetected errors may adversely affect our product\u2019s ease of use and may create customer satisfaction issues. If we are unable to repair these problems in a timely manner, we may experience a loss of or delay in revenue and significant damage to our reputation and business prospects. Many of our customers rely upon our products for mission-critical applications. Because of this reliance, errors, defects, or other performance problems in our products could result in significant financial and other damage to our customers. Our customers could attempt to recover those losses by pursuing products liability claims against us which, even if unsuccessful, would likely be time-consuming and costly to defend and could adversely affect our reputation.\nRisks Related to Information Technology and Intellectual Property\nWe may need to invest in new information technology systems and infrastructure to scale our operations.\nWe may need to adopt new information technology systems and infrastructure to scale our business and obtain the synergies from prior acquisitions as well as organic growth. Our information technology and business systems and infrastructure could create product development or production work stoppages, unnecessarily increase our inventory, negatively impact product delivery times and quality and increase our compliance costs. In addition, an inability to maximize the utility and benefit of our current information technology and business tools could impact our ability to meet cost reduction and planned efficiency and operational improvement goals.\nIf we suffer ransomware breaches, data breaches, or phishing diversions involving the designs, schematics, or source code for our products or other sensitive information, our business and financial results could be adversely affected.\nOur business is subject to heightened risks of cyber intrusion as nation-state hackers seek access to technology used in U.S. defense programs and criminal enterprise hackers, which may or may not be affiliated with foreign governments, use ransomware attacks to disable critical infrastructure and extort companies for ransom payments. We are also targeted by spear phishing attacks in which an email directed at a specific individual or department is disguised to appear to be from a trusted source to obtain sensitive information. Like all DoD contractors that process, store, or transmit controlled unclassified \n26\nTable of Contents\ninformation, we must meet minimum security standards or risk losing our DoD contracts. A breach, whether physical, electronic or otherwise, of the systems on which this sensitive data is stored could lead to damage or piracy of our products or to the shutdown of business systems. If we experience a data security breach from an external source or a data exfiltration from an insider threat, we may have a loss in sales or increased costs arising from the restoration or implementation of additional security measures, either of which could adversely affect our business and financial results. Other potential costs could include damage to our reputation, loss of brand value, incident response costs, loss of stock market value, regulatory inquiries, litigation and management distraction. A security breach that involves classified information could subject us to civil or criminal penalties, loss of a government contract, loss of access to classified information, or debarment as a government contractor. Similarly, a breach that involves loss of customer-provided data could subject us to loss of a customer, loss of a program or contract, litigation costs and legal damages and reputational harm.\n \nWe may be unsuccessful in protecting our intellectual property rights which could result in the loss of a competitive advantage. If we become subject to intellectual property infringement claims, we could incur significant expenses and could be prevented from selling specific products. \nOur ability to compete effectively against other companies in our industry depends, in part, on our ability to protect our current and future proprietary technology under patent, copyright, trademark, trade secret and unfair competition laws. We cannot assure you that our means of protecting our proprietary rights in the United States or abroad will be adequate, or that others will not develop technologies similar or superior to our technology or design around our proprietary rights. In addition, we may incur substantial costs in attempting to protect our proprietary rights.\nAlso, despite the steps taken by us to protect our proprietary rights, it may be possible for unauthorized third parties to copy or reverse-engineer aspects of our products, develop similar technology independently, or otherwise obtain and use information from our supply chain that we regard as proprietary, and we may be unable to successfully identify or prosecute unauthorized uses of our technology. Further, with respect to our issued patents and patent applications, we cannot assure you that any patents from any pending patent applications (or from any future patent applications) will be issued, that the scope of any patent protection will exclude competitors or provide competitive advantages to us, that any of our patents will be held valid if subsequently challenged or that others will not claim rights in or ownership of the patents (and patent applications) and other proprietary rights held by us.\nWe may become subject to claims that we infringe the intellectual property rights of others. We cannot assure you that, if made, these claims will not be successful. Any claim of infringement could cause us to incur substantial costs defending against the claim even if the claim is invalid and could distract management from other business. Any judgment against us could require substantial payment in damages and could also include an injunction or other court order that could prevent us from offering certain products.\nRisks Related to Our Common Stock\nThe trading price of our common stock may continue to be volatile, which may adversely affect our business, and investors in our common stock may experience substantial losses.\nOur stock price, like that of other technology and aerospace and defense companies, has been and may continue to be volatile. The stock prices for companies in the aerospace and defense industry may continue to remain volatile given uncertainty and timing of funding for defense programs. This volatility may or may not be related to our operating performance. Our operating results, from time to time, may be below the expectations of public market analysts and investors, which could have a material adverse effect on the market price of our common stock. Market rumors or the dissemination of false or misleading information may impact our stock price. When the market price of a stock has been volatile, holders of that stock will sometimes file securities class action litigation against the company that issued the stock. If any shareholders were to file a lawsuit, we could incur substantial costs defending the lawsuit, which could also divert the time and attention of management. During fiscal 2023, we experienced stock price declines following our earnings releases in August 2022 and May 2023 as well as after the announcement that the Board of Directors had concluded its review of strategic alternatives in June 2023, in each case with law firms announcing investigations after the event.\nWe have never paid cash dividends on our common stock and we do not anticipate paying any dividends in the foreseeable future. \nWe have not declared or paid cash dividends on any of our classes of capital stock to date and we currently intend to retain our future earnings, if any, to fund the development and growth of our business and for future mergers and acquisitions. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for the foreseeable future. \n27\nTable of Contents\nWe may need additional capital and may not be able to raise funds on acceptable terms, if at all. In addition, any funding through the sale of additional common stock or other equity securities could result in additional dilution to our stockholders and any funding through indebtedness could restrict our operations.\nWe may require additional cash resources to finance our continued growth or other future developments, including any investments or acquisitions we may decide to pursue. The amount and timing of such additional financing needs will vary principally depending on the timing of new product and service launches, investments and/or acquisitions and the amount of cash flow from our operations. If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a larger credit facility. The sale of additional equity securities or securities convertible into our common shares could result in additional dilution to our stockholders. The incurrence of additional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. If we fail to raise additional funds, we may need to sell debt or additional equity securities or to reduce our growth to a level that can be supported by our cash flow. \nProvisions in our organizational documents and Massachusetts law and other actions we have taken could make it more difficult for a third party to acquire us.\nProvisions of our articles of organization and by-laws could have the effect of discouraging a third party from making a proposal to acquire us and could prevent certain changes in control, even if some shareholders might consider the proposal to be in their best interest. These provisions include a classified board of directors, advance notice to our board of directors of shareholder proposals and director nominations, and limitations on the ability of shareholders to remove directors and to call shareholder meetings. In addition, we may issue shares of any class or series of preferred stock in the future without shareholder approval upon such terms as our board of directors may determine. For example, on December 27, 2021, the Board of Directors adopted a Shareholder Rights Plan which, as amended, expired on the date of our annual meeting of shareholders in October 2022. The rights of holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any such class or series of preferred stock that may be issued.\nWe also are subject to the Massachusetts General Laws which, subject to certain exceptions, prohibit a Massachusetts corporation from engaging in a broad range of business combinations with any \u201cinterested shareholder\u201d for a period of three years following the date that such shareholder becomes an interested shareholder. The Massachusetts Business Corporation Act permits directors to look beyond the interests of shareholders and consider other constituencies in discharging their duties. In determining what the director of a Massachusetts corporation reasonably believes to be in the best interests of the corporation, a director may consider the interests of the corporation's employees, suppliers, creditors, and customers, the economy of the state, the region, and the nation, community and societal considerations and the long-term and short-term interests of the corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the corporation. \nShareholder activism could cause us to incur significant expense, disrupt our business, result in a proxy contest or litigation and impact our stock price.\nWe have been subject to shareholder activism and may be subject to such activism in the future, which could result in substantial costs and divert management\u2019s and our Board\u2019s attention and resources from our business. Such shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with our employees, customers, or suppliers and make it more difficult to attract and retain qualified personnel. We may be required to incur significant fees and other expenses related to activist shareholder matters, including for third party advisors. We may be subjected to a proxy contest or to litigation by activist investors. Our stock price has been and could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any shareholder activism. \nJANA Partners LLC filed a Schedule 13D on December 23, 2021, and Starboard Value LP filed a Schedule 13D on January 13, 2022. Both JANA and Starboard indicated that they intended to engage with Mercury\u2019s management. On June 23, 2022, we entered into settlement agreements with each of JANA and Starboard that covered the appointment of two directors to our Board and an amendment to our shareholder rights plan, which has since expired as of our 2022 annual meeting of shareholders. The JANA and Starboard settlement agreements contained customary standstill provisions that expired in June 2023. On June 15, 2023, Starboard filed an amended Schedule 13D indicating that it owned approximately 4.6% of our outstanding shares. On July 6, 2023, JANA filed a new Schedule 13D indicating that it owned approximately 8% of our outstanding shares, and we announced that Scott Ostfeld, a managing partner at JANA, was being appointed to our Board of Directors. \n28\nTable of Contents",
+  "item7": ">ITEM 7.\nMANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nFORWARD-LOOKING STATEMENTS\nFrom time to time, information provided, statements made by our employees or information included in our filings with the Securities and Exchange Commission (\u201cSEC\u201d) may contain statements that are not historical facts but that are \u201cforward-looking statements,\u201d which involve risks and uncertainties. You can identify these statements by the words \u201cmay,\u201d \u201cwill,\u201d \u201ccould,\u201d \u201cshould,\u201d \u201cwould,\u201d \u201cplans,\u201d \u201cexpects,\u201d \u201canticipates,\u201d \u201ccontinue,\u201d \u201cestimate,\u201d \u201cproject,\u201d \u201cintend,\u201d \u201clikely,\u201d \u201cforecast,\u201d \u201cprobable,\u201d \u201cpotential,\u201d and similar expressions.  These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but are not limited to, continued funding of defense programs, the timing and amounts of such funding, general economic and business conditions, including unforeseen weakness in the Company\u2019s markets, effects of any U.S. federal government shutdown or extended continuing resolution, effects of geopolitical unrest and regional conflicts, competition, changes in technology and methods of marketing, delays in or cost increases related to completing development, engineering and manufacturing programs, changes in customer order patterns, changes in product mix, continued success in technological advances and delivering technological innovations, changes in, or in the U.S. government\u2019s interpretation of, federal export control or procurement rules and regulations, changes in, or in the interpretation or enforcement of, environmental rules and regulations, market acceptance of the Company's products, shortages in or delays in receiving components, supply chain delays or volatility for critical components such as semiconductors, production delays or unanticipated expenses including due to quality issues or manufacturing execution issues, failure to achieve or maintain manufacturing quality certifications, such as AS9100, the impact of the COVID pandemic and supply chain disruption, inflation and labor shortages, among other things, on program execution and the resulting effect on customer satisfaction, inability to fully realize the expected benefits from acquisitions, restructurings, and execution excellence initiatives or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, effects of shareholder activism, increases in interest rates, changes to industrial security and cyber-security regulations and requirements and impacts from any cyber or insider threat events, changes in tax rates or tax regulations, such as the deductibility of internal research and development, changes to interest rate swaps or other cash flow hedging arrangements, changes to generally accepted accounting principles, difficulties in retaining key employees and customers, which difficulties may be impacted by the termination of the Company\u2019s announced strategic review initiative, unanticipated challenges with the transition of the Company\u2019s Chief Executive Officer and Chief Financial Officer roles, including any dispute arising with the former CEO over his resignation, unanticipated costs under fixed-price service and system integration engagements, and various other factors beyond our control. These risks and uncertainties also include such additional risk factors as set forth under Part I-Item 1A (Risk Factors) in this Annual Report on Form 10-K. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.\nOVERVIEW\nMercury Systems, Inc. is a technology company that delivers processing power for the most demanding aerospace and defense missions. Headquartered in Andover, Massachusetts, our end-to-end processing platform enables a broad range of aerospace and defense programs, optimized for mission success in some of the most challenging and demanding environments. Processing technologies that comprise our platform include signal solutions, display, software applications, networking, storage and secure processing. Our innovative solutions are mission-ready, trusted and secure, software-defined and open and modular meeting our customers\u2019 cost and schedule needs today by allowing them to use or modify our products to suit their mission. Customers access our solutions via the Mercury Processing Platform, which encompasses the broad scope of our investments in technologies, companies, products, services and the expertise of our people. Ultimately, we connect our customers to what matters most to them. We connect commercial technology to defense, people to data and partners to opportunities. And, at the most human level, we connect what we do to our customers\u2019 missions; supporting the people for whom safety, security and protecting freedom are of paramount importance.\nAs a leading manufacturer of essential components, products, modules and subsystems, we sell to defense prime contractors, the U.S. government and original equipment manufacturers (\u201cOEM\u201d) commercial aerospace companies. Mercury has built a trusted, robust portfolio of proven product solutions, leveraging the most advanced commercial silicon technologies and purpose-built to exceed the performance needs of our defense and commercial customers. Customers add their own applications and algorithms to our specialized, secure and innovative products and pre-integrated solutions. This allows them to complete their full system by integrating with their platform, the sensor technology and, increasingly, the processing from Mercury. Our products and solutions are deployed in more than 300 programs with over 25 different defense prime contractors and commercial aviation customers. \n33\nTable of Contents\nMercury\u2019s transformational business model accelerates the process of making new technology profoundly more accessible to our customers by bridging the gap between commercial technology and aerospace and defense applications on time constraints that matter. Our long-standing deep relationships with leading high-tech and other commercial companies, coupled with our high level of research and development (\u201cR&D\u201d) investments on a percentage basis and industry-leading trusted and secure design and manufacturing capabilities, are the foundational tenets of this highly successful model. We are leading the development and adaptation of commercial technology for aerospace and defense solutions. From chip-scale to system scale and from data, including radio frequency (\u201cRF\u201d) to digital to decision, we make mission-critical technologies safe, secure, affordable and relevant for our customers. \n Our capabilities, technology, people and R&D investment strategy combine to differentiate Mercury in our industry. We maintain our technological edge by investing in critical capabilities and intellectual property (\u201cIP\u201d or \u201cbuilding blocks\u201d) in processing, leveraging open standards and open architectures to adapt quickly those building blocks into solutions for highly data-intensive applications, including emerging needs in areas such as artificial intelligence (\u201cAI\u201d).\nOur mission critical solutions are deployed by our customers for a variety of applications including command, control, communications, computers, intelligence, surveillance and reconnaissance (\u201cC4ISR\u201d), electronic intelligence, mission computing avionics, electro-optical/infrared (\u201cEO/IR\u201d), electronic warfare, weapons and missile defense, hypersonics and radar. \nSince we conduct much of our business with our defense customers via commercial items, requests by customers are a primary driver of revenue fluctuations from quarter to quarter. Customers specify delivery date requirements that coincide with their need for our products. Because these customers may use our products in connection with a variety of defense programs or other projects of different sizes and durations, a customer\u2019s orders for one quarter generally do not indicate a trend for future orders by that customer. Additionally, order patterns do not necessarily correlate amongst customers and, therefore, we generally cannot identify sequential quarterly trends.\nAs of June 30, 2023, we had 2,596 employees. Our consolidated revenues, acquired revenues, net loss, diluted net loss per share, adjusted EPS, and adjusted EBITDA for fiscal 2023 were $973.9 million, $25.1 million, $(28.3) million, $(0.50), $1.00 and $132.3 million, respectively. Our consolidated revenues, acquired revenues, net income, EPS, adjusted EPS and adjusted EBITDA for fiscal 2022 were $988.2 million, $6.0 million, $11.3 million, $0.20, $2.19 and $200.5 million, respectively. See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures.\nB\nUSINESS\n D\nEVELOPMENTS\n:\nF\nISCAL\n 2023\nBeginning in January 2023, the Board of Directors (the \u201cBoard\u201d) engaged in a proactive and rigorous process to evaluate strategic alternatives, focused on a potential sale of Mercury. As part of the review, the Board authorized its financial advisors to contact and hold discussions with more than 40 potential bidders, including a wide range of strategic parties and financial sponsors. The Board executed confidentiality agreements with 20 parties. The two proposals ultimately received did not yield options for a sale that would reflect the intrinsic value of Mercury. Accordingly, in a press release dated June 23, 2023, we announced, among other things, that the independent members of the Board unanimously determined to conclude the sale process and instead focus on all potential opportunities to create value, including through the enhanced execution of our strategic plan under refreshed leadership. \nOn June 19, 2023, the Company\u2019s former President and Chief Executive Officer, delivered a letter to the Board resigning from his positions of President and Chief Executive Officer and the Board has accepted his resignation effective as of June 24, 2023. On June 23, 2023, we announced the Board has appointed William L. Ballhaus as the Company\u2019s interim President and Chief Executive Officer, effective as of June 24, 2023. \nOn June 29, 2023, we announced that David E. Farnsworth will be joining the Company as Executive Vice President, Chief Financial Officer, and Treasurer, on July 17, 2023.\nOn July 18, 2023, we executed the planned evolution of our 1MPACT value creation initiative, embedding the processes and execution of 1MPACT into our Execution Excellence organization. The 1MPACT office in its current form has concluded its responsibilities, having successfully incorporated the principles behind 1MPACT into how we think about continuous improvement at all levels of the Company. \nOn August 15, 2023, we announced William L. Ballhaus has been appointed President and Chief Executive Officer.\n34\nTable of Contents\nF\nISCAL\n 2022\nOn February 28, 2022, we amended our \nexisting revolving credit facility (the \n\u201c\nRevolver\n\u201d\n)\n to increase and extend the borrowing capacity to a $1.1 billion, 5-year revolving credit line, with the maturity extended to February 28, 2027. See Note M in the accompanying consolidated financial statements for further discussion of the Revolver. \nOn November 29, 2021, we acquired Atlanta Micro, Inc. (\u201cAtlanta Micro\u201d) \nfor a purchase price of \n$90.0 million, \nsubject to net working capital and net debt adjustments. Based in Norcross, Georgia, Atlanta Micro is a leading designer and manufacturer of high-performance RF modules and components, including advanced monolithic microwave integrated circuits which are critical for high-speed data acquisition applications including electronic warfare, radar and weapons. We funded the acquisition through our Revolver.\nOn September 27, 2021, we signed a definitive agreement to acquire Avalex Technologies (\u201cAvalex\u201d) for a purchase price of \n$155.0 million, \nsubject to net working capital and net debt adjustments. On November 5, 2021, the transaction closed and we acquired Avalex. Based in Gulf Breeze, Florida, Avalex is a provider of mission-critical avionics, including rugged displays, integrated communications management systems, digital video recorders and warning systems. We funded the acquisition with our Revolver.\nRESULTS OF OPERATIONS:\nF\nISCAL\n 2023 V\nS\n. F\nISCAL\n 2022 \nResults of operations for fiscal 2023 include full period results from the acquisitions of Avalex and Atlanta Micro. Results of operations for fiscal 2022 include only results from the acquisition dates for Avalex and Atlanta Micro, which were acquired on November 5, 2021 and November 29, 2021, respectively. Accordingly, the periods presented below are not directly comparable. The Company has applied the FAST Act Modernization and Simplification of Regulation S-K, which limits the discussion to the two most recent fiscal years. Refer to Item 7 of the Company's Form 10-K issued on August 16, 2022 for prior year discussion related to fiscal 2022.\nThe following tables set forth, for the periods indicated, financial data from the Consolidated Statements of Operations and Comprehensive (Loss) Income:\n(In thousands)\nFiscal 2023\nAs\u00a0a\u00a0%\u00a0of\nTotal\u00a0Net\nRevenue\nFiscal 2022\nAs\u00a0a\u00a0%\u00a0of\nTotal\u00a0Net\nRevenue\nNet revenues\n$\n973,882\u00a0\n100.0\u00a0\n%\n$\n988,197\u00a0\n100.0\u00a0\n%\nCost of revenues\n657,154\u00a0\n67.5\u00a0\n593,241\u00a0\n60.0\u00a0\nGross margin\n316,728\u00a0\n32.5\u00a0\n394,956\u00a0\n40.0\u00a0\nOperating expenses:\nSelling, general and administrative\n160,637\u00a0\n16.5\u00a0\n157,044\u00a0\n15.9\u00a0\nResearch and development\n108,799\u00a0\n11.2\u00a0\n107,169\u00a0\n10.8\u00a0\nAmortization of intangible assets\n53,552\u00a0\n5.5\u00a0\n60,267\u00a0\n6.1\u00a0\nRestructuring and other charges\n6,981\u00a0\n0.7\u00a0\n27,445\u00a0\n2.8\u00a0\nAcquisition costs and other related expenses\n8,444\u00a0\n0.8\u00a0\n11,421\u00a0\n1.2\u00a0\nTotal operating expenses\n338,413\u00a0\n34.7\u00a0\n363,346\u00a0\n36.8\u00a0\n(Loss) income from operations\n(21,685)\n(2.2)\n31,610\u00a0\n3.2\u00a0\nInterest income\n1,053\u00a0\n0.1\u00a0\n143\u00a0\n\u2014\u00a0\nInterest expense\n(25,159)\n(2.6)\n(5,806)\n(0.6)\nOther expense, net\n(2,751)\n(0.3)\n(7,552)\n(0.8)\n(Loss) income before\u00a0income taxes\n(48,542)\n(5.0)\n18,395\u00a0\n1.9\u00a0\nIncome tax (benefit) provision\n(20,207)\n(2.1)\n7,120\u00a0\n0.8\u00a0\nNet (loss) income\n$\n(28,335)\n(2.9)\n%\n$\n11,275\u00a0\n1.1\u00a0\n%\nR\nEVENUES\nTotal revenues decreased $14.3 million, or 1.4%, to $973.9 million during fiscal 2023, as compared to $988.2 million during fiscal 2022 including \u201cacquired revenue\u201d which represents net revenue from acquired businesses that have been part of Mercury for completion of four full fiscal quarters or less (and excludes any intercompany transactions). After the completion of four full fiscal quarters, acquired businesses will be treated as organic for current and comparable historical periods. The \n35\nTable of Contents\ndecrease in total revenue was primarily due to $33.3 million less organic revenues, partially offset by $19.0 million of additional acquired revenues. These decreases predominantly resulted from program execution delays, especially as related to approximately 20 challenged programs, primarily development in nature, for which completion is a precursor to follow-on production awards. In addition, incremental cost growth on these challenged programs delayed progress, and, therefore, revenue recognition in the fiscal year. Revenues from integrated subsystems decreased $77.2 million or 11.8%, partially offset by increases to modules and sub-assemblies and components which increased $33.0 million or 19.8% and $29.8 million or 17.8%, respectively, during fiscal 2023. The decrease in total revenue was primarily from the radar, EW, and other end applications which decreased $21.7 million, $13.1 million, and $2.4 million, respectively, and were partially offset by increases to the C4I and other sensor and effector end applications which increased $14.3 million and $8.5 million, respectively. The decrease was predominately in naval platforms which decreased $18.6 million and was partially offset by an increase of $5.9 million in other platforms during fiscal 2023. The largest program decreases were related to the MH-60, Filthy Buzzard, CPS, THAAD, and a classified C2 program. There were no individual programs comprising 10% or more of our revenues for fiscal 2023 and 2022. See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures. \nG\nROSS\n M\nARGIN\nGross margin was 32.5% for fiscal 2023, a decrease of 750 basis points from the 40.0% gross margin achieved during fiscal 2022. The lower gross margin was primarily driven by approximately $56 million of impact as a result of execution challenges across approximately 20 programs, primarily development in nature. Program mix was more heavily weighted towards development programs as compared to the prior period, which carry lower average gross margins as compared to production programs. These programs warrant higher engineering labor for customized development, production and service activities. The nature of these efforts results in lower margin content, but serve as pre-cursors to higher margin production awards. \nS\nELLING\n, G\nENERAL\n \nAND\n A\nDMINISTRATIVE\nSelling, general and administrative expenses increased $3.6 million, or 2.3%, to $160.6 million during fiscal 2023 as compared to $157.0 million during fiscal 2022. The increase was primarily related to an increase in our 401(k) matching contributions from 3% to 6%, a full period of the Avalex and Atlanta Micro acquisitions driving an incremental $4.0 million of expense, and an increase in headcount and salary rate increases, partially offset by forfeitures of our former CEO's stock-based compensation of $6.8 million. \nR\nESEARCH\n \nAND\n D\nEVELOPMENT\nResearch and development expenses increased $1.6 million, or 1.5%, to $108.8 million during fiscal 2023, as compared to $107.2 million for fiscal 2022. The increase was primarily related to an increase in our 401(k) matching contributions from 3% to 6%.\nA\nMORTIZATION\n \nOF\n I\nNTANGIBLE\n A\nSSETS\nAmortization of intangible assets decreased $6.7 million to $53.6 million during fiscal 2023, as compared to $60.3 million for fiscal 2022, primarily due to the backlog from our Avalex and Atlanta Micro acquisitions being fully amortized in fiscal 2023.\nR\nESTRUCTURING\n \nAND \nO\nTHER \nC\nHARGES\nDuring fiscal 2023, the Company incurred $7.0 million of restructuring and other charges, as compared to $27.4 million in fiscal 2022. Restructuring and other charges during fiscal 2023 primarily related to $3.4 million of severance costs, $1.8 million of costs for facility optimization efforts, including $1.3 million related to lease asset impairment, and $1.8 million of third party consulting costs. Restructuring and other charges during fiscal 2022 primarily related to 1MPACT including $17.4 million of third party consulting costs, as well as $9.2 million of severance costs associated with the elimination of approximately 135 positions across manufacturing, SG&A and R&D based on ongoing talent and workforce optimization efforts. In addition, fiscal 2022 includes $0.8 million of costs for facilities optimization efforts associated with 1MPACT, including $0.5 million related to lease asset impairment.\nIn the first quarter of 2024, we have initiated several immediate cost savings measures that simplify our organizational structure, facilitate clearer accountability, and align to our priorities, including: (i) embedding the 1MPACT value creation initiatives and execution into our operations; (ii) streamlining organizational structure and removing areas of redundancy between corporate and divisional organizations; and (iii) reduce selling, general, and administrative headcount and rebalancing discretionary and third party spending to better align with our priority areas. On July 20, 2023, we executed the plan to embed the 1MPACT value creation initiatives into operations, and on August 9, 2023, we approved and initiated a workforce reduction that, together with the 1MPACT related action, eliminates approximately 150 positions, resulting in expected restructuring charges of approximately $9.0 million. These charges are for employee separation costs and will be classified as restructuring and other charges within our Statement of Operations and Other Comprehensive Income for the fiscal quarter ending September 29, 2023. We expect approximately $15 million - $17 million of net savings from these actions for our fiscal year ending June \n36\nTable of Contents\n28, 2024. The headcount savings, combined with other non-headcount savings, including discretionary and third party spend primarily within SG&A, are expected to yield a total fiscal year 2024 net savings of approximately $20 million -22 million and annualized net savings of approximately $24 million.\nA\nCQUISITION\n C\nOSTS\n \nAND\n O\nTHER\n R\nELATED\n E\nXPENSES\nAcquisition costs and other related expenses were $8.4 million during fiscal 2023, as compared to $11.4 million during fiscal 2022. The acquisition costs and other related expenses incurred during fiscal 2023 were primarily related to $3.7 million associated with the Board's review of strategic alternatives and $3.5 million for third party advisory fees in connection with engagements by activist investors. The acquisition costs and other related expenses incurred during fiscal 2022 were related to the acquisitions of Avalex and Atlanta Micro, as well as $6.8 million for third party advisory fees and settlement costs in connection with engagements by activist investors.\nI\nNTEREST \nI\nNCOME \nInterest income increased to $1.1 million in fiscal 2023 from $0.1 million in fiscal 2022. This was driven by higher interest rates during fiscal 2023 as compared to fiscal 2022. \nI\nNTEREST \nE\nXPENSE\nInterest expense for fiscal 2023 increased to $25.2 million, as compared to $5.8 million in fiscal 2022. The increase was driven by an increase in interest rate and additional borrowings on our Revolver. Borrowings under our revolver were $511.5 million in fiscal 2023 as compared to $451.5 million in fiscal 2022. \nO\nTHER \nE\nXPENSE, \nN\nET\nOther expense, net was $2.8 million during fiscal 2023, as compared to $7.6 million in fiscal 2022. Fiscal 2023 includes $2.3 million of financing and registration fees and $2.1 million of litigation and settlement expenses, partially offset by net foreign currency translation gains of $1.6 million. Fiscal 2022 includes $2.7 million of financing and registration fees, $2.4 million of net foreign currency translation losses, and $1.9 million of litigation and settlement expenses.\nI\nNCOME\n T\nAXES \nWe recorded an income tax (benefit) provision of $(20.2) million and $7.1 million on (loss) income before income taxes of $(48.5) million and $18.4 million for fiscal years 2023 and 2022, respectively. Fiscal 2023 includes the impact of the  Tax Cuts and Jobs Act of 2017 (\"TCJA\"), which requires companies to capitalize and amortize domestic research and development expenditures over five years for tax purposes, and foreign research and development expenditures over fifteen years for tax purposes. The cash outflow from the TJCA provision was $26 million in fiscal 2023.\nThe effective tax rate for fiscal 2023 differed from the federal statutory rate of 21% primarily due to federal and state research and development tax credits, releases to reserves for unrecognized income tax benefits, state taxes, valuation allowances recorded and excess tax provisions related to stock compensation.\nThe effective tax rate for fiscal 2022 differed from the federal statutory rate of 21% primarily due to federal and state research and development tax credits, non-deductible compensation, provision to return adjustments, state taxes and excess tax provisions related to stock compensation.\nOn August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law which contained provisions that include a 15% corporate minimum tax effective for taxable years beginning after December 31, 2022 and a 1% excise tax on certain stock buybacks after December 31, 2022. We expect the impact of this legislation to be immaterial.  \nLIQUIDITY AND CAPITAL RESOURCES\nOur primary sources of liquidity come from existing cash and cash generated from operations, our Revolver, our ability to raise capital under our universal shelf registration statement and our ability to factor our receivables. Our near-term fixed commitments for cash expenditures consist primarily of payments under operating leases and inventory purchase commitments. We plan to continue to invest in improvements to our facilities, continuous evaluation of potential acquisition opportunities and internal R&D to promote future growth, including new opportunities in avionics mission computers, secure processing, radar modernization and trusted custom microelectronics. \nBased on our current plans and business conditions, we believe that existing cash and cash equivalents, our available Revolver, cash generated from operations and our financing capabilities will be sufficient to satisfy our anticipated cash requirements for at least the next twelve months.\n37\nTable of Contents\nShelf Registration Statement\nOn September 14, 2020, we filed a shelf registration statement on Form S-3ASR with the SEC. The shelf registration statement, which was effective upon filing with the SEC, registered each of the following securities: debt securities, preferred stock, common stock, warrants and units. We intend to use the proceeds from financings using the shelf registration statement for general corporate purposes, which may include the following:\n\u2022\nthe acquisition of other companies or businesses;\n\u2022\nthe repayment and refinancing of debt;\n\u2022\ncapital expenditures;\n\u2022\nworking capital; and\n\u2022\nother purposes as described in the prospectus supplement.\nWe have an unlimited amount available under the shelf registration statement.  We intend to file a renewal of the S-3ASR in September 2023 upon the expiration of the three-year term of the current shelf registration statement.\nRevolving Credit Facilities\nOn February 28, 2022, we amended the Revolver to increase and extend the borrowing capacity to a $1.1 billion, 5-year revolving credit line, with the maturity extended to February 28, 2027. The current borrowing capacity as defined under the Revolver as of June 30, 2023 is approximately $865.0\u00a0million, of which we had borrowings against of $511.5\u00a0million. See Note M in the accompanying consolidated financial statements for further discussion of the Revolver.\nReceivables Purchase Agreement\nOn September 27, 2022, we entered into an uncommitted receivables purchase agreement (\u201cRPA\u201d) with Bank of the West, as purchaser, pursuant to which we may offer to sell certain customer receivables, subject to the terms and conditions of the RPA. The RPA is an uncommitted arrangement such that we are not obligated to sell any receivables and Bank of the West has no obligation to purchase any receivables from us. Pursuant to the RPA, Bank of the West may purchase certain of our customer receivables at a discounted rate, subject to a limit that as of any date, the total amount of purchased receivables held by Bank of the West, less the amount of all collections received on such receivables, may not exceed $20.0 million. The RPA has an indefinite term and the agreement remains in effect until it is terminated by either party. On March 14, 2023, we amended the RPA to increase the capacity from $20.0 million to $30.6 million. On June 21, 2023, we upsized the capacity from $30.6 million to $60.0 million. We factored accounts receivable and incurred factoring fees of approximately $30.5\u00a0million and $0.6\u00a0million, respectively, for the twelve months ended June 30, 2023. We did not factor any accounts receivable or incur any factoring fees for the twelve months ended July 1, 2022.\nCASH FLOWS\nFor the Fiscal Years Ended \n(In thousands)\nJune 30, 2023\nJuly 1, 2022\nJuly 2, 2021\nNet cash (used in) provided by operating activities\n$\n(21,254)\n$\n(18,869)\n$\n97,247\u00a0\nNet cash used in investing activities\n$\n(38,561)\n$\n(274,320)\n$\n(416,887)\nNet cash provided by financing activities\n$\n65,429\u00a0\n$\n245,754\u00a0\n$\n206,229\u00a0\nNet increase (decrease) in cash and cash equivalents\n$\n5,909\u00a0\n$\n(48,185)\n$\n(112,999)\nCash and cash equivalents at end of year\n$\n71,563\u00a0\n$\n65,654\u00a0\n$\n113,839\u00a0\nOur cash and cash equivalents increased by $5.9 million during fiscal 2023 primarily as the result of $65.4 million provided by financing activities, partially offset by $38.8 million purchases of property and equipment and $21.3 million used in operating activities.\n38\nTable of Contents\nOperating Activities\nDuring fiscal 2023, we had an outflow of $21.3 million in cash from operating activities, an increase of $2.4 million, as compared to $18.9 million during fiscal 2022.\u00a0The increase was primarily due to higher outflows for inventory to support customer delivery schedules for existing and future awards as well as accounts payable, accrued expenses and accrued compensation. Cash paid for interest and income taxes during fiscal 2023 increased by $21.8 million and $10.1 million, respectively, as compared to fiscal 2022 further contributing to the decrease. The decrease was partially offset by lower outflows from unbilled receivables and costs in excess of billings, additional deferred revenues and customer advances, the change from a cash based 401(k) match to a stock based 401(k) match during fiscal 2023 and a $6.0 million cash receipt for the termination of an interest rate swap.\nInvesting Activities\nDuring fiscal 2023, we invested $38.6 million, a decrease of $235.7 million, as compared to $274.3 million during fiscal 2022 primarily driven by the acquisitions of Avalex and Atlanta Micro, in the previous year. The decrease was also driven by $3.4 million less other investing activities, partially offset by $11.1 million higher purchases of property and equipment as compared to fiscal 2022. \nFinancing Activities\nDuring fiscal 2023, we had $65.4 million in cash provided by financing activities, as compared to $245.8 million during fiscal 2022. During fiscal 2023, we had $60.0 million of net borrowings on our Revolver as compared to $251.5 million of net borrowings during fiscal 2022. We also had $0.1 million of cash payments related to the purchase and retirement of common stock used to settle individual employees' tax liabilities associated with the annual vesting of restricted stock awards, as compared to $8.2 million in fiscal 2022. \nC\nOMMITMENTS\n \nAND\n C\nONTRACTUAL\n O\nBLIGATIONS\nThe following is a schedule of our commitments and contractual obligations outstanding at June 30, 2023:\n(In thousands)\nTotal\nLess\u00a0Than\n1 Year\n1-3\nYears\n3-5\nYears\nMore\u00a0Than\n5 Years\nOperating leases\n$\n92,653\u00a0\n$\n14,195\u00a0\n$\n27,094\u00a0\n$\n24,016\u00a0\n$\n27,348\u00a0\nPurchase obligations\n127,134\u00a0\n127,134\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n$\n219,787\u00a0\n$\n141,329\u00a0\n$\n27,094\u00a0\n$\n24,016\u00a0\n$\n27,348\u00a0\nSee Note B and Note J to the consolidated financial statements for more information regarding our obligations under leases.\nPurchase obligations represent open non-cancelable purchase commitments for certain inventory components and services used in normal operations. The purchase commitments covered by these agreements are for less than one year and aggregated $127.1 million at June 30, 2023.\nWe had a liability at June 30, 2023 of $5.2 million for uncertain tax positions that have been taken or are expected to be taken in various income tax returns. We do not know the ultimate resolution of these uncertain tax positions and as such, do not know the ultimate timing of payments related to this liability. Accordingly, these amounts are not included in the above table.\nOur standard product sales and license agreements entered into in the ordinary course of business typically contain an indemnification provision pursuant to which we indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred in connection with certain intellectual property infringement claims by any third party with respect to our products. Such provisions generally survive termination or expiration of the agreements. The potential amount of future payments we could be required to make under these indemnification provisions is, in some instances, unlimited.\nAs part of our strategy for growth, we continue to explore acquisitions or strategic alliances. The associated acquisition costs incurred in the form of professional fees and services may be material to the future periods in which they occur, regardless of whether the acquisition is ultimately completed. \nWe may elect from time to time to purchase and subsequently retire shares of common stock in order to settle employees\u2019 tax liabilities associated with vesting of a restricted stock award. These transactions would be treated as a use of cash in financing activities in our Consolidated Statements of Cash Flows.\nO\nFF\n-B\nALANCE\n S\nHEET\n A\nRRANGEMENTS\nOther than certain indemnification provisions, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any obligation arising out of a material variable \n39\nTable of Contents\ninterest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not consolidated in the financial statements. Additionally, we do not have an interest in, or relationships with, any special purpose entities.\nRELATED PARTY TRANSACTIONS\nDuring fiscal 2023 and 2022, we did not engage in any related party transactions.\nNON-GAAP FINANCIAL MEASURES\nIn our periodic communications, we discuss certain important measures that are not calculated according to U.S. generally accepted accounting principles (\u201cGAAP\u201d), including adjusted EBITDA, adjusted income, adjusted EPS, free cash flow, organic revenue and acquired revenue.\nAdjusted EBITDA is defined as net income before other non-operating adjustments, interest income and expense, income taxes, depreciation, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition, financing and other third party costs, fair value adjustments from purchase accounting, litigation and settlement income and expense, COVID related expenses, and stock-based and other non-cash compensation expense. We use adjusted EBITDA as an important indicator of the operating performance of our business. We use adjusted EBITDA in internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our board of directors, determining a portion of bonus compensation for executive officers and other key employees based on operating performance, evaluating short-term and long-term operating trends in our operations and allocating resources to various initiatives and operational requirements. We believe that adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of charges that may vary from period to period without any correlation to underlying operating performance. We believe that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making. We believe that trends in our adjusted EBITDA are valuable indicators of our operating performance.\nAdjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. We expect to continue to incur expenses similar to the adjusted EBITDA financial adjustments described above, and investors should not infer from our presentation of this non-GAAP financial measure that these costs are unusual, infrequent or non-recurring.\n40\nTable of Contents\nThe following table reconciles our net (loss) income, the most directly comparable GAAP financial measure, to our adjusted EBITDA: \n\u00a0\nFor the Fiscal Years Ended\n(In thousands)\nJune 30, 2023\nJuly 1, 2022\nJuly 2, 2021\nNet (loss) income\n$\n(28,335)\n$\n11,275\u00a0\n$\n62,044\u00a0\nOther non-operating adjustments, net\n(1,589)\n2,932\u00a0\n(724)\nInterest expense, net\n24,106\u00a0\n5,663\u00a0\n1,043\u00a0\nIncome tax (benefit) provision\n(20,207)\n7,120\u00a0\n15,129\u00a0\nDepreciation\n43,777\u00a0\n33,150\u00a0\n25,912\u00a0\nAmortization of intangible assets\n53,552\u00a0\n60,267\u00a0\n41,171\u00a0\nRestructuring and other charges\n(1)\n6,981\u00a0\n27,445\u00a0\n9,222\u00a0\nImpairment of long-lived assets\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nAcquisition, financing and other third party costs\n(2)\n10,019\u00a0\n13,608\u00a0\n8,600\u00a0\nFair value adjustments from purchase accounting\n356\u00a0\n(2,009)\n(290)\nLitigation and settlement expense, net\n495\u00a0\n1,908\u00a0\n622\u00a0\nCOVID related expenses\n67\u00a0\n689\u00a0\n9,943\u00a0\nStock-based and other non-cash compensation expense\n(3)\n43,031\u00a0\n38,459\u00a0\n29,224\u00a0\nAdjusted EBITDA\n$\n132,253\u00a0\n$\n200,507\u00a0\n$\n201,896\u00a0\n(1) Restructuring and other charges for fiscal 2023 are related to management's decision to undertake certain actions to realign operating expenses through workforce reductions and the closure of certain facilities, businesses and product lines. These charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities. We believe these items are non-routine and may not be indicative of ongoing operating results.\n(2) Acquisition, financing and other third party costs for fiscal 2023 are related to third party advisory fees in connection with engagements by activist investors and costs associated with the Board's review of strategic alternatives. \n(3) Effective in the first quarter of fiscal 2023, the Company increased the rate of its matching contributions from 3% to 6% of participants' eligible annual compensation and changed the form of these contributions from cash to company stock. Fiscal 2023 also includes forfeitures of $6.8 million of stock-based compensation from the Company's former CEO's resignation.\nAdjusted income and adjusted EPS exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. We believe that exclusion of these items assists in providing a more complete understanding of our underlying results and trends and allows for comparability with our peer company index and industry. These non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by other companies. We use these measures along with the corresponding GAAP financial measures to manage our business and to evaluate our performance compared to prior periods and the marketplace. We define adjusted income as net income before other non-operating adjustments, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition, financing and other third party costs, fair value adjustments from purchase accounting, litigation and settlement income and expense, COVID related expenses, and stock-based and other non-cash compensation expense. The impact to income taxes includes the impact to the effective tax rate, current tax provision and deferred tax provision. Adjusted EPS expresses adjusted income on a per share basis using weighted average diluted shares outstanding. \nAdjusted income and adjusted EPS are non-GAAP financial measures and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. We expect to continue to incur expenses similar to the adjusted income and adjusted EPS financial adjustments described above, and investors should not infer from our presentation of these non-GAAP financial measures that these costs are unusual, infrequent or non-recurring.\n41\nTable of Contents\nThe following table reconciles net (loss) income and diluted (loss) earnings per share, the most directly comparable GAAP financial measures, to adjusted income and adjusted EPS: \nFor the Fiscal Years Ended\n(In thousands, except per share data)\nJune 30, 2023\nJuly 1, 2022\nJuly 2, 2021\nNet (loss) income and diluted (loss) earnings per share\n$\n(28,335)\n$\n(0.50)\n$\n11,275\u00a0\n$\n0.20\u00a0\n$\n62,044\u00a0\n$\n1.12\u00a0\n\u00a0\u00a0\u00a0Other non-operating adjustments, net\n(1,589)\n2,932\u00a0\n(724)\n\u00a0\u00a0\u00a0Amortization of intangible assets\n53,552\u00a0\n60,267\u00a0\n41,171\u00a0\n\u00a0\u00a0\u00a0Restructuring and other charges\n(1)\n6,981\u00a0\n27,445\u00a0\n9,222\u00a0\n\u00a0\u00a0\u00a0Impairment of long-lived assets\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u00a0\u00a0\u00a0Acquisition, financing and other third party costs\n(2)\n10,019\u00a0\n13,608\u00a0\n8,600\u00a0\n\u00a0\u00a0\u00a0Fair value adjustments from purchase accounting\n356\u00a0\n(2,009)\n(290)\n\u00a0\u00a0\u00a0Litigation and settlement expense, net\n495\u00a0\n1,908\u00a0\n622\u00a0\n\u00a0\u00a0\u00a0COVID related expenses\n67\u00a0\n689\u00a0\n9,943\u00a0\n\u00a0\u00a0\u00a0Stock-based and other non-cash compensation expense\n(3)\n43,031\u00a0\n38,459\u00a0\n29,224\u00a0\n\u00a0\u00a0\u00a0Impact to income taxes\n(4)\n(27,776)\n(32,309)\n(25,697)\nAdjusted income and adjusted earnings per share\n$\n56,801\u00a0\n$\n1.00\u00a0\n$\n122,265\u00a0\n$\n2.19\u00a0\n$\n134,115\u00a0\n$\n2.42\u00a0\nDiluted weighted-average shares outstanding\n56,874\u00a0\n55,901\u00a0\n55,474\u00a0\n(1) Restructuring and other charges for fiscal 2023 are related to management's decision to undertake certain actions to realign operating expenses through workforce reductions and the closure of certain facilities, businesses and product lines. These charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities. We believe these items are non-routine and may not be indicative of ongoing operating results.\n(2) Acquisition, financing and other third party costs for fiscal 2023 are related to third party advisory fees in connection with engagements by activist investors and costs associated with the Board of Directors' review of strategic alternatives. \n(3) Effective in the first quarter of fiscal 2023, the Company increased the rate of its matching contributions from 3% to 6% of participants' eligible annual compensation and changed the form of these contributions from cash to company stock. Fiscal 2023 also includes forfeitures of $6.8 million of stock-based compensation from the Company's former CEO's resignation.\n(4) Impact to income taxes is calculated by recasting income before income taxes to include the add-backs involved in determining adjusted income and recalculating the income tax provision using this adjusted income from operations before income taxes.\u00a0The impact to income taxes includes the impact to the effective tax rate, current tax provision and deferred tax provision. \nFree cash flow, a non-GAAP measure for reporting cash flow, is defined as cash provided by operating activities less capital expenditures for property and equipment, which includes capitalized software development costs. We believe free cash flow provides investors with an important perspective on cash available for investments and acquisitions after making capital investments required to support ongoing business operations and long-term value creation. We believe that trends in our free cash flow can be valuable indicators of our operating performance and liquidity.\nFree cash flow is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. We expect to continue to incur expenditures similar to the free cash flow adjustment described above, and investors should not infer from our presentation of this non-GAAP financial measure that these expenditures reflect all of our obligations which require cash.\nThe following table reconciles cash (used in) provided by operating activities, the most directly comparable GAAP financial measure, to free cash flow:\n\u00a0\nFor the Fiscal Years Ended\n(In thousands)\nJune 30, 2023\nJuly 1, 2022\nJuly 2, 2021\nNet cash (used in) provided by operating activities\n$\n(21,254)\n$\n(18,869)\n$\n97,247\u00a0\nPurchase of property and equipment\n(38,796)\n(27,656)\n(45,599)\nFree cash flow\n$\n(60,050)\n$\n(46,525)\n$\n51,648\u00a0\n42\nTable of Contents\nOrganic revenue and acquired revenue are non-GAAP measures for reporting financial performance of our business. We believe this information provides investors with insight as to our ongoing business performance. Organic revenue represents total company revenue excluding net revenue from acquired companies for the first four full quarters since the entities\u2019 acquisition date (which excludes intercompany transactions). Acquired revenue represents revenue from acquired companies for the first four full quarters since the entities' acquisition date (which excludes intercompany transactions). After the completion of four full fiscal quarters, acquired revenue is treated as organic for current and comparable historical periods.\nThe following table reconciles the most directly comparable GAAP financial measure to the non-GAAP financial measure:\n(In thousands)\nFiscal 2023\nAs\u00a0a\u00a0%\u00a0of\nTotal\u00a0Net\nRevenue\nFiscal 2022\nAs\u00a0a\u00a0%\u00a0of\nTotal\u00a0Net\nRevenue\n$\u00a0Change\n%\u00a0Change\nOrganic revenue\n$\n948,814\u00a0\n97\u00a0\n%\n$\n982,153\u00a0\n99\u00a0\n%\n$\n(33,339)\n(3)\n%\nAcquired revenue\n(1)\n25,068\u00a0\n3\u00a0\n%\n6,044\u00a0\n1\u00a0\n%\n19,024\u00a0\n100\u00a0\n%\nTotal revenues\n$\n973,882\u00a0\n100\u00a0\n%\n$\n988,197\u00a0\n100\u00a0\n%\n$\n(14,315)\n(1)\n%\n(1) Acquired revenue for all preceding periods presented has been recast for comparative purposes.\nCRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES\nWe have identified the policies discussed below as critical to understanding our business and our results of operations. The impact and any associated risks related to these policies on our business operations are discussed throughout Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. We believe the following critical accounting policies to be those most important to the portrayal of our financial position and results of operations and those that require the most subjective judgment.\nR\nEVENUE\n R\nECOGNITION\nWe recognize revenue at a point in time or over time as the performance obligations are met. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 44% and 45% of revenues for the fiscal years ended June 30, 2023 and July 1, 2022, respectively. Total revenue recognized under contracts over time was 56% and 55% of revenues for the fiscal years ended June 30, 2023 and July 1, 2022, respectively. \nRevenue recognized at a point in time generally relates to contracts that include a combination of components, modules and sub-assemblies, integrated subsystems and related system integration or other services. Revenue is recognized at a point in time for these products and services (versus over time recognition) due to the following: (i) customers are only able to consume the benefits provided by us upon completion of the product or service; (ii) customers do not control the product or service prior to completion; and (iii) we do not have an enforceable right to payment at all times for performance completed to date. Accordingly, there is little judgment in determining when control of the good or service transfers to the customer, and revenue is recognized upon shipment (for goods) or completion (for services).\nFor contracts with multiple performance obligations, the transaction price is allocated to each performance obligation using the standalone selling price of each distinct good or service in the contract. Standalone selling prices of our goods and services are generally not directly observable. Accordingly, the primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast the expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service. The objective of the expected cost plus a margin approach is to determine the price at which we would transact if the product or service were sold by us on a standalone basis. Our determination of the expected cost plus a margin approach involves the consideration of several factors based on the specific facts and circumstances of each contract. Specifically, we consider the cost to produce the deliverable, the anticipated margin on that deliverable, the selling price and profit margin for similar parts, our ongoing pricing strategy and policies, often based on the price list established and updated by management on a regular basis, the value of any enhancements that have been built into the deliverable and the characteristics of the varying markets in which the deliverable is sold.\nRevenue is recognized over time (versus point in time recognition) for long-term contracts with development, production and service activities where the performance obligations are satisfied over time. These over time contracts involve the design, development, manufacture, or modification of complex modules and sub-assemblies or integrated subsystems and related services. Revenue is recognized over time, given: (i) our performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (ii) our performance creates an asset with no alternative use to us and (iii) we have an enforceable right to payment for performance completed to date. We consider the nature of these contracts and the types of products and services provided when determining the proper accounting for a particular contract. These contracts include both \n43\nTable of Contents\nfixed-price and cost reimbursable contracts. Our cost reimbursable contracts typically include cost-plus fixed fee and time and material (\u201cT&M\u201d) contracts. We consider whether contracts should be combined or segmented, and based on this assessment, we combine closely related contracts when all the applicable criteria are met. The combination of two or more contracts requires judgment in determining whether the intent of entering into the contracts was effectively to enter into a single contract, which should be combined to reflect an overall profit rate. Similarly, we may separate an arrangement, which may consist of a single contract or group of contracts, with varying rates of profitability, only if the applicable criteria are met. Judgment also is involved in determining whether a single contract or group of contracts may be segmented based on how the arrangement and the related performance criteria were negotiated. The decision to combine a group of contracts or segment a contract could change the amount of revenue and gross profit recorded in a given period. For all types of contracts, we recognize anticipated contract losses as soon as they become known and estimable. These losses are recognized in advance of contract performance and as of June 30, 2023, approximately $6.0 million of these costs were in Accrued expenses on our Consolidated Balance Sheet. \nFor over time contracts, we typically leverage the input method, using a cost-to-cost measure of progress. We believe that this method represents the most faithful depiction of our performance because it directly measures value transferred to the customer. Contract estimates and estimates of any variable consideration are based on various assumptions to project the outcome of future events that may span several years. These assumptions include: the amount of time to complete the contract, including the assessment of the nature and complexity of the work to be performed; the cost and availability of materials; the availability of subcontractor services and materials; and the availability and timing of funding from the customer. We bear the risk of changes in estimates to complete on a fixed-price contract which may cause profit levels to vary from period to period. For cost reimbursable contracts, we are reimbursed periodically for allowable costs and are paid a portion of the fee based on contract progress. In the limited instances where we enter into T&M contracts, revenue recognized reflects the number of direct labor hours expended in the performance of a contract multiplied by the contract billing rate, as well as reimbursement of other direct billable costs. For T&M contracts, we elected to use a practical expedient permitted by ASC 606 whereby revenue is recognized in the amount for which we have a right to invoice the customer based on the control transferred to the customer. For over time contracts, we recognize anticipated contract losses as soon as they become known and estimable.\nAccounting for contracts recognized over time requires significant judgment relative to estimating total contract revenues and costs, in particular, assumptions relative to the amount of time to complete the contract, including the assessment of the nature and complexity of the work to be performed. Our estimates are based upon the professional knowledge and experience of our engineers, program managers and other personnel, who review each over time contract monthly to assess the contract\u2019s schedule, performance, technical matters and estimated cost at completion. Changes in estimates are applied retrospectively and when adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods. \nWe generally do not provide our customers with rights of product return other than those related to assurance warranty provisions that permit repair or replacement of defective goods over a period of 12 to 36 months. We accrue for anticipated warranty costs upon product shipment. We do not consider activities related to such assurance warranties, if any, to be a separate performance obligation. We offer separately priced extended warranties which generally range from 12 to 36 months that are treated as separate performance obligations. The transaction price allocated to extended warranties is recognized over time in proportion to the costs expected to be incurred in satisfying the obligations under the contract. \nOn over time contracts, the portion of the payments retained by the customer is not considered a significant financing component because most contracts have a duration of less than one year and payment is received as progress is made. Many of our over time contracts have milestone payments, which align the payment schedule with the progress towards completion on the performance obligation. On some contracts, we may be entitled to receive an advance payment, which is not considered a significant financing component because it is used to facilitate inventory demands at the onset of a contract and to safeguard us from the failure of the other party to abide by some or all of their obligations under the contract.\nWe define service revenues as revenue from activities that are not associated with the design, development, production, or delivery of tangible assets, software or specific capabilities sold by us. Examples of our service revenues include: analyst services and systems engineering support, consulting, maintenance and other support, testing and installation. We combine our product and service revenues into a single class as services revenues are less than 10 percent of total revenues.\nI\nNVENTORY\n V\nALUATION\nWe value our inventory at the lower of cost (first-in, first-out) or its net realizable value. We write down inventory for excess and obsolescence based upon assumptions about future demand, product mix and possible alternative uses. Actual demand, product mix and alternative usage may be higher or lower resulting in variations in on our gross margin. \n44\nTable of Contents\nG\nOODWILL\n, I\nNTANGIBLE\n A\nSSETS\n \nAND\n L\nONG\n-\nLIVED\n A\nSSETS\nWe evaluate our goodwill for impairment annually in the fourth quarter and in any interim period in which events or circumstances arise that indicate our goodwill may be impaired. Indicators of impairment include, but are not limited to, a significant deterioration in overall economic conditions, a decline in our market capitalization, the loss of significant business, significant decreases in funding for our contracts, or other significant adverse changes in industry or market conditions. \nWe test goodwill for impairment at the reporting unit level. Goodwill impairment guidance provides entities an option to perform a qualitative assessment (commonly known as \u201cstep zero\u201d) to determine whether further impairment testing is necessary before performing the two-step test. The qualitative assessment requires significant judgments by management about macro-economic conditions including our operating environment, industry and other market considerations, entity-specific events related to financial performance or loss of key personnel, and other events that could impact the reporting unit. If we conclude that further testing is required, the impairment test involves a two-step process. Step one compares the fair value of the reporting unit with its carrying value, including goodwill. If the carrying amount exceeds the fair value of the reporting unit, step two is required to determine if there is an impairment of the goodwill. Step two compares the implied fair value of the reporting unit's goodwill to the carrying amount of the goodwill. We estimate the fair value of our reporting units using the income approach based upon a discounted cash flow model. The income approach requires the use of many assumptions and estimates including future revenues, expenses, capital expenditures, and working capital, as well as discount factors and income tax rates. In addition, we use the market approach, which compares the reporting unit to publicly-traded companies and transactions involving similar businesses, to support the conclusions of the income approach.\nDuring the first quarter of fiscal 2021, the Company reorganized its internal reporting unit structure to align with the Company's market and brand strategy as well as promote scale as the organization continues to grow. The Company evaluated this reorganization under ASC 280 to determine whether this change has impacted the Company's single operating and reportable segment. The Company concluded this change had no effect given the CODM continues to evaluate and manage the Company on the basis of one operating and reportable segment. The Company utilized the management approach for determining its operating segment in accordance with ASC 280. There has been no changes to the Company's conclusion of one  operating and reportable segment in fiscal 2023.\nIn accordance with FASB ASC 350, \nIntangibles-Goodwill and Other\n (\u201cASC 350\u201d), the Company determines its reporting units based upon whether discrete financial information is available, if management regularly reviews the operating results of the component, the nature of the products offered to customers and the market characteristics of each reporting unit. A reporting unit is considered to be an operating segment or one level below an operating segment also known as a component. Component level financial information is reviewed by management across two divisions: Microelectronics, and Mission Systems. Accordingly, these were determined to be the Company's reporting units. \nAs part of our annual goodwill impairment testing, we utilized a discount rate for each of our reporting units, as defined by ASC 350, that we believe represents the risks that our businesses face, considering their sizes, the current economic environment, and other industry data we believe is appropriate. The discount rates for Microelectronics and Mission Systems were 11.25%, and 12.0%, respectively. The annual testing indicated that the fair values of our Microelectronics and Mission Systems reporting units exceeded their carrying values, and thus no further testing was required. \nWe also review finite-lived intangible assets and long-lived assets when indications of potential impairment exist, such as a significant reduction in undiscounted cash flows associated with the assets. Should the fair value of our finite-lived intangible assets or long-lived assets decline because of reduced operating performance, market declines, or other indicators of impairment, a charge to operations for impairment may be necessary. \nI\nNCOME\n T\nAXES\nThe determination of income tax expense requires us to make certain estimates and judgments concerning the calculation of deferred tax assets and liabilities, as well as the deductions and credits that are available to reduce taxable income. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates for the year in which the differences are expected to reverse.\nIn evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results, our forecast of future earnings, future taxable income and tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment. We record a valuation allowance against deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. If it becomes more likely than not that a tax asset will be used for which a reserve has been provided, we reverse the related valuation allowance. If our actual future taxable income by tax jurisdiction differs from estimates, additional allowances or reversals of reserves may be necessary.\n45\nTable of Contents\nWe use a two-step approach to recognize and measure uncertain tax positions. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. We reevaluate our uncertain tax positions on a quarterly basis and any changes to these positions as a result of tax audits, tax laws or other facts and circumstances could result in additional charges to operations.\nB\nUSINESS\n C\nOMBINATIONS\nWe utilize the acquisition method of accounting for business combinations and allocate the purchase price of an acquisition to the various tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. We primarily establish fair value using the income approach based upon a discounted cash flow model. The income approach requires the use of many assumptions and estimates including future revenues and expenses, as well as discount factors and income tax rates. Other estimates include:\n\u2022\nestimated step-ups for the over time contracts fixed assets, leasehold interests and inventory;\n\u2022\nestimated fair values of intangible assets; and\n\u2022\nestimated income tax assets and liabilities assumed from the acquiree.\nWhile we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business acquisition date, our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchase price allocation period, which is generally one year from the business acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. For changes in the valuation of intangible assets between preliminary and final purchase price allocation, the related amortization is adjusted in the period it occurs. Subsequent to the purchase price allocation period any adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is determined. \nRECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS\nSee Note\u00a0B to consolidated financial statements (under the caption \u201cRecently Issued Accounting Pronouncements\u201d).\nRECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS\nSee Note\u00a0B to consolidated financial statements (under the caption \u201cRecently Adopted Accounting Pronouncements\u201d).",
+  "item7a": ">ITEM 7A.\nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nI\nNTEREST\n R\nATE\n R\nISK\nOur exposure to interest rate risk is related primarily to our investment portfolio and the Revolver. \nOur investment portfolio includes money market funds from high quality U.S. government issuers. A change in prevailing interest rates may cause the fair value of our investments to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing rate rises, the fair value of the principal amount of our investment will probably decline. To minimize this risk, investments are generally available for sale and we generally limit the amount of credit exposure to any one issuer.\nWe also are exposed to the impact of interest rate changes primarily through our borrowing activities. For our variable rate borrowings, we may use a fixed interest rate swap, effectively converting a portion of variable rate borrowings to fixed rate borrowings in order to mitigate the impact of interest rate changes on earnings. We utilize interest rate derivatives to mitigate interest rate exposure with respect to our financing arrangements. There were $511.5 million of outstanding borrowings against the Revolver at June 30, 2023. \nC\nONCENTRATION\n O\nF\n C\nREDIT\n R\nISK\nFinancial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash, cash equivalents and accounts receivable. We place our cash and cash equivalents with financial institutions with high credit quality. As of June 30, 2023 and July 1, 2022, we had $71.6 million and $65.7 million, respectively, of cash and cash equivalents on deposit or invested with our financial and lending institutions.\nWe provide credit to customers in the normal course of business. We perform ongoing credit evaluations of our customers\u2019 financial condition and limit the amount of credit extended when deemed necessary. As of June 30, 2023, five customers accounted for 48% of our receivables, unbilled receivables and costs in excess of billings. As of July 1, 2022, five customers accounted for 45% of our receivables, unbilled receivables and costs in excess of billings.\n46\nTable of Contents\nF\nOREIGN\n C\nURRENCY\n R\nISK\nWe operate primarily in the United States; however, we conduct business outside the United States through our foreign subsidiaries in Switzerland, the United Kingdom, Spain, and Canada where business is largely transacted in non-U.S. dollar currencies. Accordingly, we are subject to exposure from adverse movements in the exchange rates of local currencies. Local currencies are used as the functional currency for our non-U.S. subsidiaries. Consequently, changes in the exchange rates of the currencies may impact the translation of the foreign subsidiaries\u2019 statements of operations into U.S. dollars, which may in turn affect our Consolidated Statement of Operations.\nWe have not entered into any financial derivative instruments that expose us to material market risk, including any instruments designed to hedge the impact of foreign currency exposures. We may, however, hedge such exposure to foreign currency exchange rate fluctuations in the future.\n47\nTable of Contents\nR\nEPORT\n\u00a0\nOF\n\u00a0I\nNDEPENDENT\n\u00a0R\nEGISTERED\n\u00a0P\nUBLIC\n\u00a0A\nCCOUNTING\n\u00a0F\nIRM\nTo the Shareholders and Board of Directors\nMercury Systems, Inc.:\nOpinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting\nWe have audited the accompanying consolidated balance sheets of Mercury Systems, Inc. and subsidiaries (the Company) as of June 30, 2023 and July 1, 2022, the related consolidated statements of operations and comprehensive income, shareholders\u2019 equity, and cash flows for each of the fiscal years in the three-year period ended June 30, 2023, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). We also have audited the Company\u2019s internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control \u2013 Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.\nIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and July 1, 2022, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended June 30, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2023 based on criteria established in Internal Control \u2013 Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.\nBasis for Opinions\n \nThe Company\u2019s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company\u2019s consolidated financial statements and an opinion on the Company\u2019s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.\nOur audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.\nDefinition and Limitations of Internal Control Over Financial Reporting \nA company\u2019s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company\u2019s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company\u2019s assets that could have a material effect on the financial statements.\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\n48\nTable of Contents\nCritical Audit Matter\nThe critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.\nEstimate of total contract costs to be incurred for certain fixed price contract revenue recognized over time\nAs discussed in Note B to the consolidated financial statements, revenue recognized over time for the year ended June 30, 2023 represented 56% of total revenues. For contracts where revenue is recognized over time under fixed price arrangements, the Company recognizes revenue based on the ratio of (1) actual contract costs incurred to date to (2) the Company\u2019s estimate of total contract costs to be incurred\n.\nWe identified the evaluation of total contract costs to be incurred for certain fixed price contract revenue recognized over time as a critical audit matter given the complex nature of the Company\u2019s products sold under such contracts. In particular, evaluating the Company\u2019s judgments regarding the amount of time to complete the contracts, including the assessment of the nature and complexity of the work to be performed, involved a high degree of subjective auditor judgment.\nThe following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company\u2019s process to develop estimates of total contract costs to be incurred for partially completed performance obligations. This included controls related to the estimated amount of time to complete the contracts, including the assessment of the nature and complexity of the work to be performed. We considered factors, including the value and stage of completion, to select certain customers\u2019 contracts to evaluate the Company\u2019s assumptions underlying the estimate of total contract costs to be incurred. We inspected the selected contracts to evaluate the Company\u2019s identification of performance obligations and the determined method for measuring contract progress. We compared the Company\u2019s original or prior period estimate of total contract costs to be incurred to the actual costs incurred for completed contracts to assess the Company\u2019s ability to accurately estimate costs. We inquired of operational personnel of the Company to evaluate progress to date, the estimate of remaining costs to be incurred, and factors impacting the amount of time and cost to complete the selected contracts, including the assessment of the nature and complexity of the work to be performed. We inspected correspondence, if any, between the Company and the customers for the selected contracts as part of our evaluation of contract progress.\n/s/ KPMG LLP\nWe have served as the Company\u2019s auditor since 2006.\nBoston, Massachusetts\nAugust\u00a015, 2023\n49\nTable of Contents",
+  "cik": "1049521",
+  "cusip6": "589378",
+  "cusip": ["589378908", "589378108", "589378958"],
+  "names": ["MERCURY SYS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1049521/000104952123000031/0001049521-23-000031-index.htm"
+}
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+{
+  "item1": ">ITEM 1. BUSINESS \nCorporate Overview\nFounded in 2012, The Alkaline Water Company (NASDAQ: WTER) is headquartered in Scottsdale, Arizona. Its flagship product, Alkaline88\u00ae, is a leading premier alkaline water brand available in bulk and single-serve sizes along with eco-friendly aluminum packaging options. The Company offers retail consumers bottled alkaline water in 500-milliliter, 700-milliliter, 1-liter, 1.5 -liter, 2-liter, 3-liter and 1-gallon sizes, all of which is produced through an electrolysis process that uses specialized electronic cells coated with a variety of rare earth minerals to produce 8.8 pH drinking water without the use of any manmade chemicals. The Company also sells a line of Alkaline88\u00ae Sports Drinks.\nOur bottled alkaline water product is presently available in over 75,000 stores in all 50 states, the District of Columbia, the Caribbean and in Mexico and Canada. We distribute our product through several channels. We sell through large national distributors (UNFI, KeHE, C&S, and Core-Mark), which together represent over 150,000 retail outlets. We also sell our products directly to retail clients, including convenience stores, natural food products stores, large ethnic markets and national retailers and through Direct Store Distributors in selected markets, including Columbia Distributing, Mahaska, Nevada Beverage, and Hensley, covering Nevada, Arizona, Pacific Northwest and Midwest region. Combined, they service over 25,000 customers in eight states. Each one carries our full line of waters. Some examples of retail clients are: Walmart, CVS, Rite-Aid, Family Dollar, Food Lion, Albertson's/Safeway, Kroger companies, Sam's Club, Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas', Stater Bros. Markets, Unified Grocers, Bristol Farms, Publix, Vallarta, Superior Foods, Ingles, Shaw's, Raley's, Harris Teeter, Festival Foods, HEB and Brookshire's. The majority of our sales to retail clients are through brokers and distributors, however, sales to our larger retail clients are often direct to the client's own warehouse distribution network. Our full line of Alkaline88\u00ae bottled water products and sports drinks are presently available for purchase at www.alkaline88.com and www.thealkalinewaterco.com.\nOur operating subsidiary, Alkaline 88, LLC, operates primarily as a marketing, distribution, and manufacturing company for our alkaline bottled water products. It has entered into co-packing agreements with nine different bottling companies located in Virginia, Georgia, California, Florida, Texas, Wisconsin, Nevada and Arizona to act as co-packers for our product. Our current capacity at all plants exceeds approximately $14.0 million per month wholesale.\nOur component materials are readily available through multiple vendors. Our principal suppliers are Vav Plastics Inc., Smurfit, and CKS Packaging.\nReverse Split \nEffective April 5, 2023, we effected a fifteen for one reverse stock split of our authorized and issued and outstanding shares of common stock. As a result, our authorized common stock has decreased from 200,000,000 shares of common stock, with a par value of $0.001 per share, to 13,333,333 shares of common stock, with a par value of $0.001 per share, and the number of our issued and outstanding shares of common stock has decreased from approximately 152,149,661 to approximately 10,185,898. Any fractional shares resulting from the reverse stock split was rounded up to the next nearest whole number.\nAccordingly, all share and per-share amounts for the current period and prior periods have been adjusted to reflect the reverse stock split.\nOur authorized preferred stock was not affected by the reverse stock split and continues to be 100,000,000 shares of preferred stock, with a par value of $0.001per share. The reverse stock split became effective with the Nasdaq Capital Market at the opening for trading on April 5, 2023 under the existing stock symbol \"WTER\". \nPlan of Operations\nIn order for us to implement our business plan over the next 12 months, we have identified the following milestones that we expect to achieve:\nExpansion of Broker Network \n- We expect to continue to develop our working relationship with our national retail broker network. We continually meet, train, and go on sales call with our national retail broker network in order to take advantage of the momentum currently being created by their efforts and sell into clubs stores and big box retailers. New brokers will also be added in the on-premise and international sales channels to support initiatives that began in Fiscal 2021. We anticipate a considerable amount of travel and ongoing expenses to be incurred as part of this expansion.\nStrategically Located DSD Partners\n - We expect to add Direct Store Distributors (\"DSD\") partners in the Northeast, Northwest and Mid-Atlantic to further accelerate our retail account penetration, specifically in the convenience store channel.\nIncrease Manufacturing Capacity \n- Flagship Alkaline88\n\u00ae\n product: we expect to add three new co-packer facilities, strategically located to reduce freight costs and meet current volumes and future growth objectives;\nExpand Retail Distribution \n- We continue to expand our retail presence through securing new customers and growing the number of SKUs of our products carried by existing customers.\nExpand On-Premise Distribution \n- In addition to adding qualified personnel to lead this area we will be bringing on numerous new brokers and distributors to support our on-premise channels which include, hotels, national parks, airports, universities, restaurants, resorts, health clubs, recreation and other on-premise facilities and businesses\nExpand International Distribution \n- We anticipate adding new brokers, distributors and co-packers to support our international sales initiatives in Canada, Mexico, the Caribbean and potential parts of Asia\nCapital Considerations \n- Our business plan can be adjusted based on the available capital to the business. Our ability to operating as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable. We have initiated a cost-reduction strategy along with our cash on hand, our line of credit is planned to fund our current planned operations and capital needs for the next 12 months. However, if our current plans change or are accelerated or we choose to increase our production capacity, we may seek to sell additional equity or debt securities or obtain additional credit facilities, including seeking investments from strategic investors. The sale of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.\nOn February 22, 2021, we entered into a sales agreement (the \"Sales Agreement\") with Roth Capital Partners, LLC, as sales agent (the \"Agent\"), pursuant to which we may offer and sell, from time to time, through or to the Agent, as sales agent and/or principal (the \"Offering\") up to $20,000,000 in shares of our common stock. Subject to the terms and conditions of the Sales Agreement, the Agent agreed to use its commercially reasonable efforts to sell the shares from time to time, based upon our instructions. Under the Sales Agreement, the Agent may sell the shares by any method permitted by law deemed to be an \"at the market offering\" as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. We have no obligation to sell any of the shares and may at any time suspend offers under the Sales Agreement. The Offering will terminate upon (a) the election of the Agent upon the occurrence of certain adverse events, (b) five days' advance notice from one party to the other, or (c) the sale of all of the shares specified in the Sales Agreement. Under the terms of the Sales Agreement, the Agent will be entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of the shares under the Sales Agreement. We will also reimburse the Agent for certain expenses incurred in connection with the Sales Agreement.\nThe milestones set forth above reflect our current judgment and belief regarding the direction of our business. Actual events, expenditures and results will almost always vary, sometimes materially, from any estimates, predictions, projections or assumptions suggested herein.\nDistribution Method for Our Products\nOur distribution network is a broker-distributor-retailer network, whereby brokers represent our products to distributors and retailers. Our target retail markets are: (a) chain and independent health food stores; (b) grocery stores; (c) convenience stores; (d) drug stores; and (e) the mass retail market. We are also adding certain DSD distribution partners in certain strategic markets throughout the United States to assist in our retail account penetration, specifically in the convenience store channel.\nThrough common carriers we ship our water to distribution centers (DC) around the country. We distribute to the natural food channel by delivering to primarily KeHE and UNFI distributors who then deliver to specific store locations within their customer networks. Combined, they reach over 60,000 retailers nationwide. The convenience channel is served by Core-Mark, McLane, and select market DSDs that service 110,000 retailers.\nWe deliver directly to the DCs of our large national and regional grocery, drug, and specialty retailers. These retailers include Walmart, Sam's Club, CVS, Family Dollar, Albertson's/Safeway, Kroger companies, and regional grocery chains such as Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas', Bristol Farms, Stater Brothers, Unified Grocers, Publix, Vallarta, Superior Foods, Ingles, Shaw's, Raley's Harris Teeter, Festival Foods, Brookshire's, HEB 70 and other companies throughout the United States. In total we are now in more than 70% of the top 75 grocery retailers in the United States.\nDependence on Few Customers\nWe have 1 major customer that together account for 11% of accounts receivable at March 31, 2023, and 2 customers that together account for 35% (18% and 17%, respectively) of the total revenues earned for the year ended March 31, 2023.\nThere can be no assurance that such customers will continue to order our products in the same level or at all. A reduction or delay in orders from such customers, including reductions or delays due to market, economic or competitive conditions, could have a material adverse effect on our business, operating results, and financial condition.\nMarketing\nWe intend to continue to market our product through our broker network and to avail ourselves to the promotional activities of other companies and competitors regarding the benefits of alkaline water. We anticipate that our initial marketing thrust will be to support the retailers and distribution network with point of sales displays and other marketing materials, strategically adding an extensive public relations program and other marketing as the markets dictate.\nCompetition\nThe commercial retail beverage industry, and in particular its non-alcoholic beverage segment, is highly competitive. Market participants are of various sizes, with various market shares and geographical reach, some of whom have access to substantially more sources of capital.\nWe compete generally with all liquid refreshments, including bottled water and numerous specialty beverages, such as: CORE\u00ae Hydration, SOBE\u00ae, Snapple\u00ae, AriZona\u00ae Iced Tea, Vitaminwater\u00ae, Gatorade Perform\u00ae, and POWERADE\u00ae.\nWe compete indirectly with major international beverage companies including but not limited to: The Coca-Cola Company\u00ae, PepsiCo, Inc., The Nestl\u00e9 Group, Dr Pepper Snapple Group, Inc, Danone S.A., The Kraft Heinz Company, and Unilever PLC. These companies have established market presence in the United States and globally, and offer a variety of beverages that are competitors to our products. We face potential direct competition from such companies, because they have the financial resources, and access to manufacturing and distribution channels to rapidly enter the alkaline water market.\nWe will compete directly with other alkaline water producers and brands focused on the emerging alkaline beverage market including Eternal, Essentia, Core, Icelandic, Real Water, AQUAHydrate, Mountain Valley, Qure, Penta, and Alka Power. Products offered by our direct competitors are sold in various volumes and prices with prices ranging from approximately $0.99 for a half-liter bottle to $4.99 for a one-gallon bottle, and volumes ranging from half-liter bottles to one-gallon bottles. We currently offer our product in a one-gallon bottle for a suggested resale price or a SRP of $4.99, three-liter bottle for a SRP of $3.99, 2 liter bottle at a SRP of $2.99, 1.5 liter at a SRP of $2.49, 1 liter at a SRP of $1.99, 700 milliliter single serving at a SRP of $1.19, an aluminum 500ml at a SRP of $2.49, and a 500 milliliter at a SRP of $0.99. Our competitors may introduce larger sizes and offer them at an SRP that is lower than our products. We can provide no assurances that consumers will continue to purchase our products or that they will not prefer to purchase a competitive product.\nIntellectual Property\nWhere available, we intend to obtain trademark protection in the United States for a number of trademarks for slogans and product designs. We intend to aggressively assert our rights under trade secret, unfair competition, trademark and copyright laws to protect our intellectual property, including product design, product research and concepts and recognized trademarks. These rights are protected through the acquisition of patents and trademark registrations, the maintenance of trade secrets, the development of trade dress, and, where appropriate, litigation against those who are, in our opinion, infringing these rights. The trademark for Alkaline88\n\u00ae\n has been registered in the USA, Canada, Mexico, United Kingdom and Hong Kong.\nOther trademarks that have been registered and are currently being used in our marketing efforts include Clean Beverage\n\u00ae\n, Smooth Hydration\n\u00ae\n, Ionized H20\n\u00ae\n, A88\n\u00ae\n, Clean Beverage\n\u00ae\n, and Hello Hydration\n\u00ae\n.\nAny third-party bottling facility that we may choose to utilize in the future and any other such operations will be subject to various environmental protection statutes and regulations, including those relating to the use of water resources and the discharge of wastewater. It will be our policy to comply with any and all such legal requirements. Compliance with these provisions has not had, and we do not expect such compliance to have, any material adverse effect on our capital expenditures, net income or competitive position.\nEmployees\nIn addition to Frank Chessman, who is our president and chief executive officer, and David A. Guarino, who is our chief financial officer, secretary, treasurer and director, we currently employ 31 full time employees and 2 part-time employees. We also work with retail brokers in the United States who are paid on a contract basis. Our operations are overseen directly by management that engages our employees to carry on our business. Our management oversees all responsibilities in the areas of corporate administration, business development, and research. We intend to expand our current management to retain skilled directors, officers, and employees with experience relevant to our business focus. Our management's relationships with manufacturers, distillers, development/research companies, bottling concerns, and certain retail customers will provide the foundation through which we expect to grow our business in the future. We believe that the skill-set of our management team will be a primary asset in the development of our brands and trademarks. We also plan to form an independent network of contract sales and regional managers, a promotional support team, and several market segment specialists who will be paid on a variable basis.",
+  "item1a": ">ITEM 1A. RISK FACTORS\nAn investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this report in evaluating our company and its business before purchasing our securities. Our business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks. You could lose all or part of your investment due to any of these risks.\nRisks Related to Our Business\nWe may have difficulty realizing consistent and meaningful revenues and achieving profitability.\nOur ability to successfully develop our products and to realize consistent and meaningful revenues and to achieve profitability cannot be assured. For us to realize consistent, meaningful revenues and to achieve profitability, our products must receive broad market acceptance by consumers. Without this market acceptance, we will not be able to generate sufficient revenue to continue our business operation. If our products are not widely accepted by the market, our business may fail.\nOur ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to generate revenues, manage development costs and expenses, and compete successfully with our direct and indirect competitors. We anticipate operating losses in upcoming future periods. This will occur because there are expenses associated with the development, production, marketing, and sales of our products.\nOur continued operating losses express substantial doubt about our ability to continue as a going concern.\nOur financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have not yet established an ongoing source of revenues sufficient to cover our operating costs and to allow us to continue as a going concern. As of March 31, 2023, we had an accumulated deficit of $137,078,578. Our ability to continue as a going concern is dependent on our company obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to significantly curtail or cease operations. Our management has concluded that our historical recurring losses from operations and negative cash flows from operations as well as our dependence on private equity and financings raise substantial doubt about our ability to continue as a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit report for the fiscal year ended March 31, 2023.\nOur disclosure controls and procedures and internal control over financial reporting are not effective, which may cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.\nOur management evaluated our disclosure controls and procedures as of March 31, 2023 and concluded that as of that date, our disclosure controls and procedures were not effective. In addition, our management evaluated our internal control over financial reporting as of March 31, 2023 and concluded that that there were material weaknesses in our internal control over financial reporting as of that date and that our internal control over financial reporting was not effective as of that date. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis.\nOur management identified the following material weaknesses in our internal control over financial reporting: (1) We had inadequate segregation of duties over both financial reporting and closing activities; (2) we had inadequate resources in the accounting department and (3) delays in the implementation of a new ERP accounting system which caused the system to not function as intended and as a result led to delays in our financial closing activities.\nTo address these material weaknesses, management performed additional analyses and other procedures to ensure that its financial statements fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that our financial statements fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented. In response to the material weaknesses discussed above, we are working on implementing a new integrated ERP system and have hired additional accounting personnel. Once the ERP system in implemented in the third quarter of fiscal year 2024, we plan to engage a third-party consultant to develop a comprehensive control framework using the ERP and to document our internal controls based on the implementation of the ERP system.\nWe have not yet remediated these material weaknesses and we believe that our disclosure controls and procedures and internal control over financial reporting continue to be ineffective. Until these issues are corrected, our ability to report financial results or other information required to be disclosed on a timely and accurate basis may be adversely affected and our financial reporting may continue to be unreliable, which could result in additional misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.\nWe will need additional funds to continue producing, marketing, and distributing our products.\nWe will have to spend additional funds to continue producing, marketing and distributing our products. If we cannot raise sufficient capital, we may have to cease operations. We will need additional funds to continue to produce our products for distribution to our target market.\nWe will have to continue to spend substantial funds on distribution, marketing and sales efforts before we will know if we have commercially viable and marketable/sellable products.\nThere is no guarantee that sufficient sale levels will be achieved.\nThere is no guarantee that the expenditure of money on distribution and marketing efforts will translate into sufficient sales to cover our expenses and result in profits. Consequently, there is a risk that you may lose all of your investment.\nOur development, marketing, and sales activities are limited by our size.\nBecause of our relative size, we must limit our product development, marketing, and sales activities to the amount of capital we raise. As such, we may not be able to complete our production and business development program in a manner that is as thorough as we would like. We may not ever generate sufficient revenues to cover our operating and expansion costs.\nChanges in the non-alcoholic beverage business environment and retail landscape could adversely impact our financial results.\nThe non-alcoholic beverage business environment is rapidly evolving as a result of, among other things, changes in consumer preferences, including changes based on health and nutrition considerations and obesity concerns; shifting consumer tastes and needs; changes in consumer lifestyles; and competitive product and pricing pressures. In addition, the non-alcoholic beverage retail landscape is very dynamic and constantly evolving, not only in emerging and developing markets, where modern trade is growing at a faster pace than traditional trade outlets, but also in developed markets, where discounters and value stores, as well as the volume of transactions through e-commerce, are growing at a rapid pace. If we are unable to successfully adapt to the rapidly changing environment and retail landscape, our share of sales, volume growth and overall financial results could be negatively affected.\nIntense competition and increasing competition in the commercial beverage market could hurt our business.\nThe commercial retail beverage industry, and in particular its non-alcoholic beverage segment, is highly competitive. Market participants are of various sizes, with various market shares and geographical reach, some of whom have access to substantially more sources of capital.\nWe compete generally with all liquid refreshments, including bottled water and numerous specialty beverages, such as: CORE\u00ae Hydration, SOBE\u00ae, Snapple\u00ae, AriZona\u00ae Iced Tea, Vitaminwater\u00ae, Gatorade Perform\u00ae, and POWERADE\u00ae.\nWe compete indirectly with major international beverage companies including but not limited to: The Coca-Cola Company\u00ae, PepsiCo, Inc., The Nestl\u00e9 Group, Dr. Pepper Snapple Group, Inc, Danone S.A., The Kraft Heinz Company, and Unilever PLC. These companies have established market presence in the United States and globally, and offer a variety of beverages that are competitors to our products. We face potential direct competition from such companies, because they have the financial resources, and access to manufacturing and distribution channels to rapidly enter the alkaline water market. We compete directly with other alkaline water producers and brands focused on the emerging alkaline beverage market including: Eternal Naturally Alkaline\u00ae Spring Water, Essentia\u00ae, CORE\u00ae Hydration, Icelandic Glacial\u2122, Real Water\u00ae, AQUAhydrate\u00ae, Mount Valley Spring Water\u2122, QURE Water\u00ae, Penta\u00ae Water, and Alka Power\u2122. These companies could bolster their position in the alkaline water market through additional expenditure and promotion.\nAs a result of both direct and indirect competition, our ability to successfully distribute, market and sell our products, and to gain sufficient market share in the United States and around the world to realize profits may be limited, greatly diminished, or totally diminished, which may lead to partial or total loss of your investments in our company.\nAlternative non-commercial beverages or processes could hurt our business.\nThe availability of non-commercial beverages, such as tap water, and machines capable of producing alkaline water at the consumer's home or at store-fronts could hurt our business, market share, and profitability.\nExpansion of the alkaline beverage market or sufficiency of consumer demand in that market for operations to be profitable are not guaranteed.\nThe alkaline water market is an emerging market and there is no guarantee that this market will expand or that consumer demand will be sufficiently high enough to allow our company to successfully market, distribute and sell our products, or to successfully compete with current or future competition, all of which may result in total loss of your investment.\nA failure to introduce new products or product extensions into new marketplaces successfully could prevent us from achieving long-term profitability.\nWe compete in an industry characterized by rapid changes in consumer preferences, so our ability to continue developing new products to satisfy our consumers' changing preferences will determine our long-term success. A failure to introduce new products or product extensions into new marketplaces successfully could prevent us from achieving long-term profitability. In addition, customer preferences are also affected by factors other than taste, such as the publicity. If we do not adjust to respond to these and other changes in customer preferences, our sales may be adversely affected. In addition, a failure to obtain any required regulatory approvals for our proposed products could have a material adverse effect on our business, operating results and financial condition.\nOur growth and profitability depends on the performance of third-party brokers and distributors and on our ongoing relationships with them.\nOur distribution network and its success depend on the performance of third parties. Any non-performance or deficient performance by such parties may undermine our operations, profitability, and result in total loss of your investment. To distribute our products, we use a broker-distributor-retailer network whereby brokers represent our products to distributors and retailers who will in turn sell our products to consumers. The success of this network will depend on the performance of the brokers, distributors and retailers within this network. There is a risk that a broker, distributor, or retailer may refuse to or cease to market or carry our products. There is a risk that the mentioned entities may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient retailers or positioning our products in localities that may not be receptive to our products. Furthermore, such third-parties' financial position or market share may deteriorate, which could adversely affect our distribution, marketing and sale activities. We also need to maintain good commercial relationships with third-party brokers, distributors and retailers so that they will promote and carry our products. Any adverse consequences resulting from the performance of third-parties or our relationship with them could undermine our operations, profitability and may result in total loss of your investment.\nThe loss of one or more of our major customers or a decline in demand from one or more of these customers could harm our business.\nWe had 1 major customer that together account for 11% of accounts receivable at March 31, 2023, and 2 customers that together account for 35% (18% and 17%, respectively) of the total revenues earned for the year ended March 31, 2023. There can be no assurance that such customers will continue to order our products at the same level or at all. A reduction or delay in orders from such customers, including reductions or delays due to market, economic or competitive conditions, could have a material adverse effect on our business, operating results and financial condition.\nOur dependence on a limited number of vendors leaves us vulnerable to having an inadequate supply of required products, price increases, late deliveries, and poor product quality.\nWe had 3 vendors that accounted for 38% (17%, 11%, and 10%, respectively) of purchases for the year ended March 31, 2023. Like other companies in our industry, we occasionally experience shortages and are unable to purchase our desired volume of products. Increasingly, our vendors are combining and merging together, leaving us with fewer alternative sources. If we are unable to maintain an adequate supply of products, our revenue and gross profit could suffer considerably. Finally, we cannot provide any assurance that our products will be available in quantities sufficient to meet customer demand. Any limits to product access could materially and adversely affect our business and results of operations.\nOur business is sensitive to public perception. If any product proves to be harmful to consumers or if scientific studies provide unfavorable findings regarding their safety or effectiveness, then our image in the marketplace would be negatively impacted.\nOur results of operations may be significantly affected by the public's perception of our company and similar companies. Our business could be adversely affected if any of our products or similar products distributed by other companies proves to be harmful to consumers or if scientific studies provide unfavorable findings regarding the safety or effectiveness of our products or any similar products. If our products suffer from negative consumer perception, it is likely to adversely affect our business and results of operations.\nConsumers may have preconceptions about the health benefits of alkaline water; such health benefits are not guaranteed or proven.\nHealth benefits of alkaline water are not guaranteed and have not been proven. Although we do not market our products as having any potential health benefits, there is a consumer perception that drinking alkaline water has beneficial health effects. Consequently, negative changes in consumers' perception of the benefits of alkaline water or negative publicity surrounding alkaline water may result in loss of market share or potential market share and hence, loss of your investment. We are also prohibited from touting unconfirmed health benefits in our advertising and promotional activities for the products, both directly and indirectly through claims made by third-party endorsers when those endorsers have a material connection to our company.\nWater scarcity and poor quality could negatively impact our production costs and capacity.\nWater is the main ingredient in our products. It is also a limited resource, facing unprecedented challenges from overexploitation, increasing pollution, poor management, and climate change. As demand for water continues to increase, as water becomes scarcer, and as the quality of available water deteriorates, we may incur increasing production costs or face capacity constraints that could adversely affect our profitability or net operating revenues in the long run.\nIncrease in the cost, disruption of supply or shortage of ingredients, other raw materials or packaging materials could harm our business.\nWe and our bottlers will use water, 84 trace minerals from Himalayan salts and packaging materials for bottles such as plastic and paper products. The prices for these ingredients, other raw materials and packaging materials fluctuate depending on market conditions. Substantial increases in the prices of our or our bottlers' ingredients, other raw materials and packaging materials, to the extent they cannot be recouped through increases in the prices of finished beverage products, could increase our operating costs and could reduce our profitability. Increases in the prices of our finished products resulting from a higher cost of ingredients, other raw materials and packaging materials could affect the affordability of our products and reduce sales.\nAn increase in the cost, a sustained interruption in the supply, or a shortage of some of these ingredients, other raw materials, or packaging materials and containers that may be caused by a deterioration of our or our bottlers' relationships with suppliers; by supplier quality and reliability issues; or by events such as natural disasters, power outages, labor strikes, political uncertainties or governmental instability, or the like, could negatively impact our net revenues and profits.\nUnfavorable general economic conditions in the United States could negatively impact our financial performance.\nUnfavorable general economic conditions, such as a recession or economic slowdown, in the United States could negatively affect the affordability of, and consumer demand for, our products in the United States. Under difficult economic conditions, consumers may seek to reduce discretionary spending by forgoing purchases of our products or by shifting away from our beverages to lower-priced products offered by other companies, including non-alkaline water. Consumers may also cease purchasing bottled water and consume tap water. Lower consumer demand for our products in the United States could reduce our profitability.\nAdverse weather conditions could reduce the demand for our products.\nThe sales of our products are influenced to some extent by weather conditions in the markets in which we operate. Unusually cold or rainy weather during the summer months may have a temporary effect on the demand for our products and contribute to lower sales, which could have an adverse effect on our results of operations for such periods.\nWe rely on third parties to produce and bottle our products, which creates additional risk.\nWe do not own or operate bottling or co-packing facilities used for the production of the various water products in our portfolio. We rely on those third parties to ensure the quality, safety and integrity of our products. If the third parties that we engage to produce and bottle our products fail to meet our demands or are found by government agencies to be out of compliance with applicable regulatory requirements, our supplies of those products and our future profit margins could be adversely affected.\nProduct contamination or tampering or issues or concerns with respect to product quality, safety and integrity could adversely affect our business, reputation, financial condition or results of operations.\nProduct contamination or tampering, the failure to maintain high standards for product quality, safety and integrity, including with respect to raw materials and ingredients obtained from suppliers, or allegations (whether or not valid) of product quality issues, mislabeling, misbranding, spoilage, allergens, adulteration or contamination with respect to products in our portfolio may reduce demand for such products, and cause production and delivery disruptions or increase costs, each of which could adversely affect our business, reputation, financial condition or results of operations. If any of the products in our portfolio are mislabeled or become unfit for consumption or cause injury, illness or death, or if appropriate resources are not devoted to product quality and safety (particularly as we expand our portfolio into new categories) or to comply with changing food safety requirements, we could decide to, or be required to, recall products or withdraw from the marketplace and/or we may be subject to liability or government action, which could result in payment of damages or fines, cause certain products in our portfolio to be unavailable for a period of time, result in destruction of product inventory, or result in adverse publicity (whether or not valid), which could reduce consumer demand and brand equity. Moreover, even if allegations of product contamination or tampering or suggestions that our products were not fit for consumption are meritless, the negative publicity surrounding assertions against us or products in our portfolio or processes could adversely affect our reputation or brands. Our business could also be adversely affected if consumers lose confidence in product quality, safety and integrity generally, even if such loss of confidence is unrelated to products in our portfolio. Any of the foregoing could adversely affect our business, reputation, financial condition or results of operations. In addition, if we do not have adequate insurance, if we do not have enforceable indemnification from suppliers, bottlers, distributors or other third parties or if indemnification is not available, the liability relating to such product claims or disruption as a result of recall efforts could materially adversely affect our business, financial condition or results of operations.\nOur products are considered premium beverages; we cannot provide any assurances as to consumers' continued market acceptance of our current and future products.\nWe will compete directly with other alkaline water producers and brands focused on the emerging alkaline beverage market including Eternal, Essentia, Core, Icelandic, Real Water, AQUAHydrate, Mountain Valley, Qure, Penta, and Alka Power. Products offered by our direct competitors are sold in various volumes and prices with prices ranging from approximately $0.99 for a half-liter bottle to $4.99 for a one-gallon bottle, and volumes ranging from half-liter bottles to one-gallon bottles. We currently offer our product in a one-gallon bottle for a suggested resale price or an SRP of a $4.99, three-liter bottle for an SRP of $3.99, 2-liter at an SRP of $2.99, 1.5 liter at an SRP of $2.49, 1 liter at an SRP of $1.99, 700 milliliter single serving at an SRP of $1.19, and a 500 milliliter at an SRP of $0.99. Our competitors may introduce larger sizes and offer them at an SRP that is lower than our products. We can provide no assurances that consumers will continue to purchase our products or that they will not prefer to purchase a competitive product.\nWe are subject to periodic claims and litigation that could result in unexpected expenses and could ultimately be resolved against us.\nFrom time to time, we are involved in litigation and other proceedings, including matters related to product liability claims, stockholder class action and derivative claims, commercial disputes and intellectual property, as well as trade, regulatory, employment, and other claims related to our business. Any of these proceedings could result in significant settlement amounts, damages, fines or other penalties, divert financial and management resources, and result in significant legal fees.\nAn unfavorable outcome of any particular proceeding could exceed the limits of our insurance policies or the carriers may decline to fund such final settlements and/or judgments and could have an adverse impact on our business, financial condition, and results of operations. In addition, any proceeding could negatively impact our reputation among our guests and our brand/image.\nWe regularly evaluate potential expansion into international markets, and any expansion into such international operations could subject us to risks and expenses that could adversely impact our business, financial condition and results of operations.\nWe have recently expanded into the Caribbean, Canada and Mexico. We have also evaluated, and continue to evaluate, potential expansion into certain other international markets. Our international sales and operations would be subject to a variety of risks, including fluctuations in currency exchange rates, tariffs, import restrictions and other trade barriers, unexpected changes in legal and regulatory requirements, longer accounts receivable payment cycles, potentially adverse tax consequences, and difficulty in complying with foreign laws and regulations, as well as U.S. laws and regulations that govern foreign activities. Economic uncertainty in some of the geographic regions in which we might operate could result in the disruption of commerce and negatively impact our operations in those areas. Also, if we choose to pursue international expansion efforts, it may be necessary or desirable to contract with third parties, and we may not be able to enter into such agreements on commercially acceptable terms or at all. Further, such arrangements may not perform to our expectations, and we may be exposed to various risks as a result of the activities of our partners.\nWe rely on key executive officers who have extensive knowledge of our business and the industry in which we operate; the loss of any of these key executive officers would be difficult to replace and may adversely affect our business.\nWe are highly dependent on two executive officers, Frank Chessman and David A. Guarino, who have extensive knowledge of our business and the industry in which we operate. We do not have \"key person\" life insurance policies for either of these officers. The loss of Frank Chessman and/or David A. Guarino could result in delays in product development, loss of any future customers and sales and diversion of management resources, which could adversely affect our operating results.\nIf we are unable to protect our information systems against service interruption, misappropriation of data or breaches of security, our operations could be disrupted, we may suffer financial losses and our reputation may be damaged.\nWe rely on networks and information systems and other technology (\"\ninformation systems\n\"), including the Internet and third-party hosted services, to support a variety of business processes and activities, including procurement and supply chain, manufacturing, distribution, invoicing and collection of payments, employee processes and consumer marketing. We use information systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting and legal and tax requirements. In addition, we depend on information systems for digital marketing activities and electronic communications between our company and our bottlers and other customers, suppliers and consumers. Because information systems are critical to many of our operating activities, our business may be impacted by system shutdowns, service disruptions or security breaches. These incidents may be caused by failures during routine operations such as system upgrades or by user errors, as well as network or hardware failures, malicious or disruptive software, unintentional or malicious actions of employees or contractors, cyberattacks by common hackers, criminal groups or nation-state organizations or social-activist (hacktivist) organizations, geopolitical events, natural disasters, failures or impairments of telecommunications networks, or other catastrophic events. In addition, such incidents could result in unauthorized or accidental disclosure of material confidential information or regulated individual personal data. If our information systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results, and we may lose revenue and profits as a result of our inability to timely manufacture, distribute, invoice and collect payments for concentrate or finished products. Unauthorized or accidental access to, or destruction, loss, alteration, disclosure, falsification or unavailability of, information could result in violations of data privacy laws and regulations, damage to the reputation and credibility of our company and, therefore, could have a negative impact on net operating revenues. In addition, we may suffer financial and reputational damage because of lost or misappropriated confidential information belonging to us, our current or former employees, our bottling partners, other customers or suppliers, or consumers or other data subjects, and may become exposed to legal action and increased regulatory oversight. We could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and information systems.\nIn addition, third-party providers of data hosting or cloud services, as well as our bottling partners, distributors, retailers or suppliers, may experience cybersecurity incidents that may involve data we share with them. Although we have taken steps to prevent cybersecurity incidents, there can be no assurance that such steps will be adequate. In order to address risks to our information systems, we continue to make investments in personnel, technologies and training of our personnel.\nRisks Related to Regulations Applicable to Our Industry\nChanges in laws and regulations relating to beverage containers and packaging could increase our costs and reduce our net operating revenues or profitability.\nWe and our bottlers offer our products in non-refillable, recyclable containers in the United States. Regulations have been enacted in various jurisdictions in the United States requiring that deposits or certain eco-taxes or fees be charged for the sale, marketing and use of certain non-refillable beverage containers. Other proposals relating to beverage container deposits, recycling, eco-tax and/or product stewardship have been introduced in various jurisdictions in the United States and overseas, and we anticipate that similar legislation or regulations may be proposed in the future at local, state and federal levels in the United States. Consumers' increased concerns and changing attitudes about solid waste streams and environmental responsibility and the related publicity could result in the adoption of such legislation or regulations. Current regulations or the adoption of future regulations in the geographical regions in which we currently operate or intend to operate could adversely affect our costs or require changes in our distribution model, which could reduce our net operating revenues or profitability.\nSignificant additional labeling or warning requirements or limitations on the availability of our products may inhibit sales of affected products.\nVarious jurisdictions may seek to adopt significant additional product labeling or warning requirements or limitations on the availability of our products relating to the content or perceived adverse health consequences of our products. Federal laws may preempt some or all of these attempts by state or localities to impose additional labeling or warning requirements. If these types of requirements become applicable to our products under current or future environmental or health laws or regulations, they may inhibit sales of our products. Moreover, if we fail to meet compliance deadlines for any such new requirements, our products may be deemed misbranded or mislabeled and could be subject to enforcement action, or we could be exposed to private lawsuits alleging misleading labels or product promotion.\nChanges in, or failure to comply with, the laws and regulations applicable to our products or our business operations could increase our costs or reduce our net operating revenues.\nThe advertising, distribution, labeling, production, safety, sale, and transportation in the United States of our currently marketed products are subject to: the Federal Food, Drug, and Cosmetic Act; the Federal Trade Commission Act; the Lanham Act; state food and drug laws; state consumer protection laws; competition laws; federal, state, and local workplace health and safety laws, such as the Occupational Safety and Health Act; various federal, state and local environmental protection laws; and various other federal, state, and local statutes and regulations. Changes to such laws and regulations could increase our costs or reduce our net operating revenues.\nIn addition, failure to comply with environmental, health or safety requirements and other applicable laws or regulations could result in the assessment of damages, the imposition of penalties, suspension of production, changes to equipment or processes, or a cessation of operations at our or our bottlers' facilities, as well as damage to our image and reputation, all of which could harm our profitability.\nIf we fail to comply with personal data protection laws, we could be subject to adverse publicity, government enforcement actions and/or private litigation, which could negatively affect our business and operating results.\nIn the ordinary course of our business, we receive, process, transmit and store information relating to identifiable individuals (\"\npersonal data\n\"), primarily employees and former employees. As a result, we are subject to various U.S. federal and state and foreign laws and regulations relating to personal data. These laws have been subject to frequent changes, and new legislation in this area may be enacted in other jurisdictions at any time. There is no assurance that our security controls over personal data, the training of employees and vendors on data privacy and data security, and the policies, procedures and practices we implemented or may implement in the future will prevent the improper disclosure of personal data. Improper disclosure of personal data in violation of applicable personal data protection laws could harm our reputation, cause loss of consumer confidence, subject us to government enforcement actions (including fines), or result in private litigation against us, which could result in loss of revenue, increased costs, liability for monetary damages, fines and/or criminal prosecution, all of which could negatively affect our business and operating results.\nThe FDA could force the removal of our products from the U.S. market.\nThe FDA has broad authority over the regulation of our products. The FDA could, among other things, force us to remove our products from the U.S. market, levy fines or change their regulations on advertising. Any adverse action by the FDA could have a material adverse impact on our business.\nGovernment reviews, inquiries, investigations, and actions could harm our business or reputation.\nAs our product portfolio evolves, the regulatory environment with regard to our business is also evolving. Government officials often exercise broad discretion in deciding how to interpret and apply applicable laws or regulations. We may in the future receive formal and informal inquiries from various governmental regulatory authorities, as well as self-regulatory organizations or consumer protection watchdog groups, about our business and compliance with local laws, regulations, or standards. Any determination that our products, operations or activities, or the activities of our employees, contractors or agents, are not in compliance with existing laws, regulations or standards, could adversely affect our business in a number of ways. Even if such an inquiry does not result in the imposition of fines, interruptions to our business, loss of suppliers or other third-party relationships, terminations of necessary licenses and permits, or similar direct results, the existence of the inquiry alone could potentially create negative publicity that could harm our business and/or reputation.\nRisks Related to Our Intellectual Property\nIt is difficult and costly to protect our intellectual property.\nOur commercial success will depend in part on obtaining and maintaining trademark protection and trade secret/know-how protection of our products and brands, as well as successfully defending that intellectual property against third-party challenges. We will only be able to protect our intellectual property related to our trademarks and brands to the extent that we have rights under valid and enforceable trademarks, know-how or trade secrets that cover our products and brands. Changes in either the trademark laws or in interpretations of trademark and laws in the U.S. and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our issued trademarks. The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage.\nWe may face intellectual property infringement claims that could be time-consuming and costly to defend, and could result in our loss of significant rights and the assessment of treble damages.\nFrom time to time we may face intellectual property claims from third parties. Some of these claims may lead to litigation. The outcome of any such litigation can never be guaranteed, and an adverse outcome could affect us negatively. For example, were a third party to succeed on an infringement claim against us, we may be required to pay substantial damages (including up to treble damages if such infringement were found to be willful). In addition, we could face an injunction, barring us from conducting the allegedly infringing activity. The outcome of the litigation could require us to enter into a license agreement which may not be under acceptable, commercially reasonable, or practical terms or we may be precluded from obtaining a license at all. It is also possible that an adverse finding of infringement against us may require us to dedicate substantial resources and time in developing non-infringing alternatives, which may or may not be possible.\nFinally, we may initiate claims to assert or defend our own intellectual property against third parties. Any intellectual property litigation, irrespective of whether we are the plaintiff or the defendant, and regardless of the outcome, is expensive and time-consuming, and could divert our management's attention from our business and negatively affect our operating results or financial condition.\nWe may be subject to claims by third parties asserting that our employees or our company has misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.\nAlthough we try to ensure that our company, our employees, and independent contractors (suppliers/vendors/distributors) do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that our company, our employees, or independent contractors (suppliers/vendors/distributors) have used or disclosed intellectual property in violation of others' rights. These claims may cover a range of matters, such as challenges to our trademarks, as well as claims that our employees or independent contractors are using trade secrets or other proprietary information of any such employee's former employer or independent contractors. As a result, we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.\nRisks Related to Our Stock\nBecause we can issue additional shares of our common stock, our stockholders may experience dilution in the future.\nWe are authorized to issue up to 13,333,333 shares of our common stock and 100,000,000 shares of our preferred stock, of which 10,395,805 shares of our common stock are issued and outstanding as of August 15, 2023. Our board of directors has the authority to cause us to issue additional shares of our common stock and preferred stock, and to determine the rights, preferences, and privileges of shares of our preferred stock, without consent of our stockholders. Consequently, the stockholders may experience more dilution in their ownership of our stock in the future.\nTrading on the Nasdaq Capital Market may be volatile, which could depress the market price of the shares of our common stock and make it difficult for our stockholders to resell their shares.\nThe shares of our common stock are listed on the Nasdaq Capital Market. The trading of our common stock may experience wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of the shares of our common stock for reasons unrelated to operating performance.\nA prolonged and substantial decline in the price of the shares of our common stock could affect our ability to raise further working capital, thereby adversely impacting our ability to continue operations.\nA prolonged and substantial decline in the price of the shares of our common stock could result in a reduction in the liquidity of the shares of our common stock and a reduction in our ability to raise capital, or a delisting from a stock exchange on which our common stock trades. Because we plan to acquire a significant portion of the funds, we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of the shares of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors not to choose to invest in shares of our common stock. If we are unable to raise the funds, we require for all our planned operations and to meet our existing and future financial obligations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and we may go out of business.\nOn April 13, 2023, the Company received a deficiency letter from the Listing Qualifications Department (the \"Staff\") of The Nasdaq Stock Market LLC (\"Nasdaq\"), notifying the Company that for the last 30 consecutive business days, the Company's minimum Market Value of Listed Securities (\"MVLS\") was below the minimum of $35 million required for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(2) (the \"Market Value Standard\"). The Staff also noted that the Company does not meet the requirements under Nasdaq Listing Rules 5550(b)(1) Equity Standard and 5550(b)(3) and Net Income Standard.\nIn accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company has been given 180 calendar days, or until October 10, 2023, to regain compliance with the Market Value Standard. To regain compliance with the Market Value Standard, the MVLS for the Company's common stock must be at least $35 million for a minimum of 10 consecutive business days at any time during this 180-day period. If the Company regains compliance with the Market Value Standard, the Staff will provide the Company with written confirmation and will close the matter.\nIf the Company does not regain compliance with the Market Value Standard by October 10, 2023, Nasdaq will provide notice that the Company's securities are subject to delisting from the Nasdaq Capital Market. At that time, the Company may appeal the Staff's delisting determination to a Hearings Panel (the \"Panel\"). There can be no assurance that, if the Company does appeal a delisting determination by the Staff to the Panel, such appeal would be successful.\nThe Company intends to monitor the MLVS between now and October 10, 2023, and may, if appropriate, evaluate available options to resolve the deficiency under the Market Value Standard and regain compliance with the Market Value Standard. The Company may also try to comply with another Nasdaq listing criteria, such as the ones under Nasdaq Listing Rule 5550(b)(1) Equity Standard. However, there can be no assurance that the Company will be able to regain or maintain compliance with Nasdaq listing criteria.\nOn July 18, 2023, The Company received a deficiency letter (the \u201cLetter\u201d) from the Nasdaq, notifying the Company that since the Company had not yet filed its Form 10-K for the year ended March 31, 2023 (the \u201cForm 10-K\u201d), it no longer complies with the Nasdaq\u2019s Listing Rule 5250(c)(1) (the \u201cRule\u201d) relating to the Company\u2019s obligation to file periodic financial reports for continued listing.\nThe Letter stated that the Company has 60 calendar days to submit a plan (the \u201cPlan\u201d) to regain compliance and if the Nasdaq accepts the Plan, the Nasdaq can grant an exception of up to 180 calendar days from the Form 10-K\u2019s due date, or until January 10, 2024, to regain compliance.\nThe Letter requested that the Company submit the Plan no later than September 18, 2023. If the Nasdaq does not accept the Plan, the Company will have the opportunity to appeal that decision to the Nasdaq Hearings Panel.\nBecause we do not intend to pay any cash dividends on the shares of our common stock in the near future, our stockholders will not be able to receive a return on their shares unless they sell them.\nWe intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on the shares of our common stock in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them.",
+  "item7": ">ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThe following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report on Form 10-K.\nOverview\nFounded in 2012, The Alkaline Water Company (NASDAQ: WTER) is headquartered in Scottsdale, Arizona. Its flagship product, Alkaline88\u00ae, is a leading premier alkaline water brand available in bulk and single-serve sizes along with eco-friendly aluminum packaging options. With its innovative, state-of-the-art proprietary electrolysis process, Alkaline88\u00ae delivers perfect 8.8 pH balanced alkaline drinking water with trace minerals and electrolytes and boasts our trademarked label 'Clean Beverage.' Quickly being recognized as a growing lifestyle brand, we launched Alkaline88\u00ae Sports Drinks.\nOur bottled alkaline water product is presently available in over 75,000 stores in all 50 states, the District of Columbia, the Caribbean and in Mexico and Canada. We distribute our product through several channels. We sell through large national distributors (UNFI, KeHE, C&S, and Core-Mark), which together represent over 150,000 retail outlets. We also sell our products directly to retail clients, including convenience stores, natural food products stores, large ethnic markets and national retailers and through Direct Store Distributors in selected markets, including Columbia Distributing, Mahaska, Nevada Beverage, and Hensley, covering Nevada, Arizona, Pacific Northwest and Midwest region. Combined, they service over 25,000 customers in eight states. Each one carries our full line of non-CBD waters. Some examples of retail clients are Walmart, CVS, Rite-Aid, Family Dollar, Food Lion, Albertson's/Safeway, Kroger companies, Sam's Club, Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas', Stater Bros. Markets, Unified Grocers, Bristol Farms, Publix, Vallarta, Superior Foods, Ingles, Shaw's, Raley's, Harris Teeter, Festival Foods, HEB and Brookshire's. The majority of our sales to retail clients are through brokers and distributors, however, sales to our larger retail clients are often direct to the client's own warehouse distribution network. Our full line of Alkaline88\u00ae bottled water products and sports drinks are presently available for purchase at www.alkaline88.com and www.thealkalinewaterco.com.\nOur operating subsidiary, Alkaline 88, LLC, operates primarily as a marketing, distribution, and manufacturing company for our alkaline bottled water products. It has entered into co-packing agreements with nine different bottling, companies located in Virginia, Georgia, California, Texas, Florida Wisconsin, Nevada and Arizona to act as co-packers for our product. Our current capacity at all plants exceeds approximately $14.0 million per month wholesale.\nOur component materials are readily available through multiple vendors. Our principal suppliers are Vav Plastics Inc., Smurfit, and CKS Packaging.\nCash Flows\nOur financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have not yet established an ongoing source of revenues sufficient to cover our operating costs, however, we have initiated a cost-reduction strategy along with our cash on hand, plus anticipated warrant exercises and debt settlements, our line of credit and the Sales Agreement is planned to fund our current planned operations and capital needs for the next 12 months. Our ability to continue as a going concern is dependent on our company obtaining additional capital to fund operating losses until we become profitable. If we are unable to obtain additional capital, we could be forced to significantly curtail or cease operations.\nInflationary Pressure\nWe have seen significant margin contraction as a result of inflationary pressures over the last 12 months. We've taken a number of steps that will allow us to increase our margins in the year ended March 31, 2024. These steps include (1) an approximate 6% across the board price increase; (2) a potential leveling off or small reduction in freight costs due to the geographic distribution of our new co-packers and suppliers; and (3) our buying power allowing us to lock in price breaks on raw materials over the next 12 months.\nResults of Operations\nYears Ended March 31, 2023 and March 31, 2022\nThe following summary of our results of operations should be read in conjunction with our audited consolidated financial statements for the years ended March 31, 2023 and March 31, 2022 which are included herein:\n\u00a0\n\u00a0\nYear Ended\n\u00a0\n\u00a0\nYear Ended\n\u00a0\n\u00a0\n\u00a0\nMarch 31, 2023\n\u00a0\n\u00a0\nMarch 31, 2022\n\u00a0\nNet Revenue\n$\n63,777,289\n\u00a0\n$\n54,771,942\n\u00a0\nCost of Goods Sold\n\u00a0\n52,131,162\n\u00a0\n\u00a0\n45,377,275\n\u00a0\nGross profit\n\u00a0\n11,646,127\n\u00a0\n\u00a0\n9,394,667\n\u00a0\nNet Loss (after operating expenses and other expenses)\n\u00a0\n(27,405,193\n)\n\u00a0\n(39,584,360\n)\nRevenue and Cost of Goods Sold\nWe had revenue from sales of our product for the year ended March 31, 2023 of $63,777,289 as compared to $54,771,942 for the year ended March 31, 2022, an increase of 16%, generated by sales of our alkaline water. The increase in sales is due to the expanded distribution of our products to additional retailers throughout the country. We distribute our product through several channels. We sell through large national distributors (UNFI, KeHe, C&S, and Core-Mark), which together represent over 150,000 retail outlets. We also sell our product directly to retail clients, including convenience stores, natural food products stores, large ethnic markets and national retailers. Some examples of retail clients are: Walmart, CVS, Sam's Club, Family Dollar, Albertson/Safeway, Kroger companies, Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas', Stater Bros. Markets, Unified Grocers, Bristol Farms, Publix, Vallarta, Superior Foods, Ingles, Shaw's, Raley's, Harris Teeter, Festival Foods, HEB and Brookshire's.\nNet Revenue for the year ended March 31, 2022 has been corrected for an adjustment to reclassify Sales and marketing expenses of $5,824,305 as a reduction of Net revenue as such amounts were related to consideration payable to a customer which the Company determined was not for distinct goods or services received. The Company assessed the materiality of the misstatement quantitatively and qualitatively and has concluded that the correction of the classification error is immaterial to the consolidated financials taken as a whole. As a result of the correction, Net Revenue decreased from $60,596,247 to $54,771,942 and Sales and marketing expenses decreased from $32,636,143 to $26,811,838. The correction had no impact on Total operating loss and Net loss.\nCost of goods sold is comprised of production costs, shipping and handling costs. For the year ended March 31, 2023, we had cost of goods sold of $52,131,162, or 82% of net sales, as compared to cost of goods sold of $45,377,275, or 83% of net sales, for the year ended March 31, 2022. The decrease in cost of goods sold as a percentage of net sales compared to the same period last year was due primarily due to the decreased raw materials costs and freight costs.\nExpenses\nOur operating expenses for the years ended March 31, 2023 and March 31, 2022 are as follows:\n\u00a0\n\u00a0\nYear Ended\n\u00a0\n\u00a0\nYear Ended\n\u00a0\n\u00a0\n\u00a0\nMarch 31, 2023\n\u00a0\n\u00a0\nMarch 31, 2022\n\u00a0\nSales and marketing expenses\n$\n22,659,968\n\u00a0\n$\n26,811,838\n\u00a0\nGeneral and administrative expenses\n\u00a0\n11,015,173\n\u00a0\n\u00a0\n21,580,739\n\u00a0\nTotal operating expenses\n$\n33,675,141\n\u00a0\n$\n48,392,577\n\u00a0\nDuring the year ended March 31, 2023, our total operating expenses were $33,675,141 as compared to $48,392,577 for the year ended March 31, 2022. Sales and marketing expenses decreased by approximately $4.2 million primarily resulting from a reduction of approximately $4.3 million in marketing professional and endorsement fees. General and administrative expenses decreased by approximately $10.6 million primarily resulting from an approximately $6.1 million decrease in professional fees and approximately $4.7 million decrease in non-cash stock compensation.\nFor the year ended March 31, 2023, the total of approximately $22.7 million of selling and marketing expenses consisted primarily of approximately $13.3 million of out-bound freight costs, $1.6 million in marketing professional fees and $2.3 in non-cash expenses relating to our endorsement agreement.\nFor the year ended March 31, 2022, the total of approximately $26.8 million of selling and marketing expenses consisted primarily of approximately $13.8 million of out-bound freight costs, $5.1 million in marketing advertising and promotional fees and $2.3 in non-cash expenses relating to our endorsement agreement.\nFor the year ended March 31, 2023, the total of approximately $11.0 million of general and administrative expenses consisted primarily of approximately $1.3 million of professional fees, media fees and legal fees, approximately $6.1 million in wage expense and approximately $1.3 million in stock compensation expense, relating to stock option expense and stock expense relating to endorsement.\nFor the year ended March 31, 2022, the total of approximately $21.6 million of general and administrative expenses consisted primarily of approximately $7.4 million of professional fees, media fees and legal fees, approximately $5.3 million in wage expense and approximately $6.0 million in stock compensation expense, relating to stock option expense and stock expense relating to endorsement.\nLiquidity and Capital Resources\nWorking Capital\n\u00a0\n\u00a0\nAt March 31,\n2023\n\u00a0\n\u00a0\nAt March 31,\n2022\n\u00a0\nCurrent assets\n$\n15,951,725\n\u00a0\n$\n21,157,421\n\u00a0\nCurrent liabilities\n\u00a0\n23,344,608\n\u00a0\n\u00a0\n21,920,686\n\u00a0\nWorking capital\n$\n(7,392,883\n)\n$\n(763,265\n)\nCurrent Assets\nCurrent assets as of March 31, 2023 and March 31, 2022 primarily relate to $1,038,754 and $1,531,062 in cash which decreased due to the Company's net loss; $6,520,232 and $7,927,065 in accounts receivable; and $5,591,351 and $8,583,664 in inventory, which decreased due to the Company\u2019s initiative in reducing costs and working capital..\nCurrent Liabilities\nCurrent liabilities as of March 31, 2023 and March 31, 2022 primarily relate to $11,616,247 and $10,441,879 in accounts payable which increased due to higher raw material and freight costs, revolving financing of $6,403,447 and $7,043,870, and accrued expenses of $1,996,387 and $2,036,739, respectively.\nCash Flow\nOur cash flows for the years ended March 31, 2023, and March 31, 2022 are as follows:\n\u00a0\n\u00a0\nYear\n\u00a0\n\u00a0\nYear\n\u00a0\n\u00a0\n\u00a0\nEnded\n\u00a0\n\u00a0\nEnded\n\u00a0\n\u00a0\n\u00a0\nMarch 31,\n\u00a0\n\u00a0\nMarch 31,\n\u00a0\n\u00a0\n\u00a0\n2023\n\u00a0\n\u00a0\n2022\n\u00a0\nNet Cash used in operating activities\n$\n(10,429,380\n)\n$\n(31,819,542\n)\nNet Cash used in investing activities\n\u00a0\n(1,444,641\n)\n\u00a0\n(992,009\n)\nNet Cash provided by financing activities\n\u00a0\n11,381,713\n\u00a0\n\u00a0\n25,211,657\n\u00a0\nNet increase (decrease) in cash and cash equivalents\n$\n(492,308\n)\n$\n(7,599,894\n)\n\u00a0\n\u00a0\nOperating Activities\nNet cash used in operating activities was $10,429,380 for the year ended March 31, 2023, as compared to $31,819,542 used in operating activities for the year ended March 31, 2022. The decrease in net cash used was primarily due to the decreased net operating loss after adjustment for non-cash expenses of approximately $11.3 million and an increase in changes in operating assets and liabilities in the amount of approximately $10.0 million.\nInvesting Activities\nNet cash used in investing activities was $1,444,641 for the year ended March 31, 2023, as compared to $992,009 used in investing activities for the year ended March 31, 2022. The increase in net cash used from investing activities was due to increase of purchase of fixed assets.\nFinancing Activities\nNet cash provided by financing activities for the year ended March 31, 2023 was $11,381,713, as compared to $25,211,657 for the year ended March 31, 2022. The decrease in net cash provided by financing activities was due to lower proceeds from the exercise of warrants (approximately $7.7 million) and proceeds from notes payable in the amount of $3.8 million in the year ended March 31, 2022.\nCash Requirements\nOur ability to operate as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable. We have initiated a cost-reduction strategy along with our cash on hand, plus anticipated warrant exercises, our line of credit and the Sales Agreement is planned to fund our current planned operations and capital needs for the next 12 months. However, if our current plans change or are accelerated or we choose to increase our production capacity, we may seek to sell additional equity or debt securities or obtain additional credit facilities, including seeking investments from strategic investors. The sale of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.\nCritical Accounting Policies\nThe preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.\nWe have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a fair and consistent manner. See \"Part II\u2014Item 8. Financial Statements and Supplementary Data\u2014Note 1\" for a discussion of our significant accounting policies.\nOff-Balance Sheet Arrangements\nWe have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nNot applicable.\n\n\n\n\n\n\n\n\n\n\n\n\n\n",
+  "cik": "1532390",
+  "cusip6": "01643A",
+  "cusip": ["01643A207", "01643A306"],
+  "names": ["ALKALINE WTR CO INC", "ALKALINE WATER CO INC/THE"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1532390/000106299323016652/0001062993-23-016652-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM\u00a01.\n\u00a0\u00a0\u00a0\u00a0BUSINESS.\n \nOverview\n \nResources Global Professionals (\u201cRGP\u201d) is a global consulting firm focused on project execution services that power clients\u2019 operational needs and change initiatives utilizing on-demand, experienced and diverse talent. As a next-generation human capital partner for our clients, we specialize in co-delivery of enterprise initiatives typically precipitated by business transformation, strategic transactions or regulatory change. Our engagements are designed to leverage human connection, expertise and collaboration to deliver practical solutions and more impactful results that power our clients\u2019, consultants\u2019 and partners\u2019 success.\n \n \nA disruptor within the professional services industry since our founding in 1996, today we embrace our differentiated agile delivery model. The trends in today\u2019s marketplace favor the flexibility and agility that RGP provides as businesses confront transformation pressures and speed-to-market challenges. As talent preferences continue to shift in the direction of flexibility, choice and control, employers struggling to compete in today\u2019s business environment must rethink the way work gets done and consider implementing new, more agile workforce strategies. \n \nWe have evolved our client engagement and talent delivery model to take advantage of these dramatic and important shifts in the direction of flexibility, control and choice. Our unique approach to workforce strategy strongly positions us to help our clients transform their businesses and workplaces, especially in a time where high-quality talent is increasingly scarce and leaders are increasingly adopting more flexible workforce models to execute transformational projects. We believe that we are continuing to lay a solid foundation for the future.\n \nBased in Irvine, California, with a worldwide presence, our agile human capital model attracts top-caliber professionals with in-demand skillsets who seek a workplace environment that embraces flexibility, collaboration and human connection. Our agile professional services model allows us to quickly align the right resources for the work at hand with speed and efficiency in ways that bring value to both our clients and talent. Our approximately 4,100 professionals collectively engaged with over 2,000 clients around the world in fiscal 2023, including over 87% of the Fortune 100 as of May 2023.\n \nBusiness Segments\n \nEffective May 31, 2022, the Company\u2019s operating segments consist of the following:\n \n\uf0b7\nRGP \u2013 a global business consulting firm focused on project execution services that power clients\u2019 operational needs and change initiatives with experienced and diverse talent; and\n\uf0b7\nSitrick \u2013 a crisis communications and public relations firm which operates under the Sitrick brand, providing corporate, financial, transactional and crisis communication and management services.\n \nEach of these segments reports through a separate management team to our Chief Executive Officer, who is the Chief Operating Decision Maker for segment reporting purposes. \nRGP is the Company\u2019s only reportable segment \nthat meets the quantitative threshold of a reportable segment\n. Sitrick does not individually meet the quantitative threshold to qualify as a reportable segment. Therefore, Sitrick is disclosed in Other Segments. RGP accounts for more than 90% of our consolidated revenue and segment total Adjusted EBITDA and, therefore, represents our dominant segment. The discussions in this section apply to both our entire business and RGP.\n \nPrior to May 31, 2022, the Company\u2019s Other Segments included \ntaskforce, \nalong with its parent company, Resources Global Professionals GmbH, an affiliate of the Company. \ntaskforce\n was divested on May 31, 2022; refer to Note 2 \u2013 \nSummary of Significant Accounting Policies\n and Note 3 \u2013 \nDispositions\n in the Notes to Consolidated Financial Statements for further information. \nPrior-period comparative segment information was not restated as a result of the divestiture of \ntaskforce\n as we did not have a change in internal organization or the financial information our Chief Operating Decision Maker uses to assess performance and allocate resources.\n \nIndustry Background and Trends\n \nChanging Market for Project- or Initiative-Based Professional Services\n \nOur services respond to what we believe is a permanent marketplace shift: namely, organizations are increasingly choosing to address their workforce needs in more flexible ways. We believe this growing shift in workforce strategy towards a project-based orientation was greatly accelerated by the COVID-19 pandemic (the \u201cPandemic\u201d), which placed an enhanced emphasis on business agility, and continues to be hastened by the competition for talent. Permanent professional personnel positions are being reduced as organizations engage agile talent for project initiatives and transformation work.\n \n\n\n3\n \nTable of Contents\n \n\n\n \nOrganizations use a mix of alternative resources to execute projects. Some companies rely solely on their own employees who may lack the requisite time, experience or skills for specific projects. Other companies may outsource entire projects to consulting firms, which provides them access to the expertise of the firm but often entails significant cost, insufficient management control of the project and a lack of ultimate ownership at project completion. As a more cost-efficient alternative, companies sometimes use temporary employees from traditional and internet-based \nstaffing firms, although these employees may be less experienced or less qualified than employees from professional services firms. Finally, companies can supplement their internal resources with employees from agile consulting or other traditional professional services firms, like RGP. The use of project consultants as a viable alternative to traditional accounting, consulting, and law firms allows companies to:\n \n\uf0b7\nStrategically access specialized skills and expertise for projects of set durations;\n\uf0b7\nEngage the very best expert talent across regions and geographies;\n\uf0b7\nBe nimble and mobilize quickly;\n\uf0b7\nBlend independent and fresh points of view;\n\uf0b7\nEffectively supplement internal resources;\n\uf0b7\nIncrease labor flexibility; and\n\uf0b7\nReduce overall\n hiring, training and termination costs.\n \nSupply of Project Consultants\n \nBased on our review of labor market dynamics and discussions with our consultants, we believe the number of professionals seeking to work on an agile basis has been increasing due to a desire for:\n \n\uf0b7\nMore flexible hours and work arrangements, including working-from-home options, coupled with an evolving professional culture that offers competitive wages and benefits;\n\uf0b7\nThe ability to learn and contribute to different environments and collaborate with diverse team members;\n\uf0b7\nChallenging engagements that advance their careers, develop their skills and add to their portfolio of experience;\n\uf0b7\nA work environment that provides a diversity of, and more control over, client engagements; and\n\uf0b7\nAlternative\n employment opportunities throughout the world.\n \nThe traditional employment options available to professionals may fulfill some, but not all, of an individual\u2019s career objectives. A professional working for a Big Four firm or a consulting firm may receive challenging assignments and training; however, he or she may encounter a career path with less choice and less flexible hours, extensive travel demands and limited control over work engagements. On the other hand, a professional who works as an independent contractor assumes the ongoing burden of sourcing assignments and significant administrative obligations, including potential tax and legal issues.\n \nRGP\u2019s Solution\n \nWe believe RGP is ideally positioned to capitalize on the confluence of the industry shifts described above. We believe, based on discussions with our clients, that RGP provides the agility companies desire in today\u2019s highly competitive and quickly evolving business environment. Our solution offers the following elements:\n \n\uf0b7\nA relationship-oriented and collaborative approach to client service; \n\uf0b7\nA dedicated talent acquisition and management team adept at developing, managing and deploying a project-based workforce;\n\uf0b7\nDeep functional and/or technical experts who can assess clients\u2019 project needs and customize solutions to meet those needs;\n\uf0b7\nHighly qualified and pedigreed consultants with the requisite expertise, experience and points of view;\n\uf0b7\nCompetitive rates on an hourly basis as well as on a project basis; and\n\uf0b7\nSignificant client control of their projects with effective knowledge transfer and change management.\n \n\n\n4\n \nTable of Contents\n \n\n\n \nRGP\u2019s Strategic Priorities\n \nOur Business Strategy\n \nWe are dedicated to serving our clients with highly qualified and experienced talent in support of projects and initiatives in a broad array of functional areas, including:\n \n \n \nTransactions\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0Integration and divestitures\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0Bankruptcy/restructuring\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0Going public readiness and support\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0Financial process optimization\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0System implementation\n \nRegulations\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0\nAccounting regulations\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0\nInternal audit and compliance\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0Data privacy and security\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0Healthcare compliance\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0Regulatory compliance\n\u00a0\nTransformations\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0\nFinance transformation\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0Digital transformation\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0Supply chain management\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0Cloud migration\n\uf0b7\n\u00a0\u00a0\u00a0\u00a0\u00a0Data design and analytics\n \n\u00a0\nOur objective is to build and maintain RGP\u2019s reputation as the premier provider of project execution services for companies facing transformation, change and compliance challenges. We have developed the following business strategies to achieve our objectives:\n\u00a0\n\uf0b7\nHire and retain highly qualified, experienced consultants.\n We believe our highly qualified, experienced consultants provide us with a distinct competitive advantage. Therefore, one of our top priorities is to continue to attract and retain high-caliber consultants who are committed to serving clients and solving their problems. We believe we have been successful in attracting and retaining qualified professionals by providing interesting work assignments within a blue-chip client base, competitive compensation and benefits, and continuing professional development and learning opportunities, as well as membership to an exclusive community of like-minded professionals, while offering flexible work schedules and more control over choosing client engagements.\n\uf0b7\nMaintain our distinctive culture. \nOur corporate culture is a core pillar of our business strategy, and we believe it has been a significant component of our success. See \u201cHuman Capital Management\u201d below for further discussions about our culture.\n\uf0b7\nEstablish consultative relationships with clients.\n We emphasize a relationship-oriented approach to business rather than a transaction-oriented or assignment-oriented approach. We believe the professional services experience of our management and consultants enables us to understand the needs of our clients and deliver an integrated, relationship-based approach to meeting those needs. Client relationships and needs are addressed from a client-centric, not geographic, perspective. Our revenue team regularly meets with our existing and prospective clients to understand their business issues and help them define their project needs. Our talent team then identifies consultants with the appropriate skills and experience from our global talent pool to meet the clients\u2019 objectives. We believe that by establishing relationships with our clients to solve their professional service needs, we are more likely to identify new opportunities to serve them. The strength and depth of our client relationships is demonstrated by \nthe \n80% retention rate of our top 100 clients over the last five fiscal years.\n\uf0b7\nBuild the RGP brand.\n We want to maintain a leadership position in today\u2019s world of work, providing the best talent to execute client projects in an increasingly fluid gig-oriented environment. We have historically built our brand through the consistent and reliable delivery of high-quality, value-added services to our clients as well as a significant referral network of 3,145 consultants and 917 management and administrative employees as of May 27, 2023. In recent years, we have invested in global, regional and local marketing and brand activation efforts that reinforce our brand. In fiscal 2022, we introduced our new tagline \u2015 Dare to Work Differently \u2015 to clarify our brand. We made progress on clarifying our brand and activated our new brand positioning during fiscal 2023. We rely on trademark registrations and common law trademark rights to protect the distinctiveness of our brand.\n \n\n\n5\n \nTable of Contents\n \n\n\n \nOur Growth Strategy\n \nSince inception, our growth has been primarily organic with certain strategic acquisitions along the way that augmented our physical presence or solution offerings. We believe we have significant opportunity for continued organic growth in our core business while also growing through strategic and highly targeted acquisitions as our clients continue to accelerate\n their \ndigital, workforce and workplace paradigm transformations\n. Key elements of our growth strategy include:\n\u00a0\n\uf0b7\nFurther our strategic brand marketing. \nRGP has always focused our business on project execution, which is a distinct space on the continuum between strategy consulting and interim deployment. Our business model of utilizing experienced talent to flatten the traditional consulting delivery pyramid is highly sought after in today\u2019s market. Most clients are capable of formulating business strategy organically or with the help of a strategy firm; where they need help is in the ownership of executing the strategy. Our co-delivery ethos is focused around partnering with clients on project execution. Our brand marketing will continue to emphasize and accentuate our unique qualifications in this arena. We believe clear articulation and successful marketing of our distinctive market position is key to attracting and retaining both clients and talent, enabling us to drive continued growth.\n\uf0b7\nIncrease penetration of existing client base.\n A principal component of our strategy is to secure additional work from the clients that we serve. Based on discussions with our clients, we believe that the amount of revenue that we currently generate from many of our clients represents a relatively small percentage of the total amount that they spend on professional services. Consistent with current industry trends, we believe our clients may also continue to increase that spend as businesses adopt a more agile workforce strategy. We believe that by continuing to deliver high-quality services and by furthering our relationships with our clients, we can capture a significantly larger share of our clients\u2019 professional services budgets. We maintain our Strategic Client Account program to serve a number of our largest clients with dedicated global account teams. We have and will continue to expand the Strategic Client Account program by adding clients and taking a more client-centric and borderless approach to serving these clients. In addition to serving our largest clients with a differentiated focus, we also segment our clients by industry verticals. We believe this focus enhances our opportunities to develop in-depth knowledge of these clients\u2019 needs and the ability to increase the scope and size of projects with those clients. The Strategic Client Account and Industry Vertical programs have been key drivers for our revenue and business growth.\n\uf0b7\nGrow our client base.\n We continue to focus on attracting new clients. We strive to develop new client relationships primarily by leveraging the significant contact networks of our management and consultants, through referrals from existing clients and through a dedicated business development team targeting specific clients. We believe we can continue to attract new clients by building our brand identity and reputation, supplemented by our global, regional and local marketing efforts. We anticipate our growth efforts will continue to pivot on identifying strategic target accounts especially in the large and middle-market client segments and within certain focus industries, such as healthcare, technology and financial services.\n\uf0b7\nOptimize service offerings with a focus on digital capabilities.\n We continue to evolve and optimize our portfolio of professional service offerings, and when appropriate, consider entry into new professional service offerings. Since our founding, we have diversified our professional service offerings from a primary focus on accounting and finance to other areas in which our clients have significant needs such as digital transformation, finance transformation, accounting regulations, internal audit and compliance, healthcare compliance, integration and divestitures, and supply chain management. We continuously identify project opportunities we can market at a broader level with our talent, tools and methodologies and commercialize projects into solution offerings. When evaluating new or existing solution offerings to invest in, we consider (among other things) profitability, cross-marketing opportunities, competition, growth potential and cultural fit. Our subsidiary Veracity Consulting Group, LLC (\u201cVeracity\u201d) offers valuable digital consulting services, particularly related to experience and automation. Customer experience and employee and workspace experience continue to be growing themes in the marketplace and within our client portfolio. The need for automation and self-service has also been an increasing trend. We will continue to focus on expanding our digital consulting capabilities and their geographic reach to drive growth in the business by capturing the market demand and opportunities.\n\uf0b7\nExpand sales channel through our digital engagement platform (HUGO by RGP\u00ae). \nConsumer buying habits continue to dictate a more self-serve frictionless experience. We believe the use of technology platforms to match clients and talent is the future of professional staffing. HUGO by RGP\u00ae (\u201cHUGO\u201d), our digital engagement platform, allows such an experience for clients and talent in the professional staffing space to connect, engage and even transact directly. \nWe piloted the platform in three primary markets \u2013 New York/New Jersey, Southern California and Texas, and have \ncontinued to expand its functionality with further artificial intelligence and machine learning. We have also been developing sales and marketing strategies to increase client and talent adoption of the platform.\n \nWe plan to expand the geographic reach to other key markets within the United States (\u201cU.S.\u201d) in fiscal 2024\n. Over time, we expect to be able to drive volume through the HUGO platform by attracting more small- and medium-sized businesses looking for interim support and by serving a larger percentage of our current professional staffing business, which we believe will not only drive top-line growth but also enhance profitability\n.\n\uf0b7\nEngage in strategic acquisitions\n. Our acquisition strategy is to engage in targeted M&A efforts that are designed to complement our core service offerings and enhance our consulting capabilities that are in line with market demands and trends. The acquisition of Veracity accelerated our digital capabilities and our ability to offer comprehensive digital innovation services. We will continue to seek acquisition opportunities to augment and expand the breadth and depth of our digital and other core capabilities.\n \n\n\n6\n \nTable of Contents\n \n\n\n \nOur Service Offerings\n \n\uf0b7\nProject Consulting\n. We partner with our people and clients to deliver value and impact, bringing our depth of experience and \u201csleeves up\u201d approach to project execution. While many companies find their internal employees lack the time, experience, or skills for project execution, we seek out talent who can bring fresh ideas to drive any project to a successful conclusion.\n \n\uf0b7\nOn-demand Talent\n. Tapping into our agile talent pool, we mobilize the right resources to support an organization in today\u2019s rapidly changing business environment. Our workforce strategy provides flexible, collaborative resources to meet our clients\u2019 needs.\n \n\uf0b7\nOther Services\n. From digital workflows to back-office functions, we support vital business processes, freeing our clients to focus on transformation. In addition, our award-winning recruiters quickly find and assess top talent for business-critical positions for a wide range of clients. \n \nHuman Capital Management\n \nOur internal employees and consultants represent our greatest asset and operate together to provide the highest quality of service to our clients. \nAs of May 27, 2023, we had 4,062 employees, including 917\u00a0management and administrative employees and 3,145 consultants. Our employees are not covered by any collective bargaining agreements.\n \nOur Culture and Values \n \nOur culture is the cornerstone of all our human capital programs. \nOur senior management team, the majority of whom are Big Four, management consulting and/or Fortune 500 alumni, has created a culture that combines the commitment to quality and the client service focus of a Big Four firm with the entrepreneurial energy of an \ninnovative\n, high-growth company. \nOur culture is built upon our shared, core values of Loyalty, Integrity, Focus, Enthusiasm, Accountability and Talent, and we believe this is a key reason for our success. \n \nAlong with our core values, we act in accordance with our Code of Business Conduct and Ethics (\u201cCode of Conduct\u201d), which sets forth the standards our employees and board members must adhere to at all times in the execution of their duties. Our Code of Conduct covers topics such as honest and candid conduct, conflicts of interest, protecting confidential information, anti-corruption, compliance with laws, rules and regulations, fair dealing, equal opportunities and non-harassment, maintaining a safe workplace, and the reporting of violations. The Code of Conduct reflects our commitment to operating in a fair, honest, responsible and ethical manner and also provides direction for reporting complaints in the event of alleged violations of our policies (including through an anonymous hotline).\n \nDiversity, Equity & Inclusion \n \nDiversity, equity and inclusion (\u201cDE&I\u201d) are critical underpinnings of our shared values and guide our conduct in our interactions with both clients and each other. As a human-first company, we recognize diversity as a strength that is cultivated through our culture, our people, our business, and our clients. We are proud to be a Paradigm for Parity Coalition member, which is a coalition of companies committed to addressing the corporate leadership gender and diversity gaps, and are proud that 100% of our Executive Leadership Team are women, racially or ethnically diverse. Additionally, 40% of our directors identify as women, racially or ethnically diverse. Our gender, racial and ethnic diversity representation in the Executive Leadership Team, Board of Directors and U.S.-based workforce is presented in the following table:\n \n\n\n7\n \nTable of Contents\n \n\n\n \n \n* -- Diversity representation is as of May 27, 2023.\n \nOur fiscal 2023 DE&I strategic priorities remained focused on increasing DE&I awareness, education and involvement among our workforce, increasing diversity in our workforce, and promoting diversity in our Go-to-Market activities. To guide our actions, we launched our second global DE&I survey in fiscal 2023 to collect employee feedback on how we can continue to be an inclusive workplace where all feel welcome and have a sense of belonging. The feedback showed improvements in all categories since the previous survey in fiscal 2021 and provided valuable insights to establish plans to create meaningful change for our global team. \n \nIn fiscal 2023, we continued our DE&I Council and DE&I Ambassador programs, which consist of employees representing a cross-section of functions and levels across the globe and support our DE&I priorities by designing and delivering measurable and impactful solutions. The DE&I Council serves an important role in working closely with senior leaders to facilitate alignment between our DE&I efforts and overall business strategy. Our DE&I Council hosts periodic town hall meetings that are accessible to our global workforce. These meetings serve as important learning opportunities and connection points that broaden our perspectives and foster a greater sense of community among colleagues. During these sessions, we engage external speakers and communicate our current year DE&I strategy and initiatives. These sessions also serve as important listening forums by which we learn what additional DE&I activities would be most meaningful to our workforce. We have received strong positive feedback from our workforce around these education and engagement sessions, which has helped us to prioritize DE&I topics for building cultural and inclusive capability across our global team.\n \nThe DE&I Ambassador program is comprised of employee volunteers, with a mission to \u201cmeet people where they are\u201d in relationship to DE&I and to promote DE&I awareness in existing business forums (i.e., to raise a DE&I topic in existing business meetings or planned social gatherings).\n \nThe DE&I Ambassador program has had a positive impact on our culture as it generates meaningful opportunities for people, who work in a hybrid and geographically dispersed way, to come together for connection and community. The DE&I Ambassador teams operate at a regional level and meet quarterly to share success stories and practices across the regions.\n \nIn fiscal 2023, we also continued our Social Justice Charitable Matching Fund, which has allowed us to help raise DE&I awareness internally across our organization by matching employees\u2019 contributions to charitable organizations that promote social justice. As of May 27, 2023, we achieved our goal of matching $100,000 in contributions during fiscal 2023 and since fiscal 2021, we have supported over 150 unique charitable organizations with over $300,000 in contributions. We also support and encourage our employees to volunteer their time and donate to local or national charitable causes. For example, since fiscal 2021, we have sponsored Brightpath STEAM Academy, which seeks to empower and inspire at-risk students in St. Louis, Missouri to pursue STEAM careers by hosting large scale events such as a robotic summer camp. Brightpath was founded and is run by an RGP employee who also served a multi-year term on our DE&I Council.\n\n\n8\n \nTable of Contents\n \n\n\n \n \nEmployee Wellbeing and Resilience\n \nEmployee safety and wellbeing continues to be of paramount importance to us. Our Global Business Continuity Team continued to improve our disaster preparedness plans and implement strategies to manage the health and security of our employees, business continuity, client confidence, and excellent customer service. \n \nTo promote employee wellbeing and collaboration, we evolved our work-from-home policy to a hybrid work policy, where employees are invited to work collaboratively with colleagues in the office but are also permitted to work remotely as desired. Our goal is to help every human in our workforce maintain a positive, productive and connected work experience. We provide productivity and collaboration tools and resources for employees working remotely. During fiscal 2023, we also enhanced and promoted programs to support our employees\u2019 physical and mental wellbeing, including the offering of regular wellness and self-care sessions, supporting our You Matter recognition program that allows employees to share gratitude and kudos for colleagues, and launching a new Spirit of Volunteerism initiative to share stories, foster community connections and promote organizations and causes that are important to our employees. We also offer all global employees participation in programs and resources to support personal and family health and wellbeing, including our Employee Assistance Program in the U.S. \n \nBuilding Strong Leaders and Talent Management\n \nStrong \u201chuman leadership\u201d is critical to fostering employee engagement and positioning employees to perform at their best. In fiscal 2023, we saw a continued and strengthened desire from employees seeking authentic, empathetic and adaptive behaviors from their leaders. For these reasons, we invest in the ongoing professional development of our employees and leaders. We designed and delivered curated programs to onboard and acclimate employees to the business and promote personal, professional and leadership growth. In fiscal 2023, we launched \u201cLeadership U\u201d to foster leadership development, peer mentorship opportunities and to support the building and maintenance of high-performing teams.\n \nSuccessful talent development starts with hiring the right people. We seek to recruit and hire candidates that demonstrate skills and competencies that align with our core values and that have an aptitude to further develop and expand those capabilities. After onboarding, our Life + Learning team remains committed to providing employees with training and development opportunities to allow our employees to progress in their careers. We offer newly hired employees the opportunity to participate in our \u201cRGP U\u201d program to accelerate and support their integration into our organization. This program gives our new hires a connected cohort to drive a sense of belonging early in their career at RGP and offers their leaders a more efficient use of individual coaching time with new employees.\n \nIn fiscal 2023, we expanded this program to RGP U Consultant to ensure strong connectivity and supported success in a consultant\u2019s first year with RGP. We also launched a Sales Effectiveness curriculum that focused on deepening sales and client service acumen and effectiveness.\n \nIn addition, we continued to invest in the professional development and growth of our employees as we focused on employee experience, effectiveness, upskilling and reskilling in a changing work environment. This support was focused and delivered to all employees with emphasis in the areas of leadership development, on-boarding, functional/technical learning and digital fluency. We continued to actively engage with our internal leaders by integrating wellness and leadership development topics into our quarterly senior leadership meetings. We also conducted intentional leader listening forums and mentorship programs to help guide our leaders during fiscal 2023.\n \nCompensation and Benefits\n \nWe provide a competitive compensation and benefits program to attract and reward our employees. In addition to salaries or hourly rates, our eligible employees, including our consultants, are offered participation in a comprehensive benefits program (based on location) including: paid time off and holidays, group medical and dental programs, a basic term life insurance program, health savings accounts, flexible spending accounts, a 401(k) retirement plan with employer matching contributions, a pension plan or contributions to a statutory retirement program, the 2019 Employee Stock Purchase Plan, as amended (\u201cESPP\u201d), which enables employees to purchase shares of our stock at a discount, and an employee assistance program. In addition, eligible management and administrative employees may participate in annual cash incentive programs or receive stock-based awards. \nWe also allow eligible consultants in the U.S. to maintain continuation of benefits for 90 days following the completion of a consulting project.\n \n \nWe utilize a Pay for Success Total Rewards Philosophy that promotes more consistent and transparent practices for rewarding and incentivizing our employees and the alignment of pay practices with the Company\u2019s success. The Total Rewards Philosophy is comprised of three main components: (i) base pay, designed to reflect an individual\u2019s value, knowledge and skills that contribute to the organization through an individual\u2019s day-to-day job performance; (ii) short-term incentives, awarded to employees based on results delivered during the applicable fiscal year and determined by quantitative metrics, qualitative contributions, individual goals, and demonstration of company values; and (iii) long-term incentives, granted to reward and retain employees who have strategic influence on the long-term success of the Company. As a listening organization, we continue to communicate with our people to understand what \n\n\n9\n \nTable of Contents\n \n\n\ncomponents of Total Rewards are priority for them and leverage that feedback, along with quantitative benchmarking data and affordability considerations, to continually evolve our Total Rewards offerings in a way that positions us to attract and retain top talent.\n \nDuring fiscal 2023, we also continued our \u201cYou Matter\u201d digital global employee recognition and appreciation program. You Matter includes service awards to acknowledge key milestones, including employment anniversaries and hours of service. This program provides all employees with the ability to both give and receive recognition, contributing to our culture of gratitude and excellence.\n \nClients\n \nWe provide our services and solutions to a diverse client base in a broad range of industries. In fiscal 2023, we served over 2,000 clients in 37 countries. Our revenues are not concentrated with any particular client. No single client accounted for more than 10% of revenue for the 2023, 2022 or 2021 fiscal years. In fiscal 2023, our 10 largest clients accounted for approximately 22% of our revenue. \n \nOperations\n \nWe generally provide our professional services to clients at a local level, with the oversight of our market or account leaders and consultation with our corporate management team. The market or account leaders and client development directors in each market are responsible for new client acquisition, expanding client relationships, ensuring client satisfaction throughout engagements, coordinating services for clients on a national and international level and maintaining client relationships post-engagement. Market or account revenue leadership and their teams identify, develop and close new and existing client opportunities, often working in a coordinated effort with other markets on multi-national/multi-location proposals. While the majority of our client relationships are driven at a local market level, our Strategic Client Accounts, which comprise 106 accounts, are led by account leaders responsible for relationships across markets and who are specifically tasked with growing our global relationships in these key accounts.\n \nMarket or account level leadership works closely with our talent management team, which aligns regionally but is managed largely as three distinct groups within North America, Asia Pacific and Europe. Our talent organization is responsible for identifying, hiring and cultivating a sustainable relationship with seasoned professionals fitting the RGP profile of client needs. Our consultant recruiting efforts are regionally and nationally based, depending upon the skill set required; talent management handles both the identification and hiring of consultants specifically skilled to perform client projects as well as monitoring the satisfaction of consultants during and after completion of assignments. The talent teams focus on getting the right talent in the right place at the right time. In fiscal 2020, we launched our Borderless Talent initiative in response to the Pandemic to evolve towards and facilitate a virtual operating model. In fiscal 2023 we continued with this initiative, as we seek to provide borderless solutions, anytime, anywhere, bringing the best talent to meet our clients\u2019 business needs, based on expected outcome, not zip code.\n \nWe believe a substantial portion of the buying decisions made by our clients are made on a local or regional basis, and our offices most often compete with other professional services providers on a local or regional basis. We continue to believe our local market or account leaders are well-positioned to understand the local and regional outsourced professional services market. Additionally, the complexity of relationships with many of our multinational clients also dictates that in some circumstances a hybrid model, bringing the best of both locally driven relationships as well as global focus and delivery, is important for employee and client satisfaction. Through our Strategic Client Account program, we aim to be the service provider \nthat can partner with our multinational clients on a global basis by organizing the concerted effort and talent team to deliver through one integrated service platform\n. Additionally, team members in our Project Consulting Services group are individuals with deep subject matter expertise in areas of particular client concern who assist with scoping, proposing and delivering complex engagements.\n \nWe believe our ability to deliver professional services successfully to clients is dependent on our leaders in the field working together as a collegial and collaborative team. To build a sense of team spirit and increase camaraderie among our leaders, we have a program for field personnel that awards annual incentives based on specific agreed-upon goals focused on the performance of the individual and performance of the Company. We also share across the Company and with new client development team members the best and most effective practices of our highest achieving offices and accounts. New leadership also spends time in other markets or otherwise partners with experienced sales and recruiting personnel in those markets to understand how best to serve current clients, expand our presence with prospects and identify and recruit highly qualified consultants, among many other important skills. This allows the veteran leadership to share their success stories, foster our culture with new team members and review specific client and consultant development programs. We believe these team-based practices enable us to better serve clients who prefer a centrally organized service approach.\n \nFrom our corporate headquarters in Irvine, California, we provide centralized administrative, marketing, finance, human resources (\u201cHR\u201d), information technology (\u201cIT\u201d), legal and real estate support. We also have a business support operations center in our Utrecht, Netherlands office to provide centralized finance, HR, IT, payroll and legal support to our European offices. These centralized functions minimize the administrative burdens on our front office market leaders and enable operational efficiency and scalability throughout the enterprise. \n \n\n\n10\n \nTable of Contents\n \n\n\n \nBusiness Development\n \nOur business development initiatives are comprised of:\n\uf0b7\nlocal and global initiatives focused on existing clients and target companies;\n\uf0b7\nnational and international targeting efforts focused on multinational companies;\n\uf0b7\nbrand marketing activities; and\n\uf0b7\nnational and local advertising and direct mail programs.\n \nOur business development efforts are driven by the networking and sales efforts of our management, with our worldwide Salesforce software platform providing a common database of opportunities and clients and enhancing our local and global business development efforts. While local senior management focus on market-related activities, they are also part of the regional, national and international sales efforts, especially when the client is part of a multinational entity. In certain markets, sales efforts are also enhanced by management professionals focused solely on business development efforts on a market and national basis based on firm-wide and industry-focused initiatives. These business development professionals, in partnership with the vice-presidents and client service teams, are responsible for initiating and fostering relationships with the senior management and decision makers of our targeted client companies. \n \nWe believe our national marketing efforts have effectively generated incremental revenues from existing clients and developed new client relationships. Our brand marketing initiatives help bolster RGP\u2019s reputation in the markets we serve. Our brand is reinforced by our professionally designed website, print, and online advertising, direct marketing, seminars, thought leadership whitepapers, initiative-oriented brochures, social media and public relations efforts. We believe our branding initiatives, coupled with our high-quality client service, help to differentiate us from our competitors and to establish RGP as a credible and reputable global professional services firm.\n \nCompetition\n \nWe operate in an extremely competitive, highly fragmented market and compete for clients and consultants with a variety of organizations that offer similar services. The competition for talent and clients is likely to increase in the future due to workforce gaps caused by the tightening labor market, a changing market for project- or initiative-based services and the relatively few barriers to entry. Our principal competitors include:\n \n\uf0b7\nbusiness operations and financial consulting firms;\n\uf0b7\nlocal, regional, national and international accounting and other traditional professional services firms;\n\uf0b7\nindependent contractors;\n\uf0b7\ntraditional and internet-based staffing firms; and\n\uf0b7\nthe in-house or former in-house resources of our clients.\n \nWe compete for clients based on the quality of professionals we bring to our clients, the knowledge base they possess, our ability to mobilize the right talent quickly, the scope and price of services, and the geographic reach of services. We believe our attractive value proposition, consisting of our highly qualified consultants, relationship-oriented approach, agile delivery model and professional culture, enables us to compete effectively in the marketplace. \n \nRegulatory Environment\n \nOur operations are subject to regulations by federal, state, local and professional governing bodies and laws and regulations in various foreign countries, including\n, but not limited to: (a) licensing and registration requirements and (b) \nregulation of the employer/employee relationship, such as worker classification regulations, wage and hour regulations, tax withholding and reporting, immigration/H-1B visa regulations, social security and other retirement, antidiscrimination, and employee benefits and workers\u2019 compensation regulations. Our operations could be impacted by legislative changes by these bodies, particularly with respect to provisions relating to payroll and benefits, tax and accounting, employment, worker classification and data privacy. Due to the complex regulatory environment that we operate in, we remain focused on compliance with governmental and professional organizations\u2019 regulations. For more discussion of the potential impact that the regulatory environment could have on our financial results, refer to Item 1A \u201cRisk Factors.\u201d\n \n\n\n11\n \nTable of Contents\n \n\n\n \nAvailable Information\n \nOur principal executive offices are located at 17101 Armstrong Avenue, Irvine, California 92614. Our telephone number is (714)\u00a0430-6400 and our website address is https://www.rgp.com. The information set forth in our website does not constitute part of this Annual Report on Form\u00a010-K. We file our annual reports on Form\u00a010-K, quarterly reports on Form\u00a010-Q, and current reports on Form\u00a08-K pursuant to Section\u00a013(a) or 15(d) of the Exchange Act with the SEC electronically. These reports are maintained on the SEC\u2019s website at \nhttps://www\n.sec.gov.\n \nA copy of our annual reports on Form\u00a010-K, quarterly reports on Form\u00a010-Q, and current reports on Form\u00a08-K and amendments to those reports may also be obtained free of charge on the Investor Relations page of our website at \nhttps://ir\n.rgp.com as soon as reasonably practicable after we file such reports with the SEC.\n \n \n\n\n12\n \nTable of Contents\n \n\n\n ",
+  "item1a": ">ITEM\u00a01A.\u00a0\u00a0\u00a0\u00a0\nRISK FACTORS\n.\n \nThe risks described below should be considered carefully before a decision to buy shares of our common stock is made. The order of the risks is not an indication of their relative weight or importance. The risks and uncertainties described below are not the only ones facing us but do represent those risks and uncertainties we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely impact and impair our business. If any of the following risks actually occur, our business could be harmed. In that case, the trading price of our common stock could decline, and all or part of the investment in our common stock might be lost. When determining whether to buy our common stock, other information in this Annual Report on Form\u00a010-K, including our financial statements and the related notes, should also be reviewed.\n \nRisks Related to the Business Environment\n \nAn economic downturn or deterioration of general macroeconomic conditions could adversely affect our global operations and financial condition. \n \nWe are exposed to the risk of an economic downturn or deterioration of general macroeconomic conditions, including slower growth or recession, inflation, or decreases in consumer spending power or confidence, which could have a significant impact on our business, financial condition, and results of operations. Recent events, including increasing diplomatic and trade friction between the U.S. and China, the military incursion by Russia into Ukraine, and inflationary conditions and rising interest rates, have caused disruptions in the U.S. and global economy, and uncertainty regarding general economic conditions within some regions and countries in which we operate, including concerns about a potential U.S. and/or global recession has led, and may continue to lead, to reluctance on the part of some companies to spend on discretionary projects. Deterioration of or prolonged uncertainty related to the global economy or tightening credit markets could cause some of our clients to experience liquidity problems or other financial difficulties and could further reduce the demand for our services and adversely affect our business in the future. \n \nThe military incursion by Russia into Ukraine could adversely impact the global economy and cause an increase in inflation and market uncertainty in a manner that could adversely affect our operations. Wars divert international trade and capital flows, disrupt global supply chains, delay companies\u2019 investment and hiring and erode consumer confidence, and periods of elevated geopolitical risks have historically been associated with negative effects on global economic activity. Although none of our operations are in Russia or Ukraine, the continuation or further escalation of geopolitical tensions, or future instances of political unrest in other geographies, could impact other markets where we do business, including Europe and Asia Pacific, or cause negative global economic effects which may adversely affect our business, financial condition, and results of operations.\n \nEconomic deterioration at one or more of our clients may also affect our allowance for doubtful accounts and collectability of accounts receivable. Our estimate of losses resulting from our clients\u2019 failure to make required payments for services rendered has historically been within our expectations and the provisions established. While our overall receivable collections have not been severely impacted by the softening economy or other geopolitical events, we cannot guarantee we will continue to experience the same credit loss rates we have in the past. A significant change in the liquidity or financial position of our clients could cause unfavorable trends in receivable collections and cash flows and additional allowances for anticipated losses may be required. These additional allowances could materially affect our future financial results.\n \nIn addition, we are required periodically, and at least annually, to assess the recoverability of certain assets, including deferred tax assets, long-lived assets and goodwill. Downturns in the U.S. and international economies could adversely affect our evaluation of the recoverability of deferred tax assets, long-lived assets and goodwill. Although the additional tax valuation allowances and the impairment of long-lived assets and goodwill are non-cash expenses, they could materially affect our future financial results and financial condition.\n \nBank failures or other events affecting financial institutions could adversely affect our and our clients\u2019 liquidity and financial performance.\n \nWe regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation (\u201cFDIC\u201d) insured banks, which exceed the FDIC insurance limits. We also maintain cash deposits in foreign banks where we operate, some of which are not insured or are only partially insured by the FDIC or other similar agencies. The failure of a bank, or events involving limited liquidity, defaults, non-performance or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, or concerns or rumors about such events, may lead to disruptions in access to our bank deposits or otherwise adversely impact our liquidity and financial performance. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. or applicable foreign government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis.\n \n\n\n13\n \nTable of Contents\n \n\n\n \nOur clients, including those of our clients that are banks, may be similarly adversely affected by any bank failure or other event affecting financial institutions. Any resulting adverse effects to our clients\u2019 liquidity or financial performance could reduce the demand for our services or affect our allowance for doubtful accounts and collectability of accounts receivable. A significant change in the liquidity or financial position of our clients could cause unfavorable trends in receivable collections and cash flows and additional allowances for anticipated losses may be required. These additional allowances could materially affect our future financial results.\n \nIn addition, instability, liquidity constraints or other distress in the financial markets, including the effects of bank failures, defaults, non-performance or other adverse developments that affect financial institutions, could impair the ability of one or more of the banks participating in our current or any future credit agreement from honoring their commitments. This could have an adverse effect on our business if we were not able to replace those commitments or to locate other sources of liquidity on acceptable terms.\n \nOur business is subject to risks arising from epidemic diseases, pandemics, or other public health emergencies.\n \nPublic health epidemics or pandemics pose the risk that we or our employees and partners may be prevented from conducting business activities at full capacity for an indefinite period of time, including due to the spread of the virus or due to shutdowns or other measures that are requested or mandated by governmental authorities. Governmental measures that are intended to reduce the spread or otherwise combat a pandemic or epidemic may affect how we operate, including, among other things, by reducing demand for or delaying client decisions to procure our services, or by resulting in cancellations of existing projects. \n \nA future pandemic, epidemic, or other public health emergency could also result in a decline in productivity, which may adversely impact our ability to continue to efficiently serve our clients. In addition, in connection with the Pandemic, the overall financial condition of some of our clients was adversely impacted, at least for periods of time. If the financial condition of any of our clients is negatively impacted in the future by a pandemic or epidemic, the ability of these clients to pay outstanding receivables owed to us may be adversely affected. \n \nThe market for professional services is highly competitive, and if we are unable to compete effectively against our competitors, our business and operating results could be adversely affected.\n \nWe operate in a competitive, fragmented market, and we compete for clients and consultants with a variety of organizations that offer similar services. Our principal competitors include: consulting firms; local, regional, national and international accounting and other traditional professional services firms; independent contractors; traditional and internet-based staffing firms; and the in-house or former in-house resources of our clients. The competition is likely to increase in the future due to the expected growth of the market and the relatively few barriers to entry. \n \nWe cannot provide assurance that we will be able to compete effectively against existing or future competitors. Many of our competitors have significantly greater financial resources, greater revenues and greater name recognition, which may afford them an advantage in attracting and retaining clients and consultants and in offering pricing concessions. Some of our competitors in certain markets do not provide medical insurance or other benefits to their consultants, thereby allowing them to potentially charge lower rates to clients. In addition, our competitors may be able to respond more quickly to changes in companies\u2019 needs and developments in the professional services industry.\n \nRisks Related to Human Capital Resources\n \nWe must provide our clients with highly qualified and experienced consultants, and the loss of a significant number of our consultants, or an inability to attract and retain new consultants, could adversely affect our business and operating results.\n \nOur business involves the delivery of professional services, and our success depends on our ability to provide our clients with highly qualified and experienced consultants who possess the skills and experience necessary to satisfy their needs. At various times, including as a result of recent shifts by businesses to adopt more workforce agility in response to temporary gaps caused by the tightening labor market, such professionals can be in great demand, particularly in certain geographic areas or if they have specific skill sets. Our ability to attract and retain consultants with the requisite experience and skills depends on several factors including, but not limited to, our ability to:\n \n\uf0b7\nprovide our consultants with either full-time or flexible-time employment;\n\uf0b7\nobtain the type of challenging and high-quality projects that our consultants seek;\n\uf0b7\nprovide competitive compensation and benefits; and\n\uf0b7\nprovide our\n \nconsultants\n \nwith\n \nflexibility\n \nas\n \nto\n \nhours\n \nworked\n \nand\n \nassignment\n \nof\n \nclient\n \nengagements.\n \n\n\n14\n \nTable of Contents\n \n\n\n \nThere can be no assurance we will be successful in accomplishing any of these factors and, even if we are, we cannot assure we will be successful in attracting and retaining the number of highly qualified and experienced consultants necessary to maintain and grow our business.\n \nOur business could suffer if we lose the services of one or more key members of our senior management.\n \nOur future success depends upon the continued employment of our senior management team. The unforeseen departure of one or more key members of our senior management team could significantly disrupt our operations if we are unable to successfully manage the transition. The replacement of members of senior management can involve significant time and expense and create uncertainties that could delay, prevent the achievement of, or make it more difficult for us to pursue and execute on our business opportunities, which could have an adverse effect on our business, financial condition and operating results.\n \nFurther, due to legal restrictions prohibiting non-compete agreements in certain jurisdictions, we generally do not have non-compete agreements with our employees, including our senior management team, and, therefore, they could terminate their employment with us at any time and obtain employment with a competitor. Our ability to retain the services of members of our senior management and other key employees could be impacted by a number of factors, including competitors\u2019 hiring practices or the effectiveness of our compensation programs. If members of our senior management or other key employees leave us for any reason, they could pursue other employment opportunities with our competitors or otherwise compete against us. If we are unable to retain the services of these key personnel or attract and retain other qualified and experienced personnel on acceptable terms, our business, financial condition and operating results could be adversely affected.\n \nSignificant increases in wages or payroll-related costs could have a material adverse effect on our financial results.\n \nTo ensure that we attract and retain the requisite talent, it is necessary that we pay our consultants competitive wages. \nWe are also required to pay a number of federal, state and local payroll-related costs for our employees and consultants, including providing certain benefits such as medical insurance, paid time off and sick leave, and paying unemployment taxes, workers\u2019 compensation insurance premiums and claims, and FICA and Medicare taxes. These costs could be increased by wage inflation and changes to local laws and regulations. Costs could also increase as a result of health care reforms or the possible imposition of additional requirements and restrictions related to the placement of personnel. We may not be able to increase the fees charged to our clients in a timely manner or in a sufficient amount to cover these potential cost increases.\n \nRisks Related to Our Business Operations and Initiatives\n \nOur business depends upon our ability to secure new projects from clients and renew expired contracts, and we could be adversely affected if we fail to do so.\n \nWe generally do not have long-term agreements with our clients for the provision of services and our clients may terminate engagements with us at any time. The success of our business is dependent on our ability to secure new projects from clients or to renew expired contracts with clients. For example, our business is likely to be materially adversely affected if we are unable to secure new client projects because of improvements in our competitors\u2019 service offerings, because of our customers\u2019 use of technology or artificial intelligence instead of external experts, because of a change in government regulatory requirements, because of an economic downturn decreasing the demand for outsourced professional services, or for other reasons. New impediments to our ability to secure projects from clients may develop over time, such as the increasing use by large clients of in-house procurement groups that manage their relationship with service providers.\n \nIf we are not able to replace the revenue from our expired client contracts, either through follow-on contracts or new contracts for those requirements or for other requirements, our revenue and operating results may be adversely affected. On the expiration of a contract, we typically seek a new contract or subcontractor role relating to that client to replace the revenue generated by the expired contract. There can be no assurance that those expiring contracts we are servicing will continue after their expiration, that the client will re-procure those requirements, that any such re-procurement will not be restricted in a way that would eliminate us from the competition, or that we will be successful in any such re-procurements or in obtaining subcontractor roles. Any factor that diminishes client relationships and/or our professional reputation could make it substantially more difficult for us to compete successfully for new engagements and qualified consultants. To the extent our client relationships and/or professional reputation deteriorate, our revenue and operating results could be adversely affected.\n \nOur financial results could suffer if we are unable to achieve or maintain a suitable pay/bill ratio.\n \nOur consultant cost structure is primarily variable in nature, and our profitability depends to a large extent on the level of pay/bill ratio achieved. \nOur failure to maintain or increase the hourly rates we charge our clients for our services or to pay an adequate and competitive rate to our consultants in order to maintain a suitable pay/bill ratio could compress our gross margin and adversely impact our profitability.\n\n\n15\n \nTable of Contents\n \n\n\n \n \nThe pay rates of our consultants are affected by a number of factors, including:\n\uf0b7\nthe skill sets and qualifications our consultants possess;\n\uf0b7\nthe competition for talent; and\n\uf0b7\ncurrent labor market and economic conditions.\n \nThe billing rates of our consultants are affected by a number of factors, including:\n\uf0b7\nour clients\u2019 perception of our ability to add value through our services;\n\uf0b7\nthe market demand for the services we provide;\n\uf0b7\nintroduction of new services by us or our competitors;\n\uf0b7\nour competition and the pricing policies of our competitors; and\n\uf0b7\ncurrent economic conditions.\n \nIf we are unable to achieve a desirable pay/bill ratio, our financial results could materially suffer. In addition, \na limited number of clients are requesting certain engagements be a fixed fee rather than our traditional hourly time and materials approach, thus shifting a portion of the burden of financial risk and monitoring to us.\n \nWe derive significant revenue and profits from contracts awarded through a competitive bidding process, which can impose substantial costs on us, and we will lose revenue and profits if we fail to compete effectively.\n \nCompetitive bidding imposes substantial costs and presents a number of risks, including the:\n\uf0b7\nsubstantial cost and managerial time and effort that we spend to prepare bids and proposals;\n\uf0b7\nneed to estimate accurately the resources and costs that will be required to service any contracts we are awarded, sometimes in advance of the final determination of their full scope; and\n\uf0b7\nopportunity cost of not bidding on and winning other contracts we may have otherwise pursued.\n \nTo the extent we engage in competitive bidding and are unable to win certain contracts, we not only incur substantial costs in the bidding process that negatively affect our operating results, but we may lose the opportunity to operate in the market for the services provided under those contracts for a number of years and our revenue will be adversely impacted. Even if we win a particular contract through competitive bidding, our profit margins may be depressed, or we may even suffer losses as a result of the costs incurred through the bidding process and the need to lower our prices to overcome competition.\n \nOur contracts may contain provisions that are unfavorable to us and permit our clients to, among other things, terminate our contracts partially or completely at any time prior to completion.\n \nOur contracts typically contain provisions that allow our clients to terminate or modify these contracts at their convenience on short notice. If a client terminates one of our contracts for convenience, we generally can only bill the client for work completed prior to the termination, plus any commitments and settlement expenses the client agrees to pay, but not for any work not yet performed. If a client were to terminate, decline to exercise options under, or curtail further performance under one or more of our major contracts, our revenue and operating results could be adversely affected.\n \nWe may be unable to realize the level of the anticipated benefits that we expect from our restructuring initiatives, which may adversely impact our business and results of operations.\n \nIn response to changes in industry and market conditions, we have undertaken in the past, and may undertake in the future, restructuring, reorganization, or other strategic initiatives and business transformation plans to realign our resources with our growth strategies, operate more efficiently and control costs. The successful implementation of our restructuring activities may from time to time require us to effect business and asset dispositions, workforce reductions, management restructurings, decisions to limit investments in or otherwise exit businesses, office consolidations and closures, and other actions, each of which may depend on a number of factors that may not be within our control.\n \nAny such effort to realign or streamline our organization may result in the recording of restructuring or other charges, such as asset impairment charges, contract and lease termination costs, exit costs, termination benefits, and other restructuring costs. Further, as a result of restructuring initiatives, we may experience a loss of continuity, loss of accumulated knowledge and proficiency, adverse effects on employee morale, loss of key employees and/or other retention issues during transitional periods. Reorganization and restructuring can impact a significant amount of management and other employees\u2019 time and focus, which may divert attention from \n\n\n16\n \nTable of Contents\n \n\n\noperating and growing our business. Further, upon completion of any restructuring initiatives, our business may not be more efficient or effective than prior to the implementation of the plan and we may be unable to achieve anticipated operating enhancements or cost reductions, which would adversely affect our business, competitive position, operating results and financial condition.  \n \nOur recent digital expansion and technology transformation efforts may not be successful, which could adversely impact our growth and profitability.\n \nOne of our primary areas of focus in recent years is digital expansion, which includes the further development and expanded launch of HUGO, our human cloud platform aimed at introducing a new way for clients and talent alike to engage with us and expanding go-to-market penetration for the business that we acquired from Veracity. We are also making investments in the transformation of our technology systems to keep up with technological changes that impact the needs of our clients, the delivery of our services and the efficiency of our back-office operations. These investments require significant capital expenditures. If we are unable to execute these initiatives successfully, we may not realize \nour anticipated return on investment\n and may not be able to realize the benefits expected, which could adversely impact our growth and profitability.  \n \nWe may not be able to build an efficient support structure as our business continues to grow and transform.\n \nIn fiscal 2023, we continued our Borderless Talent initiative to continue to evolve towards and facilitate a virtual operating model. With this initiative, we seek to provide borderless solutions, anytime, anywhere, bringing the best talent to meet our clients\u2019 business needs, based on workload, not zip code. We also began upgrading to a new cloud-based enterprise-wide operating and Enterprise Resource Planning system. The continued success of these initiatives requires adjusting and strengthening our business operations, financial and talent management systems, procedures, controls and compliance, which may increase our total operating costs and adversely impact our profitability and growth. \n \nNew business strategies and initiatives, such as these, can be time-consuming for our management team and disruptive to our operations. New business initiatives could also involve significant unanticipated challenges and risks including not advancing our business strategy, not realizing our anticipated return on investment, experiencing difficulty in implementing initiatives, or diverting management\u2019s attention from our other businesses. These events could cause material harm to our business, operating results or financial condition.\n \nWe may not be able to grow our business, manage our growth or sustain our current business.\n \nIn 2020, we undertook restructuring efforts in North America, APAC and Europe to analyze our physical geographic footprint and real estate spend in those areas. We have worked to focus investment dollars in high-growth core markets for greater impact and to shift to a virtual operating model in certain other markets. There can be no assurance we will be able to maintain or expand our market presence in our current locations, successfully enter other markets or locations or successfully operate our business virtually without a physical presence in all our markets. Our ability to continue to grow our business will depend upon an improving global economy and a number of factors, including our ability to:\n \n\uf0b7\ngrow new client base and penetrate our existing client\n \nbase;\n\uf0b7\nexpand profitably into new\n \ngeographies;\n\uf0b7\ndrive growth in core markets, key industry verticals and solution offerings such as digital transformation services;\n\uf0b7\nprovide additional professional service\n \nofferings;\n\uf0b7\nhire qualified and experienced\n \nconsultants;\n\uf0b7\nmaintain margins in the face of pricing\n \npressure; and\n\uf0b7\nmanage costs.\n \nEven if we are able to resume more rapid growth in our revenue, the growth will result in new and increased responsibilities for our management as well as increased demands on our internal systems, procedures and controls, and our administrative, financial, marketing and other resources. Failure to adequately respond to these new responsibilities and demands may adversely affect our business, financial condition and results of operations.\n \n\n\n17\n \nTable of Contents\n \n\n\n \nOur ability to serve clients internationally is integral to our strategy and our international activities expose us to additional operational challenges we might not otherwise face.\n \nOur international activities require us to confront and manage several risks and expenses we would not face if we conducted our operations solely in the U.S. Any of these risks or expenses could cause a material negative effect on our operating results. These risks and expenses include:\n \n\uf0b7\ndifficulties in staffing and managing foreign offices as a result of, among other things, distance, language and cultural differences;\n\uf0b7\nexposure to labor and employment laws and regulations in foreign countries;\n\uf0b7\nexpenses associated with customizing our professional services for clients in foreign countries;\n\uf0b7\nforeign currency exchange rate fluctuations when we sell our professional services in denominations other than U.S. dollars;\n\uf0b7\nprotectionist laws and business practices that favor local companies;\n\uf0b7\npolitical and economic instability in some international markets;\n\uf0b7\npotential personal injury to personnel who may be exposed to military conflicts and other hostile situations in foreign countries;\n\uf0b7\nmultiple, conflicting and changing government laws and regulations;\n\uf0b7\ntrade barriers and economic sanctions;\n\uf0b7\ncompliance with stringent and varying privacy laws in the markets in which we operate;\n\uf0b7\ncompliance with regulations on international business, including the Foreign Corrupt Practices Act, the United Kingdom Bribery Act of 2010 and the anti-bribery laws of other countries;\n\uf0b7\nreduced protection for intellectual property rights in some countries;\n\uf0b7\npotentially adverse tax consequences; and\n\uf0b7\nrestrictions on the ability to repatriate profits to the U.S. or otherwise move funds.\n \nWe have acquired, and may continue to acquire, companies, and these acquisitions could disrupt our business.\n \nWe have acquired several companies in the past and we may continue to acquire companies in the future. Entering into an acquisition entails many risks, any of which could harm our business, including:\n \n\uf0b7\ndiversion of management\u2019s attention from other business concerns;\n\uf0b7\nfailure to integrate the acquired company with our existing business;\n\uf0b7\nfailure to motivate, or loss of, key employees from either our existing business or the acquired business;\n\uf0b7\nfailure to identify certain risks or liabilities during the due diligence process;\n\uf0b7\npotential impairment of relationships with our existing employees and clients;\n\uf0b7\nadditional operating expenses not offset by additional revenue;\n\uf0b7\nincurrence of significant non-recurring charges;\n\uf0b7\nincurrence of additional debt with restrictive covenants or other limitations;\n\uf0b7\naddition of significant amounts of intangible assets, including goodwill, that are subject to periodic assessment of impairment, with such non-cash impairment potentially resulting in a material impact on our future financial results and financial condition;\n\uf0b7\ndilution of our stock as a result of issuing equity securities; and\n\uf0b7\nassumption of liabilities of the acquired company.\n \nOur failure to be successful in addressing these risks or other problems encountered in connection with our past or future acquisitions could cause us to fail to realize the anticipated benefits of such acquisitions, incur unanticipated liabilities and harm our business generally. \n \n\n\n18\n \nTable of Contents\n \n\n\n \nOur recent rebranding efforts may not be successful. In addition, we may be unable to adequately protect our intellectual property rights, including our brand name.\n \nWe\n \nbelieve establishing, maintaining and enhancing the RGP and Resources Global Professionals brand names are important to our business. We rely on trademark registrations and common law trademark rights to protect the distinctiveness of our brand. In fiscal 2020, we launched a significant global rebranding initiative, and in fiscal 2023 we continued our global rebranding with our new tagline \u2015 Dare to Work Differently. However, there can be no assurance that our rebranding initiative will result in a positive return on investment. In addition, there can be no assurance that the actions we have taken to establish and protect our trademarks will be adequate to prevent use of our trademarks by others. Further, not all of our trademarks were successfully registered in all of our desired countries. Accordingly, we may not be able to claim or assert trademark or unfair competition claims against third parties for any number of reasons. For example, a judge, jury or other adjudicative body may find that the conduct of competitors does not infringe or violate our trademark rights. In addition, third parties may claim that the use of our trademarks and branding infringe, dilute or otherwise violate the common law or registered marks of that party, or that our marketing efforts constitute unfair competition. Such claims could result in injunctive relief prohibiting the use of our marks, branding and marketing activities as well as significant damages, fees and costs. If such a claim were made and we were required to change our name or any of our marks, the value of our brand may diminish and our results of operations and financial condition could be adversely affected. \n \nRisks Related to Information Technology, Cybersecurity and Data Protection\n \nOur computer hardware and software and telecommunications systems are susceptible to damage, breach or interruption.\n \nThe management of our business is aided by the uninterrupted operation of our computer and telecommunication systems. These systems are vulnerable to security breaches, cyber or other security incidents, natural disasters or other catastrophic events, or other interruptions or damage stemming from power outages, equipment failure or unintended or unauthorized usage by employees. In addition, we rely on information technology systems to process, transmit and store electronic information and to communicate among our locations around the world and with our clients, partners and consultants. From time to time, we experience interruptions in our operations and system failures, and any loss of data and interruptions or delays in our business or that of our clients, or both, resulting from such interruptions or failures could have a material impact on our business and operations and materially adversely affect our revenue, profits and operating results.\n \nThe breadth and complexity of this infrastructure increases the potential risk of security incidents. Despite our implementation of security controls, our systems and networks are vulnerable to computer viruses, malware, worms, hackers and other security issues, including physical and electronic break-ins, router disruption, sabotage or espionage, disruptions from unauthorized access and tampering (including through social engineering such as phishing attacks), impersonation of authorized users, and coordinated denial-of-service attacks. Cyber security incidents may involve the covert introduction of malware to computers and networks, and the use of techniques or processes that change frequently, may be disguised or difficult to detect, or are designed to remain dormant until a triggering event, and may continue undetected for a period of time. Cyber incidents have in the past resulted from, and may in the future result from, social engineering or impersonation of authorized users, and may also result from efforts to discover and exploit any design flaws, bugs, security vulnerabilities or security weaknesses, intentional or unintentional acts by employees or other insiders with access privileges, intentional acts of vandalism or fraud by third parties and sabotage. For example, in the past we have experienced cyber security incidents resulting from unauthorized access to our systems, which to date have not had a material impact on our business or results of operations; however, there is no assurance that similar incidents will not cause material impacts in the future. Security incidents, including ransomware attacks, cyber-attacks or cyber-intrusions by computer hackers, foreign governments, cyber terrorists or others with grievances against the industry in which we operate or us in particular, may disable or damage the proper functioning of our networks and systems and result in a significant disruption of our business and potentially significant payments to restore the networks and systems. We review and update our systems and have implemented processes and procedures to protect against security incidents and unauthorized access to our data, although we cannot provide assurances that these efforts will be successful. \n \nIn addition, the transition of our workforce to a hybrid work environment, where our employees are often working remotely, could also increase our vulnerability to risks related to our hardware and software systems, including risks of phishing and other cybersecurity attacks. Our systems may be subject to additional risk introduced by software that we license from third parties. This licensed software may introduce vulnerabilities within our own operations as it is integrated with our systems, or as we provide client services through partnership agreements. \n \nIt is also possible that our security controls over personal and other data may not prevent unauthorized access to, or destruction, loss, theft, misappropriation or release of personally identifiable or other proprietary, confidential, sensitive or valuable information of ours or others; this access could lead to potential unauthorized disclosure of confidential personal, Company or client information that others could use to compete against us or for other disruptive, destructive or harmful purposes and outcomes. Any such disclosure or damage to our networks and systems could subject us to third-party claims against us and reputational harm, including statutory damages under California or other state law, regulatory penalties and significant costs of incident investigation, remediation and notification. If these events occur, our ability to attract new clients or talent may be impaired or we may be subjected to damages or penalties. While \n\n\n19\n \nTable of Contents\n \n\n\nwe maintain insurance coverage for cybersecurity incidents that we believe are appropriate for our operations, our insurance coverage may not cover all potential claims against us, may require us to meet a deductible or may not continue to be available to us at a reasonable cost.\n \nIn addition, system-wide or local failures of these information technology systems could have a material adverse effect on our business, financial condition, results of operations or cash flows.\n \nLegal and Regulatory Risks\n \nFailure to comply with data privacy laws and regulations could have a materially adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences. \n \nOur employees may have access or exposure to personally identifiable or otherwise confidential information and customer data and systems, the misuse or improper disclosure of which could result in legal liability. The collection, hosting, transfer, disclosure, use, storage and security of personal information required to provide our services is subject to federal, state and foreign data privacy laws. These laws, (\u201cPrivacy and Data Protection Requirements\u201d) which are not uniform, do one or more of the following: regulate the collection, transfer (including in some cases, the transfer outside the country of collection), processing, storage, use and disclosure of personal information, and require notice to individuals of privacy practices\n \nand in some cases consent to collection of personal information; give individuals certain access, correction and deletion rights with respect to their personal information; and prevent the use or disclosure of personal information, or require providing opt-outs for the use and disclosure of personal information, for secondary purposes such as marketing. Under certain circumstances, some of these laws require us to provide notification to affected individuals, data protection authorities and/or other regulators in the event of a data breach. In many cases, these laws apply not only to third-party transactions, but also to transfers of information among us and our subsidiaries.\n \nLaws and regulations in this area are evolving and generally becoming more stringent. For example, the European General Data Protection Regulation (the \u201cGDPR\u201d) requires us to meet stringent requirements regarding (i) our access, use, disclosure, transfer, protection, or otherwise processing of personal data; and (ii) the ability of data subjects to exercise their related various rights such as to access, correct or delete their personal data. Under the GDPR and the United Kingdom\u2019s version of the GDPR, data transfers from the European Union and the United Kingdom to the United States are generally prohibited unless certain measures are followed. The 2018 California Consumer Privacy Act (\u201cCCPA\u201d) imposes similar requirements. New privacy laws in California, Colorado, Connecticut, Utah and Virginia have either taken effect or will take effect in 2023, and new privacy laws recently enacted in Iowa, Indiana, Montana, Tennessee and Texas will take effect over the next few years. There is also the possibility of federal privacy legislation and increased enforcement by the Federal Trade Commission under its power to regulate unfair and deceptive trade practices. Key markets in the Asia Pacific region have also recently adopted GDPR-like legislation, including China\u2019s new Personal Information Protection Law. Failure to meet Privacy and Data Protection Law requirements could result in significant civil penalties (including fines up to 4% of annual worldwide revenue under the GDPR) as well as criminal penalties. Privacy and data protection law requirements also confer a private right of action in some countries, including under the GDPR.\n \nAs these laws continue to evolve, we may be required to make changes to our systems, services, solutions and/or products to enable us and/or our clients to meet the new legal requirements, including by taking on more onerous obligations in our contracts, limiting our storage, transfer and processing of data and, in some cases, limiting our service and/or solution offerings in certain locations. Changes in these laws, or the interpretation and application thereof, may also increase our potential exposure through significantly higher potential penalties for non-compliance. The costs of compliance with, and other burdens imposed by, such laws and regulations and client demand in this area may limit the use of, or demand for, our services, solutions and/or products, make it more difficult and costly to meet client expectations, or lead to significant fines, penalties or liabilities for noncompliance, any of which could adversely affect our business, financial condition, and results of operations.\n \nFailure to comply with governmental, regulatory and legal requirements or with our company-wide Code of Business Conduct and Ethics, Compliance Policy for Anti-Bribery and Anti-Corruption Laws, Insider Trading Policy, Code of Vendor Conduct and Ethics and other policies could lead to governmental or legal proceedings that could expose us to significant liabilities and damage our reputation.\n \nWe are subject to governmental, regulatory and legal requirements in each jurisdiction in which we operate. While we seek to remain in compliance with such legal and regulatory requirements, there may be changes to regulatory schemes in jurisdictions in which we operate that are outside our control and our efforts to remain in compliance with such changes may adversely affect our business and operating results.\n \nWe have a robust Code of Business Conduct and Ethics, Compliance Policy for Anti-Bribery and Anti-Corruption Laws, Insider Trading Policy, Code of Vendor Conduct and Ethics and other policies and procedures that are designed to educate and establish the standards of conduct that we expect from our executive officers, outside directors, employees, consultants, independent contractors and vendors. These policies require strict compliance with U.S. and local laws and regulations applicable to our business operations, \n\n\n20\n \nTable of Contents\n \n\n\nincluding those laws and regulations prohibiting improper payments to government officials. In addition, as a corporation whose securities are registered under the Exchange Act and publicly traded on the Nasdaq Stock Market, our executive officers, outside directors, employees, consultants and independent contractors are required to comply with the prohibitions against insider trading of our securities. \n \nNonetheless, we cannot assure our stakeholders that our policies, procedures and related training programs will ensure full compliance with all applicable legal requirements. Illegal or improper conduct by our executive officers, directors, employees, consultants or independent contractors, or others who are subject to our policies and procedures could damage our reputation in the U.S. and internationally, which could adversely affect our existing client relationships or adversely affect our ability to attract and retain new clients, or lead to litigation or governmental or regulatory proceedings in the U.S. or foreign jurisdictions, which could result in civil or criminal penalties, including substantial monetary awards, fines and penalties, as well as disgorgement of profits.\n \nWe may be legally liable for damages resulting from the actions of our employees, the performance of projects by our consultants or for our clients\u2019 mistreatment of our personnel.\n \nMany of our engagements with our clients involve projects or services critical to our clients\u2019 businesses. If we fail to meet our contractual obligations, we could be subject to legal liability or damage to our reputation, which could adversely affect our business, operating results and financial condition. While we are not currently subject to any client-related legal claims which we believe are material, it remains possible, because of the nature of our business, that we may be involved in litigation in the future that could materially affect our future financial results. Claims brought against us could have a serious negative effect on our reputation and on our business, financial condition and results of operations.\n \nBecause we are in the business of placing our personnel in the workplaces of other companies, we are subject to possible claims by our personnel alleging discrimination, sexual harassment, negligence and other similar activities by our clients. We may also be subject to similar claims from our clients based on activities by our personnel. We may also be subject to claims of or relating to wrongful termination, violation of employment rights related to employment screening or privacy issues; misclassification of workers as employees or independent contractors; violation of wage and hour requirements and other labor laws; employment of undocumented noncitizens; criminal activity; torts; breach of contract; failure to protect confidential personal information; intentional criminal misconduct; misuse or misappropriation of client intellectual property; employee benefits; or other claims. In some cases, we are contractually obligated to indemnify our clients against such risks. The cost of defending such claims, even if groundless, could be substantial and the associated negative publicity could adversely affect our ability to attract and retain personnel and clients. We could also be subject to injunctive relief, criminal investigations and/or charges, monetary damages or fines that may be significant, or other material adverse effects on our business. \n \nTo reduce our exposure, we maintain policies, procedures and guidelines to promote compliance with laws, rules, regulations and best practices applicable to our business. We also maintain insurance coverage for professional malpractice liability, fidelity, employment practices liability and general liability in amounts and with deductibles that we believe are appropriate for our operations. However, our insurance coverage may not cover all potential claims against us, may require us to meet a deductible or may not continue to be available to us at a reasonable cost. In this regard, we face various employment-related risks not covered by insurance, such as wage and hour laws and employment tax responsibility. U.S. courts in recent years have been receiving large numbers of wage and hour class action claims.\n \nIn addition, the use or misuse of social media by our employees or others could reflect negatively on us or our clients and could have a material adverse effect on our business, financial condition and results of operations. The available legal remedies for the use or misuse of social media may not adequately compensate us for the damages caused by such use or misuse and consequences arising from such actions.\n \nChanges in applicable tax laws or adverse results in tax audits or interpretations could have a material adverse effect on our business and operating results.\n \nWe are subject to income and other taxes in the U.S. at the federal and state level and also in foreign jurisdictions. Future changes in applicable tax laws and regulations, including changes in tax rates in the jurisdictions in which we operate, are outside our control and are difficult to predict given the political, budgetary and other challenges. Such changes could adversely affect our business and operating results.\n \nWe are also subject to periodic federal, state and local tax audits for various tax years. Although we attempt to comply with all taxing authority regulations, adverse findings or assessments made by taxing authorities as the result of an audit could have a material adverse effect on us.\n \n\n\n21\n \nTable of Contents\n \n\n\n \nReclassification of our independent contractors by foreign tax or regulatory authorities could have an adverse effect on our business model and/or could require us to pay significant retroactive wages, taxes and penalties.\n \nInternationally, our consultants are a blend of employees and independent contractors. Independent contractor arrangements are more common abroad than in the U.S. due to the labor laws, tax regulations and customs of the international markets we serve. However, changes to foreign laws governing the definition or classification of independent contractors, or judicial decisions regarding independent contractor classification, could require classification of consultants as employees. Such reclassification could have an adverse effect on our business and results of operations, could require us to pay significant retroactive wages, taxes and penalties, and could force us to change our contractor business model in the foreign jurisdictions affected.\n \nRisks Related to Our Corporate and Capital Structure\n \nIt may be difficult for a third party to acquire us, and this could depress our stock price.\n \nDelaware corporate law and our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain provisions that could delay, defer or prevent a change of control of the Company or our management. These provisions could also discourage proxy contests and make it difficult for our stockholders to elect directors and take other corporate actions. As a result, these provisions could limit the price that future investors are willing to pay for our shares. These provisions:\n \n\uf0b7\nauthorize our Board of Directors to establish one or more series of undesignated preferred stock, the terms of which can be determined by the Board of Directors at the time of issuance;\n\uf0b7\ndivide our Board of Directors into three classes of directors, with each class serving a staggered three-year term. Because the classification of the Board of Directors generally increases the difficulty of replacing a majority of the directors, it may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us and may make it difficult to change the composition of the Board of Directors;\n\uf0b7\nprohibit cumulative voting in the election of directors which, if not prohibited, could allow a minority stockholder holding a sufficient percentage of a class of shares to ensure the election of one or more directors;\n\uf0b7\nrequire that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing;\n\uf0b7\nstate that special meetings of our stockholders may be called only by the Chairman of the Board of Directors, by our Chief Executive Officer, by the Board of Directors after a resolution is adopted by a majority of the total number of authorized directors, or by the holders of not less than 10% of our outstanding voting stock;\n\uf0b7\nestablish advance notice requirements for submitting nominations for election to the Board of Directors and for proposing matters that can be acted upon by stockholders at a meeting;\n\uf0b7\nprovide that certain provisions of our certificate of incorporation and bylaws can be amended only by supermajority vote (a 66 2/3% majority) of the outstanding shares. In addition, our Board of Directors can amend our bylaws by majority vote of the members of our Board of Directors;\n\uf0b7\nallow our directors, not our stockholders, to fill vacancies on our Board of Directors; and\n\uf0b7\nprovide that the authorized number of directors may be changed only by resolution of the Board of Directors.\n \n \nThe terms of our Credit Facility impose operating and financial restrictions on us, which may limit our ability to respond to changing business and economic conditions.\n \nWe currently have a $175.0 million senior secured loan (the \u201cCredit Facility\u201d) which matures on November 12, 2026. We are subject to various operating covenants under the Credit Facility which restrict our ability to, among other things, incur liens, incur additional indebtedness, make certain restricted payments, merge or consolidate and make dispositions of assets. The Credit Facility also requires us to comply with financial covenants limiting our total funded debt, minimum interest coverage ratio and maximum leverage ratio. Any failure to comply with these covenants may constitute a breach under the Credit Facility, which could result in the acceleration of all or a substantial portion of any outstanding indebtedness and termination of revolving credit commitments under the Credit Facility. Our inability to maintain our Credit Facility could materially and adversely affect our liquidity and our business.\n \n\n\n22\n \nTable of Contents\n \n\n\n \nOur Credit Facility bears a variable rate of interest that is based on the Secured Overnight Financing Rate (\u201cSOFR\u201d) which may have consequences for us that cannot be reasonably predicted and may adversely affect our liquidity, financial condition, and earnings. \n \nBorrowings under our Credit Facility bear interest at a rate per annum of either, at our election, (i) Term SOFR (as defined in the credit agreement evidencing the Credit Facility (the \u201cCredit Agreement\u201d)) plus a margin or (ii) the Base Rate (as defined in the Credit Agreement), plus a margin, with the applicable margin depending on our consolidated leverage ratio. Since the initial publication of SOFR, daily changes in the rate have, on occasion, been more volatile than daily changes in comparable benchmark or market rates, and SOFR over time may bear little or no relation to the historical actual or historical indicative data. Additionally, our Credit Agreement includes a credit adjustment on SOFR due to LIBOR representing an unsecured lending rate while SOFR represents a secured lending rate. It is possible that the volatility of SOFR and the applicable credit adjustment could result in higher borrowing costs for us, and could adversely affect our liquidity, financial condition, and earnings.\n \nWe may be unable to or elect not to pay our quarterly dividend payment.\n \nWe currently pay a regular quarterly dividend, subject to quarterly Board of Directors\u2019 approval. The payment of, or continuation of, the quarterly dividend is at the discretion of our Board of Directors and is dependent upon our financial condition, results of operations, capital requirements, general business conditions, tax treatment of dividends in the U.S., contractual restrictions contained in credit agreements and other agreements and other factors deemed relevant by our Board of Directors. We can give no assurance that dividends will be declared and paid in the future. The failure to pay the quarterly dividend, reduction of the quarterly dividend rate or the discontinuance of the quarterly dividend could adversely affect the trading price of our common stock.\n ",
+  "item7": ">ITEM\u00a07.\u00a0\u00a0\u00a0\u00a0\nMANAGEME\nNT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.\n \nThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Part\u00a0I, Item\u00a01A \u201cRisk Factors\u201d and elsewhere in this Annual Report on Form\u00a010\u00a0K. See \u201cForward Looking Statements\u201d above for further explanation.\n \nOverview\n \nResources Global Professionals is a global consulting firm focused on project execution services that power clients\u2019 operational needs and change initiatives utilizing on-demand, experienced and diverse talent. As a next-generation human capital partner for our clients, we specialize in co-delivery of enterprise initiatives typically precipitated by business transformation, strategic transactions or regulatory change. Our engagements are designed to leverage human connection, expertise and collaboration to deliver practical solutions and more impactful results that power our clients\u2019, consultants\u2019 and partners\u2019 success. \n \nA disruptor within the professional services industry since its founding in 1996, today we embrace our differentiated agile delivery model. The trends in today\u2019s marketplace favor flexibility and agility as businesses confront transformation pressures and speed-to-market challenges. As talent preferences continue to shift in the direction of flexibility, choice and control, employers competing in today\u2019s business environment must rethink the way work gets done and consider implementing new, more agile workforce strategies.\n \nOur client engagement and talent delivery model offer speed and agility and strongly positions us to help our clients transform their businesses and workplaces, especially in a time where high-quality talent is increasingly scarce and the usage of a flexible workforce to execute transformational projects is becoming the dominant operating model. Based in Irvine, California, with offices worldwide, we attract top-caliber professionals with in-demand skillsets who seek a workplace environment that embraces flexibility, collaboration and human connection. Our agile professional services model allows us to quickly align the right resources for the work at hand with speed and efficiency in ways that bring value to both our clients and talent. See Part I, Item 1 \u201cBusiness\u201d for further discussions about our business and operations. \n \nWe are laser focused on driving long-term growth in our business by seizing the favorable macro shifts in workforce strategies and preferences, building an efficient and scalable operating model, and maintaining a distinctive culture and approach to professional services. Our enterprise initiatives in recent years include refining the operating model for sales, talent and delivery to be more client-centric, cultivating a more robust performance culture by aligning incentives to business performance, building and commercializing our digital engagement platform, enhancing our consulting capabilities in digital transformation to align with market demand, improving operating leverage through pricing, operating efficiency and cost reduction, and driving growth through strategic acquisitions. We believe our focus and execution on these initiatives will serve as the foundation for growth ahead.\n \nFiscal 2023 Strategic Focus Areas\n \nIn fiscal 2023, our strategic focus areas were:\n \n\uf0b7\nTransform digitally;\n\uf0b7\nAmplify brand voice and optimize solution offerings;\n\uf0b7\nDeepen client centricity;\n\uf0b7\nEnhance pricing; and\n\uf0b7\nPursue targeted mergers and acquisitions.\n \nTransform digitally\n \u2013 Our first area of focus was to improve operational efficiency, scale business growth, transform stakeholder experience and create long-term sustainability and stockholder value through digital means. \n \nWe believe the use of technology platforms to match clients and talent is the future of professional staffing. HUGO by RGP\n\u00ae\n (\u201cHUGO\u201d), our digital engagement platform, offers such an experience for clients and talent in the professional staffing space to connect, engage and even transact directly. We piloted the platform in three primary markets \u2013 New York/New Jersey, Southern California and Texas, and have \ncontinued to expand its functionality with further artificial intelligence and machine learning. We have also been developing sales and marketing strategies to increase client and talent adoption of the platform.\n \nWe plan to expand the geographic reach to other key markets within the U.S. in fiscal 2024\n. Over time, we expect to be able to drive volume through the HUGO platform by attracting more small- and medium-sized businesses looking for interim support and by serving a larger percentage of our current professional staffing business, which we believe will not only drive top-line growth but also enhance profitability. \n \n\n\n26\n \nTable of Contents\n \n\n\n \nWe made significant progress executing the multi-year project to modernize and elevate our technology infrastructure globally, including a cloud-based enterprise resource planning system and talent acquisition and management system. The new systems are expected to be deployed globally in two phases, first in North America, then in the Europe and Asia Pacific regions. As of end of the fiscal year, we completed our global system design as well as configuration and build for the North America phase according to our project roadmap and expect to go live in North America in fiscal 2024. We believe our investment in these technology transformation initiatives will accelerate our efficiency and data-led decision-making capabilities, optimize process flow and automation, improve consultant recruitment and retention, drive business growth with operational agility, scale our operations and further support our growth, goals and vision.\n \nThe third component of our digital transformation is to expand our digital consulting capabilities and geographic reach to better serve our clients. As our clients continue to accelerate their digital and workforce paradigm transformations, the need for automation and self-service has been an increasing trend. In fiscal 2023, we established a delivery hub in India to strengthen and augment our digital delivery capabilities; we integrated our digital business in Asia Pacific with Veracity in North America to scale our digital practice and to expand our geographic reach; we fortified our digital sales and business development infrastructure positioning us for growth; and finally we successfully penetrated into many new clients across the globe with our digital transformation services. We believe demand in the digital transformation arena will continue to be a growth driver for our business.\n \nAmplify brand voice and optimize solution offerings\n \n\u2013 Our second focus area for fiscal year 2023 was to bring clarity and attention to our brand positioning to own the opportunity around project execution. \nRGP has always focused our business on project execution, which is a distinct space on the continuum between strategy consulting and interim deployment. Our business model of utilizing experienced talent to flatten the traditional consulting delivery pyramid is highly sought after in today\u2019s market. Most clients are capable of formulating business strategy organically or with the help of a strategy firm; where they need help is in the ownership of executing the strategy. \n \nIn fiscal 2023, we made progress on clarifying our brand and activating our new brand positioning with our new tagline \u2015 \nDare to Work Differently.\n \nTM\n \u2015 which we believe showcases our hybrid workforce strategy and our ability to execute with subject matter expertise where our clients need us most. Our co-delivery ethos was focused around partnering with clients on project execution. Our brand marketing will continue to emphasize and accentuate our unique qualifications in this arena. We believe clear articulation and successful marketing of our distinctive market position is key to attracting and retaining both clients and talent, enabling us to drive growth.\n \nKey focus areas supporting this initiative included: refining and finalizing our proposed solution architecture that clearly defines RGP\u2019s core service offerings and streamlines the sales process; validating the proposed messaging and architecture via roundtables with internal and external stakeholders; and launching the new brand positioning and messaging through dynamic assets such as advertising campaigns, videos and events.\n \nDeepen client centricity\n \n\u2013 The third area of focus for fiscal 2023 was to continue to deepen and broaden our trusted client relationships through expanded marquee account and key industry vertical programs to increase account penetration. We maintained our Strategic Client Account program to serve a number of our largest clients with dedicated global account teams. During fiscal 2023, we expanded the Strategic Client Account and industry programs by adding clients and taking a more client-centric and borderless approach to serving these clients. We believe this focus has and will continue to enhance our opportunities to develop in-depth knowledge of these clients\u2019 needs and the ability to increase the scope and size of projects with those clients. \n \nIn addition, we formed a new Emerging Accounts program, which consists of smaller clients where demand tends to be more episodic. Our newly formed dedicated account team has been able to serve this segment of clients with more focus and attention while nurturing and growing the depth of client relationships. Our services continue to emphasize a relationship-oriented approach to business rather than a transaction-oriented or assignment-oriented approach. Client relationships and needs are addressed from a client-centric, not geographic, perspective so that our experienced management team and consultants understand our clients\u2019 business issues and help them define their project needs to deliver an integrated, relationship-based approach to meeting the clients\u2019 objectives. We believe that by continuing to deliver high-quality services and by deepening our relationships with our clients, we can capture a significantly larger share of our clients\u2019 professional services budgets.\n \nEnhance pricing\n \n\u2013 Fourth, we have made solid progress in evolving and enhancing our pricing strategy to ensure we adopt a value-based approach for our project execution services, which has become increasingly more relevant and in demand in the current macro environment. As we deepen our client relationships and raise our clients\u2019 perception of our ability to add value through our services, we anticipate further increasing bill rates for our services to appropriately capture the value of the talent and solutions delivered. We created more centralized pricing governance, strategy and approach; we conducted a deep pricing analysis to identify and develop areas that need improvement; and we instituted new pricing training for all sales, talent and other go-to-market team members. Through these actions, we have been able to achieve higher bill rates across a majority of the markets in the current fiscal year to drive topline revenue and profitability.\n \n\n\n27\n \nTable of Contents\n \n\n\n \nPursue targeted mergers and acquisitions\n \n\u2013 \nLastly, we have been actively pursuing strategic acquisitions to accelerate growth. Our acquisition strategy is centered around driving additional scale or expanding consulting capabilities that complement or augment our existing core competencies. In particular, we have been actively building a pipeline of acquisition opportunities in the areas of digital and CFO services consulting. We believe our expansive client base, deep client relationships and expert agile talent pool are attractive value propositions to potential targets and will enable us to drive post acquisition synergies and growth for the business.\n \nCritical Accounting Policies and Estimates\n \nThe discussion and analysis of our financial condition and results of operations included in this Item 7 \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (\u201cGAAP\u201d). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.\n \nWe base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.\n \nThe following represents a summary of our accounting policies that involve critical accounting estimates, defined as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.\n \nRevenue recognition\n \u2014 Revenues are recognized when control of the promised service is transferred to our clients, in an amount that reflects the consideration expected in exchange for the services. Revenue is recorded net of sales or other transaction taxes collected from clients and remitted to taxing authorities. Revenues for the vast majority of our contracts are recognized over time, based on hours worked by our professionals. The performance of the agreed-upon service over time is the single performance obligation for revenues. \n \nOn a limited basis, the Company may have fixed-price contracts, for which revenues are recognized over time using the input method based on time incurred as a proportion of estimated total time. Time incurred represents work performed, which corresponds with, and therefore best depicts, the transfer of control to the client. Management uses significant judgments when estimating the total hours expected to complete the contract performance obligation. It is possible that updated estimates for consulting engagements may vary from initial estimates with such updates being recognized in the period of determination. Depending on the timing of billings and services rendered, the Company accrues or defers revenue as appropriate. \n \nCertain clients may receive discounts (for example, volume discounts or rebates) to the amounts billed. These discounts or rebates are considered variable consideration. Management evaluates the facts and circumstances of each contract and client relationship to estimate the variable consideration, assessing the most likely amount to recognize and considering management\u2019s expectation of the volume of services to be provided over the applicable period. Rebates are the largest component of variable consideration and are estimated using the most-likely-amount method prescribed by Accounting Standards Codification Topic 606, \nRevenue from Contracts with Customers\n, contracts terms and estimates of revenue. Revenues are recognized net of variable consideration to the extent that it is probable that a significant reversal of revenues will not occur in subsequent periods. Changes in estimates would result in cumulative catch-up adjustments and could materially impact our financial results. Rebates recognized as contra-revenue for the years ended May\u00a027, 2023, May 28, 2022 and May 29, 2021 were $3.2 million, $3.1 million and $2.6 million, respectively.\n \nAllowance for doubtful accounts\n \u2014 We maintain an allowance for doubtful accounts for estimated losses resulting from our clients failing to make required payments for services rendered. We estimate this allowance based upon our knowledge of the financial condition of our clients (which may not include knowledge of all significant events), review of historical receivable and reserve trends and other pertinent information. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates we have in the past. As of May 27, 2023 and May 28, 2022, we had an allowance for doubtful accounts of $3.3 million and $2.1 million, respectively. A significant change in the liquidity or financial position of our clients could cause unfavorable trends in receivable collections and additional allowances may be required. These additional allowances could materially affect our future financial results.\n \n\n\n28\n \nTable of Contents\n \n\n\nIncome taxes\n \u2014 In order to prepare our Consolidated Financial Statements, we are required to make estimates of income taxes, if applicable, in each jurisdiction in which we operate. The process incorporates an assessment of any income subject to taxation in each jurisdiction together with temporary differences resulting from different treatment of transactions for tax and financial statement purposes. These differences result in deferred tax assets and liabilities that are included in our Consolidated Balance Sheets. The recovery of deferred tax assets from future taxable income must be assessed and, to the extent recovery is not likely, we will establish a valuation allowance. An increase in the valuation allowance results in recording additional tax expense and any such adjustment may materially affect our future financial results. If the ultimate tax liability differs from the amount of tax expense we have reflected in the Consolidated Statements of Operations, an adjustment of tax expense may need to be recorded and this adjustment may materially affect our future financial results and financial condition.\n \nWe evaluate the realizability of our deferred tax assets based on all available evidence and establish a valuation allowance to reduce deferred tax assets when it is more likely than not that they will not be realized. When all available evidence indicates that the deferred tax assets are more likely than not to be realized, a valuation allowance is not required to be recorded or an existing valuation allowance is reversed. Management assesses all available positive and negative evidence, including (1) three-year cumulative pre-tax income or loss adjusted for permanent tax differences, (2) history of operating losses and of net operating loss carryforwards expiring unused, (3) evidence of future reversal of existing taxable temporary differences, (4) availability of sufficient taxable income in prior years, (5) tax planning strategies, and (6) projection of future taxable income, to determine the need to establish or release a valuation allowance on the deferred tax assets. An increase or decrease in valuation allowance will result in a corresponding increase or decrease in tax expense, and any such adjustment may materially affect our future financial results.\n \nWe also evaluate our uncertain tax positions and only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50 percentage likelihood of being realized upon settlement. We record a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Any change in judgment related to the expected ultimate resolution of uncertain tax positions is recognized in earnings in the period in which such change occurs. \n \nAs of May 27, 2023 and May 28, 2022, a valuation allowance of $6.5 million and $8.2 million was established on deferred tax assets totaling $33.2 million and $34.3 million, respectively. Our income tax for the years ended May 27, 2023, May 28, 2022 and May 29, 2021 was an expense of $18.3 million, an expense of $15.8 million and a benefit of $2.5 million, respectively. \nAs of May 27, 2023 and May 28, 2022, our total liability for unrecognized tax benefits was $1.0 million and $0.9 million, respectively.\n \nStock-based compensation\n \u2014 Under our 2020 Performance Incentive Plan, officers, employees, and outside directors have received or may receive grants of restricted stock awards, restricted stock units, performance stock units, options to purchase common stock or other stock or stock-based awards. Under our ESPP, eligible officers and employees may purchase our common stock at a discount in accordance with the terms of the plan. During fiscal 2023, the Company issued performance stock unit awards under the 2020 Performance Incentive Plan that will vest upon the achievement of certain company-wide performance targets at the end of the defined three-year performance period. \nVesting periods for restricted stock awards, restricted stock units and stock option awards range from three to four years.\n \nWe estimate the fair value of stock-based payment awards on the date of grant as described below. We determine the estimated value of restricted stock awards, restricted stock unit and performance stock unit awards using the closing price of our common stock on the date of grant. We have elected to use the Black-Scholes option-pricing model for our stock options and stock purchased under our ESPP which takes into account assumptions regarding a number of complex and subjective variables. These variables include the expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Additional variables to be considered are the expected term, expected dividends and the risk-free interest rate over the expected term of our employee stock options. \n \nWe use our historical volatility over the expected life of the stock option award and ESPP award to estimate the expected volatility of the price of our common stock. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options. The impact of expected dividends ($0.14 per share for each quarter during fiscal 2023, 2022 and 2021) is also incorporated in determining the estimated value per share of employee stock option grants and purchases under our ESPP. Such dividends are subject to quarterly Board of Directors\u2019 approval. Our expected life of stock option grants is 5.6\u00a0years for non-officers and 8.1\u00a0years for officers, and the expected life of grants under our ESPP is 6 months. \n \nIn addition, because stock-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates, and in the case of performance stock units, based on the actual performance. The number of performance stock units earned at the end of the performance period may equal, exceed or be less than the targeted number of shares depending on whether the performance criteria are met, surpassed or not met. During each reporting period, the Company uses the latest forecasted results to estimate the number of shares to be issued at the end of the performance period. Any \n\n\n29\n \nTable of Contents\n \n\n\nresulting changes to stock compensation expense are adjusted in the period in which the change in estimates occur. Forfeitures are estimated based on historical experience.\n \nWe review the underlying assumptions related to stock-based compensation at least annually or more frequently if we believe triggering events exist. If facts and circumstances change and we employ different assumptions in future periods, the compensation expense recorded may differ materially from the amount recorded in the current period. Stock-based compensation expense for the years ended May 27, 2023, May 28, 2022 and May 29, 2021 was $9.5 million, $8.2 million and $6.6 million, respectively.\n \nValuation of long-lived assets \u2014 \nFor long-lived tangible and intangible assets, including property and equipment, right-of-use (\u201cROU\u201d) assets, and definite-lived intangible assets, we assess the potential impairment periodically or whenever events or changes in circumstances indicate the carrying value may not be recoverable\n from the estimated undiscounted expected future cash flows expected to result from their use and eventual disposition. In cases where the estimated undiscounted expected future cash flows are less than net book value, an impairment loss is recognized equal to the amount by which the net book value exceeds the estimated fair value of assets. We performed our assessment of potential qualitative impairment indicators of long-lived assets, including property and equipment, ROU \nassets\n outside of exited markets, and definite-lived intangible assets as of May 27, 2023. We determined that for such long-lived assets, no impairment indicators were present as of May 27, 2023, and no impairment charge was recorded during fiscal 2023. \n \nFor ROU assets within exited markets under our restructuring plans, we assess the potential impairment whenever an impairment indicator was present. For further discussion regarding impairment of ROU \nassets\n in exited markets, see Note 14 \u2013 \nRestructuring Activities\n \nin the Notes to Consolidated Financial Statements included in Part II, Item\u00a08 of this Annual Report on Form 10-K\n. Estimating future cash flows requires significant judgment, and our projections may vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could result in an impairment in the future. \nAlthough the impairment is a non-cash expense, it could\n materially affect our future financial results and financial condition. \n \nGoodwill \n\u2014\n \nGoodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. We evaluate goodwill for impairment annually on the last day of our fiscal year, and whenever events indicate that it is more likely than not that the fair value of a reporting unit could be less than its carrying amount. In assessing the recoverability of goodwill, we make a series of assumptions including forecasted revenue and costs, estimates of future cash flows, discount rates and other factors, which require significant judgment. A potential impairment in the future, although a non-cash expense, could materially affect our financial results and financial condition. \n \nIn testing the goodwill of our reporting units for impairment, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of each of our reporting units is less than their respective carrying amounts. If it is deemed more likely than not that the fair value of a reporting unit is greater than its carrying value, no further testing is needed and goodwill is not impaired. Otherwise, the next step is a quantitative comparison of the fair value of the reporting unit to its carrying amount. We have the option\n to bypass the qualitative assessment for any reporting unit and proceed directly to performing the quantitative goodwill impairment test.\n If a reporting unit\u2019s estimated fair value is equal to or greater than that reporting unit\u2019s carrying value, no impairment of goodwill exists and the testing is complete. If the reporting unit\u2019s carrying amount is greater than the estimated fair value, then a non-cash impairment charge is recorded for the amount of the difference, not exceeding the total amount of goodwill allocated to the reporting unit.\n \nUnder the quantitative analysis, the estimated fair value of goodwill is determined by using a combination of a market approach and an income approach. The market approach estimates fair value by applying revenue and EBITDA multiples to each reporting unit\u2019s operating performance. The multiples are derived from guideline public companies with similar operating and investment characteristics to our reporting units, and are evaluated and adjusted, if needed, based on specific characteristics of the reporting units relative to the selected guideline companies. The market approach requires us to make a series of assumptions that involve significant judgment, such as the selection of comparable companies and the evaluation of the multiples. The income approach estimates fair value based on our estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital that reflects the relevant risks associated with each reporting unit and the time value of money. The income approach also requires us to make a series of assumptions that involve significant judgment, such as discount rates, revenue projections and Adjusted EBITDA margin projections. We estimate our discount rates on a blended rate of return considering both debt and equity for comparable guideline public companies. We forecast our revenue and Adjusted EBITDA margin based on historical experience and internal forecasts about future performance.\n \nThe following is a discussion of our goodwill impairment tests performed during fiscal 2023.\n \nThird Quarter 2023 Goodwill Impairment Test\n \nAs further discussed in Note 2 \u2013 \nSummary of Significant Accounting Policies\n and Note 5 \u2013 \nGoodwill and Intangible Assets\n \nin the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, during the third quarter of fiscal 2023, the Company determined the existence of impairment indicators on goodwill associated with Sitrick, one of the Company\u2019s operating segments and reporting units, as a result of its declining business performance. Based on the quantitative \n\n\n30\n \nTable of Contents\n \n\n\nimpairment test, the Company concluded that the carrying amount of Sitrick exceeded its fair value, which resulted in an impairment charge of $3.0 million on the goodwill within the Company\u2019s Other Segments on the Consolidated Statements of Operations. No goodwill remains within Other Segments as of May 27, 2023.\n \n2023 Annual Goodwill Impairment Analysis\n \nWe performed our annual goodwill impairment test as of May 27, 2023 on our RGP reporting unit. We elected to perform a qualitative analysis and assessed the relevant events and circumstances to determine if it is more likely than not that the fair value of our reporting unit is less than its carrying amount. We considered such events and circumstances including macroeconomic factors, industry and market conditions, financial performance indicators and measurements, and other factors. Based on our assessment of these factors, we do not believe that it is more likely than not that the fair value of our reporting unit is less than its carrying value, and no further testing is needed. \nWe concluded that there was no goodwill impairment as of May 27, 2023. \n \nWhile we believe that the assumptions underlying our qualitative assessment are reasonable, these assumptions could have a significant impact on whether a non-cash impairment charge is recognized and the magnitude of such charge. The results of an impairment analysis are as of a point in time. There is no assurance that the actual future earnings or cash flows of our reporting units will be consistent with our projections. We will continue to monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods.\n \n \nNon-GAAP Financial Measures\n \nWe use certain non-GAAP financial measures to assess our financial and operating performance that are not defined by or calculated in accordance with GAAP. A non-GAAP financial measure is defined as a numerical measure of a company\u2019s financial performance that (i)\u00a0excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the Consolidated Statements of Operations; or (ii)\u00a0includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable GAAP measure so calculated and presented.\n \nOur primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results. \n \n\uf0b7\nSame-day constant currency revenue is adjusted for the following items:\no\nCurrency impact. In order to remove the impact of fluctuations in foreign currency exchange rates, we calculate same-day constant currency revenue, which represents the outcome that would have resulted had exchange rates in the current period been the same as those in effect in the comparable prior period. \no\nBusiness days impact. In order to remove the fluctuations caused by comparable periods having a different number of business days, we calculate same-day revenue as current period revenue (adjusted for currency impact) divided by the number of business days in the current period, multiplied by the number of business days in the comparable prior period. The number of business days in each respective period is provided in the \u201cNumber of Business Days\u201d section in the table below.\n\uf0b7\nEBITDA is calculated as net income before amortization expense, depreciation expense, interest and income taxes.\n\uf0b7\nAdjusted EBITDA is calculated as EBITDA plus or minus stock-based compensation expense, technology transformation costs, goodwill impairment, restructuring costs, and contingent consideration adjustments. Adjusted EBITDA at the segment level excludes certain shared corporate administrative costs that are not practical to allocate.\n\uf0b7\nAdjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue.\n \n\n\n31\n \nTable of Contents\n \n\n\n \nSame-Day Constant Currency Revenue\n \nSame-day constant currency revenue assists management in evaluating revenue trends on a more comparable and consistent basis. We believe this measure also provides more clarity to our investors in evaluating our core operating performance and facilitates a comparison of such performance from period to period. The following table presents a reconciliation of same-day constant currency revenue, a non-GAAP financial measure, to revenue as reported in the Consolidated Statements of Operations, the most directly comparable GAAP financial measure, by geography. \n \nRESOURCES CONNECTION, INC.\nRECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES\n(In thousands, except number of business days) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nThree Months Ended\n \nFor the Years Ended\nRevenue by Geography\n \nMay 27,\n \nMay 28,\n \nMay 27,\n \nMay 28,\n \n \n2023\n \n2022\n \n2023\n \n2022\n \n \n(Unaudited)\n \n(Unaudited)\n \n(Unaudited, except for GAAP amounts)\nNorth America\n \n \n \n \n \n \n \n \n \n \n \n \nAs reported (GAAP)\n \n$\n 160,999\n \n$\n 183,817\n \n$\n 680,993\n \n$\n 676,419\nCurrency impact\n \n \n (333)\n \n \n \n \n \n (504)\n \n \n \nBusiness days impact\n \n \n -\n \n \n \n \n \n -\n \n \n \nSame-day constant currency revenue\n \n$\n 160,666\n \n \n \n \n$\n 680,489\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nEurope\n \n \n \n \n \n \n \n \n \n \n \n \nAs reported (GAAP) \n(1)\n \n$\n 10,757\n \n$\n 19,433\n \n$\n 42,509\n \n$\n 76,075\nCurrency impact\n \n \n 222\n \n \n \n \n \n 4,419\n \n \n \nBusiness days impact\n \n \n 133\n \n \n \n \n \n 871\n \n \n \nSame-day constant currency revenue\n \n$\n 11,112\n \n \n \n \n$\n 47,799\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nAsia Pacific\n \n \n \n \n \n \n \n \n \n \n \n \nAs reported (GAAP)\n \n$\n 12,693\n \n$\n 13,781\n \n$\n 52,141\n \n$\n 52,524\nCurrency impact\n \n \n 805\n \n \n \n \n \n 5,509\n \n \n \nBusiness days impact\n \n \n 48\n \n \n \n \n \n 516\n \n \n \nSame-day constant currency revenue\n \n$\n 13,546\n \n \n \n \n$\n 58,166\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nTotal Consolidated\n \n \n \n \n \n \n \n \n \n \n \n \nAs reported (GAAP) \n(1)\n \n$\n 184,449\n \n$\n 217,031\n \n$\n 775,643\n \n$\n 805,018\nCurrency impact\n \n \n 694\n \n \n \n \n \n 9,424\n \n \n \nBusiness days impact\n \n \n 181\n \n \n \n \n \n 1,387\n \n \n \nSame-day constant currency revenue\n \n$\n 185,324\n \n \n \n \n$\n 786,454\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nNumber of Business Days\n \n \n \n \n \n \n \n \n \n \n \n \nNorth America\n (2)\n \n \n 65\n \n \n 65\n \n \n 251\n \n \n 251\nEurope \n(3)\n \n \n 61\n \n \n 62\n \n \n 248\n \n \n 254\nAsia Pacific \n(3)\n \n \n 61\n \n \n 62\n \n \n 245\n \n \n 247\n \n(1) Total Consolidated revenue and Europe revenue as reported under GAAP include taskforce revenue of zero and $7.7 million for the three months ended May 27, 2023 and May 28, 2022, respectively, and $0.2 million and $27.6 million for the year ended May 27, 2023 and May 28, 2022, respectively.\n \n(2) This represents the number of business days in the U.S.\n \n(3) The business days in international regions represents the weighted average number of business days.\n \n\u200e\n\n\n32\n \nTable of Contents\n \n\n\nEBITDA, A\ndjusted EBITDA and Adjusted EBITDA Margin\n \nEBITDA, Adjusted EBITDA and Adjusted EBITDA Margin assist management in assessing our core operating performance. We also believe these measures provide investors with useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period. The following table presents EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for the periods indicated and includes a reconciliation of such measures to net income, the most directly comparable GAAP financial measure.\n \nRESOURCES CONNECTION, INC.\nRECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES\n(In thousands, except percentages)\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nFor the Years Ended\n \nMay 27,\n \n% of\n \nMay 28,\n \n% of\n \nMay 29,\n \n% of\n \n2023\n \n Revenue\n \n2022\n \n Revenue\n \n2021\n \n Revenue\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nNet income\n$\n 54,359\n \n 7.0\n%\n \n$\n 67,175\n \n 8.3\n%\n \n$\n 25,229\n \n 4.0\n%\nAdjustments:\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nAmortization expense\n \n 5,018\n \n 0.6\n \n \n \n 4,908\n \n 0.6\n \n \n \n 5,228\n \n 0.8\n \nDepreciation expense \n \n 3,539\n \n 0.4\n \n \n \n 3,575\n \n 0.4\n \n \n \n 3,897\n \n 0.6\n \nInterest expense, net\n \n 552\n \n 0.1\n \n \n \n 1,064\n \n 0.2\n \n \n \n 1,600\n \n 0.3\n \nIncome tax expense (benefit) \n \n 18,259\n \n 2.4\n \n \n \n 15,793\n \n 2.0\n \n \n \n (2,545)\n \n (0.4)\n \nEBITDA\n \n 81,727\n \n 10.5\n \n \n \n 92,515\n \n 11.5\n \n \n \n 33,409\n \n 5.3\n \nStock-based compensation expense\n \n 9,521\n \n 1.2\n \n \n \n 8,168\n \n 1.0\n \n \n \n 6,613\n \n 1.1\n \nTechnology transformation costs \n(1)\n \n 6,355\n \n 0.8\n \n \n \n 1,449\n \n 0.2\n \n \n \n -\n \n -\n \nGoodwill impairment \n(2)\n \n 2,955\n \n 0.4\n \n \n \n -\n \n -\n \n \n \n -\n \n -\n \nRestructuring costs \n(3)\n \n (364)\n \n -\n \n \n \n 833\n \n 0.1\n \n \n \n 8,260\n \n 1.3\n \nContingent consideration adjustment\n \n -\n \n -\n \n \n \n 166\n \n -\n \n \n \n 4,512\n \n 0.7\n \nAdjusted EBITDA\n$\n 100,194\n \n 12.9\n%\n \n$\n 103,131\n \n 12.8\n%\n \n$\n 52,794\n \n 8.4\n%\n \n(1) Technology transformation costs represent costs included in net income related to the Company\u2019s initiative to upgrade its technology platform globally, including a cloud-based enterprise resource planning system and talent acquisition and management system. Such costs primarily include software licensing costs, third-party consulting fees and costs associated with dedicated internal resources that are not capitalized.\n \n(2) Goodwill impairment charge recognized during the year ended May 27, 2023 was related to Sitrick operating segment.\n \n(3) The Company substantially completed our global restructuring and business transformation plan (the \u201cRestructuring Plans\u201d) in fiscal 2021. All remaining accrued restructuring liability on the books related to employee termination costs was either paid or released as of May 27, 2023.\n \nOur non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP and should not be considered in isolation or construed as substitutes for revenue, net income or other measures of financial performance or financial condition prepared in accordance with GAAP for purposes of analyzing our revenue, profitability or liquidity. Further, a limitation of our non-GAAP financial measures is they exclude items detailed above that have an impact on our GAAP-reported results. Other companies in our industry may calculate these non-GAAP financial measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, these non-GAAP financial measures should not be considered a substitute but rather considered in addition to performance measures calculated in accordance with GAAP.\n \n\n\n33\n \nTable of Contents\n \n\n\n \nResults of Operations\n \nThe following tables set forth, for the periods indicated, our Consolidated Statements of Operations data. These historical results are not necessarily indicative of future results. Our operating results for the periods indicated are expressed as a percentage of revenue below. The fiscal years ended May 27, 2023, May 28, 2022 and May 29, 2021 all consisted of 52 weeks (in thousands, except percentages). \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nFor the Years Ended\n \n \nMay 27,\n \n% of\n \nMay 28,\n \n% of\n \nMay 29,\n \n% of\n \n \n2023\n \nRevenue\n \n2022\n \nRevenue\n \n2021\n \nRevenue\nRevenue \n \n$\n 775,643\n \n 100.0\n%\n \n$\n 805,018\n \n 100.0\n%\n \n$\n 629,516\n \n 100.0\n%\nDirect cost of services\n \n \n 462,501\n \n 59.6\n \n \n \n 488,376\n \n 60.7\n \n \n \n 388,112\n \n 61.7\n \nGross profit\n \n \n 313,142\n \n 40.4\n \n \n \n 316,642\n \n 39.3\n \n \n \n 241,404\n \n 38.3\n \nSelling, general and administrative expenses \n \n \n 228,842\n \n 29.5\n \n \n \n 224,721\n \n 27.9\n \n \n \n 209,326\n \n 33.3\n \nAmortization expense\n \n \n 5,018\n \n 0.6\n \n \n \n 4,908\n \n 0.6\n \n \n \n 5,228\n \n 0.8\n \nDepreciation expense \n \n \n 3,539\n \n 0.4\n \n \n \n 3,575\n \n 0.4\n \n \n \n 3,897\n \n 0.6\n \nGoodwill impairment\n \n \n 2,955\n \n 0.4\n \n \n \n -\n \n -\n \n \n \n -\n \n -\n \nIncome from operations \n \n \n 72,788\n \n 9.5\n \n \n \n 83,438\n \n 10.4\n \n \n \n 22,953\n \n 3.6\n \nInterest expense, net\n \n \n 552\n \n 0.1\n \n \n \n 1,064\n \n 0.2\n \n \n \n 1,600\n \n 0.3\n \nOther income\n \n \n (382)\n \n -\n \n \n \n (594)\n \n (0.1)\n \n \n \n (1,331)\n \n (0.3)\n \nIncome before income tax \n   expense (benefit)\n \n \n 72,618\n \n 9.4\n \n \n \n 82,968\n \n 10.3\n \n \n \n 22,684\n \n 3.6\n \nIncome tax expense (benefit)\n \n \n 18,259\n \n 2.4\n \n \n \n 15,793\n \n 2.0\n \n \n \n (2,545)\n \n (0.4)\n \nNet income\n \n$\n 54,359\n \n 7.0\n%\n \n$\n 67,175\n \n 8.3\n%\n \n$\n 25,229\n \n 4.0\n%\n \nYear Ended May 27, 2023 Compared to Year Ended May 28, 2022\n \nPercentage change computations are based upon amounts in thousands. Fiscal 2023 and fiscal 2022 consisted of 52 weeks.\n \nRevenue.\n Revenue decreased $29.4 million, or 3.6%, to $775.6 million for the year ended May 27, 2023 from $805.0 million for the year ended May 28, 2022. \nWe completed the sale of \ntaskforce \non May 31, 2022. Refer to Note 3 \u2013 \nDispositions\n in the Notes to Consolidated Financial Statements for further information. Excluding $27.6 million of revenue attributable to \ntaskforce\n during the year ended 2022, revenue in fiscal 2023 was relatively consistent with the prior year (increased 1.1% on a same-day constant currency basis). \n \nThe following table represents our GAAP consolidated revenues by geography\n (in thousands, except percentages)\n: \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nFor the Years Ended\n \nMay 27,\n \n% of\n \nMay 28,\n \n% of\n \n2023\n \nRevenue\n \n2022\n \nRevenue\nNorth America\n$\n 680,993\n \n 87.8\n%\n \n$\n 676,419\n \n 84.0\n%\nEurope\n \n 42,509\n \n 5.5\n \n \n \n 76,075\n \n 9.5\n \nAsia Pacific\n \n 52,141\n \n 6.7\n \n \n \n 52,524\n \n 6.5\n \nTotal\n$\n 775,643\n \n 100.0\n%\n \n$\n 805,018\n \n 100.0\n%\n \nRevenue in North America grew 0.7% (0.6% on a same-day constant currency basis) compared to fiscal 2022. Due to a robust \nbacklog and healthy demand environment at the start of the fiscal year, we saw a strong revenue trend in the first half of fiscal 2023. As the macro economy gradually softened throughout the remainder of the fiscal year, the overall pace of client initiatives and spend also slowed down, leading to a more muted revenue trend in the second half of the fiscal year. While our pipeline activities remained healthy throughout the year, the sales cycle lengthened, leading to slower revenue conversion. In certain cases, we also experienced delays in engagement starts as clients managed through their own budgetary considerations. Total billable hours decreased by 3.0% compared to fiscal 2022, while the average bill rate increased by 3.9% as we continue to pursue strategic pricing. Our Strategic Client Accounts continued to perform well during the current fiscal year. Revenues from our Strategic Client Accounts in North America grew 2.7% during fiscal 2023 compared to fiscal 2022. From a solution standpoint, Finance and Accounting continued to be resilient at a 3.2% growth rate while Technology and Digital displayed particular strength with an 11.8% growth rate despite the softer macro environment, partially offset by softer performance in certain other solution offerings.\n \nE\nuropean revenue decreased 44.1% (37.2% on a same-day constant currency basis) during fiscal 2023 compared to fiscal 2022. Excluding the impact of the \ntaskforce \ndivestiture, revenue in Europe decreased 12.8% (2.0% on a same-day constant currency basis). The decline in Europe\u2019s revenue was primarily the result of delayed client buying patterns throughout the current fiscal year due to \n\n\n34\n \nTable of Contents\n \n\n\nuncertainties in the macro environment in the European reg\nion. Excluding \ntaskforce\n which historically carried higher bill rates, average bill rate was lower by 2.5% (higher by 7.4% on a constant currency basis) and billable hours declined by 11.0% during fiscal year 2023 compared to fiscal year 2022.\n \nAsia Pacific revenue declined slightly by 0.7%, although it represented a 10.7% increase on a same-day constant currency basis during fiscal 2023 compared to fiscal 2022. The growth in Asia Pacific revenue on a same-day constant currency basis is primarily driven by a 5.6% increase in billable hours, which was partially offset by a lower average bill rate of 6.5% (although a 3.3% increase on a constant currency basis). The notable revenue growth in Asia Pacific on a same-day constant currency basis was primarily driven by our Strategic Client Accounts as large global businesses continue to shift share services centers to the Asia Pacific region driving demand for our services.\n \nDirect Cost of Services\n.\n Direct cost of services decreased $25.9 million, or 5.3%, to $462.5 million during fiscal 2023 from $488.4 million for fiscal 2022. \nThe decrease in direct cost of services year over year was primarily attributable to a 4.7% decrease (2.6% decrease on a constant currency basis) in average pay rate during fiscal 2023 compared to fiscal 2022. The decrease in average pay rate was largely attributable to the divestiture of \ntaskforce\n, which historically carried higher pay rates. Billable hours decreased 3.9% (1.9% excluding \ntaskforce\n) during fiscal 2023 compared to fiscal 2022.\n \nDirect cost of services as a percentage of revenue was 59.6% for fiscal 2023 compared to 60.7% for fiscal 2022. \nThe decreased percentage compared to the prior year was primarily attributable to a 220 basis point reduction in the overall pay/bill ratio. This favorable impact was partially offset by an increase in employee-related benefits, primarily in self-insured medical costs and holiday pay. \n \nThe number of consultants on assignment at the end of fiscal 2023 was 3,145 compared to 3,388 at the end of fiscal 2022.\n \nSelling, General and Administrative Expenses\n.\n Selling, general and administrative expenses (\u201cSG&A\u201d) was $228.8 million, or 29.5% of revenue, for the year ended May 28, 2023 compared to $224.7 million, or 27.9% of revenue, for the year ended May 28, 2022. \nThe $4.1 million increase in SG&A year-over-year was primarily attributed to an increase of $7.7 million in management compensation, an increase of $4.9 million in technology transformation costs, a $2.4 million increase in business and travel expenses as business travel normalizes post Pandemic to reflect a hybrid work model, a $1.4 million increase in stock-based compensation expense, a $1.3 million increase in computer software costs, an increase of $0.9 million in bad debt expenses,\n \nan increase of $0.9 million in self-insurance medical benefits, an increase of $0.9 million resulting from the adverse effect of changes in foreign currency exchange rates, and a $2.9 million increase in all other general and administration expenses to support the business. These incremental costs were partially offset by lower bonus and commissions of $16.1 million due to lower revenue and profitability achievement compared to the incentive targets, a decrease in occupancy costs of $1.9 million from real estate footprint reduction , and a $1.2 million decrease in restructuring costs related to exiting certain markets and real estate facilities in fiscal 2022.\n \n \nManagement and administrative headcount was 917 at the end of fiscal 2023 and 871 at the end of fiscal 2022. Management and administrative headcount includes full-time equivalent headcount for our seller-doer group, which is determined by utilization levels achieved by the seller-doers. Any unutilized time is converted to full-time equivalent headcount.\n \nGoodwill Impairment.\n \nDuring the third quarter of fiscal 2023, we completed a goodwill impairment analysis for Sitrick, a strategic and crisis communications business acquired in 2009. Many of Sitrick\u2019s target clients were impacted by the initial closures of U.S. courts during the Pandemic and the continued lingering impact on the court system despite the reopening, resulting in less opportunities and a slower revenue conversion typically provided by Sitrick. As a result, we performed a qualitative and quantitative impairment analysis relating to the goodwill within Sitrick as of February 25, 2023. We determined that the carrying value of Sitrick was in excess of its fair value and as such fully impaired its goodwill in the amount of $3.0 million during the third quarter of fiscal 2023. Goodwill within the Other Segments remained at zero as of May 27, 2023\n. \n \n\n\n35\n \nTable of Contents\n \n\n\n \nRestructuring Costs\n.\n We substantially completed the Restructuring Plans in fiscal 2021. All employee termination and facility exit costs incurred under the Restructuring Plans were associated with the RGP segment, and are recorded in selling, general and administrative expenses in the Consolidated Statements of Operations. Restructuring costs for the years ended May 27, 2023 and May 28, 2022 were as follows (in thousands): \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nFor the Year Ended \n\u200e\nMay 27, 2023\n \nFor the Year Ended \n\u200e\nMay 28, 2022\n \n \nNorth America and APAC Plan\n \nEuropean Plan\n \nTotal\n \nNorth America and APAC Plan\n \nEuropean Plan\n \nTotal\nEmployee termination costs (adjustments)\n \n$\n (387)\n \n$\n -\n \n$\n (387)\n \n$\n 168\n \n$\n (253)\n \n$\n (85)\nReal estate exit costs (adjustments)\n \n \n -\n \n \n (1)\n \n \n (1)\n \n \n 884\n \n \n (10)\n \n \n 874\nOther costs\n \n \n 15\n \n \n 9\n \n \n 24\n \n \n -\n \n \n 44\n \n \n 44\nTotal restructuring costs (adjustments)\n \n$\n (372)\n \n$\n 8\n \n$\n (364)\n \n$\n 1,052\n \n$\n (219)\n \n$\n 833\n \nAll employee termination and facility exit costs incurred under the Restructuring Plans were considered completed as of August 27, 2022, and as a result, the remaining accrued restructuring liability on the books was released. Restructuring liability was zero and $0.4 million as of May 27, 2023 and May 28, 2022, respectively.\n \nAmortization and Depreciation Expense\n.\n \nAmortization expense was $5.0 million and $4.9 million in fiscal 2023 and fiscal 2022, respectively. Depreciation expense was $3.5 million and $3.6 million in fiscal 2023 and fiscal 2022, respectively. \n \nIncome Taxes.\n \nThe provision for income taxes was $18.3 million (effective tax rate of 25.1%) for the year ended May 27, 2023 compared to $15.8 million (effective tax rate of 19.0%) for the year ended May 28, 2022. \nThe lower effective tax rate for fiscal 2022 when compared to fiscal 2023 was primarily attributed to a non-recurring tax benefit of $2.6 million from the dissolution of our French entity and a tax benefit of $4.9 million from the release of a valuation allowance in Europe in the prior fiscal year as compared to $1.9 million of valuation allowance release in fiscal 2023.\n \nWe recognized a tax benefit of approximately $2.1 million and $2.0 million for the years ended May 27, 2023 and May 28, 2022, respectively,\n \nassociated with the exercise of nonqualified stock options, vesting of restricted stock awards and restricted stock units, and disqualifying dispositions by employees of shares acquired under the ESPP\n. \n \nWe reviewed the components of both book and taxable income to prepare the tax provision. There can be no assurance that our effective tax rate will remain constant in the future because of the lower benefit from the U.S. statutory rate for losses in certain foreign jurisdictions, the limitation on the benefit for losses in jurisdictions in which a valuation allowance for operating loss carryforwards has previously been established, and the unpredictability of timing and the amount of disqualifying dispositions of certain stock options. Based upon current economic circumstances and our business performance, management will continue to monitor the need to record additional or release existing valuation allowances in the future, primarily related to \ndeferred tax assets in certain foreign jurisdictions. Realization of the currently reserved deferred tax assets is dependent upon generating sufficient future taxable income in the domestic and foreign territories\n.\n \nWe have maintained a position of being indefinitely reinvested in our foreign subsidiaries\u2019 earnings by not expecting to remit foreign earnings in the foreseeable future. Being indefinitely reinvested does not require a deferred tax liability to be recognized on the foreign earnings. Management\u2019s indefinite reinvestment position is supported by:\n \n\uf0b7\nRGP in the U.S. has generated more than enough cash to fund operations and expansion, including acquisitions. RGP uses its excess cash to, at its discretion, return cash to stockholders through dividend payments and stock repurchases.\n\u00a0\n\uf0b7\nRGP has sufficient cash flow from operations in the U.S. to service its debt and other current or known obligations without requiring cash to be remitted from foreign subsidiaries.\n \n\uf0b7\nManagement\u2019s growth objectives include allowing cash to accumulate in RGP\u2019s profitable foreign subsidiaries with the expectation of finding strategic expansion plans to further penetrate RGP\u2019s most successful locations.\n \n\uf0b7\nThe consequences of distributing foreign earnings have historically been deemed to be tax-inefficient for RGP or not materially beneficial.\n \n\n\n36\n \nTable of Contents\n \n\n\n \nOperating Results of Segments\n \nAs discussed in \nBusiness Segments\n in Item 1, Note 2\n \u2013 Summary of Significant Accounting Policies\n and Note 18\n \u2013 Segment Information and Enterprise Reporting\n in the Notes\u00a0to Consolidated Financial Statements included in Part II, Item\u00a08 of this Annual Report on Form 10-K, the Company divested \ntaskforce\n on May 31, 2022. Since the second quarter of fiscal 2021 and prior to the divestment, the business operated by \ntaskforce\n, along with its parent company, Resources Global Professionals (Germany) GmbH, an affiliate of the Company, represented an operating segment of the Company and was reported as a part of Other Segments. \n \nEffective May 31, 2022, the Company\u2019s operating segments consist of RGP and Sitrick. \nRGP is the Company\u2019s only reportable segment. Sitrick does not individually meet the quantitative threshold to qualify as a reportable segment. Therefore, Sitrick is disclosed as Other Segments. \nPrior-period comparative segment information was not restated\n as a result of the divestiture of \ntaskforce\n as we did not have a change in internal organization or the financial information our Chief Operating Decision Maker uses to assess performance and allocate resources.\n \nThe following table presents our current operating results by segment\n (in thousands, except percentages): \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nFor the Years Ended\n \n \nMay 27,\n \n% of\n \nMay 28,\n \n% of\n \n \n2023\n \nRevenue\n \n2022\n \nRevenue\nRevenue: \n \n \n \n \n \n \n \n \n \n \n \n \nRGP\n \n$\n 764,511\n \n 98.6\n%\n \n$\n 764,350\n \n 94.9\n%\nOther Segments \n(1)\n \n \n 11,132\n \n 1.4\n \n \n \n 40,668\n \n 5.1\n \nTotal revenue\n \n$\n 775,643\n \n 100.0\n%\n \n$\n 805,018\n \n 100.0\n%\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \nFor the Years Ended\n \n \nMay 27,\n \n% of\n \nMay 28,\n \n% of\nAdjusted EBITDA:\n \n2023\n \nAdj EBITDA\n \n2022\n \nAdj EBITDA\nRGP\n \n$\n 132,377\n \n 132.1\n%\n \n$\n 134,187\n \n 130.1\n%\nOther Segments \n(1)\n \n \n 1,179\n \n 1.2\n \n \n \n 3,527\n \n 3.4\n \nReconciling Items \n(2)\n \n \n (33,362)\n \n (33.3)\n \n \n \n (34,583)\n \n (33.5)\n \nTotal Adjusted EBITDA \n(3)\n \n$\n 100,194\n \n 100.0\n%\n \n$\n 103,131\n \n 100.0\n%\n \n(1) Amounts reported in Other Segments for the year ended May 27, 2023 include Sitrick and an immaterial amount from taskforce from May 29, 2022 through May 31, 2022, the completion date of the sale. Amounts previously reported for the years ended May 28, 2022 included the Sitrick and taskforce operating segments\n.\n \n(2) \nReconciling items are generally comprised of u\nnallocated corporate administrative costs, including management and board compensation, corporate support function costs and other general corporate costs that are not allocated to segments.\n \n(3) \nA reconciliation of the Company\u2019s \nnet income to Adjusted EBITDA on a consolidated basis is presented above under \u201cNon-GAAP Financial Measures.\u201d\n \nRevenue by Segment\n \nRGP \u2013 \nRGP \nrevenue remained consistent at $764.5 million in fiscal 2023 compared to $764.4 million in fiscal 2022. \nRevenue from RGP represents more than 90% of total consolidated revenue and generally reflects the overall consolidated revenue trend.\n \n \nThe number of consultants on assignment under the RGP segment as of May 27, 2023 was 3,131 compared to 3,263 as of May\u00a028, 2022.\n \nOther Segments \u2013\n \nOther Segments\u2019 revenue decreased $29.5 million, or 72.6%, to $11.1 million in fiscal 2023 compared to fiscal 2022, \nas a result of a $27.3 million decline in revenue from the divestiture of \ntaskforce\n in fiscal 2023 and a $2.2 million decline in Sitrick revenue.\n The decline in Sitrick revenue during fiscal 2023 compared to the prior year was primarily due to the closure of the U.S. courts during the Pandemic and the continued lingering impact on the court system, resulting in slower business development and revenue conversion. \n \nThe number of consultants on assignment under Other Segments as of May 27, 2023 was 14 compared to 125 as of May 28, 2022.\n \n\n\n37\n \nTable of Contents\n \n\n\n \nAdjusted EBITDA by Segment\n \nRGP\n \n\u2013 \nRGP Adjusted EBITDA declined $1.8 million, or 1.3%, to $132.4 million in fiscal 2023 compared to $134.2 million in fiscal 2022. Compared to the prior year, revenue increased $0.2 million and the cost of services decreased by $4.9 million in fiscal 2023. These were offset by an increase in SG&A costs attributed to RGP of $6.7 million in fiscal 2023 as compared to fiscal 2022 primarily due to the increase in management compensation of $8.5 million \npartially as a result of employee compensation adjustments reflecting the current labor market trend\n, \na $2.9 million increase in computer software and consulting costs,\n an increase in business and travel expenses of $2.2 million as business travel normalizes post Pandemic to reflect a hybrid work model, a $0.7 million increase in recruiting expenses, and a $4.6 million increase in all other general and administration expenses. These cost increases were partially offset by a $11.0 million reduction in bonuses and commissions as a result of lower revenue and profitability achievement compared to the incentive targets and $1.2 million of reductions in occupancy costs as a result of our real estate reduction effort. For fiscal 2023, the material costs and expenses attributable to the RGP segment that are not included in computing the segment measure of Adjusted EBITDA included stock-based compensation expense of $8.4 million, depreciation and amortization expense of $8.4 million \nand technology transformation costs of $6.4 million\n.\n \nThe trend in revenue, cost of services, and other costs and expenses at RGP year over year are generally consistent with those at the consolidated level, as discussed above, with the exception that the SG&A used to derive segment Adjusted EBITDA does not include certain unallocated corporate administrative costs.\n \nOther Segments \n\u2013 \nOther Segments\u2019 Adjusted EBITDA declined $2.3 million in fiscal 2023 compared to fiscal 2022. \nThe decline is attributable to the $27.3 million decrease in revenue due to the divestiture of \ntaskforce\n at the beginning of fiscal 2023 and $2.2 million related to the slow business recovery in Sitrick from the Pandemic, which is partially offset by a $21.0 million decrease in the cost of services primarily due to the divestiture of \ntaskforce\n. In addition, management compensation decreased by $2.9 million, bonus and commissions decreased by $1.9 million, occupancy costs were reduced by $0.6 million, and all other general and administration expenses decreased by $0.8 million, which were primarily attributed to the divestiture of \ntaskforce\n. For fiscal 2023, the material costs and expenses attributable to the Other Segments that are not included in computing the segment measure of Adjusted EBITDA included depreciation and amortization expenses of $0.2 million, stock-based compensation expense of $1.1 million and goodwill impairment of $3.0 million.\n \n \nYear Ended May 28, 2022 Compared to Year Ended May 29, 2021\n \nFor a comparison of our results of operations at the consolidated and segment level for the fiscal years ended May 28, 2022 and May 29, 2021, see Part II, Item 7 \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Annual Report on Form 10-K for the fiscal year ended May 28, 2022, filed with the SEC on July 28, 2022 (File\u00a0No. 0-32113). \n \nLiquidity and Capital Resources\n \nOur primary sources of liquidity are cash provided by operating activities, our $175.0 million senior secured revolving credit facility (as further discussed below) and, historically, to a lesser extent, stock option exercises and ESPP purchases.\n On an annual basis, we have generated positive cash flows from operations since inception.\n \nOur ability to generate positive cash flow from operations in the future will be, at least in part, dependent on global economic conditions and our ability to remain resilient during periods of deteriorating macroeconomic conditions and any economic downturns. \nAs of May 27, 2023, we had $116.8 million of cash and cash equivalents, including $50.4 million held in international operations.\n \nOn November 12, 2021, the Company and Resources Connection LLC, as borrowers, and all of the Company\u2019s domestic subsidiaries, as guarantors, entered into a credit agreement with the lenders that are party thereto and Bank of America, N.A. as administrative agent for the lenders (the \u201cCredit Agreement\u201d), and concurrently terminated the then existing credit facility, which provided a $120.0 million revolving loan. The Credit Agreement provides for a $175.0 million senior secured revolving loan (the \u201cCredit Facility\u201d), which includes a $10.0 million sublimit for the issuance of standby letters of credit and a swingline sublimit of $20.0 million. The Credit Facility also includes an option to increase the amount of the revolving loan up to an additional $75.0 million, subject to the terms of the Credit Agreement. The Credit Facility matures on November 12, 2026. The obligations under the Credit Facility are secured by substantially all assets of the Company, Resources Connection LLC and all of the Company\u2019s domestic subsidiaries.\n \nFuture borrowings under the Credit Facility will bear interest at a rate per annum of either, at the Company\u2019s election, (i) Term SOFR (as defined in the Credit Agreement) plus a margin ranging from 1.25% to 2.00% or (ii) the Base Rate (as defined in the Credit Agreement), plus a margin of 0.25% to 1.00% with the applicable margin depending on the Company\u2019s consolidated leverage ratio. In addition, the Company pays an unused commitment fee on the average daily unused portion of the Credit Facility, which ranges from 0.20% to 0.30% depending upon the Company\u2019s consolidated leverage ratio. \nAs of May 27, 2023, \nthe Company had no borrowings outstanding and $0.8 million of outstanding letters of credit issued under\n the Credit Facility\n. \nAs of May 27, 2023, there was $174.2 million remaining capacity under the Credit Facility.\n\n\n38\n \nTable of Contents\n \n\n\n \n \nThe Credit Facility\n is available for working capital and general corporate purposes, including potential acquisitions, dividend distribution and stock repurchases. Additional information regarding the Credit Facility is included in Note 8 \n\u2013\n \nLong-Term Debt \nin the Notes to consolidated financial statements included in Item\u00a08 of Part II of this Annual Report on Form 10-K. \n \nOn November 2, 2022, Resources Global Enterprise Consulting (Beijing) Co., Ltd\n, (a wholly owned subsidiary of the Company), as borrower, and the Company, as guarantor, \nentered into a RMB 13.4 million ($1.8 million based on the prevailing exchange on November 2, 2022) revolving credit facility with Bank of America, N.A. (Beijing) as the lender\n (the \u201cBeijing Revolver\u201d).\n The Beijing Revolver bears interest at loan prime rate plus 0.80%. Interest incurred on borrowings will be payable monthly in arrears. As of May 27, 2023, the Company had no borrowings outstanding under the Beijing Revolver.\n \nIn addition to cash needs for ongoing business operations, from time to time, we have strategic initiatives that could generate significant additional cash requirements. Our initiative to upgrade our technology platform, as described in \u201cFiscal 2023 Strategic Focus Areas\u201d above, requires significant investments over multiple years. As of end of fiscal 2023, the amount of the investments required for this multi-year initiative was estimated to be in the range of $30.0 million to $33.0 million. Such costs primarily include software licensing fees, third-party implementation and consulting fees, incremental costs associated with additional internal resources needed on the project and other costs in areas including change management and training. The actual amount of investment and the timing will depend on a number of variables, including progress made on the implementation. As we proceed through the project, we will continue to evaluate our progress against the implementation plan and assess the impact on our investments, if any. In fiscal 2023, we capitalized $6.0 million of investments and recorded $6.5 million of expenses relating to these investments. We expect the majority of the remaining planned investments to take place in fiscal 2024. In addition to our technology transformation initiative, we expect to continue to invest in digital pathways to enhance the experience and touchpoints with our end users, including current and prospective employees (consultants and management employees) and clients. These efforts will require additional cash outlay and could further elevate our capital expenditures in the near term. As of May 27, 2023, we have non-cancellable purchase obligations totaling $16.0 million, which primarily consists of payments pursuant to the licensing arrangements that we have entered into in connection with this initiative: $5.0 million due during fiscal 2024; $4.8 million due during fiscal 2025; $3.1 million due during fiscal 2026; and $3.1 million due thereafter\n.\n \nIn March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the \u201cCARES Act\u201d) was enacted into law. The CARES Act included provisions, among others, allowing federal net operating losses (\u201cNOLs\u201d) incurred in calendar year 2018 to 2020 (the Company\u2019s fiscal years 2019, 2020 and 2021) to be carried back to the five preceding taxable years. As part of the Company\u2019s tax planning strategies, management made certain changes related to the capitalization of fixed assets effective for fiscal 2021. This strategy allowed the Company to carry back the NOLs of fiscal 2021 to fiscal years 2016 to 2018 and allowed us to request refunds for alternative minimum tax credits for fiscal years 2019 and 2020. The Company filed for federal income tax refunds in the U.S. in the amount of $34.8 million (before interest) in April 2022. As of May 27, 2023, the Company has received a federal income tax refund of $35.5 million (including interest income of $0.7 million). \n \nUncertain macroeconomic conditions and increases in interest rates have created significant uncertainty in the global economy, volatility in the capital markets and recessionary pressures, which may adversely impact our financial results, operating cash flows and liquidity needs. If we are required to raise additional capital or incur additional indebtedness for our operations or to invest in our business, we can provide no assurances that we would be able to do so on acceptable terms or at all. Our ongoing operations and growth strategy may require us to continue to make investments in critical markets and further expand our internal technology and digital capabilities. In addition, we may consider making strategic acquisitions or initiating additional restructuring initiatives, which could require significant liquidity and adversely impact our financial results due to higher cost of borrowings. We believe that our current cash, ongoing cash flows from our operations and funding available under our Credit Facility will be adequate to meet our working capital and capital expenditure needs for at least the next 12 months.\n \nBeyond the next 12 months, if we require additional capital resources to grow our business, either organically or through acquisitions, we may seek to sell additional equity securities, increase use of our Credit Facility, expand the size of our Credit Facility or raise additional debt. In addition, if we decide to make additional share repurchases, we may fund these through existing cash balances or use of our Credit Facility. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. Our ability to secure additional financing in the future, if needed, will depend on several factors. These include our future profitability and the overall condition of the credit markets. Notwithstanding these considerations, we expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements. \n \n\n\n39\n \nTable of Contents\n \n\n\n \nOperating Activities, Fiscal 2023 and 2022\n \nOperating activities provided cash of $81.6 million and $49.4 million in fiscal 2023 and fiscal 2022, respectively. In fiscal 2023, cash provided by operations resulted from \nnet income of $54.4 million and non-cash adjustments of $12.8 million. \nAdditionally, net favorable changes in operating assets and liabilities totaled $14.5 million, primarily consisting of a $30.0 million decrease in income taxes (which included $35.5 million in U.S. federal income tax refunds including interest income), $13.6 million decrease in trade accounts receivable and a $1.6 million increase in accounts payable and other accrued expenses. These favorable changes are partially offset by a $21.5 million decrease in accrued salaries and related obligations, mainly due to the timing of our pay cycle and the payout of the annual incentive compensation during fiscal 2023, a $5.3 million decrease in other liabilities and a $4.1 million increase in other assets attributed primarily to the capitalized cost of implementing our technology transformation\n. \n \nIn fiscal 2022, cash provided by operations resulted from net income of $67.2 million and non-cash adjustments of $6.9 million. Additionally, in fiscal 2022, net unfavorable changes in operating assets and liabilities totaled $24.7 million. These changes primarily consisted of a $44.8 million increase in trade accounts receivable, mainly attributable to accelerated revenue growth throughout fiscal 2022, and a $5.5 million decrease in other liabilities, which includes the final Veracity contingent consideration payment, of which $3.7 million was categorized as operating activity (the remaining $3.3 million of the total $7.0 million contingent consideration payment was categorized as financing cash flow) partially offset by a $22.0 million increase in accrued salaries and related obligations due to the significant increase in accrued incentive compensation as a result of strong business performance during the fiscal year, and a $2.1 million decrease in prepaid income taxes due to the timing of estimated quarterly tax payments. \n \nInvesting Activities, Fiscal 2023 and 2022\n \nNet cash provided by investing activities was $3.9 million in fiscal 2023 compared to net cash used in investing activities of $3.0 million in fiscal 2022. \nNet cash provided by investing activities in fiscal 2023 was primarily related to the EUR 5.7 million (approximately $6.0 million) in cash proceeds received from the divestiture of \ntaskforce \n(which included approximately EUR 5.5 million for the purchase price and EUR 0.2 million in interest), partially offset by the cost incurred for the development of internal-use software and acquisition of property and equipment. Net cash used in investing activities in fiscal 2022 was primarily for the development of internal-use software and acquisition of property and equipment.\n \n \nFinancing Activities, Fiscal 2023 and 2022\n \nThe primary sources of cash in financing activities are borrowings under our Credit Facility, cash proceeds from the exercise of employee stock options and proceeds from the issuance of shares purchased under our ESPP. The primary uses of cash in financing activities are repayments under the Credit Facility, payment of contingent consideration, repurchases of our common stock and cash dividend payments to our stockholders.\n \nNet cash used in financing activities totaled $71.9 million in fiscal 2023 compared to $13.4 million \nin fiscal 2022\n. \nNet cash used in financing activities during fiscal 2023 consisted of net repayments on the Credit Facility of $54.0 million (consisting of $69.0 million of repayments and $15.0 million of proceeds from borrowing), cash dividend payments of $18.8 million, and $15.2 million to purchase 914,809 shares of common stock on the open market. These uses were partially offset by $16.1 million in proceeds received from ESPP share purchases and employee stock option exercises.\n \nNet cash used in financing activities in fiscal 2022 consisted of $19.7 million used for the repurchase of our common stock, cash dividend payments of $18.6 million, the final Veracity contingent consideration payment, of which $3.3 million was categorized as financing (the remaining $3.7 million of the total $7.0 million final Veracity contingent consideration payment was categorized as operating), and the Expertforce Interim Projects GmbH, LLC contingent consideration payment of $0.3 million, partially offset by $10.4 million of net borrowing under the Credit Facility (consisting of $73.4 million of proceeds from borrowings and $63.0 million of repayment), and $17.9 million in proceeds received from ESPP share purchases and employee stock option exercises. \n \nFor a comparison of our cash flow activities for the fiscal years ended May 28, 2022 and May 29, 2021, see Part II, Item 7 \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Annual Report on Form 10-K for the fiscal year ended May 28, 2022, filed with the SEC on July 28, 2022 (File\u00a0No. 0-32113).\n \nRecent Accounting Pronouncements\n \nInformation regarding recent accounting pronouncements is contained in Note\u00a02\u00a0\u2014 \nSummary of Significant Accounting Policies\n in the Notes to Consolidated Financial Statements included in Part II, Item\u00a08 of this Annual Report on Form 10-K.\n \n\n\n40\n \nTable of Contents\n \n\n\n ",
+  "item7a": ">ITEM\u00a07A.\n\u00a0\u00a0\u00a0\u00a0\nQUANTITA\nTIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.\n \nInterest Rate Risk.\n We are primarily exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on the market values of our cash and cash equivalents and our borrowings under the Credit Facility that bear interest at a variable market rate. \n \nAs of May 27, 2023, we had approximately $116.8 million of cash and cash equivalents and no borrowings under our Credit Facility. The earnings on cash and cash equivalents are subject to changes in interest rates; however, assuming a constant balance available for investment, a 10% decline in interest rates would reduce our interest income but would not have a material impact on our consolidated financial position or results of operations.\n \n \nWe may become exposed to interest rate risk related to fluctuations in the term SOFR rate used under our Credit Facility. See \u201cSources and Uses of Liquidity\u201d above and Note 8\n \u2013 Long-Term Debt\n in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion about the interest rate on our Credit Facility. \nAs of May 27, 2023, \nwe had no borrowings outstanding under\n our Credit Facility\n. At our level of borrowing as of May 28, 2022 of $54.0 million, a 10% change in interest rates would have resulted in approximately a $0.1 million change in annual interest expense for fiscal 2022.\n \nForeign Currency Exchange Rate Risk.\n For the year ended May 27, 2023, approximately 14.3% of our revenues were generated outside of the U.S. compared to approximately 17.5% of our revenues for the year ended May 28, 2022. As a result, our operating results are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the monthly average exchange rates prevailing during the period. Thus, as the value of the U.S. dollar fluctuates relative to the currencies in our non-U.S.-based operations, our reported results may vary.\n \nAssets and liabilities of our non-U.S.-based operations are translated into U.S. dollars at the exchange rate effective at the end of each monthly reporting period. Approximately 56.9% of our cash and cash equivalents balances as of May 27, 2023 were denominated in U.S. dollars. The remaining amount of approximately 43.1% was comprised primarily of cash balances translated from Euros, Japanese Yen, Mexican Pesos, Chinese Yuan, Canadian Dollar, Indian Rupee and British Pound Sterling. This compares to approximately 66.1% of our cash and cash equivalents balances as of May 28, 2022 that were denominated in U.S. dollars and approximately 33.9% that were comprised primarily of cash balances translated from Euros, Japanese Yen, Chinese Yuan and Canadian Dollars. The difference resulting from the translation in each period of assets and liabilities of our non-U.S.-based operations is recorded as a component of stockholders\u2019 equity in accumulated other comprehensive income or loss.\n \nAlthough we monitor our exposure to foreign currency fluctuations, we do not currently use financial hedges to mitigate risks associated with foreign currency fluctuations including in a limited number of circumstances when we may be asked to transact with our client in one currency but are obligated to pay our consultants in another currency. Our foreign entities typically transact with clients and consultants in their local currencies and generate enough operating cash flows to fund their own operations. We believe our economic exposure to exchange rate fluctuations has not been material. However, we cannot provide assurance that exchange rate fluctuations will not adversely affect our financial results in the future.\n\u200e\n\n\n41\n \nTable of Contents\n \n\n\n ",
+  "cik": "1084765",
+  "cusip6": "76122Q",
+  "cusip": ["76122q105", "76122Q105"],
+  "names": ["RESOURCES CONNECTION INC COM", "RESOURCES CONNECTION INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1084765/000108476523000016/0001084765-23-000016-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0001096906-23-001489.json b/GraphRAG/standalone/data/all/form10k/0001096906-23-001489.json
new file mode 100644
index 0000000000..92aa294a1c
--- /dev/null
+++ b/GraphRAG/standalone/data/all/form10k/0001096906-23-001489.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1.\u00a0\u00a0\u00a0\u00a0BUSINESS\n\n\n\u00a0\n\n\nCorporate History\n\n\n\u00a0\n\n\nVerde Bio Holdings, Inc. was incorporated in the State of Nevada on February 24, 2010. On May 1, 2010, the Company entered into a share exchange agreement with Appiphany Technologies Corporation (\u201cATC\u201d) to acquire all of the outstanding common shares of ATC in exchange for 1,500,000 common shares of the Company. \u00a0As the acquisition involved companies under common control, the acquisition was accounted for in accordance with ASC 805-50, Business Combinations \u2013\u00a0Related Issues, and the consolidated financial statements reflect the accounts of the Company and ATC since inception. On February 19, 2019, Media Convergence Group, a Nevada corporation (\u201cMedia Convergence\u201d) entered into a certain Stock Purchase Agreement (the \u201cPurchase Agreement\u201d) for the sale of 500,000 shares of the Series A Preferred Stock (the \u201cPreferred Shares\u201d) of the Company. \u00a0The purchase of the Shares (\u201cShare Purchase\u201d) was closed on November 22, 2019.\n\n\n\u00a0\n\n\n4\n\n\n\n\nUpon the Closing of the Share Purchase, Scott Cox, became the owner of the Preferred Shares, and as such gained voting control of the Company by virtue of the 10,000 for 1 voting rights of the Series A Preferred Shares.\n\n\n\u00a0\n\n\nIn connection with the Closing of the Share Purchase, the Company changed its management and Board. Robert Sargent resigned as the sole member of the Board and Scott Cox was elected as the sole member of the Board and as the Company\u2019s Chief Executive Officer. \u00a0Mr. Cox brings over 25 years of experience in the oil gas industry changed the Company\u2019s business strategy to oil and gas exploration and investment.\n\n\n\u00a0\n\n\nNature of Business\n\n\n\u00a0\n\n\nThe Company is a growing U.S. energy company based in Frisco, Texas, engaged in the acquisition and development of high-probability, lower risk onshore oil and gas properties within the major oil and gas plays in the U.S. The Company\u2019s dual-focused growth strategy relies primarily on leveraging management\u2019s expertise to grow through the strategic acquisition of non-operating, working interests and royalty interests with the goal of developing into a major company in the industry. Through this strategy of acquisition of royalty and non-operating properties, the Company has the unique ability to rely on the technical and scientific expertise of the world-class E&P companies operating in the area.\n\n\n\u00a0\n\n\nThe Company focuses on the acquisition of and exploitation of upstream energy assets, specifically targeting oil and gas mineral interests, oil and gas royalty interests and select non-operated working interests. We do not drill wells and we do not operate wells. \u00a0These acquisitions are structured primarily as acquisitions of leases, real property interests and mineral rights and royalties and are generally not regarded as the acquisition of securities, but rather real property interests. \u00a0As a royalty owner, the Company has the right to receive a portion of the production from the leased acreage (or of the proceeds of the sale thereof), but generally is not required to pay any portion of the costs of drilling or operating the wells on the leased acreage.\n\n\n\u00a0\n\n\nThe Company began purchasing mineral and oil and gas royalty interests and surface properties in September 2020 and since such time has completed a total of 18 purchases.\n\n\n\u00a0\n\n\nPlan of Operations\n\n\n\u00a0\n\n\nThe Company has implemented its business plan and continues to expand its services and products.\u00a0\u00a0The Company has generated royalty revenues from its oil and gas assets: however, the Company requires a higher volume of royalty revenues in order to raise sufficient operating cash flows to operate its business without the reliance upon equity or debt financing. \u00a0The Company may be required to raise additional funds by way of equity or debt financing to fund expansion of its operations.\n\n\n\u00a0\n\n\nGovernment Regulation\n\n\n\u00a0\n\n\nThe oil and gas business is subject to extensive governmental regulation under which, among other things, rates of production from our wells may be fixed. Governmental regulation also may limit or otherwise affect the market for wells\u2019 production and the price which may be paid for that production. Governmental regulations relating to environmental matters could also affect our operations. The nature and extent of various regulations, the nature of other political developments and their overall effect upon us are not predictable.\n\n\n\u00a0\n\n\nWHERE YOU CAN GET ADDITIONAL INFORMATION\n\n\n\u00a0\n\n\nWe file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy our reports or other filings made with the SEC at the SEC's Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. You can obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and other filings electronically on the SEC's web site,\u00a0www.sec.gov.\n\n\n\u00a0\n\n\n5\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A.\u00a0 RISK FACTORS\n\n\n\u00a0\n\n\nWe are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.\n\n\n\u00a0\n\n",
+  "item7": ">ITEM 7.\u00a0 \u00a0\u00a0MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION\n\n\n\u00a0\n\n\nThis Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the \"Securities Act\") and Section 21E of the Securities Exchange Act of 1934, as amended (the \"Exchange Act\"). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as \"anticipate,\" \"expect,\" \"intend,\" \"plan,\" \"believe,\" \"foresee,\" \"estimate\" and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.\n\n\n\u00a0\n\n\nRESULTS OF OPERATIONS\n\n\n\u00a0\n\n\nWorking Capital\n\n\n\u00a0\u00a0\n\n\n\u00a0\n\n\nApril 30,\n2023\n\n\n$\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30,\n2022\n\n\n$\n\n\n\u00a0\n\n\n\n\nCurrent Assets\n\n\n\u00a0\n\n\n\u00a0\n\n\n97,748\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n295,873\n\n\n\u00a0\n\n\n\n\nCurrent Liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,839,182\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,453,145\n\n\n\u00a0\n\n\n\n\nWorking Capital (Deficit)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,741,434) \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,157,272)\n\n\n\u00a0\n\n\n\n\n\n\n17\n\n\n\n\n\u00a0\n\n\nCash Flows\n\n\n\u00a0\n\n\n\u00a0\u00a0\n\n\n\u00a0\n\n\nApril 30,\n2023\n\n\n$\n\n\n\u00a0\n\n\n\u00a0\n\n\nApril 30,\n2022\n\n\n$\n\n\n\u00a0\n\n\n\n\nCash Flows used in Operating Activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(872,226) \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,150,005)\n\n\n\u00a0\n\n\n\n\nCash Flows used in Investing Activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n148,015 \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,679,020)\n\n\n\u00a0\n\n\n\n\nCash Flows from Financing Activities\n\n\n\u00a0\n\n\n\u00a0\n\n\n608,841\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,882,334\n\n\n\u00a0\n\n\n\n\nNet increase (decrease) in Cash During Year\n\n\n\u00a0\n\n\n\u00a0\n\n\n(115,370) \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,946,691)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nOperating Revenues\n\n\nDuring the year ended April 30, 2023, the Company recorded revenues of $926,099 compared to revenues of $719,998 during the year ended April 30, 2022. \u00a0Revenues were derived from royalties earned from oil and gas interests. The increase is due to the fact that the Company increased its investment in additional royalty producing properties from the beginning of last year in order to generate additional royalty revenue income which led to an increase in revenue during fiscal 2023 compared to fiscal 2022.\n\n\nOperating Expenses and Net Loss\n\n\nDuring the year ended April 30, 2023, the Company recorded operating expenses of $2,566,025 compared to $3,870,118 during the year ended April 30, 2022, a decrease of $1,304,093. The decrease in operating expenses was due to an impairment loss in the carrying value of the Company\u2019s oil and gas properties in fiscal 2022 for $1,266,046. \u00a0The Company also recorded an increase in project expenditures from $84,622 to $415,140 as a result of a one time commitment fee of $379,000, as well as costs incurred to identify and perform due diligence on potential oil and gas acquisitions. \u00a0All other operating expenses were consistent to prior year as the Company focused its current year operations on maintaining and operating its existing line of oil and gas properties whereas fiscal 2022 involved more acquisitions of oil and gas properties as the Company was building up its portfolio. \u00a0\n\n\nNet loss for the year ended April 30, 2023 was $1,774,179 as compared with $3,422,146 during the year ended April 30, 2022. \u00a0In addition to the effects of the increase in royalty revenues combined with the decrease in operating expenses, the Company saw a decline in interest and finance charges from $236,748 in fiscal 2022 to $153,892 in fiscal 2023. \u00a0Furthermore, the Company incurred a one-time commitment fee of $40,000 in fiscal 2022 was not incurred in the current year. \u00a0\u00a0\n\n\nFor the year ended April 30, 2023, the Company recorded a loss per share of $0.00 which is consistent with the year ended April 30, 2022.\n\n\nLiquidity and Capital Resources\n\n\nAs of April 30, 2023, the Company had cash of $25,836 and total assets of $4,160,238 compared to cash of $141,206 and total assets of $5,085,057 as at April 30, 2022. \u00a0The decrease in cash is based on the fact that, although revenues and operating cash flows have improved from the prior year, the Company continues to rely on proceeds from financing activities to support its ongoing expenditures. \u00a0In addition to the decrease in cash, the overall decrease in total assets is based on the decrease in oil and natural gas properties of $619,634 due primarily to depletion of the carrying value based on the royalty incomes generated by the Company\u2019s assets. \u00a0\u00a0\n\n\nAs of April 30, 2023, the Company had total liabilities of $1,839,182 compared with total liabilities of $1,474,482 as at April 30, 2022. The increase in total liabilities is based on $260,855 of carrying value for a convertible note payable that was issued during the year for proceeds of $410,000, of which $217,159 has been repaid as at April 30, 2023, and $42,000 of amounts owing to the CEO of the Company. \u00a0Furthermore, the Company had an increase in accounts payable and accrued liabilities of $118,736 which is due to timing differences between the receipt of expenditures and the cash payment of day-to-day operating expenses incurred by the Company, and was offset by a decrease in the carrying value of the lease liability of $56,891, which is due to expire in fiscal 2024. \u00a0The Company \n\n\n18\n\n\n\n\nhas not yet finalized a renewal of the current lease terms of its head office. \u00a0\u00a0\u00a0\n\n\nAs of April 30, 2023, the Company had a working capital deficit of $1,741,434 compared with a working capital deficit of $1,157,272 as of April 30, 2022. \u00a0The increase in the working capital deficit from prior year was attributed the use of short-term financing to continue to sustain the operations of the Company. \u00a0\n\n\nDuring the year ended April 30, 2023, the Company issued 350,111,699 common shares with a fair value of $350,112 upon the conversion of 581 Series C preferred stock in addition to the issuance of 13,600,000 common shares with a fair value of $98,660 for services incurred to a third-party consultant. \u00a0Furthermore, the Company issued 386 Series C preferred stock for $386,000. \u00a0\n\n\nCash Flows from Operating Activities\n\n\nDuring the year ended April 30, 2023, the Company used $872,226 of cash for operating activities compared with $1,150,005 of cash for operating activities during the year ended April 30, 2022. The decrease in cash used for operating activities represents the fact that the Company\u2019s portfolio of oil and gas assets generated an increase in revenues from fiscal 2022 which helped with the Company\u2019s overall operating cash shortfall. \u00a0\n\n\nCash Flows from Investing Activities\n\n\nDuring the year ended April 30, 2023, the Company received $148,015 of cash for investing activities compared to the incurrence of $5,679,020 from investing activities during the year ended April 30, 2022. \u00a0During fiscal 2022, the Company\u2019s focus was on acquisition of oil and gas assets and properties to build up its portfolio, while the current year focus was on maintaining and deriving revenues from its previously acquired oil and gas assets. \u00a0Furthermore, during fiscal 2023, the Company sold one property for proceeds of $175,000. \u00a0\u00a0\u00a0\u00a0\u00a0\n\n\nCash Flows from Financing Activities\n\n\nDuring the year ended April 30, 2023, the Company received $608,841 of proceeds from financing activities compared to proceeds of $4,882,334 during the year ended April 30, 2022. \u00a0The decrease in proceeds from financing activities was based on the fact that the Company closed a private placement financing of common shares in fiscal 2022 for $3,920,500 less share issuance costs of $33,166, which was not replicated during fiscal 2023. \u00a0Furthermore, the Company received $374,000 from issuance of Series C preferred shares compared to $1,000,000 received from Series C preferred shares during fiscal 2022. \u00a0The decreases were offset by loan proceeds of $452,000 received during fiscal 2023 which was offset by loan repayments of $217,159. \u00a0\n\n\nGoing Concern\n\n\nThe Company has not attained profitable operations and is dependent upon obtaining financing to pursue any extensive acquisitions and activities. During the year ended April 30, 2023, the Company incurred a net loss of $1,774,179 and used cash of $872,226 for operating activities. \u00a0As at April 30, 2023, the Company had a working capital deficit of $1,741,434 and an accumulated deficit of $16,033,070. These factors raise substantial doubt regarding the Company\u2019s ability to continue as a going concern. \u00a0The audited financial statements included in this Form 10-K does not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. \n\n\nOff-Balance Sheet Arrangements\n\n\nThe Company does not have any off-balance sheet arrangements. \u00a0\n\n\n19\n\n\n\n\n\u00a0\n\n\nFuture Financings\n\n\nWe will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.\n\n\nCritical Accounting Policies\n\n\n\u00a0\n\n\nOur financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.\n\n\n\u00a0\n\n\nWe regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent liabilities. On an on-going basis, we evaluate our estimates. \u00a0We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.\n\n\n\u00a0\n\n\nWe believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.\n\n\n\u00a0\n\n\n\u25cf\nOur revenue consists of royalty payments from mineral leases and oil and gas investments. \u00a0\u00a0\n\n\n\u00a0\n\n\n\u25cf\nWe reclassified depletion expenses to conform the current period standards. \u00a0The reclassification had no material impact on our audited consolidated financial statements. \u00a0\u00a0\n\n\n\u00a0\n\n\nRecently Issued Accounting Pronouncements\n\n\n\u00a0\n\n\nThe Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.\n\n\n\u00a0\n\n\nContractual Obligations\n\n\n\u00a0\n\n\nWe are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.\n\n\n\u00a0\n\n",
+  "item7a": ">ITEM 7A.\u00a0\u00a0\u00a0QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\n\n\u00a0\n\n\nWe are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.\n\n\n\u00a0\n\n\n20\n\n\n\n\n\u00a0\n\n",
+  "cik": "1490054",
+  "cusip6": "003783",
+  "cusip": ["003783310"],
+  "names": ["APPLE INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1490054/000109690623001489/0001096906-23-001489-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0001104659-23-074920.json b/GraphRAG/standalone/data/all/form10k/0001104659-23-074920.json
new file mode 100644
index 0000000000..2f38aac936
--- /dev/null
+++ b/GraphRAG/standalone/data/all/form10k/0001104659-23-074920.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item\u00a01. \u00a0Business\nOur Company\nWe are a Canadian-headquartered, Delaware-incorporated precious metals exploration, development and production company with the objective of becoming a leading silver producer. We were formed on February 2, 2011, when our predecessor Precious Metals Opportunities LLC, which was formed in December 2009, converted to a Delaware corporation. On March 1, 2011, Los Gatos Ltd. merged with and into us to form Sunshine Silver Mines Corporation. In 2014, we changed our name to Sunshine Silver Mining & Refining Corporation.\nWe completed our initial public offering in October 2020, as part of which we distributed our equity interest in Silver Opportunity Partners LLC, which held our interest in the Sunshine Complex in Idaho, to our stockholders and changed our name to Gatos Silver, Inc.\nOur primary efforts are focused on the operation of the LGJV in Chihuahua, Mexico. The LGJV was formed on January 1, 2015, when we entered into the Unanimous Omnibus Partner Agreement with Dowa Metals and Mining Co., Ltd. (\u201cDowa\u201d) to further explore, and potentially develop and operate mining properties within the LGD. The entities comprising the LGJV are Minera Plata Real S. de R.L. de C.V. (\u2018\u2018MPR\u2019\u2019) and Operaciones San Jose de Plata S. de R.L. de C.V (\u201cOSJ\u201d) (collectively, the \u2018\u2018LGJV Entities\u2019\u2019). The LGJV Entities own mineral rights and certain surface associated with the LGD. The LGJV ownership is currently 70% Gatos Silver and 30% Dowa. On September 1, 2019, the LGJV commenced commercial production at CLG, which produces silver-containing lead concentrate and zinc concentrate. The LGJV\u2019s lead and zinc concentrates are sold to third-party customers. Pursuant to the Unanimous Omnibus Partner Agreement, Dowa has the right to purchase 100% of the zinc concentrate produced from the CLG, at rates negotiated in good faith based on industry pricing benchmarks, and agreed between Dowa and MPR. The Unanimous Omnibus Partner Agreement requires unanimous partner approval of all major operating decisions (such as annual budgets, the creation of security interests on property, and certain major expenditures); therefore, despite our 70% ownership of the LGJV, we do not exercise control of the LGJV.\nIn addition to our 70% interest in the LGD, we have 100% ownership of the Santa Valeria property, located in Chihuahua, Mexico, which comprises 1,543 hectares and could provide additional opportunities for resource growth.\nOur Principal Projects\nWe are currently focused on the production and continued development of the CLG and the further exploration and development of the LGD:\n\u25cf\nThe CLG\n, located within the LGD, described below, consists of a polymetallic mine and processing facility that commenced commercial production on September 1, 2019 and currently processes over 2,800 tonnes per day (\u201ctpd\u201d) of ore. The Los Gatos Technical Report estimates that, as of July 1, 2022, the deposit contains approximately 6.07\u00a0million diluted tonnes of proven and probable mineral reserves, \nwith approximately 2.32 million diluted tonnes of proven mineral reserves and approximately 3.75 million tonnes of probable mineral reserves.\n Average proven and probable mineral reserve grades are 244 g/t silver, 4.48% zinc, 2.14% lead and 0.27 g/t gold. As of July 1, 2022, the measured and indicated mineral resource was 1.94 million tonnes grading 96 g/t silver, 3.01% zinc, 1.56% lead and 0.19 g/t gold with 0.38 million tonnes of measured resource and 1.55 million tonnes of indicated resource and the inferred mineral resource was 2.09 million tonnes grading 113 g/t silver, 4.30% zinc, 2.45% lead and 0.20 g/t gold at the CLG. The mineral reserve and resource estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2022 and exclude material that was mined before that effective date. From July 1, 2022 to March 31, 2023, approximately 786,000 tonnes of material was processed by the CLG mill. This processed material included mineral reserve tonnes, and to a lesser extent mineral resource tonnes as well as mineralized material not included in the mineral resource estimates. \nThe mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery.\n8\n\n\nTable of Contents\n\u25cf\nThe LGD\n, located in Chihuahua, Mexico, is approximately 120 kilometers south of Chihuahua City and is comprised of a 103,087 hectare land position, constituting a new mining district. The LGD consists of multiple mineralized zones. Two of the identified mineralized zones, Cerro Los Gatos and Esther, have reported mineral resources. The Los Gatos Technical Report estimates that the Esther deposit contains 0.28 million tonnes of indicated mineral resources at average grades of 122 g/t silver, 4.30% zinc, 2.17% lead and 0.14 g/t gold, and 1.20 million tonnes of inferred mineral resources at average grades of 133 g/t silver, 3.69% zinc, 1.53% lead and 0.09 g/t gold. The mineral resource estimates for the Esther deposit have an effective date of July 1, 2022 and have not been updated since that time. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery. The deposits in the LGD are characterized by predominantly silver-lead-zinc epithermal mineralization. A core component of the LGJV\u2019s business plan is to explore the highly prospective, underexplored LGD with the objective of identifying additional mineral deposits that can be developed, mined and processed, possibly utilizing the CLG plant infrastructure. The history of mineral exploration in relation to the LGD is described below.\nPrior to our initial acquisition of exploration concession rights in April 2006, very limited historical prospecting and exploration activities had been conducted in the LGD. We were able to acquire mineral concessions covering 103,087 hectares and, through our exploration, discovered a new silver region containing potential high-grade epithermal vein-style mineralization throughout the LGD concession package. In 2008, we negotiated certain surface access rights with local ranch owners and obtained the environmental permits for drilling and road construction necessary for the development of the CLG. Through 2015, we purchased all the surface lands required for the CLG development. Environmental baseline data collection began in May 2010 and was completed in 2016 and approved in 2017 to prepare for the development of future environmental studies required for the CLG. In 2014, we partnered with Dowa to finance and develop the CLG and pursue exploration in the LGD and, as noted above, entered into the Unanimous Omnibus Partner Agreement in early 2015. \nWe believe that we have strong support from the local community, with about 195 employees from the local community working across multiple areas involving the operation of the CLG, continued underground development, and construction of sustaining development projects. Over 99% of the approximate 824 employees at the CLG are from Mexico, highlighting our commitment to the local workforce.\nOur primary areas of focus have been operating and developing the CLG, defining and expanding the mineral reserves and mineral resources associated with the CLG and exploring and delineating resources within the LGD. As of March 31, 2023, 1,926 exploration and definition drill holes have been completed in both CLG and the LGD, totaling 466,104 meters. In 2022, LGD exploration drilling was completed at Esther, Cascabel, Wall-e and El Valle targets and detailed mapping occurred and Wall-e and Cascabel. Definition and expansion drilling was completed around CLG both from surface and underground. \nOur objectives at the CLG are to, among other things:\n\u25cf\ncontinue strong operating and cost performance;\n\u25cf\nmaximize margins and extend the LOM;\n\u25cf\ncomplete key capital projects and other initiatives to enhance mining efficiencies and reduce operating costs; and\n\u25cf\nperform additional in-fill and step-out drilling to convert mineral resources to reserves and delineate mineral resources and reserves from the recently discovered mineralization below the South-East zone of the CLG (\u201cSouth-East Deeps\u201d).\nOur objectives at the LGD are to realize the district potential through, among other things:\n\u25cf\ndetailed mapping and drill testing at the Esther, Amapola and El Lince Area deposits;\n\u25cf\ndistrict mapping and geophysics in the Rio Conchos basin and additional exposed and underlying andesite in the region to identify additional drill targets; and\n\u25cf\ncontinued expansion of the LGJV\u2019s interest in prospective mineral and surface rights.\n9\n\n\nTable of Contents\nFor the years ended December 31, 2022 and 2021, the LGJV achieved the following production from CLG:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCLG Production (100% Basis)\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\nTonnes milled (dmt - reconciled)\n\u00a0\n\u200b\n 971,595\n\u00a0\n\u200b\n 909,586\n\u200b\nTonnes milled per day (dmt)\n\u00a0\n\u200b\n 2,662\n\u00a0\n\u200b\n 2,492\n\u200b\nAverage Feed Grades\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n \n\u200b\n\u200b\nSilver grade (g/t)\n\u00a0\n\u200b\n 368\n\u00a0\n\u200b\n 295\n\u200b\nZinc grade (%)\n\u00a0\n\u200b\n 4.37\n\u00a0\n\u200b\n 3.94\n\u200b\nLead grade (%)\n\u00a0\n\u200b\n 2.31\n\u00a0\n\u200b\n 2.27\n\u200b\nGold grade (g/t)\n\u00a0\n\u200b\n 0.33\n\u00a0\n\u200b\n 0.32\n\u200b\nContained Metal\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n \n\u200b\n\u200b\nSilver ounces (millions)\n\u00a0\n\u200b\n 10.3\n\u00a0\n\u200b\n 7.6\n\u200b\nZinc pounds - in zinc conc. (millions)\n\u00a0\n\u200b\n 60.7\n\u00a0\n\u200b\n 49.6\n\u200b\nLead pounds - in lead conc. (millions)\n\u00a0\n\u200b\n 43.9\n\u00a0\n\u200b\n 39.8\n\u200b\nGold ounces - in lead conc. (thousands)\n\u00a0\n\u200b\n 5.3\n\u00a0\n\u200b\n 5.2\n\u200b\nRecoveries*\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n \n\u200b\n\u200b\nSilver - in both lead and zinc concentrates\n\u00a0\n\u200b\n 89.8\n%\n\u200b\n 88.3\n%\nZinc - in zinc concentrate\n\u00a0\n\u200b\n 64.8\n%\n\u200b\n 62.9\n%\nLead - in lead concentrate\n\u00a0\n\u200b\n 88.7\n%\n\u200b\n 87.6\n%\nGold - in lead concentrate\n\u00a0\n\u200b\n 52.0\n%\n\u200b\n 56.3\n%\nAverage realized price per silver ounce\n\u200b\n$\n 20.72\n\u200b\n$\n 24.38\n\u200b\nAverage realized price per zinc pound\n\u200b\n$\n 1.58\n\u200b\n$\n 1.38\n\u200b\nAverage realized price per lead pound\n\u200b\n$\n 0.90\n\u200b\n$\n 1.01\n\u200b\nAverage realized price per gold ounce\n\u200b\n$\n 1,678\n\u200b\n$\n 1,761\n\u200b\n*\nRecoveries are reported for payable metals in the identified concentrate.\nStrategic Developments\nOur business strategy is focused on creating value for stakeholders through the ownership and advancement of the CLG and the LGD and through the pursuit and the development of other attractive silver-focused projects. The following outlines key strategic developments since January 1, 2022:\n\u25cf\nInaugural Dividends Paid to LGJV Partners.\n In 2022, the LGJV paid three dividends to its partners, totaling $55 million, of which the Company\u2019s share was $29.2 million, net of withholding taxes and after initial priority distribution payments to Dowa.\n\u25cf\nReestablished and Extended our Revolving Credit Facility (the \u201cCredit Facility\u201d):\n On July 12, 2021, we entered into the Credit Facility with Bank of Montreal (\u201cBMO\u201d) that provides for a $50 million revolving line of credit with an accordion feature. On March 7, 2022, we amended the Credit Facility with BMO, to address potential loan covenant deficiencies, which resulted, \ninter alia\n, in the credit limit being reduced to $30 million.\nOn December 19, 2022, we entered into an amended and restated Credit Facility with BMO, extending the maturity date to December 31, 2025, and re-establishing a credit limit of $50 million, with an accordion feature.\n\u25cf\nNew Mineral Resource and Mineral Reserve Estimates.\n In the fourth quarter of 2022, we completed a full re-estimation of the Company\u2019s mineral resources and mineral reserves as published in the Los Gatos Technical Report. The mineral resources and mineral reserves were completely rebuilt from base data, including data compilation of surface drilling, underground drilling, underground mapping and production data, comprehensive data validation, structural and geological interpretation, resource estimation, reconciliation to actual production, and a new mine design including updates to operating and capital costs.\n\u25cf\nDiscovery of South-East Deeps Zone at CLG\n and further exploration success. In 2022, through the LGJV, we discovered mineralization below the South-East zone of the CLG. This newly identified zone extends approximately 415 meters below the reported mineral reserve. On January 23, 2023 we announced continued exploration drilling success demonstrating significant mine life extension potential through resource conversion and expansion at CLG.  On April 19, \n10\n\n\nTable of Contents\n2023 we announced that we were continuing to intercept strong widths and grades of silver, zinc, lead, gold and, copper in the case of the South-East and South-East Deeps zones. We also announced encouraging results from our resource conversion and extension drilling which will be reflected in an updated mineral reserve and mineral resource estimate that is expected to be completed in the third quarter of 2023. We also announced that we continued to see significant potential for new discoveries beyond the CLG deposit, highlighted by progress in our district exploration program.\n\u25cf\nDemonstrated Excellent Operational Performance.\n For 2022, we reported record silver production at the CLG, that exceeded our 2022 guidance. Silver production was 10.3 million ounces in 2022, up 36% from 7.6 million ounces in 2021, and above the high-end of the 2022 guidance range. Zinc, lead and gold production also increased during 2022, with zinc and gold near the high-end of guidance, and lead near the guidance midpoint. Compared with 2021, in 2022, zinc production increased by 22%, lead production increased by 10%, and gold production increased by 2%. The higher silver production for 2022 was primarily due to higher silver ore grades and higher mill throughput rates. Production sequencing in 2022 was from the highest-grade sections of the orebody, as considered in the LOM plan included in the Los Gatos Technical Report. We expect to produce 7.4 to 8.2 million ounces of silver, 57 to 63 million pounds of zinc, 36 to 40 million pounds of lead and 5.4 thousand to 6.2 thousand ounces of gold in 2023. On April 12, 2023, we announced record CLG production results for the first quarter ended March 31, 2023, with record mill throughput of 2,894 tonnes milled per day and production of 2.43 million ounces of silver, 14 million pounds of zinc, 9.5 million pounds of lead and 1.38 thousand ounces of gold.\n\u25cf\nFluorine Leach Plant Construction and Operation to Serve as Payment Towards Priority Distribution to Dowa.\n As agreed with Dowa, the initial payment of the priority distribution was reduced to reflect a portion of both the construction and future estimated operating costs of the new fluorine leach plant, subject to the successful construction and operation of the plant.\n\u25cf\nOptimization of CLG Assets and Capital Improvements.\n Mill throughput averaged 2,847 tpd during the fourth quarter of 2022, an increase of 9% compared to the fourth quarter of 2021, and significantly exceeded the mill design rate of 2,500 tpd. During 2022, the mill achieved a record 2,662 tpd, which was 7% higher than in 2021. Silver, zinc and lead recoveries for 2022 were also higher than in 2021. During the fourth quarter of 2022, we completed the construction and commissioning of the paste backfill plant. The paste backfill plant is expected to increase operational flexibility and productivity as well as help lower operating costs going forward. Construction of the fluorine leach plant is progressing well and it is expected to be commissioned in the second quarter of 2023, and reduce the amount of deleterious content in zinc concentrates being sent to Dowa. The LGJV expects to spend $45 million on sustaining capital during 2023 of which $25 million is expected to be incurred on underground development to access the lower levels of the Northwest and Central zones and to further develop the Southeast zone. The remainder of capital expenditures for 2023 are expected to be primarily associated with equipment replacements and rebuilds, dewatering infrastructure, and for completion of the fluorine leach plant.  Commissioning of the fluorine leach plant is expected to commence in the second half of June 2023.\n\u25cf\nStrong Financial Performance.\n On June 6, 2023 we reported operating and select unaudited financial results for the three months ended March 31, 2023 (\u201cQ1 2023\u201d), the three months ended December 31, 2022 (\u201cQ4 2022\u201d) and the year ended December 31, 2022.  For Q1 2023, cash flow from operations for the LGJV was $44.5 million, up 6% from $42.1 million a year earlier.  For Q4 2022 and the full year 2022 cash flow from operations for the LGJV was $39.1 million in Q4 2022 and $157.4 million for the full year 2022, increases of 12% and 31%, respectively, compared with the year-earlier periods.  We also announced that we were on track to achieve our previously stated production and cost guidance for 2023 noting that silver production is expected to be higher in the first half of 2023 than in the second half of 2023 based on sequencing of the mine plan while zinc and lead production are expected to be higher in the second half of the year than in the first half.\n\u25cf\nCorporate Developments.\n We relocated our corporate office from Denver, Colorado, to Vancouver, British Columbia, providing improved access to experienced mining managerial talent. We strengthened the executive management team with the appointments of a new Chief Financial Officer, a General Counsel and Chief Compliance Officer, and a Senior Vice President, Corporate Development and Technical Services, all with extensive experience working for large multinational mining companies.\n11\n\n\nTable of Contents\nOur Strengths\nWe believe the following provide us with significant competitive advantages:\n\u25cf\nOur Assets are High Quality\n: As noted above, the CLG achieved strong operational performance in 2022. Per the Los Gatos Technical Report, the CLG is expected to produce an average of 7.4 million ounces of silver per annum at low all-in-sustaining-costs over the LOM. \n\u25cf\nOur Assets are Located in an Established Mining Region\n: The CLG and the LGD are located in one of the world\u2019s premier silver mining regions: the Mexican Silver Belt, which was the world\u2019s largest silver producing region in 2021. Mexico is a leading silver mining jurisdiction and has a long history of successful mineral development and operations. We have access to experienced and capable mining employees in Mexico. \n\u25cf\nFurther Optimization Potential at CLG\n: At the CLG, we apply continuous improvement practices designed to reduce costs, and improve throughput and recoveries. For example, during 2023, we anticipate completing a scoping study on the possible future expansion of the grinding circuit to 3,500 tpd to better utilize the capacity in the existing flotation circuit.\n\u25cf\nGrowth Potential in our Mineral Reserves and Resources from Further Exploration of the CLG and the LGD\n: Through the LGJV, we have continued our in-mine and near-mine exploration program in the CLG and our exploration activities in the LGD.  In the CLG, we expect to convert inferred resources from higher-grade areas located adjacent to planned mine development and also expect there to be further LOM extension opportunity in the South-East Deeps area of the CLG.  We expect to complete new mineral resource and mineral resource estimates for the Company in the third quarter of 2023. We also believe the LGD is a highly prospective area, with 103,087 contiguous hectares of mineral rights. The LGD is located in the Mexican Silver Belt, a geologic zone that hosts numerous significant silver producing operations. The LGD represents an underexplored property within this productive belt, where there has been little historical workings or previous exploration. On November 22, 2022, we disclosed our exploration strategy for the LGD which entails a focus on two key areas: an exposed section of andesite running from the northwest boundary of the district to Esther and the CLG, and a large basin southeast of the CLG underlain by andesite and which we anticipate may contain other large, district-scale fault structures conducive to large deposits.  We are currently prioritizing exploration efforts on areas closer to the CLG and areas with the highest potential to leverage existing surface and underground infrastructure. The LGJV is expected to incur drilling and exploration expenditures of approximately $13 million in 2023. At the CLG, there are currently five active drill rigs on surface and three underground, with the primary focus on CLG life extension including drilling of the South-East Deeps zone and gradually shifting focus towards exploration drilling of the LGD in the second half of 2023. We also plan to conduct detailed mapping of the district and undertake a geophysics survey program aiming to define structures and future drilling targets across the property.\n\u25cf\nManagement Team and Board of Directors are Highly Experienced\n: We have an experienced management team whose members have successful track records in the mining industry. Our Chief Executive Officer, Dale Andres; Chief Financial Officer, Andr\u00e9 van Niekerk; Senior Vice President of Evaluations and Technical Services, Tony Scott; and General Counsel and Chief Compliance Officer, Stephen Bodley, each has significant experience in developing, financing, and operating successful mining projects. Our Board of Directors is comprised of senior mining, financial and business executives who have broad domestic and international experience in mineral exploration, development and mining operations at notable mining companies. We believe that the specialized skills and knowledge of the management team and the Board of Directors will significantly enhance our ability to cost-effectively operate the CLG and extend its LOM, explore and develop the LGD and pursue other growth opportunities.\nSummary of Mineral Reserves and Mineral Resources\nBelow is a summary table of estimated mineral resources and mineral reserves. Further information can be found in \"Item 2. Properties.\" The mineral reserve and mineral resource estimates contained in the Los Gatos Technical Report have an effective date of July 1, 2022 and exclude mineral reserves that have previously been mined prior to this date. From July 1, 2022 to March 31, 2023, approximately 786,000 tonnes of material were processed by the CLG mill. This processed material included mineral reserve tonnes, and to a lesser extent mineral resource tonnes as well as mineralized material not included in the mineral resource estimates. The mineral resource estimates contained in the Los Gatos Technical Report are presented on an undiluted basis without adjustment for mining recovery.\n12\n\n\nTable of Contents\nSummary Mineral Reserves as of July 1, 2022\nCLG Mineral Reserves Statement\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nReserve\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAg\u00a0\n\u00a0\u00a0\u00a0\u00a0\nZn\u00a0\n\u00a0\u00a0\u00a0\u00a0\nPb\u00a0\n\u00a0\u00a0\u00a0\u00a0\nAu\u00a0\n\u00a0\u00a0\u00a0\u00a0\nAg\u00a0\n\u00a0\u00a0\u00a0\u00a0\nZn\u00a0\n\u00a0\u00a0\u00a0\u00a0\nPb\u00a0\n\u00a0\u00a0\u00a0\u00a0\nAu\u00a0\nClassification\n\u200b\nMt\n\u200b\n(g/t)\n\u200b\n(%)\n\u200b\n(%)\n\u200b\n(g/t)\n\u200b\n(Moz)\n\u200b\n(Mlbs)\n\u200b\n(Mlbs)\n\u200b\n(koz)\nProven\n\u00a0\n 2.32\n\u00a0\n 309\n\u00a0\n 4.33\n\u00a0\n 2.20\n\u00a0\n 0.31\n\u00a0\n 23.1\n\u00a0\n 221.6\n\u00a0\n 112.3\n\u00a0\n 23.0\nProbable\n\u00a0\n 3.75\n\u00a0\n 204\n\u00a0\n 4.57\n\u00a0\n 2.11\n\u00a0\n 0.24\n\u00a0\n 24.6\n\u00a0\n 377.4\n\u00a0\n 174.4\n\u00a0\n 28.7\nProven and Probable Reserve\n\u00a0\n 6.07\n\u00a0\n 244\n\u00a0\n 4.48\n\u00a0\n 2.14\n\u00a0\n 0.27\n\u00a0\n 47.7\n\u00a0\n 599.1\n\u00a0\n 286.7\n\u00a0\n 51.8\n1.\nMineral Reserves are reported on a 100% basis and exclude all Mineral Reserve material mined prior to July 1, 2022.\n2.\nSpecific gravity has been assumed on a dry basis.\n3.\nTonnage and contained metal have been rounded to reflect the accuracy of the estimate and numbers may not sum exactly.\n4.\nValues are inclusive of mining recovery and dilution. Values are determined as of delivery to the mill and therefore not inclusive of milling recoveries.\n5.\nMineral Reserves are reported within stope shapes using a variable cut-off basis with a Ag price of US$22/oz, Zn price of US$1.20/lb, Pb price of US$0.90/lb and Au price of US$1,700/oz. The metal prices used for the Mineral Reserves are based on the three-year trailing prices from June 2019 to June 2020 and long-term analyst consensus estimates for the LOM.\n6.\nThe Mineral Reserve is reported on a fully diluted basis defined by mining method, stope geometry and ground conditions.\n7.\nContained Metal (CM) is calculated as follows:\n\u25cf\nZn and Pb, CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 * 2204.6 \n\u25cf\nAg and Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035 ; multiply Au CM (Moz) by 1000 to obtain Au CM (koz)\n8.\nThe SEC definitions for Mineral Reserves in S-K 1300 were used for Mineral Reserve classification which are consistent with Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral Resources and Mineral Reserves (CIM (2014) definitions).\n9.\nMineral Reserves are those parts of Mineral Resources which, after the application of all mining factors, result in an estimated tonnage and grade which, in the opinion of the Qualified Person(s) making the estimates, is the basis of an economically viable project after taking account of all relevant Modifying Factors. Mineral Reserves are inclusive of diluting material that will be mined in conjunction with the Mineral Reserves and delivered to the treatment plant or equivalent facility.\n10.\nProven Reserves include a 15.4-kt stockpile at June 30, 2022. The in-situ Reserve is 6,052 kt. Rounding and significant figures may result in apparent summation differences between tonnes and grade.\n11.\nThe Mineral Reserve estimates were prepared by Mr. Paul Gauthier, P.Eng. an employee of WSP Canada Inc. who is the independent Qualified Person for these Mineral Reserve estimates.\nSummary Mineral Resources (Exclusive of Mineral Reserves) as of July 1, 2022\nCLG Mineral Resource Estimate\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nZn\n\u00a0\u00a0\u00a0\u00a0\nPb\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\nResource Classification\n\u200b\nMt\n\u200b\nAg\u00a0(g/t)\n\u200b\n(%)\n\u200b\n(%)\n\u200b\nAu\u00a0(g/t)\n\u200b\nAg\u00a0(Moz)\n\u200b\nZn\u00a0(Mlbs)\n\u200b\nPb\u00a0(Mlbs)\n\u200b\nAu\u00a0(koz)\nMeasured\n\u00a0\n 0.38\n\u00a0\n 151\n\u00a0\n 2.63\n\u00a0\n 1.49\n\u00a0\n 0.26\n\u00a0\n 1.9\n\u00a0\n 22.1\n\u00a0\n 12.6\n\u00a0\n 3.2\nIndicated\n\u00a0\n 1.55\n\u00a0\n 82\n\u00a0\n 3.11\n\u00a0\n 1.57\n\u00a0\n 0.17\n\u00a0\n 4.1\n\u00a0\n 106.4\n\u00a0\n 53.8\n\u00a0\n 8.6\nMeasured and Indicated\n\u00a0\n 1.94\n\u00a0\n 96\n\u00a0\n 3.01\n\u00a0\n 1.56\n\u00a0\n 0.19\n\u00a0\n 6.0\n\u00a0\n 128.5\n\u00a0\n 66.4\n\u00a0\n 11.8\nInferred\n\u00a0\n 2.09\n\u00a0\n 113\n\u00a0\n 4.30\n\u00a0\n 2.45\n\u00a0\n 0.20\n\u00a0\n 7.6\n\u00a0\n 198.4\n\u00a0\n 113.1\n\u00a0\n 13.3\n1.\nMineral Resources are reported on a 100% basis and are exclusive of Mineral Reserves.\n2.\nMineral Resources, which are not Mineral Reserves, do not have demonstrated economic viability. The estimate of Mineral Resources may be materially affected by environmental, permitting, legal, marketing, or other relevant issues.\n3.\nThe SEC definitions for Mineral Resources in S-K 1300 were used for Mineral Resource classification which are consistent with Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral Resources and Mineral Reserves (CIM (2014) definitions). \n4.\nThe quantity and grade of reported Inferred Mineral Resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred Mineral Resources as an Indicated or Measured Mineral Resource. It is uncertain if further exploration will result in upgrading Inferred Mineral Resources to an Indicated or Measured Mineral Resource category.\n13\n\n\nTable of Contents\n5.\nSpecific gravity has been assumed on a dry basis.\n6.\nTonnage and contained metal have been rounded to reflect the accuracy of the estimate and numbers may not sum exactly.\n7.\nMineral Resources exclude all Mineral Resource material mined prior to July 1, 2022.\n8.\nMineral Resources are reported within stope shapes using a $42/tonne or $52/tonne NSR cut-off basis depending on mining method with an Ag price of $22/oz, Zn price of $1.20/lb, Pb price of $0.90/lb and Au price of $1,700/oz. The metal prices used for the Mineral Resource are based on the three-year trailing prices from June 2019 to June 2020 and long-term analyst consensus estimates for the LOM.\n9.\nNo dilution was applied to the Mineral Resource.\n10.\nContained Metal (CM) is calculated as follows:\n\u25cf\nZn and Pb, CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 * 2204.6 \n\u25cf\nAg and Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035; multiply Au CM (Moz) by 1000 to obtain Au CM (koz)\n11.\nThe Mineral Resource estimates were prepared by Ronald Turner, MAusIMM(CP) an employee of Golder Associates S.A. who is the independent Qualified Person for these Mineral Resource estimates.\nEsther Mineral Resource Estimate\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAg\u00a0\n\u00a0\u00a0\u00a0\u00a0\nZn\n\u00a0\u00a0\u00a0\u00a0\nPb\n\u00a0\u00a0\u00a0\u00a0\nAu\u00a0\n\u00a0\u00a0\u00a0\u00a0\nAg\u00a0\n\u00a0\u00a0\u00a0\u00a0\nZn\u00a0\n\u00a0\u00a0\u00a0\u00a0\nPb\n\u00a0\u00a0\u00a0\u00a0\nAu\u00a0\nResource Classification\n\u200b\nMt\n\u200b\n(g/t)\n\u200b\n\u00a0(%)\n\u200b\n\u00a0(%)\n\u200b\n(g/t)\n\u200b\n(Moz)\n\u200b\n(Mlbs)\n\u200b\n(Mlbs)\n\u200b\n(koz)\nIndicated\n\u200b\n 0.28\n\u200b\n 122\n\u200b\n 4.30\n\u200b\n 2.17\n\u200b\n 0.14\n\u200b\n 1.1\n\u200b\n 26.8\n\u200b\n 13.6\n\u200b\n 1.2\nInferred\n\u00a0\n 1.20\n\u00a0\n 133\n\u00a0\n 3.69\n\u00a0\n 1.53\n\u00a0\n 0.09\n\u00a0\n 5.1\n\u00a0\n 98.0\n\u00a0\n 40.6\n\u00a0\n 3.3\n1.\nMineral Resources are reported on a 100% basis.\n2.\nMineral Resources, which are not Mineral Reserves, do not have demonstrated economic viability. The estimate of Mineral Resources may be materially affected by environmental, permitting, legal, marketing, or other relevant issues. \n3.\nThe SEC definitions for Mineral Resources in S-K 1300 were used for Mineral Resource classification which are consistent with Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral Resources and Mineral Reserves (CIM (2014) definitions). \n4.\nThe quantity and grade of reported Inferred Mineral Resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred Mineral Resources as an Indicated or Measured Mineral Resource. It is uncertain if further exploration will result in upgrading Inferred Mineral Resources to an Indicated or Measured Mineral Resource category.\n5.\nSpecific gravity has been assumed on a dry basis.\n6.\nTonnage and contained metal have been rounded to reflect the accuracy of the estimate and numbers may not sum exactly.\n7.\nMineral Resources are reported within stope shapes using a $52/tonne NSR cut-off basis assuming processing recoveries equivalent to CLG with an Ag price of $22/oz, Zn price of $1.20/lb, Pb price of $0.90/lb and Au price of $1,700/oz. The metal prices used for the Mineral Resource are based on the three-year trailing prices from June 2019 to June 2020 and long-term analyst consensus estimates for the LOM. There is a portion of the Esther deposit that is oxidized and metallurgical test work is required to define processing recoveries.\n8.\nNo dilution was applied to the Mineral Resource.\n9.\nContained Metal (CM) is calculated as follows:\n\u25cf\nZn and Pb, CM (Mlb) = Tonnage (Mt) * Grade (%) / 100 * 2204.6 \n\u25cf\nAg and Au, CM (Moz) = Tonnage (Mt) * Grade (g/t) / 31.1035 ; multiply Au CM (Moz) by 1000 to obtain Au CM (koz)\n10.\nThe Mineral Resource estimates were prepared by Ronald Turner, MAusIMM(CP) an employee of Golder Associates S.A. who is the independent Qualified Person for these Mineral Resource estimates.\nCompetition\nThere is aggressive competition within the mining and precious metals industry. We compete with other precious metals mining companies, as well as other mineral miners, in efforts to obtain financing to explore and develop projects. Many of these mining companies currently have greater resources than we do. In the future, we may compete with such companies to acquire additional properties.\nIn addition, we also encounter competition for the hiring of key personnel. The mining industry is currently facing a shortage of experienced mining professionals, particularly experienced mine construction and mine management personnel. This competition affects our operations. Larger regional companies can offer better employment terms than smaller companies such as us. In addition, the volatility in our stock price reduces our ability to attract and retain such personnel through the use of share-based compensation.\n14\n\n\nTable of Contents\nWe also compete for the services of mine service companies, such as project coordinators and drilling companies. Potential suppliers may choose to provide better terms and scheduling to larger companies in the industry due to the scale and scope of their operations.\nEnvironmental, Health and Safety Matters\nWe are subject to stringent and complex environmental laws, regulations and permits in the jurisdiction in which we operate. These requirements are a significant consideration for us as our operations involve, or may in the future involve, among other things, the removal, extraction and processing of natural resources, emission and discharge of materials into the environment, remediation of soil and groundwater contamination, workplace health and safety, reclamation and closure of waste impoundments and other properties, and handling, storage, transport and disposal of wastes and hazardous materials. Compliance with these laws, regulations and permits can require substantial capital or operating costs or otherwise delay, limit or prohibit our development or future operation of our properties. These laws, regulations and permits, and the enforcement and interpretation thereof, change frequently and generally have become more stringent over time. If we violate these environmental requirements, we may be subject to litigation, fines or other sanctions, including the revocation of permits and suspension of operations. Pursuant to such requirements, we also may be subject to inspections or reviews by governmental authorities.\nPermits and Approvals\nWe were issued the major government approvals required to construct and operate the CLG facilities during 2017. While there are multiple approvals from multiple levels of government, the key government approval for the project is the MIA (Environmental Impact Assessment), issued in July 2017 and valid until 2041. As the mine plan changes, it may be necessary to conduct environmental studies and collect and present to governmental authorities data pertaining to the potential impact that our current or future operations may have upon the environment. Since the original MIA approval was granted in 2017, we have successfully achieved three amendments to the MIA approval to reflect changes to the mine plan and facilities. \nWe have the approvals necessary to extract and process the mineral reserve as described in the Los Gatos Technical Report. In 2022, the LGJV applied for a permit amendment for the operation of the fluorine leach project and timely submitted all required information. The LGJV has not received a final response from the relevant government authorities within the required timeframe and the permit amendment has, therefore, been presumptively approved by operation of Mexican law. Even if the approval were revoked, we would not expect a material impact to the economics of the CLG operation.\nOur and the LGJV\u2019s ability to obtain permits and approvals in future may be adversely affected by the significant amendments to laws affecting the mining industry promulgated by the Mexican federal government on May 8, 2023\nHazardous Substances and Waste Management\nWe could be liable for environmental contamination at or from our or our predecessors\u2019 currently or formerly owned or operated properties or third-party waste disposal sites. Certain environmental laws impose joint and several strict liability for releases of hazardous substances at such properties or sites, without regard to fault or the legality of the original conduct. A generator of waste can be held responsible for contamination resulting from the treatment or disposal of such waste at any off-site location (such as a landfill), regardless of whether the generator arranged for the treatment or disposal of the waste in compliance with applicable laws. Costs associated with liability for removal or remediation of contamination or damage to natural resources could be substantial and liability under these laws may attach without regard to whether the responsible party knew of, or was responsible for, the presence of the contaminants. In addition to potentially significant investigation and remediation costs, such matters can give rise to claims from governmental authorities and other third parties for fines or penalties, natural resource damages, personal injury and property damage.\nMine Health and Safety Laws\nAll of our current properties are located in Mexico and are subject to regulation by the Political Constitution of the United Mexican States, and are subject to various legislation in Mexico, including the Mining Law, the Federal Law of Waters, the Federal Labor Law, the Federal Law of Firearms and Explosives, the General Law on Ecological Balance and Environmental Protection and the Federal Law on Metrology Standards, as well as the accompanying regulations and regulatory authorities. Mining, environmental and labor authorities may inspect our operations on a regular basis and issue various citations and orders when they believe a violation has occurred under the relevant statute. Regulations and the results of inspections may have a significant effect on our operating costs.\n15\n\n\nTable of Contents\nAt this time, it is not possible to predict the full effect that the new or proposed statutes, regulations and policies will have on our operating costs, but it may increase our costs and those of our competitors.\nOther Environmental Laws\nWe are required to comply with numerous other environmental laws, regulations and permits in addition to those previously discussed. These additional requirements include, for example, various permits regulating road construction and drilling at the Mexican properties.\nWe endeavor to conduct our mining operations in compliance with all applicable laws and regulations. However, because of extensive and comprehensive regulatory requirements, violations during mining operations occur from time to time in the industry.\nFacilities and Employees\nWe own and lease land at our other exploration properties in Mexico and at the LGD through our ownership interest in the LGJV.\nAs of May 31, 2023, we had no full-time employees in the United States, twelve full time employees in Canada and eight full-time employees in Mexico. The LGJV had approximately 824 employees in Mexico, including approximately 577 unionized employees as of December 2022. We believe that our employee relations are good and plan to continue to hire employees as our operations expand at the LGJV. The health and safety of our employees and the employees of the LGJV is our highest priority, consistent with our business culture and values.  In addition to tracking common lagging indicators, such as injury performance, we focus on leading indicators such as high potential incidents and safety observations, as well as other proactive actions taken at site to ensure worker safety.  We are committed to operating in accordance with high ethical standards and believe this is a key motivational factor for our employees. In 2022, we updated our Code of Conduct as well as other core compliance policies and conducted training and compliance certification with all our employees, employees of our wholly-owned subsidiaries and employees of the LGJV. We continue to emphasize employee development and training to empower employees both at the corporate level and at the LGJV level to enhance employees\u2019 potential and benefit the business. We leverage both formal and informal programs to identify, foster, and retain top talent at both the corporate and the LGJV level.\nAvailable Information\nOur internet address is\u00a0\nwww.gatossilver\n.com\n. We make available free of charge through our investor relations website, \nhttps://investor\n.gatossilver.com\n, copies of our Annual Reports on Form\u00a010-K, Quarterly Reports on Form\u00a010-Q, Current Reports on Form\u00a08-K and amendments to those reports filed or furnished pursuant to Section\u00a013(a)\u00a0or 15(d)\u00a0of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d), as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the SEC. The information contained on our website is not included as a part of, or incorporated by reference into, this Report.\n\u200b",
+  "item1a": ">Item\u00a01A. \u00a0Risk Factors\nThe following risks could materially and adversely affect our business, financial condition, cash flows, and results of operations, and the trading price of our common stock could decline. These risk factors do not identify all risks that we face; we could also be affected by factors that are not presently known to us or that we currently consider to be immaterial. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. Refer also to the other information set forth in this this Report, including our consolidated financial statements and the related notes and \u201cItem\u00a07. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\u201d\nRisks Related to Our Financial Condition\nWe are currently dependent on the CLG and the LGD for our future operations and may not be successful in identifying additional proven or probable mineral reserves. We may not be able to extend the current CLG life of mine by adding proven or probable mineral reserves.\nThe LGD (other than the CLG) does not have identified proven and probable mineral reserves. Mineral exploration and development involve a high degree of risk that even a combination of careful evaluation, experience and knowledge cannot eliminate, \n16\n\n\nTable of Contents\nand few properties that are explored are ultimately developed into producing mines. There is no assurance that our mineral exploration programs at the LGD will establish the presence of any additional proven or probable mineral reserves. The failure to establish additional proven or probable mineral reserves would severely restrict our ability to implement our strategies for long-term growth, which include extending the current CLG life of mine.\nWe may not sustain profitability.\nPrior to 2022, we had a history of negative operating cash flows and cumulative net losses. For the years ended December 31, 2022 and 2021, we reported net income of $14.5 million and net loss of $65.9 million, respectively. For the years ended December 31, 2022 and 2021, operating activities provided $14.6 million and used 21.5 million, respectively, of cash flow.\nWe may not sustain profitability. To remain profitable, we must succeed in generating significant revenues at the LGJV, which will require us to be successful in a range of challenging activities and is subject to numerous risks, including the risk factors set forth in this \u201cRisk Factors\u201d section. In addition, we may encounter unforeseen expenses, difficulties, complications, delays, inflation and other unknown factors that may adversely affect our revenues, expenses and profitability. Our failure to achieve or sustain profitability would depress our market value, could impair our ability to execute our business plan, raise capital or continue our operations and could cause our shareholders to lose all or part of their investment.\nDeliveries under concentrate sales agreements may be suspended or cancelled by our customers in certain cases.\nUnder concentrate sales agreements, our customers may suspend or cancel delivery of our products in some cases, such as force majeure. Events of force majeure under these agreements generally include, among others, acts of God, strikes, fires, floods, wars, government actions or other events that are beyond the control of the parties involved. Any suspension or cancellation by our customers of deliveries under our sales contracts that are not replaced by deliveries under new contracts would reduce our cash flow and could materially and adversely affect our financial condition and results of operations.\nWe do not currently intend to enter into hedging arrangements with respect to metal prices or currencies, which could expose us to losses. We are also subject to risks relating to exchange rate fluctuations.\nWe do not currently intend to enter into hedging arrangements with respect to metal prices or currencies. As a result, we will not be protected from a decline in the price of silver and other minerals or fluctuations in exchange rates. This strategy may have a material adverse effect upon our financial performance, financial position and results of operations.\nWe report our financial statements in U.S. dollars. A portion of our costs and expenses are incurred in Mexican pesos and, to a lesser extent, Canadian dollars. As a result, any significant and sustained appreciation of these currencies against the U.S. dollar may materially increase our costs and expenses. Even if we seek and are able to enter into hedging contracts, there is no assurance that such hedging program will be effective, and any hedging program would also prevent us from benefitting fully from applicable input cost or rate decreases. In addition, we may in the future experience losses if a counterparty fails to perform under a hedge arrangement.\nWe and/or the LGJV have historically had significant debt and may incur further debt in the future, which could adversely affect our and the LGJV\u2019s financial health and limit our ability to obtain financing in the future and pursue certain business opportunities.\nWe have a Credit Facility providing for a revolving line of credit in the principal amount of $50 million that has an accordion feature, which allows for an increase in the total line of credit up to $75 million, subject to certain conditions. As of December 31, 2022, we had $9 million of outstanding indebtedness under the Credit Facility. The Credit Facility contains affirmative and negative covenants. If we are unable to comply with the requirements of the Credit Facility, the facility may be terminated or the credit available thereunder may be materially reduced, and we may not be able to obtain additional or alternate funding on satisfactory terms, if at all. See Note 11 \u2014 Debt in our consolidated financial statements included in \u201cItem 8. Financial Statements and Supplementary Data\u201d for additional information regarding our Credit Facility. Our borrowings under the Credit Facility accrues interest based on SOFR; therefore, any increases in interest rates could adversely affect our financial conditions and ability to service our indebtedness.\nWhile the LGJV currently has no significant debt service obligations, the LGJV may in the future incur debt obligations and the above factors would apply to such debt. For more information, see \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u2014Liquidity and Capital Resources\u2014Dowa Debt Agreements.\u201d\n17\n\n\nTable of Contents\nThe Company\u2019s effective tax rate could be volatile and materially change as a result of changes in tax laws, mix of earnings and other factors.\nWe are subject to tax laws in the United States and foreign jurisdictions including Mexico and Canada. \nChanges in tax laws or policy could have a negative impact on the Company\u2019s effective tax rate. The Company operates in countries which have different statutory rates. Consequently, changes in the mix and source of earnings between countries could have a material impact on the Company\u2019s overall effective tax rate.\nThe LGJV is subject to Mexican income and other taxes, and distributions from the LGJV are subject to Mexican withholding taxes. Any change in such taxes could materially adversely affect our effective tax rate and the quantum of cash available to be distributed to us.\nRisks Related to Our Operations\nMineral reserve and mineral resource calculations at the CLG and at other deposits in the LGD are only estimates and actual production results and future estimates may vary significantly from the current estimates.\nCalculations of mineral reserves and mineral resources at the CLG and of mineral resources at other deposits in the LGD are only estimates and depend on geological interpretation and statistical inferences or assumptions drawn from drilling and sampling analysis, which might prove to be materially inaccurate. There is a degree of uncertainty attributable to the calculation of mineral reserves and mineral resources. Until mineral reserves and mineral resources are actually mined and processed, the quantity of metal and grades must be considered as estimates only and no assurance can be given that the indicated levels of metals will be produced. In making determinations about whether to advance any of our projects to development, we must rely upon estimated calculations for the mineral reserves and mineral resources and grades of mineralization on our properties.\nThe estimation of mineral reserves and mineral resources is a subjective process that is partially dependent upon the judgment of the persons preparing the estimates. The process relies on the quantity and quality of available data and is based on knowledge, mining experience, statistical analysis of drilling results and industry practices. Valid estimates made at a given time may significantly change when new information becomes available.\nEstimated mineral reserves and mineral resources may have to be recalculated based on changes in metal prices, further exploration or development activity or actual production experience. This could materially and adversely affect estimates of the volume or grade of mineralization, estimated recovery rates or other important factors that influence mineral reserves and mineral resources estimates. The extent to which mineral resources may ultimately be reclassified as mineral reserves is dependent upon the demonstration of their profitable recovery. Any material changes in volume and grades of mineralization will affect the economic viability of placing a property into production and a property\u2019s return on capital. We cannot provide assurance that mineralization can be mined or processed profitably.\nMineral reserve and mineral resource estimates have been determined and valued based on assumed future metal prices, cutoff grades and operating costs that may prove to be inaccurate. The mineral reserve and mineral resource estimates may be adversely affected by:\n\u25cf\ndeclines in the market price of silver, lead or zinc;\n\u25cf\nincreased production or capital costs;\n\u25cf\ndecreased throughput;\n\u25cf\nreduction in grade;\n\u25cf\nincrease in the dilution of ore;\n\u25cf\ninflation rates, future foreign exchange rates and applicable tax rates;\n\u25cf\nchanges in environmental, permitting and regulatory requirements; and\n18\n\n\nTable of Contents\n\u25cf\nreduced metal recovery.\nExtended declines in the market price for silver, lead and zinc may render portions of our mineralization uneconomic and result in reduced reported volume and grades, which in turn could have a material adverse effect on our financial performance, financial position and results of operations.\nIn addition, inferred mineral resources have a great amount of uncertainty as to their existence and their economic and legal feasibility. There should be no assumption that any part of an inferred mineral resource will be upgraded to a higher category or that any of the mineral resources not already classified as mineral reserves will be reclassified as mineral reserves.\nOur and the LGJV\u2019s mineral exploration efforts are highly speculative in nature and may be unsuccessful.\nMineral exploration is highly speculative in nature, involves many uncertainties and risks and is frequently unsuccessful. It is performed to demonstrate the dimensions, position and mineral characteristics of mineral deposits, estimate mineral resources, assess amenability of the deposit to mining and processing scenarios and estimate potential deposit value. Once mineralization is discovered, it may take a number of\u00a0years from the initial exploration phases before production is possible, during which time the potential feasibility of the project may change adversely. Substantial expenditures are required to establish additional proven and probable mineral reserves, to determine processes to extract the metals and, if required, to permit and construct mining and processing facilities and obtain the rights to the land and resources required to develop the mining activities.\nDevelopment projects and newly constructed mines have no or little operating history upon which to base estimates of proven and probable mineral reserves and estimates of future operating costs. Estimates are, to a large extent, based upon the interpretation of geological data and modeling obtained from drill holes and other sampling techniques, feasibility studies that derive estimates of operating costs based upon anticipated tonnage and grades of material to be mined and processed, the configuration of the deposit, expected recovery rates of metal from the mill feed material, facility and equipment capital and operating costs, anticipated climatic conditions and other factors. As a result, actual operating costs and economic returns based upon development of proven and probable mineral reserves may differ significantly from those originally estimated. Moreover, significant decreases in actual or expected commodity prices may mean mineralization, once found, will be uneconomical to mine.\nThe ability to mine and process materials at the CLG or other future operations may be adversely impacted in certain circumstances, some of which may be unexpected and not in our control.\nA number of factors could affect our ability to mine materials and process the quantities of mined materials that we recover. Our ability to efficiently mine materials and to handle certain quantities of processed materials, including, but not limited to, the presence of oversized material at the crushing stage; material showing breakage characteristics different than those planned; material with grades outside of planned grade range; the presence of deleterious materials in ratios different than expected; material drier or wetter than expected, due to natural or environmental effects; and materials having viscosity or density different than expected.\nThe occurrence of one or more of the circumstances described above could affect our ability to process the number of tonnes planned, recover valuable materials, remove deleterious materials, and produce planned quantities of concentrates. In turn, this may result in lower throughput, lower recoveries, increased downtime or some combination of all of the foregoing. While issues of this nature are part of normal operations, there is no assurance that unexpected conditions may not materially and adversely affect our business, results of operations or financial condition.\nOur ability to efficiently mine materials at the CLG is also affected by the hydrogeology of areas within the mine, which requires the installation of dewatering infrastructure to manage underground water. As the mine expands, additional infrastructure will be required. Existing dewatering infrastructure may be ineffective at managing underground water, and although additional capital for dewatering infrastructure is contemplated in the LOM plan included in the Los Gatos Technical Report, further dewatering infrastructure may be more costly than planned or may otherwise be ineffective.\nActual capital costs, operating costs, production and economic returns may differ significantly from those we have anticipated and there are no assurances that any future development activities will result in profitable mining operations.\nThe actual capital and operating costs at the CLG will depend upon changes in the availability and prices of labor, equipment and infrastructure, variances in ore recovery and mining rates from those assumed in the mining plan, operational risks, changes in governmental regulation, including taxation, environmental, permitting and other regulations and other factors, many of which are beyond our control. Due to any of these or other factors, the capital and operating costs at the CLG may be significantly higher than \n19\n\n\nTable of Contents\nthose set forth in the Los Gatos Technical Report. As a result of higher capital and operating costs, production and economic returns may differ significantly from those set forth in the Los Gatos Technical Report and there are no assurances that any future development activities will result in profitable mining operations.\nLand reclamation and mine closure may be burdensome and costly and such costs may exceed our estimates.\nLand reclamation and mine closure requirements are generally imposed on mining and exploration companies, such as ours, which require us, among other things, to minimize the effects of land disturbance. Such requirements may include controlling the discharge of potentially dangerous effluents from a site and restoring a site\u2019s landscape to its pre-exploration form. The actual costs of reclamation and mine closure are uncertain and planned expenditures may differ from the actual expenditures required. Therefore, the amount that we are required to spend could be materially higher than current estimates. Any additional amounts required to be spent on reclamation and mine closure may have a material adverse effect on our financial performance, financial position and results of operations and may cause us to alter our operations. In addition, we are required to maintain financial assurances, such as letters of credit, to secure reclamation obligations under certain laws and regulations. The failure to acquire, maintain or renew such financial assurances could subject us to fines and penalties or suspension of our operations. Letters of credit or other forms of financial assurance represent only a portion of the total amount of money that will be spent on reclamation over the life of a mine\u2019s operation. Although we include liabilities for estimated reclamation and mine closure costs in our financial statements, it may be necessary to spend more than what is projected to fund required reclamation and mine closure activities.\nThe development of one or more of our mineral projects that have been, or may in the future be, found to be economically feasible will be subject to all of the risks associated with establishing new mining operations.\nThe Los Gatos Technical Report indicates that the CLG is a profitable silver-zinc-lead project with an estimated 5-year mine life currently, at modeled metals prices. If the development of one of our other mineral properties is found to be economically feasible, the development of such projects will require obtaining permits and financing, and the construction and operation of mines, processing plants and related infrastructure. As a result, we will be subject to certain risks associated with establishing new mining operations, including:\n\u25cf\nthe timing and cost, which can be considerable, of the construction of mining and processing facilities and related infrastructure;\n\u25cf\nthe availability and cost of skilled labor, mining equipment and principal supplies needed for operations, including explosives, fuels, chemical reagents, water, power, equipment parts and lubricants;\n\u25cf\nthe availability and cost of appropriate smelting and refining arrangements;\n\u25cf\nthe need to obtain necessary environmental and other governmental approvals and permits and the timing of the receipt of those approvals and permits;\n\u25cf\nthe availability of funds to finance construction and development activities;\n\u25cf\nindustrial accidents;\n\u25cf\nmine failures, shaft failures or equipment failures;\n\u25cf\nnatural phenomena such as inclement weather conditions, floods, droughts, rock slides and seismic activity;\n\u25cf\nunusual or unexpected geological and metallurgical conditions, including excess water in underground mining;\n\u25cf\nexchange rate and commodity price fluctuations;\n\u25cf\nhigh rates of inflation;\n\u25cf\nhealth pandemics;\n\u25cf\npotential opposition from nongovernmental organizations, environmental groups or local groups, which may delay or prevent development activities; and\n20\n\n\nTable of Contents\n\u25cf\nrestrictions or regulations imposed by governmental or regulatory authorities, including with respect to environmental matters.\nThe costs, timing and complexities of developing these projects, as well as for the CLG, may be greater than anticipated. Cost estimates may increase significantly as more detailed engineering work is completed on a project. It is common in mining operations to experience unexpected costs, problems and delays during construction, development and mine startup. In addition, the cost of producing silver bearing concentrates that are of acceptable quality to smelters may be significantly higher than expected. We may encounter higher than acceptable contaminants in our concentrates such as arsenic, antimony, mercury, copper, iron, selenium, fluorine or other contaminants that, when present in high concentrations, can result in penalties or outright rejection of the metals concentrates by the smelters or traders. For example, due to the high fluorine content at the CLG, we are finalizing the construction of a leaching plant designed to reduce fluorine levels in zinc concentrates produced. Additional investments to further reduce fluorine content of the concentrates produced may be required. Accordingly, we cannot provide assurance that our activities will result in profitable mining operations at the mineral properties.\nOur operations involve significant risks and hazards inherent to the mining industry.\nOur operations involve the operation of large machines, heavy mobile equipment and drilling equipment. Hazards such as adverse environmental conditions, industrial accidents, labor disputes, unusual or unexpected geological conditions, ground control problems, cave-ins, changes in the regulatory environment, metallurgical and other processing problems, mechanical equipment failure, facility performance problems, fire and natural phenomena such as inclement weather conditions, floods and earthquakes are inherent risks in our operations. Certain of these hazards may be more severe or frequent as a result of climate change. Hazards inherent to the mining industry have in the past caused and may in the future cause injuries or death to employees, contractors or other persons at our mineral properties, severe damage to and destruction of our property, plant and equipment, and contamination of, or damage to, the environment, and can result in the suspension of our exploration activities and future development and production activities. While we aim to maintain best safety practices as part of our culture, safety measures implemented by us may not be successful in preventing or mitigating future accidents.\nIn addition, from time to time we may be subject to governmental investigations and claims and litigation filed on behalf of persons who are harmed while at our properties or otherwise in connection with our operations. To the extent that we are subject to personal injury or other claims or lawsuits in the future, it may not be possible to predict the ultimate outcome of these claims and lawsuits due to the nature of personal injury litigation. Similarly, if we are subject to governmental investigations or proceedings, we may incur significant penalties and fines, and enforcement actions against us could result in the closing of certain of our mining operations. If claims and lawsuits or governmental investigations or proceedings are ultimately resolved against us, it could have a material adverse effect on our financial performance, financial position and results of operations. Also, if we mine on property without the appropriate licenses and approvals, we could incur liability, or our operations could be suspended.\nWe may be materially and adversely affected by challenges relating to slope and stability of underground openings.\nOur underground mines get deeper and our waste and tailings deposits increase in size as we continue with and expand our mining activities, presenting certain geotechnical challenges, including the possibility of failure of underground openings. If we are required to reinforce such openings or take additional actions to prevent such a failure, we could incur additional expenses, and our operations and stated mineral reserves could be negatively affected. We have taken the actions we determined to be proper in order to maintain the stability of underground openings, but additional action may be required in the future. Unexpected failures or additional requirements to prevent such failures may adversely affect our costs and expose us to health and safety and other liabilities in the event of an accident, and in turn materially and adversely affect the results of our operations and financial condition, as well as potentially have the effect of diminishing our stated mineral reserves.\nThe title to some of the mineral properties may be uncertain or defective, and we may be unable to obtain necessary surface and other rights to explore and develop some mineral properties, thus risking our investment in such properties.\nUnder the laws of Mexico, mineral resources belong to the state, and government concessions are required to explore for or exploit mineral reserves. Mineral rights derive from concessions granted, on a discretionary basis, by the Ministry of Economy, pursuant to the Mexican mining law and the regulations thereunder. While we and the LGJV hold title to the mineral properties in Mexico described in this Report, including the CLG, through these government concessions, there is no assurance that title to the concessions comprising the CLG or our or the LGJV\u2019s other properties will not be challenged or impaired. One of our concessions, comprising over 19,000 hectares, the Los Gatos concession, is held by us subject to the terms of an agreement with the original holder \n21\n\n\nTable of Contents\nof that concession. The CLG and our or the LGJV\u2019s other properties may be subject to prior unregistered agreements, interests or native land claims, and title may be affected by such undetected defects. A title defect on any of our mineral properties (or any portion thereof) could adversely affect our ability to mine the property and/or process the minerals that we mine.\nThe mineral properties\u2019 mining concessions in Mexico may be terminated if the obligations to maintain the concessions in good standing are not satisfied or are not considered to be satisfied, including obligations to explore or exploit the relevant concession, to pay any relevant fees, to comply with all environmental and safety standards, to provide information to the Mexican Ministry of Economy and to allow inspections by the Mexican Ministry of Economy. In addition to termination, failure to make timely concession maintenance payments and otherwise comply, or be considered to comply with applicable laws, regulations and local practices relating to mineral right applications and tenure could result in reduction or expropriation of entitlements.\nTitle insurance is generally not available for mineral properties and our ability to ensure that we have obtained secure claim to individual mineral properties or mining concessions may be severely constrained. We rely on title information and/or representations and warranties provided by our grantors. Any challenge to our title could result in litigation, insurance claims and potential losses, delay the exploration and development of a property and ultimately result in the loss of some or all of our interest in the property. In addition, if we mine on property without the appropriate title, we could incur liability for such activities. While we have received a title opinion in relation to the LGD dated as of November\u00a05, 2019, which opinion was updated as of August 18, 2021, such opinion is not a guarantee of title and such title may be challenged.\nIn addition, surface rights are required to explore and to potentially develop the mineral properties. Currently, of the 103,087 hectares of mineral rights owned in the LGD, MPR owns surface rights covering the known extents of the CLG, and Esther Resource areas, totaling 5,479 hectares. We negotiate surface access rights for exploration in other areas.\nSuitable infrastructure may not be available or damage to existing infrastructure may occur.\nMining, processing, development and exploration activities depend on adequate infrastructure. Reliable roads, bridges, port and/or rail transportation, power sources, water supply and access to key consumables are important determinants for capital and operating costs. The lack of availability on acceptable terms or the delay in the availability of any one or more of these items could prevent or delay exploration, development or exploitation of our projects. If adequate infrastructure is not available in a timely manner, there can be no assurance that the exploitation or development of our projects will be commenced or completed on a timely basis, or at all, or that the resulting operations will achieve the anticipated production volume, or that the construction costs and operating costs associated with the exploitation and/or development of our projects will not be higher than anticipated. In addition, extreme weather phenomena, sabotage, vandalism, government, non-governmental organization and community or other interference in the maintenance or provision of such infrastructure could adversely affect our operations and profitability.\nRisks Related to Our Business and Industry\nThe prices of silver, zinc and lead are subject to change and a substantial or extended decline in the prices of silver, zinc or lead could materially and adversely affect revenues of the LGJV and the value of our mineral properties.\nOur business and financial performance will be significantly affected by fluctuations in the prices of silver, zinc and lead. The prices of silver, zinc and lead are volatile, can fluctuate substantially and are affected by numerous factors that are beyond our control. For the year ended December 31, 2022, the LBMA silver price ranged from a low of $17.77 per ounce on September 1, 2022 to a high of $26.18 per ounce on March 9, 2022; the LME Official Settlement zinc price ranged from a low of $2,682 per tonne ($1.22 per pound) on November 3, 2022 to a high of $4,530 per tonne ($2.05 per pound) on April 19, 2022; the LME Official Settlement lead price ranged from a low of $1,754 per tonne ($0.80 per pound) on September 27, 2022, to a high of $2,513 per tonne ($1.14 per pound) on March 7, 2022.  Prices are affected by numerous factors beyond our control, including:\n\u25cf\nprevailing interest rates and returns on other asset classes;\n\u25cf\nexpectations regarding inflation, monetary policy and currency values;\n\u25cf\nspeculation;\n\u25cf\ngovernmental and exchange decisions regarding the disposal of precious metals stockpiles, including the decision by the CME Group, the owner and operator of the futures exchange, to raise silver\u2019s initial margin requirements on futures contracts;\n22\n\n\nTable of Contents\n\u25cf\npolitical and economic conditions;\n\u25cf\navailable supplies of silver, zinc and lead from mine production, inventories and recycled metal;\n\u25cf\nsales by holders and producers of silver, zinc and lead; and\n\u25cf\ndemand for products containing silver, zinc and lead.\nBecause the LGJV expects to derive the substantial majority of our revenues from sales of silver, zinc and lead, its results of operations and cash flows will fluctuate as the prices for these metals increase or decrease. A sustained period of declining prices would materially and adversely affect our financial performance, financial position and results of operations.\nChanges in the future demand for the silver, zinc and lead we produce could adversely affect future sales volume and revenues of the LGJV and our earnings.\nThe LGJV\u2019s future revenues and our earnings will depend, in substantial part, on the volume of silver, zinc and lead we sell and the prices at which we sell, which in turn will depend on the level of industrial and consumer demand. Based on 2021 data from the Silver Institute, demand for silver is driven by industrial demand (including photovoltaic, electrical and electronics) (c. 48%), bar and coin demand (c. 27%) jewelry and silverware (c. 21%) and other demand, especially photography (c. 4%). An increase in the production of silver worldwide or changes in technology, industrial processes or consumer habits, including increased demand for substitute materials, may decrease the demand for silver. Increased demand for substitute materials may be either technologically induced, when technological improvements render alternative products more attractive for first use or end use than silver or allow for reduced application of silver, or price induced, when a sustained increase in the price of silver leads to partial substitution for silver by a less expensive product or reduced application of silver. Demand for zinc is primarily driven by the demand for galvanized steel, used in construction, automobile and other industrial applications. Demand for lead is primarily driven by the demand for batteries, used in vehicles, emergency systems and other industrial battery applications. Any substitution of these materials may decrease the demand for the silver, zinc and lead we produce. A fall in demand, resulting from economic slowdowns or recessions or other factors, could also decrease the price and volume of silver, zinc and lead we sell and therefore materially and adversely impact our results of operations and financial condition. Increases in the supply of silver, zinc and lead, including from new mining sources or increased recycling (driven by technological changes, pricing incentives or otherwise) may act to suppress the market prices for these commodities.\nWe are subject to the risk of labor disputes, which could adversely affect our business, and which risk may be increased due to the unionization in the LGJV workforce.\nAlthough we have not experienced any significant labor disputes in recent years, there can be no assurances that we will not experience labor disputes in the future, including protests, blockades and strikes, which could disrupt our business operations and have an adverse effect on our business and results of operation. Although we consider our relations with our employees to be good, there can be no assurance that we will be able to maintain a satisfactory working relationship with our employees in the future. The LGJV\u2019s hourly work force is unionized, which may increase the risk of such disruptions. In addition, the unionized workforce, or further unionization of the workforce, may, among other things, require more extensive human resources staff, increase legal costs, increase involvement with regulatory agencies, result in lost workforce flexibility, and increase labor costs due to rules, grievances and arbitration proceedings.\nOur success depends on developing and maintaining relationships with local communities and stakeholders.\nOur ongoing and future success depends on developing and maintaining productive relationships with the communities surrounding our operations, including local indigenous people who may have rights or may assert rights to certain of our properties, and other stakeholders in our operating locations. We believe our operations can provide valuable benefits to surrounding communities in terms of direct employment, training and skills development and other benefits associated with ongoing payment of taxes. In addition, we seek to maintain partnerships and relationships with local communities. Notwithstanding our ongoing efforts, local communities and stakeholders can become dissatisfied with our activities or the level of benefits provided, which may result in legal or administrative proceedings, civil unrest, protests, direct action or campaigns against us. Any such occurrence could materially and adversely affect our business, financial condition or results of operations.\n23\n\n\nTable of Contents\nWe are subject to class action lawsuits.\nWe are currently subject to class actions lawsuits. See Note 10\u2014Commitments, Contingencies and Guarantees in our consolidated financial statements included in \u201cItem 8. Financial Statements and Supplementary Data\u201d for additional information regarding our assessment of contingencies related to legal matters. See also \u201cItem 3. Legal Proceedings.\u201d Such actions subject us to significant costs, which may not be adequately covered by insurance, divert management\u2019s time and attention from our operations and reduce our ability to attract and retain qualified personnel. Our inability to successfully defend against such actions could have a material adverse effect on our business and financial condition.\nThe COVID-19 pandemic adversely affected our business and operations. The widespread outbreak of any other health pandemics, epidemics, communicable diseases or public health crises could also adversely affect us, particularly in regions where we conduct our business operations.\nOur business could be adversely affected by the widespread outbreak of a health epidemic, communicable disease or any other public health crisis.\nFor example, the COVID-19 pandemic temporarily affected our financial condition in 2020, in part due to the loss of revenue resulting from the 45-day temporary suspension of all nonessential activities at the LGJV\u2019s CLG site, reduced production rates and the additional expenses associated with the development and implementation of COVID-19 protocols.\nAny prolonged disruption of our or the LGJV\u2019s operations and closures of facilities resulting from health pandemic, epidemics communicable diseases or public health crises would delay our current exploration and production timelines and negatively impact our business, financial condition and results of operations and may heighten the other risk factors discussed in this \u201cRisk Factors\u201d section.\nThe mining industry is very competitive.\nThe mining industry is very competitive. Much of our competition is from larger, established mining companies with greater liquidity, greater access to credit and other financial resources, newer or more efficient equipment, lower cost structures, more effective risk management policies and procedures and/or a greater ability than us to withstand losses. Our competitors may be able to respond more quickly to new laws or regulations or emerging technologies or devote greater resources to the expansion or efficiency of their operations than we can. In addition, current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties. Accordingly, it is possible that new competitors or alliances among current and new competitors may emerge and gain significant market share to our detriment. We may not be able to compete successfully against current and future competitors, and any failure to do so could have a material adverse effect on our business, financial condition or results of operations.\nOur insurance may not provide adequate coverage.\nOur business and operations are subject to a number of risks and hazards, including, but not limited to, adverse environmental conditions, industrial accidents, labor disputes, unusual or unexpected geological conditions, ground control problems, cave-ins, changes in the regulatory environment, metallurgical and other processing problems, mechanical equipment failure, facility performance problems, fires and natural phenomena such as inclement weather conditions, floods and earthquakes. These risks could result in damage to, or destruction of, our mineral properties or production facilities, personal injury or death, environmental damage, delays in exploration, mining or processing, increased production costs, asset write downs, monetary losses and legal liability.\nOur property and liability insurance may not provide sufficient coverage for losses related to these or other hazards. Insurance against certain risks, including those related to environmental matters or other hazards resulting from exploration and production, is generally not available to us or to other companies within the mining industry. Our current insurance coverage may not continue to be available at economically feasible premiums, or at all. In addition, our business interruption insurance relating to our properties has long waiting periods before coverage begins. Accordingly, delays in returning to any future production could produce near-term severe impact to our business. Our director and officer liability insurance may be insufficient to cover losses from claims relating to matters for which directors and officers are indemnified by us or for which we are determined to be directly responsible, and regardless are and may continue to be subject to significant retentions or deductibles, including current class action lawsuits. See \u201cItem 3. Legal Proceedings.\u201d Any losses from these events may cause us to incur significant costs that could have a material adverse effect on our financial performance, financial position and results of operations.\n24\n\n\nTable of Contents\nOur business is sensitive to nature and climate conditions.\nA number of governments have introduced or are moving to introduce climate change legislation and treaties at the international, national, state/provincial and local levels. Regulations relating to emission levels (such as carbon taxes) and energy efficiency are becoming more stringent. If the current regulatory trend continues, this may result in increased costs at some or all of our business locations. In addition, the physical risks of climate change may also have an adverse effect on our operations. Extreme weather events, which may become more common and severe due to climate change, have the potential to disrupt our power supply, surface operations and exploration at our mines and may require us to make additional expenditures to mitigate the impact of such events.\nIf we are unable to retain key members of management, our business might be harmed.\nOur exploration activities and any future development and construction or mining and processing activities depend to a significant extent on the continued service and performance of our senior management team, including our Chief Executive Officer. We depend on a relatively small number of key officers, and we currently do not, and do not intend to, have keyperson insurance for these individuals. Departures by members of our senior management could have a negative impact on our business, as we may not be able to find suitable personnel to replace departing management on a timely basis, or at all. The loss of any member of our senior management team could impair our ability to execute our business plan and could, therefore, have a material adverse effect on our business, results of operations and financial condition. In addition, the international mining industry is very active and we are facing increased competition for personnel in all disciplines and areas of operation. There is no assurance that we will be able to attract and retain personnel to sufficiently staff our development and operating teams.\nWe may fail to identify attractive acquisition candidates or joint ventures with strategic partners or may fail to successfully integrate acquired mineral properties or successfully manage joint ventures.\nAs part of our growth strategy, we may acquire additional mineral properties or enter into joint ventures with strategic partners. However, there can be no assurance that we will be able to identify attractive acquisition or joint venture candidates in the future or that we will succeed at effectively managing their integration or operation. In particular, significant and increasing competition exists for mineral acquisition opportunities throughout the world. We face strong competition from other mining companies in connection with the acquisition of properties producing, or capable of producing, metals as well as in entering into joint ventures with other parties. If the expected synergies from such transactions do not materialize or if we fail to integrate them successfully into our existing business or operate them successfully with our joint venture partners, or if there are unexpected liabilities, our results of operations could be adversely affected.\nPursuant to the Unanimous Omnibus Partner Agreement, which governs our and Dowa\u2019s respective rights over the LGJV, we and Dowa must jointly approve certain major decisions involving the LGJV, including decisions relating to the merger, amalgamation or restructuring of the LGJV and key strategic decisions, including with respect to expansion, among others. If we are unable to obtain the consent of Dowa, we may be unable to make decisions relating to the LGJV that we believe are beneficial for its operations, which may materially and adversely impact our results of operations and financial condition.\nIn connection with any future acquisitions or joint ventures, we may incur indebtedness or issue equity securities, resulting in increased interest expense or dilution of the\u00a0percentage ownership of existing shareholders. Unprofitable acquisitions or joint ventures, or additional indebtedness or issuances of securities in connection with such acquisitions or joint ventures, may adversely affect the price of our common stock and negatively affect our results of operations.\n25\n\n\nTable of Contents\nOur information technology systems may be vulnerable to disruption, which could place our systems at risk from data loss, operational failure or compromise of confidential information.\nWe rely on various information technology systems. These systems remain vulnerable to disruption, damage or failure from a variety of sources, including, but not limited to, errors by employees or contractors, computer viruses, cyberattacks, including phishing, ransomware, and similar malware, misappropriation of data by outside parties, and various other threats. Techniques used to obtain unauthorized access to or sabotage our systems are under continuous and rapid evolution, and we may be unable to detect efforts to disrupt our data and systems in advance. Breaches and unauthorized access carry the potential to cause losses of assets or production, operational delays, equipment failure that could cause other risks to be realized, inaccurate recordkeeping, or disclosure of confidential information, any of which could result in financial losses and regulatory or legal exposure, and could have a material adverse effect on our cash flows, financial condition or results of operations. Although to date we have not experienced any material losses relating to cyberattacks or other information security breaches, there can be no assurance that we will not incur such losses in the future. Our risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As such threats continue to evolve, we may be required to expend additional resources to modify or enhance any protective measures or to investigate and remediate any security vulnerabilities.\nOur directors may have conflicts of interest as a result of their relationships with other mining companies.\nOur directors are also directors, officers and shareholders of other companies that are similarly engaged in the business of developing and exploiting natural resource properties. Consequently, there is a possibility that our directors may be in a position of conflict in the future.\nWe have identified material weaknesses in our internal control over financial reporting. If we fail to remediate these deficiencies (or fail to identify and/or remediate other possible material weaknesses), we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, which may adversely affect investor confidence in us and, as a result, the value of our common stock.\nInternal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. Under standards established by the United States Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis.\nWe are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal controls over financial reporting for fiscal year 2022. This assessment includes disclosure of any material weaknesses identified by our management in our internal controls over financial reporting. Additionally, we are required to disclose changes made in our internal controls and procedures on a quarterly basis.\nHowever, for as long as we are an emerging growth company, or a smaller reporting company that is a non-accelerated filer, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b). At such time, this attestation will be required, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future. We may need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff.\nIn connection with our review of the internal control structure related to the preparation of the financial statements for the fiscal years ended December 31, 2021 and 2022, we identified the following material weaknesses in our internal controls over financial reporting:\n\u25cf\nWe did not demonstrate the appropriate tone at the top including failing to design or maintain an effective control environment commensurate with the financial reporting requirements of a public company in the United States and Canada. In particular, we did not design control activities to adequately address identified risks or operate at a sufficient level of precision that would identify material misstatements to our financial statements and did not design and maintain sufficient formal documentation of accounting policies and procedures to support the operation of key control procedures.\n\u200b\n26\n\n\nTable of Contents\n\u25cf\nWe failed to design and maintain effective controls relating to our risk assessment process as it pertained to the assessment of key assumptions, inputs and outputs contained in our July 2020 technical report.\nIn connection with our review of the internal control structure related to the preparation of the restated financial statements for the fiscal year ended December 31, 2021, we have identified the following additional material weaknesses in our internal controls over financial reporting:\n\u25cf\nWe failed to design and maintain effective controls over accounting for current and deferred taxes. This material weakness resulted in a material misstatement of our previously issued financial statements for the year ended December 31, 2021 which resulted in an overstatement of the current income tax expense. Specifically, the financial statements of the LGJV at December 31, 2021, did not accurately reflect the current and deferred tax assets and liabilities at December 31, 2021. Consequently, the impairment of investment in affiliates and the investment in affiliates and the equity income in affiliates were also not accurately presented in the Company\u2019s financial statements at December 31, 2021.\n\u25cf\nWe did not have adequate technical accounting expertise to ensure that complex accounting matters such as the impact of the priority distribution payment due to our joint venture partner  and the impairment charge was recognized in accordance with GAAP. This material weakness resulted in a material misstatement of our previously issued financial statement for the year ended December 31, 2021. The financial statements did not accurately reflect the investment in affiliates and the equity income in affiliates. Additionally, caused the impairment of investment in affiliates to be misstated.\nWe are in the process of implementing measures designed to improve our internal control over financial reporting and remediate the control deficiencies that led to the material weaknesses described above. To date, we have:\n\u25cf\nengaged a third-party expert to assist management in documenting key processes related to our internal control environment, designing and implementing an effective risk assessment and monitoring program to identify risks of material misstatements and ensuring that the internal controls have been appropriately designed to address and effectively monitor identified risk;\n\u25cf\nhired a new executive leadership team, including a new CEO, CFO and senior executive responsible for technical services, each of which has appropriate experience and has demonstrated a commitment to improving the Company\u2019s control environment;\n\u25cf\nhired additional personnel with accounting and technical expertise, including hiring new accounting staff in connection with the relocation of the Company\u2019s headquarters to Vancouver;\n\u25cf\nenhanced the procedures and functioning of our disclosure committee relating to the appropriate reporting of information and review and approval of the Company\u2019s public disclosures;\n\u25cf\nengaged a new independent third-party subject matter specialist to perform a technical review of the 2022 mineral resource and mineral reserve estimates; and\n\u25cf\nenhanced our procedures, including implementing appropriate controls, relating to management verification of the key assumptions, inputs and outputs for our Technical Reports.\n\u25cf\nengaged a new independent third-party tax specialist to perform a review of the tax provision calculation at the LGJV and the recognition of deferred tax assets and liabilities; and\n\u25cf\nimplemented process to identify complex technical accounting matters that would require technical accounting analysis by a technical accounting expert in a timely manner.\nWe have incurred significant costs in connection with our efforts to remediate these material weaknesses, and we expect to incur additional costs in the future. Neither we nor our independent registered public accounting firm have tested the effectiveness of our internal control over financial reporting and we cannot provide assurance that we will be able to successfully remediate the material weaknesses described above. Even if we successfully remediate such material weaknesses, we cannot provide any assurance that we will not suffer from these or other material weaknesses in the future.\n27\n\n\nTable of Contents\nOur remediation efforts may not enable us to avoid a material weakness in the future. We may need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. If we continue to be unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls to the extent required, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.\nRisks Related to Government Regulations\nThe Mexican government, as well as local governments, extensively regulate mining operations, which impose significant actual and potential costs on us, and future regulation could increase those costs, delay receipt of regulatory refunds or limit our ability to produce silver and other metals.\nThe mining industry is subject to increasingly strict regulation by federal, state and local authorities in Mexico, and other jurisdictions in which we may operate, including in relation to:\n\u25cf\nlimitations on land use;\n\u25cf\nmine permitting and licensing requirements;\n\u25cf\nreclamation and restoration of properties after mining is completed;\n\u25cf\nmanagement of materials generated by mining operations; and\n\u25cf\nstorage, treatment and disposal of wastes and hazardous materials.\nThe liabilities and requirements associated with the laws and regulations related to these and other matters, including with respect to air emissions, water discharges and other environmental matters, may be costly and time consuming and may restrict, delay or prevent commencement or continuation of exploration or production operations. There can be no assurance that we have been or will be at all times in compliance with all applicable laws and regulations. Failure to comply with, or the assertion that we have failed to comply with, applicable laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of cleanup and site restoration costs and liens, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits or authorizations and other enforcement measures that could have the effect of limiting or preventing production from our operations. We may incur material costs and liabilities resulting from claims for damages to property or injury to persons arising from our operations. If we are pursued for sanctions, costs and liabilities in respect of these matters, our mining operations and, as a result, our financial performance, financial position and results of operations, could be materially and adversely affected.\nOur Mexican properties are subject to regulation by the Political Constitution of the United Mexican States, and are subject to various legislation in Mexico, including the Mining Law, the Federal Law of Waters, the Federal Labor Law, the Federal Law of Firearms and Explosives, the General Law on Ecological Balance and Environmental Protection and the Federal Law on Metrology Standards. Our operations at our Mexican properties also require us to obtain local authorizations and, under the Agrarian Law, to comply with the uses and customs of communities located within the properties. Mining, environmental and labor authorities may inspect our Mexican operations on a regular basis and issue various citations and orders when they believe a violation has occurred under the relevant statute. \nIf inspections in Mexico result in an actual or alleged violation, we may be subject to fines, penalties or sanctions, our mining operations could be subject to temporary or extended closures, and we may be required to incur capital expenditures to recommence our operations. Any of these actions could have a material adverse effect on our financial performance, financial position and results of operations.\nThe Mexican federal government recently promulgated significant amendments to laws affecting the mining industry; while it is difficult to ascertain if and when the amendments will be fully implemented, and there is some lack of clarity in their drafting including their intended retroactive effect, the amendments could have a material adverse effect on the mining industry, and the LGJV\u2019s and our Mexican businesses, particularly in respect of any new concessions, new mining permits, and new operations. \nOn May 8, 2023, legislative amendments were promulgated by the Mexican federal government (the \u201cAmendments\u201d). If fully implemented, the Amendments would include the following attributes: new concessions would only be granted through public \n28\n\n\nTable of Contents\nbidding and letters of credit would be required; new mining concessions would be granted in respect of specified minerals; the potential to expropriate private land would be discontinued; the term and extension period of new mining concessions would be reduced to 30 and 25 years, respectively; the approval of transferees of mining concessions would be required; minimum payments of 5% of profits to local communities would be imposed; social impact studies and community consultation would be required; restoration, closure and post closure programs would be required; water availability would be a condition for granting new mining concessions; the concept of presumptive approval (afirmativa ficta) for approval matters properly and timely submitted to regulatory agencies would be removed; parastatal entities could be created and would enjoy preferential rights to exploration; environmental obligations and prohibitions would be increased; and water concessions could be significantly modified by governmental authorities in certain circumstances. The foregoing is a non-exhaustive summary of the Amendments. \nThe Amendments are stated to be immediately effective, but regulations are required for the Amendments to be fully implemented. Although it is not clear in all instances, the Amendments are generally stated to not have retroactive effect, and as such their most significant impact would be expected to be on new mining concessions rather than existing concessions and operations, including those of the LGJV and ours.  Certain of the Amendments may also apply to existing operations, such as the requirement for approval of any concession transferee, establishing a closure and post-closure program and additional environmental obligations.  We understand that the Amendments could be challenged on the basis of the legislative process followed or by parties directly affected by the Amendments on constitutional or other grounds.  The impact of the Amendments on the LGJV and us will depend on the extent and timing of their implementation and the extent of their retroactive effect. We will be continuing to monitor and assess the potential impact of the Amendments on the LGJV, us, and any future opportunities in Mexico.\nOur operations are subject to additional political, economic and other uncertainties not generally associated with U.S. operations.\nWe currently have two properties in Mexico: the LGD, which the LGJV controls, and the Santa Valeria property, which is owned 100% by us. Our operations are subject to significant risks inherent in exploration and resource extraction by foreign companies in Mexico. Exploration, development, production and closure activities in Mexico are potentially subject to heightened political, economic, regulatory and social risks that are beyond our control. These risks include:\n\u25cf\nthe possible unilateral cancellation or forced renegotiation of contracts and licenses;\n\u25cf\nunfavorable changes in laws and regulations;\n\u25cf\nroyalty and tax increases;\n\u25cf\nclaims by governmental entities or indigenous communities;\n\u25cf\nexpropriation or nationalization of property;\n\u25cf\npolitical instability;\n\u25cf\nfluctuations in currency exchange rates;\n\u25cf\nsocial and labor unrest, organized crime, hostage taking, terrorism and violent crime;\n\u25cf\nuncertainty regarding the availability of reasonable electric power costs;\n\u25cf\nuncertainty regarding the enforceability of contractual rights and judgments; and\n\u25cf\nother risks arising out of foreign governmental sovereignty over areas in which our mineral properties are located.\nLocal economic conditions also can increase costs and adversely affect the security of our operations and the availability of skilled workers and supplies. Higher incidences of criminal activity and violence in the area of some of our properties could adversely affect the LGJV\u2019s ability to operate in an optimal fashion or at all, and may impose greater risks of theft and higher costs, which would adversely affect results of operations and cash flows.\nActs of civil disobedience are common in Mexico. In recent\u00a0years, many mining companies have been targets of actions to restrict their legally entitled access to mining concessions or property. Such acts of civil disobedience often occur with no warning and \n29\n\n\nTable of Contents\ncan result in significant direct and indirect costs. We cannot provide assurance that there will be no disruptions to site access in the future, which could adversely affect our business.\nLocal and regional meteorological conditions can increase our operating costs and adversely affect our ability to mine and process ore. Such inclement conditions, including severe precipitation events, extremely high winds or wildfires could directly impact our surface operations. Northern Mexico is highly dependent upon natural gas from Texas to generate power. Regional inclement weather conditions in the state of Chihuahua, Mexico, or Texas, could adversely impact our ability to maintain sufficient power from the national Mexico power grid. The CLG project was designed to allow the mine and processing plant to operate independently. The project has diesel-powered generators with sufficient capacity to maintain power to the residential camp, surface administrative facilities and the underground mine but not the processing plant. During such events, our ability to mine and process at design capacities could become constrained.\nThe right to export silver-bearing concentrates and other metals may depend on obtaining certain licenses, which could be delayed or denied at the discretion of the relevant regulatory authorities, or meeting certain quotas. The United States and Mexico began implementation of the United States-Mexico-Canada Agreement (USMCA) in 2020. The United States and Mexico, and any other country in which we may operate in the future, could alter their trade agreements, including terminating trade agreements, instituting economic sanctions on individuals, corporations or countries, and introducing other government regulations affecting trade between the United States and other countries. It may be time-consuming and expensive for us to alter our operations in order to adapt to or comply with any such changes. If the United States were to withdraw from or materially modify international trade agreements to which it is a party, or if other countries imposed or increased tariffs on the minerals we may extract in the future, the costs of such products could increase significantly. Any of these conditions could lead to lower productivity and higher costs, which would adversely affect our financial performance, financial position and results of operations. Generally, our operations may be affected in varying degrees by changing government regulations in the United States and/or Mexico with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, importation of products and supplies, income and other taxes, royalties, the repatriation of profits, expropriation of mineral property, foreign investment, maintenance of concessions, licenses, approvals and permit, environmental matters, land use, land claims of local indigenous people and workplace safety.\nSuch developments could require us to curtail or terminate operations at our mineral properties in Mexico, incur significant costs to meet newly imposed environmental or other standards, pay greater royalties or higher prices for labor or services and recognize higher taxes, which could materially and adversely affect our results of operations, cash flows and financial condition. Furthermore, failure to comply strictly with applicable laws, regulations and local practices could result in loss, reduction or expropriation of licenses, or the imposition of additional local or foreign parties as joint venture partners with carried or other interests.\nWe continue to monitor developments and policies in Mexico and assess the impact thereof on our operations; however, such developments cannot be accurately predicted and could have an adverse effect on our business, financial condition and results of operations.\n30\n\n\nTable of Contents\nWe are required to obtain, maintain and renew environmental, construction and mining permits, which is often a costly and time-consuming process and may ultimately not be possible.\nMining companies, including ours, need many environmental, construction and mining permits, each of which can be time consuming and costly to obtain, maintain and renew. In connection with our current and future operations, we must obtain and maintain a number of permits that impose strict conditions, requirements and obligations, including those relating to various environmental and health and safety matters. To obtain, maintain and renew certain permits, we have been and may in the future be required to conduct environmental studies, and make associated presentations to governmental authorities, pertaining to the potential impact of our current and future operations upon the environment and to take steps to avoid or mitigate those impacts. Permit terms and conditions can impose restrictions on how we conduct our operations and limit our flexibility in developing our mineral properties. Many of our permits are subject to renewal from time to time, and applications for renewal may be denied or the renewed permits may contain more restrictive conditions than our existing permits, including those governing impacts on the environment. We may be required to obtain new permits to expand our operations, and the grant of such permits may be subject to an expansive governmental review of our operations. We may not be successful in obtaining such permits, which could prevent us from commencing, continuing or expanding operations or otherwise adversely affect our business. Renewal of existing permits or obtaining new permits may be more difficult if we are not able to comply with our existing permits. Applications for permits, permit area expansions and permit renewals can also be subject to challenge by interested parties, which can delay or prevent receipt of needed permits. The permitting process can vary by jurisdiction in terms of its complexity and likely outcomes. The applicable laws and regulations, and the related judicial interpretations and enforcement policies, change frequently, which can make it difficult for us to obtain and renew permits and to comply with applicable requirements. Accordingly, permits required for our operations may not be issued, maintained or renewed in a timely fashion or at all, may be issued or renewed upon conditions that restrict our ability to conduct our operations economically, or may be subsequently revoked. Any such failure to obtain, maintain or renew permits, or other permitting delays or conditions, including in connection with any environmental impact analyses, could have a material adverse effect on our business, results of operations and financial condition.\nIn regard to the CLG, the LGD and other Mexican projects, Mexico has adopted laws and guidelines for environmental permitting that are similar to those in effect in the United States and South American countries. We are currently operating under permits regulating mining, processing, use of explosives, water use and discharge and surface disturbance in relation to the LGD and the Santa Valeria property. We will be required to apply for corresponding authorizations prior to any production at our other Mexican properties and there can be no certainty as to whether, or the terms under which, such authorizations will be granted or renewed. Any failure to obtain authorizations and permits, or other authorization or permitting delays or conditions, could have a material adverse effect on our business, results of operations and financial condition.\nWe are subject to environmental and health and safety laws, regulations and permits that may subject us to material costs, liabilities and obligations.\nWe are subject to environmental laws, regulations and permits in the various jurisdictions in which we operate, including those relating to, among other things, the removal and extraction of natural resources, the emission and discharge of materials into the environment, including plant and wildlife protection, remediation of soil and groundwater contamination, reclamation and closure of properties, including tailings and waste storage facilities, groundwater quality and availability, and the handling, storage, transport and disposal of wastes and hazardous materials. Pursuant to such requirements, we may be subject to inspections or reviews by governmental authorities. Failure to comply with these environmental requirements may expose us to litigation, fines or other sanctions, including the revocation of permits and suspension of operations. We expect to continue to incur significant capital and other compliance costs related to such requirements. These laws, regulations and permits, and the enforcement and interpretation thereof, change frequently and generally have become more stringent over time. If our noncompliance with such regulations were to result in a release of hazardous materials into the environment, such as soil or groundwater, we could be required to remediate such contamination, which could be costly. Moreover, noncompliance could subject us to private claims for property damage or personal injury based on exposure to hazardous materials or unsafe working conditions. In addition, changes in applicable requirements or stricter interpretation of existing requirements may result in costly compliance requirements or otherwise subject us to future liabilities. The occurrence of any of the foregoing, as well as any new environmental, health and safety laws and regulations applicable to our business or stricter interpretation or enforcement of existing laws and regulations, could have a material adverse effect on our business, financial condition and results of operations.\n31\n\n\nTable of Contents\nWe could be liable for any environmental contamination at, under or released from our or our predecessors\u2019 currently or formerly owned or operated properties or third-party waste disposal sites. Certain environmental laws impose joint and several strict liability for releases of hazardous substances at such properties or sites, without regard to fault or the legality of the original conduct. A generator of waste can be held responsible for contamination resulting from the treatment or disposal of such waste at any offsite location (such as a landfill), regardless of whether the generator arranged for the treatment or disposal of the waste in compliance with applicable laws. Costs associated with liability for removal or remediation of contamination or damage to natural resources could be substantial and liability under these laws may attach without regard to whether the responsible party knew of, or was responsible for, the presence of the contaminants. Accordingly, we may be held responsible for more than our share of the contamination or other damages, up to and including the entire amount of such damages. In addition to potentially significant investigation and remediation costs, such matters can give rise to claims from governmental authorities and other third parties, including for orders, inspections, fines or penalties, natural resource damages, personal injury, property damage, toxic torts and other damages.\nOur costs, liabilities and obligations relating to environmental matters could have a material adverse effect on our financial performance, financial position and results of operations.\nWe may be responsible for anticorruption and antibribery law violations.\nOur operations are governed by, and involve interactions with, various levels of government in foreign countries. We are required to comply with anticorruption and antibribery laws, including the Corruption of Foreign Public Officials Act (Canada) and the U.S. Foreign Corrupt Practices Act (together, the \u201cCorruption Legislation \u201d) and similar laws in Mexico. These laws generally prohibit companies and company employees from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. The Corruption Legislation also requires companies to maintain accurate books and records and internal controls. Because our interests are located in Mexico, there is a risk of potential Corruption Legislation violations.\nIn recent\u00a0years, there has been a general increase in both the frequency of enforcement and the severity of penalties under such laws, resulting in greater scrutiny and punishment to companies convicted of violating anti-corruption and anti-bribery laws. A company may be found liable for violations by not only its employees, but also by its contractors and third-party agents. Our internal procedures and programs may not always be effective in ensuring that we, our employees, contractors or third-party agents will comply strictly with all such applicable laws. If we become subject to an enforcement action or we are found to be in violation of such laws, this may have a material adverse effect on our reputation and may possibly result in significant penalties or sanctions, and may have a material adverse effect on our cash flows, financial condition or results of operations.\nWe may be required by human rights laws to take actions that delay our operations or the advancement of our projects.\nVarious international and national laws, codes, resolutions, conventions, guidelines and other materials relate to human rights (including rights with respect to health and safety and the environment surrounding our operations). Many of these materials impose obligations on government and companies to respect human rights. Some mandate that governments consult with communities surrounding our projects regarding government actions that may affect local stakeholders, including actions to approve or grant mining rights or permits. The obligations of government and private parties under the various international and national materials pertaining to human rights continue to evolve and be defined. One or more groups of people may oppose our current and future operations or further development or new development of our projects or operations. Such opposition may be directed through legal or administrative proceedings or expressed in manifestations such as protests, roadblocks or other forms of public expression against our activities, and may have a negative impact on our reputation. Opposition by such groups to our operations may require modification of, or preclude the operation or development of, our projects or may require us to enter into agreements with such groups or local governments with respect to our projects, in some cases causing considerable delays to the advancement of our projects.\nRisks Related to Ownership of Our Common Stock\nThe market price of our common stock has been, and may continue to be, volatile.\nThe trading price of our common stock has been, and may continue to be, volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:\n\u25cf\nfailure to identify mineral reserves at our properties;\n\u25cf\nfailure to achieve or continue production at our mineral properties;\n32\n\n\nTable of Contents\n\u25cf\nactual or anticipated changes in the price of silver and base metal byproducts;\n\u25cf\nfluctuations in our quarterly and annual financial results or the quarterly and annual financial results of companies perceived to be similar to us;\n\u25cf\nchanges in market valuations of similar companies;\n\u25cf\nsuccess or failure of competitor mining companies;\n\u25cf\nchanges in our capital structure, such as future issuances of securities or the incurrence of debt;\n\u25cf\nsales of large blocks of our common stock;\n\u25cf\nannouncements by us or our competitors of significant developments, contracts, acquisitions or strategic alliances;\n\u25cf\nchanges in regulatory requirements and the political climate in the United States, Mexico, Canada or all;\n\u25cf\nlitigation and/or investigations involving our Company, our general industry or both;\n\u25cf\nadditions or departures of key personnel;\n\u25cf\ninvestors\u2019 general perception of us, including any perception of misuse of sensitive information;\n\u25cf\nchanges in general economic, industry and market conditions;\n\u25cf\naccidents at mining properties, whether owned by us or otherwise;\n\u25cf\nnatural disasters, terrorist attacks and acts of war; and\n\u25cf\nour ability to control our costs.\nIf the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. \nIf any of the foregoing occurs it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be both costly to defend against and a distraction to management.\nOur anti-takeover defense provisions may cause our common stock to trade at market prices lower than it might absent such provisions.\nOur Board of Directors has the authority to issue blank check preferred stock. Additionally, our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain several provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our Board of Directors. These include provisions setting forth advance notice procedures for shareholders\u2019 nominations of directors and proposals of topics for consideration at meetings of shareholders, provisions restricting shareholders from calling a special meeting of shareholders or requiring one to be called, provisions limiting the ability of shareholders to act by written consent and provisions requiring a 66.67% shareholder vote to amend our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws. These provisions may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our shareholders receiving a premium over the market price for their common stock. In addition, these provisions may cause our common stock to trade at a market price lower than it might absent such provisions.\n33\n\n\nTable of Contents\nSales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could cause the market price of our common stock to drop significantly.\nSales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.\nCertain stockholders have rights, subject to specified conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We have also registered all shares of common stock that we may issue under our equity compensation plans, which can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates. Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that holder of a large number of shares intends to sell shares, could cause the market price of our common stock to drop significantly and make it more difficult for us to raise additional funds through future offerings of our common stock or other securities.\nWe do not currently intend to pay dividends on our common stock and, consequently, shareholders\u2019 ability to achieve a return on their investment will depend on appreciation in the price of our common stock.\nWe have never declared or paid any cash dividend on our capital stock. We do not intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain all future earnings, if any, to finance our business. The payment of any future dividends, if any, will be determined by our Board of Directors in light of conditions then existing, including our earnings, financial condition and capital requirements, business conditions, growth opportunities, corporate law requirements and other factors. In addition, our Credit Facility contains, and any of our future contractual arrangements may contain, restrictions on our ability to pay cash dividends on our capital stock.\nElectrum and its affiliates and MERS have a substantial degree of influence over us, which could delay or prevent a change of corporate control or result in the entrenchment of our management and/or Board of Directors.\nAs of March 27, 2023, the Electrum Group, LLC and its affiliates (collectively, \u201cElectrum\u201d) and the Municipal Employees\u2019 Retirement System of Michigan (\u201cMERS\u201d) beneficially own approximately 32% and 9% of our outstanding common stock, respectively. We have entered into a shareholder\u2019s agreement with Electrum and MERS pursuant to which Electrum and MERS have certain director nomination rights. The shareholders agreement also provides that Electrum approval must be obtained prior to us engaging in certain corporate actions. As a result, Electrum has significant influence over our management and affairs and, if Electrum owns at least 35% of our outstanding common stock, will have approval rights over certain corporate actions, including, among others, any merger, consolidation or sale of all or substantially all of our assets, the incurrence of more than $100 million of indebtedness and the issuance of more than $100 million of equity securities.\nThe concentration of ownership and our shareholders agreement may harm the market price of our common stock by, among other things:\n\u25cf\ndelaying, deferring or preventing a change of control, even at a per share price that is in excess of the then current price of our common stock;\n\u25cf\nimpeding a merger, consolidation, takeover or other business combination involving us, even at a per share price that is in excess of the then current price of our common stock; or\n\u25cf\ndiscouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, even at a per share price that is in excess of the then-current price of our common stock.\n34\n\n\nTable of Contents\nWe are an \u201cemerging growth company\u201d and a \u201csmaller reporting company\u201d, and we cannot be certain if the reduced disclosure requirements applicable to us will make our common stock less attractive to investors.\nWe are an \u201cemerging growth company,\u201d as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not \u201cemerging growth companies\u201d including, but not limited to, not being required to comply with the auditor attestation requirements of Section\u00a0404 of the Sarbanes-Oxley Act of 2002 (\u201cthe \u201cSarbanes-Oxley Act\u201d), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.\nEven after we no longer qualify as an emerging growth company, we may still qualify as a \u201csmaller reporting company,\u201d which would allow us to take advantage of many of the same exemptions from disclosure requirements including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We would also be exempt from the requirement to obtain an external audit on the effectiveness of internal control over financial reporting provided in Section\u00a0404(b)\u00a0of the Sarbanes Oxley Act. These exemptions and reduced disclosures in our SEC filings due to our status as a smaller reporting company mean our auditors do not review our internal control over financial reporting and may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock prices may be more volatile.\nOur Amended and Restated Certificate of Incorporation and shareholders agreement contain a provision renouncing our interest and expectancy in certain corporate opportunities.\nOur Amended and Restated Certificate of Incorporation and shareholders agreement provide for the allocation of certain corporate opportunities between us and Electrum and MERS. Under these provisions, neither Electrum nor MERS, their affiliates and subsidiaries, nor any of their officers, directors, agents, stockholders, members or partners will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. For instance, a director of our Company who is not also our employee and also serves as a director, officer or employee of Electrum or MERS or any of their subsidiaries or affiliates may pursue certain acquisition or other opportunities that may be complementary to our business and, as a result, such acquisition or other opportunities may not be available to us. These potential conflicts of interest could have a material adverse effect on our financial performance, financial position and results of operations if attractive corporate opportunities are allocated by Electrum or MERS to themselves or their subsidiaries or affiliates instead of to us.\nOur Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States are the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders\u2019 ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.\nOur Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:\n\u25cf\nany derivative action or proceeding brought on our behalf;\n\u25cf\nany action asserting a breach of fiduciary duty;\n\u25cf\nany action asserting a claim against us arising under the Delaware General Corporation Law; and\n\u25cf\nany action asserting a claim against us that is governed by the internal affairs doctrine.\nThe foregoing provision does not apply to claims under the Securities Act, the Exchange Act or any claim for which the U.S. federal courts have exclusive jurisdiction. Our Amended and Restated Certificate of Incorporation further provides that the federal district courts of the United States will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.\n35\n\n\nTable of Contents\nOur Amended and Restated Certificate of Incorporation also provides that any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock will be deemed to have notice of and to have consented to these choice of forum provisions. These exclusive forum provisions may limit a stockholder\u2019s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers, and other employees, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules\u00a0and regulations thereunder.\nWhile Delaware courts have determined that choice of forum provisions are facially valid, it is possible that a court of law in another jurisdiction could rule\u00a0that the choice of forum provisions contained in our Amended and Restated Certificate of Incorporation are inapplicable or unenforceable if they are challenged in a proceeding or otherwise. If a court were to find the choice of forum provision in our Amended and Restated Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.\nGeneral Risk Factors\nWe will continue to incur significantly increased costs and devote substantial management time as a result of operating as a public company.\nAs a public company, we will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Exchange Act, and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations of the SEC, NYSE and TSX, including the establishment and maintenance of effective disclosure and financial controls, changes in corporate governance practices and required filing of annual, quarterly and current reports with respect to our business and results of operations. Compliance with these requirements has increased and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company. We have hired additional accounting personnel and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and may need to incur additional costs to ensure we meet the applicable requirements of the Sarbanes-Oxley Act.\nIf securities or industry analysts do not continue to publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.\nThe trading market for our common stock is influenced by the research and reports that securities or industry analysts publish about us or our business. If analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business model or our stock performance, or if our results of operations fail to meet the expectations of analysts, the price of our common stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn might cause the price of our common stock and trading volume to decline.\n\u200b",
+  "item7": ">Item\u00a07. \u00a0Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in \u201cItem\u00a08. Financial Statements and Supplementary Data\u201d and the other information included elsewhere in this Report.\nOverview\nWe are a Canadian-headquartered, Delaware-incorporated precious metals exploration, development and production company with the objective of becoming a leading silver producer. Our primary efforts are focused on the operation of the LGJV in Chihuahua, Mexico. The LGJV was formed on January 1, 2015, when we entered into the Unanimous Omnibus Partner Agreement with Dowa to further explore, and potentially develop and operate mining properties within the LGD. The LGJV Entities own certain surface and mineral rights associated with the LGD. The LGJV ownership is currently 70% Gatos Silver and 30% Dowa. On September 1, 2019, the LGJV commenced commercial production at CLG, which produces a silver containing lead concentrate and zinc concentrate. We are currently focused on the production and continued development of the CLG and the further exploration and development of the LGD.\n2022 Key Highlights\nGatos Silver\n\u25cf\nNet income increased to $14.5 million or $0.21 per share (basic and diluted) for 2022, up from a net loss of $65.9 million or ($1.03) per share basis (basic and diluted) incurred in 2021;\n\u25cf\nThe LGJV paid dividends to its partners totaling $55 million during 2022, of which the Company\u2019s share was $29.2 million, net of withholding taxes and after the initial priority distribution payment to Dowa;\n\u25cf\nOn December 19, 2022, we entered into an amended and restated Credit Facility with BMO extending the maturity date and re-establishing a credit limit of $50 million, with an accordion feature;\n\u25cf\nDuring December 2022, we repaid $4.0 million of the Credit Facility, reducing the outstanding balance to $9.0 million with $41.0 million available for drawdown in the future; and\n\u25cf\nWe relocated our corporate office to Vancouver, British Columbia, and strengthened the executive management team with the appointments of a new Chief Financial Officer, a General Counsel and a Senior Vice President, Corporate Development and Technical Services, all with extensive experience working for multi-mine companies.\nLGJV (100% basis)\n\u25cf\nNet income of $72.2 million in 2022, down 8% from $78.6 million in 2021, primarily due to higher income taxes;\n\u25cf\nCash flow from operations of $157.4 million in 2022, up 31%to from $119.8 million in 2021;\n45\n\n\nTable of Contents\n\u25cf\nRevenues totaled $311.7 million for 2022, a 25% increase over 2021, as a result of higher sales volumes driven by record production and partly offset by lower silver prices;\n\u25cf\nCost of sales totaled $107.1 million for 2022, 10% increase over 2021, primarily due to increased production. Co-product cash cost per ounce of payable silver equivalent of $9.41 and by-product cash cost per ounce of payable silver of $2.17, decreased 24% and 56%, respectively, from 2021;\n\u25cf\nAchieved record processing throughput of 971,595 tonnes, averaging 2,662 tpd and over 2,800 tpd in the fourth quarter of 2022, exceeding the 2,500 tpd design rate, despite a temporary blasting suspension in the mine for over two weeks starting in late April 2022; \n\u25cf\nRecoveries achieved or exceeded design rates for payable metals with silver recovery averaging 89.8%, zinc recovery averaging 64.8% and lead recovery averaging 88.7%;\n\u25cf\nCompleted a robust re-estimation of the Company\u2019s mineral resource and mineral reserve with published Los Gatos Technical Report; and\n\u25cf\nDiscovered a large zone of mineralization known as South-East Deeps that extends 415m below the reported reserve.\nComponents of Results of Operations\nOperating Expenses\nExploration Expenses\nWe conduct exploration activities under mining concessions in Mexico. Exploration expenses primarily consist of drilling costs, lease concession payments, assay costs and geological and support costs at our exploration properties.\nGeneral and Administrative Expenses\nOur general and administrative expenses consist of salaries and benefits, stock compensation, professional and consultant fees, and insurance, compliance and corporate governance, accounting and audit, stock exchange listing fees and other general administration costs.\nEquity Income in Affiliates\nOur equity income in affiliates relates to our proportional share of net income from the LGJV and the amortization of the basis difference between our investment in the LGJV and the net assets of the LGJV.\nImpairment of Investment in Affiliates\nA loss in value of an investment that is other than a temporary decline shall be recognized. On November 10, 2022, the Company issued an updated technical report for the LGJV, the Los Gatos Technical Report. The Los Gatos Technical Report indicated a significant decrease in the mineral reserves and mineral resources from the previously issued technical report in 2020. The Company considered this reduction in the mineral reserve and mineral resources as an indicator of a possible other-than-temporary decline in value and as a result compared the carrying value of the LGJV on December 31, 2021 to the fair value of the LGJV. The fair value of the LGJV was estimated based on the net present value of the expected cash flows to be generated by the LGJV on 70% basis. The discount rate used was 5.00%. The Company recorded an impairment of the investment in affiliate at December 31, 2021.  There were no indicators of an other-than-temporary decline in value at December 31, 2022.\nLGJV Arrangement Fee\nOur LGJV arrangement fee consisted of arrangement fees related to the WCF and the Term Loan with Dowa prior to their extinguishment on March 11, 2021, and July 26, 2021, respectively. We did not incur LGJV arrangement fees beyond July 26, 2021.\n46\n\n\nTable of Contents\nIncome Taxes\nAs we have incurred substantial losses from our exploration and pre-development activities, we may receive future benefits in the form of deferred tax assets that can reduce our future income tax liabilities, if it is more likely than not that the benefit will be realized before expiration. As at December 31, 2022, a deferred tax liability of $1.4 million was recognized at the LGJV in comparison to a deferred tax asset of $17.4 million in 2021.\nRoyalties\nExploration activities are conducted on the mining concessions in Mexico. Mineral and concession lease payments are required to be paid to various entities to secure the appropriate claims or surface rights. Certain of these agreements also have royalty payments that were triggered when the LGJV began producing and selling lead and zinc concentrates.\nOther Income\nThe Company incurs costs to assist with the management and administration of the LGJV, these costs are included in general and administrative expense. For these management services, the Company earns a management fee which is included in Other income.\nResults of Operations\nResults of operations Gatos Silver\nThe following table presents certain information relating to our operating results for the years ended December 31, 2022 and 2021. In accordance with generally accepted accounting principles in the United States (\u201cU.S. GAAP\u201d), these financial results represent the consolidated results of operations of our Company and its subsidiaries (in thousands). \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears\u00a0Ended\u00a0December\u00a031,\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\nExpenses\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\nExploration\n\u200b\n$\n 110\n\u200b\n$\n 1,657\nGeneral and administrative\n\u200b\n\u00a0\n 25,468\n\u200b\n\u00a0\n 21,447\nAmortization\n\u200b\n\u00a0\n 180\n\u200b\n\u00a0\n 89\nTotal expenses\n\u200b\n\u00a0\n 25,758\n\u200b\n\u00a0\n 23,193\nOther income (expense)\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u200b\nEquity income in affiliates\n\u200b\n\u00a0\n 45,230\n\u200b\n\u00a0\n 42,804\nImpairment of investment in affiliates\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (80,348)\nLegal settlement loss\n\u200b\n\u200b\n (7,900)\n\u200b\n\u200b\n\u200b\nArrangement fees\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (195)\nInterest expense\n\u200b\n\u00a0\n (433)\n\u200b\n\u00a0\n (185)\nOther income (expense)\n\u200b\n\u00a0\n 4,955\n\u200b\n\u00a0\n (4,738)\nTotal other income (expense)\n\u200b\n\u00a0\n 41,852\n\u200b\n\u00a0\n (42,662)\nIncome (loss) before taxes\n\u200b\n\u200b\n 16,094\n\u200b\n\u200b\n (65,855)\nIncome tax expense\n\u200b\n\u00a0\n 1,565\n\u200b\n\u00a0\n \u2014\nNet income (loss)\n\u200b\n$\n 14,529\n\u200b\n$\n (65,855)\n\u200b\nYear Ended December\u00a031, 2022, Compared to\u00a0Year Ended December\u00a031, 2021\nExploration\nExploration costs incurred during 2022 decreased by approximately $1.5 million compared to 2021, mainly due to limited exploration drilling and sampling performed on the Company-owned Santa Valeria property as exploration was concentrated on the LGJV property.\nGeneral and administrative expenses\nDuring 2022, we incurred general and administration expense of $25.5 million compared to $21.4 million in 2021. The $4.1 million increase is primarily due to several items associated with the new mineral resource and reserve technical reports and change in \n47\n\n\nTable of Contents\nauditors, including higher consulting, legal and audit fees. The Company also incurs expenses related to providing management and administration services to the LGJV, for which it receives a management fee, included in Other Income ($5.0 million for each of the years ended December 31, 2022 and 2021).\nEquity income in affiliates \nThe improvement in equity income, for 2022 compared to 2021, resulted primarily from the improved performance of the LGJV. See \u201cResults of Operations LGJV.\u201d\nImpairment of investment in affiliates\nFor the year ended December 31, 2022, there were no indicators of an other-than-temporary decline in value of the investment in affiliate; therefore, no impairment charge was recorded.\nOn November 10, 2022, we provided an updated technical report for the LGJV, the Los Gatos Technical Report. The Los Gatos Technical Report indicated a significant decrease in the mineral reserve and mineral resource from the previously issued technical report in 2020. We considered this reduction in the mineral reserve and mineral resources as an indicator of a possible other-than-temporary impairment and as a result compared the carrying value of the LGJV on December 31, 2021, to the fair value of the LGJV.\nLegal settlement loss\nWe entered into an agreement in principle to settle the U.S. Class Action. Subject to certain conditions, including class certification by the District Court, the execution of a definitive stipulation of settlement and approval of the settlement by the District Court, the settling parties have agreed to resolve the U.S. Class Action for a payment by us and our insurers of $21 million to a settlement fund. We are in the process of finalizing legal expenses that will be covered under the directors\u2019 and officers\u2019 insurance policy which will be deducted from the $10 million retention payable by the Company. We expect to fund no more than $7.9 million of the settlement, with the balance of the settlement payment to be paid by insurance. We and the other defendants will not admit any liability as part of the settlement. Since the settlement of the U.S. Class Action is subject to conditions, there can be no assurance that the U.S. Class Action will be finally resolved pursuant to the agreement in principle that has been reached.\nOther income (expense)\nThe $9.7 million change in other income (expense) for the year ended December 31, 2022, compared to the year ended December 31, 2021, was mainly due to a $10.0 million fee paid to Dowa in conjunction with the Term Loan repayment in 2021.\nNet income (loss)\nFor the year ended December 31, 2022, we recorded a net income of $14.5 million compared to a net loss of $65.9 million for the year ended December 31, 2021. The change in net loss in 2022 compared to 2021 was primarily due to the absence of impairment of investment in affiliates, a significant increase in equity income in affiliates, an increase in other income, and offset by a legal settlement loss of $7.9 million arising from legal class action, and a slight increase in general and administrative expense.\n48\n\n\nTable of Contents\nResults of operations LGJV\nThe following table presents operational information and select financial information of the LGJV for the years ended December 31, 2022 and 2021. The financial information is extracted from the Combined Statements of Income for the years ended December 31, 2022 and 2021.  The financial and operational information of the LGJV and CLG is shown on a 100% basis. As of December 31, 2022, our ownership of the LGJV was 70.0%.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended\n\u00a0\nFinancial\n\u200b\nDecember 31,\n\u00a0\nAmounts in thousands\n\u00a0\u00a0\u00a0\u00a0\n\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n\u00a02021\n\u200b\nRevenue\n\u00a0\n$\n 311,724\n\u00a0\n$\n 249,194\n\u200b\nCost of sales\n\u200b\n\u200b\n 107,075\n\u200b\n\u200b\n 97,710\n\u200b\nRoyalties\n\u200b\n\u200b\n 3,069\n\u200b\n\u200b\n 4,781\n\u200b\nExploration\n\u200b\n\u200b\n 9,800\n\u200b\n\u200b\n 5,383\n\u200b\nGeneral and administrative\n\u200b\n\u200b\n 14,307\n\u200b\n\u200b\n 13,345\n\u200b\nDepreciation, depletion and amortization\n\u200b\n\u200b\n 69,380\n\u200b\n\u200b\n 52,402\n\u200b\nTotal other income (expense)\n\u200b\n\u200b\n 1,429\n\u200b\n\u200b\n (12,086)\n\u200b\nIncome tax (expense) recovery\n\u200b\n\u200b\n (37,306)\n\u200b\n\u200b\n 15,097\n\u200b\nNet income \n\u200b\n$\n 72,216\n\u200b\n$\n 78,584\n\u200b\nSustaining capital\n\u200b\n\u200b\n 76,526\n\u200b\n\u200b\n 72,979\n\u200b\nOperating Results \n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\nTonnes milled (dmt)\n\u200b\n\u200b\n 971,595\n\u200b\n\u200b\n 909,586\n\u200b\nTonnes milled per day (dmt)\n\u200b\n\u200b\n 2,662\n\u200b\n\u200b\n 2,492\n\u200b\nAverage Grades\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nSilver grade (g/t)\n\u200b\n\u200b\n 368\n\u200b\n\u200b\n 295\n\u200b\nGold grade (g/t)\n\u200b\n\u200b\n 0.33\n\u200b\n\u200b\n 0.32\n\u200b\nLead grade (%)\n\u200b\n\u200b\n 2.31\n\u200b\n\u200b\n 2.27\n\u200b\nZinc grade (%)\n\u200b\n\u200b\n 4.37\n\u200b\n\u200b\n 3.94\n\u200b\nContained Metal\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nSilver ounces (millions)\n\u200b\n\u200b\n 10.3\n\u200b\n\u200b\n 7.6\n\u200b\nZinc pounds - in zinc conc. (millions)\n\u200b\n\u200b\n 60.7\n\u200b\n\u200b\n 49.6\n\u200b\nLead pounds - in lead conc. (millions)\n\u200b\n\u200b\n 43.9\n\u200b\n\u200b\n 39.8\n\u200b\nGold ounces - in lead conc. (thousands)\n\u200b\n\u200b\n 5.3\n\u200b\n\u200b\n 5.2\n\u200b\nRecoveries \n1\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nSilver - in both lead and zinc concentrates\n\u200b\n\u200b\n 89.8\n%\u00a0\u00a0\n\u200b\n 88.3\n%\nZinc - in zinc concentrate\n\u200b\n\u200b\n 64.8\n%\n\u200b\n 62.9\n%\nLead - in lead concentrate\n\u200b\n\u200b\n 88.7\n%\n\u200b\n 87.6\n%\nGold - in lead concentrate\n\u200b\n\u200b\n 52.0\n%\n\u200b\n 56.3\n%\nAverage realized price per silver ounce\n\u200b\n$\n 20.72\n\u200b\n$\n 24.38\n\u200b\nAverage realized price per gold ounce\n\u00a0\n$\n 1,678\n\u00a0\n$\n 1,761\n\u200b\nAverage realized price per lead pound\n\u00a0\n$\n 0.90\n\u00a0\n$\n 1.01\n\u200b\nAverage realized price per zinc pound\n\u00a0\n$\n 1.58\n\u00a0\n$\n 1.38\n\u200b\nCo-product cash cost per ounce of payable silver equivalent\n\u00a0\n$\n 9.41\n\u00a0\n$\n 12.44\n\u200b\nBy-product cash cost per ounce of payable silver\n\u00a0\n$\n 2.17\n\u00a0\n$\n 4.98\n\u200b\nCo-product AISC per ounce of payable silver equivalent\n2\n\u00a0\n$\n 14.33\n\u00a0\n$\n 19.05\n\u200b\nBy-product AISC per ounce of payable silver\n2\n\u200b\n$\n 10.24\n\u200b\n$\n 15.72\n\u200b\n(1)\nRecoveries are reported for payable metals in the identified concentrate. Recoveries reported previously were based on total metal in both concentrates.\n(2)\nSee \u201cNon-GAAP Financial Measures\u201d below.\n(3)\nRealized prices include the impact of final settlement adjustments from sales of previous periods.\n49\n\n\nTable of Contents\nLGJV\nYear Ended December 31, 2022, Compared to Year Ended December 31, 2021\nRevenue\nRevenue increased by 25% in 2022 compared to 2021, as a result of higher production and concentrate sales, which was partly offset by lower realized silver prices. Production of silver, zinc, lead and gold were higher primarily due to higher mill throughput and higher ore grades. Lead and zinc concentrate production increased 10% and 22%, respectively, and silver, lead and zinc ore grades increased 25%, 2% and 11%, respectively.\nCost of sales\nCost of sales increased by 10% in 2022 compared to 2021, primarily as a result of increased mining and milling rates, production and the related increase in equipment maintenance costs, cost of materials and supplies and higher power costs. Co-product cash cost per ounce of payable silver equivalent and by-product cash cost per ounce of payable silver decreased by 24% and 56% respectively, to $9.41 and $2.17, respectively, for the year ended 2022. \nRoyalties\nRoyalty expense decreased by $1.7 million in 2022 compared to 2021 due to the decrease in the royalty rate upon achieving a payment threshold per the royalty agreement.\nExploration\nExploration expenditure increased by $4.4 million in 2022 as a result of increased surface drilling around CLG, Esther and Greenfields exploration targets. The dominant focus for drilling was at CLG aiming to convert Inferred Resources to Indicated and to expand the Inferred Resource base, particularly in the South-East Deeps area.\nGeneral and administrative \nGeneral and administrative expenses for 2022 were 7% higher than in 2021, primarily due to inflation. \nDepreciation, depletion and amortization\nDepreciation, depletion, and amortization expense increased by approximately 32% year over year primarily as a result of an increase in tonnes mined as well as the decrease in the mineral reserve and mine life based on the Los Gatos Technical Report, which reduced the basis for the depreciation.\nOther income (expense)\nOther income (expense) changed primarily due to the retirement of the WCF and the Term Loan in March and July 2021, respectively.\nIncome tax (expense) recovery\nIn 2022, the LGJV had income tax expense of $37.3 million due to increased income and the absence of loss carryforwards. In 2021, the LGJV recognized an income tax benefit due to the release of the full valuation allowance on its deferred tax assets which was partly offset by the current income tax expense recorded in 2021.\nNet Income\nFor the year ended December 31, 2022, the LGJV had net income of $72.2 million compared to net income of $78.6 million for the year ended December 31, 2021. The change in net income was primarily due to income tax expense of $37.3 million in 2022, compared to income tax benefit of $15.1 million in 2021, partly offset by increase in revenue driven by higher production and sales during 2022. \n50\n\n\nTable of Contents\nSustaining capital\nDuring the year ended December 31, 2022, the sustaining capital expenditures primarily consisted of $27.1 million of mine development, $19.5 million on the construction of the paste-fill plant, $8.2 million on the construction of the raise of the tailings storage facility, $3.5 million for the purchase of mining equipment, $2.9 million on underground power distribution infrastructure and $2.6 million on the construction of a ventilation raise. During the year ended December 31, 2021, major sustaining capital expenditures included $30.6 million of mine development, $11.4 million on processing plant and tailings storage facility, $3.6 million for the construction of a ventilation raise, $3.3 million for the purchase of mining equipment, $5.8 million on underground power distribution infrastructure and $9.4 million on the construction of dewatering wells.\nCash Flows\nGatos Silver\nThe following table presents our cash flows for the years ended December 31, 2022 and 2021.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears\u00a0Ended\u00a0December\u00a031,\n\u200b\n\u200b\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n(in\u00a0thousands)\nNet cash generated from (used by)\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\nOperating activities\n\u200b\n$\n 14,554\n\u200b\n$\n (21,485)\nInvesting activities\n\u200b\n\u00a0\n (60)\n\u200b\n\u00a0\n (261,439)\nFinancing activities\n\u200b\n\u00a0\n (4,106)\n\u200b\n\u00a0\n 139,394\nTotal change in cash\n\u200b\n$\n 10,388\n\u200b\n$\n (143,530)\n\u200b\nCash flow from operating activities was $14.6 million in the year ended December 31, 2022, compared to cash used by operating activities of $21.5 million for the year ended December 31, 2021. The $36.1 million increase in cash flow was primarily due to $30.8 million in dividends received from affiliates.\nCash used by investing activities was $0.1 million in 2022, compared to $261.4 million in 2021. The $261.3 million decrease in cash used by investing activities was primarily due to the $186.8 million in capital contributions made to the LGJV and $71.6 million acquisition of an additional 18.5% interest in the LGJV from Dowa in 2021. There were no contributions made to the LGJV in 2022.\nCash used by financing activities was $4.1 million in 2022, compared to cash flow from financing activities of $139.4 million in 2021. Cash used by financing activities in 2022 primarily consisted of a $4.0 million partial repayment of the Credit Facility. Cash provided by financing activities in 2021, primarily reflected the $121.0 million in net proceeds from the issuance of common stock in a follow-on public offering and the $13.0 million in borrowings under the Credit Facility.\nLGJV\nThe following table presents summarized information relating to the LGJV\u2019s cash flows for years ended December 31, 2022 and 2021.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nYears\u00a0Ended\u00a0December\u00a031,\n\u200b\n\u200b\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\nNet cash provided by (used by)\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\n\u200b\nOperating activities\n\u200b\n$\n 157,374\n\u200b\n$\n 119,787\nInvesting activities\n\u200b\n\u00a0\n (82,279)\n\u200b\n\u00a0\n (79,045)\nFinancing activities\n\u200b\n\u200b\n (60,439)\n\u200b\n\u200b\n (22,138)\nTotal change in cash\n\u200b\n$\n 14,656\n\u200b\n$\n 18,604\n\u200b\nCash provided by operating activities was $157.4 million and $119.8 million for the years ended December 31, 2022 and 2021, respectively. The $37.6 million increase in cash provided by operating activities was primarily due to the increase in revenue as a result of higher concentrate sales due to higher processed ore tonnes and higher ore grades for the year ended December 31, 2022, compared to the prior year, partly offset by lower silver prices.\n51\n\n\nTable of Contents\nCash used by investing activities was $82.3 million and $79.0 million for the years ended December 31, 2022, and 2021, respectively. The $3.3 million increase in cash used was primarily due to higher expenditures for property, plant and equipment.\nCash used by financing activities was $60.4 million and $22.1 million for the years ended December 31, 2022 and 2021, respectively. During 2022 the LGJV distributed $55 million to the joint venture partners and made $5.4 million in equipment loan payments. During 2021, the LGJV paid $144.8 million to retire the Term Loan in July 2021, $60.0 million for the extinguishment of the WCF in March 2021, a $15.9 million Term Loan payment in June 2021, and $7.0 million in equipment loan payments, partly offset by the $207.2 million of capital contributions from the joint venture partners.\nLiquidity and Capital Resources\nAs of December 31, 2022 and 2021, the Company had cash and cash equivalents of $17.0 million and $6.6 million, respectively. The increase in cash and cash equivalents was primarily due to receipt of $29.2 million in dividends net of withholding taxes from the LGJV, offset by higher general and administrative costs incurred in the year.\nSources and Uses of Capital Resources\nAs at May 31, 2023, our cash and cash equivalents are $10.5 million and we have $41 million available to be drawn under the Credit Facility. The LGJV had cash and cash equivalents of $78.9 million. We believe we have sufficient cash and access to borrowings and other resources to carry out our business plans for at least the next 12 months. We may decide to increase our current financial resources with external financings if our long-term business needs require us to do so however there can be no assurance that the financing will be available to us on acceptable terms, or at all. We manage liquidity risk through our credit facility and the management of our capital structure.\nWe may be required to provide funds to the LGJV to support operations at the CLG which, depending upon the circumstances, may be in the form of equity, various forms of debt, joint venture funding or some combination thereof. There can be no assurance that additional funds will be available to us on acceptable terms, or at all. If we raise additional funds by issuing equity or convertible debt securities, substantial dilution to existing stockholders may result. Additionally, if we raise additional funds by incurring new debt obligations, the terms of the debt may require significant cash payment obligations, as well as covenants and specific financial ratios that may restrict our ability to operate our business.\nIndebtedness and Lines of Credit\nOn December 19, 2022, we entered into an amended and restated Credit Facility with BMO, under which we have a credit limit of $50.0 million, with an accordion feature providing up to an additional $25.0 million, subject to certain conditions. Borrowings under the Credit Facility:\n\u25cf\nmature on December 31, 2025, and\n\u25cf\nbear interest at a rate equal to either a term SOFR rate plus a margin ranging from 3.00% to 4.00% or a U.S. base rate plus a margin ranging from 2.00% to 3.00%, at our option.\nThe Credit Facility contains affirmative and negative covenants that are customary for agreements of this nature. The affirmative covenants require the Company to comply, at all times, with, among other things, a Leverage Ratio not greater than 3.00 to 1.00, with earnings before interest, tax, depletion depreciation and amortization calculated upon a trailing four fiscal quarter period, a liquidity covenant not less than $20.0 million and an interest coverage ratio not less than 4.00 to 1.00 calculated based on a trailing four fiscal quarter period. The negative covenants include, among other things, limitations on certain specified asset sales, mergers, acquisitions, indebtedness, liens, dividends and distributions, investments and transactions with affiliates. As of December 31, 2022, we had $9.0 million of borrowings outstanding under the Credit Facility. On April 13, 2023, the Company extended its waiver agreement with BMO whereby the restated audited financial statements for fiscal year 2021, the audited financial statements for fiscal year 2022 and restated unaudited financial statements for the first three fiscal quarters in fiscal year 2022 are to be provided no later than April 30, 2023. The waiver was subsequently extended for the above mentioned financial statements to be provided no later than July 15, 2023.\n52\n\n\nTable of Contents\nContractual Obligations\nWe and the LGJV entered into commitments with federal and state agencies to lease surface and mineral rights in Mexico related to our exploration activities. These leases are renewable annually.\nCritical Accounting Policies\nListed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability or expense that is being reported. For a discussion of recent accounting pronouncements, see Note\u00a02 - Summary of Significant Accounting Policies in the notes to the consolidated financial statements.\nEquity Method Investment\nWe account for our investment in affiliates using the equity method of accounting whereby, after valuing the initial investment, we recognize our proportional share of results of operations of the affiliate in its consolidated financial statements. The value of equity method investments are adjusted if it is determined that there is an other-than-temporary decline in value. The Company reviews equity method investments for an other-than-temporary decline in value when events or circumstances indicate that a decline in the fair value of the investment below its carrying value is other-than-temporary. Our investment in the LGJV is presented as investment in affiliates in the consolidated balance sheet. The difference between the carrying amount of the investment in affiliates and our equity in the LGJV\u2019s net assets is due to value of mineral resources at MPR. We have historically incurred certain costs on behalf of the LGJV, primarily related to a project development loan arrangement fee, and may incur such fees from time to time in the future. Our proportional share of such costs are reported as an investment in affiliate and the residual costs, related to Dowa\u2019s proportional ownership, are reported in the statement of income (loss).\nMineral Properties and Carrying Value of Long-Lived Assets (LGJV)\nMineral property acquisition costs are recorded at cost and are deferred until the viability of the property is determined. Exploration, mineral property evaluation, option payments, related acquisition costs for mineral properties acquired under option agreements, general overhead, administrative and holding costs to maintain a property on a care and maintenance basis are expensed in the period they are incurred. When proven and probable mineral reserves are determined for a property, subsequent development costs on the property are capitalized. If a project were to be put into production, capitalized development costs would be depleted on the\u00a0units of production basis determined by the proven and probable mineral reserves for that project.\nExisting proven and probable mineral reserves and value beyond proven and probable mineral reserves, including mineralization other than proven and probable mineral reserves and other material that is not part of the measured, indicated or inferred resource base, are included when determining the fair value of mine site reporting\u00a0units at acquisition and, subsequently, in determining whether the assets are impaired. The term \u201crecoverable minerals\u201d refers to the estimated amount of silver and other commodities that will be obtained after taking into account losses during mining, mineral resources processing and treatment and ultimate sale. Estimates of recoverable minerals from such exploration-stage mineral interests are risk-adjusted based on management\u2019s relative confidence in such materials. In estimating future cash flows, assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. We review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on estimated quantities of recoverable minerals, expected silver and other commodity prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on LOM plans. No impairment tests have been required during the periods presented.\nVarious factors could impact our ability to achieve our forecasted production schedules from proven and probable mineral reserves. Additionally, production, capital and reclamation costs could differ from the assumptions used in the cash flow models used to assess impairment. The ability to achieve the estimated quantities of recoverable minerals from exploration-stage mineral interests involves further risks in addition to those factors applicable to mineral interests where proven and probable mineral reserves have been identified, due to the lower level of confidence that the identified mineral resources could ultimately be mined economically. Assets classified as exploration potential have the highest level of risk that the carrying value of the asset can be ultimately realized, due to the still lower level of geological confidence and economic modeling.\n53\n\n\nTable of Contents\nIncome and Mining Taxes\nWe recognize the expected future tax benefit from deferred tax assets when the tax benefit is considered to be more likely than not of being realized. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted cash flows and the application of existing tax laws in the United States and Mexico. Refer to \u201c-Critical Accounting Policies-Mineral Properties and Carrying Value of Long-Lived Assets\u201d above for a discussion of the factors that could cause future cash flows to differ from estimates. To the extent that future cash flows and taxable income differ significantly from estimates, our ability to realize deferred tax assets recorded at the balance sheet date could be impacted. Additionally, future changes in tax laws in the jurisdictions in which we operate could limit our ability to obtain the future tax benefits represented by our deferred tax assets recorded at the reporting date.\nOur properties involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state and Mexico tax audits. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues, if any, in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If an estimate of tax liabilities proves to be greater than the ultimate assessment, a tax benefit would result. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.\nRecently Issued and Adopted Accounting Pronouncements\nRefer to Note\u00a02 of our consolidated financial statements included in \u201cItem\u00a08. Financial Statements and Supplementary Data\u201d for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Report.\nJumpstart Our Business Startups Act of 2012\nThe Jumpstart Our Business Startups Act of 2012 (the \u201cJOBS Act\u201d) permits us, as an \u201cemerging growth company,\u201d to, among other things, take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to \u201copt out\u201d of this provision and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies. The decision to opt out of the extended transition period under the JOBS Act is irrevocable.\nNon-GAAP Financial Measures\nWe use certain measures that are not defined by GAAP to evaluate various aspects of our business. These non-GAAP financial measures are intended to provide additional information only and do not have any standardized meaning prescribed by GAAP and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP.\nCash Costs and All-In Sustaining Costs\nCash costs and all-in sustaining costs (\u201cAISC\u201d) are non-GAAP measures. AISC was calculated based on guidance provided by the World Gold Council (\u201cWGC\u201d). WGC is not a regulatory industry organization and does not have the authority to develop accounting standards for disclosure requirements. Other mining companies may calculate AISC differently as a result of differences in underlying accounting principles and policies applied, as well as definitional differences of sustaining versus expansionary (i.e. non-sustaining) capital expenditures based upon each company\u2019s internal policies. Current GAAP measures used in the mining industry, such as cost of sales, do not capture all of the expenditures incurred to discover, develop and sustain production. Therefore, we believe that cash costs and AISC are non-GAAP measures that provide additional information to management, investors and analysts that aid in the understanding of the economics of the Company\u2019s operations and performance and provides investors visibility by better defining the total costs associated with production.\n54\n\n\nTable of Contents\nCash costs include all direct and indirect operating cash costs related directly to the physical activities of producing metals, including mining, processing and other plant costs, treatment and refining costs, general and administrative costs, royalties and mining production taxes. AISC includes total production cash costs incurred at the LGJV\u2019s mining operations plus sustaining capital expenditures. The Company believes this measure represents the total sustainable costs of producing silver from current operations and provides additional information of the LGJV\u2019s operational performance and ability to generate cash flows. As the measure seeks to reflect the full cost of silver production from current operations, new project and expansionary capital at current operations are not included. Certain cash expenditures such as new project spending, tax payments, dividends, and financing costs are not included.\nReconciliation of expenses (GAAP) to non-GAAP measures\nThe table below presents a reconciliation between the most comparable GAAP measure of the LGJV\u2019s expenses to the non-GAAP measures of (i) cash costs, (ii) cash costs, net of by-product credits, (iii) co-product all-in sustaining costs and (iv) by-product all-in sustaining costs for our operations.\nThe calculations for determining co-product and by-product cash cost and co-product and by-product AISC per ounce were updated to include period end accruals for sales (both volume and value for payable metals). In addition, the calculation for determining silver equivalent ounces used for co-product cash cost per ounce and co-product AISC per ounce was updated to include final settlements in the calculation of the realized metal prices. The prior period comparatives were updated to reflect this change however the cash cost and AISC per ounce calculated on this basis is not materially different from the cash cost and AISC cost per ounce previously reported\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears\u00a0Ended\u00a0December\u00a031,\n(in thousands, except unit costs)\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\nCost of sales\n\u200b\n$\n 107,075\n\u200b\n$\n 97,710\nRoyalties\n\u200b\n\u200b\n 3,069\n\u200b\n\u200b\n 4,781\nExploration\n\u200b\n\u200b\n 9,800\n\u200b\n\u200b\n 5,383\nGeneral and administrative\n\u200b\n\u200b\n 14,307\n\u200b\n\u200b\n 13,345\nDepreciation, depletion and amortization\n\u200b\n\u200b\n 69,380\n\u200b\n\u200b\n 52,402\nTotal expenses\n\u200b\n$\n 203,631\n\u200b\n$\n 173,621\nDepreciation, depletion and amortization\n\u200b\n\u200b\n (69,380)\n\u200b\n\u200b\n (52,402)\nExploration\n1\n\u200b\n\u00a0\n (9,800)\n\u200b\n\u00a0\n (5,383)\nTreatment and refining costs\n2\n\u200b\n\u00a0\n 21,871\n\u200b\n\u00a0\n 21,601\nCash costs (A)\n\u200b\n$\n 146,322\n\u200b\n$\n 137,437\nSustaining capital\n\u200b\n\u200b\n 76,526\n\u200b\n\u200b\n 72,979\nAll-in sustaining costs (B)\n\u200b\n$\n 222,848\n\u200b\n$\n 210,416\nBy-product credits\n3\n\u200b\n\u00a0\n (125,782)\n\u200b\n\u00a0\n (103,571)\nAll-in sustaining costs, net of by-product credits (C)\n\u200b\n$\n 97,066\n\u200b\n$\n 106,845\nCash costs, net of by-product credits (D)\n\u200b\n$\n 20,540\n\u200b\n$\n 33,866\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nPayable ounces of silver equivalent\n4\n (E)\n\u200b\n\u200b\n 15,552\n\u200b\n\u200b\n 11,045\nCo-product cash cost per ounce of payable silver equivalent (A/E)\n\u200b\n$\n 9.41\n\u200b\n$\n 12.44\nCo-product all-in sustaining cost per ounce of payable silver equivalent (B/E)\n\u200b\n$\n 14.33\n\u200b\n$\n 19.05\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nPayable ounces of silver (F)\n\u200b\n\u200b\n 9,482\n\u200b\n\u200b\n 6,797\nBy-product cash cost per ounce of payable silver (D/F)\n\u200b\n$\n 2.17\n\u200b\n$\n 4.98\nBy-product all-in sustaining cost per ounce of payable silver (C/F)\n\u200b\n$\n 10.24\n\u200b\n$\n 15.72\n1\nExploration costs are not related to current mining operations.\n2\nRepresent reductions on customer invoices and included in Revenue of the LGJV combined statement of income (loss).\n3\nBy-product credits reflect realized metal prices of zinc, lead and gold for the applicable period, which includes any final settlement adjustments from prior periods.\n4\nSilver equivalents utilize the average realized prices during the year ended December 31, 2022, of $20.72/oz silver, $1.58/lb zinc, $0.90/lb lead and $1,678/oz gold and the average realized prices during the year ended December 31, 2021, of $24.38/oz silver, $1.38/lb zinc, $1.01/lb lead and $1,761/oz gold. The average realized prices are determined based on revenue inclusive of final settlements.\n\u200b\n55\n\n\nTable of Contents",
+  "item7a": ">Item\u00a07A. \u00a0Quantitative and Qualitative Disclosures about Market Risk\nWe are a smaller reporting company and are not required to provide disclosure pursuant to this Item.\n\u200b\n56\n\n\nTable of Contents",
+  "cik": "1517006",
+  "cusip6": "368036",
+  "cusip": ["368036109"],
+  "names": ["GATOS SILVER INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1517006/000110465923074920/0001104659-23-074920-index.htm"
+}
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+{
+  "item1": ">ITEM\u00a01. BUSINESS\nGeneral\nOSI Systems,\u00a0Inc., together with our subsidiaries, is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. We sell our products and provide related services in diversified markets, including homeland security, healthcare, defense and aerospace. Our company is incorporated in the State of Delaware and our principal office is located at 12525 Chadron Avenue, Hawthorne, California 90250.\nWe have three operating divisions: (a) Security, providing security and inspection systems and turnkey security screening solutions; (b) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories; and (c) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for our Security and Healthcare divisions, as well as to third parties for applications in the defense and aerospace markets, among others.\nIndustry Overview\nWe sell our security and inspection solutions and healthcare products primarily to end\u2011users, while we design and manufacture our optoelectronic devices and value\u2011added subsystems and provide electronics manufacturing services primarily for original equipment manufacturer (OEM) customers.\n1\n\n\nTable of Contents\nSecurity. \nA variety of technologies are currently used globally in security and inspection applications, including transmission and backscatter X-ray, and 3-D computed tomography, radiation detection, metal detection, millimeter wave imaging, explosive trace detection, and optical inspection. We believe that the market for security and inspection products will continue to be affected by the threat of terrorist incidents, drug and human trafficking, gun violence, and by new government mandates and appropriations for security and inspection products in the United States and internationally.\nSecurity and inspection products are used at a wide range of facilities in addition to airports, such as border crossings, seaports, freight forwarding operations, correctional facilities, government and military installations, sports and concert venues and other locations where the interdiction of criminal activities is paramount. The U.S. Department of Homeland Security has undertaken numerous initiatives to prevent terrorists from entering the country, hijacking airplanes, and obtaining and transporting weapons of mass destruction and their components, to secure sensitive U.S. technologies, prevent human trafficking and to identify and screen cargo before it is loaded onto airplanes and ships. These initiatives, such as the Customs\u2011Trade Partnership Against Terrorism, the U.S. Transportation Security Administration\u2019s Air Cargo Screening Mandate and the U.S. Customs and Border Protection Container Security Initiative, have resulted in increased demand for security and inspection products, as have similar programs undertaken by governments across the world.\nGovernment sponsored initiatives in one nation often stimulate corresponding security programs by others in part because such initiatives frequently require that other nations bolster their security strategies, including acquiring or improving their security and inspection equipment and screening operations, in order to participate in international aviation and cross-border trade activities. The international market for non\u2011intrusive inspection equipment and related services, therefore, continues to expand as countries satisfy the requirements of these initiatives in order to maintain direct airline connections and ship goods internationally and as they themselves choose to procure and operate equipment to secure their own borders, transportation networks, facilities and other venues.\nThe U.S. Transportation Security Administration and other international air transportation security regulators around the world require the screening of passengers, carry-on bags and air cargo. Several of our screening system models have been approved by the U.S. Transportation Security Administration, as well as by various international regulatory bodies, for this purpose and are procured and used by government agencies, airlines, airports, freight forwarders, transportation companies and other businesses to fulfill their compliance requirements. These and other regulations promulgated by international organizations have resulted in an ongoing global demand for airline, cargo, port and border security and inspection technologies. \nHealthcare.\n Healthcare has been, and we believe will continue to be, a growing economic sector throughout much of the world. Developing countries in Latin America and the Asia-Pacific region are expected to continue to build healthcare infrastructure to serve expanding middle class populations. In developed areas, especially the United States, Europe, and mature Asian countries, aging populations and extended life expectancy are projected to fuel growth in healthcare for the foreseeable future.\nWhile we believe that the healthcare industry will continue to grow throughout much of the world, many factors are forcing healthcare providers to do more with less. These factors include stricter government requirements affecting staffing and accountability and uncertainty around potential U.S. healthcare legislation. The COVID-19 pandemic strained healthcare provider resources, placing increased focus on the advantages of remote monitoring and products which can be deployed flexibly, enabling hospitals to quickly reconfigure and adapt to unexpected changes. Our customers expect clinical value, economic value, and clinical decision support. Positioning our current healthcare products to demonstrate the competitive value in total cost of ownership is increasingly important in this environment. At the same time, the widespread introduction of mobile devices into the healthcare environment is creating an emerging demand for patient data acquisition and distribution. Our Healthcare division designs, manufactures and markets devices and software that respond to these factors, helping hospitals reduce costs, make better-informed clinical decisions, and more fully utilize resources.\nWe are a global manufacturer and distributor of patient monitoring, cardiology and remote monitoring, and connected care solutions for use in hospitals, medical clinics and physician offices. We design, manufacture and market patient monitoring solutions for critical, sub-acute and perioperative care areas of the hospital, wired and wireless networks and ambulatory blood pressure monitors, all aimed at providing caregivers with timely patient information. Our cardiology and remote monitoring systems include Holter recorders and analyzers, ambulatory blood pressure monitors, resting and stress electrocardiography (ECG) devices, and ECG management software systems and related software and services.\n2\n\n\nTable of Contents\nOptoelectronics and Manufacturing. \nWe believe that continued advances in technology and reductions in the cost of key components of optoelectronic systems, including computer processing power and memory, have broadened the optoelectronics market by enabling the use of optoelectronic devices in a greater number of applications. In addition, we see a trend among OEMs\u00a0to outsource the design and manufacture of optoelectronic devices as well as value-added subsystems to fully-integrated, independent manufacturers, like us, that may have greater specialization, broader expertise and more flexibility to respond to short cycle times and quicker market expectations.\nOur optoelectronic devices are used in a wide variety of applications for diversified markets including aerospace and defense, avionics, medical imaging and diagnostics, biochemistry analysis, pharmaceutical, nanotechnology, telecommunications, construction and homeland security. Medical applications for our devices include diagnostic and imaging products, patient monitoring equipment, and glucose monitors. Aerospace and defense applications for our devices include satellite navigation sensors, laser guided munitions systems, range finders, weapons simulation systems, and other applications that require the conversion of optical signals into electrical signals. Homeland security applications for our devices include X-ray based and other detection systems. Our optoelectronic devices and value-added subsystems are also used in a wide variety of measurement control, monitoring and industrial applications and are key components in telecommunications technologies. We also offer electronics manufacturing services to broader markets, as well as to our optoelectronics customers and to our Security and Healthcare divisions. We offer full turnkey solutions as well as printed circuit board assembly, cable and harness assembly, liquid crystal displays and box build manufacturing services, in which we provide product design and development, supply chain management, and production manufacturing services. Additionally, our flexible circuit businesses offer design expertise, fabrication capabilities, and assembly of flexible and rigid circuit boards for applications in the industrial medical, military, and consumer markets.\nGrowth Strategy\nWe believe that one of our primary competitive strengths is our expertise in the cost effective design and manufacture of specialized electronic systems and components for critical applications. As a result, we will continue to leverage such expertise and capacity to gain price, performance and agility advantages over our competitors in the security, healthcare and optoelectronics fields, and to translate such advantages into profitable growth in those fields. At the same time, we continually seek to identify new markets in which our core expertise and capacity will provide us with competitive advantages. Key elements of our growth strategy include:\nCapitalizing on Global Reach. \nWe operate from multiple locations throughout the world. We view our international operations as providing an important strategic advantage over competitors. First, our international manufacturing facilities allow us to take advantage of competitive labor rates in order to lower our manufacturing costs. Second, our international offices strengthen our sales and marketing efforts and our ability to service and repair our systems by providing direct access to growing markets and to our existing international customer base. Third, our international manufacturing locations allow us to reduce delivery times to our global customer base. We intend to continue to enhance our international manufacturing and sales capabilities.\nCapitalizing on Vertical Integration. \nOur vertical integration provides several advantages in each of our divisions. These advantages include reduced manufacturing and delivery times, lower costs due to our access to competitive international labor markets and direct sourcing of raw materials and sub components. We also believe that we offer significant added value to our customers by providing a full range of vertically-integrated services, including component design and customization, subsystem concept design and application engineering, product development and prototyping, efficient preproduction and short run manufacturing and competitive mass production capabilities. We believe that our vertical integration differentiates us from many of our competitors and provides value to our customers who can rely on us to be an integrated supplier.\nCapitalizing on the Market for Security and Inspection Systems.\n The trend toward increased screening of goods entering and departing from ports and crossing borders has resulted, and may continue to result in, the growth in the market for cargo inspection systems and turnkey security screening services that are capable of inspecting shipping containers for contraband and assisting customs officials in the verification of shipping manifests. Package and cargo screening by freight forwarders, airlines and air cargo companies represents a growing sector, as regulations in the United States and Europe have continued to require screening of air cargo shipments. We plan to capitalize on opportunities to replace, service and upgrade existing security installations, and to offer turnkey security screening solutions in which we may construct, staff and/or operate on a long-term basis security screening checkpoints for our customers. \n3\n\n\nTable of Contents\nWe expect that a market for software-as-a-service (SaaS) platforms that are capable of integrating the data that security inspection systems produce with related information derived from vehicle license plates, cargo container numbers, drivers\u2019 licenses, government databases, and other sources will also continue to develop, mature and grow, particularly as customers shift their operating procedures to take advantage of secure, cloud-based, networking technologies. We are a leader in the development of these platforms, including the transmission of such data to operators that may be working within secure, remote screening facilities hundreds or thousands of miles away from the security checkpoint. Our software has been used by customs and tax authorities in the United States, Europe and Latin America to screen millions of containers and vehicles. We believe that government agencies and commercial customers will increasingly rely on such SaaS offerings to review and adjudicate screening decisions remotely, over secure networks, as well as to communicate with and monitor the performance of their employees working on the ground at distant ports, border crossings and other checkpoints.\nFinally, we also intend to continue to develop new security and inspection products and technologies, including software, and to enhance our current product and service offerings through internal research and development and selective acquisitions.\nImproving and Complementing Existing Medical Technologies. \nWe develop and market patient monitoring systems, cardiology and remote monitoring products, and connected care systems and associated supplies and accessories. Our efforts to develop new products and improve our existing medical technologies are focused on the needs of healthcare organizations, caregivers, and their patients. Our efforts to improve existing medical technologies concentrate on providing products that are flexible and intuitive to use so that clinicians can deliver accurate, precise, reliable and cost-effective care.\nSelectively Entering New Markets. \nWe intend to continue to selectively enter new markets that complement our existing capabilities in the design, development and manufacture of specialized electronic systems and components for critical applications such as security inspection, patient monitoring and cardiology and remote monitoring. We believe that by manufacturing products that rely on our existing technological capabilities, we will leverage our integrated design and manufacturing infrastructure to build a larger presence in new markets that present attractive competitive dynamics. We intend to achieve this strategy through internal growth and through selective acquisitions.\nAcquiring New Technologies and Companies. \nOur success depends in part on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures. We have developed expertise in our various lines of business and other areas through internal research and development efforts, as well as through selective acquisitions. We expect to continue to seek acquisition opportunities to broaden our technological expertise and capabilities, lower our manufacturing costs and facilitate our entry into new markets.\nProducts and Technology\nWe design, develop, manufacture and sell products ranging from security and inspection systems to patient monitoring and cardiology and remote monitoring systems to discrete optoelectronic devices and value-added subsystems.\nSecurity and Inspection Systems. \nWe design, manufacture and market security and inspection systems globally to end users primarily under the \u201cRapiscan\u201d trade name. Our Security products are used to inspect baggage, parcels, cargo, people, vehicles and other objects for various contraband and prohibited items including weapons, explosives, drugs, and nuclear materials. These systems are also used for the safe, accurate and efficient verification of cargo manifests for the purpose of assessing duties and monitoring the export and import of controlled materials. Our Security products fall into the following categories: baggage and parcel inspection; cargo and vehicle inspection; hold (checked) baggage screening; people screening; radiation monitoring; explosive and narcotics trace detection; and optical inspection systems. We also offer turnkey security screening services, as well as related software integration platforms, operator training, and the staffing and operation of security screening checkpoints under the \u201cS2\u201d trade name. From time to time we form joint ventures to carry out our operations in certain geographies, including, for example, Albania.\nIn recent years, security and inspection products have increasingly been used at a wide range of facilities in addition to airports, such as border crossings, railways, seaports, cruise line terminals, sporting venues, freight forwarding operations, government and military installations and nuclear facilities. As a result of the use of security and inspection products at additional facilities, we have diversified our portfolio of security and inspection products and our sales channels.\n4\n\n\nTable of Contents\nMany of our security and inspection systems utilize dual-energy X-ray imaging technology, in combination with software enhanced imaging methods and algorithms to facilitate the detection of contraband materials and items such as explosives, weapons, narcotics, and bulk currency. Dual energy imaging allows some material properties to be identified. Additionally, dual-view X-ray imaging allows operators to view and examine objects from two directions simultaneously, thereby improving the operator\u2019s ability to detect threats quickly and effectively. Some of our systems also use different types or combinations of X-ray imaging in addition to dual-energy, such as multi-view and computed tomography. Algorithms that process images and related data from these systems significantly enhance the overall probability of detection of a range of threat items and materials. Typical threat items include explosives and weapons.\nOur inspection systems range in size from compact, handheld and table-top products to large systems comprising entire buildings in which trucks, shipping containers or pallets are inspected. Many of our inspection systems are also designed to be upgradeable to respond to new customer requirements as they emerge or change.\nOur cargo and vehicle inspection applications, in which vehicles, cars, trucks, shipping containers, pallets and other large objects can be inspected, are designed in various configurations, including mobile, portal, gantry, and rail systems. Our customers use these products to verify the contents of cars, trucks, rail cars and cargo containers and to detect the presence of contraband, including narcotics, weapons, explosives, radioactive and nuclear materials and other smuggled items. Most of our cargo and vehicle inspection systems employ X\u2011ray imaging to inspect objects and present images to an inspector, including shapes, sizes, locations and relative densities of the contents. These systems utilize transmission imaging, backscatter imaging, or both technologies in combination. We also manufacture passive radiation monitoring devices for detecting nuclear materials utilizing their gamma and neutron signatures. Additionally, we have developed isotope\u2011specific identification algorithms. Many of these systems have been built to meet specific requirements of our government customers.\nOur broad portfolio of non-intrusive inspection systems permits us to offer customers solutions that are tailored to their specific operational requirements, performance standards and budgets.\nIn many cases, we have designed our systems to meet the performance specifications of relevant regulators, including authorities located in the United States, United Kingdom and European Union. This is particularly the case with respect to systems used (or approved for use) to perform screening of airline passenger carry-on items, hold (checked) baggage and air cargo.\nOur Security division also offers trace detection systems that are designed to detect trace amounts of explosives or narcotics and people screening products, such as walk-through metal detectors for use at security checkpoints at airports, government buildings, sports arenas and other venues. \nPatient Monitoring and Cardiology and Remote Monitoring. \nOur Healthcare division designs, manufactures and markets products globally to end users primarily under the \u201cSpacelabs\u201d trade name.\nSpacelabs products include patient monitors for use in perioperative, critical care and emergency care environments with neonatal, pediatric and adult patients. Our patient monitoring systems such as Xprezzon\n\u00ae\n and Qube\n\u00ae\n are supported by surveillance systems connected by wireless or hardwired networks, as well as standalone monitors that enable patient data to be transported physically from one monitor to another as the patient is moved. These systems enable hospital staff to access patient data where and when it is required. In addition, these products are designed to interact with hospital information systems.\nSpacelabs SafeNSound\u2122 assists hospitals in providing value-based care by streamlining workflows and improving communications. Features include comprehensive reporting tools, a communications dashboard for monitor technicians, and a device management system to admit patients to monitors/telemetry at the bedside. These tools help address top challenges facing hospitals today.\nSpacelabs predictive analytics clinical decision support tools provide surveillance and deterioration alerting for patients in all levels of care in the hospital setting and includes FDA-cleared and regulated products featuring the Rothman Index, a proprietary patient condition score available through EMR-integrated, web-based, or mobile app interfaces.\n5\n\n\nTable of Contents\nFor electrocardiograph monitoring or multiparameter monitoring of ambulatory patients, we offer a digital telemetry system. The system operates in government protected bands, which are not used for private land mobile radio, business radio services or broadcast analog or digital television. Spacelabs Intesys\n\u00ae\n Clinical Suite\u00a0(ICS) provides a software suite allowing hospitals to leverage their infrastructure to capture data from the bedside, compact and telemetry monitors. \nOur PathfinderSL\n\u00ae\n and Lifescreen\u2122 Pro analysis tools provide clinicians the ability to save Holter analysis time and to do detailed analysis when needed inside or outside the hospital. Our Eclipse Pro Holter recorders provide up to 14 days of 3-channel recording or up to 72 hours of 12 lead with pacing. Our Eclipse Mini Ambulatory ECG Recorder provides up to 30 days of 3-channel ECG and when paired with Lifescreen\u2122 Pro clinicians can analyze millions of heart beats within minutes.We are also a supplier of ambulatory blood pressure (ABP) monitors which are routinely used by physicians around the world and by contract research organizations. Many physicians are using ambulatory blood pressure monitoring to detect \u201cwhite coat\u201d hypertension, a condition in which people experience elevated blood pressure in the doctor\u2019s office but not in their daily lives. Ambulatory blood pressure monitoring helps improve diagnostic accuracy and minimize the associated costs of treatment. Spacelabs OnTrak\u2122 ambulatory blood pressure system has been validated for both pediatric and adult patient types and includes the capability to measure activity correlation with non-invasive blood pressure readings.\nOur Sentinel\n\u00ae\n 11 Cardiology Information Management System is designed to provide an electronic, enterprise-wide scalable system for cardiology and remote monitoring. Sentinel integrates data from Spacelabs-branded products and third-party devices into a central enterprise-wide database system that can be accessed by care providers and medical facility administrators, thereby providing enhanced workflow and efficiencies. The system\u2019s web-based solution enables the secure transfer of data from multiple remote sites. Sentinel supports mobile and remote working, taking ECG management to the point of care for flexible use of devices and capture of data.\nIn addition, the capital-intensive products that our Healthcare division sells have supplies and accessories associated with them that can represent annuity revenue opportunities. Additionally, our Healthcare division manufactures multivendor compatible accessories for use with third-party devices.\nOptoelectronic Devices and Manufacturing Services. \nOptoelectronic devices designed, manufactured and sold through our Optoelectronics and Manufacturing division generally consist of both active and passive components. Active components sense light of varying wavelengths and convert the light detected into electrical signals, whereas passive components amplify, separate or reflect light. These products are manufactured in standard and customized configurations for specific applications and are offered either as components or as subsystems. Our optoelectronic products and services are provided primarily under the \u201cOSI Optoelectronics,\u201d \u201cOSI LaserDiode,\u201d \u201cOSI Laserscan,\u201d and \u201cAdvanced Photonix\u201d trade names.\nIn addition to the manufacture of standard and OEM products, we also specialize in designing and manufacturing customized value-added subsystems for use in a wide range of products and equipment. An optoelectronic subsystem typically consists of one or more optoelectronic devices that are combined with other electronic components and packaging for use in an end product. The composition of a subsystem can range from a simple assembly of various optoelectronic devices that are incorporated into other subsystems (for example, a printed circuit board containing our optoelectronic devices) to complete end products (for example, pulse oximetry equipment).\nWe develop, manufacture and sell laser-based remote sensing devices that are used to detect and classify vehicles in toll and traffic management systems under the \u201cOSI Laserscan\u201d and \u201cAutosense\u201d trade names. We offer solid-state laser products for aerospace, defense, telecommunication and medical applications under the \u201cOSI LaserDiode\u201d trade name.\nWe also provide electronics design and manufacturing services in North America, the United Kingdom and in the Asia Pacific region with enhanced, Rohs compliant, printed circuit board and cable and harness assembly and box build manufacturing services utilizing automated surface mount technology lines. We offer electronics manufacturing services to OEM customers and end users for medical, automotive, defense, aerospace, industrial and consumer applications that do not utilize optoelectronic devices. We also manufacture LCD displays for medical, industrial and consumer electronics applications, and flex circuits for OEM customers from the prototype stage to mass production. Our electronics manufacturing services are provided primarily under the \u201cOSI Electronics,\u201d \u201cAPlus Products,\u201d \u201cAltaflex,\u201d and \u201cPFC Flexible Circuits\u201d trade names.\n6\n\n\nTable of Contents\nMarkets, Customers and Applications\nSecurity and Inspection Products. \nMany security and inspection products were developed originally in response to civilian airline hijackings. Consequently, certain of our security and inspection products have been and continue to be sold for use at airports. Our security and inspection products are also used for security and customs purposes at locations in addition to airports, such as border crossings, shipping ports, sporting venues, military and other government installations, freight forwarding facilities, high-profile locations such as U.K. House of Parliament, Buckingham Palace, and the Vatican and for high-profile events such as the Olympic Games, FIFA World Cup, and other sporting events. We also provide turnkey security screening solutions, which can include the construction, staffing and long-term operation of security screening locations for our customers.\nOur customers include, among many others, the U.S. Department of Homeland Security, U.S. Department of Defense, U.S. Department of State, U.S. Department of Commerce, and U.S. Department of Justice, as well as many premier international government agencies, including airports and other critical infrastructure agencies.\nOur contracts with the U.S. Government are generally subject to termination for convenience at the election of the U.S.Government. For the fiscal year ended June 30, 2023, our Security division\u2019s direct sales to the U.S. Government were approximately $235 million. Additionally, certain of our contracts with foreign governments also contain provisions allowing the government to terminate a contract for convenience. For further discussion, please refer to Item 1A. \u201cRisk Factors.\u201d\nPatient Monitoring, Cardiology and Remote Monitoring, and Connected Care Systems. \nOur patient monitoring, cardiology and remote monitoring, and connected care systems are manufactured and distributed globally for use in critical care, emergency and perioperative areas within hospitals, as well as physicians\u2019 offices, medical clinics and ambulatory surgery centers. We also provide wired and wireless networks, clinical information access solutions and ambulatory blood pressure monitors.\nWe sell products directly to end customers, as well as through integrated delivery networks and group purchasing organizations in the U.S., the NHS Supplies Organisation in the United Kingdom, UGAP in France, and to various government funded hospitals in the Middle East and several parts of Asia.\nOptoelectronic Devices and Electronics Manufacturing Services. \nOur optoelectronic devices and the electronics we manufacture are used in a broad range of products by a variety of customers in the following market segments: defense, aerospace and avionics; analytical and medical imaging; healthcare; telecommunications; homeland security; toll and traffic management; and automotive.\nMarketing, Sales and Service\nWe market and sell our security and inspection products and turnkey security screening solutions globally through a direct sales and marketing staff located in North America, South America, Europe, Middle East, Australia, and Asia, in addition to an expansive global network of independent distributors. This sales organization is supported by a service organization located in the same regions, as well as a global network of independent, authorized service providers.\nWe market and sell our healthcare products globally through a direct sales and marketing staff located in North America, South America, Europe and Asia, in addition to a global network of independent distributors. We also support these sales and customer service efforts by providing operator in service training, comprehensive interactive eLearning for all monitoring products, software updates and upgrades and service training for customer biomedical staff and distributors. We also provide IT specialists and clinical specialists to provide support both before and after product sale.\nWe market and sell our optoelectronic devices and value-added manufacturing services, through both our direct sales and marketing staff located in North America, Europe and Asia, and indirectly through a global network of independent sales representatives and distributors. Our sales staff is supported by an applications engineering group whose members are available to provide technical support, which includes designing applications, providing custom tooling and process integration and developing products that meet customer defined specifications.\n7\n\n\nTable of Contents\nWe consider our maintenance service operations to be an important element of our business. After the expiration of our standard product warranty periods, we are often engaged by customers, either directly or through our network of authorized service providers, to provide maintenance services for our security and inspection products. In addition, we provide a variety of service and support options for our healthcare customers, including hospital on-site repair and maintenance service and telephone support, parts exchange programs for customers with the internal expertise to perform a portion of their own service needs and a depot repair center at our division headquarters. We believe that our international maintenance service capabilities allow us to be competitive in selling our security and inspection systems as well as our patient monitoring, cardiology and remote monitoring, and connected care systems.\nResearch and Development\nOur security and inspection systems are primarily designed at our facilities in the United States and in the United Kingdom, Australia, Singapore, India, and Malaysia. These products include mechanical, electrical, analog and digital electronics, and software components and subsystems. In addition to product design, we provide civil works and system integration services to install and integrate our products with other systems, networks and facilities at the customer site. We support cooperative and government-funded research projects with universities and directly with government agencies themselves.\nOur healthcare products are primarily designed at our facilities in the United States and in the United Kingdom with sustaining engineering efforts in India. These products include enterprise and embedded software, networking, connectivity, mechanical, electronic and software subsystems, most of which are designed by us. We are also currently involved, both in the United States and internationally, in research projects aimed at improving our medical systems and at expanding our current product lines.\nWe design and manufacture optoelectronic devices and we provide electronics manufacturing services primarily in our facilities in the United States and internationally in the United Kingdom, Canada, India, Indonesia, and Malaysia. We engineer and manufacture subsystems to solve the specific application needs of our OEM customers. In addition, we offer entire subsystem design and manufacturing solutions. We consider our engineering personnel to be an important extension of our core sales and marketing efforts.\nIn addition to close collaboration with our customers in the design and development of our current products, we maintain an active program for the development and introduction of new products, enhancements and improvements to our existing products, including the implementation of new applications of our technology. We seek to further enhance our research and development program and consider such program to be an important element of our business and operations.\nManufacturing and Materials\nWe currently manufacture our security and inspection systems domestically in California, Kentucky, Massachusetts, Tennessee, and Virginia, and internationally in Malaysia and the United Kingdom. We currently manufacture our patient monitoring and cardiology and remote monitoring systems in Washington state. We outsource manufacturing of certain of our supplies and accessories. We currently manufacture our optoelectronic devices and provide electronics manufacturing services domestically in California and New Jersey, and internationally in Canada, India, Indonesia, Malaysia, and the United Kingdom. Most of our high-volume, labor-intensive manufacturing activities are performed at our facilities in India, Indonesia and Malaysia. Our ability to manufacture products and provide follow-on service from offices located in these regions allows us to remain in close proximity to our customers, which is an important component of our global strategy.\nOur global manufacturing organization has expertise in optoelectronic, microelectronic and integrated electronics for industrial and automation, medical, aerospace and defense industry applications. Our manufacturing includes silicon wafer processing and fabrication, optoelectronic device assembly and screening, thin and thick film microelectronic hybrid assemblies, surface mounted and thru-hole printed circuit board electronic assemblies, cable and harness assemblies, LCD and TFT displays, box-build manufacturing, and flex circuitry on a complete turnkey basis. To support our manufacturing operations, we outsource certain requirements, including sheet metal fabrication and plastic molding of components.\nThe principal raw materials and subcomponents used in producing our security and inspection systems consist of X-ray generators, linear accelerators, detectors, data acquisition and computer systems, conveyance systems, vehicles, and miscellaneous mechanical and electrical components. A large portion of the optoelectronic devices, subsystems and circuit card assemblies used in our inspection systems are manufactured in-house. A large proportion of our X-ray generators, linear accelerators, computers and conveyance systems used in our cargo and vehicle inspection systems are purchased from unaffiliated third-party providers.\n8\n\n\nTable of Contents\nThe principal raw materials and subcomponents used in producing our healthcare products consist of printed circuit boards, housings, mechanical assemblies, pneumatic devices, touch screens, medical grade displays, cables, filters, textiles, fabric, gauges, fittings, tubing and packaging materials. We purchase finished medical devices, computers, peripheral accessories, and remote displays from unaffiliated third-party providers.\nThe principal raw materials and subcomponents used in producing our optoelectronic devices and electronic subsystems consist of silicon wafers, electronic components, light emitting diodes, scintillation crystals, passive optical components, printed circuit boards and packaging materials. The silicon-based optoelectronic devices manufactured by us are critical components in most of our products and subsystems. We purchase silicon wafers and other electronic components from unaffiliated third-party providers.\nFor cost, quality control, technological, and efficiency reasons, we purchase certain materials, parts, and components only from single vendors with whom we have ongoing relationships. We do, however, qualify alternative sources for many of our materials, parts, and components. We purchase most materials, parts, and components pursuant to purchase orders placed from time to time in the ordinary course of business. Since the initial onset of the COVID-19 pandemic, our divisions have experienced supply chain and labor availability challenges that have impacted the price and availability of parts, components, consumables, freight, shipping, and third-party services, adversely impacting our gross margin as well as delayed product deliveries, installations, maintenance and repair work, and technical support, among other work and services.\nInformation Technology and Cybersecurity Risk Management\nWe rely extensively on digital technology to conduct operations and engage with our customers and business partners. As the complexity of our engagements grows, so do the threats from cyber intrusion, ransomware, denial of service, phishing, account takeover, data manipulation and other cyber misconduct. To counter these threats, we have implemented an information security management system (ISMS) focused on data confidentiality, integrity, and availability. Our ISMS has been certified as ISO/IEC 27001 compliant and is re-evaluated annually by our external auditors. Similarly, we conduct external cyber penetration testing annually to assess and improve our security posture and reduce cybersecurity risk. No material information security breaches have occurred in the past three years. Through a combination of governance, risk, and compliance (GRC) resources, we also (i) proactively monitor IT controls to ensure compliance with legal and regulatory requirements, (ii) perform third-party risk management assessments, (iii) ensure essential business functions remain available during business disruptions, (iv) develop and update incident response plans to address potential weaknesses, and (v) maintain cyber incident management and reporting procedures. Our ISMS and GRC processes are designed to prioritize IT and cybersecurity risk areas, identify solutions that minimize such risks, pursue optimal outcomes, and maintain compliance with contractual obligations. We also maintain a global security operations center with real-time capability to investigate and trigger impact mitigation protocols. These capabilities allow us to reduce exposure should a security incident arise. For additional information regarding the risks associated with these matters, see Item 1A. \u201cRisk Factors.\u201d\nTrademarks and Trade Names and Patents\nTrademarks and Trade Names. \nWe have used, registered and applied to register certain trademarks and service marks to distinguish our products, technologies and services from those of our competitors in the United States and in foreign countries. We monitor and, when necessary, enforce our trademark, service mark and trade name rights in the United States and abroad.\nPatents. \nWe possess rights to a number of U.S. and foreign patents relating to various aspects of our security and inspection products, healthcare products and optoelectronic devices and subsystems. Our current patents will expire at various times between 2023 and 2041. While we continue to file new applications and pursue new patents, it remains possible that pending patent applications or other applications that may be filed may not result in issued patents. In addition, issued patents may not survive challenges to their validity or enforceability, or may be found to not be infringed by any third parties. Although we believe that our patents have value, our patents, or any additional patents that may be issued in the future, may not be able to provide meaningful protection from competition.\nWe believe that our trademarks and trade names and patents are important to our business. The loss of some of our trademarks or patents might have a negative impact on our financial results and operations. Nevertheless, with the exception of the loss of the, Rapiscan\n\u00ae\n, AS&E\n\u00ae\n or Spacelabs\n\u00ae\n trademarks, the impact of the loss of any single trademark or patent would not likely have a material adverse effect on our business.\n9\n\n\nTable of Contents\nGovernment Regulation of Medical Devices\nThe patient monitoring, cardiology and remote monitoring, and connected care systems we design, manufacture, and market are subject to regulation by numerous government agencies, principally the U.S. Food and Drug Administration (FDA), and by other federal, state, local and foreign authorities. These systems are also subject to various U.S. and foreign product performance and safety standards. Our medical device product candidates must undergo an extensive government regulatory clearance or approval process prior to sale in the United States and other countries, including submission demonstrating clinical safety and efficacy of intended use, as well as the continuing need for compliance with applicable laws and regulations.This may require significant interaction with regulatory agencies and the expenditure of substantial resources.\nUnited States FDA. \nIn the United States, the FDA has broad regulatory powers with respect to preclinical and clinical testing of new medical devices and the designing, manufacturing, labeling, storage, record keeping, marketing, advertising, promotion, distribution, post market monitoring and reporting and import and export of medical devices. Unless an exemption applies, federal law and FDA regulations require that all new or significantly modified medical devices introduced into the market be preceded either by a premarket notification clearance under section 510(k) of the Federal Food, Drug and Cosmetic Act (FDCA), or an approved premarket approval (PMA) application. Under the FDCA, medical devices are classified into one of three classes\u2014Class I, Class II or Class III\u2014depending on the degree of risk associated with each medical device and the extent of control needed to provide reasonable assurances with respect to safety and effectiveness. Class I devices are those for which safety and effectiveness can be reasonably assured by adherence to a set of regulations, referred to as General Controls, which require compliance with the applicable portions of the FDA\u2019s Quality System Regulation (QSR) facility registration and product listing, reporting of adverse events and malfunctions and truthful and non-misleading promotional materials. Some Class I devices, also called Class I reserved devices, also require premarket clearance by the FDA through the 510(k) premarket notification process described below. Most Class I products are exempt from the premarket notification requirements.\nClass\u00a0II devices are those that are subject to the General Controls, as well as Special Controls as deemed necessary by the FDA, which can include performance standards, guidelines and post market surveillance. Most Class\u00a0II devices are subject to premarket review and clearance by the FDA. Premarket review and clearance by the FDA for Class\u00a0II devices is accomplished through the 510(k)\u00a0premarket notification process.\nUnder the 510(k)\u00a0process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the product for which clearance has been sought is substantially equivalent to a previously cleared 510(k)\u00a0device or a device that was in commercial distribution before May\u00a028, 1976 for which the FDA had not yet called for the submission of pre-market approval applications. After a 510(k) notice is submitted, the FDA determines whether to accept it for substantive review. If it lacks necessary information for substantive review, the FDA will refuse to accept the 510(k) notification. In that case, the applicant must correct the submission errors before resubmitting. If it is accepted for filing, the FDA begins a substantive review. By statute, the FDA is required to complete its review of, and clear or deny, a 510(k) notification within 90 days of receiving the 510(k) notification. The FDA may formally request additional information, which may toll or restart the 90 day deadline. As a practical matter, clearance often takes longer than 90 days and sometimes is not granted at all. Although many 510(k) premarket notifications are cleared without clinical data, the FDA may require further information, including clinical data, to make a determination regarding substantial equivalence, which may significantly prolong the review process. If the FDA agrees that the device is substantially equivalent, it will grant clearance to commercially market the device.\nTo be substantially equivalent, the proposed device must have a substantially equivalent intended use and indications for use as the predicate device, and either have substantially equivalent technological characteristics to the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data is sometimes required to support the demonstration of substantial equivalence. Multiple interactions and/or the submission of additional information or documentation may be required to secure regulatory clearance.\nAfter a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) clearance or, depending on the modification, could require a PMA application. The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with a manufacturer\u2019s determination. If the FDA disagrees with a manufacturer\u2019s determination that a new submission is not required, the FDA may require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or approval of a PMA application is obtained. In addition, in these circumstances, we may be subject to significant regulatory fines or penalties for failure to submit the requisite premarket notification or PMA submissions.\n10\n\n\nTable of Contents\nClass III devices include devices deemed by the FDA to pose the greatest risk such as life-supporting or life-sustaining devices, or implantable devices, in addition to those deemed not substantially equivalent following the 510(k) process. The safety and effectiveness of Class III devices cannot be reasonably assured solely by the General Controls and Special Controls described above. Therefore, these devices are typically subject to the PMA application process, which is more costly and time consuming than the 510(k) process and requires substantial clinical data. To date, all of the patient monitoring and cardiology and remote monitoring systems we manufacture and sell in the United States have required only 510(k) pre-market notification clearance.\nFDA clearance or approval, when granted, may entail limitations on the indicated uses for which a product may be marketed, and such product approvals, once granted, may be withdrawn if problems occur after initial marketing. Manufacturers of FDA-regulated products are subject to pervasive and continuing post-approval governmental regulation, including, but not limited to, the registration and listing regulation, which requires manufacturers to register all manufacturing facilities and list all medical devices placed into commercial distribution; Quality System (also known as Good Manufacturing Practices) Regulations, which requires manufacturers, including third-party manufacturers, to follow stringent design, risk management, validation, testing, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures during the manufacturing process; product and promotional labeling regulations; advertising and promotion requirements; restrictions on sale, distribution or use of a device; PMA annual reporting requirements; the FDA\u2019s general prohibition against promoting products for unapproved or \u201coff-label\u201d uses; the Medical Device Reporting (MDR) regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to reoccur; medical device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and removals (\u201crecalls\u201d) if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; recall requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse health consequences or death; an order of repair, replacement or refund; device tracking requirements; and post-approval study and post-market surveillance requirements. The FDA has also established a Unique Device Identification (\u201cUDI\u201d) system that requires manufacturers to mark certain medical devices distributed in the United States with unique device identifiers. Also, we must comply with cybersecurity requirements to assess cybersecurity and safety risks and design and develop our devices to ensure safe and effective performance in the face of cyber threats. It is also incumbent on us to monitor third-party software for new vulnerabilities and verify and validate any software updates or patches meant to address vulnerabilities.\nOur facilities, records and manufacturing processes are subject to periodic scheduled and unscheduled inspections by the FDA. Failure to comply with the applicable United States medical device regulatory requirements could result in, among other things, warning letters, untitled letters, fines, injunctions, consent decrees, civil penalties, unanticipated expenditures, repairs, replacements, refunds, recalls or seizures of products, operating restrictions, total or partial suspension of production, the FDA\u2019s refusal to issue certificates to foreign governments needed to export products for sale in other countries, the FDA\u2019s refusal to grant future premarket clearances or approvals, withdrawals or suspensions of current product clearances or approvals and criminal prosecution.\nCoverage and Reimbursement. \nGovernment and private sector initiatives to limit the growth of healthcare costs, including price regulation and competitive pricing, coverage and payment policies, comparative effectiveness therapies, technology assessments and managed care arrangements, are continuing in many countries where we do business, including the United States, Europe and Asia. As a result of these changes, the marketplace has placed increased emphasis on the delivery of more cost-effective medical therapies. In addition, because there is generally no separate reimbursement from third-party payers to our customers for many of our products, the additional costs associated with the use of our products can impact the profit margin of our customers. Accordingly, these various initiatives have created increased price sensitivity over healthcare products generally and may impact demand for our products and technologies.\nHealthcare cost containment efforts have also prompted domestic hospitals and other customers of medical devices to consolidate into larger purchasing groups to enhance purchasing power, and this trend is expected to continue. The medical device industry has also experienced some consolidation, partly in order to offer a broader range of products to large purchasers. As a result, transactions with customers are larger, more complex and tend to involve more long-term contracts than in the past. These larger customers, due to their enhanced purchasing power, may attempt to increase the pressure on product pricing.\n11\n\n\nTable of Contents\nSignificant healthcare reforms have had an impact on medical device manufacturer and hospital revenues. The Patient Protection and Affordable Care Act as amended by the Health Care and Education and Reconciliation Act of 2010, collectively referred to as the Affordable Care Act, is a sweeping measure designed to expand access to affordable health insurance, control healthcare spending and improve healthcare quality. Many states have also adopted or are considering changes in healthcare policies, in part due to state budgetary pressures. Ongoing uncertainty regarding implementation of certain aspects of the Affordable Care Act makes it difficult to predict the impact the Affordable Care Act or state law proposals may have on our business. This has created uncertainty in the market, which could result in reduced demand for our products, additional pricing pressure, and increased demand for new and more flexible payment structures.\nOther Healthcare Laws. \nIn addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws restrict our business practices. These laws include, without limitation, data privacy and security laws, anti-kickback and false claims laws, and transparency laws regarding payments or other items of value provided to healthcare providers.\nAs a participant in the healthcare industry, we are subject to extensive regulations protecting the privacy and security of patient health information that we receive, including the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, which was enacted as part of the American Recovery and Reinvestment Act of 2009 (collectively, \u201cHIPAA\u201d). Among other things, these regulations impose extensive requirements for maintaining the privacy and security of individually identifiable health information, known as \u201cprotected health information.\u201d The HIPAA privacy regulations do not preempt state laws and regulations relating to personal information that may also apply to us. Our failure to comply with these regulations could expose us to civil and criminal sanctions.\nThe HIPAA provisions also created federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payers, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A person or entity does not need to have actual knowledge of the statutes or specific intent to violate them in order to have committed a violation. Also, many states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payer, in addition to items and services reimbursed under Medicaid and other state programs.\nThe federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, to induce or in return for the purchasing, leasing, ordering, or arranging for or recommending the purchase, lease or order of items or services for which payment may be made, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term \u201cremuneration\u201d has been broadly interpreted to include anything of value. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Further, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.\nThe federal False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to the federal government, or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes \u201cany request or demand\u201d for money or property presented to the U.S. Government. Medical device manufacturers have been held liable under these laws if they are deemed to cause the submission of false or fraudulent claims by, for example, providing customers with inaccurate billing or coding information.\nThese laws impact the kinds of financial arrangements we may have with hospitals or other potential purchasers of our products. They particularly impact how we structure our sales offerings, including pricing, customer support, education and training programs, physician consulting, research grants and other service arrangements. If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject to material penalties, including potentially significant criminal and civil and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, contractual damages, reputational harm, and the curtailment or restructuring of our operations, any of which could materially and adversely affect our ability to operate our business and our results of operations.\n12\n\n\nTable of Contents\nAdditionally, there has been a trend towards increased federal and state regulation of payments and other transfers of value provided to healthcare professionals or entities. The federal Physician Payment Sunshine Act requires that certain device manufacturers track and report to the government information regarding payments and other transfers of value to physicians, certain other clinical staff, and teaching hospitals, as well as ownership and investment interests held by physicians and their family members. A manufacturer\u2019s failure to submit timely, accurately and completely the required information for all payments, transfers of value or ownership or investment interests may result in civil monetary penalties for \u201cknowing failures.\u201d Certain states also mandate implementation of compliance programs, impose restrictions on device manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to healthcare professionals and entities.\nWe are subject to similar laws in foreign countries where we conduct business. For example, within the EU, the control of unlawful marketing activities is a matter of national law in each of the member states. The member states of the EU closely monitor perceived unlawful marketing activity by companies. We could face civil, criminal, and administrative sanctions if any member state determines that we have breached our obligations under its national laws. Industry associations also closely monitor the activities of member companies. If these organizations or authorities name us as having breached our obligations under their regulations, rules\u00a0or standards, our reputation would suffer, and our business and financial condition could be adversely affected.\nOther Foreign Healthcare Regulations\nWe are also subject to regulation in the foreign countries in which we manufacture, market, and/or import our products. For example, the commercialization of certain products, including medical devices, in the EU is regulated under a system that presently requires all such products sold in the EU to bear the CE marking\u2014an international symbol of adherence to the medical device regulations and standards of the EU. Our manufacturing facilities in Hawthorne, California; Snoqualmie, Washington; Johor Bahru, Malaysia; Batam, Indonesia; and Hyderabad, India are all certified to the International Organization for Standardization\u2019s ISO 13485 standard for quality management. Our Hawthorne, California and Snoqualmie, Washington facilities are also certified to the requirements of Annex II, section 3 of the Directive 93/42/EEC on Medical Devices, which allows them to self-certify that manufactured products can bear the CE marking. Further, the implementation of the Restriction of Hazardous Substance Directive (\u201cROHS\u201d) requires that certain products, including medical devices, shipped into the EU eliminate targeted ROHS substances.\nThe International Medical Device Regulators Forum has implemented a global approach to auditing manufacturers of medical devices. This audit system, called the Medical Device Single Audit Program (\u201cMDSAP\u201d), provides for an annual audit of a medical device manufacturer by a certified body on behalf of various regulatory authorities. Current authorities participating in MDSAP include the Therapeutic Goods Administration of Australia, Brazil\u2019s Agencia Nacional de Vigilancia Sanitaria, Health Canada, Japan\u2019s Ministry of Health, Labour and Welfare, and the Japanese Pharmaceuticals and Medical Devices Agency and the FDA. It is expected that more regulatory authorities will participate in MDSAP in the future.\nWe and other medical device manufacturers are being confronted with major changes in the EU\u2019s decades-old regulatory framework governing market access to the EU. The EU\u2019s Medical Devices Regulation (\u201cEU MDR\u201d) is replacing the EU\u2019s Medical Device Directive (93/42/EEC) and the EU\u2019s Directive on active implantable medical devices (90/385/EEC). The EU MDR imposes stricter requirements for the marketing and sale of medical devices, including in the area of clinical evaluation requirements, quality systems and post-market surveillance, than the medical device directives replaced by the EU MDR. The EU MDR became effective as of May 26, 2021.\nManufacturers of currently approved medical devices will have a transition time to meet the requirements of the EU MDR. The EU MDR differs in several important ways from the EU\u2019s directives for medical devices and active implantable medical devices replaced thereby. The most significant changes in the regulations include:\n\u25cf\nThe definition of medical devices covered under the EU MDR is significantly expanded to include devices that may not have a medical intended purpose, such as colored contact lenses. Also included in the scope of the regulation are devices designed for the purpose of \u201cprediction and prognosis\u201d of a disease or other health condition.\n\u25cf\nDevice manufacturers are being required to identify at least one person within their organization who is ultimately responsible for all aspects of compliance with the requirements of the new EU MDR. The organization must document the specific qualifications of this individual relative to the required tasks.\n13\n\n\nTable of Contents\n\u25cf\nThe EU MDR requires rigorous post-market oversight of medical devices.\n\u25cf\nThe EU MDR allows the EU Commission or expert panels to publish \u201cCommon Specifications,\u201d such as requirements for technical documentation, risk management, or clinical evaluation.\n\u25cf\nDevices are to be reclassified according to risk, contact, duration, and invasiveness.\n\u25cf\nSystematic clinical evaluation is being required for Class IIa and Class IIb medical devices.\n\u25cf\nAll approved devices must be recertified in accordance with the new EU MDR requirements.\nWe have a team dedicated to updating and revising key systems, processes, and product technical documentation to meet the new EU MDR requirements.\nEnvironmental Regulations\nWe are subject to various environmental laws, directives, and regulations pertaining to the use, storage, handling and disposal of hazardous substances used, and hazardous wastes generated, in the manufacture of our products. Such laws mandate the use of controls and practices designed to mitigate the impact of our operations on the environment, and under such laws we may be held liable for the costs associated with the remediation and removal of any unintended or previously unknown releases of hazardous substances on, beneath or from our property and associated operations, including the remediation of hazardous waste disposed off-site. Such laws may impose liability without regard to whether we knew of, or caused, the release of such hazardous substances. Any failure by us to comply with present or future regulations could subject us to the imposition of substantial fines, suspension of production, alteration of manufacturing processes or cessation of operations, any of which could have a material adverse effect on our business, financial condition and results of operations.\nWe believe that, except to an extent that would not have a material adverse effect on our business, financial condition or results of operations, we are currently in compliance with all environmental regulations in connection with our manufacturing operations, and that we have obtained all environmental permits necessary to conduct our business. The amount of hazardous substances used, and hazardous wastes generated, by us may increase in the future depending on changes in our operations. To ensure compliance and practice proper due diligence, we conduct appropriate environmental audits and investigations at our manufacturing facilities in North America, Asia Pacific, and Europe, and, to the extent practicable, on all new properties. Our manufacturing facilities conduct regular internal audits to ensure proper environmental permits and controls are in place to meet changes in operations. Third-party investigations address matters related to current and former occupants and operations, historical land use, and regulatory oversight and status of associated properties and operations (including surrounding properties). The purpose of these studies is to identify, as of the date of such report, potential areas of environmental concern related to past and present activities or from nearby operations. The scope and extent of each investigation is dependent upon the size, complexity and operation of the property and on recommendations by independent environmental consultants.\nCompetition\nThe markets in which we operate are highly competitive and characterized by evolving customer needs and rapid technological change. We compete with other manufacturers, some of which have significantly greater financial, technical and marketing resources than we have. In addition, some competitors may have the ability to respond quickly to new or emerging technologies, adapt more quickly to changes in customer requirements, have stronger customer relationships, have greater name recognition and devote greater resources to the development, promotion and sale of their products than we do. As a result, we may not be able to compete successfully against designers and manufacturers of specialized electronic systems and components or within the markets for security and inspection systems, patient monitoring, cardiology and remote monitoring, or optoelectronic devices. Future competitive pressures may materially and adversely affect our business, financial condition and results of operations.\n14\n\n\nTable of Contents\nIn the security and inspection market, competition is based primarily on factors such as product performance specification standards, quality and reliability, government regulatory approvals and qualifications, the overall cost effectiveness of the system, prior customer relationships and reputation, technological capabilities of the products, price, local market presence, program execution capability, and breadth of sales and service organization. Competition results in price reductions and reduced margins and could result in loss of market share. Although our competitors offer products in competition with one or more of our products, we can supply a variety of system types and offer among the widest array of solutions available from a single supplier. This variety of technologies also permits us to offer unique hybrid systems to our customers that utilize two or more of these technologies, thereby optimizing flexibility, performance and cost to meet each customer\u2019s unique application requirements.\nIn the patient monitoring, cardiology and remote monitoring, and connected care markets, competition is also based on a variety of factors including product performance, functionality, value and breadth of sales and service organization. Competition could result in price reductions, reduced margins and loss of our market share. We believe that our patient monitoring products are easier to use than the products of many of our competitors because we offer a consistent user interface throughout many of our product lines. We also believe that the capability of our monitoring systems to connect together, and to the hospital IT infrastructure, is a key competitive advantage. Further, while some of our competitors are also beginning to introduce portal technology, which allows remote access to data from the bedside monitor, central station or other point of care, we believe that our competing technologies bring valuable, instant access to labs, radiology and charting at the point of care.\nIn the markets in which we compete to provide optoelectronic devices and electronics manufacturing services, competition is based primarily on factors such as expertise in the design and development of optoelectronic devices, product quality, timeliness of delivery, price, technical support and the ability to provide fully integrated services from application development and design through production. Because we specialize in custom subsystems requiring a high degree of engineering expertise, we believe that we generally do not compete to any significant degree with any other large United States, European or Asian manufacturers of standard optoelectronic components. Competition in the extensive electronic manufacturing services market ranges from multinational corporations with sales in excess of several billion dollars, to large regional competitors and to small local assembly companies. In our experience, the OEM customers to whom we provide such services often prefer to engage companies that offer both local and lower-cost off-shore facilities. Along with a number of domestic competitors for these services, our high-volume, low-cost contract manufacturing locations in Southeast Asia compete with other manufacturers in the same region.\nBacklog\nWe currently measure our backlog as quantifiable purchase orders or contracts that have been signed, for which revenues are expected to be recognized within the next five years. In instances where we are not able to estimate the value of a purchase order or contract, they are not included in backlog.\nWe ship most of our baggage and parcel inspection, people screening, trace detection, patient monitoring and cardiology and remote monitoring systems and optoelectronic devices and value-added subsystems within one to several months after receiving an order. However, such shipments may be delayed for a variety of reasons, including supply chain disruptions and any special design or requirements of the customer. In addition, large orders of security and inspection products typically require greater lead-times. Fulfillment of orders of our Rapiscan RTT hold (checked) baggage screening equipment generally requires longer lead times. Further, we provide turnkey screening services to certain customers for which we may recognize revenue over multi-year periods.\nCertain of our cargo and vehicle inspection systems may require more than a year of lead-time. We have experienced some significant shipping delays associated with our cargo and vehicle inspection systems. Such delays can occur for many reasons, including: (i) additional time necessary to coordinate and conduct factory inspections with the customer before shipment; (ii) a customer\u2019s need to engage in time-consuming site construction projects to accommodate the system, over which we may have no control or responsibility; (iii) additional fine tuning of such systems once they are installed; (iv) design or specification changes by the customer; (v) time needed to obtain export licenses and/or letters of credit; (vi) delays originating from other contractors on the project; and (vii) supply chain constraints. The COVID-19 pandemic exacerbated these challenges, and supply chain constraints that originated during the pandemic continue to affect our projects, even as international travel restrictions and other protective measures subside.\n15\n\n\nTable of Contents\nAs of June 30, 2023, our consolidated backlog totaled approximately $1.8 billion, compared to $1.2 billion as of June 30, 2022. Approximately $0.8 billion of our backlog as of June 30, 2023 is not reasonably expected to be fulfilled in fiscal year 2024. Sales orders underlying our backlog are firm orders, although, from time to time we may agree to permit a customer to cancel an order, or an order may be cancelled for other reasons. Variations in the size of orders, product mix, or delivery requirements, among other factors, may result in substantial fluctuations in backlog from period to period. Backlog as of any particular date should not be relied upon as indicative of our revenues for any future period and should not be considered a meaningful indicator of our performance on an annual or quarterly basis.\nHuman Capital\nThe strength and talent of our workforce are critical to the success of our businesses, and we strive to attract, develop and retain personnel commensurate with the needs of our businesses. Our human capital management priorities are designed to support the execution of our business strategy and improve organizational effectiveness. We contribute to our employees\u2019 financial, health, and social well-being through competitive compensation structures, including a robust employee stock purchase program and retirement benefits, as well as health and well-being programs focused on promoting the physical and mental health of our workforce. We also strive to create opportunities for career development and growth. We provide training and development programs to foster connections, leadership competency, and team and individual development, and we have a tuition reimbursement program to encourage ongoing education.\nWe understand the importance of a diverse workforce, and we are committed to upholding a culture of diversity, equity, and inclusion. We value the unique contributions of our employees, and we hold firm to the ideals of fairness, equal opportunity and mutual respect for all forms of diversity and differing abilities. We are committed to pay equity and protecting the rights of underrepresented groups within our organization, including women, racial and ethnic minorities, and members of the LGBTQ+ community. Our broader diversity strategies include focus at all levels of our organization, including with senior management and our Board of Directors. As of June 30, 2023, 46% of our global workforce was female and 52% of our U.S. workforce was ethnically diverse.\nAs of June 30, 2023, we employed 6,423 people, of whom 3,975 were employed in manufacturing, 543 were employed in engineering or research and development, 624 were employed in administration, 342 were employed in sales and marketing and 939 were employed in service capacities. Of the total employees, 2,014 were employed in the Americas, 3,527 were employed in Asia and 882 were employed in Europe.\nAvailable Information\nWe are subject to the informational requirements of the Exchange Act. Therefore, we file periodic reports, proxy statements and other information with the SEC. The SEC maintains an internet website (http://www.sec.gov) that contains reports, proxy statements and other information that issuers are required to file electronically.\nOur internet address is: http://www.osi-systems.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form\u00a0a part of this annual report on Form\u00a010-K or any other report or document we file with or furnish to the SEC. We make available, free of charge through our internet website, our annual reports on Form\u00a010-K, quarterly reports on Form\u00a010-Q, current reports on Form\u00a08-K, amendments to those reports filed or furnished pursuant to Section\u00a013(a)\u00a0or 15(d)\u00a0of the Exchange Act, and reports filed pursuant to Section\u00a016 of the Exchange Act, as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. Also available on our website free of charge are our Corporate Governance Guidelines, the Charters of our Nominating and Governance, Audit, Compensation and Benefits, Technology, and Risk Management Committees of our Board of Directors and our Code of Ethics and Conduct (which applies to all members of our Board of Directors and employees, including our principal executive officer, principal financial officer and principal accounting officer). A copy of this annual report on Form\u00a010-K is available without charge upon written request addressed to: c/o Secretary, OSI Systems,\u00a0Inc., 12525 Chadron Avenue, Hawthorne, CA 90250 or by calling telephone number (310)\u00a0978-0516.\n\u200b\n16\n\n\nTable of Contents\n\u200b",
+  "item1a": ">ITEM\u00a01A. RISK FACTORS\nSet forth below and elsewhere in this report and in other documents we file with the SEC are descriptions of the risks and uncertainties that could materially and adversely affect our business, financial condition and results of operations and could make an investment in our securities speculative or risky. We encourage you to carefully consider all such risk factors when making investment decisions regarding our company. If any such risks, or any other risks that we do not currently consider to be material, or which are not known to us, materialize, our business, financial condition and operating results could be materially adversely affected. \nBusiness and Industry Risks\nIf operators of, or algorithms installed on, our security and inspection systems fail to detect weapons, explosives or other devices or materials that are used to commit a terrorist act or other mass casualty event, we could be exposed to product and professional liability and related claims for which we may not have adequate insurance coverage.\nOur business exposes us to potential product liability risks that are inherent in the development, manufacturing, sale and service of security and inspection systems, software and threat detection algorithms, as well as in the provision of training to our customers in the use and operation of such systems. Our customers use our security and inspection systems to help them detect items that could be used in performing terrorist acts, mass casualty events or other crimes. Some of our security and inspection systems require that an operator interpret an image of suspicious items within a bag, parcel, container, vehicle or other vessel. Others use algorithms to signal to the operator that further investigation is required. In addition, the training, reliability and competence of the customer\u2019s operator are often crucial to the detection of suspicious items.\nSecurity inspection systems that signal to the operator that further investigation is required are sometimes referred to in the security industry as \u201cautomatic\u201d detection systems. Nevertheless, if such a system were to fail to signal to an operator when an explosive, weapon or other contraband was in fact present, resulting in significant loss of life or damage, we would be subject to risk of significant product liability claims. Security inspection by technological means is circumstance and application-specific. Our security and inspection systems offer significant capabilities, but also have performance limitations and cannot be designed to reveal or detect contraband under all circumstances, particularly if criminal actors successfully conceal such items. They can also malfunction or underperform, including if not properly maintained.\nWe also offer turnkey security screening solutions under which we perform some or all of the security screening tasks that have historically been performed by our customers. Such projects expose us to certain professional liability risks that are inherent in performing security inspection services for the purpose of detecting contraband items, including items that could be used in performing terrorist acts, mass casualty events or other crimes. If a contraband item were to pass through our operations and be used to perform a terrorist act, mass casualty event or other crime, we would be subject to risk of significant professional liability claims.\nThere are also many other factors beyond our control that could lead to liability claims should an act of terrorism, mass casualty event, or other crime occur. Past terrorism attacks in the U.S. and in other locations worldwide and the potential for future attacks have caused commercial insurance for such threats to become extremely difficult to obtain. In the event that we are found liable following an act of terrorism or other mass casualty event, the insurance we currently have in place would not fully cover the claims for damages. Further, if our security and inspection systems fail to, or are perceived to have failed to, help detect a threat, we could experience negative publicity and reputational harm, which could have a material adverse effect on our business, financial conditions and results of operations.\nThe loss of certain of our customers, including government agencies that can modify or terminate agreements more easily than other commercial customers with which we contract, the failure to continue to diversify our customer base or the non-renewal of certain material contracts could have a negative effect on our reputation and could have a material adverse effect on our business, financial condition and results of operations.\nWe sell many of our products to prominent, well-respected institutions, including agencies and departments of the U.S. Government, state and local governments, foreign governments, renowned hospitals and hospital networks, and large military defense and space industry contractors. Many of these larger customers spend considerable resources testing and evaluating our products and our design and manufacturing processes and services. Some of our smaller customers know this and rely on this as an indication of the quality and reliability of our products and services. As a result, part of our reputation and success depends on our ability to continue to sell to larger institutions that are known for demanding high standards of excellence. The loss or termination of a contract by such an institution, even if for reasons unrelated to the quality of our products or services, could therefore have a more wide-spread and potentially material adverse effect on our business, financial condition and results of operations.\n17\n\n\nTable of Contents\nOur acquisition and alliance activities could result in disruption of our ongoing business and other operational difficulties, unrecoverable costs, and other negative consequences, any of which could adversely impact our financial condition and results of operations.\nWe intend to continue to make investments in companies, products and technologies, either through acquisitions, investments or alliances. Acquisition and alliance activities often involve risks, including:\n\u25cf\ndifficulty in assimilating the acquired operations and employees and realizing synergies expected to result from the acquisition;\n\u25cf\npotential liabilities of, or claims against, an acquired company, some of which might not be known until after the acquisition;\n\u25cf\ndifficulty in managing product development activities with our alliance partners;\n\u25cf\ndifficulty in effectively coordinating sales and marketing efforts;\n\u25cf\ndifficulty in combining product offerings and product lines quickly and effectively;\n\u25cf\ndifficulty in retaining the key employees of the acquired operation;\n\u25cf\ndisruption of our ongoing business, including diversion of management time;\n\u25cf\ninability to successfully integrate the acquired technologies and operations into our businesses and maintain uniform standards, controls, policies and procedures;\n\u25cf\nunanticipated changes in market or industry practices that adversely impact our strategic and financial expectations regarding an acquired company or acquired assets and require us to write off or dispose of such acquired company or assets;\n\u25cf\nlacking the experience necessary to enter into new product or technology markets successfully; and\n\u25cf\ndifficulty in integrating financial reporting systems and implementing controls, procedures and policies, including disclosure controls and procedures and internal control over financial reporting, appropriate for public companies of our size at companies that, prior to the acquisition, had lacked such controls, procedures and policies.\nIntegrating acquired businesses has been and will continue to be complex, time consuming and expensive, and can negatively impact the effectiveness of our internal control over financial reporting. The use of debt to fund acquisitions or for other related purposes increases our interest expense and leverage. If we issue equity securities as consideration in an acquisition, current stockholders\u00a0percentage ownership and earnings per share may be diluted. As a result of these and other risks, we cannot be certain that our previous or future acquisitions will be successful and will not materially adversely affect the conduct, operating results or financial condition of our business.\nSubstantial declines in crude oil prices or extended periods of low crude oil prices may adversely affect our business, financial condition, and results of operations.\nSome of our international customers have procurement budgets that are strongly correlated with fluctuations in the price of crude oil. Historically, the market for crude oil has been volatile and unpredictable. Crude oil prices are subject to rapid and significant fluctuations in response to global events and relatively minor changes in supply and demand. While factors relating the price of crude oil to demand for our products and services are complex, a period of depressed crude oil prices may adversely affect our business, financial condition, and results of operations.\nUnfavorable currency exchange rate fluctuations could adversely affect our financial results. \nOur international sales and our operations in foreign countries expose us to risks associated with fluctuating currency values and exchange rates. Gains and losses on the conversion of accounts receivable, accounts payable and other monetary assets and liabilities to U.S. dollars may contribute to fluctuations in our results of operations. We also use forward contracts which are intended to mitigate the impact of certain foreign currency exposures. These forward contracts may not completely offset foreign currency gains and losses. In addition, since we conduct business in currencies other than the U.S. dollar but report our financial results in U.S. dollars, increases or decreases in the value of the U.S. dollar relative to other currencies could have a material adverse effect on our business, financial condition and results of operations.\n18\n\n\nTable of Contents\nU.S. budgeting process disruptions could reduce government spending, which could adversely impact our revenues, earnings, cash flows and financial condition.\nFunding for U.S. federal Government activities takes place on an annual basis with the Government fiscal year beginning on October 1 and ending on September 30. In recent years, the budgeting process has often not been completed by October 1st, which has required temporary extensions of funding authority, known as a continuing resolution. Because the provision of appropriated funds is undertaken on an annual basis and subject to budgetary rules and requirements, there can be disruptions to federal funding of current and future procurements.\nWe face aggressive competition in each of our operating divisions. If we do not compete effectively, our business will be harmed.\nWe encounter aggressive competition from numerous competitors in each of our divisions. In the security and inspection and patient monitoring and cardiology systems markets, competition is based primarily on such factors as product performance, functionality and quality, prior customer relationships, technological capabilities of the product, price, certification by government authorities, past performance, local market presence and breadth of sales and service organization. In the optoelectronic devices and electronics manufacturing markets, competition is based primarily on factors such as expertise in the design and development of optoelectronic devices, product quality, timeliness of delivery, price, customer technical support and on the ability to provide fully-integrated services from application development and design through volume subsystem production. We may not be able to compete effectively with all of our competitors. To remain competitive, we must develop new products and enhance our existing products and services in a timely manner. We anticipate that we may have to downward adjust the prices of many of our products to stay competitive. In addition, new competitors may emerge and entire product lines or service offerings may be threatened by new technologies or market trends that reduce the value of these product lines or service offerings. Our failure to compete effectively could have a material adverse effect on our business, financial condition and results of operations.\nHealthcare cost containment pressures and legislative or regulatory reforms may affect our ability to sell our products profitably.\nThird-party payers globally are developing increasingly sophisticated methods of controlling healthcare costs which can limit the amount that healthcare providers may be willing to pay for medical devices. In the United States, hospital and other healthcare provider customers that purchase our products typically bill various third-party payers to cover all or a portion of the costs and fees associated with the procedures or tests in which our products are used and bill patients for any deductibles or copayments. Because there is often no separate reimbursement for our products, any decline in the amount payers are willing to reimburse our customers for the procedures and tests associated with our products could make it difficult for customers to continue using, or adopt, our products and create additional pricing pressure for us. \nThere have been, and we expect there will continue to be, legislative and regulatory proposals to change the healthcare system, and some could significantly affect the ways in which doctors, hospitals, healthcare systems and health insurance companies are compensated for the services they provide, which could have a material impact on our business. It is not clear at this time what changes may impact the ability of hospitals and hospital networks to purchase the patient monitoring, cardiology and remote monitoring, and connected care systems that we sell or if it will alter market-based incentives that hospitals and hospital networks currently face to continually improve, upgrade and expand their use of such equipment.\nEfforts by governmental and third-party payers to reduce healthcare costs or the implementation of new legislative reforms imposing additional government controls could cause a reduction in sales or in the selling price of our products, which could adversely affect our business, financial condition and results of operations.\n19\n\n\nTable of Contents\nConsolidation in the healthcare industry could have a material and adverse effect on our revenues and results of operations.\nThe healthcare industry has been consolidating and organizations such as group purchasing organizations, independent delivery networks, and large single accounts, such as the United States Veterans Administration, continue to consolidate purchasing decisions for many of our healthcare provider customers. As a result, transactions with customers are larger, more complex and tend to involve more long-term contracts. The purchasing power of these larger customers has increased, and may continue to increase, causing downward pressure on product pricing. If we are not one of the providers selected by one of these organizations, we may be precluded from making sales to its members or participants. Even if we are one of the selected providers, we may be at a disadvantage relative to other selected providers that are able to offer volume discounts based on purchases of a broader range of products. Further, we may be required to commit to pricing that has a material adverse effect on our revenues and profit margins, business, financial condition and results of operations. We expect that market demand, governmental regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances, which may exert further downward pressure on the prices of our products and could materially and adversely impact our business, financial condition, and results of operations.\nTechnological advances and evolving industry and regulatory standards and certifications could reduce our future product sales, which could cause our revenues to grow more slowly or decline.\nThe markets for our products are characterized by rapidly changing technology, changing customer needs, evolving industry or regulatory standards and certifications and frequent new product introductions and enhancements. The emergence of new industry or regulatory standards and certification requirements in related fields may adversely affect the demand for our products. This could happen, for example, if new standards and technologies emerge that were incompatible with customer deployments of our applications. In addition, any products or processes that we currently offer or plan to develop may become obsolete or uneconomical before we recover all or any of the expenses incurred in connection with their development. We cannot provide assurance that we will succeed in developing and marketing product enhancements or new products that respond to technological change, new industry standards, changed customer requirements or competitive products on a timely and cost\u2011effective basis. Additionally, even if we are able to develop new products and product enhancements to meet any such standards, we cannot provide assurance that they will be profitable or that they will achieve market acceptance.\nWe develop certain of our security inspection technologies to meet the certification requirements of various government regulatory agencies worldwide, including the U.S. Transportation Security Administration and the European Civil Aviation Conference among others. Such standards change as threat and risk assessments evolve and as new technology becomes available within the industry, which enables regulators to demand performance improvements. We may not ultimately be able to develop technologies, or develop in a timely way solutions that are ultimately able to meet the new standards.\nCertain of our U.S. Government contracts are dependent upon our employees obtaining and maintaining required security clearances, as well as our ability to obtain security clearances for the facilities in which we perform sensitive government work.\nCertain of our U.S. Government contracts require our employees to maintain various levels of security clearances, and we are required to maintain certain facility security clearances. If we cannot maintain or obtain the required security clearances for our facilities and our employees, or obtain these clearances in a timely manner, we may be unable to perform certain U.S. Government contracts. Further, loss of a facility clearance, or an employee\u2019s failure to obtain or maintain a security clearance, could result in a U.S. Government customer terminating an existing contract or choosing not to renew a contract. Lack of required clearances could also impede our ability to bid on or win new U.S. Government contracts. This could damage our reputation and adversely affect our business, financial condition and results of operations.\nWe could be subject to changes in our tax rates, the adoption of new U.S. or international tax legislation, or exposure to additional tax liabilities.\nWe are subject to taxes in the U.S. and numerous foreign jurisdictions. Tax rates in various jurisdictions may be subject to significant change due to economic and political conditions or otherwise. Our effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or adoption of new tax legislation or changes in tax laws or their interpretation.\n20\n\n\nTable of Contents\nWe are also subject to the examination of our tax returns and other tax matters by the U.S. Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations. If our effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our financial condition and operating results could be materially adversely affected.\nThe conflict between Russia and Ukraine and the related implications may negatively impact our operations.\nIn February 2022, Russia invaded Ukraine. As a result, the U.S. and certain other countries have imposed sanctions on Russia and could impose further sanctions that could damage or disrupt international commerce and the global economy. It is not possible to predict the broader or longer-term consequences of this conflict or the sanctions imposed to date, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Such geopolitical instability and uncertainty could have a negative impact on our ability to sell to, ship products to, collect payments from, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, and logistics restrictions including closures of air space, and could increase the costs, risks and adverse impacts from supply chain and logistics challenges.\nAs a result of the conflict between Russia and Ukraine, there is also an increased likelihood of cyberattacks or cybersecurity incidents that could either directly or indirectly impact our operations. Any attempts by cyber attackers to disrupt our information systems or the information systems of our vendors, if successful, could harm our business, result in the misappropriation of funds, be expensive to remedy, and damage our reputation or brand. Insurance may not be sufficient to cover significant expenses and losses related to such cyberattacks and cybersecurity incidents.\nThe potential effects of the conflict between Russia and Ukraine also could impact many of the other risk factors described herein. Given the evolving nature of this conflict, the related sanctions, potential governmental actions and economic impact, such potential impacts remain uncertain. We have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted and while we expect the impacts of conflict between Russia and Ukraine to continue to have an effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time.\nOperational Risks\nAs a U.S. Government contractor, we are subject to extensive Federal procurement rules\u00a0and regulations as well as contractual obligations that are unique to doing business with the U.S. Government. Non-compliance with any such rules, regulations or contractual obligations could negatively affect current programs, potential awards and our ability to do business with the U.S. Government in the future.\nU.S. Government contractors must comply with extensive procurement regulations and other requirements including, but not limited to, those appearing in the Federal Acquisition Regulation (FAR) and its supplements, as well as specific procurement rules and contractual conditions imposed by various U.S. Government agencies. In addition, U.S. Government contracts typically contain provisions and are subject to laws and regulations that provide government agencies rights not typically found in commercial contracts, including the ability to: (i) terminate, reduce the value of, or otherwise modify existing contracts; (ii) suspend or prohibit us from doing business with the government or a specific government agency; and (iii) claim rights in technologies and systems invented, developed or produced by us at the government\u2019s expense.\nU.S. Government agencies and the agencies of many other governments with which we contract can terminate their contracts with us for convenience, and in that event, we generally may recover only our incurred costs and expenses on the work completed prior to termination. If an agency terminates a contract with us for default, we may be denied any recovery and may be liable for excess costs incurred by the agency in procuring undelivered items from an alternative source. Decisions by an agency to terminate one of our contracts for default could negatively affect our ability to win future awards not only from such agency, but also from other government agencies and commercial customers, many of whom evaluate past performance, or are required to review past performance information, when making their procurement decisions.\n21\n\n\nTable of Contents\nU.S. Government agencies may also initiate civil False Claims Act litigation against us based on allegations related to our performance of contracts for the U.S. Government, or to our compliance with procurement regulations and other legal requirements to which such contracts are subject, or both. Such litigation can be expensive to defend and if found liable can result in treble damages and significant civil penalties. The U.S. Government may also initiate administrative proceedings that, if resulting in an adverse finding against us or any of our subsidiaries as to our present responsibility to be a U.S. Government contractor or subcontractor, could result in our company or our subsidiaries being suspended for a period of time from eligibility for award of new government contracts or task orders or in a loss of export privileges and, if satisfying the requisite level of seriousness, in our debarment from contracting with the U.S. Government for a specified term as well as being subject to other remedies available to the U.S. Government. The occurrence of any of the foregoing events could result in a material adverse effect on our business, financial condition and results of operations.\nDue to the competitive process to obtain contracts and the likelihood of protests, we may be unable to achieve or sustain revenue growth and profitability.\nA significant portion of our business is generally awarded through a competitive bidding process, which involves substantial costs, including cost and time to prepare bids and proposals for contracts that may not be awarded to us, may be split among competitors or that may be awarded but for which we do not receive meaningful task orders. Following contract award, we may encounter significant expense, delay, contract modifications or even contract loss as a result of our competitors protesting the award of contracts to us in competitive bidding. Any resulting loss or delay of start-up and funding of work under protested contract awards may adversely affect our revenues and profitability. In addition, multi-award contracts require that we make sustained post-award efforts to obtain task orders under the contract. As a result, we may not be able to obtain these task orders or recognize revenues under these multi-award contracts. Our failure to compete effectively in this procurement environment would adversely affect our revenues and profitability.\nOur revenues are dependent on orders of security and inspection systems, turnkey security screening solutions and patient monitoring and cardiology and remote monitoring systems, which may have lengthy and unpredictable sales cycles.\nSales of security and inspection systems and turnkey security screening solutions often depend upon the decision of governmental agencies to upgrade or expand existing airports, border crossing inspection sites, seaport inspection sites, military facilities and other security installations. In the case of turnkey security screening solutions, the commencement of screening operations may be dependent on the approval, by a government agency, of the protocols and procedures that our personnel are to follow during the performance of their activities. In addition, turnkey screening solutions projects, in contrast to the sale and installation of security inspection equipment, also require that we hire and manage large numbers of local personnel in jurisdictions where we may not have previously operated. Sales outside of the United States of our patient monitoring and cardiology and remote monitoring systems depend in significant part on the decision of governmental agencies to build new medical facilities or to expand or update existing medical facilities. Accordingly, a significant portion of our sales of security and inspection systems, turnkey security screening solutions and our patient monitoring and cardiology and remote monitoring systems is often subject to delays associated with the lengthy approval processes. During these approval periods, we expend significant financial and management resources in anticipation of future revenues that may not occur. If we fail to receive such revenues after expending such resources, such failure could have a material adverse effect on our business, financial condition and results of operations.\nIf we do not introduce new products in a timely manner, our products could become obsolete and our operating results would suffer.\nWe sell many of our products in industries characterized by rapid technological changes, frequent new product and service introductions and evolving industry standards and customer needs. Without the timely introduction of new products and enhancements, our products could become technologically obsolete over time, in which case our revenue and operating results would suffer. The success of our new product offerings will depend upon several factors, including our ability to: (i) accurately anticipate customer needs; (ii) innovate and develop new technologies and applications; (iii) successfully commercialize new technologies in a timely manner; (iv) price our products competitively and manufacture and deliver our products in sufficient volumes and on time; and (v) differentiate our offerings from our competitors\u2019 offerings. Some of our products are used by our customers to develop, test and manufacture their products. We therefore must anticipate industry trends and develop products in advance of the commercialization of our customers\u2019 products. In developing any new product, we may be required to make a substantial investment before we can determine the commercial viability of the new product. If we fail to accurately foresee our customers\u2019 needs and future activities, we may invest heavily in research and development of products that do not lead to significant revenues.\n22\n\n\nTable of Contents\nInterruptions in our ability to purchase raw materials and subcomponents may adversely affect our profitability.\nWe purchase raw materials and certain subcomponents from third parties. We generally do not have guaranteed long-term supply arrangements with our suppliers. In addition, for certain raw materials and subcomponents that we use, there are a limited number of potential suppliers that we have qualified or that we are currently able to qualify. Consequently, some of the key raw materials and subcomponents that we use are currently available to us only from a single vendor. The reliance on a single qualified vendor could result in delays in delivering products or increases in the cost of manufacturing the affected products. Any material interruption in our ability to purchase necessary raw materials or subcomponents or a significant increase in price of raw materials or subcomponents could adversely affect our ability to fulfill customer orders and therefore could ultimately have a material adverse effect on our business, financial condition and results of operations.\nWe contract with third parties that may be unable to fulfill contracts on time.\nWe contract with third-party vendors to service our equipment in the field. We have made such arrangements because sometimes it is more efficient to outsource these activities than it is for our own employees to service our equipment. In addition, some of these vendors maintain stocks of spare parts that are more efficiently accessed in conjunction with a service agreement than would be the case if we were to maintain such spare parts independently. Any material interruption in the ability of our vendors to fulfill such service contracts could adversely affect our ability to fulfill customer orders and therefore could ultimately have a material adverse effect on our business, financial condition and results of operations.\nAdditionally, purchasers of our security and inspection systems and turnkey security screening solutions sometimes require the construction of the facilities that will house our systems and/or operations. We engage qualified construction firms to perform this work. However, if such firms experience delays, if they perform sub-standard work or if we fail to properly monitor the quality of their work or the timeliness of their progress, we may not be able to complete our construction projects on time. In any such circumstance, we could face the imposition of delay penalties and breach of contract claims by our customer. Any material delay caused by our construction firm subcontractors could therefore ultimately have a material adverse effect on our business, financial condition and results of operations.\nWe accumulate excess inventory from time to time.\nBecause of long lead times and specialized product designs, in certain cases we purchase components and manufacture products in anticipation of customer orders based on customer forecasts. For a variety of reasons, such as decreased end-user demand for our products or other factors, our customers might not purchase all the products that we have manufactured or for which we have purchased components. To the extent that we are unsuccessful in recouping our material and manufacturing costs, this could have a material adverse effect on our business, financial condition and results of operations. In addition, because of the complex customer acceptance criteria associated with some of our products, on some occasions, products the title of which has passed to our customers are still included in our inventory until revenue recognition criteria are met. As a result, inventory levels are elevated from time to time.\nEconomic, political, legal, operational and other risks associated with international sales\n and operations could adversely affect our financial performance.\nOur businesses are subject to risks associated with doing business internationally. We anticipate that revenues from international operations will continue to represent a substantial portion of our total revenue. In addition, many of our manufacturing facilities, and therefore employees, suppliers, real property, capital equipment, cash and other assets are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including without limitation:\n\u25cf\nchanges in foreign currency exchange rates;\n\u25cf\nchanges in a country\u2019s or region\u2019s political or economic conditions, particularly in developing or emerging markets;\n\u25cf\npolitical and economic instability, including the possibility of civil unrest, terrorism, mass violence or armed conflict;\n\u25cf\nlonger payment cycles of foreign customers and difficulty of collecting receivables in foreign jurisdictions;\n\u25cf\nimposition of domestic and international taxes, export controls, tariffs, embargoes, sanctions, trade disputes, and other trade restrictions;\n\u25cf\ndifficulty in staffing and managing widespread operations;\n\u25cf\ndifficulty in managing distributors and sales agents and their compliance with applicable laws;\n\u25cf\nchanges in a foreign government\u2019s budget, leadership and national priorities;\n\u25cf\nincreased legal risks arising from differing legal systems; and\n\u25cf\ncompliance with export control and anticorruption legislation, including but not limited to, the Foreign Corrupt Practices Act and UK Bribery Act and International Traffic in Arms Regulations.\n23\n\n\nTable of Contents\nThere are inherent risks associated with operations in Mexico.\nWe are currently in the process of fulfilling agreements to provide cargo and vehicle inspection systems and related services to government customers in Mexico. These agreements are significant to our business, financial condition and results of operations. The following are certain risks to operating in Mexico that could adversely impact our operations and have a material adverse effect on our business, financial condition and results of operations: (i) ability of key suppliers and subcontractors to fulfill obligations on a timely basis; (ii) cooperation of various departments of the Mexican government in issuing permits, and inspecting our operations on a timely basis; (iii) receipt of payments in a timely manner; (iv) significant penalties in the event of our late delivery or non-performance; (v) termination or change in scope of program at the election of the Mexican government; (vi) regional political and economic instability; (vii) high rate of crime in Mexico where we conduct operations; and (viii) change in the value of the Mexican peso.\nOur operations are vulnerable to interruption or loss due to natural disasters, epidemics or pandemics such as COVID-19, terrorist acts and other events beyond our control, which could adversely impact our operations.\nAlthough we perform manufacturing in multiple locations, we generally do not have redundant manufacturing capabilities in place for any particular product or component. As a result, we depend on our current facilities for the continued operation of our business. A natural disaster, epidemic or pandemic, terrorist act, act of war, civil unrest, or other natural or manmade disaster affecting any of our facilities could significantly disrupt our operations, or delay or prevent product manufacturing and shipment for the time required to repair, rebuild, or replace our manufacturing facilities. This delay could be lengthy and we could incur significant expenses to repair or replace the facilities. Any similar natural or manmade disaster that affects a key supplier or customer could lead to a similar disruption in our business. \nAs an example, the COVID-19 pandemic resulted in governments around the world implementing stringent measures to help combat the spread of the virus, including quarantines, \u201cshelter in place\u201d and \u201cstay at home\u201d orders, travel restrictions, business curtailments, school closures, and other measures, which has led to a global economic slowdown and impacted the financial markets of many countries. In particular, the COVID-19 pandemic significantly reduced airline passenger traffic, which reduced demand for certain of our security screening products and services. To slow and limit the transmission of COVID-19, governments across the world imposed significant air travel restrictions. These restrictions reduced demand for security screening products and related services at airport checkpoints globally. The global supply chain has also been disrupted. Staffing or personnel shortages due to pandemic-related shelter-in-place orders and quarantines have impacted and may continue to impact us and our suppliers. There have been widespread shortages in certain product categories. If the supply chain for materials used in our production process continues to be adversely impacted by COVID-19 or otherwise, our business, financial condition, and results of operations may be materially and adversely impacted.\nAny recall of our products, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of serious safety issues with our products that leads to corrective actions, could have a material adverse impact on us.\nAlthough we believe that existing data continue to support the efficacy and safety of our patient monitoring, cardiology, and connected care products, in the future, longer term study outcomes could demonstrate conflicting clinical effectiveness, a reduction of effectiveness, no clinical effectiveness or longer-term safety issues. This type of differing data could have a detrimental effect on the market penetration and usage of our medical device products. As a result, our sales may decline or expected growth would be negatively impacted. This could negatively impact our operating condition and financial results.\nMore generally, all medical devices can experience performance problems that require review and possible corrective action by us or a component supplier. We cannot provide assurance that there will not be component failures, manufacturing errors, noncompliance with quality system requirements or good manufacturing practices, design defects, software defects or labeling inadequacies in any device that could result in an unsafe condition or injury to the patient. The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or if a product poses an unacceptable risk to health. Manufacturers may also, under their own initiative, stop shipment or recall a product if any material deficiency is found or withdraw a product to improve device performance or for other reasons. A government mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, manufacturing errors, noncompliance with good manufacturing practices or quality system requirements, design or labeling defects or other deficiencies and issues. Similar regulatory agencies in other countries have similar authority to recall products because of material deficiencies or defects in design or manufacture that could endanger health. A recall involving our products could be particularly harmful to our business, financial and operating results. In addition, under the FDA\u2019s medical device reporting regulations, we are required to report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA or a foreign governmental authority could take enforcement action for failing to report the recalls when they were conducted.\n24\n\n\nTable of Contents\nDepending on the corrective action we take to redress a product\u2019s deficiencies or defects, the FDA or applicable foreign regulatory authority may require, or we may decide, that we will need to obtain new approvals or clearances for the device before we may market or distribute the corrected device. Seeking such approvals or clearances may delay our ability to replace the recalled devices in a timely manner. Moreover, we may face additional regulatory enforcement action, including FDA warning letters, product seizure, injunctions, administrative penalties, civil penalties or criminal fines. We may also be required to bear other costs or take other actions that may have a negative impact on our sales as well as face material adverse publicity or regulatory consequences, which could harm our business, including our ability to market our products in the future.\nAny adverse event involving our products, whether in the United States or abroad, could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection, mandatory recall, orders of repair, replacement or refund or other enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital and may harm our reputation and financial results.\nWe rely on third parties and our own systems for interaction with our customers and suppliers and employees, and a failure of a key information technology system, process or site or any other failure or interruption in the services provided by these third parties or our own systems could have a material adverse impact on our ability to conduct business.\nWe rely extensively on our information technology systems and systems and services provided by third parties to interact with our employees and our customers and suppliers. These interactions include, but are not limited to, ordering and managing materials from suppliers, converting materials to finished products, shipping product to customers, processing transactions, summarizing and reporting results of operations, transmitting data used by our service personnel and by and among our wide-spread personnel and facilities, complying with regulatory, legal and tax requirements, and other processes necessary to manage our business. We do not control our third-party service providers and we do not maintain redundant systems for some of such services, increasing our vulnerability to problems with such services. If the systems on which we rely are damaged or cease to function properly due to any number of causes, ranging from failures of our third-party service providers to catastrophic events, to power outages, to security breaches, we may suffer interruptions in our ability to manage operations which may adversely impact our business, results of operations and/or financial condition.\nWe could suffer a loss of revenue and increased costs, exposure to significant liability, reputational harm, and other serious negative consequences if we sustain cyber-attacks or other data security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information about us or our customers, suppliers, or other third parties; our products and services may be subject to potential cyber-attacks or other information technology vulnerabilities.\nWe manage and store proprietary, sensitive and confidential data related to our business operations. We may be subject to cyber-attacks and breaches of the information technology systems we use for these purposes. Experienced programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions, or cause shutdowns. Hackers may also be able to develop and deploy viruses, worms, malware, ransomware and other malicious software programs that attack our systems or otherwise exploit security vulnerabilities in our systems or products. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacturing, including \u201cbugs\u201d and other problems that could unexpectedly interfere with the operation of our systems or products. Cyber-threats vary in technique, are persistent, frequently change, and increasingly are more sophisticated, targeted, and difficult to detect or prevent.\nWe expend significant capital and resources to protect against the threat of security breaches, including cyber-attacks, viruses, worms, malware, ransomware and other malicious software programs. Substantial additional expenditures may be required before or after a cyber-attack to mitigate or alleviate problems caused by the unauthorized access, theft of data stored within our information systems, or the introduction of computer malware or ransomware to our environment. Our remediation efforts may not be successful, and there could be interruptions, delays, or cessation of service due to cyber-attacks or other data security breaches.\nWe often identify attempts to gain unauthorized access to our systems. Given the rapidly evolving nature and proliferation of cyber threats, there can be no assurance that our employee training, operational, and other technical security measures or other controls will detect, prevent or remediate security or data breaches in a timely manner or otherwise prevent unauthorized access, damage, or interruption of our systems and operations. We are likely to face attempted cyber-attacks in the future. Accordingly, we may be vulnerable to losses associated with the improper functioning, security breach, or unavailability of our information systems as well as any systems used in acquired operations.\n25\n\n\nTable of Contents\nIn addition, breaches of our security measures and the unapproved use or disclosure of proprietary information or sensitive or confidential data about us or our suppliers, customers or other third parties could expose us or any such affected third party to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise harm our business, even if we were not responsible for the breach. Furthermore, we are exposed to additional risks because we rely in certain capacities on third-party software, data management, and cloud service providers with possible security problems and security vulnerabilities beyond our control. Media or other reports of perceived security vulnerabilities to our systems or those of our third-party suppliers, even if no breach has been attempted or occurred, could adversely impact our brand and reputation and materially impact our business.\nOur products and services may also be at risk of cyber-attacks and security breaches. While we design and build security measures into our products and services, once installed and implemented at customer sites those measures may not prevent all cybersecurity attacks targeted against their networks and datacenters, such as the unauthorized access, capture, or alteration of information; the exposure or exploitation of potential security vulnerabilities; distributed denial of service attacks; the installation of malware or ransomware; acts of vandalism; computer viruses; or misplaced data or data loss.\nA significant actual or perceived (whether or not valid) theft, loss, fraudulent use or misuse of customer, employee, or other personally identifiable data, whether by us, our partners and vendors, or other third parties, or as a result of employee error or malfeasance or otherwise, non-compliance with applicable industry standards or our contractual or other legal obligations regarding such data, or a violation of our privacy and information security policies with respect to such data, could result in costs, fines, litigation, or regulatory actions against us. Such an event could additionally result in unfavorable publicity and therefore materially and adversely affect the market\u2019s perception of the security and reliability of our products and services and our credibility and reputation with our customers.\nGiven increasing cyber security threats, there can be no assurance that we will not experience business interruptions, data loss, ransom, misappropriation, or corruption or theft or misuse of proprietary information or related litigation and investigation, any of which could have a material adverse effect on our financial condition and results of operations and harm our business reputation.\nDelays, costs, and disruptions that result from upgrading, integrating and maintaining the security of our information and technology networks and systems could materially adversely affect us.\nWe are dependent on information technology networks and systems, including Internet and Internet-based or \u201ccloud\u201d computing services, to collect, process, transmit, and store electronic information. We are currently modernizing and upgrading our information technology systems while simultaneously integrating systems from our various acquisitions, including making changes to legacy systems, and replacing some legacy systems with new and advanced functionality. While upgrading and implementing change to any one of our systems could present challenges, the age of our systems and architecture may present unique challenges that we have not previously encountered as we undertake these efforts. There are inherent costs and risks associated with integrating, replacing and changing these systems and implementing new systems, including potential disruption of our sales and operations, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, demands on management time, securing our systems along with dependent processes from cybersecurity threats, and other risks and costs of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. The implementation of or delay in implementing new information technology systems may also cause disruptions in our business operations and impede our ability to comply with constantly evolving laws, regulations and industry standards addressing information and technology networks, privacy and data security, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.\nOur inability to successfully manage the implementation of a company-wide enterprise resource planning (\u201cERP\u201d) system could adversely affect our operating results.\nWe are in the process of implementing a new company-wide ERP system. This process has been and continues to be complex and time-consuming and we expect to incur additional capital outlays and expenses. This ERP system will modernize and replace many of our existing operating and financial systems, which is a major undertaking from a financial management and personnel perspective. Should the new ERP system not be implemented successfully throughout all our business units, be significantly delayed or over-budget or if the system does not perform in a satisfactory manner, it could be disruptive and adversely affect our operations, including our potential ability to report accurate, timely and consistent financial results, our ability to purchase supplies, components and raw materials from suppliers, and our ability to timely deliver products and services to customers and/or collect receivables from them. If the new ERP system is not successfully and fully implemented, it could negatively affect our financial reporting, inventory management, future sales, profitability and financial condition.\n26\n\n\nTable of Contents\nOur credit facility contains provisions that could restrict our ability to finance our future operations or engage in other business activities that may be in our interest.\nOur credit facility contains a number of significant covenants that, among other things, limit our ability to: (i) dispose of assets; (ii) incur certain additional indebtedness; (iii) repay certain indebtedness; (iv) create liens on assets; (v) pay dividends on our Common Stock; (vi) make certain investments, loans and advances; (vii) repurchase or redeem capital stock; (viii) make certain capital expenditures; (ix) engage in acquisitions, mergers or consolidations; and (x) engage in certain transactions with subsidiaries and affiliates.\nThese covenants could limit our ability to plan for or react to market conditions, finance our operations, engage in strategic acquisitions or disposals or meet our capital needs or could otherwise restrict our activities or business plans. Our ability to comply with these covenants may be affected by events beyond our control. In addition, our credit facility also requires us to maintain compliance with certain financial ratios. Our inability to comply with the required financial ratios or covenants could result in an event of default under our credit facility. A default, if not cured or waived, may permit acceleration of our indebtedness. In addition, our lenders could terminate their commitments to make further extensions of credit under our credit facility. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds to pay the accelerated indebtedness or that we will have the ability to refinance accelerated indebtedness on terms favorable to us or at all. If we are not able to refinance existing indebtedness on acceptable terms, our ability to finance our operations, engage in strategic acquisitions, and otherwise meet our capital needs would be significantly impaired.\nLegal and Regulatory Risks\nThe Support Anti-terrorism by Fostering Effective Technologies Act of 2002 (SAFETY Act) may not shield us against legal claims we may face following an act of terrorism.\nThe SAFETY Act provides important legal liability protections for providers of qualified anti-terrorism products and services. Under the SAFETY Act, providers, such as our Security division, may apply to the U.S. Department of Homeland Security for coverage of their products and services. If granted coverage, such providers receive certain legal protections against product liability, professional liability and certain other claims that could arise following an act of terrorism. We have applied to the U.S. Department of Homeland Security for many of the products and services offered by our Security division, but we do not enjoy coverage under the SAFETY Act (or the highest level of coverage) for every product line, model number and service offering that our Security division provides. In addition, the terms of the SAFETY Act coverage decisions awarded to us by the U.S. Department of Homeland Security restrict coverage to specific model numbers, software, and options within our product lines, sales to specific customers, and impose various other limitations, and contain conditions and requirements that we may not (or may not be able to) continue to satisfy in the future. Delays by the U.S. Department of Homeland Security in granting coverage (or extensions of coverage) and in our ability to meet the evolving standards of the SAFETY Act application process has and may in the future continue to result in coverage limitations for our products and services.\nIf we fail to maintain SAFETY Act protections for each of our product models, options, offerings, software and services, or fail to apply in a timely way for coverage for new products, models, and services as we acquire or introduce them, or if the U.S. Department of Homeland Security limits the scope of any coverage previously awarded to us, denies us coverage or continued coverage for a particular product, product line, model, option, offering, software feature, or service, or delays in making decisions about whether to grant us coverage, we may become exposed to legal claims that the SAFETY Act was otherwise designed to prevent. Moreover, the SAFETY Act was not designed to shield providers of qualified anti-terrorism products and services from all types of claims that may arise from acts of terrorism, including from many types of claims lodged in courts outside of the United States or acts of terrorism that occur outside of the United States, which exposes us to legal claims and litigation defense costs despite the SAFETY Act awards we have received.\nOur patient monitoring, cardiology and remote monitoring, and connected care systems could give rise to product liability claims and product recall events that could materially and adversely affect our financial condition and results of operations.\nThe development, manufacturing and sale of medical devices expose us to significant risk of product liability claims, product recalls and, sometimes, product failure claims. We face an inherent business risk of financial exposure to product liability claims if the use of our medical devices results in personal injury or death. Substantial product liability litigation currently exists within the medical device industry. Some of our patient monitoring, cardiology and remote monitoring, and connected care products may become subject to product liability claims and/or product recalls. Future product liability claims and/or product recall costs may exceed the limits of our insurance coverages, or such insurance may not continue to be available to us on commercially reasonable terms, or at all. In addition, a significant product liability claim or product recall could significantly damage our reputation for producing safe, reliable and effective products, making it more difficult for us to market and sell our products in the future. Consequently, a product liability claim, product recall or other claim could have a material adverse effect on our business, financial condition and results of operations.\n27\n\n\nTable of Contents\nOur global operations expose us to legal compliance risks related to certain anti-bribery and anti-corruption laws.\nWe are required to comply with the U.S. Foreign Corrupt Practices Act, which prohibits United States companies from engaging in bribery or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business. It also requires us to maintain specific record-keeping standards and adequate internal accounting controls. In addition, we are subject to similar requirements in other countries. Bribery, corruption, and trade laws and regulations, and the enforcement thereof, are increasing in frequency, complexity and severity on a global basis. Although we have internal policies and procedures with the intention of assuring compliance with these laws and regulations, our employees, distributors, resellers and contractors involved in our international sales may take actions in violations of such policies. If our internal controls and compliance program do not adequately prevent or deter our employees, distributors, resellers, contractors and/or other third parties with which we do business from violating anti-bribery, anti-corruption or similar laws and regulations, we may incur severe fines, penalties and reputational damage.\nWe are subject to import and export controls that could subject us to liability or impair our ability to compete in international markets.\nDue to the international scope of our operations, we are subject to a complex system of import- and export-related laws and regulations, including U.S. export control and customs regulations and customs regulations of other countries. These regulations are complex and vary among the legal jurisdictions in which we operate. Any alleged or actual failure to comply with such regulations may subject us to government scrutiny, investigation, and civil and criminal penalties, and may limit our ability to import or export our products or to provide services outside the United States. Depending on severity, any of these penalties could have a material impact on our business, financial condition and results of operations.\nOur business is subject to complex and evolving U.S. and international laws and regulation regarding privacy and data protection. If we fail to meet our compliance obligations under applicable privacy and data protection regulations, even if such compliance by us is inadvertent, or if we are unable to comply with changes to such requirements, we might be subject to fines, legal disputes, or other liabilities that could have a material adverse effect on our financial condition and results of operations.\nRegulatory authorities around the world are considering legislative and regulatory proposals concerning data protection, and the interpretation and application of data protection laws in the U.S., the EU, and elsewhere are often uncertain and in flux. These laws may be interpreted and applied in a manner that is inconsistent with our data practices. If our data practices are found to be in conflict with privacy and data protection laws or regulations, we could face fines or orders requiring that we change our data practices, which could have an adverse effect on our business, financial condition and results of operations.\nWe must comply with extensive federal and state requirements regarding the use, retention, security, and re-disclosure of patient healthcare information. HIPAA and the regulations that have been issued under it contain substantial restrictions and complex requirements with respect to the use and disclosure of certain individually identifiable health information, referred to as \u201cprotected health information\u201d. The HIPAA Privacy Rule\u00a0prohibits a covered entity or a business associate from using or disclosing protected health information unless the use or disclosure is validly authorized by the individual or is specifically required or permitted under the HIPAA Privacy Rule\u00a0and only if certain complex requirements are met. The HIPAA Security Rule\u00a0establishes administrative, organizational, physical, and technical safeguards to protect the privacy, integrity, and availability of electronic protected health information maintained or transmitted by covered entities and business associates. The HIPAA Breach Notification Rule\u00a0requires that covered entities and business associates, under certain circumstances, notify patients when there has been an improper use or disclosure of protected health information. Any failure or perceived failure of our Company or our products to meet HIPAA standards and related regulatory requirements could expose us to certain notification, penalty, and enforcement risks, damage our reputation, and adversely affect demand for our products and force us to expend significant capital and other resources to address the privacy and security requirements of HIPAA.\nIn addition, there are other federal laws that include specific privacy and security obligations, above and beyond HIPAA, for certain types of health information and impose additional sanctions and penalties. All 50 states, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands have enacted legislation requiring notice to individuals of security breaches involving protected health information, which is not uniformly defined among the breach notification laws. Organizations must review each state\u2019s definitions, mandates, and notification requirements and timelines to appropriately prepare and notify affected individuals and government agencies, including the attorney general, in compliance with such state laws. Further, most states have enacted patient confidentiality laws that protect against the disclosure of confidential medical information, and many states have adopted or are considering adopting further legislation in this area. These state laws may be more stringent than HIPAA requirements. California passed the California Consumer Privacy Act, which imposes significant changes in data privacy regulation, and New York has passed the Stop Hacks and Improve Electronic Data Security Act, which expands the state\u2019s existing privacy laws. GDPR, a regulation implemented on May 25, 2018 in the EU on data protection and privacy for all individuals in the EU and the EEA, applies to all enterprises, regardless of location, that are doing business in the EU or that collect and analyze data tied to EU and EEA residents. GDPR creates a range of compliance obligations, including stringent technical and security controls surrounding the storage, use, and disclosure of personal information, and significantly increases financial penalties for noncompliance.\n28\n\n\nTable of Contents\nWe are facing an increasingly complex international regulatory environment which is constantly changing and if we fail to comply with international regulatory requirements, or are unable to comply with changes to such requirements, our financial performance may be harmed.\nOur international operations and sales subject us to an international regulatory environment which is becoming increasingly complex and is constantly changing due to factors beyond our control. Risks associated with our international operations and sales include, without limitation, those arising from the following factors:\n\u25cf\ndiffering legal and court systems and changes to such systems;\n\u25cf\ndiffering labor laws and changes in those laws;\n\u25cf\ndiffering tax laws and changes in those laws;\n\u25cf\ndiffering environmental laws and changes in those laws;\n\u25cf\ndiffering laws governing our distributors and sales agents and changes in those laws;\n\u25cf\ndiffering protection of intellectual property and changes in that protection; and\n\u25cf\ndiffering import and export requirements and changes to those requirements.\nIf we fail to comply with applicable international regulatory requirements, even if such non-compliance by us is inadvertent, or if we are unable to comply with changes to such requirements, our financial performance may be harmed.\nSubstantial government regulation in the United States and abroad may restrict our ability to sell our patient monitoring, cardiology and remote monitoring, and connected care systems, and failure to comply with such laws and regulations may have a material adverse impact on our business.\nThe FDA and comparable regulatory authorities in foreign countries extensively and rigorously regulate our patient monitoring, cardiology and remote monitoring, and connected care systems, including the research and development, design, testing, clinical trials, manufacturing, clearance or approval, safety and efficacy, labeling, advertising, promotion, pricing, recordkeeping, reporting, import and export, post-approval studies and sale and distribution of these products. In the United States, before we can market a new medical device, or a new use of, new claim for, or significant modification to, an existing product, we must first receive clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act as discussed under Part I, Item 1, \u201cBusiness - Regulation of Medical Devices.\u201d Some modifications made to products cleared through a 510(k) may require a new 510(k). The FDA can delay, limit or deny clearance or approval of a device for many reasons.\nOur future products may not obtain FDA clearance on a timely basis, or at all. Further, the FDA makes periodic inspections of medical device manufacturers and in connection with such inspections issues observations when the FDA believes the manufacturer has failed to comply with applicable regulations. If FDA observations are not addressed to the FDA\u2019s satisfaction, the FDA may issue a warning letter or proceed directly to other forms of enforcement action, which could include the shutdown of our production facilities, adverse publicity, and civil and criminal penalties. The expense and costs of any corrective actions that we may take, which may include product recalls, correction and removal of products from customer sites and/or changes to our product manufacturing and quality systems, could adversely impact our financial results. Issuance of a warning letter may also lead customers to delay purchasing decisions or cancel orders.\nOur patient monitoring, cardiology and remote monitoring, and connected care systems must also comply with the laws and regulations of foreign countries in which we develop, manufacture and market such products. In general, the extent and complexity of medical device regulation is increasing worldwide. This trend is likely to continue, and the cost and time required to obtain marketing clearance in any given country may increase as a result. Our products may not obtain any necessary foreign clearances on a timely basis, or at all.\n29\n\n\nTable of Contents\nOnce any of our patient monitoring, cardiology and remote monitoring, or connected care systems is cleared for sale, regulatory authorities may still limit the use of such product, prevent its sale or manufacture or require a recall or withdrawal of such product from the marketplace. Following initial clearance from regulatory authorities, we continue to be subject to extensive regulatory requirements. Government authorities can withdraw marketing clearance or impose sanctions due to our failure to comply with regulatory standards or due to the occurrence of unforeseen problems following initial clearance. Ongoing regulatory requirements are wide-ranging and govern, among other things: (i) annual inspections to retain a CE mark for sale of products in the EU; (ii) product manufacturing; (iii) patient health data protection and medical device security; (iv) supplier substitution; (v) product changes; (vi) process modifications; (vii) medical device reporting; and (viii) product sales and distribution.\nLegislative or regulatory reforms such as the new EU Medical Devices Regulation may make it more difficult and costly for us to obtain certification, regulatory clearance, or approval of any future products and to manufacture, market, and distribute our products after certification, clearance, or approval is obtained.\nFollowing its entry into application on May 26, 2021, the EU MDR introduced substantial changes to the obligations with which medical device manufacturers must comply in the EEA. High risk medical devices are subject to additional scrutiny during the conformity assessment procedure. Unlike directives such as the EU Medical Devices Directive, which must be implemented into the national laws of EEA countries, the EU MDR is directly applicable, without the need for adoption by EEA country laws implementing them, in all EEA countries and intended to eliminate current differences in regulation of medical devices among EEA countries. The EU MDR, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices to ensure a high level of safety and health while supporting innovation. \nThe EU MDR imposes a number of new requirements on manufacturers of medical devices and imposes increased compliance obligations for us to access the EEA market. Our failure to comply with applicable foreign regulatory requirements, including those administered by authorities of the EEA countries, could result in enforcement actions against us and impair our ability to market products in the EEA in the future. Any changes to the membership of the EU, such as the departure of the United Kingdom under Brexit, may impact the regulatory requirements for impacted countries and impair our business operations and our ability to market products in such countries. For further discussion of the EU MDR, see Part I, Item 1, \u201cBusiness - Regulation of Medical Devices.\u201d\nWe may be subject to fines, penalties, injunctions, or other enforcement actions if we are determined to be promoting the use of our products for unapproved or \u201coff label\u201d uses, resulting in damage to our reputation and business.\nOur promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of a medical device for a use that has not been cleared or approved by the FDA known as \u201coff label\u201d use. If the FDA determines that our promotional materials or training constitutes promotion of an off label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of warning letters, untitled letters, fines, penalties, consent decrees, injunctions, or seizures, which could have an adverse impact on our reputation and financial results. We could also be subject to enforcement action under other federal or state laws, including the False Claims Act.\nOur failure to comply with federal, state, and foreign laws and regulations relating to our healthcare business could have a material and adverse effect on our business.\nAlthough we do not provide healthcare services, submit claims for third-party reimbursement or receive payments directly from Medicare, Medicaid or other third-party payers for our products, we are subject to healthcare fraud and abuse regulation and enforcement by federal and state governments. Healthcare fraud and abuse and health information privacy and security laws potentially applicable to our operations are discussed in Part I, Item 1, \u201cBusiness \u2013 Regulation of Medical Devices.\u201d\nThe risk of our being found in violation of these laws and regulations is increased because many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Moreover, recent health care reform legislation has strengthened these laws. For example, the Affordable Care Act, among other things, amended the intent requirement of the federal Anti Kickback Statute and criminal health care fraud statutes; a person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them to have committed a violation. In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.\n30\n\n\nTable of Contents\nBecause of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Any action against us for violation of these laws could cause us to incur significant legal expenses and divert our management\u2019s attention from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from governmental health care programs, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could impair our ability to operate our business, financial condition and our financial results.\nGeneral Risks\nSignificant inflation and increasing interest rates could materially and adversely affect our business and financial results.\nThe current inflation rate could materially and adversely affect us by increasing our operating costs, including our materials, freight, and labor costs, which are already under pressure due to supply chain constraints. In a highly inflationary environment, we may be unable to raise the sales prices of our products to match the rate of inflation or our increasing operating costs, which could reduce our profit margins and have a material and adverse effect on our financial performance. Further, pressures from inflation could negatively impact the willingness and ability of our customers to purchase our products in the same volumes as have been purchased in the past or are currently being purchased.\nAs interest rates rise to address inflation or otherwise, such increases will impact the base rates applicable in our credit arrangements and will result in borrowed funds becoming more expensive to us over time. These financing pressures also can have a negative impact on customers\u2019 willingness to purchase our products in the same volumes as previously purchased. We also use forward contracts which are intended to mitigate the impact of certain foreign currency exposures. These forward contracts may not completely offset foreign currency gains and losses. \nOur insurance coverage may be inadequate to cover all significant risk exposures.\nWe maintain insurance for certain risks, and we believe our insurance coverage is consistent with general practices within our industry. However, the amount of our insurance coverage may not cover all claims or liabilities and we may be forced to bear substantial costs. Consistent with market conditions in the insurance industry, premiums and deductibles for some of our insurance policies have been increasing and may continue to increase in the future. In some instances, some types of insurance may become available only for reduced amounts of coverage, if at all. In addition, there can be no assurance that our insurers would not challenge coverage for certain claims. If we were to incur a significant liability for which we were not fully insured or that our insurers disputed, it could have a material adverse effect on our business, financial condition and results of operations. \nWe are involved in various litigation matters, which could have a material adverse effect on our business, financial condition or operating results.\nLitigation can be lengthy, expensive and disruptive to our operations, and can divert our management\u2019s attention away from the running of our business. Claims arising out of actual or alleged violations of law could be asserted against us by individuals, either individually or through class actions, or by governmental entities in investigations and proceedings. If we are unsuccessful in our defense in litigation matters, or any other legal proceeding, we may be forced to pay damages or fines, some of which may be in excess of our insurance coverage, and/or change our business practices, any of which could have a material adverse effect on our business, financial condition and results of operations. For more information about our litigation matters, see \u201cLegal Proceedings\u201d and Note 11 to the consolidated financial statements.\n\u200b\n31\n\n\nTable of Contents",
+  "item7": ">ITEM\u00a07. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS\n OF OPERATIONS\nThe following management\u2019s discussion and analysis of financial condition and results of operations (\u201cMD&A\u201d) is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes.\n \nThis MD&A contains forward-looking statements and the matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see \u201cRisk Factors\u201d and \u201cForward-Looking Statements\u201d for a discussion of the uncertainties, risks and assumptions associated with these statements.\nOverview\nWe are a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. We sell our products and provide related services in diversified markets, including homeland security, healthcare, defense and aerospace. We have three operating divisions, each of which is a reportable segment: (a) Security, providing security and inspection systems and turnkey security screening solutions; (b) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories; and (c) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for our Security and Healthcare divisions, as well as to third parties for applications in the defense and aerospace markets, among others.\nSecurity Division. \nThrough 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. Revenues from our Security division accounted for 59% of our total consolidated revenues for fiscal 2023.\nAs 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 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.\nCurrently, the U.S. Government is discussing various options to address the U.S. Government\u2019s 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. government budget deficits and the national debt have created increasing pressure to examine and reduce spending across many federal agencies. Additionally, there continues to be volatility in international markets that has impacted international security spending. 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, 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.\nHealthcare Division. \nThrough our Healthcare division, we design, manufacture, market and service patient monitoring, cardiology and remote monitoring, and connected care systems globally for sale primarily to hospitals and medical centers. Our products monitor patients in critical, emergency and perioperative care areas of the hospital and provide information, through wired and wireless networks, to physicians and nurses who may be at the patient\u2019s bedside, in another area of the hospital or even outside the hospital. Revenues from our Healthcare division accounted for 15% of our total consolidated revenues for fiscal 2023.\n36\n\n\nTable of Contents\nThe 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, 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. federal government budget and the Affordable Care Act, either of which may impact hospital spending, third-party payer reimbursement and fees to be levied on certain medical device revenues, any of which could adversely affect our business and results of operations. In addition, hospital capital spending appears to have been impacted by strategic uncertainties surrounding the Affordable Care Act and economic pressures. We also believe that global economic uncertainty has caused some hospitals and healthcare providers to delay purchases of our products and services. During this period of uncertainty, sales of our healthcare products may be negatively impacted. A prolonged delay could have a material adverse effect on our business, financial condition and results of operations.\nOptoelectronics and Manufacturing Division. \nThrough our Optoelectronics and Manufacturing division, we design, manufacture and market optoelectronic devices and flex circuits and provide electronics manufacturing services globally for use in a broad range of applications, including aerospace and defense electronics, security and inspection systems, medical imaging and diagnostics, telecommunications, office automation, computer peripherals, industrial automation, and consumer products. We also provide our optoelectronic devices and electronics manufacturing services to OEM customers, and our own Security and Healthcare divisions. Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 26% of our total consolidated revenues for fiscal 2023.\nConsolidated Results\nDiscussion and analysis of our financial condition and results of operations for fiscal 2021 has been omitted from this Annual Report on Form 10-K, and is available in Item 7 of Part II, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Annual Report on Form 10-K for the year ended June 30, 2022.\nFiscal 2023 Compared with Fiscal 2022. \nWe 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.\nAcquisitions. \nWe 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.\nTrends and Uncertainties\nThe following is a discussion of certain trends and uncertainties that we believe have influenced, and may continue to influence, our results of operations.\nGlobal Economic Considerations. \nOur products and services are sold in numerous countries worldwide, with a large percentage of our sales generated outside the United States. Therefore, we are exposed to and impacted by global macroeconomic factors, U.S. and foreign government policies and foreign exchange fluctuations. There is uncertainty surrounding macroeconomic factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, rising interest rates, and labor shortages. 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 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. We do not know how long this uncertainty will continue. These factors could have a material negative effect on our business, results of operations and financial condition.\n37\n\n\nTable of Contents\nGlobal Trade.\n 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. This uncertainty is exacerbated by sanctions imposed by the U.S. government against certain businesses and individuals in select countries. Continued or increased uncertainty regarding global trade due to these or other factors may require us to modify our current business practices and could have a material adverse effect on our business, results of operations and financial condition.\nHealthcare Considerations.\n 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.\nGovernment Policies.\n Our results of operations and cash flows could be materially affected by changes in U.S. or foreign government legislative, regulatory or enforcement policies.\nChanges in Costs and Supply Chain Disruptions.\n 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 challenges. 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. 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.\nRussia\u2019s Invasion of Ukraine.\n The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. This has the potential to indirectly disrupt our supply chain and access to certain resources. While we have not experienced significant adverse impacts to date and will continue to monitor for any impacts and seek to mitigate disruption that may arise, we have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted. The conflict also has increased the threat of malicious cyber activity from nation states and other actors.\nCurrency Exchange Rates.\n 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.\nCoronavirus Pandemic.\n The coronavirus disease 2019 (\u201cCOVID-19\u201d) 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.\nSignificant International Security Contracts.\n 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.\nCritical Accounting Policies and Estimates\nThe following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States (\u201cU.S. GAAP\u201d). Our preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. As a result, actual results may differ from such estimates. Our senior management has reviewed these critical accounting policies and estimates and related disclosures with the Audit Committee of our Board of Directors. The following summarizes our critical accounting policies and estimates used in preparing our consolidated financial statements:\n38\n\n\nTable of Contents\nRevenue Recognition.\n 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-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. Revenue from services includes installation and implementation of products and turnkey security screening services and after-market services. Generally, revenue from services is recognized over time as the services are performed. Sales agreements with customers can be project specific, cover a period of time, and can be renewable periodically. The contracts may contain terms and conditions with respect to payment, delivery, installation, services, warranty and other rights. Contracts with customers may include the sale of products and services. \nIn 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 equipment. 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.\nInventory.\n Inventories are stated at the lower of cost or net realizable value. We write down inventory for slow-moving and obsolete inventory based on historical usage, orders on hand, assessments of future demands, and market conditions, among other items. If these factors are less favorable than those projected, additional inventory write-downs may be required.\nIncome Taxes. \nOur annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties. We review our tax positions quarterly and adjust the balances as new information becomes available.\nDeferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future\u00a0years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely on estimates. To provide insight, we use our historical experience and our short and long-range business forecasts. We believe it is more likely than not that a portion of the deferred income tax assets may expire unused and therefore have established a valuation allowance against them. Although realization is not assured for the remaining deferred income tax assets, we believe it is more likely than not that the deferred tax assets will be fully recoverable within the applicable statutory expiration periods. However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable.\nBusiness Combinations. \nIn connection with the acquisition of a business, we record the fair value of purchase consideration for the tangible and intangible assets acquired, and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology, trade names, useful lives and discount rates. 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 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.\nLegal and Other Contingencies. \nWe are subject to various claims and legal proceedings. We review the status of each significant legal dispute to which we are a party and assess our potential financial exposure, if any. If the potential financial exposure from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we record a liability and an expense for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and revise our estimates accordingly. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position.\n39\n\n\nTable of Contents\nNet Revenues\nThe table below and the discussion that follows are based upon the way we analyze our business. See Note\u00a014 to the consolidated financial statements for additional information about business segments.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal\n\u200b\nFiscal\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nFiscal\n\u00a0\u00a0\u00a0\u00a0\n%\u00a0of\n\u00a0\u00a0\u00a0\u00a0\nFiscal\n\u00a0\u00a0\u00a0\u00a0\n%\u00a0of\n\u00a0\u00a0\u00a0\u00a0\nFiscal\n\u200b\n%\u00a0of\n\u200b\n2021-2022\n\u00a0\u00a0\u00a0\u00a0\n2022-2023\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\nNet\u00a0Revenues\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\nNet\u00a0Revenues\n\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\nNet\u00a0Revenues\n\u00a0\u00a0\u00a0\u00a0\n% Change\n\u00a0\u00a0\u00a0\u00a0\n%\u00a0Change\n\u200b\n\u200b\n\u200b\n(Dollars\u00a0in\u00a0millions)\n\u200b\nSecurity\n\u200b\n$\n 633.3\n\u200b\n 55\n%\n$\n 663.2\n\u200b\n 56\n%\n$\n 760.3\n\u200b\n 59\n%\n 5\n%\n 15\n%\nHealthcare\n\u00a0\n\u200b\n 212.3\n\u200b\n 19\n%\n\u200b\n 205.7\n\u00a0\n 17\n%\n\u200b\n 190.5\n\u200b\n 15\n%\n (3)\n%\n (7)\n%\nOptoelectronics / Manufacturing\n\u00a0\n\u200b\n 301.3\n\u200b\n 26\n%\n\u200b\n 314.3\n\u00a0\n 27\n%\n\u200b\n 327.6\n\u200b\n 26\n%\n 4\n%\n 4\n%\nTotal Net Revenues\n\u200b\n$\n 1,146.9\n\u200b\n\u200b\n\u200b\n$\n 1,183.2\n\u200b\n\u200b\n\u200b\n$\n 1,278.4\n\u200b\n\u200b\n\u200b\n 3\n%\n 8\n%\n\u200b\nFiscal 2023 Compared with Fiscal 2022. \nRevenues 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.\n\u200b\nRevenues 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.\n\u200b\nRevenues 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 $4.1 million, respectively.\n\u200b\nGross Profit\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal\n\u200b\n%\u00a0of\n\u200b\nFiscal\n\u200b\n%\u00a0of\n\u200b\nFiscal\n\u200b\n%\u00a0of\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\nNet\u00a0Revenues\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\nNet\u00a0Revenues\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\nNet\u00a0Revenues\n\u200b\n\u200b\n\u200b\n(Dollars\u00a0in\u00a0millions)\n\u200b\nGross profit\n\u200b\n$\n 419.9\n\u200b\n 36.6\n%\n$\n 424.4\n\u00a0\u00a0\u00a0\u00a0\n 35.9\n%\n$\n430.5\n\u200b\n33.7\n%\n\u200b\nFiscal 2023 Compared with Fiscal 2022. \nGross 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 $6.1 million in fiscal 2023 as compared to the prior year on an 8% increase in sales. The gross margin declined from 35.9% to 33.7% driven by the mix of sales and increased costs. Our cost of goods sold increased year-over-year primarily as a result of the increase in revenues and higher raw material costs. Gross profit as a percentage of net revenues during the fiscal year ended June 30, 2023 decreased on a year-over-year basis due to (i) a reduction in the Security division gross margin due to a decrease in margin from product sales driven by a less favorable product mix and increased component costs, (ii) a reduction in sales in the Healthcare division, which carries the highest gross margin of our three divisions, and (iii) an increase in sales in the Optoelectronics and Manufacturing division, which carries the lowest gross margin of our three divisions.\nOperating Expenses\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal\n\u200b\nFiscal\n\u200b\n\u200b\n\u200b\nFiscal\n\u00a0\u00a0\u00a0\u00a0\n%\u00a0of\n\u00a0\u00a0\u00a0\u00a0\nFiscal\n\u00a0\u00a0\u00a0\u00a0\n%\u00a0of\n\u00a0\u00a0\u00a0\u00a0\nFiscal\n\u200b\n%\u00a0of\n\u200b\n2021-2022\n\u200b\n2022-2023\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\nNet\u00a0Revenues\n\u200b\n2022\n\u200b\nNet\u00a0Revenues\n\u200b\n2023\n\u00a0\u00a0\u00a0\u00a0\nNet\u00a0Revenues\n\u200b\n%\u00a0Change\n\u200b\n%\u00a0Change\n\u200b\n\u200b\n\u200b\n(Dollars\u00a0in\u00a0millions)\n\u200b\nSelling, general and administrative\n\u200b\n$\n 240.7\n\u200b\n 21.0\n%\n$\n 235.6\n\u200b\n 19.9\n%\n$\n 228.3\n\u200b\n 17.9\n%\n (2)\n%\n (3)\n%\nResearch and development\n\u200b\n\u00a0\n 53.7\n\u200b\n 4.7\n%\n\u00a0\n 59.6\n\u200b\n 5.0\n%\n\u200b\n 59.4\n\u200b\n 4.6\n%\n 11\n%\n(0)\n%\nImpairment, restructuring and other charges\n\u200b\n\u00a0\n 10.1\n\u200b\n 0.9\n%\n\u00a0\n 7.5\n\u200b\n 0.6\n%\n\u200b\n 7.6\n\u200b\n 0.6\n%\n (25)\n%\n 1\n%\nTotal operating expenses\n\u200b\n$\n 304.5\n\u200b\n 26.5\n%\n$\n 302.7\n\u200b\n 25.6\n%\n$\n 295.3\n\u200b\n 23.1\n%\n (1)\n%\n (2)\n%\n\u200b\n40\n\n\nTable of Contents\nSelling, General and Administrative\nOur significant selling, general and administrative (\u201cSG&A\u201d) expenses include employee compensation, sales commissions, travel, professional services, marketing expenses, and depreciation and amortization expense. \nFiscal 2023 Compared with Fiscal 2022. \nSG&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.\nResearch and Development\nOur Security and Healthcare divisions have historically invested substantial amounts in research and development (\u201cR&D\u201d). We intend to continue this trend in future\u00a0years, although specific programs may or may not continue to be funded and funding levels may fluctuate. R&D expenses included research related to new product development and product enhancement expenditures.\nFiscal 2023 Compared with Fiscal 2022. \nR&D expense during the fiscal year ended June 30, 2023 was comparable to the prior fiscal year.\nImpairment, Restructuring and Other Charges\nImpairment, restructuring and other charges generally consist of charges relating to reductions in our workforce, facilities consolidation, impairment of assets, costs related to acquisition activity, legal charges and other non-recurring charges. We have undertaken certain restructuring activities in an effort to align our global capacity and infrastructure with demand by our customers and fully integrate acquisitions, thereby improving our operational efficiency. Our efforts have helped enhance our ability to improve operating margins, retain and expand existing relationships with customers and attract new business. We may utilize similar measures in the future to realign our operations to further increase our operating efficiencies. The effect of these efforts may materially affect our future operating results.\nFiscal 2023 Compared with Fiscal 2022. \nDuring 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.\nOther Income \nFiscal 2023 Compared with Fiscal 2022. \nDuring the fiscal year ended June 30, 2023, there was no other income. For the fiscal year ended June 30, 2022, other income was $27.4 million, driven by the gain on sale of property and equipment primarily from the sale of corporate owned real estate.\nInterest and Other Expense, Net\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal\n\u200b\nFiscal\n\u200b\nFiscal\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u200b\n\u200b\n(Dollars in millions)\nInterest and other expense, net\n\u200b\n$\n 16.7\n\u200b\n$\n 9.0\n\u200b\n$\n 20.0\n\u200b\nFiscal 2023 Compared with Fiscal 2022. \nFor the fiscal year ended June 30, 2023, interest and other expense, net was $20.0 million as compared to $9.0 million in the comparable prior-year period. This increase was driven by higher average interest rates and higher average levels of borrowing under our credit facility during the year ended June 30, 2023 in comparison with the interest rates and levels of borrowing during the same period in the prior year. The 1.25% convertible notes that were previously outstanding during the year ended June 30, 2022 were retired in September 2022 using borrowings from our credit facility which carries a higher interest rate than the convertible notes.\n41\n\n\nTable of Contents\nProvision for Income Taxes\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nFiscal\n\u00a0\u00a0\u00a0\u00a0\nFiscal\n\u00a0\u00a0\u00a0\u00a0\nFiscal\n\u200b\n\u200b\n2021\n\u200b\n2022\n\u200b\n2023\n\u200b\n\u200b\n(Dollars\u00a0in\u00a0millions)\nProvision for income taxes\n\u200b\n$\n 24.6\n\u200b\n$\n 24.8\n\u200b\n$\n 23.5\n\u200b\nThe effective tax rate for a particular period varies depending on a number of factors including (i)\u00a0the mix of income earned in various tax jurisdictions, each of which applies a unique range of income tax rates and income tax credits, (ii)\u00a0changes 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)\u00a0the level of non-deductible expenses, (iv)\u00a0certain tax elections, (v)\u00a0tax holidays granted to certain of our international subsidiaries, (vi)\u00a0return to provision adjustments and (vii)\u00a0changes in tax legislation.\nFiscal 2023 Compared with Fiscal 2022. \nFor the fiscal years ended June 30, 2023 and 2022, we recognized a provision for income taxes of $23.5 million and $24.8 million, respectively. 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, 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.\nLiquidity and Capital Resources\nOur principal sources of liquidity are our cash and cash equivalents, cash generated from operations and our credit facility. Cash and cash equivalents totaled $76.8 million at June 30, 2023, compared to $64.2 million at June 30, 2022. During fiscal 2023, we generated $94.8 million of cash flow from operations. These proceeds and $5.9 million of net bank borrowings and long-term debt were used for the following: $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. We currently anticipate that our available funds, credit facilities and cash flow from operations will be sufficient to meet our operational cash needs for the next 12 months and foreseeable future. In addition, we anticipate that cash generated from operations, without repatriating earnings from our non-U.S. subsidiaries, and our credit facilities will be sufficient to satisfy our obligations in the U.S. \nWe 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. As of June 30, 2023, the total amount available under these credit facilities was $336.5 million. See Note 8 to the consolidated financial statements for further discussion.\nCash Provided by Operating Activities. \nCash flows from operating activities can fluctuate significantly from period to period, as net income, adjusted for non-cash items, and working capital fluctuations impact cash flows. During fiscal 2023, we generated cash from operations of $94.8 million compared to $63.8 million in the prior fiscal year. This increase was driven by lower increases in inventory, increased accounts payable and other changes in net working capital.\nCash Used in Investing Activities.\n Net cash used in investing activities was $40.5 million during fiscal 2023 as compared to $12.7 million used during the prior year. 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 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. In addition, purchases of certificates of deposit in fiscal 2023 were $5.3 million compared to $2.2 million in the same prior-year period. \nCash Used in Financing Activities. \nNet 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.\n42\n\n\nTable of Contents\nMaterial Cash Requirements\nOur material cash requirements include the following contractual and other obligations.\nBorrowings.\n \nOutstanding lines of credit and current and long-term debt totaled $359.6 million at June 30, 2023, an increase of $6.2 million from $353.4 million at June 30, 2022. As of June 30, 2023, we were in compliance with all financial covenants under our various borrowing agreements. See Note 8 to the consolidated financial statements for further discussion. We anticipate that cash generated from our operations, in addition to existing cash borrowing arrangements and future access to capital markets should be sufficient to meet our cash requirements for at least the next 12 months. However, our future capital requirements will depend on many factors, including future business acquisitions, capital expenditures, litigation, stock repurchases and levels of research and development spending, among other factors. The adequacy of available funds will depend on many factors, including the success of our businesses in generating cash, continued compliance with financial covenants contained in our credit facility and the health of capital markets in general, among other factors.\nLeases\n.\n We have lease arrangements for certain facilities and equipment under various operating lease agreements. As of June 30, 2023, we had lease payment obligations of $33.5 million, with $10.8 million payable within the next 12 months.\nCash Held by Foreign Subsidiaries\nOur cash and cash equivalents totaled $76.8 million at June 30, 2023. 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, 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. operations. In the event we repatriate cash from certain foreign operations and if taxes have not previously been withheld on the related earnings, we would provide for withholding taxes at the time we change our intention with regard to the reinvestment of those earnings.\nStock Repurchase Program\nIn 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. During fiscal 2023, we repurchased 400,230 shares. As of June 30, 2023, 1,721,870 shares remained available for repurchase.\nThe timing and actual numbers of shares purchased depends on a variety of factors, including stock price, general business and market conditions and other investment opportunities. Repurchases may be made from time to time under the program through open-market purchases or privately-negotiated transactions at our discretion. Upon repurchase, the shares are restored to the status of authorized but unissued shares, and we record them as a reduction in the number of shares of Common Stock issued and outstanding in our consolidated financial statements.\n\u200b",
+  "item7a": ">ITEM\u00a07A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nMarket Risk\nWe are exposed to certain market risks, which are inherent in our financial instruments and arise from transactions entered into in the normal course of business. We may enter into derivative financial instrument transactions in order to manage or reduce market risk in connection with specific foreign currency denominated transactions. We do not enter into derivative financial instrument transactions for speculative purposes.\nWe are subject to interest rate risk on our borrowings under our bank lines of credit. Consequently, our interest expense fluctuates with changes in the general level of these interest rates as we borrow under the credit facility.\nImportance of International Markets\nInternational markets provide us with significant growth opportunities. Our financial results in future periods could, however, be adversely affected by periodic economic downturns in different regions of the world, changes in trade policies or tariffs, civil or military conflict and other political instability. We monitor economic and currency conditions around the world to evaluate whether there may be any significant effect on our international sales in the future.\n43\n\n\nTable of Contents\nForeign Currency\nOur international operations are subject to certain opportunities and risks, including from foreign currency fluctuations and governmental actions. We conduct business in more than 30 countries. We closely monitor our operations in each country in which we do business and seek to adopt appropriate strategies that are responsive to changing economic and political environments, and to fluctuations in foreign currencies. Weaknesses in the currencies of some of the countries in which we do business are often offset by strengths in other currencies. Foreign currency financial statements are translated into U.S. dollars at period-end rates, except that revenues, costs and expenses are translated at average rates during the reporting period. We include gains and losses resulting from foreign currency transactions in income, while we exclude those resulting from translation of financial statements from income and include them as a component of accumulated other comprehensive loss. Transaction gains and losses, which were included in our consolidated statement of operations, amounted to a net gain (loss) of approximately $(1.3) million, $0.6 million, and $2.0 million for the fiscal years ended June 30, 2021, 2022 and 2023, respectively. A 10% appreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net increase in our operating income of approximately $13.5 million in fiscal 2023. Conversely, a 10% depreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net decrease in our operating income of approximately $13.5 million in fiscal 2023.\nInflation\nHeightened levels of inflation continue to present risk for us. We have experienced impacts to our materials and manufacturing costs and labor rates, and suppliers have signaled inflation-related cost pressures, which could flow through to our costs and pricing. If inflation remains at current levels for an extended period, or increases, and we are unable to successfully mitigate the impact, our costs could increase, resulting in pressure on our profits and margins. In addition, inflation and the increases in the cost of borrowing from rising interest rates could constrain the overall purchasing power of our customers for our products and services. Rising interest rates also will increase our borrowing costs. We remain committed to our ongoing efforts to increase the efficiency of our operations and improve the cost competitiveness of our products and services, which may, in part, offset cost increases from inflation.\nInterest Rate Risk\nThe principal maturity and estimated value of our long-term debt exposure for each of the fiscal\u00a0years set forth below as of June\u00a030, 2023 were as follows (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMaturity\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n2029\u00a0and\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2024\n\u00a0\u00a0\u00a0\u00a0\n2025\n\u00a0\u00a0\u00a0\u00a0\n2026\n\u00a0\u00a0\u00a0\u00a0\n2027\n\u00a0\u00a0\u00a0\u00a0\n2028\n\u00a0\u00a0\u00a0\u00a0\nThereafter\n\u00a0\u00a0\u00a0\u00a0\nTotal\n\u00a0\u00a0\u00a0\u00a0\nFair\u00a0Value\n\u00a0\nTerm loan\n\u200b\n$\n 7,500\n\u200b\n$\n 7,500\n\u200b\n$\n 7,500\n\u200b\n$\n 120,625\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\n$\n 143,125\n\u200b\n$\n 143,125\n\u200b\nAverage interest rate\n\u200b\n\u200b\n 6.20\n%\u00a0\u00a0\n\u200b\n 6.20\n%\u00a0\u00a0\n\u200b\n 6.20\n%\u00a0\u00a0\n\u200b\n 6.20\n%\u00a0\u00a0\n\u200b\n \u2014\n%\u00a0\u00a0\n\u200b\n \u2014\n%\u00a0\u00a0\n\u200b\n 6.20\n%\u00a0\u00a0\n\u200b\n 6.20\n%\nFinance lease obligations\n\u200b\n$\n 576\n\u200b\n$\n 492\n\u200b\n$\n 301\n\u200b\n$\n 73\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\n$\n 1,442\n\u200b\n$\n 1,442\n\u200b\nAverage interest rate of finance lease obligations\n\u200b\n\u00a0\n 3.5\n%\u00a0\u00a0\n\u00a0\n 3.5\n%\u00a0\u00a0\n\u00a0\n 3.5\n%\u00a0\u00a0\n\u00a0\n 3.5\n%\u00a0\u00a0\n\u00a0\n \u2014\n%\u00a0\u00a0\n\u00a0\n \u2014\n%\u00a0\u00a0\n\u00a0\n 3.5\n%\u00a0\u00a0\n\u00a0\n 3.5\n%\n\u200b\nAt June 30, 2023, we had $215.0 million of borrowings under our revolving credit facility and $143.1 million of term loan outstanding.\n\u200b",
+  "cik": "1039065",
+  "cusip6": "671044",
+  "cusip": ["671044105"],
+  "names": ["OSI SYSTEMS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1039065/000110465923096477/0001104659-23-096477-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1. BUSINESS\nFounded in 1941, Coach, Inc., the predecessor to Tapestry, Inc. (the \"Company\"), was incorporated in the state of Maryland in 2000. During fiscal 2015, the Company acquired Stuart Weitzman Holdings LLC, a luxury women's footwear company. During fiscal 2018, the Company acquired Kate Spade & Company, a lifestyle accessories and ready-to-wear company. Later in fiscal 2018, the Company changed its name to Tapestry, Inc.\nTapestry, Inc. (the \"Company\") is a leading New York-based house of iconic accessories and lifestyle brands. Our global house of brands unites the magic of Coach, kate spade new york and Stuart Weitzman. Each of our brands are unique and independent, while sharing a commitment to innovation and authenticity defined by distinctive products and differentiated customer experiences across channels and geographies. We use our collective strengths to move our customers and empower our communities, to make the fashion industry more sustainable, and to build a company that\u2019s equitable, inclusive, and diverse. Individually, our brands are iconic. Together, we can stretch what\u2019s possible.\nOUR STRATEGY\nBuilding on the success of the strategic growth plan from fiscal 2020 through fiscal 2022 (the \u201cAcceleration Program\u201d), in the first quarter of fiscal 2023, the Company introduced the 2025 growth strategy (\u201c\nfuture\nspeed\u201d), designed to amplify and extend the competitive advantages of its brands, with a focus on four strategic priorities:\n\u2022\nBuilding Lasting Customer Relationships: The Company aims to leverage Tapestry\u2019s transformed business model to drive customer lifetime value through a combination of increased customer acquisition, retention and reactivation.\n\u2022\nFueling Fashion Innovation & Product Excellence: The Company aims to drive sustained growth in core handbags and small leathergoods, while accelerating gains in footwear and lifestyle products.\n\u2022\nDelivering Compelling Omni-Channel Experiences: The Company aims to extend its omni-channel leadership to meet the customer wherever they shop, delivering growth online and in stores.\n\u2022\nPowering Global Growth: The Company aims to support balanced growth across regions, prioritizing North America and China, its largest markets, while capitalizing on opportunities in under-penetrated geographies such as Southeast Asia and Europe.\nCovid-19 Impact\nThe Covid-19 pandemic has resulted in varying degrees of business disruption for the Company since it began in fiscal 2020 and has impacted all regions around the world, resulting in restrictions and shutdowns implemented by national, state, and local authorities. Such disruptions continued during the first half of fiscal 2023, and the Company's results in Greater China (mainland China, Hong Kong SAR, Macao SAR, and Taiwan) were adversely impacted as a result of the Covid-19 pandemic. Starting in December 2022, certain government restrictions were lifted in the region and business trends have improved. The Company continues to monitor the latest developments regarding the Covid-19 pandemic and potential impacts on our business, operating results and outlook. \nOUR BRANDS\nThe Company has three reportable segments:\n\u2022\nCoach \n-\n \nIncludes global sales primarily of Coach brand products to customers through Coach operated stores, including e-commerce sites and concession shop-in-shops, sales to wholesale customers and through independent third-party distributors.\n \nThis segment represented 74.5% of total net sales in fiscal 2023.\n\u2022\nKate Spade \n- Includes global sales primarily of kate spade new york brand products to customers through Kate Spade operated stores, including e-commerce sites and concession shop-in-shops, sales to wholesale customers and through independent third-party distributors. This segment represented 21.3% of total net sales in fiscal 2023.\n\u2022\nStuart Weitzman \n- Includes global sales of Stuart Weitzman brand products primarily through Stuart Weitzman operated stores, sales to wholesale customers, through e-commerce sites and through independent third-party distributors. This segment represented 4.2% of total net sales in fiscal 2023.\n2\nCorporate, which is not a reportable segment, represents certain costs that are not directly attributable to a brand. These costs primarily include administrative and information systems expense.\nCoach\nCoach is a global fashion house of accessories and lifestyle collections, founded in New York in 1941. Inspired by the vision of Expressive Luxury and the inclusive and courageous spirit of its hometown, the brand makes beautiful things, crafted to last \u2013 for you to be yourself in. Coach has built a legacy of craft and a community that champions the courage to be real. \nStores \n\u2014\n \nCoach operates freestanding retail stores, including flagships, and outlet stores as well as concession shop-in-shop locations. These stores are located in regional shopping centers, metropolitan areas throughout the world and established outlet centers.\nRetail stores carry an assortment of products depending on their size, location and customer preferences. Coach operates a limited number of flagship stores that offer the fullest expression of the Coach brand and are located in tourist-heavy, densely populated cities globally. Coach outlet stores serve as an efficient means to sell manufactured-for-outlet product and discontinued retail inventory outside the retail channel. The outlet store design, visual presentations and customer service levels support and reinforce the brand's image. Through these outlet stores, we target value-oriented customers in established outlet centers that are close to major markets. \n3\nThe following table shows the number of Coach directly operated locations and their total and average square footage:\nCoach\n\u00a0\nNorth America\nInternational\nTotal\nStore Count\nFiscal 2023\n330\n\u00a0\n609\n\u00a0\n939\n\u00a0\nNet change vs. prior year\n(13)\n7\n\u00a0\n(6)\n% change vs. prior year\n(3.8)\n%\n1.2\n\u00a0\n%\n(0.6)\n%\nFiscal 2022\n343\u00a0\n602\u00a0\n945\u00a0\nNet change vs. prior year\n(11)\n17\u00a0\n6\u00a0\n% change vs. prior year\n(3.1)\n%\n2.9\u00a0\n%\n0.6\u00a0\n%\nFiscal 2021\n354\u00a0\n585\u00a0\n939\u00a0\nNet change vs. prior year\n(21)\n2\u00a0\n(19)\n% change vs. prior year\n(5.6)\n%\n0.3\u00a0\n%\n(2.0)\n%\nSquare Footage \nFiscal 2023\n1,618,310\n\u00a0\n1,396,898\n\u00a0\n3,015,208\n\u00a0\nNet change vs. prior year\n(41,503)\n37,917\n\u00a0\n(3,586)\n% change vs. prior year\n(2.5)\n%\n2.8\n\u00a0\n%\n(0.1)\n%\nFiscal 2022\n1,659,813\u00a0\n1,358,981\u00a0\n3,018,794\u00a0\nNet change vs. prior year \n(34,903)\n62,978\u00a0\n28,075\u00a0\n% change vs. prior year\n(2.1)\n%\n4.9\u00a0\n%\n0.9\u00a0\n%\nFiscal 2021\n1,694,716\u00a0\n1,296,003\u00a0\n2,990,719\u00a0\nNet change vs. prior year\n(63,952)\n10,674\u00a0\n(53,278)\n% change vs. prior year\n(3.6)\n%\n0.8\u00a0\n%\n(1.8)\n%\nAverage Square Footage\nFiscal 2023\n4,904\n\u00a0\n2,294\n\u00a0\n3,211\n\u00a0\nFiscal 2022\n4,839\u00a0\n2,257\u00a0\n3,194\u00a0\nFiscal 2021\n4,787\u00a0\n2,215\u00a0\n3,185\u00a0\nIn fiscal 2024, we expect minimal change in overall store count with a reduction in store count primarily in Japan and North America, partially offset by an increase in store count in Greater China.\nDigital\n\u00a0\u2014\u00a0We view our digital platforms as instruments to deliver Coach products to customers directly, with the benefit of added accessibility, so that consumers can purchase Coach products wherever they choose. For Coach, we have e-commerce sites in the U.S., Canada, Japan, Greater China, several throughout Europe, Australia and several throughout the rest of Asia. Additionally, we continue to leverage various third-party digital platforms to sell our products to customers. \nWholesale\n\u00a0\u2014\u00a0We work closely with our wholesale partners to ensure a clear and consistent product presentation. We enhance our presentation with proprietary Coach brand fixtures within the department store environment in select locations. We custom tailor our assortments through wholesale product planning and allocation processes to match the attributes of our department store consumers in each local market. We continue to closely monitor inventories held by our wholesale customers in an effort to optimize inventory levels across wholesale doors. The wholesale business for Coach comprised approximately 10% of total segment net sales for fiscal 2023. As of July\u00a01, 2023 and July\u00a02, 2022, Coach did not have any customers who individually accounted for more than 10% of the segment's total net sales.\n4\nKate Spade\nSince its launch in 1993 with a collection of six essential handbags, kate spade new york has always been colorful, bold and optimistic. Today, it is a global lifestyle brand that designs extraordinary things for the everyday, delivering seasonal collections of handbags, ready-to-wear, jewelry, footwear, gifts, home d\u00e9cor and more. Known for its rich heritage and unique brand DNA, kate spade new york offers a distinctive point of view, and celebrates communities of women around the globe who live their perfectly imperfect lifestyles.\nStores \n\u2014\n \nKate Spade operates freestanding retail stores, including flagships, and outlet stores as well as concession shop-in-shops. These stores are located in regional shopping centers and metropolitan areas throughout the world as well as established outlet centers.\nKate Spade retail stores carry an assortment of products depending on their size, location and customer preferences. Kate Spade operates a limited number of flagship locations which offer the fullest expression of the Kate Spade brand and are located in key strategic markets including tourist-heavy, densely populated cities globally. Kate Spade outlet stores serve as an efficient means to sell manufactured-for-outlet product and discontinued retail inventory outside the retail channel. Through these outlet stores, we target value-oriented customers in established outlet centers that are close to major markets.\nThe following table shows the number of Kate Spade directly operated locations and their total and average square footage:\nKate Spade\n\u00a0\nNorth America\nInternational\nTotal\nStore Count\nFiscal 2023\n205\n\u00a0\n192\n\u00a0\n397\n\u00a0\nNet change vs. prior year\n(2)\n1\n\u00a0\n(1)\n% change vs. prior year\n(1.0)\n%\n0.5\n\u00a0\n%\n(0.3)\n%\nFiscal 2022\n207\u00a0\n191\u00a0\n398\u00a0\nNet change vs. prior year\n(3)\n(6)\n(9)\n% change vs. prior year\n(1.4)\n%\n(3.0)\n%\n(2.2)\n%\nFiscal 2021\n210\u00a0\n197\u00a0\n407\u00a0\nNet change vs. prior year\n(3)\n(10)\n(13)\n% change vs. prior year\n(1.4)\n%\n(4.8)\n%\n(3.1)\n%\nSquare Footage \nFiscal 2023\n589,561\n\u00a0\n277,710\n\u00a0\n867,271\n\u00a0\nNet change vs. prior year\n(3,088)\n2,423\n\u00a0\n(665)\n% change vs. prior year\n(0.5)\n%\n0.9\n\u00a0\n%\n(0.1)\n%\nFiscal 2022\n592,649\u00a0\n275,287\u00a0\n867,936\u00a0\nNet change vs. prior year\n(4,537)\n(6,692)\n(11,229)\n% change vs. prior year\n(0.8)\n%\n(2.4)\n%\n(1.3)\n%\nFiscal 2021\n597,186\u00a0\n281,979\u00a0\n879,165\u00a0\nNet change vs. prior year\n(6,301)\n(9,343)\n(15,644)\n% change vs. prior year\n(1.0)\n%\n(3.2)\n%\n(1.7)\n%\nAverage Square Footage\nFiscal 2023\n2,876\n\u00a0\n1,446\n\u00a0\n2,185\n\u00a0\nFiscal 2022\n2,863\u00a0\n1,441\u00a0\n2,181\u00a0\nFiscal 2021\n2,844\u00a0\n1,431\u00a0\n2,160\u00a0\nIn fiscal 2024, we expect minimal change in overall store count with an increase in store count in Greater China, partially offset by a reduction in store count in Japan and North America.\n5\nDigital\n\u00a0\u2014\u00a0We view our digital platforms as instruments to deliver Kate Spade products to customers directly with the benefit of added accessibility as consumers can purchase Kate Spade products wherever they choose. For Kate Spade, we have e-commerce sites in the U.S., Canada, Greater China, Japan and several throughout Europe. Additionally, we continue to leverage various third-party digital platforms to sell our products to customers.\nWholesale\n\u00a0\u2014\u00a0The wholesale business for Kate Spade comprised approximately 11% of total segment net sales for fiscal 2023. Kate Spade has developed relationships with a select group of distributors who sell Kate Spade products through travel retail locations and in certain international countries where Kate Spade does not have directly operated retail locations. As of July\u00a01, 2023 and July\u00a02, 2022, Kate Spade did not have any customers who individually accounted for more than 10% of the segment's total net sales.\nStuart Weitzman\nFounded in 1986, Stuart Weitzman has been inspired by women who are confident, sexy, bold \u2013 and, above all, strong. By combining its artisanal Spanish craftsmanship and precisely engineered fit, the New York City based global luxury footwear brand creates shoes that empower women to stand strong.\nStores\n\u00a0\u2014\n \nStuart Weitzman products are primarily sold in retail and outlet stores. Retail stores carry an assortment of products depending on their size, location and customer preferences. Through outlet stores, we target value-oriented customers in established outlet centers that are close to major markets.\n6\nThe following table shows the number of Stuart Weitzman directly operated locations and their total and average square footage:\nStuart Weitzman\n\u00a0\nNorth America\nInternational\nTotal\nStore Count\nFiscal 2023\n36\n\u00a0\n57\n\u00a0\n93\n\u00a0\nNet change vs. prior year\n(3)\n(4)\n(7)\n% change vs. prior year\n(7.7)\n%\n(6.6)\n%\n(7.0)\n%\nFiscal 2022\n39\u00a0\n61\u00a0\n100\u00a0\nNet change vs. prior year\n(9)\n5\u00a0\n(4)\n% change vs. prior year\n(18.8)\n%\n8.9\u00a0\n%\n(3.8)\n%\nFiscal 2021\n(1)\n48\u00a0\n56\u00a0\n104\u00a0\nNet change vs. prior year\n(10)\n(17)\n(27)\n% change vs. prior year\n(17.2)\n%\n(23.3)\n%\n(20.6)\n%\nSquare Footage \nFiscal 2023\n68,592\n\u00a0\n78,171\n\u00a0\n146,763\n\u00a0\nNet change vs. prior year\n(6,244)\n(5,899)\n(12,143)\n% change vs. prior year\n(8.3)\n%\n(7.0)\n%\n(7.6)\n%\nFiscal 2022\n74,836\u00a0\n84,070\u00a0\n158,906\u00a0\nNet change vs. prior year \n(13,558)\n3,620\u00a0\n(9,938)\n% change vs. prior year\n(15.3)\n%\n4.5\u00a0\n%\n(5.9)\n%\nFiscal 2021\n(1)\n88,394\u00a0\n80,450\u00a0\n168,844\u00a0\nNet change vs. prior year \n(14,390)\n(8,732)\n(23,122)\n% change vs. prior year\n(14.0)\n%\n(9.8)\n%\n(12.0)\n%\nAverage Square Footage\nFiscal 2023\n1,905\n\u00a0\n1,371\n\u00a0\n1,578\n\u00a0\nFiscal 2022\n1,919\u00a0\n1,378\u00a0\n1,589\u00a0\nFiscal 2021\n(1)\n1,842\u00a0\n1,437\u00a0\n1,624\u00a0\n(1) \u00a0\u00a0\u00a0\u00a0\nDuring fiscal 2021, we exited certain regions previously operated in to optimize our fleet under the Acceleration Program.\nIn fiscal 2024, we expect minimal change in overall store count with a modest reduction in store count in North America and a modest increase in store count in Greater China.\nDigital\n\u00a0\u2014\u00a0We view our digital platform as an instrument to deliver Stuart Weitzman products to customers directly with the benefit of added accessibility as consumers can purchase Stuart Weitzman brand products wherever they choose. For Stuart Weitzman, we have e-commerce sites in the U.S, Canada and Greater China. Additionally, we continue to leverage a third-party digital platform to sell our products to customers.\nWholesale\n\u00a0\u2014\u00a0The wholesale business for Stuart Weitzman comprised approximately 34% of total segment net sales for fiscal 2023. We continue to closely monitor inventories held by our wholesale customers in an effort to optimize inventory levels across wholesale doors. Stuart Weitzman has developed relationships with a select group of distributors who sell Stuart Weitzman products through travel retail locations and in certain international countries where Stuart Weitzman does not have directly operated retail locations. As of July\u00a01, 2023 and July\u00a02, 2022, Stuart Weitzman did not have any customers who individually accounted for more than 10% of the segment's total net sales.\nRefer to Note 17, \"Segment Information,\" for further information about the Company's segments.\n7\nLICENSING\nOur brands take an active role in the design process and control the marketing and distribution of products in our worldwide licensing relationships. Our key licensing relationships and their fiscal year expirations as of July\u00a01, 2023 are as follows:\nBrand\nCategory\n\u00a0\nPartner\n\u00a0\nFiscal Year Expiration\nCoach\nJewelry and Soft Accessories\n\u00a0\nCentric\n\u00a0\n2024\nCoach\nWatches\nMovado\n\u00a0\n2025\nCoach\nEyewear\nLuxottica\n2026\nCoach\nFragrance\nInterparfums\n2026\nKate Spade\nTableware and Housewares\nLenox\n2024\nKate Spade\nFashion Bedding\nHimatsingka\n2024\nKate Spade\nWatches\nFossil\n2025\nKate Spade\nSleepwear\nKomar\n2025\nKate Spade\nStationery and Gift\nLifeguard Press\n2026\nKate Spade\nFragrance\nInterparfums\n2030\nKate Spade\nEyewear\nSafilo\n2031\nProducts made under license are, in most cases, sold through stores and wholesale channels and, with the Company's approval, the licensees have the right to distribute products selectively through other venues, which provide additional, yet controlled, exposure of our brands. Our licensing partners generally pay royalties on their net sales of our branded products. Such royalties currently comprise approximately 1% of Tapestry's total net sales. The licensing agreements generally give our brands the right to terminate the license if specified sales targets are not achieved.\nPRODUCTS\nThe following table shows net sales for each of our product categories by segment:\n\u00a0Fiscal Year Ended\nJuly 1, 2023\nJuly 2, 2022\nJuly 3, 2021\n(millions)\nAmount\n% of total\nnet sales\nAmount\n% of total\nnet sales\nAmount\n% of total\nnet sales\nCoach\nWomen's Handbags\n$\n2,450.7\n\u00a0\n36.8\n\u00a0\n%\n$\n2,574.8\u00a0\n38.5\u00a0\n%\n$\n2,302.3\u00a0\n40.1%\nWomen's Accessories\n1,024.8\n\u00a0\n15.4\n\u00a0\n942.5\u00a0\n14.1\u00a0\n776.7\u00a0\n13.5\nMen's\n947.1\n\u00a0\n14.2\n\u00a0\n904.8\u00a0\n13.5\u00a0\n769.3\u00a0\n13.4\nOther Products\n537.8\n\u00a0\n8.1\n\u00a0\n499.2\u00a0\n7.5\u00a0\n404.8\u00a0\n7.0\nTotal Coach\n$\n4,960.4\n\u00a0\n74.5\n\u00a0\n%\n$\n4,921.3\u00a0\n73.6\u00a0\n%\n$\n4,253.1\u00a0\n74.0%\nKate Spade\nWomen's Handbags\n$\n779.6\n\u00a0\n11.7\n\u00a0\n%\n$\n819.5\u00a0\n12.2\u00a0\n%\n$\n681.5\u00a0\n11.9%\nOther Products\n332.4\n\u00a0\n5.0\n\u00a0\n319.0\u00a0\n4.8\u00a0\n269.3\u00a0\n4.7\nWomen's Accessories\n306.9\n\u00a0\n4.6\n\u00a0\n307.0\u00a0\n4.6\u00a0\n259.2\u00a0\n4.5\nTotal Kate Spade\n$\n1,418.9\n\u00a0\n21.3\n\u00a0\n%\n$\n1,445.5\u00a0\n21.6\u00a0\n%\n$\n1,210.0\u00a0\n21.1%\nStuart Weitzman\n(1)\n$\n281.6\n\u00a0\n4.2\n\u00a0\n%\n$\n317.7\u00a0\n4.8\u00a0\n%\n$\n283.2\u00a0\n4.9%\nTotal Net sales\n$\n6,660.9\n\u00a0\n100.0\n\u00a0\n%\n$\n6,684.5\u00a0\n100.0\u00a0\n%\n$\n5,746.3\u00a0\n100.0%\n(1)\nThe significant majority of sales for Stuart Weitzman is attributable to women's footwear.\n8\nWomen\u2019s Handbags\n\u00a0\u2014\u00a0Women\u2019s handbag collections feature classically inspired as well as fashion designs. These collections are designed to meet the fashion and functional requirements of our broad and diverse consumer base.\nWomen\u2019s Accessories\n\u00a0\u2014\u00a0Women\u2019s accessories include small leather goods which includes mini and micro handbags, money pieces, wristlets, pouches and cosmetic cases. Also included in this category are novelty accessories (including address books, time management accessories, travel accessories, sketchbooks and portfolios), belts, key rings and charms.\nMen\u2019s\n\u00a0\u2014\u00a0Men\u2019s includes bag collections (including business cases, computer bags, messenger-style bags, backpacks and totes), small leather goods (including wallets, card cases, travel organizers and belts), footwear, watches, fragrances, sunglasses, novelty accessories and ready-to-wear items.\nOther Products \n\u2014\u00a0These products primarily include women's footwear, eyewear (such as sunglasses), jewelry (including bracelets, necklaces, rings and earrings), women's fragrances, watches, certain women's seasonal lifestyle apparel collections, including outerwear, ready-to-wear and cold weather accessories, such as gloves, scarves and hats. In addition, Kate Spade brand kids items, housewares and home accessories, such as fashion bedding and tableware, and stationery and gifts are included in this category.\nDESIGN AND MERCHANDISING\nOur creative leaders are responsible for conceptualizing and implementing the design direction for our brands across the consumer touchpoints of product, stores and marketing. At Tapestry, each brand has a dedicated design and merchandising team; this ensures that Coach, Kate Spade and Stuart Weitzman speak to their customers with a voice and positioning unique to their brand. Designers have access to the brands' extensive archives of product designs, which are a valuable resource for new product concepts. Our designers collaborate with strong merchandising teams that analyze sales, market trends and consumer preferences to identify market opportunities that help guide each season's design process and create a globally relevant product assortment. Leveraging our strategic investments in data and analytics tools across Tapestry's platform, merchandisers are able to gain a deeper understanding of customer behavior that empowers our teams to respond to changes in consumer preferences and demand as well as scale opportunities across brands with greater speed and efficiency. Our merchandising teams are committed to managing the product life cycle to maximize sales and profitability across all channels. The product category teams, each comprised of design, merchandising, product development and sourcing specialists help each brand execute design concepts that are consistent with the brand's strategic direction.\nOur design and merchandising teams also work in close collaboration with all of our licensing partners to ensure that the licensed products are conceptualized and designed to address the intended market opportunity and convey the distinctive perspective and lifestyle associated with our brands.\nMARKETING\nWe use a 360-degree approach to marketing for each of our brands, synchronizing our efforts across all channels to ensure consistency at every touchpoint. Our global marketing strategy is to deliver a consistent, relevant and multi-layered message every time the consumer comes in contact with our brands through our communications and visual merchandising. Each brand's distinctive positioning is communicated by our creative marketing, visual merchandising and public relations teams, as well as outside creative agencies. We also have a sophisticated consumer and market research capability, which helps us assess consumer attitudes and trends.\nWe engage in several consumer communication initiatives globally, including direct marketing activities at a national, regional and local level. Total expenses attributable to the Company's marketing-related activities in fiscal 2023 were $570.7 million, or approximately 9% of net sales, compared to $551.6 million in fiscal 2022, or approximately 8% of net sales.\nOur wide range of marketing activities utilize a variety of media, including digital, social, print and out-of-home. Our respective brand websites serve as effective communication vehicles by providing an immersive brand experience, showcasing the fullest expression across all product categories.\nAs part of our direct marketing strategy, we use databases of consumers to generate personalized communications in direct channels such as email and text messages to drive engagement and build awareness. Email contacts are an important part of our communication and are sent to selected consumers to stimulate consumer purchases and build brand awareness. Visitors to our e-commerce sites provide an opportunity to increase the size of these consumer databases, in addition to serving as a point of transactions globally, except where restricted.\nThe Company has several regional informational websites for locations where we have not established an e-commerce presence. The Company utilizes and continues to explore digital technologies such as social media websites as a cost effective consumer communication opportunity to increase on-line and store sales, acquire new customers and build brand awareness.\n9\nMANUFACTURING\nTapestry carefully balances its commitments to a limited number of \u201cbetter brand\u201d partners that have demonstrated integrity, quality and reliable delivery. The Company continues to evaluate new manufacturing sources and geographies to deliver high quality products at competitive costs and to mitigate the impact of manufacturing in inflationary markets.\nOur raw material suppliers, independent manufacturers and licensing partners must achieve and maintain high quality standards, which are an integral part of our brands' identity. Before directly partnering with a new manufacturing vendor for finished goods, the Company evaluates each facility by conducting a quality, business practice standards and social compliance review. We expect finished good manufacturers to undergo a social compliance audit before being approved as a Tapestry supplier. Manufacturers working with our licensed partners must have had an acceptable social compliance audit conducted within the prior six months of their onboarding date. Suppliers that fail to meet our standards are not approved until an acceptable report is provided. We also conduct periodic evaluations of existing, previously approved finished good suppliers. We believe that our manufacturing partners are in material compliance with the Company\u2019s integrity standards.\nThese independent manufacturers each or in aggregate support a broad mix of product types, materials and a seasonal influx of new, fashion-oriented styles, which allows us to meet shifts in marketplace demand and changes in consumer preferences.\nWe have longstanding relationships with purveyors of fine leathers and hardware. Although our products are manufactured by independent manufacturers, we maintain a strong level of oversight in the selection of key raw materials and compliance with quality control standards is monitored through on-site quality inspections at independent manufacturing facilities.\nWe maintain strong oversight of the supply chain process for each of our brands from design through manufacturing. We are able to do this by maintaining sourcing management offices in Vietnam, mainland China, the Philippines, Cambodia and Spain that work closely with our independent manufacturers. This broad-based, global manufacturing strategy is designed to optimize the mix of cost, lead times and construction capabilities.\nDuring fiscal 2023, manufacturers of Coach products were primarily located in Vietnam, Cambodia, and the Philippines and no individual vendor provided 10% or more of the brand's total purchases. During fiscal 2023, Kate Spade products were manufactured primarily in Vietnam, Cambodia, the Philippines and mainland China. Kate Spade had one vendor, located in Vietnam, who individually provided approximately 10% of the brand's total purchases. Stuart Weitzman products were primarily manufactured in Spain. During fiscal 2023, Stuart Weitzman had three vendors, all located in Spain, who individually provided over 10% of the brand's total units (approximately 37% across the three, in the aggregate).\nFULFILLMENT\nThe Company\u2019s distribution network is designed to support the movement of each brand's products from our manufacturers to fulfillment centers around the world. These fulfillment centers are either directly operated by the Company or by independent third parties, with some supporting multiple brands. Our facilities use bar code scanning warehouse management systems, where our fulfillment center employees use handheld scanners to read product bar codes. This allows for accurate storage and order processing and allows us to provide excellent service to our customers. These facilities are also integrated into our Enterprise Resource Planning (\"ERP\") system, ensuring accurate inventory reporting. Our products are primarily shipped to retail stores, wholesale customers and e-commerce customers.\nIn North America we maintain fulfillment centers in Jacksonville, Florida, and West Chester, Ohio, operated by Tapestry. In addition, in fiscal 2023, the Company opened a new multi-brand fulfillment center located in Las Vegas, Nevada that increase capacity and continue to enhance fulfillment capabilities in North America. The Company also has two third-party facilities in Toronto, Canada and Tijuana, Mexico. Globally, we utilize regional fulfillment centers in mainland China, the Netherlands, the United Kingdom, and Spain, owned and operated by third parties, that support multiple countries. We also utilize local fulfillment centers, through third-parties in Japan, parts of Greater China, South Korea, Singapore, Malaysia, Spain, the U.K., Canada, and Australia.\nINFORMATION SYSTEMS \nThe Company\u2019s information systems are integral in supporting the Company\u2019s long-term strategies. Our information technology platform is a key capability used to support digital growth and drive consumer centricity and data-driven decision making. We are continually enhancing our digital technology platforms to elevate our e-commerce capabilities direct-to-consumer functionalities, and overall omni-channel experience, by utilizing cloud-based technology infrastructure. For example, we will continue to enhance certain of our machine learning models to improve our customer capture and segmentation capabilities.\n10\nIn fiscal 2021, the Company began implementing a cloud-based digital platform to enhance our omnichannel capabilities, across all brands in North America, Europe and Japan. This shared enterprise digital strategy affords the Company more productive and efficient capabilities for digital and in-store selling and engagement. This implementation was substantially completed in fiscal 2023.\nThe Company maintains global information security and privacy compliance programs, comprised of risk management policies and procedures surrounding the Company\u2019s information systems, cybersecurity practices and protection of consumer and employee personal data and confidential information. The Board of Directors (the \"Board\") has ultimate oversight of the Company\u2019s risk management policies and procedures, and has delegated primary responsibility for monitoring the risks and programs in this area to the Audit Committee, which receives quarterly updates on information security and privacy risk and compliance. The Board receives periodic updates on these topics as well. As part of the Company\u2019s compliance programs, all global employees are required to take annual training on information security, including cybersecurity, and global data privacy requirements and compliance measures. We also conduct periodic internal and third-party assessments to test our cybersecurity controls, perform cyber simulations and annual tabletop exercises, and continually evaluate our privacy notices, policies and procedures surrounding our handling and control of personal data and the systems we have in place to help protect us from cybersecurity or personal data breaches. Additionally, we maintain network security and cyber liability insurance in order to provide a level of financial protection in the event of certain covered cyber losses and data breaches.\nINTELLECTUAL PROPERTY\nTapestry owns COACH, KATE SPADE and STUART WEITZMAN, as well as all of the material trademark, design and patent-rights related to the production, marketing, distribution and sale of our products in the United States and other countries in which our products are principally sold. In addition, it licenses trademarks and copyrights used in connection with the production, marketing and distribution of certain categories of goods and limited edition collaborations. Tapestry also owns and maintains registrations in countries around the world for trademarks in relevant classes of products. Major trademarks include TAPESTRY, COACH, STUART WEITZMAN, KATE SPADE and KATE SPADE NEW YORK. It also owns brand-specific trademarks such as COACH and Horse & Carriage Design, COACH and Story Patch Design, COACH and Lozenge Design, COACH and Tag Design, Signature C Design and COACHTOPIA for the COACH brand; kate spade new york and Spade Design, and spade flower monogram for the kate spade new york brand; and NUDIST and 5050 for the Stuart Weitzman brand. Tapestry is not dependent on any one particular trademark or design patent although Tapestry believes that the Coach, Stuart Weitzman and Kate Spade New York trademarks are important for its business. In addition, Tapestry owns a number of copyrights, design patents and utility patents for its brands' product designs. Tapestry aggressively polices its intellectual property, and pursues infringers both domestically and internationally. It pursues counterfeiters through leads generated internally, as well as through its network of investigators, law enforcement and customs officials, the respective online reporting form for each brand, the Tapestry hotline and business partners around the world.\nSEASONALITY\nThe Company's results are typically affected by seasonal trends. During the first fiscal quarter, we typically build inventory for the winter and holiday season. In the second fiscal quarter, working capital requirements are reduced substantially as we generate higher net sales and operating income, especially during the holiday season.\nFluctuations in net sales, operating income and operating cash flows of the Company in any fiscal quarter may be affected by the timing of wholesale shipments and other events affecting retail sales, including weather and macroeconomic events, and pandemics such as Covid-19.\nGOVERNMENT REGULATION\nMost of the Company's imported products are subject to duties, indirect taxes, quotas and non-tariff trade barriers that may limit the quantity of products that we may import into the U.S. and other countries or may impact the cost of such products. The Company is not materially restricted by quotas or other government restrictions in the operation of its business, however customs duties do represent a component of total product cost. To maximize opportunities, the Company operates complex supply chains through foreign trade zones, bonded logistic parks and other strategic initiatives such as free trade agreements. For example, we have historically received benefits from duty-free imports on certain products from certain countries pursuant to the U.S. General System of Preferences (\"GSP\") program. The GSP program expired in the third quarter of fiscal 2021, resulting in additional duties that have negatively impacted gross margin. Additionally, the Company operates a direct import business in many countries worldwide. As a result, the Company is subject to stringent government regulations and restrictions with respect to its cross-border activity either by the various customs and border protection agencies or by other government agencies which control the quality and safety of the Company\u2019s products. The Company maintains an internal global trade, customs and product compliance organization to help manage its import/export and regulatory affairs activity.\n11\nCOMPETITION\nThe product categories in which we operate are highly competitive. The Company competes primarily with European and American luxury and accessible luxury brands as well as private label retailers. In varying degrees, depending on the product category involved, we compete on the basis of style, price, customer service, quality, brand prestige and recognition, among others. Over the last decade, these luxury and accessible luxury brands have grown and are expected to continue to grow, encouraging the entry of new competitors as well as increasing the competition from existing competitors. This increased competition drives interest in these brand loyal categories. We believe, however, that we have significant competitive advantages because of the recognition of our brands and the acceptance of our brands by consumers.\nCORPORATE RESPONSIBILITY\nAs a people-centered and purpose led Company, Tapestry believes that a better-made future is one that is both beautiful and responsible. Our Environmental, Social and Corporate Governance (\u201cESG\u201d) strategy, the \nFabric of Change\n, aims to unite teams across the Company\u2019s business to work to meet our Corporate Responsibility Goals (\"ESG Goals\") and a shared objective: to create the accessible luxury company of the future that balances true fashion authority with meaningful, positive change. The \nFabric of Change\n focuses on three pillars: Our People, Our Planet and Our Communities.\n\u2022\nOur People:\n\u25e6\nWe aim to foster inclusivity and diversity through four interconnected principles: talent, culture, community, and marketplace. Our equity, inclusion and diversity (\"EI&D\") goals focus on attracting and retaining talent and building a compelling and fulfilling employee experience.\n\u25e6\nWe have set goals focused on building diversity in our leadership team, reducing differences in our employee survey results based on gender and ethnicity, focusing on progression and establishing core wellness standards to enable our employees to manage their work and personal lives.\n\u25e6\nWe tie 10% of leadership annual incentive compensation to EI&D goals on a global basis level.\n\u2022\nOur Planet:\n\u25e6\nWe aim to sustain and restore our planet through continuous innovation in solutions that improve biodiversity and reduce our impact on climate change with a focus on renewable energy, increased use of environmentally preferred materials and production methods, and circular business models that design out waste and pollution, keep products in use, and restore natural systems.\n\u25e6\nWe have set ESG goals focused on utilizing 100% renewable energy in our own operations; tracing and mapping our raw materials, environmentally responsible sourcing of leather, increasing the recycled content of our packaging, reducing waste in our corporate and distribution centers and water across our company and supply chain. We have also set new science-based emissions reduction targets in line with Science Based Targets initiative (\"SBTi's\") criteria and 1.5\u2070C.\n\u2022\nOur Communities:\n\u25e6\nWe aim to support and empower the communities where our employees live and work, and provide the resources and investment needed to strengthen the regions where we operate, through volunteer efforts, philanthropic initiatives, product donations, and social impact programming.\n\u25e6\nWe have set goals focused on volunteerism programs, philanthropic initiatives and supply chain empowerment programs.\nThe Company\u2019s ESG and Corporate Responsibility Strategy, including oversight, management and identification of risks, is ultimately governed by the Board of Directors and overseen by an ESG Steering Committee, which is comprised of members of our executive leadership team, and driven by an ESG Task Force, which is comprised of senior leaders and cross-functional members from major business functions. The Board approves long-term sustainability goals, strategic moves or major plans of action and receives updates at least annually. Tapestry's Governance and Nominations Committee of the Board receives quarterly updates on sustainability strategy, including climate-related topics, progress towards the ESG goals and other ESG related initiatives.\nAdditional information on the \nFabric of Change\n and Corporate Responsibility Goals can be found at www.tapestry.com/responsibility. The content on this website and the content in our Corporate Responsibility Reports are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC.\n12\nHUMAN CAPITAL\nAt Tapestry, being true to yourself is core to who we are. When each of us brings our individuality to our collective ambition, our creativity is unleashed. This global house of brands was built by unconventional entrepreneurs and unexpected solutions, so when we say we believe in dreams, we mean we believe in making them happen.\nWhere differences intersect, new thinking emerges. So we cultivate a place for people who are both warm and rigorous, work that is both challenging and fun, a culture led by both head and heart. Most of all, we bring together the unique spirits of our people and our brands and give them a place to move their work and our industry forward. We believe that difference sparks brilliance, so we welcome people and ideas from everywhere to join us in stretching what\u2019s possible.\nGovernance and Oversight\nOur Board of Directors and its committees provide governance and oversight of the Company's strategy, including over issues of human capital management. The Board has designated the Human Resources Committee of the Board of Directors (the \u201cHR Committee\u201d) as the primary committee responsible for the Company\u2019s human capital strategy, overseeing executive compensation programs, performance and talent development, succession planning, engagement and regular review of employee benefits and well-being strategies. Together with the Board, the HR Committee also provides oversight of the Company\u2019s EI&D strategies. The full Board of Directors and the HR Committee receive at least quarterly updates on the Company\u2019s talent development strategies and other applicable areas of human capital management.\nUnlocking the power of our people is a key strategic focus area for the Company, supported by significant engagement from the Company\u2019s senior leadership on talent development and human capital management, as reflected in the key programs and focus areas described below.\nEmployees\nAs of July\u00a01, 2023, the Company employed approximately 18,500 employees globally. Of these employees, approximately 14,700 employees worked in retail locations, of which 5,900 were part-time employees. This total excludes seasonal and temporary employees that the Company employs, particularly during the second quarter due to the holiday season. The Company believes that its relations with its employees are good, and has never encountered a strike or work stoppage.\nEquity, Inclusion and Diversity\nOur company name Tapestry, represents the diversity of our brands and the diversity of our people. We know that having a diverse range of perspectives, backgrounds and experiences makes us more innovative and successful and it brings us closer to our consumer. Our goal is to create a culture that is equitable, inclusive and diverse - where all of our employees, customers and stakeholders thrive.\nOur EI&D strategy is grounded in our purpose and values and is a core element to unlocking the power of our people. To support these actions, we are guided by four interconnected principles:\n\u2022\nTalent:\n Attracting, retaining and growing top talent - making us an employer of choice in a rapidly evolving talent marketplace.\n\u2022\nCulture:\n Fostering a culture of inclusion, where people and ideas from everywhere are welcomed.\n\u2022\nCommunity:\n Nurturing the vibrancy of the communities in which we live and work to advance equity, opportunity and dignity for all.\n\u2022\nMarketplace:\n Embracing our responsibility in the marketplace as a global fashion company. We are committed to affecting positive change for our industry and deliver on our value proposition to stakeholders - consumers, investors and future talent.\nOur global EI&D Champion Network supports and engages our professional community by creating an environment where all are welcomed. This network includes our five employee business resource groups (\u201cEBRGs\u201d), two task forces and regional inclusion councils to support and engage our employees. \nAdditionally, we believe educating our employees is crucial in achieving our EI&D goals. We have established a global multi-year EI&D learning road map, including bespoke skill-building programs to accommodate our dynamic employee population. Furthermore, the Company has focused on providing employees with resources to foster continuing education and conversation on EI&D through 'Tapestry UNSCRIPTED', which is an internal speaker series for our employees designed to bring our values to life. We feel hosting bold conversations about our values provides an opportunity for us to be inspired, discover ideas, and ignite personal passions.\n13\nTapestry is committed to the support of historically underrepresented and marginalized groups through our corporate efforts. We are a member of the CEO Action for Diversity and Inclusion, the largest business coalition committed to advancing Diversity and Inclusion. Our focus on fostering an equitable work environment has led to continued recognition from Forbes on the list of \u201cBest Employers for Diversity\u201d and Human Rights Campaign\u2019s list of \u201cBest Place to Work for LGBTQ Equality\u201d. In 2023, we were recognized by Civic 50 as one of the 50 Most Community-Minded Companies. Additionally, we have been certified as a \"Great Place to Work\" for 2023. The Company is dedicated to building a workforce with leadership teams better reflecting our general corporate population in North America. The Company monitors the representation of women and ethnic minorities at different levels throughout the company, and discloses this information in our website at www.tapestry.com/responsibility/our-people.\nTotal Rewards\nTapestry is dedicated to being a place where our employees love to work, where they feel recognized and rewarded for all that they do. Maintaining a competitive program helps us attract, motivate and retain the key talent we need to achieve outstanding business and financial results. To accomplish this goal, we strive to appropriately align our total compensation with the pay, benefits and rewards offered by companies that compete with us for talent in the marketplace. \nOur Total Compensation Program includes cash pay, annual and long term incentives, benefits and other special programs that our employees value. We strive to pay each employee fairly and competitively across our brands. Tapestry's primary compensation principle is to \"pay for performance.\" Tapestry's practice is to pay a competitive base salary and to provide corporate employees with the opportunity to earn an annual bonus tied to Tapestry's and its brands' financial performance, and store employees with the opportunity to earn sales incentives. Approximately 2,500 of our employees, including nearly all of our store managers, received an annual long-term equity award in 2023, which align employee interests with those of our stockholders, rewards employees for enhancing stock holder value and supports retention of key employees. \nOur benefits package is designed to be competitive and comprehensive, which varies by location and jurisdiction. Our benefits, along with competitive pay, includes medical benefits and paid wellness days and parental leave, in accordance with local policies and regulations, for directly hired full-time and part-time employees. The Company also offers retirement benefits for its employees, which are managed in accordance with local jurisdictions. To support employees in achieving their career and financial goals, the Company also provides access to learning opportunities on personal finances as well as physical and mental wellness through various platforms based on the location of the employee.\nTalent Acquisition and Development\nHiring talented employees is critically important to us, as we consider our employees around the world to be our greatest asset. Our recruitment and sourcing strategy focuses on tapping diverse sources to attract the best talent to our organization and then retaining them through our continued investments in resources that provide our employees with the tools for career advancement. Our internal opportunity program encourages employees to stretch themselves in their career development, aligning their capabilities with career interests and goals. We strive to provide a working environment where our people can grow and progress their careers within the Company. \nWe are committed to helping our employees develop the knowledge, skills and abilities needed for continued success, and encourage employee development at all levels and every career stage. Our development programs enable individual and team success through targeted initiatives and resources, offering a wide-ranging curriculum focused on professional and leadership development for leaders, managers, and individual contributors, including through our Common Thread people management program, Emerging Leaders High-Potential Program, Leader Transition Acceleration Program, and third-party learning platforms in addition to other trainings and education facilitated through the Company for all employees. \nAs a company, performance management is critical to our ability to reach our goals and foster a culture of success. By having a dynamic, performance-driven culture, we can achieve greater results, maximize employee, manager and team performance and offer exciting development and career opportunities. As our focus extends beyond the performance of our employees to the performance of our Company as a whole, we have mechanisms in place to facilitate comprehensive upward feedback through robust cross-functional feedback tools and a cadence of regular pulse surveys that inform on how we can continue to strive for excellence in our work culture. \nWell-being and Safety\nAt Tapestry, we are committed to providing a safe working environment for our people, as well as supporting our people in achieving and maintaining their health and well-being goals. Work-life integration is top of mind, and we provide resources and benefits to help achieve this balance. We provide our employees with supplemental resources to achieve wellness such as access to our Employee Assistance Program, regular employee programming and subscriptions to Headspace, a smartphone application dedicated to meditation and mindfulness. The Company announced the establishment of an Associate Relief Fund, beginning in fiscal year 2024, which will provide emergency assistance for events considered a disaster or hardship. \n14\nAt Tapestry, we believe in encouraging and empowering our employees to take part in building a welcoming and inclusive community. We provide all employees with supplemental time-off to perform community service through nonprofits of their personal choice and through team and Company sponsored volunteering events. In our commitment to supporting our communities, we have three foundations which provide monetary support to nonprofit organizations across communities that we are a part of. Additionally, on an annual basis, our foundations match up to $10,000 in donations to eligible non-profits per employee in North America. \nFINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS\nRefer to Note 4, \"Revenue,\" and Note 17, \"Segment Information,\" presented in the Notes to the Consolidated Financial Statements for geographic information.\nAVAILABLE INFORMATION\nOur Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our investor website, located at www.tapestry.com/investors under the caption \u201cSEC Filings,\u201d as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission. These reports are also available on the Securities and Exchange Commission\u2019s website at www.sec.gov. No information contained on any of our websites is intended to be included as part of, or incorporated by reference into, this Annual Report on Form 10-K.\nThe Company has included the Chief Executive Officer (\u201cCEO\u201d) and Chief Financial Officer certifications regarding its public disclosure required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2, respectively to this Form 10-K.\n15",
+  "item1a": ">ITEM 1A. RISK FACTORS \nYou should consider carefully all of the information set forth or incorporated by reference in this document and, in particular, the following risk factors associated with the business of the Company and forward-looking information in this document. Please also see \u201cSpecial Note on Forward-Looking Information\u201d at the beginning of this report. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently deem immaterial may also have an adverse effect on us. If any of the risks below actually occur, our business, results of operations, cash flows or financial condition could suffer.\nRisks Related to Macroeconomic Conditions\nEconomic conditions, such as an economic recession, downturn, periods of inflation or uncertainty, could materially adversely affect our financial condition, results of operations and consumer purchases of luxury items.\nOur results can be impacted by a number of macroeconomic factors, including but not limited to: consumer confidence and spending levels, tax rates, levels of unemployment, consumer credit availability, pandemics, natural disasters, raw material costs, fuel and energy costs (including oil prices), bank failures, market volatility, global factory production, supply chain operations, commercial real estate market conditions, credit market conditions and the level of customer traffic in malls, shopping centers and online.\nMany of our products may be considered discretionary items for consumers. Demand for our products, and consumer spending in the premium handbag, footwear and accessories categories generally, is or may be significantly impacted by trends in consumer confidence, general economic and business conditions, high levels of unemployment, periods of inflation, health pandemics, interest rates, foreign currency exchange rates, the availability of consumer credit, and taxation. Consumer purchases of discretionary luxury items, such as the Company's products, tend to decline during recessionary periods or periods of sustained high unemployment, when disposable income is lower.\nUnfavorable economic conditions may also reduce consumers\u2019 willingness and ability to travel to major cities and vacation destinations in which our stores are located. Our sensitivity to economic cycles and any related fluctuation in consumer demand may have a material adverse effect on our financial condition.\nThe Covid-19 pandemic and resulting adverse economic conditions may continue to adversely affect our business, financial condition, results of operations and cash flows.\nThe Covid-19 pandemic has had, and may continue to have, a significant impact on our operations, cash flow and liquidity. The virus has impacted all regions that we operate in around the world, resulting in restrictions and shutdowns implemented by national, state, and local authorities. These requirements resulted in temporary closures of the majority of the Company's directly operated stores globally for some period of time to help reduce the spread of Covid-19 during fiscal 2020. Throughout fiscal years 2021 through 2023, the vast majority of the Company\u2019s stores were opened and have continued to operate, however, some store locations have experienced temporary re-closures or operated under tighter restrictions in compliance with local government regulations. During the first half of fiscal 2023, the Company's results in Greater China were adversely impacted as a result of the Covid-19 pandemic. Starting in December 2022, certain government restrictions were lifted and business trends have improved in the region.\nAlthough the impact of the Covid-19 pandemic during fiscal 2023 has generally been less significant than those experienced in fiscal years 2021 and 2022, we cannot predict for how long and to what extent the Covid-19 pandemic may continue to impact our business, financial condition, and results of operations. We continue to monitor the latest developments regarding the Covid-19 pandemic and potential impacts on our business, operating results and outlook. \nThe impact of regulations imposed in the future in response to the Covid-19 pandemic or other public health crises, could, among other things, require that we close our stores or distribution centers or otherwise make it difficult or impossible to operate our business. \nRisks Related to our Business and our Industry\nWe face risks associated with operating in international markets.\nWe operate on a global basis, with approximately 39.3% of our net sales coming from operations outside of United States for fiscal year 2023. While geographic diversity helps to reduce the Company\u2019s exposure to risks in any one country, we are subject to risks associated with international operations, including, but not limited to:\n\u2022\npolitical or economic instability or changing macroeconomic conditions in our major markets, including the potential impact of (1) new policies that may be implemented by the U.S. or other jurisdictions, particularly with respect to tax and trade policies or (2) sanctions and related activities by the United States, European Union (\u201cE.U.\u201d) and others;\n\u2022\npublic health crises, such as pandemics and epidemic diseases;\n16\n\u2022\nchanges to the U.S.'s participation in, withdrawal out of, renegotiation of certain international trade agreements or other major trade related issues including the non-renewal of expiring favorable tariffs granted to developing countries, tariff quotas, and retaliatory tariffs, trade sanctions, new or onerous trade restrictions, embargoes and other stringent government controls;\n\u2022\nchanges in exchange rates for foreign currencies, which may adversely affect the retail prices of our products, result in decreased international consumer demand, or increase our supply costs in those markets, with a corresponding negative impact on our gross margin rates;\n\u2022\ncompliance with laws relating to foreign operations, including the Foreign Corrupt Practices Act (\"FCPA\") and the U.K. Bribery Act, and other global anti-corruption laws, which in general concern the bribery of foreign public officials, and other regulations and requirements;\n\u2022\nchanges in tourist shopping patterns, particularly that of the Chinese consumer;\n\u2022\ngeopolitical instability (such as the uncertainty in U.S.-China relations);\n\u2022\nnatural and other disasters;\n\u2022\npolitical, civil and social unrest; and\n\u2022\nchanges in legal and regulatory requirements, including, but not limited to safeguard measures, anti-dumping duties, cargo restrictions to prevent terrorism, restrictions on the transfer of currency, climate change and other environmental legislation, product safety regulations or other charges or restrictions. \nOur business is subject to the risks inherent in global sourcing activities.\nAs a Company engaged in sourcing on a global scale, we are subject to the risks inherent in such activities, including, but not limited to:\n\u2022\ncontinued disruptions or delays in shipments whether due to port congestion, logistics carrier disruption (including as a result of labor disputes), other shipping capacity constraints or other factors, which has and may continue to result in significantly increased inbound freight costs and increased in-transit times;\n\u2022\nloss or disruption of key manufacturing or fulfillment sites or extended closure of such sites due to the Covid-19 pandemic or other unexpected factors;\n\u2022\nimposition of additional duties, taxes and other charges or restrictions on imports or exports;\n\u2022\nunavailability, or significant fluctuations in the cost, of raw materials;\n\u2022\ncompliance by us and our independent manufacturers and suppliers with labor laws and other foreign governmental regulations;\n\u2022\nincreases in the cost of labor, fuel (including volatility in the price of oil), travel and transportation;\n\u2022\ncompliance with our Global Business Integrity Program;\n\u2022\ncompliance by our independent manufacturers and suppliers with our Supplier Code of Conduct, social auditing procedures and requirements and other applicable compliance policies;\n\u2022\ncompliance with applicable laws and regulations, including U.S. laws regarding the identification and reporting on the use of \u201cconflict minerals\u201d sourced from the Democratic Republic of the Congo in the Company\u2019s products, other laws and regulations regarding the sourcing of materials in the Company\u2019s products, the FCPA, U.K. Bribery Act and other global anti-corruption laws, as applicable, and other U.S. and international regulations and requirements;\n\u2022\nregulation or prohibition of the transaction of business with specific individuals or entities and their affiliates or goods manufactured in certain regions by any government or regulatory authority in the jurisdictions where we conduct business, such as the listing of a person or entity as a Specially Designated National or Blocked Person by the U.S. Department of the Treasury\u2019s Office of Foreign Assets Control and the issuance of Withhold Release Orders or other detentions of product by the U.S. Customs and Border Patrol; \n\u2022\ninability to engage new independent manufacturers that meet the Company\u2019s cost-effective sourcing model;\n\u2022\nproduct quality issues;\n\u2022\npolitical unrest, protests and other civil disruption;\n\u2022\npublic health crises, such as pandemic and epidemic diseases, and other unforeseen outbreaks;\n\u2022\nnatural disasters or other extreme weather events, whether as a result of climate change or otherwise; and\n\u2022\nacts of war or terrorism and other external factors over which we have no control.\n17\nWe are subject to labor laws governing relationships with employees, including minimum wage requirements, overtime, working conditions, and citizenship requirements. Compliance with these laws may lead to increased costs and operational complexity and may increase our exposure to governmental investigations or litigation.\nIn addition, we require our independent manufacturers and suppliers to operate in compliance with applicable laws and regulations, as well as our Supplier Code of Conduct and other compliance policies under our Global Business Integrity Program; however, we do not control these manufacturers or suppliers or their labor, environmental or other business practices. Copies of our Global Business Integrity Program documents, including our Global Operating Principles, Anti-Corruption Policy and Supplier Code of Conduct are available through our website, www.tapestry.com. The violation of labor, environmental or other laws by an independent manufacturer or supplier, or divergence of an independent manufacturer\u2019s or supplier\u2019s labor practices from those generally accepted as ethical or appropriate in the U.S., could interrupt or otherwise disrupt the shipment of our products, harm our trademarks or damage our reputation. In addition, if there is negative publicity regarding the production methods of any of our suppliers or manufacturers, even if unfounded or not specific to our supply chain, our reputation and sales could be adversely affected, we could be subject to legal liability, or could cause us to contract with alternative suppliers or manufacturing sources. The occurrence of any of these events could materially adversely affect our business, financial condition and results of operations.\nA decline in the volume of traffic to our stores could have a negative impact on our net sales. \nThe success of our retail stores located within malls and shopping centers may be impacted by (i) changes in consumer shopping behavior, closures, operating restrictions and store capacity restrictions; (ii) reduced travel resulting from economic conditions (including a recession or inflationary pressures); (iii) the location of the store within the mall or shopping center; (iv) surrounding tenants or vacancies; (v) increased competition in areas where malls or shopping centers are located; (vi) the amount spent on advertising and promotion to attract consumers to the mall; and (vii) a shift towards online shopping resulting in a decrease in mall traffic. Declines in consumer traffic could have a negative impact on our net sales and could materially adversely affect our financial condition and results of operations. Furthermore, declines in traffic could result in store impairment charges if expected future cash flows of the related asset group do not exceed the carrying value.\nThe growth of our business depends on the successful execution of our growth strategies, including our global omni-channel expansion efforts and our ability to execute our digital and e-commerce priorities. \nOur growth depends on the continued success of existing products, as well as the successful design, introduction of new products and maintaining an appropriate rationalization of our assortment. Our ability to create new products and to sustain existing products is affected by whether we can successfully anticipate and respond to consumer preferences and fashion trends. See \u201c\nThe success of our business depends on our ability to retain the value of our brands and to respond to changing fashion and retail trends in a timely manner.\u201d\n The failure to develop and launch successful new products or to rationalize our assortment appropriately could hinder the growth of our business. Also, any delay in the development or launch of a new product could result in our company not being the first to bring product to market, which could compromise our competitive position.\nOur success and growth also depends on the continued development of our omni-channel presence for each of our brands globally, leaning into global digital opportunities for each brand, along with continued bricks and mortar expansion in select international regions, notably Greater China. With respect to international expansion, our brands may not be well-established or widely sold in some of these markets, and we may have limited experience operating directly or working with our partners there. In addition, some of these markets, either through bricks and mortar stores or digital channels, have different operational characteristics, including but not limited to employment and labor, privacy, transportation, logistics, real estate, environmental regulations and local reporting or legal requirements.\nFurthermore, consumer demand and behavior, as well as tastes and purchasing trends may differ in these countries, and as a result, sales of our product may not be successful, or the margins on those sales may not be in line with those we currently anticipate. Further, expanding in certain markets may have upfront investment costs that may not be accompanied by sufficient revenues to achieve typical or expected operational and financial performance and therefore may be dilutive to our brands in the short-term. We may also have to compete for talent in international regions as we expand our omni-channel presence.\nConsequently, if our global omni-channel expansion plans are unsuccessful, or we are unable to retain and/or attract key personnel, our business, financial condition and results of operation could be materially adversely affected.\n18\nWe aim to provide a seamless omni-channel experience to our customers regardless of whether they are shopping in stores or engaging with our brands through digital technology, such as computers, mobile phones, tablets or other devices. This requires investment in new technologies and reliance on third-party digital partners, over which we may have limited control. Additionally, our digital business is subject to numerous risks that could adversely impact our results, including (i) a diversion of sales from our brand stores or wholesale customers, (ii) difficulty in recreating the in-store experience through digital channels, (iii) liability for online content, (iv) changing dynamics within the digital marketing environment and our ability to effectively market to consumers, (v) intense competition from online retailers, and (vi) the ability to provide timely delivery of e-commerce purchases, which is dependent on the capacity and operations of our owned and third-party operated fulfillment facilities. See \u201c\nOur business is subject to the risks inherent in global sourcing activities\u201d\n for additional risks related to our fulfillment networks. If we are unable to effectively execute our e-commerce and digital strategies and provide reliable experiences for our customers across all channels, our reputation and ability to compete with other brands could suffer, which could adversely impact our business, results of operations and financial condition.\nThe successful implementation of the Company\u2019s 2025 growth strategy, future\nspeed\n, is key to the long-term success of our business.\nBuilding on the success of the Company\u2019s strategic growth plan from fiscal 2020 through fiscal 2022, the Company introduced its 2025 growth strategy, \nfuture\nspeed, in the first quarter of fiscal 2023, which is designed to amplify and extend the competitive advantages of the brands, with a focus on four strategic priorities: (i) Building Lasting Customer Relationships; (ii) Fueling Fashion Innovation & Product Excellence; (iii) Delivering Compelling Omni-Channel Experiences; and (iv) Powering Global Growth.\nThe Company believes that its intentional focus positions Tapestry to drive sustainable, profitable growth to create value for its stakeholders over time. However, there is no assurance that we will be able to sustain such efforts in accordance with our plans, that such efforts will result in the intended or otherwise desirable outcomes or that such efforts, even if successfully sustained, will be effective in achieving long-term growth or increased profitability. Refer to Part II, Item 7, \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" for further information regarding \nfuture\nspeed\n.\nIf our incorporation of the initiatives under \nfuture\nspeed falls short, our business, financial condition and results of operation could be materially adversely affected.\nSignificant competition in our industry could adversely affect our business.\nWe face intense competition in the product lines and markets in which we operate. Our competitors are European and American luxury brands, as well as private label retailers, including some of the Company's wholesale customers. Competition is based on a number of factors, including, without limitation, the following:\n\u2022\nour competitors may develop new products or product categories that are more popular with our customers; \n\u2022\nanticipating and responding in a timely fashion to changing consumer demands and shopping preferences, including the ever-increasing shift to digital brand engagement, social media communications, and online and cross-channel shopping;\n\u2022\nmaintaining strong brand recognition, loyalty, and a reputation for quality, including through digital brand engagement and online and social media presence; \n\u2022\nrecruiting and retaining key talent;\n\u2022\ndeveloping and producing innovative, high-quality products in sizes, colors, and styles that appeal to consumers of varying age group;\n\u2022\ncompetitively pricing our products and creating an acceptable value proposition for consumers, including price increases to mitigate inflationary pressures while simultaneously balancing the risk of lower consumer demand in response to any such price increases;\n\u2022\nproviding strong and effective marketing support in several diverse demographic markets, including through digital and social media platforms in order to stay better connected to consumers;\n\u2022\nproviding attractive, reliable, secure, and user-friendly digital commerce sites;\n\u2022\nsourcing sustainable raw materials at cost-effective prices;\n\u2022\nensuring product availability and optimizing supply chain efficiencies with third-party suppliers and retailers;\n\u2022\nprotecting our trademarks and design patents; \n\u2022\nadapting to changes in technology, including the successful utilization of data analytics, artificial intelligence, and machine learning\u037e and\n\u2022\nthe ability to withstand prolonged periods of adverse economic conditions or business disruptions.\n19\nA failure to compete effectively or to keep pace with rapidly changing consumer preferences and technology and product trends could adversely affect our growth and profitability.\nThe success of our business depends on our ability to retain the value of our brands and to respond to changing fashion and retail trends in a timely manner.\nTapestry, Inc. is a New York-based house of iconic accessories and lifestyle brands. Our global house of brands unites the magic of Coach, kate spade new york and Stuart Weitzman. Each of our brands are unique and independent, while sharing a commitment to innovation and authenticity defined by distinctive products and differentiated customer experiences across channels and geographies. Any misstep in product quality or design, executive leadership, customer service, marketing, unfavorable publicity or excessive product discounting could negatively affect the image of our brands with our customers. Furthermore, the product lines we have historically marketed and those that we plan to market in the future are becoming increasingly subject to rapidly changing fashion trends and consumer preferences, including the increasing shift to digital brand engagement and social media communication. If we do not anticipate and respond promptly to changing customer preferences and fashion trends in the design, production, and styling of our products, as well as create compelling marketing campaigns that appeal to our customers, our sales and results of operations may be negatively impacted. \nThe shift towards digital engagement has become increasingly important, with increased use of social media platforms by our brand representatives, influencers and our employees. Actions taken by our partners on social media that do not show our brands in a manner consistent with our desired image or that are damaging to such partner\u2019s reputation, whether or not through our brand social media platforms, could harm our brand reputation and materially impact our business. \nOur success also depends in part on our and our executive leadership team's ability to execute on our plans and strategies. Even if our products, marketing campaigns and retail environments do meet changing customer preferences and/or stay ahead of changing fashion trends, our brand image could become tarnished or undesirable in the minds of our customers or target markets, which could materially adversely impact our business, financial condition, and results of operations.\nOur success depends, in part, on attracting, developing and retaining qualified employees, including key personnel.\nOur business and future success depends heavily on attracting, developing and retaining qualified employees, including our senior management team. Competition in our industry to attract and retain these employees is intense and is influenced by our ability to offer competitive compensation and benefits, employee morale, our reputation, recruitment by other employers, perceived internal opportunities, non-competition and non-solicitation agreements and macro unemployment rates. \nWe depend on the guidance of our senior management team and other key employees who have significant experience and expertise in our industry and our operations. There can be no assurance that these individuals will remain with us or that we will be able to identify and attract suitable successors for these individuals. The loss of one or more of our key personnel or the direct or indirect consequences of results thereof, or any negative public perception with respect to these individuals or the loss of these individuals, could have a material adverse effect on our business, results of operations and financial condition. We do not maintain key-person or similar life insurance policies on any of senior management team or other key personnel.\nWe must also attract, motivate and retain a sufficient number of qualified retail and fulfillment center employees. Historically, competition for talent in these positions has been intense and turnover is generally high, both of which were exacerbated by the Covid-19 pandemic. If we are unable to attract and retain such employees with the necessary skills and experience, we may not achieve our objectives and our results of operations could be adversely impacted. \nAdditionally, changes to our office environments, the adoption of new work models, and our requirements and/or expectations about when or how often certain employees work on-site or remotely may not meet the expectations of our employees. As businesses increasingly operate remotely, traditional geographic competition for talent may change in ways that we cannot presently predict. If our employment proposition is not perceived as favorable compared to other companies, it could negatively impact our ability to attract and retain our employees.\nOur business may be materially impacted if our fulfillment centers face significant interruptions and operations. \nWe are dependent on a limited number of fulfillment centers. Our ability to meet the needs of our customers and our retail stores and e-commerce sites depends on the proper operation of these centers. If any of these centers were to shut down or otherwise become inoperable or inaccessible for any reason, we could suffer a substantial loss of inventory and/or disruptions of deliveries to our retail and wholesale customers. Depending on the duration of these closures, our results may be materially impacted. While we have business continuity and contingency plans for our sourcing and fulfillment center sites, significant disruption of manufacturing or fulfillment for any of the above reasons could interrupt product supply, result in a substantial loss of inventory, increase our costs, disrupt deliveries to our customers and our retail stores, and, if not remedied in a timely manner, could have a material adverse impact on our business. \n20\nBecause our fulfillment centers include automated and computer-controlled equipment, they are susceptible to risks including power interruptions, hardware and system failures, software viruses, and security breaches. In North America we maintain fulfillment centers in Jacksonville, Florida, Westchester, Ohio and Las Vegas, Nevada, operated by Tapestry. Our multi-brand Las Vegas, Nevada fulfillment center began operations during fiscal 2023 and is expected to become fully operational during fiscal 2024. This opening involves configuration and implementation of a cloud-based warehouse management system, training on this and other new technology and automation and integration with existing systems. Any failure to execute our operational plans for this fulfillment center could result in the Company not being able to meet customer demand for its products and could materially adversely affect our business and operations.\nGlobally we utilize fulfillment centers in mainland China, the Netherlands, the U.K. and Spain, owned and operated by third parties, allowing us to better manage the logistics in these regions while reducing costs. We also utilize local fulfillment centers, through third-parties, in Japan, parts of Greater China, South Korea, Singapore, Malaysia, Spain, the U.K., Canada, Australia, and, starting during fiscal 2023, in Mexico. The warehousing of the Company\u2019s merchandise, store replenishment and processing direct-to-customer orders is handled by these centers and a prolonged disruption in any center\u2019s operation could materially adversely affect our business and operations.\nIn addition, if our fulfillment centers are not sized to meet the optimal capacity for our products or are not adequately staffed, utilized or operated, our profitability may be negatively impacted. \nOur business may be subject to increased costs due to excess inventories and a decline in profitability as a result of increasing pressure on margins if we misjudge the demand for our products.\nOur industry is subject to significant pricing pressure caused by many factors, including intense competition and a highly promotional environment, fragmentation in the retail industry, pressure from retailers to reduce the costs of products, and changes in consumer spending patterns. If we misjudge the market for our products or demand for our products are impacted by other factors, such as inflationary pressures, political instability or effects of the Covid-19 pandemic, we may be faced with significant excess inventories for some products and missed opportunities for other products. We have in the past been, and may in the future be, forced to rely on donation, markdowns, promotional sales or other write-offs, to dispose of excess, slow-moving inventory, which may negatively impact our gross margin, overall profitability and efficacy of our brands.\nIncreases in our costs, such as raw materials, labor or freight could negatively impact our gross margin. Our costs for raw materials are affected by, among other things, weather, customer demand, speculation on the commodities market, the relative valuations and fluctuations of the currencies of producer versus customer countries and other factors that are generally unpredictable and beyond our control. Any of these factors may be exacerbated by global climate change. In addition, the remaining impacts of the pandemic, political instability, trade relations, sanctions, price inflationary pressure, or other geopolitical or economic conditions could cause raw material costs to increase and have an adverse effect on our future margins. Labor costs at many of our manufacturers have been increasing significantly and, as the middle class in developing countries continues to grow, it is unlikely that such cost pressure will abate. Furthermore, the cost of transportation has fluctuated and may continue to fluctuate significantly if oil prices continue to rise. We may not be able to offset such increases in raw materials, labor or transportation costs through pricing measures or other means.\nAs we outsource functions, we will become more dependent on the third parties performing these functions.\nAs part of our long-term strategy, we look for opportunities to cost effectively enhance capability of business services. While we believe we conduct appropriate due diligence before entering into agreements with these third parties, the failure of any of these third parties to provide the expected services, provide them on a timely basis or to provide them at the prices we expect could disrupt or harm our business. We also cannot guarantee that these third parties will not experience a personal data or security breach in the future, which could have a material impact on our operations. Any significant interruption in the operations of these service providers, including as a result of changes in social, political, and economic conditions, including those resulting from military conflicts or other hostilities, that could result in the disruption of trade from the countries in which our manufacturers or suppliers are located, over which we have no control, could also have an adverse effect on our business. Furthermore, we may be unable to provide these services or implement substitute arrangements on a timely and cost-effective basis on terms favorable to us. \nOur wholesale business could suffer as a result of consolidations, liquidations, restructurings and other ownership changes in the wholesale industry.\nOur wholesale business comprised approximately 11% of total net sales for fiscal 2023. The retail industry, including wholesale customers, has experienced financial difficulty leading to consolidations, reorganizations, restructuring, bankruptcies and ownership changes. Our wholesale customers have also experienced significant business disruptions as a result of the Covid-19 pandemic, including reduced operations or the closure, temporarily or permanently, of many of our wholesale partners. This may continue and could further decrease the number of, or concentrate the ownership of, wholesale stores that carry our or our licensees\u2019 products. Furthermore, a decision by the controlling owner of a group of stores or any other significant customer, whether motivated by competitive conditions, financial difficulties or otherwise, to decrease or eliminate the amount of merchandise purchased from us or our licensing partners could result in an adverse effect on the sales and profitability within this channel.\n21\nAdditionally, certain of our wholesale customers, particularly those located in the U.S., have in the past been highly promotional and have aggressively marked down their merchandise and may do so again in the future, which could negatively impact our brands or could affect our business, results of operations, and financial condition.\nMergers, acquisitions and other strategic investments may not be successful in achieving intended benefits, cost savings and synergies and may disrupt current operations.\nOne component of our historical growth strategy has been acquisitions, and, consistent with our longer-term capital allocation priorities, our management team expects to maintain M&A flexibility and may from time to time evaluate and consider acquisitions or other strategic investments. These involve various inherent risks and as a result, the expected benefits, cost savings and synergies may not be realized.\nThe integration process of any newly acquired company, such as our proposed acquisition of Capri Holdings Limited (\"Capri\"), may be complex, costly and time-consuming. The potential difficulties of integrating the operations of an acquired business and realizing our expectations for an acquisition, including the benefits that may be realized, include, among other things:\n\u2022\nfailure of the business to perform as planned following the acquisition or achieve anticipated revenue or profitability targets;\n\u2022\ndelays, unexpected costs or difficulties in completing the integration of acquired companies or assets;\n\u2022\nhigher than expected costs, lower than expected cost savings or synergies and/or a need to allocate resources to manage unexpected operating difficulties;\n\u2022\ndifficulties assimilating the operations and personnel of acquired companies into our operations;\n\u2022\ndiversion of the attention and resources of management or other disruptions to current operations;\n\u2022\nthe impact on our or an acquired business\u2019 internal controls and compliance with the requirements under the Sarbanes-Oxley Act of 2002;\n\u2022\nchanges in applicable laws and regulations or the application of new laws and regulations;\n\u2022\nchanges in the combined business due to potential divestitures or other requirements imposed by antitrust regulators;\n\u2022\nretaining key customers, suppliers and employees;\n\u2022\nretaining and obtaining required regulatory approvals, licenses and permits;\n\u2022\noperating risks inherent in the acquired business and our business;\n\u2022\nlower than anticipated demand for product offerings by us or our licensees;\n\u2022\nassumption of liabilities not identified in due diligence; and\n\u2022\nother unanticipated issues, expenses and liabilities.\nOur failure to successfully complete the integration of any acquired business and any adverse consequences associated with future acquisition activities, could have an adverse effect on our business, financial condition and operating results.\nCompleted acquisitions may result in additional goodwill and/or an increase in other intangible assets on our Consolidated Balance Sheets. We are required annually, or as facts and circumstances exist, to assess goodwill and other intangible assets to determine if impairment has occurred. If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill or other intangible assets and the implied fair value of the goodwill or the fair value of other intangible assets in the period the determination is made. We cannot accurately predict the amount and timing of any potential future impairment of assets. Should the value of goodwill or other intangible assets become impaired, there could be a material adverse effect on our financial condition and results of operations.\nWe may not complete our acquisition of Capri within the time frame we anticipate or at all.\nThe completion of our acquisition of Capri is subject to a number of conditions, including, among others, receipt of Capri shareholder approval, receipt of certain global anti-trust clearances, including expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and receipt of certain other regulatory approvals. \nThe failure to satisfy the required conditions could delay the completion of the acquisition for a significant period of time or prevent it from occurring at all. For example, under certain limited conditions, we and/or Capri may elect to terminate the merger agreement, which could materially and adversely affect our business and reputation. A delay in completing the acquisition could cause us to realize some or all of the benefits later than we otherwise expect to realize them if the acquisition is successfully completed within the anticipated time frame, which could result in additional transaction costs or in other negative effects associated with uncertainty about the completion of the acquisition.\n22\nWe may fail to realize all of the anticipated benefits of the Capri acquisition, and the merger or those benefits may take longer to realize than expected.\nWe believe that there are significant benefits and synergies that may be realized through our acquisition of Capri. However, the efforts to realize these benefits and synergies will be a complex process and may cost more than we anticipate. Further, our efforts to realize these benefits and synergies may disrupt both companies\u2019 existing operations if not implemented in a timely and efficient manner. The full benefits of the acquisition, including the anticipated sales or growth opportunities, may not be realized as expected or may not be achieved within the anticipated time frame, or at all. Failure to achieve the anticipated benefits of the acquisition could adversely affect our results of operations or cash flows, cause dilution to our earnings per share, decrease or delay any accretive effect of the acquisition and negatively impact the price of our common stock. \nIn addition, we will be required post-closing to devote significant attention and resources to successfully align our business practices and operations. This process may disrupt the businesses and, if ineffective, would limit the anticipated benefits of the acquisition.\nWe may be subject to litigation challenging the Capri acquisition, and an unfavorable judgment or ruling in any such lawsuits could prevent or delay the consummation of our acquisition of Capri and/or result in substantial costs.\nLawsuits related to our acquisition of Capri may be filed against us, Capri, and our respective affiliates, directors and officers. If dismissals are not obtained or a settlement is not reached, these lawsuits could prevent or delay completion of the acquisition and/or result in substantial costs to us.\nOur operating results are subject to seasonal and quarterly fluctuations, which could adversely affect the market price of the Company's common stock.\nThe Company's results are typically affected by seasonal trends. We have historically realized, and expect to continue to realize, higher sales and operating income in the second quarter of our fiscal year. Business underperformance in the Company's second fiscal quarter would have a material adverse effect on its full year operating results and result in higher inventories. In addition, fluctuations in net sales, operating income and operating cash flows of the Company in any fiscal quarter may be affected by the timing of wholesale shipments and other events affecting retail sales, including adverse weather conditions or other macroeconomic events, including the impact of the Covid-19 pandemic.\nWe rely on our licensing partners to preserve the value of our licenses and the failure to maintain such partners could harm our business.\nOur brands currently have multi-year agreements with licensing partners for certain products. In the future, we may enter into additional licensing arrangements. The risks associated with our own products also apply to our licensed products, as do unique risks stemming from problems that our licensing partners may experience, including risks associated with each licensing partner\u2019s ability to obtain capital, manage its labor relations, maintain relationships with its suppliers, manage its credit and bankruptcy risks, and maintain customer relationships. While we maintain significant control over the products produced for us by our licensing partners, any of the foregoing risks, or the inability of any of our licensing partners to execute on the expected design and quality of the licensed products or otherwise exercise operational and financial control over its business, may result in loss of revenue and competitive harm to our operations in the licensed product categories. Further, while we believe that we could replace our existing licensing partners if required, any delay in doing so could adversely affect our revenues and harm our business. \nWe also may decide not to renew our agreements with our licensing partners and bring certain categories in-house. We may face unexpected difficulties or costs in connection with any action to bring currently licensed categories in-house.\nWe are subject to risks associated with leasing retail space subject to non-cancelable leases. We may be unable to renew leases at the end of their terms. If we close a leased retail space, we remain obligated under the applicable lease.\nWe do not own any of our retail store locations. The majority of our stores are under non-cancelable, multi-year leases, often with renewal options. We believe that the majority of the leases we enter into in the future will likely be non-cancelable. Generally, our leases are \u201cnet\u201d leases, which require us to pay our proportionate share of the cost of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases at our option. In certain cases, as we have done in the past, we may determine that it is no longer economical to operate a retail store subject to a lease or we may seek to generally downsize, consolidate, reposition, relocate or close some of our real estate locations. In such cases, we may be required to negotiate a lease exit with the applicable landlord or remain obligated under the applicable lease for, among other things, payment of the base rent for the balance of the lease term. In some instances, we may be unable to close an underperforming retail store due to continuous operation clauses in our lease agreements. In addition, as each of our leases expire, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close retail stores in desirable locations. Our inability to secure desirable retail space or favorable lease terms could impact our ability to grow. Likewise, our obligation to continue making lease payments in respect of leases for closed retail spaces could have a material adverse effect on our business, financial condition and results of operations.\n23\nAdditionally, due to the uncertain economic environment, it may be difficult to determine the fair market value of real estate properties when we are deciding whether to enter into leases or renew expiring leases. This may impact our ability to manage the profitability of our store locations, or cause impairments of our lease right of use assets if market values decline, any of which could have a material adverse effect on our financial condition or results of operations.\nRisks Related to Information Security and Technology\nComputer system disruption and cyber security threats, including a personal data or security breach, could damage our relationships with our customers, harm our reputation, expose us to litigation and adversely affect our business.\nWe depend on digital technologies for the successful operation of our business, including corporate email communications to and from employees, customers, stores and vendors, the design, manufacture and distribution of our finished goods, digital and local marketing and clienteling efforts, data analytics, collection, use and retention of customer data, employee, vendor and partner information, the processing of credit card transactions, online e-commerce activities and our interaction with the public in the social media space. Due to persistent Covid-19 risks, our company implemented a hybrid working model. Many of our corporate employees and independent contractors returned to offices several days a week but continued to work remotely the other days. Continued remote working has increased our dependence on digital technology. The possibility of a successful cyber-attack on any one or all of these systems is a serious threat. The retail industry, in particular, has been the target of many cyber-attacks. As part of our business model, we collect, retain, and transmit confidential information and personal data over public networks. In addition to our own databases, we use third-party service providers to store, process and transmit this information on our behalf. Although we contractually require these service providers to implement and use reasonable and adequate security measures and data protection, we cannot control third parties and cannot guarantee that a personal data or security breach will not occur in the future either at their location or within their systems. We also store all designs, goods specifications, projected sales and distribution plans for our finished products digitally. We have enterprise class and industry comparable security measures in place to protect both our physical facilities and digital systems from attacks. Despite these efforts, however, we may be vulnerable to targeted or random cyber-attacks, personal data or security breaches, acts of vandalism, computer malware, misplaced or lost data, programming and/or human errors, or other similar events. Further, like other companies in the retail industry, during the ordinary course of business, we and our vendors have in the past experienced, and we expect to continue to experience, cyber-attacks of varying degrees and types, including phishing, and other attempts to breach, or gain unauthorized access to, our systems. To date, these attacks have not had a material impact on our operations, but we cannot provide assurance that cyber-attacks will not have a material impact in the future.\nAwareness and sensitivity to personal data breaches and cyber security threats by consumers, employees and lawmakers is at an all-time high. Any misappropriation of confidential or personal information gathered, stored or used by us, be it intentional or accidental, could have a material impact on the operation of our business, including severely damaging our reputation and our relationships with our customers, employees, vendors and investors. We have been incurring and expect that we will continue to incur significant costs implementing additional security measures to protect against new or enhanced data security or privacy threats, or to comply with current and new international, federal and state laws governing the unauthorized disclosure or exfiltration of confidential and personal information which are continuously being enacted and proposed such as the General Data Protection Regulation (\"GDPR\") in the E.U. the UK GDPR, the American Data Privacy and Protection Act, the California Consumer Privacy Act (\"CCPA\") as amended by the California Privacy Rights Act (\"CPRA\"), the Virginia Consumer Data Protection Act (\"VCDPA\"), the Colorado Privacy Act (\"CPA\"), the Utah Consumer Privacy Act (\"UCPA\"), the Connecticut Data Privacy Act (\"CTDPA\"), the Montana Consumer Data Privacy Act (\"MCDPA\"), the Washington My Health My Data Act (\"WMHMDA\"), the Florida Digital Bill of Rights (\"FDBR\"), the Texas Data Privacy and Security Act (\"TDPSA\") in the U.S.A., as well as increased cyber security and privacy protection costs such as organizational changes, deploying additional personnel and protection technologies, training employees and contractors, engaging outside counsel, third-party experts and consultants. We may also experience loss of revenues resulting from unauthorized use of proprietary information including our intellectual property. Lastly, we could face sizable fines, significant breach containment and notification costs to supervisory authorities and the affected data subjects, and increased litigation and customer claims, as a result of cyber security or personal data breaches. While we carry cyber liability insurance, such insurance may not cover us with respect to any or all claims or costs associated with such a breach. \n24\nIn addition, we have e-commerce sites in certain countries throughout the world, including the U.S., Canada, Japan, Greater China, several throughout Europe, Australia and several throughout the rest of Asia and have plans for additional e-commerce sites in other parts of the world. Additionally, Tapestry has informational websites in various countries. Given the robust nature of our e-commerce presence and digital strategy, it is imperative that we and our e-commerce partners maintain uninterrupted operation of our: (i) computer hardware, (ii) software systems, (iii) customer databases, and (iv) ability to email or otherwise keep in contact with our current and potential customers. Despite our preventative efforts, our systems are vulnerable from time-to-time to damage, disruption or interruption from, among other things, physical damage, natural disasters, inadequate system capacity, system issues, security and personal data breaches, email blocking lists, computer malware or power outages. Any material disruptions in our e-commerce presence or information technology systems and applications could have a material adverse effect on our business, financial condition and results of operations.\nA delay, disruption in, failure of, or inability to upgrade our information technology systems precisely and efficiently could materially adversely affect our business, financial condition or results of operations and cash flow.\nWe rely heavily on various information and other business systems, including data analytics and machine learning, to manage our operations, including management of our supply chain, point-of-sale processing in our brands\u2019 stores, our online businesses associated with each brand and various other processes and metrics. We are continually evaluating and implementing upgrades and changes to our systems. In addition, from time to time, we implement new systems.\nImplementing new systems and upgrading existing systems and data analytics models carries substantial risk, including failure to operate as designed, failure to properly integrate with other systems, failure to accurately capture or report data or metrics, potential loss of confidential and personal information, cost overruns, implementation delays and disruption of operations. Furthermore, failure of our computer systems due to inadequate system capacity, computer viruses, human error, changes in programming, security and personal data breaches, system upgrades or migration of these services, as well as employee, vendor and consumer privacy concerns and new privacy and security laws and global government regulations, individually or in accumulation, could have a material effect on our business, financial condition or results of operations and cash flow.\nRisks Related to Environmental, Social, and Governance Issues\nThe risks associated with climate change and other environmental impacts and increased focus by stakeholders on climate change, could negatively affect our business and operations.\nOur business is susceptible to risks associated with climate change, including through disruption to our supply chain, potentially impacting the production and distribution of our products including availability and pricing of raw materials, as well as shipping disruptions and/or higher freight costs. Climate change can lead to physical and transition risks impacting our business. The physical risks result from climatic events, such as wildfires, storms, and floods, whereas transition risks result from policy action taken to transition the economy off of fossil fuels. Increased frequency and/or intensity of extreme weather events (such as storms and floods) due to climate change could also lead to more frequent store and fulfillment center closures, adversely impacting retail traffic and/or consumer's disposable income levels or spending habits on discretionary items, or otherwise disrupt business operations in the communities in which we operate, any of which could result in lost sales or higher costs. \nThere is also increased focus from our stakeholders, including consumers, employees and investors, on climate change issues. Many countries in which we and our suppliers operate have begun to enact new legislation and regulations in an attempt to mitigate the potential impacts of climate change, which could result in higher sourcing, operational, and compliance-related costs for the Company. Such proposed measures include expanded disclosure requirements regarding greenhouse gas emissions and other climate-related information, as well as independent auditors providing some level of attestation to the accuracy of such disclosures. Inconsistency of legislation and regulations among jurisdictions may also affect our compliance costs with such laws and regulations. An assessment of the potential impact of future climate change legislation, regulations or industry standards, as well as any international treaties and accords, will be fraught with uncertainty given the wide scope of potential regulatory change in the countries in which we operate. Any failure on our part to comply with such climate change-related regulations could lead to adverse consumer actions and/or investment decisions by investors, as well as expose us to legal risk.\n25\nIncreased scrutiny from investors and others regarding our environmental, social and governance (\"ESG\") initiatives, including matters of significance relating to sustainability, could result in additional costs or risks and adversely impact our reputation.\nStakeholders, including consumers, employees and investors, have increasingly focused on corporate responsibility practices of companies. Although we have announced our ESG strategy and related goals, there can be no assurance that our stakeholders will agree with our strategy or that we will be successful in achieving our goals. Failure to implement our strategy or achieve our goals on a timely basis, or at all, could damage our reputation, causing our investors or consumers to lose confidence in our Company and brands, and negatively impact our operations. In addition, our brand is susceptible to risks associated with changing consumer attitudes regarding social and political issues and consumer perceptions of our position on these issues.\nAny ESG report that we publish or other sustainability disclosure we make may include our policies and practices on a variety of social and ethical matters, including corporate governance, environmental compliance, employee health and safety practices, human capital management, product quality, supply chain management and workforce inclusion and diversity. It is possible that stakeholders may not be satisfied with our ESG practices or the speed of our adoption of these practices. We could also incur additional costs and require additional resources to monitor, report and comply with various ESG practices and various legal, legislative and regulatory requirements. Also, our failure, or perceived failure, to meet the standards included in any sustainability disclosure could negatively impact our reputation, employee retention and the willingness of our customers and suppliers to do business with us.\nIn addition, many of the countries where we and our suppliers operate continue to enact legislation and regulatory rules that address climate change and other sustainability issues, including expanded disclosure requirements on greenhouse gas emissions and other climate related information. Consumers, trade associations, interested non-governmental organizations and other stakeholders have increased focus and emphasis on sustainable features of products and other sustainability topics, including traceability and transparency, sustainability claims and product labeling requirements, responsible sourcing and deforestation, the use of energy and water, and the recyclability or recoverability of packaging, product, and materials. The rules and regulations and governmental oversight continue to rapidly evolve with varying degrees of complexity and scope, many that include penalties for non-compliance. Any failure on our part to comply with sustainability related legislation, regulations and frameworks could lead to adverse consumer action, government enforcement action and private litigation. Our ability to comply with the evolution of consumer expectations, regulations and governmental standards and legal landscape can lead to increased risk, operational costs and management time and effort. \nRisks Related to Global Economic Conditions and Legal and Regulatory Matters\n \nWe face risks associated with potential changes to international trade agreements and the imposition of additional duties on importing our products.\nMost of our imported products are subject to duties, indirect taxes, quotas and non-tariff trade barriers that may limit the quantity of products that we may import into the U.S. and other countries or may impact the cost of such products. To maximize opportunities, we rely on free trade agreements and other supply chain initiatives and, as a result, we are subject to government regulations and restrictions with respect to our cross-border activity. For example, we have historically received benefits from duty-free imports on certain products from certain countries pursuant to the U.S. Generalized System of Preferences (\"GSP\") program. The GSP program expired on December 31, 2020, resulting in additional duties that have negatively impacting gross margin. Additionally, we are subject to government regulations relating to importation activities, including related to U.S. Customs and Border Protection (\"CBP\") enforcement actions. The imposition of taxes, duties and quotas, the withdrawal from or material modification to trade agreements, and/or if CBP detains shipments of our goods pursuant to a withhold release order could have a material adverse effect on our business, results of operations and financial condition. Since fiscal 2019, the U.S. and China have both imposed tariffs on the importation of certain product categories into the respective country, with limited progress in negotiations to reduce or remove the tariffs. However, while the U.S. has participated in multi-national negotiations on trade agreements and duty rates, there continues to be a possibility of increases in tariffs on goods imported into the U.S. from other countries, which could in turn adversely affect the profitability for these products and have an adverse effect on our business, financial conditions and results of operations as a result.\nFluctuations in our tax obligations and effective tax rate may result in volatility of our financial results and stock price.\nWe are subject to income taxes in many jurisdictions. We record tax expense based on our estimates of taxable income and required reserves for uncertain tax positions in multiple tax jurisdictions. At any one time, multiple tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may result in a settlement which differs from our original estimate. As a result, we expect that throughout the year there could be ongoing variability in our quarterly effective tax rates as events occur and exposures are evaluated. In addition, our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of earnings. Further, proposed tax changes that may be enacted in the future could impact our current or future tax structure and effective tax rates.\n26\nOver the past year, there has been significant discussion with regards to tax legislation by both the Biden Administration and the Organization for Economic Cooperation and Development (\u201cOECD\u201d). On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law by the Biden Administration, with tax provisions primarily focused on implementing a 15% corporate alternative minimum tax on global adjusted financial statement income (\"CAMT\") and a 1% excise tax on share repurchases. On December 12, 2022, the European Union member states also reached agreement to implement the OECD\u2019s reform of international taxation known as Pillar Two Global Anti-Base Erosion (\"GloBE\") Rules, which broadly mirror the Inflation Reduction Act by imposing a 15% global minimum tax on multinational companies. The CAMT and GloBE are anticipated to be effective beginning in fiscal 2024 and fiscal 2025, respectively. The US Treasury and the OECD continue to seek input and release guidance on the CAMT and GloBE legislation and how the two will interact, so it is unclear at this time what, if any, impact either will have on the Company\u2019s tax rate and financial results. We will continue to evaluate their impact as further information becomes available. With respect to the 1% excise tax on net share repurchases, this provision of the Inflation Reduction Act was effective on January 1, 2023 and did not have a material impact on our financial statements.\nOur business is exposed to foreign currency exchange rate fluctuations.\nWe monitor our global foreign currency exposure. In order to minimize the impact on earnings related to foreign currency rate movements, we hedge certain cross currency intercompany inventory transactions and foreign currency balance sheet exposures, as well as the Company\u2019s cross currency intercompany loan portfolio. We cannot ensure, however, that these hedges will fully offset the impact of foreign currency rate movements. Additionally, our international subsidiaries primarily use local currencies as the functional currency and translate their financial results from the local currency to U.S. dollars. If the U.S. dollar strengthens against these subsidiaries\u2019 foreign currencies, the translation of their foreign currency denominated transactions may decrease consolidated net sales and profitability. Our continued international expansion will increase our exposure to foreign currency fluctuations. The majority of the Company's purchases and sales involving international parties, excluding international consumer sales, are denominated in U.S. dollars. \nWe may be unable to protect our intellectual property and curb the sale of counterfeit merchandise, which can cause harm to our reputation and business.\nWe believe our trademarks, copyrights, patents, and other intellectual property rights are extremely important to our success and our competitive position. We devote significant resources to the registration and protection of our trademarks and to anti-counterfeiting efforts worldwide. We pursue entities involved in the trafficking and sale of counterfeit merchandise through legal action or other appropriate measures. We cannot guarantee that the actions we have taken to curb counterfeiting and protect our intellectual property will be adequate to protect the brand and prevent counterfeiting in the future. Despite our efforts, our brands are still susceptible to counterfeiting. Such counterfeiting dilutes our brands and can cause harm to our reputation and business. Our efforts to enforce our intellectual property rights are often met with defenses and counterclaims attacking the validity and enforceability of our intellectual property rights. In the ordinary course of business, we become involved in trademark oppositions and cancellation actions. Our trademark applications may face objections from the trademark offices we seek to register them in and may not mature into registrations. Other parties may seek to invalidate our trademarks or assert violations of their trademarks or other intellectual property and seek to block our sales of certain products. Unplanned increases in legal and investigative fees and other costs associated with defending our intellectual property rights could result in higher operating expenses. Finally, many countries\u2019 laws do not protect intellectual property rights to the same degree as U.S. laws.\nRisks Related to our Indebtedness \nWe have incurred a substantial amount of indebtedness, which could restrict our ability to engage in additional transactions or incur additional indebtedness.\nAs of July\u00a01, 2023, our consolidated indebtedness was approximately $1.67\u00a0billion. In connection with the pending acquisition of Capri, we expect to incur up to $8.0 billion of additional indebtedness through a combination of senior notes and term loans. If we cannot raise the senior notes and term loans by the closing of the Capri acquisition, we will incur bridge loans that will raise our borrowing costs if they remain outstanding and cannot be refinanced. This substantial level of indebtedness could have important consequences to our business including making it more difficult to satisfy our debt obligations, increasing our vulnerability to general adverse economic and industry conditions, limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and restricting us from pursuing certain business opportunities. In addition, the terms of our $1.25 Billion Revolving Credit Facility contain affirmative and negative covenants, including a maximum net leverage ratio of 4.0 to 1.0, as well as limitations on our ability to incur debt, grant liens, engage in mergers and dispose of assets. Refer to Note 12, \"Debt\", for a summary of these terms and additional information on the terms of our $1.25 Billion Revolving Credit Facility, Term Loan and outstanding Senior Notes.\n27\nThe consequences and limitations under our $1.25 Billion Revolving Credit Facility and our other outstanding indebtedness could impede our ability to engage in future business opportunities or strategic acquisitions. In addition, a prolonged disruption in our business may impact our ability to satisfy the leverage ratio covenant under our $1.25 Billion Revolving Credit Facility. Non-compliance with these terms would constitute an event of default under our $1.25 Billion Revolving Credit Facility, which may result in acceleration of payment to the lenders. In the event of an acceleration of payment to the lenders, this would result in a cross default of the Company\u2019s Senior Notes, causing the Company\u2019s outstanding borrowings to also become due and payable on demand. \nOur ability to make payments on and to refinance our debt obligations and to fund planned capital expenditures depends on our ability to generate cash from our operations. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot guarantee that our business will generate sufficient cash flow from our operations or that future borrowings will be available to us in an amount sufficient to enable us to make payments of our debt, fund other liquidity needs and make planned capital expenditures. In addition, our ability to access the credit and capital markets in the future as a source of funding, and the borrowing costs associated with such financing, is dependent upon market conditions and our credit rating and outlook.\nAs a result of having operations outside of the U.S., we are also exposed to market risk from fluctuations in foreign currency exchange rates. Substantial changes in foreign currency exchange rates could cause our sales and profitability to be negatively impacted. \nRisks Related to Ownership of our Common Stock\nIf we are unable to pay quarterly dividends or conduct stock repurchases at intended levels, our reputation and stock price may be negatively impacted.\nIn fiscal 2023, the Company returned capital to its shareholders through (i) a quarterly cash dividend of $0.30 per common share, for an annual dividend rate of $1.20 per share, or approximately $280\u00a0million and (ii) the repurchase of 17.8\u00a0million shares of common stock for $700\u00a0million (the \u201cShareholder Return Programs\u201d). The dividend program and the stock repurchase program each require the use of a significant portion of our cash flow. Our ability to pay dividends and conduct stock repurchases will depend on our ability to generate sufficient cash flows from operations in the future. This ability may be subject to certain economic, financial, competitive and other factors that are beyond our control. Our Board may, at its discretion, decrease or entirely discontinue these Shareholder Return Programs at any time. Any failure to pay dividends or conduct stock repurchases, or conduct either program at expected levels, after we have announced our intention to do so may negatively impact our reputation, investor confidence in us and negatively impact our stock price.\nOur stock price may periodically fluctuate based on the accuracy of our earnings guidance or other forward-looking statements regarding our financial performance, including our ability to return value to investors.\nOur business and long-range planning process is designed to maximize our long-term strength, growth, and profitability, and not to achieve an earnings target in any particular fiscal quarter. We believe that this longer-term focus is in the best interests of the Company and our stockholders. At the same time, however, we recognize that, when possible, it is helpful to provide investors with guidance as to our forecast of net sales, operating income, net interest expense, tax rate, earnings per diluted share and other financial metrics or projections. While we generally expect to provide updates to our financial guidance when we report our results each fiscal quarter, we do not have any responsibility to provide guidance going forward or to update any of our forward-looking statements at such times or otherwise. In addition, any longer-term guidance that we provide is based on goals that we believe, at the time guidance is given, are reasonably attainable for growth and performance over a number of years. However, such long-range targets are more difficult to predict than our current quarter and fiscal year expectations. If, or when, we announce actual results that differ from those that have been predicted by us, outside investment analysts, or others, our stock price could be adversely affected. Investors who rely on these predictions when making investment decisions with respect to our securities do so at their own risk. We take no responsibility for any losses suffered as a result of such changes in our stock price.\nWe periodically return value to investors through payment of quarterly dividends and common stock repurchases. The market price of our securities could be adversely affected if our cash dividend rate or common stock repurchase activity differs from investors\u2019 expectations. Refer to \u201c\nIf we are unable to pay quarterly dividends or conduct stock repurchases at intended levels, our reputation and stock price may be negatively impacted.\n\u201d for additional discussion of our quarterly dividend.\n28\nCertain provisions of the Company's charter, bylaws and Maryland law may delay or prevent an acquisition of the Company by a third-party.\nThe Company's charter, bylaws and Maryland law contain provisions that could make it more difficult for a third-party to acquire the Company without the consent of our Board. The Company's charter permits a majority of its entire Board, without stockholder approval, to amend the charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the Company has the authority to issue. In addition, the Company's Board may classify or reclassify any unissued shares of common stock or preferred stock and may set the preferences, rights and other terms of the classified or reclassified shares without stockholder approval. Although the Company's Board has no intention to do so at the present time, it could establish a class or series of preferred stock that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for the Company's common stock or otherwise be in the best interest of the Company's stockholders.\nThe Company's bylaws provide that nominations of persons for election to the Company's Board and the proposal of business to be considered at an annual meeting of stockholders may be made only in the notice of the meeting, by the Company's Board, by a stockholder who is a stockholder of record as of the record date set by the Company's Board for purposes of determining stockholders entitled to vote at the meeting, at the time of the giving of the notice by the stockholder pursuant to the Company's bylaws and at the time of the meeting, who is entitled to vote at the meeting in the election of each individual so nominated or on any such other business and has complied with the advance notice procedures of the Company's bylaws or by qualifying stockholders that satisfy the proxy access provisions of the Company\u2019s bylaws. \nUnder Maryland law, business combinations, including mergers, consolidations, share exchanges, or, in circumstances specified in the statute, asset transfers or issuances or reclassifications of equity securities, between the Company and any interested stockholder, generally defined as any person who beneficially owns, directly or indirectly, 10% or more of the Company\u2019s common stock, or any affiliate of an interested stockholder are prohibited for a five-year period, beginning on the most recent date such person became an interested stockholder. After this period, a business combination must be approved by two super-majority stockholder votes, unless common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The statute permits various exemptions from its provisions, including business combinations that are exempted by our Board prior to the time that the interested stockholder becomes an interested stockholder.\nThe Company\u2019s charter provides that, except as may be provided by our Board in setting the terms of any class or series of preferred stock, any vacancy on our Board may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum. The Company\u2019s charter further provides that a director may be removed only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors. This provision, when coupled with the exclusive power of our Board to fill vacant directorships, may preclude stockholders from removing incumbent directors except by a substantial affirmative vote and filling the vacancies created by such removal with their own nominees.\nOur bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions, including derivative actions, which could limit a stockholder\u2019s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its directors, officers, other employees, or the Company's stockholders and may discourage lawsuits with respect to such claims.\nUnless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company, (b) any action asserting a claim of breach of any duty owed by any director or officer or other employee of the Company to the Company or to the stockholders of the Company, (c) any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the Maryland General Corporation Law, the charter or the bylaws of the Company, or (d) any action asserting a claim against the Company or any director or officer or other employee of the Company that is governed by the internal affairs doctrine, shall, to the fullest extent permitted by law, be the Circuit Court for Baltimore City, Maryland (or, if that Court does not have jurisdiction, the United States District court for the District of Maryland, Baltimore Division). This exclusive forum provision is intended to apply to claims arising under Maryland state law and would not apply to claims brought pursuant to the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or any other claim for which the federal courts have exclusive jurisdiction.\nAlthough we believe the exclusive forum provision benefits us by providing increased consistency in the application of Maryland law for the specified types of actions and proceedings, this provision may limit a stockholder\u2019s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its directors, officers, or other employees and may discourage lawsuits with respect to such claims.\n29",
+  "item7": ">ITEM 7. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThe following discussion of the Company's financial condition and results of operations should be read together with the Company\u2019s consolidated financial statements and notes to those financial statements included elsewhere in this document. When used herein, the terms \u201cthe Company,\u201d \"Tapestry,\" \u201cwe,\u201d \u201cus\u201d and \u201cour\u201d refer to Tapestry, Inc., including consolidated subsidiaries. References to \"Coach,\" \"Stuart Weitzman,\" \"Kate Spade\" or \"kate spade new york\" refer only to the referenced brand.\nINTRODUCTION\nManagement\u2019s discussion and analysis of financial condition and results of operations (\u201cMD&A\u201d) is provided as a supplement to the accompanying consolidated financial statements and notes thereto to help provide an understanding of our results of operations, financial condition, and liquidity. MD&A is organized as follows:\n\u2022\nOverview.\n This section provides a general description of the business and brands as well as the Company\u2019s growth strategy.\n\u2022\nGlobal Economic Conditions and Industry Trends.\n This section includes a discussion on global economic conditions and industry trends that affect comparability that are important in understanding results of operations and financial conditions, and in anticipating future trends.\n\u2022\nResults of operations\n.\n An analysis of our results of operations in fiscal 2023 compared to fiscal 2022.\n\u2022\nNon-GAAP measures.\n This section includes non-GAAP measures that are useful to investors and others in evaluating the Company\u2019s ongoing operating and financial results in a manner that is consistent with management's evaluation of business performance and understanding how such results compare with the Company\u2019s historical performance.\n\u2022\nFinancial Condition.\n This section includes a discussion on liquidity and capital resources including an analysis of changes in cash flow as well as working capital and capital expenditures.\n\u2022\nCritical Accounting policies and estimates. \nThis section includes any critical accounting policies or estimates that impact the Company. \nOVERVIEW\nThe fiscal year ended July\u00a01, 2023 was a 52-week period, July\u00a02, 2022 was a 52-week period, and July\u00a03, 2021 was a 53-week period.\nTapestry, Inc. (the \"Company\") is a leading New York-based house of iconic accessories and lifestyle brands. Our global house of brands unites the magic of Coach, kate spade new york and Stuart Weitzman. Each of our brands are unique and independent, while sharing a commitment to innovation and authenticity defined by distinctive products and differentiated customer experiences across channels and geographies. We use our collective strengths to move our customers and empower our communities, to make the fashion industry more sustainable, and to build a company that\u2019s equitable, inclusive, and diverse. Individually, our brands are iconic. Together, we can stretch what\u2019s possible.\nThe Company has three reportable segments:\n\u2022\nCoach - \nIncludes global sales of primarily Coach brand products to customers through Coach operated stores, including e-commerce sites and concession shop-in-shops, sales to wholesale customers and through independent third-party distributors.\n\u2022\nKate Spade \n- Includes global sales primarily of kate spade new york brand products to customers through Kate Spade operated stores, including e-commerce sites and concession shop-in-shops, sales to wholesale customers and through independent third-party distributors.\n\u2022\nStuart Weitzman -\n Includes global sales of Stuart Weitzman brand products primarily through Stuart Weitzman operated stores, sales to wholesale customers, through e-commerce sites and through independent third-party distributors.\n\u00a0\u00a0\u00a0\u00a0\u00a0Each of our brands is unique and independent, while sharing a commitment to innovation and authenticity defined by distinctive products and differentiated customer experiences across channels and geographies. Our success does not depend solely on the performance of a single channel, geographic area or brand. \n33\n2025 Growth Strategy\nBuilding on the success of the strategic growth plan from fiscal 2020 through fiscal 2022 (the \u201cAcceleration Program\u201d), in the first quarter of fiscal 2023, the Company introduced the 2025 growth strategy (\u201c\nfuture\nspeed\u201d), designed to amplify and extend the competitive advantages of its brands, with a focus on four strategic priorities:\n\u2022\nBuilding Lasting Customer Relationships: The Company\u2019s brands aim to leverage Tapestry\u2019s transformed business model to drive customer lifetime value through a combination of increased customer acquisition, retention and reactivation.\n\u2022\nFueling Fashion Innovation & Product Excellence: The Company aims to drive sustained growth in core handbags and small leathergoods, while accelerating gains in footwear and lifestyle products.\n\u2022\nDelivering Compelling Omni-Channel Experiences: The Company aims to extend its omni-channel leadership to meet the customer wherever they shop, delivering growth online and in stores.\n\u2022\nPowering Global Growth: The Company aims to support balanced growth across regions, prioritizing North America and China, its largest markets, while capitalizing on opportunities in under-penetrated geographies such as Southeast Asia and Europe.\nGLOBAL ECONOMIC CONDITIONS AND INDUSTRY TRENDS\nThe environment in which we operate is subject to a number of different factors driving global consumer spending. Consumer preferences, macroeconomic conditions, foreign currency fluctuations and geopolitical events continue to impact overall levels of consumer travel and spending on discretionary items, with inconsistent patterns across channels and geographies.\nWe will continue to monitor the below trends and evaluate and adjust our operating strategies and cost management opportunities to mitigate the related impact on our results of operations, while remaining focused on the long-term growth of our business and protecting the value of our brands.\nFurthermore, refer to Part I, Item 1 - \"Business\" for additional discussion on our expected store openings and closures within each of our segments. For a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations, see Part I, Item 1A. \"Risk Factors\".\nCurrent Macroeconomic Conditions and Outlook\nDuring fiscal 2023, the macroeconomic environment remained challenging and volatile. Several organizations that monitor the world\u2019s economy, including the International Monetary Fund, continue to forecast growth in the global economy. Some of these organizations have recently revised the forecast slightly upwards since the third quarter of fiscal 2023. Nevertheless, the updated forecast is still below the historical average, which is reflective of the current volatile environment, including higher than anticipated inflation, tighter monetary and fiscal policies aiming to lower inflation, financial market volatility, and the negative economic impacts due to the crisis in Ukraine. The World Health Organization (\u201cWHO\u201d) announced in May 2023 that it no longer considered Covid-19 to be a global health emergency. Supply chains have largely recovered, and shipping costs and delivery times are back to pre-pandemic levels. \nIn fiscal 2023, the U.S. Dollar has appreciated as compared to foreign currencies in regions where we conduct our business. During fiscal 2023, this trend has resulted in adverse impacts to our business as compared to prior year, including, but not limited to, decreased Net sales of $217.5\u00a0million, negative impact to gross margin of approximately 90 basis points, and negative impact to operating margin of approximately 120 basis point.\nCurrency volatility, political instability and potential changes to trade agreements or duty rates may also contribute to a worsening of the macroeconomic environment or adversely impact our business. Since fiscal 2019, the U.S. and China have both imposed tariffs on the importation of certain product categories into the respective country, with limited progress in negotiations to reduce or remove the tariffs.\nIn response to the current environment, the Company continues to take strategic actions considering near-term exigencies and remains committed to maintaining the health of the brands and business. \n34\nCovid-19 Pandemic\nThe Covid-19 pandemic has resulted in varying degrees of business disruption for the Company since it began in fiscal 2020 and has impacted all regions around the world, resulting in restrictions and shutdowns implemented by national, state, and local authorities. Such disruptions continued during the first half of fiscal 2023, and the Company's results in Greater China were adversely impacted as a result of the Covid-19 pandemic. Starting in December 2022, certain government restrictions were lifted in the region and business trends have improved. Although the impact of the Covid-19 pandemic during fiscal 2023 has generally been less significant than those experienced in fiscal years 2021 and 2022, we cannot predict for how long and to what extent the Covid-19 pandemic may continue to impact our business, financial condition, and results of operations. We continue to monitor the latest developments regarding the Covid-19 pandemic and potential impacts on our business, operating results and outlook. Refer to Part I, Item 1A. \"Risk Factors\" for additional discussion regarding risks to our business associated with the Covid-19 pandemic. \nSupply Chain and Logistics Challenges \nCovid-19 has and may cause disruptions in the Company\u2019s supply chain within our third-party manufacturers and logistics providers. During fiscal 2022, certain of the Company\u2019s third-party manufacturers, primarily located in Vietnam, experienced ongoing and longer-than-expected government mandated restrictions, which resulted in a significant decrease in production capacity for these third-party manufacturers. In response, the Company took deliberate actions such as shifting production to other countries, adjusting its merchandising strategies, where possible, and increasing the use of air freight to expedite delivery. Based on these actions and improved production levels, the Company has and expects that it will continue to be able to meet anticipated levels of demand. The Company has experienced other global logistical challenges, such as delays as a result of port congestion, vessel availability, container shortages for imported products and rising freight costs.\nDuring fiscal 2023, freight costs on inbound shipments have started to moderate and the Company has significantly reduced the use of air freight when compared to fiscal 2022. As a result, during fiscal 2023, the Company incurred lower freight expense of $84.8\u00a0million when compared to the prior year, positively impacting gross margin by approximately 140 basis points.\nGeneralized System of Preferences (\u201cGSP\u201d) program\nThe Company has historically benefited from duty-free imports on certain products from certain countries pursuant to the U.S. Generalized System of Preferences (\u201cGSP\u201d) program. The GSP program expired in the third quarter of fiscal 2021, resulting in additional duties and negatively impacting gross profit.\nCrisis in Ukraine\nIn the third quarter of fiscal 2022, a humanitarian crisis unfolded in Ukraine, which has created significant economic uncertainty in the region. The Company does not have directly operated stores in Russia or Ukraine and has a minimal distributor and wholesale business which was less than 0.1% of the Company\u2019s total Net sales for fiscal 2023 and fiscal 2022. Starting in the third quarter of fiscal 2022 the Company paused all wholesale shipments to Russia. The Company's total business in Europe represented less than 5% of fiscal 2023 and fiscal 2022 total Net sales.\nTax Legislation\nOver the past year, there has been significant discussion with regards to tax legislation by both the Biden Administration and the Organization for Economic Cooperation and Development (\u201cOECD\u201d). On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law by the Biden Administration, with tax provisions primarily focused on implementing a 15% corporate alternative minimum tax on global adjusted financial statement income (\"CAMT\") and a 1% excise tax on share repurchases. On December 12, 2022, the European Union member states also reached agreement to implement the OECD\u2019s reform of international taxation known as Pillar Two Global Anti-Base Erosion (\"GloBE\") Rules, which broadly mirror the Inflation Reduction Act by imposing a 15% global minimum tax on multinational companies. The CAMT and GloBE are anticipated to be effective beginning in fiscal 2024 and fiscal 2025, respectively. The US Treasury and the OECD continue to seek input and release guidance on the CAMT and GloBE legislation and how the two will interact, so it is unclear at this time what, if any, impact either will have on the Company\u2019s tax rate and financial results. We will continue to evaluate their impact as further information becomes available. With respect to the 1% excise tax on net share repurchases, this provision of the Inflation Reduction Act was effective on January 1, 2023 and did not have a material impact on our financial statements. This excise tax is recorded in Retained earnings as part of Stockholders' Equity.\n35\n RESULTS OF OPERATIONS\nFISCAL 2023 COMPARED TO FISCAL 2022 \nThe following table summarizes results of operations for fiscal 2023 compared to fiscal 2022. All percentages shown in the tables below and the related discussion that follows have been calculated using unrounded numbers. \nFiscal Year Ended\nJuly 1, 2023\nJuly 2, 2022\nVariance\n\u00a0\n(millions, except per share data)\n\u00a0\nAmount\n% of\nnet sales\nAmount\n% of\nnet sales\nAmount\n%\nNet sales\n$\n6,660.9\n\u00a0\n100.0\n\u00a0\n%\n$\n6,684.5\u00a0\n100.0\u00a0\n%\n$\n(23.6)\n(0.4)\n%\nGross profit\n4,714.9\n\u00a0\n70.8\n\u00a0\n4,650.4\u00a0\n69.6\u00a0\n64.5\u00a0\n1.4\u00a0\nSG&A expenses\n3,542.5\n\u00a0\n53.1\n\u00a0\n3,474.6\u00a0\n52.0\u00a0\n67.9\u00a0\n2.0\u00a0\nOperating income (loss)\n1,172.4\n\u00a0\n17.6\n\u00a0\n1,175.8\u00a0\n17.6\u00a0\n(3.4)\n(0.3)\nLoss on extinguishment of debt\n\u2014\n\u00a0\n\u2014\n\u00a0\n53.7\u00a0\n0.8\u00a0\n(53.7)\nNM\nInterest expense, net\n27.6\n\u00a0\n0.4\n\u00a0\n58.7\u00a0\n0.9\u00a0\n(31.1)\n(53.0)\nOther expense (income)\n1.7\n\u00a0\n\u2014\n\u00a0\n16.4\u00a0\n0.2\u00a0\n(14.7)\n(89.5)\nIncome (Loss) before provision for income taxes\n1,143.1\n\u00a0\n17.2\n\u00a0\n1,047.0\u00a0\n15.7\u00a0\n96.1\u00a0\n9.2\u00a0\nProvision for income taxes\n207.1\n\u00a0\n3.1\n\u00a0\n190.7\u00a0\n2.9\u00a0\n16.4\u00a0\n8.6\nNet income (loss)\n936.0\n\u00a0\n14.1\n\u00a0\n856.3\u00a0\n12.8\u00a0\n79.7\u00a0\n9.3\u00a0\nNet income (loss) per share:\n\u00a0\n\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0Basic\n$\n3.96\n\u00a0\n\u00a0\n$\n3.24\u00a0\n\u00a0\n$\n0.72\u00a0\n22.2\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0Diluted\n$\n3.88\n\u00a0\n\u00a0\n$\n3.17\u00a0\n\u00a0\n$\n0.71\u00a0\n22.3\u00a0\nNM - Not meaningful\nGAAP to Non-GAAP Reconciliation\nThe Company\u2019s reported results are presented in accordance with accounting principles generally accepted in the United States of America (\u201cGAAP\u201d). There were no charges affecting comparability during fiscal 2023. The reported results during fiscal 2022 reflect certain items which affect the comparability of our results, as noted in the following tables. Refer to \"Non-GAAP Measures\" herein for further discussion on the Non-GAAP measures.\n36\nFiscal 2022 Items\nFiscal Year Ended July 2, 2022\nItems affecting comparability\n\u00a0\nGAAP Basis\n(As Reported)\nAcceleration Program\nDebt Extinguishment\nNon-GAAP Basis\n(Excluding Items)\n(millions, except per share data) \nCoach\n3,553.8\u00a0\n\u2014\u00a0\n\u2014\u00a0\n3,553.8\u00a0\nKate Spade\n912.0\u00a0\n\u2014\u00a0\n\u2014\u00a0\n912.0\u00a0\nStuart Weitzman\n184.6\u00a0\n\u2014\u00a0\n\u2014\u00a0\n184.6\u00a0\nGross profit\n$\n4,650.4\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n4,650.4\u00a0\nCoach\n2,079.9\u00a0\n6.7\u00a0\n\u2014\u00a0\n2,073.2\u00a0\nKate Spade\n754.6\u00a0\n5.9\u00a0\n\u2014\u00a0\n748.7\u00a0\nStuart Weitzman\n182.8\u00a0\n3.6\u00a0\n\u2014\u00a0\n179.2\u00a0\nCorporate\n457.3\u00a0\n26.6\u00a0\n\u2014\u00a0\n430.7\u00a0\nSG&A expenses\n$\n3,474.6\u00a0\n$\n42.8\u00a0\n$\n\u2014\u00a0\n$\n3,431.8\u00a0\nCoach\n1,473.9\u00a0\n(6.7)\n\u2014\u00a0\n1,480.6\u00a0\nKate Spade\n157.4\u00a0\n(5.9)\n\u2014\u00a0\n163.3\u00a0\nStuart Weitzman\n1.8\u00a0\n(3.6)\n\u2014\u00a0\n5.4\u00a0\nCorporate\n(457.3)\n(26.6)\n\u2014\u00a0\n(430.7)\nOperating income (loss)\n$\n1,175.8\u00a0\n$\n(42.8)\n$\n\u2014\u00a0\n$\n1,218.6\u00a0\nLoss on extinguishment of debt\n53.7\u00a0\n\u2014\u00a0\n53.7\u00a0\n\u2014\u00a0\nProvision for income taxes\n190.7\u00a0\n(3.4)\n(12.9)\n207.0\u00a0\nNet income (loss)\n$\n856.3\u00a0\n$\n(39.4)\n$\n(40.8)\n$\n936.5\u00a0\nNet income (loss) per diluted common share\n$\n3.17\u00a0\n$\n(0.15)\n$\n(0.15)\n$\n3.47\u00a0\nIn fiscal 2022 the Company incurred adjustments as follows:\n\u2022\nDebt Extinguishment - \nDebt extinguishment charges relate to the premiums, amortization and fees associated with the $500 million cash tender of the Company's 2027 Senior Notes and 2025 Senior Notes in the second quarter of fiscal 2022. Refer to Note 12, \"Debt,\" for further information.\n\u2022\nAcceleration Program\n - Total charges incurred under the Acceleration Program are primarily share-based compensation and professional fees incurred as a result of the development and execution of the Company's comprehensive strategic initiative. Refer to the \"Executive Overview\" herein and Note 5, \"Restructuring Activities,\" for further information.\nThese actions taken together increased the Company's SG&A expenses by $42.8 million, increased Loss on extinguishment of debt by $53.7 million and decreased Provision for income taxes by 16.3 million, negatively impacting net income by 80.2 million, or 0.30 per diluted share. \n37\nTapestry, Inc. Summary - Fiscal 2023\nCurrency Fluctuation Effects\nThe change in net sales and gross margin in fiscal 2023 compared to fiscal 2022 has been presented both including and excluding currency fluctuation effects. All percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers.\nNet Sales\nFiscal Year Ended\nVariance\nJuly 1, 2023\nJuly 2, 2022\nAmount\n%\nConstant Currency Change\n(millions)\nCoach\n$\n4,960.4\n\u00a0\n$\n4,921.3\u00a0\n$\n39.1\u00a0\n0.8\u00a0\n%\n4.5\u00a0\n%\nKate Spade\n1,418.9\n\u00a0\n1,445.5\u00a0\n(26.6)\n(1.8)\n0.2\u00a0\nStuart Weitzman \n281.6\n\u00a0\n317.7\u00a0\n(36.1)\n(11.4)\n(9.1)\nTotal Tapestry\n$\n6,660.9\n\u00a0\n$\n6,684.5\u00a0\n$\n(23.6)\n(0.4)\n2.9\u00a0\nNet sales in fiscal 2023 decreased 0.4% or $23.6 million to $6.66 billion. Excluding the impact of foreign currency, net sales increased by 2.9% or $193.9 million.\n\u2022\nCoach Net Sales\n increased 0.8% or $39.1 million to $4.96 billion in fiscal 2023. Excluding the impact of foreign currency, net sales increased 4.5% or $219.9 million. This increase in net sales was primarily due to an increase of $161.3 million in net retail sales driven by an increase of store sales globally, partially offset by a decrease in e-commerce sales. The increase in net sales was also attributed to a $30.5 million increase in wholesale sales.\n\u2022\nKate Spade Net Sales\n decreased 1.8% or $26.6 million to $1.42 billion in fiscal 2023. Excluding the impact of foreign currency, net sales increased 0.2% or $3.0 million. This increase in net sales was primarily due to an increase of $2.4 million in net retail sales driven by higher store sales globally, partially offset by a decrease in e-commerce sales. \n\u2022\nStuart Weitzman Net Sales\n decreased by 11.4% or $36.1 million to $281.6 million in fiscal 2023. Excluding the impact of foreign currency, net sales decreased 9.1% or $29.0 million. This decrease in net sales was primarily due to a decrease of $15.3 million in net retail sales driven by a decrease in stores globally, partially offset by a increase in e-commerce sales. This decrease in net sales was also attributed to a $13.7 million decrease in wholesale sales.\nGross Profit\nFiscal Year Ended\nJuly 1, 2023\nJuly 2, 2022\nVariance\n(millions)\nAmount\n% of Net Sales\nAmount\n% of Net Sales\nAmount\n%\nCoach\n$\n3,647.1\n\u00a0\n73.5\n\u00a0\n%\n$\n3,553.8\u00a0\n72.2\u00a0\n%\n$\n93.3\u00a0\n2.6\u00a0\n%\nKate Spade\n900.1\n\u00a0\n63.4\n\u00a0\n912.0\u00a0\n63.1\u00a0\n(11.9)\n(1.3)\nStuart Weitzman \n167.7\n\u00a0\n59.6\n\u00a0\n184.6\u00a0\n58.1\u00a0\n(16.9)\n(9.1)\nTapestry\n$\n4,714.9\n\u00a0\n70.8\n\u00a0\n$\n4,650.4\u00a0\n69.6\u00a0\n$\n64.5\u00a0\n1.4\u00a0\nGross profit increased 1.4% or $64.5 million to $4.71 billion in fiscal 2023 from $4.65 billion in fiscal 2022. Gross margin increased 120 basis points to 70.8% in fiscal 2023 from 69.6% in fiscal 2022. This increase in Gross margin was primarily attributed to lower freight costs, net pricing improvements and favorable geography mix, partially offset by unfavorable currency translation. Refer to \"Current Macroeconomic Conditions and Outlook\" and \"Supply Chain and Logistics Challenges\" herein, for further information.\nThe Company includes inbound product-related transportation costs from our service providers within Cost of sales. The Company, similar to some companies, includes certain transportation-related costs due to our distribution network in SG&A expenses rather than in Cost of sales; for this reason, our gross margins may not be comparable to that of entities that include all costs related to their distribution network in Cost of sales.\n38\nSelling, General and Administrative Expenses\nFiscal Year Ended\nJuly 1, 2023\nJuly 2, 2022\nVariance\n(millions)\nAmount\n% of Net Sales\nAmount\n% of Net Sales\nAmount\n%\nCoach\n(1)\n$\n2,117.2\n\u00a0\n42.7\n\u00a0\n%\n$\n2,079.9\u00a0\n42.3\u00a0\n%\n$\n37.3\u00a0\n1.8\u00a0\n%\nKate Spade\n(1)\n785.1\n\u00a0\n55.3\n\u00a0\n754.6\u00a0\n52.2\u00a0\n30.5\u00a0\n4.0\u00a0\nStuart Weitzman\n(1)\n174.4\n\u00a0\n62.0\n\u00a0\n182.8\u00a0\n57.5\u00a0\n(8.4)\n(4.6)\nCorporate\n(1)(2)\n465.8\n\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0NA\n457.3\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0NA\n8.5\u00a0\n1.9\u00a0\nTapestry\n$\n3,542.5\n\u00a0\n53.1\n\u00a0\n$\n3,474.6\u00a0\n52.0\u00a0\n$\n67.9\u00a0\n2.0\u00a0\nSG&A expenses increased 2.0% or $67.9 million to $3.54 billion in fiscal 2023 as compared to $3.47 billion in fiscal 2022. As a percentage of net sales, SG&A expenses increased to 53.1% during fiscal 2023 as compared to 52.0% during fiscal 2022. Excluding items affecting comparability of $42.8 million in fiscal 2022, SG&A expenses increased 3.2% or $110.7 million to $3.54 billion from $3.43 billion in fiscal 2022. SG&A as a percentage of net sales increased 180 basis points to 53.1% compared to 51.3% in fiscal 2022. This increase in SG&A as a percentage of net sales was primarily due to higher information technology costs, increased occupancy costs, and higher marketing spend. \n(1)\nIn fiscal 2022, Coach, Kate Spade, Stuart Weitzman and Corporate incurred charges affecting comparability of $6.7 million, $5.9 million, $3.6 million and $26.6 million respectively. Excluding those items affecting comparability:\n\u2022\nCoach: SG&A expenses increased 2.1% or $44.0 million to $2.12 billion from $2.07 billion in fiscal 2022; and SG&A expenses as a percentage of net sales increased to 42.7% in fiscal 2023 from 42.1% in fiscal 2022. \n\u2022\nKate Spade: SG&A expenses increased 4.9% or $36.4 million to $785.1 million from $748.7 million in fiscal 2022; and SG&A expenses as a percentage of net sales increased to 55.3% in fiscal 2023 from 51.8% in fiscal 2022.\n\u2022\nStuart Weitzman: SG&A expenses decreased 2.7% or $4.8 million to $174.4 million from $179.2 million in fiscal 2022; and SG&A expenses as a percentage of net sales increased to 62.0% in fiscal 2023 from 56.4% in fiscal 2022.\n\u2022\nCorporate: SG&A expenses increased 8.2% or $35.1 million to $465.8 in fiscal 2023 as compared to $430.7 million in fiscal 2022.\n(2)\nCorporate expenses, which are included within SG&A expenses discussed above but are not directly attributable to a reportable segment.\nOperating Income (Loss)\nFiscal Year Ended\nJuly 1, 2023\nJuly 2, 2022\nVariance\n(millions)\nAmount\n% of Net Sales\nAmount\n% of Net Sales\nAmount\n%\nCoach\n$\n1,529.9\n\u00a0\n30.8\n\u00a0\n%\n$\n1,473.9\u00a0\n29.9\u00a0\n%\n$\n56.0\u00a0\n3.8\u00a0\n%\nKate Spade\n115.0\n\u00a0\n8.1\n\u00a0\n157.4\u00a0\n10.9\u00a0\n(42.4)\n(27.0)\nStuart Weitzman \n(6.7)\n(2.4)\n1.8\u00a0\n0.6\u00a0\n(8.5)\nNM\nCorporate\n(465.8)\n\u2014\n(457.3)\n\u00a0\u00a0\u00a0\u00a0NA  \n(8.5)\n(1.9)\nTapestry\n$\n1,172.4\n\u00a0\n17.6\n\u00a0\n$\n1,175.8\u00a0\n17.6\u00a0\n$\n(3.4)\n(0.3)\nOperating income decreased $3.4 million to $1.17 billion during fiscal 2023 as compared to $1.18 billion in fiscal 2022. Operating margin remained even at 17.6% in fiscal 2023 as compared to 17.6% in fiscal 2022. Excluding items affecting comparability of $42.8 million in fiscal 2022, operating income decreased $46.2 million to $1.17 billion from $1.22 billion in fiscal 2022; and operating margin decreased 60 basis points to 17.6% in fiscal 2023 as compared to 18.2% in fiscal 2022. This decrease in operating margin was primarily attributed to a increase of 180 basis points in SG&A as a percentage of sales partially offset by a 120 basis points increase in gross margin.\n39\n\u2022\nCoach Operating Income\n increased $56.0 million to $1.53 billion in fiscal 2023, resulting in an operating margin increase of 90 basis points to 30.8%, as compared to $1.47 billion and 29.9%, respectively in fiscal 2022. Excluding items affecting comparability, Coach operating income increased $49.3 million to $1.53 billion from $1.48 billion in fiscal 2022; and operating margin increased 70 basis points to 30.8% in fiscal 2023 as compared to 30.1% in fiscal 2022. This increase in operating margin was primarily attributed to a 130 basis points increase in gross margin, mainly due to lower freight costs and net pricing improvements, partially offset by unfavorable currency translation, and a 60 basis point increase in SG&A expenses as a percentage of net sales, mainly due to higher information technology costs and higher marketing spend, partially offset by a decrease in selling costs. \n\u2022\nKate Spade Operating Income \ndecreased $42.4 million to $115.0 million in fiscal 2023, resulting in an operating margin decrease of 280 basis points to 8.1%, as compared to 157.4 million and 10.9%, respectively in fiscal 2022. Excluding items affecting comparability, Kate Spade operating income decreased $48.3 million to $115.0 million from $163.3 million in fiscal 2022; and operating margin decreased 320 basis points to 8.1% in fiscal 2023 as compared to 11.3% in fiscal 2022. This decrease in operating margin was primarily attributed to a 350 basis points increase in SG&A expenses as a percentage of net sales, partially due to deleverage of expenses on lower net sales. This increase in SG&A expenses as a percentage of net sales was mainly due to an increase in selling and distribution costs, higher information technology costs and increased occupancy costs, partially offset by a 30 basis points increase in gross margin, mainly due to lower freight costs and favorable geography mix, partially offset by unfavorable currency translation, increased promotional activity and unfavorable channel mix.\n\u2022\nStuart Weitzman Operating Loss \nincreased $8.5 million to a loss of $6.7 million in fiscal 2023, resulting in an operating margin decrease of 300 basis points to (2.4)%, as compared to operating income of $1.8 million in fiscal 2022 and operating margin of 0.6%. Excluding items affecting comparability, Stuart Weitzman operating loss increased $12.1 million to an operating loss of $6.7 million from operating income of $5.4 million in fiscal 2022; and operating margin decreased 410 basis points to (2.4)% in fiscal 2023 as compared to 1.7% in fiscal 2022. This decrease in operating margin was primarily attributable to a 560 basis point increase in SG&A expenses as a percentage of net sales, partially due to deleverage of expenses on lower net sales. This increase in SG&A expenses as a percentage of net sales was mainly due to higher marketing spend, increased compensation costs, higher information technology costs and higher depreciation, partially offset by a 150 basis points increase in gross margin, primarily attributed to net pricing improvements and lower freight costs, partially offset by unfavorable currency translation.\n\u2022\nCorporate Operating Loss\n increased (1.9)% or $8.5 million to $465.8 million in fiscal 2023. Excluding items affecting comparability, Corporate operating loss increased $35.1 million to $465.8 million from $430.7 million in fiscal 2022. This increase in operating loss was attributed to an increase in SG&A expenses primarily due to higher information technology costs, higher professional fees, increased compensation costs and increased occupancy costs. \nLoss on Extinguishment of Debt\nThere was no loss on extinguishment of debt in fiscal 2023 as compared to $53.7\u00a0million in fiscal 2022. This was primarily related to the premiums, amortization and fees associated with the partial tender of the company's 2027 senior notes and 2025 senior notes.\nInterest Expense, net\nNet interest expense decreased 53.0% or $31.1 million to $27.6 million in fiscal 2023 as compared to $58.7 million in fiscal 2022. This decrease in Interest expense, net was mainly due to the favorable impact of the net investment hedges, lower bond interest expense on senior notes, as well as higher interest income offset by higher interest on the term loan.\nOther Expense (Income)\nOther expense decreased $14.7 million to $1.7 million in fiscal 2023 as compared to an expense of $16.4 million in fiscal 2022. This decrease in other expense was related to a decrease in foreign exchange losses. \nProvision for Income Taxes\nThe effective tax rate was 18.1% in fiscal 2023 as compared to 18.2% in fiscal 2022. Excluding items affecting comparability, the effective tax rate was 18.1% in fiscal 2022. \nNet Income (Loss)\nNet income increased $79.7 million to a net income of $936.0 million in fiscal 2023 as compared to a net income of $856.3 million in fiscal 2022. Excluding items affecting comparability, net income decreased $0.5 million to $936.0 million in fiscal 2023 from $936.5 million in fiscal 2022. \n40\nNet Income (Loss) per Share\nNet income per diluted share was $3.88 in fiscal 2023 as compared to net income per diluted share of $3.17 in fiscal 2022. Excluding items affecting comparability, net income per diluted share increased $0.41 to $3.88 in fiscal 2023 from $3.47 in fiscal 2022, primarily due to higher net income and a decrease in shares outstanding.\nFISCAL 2022 COMPARED TO FISCAL 2021 \nThe comparison of fiscal 2022 to 2021 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended July\u00a02, 2022, filed on August 18, 2022 \nwithin Part II. Item 7. \"Management's Discussion and Analysis of Financial Conditions and Results of Operations\".\nNON-GAAP MEASURES \nThe Company\u2019s reported results are presented in accordance with GAAP. There were no items affecting comparability during fiscal 2023. The reported SG&A expenses, operating income, loss on extinguishment of debt, provision for income taxes, net income and earnings per diluted share in fiscal 2022 reflect certain items, including Acceleration Program costs and debt extinguishment costs. As a supplement to the Company's reported results, these metrics are also reported on a non-GAAP basis to exclude the impact of these items along with a reconciliation to the most directly comparable GAAP measures.\nThe Company has historically reported comparable store sales, which reflects sales performance at stores that have been open for at least 12 months, and includes sales from e-commerce sites. The Company excludes new stores, including newly acquired locations, from the comparable store base for the first twelve months of operation. The Company excludes closed stores from the calculation. Comparable store sales are not adjusted for store expansions. Due to extensive temporary store closures resulting from the impact of the Covid-19 pandemic, comparable store sales are not reported for the fiscal year ended July\u00a01, 2023 as the Company does not believe this metric is currently meaningful to the readers of its financial statements for this period.\nThese non-GAAP performance measures were used by management to conduct and evaluate its business during its regular review of operating results for the periods affected. Management and the Company\u2019s Board utilized these non-GAAP measures to make decisions about the uses of Company resources, analyze performance between periods, develop internal projections and measure management performance. The Company\u2019s internal management reporting excluded these items. In addition, the human resources committee of the Company\u2019s Board uses these non-GAAP measures when setting and assessing achievement of incentive compensation goals.\nThe Company operates on a global basis and reports financial results in U.S. dollars in accordance with GAAP. Fluctuations in foreign currency exchange rates can affect the amounts reported by the Company in U.S. dollars with respect to its foreign revenues and profit. Accordingly, certain material increases and decreases in operating results for the Company and its segments have been presented both including and excluding currency fluctuation effects. These effects occur from translating foreign-denominated amounts into U.S. dollars and comparing to the same period in the prior fiscal year. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. The Company calculates constant currency revenue results by translating current period revenue in local currency using the prior year period's currency conversion rate.\nWe believe these non-GAAP measures are useful to investors and others in evaluating the Company\u2019s ongoing operating and financial results in a manner that is consistent with management's evaluation of business performance and understanding how such results compare with the Company\u2019s historical performance. Additionally, we believe presenting certain increases and decreases in constant currency provides a framework for assessing the performance of the Company's business outside the United States and helps investors and analysts understand the effect of significant year-over-year currency fluctuations. We believe excluding these items assists investors and others in developing expectations of future performance.\nBy providing the non-GAAP measures, as a supplement to GAAP information, we believe we are enhancing investors\u2019 understanding of our business and our results of operations. The non-GAAP financial measures are limited in their usefulness and should be considered in addition to, and not in lieu of, GAAP financial measures. Further, these non-GAAP measures may be unique to the Company, as they may be different from non-GAAP measures used by other companies.\nFor a detailed discussion on these non-GAAP measures, see Item 7. \"Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\"\n41\nFINANCIAL CONDITION\nCash Flows - Fiscal 2023 Compared to Fiscal 2022 \nFiscal Year Ended\nJuly 1,\n2023\nJuly 2,\n2022\nChange\n(millions)\nNet cash provided by (used in) operating activities\n$\n975.2\n\u00a0\n$\n853.2\u00a0\n$\n122.0\u00a0\nNet cash provided by (used in) investing activities\n5.7\n\u00a0\n(253.6)\n259.3\u00a0\nNet cash provided by (used in) financing activities\n(1,035.9)\n(1,778.1)\n742.2\u00a0\nEffect of exchange rate changes on cash and cash equivalents\n(8.7)\n(39.4)\n30.7\u00a0\nNet increase (decrease) in cash and cash equivalents\n$\n(63.7)\n$\n(1,217.9)\n$\n1,154.2\u00a0\nThe Company\u2019s cash and cash equivalents decreased by $63.7 million in fiscal 2023 compared to a decrease of $1.22 billion in fiscal 2022, as discussed below.\nNet cash provided by (used in) operating activities\nNet cash provided by operating activities increased $122.0 million primarily due to changes in operating assets and liabilities of $149.9 million and higher net income of $79.7 million, partially offset by lower impact of non-cash adjustments of $107.6 million.\nThe $149.9 million change in our operating asset and liability balances was primarily driven by: \n\u2022\nInventories were a source of cash of $49.9 million in fiscal 2023 as compared to a use of cash of $311.7 million in fiscal 2022, primarily driven by lower in-transits and receipts due to the strategic decision to pull back on receipts as well as normalization of lead times.\n\u2022\nTrade accounts receivable were a source of cash of $44.1 million in fiscal 2023 as compared to a use of cash of $96.0 million in fiscal 2022, primarily driven by higher wholesale sales in fiscal 2022 compared to fiscal 2021.\n\u2022\nAccounts payable were a use of cash of $98.1 million in fiscal 2023 as compared to a source of cash of $86.4 million in fiscal 2022, primarily driven by lower in-transit inventory and receipts compared to prior year due to the strategic decision to pull back on receipts.\n\u2022\nAccrued liabilities were a use of cash of $93.0 million in fiscal 2023 as compared to a use of cash of $16.1 million in fiscal 2022, primarily driven by a decrease in accruals for the Annual Incentive Plan, a decrease in accrued freight and duty, partially offset by an increase in accrued interest due to the net investment hedge and the timing of income tax payments.\n\u2022\nOther liabilities were a use of cash of $61.1 million in fiscal 2023 as compared to a use of cash of $9.2 million in fiscal 2022, primarily driven by lower long-term transition tax due to timing of payment schedule. \nNet cash provided by (used in) investing activities\nNet cash provided by investing activities was $5.7 million in fiscal 2023 compared to a use of cash of $253.6 million in fiscal 2022, resulting in a $259.3 million increase in net cash provided by investing activities. \nThe $5.7 million source of cash in fiscal 2023 is primarily due to proceeds from maturities and sales of investments of $148.0 million, settlement of net investment hedge of $41.9 million, partially offset by capital expenditures of $184.2 million.\nThe $253.6 million use of cash in fiscal 2022 is primarily due to purchases of investments of $540.4 million and capital expenditures of $93.9 million, partially offset by proceeds from maturities and sales of investments of $380.7 million.\nNet cash provided by (used in) financing activities\nNet cash used in financing activities was $1.04 billion in fiscal 2023 as compared to a use of cash of $1.78 billion in fiscal 2022, resulting in a $742.2 million decrease in net cash used in financing activities.\nThe $1.04 billion use of cash in fiscal 2023 was primarily due to repurchase of common stock of $703.5 million, dividend payments of $283.3 million as well as taxes paid to net settle share-based awards of $55.6 million.\nThe $1.78 billion use of cash in fiscal 2022 was primarily due to repurchase of common stock of $1.60 billion, repayment of debt of $900.0 million, payment of dividends of $264.4 million and the payment of debt extinguishment costs of $50.7 million, partially offset by proceeds from debt, net of discount of $998.5 million.\n42\nCash Flows - Fiscal 2022 Compared to Fiscal 2021 \nThe comparison of fiscal \n2022\n to 2021 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended July\u00a02, 2022, filed on \nAugust 18, 2022 within Part II. Item 7. \"Management's Discussion and Analysis of Financial Conditions and Results of Operations\"\n.\nWorking Capital and Capital Expenditures\nAs of July\u00a01, 2023, in addition to our cash flows from operations, our sources of liquidity and capital resources were comprised of the following:\nSources of Liquidity\nOutstanding Indebtedness\nTotal Available Liquidity\n(1)\n(millions)\nCash and cash equivalents\n(1)\n$\n726.1\n\u00a0\n$\n\u2014\n\u00a0\n$\n726.1\n\u00a0\nShort-term investments\n(1)\n15.4\n\u00a0\n\u2014\n\u00a0\n15.4\n\u00a0\nRevolving Credit Facility\n(2)\n1,250.0\n\u00a0\n\u2014\n\u00a0\n1,250.0\n\u00a0\nTerm Loan\n(2)\n468.8\n\u00a0\n468.8\n\u00a0\n\u2014\n\u00a0\n3.050% Senior Notes due 2032\n(3)\n500.0\n\u00a0\n500.0\n\u00a0\n\u2014\n\u00a0\n4.125% Senior Notes due 2027\n(3)\n396.6\n\u00a0\n396.6\n\u00a0\n\u2014\n\u00a0\n4.250% Senior Notes due 2025\n(3)\n303.4\n\u00a0\n303.4\n\u00a0\n\u2014\n\u00a0\nTotal\n$\n3,660.3\n\u00a0\n$\n1,668.8\n\u00a0\n$\n1,991.5\n\u00a0\n(1)\u00a0\u00a0\u00a0\u00a0\nAs of July\u00a01, 2023, approximately 47.0% of our Cash and cash equivalents and Short-term investments were held outside the United States. \n(2)\u00a0\u00a0\u00a0\u00a0\nOn May 11, 2022, the Company entered into a definitive agreement whereby Bank of America, N.A., as administrative agent, other agents party thereto, and a syndicate of banks and financial institutions have made available to the Company a $1.25 billion revolving credit facility (the \"$1.25 Billion Revolving Credit Facility\") and an unsecured $500.0 Million Term Loan (the \u201cTerm Loan\u201d). Both the $1.25 Billion Revolving Credit Facility and Term Loan (collectively, the \u201cCredit Facilities\u201d) will mature on May 11, 2027. The Company and its subsidiaries must comply on a quarterly basis with a maximum 4.0 to 1.0 ratio of (a) consolidated debt minus unrestricted cash and cash equivalents in excess of $300 million to (b) consolidated EBITDAR.\nBorrowings under the $1.25 Billion Revolving Credit Facility bear interest at a rate per annum equal to, at the Company\u2019s option, (i) for borrowings in U.S. Dollars, either (a) an alternate base rate or (b) a term secured overnight financing rate, (ii) for borrowings in Euros, the Euro Interbank Offered Rate, (iii) for borrowings in Pounds Sterling, the Sterling Overnight Index Average Reference Rate and (iv) for borrowings in Japanese Yen, the Tokyo Interbank Offer Rate, plus, in each case, an applicable margin. The applicable margin will be adjusted by reference to a grid (the \u201cPricing Grid\u201d) based on the ratio of (a) consolidated debt to (b) consolidated EBITDAR (the \u201cGross Leverage Ratio\u201d). Additionally, the Company will pay facility fees, calculated at a rate per annum determined in accordance with the Pricing Grid, on the full amount of the $1.25 Billion Revolving Credit Facility, payable quarterly in arrears, and certain fees with respect to letters of credit that are issued. The $1.25 Billion Revolving Credit Facility may be used to finance the working capital needs, capital expenditures, permitted investments, share purchases, dividends and other general corporate purposes of the Company and its subsidiaries (which may include commercial paper backup). There were no outstanding borrowings on the $1.25 Billion Revolving Credit Facility as of July\u00a01, 2023.\nThe Term Loan includes a two-month delayed draw period from the closing date. On June 14, 2022 the Company drew down on the Term Loan to satisfy the Company\u2019s remaining obligations under the 3.000% senior unsecured notes due 2022 and for general corporate purposes.\n \nThe Term Loan amortizes in an amount equal to 5.00% per annum, with payments made quarterly. As of July\u00a01, 2023, $25.0\u00a0million of the Term Loan is included in Current debt on the Consolidated Balance Sheets. Borrowings under the Term Loan bear interest at a rate per annum equal to, at the Company\u2019s option, either (i) an alternate base rate or (ii) a term secured overnight financing rate plus, in each case, an applicable margin. The applicable margin will be adjusted by reference to a pricing grid based on the Gross Leverage Ratio. Additionally, the Company will pay a ticking fee on the undrawn amount of the Term Loan. Refer to Note 12, \"Debt,\" for further information on our existing debt instruments. \n43\n(3)\u00a0\u00a0\u00a0\u00a0\nIn December 2021, the Company issued $500.0 million aggregate principal amount of 3.050% senior unsecured notes due March 15, 2032 at 99.705% of par (the \"2032 Senior Notes\") and completed cash tender offers for $203.4 million and $296.6 million of the outstanding aggregate principal amount under its 2027 Senior Notes and 2025 Senior Notes, respectively. In June 2017, the Company issued $600.0 million aggregate principal amount of 2027 Senior Notes. In March 2015, the Company issued $600.0 million aggregate principal amount of 2025 Senior Notes. Furthermore, the indentures for the 2032 Senior Notes, 2027 Senior Notes, and 2025 Senior Notes contain certain covenants limiting the Company\u2019s ability to: (i) create certain liens, (ii) enter into certain sale and leaseback transactions and (iii) merge, or consolidate or transfer, sell or lease all or substantially all of the Company\u2019s assets. As of July\u00a01, 2023, no known events of default have occurred. Refer to Note 12, \"Debt,\" for further information on our existing debt instruments.\nWe believe that our Revolving Credit Facility is adequately diversified with no undue concentrations in any one financial institution. As of July\u00a01, 2023, there were 14 financial institutions participating in the Revolving Credit Facility and Term Loans, with no one participant maintaining a combined maximum commitment percentage in excess of 14%. We have no reason to believe at this time that the participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the facility in the event we elect to draw funds in the foreseeable future. \nWe have the ability to draw on our credit facilities or access other sources of financing options available to us in the credit and capital markets for, among other things, acquisition or integration-related costs, our restructuring initiatives, settlement of a material contingency, or a material adverse business or macroeconomic development, as well as for other general corporate business purposes. \nManagement believes that cash flows from operations, access to the credit and capital markets and our credit lines, on-hand cash and cash equivalents and our investments will provide adequate funds to support our operating, capital, and debt service requirements for fiscal 2023 and beyond. There can be no assurance that any such capital will be available to the Company on acceptable terms or at all. Our ability to fund working capital needs, planned capital expenditures, and scheduled debt payments, as well as to comply with all of the financial covenants under our debt agreements, depends on future operating performance and cash flow. This future operating performance and cash flow are subject to prevailing economic conditions, and to financial, business and other factors, some of which are beyond the Company's control.\nTo improve our working capital efficiency, we make available to certain suppliers a voluntary supply chain finance (\u201cSCF\u201d) program that enables our suppliers to sell their receivables from the Company to a global financial institution on a non-recourse basis at a rate that leverages our credit rating. We do not have the ability to refinance or modify payment terms to the global financial institution through the SCF program. No guarantees are provided by the Company or any of our subsidiaries under the SCF program.\nTotal capital expenditures and cloud computing implementation costs were $260.8\u00a0million in fiscal 2023 as the Company continues to prioritize investing in digital capabilities. Certain cloud computing implementation costs are recognized within Prepaid expenses and Other assets on the Consolidated Balance Sheets. \nSeasonality\nThe Company's results are typically affected by seasonal trends. During the first fiscal quarter, we typically build inventory for the winter and holiday season. In the second fiscal quarter, working capital requirements are reduced substantially as we generate higher net sales and operating income, especially during the holiday season. \nFluctuations in net sales, operating income and operating cash flows of the Company in any fiscal quarter may be affected by the timing of wholesale shipments and other events affecting retail sales, including weather and macroeconomic events, and pandemics such as Covid-19.\nStock Repurchase Plan\nOn May 12, 2022, the Company announced the Board of Directors authorized the additional repurchase of up to $1.50 billion of its common stock (the \"2022 Share Repurchase Program\"). Pursuant to this program, purchases of the Company's common stock will be made subject to market conditions and at prevailing market prices, through open market purchases. Repurchased shares of common stock will become authorized but unissued shares. These shares may be issued in the future for general corporate and other purposes. In addition, the Company may terminate or limit the stock repurchase program at any time. As of July\u00a01, 2023 the Company had $800\u00a0million of additional shares available to be repurchased as authorized under the 2022 Share Repurchase Program. Refer to Part II, Item 5. \"Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,\" for further information. During fiscal 2023, the Company repurchased $700\u00a0million worth of shares.\n44\nContractual and Other Obligations\nFirm Commitments\nAs of July\u00a01, 2023, the Company's contractual obligations are as follows:\nTotal\nFiscal\n2024\nFiscal\n2025\u00a0\u2013\u00a02026\nFiscal\n2027\u00a0\u2013\u00a02028\nFiscal 2029\nand Beyond\n(millions)\nCapital expenditure & cloud computing implementation commitments\n$\n20.4\u00a0\n$\n16.9\u00a0\n$\n3.5\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\nInventory purchase obligations\n352.6\u00a0\n352.6\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nOperating lease obligations\n1,947.6\u00a0\n376.7\u00a0\n536.1\u00a0\n348.3\u00a0\n686.5\u00a0\nFinance lease obligations\n2.7\u00a0\n1.4\u00a0\n1.3\u00a0\n\u2014\u00a0\n\u2014\u00a0\nDebt repayment\n1,668.8\u00a0\n25.0\u00a0\n353.4\u00a0\n790.4\u00a0\n500.0\u00a0\nInterest on outstanding debt\n(1)\n345.8\u00a0\n74.0\u00a0\n130.8\u00a0\n80.0\u00a0\n61.0\u00a0\nMandatory transition tax payments\n(2)\n68.3\u00a0\n24.8\u00a0\n43.5\u00a0\n\u2014\u00a0\n\u2014\u00a0\nOther\n187.5\u00a0\n102.9\u00a0\n81.7\u00a0\n2.9\u00a0\n\u2014\u00a0\nTotal\n$\n4,593.7\u00a0\n$\n974.3\u00a0\n$\n1,150.3\u00a0\n$\n1,221.6\u00a0\n$\n1,247.5\u00a0\n(1)\u00a0\u00a0\u00a0\u00a0\nInterest on outstanding debt includes fixed interest expenses for unsecured notes and variable interest expenses for the term loan. The estimated interest expenses associated with our term loan is based on the current interest rate as of July\u00a01, 2023. Refer to Note 12, \"Debt,\" for further information. \n(2)\u00a0\u00a0\u00a0\u00a0\nMandatory transition tax payments\u00a0represent our tax obligation incurred in connection with the deemed repatriation of previously deferred foreign earnings pursuant to the Tax Legislation. Refer to Note 15, \"Income Taxes,\" for further information.\nWe expect to fund these firm commitments with operating cash flows generated in the normal course of business and, if necessary, through availability under our credit facilities or other accessible sources of financing. Excluded from the above contractual obligations table is the non-current liability for unrecognized tax benefits of $100.6 million as of July\u00a01, 2023, as we cannot make a reliable estimate of the period in which the liability will be settled, if ever. Besides the firm commitments noted above, the above table excludes other amounts included in current liabilities in the Consolidated Balance Sheets at July\u00a01, 2023 as these items will be paid within one year and certain long-term liabilities not requiring cash payments. \nCapri Holdings Limited Acquisition\nOn August 10, 2023, the Company entered into an Agreement and Plan of Merger by and among the Company, Sunrise Merger Sub, Inc., a direct wholly owned subsidiary of Tapestry, and Capri Holdings Limited. Refer to Note 21, \"Subsequent Event,\" herein for further information.\nThe Company intends to fund the acquisition through a combination of senior notes, term loans and excess Tapestry cash. Furthermore, on August 10, 2023, the Company entered into a bridge facility commitment letter pursuant to which Bank of America, N.A., BofA Securities, Inc. and Morgan Stanley Senior Funding, Inc. committed to provide up to $8.0 billion under a 364-day senior unsecured bridge loan facility to finance the acquisition.\nOff-Balance Sheet Arrangements\nIn addition to the commitments included in the table above, we have outstanding letters of credit, surety bonds and bank guarantees of $37.1 million as of July\u00a01, 2023, primarily serving to collateralize our obligation to third parties for duty, leases, insurance claims and materials used in product manufacturing. These letters of credit expire at various dates through calendar 2028. \nWe do not maintain any other off-balance sheet arrangements, transactions, obligations, or other relationships with unconsolidated entities that would be expected to have a material current or future effect on our consolidated financial statements. Refer to Note 13, \"Commitments and Contingencies,\" for further information.\n45\nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\nThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect our results of operations, financial condition and cash flows as well as the disclosure of contingent assets and liabilities as of the date of the Company's financial statements. Actual results could differ from estimates in amounts that may be material to the financial statements. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results could differ from estimates in amounts that may be material to the financial statements. The development and selection of the Company\u2019s critical accounting policies and estimates are periodically reviewed with the Audit Committee of the Board.\nThe accounting policies discussed below are considered critical because changes to certain judgments and assumptions inherent in these policies could affect the financial statements. For more information on the Company's accounting policies, please refer to the Notes to Consolidated Financial Statements.\nRevenue Recognition\nRevenue is recognized when the Company satisfies its performance obligations by transferring control of promised products or services to its customers, which may be at a point of time or over time. Control is transferred when the customer obtains the ability to direct the use of and obtain substantially all of the remaining benefits from the products or services. The amount of revenue recognized is the amount of consideration to which the Company expects to be entitled, including estimation of sale terms that may create variability in the consideration. Revenue subject to variability is constrained to an amount which will not result in a significant reversal in future periods when the contingency that creates variability is resolved.\nRetail store and concession shop-in-shop revenues are recognized at the point-of-sale, when the customer obtains physical possession of the products. Digital revenue from sales of products ordered through the Company\u2019s e-commerce sites is recognized upon delivery and receipt of the shipment by its customers and includes shipping and handling charges paid by customers. Retail and digital revenues are recorded net of estimated returns, which are estimated by developing an expected value based on historical experience. Payment is due at the point of sale.\nThe Company recognizes revenue within the wholesale channel at the time title passes and risk of loss is transferred to customers, which is generally at the point of shipment of products but may occur upon receipt of the shipment by the customer in certain cases. Wholesale revenue is recorded net of estimates for returns, discounts, end-of-season markdowns, cooperative advertising allowances and other consideration provided to the customer. The Company's historical estimates of these variable amounts have not differed materially from actual results. \nThe Company recognizes licensing revenue over time during the contract period in which licensees are granted access to the Company's trademarks. These arrangements require licensees to pay a sales-based royalty and may include a contractually guaranteed minimum royalty amount. Revenue for contractually guaranteed minimum royalty amounts is recognized ratably over the license year and any excess sales-based royalties are recognized as earned once the minimum royalty threshold is achieved.\nAt July\u00a01, 2023, a 10% change in the allowances for estimated uncollectible accounts, markdowns and returns would not have resulted in a material change in the Company's reserves and net sales.\nInventories\nThe Company holds inventory that is sold through retail and wholesale distribution channels, including e-commerce sites. Substantially all of the Company's inventories are comprised of finished goods, and are reported at the lower of cost or net realizable value. Inventory costs include material, conversion costs, freight and duties and are primarily determined on a weighted-average cost basis. The Company reserves for inventory, including slow-moving and aged inventory, based on current product demand, expected future demand and historical experience. A decrease in product demand due to changing customer tastes, buying patterns or increased competition could impact the Company's evaluation of its inventory and additional reserves might be required. Estimates may differ from actual results due to the quantity, quality and mix of products in inventory, consumer and retailer preferences and market conditions. At July\u00a01, 2023, a 10% change in the inventory reserve, would not have resulted in material change in inventory and cost of sales.\n46\nGoodwill and Other Intangible Assets\nUpon acquisition, the Company estimates and records the fair value of purchased intangible assets, which primarily consists of brands, customer relationships, right-of-use assets and order backlog. Goodwill and certain other intangible assets deemed to have indefinite useful lives, including brand intangible assets, are not amortized, but are assessed for impairment at least annually. Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets as noted above, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. Estimates of fair value for finite-lived and indefinite-lived intangible assets are primarily determined using discounted cash flows and the multi-period excess earnings method, respectively, with consideration of market comparisons as appropriate. This approach uses significant estimates and assumptions, including projected future cash flows, discount rates and growth rates.\nThe Company generally performs its annual goodwill and indefinite-lived intangible assets impairment analysis using a quantitative approach. The quantitative goodwill impairment test identifies the existence of potential impairment by comparing the fair value of each reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, the reporting unit's goodwill is considered not to be impaired. If the carrying value of a reporting unit exceeds its fair value, an impairment charge is recognized in an amount equal to that excess. The impairment charge recognized is limited to the amount of goodwill allocated to that reporting unit.\nDetermination of the fair value of a reporting unit and intangible asset is based on management's assessment, considering independent third-party appraisals when necessary. Furthermore, this determination is judgmental in nature and often involves the use of significant estimates and assumptions, which may include projected future cash flows, discount rates, growth rates, and determination of appropriate market comparables and recent transactions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the amount of any such charge. \nThe Company performs its annual impairment assessment of goodwill as well as brand intangibles at the beginning of the fourth quarter of each fiscal year. The Company determined that there was no impairment in fiscal 2023, fiscal 2022 and fiscal 2021. \nBased on the annual assessment in fiscal 2023, the fair values of our Coach brand reporting units significantly exceeded their respective carrying values. The fair values of the Kate Spade brand reporting unit and indefinite-lived brand as of the fiscal 2023 testing date exceeded their carrying values by approximately 20% and 40%, respectively. Several factors could impact the Kate Spade brand's ability to achieve expected future cash flows, including the optimization of the store fleet productivity, the success of international expansion strategies, the impact of promotional activity, continued economic volatility and potential operational challenges related to the macroeconomic factors, the reception of new collections in all channels, and other initiatives aimed at increasing profitability of the business. Given the relatively small excess of fair value over carrying value as noted above, if profitability trends decline during fiscal 2024 from those that are expected, it is possible that an interim test, or our annual impairment test, could result in an impairment of these assets. \nValuation of Long-Lived Assets\nLong-lived assets, such as property and equipment, are evaluated for impairment whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. In evaluating long-lived assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the related asset group and its eventual disposition. To the extent that estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value, considering external market participant assumptions.\nIn determining future cash flows, the Company takes various factors into account, including the effects of macroeconomic trends such as consumer spending, in-store capital investments, promotional cadence, the level of advertising and changes in merchandising strategy. Since the determination of future cash flows is an estimate of future performance, there may be future impairments in the event that future cash flows do not meet expectations.\n47\nShare-Based Compensation\nThe Company recognizes the cost of equity awards to employees and the non-employee Directors based on the grant-date fair value of those awards. The grant-date fair values of share unit awards are based on the fair value of the Company's common stock on the date of grant. The grant-date fair value of stock option awards is determined using the Black-Scholes option pricing model and involves several assumptions, including the expected term of the option, expected volatility and dividend yield. The expected term of options represents the period of time that the options granted are expected to be outstanding and is based on historical experience. Expected volatility is based on historical volatility of the Company\u2019s stock as well as the implied volatility from publicly traded options on the Company's stock. Dividend yield is based on the current expected annual dividend per share and the Company\u2019s stock price. Changes in the assumptions used to determine the Black-Scholes value could result in significant changes in the Black-Scholes value. \nFor stock options and share unit awards, the Company recognizes share-based compensation net of estimated forfeitures and revises the estimates in subsequent periods if actual forfeitures differ from the estimates. The Company estimates the forfeiture rate based on historical experience as well as expected future behavior.\nThe Company grants performance-based share awards to key executives, the vesting of which is subject to the executive\u2019s continuing employment and the Company's or individual's achievement of certain performance goals. On a quarterly basis, the Company assesses actual performance versus the predetermined performance goals, and adjusts the share-based compensation expense to reflect the relative performance achievement. Actual distributed shares are calculated upon conclusion of the service and performance periods, and include dividend equivalent shares. If the performance-based award incorporates a market condition, the grant-date fair value of such award is determined using a pricing model, such as a Monte Carlo Simulation.\nA hypothetical 10% change in our stock-based compensation expense would not have a material impact to our fiscal 2023 net income. \nIncome Taxes\nThe Company\u2019s effective tax rate is based on pre-tax income, statutory tax rates, tax laws and regulations, and tax planning strategies available in the various jurisdictions in which the Company operates. The Company classifies interest and penalties on uncertain tax positions in the Provision for income taxes. The Company records net deferred tax assets to the extent it believes that it is more likely than not that these assets will be realized. In making such determination, the Company considers all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent and expected future results of operation. The Company reduces deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that some amount of deferred tax assets is not expected to be realized. The Company is not permanently reinvested with respect to earnings of a limited number of foreign entities and has recorded the tax consequences of remitting earnings from these entities. The Company is permanently reinvested with respect to all other earnings. \nThe Company recognizes the impact of tax positions in the financial statements if those positions will more likely than not be sustained on audit, based on the technical merits of the position. Although the Company believes that the estimates and assumptions used are reasonable and legally supportable, the final determination of tax audits could be different than that which is reflected in historical tax provisions and recorded assets and liabilities. Tax authorities periodically audit the Company\u2019s income tax returns and the tax authorities may take a contrary position that could result in a significant impact on the Company's results of operations. Significant management judgment is required in determining the effective tax rate, in evaluating tax positions and in determining the net realizable value of deferred tax assets.\nRefer to Note 15, \u201cIncome Taxes,\u201d for further information.\nRecent Accounting Pronouncements\nRefer to Note 3, \"Significant Accounting Policies,\" to the accompanying audited consolidated financial statements for a description of certain recently adopted, issued or proposed accounting standards which may impact our consolidated financial statements in future reporting periods.\n48",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nMarket Risk\nThe market risk inherent in our financial instruments represents the potential loss in fair value, earnings or cash flows, arising from adverse changes in foreign currency exchange rates or interest rates. The Company manages these exposures through operating and financing activities and, when appropriate, through the use of derivative financial instruments. The use of derivative financial instruments is in accordance with the Company's risk management policies, and we do not enter into derivative transactions for speculative or trading purposes.\nThe quantitative disclosures in the following discussion are based on quoted market prices obtained through independent pricing sources for the same or similar types of financial instruments, taking into consideration the underlying terms and maturities and theoretical pricing models. These quantitative disclosures do not represent the maximum possible loss or any expected loss that may occur, since actual results may differ from those estimates.\nForeign Currency Exchange Rate Risk\nForeign currency exposures arise from transactions, including firm commitments and anticipated contracts, denominated in a currency other than the entity\u2019s functional currency, and from foreign-denominated revenues and expenses translated into U.S. dollars. The majority of the Company's purchases and sales involving international parties, excluding international consumer sales, are denominated in U.S. dollars and, therefore, our foreign currency exchange risk is limited. The Company is exposed to risk from foreign currency exchange rate fluctuations resulting from its operating subsidiaries\u2019 transactions denominated in foreign currencies. To mitigate such risk, certain subsidiaries enter into forward currency contracts. As of July\u00a01, 2023 and July\u00a02, 2022, forward currency contracts designated as cash flow hedges with a notional amount of $842.3 million and $41.5 million, respectively, were outstanding. As a result of the use of derivative instruments, we are exposed to the risk that counterparties to the derivative instruments will fail to meet their contractual obligations. To mitigate the counterparty credit risk, we only enter into derivative contracts with carefully selected financial institutions. The Company also reviews the creditworthiness of our counterparties on a regular basis. As a result of the above considerations, we do not believe that we are exposed to any undue concentration of counterparty credit risk associated with our derivative contracts as of July\u00a01, 2023.\nThe Company is also exposed to transaction risk from foreign currency exchange rate fluctuations with respect to various cross-currency intercompany loans, payables and receivables. This primarily includes exposure to exchange rate fluctuations in the Chinese Renminbi, the British Pound Sterling and the Japanese Yen. To manage the exchange rate risk related to these balances, the Company enters into forward currency contracts. As of July\u00a01, 2023 and July\u00a02, 2022, the total notional values of outstanding forward foreign currency contracts related to these loans, payables and receivables were $272.3 million and $274.1 million, respectively.\nWe perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our forward foreign currency exchange and cross-currency swap contracts. Under the terms of our cross-currency swaps, we will exchange the semi-annual fixed rate payments on United States denominated debt for fixed rate payments of 2.4% to 2.7% in Euros and 0.1% to (0.3)% in Japanese Yen. We assess the risk of loss in the fair values of these contracts that would result from hypothetical changes in foreign currency exchange rates. This analysis assumes a like movement by the foreign currencies in our hedge portfolio against the U.S. Dollar. As of July 1, 2023, a 10% appreciation or depreciation of the U.S. Dollar against the foreign currencies under contract would result in a net increase or decrease, respectively, in the fair value of our derivative portfolio of approximately $185 million. This hypothetical net change in fair value should ultimately be largely offset by the net change in the related underlying hedged items. Refer to Note 10, \"Derivative Investments and Hedging Activities,\" for additional information.\nInterest Rate Risk\nThe Company is exposed to interest rate risk in relation to its $1.25 Billion Revolving Credit Facility and $500.0 Million Term Loan entered into under the credit agreement dated May 11, 2022, the Term Loan, the 2032 Senior Notes, 2027 Senior Notes, and 2025 Senior Notes (collectively the \"Senior Notes\") and investments.\n49\nOur exposure to changes in interest rates is primarily attributable to debt outstanding under the $1.25 Billion Revolving Credit Facility and $500.0 Million Term Loan (collectively, the \"Credit Facilities\"). Borrowings under the $1.25 Billion Revolving Credit Facility bear interest at a rate per annum equal to, at the Company\u2019s option, (i) for borrowings in U.S. Dollars, either (a) an alternate base rate or (b) a term secured overnight financing rate, (ii) for borrowings in Euros, the Euro Interbank Offered Rate, (iii) for borrowings in Pounds Sterling, the Sterling Overnight Index Average Reference Rate and (iv) for borrowings in Japanese Yen, the Tokyo Interbank Offer Rate, plus, in each case, an applicable margin. The applicable margin will be adjusted by reference to a grid (the \u201cPricing Grid\u201d) based on the ratio of (a) consolidated debt to (b) consolidated EBITDAR (the \u201cGross Leverage Ratio\u201d). Borrowings under the Term Loan bear interest at a rate per annum equal to, at the Company\u2019s option, either (i) an alternate base rate or (ii) a term secured overnight financing rate plus, in each case, an applicable margin. The applicable margin will be adjusted by reference to a pricing grid based on the Gross Leverage Ratio. Borrowings under the Credit Facilities are subject to interest rate risk due to changes in SOFR. A hypothetical 10% change in the Credit Facilities' interest rates would have resulted in an immaterial change in interest expense in fiscal 2023.\nThe Company is exposed to changes in interest rates related to the fair value of the Senior Notes. At July\u00a01, 2023, the fair value of the 2032 Senior Notes, 2027 Senior Notes and 2025 Senior Notes was approximately $399 million, $372 million and $295 million, respectively. At July\u00a02, 2022, the fair value of the 2032 Senior Notes, 2027 Senior Notes and 2025 Senior Notes was approximately $409 million,\u00a0$383 million and $304 million, respectively. These fair values are based on external pricing data, including available quoted market prices of these instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and are classified as Level 2 measurements within the fair value hierarchy. The interest rate payable on the 2027 Senior Notes will be subject to adjustments from time to time if either Moody\u2019s or S&P or a substitute rating agency (as defined in the Prospectus Supplement furnished with the SEC on June 7, 2017) downgrades (or downgrades and subsequently upgrades) the credit rating assigned to the respective Senior Notes of such series.\nThe Company\u2019s investment portfolio is maintained in accordance with the Company\u2019s investment policy, which defines our investment principles including credit quality standards and limits the credit exposure of any single issuer. The primary objective of our investment activities is the preservation of principal while maximizing interest income and minimizing risk. We do not hold any investments for trading purposes.",
+  "cik": "1116132",
+  "cusip6": "876030",
+  "cusip": ["876030957", "876030907", "876030107"],
+  "names": ["TAPESTRY INC", "Tapestry Inc."],
+  "source": "https://www.sec.gov/Archives/edgar/data/1116132/000111613223000020/0001116132-23-000020-index.htm"
+}
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+{
+  "item1": ">ITEM 1.\nBUSINESS \nWe are a leading provider of data storage technology and infrastructure solutions. Our principal products are hard disk drives, commonly referred to as disk drives, hard drives or HDDs. In addition to HDDs, we produce a broad range of data storage products including solid state drives (\u201cSSDs\u201d) and storage subsystems and offer storage solutions such as a scalable edge-to-cloud mass data platform that includes data transfer shuttles and a storage-as-a-service cloud.\nHDDs are devices that store digitally encoded data on rapidly rotating disks with magnetic surfaces. HDDs continue to be the primary medium of mass data storage due to their performance attributes, reliability, high capacities, superior quality and cost effectiveness. Complementing HDD storage architectures, SSDs use NAND flash memory integrated circuit assemblies to store data. \nOur HDD products are designed for mass capacity storage and legacy markets. Mass capacity storage involves well-established use cases\u2014such as hyperscale data centers and public clouds as well as emerging use cases. Legacy markets are those that we continue to sell to but we do not plan to invest in significantly. Our HDD and SSD product portfolio includes Serial Advanced Technology Attachment (\u201cSATA\u201d), Serial Attached SCSI (\u201cSAS\u201d) and Non-Volatile Memory Express (\u201cNVMe\u201d) based designs to support a wide variety of mass capacity and legacy applications. \n3\nTable of Contents\nOur systems portfolio includes storage subsystems for enterprises, cloud service providers (\u201cCSPs\u201d), scale-out storage servers and original equipment manufacturers (\u201cOEMs\u201d). Engineered for modularity, mobility, capacity and performance, these solutions include our enterprise HDDs and SSDs, enabling customers to integrate powerful, scalable storage within existing environments or create new ecosystems from the ground up in a secure, cost-effective manner.\nOur Lyve portfolio provides a simple, cost-efficient and secure way to manage massive volumes of data across the distributed enterprise. The Lyve platform includes a shuttle solution that enables enterprises to transfer massive amounts of data from endpoints to the core cloud and a storage-as-a-service cloud offering that provides frictionless mass capacity storage at the metro edge.\nIndustry Overview \nData Storage Industry\n \nThe data storage industry includes companies that manufacture components or subcomponents designed for data storage devices, as well as providers of storage solutions, software and services for enterprise cloud, big data, computing platforms and consumer markets. The rapid growth of data generation and the intelligent application of data are driving demand for data storage. As more data is created at endpoints outside traditional data centers, which requires processing at the edge and in the core or cloud, the need for data storage and management between the edge and cloud has also increased. Use cases include connected and autonomous vehicles, smart manufacturing and smart cities. We believe the proliferation and personal creation of media-rich digital content, further enabled by fifth-generation wireless (\u201c5G\u201d) technology, the edge, the Internet of Things (\u201cIoT\u201d), machine learning (\u201cML\u201d) and artificial intelligence (\u201cAI\u201d), will continue to create demand for higher capacity storage solutions. The resulting mass data ecosystem is expected to require increasing amounts of data storage at the edge, in the core and in between.\nMarkets \nThe principal data storage markets include:\nMass Capacity Storage Markets\nMass capacity storage supports high capacity, low-cost per terabyte (\u201cTB\u201d) storage applications, including nearline, video and image applications (\u201cVIA\u201d) and \nnetwork-attached storage (\u201c\nNAS\u201d) and edge-to-cloud data storage infrastructures. \nNearline.\n \nNearline applications require mass capacity devices and mass capacity subsystems that provide end-to-end solutions to businesses for the purpose of modular and scalable storage. Enterprise storage applications require both high-capacity and energy efficient storage devices to support low total cost of ownership. Seagate systems offer mass capacity storage solutions that provide foundational infrastructure for public and private clouds. The nearline market includes storage for cloud computing, content delivery, archival, backup services and emerging use cases such as generative AI.\nVIA and NAS. VIA and NAS drives are specifically designed to ensure the appropriate performance and reliability of the system for video analytics and camera enabled environments or network storage environments. These markets include storage for security and smart video installations.\nEdge-to-cloud data storage infrastructures, transport, and activation of mass data. The Seagate Lyve portfolio grew out of our mass capacity storage portfolio. It provides a simple, cost-efficient and secure way to manage, transport and activate massive volumes of data across the distributed enterprise. Among other elements, the Lyve portfolio includes a shuttle solution that enables enterprises to transfer vast amounts of data from endpoints to the core cloud and a storage-as-a-service cloud that provides frictionless mass capacity storage at the metro edge. \nLegacy Markets\nLegacy markets include consumer, client and mission critical applications. We continue to sell to these markets but do not plan significant additional investment. \nConsumer storage.\u00a0Consumer applications are externally connected storage, both HDD and SSD-based, used to provide backup capabilities, augmented storage capacity, or portable storage for PCs, mobile devices and gaming consoles.\nClient storage. Client applications include desktop and notebook storage that rely on low cost-per-HDD and SSD devices to provide built-in storage, digital video recorder (\u201cDVR\u201d) storage for video streaming in always-on consumer premise equipment and media center, and gaming storage for PC-based gaming systems as well as console gaming applications including both internal and external storage options.\nMission critical storage. Mission critical applications are defined as those that use very high-performance enterprise class HDDs and SSDs with sophisticated firmware to reliably support very high workloads. We expect that enterprises utilizing dedicated storage area networks will continue to drive market demand for mission critical enterprise storage solutions.\n4\nTable of Contents\nParticipants in the data storage industry include:\nMajor subcomponent manufacturers. \nCompanies that manufacture components or subcomponents used in data storage devices or solutions include companies that supply spindle motors, heads and media, and application specific integrated circuits (\u201cASICs\u201d).\nStorage device manufacturers. \nCompanies that transform components into storage products include disk drive manufacturers and semiconductor storage manufacturers that integrate flash memory into storage products such as SSDs.\nStorage solutions manufacturers and system integrators. \nCompanies, such as Original Equipment Manufacturers (\u201cOEMs\u201d), that bundle and package storage solutions, distributors that integrate storage hardware and software into end-user applications, CSPs that provide cloud based solutions to businesses for the purpose of scale-out storage solutions and modular systems, and producers of solutions such as storage racks.\nHyperscale data centers. \nLarge hyperscale data center companies, many of which are CSPs, are increasingly designing their own storage subsystems and having them built by contract manufacturers for their own data centers. This trend is reshaping the storage system and subsystem market, driving both innovation in system design and changes in the competitive landscape of large storage system vendors.\nStorage services. \nCompanies that provide and host services and solutions, which include storage, backup, archiving, recovery and discovery of data.\nDemand for Data Storage \nIn the \u201cWorldwide Global DataSphere Forecast, 2023-2027\u201d, published by the International Data Corporation (\u201cIDC\u201d), the global datasphere is forecasted to grow from 106 zettabytes in 2022 to 291 zettabytes by 2027. According to IDC, we are in a new era of the Data Age, whereby data is shifting to both the core and the edge. By 2027, nearly 71% of the world\u2019s data will be generated in the core and edge, up from 54% in 2022. Digital transformation has given rise to many new applications, all of which rely on faster access to and secure storage of data proliferating from endpoints through edge to cloud, which we expect will have a positive impact on storage demand.\nAs more applications require real-time decision making, some data processing and storage is moving closer to the network edge. We believe this will result in a buildup of private and edge cloud environments that will enable fast and secure access to data throughout the IoT ecosystem. \nFactors contributing to the growth of digital content include:\n\u2022\nCreation, sharing and consumption of media-rich content, such as high-resolution photos, high definition videos and digital music through smart phones, tablets, digital cameras, personal video cameras, DVRs, gaming consoles or other digital devices; \n\u2022\nIncreasing use of video and imaging sensors to collect and analyze data used to improve traffic flow, emergency response times and manufacturing production costs, as well as for new security surveillance systems that feature higher resolution digital cameras and thus require larger data storage capacities; \n\u2022\nCreation and collection of data through the development and evolution of the IoT ecosystem, big data analytics, machine learning and new technology trends such as autonomous vehicles and drones, smart manufacturing, and smart cities\n, \nas well as emerging trends that converge the digital and physical worlds such as the metaverse, use of digital twins or generative AI;\n\u2022\nThe growing use of analytics, especially for action on data created at the edge instead of processing and analyzing at the data center, which is particularly important for verticals such as autonomous vehicles, property monitoring systems, and smart manufacturing;\n\u2022\nCloud migration initiatives and the ongoing advancement of the cloud, including the build out of large numbers of cloud data centers by CSPs and private companies transitioning on-site data centers into the cloud; and \n\u2022\nNeed for protection of increased digital content through redundant storage on backup devices and externally provided storage services.\nAs a result of these factors, we anticipate that the nature and volume of data being created will require greater storage capability, which is more efficiently and economically facilitated by higher capacity mass storage solutions. \nIn addition, the economics of storage infrastructure are also evolving. The utilization of public and private hyperscale storage and open-source solutions is reducing the total cost of ownership of storage while increasing the speed and efficiency with which customers can leverage massive computing and storage devices. Accordingly, we expect these trends will continue to create significant demand for data storage products and solutions going forward.\n5\nTable of Contents\nDemand Trends \nWe believe that continued growth in digital content creation will require increasingly higher storage capacity in order to store, aggregate, host, distribute, analyze, manage, protect, back up and use such content. We also believe that as architectures evolve to serve a growing commercial and consumer user base throughout the world, storage solutions will evolve as well.\nMass capacity is and will continue to be the enabler of scale. We expect increased data creation will lead to the expansion of the need for storage in the form of HDDs, SSDs and systems. While the advance of solid state technology in many end markets is expected to increase, we believe that in the foreseeable future, cloud, edge and traditional enterprise which require high-capacity storage solutions will be best served by HDDs due to their ability to deliver reliable, energy-efficient and the most cost effective mass storage devices. We also believe that as HDD capacities continue to increase, a focus exclusively on unit demand does not reflect the increase in demand for exabytes. As demand for higher capacity drives increases, the demand profile has shifted to reflect fewer total HDD units, but with higher average capacity per drive and higher overall exabyte demand.\nIndustry Supply Balance \nFrom time to time, the storage industry has experienced periods of imbalance between supply and demand. To the extent that the storage industry builds or maintains capacity based on expectations of demand that do not materialize, price erosion may become more pronounced. Conversely, during periods where demand exceeds supply, price erosion is generally muted. \nOur Business\nData Storage Technologies \nThe design and manufacturing of HDDs depends on highly advanced technology and manufacturing techniques. Therefore, it requires high levels of research and development spending and capital equipment investments. We design, fabricate and assemble a number of the most important components in our disk drives, including read/write heads and recording media. Our design and manufacturing operations are based on technology platforms that are used to produce various disk drive products that serve multiple data storage applications and markets. Our core technology platforms focus on the areal density of media and read/write head technologies, including innovations like shingled-magnetic-recording (\"SMR\") technology, the high-capacity enabling heat-assisted magnetic recording (\u201cHAMR\u201d) technology, and the throughput-optimizing multi actuator MACH.2 technology. This design and manufacturing approach allows us to deliver a portfolio of storage products to service a wide range of data storage applications and industries. \nDisk drives that we manufacture are commonly differentiated by the following key characteristics: \n\u2022\ninput/output operations per second (\u201cIOPS\u201d), commonly expressed in megabytes per second, which is the maximum number of reads and writes to a storage location; \n\u2022\nstorage capacity, commonly expressed in TB, which is the amount of data that can be stored on the disk drive; \n\u2022\nspindle rotation speed, commonly expressed in revolutions per minute (\u201cRPM\u201d), which has an effect on speed of access to data;\n\u2022\ninterface transfer rate, commonly expressed in megabytes per second, which is the rate at which data moves between the disk drive and the computer controller;\n\u2022\naverage seek time, commonly expressed in milliseconds, which is the time needed to position the heads over a selected track on the disk surface;\n\u2022\ndata transfer rate, commonly expressed in megabytes per second, which is the rate at which data is transferred to and from the disk drive; \n\u2022\nproduct quality and reliability, commonly expressed in annualized return rates;\u00a0and\n\u2022\nenergy efficiency, commonly measured by the power output such as energy per TB necessary to operate the disk drive. \nAreal density is measured by storage capacity per square inch on the recording surface of a disk. The storage capacity of a disk drive is determined by the size and number of disks it contains as well as the areal density capability of these disks. \nWe also offer SSDs as part of our storage solutions portfolio. Our portfolio includes devices with SATA, SAS and NVMe interfaces. The SSDs differ from HDDs in that they are without mechanical parts. \nSSDs store data on NAND flash memory cells, or metal-oxide semiconductor transistors using a charge on a capacitor to represent a binary digit. SSD technology offers fast access to data and robust performance. SSDs complement hyperscale \n6\nTable of Contents\napplications, high-density data centers, cloud environments and web servers. They are also used in mission-critical enterprise applications, consumer, gaming and NAS applications.\nManufacturing\nWe primarily design and manufacture our own read/write heads and recording media, which are critical technologies for disk drives. This integrated approach enables us to lower costs and to improve the functionality of components so that they work together efficiently.\nWe believe that because of our vertical design and manufacturing strategy, we are well positioned to take advantage of the opportunities to leverage the close interdependence of components for disk drives. Our manufacturing efficiency and flexibility are critical elements of our integrated business strategy. We continuously seek to improve our manufacturing efficiency and reduce manufacturing costs by: \n\u2022\nemploying manufacturing automation;\n\u2022\nemploying machine learning algorithms and AI; \n\u2022\nimproving product quality and reliability;\n\u2022\nintegrating our supply chain with suppliers and customers to enhance our demand visibility and reduce our working capital requirements;\n\u2022\ncoordinating between our manufacturing group and our research and development organization to rapidly achieve volume manufacturing; and \n\u2022\noperating our facilities at optimal capacities.\nA vertically integrated model, however, tends to have less flexibility when demand declines as it exposes us to higher unit costs when capacity utilization is not optimized which would lead to factory underutilization charges as we experienced in fiscal year 2023.\nComponents and Raw Materials\nDisk drives incorporate certain components, including a head disk assembly and a printed circuit board mounted to the head disk assembly, which are sealed inside a rigid base and top cover containing the recording components in a contamination-controlled environment. We maintain a highly integrated approach to our business by designing and manufacturing a significant portion of the components we view as critical to our products, such as read/write heads and recording media.\nRead/Write Heads. \nThe function of the read/write head is to scan across the disk as it spins, magnetically recording or reading information. The tolerances of read/write heads are extremely demanding and require state-of-the-art equipment and processes. Our read/write heads are manufactured with thin-film and photolithographic processes similar to those used to produce semiconductor integrated circuits, though challenges related to magnetic film properties and topographical structures are unique to the disk drive industry. We perform all primary stages of design and manufacture of read/write heads at our facilities. We use a combination of internally manufactured and externally sourced read/write heads, the mix of which varies based on product mix, technology and our internal capacity levels.\nMedia. \nData is written to or read from the media, or disk, as it rotates at very high speeds past the read/write head. The media is made from non-magnetic substrates, usually an aluminum alloy or glass and is coated with thin layers of magnetic materials. We use a combination of internally manufactured and externally sourced finished media and aluminum substrates, the mix of which varies based on product mix, technology and our internal capacity levels. We purchase all of our glass substrates from third parties.\nPrinted Circuit Board Assemblies. \nThe printed circuit board assemblies (\u201cPCBAs\u201d) are comprised of standard and custom ASICs and ancillary electronic control chips. The ASICs control the movement of data to and from the read/write heads and through the internal controller and interface, which communicates with the host computer. The ASICs and control chips form electronic circuitry that delivers instructions to a head positioning mechanism called an actuator to guide the heads to the selected track of a disk where the data is recorded or retrieved. Disk drive manufacturers use one or more industry standard interfaces such as SATA, SCSI, or SAS to communicate to the host systems. \nHead Disk Assembly. \nThe head disk assembly consists of one or more disks attached to a spindle assembly powered by a spindle motor that rotates the disks at a high constant speed around a hub. Read/write heads, mounted on an arm assembly, similar in concept to that of a record player, fly extremely close to each disk surface, and record data on and retrieve it from concentric tracks in the magnetic layers of the rotating disks. The read/write heads are mounted vertically on an E-shaped assembly (\u201cE-block\u201d) that is actuated by a voice-coil motor to allow the heads to move from track to track. The E-block and the \n7\nTable of Contents\nrecording media are mounted inside the head disk assembly. We purchase spindle motors from outside vendors and from time to time participate in the design of the motors that go into our products. \nDisk Drive Assembly.\n\u00a0Following the completion of the head disk assembly, it is mated to the PCBA, and the completed unit goes through extensive defect mapping and machine learning prior to packaging and shipment. Disk drive assembly and machine learning operations occur primarily at our facilities located in China and Thailand. We perform subassembly and component manufacturing operations at our facilities in China, Malaysia, Northern Ireland, Singapore, Thailand and the United States.\nContract Manufacturing. \nWe outsource the manufacturing and assembly of certain components and products to third parties in various countries worldwide. This includes outsourcing the PCBAs used in our disk drives, SSDs and storage subsystems. We continue to participate in the design of our components and products, and we are directly involved in qualifying key suppliers and components used in our products.\nSuppliers of Components and Industry Constraints.\n\u00a0There are a limited number of independent suppliers of components, such as recording heads and media, available to disk drive manufacturers. From time to time, we may enter into long-term supply arrangements with these independent suppliers. Vertically integrated disk drive manufacturers like us, who manufacture their own components, are less dependent on external component suppliers than less vertically integrated disk drive manufacturers. However, certain parts of our business have been adversely affected by our suppliers\u2019 capacity constraints and this could occur again in the future.\nCommodity and Other Manufacturing Costs.\n The production of disk drives requires rare earth elements, precious metals, scarce alloys and industrial commodities, which are subject to fluctuations in price and the supply of which has at times been constrained. In addition to increased costs of components and commodities, volatility in fuel and other transportation costs may also increase our costs related to commodities, manufacturing and freight. As a result, we may increase our use of alternative shipment methods to help offset any increase in freight costs, and we will continually review various forms of shipments and routes in order to minimize the exposure to higher freight costs. \nProducts \nWe offer a broad range of storage solutions for mass capacity storage and legacy applications. We differentiate products on the basis of capacity, performance, product quality, reliability, price, form factor, interface, power consumption efficiency, security features and other customer integration requirements. Our industry is characterized by continuous and significant advances in technology that contribute to rapid product life cycles. Currently our product offerings include:\nMass Capacity Storage \nEnterprise Nearline HDDs. \nOur high-capacity enterprise HDDs ship in capacities of up to 30TB. These products are designed for mass capacity data storage in the core and at the edge, as well as server environments and cloud systems that require high capacity, enterprise reliability, energy efficiency and integrated security. They are available in SATA and SAS interfaces. Additionally, certain customers can utilize many of our HDDs with Shingled Magnetic Recording (\u201cSMR\u201d) technology enabled which increases the available storage capacity of the drive with certain performance trade-offs. \nEnterprise Nearline SSDs. \nOur enterprise SSDs are designed for high-performance, hyperscale, high-density and cloud applications. They are offered with multiple interfaces, including SAS, SATA, and NVMe and in capacities up to 15TB. \nEnterprise Nearline Systems. \nOur systems portfolio provides modular storage arrays, storage server platforms, multi-level configuration for disks (commonly referred as JBODs) and expansion shelves to expand and upgrade data center storage infrastructure and other enterprise applications. They feature speed, scalability and security. Our capacity-optimized systems feature multiple scalable configurations and can accommodate up to 96 26TB drives per chassis. We offer capacity and performance-optimized systems that include all-flash, all-disk and hybrid arrays for workloads demanding high performance, capacity and efficiency.\nVIA.\n Our video and image HDDs are built to support the high-write workload of an always-on, always-recording video systems. These optimized drives are built to support the growing needs of the video imaging market with support for multiple streams and capacities up to 24TB.\nNAS. \nOur NAS drives are built to support the performance and reliability demanded by small and medium businesses, and incorporate interface software with custom-built health management, error recovery controls, power settings and vibration tolerance. Our NAS HDD solutions are available in capacities up to 24TB. We also offer NAS SSDs with capacities up to 4TB.\n8\nTable of Contents\nLegacy Applications\nMission Critical HDDs and SSDs. \nWe continue to support 10,000 and 15,000 RPM HDDs, offered in capacities up to 2.4TB, which enable increased throughput while improving energy efficiency. Our enterprise SSDs are available in capacities up to 15TB, with endurance options up to 10 drive writes per day and various interfaces. Our SSDs deliver the speed and consistency required for demanding enterprise storage and server applications.\nConsumer Solutions. \nOur external storage solutions, with capacities up to 20TB are shipped, under the Seagate Ultra Touch, One Touch, Expansion and Basics product lines, as well as under the LaCie brand name. We strive to deliver the best customer experience by leveraging our core technologies, offering services such as Seagate Recovery Services (data recovery) and partnering with leading brands such as Microsoft\u2019s Xbox, Sony\u2019s PlayStation and Disney\u2019s Star Wars and Marvel.\nClient Applications. \nOur 3.5-inch desktop drives offer up to 8TB of capacity, designed for personal computers and workstation applications and our 2.5-inch notebook drives offer up to 5TB for HDD and up to 2TB for SSD designed for applications such as traditional notebooks, convertible systems and external storage to address a range of performance needs and sizes for affordable, high-capacity storage. Our DVR HDDs are optimized for video streaming in always-on consumer premise equipment applications with capacities up to 8TB. Our\n \ngaming SSDs are specifically optimized internal storage for gaming rigs and are designed to enhance the gaming experience during game load and game play with capacities up to 4TB for SSD.\nLyve Edge-to-Cloud Mass Capacity Platform\nLyve. \nLyve is our platform built with mass data in mind. These solutions, including modular hardware and software, deliver a portfolio that streamlines data access, transport and management for today\u2019s enterprise. \nCloud.\n Lyve Cloud storage-as-a-service platform is an S3-compatible storage-only cloud designed to allow enterprises to unlock the value of their massive unstructured datasets. We collaborate with certain partners to maximize accessibility and provide extensive interconnect opportunities for additional cloud services and geographical expansion. \nData Services.\n Lyve Mobile Data Transfer Services consists of Lyve Mobile modular and scalable hardware, purpose-built for simple and secure mass-capacity edge data storage, lift-and-shift initiatives, and other data movement for the enterprise. These products are cloud-vendor agnostic and can be integrated seamlessly with public or private cloud data centers and providers. \nCustomers\nWe sell our products to major OEMs, distributors and retailers. \nOEM customers, including large hyperscale data center companies and CSPs, typically enter into master purchase agreements with us. Deliveries are scheduled only after receipt of purchase orders. In addition, with limited lead-time, customers may defer most purchase orders without significant penalty. Anticipated orders from our customers have in the past failed to materialize or OEM delivery schedules have been deferred or altered as a result of changes in their business needs.\nOur distributors generally enter into non-exclusive agreements for the resale of our products. They typically furnish us with a non-binding indication of their near-term requirements and product deliveries are generally scheduled accordingly. The agreements and related sales programs typically provide the distributors with limited rights of return and price protection. In addition, we offer sales programs to distributors on a quarterly and periodic basis to promote the sale of selected products in the sales channel.\nOur retail channel consists of our branded storage products sold to retailers either by us directly or by our distributors. Retail sales made by us or our distributors typically require greater marketing support, sales incentives and price protection periods.\nSee \u201cItem 8. Financial Statements and Supplementary Data\u2014\nNote 16. Business Segment and Geographic Information\n\u201d contained in this report for a description of our major customers.\n9\nTable of Contents\nCompetition\n \nWe compete primarily with manufacturers of hard drives used in the mass capacity storage and legacy markets, and with other companies in the data storage industry that provide SSDs and systems. Some of the principal factors used by customers to differentiate among data storage solutions manufacturers are storage capacity, product performance, product quality and reliability, price per unit and price per TB, storage/retrieval access times, data transfer rates, form factor, product warranty and support capabilities, supply continuity and flexibility, power consumption, total cost of ownership and brand. While different markets and customers place varying levels of emphasis on these factors, we believe that our products are competitive with respect to many of these factors in the markets that we currently compete in.\nPrincipal Competitors. \nWe compete with manufacturers of storage solutions and the other principal manufacturers in the data storage solution industry including:\n\u2022\nMicron Technology, Inc.; \n\u2022\nSamsung Electronics; \n\u2022\nSK hynix, Inc.; \n\u2022\nKioxia Holdings Corporation; \n\u2022\nToshiba Corporation; and \n\u2022\nWestern Digital Corporation, operating the Western Digital, Hitachi Global Storage Technologies and SanDisk brands.\nPrice Erosion. \nHistorically, our industry has been characterized by price declines for data storage products with comparable\n \ncapacity, performance and feature sets (\u201clike-for-like products\u201d). Price declines for like-for-like products (\u201cprice erosion\u201d) tend to be more pronounced during periods of: \n\u2022\neconomic contraction in which competitors may use discounted pricing to attempt to maintain or gain market share; \n\u2022\nfew new product introductions when competitors have comparable or alternative product offerings; and \n\u2022\nindustry supply exceeding demand. \nData storage manufacturers typically attempt to offset price erosion with an improved mix of data storage products characterized by higher capacity, better performance and additional feature sets and product cost reductions. \nWe believe the HDD industry, in the prevailing supply and demand environment, experienced higher than usual price erosion in fiscal year 2023 and modest price erosion in fiscal year 2022.\nProduct Life Cycles and Changing Technology. \nSuccess in our industry has been dependent to a large extent on the ability to balance the introduction and transition of new products with time-to-volume, performance, capacity and quality metrics at a competitive price, level of service and support that our customers expect. Generally, the drive manufacturer that introduces a new product first benefits from improved product mix, favorable profit margins and less pricing pressure until comparable products are introduced. Changing technology also necessitates on-going investments in research and development, which may be difficult to recover due to rapid product life cycles or economic declines. Further, there is a continuing need to successfully execute product transitions and new product introductions, as factors such as quality, reliability and manufacturing yields continue to be of significant competitive importance.\nCyclicality and Seasonality\n \nOur mass capacity markets are subject to variability of sales, which can be attributed to the timing of IT spending or a reflection of cyclical demand from CSPs based on the timing of their procurement and deployment requirements and their ability to procure other components needed to build out data center infrastructure. Our legacy markets, such as consumer storage applications, traditionally experienced seasonal variability in demand with higher levels of demand in the first half of the fiscal year, primarily driven by consumer spending related to back-to-school season and traditional holiday shopping season.\n10\nTable of Contents\nResearch and Development\nWe are committed to developing new component technologies, products, alternative storage technologies inclusive of systems, software and other innovative technology solutions to support emerging applications in data use and storage. Our research and development activities are designed to bring new products to market in high volume, with quality attributes that our customers expect, before our competitors. Part of our product development strategy is to leverage a design platform and/or subsystem within product families to serve different market needs. This platform strategy allows for more efficient resource utilization, leverages best design practices, reduces exposure to changes in demand, and allows for achievement of lower costs through purchasing economies of scale. Our advanced technology integration effort, such as our high-capacity enabling HAMR technology, focuses disk drive and component research on recording subsystems, including read/write heads and recording media; market-specific product technology; and technology we believe may lead to new business opportunities. The primary purpose of our advanced technology integration effort is to ensure timely availability of mature component technologies for our product development teams as well as to allow us to leverage and coordinate those technologies in the design centers across our products in order to take advantage of opportunities in the marketplace. \nPatents and Licenses\nAs of June\u00a030, 2023, we had approximately 4,200 U.S. patents and 450 patents issued in various foreign jurisdictions as well as approximately 350 U.S. and 100 foreign patent applications pending. The number of patents and patent applications will vary at any given time as part of our ongoing patent portfolio management activity. Due to the rapid technological change that characterizes the data storage industry, we believe that, in addition to patent protection, the improvement of existing products, reliance upon trade secrets, protection of unpatented proprietary know-how and development of new products are also important to our business in establishing and maintaining a competitive advantage. Accordingly, we intend to continue our efforts to broadly protect our intellectual property, including obtaining patents, where available, in connection with our research and development program.\nThe data storage industry is characterized by significant litigation arising from time to time relating to patent and other intellectual property rights. From time to time, we receive claims that our products infringe patents of third parties. Although we have been able to resolve some of those claims or potential claims without a material adverse effect on us, other claims have resulted in adverse decisions or settlements. In addition, other claims are pending, which if resolved unfavorably to us could have a material adverse effect on our business and results of operations. For more information on these claims, see \u201cItem\u00a08. Financial Statements and Supplementary Data\u2014\nNote\u00a014.\n \nLegal, Environmental and Other Contingencies\n.\u201d The costs of engaging in intellectual property litigation in the past have been, and in the future may be, substantial, irrespective of the merits of the claim or the outcome.\nEnvironmental Matters\nOur operations are subject to laws and regulations in the various jurisdictions in which we operate relating to the protection of the environment, including those governing discharges of pollutants into the air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. Some of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities. \nWe have established environmental management systems and continually update environmental policies and standard operating procedures for our operations worldwide. We believe that our operations are in material compliance with applicable environmental laws, regulations and permits. We budget for operating and capital costs on an ongoing basis to comply with environmental laws. If additional or more stringent requirements are imposed on us in the future, we could incur additional operating costs and capital expenditures.\nSome environmental laws, such as the U.S. Comprehensive Environmental Response Compensation and Liability Act of 1980 (as amended, the \u201cSuperfund\u201d law) and its state equivalents, can impose liability for the cost of cleanup of contaminated sites upon any of the current or former site owners or operators or upon parties who sent waste to these sites, regardless of whether the owner or operator owned the site at the time of the release of hazardous substances or the lawfulness of the original disposal activity. We have been identified as a responsible or potentially responsible party at several sites. Based on current estimates of cleanup costs and our expected allocation of these costs, we do not expect costs in connection with these sites to be material.\nWe may be subject to various state, federal and international laws and regulations governing environmental matters, including those restricting the presence of certain substances in electronic products. For example, the European Union (\u201cEU\u201d) enacted the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (2011/65/EU), which prohibits the use of certain substances, including lead, in certain products, including disk drives and server storage \n11\nTable of Contents\nproducts, put on the market after July\u00a01, 2006. Similar legislation has been or may be enacted in other jurisdictions, including in the U.S., Canada, Mexico, Taiwan, China and Japan. The EU REACH Directive (Registration, Evaluation, Authorization, and Restriction of Chemicals, EC 1907/2006) also restricts substances of very high concern in products. If we or our suppliers fail to comply with the substance restrictions, recycle requirements or other environmental requirements as they are enacted worldwide, it could have a materially adverse effect on our business.\nSocial and Employee Matters\nAs of June\u00a030, 2023, we employed approximately 33,400 employees and temporary employees worldwide, of which approximately 27,100 were located in our Asia operations. We believe that our employees are crucial to our current success and that our future success will depend, in part, on our ability to attract, retain and further motivate qualified employees at all levels. We believe that our employee relations are good.\nDiversity, Equity & Inclusion. \nOne of our core values is inclusion. We rely on our diverse workforce to develop, deliver and sustain our business strategy and achieve our goals. One way we embrace our diverse employees and promote a culture of inclusion is through the support of employee resource groups (\u201cERG\u201d). These voluntary, employee-led communities are built on a shared diversity of identity, experience or thought and provide a number of benefits to employees, including professional and leadership development. Seagate\u2019s ERG community encompasses a wide array of diversity, such as LGBTQ+, women, people of color and interfaith, and includes over 27 chapters across seven countries. We also support inclusion through active employee communications, unconscious bias education and ongoing efforts to ensure our employees feel safe, respected and welcomed. In January 2023, we published our fourth annual Diversity, Equity, and Inclusion (\u201cDEI\u201d) Report, which provides an overview of our DEI efforts and outcomes including demographics on our workforce. The fiscal year 2022 DEI Report is available on our website.\nHealth & Safety. \nAll our manufacturing sites have health and safety management systems certified to the International Organization for Standardization (\u201cISO\u201d) 45001. In addition, we are audited to health and safety standards set forth by the Responsible Business Alliance. Our global health and safety standards, as well as our accompanying Environment, Health and Safety (\u201cEHS\u201d) management systems, frequently go beyond country or industry-level guidelines to ensure that we keep our employees healthy and safe. We regularly host health and safety regulatory visits that focus on issues such as safety, radiation, fire codes, food and transportation. Through our EHS Management Systems, we ensure that the focus remains on the continuous improvement of employee health and safety programs. We continue to provide comprehensive health and safety training to our employees. We emphasize e-learning courses as our main vehicle for delivering such training because employees can learn at their own pace. \nDevelopment, Retention, Compensation, Benefits & Engagement. \nOur performance management system is a continuous process that helps team members focus on the right priorities. Meaningful conversations between managers and employees are the foundation of performance management at Seagate. We focus on dialogue centered around manager and employee conversations, and ongoing feedback, to align goals. This approach focuses on achieving high-quality productive dialogue between managers and employees. We also encourage our employees to participate in the many learning opportunities that are available at Seagate. The portfolio of learning and training formats include but are not limited to mentoring and coaching, e-learning opportunities, LinkedIn Learning classroom training, on-the-job training and other strategic internal programs that cover topics ranging from leadership and technical skills to health, safety and the environment. In addition, we are investing in upskilling and re-deploying employees as needed to support our future growth and respond to the changing demands of the business. For example, our internal mobility and career development tool provides Seagate employees the opportunity to establish networking and mentor connections, identify and participate in internal part-time projects, and explore internal full-time positions.\nOur Total Rewards program is designed to attract, motivate and retain talented people in order to successfully meet our business goals. The program generally includes base pay, annual bonuses, commissions, equity awards, an employee stock purchase plan, retirement savings opportunities and other employee health and wellness benefits. Our compensation programs and guidelines are structured to align pay with performance and aim to provide internally and externally competitive total compensation.\nEmployee engagement is the psychological commitment and passion that drives discretionary effort. It predicts individual performance and is the measure of the relationship between employees and the Company. Our engagement survey includes facets of the employee experience throughout the employee life cycle. Employee experience is what employees encounter and observe over the course of their career at Seagate. A positive employee experience can have an impact on everything from recruiting to Seagate's bottom line. \nIn fiscal year 2023, we conducted two pulse surveys to obtain feedback from our global employees on their experience at Seagate. Following the conclusion of the surveys, leaders were provided access to a dashboard with results that shared the key drivers of engagement specific to their own department. \n12\nTable of Contents\nGiving Back. \nOur community engagement program is designed to provide support to our local communities, with an emphasis on science, technology, engineering and mathematics (\u201cSTEM\u201d) and also address health and human services, and environmental opportunities. The program is reflective of Seagate\u2019s vertically integrated model, with multiple large facilities across EMEA, Asia and the United States. Accordingly, the program is highly localized, involving a cross-functional process to identify and execute on opportunities that are meaningful locally. \nWe maintain an emphasis on STEM, targeting\u202fK-12\u202fstudents, supporting STEM efforts in a way that is\u202fage-appropriate\u202fand allows for fun as well as learning. In fiscal year 2023 we continued pivoting to virtual engagements and funding of STEM partners as they worked to deliver their programs online or in a socially distanced manner. Seagate also increased support of health & human services partnerships, such as support of food banks, clinics, and non-profit organizations, while sustaining many of our ongoing community partnerships.\nEnvironmental, Social and Governance (\u201cESG\u201d) Performance Report\nAdditional information regarding our ESG commitment and progress can be found on the ESG section of our website and in our ESG Performance Report. Information contained on our website or in our annual ESG Performance Report is not incorporated by reference into this or any other report we filed with the Securities and Exchange Commission.\nFinancial Information\nFinancial information for our reportable business segment and about geographic areas is set forth in \u201cItem\u00a08. Financial Statements and Supplementary Data\u2014\nNote\u00a016. Business Segment and Geographic Information.\u201d\n \nCorporate Information\n \nSeagate Technology Holdings public limited company is a public limited company organized under the laws of Ireland. \nAvailable Information\nAvailability of Reports.\n\u00a0We are a reporting company under the Securities Exchange Act of 1934, as amended (the \u201c1934 Exchange Act\u201d), and we file reports, proxy statements and other information with the U.S. Securities and Exchange Commission (the \u201cSEC\u201d). Because we make filings to the SEC electronically, the public may access this information at the SEC's website: www.sec.gov. This site contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. \nWebsite Access.\n\u00a0Our website is www.seagate.com. We make available, free of charge at the \u201cInvestor Relations\u201d section of our website (investors.seagate.com), our Annual Reports on Form\u00a010-K, Quarterly Reports on Form\u00a010-Q, Current Reports on Form\u00a08-K and amendments to those reports filed or furnished pursuant to Section\u00a013(a) or 15(d) of the 1934\u00a0Exchange Act as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC. Reports of beneficial ownership filed pursuant to Section\u00a016(a) of the 1934 Exchange\u00a0Act are also available on our website. \nInvestors.\n Investors and others should note that we routinely use the Investor Relations section of our website to announce material information to investors and the marketplace. While not all of the information that the Company posts on its corporate website is of a material nature, some information could be deemed to be material. Accordingly, the Company encourages investors, the media and others interested in the Company to review the information that it shares on www.seagate.com. Information in, or that can be accessed through, our website is not incorporated into this Form\u00a010-K.\nInformation About Our Executive Officers \nThe following sets forth the name, age and position of each of the persons who were serving as executive officers as of August\u00a04, 2023. There are no family relationships among any of our executive officers.\nName\nAge\nPositions\nDr. William\u00a0D. Mosley\n56\nDirector and Chief Executive Officer\nGianluca Romano\n54\nExecutive Vice President and Chief Financial Officer\nBan Seng Teh\n57\nExecutive Vice President and Chief Commercial Officer\nKatherine E. Schuelke\n60\nSenior Vice President, Chief Legal Officer and Corporate Secretary\nKianFatt Chong\n60\nSenior Vice President, Global Operations\nDr. John C. Morris\n56\nSenior Vice President and Chief Technology Officer\n13\nTable of Contents\nDr. William D. Mosley, 56, has served as our Chief Executive Officer (\u201cCEO\u201d) since October 2017 and as a member of the Board since July\u00a02017. He previously served as our President and Chief Operating Officer (\u201cCOO\u201d) from June 2016 to September 2017. He also served as our President of Operations and Technology from October 2013 to June 2016 and as our Executive Vice President of Operations from March 2011 until October 2013. Prior to these positions, Dr. Mosley served as Executive Vice President, Sales and Marketing from February 2009 through March 2011; Senior Vice President of Global Disk Storage Operations from 2007 to 2009; and Vice President of Research and Development, Engineering from 2002 to 2007. He joined Seagate in 1996 as a Senior Engineer with a PhD in solid state physics. From 1996 to 2002, he served at Seagate in varying roles of increasing responsibility until his promotion to Vice President.\nGianluca Romano, 54, \nhas served as our Executive Vice President and Chief Financial Officer since January 2019. From October 2011 to December 2018, Mr. Romano served as Corporate Vice President, Business Finance and Accounting at Micron Technology, Inc (\u201cMicron\u201d), a producer of computer memory and computer data storage. Prior to his role at Micron, Mr.\u00a0Romano served as Vice President Finance, Corporate Controller at Numonyx, Inc., a flash memory company which was acquired by Micron in February 2010, from 2008 to 2010. From 1994 until 2008, Mr. Romano held various finance positions at STMicroelectronics, an electronics and semiconductor manufacturer, most recently as Group Vice-President, Central\u00a0& North Europe Finance Director, Shared Accounting Services Director.\nBan Seng Teh, 57, has served as our Executive Vice President and Chief Commercial Officer since July 2022. Prior to that, Mr. Teh served as Executive Vice President of Global Sales and Sales Operations from February 2021 to July 2022 and Senior Vice President of Global Sales and Sales Operations from November 2014 to February 2021. Mr. Teh also served as our Senior Vice President of Asia-Pacific and Japan Sales and marketing from July 2010 to November 2014. Mr. Teh joined Seagate in 1989 as a field customer engineer and has served in varying roles of increasing responsibilities, including as Vice President, Asia Pacific Sales and Marketing (Singapore) from January 2008 to July 2010; Vice President, Sales Operations from 2006 to 2008; Vice President, Asia Pacific Sales from 2003 to 2006; Director, Marketing and APAC Distribution Sales from 1999 to 2003; and Country Manager, South Asia Sales from 1996 to 1999.\nKatherine E. Schuelke, 60, has served as our Senior Vice President, Chief Legal Officer and Corporate Secretary since June 2017.\u00a0From 2011 to January 2016, Ms.\u00a0Schuelke was the Senior Vice President, General Counsel and Secretary at\u00a0Altera Corporation (\u201cAltera\u201d), a manufacturer of programmable logic devices.\u00a0Prior to that, Ms.\u00a0Schuelke was Vice President, General Counsel, and Secretary at Altera from 2001 to 2011.\u00a0At Altera, she held other positions of increasing responsibility from 1996 through 2001. Ms.\u00a0Schuelke began her career at an international law firm. Ms. Schuelke serves on the board of directors of SiTime Corporation, a provider of silicon timing solutions, and on its Compensation and Nominating and Corporate Governance Committees.\nKianFatt Chong, 60, has served as our Senior Vice President, Global Operations since October 2020. Prior to his current role, Mr. Chong was Senior Vice President, Global Drive Operations from December 2013 to September 2020. He served as Vice President of China Operations from July 2003 to November 2013, expanding and also spearheading the first campus concept in Seagate with multiple manufacturing operations disciplines all located in a single site. Since joining Seagate in 1989 as an engineer, Mr. Chong has held a variety of leadership positions and has been a key strategic contributor for many Seagate\u2019s operations and manufacturing capabilities across the global footprints. \nDr. John C. Morris, 56, has served as our Senior Vice President, HDD and SSD Products and Chief Technology Officer since 2019. Prior to his current role, Dr. Morris was the Vice President of HDD and SSD Products from August 2015 to August 2019. Before that, he served as Vice President of Design Engineering and Enterprise Development Group driving focus on technical and strategic alignment with enterprise and cloud customers from September 2013 to August 2015. Since joining the Company in 1996, Dr. Morris has held a variety of engineering leadership positions and has been a key contributor to many of Seagate\u2019s core technologies.\n14\nTable of Contents",
+  "item1a": ">ITEM 1A.\nRISK FACTORS \nSummary of Risk Factors\nThe following is a summary of the principal risks and uncertainties that could materially adversely affect our business, results of operations, financial condition, cash flows, brand and/or the price of our outstanding ordinary shares, and make an investment in our ordinary shares speculative or risky. You should read this summary together with the more detailed description of each risk factor contained below. Additional risks beyond those summarized below or discussed elsewhere in this Annual Report on Form 10-K may apply to our business and operations as currently conducted or as we may conduct them in the future or to the markets in which we currently, or may in the future, operate.\nRisks Related to our Business, Operations and Industry\n\u2022\nOur ability to increase our revenue and maintain our market share depends on our ability to successfully introduce and achieve market acceptance of new products on a timely basis. If our products do not keep pace with customer requirements, our results of operations will be adversely affected.\n\u2022\nWe operate in highly competitive markets and our failure to anticipate and respond to technological changes and other market developments, including price, could harm our ability to compete.\n\u2022\nWe have been adversely affected by reduced, delayed, loss of or canceled purchases by, one or more of our key customers, including large hyperscale data center companies and CSPs.\n\u2022\nWe are dependent on sales to distributors and retailers, which may increase price erosion and the volatility of our sales.\n\u2022\nWe must plan our investments in our products and incur costs before we have customer orders or know about the market conditions at the time the products are produced. If we fail to predict demand accurately for our products or if the markets for our products change, we may have insufficient demand or we may be unable to meet demand, which may materially adversely affect our financial condition and results of operations.\n\u2022\nChanges in demand for computer systems, data storage subsystems and consumer electronic devices may in the future cause a decline in demand for our products.\n\u2022\nWe have a long and unpredictable sales cycle for nearline storage solutions, which impairs our ability to accurately predict our financial and operating results in any period and may adversely affect our ability to forecast the need for investments and expenditures.\n\u2022\nWe experience seasonal declines in the sales of our consumer products during the second half of our fiscal year which may adversely affect our results of operations.\n\u2022\nWe may not be successful in our efforts to grow our systems, SSD and Lyve revenues.\n\u2022\nOur worldwide sales and manufacturing operations subject us to risks that may adversely affect our business related to disruptions in international markets, currency exchange fluctuations and increased costs.\n\u2022\nThe effects of the COVID-19 pandemic have negatively impacted and may, in the future, adversely impact our business, operating results and financial condition, as well as the operations and financial performance of many of the customers and suppliers in industries that we serve. \n\u2022\nIf we do not control our costs, we will not be able to compete effectively and our financial condition may be adversely impacted.\nRisks Associated with Supply and Manufacturing\n\u2022\nShortages or delays in the receipt of, or cost increases in, critical components, equipment or raw materials necessary to manufacture our products, as well as reliance on single-source suppliers, may affect our production and development of products and may harm our operating results.\n\u2022\nWe have cancelled purchased commitments with suppliers and incurred cost associated with such cancellations, and if revenues fall or customer demand decreases significantly, we may not meet our purchase commitments to certain suppliers in the future, which could result in penalties, increased manufacturing costs or excess inventory.\n\u2022\nDue to the complexity of our products, some defects may only become detectable after deployment.\nRisks Related to Human Capital\n\u2022\nThe loss of or inability to attract, retain and motivate key executive officers and employees could negatively impact our business prospects.\n\u2022\nWe are subject to risks related to corporate and social responsibility and reputation.\n15\nTable of Contents\nRisks Related to Financial Performance or General Economic Conditions\n\u2022\nChanges in the macroeconomic environment have impacted and may in the future negatively impact our results of operations.\n\u2022\nWe may not be able to generate sufficient cash flows from operations and our investments to meet our liquidity requirements, including servicing our indebtedness and continuing to declare our quarterly dividend.\n\u2022\nWe are subject to counterparty default risks.\n\u2022\nOur quarterly results of operations fluctuate, sometimes significantly, from period to period, and may cause our share price to decline. \n\u2022\nAny cost reduction initiatives that we undertake may not deliver the results we expect and these actions may adversely affect our business.\n\u2022\nThe effect of geopolitical uncertainties, war, terrorism, natural disasters, public health issues and other circumstances, on national and/or international commerce and on the global economy, could materially adversely affect our results of operations and financial condition.\nLegal, Regulatory and Compliance Risks\n\u2022\nOur business is subject to various laws, regulations, governmental policies, litigation, governmental investigations or governmental proceedings that may cause us to incur significant expense or adversely impact our results or operations and financial condition.\n\u2022\nSome of our products and services are subject to export control laws and other laws affecting the countries in which our products and services may be sold, distributed, or delivered, and any changes to or violation of these laws could have a material adverse effect on our business, results of operations, financial condition and cash flows.\n\u2022\nChanges in U.S. trade policy, including the imposition of sanctions or tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations.\n\u2022\nWe may be unable to protect our intellectual property rights, which could adversely affect our business, financial condition and results of operations.\n\u2022\nWe are at times subject to intellectual property proceedings and claims which could cause us to incur significant additional costs or prevent us from selling our products, and which could adversely affect our results of operations and financial condition.\n\u2022\nOur business and certain products and services depend in part on IP and technology licensed from third parties, as well as data centers and infrastructure operated by third parties.\nRisks Related to Information Technology, Data and Information Security\n\u2022\nWe could suffer a loss of revenue and increased costs, exposure to significant liability including legal and regulatory consequences, reputational harm and other serious negative consequences in the event of cyber-attacks, ransomware or other cyber security breaches or incidents that disrupt our operations or result in unauthorized access to, or the loss, corruption, unavailability or dissemination of proprietary or confidential information of our customers or about us or other third parties.\n\u2022\nWe must successfully implement our new global enterprise resource planning system and maintain and upgrade our information technology systems, and our failure to do so could have a material adverse effect on our business, financial condition and results of operations. \nRisks Related to Owning our Ordinary Shares\n\u2022\nThe price of our ordinary shares may be volatile and could decline significantly.\n\u2022\nAny decision to reduce or discontinue the payment of cash dividends to our shareholders or the repurchase of our ordinary shares pursuant to our previously announced share repurchase program could cause the market price of our ordinary shares to decline significantly.\n16\nTable of Contents\nRISKS RELATED TO OUR BUSINESS, OPERATIONS AND INDUSTRY\nOur ability to increase our revenue and maintain our market share depends on our ability to successfully introduce and achieve market acceptance of new products on a timely basis. If our products do not keep pace with customer requirements, our results of operations will be adversely affected.\nThe markets for our products are characterized by rapid technological change, frequent new product introductions and technology enhancements, uncertain product life cycles and changes in customer demand. The success of our products and services also often depends on whether our offerings are compatible with our customers\u2019 or third-parties\u2019 products or services and their changing technologies. Our customers demand new generations of storage products as advances in computer hardware and software have created the need for improved storage, with features such as increased storage capacity, enhanced security, energy efficiency, improved performance and reliability and lower cost. We, and our competitors, have developed improved products, and we will need to continue to do so in the future.\nHistorically, our results of operations have substantially depended upon our ability to be among the first-to-market with new data storage product offerings. We may face technological, operational and financial challenges in developing new products. In addition, our investments in new product development may not yield the anticipated benefits. Our market share, revenue and results of operations in the future may be adversely affected if we fail to: \n\u2022\ndevelop new products, identify business strategies and timely introduce competitive product offerings to meet technological shifts, or we are unable to execute successfully;\n\u2022\nconsistently maintain our time-to-market performance with our new products; \n\u2022\nmanufacture these products in adequate volume; \n\u2022\nmeet specifications or satisfy compatibility requirements;\n\u2022\nqualify these products with key customers on a timely basis by meeting our customers\u2019 performance and quality specifications; or \n\u2022\nachieve acceptable manufacturing yields, quality and costs with these products.\nAccordingly, we cannot accurately determine the ultimate effect that our new products will have on our results of operations. Our failure to accurately anticipate customers\u2019 needs and accurately identify the shift in technological changes could materially adversely affect our long-term financial results. \nIn addition, the concentration of customers in our largest end markets magnifies the potential adverse effect of missing a product qualification opportunity. If the delivery of our products is delayed, our customers may use our competitors\u2019 products to meet their requirements. \nWhen we develop new products with higher capacity and more advanced technology, our results of operations may decline because the increased difficulty and complexity associated with producing these products increases the likelihood of reliability, quality or operability problems. If our products experience increases in failure rates, are of low quality or are not reliable, customers may reduce their purchases of our products, our factory utilization may decrease and our manufacturing rework and scrap costs and our service and warranty costs may increase. In addition, a decline in the reliability of our products may make it more difficult for us to effectively compete with our competitors.\nAdditionally, we may be unable to produce new products that have higher capacities and more advanced technologies in the volumes and timeframes that are required to meet customer demand. We are transitioning to key areal density recording technologies that use HAMR technology to increase HDD capacities. If our transitions to more advanced technologies, including the transition to HDDs utilizing HAMR technology, require development and production cycles that are longer than anticipated or if we otherwise fail to implement new HDD technologies successfully, we may lose sales and market share, which could significantly harm our financial results.\nWe cannot assure you that we will be among the leaders in time-to-market with new products or that we will be able to successfully qualify new products with our customers in the future. If our new products are not successful, our future results of operations may be adversely affected.\nWe operate in highly competitive markets and our failure to anticipate and respond to technological changes and other market developments, including price, could harm our ability to compete.\n \nWe face intense competition in the data storage industry. Our principal sources of competition include HDD and SSD manufacturers, and companies that provide storage subsystems, including electronic manufacturing services and contract electronic manufacturing. \nThe markets for our data storage products are characterized by technological change, which is driven in part by the adoption of new industry standards. These standards provide mechanisms to ensure technology component interoperability but they also hinder our ability to innovate or differentiate our products. When this occurs, our products may be deemed commodities, which could result in downward pressure on prices.\n17\nTable of Contents\nWe also experience competition from other companies that produce alternative storage technologies such as flash memory, where increasing capacity, decreasing cost, energy efficiency and improvements in performance have resulted in SSDs that offer increased competition with our lower capacity, smaller form factor HDDs and a declining trend in demand for HDDs in our legacy markets. Some customers for both mass capacity storage and legacy markets have adopted SSDs as an alternative to hard drives in certain applications. Further adoption of SSDs or other alternative storage technologies may limit our total addressable HDD market, impact the competitiveness of our product portfolio and reduce our market share. Any resulting increase in competition could have a material adverse effect on our business, financial condition and results of operations.\nWe have been adversely affected by reduced, delayed, loss of or canceled purchases by, one or more of our key customers, including large hyperscale data center companies and CSPs.\nSome of our key customers such as OEM customers including large hyperscale data center companies and CSPs account for a large portion of our revenue in our mass capacity markets. While we have long-standing relationships with many of our customers, if any key customers have to significantly reduce, defer or cancel their purchases from us or delay product acceptances, or we were prohibited from selling to those key customers such as due to export regulations, our results of operations would be adversely affected. Although sales to key customers may vary from period to period, a key customer that permanently discontinues or significantly reduces its relationship with us, or that we are prohibited from selling to, could be difficult to replace. In line with industry practice, new key customers usually require that we pass a lengthy and rigorous qualification process. Accordingly, it may be difficult or costly for us to attract new key customers. Additionally, our customers\u2019 demand for our products may fluctuate due to factors beyond our control. If any of our key customers unexpectedly reduce, delay or cancel orders, our revenues and results of operations may be materially adversely affected.\nFurthermore, if there is consolidation among our customer base, or when supply exceeds demand in our industry, our customers may be able to command increased leverage in negotiating prices and other terms of sale, which could adversely affect our profitability. Furthermore, if such customer pressures require us to reduce our pricing such that our gross margins are diminished, it might not be feasible to sell to a particular customer, which could result in a decrease in our revenue. Consolidation among our customer base may also lead to reduced demand for our products, replacement of our products by the combined entity with those of our competitors and cancellations of orders, each of which could adversely affect our results of operations. If a significant transaction or regulatory impact involving any of our key customers results in the loss of or reduction in purchases by these key customers, it could have a materially adverse effect on our business, results of operations and financial condition. \nWe are dependent on sales to distributors and retailers, which may increase price erosion and the volatility of our sales\n.\n \nA substantial portion of our sales has been to distributors and retailers of disk drive products. Certain of our distributors and retailers may also market competing products. We face significant competition in this distribution channel as a result of limited product qualification programs and a focus on price, terms and product availability. Sales volumes through this channel are also less predictable and subject to greater volatility. In addition, deterioration in business and economic conditions has exacerbated price erosion and volatility as distributors or retailers lower prices to compensate for lower demand and higher inventory levels. Our distributors\u2019 and retailers\u2019 ability to access credit to fund their operations may also affect their purchases of our products. If prices decline significantly in this distribution channel or our distributors or retailers reduce purchases of our products or if distributors or retailers experience financial difficulties or terminate their relationships with us, our revenues and results of operations would be adversely affected. \nWe must plan our investments in our products and incur costs before we have customer orders or know about the market conditions at the time the products are produced. If we fail to predict demand accurately for our products or if the markets for our products change, we may have insufficient demand or we may be unable to meet demand, which may materially adversely affect our financial condition and results of operations.\nOur results of operation are highly dependent on strong cloud and enterprise and/or consumer spending and the resulting demand for our products. Reduced demand, particularly from our key cloud and enterprise customers as a result of a significant change in macroeconomic conditions or other factors may result in a significant reduction or cancellation of their purchases from us which can and have materially adversely impacted our business and financial condition. \nOur manufacturing process requires us to make significant product-specific investments in inventory for production at least three to six months in advance. As a result, we incur inventory and manufacturing costs in advance of anticipated sales that may never materialize or that may be substantially lower than expected. If actual demand for our products is lower than the forecast, we may also experience excess and obsolescence of inventory, higher inventory carrying costs, factory underutilization charges and manufacturing rework costs, which have resulted in and could result in adverse material effects on our financial condition and results of operations. For example, due to customer inventory adjustments, we have experienced a slowdown in demand for our products, particularly in the mass capacity markets. These reductions in demand have required us to significantly reduce manufacturing production plans and recognize factory underutilization charges. We expect these factors will continue to impact our business and results of operations over the near term.\n18\nTable of Contents\nOther factors that have affected and may continue to affect our ability to anticipate or meet the demand for our products and adversely affect our results of operations include:\n\u2022\ncompetitive product announcements or technological advances that result in excess supply when customers cancel purchases in anticipation of newer products; \n\u2022\nvariable demand resulting from unanticipated upward or downward pricing pressures; \n\u2022\nour ability to successfully qualify, manufacture and sell our data storage products; \n\u2022\nchanges in our product mix, which may adversely affect our gross margins; \n\u2022\nkey customers deferring or canceling purchases or delaying product acceptances, or unexpected increases in their orders;\n\u2022\nmanufacturing delays or interruptions, particularly at our manufacturing facilities in China, Malaysia, Northern Ireland, Singapore, Thailand or the United States;\n\u2022\nlimited access to components that we obtain from a single or a limited number of suppliers; and \n\u2022\nthe impact of changes in foreign currency exchange rates on the cost of producing our products and the effective price of our products to non-U.S. customers. \nChanges in demand for computer systems, data storage subsystems and consumer electronic devices may in the future cause a decline in demand for our products.\nOur products are incorporated in computers, data storage systems deployed in data centers and consumer electronic devices. Historically, the demand for these products has been volatile. Unexpected slowdowns in demand for computers, data storage subsystems or consumer electronic devices generally result in sharp declines in demand for our products. Declines in customer spending on the systems and devices that incorporate our products could have a material adverse effect on demand for our products and on our financial condition and results of operations. Uncertain global economic and business conditions can exacerbate these risks.\n \nWe are dependent on our long-term investments to manufacture adequate products. Our investment decisions in adding new manufacturing capacity require significant planning and lead-time, and a failure to accurately forecast demand for our products could cause us to over-invest or under-invest, which would lead to excess capacity, underutilization charges, or impairments. \nSales to the legacy markets remain an important part of our business. These markets, however, have been, and we expect them to continue to be, adversely affected by: \n\u2022\nannouncements or introductions of major new operating systems or semiconductor improvements or shifts in customer preferences, performance requirements and behavior, such as the shift to tablet computers, smart phones, NAND flash memory or similar devices that meet customers\u2019 cost and capacity metrics; \n\u2022\nlonger product life cycles; and\n\u2022\nchanges in macroeconomic conditions that cause customers to spend less, such as the imposition of new tariffs, increased laws and regulations, and increased unemployment levels. \nThe deterioration of demand for disk drives in certain of the legacy markets has accelerated, and we believe this deterioration may continue and may further accelerate, which has caused our operating results to suffer.\nIn addition, we believe announcements regarding competitive product introductions from time to time have caused customers to defer or cancel their purchases, making certain inventory obsolete. Whenever an oversupply of products in the market causes our industry to have higher than anticipated inventory levels, we experience even more intense price competition from other manufacturers than usual, which may materially adversely affect our financial results. \nWe have a long and unpredictable sales cycle for nearline storage solutions, which impairs our ability to accurately predict our financial and operating results in any period and may adversely affect our ability to forecast the need for investments and expenditures\n.\nOur nearline storage solutions are technically complex and we typically supply them in high quantities to a small number of customers. Many of our products are tailored to meet the specific requirements of individual customers and are often integrated by our customers into the systems and products that they sell.\n19\nTable of Contents\nOur sales cycle for nearline storage solutions could exceed one year and could be unpredictable, depending on the time required for developing, testing and evaluating our products before deployment; the size of deployment; and the complexity of system configuration necessary for development. Additionally, our nearline storage solutions are subject to variability of sales primarily due to the timing of IT spending or a reflection of cyclical demand from CSPs based on the timing of their procurement and deployment requirements and their ability to procure other components needed to build out data center infrastructure. Given the length of development and qualification programs and unpredictability of the sales cycle, we may be unable to accurately forecast product demand, which may result in excess inventory and associated inventory reserves or write-downs, which could harm our business, financial condition and results of operations.\nWe experience seasonal declines in the sales of our consumer products during the second half of our fiscal year which may adversely affect our results of operations.\nIn certain end markets, sales of computers, storage subsystems and consumer electronic devices tend to be seasonal, and therefore, we expect to continue to experience seasonality in our business as we respond to variations in our customers\u2019 demand for our products. In particular, we anticipate that sales of our consumer products will continue to be lower during the second half of our fiscal year. Retail sales of certain of our legacy markets solutions traditionally experience higher demand in the first half of our fiscal year driven by consumer spending in the back-to-school season from late summer to fall and the traditional holiday shopping season from fall to winter. We experience seasonal reductions in the second half of our fiscal year in the business activities of our customers during international holidays like Lunar New Year, as well as in the summer months (particularly in Europe), which typically result in lower sales during those periods. Since our working capital needs peak during periods in which we are increasing production in anticipation of orders that have not yet been received, our results of operations will fluctuate even if the forecasted demand for our products proves accurate. Failure to anticipate consumer demand for our branded solutions may also adversely impact our future results of operations. Furthermore, it is difficult for us to evaluate the degree to which this seasonality may affect our business in future periods because of the rate and unpredictability of product transitions and new product introductions, as well as macroeconomic conditions. In particular, during periods where there are rapidly changing macroeconomic conditions, historical seasonality trends may not be a good indicator to predict our future performance and results of operations. \nWe may not be successful in our efforts to grow our systems, SSD and Lyve revenues.\nWe have made and continue to make investments to grow our systems, SSD and Lyve platform revenues. Our ability to grow systems, SSD and Lyve revenues is subject to the following risks:\n\u2022\nwe may be unable to accurately estimate and predict data center capacity and requirements; \n\u2022\nwe may be unable to offer compelling solutions or services to enterprises, subscribers or consumers; \n\u2022\nwe may be unable to obtain cost effective supply of NAND flash memory in order to offer competitive SSD solutions; and \n\u2022\nour cloud systems revenues generally have a longer sales cycle, and growth is likely to depend on relatively large orders from a concentrated customer base, which may increase the variability of our results of operations and the difficulty of matching revenues with expenses. \nOur results of operations and share price may be adversely affected if we are not successful in our efforts to grow our revenues as anticipated. In addition, our growth in these markets may bring us into closer competition with some of our customers or potential customers, which may decrease their willingness to do business with us.\nOur worldwide sales and manufacturing operations subject us to risks that may adversely affect our business related to disruptions in international markets, currency exchange fluctuations and increased costs.\nWe are a global company and have significant sales operations outside of the United States, including sales personnel and customer support operations. We also generate a significant portion of our revenue from sales outside the U.S. Disruptions in the economic, environmental, political, legal or regulatory landscape in the countries where we operate may have a material adverse impact on our manufacturing and sales operations. Disruptions in financial markets and the deterioration of global economic conditions have had and may continue to have an impact on our sales to customers and end-users.\n20\nTable of Contents\nPrices for our products are denominated predominantly in dollars, even when sold to customers that are located outside the U.S. An increase in the value of the dollar could increase the real cost to our customers of our products in those markets outside of the U.S. where we sell in dollars. This could adversely impact our sales and market share in such areas or increase pressure on us to lower our prices, and adversely impact our profit margins. In addition, we have revenue and expenses denominated in currencies other than the dollar, primarily the Thai Baht, Singaporean dollar, Chinese Renminbi and British Pound Sterling, which further exposes us to adverse movements in foreign currency exchange rates. A weakened dollar could increase the effective cost of our expenses such as payroll, utilities, tax and marketing expenses, as well as overseas capital expenditures. Any of these events could have a material adverse effect on our results of operations. We have attempted to manage the impact of foreign currency exchange rate changes by, among other things, entering into foreign currency forward exchange contracts from time to time, which could be designated as cash flow hedges or not designated as hedging instruments. Our hedging strategy may be ineffective, and specific hedges may expire and not be renewed or may not offset any or more than a portion of the adverse financial impact resulting from currency variations. The hedging activities may not cover our full exposure, subject us to certain counterparty credit risks and may impact our results of operations. See \u201cItem 7A. Quantitative and Qualitative Disclosures About Market Risk\u2014 \nForeign Currency Exchange Risk\n\u201d of this report for additional information about our foreign currency exchange risk.\nThe shipping and transportation costs associated with our international operations are typically higher than those associated with our U.S. operations, resulting in decreased operating margins in some countries. Volatility in fuel costs, political instability or constraints in or increases in the costs of air transportation may lead us to develop alternative shipment methods, which could disrupt our ability to receive raw materials, or ship finished product, and as a result our business and results of operations may be harmed.\nThe effects of the COVID-19 pandemic have negatively impacted and may, in the future, adversely impact our business, operating results and financial condition, as well as the operations and financial performance of many of the customers and suppliers in industries that we serve.\nThe COVID-19 pandemic has resulted in a widespread health crisis and numerous disease control measures being taken to limit its spread. The impact of the pandemic on our business has included or could in the future include:\n\u2022\ndisruptions to or restrictions on our ability to ensure the continuous manufacture and supply of our products and services as a result of labor shortages and workforce disruptions, including insufficiency of our existing inventory levels and temporary or permanent closures or reductions in operational capacity of our facilities or the facilities of our direct or indirect suppliers or customers, and any supply chain disruptions; \n\u2022\nincreases in operational expenses and other costs related to requirements implemented to mitigate the impact of the COVID-19 pandemic;\n\u2022\ndelays or limitations on the ability of our customers to perform or make timely payments;\n\u2022\nreductions in short- and long-term demand for our products, or other disruptions in technology buying patterns;\n\u2022\nadverse effects on economies and financial markets globally or in various markets throughout the world, which has led to, and could in the future, lead to, reductions in business and consumer spending, which have resulted or may result in decreased net revenue, gross margins, or earnings and/or in increased expenses and difficulty in managing inventory levels;\n\u2022\ndelays to and/or lengthening of our sales or development cycles or qualification activity; and\n\u2022\nchallenges for us, our direct and indirect suppliers and our customers in obtaining financing due to turmoil in financial markets.\nThere are many factors outside of our control, such as new strains of COVID-19 virus, the response and measures taken by government authorities around the world, and the response of the financial and consumer markets to the pandemic and related governmental measures. These impacts, individually or in the aggregate, have had and could have a material and adverse effect on our business, results of operations and financial condition. Under any of these circumstances, the resumption of normal business operations has delayed or been hampered by lingering effects of the COVID-19 pandemic on our operations, direct and indirect suppliers, partners and customers. The COVID-19 pandemic may also heighten other risks described in this Risk Factors section.\n21\nTable of Contents\nIf we do not control our costs, we will not be able to compete effectively and our financial condition may be adversely impacted. \nWe continually seek to make our cost structure and business processes more efficient. We are focused on increasing workforce flexibility and scalability, and improving overall competitiveness by leveraging our global capabilities, as well as external talent and skills, worldwide. Our strategy involves, to a substantial degree, increasing revenue and exabytes volume while at the same time controlling expenses. Because of our vertical design and manufacturing strategy, our operations have higher costs that are fixed or difficult to reduce in the short-term, including our costs related to utilization of existing facilities and equipment. If we fail to forecast demand accurately or if there is a partial or complete reduction in long-term demand for our products, we could be required to write off inventory, record excess capacity charges, which could negatively impact our gross margin and our financial results. If we do not control our manufacturing and operating expenses, our ability to compete in the marketplace may be impaired. In the past, activities to reduce costs have included closures and transfers of facilities, significant personnel reductions, restructuring efforts, asset write-offs and efforts to increase automation. Our restructuring efforts may not yield the intended benefits and may be unsuccessful or disruptive to our business operations which may materially adversely affect our financial results.\nRISKS ASSOCIATED WITH SUPPLY AND MANUFACTURING\nShortages or delays in the receipt of, or cost increases in, critical components, equipment or raw materials necessary to manufacture our products, as well as reliance on single-source suppliers, may affect our production and development of products and may harm our operating results. \nThe cost, quality and availability of components, subassemblies, certain equipment and raw materials used to manufacture our products are critical to our success. Particularly important for our products are components such as read/write heads, substrates for recording media, ASICs, spindle motors, printed circuit boards, suspension assemblies and NAND flash memory. Certain rare earth elements are also critical in the manufacture of our products. In addition, the equipment we use to manufacture our products and components is frequently custom made and comes from a few suppliers and the lead times required to obtain manufacturing equipment can be significant. Our efforts to control our costs, including capital expenditures, may also affect our ability to obtain or maintain such inputs and equipment, which could affect our ability to meet future demand for our products. \nWe rely on sole or a limited number of direct and indirect suppliers for some or all of these components and rare earth elements that we do not manufacture, including substrates for recording media, read/write heads, ASICs, spindle motors, printed circuit boards, suspension assemblies and NAND flash memory. Our options in supplier selection in these cases are limited and the supplier-based technology has been and may continue to be single sourced until wider adoption of the technology occurs and any necessary licenses become available. In light of this small, consolidated supplier base, if our suppliers increased their prices as a result of inflationary pressures from the current macroeconomic conditions or other changes in economic conditions, and we could not pass these price increases to our customers, our operating margin would decline. Also, many of such direct and indirect component suppliers are geographically concentrated, making our supply chain more vulnerable to regional disruptions such as severe weather, the occurrence of local or global health issues or pandemics, acts of terrorism, war and an unpredictable geopolitical climate, which may have a material impact on the production, availability and transportation of many components. We also often aim to lead the market in new technology deployments and leverage unique and customized technology from single source suppliers who are early adopters in the emerging market. If there are any technical issues in the supplier\u2019s technology, it may also cause us to delay shipments of our new technology deployments, incur scrap, rework or warranty charges and harm our financial position. \nWe have experienced and could in the future experience increased costs and production delays when we were unable to obtain the necessary equipment or sufficient quantities of some components, and/or have been forced to pay higher prices or make volume purchase commitments or advance deposits for some components, equipment or raw materials that were in short supply in the industry in general. If our direct and indirect vendors for these components are unable to meet our cost, quality, supply and transportation requirements or fulfill their contractual commitments and obligations, we may have to reengineer some products, which would likely cause production and shipment delays, make the reengineered products more costly and provide us with a lower rate of return on these products. Further, if we have to allocate the components we receive to certain of our products and ship less of others due to shortages or delays in critical components, we may lose sales to customers who could purchase more of their required products from our competitor that either did not experience these shortages or delays or that made different allocations, and thus our revenue and operating margin would decline.\n22\nTable of Contents\nWe cannot assure you that we will be able to obtain critical components in a timely and economic manner. In addition, from time to time, some of our suppliers\u2019 manufacturing facilities are fully utilized. If they fail to invest in additional capacity or deliver components in the required timeframe, such failure would have an impact on our ability to ramp new products, and may result in a loss of revenue or market share if our competitors did not utilize the same components and were not affected. Further, if our customers experience shortages of components or materials used in their products it could result in a decrease in demand for our products and have an adverse effect on our results of operations. \nWe have cancelled purchase commitments with suppliers and incurred cost associated with such cancellations, and if revenues fall or customer demand decreases significantly, we may not meet our purchase commitments to certain suppliers in the future, which could result in penalties, increased manufacturing costs or excess inventory.\nFrom time to time, we enter into long-term, non-cancelable purchase commitments or make large up-front investments with certain suppliers in order to secure certain components or technologies for the production of our products or to supplement our internal manufacturing capacity for certain components. In fiscal year 2023, we cancelled purchase commitments with certain suppliers due to a change in forecasted demand and incurred fees associated with such cancellation. If our actual revenues in the future are lower than our projections or if customer demand decreases significantly below our projections, we may not meet our purchase commitments with suppliers. As a result, it is possible that our revenues will not be sufficient to recoup our up-front investments, in which case we will have to shift output from our internal manufacturing facilities to these suppliers, resulting in higher internal manufacturing costs, or make penalty-type payments under the terms of these contracts. Additionally, because our markets are volatile, competitive and subject to rapid technology and price changes, we face inventory and other asset risks in the event we do not fully utilize purchase commitments. If we cancel purchase commitments, are unable to fully utilize our purchase commitments or if we shift output from our internal manufacturing facilities in order to meet the commitments, our gross margin and operating margin could be materially adversely impacted.\nDue to the complexity of our products, some defects may only become detectable after deployment\n.\n \nOur products are highly complex and are designed to operate in and form part of larger complex networks and storage systems. Our products may contain a defect or be perceived as containing a defect by our customers as a result of improper use or maintenance. Lead times required to manufacture certain components are significant, and a quality excursion may take significant time and resources to remediate. Defects in our products, third-party components or in the networks and systems of which they form a part, directly or indirectly, have resulted in and may in the future result in: \n\u2022\nincreased costs and product delays until complex solution level interoperability issues are resolved;\n\u2022\ncosts associated with the remediation of any problems attributable to our products;\n\u2022\nloss of or delays in revenues;\n\u2022\nloss of customers;\n\u2022\nfailure to achieve market acceptance and loss of market share;\n\u2022\nincreased service and warranty costs; and\n\u2022\nincreased insurance costs.\nDefects in our products could also result in legal actions by our customers for breach of warranty, property damage, injury or death. Such legal actions, including but not limited to product liability claims could exceed the level of insurance coverage that we have obtained. Any significant uninsured claims could significantly harm our financial condition.\nRISKS RELATED TO HUMAN CAPITAL\nThe loss of or inability to attract, retain and motivate key executive officers and employees could negatively impact our business prospects\n.\n \nOur future performance depends to a significant degree upon the continued service of key members of management as well as marketing, sales and product development personnel. We believe our future success will also depend in large part upon our ability to attract, retain and further motivate highly skilled management, marketing, sales and product development personnel. We have experienced intense competition for qualified and capable personnel, including in the U.S., Thailand, China, Singapore and Northern Ireland, and we cannot assure you that we will be able to retain our key employees or that we will be successful in attracting, assimilating and retaining personnel in the future. Additionally, because a portion of our key personnel\u2019s compensation is contingent upon the performance of our business, including through cash bonuses and equity compensation, when the market price of our ordinary shares fluctuates or our results of operations or financial condition are negatively impacted, we may be at a competitive disadvantage for retaining and hiring employees. The reductions in workforce that result from our historical restructurings have also made and may continue to make it difficult for us to recruit and retain personnel. Increased difficulty in accessing, recruiting or retaining personnel may lead to increased manufacturing and employment compensation costs, which could adversely affect our results of operations. The loss of one or more of our key personnel or the inability to hire and retain key personnel could have a material adverse effect on our business, results of operations and financial condition. \n23\nTable of Contents\nWe are subject to risks related to corporate and social responsibility and reputation.\nMany factors influence our reputation including the perception held by our customers, suppliers, partners, shareholders, other key stakeholders and the communities in which we operate. Our key customers\u2019 satisfaction with the volume, quality and timeliness of our products is a material element of our market reputation, and any damage to our key customer relationships could materially adversely affect our reputation. We face increasing scrutiny related to environmental, social and governance activities. We risk damage to our reputation if we fail to act responsibly in a number of areas, such as diversity and inclusion, environmental stewardship, sustainability, supply chain management, climate change, workplace conduct and human rights. Further, despite our policies to the contrary, we may not be able to control the conduct of every individual actor, and our employees and personnel may violate environmental, social or governance standards or engage in other unethical conduct. These acts, or any accusation of such conduct, even if proven to be false, could adversely impact the reputation of our business. Any harm to our reputation could impact employee engagement and retention, our corporate culture and the willingness of customers, suppliers and partners to do business with us, which could have a material adverse effect on our business, results of operations and cash flows.\nRISKS RELATED TO FINANCIAL PERFORMANCE OR GENERAL ECONOMIC CONDITIONS\nChanges in the macroeconomic environment have impacted and may in the future negatively impact our results of operations.\nChanges\n \nin macroeconomic conditions may affect consumer and enterprise spending, and as a result, our customers may postpone or cancel spending in response to volatility in credit and equity markets, negative financial news and/or declines in income or asset values, all of which may have a material adverse effect on the demand for our products and/or result in significant decreases in our product prices. Other factors that could have a material adverse effect on demand for our products and on our financial condition and results of operations include inflation, slower growth or recession, conditions in the labor market, healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer and business spending behavior. These changes could happen rapidly and we may not be able to react quickly to prevent or limit our losses or exposures.\nMacroeconomic developments such as slowing global economies, trade disputes, sanctions, increased tariffs between the U.S. and China, Mexico and other countries, the withdrawal of the United Kingdom from the EU, adverse economic conditions worldwide or efforts of governments to stimulate or stabilize the economy have and may continue to adversely impact our business. Significant inflation and related increases in interest rates, have negatively affected our business in recent quarters and could continue in the near future to negatively affect our business, operating results or financial condition or the markets in which we operate, which, in turn, could adversely affect the price of our ordinary shares. A general weakening of, and related declining corporate confidence in, the global economy or the curtailment in government or corporate spending could cause current or potential customers to reduce their information technology (\u201cIT\u201d) budgets or be unable to fund data storage products, which could cause customers to delay, decrease or cancel purchases of our products or cause customers to not pay us or to delay paying us for previously purchased products and services.\nWe may not be able to generate sufficient cash flows from operations and our investments to meet our liquidity requirements, including servicing our indebtedness and continuing to declare our quarterly dividend\n.\nWe are leveraged and require significant amounts of cash to service our debt. Our business may not generate sufficient cash flows to enable us to meet our liquidity requirements, including working capital, capital expenditures, product development efforts, investments, servicing our indebtedness and other general corporate requirements. Our high level of debt presents the following risks:\n\u2022\nwe are required to use a substantial portion of our cash flow from operations to service our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances and other general corporate requirements;\n\u2022\nour substantial leverage increases our vulnerability to economic downturns, decreases availability of capital and may subject us to a competitive disadvantage vis-\u00e0-vis those of our competitors that are less leveraged;\n\u2022\nour debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and our industry, and could limit our ability to borrow additional funds on satisfactory terms for operations or capital to implement our business strategies; and\n\u2022\ncovenants in our debt instruments limit our ability to pay future dividends or make other restricted payments and investments, which could restrict our ability to execute on our business strategy or react to the economic environment.\n24\nTable of Contents\nIn addition, our ability to service our debt obligations and comply with debt covenants depends on our financial performance. If we fail to meet our debt service obligations or fail to comply with debt covenants, or are unable to modify, obtain a waiver, or cure a debt covenant on terms acceptable to us or at all, we could be in default of our debt agreements and instruments. Such a default could result in an acceleration of other debt and may require us to change capital allocation or engage in distressed debt transactions on terms unfavorable to us, which could have a material negative impact on our financial performance, stock market price and operations.\nIn the event that we need to refinance all or a portion of our outstanding debt as it matures or incur additional debt to fund our operations, we may not be able to obtain terms as favorable as the terms of our existing debt or refinance our existing debt or incur additional debt to fund our operations at all. If prevailing interest rates or other factors result in higher interest rates upon refinancing, then the interest expense relating to the refinanced debt would increase. Furthermore, if any rating agency changes our credit rating or outlook, our debt and equity securities could be negatively affected, which could adversely affect our ability to refinance existing debt or raise additional capital. \nWe are subject to counterparty default risks.\nWe have numerous arrangements with financial institutions that subject us to counterparty default risks, including cash and investment deposits, and foreign currency forward exchange contracts and other derivative instruments. As a result, we are subject to the risk that the counterparty to one or more of these arrangements will, voluntarily or involuntarily, default on its performance obligations. In times of market distress in particular, a counterparty may not comply with its contractual commitments that could then lead to it defaulting on its obligations with little or no notice to us, thereby limiting our ability to take action to lessen or cover our exposure. Additionally, our ability to mitigate our counterparty exposures could be limited by the terms of the relevant agreements or because market conditions prevent us from taking effective action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability to recover any losses suffered as a result of that counterparty's default may be limited by the liquidity of the counterparty or the applicable laws governing the bankruptcy proceedings. In the event of any such counterparty default, we could incur significant losses, which could have a material adverse effect on our business, results of operations, or financial condition.\nFurther, our customers could have reduced access to working capital due to global economic conditions, higher interest rates, reduced bank lending resulting from contractions in the money supply or the deterioration in the customer\u2019s, or their bank\u2019s financial condition or the inability to access other financing, which would increase our credit and non-payment risk, and could result in an increase in our operating costs or a reduction in our revenue. Also, our customers outside of the United States are sometimes allowed longer time periods for payment than our U.S. customers. This increases the risk of nonpayment due to the possibility that the financial condition of particular customers may worsen during the course of the payment period. In addition, some of our OEM customers have adopted a subcontractor model that requires us to contract directly with companies, such as original design manufacturers, that provide manufacturing and fulfillment services to our OEM customers. Because these subcontractors are generally not as well capitalized as our direct OEM customers, this subcontractor model exposes us to increased credit risks. Our agreements with our OEM customers may not permit us to increase our product prices to alleviate this increased credit risk. \nOur quarterly results of operations fluctuate, sometimes significantly, from period to period, and may cause our share price to decline\n.\nOur quarterly revenue and results of operations fluctuate, sometimes significantly, from period to period. These fluctuations, which we expect to continue, have been and may continue to be precipitated by a variety of factors, including:\n\u2022\nuncertainty in global economic and political conditions, and instability or war or adverse changes in the level of economic activity in the major regions in which we do business; \n\u2022\npandemics, such as COVID-19, or other global health issues that impact our operations as well as those of our customers and suppliers;\n\u2022\ncompetitive pressures resulting in lower prices by our competitors which may shift demand away from our products; \n\u2022\nannouncements of new products, services or technological innovations by us or our competitors, and delays or problems in our introduction of new, more cost-effective products, the inability to achieve high production yields or delays in customer qualification or initial product quality issues; \n\u2022\nchanges in customer demand or the purchasing patterns or behavior of our customers; \n\u2022\napplication of new or revised industry standards; \n\u2022\ndisruptions in our supply chain, including increased costs or adverse changes in availability of supplies of raw materials or components;\n\u2022\nincreased costs of electricity and/or other energy sources, freight and logistics costs or other materials or services necessary for the operation of our business;\n\u2022\nthe impact of corporate restructuring activities that we have and may continue to engage in; \n\u2022\nchanges in the demand for the computer systems and data storage products that contain our products; \n25\nTable of Contents\n\u2022\nunfavorable supply and demand imbalances; \n\u2022\nour high proportion of fixed costs, including manufacturing and research and development expenses; \n\u2022\nany impairments in goodwill or other long-lived assets; \n\u2022\nchanges in tax laws, such as global tax developments applicable to multinational businesses; the impact of trade barriers, such as import/export duties and restrictions, sanctions, tariffs and quotas, imposed by the U.S. or other countries in which the Company conducts business; \n\u2022\nthe evolving legal and regulatory, economic, environmental and administrative climate in the international markets where the Company operates; and \n\u2022\nadverse changes in the performance of our products. \nAs a result, we believe that quarter-to-quarter and year-over-year comparisons of our revenue and results of operations may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance. Our results of operations in one or more future quarters may fail to meet the expectations of investment research analysts or investors, which could cause an immediate and significant decline in our market value.\nAny cost reduction initiatives that we undertake may not deliver the results we expect, and these actions may adversely affect our business\n.\n \nFrom time to time, we engage in restructuring plans that have resulted and may continue to result in workforce reduction and consolidation of our real estate facilities and our manufacturing footprint. In addition, management will continue to evaluate our global footprint and cost structure, and additional restructuring plans are expected to be formalized. As a result of our restructurings, we have experienced and may in the future experience a loss of continuity, loss of accumulated knowledge, disruptions to our operations and inefficiency during transitional periods. Any cost-cutting measures could impact employee retention. In addition, we cannot be sure that any future cost reductions or global footprint consolidations will deliver the results we expect, be successful in reducing our overall expenses as we expect or that additional costs will not offset any such reductions or global footprint consolidation. If our operating costs are higher than we expect or if we do not maintain adequate control of our costs and expenses, our results of operations may be adversely affected. \nThe effect of geopolitical uncertainties, war, terrorism, natural disasters, public health issues and other circumstances, on national and/or international commerce and on the global economy, could materially adversely affect our results of operations and financial condition\n.\n \nGeopolitical uncertainty, terrorism, instability or war, such as the military action against Ukraine launched by Russia, natural disasters, public health issues and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on our business, our direct and indirect suppliers, logistics providers, manufacturing vendors and customers. Our business operations are subject to interruption by natural disasters such as floods and earthquakes, fires, power or water shortages, terrorist attacks, other hostile acts, labor disputes, public health issues (such as the COVID-19 pandemic) and related mitigation actions, and other events beyond our control. Such events may decrease demand for our products, make it difficult or impossible for us to make and deliver products to our customers or to receive components from our direct and indirect suppliers, and create delays and inefficiencies in our supply chain. \nA significant natural disaster, such as an earthquake, fire, flood, or significant power outage could have an adverse impact on our business, results of operations, and financial condition. The impact of climate change may increase these risks due to changes in weather patterns, such as increases in storm intensity, sea-level rise and temperature extremes in areas where we or our suppliers and customers conduct business. We have a number of our employees and executive officers located in the San Francisco Bay Area, a region known for seismic activity, wildfires and drought conditions, and in Asia, near major earthquake faults known for seismic activity. To mitigate wildfire risk, electric utilities are deploying public safety power shutoffs, which affects electricity reliability to our facilities and our communities. Many of our suppliers and customers are also located in areas with risks of natural disasters. In the event of a natural disaster, losses and significant recovery time could be required to resume operations and our financial condition and results of operations could be materially adversely affected. \nShould major public health issues, including pandemics, arise, we could be negatively affected by stringent employee travel restrictions, additional limitations or cost increases in freight and other logistical services, governmental actions limiting the movement of products or employees between regions, increases in or changes to data collection and reporting obligations, delays in production ramps of new products, and disruptions in our operations and those of some of our key direct and indirect suppliers and customers. \n26\nTable of Contents\nLEGAL, REGULATORY AND COMPLIANCE RISKS\nOur business is subject to various laws, regulations, governmental policies, litigation, governmental investigations or governmental proceedings that may cause us to incur significant expense or adversely impact our results or operations and financial condition\n. \nOur business is subject to regulation under a wide variety of U.S. federal and state and non-U.S. laws, regulations and policies. Laws, regulations and policies may change in ways that will require us to modify our business model and objectives or affect our returns on investments by restricting existing activities and products, subjecting them to escalating costs or prohibiting them outright. In particular, potential uncertainty of changes to global tax laws, including global initiatives put forth by the Organization for Economic Co-operation and Development (\u201cOECD\u201d) and tax laws in any jurisdiction in which we operate have had and may continue to have an effect on our business, corporate structure, operations, sales, liquidity, capital requirements, effective tax rate, results of operations, and financial performance. The member states of the European Union agreed to implement the OECD\u2019s Pillar Two framework, which imposes a global corporate minimum tax rate of 15%. Other countries may also adopt the Pillar Two framework. These changes may materially increase the level of income tax on our U.S. and non-U.S. jurisdictions. Jurisdictions such as China, Malaysia, Northern Ireland, Singapore, Thailand and the U.S., in which we have significant operating assets, and the European Union each have exercised and continue to exercise significant influence over many aspects of their domestic economies including, but not limited to, fair competition, tax practices, anti-corruption, anti-trust, data privacy, protection, security and sovereignty, price controls and international trade, which have had and may continue to have an adverse effect on our business operations and financial condition.\nOur business, particularly our Lyve products and related services, is subject to state, federal, and international laws and regulations relating to data privacy, data protection and data security, including security breach notification, data retention, transfer and localization. Laws and regulations relating to these matters evolve frequently and their scope may change through new legislation, amendments to existing legislation and changes in interpretation or enforcement and may impose conflicting and inconsistent obligations. Any such changes, and any changes to our products or services or manner in which our customers utilize them may result in new or enhanced costly compliance requirements and governmental or regulatory scrutiny, may limit our ability to operate in certain jurisdictions or to engage in certain data processing activities, and may require us to modify our practices and policies, potentially in a material manner, which we will be unable to do in a timely or commercially reasonable manner or at all.  \nFurther, the sale and manufacturing of products in certain states and countries has and may continue to subject us and our suppliers to state, federal and international laws and regulations governing protection of the environment, including those governing climate change, discharges of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites, restrictions on the presence of certain substances in electronic products and the responsibility for environmentally safe disposal or recycling. If additional or more stringent requirements are imposed on us and our suppliers in the future, we could incur additional operating costs and capital expenditures. If we fail to comply with applicable environmental laws, regulations, initiatives, or standards of conduct, our customers may refuse to purchase our products and we could be subject to fines, penalties and possible prohibition of sales of our products into one or more states or countries, liability to our customers and damage to our reputation, which could result in a material adverse effect on our financial condition or results of operations. \nAs the laws and regulations to which we are subject to continue to change and vary greatly from jurisdiction to jurisdiction, compliance with such laws and regulations may be onerous, may create uncertainty as to how they will be applied and interpreted, and may continue to increase our cost of doing business globally.\nFrom time to time, we have been and may continue to be involved in various legal, regulatory or administrative investigations, inquiries, negotiations or proceedings arising in the normal course of business\n.\n Litigation and government investigations or other proceedings are subject to inherent risks and uncertainties that may cause an outcome to differ materially from our expectations and may result in us being required to pay substantial damages, fines or penalties and cease certain practices or activities, and may harm our reputation and market position, all of which could materially harm our business, results of operations and financial conditions. The costs associated with litigation and government proceedings can also be unpredictable depending on the complexity and length of time devoted to such litigation or proceeding. Litigation and governmental investigations or other proceedings may also divert the efforts and attention of our key personnel, which could also harm our business\n.\n \nIn addition, regulation or government scrutiny may impact the requirements for marketing our products and slow our ability to introduce new products, resulting in an adverse impact on our business. Although we have implemented policies and procedures designed to ensure compliance, there can be no assurance that our employees, contractors or agents will not violate these or other applicable laws, rules and regulations to which we are and may be subject. Actual or perceived violations of these laws and regulations could lead to significant penalties, restraints on our export or import privileges, monetary fines, government investigations, disruption of our operating activities, damage to our reputation and corporate brand, criminal \n27\nTable of Contents\nproceedings and regulatory or other actions that could materially adversely affect our results of operations. The political and media scrutiny surrounding a governmental investigation for the violation of such laws, even if an investigation does not result in a finding of violation, could cause us significant expense and collateral consequences, including reputational harm, that could have an adverse impact on our business, results of operations and financial condition. \nSome of our products and services are subject to export control laws and other laws affecting the countries in which our products and services may be sold, distributed, or delivered, and any changes to or violation of these laws could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nDue to the global nature of our business, we are subject to import and export restrictions and regulations, including the Export Administration Regulations (\u201cEAR\u201d) administered by the U.S. Department of Commerce\u2019s Bureau of Industry and Security (\u201cBIS\u201d) and the trade and economic sanctions regulations administered by the U.S. Treasury Department\u2019s Office of Foreign Assets Control (\u201cOFAC\u201d). We incorporate encryption technology into certain of our products and solutions. These encryption products and the underlying technology may be exported outside of the United States only with export authorizations, including by license, a license exception or other appropriate government authorizations, including the filing of an encryption registration. The U.S., through the BIS and OFAC, places restrictions on the sale or export of certain products and services to certain countries, persons and entities, as well as for certain end-uses, such as military, military-intelligence and weapons of mass destruction end-uses. The U.S. government also imposes sanctions through executive orders restricting U.S. companies from conducting business activities with specified individuals and companies. Although we have controls and procedures to ensure compliance with all applicable regulations and orders, we cannot predict whether changes in laws or regulations by the U.S., China or another jurisdiction will affect our ability to sell our products and services to existing or new customers. Additionally, we cannot ensure that our interpretation of relevant restrictions and regulations will be accepted in all cases by relevant regulatory and enforcement authorities. On April 18, 2023, we entered into a Settlement Agreement with BIS (the \u201cSettlement Agreement\u201d) that resolves BIS\u2019 allegations regarding our sales of hard disk drives to Huawei. We have also agreed to complete three audits of our compliance with the license requirements of Section 734.9 of the EAR. The Settlement Agreement also includes a denial order that is suspended and will be waived five years after the date of the order issued under the Settlement Agreement, provided that we have made full and timely payments under the Settlement Agreement and timely completed the audit requirements. Despite our best efforts to comply with the terms of the Settlement Agreement, failure to do so could result in significant penalties, including the loss of the suspension of the denial order which would prohibit us from exporting our products subject to the EAR outside of the United States, and could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nViolators of any U.S. export control and sanctions laws may be subject to significant penalties, which may include monetary fines, criminal proceedings against them and their officers and employees, a denial of export privileges, and suspension or debarment from selling products to the U.S. government. Moreover, the sanctions imposed by the U.S. government could be expanded in the future. Our products could be shipped to restricted end-users or for restricted end-uses by third parties, including potentially our channel partners, despite our precautions. In addition, if our partners fail to obtain appropriate import, export or re-export licenses or permits, we may also be adversely affected, through reputational harm as well as other negative consequences including government investigations and penalties. A significant portion of our sales are to customers in Asia Pacific and in other geographies that have been the recent focus of changes in U.S. export control policies. Any further limitation that impedes our ability to export or sell our products and services could materially adversely affect our business, results of operations, financial condition and cash flows.\nOther countries also regulate the import and export of certain encryption and other technology, including import and export licensing requirements, and have enacted laws that could limit our ability to sell or distribute our products and services or could limit our partners\u2019 or customers\u2019 ability to sell or use our products and services in those countries, which could materially adversely affect our business, results of operations, financial condition and cash flows. Violations of these regulations may result in significant penalties and fines. In our Settlement Agreement with BIS, we agreed to pay a penalty of $300 million to resolve BIS\u2019 allegations. Changes in our products and services or future changes in export and import regulations may create delays in the introduction of our products and services in those countries, prevent our customers from deploying our products and services globally or, in some cases, prevent the export or import or sale of our products and services to certain countries, governments or persons altogether. From time to time, various governmental agencies have proposed additional regulation of encryption technology, including the escrow and government recovery of private encryption keys. Any change in export or import regulations, economic sanctions or related legislation, increased export and import controls, or change in the countries, governments, persons or technologies targeted by such regulations, in the countries where we operate could result in decreased use of our products and services by, or in our decreased ability to export or sell our products and services to, new or existing customers, which could materially adversely affect our business, results of operations, financial condition and cash flows.\nIf we were ever found to have violated applicable export control laws, we may be subject to penalties which could have a material and adverse impact on our business, results of operations, financial condition and cash flows. Even if we were not found to have violated such laws, the political and media scrutiny surrounding any governmental investigation of us could \n28\nTable of Contents\ncause us significant expense and reputational harm. Such collateral consequences could have a material adverse impact on our business, results of operations, financial condition and cash flows.\nChanges in U.S. trade policy, including the imposition of sanctions or tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations.\nWe face uncertainty with regard to U.S. government trade policy. Current U.S. government trade policy includes tariffs on certain non-U.S. goods, including information and communication technology products. These measures may materially increase costs for goods imported into the United States. This in turn could require us to materially increase prices to our customers which may reduce demand, or, if we are unable to increase prices to adequately address any tariffs, quotas or duties, could lower our margin on products sold and negatively impact our financial performance. Changes in U.S. trade policy have resulted in, and could result in more, U.S. trading partners adopting responsive trade policies, including imposition of increased tariffs, quotas or duties. Such policies could make it more difficult or costly for us to export our products to those countries, therefore negatively impacting our financial performance. \nWe may be unable to protect our intellectual property rights, which could adversely affect our business, financial condition and results of operations\n.\n \nWe rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements, security measures and licensing arrangements to protect our intellectual property rights. In the past, we have been involved in significant and expensive disputes regarding our intellectual property rights and those of others, including claims that we may be infringing patents, trademarks and other intellectual property rights of third parties. We expect that we will be involved in similar disputes in the future\n.\n \nThere can be no assurance tha\nt:\n \n\u2022\nany of our existing patents will continue to be held valid, if challenged; \n\u2022\npatents will be issued for any of our pending applications; \n\u2022\nany claims allowed from existing or pending patents will have sufficient scope or strength to protect us; \n\u2022\nour patents will be issued in the primary countries where our products are sold in order to protect our rights and potential commercial advantage; \n\u2022\nwe will be able to protect our trade secrets and other proprietary information through confidentiality agreements with our customers, suppliers and employees and through other security measures; and \n\u2022\nothers will not gain access to our trade secrets. \nIn addition, our competitors may be able to design their products around our patents and other proprietary rights. Enforcement of our rights often requires litigation. If we bring a patent infringement action and are not successful, our competitors would be able to use similar technology to compete with us. Moreover, the defendant in such an action may successfully countersue us for infringement of their patents or assert a counterclaim that our patents are invalid or unenforceable\n.\n \nFurthermore, we have significant operations and sales in countries where intellectual property laws and enforcement policies are often less developed, less stringent or more difficult to enforce than in the United States. Therefore, we cannot be certain that we will be able to protect our intellectual property rights in jurisdictions outside the United States\n.\n \nWe are at times subject to intellectual property proceedings and claims which could cause us to incur significant additional costs or prevent us from selling our products, and which could adversely affect our results of operations and financial condition\n.\n \nWe are subject from time-to-time to legal proceedings and claims, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties by us, or our customers, in connection with the use of our products. Intellectual property litigation can be expensive and time-consuming, regardless of the merits of any claim, and could divert our management\u2019s attention from operating our business. In addition, intellectual property lawsuits are subject to inherent uncertainties due to the complexity of the technical issues involved, which may cause actual results to differ materially from our expectations. Some of the actions that we face from time-to-time seek injunctions against the sale of our products and/or substantial monetary damages, which, if granted or awarded, could materially harm our business, financial condition and operating results\n.\n \n29\nTable of Contents\nWe cannot be certain that our products do not and will not infringe issued patents or other intellectual property rights of others. We may not be aware of currently filed patent applications that relate to our products or technology. If patents are later issued on these applications, we may be liable for infringement. If our products were found to infringe the intellectual property rights of others, we could be required to pay substantial damages, cease the manufacture, use and sale of infringing products in one or more geographic locations, expend significant resources to develop non-infringing technology, discontinue the use of specific processes or obtain licenses to the technology infringed. We might not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to reengineer our products successfully to avoid infringement. Any of the foregoing could cause us to incur significant costs and prevent us from selling our products, which could adversely affect our results of operations and financial condition. See \n\u201cItem 8. Financial Statements and Supplementary Data\n\u2014\nNote 14.\n \nLegal, Environmental and Other Contingencies\n\u201d contained in this report for a description of pending intellectual property proceedings\n.\nOur business and certain products and services depend in part on IP and technology licensed from third parties, as well as data centers and infrastructure operated by third parties.\nSome of our business and some of our products rely on or include software licensed from third parties, including open source licenses. We may not be able to obtain or continue to obtain licenses from these third parties at all or on reasonable terms, or such third parties may demand cross-licenses to our intellectual property. Third-party components and technology may become obsolete, defective or incompatible with future versions of our products or services, or our relationship with the third party may deteriorate, or our agreements may expire or be terminated. We may face legal or business disputes with licensors that may threaten or lead to the disruption of inbound licensing relationships. In order to remain in compliance with the terms of our licenses, we monitor and manage our use of third-party software, including both proprietary and open source license terms to avoid subjecting our products and services to conditions we do not intend, such as the licensing or public disclosure of our intellectual property without compensation or on undesirable terms. The terms of many open source licenses have not been interpreted by U.S. courts, and these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products or services. Additionally, some of these licenses may not be available to us in the future on terms that are acceptable or that allow our product offerings to remain competitive. Our inability to obtain licenses or rights on favorable terms could have a material effect on our business, financial condition, results of operations and cash flow, including if we are required to take remedial action that may divert resources away from our development efforts. \nIn addition, we also rely upon third-party hosted infrastructure partners globally to serve customers and operate certain aspects of our business or services. Any disruption of or interference at our hosted infrastructure partners would impact our operations and our business could be adversely impacted.\nRISKS RELATED TO INFORMATION TECHNOLOGY, DATA AND INFORMATION SECURITY\nWe could suffer a loss of revenue and increased costs, exposure to significant liability including legal and regulatory consequences, reputational harm and other serious negative consequences in the event of cyber-attacks, ransomware or other cyber security breaches or incidents that disrupt our operations or result in unauthorized access to, or the loss, corruption, unavailability or dissemination of proprietary or confidential information of our customers or about us or other third parties\n.\nOur operations are dependent upon our ability to protect our digital infrastructure and data. We manage and store various proprietary information and sensitive or confidential data relating to our operations, as well as to our customers, suppliers, employees and other third parties, and we store subscribers\u2019 data on our edge-to-cloud mass storage platform. As our operations become more automated and increasingly interdependent and our edge-to-cloud mass storage platform service grows, our exposure to the risks posed by storage, transfer, and maintenance of data, such as damage, corruption, loss, unavailability, unauthorized acquisition and other proceeding, and other security risks, including risks of distributions to our platform or security breaches and incidents impacting our digital infrastructure and data, will continue to increase. \nDespite the measures we and our vendors put in place designed to protect our computer equipment and data, our customers, suppliers, employees or other third parties, the digital infrastructure and data have been and may continue to be vulnerable to phishing, employee or contractor error, hacking, cyberattacks, ransomware and other malware, malfeasance, system error or other irregularities or incidents, including from attacks or breaches and incidents at third party vendors we utilize. In addition, the measures we take may not be sufficient for all eventualities. There have been and may continue to be significant supply chain attacks, and we cannot guarantee that our or our suppliers\u2019 or other vendors\u2019 systems, networks, or other components or infrastructure have not been compromised or do not contain exploitable defects, bugs or vulnerabilities. We anticipate that these threats will continue to grow in scope and complexity over time due to the development and deployment of increasingly advanced tools and techniques. \n30\nTable of Contents\nWe and our vendors may be unable to anticipate or prevent these attacks and other threats, react in a timely manner, or implement adequate preventive measures, and we and they may face delays in detection or remediation of, or other responses to, security breaches and other security-related incidents. The costs to eliminate or address security problems and security vulnerabilities before or after a security breach or incident may be significant. Certain legacy information technology (\u201cIT\u201d) systems may not be easily remediated, and our disaster recovery planning may not be sufficient for all eventualities. Our remediation and other aspects of our efforts to address any attack, compromise, breach or incident may not be successful and could result in interruptions, delays or cessation of service. Security breaches or incidents and unauthorized access to, or loss, corruption, unavailability, or processing of data we and our vendors maintain or otherwise process has exposed us and could expose us, our vendors and customers or other third parties to a risk of loss or misuse of this data. Any actual or perceived breach incident could result in litigation or governmental investigations, fines, penalties, indemnity obligations and other potential liability and costs for us, materially damage our brand, cause us to lose existing or potential customers, impede critical functions or otherwise materially harm our business, results of operations and financial condition. \nAdditionally, defending against claims, litigation or regulatory inquiries or proceedings relating to any security breach or other security incident, regardless of merit, could be costly and divert attention of key personnel. We cannot ensure that any provisions in our contracts with customers or others relating to limitations of liability would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any claim. The insurance coverage we maintain that is intended to address certain data security risks may be insufficient to cover all types of claims or losses that may arise and has been increasing in price over time. We cannot be certain that insurance coverage will continue to be available to us on economically reasonable terms, or at all.\nWe must successfully implement our new global enterprise resource planning system and maintain and upgrade our information technology systems, and our failure to do so could have a material adverse effect on our business, financial condition and results of operations\n. \nWe are in the process of implementing, and will continue to invest in and implement, modifications and upgrades to our IT systems and procedures, including making changes to legacy systems or acquiring new systems with new functionality, and building new policies, procedures, training programs and monitoring tools.\nWe are engaged in a multi-year implementation of a new global enterprise resource planning system (\u201cERP\u201d) which requires significant investment of human and financial resources. The ERP is designed to efficiently maintain our financial records and provide information important to the operation of our business to our management team. In implementing the ERP, we may experience significant increases to inherent costs and risks associated with changing and acquiring these systems, policies, procedures and monitoring tools, including capital expenditures, additional operating expenses, demands on management time and other risks and costs of delays or difficulties in transitioning to or integrating new systems policies, procedures or monitoring tools into our current systems. Any significant disruption or deficiency in the design and implementation of the ERP may adversely affect our ability to process orders, ship product, send invoices and track payments, fulfill contractual obligations, maintain effective disclosure controls and internal control over financial reporting or otherwise operate our business. These implementations, modifications and upgrades may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, difficulties with implementing new technology systems, such as ERP, delays in our timeline for planned improvements, significant system failures or our inability to successfully modify our IT systems, policies, procedures or monitoring tools to respond to changes in our business needs in the past have caused and in the future may cause disruptions in our business operations, increase security risks, and may have a material adverse effect on our business, financial condition and results of operations.\nRISKS RELATED TO OWNING OUR ORDINARY SHARES\nThe price of our ordinary shares may be volatile and could decline significantly\n.\n \n The market price of our ordinary shares has fluctuated and may continue to fluctuate or decline significantly in response to various factors\n \nsome of which are beyond our control, including\n:\n \n\u2022\ngeneral stock market conditions, or general uncertainty in stock market conditions due to global economic conditions and negative financial news unrelated to our business or industry, including the impact of the COVID-19 pandemic; \n\u2022\nthe timing and amount of or the discontinuance of our share repurchases; \n\u2022\nactual or anticipated variations in our results of operations; \n\u2022\nannouncements of innovations, new products, significant contracts, acquisitions, or significant price reductions by us or our competitors, including those competitors who offer alternative storage technology solutions; \n\u2022\nour failure to meet our guidance or the performance estimates of investment research analysts, or changes in financial estimates by investment research analysts; \n\u2022\nsignificant announcements by or changes in financial condition of a large customer; \n\u2022\nthe ability of our customers to procure necessary components which may impact their demand or timing of their demand for our products, especially during a period of persistent supply chain shortages;\n31\nTable of Contents\n\u2022\nreduction in demand from our key customers due to macroeconomic conditions that reduce cloud, enterprise or consumer spending;\n\u2022\nactual or perceived security breaches or incidents or security vulnerabilities;\n\u2022\nactual or anticipated changes in the credit ratings of our indebtedness by rating agencies; and \n\u2022\nthe sale of our ordinary shares held by certain equity investors or members of management. \nIn addition, in the past, following periods of decline in the market price of a company\u2019s securities, class action lawsuits have often been pursued against that company. If similar litigation were pursued against us, it could result in substantial costs and a diversion of management\u2019s attention and resources, which could materially adversely affect our results of operations, financial condition and liquidity.\nAny decision to reduce or discontinue the payment of cash dividends to our shareholders or the repurchase of our ordinary shares pursuant to our previously announced share repurchase program could cause the market price of our ordinary shares to decline significantly\n.\n \nAlthough historically we have announced regular cash dividend payments and a share repurchase program, we are under no obligation to pay cash dividends to our shareholders in the future at historical levels or at all or to repurchase our ordinary shares at any particular price or at all. The declaration and payment of any future dividends is at the discretion of our Board of Directors. Our previously announced share repurchase program was paused in the December 2022 quarter, remained paused through the end of fiscal year 2023 and there are no assurances as to if and when the program will resume. Our payment of quarterly cash dividends and the repurchase of our ordinary shares pursuant to our share repurchase program are subject to, among other things, our financial position and results of operations, distributable reserves, available cash and cash flow, capital and regulatory requirements, market and economic conditions, our ordinary share price and other factors. Any reduction or discontinuance by us of the payment of quarterly cash dividends or the repurchase of our ordinary shares pursuant to our share repurchase program could cause the market price of our ordinary shares to decline significantly. Moreover, in the event our payment of quarterly cash dividends or repurchases of our ordinary shares are reduced or discontinued, our failure to resume such activities at historical levels could result in a persistent lower market valuation of our ordinary shares\n.",
+  "item7": ">ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThe following is a discussion of the Company\u2019s financial condition, changes in financial condition and results of operations for the fiscal years ended June\u00a030, 2023 and July\u00a01, 2022. Discussions of year-to-year comparisons between fiscal years 2022 and 2021 are not included in this Annual Report on Form 10-K and can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended July 1, 2022, which was filed with the SEC on August 5, 2022.\nYou should read this discussion in conjunction with \u201cItem\u00a08. Financial Statements and Supplementary Data\u201d included elsewhere in this Annual Report on Form 10-K. Except as noted, references to any fiscal year mean the twelve-month period ending on the Friday closest to June\u00a030 of that year. Accordingly, fiscal year 2023 and 2022 both comprised of 52\u00a0weeks and ended on June\u00a030, 2023 and July\u00a01, 2022, respectively. Fiscal year 2026 will be comprised of 53 weeks and will end on July 3, 2026. \nOur Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (\u201cMD&A\u201d) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. Our MD&A is organized as follows:\n\u2022\nOverview of Fiscal Year 2023.\n\u00a0Highlights of events in fiscal year 2023 that impacted our financial position.\n\u2022\nResults of Operations. \nAnalysis of our financial results comparing fiscal years 2023 and 2022. \n\u2022\nLiquidity and Capital Resources.\n\u00a0Analysis of changes in our balance sheets and cash flows and discussion of our financial condition, including potential sources of liquidity, material cash requirements and their general purpose.\n\u2022\nCritical Accounting Policies and Estimates.\n\u00a0Accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.\nFor an overview of our business, see \u201cPart I, Item 1. Business.\u201d\nOverview of Fiscal Year 2023 \nDuring fiscal year 2023, we shipped 441 exabytes of HDD storage capacity. We generated revenue of approximately $7.4 billion with a gross margin of 18%. Our operating cash flow was $942 million. We repurchased approximately 5 million of our ordinary shares for $408 million and paid $582 million in dividends. \n35\nTable of Contents\nWe reduced our outstanding debt by $195 million through exchange and repurchase of certain senior notes and Term Loans facility with longer duration senior notes and recorded a net gain of $190 million as a result of debt extinguishment. Additionally, we entered into a settlement agreement related to BIS\u2019 allegations regarding violations of the U.S. EAR and recorded a settlement penalty of $300 million.\nRecent Developments, Economic Conditions and Challenges\nDuring fiscal year 2023, the data storage industry and our business continued to be impacted by macroeconomic uncertainties and customer inventory adjustments, which led to a significant slowdown in demand for our products, particularly in the mass capacity markets. In response to changes in market demand, we undertook actions to lower our cost structure and reduced manufacturing production plans, which resulted in factory underutilization charges. We expect these market conditions will continue to impact our business and results of operations over the near term. Under these conditions, we are continuing to actively manage costs, drive operational efficiencies and maintain supply discipline.\nIn light of the deterioration of economic conditions, we undertook the October 2022, April 2023 and other restructuring plans to reduce our cost in response to change in macroeconomic and business conditions during fiscal year 2023. These restructuring plans were substantially completed by the end of fiscal year 2023 with total charges of approximately $269 million, mainly consisting of employee severance cost and other one-time termination benefits. Refer to \u201c Item 8. Financial Statements and Supplementary Data\u2014\nNote 7. Restructuring and Exit Costs\n\u201d for more details.  \nWe continue to actively monitor the effects and potential impacts of inflation, other macroeconomic factors and the pandemic on all aspects of our business, supply chain, liquidity and capital resources including governmental policies that could periodically shut down an entire city where we, our suppliers or our customers operate. We are complying with governmental rules and guidelines across all of our sites. Although we are unable to predict the future impact on our business, results of operations, liquidity or capital resources at this time, we expect we will continue to be negatively affected if the inflation, other macroeconomic factors and the pandemic and related public and private health measures result in substantial manufacturing or supply chain challenges, substantial reductions or delays in demand due to disruptions in the operations of our customers or partners, disruptions in local and global economies, volatility in the global financial markets, sustained reductions or volatility in overall demand trends, restrictions on the export or shipment of our products or our customer\u2019s products, or other unexpected ramifications. For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see \u201cPart I, Item 1A. Risk Factors\u201d of our Annual Report.\nRegulatory settlement\nOn April 18, 2023, our subsidiaries Seagate Technology LLC and Seagate Singapore International Headquarters Pte. Ltd entered into the Settlement Agreement with the BIS that resolves BIS\u2019 allegations regarding our sales of hard disk drives to Huawei between August 17, 2020 and September 29, 2021.\u202fUnder the terms of the Settlement Agreement, we agreed to pay $300 million to the BIS in quarterly installments of $15 million over the course of five years beginning October 31, 2023. We have also agreed to complete three audits of its compliance with the license requirements of Section 734.9 of the EAR, including one audit by an unaffiliated third-party consultant chosen by us with expertise in U.S. export control laws and two internal audits. The Settlement Agreement also includes a denial order that is currently suspended and will be waived five years after the date of the order issued under the Settlement Agreement, provided that we have made full and timely payments under the Settlement Agreement and timely completed the audit requirements. While we are in compliance with and upon successful compliance in full with the terms of the Settlement Agreement, BIS has agreed it will not initiate any further administrative proceedings against us in connection with any violation of the EAR arising out of the transactions detailed in the Settlement Agreement.\nWhile we believed that we complied with all relevant export control laws at the time we made the hard disk drive sales at issue, we determined that engaging with BIS and settling this matter was in the best interest of Seagate, our customers and our shareholders. In determining to engage with BIS and resolve this matter through a settlement agreement, we considered a number of factors, including the risks and cost of protracted litigation involving the U.S. government, as well as the size of the potential penalty and our desire to focus on current business challenges and long-term business strategy. The Settlement Agreement includes a finding that we incorrectly interpreted the regulation at issue to require evaluation of only the last stage of our hard disk drive manufacturing process rather than the entire process. As part of this settlement, we have agreed not to contest BIS\u2019 determination that the sales in question did not comply with the U.S. EAR. Refer to \u201cItem 8. Financial Statements and Supplementary Data\u2014\nNote 14. Legal, Environmental and Other Contingencies\n\u201d for more details.\n36\nTable of Contents\nResults of Operations\nWe list in the tables below summarized information from our Consolidated Statements of Operations by dollar amounts and as a percentage of revenue:\n\u00a0\nFiscal Years Ended\n(Dollars in\u00a0millions)\nJune 30,\n2023\nJuly 1,\n2022\nRevenue\n$\n7,384\u00a0\n$\n11,661\u00a0\nCost of revenue\n6,033\u00a0\n8,192\u00a0\nGross profit\n1,351\u00a0\n3,469\u00a0\nProduct development\n797\u00a0\n941\u00a0\nMarketing and administrative\n491\u00a0\n559\u00a0\nAmortization of intangibles\n3\u00a0\n11\u00a0\nBIS settlement penalty\n300\u00a0\n\u2014\u00a0\nRestructuring and other, net\n102\u00a0\n3\u00a0\n(Loss) income from operations\n(342)\n1,955\u00a0\nOther expense, net\n(154)\n(276)\n(Loss) income before income taxes\n(496)\n1,679\u00a0\nProvision for income taxes\n33\u00a0\n30\u00a0\nNet (loss) income \n$\n(529)\n$\n1,649\u00a0\n\u00a0\nFiscal Years Ended\nJune 30,\n2023\nJuly 1,\n2022\nRevenue\n100\u00a0\n%\n100\u00a0\n%\nCost of revenue\n82\u00a0\n70\u00a0\nGross margin\n18\u00a0\n30\u00a0\nProduct development\n11\u00a0\n8\u00a0\nMarketing and administrative\n7\u00a0\n5\u00a0\nAmortization of intangibles\n\u2014\u00a0\n\u2014\u00a0\nBIS settlement penalty\n4\u00a0\n\u2014\u00a0\nRestructuring and other, net\n1\u00a0\n\u2014\u00a0\nOperating margin\n(5)\n17\u00a0\nOther expense, net\n(2)\n(3)\n(Loss) income before income taxes\n(7)\n14\u00a0\nProvision for income taxes\n\u2014\u00a0\n\u2014\u00a0\nNet (loss) income\n(7)\n%\n14\u00a0\n%\n37\nTable of Contents\nRevenue\n \nThe following table summarizes information regarding consolidated revenues by channel, geography, and market and HDD exabytes shipped by market and price per terabyte:\n\u00a0\nFiscal Years Ended\nJune 30,\n2023\nJuly 1,\n2022\nRevenues by Channel (%) \n\u00a0\n\u00a0\nOEMs\n74\u00a0\n%\n75\u00a0\n%\nDistributors\n15\u00a0\n%\n14\u00a0\n%\nRetailers\n11\u00a0\n%\n11\u00a0\n%\nRevenues by Geography (%) \n(1)\n\u00a0\n\u00a0\nAsia Pacific\n45\u00a0\n%\n46\u00a0\n%\nAmericas\n41\u00a0\n%\n40\u00a0\n%\nEMEA\n14\u00a0\n%\n14\u00a0\n%\nRevenues by Market (%) \nMass capacity\n66\u00a0\n%\n68\u00a0\n%\nLegacy\n21\u00a0\n%\n23\u00a0\n%\nOther\n13\u00a0\n%\n9\u00a0\n%\nHDD Exabytes Shipped by Market\nMass capacity\n380\u00a0\n541\u00a0\nLegacy\n61\u00a0\n90\u00a0\nTotal\n441\u00a0\n631\u00a0\nHDD Price per Terabyte\n$\n15\u00a0\n$\n17\u00a0\n____________________________________________________________\n(1)\n Revenue is attributed to geography based on the bill from location. \nFiscal Years Ended\n(Dollars in\u00a0millions)\nJune 30,\n2023\nJuly 1,\n2022\nChange\n%\nChange\nRevenue\n$\n7,384\u00a0\n$\n11,661\u00a0\n$\n(4,277)\n(37)\n%\nRevenue in fiscal year 2023 decreased approximately 37%, or $4.3 billion, from fiscal year 2022, primarily due to a decrease in exabytes shipped and to a lesser extend price erosion, as a result of lower demand in mass capacity and legacy markets that were impacted by macroeconomic conditions and pandemic-related headwinds. We expect the current market conditions will continue to persist at least through the first half of fiscal year 2024.\nCost of Revenue and Gross Margin\n \n\u00a0\nFiscal Years Ended\n(Dollars in\u00a0millions)\nJune 30,\n2023\nJuly 1,\n2022\nChange\n%\nChange\nCost of revenue\n$\n6,033\u00a0\n$\n8,192\u00a0\n$\n(2,159)\n(26)\n%\nGross profit\n1,351\u00a0\n3,469\u00a0\n(2,118)\n(61)\n%\nGross margin\n18\u00a0\n%\n30\u00a0\n%\n\u00a0\n\u00a0\nFor fiscal year 2023, gross margin decreased compared to the prior fiscal year primarily driven by factory underutilization charges of $250 million associated with lower production levels and pandemic-related lockdown in one of our factories, order cancellation fees of $108 million, lower demand in mass capacity and legacy markets with less favorable product mix, price erosion, and accelerated depreciation expense for certain capital equipment.\n \n38\nTable of Contents\nOperating Expenses\n \n\u00a0\nFiscal Years Ended\n(Dollars in\u00a0millions)\nJune 30,\n2023\nJuly 1,\n2022\nChange\n%\nChange\nProduct development\n$\n797\u00a0\n$\n941\u00a0\n$\n(144)\n(15)\n%\nMarketing and administrative\n491\u00a0\n559\u00a0\n(68)\n(12)\n%\nAmortization of intangibles\n3\u00a0\n11\u00a0\n(8)\n(73)\n%\nBIS settlement penalty\n300\u00a0\n\u2014\u00a0\n300\u00a0\n*\nRestructuring and other, net\n102\u00a0\n3\u00a0\n99\u00a0\n3,300\u00a0\n%\nOperating expenses\n$\n1,693\u00a0\n$\n1,514\u00a0\n$\n179\u00a0\n______________________________\n*Not a meaningful figure\nProduct Development Expense. \nProduct development expenses for fiscal year 2023 decreased by $144 million from fiscal year 2022 primarily due to a $70 million decrease in variable compensation and related benefit expenses, a $51 million decrease in \ncompensation \nand other employee benefits primarily from the reduction in headcount as a result of our October 2022 and April 2023 restructuring plans and a temporary salary reduction program, a $14 million decrease in material expense and a $6 million decrease in equipment expense. \nMarketing and Administrative Expense. \nMarketing and administrative expenses for fiscal year 2023 decreased by $68\u00a0million from fiscal year 2022 primarily due to a $41 million decrease in variable compensation and related benefit expenses, a $24 million decrease in compensation and other employee benefits primarily from the reduction in headcount as a result of our October 2022 and April 2023 restructuring plans and a temporary salary reduction program \nand a $7 million recovery of an accounts receivable previously written-off in prior years\n, partially offset by a $2 million increase in travel expense as a result of the easing of pandemic-related travel restrictions.\nAmortization of Intangibles. \nAmortization of intangibles for fiscal year 2023 decreased by $8 million, as compared to fiscal year 2022, due to certain intangible assets that reached the end of their useful lives.\nBIS settlement penalty. \nThe BIS settlement penalty for fiscal year 2023 was $300 million, related to BIS\u2019 allegations of violations of the EAR, which were resolved by the Settlement Agreement in April 2023. \nRefer to \u201cItem 8. Financial Statements and Supplementary Data\u2014\nNote 14. Legal, Environmental and Other Contingencies\n\u201d for more details.\nRestructuring and Other, net. \nRestructuring and other, net for fiscal year 2023 was $102 million, primarily comprised of workforce reduction costs and other exit costs under our October 2022 and April 2023 restructuring plans, partially offset by gains from the sale of certain properties and assets of $167 million.\nRestructuring and other, net for fiscal year 2022 was not material. \nOther Expense, net\n\u00a0\nFiscal Years Ended\n(Dollars in\u00a0millions)\nJune 30,\n2023\nJuly 1,\n2022\nChange\n%\nChange\nOther expense, net\n$\n(154)\n$\n(276)\n$\n122\u00a0\n(44)\n%\nOther expense, net for fiscal year 2023 decreased by $122 million compared to fiscal year 2022 primarily due to a $190 million net gain recognized from early redemption and extinguishment of certain senior notes, partially offset by a $64 million net increase in interest expense from the exchange and issuance of long-term debt. \nIncome Taxes\n\u00a0\nFiscal Years Ended\n(Dollars in\u00a0millions)\nJune 30,\n2023\nJuly 1,\n2022\nChange\n%\nChange\nProvision for income taxes\n$\n33\u00a0\n$\n30\u00a0\n$\n3\u00a0\n10\u00a0\n%\n39\nTable of Contents\nWe recorded an income tax provision of $33 million for fiscal year 2023 compared to an income tax provision of $30 million for fiscal year 2022. Despite a consolidated loss on a worldwide basis, we still have taxes payable on a global basis due to guaranteed earnings reported in certain jurisdictions as compared to fiscal year 2022. \nOn August 16, 2022, the Inflation Reduction Act of 2022 (the \u201cIRA\u201d) was enacted into U.S. law. The legislation includes a new corporate alternative minimum tax (the \u201cCAMT\u201d) of 15% on the adjusted financial statement income (\u201cAFSI\u201d) of corporations with average AFSI exceeding $1.0 billion over a three-year period. Although CAMT is effective for us beginning in fiscal year 2024, Seagate does not meet the criteria to be subject to CAMT for fiscal year 2024.\nOur Irish tax resident parent holding company owns various U.S. and non-Irish subsidiaries that operate in multiple non-Irish income tax jurisdictions. Our worldwide operating income is either subject to varying rates of income tax or is exempt from income tax due to tax incentive programs we operate under in Singapore and Thailand. These tax incentives are scheduled to expire in whole or in part at various dates through\n \n2033\n. Certain tax incentives may be extended if specific conditions are met. \nOur income tax provision recorded for fiscal years 2023 and 2022 differed from the provision for income taxes that would be derived by applying the Irish statutory rate of 25% to income before income taxes, primarily due to the net effect of (i) non-Irish earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland; and (ii) current year generation of research credits. \nWe anticipate that our effective tax rate in future periods will generally be less than the Irish statutory rate based on our ownership structure, our intention to indefinitely reinvest earnings from our subsidiaries outside of Ireland and the potential future changes in our valuation allowance for deferred tax assets. \nLiquidity and Capital Resources \nThe following sections discuss our principal liquidity requirements, as well as our sources and uses of cash and our liquidity and capital resources. Our cash and cash equivalents are maintained in investments with remaining maturities of 90 days or less at the time of purchase. The principal objectives of our investment policy are the preservation of principal and maintenance of liquidity. We believe our cash equivalents are liquid and accessible. We operate in some countries that have restrictive regulations over the movement of cash and/or foreign exchange across their borders. However, we believe our sources of cash will continue to be sufficient to fund our operations and meet our cash requirements for the next 12 months. Although there can be no assurance, we believe that our financial resources, along with controlling our costs and capital expenditures, will allow us to manage the ongoing impacts of macroeconomic and other headwinds including higher inflationary pressures, inventory adjustments by our customers and the overall market demand disruptions on our business operations for the foreseeable future. However, some challenges to our industry and to our business continue to remain uncertain and cannot be predicted at this time. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to the global economic factors.\nWe are not aware of any downgrades, losses or other significant deterioration in the fair value of our cash equivalents from the values reported as of June 30, 2023. For additional information on risks and factors that could impact our ability to fund our operations and meet our cash requirements, including the pandemic, among others, see \u201cPart I, Item 1A. Risk Factors\u201d of our Annual Report. \nCash and Cash Equivalents\n\u00a0\nAs of\n(Dollars in\u00a0millions)\nJune 30,\n2023\nJuly 1,\n2022\nChange\nCash and cash equivalents\n$\n786\u00a0\n$\n615\u00a0\n$\n171\u00a0\nOur cash and cash equivalents increased by $171 million from July\u00a01, 2022 primarily as a result of net cash of $942\u00a0million provided by operating activities, net proceeds of $1.6\u00a0billion from issuance of long-term debt and proceeds from the sale of assets of $534\u00a0million, partially offset by repayment of long-term debt of $1.6\u00a0billion, payment of dividends to our shareholders of $582\u00a0million, repurchases of our ordinary shares of $408\u00a0million, and payments for capital expenditures of $316\u00a0million. The following table summarizes results from the Consolidated Statement of Cash Flows for the periods indicated:\n \n40\nTable of Contents\n\u00a0\nFiscal Years Ended\n(Dollars in millions)\nJune 30,\n2023\nJuly 1,\n2022\nNet cash flow provided by (used in):\n\u00a0\n\u00a0\nOperating activities\n$\n942\u00a0\n$\n1,657\u00a0\nInvesting activities\n217\u00a0\n(352)\nFinancing activities\n(988)\n(1,899)\nNet increase/(decrease) in cash, cash equivalents and restricted cash\n$\n171\u00a0\n$\n(594)\nCash Provided by Operating Activities\nCash provided by operating activities for fiscal year 2023 was $942\u00a0million and includes the effects of net income adjusted for non-cash items including depreciation, amortization, share-based compensation and:\n\u2022\na decrease of $911 million in accounts receivable, primarily due to lower revenue and timing of collections;\n\u2022\na decrease of $425 million in inventories, primarily due to a decrease in units built to align with the prevailing demand environment; and\n\u2022\nan increase of $110 million cash proceeds received from the settlement of certain interest rate swap agreements; partially offset by\n\u2022\na decrease of $421 million in accounts payable, primarily due to a decrease in materials purchased; and \n\u2022\na decrease of $152\u00a0million in accrued employee compensation, primarily due to cash paid to our employees as part of our variable compensation plans and a decrease in our variable compensation expense.\nCash provided by operating activities for fiscal year 2022 was approximately $1.7 billion and includes the effects of net income adjusted for non-cash items including depreciation, amortization, share-based compensation and:\n\u2022\nan increase of $228\u00a0million in accounts payable, primarily due to timing of payments and an increase in materials purchased; partially offset by\n\u2022\nan increase of $374 million in accounts receivable, primarily due to linearity of sales; and \n\u2022\nan increase of $361 million in inventories, primarily due to timing of shipments, and an increase in materials purchased for production of higher capacity drives and to mitigate supply chain disruptions.\nCash Used in Investing Activities\nIn fiscal year 2023, we received $217 million for net cash investing activities, which was primarily due to proceeds of $534\u00a0million from the sale of assets, offset by payments for the purchase of property, equipment and leasehold improvements of $316\u00a0million.\nIn fiscal year 2022, we used $352\u00a0million for net cash investing activities, which was primarily due to payments for the purchase of property, equipment and leasehold improvements of $381\u00a0million and payments for the purchase of investments of $18\u00a0million, partially offset by proceeds from the sale of investments of $47\u00a0million.\nCash Used in Financing Activities\nNet cash used in financing activities of $988 million for fiscal year 2023 was primarily attributable to the following activities:\n \n\u2022\n$1.6\u00a0billion repurchases of long-term debt;\n\u2022\n$582\u00a0million in dividend payments; and\n\u2022\n$408\u00a0million in payments for repurchases of our ordinary shares; partially offset by\n\u2022\n$1.6\u00a0billion in proceeds from the issuance of long-term debt; and\n\u2022\n$68\u00a0million in proceeds from the issuance of ordinary shares under employee stock plans.\n41\nTable of Contents\nNet cash used in financing activities of $1.9\u00a0billion for fiscal year 2022 was primarily attributable to the following activities: \n\u2022\n$1.8\u00a0billion in payments for repurchases of our ordinary shares; \n\u2022\n$701\u00a0million net purchases of long-term debt; and\n\u2022\n$610\u00a0million in dividend payments; partially offset by\n\u2022\n$1.2\u00a0billion from the issuance of long-term debt; and\n\u2022\n$68\u00a0million in proceeds from the issuance of ordinary shares under employee stock plans.\nLiquidity Sources\nOur primary sources of liquidity as of June\u00a030, 2023, consist of: (1)\u00a0approximately $786 million in cash and cash equivalents, (2)\u00a0cash we expect to generate from operations and (3) $1.5\u00a0billion available for borrowing under our senior unsecured revolving credit facility (\u201cRevolving Credit Facility\u201d), which is part of our credit agreement (the \u201cCredit Agreement\u201d).\nAs of June\u00a030, 2023, no borrowings (including swing line loans) were outstanding and no commitments were utilized for letters of credit issued under the Revolving Credit Facility. The Revolving Credit Facility is available for borrowings, subject to compliance with financial covenants and other customary conditions to borrowing.\nThe Credit Agreement includes three financial covenants: (1)\u00a0interest coverage ratio, (2) leverage ratio and (3)\u00a0a minimum liquidity amount. On May 19, 2023, we entered into the Eighth Amendment to our Credit Agreement to increase the maximum permitted total net leverage ratio and reduce the minimum interest coverage ration during the covenant relief period. The maximum total net leverage ratio is 6.75 to 1.00 beginning with the fiscal quarter ending June 30, 2023, with periodic step downs during the covenant relief period, shifting to a maximum total leverage ratio of 4.00 to 1.00 for any fiscal quarter ending at any time other than during the covenant relief period. The minimum interest coverage ratio is 2.50 to 1.00 beginning with the fiscal quarter ending June 30, 2023, with periodic step downs and step ups during the covenant relief period, returning to a minimum interest coverage ratio of 3.25 to 1.00 for any fiscal quarter ending after June 28, 2024, and for any fiscal quarter ending at any time other than during the covenant relief period. The covenant relief period terminates on June 27, 2025. As part of this Amendment, the aggregate revolving loan commitments were reduced from $1.75 billion to $1.5 billion. We continue to evaluate our debt portfolio and structure to comply with our financial debt covenants. As of June 30, 2023, we were in compliance with all of the covenants under our debt agreements. Refer to \u201cItem 8. Financial Statements and Supplementary Data\u2014\nNote 4. Debt\n\u201d for more details.\nAs \nof June\u00a030, 2023, cash and cash equivalents held by non-Irish subsidiaries was $638 million. This amount is potentially subject to taxation in Ireland upon repatriation by means of a dividend into our Irish parent. However, it is our intent to indefinitely reinvest earnings of non-Irish subsidiaries outside of Ireland and our current plans do not demonstrate a need to repatriate such earnings by means of a taxable Irish dividend. Should funds be needed in the Irish parent company and should we be unable to fund parent company activities through means other than a taxable Irish dividend, we would be required to accrue and pay Irish taxes on such dividend.\nWe believe that our sources of cash will be sufficient to fund our operations and meet our cash requirements for at least the next 12 months. Our ability to fund liquidity requirements beyond 12 months will depend on our future cash flows, which are determined by future operating performance, and therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control. For additional information on risks and factors that could impact our ability to fund our operations and meet our cash requirements, among others, see \u201cPart I, Item 1A. Risk Factors\u201d of this Annual Report.\nCash Requirements and Commitments\nOur liquidity requirements are primarily to meet our working capital, product development and capital expenditure needs, to fund scheduled payments of principal and interest on our indebtedness, and to fund our quarterly dividend and any future strategic investments. \n42\nTable of Contents\nPurchase obligations\n \nPurchase obligations are defined as contractual obligations for the purchase of goods or services, which are enforceable and legally binding on us, and that specify all significant terms. From time to time, we enter into long-term, non-cancelable purchase commitments or make large up-front investments with certain suppliers in order to secure certain components or technologies for the production of our products or to supplement our internal manufacturing capacity for certain components. As of June\u00a030, 2023, we had unconditional purchase obligations of approximately $3.7\u00a0billion, primarily related to purchases of inventory components with our suppliers. We expect $919 million of these commitments to be paid within one year.\nCapital expenditures\nWe incur material capital expenditures to design and manufacture our products that depend on advanced technologies and manufacturing techniques. As of June\u00a030, 2023, we had unconditional commitment of $238\u00a0million primarily related to purchases of equipment, of which approximately $137\u00a0million is expected to be paid within one year. For fiscal year 2024, we expect capital expenditures to be lower than fiscal year 2023.\nOperating leases\nWe are a lessee in several operating leases related to real estate facilities for warehouse, office and lab space. As of June\u00a030, 2023, the amount of future minimum rent expense for both occupied and vacated facilities net of sublease income under non-cancelable operating lease contracts was $564 million, of which $53 million is expected to be paid within one year. Refer to \u201cItem 8. Financial Statements and Supplementary Data\u2014\nNote 6. Leases\n\u201d for details.\nLong-term debt and interest payments on debt\nAs of June\u00a030, 2023, the future principal payment obligation on our long-term debt was $5.5\u00a0billion, of which $63\u00a0million will mature within one year. As of June\u00a030, 2023, future interest payments on this outstanding debt is estimated to be approximately $2.2 billion, of which $324 million is expected to be paid within one year. From time to time, we may repurchase, redeem or otherwise extinguish any of our outstanding senior notes in open market or privately negotiated purchases or o\ntherwise, or we may repurchase or redeem outstanding senior notes pursuant to the terms of the applicable indenture.\n Refer to \u201cItem 8. Financial Statements and Supplementary Data\u2014\nNote 4. Debt\n\u201d for more details.\nBIS settlement penalty\nWe accrued a settlement penalty of $300 million for fiscal year 2023, related to BIS\u2019 allegations of violations of the U.S. EAR, which were subsequently resolved by the Settlement Agreement in April 2023. As part of the Settlement Agreement with BIS, quarterly payments of $15 million will be made over the course of five years beginning October 31, 2023, of which $45 million is expected to be paid within one year and $255 million thereafter. Refer to \u201cItem 8. Financial Statements and Supplementary Data\u2014\nNote 14. Legal, Environmental and Other Contingencies\n\u201d for more details.\nRestructuring\nOn October 24, 2022, we committed to an October 2022 plan (the \u201cOctober 2022 Plan\u201d) to reduce our cost structure to better align our operational needs to current economic conditions while continuing to support the long-term business strategy. On March 29, 2023, in light of further deteriorating economic conditions, we committed to an expansion of the October 2022 Plan to further reduce the global headcount by approximately 480 employees to a total reduction of approximately 3,480 employees. The expanded plan includes aligning our business plan to near-term market conditions, along with other cost saving measures. On April 20, 2023, the Company committed to an April 2023 restructuring plan (the \u201cApril 2023 Plan\u201d) to further reduce its cost structure in response to changes in macroeconomic and business conditions. The April 2023 Plan was intended to align the Company\u2019s operational needs with the near-term demand environment while continuing to support the long-term business strategy. Both the October 2022 Plan and the April 2023 Plan were substantially completed by the end of the fiscal year 2023. \nDuring fiscal year 2023, we recorded restructuring and other, net of $102 million, primarily related to the workforce reduction costs under the October 2022 Plan and the April 2023 Plan, partially offset by gains from the sale of certain properties and assets. We made cash payments of $155 million for all active restructuring plans. As of June 30, 2023, the future cash payments related to our remaining active restructuring plans were $119 million, of which $117 million is expected to be paid within one year.\nIncome Tax\nAs of June\u00a030, 2023, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $4 million, none of which is expected to be settled within one year. Outside of one year, we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur. \n43\nTable of Contents\nDividends\nOn July\u00a026, 2023, our Board of Directors declared a quarterly cash dividend of $0.70 per share, which will be payable on October\u00a010, 2023 to shareholders of record as of the close of business on September\u00a026, 2023. Our ability to pay dividends in the future will be subject to, among other things, general business conditions within the data storage industry, our financial results, the impact of paying dividends on our credit ratings and legal and contractual restrictions on the payment of dividends by our subsidiaries to us or by us to our ordinary shareholders, including restrictions imposed by covenants on our debt instruments.\nShare repurchases\nFrom\n time to time, at our discretion, we may repurchase any of our outstanding ordinary shares through private, open market, or broker assisted purchases, tender offers, or other means, including through the use of derivative transactions. During fiscal year 2023, we repurchased approximately 6 million of our ordinary shares including shares withheld for statutory tax withholdings related to vesting of employee equity awards. See \u201cItem\u00a05. Market for Registrant\u2019s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Repurchases of Our Equity Securities.\u201d As of June\u00a030, 2023, $1.9\u00a0billion remained available for repurchase under our existing repurchase authorization limit. We may limit or terminate the repurchase program at any time. All repurchases are effected as redemptions in accordance with our Constitution.\nWe require substantial amounts of cash to fund any increased working capital requirements, future capital expenditures, scheduled payments of principal and interest on our indebtedness and payments of dividends. We will continue to evaluate and manage the retirement and replacement of existing debt and associated obligations, including evaluating the issuance of new debt securities, exchanging existing debt securities for other debt securities and retiring debt pursuant to privately negotiated transactions, open market purchases, tender offers or other means or otherwise. In addition, we may selectively pursue strategic alliances, acquisitions, joint ventures and investments, which may require additional capital.\nCritical Accounting Policies and Estimates\nThe Company\u2019s accounting policies are more fully described in \u201cItem 8. Financial Statements and Supplementary Data\u2014\nNote 1. Basis of Presentation and Summary of Significant Accounting Policies\n\u201d. The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Based on this definition, our most critical accounting policies include: Revenue - Sales Program Accruals, Warranty and Income Taxes. Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other accounting policies and accounting estimates relating to uncollectible customer accounts, valuation of inventories, assessing goodwill and other long-lived assets for impairment, valuation of share-based payments and restructuring. We believe that these other accounting policies and accounting estimates either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. \nRevenue \n-\n Sales Program Accruals.\n\u00a0We record estimated variable consideration at the time of revenue recognition as a reduction to revenue. Variable consideration generally consists of sales incentive programs, such as price protection and volume incentives aimed at increasing customer demand. For OEM sales, rebates are typically established by estimating the most likely amount of consideration expected to be received based on an OEM customer's volume of purchases from us or other agreed upon rebate programs. For the distribution and retail channel, these sales incentive programs typically involve estimating the most likely amount of rebates related to a customer's level of sales, order size, advertising or point of sale activity as well as the expected value of price protection adjustments based on historical analysis and forecasted pricing environment. Total sales programs were 17% and 14% of gross revenue in fiscal years 2023 and 2022, respectively. Adjustments to revenues due to under or over accruals for sales programs related to revenues reported in prior quarterly periods were approximately 1% and less than 1% of gross revenue in fiscal years 2023 and 2022, respectively. \nWarranty.\n We estimate probable product warranty costs at the time revenue is recognized. Our warranty provision considers estimated product failure rates, trends (including the timing of product returns during the warranty periods), and estimated repair or replacement costs related to product quality issues, if any. Unforeseen component failures or exceptional component performance can result in changes to warranty costs. We also exercise judgment in estimating our ability to sell refurbished products based on historical experience. Our judgment is subject to a greater degree of subjectivity with respect to newly introduced products because of limited experience with those products upon which to base our warranty estimates. If actual warranty costs differ substantially from our estimates, revisions to the estimated warranty liability would be required, which could have a material adverse effect on our results of operations.\n44\nTable of Contents\nIncome Taxes.\n We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, recognition of income and deductions and calculation of specific tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for income tax and financial statement purposes, as well as tax liabilities associated with uncertain tax positions.\nThe deferred tax assets we record each period depend primarily on our ability to generate future taxable income in the United States and certain non-U.S. jurisdictions. Each period, we evaluate the need for a valuation allowance for our deferred tax assets and, if necessary, adjust the valuation allowance so that net deferred tax assets are recorded only to the extent we conclude it is more likely than not that these deferred tax assets will be realized.\nIn evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, and our forecast of future earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Actual operating results in future years could differ from our current assumptions, judgments, and estimates. If our outlook for future taxable income changes significantly, our assessment of the need for, and the amount of, a valuation allowance may also change resulting in an additional tax provision or benefit.\nRecent Accounting Pronouncements\nSee \u201cItem 8. Financial Statements and Supplementary Data\u2014\nNote\u00a01. Basis of Presentation and Summary of Significant Accounting Policies\u201d\n for information regarding the effect of new accounting pronouncements on our financial statements.",
+  "item7a": ">ITEM 7A.\nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nWe have exposure to market risks due to the volatility of interest rates, foreign currency exchange rates, credit rating changes and equity and bond markets. A portion of these risks may be hedged, but fluctuations could impact our results of operations, financial position and cash flows.\nInterest Rate Risk.\n Our exposure to market risk for changes in interest rates relates primarily to our cash investment portfolio. As of June\u00a030, 2023, we had no available-for-sale debt securities that had been in a continuous unrealized loss position for a period greater than 12 months. We had no impairments related to credit losses for available-for-sale debt securities as of June 30, 2023. \nWe have fixed rate and variable rate debt obligations. We enter into debt obligations for general corporate purposes including capital expenditures and working capital needs. Our Term Loans bear interest at a variable rate equal to Secured Overnight Financing Rate (\u201cSOFR\u201d) plus a variable margin. \nWe have entered into certain interest rate swap agreements to convert the variable interest rate on the Term Loans to fixed interest rates. The objective of the interest rate swap agreements is to eliminate the variability of interest payment cash flows associated with the variable interest rate under the Term Loans. We designated the interest rate swaps as cash flow hedges. As of June\u00a030, 2023, the aggregate notional amount of the Company\u2019s interest-rate swap contracts was $1.3 billion, of which $429 million will mature through September 2025 and $859 million will mature through July 2027.\n45\nTable of Contents\nThe table below presents principal amounts and related fixed or weighted-average interest rates by year of maturity for our investment portfolio and debt obligations as of June\u00a030, 2023. \n(Dollars in millions, except percentages)\nFiscal Years Ended\nFair Value at June 30, 2023\n2024\n2025\n2026\n2027\n2028\nThereafter\nTotal\nAssets\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nMoney market funds, time deposits and certificates of deposit\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nFloating rate\n$\n74\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n74\u00a0\n$\n74\u00a0\nAverage interest rate\n5.12\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n5.12\u00a0\n%\nOther debt securities\nFixed rate\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n15\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n1\u00a0\n$\n16\u00a0\n$\n16\u00a0\nDebt\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nFixed rate\n$\n\u2014\u00a0\n$\n479\u00a0\n$\n\u2014\u00a0\n$\n505\u00a0\n$\n\u2014\u00a0\n$\n3,245\u00a0\n$\n4,229\u00a0\n$\n4,112\u00a0\nAverage interest rate\n\u2014\u00a0\n%\n4.75\u00a0\n%\n\u2014\u00a0\n%\n4.88\u00a0\n%\n\u2014\u00a0\n%\n6.88\u00a0\n%\n6.40\u00a0\n%\n\u00a0\nVariable rate\n$\n63\u00a0\n$\n103\u00a0\n$\n497\u00a0\n$\n107\u00a0\n$\n519\u00a0\n$\n\u2014\u00a0\n$\n1,289\u00a0\n$\n1,259\u00a0\nAverage interest rate\n5.60\u00a0\n%\n5.61\u00a0\n%\n5.84\u00a0\n%\n5.52\u00a0\n%\n5.60\u00a0\n%\n\u2014\u00a0\n%\n5.69\u00a0\n%\nForeign Currency Exchange Risk. \nFrom time to time, we may enter into foreign currency forward exchange contracts to manage exposure related to certain foreign currency commitments and anticipated foreign currency denominated expenditures. Our policy prohibits us from entering into derivative financial instruments for speculative or trading purposes.\nWe hedge portions of our foreign currency denominated balance sheet positions with foreign currency forward exchange contracts to reduce the risk that our earnings will be adversely affected by changes in currency exchange rates. The change in fair value of these contracts is recognized in earnings in the same period as the gains and losses from the remeasurement of the assets and liabilities. All foreign currency forward exchange contracts mature within 12 months.\nWe recognized a net gain of $16 million and a net loss of $29 million in Cost of revenue and Interest expense, respectively, related to the loss of hedge designations on discontinued cash flow hedges during fiscal year 2023. We recognized a net loss of $11\u00a0million and $10 million in Cost of revenue and Interest expense, respectively, related to the loss of hedge designations on discontinued cash flow hedges during the fiscal year 2022.\nThe table below provides information as of June\u00a030, 2023 about our foreign currency forward exchange contracts. The table is provided in dollar equivalent amounts and presents the notional amounts (at the contract exchange rates) and the weighted-average contractual foreign currency exchange rates.\n(Dollars in millions, except average contract rate)\nNotional\nAmount\nAverage\nContract Rate\nEstimated Fair Value\n(1)\nForeign currency forward exchange contracts:\n\u00a0\n\u00a0\n\u00a0\nSingapore Dollar\n$\n356\u00a0\n$\n1.34\u00a0\n$\n(2)\nThai Baht\n145\u00a0\n$\n33.96\u00a0\n(5)\nChinese Renminbi\n76\u00a0\n$\n6.83\u00a0\n(3)\nBritish Pound Sterling\n65\u00a0\n$\n0.81\u00a0\n2\u00a0\nTotal\n$\n642\u00a0\n$\n(8)\n___________________________________________________________________________________\n(1) \nEquivalent to the unrealized net gain (loss) on existing contracts. \nOther Market Risks.\n We have exposure to counterparty credit downgrades in the form of credit risk related to our foreign currency forward exchange contracts and our fixed income portfolio. We monitor and limit our credit exposure for our foreign currency forward exchange contracts by performing ongoing credit evaluations. We also manage the notional amount of contracts entered into with any one counterparty, and we maintain limits on maximum tenor of contracts based on the credit rating of the financial institution. Additionally, the investment portfolio is diversified and structured to minimize credit risk. \nChanges in our corporate issuer credit ratings have minimal impact on our near-term financial results, but downgrades may negatively impact our future ability to raise capital, our ability to execute transactions with various counterparties and may increase the cost of such capital.\nWe are subject to equity market risks due to changes in the fair value of the notional investments selected by our employees as part of our non-qualified deferred compensation plan\u2014the Seagate Deferred Compensation Plan (the \u201cSDCP\u201d). \n46\nTable of Contents\nIn fiscal year 2014, we entered into a Total Return Swap (\u201cTRS\u201d) in order to manage the equity market risks associated with the SDCP liabilities. We pay a floating rate, based on SOFR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP liabilities due to changes in the value of the investment options made by employees. See \u201cItem 8. Financial Statements and Supplementary Data\u2014\nNote\u00a08.\n \nDerivative Financial Instruments\u201d\n of this Annual Report. \n \u00a0\u00a0\u00a0\u00a0\n47\nTable of Contents",
+  "cik": "1137789",
+  "cusip6": "G7945M",
+  "cusip": ["G7945M107"],
+  "names": ["SEAGATE TECHNOLOGIES"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1137789/000113778923000049/0001137789-23-000049-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\n\n    \n\n\nBusiness\n\n\n\n\n\n\n\n\nGeneral\n\n\n\n\n\n\nWe are a leading supplier of automotive aftermarket non-discretionary replacement parts and test solutions and diagnostic equipment -- building upon industry leading technology to be \n\u201cThe Global Leader for Parts and Solutions that Move Our World Today and Tomorrow\u201d\n. We operate in the $130 billion non-discretionary automotive\n          aftermarket for replacement hard parts in North America. Our hard parts products include light-duty rotating electrical products, wheel hub products, brake-related products, and turbochargers. In addition, we sell test solutions and diagnostic\n          equipment, \nwhich were added with our acquisitions of D&V Electronics Ltd. in July 2017 and \nMechanical Power Conversion, LLC in December 2018 and heavy-duty rotating electrical products, which were added\n          with our January 2019 acquisition of Dixie Electric, Ltd.\n\n\n\n\n\n\nThe automotive aftermarket is divided into two markets. The first is the do-it-yourself (\u201cDIY\u201d) market, which is generally serviced by the large retail chain outlets and on-line resellers. Consumers who purchase\n          parts from the DIY market generally install parts into their vehicles themselves. In most cases, this is a less expensive alternative than having the repair performed by a professional installer. The second is the professional installer market,\n          commonly known as the do-it-for-me (\u201cDIFM\u201d) market. Traditional warehouse distributors, dealer networks, and commercial divisions of retail chains service this market. Generally, the consumer in this market is a professional parts installer. \nOur\n\n\n\n\n        products are distributed to both the DIY and DIFM markets. The distinction between these two markets has become less defined over the years, as retail outlets leverage their distribution strength and store locations to attract customers.\n\n\n\n\n\n\nD\nemand for replacement parts generally increases with the age of vehicles and miles driven, which\n provides favorable opportunities for sales of our products. The current\n          population of light-duty vehicles in the U.S. is approximately 285 million, and the average age of these vehicles is approximately 12 years and is expected to continue to grow, in particular during recession years. Although miles driven can\n          fluctuate for various reasons, including fuel prices, they have been generally increasing for several years.\n\n\n\n\n\n\nIn addition, we operate in the $11 billion-plus rapidly emerging global market for automotive test solutions and diagnostic equipment and see the opportunity for accelerating growth rates for today and the future as\n        electrification becomes increasingly important around the world. We also operate in the $700 million market for medium and heavy-duty automotive aftermarket replacement parts for truck, industrial, marine, and agricultural applications.\n\n\n\n\n\n\nGrowth Strategies and Key Initiatives\n\n\n\n\n\n\nWith a scalable infrastructure and abundant growth opportunities, we are focused on growing our aftermarket business in the North American marketplace and growing our leadership position in the test solutions and\n        diagnostic equipment market by providing innovative and intuitive solutions to our customers.\n\n\n\n\n\n\nTo accomplish our strategic vision, we are focused on the following key initiatives:\n\n\n\n\n\n\nHard Parts\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nGrow our current product lines both with existing and potential new customers.\n\u00a0 We continue to develop and offer current and new sales programs to ensure that we are\n                supporting our customers\u2019 businesses. We remain dedicated to managing growth and continuing to focus on enhancements to our infrastructure and making investments in resources to support our customers. We have globally positioned\n                manufacturing and distribution centers to support our continuous growth.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nIntroduction of new product lines.\n\u00a0 We continue to strive to expand our business by exploring new product lines, including working with our customers to identify potential\n                new product opportunities.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nCreating value for our customers.\u00a0 \nA\n\u00a0\ncore part of our strategy is ensuring that we add meaningful value for our customers. We\n                consistently support and pilot our customers\u2019 supply management initiatives in addition to providing demand analytics, inventory management services, online training guides, and market share and retail store layout information to our\n                customers.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n5\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nTechnological innovation.\n\u00a0 We continue to expand our research and development teams as we further develop in-house technologies and advanced testing methods. This elevated\n                level of technology aims to deliver our customers high quality products and support services.\n\n\n\n\n\n\n\n\n\n\n\n\nTest Solutions and Diagnostic Equipment\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nWe provide industry-leading test solutions and diagnostic equipment to both original equipment manufacturers and the aftermarket.\n We are continuously upgrading our\n                equipment to accommodate testing for the latest alternator and starter technology for both existing and new customers. These software and hardware upgrades are also available for existing products that the customer is using. In addition, we\n                provide industry leading maintenance and service support for our test solutions and diagnostic equipment to provide a better end-user experience and value to our customers.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nMarket and grow our new product lines on a global basis.\n We offer products and services that cater to automotive test solutions and diagnostic\n                  equipment for inverter and electric motors for both development and production. In addition, we provide power supply hardware and emulation software diagnostic products. Our strategy is to market these products on a global basis to\n                  original equipment manufacturers as well as suppliers to the original equipment manufacturers for development and production of electric vehicles and electric vehicle charging systems. We believe this is a rapidly emerging business, and\n                  see the opportunity for accelerating growth rates. In addition, we are well-positioned to supply test solutions and diagnostic equipment to the aerospace industry to support its shift to electric power driven control systems in \nairplanes.\n\n\n\n\n\n\n\n\n\n\n\n\nHeavy Duty\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nMarket and grow our innovative design solutions and commitment to quality.\n We continue to develop and improve product performance, ease of\n                  installation or coverage simplification to deliver installation-ready products to provide extended service life and reduced downtime for our existing and new customers.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nProducts\n\n\n\n\n\n\nWe carry approximately 37,000 stock keeping units (\u201cSKUs\u201d) to support automotive replacement parts and test solutions and diagnostic equipment. Our products are sold under our customers\u2019 widely recognized private label brand names and our own\n        brand names including Quality-Built\n\u00ae\n, Pure Energy\u2122, D&V Electronics, Dixie Electric, and DelStar\n\u00ae\n.\n\n\n\n\n\n\nOur products include:\n (i) rotating electrical products such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake-related products, which include brake calipers, brake boosters,\n        brake rotors, brake pads, and brake master cylinders, (iv) turbochargers, (v) test solutions and diagnostic equipment products, and (vi) heavy-duty products.\n\n\n\n\n\n\nSegment Reporting\n\n\n\n\n\n\nOur three operating segments are as follows:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nHard Parts\n, including (i) light duty rotating electric products such as alternators and starters, (ii) wheel hub products, (iii) brake-related products, including brake calipers, brake boosters,\n                brake rotors, brake pads and brake master cylinders, and (iv) turbochargers,\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nTest Solutions and Diagnostic Equipment\n, including (i) applications for combustion engine vehicles, including bench top testers for alternators and starters, (ii) test solutions and diagnostic\n                equipment for the pre- and post-production of electric vehicles, (iii) software emulation of power systems applications for the electrification of all forms of transportation (including automobiles, trucks and the emerging electrification\n                of systems within the aerospace industry, such as electric vehicle charging stations), and\n\n\n\n\n\n\n\n\n \n\n\n\n\n\n\n6\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nHeavy Duty\n, including non-discretionary automotive aftermarket replacement hard parts for heavy-duty truck, industrial, marine, and agricultural applications.\n\n\n\n\n\n\n\n\n\n\n\n\nPrior to the fourth quarter of fiscal 2023, our operating segments met the aggregation criteria and were aggregated. Effective as of the fourth quarter of fiscal 2023, we revised our segment reporting as we determined\n        that our three operating segments no longer met the criteria to be aggregated. Our Hard Parts operating segment meets the criteria of a reportable segment. The Test Solutions and Diagnostic Equipment and Heavy Duty segments are not material, are\n        not separately reportable, and are included within the \u201call other\u201d category. See Note 19 of the notes to consolidated financial statements for more information.\n\n\n\n\n\n\nSales, Marketing and Distribution\n\n\n\n\n\n\nWe sell our hard parts products to the largest automotive chains, including Advance (inclusive of Carquest, Autopart International, and Worldpac), AutoZone, Genuine Parts (NAPA), and O\u2019Reilly with an aggregate of approximately 26,000 retail\n        outlets. In addition, these products are sold to warranty replacement programs (\u201cOES\u201d) customers, professional installers, and a diverse group of automotive warehouse distributors. Our heavy-duty products, which have some overlap with the\n        light-duty automotive aftermarket, are also sold via specialty distribution channels through OES, fleet, and auto electric outlets. We also sell test solutions and diagnostic equipment to the automotive chains listed above and via direct and\n        indirect sales channels, technical conferences, and trade shows to some of the world\u2019s leading automotive companies, and to the aerospace/aviation sector. We offer testing services at our technical center located in Detroit, Michigan. During fiscal\n        2023, we sold approximately 98% of our products in North America, with approximately 2% of our products sold in Asian and European countries.\n\n\n\n\n\n\nWe publish printed and electronic catalogs with part numbers and applications for our products along with a detailed technical glossary and informational database. In addition, we publish printed and electronic product and service brochures and\n        data sheets for our test solutions and diagnostic equipment and service offerings. We believe that we maintain one of the most extensive catalog and product identification systems available to the market.\n\n\n\n\n\n\nWe primarily ship our products from our facilities and \nvarious third-party warehouse distribution centers\n in North America, including our 410,000 square foot distribution center in Tijuana, Mexico.\n\n\n\n\n\n\nCustomers: Customer Concentration\n. While we continually seek to diversify our customer base, we currently derive, and have historically derived, a substantial portion of our sales from a small number of\n        large customers. Sales to our three largest customers in the aggregate represented 84%, 85%, and 87%, and sales to our largest customer, represented 37%, 38%, and 42% of our net sales during fiscal 2023, 2022 and 2021, respectively. Any meaningful\n        reduction in the level of sales to any of these customers, deterioration of the financial condition of any of these customers or the loss of any of these customers could have a materially adverse impact on our business, results of operations, and\n        financial condition.\n\n\n\n\n\n\nCustomer Arrangements; Impact on Working Capital\n. We have various length agreements with our customers. Under these agreements, which in most cases have initial terms of at least four years, we are\n        designated as the exclusive or primary supplier for specified categories of our products. Because of the very competitive nature of the market and the limited number of customers for these products, our customers have sought and obtained price\n        concessions, significant marketing allowances and more favorable delivery and payment terms in consideration for our designation as a customer\u2019s exclusive or primary supplier. These incentives differ from contract to contract and can include: (i)\n        the purchase of Remanufactured Core inventory on customer shelves, (ii) the issuance of a specified amount of credits against receivables in accordance with a schedule set forth in the relevant contract, (iii) support for a particular customer\u2019s\n        research or marketing efforts provided on a scheduled basis, (iv) discounts granted in connection with each individual shipment of product, and (v) store expansion or product development support. These contracts typically require that we meet\n        ongoing performance standards.\n\n\n \n\n\n\n\n\n\n7\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nWhile these longer-term agreements strengthen our customer relationships, the increased demand for our products often requires that we increase our inventories and personnel. Customer demands that we purchase and maintain their Remanufactured\n        Core inventory also requires the use of our working capital. The marketing and other allowances we typically grant our customers in connection with our new or expanded customer relationships adversely impact near-term revenues, profitability and\n        associated cash flows from these arrangements. However, we believe the investment we make in these new or expanded customer relationships will improve our overall liquidity and cash flow from operations over time.\n\n\n\n\n\n\nCompetition\n\n\n\n\n\n\nOur business is highly competitive. We compete with several large and medium-sized companies, including BBB Industries and Cardone Industries for hard parts, and AVL and Horiba for test solutions and diagnostic equipment, and a large number of\n        smaller regional and specialty companies. We also compete with other overseas manufacturers, particularly those located in China who are increasing their operations and could become a significant competitive force in the future.\n\n\n\n\n\n\nWe believe that the reputations for quality, reliability, and customer service that a supplier provides are significant factors in our customers\u2019 purchase decisions. We continuously strive to increase our competitive and technical advantages as\n        the industry and technologies rapidly evolve. Our advanced power emulators are protected by U.S. patents that provide us a strong competitive barrier for a large segment of the market and allow us to be lower cost and more efficient.\n\n\n\n\n\n\nWe believe our ability to educate also helps to distinguish us from many of our competitors. We have created an online library of video courses, aimed at supporting our customers as they seek to train the next generation of technicians. We also\n        offer live and web-based training courses via our education center within our Torrance, California headquarters. We believe our ability to provide quality replacement automotive parts, rapid and reliable delivery capabilities as well as promotional\n        support also distinguishes us from many of our competitors. In addition, favorable pricing, our core exchange programs, and extended payment terms are also very important competitive factors in customers\u2019 purchase decisions.\n\n\n\n\n\n\nWe seek to protect our proprietary processes and other information by relying on trade secret laws and non-disclosure and confidentiality agreements with certain of our employees and other persons who have access to that information.\n\n\n\n\n\n\nOperations\n\n\n\n\n\n\nProduction Process for Non-discretionary Replacement Parts. \nThe majority of our products are remanufactured at our facilities in Mexico, Canada, and to a lesser extent in Malaysia. We continue to maintain\n        production of certain remanufactured units that require specialized service at our Torrance, California facility. We also manufacture and assemble new products at our facilities in Malaysia and India. Our remanufacturing process begins with the\n        receipt of Used Cores from our customers or core brokers. The Used Cores are evaluated for inventory control purposes and then sorted by part number. Each Used Core is completely disassembled into its fundamental components. The components are\n        cleaned in an environmentally sound process that employs customized equipment and cleaning materials in accordance with the required specifications of the particular component. All components known to be subject to major wear and those components\n        determined not to be reusable or repairable are replaced by new components. Non-salvageable components of the Used Core are sold as scrap.\n\n\n\n\n\n\nAfter the cleaning process is complete, the salvageable components of the Used Core are inspected and tested as prescribed by our IATF 16949 and ISO 9001:2015 approved quality programs, which have been implemented throughout the production\n        processes. IATF 16949 and ISO 9001:2015 are internationally recognized, world class, quality programs. Upon passage of all tests, which are monitored by designated quality control personnel, all the component parts are assembled in a work cell into\n        a finished product. Inspection and testing are conducted at multiple stages of the remanufacturing process, and each finished product is inspected and tested on equipment designed to simulate performance under operating conditions. To maximize\n        remanufacturing efficiency, we store component parts ready for assembly in our production facilities.\n\n\n \n\n\n\n\n\n\n8\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nOur remanufacturing processes combine product families with similar configurations into dedicated factory work cells. This remanufacturing process, known as \u201clean manufacturing,\u201d eliminated a large number of inventory moves and the need to track\n        inventory movement through the remanufacturing process. This manufacturing enables us to significantly reduce the time it takes to produce a finished product. We continue to explore opportunities for improving efficiencies in our remanufacturing\n        process.\n\n\n\n\n\n\nProduction Process for Test Solutions and Diagnostic Equipment. \nOur test solutions and diagnostic equipment are engineered and manufactured in North America at facilities in Toronto, Canada and\n        Binghamton, New York, U.S. Our facility in Canada is certified under ISO 9001:2015 quality management system, which mandates that we foster continuous improvement to our manufacturing processes. Materials for custom systems are purchased in a\n        \u201cjust-in-time\u201d environment while materials for standard systems are purchased in economic quantities. All materials and components are inspected and tested when required. Certain components require certificates of compliance or test results from\n        our vendors prior to shipping to us. Our manufacturing process combines skilled labor from certified and licensed technicians with raw materials, manufactured components, purchased components, and purchased capital components to complete our test\n        solutions and diagnostic equipment. All test solutions and diagnostic equipment are inspected and tested per our quality control program, which has been approved by the ISO 9001:2015 quality management system.\n\n\n\n\n\n\nOur facility in New York, U.S., manufactures test solutions and diagnostic equipment using purchased electronic and custom components that are primarily assembled at this facility. While some circuit card assemblies are handled by outside\n        subcontractors, most of the assemblies are manufactured in-house along with the fabrication of electronic subassemblies. Quality control and testing is completed on these subassemblies prior to their final installation into the overall equipment\n        rack that includes mechanical, electrical and thermal management operations. Final inspection and acceptance testing are performed to predefined procedures prior to the equipment being packaged in a crate for shipment.\n\n\n\n\n\n\nUsed Cores. \nThe majority of our Used Cores are obtained from customers through the core exchange programs. To supplement Used Cores received from our customers we purchase Used Cores from core brokers.\n        Although this is not a primary source of Used Cores, it is a critical source for meeting our raw material demands. Remanufacturing consumes, on average, more than one Used Core for each remanufactured unit produced since not all Used Cores are\n        reusable. The yield rates depend upon both the product and customer specifications.\n\n\n\n\n\n\nWe recycle materials, including metal from the Used Cores and corrugated packaging, in keeping with our focus as a remanufacturer to lessen our footprint on the environment.\n\n\n\n\n\n\nPurchased Finished Goods\n. In addition to our remanufactured goods, we also purchase finished goods from various approved suppliers, including several located in Asia. We perform supplier qualification,\n        product inspection and testing according to our IATF 16949 or ISO 9001:2015 certified quality systems to assure product quality levels. We also perform periodic site audits of our suppliers\u2019 manufacturing facilities.\n\n\n\n\n\n\nEnvironmental, Social and Governance (ESG) and Human Capital\n\n\n\n\n\n\nOur Culture.\n\u00a0\nOur Company was founded in 1968 on the values of integrity, common decency and respect for others.\u00a0 Our core values are Excellence,\n        Passion/Productivity, Innovation/Integrity, Community, and Quality (\u201cEPICQ\u201d) and characterize our daily corporate focus. These values are embodied in our Code of Ethics, which has been adopted by our Board of Directors to serve as a statement of\n        principles to guide our decision-making and reinforce our commitment to these values in all aspects of our business. We believe that our commitment to our Company, our employees and the communities within which we operate has led to high employee\n        satisfaction and low employee turnover, and our commitment to our customers, suppliers and business partners has resulted in high customer satisfaction, as evidenced by the customer awards that we routinely win, and decades-long customer\n        relationships.\n\n\n\n\n\n\n\n\n9\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nEnvironmental.\n Environmental and sustainable processes have been our hallmark since the Company\u2019s establishment. We take our commitment to environmental stewardship seriously. The use\n        of Remanufactured Cores results in a substantial reduction of raw materials and energy consumption. With the potential to significantly reduce material and energy consumption, industry sources believe that remanufacturing is the most efficient and\n        sustainable process for producing aftermarket replacement parts \u2013 making our business practices green by nature. See more information on this at \ninvestors.motorcarparts.com/esg\n. Highlights of our\n        eco-friendly remanufacturing processes include:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nsorting the Used Cores returned by customers utilizing an innovative and efficient core-sorting process;\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nreconditioning and re-utilizing durable components after passing rigorous testing processes;\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nsavings of raw materials due to a reduction in the required materials used in the remanufacturing production process, compared with new product processes; and\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nrecycling of water, cardboard, and metal.\n\n\n\n\n\n\n\n\n\n\n\n\nHuman Capital.\n We regard our team members as integral to our strategic growth and success. We recognize that safety, inclusion, and offering exciting opportunities are fundamental to\n        facilitating high retention and satisfaction of high performance team members. Equally important, we provide competitive compensation and excellent benefit programs, and support numerous programs that build connections between our team members and\n        their communities. We believe our team members share our corporate ethics and values, as demonstrated in their daily interactions with customers, co-workers, vendors, and the public at large.\n\n\n\n\n\n\nAs of March 31, 2023, we employed approximately 5,600 people, with 400 people in the United States, 4,800 people in Mexico, 200 people Canada, and 200 people in Malaysia and China. Approximately 5,200 people are production employees. We have\n        non-union and unionized facilities. Approximately 4,700 production employees are covered by a local union. We believe we have a strong relationship with the union that represents our employees.\n\n\n\n\n\n\nOur facilities are located in labor markets with readily available access to skilled and unskilled workers. Our relationship and communication with our unionized and non-represented workforce is good.\n\n\n\n\n\n\nInclusion and Diversity\n. Our board is ethnically diverse and comprised of 9 independent directors, including three women. We believe an inclusive workforce is critical to our success,\n        with an ongoing focus on the hiring, retention, and advancement of women and other underrepresented ethnic groups. We employ 38% women and 62% men globally. In the United States, 76% of our workforce are considered ethnic minorities.\n\n\n\n\n\n\nHealth, Safety and Wellness\n.\u00a0 The success of our business is connected to the safety and well-being of our team members and their families. We provide our employees and their families\n        with flexible and convenient health and wellness programs \u2013 including protection and security to lessen concerns about missing work and the potential financial impact.\u00a0 Our programs are intended to support the physical and mental well-being with\n        the tools and resources for employees to improve or maintain their health, and we encourage engagement in healthy behaviors for team members and their families.\n\n\n\n\n\n\nCompensation and benefits\n. We provide competitive compensation and benefit programs that meet the needs of our employees, and are tailored to their local markets. In addition to wages\n        and salaries, these programs may include annual cash bonuses, stock awards, a 401(k) Plan, healthcare, and insurance, and implemented methodologies to manage performance, provide feedback and develop talent.\n\n\n\n\n\n\nSocial Responsibility.\n We are firmly committed to social responsibility. While safety, respect, and inclusion have always been fundamental to our company, these qualities are more\n        important than ever. Our socially responsible initiatives include subsidized food programs for certain employees, donations to community organizations, sponsorship of sport teams and weekend family events. In addition, we \nlaunched an Agri-farm organic food and community program in Mexico to enhance our social responsibility practices on a global basis.\n\n\n \n\n\n\n\n\n\n10\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nInformation Security and Risk Oversight\n\n\n\n\n\n\nWe have an information security risk program committed to regular risk management practices surrounding the protection of confidential data. This program includes various technical controls, including security monitoring, data leakage\n        protection, network segmentation and access controls around the computer resources that house confidential or sensitive data. We have also implemented employee awareness training programs around phishing, malware, and other cyber risks. We\n        continually evaluate the security environment surrounding the handling and control of our critical data and have instituted additional measures to help protect us from system intrusion or data breaches.\n\n\n\n\n\n\nOur Board of Directors appointed the Audit Committee with direct oversight of our: (i) information security policies, including periodic assessment of risk of information security breach, training program, significant threat changes and\n        vulnerabilities and monitoring metrics and (ii) effectiveness of information security policy implementation. Our Audit Committee is comprised entirely of independent directors, one of whom has significant work experience related to information\n        security issues or oversight. Management will report information security instances to the Audit Committee as they occur, if material, and will provide a summary multiple times per year to the Audit Committee.\n\n\n\n\n\n\nGovernmental Regulation\n\n\n\n\n\n\nOur operations are subject to various regulations governing, among other things, emissions to air, discharge to waters, and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. We believe that\n        our businesses, operations and facilities have been and are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations, many of which provide for substantial fines and criminal\n        sanctions for violations. Potentially significant expenditures, however, could be required in order to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future.\n\n\n\n\n\n\nAccess to Public Information\n\n\n\n\n\n\nWe file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available free of charge to the public over the Internet at the SEC\u2019s website at \nwww.sec.gov\n.\n        In addition, our SEC filings and Code of Ethics are available free of charge on our website \nwww.motorcarparts.com. \nThe information contained on the websites referenced in this Form 10-K is not incorporated\n        by reference into this filing. Further, our references to website URLs are intended to be inactive textual references only.\n\n\n \n\n\n\n\n\n\n11\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\n",
+  "item1a": ">Item 1A.\n\n    \n\n\nRisk Factors\n\n\n\n\n\n\n\n\nWhile we believe the risk factors described below are all the material risks currently facing our business, additional risks we are not presently aware of or that we currently believe are immaterial may also impair our business operations. Our\n        financial condition or results of operations could be materially and adversely impacted by these risks, and the trading price of our common stock could be adversely impacted by any of these risks. In assessing these risks, you should also refer to\n        the other information included in or incorporated by reference into this Form 10-K, including our consolidated financial statements and related notes thereto appearing elsewhere or incorporated by reference in this Form 10-K.\n\n\n\n\n\n\nRisks Related to Economic, Political and Health Conditions\n\n\n\n\n\n\nDevelopments in global and local conditions, such as slowing growth, inflation, the Russia/Ukraine conflict and the COVID-19 pandemic, have a material impact on our results of operations and\n        financial condition, and the continuation of or worsening of such conditions could have a similar or worse impact.\n\n\n\n\n\n\nSeveral conditions have led to adverse impacts on the U.S. and global economies and created uncertainty regarding the potential effects on our employees, supply chain, operations, and customer demand. These\n          conditions\n impact \nour operations and the operations of our customers, suppliers, and vendors because of quarantines, facility closures, travel, logistics restrictions and supply chain issues. The extent to\n          which these conditions impact us will depend on numerous factors and future developments, which are highly uncertain and cannot be predicted, including, but not limited to: (i) general economic and growth conditions, (ii) the impact of inflation\n          on our expenses, (iii) the effects of the Russia/Ukraine conflict on international trade, customers, suppliers, and vendors, (iv) public health crises, such as the COVID-19 pandemic, and (v) the extent to which we return to \u201cnormal\u201d economic and\n          operating conditions or the economy stabilizes to a \u201cnew normal.\u201d\u00a0 Even if some of these conditions subside, we may continue to experience adverse impacts to our business because of an economic recession or depression that has occurred or may\n          occur in the future, as well as the lingering effects on logistics, supply chain and the social norms of society. We could experience adverse impacts from these conditions in a number of ways, including, but not limited to, the following which\n          have occurred to some extent during this fiscal year:\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nsupply chain delays or stoppages due to shipping delays (cargo ship, train and truck shortages as well as staffing shortages) resulting in increased freight costs, closed supplier facilities or distribution centers, reduced workforces,\n                scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nchange in demand for or availability of our products as a result of our customers modifying their restocking, fulfillment, or shipping practices;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nincreased raw material, and other input costs resulting from market volatility;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nincreased working capital needs and/or an increase in trade accounts receivable write-offs as a result of increased financial pressures on our suppliers or customers; and\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nfluctuations in foreign currency exchange rates or interest rates resulting from market uncertainties.\n\n\n\n\n\n\n\n\n\n\n\n\nAt this time, we are unable to predict accurately the \nimpact these conditions will \nhave on our business and financial condition in the future.\n\n\n\n\n\n\nUnfavorable economic conditions may adversely affect our business.\n\n\n\n\n\n\nAdverse changes in economic conditions, including inflation, recession, increased fuel prices, tariffs, and unemployment levels, availability of consumer credit, taxation or instability in the financial markets or credit\n        markets may either lower demand for our products or increase our operational costs, or both. In addition, elections and other changes in the political landscape could have similar effects. Such conditions may also materially impact our customers,\n        suppliers and other parties with whom we do business. Our revenue will be adversely affected if demand for our products declines. The impact of unfavorable economic conditions may also impair the ability of our customers to pay for products they\n        have purchased. As a result, reserves for doubtful accounts and write-offs of accounts receivables may increase and failure to collect a significant portion of amounts due on those receivables could have a material adverse effect upon our business,\n        results of operations, and financial condition.\u00a0 In addition, we also get pressure from our suppliers to pay them faster and our customers to pay us slower, which impacts our cash flows.\n\n\n \n\n\n\n\n\n\n12\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nRisks Related to Our Business and Industry\n\n\n\n\n\n\nWe rely on a few large customers for a majority of our business,\n\u00a0\nand the loss of any of these customers, significant changes in the prices,\n\u00a0\nmarketing allowances or other important terms provided to any of these\n\u00a0\ncustomers or adverse\n          developments with respect to the financial condition of\n\u00a0\nthese customers could reduce our net income and operating results.\n\n\n\n\n\n\nOur net sales are concentrated among a small number of large customers. Sales to our three largest customers in the aggregate represented 84%, and sales to our largest\n        customer represented 37% of our net sales during fiscal 2023. We are under ongoing pressure from our major customers to offer lower prices, extended payment terms, increased marketing and other allowances and other terms more favorable to these\n        customers because our sales to these customers are concentrated, and the market in which we operate is very competitive. Customer demands have put continued pressure on our operating margins and profitability, resulted in periodic contract\n        renegotiation to provide more favorable prices and terms to these customers and significantly increased our working capital needs. The loss of or a significant decline in sales to any of these customers could adversely affect our business, results\n        of operations, and financial condition. In addition, customer concentration leaves us vulnerable to any adverse change in the financial condition of these customers.\n\n\n\n\n\n\nWe regularly review our accounts receivable and allowance for credit losses by considering factors such as historical experience, credit quality and age of the accounts\n        receivable, and the current economic conditions that may affect a customer\u2019s ability to pay such amounts owed to us. The majority of our sales are to leading automotive aftermarket parts suppliers. We participate in trade accounts receivable\n        discount programs with our major customers. If the creditworthiness of any of our customers was downgraded, we could be adversely affected, in that we may be subjected to higher interest rates on the use of these discount programs or we could be\n        forced to wait longer for payment. Should our customers experience significant cash flow problems, our financial position and results of operations could be materially and adversely affected, and the maximum amount of loss that would be incurred\n        would be the outstanding receivable balance, Used Cores expected to be returned by customers, and the value of the Remanufactured Cores held at customers\u2019 locations. We maintain an allowance for credit losses that, in our opinion, provides for an\n        adequate reserve to cover losses that may be incurred. However we cannot assure you that our losses will not exceed our reserve for the reasons and risks above. Changes in terms with, significant allowances for, and collections from these customers\n        could affect our operating results and cash flows.\n\n\n\n\n\n\nFailure to compete effectively could reduce our market\n\u00a0\nshare and significantly harm our financial performance.\n\n\n\n\n\n\nOur industry is highly competitive, and our success depends on our ability to compete with suppliers of automotive aftermarket products, some of which may have substantially greater financial, marketing and other resources than we do. The\n        automotive aftermarket industry is highly competitive, and our success depends on our ability to compete with domestic and international suppliers of automotive aftermarket products. Due to the diversity of our product offering, we compete with\n        several large and medium-sized companies, including BBB Industries and Cardone Industries for hard parts, and AVL and Horiba for test solutions and diagnostic equipment and a large number of smaller regional and specialty companies and numerous\n        category specific competitors. In addition, we face competition from original equipment manufacturers, which, through their automotive dealerships, supply many of the same types of replacement parts we sell.\n\n\n\n\n\n\nSome of our competitors may have larger customer bases and significantly greater financial, technical and marketing resources than we do. These factors may allow our competitors to:\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nrespond more quickly than we can to new or emerging technologies and changes in customer requirements by devoting greater resources than we can to the development, promotion and sale of automotive aftermarket products;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nengage in more extensive research and development; and\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nspend more money and resources on marketing and promotion.\n\n\n\n\n\n\n\n\n\n\n\n\nIn addition, other overseas competitors, particularly those located in China, are increasing their operations and could become a significant competitive force in the future. Increased competition could put additional pressure on us to reduce\n        prices or take other actions, which may have an adverse effect on our operating results. We may also lose significant customers or lines of business to competitors.\n\n\n \n\n\n\n\n\n\n13\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nIf we do not respond appropriately, the evolution of the automotive industry could adversely affect our business.\n\n\n\n\n\n\nThe automotive industry is increasingly focused on the development of hybrid and electric vehicles and of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully-automated driving\n        experience. There has also been an increase in consumer preferences for mobility on demand services, such as car and ride sharing, as opposed to automobile ownership, which may result in a long-term reduction in the number of vehicles per capita.\n        In addition, some industry participants are exploring transportation through alternatives to automobiles. These evolving areas have also attracted increased competition from entrants outside the traditional automotive industry. If we do not\n        continue to innovate and develop, or acquire, new and compelling products that capitalize upon new technologies in response to consumer preferences, it could have an adverse impact on our results of operations. These changes may also reduce demand\n        for our products for combustion engine vehicles.\n\n\n\n\n\n\nWork stoppages, production shutdowns and similar events could significantly disrupt our business.\n\n\n\n\n\n\nBecause the automotive industry relies heavily on just-in-time delivery of components during the assembly and manufacture of vehicles, a work stoppage or production shutdown at one or more of our manufacturing and assembly facilities could have\n        adverse effects on our business. Similarly, if one or more of our customers were to experience a work stoppage, that customer would likely halt or limit purchases of our products. We have also experienced significant disruptions in the supply of\n        several key components from Asia due to work stoppages, production shutdowns, government closures, and other supply chain issues at many of our suppliers, leading to an adverse effect on our financial results.\n\n\n\n\n\n\nInterruptions or delays in obtaining component parts could impair our business\n\u00a0\nand adversely affect our operating results.\n\n\n\n\n\n\nIn our remanufacturing processes, we obtain Used Cores, primarily through the core exchange programs with our customers, and component parts from third-party manufacturers. To supplement Used Cores received from our customers we purchase Used\n        Cores from core brokers. Historically, the Used Core returned from customers together with purchases from core brokers have provided us with an adequate supply of Used Cores. If there was a significant disruption in the supply of Used Cores,\n        whether as a result of increased Used Core acquisitions by existing or new competitors or otherwise, our operating activities could be materially and adversely impacted. In addition, a number of the other components used in the remanufacturing\n        process are available from a very limited number of suppliers. We are, as a result, vulnerable to any disruption in component supply, and any meaningful disruption in this supply would materially and adversely impact our operating results.\n\n\n\n\n\n\nIncreases in the market prices of key component raw materials could increase the cost of our products and negatively\n\u00a0\nimpact our\n          profitability.\n\n\n\n\n\n\nIn light of the continuous pressure on pricing which we have experienced from our large customers, we may not be able to recoup the higher costs of our products due to changes in the prices of raw materials, including, but not limited to,\n        aluminum, copper, steel, and cardboard. If we are unable to recover a substantial portion of our raw materials from Used Cores returned to us by our customers through the core exchange programs, the prices of Used Cores that we purchase may reflect\n        the impact of changes in the cost of raw materials. Sustained raw material price increases has had an impact on our product costs and profitability to date, but we are unable to determine the overall impact, in the future, at this time.\n\n\n\n\n\n\nOur financial results are affected by automotive parts failure rates that\n\u00a0\nare outside of our control.\n\n\n\n\n\n\nOur operating results are affected over the long term by automotive parts failure rates. These failure rates are impacted by a number of factors outside of our control, including product designs that have resulted in greater reliability, the\n        number of miles driven by consumers, and the average age of vehicles on the road. A reduction in the failure rates of automotive parts would reduce the demand for our products and thus adversely affect our sales and profitability.\n\n\n \n\n\n\n\n\n\n14\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nOur reliance on foreign suppliers for some of the automotive parts we sell to our customers or included in our products presents risks to our business\n.\n\n\n\n\n\n\nA significant portion of automotive parts and components we use in our remanufacturing process are imported from suppliers located outside the U.S., including China and other countries in Asia. As a result, we are subject\n        to various risks of doing business in foreign markets and importing products from abroad, such as the following, which we have experienced in the last fiscal year:\n\n\n\n\n\n\n\n\n\n\n\u25cf\n\n\n\n\nsignificant delays in the delivery of cargo due to port security and over-crowding considerations;\n\n\n\n\n\n\n\n\n\n\n\n\n\u25cf\n\n\n\n\nimposition of duties, taxes, tariffs or other charges on imports;\n\n\n\n\n\n\n\n\n\n\n\n\n\u25cf\n\n\n\n\nfinancial or political instability in any of the countries in which our product is manufactured;\n\n\n\n\n\n\n\n\n\n\n\n\n\u25cf\n\n\n\n\npotential recalls or cancellations of orders for any product that does not meet our quality standards;\n\n\n\n\n\n\n\n\n\n\n\n\n\u25cf\n\n\n\n\ndisruption of imports by labor disputes or strikes and local business practices;\n\n\n\n\n\n\n\n\n\n\n\n\n\u25cf\n\n\n\n\ninability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and\n\n\n\n\n\n\n\n\n\n\n\n\n\u25cf\n\n\n\n\nnatural disasters, disease epidemics and health related concerns, which could result in closed factories,\u00a0 reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected\n                areas.\n\n\n\n\n\n\n\n\n\n\n\n\nIt is also possible, in the future, that we may experience the following risks related to doing business in foreign markets and importing products from abroad, such as the following:\n\n\n\n\n\n\n\n\n\n\n\u25cf\n\n\n\n\nimposition of new legislation relating to import quotas or other restrictions that may limit the quantity of our product that may be imported into the U.S. from countries or regions where we do business;\n\n\n\n\n\n\n\n\n\n\n\n\n\u25cf\n\n\n\n\npolitical or military conflict involving foreign countries or the U.S., which could cause a delay in the transportation of our products and an increase in transportation costs;\n\n\n\n\n\n\n\n\n\n\n\n\n\u25cf\n\n\n\n\nheightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods;\n                and\n\n\n\n\n\n\n\n\n\n\n\n\n\u25cf\n\n\n\n\nour ability to enforce any agreements with our foreign suppliers.\n\n\n\n\n\n\n\n\n\n\n\n\nAny of the foregoing factors, or a combination of them, could increase the cost or reduce the supply of products available to us and materially and adversely impact our business, financial condition, results of operations\n        or liquidity.\n\n\n\n\n\n\nIn addition, because we depend on independent third parties to manufacture a significant portion of our wheel hub, brake-related products, and other purchased finished goods, we cannot be certain that we will not\n        experience operational difficulties with such manufacturers, such as reductions in the availability of production capacity, errors in complying with merchandise specifications, insufficient quality controls and failure to meet production deadlines\n        or increases in manufacturing costs.\n\n\n\n\n\n\nAn increase in the cost or a disruption in the flow of our imported products may significantly decrease our sales and profits.\n\n\n\n\n\n\nMerchandise manufactured offshore represents a significant portion of our total product purchases. A disruption in the shipping or cost of such merchandise may significantly decrease our sales and profits. In addition, if\n        imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet our demands. Merchandise from alternative sources may also be of lesser quality and more expensive than those we\n        currently import. Risks associated with our reliance on imported merchandise include disruptions in the shipping and importation or increase in the costs of imported products. For example, common risks include:\n\n\n \n\n\n\n\n\n\n15\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nraw material shortages;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nproblems with oceanic shipping, including shipping container shortages;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nincreased customs inspections of import shipments or other factors causing delays in shipments; and\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nincreases in shipping rates, all of which we experienced.\n\n\n\n\n\n\n\n\n\n\n\n\nAs well as the following common risks, which we may experience in the future:\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nwork stoppages;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nstrikes and political unrest;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\neconomic crises;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\ninternational disputes and wars;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nloss of \u201cmost favored nation\u201d trading status by the U. S. in relations to a particular foreign country;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nimport duties; and\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nimport quotas and other trade sanctions.\n\n\n\n\n\n\n\n\n\n\n\n\nProducts manufactured overseas and imported into the U.S. and other countries are subject to import restrictions and duties, which could delay their delivery or increase their cost. \nWe are subject to various\n        lawsuits and claims. In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of and administrative proceedings regarding our business.\n\n\n\n\n\n\n\n\nOur operating results may continue to fluctuate significantly.\n\n\n\n\n\n\nWe have experienced significant variations in our annual and quarterly results of operations. These fluctuations have resulted from many factors, including shifts in the demand and pricing for our products, general economic conditions, including\n        changes in prevailing interest rates, and the introduction of new products. Our gross profit percentage fluctuates due to numerous factors, some of which are outside of our control. These factors include the timing and level of marketing allowances\n        provided to our customers, actual sales during the relevant period, pricing strategies, the mix of products sold during a reporting period, and general market and competitive conditions. We also incur allowances, accruals, charges and other\n        expenses that differ from period to period based on changes in our business, which causes our operating income to fluctuate.\n\n\n\n\n\n\nRegulations related to conflict minerals could adversely impact our business.\n\n\n\n\n\n\nThe Dodd-Frank Wall Street Reform and Consumer Protection Act (\u201cDodd-Frank\u201d) contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as \u201cconflict minerals\u201d, originating from the Democratic\n        Republic of Congo (\u201cDRC\u201d) and adjoining countries. These rules could adversely affect the sourcing, supply, and pricing of materials used in our products, as the number of suppliers who provide conflict-free minerals may be limited. We may also\n        suffer reputational harm if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to modify our products to avoid the use of such materials. We may also face challenges in satisfying\n        customers who may require that our products be certified as containing conflict-free minerals.\n\n\n\n\n\n\nThe products we manufacture or contract to manufacture contain small quantities of Tin and Gold. We manufacture or contract to manufacture one product with small quantities of Tantalum. For the reporting year ending December 31, 2022, we\n        surveyed 211 smelters, refiners, or metal processing facilities for these minerals that are, or could be, in our supply chain. Of these, 89% were validated as conflict-free, per publicly available information on the Conflict Free Sourcing\n        Initiative website. We have not been able to ascertain the conflict-free status of the remaining smelters or refiners.\n\n\n \n\n\n\n\n\n\n16\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nOur strategy for managing risks associated with conflict minerals in products includes continuing to encourage our suppliers to engage in conflict-free sourcing and obtaining data from our suppliers that is more applicable to the products we\n        purchase. We continue to monitor progress on industry efforts to ascertain whether some facilities that suppliers identified are actually smelters. We do not believe conflict minerals pose risk to our operations. We are a member of the Automobile\n        Industry Action Group (AIAG) and support their efforts in the conflict minerals area.\n\n\n\n\n\n\nNatural disasters or other disruptions in our business in California and Baja California, Mexico could increase our operating expenses or cause us to lose revenues.\n\n\n\n\n\n\nA substantial portion of our operations are located in California and Baja California, Mexico, including our headquarters, remanufacturing and warehouse facilities. Any natural disaster, such as an earthquake, or other damage to our facilities\n        from weather, fire or other events could cause us to lose inventory, delay delivery of orders to customers, incur additional repair-related expenses, disrupt our operations or otherwise harm our business. These events could also disrupt our\n        information systems, which would harm our ability to manage our operations worldwide and compile and report financial information. As a result, we could incur additional expenses or liabilities or lose revenues, which could exceed any insurance\n        coverage and would adversely affect our financial condition and results of operations.\n\n\n\n\n\n\nOur failure to maintain effective internal control over financial reporting may affect our ability to accurately report our financial results and could materially and adversely affect the market\n        price of our common stock.\n\n\n\n\n\n\nUnder the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which requires significant resources and management oversight. Effective internal\n        and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and\n        operating results would be harmed. We cannot assure you that our internal control over financial reporting will be effective in the future or that other material weakness will not be discovered in the future. Any failure to maintain effective\n        controls or timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could affect our ability to remain listed with the NASDAQ Global\n        Select Market or subject us to adverse regulatory consequences. Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the\n        trading price of our stock.\n\n\n\n\n\n\nRisks Related to Our Overseas Operations\n\n\n\n\n\n\nOur offshore remanufacturing and logistic activities expose us to increased\n\u00a0\npolitical and economic risks and place a greater burden\n          on management to\n\u00a0\nachieve quality standards.\n\n\n\n\n\n\nOur overseas operations, especially our operations in Mexico, increase our exposure to political, criminal or economic instability in the host countries and to currency fluctuations. Risks are inherent in international operations, including:\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nexchange controls and currency restrictions;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\ncurrency fluctuations and devaluations;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nchanges in local economic conditions;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nrepatriation restrictions (including the imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries);\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nglobal sovereign uncertainty and hyperinflation in certain foreign countries;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nlaws and regulations relating to export and import restrictions;\n\n\n\n\n\n\n\n\n \n\n\n\n\n\n\n17\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nexposure to government actions;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nincreased required employment related costs; and\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nexposure to local political or social unrest including resultant acts of war, terrorism or similar events.\n\n\n\n\n\n\n\n\n\n\n\n\nThese and other factors may have a material adverse effect on our offshore activities and on our business, results of operations and financial condition. Our overall success as a business depends substantially upon our ability to manage our\n        foreign operations. We may not continue to succeed in developing and implementing policies and strategies that are effective in each location where we do business, and failure to do so could materially and adversely impact our business, results of\n        operations, and financial condition.\n\n\n\n\n\n\nUnfavorable currency exchange rate fluctuations could adversely affect us.\n\n\n\n\n\n\nWe are exposed to market risk from material movements in foreign exchange rates between the U.S. dollar and the currencies of the foreign countries in which we operate. In fiscal 2023, approximately 25% of our total expenses were in currencies\n        other than the U.S. dollar. As a result of our extensive operations in Mexico, our primary risk relates to changes in the rates between the U.S. dollar and the Mexican peso. To mitigate this currency risk, we enter into forward foreign exchange\n        contracts to exchange U.S. dollars for Mexican pesos. We also enter into forward foreign exchange contracts to exchange U.S. dollars for Chinese yuan in order to mitigate risk related to our purchases and payments to our Chinese vendors. The extent\n        to which we use forward foreign exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements. The use of derivative financial instruments allows us to reduce our\n        exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in the exchange rates. We do not engage in currency speculation or hold or issue financial\n        instruments for trading purposes. These contracts generally expire in a year or less. Any change in the fair value of foreign exchange contracts is accounted for as an increase or decrease to foreign exchange impact of lease liabilities and forward\n        contracts in the consolidated statements of operations. We recorded a non-cash gain of $2,776,000 and a non-cash loss of $316,000 due to the change in the fair value of the forward foreign currency exchange contracts during fiscal 2023 and 2022,\n        respectively. In addition, we recorded gains of $6,515,000 and $1,989,000 in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2023 and 2022, respectively.\n\n\n\n\n\n\nChanges in trade policy and other factors beyond our control could materially adversely affect our business.\n\n\n\n\n\n\nThe former presidential administration advocated for greater restrictions on international trade generally, including with respect to the North American Free Trade Agreement (\u201cNAFTA\u201d) and the World Trade Organization (the\n        \u201cWTO\u201d). In December 2019, the United States, Mexico and Canada signed the amended United States-Mexico-Canada Agreement (the \u201cUSMCA\u201d), which replaced NAFTA. In July 2020, the U.S. notified the United Nations of its intention to withdraw from the\n        WTO. While the current presidential administration has rejoined the WTO, it remains difficult to predict what affect the USMCA, the WTO or other trade agreements and organizations will have on our business. If the U.S. were to withdraw from or\n        materially modify any other international trade agreements to which it is a party or if the U.S. imposes significant additional tariffs on imports from China or other restrictions, it could have an adverse impact on our business.\n\n\n\n\n\n\nPossible new tariffs that might be imposed by the United States government could have a material adverse effect on our results of operations.\n\n\n\n\n\n\nThe U.S. government has placed tariffs on certain goods imported from China and may impose new tariffs on goods imported from China and other countries, including products that we import. In retaliation, China has responded by imposing tariffs\n        on a wide range of products imported from the U.S. and by adjusting the value of its currency. If renegotiations of existing tariffs are unsuccessful or additional tariffs or trade restrictions are implemented by the U.S. or other countries in\n        connection with a global trade war, the resulting escalation of trade tensions could have a material adverse effect on world trade and the global economy. Even in the absence of further tariffs or trade restrictions, the related uncertainty and the\n        market\u2019s fear of an economic slowdown could lead to a decrease in consumer spending and we may experience lower net sales than expected. Reduced net sales may result in reduced operating cash flows if we are not able to appropriately manage\n        inventory levels or leverage expenses.\n\n\n \n\n\n\n\n\n\n18\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nRisks Related to Our Indebtedness\n\n\n\n\n\n\nOur debt can impact our operating results and cash flows and limit our operations.\n\n\n\n\n\n\nAs of March 31, 2023, we had $158,325,000 of debt outstanding under our credit facility, which is at variable interest rates. Fluctuations in those rates could impact our operating results and cash flows. In particular, interest rates have been\n        rising recently, which increases our interest expense. The weighted average interest on our debt was 8.12% at March 31, 2023 compared to 3.12% at March 31, 2022. In addition, our credit facility has covenants that limit aspects of our operations.\n\n\n\n\n\n\nIn addition, on March 31, 2023, we issued and sold $32,000,000 in aggregate principal amount of 10.0% convertible notes due in 2029 (the \u201cConvertible Notes\u201d). The issuance of shares of our common stock upon conversion of the Convertible Notes\n        may dilute the ownership interests of existing stockholders and reduce our per share results of operations. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our\n        common stock.\n\n\n\n\n\n\nWe may also incur additional debt in the future, which could further increase our leverage, reduce our cash flow or further restrict our business.\n\n\n\n\n\n\nOur lenders may not waive future defaults under our credit agreements.\n\n\n\n\n\n\nOur credit agreement with our lenders contains certain financial and other covenants. If we fail to meet any of these covenants in the future, there is no assurance that our lenders will waive any such defaults or that we will otherwise be able\n        to cure them. If we obtained a waiver, it may impose significant costs or covenants on us. In addition, as the capital markets get more volatile, it may become more difficult to obtain such waivers or refinance our debt.\n\n\n\n\n\n\nWeakness in conditions in the global credit markets and macroeconomic factors\n, including interest rates, \ncould adversely affect our financial condition and\n          results of operations.\n\n\n\n\n\n\nThe banking industry and global credit markets also experience difficulties from time to time, and issues involving our lenders could impact our deposits, the availability, terms and cost of borrowings or our ability to refinance our debt.\u00a0 Any\n        weakness in the credit markets could result in significant constraints on liquidity and availability of borrowing terms from lenders and accounts payable terms with vendors. These issues could also result in more stringent lending standards and\n        terms and higher interest rates. In addition, we are exposed to changes in interest rates primarily as a result of our borrowing and receivable discount programs, which have interest costs that vary with interest rate movements. Any limitations on\n        our ability to fund our operations could have a material adverse effect on our business, financial condition and ability to grow.\n\n\n\n\n\n\nRisks Related to Owning Our Stock\n\n\n\n\n\n\nOur stock price is volatile and could decline substantially.\n\n\n\n\n\n\nOur stock price has fluctuated in the past and may decline substantially in the future as a result of developments in our business, the volatile nature of the stock market, and other factors beyond our control. Our stock price and the stock\n        market generally has, from time to time, experienced extreme price and volume fluctuations. Many factors may cause the market price for our common stock to decline, including: (i) our operating results failing to meet the expectations of securities\n        analysts or investors in any period, (ii) downward revisions in securities analysts\u2019 estimates, (iii) market perceptions concerning our future earnings prospects, (iv) public or private sales of a substantial number of shares of our common stock,\n        (v) adverse changes in general market conditions or economic trends, and (vi) market shocks generally or in our industry, such as what has recently occurred.\n\n\n \n\n\n\n\n\n\n19\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nGeneral Risk Factors\n\n\n\n\n\n\nWe may continue to make strategic acquisitions of other companies or businesses\n\u00a0\nand these acquisitions introduce significant risks\n          and uncertainties, including\n\u00a0\nrisks related to integrating the acquired businesses and achieving benefits\n\u00a0\nfrom the\n          acquisitions.\n\n\n\n\n\n\nIn order to position ourselves to take advantage of growth opportunities, we have made, and may continue to make, strategic acquisitions that involve significant risks and uncertainties. These risks and uncertainties include:\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nthe difficulty in integrating newly-acquired businesses and operations in an efficient and effective manner;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nthe challenges in achieving strategic objectives, cost savings and other benefits from acquisitions;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nthe potential loss of key employees of the acquired businesses;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nthe risk of diverting the attention of senior management from our operations;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nrisks associated with integrating financial reporting and internal control systems;\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\ndifficulties in expanding information technology systems and other business processes to accommodate the acquired businesses; and\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nfuture impairments of any goodwill of an acquired business.\n\n\n\n\n\n\n\n\n\n\n\n\nWe may also incur significant expenses to pursue and consummate acquisitions. Any of the foregoing, or a combination of them, could cause us to incur additional expenses and materially and adversely impact our business, financial condition,\n        results of operations, or liquidity.\n\n\n\n\n\n\nIncreasing attention to environmental, social, and governance matters may impact our business, financial results, or stock price.\n\n\n\n\n\n\nIn recent years, increasing attention has been given to corporate activities related to environmental, social, and governance (\u201cESG\u201d) matters in public discourse and the investment community. A number of advocacy groups, both domestically and\n        internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including through the investment and voting practices of investment advisers, public pension funds, universities, and\n        other members of the investing community. These activities include increasing attention and demands for action related to climate change and promoting the use of energy saving building materials. A failure to comply with investor or customer\n        expectations and standards, which are evolving, or if we are perceived to not have responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, could also cause reputational harm to our\n        business and could have a material adverse effect on us.\n\n\n\n\n\n\nIf our technology and telecommunications systems were to fail, or we were not able to successfully anticipate, invest in or adopt technological advances in our industry, it could have an adverse\n        effect on our operations.\n\n\n\n\n\n\nWe rely on computer and telecommunications systems to communicate with our customers and vendors and manage our business. The temporary or permanent loss of our computer and telecommunications equipment and software systems, through casualty,\n        operating malfunction, software virus or service provider failure, could disrupt our operations. In addition, our future growth may require additional investment in our systems to keep up with technological advances in our industry. If we are not\n        able to invest in or adopt changes to our systems, or such upgrades take longer or cost more than anticipated, our business, financial condition and operating results may be adversely affected.\n\n\n \n\n\n\n\n\n\n20\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nCyber-attacks or other breaches of information technology security could adversely impact our business and operations.\n\n\n\n\n\n\nThe incidence of cyber-attacks and other breaches of information technology security have increased worldwide. Cyber-attacks or other breaches of network or information technology security may cause equipment failure or disruption to our\n        operations. Such attacks, which include the use of malware, computer viruses and other means for disruption or unauthorized access, on companies have increased in frequency, scope and potential harm in recent years. While, to the best of our\n        knowledge, we have not been subject to cyber-attacks or to other cyber incidents which, individually or in the aggregate, have been material to our operations or financial conditions, the preventive actions we take to reduce the risk of cyber\n        incidents and protect our information technology and networks may be insufficient to repel a major cyber-attack in the future. To the extent that any disruption or security breach results in a loss or damage to our data or unauthorized disclosure\n        of confidential information, it could cause significant damage to our reputation, affect our relationship with our customers, suppliers and employees, and lead to claims against us and ultimately harm our business. Additionally, we may be required\n        to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. While we maintain specific cyber insurance coverage, which may apply in the event of various breach scenarios, the amount of\n        coverage may not be adequate in any particular case. Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cyber insurance coverage.\n\n\n\n\n\n\n\n\n\n\n\n",
+  "item7": ">Item 7.\n\n    \n\n\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\n\n\n\n\n\n\n\nThe following discussion contains forward-looking statements, including, without limitation, our expectations and statements regarding our outlook and future revenues, expenses, results of operations, liquidity, plans, strategies and objectives\n        of management and any assumptions underlying any of the foregoing. Our actual results may differ significantly from those projected in the forward-looking statements. Our forward-looking statements and factors that might cause future actual results\n        to differ materially from our recent results or those projected in the forward-looking statements include, but are not limited to, those discussed in the section titled \u201cCautionary Note Regarding Forward-Looking Statements\u201d and \u201cRisk Factors\u201d of\n        this Annual Report on Form 10-K. Except as required by law, we assume no obligation to update the forward-looking statements or our risk factors for any reason.\n\n\n\n\n\n\nManagement Overview\n\n\n\n\n\n\nWith a scalable infrastructure and abundant growth opportunities, we are focused on growing our aftermarket business in the North American marketplace and growing our leadership position in the test solutions and diagnostic equipment market by\n        providing innovative and intuitive solutions to our customers. Our investments in infrastructure and human resources during the past few years reflects the significant expansion of manufacturing capacity to support multiple product lines. These\n        investments included (i) a 410,000 square foot distribution center, (ii) two buildings totaling 372,000 square feet for remanufacturing and core sorting of brake calipers, and (iii) the realignment of production at our original 312,000 square foot\n        facility in Mexico.\n\n\n\n\n\n\nHighlights and Accomplishments in Fiscal 2023\n\n\n\n\n\n\nDuring fiscal 2023, we continued to execute our strategic plan \u2013 focusing on meaningful growth and improving profitability by leveraging our offshore infrastructure, industry position and customer relationships. The following significant\n        accomplishments support our optimism moving forward:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nWe achieved record fiscal fourth quarter and full-year sales, which increased 18.8 percent and 5.0 percent, respectively, with solid demand across multiple categories;\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nWe experienced meaningful traction with our customers and consumers since last year\u2019s launch of a comprehensive line of brake pads\n utilizing an industry-leading formulation,\n and brake rotors \u2013 serving the professional installer market under our Quality-Built\n\u00ae\n brand;\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nWe expanded sales with additional product line offerings and customers in Mexico;\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nWe continued to improve efficiencies with expected ongoing benefits through increased production volume and pricing;\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nWe focused on reduction in inventory levels following a strategic build up to meet demand during recent global supply chain challenges;\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nWe enhanced our liquidity and capital resources with a $32 million strategic convertible note investment that supports us at an exciting pivotal point in our evolution;\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nWe received increasing interest and orders for our Test Solutions and Diagnostic Equipment, including our emerging contract testing center, from major automotive retailers, \nmajor global automotive,\n                aerospace and research institutions\n;\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nWe continued our social responsibility initiatives with the successful launch of an Agri-farm organic food and community program in Mexico and a continued focus on opportunities to enhance our \nEnvironmental, Social and Governance\n practices on a global basis.\n\n\n\n\n\n\n\n\n\n\n\n\nTrends Affecting Our Business\n\n\n\n\n\n\nOur business is impacted by various factors within the economy that affect both our customers and our industry, including but not limited to inflation, interest rates, global supply chain disruptions, fuel costs, wage\n        rates, and other economic conditions. Given the nature of these various factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future.\n\n\n \n\n\n\n\n\n\n26\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nInflation\n\n\n\n\n\n\nThe cost to manufacture and distribute our products is impacted by the cost of raw materials, finished goods, labor, and transportation. During fiscal 2023, we experienced continued inflationary pressure and higher costs\n        as a result of the increasing cost of raw materials, finished goods, labor, transportation, and other administrative costs. The increase in the cost of raw materials and finished goods are due in part to a shortage in the availability of certain\n        products and the higher cost of shipping. We can only pass our increased costs onto customers on a limited basis. Future general price inflation and its impact on costs and availability of materials could adversely affect our financial results.\n\n\n\n\n\n\nInterest Rates\n\n\n\n\n\n\nInterest rates are rising in an effort to curb higher inflation. We are experiencing higher interest costs for our borrowing and our customers\u2019 receivable discount programs, which have interest costs that vary with\n        interest rate movements. The majority of our interest costs results from our customers\u2019 receivable discount programs. The weighted average discount rate for these programs was 5.3% for fiscal 2023 compared with 1.9% for fiscal 2022. These higher\n        interest rates and any future increases in interest rates will continue to adversely affect our financial results.\n\n\n\n\n\n\nImpact of COVID-19\n\n\n\n\n\n\nThe COVID-19 pandemic continues to adversely impact the U.S. and global economies \u2013 creating uncertainty regarding the potential effects on the supply chain disruptions, rate of inflation, increasing interest rates, and\n        customer demand. We incurred certain costs related to the COVID-19 pandemic, which are included in cost of goods sold and operating expenses in the consolidated statements of operations of $1,957,000 and $3,368,000 during fiscal 2023 and 2022,\n        respectively.\n\n\n\n\n\n\nEmployee Retention Credit\n\n\n\n\n\n\nThe CARES Act provides an employee retention credit (\u201cERC\u201d) that is a refundable tax credit against certain employer taxes. In the fourth quarter of the fiscal year ended March 31, 2022, we amended certain payroll tax filings and applied for a\n        refund of $5,104,000. As of March 31, 2023, we determined that all contingencies related to the ERC were resolved and recorded a $5,104,000 receivable which is included in prepaid expenses and other current assets in the accompanying consolidated\n        balance sheet. The ERC was recognized as a reduction in employer payroll taxes and allocated to the financial statement captions from which the employee\u2019s taxes were originally incurred. As a result, we recorded a reduction in expenses of\n        $2,034,000 in cost of goods sold, $1,377,000 in general and administrative expense, $968,000 in selling and marketing expense, and $725,000 in research and development expense, which is reflected in the accompanying consolidated statement of\n        operations for the year ended March 31, 2023. In April 2023, we received full payment of the ERC receivable.\n\n\n\n\n\n\nSegment Reporting\n\n\n\n\n\n\nOur three operating segments are as follows:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nHard Parts\n, including (i) light duty rotating electric products such as alternators and starters, (ii) wheel hub products, (iii) brake-related products, including brake calipers, brake boosters,\n                brake rotors, brake pads and brake master cylinders, and (iv) turbochargers,\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nTest Solutions and Diagnostic Equipment\n, including (i) applications for combustion engine vehicles, including bench top testers for alternators and starters, (ii) test solutions and diagnostic\n                equipment for the pre- and post-production of electric vehicles, (iii) software emulation of power systems applications for the electrification of all forms of transportation (including automobiles, trusts and the emerging electrification\n                of systems within the aerospace industry, such as electric vehicle charging stations), and\n\n\n\n\n\n\n\n\n \n\n\n\n\n\n\n27\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nHeavy Duty\n, including non-discretionary automotive aftermarket replacement hard parts for heavy-duty truck, industrial, marine, and agricultural applications.\n\n\n\n\n\n\n\n\n\n\n\n\nPrior to the fourth quarter of fiscal 2023, our operating segments met the aggregation criteria and were aggregated. Effective as of the fourth quarter of fiscal 2023, we revised our segment reporting as we determined\n        that our three operating segments no longer met the criteria to be aggregated. Our Hard Parts operating segment meets the criteria of a reportable segment. The Test Solutions and Diagnostic Equipment and Heavy Duty segments are not material, are\n        not separately reportable, and are included within the \u201call other\u201d category. See Note 19 of the notes to consolidated financial statements for more information.\n\n\n\n\n\n\nCritical Accounting Policies\n\n\n\n\n\n\nWe prepare our consolidated financial statements in accordance with generally accepted accounting principles, or GAAP, in the United States. Our significant accounting policies are discussed in detail below and in Note 2 of the notes to\n        consolidated financial statements.\n\n\n\n\n\n\nIn preparing our consolidated financial statements, we use estimates and assumptions for matters that are inherently uncertain. We base our estimates on historical experiences and reasonable assumptions. Our use of estimates and assumptions\n        affect the reported amounts of assets, liabilities and the amount and timing of revenues and expenses we recognize for and during the reporting period. Actual results may differ from our estimates.\n\n\n\n\n\n\nThere continues to be uncertainty and disruption in the global economy and financial markets. We are not currently aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the\n        carrying value of our assets or liabilities as of March 31, 2023. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or\n        conditions.\n\n\n\n\n\n\nOur remanufacturing operations include core exchange programs for the core portion of the finished goods. The Used Cores that we acquire and are returned to us from our customers are a necessary raw material for remanufacturing. We also offer\n        our customers marketing and other allowances that impact revenue recognition. These elements of our business give rise to more complex accounting than many businesses our size or larger.\n\n\n\n\n\n\nInventory\n\n\n\n\n\n\nInventory is comprised of: (i) Used Core and component raw materials, (ii) work-in-process, and (iii) remanufactured and purchased finished goods.\n\n\n\n\n\n\nUsed Core, component raw materials, and purchased finished goods are stated at the lower of average cost or net realizable value.\n\n\n\n\n\n\nWork-in-process is in various stages of production and is valued at the average cost of Used Cores and component raw materials issued to work orders still open, including allocations of labor and overhead costs. Historically, work-in-process\n        inventory has not been material compared to the total inventory balance.\n\n\n\n\n\n\nRemanufactured finished goods include: (i) the Used Core cost and (ii) the cost of component raw materials, and allocations of labor and variable and fixed overhead costs (the \u201cUnit Cost\u201d). The allocations of labor and variable and fixed\n        overhead costs are based on the actual use of the production facilities over the prior 12 months which approximates normal capacity. This method prevents the distortion in allocated labor and overhead costs that would occur during short periods of\n        abnormally low or high production. In addition, we exclude certain unallocated overhead such as severance costs, duplicative facility overhead costs, start-up costs, training, and spoilage from the calculation and expenses these unallocated\n        overhead costs as period costs. Purchased finished goods also include an allocation of fixed overhead costs.\n\n\n \n\n\n\n\n\n\n28\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nThe estimate of net realizable value is subjective and based on our judgment and knowledge of current industry demand and management\u2019s projections of industry demand. The estimates may, therefore, be revised if there are changes in the overall\n        market for our products or market changes that in our judgment impact our ability to sell or liquidate potentially excess or obsolete inventory. Net realizable value is determined at least quarterly as follows:\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nNet realizable value for finished goods by customer, by product line are determined based on the agreed upon selling price with the customer for a product in the trailing 12 months. We compare the average selling price, including any\n                discounts and allowances, to the finished goods cost of on-hand inventory, less any reserve for excess and obsolete inventory. Any reduction of value is recorded as cost of goods sold in the period in which the revaluation is identified.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nNet realizable value for Used Cores are determined based on current core purchase prices from core brokers to the extent that core purchases in the trailing 12 months are significant. Remanufacturing consumes, on average, more than one\n                Used Core for each remanufactured unit produced since not all Used Cores are reusable. The yield rates depend upon both the product and customer specifications. We purchase Used Cores from core brokers to supplement our yield rates and Used\n                Cores not returned under the core exchange programs. We also consider the net selling price our customers have agreed to pay for Used Cores that are not returned under our core exchange programs to assess whether Used Core cost exceeds Used\n                Core net realizable value on a by customer, by product line basis. Any reduction of core cost is recorded as cost of goods sold in the period in which the revaluation is identified.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u2022\n\n\n\n\nWe record an allowance for potentially excess and obsolete inventory based upon recent sales history, the quantity of inventory on-hand, and a forecast of potential use of the inventory. We periodically review inventory to identify\n                excess quantities and part numbers that are experiencing a reduction in demand. Any part numbers with quantities identified during this process are reserved for at rates based upon our judgment, historical rates, and consideration of\n                possible scrap and liquidation values which may be as high as 100% of cost if no liquidation market exists for the part. As a result of this process, we recorded reserves for excess and obsolete inventory of $16,436,000 and $13,520,000 at\n                March 31, 2023 and 2022, respectively. This increase in the reserve was primarily due to excess inventory of certain finished goods on hand at March 31, 2023 compared with March 31, 2022.\n\n\n\n\n\n\n\n\n\n\n\n\nWe record vendor discounts as a reduction of inventories and are recognized as a reduction to cost of sales as the inventories are sold.\n\n\n\n\n\n\nInventory Unreturned\n\n\n\n\n\n\nInventory unreturned represents our estimate, based on historical data and prospective information provided directly by the customer, of finished goods shipped to customers that we expect to be returned, under our general right of return policy,\n        after the balance sheet date. Inventory unreturned includes only the Unit Cost of a finished goods. The return rate is calculated based on expected returns within the normal operating cycle, which is generally one year. As such, the related amounts\n        are classified in current assets. Inventory unreturned is valued in the same manner as our finished goods inventory.\n\n\n\n\n\n\n\n\nContract Assets\n\n\n\n\n\n\nContract assets consists of: (i) the core portion of the finished goods shipped to customers, (ii) upfront payments to customers in connection with customer contracts, (iii) core premiums paid to customers, (iv)\n          finished goods premiums paid to customers, and (v) long-term core inventory deposits.\n\n\n\n\n\n\n\n\n\n\nRemanufactured Cores held at customers\u2019 locations as a part of the finished goods sold to the customer are classified as long-term contract assets. These assets are valued at the lower of cost or net realizable value of\n          Used Cores on hand (See Inventory above). For these Remanufactured Cores, we expect the finished good containing the Remanufactured Core to be returned under our general right of return policy or a similar Used Core to be returned to us by the\n          customer, under our core exchange programs, in each case for credit.\u00a0 Remanufactured Cores and Used Cores returned by consumers to our customers but not yet returned to us are classified as \u201cCores expected to be returned by customers\u201d, which are\n          included in short-term contract assets until we physically receive them during our normal operating cycle, which is generally one year.\n\n\n \n\n\n\n\n\n\n\n\n29\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nUpfront payments to customers represent marketing allowances, such as sign-on bonuses, slotting fees, and promotional allowances provided to our customers. These allowances are recognized as an asset and amortized over the appropriate period of\n        time as a reduction of revenue if we expect \nto generate future revenues associated with the upfront payment. If we do not expect to generate additional revenue, then the upfront payment is recognized in the\n          consolidated statements of operations when payment occurs as a reduction of revenue. Upfront payments expected to be amortized during our normal operating cycle, which is generally one year, are classified as short-term contract assets.\n\n\n\n\n\n\nCore premiums paid to customers represent the difference between the Remanufactured Core acquisition price paid to customers generally in connection with new business, and the related Used Core cost. The core premiums are treated as an asset and\n        \nrecognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered. We\n consider, among other things, the length of our\n        largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these premiums. These core premiums are amortized over a\n        period typically ranging from six to eight years, adjusted for specific circumstances associated with the arrangement. Core premiums are recorded as long-term contract assets. Core premiums\n expected to be amortized\n          within our normal operating cycle, which is generally one year, are classified as short-term contract assets.\n\n\n\n\n\n\nFinished goods premiums paid to customers represent the difference between the finished good acquisition price paid to customers, generally in connection with new business, and the related finished good cost, which is treated as an asset and \nrecognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered. We\n consider, among other things, the length of our\n        largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these premiums. Finished goods premiums are amortized over a\n        period typically ranging from six to eight years, adjusted for specific circumstances associated with the arrangement. Finished goods premiums are recorded as long-term contract assets. Finished goods premiums\n expected\n          to be amortized within our normal operating cycle, which is generally one year, are classified as short-term contract assets.\n\n\n\n\n\n\n\n\n\n\nLong-term core inventory deposits represent the cost of Remanufactured Cores we have purchased from customers, which are held by the customers and remain on the customers\u2019 premises. The costs of these Remanufactured Cores were established at the\n        time of the transaction based on the then current cost. The selling value of these Remanufactured Cores was established based on agreed upon amounts with these customers. We expect to realize the selling value and the related cost of these\n        Remanufactured Cores should our relationship with a customer end, a possibility that we consider remote based on existing long-term customer agreements and historical experience.\n\n\n\n\n\n\nRevenue Recognition\n\n\n\n\n\n\nRevenue is recognized when performance obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our products. Revenue is measured as the amount of consideration we expect\n        to receive in exchange for transferring goods or providing services. Revenue is recognized net of all \nanticipated returns, marketing allowances, volume discounts, and other forms of variable consideration\n.\n        Revenue is recognized either when products are shipped or when delivered, depending on the applicable contract terms.\n\n\n \n\n\n\n\n\n\n30\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nThe price of a finished remanufactured product sold to customers is generally comprised of separately invoiced amounts for the Remanufactured Core included in the product (\u201cRemanufactured Core value\u201d) and the unit portion included in the product\n        (\u201cUnit Value\u201d), for which revenue is recorded based on our then current price list, net of applicable discounts and allowances. The Remanufactured Core value is recorded as a net revenue based upon the estimate of Used Cores that will not be\n        returned by the customer for credit. These estimates are subjective and based on management\u2019s judgment and knowledge of historical, current, and projected return rates. As reconciliations are completed with the customers the actual rates at which\n        Used Cores are not being returned may differ from the current estimates. This may result in periodic adjustments of the estimated contract asset and liability amounts recorded and may impact the projected revenue recognition rates used to record\n        the estimated future revenue. These estimates may also be revised if there are changes in contractual arrangements with customers, or changes in business practices. A significant portion of the remanufactured automotive parts sold to customers are\n        replaced by similar Used Cores sent back for credit by customers under the core exchange programs (as described in further detail below). The number of Used Cores sent back under the core exchange programs is generally limited to the number of\n        similar Remanufactured Cores previously shipped to each customer.\n\n\n\n\n\n\nRevenue Recognition \u2014 Core Exchange Programs\n\n\n\n\n\n\nFull price Remanufactured Cores: When remanufactured products are shipped, certain customers are invoiced for the Remanufactured Core value of the product at the full Remanufactured Core sales price. For these Remanufactured Cores, revenue is\n        only recognized based upon an estimate of the rate at which these customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under the core exchange programs. The remainder of the full price\n        Remanufactured Core value invoiced to these customers is established as a long-term contract liability rather than being recognized as revenue in the period the products are shipped as we expect these Remanufactured Cores to be returned for credit\n        under our core exchange programs.\n\n\n\n\n\n\nNominal price Remanufactured Cores: Certain other customers are invoiced for the Remanufactured Core value of the product shipped at a nominal (generally $0.01 or less) Remanufactured Core price. For these nominal Remanufactured Cores, revenue\n        is only recognized based upon an estimate of the rate at which these customers will pay cash for Remanufactured Cores in lieu of sending back similar Used Cores for credits under the core exchange programs. Revenue amounts are calculated based on\n        contractually agreed upon pricing for these Remanufactured Cores for which the customers are not returning similar Used Cores. The remainder of the nominal price Remanufactured Core value invoiced to these customers is established as a long-term\n        contract liability rather than being recognized as revenue in the period the products are shipped as we expect these Remanufactured Cores to be returned for credit under our core exchange programs.\n\n\n\n\n\n\n\n\nRevenue Recognition; General Right of Return\n\n\n\n\n\n\nCustomers are allowed to return goods that their end-user customers have returned to them, whether or not the returned item is defective (warranty returns). In addition, under the terms of certain agreements and\n          industry practice, customers from time to time are allowed stock adjustments when their inventory of certain product lines exceeds the anticipated sales to end-user customers (stock adjustment returns). Customers have various contractual rights\n          for stock adjustment returns, which are typically less than 5% of units sold. In some instances, a higher level of returns is allowed in connection with significant restocking orders. The aggregate returns are generally limited to less than 20%\n          of unit sales.\n\n\n\n\n\n\n\n\n\n\nThe allowance for warranty returns is established based on a historical analysis of the level of this type of return as a percentage of total unit sales. The allowance for stock adjustment returns is based on specific\n          customer inventory levels, inventory movements, and information on the estimated timing of stock adjustment returns provided by customers. Stock adjustment returns do not occur at any specific time during the year. The return rate for stock\n          adjustments is calculated based on expected returns within the normal operating cycle, which is generally one year.\n\n\n\n\n\n\n\n\nThe Unit Value of the warranty and stock adjustment returns are treated as reductions of revenue based on the estimations made at the time of the sale. The Remanufactured Core value of warranty and stock adjustment\n        returns are provided for as indicated in the paragraph \u201cRevenue Recognition \u2013 Core Exchange Programs\u201d.\n\n\n\n\n\n\nAs is standard in the industry, we only accept returns from on-going customers. If a customer ceases doing business with us, we have no further obligation to accept additional product returns from that customer. Similarly, we accept product\n        returns and grant appropriate credits to new customers from the time the new customer relationship is established.\n\n\n \n\n\n\n\n\n\n31\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\nContract Liability\n\n\n\n\n\n\nContract liability consists of: (i) customer allowances earned, (ii) accrued core payments, (iii) customer core returns accruals, (iv) core bank liability, (v) finished goods liabilities, and (vi) customer deposits.\n\n\n\n\n\n\n\n\n\n\nCustomer allowances earned includes all marketing allowances provided to customers. Such allowances include sales incentives and concessions. Voluntary marketing allowances related to a single exchange of product are\n          recorded as a reduction of revenues at the time the related revenues are recorded or when such incentives are offered. Other marketing allowances, which may only be applied against future purchases, are recorded as a reduction to revenues in\n          accordance with a schedule set forth in the relevant contract. Sales incentive amounts are recorded based on the value of the incentive provided. Customer allowances to be provided to customers within our normal operating cycle, which is\n          generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term contract liabilities.\n\n\n\n\n\n\nAccrued core payments represent the sales price of Remanufactured Cores purchased from customers, generally in connection with new business, which are held by these customers and remain on their premises. The sales\n          price of these Remanufactured Cores will be realized when our relationship with a customer ends, a possibility that we consider remote based on existing long-term customer agreements and historical experience. The payments to be made to customers\n          for purchases of Remanufactured Cores within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term contract liabilities.\n\n\n\n\n\n\nCustomer core returns accruals represent the full and nominally priced Remanufactured Cores shipped to our customers. When we ship product, we recognize an obligation to accept a similar Used Core sent back under the\n          core exchange programs based upon the Remanufactured Core price agreed upon by us and our customer. The contract liability related to Used Cores returned by consumers to our customers but not yet returned to us are classified as short-term\n          contract liabilities until we physically receive these Used Cores as they are expected to be returned during our normal operating cycle, which is generally one year and the remainder are recorded as long-term contract liabilities.\n\n\n\n\n\n\nThe core bank liability represents the full Remanufactured Core sales price for cores returned under our core exchange programs. The payment for these returned cores are made over a contractual repayment period pursuant\n          to our agreement with this customer. Payments to be made within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term contract liabilities.\n\n\n\n\n\n\nFinished goods liabilities represents the agreed upon price of finished goods acquired from customers, generally in connection with new business. The payment for these finished goods are made over a contractual\n          repayment period pursuant to our agreement with the customer. Payments to be made within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term contract\n          liabilities.\n\n\n\n\n\n\nCustomer deposits represent the receipt of prepayments from customers for the obligation to transfer goods or services in the future. We classify these customer deposits as short-term contract liabilities as we expect\n          to satisfy these obligations within our normal operating cycle, which generally one year.\n\n\n\n\n\n\n\n\nCustomer Finished Goods Returns Accrual\n\n\n\n\n\n\nThe customer finished goods returns accrual represents our estimate of our exposure to customer returns, including warranty returns, under our general right of return policy to allow customers to return items that their end user customers have\n        returned to them and from time to time, stock adjustment returns when the customers\u2019 inventory of certain product lines exceeds the anticipated sales to end-user customers. The customer finished goods returns accrual represents the Unit Value of\n        the estimated returns and is classified as a current liability due to the expectation that these returns will occur within the normal operating cycle of one year. Our customer finished goods returns accrual was $37,984,000 and $38,086,000 at March\n        31, 2023 and 2022, respectively. The change in the customer finished goods returns accrual primarily resulted from the timing of returned goods authorizations (\u201cRGAs\u201d) issued at March 31, 2023 compared with March 31, 2022.\n\n\n \n\n\n\n\n\n\n32\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nIncome Taxes\n\n\n\n\n\n\nWe account for income taxes using the liability method, which measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their\n        reported amounts in the financial statements. The resulting asset or liability is adjusted to reflect changes in the tax laws as they occur. A valuation allowance is provided to reduce deferred tax assets when it is more likely than not that a\n        portion of the deferred tax asset will not be realized.\n\n\n\n\n\n\nRealization of deferred tax assets is dependent upon our ability to generate sufficient future taxable income. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any\n        valuation allowance recorded against our net deferred tax assets. We make these estimates and judgments about our future taxable income that are based on assumptions that are consistent with our future plans. A valuation allowance is established\n        when we believe it is not more likely than not all or some of a deferred tax assets will be realized. In evaluating our ability to recover deferred tax assets within the jurisdiction in which they arise, we consider all available positive and\n        negative evidence. Deferred tax assets arising primarily as a result of net operating loss carry-forwards and research and development credits in connection with our Canadian operations have been offset completely by a valuation allowance due to\n        the uncertainty of their utilization in future periods. Should the actual amount differ from our estimate, the amount of our valuation allowance could be impacted.\n\n\n\n\n\n\nWe have made an accounting policy election to recognize the U.S. tax effects of global intangible low-taxed income as a component of income tax expense in the period the tax arises.\n\n\n\n\n\n\nResults of Operations\n\n\n\n\n\n\nThe following discussion and analysis should be read together with the financial statements and notes thereto appearing elsewhere herein.\n\n\n\n\n\n\nThe following summarizes certain key operating consolidated data for the periods indicated:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFiscal Years Ended March 31,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n 2023\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2021\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nCash flows (used in) provided by operations\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n(21,754,000\n\n\n\n\n\n\n)\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n(44,862,000\n\n\n\n\n\n\n)\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n56,089,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nFinished goods turnover (1)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n3.6\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n3.8\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n4.1\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n(1)\n\n\n\n\nFinished goods turnover is calculated by dividing the cost of goods sold for the year by the average between beginning and ending non-core finished goods inventory values, for each fiscal year. We believe that this provides a useful\n                measure of our ability to turn our inventory into revenues. Our finished goods turnover for fiscal 2023 was impacted by our investment in inventory during the prior year to address disruptions related to the worldwide supply chain and\n                logistics challenges to meet higher anticipated future sales.\n\n\n\n\n\n\n\n\n \n\n\n\n\n\n\n33\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nFiscal 2023 Compared with Fiscal 2022\n\n\n\n\n\n\nNet Sales and Gross Profit\n\n\n\n\n\n\nThe following summarizes net sales and gross profit:\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFiscal Years Ended March 31,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n 2023\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNet sales\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n683,074,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n650,308,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nCost of goods sold\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n569,112,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n532,443,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGross profit\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n113,962,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n117,865,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGross profit percentage\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n16.7\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n18.1\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet Sales\n. Our consolidated net sales for the year ended March 31, 2023 were $683,074,000, which represents an increase of $32,766,000, or 5.0%, from the year ended March 31, 2022 of $650,308,000. The\n        prior year\u2019s net sales was positively impacted by $13,327,000 in core revenue due to a realignment of inventory at certain customer distribution centers. This increase in net sales for the year ended March 31, 2023 primarily reflects growing sales\n        of our brake-related products and higher sales of our rotating electric products, partially offset by disruptions to global supply chain and logistics services and inventory reduction initiatives from one of our largest customers.\n\n\n\n\n\n\nThe following summarizes consolidated net sales by product mix:\n\n\n \n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nYears Ended March 31,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n 2023\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nRotating electrical products\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n67\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n69\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nWheel hub products\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n11\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n13\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nBrake-related products\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n18\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n15\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nOther products\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n4\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n3\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n100\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n100\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nGross Profit. \nOur consolidated gross profit was $113,962,000, or 16.7% of consolidated net sales, for the year ended March 31, 2023 compared with $117,865,000, or 18.1% of\n        consolidated net sales, for the year ended March 31, 2022. Our gross margin for the year ended March 31, 2023 reflects (i) higher per unit costs resulting from absorption of overhead costs as we manage our inventory levels, (ii) higher costs due to\n        disruptions to the global supply chain, logistics services, related higher freight costs, higher wages, (iii) impact of core revenue in the prior period due to a realignment of inventory at certain customer distribution centers, and (iv) changes in\n        product mix.\n\n\n\n\n\n\n\n\nOur gross margin for the years ended March 31, 2023 and 2022 was impacted by (i) higher freight costs, net of certain price increases, of $3,290,000, and $9,135,000, respectively, (ii) additional expenses due to certain\n          costs for disruptions in the supply chain of $8,195,000 and $8,759,000, respectively, (iii) amortization of core and finished goods premiums paid to customers related to new business of $11,791,000\n\u00a0\nand\n          $11,960,000, respectively.\n\n\n\n\n\n\nIn addition, gross margin for the year ended March 31, 2023 was impacted by (i) non-cash quarterly revaluation of cores that are part of the finished goods on the customers\u2019 shelves (which are included in contract\n          assets) to the lower of cost or net realizable value, which resulted in a write-down of $3,736,000 and (ii) a $2,034,000 reduction of payroll expense for the ERC.\n\n\n\n\n\n\n\n\nFor the year ended March 31, 2022, gross margin was impacted by non-cash quarterly revaluation of cores that are part of the finished goods on the customers\u2019 shelves (which are included in contract assets) to the lower\n          of cost or net realizable value and gain due to realignment of inventory at certain customer distribution centers, which resulted in a net gain of $75,000. Gross margin for the year ended March 31, 2022 was further impacted by transition expenses\n          in connection with the expansion of our brake-related operations in Mexico of $2,744,000.\n\n\n \n\n\n\n\n\n\n\n\n34\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nOperating Expenses\n\n\n\n\n\n\nThe following summarizes consolidated operating expenses:\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFiscal Years Ended March 31,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n 2023\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGeneral and administrative\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n54,756,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n57,499,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nSales and marketing\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n21,729,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n22,833,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nResearch and development\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n10,322,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n10,502,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nForeign exchange impact of lease liabilities and forward contracts\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(9,291,000\n\n\n\n\n\n\n)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(1,673,000\n\n\n\n\n\n\n)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nPercent of net sales\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGeneral and administrative\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n8.0\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n8.8\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nSales and marketing\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n3.2\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n3.5\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nResearch and development\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n1.5\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.6\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nForeign exchange impact of lease liabilities and forward contracts\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(1.4\n\n\n\n\n\n\n)%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(0.3\n\n\n\n\n\n\n)%\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nGeneral and Administrative.\n Our general and administrative expenses for fiscal 2023 were $54,756,000, which represents a decrease of $2,743,000, or 4.8%, from fiscal 2022 of $57,499,000. The decrease in\n        general and administrative expense during fiscal 2023 was primarily due to (i) $3,743,000 of decreased employee incentives as no bonuses were recorded for fiscal 2023, (ii) $2,602,000 of decreased share-based compensation in connection with equity\n        grants made to employees, and (iii) a $1,377,000 reduction of payroll expense for the ERC. These decreases were partially offset by (i) $1,640,000 of increased expense resulting from foreign currency transactions, (ii) $1,562,000 of increased\n        severance expense due to headcount reduction, (iii) $920,000 of increased employee-related expense at our offshore locations, (iv) $403,000 of increased information technology costs in connection with cybersecurity and other productivity tools, and\n        (v) $346,000 of increased professional services.\n\n\n\n\n\n\nSales and Marketing\n. Our sales and marketing expenses for fiscal 2023 were $21,729,000, which represents a decrease of $1,104,000, or 4.8%, from fiscal 2022 of $22,833,000. This decrease in sales and\n        marketing expense during fiscal 2023 was primarily due to (i) $1,359,000 of decreased employee-related expenses (including a $968,000 reduction of payroll expense for the ERC) due to our cost-cutting measures and (ii) $535,000 of decreased\n        marketing and advertising expenses. These decreases were partially offset by (i) $359,000 of increased trade shows as normal business expenses resumed, (ii) $370,000 of increased travel costs as some business travel resumed, and (iii) $171,000 of\n        increased commissions due to higher sales.\n\n\n\n\n\n\nResearch and Development\n. Our research and development expenses for fiscal 2023 were $10,322,000, which represents a decrease of $180,000, or 1.7%, from fiscal 2022 of $10,502,000. This decrease in\n        research and development expenses during fiscal 2023 was primarily due to (i) a $725,000 reduction of payroll expense related to the ERC and (ii) $265,000 of decreased outside services. These decreases were partially offset by (i) $558,000 of\n        increased samples for our core library and other research and development supplies and (ii) $238,000 of increased employee-related expenses.\n\n\n\n\n\n\nForeign Exchange Impact of Lease Liabilities and Forward Contracts\n. Our foreign exchange impact of lease liabilities and forward contracts for the years ended March 31, 2023 and 2022 were non-cash gains\n        of $9,291,000 and $1,673,000, respectively. This change was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in non-cash gains of $6,515,000 and $1,989,000 for the years ended March 31,\n        2023 and 2022, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in a non-cash gain of $2,776,000 compared with a non-cash loss of $316,000 for the years ended\n        March 31, 2023 and 2022, respectively, due to the changes in their fair values.\n\n\n \n\n\n\n\n\n\n35\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nOperating Income\n\n\n\n\n\n\nConsolidated Operating Income\n. Our consolidated operating income for the year ended March 31, 2023 was $36,446,000, which represents an increase of $7,742,000, or 27.0%, from the year ended March 31, 2022\n        of $28,704,000. Operating income increased primarily due to increased non-cash gains from the foreign exchange impact of lease liabilities and forward contracts and lower operating expenses, which were partially offset by lower gross profit as\n        discussed above.\n\n\n\n\n\n\nInterest Expense\n\n\n\n\n\n\nInterest Expense, net. \nOur interest expense for the year ended March 31, 2023 was $39,555,000, which represents an increase of $24,000,000, or 154.3%, from interest expense for\n        the year ended March 31, 2022 of $15,555,000. Approximately 86% of this increase was due to higher interest rates on our borrowing and accounts receivable discount programs, which have variable interest rates. In addition, during the year ended\n        March 31, 2023, utilization of our accounts receivable discount programs and our average borrowing under our credit facility increased.\n\n\n\n\n\n\nProvision for Income Taxes\n\n\n\n\n\n\nIncome Tax\n. We recorded an income tax expense of $1,098,000, or an effective tax rate of (35.3)%, and income tax expense of $5,788,000, or an effective tax rate of 44.0%, for\n        fiscal 2023 and 2022, respectively. The effective tax rate for year ended March 31, 2023, was primarily impacted by (i) specific jurisdictions that we do not expect to recognize the benefit of losses, (ii) foreign income taxed at rates that are\n        different from the federal statutory rate, and (iii) non-deductible executive compensation under Internal Revenue Code Section 162(m).\n\n\n\n\n\n\nFiscal 2022 Compared with Fiscal 2021\n\n\n\n\n\n\nNet Sales and Gross Profit\n\n\n\n\n\n\nThe following summarizes net sales and gross profit:\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFiscal Years Ended March 31,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n 2022\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2021\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNet sales\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n650,308,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n540,782,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nCost of goods sold\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n532,443,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n431,321,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGross profit\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n117,865,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n109,461,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGross profit percentage\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n18.1\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n20.2\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nNet Sales\n. Our consolidated net sales for fiscal 2022 were $650,308,000, which represents an increase of $109,526,000, or 20.3%, from fiscal 2021 of $540,782,000. While our net sales increased across all\n        product lines due to strong demand for our products, we continued to experience a number of challenges related to the global COVID-19 pandemic, including disruptions with worldwide supply chain and logistics services during both periods. Net sales\n        for fiscal 2022 and 2021 include $13,327,000 and $12,779,000, respectively, in core revenue due to a realignment of inventory at certain customer distribution centers.\n\n\n \n\n\n\n\n\n\n36\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nThe following summarizes sales mix:\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nYears Ended March 31,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n 2022\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2021\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nRotating electrical products\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n69\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n73\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nWheel hub products\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n13\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n15\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nBrake-related products\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n15\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n10\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nOther products\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n3\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n100\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n100\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\n\nGross Profit. \nOur gross profit increased $8,404,000, or 7.7%, to $117,865,000 for fiscal 2022 from $109,461,000 for fiscal 2021. Our gross profit increased due to strong demand\n          across all product lines. Our consolidated gross margin was 18.1% of net sales for fiscal 2022 compared with 20.2% of net sales for fiscal 2021. The decrease in our gross margin was primarily due to inflationary costs related to the global\n          pandemic, including disruptions with worldwide supply chain, logistics services, and related higher freight costs. During fiscal 2022 and 2021, higher freight costs, net of certain price increases that went into effect during the latter part of\n          the current year, impacted gross margin by approximately $9,135,000, and $1,785,000, respectively. During fiscal 2022, we also incurred additional expenses of $8,759,000 due to COVID-19 related costs for disruptions in the supply chain, increased\n          salaries associated with COVID-19 vulnerable employee pay, and personal protective equipment. During fiscal 2021, we incurred additional expenses of $5,268,000 due to increased salaries associated with COVID-19 bonuses, vulnerable employee pay,\n          and personal protective equipment in connection with the COVID-19 pandemic.\n\n\n\n\n\n\n\n\n\n\nOur gross margin for fiscal 2022 and 2021 was also impacted by (i) transition expenses in connection with the expansion of our brake-related operations in Mexico of $2,744,000 and $16,353,000, respectively, and (ii)\n          amortization of core and finished goods premiums paid to customers related to new business of $11,960,000\n\u00a0\nand $6,691,000, respectively. Expansion of our brake-related operations in Mexico was completed\n          during the second quarter of fiscal 2022.\n\n\n\n\n\n\nIn addition, gross margin was impacted by (i) non-cash quarterly revaluation of cores that are part of the finished goods on the customers\u2019 shelves (which are included in contract assets) to the lower of cost or net\n          realizable value and gain due to realignment of inventory at customer distribution centers, which resulted in a net gain of $75,000 and net write-down of $209,000 for fiscal 2022 and 2021, respectively, (ii) customer allowances and return\n          accruals related to new business of $307,000 recorded during fiscal 2021, (iii) net tariff costs of $332,000 not passed through to customers for fiscal 2021, and (iv) a $3,561,000 benefit for revised tariff costs recorded during fiscal 2021.\n\n\n \n\n\n\n\n\n\n\n\n37\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nOperating Expenses\n\n\n\n\n\n\nThe following summarizes consolidated operating expenses:\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFiscal Years Ended March 31,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n 2022\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2021\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGeneral and administrative\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n57,499,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n53,847,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nSales and marketing\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n22,833,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n18,024,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nResearch and development\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n10,502,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n8,563,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nForeign exchange impact of lease liabilities and forward contracts\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(1,673,000\n\n\n\n\n\n\n)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(17,606,000\n\n\n\n\n\n\n)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nPercent of net sales\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGeneral and administrative\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n8.8\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n10.0\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nSales and marketing\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n3.5\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n3.3\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nResearch and development\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n1.6\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n1.6\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nForeign exchange impact of lease liabilities and forward contracts\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(0.3\n\n\n\n\n\n\n)%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(3.3\n\n\n\n\n\n\n)%\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nGeneral and Administrative.\n Our general and administrative expenses for fiscal 2022 were $57,499,000, which represents an increase of $3,652,000, or 6.8%, from fiscal 2021 of $53,847,000, however, general\n        and administrative expenses as a percentage of net sales decreased to 8.8% for fiscal 2022 from 10.0% for the prior year. The increase in general and administrative expense was primarily due to (i) $2,040,000 of increased share-based compensation\n        due to equity grants made to employees in fiscal 2022, (ii) $353,000 of increased employee related expenses, primarily due to the reinstatement of salary reductions in the prior year in response to the COVID-19 pandemic, (iii) $905,000 of decreased\n        gain resulting from foreign currency transactions, (iv) $705,000 of increased costs at our offshore locations, (vi) $305,000 of increased information technology costs in connection with cybersecurity and other productivity tools, and (vii) $292,000\n        of increased general insurance costs. These increases in general and administrative expenses were partially offset by $1,329,000 of decreased professional services.\n\n\n\n\n\n\nSales and Marketing\n. Our sales and marketing expenses for fiscal 2022 were $22,833,000, which represents an increase of $4,809,000, or 26.7%, from fiscal 2021 of $18,024,000. This increase in sales and\n        marketing expense during fiscal 2022 was primarily due to (i) $1,500,000 of increased commissions due to higher sales, (ii) $1,304,000 of increased employee related expenses, primarily due to the reinstatement of salary reductions in the prior year\n        in response to the COVID-19 pandemic and increased headcount in the current year, (iii) $1,027,000 of increased marketing in connection with new business and advertising expense, (iv) $501,000 of increased travel as normal business operations\n        resume, and (v) $261,000 of increased trade shows expense as normal business operations resume.\n\n\n\n\n\n\nResearch and Development\n. Our research and development expenses for fiscal 2022 were $10,502,000, which represents an increase of $1,939,000, or 22.6%, from fiscal 2021 of $8,563,000. This increase in\n        research and development expenses during fiscal 2022 was primarily due to (i) $1,274,000 of increased employee related expenses, primarily due to the reinstatement of salary reductions in the prior year in response to the COVID-19 pandemic and\n        increased headcount during the current year, (ii) $504,000 of increased outside services primarily due to development projects, and (iii) $110,000 of increased samples for our core library and other research and development supplies.\n\n\n\n\n\n\nForeign Exchange Impact of Lease Liabilities and Forward Contracts\n. Our foreign exchange impact of lease liabilities and forward contracts for fiscal 2022 was a non-cash gain of $1,673,000 compared with a\n        non-cash gain for fiscal 2021 of $17,606,000. This change in gain was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities which resulted in non-cash gains of $1,989,000 compared with $9,893,000 for fiscal\n        2022 and 2021, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts which resulted in a non-cash loss of $316,000 compared with a non-cash gain of $7,713,000 for fiscal 2022 and\n        2021, respectively, due to the changes in their fair values.\n\n\n \n\n\n\n\n\n\n38\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nOperating Income\n\n\n\n\n\n\nConsolidated Operating Income\n. Our consolidated operating income for the year ended March 31, 2022 was $28,704,000, which represents a decrease of $17,929,000, or 38.4%, from the year ended March 31, 2021\n        of $46,633,000. Operating income decreased primarily due to decreased non-cash gains from foreign exchange impact of lease liabilities and forward contracts and increased operating expenses, which were partially offset by increased gross profit as\n        discussed above.\n\n\n\n\n\n\nInterest Expense\n\n\n\n\n\n\nInterest Expense, net. \nOur interest expense, net for fiscal 2022 was $15,555,000, which represents a decrease of $215,000, or 1.3%, from fiscal 2021 of $15,770,000. The decrease\n        in interest expense was primarily due to lower interest rates on our accounts receivable discount programs partially offset by increased borrowing under our credit facility.\n\n\n\n\n\n\nProvision for Income Taxes\n\n\n\n\n\n\nIncome Tax\n. We recorded income tax expense of $5,788,000, or an effective tax rate of 44.0%, for fiscal 2022 and $9,387,000, or an effective tax rate of\n          30.4%, for fiscal 2021. The effective tax rate for fiscal 2022 was primarily impacted by (i) non-deductible executive compensation under Internal Revenue Code Section 162(m), (ii) \nincome taxes associated with uncertain tax positions\n, (iii) specific jurisdictions that we do not expect to recognize the benefit of losses, and (iv) foreign income taxed at rates that are different from the federal statutory rate.\n\n\n\n\n\n\nLiquidity and Capital Resources\n\n\n\n\n\n\nOverview\n\n\n\n\n\n\nWe had working capital (current assets minus current liabilities) of $154,886,000 and $110,580,000, a ratio of current assets to current liabilities of 1.4:1.0 at March 31, 2023 and 1.3:1.0 at March 31, 2022. The increase in working capital\n        resulted primarily from (i) lower accounts payable balances, (ii) the pay down of our revolving loans from the net proceeds received from the issuance of $32,000,000 in convertible notes, (iii) higher accounts receivable, which resulted from higher\n        net sales for fiscal 2023, and (iv) a reduction of inventory that was built-up in the prior year to meet customer demand.\n\n\n\n\n\n\nOur primary source of liquidity was from the use of our receivable discount programs, credit facility, and issuance of convertible notes during fiscal 2023. In addition, we have access to our existing cash, as well as our available credit\n        facilities to meet short-term liquidity needs. We believe our cash and cash equivalents, use of receivable discount programs, amounts available under our credit facility, and other sources are sufficient to satisfy our expected future working\n        capital needs, repayment of the current portion of our term loans, and lease and capital expenditure obligations over the next 12 months.\n\n\n\n\n\n\nOn March 31, 2023, we issued $32,000,000 aggregate principal amount of convertible notes in a private placement offering. The convertible notes bear interest at a rate of 10% per year. \nThe convertible notes may\n          either be redeemed for cash, converted into shares of our common stock, or a combination thereof, at our election. The aggregate proceeds from the offering were approximately $\n31,280,000\n, net initial\n          purchasers\u2019 fees and other related expenses. The notes will mature on March 30, 2029, unless earlier converted, repurchased or redeemed.\n\n\n \n\n\n\n\n\n\n39\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nCash Flows\n\n\n\n\n\n\nThe following summarizes cash flows as reflected in the consolidated statements of cash flows:\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFiscal Years Ended March 31,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n 2023\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2021\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nCash (used in) provided by:\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nOperating activities\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n(21,754,000\n\n\n\n\n\n\n)\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n(44,862,000\n\n\n\n\n\n\n)\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n56,089,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nInvesting activities\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(4,191,000\n\n\n\n\n\n\n)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(7,938,000\n\n\n\n\n\n\n)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(14,214,000\n\n\n\n\n\n\n)\n\n\n\n\n\n\n\n\n\n\nFinancing activities\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n14,308,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n60,215,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(76,567,000\n\n\n\n\n\n\n)\n\n\n\n\n\n\n\n\n\n\nEffect of exchange rates on cash and cash equivalents\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n217,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n78,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n599,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNet (decrease) increase in cash and cash equivalents\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n(11,420,000\n\n\n\n\n\n\n)\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n7,493,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n(34,093,000\n\n\n\n\n\n\n)\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nAdditional selected cash flow data:\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nDepreciation and amortization\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n12,444,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n12,886,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n11,144,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nCapital expenditures\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n4,201,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n7,550,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n13,942,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\nFiscal 2023 Compared with Fiscal 2022\n\n\n\n\n\n\nNet cash used in operating activities was $21,754,000 and $44,862,000 for fiscal 2023 and 2022, respectively. The significant change in our operating activities was due primarily to (i) a reduction of inventory that was built-up in the prior\n        year to meet customer demand, (ii) a reduction of accounts payable balances due to lower purchases as we continue to manage our inventory levels, and (iii) increased sales for fiscal 2023 compared with fiscal 2022, resulting in a higher accounts\n        receivable balance which will be collected in future periods. We continue to manage our working capital to maximize our operating cash flow.\n\n\n\n\n\n\nNet cash used in investing activities was $4,191,000 and $7,938,000 for fiscal 2023 and 2022, respectively. The change in our investing activities primarily resulted from decreased capital expenditures due to the completion of our expansion of\n        our brake-related operations in Mexico during the second quarter of fiscal 2022.\n\n\n\n\n\n\nNet cash provided by financing activities was $14,308,000 and $60,215,000 for fiscal 2023 and 2022, respectively. The significant change in our financing activities was due mainly to net repayments under our credit facility during fiscal 2023\n        compared to net borrowings under our credit facility during fiscal 2022 to support the investment in our inventory partially offset by $32,000,000 in proceeds less debt issuance costs from the issuance of our convertible notes during fiscal 2023.\n        In addition, we repurchased 106,486 shares of our common stock for $1,914,000 during fiscal 2022.\n\n\n\n\n\n\nFiscal 2022 Compared with Fiscal 2021\n\n\n\n\n\n\nNet cash used in operating activities was $44,862,000 for fiscal 2022 compared with net cash provided by operating activities of $56,089,000 for fiscal 2021. The significant change in our operating activities was due\n        primarily to (i) increased sales for fiscal 2022 compared with fiscal 2021, resulting in a higher accounts receivable balance which will be collected in future periods and (ii) higher inventory purchases during the current year compared with the\n        prior year as we increased our inventory levels as a result of disruptions with worldwide supply chain and logistics services to meet higher anticipated sales, however, our days payable outstanding did not increase proportionately to our purchases\n        during the current year as compared with the prior year. Our operating results (net income plus the net add-back for non-cash transactions in earnings) were higher during fiscal 2022 as compared with fiscal 2021.\n\n\n\n\n\n\nNet cash used in investing activities was $7,938,000 and $14,214,000 for fiscal 2022 and 2021, respectively. The significant change in our investing activities was due primarily to decreased capital expenditures in\n        connection with the completion of our expansion of our brake-related operations in Mexico during the second quarter of fiscal 2022.\n\n\n\n\n\n\nNet cash provided by financing activities was $60,215,000 for fiscal 2022 compared with net cash used in financing activities $76,567,000 for fiscal 2021. The significant change in our financing activities was due mainly\n        to additional net borrowings under our credit facility during fiscal 2022 to support the investment in our inventory compared with repayments under our credit facility during fiscal 2021.\n\n\n \n\n\n\n\n\n\n40\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nCapital Resources\n\n\n\n\n\n\nCredit Facility\n\n\n\n\n\n\nWe are party to a $268,620,000 senior secured financing, (as amended from time to time, the \u201cCredit Facility\u201d) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $238,620,000 revolving\n        loan facility, subject to borrowing base restrictions, a $24,000,000 sublimit for borrowings by Canadian borrowers, and a $20,000,000 sublimit for letters of credit (the \u201cRevolving Facility\u201d) and (ii) a $30,000,000 term loan facility (the \u201cTerm\n        Loans\u201d). The loans under the Credit Facility mature on May 28, 2026. The Credit Facility currently permits the payment of up to $29,043,000 of dividends and share repurchases for fiscal year 2023, subject to pro forma compliance with financial\n        covenants. In connection with the Credit Facility, the lenders have a security interest in substantially all of our assets.\n\n\n\n\n\n\nThe Term Loans require quarterly principal payments of $937,500. The Credit Facility bears interest at rates equal to either SOFR (as defined below) plus a margin of 2.75%, 3.00% or 3.25% or a reference rate plus a margin of 1.75%, 2.00% or\n        2.25%, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.375% to 0.50%, depending on the senior leverage ratio as of the applicable measurement date. The interest rate on\n        our Term Loans and Revolving Facility was 8.02% and 8.13%, respectively, at March 31, 2023, and 2.99% and 3.13%, respectively, at March 31, 2022.\n\n\n\n\n\n\nThe Credit Facility, among other things, requires us to maintain certain financial covenants -- including a maximum senior leverage ratio and a minimum fixed charge coverage ratio. In addition, the Credit Facility places\n        limits on our ability to incur liens, incur additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales, redeem, or repurchase capital stock, alter the business conducted by us and our\n        subsidiaries, transact with affiliates, prepay, redeem, or purchase subordinated debt, and amend or otherwise alter debt agreements.\n\n\n\n\n\n\n\n\nOn November 3, 2022, we entered into a fourth amendment to the Credit Facility, which among other things, (i) modified the fixed charge coverage ratio financial covenant for the fiscal quarters ending September 30, 2022\n          and December 31, 2022, (ii) modified the total leverage ratio financial covenant for the quarter ending September 30, 2022, (iii) modified the definition of \u201cConsolidated EBITDA\u201d, and (iv) replaced LIBOR as the benchmark rate with a replacement\n          benchmark based on the Secured Overnight Financing Rate (\u201cSOFR\u201d) effective November 3, 2022. The modifications to the financial covenants were effective as of September 30, 2022.\n\n\n\n\n\n\n\n\nAs of December 31, 2022, we identified certain defaults with respect to the Credit Facility, which arose from non-compliance with certain financial covenants. On February 3, 2023, we entered into the fifth amendment,\n        which among other things, (i) waived certain existing defaults and events of defaults arising from non-compliance with the fixed charge coverage ratio and senior leverage ratio financial covenants as of the end of the fiscal quarter ended December\n        31, 2022, (ii) modified the fixed charge coverage ratio and senior leverage ratio financial covenant levels for the quarters ending March 31, 2023 and June 30, 2023, (iii) modified the definitions of \u201cApplicable Margin\u201d and \u201cConsolidated EBITDA\u201d,\n        and (iv) added a new minimum undrawn availability financial covenant.\n\n\n\n\n\n\nOn March 31, 2023, we entered into a sixth amendment to the Credit Facility, which among other things, (i) permitted the issuance of the Convertible Notes (as defined below), (ii) amended the definition of Consolidated\n        EBITDA, and (iii) amended certain component definitions used in calculating the senior leverage ratio financial covenant to exclude the Convertible Notes (as defined below).\n\n\n\n\n\n\nWe were in compliance with all financial covenants as of March 31, 2023.\n\n\n\n\n\n\nWe had $145,200,000 and $155,000,000 outstanding under the Revolving Facility at March 31, 2023 and 2022, respectively. In addition, $6,370,000 was reserved for letters of credit at March 31, 2023. At March 31, 2023,\n        after certain adjustments, $87,050,000 was available under the Revolving Facility.\n\n\n \n\n\n\n\n\n\n41\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nConvertible Notes\n\n\n\n\n\n\nOn March 31, 2023, we entered into a note purchase agreement (the \u201cNote Purchase Agreement\u201d) with Bison Capital Partners VI, L.P. and Bison Capital Partners VI-A, L.P. (collectively, the \u201cPurchasers\u201d) and Bison Capital\n        Partners VI, L.P., as the purchaser representative (the \u201cPurchaser Representative\u201d) for the issuance and sale of $32,000,000 in aggregate principal amount of convertible notes due in 2029 (the \u201cConvertible Notes\u201d) to be used for general corporate\n        purposes.\u00a0 The Convertible Notes bear interest at a rate of 10.0% per annum, compounded annually, and payable (i) in kind or (ii) in cash, annually in arrears on April 1 of each year, commencing on April 1, 2024. On June 8, 2023, we entered into\n        the first amendment to the Note Purchase Agreement, which among other things, removed a provision that specified the Purchasers would be entitled to receive a dividend or distribution payable in certain circumstances. This amendment was effective\n        as of March 31, 2023.\n\n\n\n\n\n\nThe aggregate proceeds from the offering were approximately $31,280,000, net of initial purchasers\u2019 fees and other related expenses. The initial conversion rate is 66.6667 shares of our common stock per $1,000 principal\n        amount of notes (equivalent to an initial conversion price of approximately $15.00 per share of common stock). At March 31, 2023, we had 28,650,590 shares of our common stock available to be issued if the Convertible Notes were converted.\n\n\n\n\n\n\nIn connection with the Note Purchase Agreement, we entered into common stock warrants (the \u201cWarrants\u201d) with the Purchasers, which mature on March 30, 2029. The Warrants do not become exercisable unless a Company\n        Redemption (as defined below) occurs and the volume weighted average price of our common stock for 20 consecutive days prior to the redemption is less than $15.00. The fair value of the Warrants, using Level 3 inputs and the Monte Carlo simulation\n        model, was zero at March 31, 2023. We estimate the fair value of the Warrants at each balance sheet date. Any subsequent changes from the initial recognition in the fair value of the Warrants will be recorded in current period earnings in the\n        consolidated statements of operations.\n\n\n\n\n\n\nThe Convertible Notes may be converted, subject to certain conditions, at a conversion price of approximately $15.00 (the \u201cConversion Option\u201d). The Convertible Notes also include a provision for a return of interest\n        (\u201cReturn of Interest\u201d), which requires the Purchasers to return 15.0% of the interest paid to us in certain circumstances. The Return of Interest provision is accounted for as part of the Conversion Option and if the Conversion Option is exercised\n        in the future, the Return of Interest provision will remain outstanding until the Purchaser sells all of the underlying stock received upon conversion. Upon conversion, any value associated with the Return of Interest provision will be reflected as\n        a derivative asset upon conversion, with changes in fair value being recorded in earnings in the consolidated statements of operations until settlement in connection with the sale of the underlying stock by the Purchaser.\u00a0 Unless and until we\n        deliver a redemption notice, the Purchasers of the Convertible Notes may convert their Convertible Notes at any time at their option. Upon conversion, the Convertible Notes will be settled in shares of our common stock. The conversion rate and\n        conversion price are subject to customary adjustments upon the occurrence of certain events. The Convertible Notes have a stated maturity of March 30, 2029, subject to earlier conversion or redemption in accordance with their terms.\n\n\n\n\n\n\nIf there is a Fundamental Transaction, as defined in the Form of Convertible Promissory Note, we may redeem all or part of the Convertible Notes. Except in the case of the occurrence of a Fundamental Transaction, we may\n        not redeem the Convertible Notes prior to March 31, 2026. After March 31, 2026, we may redeem all or part of the Convertible Notes for a cash purchase (the \u201cCompany Redemption\u201d) price equal to the redemption price plus $4,000,000, but only if (i)\n        we are listed on a national exchange, (ii) there is no \u201cEvent of Default\u201d occurring and continuing and (iii) Adjusted EBITDA for the prior four quarters is greater than $80,000,000.\u00a0 The \u201cRedemption Price\u201d shall mean a cash amount equal to the\n        principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest. However, if the volume weighted average price of our common stock for 20 consecutive days prior to the notice of the Company Redemption is less than $15.00,\n        the Purchasers may exercise the warrants and we will pay the Redemption Price plus $2,000,000. However, if the volume weighted average price of our common stock is less than $8 for 20 days between March 31, 2023 and September 27, 2023, we will pay\n        the redemption price plus $5,000,000.\n\n\n\n\n\n\n\n\n42\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nThe Conversion Option and the Company Redemption both met the criteria for bifurcation from the Convertible Notes as derivatives and using the Monte Carlo simulation model were fair valued as a derivative liability of\n        $10,400,000 and an asset of $1,970,000 at March 31, 2023, respectively. The Company Redemption has been combined with the Conversion Option as a compound net derivative liability (the \u201cCompound Net Derivative Liability\u201d). The Compound Net\n        Derivative Liability has been recorded within convertible note, related party in the consolidated balance sheet at March 31, 2023. We estimate the fair value of the Compound Net Derivative Liability at each balance sheet date. Any subsequent\n        changes from the initial recognition in the fair value of the Compound Net Derivative Liability will be recorded in current period earnings in the consolidated statements of operations.\n\n\n\n\n\n\nThe Convertible Notes also contain additional features, such as, default interest and options related to a Fundamental Transaction, requiring bifurcation which were not separately accounted for as the value of such\n        features were not material at March 31, 2023. Any subsequent changes from the initial recognition in the fair value of those features will be recorded in current period earnings in the consolidated statements of operations.\n\n\n\n\n\n\nThe Convertible Notes include customary provisions relating to the occurrence of Events of Default, which include the following: (i) certain payment defaults on the Convertible Notes\u037e (ii) certain events of bankruptcy,\n        insolvency and reorganization involving us or any of our subsidiaries; (iii) the entering of one or more final judgements or orders against us or any of our subsidiaries for an aggregate payment exceeding $25,000,000; (iv) the acceleration of\n        senior debt; (v) certain failures of us to comply with certain provisions of the Note Purchase Agreement or material breaches of the Note Purchase Agreement by us or any of our subsidiaries; (vi) any material provision of the Note Purchase\n        Agreement, the Convertible Notes, the guarantee, the subordination agreement, the warrants or the registration rights agreement, for any reason, ceases to be valid and binding on us or any subsidiary, or any subsidiary shall so claim in writing to\n        challenge the validity of or our liability under the Note Purchase Agreement, the Convertible Notes, or the registration rights agreement; or (vii) we fail to maintain the listing of our capital stock on a national securities exchange. Events of\n        Default will be subject to a 30-day cure period except for those related to clause (ii) and (iv) of the preceding sentence.\n\n\n\n\n\n\nIf an Event of Default occurs and is continuing, then, we shall deliver written notice to the Purchasers within 5 business days of first learning of such Event of Default. If an Event of Default involving bankruptcy,\n        insolvency or reorganization events with respect to us (and not solely with respect to our significant subsidiary) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Convertible Notes then outstanding will\n        immediately become due and payable without any further action.\n\n\n\n\n\n\nDebt issuance costs of $1,006,000 are presented in the balance sheet as a direct deduction from the carrying amounts of the Convertible Notes at March 31, 2023. Debt issuance costs are amortized using the effective\n        interest method through the maturity of the Convertible Note and recorded in interest expense in the consolidated statements of operations. Debt issuance costs of $360,000 allocated to the Compound Net Derivative Liability were immediately expensed\n        to interest expense in the consolidated statements of operations for the year ended March 31, 2023.\n\n\n\n\n\n\nAdditionally, pursuant to the Note Purchase Agreement, subject to certain conditions, the Purchaser Representative shall have the right to nominate one director to serve (the \u201cInvestor Director\u201d) on our Board of Directors\n        (the \u201cBoard\u201d). If an Investor Director is not currently serving on the Board, and subject to certain other conditions set forth in the Note Purchase Agreement, the Purchaser Representative shall have the right to designate one person to have\n        observation rights with respect to all meetings of the Board. In connection with our entry into the Note Purchase Agreement, we have appointed Douglas Trussler to serve on our Board.\n\n\n\n\n\n\nReceivable Discount Programs\n\n\n\n\n\n\nWe use receivable discount programs with certain customers and their respective banks. Under these programs, we have options to sell those customers\u2019 receivables to those banks at a discount to be agreed upon at the time the receivables are\n        sold. These discount arrangements allow us to accelerate receipt of payment on customers\u2019 receivables. While these arrangements have reduced our working capital needs, there can be no assurance that these programs will continue in the future.\n        Interest expense resulting from these programs would increase if interest rates rise, if utilization of these discounting arrangements expands, if customers extend their payment to us, or if the discount period is extended to reflect more favorable\n        payment terms to customers.\n\n\n \n\n\n\n\n\n\n43\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nThe following is a summary of the receivable discount programs:\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFiscal Years Ended March 31,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n 2023\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nReceivables discounted\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n548,376,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n525,441,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nWeighted average days\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n328\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n336\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nWeighted average discount rate\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n5.3\n\n\n\n\n\n\n%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n1.9\n\n\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nAmount of discount as interest expense\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n26,432,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n9,197,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\nMulti-year Customer Agreements\n\n\n\n\n\n\nWe have or are renegotiating long-term agreements with many of our major customers. Under these agreements, which in most cases have initial terms of at least four years, we are designated as the exclusive or primary supplier for specified\n        categories of our products. Because of the very competitive nature of the market and the limited number of customers for these products, our customers have sought and obtained price concessions, significant marketing allowances and more favorable\n        delivery and payment terms in consideration for our designation as a customer\u2019s exclusive or primary supplier. These incentives differ from contract to contract and can include (i) the issuance of a specified amount of credits against receivables\n        in accordance with a schedule set forth in the relevant contract, (ii) support for a particular customer\u2019s research or marketing efforts provided on a scheduled basis, (iii) discounts granted in connection with each individual shipment of product,\n        and (iv) other marketing, research, store expansion or product development support. These contracts typically require that we meet ongoing performance standards.\n\n\n\n\n\n\nWhile these longer-term agreements strengthen our customer relationships, the increased demand for our products often requires that we increase our inventories and personnel. Customer demands that we purchase their Remanufactured Core inventory\n        also require the use of our working capital. The marketing and other allowances we typically grant our customers in connection with our new or expanded customer relationships adversely impact the near-term revenues, profitability and associated\n        cash flows from these arrangements. However, we believe the investment we make in these new or expanded customer relationships will improve our overall liquidity and cash flow from operations over time.\n\n\n\n\n\n\nShare Repurchase Program\n\n\n\n\n\n\nIn August 2018, our board of directors approved an increase in our share repurchase program from $20,000,000 to $37,000,000 of our common stock.\u00a0 During fiscal 2023, we did not repurchase any shares of our common stock.\u00a0 During fiscal 2022 and\n        2021, we repurchased 106,486 and 54,960 shares of our common stock, respectively, for $1,914,000 and $1,139,000, respectively. As of March 31, 2023, $18,745,000 was utilized and $18,255,000 remains available to repurchase shares under the\n        authorized share repurchase program, subject to the limit in our Credit Facility. We retired the 837,007 shares repurchased under this program through March 31, 2023. Our share repurchase program does not obligate us to acquire any specific number\n        of shares and shares may be repurchased in privately negotiated and/or open market transactions.\n\n\n\n\n\n\nCapital Expenditures and Commitments\n\n\n\n\n\n\nOur total capital expenditures, including capital leases and non-cash capital expenditures, were $4,792,000 for fiscal 2023 and $8,150,000 for fiscal 2022. These capital expenditures primarily include the purchase of equipment for our current\n        operations and the expansion of our operations in Mexico, which was completed during the second quarter of fiscal 2022. We expect to incur approximately $7,000,000 of capital expenditures primarily to support our current operations during fiscal\n        2024. We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures.\n\n\n \n\n\n\n\n\n\n44\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\nContractual Obligations\n\n\n\n\n\n\nThe following summarizes our contractual obligations and other commitments as of March 31, 2023 and the effect such obligations could have on our cash flows in future periods:\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nPayments Due by Period\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nContractual Obligations\n\n\n\n\n\u00a0\n\n\n\n\nTotal\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nLess than\n\n                  1 year\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n1 to 3\n\n                  years\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n3 to 5\n\n                  years\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nMore than 5\n\n                  years\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nFinance lease obligations (1)\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n5,008,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n2,064,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n2,406,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n532,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n6,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nOperating lease obligations (2)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n113,671,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n13,567,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n24,634,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n21,541,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n53,929,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nRevolving facility (3)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n145,200,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n145,200,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nTerm loan (4)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n14,947,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n4,655,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n8,391,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n1,901,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nConvertible notes (5)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n56,704,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n56,704,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nAccrued core payment (6)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n13,289,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n3,480,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n5,985,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n3,824,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nCore bank liability (7)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n16,148,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2,018,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n4,036,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n4,036,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n6,058,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nFinished goods liabilities (8)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n1,710,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n1,277,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n433,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nUnrecognized tax benefits (9)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n-\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nOther long-term obligations (10)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n63,976,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n14,637,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n22,226,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n19,137,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n7,976,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nTotal\n\n\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n430,653,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n41,698,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n68,111,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n196,171,000\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n$\n\n\n\n\n\n\n124,673,000\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\n\n\n\n\n\n\n(1)\n\n\n\n\nFinance lease obligations represent amounts due under finance leases for various types of equipment.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(2)\n\n\n\n\nOperating lease obligations represent amounts due for rent under our leases for all our facilities, certain equipment, and our Company automobile.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(3)\n\n\n\n\nObligations under our Revolving Facility mature on May 28, 2026. This debt is classified as a short term liability on our balance sheet as we expect to use our working capital to repay the amounts outstanding under our revolving loan.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(4)\n\n\n\n\nTerm Loan obligations represent the amounts due for principal payments as well as interest payments to be made. Interest payments were calculated based upon the interest rate for our Term Loan using the SOFR option at March 31, 2023,\n                which was 8.02%.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(5)\n\n\n\n\nObligations under our Convertible Notes mature on March 30, 2029. There are no future payments required under the Convertible Notes prior to their maturity, therefore, the carrying value of the notes plus interest payable in kind,\n                assuming no early redemption or conversion has occurred, is included in the above table based on their maturity date of March 30, 2029.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(6)\n\n\n\n\nAccrued core payment represents the amounts due for principal of $12,227,000 and interest payments of $1,062,000 to be made in connection with the purchases of Remanufactured Cores from our customers, which are held by these customers\n                and remain on their premises.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(7)\n\n\n\n\nThe core bank liability represents the amounts due for principal of $15,268,000 and interest payments of $880,000 to be made in connection with the return of Used Cores from our customers.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(8)\n\n\n\n\nFinished goods liabilities represents the amounts due for principal of $1,690,000 and interest payments of $20,000 to be made in connection with the purchase of finished goods from our customers.\n\n\n\n\n\n\n\n\n\n\n \n\n\n\n\n\n\n\n\n(9)\n\n\n\n\nWe are unable to reliably estimate the timing of future payments related to uncertain tax position liabilities at March 31, 2023; therefore, future tax payment accruals related to uncertain tax positions in the amount of $1,964,000\n                  have been excluded from the table above.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n(10)\n\n\n\n\nOther long-term obligations represent commitments we have with certain customers to provide marketing allowances in consideration for multi-year customer agreements to provide products over a defined period. We are not obligated to\n                  provide these marketing allowances should our business relationships end with these customers.\n\n\n\n\n\n\n\n\n \n\n\n\n\n\n\n\n\n45\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\n",
+  "item7a": ">Item 7A.\n\n    \n\n\nQuantitative and Qualitative Disclosures About Market Risk\n\n\n\n\n\n\n\n\nOur primary market risk relates to changes in interest rates, foreign currency exchange rates, and customer credit. We do not enter into derivatives or other financial instruments for trading or speculative purposes. As our overseas operations\n        expand, our exposure to the risks associated with foreign currency fluctuations will continue to increase.\n\n\n\n\n\n\nInterest rate risk\n\n\n\n\n\n\nWe are exposed to changes in interest rates primarily as a result of our borrowing and receivable discount programs, which have interest costs that vary with interest rate movements. Our credit facility bears interest at variable base rates,\n        plus an applicable margin. At March 31, 2023, our net debt obligations totaled $158,143,000. If interest rates were to increase 1%, our net annual interest expense on our credit facility would have increased by approximately $1,581,000. The\n        weighted average interest on our debt was 8.12% at March 31, 2023 compared to 3.12% at March 31, 2022.\u00a0 In addition, during the year ended March 31, 2023, receivables discounted were $548,376,000. For each $500,000,000 of accounts receivable we\n        discount over a period of 180 days, a 1% increase in interest rates would have increased our interest expense by $2,500,000. The weighted average discount rate on our factored receivables was 5.3% during fiscal 2023 compared with 1.9% for fiscal\n        2022.\n\n\n\n\n\n\nForeign currency risk\n\n\n\n\n\n\nWe are exposed to foreign currency exchange risk inherent in our anticipated purchases and expenses denominated in currencies other than the U.S. dollar. We transact business in the following foreign currencies; Mexican pesos, Malaysian ringgit,\n        Singapore dollar, Chinese yuan, and the Canadian dollar. Our primary currency risks result from fluctuations in the value of the Mexican peso and to a lesser extent the Chinese yuan. To mitigate these risks, we enter into forward foreign currency\n        exchange contracts to exchange U.S. dollars for these foreign currencies. The extent to which we use forward foreign currency exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of\n        anticipated requirements. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by\n        changes in exchange rates. These contracts generally expire in a year or less. Any changes in the fair values of our forward foreign currency exchange contracts are reflected in current period earnings. Based upon our forward foreign currency\n        exchange contracts related to these currencies, an increase of 10% in exchange rates at March 31, 2023 would have increased our operating expenses by approximately $4,761,000. During fiscal 2023 and fiscal 2022, a gain of $2,776,000 and a loss of\n        $316,000, respectively, was recorded due to the change in the value of the forward foreign currency exchange contracts subsequent to entering into the contracts. In addition, we recorded gains $6,515,000 and $1,989,000 in connection with the\n        remeasurement of foreign currency-denominated lease liabilities during fiscal 2023 and fiscal 2022, respectively.\n\n\n\n\n\n\nCredit Risk\n\n\n\n\n\n\nWe regularly review our accounts receivable and allowance for credit losses by considering factors such as historical experience, credit quality and age of the accounts receivable, and the current economic conditions that may affect a customer\u2019s\n        ability to pay such amounts owed to us. The majority of our sales are to leading automotive aftermarket parts suppliers. We participate in trade accounts receivable discount programs with our major customers. If the creditworthiness of any of our\n        customers was downgraded, we could be adversely affected, in that we may be subjected to higher interest rates on the use of these programs or we could be forced to wait longer for payment. Should our customers experience significant cash flow\n        problems, our financial position and results of operations could be materially and adversely affected, and the maximum amount of loss that would be incurred would be the outstanding receivable balance, Used Cores expected to be returned by\n        customers, and the value of the Remanufactured Cores held at customers\u2019 locations. We maintain an allowance for credit losses that, in our opinion, provides for an adequate reserve to cover losses that may be incurred.\n\n\n \n\n\n\n\n\n\n46\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\n",
+  "cik": "918251",
+  "cusip6": "620071",
+  "cusip": ["620071100"],
+  "names": ["MOTORCAR PTS AMER INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/918251/000114036123029664/0001140361-23-029664-index.htm"
+}
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+++ b/GraphRAG/standalone/data/all/form10k/0001171843-23-004114.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. Business\n\n\n\u00a0\n\n\nBusiness and Organization\n\n\n\u00a0\n\n\nAmerica\u2019s Car-Mart, Inc., a Texas corporation initially formed in 1981 (the \u201cCompany\u201d), is one of the largest publicly held automotive retailers in the United States focused exclusively on the \u201cIntegrated Auto Sales and Finance\u201d segment of the used car market. References to the \u201cCompany\u201d include the Company\u2019s consolidated subsidiaries. The Company\u2019s operations are principally conducted through its two operating subsidiaries, America\u2019s Car Mart, Inc., an Arkansas corporation (\u201cCar-Mart of Arkansas\u201d), and Colonial Auto Finance, Inc., an Arkansas corporation (\u201cColonial\u201d). Collectively, Car-Mart of Arkansas and Colonial are referred to herein as \u201cCar-Mart.\u201d The Company primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the Company\u2019s customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems. As of April 30, 2023, the Company operated 156 dealerships located primarily in small cities throughout the South-Central United States.\n\n\n\u00a0\n\n\nBusiness Strategy\n\n\n\u00a0\n\n\nIn general, it is the Company\u2019s objective to continue to expand its business using the same business model that has been developed and used by Car-Mart for over 40 years with enhancements to our technology and core products to better serve our customers. This business strategy focuses on:\n\n\n\u00a0\n\n\nCollecting Customer Accounts.\n Collecting customer accounts is perhaps the single most important aspect of operating an Integrated Auto Sales and Finance used car business and is a focal point for dealership level and corporate office personnel on a daily basis. The Company measures and monitors the collection results of its dealerships using internally developed delinquency and account loss standards. Substantially, all associate incentive compensation is tied directly or indirectly to collection results. The Company has a vice president of collections and support staff at the corporate level to work with field operators to improve credit results. This team monitors efficiencies and the effectiveness of account representatives as they work to improve customer success rates. The Company also utilizes several collection efforts centrally at the corporate office through texting, phone calls and other methods to supplement the field efforts. Over the last five fiscal years, the Company\u2019s annual provision for credit losses as a percentage of sales have ranged from 19.30% in fiscal 2019 to 29.20% in fiscal 2023 (average of 23.74%). During fiscal 2023, credit losses continued to normalize to pre-pandemic levels, partially due to the inflationary pressure on customers and increasing interest rates from federal monetary policy. See Item 1A, Risk Factors, for further discussion.\n\n\n\u00a0\n\n\nMaintaining a Decentralized Operation.\n The Company\u2019s dealerships operate on a decentralized basis. Each dealership is ultimately responsible for the quality of its vehicles, making sales contacts, making credit decisions, and collecting the contracts it originates in accordance with established policies and procedures. Approximately 50% of customers make their payments in person at one of the Company\u2019s dealerships. This decentralized structure is complemented by the oversight and involvement of corporate office management and the maintenance of centralized financial controls, including monitoring proprietary credit scoring, establishing standards for down-payments and contract terms, and an internal compliance function.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       5\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nExpanding Through Controlled Organic Growth and Strategic Acquisitions.\n The Company grows by increasing revenues at existing dealerships and opening or acquiring new dealerships. The Company has historically viewed organic growth at its existing dealerships as its primary source for growth. The Company continues to make infrastructure investments in order to improve performance of existing dealerships and to support growth of its customer count. The Company acquired three new dealerships during the year ending fiscal 2023 with 156 locations. The Company intends to continue to add new dealerships primarily through the pursuit of strategic acquisition opportunities that it believes will enhance its brand and maximize the return to its shareholders. The Company has successfully completed acquisitions in two of the last three fiscal years and anticipates that future acquisitions will likely contribute to its growth. These plans are subject to change based on both internal and external factors.\n\n\n\u00a0\n\n\nSelling Basic Transportation.\n The Company focuses on selling basic and affordable transportation to its customers. The Company\u2019s average retail sales price was $18,080 per unit in fiscal 2023, compared to $16,372 in fiscal 2022. Used vehicle pricing continued to increase due to the high demand and tight supply of used vehicles. In general, the demand for quality, used vehicles has increased due to a shortage of new vehicles leading to inventory constraints in both the new and used vehicle markets. Management expects continued pressure on the supply and price of used vehicles for the near term. The Company focuses on providing a quality vehicle with affordable payment terms while maintaining relatively shorter term lengths compared to others in the industry on its installment sales contracts (overall portfolio weighted average of 46.3 months).\n\n\n\u00a0\n\n\nOperating in Smaller Communities\n. As of April 30, 2023, approximately 71% of the Company\u2019s dealerships were located in cities with populations of 50,000 or less. The Company believes that by operating in smaller communities it develops strong personal relationships, resulting in better collection results. Further, the Company believes that operating costs, such as salaries, rent and advertising, are lower in smaller communities than in major metropolitan areas. As the Company builds its infrastructure and certain aspects of the business become more centralized, we may expand and operate in larger cities.\n\n\n\u00a0\n\n\nEnhanced Management Talent and Experience.\n The Company seeks to hire honest and hardworking individuals to fill entry-level positions, nurture and develop these associates, and promote them to managerial positions from within the Company. By promoting from within, the Company believes it is able to train its associates in the Car-Mart way of doing business, maintain the Company\u2019s unique culture and develop the loyalty of its associates by providing opportunities for advancement. Due to growth, the Company has, to a larger extent, also had to look outside of the Company for associates possessing requisite skills and core competencies and who share the values and appreciate the unique culture the Company has developed over the years. The Company has been able to attract quality individuals via its General Manager Recruitment and Advancement team as well as other key areas. Management has determined that it will be increasingly difficult to grow the Company without looking for outside talent. The Company\u2019s operating success has been a benefit for recruiting outside talent; however, the Company expects the hiring environment to continue to be challenging as a result of increasing wages, competition for qualified workers, and the impact of inflation on our business and operations.\n\n\n\u00a0\n\n\nCultivating Customer Relationships.\n\u00a0 The Company believes that developing and maintaining a relationship with its customers is critical to the success of the Company. A large percentage of sales at mature dealerships are made to repeat customers, and additional sales result from customer referrals. By developing a personal relationship with its customers, the Company believes it is in a better position to assist a customer, and the customer is more likely to cooperate with the Company should the customer experience financial difficulty during the term of his or her installment contract. The Company is able to cultivate these relationships through a variety of communication channels, including our recently developed customer relationship management technology and direct face-to-face interactions as a high percentage of customers visit Company dealerships in-person to make payments and for account and vehicle servicing needs.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       6\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nBusiness Strengths\n\n\n\u00a0\n\n\nThe Company believes it possesses a number of strengths or advantages that distinguish it from most of its competitors. These business strengths include:\n\n\n\u00a0\n\n\nExperienced and Motivated Management.\n\u00a0\n \nThe Company has a strong senior management team with extensive experience in the automotive industry and expertise in understanding the unique needs and preferences of subprime customers. The Company\u2019s management team is driven to continuously innovate and adapt to changing market dynamics, embrace technology, explore new avenues for growth and make a positive impact on customers\u2019 lives. This extensive industry experience and strong motivation, coupled with strategic decision-making, operational efficiency, and customer focus, enable the Company to tailor its operations to best serve its customers and help drive value for the Company and solidify its position in the used car market.\n\n\n\u00a0\n\n\nProven Business Practices.\n The Company\u2019s operations are highly structured. While dealerships operate on a decentralized basis, the Company has established policies, procedures, and business practices for virtually every aspect of a dealership\u2019s operations. Detailed online operating manuals are available to assist the dealership manager and office, sales and collections personnel in performing their daily tasks. As a result, each dealership is operated in a uniform manner. Further, corporate office personnel monitor the dealerships\u2019 operations through weekly visits and a number of daily, weekly and monthly communications and reports.\n\n\n\u00a0\n\n\nLow-Cost Operator.\n The Company has structured its dealership and corporate office operations to minimize operating costs. The number of associates employed at the dealership level is dictated by the number of active customer accounts each dealership services. Associate compensation is standardized for each dealership position and adjusted for various markets. Other operating costs are closely monitored and scrutinized. Technology is utilized to maximize efficiency. Our recent technology investments in a loan origination system and an enterprise resource planning system are expected to be foundational in improving efficiencies and operational flexibility as the Company grows. The Company monitors operating costs as a percentage of revenues, per customer served, and per unit sold, and strives to provide excellent service at a low cost.\n\n\n\u00a0\n\n\nWell-Capitalized.\n\u00a0 \u00a0The Company believes it can fund its planned growth from net income generated from operations supplemented by its external capital resources. To the extent external capital is needed to fund growth, the Company plans to draw on its existing credit facilities, or renewals or replacements of those facilities, and to participate in the securitization market from time to time, when appropriate. The Company may also choose to access other debt or equity markets if needed or if market conditions are favorable to pursue its growth and acquisition strategies. Management will continue to scrutinize capital deployment to manage appropriate liquidity and access to capital to support growth. As of April 30, 2023, the Company\u2019s debt to equity ratio (revolving credit facilities and non-recourse notes payable divided by total equity on the Consolidated Balance Sheet) was 1.28 to 1.0. Excluding the amount of debt equal to cash, the Company\u2019s adjusted debt to equity ratio (a non-GAAP measure) as of April 30, 2023 was 1.14 to 1.0, which the Company believes is lower than many of its competitors. For a reconciliation of adjusted debt to equity ratio to the most directly comparable GAAP financial measure, see \u201cNon-GAAP Financial Measure\u201d included in Part II, Item 7, Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\n\n\n\u00a0\n\n\nSignificant Expansion Opportunities. \nThe Company historically targets smaller communities in which to locate its dealerships (i.e., populations from 20,000 to 50,000), but is also continuing to expand its operations in larger cities such as Tulsa, Oklahoma; Lexington, Kentucky; Springfield, Missouri; Chattanooga and Knoxville, Tennessee and Little Rock, Arkansas. The Company believes there are numerous suitable communities to expand our physical footprint within the twelve states in which the Company currently operates and other contiguous states to satisfy anticipated dealership growth for the next several years. In addition, the Company is leveraging its growing online presence, including an intuitive website, online inventory browsing, and seamless online application process, to improve the buying experience while also reaching beyond physical dealership locations.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       7\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOperations\n\n\n\u00a0\n\n\nOperating Segment. \nEach dealership is an operating segment with its results regularly reviewed by the Company\u2019s chief operating decision maker in an effort to make decisions about resources to be allocated to the segment and to assess its performance. Individual dealerships meet the aggregation criteria for reporting purposes under the current accounting guidance. The Company operates in the Integrated Auto Sales and Finance segment of the used car market. In this industry, the nature of the sale and the financing of the transaction, financing processes, the type of customer and the methods used to distribute the Company\u2019s products and services, including the actual servicing of the contracts as well as the regulatory environment in which the Company operates, all have similar characteristics. Each dealership is similar in nature and only engages in the selling and financing of used vehicles. All individual dealerships have similar operating characteristics. As such, individual dealerships have been aggregated into one reportable segment.\n\n\n\u00a0\n\n\nDealership Organization.\n Dealerships operate on a decentralized basis. Each dealership is responsible for selling vehicles, making credit decisions, and servicing and collecting the installment contracts it originates, with assistance from the corporate office. Dealership-level financial statements are prepared by the corporate office on a monthly basis and reviewed by various levels of management. Depending on the number of active customer accounts, a dealership may have as few as three or as many as twenty-five full-time associates employed at that location. Associate positions at a large dealership may include a general manager, assistant manager(s), office manager, office clerk(s), service manager, purchasing agent, collections personnel, sales personnel, inventory associates (detailers), and on-call drivers. Dealerships are generally open Monday through Saturday from 9:00 a.m. to 6:00 p.m.\n\n\n\u00a0\n\n\nDealership Locations and Facilities. \n Below is a summary of dealerships operating during the fiscal years ended April 30, 2023, 2022 and 2021:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYears Ended April 30,\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nDealerships at beginning of year\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n154\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n151\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n148\n\n\n\u00a0\n\n\n\n\n\n\n \nDealerships opened or acquired\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\n \nDealerships closed\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nDealerships at end of year\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n156\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n154\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n151\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nBelow is a summary of dealership locations by state as of April 30, 2023, 2022 and 2021:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nAs of April 30,\n \n\n\n\u00a0\n\n\n\n\n\n\n \nDealerships by State\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nArkansas\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n37\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38\n\n\n\u00a0\n\n\n\n\n\n\n \nOklahoma\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n30\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28\n\n\n\u00a0\n\n\n\n\n\n\n \nMissouri\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n\u00a0\n\n\n\n\n\n\n \nAlabama\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16\n\n\n\u00a0\n\n\n\n\n\n\n \nTexas\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n\u00a0\n\n\n\n\n\n\n \nKentucky\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12\n\n\n\u00a0\n\n\n\n\n\n\n \nGeorgia\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n\u00a0\n\n\n\n\n\n\n \nTennessee\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\u00a0\n\n\n\n\n\n\n \nMississippi\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\n\n\n\n \nIllinois\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\n \nIndiana\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\n \nIowa\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n156\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n154\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n151\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       8\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nDealerships are located on leased or owned property between one and four acres in size. When opening a new dealership, the Company will either remodel an existing structure on the property to conduct business or construct a new facility. Dealership facilities typically range in size from 1,500 to 5,000 square feet.\n\n\n\u00a0\n\n\nPurchasing.\n The Company purchases vehicles primarily from wholesalers, new car dealers, rental/fleet companies, auctions and the general public. Vehicle purchasing is performed by corporate buyers as well as purchasing agents in our local communities. Dealership managers are authorized to purchase vehicles as needed. The Company centrally sets purchasing guidelines and monitors the quantity and quality of vehicles purchased and holds responsible parties accountable for results. When purchasing inventory, focus is given to three general areas:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nCompliance with Company standards, including an internal condition report;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nCosts and physical characteristics of the vehicle, based on market values; and\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nVehicle reliability and historical performance, based on market conditions.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nGenerally, the Company purchases vehicles between 5 and 12 years of age with 70,000 to 140,000 miles and pays between $7,000 and $15,000 per vehicle with an average cost of $10,000 per vehicle. The Company focuses on providing basic transportation to its customers. The Company sells a variety of vehicles that include primarily sport utility vehicles, trucks, and sedans. The Company typically does not purchase sports cars or luxury cars. A member of dealership management inspects and test-drives vehicles prior to a sale. The Company strives to purchase vehicles that require little or no repair as the Company has limited facilities to repair or recondition vehicles. As part of the strategy to obtain quality, affordable vehicles, the Company has formed relationships with reconditioning companies to recondition vehicles, in particular repossessions and trades, in order to have access to a larger quantity of and lower cost vehicles.\n\n\n\u00a0\n\n\nSelling, Marketing and Advertising.\n Dealerships generally maintain an inventory of 20 to 90 vehicles depending on the size and maturity of the dealership and also the time of the year. Inventory turns over approximately 7 times each year. Selling is done predominantly by the dealership manager, assistant manager, manager trainee or sales associate. Sales associates are paid a commission for sales in addition to an hourly wage. Sales are made on an \u201cas is\u201d basis; however, customers are given an option to purchase a service contract, which covers certain vehicle components and assemblies. For covered components and assemblies, the Company coordinates service with third-party service centers with which the Company typically has previously negotiated labor rates. The vast majority of the Company\u2019s customers elect to purchase a service contract when purchasing a vehicle. Additionally, the Company offers its customers to whom financing is extended an accident protection plan (APP) product. The APP product contractually obligates the Company to cancel the remaining amount owed on a contract where the vehicle has been totaled, as defined in the plan, or the vehicle has been stolen. APP is available in most of the states in which the Company operates and the vast majority of financed customers elect to purchase this product when purchasing a vehicle in those states.\n\n\n\u00a0\n\n\nThe Company has a 7-day vehicle exchange policy. If a customer is not satisfied with their purchase, the customer has the option to return the vehicle within 7 days after purchasing the vehicle or before having driven the car for 500 miles (whichever occurs first), and the Company will exchange it for another vehicle of equal or lesser value.\n\n\n\u00a0\n\n\nThe Company\u2019s objective is to offer its customers basic transportation at a fair price and treat each customer in such a manner as to earn his or her repeat business. The Company attempts to build a positive reputation in each community where it operates and generate new business from such reputation as well as from customer referrals. For mature dealerships, a large percentage of sales are to repeat customers.\n\n\n\u00a0\n\n\nThe Company primarily advertises using television, radio, digital and social media. In addition, the Company periodically conducts promotional sales campaigns in an effort to increase sales or promote the brand. The Company uses an outside marketing firm and recently hired a chief digital officer to oversee the Company\u2019s marketing efforts, enhance its brand strategy and broaden the Company\u2019s usage of digital and social media channels.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       9\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nUnderwriting and Finance.\n The Company provides financing to substantially all of its customers who purchase a vehicle at one of its dealerships. The Company only provides financing to its customers for the purchase of its vehicles and related ancillary products, and the Company does not provide any type of financing to non-customers. The Company\u2019s installment sales contracts as of April 30, 2023, typically include down payments ranging from 0% to 20% (average of 5.4%), terms ranging from 18 months to 69 months (average of 46.3 months), and a fixed annual interest rate of 18.0% for contracts originating after early December 2022 (up from 16.5%) for all states except Arkansas and Illinois. The interest rate for sales in Arkansas, which account for approximately 27.4% of the Company\u2019s revenues, is subject to a usury cap of 17%, and therefore, these sales are originated at 16.5%. The interest rate for sales in Illinois ranges from 19.5% to 21.5%. The portfolio weighted average interest rate is 16.7%.\n\n\n\u00a0\n\n\nThe Company requires that payments be made on a weekly, bi-weekly, semi-monthly or monthly basis, scheduled to coincide with the day the customer is paid by his or her employer, with 79% of payments being due on either a weekly or bi-weekly basis. Upon the customer and the Company reaching a preliminary agreement as to financing terms, the Company obtains a credit application from the customer which includes information regarding employment, residence and credit history, personal references and a budget itemizing the customer\u2019s monthly income and expenses. Certain information is then verified by Company personnel. After the verification process, the dealership manager makes the decision to accept, reject or modify (perhaps obtain a greater down payment or suggest a lower priced vehicle) the proposed transaction. In general, the dealership manager attempts to assess the stability and character of the applicant. The dealership manager who makes the credit decision is ultimately responsible for collecting the contract, and his or her compensation is directly related to the collection results of his or her dealership. The Company provides centralized support to the dealership manager in the form of a proprietary credit scoring system used for monitoring and other supervisory assistance to assist with credit decisions. Credit quality is monitored centrally by corporate office personnel on a daily, weekly and monthly basis.\n\n\n\u00a0\n\n\nCollections.\n All of the Company\u2019s retail installment contracts are serviced by Company personnel at the dealership level. Approximately half of the Company\u2019s customers make their payments in person at the dealership where they purchased their vehicle; however, in an effort to make paying convenient for its customers, the Company offers a variety of payment options. Customers can send their payments through the mail, set up ACH auto draft, make mobile and online payments, and make payments at certain money service centers. Each dealership closely monitors its customer accounts using the Company\u2019s proprietary receivables and collections software that stratifies past due accounts by the number of days past due. The vice presidents of operations and the area operations managers routinely review and monitor the status of customer collections to ensure collection activities are conducted in compliance with applicable policies and procedures. In addition, the vice president of collections oversees the collections department and provides timely oversight and additional accountability on a consistent basis. The Company believes that the timely response to past due accounts is critical to its collections success.\n\n\n\u00a0\n\n\nThe Company has established standards with respect to the percentage of accounts one and two weeks past due, 15 or more days past due and 30 or more days past due (delinquency standards), and the percentage of accounts where the vehicle was repossessed, or the account was charged off that month (account loss standard).\n\n\n\u00a0\n\n\nThe Company works diligently to keep its delinquency percentages low and not to repossess vehicles. Accounts one to three days late are contacted by telephone or text message. Notes from each contact are electronically maintained in the Company\u2019s computer system. The Company centrally utilizes text messaging notifications which allows customers to elect to receive payment reminders and late notices via text message.\n\n\n\u00a0\n\n\nThe Company attempts to resolve payment delinquencies amicably prior to repossessing a vehicle. If a customer becomes severely delinquent in his or her payments, and management determines that timely collection of future payments is not probable, the Company will take steps to repossess the vehicle. Periodically, the Company enters into contract modifications with its customers to extend or modify the payment terms. The Company only enters into a contract modification or extension if it believes such action will increase the amount of monies the Company will ultimately realize on the customer\u2019s account and will increase the likelihood of the customer being able to pay off the vehicle contract. At the time of modification, the Company expects to collect amounts due including accrued interest at the contractual interest rate for the period of delay. No other concessions are granted to customers, beyond the extension of additional time at the time of modification. Modifications are minor and are made for pay day changes, minor vehicle repairs and other reasons. For those vehicles that are repossessed, the majority are returned or surrendered by the customer on a voluntary basis. Other repossessions are performed by Company personnel or third-party repossession agents. Depending on the condition of a repossessed vehicle, it is either resold on a retail basis through a Company dealership or sold for cash on a wholesale basis, primarily through physical or online auctions.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       10\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nNew Dealership Openings.\n Along with strategic dealership acquisitions, the Company continues to explore opportunities for new dealership openings. When opening new dealerships, senior management, with the assistance of the corporate office staff, will make decisions with respect to the communities in which to locate a new dealership and the specific sites within those communities. New dealerships have historically been located in the general proximity of existing dealerships to facilitate the corporate office\u2019s oversight of the Company\u2019s dealerships. The Company intends to add new dealerships, subject to favorable operating performance of existing dealerships and availability of qualified managers. Recently, the Company has opened new dealerships under experienced top performing general managers and may continue to do so in order to grow and leverage the talents of these experienced managers.\n\n\n\u00a0\n\n\nThe Company\u2019s approach with respect to new dealership openings has been one of gradual development. The manager in charge of a new dealership is normally a recently promoted associate who was an assistant manager at a larger dealership and in most cases participated in the formal manager-in-training program. The corporate office provides significant resources and support with pre-opening and initial operations of new dealerships. Historically, new dealerships have operated with a low level of inventory and personnel. As a result of the modest staffing level, the new dealership manager performs a variety of duties (i.e., selling, collecting and administrative tasks) during the early stages of his or her dealership\u2019s operations. As the dealership develops and the customer base grows, additional staff are hired. Some of the recent dealership openings have been in markets that support a higher volume of sales and these dealerships have opened with a higher level of inventory and staffing to accommodate the higher volumes.\n\n\n\u00a0\n\n\nMonthly sales levels at new dealerships are typically substantially less than sales levels at mature dealerships. Over time, new dealerships gain recognition in their communities, and a combination of customer referrals and repeat business generally facilitates sales growth. Historically, sales growth at new dealerships could exceed 10% per year for a number of years, whereas mature dealerships typically experience annual sales growth but at a lower percentage than new dealerships. Due to continual operational initiatives, the Company is able to support higher sales levels, and recently the Company has raised its volume expectation level of new locations somewhat as infrastructure improvements related to new dealership openings have improved.\n\n\n\u00a0\n\n\nNew dealerships are generally provided with approximately $1.5 million to $2.5 million in capital from the corporate office during the first few years of operation. These funds are used principally to fund receivables growth. After this start-up period, new dealerships can typically begin generating positive cash flow, allowing for some continuing growth in receivables without additional capital from the corporate office. As these dealerships become cash flow positive, a decision is made by senior management to either increase the investment due to favorable return rates on the invested capital, or to deploy capital elsewhere. This limitation of capital to new, as well as existing, dealerships serves as an important operating discipline. Dealerships must be profitable in order to grow and typically new dealerships can be profitable within the first year of opening.\n\n\n\u00a0\n\n\nDealership Acquisitions.\n \u00a0Since 2020, the Company has actively pursued strategic dealership acquisitions to expand its market presence and enhance its business operations. Most recently, the Company continued its expansion efforts by acquiring smaller used car dealerships in Tennessee and Texas. These acquisitions helped the Company further strengthen its footprint and increase its market share. By strategically acquiring established dealerships, the Company believes it can accelerate its growth and solidify its position as a key player in the used car industry. The Company\u2019s recent acquisitions have not only expanded the Company's geographic reach but also allowed the Company to leverage the acquired dealerships' operational efficiencies and customer relationships, leading to enhanced value for both the Company and its customers. Management continues to actively pursue additional acquisitions, including in regions beyond the Company\u2019s existing geographic footprint, and believes that disruptions in the current competitive landscape will provide unique opportunities to acquire productive dealerships in good markets managed by experienced owners and their staff.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       11\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nCorporate Office Oversight and Management.\n The corporate office, based in Rogers, Arkansas, consists of regional vice presidents, area operations managers, regional inventory purchasing directors, a sales director, a vice president of collections, a vice president of inventory operations, a director of audit and compliance and compliance auditors, a vice president of human resources, a director of general manager recruitment and development, associate and management development personnel, accounting and management information systems personnel, administrative personnel and senior management. The corporate office monitors and oversees dealership operations. The corporate office has access to operating and financial information and reports on each dealership on a daily, weekly, monthly, quarterly, and annual basis. This information includes cash receipts and disbursements, inventory and receivables levels and statistics, receivables aging, sales and account loss data. The corporate office uses this information to compile Company-wide reports, plan dealership visits and prepare monthly financial statements.\n\n\n\u00a0\n\n\nPeriodically, area operations managers, regional vice presidents, compliance auditors, loss prevention associates, and senior management visit the Company\u2019s dealerships to inspect, review and comment on operations. The corporate office provides the overall training plan and assists in training new managers and other dealership level associates. Compliance auditors and loss prevention associates visit dealerships to ensure policies and procedures are being followed and that the Company\u2019s assets are being safe-guarded. In addition to financial results, the corporate office uses delinquency and account loss standards and a point system to evaluate a dealership\u2019s performance. Also, bankrupt and legal action accounts and other accounts that have been written off at dealerships are handled by the corporate office to allow dealership personnel time to focus on more current accounts.\n\n\n\u00a0\n\n\nThe Company\u2019s dealership managers meet monthly on an area, regional or Company-wide basis. At these meetings, corporate office personnel provide training and recognize achievements of dealership managers. Near the end of every fiscal year, the respective area operations manager, regional vice president and senior management conduct \u201cprojection\u201d meetings with each dealership manager. At these meetings, the year\u2019s results are reviewed and ranked relative to other dealerships, and both quantitative and qualitative goals are established for the upcoming year. The qualitative goals may focus on staff development, effective delegation, and leadership and organization skills. Quantitatively, the Company establishes unit sales goals and profit goals based on invested capital and, depending on the circumstances, may establish delinquency, account loss or expense goals.\n\n\n\u00a0\n\n\nThe corporate office is also responsible for establishing policy, maintaining the Company\u2019s management information systems, conducting compliance audits, orchestrating new dealership openings and setting the strategic direction for the Company.\n\n\n\u00a0\n\n\nIndustry\n\n\n\u00a0\n\n\nUsed Car Sales.\n \u00a0The market for used car sales in the United States is significant. Used car retail sales typically occur through franchised new car dealerships that sell used cars or independent used car dealerships. The Company operates in the Integrated Auto Sales and Finance segment of the independent used car sales and finance market. Integrated Auto Sales and Finance dealers sell and finance used cars to individuals that often have limited credit histories or past credit problems. Integrated Auto Sales and Finance dealers typically offer their customers certain advantages over more traditional financing sources, such as less restrictive underwriting guidelines, flexible payment terms (including scheduling payments on a weekly or bi-weekly basis to coincide with a customer\u2019s payday), and the ability to make payments in person, an important feature to individuals who may not have a checking account.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       12\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nUsed Car Financing.\n The used automobile financing industry is served by traditional lending sources such as banks, savings and loans, and captive finance subsidiaries of automobile manufacturers, as well as by independent finance companies and Integrated Auto Sales and Finance dealers. Many loans that flow through the more traditional sources have historically ended up packaged in the securitization markets. Despite significant opportunities, many of the traditional lending sources have not historically been consistent in providing financing to individuals with limited credit histories or past credit problems. Management believes traditional lenders have historically avoided this market because of its high credit risk and the associated collections efforts. Beginning in 2012, funding for the deep subprime automobile market increased significantly and has remained elevated compared to historic levels, likely due to the ultra-low interest rate environment combined with the historical credit performance of the used automobile financing market during and after the recession of the prior decade. However, as a result of the recent inflationary environment and increased funding costs, credit availability for used vehicle financing has tightened. Management expects this to continue for the foreseeable future and believes the reduced availability of used vehicle financing will provide the Company an opportunity to gain market share and better serve an increasing customer base.\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nThe used automotive retail industry is fragmented and highly competitive. The Company competes principally with other independent Integrated Auto Sales and Finance dealers, as well as with (i) the used vehicle retail operations of franchised automobile dealerships, (ii) independent used vehicle dealers, and (iii) individuals who sell used vehicles in private transactions. The Company competes for both the purchase and resale of used vehicles. The increased funding to the used automobile industry and the tight supply of used vehicles in our market has led to increased competitive pressures and higher purchase and retail prices which have been the primary contributors to the Company\u2019s decision in recent periods to allow longer term lengths and slightly lower down payments in connection with our customer financing contracts.\n\n\n\u00a0\n\n\nManagement believes the principal competitive factors in the sale of its used vehicles include (i) the availability of financing to consumers with limited credit histories or past credit problems, (ii) the breadth and quality of vehicle selection, (iii) pricing, (iv) the convenience of a dealership\u2019s location, (v) the option to purchase a service contract and an accident protection plan, and (vi) customer service. Management believes that its dealerships are not only competitive in each of these areas, but have some distinct advantages, specifically related to the provision of strong customer service for a credit challenged consumer. The Company\u2019s local face-to-face presence combined with some centralized support through digital and phone allows it to serve customers at a higher level by forming strong personal relationships.\n\n\n\u00a0\n\n\nSeasonality\n\n\n\u00a0\n\n\nHistorically, the Company\u2019s third fiscal quarter (November through January) has been the slowest period for vehicle sales. Conversely, the Company\u2019s first and fourth fiscal quarters (May through July and February through April) have historically been the busiest times for vehicle sales. Therefore, the Company generally realizes a higher proportion of its revenue and operating profit during the first and fourth fiscal quarters. The Company expects this pattern to continue in future years.\n\n\n\u00a0\n\n\nIf conditions arise that impair vehicle sales during the first or fourth fiscal quarters, the adverse effect on the Company\u2019s revenues and operating results for the year could be disproportionately large.\n\n\n\u00a0\n\n\nRegulation and Licensing\n\n\n\u00a0\n\n\nThe Company is committed to a culture of compliance by promoting and supporting efforts to design, implement, manage, and maintain compliance initiatives. The Company\u2019s operations are subject to various federal, state and local laws, ordinances and regulations pertaining to the sale and financing of vehicles. Under various state laws, the Company\u2019s dealerships must obtain a license in order to operate or relocate. These laws also regulate advertising and sales practices. The Company\u2019s financing activities are subject to federal laws such as truth-in-lending and equal credit opportunity laws and regulations as well as state and local motor vehicle finance laws, installment finance laws, usury laws and other installment sales laws. Among other things, these laws require that the Company limit or prescribe terms of the contracts it originates, require specified disclosures to customers, restrict collections practices, limit the Company\u2019s right to repossess and sell collateral, and prohibit discrimination against customers on the basis of certain characteristics including age, race, gender and marital status.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       13\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company\u2019s consumer financing and collection activities are also subject to oversight by the federal Consumer Financial Protection Bureau (\u201cCFPB\u201d), which has broad regulatory powers over consumer credit products and services such as those offered by the Company. Under a CFPB rule adopted in 2015, the Company\u2019s finance subsidiary, Colonial, is deemed a \u201clarger participant\u201d in the automobile financing market and is therefore subject to examination and supervision by the CFPB.\n\n\n\u00a0\n\n\nThe states in which the Company operates impose limits on interest rates the Company can charge on its installment contracts. These limits have generally been based on either (i) a specified margin above the federal primary credit rate, (ii) the age of the vehicle, or (iii) a fixed rate.\n\n\n\u00a0\n\n\nThe Company is also subject to a variety of federal, state and local laws and regulations that pertain to the environment, including compliance with regulations concerning the use, handling and disposal of hazardous substances and wastes.\n\n\n\u00a0\n\n\nManagement believes the Company is in compliance in all material respects with all applicable federal, state and local laws, ordinances and regulations; however, the adoption of additional laws, changes in the interpretation of existing laws, or the Company\u2019s entrance into jurisdictions with more stringent regulatory requirements could have a material adverse effect on the Company\u2019s used vehicle sales and finance business.\n\n\n\u00a0\n\n\nHuman Capital Resources\n\n\n\u00a0\n\n\nAt America\u2019s Car-Mart, Inc., our associates are the heart of our business. Our associates are committed to making a difference for customers, their communities and each other. As of April 30, 2023, the Company, including its consolidated subsidiaries, employed a diverse associate base of approximately 2,260 fulltime associates. None of the Company\u2019s employees are covered by a collective bargaining agreement, and the Company believes that its relations with its employees are positive.\n\n\n\u00a0\n\n\nDiversity and Inclusion\n\n\n\u00a0\n\n\nThe Company\u2019s culture is one that fosters diversity, equity and inclusion. We view diversity as an important factor in reflecting the values and cultures of all our associates. Each of our dealerships is a locally operated business, and our diversity must represent the communities in which we serve. The Company is an equal opportunity employer that strives to provide an inclusive environment, including associates that represent a wide range of backgrounds, cultures, and experiences. The Company\u2019s hiring practices are designed to find and promote candidates reflecting the various communities in which we operate. As of April 30, 2023, 52% of the Company\u2019s associates were women and 34% of our associates were racially or ethnically diverse.\n\n\n\u00a0\n\n\nEmployee Safety and Health\n\n\n\u00a0\n\n\nEnsuring the safety of all associates is a critical priority for the Company. Associates are expected to stay informed about safety initiatives and to report unsafe conditions to their supervisor. Suppliers are expected to ensure that employees working on behalf of Car-Mart adhere to all of the Company\u2019s health and safety policies, requirements and regulations. The Company\u2019s specific annual safety goals are to eliminate all preventable work-related injuries, illnesses and property damage and achieve 100% compliance with all established safety procedures. Internally, we track workplace injuries among associates, customers and other third parties at our facilities. With our comprehensive safety and education program and attention to proper procedures at our dealerships, the number of incidents is below industry standards for all retail locations. Our Risk Manager is responsible for safety education and training, and regularly reviews indicators and areas where risks and injuries can occur, helping to eliminate hazards. General Managers at each dealership are responsible for safety at their location on a daily basis, and members of the safety committee at our corporate office are trained on CPR and other emergency procedures and regularly conduct drills for events such as a fire or tornado. We continue to follow the CDC COVID-19 guidelines and established Company procedures to maintain facilities that are clean, safe, and sanitized.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       14\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nFrom a health perspective, the Company believes it is important to support the physical, mental, social, environmental and financial well-being of our Car-Mart associates at work and at home. The Company is committed to doing so with key initiatives that inspire associates to strive for long-term sustainable health and wellness for themselves and their families. We seek to educate and empower associates to improve and maintain their overall health. Further, we offer resources for preventive care, such as flu shots, vaccinations and other preventative health screenings. Associates have access to retirement investment plans and legal consultants to help them save for their future needs. The Company also offers professional resources that promote associates\u2019 mental health and general well-being.\n\n\n\u00a0\n\n\nTalent and Development\n\n\n\u00a0\n\n\nThe Company is committed to building a working environment and culture that attracts, develops and retains motivated associates. The Company strives to provide associates with broader challenging opportunities, an environment that encourages entrepreneurial thinking and the ability to develop their career. The success of our growth strategy and the operation of an organization that supports dealerships throughout 12 states requires that we continue to seek, attract, hire and retain top talent at all levels of the Company. We offer a competitive compensation and benefits program, and an opportunity for our associates to grow personally and professionally, with an eye toward retirement and financial planning.\n\n\n\u00a0\n\n\nThe Company provides each associate with a comprehensive compensation package that is based on the role he or she fills. Our compensation philosophy is based on performance, both individually and as a company. Many of our associates have the opportunity to earn additional compensation through commissions, performance-based salary increases and bonuses. All associates earn above minimum wage requirements under both state and federal law requirements. In addition, associates have a menu of benefit options to choose from to meet their needs.\n\n\n\u00a0\n\n\nThe Company offers multiple programs for associate training, mentoring, and advancement. All associates are required to complete orientation courses in culture, safety, sexual harassment and discrimination awareness, and other compliance topics. Associates also have access to online training programs for the development of job-specific skills, leadership behaviors, and advanced topics such as unconscious bias. The Company\u2019s Future Manager training program allows associates to learn all facets of operating a Car-Mart store from vehicle inventory and facility management to effective collection techniques, while acquiring leadership skills. In addition, the Company maintains its \u201cCar-Mart U\u201d training program which builds on the foundation established in the Future Manager program by providing a series of blended learning solutions preparing assistant managers for a general manager or other elevated management role by introducing new curriculum focused on advanced leadership training, business concepts and customer experience. We believe such programs demonstrate the Company\u2019s commitment to the long-term growth, motivation, and success of our associates.\n\n\n\u00a0\n\n\nAvailable Information\n\n\n\u00a0\n\n\nThe Company\u2019s website is located at www.car-mart.com. The Company makes available on this website, free of charge, access to its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, as well as proxy statements and other information the Company files with, or furnishes to, the Securities and Exchange Commission (\u201cSEC\u201d) as soon as reasonably practicable after the Company electronically submits this material to the SEC. The information contained on the website or available by hyperlink from the website is not incorporated into this Annual Report on Form 10-K or other documents the Company files with, or furnishes to, the SEC.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       15\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nExecutive Officers of the Registrant\n\n\n\u00a0\n\n\nThe following table provides information regarding the executive officers of the Company as of April 30, 2023:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nName\n \n\n\n \nAge\n \n\n\n\u00a0\n\n\n \nPosition with the Company\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nJeffrey A. Williams\n \n\n\n \n60\n \n\n\n\u00a0\n\n\n \nChief Executive Officer and Director\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nVickie D. Judy\n \n\n\n \n57\n \n\n\n\u00a0\n\n\n \nChief Financial Officer\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nDouglas Campbell\n \n\n\n \n47\n \n\n\n\u00a0\n\n\n \nPresident\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nJeffrey A. Williams \nhas served as Chief Executive Officer of the Company since January 2018, President of the Company from March 2016 until October 2022, and as a director since August 2011. Before becoming Chief Executive Officer, Mr. Williams served as Chief Financial Officer of the Company since 2005. He also served as Vice President Finance from 2005 to March 2016 and as Secretary of the Company from 2005 to May 2018. Mr. Williams is a Certified Public Accountant, inactive, and prior to joining the Company, his experience included approximately seven years in public accounting with Arthur Andersen & Co. and Coopers and Lybrand LLC in Tulsa, Oklahoma and Dallas, Texas. His experience also includes approximately five years as Chief Financial Officer and Vice President of Operations of Wynco, LLC, a nationwide distributor of animal health products.\n\n\n\u00a0\n\n\nVickie D. Judy \nhas served as Chief Financial Officer of the Company since January 2018. Before becoming Chief Financial Officer in January 2018, Ms. Judy served as Principal Accounting Officer since March 2016 and Vice President of Accounting since August 2015. Since joining the Company in May 2010, Ms. Judy has also served as Controller and Director of Financial Reporting. Ms. Judy is a Certified Public Accountant and prior to joining the Company her experience included approximately five years in public accounting with Arthur Andersen & Co. and approximately 17 years at National Home Centers, Inc., a home improvement product and building materials retailer, most recently as Vice President of Financial Reporting.\n\n\n\u00a0\n\n\nDouglas Campbell\n has served as President of the Company since October 2022. Before joining the company, Mr. Campbell was Senior Vice President, Head of Fleet Services for the Americas, at Avis Budget Group (\u201cAvis\u201d) since June 2022, previously serving in roles as Head of Fleet Services for the Americas since June 2021 and Vice President, Remarketing for the Americas, at Avis from March 2018 to June 2021. Prior to joining Avis, Mr. Campbell held management positions at AutoNation from September 2014 to March 2018 serving as Used Vehicle Director, Eastern Region, in AutoNation\u2019s corporate office and later as General Manager of its Honda Dulles dealership. Preceding AutoNation, Mr. Campbell served fifteen years with Coral Springs Auto Mall, most recently serving as Executive General Manager.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       16\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A. Risk Factors\n\n\n\u00a0\n\n\nThe Company is subject to various risks. The following is a discussion of risks that could materially and adversely affect the Company\u2019s business, operating results, and financial condition.\n\n\n\u00a0\n\n\nRisks Related to the Company\n\u2019\ns Business, Industry, and Markets\n\n\n\u00a0\n\n\nRecent and future disruptions in domestic and global economic and market conditions could have adverse consequences for the used automotive retail industry in the future and may have greater consequences for the non-prime segment of the industry.\n\n\n\u00a0\n\n\nIn the normal course of business, the used automotive retail industry is subject to changes in regional U.S. economic conditions, including, but not limited to, interest rates, gasoline prices, inflation, personal discretionary spending levels, and consumer sentiment about the economy in general. Recent and future disruptions in domestic and global economic and market conditions, including rising interest rates and higher grocery and gasoline, or significant changes in the political environment (such as the ongoing military conflict between Ukraine and Russia) and/or public policy, could adversely affect consumer demand or increase the Company\u2019s costs, resulting in lower profitability for the Company. Due to the Company\u2019s focus on non-prime customers, its actual rate of delinquencies, repossessions and credit losses on contracts could be higher under adverse economic conditions than those experienced in the automotive retail finance industry in general.\n\n\n\u00a0\n\n\nThe outlook for the U.S. economy and the impacts of efforts to reduce inflation through interest rate increases remains uncertain, which may adversely affect the Company\u2019s financial condition, results of operations and liquidity. Periods of economic slowdown or recession are often characterized by high unemployment and diminished availability of credit, generally resulting in increases in delinquencies, defaults, repossessions and credit losses. Further, periods of economic slowdown may also be accompanied by temporary or prolonged decreased consumer demand for motor vehicles and declining used vehicle prices. Significant increases in the inventory of used vehicles during periods of economic slowdown or recession may also depress the prices at which repossessed automobiles may be sold or delay the timing of these sales. The prices of used vehicles are variable and a rise or decline in the used vehicle prices may have an adverse effect on the Company\u2019s business. The Company is unable to predict with certainty the future impact of the most recent global and domestic economic conditions on consumer demand in our markets or on the Company\u2019s costs.\n\n\n\u00a0\n\n\nA reduction in the availability or access to sources of inventory could adversely affect the Company\n\u2019\ns business by increasing the costs of vehicles purchased. \n\n\n\u00a0\n\n\nThe Company acquires vehicles primarily through wholesalers, new car dealers, individuals and auctions. There can be no assurance that sufficient inventory will continue to be available to the Company or will be available at comparable costs. Any reduction in the availability of inventory or increases in the cost of vehicles could adversely affect gross margin percentages as the Company focuses on keeping payments affordable to its customer base. The Company could have to absorb a portion of cost increases. The supply of vehicles at appropriate prices available to the Company is significantly affected by overall new car sales volumes, which were negatively impacted by the business and economic and supply chain disruptions following the outbreak of the COVID-19 pandemic and have historically been materially and adversely affected by prior economic downturns. Any future decline in new car sales could further adversely affect the Company\u2019s access to and costs of inventory. Our ability to source vehicles could also be impacted by the closure of auctions and wholesalers as a result of any future public health crisis, adverse economic conditions, or other factors.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       17\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe used automotive retail industry is fragmented and highly competitive, which could result in increased costs to the Company for vehicles and adverse price competition. Increased competition on the financing side of the business could result in increased credit losses.\n\n\n\u00a0\n\n\nThe Company competes principally with other independent Integrated Auto Sales and Finance dealers, and with (i) the used vehicle retail operations of franchised automobile dealerships, (ii) independent used vehicle dealers, and (iii) individuals who sell used vehicles in private transactions. The Company competes for both the purchase and resale, which includes, in most cases, financing for the customer, of used vehicles. The Company\u2019s competitors may sell the same or similar makes of vehicles that Car-Mart offers in the same or similar markets at competitive prices. Increased competition in the market, including new entrants to the market, could result in increased wholesale costs for used vehicles and lower-than-expected vehicle sales and margins. Further, if any of the Company\u2019s competitors seek to gain or retain market share by reducing prices for used vehicles, the Company would likely reduce its prices in order to remain competitive, which may result in a decrease in its sales and profitability and require a change in its operating strategies. Increased competition on the financing side puts pressure on contract structures and increases the risk for higher credit losses. More qualified applicants have more financing options on the front-end, and if events adversely affecting the borrower occur after the sale, the increased competition may tempt the borrower to default on their contract with the Company in favor of other financing options, which in turn increases the likelihood of the Company not being able to save that account.\n\n\n\u00a0\n\n\nThe used automotive retail industry operates in a highly regulated environment with significant attendant compliance costs and penalties for non-compliance.\n\n\n\u00a0\n\n\nThe used automotive retail industry is subject to a wide range of federal, state, and local laws and regulations, such as local licensing requirements and laws regarding advertising, vehicle sales, financing, and employment practices. Facilities and operations are also subject to federal, state, and local laws and regulations relating to environmental protection and human health and safety. The violation of these laws and regulations could result in administrative, civil, or criminal penalties against the Company or in a cease and desist order. As a result, the Company has incurred, and will continue to incur, capital and operating expenditures, and other costs of complying with these laws and regulations. Further, over the past several years, private plaintiffs and federal, state, and local regulatory and law enforcement authorities have increased their scrutiny of advertising, sales and finance activities in the sale of motor vehicles. Additionally, the Company\u2019s finance subsidiary, Colonial, is deemed a \u201clarger participant\u201d in the automobile finance market and is therefore subject to examination and supervision by the CFPB, which has broad regulatory powers over consumer credit products and services such as those offered by the Company.\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns business is geographically concentrated; therefore, the Company\n\u2019\ns results of operations may be adversely affected by unfavorable conditions in its local markets.\n\n\n\u00a0\n\n\nThe Company\u2019s performance is subject to local economic, competitive, and other conditions prevailing in the twelve states where the Company operates. The Company provides financing in connection with the sale of substantially all of its vehicles. These sales are made primarily to customers residing in Alabama, Arkansas, Georgia, Illinois, Kentucky, Mississippi, Missouri, Oklahoma, Tennessee and Texas with approximately 27.4% of revenues resulting from sales to Arkansas customers. The Company\u2019s current results of operations depend substantially on general economic conditions and consumer spending habits in these local markets. Any decline in the general economic conditions or decreased consumer spending in these markets may have a negative effect on the Company\u2019s results of operations.\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns growth strategy is dependent upon the following factors:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nFavorable operating performance.\n\u00a0Our ability to expand our business through additional dealership openings or strategic acquisitions is dependent on a sufficiently favorable level of operating performance to support the management, personnel and capital resources necessary to successfully open and operate or acquire new locations.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       18\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nAbility to successfully identify, complete and integrate new acquisitions.\n\u00a0Part of our current growth strategy includes strategic acquisitions of dealerships. We could have difficulty identifying attractive target dealerships, completing the acquisition or integrating the acquired business\u2019\u00a0assets, personnel and operations with our own. Acquisitions are accompanied by a number of inherent risks, including, without limitation, the difficulty of integrating acquired companies and operations; potential disruption of our ongoing business and distraction of our management or the management of the target company; difficulties in maintaining controls, procedures and policies; potential impairment of relationships with associates and partners as a result of any integration of new personnel; potential inability to manage an increased number of locations and associates; failure to realize expected efficiencies, synergies and cost savings; reaction to the transaction among the companies\u2019\u00a0customers and potential customers; and the effect of any government regulations which relate to the businesses acquired.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nAvailability of suitable dealership sites\n. Our ability to open new dealerships is subject to the availability of suitable dealership sites in locations and on terms favorable to the Company. If and when the Company decides to open new dealerships, the inability to acquire suitable real estate, either through lease or purchase, at favorable terms could limit the expansion of the Company\u2019s dealership base. In addition, if a new dealership is unsuccessful and we are forced to close the dealership, we could incur additional costs if we are unable to dispose of the property in a timely manner or on terms favorable to the Company. Any of these circumstances could have a material adverse effect on the Company\u2019s expansion strategy and future operating results.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nAbility to attract and retain management for new dealerships\n. The success of new dealerships is dependent upon the Company being able to hire and retain additional competent personnel. The market for qualified employees in the industry and in the regions in which the Company operates is highly competitive. If we are unable to hire and retain qualified and competent personnel to operate our new dealerships, these dealerships may not be profitable, which could have a material adverse effect on our future financial condition and operating results.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nAvailability and cost of vehicles\n. The cost and availability of sources of inventory could affect the Company\u2019s ability to open new dealerships The long-term impacts of the economic downturn due to COVID-19 on new car sales volumes and the ability of auctions and wholesalers to continue to operate is uncertain. Any of these factors could potentially have a significant negative effect on the supply of vehicles at appropriate prices available to the Company in future periods. This could also make it difficult for the Company to supply appropriate levels of inventory for an increasing number of dealerships without significant additional costs, which could limit our future sales or reduce future profit margins if we are required to incur substantially higher costs to maintain appropriate inventory levels.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nAcceptable levels of credit losses at new dealerships\n. Credit losses tend to be higher at new dealerships due to fewer repeat customers and less experienced associates; therefore, the opening of new dealerships tends to increase the Company\u2019s overall credit losses. In addition, new dealerships may experience higher than anticipated credit losses, which may require the Company to incur additional costs to reduce future credit losses or to close the underperforming locations altogether. Any of these circumstances could have a material adverse effect on the Company\u2019s future financial condition and operating results.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns business is subject to seasonal fluctuations. \n\n\n\u00a0\n\n\nHistorically, the Company\u2019s third fiscal quarter (November through January) has been the slowest period for vehicle sales. Conversely, the Company\u2019s first and fourth fiscal quarters (May through July and February through April) have historically been the busiest times for vehicle sales. Therefore, the Company generally realizes a higher proportion of its revenue and operating profit during the first and fourth fiscal quarters. The Company expects this pattern to continue in future years.\n\n\n\u00a0\n\n\nIf conditions arise that impair vehicle sales during the first or fourth fiscal quarters, the adverse effect on the Company\u2019s revenues and operating results for the year could be disproportionately large.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       19\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe effects of any future public health crisis could have a significant impact on our business, sales, results of operations and financial condition. \n\n\n\u00a0\n\n\nThe global outbreak of COVID-19 led to severe disruptions in general economic activities, particularly retail operations, as businesses and federal, state, and local governments implemented mandates to mitigate this public health crisis. The pandemic has affected consumer demand and the overall health of the U.S. economy. The effects of any future outbreaks of the pandemic or similar health crises could negatively impact all aspects of our business, including used vehicle sales and financing, finance receivable collections, repossession activity and inventory acquisition. Our business is also dependent on the continued health and productivity of our associates, including management teams, throughout this crisis. The consequences of any future adverse public health developments could have a material adverse effect on our business, sales, results of operations and financial condition.\n\n\n\u00a0\n\n\nAdditionally, our liquidity could be negatively impacted if economic conditions were to once again deteriorate due to a future COVID-19 outbreak or other public health crisis, which could require us to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels, support the origination of vehicle financing, and meet our financial obligations. Capital and credit markets were significantly affected by onset of the crisis and could be disrupted once again by any future wave of the virus or outbreak of a new coronavirus variant, and our ability to obtain any new or additional financing is not guaranteed and largely dependent upon evolving market conditions and other factors.\n\n\n\u00a0\n\n\nRisks Related to the Company\u2019s Operations\n\n\n\u00a0\n\n\nThe Company may have a higher risk of delinquency and default than traditional lenders because it finances its sales of used vehicles to credit-impaired borrowers\n.\n\n\n\u00a0\n\n\nSubstantially all of the Company\u2019s automobile contracts involve financing to individuals with impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders. Financing made to borrowers who are restricted in their ability to obtain financing from traditional lenders generally entails a higher risk of delinquency, default and repossession, and higher losses than financing made to borrowers with better credit. Delinquency interrupts the flow of projected interest income and repayment of principal from a contract, and a default can ultimately lead to a loss if the net realizable value of the automobile securing the contract is insufficient to cover the principal and interest due on the contract or if the vehicle cannot be recovered. The Company\u2019s profitability depends, in part, upon its ability to properly evaluate the creditworthiness of non-prime borrowers and efficiently service such contracts. Although the Company believes that its underwriting criteria and collection methods enable it to manage the higher risks inherent in financing made to non-prime borrowers, no assurance can be given that such criteria or methods will afford adequate protection against such risks. If the Company experiences higher losses than anticipated, its financial condition, results of operations and business prospects could be materially and adversely affected.\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns allowance for credit losses may not be sufficient to cover actual credit losses, which could adversely affect its financial condition and operating results.\n\n\n\u00a0\n\n\nWhen applicable, the Company has to recognize losses resulting from the inability of certain borrowers to pay contracts and the insufficient realizable value of the collateral securing contracts. The Company maintains an allowance for credit losses in an attempt to cover net credit losses expected over the remaining life of the contracts in the portfolio at the measurement date. Additional credit losses will likely occur in the future and may occur at a rate greater than the Company has experienced to date. The allowance for credit losses represents management\u2019s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical credit loss experience, changes in contractual characteristics (i.e., average amount financed, term, and interest rates), and other qualitative considerations, such as credit quality trends, collateral values, current and forecasted economic conditions, underwriting and collections practices, concentration risk, credit review, and other external factors. This evaluation is inherently subjective as it requires estimates of material factors that may be susceptible to significant change. If the Company\u2019s assumptions and judgments prove to be incorrect, its current allowance for credit losses may not be sufficient and adjustments may be necessary to allow for different economic conditions or adverse developments in its contract portfolio which could adversely affect the Company\u2019s financial condition and results of operations. At April 30, 2023 the Company increased its allowance for credit losses to 23.91% from 23.65% of the principal balance of finance receivables, net of deferred revenue, primarily due to increases in historical losses as a result of the ending of federal stimulus programs, continuing inflationary pressure on customers and increasing interest rates from federal monetary policy. Any future deterioration in economic conditions or consumer financial health may result in additional future credit losses that may not be fully reflected in the allowance for credit losses.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       20\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns success depends upon the continued contributions of its management teams and the ability to attract and retain qualified employees.\n\n\n\u00a0\n\n\nThe Company is dependent upon the continued contributions of its management teams. Because the Company maintains a decentralized operation in which each dealership is responsible for buying and selling its own vehicles, making credit decisions and collecting contracts it originates, the key employees at each dealership are important factors in the Company\u2019s ability to implement its business strategy. Consequently, the loss of the services of key employees could have a material adverse effect on the Company\u2019s results of operations. In addition, when the Company decides to open new dealerships, the Company will need to hire additional personnel. The market for qualified employees in the industry and in the regions in which the Company operates is highly competitive and may subject the Company to increased labor costs during periods of low unemployment or times of increased competition for labor.\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns business is dependent upon the efficient operation of its information systems. \n\n\n\u00a0\n\n\nThe Company relies on its information systems in managing its sales, inventory, consumer financing, and customer information effectively. The failure of the Company\u2019s information systems to perform as designed, or the failure to maintain and continually enhance or protect the integrity of these systems, could disrupt the Company\u2019s business, impact sales and profitability, or expose the Company to customer or third-party claims.\n\n\n\u00a0\n\n\nSecurity breaches, cyber-attacks or fraudulent activity could result in damage to the Company's operations or lead to reputational damage.\n\n\n\u00a0\n\n\nOur information and technology systems are vulnerable to damage or interruption from computer viruses, network failures, computer and telecommunications failures, infiltration by unauthorized persons and security breaches, usage errors by our employees, power outages and catastrophic events such as fires, tornadoes, floods, hurricanes and earthquakes. A security breach of the Company's computer systems could also interrupt or damage its operations or harm its reputation. In addition, the Company could be subject to liability if confidential customer information is misappropriated from its computer systems. Any compromise of security, including security breaches perpetrated on persons with whom the Company has commercial relationships, that result in the unauthorized release of its users\u2019 personal information, could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to the Company's reputation, and a loss of confidence in the Company's security measures, which could harm its business. Any compromise of security could deter people from entering into transactions that involve transmitting confidential information to the Company's systems and could harm relationships with the Company's suppliers, which could have a material adverse effect on the Company's business. Actual or anticipated attacks may cause the Company to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Despite the implementation of security measures, these systems may still be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. The Company may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       21\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nMost of the Company's customers provide personal information when applying for financing. The Company relies on encryption and authentication technology to provide security to effectively store and securely transmit confidential information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by the Company to protect transaction data being breached or compromised.\n\n\n\u00a0\n\n\nIn addition, many of the third parties who provide products, services, or support to the Company could also experience any of the above cyber risks or security breaches, which could impact the Company's customers and its business and could result in a loss of customers, suppliers, or revenue.\n\n\n\u00a0\n\n\nWe may be unable to keep pace with technological advances and changes in consumer behavior affecting our business, which could adversely affect our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nWe rely on our information technology systems to facilitate digital sales leads. Our ability to optimize our digital sales platform is affected by online search engines and classified sites that are not direct competitors but that may direct online traffic to the websites of competing automotive retailers. These third-party sites could make it more difficult for us to market our vehicles online and attract customers to our online offerings. Further, to address changes in consumer buying preferences and to improve customer experience, inventory procurement and recruiting and training, we make corresponding technology and systems upgrades. We may not be able to establish sufficient technological upgrades to support evolving consumer buying preferences and to keep pace with our competitors. If these systems fail to perform as designed or if we fail to respond effectively to consumer buying preferences or keep pace with technological advances by our competitors, it could have a material adverse effect on our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nChanges in the availability or cost of capital and working capital financing could adversely affect the Company\n\u2019\ns growth and business strategies, and volatility and disruption of the capital and credit markets and adverse changes in the global economy could have a negative impact on the Company\n\u2019\ns ability to access the credit markets in the future and/or obtain credit on favorable terms. \n\n\n\u00a0\n\n\nThe Company generates cash from income from continuing operations. The cash is primarily used to fund finance receivables growth. To the extent finance receivables growth exceeds income from continuing operations, the Company generally increases its borrowings under its revolving credit facilities and, more recently, has issued non-recourse notes through asset-back securitization transactions to provide the cash necessary to fund operations. On a long-term basis, the Company expects its principal sources of liquidity to consist of income from continuing operations and borrowings under revolving credit facilities and/or term securitizations. Any adverse changes in the Company\u2019s ability to borrow under revolving credit facilities or by accessing the securitization market, or any increase in the cost of such borrowings, would likely have a negative impact on the Company\u2019s ability to finance receivables growth which would adversely affect the Company\u2019s growth and business strategies. Further, the Company\u2019s current credit facilities and non-recourse notes payable contain various reporting and/or financial performance covenants. Any failure of the Company to comply with these covenants could have a material adverse effect on the Company\u2019s ability to implement its business strategy.\n\n\n\u00a0\n\n\nIf the capital and credit markets experience disruptions and/or the availability of funds becomes restricted, it is possible that the Company\u2019s ability to access the capital and credit markets may be limited or available on less favorable terms which could have an impact on the Company\u2019s ability to refinance maturing debt or react to changing economic and business conditions. In addition, if negative domestic or global economic conditions persist for an extended period of time or worsen substantially, the Company\u2019s business may suffer in a manner which could cause the Company to fail to satisfy the financial and other restrictive covenants under its credit facilities.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       22\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe impact of climate-change related events, including efforts to reduce or mitigate the effects of climate change and inclement weather can adversely impact the Company\n\u2019\ns operating results.\n\n\n\u00a0\n\n\nThe effects of climate change such as natural disasters or the occurrence of weather events, such as rain, snow, wind, storms, hurricanes, or other natural disasters, which adversely affect consumer traffic at the Company\u2019s automotive dealerships, could negatively impact the Company\u2019s operating results. Further, the pricing of used vehicles is affected by, among other factors, consumer preferences, which may be impacted by consumer perceptions of climate change and consumer efforts to mitigate or reduce climate change-related events by purchasing vehicles that are viewed as more fuel efficient (including vehicles powered primarily or solely through electricity). An increase in the supply or a decrease in the demand for used vehicles may impact the resale value of the vehicles the Company sells. Moreover, the implementation of new or revised laws or regulations designed to address or mitigate the potential impacts of climate change (including laws which may adversely impact the auto industry in particular as a result of efforts to mitigate the factors contributing to climate change) could have a significant impact on the Company. Consequently, the impact of climate change-related events, including efforts to reduce or mitigate the effects of climate change, may adversely impact the Company\u2019s operating results.\n\n\n\u00a0\n\n\nRisks Related to the Company\n\u2019\ns Common Stock\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns stock trading volume may result in greater volatility in the market price of the Company\n\u2019\ns common stock and may not provide adequate liquidity for investors.\n\n\n\u00a0\n\n\nAlthough shares of the Company\u2019s common stock are traded on the NASDAQ Global Select Market, the average daily trading volume in the Company\u2019s common stock is less than that of other larger automotive retail companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of a sufficient number of willing buyers and sellers of the common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control. Given the average daily trading volume of the Company\u2019s common stock, the market price of the Company\u2019s common stock may be subject to greater volatility than companies with larger trading volumes as smaller transactions can more significantly impact the Company\u2019s stock price. Significant sales of the Company\u2019s common stock in a brief period of time, or the expectation of these sales, could cause a decline in the price of the Company\u2019s common stock. The price of the Company\u2019s common stock may also be subject to wide fluctuations based upon the Company\u2019s operating results, general economic and market conditions, general trends and prospects for our industry, announcements by competitors, the Company\u2019s ability to achieve any long-term targets or performance metrics and other factors. Any such fluctuations could increase the Company\u2019s risk of being subject to securities class action litigation, which could result in substantial costs, divert management\u2019s attention and resources and have other material adverse impacts on the Company\u2019s business. Additionally, low trading volumes may limit a stockholder\u2019s ability to sell shares of the Company\u2019s common stock.\n\n\n\u00a0\n\n\nThe Company currently does not intend to pay future dividends on its common stock.\n\n\n\u00a0\n\n\nThe Company historically has not paid cash dividends on its common stock and currently does not anticipate paying future cash dividends on its common stock. Any determination to pay future dividends and other distributions in cash, stock, or property by the Company in the future will be at the discretion of the Company\u2019s Board of Directors and will be dependent on then-existing conditions, including the Company\u2019s financial condition and results of operations and contractual restrictions. The Company is also limited in its ability to pay dividends or make other distributions to its shareholders without the consent of its lender. Therefore, stockholders should not rely on future dividend income from shares of the Company\u2019s common stock.\n\n\n\u00a0\n\n",
+  "item7": ">Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations\n\n\n\u00a0\n\n\nThe following discussion should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto appearing in Item 8 of this Annual Report on Form 10-K.\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nAmerica\u2019s Car-Mart, Inc., a Texas corporation (the \u201cCompany\u201d), is one of the largest publicly held automotive retailers in the United States focused exclusively on the \u201cIntegrated Auto Sales and Finance\u201d segment of the used car market. References to the Company include the Company\u2019s consolidated subsidiaries. The Company\u2019s operations are principally conducted through its two operating subsidiaries, America\u2019s Car Mart, Inc., an Arkansas corporation (\u201cCar-Mart of Arkansas\u201d), and Colonial Auto Finance, Inc., an Arkansas corporation (\u201cColonial\u201d). Collectively, Car-Mart of Arkansas and Colonial are referred to herein as \u201cCar-Mart.\u201d The Company primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the Company\u2019s customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems. As of April 30, 2023, the Company operated 156 dealerships located primarily in small cities throughout the South-Central United States.\n\n\n\u00a0\n\n\nCar-Mart has been operating since 1981. Car-Mart has grown its revenues between approximately 4% and 32% per year over the last ten years (average 12.0%). Growth results from same dealership revenue growth and the addition of new dealerships. Revenue increased 17.6% for the fiscal year ended April 30, 2023 compared to fiscal 2022 primarily due to a 10.4% increase in average retail sales price, a 4.9% increase in units sold and a 29.2% increase in interest income.\n\n\n\u00a0\n\n\nThe Company earns revenue from the sale of used vehicles, and in most cases a related service contract and an accident protection plan product, as well as interest income and late fees from the related financing. The Company\u2019s cost structure is more fixed in nature and is sensitive to volume changes. Revenue can be affected by our level of competition, which is influenced to a large extent by the availability of funding to the sub-prime automobile industry, together with the availability and resulting purchase cost of the types of vehicles the Company purchases for resale. Revenues can also be affected by the macro-economic environment. Down payments, contract term lengths and proprietary credit scoring are critical to helping customers succeed and are monitored closely by corporate management at the point of sale. After the sale, collections, delinquencies and charge-offs are crucial elements of the Company\u2019s evaluation of its financial condition and results of operations and are monitored and reviewed on a continuous basis. Management believes that developing and maintaining a relationship with its customers and earning their repeat business is critical to the success and growth of the Company and can serve to offset the effects of increased competition and negative macro-economic factors.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       26\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company focuses on the benefits of excellent customer service and its \u201clocal\u201d face-to-face offering in an effort to help customers succeed, while continuing to enhance the Company\u2019s digital services and offerings to meet growing demands for an online sales experience. The Company, over recent years, has focused on providing a good mix of vehicles in various price ranges to increase affordability for customers.\n\n\n\u00a0\n\n\nThe purchase price the Company pays for its vehicles can also have a significant effect on revenues, liquidity and capital resources. Because the Company bases its selling price on the purchase cost of the vehicle, increases in purchase costs result in increased selling prices. As the selling price increases, it becomes more difficult to keep the gross margin percentage and contract term in line with historical results because the Company\u2019s customers have limited incomes and their car payments must remain affordable within their individual budgets. Decreases in the overall volume of new car sales, particularly domestic brands, lead to decreased supply and generally increased prices in the used car market. Also, expansions or constrictions in consumer credit, as well as general economic conditions, can have an overall effect on the demand and the resulting purchase cost of the types of vehicles the Company purchases for resale.\n\n\n\u00a0\n\n\nThe COVID-19 global pandemic and the resulting macroeconomic effects have negatively impacted the availability and prices of the vehicles the Company purchases. Over the past three years, the reduction in new car production and fewer off-lease vehicles have negatively impacted the availability of used vehicle inventory and resulted in higher purchase costs. The Company constantly reviews and adjusts purchasing avenues in order to obtain an appropriate flow of vehicles. While the Company anticipates that the availability of used vehicles will remain constricted and keep purchase costs elevated in the near future, any decline in overall market pressures affecting the availability and costs of used vehicles could result in lower inventory purchase costs and present an opportunity for the Company to purchase slightly newer, lower mileage vehicle for its customers.\n\n\n\u00a0\n\n\nThe Company consistently focuses on collections. Each dealership is responsible for its own collections with supervisory involvement of the corporate office. Over the last five fiscal years, the Company\u2019s credit losses as a percentage of sales have ranged from approximately 19.30% in fiscal 2019 to 29.20% in fiscal 2023 (average of 23.74%). Credit loss results improved substantially in fiscal 2021 due to a lower frequency of losses and lower severity of loss amounts relative to the principal balance as the CARES Act enhanced unemployment and stimulus funds, combined with the Company\u2019s commitment to working with customers, aided customers\u2019 ability to make their vehicle payments. The improvement in credit losses as a percentage of sales for fiscal 2021 was further accelerated by the Company\u2019s decision during the fourth quarter of fiscal 2021 to reduce the allowance for credit losses back to 23.55% of finance receivables, net of deferred revenue, which resulted in a $14.2 million pretax decrease in the provision for credit losses. The fiscal year 2022 credit losses began to normalize to pre-pandemic levels but were still below historical levels despite the increase in the average retail sales price. The fiscal year 2023 credit losses continued to normalize to pre-pandemic levels, partially driven by the lack of federal stimulus payments in the current fiscal year as compared to prior fiscal years due to the expiration of the CARES Act and the Consolidated Appropriations Act of 2021, and partially driven by the current macro-economic environment. Based on the Company\u2019s current analysis of credit losses, the allowance for credit losses as a percentage of finance receivables, net of deferred revenue, increased from 23.57% at April 30, 2022 to 23.91% at April 30, 2023.\n\n\n\u00a0\n\n\nHistorically, credit losses, on a percentage basis, tend to be higher at new and developing dealerships than at mature dealerships. Generally, this is because the management at new and developing dealerships tends to be less experienced in making credit decisions and collecting customer accounts and the customer base is less seasoned. Normally more mature dealerships have more repeat customers and, on average, repeat customers are a better credit risk than non-repeat customers. Credit losses and charge-offs can also be impacted by market and economic factors, including a competitive used vehicle financing environment and macro-economic conditions such as inflation in the price of gasoline, groceries and other staple items. Negative macro-economic issues, however, do not always lead to higher credit loss results for the Company because the Company provides basic affordable transportation which in many cases is not a discretionary expenditure for customers.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       27\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company continuously looks for ways to operate more efficiently, improve its business practices and adjust underwriting and collection procedures. The Company has a proprietary credit scoring system which enables the Company to monitor the quality of contracts. Corporate office personnel monitor proprietary credit scores and work with dealerships when the distribution of scores falls outside of prescribed thresholds. The Company also uses credit reporting and the use of global positioning system (\u201cGPS\u201d) units on vehicles. Additionally, the Company has placed significant focus on the collection area as the Company\u2019s training department continues to spend significant time and effort on collections improvements. The Company\u2019s vice president of collections oversees the collections area and provides timely oversight and additional accountability on a consistent basis. The Company believes that the proper execution of its business practices is the single most important determinant of its long-term credit loss experience.\n\n\n\u00a0\n\n\nOver the last five fiscal years, the Company\u2019s gross margin as a percentage of sales has ranged from approximately 40.4% in fiscal 2019 to 33.4% in fiscal 2023 (average of 38.0%). The Company\u2019s gross margin is based upon the cost of the vehicle purchased, with lower-priced vehicles typically having higher gross margin percentages but lower gross profit dollars, and is also affected by the percentage of wholesale sales to retail sales, which relates for the most part to repossessed vehicles sold at or near cost. The gross margin percentage decreased in fiscal 2023 to 33.4% from 36.4% in the prior fiscal year, while total gross profit per retail unit sold increased by $72, primarily as a result of the Company selling on average a higher priced vehicle in fiscal 2023. The inflationary environment during fiscal 2023 also contributed to the lower gross margin percentage due to increased costs of vehicle parts, shop labor rates and transport services.\n\n\n\u00a0\n\n\nHiring, training and retaining qualified associates is critical to the Company\u2019s success. The Company\u2019s ability to add new dealerships and implement operating initiatives is dependent on having a sufficient number of trained managers and support personnel. Excessive turnover, particularly at the dealership manager level, could impact the Company\u2019s ability to add new dealerships and to meet operational initiatives. The landscape for hiring remains very competitive as business activity and workforce participation continue to adjust post-pandemic. The Company has continued to add resources to recruit, train, and develop personnel, especially personnel targeted to fill dealership manager positions. The Company expects to continue to invest in the development of its workforce.\n\n\n\u00a0\n\n\nImmaterial Corrections to Historical Financial Statements\n\n\n\u00a0\n\n\nCertain historical financial information presented in this Annual Report on Form 10-K has been revised to correct immaterial errors in certain amounts reported in the Company\u2019s prior financial statements related to the classification of deferred revenue of ancillary products at the time an account is charged off and the calculation for allowance for credit losses. Management has concluded that these corrections did not materially impact the Company\u2019s operating results or financial condition in any prior annual or interim period. See Note N to the Condensed Consolidated Financial Statements for additional information.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n     28\n   \n\n\n\n\n\n     \u00a0\n   \n\n\n\n\n\u00a0\n\n\nConsolidated Operations\n\n\n(Operating Statement Dollars in Thousands)\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% Change\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYears Ended April 30,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nvs.\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nvs.\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nAs a % of Sales\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nOperating Statement:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nRevenues:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nSales\n \n\n\n\u00a0\n\n\n$\n\n\n1,209,279\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,043,698\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n799,129\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.9\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n30.6\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n \n%\n \n\n\n\n\n\n\n \nInterest and other income\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n196,219\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n151,853\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n110,545\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n37.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.8\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,405,498\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,195,551\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n909,674\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n116.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n114.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n113.8\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nCosts and expenses:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nCost of sales, excluding depreciation shown below\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n805,873\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n663,631\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n479,153\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.4\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n38.5\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n66.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n63.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n60.0\n\n\n\u00a0\n\n\n\n\n\n\n \nSelling, general and administrative\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n176,696\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n156,130\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n130,855\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16.4\n\n\n\u00a0\n\n\n\n\n\n\n \nProvision for credit losses\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n352,860\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n238,054\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n153,835\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n48.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n54.7\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19.3\n\n\n\u00a0\n\n\n\n\n\n\n \nInterest expense\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n38,312\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,919\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,820\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n250.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n60.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.9\n\n\n\u00a0\n\n\n\n\n\n\n \nDepreciation and amortization\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5,602\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,033\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,719\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38.9\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.5\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.5\n\n\n\u00a0\n\n\n\n\n\n\n \nLoss (gain) on disposal of property and equipment\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n361\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n149\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(40\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,379,704\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,072,916\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n774,342\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n114.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n102.8\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n97.1\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nIncome before income taxes\n \n\n\n\u00a0\n\n\n$\n\n\n25,794\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n122,635\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n135,332\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.1\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n11.8\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n16.9\n\n\n \n%\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nOperating Data (Unaudited):\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nRetail units sold\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n63,584\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n60,595\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n56,806\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.9\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n6.7\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nAverage dealerships in operation\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n155\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n152\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n150\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nAverage units sold per dealership per month\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n34.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33.2\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3.0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nAverage retail sales price\n \n\n\n\u00a0\n\n\n$\n\n\n18,080\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n16,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13,464\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10.4\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21.6\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nGross profit per retail unit sold\n \n\n\n\u00a0\n\n\n$\n\n\n6,344\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n6,272\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n5,633\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nSame store revenue growth\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n16.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n30.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nReceivables average yield\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n15.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFiscal 2023 Compared to Fiscal 2022\n\n\n\u00a0\n\n\nTotal revenues increased $209.9 million, or 17.6%, in fiscal 2023, as compared to revenue growth of 31.4% in fiscal 2022, principally as a result of (i) revenue growth from dealerships that operated a full twelve months in both fiscal years ($196.7 million), and (ii) revenue from stores opened or acquired during or after the year ended April 30, 2022 ($15.3 million), partially offset by (iii) decreased revenue from dealerships closed during or after the year ended April 30, 2022 ($2.1 million). The increase in revenue for fiscal 2023 is attributable to (i) a 10.4% increase in average retail sales price, (ii) a 4.9% increase in retail units sold and (iii) a 29.2% increase in interest and other income, due to the $289.2 million increase in average finance receivables.\n\n\n\u00a0\n\n\nCost of sales, as a percentage of sales, increased to 66.6% compared to 63.6% in fiscal 2022, resulting in a decrease in the gross margin percentage to 33.4% of sales in fiscal 2023 from 36.4% of sales in fiscal 2022. On a dollar basis, our gross margin per retail unit sold increased by $72 in fiscal 2023 compared to fiscal 2022. The average retail sales price for fiscal 2023 was $18,080, a $1,708 increase over the prior fiscal year, reflecting the high demand for used cars, especially in the market we serve. As purchase costs increase, the margin between the purchase cost and the sales price of the vehicles we sell generally narrows on a percentage basis because the Company must offer affordable prices to our customers. Demand for the vehicles we purchase for resale has remained high and the supply has continued to be restricted primarily due to lower levels of new car production. The inflationary environment during fiscal 2023 also contributed to the lower gross margin percentage due to increased costs of vehicle parts, shop labor rates and transport services.\n\n\n\u00a0\n\n\nSelling, general and administrative expenses, as a percentage of sales decreased to 14.6% in fiscal 2023 from 15.0% for fiscal 2022. Selling, general and administrative expenses are, for the most part, more fixed in nature. During fiscal 2023 we continued investments in inventory procurement, technology and digital areas as well as investing in key additions to our leadership team. In dollar terms, selling, general and administrative expenses increased $20.6 million from fiscal 2022. These investments are expected to be leveraged, creating efficiencies in the business allowing us to serve more customers in future years.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       29\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nProvision for credit losses as a percentage of sales increased to 29.2% for fiscal 2023 compared to 22.8% for fiscal 2022. Net charge-offs as a percentage of average finance receivables increased to 23.3% for fiscal 2023 compared to 18.3% for the prior year. The stimulus payments during fiscal 2022 had positive impacts on collections and net charge-off metrics, while in fiscal 2023, the absence of stimulus payments, added inflationary pressures and the current macro-economic environment had a negative impact on collections and net charge-off metrics. Net charge offs began to normalize to pre-pandemic levels in late fiscal 2022 and continued to normalize during fiscal 2023. The primary driver was an increased frequency of losses; however, the relative severity of losses also increased.\n\n\n\u00a0\n\n\nInterest expense for fiscal 2023 as a percentage of sales increased to 3.2% in fiscal 2023 from 1.0% in fiscal 2022. The increase in interest expense is primarily due to the higher interest rates in 2023 as well as the higher average borrowings in fiscal 2023 ($568.3 million in fiscal 2023 compared to $331.6 million for fiscal 2022). 71% of the increase in interest expense is attributable to the higher interest rates in 2023 and 29% is attributable to the increase in borrowings.\n\n\n\u00a0\n\n\nFiscal 2022 Compared to Fiscal 2021\n\n\n\u00a0\n\n\nTotal revenues increased $285.9 million, or 31.4%, in fiscal 2022, as compared to revenue growth of 22.2% in fiscal 2021, principally as a result of (i) revenue growth from dealerships that operated a full twelve months in both fiscal years ($269.2 million), and (ii) revenue from stores opened or acquired during or after the year ended April 30, 2021 ($16.8 million), partially offset by (iii) decreased revenue from dealerships closed during or after the year ended April 30, 2021 ($86,000). The increase in revenue for fiscal 2022 is attributable to (i) a 21.6% increase in average retail sales price, (ii) a 6.7% increase in retail units sold and (iii) a 37.4% increase in interest and other income.\n\n\n\u00a0\n\n\nCost of sales, as a percentage of sales, increased slightly to 63.6% compared to 60.0% in fiscal 2021, resulting in a decrease in the gross margin percentage to 36.4% of sales in fiscal 2022 from 40.0% of sales in fiscal 2021. On a dollar basis, our gross margin per retail unit sold increased by $639 in fiscal 2022 compared to fiscal 2021. The average retail sales price for fiscal 2022 was $16,372, a $2,908 increase over the prior fiscal year, reflecting the high demand for used cars, especially in the market we serve. As purchase costs increase, the margin between the purchase cost and the sales price of the vehicles we sell generally narrows on a percentage basis because the Company must offer affordable prices to our customers. Demand for the vehicles we purchase for resale remained high during fiscal 2022 and the supply continued to be restricted due to lower repossessions, lower levels of new car production and sales and additional demand due to stimulus money.\n\n\n\u00a0\n\n\nSelling, general and administrative expenses, as a percentage of sales decreased to 15.0% in fiscal 2022 from 16.4% for fiscal 2021. Selling, general and administrative expenses remained, for the most part, more fixed in nature. In dollar terms, overall selling, general and administrative expenses increased $25.3 million from fiscal 2021. The increase was primarily focused on investments in our associates, especially building our customer experience team and investing in procurement, combined with increased commissions due to higher net income.\n\n\n\u00a0\n\n\nProvision for credit losses as a percentage of sales increased to 22.8% for fiscal 2022 compared to 19.3% for fiscal 2021. Net charge-offs as a percentage of average finance receivables increased to 18.3% for fiscal 2022 compared to 18.0% for the prior year. The stimulus payments during fiscal 2021 had positive impacts on collections and net charge-off metrics. From a long-term historical perspective, the fiscal 2022 net charge-offs were much improved and below historical levels despite the increase in the average retail sales price. The frequency of losses increased compared to the prior year as credit losses began to normalize to pre-pandemic levels.\n\n\n\u00a0\n\n\nInterest expense as a percentage of sales increased slightly to 1.0% in fiscal 2022 from 0.9% in fiscal 2021. The increase in interest expense is primarily due to the higher average borrowings in fiscal 2022 ($333.2 million in fiscal 2022 compared to $220.7 million in fiscal 2021).\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       30\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nFinancial Condition\n\n\n\u00a0\n\n\nThe following table sets forth the major balance sheet accounts of the Company at April 30, 2023, 2022 and 2021 (in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nApril 30,\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nAssets:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nFinance receivables, net\n \n\n\n\u00a0\n\n\n$\n\n\n1,073,764\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n863,674\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n632,270\n\n\n\u00a0\n\n\n\n\n\n\n \nInventory\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n109,290\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n115,302\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n82,263\n\n\n\u00a0\n\n\n\n\n\n\n \nIncome taxes receivable, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n9,259\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n274\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\n \nProperty and equipment, net\n(1)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n61,682\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n45,412\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34,719\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nLiabilities:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nAccounts payable and accrued liabilities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n60,802\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n52,685\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n49,486\n\n\n\u00a0\n\n\n\n\n\n\n \nDeferred revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n120,469\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n92,491\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n56,810\n\n\n\u00a0\n\n\n\n\n\n\n \nIncome taxes payable, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n150\n\n\n\u00a0\n\n\n\n\n\n\n \nDeferred income tax liabilities, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n39,315\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,449\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,698\n\n\n\u00a0\n\n\n\n\n\n\n \nNon-recourse notes payable, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n471,367\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n395,986\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\n \nRevolving line of credit, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n167,231\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n44,670\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n225,924\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(1)\n \n\n\n \nPrepaid expenses and other assets at April 30, 2022, reflects an immaterial reclassification of approximately $6.0 million of capitalized implementation costs related to a cloud-computing arrangement previously recorded in Property and equipment, net, and did not impact operating income.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe following table shows receivables growth compared to revenue growth during each of the past three fiscal years. For fiscal year 2023, growth in finance receivables, net of deferred revenue, of 24.2% exceeded revenue growth of 17.6%, due primarily to the increases in term lengths of our installment sales contracts as the Company strives to keep payments affordable for our customers. The Company anticipates going forward that the growth in finance receivables will generally continue to be slightly higher than overall revenue growth on an annual basis due to the overall term length increases in our installment sales contracts in recent years. The average term for installment sales contracts at April 30, 2023 was 46.3 months, compared to 42.9. months for April 30, 2022.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYears Ended April 30,\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nGrowth in finance receivables, net of deferred revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n24.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n34.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n28.7\n\n\n%\n\n\n\n\n\n\n \nRevenue growth\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n17.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n31.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n23.7\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAt fiscal year-end 2023, inventory decreased 5.2% ($6.0 million), compared to fiscal year-end 2022, primarily due to a concerted effort to increase efficiencies in our inventory operations resulting in annualized inventory turns of 7.2 compared to 6.7 for the previous year. The Company strives to improve the quality of the inventory and maintain adequate turns while maintaining inventory levels to ensure an adequate supply of vehicles, in volume and mix, and to meet sales demand.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       31\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nProperty and equipment, net, increased by approximately $16.3 million as of April 30, 2023 as compared to fiscal 2022. We incurred approximately $22.3 million in expenditures during fiscal year 2023, primarily related to new locations, relocations and finalizing our rebranding project. The increase to property and equipment, net, was partially offset by depreciation expense of $5.6 million and disposals of approximately $454,000 \u00a0in furniture and equipment.\n\n\n\u00a0\n\n\nAccounts payable and accrued liabilities increased by approximately $8.1 million at April 30, 2023 as compared to April 30, 2022 primarily due to higher accounts payable related to increased inventory and sales activity.\n\n\n\u00a0\n\n\nDeferred revenue increased $28 million at April 30, 2023 over April 30, 2022, primarily resulting from the increase in sales of the accident protection plan and service contract products, as well as the increased terms on the service contracts.\n\n\n\u00a0\n\n\nDeferred income tax liabilities, net, increased approximately $8.9 million at April 30, 2023 as compared to April 30, 2022, due primarily to the increase in finance receivables, net.\n\n\n\u00a0\n\n\nThe Company had $471 million and $396 million of non-recourse notes payable outstanding related to asset-backed term funding transactions for the periods ended April 30, 2023 and 2022, respectively.\n\n\n\u00a0\n\n\nThe Company also maintains a revolving line of credit with a group of lenders with available borrowings based on and secured by eligible finance receivables and inventory. Interest under the revolving credit facilities is payable monthly at an interest rate determined based on the Company\u2019s consolidated leverage ratio for the preceding fiscal quarter. The current applicable interest rate under the credit facilities is generally SOFR plus 2.75%. Borrowings on the Company\u2019s revolving credit facilities fluctuate primarily based upon a number of factors including (i) net income, (ii) finance receivables changes, (iii) income taxes, (iv) capital expenditures, (v) common stock repurchases and (vi) other sources of financing, such as our recent issuance of asset-backed non-recourse notes. At April 30, 2023, the Company had $167.2 million in outstanding borrowings under the revolving credit facilities.\n\n\n\u00a0\n\n\nHistorically, income from continuing operations, as well as borrowings on the revolving credit facilities, have funded the Company\u2019s finance receivables growth, capital asset purchases and common stock repurchases. During fiscal 2023, the Company primarily utilized the proceeds of its April 2022 and January 2023 asset-backed term funding transactions to fund the Company\u2019s current receivables growth.\n\n\n\u00a0\n\n\nIn fiscal 2023, the Company had a $172.5 million net increase in total debt, net of cash, used to contribute to the funding of finance receivables growth of $210.1 million, net capital expenditures of $22.3 million and common stock repurchases of $5.2 million. These investments reflect our commitment to providing the necessary inventory and facilities to support a growing customer base.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       32\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\n\n\u00a0\n\n\nThe following table sets forth certain historical information with respect to the Company\u2019s Statements of Cash Flows (in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYears Ended April 30,\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nOperating activities:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nNet income\n \n\n\n\u00a0\n\n\n$\n\n\n20,432\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n95,014\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n104,820\n\n\n\u00a0\n\n\n\n\n\n\n \nProvision for credit losses\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n352,860\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n238,054\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n153,835\n\n\n\u00a0\n\n\n\n\n\n\n \nLosses on claims for accident protection plan\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n25,107\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,871\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,954\n\n\n\u00a0\n\n\n\n\n\n\n \nDepreciation and amortization\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5,602\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,033\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,719\n\n\n\u00a0\n\n\n\n\n\n\n \nAmortization of debt issuance costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5,461\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n775\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n391\n\n\n\u00a0\n\n\n\n\n\n\n \nStock based compensation\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5,314\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,496\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,962\n\n\n\u00a0\n\n\n\n\n\n\n \nDeferred income taxes\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n8,866\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,750\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,239\n\n\n\u00a0\n\n\n\n\n\n\n \nFinance receivable originations\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,161,132\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,009,858\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(762,717\n\n\n)\n\n\n\n\n\n\n \nFinance receivable collections\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n434,458\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n417,796\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n370,254\n\n\n\u00a0\n\n\n\n\n\n\n \nAccrued interest on finance receivables\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,188\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,559\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(269\n\n\n)\n\n\n\n\n\n\n \nInventory\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n133,047\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n51,057\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,019\n\n\n\u00a0\n\n\n\n\n\n\n \nAccounts payable and accrued liabilities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n8,621\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,167\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,766\n\n\n\u00a0\n\n\n\n\n\n\n \nDeferred accident protection plan revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n17,150\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,850\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,865\n\n\n\u00a0\n\n\n\n\n\n\n \nDeferred service contract revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n24,542\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,645\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,760\n\n\n\u00a0\n\n\n\n\n\n\n \nIncome taxes, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,984\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(424\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,691\n\n\n)\n\n\n\n\n\n\n \nOther\n(1)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,884\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,845\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,719\n\n\n)\n\n\n\n\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(135,728\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(119,178\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(53,812\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nInvesting activities:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nPurchase of investments\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,549\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,574\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\n \nPurchase of property and equipment\n(1)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(22,106\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(15,796\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,952\n\n\n)\n\n\n\n\n\n\n \nProceeds from sale of property and equipment\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n84\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n694\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(27,571\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17,350\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,258\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nFinancing activities:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nDebt facilities, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(207,696\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(186,037\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,965\n\n\n\u00a0\n\n\n\n\n\n\n \nNon-recourse debt, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n400,176\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n399,994\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\n \nChange in cash overdrafts\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,802\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,802\n\n\n\u00a0\n\n\n\n\n\n\n \nPurchase of common stock\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,196\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(34,698\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10,616\n\n\n)\n\n\n\n\n\n\n \nDividend payments\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(40\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(40\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(40\n\n\n)\n\n\n\n\n\n\n \nExercise of stock options, including tax benefits and issuance of common stock\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,502\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,195\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,292\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n188,746\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n176,222\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,403\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nIncrease (decrease) in cash, cash equivalents, and restricted cash\n \n\n\n\u00a0\n\n\n$\n\n\n25,447\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n39,694\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(56,667\n\n\n)\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(1)\n \n\n\n \nPrepaid expenses and other assets at April 30, 2022, reflects an immaterial reclassification of approximately $6.0 million of capitalized implementation costs related to a cloud-computing arrangement previously recorded in Property and equipment, net, and did not impact operating income.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe primary drivers of operating profits and cash flows include (i) top line sales (ii) interest income on finance receivables, (iii) gross margin percentages on vehicle sales, and (iv) credit losses, a significant portion of which relates to the collection of principal on finance receivables. Historically, most of the cash generated from operations has been used to fund finance receivables growth, capital expenditures and common stock repurchases. To the extent finance receivables growth, common stock repurchases and capital expenditures exceed income from operations we historically increased our borrowings under our revolving credit facilities and most recently also utilized the securitization market.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       33\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nCash flows from operations in fiscal 2023 compared to fiscal 2022 decreased primarily as a result of (i) an increase in finance receivable originations and (ii) a decrease in deferred revenue, partially offset by an increase in (iii) finance receivable collections. Finance receivables, net, increased by $210.1 million during fiscal 2023.\n\n\n\u00a0\n\n\nCash flows from operations in fiscal 2022 compared to fiscal 2021 decreased primarily as a result of (i) an increase in finance receivable originations and (ii) an increase in inventory, partially offset by increases in (iii) finance receivable collections and (iv) deferred revenue. Finance receivables, net, increased by $231.4 million during fiscal 2022.\n\n\n\u00a0\n\n\nThe purchase price the Company pays for a vehicle has a significant effect on liquidity and capital resources. Because the Company bases its selling price on the purchase cost for the vehicle, increases in purchase costs result in increased selling prices. As the selling price increases, it generally becomes more difficult to keep the gross margin percentage and contract term in line with historical results because the Company\u2019s customers have limited incomes and their car payments must remain affordable within their individual budgets. Several external factors can negatively affect the purchase cost of vehicles. Decreases in the overall volume of new car sales, particularly domestic brands, lead to decreased supply in the used car market. Also, constrictions in consumer credit, as well as general economic conditions, can increase overall demand for the types of vehicles the Company purchases for resale as used vehicles become more attractive than new vehicles in times of economic instability. A negative shift in used vehicle supply, combined with strong demand, results in increased used vehicle prices and thus higher purchase costs for the Company.\n\n\n\u00a0\n\n\nSustained macro-economic pressures affecting our customers have helped keep demand high in recent years for the types of vehicles we purchase. This strong demand, coupled with modest levels of new vehicle sales in recent years, have led to a generally ongoing tight supply of used vehicles available to the Company in both quality and quantity. Wholesale prices have begun to soften but remain high by historical standards.\u00a0 The Company expects the tight used vehicle supply and strong demand for the types of vehicles we purchase to continue to keep purchase costs and resulting sales prices elevated for the short term but anticipates that continuing strong wage increases for our customers will cause affordability to improve gradually over the next couple of years.\n\n\n\u00a0\n\n\nThe Company has devoted significant efforts to improving its purchasing processes to ensure adequate supply at appropriate prices, including expanding its purchasing territories to larger cities in close proximity to its dealerships and forming relationships with reconditioning partners to reduce purchasing costs. The Company has also increased the level of accountability for its purchasing agents including updates to sourcing and pricing guidelines. The Company continues to build relationships with national vendors that can supply a large quantity of high-quality vehicles. Even with these efforts, the Company expects gross margin percentages to remain under pressure over the near term.\n\n\n\u00a0\n\n\nThe Company\u2019s liquidity is also impacted by our credit losses. Macro-economic factors such as unemployment levels and general inflation can significantly affect our collection results and ultimately credit losses. Currently, as our customers look to cover rising costs of non-discretionary items, such as groceries and gasoline, it may impact their ability to make their car payments. The Company has made improvements to its business processes within the last few years to strengthen controls and provide stronger infrastructure to support its collections efforts. The Company continues to strive to reduce credit losses in spite of the current economic challenges and continued competitive pressures by improving deal structures. Management continues to focus on improved execution at the dealership level, specifically as related to working individually with customers concerning collection issues.\n\n\n\u00a0\n\n\nThe Company\u2019s collection results, credit losses and liquidity are also affected by the availability of funding to the sub-prime auto industry. In recent years, increased competition resulting from the availability of funding to the sub-prime auto industry has contributed to the Company reducing down payments and lengthening contract terms for our customers, which added negative pressure to our collection percentages and credit losses and increased our need for external sources of liquidity. During fiscal years 2022 and 2023, the availability of credit to the Company\u2019s customer base was somewhat dampened but remained near recent historical levels. The Company believes that the amount of credit available, even with it tightening in 2023, for the sub-prime auto industry will remain relatively consistent with levels in recent years, which management expects will contribute to continued strong overall demand for most, if not all, of the vehicles the Company purchases for resale.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       34\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company has generally leased the majority of the properties where its dealerships are located. As of April 30, 2023, the Company leased approximately 79% of its dealership properties. At April 30, 20223 the Company had $82.2 million of operating lease commitments, including $13.3 million of non-cancelable lease commitments under the lease terms, and $68.9 million of lease commitments for renewal periods at the Company\u2019s option that are reasonably assured. Of the $82.2 million total lease obligations, $46.5 million of these commitments will become due in more than five years. The Company expects to continue to lease the majority of the properties where its dealerships are located.\n\n\n\u00a0\n\n\nThe Company\u2019s revolving credit facilities generally restrict distributions by the Company to its shareholders. The distribution limitations under the credit facilities allow the Company to repurchase the Company\u2019s stock so long as either: (a) the aggregate amount of such repurchases after September 30, 2021 does not exceed $50 million, net of proceeds received from the exercise of stock options, and the total availability under the credit facilities is equal to or greater than 20% of the sum of the borrowing bases, in each case after giving effect to such repurchases (repurchases under this item are excluded from fixed charges for covenant calculations), or (b) the aggregate amount of such repurchases does not exceed 75% of the consolidated net income of the Company measured on a trailing twelve month basis; provided that immediately before and after giving effect to the stock repurchases, at least 12.5% of the aggregate funds committed under the credit facilities remain available. Thus, although the Company does routinely repurchase stock, the Company is limited in its ability to pay dividends or make other distributions to its shareholders without the consent of the Company\u2019s lenders.\n\n\n\u00a0\n\n\nAt April 30, 2023, the Company had approximately $9.8 million of cash on hand and $121.4 million of availability under its revolving credit facilities (see Note F to the Consolidated Financial Statements in Item 8). On a short-term basis, the Company\u2019s principal sources of liquidity include income from operations, proceeds from non-recourse notes payable issued under asset-back securitization transactions and borrowings under its revolving credit facilities. On a longer-term basis, the Company expects its principal sources of liquidity to consist of income from operations, funding from asset-back securitization transactions, and borrowings under revolving credit facilities or fixed interest term loans. The Company\u2019s revolving credit facilities mature in September 2024 and the Company expects that it will be able to renew or refinance its revolving credit facilities on or before the date they mature. The Company also believes it could raise additional capital through the issuance of additional debt or equity securities if necessary or if market conditions are favorable to pursue strategic opportunities.\n\n\n\u00a0\n\n\nThe Company expects to use cash from operations and borrowings to (i) grow its finance receivables portfolio, (ii) purchase fixed assets of approximately $12 million in the next 12 months as we complete facility updates and general fixed asset requirements, (iii) repurchase shares of common stock when favorable conditions exist and (iv) reduce debt to the extent excess cash is available. The Company estimates that total interest payments on its outstanding debt facilities as of April 30, 2023, are approximately $54.3 million with approximately $34.3 million in interest payable during fiscal 2024.\n\n\n\u00a0\n\n\nThe Company believes it will have adequate liquidity to continue to grow its revenues and to satisfy its capital needs for the foreseeable future.\n\n\n\u00a0\n\n\nOff-Balance Sheet Arrangements\n\n\n\u00a0\n\n\nThe Company has two standby letters of credit relating to insurance policies totaling $2.9 million at April 30, 2023.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       35\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOther than its letters of credit, the Company is not a party to any off-balance sheet arrangement that management believes is reasonably likely to have a current or future effect on the Company\u2019s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.\n\n\n\u00a0\n\n\nRelated Finance Company Contingency\n\n\n\u00a0\n\n\nCar-Mart of Arkansas and Colonial do not meet the affiliation standard for filing consolidated income tax returns, and as such they file separate federal and state income tax returns. Car-Mart of Arkansas routinely sells its finance receivables to Colonial at what the Company believes to be fair market value and is able to take a tax deduction at the time of sale for the difference between the tax basis of the receivables sold and the sales price. These types of transactions, based upon facts and circumstances, have been permissible under the provisions of the Internal Revenue Code as described in the Treasury Regulations. For financial accounting purposes, these transactions are eliminated in consolidation and a deferred income tax liability has been recorded for this timing difference. The sale of finance receivables from Car-Mart of Arkansas to Colonial provides certain legal protection for the Company\u2019s finance receivables and, principally because of certain state apportionment characteristics of Colonial, also has the effect of reducing the Company\u2019s overall effective state income tax rate. The actual interpretation of the Regulations is in part a facts and circumstances matter. The Company believes it satisfies the material provisions of the Regulations. Failure to satisfy those provisions could result in the loss of a tax deduction at the time the receivables are sold and have the effect of increasing the Company\u2019s overall effective income tax rate as well as the timing of required tax payments.\n\n\n\u00a0\n\n\nThe Company\u2019s policy is to recognize accrued interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company had no accrued penalties or interest as of April 30, 2023.\n\n\n\u00a0\n\n\nCritical Accounting Estimates\n\n\n\u00a0\n\n\nThe preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires the Company to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the Company\u2019s estimates. The Company believes the most significant estimate made in the preparation of the Consolidated Financial Statements in Item 8 relates to the determination of its allowance for credit losses, which is discussed below. The Company\u2019s accounting policies are discussed in Note B to the Consolidated Financial Statements in Item 8.\n\n\n\u00a0\n\n\nThe Company maintains an allowance for credit losses on an aggregate basis at a level it considers sufficient to cover estimated losses expected to be incurred on the portfolio at the measurement date in the collection of its finance receivables currently outstanding. At April 30, 2023, the weighted average contract term was 46.3 months with 36.3 months remaining. The allowance for credit losses at April 30, 2023 of $299.6 million, was 23.91% of the principal balance in finance receivables of $1.4 billion, less unearned accident protection plan revenue of $53.1 million and unearned service contract revenue of $67.4 million. In the fourth quarter of fiscal 2023, the Company increased the allowance for credit losses as a percentage of finance receivables from 23.57% to 23.91%.\n\n\n\u00a0\n\n\nThe allowance for credit losses represents the Company\u2019s expectation of future net charge-offs at the measurement date. The allowance takes into account quantitative and qualitative factors such as historical credit loss experience, with consideration given to changes in contract characteristics (i.e., average amount financed, greater than 30 day delinquencies, term, and interest rates), credit quality trends, collateral values, current and forecasted inflationary economic conditions, underwriting and collection practices, concentration risk, credit review, and other external factors. The allowance for credit losses is reviewed at least quarterly by management with any changes reflected in current operations.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       36\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe calculation of the allowance for credit losses uses the following primary factors:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nThe probability of default (\u201cPD\u201d) or the number of units repossessed or charged-off divided by the number of units financed over the last five fiscal years (based on increments of 1, 1.5, 2, 3, 4, and 5 years).\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nLoss given at default (\u201cLGD\u201d) or the average net repossession and charge-off loss per unit during the last 18 months, segregated by the number of months since the contract origination date, and adjusted for the expected average net charge-off per unit.\u00a0\u00a0\u00a0\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nThe timing of repossession and charge-off loss relative to the date of sale (i.e., how long it takes for a repossession or charge-off to occur) for repossessions and charge-offs occurring during the last 18 months. The average number of months since the loan origination date, to charge off, over the last 18 months, is 12.3 months.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAn adjustment is incorporated in calculating the adjusted historical average remaining net loss per unit, for loans originated in the past 12 months to account for asset-specific adjustments, which include financing term, amount financed, credit quality trends and delinquencies.\n\n\n\u00a0\n\n\nA historical loss rate is produced by this analysis, which is then adjusted by qualitative factors and to reflect current and forecasted inflationary economic conditions over the Company\u2019s reasonable and supportable forecast of period of one year.\n\n\n\u00a0\n\n\nThe Company considers qualitative macro-economic factors that would affect its customers\u2019 non-discretionary income, such as changes in inflation, which impact gasoline prices and prices for staple items, to develop reasonable and supportable forecasts for the lifetime expected losses. These economic forecasts are utilized alongside historical loss information in order to estimate expected losses in the portfolio over the following 12-month period, at which point the Company will immediately revert to the point estimate produced by the Company\u2019s analysis of historical loss information to estimate expected losses from the portfolio for the remaining contractual lives of its finance receivables.\n\n\n\u00a0\n\n\nRecent Accounting Pronouncements\n\n\n\u00a0\n\n\nOccasionally, new accounting pronouncements are issued by the Financial Accounting Standards Board (\u201cFASB\u201d) or other standard setting bodies which the Company will adopt as of the specified effective date. Unless otherwise discussed, the Company believes the implementation of recently issued standards which are not yet effective will not have a material impact on its consolidated financial statements upon adoption.\n\n\n\u00a0\n\n\nRecently Issued Accounting Pronouncements Not Yet Adopted\n\n\n\u00a0\n\n\nIn March 2022, the FASB issued an accounting pronouncement (ASU 2022-02) related to troubled debt restructurings (\u201cTDRs\u201d) and vintage disclosures for financing receivables. The amendments in this update eliminate the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty. The amendments also require disclosure of current period gross write-offs by year of origination for financing receivables. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We plan to adopt this pronouncement and make the necessary updates to our vintage disclosures for the interim period beginning May 1, 2023, and aside from these disclosure changes.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       37\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nNon-GAAP Financial Measure\n\n\n\u00a0\n\n\nThis Annual Report on Form 10-K contains financial information determined by methods other than in accordance with generally accepted accounting principles (GAAP). We present an adjusted debt to equity ratio, a non-GAAP financial measure, as a supplemental measure of our financial condition. The adjusted debt to equity ratio is defined as the ratio of total debt, net of cash, to total equity. We believe the debt, net of cash, to equity ratio is a useful measure to monitor leverage and evaluate balance sheet risk. This measure should not be considered in isolation or as a substitute for reported GAAP results because it excludes certain items as compared to similar GAAP-based measures, and such measure may not be comparable to similarly-titled measures reported by other companies. We strongly encourage investors to review our consolidated financial statements included in this Annual Report on Form 10-K in their entirety and not rely solely on anyone, single financial measure. \u00a0The reconciliation between the Company\u2019s debt to equity ratio and debt, net of cash, to equity ratio for fiscal year ending April 30, 2023, is summarized in the table below.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nApril 30, 2023\n \n\n\n\u00a0\n\n\n\n\n\n\n \nDebt to Equity\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1.28\n\n\n\u00a0\n\n\n\n\n\n\n \nCash to Equity\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n0.14\n\n\n\u00a0\n\n\n\n\n\n\n \nDebt, net of Cash, to Equity\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1.14\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures about Market Risk\n\n\n\u00a0\n\n\nThe Company is exposed to market risk on its financial instruments from changes in interest rates. In particular, the Company has historically had exposure to changes in the federal primary credit rate and has exposure to changes in the prime interest rate of its lender. The Company does not use financial instruments for trading purposes but has in the past entered into an interest rate swap agreement to manage interest rate risk.\n\n\n\u00a0\n\n\nInterest rate risk. \n\u00a0The Company\u2019s exposure to changes in interest rates relates primarily to its debt obligations. The Company is exposed to changes in interest rates as a result of its revolving credit facilities, and the interest rates charged to the Company under its credit facilities fluctuate based on its primary lender\u2019s base rate of interest. The Company had an outstanding balance on its revolving line of credit of $167.2 million at April 30, 2023. The impact of a 1% increase in interest rates on this amount of debt would result in increased annual interest expense of approximately $1.7 million and a corresponding decrease in net income before income tax.\n\n\n\u00a0\n\n\nThe Company\u2019s earnings are impacted by its net interest income, which is the difference between the income earned on interest-bearing assets and the interest paid on interest-bearing notes payable. The Company\u2019s finance receivables carry a fixed annual interest rate of 16.5% (prior to December 2022) to 18.0% (effective December 2022) for all states except Arkansas (which is subject to a usury cap of 17%) and Illinois (where dealerships originate at 19.5% to 21.5%), based on the Company\u2019s contract interest rate as of the contract origination date, while its revolving credit facilities contain variable interest rates that fluctuate with market interest rates.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       38\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n",
+  "cik": "799850",
+  "cusip6": "03062T",
+  "cusip": ["03062t105", "03062T105"],
+  "names": ["AMERICAS CAR-MART INC", "AMERICAS CAR MART INC COM"],
+  "source": "https://www.sec.gov/Archives/edgar/data/799850/000117184323004114/0001171843-23-004114-index.htm"
+}
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+{
+  "item1": ">ITEM 1. BUSINESS\n\n\n\u00a0\n\n\nOverview\n\n\nIGC Pharma, Inc., formerly known as India Globalization Capital Inc., is a clinical-stage pharmaceutical company with a diversified revenue model that develops both prescription drugs and over-the-counter (OTC) products. IGC is a Maryland corporation established in 2005 with a fiscal year that is a 52- or 53-week period that ends on March 31. IGC has two business segments: Life Sciences and Infrastructure.\n\n\n\u00a0\n\n\nOur focus is on developing innovative therapies for neurological disorders such as Alzheimer\u2019s disease, epilepsy, Tourette syndrome, and sleep disorders. We also focus on formulations for eating disorders, chronic pain, premenstrual syndrome (PMS), and dysmenorrhea, in addition to health and wellness OTC formulations. The Company is developing its lead candidate, IGC-AD1, an investigational oral therapy for the treatment of agitation associated with Alzheimer\u2019s disease. IGC-AD1 is currently in Phase 2 (Phase 2B) clinical trials after completing nearly a decade of research and realizing positive results from pre-clinical and a Phase 1 trial. This previous research into IGC-AD1 has demonstrated efficacy in reducing plaques and tangles, which are two important hallmarks of Alzheimer\u2019s, as well as reducing neuropsychiatric symptoms associated with dementia in Alzheimer\u2019s disease, such as agitation.\n\n\n\u00a0\n\n\nAlzheimer\u2019s is a progressive neurodegenerative disorder characterized by memory loss, cognitive decline, and behavioral changes. As the most common cause of dementia, it affects over 50 million people worldwide. The disease is associated with the accumulation of plaques and tangles in the brain, leading to brain cell deterioration and impaired cognitive functions. Currently, there is no cure for Alzheimer\u2019s, and the projected cost of Alzheimer\u2019s and associated dementia is expected to be around $1 trillion just in the U.S., placing a significant financial strain on individuals, families, and the healthcare system.\n\n\n\u00a0\n\n\nThe progress we are making in clinical trials gives us confidence in the potential of IGC-AD1 to be a groundbreaking therapy, with the potential to treat Alzheimer\u2019s and also to manage devastating symptoms that separate families, increase admissions to nursing homes, and drive the cost of Alzheimer\u2019s care. We have filed forty-one (41) patent applications in different countries and secured nine patents, including control of four in the Alzheimer\u2019s space. We have built a facility for a potential Phase 3 trial and have strategic relations for the procurement of Active Pharmaceutical Ingredients (APIs). In addition, we have acquired and initiated work on TGR-63, a pre-clinical molecule that exhibits an impressive affinity for reducing neurotoxicity in Alzheimer\u2019s cell lines. The advancement of IGC-AD1 into Phase 2 trials represents a significant milestone for the Company and positions us for multiple pathways to future success. We anticipate that the positive outcomes from these and other trials will drive further growth, valuation, and market potential for IGC-AD1, although there can be no assurance thereof.\n\n\n\u00a0\n\n\nAt IGC Pharma, we recognize the significance of operational excellence and cost management in clinical trials. We have established an internal capability to manage trials, including proprietary software, rather than working with an external Contract Research Organization (CRO). We believe this empowers us to substantially reduce the costs associated with clinical trials compared to relying on external CROs. Our proprietary software allows us to streamline the trial processes, enabling seamless coordination and data management. Additionally, we are integrating machine learning technologies into our software framework. We believe this overlay of Artificial Intelligence (AI) will help us simulate trial scenarios, generate new insights to facilitate improved decision-making, efficiently design our Phase 3 trial, provide advanced data analysis, and ultimately enhancing the effectiveness and efficiency of our clinical trials, although there can be no assurance thereof.\n\n\n\u00a0\n\n\nLife Sciences Segment \n\n\n\u00a0\n\n\nIGC develops advanced formulations for treating diseases and conditions, including Alzheimer\u2019s disease (AD), menstrual cramps (dysmenorrhea), premenstrual syndrome (PMS), and chronic pain. The Company\u2019s leading drug candidate, IGC-AD1, has demonstrated in Alzheimer\u2019s cell lines the potential to be effective in suppressing or ameliorating two key hallmarks of Alzheimer\u2019s: plaques and tangles. IGC-AD1 is currently in a Phase 2B safety and efficacy clinical trial for agitation in dementia from Alzheimer\u2019s (clinicaltrials.gov, NCT05543681). The Company also has a line of consumer product such as Holief\nTM\n, which includes gummies and pain relief creams for women experiencing PMS and menstrual cramps, all currently available for purchase.\n\n\n\u00a0\n\n\n\n\n5\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nPharmaceutical\n: Since 2014, the Company has focused primarily on the potential uses of phytocannabinoids, including Tetrahydrocannabinol (THC) and Cannabidiol (CBD), in combination with other compounds to treat multiple diseases, including Alzheimer\u2019s. As a company engaged in the clinical-stage pharmaceutical industry, we focus our research and development efforts, subject to results of future clinical trials, on seeking pharmaceutical solutions that may a) alleviate neuropsychiatric symptoms such as agitation, anxiety, and depression associated with dementia in Alzheimer\u2019s disease; and b) halt the onset, progression, or cure Alzheimer\u2019s disease.\n\n\n\u00a0\n\n\nThe Company currently has two main investigational small molecules in various stages of development:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n1)\n\n\n\n\n\n\nIGC-AD1\n, our lead therapeutic candidate, is a THC based formulation that has demonstrated in AD cell lines, in vitro, the potential in reducing a key peptide responsible for A\u03b2\u00a0plaques and the potential to decrease or inhibit the phosphorylation of tau, a protein that is responsible for the formation of neurofibrillary tangles, both important hallmarks of AD. In addition, Phase 1 human trial results demonstrated IGC-AD1\u2019s potential to reduce agitation in dementia due to AD. IGC-AD1 is currently in Phase 2B trials for treating agitation in dementia from AD, a condition that affects over 10-million individuals in North America and Europe, and\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n2)\n\n\n\n\n\n\nTGR-63\n, a non-cannabinoid molecule, is an enzyme inhibitor shown in pre-clinical trials to reduce neurotoxicity in Alzheimer\u2019s cell lines. Neurotoxicity causes cell dysfunction and death in Alzheimer\u2019s disease. If shown to be efficacious, in AD cell lines, in halting this process, this inhibitor has the potential to treat Alzheimer\u2019s disease by ameliorating A\u03b2\u00a0plaques.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOver-the-Counter Products\n: We created a women\u2019s wellness brand, Holief\u2122 available through online channels that is compliant with relevant federal, state, and local laws and regulations. Holief\u2122 is an all-natural, non-GMO, vegan, line of over-the-counter (OTC) products aimed at treating menstrual cramps (dysmenorrhea) and premenstrual symptoms (PMS). The products are available through Amazon and other online channels.\n\n\n\u00a0\n\n\nAlzheimer\n\u2019\ns disease\n\n\n\u00a0\n\n\nThe National Institute on Aging (NIA) at the National Institutes of Health (NIH) defines Alzheimer\u2019s as an irreversible, progressive brain disorder that destroys memory and thinking skills. According to the Alzheimer\u2019s Association, approximately 11% of Americans over 65 have Alzheimer\u2019s dementia, and many more could be undiagnosed. Some researchers suspect half of the 80 and over population will develop Alzheimer\u2019s (Alzheimer\u2019s Association, 2023). Alzheimer\u2019s is the third leading cause of death, after heart disease and cancer. (NIA, 2019). The Alzheimer\u2019s crisis is growing, and by 2030, World Health Organization (WHO, 2020) estimates that 55 million people worldwide will have dementia. With no approved cure, the global cost of dementia is expected to rise to about $2.8 trillion by 2030.\n\n\n\u00a0\n\n\nDementia is a broader term used to describe the loss of cognitive functioning, including thinking, remembering, reasoning, and behavioral abilities. The WHO believes Alzheimer\u2019s may be responsible for up to 70% of dementia. Alzheimer\u2019s disease, and the dementia associated with it, is a progressive disease. Symptoms such as agitation, anxiety, depression, sleep disturbance (sundown syndrome), delusions, and hallucinations often begin to appear in patients in their mid-60s.\n\n\n\u00a0\n\n\nThe NIA categorizes Alzheimer\u2019s in three stages\u2013- mild, moderate, and severe (NIA, 2019). Symptoms of mild Alzheimer\u2019s can include wandering (getting lost, not remembering the way home), trouble handling money and paying bills, repeating questions, and personality or behavior changes. As the disease progresses to moderate, there is damage to the areas of the brain that control language, reasoning, sensory processing, and conscious thought. Patients can have difficulty with multi-step tasks such as getting dressed. Behavioral problems, including hallucinations, delusions, paranoia, and impulsive behavior, can also increase. When severe Alzheimer\u2019s sets in, plaques and tangles spread throughout the patient\u2019s brain, and the brain shrinks significantly. People with severe Alzheimer\u2019s are completely dependent on others for care. They cannot communicate, and near the end of their life, they may be largely bedridden as the body shuts down (NIA, 2021).\n\n\n\u00a0\n\n\nCurrently, there are limited options to help Alzheimer\u2019s patients with the debilitating symptoms of the disease or relief for the burden placed on their caregivers (Cheng, 2017). Our Phase 1 trial for IGC-AD1 may provide hope for those patients suffering from mild to severe dementia due to Alzheimer\u2019s disease.\n\n\n\u00a0\n\n\n\n\n6\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAlzheimer\n\u2019\ns Disease (AD) Pathology\n\n\n\u00a0\n\n\nAlzheimer\u2019s pathology can be divided into two categories, familial or inherited AD and sporadic AD. The histopathology of early-onset familial AD and late-onset sporadic AD are indistinguishable. Both forms of AD are characterized by extracellular amyloid-\u03b2 (A\u03b2) plaques and intracellular tau-containing neurofibrillary tangles (G\u04e7tz, et al., 2011). Simplistically, in normal brain functioning, a large protein called Amyloid Precursor Protein (APP) is cleaved into smaller fragments called A\u03b2 proteins. In a normal brain, these are subsequently broken down further and cleared. However, in AD brains, these A\u03b2 proteins are not broken down and cleared; they instead stick to one another and deposit as inter-neuronal sticky plaque\u2014that is, they deposit as plaque between neurons. In the brain, within a neuron, tau (\u03c4) is a key protein that holds together the transport scaffold. As an analogy, it is the brick and mortar of the highway over which nutrients are transported within a neuron. In an AD brain, tau breaks down due to a process called hyperphosphorylation and is unable to hold the transport highway. The breakdown results in neurofibrillary tangles (NFTs) and eventually leads to neuronal death.\n\n\n\u00a0\n\n\nThe misfolded structure of A\u03b2 proteins, along with NFTs, generates a characteristic tendency for their aggregation (Chiti & Dobson, 2006) around damaged or dead neurons and within cerebral vasculature in the brain. It manifests by memory loss followed by progressive dementia. It has long been believed that A\u03b21\u201340 (A\u03b240) and A\u03b21\u201342 (A\u03b242) aggregates are the constituents of the insoluble plaques that are characteristic of AD. This disease is also associated with neuroinflammation, excitotoxicity, and oxidative stress (Campbell & Gowran, 2007; Rich, et al., 1995). However, the continuous aggregation of A\u03b2 proteins along with hyperphosphorylation of tau protein inside the cell, causing NFT formation, are generally accepted as the major etiological factors of the neuronal cell death associated with the progression of Alzheimer\u2019s disease (Octave, 1995; Reitz, et al., 2011; Pillay, et al., 2004).\n\n\n\u00a0\n\n\n\n\n\n\n\n\nFigure 1: Hallmarks of Alzheimer\n\u2019\ns\n\n\n\u00a0\n\n\n\u25cf\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Extracellular Plaque: \u03b2-amyloid (A\u03b2)\n\n\n\u25cf\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Tau Neurofibrillary Tangles (NTFs).\n\n\n\u00a0\n\n\nCauses loss of neurons & critical neuronal connections.\n\n\n\u00a0\n\n\nAlso linked to Alzheimer\u2019s:\n\n\n\u25cf\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Metabolism disruption\n\n\n\u25cf\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Mitochondrial dysfunction\n\n\n\u25cf\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Neuroinflammation\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nIGC-AD1 Studies on Alzheimer\n\u2019\ns\n\n\n\u00a0\n\n\nWhile investigating cannabinoid-based combination therapies, researchers at the University of South Florida (USF) discovered the potential for cannabis to play a role in treating Alzheimer\u2019s. The discovery was featured on Dr. Sanjay Gupta\u2019s CNN show Weed 2. This work also led to several patent filings including one that was granted by the United States Patent and Trademark Office (USPTO). In fiscal year 2018, IGC acquired exclusive rights to the research data and patent filing. The research on the active ingredients of IGC-AD1 (IGC-AD1 Actives) showed that they, in combination, had potentially positive effects on Alzheimer\u2019s disease. Specifically, the pre-clinical research on the IGC-AD1 Actives showed the following:\n\n\n\u00a0\n\n\nImpact on plaque levels: \nCao et al., (2014) reported a dose-dependent decrease in A\u03b240 levels in N2a/A\u03b2PPswe cells (AD cell lines) in the presence of the IGC-AD1 Actives, after 24 hours of incubation. Furthermore, repeated exposure reduced A\u03b240 levels without changing APP levels, a novel non-obvious, and important finding as APP is a key protein associated with brain functioning. The mode of action is attributed to its direct interaction with A\u03b2 protein and inhibition of A\u03b2 aggregation (Cao et al., 2014).\n\n\n\u00a0\n\n\nImpact on Tau Protein\n: IGC-AD1 Actives lowered the level of phosphorylated Tau (pTau) expression in N2a/A\u03b2PPswe cells in a dose-dependent manner. The mode of action was attributed to the direct interaction of IGC AD1 Actives with GSK3 protein kinase, which lowers pTau expression (Cao et al., 2014).\n\n\n\u00a0\n\n\n\n\n7\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nImpact on neurotoxicity\n: Analysis of the neurotoxicity at various doses in N2a/A\u03b2PPswe cells after incubation for up to 24 hours showed that the IGC-AD-1 Actives were non-toxic to cells at all doses (Cao et al., 2014).\n\n\n\u00a0\n\n\nImpact on Mitochondria\n: In a novel and non-obvious finding, it was discovered that THC in low doses has the unique property of enhancing mitochondrial functioning in isolated mitochondria obtained from N2a/A\u03b2PPswe cells (Cao et al., 2014). This finding is contrary to what THC does at higher doses, alluding to a bi-phasic nature of THC.\n\n\n\u00a0\n\n\nResults with a mouse model:\n Cao\u2019s group extended their in vivo study to aged APP/PS1 mice to evaluate THC\u2019s neuroprotective effects on behavioral models. They used a radial arm water maze (RAWM) to test spatial memory. RAWM tests revealed that treating aged APP/PS1 mice with low doses of THC for three months increased their spatial learning skills in a dose-dependent way (Wang et al., 2022).\n\n\n\u00a0\n\n\nBased on the evidence, we hypothesize that IGC-AD1 may have several AD modifying benefits, including:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nReduction in A\u03b2\u00a0expression without a reduction in APP.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nReduction in A\u03b2\u00a0aggregation and consequently plaques.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nEnhanced mitochondrial functioning.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nReduction in the phosphorylation of tau and consequently a reduction in neurofibrillary tangles (NFTs).\n\n\n\n\n\n\n\n\n\u00a0\n\n\nResearch has shown that micro-dosing of THC could increase the functioning of mitochondria on AD cell lines (Cao et al., 2014) and potentially promote the growth of new pathways (neurogenesis) (Suliman, et al., 2018). Micro-dosing of THC affects the brain radically differently from the normal dosing in the FDA-approved prescription drug, Dronabinol. For example, there is a significant body of research showing that THC is neuro-toxic at normal levels, but micro-doses of THC have been shown to be non-toxic to neurons. With the exciting results of these pre-clinical studies, the Company developed an oral formulation, IGC-AD1, and completed a Phase 1 trial on AD patients.\n\n\n\u00a0\n\n\nIGC-AD1 Clinical Trial Data\n\n\n\u00a0\n\n\nTo the best of our knowledge, the Company\u2019s Phase 1 clinical trial testing the safety and tolerability of IGC-AD1 is the first human clinical trial using low doses of THC, in combination with another molecule, to treat symptoms of dementia in Alzheimer\u2019s patients. THC is a naturally occurring cannabinoid produced by the cannabis plant. It is known for being a psychoactive substance that can impact mental processes in a positive or negative way, depending on the dosage. THC is biphasic, meaning that low and high doses of the substance may affect mental and physiological processes in substantially different ways. For example, in some patients, low doses may relieve a symptom, whereas high doses may amplify a symptom. IGC\u2019s trial is based on low dosing and controlled trials on patients suffering from Alzheimer\u2019s disease.\n\n\n\u00a0\n\n\nA double-blind, single-site, randomized, three cohort, multiple-ascending dose (MAD) clinical trial (FDA IND Number: 146069, NCT04749563) was conducted using the investigational new drug (IND) IGC-AD1. IGC received approval to proceed with the Phase 1 clinical trial from the FDA on July 30, 2020. The primary objective was safety and tolerability in elderly patients suffering from Alzheimer\u2019s disease. The secondary objective was measuring changes in neuropsychiatric symptoms (NPS) using the neuropsychiatric inventory (NPI) as well as to assess the risk of suicide using the Columbia-Suicide Severity Rating Scale (C-SSRS). The exploratory objective was to measure the pharmacokinetics (PK) and the impact of polymorphisms of the gene CYP2C9 on PK. In all three cohorts, ten participants received IGC-AD1 and two received a placebo. There were at least four days of washout between the cohorts. In Cohort one, Cohort two, and Cohort three the doses were q.d. (once per day), b.i.d. (twice per day), and t.i.d. (three times per day), respectively. The trial concluded that all three dosing levels were safe with no serious or life-threatening events or deaths reported.\n\n\n\u00a0\n\n\nOn December 1, 2021, IGC submitted the Clinical/Statistical Report (CSR) to the FDA on its Phase 1 trial titled \u201cA Phase I Randomized Placebo-Controlled MAD Study to Evaluate Safety and Tolerability of IGC-AD1 In Subjects with Dementia Due to Alzheimer\u2019s Disease.\u201d Data that is relevant to the Phase 1 protocol and the design of the Phase 2 trial are presented here. The data presented here is not exhaustive.\n\n\n\u00a0\n\n\n\n\n8\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nPrimary Endpoint: Safety & Tolerability (S&T)\n\n\n\u00a0\n\n\nS&T was assessed by recording both solicited and non-solicited Adverse Events (AEs). The solicited AEs, assessed daily, were somnolence, falls, dizziness, asthenia, suicidal ideation, hypertension, psychiatric symptoms, and paradoxical nausea. All AEs were graded as mild, moderate, severe, life-threatening, and serious (SAE).\n\n\n\u00a0\n\n\n\u25cf In all three Cohorts, a) there were no SAEs, b) no life-threatening AEs, and c) no deaths.\n\n\n\u00a0\n\n\n\u25cf One AE, mild dizziness, reported in Cohort 1, was deemed to be related to IGC-AD1. All other AEs across all cohorts were deemed to be not related to IGC-AD1 or to the placebo.\n\n\n\u00a0\n\n\n\u25cf In Cohort 1, in the group that received IGC-AD1 (N=10), 50% reported hypertension, 40% reported asthenia, 30% reported somnolence and dizziness, 20% reported psychiatric symptoms, and 10% reported falls. One case of dizziness was deemed by the principal investigator (PI) to be related to IGC-AD1. In the placebo group (N=2) 100% reported hypertension, and 50% reported somnolence and falls.\n\n\n\u00a0\n\n\n\u25cf In Cohort 2 for the IGC-AD1 group, 60% reported psychiatric symptoms, 50% reported somnolence and asthenia, 30% reported hypertension, 20% reported nausea and dizziness, and 10% reported falls and suicidal ideation. In the placebo group 100% reported somnolence, 50% reported dizziness and hypertension.\n\n\n\u00a0\n\n\n\u25cf In Cohort 3 for the IGC-AD1 group, 70% reported somnolence, 60% reported psychiatric symptoms, 50% reported dizziness and asthenia, and 30% reported hypertension. In the placebo group 100% reported somnolence, and 50% reported hypertension and psychiatric symptoms.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nSecondary Endpoints: Neuropsychiatric Inventory (NPI)\n\n\n\u00a0\n\n\nNeuropsychiatric Symptoms (NPS) such as delusions, hallucinations, agitation/aggression, depression, anxiety, elation/euphoria, apathy, disinhibition, irritability, aberrant motor behavior, sleep disorders, and appetite/eating disorders are prevalent in patients who have Alzheimer\u2019s disease (Phan et al., 2019). NPS in Alzheimer\u2019s is a significant burden on patients and caregivers, and at some point, in the progression of Alzheimer\u2019s disease, more than 97% of patients suffer from at least one symptom. The Neuropsychiatric Inventory (NPI) (Cummings et al., 1994) measures the severity of each symptom and establishes both individual symptom scores as well as an overall NPI score. Separately, the NPI also scores caregiver distress (NPI-D). The NPI is used by about 50% of neurologists to assess and treat Alzheimer\u2019s patients (Fernandez et al., 2010).\n\n\n\u00a0\n\n\n\n\n9\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn the Phase 1 trial conducted on patients with Alzheimer\u2019s disease, we measured changes in NPS as assessed by the NPI-12 as well as caregiver distress as assessed by the NPI-D. In the Phase 1 trial (N=10), seven received the active medication, and at baseline they had symptomatic Agitation with domain scores between two and twelve. In Cohorts two and three six Participants had symptomatic Agitation. We measured and analyzed the change in the mean NPI score for Agitation between Day 1 and Day 10 and between Day 1 and Day 15 for all three cohorts.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nAs shown in Table below, our analysis shows Cohort 2 had the largest absolute change in the mean Agitation score between Day one and Day ten (53% drop, p=.085) as well as between Day 1 and Day 15 (67% drop, p=.05).\n\n\n\n\n\n\n\n\n\u00a0\n\n\nTable 1: NPI analysis for each of the three cohorts\n\n\n\u00a0\n\n\n\n\n\n\n\n\nDomain\n\n\n\n\n\n\nCohort 1 (n=7)\n\n\n\n\n\n\nCohort 2 (n=6)\n\n\n\n\n\n\nCohort 3 (n=5)\n\n\n\n\n\n\n\n\n\n\nAgitation\n\n\n\n\n\n\nBaseline\n\n\n\n\n\n\nDay\n\n\n\n\n\n\nDay\n\n\n\n\n\n\nBaseline\n\n\n\n\n\n\nDay\n\n\n\n\n\n\nDay\n\n\n\n\n\n\nBaseline\n\n\n\n\n\n\nDay\n\n\n\n\n\n\nDay\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\nDay 0\n\n\n\n\n\n\n10\n\n\n\n\n\n\n15\n\n\n\n\n\n\nDay 0\n\n\n\n\n\n\n10\n\n\n\n\n\n\n15\n\n\n\n\n\n\nDay 0\n\n\n\n\n\n\n10\n\n\n\n\n\n\n15\n\n\n\n\n\n\n\n\n\n\nMean Score\n\n\n\n\n\n\n4.7\n\n\n\n\n\n\n3.3\n\n\n\n\n\n\n3\n\n\n\n\n\n\n4.3\n\n\n\n\n\n\n2.1\n\n\n\n\n\n\n1.5\n\n\n\n\n\n\n4.2\n\n\n\n\n\n\n3.2\n\n\n\n\n\n\n1.4\n\n\n\n\n\n\n\n\n\n\nMean Change\n\n\n\n\n\n\n-\n\n\n\n\n\n\n1.4\n\n\n\n\n\n\n1.7\n\n\n\n\n\n\n-\n\n\n\n\n\n\n2.2\n\n\n\n\n\n\n2.8\n\n\n\n\n\n\n-\n\n\n\n\n\n\n1\n\n\n\n\n\n\n2.8\n\n\n\n\n\n\n\n\n\n\nMean Change%\n\n\n\n\n\n\n-\n\n\n\n\n\n\n37%\n\n\n\n\n\n\n48%\n\n\n\n\n\n\n-\n\n\n\n\n\n\n53%\n\n\n\n\n\n\n67%\n\n\n\n\n\n\n-\n\n\n\n\n\n\n23%\n\n\n\n\n\n\n67%\n\n\n\n\n\n\n\n\n\n\np-values\n\n\n\n\n\n\n-\n\n\n\n\n\n\n0.058\n\n\n\n\n\n\n0.045\n\n\n\n\n\n\n-\n\n\n\n\n\n\n0.085\n\n\n\n\n\n\n0.05\n\n\n\n\n\n\n-\n\n\n\n\n\n\n0.29\n\n\n\n\n\n\n0.045\n\n\n\n\n\n\n\n\n\n\nP(T<=t) two-tail\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAccording to the NPI Test, a reduction of 4 points or 30% in the score is considered clinically meaningful. In addition, we also used a paired 2-tailed t-test with 9 degrees of freedom to assess the statistical significance of the decrease both in the overall NPI and individual NPI domains.\n\n\n\u00a0\n\n\n\u25cf In Cohort 1 for those on IGC-AD1, the mean NPI decreased from a baseline 31.5 (SD 27.2) to 16.7 (SD 16.2) on day 10 (\np\n = 0.0044) and 14.8 (SD 16.0) on day 15 (\np\n = 0.0095).\n\n\n\u00a0\n\n\no Individual domains that showed improvement were in Agitation (\np\n = .05), Dilutions (\np\n = .05), Anxiety (\np\n = .09), and Appetite and Eating Disorders (\np\n = .01).\n\n\n\u00a0\n\n\n\u25cf In Cohort 2 for those on IGC-AD1, the mean NPI decreased from a baseline of 22.2 (SD 14.8) to 10.4 (SD 11.5) on day 10 (\np\n = 0.0026) and 12.4 (SD14.7) on day 15 (\np\n = 0.0127).\n\n\n\u00a0\n\n\no Individual domains that showed improvement were Agitation (\np\n = .06), Irritability (\np\n = .04), and Depression (\np\n = .01).\n\n\n\u00a0\n\n\n\u25cf In Cohort 3 for those on IGC-AD1 the mean NPI decreased from a baseline of 16.0 (SD14.7) to 14.6 (SD10.9) on day 10 (\np\n = 0.6751) and 7.9 (SD 9.0) on day 15 (\np\n = 0.0113).\n\n\n\u00a0\n\n\no Individual domain\u00a0that showed improvement was Agitation (\np\n = .06).\n\n\n\u00a0\n\n\nFigure 5: Results on Neuropsychiatric Symptoms (NPS) Measured by NPI Scores\n\n\n\u00a0\n\n\n\n\n\n\n10\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThese results represent the intervention of IGC-AD1 in patients showed an overall improvement in NPS, and specifically in agitation, anxiety, and depression domains. Caregiver distress improved as well.\n\n\n\u00a0\n\n\nFigure 6: Results on Agitation Measured by NPI Scores\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThese results represents that all three different doses, agitation improves both clinically and statistically (p<.05).\n\n\n\u00a0\n\n\nPhase 2 Clinical Trial Update\n\n\n\u00a0\n\n\nTypically, a Phase 2 trial is divided into a Phase 2A and a Phase 2B trial with the former designed to assess dosing requirements and the latter to establish efficacy. In this document, we refer to the trial as Phase 2 and Phase 2B interchangeably. The Company has initiated a Phase 2B protocol titled \u201cA Phase 2, Multi-Center, Double-Blind, Randomized, Placebo-controlled, trial of the safety and efficacy of IGC-AD1 on agitation in participants with dementia due to Alzheimer\u2019s disease\u201d. The protocol is powered at 146 Alzheimer\u2019s patients, with half receiving placebo, and is a superiority, parallel group study. While subject to changes, we expect to conduct the trial at about fifteen sites in USA, Canada, and Colombia. The primary end point is agitation in dementia due to Alzheimer\u2019s disease as rated by the Cohen-Mansfield Agitation Inventory (CMAI) over a six-week period. The Phase 2 trial will also look at eleven exploratory objectives, including changes in anxiety, changes in cognitive processes such as attention, orientation, language, and visual spatial skills as well as memory, changes in depression, delusions, hallucinations, euphoria/elation, apathy, disinhibition, irritability, aberrant motor behavior, sleep disorder, appetite, quality of life, and caregiver burden. In addition, the trial will evaluate the impact of CYP450 polymorphisms and specifically CYP2C9 on each of the NPS and assess any reductions in psychotropic drugs, among others. CYP2C9 ranks amongst the most important drug metabolizing enzymes in humans, as it breaks down over 100 drugs, including nonsteroidal anti-inflammatory all drugs. We seek to understand how various versions of the enzyme act on IGC-AD1. Each participant will receive two doses of IGC-AD1 (b.i.d.) or two doses of placebo per day for six weeks.\n\n\n\u00a0\n\n\nRationale For IGC-AD1 Phase 2\n\n\n\u00a0\n\n\nThe rationale for targeting agitation associated with dementia due to Alzheimer\u2019s:\n\n\n\u00a0\n\n\nAbout 76% of AD patients suffer from agitation as rated by the CMAI (Van der Mussele, et al., 2015). While there can be no guarantee, we expect the Phase 2 trial to take between 12 and 18 months to complete, barring a variety of unknown factors, such as a resurgence of COVID and the enforcement of lockdowns and travel restrictions. Agitation is a behavioral syndrome characterized by increased, often undirected, motor activity, restlessness, aggressiveness, and emotional distress.\n\n\n\u00a0\n\n\nSymptoms of AD depend on the stage of the disease: preclinical, mild, moderate, or severe. NPS like agitation, apathy, delusions, hallucinations, and sleep impairment are common accompaniments of dementia. Loss of functionality, including progressive difficulty in performing instrumental and basic activities of daily living, are also seen with disease progression (Tang et al., 2019). There is a spectrum of behavioral disorders that can affect patients with AD. These include agitation, anxiety, disturbance of the sleep cycle, depression, inappropriate sexual behavior, disinhibition, and irritability, among others (Lyketsos et al., 2011). These behavioral disturbances not only affect the patient\u2019s quality of life but also cause extreme emotional distress for the caregivers. These disturbances can become very difficult to manage, so most of the time, combinational therapy is used (Matsunaga, et al., 2015). This can cause secondary undesirable effects, such as excessive sleepiness, which diminishes the capability of the patient to be active and alert during the day; dizziness, which can increase the risk for falls (Allan, et al., 2005); worsening of cognitive function, which in turn worsens functionality (Paterniti S, et al., 2002); and even death due to cardiovascular complications (Qiu, et. Al., 2006).\n\n\n\u00a0\n\n\n\n\n11\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nNMI Compounds \n\n\n\u00a0\n\n\nResearchers at the Jawaharlal Nehru Centre for Advanced Scientific Research (JNCASR), in India conducted approximately 10 years of research and discovery work on naphthalene monoimide (NMI) compounds and the role of NMI compounds on neurotoxicity associated with Alzheimer\u2019s. In Alzheimer\u2019s patients, neurotoxicity is linked to beta amyloid (A\u03b2) plaques and Neuro Fibrillary Tangles (NFT). JNCASR\u2019s research based on Alzheimer\u2019s cell lines identified one lead NMI molecule, TGR-63, from a family of NMI molecules, with the potential to reduce beta amyloid (A\u03b2) plaques. Further, they demonstrated that the molecule reduces cognitive decline in a transgenic mouse model of Alzheimer\u2019s. Their results were published in \nAdvanced Therapeutics\n under the title \u201cNaphthalene Monoimide Derivative Ameliorates Amyloid Burden and Cognitive Decline in a Transgenic Mouse Model of Alzheimer\u2019s Disease\u201d on January 28, 2021.\n\n\n\u00a0\n\n\nFigure 7: Shows the reduction of the amyloid burden by TGR63 in the APP/PS1 AD phenotypic mice model:\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nFigure 7 shows the Reduction of amyloid burden by TGR63 in APP/PS1 AD phenotypic mice model. A) Visualization of amyloid plaques in half hemisphere: Confocal microscopy images of coronal section of WT, AD mice, and TGR63 treated AD mice brain immunostained with amyloid fibrils specific OC primary antibody followed by fluorescently (\u03bb\nex\n = 633nm, \u03bb\nem\n = 650nm) labeled secondary antibody (red) and DAPI (blue). B) Reduction of cortical and hippocampal amyloid burden by TGR63 treatment: Higher magnification images of vehicle and TGR63 treated mice (WT and AD) brain sections to visualize and compare the A\u03b2\n \nplaques deposition in the cortex and hippocampus areas. The brain tissue sections were immunostained with amyloid fibrils specific primary antibody (OC) and red fluorescent-labeled (\u03bb\nex\n = 633nm and \u03bb\nem\n = 650nm) secondary antibody. C, D) Quantification of A\u03b2\n \nplaques: Amount of A\u03b2\n \nplaques (%area) deposited in different regions (cortex and hippocampus) of vehicle and TGR63 treated mice (WT and AD) brain was analyzed. Data represent mean \u00b1 SEM, number of mice = 3 per group (*\np < \n0.05). Scale bar: 20 \u00b5m.\n\n\n\u00a0\n\n\nOn November 11, 2021, Hamsa Biopharma India Pvt. Ltd. (Hamsa Biopharma), a directly owned subsidiary of the Company, executed a Term Sheet with JNCASR, and on March 28, 2022, entered into an agreement for exclusive global rights corresponding to the molecules, technology, patent, and patent filings. The completion of outstanding items in the agreement occurred on May 10, 2022, and the agreement with JNCASR was filed on Form 8K on May 12, 2022. Pursuant to the agreement, IGC (through Hamsa Biopharma) acquired exclusive global rights to the molecule, which it intends to pursue as a drug development candidate, subject to further study, research, and development.\n\n\n\u00a0\n\n\nRationale for the Acquisition of TGR-63\n\n\n\u00a0\n\n\nAs described above, IGC is currently engaged in human trials with IGC-AD1 that targets certain symptoms associated with dementia in Alzheimer\u2019s. IGC-AD1 is currently being tested as a symptom modifying agent. Subject to further study, research, and development, TGR-63, on the other hand, could give the Company a potential disease modifying agent to expand the Company\u2019s pursuit of a drug that can potentially treat or modify Alzheimer\u2019s.\n\n\n\u00a0\n\n\n\n\n12\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nContract Research Organization (CRO) and Clinical Trial Software\n\n\n\u00a0\n\n\nThe IGC-Pharma Electronic Data Capture system (IGC-EDC) is a secure and user-friendly data management software designed to collect clinical trial data in electronic format. The software incorporates rigorous security measures that help IGC to protect data and ensure compliance with regulatory requirements and industry standards. This format is designed for our clinical trials, especially our Phase 2 trial. The EDC system is designed to store and organize handwritten source documents, including medical history, concomitant medications, laboratory results, neuropsychiatric scales scores, adverse events, vital signs, safety calls, demographics, among others. The system allows users to generate data reports that will be used for data analysis and generate computational models to simulate the effects of our investigational drug IGC-AD1 on participants\u2019 outcomes. At IGC Pharma, we recognize the significance of operational excellence and cost management in clinical trials. One major cost driver in conducting trials is the expense associated with engaging CROs. These costs can significantly impact on the overall budget of a trial. To address this challenge and optimize trial costs, we have established an internal CRO, including proprietary software that we believe sets us apart from the traditional approach of outsourcing. We believe this strategic move will enable us to reduce the costs associated with clinical trials compared to relying on external CROs, although there can be no assurance. We have also begun working on overlaying machine learning technologies and Artificial Intelligence (AI) into the software framework for trial management with the expectation that this can lead to improved decision-making, contextual data entry, computational models, trial design (Phase 3), and data analysis, although there can be no assurance thereof.\n\n\n\u00a0\n\n\nIntellectual Property\n\n\n\u00a0\n\n\nOur goal is to use our intellectual property (IP) to develop products that we can bring to market in one or more of the following channels:\n\n\n\u00a0\n\n\n1. Pharmaceutical products that are subject to FDA-approvals. We currently have one Alzheimer\u2019s symptom modifying investigational drug candidate (IGC-AD1) in Phase 2 clinical trials under an INDA filed with the FDA, and a potential Alzheimer\u2019s disease modifying drug development candidate (TGR-63) in a pre-clinical stage.\n\n\n\u00a0\n\n\n2. Branded wellness and lifestyle products to be sold in multiple retail and online channels, subject to applicable federal, state, and local laws and regulations.\n\n\n\u00a0\n\n\n3. Partnerships and licensing agreements with third parties who can accelerate bringing our IP to the market.\n\n\n\u00a0\n\n\nThe Company holds all rights to the patents that it filed with the USPTO. In Fiscal 2017, the Company also acquired exclusive rights to the data and the patent filing from USF. Subsequent to Fiscal 2022, the Company acquired exclusive rights to the data and the patent filing from JNCASR.\n\n\n\u00a0\n\n\nThe Company believes the registration of patents is an important part of its business strategy and future success. However, the Company cannot guarantee that these patent filings will lead to a successful registration with the USPTO. Please see Item 1A, Risk Factors- \u201cWe may not successfully register the provisional patents with the USPTO.\u201d\n\n\n\u00a0\n\n\nThe Table below provides the status of our patent filings:\n\n\n\u00a0\n\n\n\n\n\n\n\n\nTARGET\n\n\n\n\n\n\nDESCRIPTION\n\n\n\n\n\n\nPATENT \n\n\nPENDING\n\n\n\n\n\n\nGRANTED PATENTS\n\n\n\n\n\n\n\n\n\n\nUS\n\n\n\n\n\n\nFOREIGN\n\n\n\n\n\n\n\n\n\n\nAlzheimer\u2019s Disease (IGC-AD1)\u200b\n\n\n\n\n\n\nMethod & Composition for Treating CNS Disorders\u200b\n\n\n\n\n\n\n10\n\n\n\n\n\n\n2\n\n\n\n\n\n\n-\n\n\n\n\n\n\n\n\n\n\nAlzheimer\u2019s Disease (TGR-63) \u200b\n\n\n\n\n\n\nManufactured molecule with ability to impact plaque build-up\n\n\n\n\n\n\n10\n\n\n\n\n\n\n1\n\n\n\n\n\n\n1\n\n\n\n\n\n\n\n\n\n\nAlzheimer\u2019s Disease (IGC-LMP)\u200b\n\n\n\n\n\n\nComposition, Synthesis, & Medical use of Hybrid Cannabinoid\u200b\n\n\n\n\n\n\n1\n\n\n\n\n\n\n-\n\n\n\n\n\n\n-\n\n\n\n\n\n\n\n\n\n\nEpilepsy\u200b\n\n\n\n\n\n\nComposition & Method for Treating Seizures in Mammals\n\n\n\n\n\n\n2\n\n\n\n\n\n\n2\n\n\n\n\n\n\n-\n\n\n\n\n\n\n\n\n\n\nEating Disorders \u200b\n\n\n\n\n\n\nMethod & Composition for Treating Cachexia & Eating Disorders\u200b\u200b\n\n\n\n\n\n\n1\n\n\n\n\n\n\n1\n\n\n\n\n\n\n-\n\n\n\n\n\n\n\n\n\n\nStuttering & Tourette Syndrome \u200b\n\n\n\n\n\n\nCompositions & Methods using Cannabinoids for Treating Stuttering & Symptoms of Tourette Syndrome \u200b\n\n\n\n\n\n\n5\n\n\n\n\n\n\n-\n\n\n\n\n\n\n-\n\n\n\n\n\n\n\n\n\n\nFatigue & Restoring Energy\u200b\u200b\n\n\n\n\n\n\nCannabis-Based Method & Compositions for Relieving Fatigue & Restoring Energy\u200b\n\n\n\n\n\n\n6\n\n\n\n\n\n\n-\n\n\n\n\n\n\n-\n\n\n\n\n\n\n\n\n\n\nPain\u200b\n\n\n\n\n\n\nCannabinoid Composition & Method for Treating Pain\u200b\n\n\n\n\n\n\n6\n\n\n\n\n\n\n2\n\n\n\n\n\n\n-\n\n\n\n\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0TOTAL\n\n\n\n\n\n\n41\n\n\n\n\n\n\n8\n\n\n\n\n\n\n1\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n13\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nProducts & Services\n\n\n\u00a0\n\n\nWe market our brand, Holief\u2122, and the formulations for the products, in accordance with applicable laws and regulations. Although there can be no assurance, we believe the brand and the formulations have significant potential in the growing natural products-based wellness and lifestyle market.\n\n\n\u00a0\n\n\nHolief\n\u2122\n\n\n\u00a0\n\n\nThe word \u201cHolief\u201d was created by combining the words \u201cholistic\u201d and \u201crelief.\u201d The brand includes multiple hemp-based products for women. Holief\u2122 includes a patented formulation for treating the pain and symptoms of Premenstrual Syndrome (PMS) and period cramps. These products provide a natural alternative to pain medications such as opioids. The products are available online and through Amazon and other online channels.\n\n\n\u00a0\n\n\nInfrastructure segment\n\n\n\u00a0\n\n\nThe Company\u2019s infrastructure business has been operating since 2008, it includes: (i) Execution of Construction Contracts and (ii) Rental of Heavy Construction Equipment.\n\n\n\u00a0\n\n\nCOVID-19 Update\n\n\n\u00a0\n\n\nThe ongoing COVID-19 pandemic and the resulting containment measures that have been in effect from time to time in various countries and territories since early 2020 have had a number of substantial negative impacts on businesses around the world and on global, regional, and national economies, including widespread disruptions in supply chains for a wide variety of products and resulting increases in the prices of many goods and services. Currently, our production facilities in all of our locations continue to operate as they had before the COVID-19 pandemic, with few changes other than for enhanced safety measures intended to prevent the spread of the virus.\n\n\n\u00a0\n\n\nSome of our ongoing clinical trials experienced short-term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritized their resources towards the COVID-19 pandemic and government-imposed travel restrictions. Some clinical trials experienced increased expenses due to new protocols to protect participants from COVID-19. Additionally, certain suppliers had difficulties meeting their delivery commitments, and we are experiencing longer lead times for components. Future shutdowns could have an adverse impact on our operations. However, the extent of the impact of any future shutdown or delay is highly uncertain and difficult to predict.\n\n\n\u00a0\n\n\nIt is difficult at this time to estimate the complete impact that COVID-19 could have on our business, including our customers and suppliers, as the effects will depend on future developments, which are highly uncertain and cannot be predicted. Infections may resurge or become more widespread, including due to new variants and the limitation on our ability to travel and timely sell and distribute our products, as well as any closures or supply disruptions may be prolonged for extended periods, all of which would have a negative impact on our business, financial condition, and operating results.\n\n\n\u00a0\n\n\nEven after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact on our business due to the continued global economic impact of the COVID-19 pandemic. We cannot anticipate all of the ways in which health epidemics such as COVID-19 could adversely impact our business. See Item 1A, \u201cRisk Factors\u201d for further discussion of the possible impact of the COVID-19 pandemic on our business.\n\n\n\u00a0\n\n\nBusiness Strategy\n\n\n\u00a0\n\n\nThe Life Sciences business strategy includes:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n1.\n\n\n\n\n\n\nSubject to FDA approval, developing IGC-AD1 as a drug for treating agitation in dementia due to Alzheimer\u2019s and investigating and developing TGR-63 for the potential treatment of Alzheimer\u2019s disease.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n2.\n\n\n\n\n\n\nMarketing Holief\u2122, and formulations.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n14\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe believe developing a drug for either symptoms or as a disease-modifying agent has less risk due to the need for multi-year trials and FDA approval. However, there is a considerable upside and significant value creation to the extent we obtain a first-to-market advantage, of which there can be no assurance. If we were to obtain a first-to-market advantage, such an advantage could result in significant growth if and when an approved drug launches. Our Holief\u2122 formulation strategy includes expanding the line of products and formulations, and developing online services that connect women with healthcare professionals who can help with PMS and dysmenorrhea. We believe that building an online community that brings women together can create brand equity, loyalty, generate revenue, and drive valuation.\n\n\n\u00a0\n\n\nWe believe that additional investment in clinical trials, research, and development (R&D), facilities, marketing, advertising, and acquisition of complementary products and businesses will be critical to the ongoing growth of the Life Sciences segment. These investments will fuel the development and delivery of innovative products that drive positive patient and customer experiences. We hope to leverage our R&D and intellectual property to develop ground-breaking, science-based products that are proven effective through clinical trials, subject to FDA approval. Although there can be no assurance, we believe this strategy can improve our existing products and lead to the creation of new hemp-based products that can provide treatment options for multiple conditions, symptoms, and side effects.\n\n\n\u00a0\n\n\nOur Infrastructure strategy includes the following:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nExecuting existing construction contracts, and\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nleasing heavy construction equipment.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nMarkets and Distribution\n\n\n\u00a0\n\n\nLife Sciences segment\n\n\n\u00a0\n\n\nThere is a growing awareness around PMS, dysmenorrhea, and menopause. Approximately 31.3 million (Statista, 2021) women in America suffer from dysmenorrhea and PMS. Our Life Sciences revenue is less than 1% of the relevant global market, which implies a tremendous opportunity for growth. In Fiscal 2023, our sales and suppliers were concentrated, which represents some risk. Two customers accounted for over 10% of sales.\n\n\n\u00a0\n\n\nInfrastructure segment\n\n\n\u00a0\n\n\nIn Fiscal 2023, our infrastructure business focused on projects in the state of Kerala. While executing this construction project, we took advantage of other opportunities to generate revenue from our infrastructure assets. We also lease our small fleet of heavy construction equipment, including graders, rollers, etc., to construction companies.\n\n\n\u00a0\n\n\nOur infrastructure business revenue is less than 1% of the global revenue of the rental, construction, and commodities markets. We currently have one customer and one subcontractor/supplier of infrastructure materials. Our ability to grow is limited by the disruption to the Hong Kong economy and the impact of COVID-19. If and when the economy recovers, there is a potential opportunity for growth given the total size of the market.\n\n\n\u00a0\n\n\nBusiness Seasonality\n\n\n\u00a0\n\n\nThe infrastructure segment has historically experienced seasonality, with limited construction work available during the monsoon season. The hemp business also has seasonality, as most of the hemp harvest in America occurs in the fall. Pricing pressure is based on the volume of hemp biomass being harvested.\n\n\n\u00a0\n\n\n\n\n15\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nCompetition for the Company\u2019s products and services varies by market:\n\n\n\u00a0\n\n\n1. \nLife Sciences segment\n:\n We are developing affordable medical products including products subject to FDA approval, which can help individuals suffering from debilitating diseases like Alzheimer\u2019s. We face competition from well-funded pharmaceutical companies. With our existing research, patent filings, and experienced team, we have an early-mover advantage in cannabinoid-based products to treat the symptoms of Alzheimer\u2019s. Our wellness and lifestyle products compete with multiple well-established companies, in the food, beverage, and skincare industries. We also face competition from companies with experience in wholesaling hemp crude extract and hemp isolate as well as companies that provide white labeling and tolling services. It is unclear how future FDA guidance and ruling on hemp-based food, beverage, and cosmetic products will impact the market.\n\n\n\u00a0\n\n\n2. \nInfrastructure segment:\n The infrastructure industry in India and Hong Kong is highly competitive. Our differentiation is based primarily on price and local and industry knowledge of construction requirements in the regions where we operate.\n\n\n\u00a0\n\n\nRegulatory\n\n\n\u00a0\n\n\nDespite the passage of the 2018 Farm Bill, the FDA has not established guidance or rules on the infusion of hemp-based derivatives into food and beverage products. This creates a complicated framework of local rules and regulations that we must navigate. When federal rules are clearly set, we expect the demand for hemp-based food and beverages will increase. We also believe competition will increase as major food and beverage manufacturers will enter the market.\n\n\n\u00a0\n\n\nCore business competencies and advantages\n\n\n\u00a0\n\n\nOur core competencies include:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\na network of doctors, scientists with Ph.D. degrees, and intellectual property legal experts with a sophisticated understanding of drug discovery, research, FDA filings, intellectual protection, and product formulation;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nknowledge of various cannabinoid strains, their phytocannabinoid profile, extraction methodology, and impact on various pathways;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nknowledge of plant and cannabinoid-based combination therapies;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nknowledge of research and development in the field;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\npatents IGC-501, IGC-502, IGC-504, IGC-505, IGC-507, and IGC-514 for treatment of pain, treatment of seizures in humans and veterinary animals, treatment of cachexia and eating disorders in humans and veterinary animals, method and composition for treating seizure disorders, Alzheimer\u2019s Disease and Self Assembly of Naphthalene Diimide Derivatives and Process Thereof, respectively;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nfacilities and a team with experience in manufacturing, marketing, and selling products. These competencies have enabled us to make progress on our business goals, specifically completing the Phase 1 clinical trial of IGC-AD1, which has the potential to positively impact the lives of millions of patients suffering from the symptoms of Alzheimer\u2019s disease, subject to FDA approval.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nLicenses, Technology, and Cybersecurity\n\n\n\u00a0\n\n\nWe have intellectual property attorneys that advise, counsel, and represent the Company regarding the filing of patents or provisional patent applications, copyrights applications, and trademark applications; trade secret laws of general applicability; employee confidentiality and invention assignment. Most of our data, including our accounting data, is stored in the cloud, which helps us mitigate the overall risk of losing data. We have a cybersecurity policy in place and are in the process of implementing tighter cybersecurity measures to safeguard against hackers. The Company holds all rights to the patents that have been filed by us with the USPTO.\n\n\n\u00a0\n\n\n\n\n16\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe table below summarizes the nature of the activity, type of license required and held, and encumbrances in obtaining permits for each location where the Company operated through its subsidiaries in Fiscal 2023:\n\n\n\u00a0\n\n\n\n\n\n\n\n\nLocation\n\n\n\n\n\n\nNature of Activity\n\n\n\n\n\n\nType of License Required\n\n\n\n\n\n\nType of License held\n\n\n\n\n\n\nEncumbrances in \n\n\nObtaining Permit\n\n\n\n\n\n\n\n\n\n\nU.S.\n\n\n\n\n\n\nLife Sciences Products and General Management\n\n\n\n\n\n\nGeneral business\n\n\nLicense to grow hemp;\n\n\nIndustrial Alcohol User\n\n\nPermit;\n\n\nClinical Trials;\n\n\nGood Manufacturing Practices (GMP) certification.\n\n\n\n\n\n\nGeneral business licenses; License to grow hemp;\n\n\nIndustrial Alcohol User Permit; Clinical Trials\n\n\nGMP Certificate.\n\n\n\n\n\n\nNone.\n\n\n\n\n\n\n\n\n\n\nIndia\n\n\n\n\n\n\nInfrastructure Contract, Rental of heavy equipment and land\n\n\n\n\n\n\nGeneral business license\n\n\n\n\n\n\nBusiness registrations with tax authorities in various states in India\n\n\n\n\n\n\nNone.\n\n\n\n\n\n\n\n\n\n\nColombia\n\n\n\n\n\n\nLife Sciences Products and General Management\n\n\n\n\n\n\nGeneral business license;\n\n\nInstituto Nacional de Vigilancia de Medicamentos y Alimentos (INVIMA) Permits;\n\n\nFondo Nacional De Estupefacientes (FNE) Permits.\n\n\n\n\n\n\nGeneral business license;\n\n\nInstituto Nacional de Vigilancia de Medicamentos y Alimentos (INVIMA) Permits;\n\n\nFondo Nacional De Estupefacientes (FNE) Permits.\n\n\n\n\n\n\nNone.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nGovernmental Regulations \n\n\n\u00a0\n\n\nIn the U.S., we are subject to oversight and regulations, for some or all of our activities, by the following agencies: SEC, state regulators, NYSE, FTC, and the FDA. The cannabis plant consists of several strains or varieties. Hemp and Marijuana are both cannabis plants. Under the 2018 Farm Bill, Hemp is classified as a cannabis plant that has 0.3% or less THC by dry weight. Marijuana is classified as a cannabis plant that has THC above 0.3% by dry weight.\n\n\n\u00a0\n\n\nMarijuana remains illegal under federal law, including in those states in which the use of marijuana has been legalized for medical and or recreational use. On the other hand, the 2018 Farm Bill, which was effective January 1, 2019, contains provisions that make industrial hemp legal. Although hemp is legal at the federal level, most states have created licensing and testing processes for the growing, processing, and sale of hemp and hemp-derived products.\n\n\n\u00a0\n\n\nFor our business, we must apply for licenses in states where we desire to grow and process hemp. For example, in the state of Arizona, where we grew hemp, we were required to apply for licenses and register with the state the geo-location of all our operations, including the land on which hemp was grown and the facilities where hemp would be processed. These regulations are evolving, differ from jurisdiction to jurisdiction, and are subject to change.\n\n\n\u00a0\n\n\nFDA Approval Process\n\n\n\u00a0\n\n\nIn the U.S., pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDC Act, and other federal and state statutes and regulations, govern the research, development, testing, manufacturing, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring, and reporting, sampling, and importing and exporting of pharmaceutical products, among other things. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as the imposition of clinical holds, FDA refusal to approve pending New Drug Applications (NDA), warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, civil penalties, and criminal prosecution.\n\n\n\u00a0\n\n\nPharmaceutical product development in the U.S. typically involves pre-clinical laboratory and animal tests and the submission to the FDA of an Investigational New Drug (IND), which must become effective before clinical testing may commence. For commercial approval, the sponsor must submit adequate tests by all methods reasonably applicable to show that the drug is safe for use under the conditions prescribed, recommended, or suggested in the proposed labeling. The sponsor must also submit substantial evidence, generally consisting of adequate, well-controlled clinical trials to establish that the drug will have the effect it purports or is represented to have under the conditions of use prescribed, recommended, or suggested in the proposed labeling. In certain cases, the FDA may determine that a drug is effective based on one clinical study plus confirmatory evidence. Satisfaction of FDA premarket approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity of the product, or disease.\n\n\n\u00a0\n\n\n\n\n17\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nPre-clinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the pre-clinical tests must comply with federal regulations and requirements, including the FDA\u2019s good laboratory practices regulations and the U.S. Department of Agriculture\u2019s (USDA\u2019s) regulations implementing the Animal Welfare Act. The results of pre-clinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term pre-clinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.\n\n\n\u00a0\n\n\nA 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has not imposed a clinical hold on the IND or otherwise commented or questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.\n\n\n\u00a0\n\n\nClinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with Good Clinical Practice (GCP), an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; and (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.\n\n\n\u00a0\n\n\nThe FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time or impose other sanctions if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The trial protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB\u2019s requirements or may impose other conditions.\n\n\n\u00a0\n\n\nClinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In general, in Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. The FDA may, however, determine that a drug is effective based on one clinical study plus confirmatory evidence. Only a small percentage of investigational drugs complete all three phases and obtain marketing approval. In some cases, the FDA may require post-market studies, known as Phase 4 studies, to be conducted as a condition of approval in order to gather additional information on the drug\u2019s effect in various populations and any side effects associated with long-term use. Depending on the risks posed by the drugs, other post-market requirements may be imposed.\n\n\n\u00a0\n\n\nAfter completion of the required clinical testing, an NDA is prepared and submitted to the FDA. The FDA approval of the NDA is required before marketing of the product may begin in the U.S. The NDA must include the results of all pre-clinical, clinical, and other testing and a compilation of data relating to the product\u2019s pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting an NDA is substantial.\n\n\n\u00a0\n\n\nThe FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency\u2019s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. Under the statute and implementing regulations, the FDA has 180 days (the initial review cycle) from the date of filing to issue either an approval letter or a complete response letter, unless the review period is adjusted by mutual agreement between the FDA and the applicant or as a result of the applicant submitting a major amendment. In practice, the performance goals established pursuant to the Prescription Drug User Fee Act have effectively extended the initial review cycle beyond 180 days. The FDA\u2019s current performance goals call for the FDA to complete review of 90 percent of standard (non-priority) NDAs within 10 months of receipt and within six months for priority NDAs, but two additional months are added to standard and priority NDAs for a new molecular entity (NME).\n\n\n\u00a0\n\n\n\n\n18\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee, which is typically a panel that includes clinicians and other experts, for review, evaluation, and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with the current GMP is satisfactory, and the NDA contains data that provides substantial evidence that the drug is safe and effective in the indication studied.\n\n\n\u00a0\n\n\nAfter the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA\u2019s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing 90 percent of resubmissions within two to six months depending on the type of information included.\n\n\n\u00a0\n\n\nAn approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy (REMS) to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for health care professionals, and elements to assure safe use (ETASU). ETASU can include, but is not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug\u2019s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained, or problems are identified following initial marketing.\n\n\n\u00a0\n\n\nDisclosure of Clinical Trial Information\n\n\n\u00a0\n\n\nSponsors of clinical trials of certain FDA-regulated products, including prescription drugs, are required to register and disclose certain clinical trial information on a public website maintained by the U.S. National Institutes of Health. Information related to the product, patient population, phase of the investigation, study sites, investigator and other aspects of the clinical trial is made public as part of the registration. Disclosure of the results of these trials can be delayed for up to two years if the sponsor certifies that it is seeking approval of an unapproved product or that it will file an application for approval of a new indication for an approved product within one year. Competitors may use this publicly available information to gain knowledge regarding the design and progress of our development programs.\n\n\n\u00a0\n\n\nThe Hatch-Waxman Act\n\n\n\u00a0\n\n\nOrange Book Listing\n\n\n\u00a0\n\n\nIn seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent the claims of which cover the applicant\u2019s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA\u2019s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application (ANDA). An ANDA provides for the marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct or submit results of pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are considered to be therapeutically equivalent to the listed drug, are commonly referred to as \u201cgeneric equivalents\u201d to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug in accordance with state law.\n\n\n\u00a0\n\n\nThe ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA\u2019s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date, and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement, certifying that its proposed ANDA labeling does not contain (or carves out) any language regarding the patented method-of-use, rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.\n\n\n\u00a0\n\n\n\n\n19\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nA certification that the new product will not infringe the already approved product\u2019s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant. The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.\n\n\n\u00a0\n\n\nExclusivity\n\n\n\u00a0\n\n\nUpon NDA approval of a new chemical entity or NCE, which is a drug that contains no active component that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which time the FDA cannot receive any ANDA or 505(b)(2) application seeking approval of a drug that references a version of the NCE drug. Certain changes to a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approve an ANDA or 505(b)(2) application that includes the change.\n\n\n\u00a0\n\n\nAn ANDA or 505(b)(2) application may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification and thus no ANDA or 505(b)(2) application may be filed before the expiration of the exclusivity period.\n\n\n\u00a0\n\n\nFor a botanical drug, the FDA may determine that the active moiety is one or more of the principal components or the complex mixture as a whole. This determination would affect the utility of any five-year exclusivity as well as the ability of any potential generic competitor to demonstrate that it is the same drug as the original botanical drug.\n\n\n\u00a0\n\n\nFive-year and three-year exclusivities do not preclude FDA approval of a 505(b)(1) application for a duplicate version of the drug during the period of exclusivity, provided that the 505(b)(1) applicant conducts or obtains a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.\n\n\n\u00a0\n\n\nPatent Term Extension\n\n\n\u00a0\n\n\nAfter NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension. The allowable patent term extension is calculated as half of the drug\u2019s testing phase \u2014 the time between IND submission and NDA submission \u2014 and all of the review phase \u2014 the time between NDA submission and approval up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not\n\n\nexceed 14 years.\n\n\n\u00a0\n\n\nFor patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the PTO must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.\n\n\n\u00a0\n\n\nOrphan Drugs\n\n\n\u00a0\n\n\nUnder the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition generally a disease or condition that affects fewer than 200,000 individuals in the U.S. (or affects more than 200,000 in the U.S. and for which there is no reasonable expectation that the cost of developing and making available in the U.S. a drug for such disease or condition will be recovered from sales in the U.S. of such drug). Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the U.S. for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. If the FDA designates an orphan drug based on a finding of clinical superiority, the FDA must provide a written notification to the sponsor that states the basis for orphan designation, including \u201cany plausible hypothesis\u201d relied upon by the FDA. The FDA must also publish a summary of its clinical superiority findings upon granting orphan drug exclusivity based on clinical superiority. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.\n\n\n\u00a0\n\n\n\n\n20\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nSpecial Protocol Assessment\n\n\n\u00a0\n\n\nA company may reach an agreement with the FDA under the Special Protocol Assessment (SPA), process as to the required design and size of clinical trials intended to form the primary basis of an efficacy claim. According to its performance goals, the FDA is supposed to evaluate the protocol within 45 days of the request to assess whether the proposed trial is adequate, and that evaluation may result in discussions and a request for additional information. A SPA request must be made before the proposed trial begins, and all open issues must be resolved before the trial begins. If a written agreement is reached, it will be documented and made part of the administrative record. Under the FDC Act and FDA guidance implementing the statutory requirement, an SPA is generally binding upon the FDA except in limited circumstances, such as if the FDA identifies a substantial scientific issue essential to determining safety or efficacy after the study begins, public health concerns emerge that were unrecognized at the time of the protocol assessment, the sponsor and the FDA agree to the change in writing, or if the study sponsor fails to follow the protocol that was agreed upon with the FDA.\n\n\n\u00a0\n\n\nU.S. Coverage and Reimbursement\n\n\n\u00a0\n\n\nSignificant uncertainty exists as to the coverage and reimbursement status of our lead product candidates, such as IGC-AD1 or any other for which we may seek regulatory approval. Sales in the U.S. will depend in part on the availability of adequate financial coverage and reimbursement from third-party payors, which include government health programs such as Medicare, Medicaid, TRICARE, and the Veterans Administration, as well as managed care organizations and private health insurers. Prices at which we or our customers seek reimbursement for our product candidates can be subject to challenge, reduction, or denial by payors.\n\n\n\u00a0\n\n\nThe process for determining whether a payor will provide coverage for a product is typically separate from the process for setting the reimbursement rate that the payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list or formulary, which might not include all the FDA-approved products for a particular indication. Also, third-party payors may refuse to include a branded drug on their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or another alternative is available. Medicare Part D, Medicare\u2019s outpatient prescription drug benefit, contains protections to ensure coverage and reimbursement for oral oncology products, and all Part D prescription drug plans are required to cover substantially all oral anti-cancer agents. However, a payor\u2019s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be available. Private payors often rely on the lead of the governmental payors in rendering coverage and reimbursement determinations. Sales of products such as IGC-AD1 or any other product candidates will therefore depend substantially on the extent to which the costs of our products will be paid by third-party payors. Achieving favorable coverage and reimbursement from the Centers for Medicare and Medicaid Services (CMS) and/or the Medicare Administrative Contractors is typically a significant gating issue for successful introduction of a new product.\n\n\n\u00a0\n\n\nThird-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. In order to obtain coverage and reimbursement for any product that might be approved for marketing, we may need to conduct studies in order to demonstrate the medical necessity and cost-effectiveness of any products, which would be in addition to the costs expended to obtain regulatory approvals. Third-party payors may not consider our product candidates to be medically necessary or cost-effective compared to other available therapies, or the rebate percentages required to secure favorable coverage may not yield an adequate margin over cost or may not enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development.\n\n\n\u00a0\n\n\nHuman Capital Management and Environment, Health, and Safety\n\n\n\u00a0\n\n\nWorkplace Safety & Employee Care During COVID-19\n. Workplace safety is always a top priority for the Company. To create and sustain a safe and healthy workplace, we have implemented initiatives designed to address risk evaluation, education and training of employees, use of appropriate personal protective equipment, and compliance with relevant health and safety standards.\n\n\n\u00a0\n\n\nEnvironmental, Social, and Governance (ESG) Efforts\n. During Fiscal 2023, we distributed $194 thousand worth of hand sanitizers and other wellness products in an effort to expand the Company\u2019s ESG programs.\n\n\n\u00a0\n\n\nEmployees.\n As of March 31, 2023, we employed a team of approximately 61 full-time employees in our two segments. We also have contract workers and advisors in the U.S., India, Colombia, and Hong Kong.\n\n\n\u00a0\n\n\nAvailable Information\n\n\n\u00a0\n\n\nThe Company\u2019s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act are filed with the Securities and Exchange Commission (the SEC). The Company is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy statements, and other information with the SEC. Such reports and other information filed by the Company with the SEC are available free of charge on the Company\u2019s website at www.igcinc.us when such reports are available on the SEC\u2019s website. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company\u2019s references to the URLs for these websites are intended to be inactive textual references only.\n\n\n\u00a0\n\n\n\n\n21\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A. RISK FACTORS\n\n\n\u00a0\n\n\nYou should carefully consider the following risk factors, together with all other information included in this report, in evaluating the Company and our common stock. If any of the following risks and uncertainties develop into actual events, they could have a material adverse effect on our business, financial condition, or results of operations. In that case, the trading price of our common stock and other securities also could be adversely affected. We make various statements in this section, which constitute \n\u201c\nforward-looking statements.\n\u201d\n See \n\u201c\nForward-Looking Statements.\n\u201d\n\n\n\u00a0\n\n\nRisks Related to Our Business, Industry, and Operations:\n\n\n\u00a0\n\n\nWe have incurred significant losses and have an accumulated deficit. If we cannot achieve profitability, the market price of our common stock could decline significantly.\n\n\n\u00a0\n\n\nAs of March 31, 2023, we had cash and cash equivalents of $3.2 million and working capital of $4.6 million compared to cash and cash equivalents of $10.5 million and working capital of $12.7 million as of March 31, 2022, for continuing operations.\n\n\n\u00a0\n\n\nWe have had a history of operating losses. For Fiscal 2023 and Fiscal 2022, we had a net loss of approximately $11.5 million and $15 million, respectively. Our revenue increased from Fiscal 2022 to Fiscal 2023. Our short-term focus is to gain market share for our Life Sciences segment. Accordingly, there can be no guarantee that our efforts will be successful. If our revenues do not grow or if our operating expenses continue to increase, we may not be able to become profitable, and the market price of our common stock could decline. If we continue to have losses, we will be required to seek additional financing. No assurance can be given that we can raise any such financing, and such financing could be dilutive to our shareholders.\n\n\n\u00a0\n\n\nOur cannabinoid strategy makes it difficult to raise money as a public company.\n\n\n\u00a0\n\n\nMarijuana and hemp plants are both the same species, the dioecious plant Cannabis sativa L. Most countries differentiate hemp from marijuana by the amount of THC. Under the 2018 Farm Bill, hemp is classified as a cannabis plant that has 0.3% or less THC by dry weight. Marijuana is classified as a cannabis plant that has THC above 0.3% by dry weight. Both marijuana and hemp produce other cannabinoids, such as CBD.\n\n\n\u00a0\n\n\nCBD, mentioned in the context of products, refers to hemp extracts naturally rich in cannabinoids like CBD, but with 0.3% or less THC by dry weight. Despite having no direct involvement in selling marijuana, the Company is often incorrectly classified as a \u201ccannabis company\u201d or a \u201cmarijuana company,\u201d with all the nuances that accompany that label, including being blacklisted by banks, investment banks, and until recently by the largest stock clearing services company. The near-monopoly nature of some of these institutions, especially clearing houses, makes it difficult for the Company to raise money, deposit share certificates, or even have investment banking relationships. As we cannot control how others perceive us, there can be no assurance that we will be able to raise enough capital for our planned expansion.\n\n\n\u00a0\n\n\nThe Drug Enforcement Administration (DEA) interim final rule related to statutory amendments to the Controlled Substances Act made by the Agriculture Improvement Act of 2018 (AIA) regarding the scope of regulatory controls over marijuana, tetrahydrocannabinols, and other related constituents may have an adverse impact on our Company.\n\n\n\u00a0\n\n\nEffective August 21, 2020, the interim rule to align DEA regulations in response to hemp legalization under the 2018 Farm Bill became effective. In order to meet the AIA\u2019s definition of hemp and thus qualify for the exception in the definition of marijuana, a cannabis-derived product must itself contain 0.3% or less delta-9-Tetrahydrocannabinol (THC) on a dry weight basis. It is not enough that a product is labeled or advertised as \u201chemp.\u201d Cannabis-derived products that exceed the 0.3% THC limit do not meet the statutory definition of \u201chemp\u201d and are Schedule I controlled substances, regardless of claims made to the contrary in the labeling or advertising of the products. Further, a cannabis derivative, extract, or product that exceeds the 0.3% THC limit is a Schedule I controlled substance, even if the plant from which it was derived contained 0.3% or less THC on a dry weight basis. While\u202fwe strive to ensure compliance, further tightening of these definitions may have an adverse impact on our products.\n\n\n\u00a0\n\n\n\n\n22\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company depends on the performance of carriers, wholesalers, retailers, and other resellers.\n\n\n\u00a0\n\n\nThe Company distributes its products through wholesalers, retailers, and resellers, many of whom may distribute products from competing manufacturers. The Company also intends to sell its products and resell third-party products in most of its major markets directly to consumers, small and mid-sized businesses, and other customers through its retail and online stores and its direct sales force. The Company intends to invest in programs to enhance reseller sales, including staffing selected resellers\u2019 stores with Company employees and contractors and improving product placement displays. These programs can require a substantial investment while not assuring return or incremental sales. The financial condition of these resellers could weaken, these resellers could stop distributing the Company\u2019s products, or uncertainty regarding demand for some or all of the Company\u2019s products could cause resellers to reduce their ordering and marketing of the Company\u2019s products.\n\n\n\u00a0\n\n\nWe may engage in strategic transactions that could impact our liquidity, increase our expenses, and present significant distractions to our management, and which ultimately may not be successful. \n\n\n\u00a0\n\n\nFrom time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases, and out-licensing or in-licensing of products, product candidates, or technologies, particularly those arrangements that seek to leverage other organizations\u2019 internal platforms or competencies for the benefit of our products or potential products. Additional potential transactions that we may consider may include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations, and investments. Any such transaction may require us to incur non-recurring or other charges that may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, these transactions may entail numerous operational and financial risks, including:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nexposure to unknown or unanticipated liabilities, including foreign laws with which we are unfamiliar;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\ndisruption of our business and diversion of our management\u2019s time and attention to develop acquired products, product candidates, or technologies;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe incurrence of substantial debt or dilutive issuances of equity securities to pay for acquisitions, which we may not be able to obtain on favorable terms, if at all;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nhigher than expected acquisition and integration costs;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nwrite-downs of assets or goodwill or impairment charges;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nincreased amortization expenses;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\ndifficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nentering a long-term relationship with a partner that proves to be unreliable or counterproductive;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nimpairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\ninability to retain key employees of any acquired businesses.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThere can be no assurance that we will undertake or successfully complete any transactions of the nature described above. Any transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition, and prospects if we are unable to execute the planned objectives or capitalize on the relationship in the manner that was originally contemplated.\n\n\n\u00a0\n\n\nGlobal Operations\n\n\n\u00a0\n\n\nWe operate on a global scale and could be affected by currency fluctuations, capital, and exchange controls, global economic conditions including inflation, expropriation, and other restrictive government actions, changes in intellectual property legal protections and remedies, trade regulations, tax laws and regulations, and procedures and actions affecting approval, production, pricing, and marketing of, reimbursement for and access to our products, as well as impacts of political or civil unrest or military action, including but not limited to the current conflict between Russia and Ukraine, terrorist activity, unstable governments, and legal systems, inter-governmental disputes, public health outbreaks, epidemics, pandemics, natural disasters or disruptions related to climate change.\n\n\n\u00a0\n\n\nSome emerging market countries may be particularly vulnerable to periods of financial or political instability or significant currency fluctuations or may have limited resources for healthcare spending. As a result of these and other factors, our strategy to grow in emerging markets may not be successful, and growth rates in these markets may not be sustainable.\n\n\n\u00a0\n\n\nGovernment financing and economic pressures can lead to negative pricing pressure in various markets where governments take an active role in setting prices, access criteria (e.g., through health technology assessments) or other means of cost control.\n\n\n\u00a0\n\n\n\n\n23\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe continue to monitor the global trade environment and potential trade conflicts and impediments that could impact our business. If trade restrictions or tariffs reduce global economic activity, potential impacts could include declining sales; increased costs; volatility in foreign exchange rates; a decline in the value of our financial assets and pension plan investments; required increases of our pension funding obligations; increased government cost control efforts; delays or failures in the performance of customers, suppliers and other third parties on whom we may depend for the performance of our business; and the risk that our allowance for doubtful accounts may not be adequate.\n\n\n\u00a0\n\n\nWe may fail to expand our growing and manufacturing capability in time to meet market demand for our products and product candidates, and the FDA may refuse to accept our facilities or those of our contract manufactures as being suitable for the production of our products and product candidates. Any problems in our growing or manufacturing process could have a material adverse effect on our business, results of operations, and financial condition.\n\n\n\u00a0\n\n\nIn addition, before we can begin commercial manufacture of any medicinal product candidates for sale in the U.S., we must obtain FDA regulatory approval for the product, which requires a successful FDA inspection of the manufacturing facilities, which in turn includes the facilities of the processor(s) and quality systems in addition to other product-related approvals.\n\n\n\u00a0\n\n\nThe Company established a Good Manufacturing Practice (GMP) certified processing facility in the State of Washington for processes such as: a) production of products such as lotions, creams, and oils, among others, to support our products and to support white labeling; b) extraction of hemp into crude oil; and c) distillation of crude oil into hemp extracts.\n\n\n\u00a0\n\n\nDue to the complexity of the processes used to manufacture our product candidates, we may be unable to initiate or continue to pass federal, state, or international regulatory inspections in a cost-effective manner. If we are unable to comply with manufacturing regulations, we may be subject to fines, unanticipated compliance expenses, recall or seizure of any approved products, total or partial suspension of production, and/or enforcement actions, including injunctions and criminal or civil prosecution. These possible sanctions would adversely affect our business, the results of operations, and financial condition.\n\n\n\u00a0\n\n\nLegal claims could be filed that may have a material adverse effect on our business, operating results, and financial condition. We may, in the future face risks of litigation and liability claims, the extent of such exposure can be difficult or impossible to estimate and which can negatively impact our financial condition and results of operations.\n\n\n\u00a0\n\n\nOur operations are subject to numerous laws and regulations in the U.S., India, Colombia, and Hong Kong relating to the protection of the public and necessary disclosures regarding financial services. Liability under these laws involves inherent uncertainties. Violations of financial regulation laws are subject to civil, and, in some cases, criminal sanctions. We may not have been, or may not be, or may be alleged to have not been or to not be, at all times, in complete compliance with all requirements, and we may incur costs or liabilities in connection with such requirements or allegations. We may also incur unexpected interruptions to our operations, administrative injunctions requiring operation stoppages, fines judgments, settlements, or other financial obligations or penalties, which could negatively impact our financial condition and results of operations. See Item 3, Legal Proceedings of this report for further information on the current status of legal proceedings, if any. There can also be no assurance that any insurance coverage we have will be adequate or that we will prevail in any future cases. We can provide no assurance that we will be able to obtain liability insurance that would protect us from any such lawsuits. In the event that we are not covered by insurance, our management could spend significant time and resources addressing any such issues. And the legal fees necessary to defend against multiple lawsuits can be significant, impacting the Company\u2019s overall bottom line when not covered by insurance or where the fees exceed the Company\u2019s insurance policy limits.\n\n\n\u00a0\n\n\nOur Company is in a highly regulated industry. Significant and unforeseen changes in policy may have material impacts on our business.\n\n\n\u00a0\n\n\nContinued development in the phytocannabinoids industry is dependent upon continued state legislative authorization of cannabinoids as well as legislation and regulatory policy at the federal level. The federal Controlled Substances Act currently makes cannabinoids use and possession illegal on a national level. While there may be ample public support for legislative authorization, numerous factors impact the legislative process. Any one of these factors could slow or halt the use and handling of cannabinoids in the U.S. or in other jurisdictions, which would negatively impact our development of phytocannabinoids-based therapies and our ability to test and productize these therapies.\n\n\n\u00a0\n\n\n\n\n24\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nMany U.S. state laws conflict with the federal Controlled Substances Act. While we do not and do not intend, to distribute or sell marijuana in the U.S., it is unclear whether regulatory authorities in the U.S. would object to the registration or public offering of securities in the U.S. by our Company, to the status of our Company as a reporting company, or even to investors investing in our Company, if we engage in legal cannabinoids cultivation and supply pursuant to the laws and authorization of the jurisdiction where the activity takes place. In addition, the status of cannabinoids under the Controlled Substances Act may have an adverse effect on federal agency approval of pharmaceutical use of phytocannabinoid products. Any such objection or interference could delay indefinitely or increase substantially the costs to access the equity capital markets, test our therapies, or create products from the Life Sciences segment.\n\n\n\u00a0\n\n\nOur Company is inexperienced in conducting pre-clinical and clinical trials.\n\n\n\u00a0\n\n\nOur Company is inexperienced in conducting pre-clinical and clinical trials. Our attempt at demonstrating safety, efficacy, and ultimate useability may fail because of our lack of experience in designing, managing, and conducting clinical trials resulting in unanticipated or adverse outcomes. Such outcomes may have an adverse effect on our stock price.\n\n\n\u00a0\n\n\nClinical trials are expensive, time-consuming, and difficult to design and implement, and involve an uncertain outcome.\n\n\n\u00a0\n\n\nClinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Because the results of preclinical studies and early clinical trials are not necessarily predictive of future results, IGC-AD1 and our other compounds may not have favorable results in later preclinical and clinical studies or receive regulatory approval. We may experience delays in initiating and completing any clinical trials that we intend to conduct, and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, or at all. Clinical trials can be delayed or terminated for a variety of reasons, including but not limited to:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical studies;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nobtaining regulatory approval to commence a trial;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nreaching an agreement on acceptable terms with prospective contract research organizations (CROs), and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nobtaining Institutional Review Board (IRB) approval at each site, or Independent Ethics Committee (IEC) approval at sites outside the United States;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nrecruiting suitable patients to participate in a trial in a timely manner and in sufficient numbers;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nhaving patients complete a trial or return for post-treatment follow-up;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nimposition of a clinical hold by regulatory authorities, including as a result of unforeseen safety issues or side effects or failure of trial sites to adhere to regulatory requirements or follow trial protocols;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nclinical sites deviating from trial protocol or dropping out of a trial;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\naddressing patient safety concerns that arise during the course of a trial;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nadding a sufficient number of clinical trial sites; or\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nmanufacturing sufficient quantities of the product candidate for use in clinical trials.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe could also encounter delays if a clinical trial is suspended or terminated by us, the IRBs or IECs of the institutions in which such trials are being conducted, the Data Safety Monitoring Board (DSMB), for such trial or the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and, while we have agreements governing their committed activities, we have limited influence over their actual performance.\n\n\n\u00a0\n\n\n\n\n25\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming, and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for IGC-AD1 or any other product candidates, our business will be substantially harmed.\n\n\n\u00a0\n\n\nThe time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate\u2019s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate, and it is possible that we will never obtain regulatory approval for IGC-AD1 or any other product candidate. We are not permitted to market any of our pharmaceutical product candidates in the United States until we receive regulatory approval of an NDA from the FDA. The regulatory approval process can be affected by, among other things, the following:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nwe may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nserious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates, or other products containing the active ingredient in our product candidates;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nnegative or ambiguous results from our clinical trials or results that may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nwe may be unable to demonstrate that a product candidate\u2019s clinical and other benefits outweigh its safety risks;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe data collected from clinical trials of our product candidates may not be acceptable or sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere, and/or we may be required to conduct additional clinical trials;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe FDA or comparable foreign authorities may disagree regarding the formulation, labeling, and/or the specifications of our product candidates;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe FDA or comparable foreign regulatory authorities may fail to approve or find deficiencies with the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nPrior to obtaining approval to commercialize a product candidate in the United States or abroad, we must demonstrate with substantial evidence from well-controlled clinical trials and to the satisfaction of the FDA or foreign regulatory agencies that such product candidates are safe and effective for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. For diseases like Alzheimer\u2019s, the FDA has stated that one single Phase 3 trial is adequate for approval if it demonstrates robust and unquestionable efficacy. However, the circumstances under which a single adequate and controlled study can be used as the sole basis for demonstrating the efficacy of a drug are exceptional.\n\n\n\u00a0\n\n\nThe FDA or any foreign regulatory bodies can delay, limit, or deny approval of our product candidates or require us to conduct additional preclinical or clinical testing or abandon a program for many reasons, including:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe FDA or comparable foreign regulatory authorities may disagree with our safety interpretation of our drug;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe FDA or comparable foreign regulatory authorities may disagree with our efficacy interpretation of our drug;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe FDA or comparable foreign regulatory authorities may regard our Chemistry Manufacturing and Controls package as inadequate.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOf the large number of drugs in development, only a small percentage successfully complete the regulatory approval processes and are commercialized. This lengthy approval process, as well as the unpredictability of future clinical trial results, may result in us failing to obtain regulatory approval to market IGC-AD1 or another product candidate, which would significantly harm our business, results of operations, and prospects.\n\n\n\u00a0\n\n\nIn addition, the FDA or the applicable foreign regulatory agency also may approve a product candidate for a more limited indication or patient population than we originally requested, and the FDA or applicable foreign regulatory agency may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.\n\n\n\u00a0\n\n\n\n\n26\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe have concentrated our research and development efforts on the treatment of Alzheimer\n\u2019\ns Disease, which has seen limited success in drug development. Further, IGC-AD1 is based on a new approach to treating symptoms of Alzheimer\n\u2019\ns Disease, which makes it difficult to predict the time and cost of development and subsequent obtaining of regulatory approval.\n\n\n\u00a0\n\n\nEfforts by biopharmaceutical and pharmaceutical companies in treating Alzheimer\u2019s Disease have seen limited success in drug development, and there is no FDA-approved disease modifying therapeutic options available for patients with Alzheimer\u2019s Disease. We cannot be certain that our approach will lead to the development of approvable or marketable products. The only drugs approved by the FDA to treat Alzheimer\u2019s Disease to date address the disease\u2019s symptoms. Alzheimer\u2019s Disease drug candidates have the highest failure rate of approximately 99.6%. As a result, the FDA has a limited set of products to rely on in evaluating IGC-AD1. This could result in a longer than expected regulatory review process, increased expected development costs, or the delay or prevention of commercialization of IGC-AD1 for the treatment of Alzheimer\u2019s Disease.\n\n\n\u00a0\n\n\nEnrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control.\n\n\n\u00a0\n\n\nThe timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. We may encounter delays in enrolling, or be unable to enroll, a sufficient number of patients to complete any of our clinical trials, and even once enrolled, we may be unable to retain a sufficient number of patients to complete any of our trials. Patient enrollment and retention in clinical trials depend on many factors, including:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe patient eligibility criteria defined in the protocol;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe size of the patient population required for analysis of the trial\u2019s primary endpoints;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe nature of the trial protocol;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe existing body of safety and efficacy data with respect to the product candidate;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe proximity of patients to clinical sites;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nour ability to recruit clinical trial investigators with the appropriate competencies and experience;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nclinicians\u2019\u00a0and patients\u2019\u00a0perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\ncompeting clinical trials being conducted by other companies or institutions;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nour ability to maintain patient consents; and\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe risk that patients enrolled in clinical trials will drop out of the trials before completion.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur product candidates may cause serious adverse events or undesirable side effects, which may delay or prevent marketing approval, or, if approved, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.\n\n\n\u00a0\n\n\nSerious adverse events or undesirable side effects caused by IGC-AD1, or any other product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of any clinical trial we conduct could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics.\n\n\n\u00a0\n\n\nIf unacceptable side effects arise in the development of our product candidates, we, the FDA, or the IRBs at the institutions in which our studies are conducted, or the DSMB, if constituted for our clinical trials, could recommend a suspension or termination of our clinical trials, or the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of a product candidate for any or all targeted indications. In addition, drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete a trial or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. We expect to have to train medical personnel using our product candidates to understand the side effect profiles for our clinical trials and upon any commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in patient injury or death. Any of these occurrences may harm our business, financial condition, and prospects significantly.\n\n\n\u00a0\n\n\n\n\n27\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAdditionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nadditional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nregulatory authorities may withdraw approvals of such product;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nregulatory authorities may require additional warnings on the label, such as a \u201cblack box\u201d\u00a0warning or contraindication;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nwe may be required to implement a REMS or create a medication guide outlining the risks of such side effects for distribution to patients;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nwe could be sued and held liable for harm caused to patients;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe product may become less competitive; and\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nour reputation may suffer.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAny of these events could prevent us from achieving or maintaining market acceptance of a product candidate, if approved, and could significantly harm our business, results of operations and prospects.\n\n\n\u00a0\n\n\nOur product candidates may be unable to achieve the expected market acceptance, consequently, limiting our ability to generate revenue from new products. \n\n\n\u00a0\n\n\nEven when product development is successful and regulatory approval has been obtained, our ability to generate sufficient revenue depends on the acceptance of our products by customers. We cannot assure you that our products will achieve the expected level of market acceptance and revenue. The market acceptance of any product depends on several factors such as the price of the product, the effect of the product, the taste of the product, reputation of the Company, competition, and marketing and distribution support.\n\n\n\u00a0\n\n\nThe success and acceptance of a product in one state may not be replicated in other states or may be negatively affected by our activities in another state. Any factors preventing or limiting the market acceptance of our products could have a material adverse effect on our business, results of operations and financial condition.\n\n\n\u00a0\n\n\nThe nature of our products, customer base and sales channels cause us to lack visibility regarding future demand for our products, which makes it difficult for us to predict our revenues or operating results.\n\n\n\u00a0\n\n\nIt is important to the success of our business that we have the ability to accurately predict the future demand for our products. However, several factors contribute to a lack of visibility with respect to future orders, including:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe lengthy and unpredictable sales cycle for our products that can extend from 6 to 24 months or longer;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe project-driven nature of our customers\u2019\u00a0requirements;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe uncertainty of the extent and timing of market acceptance of our new products;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe requirement to obtain industry certifications or regulatory approval for some products; and\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe diversity of our product lines and geographic scope of our product distribution.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThis lack of visibility impacts our ability to forecast inventory requirements. An overestimate of our customers\u2019 future requirements for products may lead to excess inventory, which would increase costs and potentially require us to write-off inventory that becomes obsolete. If we underestimate our customers\u2019 future requirements, we may have inadequate inventory, which could interrupt and delay the delivery of our products to our customers and could cause our revenues to decline. If any of these events occur, they could negatively impact our revenues, which could prevent us from achieving or sustaining profitability.\n\n\n\u00a0\n\n\nSome, but not all, of the factors that could affect our ability to achieve results are described in forward-looking statements. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements.\n\n\n\u00a0\n\n\nBusiness interruptions could delay us in the process of developing our product candidates and could disrupt our product sales.\n\n\n\u00a0\n\n\nLoss of our manufacturing facilities, stored inventory or laboratory facilities through fire, theft, natural disasters or other causes, or loss of our botanical raw material due to pathogenic infection, waste, destruction, or other causes, could have an adverse effect on our ability to meet demand for our products or to continue product development activities and to conduct our business. Failure to supply our partners with commercial products may lead to adverse consequences.\n\n\n\u00a0\n\n\n\n\n28\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nClimate change concerns could disrupt our businesses, adversely affect client activity levels, adversely affect the creditworthiness\u00a0of our counterparties and damage our reputation.\n\n\n\u00a0\n\n\nClimate change may cause extreme weather events that, among other things, could damage our facilities and equipment, injure our employees, disrupt operations at one or more of our primary locations, negatively affect our ability to service and interact with our clients, and adversely affect the value of our assets. Any of these events may increase our costs including our costs to insure against these events.\n\n\n\u00a0\n\n\nClimate change may also have a negative impact on the financial condition of our clients, which may decrease revenues from those clients and increase the credit exposures to those clients. Additionally, our reputation and client relationships may be damaged as a result of our involvement, or our clients\u2019 involvement, in certain industries associated with causing or exacerbating, or alleged to cause or exacerbate, climate change. We also may be negatively impacted by any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change. New regulations or guidance relating to climate change, as well as the perspectives of shareholders, employees, and other stakeholders regarding climate change, may affect whether and on what terms and conditions we engage in certain activities or offer certain products.\n\n\n\u00a0\n\n\nCurrency fluctuations may reduce our assets and profitability.\n\n\n\u00a0\n\n\nWe have assets located in foreign countries that are valued in foreign currencies. Fluctuation of the U.S. dollar relative to the foreign currency may adversely affect our assets and profit.\n\n\n\u00a0\n\n\nOur business relies heavily on our management team, and any unexpected loss of key officers may adversely affect our operations.\n\n\n\u00a0\n\n\nThe continued success of our business is largely dependent on the continued services of our key employees. The loss of the services of certain key personnel, without adequate replacement, could have an adverse effect on our performance. Our senior management, as well as the senior management of our subsidiaries, plays a significant role in developing and executing the overall business plan, maintaining client relationships, proprietary processes, and technology. While no one is irreplaceable, the loss of the services of any would be disruptive to our business.\n\n\n\u00a0\n\n\nOur quarterly revenue, operating results, and profitability will vary.\n\n\n\u00a0\n\n\nFactors that may contribute to the variability of quarterly revenue, operating results, or profitability include:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nFluctuations in revenue due to the seasonality of the marketplace, which results in uneven revenue and operating results over the year;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nAdditions and departures of key personnel;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nStrategic decisions made by us and our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments, and changes in business strategy; and\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nEconomic conditions, including but not limited to the adverse impact on operating results due to the COVID-19 pandemic.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe may not successfully register the provisional patents with the USPTO.\n\n\n\u00a0\n\n\nWe have filed forty-one (41) patent applications with the USPTO and also in other different countries, in the combination therapy space, for the indications of pain, Alzheimer\u2019s, medical refractory epilepsy, eating disorders, and Tourette syndrome as part of our intellectual property strategy focused on the phytocannabinoid-based health care industry. Although nine patents have been issued, there is no guarantee that our remaining applications will result in a successful registration with the USPTO. If we are unsuccessful in registering patents, our ability to create a valuable line of products can be adversely affected. This in turn may have a material and adverse impact on the trading price of our common stock.\n\n\n\u00a0\n\n\n\n\n29\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe may be unable to protect our intellectual property rights and/or intellectual property rights licensed to us and may be subject to intellectual property litigation and infringement claims by third parties.\n\n\n\u00a0\n\n\nWe intend to protect our intellectual property through limited patents and our unpatented trade secrets and know-how through confidentiality or license agreements with third parties, employees, and consultants, and by controlling access to and distribution of our proprietary information. However, this method may not afford complete protection, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the U.S. and unauthorized parties may copy or otherwise obtain and use our products, processes, or technology. Additionally, there can be no assurance that others will not independently develop similar know-how and trade secrets. We are also dependent upon the owners of intellectual property rights licensed to us under various wholesale license agreements to protect and defend those rights against third party claims. If third parties take actions that affect our rights, the value of our intellectual property, similar proprietary rights or reputation or the licensors who have granted us certain rights under wholesale license agreements, or we are unable to protect the intellectual property from infringement or misappropriation, other companies may be able to offer competitive products at lower prices, and we may not be able to effectively compete against these companies. We also face the risk of claims that we have infringed third parties\u2019 intellectual property rights. Any claims of intellectual property infringement, even those without merit, may require us to:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\ndefend against infringement claims which are expensive and time consuming;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\ncease making, licensing, or using, either temporarily or permanently, products that incorporate the challenged intellectual property;\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nre-design, re-engineer, or re-brand our products or packaging; or\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nenter into royalty or licensing agreements to obtain the right to use a third party\u2019s intellectual property.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn the event of claims by third parties for infringement of intellectual property rights we license from third parties under wholesale license agreements, we could be liable for costs of defending allegations of infringement, and there are no assurances the licensors will either adequately defend the licensed intellectual property rights or that they would prevail in the related litigation. In that event, we would incur additional costs and may be deprived from generating royalties from these agreements.\n\n\n\u00a0\n\n\nWe may face risks relating to health care privacy and security laws. \n\n\n\u00a0\n\n\nWe may be subject to various privacy and security regulations, including but not limited to the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by The Health Information Technology for Economic and Clinical Health Act (HITECH), and their respective implementing regulations, including the related final published omnibus rule. HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common health care transactions, as well as standards relating to the privacy and security of individually identifiable health information. These obligations would require the Company to adopt administrative, physical, and technical safeguards to protect such information. Among other things, HITECH makes HIPAA\u2019s privacy and security standards directly applicable to \u201cbusiness associates\u201d \u2014 independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates, and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney\u2019s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thereby complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and criminal penalties.\n\n\n\u00a0\n\n\nSome of our lines of business will rely on third-party service providers to host and deliver services and data, and any interruptions or delays in these hosted services, security, or privacy breaches, including cybersecurity attacks, or failures in data collection could expose us to liability claims, increased costs, reduced revenue, and harm our business and reputation.\n\n\n\u00a0\n\n\nOur lines of business and services, but especially our development of hemp-based cannabinoid combination therapies for products, including Hyalolex\u2122, Drops of Clarity\u2122, and our long-term use and/or development of blockchain technologies to solve critical issues facing the cannabinoids industry, rely on services hosted and controlled directly by our suppliers and distributors and their third-party service providers. We do not have redundancy for all our systems; many of our critical applications reside in only one of our data centers, and our disaster recovery planning may not account for all eventualities. These facts could cause reputational harm, loss of customers, or loss of future business, thereby reducing our revenue.\n\n\n\u00a0\n\n\n\n\n30\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur suppliers and distributors and their third-party service providers hold customer data, some of which is hosted in third-party facilities. A security incident or cybersecurity attack at those facilities or ours may compromise the confidentiality, integrity, or availability of customer data. We have a cybersecurity policy in place, however, unauthorized access to customer data stored on our computers or networks may be obtained through break-ins, breaches of our secure network by an unauthorized party, employee theft or misuse, or other misconduct. It is also possible that unauthorized access to customer data may be obtained through inadequate use of security controls by customers. Accounts created with weak passwords could allow cyber-attackers to gain access to customer data. If there were an inadvertent disclosure of customer information, or if a third party were to gain unauthorized access to the information we possess on behalf of our customers, our operations could be disrupted, our reputation could be damaged, and we could be subject to claims or other liabilities. In addition, such perceived or actual unauthorized disclosure of the information we collect, or breach of our security could damage our reputation, result in the loss of customers, and harm our business.\n\n\n\u00a0\n\n\nHardware or software failures or errors in our systems or those of our suppliers and distributors or their third-party service providers, could result in data loss or corruption, cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant, or cause us to fail to meet committed service levels. Furthermore, our ability to collect and report data may be delayed or interrupted by several factors, including access to the internet, the failure of our network or software systems or security breaches. In addition, computer viruses or other malware may harm our systems, causing us to lose data, and the transmission of computer viruses or other malware could expose us to litigation. We may also find, on occasion, that we cannot deliver data and reports in near real time because of several factors, including failures of our network or software. If we supply inaccurate information or experience interruptions in our ability to capture, store and supply information in near real time or at all, our reputation could be harmed, we could lose customers, or we could be found liable for damages or incur other losses.\n\n\n\u00a0\n\n\nAll our data is stored on the cloud on multiple servers which helps us mitigate the overall risk of losing data. We are in the process of implementing tighter cybersecurity measures to safeguard against hackers. Complying with these security measures and compliances would incur further costs.\n\n\n\u00a0\n\n\nThe states in which we and our distributors and suppliers and their service providers operate require that we maintain certain information about our customers and transactions. If we fail to maintain such information, we could be in violation of state laws. Laws and regulations relating to the handling of personal data may impede the adoption of our services or result in increased costs, legal claims, fines against us, or reputational damage.\n\n\n\u00a0\n\n\nWe face risks associated with the manufacture of our products which could adversely affect our business and financial results.\n\n\n\u00a0\n\n\nWe are subject to the risks inherent in manufacturing our products, including industrial accidents, environmental events, strikes and other labor disputes, disruptions in supply chain or information systems, loss or impairment of key manufacturing sites or suppliers, product quality control, safety, increase in commodity prices and energy costs, licensing requirements and other regulatory issues, as well as natural disasters and other external factors over which we have no control. If such an event were to occur, it could have an adverse effect on our business and financial results.\n\n\n\u00a0\n\n\nThe Company is exposed to the risk of write-downs on the value of its inventory and other assets, in addition to purchase commitment cancellation risk.\n\n\n\u00a0\n\n\nThe Company records a write-down for product and component inventories that become obsolete or exceed anticipated demand, or for which cost exceeds net realizable value. The Company may also accrue necessary cancellation fee reserves for orders of excess products and components. The Company reviews long-lived assets, including capital assets held at its suppliers\u2019 facilities and inventory prepayments, for impairment whenever events or circumstances indicate the assets may not be recoverable. If the Company determines that an impairment has occurred, it records a write-down equal to the amount by which the carrying value of the asset exceeds its fair value. Although the Company believes its inventory, capital assets, inventory prepayments, and other assets and purchase commitments are currently recoverable, no assurance can be given that the Company will not incur write-downs, fees, impairments, and other charges given the rapid and unpredictable pace of product obsolescence in the industries in which the Company competes.\n\n\n\u00a0\n\n\nThe Company orders components for its products and builds inventory in advance of product announcements and shipments. Manufacturing purchase obligations cover the Company\u2019s forecasted component and manufacturing requirements, typically for periods up to 150 days. Because the Company\u2019s markets are volatile, competitive, and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and order or produce excess or insufficient amounts of components or products, or not fully utilize firm purchase commitments.\n\n\n\u00a0\n\n\n\n\n31\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur accounting personnel may make unintentional errors.\n\n\n\u00a0\n\n\nGiven our small size and foreign operations, a small unrectified mistake in the preparation of financial statements and the maintenance of our books and records in accordance with U.S. GAAP and SEC rules and regulations may constitute a material weakness in our internal controls over financial reporting. For more information, please see Item 9A, \u201cControls and Procedures.\u201d\n\n\n\u00a0\n\n\nThe Company is subject to complex and changing laws and regulations worldwide related to climate change and ESG initiatives, which expose the Company to potential liabilities, increased costs, and other adverse effects on the Company\n\u2019\ns business.\n\n\n\u00a0\n\n\nWe\u00a0are subject to transitional and physical risks related to climate change. Transitional risks include, for example, a disorderly global transition away from fossil fuels that may result in increased energy prices; customer preference for low or no-carbon products; stakeholder pressure to decarbonize assets; or new legal or regulatory requirements that result in new or expanded carbon pricing, taxes, restrictions on greenhouse gas emissions, and increased greenhouse gas disclosure and transparency. These risks could increase operating costs, including the cost of our electricity and energy use, or other compliance costs. Physical risks to our operations include water stress and drought; flooding and storm surge; wildfires; extreme temperatures and storms, which could impact pharmaceutical production, increase costs, or disrupt supply chains of medicines for patients. Our supply chain is likely subject to these same transitional and physical risks and would likely pass along any increased costs to us. We do not anticipate that these risks will have a material financial impact on the Company in the near term.\n\n\n\u00a0\n\n\nGovernmental authorities, non-governmental organizations, customers, investors, employees, and other stakeholders are increasingly sensitive to ESG matters, such as equitable access to medicines and vaccines, product quality and safety, diversity, equity and inclusion, environmental stewardship, support for local communities, value chain environmental and social due diligence, corporate governance, and transparency, and addressing human capital factors in our operations. This focus on ESG matters may lead to new expectations or requirements that could result in increased costs associated with research, development, manufacture, or distribution of our products. Our ability to compete could also be affected by changing customer preferences and requirements, such as growing demand for companies to establish validated Net Zero targets or offer more sustainable products. While we strive to improve our ESG performance and meet our voluntary goals, if we do not meet, or are perceived not to meet, our goals or other stakeholder expectations in key ESG areas, we risk negative stakeholder reaction, including from proxy advisory services, as well as damage to our brand and reputation, reduced demand for our products or other negative impacts on our business and operations. While we monitor a broad range of ESG matters, we cannot be certain that we will manage such matters successfully, or that we will successfully meet the expectations of investors, employees, consumers, governments, and other stakeholders.\n\n\n\u00a0\n\n\nA pandemic, epidemic, or outbreak of infectious disease, such as COVID-19, may materially and adversely affect our business and operations.\n\n\n\u00a0\n\n\nThe COVID-19 pandemic is affecting the United States and global economies and has and may continue to affect our operations and those of third parties on which we rely, including by causing disruptions in the supply of our products candidates and the conduct of current and future clinical trials. As the end of the COVID-19 pandemic remains unknown, the full extent of the impact of COVID-19 on the Company remains unknown as well. The impact of COVID-19 on our operations is reflected in reduced revenue and increased expenses in both our Infrastructure and the Life Sciences segments.\n\n\n\u00a0\n\n\nIn addition, the COVID-19 pandemic may affect the operations of the FDA and other health authorities, which could result in delays of reviews and approvals, including with respect to our product candidates. The evolving COVID-19 pandemic is also likely to directly or indirectly impact the pace of enrollment in our clinical trial for IGC-AD1 for at least the next several months and possibly longer as patients may avoid or may not be able to travel to healthcare facilities and physicians\u2019 offices unless due to a health emergency. Such facilities and offices may also be required to focus limited resources on non-clinical trial matters, including treatment of COVID-19 patients, and may not be available, in whole or in part, for clinical trial services or our other product candidates. Additionally, while the potential economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing, clinical trial activities or on healthcare systems, or the global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations, and business and those of the third parties on which we rely. The continued impact of the ongoing COVID-19 pandemic on the Company as well as on the regions in which we do business cannot be predicted.\n\n\n\u00a0\n\n\n\n\n32\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nRisks Related to ownership of our common stock:\n\n\n\u00a0\n\n\nFuture sales of common stock by us could cause our stock price to decline and dilute your ownership in our Company.\n\n\n\u00a0\n\n\nOur certificate of incorporation authorizes the issuance of up to 150,000,000 shares of common stock, par value of $0.0001 per share, and 1,000,000 shares of preferred stock, par value of $0.0001 per share. We are not restricted from issuing additional shares of our common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. The market price of our common stock could decline as a result of sales of a large number of shares of our common stock by us in the market or the perception that such sales could occur. If we raise funds by issuing additional securities in the future or stock options to purchase our common stock are exercised, the newly issued shares will also dilute your percentage ownership in our Company.\n\n\n\u00a0\n\n\nOur common stock price has fluctuated considerably and has recently reached our highest price levels, which may not be sustained.\n\n\n\u00a0\n\n\nThe market price of shares of our common stock has fluctuated substantially in recent years and is likely to fluctuate significantly from its current level. Our common stock has also been volatile, with our 52-week closing price range being at a low of $0.31 and a high of $0.94 per share. Future announcements concerning the introduction of new products, services, or technologies or changes in product pricing policies by us or our competitors, or changes in earnings estimates by analysts, among other factors, could cause the market price of our common stock to fluctuate substantially. Also, stock markets have experienced extreme price and volume volatility in the last year. This volatility has had a substantial effect on the market prices of securities of many public companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may also cause declines in the market price of our common stock. Investors seeking short-term liquidity should be aware that we cannot assure that the stock price will continue at these or any higher levels.\n\n\n\u00a0\n\n\nA possible \n\u201c\nshort squeeze\n\u201d\n due to a sudden increase in demand of our common stock that largely exceeds supply may lead to further price volatility in our common stock.\n\n\n\u00a0\n\n\nInvestors may purchase shares of our common stock to hedge existing exposure in our common stock or to speculate on the price of our common stock. Speculation on the price of our common stock may involve long and short exposures. To the extent aggregate short exposure exceeds the number of shares of our common stock available for purchase in the open market, investors with short exposure may have to pay a premium to repurchase our common stock for delivery to lenders of our common stock. Those repurchases may in turn dramatically increase the price of our common stock until investors with short exposure are able to purchase additional shares of common stock to cover their short position. This is often referred to as a \u201cshort squeeze.\u201d A short squeeze could lead to volatile price movements in shares of our common stock that are not directly correlated to the performance or prospects of our Company and once investors purchase the shares necessary to cover their short position the price of our common stock may decline. We believe that the recent volatility in our common stock may be due, in part, to short squeezes that may be temporarily increasing the price of our common stock, which could result in a loss of some or all of your investment in our common stock.\n\n\n\u00a0\n\n\nOur management team will have broad discretion over the use of Company funds.\n\n\n\u00a0\n\n\nOur management will use their discretion to direct the use of Company funds. We intend to use the net proceeds from the sale of IGC shares in ATM offerings, sales proceeds, sale of capital assets, and other funds to fund working capital and capital expenditure requirements. It may also be used for clinical trials, share repurchases, debt repayments, and investments, including but not limited to, mutual funds, treasury bonds, cryptocurrencies, and other asset classes. Management\u2019s judgments may not result in positive returns on investor investment, and the investor will not have an opportunity to evaluate the economic, financial, or other information upon which the Management bases its decisions. The Company may invest the funds, pending their use, in a manner that does not produce income or that loses value. The failure by management to apply these funds effectively could result in financial losses, and these financial losses could have a material adverse effect on our business and cause the price of our common stock to decline.\n\n\n\u00a0\n\n\nOur publicly filed reports are subject to review by the SEC, and any significant changes or amendments required as a result of any such review may result in material liability to us and may have a material adverse impact on the trading price of our common stock.\n\n\n\u00a0\n\n\nThe reports of publicly traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements, and the SEC is required to undertake a comprehensive review of a company\u2019s reports at least once every three years under the Sarbanes-Oxley Act of 2002. SEC reviews may be initiated at any time. We could be required to modify, amend, or reformulate information contained in prior filings as a result of an SEC review, as well as the state in filings that we have inadequate control or expertise over financial reporting. Any modification, amendment, or reformulation of information contained in such reports could be significant and result in material liability to us and have a material and adverse impact on the trading price of our common stock.\n\n\n\u00a0\n\n\n\n\n33\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe do not anticipate declaring any cash dividends on our common stock.\n\n\n\u00a0\n\n\nWe have never declared or paid cash dividends on our common stock and do not plan to pay any cash dividends in the near future. Our current policy is to retain all funds and earnings for use in the operation and expansion of our business.\n\n\n\u00a0\n\n\nMaryland anti-takeover provisions and certain anti-takeover effects of our Charter and Bylaws may inhibit a takeover at a premium price that may be beneficial to our stockholders.\n\n\n\u00a0\n\n\nMaryland anti-takeover provisions and certain anti-takeover effects of our charter and bylaws may be utilized, under some circumstances, as a method of discouraging, delaying, or preventing a change of control of our Company at a premium price that would be beneficial to our stockholders. For more detailed information about these provisions, please see \u201cAnti-takeover Law, Limitations of Liability and Indemnification\u201d as follows:\n\n\n\u00a0\n\n\nBusiness Combinations\n\n\n\u00a0\n\n\nUnder the Maryland General Corporation Law, some business combinations, including a merger, consolidation, share exchange or, in some circumstances, an asset transfer or issuance or reclassification of equity securities, are prohibited for a period of time and require an extraordinary vote. These transactions include those between a Maryland corporation and the following persons (a Specified Person):\n\n\n\u00a0\n\n\nAn interested stockholder, who is defined as any person (other than a subsidiary) who beneficially owns 10% or more of the corporation\u2019s voting stock, or who is an affiliate or an associate of the corporation who, at any time within a two-year period prior to the transaction, was the beneficial owner of 10% or more of the voting power of the corporation\u2019s voting stock; or an affiliate of an interested stockholder.\n\n\n\u00a0\n\n\nA person is not an interested stockholder if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. The board of directors of a Maryland corporation also may exempt a person from these business combination restrictions prior to the time the person becomes a Specified Person and may provide that its exemption be subject to compliance with any terms and conditions determined by the board of directors. Transactions between a corporation and a Specified Person are prohibited for five years after the most recent date on which such stockholder becomes a Specified Person. After five years, any business combination must be recommended by the board of directors of the corporation and approved by at least 80% of the votes entitled to be cast by holders of voting stock of the corporation and two-thirds of the votes entitled to be cast by holders of shares other than voting stock held by the Specified Person with whom the business combination is to be effected, unless the corporation\u2019s stockholders receive a minimum price as defined by Maryland law and other conditions under Maryland law are satisfied.\n\n\n\u00a0\n\n\nA Maryland corporation may elect not to be governed by these provisions by having its board of directors exempt various Specified Persons, by including a provision in its charter expressly electing not to be governed by the applicable provision of Maryland law or by amending its existing charter with the approval of at least 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation and two-thirds of the votes entitled to be cast by holders of shares other than those held by any Specified Person. Our Charter does not include any provision opting out of these business combination provisions.\n\n\n\u00a0\n\n\nControl Share Acquisitions\n\n\n\u00a0\n\n\nThe Maryland General Corporation Law also prevents, subject to exceptions, an acquirer who acquires sufficient shares to exercise specified percentages of voting power of a corporation from having any voting rights except to the extent approved by two-thirds of the votes entitled to be cast on the matter not including shares of stock owned by the acquiring person, any directors who are employees of the corporation and any officers of the corporation. These provisions are referred to as the control share acquisition statute.\n\n\n\u00a0\n\n\nThe control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or to acquisitions approved or exempted prior to the acquisition by a provision contained in the corporation\u2019s charter or bylaws. Our Bylaws include a provision exempting us from the restrictions of the control share acquisition statute, but this provision could be amended or rescinded either before or after a person acquired control shares. As a result, the control share acquisition statute could discourage offers to acquire our common stock and could increase the difficulty of completing an offer.\n\n\n\u00a0\n\n\n\n\n34\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nBoard of Directors\n\n\n\u00a0\n\n\nThe Maryland General Corporation Law provides that a Maryland corporation which is subject to the Exchange Act and has at least three outside directors (who are not affiliated with an acquirer of the company) under certain circumstances may elect by resolution of the board of directors or by amendment of its charter or bylaws to be subject to statutory corporate governance provisions that may be inconsistent with the corporation\u2019s charter and bylaws. Under these provisions, a board of directors may divide itself into three separate classes without the vote of stockholders such that only one-third of the directors are elected each year. A board of directors classified in this manner cannot be altered by amendment to the charter of the corporation. Further, the board of directors may, by electing to be covered by the applicable statutory provisions and notwithstanding the corporation\u2019s charter or bylaws:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nprovide that a special meeting of stockholders will be called only at the request of stockholders entitled to cast at least a majority of the votes entitled to be cast at the meeting,\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nreserve for itself the right to fix the number of directors,\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nprovide that a director may be removed only by the vote of at least two-thirds of the votes entitled to be cast generally in the election of directors, and\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\n\n\n\n\nretain for itself sole authority to fill vacancies created by an increase in the size of the board or the death, removal, or resignation of a director.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn addition, a director elected to fill a vacancy under these provisions serves for the balance of the unexpired term instead of until the next annual meeting of stockholders. A board of directors may implement all or any of these provisions without amending the charter or bylaws and without stockholder approval. Although a corporation may be prohibited by its charter or by resolution of its board of directors from electing any of the provisions of the statute, we have not adopted such a prohibition. We have adopted a staggered board of directors with three separate classes in our charter and given the board the right to fix the number of directors, but we have not prohibited the amendment of these provisions. The adoption of the staggered board may discourage offers to acquire our common stock and may increase the difficulty of completing an offer to acquire our stock. If our Board chose to implement the statutory provisions, it could further discourage offers to acquire our common stock and could further increase the difficulty of completing an offer to acquire our common stock.\n\n\n\u00a0\n\n\nEffect of Certain Provisions of our Charter and Bylaws\n\n\n\u00a0\n\n\nIn addition to the Charter and Bylaws provisions discussed above, certain other provisions of our Bylaws may have the effect of impeding the acquisition of control of our Company by means of a tender offer, proxy fight, open market purchases or otherwise in a transaction not approved by our Board of Directors. These provisions of Bylaws are intended to reduce our vulnerability to an unsolicited proposal for the restructuring or sale of all or substantially all of our assets or an unsolicited takeover attempt, which our Board believes is otherwise unfair to our stockholders. These provisions, however, also could have the effect of delaying, deterring, or preventing a change in control of our Company.\n\n\n\u00a0\n\n\nOur Bylaws provide that with respect to annual meetings of stockholders, (i) nominations of individuals for election to our Board of Directors and (ii) the proposal of business to be considered by stockholders may be made only pursuant to our notice of the meeting, by or at the direction of our Board of Directors, or by a stockholder who is entitled to vote at the meeting and has complied with the advance notice procedures set forth in our Bylaws.\n\n\n\u00a0\n\n\nSpecial meetings of stockholders may be called only by the chief executive officer, the board of directors or the secretary of our Company (upon the written request of the holders of a majority of the shares entitled to vote). At a special meeting of stockholders, the only business that may be conducted is the business specified in our notice of meeting. With respect to nominations of persons for election to our Board of Directors, nominations may be made at a special meeting of stockholders only pursuant to our notice of meeting, by or at the direction of our Board of Directors, or if our Board of Directors has determined that directors will be elected at the special meeting, by a stockholder who is entitled to vote at the meeting and has complied with the advance notice procedures set forth in our Bylaws.\n\n\n\u00a0\n\n\nThese procedures may limit the ability of stockholders to bring business before a stockholders meeting, including the nomination of directors and the consideration of any transaction that could result in a change in control and that may result in a premium to our stockholders.\n\n\n\u00a0\n\n",
+  "item7": ">ITEM 7. MANAGEMENT\u2019\nS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\n\n\u00a0\n\n\nThe following is a discussion and analysis of the consolidated statement of operations, liquidity, and capital resources, and a summary of cash flows, which apply to Fiscal 2023 ending on March 31, 2023, and Fiscal 2022, ending on March 31, 2022. These statements should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this Annual Report on Form 10-K.\n\n\n\u00a0\n\n\nIn addition to historical information, this report contains forward-looking statements that involve risks and uncertainties that may cause our actual results to differ materially from the plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties discussed in the sections entitled Item 1A. \u201cRisk Factors\u201d and \u201cForward-Looking Statements\u201d are included at the beginning of this Annual Report on Form 10-K.\n\n\n\u00a0\n\n\nThe risks and uncertainties can cause actual results to differ significantly from those in our forward-looking statements or implied in historical results and trends. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nIGC Pharma, Inc. is a clinical-stage pharmaceutical company with a diversified revenue model that develops both prescription drugs and over-the-counter (OTC) products. Our focus is on developing innovative therapies for neurological disorders such as Alzheimer\u2019s disease, epilepsy, Tourette syndrome, and sleep disorders. We also focus on formulations for eating disorders, chronic pain, premenstrual syndrome (PMS), and dysmenorrhea, in addition to health and wellness OTC formulations. The Company is developing its lead candidate, IGC-AD1, an investigational oral therapy for the treatment of agitation associated with Alzheimer\u2019s disease. IGC-AD1 is currently in Phase 2 (Phase 2B) clinical trials after completing nearly a decade of research and realizing positive results from pre-clinical and a Phase 1 trial. This previous research into IGC-AD1 has demonstrated efficacy in reducing plaques and tangles, which are two important hallmarks of Alzheimer\u2019s, as well as reducing neuropsychiatric symptoms associated with dementia in Alzheimer\u2019s disease, such as agitation. We were formerly known as India Globalization Capital, Inc. and incorporated in Maryland on April 29, 2005. Our fiscal year is the 52- or 53-week period ending March 31.\n\n\n\u00a0\n\n\nCurrently, most of our revenue comes from the Life Sciences segment and, in the future, we believe, from our investigational drugs for treating Alzheimer\u2019s disease. We have also built a facility for a potential Phase 3 trial and have strategic relations for the procurement of Active Pharmaceutical Ingredients (APIs). In addition, we have acquired and initiated work on TGR-63, a pre-clinical molecule that exhibits an impressive affinity for reducing neurotoxicity in Alzheimer\u2019s cell lines. The advancement of IGC-AD1 into Phase 2 trials represents a significant milestone for the company and positions us for multiple pathways to future success. Although there can be no assurance, we anticipate that the positive outcomes from these and other trials will drive further growth, valuation, and market potential for IGC-AD1.\n\n\n\u00a0\n\n\nIGC has two segments: Life Sciences and Infrastructure.\n\n\n\u00a0\n\n\nLife Sciences Segment\n\n\n\u00a0\n\n\nPharmaceutical\n:\n\n\n\u00a0\n\n\nSince 2014, we have focused a portion of our business on the application of phytocannabinoids such as THC and CBD, among others, in combination with other compounds, to address efficacy for various ailments and diseases such as Alzheimer\u2019s disease. As previously disclosed, IGC submitted IGC-AD1, our investigational drug candidate for Alzheimer\u2019s, to the FDA under Section 505(i) of the Federal Food, Drug, and Cosmetic Act and received approval on July 30, 2020, to proceed with the Phase 1 trial on Alzheimer\u2019s patients and the Company completed all dose escalation studies, and as announced by the Company on December 2, 2021, the results of the clinical trial have been submitted in the Clinical/Statistical Report (CSR) filed with the FDA. The Company is motivated by the potential that, with future successful results from appropriate further trials, IGC-AD1 could contribute to relief for some of the 55 million people around the world expected to be impacted by Alzheimer\u2019s disease by 2030 (WHO, 2021).\n\n\n\u00a0\n\n\n\n\n38\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nCurrently, IGC-AD1 is in a Phase 2B safety and efficacy clinical trial for agitation in dementia from Alzheimer\u2019s (clinicaltrials.gov, NCT05543681). The progress we are making in the clinic, gives us confidence in the potential of IGC-AD1 as a potentially groundbreaking therapy, with the potential to treat Alzheimer\u2019s and also to manage devastating symptoms that separate families, increase admissions to nursing homes, and drive the cost of Alzheimer\u2019s care, although there can be no assurance.\n\n\n\u00a0\n\n\nWe have a two-pronged approach for our Alzheimer\u2019s investigational drug development strategy, the first prong is to investigate IGC-AD1 as an Alzheimer\u2019s symptoms modifying agent, and the second is to investigate TGR-63 as a disease modifying agent. This involves conducting more trials on IGC-AD1 over the next few years, subject to FDA approval, with the anticipated goal of demonstrating safety and efficacy and potentially obtaining FDA approval for IGC-AD1 as a cannabinoid-based new drug that can help to manage agitation for patients suffering from Alzheimer\u2019s disease. The second prong is to investigate the potential efficacy of TGR-63 on memory and/or decreasing or managing plaques and tangles, some of the hallmarks of Alzheimer\u2019s disease.\n\n\n\u00a0\n\n\nOur pipeline of investigational and development cannabinoid formulations also includes pain creams and tinctures for pain relief. We believe that the pharmaceutical component of our Life Sciences strategy will take several more years to mature and involves considerable risk; however, we also believe it may involve greater defensible growth potential and first-to-market advantage.\n\n\n\u00a0\n\n\nAlthough there can be no assurance, we believe that additional investment in clinical trials, research, and development (R&D), facilities, marketing, advertising, and acquisition of complementary products and businesses supporting our Life Sciences segment will be critical to the development and delivery of innovative products and positive patient and customer experiences. We hope to leverage our R&D and intellectual property to develop ground-breaking, science-based products that are proven effective through planned pre-clinical and clinical trials. Although there can be no assurance, we believe this strategy has the potential to improve existing products and lead to the creation of new products, which, based on scientific study and research, may offer positive results for the management of certain conditions, symptoms, and side effects.\n\n\n\u00a0\n\n\nWhile the bulk of our medium and longer-term focus is on clinical trials and getting IGC-AD1 to be an FDA approved drug, our shorter-term strategy, is to use our resources to provide white label services and market Holief\u2122. We believe this may provide us with several profit opportunities, although there can be no assurance of such profit opportunities.\n\n\n\u00a0\n\n\nOver-the-Counter Products\n:\n\n\n\u00a0\n\n\nWe have created a women\u2019s wellness brand, Holief\u2122 available through online channels that are compliant with relevant federal, state, and local laws, and regulations. Holief\u2122 is an all-natural, non-GMO, vegan, line of over-the-counter (OTC) products aimed at treating menstrual cramps (dysmenorrhea) and premenstrual symptoms (PMS). The products are available online and through Amazon and other online channels. Holief\u2122 is compliant with relevant federal, state, and local laws, and regulations.\n\n\n\u00a0\n\n\nInfrastructure Segment\n\n\n\u00a0\n\n\nThe Company\u2019s infrastructure business has been operating since 2008, it includes: (i) Execution of Construction Contracts and (ii) Rental of Heavy Construction Equipment.\n\n\n\u00a0\n\n\nCOVID-19 Update\n\n\n\u00a0\n\n\nThe ongoing COVID-19 pandemic and the resulting containment measures that have been in effect from time to time in various countries and territories since early 2020 have had a number of substantial negative impacts on businesses around the world and on global, regional, and national economies, including widespread disruptions in supply chains for a wide variety of products and resulting increases in the prices of many goods and services. Currently, our production facilities in all of our locations continue to operate as they had before the COVID-19 pandemic, with few changes other than for enhanced safety measures intended to prevent the spread of the virus.\n\n\n\u00a0\n\n\nSome of our ongoing clinical trials experienced short-term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritized their resources towards the COVID-19 pandemic and government imposed travel restrictions. Some clinical trials experienced increased expenses due to new protocols to protect participants from COVID-19. Additionally, certain suppliers had difficulties meeting their delivery commitments, and we are experiencing longer lead times for components. Future shutdowns could have an adverse impact on our operations. However, the extent of the impact of any future shutdown or delay is highly uncertain and difficult to predict.\n\n\n\u00a0\n\n\n\n\n39\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nIt is not possible at this time to estimate the complete impact that COVID-19 could have on our business, including our customers and suppliers, as the effects will depend on future developments, which are highly uncertain and cannot be predicted. Infections may resurge or become more widespread, including due to new variants and the limitation on our ability to travel and timely sell and distribute our products, as well as any closures or supply disruptions may be prolonged for extended periods, all of which would have a negative impact on our business, financial condition, and operating results.\n\n\n\u00a0\n\n\nEven after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact on our business due to the continued global economic impact of the COVID-19 pandemic. We cannot anticipate all of the ways in which health epidemics such as COVID-19 could adversely impact our business. See Item 1A, \u201cRisk Factors\u201d for further discussion of the possible impact of the COVID-19 pandemic on our business.\n\n\n\u00a0\n\n\nThe Global Economic Environment\n\n\n\u00a0\n\n\nIn addition to the industry-specific factors, such as regulations around cannabinoid research, we are exposed to economic cycles. Factors in the global economic environment that may impact our operations include, among other things, currency fluctuations, capital and exchange controls, global economic conditions including inflation, restrictive government actions, changes in intellectual property, legal protections and remedies, trade regulations, tax laws and regulations and procedures and actions affecting approval, production, pricing, and marketing of our products, as well as impacts of political or civil unrest or military action, including the current conflict between Russia and Ukraine, terrorist activity, unstable governments, and legal systems, inter-governmental disputes, public health outbreaks, epidemics, pandemics, natural disasters or disruptions related to climate change.\n\n\n\u00a0\n\n\nOperational Excellence\n\n\n\u00a0\n\n\nWe remain focused on continuing to build excellence broadly in three areas, cannabinoid-based investigations, drug development and product manufacturing, and online marketing. Although there can be no assurance, we believe these will give us a competitive advantage, including building an increasingly agile and adaptable commercialization engine with a strong customer-focused market expertise.\n\n\n\u00a0\n\n\nWorkplace and Employees\n\n\n\u00a0\n\n\nWe support broad public health strategies designed to prevent the spread of COVID-19 and are focused on the health and welfare of our employees. We have mobilized to enable our employees to accomplish our most critical goals through a combination of remote work and in-person initiatives. In addition to rolling out new technologies and collaboration tools, we have implemented processes and resources to support our employees in the event an employee receives a positive COVID-19 diagnosis. We have developed plans regarding the opening of our sites to enable our employees to return to work in our global offices, the field, and our manufacturing facilities, which take into account applicable public health authority and local government guidelines, and which are designed to ensure community and employee safety. We are moving to a more flexible mix of virtual and in-person work to advance our culture, drive innovation and agility and enable greater balance and well-being for our workforce.\n\n\n\u00a0\n\n\nResearch and Development\n\n\n\u00a0\n\n\nWith respect to our clinical trial activities, we have taken measures to implement remote and virtual approaches, including remote data monitoring where possible, to maintain safety and trial continuity and to preserve study integrity. We have seen delays in initiating trial sites, due to COVID-19. We cannot guarantee that we will continue to perform our trials in a timely and satisfactory manner as a result of the evolving effects of the COVID-19 pandemic. Similarly, our ability to recruit and retain patients and principal investigators, and site staff who, as health care providers, may have heightened exposure to COVID-19 may adversely impact our clinical trial operations.\n\n\n\u00a0\n\n\n\n\n40\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFiscal 2023 Highlights\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nOn March 20, 2023, the Company announced the changing of its name to IGC Pharma, Inc. from India Globalization Capital, Inc., as a part of a rebranding strategy that better reflects IGC Pharma\u2019s strategic focus and vision for the future.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nOn March 8, 2023, the Company filed in USPTO the provisional patent application titled \u201cComposition, Synthesis, and Medical Use of Hybrid Cannabinoid\u201d.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nOn January 4, 2023, the Company received a No-objection letter from Health Canada for approval to begin its trial in Canada \u201cA, Phase 2, Multi-Center, Double-Blind, Randomized, Placebo-Controlled Trial of the Safety and Efficacy of IGC-AD1 on Agitation in Participants with Dementia due to Alzheimer\u2019s Disease.\u201d\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nOn December 1, 2022, the Company announced that it had begun its Phase 2 clinical trials \u201cA, Phase 2, Multi-Center, Double-Blind, Randomized, Placebo-Controlled Trial of the Safety and Efficacy of IGC-AD1 on Agitation in Participants with Dementia due to Alzheimer\u2019s Disease\u201d\u00a0at two U.S. sites with plan to add between three to five additional sites in the United States, Canada, and possibly South Africa, to increase population diversity.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nOn September 20, 2022, the USPTO granted a second patent (#11,446,276) for the treatment of Alzheimer\u2019s disease titled \u201cExtreme low dose THC as a therapeutic and prophylactic agent for Alzheimer\u2019s disease.\u201d\u00a0The original patent application was initiated by the University of South Florida (USF) and filed on August 1, 2016. On May 25, 2017, the Company entered into an exclusive license agreement with USF with respect to the patent application and the associated research conducted on Alzheimer\u2019s disease. IGC-AD1, described above, is based on some of this research.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nOn June 7, 2022, the USPTO issued a patent (#11,351,152) to the Company titled \u201cMethod and Composition for Treating Seizures Disorders.\u201d\u00a0The patent relates to compositions and methods for treating multiple types of seizure disorders and epilepsy in humans and animals using a combination of the CBD with other compounds. Subject to further research and study, the combination is intended to reduce side effects caused by hydantoin anticonvulsant drugs such as phenobarbital, by reducing the dosing of anticonvulsant drugs in humans, dogs, and cats.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n41\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nResults of Operations\n\n\n\u00a0\n\n\nFiscal 2023 compared to Fiscal 2022\n\n\n\u00a0\n\n\nThe following table presents an overview of our results of operations for Fiscal 2023 and Fiscal 2022:\n\n\n\u00a0\n\n\nStatement of Operations (in thousands, audited)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFiscal\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2023\n\n\n($)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n($)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nChange\n\n\n($)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nPercent \n\n\nChange\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nRevenue\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n911\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n397\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n514\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n129\n\n\n\u00a0\n\n\n\n\n\n\n\n\nCost of revenue\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(469\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(203\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(266\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n131\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGross profit\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n442\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n194\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n248\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n128\n\n\n\u00a0\n\n\n\n\n\n\n\n\nSelling, general and administrative expenses\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,552\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(13,292\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,740\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(36\n\n\n)\n\n\n\n\n\n\n\n\nResearch and development expenses\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,461\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,330\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,131\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n49\n\n\n\u00a0\n\n\n\n\n\n\n\n\nOperating loss\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11,571\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(15,428\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,857\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(25\n\n\n)\n\n\n\n\n\n\n\n\nImpairment\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(49\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n49\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(100\n\n\n)\n\n\n\n\n\n\n\n\nOther income, net\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n65\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n461\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(396\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(86\n\n\n)\n\n\n\n\n\n\n\n\nLoss before income taxes\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11,506\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(15,016\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,510\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(23\n\n\n)\n\n\n\n\n\n\n\n\nIncome tax expense/benefit\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNet loss attributable to common stockholders\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11,506\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(15,016\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,510\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(23\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\nRevenue\n \u2013 During Fiscal 2023, the Company generated approximately $911 thousand in revenue, representing a significant increase from the $397 thousand generated in Fiscal 2022. The primary source of revenue in both years was from the Life Sciences segment, encompassing the sale of our formulations as white labeled manufactured products and sales of branded holistic women\u2019s health care products, among others. The growth can be attributed to higher sales volume driven by increased sales and marketing efforts. The Company implemented robust marketing and sales activities, which contributed to the successful expansion of its customer base and increased demand. Approximately 10%-12% of revenue in both years was derived from the Infrastructure segment. The Company remains committed to its current strategy of driving sales in formulated white labeled and wellness products. By continuing to focus on sales and marketing initiatives, the Company aims to further strengthen its position in the market and drive sustained revenue growth.\n\n\n\u00a0\n\n\nCost of revenue\u00a0\n\u2013 The cost of revenue amounted to approximately $469 thousand for Fiscal 2023, compared to $203 thousand in Fiscal 2022. This represents a gross margin of about 49% for both years. The cost of revenue is primarily attributable to the cost of raw materials, labor, and other direct overheads required to produce our products in the Life Science segment.\n\n\n\u00a0\n\n\nSelling, general and administrative expenses \n\u2013 Selling, general, and administrative (SG&A) expenses primarily encompass various costs such as employee-related expenses, sales commissions, professional fees, legal fees, marketing expenses, other corporate expenses, allocated general overhead, provisions, depreciation, and write-offs related to doubtful accounts and advances. For Fiscal 2023, the Company reported SG&A expenses of approximately $8.5 million, representing a decrease of approximately $4.7 million, or 36%, compared to the $13.2 million recorded in Fiscal 2022. This decline in SG&A expenses are attributable to a reduction in one-time expenses of approximately $4.2 million and a decrease of approximately $500 thousand in compensation, legal and marketing expenses, net realizable value (\u201cNRV\u201d) adjustments, and other SG&A expenses. By effectively managing and reducing these expenses, the Company achieved cost savings during Fiscal 2023.\n\n\n\u00a0\n\n\nResearch and Development (R&D) expenses \n\u2013 R&D expenses were primarily associated with the Life Sciences segment, reflecting the Company\u2019s investment in R&D activities. In Fiscal 2023, the Company reported R&D expenses of approximately $3.5 million, representing an increase of $1.2 million or 49% compared to approximately $2.3 million in Fiscal 2022. The increase in R&D expenses is primarily attributed to the progression of Phase 2 trials on IGC-AD1 and pre-clinical studies on TGR-63, indicating the Company\u2019s dedication to advancing its product pipeline. As the development of TGR-63 and the Phase 2B trial on Alzheimer\u2019s gain momentum, the Company anticipates further increases in R&D expenses. attributable to the progression of Phase 2 trials on IGC-AD1 and pre-clinical studies on TGR-63\n. \nWe anticipate increased R&D expenses as the development of TGR-63 and the Phase 2B trial on Alzheimer\u2019s pick up more momentum.\n\n\n\u00a0\n\n\nImpairment loss\n \u2013 During Fiscal 2023, there was no investment impairment. In Fiscal 2022, there was an impairment of approximately $49 thousand, which was attributed to the cancelation of 44 thousand shares of IGC common stock.\n\n\n\u00a0\n\n\n\n\n42\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOther Income, net\n \u2013 During Fiscal 2023, the Company reported approximately $65 thousand in other income, which represents a decrease compared to the $461 thousand recorded in Fiscal 2022. The decrease in other income for Fiscal 2023 can be primarily attributed to the absence of a one-time forgiveness of the PPP (Paycheck Protection Program) loan, which amounted to approximately $430 thousand in Fiscal 2022. The component of other income typically includes interest and rental income, dividend income, profits from the sale of assets, unrealized gains from non-debt investments, net income, and income from the sale of scraps. These sources contribute to the overall other income generated by the Company.\n\n\n\u00a0\n\n\nLiquidity and capital resources\n\n\n\u00a0\n\n\nOur sources of liquidity are cash and cash equivalents, funds raised through the ATM offering, cash flows from operations, short-term and long-term borrowings, and short-term liquidity arrangements. The Company continues to evaluate various financing sources and options to raise working capital to help fund current research and development programs and operations. The Company does not have any material long-term debt, capital lease obligations, or other long-term liabilities, except as disclosed in this report. Please refer to Note 12, \u201cCommitments and contingencies\u201d, Note 11, \u201cLoans and Other Liabilities\u201d and Note 9, \u201cLeases\u201d in Item 1 of this report for further information on Company commitments and contractual obligations.\n\n\n\u00a0\n\n\nOn June 30, 2023, the Company successfully obtained a working capital credit facility totaling $12 million and in addition sold 10,000,000 shares for $3,000,000. The equity and the credit facility serve to minimize ongoing liquidity requirements and ensure the Company\u2019s ability to sustain its operations. Furthermore, the Company intends to raise additional funds through private placement and ATM offerings, subject to market conditions.\n\n\n\u00a0\n\n\nThe Company expects to raise capital for its trials as and when it is able to do so, but there can be no assurance thereof. In addition, there can be no assurance of the terms thereof and any subsequent equity financing sought may have dilutive effects on our current shareholders. While there is no guarantee that we will be successful, we are applying to non-dilutive funding opportunities such as Small Business Research and Development programs. In addition, subject to limitations on the amount of capital that can be raised, the Company expects to utilize its shelf registration on statement on Form S-3 to raise capital through at-the-market offerings or otherwise.\n\n\n\u00a0\n\n\nPlease refer to Item 1A. \u201cRisk Factors\u201d for further information on the risks related to the Company.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(in thousands, audited)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nAs of \n\n\nMarch 31, 2023\n\n\n($)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nAs of \n\n\nMarch 31, 2022\n\n\n($)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nChange\n\n\n($)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nPercent \n\n\nChange\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nCash, cash equivalents\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,196\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,460\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,264\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(69\n\n\n\n\n)%\n\n\n\n\n\n\n\n\n\n\nWorking capital\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,568\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,670\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,102\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(64\n\n\n\n\n)%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nCash and cash equivalents \n\n\n\u00a0\n\n\nCash and cash equivalents decreased by approximately $7.3 million to $3.2 million in Fiscal 2023\u00a0from $10.5 million in Fiscal 2022, a decrease of approximately 69% is discussed in the summary of cash flows, as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(in thousands, audited)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFiscal\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2023\n\n\n($)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n($)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nChange\n\n\n($)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nPercent \n\n\nChange\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nCash used in operating activities\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,047\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,462\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n415\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6\n\n\n\n\n)%\n\n\n\n\n\n\n\n\n\n\nCash used in investing activities\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(235\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(742\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n507\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(68\n\n\n\n\n)%\n\n\n\n\n\n\n\n\n\n\nCash provided by financing activities\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,142\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,042\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(98\n\n\n\n\n)%\n\n\n\n\n\n\n\n\n\n\nEffects of exchange rate changes on cash and cash equivalents\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(82\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(26\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(56\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n215\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nNet decrease in cash and cash equivalents\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,264\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,088\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,176\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n78\n\n\n\n\n%\n\n\n\n\n\n\n\n\n\n\nCash and cash equivalents at the beginning of the period\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,460\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,548\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,088\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(28\n\n\n\n\n)%\n\n\n\n\n\n\n\n\n\n\nCash and cash equivalents at the end of the period\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,196\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,460\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,264\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(69\n\n\n)%\n\n\n\n\n\n\n\u00a0\n\n\n\n\n43\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOperating Activities\n\n\n\u00a0\n\n\nNet\u00a0cash used in operating activities for Fiscal 2023 was approximately $7 million. It consists of a net loss of approximately $11.5 million, a positive impact on cash due to non-cash expenses of approximately $3.7 million, and changes in operating assets and liabilities of approximately $0.8 million. Non-cash expenses consist of an amortization and depreciation charge of approximately $0.7 million, stock-based expenses of approximately $2.8 million and other non-cash expenses of approximately $0.2 million. In addition, changes in operating assets and liabilities had a positive impact of approximately $0.8 million on cash, of which approximately $0.9 million is due to an adjustment in inventory and approximately $0.1 million decrease in other net current assets and liabilities.\n\n\n\u00a0\n\n\nNet cash used in operating activities for Fiscal 2022 was approximately $7.5 million. It consists of a net loss of approximately $15 million, a positive impact on cash due to non-cash expenses of approximately $5 million, and changes in operating assets and liabilities of approximately $2.5 million. Non-cash expenses consist of an amortization/depreciation charge of approximately $0.6 million, impairment of investment of $0.1 million, provision against debtor & advances of $1.7 million, stock-based expenses of approximately $2.2 million, and a one-time impairment of PPE of $0.8 million and an offset of $0.4 million due to the forgiveness of a PPP Loan. In addition, changes in operating assets and liabilities had a positive impact of approximately $2.5 million in cash, of which approximately $1.9 million is due to an adjustment in inventory and an approximately $0.6 million increase in accounts payable.\n\n\n\u00a0\n\n\nInvesting Activities\n\n\n\u00a0\n\n\nNet cash used in investing activities for Fiscal 2023, was approximately $0.2 million, which comprises approximately $0.3 million for the acquisition and filing expenses related to intellectual property, approximately $0.2 million for the purchase of property, plant, and equipment and approximately $0.1 million of a short-term investment.\n\n\n\u00a0\n\n\nNet cash used in investing activities for Fiscal 2022, was approximately $0.7 million, which comprises approximately $0.5 million for the acquisition and filing expenses related to intellectual property, approximately $0.2 million for the purchase of property, plant, and equipment.\n\n\n\u00a0\n\n\nFinancing Activities\n\n\n\u00a0\n\n\nNet cash provided by financing activities was approximately $0.1 million for Fiscal 2023, which comprises net proceeds from issuance of equity stock through the ATM offering, net of all expenses related to the issuance of stock.\n\n\n\u00a0\n\n\nNet cash provided by financing activities was approximately $4.1 million for Fiscal 2022, which comprises net proceeds from issuance of equity stock through the ATM offering, net of all expenses related to the issuance of stock.\n\n\n\u00a0\n\n\nCritical Accounting Policies and Estimates\n\n\n\u00a0\n\n\nThe preparation of financial statements and related disclosures in conformity with U.S. GAAP and the Company\u2019s discussion and analysis of its financial condition and operating results require the Company\u2019s management to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates, and such differences may be material.\n\n\n\u00a0\n\n\nManagement believes that the following accounting policies are the most critical to understanding and evaluating our consolidated financial condition and results of operations.\n\n\n\u00a0\n\n\nRevenue Recognition\n\n\n\u00a0\n\n\nThe Company recognizes revenue under ASC 606, \nRevenue from Contracts with Customers\n (ASC 606). The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.\n\n\n\u00a0\n\n\n\n\n44\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nASC 606 prescribes a 5-step process to achieve its core principle. The Company recognizes revenue from trading, rental, or product sales as follows:\n\n\n\u00a0\n\n\nI. Identify the contract with the customer.\n\n\nII. Identify the contractual performance obligations.\n\n\nIII. Determine the amount of consideration/price for the transaction.\n\n\nIV. Allocate the determined amount of consideration/price to the performance obligations.\n\n\nV. Recognize revenue when or as the performing party satisfies performance obligations.\n\n\n\u00a0\n\n\nThe consideration/price for the transaction (performance obligation(s)) is determined as per the agreement or invoice (contract) for the services and products in the Infrastructure and Life Sciences segment.\n\n\n\u00a0\n\n\nRevenue in the Infrastructure segment is recognized for the renting business when the equipment is rented, and the terms of the agreement have been fulfilled during the period. Revenue from the execution of infrastructure contracts is recognized on the basis of the output method as and when part of the performance obligation has been completed and approval from the contracting agency has been obtained after survey of the performance completion as of that date. In the Life Sciences segment, the revenue from the wellness and lifestyle business is recognized once goods have been sold to the customer and the performance obligation has been completed. In retail sales, we offer consumer products through our online stores. Revenue is recognized when control of the goods is transferred to the customer. This generally occurs upon our delivery to a third-party carrier or to the customer directly. Revenue from white label services is recognized when the performance obligation has been completed and output material has been transferred to the customer.\n\n\n\u00a0\n\n\nNet sales disaggregated by significant products and services for Fiscal 2023 and 2022 are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n(in thousands)\n\n\nYear Ended March 31\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2023\n\n\n($)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n($)\n\n\n\u00a0\n\n\n\n\n\n\n\n\nInfrastructure segment\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nRental income (1)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n37\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23\n\n\n\u00a0\n\n\n\n\n\n\n\n\nConstruction contracts (2)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n76\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nLife Sciences segment\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nWellness and lifestyle (3)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n416\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n316\n\n\n\u00a0\n\n\n\n\n\n\n\n\nWhite label services (4)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n382\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n43\n\n\n\u00a0\n\n\n\n\n\n\n\n\nTotal\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n911\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n397\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(1) Rental income consists of income from rental of heavy construction equipment.\n\n\n(2) Construction income consists of the execution of contracts directly or through subcontractors.\n\n\n(3) Revenue from wellness and lifestyle consists of sale of products such as gummies, hand sanitizers, bath bombs, lotions, beverages, hemp crude extract, hemp isolate, and hemp distillate.\n\n\n(4) Revenue from white label services consists of rebranding our formulations or the customer\u2019s products as per customer\u2019s requirement.\n\n\n\u00a0\n\n\nAccounts receivable\n\n\n\u00a0\n\n\nWe make estimates of the collectability of our accounts receivable by analyzing historical payment patterns, customer concentrations, customer creditworthiness, and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required. We had $107 thousand of accounts receivable, net of provision for the doubtful debt of $17 thousand as of March 31, 2023, as compared to $125 thousand of accounts receivable, net of provision for the doubtful debt of $93 thousand as of March 31, 2022.\n\n\n\u00a0\n\n\nShort-term and long-term investments\n\n\n\u00a0\n\n\nOur policy for short-term and long-term investments is to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations, and delivers an appropriate yield in relation to our investment guidelines and market conditions. Short-term and long-term investments consist of equity investment, mutual funds, corporate, various government securities, and municipal debt securities, as well as certificates of deposit. Certificates of deposit and commercial paper are carried at cost which approximates fair value. Available-for-sale securities: Investments in debt securities that are classified as available for sale shall be measured subsequently at fair value in the statement of financial position.\n\n\n\u00a0\n\n\n\n\n45\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nInvestments are initially measured at cost, which is the fair value of the consideration given for them, including transaction costs. Where the Company\u2019s ownership interest is in excess of 20% and the Company has a significant influence, the Company has accounted for the investment based on the equity method in accordance with ASC Topic 323, \u201cInvestments \u2013 Equity method and Joint Ventures.\u201d Under the equity method, the Company\u2019s share of the post-acquisition profits or losses of the equity investee is recognized in the consolidated statements of operations and its share of post-acquisition movements in accumulated other comprehensive income/(loss) is recognized in other comprehensive income/(loss). Where the Company does not have significant influence, the Company has accounted for the investment in accordance with ASC Topic 321, \u201cInvestments-Equity Securities.\u201d\n\n\n\u00a0\n\n\nWe consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.\n\n\n\u00a0\n\n\nDebt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in fair value, excluding credit losses and impairments, are recorded in other comprehensive income. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than the cost. To determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments.\n\n\n\u00a0\n\n\nEquity investments with readily determinable fair values are measured at fair value. Equity investments without readily determinable fair values are measured using the equity method or measured at cost with adjustments for observable changes in price or impairments (referred to as the measurement alternative). We perform a qualitative assessment on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than the carrying value. Changes in value are recorded in other income (expense), net.\n\n\n\u00a0\n\n\nAs of March 31, 2023, the Company has approximately $154 thousand in short-term investments.\n\n\n\u00a0\n\n\nImpairment \n\n\n\u00a0\n\n\nThe Company regularly reviews its investment portfolio to determine if any security is other-than-temporarily impaired, which would require the Company to record an impairment charge in the period any such determination is made. In making this determination, the Company evaluates, among other things, the duration and extent to which the fair value of a security is less than its cost; the financial condition of the issuer and any changes thereto; and the Company\u2019s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis. The Company\u2019s assessment of whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security, which would have an adverse impact on the Company\u2019s financial condition and operating results. The estimated amount of liability is based on the information available to us with respect to bank debt and other borrowings. During Fiscal 2023, there was no impairment and Fiscal 2022, the Company impaired investments of approximately $49 thousand, respectively.\n\n\n\u00a0\n\n\nInventory\n\n\n\u00a0\n\n\nInventory is valued at the lower of cost or net realizable value, which is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.\n\n\n\u00a0\n\n\nInventory consists of finished goods related to wellness products, hand sanitizers, finished hemp-based products, beverages. Work-and in-progress consist of products in the manufacturing process as on reporting date, including but not limited to primary cost. Inventory is primarily accounted for using the weighted average cost method. Primary costs include raw materials, packaging, direct labor, overhead, shipping, and the depreciation of manufacturing equipment. Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance, and property taxes.\n\n\n\u00a0\n\n\n\n\n46\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe capitalize inventory costs related to our investigational drug, provided that management determines there is a potential alternative use for the inventory in future research and development projects or other purposes. As of March 31, 2023, and 2022, our consolidated balance sheet reported approximately $407 thousand and no clinical trial related inventory, respectively.\n\n\n\u00a0\n\n\nAbnormal amounts of idle facility expense, freight, handling costs, scrap, discontinued products and wasted material (spoilage) are expensed in the period they are incurred.\n\n\n\u00a0\n\n\nPlease refer to Note 3, \u201cInventory,\u201d for further information.\n\n\n\u00a0\n\n\nStock-Based compensation\n\n\n\u00a0\n\n\nThe Company accounts for stock-based compensation to employees and non-employees in conformity with the provisions of ASC Topic 718, \u201c\nStock-Based Compensation.\n\u201d The Company expenses stock-based compensation to employees over the requisite vesting period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. Stock-based awards are recognized on a straight-line basis over the requisite vesting period. For stock-based employee compensation the cost recognized at any date will be at least equal to the amount attributable to the share-based compensation that is vested at that date.\n\n\n\u00a0\n\n\nFor performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of individual performance milestones when the achievement of each individual performance milestone becomes probable by best of management estimate. For performance-based awards with a vesting schedule based entirely on the attainment of performance conditions, stock-based compensation expense associated with each tranche is recognized over the expected achievement period for the operational milestone, beginning at the point in time when the relevant operational milestone is considered probable to be achieved.\n\n\n\u00a0\n\n\nFor market-based awards, stock-based compensation expense is recognized over the expected achievement period. The fair value of such awards is estimated on the grant date using binomial lattice model.\n\n\n\u00a0\n\n\nThe Company estimates the fair value of stock option grants using the Black-Scholes option-pricing model. The assumptions used in calculating the fair value of stock-based awards represent Management\u2019s best estimates. Generally, the closing share price of the Company\u2019s common stock on the date of the grant is considered the fair value of the share. The volatility factor is determined based on the Company\u2019s historical stock prices. The expected term represents the period that our stock-based awards are expected to be outstanding. The Company has never declared or paid any cash dividends. For further information, refer to Note 14, \u201cStock-Based Compensation\u201d of Notes to Consolidated Financial Statements.\n\n\n\u00a0\n\n\nIncome Taxes\n\n\n\u00a0\n\n\nThe Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax base of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating loss for financial-reporting and tax-reporting purposes. Accordingly, for Federal and State income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal, state, and foreign deferred tax assets.\n\n\n\u00a0\n\n\nForeign currency translation\n\n\n\u00a0\n\n\nIGC operates in India, U.S., Colombia, and Hong Kong, and a substantial portion of the Company\u2019s financials are denominated in the Indian Rupee (\u201cINR\u201d), the Hong Kong Dollar (\u201cHKD\u201d), or the Colombian Peso (\u201cCOP\u201d). As a result, changes in the relative values of the U.S. Dollar (\u201cUSD\u201d), the INR, the HKD, or the COP affect financial statements.\n\n\n\u00a0\n\n\n\n\n47\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe accompanying financial statements are reported in USD. The INR, HKD, and COP are the functional currencies for certain subsidiaries of the Company. The translation of the functional currencies into U.S. dollars is performed for assets and liabilities using the exchange rates in effect at the balance sheet date and for revenues and expenses using average exchange rates prevailing during the reporting periods. Adjustments resulting from the translation of functional currency financial statements to reporting currency are accumulated and reported as other comprehensive income/(loss), a separate component of shareholders\u2019 equity. Transactions in currencies other than the functional currency during the year are converted into the functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the consolidated statements of operations. The exchange rates used for translation purposes are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPeriod End Average Rate\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPeriod End Rate\n\n\n\n\n\n\n\n\n\n\nPeriod\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n(P&L rate)\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n(Balance sheet rate)\n\n\n\n\n\n\n\n\n\n\nYear ended March 31, 2023\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nINR\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n80.32\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPer\n\n\n\n\n\n\nUSD\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nINR\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n82.18\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPer\n\n\n\n\n\n\nUSD\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nHKD\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n7.8\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPer\n\n\n\n\n\n\nUSD\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nHKD\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n7.8\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPer\n\n\n\n\n\n\nUSD\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nCOP\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n4,465\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPer\n\n\n\n\n\n\nUSD\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nCOP\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n4,645\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPer\n\n\n\n\n\n\nUSD\n\n\n\n\n\n\n\n\n\n\nYear ended March 31, 2022\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nINR\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n74.50\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPer\n\n\n\n\n\n\nUSD\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nINR\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n75.91\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPer\n\n\n\n\n\n\nUSD\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nHKD\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n7.78\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPer\n\n\n\n\n\n\nUSD\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nHKD\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n7.83\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPer\n\n\n\n\n\n\nUSD\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nCOP\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n3,830\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPer\n\n\n\n\n\n\nUSD\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nCOP\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n3,748\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\nPer\n\n\n\n\n\n\nUSD\n\n\n\n\n\n\n\n\n\u00a0\n\n\nCybersecurity\n\n\n\u00a0\n\n\nWe have a cybersecurity policy in place and have implemented tighter cybersecurity measures to safeguard against hackers. Complying with these security measures and compliances is expected to incur further expenses. In Fiscal 2023 and Fiscal 2022, there were no known or detected breaches in cybersecurity.\n\n\n\u00a0\n\n\nRecently issued and adopted accounting pronouncements\n\n\n\u00a0\n\n\nChanges to U.S. GAAP are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASUs) to the FASB\u2019s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. Newly issued ASUs not listed are expected to have no impact on the Company\u2019s consolidated financial position and results of operations, because either the ASU is not applicable, or the impact is expected to be immaterial. Recent accounting pronouncements which may be applicable to us are described in Note 2, \u201cSignificant Accounting Policies\u201d in our Consolidated Financial Statements contained herein in Part II, Item 8.\n\n\n\u00a0\n\n\nOff-balance sheet arrangements\n\n\n\u00a0\n\n\nWe do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity, or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.\n\n\n\u00a0\n\n\nITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\n\n\u00a0\n\n",
+  "item7a": ">Item 7A does not apply to us because we are a smaller reporting company.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\n\n\n48\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n",
+  "cik": "1326205",
+  "cusip6": "45408X",
+  "cusip": ["45408X308"],
+  "names": ["India Globalization Capital In"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1326205/000118518523000693/0001185185-23-000693-index.htm"
+}
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+++ b/GraphRAG/standalone/data/all/form10k/0001213900-23-052460.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. Business.\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nJerash Holdings (US), Inc. (\u201cJerash Holdings\u201d),\nthrough its wholly owned operating subsidiaries (together the \u201cGroup,\u201d \u201cwe,\u201d \u201cus,\u201d or \u201cour\u201d),\nis principally engaged in the manufacturing and exporting of customized, ready-made sportswear and outerwear from knitted fabric and personal\nprotective equipment (\u201cPPE\u201d) produced in its facilities in the Hashemite Kingdom of Jordan (\u201cJordan\u201d). Our website\naddress is http://www.jerashholdings.com. Information available on our website is not a part of, and is not incorporated into, this Annual\nReport on Form 10-K.\n\n\n\u00a0\n\n\nWe are a manufacturer for many well-known brands\nand retailers, such as VF Corporation (which owns brands such as The North Face, Timberland, and Vans), New Balance, G-III (which licenses\nbrands such as Calvin Klein, Tommy Hilfiger, DKNY, and Guess), American Eagle, and Skechers. Our production facilities comprise six factories\nand five warehouses and we currently employ approximately 5,000 people. The total annual capacity at our facilities was approximately\n14 million pieces (average for product categories including t-shirts, polo shirts, pants, shorts, and jackets, and excluding PPE) as of\nMarch 31, 2023.\n\n\n\u00a0\n\n\nOrganizational Structure\n\n\n\u00a0\n\n\nJerash Holdings is a holding company incorporated\nin Delaware in January 2016. As of the date of this annual report, Jerash Holdings has the following wholly owned subsidiaries: (i) Jerash\nGarments and Fashions Manufacturing Co., Ltd. (\u201cJerash Garments\u201d), an entity formed under the laws of Jordan, (ii) Treasure\nSuccess International Limited (\u201cTreasure Success\u201d), an entity formed under the laws of Hong Kong Special Administrative Region\nof the People\u2019s Republic of China (\u201cHong Kong\u201d or \u201cHK\u201d), (iii) Chinese Garments and Fashions Manufacturing\nCo., Ltd. (\u201cChinese Garments\u201d), an entity formed under the laws of Jordan and a wholly owned subsidiary of Jerash Garments,\n(iv) Jerash for Industrial Embroidery Co., Ltd. (\u201cJerash Embroidery\u201d), an entity formed under the laws of Jordan and a wholly\nowned subsidiary of Jerash Garments, (v) Al-Mutafaweq Co. for Garments Manufacturing Ltd. (\u201cParamount\u201d), an entity formed\nunder the laws of Jordan and a wholly owned subsidiary of Jerash Garments, (vi) Mustafa and Kamal Ashraf Trading Company (Jordan) for\nthe Manufacture of Ready-Make Clothes LLC (\u201cMK Garments\u201d), an entity formed under the laws of Jordan and a wholly owned subsidiary\nof Jerash Garments; (vii) Jiangmen Treasure Success Business Consultancy Co., Ltd. (\u201cJiangmen Treasure Success\u201d), an entity\nincorporated under the laws of the People\u2019s Republic of China (\u201cChina\u201d or the \u201cPRC\u201d) and a wholly owned\nsubsidiary of Treasure Success, (viii) Jerash The First Medical Supplies Manufacturing Company Limited (\u201cJerash The First\u201d),\nan entity formed under the laws of Jordan and a wholly owned subsidiary of Jerash Garments, (ix) Jerash Supplies, LLC (\u201cJerash Supplies\u201d),\nan entity formed under the laws of the State of Delaware, (x) Kawkab Venus Dowalyah Lisenaet Albesah (\u201cKawkab Venus\u201d), a limited\nliability company established in Amman, Jordan, and (xi) Ever Winland Limited (\u201cEver Winland\u201d), a limited liability company\norganized in Hong Kong. As of the date of this annual report, Treasure Success owns 51% of the equity interests in J&B International\nLimited (\u201cJ&B\u201d), a company with limited liability incorporated under the laws of Hong Kong. P. T. Eratex (Hong Kong) Limited\n(\u201cEratex\u201d), a company formed in Hong Kong, owns the remaining 49%.\n\n\n\u00a0\n\n\n\n\n\n\n1\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThis chart reflects our organizational structure as of the date of\nthis annual report:\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nJerash Garments was established in Jordan on November\n26, 2000 and operates out of our factory in Al Tajamouat Industrial City, a Development Zone in Amman, Jordan. Jerash Garments\u2019\nprincipal activities are to house management offices and to operate production lines and printing, sewing, ironing, packing, and quality\ncontrol units, as well as house our trims and finished products warehouses. We also operate our factory in Al-Hasa County (as discussed\nbelow) under Jerash Garments.\n\n\n\u00a0\n\n\nChinese Garments was established in Jordan on\nJune 13, 2013 and operates out of our factory in Al Tajamouat Industrial City. Chinese Garments\u2019 principal activities are to house\nadministration, human resources, finance, and management offices and to operate additional production lines and sewing, ironing, and packing\nunits, as well as house our trims warehouse.\n\n\n\u00a0\n\n\nJerash Embroidery was established in Jordan on\nMarch 11, 2013 and operates out of our factory in Al Tajamouat Industrial City. Jerash Embroidery\u2019s principal activities are to\nperform the cutting and embroidery for our products.\n\n\n\u00a0\n\n\nParamount was established in Jordan on October\n24, 2004 and operates out of our factory in Al Tajamouat Industrial City. Paramount\u2019s principal activities are to manufacture garments\nper customer orders.\n\n\n\u00a0\n\n\nMK Garments was established in Jordan on January\n23, 2003. On June 24, 2021, Jerash Garments and the sole shareholder of MK Garments entered into an agreement, pursuant to which Jerash\nGarments acquired all of the outstanding stock of MK Garments. As of October 7, 2021, MK Garments became a subsidiary of Jerash Garments.\nMK Garments operates out of our factory in Al Tajamouat Industrial City. MK Garments\u2019 principal activities are to manufacture garments\nper customer orders.\n\n\n\u00a0\n\n\nTreasure Success was established in Hong Kong\non July 5, 2016 and operates in Hong Kong. Treasure Success\u2019s primary activities are sales of garments and to employ sales and merchandising\nstaff and supporting personnel in Hong Kong to support the business of Jerash Garments and its subsidiaries.\n\n\n\u00a0\n\n\nJiangmen Treasure Success was established in Jiangmen\nCity of Guangdong Province in the PRC on August 28, 2019 and operates in the PRC. Jiangmen Treasure Success\u2019s primary activities\nare to provide support in sales and marketing, sample development, merchandising, procurement, and other areas.\n\n\n\u00a0\n\n\nJerash The First was established in Jordan on\nJuly 6, 2020 and operate out of our factory in Al-Hasa County. Jerash The First\u2019s principal activities are to manufacture PPE products.\n\n\n\u00a0\n\n\nJerash Supplies was formed in Delaware on November\n20, 2020. Jerash Supplies is engaged in the trading of PPE products.\n\n\n\u00a0\n\n\nKawkab Venus was established in Amman, Jordan,\non January 15, 2015 with a declared capital of JOD 50,000. It holds land with factory premises, which are leased to MK Garments. On July\n14, 2021, Jerash Garments and the sole shareholder of Kawkab Venus entered into an agreement, pursuant to which Jerash Garments acquired\nall of the outstanding stock of Kawkab Venus. Apart from the land and factory premises, Kawkab Venus had no other significant assets or\nliabilities and no operation activities or employees at the time of acquisition, so the acquisition was accounted for an asset acquisition.\nAs of August 21, 2022, Kawkab Venus became a subsidiary of Jerash Garments.\n\n\n\u00a0\n\n\n\n\n\n\n2\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nEver Winland was organized in Hong Kong on December\n3, 2020. It holds office premises, which are leased to Treasure Success. On June 22, 2022, Treasure Success and the shareholders of Ever\nWinland entered into an agreement, pursuant to which Treasure Success acquired all of the outstanding stock of Ever Winland. Apart from\nthe office premises used by Treasure Success, Ever Winland had no other significant assets or liabilities and no operating activities\nor employees at the time of this acquisition, so this transaction was accounted for as an asset acquisition. As of August 29, 2022, Ever\nWinland became a subsidiary of Treasure Success.\n\n\n\u00a0\n\n\nJ&B is a joint venture company established\nin Hong Kong on January 10, 2023. On March 20, 2023, Treasure Success and Eratex entered into a Joint Venture and Shareholders\u2019\nAgreement, pursuant to which Treasure Success acquired 51% of the equity interests in J&B on April 11, 2023. J&B engages in the\nbusiness of garment trading and manufacturing for orders from customers.\n\n\n\u00a0\n\n\nProducts\u00a0\n\n\n\u00a0\n\n\nAs a garment manufacturing group, we specialize\nin manufacturing sportswear and outerwear. Our sportswear and outerwear product offering consists of jackets, polo shirts, t-shirts, pants,\nand shorts. Our primary product offering in the fiscal year ended March 31, 2023 was shorts, pants, and vests, which accounted for approximately\n49% of our total shipped pieces. In the fiscal year ended March 31, 2022, our primary product offering was jackets, which accounted for\napproximately 35% of our total shipped pieces.\n\n\n\u00a0\n\n\nIn response to high demand for PPE due to the\nCOVID-19 pandemic, we started manufacturing PPE in 2020. Our PPE product offering consists of branded (washable) and disposable face masks,\nmedical scrubs, protective coveralls, and surgical gowns. In order to advance our PPE market development efforts, we incorporated a new\nentity, Jerash The First, which received temporary permission from Jordan\u2019s Food and Drug Administration to manufacture and export\nnon-surgical PPE. Our production facility for PPE needs to meet certain structural requirements before we can receive a permanent permission\nand we are still planning the production facility. In September 2020, we successfully registered as a medical device manufacturing facility\nwith the U.S. Food and Drug Administration for the sale and export of our PPE products to the United States. We also received an ISO 13485\ndesignation covering the manufacturing, packing, and selling of medical supplies. The sale and export of PPE products did not contribute\nto our total revenue in the fiscal year ended March 31, 2023.\u00a0\n\n\n\u00a0\n\n\nManufacturing and Production\n\n\n\u00a0\n\n\nOur production facilities are located in Al Tajamouat\nIndustrial City and in Al-Hasa County in the Tafilah Governorate of Jordan.\n\n\n\u00a0\n\n\nOur production facilities in Al Tajamouat Industrial\nCity comprise five factories and five warehouses. Effective as of January 1, 2019, the government of the Hashemite Kingdom of Jordan converted\nAl Tajamouat Industrial City into a Development Zone. Following this change, we continued to operate under benefits similar to the Qualifying\nIndustrial Zone designation, but were subject to a 10% corporate income tax plus a 1% social contribution. Starting from January 1, 2020,\nthe corporate income tax rate increased to 14% plus a 1% social contribution. On January 1, 2021, the corporate income tax rate increased\nto 16% plus a 1% social contribution. On January 1, 2022, the corporate income tax rate increased to 18% or 20% plus a 1% social contribution.\nEffective January 1, 2023, we have been subject to a 19% or 20% corporate income tax rate plus a 1% social contribution. Currently, the\nfirst factory, which we own, employs approximately 1,400 people. Its primary functions are to house our management offices, as well as\nproduction lines, trims warehouse, and printing, sewing, ironing, and packaging units. The second factory, which we lease, employs approximately\n1,400 people. Its primary function is to house our administrative and human resources personnel, merchandising and accounting departments,\nembroidery, printing, additional production lines, trims and finished products warehouses, and sewing, ironing, packing and quality control\nunits. The third factory, which we lease, employs approximately 200 people. Its primary functions are to perform the cutting for our products.\nThe fourth factory (under Paramount), which we lease, currently employs approximately 1,100 people. Its primary functions are to house\nadditional production lines. The fifth factory (under MK Garments) currently employs approximately 600 people. Its primary function is\nto manufacture garments for orders from customers.\n\n\n\u00a0\n\n\n\n\n\n\n3\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur production facility in Al-Hasa County in the\nTafilah Governorate of Jordan comprises a factory, which currently employs approximately 300 people and its primary functions are to manufacture\ngarment products per customer orders. We commenced the construction of this factory in 2018 and we started operations in November\u00a02019.\nThis is a joint project with the Jordanian Ministry of Labor and the Jordanian Education and Training Department. According to our agreement\nwith these government agencies, we used this factory without paying rent through December 2022. We have continued to use the factory without\npaying rent since January 2023 as new arrangements with the Jordanian Ministry of Labor are still being made. See \u201cItem 2. Properties\u201d\nbelow for more information regarding this factory.\n\n\n\u00a0\n\n\nIn 2015, we commenced a project to build a 4,800\nsquare-foot workshop in the Tafilah Governorate of Jordan, which was originally intended to be used as a sewing workshop for Jerash Garments.\nConstruction was temporarily suspended in March 2020 due to the COVID-19 pandemic and was subsequently completed and ready for use as\nof September 30, 2021 and the building is now used as a dormitory to house management and supervisory staff who work at the factory in\nAl-Hasa County.\n\n\n\u00a0\n\n\nIn April 2021, we commenced a construction on\na 189,000 square-foot housing facility for our multi-national workforce, situated on a 49,000 square-foot site owned by us, in Al Tajamouat\nIndustrial City. We anticipate the completion and occupancy of the new building for August 2023. To meet increasing demand, we are also\ncompleting plans to construct an additional project on a nearby separate 133,000 square-foot parcel that we purchased in 2019 for $1.2\nmillion, with 2/3 of the land allocated for our seventh factory and 1/3 for housing. We have resumed our work with engineering consultants\non the architectural design of the building with the consideration of business growth potential bought about by the new business collaboration\nwith Busana Apparel Group.\n\n\n\u00a0\n\n\nTotal annual capacity at our existing facilities\nwas approximately 14 million pieces (average for product categories including t-shirts, polo shirts, pants, shorts, and jackets, and excluding\nPPE) as of March 31, 2023. Our production flow begins in the cutting department of our factory. Then the product is sent to the embroidery\ndepartment for embroidery if applicable. From there, the product moves to be processed by the sewing unit, finishing department, quality\ncontrol, and finally the ironing and packing units.\n\n\n\u00a0\n\n\nWe do not have long-term supply contracts or arrangements\nwith our suppliers. Most of our ultimate suppliers for raw materials, such as fabric, zippers, and labels, are designated by customers\nand we purchase such materials on a purchase order basis.\n\n\n\u00a0\n\n\nEmployees\n\n\n\u00a0\n\n\nAs of March 31, 2023, we had an aggregate of approximately\n5,500 employees located in Jordan, Hong Kong, the People\u2019s Republic of China, and the United States of America, all of which are\nfull-time employees.\n\n\n\u00a0\u00a0\n\n\nCustomers\n\n\n\u00a0\n\n\nThe following table outlines the dollar amount\nand percentage of total sales to our customers for the fiscal years ended March 31, 2023 (\u201cfiscal 2023\u201d) and March 31, 2022\n(\u201cfiscal 2022\u201d).\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFiscal 2023\n\u00a0\n\u00a0\n\n\nFiscal 2022\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nSales\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\nSales\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n(USD, in\n\n thousands)\n\u00a0\n\u00a0\n\n\n%\n\u00a0\n\u00a0\n\n\n(USD, in\n\n thousands)\n\u00a0\n\u00a0\n\n\n%\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\nVF Corporation\n(1)\n\u00a0\n\n\n$\n82,661\n\u00a0\n\u00a0\n\n\n\u00a0\n59.9\n%\n\u00a0\n\n\n$\n96,450\n\u00a0\n\u00a0\n\n\n\u00a0\n67.3\n%\n\n\n\n\nNew Balance\n\u00a0\n\n\n\u00a0\n24,124\n\u00a0\n\u00a0\n\n\n\u00a0\n17.5\n%\n\u00a0\n\n\n\u00a0\n34,506\n\u00a0\n\u00a0\n\n\n\u00a0\n24.1\n%\n\n\n\n\nJiangsu Guotai Huasheng Industrial Co (HK)., Ltd\n\u00a0\n\n\n\u00a0\n9,454\n\u00a0\n\u00a0\n\n\n\u00a0\n6.8\n%\n\u00a0\n\n\n\u00a0\n3,245\n\u00a0\n\u00a0\n\n\n\u00a0\n2.3\n%\n\n\n\n\nDynamic\n\u00a0\n\n\n\u00a0\n8,175\n\u00a0\n\u00a0\n\n\n\u00a0\n5.9\n%\n\u00a0\n\n\n\u00a0\n2,235\n\u00a0\n\u00a0\n\n\n\u00a0\n1.6\n%\n\n\n\n\nG-III\n\u00a0\n\n\n\u00a0\n5,589\n\u00a0\n\u00a0\n\n\n\u00a0\n4.0\n%\n\u00a0\n\n\n\u00a0\n2,758\n\u00a0\n\u00a0\n\n\n\u00a0\n1.9\n%\n\n\n\n\nClassic\n\u00a0\n\n\n\u00a0\n1,596\n\u00a0\n\u00a0\n\n\n\u00a0\n1.2\n%\n\u00a0\n\n\n\u00a0\n-\n\u00a0\n\u00a0\n\n\n\u00a0\n0\n%\n\n\n\n\nSoriana\n\u00a0\n\n\n\u00a0\n954\n\u00a0\n\u00a0\n\n\n\u00a0\n0.7\n%\n\u00a0\n\n\n\u00a0\n1,487\n\u00a0\n\u00a0\n\n\n\u00a0\n1.0\n%\n\n\n\n\nOthers\n\u00a0\n\n\n\u00a0\n5,510\n\u00a0\n\u00a0\n\n\n\u00a0\n4.0\n%\n\u00a0\n\n\n\u00a0\n2,674\n\u00a0\n\u00a0\n\n\n\u00a0\n1.8\n%\n\n\n\n\nTotal\n\u00a0\n\n\n$\n138,063\n\u00a0\n\u00a0\n\n\n\u00a0\n100.0\n%\n\u00a0\n\n\n$\n143,355\n\u00a0\n\u00a0\n\n\n\u00a0\n100.0\n%\n\n\n\n\n\u00a0\n\n\n\n\n\n\n(1)\n\n\nMost of our products are sold under The North Face and Timberland brands owned by VF Corporation.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n4\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn fiscal 2023 and fiscal 2022, we depended on\na few key customers for our sales, and most of our sales in fiscal 2023 and 2022 were to one customer, VF Corporation.\n\n\n\u00a0\n\n\nWe started producing garments for VF Corporation\nin 2012. Most of the products we manufacture are sold under The North Face and Timberland brands which are owned by VF Corporation. Currently,\nwe manufacture primarily outerwear for The North Face. Approximately 60% and 67% of our sales in fiscal 2023 and 2022 were derived from\nthe sale of manufactured products to VF Corporation, respectively. We are not party to any long-term contracts with VF Corporation or\nour other customers, and our sales arrangements with our customers do not have minimum purchase requirements. As is common in our industry,\nVF Corporation and our other customers place purchase orders with us after we complete detailed sample development and approval processes\nthat we and our customers have agreed upon for their purchase of the relevant manufactured garments. It is through the sample development\nand approval processes that we and VF Corporation and our other customers agree on the purchase and manufacture of the garments. For fiscal\n2023, VF Corporation issued approximately 10,500 purchase orders to us in amounts ranging from approximately $6 to $372,000. For fiscal\n2022, VF Corporate issued approximately 9,500 purchase orders to us in amounts ranging from approximately $5 to $684,000.\n\n\n\u00a0\n\n\nOur customers are in the retail industry, which\nis subject to substantial cyclical variations. Consequently, there can be no assurance that sales to current customers will continue at\nthe current rate or at all. In addition, our annual and quarterly results may vary, which may cause our profits and the market price of\nour common stock to decline.\n\n\n\u00a0\n\n\nWe continue to seek to expand and strengthen our\nrelationship with our current customers and other brand names. However, we cannot assure you that these brands will continue to buy our\nproducts in the same volumes or on the same terms as they did in the past or that we will be successful in expanding our relationship\nwith other brand names.\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nThe markets for the manufacturing of sportswear\nand outerwear are highly competitive. The competition in those markets is focused primarily on the price and quality of the product and\nthe level of customer service. Our products compete with products of other apparel manufacturers in Asia, Israel, Europe, the United States,\nand South and Central America.\n\n\n\u00a0\n\n\nCompetition with other manufacturers in the clothing\nindustry focuses on reducing production costs, reducing supply lead time, design, product quality, and efficiency of supply to the customer.\nSince production costs depend to a large extent on labor costs, in recent years most production in the industry has been moved to countries\nwhere labor costs are low. Some of our competitors have lower cost bases, longer operating histories, larger customer bases, and other\nadvantages over us which allow them to compete with us. As described in more detail under \u201c\n\u2014Conditions in Jordan\n\u201d\nbelow, we are able to sell our products manufactured at our facilities in Jordan to the United States free from customs duties and import\nquotas under certain conditions. These favorable terms enable us to remain competitive on the basis of price. According to the Association\nAgreement between the European Union (the \u201cEU\u201d) and Jordan, which came into force in May 2002, and the joint initiative on\nrules of origin reviewed and improved in December 2018 by the EU and Jordan, goods manufactured by us in Jordan that are subsequently\nshipped to EU countries are shipped free from customs duties.\n\n\n\u00a0\n\n\n\n\n\n\n5\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nConditions in Jordan\n\n\n\u00a0\n\n\nOur manufacturing facilities are located in Jordan.\nAccordingly, we are directly affected by political, security, and economic conditions in Jordan.\n\n\n\u00a0\n\n\nFrom time to time Jordan has experienced instances\nof civil unrest, terrorism, and hostilities among neighboring countries, including Syria and Israel. A peace agreement between Israel\nand Jordan was signed in 1994. Terrorist attacks, military activity, rioting, or civil or political unrest in the future could influence\nthe Jordanian economy and our operations by disrupting operations and communications and making travel within Jordan more difficult and\nless desirable. Political or social tensions also could create a greater perception that investments in companies with Jordanian operations\ninvolve a high degree of risk, which could adversely affect the market and price for our common stock.\n\n\n\u00a0\n\n\nJordan is a constitutional monarchy, but the King\nholds wide executive and legislative powers. The ruling family has taken initiatives that support the economic growth of the country.\nHowever, there is no assurance that such initiatives will be successful or will continue. The rate of economic liberalization could change,\nand specific laws and policies affecting manufacturing companies, foreign investments, currency exchange rates, and other matters affecting\ninvestments in Jordan could change as well.\n\n\n\u00a0\u00a0\n\n\nTrade Agreements\n\n\n\u00a0\n\n\nBecause of the United States-Jordan Free Trade\nAgreement, which came into force on December 17, 2001, and was implemented fully on January 1, 2010, and the Association Agreement between\nthe EU and Jordan, which came into force in May 2002, we are able to sell our products manufactured at our facilities in Jordan to the\nU.S. free from customs duties and import quotas under certain conditions and to EU countries free from customs duties.\n\n\n\u00a0\n\n\nIncome Tax Incentives\n\n\n\u00a0\u00a0\n\n\nEffective January 1, 2019, Jordan\u2019s government\nconverted the geographical area where Jerash Garments and its subsidiaries are located from a Free Zone to a Development Zone. Development\nZones are industrial parks that house manufacturing operations in Jordan. In accordance with applicable law, Jerash Garments and its subsidiaries\nbegan paying corporate income tax in Jordan at a rate of 10% plus 1% social contribution. Starting from January 1, 2020, the corporate\nincome tax rate in Jordan increased to 14% plus 1% social contribution. Effective January 1, 2021, this rate increased to 16% plus 1%\nsocial contribution. On January 1, 2022, this rate further increased to 18% or 20% plus 1% social contribution. On January 1, 2023, this\nrate further increased to 19% or 20% plus a 1% social contribution. For more information, see \u201cNote 2\u2014Summary of Significant\nAccounting Policies\u2014Income and Sales Taxes.\u201d\n\n\n\u00a0\n\n\nIn addition, Jerash Garments and its subsidiaries\nare subject to local sales tax of 16%. However, Jerash Garments was granted a sales tax exemption from the Jordanian Investment Commission\nfor the period June 1, 2015 to June 1, 2018 that allowed Jerash Garments to make purchases with no sales tax charge. This exemption was\nextended to February 5, 2024.\n\n\n\u00a0\n\n\nGovernment Regulation\n\n\n\u00a0\n\n\nOur manufacturing and other facilities in Jordan\nand our subsidiaries outside of Jordan are subject to various local regulations relating to the maintenance of safe working conditions\nand manufacturing practices. Management believes that we are currently in compliance in all material respects with all such regulations.\nWe are not subject to governmental approval of our products or manufacturing process.\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A. Risk Factors.\n\n\n\u00a0\n\n\nThe following are factors that could have a significant\nimpact on our operations and financial results and could cause actual results or outcomes to differ materially from those discussed in\nany forward-looking statements.\n\n\n\u00a0\n\n\n\n\n\n\n6\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRisks Related to Our Business and Our Industry\n\n\n\u00a0\n\n\nWe rely on one key customer for most of\nour revenue. We cannot assure you that this customer or any other customer will continue to buy our products in the same volumes or on\nthe same terms.\n\n\n\u00a0\n\n\nOur sales to VF Corporation (which owns brands\nsuch as The North Face, Timberland, and Vans), directly and indirectly, accounted for approximately 60% and 67% of our total sales in\nfiscal 2023 and fiscal 2022, respectively. From an accounting perspective, we are considered the principal in our arrangement with VF\nCorporation. We bear the inventory risk before the specified goods are transferred to a customer, and we have the right to determine the\nprice and to change our product during the sample development process with customers in which we determine factors including material\nusage and manufacturing costs before confirming orders. Therefore, we present the sales and related manufacturing activities on a gross\nbasis.\n\n\n\u00a0\u00a0\n\n\nWe are not party to any long-term contracts with\nVF Corporation or our other customers, and our sales arrangements with our customers do not have minimum purchase requirements. As is\ncommon in our industry, VF Corporation and our other customers place purchase orders with us after we complete detailed sample development\nand approval processes. It is through these sample development and approval processes that we and VF Corporation agree on the purchase\nand manufacture of the garments in question. From April 1, 2021 to March 31, 2022, VF Corporation issued approximately 9,500 purchase\norders to us in amounts ranging from approximately $5 to $684,000. From April 1, 2022 to March 31, 2023, VF Corporation issued approximately\n10,500 purchase orders to us in amounts ranging from approximately $6 to $372,000.\n\n\n\u00a0\n\n\nWe cannot assure you that our customers will continue\nto buy our products at all or in the same volumes or on the same terms as they have in the past. The failure of VF Corporation to continue\nto buy our products in the same volumes and on the same terms as in the past may significantly reduce our sales and our earnings.\n\n\n\u00a0\n\n\nA material decrease in the quantity of sales made\nto our principal customers, a material adverse change in the terms of such sales or a material adverse change in the financial condition\nof our principal customers could significantly reduce our sales and our earnings.\n\n\n\u00a0\n\n\nWe cannot assure you that VF Corporation will\ncontinue to purchase our merchandise at the same historical rate, or at all, in the future, or that we will be able to attract new customers.\nIn addition, because of our reliance on VF Corporation as our key customer and their bargaining power with us, VF Corporation has the\nability to exert significant control over our business decisions, including prices.\n\n\n\u00a0\n\n\nAny adverse change in our relationship with\nVF Corporation and its The North Face and Timberland brands, or with their strategies or reputation, would have a material adverse effect\non our results of operations.\n\n\n\u00a0\n\n\nMost of our products are sold under The North\nFace and Timberland brands, which are owned by VF Corporation. Any adverse change in our relationship with VF Corporation would have a\nmaterial adverse effect on our results of operations. In addition, our sales of those products could be materially and adversely affected\nif the image, reputation, or popularity of either VF Corporation, The North Face, or Timberland were to be negatively impacted.\n\n\n\u00a0\n\n\nIf we lose our key customer and are unable\nto attract new customers, then our business, results of operations, and financial condition would be adversely affected.\n\n\n\u00a0\n\n\nIf our key customer, VF Corporation, fails to\npurchase our merchandise at the same historical rate, or at all, we will need to attract new customers and we cannot assure you that we\nwill be able to do so. We do not currently invest significant resources in marketing our products, and we cannot assure you that any new\ninvestments in sales and marketing will lead to the acquisition of additional customers or increased sales or profitability consistent\nwith prior periods. If we are unable to attract new customers or customers that generate comparable profit margins to VF Corporation,\nthen our results of operations and financial condition could be materially and adversely affected.\n\n\n\u00a0\n\n\nIf we lose our larger brand name customers,\nor the customers fail to purchase our products at anticipated levels, our sales and operating results will be adversely affected.\n\n\n\u00a0\n\n\nOur results of operations depend to a significant\nextent upon the commercial success of our larger brand name customers. If we lose these customers, these customers fail to purchase our\nproducts at anticipated levels, or our relationships with these customers or the brands and retailers they serve diminishes, it may have\nan adverse effect on our results and we may lose a primary source of revenue. In addition, we may not be able to recoup development and\ninventory costs associated with these customers and we may not be able to collect our receivables from them, which would negatively impact\nour financial condition and results of operations.\n\n\n\u00a0\n\n\n\n\n\n\n7\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf the market share of our customers declines,\nour sales and earnings may decline.\n\n\n\u00a0\n\n\nOur sales can be adversely affected in the event\nthat our direct and indirect customers do not successfully compete in the markets in which they operate. In the event that the sales of\none of our major customers decline for any reason, regardless of whether it is related to us or to our products, our sales to that customer\nmay also decline, which could reduce our overall sales and our earnings.\n\n\n\u00a0\n\n\nOur financial condition, results of operations,\nand cash flows in fiscal 2020 and 2021 were adversely affected by the COVID-19 pandemic.\n\n\n\u00a0\n\n\nIn December 2019, COVID-19 was first identified\nin Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic\u2014the\nfirst pandemic caused by a coronavirus. The outbreak has reached more than 160 countries, including Jordan and the United States, resulting\nin the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control\nthe spread of the virus. On March 17, 2020, the country of Jordan announced a shutdown of non-essential activities as part of its proactive\nnational efforts to limit the spread of COVID-19. On April 4, 2020, we resumed operations of our main production facilities in Al Tajamouat\nIndustrial City under the condition that only migrant workers, living in dormitories in Al Tajamouat Industrial City, were allowed to\ngo to work in the factories under strict hygienic precautionary measures, pursuant to an approval from the Jordanian government dated\nApril 1, 2020. Our Al-Hasa factory was also allowed to restart operation on April 26, 2020. Eventually, local employees were also allowed\nto resume work starting June 1, 2020.\n\n\n\u00a0\n\n\nOwing to the national shutdown in Jordan between\nMarch 18 and March 31, 2020, the shipment of approximately $1.6 million of our orders which were scheduled to be shipped by March 31,\n2020, the end of fiscal 2020, was postponed. We shipped these orders in the first quarter of fiscal 2021. There was also loss of productivity\nin the shutdown period which negatively impacted our first quarter and full year profitability in fiscal 2021. In fiscal 2022, our production\nfacilities resumed full operation with additional medical and hygienic measures in place. The COVID-19 pandemic did not materially adversely\naffect our business operations and condition and operating results for fiscal 2023. The Company currently expects that its operation results\nfor the fiscal year ending March 31, 2024 would not be significantly impacted by the COVID-19 pandemic. However, there is still significant\nuncertainty around the breadth and duration of business disruptions related to the COVID-19 pandemic, as well as its impact on the U.S.\nand international economies. Given the dynamic nature of these circumstances, should there be resurgence of COVID-19 cases globally and\nshould the U.S. government or the Jordan government implement new restrictions to contain the spread, the Company\u2019s business would\nbe negatively impacted.\n\n\n\u00a0\u00a0\u00a0\n\n\nWe may require additional financing to fund\nour operations and capital expenditures.\n\n\n\u00a0\n\n\nAs of March 31, 2023, we had cash and cash equivalents\nof approximately $17.8 million and restricted cash of approximately $1.6 million. There can be no assurance that our available cash, together\nwith resources from our operations, will be sufficient to fund our operations and capital expenditures. In addition, our cash position\nmay decline in the future, and we may not be successful in maintaining an adequate level of cash resources.\n\n\n\u00a0\u00a0\n\n\nPursuant to a facility letter (the \u201cSCBHK\nfacility\u201d) dated June 15, 2018 issued to Treasure Success by Standard Chartered Bank (Hong Kong) Limited (\u201cSCBHK\u201d),\nSCBHK offered to provide an import facility of up to $3,000,000 to Treasure Success. The SCBHK facility covers import invoice financing\nand pre-shipment financing under export orders with a combined limit of $3,000,000. SCBHK charges interest at 1.3% per annum over SCBHK\u2019s\ncost of funds. In consideration for arranging the SCBHK facility, Treasure Success paid SCBHK HKD50,000. We were informed by SCBHK on\nJanuary 31, 2019 that the SCBHK facility had been activated. As of March\u00a031, 2022, there was no outstanding amount under the SCBHK\nfacility. In June 2022, we were informed by SCBHK that the facility was cancelled due to persistently low usage and zero loan outstanding.\n\n\n\u00a0\n\n\n\n\n\n\n8\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nPursuant to the DBS facility letter dated January\n12, 2022, DBS Bank (Hong Kong) Limited (\u201cDBSHK\u201d) provided a bank facility of up to $5.0 million to Treasure Success. Pursuant\nto the agreement, DBSHK agreed to finance cargo receipt, trust receipt, account payable financing, and certain type of import invoice\nfinancing up to an aggregate of $5.0 million. The DBSHK facility bears interest at 1.5% per annum over Hong Kong Interbank Offered Rate\n(\u201cHIBOR\u201d) for HKD bills and 1.3% per annum over DBSHK\u2019s cost of funds for foreign currency bills. The facility is guaranteed\nby Jerash Holdings and became available to the Company on June 17, 2022.\n\n\n\u00a0\n\n\nIn addition, we may be required to seek additional\ndebt or equity financing in order to support our growing operations. We may not be able to obtain additional financing on satisfactory\nterms, or at all, and any new equity financing could have a substantial dilutive effect on our existing stockholders. If we cannot obtain\nadditional financing, we may not be able to achieve our desired sales growth, and our results of operations would be negatively affected.\n\n\n\u00a0\n\n\nWe may have conflicts of interest with our\naffiliates and related parties, and in the past we have engaged in transactions and entered into agreements with affiliates that were\nnot negotiated at arms\u2019 length.\n\n\n\u00a0\n\n\nWe have engaged, and may in the future engage,\nin transactions with affiliates and other related parties. These transactions may not have been, and may not be, on terms as favorable\nto us as they could have been if obtained from non-affiliated persons. While an effort has been made and will continue to be made to obtain\nservices from affiliated persons and other related parties at rates and on terms as favorable as would be charged by others, there will\nalways be an inherent conflict of interest between our interests and those of our affiliates and related parties. Through his wholly owned\nentity Merlotte Enterprise Limited, Mr. Choi, our chairman, chief executive officer, president, treasurer, and a significant stockholder,\nhas an indirect ownership interest in Jiangmen V-Apparel Manufacturing Limited, with which we have entered into, or in the future may\nenter into, agreements or arrangements. See also \u201cNote 11\u2014Related Party Transactions.\u201d If we engage in related party\ntransactions on unfavorable terms, our operating results will be negatively impacted.\n\n\n\u00a0\n\n\nWe are dependent on a product segment comprised\nof a limited number of products.\n\n\n\u00a0\n\n\nPresently, we generate revenue primarily from\nmanufacturing and exporting sportswear and outerwear. A shift in demand from such products may reduce the growth of new business for our\nproducts, and reduce existing business in those products. If demand in sportswear and outerwear were to decline, we may endeavor to expand\nor transition our product offerings to other segments of the clothing retail industry. There can be no assurance that we would be able\nto successfully make such an expansion or transition, or that our sales and margins would not decline in the event we made such an expansion\nor transition.\n\n\n\u00a0\n\n\nOur revenue and cash requirements are affected\nby the seasonal nature of our business.\n\n\n\u00a0\n\n\nA significant portion of our revenue is received\nduring the first six months of our fiscal year, or from April through September. A majority of our VF Corporation orders are derived from\nwinter season fashions, the sales of which occur in the spring and summer and are merchandized by VF Corporation during the autumn months\n(September through November). As such, the second half of our fiscal year reflect lower sales in anticipation of the spring and summer\nseasons. In addition, due to the nature of our relationships with customers and our use of purchase orders to conduct our business, our\nrevenue may vary from period to period.\n\n\n\u00a0\n\n\nChanges in our product mix and the geographic\ndestination of our products or source of our supplies may impact our cost of goods sold, net income, and financial position.\n\n\n\u00a0\n\n\nFrom time to time, we experience changes in the\nproduct mix and the geographic destination of our products. To the extent our product mix shifts from higher revenue items, such as jackets,\nto lower revenue items, such as pants, our cost of goods sold as a percentage of gross revenue will likely increase. In addition, if we\nsell a higher proportion of products in geographic regions where we do not benefit from free trade agreements or tax exemptions, our gross\nmargins will fall. If we are unable to sustain consistent product mix and geographic destinations for our products, we could experience\nnegative impacts to our financial condition and results of operations.\n\n\n\u00a0\n\n\n\n\n\n\n9\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur direct and indirect customers are in\nthe clothing retail industry, which is subject to substantial cyclical variations and could have a material adverse effect on our results\nof operations.\n\n\n\u00a0\n\n\nOur direct and indirect customers are in the clothing\nretail industry, which is subject to substantial cyclical variations and is strongly affected by any downturn or slowdown in the general\neconomy. Factors in the clothing retail industry that may influence our operating results from quarter to quarter include:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nthe volume and timing of customer orders we receive during the quarter;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nthe timing and magnitude of our customers\u2019 marketing campaigns;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nthe loss or addition of a major customer or of a major retailer nomination;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nthe availability and pricing of materials for our products;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nthe increased expenses incurred in connection with introducing new products;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\ncurrency fluctuations;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\npolitical factors that may affect the expected flow of commerce; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\ndelays caused by third parties.\n\n\n\n\n\u00a0\n\n\nIn addition, uncertainty over future economic\nprospects could have a material adverse effect on our results of operations. Many factors affect the level of consumer spending in the\nclothing retail industry, including, among others:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\ngeneral business conditions;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\ninterest rates;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nthe availability of consumer credit;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\ntaxation; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nconsumer confidence in future economic conditions.\n\n\n\n\n\u00a0\n\n\nConsumer purchases of discretionary items, including\nour products, may decline during recessionary periods and also may decline at other times when disposable income is lower. Consequently,\nour customers may have larger inventories of our products than expected, and to compensate for any downturn they may reduce the size of\ntheir orders, change the payment terms, limit their purchases to a lower price range, and try to change their purchase terms, all of which\nmay have a material adverse effect on our financial condition and results of operations.\n\n\n\u00a0\n\n\nThe clothing retail industry is subject\nto changes in fashion preferences. If our customers misjudge a fashion trend or the price which consumers are willing to pay for our products\ndecreases, our revenue could be adversely affected.\n\n\n\u00a0\n\n\nThe clothing retail industry is subject to changes\nin fashion preferences. We design and manufacture products based on our customers\u2019 judgment as to what products will appeal to consumers\nand what price consumers would be willing to pay for our products. Our customers may not be successful in accurately anticipating consumer\npreferences and the prices that consumers would be willing to pay for our products. Our revenue will be reduced if our customers are not\nsuccessful, particularly if our customers reduce the volume of their purchases from us or require us to reduce the prices at which we\nsell our products.\n\n\n\u00a0\n\n\n\n\n\n\n10\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf we experience product quality or late\ndelivery problems, or if we experience financial problems, our business will be negatively affected.\n\n\n\u00a0\n\n\nWe may from time to time experience difficulties\nin making timely delivery of products of acceptable quality. Such difficulties may result in cancellation of orders, customer refusal\nto accept deliveries, or reductions in purchase prices, any of which could have a material adverse effect on our financial condition and\nresults of operations. There can be no assurance that we will not experience difficulties with manufacturing our products.\n\n\n\u00a0\n\n\nWe face intense competition in the worldwide\napparel manufacturing industry.\n\n\n\u00a0\n\n\nWe compete directly with a number of manufacturers\nof sportswear and outerwear. Some of these manufacturers have lower cost bases, longer operating histories, larger customer bases, greater\ngeographical proximity to customers, or greater financial and marketing resources than we do. Increased competition, direct or indirect,\ncould reduce our revenue and profitability through pricing pressure, loss of market share, and other factors. We cannot assure you that\nwe will be able to compete successfully with existing or new competitors, as the market for our products evolves and the level of competition\nincreases. We believe that our business will depend upon our ability to provide apparel products of good quality and meeting our customers\u2019\npricing and delivery requirements, and our ability to maintain relationships with our major customers. There can be no assurance that\nwe will be successful in this regard.\n\n\n\u00a0\n\n\nWe may not be successful in integrating acquired businesses.\n\n\n\u00a0\n\n\nOur growth and profitability could be adversely\naffected if we acquire businesses or assets of other businesses and are unable to integrate the business or assets into our current business.\nTo grow effectively, we must find acquisition candidates that meet our criteria and successfully integrate the acquired business into\nours. If acquired businesses do not achieve expected levels of production or profitability, we are unable to integrate the business or\nassets into our business, or we are unable to adequately manage our growth following the acquisition, our results of operations and financial\ncondition would be adversely affected.\n\n\n\u00a0\n\n\nOur results of operations are subject to fluctuations in currency\nexchange rates.\n\n\n\u00a0\n\n\nExchange rate fluctuations between the U.S. dollar\nand Jordanian Dinar (\u201cJOD\u201d), Hong Kong dollar, or Chinese Yuan (\u201cCNY\u201d), as well as inflation in Jordan, Hong Kong,\nor the PRC, may negatively affect our earnings. A substantial majority of our revenue and a substantial portion of our expenses are denominated\nin U.S. dollars. However, a significant portion of the expenses associated with our Jordanian, Hong Kong, or PRC operations, including\npersonnel and facilities-related expenses, are incurred in JOD, Hong Kong dollars, or CNY, respectively. Consequently, inflation in Jordan,\nHong Kong, or the PRC will have the effect of increasing the dollar cost of our operations in Jordan, Hong Kong, or the PRC, respectively,\nunless it is offset on a timely basis by a devaluation of JOD, Hong Kong dollar, or CNY, as applicable, relative to the U.S. dollar. We\ncannot predict any future trends in the rate of inflation in Jordan, Hong Kong, or the PRC or the rate of devaluation of JOD, Hong Kong\ndollar, or CNY, as applicable, against the U.S. dollar. In addition, we are exposed to the risk of fluctuation in the value of JOD, Hong\nKong dollar, and CNY vis-a-vis the U.S. dollar. There can be no assurance that JOD or Hong Kong dollar will remain effectively pegged\nto the U.S. dollar. Any significant appreciation of JOD, Hong Kong dollar, or CNY against the U.S. dollar would cause an increase in our\nJOD, Hong Kong dollar, or CNY expenses, as applicable, as recorded in our U.S. dollar denominated financial reports, even though the expenses\ndenominated in JOD, Hong Kong dollars, or CNY, as applicable, will remain unchanged. In addition, exchange rate fluctuations in currency\nexchange rates in countries other than Jordan where we operate and do business may also negatively affect our earnings.\n\n\n\u00a0\n\n\nWe are subject to the risks of doing business\nabroad.\n\n\n\u00a0\n\n\nAll of our products are manufactured outside the\nUnited States, at our subsidiaries\u2019 production facilities in Jordan. Foreign manufacturing is subject to a number of risks, including\nwork stoppages, transportation delays and interruptions, political instability, foreign currency fluctuations, economic disruptions, expropriation,\nnationalization, the imposition of tariffs and import and export controls, changes in governmental policies (including U.S. policies towards\nJordan), and other factors, which could have an adverse effect on our business. In addition, we may be subject to risks associated with\nthe availability of and time required for the transportation of products from foreign countries. The occurrence of certain of these factors\nmay delay or prevent the delivery of goods ordered by customers, and such delay or inability to meet delivery requirements would have\na severe adverse impact on our results of operations and could have an adverse effect on our relationships with our customers.\n\n\n\u00a0\n\n\n\n\n\n\n11\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur ability to benefit from the lower labor costs\nin Jordan will depend on the political, social, and economic stability of Jordan and in the Middle East in general. We cannot assure you\nthat the political, economic, or social situation in Jordan or in the Middle East in general will not have a material adverse effect on\nour operations, especially in light of the potential for hostilities in the Middle East. The success of the production facilities also\nwill depend on the quality of the workmanship of laborers and our ability to maintain good relations with such laborers in these countries.\nWe cannot guarantee that our operations in Jordan or any new locations outside of Jordan will be cost-efficient or successful.\n\n\n\u00a0\n\n\nOur business could suffer if we violate\nlabor laws or fail to conform to generally accepted labor standards or the ethical standards of our customers.\n\n\n\u00a0\n\n\nWe are subject to labor laws issued by the Jordanian\nMinistry of Labor for our facilities in Jordan. In addition, many of our customers require their manufacturing suppliers to meet their\nstandards for working conditions and other matters. If we violate applicable labor laws or generally accepted labor standards or the ethical\nstandards of our customers by, for example, using forced or indentured labor or child labor, failing to pay compensation in accordance\nwith local law, failing to operate our factories in compliance with local safety regulations, or diverging from other labor practices\ngenerally accepted as ethical, we could suffer a loss of sales or customers. In addition, such actions could result in negative publicity\nand may damage our reputation and discourage retail customers and consumers from buying our products.\n\n\n\u00a0\n\n\nOur products may not comply with various\nindustry and governmental regulations and our customers may incur losses in their products or operations as a consequence of our non-compliance.\n\n\n\u00a0\n\n\nOur products are produced under strict supervision\nand controls to ensure that all materials and manufacturing processes comply with the industry and governmental regulations governing\nthe markets in which these products are sold. However, if our controls fail to detect or prevent non-compliant materials from entering\nthe manufacturing process, our products could cause damages to our customers\u2019 products or processes and could also result in fines\nbeing incurred. The possible damages, replacement costs, and fines could significantly exceed the value of our products and these risks\nmay not be covered by our insurance policies.\n\n\n\u00a0\n\n\nWe depend on our suppliers for machinery\nand maintenance of machinery. We may experience delays or additional costs satisfying our production requirements due to our reliance\non these suppliers.\n\n\n\u00a0\n\n\nWe purchase machinery and equipment used in our\nmanufacturing process from third-party suppliers. If our suppliers are not able to provide us with maintenance or additional machinery\nor equipment as needed, we might not be able to maintain or increase our production to meet any demand for our products, which would negatively\nimpact our financial condition and results of operations.\n\n\n\u00a0\n\n\nWe are a holding company and rely on dividends,\ndistributions, and other payments, advances, and transfers of funds from our subsidiaries to meet our obligations.\n\n\n\u00a0\n\n\nWe are a holding company that does not conduct\nany business operations of our own. As a result, we rely on cash dividends and distributions and other transfers from our operating subsidiaries\nto meet our obligations. The deterioration of income from, or other available assets of, our operating subsidiaries for any reason could\nlimit or impair their ability to pay dividends or other distributions to us, which in turn could adversely affect our financial condition\nand results of operations.\n\n\n\u00a0\n\n\nPeriods of sustained economic adversity\nand uncertainty could negatively affect our business, results of operations, and financial condition.\n\n\n\u00a0\n\n\nDisruptions in the financial markets, such as\nwhat occurred in the global markets in 2008, may adversely impact the availability and cost of credit for our customers and prospective\ncustomers, which could result in the delay or cancellation of customer purchases. In addition, disruptions in the financial markets may\nhave an adverse impact on regional and world economies and credit markets, which could negatively impact the availability and cost of\ncapital for us and our customers. These conditions may reduce the willingness or ability of our customers and prospective customers to\ncommit funds to purchase our services or products, or their ability to pay for our services after purchase. These conditions could result\nin bankruptcy or insolvency for some customers, which would impact our revenue and cash collections. These conditions could also result\nin pricing pressure and less favorable financial terms to us and our ability to access capital to fund our operations.\n\n\n\u00a0\n\n\n\n\n\n\n12\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRisks Related to Operations in Jordan\n\n\n\u00a0\n\n\nWe are affected by conditions to, and possible\nreduction of, free trade agreements.\n\n\n\u00a0\n\n\nBecause of the United States-Jordan Free Trade\nAgreement and the Association Agreement between the EU and Jordan, we are able to sell our products manufactured at our facilities in\nJordan to the U.S. free from customs duties and import quotas under certain conditions and to EU countries free from customs duties. If\nthere is a change in such benefits or if any such agreements were terminated, our profitability may be reduced.\n\n\n\u00a0\n\n\nFormer President Donald Trump expressed antipathy\ntowards trade agreements, and took a starkly protectionist approach that included withdrawal and renegotiation of trade agreements and\ntrade wars with China and U.S. allies alike. President Joe Biden has expressed no desire to withdraw from existing agreements, presumably\nindicating that his policy will be less protectionist than former President Donald Trump\u2019s. On the other hand, President Biden\u2019s\nBuy American plan will make it harder for foreign manufacturers to sell goods in the U.S. and his insistence on strong labor provisions\nin trade agreements will likely prevent them from being implemented or protect U.S. industries when they are. It remains unclear what\nspecifically President Biden would or would not do with respect to trade agreements, tariffs, and duties relating to products manufactured\nin Jordan. If President Biden takes action or publicly speaks out about the need to terminate or re-negotiate existing free trade agreements\non which we rely, or in favor of restricting free trade or increasing tariffs and duties applicable to our products, such actions may\nadversely affect our sales and have a material adverse impact on our business, results of operations, and cash flows.\n\n\n\u00a0\n\n\nOur results of operations would be materially\nand adversely affected in the event we are unable to operate our principal production facilities in Jordan.\n\n\n\u00a0\n\n\nAll of our manufacturing process is performed\nin a complex of production facilities located in Jordan. We have no effective back-up for these operations and, in the event that we are\nunable to use the production facilities located in Jordan as a result of damage or for any other reason, our ability to manufacture a\nmajor portion of our products and our relationships with customers could be significantly impaired, which would materially and adversely\naffect our results of operation.\n\n\n\u00a0\n\n\nOur operations in Jordan may be adversely\naffected by social and political uncertainties or change, military activity, health-related risks, or acts of terrorism.\n\n\n\u00a0\n\n\nFrom time to time, Jordan has experienced instances\nof civil unrest, terrorism, and hostilities among neighboring countries, including Syria and Israel. A peace agreement between Israel\nand Jordan was signed in 1994. Terrorist attacks, military activity, rioting, or civil or political unrest in the future could influence\nthe Jordanian economy and our operations by disrupting operations and communications and making travel within Jordan more difficult and\nless desirable. In late May 2018, protests about a proposed tax bill began throughout Jordan. On June 5, 2018, King Abdullah II of Jordan\nresponded to the protests by removing and replacing Jordan\u2019s prime minister. If political uncertainty rises in Jordan, our business,\nfinancial condition, results of operations, and cash flows may be negatively impacted.\n\n\n\u00a0\n\n\nPolitical or social tensions also could create\na greater perception that investments in companies with Jordanian operations involve a high degree of risk, which could adversely affect\nthe market price of our common stock. We do not have insurance for losses and interruptions caused by terrorist attacks, military conflicts,\nand wars, which could subject us to significant financial losses. The realization of any of these risks could cause a material adverse\neffect on our business, financial condition, results of operations, and cash flows.\n\n\n\u00a0\n\n\n\n\n\n\n13\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe may face interruption of production and\nservices due to increased security measures in response to terrorism.\n\n\n\u00a0\n\n\nOur business depends on the free flow of products\nand services through the channels of commerce. In response to terrorists\u2019 activities and threats aimed at the United States, transportation,\nmail, financial, and other services may be slowed or stopped altogether. Extensive delays or stoppages in transportation, mail, financial,\nor other services could have a material adverse effect on our business, results of operations, and financial condition. Furthermore, we\nmay experience an increase in operating costs, such as costs for transportation, insurance, and security as a result of the activities\nand potential delays. We may also experience delays in receiving payments from payors that have been affected by the terrorist activities.\nThe United States economy in general may be adversely affected by terrorist activities and any economic downturn could adversely impact\nour results of operations, impair our ability to raise capital, or otherwise adversely affect our ability to grow our business.\n\n\n\u00a0\n\n\nWe are subject to regulatory and political\nuncertainties in Jordan.\n\n\n\u00a0\n\n\nWe conduct substantially all of our business and\noperations in Jordan. Consequently, government policies and regulations, including tax policies, in Jordan will impact our financial performance\nand the market price of our common stock.\n\n\n\u00a0\n\n\nJordan is a constitutional monarchy, but the King\nholds wide executive and legislative powers. The ruling family has taken initiatives that support the economic growth of the country.\nHowever, there is no assurance that such initiatives will be successful or will continue. The rate of economic liberalization could change,\nand specific laws and policies affecting manufacturing companies, foreign investments, currency exchange rates, and other matters affecting\ninvestments in Jordan could change as well. A significant change in Jordan\u2019s economic policy or any social or political uncertainties\nthat impact economic policy in Jordan could adversely affect business and economic conditions in Jordan generally and our business and\nprospects.\n\n\n\u00a0\n\n\nIf we violate applicable anti-corruption\nlaws or our internal policies designed to ensure ethical business practices, we could face financial penalties and reputational harm that\nwould negatively impact our financial condition and results of operations.\n\n\n\u00a0\n\n\nWe are subject to anti-corruption and anti-bribery\nlaws in the United States and Jordan. Jordan\u2019s reputation for potential corruption and the challenges presented by Jordan\u2019s\ncomplex business environment, including high levels of bureaucracy, red tape, and vague regulations, may increase our risk of violating\napplicable anti-corruption laws. We face the risk that we, our employees, or any third parties such as our sales agents and distributors\nthat we engage to do work on our behalf may take action determined to be in violation of anti-corruption laws in any jurisdiction in which\nwe conduct business, including the Foreign Corrupt Practices Act of 1977 (the \u201cFCPA\u201d). Any violation of the FCPA or any similar\nanti-corruption law or regulation could result in substantial fines, sanctions, civil or criminal penalties, and curtailment of operations\nthat might harm our business, financial condition, or results of operations.\n\n\n\u00a0\n\n\nOur stockholders may face difficulties in\nprotecting their interests and exercising their rights as a stockholder of ours because we conduct substantially all of our operations\nin Jordan and certain of our officers and directors reside outside of the United States.\n\n\n\u00a0\n\n\nCertain of our officers and directors reside outside\nthe United States. Therefore, our stockholders may experience difficulties in effecting service of legal process, enforcing foreign judgments,\nor bringing original actions in any of these jurisdictions based upon U.S. laws, including the federal securities laws or other foreign\nlaws against us, our officers, and directors. Furthermore, we conduct substantially all of our operations in Jordan through our operating\nsubsidiaries. Because the majority of our assets are located outside the United States, any judgment obtained in the United States against\nus or certain of our directors and officers may not be collectible within the United States.\n\n\n\u00a0\u00a0\n\n\n\n\n\n\n14\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRisk Factors Relating to our Securities\n\n\n\u00a0\n\n\nIf we fail to comply with the continuing\nlisting standards of the Nasdaq, our common stock could be delisted from the exchange.\n\n\n\u00a0\n\n\nIf we were unable to meet the continued listing\nrequirements of the Nasdaq Stock Market (\u201cNasdaq\u201d), our common stock could be delisted from the Nasdaq. Any such delisting\nof our common stock could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock,\nnot only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions\nand less coverage of us by securities analysts, if any. Also, if in the future we were to determine that we need to seek additional equity\ncapital, being delisted from Nasdaq could have an adverse effect on our ability to raise capital in the public or private equity markets.\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFuture sales and issuances of our common\nstock or rights to purchase common stock could result in additional dilution of the percentage ownership of our stockholders and could\ncause the market price of our common stock to decline.\n\n\n\u00a0\n\n\nWe may issue additional securities in the future.\nPursuant to our amended and restated 2018 Stock Incentive Plan, we may issue up to 1,784,250 shares of common stock to certain members\nof our management and key employees.\n\n\n\u00a0\n\n\nFuture sales and issuances of our common stock\nor rights to purchase our common stock could result in substantial dilution to our existing stockholders. We may sell common stock, convertible\nsecurities, and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If\nwe sell any such securities, our stockholders may be materially diluted. New investors in any future transactions could gain rights, preferences,\nand privileges senior to those of holders of our common stock.\n\n\n\u00a0\n\n\nIf securities or industry analysts do not\npublish research or reports about us, or if they adversely change their recommendations regarding our common stock, our stock price and\ntrading volume of our common stock could decline.\n\n\n\u00a0\n\n\nThe trading market for our common stock will be\ninfluenced by the research and reports that industry or securities analysts publish about us, our industry, and our market. If no analyst\nelects to cover us and publish research or reports about us, the market for our common stock could be severely limited and our stock price\ncould be adversely affected. In addition, if one or more analysts ceases coverage of us or fails to regularly publish reports on us, we\ncould lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. If one or more\nanalysts who elect to cover us issue negative reports or adversely change their recommendations regarding our common stock, the market\nprice of our common stock could decline.\n\n\n\u00a0\n\n\n\n\n\n\n15\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe requirements of being a public company,\nincluding compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d)\nand the requirements of the Sarbanes-Oxley Act of 2002 (\u201cSarbanes-Oxley Act\u201d), may strain our resources, increase our costs,\nand distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.\n\n\n\u00a0\n\n\nWe are required to comply with the laws, regulations,\nrequirements, and certain corporate governance provisions under the Exchange Act and the Sarbanes-Oxley Act. Complying with these statutes,\nregulations, and requirements occupies a significant amount of time of our board of directors and management, significantly increases\nour costs and expenses, and makes some activities more time-consuming and costly. As a reporting company, we are:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\ninstituting a more comprehensive compliance function;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\npreparing and distributing periodic and current reports under the federal securities laws;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nestablishing and enforcing internal compliance policies, such as those related to insider trading; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\ninvolving and retaining outside counsel and accountants to a greater degree than before we became a reporting company.\n\n\n\n\n\u00a0\n\n\nOur ongoing compliance efforts will increase general\nand administrative expenses and may divert management\u2019s time and attention from the development of our business, which may adversely\naffect our financial condition and results of operations.\n\n\n\u00a0\n\n\nDuring the course of the audit of our consolidated\nfinancial statements, we identified material weaknesses in our internal control over financial reporting. If we are unable to effectively\nimplement and maintain our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, our ability to accurately\nand timely report our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of our\ncommon stock may be adversely impacted. \n\n\n\u00a0\n\n\nWe have been required to evaluate our internal\ncontrol over financial reporting under Section 404 of the Sarbanes-Oxley Act beginning with the annual report on Form 10-K for the fiscal\nyear ended March 31, 2019. The process of designing and implementing internal controls over financial reporting may divert our internal\nresources and take a significant amount of time and expense to complete.\n\n\n\u00a0\n\n\nIn connection with the preparation and external\naudit of our consolidated financial statements for the fiscal year ended March 31, 2023, we identified certain material weaknesses in\nour internal control over financial reporting and have formulated plans for remedial measures. See \u201cItem 9A. Controls and Procedures.\u201d\nMeasures that we implement may not fully address the material weaknesses in our internal control over financial reporting and we may not\nbe able to conclude that the material weaknesses have been fully remedied.\n\n\n\u00a0\n\n\nFailure to correct the material weaknesses and\nother control deficiencies or failure to discover and address any other control deficiencies could result in inaccuracies in our consolidated\nfinancial statements and could also impair our ability to comply with applicable financial reporting requirements and make related regulatory\nfilings on a timely basis. As a result, our business, financial condition, results of operations, and prospects, as well as the trading\nprice of our common stock, may be materially and adversely affected. Due to the material weaknesses in our internal control over financial\nreporting as described above, our management concluded that our internal control over financial reporting was not effective as of March\n31, 2023. This could adversely affect the market price of our common stock due to a loss of investor confidence in the reliability of\nour reporting processes.\n\n\n\u00a0\n\n\nThe reduced disclosure requirements applicable\nto emerging growth companies may make our common stock less attractive to investors, which may lead to volatility and a decrease in the\nmarket price of our common stock.\n\n\n\u00a0\n\n\nFor as long as we continue to be an emerging growth\ncompany, we may take advantage of exemptions from reporting requirements that apply to other public companies that are not emerging growth\ncompanies. Investors may find our common stock less attractive because we may rely on these exemptions, which include not being required\nto comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding\nexecutive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory\nvote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If investors find our\ncommon stock less attractive as a result of exemptions and reduced disclosure requirements, there may be a less active trading market\nfor our common stock and our stock price may be more volatile or may decrease.\n\n\n\u00a0\n\n\nWe are currently operating in a period of\neconomic uncertainty and capital market disruption, which has been significantly impacted by geopolitical instability due to the ongoing\nmilitary conflict between Russia and Ukraine. Our business, financial condition, and results of operations could be materially adversely\naffected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical\ntensions.\n\n\n\u00a0\n\n\nU.S. and global markets are experiencing volatility\nand disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On\nFebruary 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing\nmilitary conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility\nin commodity prices, credit and capital markets, and supply chain interruptions.\n\n\n\u00a0\n\n\n\n\n\n\n16\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe military conflict in Ukraine has led to sanctions\nand other penalties being levied by the United States, European Union, and other countries against Russia. Additional potential sanctions\nand penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the\nglobal economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult\nfor us to obtain additional funds. In addition, in managing an organization operating globally, we are subject to the risks and challenges\nrelated to the potential to subject our business to materially adverse consequences should the situation escalate beyond its current scope,\nincluding, among other potential impacts, the geographic proximity of the situation relative to the Middle East, where a material portion\nof our business is conducted.\n\n\n\u00a0\n\n\nAlthough our business has not been materially\nimpacted by the ongoing military conflict between Russian and Ukraine to date, it is impossible to predict the extent to which our operations,\nor those of our suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact\nour business. The extent and duration of the military action, sanctions, and resulting market disruptions are impossible to predict, but\ncould be substantial. Any such disruptions may also magnify the impact of other risks described in this annual report.\n\n\n\u00a0\n\n\nWe may be adversely affected by the effects\nof inflation and a potential recession. \n\n\n\u00a0\n\n\nInflation has the potential to adversely affect\nour liquidity, business, financial condition, and results of operations by increasing our overall cost structure, particularly if we are\nunable to achieve commensurate increases in the prices we charge our customers. The existence of inflation in the economy has resulted\nin, and may continue to result in, higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor,\nweakening exchange rates, and other similar effects. As a result of inflation, we have experienced and may continue to experience, cost\nincreases. In addition, poor economic and market conditions, including a potential recession, may negatively impact market sentiment,\ndecreasing the demand for sportswear and outerwear, which would adversely affect our operating income and results of operations. If we\nare unable to take effective measures in a timely manner to mitigate the impact of the inflation as well as a potential recession, our\nbusiness, financial condition, and results of operations could be adversely affected.\u00a0\n\n\n\u00a0\n\n",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of Financial\nCondition and Results of Operations.\n\n\n\u00a0\n\n\nThe following discussion of our financial condition\nand results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere\nin this filing.\n\n\n\u00a0\n\n\nEXECUTIVE OVERVIEW\n\n\n\u00a0\u00a0\n\n\nSeasonality of Sales\n\n\n\u00a0\n\n\nA significant portion of our revenue is received\nduring the first six months of our fiscal year. The majority of our VF Corporation orders are derived from winter season fashions, the\nsales of which occur in Spring and Summer and are merchandized by VF Corporation during the months of September through November. As such,\nthe second half of our fiscal years reflect lower sales in anticipation of the spring and summer seasons. One of our strategies is to\nincrease sales with other customers where clothing lines are stronger during the spring months. This strategy also reflects our current\nplan to increase our number of customers to mitigate our current concentration risk with VF Corporation.\n\n\n\u00a0\n\n\n\n\n\n\n19\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nResults of Operations\n\n\n\u00a0\n\n\nThe following table presents certain information from our statements\nof income and comprehensive income for fiscal 2023 and 2022 and should be read, along with all of the information in this management\u2019s\ndiscussion and analysis, in conjunction with the consolidated financial statements and related notes included elsewhere in this filing.\n\n\n\u00a0\n\n\n(All amounts, other than percentages, in thousands\nof U.S. dollars)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFiscal Years Ended March 31,\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\nAs % of\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\nAs % of\n\u00a0\n\u00a0\n\n\nYear over Year\n\u00a0\n\n\n\n\nStatement of Income Data:\n\u00a0\n\n\nAmount\n\u00a0\n\u00a0\n\n\nSales\n\u00a0\n\u00a0\n\n\nAmount\n\u00a0\n\u00a0\n\n\nSales\n\u00a0\n\u00a0\n\n\nAmount\n\u00a0\n\u00a0\n\n\n%\n\u00a0\n\n\n\n\nRevenue\n\u00a0\n\n\n$\n138,063\n\u00a0\n\u00a0\n\n\n\u00a0\n100\n%\n\u00a0\n\n\n$\n143,355\n\u00a0\n\u00a0\n\n\n\u00a0\n100\n%\n\u00a0\n\n\n$\n(5,292\n)\n\u00a0\n\n\n\u00a0\n(4\n)%\n\n\n\n\nCost of goods sold\n\u00a0\n\n\n\u00a0\n116,273\n\u00a0\n\u00a0\n\n\n\u00a0\n84\n%\n\u00a0\n\n\n\u00a0\n116,023\n\u00a0\n\u00a0\n\n\n\u00a0\n81\n%\n\u00a0\n\n\n\u00a0\n250\n\u00a0\n\u00a0\n\n\n\u00a0\n-\n%\n\n\n\n\nGross profit\n\u00a0\n\n\n\u00a0\n21,790\n\u00a0\n\u00a0\n\n\n\u00a0\n16\n%\n\u00a0\n\n\n\u00a0\n27,332\n\u00a0\n\u00a0\n\n\n\u00a0\n19\n%\n\u00a0\n\n\n\u00a0\n(5,542\n)\n\u00a0\n\n\n\u00a0\n(20\n)%\n\n\n\n\nSelling, general, and administrative expenses\n\u00a0\n\n\n\u00a0\n17,375\n\u00a0\n\u00a0\n\n\n\u00a0\n13\n%\n\u00a0\n\n\n\u00a0\n16,843\n\u00a0\n\u00a0\n\n\n\u00a0\n12\n%\n\u00a0\n\n\n\u00a0\n532\n\u00a0\n\u00a0\n\n\n\u00a0\n3\n%\n\n\n\n\nOther expenses, net\n\u00a0\n\n\n\u00a0\n(331\n)\n\u00a0\n\n\n\u00a0\n0\n%\n\u00a0\n\n\n\u00a0\n(45\n)\n\u00a0\n\n\n\u00a0\n0\n%\n\u00a0\n\n\n\u00a0\n(286\n)\n\u00a0\n\n\n\u00a0\n636\n%\n\n\n\n\nNet income before taxation\n\u00a0\n\n\n$\n4,084\n\u00a0\n\u00a0\n\n\n\u00a0\n3\n%\n\u00a0\n\n\n$\n10,444\n\u00a0\n\u00a0\n\n\n\u00a0\n7\n%\n\u00a0\n\n\n$\n(6,360\n)\n\u00a0\n\n\n\u00a0\n(61\n)%\n\n\n\n\nIncome tax expense\n\u00a0\n\n\n\u00a0\n1,664\n\u00a0\n\u00a0\n\n\n\u00a0\n1\n%\n\u00a0\n\n\n\u00a0\n2,524\n\u00a0\n\u00a0\n\n\n\u00a0\n2\n%\n\u00a0\n\n\n\u00a0\n(860\n)\n\u00a0\n\n\n\u00a0\n(34\n)%\n\n\n\n\nNet income\n\u00a0\n\n\n$\n2,420\n\u00a0\n\u00a0\n\n\n\u00a0\n2\n%\n\u00a0\n\n\n$\n7,920\n\u00a0\n\u00a0\n\n\n\u00a0\n5\n%\n\u00a0\n\n\n$\n(5,500\n)\n\u00a0\n\n\n\u00a0\n(69\n)%\n\n\n\n\n\u00a0\n\n\nRevenue. \nRevenue decreased by approximately\n$5.3 million, or 4%, to approximately $138.1 million in fiscal 2023 from approximately $143.4 million in fiscal 2022. This slight decrease\nwas mainly due to a decline in export sales to two major U.S. customers. Despite receiving orders from new customers and observing an\nincrease in shipments to other existing customers, these efforts were not enough to offset the shortfall in sales.\n\n\n\u00a0\n\n\nThe following table outlines the dollar amount\nand percentage of total sales to our customers for the fiscal years ended March 31, 2023 and 2022, respectively.\n\n\n\u00a0\n\n\n(All amounts, other than percentages, in thousands\nof U.S. dollars)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFiscal Year Ended\n March 31, \n 2023\n\u00a0\n\u00a0\n\n\nFiscal Year Ended\n March 31, \n 2022\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nSales\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\nSales\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nAmount\n\u00a0\n\u00a0\n\n\n%\n\u00a0\n\u00a0\n\n\nAmount\n\u00a0\n\u00a0\n\n\n%\n\u00a0\n\n\n\n\nVF Corporation\n(1)\n\u00a0\n\n\n$\n82,661\n\u00a0\n\u00a0\n\n\n\u00a0\n59.9\n%\n\u00a0\n\n\n$\n96,450\n\u00a0\n\u00a0\n\n\n\u00a0\n67.3\n%\n\n\n\n\nNew Balance\n\u00a0\n\n\n\u00a0\n24,124\n\u00a0\n\u00a0\n\n\n\u00a0\n17.5\n%\n\u00a0\n\n\n\u00a0\n34,506\n\u00a0\n\u00a0\n\n\n\u00a0\n24.1\n%\n\n\n\n\nJiangsu Guotai Huasheng Industrial Co (HK)., Ltd\n\u00a0\n\n\n\u00a0\n9,454\n\u00a0\n\u00a0\n\n\n\u00a0\n6.8\n%\n\u00a0\n\n\n\u00a0\n3,245\n\u00a0\n\u00a0\n\n\n\u00a0\n2.3\n%\n\n\n\n\nDynamic Design Enterprise, Inc\n\u00a0\n\n\n\u00a0\n8,175\n\u00a0\n\u00a0\n\n\n\u00a0\n5.9\n%\n\u00a0\n\n\n\u00a0\n2,235\n\u00a0\n\u00a0\n\n\n\u00a0\n1.6\n%\n\n\n\n\nG-III\n\u00a0\n\n\n\u00a0\n5,589\n\u00a0\n\u00a0\n\n\n\u00a0\n4.0\n%\n\u00a0\n\n\n\u00a0\n2,758\n\u00a0\n\u00a0\n\n\n\u00a0\n1.9\n%\n\n\n\n\nClassic\n\u00a0\n\n\n\u00a0\n1,596\n\u00a0\n\u00a0\n\n\n\u00a0\n1.2\n%\n\u00a0\n\n\n\u00a0\n-\n\u00a0\n\u00a0\n\n\n\u00a0\n0\n%\n\n\n\n\nSoriana\n\u00a0\n\n\n\u00a0\n954\n\u00a0\n\u00a0\n\n\n\u00a0\n0.7\n%\n\u00a0\n\n\n\u00a0\n1,487\n\u00a0\n\u00a0\n\n\n\u00a0\n1.0\n%\n\n\n\n\nOthers\n\u00a0\n\n\n\u00a0\n5,510\n\u00a0\n\u00a0\n\n\n\u00a0\n4.0\n%\n\u00a0\n\n\n\u00a0\n2,674\n\u00a0\n\u00a0\n\n\n\u00a0\n1.8\n%\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nTotal\n\u00a0\n\n\n$\n138,063\n\u00a0\n\u00a0\n\n\n\u00a0\n100.0\n%\n\u00a0\n\n\n$\n143,355\n\u00a0\n\u00a0\n\n\n\u00a0\n100.0\n%\n\n\n\n\n\u00a0\n\n\n\n\n\n\n(1)\n\n\nA large portion of our products are sold under The North Face and Timberland brands owned by VF Corporation.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n20\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRevenue by Geographic Area\n\n\n(All amounts, other than percentages, in thousands\nof U.S. dollars)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFiscal Years Ended March 31,\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\u00a0\n\n\nYear over Year\n\u00a0\n\n\n\n\nRegion\n\u00a0\n\n\nAmount\n\u00a0\n\u00a0\n\n\n%\n\u00a0\n\u00a0\n\n\nAmount\n\u00a0\n\u00a0\n\n\n%\n\u00a0\n\u00a0\n\n\nAmount\n\u00a0\n\u00a0\n\n\n%\n\u00a0\n\n\n\n\nUnited States\n\u00a0\n\n\n$\n122,318\n\u00a0\n\u00a0\n\n\n\u00a0\n89\n%\n\u00a0\n\n\n$\n136,068\n\u00a0\n\u00a0\n\n\n\u00a0\n95\n%\n\u00a0\n\n\n$\n(13,750\n)\n\u00a0\n\n\n\u00a0\n(10\n)%\n\n\n\n\nHong Kong\n\u00a0\n\n\n\u00a0\n9,474\n\u00a0\n\u00a0\n\n\n\u00a0\n7\n%\n\u00a0\n\n\n\u00a0\n3,280\n\u00a0\n\u00a0\n\n\n\u00a0\n2\n%\n\u00a0\n\n\n\u00a0\n6,194\n\u00a0\n\u00a0\n\n\n\u00a0\n189\n%\n\n\n\n\nJordan\n\u00a0\n\n\n\u00a0\n4,892\n\u00a0\n\u00a0\n\n\n\u00a0\n3\n%\n\u00a0\n\n\n\u00a0\n1,950\n\u00a0\n\u00a0\n\n\n\u00a0\n1\n%\n\u00a0\n\n\n\u00a0\n2,942\n\u00a0\n\u00a0\n\n\n\u00a0\n151\n%\n\n\n\n\nOthers\n\u00a0\n\n\n\u00a0\n1,379\n\u00a0\n\u00a0\n\n\n\u00a0\n1\n%\n\u00a0\n\n\n\u00a0\n2,057\n\u00a0\n\u00a0\n\n\n\u00a0\n2\n%\n\u00a0\n\n\n\u00a0\n(678\n)\n\u00a0\n\n\n\u00a0\n(33\n)%\n\n\n\n\nTotal\n\u00a0\n\n\n$\n138,063\n\u00a0\n\u00a0\n\n\n\u00a0\n100\n%\n\u00a0\n\n\n$\n143,355\n\u00a0\n\u00a0\n\n\n\u00a0\n100\n%\n\u00a0\n\n\n$\n(5,292\n)\n\u00a0\n\n\n\u00a0\n(4\n)%\n\n\n\n\n\u00a0\n\n\nSince January 2010, all apparel manufactured in\nJordan can be exported to the U.S. without customs duty being imposed, pursuant to the United States-Jordan Free Trade Agreement entered\ninto in December 2001. This free trade agreement provides us with substantial competitiveness and benefit that allowed us to expand our\ngarment export business in the U.S.\n\n\n\u00a0\n\n\nThe decrease of approximately 10% in sales to the U.S. during fiscal\nyear ended March 31, 2023 was mainly attributable to the decrease in the export sales to two major customers in the U.S. due to challenges\nrelated to inflation, which impacted customer demand for new orders.\n\n\n\u00a0\n\n\nDuring the fiscal year ended March 31, 2023, aggregate\nsales to Jordan, Hong Kong, and other locations, such as mainland China, increased significantly by 116% from approximately $7.3 million\nto $15.7 million. This surge in sales can be attributed to receiving more orders from these regions to fill up the production capacity\nreleased from the decrease in shipments to the aforementioned two major customers in the U.S.\n\n\n\u00a0\n\n\nCost of goods sold\n.\n Our cost\nof goods sold experienced a slight increase of approximately $0.3 million to approximately $116.3 million in fiscal 2023 from approximately\n$116.0 million in fiscal 2022, despite th\ne\n decrease in sales. As a percentage\nof revenue, the cost of goods sold increased by approximately 3 percentage points to 84% in fiscal 2023 from 81% in fiscal 2022. The increase\nin the cost of goods sold as a percentage of revenue was primarily attributable to a lower proportion of export orders to our two major\ncustomers in the U.S., which typically generated higher profit margin for the company.\n\n\n\u00a0\n\n\nFor the fiscal year ended March 31, 2023, we purchased\napproximately 11% of our garments from one major supplier. For the fiscal year ended March 31, 2022, we purchased approximately 20% and\n11% of our garments and raw materials from two major suppliers, respectively. \u00a0\n\n\n\u00a0\n\n\nGross profit margin\n. Our gross profit\nmargin was approximately 16% in fiscal 2023, representing a decrease by approximately 3 percentage points from 19% in fiscal 2022. The\ndecrease in gross profit margin was primarily influenced by a lower proportion of export orders from our two major customers in the U.S.,\nwhich typically generated higher profit margin.\n\n\n\u00a0\n\n\nSelling, general, and administrative expenses\n.\n\nSelling, general, and administrative expenses increased by approximately 3% from approximately $16.8 million in fiscal 2022 to approximately\n$17.4 million in fiscal 2023. The increase was mainly attributable to (i) the acquisition of MK Garments, resulting in higher headcounts,\nand (ii) increased travelling costs for migrant workers.\n\n\n\u00a0\n\n\nOther expenses, net\n.\n Other\nexpenses, net were approximately $0.3 million in fiscal 2023 and other expenses, net was approximately $45,000 in fiscal 2022. The increase\nin other expenses was primarily due to the increase in net interest expenses.\n\n\n\u00a0\n\n\n\n\n\n\n21\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nTaxation. \nIncome tax expenses for\nthe fiscal 2023 were approximately $1.7 million, compared to income tax expenses of approximately $2.5 million for fiscal 2022. The effective\ntax rate for fiscal 2023 increased to 40.7%, compared to 24.2% for fiscal 2022. The increase in the effective tax rate mainly resulted\nfrom lower operating profit in Jordanian companies, operating loss in Jerash Holdings during the fiscal year, increases in the foreign\nstatutory tax rates, and prior year adjustments. In addition, the higher corporate income tax rate in Jordan, which increased from a combined\nrate of 17% to 20% or 21% since January 1, 2023.\n\n\n\u00a0\u00a0\n\n\nNet income. \nNet income for fiscal\n2023 decreased by 69.4% to approximately $2.4 million, compared to approximately $7.9 million for fiscal 2022. The decrease in net income\nwas mainly attributable to lower sales to two of our major export customers.\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\n\n\u00a0\n\n\nJerash Holdings is a holding company incorporated\nin Delaware. As a holding company, we rely on dividends and other distributions from our Jordanian and Hong Kong subsidiaries to satisfy\nour liquidity requirements. Current Jordanian regulations permit our Jordanian subsidiaries to pay dividends to us only out of their accumulated\nprofits, if any, determined in accordance with Jordanian accounting standards and regulations. In addition, our Jordanian subsidiaries\nare required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds. These\nreserves are not distributable as cash dividends. We have relied on direct payments of expenses by our subsidiaries (which generate revenue)\nto meet our obligations to date. To the extent payments are due in U.S. dollars, we have occasionally paid such amounts in JOD to an entity\ncontrolled by our management capable of paying such amounts in U.S. dollars. Such transactions have been made at prevailing exchange rates\nand have resulted in immaterial losses or gains on currency exchange but no other profit.\n\n\n\u00a0\n\n\nAs of March 31, 2023, our cash balance was approximately\n$17.8 million and restricted cash was approximately $1.6 million, compared to cash of approximately $25.2 million and restricted cash\nof approximately $1.4 million as of March 31, 2022. The decrease in total cash was primarily due to (i) the acquisition of Ever Winland\nand Kawkab Venus for approximately $5.1 million and $2.2 million, respectively (ii) investment in the construction of a new dormitory\nbuilding and extension of one of our major factory buildings, and purchases of property, plant, and machinery, which amounted to a total\nof approximately $5.8 million, (iii) dividends distribution of $2.5 million, and (iv) a share repurchase program totaling $1.2 million.\n\n\n\u00a0\n\n\nOur current assets as of March 31, 2023 were approximately\n$57.3 million, and our current liabilities were approximately $14.4 million, which resulted in a current ratio of approximately 4.0:1.\nOur current assets as of March 31, 2022 were approximately $69.9 million, and our current liabilities were approximately $14.1 million,\nwhich resulted in a current ratio of approximately 4.9:1. The decrease in current assets were primarily due to (i) reduced accounts receivable\nresulting from the adoption of supply chain financing programs for two of our major customers, which shortened the payment lead time from\n90 days to around 10 days, and (ii) decreased cash due to the investment in the construction of a new dormitory building, the extension\nin one of our major factory buildings, and the acquisition in Ever Winland and Kawkab Venus. The primary driver in the increase in current\nliabilities was the increased accounts payable due to the increase in inventory levels with credit terms from suppliers.\n\n\n\u00a0\n\n\nWe had net working capital of $42.8 million and\n$55.7 million as of March 31, 2023 and 2022, respectively. Based on our current operating plan, we believe that cash on hand and cash\ngenerated from operation will be sufficient to support our working capital needs for the next 12 months from the date of this Annually\nReport.\n\n\n\u00a0\n\n\nSince May and October 2021, we have participated\nin supply chain financing programs of two of our major customers, respectively. The programs allow us to receive early payments for approved\nsales invoices submitted by us through the bank the customer cooperates with. For any early payments received, we are subject to an early\npayment charge imposed by the customer\u2019s bank, for which the rate is London Interbank Offered Rate (\u201cLIBOR\u201d) plus a\nspread. The arrangement allows us to have better liquidity without the need to incur administrative charges and handling fees as in bank\nfinancing.\n\n\n\u00a0\n\n\nWe have funded our working capital needs from\noperations. Our working capital requirements are influenced by the level of our operations, the numerical and dollar volume of our sales\ncontracts, the progress of execution on our customer contracts, and the timing of accounts receivable collections.\n\n\n\u00a0\n\n\n\n\n\n\n22\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCredit Facilities\n\n\n\u00a0\n\n\nDBS Facility Letter \n\n\n\u00a0\n\n\nPursuant to the DBS facility letter dated January\n12, 2022, DBSHK provided a bank facility of up to $5.0 million to Treasure Success. Pursuant to the agreement, DBSHK agreed to finance\ncargo receipt, trust receipt, account payable financing, and certain type of import invoice financing up to an aggregate of $5.0 million,\nsubject to certain financial covenants. The DBSHK facility bears interest at 1.5% per annum over Hong Kong Interbank Offered Rate (\u201cHIBOR\u201d)\nfor HKD bills and 1.3% per annum over DBSHK\u2019s cost of funds for foreign currency bills. The facility is guaranteed by Jerash Holdings\nand became available to the Company on June 17, 2022. As of March 31, 2023 and 2022, we had $nil outstanding under this DBSHK facility.\n\n\n\u00a0\n\n\nCapital Bank of Jordan Credit Facility \n\n\n\u00a0\n\n\nJerash Garments recently received documents from\nCapital Bank of Jordan for a credit facility of $10 million. Our board of directors has reviewed the documents and approved to enter into\nthe credit facility on June 1, 2023. Execution is still in process and the credit facility is not effective as of the date of this annual\nreport. Details of the credit facility will be provided after execution is complete and the facility is effective.\n\n\n\u00a0\n\n\nFiscal Years ended March 31, 2023 and 2022\n\n\n\u00a0\n\n\nThe following table sets forth a summary of our\ncash flows for the fiscal years ended March 31, 2023 and 2022.\n\n\n\u00a0\n\n\n(All amounts in thousands of U.S. dollars)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFor the fiscal years ended \n March 31,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nNet cash provided by operating activities\n\u00a0\n\n\n$\n10,807\n\u00a0\n\u00a0\n\n\n$\n8,963\n\u00a0\n\n\n\n\nNet cash used in investing activities\n\u00a0\n\n\n\u00a0\n(13,775\n)\n\u00a0\n\n\n\u00a0\n(8,673\n)\n\n\n\n\nNet cash (used in) provided by financing activities\n\u00a0\n\n\n\u00a0\n(3,953\n)\n\u00a0\n\n\n\u00a0\n3,289\n\u00a0\n\n\n\n\nEffect of exchange rate changes on cash\n\u00a0\n\n\n\u00a0\n(250\n)\n\u00a0\n\n\n\u00a0\n144\n\u00a0\n\n\n\n\nNet (decrease) increase in cash and restricted cash\n\u00a0\n\n\n\u00a0\n(7,171\n)\n\u00a0\n\n\n\u00a0\n3,723\n\u00a0\n\n\n\n\nCash and restricted cash, beginning of year\n\u00a0\n\n\n\u00a0\n26,583\n\u00a0\n\u00a0\n\n\n\u00a0\n22,860\n\u00a0\n\n\n\n\nCash and restricted cash, end of year\n\u00a0\n\n\n$\n19,412\n\u00a0\n\u00a0\n\n\n$\n26,583\n\u00a0\n\n\n\n\nSupplemental disclosure information\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nCash paid for interest\n\u00a0\n\n\n$\n768\n\u00a0\n\u00a0\n\n\n$\n211\n\u00a0\n\n\n\n\nIncome tax paid\n\u00a0\n\n\n$\n1,748\n\u00a0\n\u00a0\n\n\n$\n1,762\n\u00a0\n\n\n\n\nNon-cash investing and financing activities\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n Equipment obtained by utilizing long-term deposit\n\u00a0\n\n\n$\n237\n\u00a0\n\u00a0\n\n\n$\n322\n\u00a0\n\n\n\n\nAcquisition of Kawkab Venus by utilizing long-term deposit\n\u00a0\n\n\n$\n500\n\u00a0\n\u00a0\n\n\n$\n-\n\u00a0\n\n\n\n\nRight of use assets obtained in exchange for operating lease obligations\n\u00a0\n\n\n$\n191\n\u00a0\n\u00a0\n\n\n$\n1,022\n\u00a0\n\n\n\n\n\u00a0\n\n\nOperating Activities\n\n\n\u00a0\n\n\nNet cash provided by operating activities was approximately $10.8 million\nin fiscal 2023, compared to net cash provided by operating activities of approximately $9.0 million in fiscal 2022. The increase in net\ncash provided by operating activities was primarily attributable to the following factors:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nan increase in inventory of $4.4 million during fiscal 2023, compared to an increase of $3.2 million during fiscal 2022;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\na decrease in accounts receivable of $8.8 million during fiscal 2023, compared to a decrease of $0.8 million in fiscal 2022;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\na decrease in prepaid expenses and other current assets of $0.3 million, compared to an increase of $0.9 million in fiscal 2022;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nan increase in advance to suppliers of $0.2 million, compared to a decrease of $1.7 million in fiscal 2022;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nan increase in accounts payable of $0.9 million during fiscal 2023, compared to a decrease of $3.1 million in fiscal 2022; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\na decrease of net income to $2.4 million during fiscal 2023 from a net income of $7.9 million in fiscal 2022.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n23\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nInvesting Activities\n\n\n\u00a0\n\n\nNet cash used in investing activities was approximately\n$13.8 million and $8.7 million for fiscal 2023 and 2022, respectively. The increase in net cash used in investing activities was mainly\nattributable to (i) the acquisition of Ever Winland and Kawkab Venus, amounting to $5.1 million and $2.2 million, respectively, (ii) $5.1\nmillion of payments for construction in progress, including the building of a dormitory building and an extension in one of our major\nfactory buildings, and (iii) $0.7 million used for the acquisition of plant and machinery.\n\n\n\u00a0\n\n\nFinancing Activities\n\n\n\u00a0\n\n\nNet cash used in financing activities was approximately $4.0 million\nfor fiscal 2023, mainly due to dividend payments of approximately $2.5 million and payments for a share repurchase program of approximately\n$1.2 million this fiscal year. There was a net cash inflow of $3.3 million in fiscal 2022 resulting from the net proceeds of $6.3 million\nin a placement completed in October 2021 and outflows of dividend payments of approximately $2.4 million and repayments of short-term\nloans of approximately $0.6 million.\n\n\n\u00a0\n\n\nStatutory Reserves\n\n\n\u00a0\n\n\nIn accordance with the corporate Law in Jordan,\nJerash Holdings\u2019 subsidiaries in Jordan are required to make appropriations to certain reserve funds, based on net income determined\nin accordance with generally accepted accounting principles of Jordan. Appropriations to the statutory reserve are required to be 10%\nof net income until the reserve is equal to 100% of the entity\u2019s share capital. Jiangmen Treasure Success is required to set aside\n10% of its net income as statutory surplus reserve until such reserve is equal to 50% of its registered capital. These reserves are not\navailable for dividend distribution. The statutory reserve was $410,847 and $379,323 as of March 31, 2023 and 2022, respectively.\n\n\n\u00a0\n\n\nThe following table provides the amount of our\nstatutory reserves, the amount of restricted net assets, consolidated net assets, and the amount of restricted net assets as a percentage\nof consolidated net assets, as of March 31, 2023 and 2022.\n\n\n\u00a0\n\n\n(All amounts, other than percentages, in thousands\nof U.S. dollars)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nAs of March 31,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nStatutory Reserves\n\u00a0\n\n\n$\n411\n\u00a0\n\u00a0\n\n\n$\n379\n\u00a0\n\n\n\n\nTotal Restricted Net Assets\n\u00a0\n\n\n$\n411\n\u00a0\n\u00a0\n\n\n$\n379\n\u00a0\n\n\n\n\nConsolidated Net Assets\n\u00a0\n\n\n$\n68,234\n\u00a0\n\u00a0\n\n\n$\n69,304\n\u00a0\n\n\n\n\nRestricted Net Assets as Percentage of Consolidated Net Assets\n\u00a0\n\n\n\u00a0\n0.60\n%\n\u00a0\n\n\n\u00a0\n0.55\n%\n\n\n\n\n\u00a0\n\n\nTotal restricted net assets accounted for approximately\n0.60% of our consolidated net assets as of March 31, 2023. As our subsidiaries in Jordan are only required to set aside 10% of net profits\nto fund the statutory reserves, we believe the potential impact of such restricted net assets on our liquidity is limited.\n\n\n\u00a0\n\n\nCapital Expenditures\n\n\n\u00a0\n\n\nWe had capital expenditures of approximately $13.8 million and $8.7\nmillion in fiscal 2023 and 2022, respectively. For the year ended March 31, 2023, our capital expenditures included investments in additional\nplant and machinery, the construction of a dormitory and factory expansion, the acquisition of Kawkab Venus, and the acquisition of Ever\nWinland, which totaled approximately $0.7 million, $5.1 million, $2.2 million, and $5.1 million, respectively. For the year ended March\n31, 2022, payments for the construction of a dormitory and factory expansion amounted to $2.1 million, and payments for the acquisition\nof all the share capital of MK Garment was 2.7 million.\n\n\n\u00a0\u00a0\n\n\n\n\n\n\n24\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn 2018, we commenced another project to build\na 54,000 square-foot factory in Al-Hasa County in the Tafilah Governorate of Jordan, which started operation in November\u00a02019 with\napproximately 240 workers. This project was constructed in conjunction with the Jordanian Ministry of Labor and the Jordanian Education\nand Training Department.\n\n\n\u00a0\n\n\nOn August 7, 2019, we completed a transaction to acquire 12,340 square\nmeters (approximately three acres) of land in Al Tajamouat Industrial City, Jordan, from a third party to construct a dormitory for our\nemployees with aggregate purchase price JOD863,800 (approximately $1,218,303). Management has revised the plan to construct both dormitory\nand production facilities on the land in order to capture the increasing demand for our capacity. We are conducting engineering design\nand study on this project with the business growth potential bought about by the new business collaboration with Busana Apparel Group.\nOn February 6, 2020, we completed a transaction to acquire 4,516 square meters (approximately 48,608 square feet) of land in Al Tajamouat\nIndustrial City, Jordan, from a third party to construct a dormitory for our employee with aggregate purchase price JOD313,501 (approximately\n$442,162). We expect to spend approximately $8.2 million in capital expenditures to build the dormitory. Due to the ongoing COVID-19 pandemic,\nmanagement decided to put on hold the construction project in fiscal 2021 to retain financial resources to support our operations, and\nalso to wait and see how the global economy and customer demand recover after the outbreak. The preparation work resumed in early 2021\nand construction work commenced in April 2021. The dormitory is expected to be completed and ready for use in August 2023.\n\n\n\u00a0\n\n\nWe project that there will be an aggregate of\napproximately $2.6 million and $8.5 million of capital expenditures in the fiscal years ending March 31, 2024 and 2025, respectively,\nfor further enhancement of production capacity to meet future sales growth. We expect that our capital expenditures will increase in the\nfuture as our business continues to develop and expand. We have used cash generated from operations of our subsidiaries to fund our capital\ncommitments in the past and anticipate using such funds to fund capital expenditure commitments in the future.\n\n\n\u00a0\n\n\nOff-balance Sheet Commitments and Arrangements\n\n\n\u00a0\n\n\nWe have not entered into any other financial guarantees\nor other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts\nthat are indexed to our own shares and classified as stockholders\u2019 equity, or that are not reflected in our consolidated financial\nstatements.\n\n\n\u00a0\n\n\nFor Management\u2019s Discussion and Analysis\nof the fiscal years ended March 31, 2022 and 2021, please see our Annual Report on Form 10-K for the fiscal year ended March 31, 2022,\nfiled with the SEC on June 27, 2022.\n\n\n\u00a0\n\n\nCritical Accounting Policies and Estimates\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\nWe prepare our financial statements in conformity\nwith accounting principles generally accepted by the United States of America, which require us to make judgments, estimates, and assumptions\nthat affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were\nno material changes made to the accounting estimates and assumptions in the past two years, we continually evaluate these estimates and\nassumptions based on the most recently available information, our own historical experience, and various other assumptions that we believe\nto be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual\nresults could differ from our expectations as a result of changes in our estimates.\n\n\n\u00a0\n\n\nWe believe that certain accounting policies involve\na higher degree of judgment and complexity in their application and require us to make significant accounting estimates. The policies\nthat we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations are\nsummarized in \u201cNote 2\u2014Summary of Significant Accounting Policies\u201d in the notes to our audited financial statements.\n\n\n\u00a0\n\n\nRecent Accounting Pronouncements\n\n\n\u00a0\n\n\nSee \u201cNote 3\u2014Recent Accounting Pronouncements\u201d\nin the notes to our audited financial statements for a discussion of recent accounting pronouncements.\n\n\n\n\n\n\n\u00a0\n\n",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk.\n\n\n\u00a0\n\n\nNot applicable.\n\n\n\u00a0\n\n\n\n\n25\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n",
+  "cik": "1696558",
+  "cusip6": "47632P",
+  "cusip": ["47632P101"],
+  "names": ["JERASH HLDGS US INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1696558/000121390023052460/0001213900-23-052460-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1. BUSINESS\n\n\n\u00a0\n\n\nUnless the context otherwise indicates or requires, all product names\nand trade names used in this Annual Report on Form 10-K (this \u201cAnnual Report\u201d) are the Company\u2019s trademarks, although\nthe \u201c\u00ae\u201d and \u201c\u2122\u201d trademark designations may have been omitted.\n\n\n\u00a0\n\n\nAs used in this Annual Report, the terms \u201cwe,\u201d\n\u201cus,\u201d \u201cour,\u201d \u201cBitNile Metaverse\u201d and the \u201cCompany\u201d mean BitNile Metaverse, Inc., a Nevada\ncorporation and its consolidated subsidiaries, unless otherwise indicated.\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nBitNile Metaverse, Inc. (\u201cBitNile Metaverse\u201d\nor the \u201cCompany\u201d) is a holding company, incorporated in the State of Nevada on November 19, 2007. Through March 31, 2023,\nthe Company\u2019s former wholly owned subsidiaries with the exception of Agora Digital Holdings, Inc., a Nevada corporation (\u201cAgora\u201d)\nand Zest Labs, Inc., a Nevada corporation (\u201cZest Labs\u201d) have been treated for accounting purposes as divested. See below in\nNote 1 \u201cOrganization and Summary of Significant Accounting Policies\u201d and Note 2 \u201cDiscontinued Operations.\u201d As\na result of the divestitures, all assets and liabilities of the former subsidiaries have been reclassified to discontinued operations\non the consolidated balance sheet for March 31, 2022 and all operations of these companies have been reclassified to discontinued operations\nand loss on disposal on the consolidated statements of operations for the year ended March 31, 2023.\n\n\n\u00a0\n\n\nThe Company\u2019s principal subsidiaries consisted\nof (a) BitNile.com, Inc., a Nevada corporation (\u201cBNC\u201d) which includes the platform BitNile.com (the \u201cPlatform\u201d)\nand that was acquired by the Company on March 6, 2023, which transaction has been reflected as an asset purchase, and (b) Ecoark, Inc.,\na Delaware corporation (\u201cEcoark\u201d) that is the parent of Zest Labs and Agora.\n\n\n\u00a0\n\n\nOn June 17, 2022 Agora sold its ownership in Trend\nDiscovery Holdings, LLC to a non-related third party, and currently holds only the assets that remain in Bitstream Mining, LLC, its wholly\nowned subsidiary. In addition, Ecoark sold 100% of Banner Midstream Corp., in two separate transactions. Ecoark sold the oil and gas production\nand service assets to Fortium Holdings Corp. (renamed White River Energy Corp) (\u201cWTRV\u201d) on July 25, 2022, and sold its transportation\nservices assets to Enviro Technologies US, Inc. (renamed Wolf Energy Services, Inc.) (\u201cWolf Energy\u201d) on September 7, 2022.\nFor full details of these transactions, we refer you to the Current Reports on Form 8-K filed with the Securities and Exchange Commission\n(\u201cSEC\u201d) on June 21, 2022, July 29, 2022 and September 12, 2022. We have removed all pertinent information pertaining to the\nTrend Discovery Holdings, LLC, and Banner Midstream Corp operations from this Annual Report, and instead have focused our disclosure solely\non our current operations.\n\n\n\u00a0\n\n\nKey Developments in the Fiscal Year Ended March\n31, 2023\n\n\n\u00a0\n\n\nIn conjunction with the acquisition of BNC on\nMarch 6, 2023, the Company changed its name from Ecoark Holdings, Inc. to BitNile Metaverse, Inc. on March 21, 2023 and its stock ticker\nsymbol was subsequently changed from ZEST to BNMV. Furthermore, in March 2023, the Company experienced a significant change in its business\nmodel as it shifted its focus on the Platform, adapting it to becoming a revenue-generating model and away from the legacy subsidiaries\nAgora and Zest. The Company also achieved or experienced the following key developments during the fiscal year ended March 31, 2023 (\u201cFY\n2023\u201d):\n\n\n\u00a0\n\n\nOn June 8, 2022, the Company entered into a Securities\nPurchase Agreement with Ault Lending, LLC (\u201cAult Lending\u201d), pursuant to which the Company sold Ault Lending 1,200 shares of\nSeries A Convertible Redeemable Preferred Stock, 3,429 shares of Common Stock, and a warrant to purchase shares of Common Stock for a\ntotal purchase price of $12,000,000. The Series A and warrant later incurred multiple amendments in order for the Company to maintain\ncompliance with Nasdaq listing standards.\n\n\n\u00a0\n\n\nIn conjunction with the transaction with Ault\nLending, Company determined it was in the best interests of its shareholders that it divest all of its principal operating assets through\na series of spin-offs or stock dividends to the Company\u2019s shareholders. It intended to do so either by engaging in business combinations\nwith existing public companies which have trading symbols and markets like White River Energy Corp (formerly Fortium Holdings Corp.) (\u201cWTRV\u201d),\nwhich acquired White River Holdings Corp on July 25, 2022, and Wolf Energy Services, Inc. (formerly Enviro Technologies US, Inc.) (\u201cWolf\nEnergy\u201d), which acquired Banner Midstream Corp. on September 7, 2022, or by direct dividends. The Company\u2019s plan was also\ndriven in part by the dividends it must pay to Ault Lending.\n\n\n\u00a0\n\n\nBecause all spin-offs for issuers in our position\nrequire that a registration statement have been declared effective by the SEC, which we have not been able to achieve, the Company did\nnot complete any spin-offs in fiscal year 2023. The Company has decided to leave Agora in the Company and to not proceed with the spin-off\nof this entity, as Agora\u2019s hosting business model has potential synergies that could be achieved with the BNC acquisition. The Company\nintends to transfer all of the common stock of Zest Labs into Zest Labs Holdings LLC (\u201cZest Holdings\u201d), a private limited\nliability company the Company formed and that will own all of the intellectual property of Zest Labs as well as the rights to any funds\nobtained from current and future intellectual property litigation by Zest Labs. The Company also amended the Zest Labs charter to require\nthat it distribute at least 95% of the net proceeds of the pending Zest Labs litigation recoveries, if any, to the Company\u2019s shareholders\nas of November 15, 2022. Additionally, net proceeds from the sale or licensing of Zest Labs intellectual property are intended to be distributed\nto shareholders of record as of November 15, 2022.\n\n\n\u00a0\n\n\n\n\n\n\n1\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOn June 16, 2022, Agora entered into a Membership\nInterest Purchase Agreement with Trend Ventures, LP, pursuant to which Agora sold all of its outstanding membership interests of Trend\nDiscovery Holdings, LLC, a wholly owned subsidiary of Agora to the purchaser in exchange for a $4.25 million senior secured promissory\nnote issued by the purchaser to Agora.\n\n\n\u00a0\n\n\nOn July 25, 2022, the Company entered into a Share\nExchange Agreement with WTRV and White River Holdings Corp, an indirect wholly owned subsidiary of the Company. The Company transferred\nto WTRV 100% of the issued and outstanding shares of White River Holdings capital stock in exchange for 1,200 shares of WTRV\u2019s newly\ndesignated non-voting Series A Convertible Preferred Stock. Subject to certain terms and conditions set forth in the Certificate of Designation\nof the Series A, the Series A will become convertible into 42,253,521 shares of WTRV\u2019s common stock upon such time as WTRV has registered\nthe underlying shares through a Form S-1. Upon effectiveness of the Form S-1, the Company intends to distribute 100% of the shares of\nWTRV to the Company\u2019s shareholders of record as of September 30, 2022.\n\n\n\u00a0\n\n\nOn August 23, 2022, the Company entered into a\nShare Exchange Agreement with Wolf Energy and Banner Midstream Corp., a wholly owned subsidiary of the Company. The Company acquired 51,987,832\nshares of Wolf Energy common stock in exchange for all of the capital stock of Banner Midstream owned by Wolf Energy. Upon effectiveness\nof the Form S-1, the Company intends to distribute 100% of the shares of Wolf Energy to the Company\u2019s shareholders of record as\nof September 30, 2022.\n\n\n\u00a0\n\n\nOn December 7, 2022, Agora entered into a Master\nServices Agreement (\u201cMSA\u201d) with BitNile, Inc., a Nevada corporation and wholly owned subsidiary of Ault Alliance, Inc. (\u201cAAI\u201d),\ngoverning the relationship between the parties and the services provided by Agora to the Company, which include providing the Company\nwith digital assert mining hosting services in exchange for a monthly fee to be set out in applicable service orders. The terms of that\nMSA have not been met due to lack of capital by the Company to bring its 12MW of hosting power online.\n\n\n\u00a0\n\n\nOn January 11, 2023, the Company made the decision\nto withdraw Agora\u2019s S-1 registration statement for an initial public offering, due to market conditions as well as numerous regulatory\ndelays with respect to factors beyond the Company\u2019s control related to accounting for the nascent industry of Bitcoin mining.\n\n\n\u00a0\n\n\nOn January 24, 2023, the Company entered into an At-The-Market Issuance\nSales Agreement (\u201cATM\u201d) with Ascendiant Capital Markets, LLC (\u201cAscendiant\u201d), pursuant to which the Company could\nissue and sell from time to time, through Ascendiant, shares of the Company\u2019s common stock with offering proceeds of up to $3,500,000.\nThe purpose of the ATM was to ensure sufficient liquidity for the Company to continue as a going concern. Upon the sale of approximately\n$3,500,000 through the ATM, the Company terminated the ATM in June 2023.\n\n\n\u00a0\n\n\nOn March 6, 2023, the Company entered into an\nAmendment to the Share Exchange Agreement dated as of February 8, 2023 by and among AAI, the owner of approximately 86% of BNC, as well\nas certain individuals employed by AAI, providing for the acquisition of all of the outstanding shares of capital stock of BNC, in exchange\nfor (i) 8,637.5 shares of newly designated Series B Convertible Preferred Stock of the Company issued to AAI, and (ii) 1,362.5 shares\nof newly designated Series C Convertible Preferred Stock of the Company to be issued to the individuals employed by AAI. The Company accounted\nfor this transaction as an asset purchase.\n\n\n\u00a0\n\n\nDescription of Business\n\n\n\u00a0\n\n\nBitnile.com, Inc.\n\n\n\u00a0\n\n\nOverview \n\n\n\u00a0\n\n\nBitNile.com, Inc. (\u201cBNC\u201d) is in the\nembryonic stage of development yet represents a significant development in the online metaverse landscape, offering immersive, interconnected\ndigital experiences that are engaging, and dynamic. By integrating various elements such as virtual markets, real world goods marketplaces,\ngaming, social activities, sweepstakes, and more, BNC aims to revolutionize the way people interact online. BNC\u2019s rapidly growing\nvirtual world, BitNile.com (the \u201cPlatform\u201d) is accessible via almost any device using a web browser, does not require permissions,\ndownloads or apps, and the Platform can be enjoyed without the need for bulky and costly virtual reality headsets.\n\n\n\u00a0\n\n\nBNC\u2019s business strategy revolves around\ncreating a seamless, all-encompassing platform that caters to various user needs and interests. The Platform\u2019s strategic pillars\ninclude: (i) leveraging cutting edge technology to offer a user-friendly, browser-based platform compatible with Virtual Reality (\u201cVR\u201d)\nheadsets and other modern devices for an enhanced experience; (ii) providing a diverse range of products and experiences that caters to\nusers with different interests and preferences; (iii) fostering global connections and a sense of community among users, encouraging socialization\nand collaboration; and (iv) focusing on continuous innovation to stay ahead of industry trends and customer expectations.\n\n\n\u00a0\n\n\n\n\n\n\n2\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCustomers\n\n\n\u00a0\n\n\nBNC targets a broad audience, including: (i) tech-savvy\nindividuals seeking immersive digital experiences; (ii) gamers of all skill levels interested in a diverse array of gaming options; (iii)\ncollectors and traders of digital assets, such as virtual real estate, digital art, and unique collectibles; (iv) shoppers seeking a convenient,\nintuitive platform for purchasing real world goods; (v) users seeking either social interaction and global connectivity in a virtual environment\nor an immersive shopping experience that allows real world shopping in a virtual environment; (vi) creators of virtual spaces within our\nvirtual online environment; and (vii) business owners and marketers seeking to have an online presence with a 3D virtual online environment.\n\n\n\u00a0\n\n\nTech-savvy Individuals\n\n\n\u00a0\n\n\nTech-savvy individuals are drawn to BNC due to\nits innovative, cutting-edge technology and immersive virtual experiences. These users are likely to engage with the Platform\u2019s\nvirtual markets, trading digital assets like virtual real estate, world and personal space design, digital art and unique collectibles.\nThey may also be early adopters of VR headsets, using them to explore the metaverse and interact with other users in social hubs.\n\n\n\u00a0\n\n\nGamers of All Skill Levels\n\n\n\u00a0\n\n\nBNC attracts gamers through its wide range\nof gaming options, providing a diverse and comprehensive selection. The platform offers sweepstakes gaming experiences, allowing gamers\nto enter contests and compete against fellow players for both virtual and real money prizes. By participating in sweepstakes games, gamers\ncan assess and demonstrate their skills in comparison to others. Additionally, BNC facilitates social gaming experiences, enabling users\nto engage with one another while playing single player games equipped with chat features. The platform also plans to introduce casual\nand multiplayer games, fostering collaboration and communication among gamers who seek a shared gaming experience. Competitive gamers\nhave the opportunity to exhibit their abilities by engaging in contests of skill, which provide a platform for earning recognition and\nwinning prizes.\n\n\n\u00a0\n\n\nCollectors and Traders of Digital Assets\n\n\n\u00a0\n\n\nBNC\u2019s virtual markets cater to users interested in collecting,\ntrading, and investing in digital assets. These users will be able to interact with the Platform\u2019s offerings by buying, selling,\nand trading digital assets, such as virtual real estate, digital character skins, digital art, and unique collectibles; exploring and\nengaging with the digital art galleries and museums featured in the metaverse, and attending virtual events and auctions for exclusive\ndigital asset releases and limited-edition collectibles.\n\n\n\u00a0\n\n\nShoppers Seeking Real world Goods\n\n\n\u00a0\n\n\nUsers looking for a convenient, intuitive platform\nto purchase real world goods can explore BNC\u2019s real world goods marketplaces, which will offer a diverse range of products. These\nusers can browse and purchase items from categories such as fashion, electronics, travel, and home goods; interact with virtual showrooms\nand product demonstrations to gain a better understanding of the products they\u2019re interested in, and participate in virtual events,\nsales, and promotions to discover new products and take advantage of special offers.\n\n\n\u00a0\n\n\nSocial Seekers and Global Connectors\n\n\n\u00a0\n\n\nBNC is anticipates it will attract users who prioritize social interaction\nand global connectivity within a virtual environment. Our future plans involve offering multiple avenues through which users can engage\nwith the platform's offerings. This includes participating in diverse social hubs, facilitating the opportunity to meet and interact with\nindividuals from around the world. Users will have the ability to collaborate on projects, exchange ideas, and forge new friendships within\nthe metaverse. Additionally, they will have the freedom to build and personalize private spaces, allowing them to host virtual gatherings,\nparties, or events for their friends and online communities. Furthermore, users can look forward to attending virtual events, concerts,\nand conferences, providing them with opportunities to connect with like-minded individuals who share their interests and passions.\n\n\n\u00a0\n\n\nBy understanding its target customers and the\nways in which they interact with BNC\u2019s various products and experiences, the Platform can effectively tailor its offerings to meet\nthe needs and preferences of its diverse user base.\n\n\n\u00a0\n\n\n\n\n\n\n3\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nProducts\n\n\n\u00a0\n\n\nBNC intends to offer an extensive range of products\nand experiences designed to cater to a diverse audience with varied interests and preferences. By providing a comprehensive suite of offerings,\nthe Platform aims to attract and engage users, creating a vibrant and dynamic metaverse environment. The following is an expanded list\nof BNC\u2019s current and planned products and experiences, most of which remain in development:\n\n\n\u00a0\n\n\n\n\n\u25cf\nVirtual markets:\n Facilitating the trading\nof digital assets like digital skins, a graphic download that changes the appearance of characters in video games, for avatar customization\nin virtual real estate, digital art, and unique collectibles, enabling users to participate in a digital economy;\n\n\n\u00a0\n\n\n\n\n\u25cf\nReal world goods marketplaces:\n Offering\na platform for users to shop for a diverse range of real world products, including fashion, electronics, and home goods, connecting the\nvirtual and physical worlds;\n\n\n\u00a0\n\n\n\n\n\u25cf\nGaming:\n Providing an extensive selection\nof gaming options for users of all skill levels, including participation in games, sweepstakes, and social gaming experiences;\n\n\n\u00a0\n\n\n\n\n\u25cf\nSweepstakes gaming:\n Featuring a dedicated\ngaming zone for users to engage in sweepstakes gaming, with opportunities to win both virtual and real money prizes;\n\n\n\u00a0\n\n\n\n\n\u25cf\nContests of skill:\n Organizing competitions\nfor users to showcase their talents and compete against others for prizes and recognition in various disciplines;\n\n\n\u00a0\n\n\n\n\n\u25cf\nBuilding private spaces:\n Allowing users\nto construct and customize their dream homes or private spaces, tailoring their environments with an array of design options and sharing\ntheir creations with others or keeping them as personal retreats;\n\n\n\u00a0\n\n\n\n\n\u25cf\nSocialization and connectivity:\n Fostering\nglobal connections by enabling users to interact with individuals from around the world, forming new friendships, collaborating on projects,\nor engaging in conversations within various social hubs; and\n\n\n\u00a0\n\n\n\n\n\u25cf\nReal and virtual concerts:\n Hosting live\nand virtual concerts within the metaverse, featuring performances from both real world and virtual artists, allowing users to attend and\nenjoy shows in an immersive environment.\n\n\n\u00a0\n\n\nBy planning to offer a diverse and comprehensive\nrange of products and experiences, BNC aims to create a vibrant and engaging metaverse platform that appeals to users with a wide array\nof interests and preferences.\n\n\n\u00a0\n\n\nIndustry\n\n\n\u00a0\n\n\nThe metaverse industry is experiencing rapid growth\nand expansion, driven by advances in technology, increased interest in virtual experiences, and the rise of digital economies. Key trends\ninclude: the integration of virtual and physical worlds; the integration of artificial intelligence (\u201cAI\u201d) and machine learning\nin virtual environments; VR and Augmented Reality (\u201cAR\u201d) technologies that are becoming more accessible and affordable, enabling\na wider audience to engage with the metaverse; the rise of virtual concerts, events, and conferences within the metaverse, providing new\nopportunities for entertainment and networking; the emergence of virtual economies and markets; and the growing importance of socialization\nand community-building in digital spaces.\n\n\n\u00a0\n\n\n\n\n\n\n4\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nUser Adoption and Growth\n\n\n\u00a0\n\n\nThe growing popularity of virtual experiences\nand digital platforms has led to a surge in user adoption and engagement in the metaverse industry. A number of factors contribute to\nthis growth, including: increased accessibility of VR and AR technologies, making immersive experiences more affordable and widely available;\nthe ongoing digitization of various aspects of everyday life, from work and education to entertainment and socialization, which drives\nusers to seek out new digital experiences; the COVID-19 pandemic, which accelerated the adoption of digital platforms and virtual experiences\nas people adapted to remote work, learning, and social distancing measures; greater connectivity and high-speed internet accessibility,\nrapid technological advancements and improved infrastructure, which have led to more people being able to access the metaverse and other\nvirtual environments, thereby bolstering engagement and participation; the development of innovative gaming and entertainment experiences\nfor whom the metaverse provides a platform for unique, immersive experiences that surpass traditional digital games or entertainment,\ncontributing to its escalating popularity; and growth in ecommerce and digital business opportunities. Management believes that the metaverse\noffers a new domain for businesses to engage with consumers, driving its adoption in various sectors, including retail, real estate, and\nmarketing.\n\n\n\u00a0\n\n\nIntegration of Virtual and Physical Worlds\n\n\n\u00a0\n\n\nOne of the key trends in the metaverse industry\nis the growing integration of virtual and physical worlds, enabling users to seamlessly transition between digital and real-world experiences.\nThis trend is evident in: (i) the emergence of virtual marketplaces where users can trade digital assets and purchase real world goods;\n(ii) the incorporation of AR and VR technologies in retail, entertainment, and other industries, providing immersive, interactive experiences\nthat blur the lines between the digital and physical realms; (iii) the development of virtual environments that replicate real world locations,\nallowing users to explore and interact with digital versions of familiar places; and (iv) the integration of virtual and physical realms\nin the metaverse presents new opportunities for businesses to reach and engage with their target audiences in both spaces.\n\n\n\u00a0\n\n\nVirtual Economies and Markets\n\n\n\u00a0\n\n\nThe metaverse industry is witnessing the rise\nof virtual economies and markets, where users can trade digital assets, such as virtual real estate, digital art, and unique collectibles.\nKey factors driving this trend include: development of cryptocurrencies and blockchain technology, enabling transparent transactions in\ndigital markets; growing interest in non-fungible tokens (\u201cNFTs\u201d) and digital collectibles, which has led to the creation\nof new marketplaces and trading platforms for these assets; the realization of the potential for virtual goods to hold and accrue value\nover time; expanding opportunities for creative expression and entrepreneurship within the metaverse, incentivizing users to participate\nin virtual economies and trade digital assets; increasing global connectivity and internet penetration, enabling a larger user base to\nengage in virtual economies and markets, and collaborations between established brands and the metaverse industry, introducing real-world\nbusinesses and their customer bases to virtual economies and markets.\n\n\n\u00a0\n\n\nSocialization and Community Building in Digital\nSpaces\n\n\n\u00a0\n\n\nThe importance of socialization and community\nbuilding in digital spaces is another significant trend in the metaverse industry. As users spend more time in virtual environments, platforms\nare placing a greater emphasis on fostering connections and interactions among users. This trend can be observed in: the creation of social\nhubs, virtual events, and gatherings designed to bring users together and encourage networking, collaboration, and communication; the\nintegration of social media and messaging features within metaverse platforms, allowing users to stay connected with friends and communities\nwhile exploring virtual worlds; the development of user-generated content and customization tools, empowering users to create unique experiences\nand contribute to the growth and expansion of the metaverse; implementation of voice and video chat and real-time communication features,\nenhancing the sense of presence and fostering more immersive social experiences in virtual environments; collaboration between brands,\ninfluencers, and metaverse platforms to host virtual events, concerts, and exhibitions, creating shared experiences and strengthening\ncommunity bonds and virtual education and learning communities, providing opportunities for knowledge sharing, skill development, and\ncollaborative learning in the metaverse.\n\n\n\u00a0\n\n\nThe metaverse industry is experiencing rapid growth\nand transformation, driven by, among other factors, technological advancements, increased user adoption, and the emergence of virtual\neconomies and markets. As the industry continues to evolve, it will be essential that BNC stay informed of key trends and driving forces\nshaping the future of the metaverse landscape and adapt to those trends as they arise.\n\n\n\u00a0\n\n\nBusiness Operations\n\n\n\u00a0\n\n\nBNC\u2019s focuses on delivering a comprehensive,\nimmersive, and interconnected metaverse experience. To achieve this, management has identified several core strategic initiatives that\nwill guide the Platform\u2019s growth and development.\n\n\n\u00a0\n\n\nTechnological Innovation and User Experience\n\n\n\n\u00a0\n\n\nBNC places a strong emphasis on leveraging technology\nto create a user-friendly experience. By offering a browser-based platform that is compatible with VR headsets and other modern devices,\nBNC aims to ensure accessibility and convenience for users across various platforms. BNC intends to continuously invest in research and\ndevelopment to aim to stay at the forefront of technological advancements in the metaverse space, and work to ensure that users enjoy\nan unparalleled experience.\n\n\n\u00a0\n\n\n\n\n\n\n5\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nDiversification and Personalization\n\n\n\u00a0\n\n\nBNC\u2019s strategy focuses on providing a diverse\nrange of products and experiences that caters to users with different interests and preferences. By planning to offer a wide variety of\nactivities, from virtual markets and real world goods marketplaces to gaming and tournaments, social interaction, world building, and\nlive and virtual events, the Platform aims to attract a broad user base and promote user engagement. Additionally, BNC intends to emphasize\npersonalization, allowing users to customize their experiences and tailor the Platform to suit their particular needs and tastes.\n\n\n\u00a0\n\n\nCommunity Building and Global Connections\n\n\n\u00a0\n\n\nBNC recognizes the importance of fostering a strong\nsense of community and global connectivity among the Platform\u2019s users. BNC intends to implement various features and initiatives\ndesigned to encourage socialization, collaboration, and networking among users from around the world. This will include the creation of\nsocial hubs, support for user-generated content, teams and communities, and the promotion of events and activities that bring users together.\n\n\n\u00a0\n\n\nMonetization and Revenue Generation\n\n\n\u00a0\n\n\nBNC\u2019s business strategy includes developing\ndiverse revenue streams to help ensure the Platform\u2019s long-term sustainability and growth. Potential monetization strategies include\ncharging fees for premium features, from sales and transactions on virtual markets and real world goods marketplaces, social sweepstakes\ngaming, real and virtual concerts and events, third party vendors and creators, and offering advertising opportunities for brands within\nthe metaverse. Additionally, the Platform will explore partnerships and collaborations with other businesses and organizations to create\nnew revenue-generating opportunities.\n\n\n\u00a0\n\n\nCompliance and Regulatory Management\n\n\n\u00a0\n\n\nTo navigate the complex and evolving regulatory\nlandscape, BNC will prioritize compliance with relevant laws and regulations in all jurisdictions where it operates. This includes data\nprivacy and protection regulations, gaming, gambling, and sweepstakes regulations, and intellectual property rights. By maintaining a\nstrong focus on regulatory compliance, BNC aims to minimize potential legal risks and build trust with users and partners.\n\n\n\u00a0\n\n\nContinuous Improvement and Adaptability\n\n\n\u00a0\n\n\nFinally, BNC\u2019s business strategy emphasizes\nthe importance of continuously evaluating and refining its offerings in response to changing market trends and user preferences. The Platform\nplans to actively seek user feedback and monitor industry developments to inform its ongoing product development and feature enhancements.\nThis adaptability will, in management\u2019s opinion, allow BNC to maintain its competitive edge and continue delivering a compelling\nmetaverse experience for users.\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nBNC faces competition from existing metaverse\nplatforms and new entrants, where its key competitors include: established metaverse platforms, such as Decentraland, The Sandbox, and\nSecond Life, as well as companies that focus on the development of metaverse tools and platforms such as META (formerly known as Facebook);\ngaming-focused platforms, like Fortnite and Roblox; mixed reality platforms, like Microsoft Mesh, and social media platforms that integrate\nmetaverse elements, such as META\u2019s Horizon platform. Should our Platform gain widespread adoption, future competition may arise\nfrom additional competitors, including tech giants such as Apple, Google, or Amazon, which have the resources and infrastructure to develop\ntheir own metaverse platforms and ecosystems.\n\n\n\u00a0\n\n\nMarket Segments and Niches\n\n\n\u00a0\n\n\nThe metaverse industry can be broadly divided\ninto several market segments and niches, each catering to different user needs and preferences: (i) gaming-focused metaverse platforms,\nsuch as Fortnite and Roblox, primarily cater to gamers and offer a wide range of gaming experiences and social interaction opportunities\nwithin virtual environments; (ii) in terms of VR and AR platforms, companies like META and Microsoft focus on developing hardware and\nsoftware solutions to enable immersive VR and AR experiences, driving the adoption of these technologies in the metaverse; (iii) social\nand community-driven metaverse platforms like Second Life and BNC emphasize socialization, community building, and user-generated content,\nfostering connections and collaboration among users; and (iv) NFT and digital asset marketplaces, where these platforms, such as OpenSea\nand Decentraland, facilitate the trading of digital assets like virtual real estate, digital art, and unique collectibles, and thereby\ncontribute to the growth of virtual economies. Meanwhile, hardware and platform developers, including Nvidia and Unity, serve as technology\nproviders for numerous companies aiming to penetrate the metaverse market. Additionally, they are actively engaged in the development\nof their own metaverse platforms.\n\n\n\u00a0\n\n\n\n\n\n\n6\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nDifferentiating Factors\n\n\n\u00a0\n\n\nWith the increasing competition in the metaverse\nindustry, it is crucial for BNC to differentiate itself by offering compelling features, experiences, or technologies. Some potential\ndifferentiating factors include:\n\n\n\u00a0\n\n\n\n\n\u25cf\nInnovative and user-friendly technology:\n\nBNC prioritizes cutting-edge technology in an effort to deliver a seamless, intuitive user experience that we believe will have a competitive\nedge in the metaverse market;\n\n\n\u00a0\n\n\n\n\n\u25cf\nPersonalization and customization\n: BNC\nwill empower users to create and customize their own experiences, environments, and avatars allowing us to appeal to a broader audience\nand foster greater user engagement; \n\n\n\u00a0\n\n\n\n\n\u25cf\nDiverse offerings and experiences:\n BNC\nwill cater to a wide range of interests and preferences, such as gaming, shopping, socializing, and trading digital assets, that can attract\na more extensive and diverse user base;\n\n\n\u00a0\n\n\n\n\n\u25cf\nInteroperability:\n BNC supports interoperability,\nenabling users to carry their assets, identities, and experiences across multiple virtual environments seamlessly using almost any modern\nbrowser, on a device that supports those browsers \u201cthis includes IOS, Android, PC, Consoles and more\u201d; and\n\n\n\u00a0\n\n\n\n\n\u25cf\nEconomic opportunities:\n BNC provides users\nwith the ability to earn real-world value through virtual activities, such as owning virtual real estate or digital assets, and competitions\nwith real world rewards.\n\n\n\u00a0\n\n\nThe metaverse industry is characterized by a competitive\nlandscape with numerous users, market segments, and niches. To succeed in this rapidly evolving market, BNC must continuously innovate\nand differentiate itself, by offering unique features, experiences, and technologies that cater to the diverse needs and preferences of\nusers.\n\n\n\u00a0\n\n\nRegulatory Environment\n\n\n\u00a0\n\n\nBNC operates within a complex and evolving regulatory\nlandscape, with key considerations including: data privacy and protection regulations, such as the General Data Protection Regulation\n(\u201cGDPR\u201d) and the California Consumer Privacy Act (\u201cCCPA\u201d); compliance with gaming, gambling, and sweepstakes regulations\nin various jurisdictions; and intellectual property rights and digital asset ownership.\n\n\n\u00a0\n\n\nBNC intends to offer a transformative digital\nexperience by combining elements of virtual markets, real world goods marketplaces, gaming, social activities, world and personal spaces\nbuilding, and sweepstakes gaming. We believe this unique integration will establish the Platform as a pioneer in the metaverse industry,\ncatering to diverse user interests and needs. We believe that as the industry evolves and expands, BNC\u2019s commitment to providing\nimmersive and interconnected digital experiences will place it at the forefront of the metaverse revolution. By continuously innovating\nand adapting to the ever-changing digital landscape, BNC aims to offer limitless possibilities and opportunities for users, setting the\nstage for a truly inclusive and dynamic metaverse.\n\n\n\u00a0\n\n\nAs the metaverse industry continues to grow and\nevolve, regulatory challenges and considerations are becoming increasingly important and additional or changing regulations may increase\nBNC\u2019s costs. The unique nature of the metaverse, which often combines elements of virtual reality, gaming, social networking, and\ndigital economies, presents a complex landscape for regulators to navigate.\n\n\n\u00a0\n\n\nPresent Regulatory Challenges\n\n\n\u00a0\n\n\nThe metaverse industry is currently grappling\nwith several regulatory challenges, including:\n\n\n\u00a0\n\n\n\n\n\u25cf\nData Privacy and Security:\n As users share\npersonal information and engage in transactions within the metaverse, concerns about data privacy and security are paramount. Regulators\nmust ensure that platforms adhere to existing data protection regulations, such as GDPR and the CCPA;\n\n\n\u00a0\n\n\n\n\n\n\n7\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nIntellectual Property Rights:\n The metaverse\u2019s\nreliance on user-generated content and digital assets raises questions about intellectual property rights and the enforcement of copyright,\ntrademark, and patent laws in virtual environments;\n\n\n\u00a0\n\n\n\n\n\u25cf\nTaxation and Financial Regulations:\n The\ngrowth of virtual economies and the increasing popularity of cryptocurrencies and NFTs have raised questions about taxation and financial\nregulations. Regulators must determine how to classify and tax digital assets and transactions, as well as ensure compliance with anti-money\nlaundering and know-your-customer regulations; and\n\n\n\u00a0\n\n\n\n\n\u25cf\nContent Moderation and Liability\n: Metaverse\nplatforms face challenges in moderating content and managing user behavior, raising questions about the platforms\u2019 liability for\nuser-generated content and potential violations of existing laws, such as those related to hate speech, harassment, and misinformation.\n\n\n\u00a0\n\n\nFuture Regulatory Challenges\n\n\n\u00a0\n\n\nAs the metaverse industry continues to develop\nand expand, several future regulatory challenges are likely to emerge, including:\n\n\n\u00a0\n\n\n\n\n\u25cf\nCross-border jurisdictional issues:\n With\nthe metaverse being a global, borderless environment, determining jurisdiction and applying national laws to activities and transactions\nwithin the metaverse will become increasingly complex;\n\n\n\u00a0\n\n\n\n\n\u25cf\nVirtual reality and augmented reality regulations:\n\nAs VR and AR technologies become more integrated into the metaverse, new regulations may be needed to address issues related to safety,\nprivacy, and ethical considerations in the use of these technologies;\n\n\n\u00a0\n\n\n\n\n\u25cf\nDecentralization and governance:\n The increasing\ntrend towards decentralized metaverse platforms raises questions about governance and regulatory oversight, as traditional regulatory\nmechanisms may not be applicable or effective in these environments;\n\n\n\u00a0\n\n\n\n\n\u25cf\nEthics and inclusivity:\n As the metaverse\nbecomes more intertwined with daily life, ethical considerations related to inclusivity, accessibility, and the potential for digital\ndivides will become increasingly important for regulators to address;\n\n\n\u00a0\n\n\n\n\n\u25cf\nAI Ethics:\n As artificial intelligence\nis likely to play a significant role in the functioning and moderation of the metaverse, regulating AI ethics will be critical. This includes\npreventing algorithmic bias, ensuring transparency in AI decision-making, and protecting against harmful AI behavior; and\n\n\n\u00a0\n\n\n\n\n\u25cf\nDigital Identity:\n Managing and protecting\nthe identities of individuals in the metaverse could be a complex issue. It will be critical to balance anonymity and freedom of expression\nwith the need for accountability to prevent malicious behavior.\n\n\n\u00a0\n\n\nGlossary of Terms \n\n\n\u00a0\n\n\nVirtual Reality: \nVirtual Reality (VR) refers\nto a computer-generated simulation or environment that can be experienced and interacted with using specialized hardware, such as headsets\nor gloves. It immerses users in a digital world that can replicate real-world or fantastical settings, providing a sense of presence and\nallowing for realistic, interactive experiences.\n\n\n\u00a0\n\n\n\n\n\n\n8\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nMetaverse Industry: \nThe metaverse industry\nrefers to the collective ecosystem of companies, technologies, and platforms involved in creating and developing the metaverse. The metaverse\nis a virtual universe or interconnected network of digital spaces where users can interact with each other and digital objects in real\ntime. It aims to provide a shared, immersive, and persistent digital environment that transcends traditional online experiences.\n\n\n\u00a0\n\n\nDigital Economies: \nDigital economies refer\nto the virtual economies that exist within online platforms, games, or virtual worlds. They involve the exchange of digital goods, services,\nor currencies, which can have real-world value. In these economies, users can engage in various economic activities, such as buying and\nselling virtual items, earning virtual currencies, or participating in virtual marketplaces.\n\n\n\u00a0\n\n\nAugmented Reality: \nAugmented Reality (\u201cAR\u201d)\nis a technology that overlays digital information or virtual elements onto the real-world environment. AR enhances the user's perception\nof the physical world by integrating computer-generated graphics, sounds, or other sensory inputs into their view, typically through the\nuse of smartphones, tablets, or AR glasses. It blends virtual content with the real world, providing an interactive and enriched experience.\n\n\n\u00a0\n\n\nMixed Reality: \nMixed Reality (\u201cMR\u201d)\nrefers to the merging of real-world and virtual elements to create new environments and visualizations where physical and digital objects\ncoexist and interact in real time. MR combines elements of both virtual reality and augmented reality, allowing users to experience and\nmanipulate virtual objects within their physical surroundings. It enables a seamless integration of the real and virtual worlds, enhancing\nthe user's perception and interactions.\n\n\n\u00a0\n\n\nDigital Character Skins: \nDigital character\nskins are virtual cosmetic items or appearances that can be applied to a character or avatar in a video game, virtual world, or online\nplatform. These skins are purely aesthetic and do not affect gameplay mechanics. They allow users to customize the visual appearance of\ntheir digital persona, often offering unique designs, costumes, or visual effects that can be acquired or purchased within the virtual\nenvironment.\n\n\n\u00a0\n\n\nNon-Fungible Tokens: \nNon-Fungible Tokens\n(\u201cNFTs\u201d) are digital assets that represent ownership or proof of authenticity of a unique item or piece of content. Unlike\ncryptocurrencies such as Bitcoin, which are fungible and interchangeable, NFTs are distinct and indivisible. They are typically based\non blockchain technology, providing a transparent way to verify ownership and track the provenance of digital assets, such as artwork,\ncollectibles, virtual real estate, or in-game items. NFTs have gained popularity for their potential to revolutionize digital ownership\nand enable creators to monetize their digital creations.\n\n\n\u00a0\n\n\nAI (Artificial Intelligence): \nArtificial\nIntelligence refers to the development of computer systems that can perform tasks that typically require human intelligence. AI involves\nthe creation of algorithms and models that enable machines to perceive, reason, learn, and make decisions or predictions based on data.\nIt encompasses various subfields such as machine learning, natural language processing, computer vision, and robotics. AI aims to replicate\nor augment human intelligence to solve complex problems, automate processes, and improve efficiency across different domains.\n\n\n\u00a0\n\n\nMachine Learning: \nMachine Learning is a\nsubset of AI that focuses on developing algorithms and models that enable computers to learn from data and make predictions or decisions\nwithout being explicitly programmed. ML algorithms learn patterns, relationships, and insights from training data, allowing them to generalize\nand make predictions or take actions on new, unseen data. It involves techniques such as supervised learning, unsupervised learning, and\nreinforcement learning. Machine learning has applications in various fields, including image recognition, natural language processing,\nrecommendation systems, and predictive analytics.\n\n\n\u00a0\n\n\n\n\n\n\n9\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nDigital Identity:\n Digital identity refers\nto the online representation of an individual or entity within digital systems or platforms. It encompasses the collection of personal\ninformation, attributes, and credentials that uniquely identify an individual in the digital realm. Digital identity can include various\nelements, such as usernames, passwords, biometric data, email addresses, and social media profiles. It plays a crucial role in online\nauthentication, access control, and personalized experiences across a range of digital services, including social media, e-commerce, banking,\nand government platforms. Digital identity management involves the secure and responsible handling of personal information to ensure privacy\nand protect against identity theft or misuse.\n\n\n\u00a0\n\n\nCorporate Information\n\n\n\u00a0\n\n\nBNC was incorporated\nin Nevada on January 9, 2023. BNC\u2019s principal executive offices are located at 303 Pearl Parkway Suite 200,\u00a0San Antonio,\u00a0TX\u00a078215,\nand our telephone number is (800)\u00a0762-7293. As of March 31, 2023, BNC had 17 employees, including ten full-time employees.\n\n\n\u00a0\n\n\nBNC\u2019s\u00a0website\u00a0address\nis www.bitnile.com. BNC\u2019s website and the information contained on, or that can be accessed through, that website will not be deemed\nto be incorporated by reference in and are not considered part of this Annual Report.\n\n\n\u00a0\n\n\nAgora\n\n\n\u00a0\n\n\nFollowing the Company\u2019s sale of Trend Holdings,\nAgora\u2019s only operating subsidiary, Bitstream, engages in the hosting of digital asset miners for the mining of Bitcoin.\n\n\n\u00a0\n\n\nBitstream\n\n\n\u00a0\n\n\nBitstream was originally organized to be our Bitcoin mining subsidiary.\nDue to regulatory challenges and delays with its planned initial public offering, Bitstream transitioned its business model from digital\nasset mining to hosting. Bitstream also divested all Bitcoin holdings. Bitstream entered into the aforementioned MSA with BitNile Inc.\nbut due to limited capital has not been able to fulfill the terms of that MSA. The Company is devoting the majority of its capital going\nforward to its core business of the Platform and is not confident that Bitstream will become a viable hosting company in the future.\n\n\n\u00a0\n\n\nZest Labs\n\n\n\u00a0\n\n\nThrough its wholly owned subsidiary Zest, the\nCompany has developed intellectual property that can offer freshness management solutions for fresh food growers, suppliers, processors,\ndistributors, grocers and restaurants. The Company idled Zest\u2019s operations in conjunction with litigation that was filed against\nWalmart and Deloitte for trade secret violations; the action against Deloitte was subsequently dismissed. In lieu of conducting operations\nin Zest, the Company is actively pursuing various licensing or sale opportunities of its intellectual property. As previously noted, the\nCompany intends to transfer all of the common stock of Zest into Zest Holdings, which will own all of the intellectual property of Zest\nas well as the rights to any current and future intellectual property litigation by Zest.\n\n\n\u00a0\n\n\n\n\n\n\n10\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCompetition \n\n\n\u00a0\n\n\nThe Company faces intense competition with respect\nto its products and services in all markets in which it operates.\n\n\n\u00a0\n\n\nFor a discussion on BNC competition see Business\nOverview for BNC above.\n\n\n\u00a0\n\n\nSales and Marketing\n\n\n\u00a0\n\n\nThrough the Platform, the Company intends to generate\nrevenues through the sale of tokens or coins that provide the end user with interactive entertainment (game play) and durable goods principally\nfor the PC and mobile platforms.\n\n\n\u00a0\n\n\nIn fiscal year 2023, Bitstream changed its business\nmodel from digital asset mining to digital asset hosting. Bitstream has generated no revenue during 2023.\n\n\n\u00a0\n\n\nGovernment Regulations\n\n\n\u00a0\n\n\nSet forth below is an overview of the government\nregulations we presently face or could face as a result of our current and planned operations. As the regulatory and legal environment\nevolves, we may become subject to new laws, such as further regulation by the SEC and other agencies, which may affect our hosting and\nother activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to our\nbusiness, see \u201cRisk Factors.\u201d\n\n\n\u00a0\n\n\nFor a discussion of BNC government regulation see Business Overview\nfor BNC above.\n\n\n\u00a0\n\n\nAgora\n\n\n\u00a0\n\n\nAlthough there was a period of regulatory uncertainty\nending in 2018, we believe that the SEC will not claim that Bitcoin is a security and therefore that Bitcoin will not be subject to the\nSEC\u2019s regulation. The SEC has been active in pursuing its regulation of other cryptocurrencies by filing lawsuits and, more recently,\nadministratively against a cryptocurrency that tried to register under the Securities Exchange Act of 1934, as amended (the \u201cExchange\nAct\u201d). Further, the SEC\u2019s chairman has given a number of speeches seeking firm regulatory authority over cryptocurrencies.\nWhether Congress will enact new legislation in this area is uncertain, although in June 2022, bipartisan legislation was introduced in\nthe Senate. However, enhanced regulation may adversely affect our future Bitcoin hosting and other cryptocurrency activities. Moreover,\nthere is a risk that the SEC may seek a way to regulate Bitcoin as a security.\n\n\n\u00a0\n\n\nBlockchain and Bitcoin are increasingly becoming\nsubject to governmental regulation, both in the U.S. and internationally. State and local regulations also may apply to our activities\nand other activities in which we may participate in the future. Other governmental or semi-governmental regulatory bodies have shown an\ninterest in regulating or investigating companies engaged in the blockchain or cryptocurrency business. For instance, the Cyber-Digital\nTask Force of the U.S. Department of Justice (the \u201cDOJ\u201d) published a report entitled \u201cCryptocurrency: An Enforcement\nFramework\u201d in October 2020. This report provides a comprehensive overview of the possible threats and enforcement challenges the\nDOJ views as associated with the use and prevalence of cryptocurrency, as well as the regulatory and investigatory means the DOJ has at\nits disposal to deal with these possible threats and challenges.\n\n\n\u00a0\n\n\nPresently, we do not believe any U.S. or state\nregulatory body has taken any action or position adverse to Bitcoin with respect to its production, sale, and use as a medium of exchange;\nhowever, future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible\nfor us to predict with any reasonable degree of reliability.\n\n\n\u00a0\n\n\nFor example, in 2021 China banned Bitcoin mining.\nAdditionally, lawmakers in New York recently approved legislation which would impose a two-year moratorium on certain cryptocurrency mining,\nincluding Bitcoin.\n\n\n\u00a0\n\n\nAlthough Bitstream is no longer actively engaged\nin digital asset mining, regulations affecting Bitcoin and other digital assets have a direct impact on its hosting business model. See\n\u201cRisk Factors\u201d at page 29 of this Report.\n\n\n\u00a0\n\n\n\n\n\n\n11\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nEnvironmental Compliance\n\n\n\u00a0\n\n\nThe Company\u2019s core operations through the\nPlatform are virtual in nature and have minimal environmental impact, if any.\n\n\n\u00a0\n\n\nOur operations through Agora\u2019s subsidiary\nBitstream, are or may become subject to numerous laws and regulations relating to environmental protection and climate change. These laws\nand regulations change frequently, and the effect of these changes is often to impose additional costs or other restrictions on our operations.\nWe cannot predict the occurrence, timing, nature or effect of these changes. We also operate under a number of environmental permits and\nauthorizations. The issuing agencies may take the position that some or all of these permits and authorizations are subject to modification,\nsuspension, or revocation under certain circumstances.\n\n\n\u00a0\n\n\nWhile we are currently not experiencing any material\nexpenses related to the environmental compliance, we may become subject to environmental or other related laws and regulations in the\nfuture, which may result from a number of causes, the likelihood of which would increase should we determine to initiate Bitcoin mining\noperations and/or due to new regulations being considered. Please review the Risk Factors in Item 1A of this Report and the paragraph\nthat follows with regard to potential environmental and other compliance expenses.\n\n\n\u00a0\n\n\nOn March 21, 2022, the SEC released proposed rule\nchanges on climate-related disclosure. The proposed rule changes would require registrants, including the Company, to include certain\nclimate-related disclosures in registration statements and periodic reports, including information about climate-related risks that are\nreasonably likely to have a material impact on the registrant\u2019s business, results of operations, or financial condition, and certain\nclimate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related\nrisks would include disclosure of a registrant\u2019s greenhouse gas emissions, information about climate-related targets and goals,\nand transition plan, if any, and extensive attestation requirements. The proposed new rules would also require companies to disclose multiple\nlevels of climate impact, including primary direct impacts from the registrant\u2019s own operations, as well as secondary and tertiary\neffects of the operations and uses by contractors that the registrant utilizes and end-users of the registrant\u2019s products and/or\nservices. If adopted as proposed, the rule changes will result in material additional compliance and reporting costs, including monitoring,\ncollecting, analyzing and reporting the new metrics and implementing systems and hiring additional internal and external personnel with\nthe requisite skills and expertise to serve those functions. We expect that the rules will be adopted in large part at least, and our\ncompliance costs will be material. However, following a June 2022 U.S. Supreme Court administrative decision, we expect a court challenge\nto any final rule promulgated by the SEC. We cannot predict the outcome of any such challenge.\n\n\n\u00a0\n\n\nIntellectual Property\n\n\n\u00a0\n\n\nThe Company owns all of the intellectual property\nto the Platform. BNC\u2019s software provider, MeetKai, owns various patents related to the metaverse which may or may not be transferred\nto BNC at a future date.\n\n\n\u00a0\n\n\nThe Company through Zest Labs, currently holds\nrights to 75 U.S. patents (with additional patents pending), numerous related foreign patents, and U.S. copyrights relating to certain\naspects of its Zest Labs software, hardware devices including RFID technology, software, and services. In addition, Zest has registered,\nand/or has applied to register trademarks and service marks in the U.S. and a number of foreign countries for \u201cIntelleflex,\u201d\nthe Intelleflex logo, \u201cZest,\u201d \u201cZest Data Services,\u201d and the Zest, Zest Fresh and Zest Delivery logos, and numerous\nother trademarks and service marks. Many of Zest\u2019s products have been designed to include licensed intellectual property obtained\nfrom third parties. Laws and regulations related to wireless communications devices in the jurisdictions in which Zest seeks to operate,\nsubject to the outcome of pending litigation and financing and, are extensive and subject to change. Wireless communication devices, such\nas RFID readers, are subject to certification and regulation by governmental and standardization bodies. These certification processes\nare extensive and time consuming, and could result in additional testing requirements, product modifications or delays in product shipment\ndates.\n\n\n\u00a0\n\n\nDependence on Major Customers\n\n\n\u00a0\n\n\nFrom time-to-time we have had and may continue\nto have customers generating 10 percent or more of the Company\u2019s consolidated revenues, and loss of such customers could have a\nmaterial adverse effect on the Company.\n\n\n\u00a0\n\n\nIn the fiscal year ended March 31, 2023, we did\nnot recognize any revenue from continuing operations, so a customer concentration risk would not be applicable.\n\n\n\u00a0\n\n\nHuman Capital\n\n\n\u00a0\n\n\nAs of the date of this Annual Report, we have 6 full-time employees\ndedicated to all operations other than BNC. BNC had 17 employees, including ten full-time employees.\n\n\n\u00a0\n\n\n\n\n\n\n12\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur ability to successfully execute our strategic\ninitiatives is highly dependent on recruiting and retaining skilled personnel. Our compensation philosophy is based on incentivizing and\nrewarding performance, with alignment of individual, corporate, and shareholder interests. Compensation includes salaries, benefits, and\nequity participation. Our owner operator drivers are not salaried employees.\n\n\n\u00a0\n\n\nWe are committed to the health, safety, and well-being\nof our employees and drivers. We follow applicable local, state, and federal laws, regulations, and guidance.\n\n\n\u00a0\n\n\nOur Code of Business Conduct and Ethics is designed\nto ensure that all employees maintain the highest standards of business conduct in every aspect of their dealings with each other, customers,\nsuppliers, vendors, service providers, shareholders, and governmental authorities.\n\n\n\u00a0\n\n\nWe believe our relations with our employees and\ndrivers are satisfactory.\n\n\n\u00a0\n\n\nProposed Spin-Offs\n\n\n\u00a0\n\n\nAs previously discussed, the spin-off of the legacy\nnon-core subsidiaries is subject to various factors. Although White River and Banner Midstream were divested and transferred to WTRV in\nJuly 2022 and Wolf Energy in September 2022, respectively, in reverse merger transactions, the planned and announced stock dividends to\nthe Company shareholders of record as of September 30, 2022 is subject to the SEC\u2019s approval of Form S-1 registration statements\nfor WTRV and Wolf Energy, which are still undergoing review by the SEC. The Company still has full intentions to distribute 100% of the\ncommon stock it received from Wolf Energy and common stock it will receive from WTRV upon the conversion of preferred stock, upon the\neffectiveness of the aforementioned Form S-1\u2019s.\n\n\n\u00a0\n\n\nThe spin-off of Zest Labs into Zest Holdings is\nexpected to occur prior to quarter-end September 30, 2023.\n\n\n\u00a0\n\n\nAs previously noted, the Company made the decision\nin January 2023 to terminate Agora\u2019s planned initial public offering. Instead, Agora will remain in the Company as a majority owned\nsubsidiary due to potential synergies which could be achieved with BNC.\n\n\n\u00a0\n\n\nCorporate Information\n\n\n\u00a0\n\n\nOur principal executive offices are located at\n303 Pearl Parkway, Suite 200, San Antonio, TX 78215, and our telephone number is (800) 762-7293. Our website address is http://bitnile.net/.\nOur website and the information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference\nin and are not considered part of this Annual Report.\n\n\n\u00a0\n\n\n\n\n13\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n ",
+  "item1a": ">ITEM 1A. RISK FACTORS\n\n\n\u00a0\n\n\nAn investment in our common stock involves significant\nrisks. You should carefully consider the following risks and all other information set forth in this Annual Report before deciding to\ninvest in our common stock. If any of the events or developments described below occurs, our business, financial condition and results\nof operations may suffer. In that case, the value of our common stock may decline and you could lose all or part of your investment.\n\n\n\u00a0\n\n\nYou should consider each of the following risk\nfactors and any other information set forth in this Annual Report and the other reports filed by the Company with the SEC, including the\nCompany\u2019s financial statements and related notes, in evaluating the Company\u2019s business and prospects. The risks and uncertainties\ndescribed below are not the only ones that impact on the Company\u2019s operations and business. Additional risks and uncertainties not\npresently known to the Company, or that the Company currently considers immaterial, may also impair its business or operations. If any\nof the following risks actually occurs, the Company\u2019s business and financial condition, results or prospects could be harmed. Please\nalso read carefully the section entitled \u201cNote About Forward-Looking Statements\u201d at the beginning of this Annual Report.\n\n\n\u00a0\n\n\nRisks Relating to Our Company and\nOur Financial Condition\n\n\n\u00a0\n\n\nWe have incurred net losses on an annual basis\nsince our inception and may continue to experience losses and negative cash flow in the future.\n\n\n\u00a0\n\n\nAs of July 10, 2023, we had cash (not including\nrestricted cash) of approximately $3,492. We have not been profitable on an annual basis since inception and had previously incurred significant\noperating losses and negative cash flow from operations. We recorded a net loss of approximately $87,361,603 and $10,554,452 for the fiscal\nyears ended March 31, 2023 and 2022. In fiscal year 2023, our net loss was increased by non-cash net gain of approximately $32.9 million\nfrom a change in the fair value of our preferred stock and warrant derivative liabilities due to the weakness of our stock price and $14.4\nmillion related to a day one derivative income on the Series B and Series C preferred stock issuances. Furthermore, in fiscal year 2023,\nour net loss was reduced by non-cash net losses of approximately $54.5 million and $20.7 million related to the loss on acquisition of\nBitNile and the change in fair value of the White River investment respectively. Fiscal year 2022 also had non-cash charges gains of approximately\n$15.4 million from a change in the fair value of our warrant derivative liabilities. We will likely continue to incur losses and experience\nnegative cash flows from operations for the foreseeable future. If we cannot achieve positive cash flow from operations or net income,\nit may make it more difficult to raise capital based on our common stock on acceptable terms.\n\n\n\u00a0\n\n\nOur independent registered public accounting\nfirm has issued a going concern opinion on our consolidated financial statements for the year ended March 31, 2023 as a result of our\ncontinued net losses, working capital deficiency, and accumulated deficit. \u00a0\n\n\n\u00a0\n\n\nThe accompanying\nfinancial statements for the year ended March 31, 2023 have been prepared assuming the Company will continue as a going concern, but the\nability of the Company to continue as a going concern depends on the Company obtaining adequate capital to fund operating losses until\nit establishes a revenue stream and becomes profitable. Management\u2019s plans to continue as a going concern include raising additional\ncapital through sales of equity and debt securities. However, management cannot provide any assurances that the Company will be successful\nin accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company\nwill be required to delay, and reduce the scope of the Company\u2019s development of its continuing operations. Continuing as a going\nconcern is dependent upon its ability to successfully secure other sources of financing and the ability to conduct profitable operations.\nThe accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to\ncontinue as a going concern.\n\n\n\u00a0\n\n\nBecause we will require additional capital and may need or desire to\nengage in strategic transactions in the future to support the growth of our metaverse platform, and our inability to generate and obtain\nsuch capital or to enter into strategic transactions may be constrained due to, among other items, contractual limitations under the Series\nB and C preferred stock, our business, operating results, financial condition and prospects could be material and adversely affected.\n\n\n\u00a0\n\n\nThe Company announced the termination of its ATM\non June 16, 2023, as substantially all of the $3,500,000 proceeds had been raised by the Company through Ascendiant. As of the date of\nthis Annual Report, the Company is exploring additional opportunities to generate capital to continue operating as a going concern but\ndoes not have any formal contractual agreements in place.\n\n\n\u00a0\n\n\nThe certificates of designation of the Series A, B and C preferred\nstock contain certain provisions that limit our ability to act without the consent of their holder, AAI. This means that AAI could prevent\nus from entering into a strategic transaction even if we felt it was the best interest of the Company and its shareholders.\n\n\n\u00a0\n\n\nFurther, if we raise additional funds through\nfuture issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and any new equity\nor debt securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.\n\n\n\u00a0\n\n\n\n\n\n\n14\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe have substantial amounts of indebtedness.\nThis indebtedness and the covenants contained in the Loan Agreements substantially limit our financial and operating flexibility. Further,\nconversions of the Notes will dilute the ownership interest of our existing shareholders.\n\n\n\u00a0\n\n\nOn April 27, 2023, we entered into a Securities\nPurchase Agreement (the \u201cSPA\u201d) with certain accredited investors (the \u201cInvestors\u201d) providing for the issuance\nof (i) Senior Secured Convertible Notes (individually, a \u201cNote\u201d and collectively, the \u201cNotes\u201d) with an aggregate\nprincipal face amount of $6,875,000, which Notes are convertible into shares of our common stock (the \u201cConversion Shares\u201d);\nand (ii) five-year warrants to purchase an aggregate of 2,100,905 shares of common stock. The maturity date of the Notes is April 27,\n2024.\n\n\n\u00a0\n\n\nPursuant to the SPA, we and certain of our subsidiaries\nand Arena Investors, LP, as the collateral agent on behalf of the Investors (the \u201cAgent\u201d) entered into a security agreement\n(the \u201cSecurity Agreement\u201d), pursuant to which we (i) pledged the equity interests in our subsidiaries and (ii) granted to\nthe Investors a security interest in, among other items, all of our deposit accounts, securities accounts, chattel paper, documents, equipment,\ngeneral intangibles, instruments and inventory, and all proceeds therefrom (the \u201cAssets\u201d). In addition, pursuant to the Security\nAgreement, the subsidiaries granted to the Investors a security interest in its Assets and, pursuant to a subsidiary guarantees, jointly\nand severally agreed to guarantee and act as surety for our obligation to repay the Notes and other obligations under the SPA, the Notes\nand Security Agreement (collectively, the \u201cLoan Agreements\u201d).\n\n\n\u00a0\n\n\nThe Notes have a principal face amount of $6,875,000\nand bear no interest (unless an event of default occurs) as they were issued with an original issuance discount of $1,375,000. The maturity\ndate of the Notes is April 27, 2024. The Notes are convertible, subject to certain beneficial ownership limitations, into Conversion Shares\nat a price per share equal to the lower of (i) $3.273 or (ii) the greater of (A) $0.504 and (B) 85% of the lowest volume weighted average\nprice of our common stock during the ten (10) trading days prior to the date of conversion (the \u201cConversion Price\u201d). The Conversion\nPrice is subject to adjustment in the event of an issuance of common stock at a price per share lower than the Conversion Price then in\neffect, as well as upon customary stock splits, stock dividends, combinations or similar events.\n\n\n\u00a0\n\n\nThe Loan Agreements contain standard and customary\nevents of default including, but not limited to, failure to make payments when due under the Notes, failure to comply with certain covenants\ncontained in the Loan Agreements, or our bankruptcy or insolvency. Such agreements contain restrictions that substantially limit our financial\nflexibility, over and above the negative covenants contained the transaction document relates to the Series A Preferred Stock, which themselves\nare substantial. These agreements place limits on our ability to (i) incur additional indebtedness or the Agent otherwise agrees, and\n(ii) grant security to third persons, among many other items. These restrictions limit our ability to finance our future operations and\ncapital needs. In addition, our substantial indebtedness could require us to dedicate a substantial portion of our cash flow, if any,\nfrom the anticipated operations to making payments on our indebtedness and other liabilities, which would limit the availability of funds\nfor working capital and other general corporate purposes; limit our flexibility in reacting to changes in the industries in which we operate\nor in our competitive environment; place us at a competitive disadvantage compared to those of our competitors who have less debt than\nwe do, and limit our ability to borrow additional funds and increase the costs of any such additional borrowings. If we are unable to\npay our debts, including the Notes as they become due and payable, we would become insolvent.\n\n\n\u00a0\n\n\nThe conversion of some or all of the Notes will\ndilute the ownership interests of our existing shareholders. Any sales in the public market of our common stock issuable upon such conversion\ncould adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling\nby market participants because the conversion of the Notes would likely depress the price of our common stock.\n\n\n\u00a0\n\n\n\n\n\n\n15\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe cannot predict our future results because\nwe have virtually no operating history.\n\n\n\u00a0\n\n\nWe acquired our metaverse business on March 6,\n2023, which is the Company\u2019s core business for future revenue growth. Given our highly limited operating history, it may be difficult\nto evaluate our future performance or prospects. You should consider the uncertainties that we may encounter as a company that should\nstill be considered an early-stage company. These uncertainties include:\n\n\n\u00a0\n\n\n\n\n\u25cf\ncompetition from other more established, better capitalized companies with longer track records in the\nmetaverse, gaming, and sweepstakes businesses;\n\n\n\u00a0\n\n\n\n\n\u25cf\nour ability to market our services and products for a profit;\n\n\n\u00a0\n\n\n\n\n\u25cf\nour ability to secure and retain key customers;\n\n\n\u00a0\n\n\n\n\n\u25cf\nour agreement with a third-party, MeetKai, for development and hosting services regarding the Platform;\n\n\n\u00a0\n\n\n\n\n\u25cf\nour ability to adapt to changing market conditions; and\n\n\n\u00a0\n\n\n\n\n\u25cf\nour evolving business model.\n\n\n\u00a0\n\n\nIf we are not able to address successfully some\nor all of these uncertainties, we may not be able to expand our business, compete effectively or achieve profitability.\n\n\n\u00a0\n\n\nBecause we must periodically evaluate our\nintangible assets and investment holdings for impairment, we could be required to recognize non-cash impairment charges in future periods\nwhich could have a material adverse impact on our operating results.\n\n\n\u00a0\n\n\nThe Company incurred non-cash charges of $54.5\nmillion and $20.7 million related to the loss on the acquisition of BNC as well as the change in fair value of its investment holding,\npending dividend distribution, of White River. The Company will assess these investments for impairment going forward, and if the carrying\nvalue of the holding on the Company\u2019s balance sheet exceeds its estimated fair value, we will record an impairment charge.\n\n\n\u00a0\n\n\nAs of March 31, 2023, we had not generated\nrevenue in the Company\u2019s core business of the Platform, and the inability to generate significant revenue in this nascent business\ncould adversely affect our business, financial condition, results of operations and prospects.\n\n\n\u00a0\n\n\nThe Company had not generated any revenue from\nthe Platform as of March 31, 2023, and the revenue generated during the first quarter of fiscal year 2024 has been minimal.\n\n\n\u00a0\n\n\nIf the Company is unable to generate significant\nrevenue in the near future related to gaming, sweepstakes, sponsorship or advertising within its metaverse platform then its business\nmodel in the metaverse will be difficult to fund through continuing operations and additional capital will need to be raised by the company\nto grow its business and continue operating its business as a going concern. Our contract with MeetKai has many performance obligations\nthat, if breached, could impair our business, financial condition, results of operations and prospects.\n\n\n\u00a0\n\n\nIf we do not continue\nto satisfy the Nasdaq Stock Market\u2019s continued listing requirements, our common stock could be delisted from the Nasdaq.\n\n\n\u00a0\n\n\nThe listing of our common\nstock on the Nasdaq is contingent on our compliance with the Nasdaq\u2019s conditions for continued listing. We are not presently in\ncompliance with all such conditions, and it is possible that we will fail to meet one or more of these conditions in the future.\n\n\n\u00a0\n\n\nIn connection with our\nacquisition of BNC on March 3, 2023 the Company received a letter from Nasdaq indicating that certain of the terms of the Series B Preferred\nStock and the Series C Preferred Stock, which subject to various limitations are convertible into a combined total of 13,333,334 shares\nof the Company\u2019s common stock, would constitute a change of control requiring shareholder approval under Nasdaq Listing Rule 5110.\nSpecifically, Listing Rule 5110(a) states that \u201c[a] Company must apply for initial listing in connection with a transaction whereby\nthe Company combines with a non-Nasdaq entity, resulting in a change of control of the Company...\u201d Nasdaq also asked certain questions\nand requested certain documents and information related to various aspects of the BitNile.com transaction and other matters, including\nthe transaction\u2019s valuation and the process by which it arose, was negotiation and closed.\n\n\n\u00a0\n\n\nFurther, on June 21, 2023, the Company received\na letter (the \u201cLetter\u201d) from Nasdaq notifying the Company that Nasdaq has determined that the Company has violated Nasdaq\u2019s\nvoting rights rule set forth in Listing Rule 5640 (the \u201cVoting Rights Rule\u201d). The alleged violation of the Voting Rights Rule\nrelates to the issuance of (i) 8,637.5 shares of the newly designated Series B Preferred Stock and (ii) 1,362.5 shares of newly designated\nSeries C Preferred Stock (collectively, the \u201cPreferred Stock\u201d) in connection with the acquisition of BNC as well as the securities\nof Earnity, Inc. beneficially owned by BitNile (collectively, the \u201cAssets\u201d) pursuant to the Share Exchange Agreement (the\n\u201cAgreement\u201d) by and among the Company, AAI and certain employees of AAI, which was previously disclosed on Current Reports\non Form 8-K filed by the Company on February 14, 2023 and March 10, 2023. The Preferred Stock has a collective stated value of $100,000,000\n(the \u201cStated Value\u201d), and votes on an as-converted basis, representing approximately 92.4% of the Company\u2019s outstanding\nvoting power on a fully diluted basis at the time of issuance, assuming shareholder approval for the voting of these shares.\n\n\n\u00a0\n\n\n\n\n\n\n16\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAccording to the Letter, because the Preferred Stock was not issued\nfor cash, Nasdaq compared the value of the Assets to the Stated Value and determined that the value of the Assets was less than the Stated\nValue and that the voting rights attributable to the Preferred Stock has the effect of disparately reducing the voting rights of the Company\u2019s\nexisting shareholders. The Staff looked at the total assets and shareholders\u2019 equity of BNC as of March 5, 2023, as well as the\nmarket capitalization of AAI prior to entering into the Agreement and immediately after closing of the transaction in determining, in\nNasdaq\u2019s opinion, the value of the Assets. The Letter did not make any reference to the projections prepared by AAI as to the future\npotential of the business of BNC nor to the fairness opinion that we obtained from an independent party prior to closing of the transaction,\nwhich supported the Stated Value of the Preferred Stock for the total value of the Assets, both of which the Company provided to the Staff\nprior to receipt of the Letter.\n\n\n\u00a0\n\n\nAccording to the Letter, Nasdaq determined that\nthe voting rights of the Preferred Stock, voting on an as-converted basis, are below the minimum price per share of the Common Stock at\nthe time of the issuance of the Preferred Stock. Additionally, Nasdaq determined that the Series B Preferred Stock provides the holder\nthe right to appoint a majority of the Company\u2019s board of directors when such representation is not justified by the relative contribution\nof the Series B Preferred Stock pursuant to the Agreement.\n\n\n\u00a0\n\n\nUnder the Voting Rights Rule, a company cannot\ncreate a new class of security that votes at a higher rate than an existing class of securities or take any other action that has the\neffect of restricting or reducing the voting rights of an existing class of securities. As such, according to the Letter, the issuance\nof the Preferred Stock violated the Voting Rights Rule because the holders of the Preferred Stock are entitled to vote on an as-converted\nbasis, thus having greater voting rights than holders of common stock, and the Series B Preferred Stock is entitled to a disproportionate\nrepresentation on the Company\u2019s board of directors.\n\n\n\u00a0\n\n\nAccording to the Letter, the Company has 45 calendar\ndays from the date of the Letter, or until August 7, 2023, to submit a plan to regain compliance (the \u201cCompliance Plan\u201d)\nwith the Voting Rights Rule, and if such plan is accepted by Nasdaq, the Company can receive an extension of up to 180 calendar days\nfrom the date of the Letter to evidence compliance. However, if the Company\u2019s plan is not accepted by Nasdaq, the Common Stock\nwill be subject to delisting. The Company would have the right to appeal that decision to a hearings panel. The Letter also provides\nthat the Company\u2019s name will be included on a list of all non-compliant companies which Nasdaq makes available to investors on\nits website at listingcenter.nasdaq.com, beginning five business days from the date of the Letter. As part of this process, an indicator\nreflecting the Company\u2019s non-compliance is broadcast over Nasdaq\u2019s market data dissemination network and is also made available\nto third party market data providers.\n\n\n\u00a0\n\n\nThe Company intends to submit the Compliance Plan\nto Nasdaq as promptly as practicable and update the public of any developments in this regard, as required by applicable securities laws\nand regulations as well as Nasdaq\u2019s rules. The Company cannot provide any assurances with respect to Nasdaq\u2019s response to\nthe forthcoming Compliance Plan.\n\n\n\u00a0\n\n\nIf we were to fail to meet a Nasdaq listing requirement,\nwe will be subject to delisting by the Nasdaq. In the event our common stock is no longer listed for trading on the Nasdaq, our trading\nvolume and share price may decrease and we may experience further difficulties in raising capital which could materially affect our operations\nand financial results. Further, delisting from the Nasdaq could also have other negative effects, including potential loss of confidence\nby partners, lenders, suppliers and employees and could also trigger various defaults under our lending agreements and other outstanding\nagreements. Finally, delisting could make it harder for us to raise capital and sell securities. You may experience future dilution as\na result of future equity offerings. In order to raise additional capital, we may in the future offer additional shares of our common\nstock or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per share\nin this offering.\n\n\n\u00a0\n\n\nThe Series B and Series C preferred stock,\nif approved by shareholders for conversion, could result in significant dilution to shareholders. \n\n\n\u00a0\n\n\nA third party fairness opinion was utilized by\nthe Company for the March 6, 2023 acquisition of BNC. In exchange for BNC, the Company issued AAI Series B and certain of its employees\nSeries C convertible preferred stock which would be convertible into 11,516,667 and 1,816,667 shares of the Company\u2019s common stock\non a reverse split adjusted basis. The conversion of this preferred stock by AAI and its employees, however, is subject to both Nasdaq\nand shareholder approval rules requiring a majority vote of shareholders to approve a change of control for AAI to acquire more than 19.9%\nof the voting rights within the Company. Furthermore, the conversion of the Series B and Series C preferred stock is subject to the Company\u2019s\nauthorized and available shares which are currently at 3,333,333 and 1,949,501, \n\u00a0\u00a0\nrespectively\nas of the date of this Annual Report. If the Company is able to successfully obtain shareholder approval to allow the conversion of the\nSeries B and Series C preferred stock as well as increase its authorized shares, then this event would, assuming that AAI or its employees\nwere to sell the shares of our common stock upon conversion of the preferred stock, result in significant dilution to the Company\u2019s\nexisting common shareholders.\n\n\n\u00a0\n\n\n\n\n\n\n17\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe have an evolving business model, which increases the complexity\nof our business.\n\n\n\u00a0\n\n\nOur business model has evolved in the past and\ncontinues to do so. In prior years we have added additional types of services and product offerings and in some cases, we have modified\nor discontinued those offerings. We intend to continue to try to offer additional types of products or services, and we do not know whether\nany of them will be successful. From time to time we have also modified aspects of our business model relating to our product mix. We\ndo not know whether these or any other modifications will be successful. The additions and modifications to our business have increased\nthe complexity of our business and placed significant strain on our management, personnel, operations, systems, technical performance,\nfinancial resources, and internal financial control and reporting functions. Future additions to or modifications of our business are\nlikely to have similar effects. Further, any new business or website we launch that is not favorably received by the market could damage\nour reputation or our brand. The occurrence of any of the foregoing could have a material adverse effect on our business.\n\n\n\u00a0\n\n\nRisks Relating to Our Planned Spin-offs\n\n\n\u00a0\n\n\nThere is an inherent risk that a regulatory\nagency may attempt to change the Company\u2019s record date for its planned stock dividends. \n\n\n\u00a0\n\n\nThe Company announced that its common and preferred\nshareholders of record as of September 30, 2022 would be entitled to receive a pro rata share of the common stock holdings of WTRV and\nWolf Energy in the respective spin-off reverse merger transactions of White River Holdings and Banner Midstream. Additionally, the Company\nannounced that its common and preferred shareholders of record as of November 15, 2022 would be entitled to receive their pro rata share\nof at least 95% of any net proceeds received from the ongoing Zest Labs litigation and their pro rata share of Zest Labs which the Company\nplans to transfer into Zest Holdings. While the Company intends to distribute these shares of common stock and any proceeds from Zest\nHoldings to shareholders of record as of the previously announced record dates, there is a substantial risk that a regulator, including\nbut not limited to the Depository Trust Company (\u201cDTC\u201d), may require the Company to change its record date to a future unknown\ndate selected by the regulator. If a regulator were to direct a change in this record date it could cause a material liability for the\nCompany due to potential lawsuits from both (i) common shareholders who sold their shares of common stock after the record date under\nthe assumption that they would have been eligible to receive stock dividends as well as (ii) common and preferred shareholders who held\ntheir shares after the record dates but had their pro rata share of ownership in the company decreased due to subsequent dilution incurred\non Company share issuances and capital raises after the record dates. In the event that a regulator attempted to change the Company\u2019s\nrecord dates for these stock dividends, the Company would defend itself vigorously and potentially pursue legal measures against the regulator\nin an attempt to mitigate any potential shareholder lawsuits. However, the outcome of any such action cannot be predicted with any degree\nof certitude by the Company and there can be no assurance that the Company would be able to successfully defend itself.\n\n\n\u00a0\n\n\nWe have incurred significant delays in the\neffectiveness of registration statements to enable the Company to issue stock dividends of WTRV and Wolf Energy.\n\n\n\u00a0\n\n\nThe Form S-1 for the registration of the common\nstock underlying the White River Holdings stock dividend was filed on December 7, 2022, with the sixth amendment thereto having been filed\non July 5, 2023. The Form S-1 for the registration of the common stock underlying the Banner Midstream stock dividend was filed on March\n10, 2023. As of the date of the filing of this Annual Report, neither registration statement has been declared effective by the SEC. The\nCompany may incur further delays on these registration statements and cannot accurately predict when either will be declared effective,\nif ever.\n\n\n\u00a0\n\n\nWe may encounter issues with the ability to\ntransfer either the intellectual property or litigation of Zest into Zest Holdings.\n\n\n\u00a0\n\n\nThe Company intends to transfer all of the common\nstock of Zest Labs into Zest Holdings. Any net cash proceeds from the Zest Labs litigation or any sale or licensing of Zest Labs intellectual\nproperty would then be distributed to the Company\u2019s shareholders of record on a pro rata basis as of November 15, 2022, DTC permitting.\nThere is an inherent risk that the Company may determine that a potential risk relating to the future viability of either the Zest Labs\nlitigation or the Zest Labs intellectual property exists and that could be triggered upon this transfer. If this event occurs, the Company\nwould most likely leave Zest Labs as a wholly owned subsidiary but still intend to distribute any net cash proceeds realized by Zest Labs\nto shareholders of record on a pro rata basis as of November 15, 2022.\n\n\n\u00a0\n\n\n\n\n\n\n18\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRisks Related to BNC\n\u00a0\n\n\n\u00a0\u00a0\u00a0\n\n\nIf BNC fails to retain existing users and add\na very significant number of new users, or if BNC\u2019s users decrease their level of engagement with BNC\u2019s products, BNC\u2019s\nrevenue, financial results, and business may be significantly harmed.\n\n\n\u00a0\n\n\nIf BNC fails to retain existing users and add\na very significant number of new users, or if BNC\u2019s users decrease their level of engagement with BNC\u2019s products, BNC\u2019s\nrevenue, financial results, and business may be significantly harmed. The following events, among others, should they occur, would have\na materially adverse effect on our business, results of operations, financial condition and future prospects:\n\n\n\u00a0\n\n\n\n\n\u25cf\nusers increasingly engage with other competitive products\nor services;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nBNC fails to introduce new features, products, or services\nthat users find engaging or if BNC introduces new products or services, or makes changes to existing products and services, that are\nnot favorably received;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nBNC fails to develop all of the products it intends to make\navailable on its Platform, which could adversely impact the utility of our Platform and our user experience;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nusers feel that their experience is diminished as a result\nof the decisions BNC makes with respect to the frequency, prominence, format, size, and quality of ads that BNC displays;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nusers have difficulty installing, updating, or otherwise\naccessing BNC\u2019s products on mobile or other devices as a result of actions by BNC or third parties that BNC relies on to distribute\nBNC\u2019s products and deliver BNC\u2019s services;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nBNC is unable to develop products for mobile devices that\nusers find engaging, that work with a variety of mobile operating systems and networks, and that achieve a high level of market acceptance;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nthere are decreases in user sentiment due to questions about\nthe quality or usefulness of BNC\u2019s products or BNC\u2019s user data practices, concerns about the nature of content made available\non BNC\u2019s products, or concerns related to privacy, safety, security, well-being, or other factors;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nBNC is unable to manage and prioritize information to ensure\nusers are presented with content that is appropriate, interesting, useful, and relevant to them;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nBNC is unable to obtain or attract engaging third-party content;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nBNC is unable to successfully maintain or grow usage of and\nengagement with applications that integrate with BNC\u2019s products;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nusers adopt new technologies where BNC\u2019s products may\nbe displaced in favor of other products or services, or may not be featured or otherwise available;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nthere are changes mandated by legislation, government and\nregulatory authorities, or litigation that adversely affect BNC\u2019s products or users or increase BNC\u2019s compliance costs;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nBNC is unable to offer a number of BNC\u2019s products and\nservices in other countries, or are otherwise limited in BNC\u2019s business operations, as a result of foreign regulators, courts,\nor legislative bodies determining that BNC\u2019s reliance on Standard Contractual Clauses or other legal bases BNC may rely upon to\ntransfer user data from the foreign country to the United States is invalid;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nthere is decreased engagement with BNC\u2019s products,\nor failure to accept BNC\u2019s terms of service, as part of privacy-focused changes that BNC has implemented or may implement in the\nfuture, whether voluntarily, in connection with the General Data Protection Regulation (\u201cGDPR\u201d), the European Union\u2019s\nePrivacy Directive, the California Privacy Rights Act (\u201cCPRA\u201d), or other laws, regulations, or regulatory actions, or otherwise;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n19\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\ntechnical or other problems prevent BNC from delivering its\nproducts in a rapid and reliable manner or otherwise affect the user experience, such as security breaches or failure to prevent or limit\nspam or similar content, or users feel their experience is diminished as a result of BNC\u2019s efforts to protect the security and\nintegrity of the Platform;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nBNC adopts terms, policies, or procedures related to areas\nsuch as sharing, content, user data, or advertising, or BNC takes, or fails to take, actions to enforce BNC\u2019s policies, that are\nperceived negatively by BNC\u2019s users or the general public;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nBNC elects to focus its product decisions on longer-term\ninitiatives that do not prioritize near-term user growth and engagement;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nBNC makes changes in its user account login or registration\nprocesses or changes in how BNC promotes different products and services across its family of products;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\ninitiatives designed to attract and retain users and engagement,\nincluding the use of new technologies such as artificial intelligence, are unsuccessful, whether as a result of actions by BNC, its competitors,\nor other third parties, or otherwise;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nthere is decreased engagement with BNC\u2019s products as\na result of taxes imposed on the use of social media or other mobile applications in certain countries, internet shutdowns, or other\nactions by governments that affect the accessibility of BNC\u2019s products in their countries;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nBNC fails to provide adequate customer service to users,\nmarketers, developers, or other partners; or\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nBNC, developers whose products are integrated with BNC\u2019s\nproducts, or other partners and companies in BNC\u2019s industry are the subject of adverse media reports or other negative publicity,\nincluding as a result of BNC\u2019s or its user data practices.\n\n\n\n\n\u00a0\n\n\nThe size of BNC\u2019s user base and BNC\u2019s\nusers\u2019 level of engagement across BNC\u2019s products are critical to BNC\u2019s success. BNC\u2019s financial performance will\nbe significantly determined by BNC\u2019s success in adding, retaining, and engaging active users of BNC\u2019s products that deliver\nad impressions. User growth and engagement are also impacted by a number of other factors, including competitive products and services,\nsuch as TikTok, that could reduce some users\u2019 engagement with BNC\u2019s products and services, as well as global and regional\nbusiness, macroeconomic, and geopolitical conditions. Any future declines in the size of BNC\u2019s active user base, which to date is\nminimal, may adversely impact BNC\u2019s ability to deliver ad impressions and, in turn, BNC\u2019s financial performance.\n\n\n\u00a0\n\n\nIf people do not perceive BNC\u2019s products\nto be useful, reliable, and trustworthy, BNC may not be able to attract or retain users or otherwise maintain or increase the frequency\nand duration of their engagement. A number of other social networking companies that achieved early popularity have since seen their active\nuser bases or levels of engagement decline, in some cases precipitously. There is no guarantee that BNC will not experience a similar\ninability to generate a significant used baser or, if achieved, subsequent erosion of BNC\u2019s active user base or engagement levels.\nUser engagement can be difficult to measure, particularly as BNC introduces new and different products and services. Any number of factors\ncan negatively affect user retention, growth, and engagement, including if:\n\n\n\u00a0\n\n\n\u00a0From time to time, certain of these factors\nhave negatively affected user retention, growth, and engagement to varying degrees. If BNC are unable to maintain or increase BNC\u2019s\nuser base and user engagement, particularly for BNC\u2019s significant revenue-generating products like Facebook and Instagram, BNC\u2019s\nrevenue and financial results may be adversely affected. Any significant decrease in user retention, growth, or engagement could render\nBNC\u2019s products less attractive to users, marketers, and developers, which is likely to have a material and adverse impact on BNC\u2019s\nability to deliver ad impressions and, accordingly, BNC\u2019s revenue, business, financial condition, and results of operations. As\nthe size of BNC\u2019s active user base fluctuates in one or more markets from time to time, BNC will become increasingly dependent on\nBNC\u2019s ability to maintain or increase levels of user engagement and monetization in order to grow revenue.\n\n\n\u00a0\n\n\n\n\n\n\n20\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nBNC\u2019s user growth, engagement, and monetization\non mobile devices depend upon effective operation with mobile operating systems, networks, technologies, products, and standards that\nBNC does not control.\n\n\n\u00a0\n\n\nThe substantial majority of BNC\u2019s revenue\nis expected to be generated from advertising on mobile devices. There is no guarantee that popular mobile devices will feature BNC\u2019s\nproducts, or that mobile device users will ever use BNC\u2019s products rather than competing products. BNC is dependent on the interoperability\nof BNC\u2019s products with popular mobile operating systems, networks, technologies, products, and standards that BNC does not control,\nsuch as the Android and iOS operating systems and mobile browsers. Changes, bugs, or technical issues in such systems, or changes in BNC\u2019s\nrelationships with mobile operating system partners, handset manufacturers, browser developers, or mobile carriers, or in the content\nor application of their terms of service or policies that degrade BNC\u2019s products\u2019 functionality, reduce or eliminate BNC\u2019s\nability to update or distribute BNC\u2019s products, give preferential treatment to competitive products, limit BNC\u2019s ability to\ndeliver, target, or measure the effectiveness of ads, or charge fees related to the distribution of BNC\u2019s products or BNC\u2019s\ndelivery of ads have in the past adversely affected, and could in the future adversely affect, the usage of BNC\u2019s products and monetization\non mobile devices.\n\n\n\u00a0\n\n\nBNC\u2019s products and changes to such products\ncould fail to attract or retain users or generate revenue and profits, or otherwise adversely affect BNC\u2019s business.\n\n\n\u00a0\n\n\nBNC\u2019s ability to retain, increase, and engage\nits user base and to increase BNC\u2019s revenue depends heavily on BNC\u2019s ability to continue to evolve BNC\u2019s existing products\nand to create successful new products, both independently and in conjunction with developers or other third parties. BNC is currently\nin the early stages of development, has made a limited number of products available to users and has not developed all of the products\nit intends to release to users. Although BNC is actively developing products it intends to release to users, in the future, technological,\ncompetitive or financial pressures, among other changes, could cause BNC to abandon its product development plans which would adversely\nharm its user experience and financial results. In addition, BNC may introduce significant changes to BNC\u2019s products or acquire\nor introduce new and unproven products, including using technologies with which BNC has little or no prior development or operating experience.\nFor example, BNC does not have significant experience with consumer hardware products or virtual or augmented reality technology, which\nmay adversely affect BNC\u2019s ability to successfully develop and market these products and technologies. BNC will incur substantial\ncosts, and BNC may not be successful in generating profits, in connection with these efforts. These efforts, including the introduction\nof new products or changes to existing products, may result in new or enhanced governmental or regulatory scrutiny, litigation, ethical\nconcerns, or other complications that could adversely affect BNC\u2019s business, reputation, or financial results. If BNC\u2019s new\nproducts or changes to existing products fail to engage users, marketers, or developers, or if BNC\u2019s business plans are unsuccessful,\nBNC may fail to attract or retain users or to generate sufficient revenue, operating margin, or other value to justify BNC\u2019s investments,\nand BNC\u2019s business may be adversely affected.\n\n\n\u00a0\n\n\nBNC may be adversely\nimpacted by negative economic conditions.\n\n\n\u00a0\n\n\nBNC\u2019s performance and financial condition\nare subject to economic conditions and the impact such conditions have on levels of discretionary spending. Factors that may impact discretionary\nspending include inflation, employment rates, the liquidity of the capital markets, economic uncertainty and political conditions. Spending\non BNC\u2019s Platform has declined in the past, and could decline in the future, during recessionary periods and other periods of uncertainty\nor in which capital is constrained. If spending on BNC\u2019s marketplace or Platform declines, or grows at a slower rate, including\nas a result of reduced discretionary consumer spending, BNC\u2019s business, financial condition, and results of operations would be\nadversely affected.\n\n\n\u00a0\n\n\nBNC may not be successful in its metaverse\nstrategy and investments, which could adversely affect BNC\u2019s business, reputation, or financial results.\n\n\n\u00a0\n\n\nBNC believes that the metaverse, an embodied internet\nwhere people have immersive experiences beyond two-dimensional screens, is the next evolution in social technology. BNC intends to focus\non helping to bring the metaverse to life. BNC expects this will be a complex, evolving, and long-term initiative that will involve the\ndevelopment of new and emerging technologies, require significant investment in infrastructure as well as privacy, safety, and security\nefforts, and collaboration with other companies, developers, partners, and other participants. However, the metaverse may not develop\nin accordance with BNC\u2019s expectations, and market acceptance of features, products, or services BNC may build for the metaverse\nis uncertain. While BNC intends to regularly evaluate BNC\u2019s product roadmaps and make significant changes as BNC\u2019s understanding\nof the technological challenges and market landscape and BNC\u2019s product ideas and designs evolve, there is no guarantee that BNC\nwill be able to successfully compete in the future. In addition, BNC has virtually no experience with consumer hardware products and virtual\nand augmented reality technology, which may enable other companies to compete more effectively than it can. BNC may be unsuccessful in\nBNC\u2019s future research and product development efforts, including if BNC is unable to develop relationships with key participants\nin the metaverse or develop products that operate effectively with metaverse technologies, products, systems, networks, or standards.\nBNC hopes to make investments in virtual and augmented reality and other technologies to support these efforts, and BNC\u2019s ability\nto support these efforts is dependent on generating sufficient profits from BNC\u2019s business. In addition, as BNC\u2019s metaverse\nefforts evolve, BNC may be subject to a variety of existing or new laws and regulations in the United States and international jurisdictions,\nincluding in the areas of privacy, safety, competition, content regulation, consumer protection, and e-commerce, which may delay or impede\nthe development of BNC\u2019s products and services, increase BNC\u2019s operating costs, require significant management time and attention,\nor otherwise harm BNC\u2019s business. As a result of these or other factors, BNC\u2019s metaverse strategy and investments may not\nbe successful in the foreseeable future, or at all, which could adversely affect BNC\u2019s business, reputation, or financial results.\n\n\n\u00a0\n\n\n\n\n\n\n21\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nBNC may not be able to successfully grow usage\nof and engagement with applications that integrate with BNC\u2019s products.\n\n\n\u00a0\n\n\nBNC hopes to make investments to enable developers\nto build, grow, and monetize applications that integrate with BNC\u2019s products. Such existing and prospective developers may not be\nsuccessful in building, growing, or monetizing applications that create and maintain user engagement. Additionally, developers may choose\nto build on other platforms, including platforms controlled by third parties, rather than building products that integrate with BNC\u2019s\nproducts. BNC is continuously seeking to balance the distribution objectives of BNC\u2019s developers with BNC\u2019s desire to provide\nan optimal user experience, and BNC may not be successful in achieving a balance that attracts or retains such developers. In addition,\nas part of BNC\u2019s efforts related to privacy, safety, and security, BNC intends to conduct investigations and audits of platform\napplications from time to time. In some instances, these actions will adversely affect BNC\u2019s relationships with developers. If BNC\nis not successful in BNC\u2019s efforts to grow the number of developers that choose to build products that integrate with BNC\u2019s\nproducts or if BNC is unable to continue to build and maintain good relations with such developers, BNC\u2019s user growth and user engagement\nas well as its financial results may be adversely affected.\n\n\n\u00a0\n\n\nSome developers,\ncreators, and users on our Platform may make unauthorized, fraudulent, or illegal use of Bitnile Tokens, Coins and other digital goods\nor experiences on our Platform, including through unauthorized third-party websites or \u201ccheating\u201d programs.\n\n\n\u00a0\n\n\nBitnile Tokens, Coins,\nand digital goods on our Platform have no monetary value outside of our Platform, and cannot be traded between accounts currently within\nbitnile.com, but users may in the future make unauthorized, fraudulent, or illegal sales and/or purchases of BitNile Tokens, Coins, and\nother digital goods on or off of our Platform, including through unauthorized third-party websites in exchange for real-world currency.\nFor example, when trading between characters is implemented, some users may make fraudulent use of credit cards owned by others on our\nPlatform to purchase Bitnile Tokens or coins and offer the purchased tokens and coins for sale at a discount on a third-party website.\n\n\n\u00a0\n\n\nWhile we plan to regularly\nmonitor and screen usage of our Platform with the aim of identifying and preventing these activities, and regularly monitor third-party\nwebsites for fraudulent Bitnile products or digital goods offers as well as regularly send cease-and-desist letters to operators of these\nthird-party websites, we are unable to control or stop all unauthorized, fraudulent, or illegal transactions in Bitnile Tokens, Coins,\nor other digital goods that occurs on or off of our Platform. Although we are not directly responsible for such unauthorized, fraudulent,\nand/or illegal activities conducted by these third parties, our user experience may be adversely affected, and users and/or developers\nmay choose to leave our Platform if these activities are pervasive. These activities may also result in negative publicity, disputes,\nor even legal claims, and measures we take in response may be expensive, time consuming, and disruptive to our operations.\n\n\n\u00a0\n\n\nIn addition, unauthorized,\nfraudulent, and/or illegal purchases and/or sales of Bitnile Tokens, Coins, or other digital goods on or off of our Platform, including\nthrough third-party websites, bots, fake accounts, or \u201ccheating\u201d or malicious programs that enable users to exploit vulnerabilities\nin the experiences on our Platform or our partners\u2019 websites and platforms, could reduce our revenue and bookings by, among other\nthings, decreasing revenue from authorized and legitimate transactions, increasing chargebacks from unauthorized credit card transactions,\ncausing us to lose revenue and bookings from dissatisfied users who stop engaging with the experiences on our Platform, or increasing\ncosts we incur to develop technological measures to curtail unauthorized transactions and other malicious programs.\n\n\n\u00a0\n\n\nUnder the terms of service\nfor our Platform, which developers, creators and users are obligated to comply with, we reserve the right to temporarily or permanently\nban individuals for breaching our Terms of Use by violating applicable law or bitnile.com policies which include engaging in illegal activity\non the Platform. We will also employe technological measures to help detect unauthorized transactions and continue to develop additional\nmethods and processes through which we can identify unauthorized transactions and block such transactions. However, there can be no assurance\nthat our efforts to prevent or minimize these unauthorized, fraudulent, or illegal transactions will be successful.\n\n\n\u00a0\n\n\nDue to unfamiliarity\nand some negative publicity associated with digital assets, BNC\u2019s user base may lose confidence in products and services that utilize\ntechnology related to digital assets.\n\n\n\u00a0\n\n\nOne of BNC\u2019s products and experiences is\na virtual market which facilitates the sales of digital assets from BNC as well as third party vendors like virtual real estate, digital\nart, user customizations and unique collectibles. Products and services that are based on digital assets are relatively new. The digital\nasset industry has companies that are unlicensed, unregulated, operate without supervision by any governmental authorities. As a result,\nusers and the general public may lose confidence in digital assets, including BNC products and services. Companies like BNC that deal\nin digital assets are appealing targets for hackers and malware and may also be more likely to be targets of regulatory enforcement actions.\nNegative perception, a lack of stability and standardized regulation in the digital asset industry and the failure of digital asset focused\ncompanies due to fraud, business failure, hackers or malware, or government mandated regulation, may reduce confidence in BNC\u2019s\nbusiness. Any of these events could have a material and adverse impact on BNC\u2019s business.\n\n\n\u00a0\n\n\n\n\n\n\n22\n\n\n\u00a0\n\n\n\n\n\u00a0\u00a0\n\n\nRisks Related to BNC\u2019s Business Operations\nand Financial Results\n\n\n\u00a0\n\n\nOur business is highly competitive. Competition\npresents an ongoing threat to the success of BNC\u2019s business.\n\n\n\u00a0\n\n\nBNC expects to compete with companies providing\nconnection, sharing, discovery, and communication products and services to users online, as well as companies that sell advertising to\nbusinesses looking to reach consumers and/or develop tools and systems for managing and optimizing advertising campaigns. BNC faces significant\ncompetition in every aspect of BNC\u2019s business, including, but not limited to, companies that facilitate the ability of users to\ncreate, share, communicate, and discover content and information online or enable marketers to reach their existing or prospective audiences.\nBNC expects to compete to attract, engage, and retain people who use BNC\u2019s products, to attract and retain businesses that use BNC\u2019s\nfree or paid business and advertising services, and to attract and retain developers who build compelling applications that integrate\nwith BNC\u2019s products. BNC also expects to compete with companies that develop and deliver virtual and augmented reality products\nand services. As BNC introduces or acquires new products, or as other companies introduce new products and services, including as part\nof efforts to develop the metaverse or innovate through the application of new technologies such as artificial intelligence, BNC may become\nsubject to additional competition.\n\n\n\u00a0\n\n\nVirtually all BNC\u2019s current and potential\ncompetitors have greater resources, experience, or stronger competitive positions in the product segments, geographic regions, or user\ndemographics in which BNC intends to operate than BNC does. For example, some of BNC\u2019s competitors may be domiciled in different\ncountries and subject to political, legal, and regulatory regimes that enable them to compete more effectively than BNC could. These factors\nmay allow BNC\u2019s competitors to respond more effectively than BNC to new or emerging technologies and changes in market conditions.\nIn the event that users engage with other products and services, BNC may never see any growth in use and engagement in key user demographics\nor more broadly, in which case BNC\u2019s business would be harmed.\n\n\n\u00a0\n\n\nBNC\u2019s competitors may develop products,\nfeatures, or services that are similar to its own or that achieve greater acceptance, may undertake more far-reaching and successful product\ndevelopment efforts or marketing campaigns, or may adopt more aggressive pricing policies. Some competitors may gain a competitive advantage\nagainst BNC, including: by making acquisitions; by limiting BNC\u2019s ability to deliver, target, or measure the effectiveness of ads;\nby imposing fees or other charges related to BNC\u2019s delivery of ads; by making access to BNC\u2019s products more difficult or impossible;\nby making it more difficult to communicate with BNC\u2019s users; or by integrating competing platforms, applications, or features into\nproducts they control such as mobile device operating systems, search engines, browsers, or e-commerce platforms. BNC\u2019s competitors\nmay, and in some cases will, acquire and engage users or generate advertising or other revenue at the expense of BNC\u2019s own efforts,\nwhich would negatively affect BNC\u2019s business and financial results. In addition, from time to time, BNC may take actions in response\nto competitive threats, but BNC cannot assure you that these actions will be successful or that they will not negatively affect BNC\u2019s\nbusiness and financial results.\n\n\n\u00a0\n\n\nReal or perceived inaccuracies in BNC\u2019s\ncommunity and other metrics may harm BNC\u2019s reputation and negatively affect BNC\u2019s business.\n\n\n\u00a0\n\n\nThe numbers for BNC\u2019s key metrics are calculated\nusing internal company data based on the activity of user accounts, at times augmented by other sources. While these numbers are based\non what BNC believes to be reasonable estimates of BNC\u2019s user base for the applicable period of measurement, there are inherent\nchallenges in measuring usage of BNC\u2019s products across online and mobile populations around the world. The methodologies used to\nmeasure these metrics require significant judgment and are also susceptible to algorithm or other technical errors. In addition, BNC is\nseeking to establish mechanisms to improve its estimates of its user base, and such estimates may change due to improvements or changes\nin BNC\u2019s methodology. BNC intends to regularly review BNC\u2019s processes for calculating these metrics, and from time to time\nBNC expects to discover inaccuracies in these metrics or make adjustments to improve their accuracy.\n\n\n\u00a0\n\n\nThe lack of comprehensive encryption for communications\non the Platform may increase the impact of a data security incident.\n\n\n\u00a0\n\n\nCommunications on the Platform are not comprehensively\nencrypted at this time. As such, any data security incident that involves unauthorized access, acquisition, disclosure, or use may be\nhighly impactful to BNC\u2019s business. BNC may experience considerable incident response forensics, data recovery, legal fees, and\ncosts of notification related to any such potential incident, and BNC may face an increased risk of reputational harm, regulatory enforcement,\nand consumer litigation, which could further harm BNC\u2019s business, financial condition, results of operations, and future business\nopportunities.\n\n\n\u00a0\n\n\nBNC relies on the\nexperience and expertise of its senior management team and skilled employees with creative and technical backgrounds.\n\n\n\u00a0\n\n\nBNC\u2019s success depends in part upon the continued\nservice of its senior management team and key technical employees. Each of these employees could terminate his or her relationship with\nBNC at any time. Such employees, particularly game designers, engineers and project managers with desirable skill sets are in high demand,\nand BNC devotes significant resources to identifying, hiring, training, successfully integrating and retaining these employees. Hiring\nand retaining skilled employees to support BNC\u2019s products and services is highly competitive. A lack of skilled technical workers\nor the loss of any member of BNC\u2019s senior management team could delay or negatively impact BNC\u2019s business plans, ability to\ncompete, results of operations, cash flows and financial condition.\n\n\n\u00a0\n\n\n\n\n\n\n23\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRisks Related to Government Regulation and\nEnforcement\n\n\n\u00a0\n\n\nActions by governments that restrict access\nto BNC\u2019s products in their countries, censor or moderate content on BNC\u2019s products in their countries, or otherwise impair\nBNC\u2019s ability to sell advertising in their countries, could substantially harm BNC\u2019s business and financial results.\n\n\n\u00a0\n\n\nBNC expects that governments will from time to\ntime seek to censor or moderate content available on BNC\u2019s products, should such products ever be developed, distributed and used\nby customers, in their country, restrict access to BNC\u2019s products from their country partially or entirely, or impose other restrictions\nthat may affect the accessibility of BNC\u2019s products in their country for an extended period of time or indefinitely. In addition,\ngovernment authorities may seek to restrict user access to BNC\u2019s products if they consider us to be in violation of their laws or\na threat to public safety or for other reasons. It is also possible that government authorities could take action that impairs BNC\u2019s\nability to sell advertising, including in countries where access to BNC\u2019s consumer-facing products may be blocked or restricted.\nIn the event that content shown on BNC\u2019s products is subject to censorship, access to BNC\u2019s products is restricted, in whole\nor in part, in one or more countries, BNC would be required to or could elect to make changes to BNC\u2019s future operations, or other\nrestrictions are imposed on BNC\u2019s products, or BNC\u2019s competitors are able to successfully penetrate new geographic markets\nor capture a greater share of existing geographic markets that BNC cannot access or where BNC face other restrictions, BNC\u2019s ability\nto increase BNC\u2019s user base, user engagement, or the level of advertising by marketers may be adversely affected, and BNC may not\nbe able to grow BNC\u2019s revenue as anticipated, and BNC\u2019s financial results could be adversely affected.\n\n\n\u00a0\n\n\nBNC\u2019s business is subject to complex\nexisting U.S. and foreign laws and regulations regarding privacy, data use and data protection, content, competition, safety and consumer\nprotection, e-commerce, and other matters, many of which may be amended supplements by laws and regulations in the future. Many of these\nlaws and regulations are subject to change and uncertain interpretation and applicability to BNC, and could result in claims, changes\nto BNC\u2019s products and business practices, monetary penalties, increased cost of operations, or declines in user growth or engagement,\nor otherwise harm BNC\u2019s business.\n\n\n\u00a0\n\n\nBNC is subject to a variety of laws and regulations,\nchanges in existing laws and regulations or the interpretations of them in the United States and abroad that will involve matters central\nto BNC\u2019s business, including, but not limited to, privacy, data use, data protection and personal information, biometrics, encryption,\nrights of publicity, content, integrity, intellectual property, advertising, marketing, distribution, data security, data retention and\ndeletion, data localization and storage, data disclosure, artificial intelligence and machine learning, electronic contracts and other\ncommunications, competition, protection of minors, consumer protection, civil rights, accessibility, telecommunications, product liability,\ne-commerce, digital assets, gaming, gambling, sweepstakes, promotions, taxation, economic or other trade controls including sanctions,\nanti-corruption and political law compliance, securities law compliance, and online payment services. The introduction of new products,\nexpansion of BNC\u2019s activities in certain jurisdictions, or other actions that BNC may take may subject it to additional laws, regulations,\nor other government scrutiny. In addition, foreign data protection, privacy, content, competition, consumer protection, and other laws\nand regulations can impose different obligations or be more restrictive than those in the United States.\n\n\n\u00a0\n\n\nBNC may incur substantial\nexpenses to comply with laws and regulations or defend against a claim that BNC has not complied with them. Further, any failure on BNC\u2019s\npart to comply with any relevant laws or regulations may subject BNC to significant civil or criminal liabilities, penalties, taxes, fees,\ncosts and negative publicity. The application of existing domestic and international laws and regulations to BNC relating to issues such\nas user privacy and data protection, security, defamation, pricing, advertising, taxation, digital assets, gambling, sweepstakes, promotions,\nconsumer protection, accessibility, content regulation, quality of services, law enforcement demands, telecommunications, mobile, and\nintellectual property ownership and infringement in many instances is unclear or unsettled. Further, the application to us of existing\nlaws regulating or requiring licenses for certain businesses of BNC advertisers can be unclear. For example, BNC operates a social casino\nwith a sweepstakes component, through which it offers real money prizes. It is unclear whether certain regulations relating to gaming,\ngambling, and sweepstakes apply to our operations. U.S. export control laws and regulations also impose requirements and restrictions\non exports to certain nations and persons and on BNC\u2019s business. Internationally, BNC may also be subject to laws regulating BNC\u2019s\nactivities in foreign countries and to foreign laws and regulations that are inconsistent from country to country.\n\n\n\u00a0\n\n\nThese U.S. federal, state, and foreign laws and\nregulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can\nbe subject to significant change. As a result, the application, interpretation, and enforcement of these laws and regulations are often\nuncertain, particularly in the new and rapidly evolving industry in which BNC operates, and may be interpreted and applied inconsistently\nfrom jurisdiction to jurisdiction and inconsistently with BNC\u2019s current policies and practices. For example, regulatory or legislative\nactions or litigation affecting the manner in which BNC displays content to BNC\u2019s users, moderate content, or obtain consent to\nvarious practices could adversely affect user growth and engagement. Such actions could affect the manner in which BNC provides its services\nor adversely affect BNC\u2019s financial results.\n\n\n\u00a0\n\n\n\n\n\n\n24\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAs its business develops, BNC expects to become\nsubject to significant legislative and regulatory developments, and proposed or new legislation and regulations could significantly affect\nBNC\u2019s business in the future. For example, BNC intends to implement certain product changes and controls as a result of requirements\nunder the European General Data Protection Regulation (\u201cGDPR\u201d), and may implement additional changes in the future. The interpretation\nof the GDPR is still evolving and draft decisions in investigations are subject to review by several European privacy regulators as part\nof the GDPR\u2019s consistency mechanism, which may lead to significant changes in the final outcome of such investigations. As a result,\nthe interpretation and enforcement of the GDPR, as well as the imposition and amount of penalties for non-compliance, are subject to significant\nuncertainty. The California Consumer Privacy Act (\u201cCCPA\u201d), as amended by the California Privacy Rights Act (\u201cCPRA\u201d),\nalso establishes certain transparency rules and creates new data privacy rights for users, including limitations on BNC\u2019s use of\ncertain sensitive personal information and more ability for users to control the purposes for which their data is shared with third parties.\nOther states have proposed or enacted similar comprehensive privacy laws that afford users with similar data privacy rights and controls.\nThese laws and regulations are evolving and subject to interpretation, and resulting limitations on BNC\u2019s advertising services,\nor reductions of advertising by marketers, could adversely affect BNC\u2019s advertising business.\n\n\n\u00a0\n\n\nThese laws and regulations, as well as any associated\nclaims, inquiries, or investigations or any other government actions, have in the past led to, and may in the future lead to, unfavorable\noutcomes including increased compliance costs, loss of revenue, delays or impediments in the development of new products, negative publicity\nand reputational harm, increased operating costs, diversion of management time and attention, and remedies that harm BNC\u2019s business,\nincluding fines or demands or orders that BNC modify or cease existing business practices.\n\n\n\u00a0\n\n\nChanges in laws affecting gaming, and sweepstakes,\nor the public perception of gaming, and sweepstakes may adversely impact our or BNC\u2019s business.\n\n\n\u00a0\n\n\nBNC offers a number of products and services,\nwhich may include a selection of gaming options, including sweepstakes, and social gaming experiences. Social gaming experiences have\nrecently been the subject of civil lawsuits, and some jurisdictions have taken an adverse position to interactive social gaming, including\n\u201csocial casinos\u201d and sweepstakes-based gaming. This could lead to states adopting legislation or imposing a regulatory framework\nto govern interactive social gaming or social casino or sweepstakes-based gaming specifically. These could also result in a prohibition\non interactive social gaming or social casino or sweepstakes-based gaming altogether, restrict BNC\u2019s ability to advertise its games,\nor substantially increase BNC or our costs to comply with these regulations, all of which could have an adverse effect on our or BNC\u2019s\nresults of operations, cash flows and financial condition. It is not possible to predict the likelihood, timing, scope, or terms of any\nsuch legislation or regulation or the extent to which they may affect our or BNC\u2019s business.\n\n\n\u00a0\n\n\nRegulators in the future may pass additional rules\nand regulations that could adversely affect our or BNC\u2019s business. In May 2019, the World Health Organization adopted a new edition\nof its International Classification of Diseases, which lists gaming addiction as a disorder. The American Psychiatric Association (\u201cAPA\u201d)\nand U.S. regulators have yet to decide whether gaming addiction should be considered a behavioral disorder, but the APA has noted that\nresearch and the debate on its classification are ongoing. Certain countries, including China and South Korea, have enacted regulations,\nsuch as imposing both\u00a0gaming\u00a0curfews and spending limits for\u00a0minors, and established treatment programs aimed at addressing\u00a0gaming\u00a0addiction.\nIt is not possible to predict the likelihood, timing, scope, or terms of any similar regulations in any of the markets in which BNC operates,\nor the extent to which implementation of such regulations may adversely affect our or BNC\u2019s reputation and business.\n\n\n\u00a0\n\n\nConsumer protection and health concerns regarding\ngames and gambling such as BNC\u2019s have been raised in the past and may again be raised in the future. Such concerns could lead to\nincreased scrutiny over the manner in which BNC\u2019s games are designed, developed, distributed, and presented. We and BNC cannot predict\nthe likelihood, timing or scope of any concern reaching a level that will impact its business, or whether it would suffer any adverse\nimpacts to our or BNC\u2019s results of operations, cash flows and financial condition.\n\n\n\u00a0\n\n\nOur reputation may be harmed due to unfamiliarity\nor negative press associated with activities BNC is undertaking, including the online metaverse landscape, virtual markets, real world\ngoods marketplaces, gaming, social activities, sweepstakes, and digital assets.\n\n\n\u00a0\n\n\nBNC is focused on the development of the online\nmetaverse landscape and is focused on immersive digital experiences, including virtual markets, real world goods marketplaces, gaming,\nsocial activities, sweepstakes, and more. The activities BNC is undertaking are based on technology that is relatively new. Many companies\noperating in similar industries are unlicensed, unregulated and/or operate without supervision by any governmental authorities. As a result,\nusers and the general public may lose confidence in BNC\u2019s products and services. Companies like BNC that deal in digital assets\nare appealing targets for hackers and malware and may also be more likely to be targets of regulatory enforcement actions. Negative perception,\na lack of stability and standardized regulation in the industries in which BNC operates and the failure of similar companies due to fraud,\nbusiness failure, hackers or malware, or government mandated regulation, may reduce confidence in our or BNC\u2019s business. Any of\nthese events could have a material and adverse impact on our or BNC\u2019s reputation and business.\n\n\n\u00a0\n\n\n\n\n\n\n25\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf BNC fails to protect\nusers or is perceived to be failing to protect users, its business will suffer and results of operations could be materially and adversely\naffected.\n\n\n\u00a0\n\n\nUnfavorable publicity regarding, for example,\nBNC\u2019s privacy, data security, or data protection practices, terms of service, product changes, product quality, litigation or regulatory\nactivity, the actions of BNC users or developers, the use of the Platform for illicit or objectionable ends (including the use of the\nPlatform to possibly entice children to interact off-Platform), actual or perceived incidents or misuses of user data or other privacy\nor security incidents, the substance or enforcement of community standards, the quality, integrity, characterization and age-appropriateness\nof content shared on the Platform, or the actions of other companies that provide similar services to ours, has in the past, and could\nin the future, adversely affect BNC\u2019s reputation. Although illicit activities are in violation of BNC\u2019s terms and policies\nand BNC attempts to block objectionable material, BNC is unable to prevent all such violations from occurring and measures intended to\nmake the Platform more attractive to older age-verified users may create the perception that the Platform is not safe for users. In addition,\nBNC maya faced allegations that its Platform has been used by criminal offenders to identify and communicate with children and to possibly\nentice them to interact off-Platform, outside of the restrictions of the chat, content blockers and other on-platform safety measures.\nWhile BNC devotes considerable resources to prevent this from occurring, any negative publicity could create the perception that BNC does\nnot provide a safe online environment and may have an adverse effect on the size, engagement, and loyalty of its developer and user community,\nwhich would adversely affect business and financial results.\n\n\n\u00a0\n\n\nWe may be subject to regulatory and other government\ninvestigations, enforcement actions, settlements, and other inquiries in the future, which could cause us to incur substantial costs or\nrequire us or BNC to change its business practices in a manner materially adverse to its business.\n\n\n\u00a0\n\n\nShould BNC\u2019s business ever expand to a significant\ndegree, we and BNC\u2019s management expects to receive formal and informal inquiries from government authorities and regulators regarding\nBNC\u2019s compliance with laws and regulations, many of which are evolving and subject to interpretation. In such a scenario, we and\nBNC expect to be the subject of investigations, inquiries, data requests, requests for information, actions, and audits in the United\nStates, particularly in the areas of privacy and data protection, including with respect to minors, law enforcement, consumer protection,\ncivil rights, content moderation, blockchain technologies, sweepstakes, promotions, gaming, gambling, and competition. In addition, we\nor BNC may in the future be subject to regulatory orders or consent decrees.\u00a0\n\n\n\u00a0\n\n\nWe or BNC may also become subject to various litigation\nand formal and informal inquiries and investigations by competition authorities in the United States, which may relate to many aspects\nof BNC\u2019s future business, including with respect to users and advertisers, as well as BNC\u2019s industry. Such inquiries, investigations,\nand lawsuits concern, among other things, BNC\u2019s business practices in the areas of social networking or social media services, digital\nadvertising, gambling, and sweepstakes activities and/or mobile or online applications.\n\n\n\u00a0\n\n\nOrders issued by, or inquiries or enforcement\nactions initiated by, government or regulatory authorities could cause us or BNC to incur substantial costs, expose us to civil and criminal\nliability (including liability for personnel) or penalties (including substantial monetary remedies), interrupt or require us or BNC to\nchange its business practices in a manner materially adverse to our or BNC\u2019s business (including changes products or user data practices),\nresult in negative publicity and reputational harm, divert resources and the time and attention of management from our or BNC\u2019s\nbusiness, or subject us or BNC to other structural or behavioral remedies that adversely affect our or BNC\u2019s business.\n\n\n\u00a0\n\n\nBNC expects, should its business ever develop,\nto be subject to regulatory and other government investigations, enforcement actions, settlements and other inquiries in the future, which\ncould cause us BNC incur substantial costs or require BNC to change its business practices in a manner materially adverse to its business.\n\n\n\u00a0\n\n\nShould BNC\u2019s business ever expand and to\na significant degree, its management expects it to receive formal and informal inquiries from government authorities and regulators regarding\nBNC\u2019s compliance with laws and regulations, many of which are evolving and subject to interpretation. In such a scenario, BNC expects\nto be the subject of investigations, inquiries, data requests, requests for information, actions, and audits in the United States, Europe,\nand around the world, particularly in the areas of privacy and data protection, including with respect to minors, law enforcement, consumer\nprotection, civil rights, content moderation, and competition. In addition, BNC may in the future be subject to regulatory orders or consent\ndecrees.\n\n\n\u00a0\n\n\nBNC may also become subject to various litigation\nand formal and informal inquiries and investigations by competition authorities in the United States, Europe, and other jurisdictions,\nwhich may relate to many aspects of BNC\u2019s future business, including with respect to users and advertisers, as well as BNC\u2019s\nindustry. Such inquiries, investigations, and lawsuits concern, among other things, BNC\u2019s business practices in the areas of social\nnetworking or social media services, digital advertising, and/or mobile or online applications.\n\n\n\u00a0\n\n\nOrders issued by, or inquiries or enforcement\nactions initiated by, government or regulatory authorities could cause BNC to incur substantial costs, expose us to civil and criminal\nliability (including liability for BNC\u2019s personnel) or penalties (including substantial monetary remedies), interrupt or require\nBNC to change its business practices in a manner materially adverse to BNC\u2019s business (including changes to BNC\u2019s products\nor user data practices), result in negative publicity and reputational harm, divert resources and the time and attention of management\nfrom BNC\u2019s business, or subject it to other structural or behavioral remedies that adversely affect BNC\u2019s business.\n\n\n\u00a0\n\n\n\n\n\n\n26\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nPayment transactions may subject us to additional\nregulatory requirements and other risks that could be costly and difficult to comply with or that could harm BNC\u2019s business.\n\n\n\u00a0\n\n\nSeveral of BNC\u2019s future products may offer\npayments functionality, including enabling BNC\u2019s users to purchase tangible, virtual, and digital goods from merchants and developers\nthat offer applications using BNC\u2019s payment infrastructure, send money to other users, and make donations to certain charitable\norganizations, among other activities. BNC is or may become subject to a variety of laws and regulations in the United States, Europe\nand elsewhere, including those governing anti-money laundering and counter-terrorist financing, money transmission, stored value, gift\ncards and other prepaid access instruments, electronic funds transfer, virtual currency, consumer protection, charitable fundraising,\ntrade sanctions, and import and export restrictions. Depending on how BNC\u2019s payment products evolve, BNC may also be subject to\nother laws and regulations including those governing gambling, sweepstakes, banking, and lending. In some jurisdictions, the application\nor interpretation of these laws and regulations is not clear. BNC\u2019s efforts to comply with these laws and regulations could be costly\nand result in diversion of management time and effort and may still not guarantee compliance. In the event that BNC is found to be in\nviolation of any such legal or regulatory requirements, BNC may be subject to monetary fines or other penalties such as a cease and desist\norder, or BNC may be required to make product changes, any of which could have an adverse effect on BNC\u2019s business and financial\nresults.\u00a0\n\n\n\u00a0\n\n\nRisks Related to Data, Security, and Intellectual\nProperty\n\n\n\u00a0\n\n\nSecurity breaches, improper access to or disclosure\nof BNC\u2019s data or user data, other hacking and phishing attacks on BNC\u2019s systems, or other cyber incidents could harm BNC\u2019s\nreputation and adversely affect BNC\u2019s business.\n\n\n\u00a0\n\n\nBNC\u2019s industry is prone to cyber-attacks\nby third parties seeking unauthorized access to BNC\u2019s data or users\u2019 data or to disrupt BNC\u2019s ability to provide service.\nBNC\u2019s products and services involve the collection, storage, processing, and transmission of a large amount of data. Any failure\nto prevent or mitigate security breaches and improper access to or disclosure of BNC\u2019s data or user data, including personal information,\ncontent, or payment information from users, or information from marketers, could result in the loss, modification, disclosure, destruction,\nor other misuse of such data, which could harm BNC\u2019s business and reputation and diminish BNC\u2019s competitive position. In addition,\ncomputer malware, viruses, social engineering (such as spear phishing attacks), scraping, and general hacking continue to be prevalent\nin BNC\u2019s industry and are expected to occur on BNC\u2019s systems in the future. BNC expects to regularly encounter attempts to\ncreate false or undesirable user accounts, purchase ads, or take other actions on BNC\u2019s platform for purposes such as spamming,\nspreading misinformation, or other objectionable ends. Such attacks may cause interruptions to the services BNC intends to provide, degrade\nthe user experience, cause users or marketers to lose confidence and trust in BNC\u2019s products, impair BNC\u2019s internal systems,\nor result in financial harm to BNC. BNC\u2019s efforts to protect its data or the information BNC receives, and to disable undesirable\nactivities on BNC\u2019s platform, may also be unsuccessful due to software bugs or other technical malfunctions; employee, contractor,\nor vendor error or malfeasance, including defects or vulnerabilities in BNC\u2019s vendors\u2019 information technology systems or offerings;\ngovernment surveillance; breaches of physical security of BNC\u2019s facilities or technical infrastructure; or other threats that evolve.\nIn addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to BNC\u2019s\ndata or BNC\u2019s users\u2019 data. Cyber-attacks continue to evolve in sophistication and volume, and inherently may be difficult\nto detect for long periods of time. Although BNC intends to try to develop systems and processes that are designed to protect BNC\u2019s\ndata and user data, to prevent data loss, to disable undesirable accounts and activities on BNC\u2019s platform, and to prevent or detect\nsecurity breaches, BNC cannot assure you that such measures, if implemented, will provide adequate security, that BNC will be able to\nreact in a timely manner, or that BNC\u2019s remediation efforts will be successful. The changes in BNC\u2019s work environment as a\nresult of certain personnel working remotely could also impact the security of BNC\u2019s systems, as well as BNC\u2019s ability to\nprotect against attacks and detect and respond to them quickly.\n\n\n\u00a0\n\n\nIn addition, some of BNC\u2019s developers or\nother partners, such as those that help us measure the effectiveness of ads, may receive or store information provided by us or by BNC\u2019s\nusers through mobile or web applications integrated with BNC\u2019s products. If these third parties or developers fail to adopt or adhere\nto adequate data security practices, or in the event of a breach of their networks, BNC\u2019s data or BNC\u2019s users\u2019 data\nmay be improperly accessed, used, or disclosed.\n\n\n\u00a0\n\n\nBNC expects to experience cyber-attacks and other\nsecurity incidents of varying degrees from time to time, and BNC expects to incur significant costs in protecting against or remediating\nsuch incidents. In addition, BNC is subject to a variety of laws and regulations in the United States and abroad relating to cybersecurity\nand data protection. As a result, affected users or government authorities could initiate legal or regulatory actions against BNC in connection\nwith any actual or perceived security breaches or improper access to or disclosure of data, which has occurred in the past and which could\ncause BNC to incur significant expense and liability or result in orders or consent decrees forcing BNC to modify its business practices.\nSuch incidents or BNC\u2019s efforts to remediate such incidents may also result in a decline in BNC\u2019s active user base or engagement\nlevels. Any of these events could have a material and adverse effect on BNC\u2019s business, reputation, or financial results.\n\n\n\u00a0\n\n\n\n\n\n\n27\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe anticipate that BNC\u2019s efforts related\nto privacy, safety, security, and content review will identify additional instances of misuse of user data or other undesirable activity\nby third parties on BNC\u2019s platform.\n\n\n\u00a0\n\n\nBNC intends to make investments in privacy, safety,\nsecurity, and content review efforts to combat misuse of BNC\u2019s services and user data by third parties, including investigations\nand audits of platform applications, as well as other enforcement efforts. As a result of these efforts, BNC anticipates that BNC will\ndiscover and announce additional incidents of misuse of user data or other undesirable activity by third parties. BNC may not discover\nall such incidents or activity, whether as a result of BNC\u2019s data or technical limitations, including BNC\u2019s lack of visibility\nover BNC\u2019s encrypted services, the allocation of resources to other projects, or other factors, and BNC may be notified of such\nincidents or activity by the FTC, the media or other third parties. Such incidents and activities may in the future include the use of\nuser data or BNC\u2019s systems in a manner inconsistent with BNC\u2019s terms, contracts or policies, the existence of false or undesirable\nuser accounts, improper advertising practices, activities that threaten people\u2019s safety on or offline, or instances of spamming,\nscraping, data harvesting, unsecured datasets, or spreading misinformation. BNC may also be unsuccessful in its efforts to enforce BNC\u2019s\npolicies or otherwise remediate any such incidents. Consequences of any of the foregoing developments include negative effects on user\ntrust and engagement, harm to BNC\u2019s reputation, changes to BNC\u2019s business practices in a manner adverse to BNC\u2019s business,\nand adverse effects on BNC\u2019s business and financial results. Any such developments may also subject BNC to additional litigation\nand regulatory inquiries, which could subject BNC to monetary penalties and damages, divert management\u2019s time and attention, and\nlead to enhanced regulatory oversight.\u00a0\n\n\n\u00a0\n\n\nBNC\u2019s products and internal systems rely\non software and hardware that is highly technical, and any errors, bugs, or vulnerabilities in these systems, or failures to address or\nmitigate technical limitations in BNC\u2019s systems, could adversely affect BNC\u2019s business. The Platform and the technology of\nthe third-party service providers upon which BNC relies are also subject to the risks of severe weather, earthquakes, fires, floods, hurricanes\nand other natural catastrophic events and to interruption by man-made problems such as terrorism or cyberattacks.\n\n\n\u00a0\n\n\nIt is critical\nthe success of the Platform that users be able to access BNC\u2019s website, mobile apps and Platform at all times. BNC\u2019s systems,\nor those of third parties upon which BNC relies, may experience service interruptions, degradation, outages, and other performance problems\nthat interrupt the availability or affect the speed or functionality of BNC\u2019s website, mobile apps and Platform due to a variety\nof factors, including severe weather, earthquakes, fires, floods, hurricanes, other natural disasters, power losses, disruptions in telecommunications\nservices, fraud, military or political conflicts, terrorist attacks, hardware and software defects or malfunctions, cyberattacks and other\nsimilar incidents. \nBNC\u2019s products and internal systems rely on software and hardware, including software and hardware developed\nor maintained internally and/or by third parties, that is highly technical and complex. In addition, BNC\u2019s products and internal\nsystems depend on the ability of such software and hardware to store, retrieve, process, and manage considerable amounts of data. The\nsoftware and hardware on which BNC relies is expected to contain, errors, bugs, or vulnerabilities, and BNC\u2019s systems are subject\nto certain technical limitations that may compromise BNC\u2019s ability to meet BNC\u2019s objectives. Some errors, bugs, or vulnerabilities\ninherently may be difficult to detect and may only be discovered after the code has been released for external or internal use. Errors,\nbugs, vulnerabilities, design defects, or technical limitations within the software and hardware on which BNC relies, or human error in\nusing such systems, may in the future lead to outcomes including a negative experience for users and marketers who use BNC\u2019s products,\ncompromised ability of BNC\u2019s products to perform in a manner consistent with BNC\u2019s terms, contracts, or policies, delayed\nproduct introductions or enhancements, targeting, measurement, or billing errors, compromised ability to protect the data of BNC\u2019s\nusers and/or BNC\u2019s intellectual property or other data, or reductions in BNC\u2019s ability to provide some or all of BNC\u2019s\nservices. In addition, any errors, bugs, vulnerabilities, or defects in BNC\u2019s systems or the software and hardware on which BNC\nrelies, failures to properly address or mitigate the technical limitations in BNC\u2019s systems, or associated degradations or interruptions\nof service or failures to fulfill BNC\u2019s commitments to BNC\u2019s users, are expected to lead to outcomes including damage to BNC\u2019s\nreputation, loss of users, loss of marketers, prevention of its ability to generate revenue, regulatory inquiries, litigation, or liability\nfor fines, damages, or other remedies, any of which could adversely affect BNC\u2019s business and financial results.\n\n\n\u00a0\n\n\nIf BNC is unable to protect BNC\u2019s intellectual\nproperty, the value of its brands and other intangible assets may be diminished, and its business may be adversely affected.\n\n\n\u00a0\n\n\nBNC relies, and expects to continue to rely on\na combination of confidentiality, assignment, and license agreements with BNC\u2019s employees, consultants, and third parties with whom\nBNC has relationships, as well as intellectual property laws, to protect BNC\u2019s proprietary rights. In the United States and internationally,\nBNC expects to file various applications for protection of certain aspects of BNC\u2019s intellectual property. Third parties may knowingly\nor unknowingly infringe BNC\u2019s proprietary rights, third parties may challenge proprietary rights held by BNC in the future, and\nfuture trademark and patent applications may not be approved. In addition, effective intellectual property protection may not be available\nin every country in which BNC operates or intends to operate. In any or all of these cases, BNC may be required to expend significant\ntime and expense in order to prevent infringement or to enforce BNC\u2019s rights. Although BNC expects to take measures to protect BNC\u2019s\nproprietary rights, there can be no assurance that others will not offer products or concepts that are substantially similar to BNC\u2019s\nand compete with BNC\u2019s business. If the protection of BNC\u2019s proprietary rights is inadequate to prevent unauthorized use or\nappropriation by third parties, the value of BNC\u2019s brands and other intangible assets may be diminished and competitors may be able\nto more effectively mimic BNC\u2019s products, services and methods of operations. Any of these events could have an adverse effect on\nBNC\u2019s business and financial results.\n\n\n\u00a0\n\n\n\n\n\n\n28\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nBNC expects to be party to patent lawsuits\nand other intellectual property rights claims that are expensive and time consuming and, if resolved adversely, could have a significant\nimpact on BNC\u2019s business, financial condition, or results of operations.\n\n\n\u00a0\n\n\nCompanies, in particular established ones, in\nthe internet, technology, and media industries typically own large numbers of patents, copyrights, trademarks, and trade secrets, and\nfrequently enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property\nor other rights. In the event that BNC ever develops a significant intellectual property portfolio, it would face similar challenges that\nestablished companies do. In addition, various \u201cnon-practicing entities\u201d that own patents and other intellectual property rights\noften attempt to aggressively assert their rights in order to extract value from technology companies. Furthermore, from time to time\nBNC may introduce or acquire new products, which could increase BNC\u2019s exposure to patent and other intellectual property claims\nfrom competitors and non-practicing entities.\n\n\n\u00a0\n\n\nFrom time to time, BNC may receive notices from\npatent holders and other parties alleging that certain of BNC\u2019s products and services, or user content, infringe their intellectual\nproperty rights. BNC expects, should its business ever develop, to be involved in a number of intellectual property lawsuits. Defending\npatent and other intellectual property litigation is costly and can impose a significant burden on management and employees, and there\ncan be no assurances that favorable final outcomes will be obtained in all or even most cases. In addition, plaintiffs may seek, and BNC\nmay become subject to, preliminary or provisional rulings in the course of any such litigation, including potential preliminary injunctions\nrequiring us to cease some or all of BNC\u2019s anticipated operations. BNC may seek, if possible, to settle such lawsuits and disputes\non terms that are unfavorable to it. Similarly, if any litigation to which BNC is a party is resolved adversely, BNC may be subject to\nan unfavorable judgment that may not be reversed upon appeal, if appealed. The terms of such a settlement or judgment may require us to\ncease some or all of BNC\u2019s operations or require us pay substantial amounts to the other party, which BNC may not be able to afford.\nIn addition, BNC may have to seek a license to continue practices found to be in violation of a third party\u2019s rights, which may\nnot be available on reasonable terms, or at all, and may significantly increase BNC\u2019s operating costs and expenses. As a result,\nBNC may also be required to develop alternative non-infringing technology or practices or discontinue the practices. The development of\nalternative non-infringing technology or practices could require significant effort and expense, could result in less effective technology\nor practices or otherwise negatively affect the user experience, or may not be feasible. BNC\u2019s business, financial condition, and\nresults of operations could be adversely affected as a result of an unfavorable resolution of the disputes and litigation referred to\nabove.\n\n\n\u00a0\n\n\nWe rely on the ability to use the intellectual\nproperty rights of third parties, and we may lose the benefit of any intellectual property owned by or licensed to BNC.\n\n\n\u00a0\n\n\nSubstantially all of our games rely on products,\ntechnologies and other intellectual property that are licensed from third parties. The future success of our business will depend, in\npart, on our ability to obtain, retain or expand licenses for technologies and services in a competitive market. We cannot assure that\nthese third-party licenses, or support for such licensed technologies and services, will continue to be available to us on commercially\nreasonable terms, if at all. In the event that we lose the benefit of, or cannot renew and/or expand existing licenses, we may be required\nto discontinue or limit our use of the technologies and services that include or incorporate the licensed intellectual property. In addition,\nwe may not have the leverage to negotiate amendments to the Statement of Work, if required, on terms as favorable to us as those we would\nnegotiate with an unaffiliated third party.\n\u00a0\n\n\nBNC may suffer from the use of a third-party platform for its primary\ndevelopment of the Platform. \n\n\n\u00a0\n\n\nBNC\u2019s strategic decision to utilize a third-party\nplatform for the primary development of the bitnile.com metaverse presents a variety of risks. The following events, should they occur,\nwould have a materially adverse effect on our business, results of operations, financial condition, and future prospects:\n\n\n\u00a0\n\n\n\n\n\u25cf\nTechnological Dependencies:\n Employing\na third-party platform for BNC\u2019s operations creates significant technological dependencies, introducing a new set of potential risks.\nThis dependence means that BNC\u2019s operations on bitnile.com are tied to the stability, security, and strategic direction of the third-party\nprovider\u2019s platform. A primary concern is the risk of technical difficulties. In the event that the third-party platform experiences\nsystem failures, software bugs, or performance issues, BNC may encounter disruptions in its operations. This could include slowdowns,\nservice interruptions, or even complete outages, affecting user experience and potentially leading to a loss of users, decreased activity,\nand subsequently, reduced revenues. Security is another critical area of concern. If the third-party platform suffers from security breaches,\nBNC could face the risk of data exposure. This could involve unauthorized access to user data or corporate information, leading to privacy\ninfringements, potential violation of data protection laws, and damage to BNC\u2019s reputation. The fallout from such a breach could\nextend to legal repercussions and loss of trust among users and shareholders. Further, any unexpected shift in the third-party provider\u2019s\nproduct strategy could also pose a threat. If the provider decides to discontinue certain features, change its technology stack, or modify\nthe platform in a way that is not compatible with BNC\u2019s operations, it could leave BNC looking for new solutions. This could necessitate\nsignificant unplanned investment in modifications, alternative solutions, or even migration to a new platform, with associated costs and\npotential service disruptions.\n\n\n\u00a0\n\n\n\n\n\u25cf\nBusiness Continuity:\n Utilizing a third-party\nplatform as a cornerstone of operations introduces an element of risk concerning business continuity for BNC. The provider\u2019s operations,\nwhich are outside BNC\u2019s direct control, could be subject to various disruptions. This includes potential financial instability,\nservice alterations, technological failures, or even company-wide shutdowns. Such interruptions can have a significant cascading effect\non BNC\u2019s operations, threatening the regular functioning of bitnile.com. In severe cases, this could lead to a prolonged suspension\nof services, leaving BNC unable to meet its commitments to customers, partners, or other stakeholders. The fallout can be manifold, ranging\nfrom revenue loss and diminished customer trust to reputational damage in the marketplace.\n\n\n\u00a0\n\n\n\n\n\u25cf\nCompetitive Landscape:\n Utilizing a third-party\nplatform could inadvertently contribute to intensifying competitive pressures. Given that similar tools and services are available to\nother market players, BNC may find its competitive edge being eroded. Furthermore, if the third-party platform decides to venture into\nthe metaverse market, BNC could be confronted with competition from its own service provider. Additionally, the choice of platform can\nindirectly influence BNC\u2019s market position. If the platform falls out of favor in the industry or is overtaken by newer, more innovative\nsolutions, BNC\u2019s association with it could negatively impact its perceived market standing.\n\n\n\u00a0\n\u00a0\n\n\n\n\n\n\n29\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nIntellectual Property: \nEmploying third-party\ntechnology presents substantial intellectual property (\u201cIP\u201d) concerns. When the third-party provider retains the majority\nof the IP rights, it poses a significant risk for BNC. In such a situation, BNC\u2019s operational framework may hinge on technology\nfor which it does not hold ownership, potentially limiting the company\u2019s flexibility to modify or adapt the technology to suit its\nevolving needs. The use of third-party technology brings with it the risk of potential intellectual property infringement claims. If the\nthird-party platform unlawfully incorporates other companies\u2019 technologies, BNC could find itself ensnared in legal disputes.\n\n\n\u00a0\n\n\n\n\n\u25cf\nRegulatory Compliance:\n Utilizing a third-party\nplatform can present complex challenges. While employing external technology can yield substantial operational advantages, it concurrently\nexposes BNC to potential compliance risks. These can surface if the third-party platform does not adhere strictly to all pertinent regulations,\nincluding but not limited to privacy laws, data protection statutes, and industry-specific standards. Non-compliance may trigger a broad\nrange of legal consequences, from fines and penalties to enforcement actions by regulatory bodies. Additionally, compliance failure can\ninflict significant damage on BNC\u2019s reputation, leading to a loss of trust among users, shareholders, and the broader public. This\ncould potentially translate into a decline in user numbers, revenue, and market share. Furthermore, regulatory landscapes are dynamic\nand can change swiftly due to legislative amendments, court decisions, or shifts in policy enforcement. If the third-party provider fails\nto adapt to these changes promptly, BNC might find itself out of compliance unintentionally, exposing the company to the aforementioned\nrisks.\n\n\n\u00a0\n\n\nWe rely on Amazon Web Services for a portion\nof our cloud infrastructure in certain areas, and as a result any disruption of AWS would negatively affect our operations and significantly\nharm our business.\n\n\n\u00a0\n\n\nWe\nrely on Amazon Web Services (\u201cAWS\u201d) a third-party provider for a portion of our backend services, including for some of our\nhigh-speed databases, scalable object storage, and message queuing services. For location-based support areas, we outsource certain aspects\nof the infrastructure relating to our Platform. As a result, our operations depend, in part, on AWS\u2019 ability to protect their services\nagainst damage or interruption due to a variety of factors, including infrastructure changes, human or software errors, natural disasters,\npower or telecommunications failures, criminal acts, capacity constraints and similar events. Our developers, creators, and users need\nto be able to access our Platform at any time, without interruption or degradation of performance. Our Platform depends, in part, on the\nvirtual cloud infrastructure hosted in AWS. Although we have disaster recovery plans that utilize multiple AWS availability zones to support\nour requirements, any incident affecting their infrastru\ncture that may be caused by fire, flood, severe storm, earthquake or other\nnatural disasters, power loss, telecommunications failures, cyber-attacks, terrorist or other attacks, and other similar events beyond\nour control, could adversely affect our cloud-native Platform. Any disruption of or interference with our use of AWS could impair our\nability to deliver our Platform reliably to our developers, creators, and users.\n\n\n\u00a0\n\n\nAdditionally, threats or attacks from computer\nmalware, ransomware, viruses, social engineering (including phishing attacks), denial of service or other attacks, employee theft or misuse\nand general hacking have occurred and are becoming more prevalent in our industry, particularly against cloud-native services and vendors\nof security solutions. If AWS were to experience any of these security incidents, it could result in unauthorized access to, damage to,\ndisablement or encryption of, use or misuse of, disclosure of, modification of, destruction of, or loss of our data or our developers\u2019,\ncreators\u2019, and users\u2019 data or disrupt our ability to provide our Platform or service.\n\n\n\u00a0\n\n\nA prolonged AWS service disruption affecting our\nPlatform for any of the foregoing reasons would adversely impact our ability to serve our users, developers, and creators and could damage\nour reputation with current and potential users, developers, and creators, expose us to liability, result in substantial costs for remediation,\ncause us to lose users, developers, and creators, or otherwise harm our business, financial condition, or results of operations. and users.\nWe may also incur significant costs for using alternative hosting cloud infrastructure services or taking other actions in preparation\nfor, or in reaction to, events that damage or interfere with the AWS services we use.\n\n\n\u00a0\n\n\nIn the event that our AWS service agreements\nare terminated, or there is a lapse of service, elimination of AWS services or features that we utilize, we could experience interruptions\nin access to our Platform as well as significant delays and additional expense in arranging for or creating new facilities or re-architecting\nour Platform for deployment on a different cloud infrastructure service provider, which would adversely affect our business, financial\ncondition, and results of operations.\n\n\n\u00a0\n\n\nRisks Relating to Agora\n\n\n\u00a0\n\n\nIn March 2023, the Company experienced a significant\nchange in its business model as it has shifted its focus towards building out the Platform towards a revenue-generating model and away\nfrom the non-core legacy subsidiaries Agora and Zest Labs. As a result of the shift in business strategy, the related risk factors for\nAgora have been updated accordingly.\n\n\n\u00a0\n\n\n\n\n\n\n30\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAs the Company devotes substantially all of\nits growth capital towards building out the Platform, there may be minimal remaining growth capital, if any, to devote to Agora\u2019s\nhosting business. \n\n\n\u00a0\n\n\nAs a result of the Company\u2019s change in business\nstrategy as well as capital constraints, the Company has limited resources to devote to building out Agora\u2019s hosting business. To\ndate, Agora has been unable to fulfill the terms of the MSA it signed with BitNile, Inc. in December 2022, and the Company does not currently\nhave clarity on if it will be able to successfully enter the hosting business.\n\n\n\u00a0\n\n\nAgora lacks an operating history in the digital\nasset hosting space, and its new business is subject to a number of significant risks and uncertainties which affect its future viability.\n\n\n\u00a0\n\n\nAs of March 31, 2023, Agora has invested in a\nBitcoin mining business which was then discontinued as Bitstream transitioned to a digital asset hosting model. That business, Bitstream,\nentered agreements and arrangements for equipment and power contracts. In order to proceed at its first digital asset hosting facility\nin Texas, it must enter into a long-term contract to purchase electric power from the power grid in Texas and use the power to mine Bitcoin\non behalf of third parties as well as take advantage of future power shortages such as the one that affected Texas in the winter of 2021\nand may be beginning to occur in Texas in June 2023. Among the risks and uncertainties are:\n\n\n\u00a0\n\n\n\n\n\u25cf\nAgora is currently in discussions with a number of key players in this industry, but has not yet executed\nany definitive agreements to purchase the power needed from the retail power provider, and if it is able to enter into an agreement for\nthe power, the terms may not be as attractive as it currently expects, which may threaten the profitability of this venture;\n\n\n\u00a0\n\n\n\n\n\u25cf\nAlthough Agora entered into a MSA for digital asset hosting services for BitNile, Inc. in December 2022,\nit has not been able to successfully perform its obligations under that contract and does not know if it has the capital resources to\nfulfill its obligations under this contract or a digital hosting contract for another party now or at any point in the future;\n\n\n\u00a0\n\n\n\n\n\u25cf\nIf Agora is unable to enter into a definitive agreement with the power broker, any deposits Agora paid to the power broker will be forfeited and\nAgora will lack a source of affordable power. This would materially and adversely affect Agora\u2019s ability to operate its digital\nasset hosting business and its financial condition. Agora has fully expensed the deposits as of March 31, 2023;\n\n\n\u00a0\n\n\n\n\n\u25cf\nAgora purchased and received delivery of 5,000 Canaan AvalonMiner 841 miners; the hashrate versus the\nBitcoin reward of these miners is not economically viable at today\u2019s prices, and the market to sell these miners is minimal. As\na result, the Company took an impairment charge on these miners for the fiscal year ended on March 31, 2023;\n\n\n\u00a0\n\n\n\n\n\u25cf\nAgora\u2019s team has minimal experience in commercial scale Bitcoin hosting operations;\n\n\n\u00a0\n\n\n\n\n\u25cf\nAgora may have difficulty finding third parties willing to consign its miners to them for the purposes\nof executing on a hosting agreement;\n\n\n\u00a0\n\n\n\n\n\u25cf\nBecause of supply chain disruptions including those relating to computer chips, Agora could encounter\ndelivery delays or other difficulties with the purchase, installing and operating of Agora\u2019s power infrastructure at our facility,\nwhich would adversely affect its ability to generate material revenue from its operations;\n\n\n\u00a0\n\n\n\n\n\u25cf\nThere are a growing number of well capitalized digital asset hosting companies; and\n\n\n\u00a0\n\n\n\n\n\u25cf\nBans from governments such as China and New York, together with pending legislation in Congress and other\nregulatory initiatives threaten the ability to use Bitcoin as a medium of exchange and thus impact the demand for mining and hosting;\n\n\n\u00a0\n\n\nFor all of these reasons, Agora\u2019s digital\nasset hosting business may not be successful.\n\n\n\u00a0\n\n\nAgora is subject to risks associated with its\nneed for sufficient real property and a continuous source of significant electric power at economically favorable prices, and its current\nefforts, outstanding litigation against Bitstream, and negotiations for these resources to commence and grow operations at its West Texas\nfacilities may ultimately be unsuccessful.\n\n\n\u00a0\n\n\nAgora\u2019s Bitcoin mining operations require\nboth land on which to install mining equipment and significant amounts of electric power to operate such equipment. On December 10, 2021,\nBitstream entered into a lease agreement pursuant to which Bitstream leased 20 acres of land for an initial term of 10 years and a subsequent\nterm of 10 years to set up mining equipment in West Texas in exchange for monthly payments equal to 3% of the electricity costs. If Bitstream\ndoes not use the leased land for 12 consecutive months, the lease will terminate. On January 3, 2022, Agora finalized a land purchase\nagreement for a separate parcel of 20 acres of land ($12,500 per acre) in West Texas for $250,000, of which $125,000 was paid for by Priority\nPower Management (\u201cPPM\u201d) to assist in the funding as Agora goes through the registration statement process. Agora has no obligation\nto repay PPM and it has no ownership of the land. Agora has an option to sell back this land to the sellers at $400 per acre upon cessation\nof the land being used as a data center.\n\n\n\u00a0\n\n\n\n\n\n\n31\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAdditionally, Agora has already paid $1,096,000 to a power broker for\nassistance in obtaining 12 megawatts (\u201cMW\u201d) of electricity at this site, with the potential to increase the available capacity\nat the substation to 48 MW. Agora had entered into a second letter of intent for a second location in October 2021 where it has already\npaid $1,326,500 and committed to pay $1,628,000 upon the execution of a definitive agreement; however, these high costs and uncertainties\nmay harm its ability to become profitable, particularly if the price of Bitcoin declines further or if Agora is unable to enter into definitive\nagreements for the power on favorable terms or at all. While Agora has arranged for the delivery of the transformers necessary to use\nup to 42 MW (with agreement to go to 78 MW in the next six to twelve months) of electricity, Agora has conditional and unconditional rights\nto two sites in West Texas for up to 372 MW, subject to approval by the local government, which is the only required approval needed.\nIf Agora or the third parties with whom it contracts should fail to obtain, deliver and install the necessary items for the required energy\nas and when needed and on commercially viable terms, its results of operations and financial condition will be materially adversely affected.\nThere may not be an alternative source of electricity, or the resources needed to access it, and the establishment and growth of Agora\u2019s\nBitcoin mining operations may be stifled or hindered as a result. The Company received $865,000 related to the deposits paid and expensed\nthe remaining amounts related to these agreements in the fiscal year ended March 31, 2023.\n\n\n\u00a0\n\n\nThe Company\u2019s lack of capital has hindered\nBitstream\u2019s operations and resulted in various litigation related to Bitstream for lack of payment or lack of contract performance.\nOn April 22, 2022, BitStream Mining and Ecoark Holdings were sued in Travis County, Texas District Court (Docket #79176-0002) by Print\nCrypto Inc. in the amount of $256,733.28 for failure to pay for equipment purchased to operate BitStream Mining\u2019s Bitcoin mining\noperation. On July 15, 2022, BitStream Mining and two of their Management were parties to a petition filed in Ward County District Court\nby 1155 Distributor Partners-Austin, LLC d/b/a Lonestar Electric Supply in the amount of $414,026.83 for failure to pay for equipment\npurchased to operate the Company\u2019s Bitcoin mining operation. On October 17, 2022, BitStream Mining was a party to a petition filed\nin Ward County District Court by VA Electrical Contractors, LLC in the amount of $1,666,187.18 for failure to pay for equipment purchased\nto operate the Company\u2019s Bitcoin mining operation. See Legal Proceedings on page 38, for additional information.\n\n\n\u00a0\n\n\nAdditionally, Agora\u2019s digital asset hosting\noperations could be materially and adversely affected by prolonged power outages, and it may have to reduce or cease its operations in\nthe event of an extended power outage, or as a result of the unavailability or increased cost of electric power as occurred in Texas\nin the winter of 2021. While Agora intends to participate in the responsive reserve program of the Electric Reliability Council of Texas,\nor ERCOT, should this issue arise, which could offset some or all of the revenue losses, were this were to occur, its business and results\nof operations could nonetheless be materially and adversely affected, particularly if the reserve program fails.\n\n\n\u00a0\n\n\nAgora\u2019s digital asset hosting costs could\noutpace its digital asset hosting revenues, which would continue to put a strain on its business or increase its losses.\n\n\n\u00a0\n\n\nAgora\u2019s digital asset hosting operations\nwill be costly and its expenses may increase in the future. This expense increase may not be offset by a corresponding increase in hosting\nrevenue. Agora\u2019s expenses may be greater than it anticipates, and its investments to make its digital asset hosting business more\nefficient may not succeed and may outpace monetization efforts. For example, if prices of Bitcoin decline or remain low, and power costs\nincrease, Agora\u2019s ability to become profitable will also decline. Similarly, increases in Agora\u2019s costs without a corresponding\nincrease in its revenue would increase our losses and could seriously harm our financial condition.\n\n\n\u00a0\n\n\nWe are subject to a highly evolving regulatory landscape and any\nadverse changes to, or our failure to comply with, any laws and regulations could adversely affect our business, prospects or operations.\n\n\n\u00a0\n\n\nOur business is subject to extensive laws, rules,\nregulations, policies and legal and regulatory guidance, including those governing securities, commodities, crypto asset custody, exchange\nand transfer, data governance, data protection, cybersecurity and tax. Many of these legal and regulatory regimes were adopted prior to\nthe advent of the Internet, mobile technologies, crypto assets and related technologies. As a result, they do not contemplate or address\nunique issues associated with the crypto economy, are subject to significant uncertainty, and vary widely across U.S. federal, state and\nlocal and international jurisdictions. These legal and regulatory regimes, including the laws, rules and regulations thereunder, evolve\nfrequently and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with\none another. Moreover, the complexity and evolving nature of our business and the significant uncertainty surrounding the regulation of\nthe crypto economy requires us to exercise our judgement as to whether certain laws, rules and regulations apply to us, and it is possible\nthat governmental bodies and regulators may disagree with our conclusions. To the extent we have not complied with such laws, rules and\nregulations, we could be subject to significant fines and other regulatory consequences, which could adversely affect our business, prospects\nor operations. As Bitcoin has grown in popularity and in market size, the Federal Reserve Board, U.S. Congress and certain U.S. agencies\n(e.g., the CFTC, SEC, the Financial Crimes Enforcement Network (\u201cFinCEN\u201d) and the Federal Bureau of Investigation) have begun\nto examine the operations of the Bitcoin network, Bitcoin users and the Bitcoin exchange market. Regulatory developments and/or our business\nactivities may require us to comply with certain regulatory regimes. For example, to the extent that our activities cause us to be deemed\na money service business under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act, we may be required\nto comply with FinCEN regulations, including those that would mandate us to implement certain anti-money laundering programs, make certain\nreports to FinCEN and maintain certain records.\n\n\n\u00a0\n\n\n\n\n\n\n32\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf politics in the United States, particularly\nthe climate change movement, continues to affect Bitcoin mining, it could materially and adversely affect Agora\u2019s business and future\nresults of operation and financial condition.\n\n\n\u00a0\n\n\nBitcoin mining uses very large amounts of electricity\nto operate the high speed computers used in mining. Because West Texas presently has low electricity rates, Agora arranged for power supplies\nthere to support its planned operations. On November 23, 2022, the Governor of New York signed into law a bill passed by the State of\nNew York legislature, which imposed a two-year moratorium on certain cryptocurrency mining, including Bitcoin mining. While this action\ndoes not directly impact Agora\u2019s current operations, which would be conducted in Texas, it may be the beginning of a new wave of\nclimate change regulations aimed at preventing or reducing the growth of Bitcoin mining in the U.S., including potentially jurisdictions\nin which Agora now operates or may in the future operate. While New York is currently a state under Democratic control and very supportive\nof climate change regulations in contrast to Texas, there is a risk that Democrats may gain control of Texas and enact legislation that\nwould make Agora\u2019s operations in Texas economically inviable. Further if other states begin to adopt legislation that makes cryptocurrency\nmining prohibitively expensive or bans it, it could create a surge of demand in Texas and increase the cost of power there. The above-described\ndevelopments could also demonstrate the beginning of a regional or global regulatory trend in response to environmental and energy preservation\nor other concerns surrounding cryptocurrencies, and similar action in a jurisdiction in which Agora operates or in general could have\ndevastating effects to our operations. If further regulation follows, it is possible that the digital asset hosting industry may not be\nable to adjust to a sudden and dramatic overhaul to our ability to deploy energy towards the operation of mining equipment.\n\n\n\u00a0\n\n\nThe crypto economy is novel and has little\nto no access to policymakers or lobbying organizations, which may harm our ability to effectively react to proposed legislation and regulation\nof crypto assets or crypto asset platforms adverse to our business.\n\n\n\u00a0\n\n\nAs crypto assets have grown in both popularity\nand market size, various U.S. federal, state and local and foreign governmental organizations, consumer agencies and public advocacy groups\nhave been examining the operations of crypto networks, users and platforms, with a focus on how crypto assets can be used to launder the\nproceeds of illegal activities, fund criminal or terrorist enterprises, and the safety and soundness of platforms and other service providers\nthat hold crypto assets for users. Many of these entities have called for heightened regulatory oversight, and have issued consumer advisories\ndescribing the risks posed by crypto assets to users and investors. For instance, in July 2019, then-U.S. Treasury Secretary Steven Mnuchin\nstated that he had \u201cvery serious concerns\u201d about crypto assets. In recent months, members of Congress have made inquiries\ninto the regulation of crypto assets, and Gary Gensler, Chair of the Commission, has made public statements regarding increased regulatory\noversight of crypto assets. Outside the United States, several jurisdictions have banned so-called initial coin offerings, such as China\nand South Korea, while Canada, Singapore, Hong Kong, have opined that token offerings may constitute securities offerings subject to local\nsecurities regulations. In July 2019, the United Kingdom\u2019s Financial Conduct Authority proposed rules to address harm to retail\ncustomers arising from the sale of derivatives and exchange-traded notes that reference certain types of crypto assets, contending that\nthey are \u201cill-suited\u201d to retail investors due to extreme volatility, valuation challenges and association with financial crimes.\nIn May 2021, the Chinese government called for a crackdown on Bitcoin mining and trading, and in September 2021, Chinese regulators instituted\na blanket ban on all crypto mining and transactions, including overseas crypto exchange services taking place in China, effectively making\nall crypto-related activities illegal in China. In January 2022, the Central Bank of Russia called for a ban on cryptocurrency activities\nranging from mining to trading, and on March 8, 2022, President Biden announced an executive order on cryptocurrencies which seeks to\nestablish a unified federal regulatory regime for currencies.\n\n\n\u00a0\n\n\nThe crypto economy is novel and has little to\nno access to policymakers and lobbying organizations in many jurisdictions. Competitors from other, more established industries, including\ntraditional financial services, may have greater access to lobbyists or governmental officials, and regulators that are concerned about\nthe potential for crypto assets for illicit usage may affect statutory and regulatory changes with minimal or discounted inputs from the\ncrypto economy. As a result, new laws and regulations may be proposed and adopted in the United States and internationally, or existing\nlaws and regulations may be interpreted in new ways, that harm the crypto economy or crypto asset platforms, which could adversely impact\nour business.\n\n\n\u00a0\n\n\nAgora\u2019s hosting operations, including\nthe miners, the housing infrastructure, the land and the facilities as a whole in which its miners are operated, are subject to risks\nrelated to uninsured or underinsured losses and potential damage and contingencies for which it may not be adequately prepared.\n\n\n\u00a0\n\n\nAgora\u2019s initial facilities are, and any\nfuture facilities it may establish will be, subject to a variety of risks relating to housing all of its operations, which include keeping\nexpensive revenue-generating equipment at a single physical location. Agora had insurance covering general liability, but elected to forgo\nrenewing the policy until it has clear visibility into the future viability of its hosting operations. If, upon reviewing this policy\nand commencing hosting operations, the policy may not cover all potential losses fully or at all. For example, Agora\u2019s facilities\ncould be rendered inoperable, temporarily or permanently, as a result of a fire or other natural disaster or by a terrorist or other attack\non a facility. The security and other measures Agora takes to protect against these risks may not be sufficient. In the event of an uninsured\nor under-insured loss, including a loss in excess of insured limits, at any of the miners in Agora\u2019s network, such miners consigned\nto it for hosting by a third party, may not be adequately repaired in a timely manner or at all and Agora may lose some or all of the\nfuture revenues which could have otherwise been derived from such miners. To the extent the miners, the housing infrastructure in which\nthey are held, or the land itself is permanently damaged, Agora may not be able to bear the cost of repair or replacement. Should any\nof these events transpire, Agora may not be able to recover, could lose a material amount of potential revenue, and its business and results\nof operations could be materially harmed as a result.\n\n\n\u00a0\n\n\n\n\n\n\n33\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAgora has had difficulty and expects to continue\nto have difficulty collecting on its $4,250,000 note receivable received in exchange for its divestiture of Trend Holdings.\n\n\n\u00a0\n\n\nAgora was issued a Senior Secured Promissory Note\nby Trend Ventures, LP on June 16, 2022. The Trend Ventures Note was the consideration paid to Agora for the acquisition of Trend Discovery\nHoldings. The Trend Ventures Note is in the principal amount of $4,250,000. As of the date of this Annual Report, Agora has not received\nany principal or interest payments on this note. Agora amended the note on May 15, 2023 to allow Trend Ventures additional time to obtain\nthe necessary resources for repayment. See Note 25 in our consolidated financial statements for details on the amendment. The Company\nhas fully reserved this note receivable and accrued interest receivable as of March 31, 2023.\n\n\n\u00a0\n\n\nRisks Relating to Zest Labs\n\n\n\u00a0\n\n\nAs the Company devotes substantially all of\nits growth capital towards building out the Platform, there may be minimal remaining growth capital, if any, to devote towards maintaining,\nlicensing, or selling Zest Lab\u2019s intellectual property or towards current or future intellectual property litigation. \n\n\n\u00a0\n\n\nAs a result of the Company\u2019s change in business\nstrategy as well as capital constraints, the Company has had limited resources to devote to maintaining, licensing or selling Zest Lab\u2019s\nintellectual property. Furthermore, the Company has limited resources to devote to current and future litigation other than that litigation\nwhich has been secured properly by a litigation funding firm.\n\n\n\u00a0\n\n\nOur ability to return shareholder value with\nrespect to Zest Labs depends to a large extent on the outcome of the litigation related to protection of our intellectual property rights.\n\n\n\u00a0\n\n\nAs previously disclosed, in April 2021, a federal\njury found in our favor on three claims and awarded us damages in our lawsuit against Walmart Inc. and judgment was entered in our favor\nthat same month. For more information including disclosure on recent events, see Item 3. \u201cLegal Proceedings\u201d in this Report.\n\n\n\u00a0\n\n\nWe expect that Walmart will appeal the District\nCourt\u2019s decision. Intellectual property and similar litigation is subject to uncertainty. There is no assurance that we will be\nsuccessful in our efforts related to this lawsuit or if we are, what amounts we will be able to recover.\n\n\n\u00a0\n\n\nGeneral Risks\n\n\n\u00a0\n\n\nOur future success depends on our ability to\nretain and attract high-quality personnel, and the efforts, abilities and continued service of our senior management.\n\n\n\u00a0\n\n\nOur future success depends on our ability to attract,\nhire, train and retain a number of highly skilled employees and on the service and performance of our senior management team and other\nkey personnel for each of our subsidiaries particularly with the planned spin-offs. The loss of the services of our executive officers\nor other key employees and inadequate succession planning could cause substantial disruption to our business operations, deplete our institutional\nknowledge base and erode our competitive advantage, which would adversely affect our business. Competition for qualified personnel possessing\nthe skills necessary to implement our strategy is intense, and we may fail to attract or retain the employees necessary to execute our\nbusiness model successfully. We do not have \u201ckey person\u201d life insurance policies covering any of our executive officers.\n\n\n\u00a0\n\n\nOur success will depend to a significant degree\nupon the continued efforts of our key management, engineering and other personnel, many of whom would be difficult to replace. In particular,\nwe believe that our future success is highly dependent on the roles of the Company\u2019s Chief Executive Officer (\u201cCEO\u201d)\nand Chief Financial Officer (\u201cCFO\u201d) as well as the shared staff in AAI that are currently managing BNC. In conjunction with\nthe BNC transaction, the Company\u2019s CEO, Randy May, and CFO, Jay Puchir, plan to depart the Company in good standing at a future\ndate when the Company\u2019s preferred shareholder, AAI, elects to appoint new officers in the Company, presuming that Nasdaq permits\nAAI to make such appointments. Additionally, the key personnel in the Company\u2019s core business in AAI are currently working in dual\nroles within AAI and may not be able to devote full time efforts towards BNC.\n\n\n\u00a0\n\n\nDeterioration of global economic conditions\ncould adversely affect our business\n.\n\n\n\u00a0\n\n\nThe global economy and capital and credit markets\nhave experienced exceptional turmoil and upheaval over the past several years. Ongoing concerns about the systemic impact of potential\nlong-term and widespread recession and potentially prolonged economic recovery, volatile energy costs, fluctuating commodity prices and\ninterest rates, volatile exchange rates, geopolitical issues, including the recent outbreak of armed conflict in Ukraine, natural disasters\nand pandemic illness, instability in credit markets, cost and terms of credit, consumer and business confidence and demand, a changing\nfinancial, regulatory and political environment, and substantially increased unemployment rates have all contributed to increased market\nvolatility and diminished expectations for many established and emerging economies, including those in which we operate. Furthermore,\nausterity measures that certain countries may agree to as part of any debt crisis or disruptions to major financial trading markets may\nadversely affect world economic conditions and have an adverse impact on our business. These general economic conditions could have a\nmaterial adverse effect on our cash flow from operations, results of operations and overall financial condition.\n\n\n\u00a0\n\n\n\n\n\n\n34\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe availability, cost and terms of credit also\nhave been and may continue to be adversely affected by illiquid markets and wider credit spreads. Concern about the stability of the markets\ngenerally, and the strength of counterparties specifically, has led many lenders and institutional investors to reduce credit to businesses\nand consumers. These factors have led to a decrease in spending by businesses and consumers over the past several years, and a corresponding\nslowdown in global infrastructure spending.\u00a0\n\n\n\u00a0\n\n\nContinued uncertainty in the U.S. and international\nmarkets and economies and prolonged stagnation in business and consumer spending may adversely affect our liquidity and financial condition,\nand the liquidity and financial condition of our customers, including our ability to access capital markets and obtain capital lease financing\nto meet liquidity needs.\n\n\n\u00a0\n\n\nNo assurance of successful expansion of operations.\n\n\n\u00a0\n\n\nOur significant increase in the scope and the\nscale of our operations, including the hiring of additional personnel, has resulted in significantly higher operating expenses. We anticipate\nthat our operating expenses will continue to increase. Expansion of our operations may also make significant demands on our management,\nfinances and other resources. Our ability to manage the anticipated future growth, should it occur, will depend upon a significant expansion\nof our accounting and other internal management systems and the implementation and subsequent improvement of a variety of systems, procedures\nand controls. We cannot assure that significant problems in these areas will not occur. Failure to expand these areas and implement and\nimprove such systems, procedures and controls in an efficient manner at a pace consistent with our business could have a material adverse\neffect on our business, financial condition and results of operations. We cannot assure that attempts to expand our marketing, sales,\nmanufacturing and customer support efforts will succeed or generate additional sales or profits in any future period. As a result of the\nexpansion of our operations and the anticipated increase in our operating expenses, along with the difficulty in forecasting revenue levels,\nwe expect to continue to experience significant fluctuations in its results of operations.\n\n\n\u00a0\n\n\nIf we cannot manage our growth effectively,\nour results of operations would be materially and adversely affected.\n\n\n\u00a0\n\n\nWe experienced a significant change in our business\nmodel as we have shifted its focus towards building out the Platform towards a revenue-generating model and away from the legacy subsidiaries\nAgora and Zest Labs. Our business model relies on our ability to generate revenue through gaming and sweepstakes events in the metaverse,\nwhich is a nascent industry. Businesses that grow rapidly often have difficulty managing their growth while maintaining their compliance\nand quality standards. If we grow as rapidly as we anticipate, we will need to expand our management by recruiting and employing additional\nexecutive and key personnel capable of providing the necessary support. There can be no assurance that our management, along with our\nstaff, will be able to effectively manage our growth. Our failure to meet the challenges associated with rapid growth could materially\nand adversely affect our business and operating results.\n\n\n\u00a0\n\n\nIf we fail to maintain an effective system\nof disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements\nor comply with applicable regulations could be impaired. \n\n\n\u00a0\n\n\nWe are subject to the reporting requirements of\nthe Exchange Act and the Sarbanes-Oxley Act which require, among other things, that public companies maintain effective disclosure controls\nand procedures and internal control over financial reporting.\n\n\n\u00a0\n\n\nAlthough our management concluded that our disclosure\ncontrols and procedures were effective as of March 31, 2023, any failure to maintain effective controls or any difficulties encountered\nin their implementation or improvement in the future could cause us to fail to meet our reporting obligations and may result in a restatement\nof our financial statements for prior periods. If we fail to maintain an effective system of disclosure controls and internal control\nover financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could\nbe impaired, which could result in loss of investor confidence and could have an adverse effect on our stock price.\n\n\n\u00a0\n\n\nIf our accounting\ncontrols and procedures are circumvented or otherwise fail to achieve their intended purposes, our business could be seriously harmed.\n\n\n\u00a0\n\n\nWe evaluate our disclosure\ncontrols and procedures as of the end of each fiscal quarter, and annually review and evaluate our internal control over financial reporting\nin order to comply with the Commission\u2019s rules relating to internal control over financial reporting adopted pursuant to the Sarbanes-Oxley\nAct of 2002. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,\nprojections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of\nchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate. If we fail to maintain effective\ninternal control over financial reporting or our management does not timely assess the adequacy of such internal control, we may be subject\nto regulatory sanctions, and our reputation may decline.\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n35\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nFailure of information technology systems or\ndata security breaches, including as the result of cyber security attacks, affecting us, our business associates, or our industry, may\nadversely affect our financial condition and operating results.\n\n\n\u00a0\n\n\nWe depend on information technology systems and\nservices in conducting our business. We and others in the industries in which we operate use these technologies for internal purposes,\nincluding data storage and processing, transmissions, as well as in our interactions with our business associates. Examples of these digital\ntechnologies include analytics, automation, and cloud services. If any of our financial, operational, or other data processing systems\nare compromised, fail or have other significant shortcomings, it could disrupt our business, require us to incur substantial additional\nexpenses, result in potential liability or reputational damage or otherwise have a material adverse effect on our financial condition\nand operating results.\n\n\n\u00a0\n\n\nFor example, the operator of the Colonial Pipeline\nwas forced to pay $4.4 million in ransom to hackers as the result of a cyberattack disabling the pipeline for several days in May 2021.\nThe attack also resulted in gasoline price increases and shortages across the East Coast of the United States. As we depend on the availability\nand price of gasoline in our transportation business, any significant increase in the price and/or shortage of gasoline such as that experienced\nfrom the May 2021 cyberattack would have a material adverse effect on our business and operating results. Additionally, our Agora operations\ndepend on the functioning of Bitcoin mining computers and digital wallets maintained by third parties, which are also subject to enhanced\nrisks of a cyberattack as a result.\n\n\n\u00a0\n\n\nOur limited ability to protect our proprietary\ninformation and technology may adversely affect our ability to compete, and our products could infringe upon the intellectual property\nrights of others, resulting in claims against us, the results of which could be costly.\n\n\n\u00a0\n\n\nMany of our products consist entirely or partly\nof proprietary technology owned by us. Although we seek to protect our technology through a combination of copyrights, trade secret laws\nand contractual obligations, these protections may not be sufficient to prevent the wrongful appropriation of our intellectual property,\nnor will they prevent our competitors from independently developing technologies that are substantially equivalent or superior to our\nproprietary technology. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the\nlaws of the U.S. In order to defend our proprietary rights in the technology utilized in our products from third party infringement, we\nmay be required to institute legal proceedings, which would be costly and would divert our resources from the development of our business.\nIf we are unable to successfully assert and defend our proprietary rights in the technology utilized in our products, our future results\ncould be adversely affected.\n\n\n\u00a0\n\n\nAlthough we attempt to avoid infringing known\nproprietary rights of third parties in our product development efforts, we may become subject to legal proceedings and claims for alleged\ninfringement from time to time in the ordinary course of business. Any claims relating to the infringement of third-party proprietary\nrights, even if not meritorious, could result in costly litigation, divert management\u2019s attention and resources, require us to reengineer\nor cease sales of our products or require us to enter into royalty or license agreements which are not advantageous to us. In addition,\nparties making claims may be able to obtain an injunction, which could prevent us from selling our products in the U.S. or abroad.\n\n\n\u00a0\n\n\nFuture sales of our common stock in the public\nmarket could lower the price of our common stock and impair our ability to raise funds in future securities offerings.\n\n\n\u00a0\n\n\nOf 2,522,816 shares of common stock outstanding as of July10, 2023,\napproximately 2,212,944 shares are held by investors who are not our affiliates\u00a0or holders of restricted stock. Of these 2,522,816\nshares, 2,329,420 shares are unrestricted freely tradeable stock and 193,396 shares are being held as restricted shares. The remaining\nshares may be sold subject to the volume limits of Rule 144 which limits sales by any affiliate to the greater of 1% of outstanding shares\nin any three-month period or the average weekly trading volume over a four-week period. Future sales of a substantial number of shares\nof our common stock in the public market, or the perception that such sales may occur, could adversely affect the then prevailing market\nprice of our common stock and could make it more difficult for us to raise funds in the future through an offering of our securities.\n\n\n\u00a0\n\n\nThe price of our common stock is subject to\nvolatility, including for reasons unrelated to our operating performance, which could lead to losses by investors and costly securities\nlitigation.\n\n\n\u00a0\n\n\nThe trading price of our common stock is likely\nto be highly volatile and could fluctuate in response to a number of factors, some of which may be outside our control, including but\nnot limited to, the following factors:\n\n\n\u00a0\n\n\n\n\n\u25cf\nfuture developments within BNC or the Platform and the results of any shareholder vote on the BNC transaction\nand any Nasdaq listing concerns arising from the BNC transaction;\n\n\n\u00a0\n\n\n\n\n\u25cf\nchanges in market valuations of companies in the nascent metaverse industry;\n\n\n\u00a0\n\n\n\n\n\u25cf\nfuture events related to the market for Bitcoin including regulation;\n\n\n\u00a0\n\n\n\n\n\n\n36\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nthe timing and record dates regarding the Company\u2019s announced spin-offs;\n\n\n\u00a0\n\n\n\n\n\u25cf\nregulatory initiatives from the Biden Administration;\n\n\n\u00a0\n\n\n\n\n\u25cf\nspecific regulations relating to the nascent industry of gaming or sweepstakes games in the metaverse;\n\n\n\u00a0\n\n\n\n\n\u25cf\nannouncements of developments by us or our competitors;\n\n\n\u00a0\n\n\n\n\n\u25cf\nthe continuation of the stock market slump, rising interest rates, and any related adverse events affecting\nthe economy;\n\n\n\u00a0\n\n\n\n\n\u25cf\nannouncements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures,\ncapital commitments, significant contracts, or other material developments that may affect our prospects;\n\n\n\u00a0\n\n\n\n\n\u25cf\nthe results of the Walmart litigation;\n\n\n\u00a0\n\n\n\n\n\u25cf\nactual or anticipated variations in our operating results;\n\n\n\u00a0\n\n\n\n\n\u25cf\nadoption of new accounting standards affecting our industry;\n\n\n\u00a0\n\n\n\n\n\u25cf\nfuture planned departures of the Company\u2019s CEO, CFO, and CAO to be replaced by appointees by AAI,\nthe Company\u2019s most significant shareholder;\n\n\n\u00a0\n\n\n\n\n\u25cf\nadditions or departures of other key personnel or directors;\n\n\n\u00a0\n\n\n\n\n\u25cf\nsales of our common stock or other securities in the open market; and\n\n\n\u00a0\n\n\n\n\n\u25cf\nother events or factors, many of which are beyond our control.\n\n\n\u00a0\n\n\nThe stock market is subject to significant price\nand volume fluctuations. In the past, following periods of volatility in the market price of a company\u2019s securities, securities\nclass action litigation has often been initiated against such a company. Litigation initiated against us, whether or not successful, could\nresult in substantial costs and diversion of our management\u2019s attention and Company resources, which could harm our business and\nfinancial condition.\n\n\n\u00a0\n\n\nYou will experience dilution if we issue additional\nequity securities in future financing transactions or under derivative securities outstanding as of the date of this Report.\n\n\n\u00a0\n\n\nWe have stock options and warrants outstanding\nthat are exercisable for shares of our common stock, and as a result of our sale of Series A Preferred Stock in June of 2022 to Ault Lending,\na wholly owned subsidiary of AAI, Ault Lending could convert additional shares of the Series A and cause dilution to the Company\u2019s\nother investors. To the extent that such outstanding securities are converted into shares of our common stock, or securities are issued\nin future financings, our investors may experience dilution with respect to their investment in us.\n\n\n\u00a0\n\n\nFuture changes in the fair value of outstanding\nwarrants could result in volatility of our reported results of operations.\n\n\n\u00a0\n\n\nBecause of the derivative liability caused by\nour outstanding warrants, the increase or decrease in our common stock price each quarter (measured from the first day to the last day)\nis either a non-cash expense or income. If the price rises, we are required to report the expense, which increases our actual operating\nloss. Contrarily a price decrease in a given quarter will cause us to report income. The risk is principally that investors will react\nto our reported bottom line, which will increase volatility in our stock price.\n\n\n\u00a0\n\n\nBecause we can issue \u201cblank check\u201d\npreferred stock without shareholder approval, it could adversely impact the rights of holders of our common stock.\n\n\n\u00a0\n\n\nUnder our Articles of Incorporation, subject to\nthe approval of the Series A holder, Ault Lending, our Board of Directors, may approve an issuance of up to 5,000,000 shares of \u201cblank\ncheck\u201d preferred stock without seeking shareholder approval, though in certain cases Nasdaq approval could be required. Any additional\nshares of preferred stock that we issue in the future may rank ahead of our common stock in terms of dividend or liquidation rights and\nmay have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing those shares to\nbe converted into shares of common stock, which would dilute the value of common stock to current shareholders and could adversely affect\nthe market price of our common stock. In addition, the preferred stock could be utilized, under certain circumstances, as a method of\ndiscouraging, delaying or preventing a change in control of our Company. Although we have no present intention to issue any additional\nshares of authorized preferred stock, there can be no assurance that we will not do so in the future.\n\n\n\u00a0\n\n\n\n\n\n\n37\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe requirements of being a public company\nmay strain our resources, divert management\u2019s attention and affect our ability to attract and retain qualified board members.\n\n\n\u00a0\n\n\nWe are a public company and subject to the reporting\nrequirements of the Exchange Act, and the Sarbanes-Oxley Act of 2002. The Exchange Act requires, among other things, that we file annual,\nquarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things,\nthat we maintain effective disclosure controls and procedures and internal controls for financial reporting. For example, Section\u00a0404\nof the Sarbanes-Oxley Act requires that our management report on the effectiveness of our internal controls structure and procedures for\nfinancial reporting. Section\u00a0404 compliance may divert internal resources and will take a significant amount of time and effort to\ncomplete.\u00a0If we fail to maintain compliance under Section 404, or if our internal control over financial reporting continues to not\nbe effective as defined under Section\u00a0404, we could be subject to sanctions or investigations by the NYSE American, the Commission,\nor other regulatory authorities. Furthermore, investor perceptions of our company may suffer, and this could cause a decline in the market\nprice of our common stock. Any failure of our internal controls could have a material adverse effect on our stated results of operations\nand harm our reputation. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial\nreporting or financial results and could result in an adverse opinion on internal controls from our independent auditors. We may need\nto hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as\na public company, particularly if we become fully subject to Section 404 and its auditor attestation requirements, which will increase\ncosts. Our management team and other personnel will need to devote a substantial amount of time to new compliance initiatives and to meeting\nthe obligations that are associated with being a public company, which may divert attention from other business concerns, which could\nhave a material adverse effect on our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nIf securities or industry analysts do not publish\nresearch or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading\nvolume could decline.\n\n\n\u00a0\n\n\nThe trading market for our common stock will be\ninfluenced by the research and reports that industry or securities analysts publish about us or our business. Our research coverage by\nindustry and financial analysts is currently limited. Even if our analyst coverage increases, if one or more of the analysts who cover\nus downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to\nregularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading\nvolume to decline.\n\n\n\u00a0\n\n\nThe elimination of monetary liability against\nour directors, officers and employees under law and the existence of indemnification rights for or obligations to our directors, officers\nand employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.\u00a0\n\n\n\u00a0\n\n\nOur articles of incorporation contains a provision permitting us to\neliminate the personal liability of our directors to us and our stockholders for damages for the breach of a fiduciary duty as a director\nor officer to the extent provided by Nevada law. We may also have contractual indemnification obligations under any future employment\nagreements with our officers. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover\nthe cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and the resulting\ncosts may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly\ndiscourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful,\nmight otherwise benefit us and our stockholders.\n\n\n\u00a0\n\n\nWe do not anticipate paying dividends on our\ncommon stock and, accordingly, stockholders must rely on stock appreciation for any return on their investment.\n\n\n\u00a0\n\n\nWe have never declared or paid cash dividends\non our common stock and do not expect to do so in the foreseeable future. The declaration of dividends is subject to the discretion of\nour Board and will depend on various factors, including our operating results, financial condition, future prospects and any other factors\ndeemed relevant by our Board. You should not rely on an investment in our company if you require dividend income from your investment\nin our company. The success of your investment will likely depend entirely upon any future appreciation of the market price of our common\nstock, which is uncertain and unpredictable. There is no guarantee that our common stock will appreciate in value.\u00a0\n\n\n\u00a0\n\n\nBecause the COVID-19 pandemic has had a material\nadverse effect on the economy, the uncertainty relating to its continuation may have a future adverse effect on our business, results\nof operations, and future prospects.\n\n\n\u00a0\n\n\nThe global COVID-19 pandemic and the unprecedented\nactions taken by U.S. federal, state and local governments and governments around the world in order to stop the spread of the virus had\na profound impact on the U.S. and global economy, disrupting global supply chains and creating significant volatility in the financial\nmarkets.\n\n\n\u00a0\n\n\n\n\n\n\n38\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWhile COVID-19 seems to no longer threaten the\neconomy as it did, supply chain shortages seem to have evolved from COVID-19. Moreover, the risk of a serious new COVID-19 strain or other\nserious virus evolving remains.\n\n\n\u00a0\n\n\nDisruptions and/or uncertainties related to a\nnew strain of COVID-19 for a sustained period of time could have a material adverse impact on our business, results of operations and\nfinancial condition. Supply chain delays and shortages of Bitcoin miners and other equipment such as transformers may adversely affect\nBitNile especially its plans to further develop and monetize its metaverse business. Increased transportation, electrical supply, labor\nor other costs which may result from COVID-19 could have a material adverse effect on our financial condition, and results of operations.\n\n\n\u00a0\n\n\nFurthermore, the effect of another serious COVID-19\noutbreak on financial markets and on our Company may limit our ability to raise additional capital in the future on the terms acceptable\nto us at the time we need it, or at all.\n\n\n\u00a0\n\n\n ",
+  "item7": ">ITEM 7. MANAGEMENT\u2019S\nDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\n\n\u00a0\n\n\nCautionary Note Regarding Forward-Looking Statements\n\n\n\u00a0\n\n\nThis Annual Report on Form 10-K contains forward-looking\nstatements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Such forward-looking\nstatements include statements regarding, among others, (a) our expectations about possible business combinations, (b) our growth strategies,\n(c) our future financing plans, and (d) our anticipated needs for working capital. Forward-looking statements, which involve assumptions\nand describe our future plans, strategies, and expectations, are generally identifiable by use of the words \u201cmay,\u201d \u201cwill,\u201d\n\u201cshould,\u201d \u201cexpect,\u201d \u201canticipate,\u201d \u201capproximate,\u201d \u201cestimate,\u201d \u201cbelieve,\u201d\n\u201cintend,\u201d \u201cplan,\u201d \u201cbudget,\u201d \u201ccould,\u201d \u201cforecast,\u201d \u201cmight,\u201d \u201cpredict,\u201d\n\u201cshall\u201d or \u201cproject,\u201d or the negative of these words or other variations on these words or comparable terminology.\nThis information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance,\nor achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking\nstatements. These statements may be found in this Annual Report.\n\n\n\u00a0\n\n\nForward-looking statements are based on our current\nexpectations and assumptions regarding our business, potential target businesses, the economy and other future conditions. Because forward-looking\nstatements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that\nare difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements as a result\nof various factors, including, without limitation, the risks outlined under \u201cRisk Factors\u201d in this Annual Report, changes\nin local, regional, national or global political, economic, business, competitive, market (supply and demand) and regulatory conditions\nand the following:\n\n\n\u00a0\n\n\n\n\n\u25cf\nAdverse economic conditions;\n\n\n\u00a0\n\n\n\n\n\u25cf\nOur ability to effectively execute our business plan;\n\n\n\u00a0\n\n\n\n\n\u25cf\nInability to raise sufficient additional capital to operate our business;\n\n\n\u00a0\n\n\n\n\n\u25cf\nOur ability to manage our expansion, growth and operating expenses;\n\n\n\u00a0\n\n\n\n\n\u25cf\nOur ability to evaluate and measure our business, prospects and performance metrics;\n\n\n\u00a0\n\n\n\n\n\u25cf\nOur ability to compete and succeed in highly competitive and evolving industries;\n\n\n\u00a0\n\n\n\n\n\u25cf\nOur ability to respond and adapt to changes in technology and customer behavior;\n\n\n\u00a0\n\n\n\n\n\u25cf\nOur ability to protect our intellectual property and to develop, maintain and enhance a strong brand;\nand\n\n\n\u00a0\n\n\n\n\n\u25cf\nOther specific risks referred to in the section entitled \u201c\nRisk Factors\n\u201d.\n\n\n\u00a0\n\n\nWe caution you therefore that you should not rely\non any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance. All\nforward-looking statements speak only as of the date of this Annual Report. We undertake no obligation to update any forward-looking statements\nor other information contained herein unless required by law.\n\n\n\u00a0\n\n\nInformation regarding market and industry statistics\ncontained in this Annual Report is included based on information available to us that we believe is accurate. It is generally based on\nacademic and other publications that are not produced for purposes of securities offerings or economic analysis. Forecasts and other forward-looking\ninformation obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates\nof future market size, revenue and market acceptance of products and services. Except as required by U.S. federal securities laws, we\nhave no obligation to update forward-looking information to reflect actual results or changes in assumptions or other factors that could\naffect those statements. See the section entitled \u201c\nRisk Factors\n\u201d for a more detailed discussion of risks and uncertainties\nthat may have an impact on our future results.\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nBitNile Metaverse, Inc.\n(\u201cBitNile Metaverse,\u201d \u201cEcoark Holdings\u201d or the \u201cCompany\u201d) is a holding company, incorporated in the\nState of Nevada on November 19, 2007. Through September 30, 2022, Ecoark Holdings\u2019 former subsidiaries with the exception of Agora\nDigital Holdings, Inc., a Nevada corporation (\u201cAgora\u201d) and Zest Labs, Inc. (\u201cZest Labs\u201d) have been treated as\ndivested for accounting purposes. See Notes 1 and 2 to the financial statements included in this Annual Report. As a result of the divestitures,\nall assets and liabilities of the former subsidiaries have been reclassified to discontinued operations on the consolidated balance sheet\nfor March 31, 2022 and all operations of these companies have been reclassified to discontinued operations and gain on disposal on the\nconsolidated statements of operations for the fiscal year ended March 31, 2023.\n\n\n\u00a0\n\n\nPrior to the recent divestitures,\nthe Company\u2019s principal subsidiaries consisted of Ecoark, Inc. (\u201cEcoark\u201d), a Delaware corporation that was the parent\nof Zest Labs, Banner Midstream Corp., a Delaware corporation (\u201cBanner Midstream\u201d) and Agora which was assigned the membership\ninterest in Trend Discovery Holdings LLC, a Delaware limited liability corporation (all references to \u201cTrend Holdings\u201d or\n\u201cTrend\u201d are now synonymous with Agora) from the Company on September 17, 2021 upon its formation, which includes Bitstream\nMining, LLC, the Company\u2019s Bitcoin mining subsidiary.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n42\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRecent\nDevelopments\n\n\n\u00a0\n\n\nDuring\nthe current fiscal year ending March 31, 2023, the Company engaged in the following transactions:\n\n\n\u00a0\n\n\n\n\n\u25cf\nOn July 25, 2022 the Company sold White River Holdings Corp (\u201cWhite River\u201d) and with it\n                                                                                its oil and gas production business to White River Energy Corp, formerly Fortium Holdings Corp. (\u201cWTRV\u201d) in exchange for\n                                                                                1,200 shares of WTRV\u2019s non-voting Series A Convertible Preferred Stock (the \u201cWTRV Series A\u201d). Subject to certain\n                                                                                terms and conditions set forth in the Certificate of Designation of the WTRV Series A, the WTRV Series A will become convertible\n                                                                                into 42,253,521 shares of WTRV\u2019s common stock upon such time as (A) WTRV has filed a Form S-1, with the Securities and\n                                                                                Exchange Commission (the \u201cSEC\u201d) and such Form S-1 has been declared effective, and (B) BitNile Metaverse elects to\n                                                                                distribute shares of its common stock to its stockholders. The Form S-1, as amended, is pending SEC Staff review.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nOn August 23, 2022 the Company sold Banner Midstream, which consisted of its transportation business to Wolf Energy Services, Inc. (formerly Enviro Technologies US, Inc.) (\u201cWolf Energy\u201d) in exchange for 51,987,832 shares of the Wolf Energy common stock.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nIn September 2022, the Company announced a record date of September 30, 2022 for the spin-offs of common stock of Wolf Energy and WTRV to holders of the Company\u2019s common stock and preferred stock (on an as-converted basis).\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nAgora entered into a Master Services Agreement (\u201cMSA\u201d)\non December 7, 2022 with Bitnile, Inc., a wholly owned subsidiary of Ault Alliance, Inc. (\u201cAAI\u201d), whereby BitNile, Inc. agreed\nto provide mining equipment which Agora would host at its West Texas location and supply the electricity for the cryptocurrency mining.\nThe MSA requires Agora to initially provide up to 12MW of electricity at the West Texas site for BitNile Inc.\u2019s use. An additional\n66MW of power can be made available to BitNile Inc. as well for a total of 78MW. To meet this obligation, the Company is required to raise\nat least $5,000,000 to enable the build out of the hosting facility, including the initial 12MW of power within 45 days of the date of\nthe MSA, which deadline was not met.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nOn January 24, 2023, the Company entered into an At-The-Market\n(\u201cATM\u201d) Issuance Sales Agreement with Ascendiant Capital Markets, LLC (\u201cAscendiant\u201d) as sales agent, pursuant\nto which the Company may issue and sell from time to time, through Ascendiant, shares of the Company\u2019s common stock, with offering\nproceeds of up to $3,500,000. In connection with the ATM offering, the Series A holder agreed to reduce its secondary offering of shares\nof common stock issuable upon conversion of the Series A it holds by $3,500,000. The ATM offering has been terminated as of June 16,\n2023 because it had achieved its objective of raising capital of approximately $3,500,000.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nOn February 8, 2023, the Company entered into a Share Exchange Agreement\n(the \u201cSEA\u201d) by and among AAI, the owner of approximately 86% of BitNile.com, Inc. (\u201cBNC\u201d), and the minority stockholders\nof BitNile.com (the \u201cMinority Shareholders\u201d). Pursuant to thehe SEA, subject to the terms and conditions set forth therein,\nthe Company acquired all of the outstanding shares of capital stock of BitNile.com as well as the common stock of Earnity, Inc. beneficially\nowned by BNC (which represents approximately 19.9% of the outstanding common stock of Earnity, Inc. as of the date of the SEA), in exchange\nfor the following: (i) 8,637.5 shares of newly designated Series B Convertible Preferred Stock of the Company to be issued to Ault (the\n\u201cSeries B\u201d), and (ii) 1,362.5 shares of newly designated Series C Convertible Preferred Stock of the Company to be issued\nto the Minority Shareholders (the \u201cSeries C,\u201d and together with the Series B, the \u201cPreferred Stock\u201d). The Series\nB and the Series C, the terms of which are summarized in more detail below, each have a stated value of $10,000 per share (the \u201cStated\nValue\u201d), for a combined stated value of $100,000,000, and subject to adjustment are convertible into a total of up to 13,333,333\nshares of the Company\u2019s common stock, which represent approximately 92.4% of the Company outstanding common stock on a fully-diluted\nbasis. The Company has independently valued the Series B and Series C as of the date of acquisition. The combined value of the shares\nissued to AAI was $53,913,000 using a blended fair value of the discounted cash flow method and option pricing method. See Note 3 for the details on the asset acquisition and Note 17 for details on\nthe Series B and C Preferred Stock.\n\n\n\n\n\u00a0\n\n\n\n\nThe terms\n                                                                                of the Series B and Series C as set forth in the Certificates of Designations of the Rights, Preferences and Limitations of each\n                                                                                such series of Preferred Stock (each, a \u201cCertificate,\u201d and together the \u201cCertificates\u201d) are essentially\n                                                                                identical except the Series B is super voting and must approve any modification of various negative covenants and certain other\n                                                                                corporate actions as more particularly described below.\n\n\n\n\n\u00a0\n\n\n\n\nPursuant to the Series B Certificate, each share of Series B is convertible\ninto a number of shares of the Company\u2019s common stock determined by dividing the Stated Value by $7.50, or 1,333 shares of common\nstock, subject to Nasdaq and shareholder approval. The conversion price is subject to certain adjustments, including potential downward\nadjustment if the Company closes a qualified financing resulting in at least $25,000,000 in gross proceeds at a price per share that is\nlower than the conversion price. The Series B holders are entitled to receive dividends at a rate of 5% of the Stated Value per annum\nfrom issuance until February 7, 2033 (the \u201cDividend Term\u201d). During the first two years of the Dividend Term, dividends will\nbe payable in additional shares of Series B rather than cash, and thereafter dividends will be payable in either additional shares of\nSeries B or cash as each holder may elect. If the Company fails to make a dividend payment as required by the Series B Certificate, the\ndividend rate will be increased to 12% for as long as such default remains ongoing and uncured. Each share of Series B also has an $11,000\nliquidation preference in the event of a liquidation, change of control event, dissolution or winding up of the Company, and ranks senior\nto all other capital stock of the Company with respect thereto other than the Series C with which the Series B shares equal ranking. Each\nshare of Series B is entitled to vote with the Company\u2019s common stock at a rate of 300 votes per share of common stock into which\nthe Series B is convertible.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n43\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nIn addition,\n                                                                                for as long as at least 25% of the shares of Series B remain outstanding, AAI (and any transferees) must consent rights with\n                                                                                respect to certain corporate events, including reclassifications, fundamental transactions, stock redemptions or repurchases,\n                                                                                increases in the number of directors, and declarations or payment of dividends, and further the Company is subject to certain\n                                                                                negative covenants, including covenants against issuing additional shares of capital stock or derivative securities, incurring\n                                                                                indebtedness, engaging in related party transactions, selling of properties having a value of over $50,000, altering the number of\n                                                                                directors, and discontinuing the business of any subsidiary, subject to certain exceptions and limitations.\n\n\n\n\n\u00a0\n\n\n\n\nOn April 27, 2023, we entered into a Securities Purchase Agreement (the \u201cSPA\u201d) with\n                                                                                certain accredited investors (the \u201cInvestors\u201d) providing for the issuance of (i) Senior Secured Convertible Notes\n                                                                                (individually, a \u201cNote\u201d and collectively, the \u201cNotes\u201d) with an aggregate principal face amount of\n                                                                                $6,875,000, which Notes are convertible into shares of our common stock (the \u201cConversion Shares\u201d); and (ii) five-year\n                                                                                warrants to purchase an aggregate of 2,100,905 shares of common stock. The maturity date of the Notes is April 27, 2024.\n\n\n\n\n\u00a0\n\n\n\n\nPursuant to the SPA, we and certain of our subsidiaries and Arena Investors, LP, as the collateral\n                                                                                agent on behalf of the Investors (the \u201cAgent\u201d) entered into a security agreement (the \u201cSecurity Agreement\u201d),\n                                                                                pursuant to which we (i) pledged the equity interests in our subsidiaries and (ii) granted to the Investors a security interest in,\n                                                                                among other items, all of our deposit accounts, securities accounts, chattel paper, documents, equipment, general intangibles,\n                                                                                instruments and inventory, and all proceeds therefrom (the \u201cAssets\u201d). In addition, pursuant to the Security Agreement,\n                                                                                the subsidiaries granted to the Investors a security interest in its Assets and, pursuant to a subsidiary guarantees, jointly and\n                                                                                severally agreed to guarantee and act as surety for our obligation to repay the Notes and other obligations under the SPA, the Notes\n                                                                                and Security Agreement (collectively, the \u201cLoan Agreements\u201d).\n\n\n\n\n\u00a0\n\n\n\n\nThe Notes have a principal face amount of $6,875,000 and bear no interest (unless an event of\n                                                                                default occurs) as they were issued with an original issuance discount of $1,375,000. The maturity date of the Notes is April 27,\n                                                                                2024. The Notes are convertible, subject to certain beneficial ownership limitations, into Conversion Shares at a price per share\n                                                                                equal to the lower of (i) $3.273 or (ii) the greater of (A) $0.504 and (B) 85% of the lowest volume weighted average price of our\n                                                                                common stock during the ten (10) trading days prior to the date of conversion (the \u201cConversion Price\u201d). The Conversion\n                                                                                Price is subject to adjustment in the event of an issuance of common stock at a price per share lower than the Conversion Price then\n                                                                                in effect, as well as upon customary stock splits, stock dividends, combinations or similar events.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n44\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nThe terms, rights, preferences and limitations of the Series C are substantially the same as those of the Series B, except that the Series B holds certain additional negative covenant and consent rights, and Series C holders vote with the Company\u2019s common stock on an as-converted basis, subject to Nasdaq and shareholder approval. The Company is required to maintain a reserve of authorized and unissued shares of common stock equal to 200% of the shares of common stock issuable upon conversion of the Preferred Stock, which is initially 26,666,667 shares.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nPending shareholder approval of the transaction, the Series B and the Series C combined are subject to a 19.9% beneficial ownership limitation. That limitation includes shares of Series A issued to Ault Lending on June 8, 2022 and any common stock held by Ault Lending. Certain other rights are subject to shareholder approval as described below. The SEA provides that the Company will seek shareholder approval following the closing, which occurred March 6, 2023. The entire transaction is subject to compliance with Nasdaq Rules and the Series B and Series C Certificates each contain a savings clause that nothing shall violate such Rules. Nasdaq may nonetheless disregard the savings clause.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nUnder the SEA, effective at the closing AAI is entitled to appoint three of the Company\u2019s directors, and following receipt of approval from the Company\u2019s shareholders, a majority of the Company\u2019s directors. To date, AAI has only sought, and received, the appointment of one individual as a director. The SEA also provides the holders of Preferred Stock with most favored nations rights in the event the Company offers securities with more favorable terms than the Preferred Stock for as long as the Preferred Stock remains outstanding. Under the SEA, while any Preferred Stock is outstanding, the Company is prohibited from redeeming or declaring or paying dividends on outstanding securities other than the Preferred Stock. Further, the SEA prohibits the Company from issuing or amending securities at a price per share below the conversion price of the Preferred Stock, or to engage in variable rate transactions, for a period of 12 months following the closing.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nThe SEA further provides that following the closing the Company will prepare and distribute a proxy statement and hold a meeting of its stockholders to approve each of the following: (i) the SEA and the transactions contemplated thereby, (ii) a ratification of the Third Certificate Designations of Rights, Preferences, and Limitations of the Series A, (iii) a reverse stock split with a range of between 1-for 2 and 1-for-20 (which rations may be amended), (iv) a change in the Company\u2019s name to BitNile Metaverse, Inc., (v) an increase of the Company\u2019s authorized common stock to 1,000,000,000 shares of common stock; and (vi) any other proposals to which the Parties shall mutually agree. In addition, pursuant to the SEA the Company agreed to use its reasonable best efforts to effect its previously announce spin-offs of the common stock of Wolf Energy and White River held by or issuable to the Company, use its best efforts to complete one or more financings resulting in total gross proceeds of $100,000,000 on terms acceptable to AAI, and financially support the ongoing Zest Labs litigation. The holders of the Series B and Series C will not participate in the aforementioned spin-offs and distribution. In connection with the SEA, the Company and AAI also agreed that the net litigation proceeds from the Zest Labs litigation that was ongoing as of November 15, 2022 would be held in a trust for the benefit of the Company\u2019s stockholders of record as of such date.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nIn connection with the SEA, the Company also entered into a Registration Rights Agreement with AAI and the Minority Shareholders pursuant to which the Company agreed to file a registration statement on Form S-3 or Form S-1 with the Securities and Exchange Commission (the \u201cSEC\u201d) registering the resale by the holders of the Preferred Stock and/or the shares of common stock issuable upon conversion of the Preferred Stock, to be initially filed within 15 days of the closing, and to use its best efforts to cause such registration statement to be declared effective by the SEC within 45 days thereafter, subject to certain exceptions and limitations.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nThe SEA contains certain representations and warranties made by each of the Company, AAI and the Minority Shareholders. Since the closing, BNC has continued as a wholly owned subsidiary of the Company, \u00a0BNC\u2019s principal business entails the development and operation of a metaverse platform, the beta for which launched on March 1, 2023. This transaction closed on March 7, 2023.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nOn March 15, 2023, following approval of the Board of Directors in accordance with Nevada law, the Company filed Articles of Merger with the Nevada Secretary of State, thereby merging a newly-formed shell corporation into the Company which was the surviving corporation. As permitted by Nevada law, pursuant to the merger the Company\u2019s name was changed to BitNile Metaverse, Inc. The name change, which was effective immediately, was made in connection with the Company\u2019s previously disclosed acquisition of BNC.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n45\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe Company\u2019s goal\nis to spin-off all of the Wolf\u00a0\nEnergy\n\u00a0common stock and WTRV common stock to the\nCompany\u2019s shareholders in calendar year 2023, although because of regulatory delays or other reasons we may not meet that deadline.\n\u00a0\n\n\n\u00a0\n\n\nFuture Spin-Offs\n\n\n\u00a0\n\n\nAs described in this\nAnnual Report, BitNile Metaverse\u2019s goal is to spin-off its common stock of White River and Wolf Energy. While the Company previously\nplanned on spinning off Zest Labs common stock through the filing of a Form 10 with the Securities Exchange Commission, the Company decided\nnot to proceed with that spin-off. Due to market conditions, the Company decided it was inadvisable to seek to raise capital for Zest\nLabs, which it needed to operate as a stand-alone public company. To protect the Company\u2019s shareholders, it granted its shareholder\nof record as of September 30, 2022 the right to receive 95% of any the potential net proceeds realized from either the Zest Labs litigation\nwith Walmart and Deloitte, which is described \nunder Note 15 t\no the financial statements contained\nin this Annual Report. That right is part of the Zest Labs certificate of incorporation. Under the SEA, the Series B and Series C preferred\nshareholders agreed that they will not participate in any of these distributions if the transaction closes. The Company currently plans\nto transfer all of the common stock of Zest Labs Inc. into a limited liability company, of which any net proceeds from the sale or licensing\nof Zest intellectual property or the aforementioned potential net proceeds from Zest litigation would be distributed to the Company\u2019s\nshareholders of record as of November 15, 2022.\n\n\n\u00a0\n\n\nFollowing\nthe above transactions, the Company\u2019s only remaining subsidiaries are Agora, which ceased mining Bitcoin but is now exploring operating\nas a hosting company for Bitcoin mining ventures, and Zest Labs which holds technology and related intellectual property rights for fresh\nfood solutions and is not operating due to ongoing litigation involving its technology an intellectual property.\n\n\n\u00a0\u00a0\u00a0\n\n\nSegment\nReporting for the Year ended March 31, 2023 and 2022:\n\n\n\u00a0\n\n\nAs\na result of the sales of White River and Banner Midstream, and the immaterial nature of the operations of Zest Labs, the Company no longer\nsegregates its operations as most of the continuing operations are related to Agora.\n\n\n\u00a0\n\n\nKey\nTrends\n\n\n\u00a0\n\n\nImpact\nof Inflation\n\n\n\u00a0\n\n\nIn\n2022 and continuing into 2023, there has been a sharp rise in inflation in the U.S. and globally. Given our limited operations, the most\nsignificant future impact will be on employee salaries and benefits and electricity costs.\n\n\n\u00a0\u00a0\n\n\nImpact\nof COVID-19\n\n\n\u00a0\n\n\nCOVID-19\nmay continue to affect the economy and our business, depending on the vaccine rollouts and the emergence of virus mutations as well as\nthe impact of supply chain disruptions.\n\n\n\u00a0\n\n\nCOVID-19\ndid not have a material effect on the Consolidated Statements of Operations or the Consolidated Balance Sheets for the fiscal year ended\nMarch 31, 2023 and 2022 included in this Report.\n\n\n\u00a0\n\n\nCOVID-19\nhas been a contributing factor in supply and labor shortages which have been pervasive in many industries. The extent to which a future\nCOVID-19 outbreak, and other adverse developments may impact on the Company\u2019s results will depend on future developments that are\nhighly uncertain and cannot be predicted.\n\n\n\u00a0\n\n\nResults\nof Operations for Continuing Operations for the Year Ended March 31, 2023 and 2022 \n\n\n\u00a0\n\n\nThe discussion of our\nresults of operations should be evaluated considering that our primary subsidiaries were sold in the year ended March 31, 2023 and their\nresults of operations are now treated as discontinued operations. Accordingly, period to period comparisons may not be meaningful.\n\n\n\u00a0\n\n\nRevenues\n\n\n\u00a0\n\n\nThe Company had no revenue\nin the fiscal year ended March 31, 2023 (\u201cFY 2023\u201d) and had $27,182 in 2022 (\u201cFY 2022\u201d) as it had just recently\ncommenced Bitcoin mining operations. Agora has recently focused on becoming a hosting company as reflected below. To that end, Agora entered\ninto the MSA with BitNile, Inc., a wholly owned subsidiary of AAI described above, whereby Agora agreed to host BitNile, Inc.\u2019s\ncryptocurrency mining equipment at Agora\u2019s West Texas location and supply the electricity for the cryptocurrency mining.\n\n\n\u00a0\n\n\nThe\nCompany\u2019s Bitcoin operations began in the fiscal year ended March 31, 2022 and ceased on March 3, 2022 due to the low price of\nBitcoin and the inability of Agora to timely complete its initial public offering which created a working capital issue. The Company\nintends to refocus Agora to operating as a hosting company providing infrastructure and energy to cryptocurrency mining enterprises assuming\nthe Company can raise the necessary capital. Unless and until we are successful in generating revenue for Agora or acquire another operating.\n\n\n\u00a0\n\n\n\n\n\n\n46\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe Company\u2019s metaverse\noperations via BNC are nascent and only launched in March 2023, so no revenues were realized from those operations from the time of the\ncompletion of the acquisition on March 6, 2023, through fiscal year-end on March 31, 2023.\n\n\n\u00a0\n\n\nCost\nof Revenues and Gross Profit\n\n\n\u00a0\n\n\nCost\nof revenues for FY 2023 were $263,954 as compared to $183,590 for FY 2022. We expect the cost of revenues to increase once we have commenced\nAgora\u2019s hosting operations.\n\n\n\u00a0\n\n\nOperating\nExpenses\n\n\n\u00a0\n\n\nTotal\noperating expenses were $27,981,218 for FY 2023 compared to $15,871,208 for FY 2022. The increase from the prior year was primarily related\nto higher salaries and salaries related costs of $12,105,003 in FY 2023 compared to $9,092,412 in FY 2022 related to higher stock-based\ncompensation in FY 2023 compared to FY 2022, an increase in bad debt expense of $4,418,229 in FY 2023 compared to zero in FY 2022 due\nto establishing a full reserve of the principal and interest receivable of the Trend Ventures Note, higher SG&A costs of $2,636,454\ncompared to FY 2022 primarily related to development costs at Agora, and higher depreciation, amortization and impairment expenses of\n$1,773,120 in FY 2023 compared to $347,306 in FY 2022 due to impairment of fixed assets of $1,655,969 at Agora.\n\n\n\u00a0\n\n\nOther\nIncome (Expense)\n\n\n\u00a0\n\n\nTotal other expense was ($29,289,682) in FY 2023 compared to total\nother income of $14,805,382 in FY 2022, almost all of which was non-cash. Change in fair value of derivative liabilities for FY 2023 was\na non-cash gain of $4,312,366 compared to a non-cash gain of $15,386,301 in FY 2022. This variance was related to the changes in our stock\nprice. A change in the fair value of the preferred stock derivative liability for FY 2023 was a gain of $28,611,760 and a gain of $14,365,276\nrelated to the preferred stock derivative liability at inception was offset by a decrease in the fair value of the investment in White\nRiver Energy Corp of ($20,775,215) and a loss on acquisition of Bitnile.com of ($54,484,279), and interest expense, net of ($744,895).\nInterest expense, net was ($580,919) in FY 2022.\n\n\n\u00a0\n\n\nNet\nIncome (Loss) from Continuing Operations\n\n\n\u00a0\n\n\nNet loss from continuing operations for FY 2023 was ($57,534,854) as\ncompared to net loss from continuing operations of ($1,222,234) for FY 2022. The increased loss was primarily due to the loss on acquisition\nof Bitnile.com, the change in the fair value of the investment in White River Energy Corp, and the increase in operating expenses as noted\nabove offset by the change in the fair value of the derivative liability and the change in the preferred stock derivative liability\u00a0arising\nfrom the decrease in the Company\u2019s Common Stock price.\n\n\n\u00a0\u00a0\n\n\nLiquidity\nand Capital Resources\n\n\n\u00a0\n\n\nLiquidity\nis the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate\non an ongoing basis. Significant factors in the management of liquidity are revenue generated from operations, levels of accounts receivable\nand accounts payable and capital expenditures.\n\n\n\u00a0\n\n\nNet\ncash used in operating activities was $(14,288,177) for FY 2023, as compared to $(17,633,186) for FY 2022. Cash used in operating activities\nfor FY 2023 was primarily caused by the net loss, change in fair value of preferred stock derivative liabilities, and derivative income,\noffset by loss on acquisition of Bitnile.com, change in value of investment in White River Energy Corp, increases in common shares issued\nfor services, increased bad debt expense and losses on disposal of former subsidiaries without similar amounts in FY 2022 as well as\nchanges in accounts payable and accrued expenses from FY 2022 to FY 2023.\n\n\n\u00a0\n\n\nNet\ncash provided by investing activities was $122,666 for FY 2023 compared to $617,644 for FY 2022. Net cash provided by investing activities\nin FY 2023 were comprised of proceeds received from the refund of the power development costs partially offset by purchases of fixed\nassets and discontinued operations, and the amounts provided FY 2022 related to discontinued operations offset by the purchase of fixed\nassets and power development costs as we commenced operations in Agora.\n\n\n\u00a0\n\n\n\n\n\n\n47\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nNet\ncash provided by financing activities for FY 2023 was $14,147,282 which comprised primarily of proceeds from our June 2022 sale of the\nEcoark Holdings Series A, Commitment Shares described elsewhere in this Report. This compared with FY 2022 net cash provided by financing\nactivities of $16,290,804 comprised primarily of the sale of our common stock in a registered direct offering.\n\n\n\u00a0\n\n\nAs of July 10, 2023, the Company\nhas $3,492 in c\nash and cash equivalents. The Company believes that the current cash on hand is not sufficient to conduct planned\noperations for one year from the issuance of the consolidated financial statements and needs to raise capital to support their operations.\n\n\n\u00a0\n\n\nTo\ndate we have financed our operations through sales of common stock, convertible preferred stock and other derivative securities and the\nissuance of debt. We may also issue common stock, preferred stock or other securities in connection with any business acquisition we\nundertake in the future following our planned spin-offs. Presently we may not raise capital without the consent of the Purchaser.\n\n\n\u00a0\n\n\nWe will require additional\nfinancing to enable us to proceeds with our plan of operations. These cash requirements are more than our current cash and working capital\nresources. Accordingly, we will require additional financing to continue operations and to repay our liabilities. There is no assurance\nthat any party will advance additional funds to us to enable us to sustain our plan of operations or to repay our liabilities.\n\n\n\u00a0\n\n\nWe anticipate continuing\nto rely on equity sales of our common stock to continue to fund our business operations, issuances of additional shares will result in\ndilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange\nfor debt or other financing to fund our planned business activities.\n\n\n\u00a0\n\n\nIf we are unable to raise the funds that we require to execute our\nplan of operation, we intend to scale back our operations commensurately with the funds available to us.\n\n\n\u00a0\n\n\nOn January 24, 2023,\nthe Company entered an ATM Agreement with Ascendiant as sales agent, which contemplates sales of shares of our common stock in a registered\n\u201cat-the-market\u201d offering for offering proceeds of up to $3,500,000.\n\n\n\u00a0\n\n\nThe\nCompany\u2019s financial statements are prepared using accounting principles generally accepted in the United States (\u201cU.S. GAAP\u201d)\napplicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.\nThe Company sold its interests in Banner Midstream in two separate transactions on July 25, 2022 and September 7, 2022. In addition, it\nsold the non-core business of Trend Discovery on June 17, 2022. The Company expects to distribute the common stock it received (or issuable\nupon conversion of preferred stock) in the sales to its shareholders upon the effective registration statements for the two entities the\ncompanies were sold to. See Note 17, \u201cSeries A Convertible Redeemable Preferred Stock\u201d for information on the Company\u2019s\nrecent $12 million convertible preferred stock financing. That financing has restrictive covenants that require approval of the investor\nfor the Company to engage in any equity or debt financing. The Company believes that the current cash on hand is not sufficient to conduct\nplanned operations for 12 months from the issuance of the consolidated financial statements and may need to raise capital to support their\noperations. While the Company entered into the MSA with Ault which if the hosting arrangement is established would provide a source of\nrevenue, as of the date of this Report the Company has not yet met its obligations under the MSA, including raising at least $5,000,000\nto establish the initial infrastructure and power for the hosting arrangement\n. Further, with the acquisition of BNC, we expect\nto require substantial additional capital to further develop its metaverse platform and launch revenue-generating operations therefrom,\nand no assurance can be given that we will be able to close that acquisition or that if we are we will be able to leverage the BNC business\nas needed to generate material revenue or raise the necessary capital. See \u201cRisk Factors\u201d included in this Annual Report.\n\n\n\u00a0\n\n\nThe\naccompanying financial statements for the year ended March 31, 2023 and 2022 have been prepared assuming the Company will continue as\na going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital\nto fund operating losses until it establishes continued revenue streams and becomes profitable. Management\u2019s plans to continue\nas a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide\nany assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary\nadditional financing on a timely basis, the Company will be required to delay, reduce or perhaps even cease the operation of its business.\nThe ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing\nand attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary\nif the Company is unable to continue as a going concern.\n\n\n\u00a0\n\n\n\n\n\n\n48\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n2018\nLine of Credit\n\n\n\u00a0\n\n\nOn\nDecember 28, 2018, the Company entered into a $10,000,000 credit facility that includes a loan and security agreement (the \u201cAgreement\u201d)\nwhere the lender agreed to make one or more loans to the Company, and the Company may make a request for a loan or loans from the lender,\nsubject to the terms and conditions. In the year ended March 31, 2023, the Company borrowed $505,181, which includes $17,681 in commitment\nfees, with the balance of $487,500 being deposited directly into the Company and repaid $810,000 in the year ended March 31, 2023. Interest\nincurred for the year ended March 31, 2023 was $59,499, and accrued as of March 31, 2023 was $61,722. With the sale of Trend Holdings,\nwe can no longer access this line of credit.\n\n\n\u00a0\n\n\n2023 Convertible Notes\n\n\n\u00a0\n\n\nOn April 27, 2023, we entered into a Securities\nPurchase Agreement (the \u201cSPA\u201d) with certain accredited investors (the \u201cInvestors\u201d) providing for the issuance\nof (i) Senior Secured Convertible Notes (individually, a \u201cNote\u201d and collectively, the \u201cNotes\u201d) with an aggregate\nprincipal face amount of $6,875,000, which Notes are convertible into shares of our common stock (the \u201cConversion Shares\u201d);\nand (ii) five-year warrants to purchase an aggregate of 2,100,905 shares of common stock. The maturity date of the Notes is April 27,\n2024.\n\n\n\u00a0\n\n\nPursuant to the SPA, we and certain of our subsidiaries\nand Arena Investors, LP, as the collateral agent on behalf of the Investors (the \u201cAgent\u201d) entered into a security agreement\n(the \u201cSecurity Agreement\u201d), pursuant to which we (i) pledged the equity interests in our subsidiaries and (ii) granted to\nthe Investors a security interest in, among other items, all of our deposit accounts, securities accounts, chattel paper, documents, equipment,\ngeneral intangibles, instruments and inventory, and all proceeds therefrom (the \u201cAssets\u201d). In addition, pursuant to the Security\nAgreement, the subsidiaries granted to the Investors a security interest in its Assets and, pursuant to a subsidiary guarantees, jointly\nand severally agreed to guarantee and act as surety for our obligation to repay the Notes and other obligations under the SPA, the Notes\nand Security Agreement (collectively, the \u201cLoan Agreements\u201d).\n\n\n\u00a0\n\n\nThe Notes have a principal face amount of $6,875,000\nand bear no interest (unless an event of default occurs) as they were issued with an original issuance discount of $1,375,000. The maturity\ndate of the Notes is April 27, 2024. The Notes are convertible, subject to certain beneficial ownership limitations, into Conversion Shares\nat a price per share equal to the lower of (i) $3.273 or (ii) the greater of (A) $0.504 and (B) 85% of the lowest volume weighted average\nprice of our common stock during the ten (10) trading days prior to the date of conversion (the \u201cConversion Price\u201d). The Conversion\nPrice is subject to adjustment in the event of an issuance of common stock at a price per share lower than the Conversion Price then in\neffect, as well as upon customary stock splits, stock dividends, combinations or similar events.\n\n\n\u00a0\n\n\nCritical\nAccounting Policies, Estimates and Assumptions\n\n\n\u00a0\n\n\nThe\ncritical accounting policies listed below are those the Company deems most important to its operations.\n\n\n\u00a0\u00a0\n\n\nUse\nof Estimates\n\n\n\u00a0\n\n\nThe preparation of consolidated\nfinancial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and\nassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date\nof the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include,\nbut are not limited to, management\u2019s estimate of provisions required for uncollectible accounts receivable, fair value of assets\nheld for sale and assets and liabilities acquired, impaired value of equipment and intangible assets, estimates of discount rates in lease,\nliabilities to accrue, fair value of derivative liabilities associated with warrants, cost incurred in the satisfaction of performance\nobligations, permanent and temporary differences related to income taxes and determination of the fair value of stock awards.\n\n\n\u00a0\n\n\nActual\nresults could differ from those estimates.\n\n\n\u00a0\n\n\n\n\n\n\n49\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRevenue\nRecognition\n\n\n\u00a0\n\n\nThe Company recognizes\nrevenue under Accounting Standards Codification (\u201cASC\u00a0606\u201d), Revenue from Contracts with Customers. The core principle\nof the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in\nan amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following\nfive steps are applied to achieve that core principle:\n\n\n\u00a0\n\n\n\n\n\u25cf\nStep\n1: Identify the contract with the customer\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nStep\n2: Identify the performance obligations in the contract\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nStep\n3: Determine the transaction price\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nStep\n4: Allocate the transaction price to the performance obligations in the contract\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nStep\n5: Recognize revenue when the Company satisfies a performance obligation\n\n\n\n\n\u00a0\n\n\nIn\norder to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in\nthe contract and identify each promised good or service that is distinct. A performance obligation meets ASC\u00a0606\u2019s definition\nof a \u201cdistinct\u201d good or service (or bundle of goods or services) if both of the following criteria are met: The customer\ncan benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e.,\nthe good or service is capable of being distinct), and the entity\u2019s promise to transfer the good or service to the customer is\nseparately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the\ncontext of the contract).\n\n\n\u00a0\n\n\nIf\na good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services\nis identified that is distinct.\n\n\n\u00a0\n\n\nThe\ntransaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods\nor services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.\nWhen determining the transaction price, an entity must consider the effects of all of the following:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nVariable consideration\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nConstraining estimates of variable consideration\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe existence of a significant financing component\n    in the contract\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nNoncash consideration\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nConsideration payable to a customer\n\n\n\n\n\u00a0\n\n\nVariable\nconsideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of\ncumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.\n\n\n\u00a0\n\n\n\n\n\n\n50\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe\ntransaction price is allocated to each performance obligation on a relative standalone selling price basis. The standalone selling price\nis the price at which the Company would sell a promised service separately to a customer. The relative selling price for each performance\nobligation is estimated using observable objective evidence if it is available. If observable objective evidence is not available, the\nCompany uses its best estimate of the selling price for the promised service. In instances where the Company does not sell a service\nseparately, establishing standalone selling price requires significant judgment. The Company estimates the standalone selling price by\nconsidering available information, prioritizing observable inputs such as historical sales, internally approved pricing guidelines and\nobjectives, and the underlying cost of delivering the performance obligation. The transaction price allocated to each performance obligation\nis recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.\n\n\n\u00a0\n\n\nManagement\njudgment is required when determining the following: when variable consideration is no longer probable of significant reversal (and hence\ncan be included in revenue); whether certain revenue should be presented gross or net of certain related costs; when a promised service\ntransfers to the customer; and the applicable method of measuring progress for services transferred to the customer over time. Although,\nAgora since March 3, 2022, has not recognized revenue from its mining operations, prior to this time, it recognized revenue upon satisfaction\nof its performance obligation over time in accordance with ASC\u00a0606-10-25-27 for its contracts with mining pool operators.\n\n\n\u00a0\n\n\nThe\nCompany accounts for incremental costs of obtaining a contract with a customer and contract fulfillment costs in accordance with ASC\n340-40,\u00a0\nOther Assets and Deferred Costs\n. These costs should be capitalized and amortized as the performance obligation is\nsatisfied if certain criteria are met. The Company elected the practical expedient, to recognize the incremental costs of obtaining a\ncontract as an expense when incurred if the amortization period of the asset that would otherwise have been recognized is one year or\nless, and expenses certain costs to obtain contracts when applicable. The Company recognizes an asset from the costs to fulfill a contract\nonly if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance\nobligation in the future and the costs are expected to be recovered. The Company recognizes the cost of sales of a contract as expense\nwhen incurred or when a performance obligation is satisfied. The incremental costs of obtaining a contract are capitalized unless the\ncosts would have been incurred regardless of whether the contract was obtained, are not considered recoverable, or the practical expedient\napplies.\n\n\n\u00a0\n\n\nHosting\nRevenues\n\n\n\u00a0\n\n\nAgora\neffective in September 2022 began efforts to generate revenue via hosting agreements. Agora entered into a MSA on December 7, 2022 with\nAult, whereby Ault agreed to provide mining equipment which Agora would host at its West Texas location and supply the electricity for\nthe cryptocurrency mining.\n\n\n\u00a0\n\n\nWhen\nAgora generates hosting revenues, it will follow ASC 606 as outlined above and recognize revenue upon the completion of the performance\nobligations as stipulated under the MSA.\n\n\n\u00a0\n\n\nGaming Revenue\n\n\n\u00a0\n\n\nThe authoritative guidance on revenue recognition\nfor gaming revenue is ASC 606. The objectives of ASC 606 are to establish the principles that an entity shall apply to report useful information\nto users of the financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract\nwith a customer. We determined this would not be subject to ASC 985-605 because the customers cannot take possession of the online games.\nThat is, this type of arrangement would not be accounted for as a transfer of a software license.\n\n\n\u00a0\n\n\nDepending on the circumstances, the guidance may\nbe applied on a contract-by-contract basis, or the practical expedient described in ASC 606-10-10-4 of using the portfolio approach may\nbe followed.\n\n\n\u00a0\n\n\nThe portfolio approach allows an entity to apply\nthe guidance to a portfolio of contracts with similar characteristics so long as the result would not differ materially from the result\nof applying the guidance to individual contracts. We have determined that the use of the portfolio approach is the most appropriate for\nour contracts as the terms of service (\u201cTOS\u201d) and related promises or obligations are identical for all customers/gamers.\n\n\n\u00a0\n\n\nThere were no revenues recognized for gaming during\nthe years ended March 31, 2023 and 2022.\n\n\n\u00a0\n\n\n\n\n\n\n51\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nStep 1: Identify the Contract with the Customer\n\n\n\u00a0\n\n\nSTEP 1 of the revenue recognition model requires\nthat we identify the contract(s) with a customer. This section discusses the steps to determine whether a contract exists and specific\nconsiderations that may impact that determination.\n\n\n\u00a0\n\n\nPer ASC 606-10-25-1, the five criteria for identifying\na contract are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n1.\n\n\nThe parties have approved the contract and are committed to perform.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\na.\n\n\nOur contracts consist of TOS for the sale of coins to gamers\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n2.\n\n\nEach party\u2019s rights are identifiable:\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\na.\n\n\nRights are identifiable in contracts with customers and are documented within our Terms of Service\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n3.\n\n\nPayment terms are identifiable:\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\na.\n\n\nPayment terms are identifiable in contracts with the end customer. The consideration from the sale of coins comes from gamers and the payment terms are identified prior to entering into the contract and are listed in our TOS.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n4.\n\n\nThe contract has commercial substance:\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\na.\n\n\nGenerally, an executed sale of coins and related cash flow is evidence of commercial substance.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n5.\n\n\nThe collection is probable based on the customer\u2019s ability and intent to pay:\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\na.\n\n\nWe collect the consideration from a reputable third-party transaction processor and is not dependent on their collection from the gamers indicating that it is probable we will collect.\n\n\n\n\n\u00a0\n\n\nStep 2: Identify the Performance Obligations\n\n\n\u00a0\n\n\nWhile there is no explicit promise that we will\nprovide the Metaverse game play service on a continuous basis, we believe that there is an implicit promise to do so. We considered the\nnature of the implied promise and took in to account the following items that we consider to be relevant to our assessment:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nWhether the nature of the implied promise is to provide an enhanced gaming experience through the hosted service over time or to enable the player to consume virtual items immediately\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe period over which the enhanced gaming experience is provided if the benefits are consumed throughout the hosting period (e.g., user life, gaming life).\n\n\n\n\n\u00a0\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe life span over which, or number of times, the virtual good or item may be accessed or used.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nWhether the virtual good or item must be used immediately or can be stored for use later.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nHow and over what period the virtual item benefits the customer\u2019s gaming experience (e.g., a consumable such as spending coins for game play vs. a durable avatar skin that allows a player to upgrade within the game in such a way that it continues to enhance the game players experience).\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nIf the benefit of purchasing the virtual item or good on the customers gaming experience is temporary or permanent.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n52\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe have an obligation to provide a playable game\ncontent service to the customer to enable the customer to consume purchased coins within the Metaverse on either additional game play\nor in-game digital goods. For the sale of consumable virtual items, the Company recognizes revenue as the items are consumed.\n\n\n\u00a0\n\n\nAs the durable goods (upgraded equipment, clothing,\navatars, etc.) are purchased with NC\u2019s and then used throughout the remainder of the life of the gamer, we considered if they were\nmaterial in the context of the contract and represented a distinct and separate promise or obligation to be recognized over the life of\nthe gamer. We determined that these goods cannot be beneficial on their own without providing of the full Metaverse service with which\nto utilize the goods and therefore concluded that the goods are not distinct as they do not meet both the criteria in ASC 606-10-25-19\nthrough 606-10-25-21. Due to not being a distinct promise or separately identifiable per ASC 606-10-25-21(c), the durable goods should\nnot be separated from the game play service promise and should be treated as a combined or bundled service with a single performance obligation\nin accordance with ASC 606-10-25-22.\n\n\n\u00a0\n\n\nWe also considered the awarded SC\u2019s that\ncan be obtained through marketing giveaways, for purchasing a NC package or by the mailing in of a request for SC\u2019s. We considered\nif the SC\u2019s were material in the context of the contract and represented a distinct and separate promise or obligation. The SC\u2019s\ncan be redeemed for cash once a certain minimum has been obtained/won through sweepstakes type games. No contract or obligation exists\nuntil the SC holder has accumulated a minimum amount of won coins (different than gifted coins) through playing sweepstakes games which\nis able to be tracked within the system. While not considered material at the individual contract level, we believe the rewards program\nas a whole could be significant and would convey a material right to the total rewards for all customers once earned (similar to \u201cfree\u201d\nloyalty points earned by a credit card user) and therefore represents a separate performance obligation.\n\n\n\u00a0\n\n\nBased on our assessment of the different coins\nsold above we are able to conclude that there are two separate performance obligations. One to provide playable game content service to\nthe customer to enable the customer to consume purchased coins within the Metaverse on either additional game play or in-game digital\ngoods and the second is to redeem players cash redemptions of SC\u2019s once qualified.\n\n\n\u00a0\n\n\nStep 3: Determine the transaction price\n\n\n\u00a0\n\n\nThe transaction price depends on the coin package\nselected and is established by the Company\u2019s management and stated in the contract with our customer prior to purchase. Any changes\nto the price are made prior to a transaction and the updated price is clearly displayed for the customer to see. The gamer indicates their\nagreement to this price prior to the purchase of the coin package or would not engage further and wouldn\u2019t purchase additional coins.\nThe coin package transaction prices are noted in the table below:\n\n\n\u00a0\n\n\n\n\n\n\nCoin Package Orders\n\n\n\u00a0\n\n\nPrice\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n10k NILE-T\n\n\n\u00a0\n\n\n$\n\n\n2\n\n\n\u00a0\n\n\n\n\n25k NILE-T / 4 NILE-S\n\n\n\u00a0\n\n\n$\n\n\n5\n\n\n\u00a0\n\n\n\n\n50k NILE-T / 9 NILE-S\n\n\n\u00a0\n\n\n$\n\n\n10\n\n\n\u00a0\n\n\n\n\n100k NILE-T / 20 NILE-S\n\n\n\u00a0\n\n\n$\n\n\n20\n\n\n\u00a0\n\n\n\n\n250k NILE-T / 51 NILE-S\n\n\n\u00a0\n\n\n$\n\n\n50\n\n\n\u00a0\n\n\n\n\n500k NILE-T / 103 NILE-S\n\n\n\u00a0\n\n\n$\n\n\n100\n\n\n\u00a0\n\n\n\n\n1.5M NILE-T / 310 NILE-S\n\n\n\u00a0\n\n\n$\n\n\n300\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n53\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nStep 4: Allocate the transaction price to the\nperformance obligations\n\n\n\u00a0\n\n\nThe transaction price should be allocated between\nthe two performance obligations based on their stand-alone selling prices. The NT\u2019s transaction prices would be allocated completely\nto the first performance obligation while the NC\u2019s sales would need to be allocated between the first and second obligations. As\nthe SC\u2019s can\u2019t be purchased, the amount allocated to the SC\u2019s redemption for cash obligation should be based on management\u2019s\nbest estimates.\n\n\n\u00a0\n\n\nIn order to estimate and allocate the transaction\nprice between the two obligations, we considered the following inputs:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe sweepstakes games win percentage\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe amount of SC\u2019s it will take to qualify for cash redemption (minimum of 50 won coins accumulated)\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe cash value of 1 SC that is available to be redeemed\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe likelihood that the cash redemption option will be exercised (breakage of total outstanding SC\u2019s)\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe stand-alone selling price of the NC coin packages that include \u201cfree\u201d SC\u2019s\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe percentage of purchased NC\u2019s consumed during the period\n\n\n\n\n\u00a0\n\n\nWe also took into consideration the reward point\nallocation example in ASC 606-10-55-353 - 356 as the nature of the obligations and related estimated redemptions are similar in nature.\n\n\n\u00a0\n\n\nBased on that example we determined the allocation\nbetween NC and SC revenue to be calculated considering the following assumptions:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nTotal sweeps game win percentage is equal to 4% of all SC\u2019s issued\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nA minimum of 50 qualifying coins must be accumulated in a players account to be redeemable\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nWe assume that 90% of won coins were actually redeemed (not assumed, just used in example below as most users consume all their SC\u2019s rather than redeem)\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe value of 1 redeemable SC is equal to $1\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nWe estimate that 99% of purchased NC\u2019s are consumed during the period they were purchased\n\n\n\n\n\u00a0\n\n\n\n\n\n\n54\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nStep 5: Recognize revenue when (or as) the\nentity satisfies a performance obligation\n\n\n\u00a0\n\n\nStep 5 of the revenue recognition model requires\nthe company to recognize revenue when (or as) it satisfies a performance obligation.\n\n\n\u00a0\n\n\nFor the NT and NC coins this is determined by\nthe estimated consumption of purchased coins by the customer which indicates the performance obligation has been satisfied and revenue\ncan be recognized at that point in time. We estimate the amount of outstanding purchased NT and NC virtual currency at period end based\non customer behavior, because we are unable to distinguish between the consumption of purchased or free virtual currency. The estimated\namount is based on an analysis of the customers\u2019 historical play behavior, the timing difference between when virtual currencies\nare purchased by a customer and when those virtual currencies are consumed in game play, which historically has been relatively short.\n\n\n\u00a0\n\n\nFor the SC\u2019s, revenue is recognized when\nthe Company has satisfied its performance obligation (point in time) relating to the redemption of coins for cash as this can be tracked\nand would not need to be estimated.\n\n\n\u00a0\n\n\nWe will initially reduce the revenue recognized\nfor the two obligations for the unredeemed coins by booking a contract liability and then recognize the revenue when we have determined\nthe NT and NC coins have been abandoned by the player or have expired and for the SC\u2019s, when the cash reward has been redeemed.\n\n\n\u00a0\n\n\nAdditional considerations\n\n\n\u00a0\n\n\nPrincipal vs. Agent\n\n\n\u00a0\n\n\nWe intend to recognize revenues on a gross basis\nbecause we have control over the pricing, content and functionality of coins and games on our providers platform. We evaluated our current\nagreements with our platform providers (Meet Kai) and end-user agreements and based on the preceding, we determined that the Company is\nthe principal in such arrangements and Meet Kai is the agent in accordance with ASC 606-10-55-37. As the principal, the Company recognizes\nrevenue in the gross amount and as such, we treat the percentage of sales paid to Meet Kai as an expense. Any future changes in these\narrangements or to our games and related method of distribution may result in a different conclusion.\n\n\n\u00a0\n\n\nFair\nValue Measurements\n\n\n\u00a0\n\n\nASC\n820\u00a0\nFair Value Measurements\n\u00a0defines fair value, establishes a framework for measuring fair value in accordance with\nGAAP, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:\n\n\n\u00a0\n\n\nLevel\n1 inputs: Quoted prices for identical instruments in active markets.\n\n\n\u00a0\n\n\nLevel\n2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that\nare not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.\n\n\n\u00a0\n\n\nLevel\n3 inputs: Instruments with primarily unobservable value drivers.\n\n\n\u00a0\n\n\nThe\ncarrying values of the Company\u2019s financial instruments such as cash, accounts payable, and accrued expenses approximate their respective\nfair values because of the short-term nature of those financial instruments.\n\n\n\u00a0\n\n\n\n\n\n\n55\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nDerivative\nFinancial Instruments\n\n\n\u00a0\n\n\nThe\nCompany does not currently use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks, but may explore\nhedging oil prices in the current fiscal year. Management evaluates all of the Company\u2019s financial instruments, including warrants,\nto determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company generally uses\na Black-Scholes model, as applicable, to value the derivative instruments at inception and subsequent valuation dates when needed. The\nclassification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is remeasured\nat the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the derivative liabilities.\n\n\n\u00a0\n\n\nRecently\nIssued Accounting Standards\n\n\n\u00a0\n\n\nIn\nAugust 2020, the Financial Accounting Standards Board (\u201cFASB\u201d) issued Accounting Standards Update (\u201cASU\u201d) No.\n2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity\u2019s Own Equity\n(Subtopic 815-40), Accounting for Convertible Instruments and Contract\u2019s in an Entity\u2019s Own Equity. The ASU simplifies accounting\nfor convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments\nwill be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain\nsettlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity\ncontracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas.\n\n\n\u00a0\n\n\nThe\nASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning\nafter December 15, 2020, and interim periods within those fiscal years. The Company does not believe this new guidance will have a material\nimpact on its consolidated financial statements.\n\n\n\u00a0\n\n\nIn\nMay 2021, the Financial Accounting Standards Board (\u201cFASB\u201d) issued ASU 2021-04 \u201cEarnings Per Share (Topic 260), Debt\u2014Modifications\nand Extinguishments (Subtopic 470-50), Compensation\u2014 Stock Compensation (Topic 718), and Derivatives and Hedging\u2014Contracts\nin Entity\u2019s Own Equity (Subtopic 815- 40) Issuer\u2019s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified\nWritten Call Options\u201d which clarifies and reduces diversity in an issuer\u2019s accounting for modifications or exchanges of freestanding\nequity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. An entity\nshould measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity\nclassified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a\nmodification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to\nas a \u201cdebt\u201d or \u201cdebt instrument\u201d), as the difference between the fair value of the modified or exchanged written\ncall option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications\nor exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written\ncall option immediately before it is modified or exchanged. The amendments in this Update are effective for all entities for fiscal years\nbeginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively\nto modifications or exchanges occurring on or after the effective date of the amendments. The Company does not believe this new guidance\nwill have a material impact on its consolidated financial statements.\n\n\n\u00a0\n\n\nThe\nCompany does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition,\nresults of operations, cash flows or disclosures.\n\n\n\u00a0\n\n\n ",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\n\n\u00a0\n\n\nBecause we are a smaller reporting company, this\nsection is not applicable.\n\n\n\u00a0\n\n\n ",
+  "cik": "1437491",
+  "cusip6": "27888N",
+  "cusip": ["27888N406", "27888N307"],
+  "names": ["ECOARK HLDGS INC", "BITNILE METAVERSE INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1437491/000121390023057011/0001213900-23-057011-index.htm"
+}
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+{
+  "item1": "ITEM 1. BUSINESS.\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nOur Company is a content-driven\nand technology-enabled shopping destination for appliances, furniture and home goods.\n\n\n\u00a0\n\n\nOur goal is to give\ncustomers a wide array of choices and a premium experience through detail on the best brands, volume purchasing, and rebates with\nmanufacturer discounts, supported by human customer service agents.\n\n\n\u00a0\n\n\nCorporate History and Structure\n\n\n\u00a0\n\n\nOur Company was incorporated in the State of\nDelaware on January 10, 2019, to form an acquisition platform. In April 2019, we acquired substantially all of the assets of\nGoedeker Television, a brick and mortar operation with an online presence serving the St. Louis metro area. Since that acquisition,\nwe have grown into a nationwide omnichannel retailer. Through our June 2021 acquisition of Appliances Connection, we have evolved\ninto a growth-oriented e-commerce platform, offering an expansive selection of household appliances throughout the United States. In\nJuly 2021, we added to our platform by acquiring Appliances Gallery. On July 20, 2022, we changed our corporate name from 1847\nGoedeker Inc. to Polished.com Inc. With warehouse fulfillment centers in the Northeast and Midwest, as well as showrooms in\nBrooklyn, New York, Largo, Florida and St. Louis, Missouri, we offer one-stop shopping for national and global brands. We carry many\nhousehold name-brands, including Bosch, Cafe, Frigidaire Pro, Whirlpool, LG, and Samsung, and many major luxury appliance brands\nsuch as Miele, Thermador, La Cornue, Dacor, Ilve, Jenn-Air and Viking, among others. We also sell furniture, fitness equipment,\nplumbing fixtures, televisions, outdoor appliances, and patio furniture, as well as commercial appliances for builder and business\nclients.\n\n\n\u00a0\n\n\nKey Acquisitions\n\n\n\u00a0\n\n\nAcquisition of Goedeker Television\n\n\n\u00a0\n\n\nOn April 5, 2019, we acquired substantially all\nof the assets of Goedeker Television (the \u201cGoedeker Television Acquisition\u201d). As a result of this transaction, we acquired\nthe former business of Goedeker Television, which was founded in 1951, and continue to operate this business. Prior to the Goedeker Television\nAcquisition, we had no operations other than operations relating to our incorporation and organization.\n\n\n\u00a0\n\n\nAcquisition of Appliances Connection\n\n\n\u00a0\n\n\nAppliances Connection was founded in 1998 and\nis one of the leading retailers of household appliances. In addition to selling appliances, it also sells furniture, fitness equipment,\nplumbing fixtures, televisions, outdoor appliances, and patio furniture, as well as commercial-grade appliances for builder and business\nclients. It also provides appliance installation services and appliance removal services. Appliances Connection serves retail customers,\nbuilders, architects, interior designers, restaurants, schools and other businesses. We completed the acquisition of Appliances Connection\non June 2, 2021, for an aggregate purchase price of $224.7 million, consisting of (i) $180.0 million in cash, (ii) 5,895,973 shares of\nthe Company\u2019s common stock valued at $12.3 million, and (iii) $32.4 million as a result of the post-closing net working capital\nadjustment provision (such acquisition, the \u201cAppliances Connection Acquisition\u201d). We recorded $0.9 million in acquisition-related expenses.\n\n\n\u00a0\n\n\nAcquisition of AC Gallery\n\n\n\u00a0\n\n\nOn July 29, 2021, we acquired substantially all\nof the assets of, and assumed substantially all of the liabilities of, Appliance Gallery, Inc., a retail appliance store in Largo, Florida\n(\u201cAppliance Gallery\u201d), for a total purchase price of $1.4 million (such acquisition, the \u201cAppliance Gallery Acquisition\u201d).\n\n\n\u00a0\n\n\nName Change\n\n\n\u00a0\n\n\nOn July 20, 2022, we changed our corporate name from 1847\nGoedeker Inc. to Polished.com Inc., pursuant to a Certificate of Amendment to the Amended and Restated Certificate of Incorporation\n(the \u201cCertificate of Amendment\u201d) filed with the Delaware Secretary of State on July 20, 2022 (the \u201cName\nChange\u201d). Pursuant to Delaware law, a shareholder vote was not necessary to effectuate the Name Change and the Name Change\ndoes not affect the rights of the Company\u2019s stockholders. The only change in the Certificate of Amendment was the change of\nthe Company\u2019s corporate name. We also amended and restated our Bylaws on July 20, 2022 to reflect the Name Change and to make\nother minor cleanup and conforming changes thereto.\n\n\n\u00a0\n\n\nIn connection with the Name Change, our common\nstock and warrants to purchase common stock ceased trading under the ticker symbols \u201cGOED\u201d and \u201cGOED WS,\u201d respectively,\nand began trading on the NYSE American under the new ticker symbols \u201cPOL\u201d and \u201cPOL WS,\u201d respectively.\n\n\n\u00a0\n\n\n\n\n\n\n1\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nInvestigation\n\n\n\u00a0\n\n\nOn August 15, 2022, the Company filed a Form 12b-25\nwith the Securities and Exchange Commission related to its 10-Q for the six months ended June 30, 2022 reporting that the Audit Committee\nhad begun an independent investigation regarding certain allegations made by certain former employees related to the Company\u2019s business\noperations.\n\n\n\u00a0\n\n\nOn December 22, 2022, the Company issued a press release stating that\nthe Board had completed its assessment of the results of the Audit Committee\u2019s previously disclosed investigation. The investigation,\nwhich was supported by independent legal counsel and advisors, produced the following key findings pertaining to the Company\u2019s business\noperations under former management during the 2021-2022 period:\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe Company was charged by its former Chief Executive Officer approximately $800,000 for expenses unrelated to the Company and its operations.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe Company appears to not have had in place all the necessary documentation for all of its employees and, in turn, may have failed to comply with certain legal requirements. The Company subsequently put in place enhanced controls to remedy any labor issues, including but not limited to hiring a controller with significant relevant experience, hiring a new human resources director who is leading an overhaul of certain employee policies and initiating the installation of enhanced payroll software that requires all new employees to provide I-9 information and verifies the validity of key information, and believes it is now in full compliance with legal requirements.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe Company\u2019s controls, software and procedures for managing and tracking inventory, including damaged inventory, were insufficient. The Company subsequently put in place enhanced controls to remedy such issues, including but not limited to initiating the installation of enhanced software and systems for inventory management, ensuring the implementation of standardized policies for the handling and sale of damaged inventory and developing a plan to convert the Company to a new ERP and system for accounting.\n\n\n\n\n\u00a0\n\n\nThe Company entered into a settlement agreement\nwith Albert Fouerti, our former Chief Executive Officer, regarding matters relating to the investigation. Among other things, Mr. Fouerti\nagreed not to compete for a period of two years following the execution of the settlement agreement.\n\n\n\u00a0\n\n\n\n\nResignation of Auditors\n\n\n\u00a0\n\n\nOn December 20, 2022, the Company received a letter (the \u201cLetter\u201d)\nfrom the Company\u2019s independent registered public accounting firm, Friedman LLP (\u201cFriedman\u201d), informing the Company of\nits decision to resign effective December 20, 2022 as the auditors of the Company.\n\n\n\u00a0\n\n\nIn the Letter, Friedman advised the Company that\nbased on the results of the Board\u2019s internal investigation as reported to Friedman, it appeared there may be material adjustments\nand/or disclosures necessary to previously reported financial information. Additionally, the Board\u2019s internal investigation identified\nfacts, that if further investigated by Friedman, might cause Friedman to no longer to be able to rely on the representations of (i) management\nthat was in place at the time Friedman issued its audit report for the year ended December 31, 2021, or (ii) management that was in place\nat the time of Friedman\u2019s association with the quarterly financial statements for the periods ended June 30, 2021, September 30,\n2021 and March 31, 2022. Prior to the Letter, in the past two years, the Company had not received from Friedman an adverse opinion or\na disclaimer of opinion, and Friedman\u2019s opinion was not qualified or modified as to uncertainty, audit scope, or accounting principles.\nThe resignation by Friedman was neither recommended nor approved by the Audit Committee or the Board and there were no disagreements with\nmanagement and Friedman. Friedman had previously reported a material weakness to the Audit Committee, which was included on the Company\u2019s\nForm 10-K for the year ended December 31, 2021, filed on March 31, 2022, regarding the ineffectiveness of the Company\u2019s internal\ncontrols over financial reporting.\n\n\n\u00a0\n\n\nIn connection with the Letter, Friedman advised\nthe Company that it was withdrawing its previously issued audit opinion on our December 31, 2021 consolidated financial statements, issued\non March 31, 2022, and declined to be associated with the quarterly financial statements for the periods ended June 30, 2021, September\n30, 2021, and March 31, 2022, filed on August 8, 2021, November 16, 2021 and May 12, 2022, respectively.\n\n\n\u00a0\n\n\nEngagement of New Independent Registered\nPublic Accounting Firm\n\n\n\u00a0\n\n\nOn December 26, 2022, the Audit Committee approved\nthe engagement of Sadler, Gibb & Associates, LLC (\u201cSadler\u201d) as the Company\u2019s independent registered public accounting\nfirm for the fiscal years ended December 31, 2022 and 2021.\n\n\n\u00a0\n\n\nCybersecurity Incident\n\n\n\u00a0\n\n\nOn March 16, 2023, we experienced a hacking attack\nthat impacted the check-out page on the Company\u2019s e-commerce website. In response, the Company deployed containment measures, launched\nan investigation with assistance from third-party cybersecurity experts and notified appropriate law enforcement authorities. The Company\nconsiders the matter remediated. The investigation determined that certain personal information, including names, addresses, zip codes,\npayment card numbers, expiration dates, and CVVs, was extracted from the Company\u2019s systems as part of this incident. The investigation\ncould not determine with precision which payment card data was included in the timeframe of exposure. Out of an abundance of caution,\nthe Company notified all payment card users who made transactions on the Company\u2019s e-commerce website within the window of exposure.\nAs of May 24, 2023, the Company provided appropriate notice to approximately 9,290 individuals, as well as to regulatory authorities in\naccordance with applicable law. The Company has incurred, and may continue to incur, certain expenses related to this attack. Further,\nthe Company remains subject to risks and uncertainties as a result of the incident, including as a result of the data that was extracted\nfrom the Company\u2019s network as noted above. Additionally, security and privacy incidents have led to, and may continue to lead to,\nadditional regulatory scrutiny. Although we are unable to predict the full impact of this incident, including how it could negatively\nimpact our operations or results of operations on an ongoing basis, we presently do not expect that it will have a material effect on\nthe Company\u2019s operations.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n2\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe Company has engaged outside consultants through\nits outside counsel to help assess and expand the Company\u2019s cyber defenses and payment card protections and policies.\n\n\n\u00a0\n\n\nCredit Agreement Amendment\n\n\n\u00a0\n\n\nIn July 2023, the Company\u2019s lender amended\nthe credit agreement to waive defaults on the May 9, 2022 credit agreement. The amendment establishes a new EBITDA covenant and requires\nthe Company to maintain minimum liquidity of $8 million including restricted cash and $3 million excluding restricted cash. Liquidity\nas defined in the credit agreement amendment includes cash and certain qualifying customer accounts receivable. The credit agreement amendment\nrequires the Company to pay the existing loan by August 31, 2024. The Company has begun discussions with investment bankers to place financing\nto replace the existing credit agreement by August 31, 2024. See Item 7 \u201c\nManagement\u2019s Discussion and Analysis of Financial\nCondition and Results of Operations\u2014Debt\n.\u201d\n\n\n\u00a0\n\n\n\n\nIndustry\n\n\n\u00a0\n\n\nThe U.S. major home appliances market is highly\nfragmented with big box retailers, online retailers, and thousands of local and regional retailers competing for share in what has historically\nbeen a high touch sale process. According to Statista, revenue in the U.S. major household appliances market (excluding small appliances)\nis projected to reach $23.2 billion in 2022 and grow at an annual growth rate of 3.08% from 2022 to 2026.\n\n\n\u00a0\n\n\nAccording to the U.S. Census Bureau, there are\napproximately 76 million households in the United States with annual incomes over $25,000 aged between 25 and 65 years, many of whom are\naccustomed to purchasing goods online. As younger generations age, start new families and move into new homes, we expect online sales\nof household appliances to increase. In addition, we believe the online household appliances market will further grow as older generations\nof consumers become increasingly comfortable purchasing online, particularly if the process is easy and efficient.\n\n\n\u00a0\n\n\nOur\nProducts\n\n\n\u00a0\n\n\nWe sell a vast assortment of household appliances,\nincluding refrigerators, ranges, ovens, dishwashers, microwaves, freezers, washers and dryers. In addition to appliances, we also offer\na broad assortment of products in the furniture, d\u00e9cor, bed & bath, lighting, outdoor living, electronics categories, fitness\nequipment, plumbing fixtures, air conditioners, fireplaces, fans, dehumidifiers, humidifiers, air purifiers and televisions. While these\nare not individually high-volume categories, they complement the appliance to produce a one-stop home goods offering for customers.\n\n\n\u00a0\n\n\nVendor/Supplier Relationships\n\n\n\u00a0\n\n\nWe offer more than 400 vendors and over 500,000\nSKUs available for purchase through our website. We believe that this depth of vendor relationships gives consumers numerous options in\nall product categories resulting in a true one-stop shopping destination. Our principal vendors and suppliers are Dynamic Marketing Inc\n(a buying coop), Frigidaire, General Electric, LG, Whirlpool, Bosch, Viking, Miele, Samsung, Fisher Paykel and Ilve.\n\n\n\u00a0\n\n\nWe are a member and 1.6% equity interest holder\nof Dynamic Marketing, Inc. (\u201cDMI\u201d), a 60-member appliance purchasing cooperative. DMI purchases consumer electronics and appliances\nat wholesale prices from various vendors, and then makes such products available to its members, who sell such products to end consumers.\nDMI\u2019s purchasing group arrangement provides its members with leverage and purchasing power with appliance vendors, and increases\nour ability to compete with competitors, including big box appliance and electronics retailers. For the years ended December 31, 2022\nand 2021, the Company purchased a substantial portion of finished goods from DMI, representing 69% and 72% of purchases, respectively.\n\n\n\u00a0\n\n\nDuring the year ended December 31, 2022, Dynamic\nMarketing Inc accounted for approximately 69% of our purchases; no other vendor accounted for more than 10% of our purchases during the\nsame period.\n\n\n\u00a0\n\n\nOur business model allows us to constantly review\nand evaluate each supplier relationship, and we are open to building new supplier/vendor relationships. Products are purchased from all\nsuppliers on an at-will basis. Relationships with suppliers are subject to change from time to time. Please see Item 1A \u201c\nRisk\nFactors\n\u201d for a description of the risks related to our supplier relationships.\n\n\n\u00a0\n\n\nMarketing\n\n\n\u00a0\n\n\nOur marketing efforts drive new and repeat customers\nand promote our websites as online communities relating to major appliances and other products. Our strategy is to inspire the customer\nat each point of their shopping journey, delivering curated messaging, content and advice in an effort to increase engagement and repeat\npurchasing. We utilize a combination of paid and earned media, including search engine marketing, email, digital display, social media,\nretargeting, radio and events, in our media strategy. We also have programs to engage appliance enthusiasts and build community through\ndesign and customer portals that are intended both to inspire and provide help the business-to-business (\u201cB2B\u201d) and business-to-consumer\n(\u201cB2C\u201d) customers with their projects.\n\n\n\u00a0\n\n\n\n\n\n\n3\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCustomers and Markets\n\n\n\u00a0\n\n\nWe have physical stores and warehouses located in Brooklyn, New York,\nSomerset, New Jersey, Hamilton, New Jersey, St. Charles, Missouri and Largo, Florida. Our internal logistics network and third-party distribution,\ndelivery and installation agreements allow us to serve, sell and ship to customers nationwide. The diagram below represents our sales\nby region for 2022:\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nLogistics\n\n\n\u00a0\n\n\nIn our fulfillment of large durable goods, we have\ncreated an infrastructure that allows us to deliver products in most states. We want to scale this infrastructure by continuing to improve\nexecution, fulfillment center locations, and delivery timing. This proprietary logistic process enables us to provide our customers\u2019\nproducts quickly and to provide a better shipping and delivery experience than they might otherwise experience. Additionally, we believe\nthis logistics network will help us reduce expenses, touchpoints, damages and returns.\n\n\n\u00a0\n\n\nTechnology\n\n\n\u00a0\n\n\nWe are continuing to build out our custom-built,\nproprietary technology and operational platform to deliver the best experience for both our customers and suppliers. Our success has been\nbuilt on a culture of data-driven decision-making and proprietary software for order management and customer fulfillment. We believe that\ncontrol of our technology systems, which gives us the ability to update them often, is a competitive advantage. Our team of engineers\nhas built a technology solution for durable goods. Our software consists of a large set of tools and systems with which our customers\ndirectly interact, that are specifically tuned for shopping the major appliance category by mixing lifestyle imagery with easy-to-use\nnavigation tools and personalization features designed to increase customer conversion. We have designed operations software to deliver\nthe reliable and consistent experience consumers desire, with proprietary software enhancing our performance in areas such as integration\nwith our suppliers, our warehouse and logistics network and our customer service operation. Much of our customer marketing technology\nwas internally developed, including campaign management and bidding algorithms for online advertising. This allows us to leverage our\ninternal data and target customers efficiently across various channels. We also partner with select marketing and trade partners where\nwe find solutions that meet our marketing objectives and inspire our B2B and B2C customers.\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nWhile we are primarily focused on the online U.S.\nappliances, furniture and other home goods market, we compete across all segments of the market. Our competition includes online retailers\nand marketplaces, furniture stores, big box retailers, department stores and specialty retailers.\n\n\n\u00a0\n\n\n\n\n\n\n4\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCompetitive Strengths\n\n\n\u00a0\n\n\nThe U.S. appliance market is\nhighly fragmented, with thousands of local and regional retailers competing for a share. We believe this fragmented market presents an\nopportunity to streamline business and make brands and products available to everyone across the country. We are standardizing a consistent\nend-to-end experience to provide products to the consumer no matter where they are located in the country.\n\n\n\u00a0\n\n\nWe are strengthening our e-commerce\nplatform and increasing our showroom and distribution center model to provide a smooth path to purchase. We are also investing in our\nbrand presence and marketing efforts to drive customer acquisition and engagement. Our goal is to be the appliance destination for our\ncustomers from inspiration to installation.\n\n\n\u00a0\n\n\nOur competitive strengths include:\n\n\n\u00a0\n\n\n\n\n\u25cf\nName and reputation\n. In 2022, we introduced our Polished name and continue to build off our\n                                                                                       Goedeker legacy in offering competitively priced name-brand products and services, which has been recognized over 50+ years in the\n                                                                                       business.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nProduct selection and pricing\n. Our comprehensive product\nselection and competitive pricing model, with support from inspiration to delivery and installation, means we provide a complete solution\nfor customers.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nStrong customer relationships\n. We focus on the needs\nand experience of customers, whether they are in the market for a replacement, renovation or new construction project. This customer-centric\napproach is evidenced by our repeat customers, over-indexing the industry.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nHighly trained and professional staff\n. Our team is\ntrained to educate and support customers when selecting and buying products. A large percentage of customer orders involve a phone conversation\nwith a sales team member\u2014a differentiator when competing with online-only companies as well as brick-and-mortar outlets.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nWebsite ease of use\n. Our proprietary, purpose-built\ntechnology platform is designed to provide consumers a compelling user experience as they browse, research and purchase our products.\nWe use personalization, based on past browsing and shopping patterns, to create a more engaging consumer interaction.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nProprietary technology and content\n. Investments in\nour technology platform create a scalable process and support the customer at every point in the journey, including call center tools,\ndigital marketing optimization, B2B design portals, product reviews and lifestyle content.\n\n\n\n\n\u00a0\n\n\nGrowth Strategies\n\n\n\n\n\n\n\u00a0\n\n\nOur mission is to change the way consumers buy appliances\nand, in doing so, become the leading online retailer of home appliances. The strategies of the Company to achieve this mission, while\nincreasing value for our stockholders, will include:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nRebrand the combined company. \nWe plan to drive brand awareness through strategic omni-channel marketing.\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nStrengthening\n    the Company\u2019s Leadership Team. \u00a0\nWe have made significant executive and senior management hires and are continuing to\n    build our talent pool and hire highly-skilled employees. Recruiting top-tier talent at all levels remains a priority, especially as\n    the Company evolves and grows.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nSecure design and builder trade business. \nWe have created new tools and benefits to engage and simplify appliance shopping and buying for B2B projects with builders, contractors, architects and interior designers who are making or influencing the purchasing decision for their clients.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n5\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nCategory expansion and Deeper Connectivity with Customers. \nWe will be adding new, complementary categories and services to our selection to meet our customers\u2019 ever-changing needs. We are in the process of enhancing the content and resources available on our site that will ultimately help us create more meaningful relationships with customers.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nDrive continued operational excellence. \nWe are committed\nto improving productivity and profitability through operational initiatives designed to grow revenue and expand margins. Some of our\nkey initiatives for operational excellence include:\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\no\n\n\nLogistics\n    and shipping optimization\n. We have identified the geographic areas in which we want to establish a presence to reach more\n    customers and further penetrate markets that are experiencing high levels of housing development and home remodeling. Although we\n    currently are holding off on entering into agreements due to inventory and supply chain issues, we expect to add at least two new\n    fulfillment centers over the next year. We believe that adding fulfillment centers in other parts of the country will\n    minimize product touchpoints and damage, as well as expedite delivery. With access to vendor warehouse operations, we expect to\n    capitalize on buying opportunities and capture time-sensitive customers more frequently.\u00a0\n\n\n\n\n\u00a0\n\n\n\n\no\nPrice optimization\n. We are building a data-based understanding of price elasticity dynamics, promotional\nstrategies and other price management tools to drive optimized pricing for our products.\n\n\n\u00a0\n\n\nIntellectual Property\n\n\n\u00a0\n\n\nWe own several registered domain names, including\nfor our \nwww.polished.com\n website and the Appliances Connection websites \nwww.appliancesconnection.com, 1stopcamera.com, goldcoastappliances.com,\nand joesappliances.com\n. The agreements with our suppliers generally provide us with limited, nonexclusive licenses to use the supplier\u2019s\ntrademarks, service marks and trade names for the sole purpose of promoting and selling their products.\n\n\n\u00a0\n\n\nTo protect our intellectual property, we rely\non a combination of laws and regulations, as well as contractual restrictions. We rely on the protection of laws regarding unregistered\ncopyrights for certain content we create. We also rely on trade secret laws to protect our proprietary technology and other intellectual\nproperty. To further protect our intellectual property, we enter into confidentiality agreements with our executive officers and directors.\n\n\n\u00a0\n\n\nAs of December 31, 2022, in an effort to protect\nour brand, we had three registered trademarks in the United States.\n\n\n\u00a0\n\n\nHuman Capital\n\n\n\u00a0\n\n\nAs of December 31, 2022, we employed 391 total\nemployees, all of which were full-time employees.\n\n\n\u00a0\n\n\nWe have not experienced any work stoppages and\nwe consider our relationship with our employees to be good. None of our employees are subject to a collective bargaining agreement or\nrepresented by a labor union. Our people are integral to our business, and we are highly dependent on our ability to attract and retain\nqualified personnel.\n\n\n\u00a0\n\n\nGovernment Regulation\n\n\n\u00a0\n\n\nOur business is subject to the laws of the U.S.\njurisdictions in which we operate and the rules and regulations of various governing bodies, which may differ among jurisdictions as to\nhow, or whether, laws governing personal privacy, data security, consumer protection or sales and other taxes, among others, apply to\nthe Internet and e-commerce. These laws are continually evolving. For example, certain applicable privacy laws and regulations require\nus to provide customers with our policies on sharing information with third parties, and advance notice of any changes to these policies.\nRelated laws may govern the manner in which we store or transfer sensitive information or impose obligations on us in the event of a security\nbreach or inadvertent disclosure of such information. Additionally, tax regulations in jurisdictions where we do not currently collect\nstate or local taxes may subject us to the obligation to collect and remit such taxes, or to additional taxes, or to requirements intended\nto assist jurisdictions with their tax collection efforts. New legislation or regulation, the application of laws from jurisdictions whose\nlaws do not currently apply to our business, or the application of existing laws and regulations to the Internet and e-commerce generally\ncould result in significant additional taxes on our business. Further, we could be subject to fines or other payments for any past failures\nto comply with these requirements. The continued growth and demand for e-commerce is likely to result in more laws and regulations that\nimpose additional compliance burdens on e-commerce companies.\n\n\n\u00a0\n\n\n\n\n\n\n6\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nEmerging Growth Company and Smaller Reporting\nCompany\n\n\n\u00a0\n\n\nWe qualify as an \u201cemerging growth company\u201d\nunder the JOBS Act and a \u201csmaller reporting company\u201d within the meaning of the Securities Act. As a result, we are permitted\nto, and intend to, rely on exemptions from certain disclosure requirements.\n\n\n\u00a0\n\n\nFor so long as we are an emerging growth company,\nwe will not be required to:\n\n\n\u00a0\n\n\n\n\n\u25cf\nhave an auditor report on our internal controls over financial\nreporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\ncomply with any requirement that may be adopted by the Public\nCompany Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor\u2019s report providing additional\ninformation about the audit and the consolidated financial statements (i.e., an auditor discussion and analysis);\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nsubmit certain executive compensation matters to stockholder\nadvisory votes, such as \u201csay-on-pay\u201d and \u201csay-on-frequency;\u201d and\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\ndisclose certain executive compensation related items such\nas the correlation between executive compensation and performance and comparisons of the chief executive officer\u2019s compensation\nto median employee compensation.\n\n\n\n\n\u00a0\n\n\nIn addition, Section 107 of the JOBS Act also\nprovides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities\nAct for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain\naccounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits\nof this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply\nwith such new or revised accounting standards.\n\n\n\u00a0\n\n\nWe will remain an emerging growth company until\nthe earliest of (i) the last day of the fiscal year following the fifth anniversary of our initial public offering, (ii) the last day\nof the first fiscal year in which our total annual gross revenues are $1.235 billion or more, (ii) the date that we become a \u201clarge\naccelerated filer\u201d as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that\nis held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iv)\nthe date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.\n\n\n\u00a0\n\n\nWe may continue to qualify as a smaller reporting\ncompany if either (i) the market value of our common stock held by non-affiliates is less than $250 million or (ii) our annual revenue\nwas less than $100 million during the most recently completed fiscal year and the market value of our common stock held by non-affiliates\nis less than $700 million. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, including,\nbut not limited to presenting only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K\nand reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.\n\n\n\u00a0\n\n\nAdditional Information About the Company\n\n\n\u00a0\n\n\nThe following documents are available free of\ncharge through the Company\u2019s website, www.polished.com: the Company\u2019s annual report on Form 10-K, quarterly reports on Form\n10-Q, current reports on Form 8-K, and any amendments to those reports that are filed with or furnished to the Securities and Exchange\nCommission (\u201cSEC\u201d) pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 (the \u201cExchange Act\u201d).\nThese materials are made available through the Company\u2019s website as soon as reasonably practicable after they are electronically\nfiled with, or furnished to, the SEC. In addition to its reports filed or furnished with the SEC, the Company publicly discloses material\ninformation from time to time in its press releases, at annual meetings of stockholders, in publicly accessible conferences and investor\npresentations, and through its website (principally in its News and Investor Relations pages). References to the Company\u2019s website\nin this Form 10-K are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the\ninformation contained on, or available through, the website, and such information should not be considered part of this Form 10-K.\n\n\n\u00a0\n\n\n\n\n\n\n7\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A.\n    \nRISK FACTORS\n\n\n8\n\n\n\n",
+  "item7": ">Item 7 Management\u2019s Discussion and Analysis of Financial\nCondition and Results of Operation \u2013 Investigation\u201d initiated by the Board.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n62\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nTotal other income (expense)\n. We had\n$2.2 million in total net other expense for the nine months ended September 30, 2022, as compared to total net other expense, of\n$4.0 million for the nine months ended September 30, 2021. Total other expense, net, for the nine months ended September 30, 2022,\nconsisted primarily of loss on the extinguishment of debt of $3.2 million and interest expense of $2.6 million, offset by a gain\nfrom the change in fair value of a derivative asset of $3.5 million. Total other expense, net, for the nine months ended September\n30, 2021, consisted primarily of loss on settlement of debt of $1.7 million and interest expense of $2.4 million.\n\n\n\u00a0\n\n\nIncome tax benefit\n. We had an\nincome tax net benefit of $3.2 million for the nine months ended September 30, 2022, as compared to an income tax benefit of $5.9 million\nfor the nine months ended September 30, 2021.\n\n\n\u00a0\n\n\nNet income (loss)\n. As a result of the\ncumulative effect of the factors described above, we had a net loss of $3.7 million for the nine months ended September 30, 2022, as\ncompared to net income of $3.9 million for the nine months ended September 30, 2021, a decrease of $7.5 million, or 194.8%.\n\n\n\u00a0\n\n\nSummary of Cash Flow\n\n\n\u00a0\n\n\nThe following table provides detailed information\nabout our net cash flow for the nine months ended September 30, 2022 and 2021 (in thousands).\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nNine Months Ended\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nSeptember 30,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\u00a0\n\n\n2021\n\u00a0\n\n\n\n\nNet cash used in operating activities\n\u00a0\n\n\n$\n(38,693\n)\n\u00a0\n\n\n$\n(18,316\n)\n\n\n\n\nNet cash used in investing activities\n\u00a0\n\n\n\u00a0\n(1,318\n)\n\u00a0\n\n\n\u00a0\n(203,628\n)\n\n\n\n\nNet cash provided by financing activities\n\u00a0\n\n\n\u00a0\n36,386\n\u00a0\n\u00a0\n\n\n\u00a0\n247,218\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nNet change in cash, cash equivalents, and restricted cash\n\u00a0\n\n\n$\n(3,625\n)\n\u00a0\n\n\n$\n25,274\n\u00a0\n\n\n\n\n\u00a0\n\n\nCash flows used in operating activities\n.\nOur net cash used in operating activities was $38.7 million for the nine months ended September 30, 2022, as compared to $18.3 million for the nine months ended September 30, 2021. Significant changes in operating assets and liabilities\naffecting cash flows during these periods included:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nNet loss was $3.7 million, as compared to net income of $3.9\n                                                     million for the nine months ended September 30, 2022 and 2021, respectively,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nCash used by receivables was $1.8 million and $2.6 million for the nine months ended September 30, 2022 and 2021, respectively,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nCash\n    provided by inventories was $7.3 million, as compared to cash used by inventory of $11.7 million for the nine months ended\n    September 30, 2022 and 2021, respectively,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nCash used by customer deposits was $20.9 million and $16.9 million for the nine months ended September 30, 2022 and 2021, respectively. Prior to July 2021, the Company charged a customer\u2019s card when an order was placed. After July 2021, the customers card was charged when the order shipped. The decline in customer deposits results from shipping or refunding customer orders that had previously been paid.\n\n\n\n\n\u00a0\u00a0\nCash\n                                            flows used in investing activities\n. Our net cash used in investing activities was $1.3\n                                            million for the nine months ended September 30, 2022, as compared to $203.6 million for the\n                                            nine months ended September 30, 2021. Net cash used in investing activities for the nine\n                                            months ended September 30, 2022, consisted of leasehold improvements of $1.3 million. Net\n                                            cash used in investing activities for the nine months ended September 30, 2021, primarily consisted\n                                            of cash paid in the acquisition of Appliances Connection, net of cash acquired, of $201.5\n                                            million.\n\n\n\n\n\u00a0\n\n\nCash flows provided by financing\nactivities\n. Our net cash provided in financing activities was $36.4 million for the nine months ended September 30, 2022, as\ncompared to $247.2 million for the nine months ended September 30, 2021.\n\n\n\u00a0\n\n\nSignificant changes in financing activities affecting cash flows during\nthese years included:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nNet cash\nreceived from notes payable proceeds of $43.0 million and $55.2 million for the nine months ended September 30, 2022 and September 30,\n2021, respectively,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nRepayments of notes payable of $4.6 million and $4.9 million for the\nnine months ended September 30, 2022 and 2021, respectively,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nStock repurchases of $2.0 million for the nine months ended September\n30, 2022, and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nNet proceeds of $194.6 million received from public offering and proceeds\nfrom the exercise of warrants of $2.3 million for the nine months ended September 30, 2021.\n\n\n\n\n\u00a0\n\u00a0\n\n",
+  "item7a": ">ITEM 7A.\n    \nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\n\n63\n\n\n\n\nITEM 8.\n\n\nFINANCIAL STATEMENTS AND SUPPLEMENTARY\n    DATA\n\n\n63\n\n\n\n\nITEM 9.\n\n\nCHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE\n\n\n64\n\n\n\n\nITEM 9A.\n\n\nCONTROLS AND PROCEDURES\n\n\n64\n\n\n\n\nITEM 9B.\n\n\nOTHER INFORMATION\n\n\n65\n\n\n\n\nITEM 9C.\n\n\nDISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS\n\n\n65\n\n\n\n\nPART III\n\n\n\n\nITEM 10.\n\n\nDIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE\n\n\n66\n\n\n\n\nITEM 11.\n\n\nEXECUTIVE COMPENSATION\n\n\n72\n\n\n\n\nITEM 12.\n\n\nSECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS\n\n\n77\n\n\n\n\nITEM 13.\n\n\nCERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE\n\n\n79\n\n\n\n\nITEM 14.\n\n\nPRINCIPAL ACCOUNTING FEES AND SERVICES\n\n\n82\n\n\n\n\nPART IV\n\n\n\n\nITEM 15.\n\n\nEXHIBIT AND FINANCIAL STATEMENT SCHEDULES\n\n\n83\n\n\n\n\nITEM 16.\n\n\nFORM 10-K SUMMARY\n\n\n88\n\n\n\u00a0\n\n\n\n\n\n\ni\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nEXPLANATORY NOTE\n\n\n\u00a0\nPolished.com Inc. (the \u201cCompany\u201d) is filing this comprehensive\nannual report on Form 10-K for the fiscal years ended December 31, 2022 and 2021 and the quarterly periods ended March 31, 2022, June\n30, 2022, September 30, 2022 and March 31, 2023 (the \u201cComprehensive Form 10-K\u201d) as part of its efforts to become current in\nits filing obligations under the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d). Although we have regularly\nmade filings through current reports on Form 8-K when deemed appropriate, this Comprehensive Form 10-K is our first periodic filing with\nthe Securities and Exchange Commission (the \u201cSEC\u201d) since the filing of our quarterly report on Form 10-Q for the quarter ended\nMarch 31, 2022 as a result of the matters related to investigation described in this Annual Report under the heading \u201c\nItem 7\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operation \u2013 Investigation\n\u201d. As a result\nof the foregoing, our former auditor withdrew its previously issued audit opinion on our December 31, 2021 consolidated financial statements\n,\nissued on March 31, 2022, and declined to be associated with the quarterly financial statements for the periods ended June 30, 2021, September\n30, 2021, and March 31, 2022, filed on August 8, 2021, November 16, 2021 and May 12, 2022, respectively\n. Included in this Comprehensive\nForm 10-K are our audited financial statements for the fiscal year ended December 31, 2022, and our select, unaudited quarterly financial\ninformation for the periods ended June 30, 2022, September 30, 2022 and March 31, 2023, in each case which have not been previously filed\nwith the SEC.\n\n\n\n\n\u00a0\nIn addition, the Comprehensive Form 10-K also\nrestates the Company\u2019s previously issued consolidated financial statements as of and for the fiscal year ended December 31, 2021\n(see Note 2, \u201c\nSummary of Significant Accounting Policies \u2013 Restatement\n,\u201d in \u201c\nItem 8 Financial Statements\nand Supplementary Data\n\u201d, for additional information), which have been re-audited by our new independent registered public accounting\nfirm, \nSadler, Gibb & Associates, LLC\n. See Item 9. Changes In and Disagreements with Accountants\non Accounting and Financial Disclosure. The relevant unaudited interim financial information for the period ended March 31, 2022 has also\nbeen restated. See Note 2, \u201c\nSummary of Significant Accounting Policies \u2013 Restatement\n,\u201d in \u201c\nItem 8 Financial\nStatements and Supplementary Data\n\u201d, for such restated information.\n\n\n\u00a0\n\n\nThe impact of the restatement is discussed in detail in this Annual\nReport under the headings \u201cItem 7 Management\u2019s Discussion and Analysis of Financial Condition and Results of Operation \u2013\nInvestigation.\u201d\n\n\n\u00a0\n\n\nControl Considerations\n\n\n\u00a0\n\n\nManagement has determined that the Company\u2019s\nineffective internal control over financial reporting and resulting material weaknesses were attributed to: the Company\u2019s lack of\nstructure and responsibility, insufficient number of qualified resources and inadequate oversight and accountability over the performance\nof controls; ineffective assessment and identification of changes in risk impacting internal control over financial reporting; inadequate\nselection and development of effective control activities, general controls over technology and effective policies and procedures; ineffective\nevaluation and determination as to whether the components of internal control were present and functioning; and the lack of an accounting\nsystem that is required for a company or our size. See Item 9A, Controls and Procedures, for additional information related to these material\nweaknesses in internal control over financial reporting and the related remedial measures.\n\n\n\n\n\u00a0\n\n\nINTRODUCTORY NOTES\n\n\n\u00a0\n\n\nUse of Terms\n\n\n\u00a0\n\n\nExcept as otherwise indicated by the context and\nfor the purposes of this Annual Report on Form 10-K, the terms \u201cCompany,\u201d \u201cwe,\u201d \u201cus,\u201d or \u201cour\u201d\nrefer to Polished.com Inc., a Delaware corporation, and its consolidated subsidiaries, including but not limited to, 1 Stop Electronics\nCenter, Inc., a New York corporation (\u201c1 Stop\u201d), Gold Coast Appliances, Inc., a New York corporation (\u201cGold Coast\u201d),\nSuperior Deals Inc., a New York corporation (\u201cSuperior Deals\u201d), Joe\u2019s Appliances LLC, a New York limited liability company\n(\u201cJoe\u2019s Appliances\u201d), and YF Logistics LLC, a New Jersey limited liability company (\u201cYF Logistics\u201d and together\nwith 1 Stop, Gold Coast, Superior Deals, and Joe\u2019s Appliances, \u201cAppliances Connection\u201d), and AC Gallery Inc., a Delaware\ncorporation (\u201cAC Gallery\u201d).\n\n\n\u00a0\n\n\nCautionary Statement Regarding Forward-Looking\nStatements\n\n\n\u00a0\n\n\nThis report contains forward-looking statements\nthat are based on our management\u2019s beliefs and assumptions and on information currently available to us. All statements other than\nstatements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance\nand involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance\nor achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied\nby these forward-looking statements. Forward-looking statements inc\nlude, but\nare not limited to, statements about:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\n\n\ndelinquency in connection with the filing of our\n    ongoing SEC reports and the risk that the SEC will initiate an administrative proceeding to suspend or revoke the registration of our\n    common stock under the Exchange Act due to our previous failure to file such reports or of the NYSE American to delist our stock from\n    the exchange;\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\n\n\ncybersecurity or data security breaches such as\n    the hacking attack we disclosed in May 2023, the improper disclosure of confidential, personal or proprietary data and changes to laws\n    and regulations governing cybersecurity and data privacy, including any related costs, fines or lawsuits, and our ability to continue\n    ongoing operations and safeguard the integrity of our information technology infrastructure, data, and employee, customer and vendor information;\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nour\n                                            ability to acquire new customers and sustain and/or manage our growth;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nthe\n                                            effect of supply chain delays and disruptions on our operations and financial condition;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nour\n                                            goals and strategies;\n\n\n\n\n\u00a0\n\n\n\n\n\n\nii\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nthe\n                                            identification of material weaknesses in our internal control over financial reporting and\n                                            disclosure controls and procedures that, if not corrected, could affect the reliability of\n                                            our consolidated financial statements and have other adverse consequences such as a failure\n                                            to meet reporting obligations;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nour\n                                            future business development, financial condition and results of operations;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nexpected\n                                            changes in our revenue, costs or expenditures;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\ngrowth\n                                            of and competition trends in our industry;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nour\n                                            expectations regarding demand for, and market acceptance of, our products;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u25cf\nour\n                                            expectations regarding our relationships with investors, institutional funding partners and\n                                            other parties we collaborate with;\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nfluctuations\n                                            in general economic and business conditions in the markets in which we operate; and\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nrelevant\n                                            government policies and regulations relating to our industry.\n\n\n\n\n\u00a0\n\n\nIn\nsome cases, you can identify forward-looking statements by terms such as \u201cmay,\u201d \u201ccould,\u201d \u201cwill,\u201d\n\u201cshould,\u201d \u201cwould,\u201d \u201cexpect,\u201d \u201cplan,\u201d \u201cinte\nnd,\u201d \u201canticipate,\u201d\n\u201cbelieve,\u201d \u201cestimate,\u201d \u201cpredict,\u201d \u201cpotential,\u201d \u201cproject\u201d or \u201ccontinue\u201d\nor the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance\non forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases,\nbeyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current\nexpectations include, among other things, those listed under Item 1A \u201c\nRisk Factors\n\u201d and elsewhere in this report.\nIf one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results\nmay vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee\nof future performance.\n\n\n\u00a0\n\n\nThe forward-looking statements made in this report\nrelate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the\nfederal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new\ninformation, future events, changed circumstances or any other reason.\n\n\n\u00a0\n\n\n\n\nRisk Factors Summary\n\n\n\u00a0\n\n\nWe are subject to a variety of risks and uncertainties\nthat could adversely affect our business, financial condition and operating results. These risks are discussed in more detail under \u201c\nRisk\nFactors\n\u201d in Item 1A of this report, but are not limited to, risks related to:\n\n\n\u00a0\n\n\nRisks Related to Our Business and Industry\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\n\n\nPrior to the filing of this annual report on Form\n    10-K, we have been delinquent in our SEC reporting obligations for over 12 months. Although we expect to file our periodic reports in\n    a timely fashion going forward, we cannot provide assurance that our business and the price of our common stock will not be materially\n    adversely affected by our previous failure to file required periodic reports.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\n\n\nThe Investigation and subsequent restatement of our financial statements\nhas consumed a significant amount of our time and resources and may lead to, among other things, shareholder litigation, loss of investor\nconfidence, negative impacts on our stock price, a material adverse effect on our reputation, business and stock price and certain other\nrisks.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\n\n\nMacroeconomic trends including inflation and rising\n    interest rates may adversely affect our financial condition and results of operations.\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nOur continued revenue growth will depend upon, among other\nfactors, our ability to\u00a0acquire more customers, build our brands and launch new brands, introduce new products or offerings and\nimprove existing products, and successfully compete in the products and services retail industry, especially in the e-commerce sector.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nOur business model and growth strategy depend on our marketing\nefforts and ability to maintain our brand and attract customers to our platform in a cost-effective manner, including our ability to\ndevelop new features to enhance the consumer experience on our websites, mobile-optimized websites and mobile applications, which we\ncollectively refer to as our \u201csites.\u201d\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nWe may be unsuccessful in launching or marketing new products\nor services, or launching existing products and services into new markets, or may be unable to successfully integrate new offerings into\nour existing platform, which would result in significant expense and could adversely affect our results.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nWe have experienced rapid growth since inception, which may\nnot be indicative of future growth, and, if we continue to grow rapidly, we may experience difficulties in managing our growth and expanding\nour operations and service offerings.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\niii\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nWe depend on our relationships with third parties, and changes\nin our relationships with these parties could adversely affect our revenues and profits. We may be unable to expand our relationships\nwith existing suppliers or source new or additional suppliers, negotiate acceptable pricing and other terms with third-party service\nproviders, suppliers and outsourcing partners and maintain our relationships with such entities.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nOur suppliers have imposed conditions in our business arrangements\nwith them. If we are unable to continue satisfying these conditions, or such suppliers impose additional restrictions with which we cannot\ncomply, it could have a material adverse effect on our business.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nWe may be unable to optimize, operate and manage the expansion of the capacity of our fulfillment\n                                                                                       centers, and our plans to expand capacity and develop new facilities may be adversely affected by global events.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\nOur business is dependent upon our ability to acquire, accurately\nvalue and manage inventory.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nIf we fail to maintain adequate cybersecurity with respect\nto our systems and ensure that our third-party service providers do the same with respect to their systems, our business may be harmed.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\nOur internal information technology systems may fail or suffer\nsecurity breaches, loss or leakage of data, and other disruptions, which could disrupt our business or result in the loss of critical\nand confidential information.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nOur limited operating history makes it difficult to evaluate\nour current business and future prospects and the risk of your investment.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nCertain of our directors and officers could be in a position\nof conflict of interest.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nWe have identified a material weakness in our internal control\nover financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system\nof internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our reporting\nobligations or fail to prevent fraud, which would harm our business and could negatively impact the price of our common stock.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\n\n\nOur business, financial condition and results\n    of operations could be adversely affected by disruptions in the global economy resulting from the ongoing military conflict between Russia\n    and Ukraine.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nThe ongoing global COVID-19 pandemic and any future pandemics or other public health emergencies, could materially affect our operations, liquidity, financial condition and operating results.\n\n\n\n\n\u00a0\n\n\nRisks Related\nto Our Indebtedness and Liquidity\n\n\n\u00a0\n\n\n\n\n\u25cf\nIf we require additional financing to fuel our continued\nbusiness growth, this additional financing may not be available on reasonable terms or at all.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nOur current debt and our ability to increase future leverage\ncould limit our operating flexibility and ability to grow, and adversely affect our financial condition and cash flows.\n\n\n\n\n\u00a0\n\n\nRisks Related to Laws and Regulations\n\n\n\u00a0\n\n\n\n\n\u25cf\nGovernment regulation of the internet and e-commerce is evolving,\nand unfavorable changes or failure by us to comply with existing or future regulations in a cost-efficient manner could substantially\nharm our business and results of operations.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nFailure to comply with applicable laws and regulations relating\nto privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating\nto privacy, data protection and consumer protection, could adversely affect our business and our financial condition.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nWe may be subject to product liability and other similar\nclaims if people or property are harmed by the products we sell. The market price, trading volume and marketability of our common stock\nmay, from time to time, be significantly affected by numerous factors beyond our control, which may materially adversely affect the market\nprice of our common stock, the marketability of our common stock and our ability to raise capital through future equity financings.\n\n\n\n\n\u00a0\n\n\nRisks Related to Ownership of Our Common\nStock\n\n\n\u00a0\n\n\n\n\n\u25cf\nWe\n                                            have a limited number of shares of common stock available for issuance, which may limit our\n                                            ability to raise capital.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nWe have not paid in the past and do not expect to declare\nor pay dividends in the foreseeable future.\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\nFor as long as we are an \u201cemerging growth company,\u201d\nor a \u201csmaller reporting company\u201d we will not be required to comply with certain reporting requirements that apply to some\nother public companies, and such reduced disclosures requirement may make our common stock less attractive.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nWe may not be able to maintain a listing of our common stock and warrants on NYSE American.\n\n\n\n\n\u00a0\n\n\n\n\n\n\niv\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nPART\nI\n\n\n\u00a0\n\n\n ",
+  "cik": "1810140",
+  "cusip6": "28252C",
+  "cusip": ["28252C909", "28252C109", "28252c109"],
+  "names": ["POLISHED COM INC", "POLISHED COM INC COM"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1810140/000121390023061380/0001213900-23-061380-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\n    \nBusiness\n\n\n1\n\n\n\n\nItem 1A.\n\n\nRisk Factors\n\n\n4\n\n\n\n\nItem 1B.\n\n\nUnresolved Staff Comments\n\n\n9\n\n\n\n\nItem 2.\n\n\nProperties\n\n\n9\n\n\n\n\nItem 3.\n\n\nLegal Proceedings\n\n\n10\n\n\n\n\nItem 4.\n\n\nMine Safety Disclosures\n\n\n10\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nPart II\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nItem 5.\n\n\nMarket for Registrant\u2019s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities\n\n\n11\n\n\n\n\nItem 6.\n\n\nReserved\n\n\n11\n\n\n\n\nItem 7.\n\n\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\n\n12\n\n\n\n\nItem 7A.\n\n\nQuantitative and Qualitative Disclosures About Market Risk\n\n\n15\n\n\n\n",
+  "item1a": ">Item 1A. Risk Factors\n\n\n\u00a0\n\n\nOur business, financial condition and results of operations have\nbeen and may continue to be negatively impacted by global health epidemics, including the COVID-19 pandemic.\n\n\n\u00a0\n\n\nOutbreaks of epidemic, pandemic, or contagious diseases such as COVID-19,\nand any related economic impacts, have and may continue to have an adverse effect on our business, financial condition, and results of\noperations, and our future operating results may fall below expectations. The extent to which our business will continue to be affected\nby the COVID-19 pandemic will depend on a variety of factors, many of which are outside of our control, including the persistence of the\npandemic, impacts on economic activity, and the possibility of recession or continued financial market instability.\n\n\n\u00a0\n\n\nOur success depends on our management team and other\u00a0key\npersonnel, the loss of any of whom could disrupt our business operations.\n\n\n\u00a0\n\n\nThe Company is dependent on Thomas Salerno, our Chief Executive Officer,\nPresident and Treasurer, in his corporate positions and as President of our subsidiary TSR Consulting Services, Inc. The Company has an\nemployment agreement with Mr. Salerno which expires November 2, 2026. The Company is also dependent on certain of its account executives\nwho are responsible for servicing its principal customers and attracting new customers. The Company generally does not have employment\ncontracts with the account executives. There can be no assurance that the Company will be able to retain its existing personnel or find\nand attract additional qualified employees. The loss of the service of any of these personnel could have a material adverse effect on\nthe Company.\n\n\n\u00a0\n\n\nThe Company may be subject to future lawsuits or investigations,\nwhich could divert our resources or result in substantial liabilities.\n\n\n\u00a0\n\n\nIn the future, the Company may be subject to legal or administrative\nproceedings and litigation which may be costly to defend and could materially harm our business, financial conditions and operations.\u00a0With\nrespect to any litigation, the Company\u2019s insurance may not reimburse it or may not be sufficient to reimburse it for the self-insured\nretention that the Company is required to satisfy before any insurance applies to a claim, unreimbursed legal fees or an adverse result\nin any litigation. Such event may adversely impact the Company\u2019s business, operating results or financial condition.\n\n\n\u00a0\n\n\nOur business may be materially and adversely impacted if our\nrelationship with one or more of our major customers is lost or disrupted.\n\n\n\u00a0\n\n\nIn fiscal 2023, the Company\u2019s four largest customers, Consolidated\nEdison, ADP, Morgan Stanley and Citigroup, accounted for 21.0%, 18.4%, 13.7%, and 12.5% of the Company\u2019s consolidated revenue, respectively.\nAny disruptions in our relationships with our significant customers may have a materially adverse impact on our financial condition and\nresults of operations. In total, the Company derives over 44% of its revenue from accounts with vendor management companies. The Company\u2019s\n10 largest customers provided 90% of consolidated revenue in fiscal 2023. Client contract terms vary depending on the nature of the engagement,\nand there can be no assurance that a client will renew a contract when it terminates. In addition, the Company\u2019s contracts are generally\ncancelable by the client at any time on short notice, and customers may unilaterally reduce their use of the Company\u2019s services\nunder such contracts without penalty. Approximately 26% of the Company\u2019s revenue is derived from end customers in the financial\nservices business. Competitive pressures in financial services, primarily with European based banks, have negatively affected the net\neffective rates that the Company charges to certain end customers in this industry, which has negatively affected the Company\u2019s\ngross profit margins.\n\n\n\u00a0\n\n\n\n\n\n\nPage \n4\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn accordance with industry practice, most of the Company\u2019s contracts\nfor contract computer programming services are terminable by either the client or the Company on short notice.\n\n\n\u00a0\n\n\nThe accounts receivable balances associated with the Company\u2019s\nlargest customers were $6,848,000 for four customers at May 31, 2023 and $8,668,000 for four customers at May 31, 2022. Because of the\nsignificant amount of outstanding receivables that the Company may have with its larger customers at any one time, if a client, including\na vendor management company which then contracts with the ultimate client, filed for bankruptcy protection or otherwise sought to modify\npayment terms, it could prevent the Company from collecting on the receivables and have an adverse effect on the Company\u2019s results\nof operations.\n\n\n\u00a0\n\n\nDamage to our reputation may adversely affect our customer relationships\nand our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nThe Company\u2019s reputation among its customers, potential customers\nand the staffing services industry depends on the performance of the technical personnel that the Company places with its customers. If\nthe Company\u2019s customers are not satisfied with the services provided by the technical personnel placed by the Company, or if the\ntechnical personnel placed by the Company lack the qualifications or experience necessary to perform the services required by the Company\u2019s\ncustomers, the Company may not be able to successfully maintain its relationships with its customers or expand its client base.\n\n\n\u00a0\n\n\nWe operate in a competitive market for technical personnel, account\nexecutives and technical recruiters and disruptions to our business may result if we fail to attract and retain qualified personnel to\noperate our business and service our customers.\n\n\n\u00a0\n\n\nThe Company\u2019s success is dependent upon its ability to attract\nand retain qualified computer professionals to provide as temporary personnel to its customers. Competition for the limited number of\nqualified professionals with a working knowledge of certain sophisticated computer languages, which the Company requires for its contract\ncomputer services business, is intense. The Company believes that there is a shortage of, and significant competition for, software professionals\nwith the skills and experience necessary to perform the services offered by the Company.\n\n\n\u00a0\n\n\nThe Company\u2019s ability to maintain and renew existing engagements\nand obtain new business in its contract computer programming business depends, in large part, on its ability to hire and retain technical\npersonnel with the IT skills that keep pace with continuing changes in software evolution, industry standards and technologies, and client\npreferences. Although the Company generally has been successful in attracting employees with the skills needed to fulfill customer engagements,\ndemand for qualified professionals conversant with certain technologies may outstrip supply as new and additional skills are required\nto keep pace with evolving computer technology or as competition for technical personnel increases. Increased demand for qualified personnel\nhas resulted and is expected to continue to result in increased expenses to hire and retain qualified technical personnel and has adversely\naffected the Company\u2019s profit margins.\n\n\n\u00a0\n\n\nThe Company faces a highly competitive market for hiring and retaining\naccount executives and technical recruiters, which could affect the Company\u2019s ability to hire and retain such personnel, including\nby increasing the costs of doing so. If the Company is successful in hiring technical recruiters and account executives, there can be\nno assurance that such hiring will result in increased revenue.\n\n\n\u00a0\n\n\nWe operate in a rapidly changing industry and a reduction in\ndemand for our technical staffing services may adversely affect our business, financial condition and results of operations. \n\n\n\u00a0\n\n\nThe computer industry is characterized by rapidly changing technology\nand evolving industry standards. These include the overall increase in the sophistication and interdependency of computer technology\nand a focus by IT managers on cost-efficient solutions. There can be no assurance that these changes will not adversely affect demand\nfor technical staffing services. Organizations may elect to perform such services in-house or outsource such functions to companies that\ndo not utilize temporary staffing, such as that provided by the Company.\n\n\n\u00a0\n\n\nAdditionally, a number of companies have, in recent years, limited\nthe number of vendors on their approved vendor lists, and are continuing to do so. In some cases, this has required the Company to subcontract\nwith a company on the approved vendor list to provide services to customers. The staffing industry has also experienced margin erosion\ncaused by this increased competition, and customers leveraging their buying power by consolidating the number of vendors with which they\ndeal. In addition to these factors, there has been intense price competition in the area of IT staffing, pressure on billing rates and\npressure by customers for discounts. The Company has endeavored to increase its technical recruiting staff in order to better respond\nto customers\u2019 increasing demands for both the timeliness, quality and quantities of resume submittals against job requisitions.\n\n\n\u00a0\n\n\nThe Company cannot predict at this time what long-term effect these\nchanges will have on the Company\u2019s business and results of operations.\n\n\n\u00a0\n\n\n\n\n\n\nPage \n5\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe increase in our customers\u2019 use of third-party vendor\nmanagement companies may weaken our relationship with our customers and adversely impact our ability to develop and expand customer relationships.\n\n\n\u00a0\n\n\nThere have been changes in the industry which have affected the Company\u2019s\noperating results. Many customers have retained third parties to provide vendor management services, and in excess of 44% of the Company\u2019s\nrevenue is derived through business with vendor management companies. The third party is then responsible for retaining companies to provide\ntemporary IT personnel. This results in the Company contracting with such third parties and not directly with the ultimate customer. This\nchange weakens the Company\u2019s relationship with its customer, which makes it more difficult for the Company to maintain and expand\nits business with its existing customers. It also reduces the Company\u2019s profit margins.\n\n\n\u00a0\n\n\nIn addition, the agreements with the vendor management companies are\nfrequently structured as subcontracting agreements, with the vendor management company entering into a services agreement directly with\nthe end customers. As a result, in the event of a bankruptcy of a vendor management company, the Company\u2019s ability to collect its\noutstanding receivables and continue to provide services could be adversely affected.\n\n\n\u00a0\n\n\nThe COVID-19 pandemic has impacted, and may continue to impact,\nour business and operational practices, including the shift to remote work. \n\n\n\u00a0\n\n\nThe COVID-19 outbreak in the United States caused business disruption\nand economic uncertainties through mandated and voluntary closing of various businesses. The expansion of remote work also emerged to\nprevent the spread of disease while seeking to maintain business operations and continuity. Following the global COVID-19 outbreak, a\nsubstantial portion of our workforce transitioned to remote work and will likely continue as remote workers. We expect our business to\ncontinue to grow over time and, while our business model allows our customers remote access to our highly-skilled and attentive workforce,\nwe are continuously evaluating the nature of, and extent to which, the ongoing pandemic and related shift to remote work will impact our\nbusiness, operating results, and financial condition.\n\n\n\u00a0\n\n\nIncreases in payroll-related costs coupled with an inability\nto increase our fees charged to customers to cover such costs has, and may likely continue to have, an adverse effect on our profitability.\n\n\n\n\u00a0\n\n\nThe Company is required to pay a number of federal, state and local\npayroll and related costs, including unemployment insurance, workers\u2019 compensation insurance, employer\u2019s portion of Social\nSecurity and Medicare taxes, among others, for our employees, including those placed with customers. Significant increases in the effective\nrates of any payroll-related costs would likely have a material adverse effect on the Company. During the past few years, many of the\nstates in which the Company conducts business have significantly increased their state unemployment tax rates in an effort to increase\nfunding for unemployment benefits. Costs have continued to increase as a result of health care reforms and the mandate to provide health\ninsurance to employees under the Affordable Care Act. New York and New Jersey implemented laws over the last several years that require\nemployers to provide certain minimum benefits for employees with respect to paid sick leave and family leave, which has and will continue\nto increase our payroll-related costs. Many other cities around the country have enacted or are in the process of enacting similar mandates.\nThe Company has not been able to sufficiently increase the fees charged to its customers to cover these mandated cost increases. There\nare also proposals on the federal and state levels to phase in paid or partially paid family leave. The enacted mandates have had a negative\neffect on the Company\u2019s profitability and additional mandates will continue to negatively impact the Company\u2019s margins.\n\n\n\u00a0\n\n\nThe current trend of companies moving technology jobs and projects\noffshore has caused and could continue to cause revenue to decline. \n\n\n\u00a0\n\n\nIn the past few years, more companies are using or are considering\nusing low cost offshore outsourcing centers, particularly in India and other East Asian countries, to perform technology related work\nand projects. This trend has reduced the growth in domestic IT staffing revenue for the industry. This trend has had a negative impact\non our business and there can be no assurance that it will not continue to adversely impact the Company\u2019s IT staffing revenue.\n\n\n\u00a0\n\n\n\n\n\n\nPage \n6\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nBecause much of our technical personnel consists of foreign nationals\nwith work visas, changes in immigration laws that restrict the provision of work visas may adversely affect our ability to retain qualified\ntechnical personnel. \n\n\n\u00a0\n\n\nThe Company obtains many of its technical personnel by\nsubcontracting with companies that utilize foreign nationals entering the U.S. on work visas, primarily under the H-1B visa\nclassification. The Company also sponsors foreign nationals on H-1B visas on a limited basis. The H-1B visa classification enables\nU.S. employers to hire qualified foreign nationals in positions that require an education at least equal to a bachelor\u2019s\ndegree. U.S. Immigration laws and regulations are subject to legislative and administrative changes, as well as changes in the\napplication of standards and enforcement. In recent years, proclamations have been issued to temporarily suspend certain immigration\nvisas for many categories of foreign workers including H-1B. These and future restrictions on the availability of work visas could\nrestrain the Company\u2019s ability to acquire the skilled professionals needed to meet our customers\u2019 requirements, which\ncould have a material adverse effect on our business. The scope and impact of these changes on the staffing industry and the Company\nremain unclear, however a narrow interpretation and vigorous enforcement of existing laws and regulations could adversely affect the\nability of entities with which the Company subcontracts to utilize foreign nationals and/or renew existing foreign national\nconsultants on assignment. There can be no assurance that the Company or its subcontractors will be able to keep or replace all\nforeign nationals currently on assignment or continue to acquire foreign national talent at the same rates as in the past.\n\n\n\u00a0\n\n\nWe experience fluctuations in our quarterly operating results.\n\n\n\u00a0\n\n\nThe Company\u2019s revenue and operating results are subject to significant\nvariations from quarter-to-quarter. Revenue is subject to fluctuation based upon a number of factors, including the timing and number\nof client projects commenced and completed during the quarter, delays incurred in connection with projects, the growth rate of the market\nfor contract computer programming services and general economic conditions. Unanticipated termination of a project or the decision by\na client not to proceed to the next stage of a project anticipated by the Company could result in decreased revenue and lower utilization\nrates which could have a material adverse effect on the Company\u2019s business, operating results and financial condition. Compensation\nlevels can be impacted by a variety of factors, including competition for highly skilled employees and inflation.\n\n\n\u00a0\n\n\nThe Company\u2019s operating results also fluctuate due to seasonality.\nTypically, our billable hours, which directly affect our revenue and profitability, decrease in our third fiscal quarter. Clients closing\nduring the holiday season and for winter weather normally causes the number of billable workdays for consultants on billing with customers\nto decrease. Additionally, at the beginning of the calendar year, which also falls within our third fiscal quarter, payroll taxes are\nat their highest. This typically results in our lowest gross margins of the year. The Company\u2019s operating results are also subject\nto fluctuation as a result of other factors such as vacations, client mandated furloughs and client budgeting requirements.\n\n\n\u00a0\n\n\nWe believe competition in our industry and for qualified personnel\nwill increase, and there can be no assurance that we will remain competitive. \n\n\n\u00a0\n\n\nThe technical staffing industry is highly competitive, fragmented and\nhas low barriers to entry. The Company competes for potential customers with providers of outsourcing services, systems integrators, computer\nsystems consultants, other providers of technical staffing services and, to a lesser extent, temporary personnel agencies. The Company\ncompetes for technical personnel with other providers of technical staffing services, systems integrators, providers of outsourcing services,\ncomputer systems consultants, customers and temporary personnel agencies. Many of the Company\u2019s competitors are significantly larger\nand have greater financial resources than the Company. The Company believes that the principal competitive factors in obtaining and retaining\ncustomers are accurate assessment of customers\u2019 requirements, timely assignment of technical employees with appropriate skills and\nthe price of services. The principal competitive factors in attracting qualified technical personnel are compensation, availability, quality\nand variety of projects and schedule flexibility. The Company believes that many of the technical personnel included in its database may\nalso be pursuing other employment opportunities. Therefore, the Company believes that its responsiveness to the needs of technical personnel\nis an important factor in the Company\u2019s ability to fill projects. Although the Company believes it competes favorably with respect\nto these factors, it expects competition to increase, and there can be no assurance that the Company will remain competitive.\n\n\n\u00a0\n\n\nThe Company is exposed to contract and other liability, and there\ncan be no assurance that our contracts and insurance coverage would adequately protect the Company from such liability or related claims\nor litigation.\n\n\n\u00a0\n\n\nThe personnel provided by the Company to customers provide services\ninvolving key aspects of its customers\u2019 software applications. A failure in providing these services could result in a claim for\nsubstantial damages against the Company, regardless of the Company\u2019s responsibility for such failure. The Company attempts to limit,\ncontractually, its liability for damages arising from negligence or omissions in rendering services, but it is not always successful in\nnegotiating such limits.\n\n\n\u00a0\n\n\n\n\n\n\nPage \n7\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nFurthermore, due to increased competition and the requirements of vendor\nmanagement companies, the Company may be required to accept less favorable terms regarding limitations on liability, including assuming\nobligations to indemnify customers for damages sustained in connection with the provision of our services. There can be no assurance our\ncontracts will include the desired limitations of liability or that the limitations of liability set forth in our contracts would be enforceable\nor would otherwise protect the Company from liability for damages.\n\n\n\u00a0\n\n\nThe Company\u2019s business involves assigning personnel to the\nworkplace of the client, typically under the client\u2019s supervision. Although the Company has little control over the\nclient\u2019s workplace, the Company may be exposed to claims of discrimination and harassment and other similar claims as a result\nof inappropriate actions allegedly taken against the Company\u2019s personnel by customers. As an employer, the Company is also\nexposed to other possible employment-related claims. The Company is exposed to liability with respect to actions taken by its\ntechnical personnel while on a project, such as damages caused by technical personnel errors, misuse of client proprietary\ninformation or theft of client property. To reduce these exposures, the Company maintains insurance policies and a fidelity bond\ncovering general liability, workers\u2019 compensation claims, errors and omissions and employee theft. In certain instances, the\nCompany indemnifies its customers for these exposures. Certain of these costs and liabilities are not covered by insurance. There\ncan be no assurance that insurance coverage will continue to be available and at its current price or that it will be adequate to,\nor will, cover any such liability.\n\n\n\u00a0\n\n\nOur business and our reputation could be adversely affected by\na data security\u00a0incident or the failure to protect sensitive client, employee and Company data, or the failure to comply with applicable\nregulations relating to data security and privacy.\n\n\n\u00a0\n\n\nOur ability to protect client, employee, and Company data and information\nis critical to our reputation and the success of our business. Our clients and employees expect that their confidential, personal and\nprivate information will be secure in our possession. Attacks against security systems have become increasingly sophisticated along with\ndevelopments in technology, and such attacks have become more prevalent. Consequently, the regulatory environment surrounding cybersecurity\nand privacy has become more and more demanding and has resulted in new requirements and increasingly demanding standards for protection\nof information. As a result, the Company may incur increased expenses associated with adequately protecting confidential client, employee,\nand Company data and complying with applicable regulatory requirements. There can be no assurance that we will be able to prevent unauthorized\nthird parties from breaching our systems and gaining unauthorized access to confidential client, employee, and Company data even if our\ncybersecurity measures are compliant with regulatory requirements and standards. Unauthorized third party access to confidential client,\nemployee, and Company data stored in our system whether as a result of a third party system breach, systems failure or employee negligence,\nfraud or misappropriation, could damage our reputation and cause us to lose customers, and could subject us to monetary damages, fines\nand/or criminal prosecution. Furthermore, unauthorized third-party access to or through our information systems or those we develop for\nour customers, whether by our employees or third parties, could result in system disruptions, negative publicity, legal liability, monetary\ndamages, and damage to our reputation.\n\n\n\u00a0\n\n\nWhile we take steps to protect our intellectual property rights\nand proprietary information, there can be no assurance that the Company can prevent misappropriation of such rights and information. \n\n\n\u00a0\n\n\nThe Company relies primarily upon a combination of trade secret, nondisclosure\nand other contractual agreements to protect its proprietary rights. The Company generally enters into confidentiality agreements with\nits employees, consultants, customers and potential customers and limits access to and distribution of its proprietary information. There\ncan be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of its proprietary information\nor that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights.\n\n\n\u00a0\n\n\n\n\n\n\n\n\nPage \n8\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur significant stockholders, particularly if they choose to\nwork together, may have the ability to exert significant influence over our business policies and affairs on matters submitted to our\nstockholders for approval.\n\n\n\u00a0\n\n\nOur largest shareholders, Zeff Capital, L.P. and QAR Industries, Inc.,\nare the beneficial owners of an aggregate of 983,273 shares of Common Stock, which represents approximately 45.9% of the Company\u2019s\nissued and outstanding Common Stock. By virtue of such ownership, Zeff Capital, L.P. and QAR Industries, Inc. have the ability to exercise\nsignificant influence over the Company. For example, this concentrated ownership could delay, defer, or prevent a change in control, merger,\nconsolidation, or sale of all or substantially all of the Company\u2019s assets in transactions that other shareholders strongly support\nor conversely, this concentrated ownership could result in the consummation of such transactions that many of the Company\u2019s other\nshareholders do not support. Further, investors may be prevented from affecting matters involving the Company, including:\n\n\n\u00a0\u00a0\n\n\n\n\n-\nthe composition of our Board of Directors and, through it, any determination with respect to our business\ndirection and policies, including the appointment and removal of officers\u037e\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\n\n-\nour acquisition of assets or other businesses\u037e and\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\n\n-\nour corporate financing activities.\n\n\n\u00a0\n\n\nThis significant concentration of stock ownership\nmay also adversely affect the trading price for our Common Stock because investors may perceive disadvantages in owning stock in a company\nthat is controlled by a small number of stockholders.\n\n\n\u00a0\n\n\nCertain provisions of our governing documents may make it more\ndifficult for a third party to acquire us and make a takeover more difficult to complete, even if such a transaction were in the stockholders\u2019\ninterest. \n\n\n\u00a0\n\n\nIn addition to the significant concentration of the ownership of our\nCommon Stock, certain provisions of the Company\u2019s charter and by-laws may have the effect of discouraging a third party from making\nan acquisition proposal for the Company and may thereby inhibit a change in control of the Company under circumstances that could give\nthe holders of Common Stock the opportunity to realize a premium over the then-prevailing market prices. Such provisions include a classified\nBoard of Directors and advance notice requirements for nomination of directors and certain stockholder proposals set forth in the Company\u2019s\ncharter and by-laws.\n\n\n\u00a0\n\n\nThe issuance of new classes and series of preferred stock may\ndeter or delay a change in control and/or affect our stock price. \n\n\n\u00a0\n\n\nThe Company\u2019s charter authorizes the Board of Directors to create\nnew classes and series of preferred stock and to establish the preferences and rights of any such classes and series without further action\nof the stockholders. The issuance of additional classes and series of capital stock may have the effect of delaying, deferring or preventing\na change in control of the Company.\n\n\n\u00a0\n\n\nFurther, the Company\u2019s stock price could be extremely volatile\nand, as a result, investors may not be able to resell their shares at or above the price they paid for them.\n\n\n\u00a0\n\n\nAmong the factors that have previously affected the Company\u2019s\nstock price and may do so in the future are:\n\n\n\u00a0\n\n\n\n\n-\nlimited float and a low average daily trading volume;\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\n\n-\nindustry trends and the performance of the Company\u2019s customers;\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\n\n-\nfluctuations in the Company\u2019s results of operations;\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\n\n-\nlitigation; and\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\n\n-\ngeneral market conditions.\n\n\n\u00a0\n\n\nThe stock market has, and may in the future, experience extreme volatility\nthat has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect\nthe market price of the Company\u2019s Common Stock.\n\n\n\u00a0\n\n",
+  "item7": ">Item 7. \nManagement\u2019s\nDiscussion and Analysis of Financial Condition and Results of Operations\n\n\n\u00a0\n\n\nThe following discussion and analysis should be\nread in conjunction with the Company\u2019s consolidated financial statements and notes thereto presented elsewhere in this report.\n\n\n\u00a0\n\n\nResults of Operations\n\n\n\u00a0\n\n\nThe following table sets forth for the periods indicated certain financial\ninformation derived from the Company\u2019s consolidated statements of operations. There can be no assurance that historical trends in\noperating results will continue in the future:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nYears Ended May 31, \n(Dollar Amounts in Thousands)\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nAmount\n\u00a0\n\u00a0\n\n\n% of \nRevenue\n\u00a0\n\u00a0\n\n\nAmount\n\u00a0\n\u00a0\n\n\n% of \nRevenue\n\u00a0\n\n\n\n\nRevenue, Net\n\u00a0\n\n\n$\n101,433\n\u00a0\n\u00a0\n\n\n\u00a0\n100.0\n%\n\u00a0\n\n\n$\n97,312\n\u00a0\n\u00a0\n\n\n\u00a0\n100.0\n%\n\n\n\n\nCost of Sales\n\u00a0\n\n\n\u00a0\n83,947\n\u00a0\n\u00a0\n\n\n\u00a0\n82.8\n\u00a0\n\u00a0\n\n\n\u00a0\n81,314\n\u00a0\n\u00a0\n\n\n\u00a0\n83.6\n\u00a0\n\n\n\n\nGross Profit \n\u00a0\n\n\n\u00a0\n17,486\n\u00a0\n\u00a0\n\n\n\u00a0\n17.2\n\u00a0\n\u00a0\n\n\n\u00a0\n15,998\n\u00a0\n\u00a0\n\n\n\u00a0\n16.4\n\u00a0\n\n\n\n\nSelling, General and Administrative Expenses \n\u00a0\n\n\n\u00a0\n14,789\n\u00a0\n\u00a0\n\n\n\u00a0\n14.6\n\u00a0\n\u00a0\n\n\n\u00a0\n15,619\n\u00a0\n\u00a0\n\n\n\u00a0\n16.0\n\u00a0\n\n\n\n\nIncome from Operations \n\u00a0\n\n\n\u00a0\n2,697\n\u00a0\n\u00a0\n\n\n\u00a0\n2.6\n\u00a0\n\u00a0\n\n\n\u00a0\n379\n\u00a0\n\u00a0\n\n\n\u00a0\n0.4\n\u00a0\n\n\n\n\nOther Income (Expense), Net \n\u00a0\n\n\n\u00a0\n(63\n)\n\u00a0\n\n\n\u00a0\n0.0\n\u00a0\n\u00a0\n\n\n\u00a0\n6,622\n\u00a0\n\u00a0\n\n\n\u00a0\n6.8\n\u00a0\n\n\n\n\nIncome Before Income Taxes \n\u00a0\n\n\n\u00a0\n2,634\n\u00a0\n\u00a0\n\n\n\u00a0\n2.6\n\u00a0\n\u00a0\n\n\n\u00a0\n7,001\n\u00a0\n\u00a0\n\n\n\u00a0\n7.2\n\u00a0\n\n\n\n\nProvision for (Benefit from) Income Taxes \n\u00a0\n\n\n\u00a0\n831\n\u00a0\n\u00a0\n\n\n\u00a0\n0.8\n\u00a0\n\u00a0\n\n\n\u00a0\n(1\n)\n\u00a0\n\n\n\u00a0\n0.0\n\u00a0\n\n\n\n\nConsolidated Net Income \n\u00a0\n\n\n\u00a0\n1,803\n\u00a0\n\u00a0\n\n\n\u00a0\n1.8\n\u00a0\n\u00a0\n\n\n\u00a0\n7,002\n\u00a0\n\u00a0\n\n\n\u00a0\n7.2\n\u00a0\n\n\n\n\nNet Income Attributable to Noncontrolling Interest \n\u00a0\n\n\n\u00a0\n61\n\u00a0\n\u00a0\n\n\n\u00a0\n0.1\n\u00a0\n\u00a0\n\n\n\u00a0\n73\n\u00a0\n\u00a0\n\n\n\u00a0\n0.1\n\u00a0\n\n\n\n\nNet Income Attributable to TSR, Inc.  \n\u00a0\n\n\n$\n1,742\n\u00a0\n\u00a0\n\n\n\u00a0\n1.7\n%\n\u00a0\n\n\n$\n6,929\n\u00a0\n\u00a0\n\n\n\u00a0\n7.1\n%\n\n\n\n\n\u00a0\n\n\nRevenue\n\n\n\u00a0\n\n\nRevenue consists primarily of revenue from computer\nprogramming consulting services. Revenue for the fiscal year ended May 31, 2023 increased approximately $4,121,000 or 4.2% from the fiscal\nyear ended May 31, 2022, primarily due to growth in higher priced IT contractors offsetting decreases in clerical and administrative contractors.\nThe average number of consultants on billing with customers decreased from 701 for the year ended May 31, 2022 to 648 for the year ended\nMay 31, 2023. However, the average number of IT consultants increased from 431 to 463 for the year ended May 31, 2023, while the average\nnumber of clerical and administrative contractors decreased from 270 to 185 for the year ended May 31, 2023. Customers using our clerical\nand administrative contractors decreased their spending by terminating assignments early and hiring our contractors directly at a greater\nrate than usual. The change in the business mix toward the higher revenue IT contractors yielded the net increase in revenue.\n\n\n\u00a0\n\n\nCost of Sales\n\n\n\u00a0\n\n\nCost of sales for the fiscal year ended May 31,\n2023 increased approximately $2,633,000 or 3.2% to $83,947,000 from $81,314,000 in the prior year period. The increase in cost of sales\nresulted primarily from an increase in higher cost IT consultants placed with customers, primarily from organic growth. Cost of sales\nas a percentage of revenue decreased from 83.6% in the fiscal year ended May 31, 2022 to 82.8% in the fiscal year ended May 31, 2023.\nRevenue grew at a higher rate than cost of sales when comparing the fiscal year ended May 31, 2023 to the prior year period, causing an\nincrease in gross margins. The IT contractors added have a higher gross margin than the clerical and administrative staff that decreased.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nPage \n12\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nSelling, General and Administrative Expenses\n\n\n\u00a0\n\n\nSelling, general and administrative expenses consist\nprimarily of expenses relating to account executives, technical recruiters, facilities costs, management and corporate overhead. These\nexpenses decreased approximately $830,000 or 5.3% from $15,619,000 in the fiscal year ended May 31, 2022 to $14,789,000 in the fiscal\nyear ended May 31, 2023. The decrease in these expenses primarily resulted from a charge of $580,000 for the legal settlement with the\nformer Chief Executive Officer in the prior year period. Recruiting cost were also reduced approximately $425,000 primarily from a reduction\nin the utilization of offshore recruiters. Additionally, the Company incurred non-cash compensation expenses of $219,000 in the fiscal\nyear ended May 31, 2023 and $565,000 in the fiscal year ended May 31, 2022 related to the TSR, Inc. 2020 Equity Incentive Plan. These\nreductions were offset by an increase in legal and professional fees of approximately $164,000. Selling, general and administrative expenses,\nas a percentage of revenue, decreased from 16.0% in the fiscal year ended May 31, 2022 to 14.6% in the fiscal year ended May 31, 2023.\n\n\n\u00a0\n\n\nOther Income (Expense)\n\n\n\u00a0\n\n\nOther expense for the fiscal year ended May 31, 2023 resulted primarily\nfrom net interest expense of approximately $53,000 and a mark-to-market loss of approximately $10,000 on the Company\u2019s marketable\nequity securities. Other income for the fiscal year ended May 31, 2022 resulted primarily from the forgiveness of principal and accrued\ninterest on the PPP Loan of $6,735,000, offset by net interest expense of approximately $102,000 and a mark-to-market loss of $10,000\non the Company\u2019s marketable equity securities.\n\n\n\u00a0\n\n\nIncome Taxes\n\n\n\u00a0\n\n\nThe effective income tax rates were 31.5% for the fiscal year ended\nMay 31, 2023 and a benefit of less than 1% for the fiscal year ended May 31, 2022. The effective income tax rate was lower than expected\nin fiscal 2022 due to the non-taxable gain on the forgiveness of the PPP Loan principal and accrued interest.\n\n\n\u00a0\n\n\nNet Income Attributable to TSR\n\n\n\u00a0\n\n\nNet income attributable to TSR was approximately $1,742,000 in the\nfiscal year ended May 31, 2023 compared to $6,929,000 in the fiscal year ended May 31, 2022. The net income in the prior fiscal year\nwas primarily attributable to the forgiveness of principal and accrued interest on the PPP Loan.\n\n\n\u00a0\n\n\nImpact of Inflation and Changing Prices\n\n\n\u00a0\n\n\nFor the fiscal years ended May 31, 2023 and 2022,\ninflation and changing prices did not have a material effect on the Company\u2019s revenue or income from continuing operations. The\nimpact for fiscal 2024 cannot yet be determined.\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\n\n\u00a0\n\n\nThe Company\u2019s cash was sufficient to enable it to meet its liquidity\nrequirements during the fiscal year ended May 31, 2023. The Company expects that its cash and cash equivalents and the Company\u2019s\nCredit Facility pursuant to a Loan and Security Agreement with Access Capital, Inc. (the \u201cLender\u201d) will be sufficient to\nprovide the Company with adequate resources to meet its liquidity requirements for the 12-month period following the issuance of these\nconsolidated financial statements. Utilizing its accounts receivable as collateral, the Company has secured this Credit Facility to increase\nits liquidity as necessary. As of May 31, 2023, the Company had no net borrowings outstanding against this Credit Facility. The amount\nthe Company has borrowed fluctuates and, at times, it has utilized the maximum amount of $2,000,000 available under this facility to\nfund its payroll and other obligations. The Company was in compliance with all covenants under the Credit Facility as of May 31, 2023\nand through the date of this filing. Additionally, in April 2020, the Company secured a PPP Loan in the amount of $6,659,000 to meet\nits obligations in the face of potential disruptions in its business operations and the potential inability of its customers to pay their\naccounts when due. As of August 31, 2020, the Company had used 100% of the PPP Loan funds to fund its payroll and for other allowable\nexpenses under the PPP Loan. The use of these funds allowed the Company to avoid certain salary reductions, furloughs and layoffs of\nemployees during the period. The Company applied for PPP Loan forgiveness and its application for forgiveness was accepted and approved;\nthe PPP Loan and accrued interest were fully forgiven in July 2021.\n\n\n\u00a0\n\n\n\n\n\n\nPage \n13\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAt May 31, 2023, the Company had working capital\n(total current assets in excess of total current liabilities) of approximately $13,551,000, including cash and cash equivalents and marketable\nsecurities of $7,897,000 as compared to working capital of $10,912,000, including cash and cash equivalents and marketable securities\nof $6,526,000 at May 31, 2022.\n\n\n\u00a0\n\n\nNet cash flow of approximately $1,754,000 was\nprovided by operations during the fiscal year ended May 31, 2023 as compared to $2,307,000 of net cash used in operations in the prior\nyear period. The cash provided by operations for the fiscal year ended May 31, 2023 primarily resulted from consolidated net income of\n$1,802,000, a decrease in accounts receivable of $1,346,000 and a decrease in deferred income taxes of $628,000 offset by a decrease in\naccounts payable and accrued expenses of $1,917,000 and a decrease in legal settlement payable of $598,000. The cash used in operations\nfor the fiscal year ended May 31, 2022 primarily resulted from consolidated net income of $7,002,000, offset by the forgiveness of the\nPPP Loan principal and accrued interest of $6,735,000, an increase in accounts receivable of $3,767,000 and a decrease in legal settlement\npayable of $270,000.\n\n\n\u00a0\n\n\nNet cash used in investing activities of approximately\n$496,000 for the fiscal year ended May 31, 2023 primarily resulted from purchases of certificates of deposit of $990,000 and purchases\nof fixed assets of $6,000, less maturities of certificates of deposit of $500,000. Net cash used in investing activities of $87,000 for\nthe fiscal year ended May 31, 2022 primarily resulted from purchases of fixed assets.\n\n\n\u00a0\n\n\nNet cash used in financing activities during the\nfiscal year ended May 31, 2023 of $366,000 primarily resulted from purchases of treasury stock of $213,000, distributions of the minority\ninterest of $75,000 and from net repayments under the Company\u2019s Credit Facility of $62,000. Net cash provided by financing activities\nof approximately $1,514,000 during the fiscal year ended May 31, 2022 resulted from net proceeds from sales of the Company\u2019s common\nstock in our at-the-market (\u201cATM\u201d) program of $1,784,000 offset by payments made for taxes related to vested stock awards\nof $212,000, net payments on the Company\u2019s Credit Facility of $31,000 and distributions of the minority interest of $27,000.\n\n\n\u00a0\n\n\nThe Company\u2019s capital resource commitments\nat May 31, 2023 consisted of lease obligations on its branch and corporate facilities. The net present value of its future lease payments\nwas approximately $492,000 as of May 31, 2023. The Company intends to finance these commitments primarily from the Company\u2019s available\ncash and Credit Facility.\n\n\n\u00a0\n\n\n\n\n\n\nPage \n14\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCritical Accounting Estimates\n\n\n\u00a0\n\n\nThe Securities Act regulations define \u201ccritical accounting estimates\u201d\nas those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty\nand have had or are reasonably likely to have a material impact on the financial statements or results of operations of the registrant.\nThese estimates require the application of management\u2019s most difficult, subjective or complex judgments, often as a result of the\nneed to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.\n\n\n\u00a0\n\n\nThe Company\u2019s significant accounting estimates and policies are\ndescribed in Note 1 to its consolidated financial statements, contained elsewhere in this report. The Company believes that the following\naccounting estimates and policies require the application of management\u2019s most difficult, subjective or complex judgments:\n\n\n\u00a0\n\n\nRevenue Recognition\n\n\n\u00a0\n\n\nRevenues are recognized as control of the promised service is transferred\nto customers, in an amount that reflects the consideration expected in exchange for the services. Revenues from contract assignments are\nrecognized over time, based on hours worked by the Company\u2019s contract professionals. The performance of the requested service over\ntime is the single performance obligation for assignment revenues. Certain customers may receive discounts (e.g., volume discounts, rebates,\nprompt-pay discounts) and adjustments to the amounts billed. These discounts, rebates and adjustments are considered variable consideration.\nVolume discounts are the largest component of variable consideration and are estimated using the most likely amount method prescribed\nby Accounting Standards Codification (\u201cASC\u201d) 606, contracts terms and estimates of revenue. Revenues are recognized net of\nvariable consideration to the extent that it is probable that a significant reversal of revenues will not occur in subsequent periods.\nPayment terms vary and the time between invoicing and when payment is due is not significant. There are no financing components to the\nCompany\u2019s arrangements. There are no incremental costs to obtain contracts and costs to fulfill contracts are expensed as incurred.\nThe Company\u2019s operations are primarily located in the United States. The Company recognizes most of its revenue on a gross basis\nwhen it acts as a principal in its transactions. The Company has direct contractual relationships with its customers, bears the risks\nand rewards of its arrangements, and has the discretion to select the contract professionals and establish the price for the services\nto be provided. Additionally, the Company retains control over its contract professionals based on its contractual arrangements. The Company\nprimarily provides services through its employees and to a lesser extent, through subcontractors; the related costs are included in cost\nof sales. The Company includes billable expenses (out-of-pocket reimbursable expenses) in revenue and the associated expenses are included\nin cost of sales.\n\n\n\u00a0\n\n\nValuation of Deferred Tax Assets\n\n\n\u00a0\n\n\nWe regularly evaluate our ability to recover the reported amount of\nour deferred income tax assets considering several factors, including our estimate of the likelihood of the Company generating sufficient\ntaxable income in future years during the period over which temporary differences reverse. Presently, the Company believes that it is\nmore likely than not that it will realize the benefits of its deferred tax assets based primarily on the Company\u2019s history of and\nprojections for taxable income in the future. In the event that actual results differ from our estimates, or we adjust these estimates\nin future periods, we may need to establish a valuation allowance against a portion or all of our deferred tax assets, which could materially\nimpact our financial position or results of operations.\n\n\n\u00a0\n\n\nGoodwill\n\n\n\u00a0\n\n\nGoodwill is recorded when the purchase price paid for an acquisition\nexceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is not amortized but is subject\nto impairment analysis at least once annually or more frequently upon the occurrence of an event or when circumstances indicate that the\ncarrying amount of a unit is greater than its fair value.\n\n\n\u00a0\n\n\nIntangible Assets\n\n\n\u00a0\n\n\nThe Company amortizes its intangible assets over their estimated useful\nlives and will review these assets for impairment when there is evidence that events or changes in circumstances indicate that the carrying\namount of an asset may not be recoverable. Recoverability of these assets is measured by comparing the carrying amounts to the future\nundiscounted cash flows the assets are expected to generate. If intangible assets are considered to be impaired, the impairment to be\nrecognized equals the amount by which the carrying value of the asset exceeds its fair market value.\n\n\n\u00a0\n\n",
+  "item7a": ">Item 7A. \nQuantitative and Qualitative Disclosures About Market\nRisk\n\n\n\u00a0\n\n\nThe Company is a smaller reporting company and\nis therefore not required to provide this information.\n\n\n\u00a0\n\n\n\n\n\n\nPage \n15\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n",
+  "cik": "98338",
+  "cusip6": "872885",
+  "cusip": ["872885207"],
+  "names": ["TSR INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/98338/000121390023066312/0001213900-23-066312-index.htm"
+}
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+{
+  "item1": ">Item 1.          \nBusiness\nOverview & Strategy\nCimpress is a strategically focused group of more than ten businesses that specialize in mass customization of printing and related products, via which we deliver large volumes of individually small-sized customized orders. Our products and services include a broad range of marketing materials, business cards, signage, promotional products, logo apparel, packaging, books and magazines, wall decor, photo merchandise, invitations and announcements, design and digital marketing services, and other categories. Mass customization is a core element of the business model of each Cimpress business and is a competitive strategy which seeks to produce goods and services to meet individual customer needs with near mass production efficiency. We discuss mass customization in more detail further below.\nWe have grown substantially over our history, from $0 in 1995 to $0.2 billion of revenue in fiscal year 2006, the year when we became a publicly traded company, then to $3.1 billion of revenue in fiscal year 2023. As we have grown we have achieved important benefits of scale. Our strategy is to invest in and build customer-focused, entrepreneurial print mass customization businesses for the long term, which we manage in a decentralized, autonomous manner. We drive competitive advantage across Cimpress through a select few shared strategic capabilities that have the greatest potential to create Cimpress-wide value. We limit all other central activities to only those which absolutely must be performed centrally. \nWe believe this decentralized structure is beneficial in many ways as it enables our businesses to be more customer focused, to make better decisions faster, to manage a holistic cross-functional value chain required to serve customers well, to be more agile, to be held more accountable for driving investment returns, and to understand where we are successful and where we are not. This structure delegates responsibility, authority and resources to the CEOs and managing directors of our various businesses. We believe this approach has provided great value in periods of increased market volatility, enabling our businesses to respond quickly to changes in customer needs, while also providing our leaders an environment to share best practices and insights across the group.\nThe select few shared strategic capabilities into which we invest include our (1) mass customization platform (\"MCP\"), (2) talent infrastructure in India, (3) central procurement of large-scale capital equipment, shipping services, major categories of our raw materials and other categories of spend\n, \nand (4) peer-to-peer knowledge sharing among our businesses. We encourage each of our businesses to leverage these capabilities, but each business is free to choose the extent to which they use these services. This optionality, we believe, creates healthy pressure on the central teams who provide such services to deliver compelling value to our businesses.\nWe limit all other central activities to only those that must be performed centrally. Out of more than\n \n15,000 employees, we have fewer than 100 who work in central activities that fall into this category, which includes tax, treasury, internal audit, legal, sustainability, corporate communications, remote first enablement, consolidated reporting and compliance, investor relations, capital allocation, and the functions of our CEO and CFO. We have developed guardrails and accountability mechanisms in key areas of governance including cultural aspects such as a focus on customers and being socially responsible, as well as operational aspects such as the processes by which we set strategy and financial budgets and review performance, and the policies by which we ensure compliance with applicable laws.\nOur Uppermost Financial Objective\nOur uppermost financial objective is to maximize our intrinsic value per share. We define intrinsic value per share as (a) the unlevered free cash flow per diluted share that, in our best judgment, will occur between now and the long-term future, appropriately discounted to reflect our cost of capital, minus (b) net debt per diluted share. We define unlevered free cash flow as adjusted free cash flow plus cash interest payments, partially offset by cash interest received on our cash and marketable securities.\nThis financial objective is inherently long term in nature. Thus an explicit outcome of this is that we accept fluctuations in our financial metrics as we make investments that we believe will deliver attractive long-term returns on investment. \n1\nWe ask investors and potential investors in Cimpress to understand our uppermost financial objective by which we endeavor to make all financially evaluated decisions. We often make decisions in service of this priority that could be considered non-optimal were they to be evaluated based on other financial criteria such as (but not limited to) near- and mid-term revenue, operating income, net income, EPS, adjusted EBITDA, and cash flow. \nMass Customization\nMass customization is a business model that allows companies to deliver major improvements to customer value across a wide variety of customized product categories. Companies that master mass customization can automatically direct high volumes of orders into smaller streams of homogeneous orders that are then sent to specialized production lines. If done with structured data flows and the digitization of the configuration and manufacturing processes, setup costs become very small, and small volume orders become economically feasible.\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0The chart illustrates this concept. The horizontal axis represents the volume of production of a given product; the vertical axis represents the cost of producing one unit of that product. Traditionally, the only way to manufacture at a low unit cost was to produce a large volume of that product: mass-produced products fall in the lower right-hand corner of the chart. Custom-made products (i.e., those produced in small volumes for a very specific purpose) historically incurred very high unit costs: they fall in the upper left-hand side of the chart. \n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Mass customization breaks this trade off, enabling low-volume, low-cost production of individually unique products. Very importantly, relative to traditional alternatives mass customization creates value in many ways, not just lower cost. Other advantages can include faster production, greater personal relevance, elimination of obsolete stock, better design, flexible shipping options, more product choice, and higher quality.\nMass customization in print-related markets delivers a breakthrough in customer value particularly well in markets in which the worth of a physical product is inherently tied to a specific, unique use or application. For instance, there is limited value to a sign that is the same as is used by many other companies: the business owner needs to describe what is unique about their business. Likewise, customized packaging is a way for a business to add their brand identity to what is oftentimes the first physical touchpoint with a customer for online purchases. Before mass customization, producing a high-quality custom product required high per-order setup costs, so it simply was not economical to produce a customized product in low quantities.\nThere are three ingredients to mass customization applied to print applications: (1) web-to-print or e-commerce stores that offer a wide variety of customizable products, a replacement of more expensive and harder-to-scale physical stores with limited geographic reach; (2) software-driven order aggregation, which enables significantly reduced costs on low-volume orders; and (3) democratized design that combines intuitive design software with a large scale of human designers that are typically located in low-cost locations to deliver high-quality, or lower-cost, highly scalable alternatives to traditional graphic design services.\nWe believe that the business cards sold by our Vista business provide a concrete example of the potential of our mass customization business model to deliver significant customer value and to develop strong profit franchises in large markets that were previously low growth and commoditized. Millions of very small customers (for example, home-based businesses) rely on Vista to design and procure aesthetically pleasing, high-quality, quickly delivered, and low-priced business cards. The Vista production operations for a typical order of 250 standard business cards in Europe and North America require less than 14 seconds of labor for all of pre-press, printing, cutting and packaging, versus an hour or more for traditional printers. Combined with advantages of scale in graphic design support services, purchasing of materials, our self-service online ordering, pre-press automation, auto-scheduling and automated manufacturing processes, we allow customers to design, configure, and procure business cards at a fraction of the cost of typical traditional printers with very consistent quality and delivery reliability. Customers have very extensive, easily configurable, customization options such as rounded corners, \n2\ndifferent shapes, specialty papers, \u201cspot varnish\u201d, reflective foil, folded cards, or different paper thicknesses. Achieving this type of product variety while also being very cost efficient took us almost two decades and requires massive volume, significant engineering investments, and significant capital. For example, business cards is a mature market that, at the overall market level, has experienced continual declines over the past two decades. Yet, for Vista, this has remained a growing category that is highly profitable. We currently produce many other product categories (such as flyers, brochures, signage, drinkware, pens, t-shirts, hats, embroidered soft goods, rubber stamps, labels, packaging, stickers, books, catalogs, magazines, calendars, holiday cards, invitations, photobooks, and canvas prints) via similar analogous methods. While these product categories are not as automated as business cards, each is well along the spectrum of mass customization relative to traditional suppliers and thus provide great customer value and a strong, profitable, and growing revenue stream.\nMarket and Industry Background\nPrint's Mass Customization Opportunity\nMass customization of print and related products is not a market itself, but rather a business model that can be applied across global geographic markets, to customers from varying businesses (micro, small, medium, and large), graphic designers, resellers, printers, teams, associations, groups, consumers, and families, to which we offer products such as the following:\nLarge traditional print markets undergoing disruptive innovation\nThe products, geographies and customer applications listed above constitute a large market opportunity that is highly fragmented. We believe that the vast majority of the markets to which mass customization could apply are still served by traditional business models that force customers either to produce in large quantities per order or to pay a high price per unit. \nWe believe that these large and fragmented markets are moving away from small traditional suppliers that employ job shop business models to fulfill a relatively small number of customer orders and toward businesses such as those owned by Cimpress that aggregate a relatively large number of orders and fulfill them via a focused supply chain and production capabilities at relatively high volumes, thereby achieving the benefits of mass customization. We believe we are relatively early in the process of what will be a multi-decade shift from job-shop business models to mass customization, as innovation continues to bring new product categories into this model.\nCimpress\u2019 current revenue represents a very small fraction of this market opportunity. We believe that Cimpress and competitors who have built their businesses around a mass customization model are \u201cdisruptive innovators\u201d to these large markets because we enable small-volume production of personalized, high-quality products at an affordable price. Disruptive innovation, a term coined by Harvard Business School professor Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market (such as free business cards for the most price sensitive of micro-businesses or low-quality white t-shirts) and then moves up market, eventually displacing established competitors (such as those in the markets mentioned above).\n3\nWe believe that a large opportunity exists for major markets to shift to a mass customization paradigm and, even though we are largely decentralized, the select few shared strategic capabilities into which we centrally invest provide significant scale-based competitive advantages for Cimpress.\nWe believe this opportunity to deliver substantially better customer value and, therefore, disrupt large traditional industries can translate into tremendous future opportunity for Cimpress. Earlier in our history, we focused primarily on a narrow set of customers (highly price-sensitive and discount-driven micro businesses and consumers) with a limited product offering. Through acquisitions and via significant investments in our Vista business, we have expanded the breadth and depth of our product offerings, extended our ability to serve our traditional customers and gained a capability to serve a vast range of customer types.\nAs we continue to evolve and grow Cimpress, our understanding of these markets and their relative attractiveness is also evolving. Our expansion of product breadth and depth as well as new geographic markets has significantly increased the size of our addressable market opportunity. Our businesses conduct market research on an ongoing basis and through those studies, we remain confident in the overall market opportunity; however, our estimates are only approximate. Despite the imprecise nature of our estimates, we believe that our understanding is directionally correct and that we operate in a vast aggregate market with significant opportunity for Cimpress to grow as we continue delivering a differentiated and attractive value proposition to customers.\nPrint Market Opportunity\nToday, we believe that the revenue opportunity for low-to-medium order quantities (i.e., still within our focus of small-sized individual orders) in the four product categories below is over $100 billion annually in North America, Europe and Australia, and significantly higher if you include other geographies and custom consumer products. These product categories are listed in order of market penetration by mass customization models. The market for small format marketing materials is the most mature in this penetration, though there is still a significant portion served by thousands of small traditional suppliers. The market for packaging products is the least mature in terms of penetration by mass customization models, but this transition has begun. The estimates of annual market opportunity in each of the four product categories below are based on research conducted for Cimpress by third-party research firm Keypoint Intelligence in August 2022 to estimate the value of print shipments to small and medium businesses in Australia, France, Germany, Italy, UK and the U.S. Cimpress extrapolated the findings of the study to estimate the market size of the remaining countries in North America and Europe in which we sell products based on the relative number of small and medium businesses in those other markets.\n\u2022\nSmall format marketing materials such as business cards, flyers, leaflets, inserts, brochures, and magazines. Businesses of all sizes are the main end users of short-and-medium run lengths (per order quantities below 2,500 units for business cards and below 20,000 units for other materials). This opportunity is estimated to be more than $25 billion per year.\n\u2022\nLarge format products such as banners, signs, tradeshow displays, and point-of-sale displays. Businesses of all sizes are the main end users of short-and-medium run lengths (less than 1,000 units). This opportunity is estimated to be more than $35 billion per year.\n\u2022\nPromotional products, apparel, and gifts including decorated apparel, bags, and textiles, and hard goods such as pens, USB sticks, and drinkware. The end users of short-and-medium runs of these products range from businesses to teams, associations and groups, as well as individual consumers. This opportunity is estimated to be more than $25 billion per year.\n\u2022\nPackaging products, such as corrugated board packaging, folded cartons, bags, and labels. Businesses of all sizes are the primary end users for short-and-medium runs (below 10,000\u00a0units). This opportunity is estimated to be more than $15 billion per year.\nDesign Market Opportunity\nVista was an early pioneer of the concept of web-based do-it-yourself design for printed products as a fundamental part of its original customer value proposition for designs for relatively simple 2D product formats. We believe that there is an ongoing revolution in graphic design for small business marketing, one in which a combination of technology tools, artificial intelligence and machine learning, and convenient access via two-sided marketplace platforms to professional freelance design talent (including from low-cost countries) will continue a multi-decade democratization of design that has been central to print mass customization, and is likely to continue \n4\nto be a key enabler to bringing ever-more-complex product formats and marketing channels into the mass customization paradigm (for example, packaging, large format signage, and catalogs). Vista has continued to invest  in its design capabilities, both organically and through acquisition, to be a leader in this market shift. For example, Vista has acquired a network of 150,000 freelance designers who work with customer-specific design projects and a business with more than 100,000 freelance contributors of photos, videos, music, and other content. Vista is building a design system that combines graphic templates created by thousands of freelancers with algorithmically generated variations across many different print and digital products of customers' adaptation of those templates.\nVista researched the design spend in two of its largest markets, the U.S. and Germany, and found that small businesses spend approximately $6 billion annually on design services in these two markets, exclusive of the purchases of the print or digital products that the designs enhance. Even more importantly, this research found that small businesses in these markets that purchase design services represent the majority of the addressable market for print and digital marketing materials. We believe that a broader complement of design services should enable Vista to retain customers longer as their needs evolve, as well as both attract new customers and serve existing customers with more complex products, and therefore access more of our total addressable market.\nDigital Market Opportunity\nOver the past decade, small businesses have complemented the physical products they use to market their businesses with digital marketing channels like websites and social media marketing. Though the digital marketing channels themselves are not areas that we believe we should allocate significant capital to develop our own offerings, design is a common component to both physical and digital marketing for small businesses, and our small business customers look for ideas and advice when it comes to ensuring cohesive brand expression and successful campaigns across these channels. In our Vista business we recently acquired a business to accelerate our offering for do-it-yourself social media design that, combined with partnership opportunities with leading digital presence businesses like Wix, has extended our total addressable market into an adjacency where we believe we have an opportunity to deliver integrated marketing solutions to small business customers using a best-in-class partnership approach. The total market for digital marketing applications is massive, but our ambition here is focused on enhancing the customer experience of millions of Vista customers, where the amount that businesses spend annually on digital marketing solutions is roughly the same amount as is spent on design services and print products. We believe investing in digital design capabilities and offering digital solutions via partnership will enable Vista to capture a portion of this opportunity by attracting new customers and increasing the lifetime value and retention of existing customers.\nOur Businesses\nCimpress businesses include our organically developed Vista business, plus businesses that we have either fully acquired or in which we have a majority equity stake. Prior to their acquisitions, most of our acquired companies pursued business models that already applied the principles of mass customization to print and related products. In other words, each provided a standardized set of products that could be configured and customized by customers, ordered in relatively low volumes, and produced via relatively standardized, homogeneous production processes, at prices lower than those charged by traditional producers.\nOur businesses serve markets primarily in North America, Western Europe, Australia, and New Zealand. We also have small but fast growing businesses in India and Brazil. Their websites typically offer a broad assortment of tools and features allowing customers to create a product design or upload their own complete design and place an order, either on a completely self-service basis or with varying levels of assistance. The combined product assortment across our businesses is extensive, including offerings in the following product categories: business cards, marketing materials such as flyers and postcards, digital and marketing services, writing instruments, signage, canvas-print wall d\u00e9cor, decorated apparel, promotional products and gifts, packaging, design services, textiles, and magazines and catalogs. \nThe majority of our revenue is driven by standardized processes and enabled by software. We endeavor to design these processes and technologies to readily scale as the number of orders received per day increases. In particular, the more individual jobs we receive in a given time period, the more efficiently we can sort and route jobs with homogeneous production processes to given nodes of our internal production systems or of our third-party supply chain. This sortation and subsequent process automation improves production efficiency. We believe that our strategy of systematizing our service and production systems enables us to deliver value to customers much more effectively than traditional competitors.\nOur businesses operate production facilities throughout the geographies listed above, with over 3 million square feet of production space in the aggregate across our owned and operated facilities. We also work \n5\nextensively with hundreds of external fulfillers across the globe. We believe that the improvements we have made and the future improvements we intend to make in software technologies that support the design, sortation, scheduling, production, and delivery processes provide us with significant competitive advantage. In many cases our businesses can produce and ship an order the same day they receive it. Our supply chain systems and processes seek to reduce inventory and working capital and improve delivery speeds to customers relative to traditional suppliers. In certain of our company-owned manufacturing facilities, software schedules the near-simultaneous production of different customized products that have been ordered by the same customer, allowing us to produce and deliver multi-part orders quickly and efficiently.\nWe believe that the potential for scale-based advantages is not limited to focused, automated production lines. Other advantages include the ability to systematically and automatically sort through the voluminous \u201clong tail\u201d of diverse and uncommon orders in order to group them into more homogeneous categories, and to route them to production nodes that are specialized for that category of operations and/or which are geographically proximate to the customer. In such cases, even though the daily production volume of a given production node is small in comparison to our highest-volume production lines, the homogeneity and volume we are able to achieve is nonetheless significant relative to traditional suppliers of the long-tail product in question; thus, our relative efficiency gains remain substantial. For this type of long-tail production, we rely heavily on third-party fulfillment partnerships, which allow us to offer a very diverse set of products. We acquired most of our capabilities in this area via our investments in Exaprint, Printdeal, Pixartprinting, and WIRmachenDRUCK. For instance, the product assortment of each of these four businesses is measured in the tens of thousands, versus Vista where product assortment is dramatically smaller on a relative basis. This deep and broad product offering is important to many customers.\n\u00a0\u00a0\u00a0\u00a0Our businesses are currently organized into the following five reportable segments:\n1.\nVista\n: \nConsists of the operations of our VistaPrint branded websites in North America, Western Europe, Australia, New Zealand, India, and Singapore. This business also includes our 99designs by Vista business, which provides graphic design services, VistaCreate for do-it-yourself (DIY) design, our Vista x Wix partnership for small business websites, and our Vista Corporate Solutions business, which serves medium-sized businesses and large corporations.\nOur Vista business helps more than 11 million small businesses annually to create attractive, professional-quality marketing products at affordable prices and at low volumes. With Vista, small businesses are able to create and customize their marketing with easy-to-use digital tools and design-templates, or by receiving expert graphic design support. In October 2020, Vista acquired 99designs to expand its design offering via a worldwide community of more than 150,000 talented designers to make it easy for designers and clients to work together to create designs they love. In October 2021, Vista acquired Depositphotos and its business now known as VistaCreate to expand the content available for our customers and to introduce VistaCreate, which is a versatile, intuitive design software, which leverages templates from freelance contributors.\nSeveral signature services including \"VistaPrint\", \"VistaCreate\", \"99designs by Vista\", \"Vista Corporate Solutions,\" and \"Vista x Wix\" operate within the \"Vista\" brand architecture. This broadens our customers' understanding of our value proposition to allow us to serve a larger set of their needs across a wide range of products and solutions that include design, social media, and web presence as well as print.\nVistaPrint represents the vast majority of the revenue in this segment where average order value is more than $80 and customers spend, on average, a bit more than $170 per year; gross margins are about 54% and advertising spend as a percent of revenue is about 16%. Vista has had strong free cash flow conversion as its e-commerce model typically leads to collections from customers prior to the production and shipment of customer orders.\nUpload & Print:\nOur Upload & Print businesses are organized in two reportable segments: PrintBrothers and The Print Group, both of which focus on serving graphic professionals such as local printers, print resellers, graphic artists, advertising agencies, and other customers with professional desktop publishing skill sets. Upload and Print businesses have an average order value of about \u20ac115 and annual per customer revenue of over \u20ac650. Gross margins vary by business but average about 30% due to wholesale-like pricing and the wide \n6\nvariety of products produced both in owned facilities as well as via third-party fulfillers. Advertising spend as a percent of revenue is about 5%.\n \n2.\nPrintBrothers: \nConsists of our druck.at, Printdeal, and WIRmachenDRUCK businesses. PrintBrothers businesses serve customers throughout Europe, primarily in Austria, Belgium, Germany, the Netherlands, and Switzerland. \n3.\nThe Print Group: \nConsists of our Easyflyer, Exaprint, Pixartprinting, and Tradeprint businesses. The Print Group businesses serve customers throughout Europe, primarily in France, Italy, Spain, and the UK. \n4.\nNational Pen\n: \nConsists of our National Pen business and a few smaller brands operated by National Pen that are focused on customized writing instruments and promotional products, apparel, and gifts for small- and medium-sized businesses.\nNational Pen serves more than a million small businesses annually across geographies including North America, Europe, and Australia. Marketing methods are typically direct mail and telesales, as well as a growing e-commerce site. National Pen operates several brands focused on customized writing instruments and promotional products, apparel, and gifts for small- and medium-sized businesses. National Pen\u2019s average order value is about $200 - $250, and annual revenue per customer is about $300. Gross margins are about 52% with highly seasonal profits driven in the December quarter. Advertising spend as a percent of revenue is about 21%. Significant inventory and customer invoicing requirements in this business drive different working capital needs compared to our other businesses.\n7\n5.\nAll Other Businesses\n: \nA collection of businesses combined into one reportable segment based on materiality, including BuildASign, a larger and profitable business, with strong profitability and cash flow, and Printi, a small early-stage business operating at a relatively modest operating loss. We exited our YSD business, which was included in this reportable segment, during fiscal year 2023.\nBuildASign is an e-commerce provider of canvas-print wall d\u00e9cor, business signage, and other large-format printed products.\n \nAs the online printing leader in Brazil, Printi offers a superior customer experience with transparent and attractive pricing, reliable service, and quality.\nCentral Procurement\nGiven the scale of purchasing that happens across Cimpress\u2019 businesses, there is significant value to coordinating our negotiations and purchasing to gain the benefit of scale. Our central procurement team negotiates and manages Cimpress-wide contracts for large-scale capital equipment, shipping services, and major categories of raw materials (e.g., paper, plates, ink). The Cimpress procurement team also supports procurement improvements, tools, and approaches across other aspects of our businesses\u2019 purchases. \nWhile we are focused on seeking low total cost in our strategic sourcing efforts, we also work to ensure quality, deliver reliability, and responsible sourcing practices within our supply chain. Our efforts include the procurement of high-quality materials and equipment that meet our strict specifications at a low total cost across a growing number of manufacturing locations, with an increasing focus on supplier compliance with our sustainable paper procurement policy as well as our Supplier Code of Conduct. Additionally, we work to develop and implement logistics, warehousing, and outbound shipping strategies to provide a balance of low-cost material availability while limiting our inventory exposure.\nIn light of recent disruptions in global supply chains, which impacted many industries, including ours, having this central procurement team that worked together with the procurement teams in each of our businesses benefited us, and we believe it has enabled us to operate more effectively, mitigating supply and cost risks relative to smaller competitors.\nTechnology\nOur businesses typically rely on proprietary technology to attract and retain our customers, to enable customers to create graphic designs and place orders on our websites, and to sort, aggregate, and produce multiple orders in standardized, scalable processes. Technology is core to our competitive advantage, as without it our businesses would not be able to produce custom orders in small quantities while achieving the economics that are more analogous to mass-produced items.\nWe are building and using our Mass Customization Platform (MCP), which is a cloud-based collection of software services, APIs, web applications, and related technology that can be leveraged independently or together by our businesses and third parties to perform common tasks that are important to mass customization. Cimpress businesses, and increasingly third-party fulfillers to our various businesses, leverage different combinations of MCP services, depending on what capabilities they need to complement their business-specific technology. The capabilities that are available in the MCP today include customer-facing technologies, such as ecommerce or those that enable customers to visualize their designs on various products, as well as manufacturing, supply chain, and logistics technologies that automate various stages of the production and delivery of a product to a customer. The benefits of the MCP include improved speed to market for new product introduction, reduction in fulfillment costs, improvement of product delivery or geographic expansion, improved site experience, automating manual tasks, and avoidance of certain redundant costs. We believe the MCP can generate significant customer and shareholder value from increased specialization of production facilities, aggregated scale from multiple businesses, increased product offerings, and shared technology development costs.\n8\nWe intend to continue developing and enhancing our MCP-based customer-facing and manufacturing, supply chain, and logistics technologies and processes. We develop our MCP technology centrally and we also have software and production engineering capabilities in each of our businesses. Our businesses are constantly seeking to strengthen our manufacturing and supply chain capabilities through engineering improvements in areas like automation, lean manufacturing, choice of equipment, product manufacturability, materials science, process control, and color control. \nEach of our businesses uses a mix of proprietary and third-party technology that supports the specific needs of that business. Their technology intensity ranges depending on their specific needs. Over the past few years, an increasing number of our businesses have modernized and modularized their business-specific technology to enable them to launch more new products faster, provide a better customer experience, more easily connect to our MCP technologies, and leverage third-party technologies where we do not need to bear the cost of developing and maintaining proprietary technologies. For example, our businesses are increasingly using third-party software for capabilities such as content management, multivariate testing tools, and data warehousing, which are areas that specialized best-in-class technologies are better than the proprietary technologies they have replaced. This allows our own engineering and development talent to focus on artwork technologies, product information management, and marketplace technologies from which we derive competitive advantage.\nIn our central Cimpress Technology team and in an increasing number of our decentralized businesses, we have adopted an agile, micro-services-based approach to technology development that enables multiple businesses or use cases to leverage this API technology regardless of where it was originally developed. We believe this development approach can help our businesses serve customers and scale operations more rapidly than could have been done as an individual business outside Cimpress.\nInformation Privacy and Security\n\u00a0\u00a0\u00a0\u00a0Each Cimpress business is responsible for ensuring that customer, company, and team member information is secure and handled in ways that are fully compliant with relevant laws and regulations. Because there are many aspects of this topic that apply to all of our businesses, Cimpress also has a central security team that defines security policies, deploys security controls, provides services, and embeds security into the development processes of our businesses. This team works in partnership with each of our businesses and the corporate center to measure security maturity and risk, and provides managed security services in a way that allows each business to address their unique challenges, lower their cost, and become more efficient in using their resources. \nShared Talent Infrastructure\nWe make it easy, low cost, and efficient for Cimpress businesses to set up and grow teams in India via a central infrastructure that provides all the local recruiting, onboarding, day-to-day administration, HR, and facilities management to support these teams, whether for technology, graphic services, or other business functions. Most of our businesses have established teams in India, leveraging this central capability, with those teams working directly for the respective Cimpress business. This is another example of scale advantage, albeit with talent, relative to both traditional suppliers and smaller online competitors, that we leverage across Cimpress. \nCompetition\n \nThe markets for the products our businesses produce and sell are intensely competitive, highly fragmented, and geographically dispersed, with many existing and potential competitors. Though Cimpress is the largest business in our space, we still represent a small fraction of the overall market, and believe there is significant room for growth over the long-term future. Within this highly competitive context, our businesses compete on the basis of breadth and depth of product offerings; price; convenience; quality; technology; design content, tools, and assistance; customer service; ease of use; and production and delivery speed. It is our intention to offer a broad selection of high-quality products as well as related services at competitive price points and, in doing so, offer our customers an attractive value proposition. As described above, in Vista in recent years we expanded both our value proposition and addressable market to include design and digital marketing services.\nOur current competition includes a combination of the following:\n\u2022\ntraditional offline suppliers and graphic design providers\n\u2022\nonline printing and graphic design companies\n9\n\u2022\noffice superstores, drug store chains, and other major retailers targeting small business and consumer markets\n\u2022\nwholesale printers\n\u2022\nself-service desktop design and publishing using personal computer software\n\u2022\nemail marketing services companies\n\u2022\nwebsite design and hosting companies\n\u2022\nsuppliers of customized apparel, promotional products, gifts, and packaging\n\u2022\nonline photo product companies\n\u2022\ninternet retailers\n\u2022\nonline providers of custom printing services that outsource production to third-party printers\n\u2022\nproviders of digital marketing such as social media and local search directories\nToday\u2019s market has evolved to be more competitive. This evolution, which has been ongoing for over 20 years, has led to major benefits for customers in terms of lower prices, faster lead times, and easier customer experience. Cimpress and its businesses have proactively driven, and benefited from, this dynamic. The mass customization business model first took off with small format products like business cards, post cards and flyers, and consumer products, like holiday cards. As the model has become better understood and more prevalent, and online advertising approaches more common, the competition has become more intense. These types of small format products are growing and we continue to derive significant profits from these small format products. Additionally, there are other product areas that have only more recently begun to benefit from mass customization, such as books, catalogs, magazines, textiles, and packaging.\n \nSocial and Environmental Responsibility\nAbove and beyond compliance with applicable laws and regulations, we expect all parts of Cimpress to conduct business in a socially responsible, ethical manner. Examples of these efforts are:\n\u2022\nClimate change: \nWe strive to achieve net zero carbon emissions by fiscal year 2040 across our entire value chain and to achieve a 53% reduction in emissions by fiscal year 2030 as compared to our fiscal year 2019 baseline. The majority of these baseline emissions are from our value chain (Scope 3). Through investments in energy-efficient infrastructure and equipment, as well as renewable energy, we have achieved significant reductions in our direct emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2), and expect further reductions in the future. We have begun to examine our Scope 3 emissions, including substrate and logistics choices, for further opportunities to reduce total emissions. We are focused on engaging our suppliers to refine our Scope 3 data, while enhancing our internal data management capabilities to improve our decision making and reporting capabilities. Our targets have been informed by a science-based approach and are in alignment with a 1.5\no\nC pathway.\n\u2022\nResponsible forestry:\n We have converted the vast majority of the paper we print on in our Cimpress-owned production facilities to FSC-certified paper (FSC\n\u00ae\n C143124, FSC\n\u00ae\n C125299),\u00a0a leading certification of responsible forestry practices. This certification confirms that the paper we print on comes from responsibly managed forests that meet high environmental and social standards. Currently 83% of the paper that we print on in our facilities is FSC-certified, and we seek to move that to 100% over time. We have expanded beyond our original product goal to also include packaging, where we target 95% of our packaging to be either FSC-certified corrugate or containing recycled content from post-consumer sources. We have also begun to engage our third-party suppliers to materially expand their use of responsibly forested paper for the products that they customize on our behalf.\n10\n\u2022\nPlastics transition:\n We are committed to improving the profile of our plastic-based packaging and products in line with the targets set by the New Plastics Economy Global Commitment, co-sponsored by the United Nations Environment Programme. Our goal is focused on our product and packaging profile, and by fiscal year 2025 we aim to eliminate 100% of problematic plastic usage (PVC and polystyrene), transition 100% of non-reusable packaging to recyclable and/or compostable materials, decrease virgin plastic content in our packaging by 20%, and increase the recycled content in our plastic products by 20%. These goals are compared to our fiscal year 2020 baseline.\n\u2022\nFair labor practices:\n We require recruiting, retention, and other performance management related decisions to be made based solely on merit and organizational needs and considerations, such as an individual\u2019s ability to do their job with excellence and in alignment with the company\u2019s strategic and operational objectives. We do not tolerate discrimination on any basis protected by human rights laws or anti-discrimination regulations, and we strive to do more in this regard than the law requires. We are committed to a work environment where team members are treated with respect and fairness, and have invested in education and awareness programs for team members to make further improvements in this area. We value individual differences, unique perspectives, and the distinct contributions that each one of us can make to the company.\n\u2022\nTeam member health and safety:\n We require safe working conditions at all times to ensure our team members and other parties are protected, and require legal compliance at a minimum at all times. We require training on \u2013 and compliance with \u2013 safe work practices and procedures at all manufacturing facilities to ensure the safety of team members and visitors to our plant floors. \n\u2022\nEthical supply chain:\n It is important to us that our supply chain reflects our commitment to doing business with the highest standards of ethics and integrity. We expect our suppliers to act in full compliance with applicable laws, rules, and regulations. Our code of business conduct and supplier code of conduct lay out our expectations regarding human rights, environmental standards, and safe working conditions. Each Cimpress business is responsible to closely monitor its supply chain for unacceptable practices such as environmental crimes, child labor, slavery, or unsafe working conditions. \nMore information can be found at www.cimpress.com in our Corporate Social Responsibility section, including links to reports and documents such as our inaugural environmental, social, and governance (ESG) report published on December 20, 2022, supplier code of conduct, and compliance with the UK anti-slavery act. We are monitoring developments in the ESG reporting regulatory landscape and are building the necessary processes and capabilities to remain in compliance as relevant regulations evolve.\nIntellectual Property \nWe seek to protect our proprietary rights through a combination of patents, copyrights, trade secrets, trademarks, and contractual restrictions. We enter into confidentiality and proprietary rights agreements with our employees, consultants, and business partners, and control access to, and distribution of, our proprietary information. We have registered, or applied for the registration of, a number of U.S. and international domain names, trademarks, and copyrights. Additionally, we have filed U.S. and international patent applications for certain of our proprietary technology.\nSeasonality \nOur profitability has historically had seasonal fluctuations. Our second fiscal quarter, ending December 31, includes the majority of the holiday shopping season and is our strongest quarter for sales of our consumer-oriented products, such as holiday cards, calendars, canvas prints, photobooks, and personalized gifts.\nHuman Capital\nAs of June\u00a030, 2023, we had approximately 15,000 full-time and approximately 1,000 temporary employees worldwide.\n11\nCorporate Information\nCimpress plc was incorporated on July 5, 2017 as a private company limited by shares under the laws of Ireland and on November 18, 2019 was re-registered as a public limited company under the laws of Ireland. On December 3, 2019, Cimpress N.V., the former publicly traded parent company of the Cimpress group of entities, merged with and into Cimpress plc, with Cimpress plc surviving the merger and becoming the publicly traded parent company of the Cimpress group of entities. \nAvailable Information\nWe make available, free of charge through our investor relations website at ir.cimpress.com, the reports, proxy statements, amendments, and other materials we file with or furnish to the SEC as soon as reasonably practicable after we electronically file or furnish such materials with or to the SEC. We are not including the information contained on our website, or information that can be accessed by links contained on our website, as a part of, or incorporating it by reference into, this Annual Report on Form 10-K.\n12",
+  "item1a": ">Item 1A.          \nRisk Factors\nOur future results may vary materially from those contained in forward-looking statements that we make in this Report and other filings with the SEC, press releases, communications with investors, and oral statements due to the following important factors, among others. Our forward-looking statements in this Report and in any other public statements we make may turn out to be wrong. These statements can be affected by, among other things, inaccurate assumptions we might make or by known or unknown risks and uncertainties or risks we currently deem immaterial. Consequently, no forward-looking statement can be guaranteed. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.\nRisks Related to Our Business and Operations\nWe manage our business for long-term results, and our quarterly and annual financial results often fluctuate, which may lead to volatility in our share price.\nOur revenue and operating results often vary significantly from period to period due to a number of factors, and as a result comparing our financial results on a period-to-period basis may not be meaningful. We prioritize our uppermost financial objective of maximizing our intrinsic value per share even at the expense of shorter-term results. Many of the factors that lead to period-to-period fluctuations are outside of our control; however, some factors are inherent in our business strategies. Some of the specific factors that could cause our operating results to fluctuate from quarter to quarter or year to year include among others: \n\u2022\ninvestments in our business in the current period intended to generate longer-term returns, where the costs in the near term will not be offset by revenue or cost savings until future periods, if at all \n\u2022\ncosts to produce and deliver our products and provide our services, including the effects of inflation, the rising costs of raw materials such as paper, and rising energy costs\n\u2022\nsupply chain challenges\n\u2022\na potential recession or other economic downturn in some or all of our markets\n\u2022\nour pricing and marketing strategies and those of our competitors \n\u2022\nvariations in the demand for our products and services, in particular during our second fiscal quarter, which may be driven by seasonality, performance issues in some of our businesses and markets, or other factors \n\u2022\ncurrency and interest rate fluctuations, which affect our revenue, costs, and fair value of our assets and liabilities \n\u2022\nour hedging activity\n\u2022\nour ability to attract and retain customers and generate purchases \n\u2022\nshifts in revenue mix toward less profitable products and brands \n\u2022\nthe commencement or termination of agreements with our strategic partners, suppliers, and others\n\u2022\nour ability to manage our production, fulfillment, and support operations \n\u2022\nexpenses and charges related to our compensation arrangements with our executives and employees\n\u2022\ncosts and charges resulting from litigation \n\u2022\nchanges in our effective income tax rate or tax-related benefits or costs \n13\n\u2022\ncosts to acquire businesses or integrate our acquired businesses \n\u2022\nfinancing costs\n\u2022\nimpairments of our tangible and intangible assets including goodwill\n\u2022\nthe results of our minority investments and joint ventures\n \nSome of our expenses, such as building leases, depreciation related to previously acquired property and equipment, and personnel costs, are relatively fixed, and we may be unable to, or may not choose to, adjust operating expenses to offset any revenue shortfall. Accordingly, any shortfall in revenue may cause significant variation in operating results in any period. Our operating results may sometimes be below the expectations of public market analysts and investors, in which case the price of our ordinary shares may decline. \nIf we are not successful in transforming the Vista business, then we could lose market share and our financial results could be adversely impacted. \nThe Vista business is undertaking a multi-year transformation to be the expert design and marketing partner for small businesses. In the third quarter of fiscal year 2023, we implemented organizational changes to support expanded profitability and improve the speed and quality of our execution, and we have been investing heavily to rebuild Vista's technology infrastructure, improve our customer experience and product quality, and optimize Vista's marketing mix. If our investments do not have the effects we expect, the new technology infrastructure does not perform well or is not as transformational as we expect, we fail to execute well on the evolution of our customer value proposition and brand, or the transformation is otherwise unsuccessful, then the number of new and repeat customers we attract may not grow or could decline, Vista's reputation and brand could be damaged, and our revenue and earnings could fail to grow or could decline.\nWe may not succeed in promoting, strengthening, and evolving our brands, which could prevent us from acquiring new customers and increasing revenues. \n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0A primary component of our business strategy is to promote and strengthen our brands to attract new and repeat customers, and we face significant competition from other companies in our markets who also seek to establish strong brands. To promote and strengthen our brands, we must incur substantial marketing expenses and establish a relationship of trust with our customers by providing a high-quality customer experience, which requires us to invest substantial amounts of our resources. \nOur global operations and decentralized organizational structure place a significant strain on our management, employees, facilities, and other resources and subject us to additional risks.\nWe are a global company with production facilities, offices, employees, and localized websites in many countries across six continents, and we manage our businesses and operations in a decentralized, autonomous manner. We are subject to a number of risks and challenges that relate to our global operations, decentralization, and complexity including, among others: \n\u2022\ndifficulty managing operations in, and communications among, multiple businesses, locations, and time zones \n\u2022\nchallenges of ensuring speed, nimbleness, and entrepreneurialism in a large and complex organization\n\u2022\ndifficulty complying with multiple tax laws, treaties, and regulations and limiting our exposure to onerous or unanticipated taxes, duties, tariffs, and other costs \n\u2022\nour failure to maintain sufficient financial and operational controls and systems to manage our decentralized businesses and comply with our obligations as a public company \n\u2022\nthe challenge of complying with disparate laws in multiple countries, such as local regulations that may impair our ability to conduct our business as planned, protectionist laws that favor local businesses, and restrictions imposed by local labor laws\n14\n\u2022\nthe challenge of maintaining management's focus on our strategic and operational priorities and minimizing lower priority distractions\n\u2022\ndisruptions caused by political and social instability and war that may occur in some countries \n\u2022\nexposure to corrupt business practices that may be common in some countries or in some sales channels and markets, such as bribery or the willful infringement of intellectual property rights \n\u2022\ndifficulty repatriating cash from some countries \n\u2022\ndifficulty importing and exporting our products across country borders and difficulty complying with customs regulations in the many countries where we sell products \n\u2022\ndisruptions or cessation of important components of our international supply chain\n\u2022\nfailure of local laws to provide a sufficient degree of protection against infringement of our intellectual property \n\u00a0\u00a0\u00a0\u00a0In addition, we are exposed to fluctuations in currency exchange rates that may impact items such as the translation of our revenue and expenses, remeasurement of our intercompany balances, and the value of our cash and cash equivalents and other assets and liabilities denominated in currencies other than the U.S. dollar, our reporting currency. The hedging activities we engage in may not mitigate the net impact of currency exchange rate fluctuations, and our financial results may differ materially from expectations as a result of such fluctuations.\nFailure to protect our information systems and the confidential information of our customers, employees, and business partners against security breaches or thefts could damage our reputation and brands, subject us to litigation and enforcement actions, and substantially harm our business and results of operations. \nOur business involves the receipt, storage, and transmission of customers' personal and payment information, as well as confidential information about our business, employees, suppliers, and business partners, some of which is entrusted to third-party service providers, partners, and vendors. We and third parties with which we share information have experienced, and will continue to experience, cyberattacks and other malicious activity that may include physical and electronic break-ins, computer viruses, ransomware attacks, and phishing and other social engineering scams, among other threats, and our vulnerabilities may be heightened by our decentralized operating structure and many of our employees working remotely. As security threats evolve and become more sophisticated and more difficult to detect and defend against, a hacker or thief may defeat our security measures, or those of our third-party service provider, partner, or vendor, and obtain confidential or personal information. We or the third party may not discover the security breach and theft of information for a significant period of time after the breach occurs. We may need to significantly increase the resources we expend to protect against security breaches and thefts of data or to address problems caused by breaches or thefts, and we may not be able to anticipate cyber attacks or implement adequate preventative measures. Any compromise or breach of our information systems or the information systems of third parties with which we share information could, among other things: \n\u2022\ndamage our reputation and brands \n\u2022\nexpose us to losses, costs, litigation, enforcement actions, and possible liability \n\u2022\nresult in a failure to comply with legal and industry privacy regulations and standards \n\u2022\nlead to the misuse of our and our customers' and employees' confidential or personal information \n\u2022\ncause interruptions in our operations \n\u2022\ncause us to lose revenue if existing and potential customers believe that their personal and payment information may not be safe with us \nWe are subject to the laws of many states, countries, and regions and industry guidelines and principles governing the collection, use, retention, disclosure, sharing, and security of data that we receive from and about our customers and employees. Any failure or perceived failure by us to comply with any of these laws, guidelines, or \n15\nprinciples could result in actions against us by governmental entities or others, a loss of customer confidence, and damage to our brands. In addition, the regulatory landscape is constantly changing, as various regulatory bodies throughout the world enact new laws concerning privacy, data retention, data transfer, and data protection. Complying with these varying and changing requirements is challenging, especially for our smaller, more thinly staffed businesses, and could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business and operating results.\nAcquisitions and strategic investments may be disruptive to our business, may fail to achieve our goals, and can negatively impact our financial results.\nAn important way in which we pursue our strategy is to selectively acquire businesses, technologies, and services and make minority investments in businesses and joint ventures. The time and expense associated with acquisitions and investments can be disruptive to our ongoing business and divert our management's attention. In addition, we have needed in the past, and may need in the future, to seek financing for acquisitions and investments, which may not be available on terms that are favorable to us, or at all, and can cause dilution to our shareholders, cause us to incur additional debt, or subject us to covenants restricting the activities we may undertake. \nAn acquisition, minority investment, or joint venture may fail to achieve our goals and expectations and may have a negative impact on our business and financial results in a number of ways including the following: \n\u2022\nThe business we acquired or invested in may not perform or fit with our strategy as well as we expected.\n\u2022\nAcquisitions and minority investments can be costly and can result in increased expenses including impairments of goodwill and intangible asserts if financial goals are not achieved, assumptions of contingent or unanticipated liabilities, amortization of certain acquired assets, and increased tax costs. In addition, we may overpay for acquired businesses. \n\u2022\nThe management of our acquired businesses, minority investments, and joint ventures may be more expensive or may take more resources than we expected. In addition, continuing to devote resources to a struggling business can take resources away from other investment areas and priorities. \n\u2022\nWe may not be able to retain customers and key employees of the acquired businesses. In particular, it can be challenging to motivate the founders who built a business to continue to lead the business after they sell it to us. \nThe accounting for our acquisitions and minority investments requires us to make significant estimates, judgments, and assumptions that can change from period to period, based in part on factors outside of our control, which can create volatility in our financial results. For example, we often pay a portion of the purchase price for our acquisitions in the form of an earn out based on performance targets for the acquired companies or enter into obligations or options to purchase noncontrolling interests in our acquired companies or minority investments, which can be difficult to forecast and can lead to larger than expected payouts that can adversely impact our results of operations. \nFurthermore, provisions for future payments to sellers based on the performance or valuation of the acquired businesses, such as earn outs and options to purchase noncontrolling interests, can lead to disputes with the sellers about the achievement of the performance targets or valuation or create inadvertent incentives for the acquired company's management to take short-term actions designed to maximize the payments they receive instead of benefiting the business.\nIf we are unable to attract new and repeat customers in a cost-effective manner, our business and results of operations could be harmed.\nOur various businesses rely on a variety of marketing methods to attract new and repeat customers. These methods include promoting our products and services through paid channels such as online search, display, and television, as well as leveraging our owned and operated channels such as email, direct mail, our social media accounts, and telesales. If the costs of these channels significantly increase or the effectiveness of these channels significantly declines, then our ability to efficiently attract new and repeat customers would be reduced, our revenue and net income could decline, and our business and results of operations would be harmed. \n16\nDeveloping and deploying our mass customization platform is costly and resource-intensive, and we may not realize all of the anticipated benefits of the platform.\nA key component of our strategy is the development and deployment of a mass customization platform, which is a cloud-based collection of software services, APIs, web applications and related technology offerings that can be leveraged independently or together by our businesses and third parties to perform common tasks that are important to mass customization. The process of developing new technology is complex, costly, and uncertain and requires us to commit significant resources before knowing whether our businesses will adopt components of our mass customization platform or whether the platform will make us more effective and competitive.\u00a0As a result, there can be no assurance that we will find new capabilities to add to the growing set of technologies that make up our platform, that our diverse businesses will realize value from the platform, or that we will realize expected returns on the capital expended to develop the platform.\nSeasonal fluctuations in our business place a strain on our operations and resources.\nOur profitability has historically been highly seasonal. Our second fiscal quarter, which ends on December 31, includes the majority of the holiday shopping season and typically accounts for a disproportionately high portion of our earnings for the year, primarily due to higher sales of home and family products such as holiday cards, calendars, photo books, and personalized gifts. In addition, our National Pen business has historically generated nearly all of its profits during the second fiscal quarter. Lower than expected sales during the second quarter have a disproportionately large impact on our operating results and financial condition for the full fiscal year. In addition, if our manufacturing and other operations are unable to keep up with the high volume of orders during our second fiscal quarter or we experience inefficiencies in our production or disruptions of our supply chains, then our costs may be significantly higher, and we and our customers can experience delays in order fulfillment and delivery and other disruptions. \nOur businesses face risks related to interruption of our operations and supply chains and lack of redundancy. \nOur businesses' production facilities, websites, infrastructure, supply chain, customer service centers, and operations may be vulnerable to interruptions, and we do not have redundancies or alternatives in all cases to carry on these operations in the event of an interruption. In addition, because our businesses are dependent in part on third parties for certain aspects of our communications and production systems, we may not be able to remedy interruptions to these systems in a timely manner or at all due to factors outside of our control. Some of the events that could cause interruptions in our businesses' operations, systems, or supply chains are the following, among others:\n\u2022\nfire, natural disaster, or extreme weather, which could be exacerbated by climate change \n\u2022\npandemic or other public health crisis\n\u2022\nransomware and other cyber security attacks\n\u2022\nlabor strike, work stoppage, or other issues with our workforce \n\u2022\npolitical instability or acts of terrorism or war \n\u2022\npower loss or telecommunication failure \n\u2022\nattacks on our external websites or internal network by hackers or other malicious parties \n\u2022\ninadequate capacity in our systems and infrastructure to cope with periods of high volume and demand\nAny interruptions to our systems or operations could result in lost revenue, increased costs, negative publicity, damage to our reputations and brands, and an adverse effect on our business and results of operations. Building redundancies into our infrastructure, systems, and supply chain to mitigate these risks may require us to commit substantial financial, operational, and technical resources.\n17\nFailure to meet our customers' price expectations would adversely affect our business and results of operations. \nDemand for our products and services is sensitive to price for almost all of our businesses, and changes in our pricing strategies have had a significant impact on the numbers of customers and orders in some regions, which in turn affects our revenue, profitability, and results of operations. Many factors can significantly impact our pricing and marketing strategies, including the costs of running our business, the costs of raw materials, our competitors' pricing and marketing strategies, and the effects of inflation. We may not be able to mitigate increases in our costs by increasing the prices of our products and services. If we fail to meet our customers' price expectations, our business and results of operations may suffer. \nWe are subject to safety, health, and environmental laws and regulations, which could result in liabilities, cost increases, or restrictions on our operations. \n\u00a0\u00a0\u00a0\u00a0\nWe are subject to a variety of safety, health and environmental, or SHE, laws and regulations in each of the jurisdictions in which we operate. SHE laws and regulations frequently change and evolve, including the addition of new SHE regulations, especially with respect to climate change. These laws and regulations govern, among other things, air emissions, wastewater discharges, the storage, handling and disposal of hazardous and other regulated substances and wastes, soil and groundwater contamination, and employee health and safety. We use regulated substances such as inks and solvents, and generate air emissions and other discharges at our manufacturing facilities, and some of our facilities are required to hold environmental permits. If we fail to comply with existing or new SHE requirements, we may be subject to monetary fines, civil or criminal sanctions, third-party claims, or the limitation or suspension of our operations. In addition, if we are found to be responsible for hazardous substances at any location (including, for example, offsite waste disposal facilities or facilities at which we formerly operated), we may be responsible for the cost of cleaning up contamination, regardless of fault, as well as for claims for harm to health or property or for natural resource damages arising out of contamination or exposure to hazardous substances.\nComplying with existing SHE laws and regulations is costly, and we expect our costs to significantly increase as new SHE requirements are added and existing requirements become more stringent. In some cases we pursue self-imposed socially responsible policies that are more stringent than is typically required by laws and regulations, for instance in the areas of worker safety, team member social benefits, and environmental protection such as carbon reduction initiatives. The costs of this added SHE effort are often substantial and could grow over time.\nThe failure of our business partners to use legal and ethical business practices could negatively impact our business. \nWe contract with multiple suppliers, fulfillers, merchants, and other business partners in many jurisdictions worldwide. We require our business partners to operate in compliance with all applicable laws, including those regarding corruption, working conditions, employment practices, safety and health, and environmental compliance, but we cannot control their business practices. We may not be able to adequately vet, monitor, and audit our many business partners (or their suppliers) throughout the world, and our decentralized structure heightens this risk, as not all of our businesses have equal resources to manage their business partners. If any of them violates labor, environmental, or other laws or implements business practices that are regarded as unethical or inconsistent with our values, our reputation could be severely damaged, and our supply chain and order fulfillment process could be interrupted, which could harm our sales and results of operations. \nIf we are unable to protect our intellectual property rights, our reputation and brands could be damaged, and others may be able to use our technology, which could substantially harm our business and financial results. \nWe rely on a combination of patents, trademarks, trade secrets, copyrights, and contractual restrictions to protect our intellectual property, but these protective measures afford only limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to copy or use technology or information that we consider proprietary. There can be no guarantee that any of our pending patent applications or continuation patent applications will be granted, and from time to time we face infringement, invalidity, intellectual property ownership, or similar claims brought by third parties with respect to our patents. In addition, despite our trademark registrations throughout the world, our competitors or other entities may adopt names, marks, or domain names similar to ours, \n18\nthereby impeding our ability to build brand identity and possibly leading to customer confusion. Enforcing our intellectual property rights can be extremely costly, and a failure to protect or enforce these rights could damage our reputation and brands and substantially harm our business and financial results. \nIntellectual property disputes and litigation are costly and could cause us to lose our exclusive rights, subject us to liability, or require us to stop some of our business activities. \nFrom time to time, we receive claims from third parties that we infringe their intellectual property rights, that we are required to enter into patent licenses covering aspects of the technology we use in our business, or that we improperly obtained or used their confidential or proprietary information. Any litigation, settlement, license, or other proceeding relating to intellectual property rights, even if we settle it or it is resolved in our favor, could be costly, divert our management's efforts from managing and growing our business, and create uncertainties that may make it more difficult to run our operations. If any parties successfully claim that we infringe their intellectual property rights, we might be forced to pay significant damages and attorney's fees, and we could be restricted from using certain technologies important to the operation of our business. \nOur business is dependent on the Internet, and unfavorable changes in government regulation of the Internet, e-commerce, and email marketing could substantially harm our business and financial results. \nBecause most of our businesses depend primarily on the Internet for our sales, laws specifically governing the Internet, e-commerce, and email marketing may have a greater impact on our operations than other more traditional businesses. Existing and future laws, such as laws covering pricing, customs, privacy, consumer protection, or commercial email, may impede the growth of e-commerce and our ability to compete with traditional \u201cbricks and mortar\u201d retailers. Existing and future laws or unfavorable changes or interpretations of these laws could substantially harm our business and financial results. \nIf we were required to screen the content that our customers incorporate into our products, our costs could significantly increase, which would harm our results of operations. \nBecause of our focus on automation and high volumes, many of our sales do not involve any human-based review of content. Although our websites' terms of use specifically require customers to make representations about the legality and ownership of the content they upload for production, there is a risk that a customer may supply an image or other content for an order we produce that is the property of another party used without permission, that infringes the copyright or trademark of another party, or that would be considered to be defamatory, hateful, obscene, or otherwise objectionable or illegal under the laws of the jurisdiction(s) where that customer lives or where we operate. If the machine-learning tools we have developed to aid our content review fail to find instances of intellectual property infringement or objectionable or illegal content in customer orders, we could be required to increase the amount of manual screening we perform, which could significantly increase our costs, and we could be required to pay substantial penalties or monetary damages for any failure in our screening process. \nRisks Related to Our Industry and Macroeconomic Conditions\nRising costs could negatively affect our business and financial results.\nDuring the last two fiscal years, we have experienced material cost increases in a number of areas, including energy, product substrates like paper, production materials like aluminum plates, freight and shipping charges, and employee compensation due to a more competitive labor market. We cannot predict whether costs will further increase in the future or by how much. We have not been able to fully mitigate our cost increases through price increases. If our costs remain elevated or continue to increase, there could be further negative impacts to our financial results, and increasing our prices in response to increased costs could negatively affect demand for our products and services. \nSupply chain disruptions could impair our ability to source raw materials.\nA number of factors have impacted, and could in the future impact, the availability of materials we use in our business, including the residual effects of the COVID-19 pandemic, rising energy prices and other inflationary pressures, rationing measures, labor shortages, civil unrest and war, and climate change. Our inability to source sufficient materials for our business in a timely manner, or at all, would significantly impair our ability to fulfill customer orders and sell our products, which would reduce our revenue and harm our financial results. \n19\nWe need to hire, retain, develop, and motivate talented personnel in key roles in order to be successful, and we face intense competition for talent. \nIf we are unable to recruit, retain, develop, and motivate our employees in senior management and key roles such as technology, marketing, data science, and production, then we may not be able to execute on our strategy and grow our business as planned. We are seeing increased competition for talent that makes it more difficult for us to retain the employees we have and to recruit new employees, and our current management and employees may cease their employment with us at any time with minimal advance notice. This retention risk is particularly heightened with respect to the leaders of certain of our businesses who have in the past or may in the future receive substantial payouts from their redeemable non-controlling interests in those businesses, as it may be challenging to retain and motivate them to continue running their businesses. Although we believe our remote-first way of working, which allows team members to work remotely with no expectation that they will commute to a company facility, is a competitive advantage, it can be more challenging to engage, motivate, and develop team members in a remote work environment, and our success depends on an engaged and motivated workforce and on developing the skills and talents of our workforce.\nWe face intense competition, and our competition may continue to increase. \nThe markets for our products and services are intensely competitive, highly fragmented, and geographically dispersed. The competitive landscape for e-commerce companies and the mass customization market continues to change as new e-commerce businesses are introduced, established e-commerce businesses enter the mass customization and print markets, and traditional \u201cbrick and mortar\u201d businesses establish an online presence. With Vista's increased focus on design services, we now also face competition from companies in the design space, some of which may be more established, experienced, or innovative than we are . Competition may result in price pressure, increased advertising expense, reduced profit margins, and loss of market share and brand recognition, any of which could substantially harm our business and financial results. Some of our current and potential competitors have advantages over us, including longer operating histories, greater brand recognition or loyalty, more focus on a given subset of our business, significantly greater financial, marketing, and other resources, or willingness to operate at a loss while building market share. \nA major economic downturn could negatively affect our business and financial results. \nIt is possible that some or all of our markets could enter a recession or other sustained economic downturn, which could negatively impact demand for our products and services. Although the economic downturns we experienced in the past often precipitated increases in the number of small businesses, which in turn increased demand for our products, an inflation-fueled downturn and/or tightening credit conditions could result in potential customers not being able to afford our products and rely more on free social media channels to market themselves instead of the products and services we offer. If demand for our products and services decreases, our business and financial results could be harmed.\nMeeting our ESG goals will be costly, and our ESG policies and positions could expose us to reputational harm. \nWe face risks arising from the increased focus by our customers, investors, and regulators on environmental, social, and governance criteria, including with respect to climate change, labor practices, the diversity of our management and directors, and the composition of our Board. Meeting the ESG goals we have set and publicly disclosed will require significant resources and expenditures, and we may face pressure to make commitments, establish additional goals, and take actions to meet them beyond our current plans. If customers and potential customers are dissatisfied with our ESG goals or our progress towards meeting them, then they may choose not to buy our products and services, which could lead to reduced revenue, and our reputation could be harmed. In addition, with anti-ESG sentiment gaining momentum in some of our markets, we could experience reduced revenue and reputational harm if we are targeted by groups or influential individuals who disagree with our public positions on social or environmental issues. \n20\nRisks Related to Our Corporate and Capital Structures\nOur credit facility and the indentures that govern our notes restrict our current and future operations, particularly our ability to respond to changes or to take certain actions. \nOur senior secured credit facility that governs our Term Loan B and revolving credit and the indenture that governs our 7.0% Senior Notes due 2026, which we collectively refer to as our debt documents, contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit how we conduct our business, execute our strategy, compete effectively, or take advantage of new business opportunities, including restrictions on our ability to: \n\u2022\nincur additional indebtedness, guarantee indebtedness, and incur liens \n\u2022\npay dividends or make other distributions or repurchase or redeem capital stock \n\u2022\nprepay, redeem, or repurchase subordinated debt \n\u2022\nissue certain preferred stock or similar redeemable equity securities \n\u2022\nmake loans and investments \n\u2022\nsell assets \n\u2022\nenter into transactions with affiliates \n\u2022\nalter the businesses we conduct \n\u2022\nenter into agreements restricting our subsidiaries\u2019 ability to pay dividends \n\u2022\nconsolidate, merge, or sell all or substantially all of our assets \nA default under any of our debt documents would have a material, adverse effect on our business. \n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0Our failure to make scheduled payments on our debt or our breach of the covenants or restrictions under any of our debt documents could result in an event of default under the applicable indebtedness. Such a default would have a material, adverse effect on our business and financial condition, including the following, among others:\n\u2022\nOur lenders could declare all outstanding principal and interest to be due and payable, and we and our subsidiaries may not have sufficient assets to repay that indebtedness.\n\u2022\nOur secured lenders could foreclose against the assets securing their borrowings.\n\u2022\nOur lenders under our revolving credit facility could terminate all commitments to extend further credit under that facility. \n\u2022\nWe could be forced into bankruptcy or liquidation.\nOur material indebtedness and interest expense could adversely affect our financial condition. \nAs of June\u00a030, 2023, our total debt was $1,654.0 million.\u00a0Our level of debt could have important consequences, including the following: \n\u2022\nmaking it more difficult for us to satisfy our obligations with respect to our debt \n\u2022\nlimiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions, or other general corporate requirements \n21\n\u2022\nrequiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions, and other general corporate purposes \n\u2022\nincreasing our vulnerability to general adverse economic and industry conditions \n\u2022\nexposing us to the risk of increased interest rates as some of our borrowings, including borrowings under our credit facility, are at variable rates of interest \n\u2022\nplacing us at a disadvantage compared to other, less leveraged competitors \n\u2022\nincreasing our cost of borrowing \nSubject to the limits contained in our debt documents, we may be able to incur substantial additional debt from time to time, and if we do so, the risks related to our level of debt could intensify. \nIf our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital, or restructure or refinance our indebtedness. Refinancing our debt may be particularly challenging in the current environment of capital market disruptions and rising interest rates. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all, and if we cannot make scheduled payments on our debt, we will be in default.  \nOur variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly. \nBorrowings under our credit facility are at variable rates of interest and expose us to interest rate risk, and any interest rate swaps we enter into in order to reduce interest rate volatility may not fully mitigate our interest rate risk. If interest rates continue to increase, our debt service obligations on the variable rate indebtedness will increase even if the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. As of June\u00a030, 2023, a hypothetical 100 basis point increase in rates, inclusive of our outstanding interest rate swaps, would result in an increase of interest expense of approximately $8.7 million\n \nover the next 12 months, not including any yield from our cash and marketable securities. \nChallenges by various tax authorities to our international structure could, if successful, increase our effective tax rate and adversely affect our earnings.\nWe are an Irish public limited company that operates through various subsidiaries in a number of countries throughout the world. Consequently, we are subject to tax laws, treaties and regulations in the countries in which we operate, and these laws and treaties are subject to interpretation. From time to time, we are subject to tax audits, and the tax authorities in these countries could claim that a greater portion of the income of the Cimpress plc group should be subject to income or other tax in their respective jurisdictions, which could result in an increase to our effective tax rate and adversely affect our results of operations.\nChanges in tax laws, regulations and treaties could affect our tax rate and our results of operations.\nA change in tax laws, treaties or regulations, or their interpretation, of any country in which we operate could have a materially adverse impact on us, including increasing our tax burden, increasing costs of our tax compliance, or otherwise adversely affecting our financial condition, results of operations, and cash flows. There are currently multiple initiatives for comprehensive tax reform underway in key jurisdictions where we have operations, and we cannot predict whether any other specific legislation will be enacted or the terms of any such legislation. In addition, the application of sales, value added, or other consumption taxes to e-commerce businesses, such as Cimpress is a complex and evolving issue. If a government entity claims that we should have been collecting such taxes on the sale of our products in a jurisdiction where we have not been doing so, then we could incur substantial tax liabilities for past sales.\n22\nOur intercompany arrangements may be challenged, which could result in higher taxes or penalties and an adverse effect on our earnings.\nWe operate pursuant to written transfer pricing agreements among Cimpress plc and its subsidiaries, which establish transfer prices for various services performed by our subsidiaries for other Cimpress group companies. If two or more affiliated companies are located in different countries, the tax laws or regulations of each country generally will require that transfer prices be consistent with those between unrelated companies dealing at arm's length. With the exception of certain jurisdictions where we have obtained rulings or advance pricing agreements, our transfer pricing arrangements are not binding on applicable tax authorities. If tax authorities in any country were successful in challenging our transfer prices as not reflecting arm's length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect these revised transfer prices. A reallocation of taxable income from a lower tax jurisdiction to a higher tax jurisdiction would result in a higher tax liability to us. In addition, if the country from which the income is reallocated does not agree with the reallocation, both countries could tax the same income, resulting in double taxation.\nBecause of our corporate structure, our shareholders may find it difficult to enforce claims based on United States federal or state laws, including securities liabilities, against us or our management team. \nWe are incorporated under the laws of Ireland. There can be no assurance that the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or that the courts of Ireland would hear actions against us or those persons based on those laws. There is currently no treaty between the U.S. and Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters, and Irish common law rules govern the process by which a U.S. judgment will be enforced in Ireland. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically or necessarily be enforceable in Ireland.\nIn addition, because most of our assets are located outside of the United States and some of our directors and management reside outside of the United States, it could be difficult for investors to place a lien on our assets or those of our directors and officers in connection with a claim of liability under U.S. laws. As a result, it may be difficult for investors to enforce U.S. court judgments or rights predicated upon U.S. laws against us or our management team outside of the United States.\nOur hedging activity could negatively impact our results of operations, cash flows, or leverage.\n\u00a0\u00a0\u00a0\u00a0We have entered into derivatives to manage our exposure to interest rate and currency movements. If we do not accurately forecast our results of operations, execute contracts that do not effectively mitigate our economic exposure to interest rates and currency rates, elect to not apply hedge accounting, or fail to comply with the complex accounting requirements for hedging, our results of operations and cash flows could be volatile, as well as negatively impacted. Also, our hedging objectives may be targeted at improving our non-GAAP financial metrics, which could result in increased volatility in our GAAP results. Since some of our hedging activity addresses long-term exposures, such as our net investment in our subsidiaries, the gains or losses on those hedges could be recognized before the offsetting exposure materializes to offset them, potentially causing volatility in our cash or debt balances, and therefore our leverage.\nWe may be treated as a passive foreign investment company for United States tax purposes, which may subject United States shareholders to adverse tax consequences.\nIf our passive income, or our assets that produce passive income, exceed levels provided by law for any taxable year, we may be characterized as a passive foreign investment company, or a PFIC, for United States federal income tax purposes. If we are treated as a PFIC, U.S. holders of our ordinary shares would be subject to a disadvantageous United States federal income tax regime with respect to the distributions they receive and the gain, if any, they derive from the sale or other disposition of their ordinary shares.\nWe believe that we were not a PFIC for the tax year ended June\u00a030, 2023 and we expect that we will not become a PFIC in the foreseeable future. However, whether we are treated as a PFIC depends on questions of fact as to our assets and revenues that can only be determined at the end of each tax year. Accordingly, we cannot be certain that we will not be treated as a PFIC in future years.\n23\nIf a United States shareholder owns 10% or more of our ordinary shares, it may be subject to increased United States taxation under the \"controlled foreign corporation\" rules. Additionally, this may negatively impact the demand for our ordinary shares.\nIf a United States shareholder owns 10% or more of our ordinary shares, it may be subject to increased United States federal income taxation (and possibly state income taxation) under the \"controlled foreign corporation\" rules. In general, if a U.S. person owns (or is deemed to own) at least 10% of the voting power or value of a non-U.S. corporation, or \"10% U.S. Shareholder,\" and if such non-U.S. corporation is a \"controlled foreign corporation,\" or \"CFC,\" then such 10% U.S. Shareholder who owns (or is deemed to own) shares in the CFC on the last day of the CFC's taxable year must include in its gross income for United States federal income tax (and possibly state income tax) purposes its pro rata share of the CFC's \"subpart F income,\" even if the subpart F income is not distributed. In addition, a 10% U.S. Shareholder's pro rata share of other income of a CFC, even if not distributed, might also need to be included in a 10% U.S. Shareholder\u2019s gross income for United States federal income tax (and possibly state income tax) purposes under the \"global intangible low-taxed income,\" or \"GILTI,\" provisions of the U.S. tax law. In general, a non-U.S. corporation is considered a CFC if one or more 10% U.S. Shareholders together own more than 50% of the voting power or value of the corporation on any day during the taxable year of the corporation. \"Subpart F income\" consists of, among other things, certain types of dividends, interest, rents, royalties, gains, and certain types of income from services, and personal property sales.\nThe rules for determining ownership for purposes of determining 10% U.S. Shareholder and CFC status are complicated, depend on the particular facts relating to each investor, and are not necessarily the same as the rules for determining beneficial ownership for SEC reporting purposes. For taxable years in which we are a CFC, each of our 10% U.S. Shareholders will be required to include in its gross income for United States federal income tax (and possibly state income tax) purposes its pro rata share of our \"subpart F income,\" even if the subpart F income is not distributed by us, and might also be required to include its pro rata share of other income of ours, even if not distributed by us, under the GILTI provisions of the U.S. tax law. We currently do not believe we are a CFC. However, whether we are treated as a CFC can be affected by, among other things, facts as to our share ownership that may change. Accordingly, we cannot be certain that we will not be treated as a CFC in future years.\nThe risk of being subject to increased taxation as a CFC may deter our current shareholders from acquiring additional ordinary shares or new shareholders from establishing a position in our ordinary shares. Either of these scenarios could impact the demand for, and value of, our ordinary shares.\nThe ownership of our ordinary shares is highly concentrated, which could cause or exacerbate volatility in our share price. \nMore than 70% of our ordinary shares are held by our top 10 shareholders, and we may repurchase shares in the future (subject to the restrictions in our debt documents), which could further increase the concentration of our share ownership. Because of this reduced liquidity, the trading of relatively small quantities of shares by our shareholders could disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously if a large number of our ordinary shares were sold on the market without commensurate demand, as compared to a company with greater trading liquidity that could better absorb those sales without adverse impact on its share price.",
+  "item7": ">Item 7.         \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThis Report contains forward-looking statements that involve risks and uncertainties. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section\u00a027A of the Securities Act of 1933 and Section\u00a021E of the Securities Exchange Act of 1934, including but not limited to our statements about the anticipated growth and development of our businesses and financial results, including profitability, cash flows, liquidity, and net leverage;  the expected effects of our cost reductions and recent restructuring, including future cost savings; our competitive position and the size of our market; sufficiency of our liquidity position; legal proceedings; and sufficiency of our tax reserves. Without limiting the foregoing, the words \u201cmay,\u201d \u201cshould,\u201d \u201ccould,\u201d \u201cexpect,\u201d \u201cplan,\u201d \u201cintend,\u201d \u201canticipate,\u201d \u201cbelieve,\u201d \u201cestimate,\u201d \u201cpredict,\u201d \u201cdesigned,\u201d \u201cpotential,\u201d \u201ccontinue,\u201d \u201ctarget,\u201d \u201cseek\u201d and similar expressions are intended to identify forward-looking statements. All forward-looking statements included in this Report are based on information available to us up to, and including the date of this document, and we disclaim any obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various important factors, including but not limited to flaws in the assumptions and judgments upon which our forecasts and estimates are based; the development, severity, and duration of supply chain constraints, inflation, and the lingering effects of the COVID-19 pandemic; our inability to make the investments in our business that we plan to make or the failure of those investments to achieve the results we expect; our failure to execute on the transformation of the Vista business; loss of key personnel or our inability to recruit talented personnel to drive performance of our businesses; costs and disruptions caused by acquisitions and minority investments; the failure of businesses we acquire or invest in to perform as expected; our failure to develop and deploy our mass customization platform or the failure of the platform to drive the efficiencies and competitive advantages we expect; unanticipated changes in our markets, customers, or businesses; changes in the laws and regulations, or in the interpretation of laws and regulations, that affect our businesses; our failure to manage the growth and complexity of our business and expand our operations; our failure to maintain compliance with the covenants in our debt documents or to pay our debts when due; competitive pressures; general economic conditions, including the possibility of an economic downturn in some or all of our markets; and other factors described in this Report and the documents that we periodically file with the SEC. The Business section of this Report also contains estimates and other statistical data from research we conducted in August 2022 with a third-party research firm, and this data involves a number of assumptions and limitations and contains projections and estimates of the sizes of the opportunities of our markets that are subject to a high degree of uncertainty and should not be given undue weight.\nExecutive Overview\nCimpress is a strategically focused group of more than ten businesses that specialize in mass customization of printing and related products, via which we deliver large volumes of individually small-sized customized orders. Our products and services include a broad range of marketing materials, business cards, signage, promotional products, logo apparel, packaging, books and magazines, wall decor, photo merchandise, invitations and announcements, design and digital marketing services, and other categories. Mass customization is a core element of the business model of each Cimpress business and is a competitive strategy which seeks to produce goods and services to meet individual customer needs with near mass production efficiency. We discuss mass customization further in the Business section of this Report.\nAs of June\u00a030, 2023, we have numerous operating segments under our management reporting structure that are reported in the following five reportable segments: Vista, PrintBrothers, The Print Group, National Pen, and All Other Businesses. Refer to Note 15 in our accompanying consolidated financial statements for additional information relating to our reportable segments and our segment financial measures.\nWe announced plans on March 23, 2023 to reduce costs within our Vista business and our central teams and implement organizational changes to support expanded profitability, reduced leverage and increased speed, focus, and accountability. These plans resulted in a restructuring charge of $30.2\u00a0million during fiscal year 2023. Excluding this restructuring charge, this restructuring action provided a cost savings benefit of approximately $24 million during the current fiscal year due to the timing of the action, and we expect this action to deliver approximately $100 million of annualized pre-tax cost savings in total.\nFinancial Summary\nThe primary financial metric by which we set quarterly and annual budgets both for individual businesses and Cimpress wide is our adjusted free cash flow before cash interest expense; however, in evaluating the financial condition and operating performance of our business, management considers a number of metrics including \n27\nrevenue growth, organic constant-currency revenue growth, operating income, adjusted EBITDA, cash flow from operations, and adjusted free cash flow. Reconciliations of our non-GAAP financial measures are included within the \"Consolidated Results of Operations\" and \"Additional Non-GAAP Financial Measures\" sections of Management's Discussion and Analysis. A summary of these key financial metrics for the year ended June 30, 2023 as compared to the year ended June 30, 2022 follows:\nFiscal Year 2023\n\u2022\nRevenue increased by 7% to $3,079.6 million.\n\u2022\nConstant-currency revenue increased 11% when excluding the revenue of acquired companies for the first twelve months after acquisition (a non-GAAP financial measure).\n\u2022\nOperating income increased by $10.0 million to $57.3 million.\n\u2022\nAdjusted EBITDA (a non-GAAP financial measure) increased by $58.8 million to $339.8 million.\n\u2022\nDiluted net loss per share attributable to Cimpress plc increased to $7.08 from $2.08 in the prior fiscal year.\n\u2022\nCash provided by operating activities decreased by $89.2 million to $130.3 million.\n\u2022\nAdjusted free cash flow (a non-GAAP financial measure) decreased by $81.5 million to $18.7 million.\nFor the year ended June 30, 2023, the increase in reported revenue was primarily due to growth across all businesses and markets through increased pricing and customer demand. Revenue growth in our Vista business was driven by increases in new customer count as well as new and repeat customer bookings across most major markets. Promotional products, apparel, and gifts (PPAG) was our fastest-growing product category, with business cards, marketing materials, packaging and labels, and signage all showing strong year-over-year growth; however, constant-currency revenue from consumer products has declined from the prior year. Pricing changes made during the past year across all reportable segments improved our revenue on a year-over-year basis, as these actions were one tool we used to mitigate inflationary cost pressures that have arisen from ongoing supply chain challenges. Currency exchange fluctuations had a negative effect on revenue growth during the current fiscal year.\nThe increase to operating income during the year ended June 30, 2023 was driven by gross profit growth as we benefited from higher volumes and the reduced net impact of cost inflation including through improved pricing. We also realized cost efficiencies in advertising spend during the current year. These items were partially offset by an increase in restructuring charges of $30.2\u00a0million, primarily related to actions taken in March 2023 to reduce costs in the Vista business and in our central teams. These restructuring charges were offset in part by a partial year of savings from the related actions.\nAdjusted EBITDA increased for the year ended June 30, 2023, primarily driven by the gross profit growth described above, as well the $13.7\u00a0million net benefit of currency on consolidated adjusted EBITDA year over year. Adjusted EBITDA excludes restructuring charges, share-based compensation expense, certain impairments, and non-cash gains on the sale of assets, and includes the realized gains or losses on our currency derivatives intended to hedge adjusted EBITDA.\nDiluted net loss per share attributable to Cimpress plc increased for the year ended June 30, 2023, primarily due to an increase in income tax expense of $95.6\u00a0million, driven by our conclusion that Swiss deferred tax assets' recognition was no longer supported, which caused the recognition of a valuation allowance against these assets during the second quarter of the current fiscal year; higher interest expense driven by an increased weighted-average interest rate; and the effects of lower unrealized currency gains caused by exchange rate volatility. Partially offsetting these items was the increase to operating income as described above, as well as a $6.8\u00a0million gain on the repurchase of a portion of our senior unsecured notes during the fourth quarter of the current fiscal year. Refer to Note 10 of our accompanying consolidated financial statements for additional details.\nDuring the year ended June 30, 2023, cash from operations decreased $89.2\u00a0million year over year due primarily to $113.3\u00a0million of lower working capital inflows, which was largely influenced by the timing impacts of payables. In addition, the decrease was also driven by higher restructuring payments of $36.9\u00a0million, due to actions taken to reduce costs over the past year, as well as higher net cash interest payments of $7.6\u00a0million.\n28\nAdjusted free cash flow decreased year over year by $81.5\u00a0million for the year ended June 30, 2023, due to the operating cash flow decrease described above, partially offset by lower capitalized software and capitalized expenditures.\nConsolidated Results of Operations\nConsolidated Revenue\nOur businesses generate revenue primarily from the sale and shipment of customized products. We also generate revenue, to a much lesser extent (and primarily in our Vista business), from digital services, graphic design services, website design and hosting, and email marketing services, as well as a small percentage of revenue from order referral fees and other third-party offerings. For additional discussion relating to segment revenue results, refer to the \"Reportable Segment Results\" section included below.\nTotal revenue and revenue growth by reportable segment for the years ended June 30, 2023, 2022, and 2021 are shown in the following table:\nIn thousands\nYear Ended June 30, \nCurrency\nImpact:\nConstant-\nCurrency\nImpact of Acquisitions/Divestitures:\nConstant- Currency Revenue Growth \n2023\n2022\n%\n\u00a0Change\n(Favorable)/Unfavorable\nRevenue Growth\u00a0(1)\n(Favorable)/Unfavorable\nExcluding Acquisitions/Divestitures (2)\nVista\n$\n1,613,887\u00a0\n$\n1,514,909\u00a0\n7%\n2%\n9%\n\u2014%\n9%\nPrintBrothers\n578,431\u00a0\n526,952\u00a0\n10%\n8%\n18%\n(1)%\n17%\nThe Print Group\n346,949\u00a0\n329,590\u00a0\n5%\n8%\n13%\n\u2014%\n13%\nNational Pen\n366,294\u00a0\n341,832\u00a0\n7%\n5%\n12%\n\u2014%\n12%\nAll Other Businesses\n213,455\u00a0\n205,862\u00a0\n4%\n\u2014%\n4%\n\u2014%\n4%\nInter-segment eliminations\n(39,389)\n(31,590)\nTotal revenue\n$\n3,079,627\u00a0\n$\n2,887,555\u00a0\n7%\n4%\n11%\n\u2014%\n11%\nIn thousands\nYear Ended June 30, \nCurrency\nImpact:\nConstant-\nCurrency\nImpact of Acquisitions/Divestitures:\nConstant- Currency Revenue Growth \n2022\n2021\n%\n\u00a0Change\n(Favorable)/Unfavorable\nRevenue Growth\u00a0(1)\n(Favorable)/Unfavorable\nExcluding Acquisitions/Divestitures (2)\nVista\n$\n1,514,909\u00a0\n$\n1,428,255\u00a0\n6%\n1%\n7%\n(2)%\n5%\nPrintBrothers\n526,952\u00a0\n421,766\u00a0\n25%\n8%\n33%\n(1)%\n32%\nThe Print Group\n329,590\u00a0\n275,534\u00a0\n20%\n7%\n27%\n\u2014%\n27%\nNational Pen\n341,832\u00a0\n313,528\u00a0\n9%\n2%\n11%\n\u2014%\n11%\nAll Other Businesses\n205,862\u00a0\n192,038\u00a0\n7%\n\u2014%\n7%\n(4)%\n3%\nInter-segment eliminations\n(31,590)\n(55,160)\nTotal revenue\n$\n2,887,555\u00a0\n$\n2,575,961\u00a0\n12%\n3%\n15%\n(2)%\n13%\n_________________\n(1) Constant-currency revenue growth, a non-GAAP financial measure, represents the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-U.S. dollar denominated revenue generated in the current period using the prior year period\u2019s average exchange rate for each currency to the U.S. dollar. Our reportable segments-related growth is inclusive of inter-segment revenues, which are eliminated in our consolidated results.\n(2) Constant-currency revenue growth excluding acquisitions/divestitures, a non-GAAP financial measure, excludes revenue results for businesses in the period in which there is no comparable year-over-year revenue. Our reportable segments-related growth is inclusive of inter-segment revenues, which are eliminated in our consolidated results.\nWe have provided these non-GAAP financial measures because we believe they provide meaningful information regarding our results on a consistent and comparable basis for the periods presented. Management uses these non-GAAP financial measures, in addition to GAAP financial measures, to evaluate our operating results. These non-GAAP financial measures should be considered supplemental to and not a substitute for our reported financial results prepared in accordance with GAAP. \n29\nConsolidated Cost of Revenue\nCost of revenue includes materials used by our businesses to manufacture their products, payroll and related expenses for production and design services personnel, depreciation of assets used in the production process and in support of digital marketing service offerings, shipping, handling and processing costs, third-party production and design costs, costs of free products, and other related costs of products our businesses sell. \n\u00a0\nIn thousands\nYear Ended June 30, \n\u00a0\n2023\n2022\n2021\nCost of revenue\n$\n1,640,625\u00a0\n$\n1,492,726\u00a0\n$\n1,299,889\u00a0\n% of revenue\n53.3\u00a0\n%\n51.7\u00a0\n%\n50.5\u00a0\n%\nFor the year ended June 30, 2023, cost of revenue increased by $147.9 million as compared to the prior year, primarily due to additional variable cost increases driven by the constant-currency revenue growth described above, as well as continued effects of global supply chain challenges that resulted in increased costs for product substrates like paper, production materials like aluminum plates, freight and shipping charges, and energy costs. Although input costs were higher year over year, we started to see some easing across many product substrates during the second half of the current fiscal year, and we began to pass the anniversary of input cost increases, so the year-over-year impact lessened.\nCompensation costs were also higher due to the combination of a more competitive labor market and the inflationary environment in many jurisdictions where we operate. The compensation cost increases were partially offset by savings for a portion of the year that resulted from the March 2023 cost reduction actions. \nConsolidated Operating Expenses\nThe following table summarizes our comparative operating expenses for the following periods:\nIn thousands\n\u00a0\nYear Ended June 30, \n\u00a0\n2023\n2022\n2021\nTechnology and development expense\n$\n302,257\u00a0\n$\n292,845\u00a0\n$\n253,060\u00a0\n% of revenue\n9.8\u00a0\n%\n10.1\u00a0\n%\n9.8\u00a0\n%\nMarketing and selling expense\n$\n773,970\u00a0\n$\n789,241\u00a0\n$\n648,391\u00a0\n% of revenue\n25.1\u00a0\n%\n27.3\u00a0\n%\n25.2\u00a0\n%\nGeneral and administrative expense\n$\n209,246\u00a0\n$\n197,345\u00a0\n$\n195,652\u00a0\n% of revenue\n6.8\u00a0\n%\n6.8\u00a0\n%\n7.6\u00a0\n%\nAmortization of acquired intangible assets (1)\n$\n46,854\u00a0\n$\n54,497\u00a0\n$\n53,818\u00a0\n% of revenue\n1.5\u00a0\n%\n1.9\u00a0\n%\n2.1\u00a0\n%\nRestructuring expense\n$\n43,757\u00a0\n$\n13,603\u00a0\n$\n1,641\u00a0\n% of revenue\n1.4\u00a0\n%\n0.5\u00a0\n%\n0.1\u00a0\n%\nImpairment of Goodwill (2)\n$\n5,609\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n% of revenue\n0.2\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n_____________________\n(1) Refer to Note 8 in our accompanying consolidated financial statements for additional details relating to the amortization of acquired intangible assets.\n(2) During the fourth quarter of fiscal 2023, we recognized a goodwill impairment charge of $5.6 million, which related to one of our small businesses that is a part of our All Other Businesses reportable segment. Refer to Note 8 in the accompanying consolidated financial statements for additional details.\nTechnology and development expense\nTechnology and development expense consists primarily of payroll and related expenses for employees engaged in software and manufacturing engineering, information technology operations, and content development, as well as amortization of capitalized software and website development costs, including hosting of our websites, asset depreciation, patent amortization, and other technology infrastructure-related costs. Depreciation expense for information technology equipment that directly supports the delivery of our digital marketing services products is included in cost of revenue.\n30\nTechnology and development expenses increased by $9.4 million for the year ended June 30, 2023 as compared to the prior year. This increase is primarily driven by higher volume-related third-party technology costs due in part to increased customer demand. In addition, amortization expense from capitalized software increased $3.6\u00a0million, driven by the higher capitalized asset base, as well as other operating cost increases due to higher travel and training costs. These increases were partially offset by lower compensation costs year-over-year of $0.8\u00a0million, due to cost savings resulting from recent restructuring actions that reduced headcount, which more than offset increases from our inflation-adjusted annual merit cycle and market adjustments. We also benefited from lower building costs, driven by actions taken over the past year to further optimize our real estate footprint for many of our team members operating under a remote-first model.\nMarketing and selling expense\nMarketing and selling expense consists primarily of advertising and promotional costs; payroll and related expenses for our employees engaged in marketing, sales, customer support, and public relations activities; direct-mail advertising costs; and third-party payment processing fees. Our Vista, National Pen, and BuildASign businesses have higher marketing and selling costs as a percentage of revenue as compared to our PrintBrothers and The Print Group businesses due to differences in the customers that they serve.\nFor the year ended June 30, 2023, marketing and selling expenses decreased by $15.3 million as compared to the prior year. The decreased expense was due to lower compensation costs of $13.4\u00a0million due in part to recent cost reduction actions. Other cost decreases include lower third-party consulting spend, mainly in our Vista business, and less building costs driven by actions taken over the past year to further optimize our real estate footprint for many of our team members operating under a remote-first model. These cost decreases were partially offset by higher advertising spend of $9.3\u00a0million across Cimpress, including increases in mid- and upper-funnel spend, partially offset by lower performance advertising in Vista.\nGeneral and administrative expense\nGeneral and administrative expense consists primarily of transaction costs, including third-party professional fees, insurance, and payroll and related expenses of employees involved in executive management, finance, legal, strategy, human resources, and procurement.\nFor the year ended June 30, 2023, general and administrative expenses increased by $11.9 million as compared to the prior year. Compensation costs increased year over year from higher headcount and the impacts of our inflation-adjusted annual merit cycle, partially offset by savings from recent cost reduction actions. Other cost increases included higher travel and training costs and consulting spend. We also recognized an additional $2.2\u00a0million of expense related to the termination of one of our leased office locations as we continue to optimize our office footprint with many of our team members operating under a remote-first model. This incremental expense was partially offset by lower building costs due to the termination. The increases were partially offset by lower share-based compensation expense due to forfeitures from our recent restructuring actions, as well as favorability due to different timing of expense from our granting of restricted share units, or RSUs, and share options for most employees during the current year, as compared to performance share units, or PSUs, in prior years.\nRestructuring expense \nRestructuring costs include employee termination benefits, acceleration of share-based compensation, write-off of assets, costs to exit loss-making operations, and other related costs including third-party professional and outplacement services. All restructuring costs are excluded from segment and adjusted EBITDA.\nFor the year ended June 30, 2023, restructuring expenses increased by $30.2 million as compared to the prior year. This increase is largely driven by $30.2\u00a0million of costs related to the previously described action taken in our Vista business and central teams during March 2023 that were intended to reduce costs and support expanded profitability, reduced leverage, and increased speed, focus, and accountability. The remaining increase relates to other actions announced in the fourth quarter of fiscal year 2022 to prioritize our investments and exit the Japanese and Chinese markets. Refer to Note 18 in the accompanying consolidated financial statements for additional details.\nOther Consolidated Results\nOther income, net\nOther income, net generally consists of gains and losses from currency exchange rate fluctuations on \n31\ntransactions or balances denominated in currencies other than the functional currency of our subsidiaries, as well as the realized and unrealized gains and losses on some of our derivative instruments. In evaluating our currency hedging programs and ability to qualify for hedge accounting in light of our legal entity cash flows, we considered the benefits of hedge accounting relative to the additional economic cost of trade execution and administrative burden. Based on this analysis, we execute certain currency derivative contracts that do not qualify for hedge accounting. \nThe following table summarizes the components of other income (expense), net: \nIn thousands\n\u00a0\nYear Ended June 30, \n2023\n2022\n2021\nGains (losses) on derivatives not designated as hedging instruments\n$\n3,311\u00a0\n$\n58,148\u00a0\n$\n(20,728)\nCurrency-related gains, net\n16,350\u00a0\n244\u00a0\n1,005\u00a0\nOther (losses) gains\n(1,163)\n3,071\u00a0\n370\u00a0\nTotal other income (expense), net\n$\n18,498\u00a0\n$\n61,463\u00a0\n$\n(19,353)\nThe decrease in other income (expense), net was primarily due to the currency exchange rate volatility impacting our derivatives that are not designated as hedging instruments, of which our Euro and British Pound contracts are the most significant exposures that we economically hedge. We expect volatility to continue in future periods, as we do not apply hedge accounting for most of our derivative currency contracts. \nWe experienced currency-related net gains due to currency exchange rate volatility on our non-functional currency intercompany relationships, which we may alter from time to time. The impact of certain cross-currency swap contracts designated as cash flow hedges is included in our currency-related gains, net, offsetting the impact of certain non-functional currency intercompany relationships.\nInterest expense, net\nInterest expense, net primarily consists of interest paid on outstanding debt balances, amortization of debt issuance costs, debt discounts, interest related to finance lease obligations, accretion adjustments related to our mandatorily redeemable noncontrolling interests, and realized gains (losses) on effective interest rate swap contracts and certain cross-currency swap contracts.\nInterest expense, net increased by $13.4 million during the year ended June 30, 2023 as compared to the prior year, primarily due to a higher weighted-average interest rate (net of interest rate swaps) and partially offset by an increase in interest income earned on our cash and marketable securities of $7.7\u00a0million. In addition, we recognized expense related to accretion adjustments of $2.3\u00a0million during the year ended June 30, 2023 for our mandatorily redeemable noncontrolling interests, which did not occur in the prior year.\nIncome tax expense\nIn thousands\n\u00a0\nYear Ended June 30, \n\u00a0\n2023\n2022\n2021\nIncome tax expense\n$\n155,493\u00a0\n$\n59,901\u00a0\n$\n18,903\u00a0\nEffective tax rate\n(514.5)\n%\n642.0\u00a0\n%\n(29.7)\n%\nIncome tax expense increased for the year ended June 30, 2023 versus the prior comparable period primarily due to recording a full valuation allowance during the year ended June 30, 2023 of $116.7 million on Swiss deferred tax assets related to Swiss Tax Reform benefits recognized in fiscal year 2020 and tax loss carryforwards, partially offset by a partial valuation allowance on Swiss deferred tax assets of $29.6 million recorded during the year ended June 30, 2022. Management concluded in the second quarter of this fiscal year that based on current period results at that time, that objective and verifiable negative evidence of recent losses in Switzerland outweighed more subjective positive evidence of anticipated future income.\nWe believe that our income tax reserves are adequately maintained by taking into consideration both the technical merits of our tax return positions and ongoing developments in our income tax audits. However, the final determination of our tax return positions, if audited, is uncertain, and therefore there is a possibility that final \n32\nresolution of these matters could have a material impact on our results of operations or cash flows. Refer to Note 13 in our accompanying consolidated financial statements for additional discussion.\nReportable Segment Results\nOur segment financial performance is measured based on segment EBITDA, which is defined as operating income plus depreciation and amortization; plus proceeds from insurance; plus share-based compensation expense related to investment consideration; plus earn-out related charges; plus certain impairments; plus restructuring related charges; less gain on purchase or sale of subsidiaries. The effects of currency exchange rate fluctuations impact segment EBITDA and we do not allocate to segment EBITDA any gains or losses that are realized by our currency hedging program.\nVista\nIn thousands\n\u00a0\nYear Ended June 30, \n\u00a0\n2023\n2022\n2021\n2023 vs. 2022\n2022 vs. 2021\nReported Revenue\n$\n1,613,887\u00a0\n$\n1,514,909\u00a0\n$\n1,428,255\u00a0\n7%\n6%\nSegment EBITDA\n224,081\u00a0\n195,321\u00a0\n318,684\u00a0\n15%\n(39)%\n% of revenue\n14\u00a0\n%\n13\u00a0\n%\n22\u00a0\n%\nSegment Revenue\nVista's reported revenue growth for the year ended June 30, 2023 was negatively affected by a currency impact of 2%, and organic constant-currency revenue growth was 9%. Constant-currency revenue growth was driven by new customer count and new customer bookings growth across all major markets, as well as increased repeat customer bookings and higher average order values. From a product perspective, the strongest growth was in the promotional products, apparel, and gifts (PPAG) category, as well as business cards, marketing materials, packaging, and signage. Revenue from consumer oriented products that include holiday cards, invitations, and announcements declined, particularly in the U.S. market, which had a more pronounced impact during our seasonally significant second quarter. For the year ended June 30, 2023, revenue growth described above was partially offset by a decline in face mask sales of $10.3\u00a0million as well as lower revenue year over year of $7.2\u00a0million due to our exit from the Japanese market.\nSegment Profitability\nFor the year ended June 30, 2023, segment EBITDA increased by $28.8\u00a0million, due in part to gross profit growth as a result of the revenue growth described above. Cost inflation had a negative impact on gross profit year over year, but the impacts were more pronounced during the first half of fiscal year 2023, as input costs have started to stabilize and further price increases have been implemented throughout the current fiscal year. Product mix weighed on Vista's gross margins during the current fiscal year, since the fastest growth was in product categories like PPAG that have lower gross margins despite higher average order values. Vista's advertising expense decreased by $1.1\u00a0million year over year, driven by reductions to performance advertising spend during the second half of the fiscal year, which were offset in part by higher mid- and upper funnel advertising spend, mainly during the first half of fiscal year 2023. Operating expenses also decreased $13.8\u00a0million, largely due to a partial year of cost savings of approximately $20.0\u00a0million that resulted from cost reduction actions implemented in March 2023. Changes in currency exchange rates had a negative impact year over year. \n33\nPrintBrothers\n\u00a0\nIn thousands\nYear Ended June 30, \n\u00a0\n2023\n2022\n2021\n2023 vs. 2022\n2022 vs. 2021\nReported Revenue\n$\n578,431\u00a0\n$\n526,952\u00a0\n$\n421,766\u00a0\n10%\n25%\nSegment EBITDA\n70,866\u00a0\n66,774\u00a0\n43,144\u00a0\n6%\n55%\n% of revenue\n12\u00a0\n%\n13\u00a0\n%\n10\u00a0\n%\nSegment Revenue\nPrintBrothers' reported revenue growth for the year ended June 30, 2023 was negatively affected by currency impacts of 8%. When excluding the benefit from a small recent acquisition, organic constant-currency revenue growth was 17%. This strong performance was driven by growth in order volumes and price increases implemented to address inflationary cost increases. \nSegment Profitability\nDespite a challenging supply chain and inflationary environment, PrintBrothers' segment EBITDA for the year ended June 30, 2023 grew year over year, driven by the constant-currency revenue growth described above, as well as profit contribution from a business acquired in the last twelve months. Currency exchange fluctuations negatively impacted segment EBITDA year over year by $3.8\u00a0million. We continue to focus on key areas within these businesses to exploit scale advantages and improve their cost competitiveness. These businesses also continue to adopt technologies that are part of our mass customization platform, which we believe will further improve customer value and the efficiency of each business over the long term. \nThe Print Group\n\u00a0\nIn thousands\nYear Ended June 30, \n\u00a0\n2023\n2022\n2021\n2023 vs. 2022\n2022 vs. 2021\nReported Revenue\n$\n346,949\u00a0\n$\n329,590\u00a0\n$\n275,534\u00a0\n5%\n20%\nSegment EBITDA\n60,089\u00a0\n58,664\u00a0\n43,126\u00a0\n2%\n36%\n% of revenue\n17\u00a0\n%\n18\u00a0\n%\n16\u00a0\n%\nSegment Revenue\nThe Print Group's reported revenue for the year ended June 30, 2023 was negatively affected by a currency impact of 8%, resulting in an increase to revenue on a constant-currency basis of\n \n13%. Constant-currency revenue growth was largely driven by price increases that have been implemented over the past year to address inflationary cost increases, as well as volume growth and increased order fulfillment for other Cimpress businesses.\nSegment Profitability\nThe increase in The Print Group's segment EBITDA during the year ended June 30, 2023 as compared to the prior year was largely due to the revenue growth described above, despite higher input costs that are impacted by supply chain disruptions and higher shipping and energy costs, which had a larger impact during the first half of fiscal year 2023. Currency exchange fluctuations negatively impacted segment EBITDA year over year by $3.9\u00a0million.\nNational Pen\nIn thousands\nYear Ended June 30, \n\u00a0\n2023\n2022\n2021\n2023 vs. 2022\n2022 vs. 2021\nReported Revenue\n$\n366,294\u00a0\n$\n341,832\u00a0\n$\n313,528\u00a0\n7%\n9%\nSegment EBITDA\n23,714\u00a0\n26,845\u00a0\n11,644\u00a0\n(12)%\n131%\n% of revenue\n6\u00a0\n%\n8\u00a0\n%\n4\u00a0\n%\n34\nSegment\n \nRevenue\nFor the year ended June 30, 2023, National Pen's revenue growth was negatively affected by currency impacts of 5%, resulting in constant-currency revenue growth of 12%. Constant-currency revenue growth was driven by price increases that have been implemented over the past year to address inflationary cost increases, as well as volume growth in new product categories that include bags and drinkware. Year-over-year revenue growth was negatively impacted by our exit from the Japanese market by approximately\n \n$11.7\u00a0million\n \nas well as the decline in face mask sales of approximately $9.2\u00a0million.\nSegment Profitability\nThe decrease in National Pen's segment EBITDA for the year ended June 30, 2023 was driven by currency exchange fluctuations that negatively impacted segment EBITDA year over year by $8.1\u00a0million. Excluding the effect of currency, segment EBITDA grew, as a result of contribution profit growth that was due to the revenue growth described above. During the current fiscal year, duplicative costs from the migration of European manufacturing from Ireland to the Czech Republic lessened contribution profit growth versus the prior year. Additionally, operating expenses increased year over year due to higher tech spend and customer service costs driven by higher sales volumes, which partially offset the contribution profit growth described above.\nAll Other Businesses\n\u00a0\nIn thousands\nYear Ended June 30, \n\u00a0\n2023\n2022\n2021\n2023 vs. 2022\n2022 vs. 2021\nReported Revenue \n$\n213,455\u00a0\n$\n205,862\u00a0\n$\n192,038\u00a0\n4%\n7%\nSegment EBITDA\n25,215\u00a0\n23,227\u00a0\n31,707\u00a0\n9%\n(27)%\n% of revenue\n12\u00a0\n%\n11\u00a0\n%\n17\u00a0\n%\nThis segment includes BuildASign, which is a larger and profitable business, and Printi, an early-stage business that we have managed at a relatively modest operating loss as previously described and planned. This segment also included results from our YSD business in China that was divested during the third quarter of fiscal year 2023.\nSegment Revenue\nAll Other Businesses' constant-currency revenue growth was 4% during the year ended June 30, 2023. BuildASign generates the majority of revenue in this segment, and grew year over year with mixed performance by product line. Printi delivered strong revenue growth across product lines and channels supported by price increases implemented over the past year.\nSegment Profitability\nThe increase in segment EBITDA for the year ended June 30, 2023, as compared to the prior year, was primarily due to the recent divestiture of our small, loss making business in China (YSD), which we completed during the third quarter of fiscal year 2023. Segment EBITDA for our BuildASign business declined due to lower gross margins driven by higher input costs, including increased labor and marketing costs, which had a larger impact on BuildASign's home decor products.\nCentral and Corporate Costs\nCentral and corporate costs consist primarily of the team of software engineers that is building our mass customization platform; shared service organizations such as global procurement; technology services such as security; administrative costs of our Cimpress India offices where numerous Cimpress businesses have dedicated business-specific team members; and corporate functions including our tax, treasury, internal audit, legal, sustainability, corporate communications, remote first enablement, consolidated reporting and compliance, investor relations, and the functions of our CEO and CFO. These costs also include certain unallocated share-based compensation costs. \nCentral and corporate costs decreased by $10.4 million during the year ended June 30, 2023 as compared to the prior year, driven by favorability from unallocated share-based compensation due to changes in the mix of \n35\nequity instruments granted and forfeitures from recent cost reduction actions. In addition, compensation costs decreased due to savings from recent cost reduction actions, which more than offset the effect of our inflation-adjusted annual merit cycle and higher volume-related technology costs.\nLiquidity and Capital Resources\nConsolidated Statements of Cash Flows Data\nIn thousands\n\u00a0\nYear Ended June 30, \n\u00a0\n2023\n2022\n2021\nNet cash provided by operating activities\n$\n130,289\u00a0\n$\n219,536\u00a0\n$\n265,221\u00a0\nNet cash used in investing activities\n(103,725)\n(3,997)\n(354,316)\nNet cash (used in) provided by financing activities\n(177,106)\n(106,572)\n224,128\u00a0\nThe cash flows during the year ended June 30, 2023 related primarily to the following items: \nCash inflows:\n \n\u2022\nAdjustments for non-cash items of $353.9 million primarily related to adjustments for depreciation and amortization of $162.4 million, deferred taxes of $114.9 million, share-based compensation costs of $42.1 million, and unrealized currency-related losses of $22.4 million\n\u2022\nProceeds from the maturity of held-to-maturity securities of $8.1 million, net of purchases\nCash outflows:\n\u2022\nNet loss of $185.7 million\n\u2022\nExercise of PrintBrothers and BuildASign minority equity interest holders' put options for $95.6 million; refer to Note 14 in the accompanying consolidated financial statements for additional details\n\u2022\nInternal and external costs of $57.8 million for software and website development that we have capitalized \n\u2022\nCapital expenditures of $53.8 million, of which the majority related to the purchase of manufacturing and automation equipment for our production facilities\n\u2022\nRepurchases of a portion of our 7.0% Senior Notes due 2026 (the \"2026 Notes\") of $45.0\u00a0million. Refer to Note 10 in the accompanying consolidated financial statements for additional details.\n\u2022\nTotal outflow from net working capital of $37.9 million, primarily due to timing impacts from unfavorable changes to accounts payable and accrued expenses.\n\u2022\nRepayments of debt, net of proceeds from borrowings, of $13.0 million\n\u2022\nPayments for finance lease arrangements of $8.3 million\n\u2022\n$6.9 million for the payment of purchase consideration included in the Depositphotos acquisition's fair value\n\u2022\nPayment of withholding taxes in connection with share awards of $4.4 million\n\u2022\n$3.7 million of distributions to noncontrolling interest holders\nAdditional Liquidity and Capital Resources Information. \nAt June\u00a030, 2023, we had $130.3 million of cash and cash equivalents, $43.0 million of marketable securities, and $1,654.0 million of debt, excluding debt issuance costs and debt premiums and discounts. During the year ended June 30, 2023, we financed our operations and strategic investments through internally generated cash flows from operations and cash on hand. We expect to finance our future operations through our cash, investments, operating cash flow, and borrowings under our debt arrangements.\n36\nIn light of our recently implemented cost savings measures and our expectation of continued profitability expansion and cash flow generation, we expect our liquidity to increase in fiscal year 2024. We have historically used excess cash and cash equivalents for organic investments, share repurchases, acquisitions and equity investments, and debt reduction. During the fourth quarter of fiscal year 2023, we allocated $45.0\u00a0million of capital toward the repurchase of a portion of our 2026 Notes. We expect to continue reducing our net leverage through fiscal year 2024. Beyond fiscal year 2024, we expect to have the flexibility to opportunistically deploy\ncapital that enhances our intrinsic value per share even while maintaining leverage similar to or below our pre-pandemic levels.\nIndefinitely Reinvested Earnings. \nAs of June\u00a030, 2023, a portion of our cash and cash equivalents were held by our subsidiaries, and undistributed earnings of our subsidiaries that are considered to be indefinitely reinvested were $56.3\u00a0million. We do not intend to repatriate these funds as the cash and cash equivalent balances are generally used and available, without legal restrictions, to fund ordinary business operations and investments of the respective subsidiaries. If there is a change in the future, the repatriation of undistributed earnings from certain subsidiaries, in the form of dividends or otherwise, could have tax consequences that could result in material cash outflows.\nContractual Obligations\nContractual obligations at June\u00a030, 2023 are as follows:\nIn thousands\u00a0\nPayments Due by Period\nTotal\nLess\nthan 1\nyear\n1-3\nyears\n3-5\nyears\nMore\nthan 5\nyears\nOperating leases, net of subleases (1)\n$\n83,137\u00a0\n$\n22,907\u00a0\n$\n30,313\u00a0\n$\n12,927\u00a0\n$\n16,990\u00a0\nPurchase commitments\n222,860\u00a0\n140,527\u00a0\n56,375\u00a0\n14,958\u00a0\n11,000\u00a0\n2026 Notes and interest payments\n663,443\u00a0\n38,381\u00a0\n625,062\u00a0\n\u2014\u00a0\n\u2014\u00a0\nSenior secured credit facility and interest payments (2)\n1,493,444\u00a0\n95,483\u00a0\n188,515\u00a0\n1,209,446\u00a0\n\u2014\u00a0\nOther debt\n7,076\u00a0\n2,853\u00a0\n3,783\u00a0\n440\u00a0\n\u2014\u00a0\nFinance leases, net of subleases (1)\n38,379\u00a0\n9,727\u00a0\n9,606\u00a0\n5,736\u00a0\n13,310\u00a0\nTotal\u00a0(3)\n$\n2,508,339\u00a0\n$\n309,878\u00a0\n$\n913,654\u00a0\n$\n1,243,507\u00a0\n$\n41,300\u00a0\n___________________\n(1) Operating and finance lease payments above include only amounts which are fixed under lease agreements. Our leases may also incur variable expenses which are not reflected in the contractual obligations above.\n(2) Senior secured credit facility and interest payments include the effects of interest rate swaps, whether they are expected to be payments or receipts of cash. \n(3) We may be required to make cash outlays related to our uncertain tax positions. However, due to the uncertainty of the timing of future cash flows associated with our uncertain tax positions, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, uncertain tax positions of $10.1 million as of June\u00a030, 2023 have been excluded from the contractual obligations table above. See Note 13 in our accompanying consolidated financial statements for further information on uncertain tax positions.\nOperating Leases\n. We rent manufacturing facilities and office space under operating leases expiring on various dates through 2037. The terms of certain lease agreements require security deposits in the form of bank guarantees and letters of credit, with $1.5 million in the aggregate outstanding as of June\u00a030, 2023\n.\nPurchase Commitments.\n\u00a0At June\u00a030, 2023, we had unrecorded commitments under contract of $222.9 million. Purchase commitments consisted of third-party fulfillment and digital services of $100.3 million; third-party cloud services of $74.9 million; software of $13.7 million; advertising of $10.1 million; commitments for professional and consulting fees of $6.2 million; production and computer equipment purchases of $3.9 million, and other commitments of $13.8 million.\nSenior Secured Credit Facility and Interest Payments.\n As of June\u00a030, 2023, we have borrowings under our amended and restated senior secured credit agreement (\"Restated Credit Agreement\") of $1,098.6 million, consisting of the Term Loan B, which amortizes over the loan period, with a final maturity date of May 17, 2028. Our $250.0\u00a0million senior secured revolving credit facility with a maturity date of May 17, 2026 (the \u201cRevolving Credit Facility\") under our Restated Credit Agreement has $244.2 million unused as of June\u00a030, 2023. There are no drawn amounts on the Revolving Credit Facility, but our outstanding letters of credit reduce our unused balance. Our \n37\nunused balance can be drawn at any time so long as we are in compliance with our debt covenants and if any loans made under the Revolving Credit Facility are outstanding on the last day of any fiscal quarter, then we are subject to a financial maintenance covenant that the First Lien Leverage Ratio (as defined in the Restated Credit Agreement) calculated as of the last day of such quarter shall not exceed 3.25 to 1.00. Any amounts drawn under the Revolving Credit Facility will be due on May 17, 2026. Interest payable included in the above table is based on the interest rate as of June\u00a030, 2023 and assumes all LIBOR-based revolving loan amounts outstanding will not be paid until maturity but that the term loan amortization payments will be made according to our defined schedule. The LIBOR sunset occurred on June 30, 2023, and, under the terms of our Restated Credit Agreement, our benchmark rate transitioned to Term SOFR in July 2023.\n2026 Notes and Interest Payments. \nOur $548.3\u00a0million 2026 Notes bear interest at a rate of 7.0%\u00a0per annum and mature on June 15, 2026. Interest on the notes is payable semi-annually on June 15 and December 15 of each year. \nDebt Covenants.\n The Restated Credit Agreement and the indenture that governs our 2026 Notes contain covenants that restrict or limit certain activities and transactions by Cimpress and our subsidiaries. As of June\u00a030, 2023, we were in compliance with all covenants under our Restated Credit Agreement and the indenture governing our 2026 Notes. Refer to Note 10 in our accompanying consolidated financial statements for additional information.\nOther Debt.\n In addition, we have other debt which consists primarily of term loans acquired through our various acquisitions or used to fund certain capital investments. As of June\u00a030, 2023, we had $7.1\u00a0million outstanding for those obligations that have repayments due on various dates through September 2027.\nFinance Leases.\n We lease certain facilities, machinery, and plant equipment under finance lease agreements that expire at various dates through 2028. The aggregate carrying value of the leased equipment under finance leases included in property, plant and equipment, net in our consolidated balance sheet at June\u00a030, 2023 is $30.6 million, net of accumulated depreciation of $36.5 million. The present value of lease installments not yet due included in other current liabilities and other liabilities in our consolidated balance sheet at June\u00a030, 2023 amounts to $39.8 million.\nOther Obligations.\n During fiscal year 2023, we made a $6.9 million deferred payment for our Depositphotos acquisition, and there were no outstanding acquisition-related deferred liabilities as of June\u00a030, 2023.\nAdditional Non-GAAP Financial Measures \nAdjusted EBITDA and adjusted free cash flow presented below, and constant-currency revenue growth and constant-currency revenue growth excluding acquisitions/divestitures presented in the consolidated results of operations section above, are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. Adjusted EBITDA is defined as GAAP operating income plus depreciation and amortization plus share-based compensation expense plus proceeds from insurance not already included in operating income plus earn-out related charges plus certain impairments plus restructuring related charges plus realized gains or losses on currency derivatives less the gain or loss on purchase or sale of subsidiaries as well as the disposal of assets.\nAdjusted EBITDA is the primary profitability metric by which we measure our consolidated financial performance and is provided to enhance investors' understanding of our current operating results from the underlying and ongoing business for the same reasons it is used by management. For example, for acquisitions, we believe excluding the costs related to the purchase of a business (such as amortization of acquired intangible assets, contingent consideration, or impairment of goodwill) provides further insight into the performance of the underlying acquired business in addition to that provided by our GAAP operating income. As another example, as we do not apply hedge accounting for certain derivative contracts, we believe inclusion of realized gains and losses on these contracts that are intended to be matched against operational currency fluctuations provides further insight into our operating performance in addition to that provided by our GAAP operating income. We do not, nor do we suggest, that investors should consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.\nAdjusted free cash flow is the primary financial metric by which we set quarterly and annual budgets both for individual businesses and Cimpress-wide. Adjusted free cash flow is defined as net cash provided by operating activities less purchases of property, plant and equipment, purchases of intangible assets not related to acquisitions, \n38\nand capitalization of software and website development costs that are included in net cash used in investing activities, plus the payment of contingent consideration in excess of acquisition-date fair value and gains on proceeds from insurance that are included in net cash provided by operating activities, if any. We use this cash flow metric because we believe that this methodology can provide useful supplemental information to help investors better understand our ability to generate cash flow after considering certain investments required to maintain or grow our business, as well as eliminate the impact of certain cash flow items presented as operating cash flows that we do not believe reflect the cash flow generated by the underlying business.\nOur adjusted free cash flow measure has limitations as it may omit certain components of the overall cash flow statement and does not represent the residual cash flow available for discretionary expenditures. For example, adjusted free cash flow does not incorporate our cash payments to reduce the principal portion of our debt or cash payments for business acquisitions. Additionally, the mix of property, plant and equipment purchases that we choose to finance may change over time. We believe it is important to view our adjusted free cash flow measure only as a complement to our entire consolidated statement of cash flows. \nThe table below sets forth operating income and adjusted EBITDA for the years ended June 30, 2023, 2022, and 2021:\nIn thousands\nYear Ended June 30, \n2023\n2022\n2021\nGAAP operating income\n$\n57,309\u00a0\n$\n47,298\u00a0\n$\n123,510\u00a0\nExclude expense (benefit) impact of:\nDepreciation and amortization\n162,428\u00a0\n175,681\u00a0\n173,212\u00a0\nProceeds from insurance\n\u2014\u00a0\n\u2014\u00a0\n122\u00a0\nShare-based compensation expense\n39,682\u00a0\n49,766\u00a0\n37,034\u00a0\nCertain impairments and other adjustments\n6,932\u00a0\n(9,709)\n20,453\u00a0\nRestructuring-related charges\n43,757\u00a0\n13,603\u00a0\n1,641\u00a0\nRealized gains (losses) on currency derivatives not included in operating income (1)\n29,724\u00a0\n4,424\u00a0\n(6,854)\nAdjusted EBITDA\n$\n339,832\u00a0\n$\n281,063\u00a0\n$\n349,118\u00a0\n_________________\n(1) These realized gains (losses) include only the impacts of certain currency derivative contracts that are intended to hedge our adjusted EBITDA exposure to foreign currencies for which we do not apply hedge accounting. See Note 4 in our accompanying consolidated financial statements for further information.\nThe table below sets forth net cash provided by operating activities and adjusted free cash flow for the years ended June 30, 2023, 2022, and 2021:\nIn thousands\nYear Ended June 30, \n2023\n2022\n2021\nNet cash provided by operating activities\n$\n130,289\u00a0\n$\n219,536\u00a0\n$\n265,221\u00a0\nPurchases of property, plant and equipment\n(53,772)\n(54,040)\n(38,524)\nCapitalization of software and website development costs\n(57,787)\n(65,297)\n(60,937)\nAdjusted free cash flow\n$\n18,730\u00a0\n$\n100,199\u00a0\n$\n165,760\u00a0\nCritical Accounting Policies and Estimates \nOur financial statements are prepared in accordance with U.S. generally accepted accounting principles (\u201cGAAP\u201d). To apply these principles, we must make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In some instances, we reasonably could have used different accounting estimates and, in other instances, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from our estimates. We base our estimates and judgments on historical experience and other assumptions that we believe to be reasonable at the time under the circumstances, and we evaluate these estimates and judgments on an ongoing basis. We refer to accounting estimates and judgments of this type as critical accounting policies and estimates, which we discuss further below. This section should be read in conjunction with Note 2, \"Summary of Significant Accounting Policies,\" of our audited consolidated financial statements included elsewhere in this Report. \n39\nRevenue Recognition\n. We generate revenue primarily from the sale and shipment of customized manufactured products. To a much lesser extent (and only in our Vista business) we provide digital services, website design and hosting, and email marketing services, as well as a small percentage from order referral fees and other third-party offerings. Revenues are recognized when control of the promised products or services is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. \nUnder the terms of most of our arrangements with our customers we provide satisfaction guarantees, which give our customers an option for a refund or reprint over a specified period of time if the customer is not fully satisfied. As such, we record a reserve for estimated sales returns and allowances as a reduction of revenue, based on historical experience or the specific identification of an event necessitating a reserve. Actual sales returns have historically not been significant. \nWe have elected to recognize shipping and handling activities that occur after transfer of control of the products as fulfillment activities and not as a separate performance obligation. Accordingly, we recognize revenue for our single performance obligation upon the transfer of control of the fulfilled orders, which generally occurs upon delivery to the shipping carrier. If revenue is recognized prior to completion of the shipping and handling activities, we accrue the costs of those activities. We do have some arrangements whereby the transfer of control, and thus revenue recognition, occurs upon delivery to the customer. If multiple products are ordered together, each product is considered a separate performance obligation, and the transaction price is allocated to each performance obligation based on the standalone selling price. Revenue is recognized upon satisfaction of each performance obligation. We generally determine the standalone selling prices based on the prices charged to our customers. \nOur products are customized for each individual customer with no alternative use except to be delivered to that specific customer; however, we do not have an enforceable right to payment prior to delivering the items to the customer based on the terms and conditions of our arrangements with customers, and therefore we recognize revenue at a point in time.\nWe record deferred revenue when cash payments are received in advance of our satisfaction of the related performance obligation. The satisfaction of performance obligations generally occur shortly after cash payment and we expect to recognize the majority of our deferred revenue balance as revenue within three months subsequent to June 30, 2023.\nWe periodically provide marketing materials and promotional offers to new customers and existing customers that are intended to improve customer retention. These incentive offers are generally available to all customers, and therefore do not represent a performance obligation as customers are not required to enter into a contractual commitment to receive the offer. These discounts are recognized as a reduction to the transaction price when used by the customer. Costs related to free products are included within cost of revenue and sample products are included within marketing and selling expense.\nWe have elected to apply the practical expedient under ASC 340-40-25-4 to expense incremental direct costs as incurred, which primarily includes sales commissions, since our contract periods generally are less than one year and the related performance obligations are satisfied within a short period of time. \nShare-Based Compensation\n. We measure share-based compensation costs at fair value, and recognize the expense over the period that the recipient is required to provide service in exchange for the award, which generally is the vesting period. We recognize the impact of forfeitures as they occur. \nOur performance share units, or PSUs, are estimated at fair value on the date of grant, which is fixed throughout the vesting period. The fair value is determined using a Monte Carlo simulation valuation model. As the PSUs include both a service and market condition, the related expense is recognized using the accelerated expense attribution method over the requisite service period for each separately vesting portion of the award. For PSUs that meet the service vesting condition, the expense recognized over the requisite service period will not be reversed if the market condition is not achieved. The compensation expense for these awards is estimated at fair value using a Monte Carlo simulation valuation model and compensation costs are recorded only if it is probable that the performance condition will be achieved. \n40\nIncome Taxes\n. As part of the process of preparing our consolidated financial statements, we calculate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax expense, including assessing the risks associated with tax positions, together with assessing temporary and permanent differences resulting from differing treatment of items for tax and financial reporting purposes. We recognize deferred tax assets and liabilities for the temporary differences using the enacted tax rates and laws that will be in effect when we expect temporary differences to reverse. We assess the ability to realize our deferred tax assets based upon the weight of available evidence both positive and negative. To the extent we believe that it is more likely than not that some portion or all of the deferred tax assets will not be realized, we establish a valuation allowance. Our estimates can vary due to the profitability mix of jurisdictions, foreign exchange movements, changes in tax law, regulations or accounting principles, as well as certain discrete items. In the event that actual results differ from our estimates or we adjust our estimates in the future, we may need to increase or decrease income tax expense, which could have a material impact on our financial position and results of operations.\nWe establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are in accordance with applicable tax laws. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, new tax legislation, or the change of an estimate based on new information. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. Interest and, if applicable, penalties related to unrecognized tax benefits are recorded in the provision for income taxes.\nSoftware and Website Development Costs\n. We capitalize eligible salaries and payroll-related costs of employees and third-party consultants who devote time to the development of our websites and internal-use computer software. Capitalization begins when the preliminary project stage is complete, management with the relevant authority authorizes and commits to the funding of the software project, and it is probable that the project will be completed and the software will be used to perform the function intended. These costs are amortized on a straight-line basis over the estimated useful life of the software, which is three years. Our judgment is required in evaluating whether a project provides new or additional functionality, determining the point at which various projects enter the stages at which costs may be capitalized, assessing the ongoing value and impairment of the capitalized costs, and determining the estimated useful lives over which the costs are amortized. Historically we have not had any significant impairments of our capitalized software and website development costs. \nBusiness Combinations\n. We recognize the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The fair value of identifiable intangible assets is based on detailed cash flow valuations that use information and assumptions provided by management. The valuations are dependent upon a myriad of factors including historical financial results, forecasted revenue growth rates, estimated customer renewal rates, projected operating margins, royalty rates, and discount rates. We estimate the fair value of any contingent consideration at the time of the acquisition using all pertinent information known to us at the time to assess the probability of payment of contingent amounts or through the use of a Monte Carlo simulation model. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill. The assumptions used in the valuations for our acquisitions may differ materially from actual results depending on performance of the acquired businesses and other factors. While we believe the assumptions used were appropriate, different assumptions in the valuation of assets acquired and liabilities assumed could have a material impact on the timing and extent of impact on our statements of operations. \nGoodwill is assigned to reporting units as of the date of the related acquisition. If goodwill is assigned to more than one reporting unit, we utilize a method that is consistent with the manner in which the amount of goodwill in a business combination is determined. Costs related to the acquisition of a business are expensed as incurred. \nGoodwill, Indefinite-Lived Intangible Assets, and Other Definite Lived Long-Lived Assets\n. We evaluate goodwill and indefinite-lived intangible assets for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We consider the timing of our most recent fair value assessment and associated headroom, the actual operating results as compared to the cash flow forecasts used in those fair value assessments, the current long-term forecasts for each reporting unit, and the general market and economic environment of each reporting unit. In addition to the specific factors mentioned above, we assess the following individual factors on an ongoing basis such as: \n41\n\u2022      A significant adverse change in legal factors or the business climate; \n\u2022      An adverse action or assessment by a regulator; \n\u2022      Unanticipated competition; \n\u2022      A loss of key personnel; and \n\u2022      A more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of.\nIf the results of the qualitative analysis were to indicate that the fair value of a reporting unit is less than its carrying value, the quantitative test is required. Under the quantitative approach, we estimate the fair values of our reporting units using a discounted cash flow methodology and in certain circumstances a market-based approach. This analysis requires significant judgment and is based on our strategic plans and estimation of future cash flows, which is dependent on internal forecasts. Our annual analysis also requires significant judgment including the identification and aggregation of reporting units, as well as the determination of our discount rate and perpetual growth rate assumptions. We are required to compare the fair value of the reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. For the year ended June 30, 2023, we recognized a goodwill impairment charge of $5,609. The charge is a partial impairment of the goodwill for one of our small reporting units within our All Other Businesses reportable segment. There were no impairments identified for any other reporting units.\nWe are required to evaluate the estimated useful lives and recoverability of definite lived long-lived assets (for example, customer relationships, developed technology, property, and equipment) on an ongoing basis when indicators of impairment are present. For purposes of the recoverability test, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The test for recoverability compares the undiscounted future cash flows of the long-lived asset group to its carrying value. If the carrying values of the long-lived asset group exceed the undiscounted future cash flows, the assets are considered to be potentially impaired. The next step in the impairment measurement process is to determine the fair value of the individual net assets within the long-lived asset group. If the aggregate fair values of the individual net assets of the group are less than the carrying values, an impairment charge is recorded equal to the excess of the aggregate carrying value of the group over the aggregate fair value. The loss is allocated to each long-lived asset within the group based on their relative carrying values, with no asset reduced below its fair value. The identification and evaluation of a potential impairment requires judgment and is subject to change if events or circumstances pertaining to our business change. We evaluated our long-lived assets for impairment during the year ended June\u00a030, 2023, and we recognized no impairments. \nRecently Issued or Adopted Accounting Pronouncements \nSee Item 8 of Part II, \u201cFinancial Statements and Supplementary Data \u2014 Note 2 \u2014 Summary of Significant Accounting Policies \u2014 Recently Issued or Adopted Accounting Pronouncements.\"",
+  "item7a": ">Item 7A.          \nQuantitative and Qualitative Disclosures About Market Risk\nInterest Rate Risk.\n\u00a0Our exposure to interest rate risk relates primarily to our cash, cash equivalents, and debt. \nAs of June\u00a030, 2023, our cash and cash equivalents consisted of standard depository accounts, which are held for working capital purposes, money market funds, and marketable securities with an original maturity of less than 90 days. We do not believe we have a material exposure to interest rate fluctuations related to our cash and cash equivalents.\nAs of June\u00a030, 2023, we had\n \n$1,098.6 million of variable-rate debt. As a result, we have exposure to market risk for changes in interest rates related to these obligations. In order to mitigate our exposure to interest rate changes related to our variable-rate debt, we execute interest rate swap contracts to fix the interest rate on a portion \n42\nof our outstanding or forecasted long-term debt with varying maturities. As of June\u00a030, 2023, a hypothetical 100 basis point increase in rates, inclusive of the impact of our outstanding interest rate swaps that are accruing interest as of June\u00a030, 2023, would result in a $8.7\u00a0million impact to interest expense over the next 12 months. This does not include any yield from cash and marketable securities.\nCurrency Exchange Rate Risk.\n\u00a0We conduct business in multiple currencies through our worldwide operations but report our financial results in U.S.\u00a0dollars. We manage these currency risks through normal operating activities and, when deemed appropriate, through the use of derivative financial instruments. We have policies governing the use of derivative instruments and do not enter into financial instruments for trading or speculative purposes. The use of derivatives is intended to reduce, but does not entirely eliminate, the impact of adverse currency exchange rate movements. A summary of our currency risk is as follows:\n\u2022\nTranslation of our non-U.S.\u00a0dollar revenues and expenses:\n Revenue and related expenses generated in currencies other than the U.S.\u00a0dollar could result in higher or lower net loss when, upon consolidation, those transactions are translated to U.S.\u00a0dollars. When the value or timing of revenue and expenses in a given currency are materially different, we may be exposed to significant impacts on our net loss and non-GAAP financial metrics, such as adjusted EBITDA.\nOur currency hedging objectives are targeted at reducing volatility in our forecasted U.S. dollar-equivalent adjusted EBITDA in order to maintain stability on our incurrence-based debt covenants. Since adjusted EBITDA excludes non-cash items such as depreciation and amortization that are included in net loss, we may experience increased, not decreased, volatility in our GAAP results due to our hedging approach. Our most significant net currency exposures by volume are in the Euro and British Pound. \nIn addition, we elect to execute currency derivatives contracts that do not qualify for hedge accounting. As a result, we may experience volatility in our consolidated statements of operations due to (i) the impact of unrealized gains and losses reported in other income (expense), net, on the mark-to-market of outstanding contracts and (ii) realized gains and losses recognized in other income (expense), net, whereas the offsetting economic gains and losses are reported in the line item of the underlying activity, for example, revenue. \n\u2022\nTranslation of our non-U.S.\u00a0dollar assets and liabilities\n: Each of our subsidiaries translates its assets and liabilities to U.S.\u00a0dollars at current rates of exchange in effect at the balance sheet date. The resulting gains and losses from translation are included as a component of accumulated other comprehensive loss on the consolidated balance sheet. Fluctuations in exchange rates can materially impact the carrying value of our assets and liabilities. We have currency exposure arising from our net investments in foreign operations. We enter into currency derivatives to mitigate the impact of currency rate changes on certain net investments. \n\u2022\nRemeasurement of monetary assets and liabilities:\n Transaction gains and losses generated from remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of a subsidiary are included in other income (expense), net, on the consolidated statements of operations. Certain of our subsidiaries hold intercompany loans denominated in a currency other than their functional currency. Due to the significance of these balances, the revaluation of intercompany loans can have a material impact on other income (expense), net. We expect these impacts may be volatile in the future, although our largest intercompany loans do not have a U.S. dollar cash impact for the consolidated group because they are either: 1) U.S. dollar loans or 2) we elect to hedge certain non-U.S. dollar loans with cross-currency swaps and forward contracts. A hypothetical 10% change in currency exchange rates was applied to total net monetary assets denominated in currencies other than the functional currencies at the balance sheet dates to compute the impact these changes would have had on our (loss) income before income taxes in the near term. The balances are inclusive of the notional value of any cross-currency swaps designated as cash flow hedges. A hypothetical decrease in exchange rates of 10% against the functional currency of our subsidiaries would have resulted in a change of\u00a0$8.4\u00a0million on our (loss) income before income taxes for the year ended June 30, 2023.  \n43",
+  "cik": "1262976",
+  "cusip6": "G2143T",
+  "cusip": ["G2143T103", "G2143T903"],
+  "names": ["CIMPRESS PLC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1262976/000126297623000051/0001262976-23-000051-index.htm"
+}
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+{
+  "item1": ">ITEM\u00a01. BUSINESS\nOverview\nOur Company is a diversified financial services company with approximately $20.3 billion in assets and approximately $34.8 billion of assets under custody and/or administration at Axos Clearing LLC (\u201cAxos Clearing\u201d). Axos Bank (the \u201cBank\u201d) provides consumer and commercial banking products through its digital online and mobile banking platforms, low-cost distribution channels and affinity partners. Our Bank offers deposit and lending products to customers nationwide including consumer and business checking, savings and time deposit accounts and single family and multifamily residential mortgages, commercial real estate mortgages and loans, fund and lender finance loans, asset-based loans, auto loans and other consumer loans. Our Bank generates non-interest income from consumer and business products, including fees from loans originated for sale, deposit account service fees, prepayment fees, as well as technology and payment transaction processing fees. We offer securities products and services to independent registered investment advisors (\u201cRIAs\u201d) and introducing broker dealers (\u201cIBDs\u201d) through Axos Clearing and Axos Advisor Services (\u201cAAS\u201d) and direct-to-consumer securities trading and digital investment management products through Axos Invest, Inc. (\u201cAxos Invest\u201d). AAS and Axos Clearing generate interest and fee income by providing comprehensive securities custody services to RIAs and clearing, stock lending, and margin lending services to IBDs respectively. Axos Invest generates fee income from self-directed securities trading and margin lending and fee income from digital wealth management services to consumers. Our common stock is listed on the New York Stock Exchange under the ticker symbol \u201cAX\u201d and is a component of the Russell 2000\u00ae Index, the KBW Nasdaq Financial Technology Index, the S&P SmallCap 600\u00ae Index, the KBW Nasdaq Financial Technology Index, and the Travillian Tech-Forward Bank Index.\nOn June\u00a030, 2023, Axos had total assets of $20.3 billion, including loans of $16.5 billion and investment securities of $0.2 billion, and total liabilities of $18.4 billion, including total deposits of $17.1 billion and borrowings of $0.5 billion. Because we do not incur the significantly higher fixed operating costs inherent in a branch-based distribution system, the Bank is able to grow deposits by providing a better value to our customers and by expanding our low-cost distribution channels.\nOur business strategy is to grow our loan originations and our deposits to achieve increased economies of scale and reduce the cost of products and services to our customers by leveraging our distribution channels and technology. We have designed our online banking platform and our workflow processes to handle traditional banking functions with elimination of paperwork and human intervention. Our Bank\u2019s charter allows us to conduct banking operations in all fifty states, as well as Puerto Rico, and our online presence allows for increased flexibility to target a large number of loan and deposit customers based on demographics, geography and service needs. Our low-cost distribution channels provide opportunities to increase our core deposits and increase our loan originations by attracting new customers and developing new and innovative products and services. Our securities clearing and custody and digital investment management platforms provide a comprehensive set of technology, clearing, cash management and lending services targeted at independent registered investment advisors and introducing broker-dealers, principals and clients of advisory firms and individuals not affiliated with an investment advisor. We are integrating our custody and wealth management platforms with our banking platform to create an easy-to-use platform for customers\u2019 banking and investing needs. Additionally, our securities clearing and custody businesses generate additional low-cost deposits, which serve as a source of funding for our Bank.\nOur long-term business plan includes the following principal objectives:\n\u2022\nMaintain an annualized return on average common stockholders\u2019 equity of 17.0% or better;\n\u2022\nAnnually increase average interest-earning assets by 12% or more; and\n\u2022\nMaintain an annualized efficiency ratio at the Bank of 40% or lower.\n1\nTable of Cont\nents\nSegment Information\nWe operate through two operating segments: Banking Business and Securities Business.\nThe Banking Business has a broad range of banking services including online banking, concierge banking, and mortgage, vehicle and unsecured lending through online, low-cost distribution channels to serve the needs of consumers and businesses nationally. In addition, the Banking Business focuses on providing deposit products nationwide to industry verticals (e.g., Title and Escrow), treasury management products to a variety of businesses, and commercial & industrial and commercial real estate lending to clients. The Banking Business includes a bankruptcy trustee and fiduciary service that provides specialized software and consulting services to Chapter 7 bankruptcy and non-Chapter 7 trustees and fiduciaries.\nThe Securities Business includes the clearing broker-dealer, registered investment advisor custody business, registered investment advisor, and introducing broker-dealer lines of businesses. These lines of business offer products independently to their own customers as well as to Banking Business clients. The Securities Business also offers a specialized accounting software that serves the business management, family office and wealth management industries.\nThe operating segments and segment results of the Company are determined based upon the management reporting system, which assigns balance sheet and income statement items to each of the business segments and by which segment results are evaluated by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. The process is designed around the organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions or in accordance with generally accepted accounting principles.\nThe Company evaluates performance and allocates resources based on pre-tax profit or loss from operations in conjunction with its corporate strategy. Certain corporate administration costs have not been allocated to the reportable segments. Inter-segment transactions are eliminated in consolidation and primarily include non-interest income earned by the Securities Business segment and non-interest expense incurred by the Banking Business segment for cash sorting fees related to deposits sourced from Securities Business segment customers, as well as interest expense paid by the Banking Business segment to each of the wholly-owned subsidiaries of the Company and to the Company itself for operating cash held on deposit with the Banking Business segment.\nBANKING BUSINESS\nWe distribute our deposit products through a wide range of retail and commercial distribution channels, and our deposits consist of demand, savings and time deposits accounts. We distribute our loan products through our retail, correspondent and wholesale channels, and the loans we retain include first mortgages secured by single family real property, multifamily real property and commercial real property, as well as commercial & industrial loans to businesses. Our securities consist of mortgage pass-through securities issued by government-sponsored entities, non-agency collateralized mortgage obligations and municipal securities. We believe our flexibility to adjust our asset generation channels has been a competitive advantage allowing us to avoid markets and products where credit fundamentals are poor or rewards are not sufficient to support our targeted return on equity.\nOur distribution channels for our bank deposit and lending products include:\n\u2022\nA national online banking brand with tailored products targeted to specific consumer segments;\n\u2022\nAffinity groups where we gain access to the affinity group\u2019s members, and our exclusive relationships with financial advisory firms;\n\u2022\nA commercial banking division focused on providing deposit products and loans to specific nationwide industry verticals (e.g., Homeowners\u2019 Associations) and small and medium size businesses;\n\u2022\nCommission-based lending sales force that operates from remote locations, San Diego, Los Angeles and Salt Lake City and originates single and multifamily mortgage loans, commercial real estate and commercial and industrial loans and leases to qualified businesses; \n\u2022\nA bankruptcy and non-bankruptcy trustee and fiduciary services team that operates from our Kansas City office focused on specialized software and consulting services that provide deposits; and\n\u2022\nInside sales teams that originate loans and deposits from self-generated leads, third-party purchase leads, and from our retention and cross-sell of our existing customer base from both our Banking Business and Securities Business.\n2\nTable of Cont\nents\nBanking Business - Asset Origination and Fee Income Businesses\n\u00a0\nThe Bank has built diverse loan origination and fee income businesses that generate targeted financial returns through our digital distribution channels. We believe the diversity of our businesses and our direct and indirect distribution channels provide us with increased flexibility to manage through changing market and operating environments.\nSingle Family - Mortgage & Warehouse\nWe generate earning assets and fee income from our mortgage lending activities, which consist of originating and servicing mortgages secured primarily by first liens on single family residential properties for consumers and providing warehouse lines of credit for third-party mortgage companies. We divide our single-family mortgage originations between loans we retain and loans we sell. Our mortgage banking business generates fee income and gains from sales of consumer single family mortgage loans. Our loan portfolio generates interest income and fees from loans we retain. We also provide home equity loans for consumers secured by second liens on single family mortgages. \nWe originate fixed and adjustable-rate prime residential mortgage loans using a paperless loan origination system and centralized underwriting and closing process. Many of our loans have initial fixed rate periods (five or seven years) before starting a regular adjustment period (annually, semi-annually or monthly), as well as interest rate floors, ceilings and rate change caps. We warehouse our mortgage banking loans and sell to investors as conventional, government and non-agency loans. Our mortgage servicing business includes collecting loan payments, applying principal and interest payments to the loan balance, managing escrow funds for the payment of mortgage-related expenses, such as taxes and insurance, responding to customer inquiries, counseling delinquent mortgagors and supervising foreclosures.\nWe originate single family mortgage loans for consumers through multiple channels on a retail, wholesale and correspondent basis.\n\u2022\nRetail.\n We originate single family mortgage loans directly to consumers through our relationships with large affinity groups, leads from referral partners, portfolio retention, cross-selling and acquiring leads from third parties.\n\u2022\nWholesale.\n We have relationships with licensed mortgage brokers from which the Bank manages wholesale loan pipelines through our originations systems and websites. Through our secure website, our approved brokers can compare programs, terms and pricing on a real-time basis and communicate with our staff.\n\u2022\nCorrespondent.\n We acquire closed loans from third-party mortgage companies that originate single family loans in accordance with our portfolio specifications or the specifications of our investors. We may purchase pools of seasoned, single-family loans originated by others during economic cycles when those loans have more attractive risk-adjusted returns than those we may originate.\nWe originate lender-finance loans to businesses secured by first liens on single family mortgage loans from cross selling, retail direct and through third parties\n.\n Our warehouse customers are primarily generated through cross selling to our network of third-party mortgage companies.\nMultifamily and Commercial Mortgage\nMultifamily and Commercial Mortgage loans include adjustable-rate multifamily residential mortgage loans and project-based multifamily real-estate-secured loans with interest rates that adjust based on the Secured Overnight Financing Rate (\u201cSOFR\u201d), the American Interbank Offered Rate (\u201cAmeribor\u201d) or other interest rate indices. Many of our loans have initial fixed rate periods (three, five or seven years) before starting a regular adjustment period (annually, semi-annually or monthly) as well as prepayment protection clauses, interest rate floors and rate change caps.\nWe divide our multifamily residential mortgage portfolio between the loans we retain and the loans we sell. Our mortgage banking business includes gains from those multifamily mortgage loans we sell. Our loan portfolio generates interest income and fees from the loans we retain.\nWe originate multifamily mortgage loans using a commission-based commercial lending sales force that operates from home offices across the United States or from our San Diego location. Customers are targeted through origination techniques such as direct mail marketing, personal sales efforts, email marketing, online marketing and print advertising. Loan applications are submitted electronically to centralized employee teams who underwrite, process and close loans. The sales force team members operate regionally both as retail originators for apartment owners and wholesale representatives to other mortgage brokers.\n3\nTable of Cont\nents\nCommercial Real Estate\nWe originate loans across the U.S. secured by real estate properties under a variety of structures that we classify as commercial real estate (\u201cCRE\u201d). Our CRE portfolio is comprised of CRE Specialty loans, which include Commercial Bridge to Sale, Commercial Bridge to Construction, Commercial Bridge to Refinance and Acquisition, Development and Construction, and also includes our Lender Finance Real Estate loans. CRE loans are originated by our sales force dedicated to commercial lending by contacting borrowers directly or by working with third-party partners or brokers to businesses secured by first liens on single family, multifamily, condominium, office, retail, mixed-use, hospitality, undeveloped or to-be-redeveloped land. Repayment of CRE loans depends on the successful completion of the real estate transition project and permanent take-out or sale of the underlying assets on the line. We attempt to mitigate risk by adhering to underwriting policies in evaluating the collateral and the creditworthiness of borrowers and guarantors, as well as by entering structured facilities where we take a senior lien position collateralized by the underlying real estate.\nCommercial & Industrial - Non-Real Estate (\u201cNon-RE\u201d)\nComprising the majority of this portfolio are commercial and industrial non-real estate, asset-backed loans, lines of credit, term loans and leases made to commercial borrowers secured by commercial assets, including, but not limited to, receivables, inventory and equipment. We typically reduce exposure in these loans by entering into a structured facility, under which we take a senior lien position collateralized by the underlying assets at advance rates well below the collateral value. The remainder of this portfolio is comprised of leveraged cash flow lending and commercial and industrial leases. Leveraged cash flow loans provide financial sponsors the ability to finance acquisitions, management buy-outs, recapitalizations, debt refinancing and dividends/distributions. Such lending relies on free cash flow as the primary repayment source, and enterprise value as the secondary repayment source. Leveraged cash flow loans are offered to both lower middle market and larger corporate borrowers. Commercial and industrial leases are primarily made based on the operating cash flows of the borrower or conversion of working capital assets to cash and secondarily on the underlying collateral provided by the borrower. We provide leases to small businesses and middle market companies that use the funds to purchase machinery, equipment and software essential to their operations. The lease terms are generally between two and ten years and amortize primarily to full repayment, or in some cases, to a de minimis residual balance. The leases are offered nationwide to companies in targeted industries through a direct sales force and through independent third-party sales referrals. Although commercial and industrial loans and leases are often collateralized directly or indirectly by equipment, inventory, accounts or loans receivable or other business assets, the liquidation of collateral in the event of a borrower default may be an insufficient source of repayment because accounts or loans receivable may be uncollectible and inventories and equipment may be obsolete or of limited use. We attempt to mitigate these risks through the structuring of these lending products, adhering to underwriting policies in evaluating the management of the business and the credit-worthiness of borrowers and guarantors. \nAuto\nOur automobile lending division originates prime and subprime loans to customers secured by new and used automobiles (\u201cautos\u201d). Our subprime loans are insured via a default risk mitigation product in which we recoup a large percentage of the deficiency balance on charged off loans. We distribute our auto loan products through direct and indirect channels, hold all of the auto loans that we originate and perform the loan servicing functions for these loans. Our loans carry a fixed interest rate for periods ranging from three to eight years and generate interest income and fees.\n4\nTable of Cont\nents\nConsumer\nWe originate fixed rate unsecured loans to well-qualified, individual borrowers in all fifty states. We offer loans between $7,000 and $50,000 with terms that range between 36 months and 72 months.\u00a0The minimum credit score is 700.\u00a0All applicants apply digitally and we validate income, identity and funding bank account.\u00a0All loans are manually underwritten by a seasoned underwriter prior to funding. We source our unsecured loans through existing bank customers, lead aggregators and additional marketing efforts.\nOther\nOther loans include structured settlements, Small Business Administration (\u201cSBA\u201d) loans issued pursuant to the Federal Paycheck Protection Program (\u201cPPP\u201d) under the Federal Coronavirus Aid, Relief and Economic Security Act (\u201cCARES\u201d) Act, and account overdraft loans.\nPortfolio Management\nOur investment analysis capabilities are a core competency of our organization. We decide whether to hold originated assets for investment or to sell them in the capital markets based on our assessment of the yield and risk characteristics of these assets as compared to other available opportunities to deploy our capital. Because risk-adjusted returns available on acquisitions may exceed returns available through retaining assets from our origination channels, we have elected to purchase loans and securities from time to time. Some of our loans and securities were purchased at discounts to par value, which enhance our effective yield through accretion into income in subsequent periods. \nLoan Portfolio Composition\n. The following table sets forth the composition of our loan portfolio in amounts and percentages by type of loan at the end of each fiscal year-end for the last three years: \nAt June\u00a030,\n2023\n2022\n2021\n(Dollars in thousands)\nAmount\nPercent\nAmount\nPercent\nAmount\nPercent\nSingle Family - Mortgage & Warehouse\n$\n4,173,833\u00a0\n25.1\u00a0\n%\n$\n3,988,462\u00a0\n28.0\u00a0\n%\n$\n4,359,472\u00a0\n37.8\u00a0\n%\nMultifamily and Commercial Mortgage\n3,082,225\u00a0\n18.5\u00a0\n%\n2,877,680\u00a0\n20.2\u00a0\n%\n2,470,454\u00a0\n21.4\u00a0\n%\nCommercial Real Estate\n6,199,818\u00a0\n37.2\u00a0\n%\n4,781,044\u00a0\n33.5\u00a0\n%\n3,180,453\u00a0\n27.5\u00a0\n%\nCommercial & Industrial - Non-RE\n2,639,650\u00a0\n15.8\u00a0\n%\n2,028,128\u00a0\n14.2\u00a0\n%\n1,123,869\u00a0\n9.7\u00a0\n%\nAuto & Consumer\n546,264\u00a0\n3.3\u00a0\n%\n567,228\u00a0\n4.0\u00a0\n%\n362,180\u00a0\n3.1\u00a0\n%\nOther\n10,236\u00a0\n0.1\u00a0\n%\n11,134\u00a0\n0.1\u00a0\n%\n58,316\u00a0\n0.5\u00a0\n%\nTotal loans held for investment\n$\n16,652,026\u00a0\n100.0\u00a0\n%\n$\n14,253,676\u00a0\n100.0\u00a0\n%\n$\n11,554,744\u00a0\n100.0\u00a0\n%\nAllowance for credit losses\n(166,680)\n(148,617)\n(132,958)\nUnamortized premiums/discounts, net of deferred loan fees\n(28,618)\n(13,998)\n(6,972)\nNet loans held for investment\n$\n16,456,728\u00a0\n$\n14,091,061\u00a0\n$\n11,414,814\u00a0\nThe following table sets forth the amount of loans maturing in our total loans held for investment based on the contractual terms to maturity:\n\u00a0\nTerm to Contractual Maturity as of June\u00a030, 2023\n(Dollars in thousands)\nLess Than Three Months\nOver Three Months Through One Year\nOver One Year Through Five Years\nOver 5 Years Through 15 Years\nOver 15 Years\nTotal\nSingle Family - Mortgage & Warehouse\n$\n37,797\u00a0\n$\n241,782\u00a0\n$\n22,533\u00a0\n$\n102,283\u00a0\n$\n3,769,438\u00a0\n$\n4,173,833\u00a0\nMultifamily and Commercial Mortgage\n$\n30,500\u00a0\n$\n8,969\u00a0\n$\n53,431\u00a0\n$\n1,656,148\u00a0\n$\n1,333,177\u00a0\n$\n3,082,225\u00a0\nCommercial Real Estate\n$\n658,275\u00a0\n$\n1,737,823\u00a0\n$\n3,787,275\u00a0\n$\n\u2014\u00a0\n$\n16,445\u00a0\n$\n6,199,818\u00a0\nCommercial & Industrial - Non-RE\n$\n12,111\u00a0\n$\n287,269\u00a0\n$\n2,236,808\u00a0\n$\n86,669\u00a0\n$\n16,793\u00a0\n$\n2,639,650\u00a0\nAuto & Consumer\n$\n233\u00a0\n$\n2,772\u00a0\n$\n213,869\u00a0\n$\n329,390\u00a0\n$\n\u2014\u00a0\n$\n546,264\u00a0\nOther\n$\n5,892\u00a0\n$\n77\u00a0\n$\n3,572\u00a0\n$\n653\u00a0\n$\n42\u00a0\n$\n10,236\u00a0\nTotal\n$\n744,808\u00a0\n$\n2,278,692\u00a0\n$\n6,317,488\u00a0\n$\n2,175,143\u00a0\n$\n5,135,895\u00a0\n$\n16,652,026\u00a0\n5\nTable of Cont\nents\nThe following table sets forth the amount of our loans at June\u00a030, 2023 that are due after June\u00a030, 2024 and indicates whether they have fixed or floating/adjustable interest rates:\n(Dollars in thousands)\nFixed\nFloating/\nAdjustable\n1\nTotal\nSingle Family - Mortgage & Warehouse\n$\n162,216\u00a0\n$\n3,732,038\u00a0\n$\n3,894,254\u00a0\nMultifamily and Commercial Mortgage\n50,685\u00a0\n2,992,071\u00a0\n3,042,756\u00a0\nCommercial Real Estate\n79,745\u00a0\n3,723,975\u00a0\n3,803,720\u00a0\nCommercial & Industrial - Non-RE\n228,327\u00a0\n2,111,943\u00a0\n2,340,270\u00a0\nAuto & Consumer\n543,259\u00a0\n\u2014\u00a0\n543,259\u00a0\nOther\n4,267\u00a0\n\u2014\u00a0\n4,267\u00a0\nTotal\n$\n1,068,499\u00a0\n$\n12,560,027\u00a0\n$\n13,628,526\u00a0\n1\n Included in this category are hybrid mortgages (e.g., 5/1 adjustable rate mortgages) that carry a fixed rate for an introductory term before transitioning to an adjustable rate.\nOur real estate loans are secured by properties primarily located in California and New York. The following table shows the largest states and regions ranked by location of these properties:\nAt June 30, 2023\nPercentage of Loan Principal Secured by Real Estate Located in State or Region\nState or Region\nTotal Real Estate Loans\nSingle Family Mortgage\nMultifamily real estate secured\nCommercial\nReal Estate\nCalifornia\u2014south\n1\n32.8\u00a0\n%\n56.1\u00a0\n%\n57.8\u00a0\n%\n4.7\u00a0\n%\nCalifornia\u2014north\n2\n8.5\u00a0\n%\n15.3\u00a0\n%\n11.3\u00a0\n%\n2.4\u00a0\n%\nNew York\n25.2\u00a0\n%\n11.0\u00a0\n%\n19.7\u00a0\n%\n37.5\u00a0\n%\nFlorida\n8.0\u00a0\n%\n6.1\u00a0\n%\n5.3\u00a0\n%\n10.5\u00a0\n%\nNew Jersey\n4.2\u00a0\n%\n0.8\u00a0\n%\n0.3\u00a0\n%\n8.4\u00a0\n%\nArizona\n3.0\u00a0\n%\n1.2\u00a0\n%\n0.3\u00a0\n%\n5.5\u00a0\n%\nWashington, D.C.\n2.3\u00a0\n%\n0.2\u00a0\n%\n0.1\u00a0\n%\n4.8\u00a0\n%\nTexas\n2.1\u00a0\n%\n0.9\u00a0\n%\n0.6\u00a0\n%\n3.7\u00a0\n%\nGeorgia\n1.7\u00a0\n%\n0.4\u00a0\n%\n\u2014\u00a0\n%\n3.4\u00a0\n%\nIllinois\n1.6\u00a0\n%\n0.4\u00a0\n%\n1.1\u00a0\n%\n2.7\u00a0\n%\nAll other states\n10.6\u00a0\n%\n7.6\u00a0\n%\n3.5\u00a0\n%\n16.4\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\n1\n Consists of loans secured by real property in California with ZIP Code ranges from 90001 to 92999.\n2\n Consists of loans secured by real property in California with ZIP Code ranges from 93000 to 96161.\nThe ratio of the loan amount to the value of the property securing the loan is called the loan-to-value ratio (\u201cLTV\u201d). The following table shows the LTVs of our loan portfolio on weighted-average and median bases at June\u00a030, 2023. The LTVs were calculated by dividing (a)\u00a0the current outstanding loan principal balance of both the first and second liens of the borrower by (b)\u00a0the appraisal value at the time of origination of the property securing the loan.\nTotal Real Estate Loans\nSingle Family - Mortgage & Warehouse\nMultifamily and Commercial Mortgage\nCommercial\nReal Estate\nWeighted-Average LTV\n48.9\u00a0\n%\n57.4\u00a0\n%\n53.8\u00a0\n%\n40.8\u00a0\n%\nMedian LTV\n53.0\u00a0\n%\n55.0\u00a0\n%\n50.0\u00a0\n%\n38.0\u00a0\n%\nOur effective weighted-average LTV was 47.0% for real estate loans originated during the fiscal year ended June\u00a030, 2023.\n6\nTable of Cont\nents\nCRE Specialty loans, which comprise 86.2% of total CRE loans as of June 30, 2023, are collateralized by underlying real estate and properties as outlined below. Total weighted-average LTV for CRE Specialty loans was 40% as of June 30, 2023.\n\u00a0At June 30, 2023\n(Dollars in thousands)\nLoan Balance\nWeighted-Average LTV\nMultifamily\n$\n1,745,894\u00a0\n41.0\u00a0\n%\nSingle Family Real Estate\n1,058,880\u00a0\n42.0\u00a0\nHotel\n920,795\u00a0\n41.0\u00a0\nOffice\n552,363\u00a0\n36.0\u00a0\nIndustrial\n474,567\u00a0\n43.0\u00a0\nOther\n339,358\u00a0\n36.0\u00a0\nRetail\n253,987\u00a0\n41.0\u00a0\nTotal\n$\n5,345,844\u00a0\n40.0\u00a0\n%\nLoan Underwriting Process and Criteria\n.\n The Bank individually underwrites loans originated and purchased. For our brand partnership lending products, we construct or validate loan origination models to meet our minimum standards. Our loan underwriting policies and procedures are written and adopted by our Bank\u2019s Board of Directors and our Bank\u2019s Credit Committee. Credit extensions generated by the Bank conform to the intent and technical requirements of our lending policies and the applicable lending regulations of our federal regulators.\nIn the single family loan underwriting process we consider all relevant factors including the borrower\u2019s credit score, credit history, documented income, existing and new debt obligations, the value of the collateral, and other internal and external factors. For all multifamily and commercial real estate loans, we rely primarily on the cash flow from the underlying property as the expected source of repayment. Additionally, the Bank often obtains personal guarantees from all material owners or partners of the borrower. In evaluating multifamily or commercial real estate credit, we consider all relevant factors, including the outside financial assets of the material owners or partners, payment history at the Bank or other financial institutions, and the experience of management and/or ownership with similar properties or businesses. In evaluating the underlying property, we consider the recurring net operating income of the property before debt service and depreciation, the ratio of net operating income to debt service and the ratio of the loan amount to the appraised value. For construction loans, we consider borrower experience and may obtain project completion guarantees from our borrowers and require borrowers to fund costs that exceed the initial construction budgets. As part of the underwriting of construction loans, we consider market conditions and perform stress testing to help ensure payoff via refinance or sale will cover any loan proceeds advanced. In underwriting commercial & industrial \u2013 non-real estate loans, we primarily consider the borrowers\u2019 operating cash flows and the value of underlying collateral. Additionally, in our commercial real estate and commercial & industrial \u2013 non-real estate loans we typically take a senior lien position in a structured facility collateralized by the underlying assets.\nLoan Quality and Credit Risk\n.\n Non-performing assets are loans and leases which are often on non-accrual status as they are more than 90 days past due; however, there are other conditions which may cause these assets to be non-performing, such as the underlying collateral being acquired by foreclosure or deed-in-lieu. Our policy with respect to non-performing assets is to place such assets on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When a loan or lease is placed on nonaccrual status, previously accrued but unpaid interest will be deducted from interest income. Our general policy is to not accrue interest on loans and leases past due 90 days or more, unless the individual borrower circumstances dictate otherwise.\nSee Management\u2019s Discussion and Analysis \u2014 \n\u201cAsset Quality and Allowance for Credit Losses - Loans\u201d\n for additional information on non-performing assets and the allowance for credit losses.\nInvestment Securities Portfolio. \nAxos classifies each investment security according to our intent to hold the security to maturity, trade the security in the near term or make the security available-for-sale. We invest available funds in government and high-grade non-agency securities. Our investment policy, as established by our Board of Directors, is designed to maintain liquidity and generate a favorable return on investment without incurring undue interest rate risk, credit risk or portfolio asset concentration risk. Under our investment policy, the Bank is authorized to invest in agency mortgage-backed obligations issued or fully guaranteed by the United States government, non-agency asset-backed obligations, specific federal agency obligations, municipal obligations, specific time deposits, negotiable certificates of deposit issued by commercial banks and other insured financial institutions, investment grade corporate debt securities and other specified investments. We buy and sell securities to facilitate liquidity and to manage our interest rate risk. \n7\nTable of Cont\nents\nThe following table sets forth the dollar amount of our securities portfolio by intent at the end of each of the last three fiscal years:\nAvailable-for-Sale\nTrading\n(Dollars in thousands)\nFair Value\nFair\u00a0Value\nTotal\nJune 30, 2023\n$\n232,350\u00a0\n$\n758\u00a0\n$\n233,108\u00a0\nJune 30, 2022\n262,518\u00a0\n1,758\u00a0\n264,276\u00a0\nJune 30, 2021\n187,335\u00a0\n1,983\u00a0\n189,318\u00a0\nThe following table sets forth the expected maturity distribution of our mortgage-backed securities (\u201cMBS\u201d) and the contractual maturity distribution of our Non-MBS securities and the weighted-average yield for each range of maturities:\nAt June 30, 2023\nTotal Amount\nDue Within One Year\nDue After One but within Five Years\nDue\u00a0After\u00a0Five\u00a0but within Ten Years\nDue After Ten Years\n(Dollars in thousands)\nAmount\nYield\n1\nAmount\nYield\n1\nAmount\nYield\n1\nAmount\nYield\n1\nAmount\nYield\n1\nAvailable-for-sale\nMBS:\nAgency\n2\n$\n27,024\u00a0\n2.31\u00a0\n%\n$\n6,276\u00a0\n2.15\u00a0\n%\n$\n13,110\u00a0\n2.55\u00a0\n%\n$\n5,522\u00a0\n2.12\u00a0\n%\n$\n2,116\u00a0\n1.77\u00a0\n%\nNon-Agency\n3\n210,271\u00a0\n5.61\u00a0\n%\n92,361\u00a0\n5.88\u00a0\n%\n115,533\u00a0\n5.32\u00a0\n%\n1,729\u00a0\n7.50\u00a0\n%\n648\u00a0\n15.69\u00a0\n%\nTotal\u00a0MBS\n$\n237,295\u00a0\n5.24\u00a0\n%\n$\n98,637\u00a0\n5.64\u00a0\n%\n$\n128,643\u00a0\n5.04\u00a0\n%\n$\n7,251\u00a0\n3.40\u00a0\n%\n$\n2,764\u00a0\n5.03\u00a0\n%\nNon-MBS\nMunicipal\n3,656\u00a0\n3.57\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n3,656\u00a0\n3.57\u00a0\n%\nTotal Non-MBS\n$\n3,656\u00a0\n3.57\u00a0\n%\n$\n\u2014\u00a0\n\u2014\u00a0\n%\n$\n\u2014\u00a0\n\u2014\u00a0\n%\n$\n\u2014\u00a0\n\u2014\u00a0\n%\n$\n3,656\u00a0\n3.57\u00a0\n%\nAvailable-for-sale\u2014Amortized Cost\n$\n240,951\u00a0\n5.21\u00a0\n%\n$\n98,637\u00a0\n5.64\u00a0\n%\n$\n128,643\u00a0\n5.04\u00a0\n%\n$\n7,251\u00a0\n3.40\u00a0\n%\n$\n6,420\u00a0\n4.20\u00a0\n%\nAvailable-for-sale\u2014Fair Value\n$\n232,350\u00a0\n5.21\u00a0\n%\n$\n95,913\u00a0\n5.64\u00a0\n%\n$\n123,730\u00a0\n5.04\u00a0\n%\n$\n6,576\u00a0\n3.40\u00a0\n%\n$\n6,131\u00a0\n4.20\u00a0\n%\n1\n Weighted-average yield is based on amortized cost of the securities. Residential mortgage-backed security yields and maturities include impact of expected prepayments and other timing factors such as interest rate forward curve.\n2\n Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.\n3\n \nPrivate sponsors of securities collateralized primarily by pools of 1-4 family residential, Alt-A or pay-option ARM mortgages and commercial mortgages.\nOur available-for-sale securities portfolio of $232.4 million at June\u00a030, 2023 is composed of approximately 67.6% Alt-A, private-issue super senior, first-lien residential mortgage-backed securities (\u201cRMBS\u201d); 18.2% commercial mortgage-backed securities (\u201cCMBS\u201d); 10.3% agency RMBS and other debt securities issued by the government-sponsored enterprises primarily, Fannie Mae and Freddie Mac (each, a \u201cGSE\u201d and, together, the \u201cGSEs\u201d); 2.4% pay-option adjustable-rate mortgages (\u201cARMs\u201d), private-issue super senior first-lien RMBS; and 1.5% municipal securities. We had no asset-backed securities, sub-prime RMBS or bank pooled trust preferred securities at June\u00a030, 2023.\nWe manage the credit risk of our non-agency securities by purchasing securities which we believe have the most favorable blend of historic credit performance and remaining credit enhancements including subordination, over collateralization, excess spread and purchase discounts. Substantially all of our non-agency securities are senior tranches protected against realized loss by subordinated tranches. The amount of structural subordination available to protect each of our securities (expressed as a percentage of the current face value) is known as credit enhancement. We monitor the performance and measure the securities for impairment in accordance with regulatory guidance. For additional information on our investment securities portfolio, refer to Management\u2019s Discussion and Analysis\u2014\n\u201cCritical Accounting Policies\u2014Securities\u201d\n and Note 3 -\n \u201cFair Value\u201d\n and Note 4 - \n\u201cSecurities.\u201d\nBanking Business - Deposit Generation\nAt June\u00a030, 2023, we had $17.1 billion in deposits of which $15.8 billion, or 92.3% were demand and savings accounts, and $1.3 billion, or 7.7% were time deposits. We generate deposit customer relationships through our distribution channels including websites, sales teams, software company affiliates, online advertising, print and digital advertising, financial advisory firms, affinity partnerships and lending businesses\n. \nOur deposit lines of business include:\n\u2022\nA commercial banking platform, which provides a stable and low-cost source of commercial deposits across a targeted set of industry verticals through the provision of tech-forward depository and treasury management solutions delivered by a dedicated sales and support team.  The industry verticals targeted by Commercial Banking include;\n8\nTable of Cont\nents\n\u25e6\nSpecialty Deposit Verticals\n, which include Title, Escrow, HOA and Property Management, 1031 Exchange, Trust & Estates and Payment Processors;\n\u25e6\nSoftware Verticals\n, which include:\n\u25aa\nAxos Fiduciary Services\n: A full-service fiduciary team catered specifically to support bankruptcy and non-bankruptcy trustees and fiduciaries with their software and banking needs, and\n\u25aa\nZenith Information Systems, Inc.\n: A business management and entertainment accounting and payroll software offering supported by a dedicated service team;\n\u25e6\nCommercial Banking Verticals\n, which include other middle market industries along with deposit relationships for Commercial Real Estate and Commercial & Industrial lending clients.\nTo support the acquisition and retention of low-cost operating deposits, we place significant focus on the continued development of a comprehensive suite of treasury management products and services, which include;\n\u25e6\nDeposit and liquidity management products: Analyzed and non-analyzed checking accounts, interest checking accounts and, money market Accounts, zero balance accounts, insured cash sorting (sweep accounts);\n\u25e6 \u00a0\u00a0\u00a0\u00a0Payables products: ACH origination, wire transfer (domestic and international), commercial check printing, business bill pay and account transfer;\n\u25e6 \u00a0\u00a0\u00a0\u00a0Receivables products: remote deposit capture, mobile deposit, image cash letter, lockbox, merchant services, online payment portal;\n\u25e6 \u00a0\u00a0\u00a0\u00a0Information reporting and reconciliation products: prior day and current day summary and detail reporting, statement, check and deposit images; and\n\u25e6 \u00a0\u00a0\u00a0\u00a0Security and fraud prevention products: direct link security, check positive pay, ACH blocks and filters.\nDelivery channels for the above products include online, mobile and integration services. Integration services include file-based and API-based capabilities which enable direct integration with numerous software partners and clients\u2019 in-house ERP or accounting systems.\n\u2022\nAn online consumer and small business platform that delivers an enhanced banking experience with tailored products targeted to specific consumer and small business segments. Our online consumer and small business banking platform is full-featured with quick and secure access to activity, statements and other features including:\n\u2022\nPurchase Rewards.\n Customers can earn cash back by using their VISA\n\u00ae\n Debit Card at select merchants;\n\u2022\nMobile Banking.\n Customers can access with Touch ID on eligible devices, review account balances, transfer funds, deposit checks and pay bills from the convenience of their mobile phone;\n\u2022\nMobile Deposit.\n Customers can instantly deposit checks from their smart phones using our Mobile App;\n\u2022\nOnline Bill Payment Service.\n Customers can automatically pay their bills online from their account;\n\u2022\nPeer to Peer Payments.\n Customers can securely send money via email or text messaging through this service;\n\u2022\nMy Deposit.\n Customers can scan checks with this remote deposit solution from their home computers. Scanned images will be electronically transmitted for deposit directly to their account;\n\u2022\nText Message Banking.\n Customers can view their account balances, transaction history, and transfer funds between their accounts via these text message commands from their mobile phones;\n\u2022\nUnlimited ATM Reimbursements.\n With certain checking accounts, customers are reimbursed for any fees incurred using an ATM (excludes international ATM transactions). This provides customers with access to any ATM in the nation, for free;\n\u2022\nSecure Email and Chatbot.\n Customers can use our chatbot and send or receive secure emails from our customer service department without concern for the security of their information;\n\u2022\nInterBank Transfer.\n Customers can transfer money to their accounts at other financial institutions from their online banking platform;\n\u2022\nVISA\n\u00ae\n Debit Cards or ATM Cards.\n Customers may choose to receive either a free VISA\n\u00ae\n Debit or an ATM card upon account opening. Customers can access their accounts worldwide at ATMs and any other locations that accept VISA\n\u00ae\n Debit cards;\n\u2022\nOverdraft Protection.\n Eligible customers can enroll in one of our overdraft protection programs;\n\u2022\nDigital Wallets.\n Our Apple Pay\u2122, Samsung Pay\u2122 and Android Pay\u2122 solutions provide the same ease to pay as a debit card with an eligible device. The mobile experience is easy and seamless; and\n9\nTable of Cont\nents\n\u2022\nCash Deposit Through Reload @ the Register.\n Customers can visit any Walmart, Safeway, ACE Cash Express, CVS Pharmacy, Dollar General, Dollar Tree, Family Dollar, Kroger, Rite Aid, 7-Eleven and Walgreens, and ask to load cash into their account at the register. A fee is applied.\nWe offer a full line of deposit products, which we source through both online channels using operating and marketing strategies that emphasize low operating costs and are flexible and scalable for our business. Our full featured products and platforms, 24/7 customer service and our affinity relationships result in customer accounts with strong retention characteristics. We continuously collect customer feedback and improve our processes to satisfy customer needs. For example, one tailored product is designed for customers who are looking for full-featured demand accounts and competitive fees and interest rates, while another product targets primarily tech-savvy customers seeking a low-fee cost structure and a high-yield savings account.\nWe offer our consumer deposits through several channels, including:\n\u2022\nA concierge banking offer serving the needs of high net worth individuals with premium products and dedicated service;\n\u2022\nFinancial advisory and clearing firms who introduce their clients to our deposit products through Axos Clearing and its business division AAS; and\n\u2022\nA call center that opens accounts through self-generated internet leads, third-party purchased leads, partnerships, and retention and cross-sell efforts to our existing customer base.\nOur deposit operations are conducted through a centralized, scalable operating platform which supports all of our distribution channels. The integrated nature of our systems and our ability to efficiently scale our operations create competitive advantages that support our value proposition to customers. Additionally, the features described above such as online account opening and online bill-pay promote self-service and further reduce operating expenses.\nWe believe our deposit franchise will continue to provide lower all-in funding costs (interest expense plus operating costs) with greater scalability than branch-intensive banking models because the traditional branch model operates with inherently higher fixed operating costs.\n10\nTable of Cont\nents\nThe number of deposit accounts at the end of each of the last three fiscal years is set forth below: \nAt June\u00a030,\n2023\n2022\n2021\nNon-interest bearing\n45,640\u00a0\n42,372\u00a0\n36,726\u00a0\nInterest-bearing checking and savings accounts\n427,299\u00a0\n344,593\u00a0\n336,068\u00a0\nTime deposits\n6,340\u00a0\n8,734\u00a0\n12,815\u00a0\nTotal number of deposit accounts\n479,279\u00a0\n395,699\u00a0\n385,609\u00a0\nThe increase in interest-bearing checking and savings accounts in 2023 was primarily due to increased consumer deposit accounts from increased marketing efforts.\nDeposit Composition\n.\n The following table sets forth the dollar amount of deposits by type and weighted-average interest rates at the end of each of the last three fiscal years:\nAt June\u00a030,\n2023\n2022\n2021\n(Dollars\u00a0in\u00a0thousands)\nAmount\nRate\n1\nAmount\nRate\n1\nAmount\nRate\n1\nNon-interest-bearing\n$\n2,898,150\u00a0\n\u2014\u00a0\n$\n5,033,970\u00a0\n\u2014\u00a0\n$\n2,474,424\u00a0\n\u2014\u00a0\nInterest-bearing:\nDemand\n3,334,615\u00a0\n2.43\u00a0\n%\n3,611,889\u00a0\n0.61\u00a0\n%\n3,369,845\u00a0\n0.15\u00a0\n%\nSavings\n9,575,781\u00a0\n4.20\u00a0\n%\n4,245,555\u00a0\n0.95\u00a0\n%\n3,458,687\u00a0\n0.21\u00a0\n%\nTotal demand and savings\n$\n12,910,396\u00a0\n3.74\u00a0\n%\n$\n7,857,444\u00a0\n0.79\u00a0\n%\n$\n6,828,532\u00a0\n0.18\u00a0\n%\nTime deposits\n$250 and under\n2\n$\n932,436\u00a0\n3.72\u00a0\n%\n$\n651,392\u00a0\n1.22\u00a0\n%\n$\n1,070,139\u00a0\n1.30\u00a0\n%\nGreater than $250\n382,126\u00a0\n4.36\u00a0\n%\n403,616\u00a0\n1.41\u00a0\n%\n442,702\u00a0\n1.03\u00a0\n%\nTotal time deposits\n$\n1,314,562\u00a0\n3.91\u00a0\n%\n$\n1,055,008\u00a0\n1.25\u00a0\n%\n$\n1,512,841\u00a0\n1.22\u00a0\n%\nTotal interest-bearing\n2\n$\n14,224,958\u00a0\n3.76\u00a0\n%\n$\n8,912,452\u00a0\n0.85\u00a0\n%\n$\n8,341,373\u00a0\n0.37\u00a0\n%\nTotal deposits\n$\n17,123,108\u00a0\n3.12\u00a0\n%\n$\n13,946,422\u00a0\n0.54\u00a0\n%\n$\n10,815,797\u00a0\n0.29\u00a0\n%\n1\n \nBased on weighted-average stated interest rates at the end of the period.\n2\n The total interest-bearing includes brokered deposits of $2,028.5 million and $1,032.7 million as of June\u00a030, 2023 and 2022, respectively, of\u00a0which\u00a0$690.9 million\u00a0and $250.0 million are time deposits classified as $250,000 and under.\nThe following tables set forth the average balance, the interest expense and the average rate paid on each type of deposit at the end of each of the last three fiscal years:\nFor the Fiscal Year Ended June 30,\n\u00a0\n2023\n2022\n2021\n(Dollars in thousands)\nAverage Balance\nInterest Expense\nAvg.\u00a0Rate Paid\nAverage Balance\nInterest Expense\nAvg.\u00a0Rate Paid\nAverage Balance\nInterest Expense\nAvg.\u00a0Rate Paid\nNon-interest-bearing\n$\n3,730,524\u00a0\n$\n\u2014\u00a0\n\u2014\u00a0\n$\n3,927,195\u00a0\n$\n\u2014\u00a0\n\u2014\u00a0\n$\n2,182,009\u00a0\n$\n\u2014\u00a0\n\u2014\u00a0\nInterest-bearing:\nDemand\n$\n4,047,717\u00a0\n$\n99,119\u00a0\n2.45\u00a0\n%\n$\n3,873,382\u00a0\n$\n12,429\u00a0\n0.32\u00a0\n%\n$\n3,817,516\u00a0\n$\n14,444\u00a0\n0.38\u00a0\n%\nSavings\n6,164,020\u00a0\n206,536\u00a0\n3.35\u00a0\n%\n2,899,939\u00a0\n7,624\u00a0\n0.26\u00a0\n%\n3,387,182\u00a0\n14,587\u00a0\n0.43\u00a0\n%\nTime deposits\n1,225,537\u00a0\n33,826\u00a0\n2.76\u00a0\n%\n1,226,774\u00a0\n13,567\u00a0\n1.11\u00a0\n%\n1,825,795\u00a0\n31,498\u00a0\n1.73\u00a0\n%\nTotal\u00a0interest-bearing\u00a0deposits\n$\n11,437,274\u00a0\n$\n339,481\u00a0\n2.97\u00a0\n%\n$\n8,000,095\u00a0\n$\n33,620\u00a0\n0.42\u00a0\n%\n$\n9,030,493\u00a0\n$\n60,529\u00a0\n0.67\u00a0\n%\nTotal deposits\n$\n15,167,798\u00a0\n$\n339,481\u00a0\n2.24\u00a0\n%\n$\n11,927,290\u00a0\n$\n33,620\u00a0\n0.28\u00a0\n%\n$\n11,212,502\u00a0\n$\n60,529\u00a0\n0.54\u00a0\n%\n11\nTable of Cont\nents\nTotal deposits that exceeded the FDIC insurance limit of $250,000 at June\u00a030, 2023 were $1.7 billion. The maturities of certificates of deposit that exceeded the FDIC insurance limit of $250,000 at June\u00a030, 2023 are as follows: \n(Dollars in thousands)\nJune 30, 2023\n3 months or less\n$\n142,499\u00a0\n3 months to 6 months\n185,185\u00a0\n6 months to 12 months\n20,847\u00a0\nOver 12 months\n33,595\u00a0\nTotal\n$\n382,126\u00a0\nSECURITIES BUSINESS\nOur Securities Business consists of two sets of products and services, securities services provided to third-party securities firms and investment management services provided to consumers.\nSecurities services\n.\u00a0We offer fully disclosed clearing services through Axos Clearing to FINRA and SEC registered member firms for trade execution and clearance as well as back-office services such as record keeping, trade reporting, accounting, general back-office support, securities and margin lending, reorganization assistance, and custody of securities. At June\u00a030, 2023, we provided services to 291 financial organizations, including correspondent broker-dealers and registered investment advisors. \nWe provide margin loans, which are collateralized by securities, cash, or other acceptable collateral, to our brokerage customers for their securities trading activities. We earn a spread equal to the difference between the amount we pay to fund the margin loans and the amount of interest income we receive from our customers.\nWe conduct securities lending activities that include borrowing and lending securities with other broker-dealers. These activities involve borrowing securities to cover short sales and to complete transactions in which clients have failed to deliver securities by the required settlement date, and lending securities to other broker-dealers for similar purposes.\u00a0The net revenues for this business consist of the interest spreads generated on these activities.\nWe provide a proprietary, turnkey technology platform for custody services to our registered investment advisor customers. This platform provides fee income and services that complement our Securities Business products, while also generating low cost core deposits.\nWe assist our brokerage customers in managing their cash balances and earn a fee through an insured bank deposit cash sorting program. \nThrough our retail securities business, Axos Invest, we provide our customers with the option of having both self-directed and digital advice services through a comprehensive and flexible technology platform. We have integrated both the digital advice platform and self-directed trading platforms into our universal digital banking platform, creating a seamless user experience and a holistic personal financial management ecosystem. Our digital advice business generates fee income from customers paying an annual fee for advisory services and deposits from cash balances. Our self-directed trading program generates income from traditional transaction charges and fees from customer memberships.\nAdditionally, we offer a specialized accounting software that serves the business management, family office and wealth management industries to provide software, service and banking solutions.\nBORROWINGS\n \nFor additional information on the Company\u2019s borrowings, see \u201cLiquidity and Capital Resources \u201d in Part II, Item 7.\nMERGERS AND ACQUISITIONS\n\u00a0From time to time, we undertake acquisitions or similar transactions consistent with our operating and growth strategies.\u00a0For additional information, see \u201cMergers and Acquisitions\u201d in Part II, Item 7.\nTECHNOLOGY\nOur technology is built on a collection of enterprise and client platforms that have been purchased, developed in-house or integrated with software systems to provide products and services to our customers. The implementation of our technology has been conducted using industry best-practices and using standardized approaches in system design, software development, \n12\nTable of Cont\nents\ntesting and delivery. At the core of our infrastructure, we have designed and implemented secure and scalable hardware solutions to ensure we meet the needs of our business. Our customer experiences were designed to address the needs of a digital bank and its customers. Our websites and technology platforms drive our customer-focused and self-service engagement model, reducing the need for human interaction while increasing our overall operating efficiencies. Our focus on internal technology platforms enable continuous automation and secure and scalable processing environments for increased transaction capacity. We intend to continue to improve and adapt technology platforms to meet business objectives and implement new systems with the goal of efficiently enabling our business.\nSECURITY\nWe recognize that information is a critical asset.\u00a0How information is managed, controlled and protected has a significant impact on the delivery of services. Information assets, including those held in trust, must be protected from unauthorized use, disclosure, theft, loss, destruction and alteration.\nWe employ a robust information security program to achieve our security objectives. The program is designed to prevent, detect and respond to cyberattacks. We also continue to make significant investments in enhancing our cyber defense capabilities to mitigate the risks from the full spectrum of emerging information security threats.\nINTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS\nAs part of our strategy to protect and enhance our intellectual property, we rely on a variety of legal protections, including copyrights, trademarks, trade secrets, patents, internet domain names and certain contractual restrictions on solicitation and competition, and disclosure and distribution of confidential and proprietary information. We undertake measures to control access to and/or disclosure of our trade secrets and other confidential and proprietary information. Policing unauthorized use of our intellectual property, trade secrets and other proprietary information is difficult and litigation may be necessary to enforce our intellectual property rights. \nHUMAN CAPITAL\nAt June\u00a030, 2023, we had 1,455 full-time employees, which does not include seasonal internship employees. None of our employees are represented by a labor union or are subject to a collective bargaining agreement. We have not experienced any work stoppage and consider our relations with our employees to be satisfactory. We offer market-based, competitive wages and benefits in the market where we compete for talent.\nOur key human capital management objectives are to attract, retain and develop the highest quality talent. To support these objectives, our human resources programs are designed to develop talent to prepare them for critical roles and leadership positions for the future, reward and support employees through competitive pay, benefit and perquisite programs, and evolve and invest in technology, training, tools and resources to enable employees to effectively and efficiently perform their responsibilities and achieve their potential. We believe this is important to recruiting and retaining talent to allow our organization to achieve its goals and objectives.\nCOMPETITION\nThe market for banking and financial services is intensely competitive, and we expect competition to continue to intensify in the future. The Bank attracts deposits through its banking sales force and online acquisition channels. Competition for those deposits comes from a wide variety of other banks, savings institutions, and credit unions. Money market funds, full-service securities brokerage firms and financial technology companies also compete for these funds. The Bank competes for these deposits by offering superior service and a variety of deposit accounts at competitive rates. In real estate lending, we compete against traditional real estate lenders, including large and small savings banks, commercial banks, mortgage bankers and mortgage brokers. \nMany of our current and potential competitors have greater brand recognition, longer operating histories, larger customer bases and significantly greater financial, marketing and other resources and are capable of providing strong price and customer service competition. Tech\nnological innovation and capabilities, including changes in product delivery systems and web-based tools, continue to contribute to greater competition in domestic and international financial services markets, and larger competitors may be able to allocate more resources to these technology initiatives.\n \nIn our Securities Business segment, we face significant competition in providing clearing and advisory services based on a number of factors, including price, speed of execution, perceived expertise, quality of advice, reputation, range of services and products, technology, and innovation. There exists significant competition for recruiting and retaining talent. Axos Clearing competes directly with numerous other financial advisory and investment banking firms, broker-dealers and banks, including \n13\nTable of Cont\nents\nlarge national and major regional firms and smaller niche companies, some of whom are not broker-dealers and, therefore, are not subject to the broker-dealer regulatory framework. We separate ourselves from the competition through our excellence in customer service, including a highly attentive and dedicated workforce, while providing an expanding range of clearing and advisory products and services.\nSUPERVISION AND REGULATION\nGENERAL\nWe are subject to comprehensive regulation under state and federal laws. This regulation is intended primarily for the protection of our customers, the deposit insurance fund and the U.S. finance system and not for the benefit of our security holders. \nAxos Financial, Inc. is supervised and regulated as a savings and loan holding company by the Board of Governors of the Federal Reserve System (the \u201cFederal Reserve\u201d). The Bank, as a federal savings bank, is subject to regulation, examination and supervision by the Office of the Comptroller of the Currency (\u201cOCC\u201d) as its primary regulator, and the Federal Deposit Insurance Corporation (\u201cFDIC\u201d) as its deposit insurer. The Bank must file reports with the OCC and the FDIC and Axos Financial, Inc. with the Federal Reserve, concerning their activities and financial condition. In addition, the Bank is subject to the regulation, examination and supervision by the Consumer Financial Protection Bureau (\u201cCFPB\u201d) with respect to a broad array of federal consumer laws. Our subsidiaries, Axos Clearing LLC and Axos Invest LLC, are broker-dealers and are registered with and subject to regulation by the SEC and FINRA. In addition, Axos Invest, Inc., an investment adviser, is registered with the SEC. Axos Invest, Inc. is subject to the requirements of the Investment Advisers Act of 1940, as amended (the \u201cAdvisers Act\u201d), and the Investment Company Act of 1940, as amended, and is subject to examination by the SEC.\nThe following information describes aspects of the material laws and regulations applicable to the Company. The information below does not purport to be complete and is qualified in its entirety by reference to all applicable laws and regulations. In addition, new and amended legislation, rules and regulations governing the Company are introduced from time to time by the U.S. government and its various agencies, including in response to recent highly-publicized bank failures. Any such legislation, regulatory changes or amendments could adversely affect us and no assurance can be given as to whether, or in what form, any such changes may occur.\nREGULATION OF FINANCIAL HOLDING COMPANY\nGeneral\n. Axos Financial is a unitary savings and loan holding company within the meaning of the Home Owners\u2019 Loan Act (\u201cHOLA\u201d), and is treated as a \u201cfinancial holding company\u201d under Federal Reserve rules. Accordingly, Axos Financial is registered as a savings and loan holding company with the Federal Reserve and is subject to the Federal Reserve\u2019s regulations, examinations, supervision and reporting requirements. Axos Financial is required to file reports with, comply with the rules and regulations of, and is subject to examination by the Federal Reserve. In addition, the Federal Reserve has enforcement authority over Axos Financial and its subsidiaries. Among other things, this authority permits the Federal Reserve to restrict or prohibit activities that are determined to be a serious risk to the saving and loan holding company or its subsidiaries. \n \nCapital\n. \nOur Company and the Bank are subject to the risk-based regulatory capital framework and guidelines established by the Federal Reserve and the OCC. In July 2013, the Federal Reserve and the OCC published final rules (the \u201cRegulatory Capital Rules\u201d) establishing a comprehensive capital framework for U.S. banking organizations. The Regulatory Capital Rules are intended to measure capital adequacy with regard to a banking organization\u2019s balance sheet, including off-balance sheet exposures such as unused portions of loan commitments, letters of credit, and recourse arrangements. The capital requirements for the Company are similar to those for the Bank.\nThe Regulatory Capital Rules implement the Basel Committee\u2019s December 2010 capital framework known as \u201cBasel III\u201d for strengthening international capital standards as well as certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the \u201cDodd-Frank Act\u201d). The failure of the Company or the Bank to meet minimum capital requirements can result in certain mandatory, and possibly additional discretionary actions by federal banking regulators that could have a material effect on the Company, explained in more detail below under \u201cRegulation of Banking Business \u2013 Regulatory Capital Requirements and Prompt Corrective Action\u201d.\nThe Regulatory Capital Rules require banking organizations (i.e., both the Company and the Bank) to maintain a minimum \u201ccommon equity Tier 1\u201d (\u201cCET1\u201d) ratio of 4.5%, a Tier 1 risk-based capital ratio of 6.0%, a total risk-based capital ratio of 8.0%, and a minimum leverage ratio of 4.0% (calculated as Tier 1 capital to average consolidated assets). A capital conservation buffer of 2.5% above each of these levels is required for banking institutions to avoid restrictions on their ability to make capital distributions, including the payment of dividends.\n14\nTable of Cont\nents\nThe Regulatory Capital Rules provide for a number of deductions from and adjustments to CET1. In addition, trust preferred securities have been phased out of tier 1 capital for banking organizations that had $15 billion or more in total consolidated assets as of December 31, 2009 unless the banking organization grows above $15.0 billion in assets as a result of an acquisition. The Company\u2019s trust preferred securities currently are grandfathered under this provision. In addition, the Company and the Bank elected the current expected credit losses (\u201cCECL\u201d) five-year transition guidance for calculating regulatory capital ratios on July 1, 2020 and the June\u00a030, 2023 ratios include this election. This guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through June 30, 2022. This cumulative amount will then be phased out of regulatory capital over the following three years beginning July 1, 2022. \nThe implementation of certain regulations and standards relating to regulatory capital could disproportionately affect our regulatory capital position relative to that of our competitors, including those that may not be subject to the same regulatory requirements as the Company and the Bank. Various aspects of the Regulatory Capital Rules continue to be subject to further evaluation and interpretation by the U.S. banking regulators. \nAs of June\u00a030, 2023, the capital ratios of both the Company and the Bank exceeded the minimums necessary to be considered \u201cwell-capitalized\u201d under the currently enacted capital adequacy requirements, including after implementation of the deductions and other adjustments to CET1 on a fully phased-in basis. For additional information, please see Note 19 - \n\u201cMinimum Regulatory Capital Requirements\u201d\n to the financial statements filed with this report. \nSource of Strength\n. The Dodd-Frank Act extends the Federal Reserve \u201csource of strength\u201d doctrine to savings and loan holding companies. Such policy requires holding companies to act as a source of financial strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of an institution\u2019s financial distress. The regulatory agencies have yet to issue joint regulations implementing this policy.\n \nChange in Control\n. The federal banking laws require that appropriate regulatory approvals must be obtained before an individual or company may take actions to \u201ccontrol\u201d a bank or savings association. The definition of control found in the HOLA is similar to that found in the Bank Holding Company Act of 1956 (\u201cBHCA\u201d) for bank holding companies. Both statutes apply a similar three-prong test for determining when a company controls a bank or savings association. Specifically, a company has control over either a bank or savings association if the company:\n\u2022\ndirectly or indirectly or acting in concert with one or more persons, owns, controls, or has the power to vote 25% or more of the voting securities of a company; \n\u2022\ncontrols in any manner the election of a majority of the directors (or any individual who performs similar functions in respect of any company, including a trustee under a trust) of the board; or \n\u2022\ndirectly or indirectly exercises a controlling influence over the management or policies of the bank. \nRegulation LL includes a specific definition of \u201ccontrol\u201d similar to the statutory definition, with certain additional provisions, and modifies the regulations for purposes of determining when a company or natural person acquires control of a savings association or savings and loan holding company under the HOLA or the Change in Bank Control Act (\u201cCBCA\u201d). In light of the similarity between the statutes governing bank holding companies and savings and loan holding companies, the Federal Reserve uses its established rules and processes with respect to control determinations under HOLA and the CBCA to ensure consistency between equivalent statutes administered by the same agency.\nFurthermore, the Federal Reserve may not approve any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions; (i)\u00a0the approval of interstate supervisory acquisitions by savings and loan holding companies and (ii)\u00a0the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisition.\u00a0The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.\nFinancial Holding Company.\n The Company operates as a savings and loan holding company that is treated as a financial holding company under the rules and regulations of the Federal Reserve. Financial holding companies are generally permitted to affiliate with securities firms and insurance companies and engage in other activities that are \"financial in nature.\" Such activities include, among other things, securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve has determined to be closely related to banking. If the Bank ceases to be \u201cwell capitalized\u201d or \u201cwell managed\u201d under applicable regulatory standards, the Federal Reserve may, among other things, place limitations on our ability to conduct these broader financial activities. In addition, if the Bank receives a rating of less than satisfactory under the Community Reinvestment Act, we would be prohibited from engaging in any additional activities other than those permissible for bank holding companies that are not financial holding companies. If a financial holding company fails to continue to meet any of the prerequisites for \n15\nTable of Cont\nents\nfinancial holding company status, including those described above, the Federal Reserve may order the company to divest its subsidiary banks or discontinue or divest investments in companies engaged in activities permissible only for a bank holding company that has elected to be treated as a financial holding company. No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve.\nVolcker Rule. \nUnder certain provisions of the Dodd-Frank Act known as the Volcker Rule, FDIC-insured depository institutions, their holding companies, subsidiaries and affiliates, are generally prohibited, subject to certain exemptions, from proprietary trading of securities and other financial instruments and from acquiring or retaining an ownership interest in a \u201ccovered fund\u201d.\u00a0The term \u201ccovered fund\u201d can include, in addition to many private equity and hedge funds and other entities, certain collateralized mortgage obligations, collateralized debt obligations and collateralized loan obligations, and other items, but does not include wholly owned subsidiaries, certain joint ventures, or loan securitizations generally if the underlying assets are solely loans.\nTrading in certain government obligations is not prohibited by the Volcker Rule, including obligations of or guaranteed by the United States or an agency or government-sponsored entity of the United States, obligations of a State of the United States or a political subdivision thereof, and municipal securities. Proprietary trading generally does not include transactions under repurchase and reverse repurchase agreements, securities lending transactions and purchases and sales for the purpose of liquidity management if the liquidity management plan meets specified criteria; nor does it generally include transactions undertaken in a fiduciary capacity.\u00a0In addition, activities eligible for exemption include, among others, certain brokerage, underwriting and marketing activities, and risk-mitigating hedging activities with respect to specific risks and subject to specified conditions. \nIn July 2020, the Federal Reserve, FDIC, OCC, SEC, and the Commodity Futures Trading Commission (\u201cCFTC\u201d) finalized a rule modifying the Volcker Rule\u2019s prohibition on banking entities investing in or sponsoring hedge funds or private equity funds (referred to under the rules as covered funds). The final rule streamlines several aspects of the covered funds portion of the rule; allows banking organizations to offer and sponsor venture capital funds and a wider array of loan-related funds; and permits banking entities to offer financial services to, and engage in other activities with, covered funds that do not raise concerns that the Volcker rule was intended to address. The final rule became effective October 1, 2020.\nPotential Regulatory Enforcement Actions.\n If the Federal Reserve or the OCC determines that a saving and loan holding company\u2019s or federal savings bank\u2019s financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of its operations are unsatisfactory or that its management has violated any law or regulation, the agency has the authority to take a number of different remedial actions as it deems appropriate under the circumstances. These actions include the power to enjoin any \u201cunsafe or unsound\u201d banking practices; to require that affirmative action be taken to correct any conditions resulting from any violation of law or unsafe or unsound practice; to issue an administrative order that can be judicially enforced; to require that it increase its capital; to restrict its growth; assess civil monetary penalties against it or its officers or directors; and to remove any of its officers and directors.\nREGULATION OF BANKING BUSINESS\nGeneral\n. As a federally-chartered savings and loan association whose deposit accounts are insured by the FDIC, Axos Bank is subject to extensive regulation by the OCC, FDIC and the CFPB with respect to federal consumer financial laws. The following discussion summarizes some of the principal areas of regulation applicable to the Bank and its operations. \nInsurance of Deposit Accounts\n. The FDIC administers a deposit insurance fund (the \u201cDIF\u201d) that insures depositors in certain types of accounts up to a prescribed amount for the loss of any such depositor\u2019s respective deposits due to the failure of an FDIC member depository institution. As the administrator of the DIF, the FDIC assesses its member depository institutions and determines the appropriate DIF premiums to be paid by each such institution. Recent activity in the banking industry, including certain highly-publicized bank failures, is expected to cause premiums on the FDIC\u2019s DIF to increase. \nThe FDIC is authorized to examine its member institutions and to require that they file periodic reports of their condition and op\nerations.\u00a0The FDIC may also prohibit any member institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the DIF.\u00a0The FDIC has the authority to initiate enforcement actions against savings associations, after giving the primary federal regulator the opportunity to take such action. The FDIC may terminate an institution\u2019s access to the DIF if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition. We do not know of any practice, condition or violation that might lead to termination of our access to the DIF.\nAxos Bank is a member depository institution of the FDIC and its deposits are insured by the DIF up to the applicable limits, which are backed by the full faith and credit of the U.S. Government.\u00a0The basic deposit insurance limit is $250,000.\n16\nTable of Cont\nents\nRegulatory Capital Requirements and Prompt Corrective Action\n. The prompt corrective action regulation of the OCC requires mandatory actions and authorizes other discretionary actions to be taken by the OCC against a savings association that falls within undercapitalized capital categories specified in OCC regulations.\nIn general, the prompt corrective action regulation prohibits an FDIC member institution from declaring any dividends, making any other capital distribution, or paying a management fee to a controlling person if, following the distribution or payment, the institution would be within any of the three undercapitalized categories. In addition, adequately capitalized institutions may accept brokered deposits only with a waiver from the FDIC, but are subject to restrictions on the interest rates that can be paid on such deposits. Undercapitalized institutions may not accept, renew or roll-over brokered deposits.\nIf the OCC determines that an institution is in an unsafe or unsound condition, or if the institution is deemed to be engaging in an unsafe and unsound practice, the OCC may, if the institution is well-capitalized, reclassify it as adequately capitalized. If the institution is adequately capitalized, but not well-capitalized, the OCC may require it to comply with restrictions applicable to undercapitalized institutions. If the institution is undercapitalized, the OCC may require it to comply with restrictions applicable to significantly undercapitalized institutions. Finally, pursuant to an interagency agreement, the FDIC can examine any institution that has a substandard regulatory examination score or is considered undercapitalized without the express permission of the institution\u2019s primary regulator.\nCapital regulations applicable to savings associations such as the Bank also require savings associations to meet the additional capital standard of tangible capital equal to at least 1.5% of total adjusted assets.\nThe Bank\u2019s capital requirements are viewed as minimum standards and most financial institutions are expected to maintain capital levels well above the minimum. In addition, OCC regulations provide that minimum capital levels greater than those provided in the regulations may be established by the OCC for individual savings associations upon a determination that the savings association\u2019s capital is or may become inadequate in view of its circumstances. Axos Bank is not subject to any such individual minimum regulatory capital requirement and the Bank\u2019s regulatory capital exceeded all minimum regulatory capital requirements as of June\u00a030, 2023. See \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u2014Liquidity and Capital Resources.\u201d\nStress Testing.\n The Economic Growth, Regulatory Relief, and Consumer Protection Act set the asset threshold for enhanced prudential standards and stress testing at $100 billion of total consolidated assets. Based on asset levels at June 30, 2022, neither the Company nor the Bank are subject to enhanced stress test regulations. The federal banking agencies have indicated that the capital planning and risk management practices of financial institutions with total assets less than $100 billion will continue to be reviewed through the regular supervisory process. We plan to continue monitoring our capital consistent with the safety and soundness expectations of the Federal Reserve and will continue to use customized stress testing as part of our capital planning process.\nStandards for Safety and Soundness\n. The federal banking regulatory agencies have prescribed, by regulation, guidelines for all insured depository institutions relating to: (i)\u00a0internal controls, information systems and internal audit systems; (ii)\u00a0loan documentation; (iii)\u00a0credit underwriting; (iv)\u00a0interest rate risk exposure; (v)\u00a0asset growth; (vi)\u00a0asset quality; (vii)\u00a0earnings; and (viii)\u00a0compensation, fees and benefits. The guidelines set forth safety and soundness standards that the federal banking regulatory agencies use to identify and address problems at FDIC member institutions before capital becomes impaired.\u00a0If the OCC determines that the Bank fails to meet any standard prescribed by the guidelines, the OCC may require us to submit to it an acceptable plan to achieve compliance with the standard. OCC regulations establish deadlines for the submission and review of such safety and soundness compliance plans in response to any such determination. \nLoans-to-One-Borrower Limitations\n. Savings associations generally are subject to the lending limits applicable to national banks. With limited exceptions, the maximum amount that a savings association or a national bank may lend to any borrower, including related entities of the borrower, at one time may not exceed 15% of the unimpaired capital and surplus of the institution, plus an additional 10% of unimpaired capital and surplus for loans fully secured by readily marketable collateral. Savings associations are additionally authorized to make loans to one borrower by order of its regulator, in an amount not to exceed the lesser of $30.0 million\u00a0or 30% of unimpaired capital and surplus for the purpose of developing domestic residential housing, if the following specified conditions are met:\n\u2022\nThe savings association is in compliance with its fully phased-in capital requirements;\n\u2022\nThe loans comply with applicable loan-to-value requirements;\u00a0and\n\u2022\nThe aggregate amount of loans made under this authority does not exceed 150% of unimpaired capital and surplus.\nAt June\u00a030, 2023, the Bank\u2019s loans-to-one-borrower limit was $301.1 million, based upon the 15% of unimpaired capital and surplus measurement. At June\u00a030, 2023, our largest outstanding loan balance to one borrower was $250.0 million.\n17\nTable of Cont\nents\nQualified Thrift Lender Test\n. Savings associations must meet a qualified thrift lender, or \u201cQTL,\u201d test. This test may be met either by maintaining a specified level of portfolio assets in qualified thrift investments as specified by the HOLA, or by meeting the definition of a \u201cdomestic building and loan association,\u201d (\u201cDBLA\u201d) under the Internal Revenue Code of 1986, as amended, (the \u201cCode\u201d). Qualified thrift investments are primarily residential mortgage loans and related investments, including mortgage related securities. Portfolio assets generally mean total assets less specified liquid assets, goodwill and other intangible assets and the value of property used in the conduct of the Bank\u2019s business. The required percentage of qualified thrift investments under the HOLA is 65% of \u201cportfolio assets\u201d (defined as total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) and under the DBLA is at least 60% of the amount of total assets. An association must be in compliance with the HOLA test on a monthly basis at least nine out of every 12 months or meet the definition of a DBLA at the savings association\u2019s fiscal year end or on an average basis. Savings associations that fail to meet the QTL test will generally be prohibited from engaging in any activity not permitted for both a national bank and a savings association. At June\u00a030, 2023, the Bank was in compliance with its QTL requirement and met the definition of a DBLA.\nLiquidity Standard\n. Savings associations are required to maintain sufficient liquidity to ensure safe and sound operations. As of June\u00a030, 2023, Axos Bank was in compliance with the applicable liquidity standard.\nTransactions with Related Parties\n. The authority of the Bank to engage in transactions with \u201caffiliates\u201d (i.e., any company that controls or is under common control with it, including the Company and any non-depository institution subsidiaries) is limited by federal law.\u00a0The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the savings institution.\u00a0The aggregate amount of covered transactions with all affiliates is limited to 20% of a savings institution\u2019s capital and surplus.\u00a0Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in federal law.\u00a0The purchase of low quality assets from affiliates is generally prohibited.\u00a0Transactions with affiliates must be on terms and under circumstances that are at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies.\u00a0In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies, and no savings institution may purchase the securities of any affiliate other than a subsidiary.\nThe Sarbanes-Oxley Act generally prohibits loans by public companies to their executive officers and directors. However, there is a specific exception for loans by financial institutions, such as the Bank, to its executive officers and directors that are made in compliance with federal banking laws.\u00a0Under such laws, our authority to extend credit to executive officers, directors, and 10% or more stockholders (\u201cinsiders\u201d), as well as entities such persons control, is limited.\u00a0The law limits both the individual and aggregate amount of loans the Bank may make to insiders based, in part, on its capital position and requires certain board approval procedures to be followed.\u00a0Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and cannot involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees.\nCapital Distribution Limitations\n. OCC regulations limit the ability of a savings association to make capital distributions, such as cash dividends. These regulations limit the ability of the Bank to pay dividends or other capital distributions to the Company, which in turn may limit our ability to pay dividends, repay debt or redeem or purchase shares of our outstanding common stock. Under these regulations, a savings association may, in circumstances described in those regulations:\n\u2022\nBe required to file an application and await approval from the OCC before it makes a capital distribution;\n\u2022\nBe required to file a notice 30\u00a0days before the capital distribution;\u00a0or\n\u2022\nBe permitted to make the capital distribution without notice or application to the OCC.\nCommunity Reinvestment Act and the Fair Lending Laws\n. Savings associations have a responsibility under the Community Reinvestment Act and related regulations of the OCC to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. An institution\u2019s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in regulatory restrictions on its activities and the denial of applications for certain expansionary activities. In addition, an institution\u2019s failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in the OCC, other federal regulatory agencies or the Department of Justice, taking enforcement actions against the institution. In the most recent Community Reinvestment Act Report, issued May 2019, the Bank received a \u2018Satisfactory\u2019 rating covering calendar years 2016, 2017, and 2018.\n18\nTable of Cont\nents\nFederal Home Loan\u00a0Bank (\u201cFHLB\u201d) System\n. The Bank is a member of the FHLB system. Among other benefits, each FHLB serves as a reserve or central bank for its members within its assigned region. Each FHLB is financed primarily from the sale of consolidated obligations of the FHLB system. Each FHLB makes available loans or advances to its members in compliance with the policies and procedures established by the Board of Directors of the individual FHLB. As an FHLB member, the Bank is required to own capital stock in a Federal Home Loan Bank in specified amounts based on either its aggregate outstanding principal amount of its residential mortgage loans, home purchase contracts and similar obligations at the beginning of each calendar year or its outstanding advances from the FHLB.\nActivities of Subsidiaries\n. A savings association seeking to establish a new subsidiary, acquire control of an existing company or conduct a new activity through a subsidiary must provide not less than 30\u00a0days prior notice to the FDIC and the OCC and conduct any activities of the subsidiary in compliance with regulations and orders of the OCC. The OCC has the power to require a savings association to divest any subsidiary or terminate any activity conducted by a subsidiary that the OCC determines to pose a serious threat to the financial safety, soundness or stability of the savings association or to be otherwise inconsistent with sound banking practices.\nConsumer Laws and Regulations\n. The Dodd-Frank Act established the CFPB with broad rule-making, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards. The CFPB is an independent \u201cwatchdog\u201d within the Federal Reserve System with authority to enforce and create (i)\u00a0rules, orders and guidelines of the CFPB, (ii)\u00a0all consumer financial protection functions, powers and duties transferred from other federal agencies, such as the Federal Reserve, the OCC, the FDIC, the Federal Trade Commission, and the Department of Housing and Urban Development, and (iii)\u00a0a long list of consumer financial protection laws enumerated in the Dodd-Frank Act, such as the Electronic Fund Transfer Act, the Consumer Leasing Act of 1976, the Alternative Mortgage Transaction Parity Act of 1982, the Equal Credit Opportunity Act, the Expedited Funds Availability Act, the Truth in Lending Act and the Truth in Savings Act, among many others. The CFPB has broad examination and enforcement authority, including the power to issue subpoenas and cease and desist orders, commence civil actions, hold investigations and hearings and seek civil penalties, as well as the authority to regulate disclosures, mandate registration of any covered person and to regulate what it considers unfair, deceptive, abusive practices.\nDepository institutions with more than $10 billion in assets and their affiliates are subject to direct supervision by the CFPB, including any applicable examination, enforcement and reporting requirements the CFPB may establish. As of June\u00a030, 2023, we had $20.3 billion in total assets, placing the Bank under the direct supervision and oversight of the CFPB. The laws and regulations of the CFPB and other consumer protection laws and regulations to which the Bank is subject mandate certain disclosure requirements and regulate the manner in which we must deal with customers when taking deposits from, making loans to, or engaging in other types of transactions with, our customers.\nIn May 2020, the OCC finalized its \u201ctrue lender\u201d rule to address the legal uncertainty regarding the effect of a transfer on a loan\u2019s permissible interest rate caused by the Second Circuit\u2019s 2015 decision in Madden v. Midland Funding, LLC. The rule clarified that when a national bank (or federal savings bank, such as the Bank) sells, assigns, or otherwise transfers a loan, the interest permissible before the transfer continues to be permissible after the transfer. On June 30, 2021, President Biden signed a Congressional Review Act resolution repealing the OCC\u2019s true lender rule. The repeal creates uncertainty regarding the ability of nonbank loan purchasers to collect interest on loans originated by a national bank or federal savings bank as originally agreed, which may impact the Company\u2019s decision to participate in this type of lending in the future. \nPrivacy Standards and Cybersecurity\n. The Gramm-Leach-Bliley Act (\u201cGLBA\u201d) modernized the financial services industry by establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers. The Bank is subject to OCC regulations implementing the privacy protection provisions of the GLBA. These regulations require the Bank to disclose its privacy policy, including informing consumers of its information sharing practices and informing consumers of their rights to opt out of certain practices.\nState regulators have been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. The California Consumer Privacy Act of 2018 (as amended by the California Privacy Rights Act), which covers businesses that collect and use personal information on California resident consumers, grants consumers enhanced privacy rights and control over their personal information and imposes significant requirements on covered companies with respect to consumer data privacy rights.\nNew laws or changes to existing laws, including privacy-related enforcement activity, increase our operating and compliance costs (including technology costs) and could reduce income from certain business initiatives or restrict our ability to provide certain products and services.\n \nOur failure to comply with privacy, data protection and information security laws could \n19\nTable of Cont\nents\nresult in significant regulatory or governmental investigations or actions, litigation, fines, sanctions, and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations.\nBank Secrecy Act and Anti-Money Laundering\nThe Bank, its affiliated broker-dealers and in certain cases Axos Financial, Inc., are subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA PATRIOT Act. The Bank Secrecy Act requires all financial institutions to, among other things, establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism. The Bank Secrecy Act includes various record keeping and reporting requirements such as cash transaction and suspicious activity reporting as well as due diligence requirements. The USA PATRIOT Act gives the federal government broad powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements.\u00a0Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution. \nOffice of Foreign Assets Control Regulation and Anti-Corruption\nThe Bank and its affiliated broker-dealers are also required to comply with the U.S. Treasury\u2019s Office of Foreign Assets Control imposed economic sanctions that affect transactions with designated foreign countries, nationals, individuals, entities and others. These are typically known as the \u201cOFAC rules,\u201d based on their administration by the U.S. Treasury Department Office of Foreign Assets Control (\u201cOFAC\u201d). The OFAC-administered sanctions targeting countries take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with, or investment in, a sanctioned country, including prohibitions against direct or indirect imports from, and exports to, a sanctioned country and prohibitions on \u201cU.S. persons\u201d engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from OFAC. We are also subject to the U.S. Foreign Corrupt Practices Act and other laws and regulations worldwide regarding corrupt and illegal payments, or providing anything of value, for the benefit of government officials and others. Failure to comply with these sanctions and the U.S. Foreign Corrupt Practices Act, or similar laws and regulations, could have serious legal and reputational consequences.\n\u00a0\u00a0\u00a0\u00a0\nREGULATION OF SECURITIES BUSINESS\nOur correspondent clearing and custodial firm Axos Clearing, and introducing broker Axos Invest LLC, are broker-dealers registered with the SEC and members of FINRA and various other self-regulatory organizations. Axos Clearing also uses various clearing organizations, including the Depository Trust\u00a0Company, the National Securities Clearing Corporation, Euroclear and the Options Clearing Corporation. \nOur broker-dealers are registered with the SEC, FINRA, all 50 U.S. states and the District of Columbia. Much of the regulation of broker-dealers, however, has been delegated to self-regulatory organizations, principally FINRA, the Municipal Securities Rulemaking Board or national securities exchanges. These self-regulatory organizations adopt rules (which are subject to approval by the SEC) for governing their members and the industry. Broker-dealers are also subject to federal regulation and the securities laws of each state where they conduct business. Our broker-dealers are members of, and are primarily subject to regulation, supervision and regular examination by FINRA.\nBroker-dealers are subject to extensive laws, rules and regulations covering all aspects of the Securities Business, including sales and trading practices, public offerings, publication of research reports, use and safekeeping of clients\u2019 funds and securities, capital adequacy, record keeping and reporting, the conduct of directors, officers, and employees, qualification and licensing of supervisory and sales personnel, marketing practices, supervisory and organizational procedures intended to ensure compliance with securities laws and to prevent improper trading on material nonpublic information, limitations on extensions of credit in securities transactions, clearance and settlement procedures, and rules designed to promote high standards of commercial honor and just and equitable principles of trade. Broker-dealers are regulated by state securities administrators in those jurisdictions where they do business. Regulators may conduct periodic examinations and review reports of our operations, controls, supervision, performance, and financial condition. Our broker-dealers\u2019 margin lending is regulated by the Federal Reserve Board\u2019s restrictions on lending in connection with client purchases and short sales of securities, and FINRA rules require our broker-dealers to impose maintenance requirements based on the value of securities contained in margin accounts. The rules of the Municipal Securities Rulemaking Board, which are enforced by the SEC and FINRA, apply to the municipal securities activities of Axos Clearing and Axos Invest LLC.\nViolations of laws, rules and regulations governing a broker-dealer\u2019s actions could result in censure, penalties and \n20\nTable of Cont\nents\nfines, the issuance of cease-and-desist orders, the restriction, suspension, or expulsion from the securities industry of such broker-dealer, its registered representatives, officers or employees, or other similar adverse consequences. \nSignificant new rules and regulations continue to arise as a result of the Dodd-Frank Act, including the implementation of a more stringent fiduciary standard for broker-dealers and increased regulation of investment advisers. Compliance with these provisions could result in increased costs. Moreover, to the extent the Dodd-Frank Act affects the operations, financial condition, liquidity, and capital requirements of financial institutions with whom we do business, those institutions may seek to pass on increased costs, reduce their capacity to transact, or otherwise present inefficiencies in their interactions with us. \nLimitation on Businesses.\n The businesses that our broker-dealers may conduct are limited by its agreements with, and its oversight by, FINRA, other regulatory authorities and federal and state law. Participation in new business lines, including trading of new products or participation on new exchanges or in new countries often requires governmental and/or exchange approvals, which may take significant time and resources. In addition, our broker-dealers are operating subsidiaries of Axos, which means their activities may be further limited by those that are permissible for subsidiaries of financial holding companies, and as a result, may be prevented from entering new businesses that may be profitable in a timely manner, if at all. \nNet Capital Requirements. \nThe SEC, FINRA and various other regulatory authorities have stringent rules\u00a0and regulations with respect to the maintenance of specific levels of net capital by regulated entities. Rule\u00a015c3-1 of the Exchange Act (the \u201cNet Capital Rule\u201d) requires that a broker-dealer maintain minimum net capital. Generally, a broker-dealer\u2019s net capital is net worth plus qualified subordinated debt less deductions for non-allowable (or non-liquid) assets and other adjustments and operational charges. At June\u00a030, 2023, our broker-dealers were in compliance with applicable net capital requirements. \nThe SEC, FINRA and other regulatory organizations impose rules\u00a0that require notification when net capital falls below certain predefined thresholds. These rules\u00a0dictate the ratio of debt-to-equity in the regulatory capital composition of a broker-dealer, and constrain the ability of a broker-dealer to expand its business under certain circumstances. If a broker-dealer fails to maintain the required net capital, it may be subject to penalties and other regulatory sanctions, including suspension or revocation of registration by the SEC or applicable regulatory authorities, and suspension or expulsion by these regulators could ultimately lead to the broker-dealer\u2019s liquidation. Additionally, the Net Capital Rule\u00a0and certain FINRA rules\u00a0impose requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to, and approval from, the SEC and FINRA for certain capital withdrawals. \nCompliance with the net capital requirements may limit our operations, requiring the intensive use of capital. Such rules require that a certain percentage of a broker-dealer\u2019s assets be maintained in relatively liquid form and therefore act to restrict our ability to withdraw capital from our broker-dealer entities, which in turn may limit our ability to pay dividends, repay debt or redeem or purchase shares of our outstanding common stock. Any change in such rules\u00a0or the imposition of new rules affecting the scope, coverage, calculation or amount of capital requirements, or a significant operating loss or any unusually large charge against capital, could adversely affect our ability to pay dividends, repay debt, meet our debt covenant requirements or to expand or maintain our operations. In addition, such rules\u00a0may require us to make substantial capital contributions into one or more of the our broker-dealers in order for such subsidiaries to comply with such rules, either in the form of cash or subordinated loans made in accordance with the requirements of all applicable net capital rules. \nCustomer Protection Rule.\n \nOur broker-dealers that hold customers\u2019 funds and securities are subject to the SEC\u2019s customer protection rule\u00a0(Rule\u00a015c3-3 under the Exchange Act), which generally provides that such broker-dealers maintain physical possession or control of all fully-paid securities and excess margin securities carried for the account of customers and maintain certain reserves of cash or qualified securities. \nSecurities Investor Protection Corporation (\u201cSIPC\u201d).\n Our broker-dealers are subject to the Securities Investor Protection Act and belong to SIPC, whose primary function is to provide financial protection for the customers of failing brokerage firms. SIPC provides protection for customers up to $500,000, of which a maximum of $250,000 may be in cash. \nAnti-Money Laundering.\n Our broker-dealers must comply with the USA PATRIOT Act and other rules\u00a0and regulations, including FINRA requirements, designed to fight international money laundering and to block terrorist access to the U.S. financial system. We are required to have systems and procedures to ensure compliance with such laws and regulations\n. \nForm Customer Relationship Summary (\u201cForm CRS\u201d).\n The SEC Form CRS requires registered investment advisors and broker-dealers to deliver to retail investors a succinct, plain English summary about the relationship and services provided by the firm and the required standard of conduct associated with the relationship and services. \n21\nTable of Cont\nents\nAVAILABLE INFORMATION\nAxos Financial, Inc. files reports, proxy and information statements and other information electronically with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The SEC\u2019s website site address is http://www.sec.gov. Our web site address is http://www.axosfinancial.com, and we make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, amendments thereto and various other documents, including documents to comply with our obligations under Regulation FD, available on our website free of charge. Accordingly, investors should monitor our website in addition to following and reviewing our press releases, filings with the SEC and public conference calls and other presentations.",
+  "item1a": ">ITEM\u00a01A. RISK FACTORS\nAn investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included in this report. In addition to the risks and uncertainties described below,\u00a0other\u00a0risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition and results of operations.\u00a0Risks disclosed in this section may have already materialized. The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all or part of your investment. This report is qualified in its entirety by these risk factors.\nRisks Relating to Macroeconomic Conditions\nChanges in interest rates could adversely affect our performance.\nOur results of operations depend to a great extent on our net interest income, which is the difference between the interest rates earned on interest-earning assets such as loans and investment securities, and the interest rates paid on interest-bearing liabilities such as deposits and borrowings. We are exposed to interest rate risk because our interest-earning assets and interest-bearing liabilities do not react uniformly or concurrently to changes in interest rates, as the two have different time periods for adjustment and can be tied to different measures of rates.\u00a0Interest rates are sensitive to factors that are beyond our control, including domestic and international economic conditions, including inflation, and the policies of various governmental and regulatory agencies, including the Federal Reserve. The monetary policies of the Federal Reserve, implemented through open market operations, the federal funds rate targets, and the discount rate for banking borrowings and reserve requirements, affect prevailing interest rates. A material change in any of these policies could have a material impact on us or our customers (including borrowers), and therefore on our results of operations. Since maintaining a federal funds rate target in the range of 0% to 0.25% from March 2020 through 2021, the Federal Reserve made multiple rate increases during 2022 and 2023 increasing the target federal funds rate to a range of 5.00% to 5.25% as of June 2023, and subsequently to a range of 5.25% to 5.50% as of August 2023. The future direction and levels of interest rates remain uncertain.\nLoan originations and repayment rates tend to increase with declining interest rates and decrease with rising interest rates. Increases in interest rates can negatively impact our business, including a possible reduction in customers\u2019 or potential customers\u2019 desire to borrow money or adversely affecting customers\u2019 ability to repay on outstanding loans by increasing their debt obligations. On the deposit side, increasing interest rates generally lead to interest rate increases on our deposit accounts. While we manage the sensitivity of our assets and liabilities, large, unanticipated, or rapid increases in market interest rates may have an adverse impact on our net interest income and could decrease our mortgage refinancing business and related fee income, and could cause an increase in delinquencies and non-performing loans and leases in our adjustable-rate loans. In addition, interest rate volatility can affect the value of our loans and leases, investments and other interest-rate sensitive assets and our ability to realize gains on the sale or resolution of these assets, which in turn may affect our liquidity. There can be no assurance that we will be able to successfully manage our interest rate risk. \nA significant or sustained economic downturn could result in increases in our level of non-performing loans and leases and/or reduce demand for our products and services, which could have an adverse effect on our results of operations.\nOur business and results of operations are affected by the financial markets and general economic conditions, including factors such as the level and volatility of interest rates, inflation, home prices, unemployment and under-employment levels, bankruptcies, household income and consumer spending. We operate in an uncertain economic environment due to a variety of other reasons including, but not limited to, trade policies and tariffs, geopolitical tensions, including escalating military tensions in Europe as a result of Russia\u2019s invasion of Ukraine, volatile energy prices and uncertain continuing effects of the coronavirus (\u201cCOVID-19\u201d) pandemic. The risks associated with our business become more acute in periods of a slowing economy or slow growth. Furthermore, given our high concentration of loans secured by real estate in California and New York, the Company remains particularly susceptible to a downturn in those states\u2019 economies. These negative events may cause us to incur losses and may adversely affect our capital, financial condition and results of operations.\n22\nTable of Cont\nents\nThe specific impact on us of unfavorable or uncertain economic or market conditions is difficult to predict, could be long or short term, and may be direct or indirect. A worsening of business and economic conditions generally or specifically in the principal markets in which we conduct business could have adverse effects, including the following:\n\u2022\na decrease in the demand for, or the availability of, loans and other products and services we offer;\n\u2022\na decrease in deposit balances, including low-cost and noninterest bearing deposits, and changes in our interest rate mix toward higher-cost deposits;\n\u2022\nan increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us, which could lead to higher levels of nonperforming assets, net charge-offs, and provisions for credit losses;\n\u2022\na decrease in the value of loans and other assets secured by collateral such as consumer or commercial real estate;\n\u2022\n a decrease in net interest income from our lending and deposit gathering activities;\n\u2022\nan impairment of certain intangible assets such as goodwill; \n\u2022\nan increase in competition resulting from increasing consolidation within the financial services industry; and\n\u2022\nan increase in borrowing costs in excess of changes in the rate at which we reinvest funds.\nInflation could negatively impact our business and our profitability.\nProlonged periods of inflation may impact our profitability by negatively impacting our non-interest expenses, including increasing expense related to talent acquisition and retention. Additionally, inflation may lead to a decrease in consumer and\n \nclients purchasing power and negatively affect the need or demand for our products and services. If significant inflation continues, our business could be negatively affected by, among other things, increased default rates leading to credit losses which could decrease our willingness to offer new credit extensions. These inflationary pressures could adversely affect our results of operations or financial condition.\nThe value of our securities in our investment portfolio may decline in the future.\nThe fair market value of our investment securities may be adversely affected by general economic and market conditions, including changes in interest rates, credit spreads, and the occurrence of any events adversely affecting the issuer of particular securities in our investments portfolio or any given market segment or industry in which we are invested. We analyze our available-for-sale securities on a quarterly basis to measure any impairment and potential credit losses. The process for determining impairment and any credit losses usually requires complex, subjective judgments about the future financial performance of the issuer in order to assess the probability of receiving principal and interest payments sufficient to recover our amortized cost of the security. Because of changing economic and market conditions affecting issuers, we may be required to recognize credit losses in future periods, which could have a material adverse effect on our business, financial condition, and results of operations.\nThe weakness of other financial institutions or other companies in the financial services industries could adversely affect us.\nOur ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. We have exposure to many different counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers-dealers, other commercial banks, investment banks, mutual and hedge funds, and other financial institutions. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, could lead to market-wide liquidity problems and losses or defaults by us or by other institutions and organizations. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be liquidated, liquidated timely or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due to us. There is no assurance that any such losses would not materially and adversely affect our results of operations. Events, both actual or rumored, involving limited liquidity, defaults, non-performance or other adverse developments that affect other companies in the financial services industry or the financial services industry generally have in the past, and may in the future, lead to erosion of customer confidence in the financial services industry, deposit volatility, liquidity issues, stock price volatility and other adverse developments, including increased regulatory oversight, increased premiums for the FDIC insurance program, higher capital requirements or changes in the way regulatory capital is calculated, \n23\nTable of Cont\nents\nand impositions of additional restrictions through regulatory changes or supervisory or enforcement activities. As a result, our operating margins, financial condition and results of operations may be adversely affected.\nReplacement of the LIBOR benchmark interest rate may have an impact on our business, financial condition or results of operations.\n \nLIBOR and certain other interest rate benchmarks are the subject of national, international, and other regulatory guidance and reform. Effective January 1, 2022, the administrator of LIBOR ceased the publication of one-week and two-month US dollar LIBOR and ceased the publications of the remaining tenors of US dollar LIBOR (one, three, six, and 12-month) after June 30, 2023. Generally, all loans we originated since 2017 have contract language that allowed us to replace LIBOR with an alternative index. All of our variable rate mortgage loans underwritten for the U.S. Government Agencies (FNMA, FHLMC & FHA/VA) after December 31, 2020 have used SOFR as the benchmark index. All other variable rate loans approved after December 31, 2021 do not use LIBOR as the benchmark index and have instead used primarily SOFR, Ameribor or BSBY (\u201cBloomberg Short-Term Bank Yield Index\u201d) as the benchmark index. Prior to July 1, 2023, the date LIBOR ceased to be available, we transitioned all remaining loans in our portfolio that were leveraging LIBOR as the benchmark index to other indices, primarily SOFR, Ameribor or BSBY, and notified borrowers of the change in accordance with the applicable contractual and regulatory requirements.\nThe market transition away from LIBOR to alternative reference rates is complex and could have a range of adverse effects on our business, financial condition and results of operations. In particular, the transition could prompt inquiries or other actions from regulators regarding our replacement of LIBOR with an alternative reference rate and result in disputes, litigation or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in securities that were LIBOR-based.\nRisks Relating to Regulation of our Business\nChanges in laws, regulations or oversight or increased enforcement activities by regulatory agencies may increase our costs and adversely affect our business and operations.\nWe operate in a highly regulated industry and are subject to oversight, regulation and examination by federal and/or state governmental authorities under various laws, regulations and policies, which impose requirements or restrictions on our operations, capitalization, payment of dividends, mergers and acquisitions, investments, loans and interest rates charged and interest rates paid on deposits. We must also comply with federal anti-money laundering, bank secrecy, tax withholding and reporting, and various consumer protection statutes and regulations. A considerable amount of management time and resources is devoted to oversight of, and development, implementation and execution of controls and procedures relating to, compliance with these laws, regulations and policies. \nThe laws, rules, regulations and supervisory policies governing our business are intended primarily for the protection of our depositors, our customers, the financial system and the FDIC insurance fund, not our stockholders or other creditors and are subject to regular modification and change. New or amended laws, rules, regulations and policies, including potential changes under consideration in response to recent highly-publicized bank failures, could impact our operations, increase our capital requirements or substantially restrict our growth and adversely affect our ability to operate profitably by making compliance more difficult or expensive, restrict our ability to originate or sell loans, or impact the amount of interest or other charges or fees earned on loans or other products. In addition, further regulation, including in response to recent highly-publicized bank failures, could increase the assessment rate we are required to pay to the FDIC, adversely affecting our earnings. It is very difficult to predict future changes in regulation or the competitive impact that any such changes would have on our business. Any new laws, rules and regulations could make compliance more difficult, expensive, costly to implement or may otherwise adversely affect our business, financial condition or growth prospects. Other changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, could affect us in substantial and unpredictable ways including subjecting us to additional costs, limiting the types of financial services and products we may offer, and increasing the ability of non-banks to offer competing financial services and products. \nThe Bank Secrecy Act, the USA PATRIOT Act, and similar laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and to file suspicious activity and currency transaction reports as appropriate. The Financial Crimes Enforcement Network, a bureau of the United States Department of Treasury, is authorized to impose significant civil money penalties for violations of those requirements and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and the Internal Revenue Service. There is also increased scrutiny of compliance with the rules enforced by the OFAC. Federal and state bank regulators have focused on compliance with the Bank Secrecy Act and anti-money laundering regulations. If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory \n24\nTable of Cont\nents\napproval to proceed with acquisitions and other strategic transactions, which could negatively impact our business, financial condition, results of operations and prospects. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could have material adverse reputational consequences for us.\nOur failure to comply with current, or adapt to new or changing, laws, regulations or policies could result in enforcement actions and sanctions against us by regulatory agencies, civil money penalties and/or reputation damage, along with corrective action plans required by regulatory agencies, any of which could have a material adverse effect on our business, financial condition and results of operations, and the value of our common stock. \nThe Company and its subsidiaries are subject to changes in federal and state tax laws and the interpretation of existing laws and examinations and challenges by taxing authorities\n. \nOur financial performance is impacted by federal and state tax laws. Given the current economic and political environment and ongoing budgetary pressures, the enactment of new federal or state legislation or new interpretations of existing tax laws could adversely impact our tax position, in some circumstances retroactively. The Inflation Reduction Act (the \u201cIRA\u201d), which establishes a new 15% corporate alternative minimum tax on adjusted book income (of corporations that have an average adjusted book income in excess of $1 billion over a three tax year period) for tax years beginning after December 31, 2022, may impact the Company\u2019s cash tax payments and tax credit carryforward balances. The IRA includes a nondeductible 1% excise tax on certain repurchases of corporate stock for transactions occurring after December 31, 2022, which would likely increase the Company\u2019s cost of any future share repurchases. The consequences of the IRA, the enactment of new federal or state tax legislation, or changes in the interpretation of existing law, including provisions impacting income tax rates, apportionment, consolidation or combination, income, expenses, and credits, may have a material adverse effect on our financial condition, results of operations, and liquidity. \nIn the normal course of business, we are routinely subjected to examinations and audits from federal, state, and local taxing authorities regarding tax positions taken by us and the determination of the amount of taxes due. These examinations may relate to income, franchise, gross receipts, payroll, property, sales and use, or other tax returns. The challenges made by taxing authorities may result in adjustments to the amount of taxes due and may result in the imposition of penalties and interest. If any such challenges are not resolved in our favor, they could have a material adverse effect on our financial condition, results of operations, and liquidity.\nOur broker-dealer and investment advisory businesses subjects us to regulatory risks. \nOur broker-dealer and investment advisory business subjects us to regulation by the SEC, FINRA, other self-regulatory organizations (\u201cSROs\u201d), state securities commissions, and other regulatory bodies. Violations of the laws and regulations governed by these agencies could result in censure, penalties and fines, the issuance of cease-and-desist orders, the restriction, suspension, or expulsion from the securities industry of the Company or its officers or employees, or other similar adverse consequences, any of which could cause us to incur losses and adversely affect our capital, financial condition and results of operations. The SEC, FINRA and other SROs and state securities commissions, among other regulatory bodies, can censure, fine, issue cease-and-desist orders or suspend or expel a broker-dealer or any of its officers or employees. Clearing securities firms are subject to substantially more regulatory control and examination than introducing brokers that rely on others to perform clearing functions. Similarly, the attorney general of each state could bring legal action to ensure compliance with state securities laws, and regulatory agencies in foreign countries have similar authority. Our ability to comply with multiple laws and regulations pertaining to the securities industry depends in large part on our ability to establish and maintain an effective compliance function. The failure to establish and enforce reasonable compliance procedures, even if unintentional, could subject us to significant losses or disciplinary or other actions. Federally registered investment advisers are regulated and subject to examination by the SEC. In addition, the Advisers Act imposes numerous obligations on our investment advisory business, including fiduciary duties, disclosure obligations, recordkeeping and reporting requirements, marketing restrictions and general anti-fraud prohibitions. Our failure to comply with the Advisers Act and associated rules and regulations of the SEC could subject us to enforcement proceedings and sanctions for violations, including censure or termination of SEC registration, litigation and reputational harm. In addition, our investment advisory business is subject to notice filings and the anti-fraud rules of state securities regulators. See \u201cRegulation of Securities Business.\u201d\n25\nTable of Cont\nents\nPolicies and regulations enacted by the Consumer Financial Protection Bureau may negatively impact our residential mortgage loan business and compliance risk.\nOur consumer business, including our mortgage and deposit businesses, may be adversely affected by the policies enacted or regulations adopted by the CFPB, which, under the Dodd-Frank Act, has broad rule-making authority over consumer financial products and services. The CFPB is in the process of reshaping consumer financial protection laws through rule-making and enforcement against unfair, deceptive and abusive acts or practices.  The CFPB has been directed to write rules identifying practices or acts that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. The prohibition on \u201cabusive\u201d acts or practices has been clarified each year by CFPB enforcement actions and opinions from courts and administrative proceedings, and in April 2023, the CFPB issued a Policy Statement on Abusive Acts or Practices, which may impact our consumer product and service offerings. While it is difficult to quantify any future increases in our regulatory compliance burden, the costs associated with regulatory compliance, including the need to hire additional compliance personnel, may continue to increase.\nRisks Relating to Commercial Loans, Mortgage Loans and Mortgage-Backed Securities\nDeclining real estate values, particularly in California and New York, could reduce the value of our loan and lease portfolio and impair our profitability and financial condition.\nThe majority of the loans in our portfolio are secured by real estate. At June\u00a030, 2023, approximately 41.3% and 25.2% of our real estate loan portfolio was secured by real estate located in California and New York, respectively. In recent years, there has been significant volatility in real estate values. If real estate values decrease or more of our borrowers experience financial difficulties, we will experience increased charge-offs, as the proceeds resulting from foreclosure may be significantly lower than the amounts outstanding on such loans and the time to foreclose may be extended. In addition, declining real estate values frequently accompany periods of economic downturn or recession and increasing unemployment, all of which can lead to lower demand for mortgage loans of the types we originate and impact the ability of borrowers to repay their loans. A decline of real estate values or decline of the credit position of our borrowers could have a material adverse effect on our business, prospects, financial condition and results of operations.\nMany of our mortgage loans are multifamily residential loans and defaults on such loans would harm our business.\nAt June\u00a030, 2023, our multifamily residential loans were $3.1\u00a0billion or 18.5% of our loan portfolio. The payment on such loans is typically dependent on the cash flows generated by the projects, which are affected by the supply and demand for multifamily residential units and commercial property within the relative market. If the market for multifamily residential units and commercial property experiences a decline in demand, multifamily and commercial borrowers may suffer losses on their projects and be unable to repay their loans. If residential housing values were to decline or nationwide unemployment levels rise, we are likely to experience increases in the level of our non-performing loans and foreclosures in future periods.\nA decrease in the mortgage buying activity of Fannie Mae, Freddie Mac, and MBS\u2019s guaranteed by Ginnie Mae or a failure by Fannie Mae, Ginnie Mae, and Freddie Mac to satisfy their obligations with respect to their RMBS could have a material adverse effect on our business, financial condition and results of operations.\nDuring the last three fiscal years we have sold approximately $2.2\u00a0billion of residential mortgage loans to Fannie Mae and Freddie Mac and into MBS guaranteed by Ginnie Mae. As of June\u00a030, 2023, approximately 10.3% of our securities portfolio consisted of RMBS issued or guaranteed by these GSEs. Since 2008, Fannie Mae and Freddie Mac have been in conservatorship, with its primary regulator, the Federal Housing Finance Agency, acting as conservator. The United States government may enact structural changes to one or more of the GSEs, including privatization, consolidation and/or a reduction in the ability of GSEs to purchase mortgage loans or guarantee mortgage obligations. We cannot predict if, when or how the conservatorships will end, or what associated changes (if any) may be made to the structure, mandate or overall business practices of either of the GSEs. Accordingly, there continues to be uncertainty regarding the future of the GSEs, including whether they will continue to exist in their current form and whether they will continue to meet their obligations with respect to their RMBS. A substantial reduction in mortgage purchasing activity by the GSEs could result in a material decrease in the availability of residential mortgage loans and the number of qualified borrowers, which in turn may lead to increased volatility in the residential housing market, including a decrease in demand for residential housing and a corresponding drop in the value of real property that secures current residential mortgage loans, as well as a significant increase in interest rates. In a rising or higher interest rate environment, our originations of mortgage loans may decrease, which would result in a decrease in mortgage loan revenues and a corresponding decrease in non-interest income. Any decision to change the structure, mandate or overall business practices of the GSEs and/or the relationship among the GSEs, the government and the private mortgage loan markets, or any failure by the GSEs to satisfy their obligations with respect to their RMBS, could have a material adverse effect on our business, financial condition and results of operations.\n26\nTable of Cont\nents\nCommercial and industrial and commercial real estate loans may expose our company to greater financial and credit risk than other loans.\nOur commercial and industrial loans as well as our commercial real estate \u2013 mortgage portfolio was approximately $2,639.7 million and $6,199.8 million at June\u00a030, 2023, comprising approximately 15.8% and 37.2% of our total loan portfolio, respectively. Commercial loans generally carry large balances and may involve a greater degree of financial and credit risk than other loans. Any significant failure to pay on time by our customers could impact our earnings. The increased financial and credit risk associated with these types of loans are a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the types of business and collateral, the size of loan balances, the effects of nationwide and regional economic conditions on income-producing properties and businesses and the increased difficulty of evaluating and monitoring these types of loans. Declines in real estate markets or sustained economic downturns increases the risk of credit losses or charge-offs related to our loans or foreclosures on certain real estate properties. If we foreclose on these loans, our holding period for the collateral typically is longer than residential properties because there are fewer potential purchasers of the collateral.\nThe COVID-19 pandemic has had a potentially long-term negative impact on certain commercial real estate portfolios due to the risk that tenants may reduce the office space they lease as some portion of the workforce continues to work remotely on a hybrid or fulltime basis. Additionally, the shift from traditional brick-and-mortar retail toward e-commerce has been accelerated as a result of the COVID-19 pandemic and may negatively impact the values of retail-focused commercial real estate and related collateral.\nOur mortgage origination business is subject to fluctuations based upon seasonal and other factors and, as a result, our results of operations for any given quarter may not be indicative of the results that may be achieved for the full fiscal year.\nOur mortgage origination business is subject to several variables that can impact loan origination volume, including seasonal and interest rate fluctuations. We typically experience increased loan origination volume from purchases of homes during the second and third calendar quarters, when more people tend to move and buy or sell homes. In addition, an increase in the general level of interest rates may, among other things, adversely affect the demand for mortgage loans and our ability to originate mortgage loans. In particular, if mortgage interest rates increase, the demand for residential mortgage loans and the refinancing of residential mortgage loans will likely decrease, which will have an adverse effect on our mortgage origination activities. Conversely, a decrease in the general level of interest rates, among other things, may lead to increased competition for mortgage loan origination business.\nAs a result of these variables, our results of operations for any single quarter are not necessarily indicative of the results that may be achieved for a full fiscal year or any other quarter.\nRisks Relating to our Business Operations\nOur results of operations could vary as a result of the methods, estimates, and judgments that we use in applying our accounting policies, including with respect to our allowance for credit losses.\nFrom time to time, the Financial Accounting Standards Board (the \u201cFASB\u201d) and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. In addition, the FASB, SEC, bank regulators and outside independent auditors may revise their previous interpretations regarding existing accounting regulations and the application of these accounting standards. The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results of operations. Such methods, estimates and judgments, include methodologies to value our securities, estimate our allowance for loan losses and the realization of deferred tax assets and liabilities. These methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead us to change our methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect our results of operations. These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations.\n27\nTable of Cont\nents\nIf our allowance for credit losses is not sufficient to cover actual credit losses, our earnings, capital adequacy and overall financial condition may suffer materially.\nOur loans are generally secured by single family, multifamily and commercial real estate properties or other commercial assets, each initially having a fair market value generally greater than the amount of the loan secured. Although our loans and leases are typically secured, the risk of default, generally due to a borrower\u2019s inability to make scheduled payments on his or her loan, is an inherent risk of the Banking Business. In determining the amount of the allowance for loan and lease losses, we make various assumptions and judgments about the collectibility of our loan and lease portfolio, including the creditworthiness of our borrowers, the value of the real estate serving as collateral for the repayment of our loans and our loss history. Defaults by borrowers could result in losses that exceed our loan and lease loss reserves. We may not have sufficient repayment experience to be certain whether the established allowance for loan and lease losses is adequate for certain types of loans and leases. We may have to establish a larger allowance for loan and lease losses in the future if, in our judgment, it becomes necessary. \n To the extent that we fail to adequately address the risks associated with non-residential lending, particularly in C&I lending, we may experience increases in levels of non-performing loans and leases and be forced to incur additional loan and lease loss provision expense, which would adversely affect our net interest income and capital levels and reduce our profitability. For further information about our C&I lending business, please refer to \u201cBusiness - Asset Origination and Fee Income Businesses - Commercial Real Estate Secured and Commercial Lending.\u201d\nWhile we believe we have established appropriate underwriting and ongoing monitoring policies and procedures for our lending activities, there can be no assurance that such underwriting and ongoing monitoring policies and procedures are, or will continue to be, appropriate or that losses on loans will not require increased allowances for loan and lease losses. Any increase in our allowance for loan and lease losses would increase our expenses and consequently may adversely affect our profitability, capital adequacy and overall financial condition.\nChanges in the value of goodwill and other intangible assets could reduce our earnings.\nThe Company accounts for goodwill and other intangible assets in accordance with generally accepted accounting principles (\u201cGAAP\u201d), which, in general, requires that goodwill not be amortized, but rather tested for impairment at least annually at the reporting unit level using the two step approach. Testing for impairment of goodwill and other intangible assets is performed annually and involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used. Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability, and may materially impact the fair value of publicly traded financial institutions and could result in an impairment charge at a future date.\nOur risk management processes and procedures may not be effective in mitigating our risks\n.\nWe have established processes and procedures intended to identify, measure, monitor and control material risks to which we are subject, including, for example, credit risk, market risk, liquidity risk, strategic risk and operational risk. If the models that we use to manage these risks are ineffective at predicting future losses or are otherwise inadequate, we may incur unexpected losses or otherwise be adversely affected. In addition, the information we use in managing our credit and other risks may be inaccurate or incomplete as a result of error or fraud, both of which may be difficult to detect and avoid. There may also be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated, including when processes or technology is changed or new products and services are introduced. If our risk management framework does not effectively identify and control our risks, we could suffer unexpected losses or be adversely affected, and that could have a material adverse effect on our business, results of operations and financial condition.\n28\nTable of Cont\nents\nHigher FDIC assessments could negatively impact profitability.\nFDIC insurance premiums are risk based, and accordingly, higher premiums are charged to banks that have lower capital ratios or higher risk profiles, including increased construction and development and commercial and industrial lending, declining credit quality metrics, and increased brokered deposits and higher levels of borrowing. As a result, a decrease in the Bank\u2019s capital ratios, or a negative evaluation by the FDIC, may increase the Bank\u2019s net funding cost and reduce its earnings. Furthermore, recent activity in the banking industry, including certain highly-publicized bank failures, is expected to cause premiums of the FDIC\u2019s deposit insurance program to increase.\nOur broker-dealer business subjects us to a variety of risks associated with the securities industry. \nOur broker-dealer business subjects us to a number of risks and challenges, including risks related to our ability to integrate the acquired operations and the associated internal controls and regulatory functions into our current operations; our ability to retain key personnel; our ability to limit the outflow of acquired deposits and successfully retain and manage acquired assets; our ability to retain existing correspondents who may choose to perform their own clearing services, move their clearing business to one of our competitors or exit the business; our ability to attract new customers and generate new assets in areas not previously served; and the possible assumption of risks and liabilities related to litigation or regulatory proceedings involving the acquired operations. \nIn addition, the broker-dealer business may subject us to risks related to the movement of equity prices. For example, if securities prices decline rapidly, the value of our collateral could fall below the amount of the indebtedness secured by these securities, and in rapidly appreciating markets, our risk of loss may increase due to short positions. The securities lending and securities trading and execution businesses subject us to risk of loss if a counterparty fails to perform or if collateral securing the counterparty\u2019s obligations is insufficient. In securities transactions generally, we may be subject to market risk during the period between the execution of a trade and its settlement. Significant failures by our customers, including correspondents, or clients to honor their obligations, or increases in their rates of default, together with insufficient collateral and reserves, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Additionally, poor investment returns and declines in client assets, due to either general market conditions or under-performance (relative to our competitors or to benchmarks) of our investment products, may affect our ability to retain existing assets, prevent clients from transferring their assets out of products or their accounts, or inhibit our ability to attract new clients or additional assets from existing clients. Any such poor performance could adversely affect our advisory and custody business and the fees that we earn on client assets.\nOur broker-dealer business is also subject to regulatory requirements and risks discussed above under \n\u201cOur broker-dealer and investment advisory businesses subjects us to regulatory risks\u201d\n. Our broker-dealer business exposes us to other risks and uncertainties that are common in the securities industry, including intense competition, and potentially new areas and types of litigation including lawsuits based on allegations concerning our correspondents. For example, we allow our brokerage customers to engage in self-directed trading, and there has been an increase in regulatory enforcement and securities litigation against broker-dealers with self-directed trading platforms. These actions may become more common or frequent, particularly if there is a prolonged decrease in equity prices resulting in investor losses. Allegations of violations of securities laws or FINRA rules, even if not ultimately asserted or proved, could substantially impact our results of operations and lead to reputational harm. \nThe regulatory environment in which our broker dealer business operates is subject to frequent change. Our business, financial condition and operating results may be adversely affected as a result of new or revised legislation or regulations imposed by the U.S. Congress, the SEC, FINRA or other U.S. and state governmental and regulatory authorities. The business, financial condition and operating results of our broker-dealer business may be adversely affected by changes in the interpretation and enforcement of existing laws and rules by these governmental and regulatory authorities.\n \nOur broker-dealer business is subject to the net capital requirements of the SEC, FINRA and various self-regulatory organizations. These requirements typically specify the minimum level of net capital a broker-dealer must maintain and mandate that a significant part of its assets be kept in relatively liquid form. Failure to maintain the required net capital may subject a firm to limitation of its activities, including suspension or revocation of its registration by the SEC and suspension or expulsion by FINRA and other regulatory bodies, and ultimately may require its liquidation. \n29\nTable of Cont\nents\nWe may seek additional capital, but it may not be available when it is needed, which would limit our ability to execute our strategic plan. In addition, raising additional equity capital would dilute existing stockholders\u2019 equity interests and may cause our stock price to decline.\nWe are required by regulatory authorities to maintain adequate levels of capital to support our operations.\u00a0In addition, we may elect to raise additional capital to support the growth of our business or to finance acquisitions, if any, or we may elect to raise additional capital for other reasons.\u00a0We may seek to do so through the issuance of, among other things, our common stock or securities convertible into our common stock, which could dilute existing stockholders\u2019 interests in the Company.\nOur ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions, our financial performance and a number of other factors, many of which are outside our control. Accordingly, we cannot provide assurance on our ability to raise additional capital if needed or whether it can be raised on terms acceptable to us. If we cannot raise additional capital when needed or on terms acceptable to us, it may have a material adverse effect on our financial condition, results of operations and prospects. In addition, raising equity capital will have a dilutive effect on the equity interests of our existing stockholders and may cause our stock price to decline.\nLiquidity and access to adequate funding cannot be assured.\nLiquidity is essential to our business and the inability to raise funds through deposits, borrowings, equity and debt offerings, or other sources could have a materially adverse effect on our liquidity. The Bank may not be able to meet the cash flow requirements of its customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Company specific factors such as a decline in our credit rating, an increase in the cost of capital from financial capital markets, a decrease in business activity due to adverse regulatory action or other company specific event, or a decrease in depositor or investor confidence may impair our access to funding with acceptable terms adequate to finance our activities. General factors related to the financial services industry such as a severe disruption in financial markets, a decrease in industry expectations, or a decrease in business activity due to political or environmental events may impair our access to liquidity. Our ability to attract and maintain depositors during a time of actual or perceived distress or instability in the banking industry may be limited. Additionally, we may accept brokered deposits, which may be more price sensitive than other types of deposits, and may become less available if alternative investments offer higher returns. We rely primarily upon deposits and FHLB advances. Our ability to attract deposits could be negatively impacted by a public perception of our financial prospects or by increased deposit rates available at troubled institutions suffering from shortfalls in liquidity. The FHLB advances and the Federal Reserve Bank of San Francisco (\u201cFRBSF\u201d) discount window are subject to regulation and other factors beyond our control. These factors may adversely affect the availability and pricing of advances to members such as the Bank. Selected sources of liquidity may become unavailable to the Bank if it were to no longer be considered \u201cwell-capitalized.\u201d\nA further reduction in our credit ratings could adversely affect our access to capital and could increase our cost of funds\n.\nThe credit rating agencies regularly evaluate the Company and the Bank, and credit ratings are based on a number of factors, including our financial strength and ability to generate earnings, as well as factors not entirely within our control, such as conditions affecting the financial services industry, the economy, and changes in rating methodologies more generally. On February 1, 2023, a credit rating agency, Moody\u2019s Investors Service, downgraded the Company\u2019s and the Bank\u2019s long-term issuer ratings, among others. There can be no assurance that we will maintain our current credit ratings. A further downgrade of the credit ratings of the Company or the Bank could adversely affect our access to liquidity and capital and could significantly increase our cost of funds, trigger additional collateral or funding requirements, and decrease the number of investors and counterparties willing to lend to us or purchase our securities, thereby, potentially reducing our ability to generate earnings.\n30\nTable of Cont\nents\nOur inability to manage our growth or deploy assets profitably could harm our business and decrease our overall profitability, which may cause our stock price to decline.\nOur assets and deposit base have grown substantially in recent years, and we anticipate that we will continue to grow over time, perhaps significantly. To manage the expected growth of our operations and personnel, we will be required to manage multiple aspects of the business simultaneously, including among other things: (i)\u00a0improve existing and implement new transaction processing, operational and financial systems, procedures and controls; (ii)\u00a0maintain effective credit scoring and underwriting guidelines; (iii) maintain sufficient levels of regulatory capital and liquidity; and (iv)\u00a0expand our employee base and train and manage this growing employee base. In addition, acquiring other companies, asset pools or deposits may involve risks such as exposure to potential asset quality issues, disruption to our normal business activities and diversion of management\u2019s time and attention due to integration and conversion efforts. If we are unable to manage growth effectively or execute integration efforts properly, we may not be able to achieve the anticipated benefits of growth and our business, financial condition and results of operations could be adversely affected.\nIn addition, we may not be able to sustain past levels of profitability as we grow, and our past levels of profitability should not be considered a guarantee or indicator of future success. If we are not able to maintain our levels of profitability by deploying deposits in profitable assets or investments, our net interest margin and overall level of profitability will decrease and our stock price may decline.\nWe depend on the accuracy and completeness of information about customers\n.\nIn deciding whether to extend credit or enter into certain transactions, we rely on information furnished by or on behalf of customers, including financial statements, credit reports, tax returns and other financial information. We may also rely on representations from customers or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading information, financial statements, credit reports, tax returns or other financial information, including information falsely provided as a result of identity theft, could have an adverse effect on our business, financial condition and results of operations.\nWe face strong competition for customers and may not succeed in implementing our business strategy.\nOur business strategy depends on our ability to remain competitive. There is strong competition for customers from existing financial institutions. Technology and other changes allow parties to complete financial transactions through alternative methods rather than through banks. Consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions, such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as \u201cdisintermediation,\u201d could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. Technology has also lowered barriers to entry and made it possible for non-bank, financial technology companies (\u201cFinTechs\u201d) to offer products and services traditionally provided by banks. FinTechs continue to emerge and compete with traditional financial institutions across a wide variety of products and services. Consumers have demonstrated a growing willingness to obtain banking services from FinTechs. As a result, our ability to remain competitive is increasingly dependent upon our ability to maintain critical technological capabilities, and to identify and develop new, value-added products for existing and future customers. Our competitors also include large, publicly-traded, internet-based banks, as well as smaller internet-based banks; \u201cbrick and mortar\u201d banks, including those that have implemented websites to facilitate online banking; and traditional banking institutions such as thrifts, finance companies, credit unions and mortgage banks. Some of these competitors have been in business for a long time and have broader name recognition and a more established customer base. Most of our competitors are larger and have greater financial and personnel resources. In order to compete profitably, we may need to reduce the rates we offer on loans and leases and investments and increase the rates we offer on deposits, which actions may adversely affect our business, prospects, financial condition and results of operations.\nTo remain competitive, we believe we must successfully implement our business strategy. Our success depends on, among other things:\n\u2022\nHaving a large and increasing number of customers who use our bank for their banking needs;\n\u2022\nOur ability to attract, hire and retain key personnel as our business grows;\n\u2022\nOur ability to secure additional capital as needed;\n\u2022\nThe relevance of our products and services to customer needs and demands and the rate at which we and our competitors introduce or modify new products and services;\n\u2022\nOur ability to offer products and services with fewer employees than competitors;\n\u2022\nThe satisfaction of our customers with our customer service;\n\u2022\nEase of use of our websites and smartphone applications; \n31\nTable of Cont\nents\n\u2022\nOur ability to provide a secure and stable technology platform for financial services that provides us with reliable and effective operational, financial and information systems; and\n\u2022\nIntegration of our broker-dealer and registered investment-advisory businesses.\nIf we are unable to implement our business strategy, our business, prospects, financial condition and results of operations could be adversely affected.\nOur business depends on a strong brand, and failing to maintain and enhance our brand could hurt our ability to maintain or expand our customer base. \nThe brand identities that we have developed will significantly contribute to the success of our business. Maintaining and enhancing the \u201cAxos\u201d brands (including our other trade styles and trade names) is critical to expanding our customer base. We believe that the importance of brand recognition will increase due to the relatively low barriers to entry for our \u201cbrick and mortar\u201d competitors in the internet-based banking market. Our brands could be negatively impacted by a number of factors, including data privacy and security issues, service outages, product malfunctions, and trademark infringement. If we fail to maintain and enhance our brands generally, or if we incur excessive expenses in these efforts, our business, financial condition and results of operations may be adversely affected. \nOur reputation and business could be damaged by negative publicity.\nReputational risk is inherent in our business. Negative publicity or reputational harm can result from actual or alleged conduct in a number of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, inadequate protection of customer data, illegal or unauthorized acts taken by third parties that supply products or services to us, the behavior of our employees, the customers with whom we have chosen to do business and negative publicity for other financial institutions. Damage to our reputation could adversely impact our ability to attract new, and maintain existing, loan and deposit customers, employees and business relationships, and, particularly with respect to our broker-dealer and registered investment adviser businesses, could result in the imposition of new regulatory requirements, operational restrictions, enhanced supervision and/or civil money penalties. Such damage could also adversely affect our ability to raise additional capital. Any such damage to our reputation could have a material adverse effect on our financial condition and results of operations.\nExtreme weather conditions, natural disasters, rising sea levels, acts of war or terrorism, civil unrest, public health issues, or other adverse external events could harm our business.\nThe potential impacts of extreme weather conditions, natural disasters and rising sea levels, could impact our operations as well as those of our customers and third party vendors upon which we rely. Our Bank is based in San Diego, California, and approximately 41.3% of our real estate loan portfolio was secured by real estate located in California at June\u00a030, 2023. In addition, some of our computer systems that operate our internet websites and their back-up systems are located in San Diego, California. Historically, California has been vulnerable to natural disasters. Therefore, we are susceptible to the risks of natural disasters, such as earthquakes, wildfires, floods and mudslides, t\nhe nature and magnitude of which cannot be predicted and may be exacerbated by global climate change\n. Natural disasters could harm our operations directly through interference with communications, including the interruption or loss of our websites, which would prevent us from gathering deposits, originating loans and leases and processing and controlling our flow of business, as well as through the destruction of facilities and our operational, financial and management information systems. A natural disaster or recurring power outages may also impair the value of our largest class of assets, our loan and lease portfolio, which is comprised substantially of real estate loans. Losses from disasters for which borrowers are uninsured or under-insured may reduce borrowers\u2019 ability to repay mortgage loans. \nNatural disasters, acts of war or terrorism, civil unrest, public health issues, or other adverse external events could each negatively impact our business operations or the stability of our deposit base, cause significant property damage, adversely impact the values of collateral securing our loans and/or interrupt our borrowers\u2019 abilities to conduct their business in a manner to support their debt obligations, which could result in losses and increased provisions for credit losses. \nAlthough we have implemented several back-up systems and protections (and maintain standard business interruption insurance), these measures may not protect us fully from the effects of a natural disaster, \nacts of war or terrorism, civil unrest, public health issues, or other adverse external events\n. The occurrence of natural disasters, particularly in California, could have a material adverse effect on our business, prospects, financial condition and results of operations.\nIncreased regulation related to Environmental, Social, and Governance factors could negatively affect our operating results and could increase our operating expenses and those of our customers.\nThere is increased public awareness and concern by governmental organizations on a variety of environmental, social, and sustainability matters,\n \nincluding climate change. This increased awareness may include more prescriptive reporting of environmental, social, and governance metrics, and other compliance requirements. Further legislation and regulatory \n32\nTable of Cont\nents\nrequirements could increase the operating expenses of, or otherwise adversely impact, us and our customers.\n \nTo the extent that we or our customers experience increases in costs, reductions in the value of assets, constraints on operations or similar concerns driven by changes in regulation relating to climate change, it could have an adverse effect on our business, prospects, financial condition and results of operations.\n \nOur success depends in large part on the continuing efforts of a few individuals. If we are unable to retain these key personnel or attract, hire and retain others to oversee and manage our Company, our business could suffer.\nOur success depends substantially on the skill and abilities of our senior management team, including our Chief Executive Officer and President, Gregory Garrabrants, and other employees that perform multiple functions that might otherwise be performed by separate individuals at larger banks. The loss of the services of any of these individuals or other key employees, whether through termination of employment, disability or otherwise, could have a material adverse effect on our business. In addition, our ability to grow and manage our growth depends on our ability to continue to identify, attract, hire, train, retain and motivate highly skilled executive, technical, managerial, sales, marketing, customer service and professional personnel. The implementation of our business plan and our future success will depend on such qualified personnel. Competition for employees is intense in many areas of the financial services industry, and there is a risk that we will not be able to successfully attract, assimilate or retain sufficiently qualified personnel. If we fail to attract and retain the necessary personnel, or if the costs of employee compensation or benefits increase substantially, our business, prospects, financial condition and results of operations could be adversely affected.\nWe are exposed to risk of environmental liability with respect to properties to which we take title.\nIn the course of our business, we may foreclose and take title to real estate, including commercial real estate, and could be subject to environmental liabilities with respect to those properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination or may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we become subject to significant environmental liabilities, our business, prospects, financial condition and results of operations could be adversely affected.\nTechnology Risks \nWe depend on third-party service providers for our core banking and securities transactions technology, and interruptions in or terminations of their services could materially impair the quality of our services.\nWe rely substantially upon third-party service providers for our core technology and to protect us from system failures or disruptions. This reliance may mean that we will not be able to resolve operational problems internally or on a timely basis, which could lead to customer dissatisfaction or long-term disruption of our operations. Due to our interconnectivity with these third parties, we may be adversely affected if any of them is subject to a cyber-attack or other privacy or information security event, including those arising due to the use of mobile technology or a third-party cloud environment. Our operations depend upon our ability to replace a third-party service provider if it experiences difficulties that interrupt operations or if an essential third-party service terminates. If these service arrangements are terminated for any reason without an immediately available substitute arrangement, our operations may be severely interrupted or delayed. If such interruption or delay were to continue for a substantial period of time, our business, prospects, financial condition and results of operations could be adversely affected.\nPrivacy concerns relating to our technology could damage our reputation and deter current and potential customers from using our products and services.\nWe are subject to various privacy, information security and data protection laws and regulations, such as the GLBA, which among other things requires privacy disclosures and maintenance of a robust security program. These laws and regulations are rapidly evolving and growing in complexity, and could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer and employee information, and some of our current or planned business activities. The costs of compliance with these laws or regulatory actions may increase our operational costs, restrict our ability to provide certain products and services, reduce income from certain business initiatives, or result in interruptions or delays in the availability of systems.\n33\nTable of Cont\nents\nConcerns about our practices with regard to the collection, use, disclosure or security of personal information of our customers or other privacy related matters, even if unfounded, could damage our reputation and results of operations. While we strive to comply with all applicable data protection laws and regulations, as well as our own posted privacy policies, any failure or perceived failure to comply may result in proceedings or actions against us by government entities or others, or could cause us to lose customers, which could potentially have an adverse effect on our business.\nMisconduct by employees could also result in fraudulent, improper or unauthorized activities on behalf of clients or improper use of confidential personal information. The Company may not be able to prevent employee errors or misconduct, and the precautions the Company takes to detect this type of activity might not be effective in all cases. Employee errors or misconduct could subject the Company to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business.\nAs nearly all of our products and services are smartphone and internet-based, the amount of data we store for our customers on our servers (including personal information) has been increasing and will continue to increase. Any systems failure or compromise of our security that results in the release of our customers\u2019 data could seriously limit the adoption of our products and services, as well as harm our reputation and brand and, therefore, our business. We may need to expend significant resources to protect against security breaches. System enhancements and updates may create risks associated with implementing new systems and integrating them with existing ones. Due to the complexity and interconnectedness of information technology systems, the process of enhancing our layers of defense can create a risk of systems disruptions and security issues. In addition, addressing certain information security vulnerabilities, such as hardware-based vulnerabilities, may affect the performance of our information technology systems. The ability of our hardware and software providers to deliver patches and updates to mitigate vulnerabilities in a timely manner can introduce additional risks, particularly when a vulnerability is being actively exploited by threat actors. \nThe risk that these types of events could seriously harm our business is likely to increase as we add more customers and expand the number of smartphone and internet-based products and services we offer.\nWe have risks of systems failure and disruptions to operations.\nThe computer systems, internet connectivity and network infrastructure utilized by us and others could be vulnerable to unforeseen problems. This is true of both our internally developed systems and the systems of our third-party service providers. Our operations are dependent upon our ability to protect computer equipment against damage from fire, power loss, telecommunication failure or similar catastrophic events.\nAny damage or failure that causes an interruption in our operations could adversely affect our business, prospects, financial condition and results of operations.\nIf our security measures are breached, or if our services are subject to information security incidents that degrade or deny the ability of customers to access our products and services, our products and services may be perceived as not being secure, customers may curtail or stop using our products and services, and we may incur significant legal and financial exposure.\nOur products and services involve the storage and transmission of customers\u2019 proprietary information, and security breaches could expose us to a risk of loss of this information, litigation, and potential liability. We employ cybersecurity measures that are designed to prevent, detect, and respond to cyberattacks, including management-level engagement and corporate governance, formalized risk management, advanced technical controls, incident response planning, frequent vulnerability testing, vendor management, intrusion monitoring, security awareness program, and partnerships with the appropriate government and law enforcement agencies. These procedures cannot assure we will be fully protected from a cybersecurity incident. Our security measures may be breached due to the actions of organized crime, hackers, terrorists, nation-states, activists and other outside parties, employee error, failure to follow security procedures, malfeasance, or otherwise. As a result, an unauthorized party may obtain access to our data or our customers\u2019 data. In addition, to access our products and services, our customers use personal computers, smartphones, tablets, and other mobile devices that are beyond our control environment. Outside parties may attempt to fraudulently induce employees or customers to disclose sensitive information in order to gain access to our data or our customers\u2019 data. Other types of information security incidents may include computer viruses, malicious or destructive code, denial-of-service attacks, ransomware or ransom demands to not expose security vulnerabilities in the Company\u2019s systems or the systems of third parties. Any such breach or unauthorized access could result in significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of our products and services that could potentially have an adverse effect on our business. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, including those of our third-party vendors, such as hacking or identity theft, it could \n34\nTable of Cont\nents\ncause serious negative consequences, including significant disruption of our operations, misappropriation of confidential information, or damage to computers or systems, and may result in violations of applicable privacy and other laws, financial loss and loss of confidence in our security measures. As a result, we could lose customers, suffer employee productivity losses, incur technology replacement and incident response costs, be subject to additional regulatory scrutiny, and be subject to civil litigation and possible financial liability, any of which may have a material adverse effect on our business, financial condition and results of operations.\nWe are heavily reliant on technology, and a failure in effectively implementing technology initiatives or anticipating future technology needs or demands could adversely affect our business or financial results.\nWe depend on technology to deliver our products and services and to conduct our business and operations. To remain technologically competitive and operationally efficient, we invest in system upgrades, new solutions, and other technology initiatives. Many of these initiatives take a significant amount of time to develop and implement, are tied to critical systems, and require substantial financial, human, and other resources. Although we take steps to mitigate the risks and uncertainties associated with these initiatives, no assurance can be provided that they will be implemented on time, within budget, or without negative financial, operational, or customer impact or that, once implemented, they will perform as we or our customers expect. We may not succeed in anticipating or keeping pace with future technology needs, the technology demands of customers, or the competitive landscape for technology. If we are not able to anticipate and keep pace with existing and future technology needs, our business, financial results, or reputation could be negatively impacted.\nRisks Associated with our Common Stock\nThe market price of our common stock may be volatile.\nStock price volatility may make it more difficult for our stockholders to resell their common stock when desired. Our common stock price may fluctuate significantly due to a variety of factors that include the following:\n\u2022\nactual or expected variations in quarterly results of operations;\n\u2022\nrecommendations by securities analysts;\n\u2022\noperating and stock price performance of comparable companies, as deemed by investors;\n\u2022\nnews reports relating to trends, concerns, and other issues in the financial services industry, including recent highly-publicized bank failures;\n\u2022\nperceptions in the marketplace about our Company or competitors;\n\u2022\nnew technology used, or services offered, by competitors;\n\u2022\nsignificant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by, or involving, our Company or competitors;\n\u2022\nfailure to integrate acquisitions or realize expected benefits from acquisitions;\n\u2022\nchanges in government regulations; and\n\u2022\ngeopolitical conditions, such as acts or threats of terrorism or military action.\nGeneral market fluctuations; industry factors; political conditions; and general economic conditions and events, such as economic slowdowns, recessions, interest rate changes, or credit loss trends, could cause our common stock price to decrease regardless of operating results.\nProvisions in our Certificate of Incorporation, By-laws and Delaware laws might discourage, delay or prevent a change of control of our Company or changes in our management and, therefore, depress the trading price of our common stock.\nProvisions of our Certification of Incorporation, by-laws and Delaware laws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include:\n\u2022\nsupermajority voting provisions providing that certain sections of our Certificate of Incorporation and our By-laws may not be amended or repealed by our stockholders without the affirmative vote of the holders of at least 75% of the voting power, and requiring the affirmative vote of the holders of at least 75% of the voting power to remove a director or directors and only for cause;\n\u2022\nour classified Board of Directors, which may tend to discourage a third-party from making a tender offer or otherwise attempting to obtain control of us since the classification of our Board of Directors generally increases the difficulty of replacing a majority of directors;\n35\nTable of Cont\nents\n\u2022\nadvance notice provisions requiring stockholders seeking to nominate candidates to be elected as directors at an annual meeting or to bring business before an annual meeting to comply with the written procedure specified in our By-laws;\n\u2022\nthe inability of stockholders to act by written consent or to call special meetings;\n\u2022\nthe ability of our Board of Directors to make, alter or repeal our by-laws;\n\u2022\nthe ability of our Board of Directors to designate the terms of and issue new series of preferred stock without stockholder approval; \n\u2022\nthe additional shares of authorized common stock and preferred stock available for issuance under our Certificate of Incorporation, which could be issued at such times, under such circumstances and with such terms and conditions as to impede a change in control.\nIn addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our Board of Directors. The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.\nGeneral Risk Factors\nOur acquisitions involve integration and other risks.\nFrom time to time we undertake acquisitions of assets, deposits, lines of business and other companies consistent with our operating and growth strategies. Acquisitions generally involve a number of risks and challenges, including our ability to integrate the acquired operations and the associated internal controls and regulatory functions into our current operations, our ability to retain key personnel of the acquired operations, our ability to limit the outflow of acquired deposits and successfully retain and manage acquired assets, our ability to attract new customers and generate new assets in areas not previously served, and the possible assumption of risks and liabilities related to litigation or regulatory proceedings involving the acquired operations. Additionally, no assurance can be given that the operation of acquisitions would not adversely affect our existing profitability, that we would be able to achieve results in the future similar to those achieved by the acquired operations, that we would be able to compete effectively in the markets served by the acquired operations, or that we would be able to manage any growth resulting from the transaction effectively. We also face the risk that the anticipated benefits of any acquisition may not be realized fully or at all, or within the time period expected.\nAs a public company, we face the risk of stockholder lawsuits and other related or unrelated litigation, particularly if we experience declines in the price of our common stock. \nWe are subject to a variety of litigation pertaining to fiduciary and other claims and legal proceedings. Currently, there are certain legal proceedings pending against us in the ordinary course of business. While the outcome of any legal proceeding is inherently uncertain, we believe any liabilities arising from pending legal matters have been adequately accrued for based on the probability of a charge. However, if actual results differ from our expectations, it could have a material adverse effect on the Company's financial condition, results of operations, or cash flows. For a detailed discussion on current legal proceedings, see Item 3 - \n\u201cLegal Proceedings.\u201d\nOur controls and procedures may fail or be circumvented.\nWe regularly review and update our internal controls, disclosure controls and procedures, compliance monitoring activities and corporate governance policies and procedures. Any system of controls, however well-designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, reputation and financial condition. In addition, if we identify material weaknesses or significant deficiencies in our internal control over financial reporting or are required to restate our financial statements, we could be required to implement expensive and time-consuming remedial measures. We could lose investor confidence in the accuracy and completeness of our financial reports and potentially subject us to litigation. Any material weaknesses or significant deficiencies in our internal control over financial reporting or restatement of our financial statements could have a material adverse effect on our business, results of operations, reputation, and financial condition.\n36\nTable of Cont\nents",
+  "item7": ">ITEM\u00a07. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThe following discussion and analysis contains forward-looking statements that are based upon current expectations. Forward-looking statements involve risks and uncertainties. Our actual results and the timing of events could differ materially from those expressed or implied in our forward-looking\n \nstatements due to various important factors, including those set forth under \u201cRisk Factors\u201d in Item 1A. and elsewhere in this Annual Report on Form 10-K. The following discussion and analysis should be read together with the Consolidated Financial Statements, including the related notes included elsewhere in this Annual Report on Form\u00a010-K.\nOVERVIEW\nThe consolidated financial statements include the accounts of Axos Financial, Inc. (\u201cAxos\u201d) and its wholly owned subsidiaries, Axos Bank (the \u201cBank\u201d) and Axos Nevada Holding, LLC (\u201cAxos Nevada Holding\u201d), collectively, the \u201cCompany.\u201d Axos, the Bank and Axos Nevada Holding comprise substantially all of the Company\u2019s assets and liabilities and revenues and expenses. Axos Nevada Holding owns the companies constituting the Securities Business segment, including; Axos Securities, LLC, Axos Clearing LLC (\u201cAxos Clearing\u201d), a clearing broker-dealer, Axos Invest, Inc., a registered investment advisor, and Axos Invest LLC, an introducing broker-dealer. With approximately $20.3 billion in assets, Axos Bank provides consumer and business banking products through its low-cost distribution channels and affinity partners. Axos Clearing and Axos Invest LLC, provide comprehensive securities clearing services to introducing broker-dealers and registered investment advisor correspondents and digital investment advisory services to retail investors, respectively. Axos Financial, Inc.\u2019s common stock is listed on the NYSE under the symbol \u201cAX\u201d and is a component of the Russell 2000\n\u00ae\n Index and the S&P SmallCap 600\n\u00ae\n Index. For more information on Axos Bank, please visit axosbank.com.\nMERGERS AND ACQUISITIONS\nFrom time to time we undertake acquisitions or similar transactions consistent with our operating and growth strategies.\nE*TRADE Advisor Services acquisition\n. On August 2, 2021, Axos Clearing, LLC, acquired certain assets and liabilities of E*TRADE Advisor Services (\u201cEAS\u201d), the registered investment advisor custody business of Morgan Stanley. This business was rebranded as Axos Advisors Services (\u201cAAS\u201d). AAS adds incremental fee income, a turnkey technology platform used by independent registered investment advisors for trading and custody services, and low-cost deposits that can be used to generate fee income from other bank partners or to fund loan growth at Axos Bank. The purchase price of $54.8 million consisted entirely of cash consideration paid upon acquisition and working capital adjustments.\nThis acquisition was accounted for as a business combination under the acquisition method of accounting. Accordingly, tangible and intangible assets acquired (and liabilities assumed) are recorded at their estimated fair values as of the date of acquisition. \nThere were no other significant acquisitions undertaken during fiscal years 2023, 2022 or 2021.\nCRITICAL ACCOUNTING ESTIMATES\nThe following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances. However, actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.\nCritical accounting estimates are those that we consider most important to the portrayal of our financial condition and results of operations because they require our most difficult judgments, often as a result of the need to make estimates that are inherently uncertain. We have identified critical accounting policies and estimates below. In addition, these critical accounting estimates are discussed further in Note 1 - \u201c\nOrganizations and Summary of Significant Accounting Policies.\n\u201d\nSecurities\n. The Company\u2019s securities held as trading and held as available for sale are carried at fair value. Estimating fair value for these securities requires judgment, the degree of which is largely dependent on the amount of observable market data available to the Company. For securities valued using techniques that use significant unobservable inputs and are therefore \n41\nTable of Cont\nents\nclassified as Level 3 of the fair value hierarchy, the Company incorporates significantly more judgment to estimate the security\u2019s fair value, as Level 3 valuation inputs inherently have increased uncertainty compared to inputs used when estimating the fair value of securities classified as Level 2.\nThe Company\u2019s estimate of fair value for non-agency securities classified as Level 3 is highly subjective and is based on estimates of voluntary prepayments, default rates, severities and discount margins, which are forecasted for each month over the remaining life of each security. Changes in one or more of these inputs can cause a significant change in the estimated fair value. \nFor further information on Securities, refer to Note 1 - \n\u201cOrganizations and Summary of Significant Accounting Policies,\u201d\n Note 3 - \n\u201cFair Value\u201d\n and Note 4 - \n\u201cSecurities.\u201d\nAllowance for Credit Losses\n. The Company maintains an allowance for credit losses for its held-for-investment loan and net investment in leases portfolio, excluding loans measured at fair value in accordance with applicable accounting standards, which represents management\u2019s estimate of the expected lifetime credit losses on the loans and net investment in leases. The estimate of the allowance for credit losses includes both a quantitative and qualitative assessment, both of which include variables that are subject to uncertainty.\nThe quantitative assessment reflects modeled outputs utilizing economic scenarios and forecasts, which are subject to uncertainty, and is also based on the Company\u2019s current and expected future economic outlook. Key economic variables considered in the quantitative assessment include factors such as the U.S. unemployment rate and interest rates, both of which impact the default rate of the loan pools. Additionally, the results of the quantitative assessment are impacted by the third-party macroeconomic forecasts across various economic scenarios. The Company periodically reviews and adjusts the weighting of scenarios based on Management\u2019s ACL framework. Adjustment of scenario weighting away from the baseline scenario to the adverse scenario should increase the allowance for credit losses on the Company\u2019s held-for-investment loan and net investment in leases portfolio, all else remaining equal. Economic forecasts that impacted management\u2019s assessment of scenario weightings included interest rates, inflation, supply chain constraints and geopolitical unrest. Changes in one or more of these variables can cause a significant change in the estimate of the allowance for credit losses.\nAdditionally, management performs a qualitative assessment to address inherent limitations in the model and data. Qualitative criteria used in the assessment, as outlined in Note 1 \u2013 \u201c\nOrganizations and Summary of Significant Accounting Policies\n\u201d, can require significant judgment and is subject to uncertainty.\nFor further information on the allowance for credit losses, refer to Note 1 - \n\u201cOrganizations and Summary of Significant Accounting Policies\u201d\n and Note 5 \u2013 \n\u201cLoans & Allowance for Credit Losses-Loans.\u201d\nGoodwill and Other Intangible Assets\n. Evaluating goodwill for impairment requires significant judgment and requires the use of certain unobservable inputs that are subject to uncertainty. To test for impairment, the Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after completing the qualitative assessment, the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, it performs a quantitative goodwill impairment test. The qualitative assessment requires management judgment in assessing factors including, but not limited to, the macroeconomic and industry environment as well as Company-specific factors. If the Company performs a quantitative test, management applies significant judgment in deriving valuation inputs, evaluating current operating results, estimating future cash flows, assessing market conditions and considering other factors. Factors used to calculate the fair value of a reporting unit are subject to uncertainty and can change from year to year based on availability and observability.\nAdditionally, evaluating other intangible assets for impairment requires management to use significant judgment. The valuation of other intangible assets is primarily determined using discounted cash flows, market comparisons and recent transactions, the inputs for which may be unobservable and are subject to uncertainty. \nFor further information on Goodwill and Other Intangible Assets, refer to Note 1 - \n\u201cOrganizations and Summary of Significant Accounting Policies\u201d\n and Note 9 \u2013 \n\u201cGoodwill and Intangible Assets.\u201d \n42\nTable of Cont\nents\nUSE OF NON-GAAP FINANCIAL MEASURES\nIn addition to the results presented in accordance with GAAP, this report includes non-GAAP financial measures such as adjusted earnings, adjusted earnings per common share, and tangible book value per common share. Non-GAAP financial measures have inherent limitations, may not be comparable to similarly titled measures used by other companies and are not audited. Readers should be aware of these limitations and should be cautious as to their reliance on such measures. As noted below with respect to each measure, we believe the non-GAAP financial measures disclosed in this report enhance investors\u2019 understanding of our business and performance, and our management uses these non-GAAP measures when it internally evaluates the performance of our business and makes operating decisions. However, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures.\nWe define \u201cadjusted earnings\u201d, a non-GAAP financial measure, as net income without the after-tax impact of non-recurring acquisition-related costs (including amortization of intangible assets related to acquisitions), and other costs (unusual or nonrecurring charges). Adjusted earnings per diluted common share (\u201cadjusted EPS\u201d) is calculated by dividing non-GAAP adjusted earnings by the average number of diluted common shares outstanding during the period. We believe the non-GAAP measures of adjusted earnings and adjusted EPS provide useful information about the Company\u2019s operating performance. We believe excluding the non-recurring acquisition related costs, and other costs provides investors with an alternative understanding of Axos\u2019 business.\nBelow is a reconciliation of net income, the nearest compatible GAAP measure, to adjusted earnings and adjusted EPS (Non-GAAP) for the periods shown:\n \nFor Year Ended June\u00a030,\n(Dollars in thousands, except per share amounts)\n2023\n2022\n2021\nNet income\n$\n307,165\u00a0\n$\n240,716\u00a0\n$\n215,707\u00a0\nAcquisition-related costs \n10,948\u00a0\n11,355\u00a0\n9,826\u00a0\nOther costs\n1\n16,000\u00a0\n10,975\u00a0\n\u2014\u00a0\nIncome tax effect\n(7,776)\n(6,519)\n(2,894)\nAdjusted earnings (Non-GAAP)\n$\n326,337\u00a0\n$\n256,527\u00a0\n$\n222,639\u00a0\nAverage dilutive common shares outstanding\n60,566,854\u00a0\n60,610,954\u00a0\n60,519,611\u00a0\nDiluted EPS\n$\n5.07\u00a0\n$\n3.97\u00a0\n$\n3.56\u00a0\nAcquisition-related costs\n0.18\u00a0\n0.19\u00a0\n0.16\u00a0\nOther costs\n1\n0.27\u00a0\n0.18\u00a0\n\u2014\u00a0\nIncome tax effect\n(0.13)\n(0.11)\n(0.04)\nAdjusted EPS (Non-GAAP)\n$\n5.39\u00a0\n$\n4.23\u00a0\n$\n3.68\u00a0\n1 \nOther costs for the year ended June 30, 2023 include an accrual as a result of an adverse legal judgement that has not been finalized. Other costs for the year ended June 30, 2022 reflect a one-time resolution of a contractual claim.\n43\nTable of Cont\nents\nWe define \u201ctangible book value,\u201da non-GAAP financial measure, as book value\u00a0adjusted for goodwill and other intangible assets. Tangible book value is calculated using common stockholders\u2019 equity minus mortgage servicing rights, goodwill and other intangible assets. Tangible book value per common share is calculated by dividing tangible book value by the common shares outstanding at the end of the period. We believe tangible book value per common share is useful in evaluating the Company\u2019s capital strength, financial condition, and ability to manage potential losses.\nBelow is a reconciliation of total stockholders\u2019 equity, the nearest compatible GAAP measure, to tangible book value (Non-GAAP) as of the dates indicated: \nAt the Fiscal Years Ended June\u00a030,\n(Dollars in thousands, except per share amounts)\n2023\n2022\n2021\nCommon stockholders\u2019 equity\n$\n1,917,159\u00a0\n$\n1,642,973\u00a0\n$\n1,400,936\u00a0\nLess: mortgage servicing rights, carried at fair value\n25,443\u00a0\n25,213\u00a0\n17,911\u00a0\nLess: goodwill and intangible assets\n152,149\u00a0\n156,405\u00a0\n115,972\u00a0\nTangible common stockholders\u2019 equity (Non-GAAP)\n$\n1,739,567\u00a0\n$\n1,461,355\u00a0\n$\n1,267,053\u00a0\nCommon shares outstanding at end of period\n58,943,035\u00a0\n59,777,949\u00a0\n59,317,944\u00a0\nBook value per common share\n$\n32.53\u00a0\n$\n27.48\u00a0\n$\n23.62\u00a0\nLess: mortgage servicing rights, carried at fair value per common share\n$\n0.44\u00a0\n$\n0.42\u00a0\n$\n0.31\u00a0\nLess: goodwill and other intangible assets per common share\n$\n2.58\u00a0\n$\n2.61\u00a0\n$\n1.95\u00a0\nTangible book value per common share (Non-GAAP)\n$\n29.51\u00a0\n$\n24.45\u00a0\n$\n21.36\u00a0\n44\nTable of Cont\nents\nFINANCIAL HIGHLIGHTS\nThe following selected consolidated financial information should be read in conjunction with \u201cItem 7\u2014Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and the audited consolidated financial statements and footnotes included elsewhere in this report.\nAt or for the Fiscal Years Ended June\u00a030,\n(Dollars in thousands, except per share amounts)\n2023\n2022\n2021\nSelected Balance Sheet Data:\nTotal assets\n$\n20,348,469\u00a0\n$\n17,401,165\u00a0\n$\n14,265,565\u00a0\nLoans, net of allowance for credit losses\n16,456,728\u00a0\n14,091,061\u00a0\n11,414,814\u00a0\nLoans held for sale, carried at fair value\n23,203\u00a0\n4,973\u00a0\n29,768\u00a0\nLoans held for sale, lower of cost or fair value\n776\u00a0\n10,938\u00a0\n12,294\u00a0\nAllowance for credit losses\n166,680\u00a0\n148,617\u00a0\n132,958\u00a0\nSecurities\u2014trading\n758\u00a0\n1,758\u00a0\n1,983\u00a0\nSecurities\u2014available-for-sale\n232,350\u00a0\n262,518\u00a0\n187,335\u00a0\nSecurities borrowed\n134,339\u00a0\n338,980\u00a0\n619,088\u00a0\nCustomer, broker-dealer and clearing receivables\n374,074\u00a0\n417,417\u00a0\n369,815\u00a0\nTotal deposits\n17,123,108\u00a0\n13,946,422\u00a0\n10,815,797\u00a0\nAdvances from the FHLB\n90,000\u00a0\n117,500\u00a0\n353,500\u00a0\nBorrowings, subordinated debentures and other borrowings\n361,779\u00a0\n445,244\u00a0\n221,358\u00a0\nSecurities loaned\n159,832\u00a0\n474,400\u00a0\n728,988\u00a0\nCustomer, broker-dealer and clearing payables\n445,477\u00a0\n511,654\u00a0\n535,425\u00a0\nTotal stockholders\u2019 equity\n1,917,159\u00a0\n1,642,973\u00a0\n1,400,936\u00a0\nSelected Income Statement Data:\nInterest and dividend income\n$\n1,157,138\u00a0\n$\n659,728\u00a0\n$\n617,863\u00a0\nInterest expense\n374,017\u00a0\n52,570\u00a0\n79,121\u00a0\nNet interest income\n783,121\u00a0\n607,158\u00a0\n538,742\u00a0\nProvision for credit losses\n24,750\u00a0\n18,500\u00a0\n23,750\u00a0\nNet interest income after provision for credit losses\n758,371\u00a0\n588,658\u00a0\n514,992\u00a0\nNon-interest income\n120,488\u00a0\n113,363\u00a0\n105,261\u00a0\nNon-interest expense\n447,115\u00a0\n362,062\u00a0\n314,510\u00a0\nIncome before income tax expense\n431,744\u00a0\n339,959\u00a0\n305,743\u00a0\nIncome tax expense\n124,579\u00a0\n99,243\u00a0\n90,036\u00a0\nNet income\n$\n307,165\u00a0\n$\n240,716\u00a0\n$\n215,707\u00a0\nNet income attributable to common stock\n$\n307,165\u00a0\n$\n240,716\u00a0\n$\n215,518\u00a0\nPer Common Share Data:\nNet income:\nBasic\n$\n5.15\u00a0\n$\n4.04\u00a0\n$\n3.64\u00a0\nDiluted\n$\n5.07\u00a0\n$\n3.97\u00a0\n$\n3.56\u00a0\nAdjusted earnings per common share (Non-GAAP\n1\n)\n$\n5.39\u00a0\n$\n4.23\u00a0\n$\n3.68\u00a0\nBook value per common share\n$\n32.53\u00a0\n$\n27.48\u00a0\n$\n23.62\u00a0\nTangible book value per common share (Non-GAAP\n1\n)\n$\n29.51\u00a0\n$\n24.45\u00a0\n$\n21.36\u00a0\nWeighted-average number of common shares outstanding:\nBasic\n59,691,541\u00a0\n59,523,626\u00a0\n59,229,495\u00a0\nDiluted\n60,566,854\u00a0\n60,610,954\u00a0\n60,519,611\u00a0\nCommon shares outstanding at end of period\n58,943,035\u00a0\n59,777,949\u00a0\n59,317,944\u00a0\n45\nTable of Cont\nents\nAt or for the Fiscal Years Ended June\u00a030,\n(Dollars in thousands, except per share amounts)\n2023\n2022\n2021\nPerformance Ratios and Other Data:\nLoan originations for investment\n$\n8,452,215\u00a0\n$\n10,366,796\u00a0\n$\n6,471,864\u00a0\nLoan originations for sale\n$\n160,607\u00a0\n$\n656,487\u00a0\n$\n1,608,700\u00a0\nReturn on average assets\n1.64\u00a0\n%\n1.57\u00a0\n%\n1.52\u00a0\n%\nReturn on average common stockholders\u2019 equity\n17.22\u00a0\n%\n15.61\u00a0\n%\n16.51\u00a0\n%\nInterest rate spread\n2\n3.44\u00a0\n%\n3.91\u00a0\n%\n3.70\u00a0\n%\nNet interest margin\n3\n4.35\u00a0\n%\n4.13\u00a0\n%\n3.92\u00a0\n%\nNet interest margin - Banking segment only\n3\n4.48\u00a0\n%\n4.36\u00a0\n%\n4.11\u00a0\n%\nEfficiency ratio\n4\n49.48\u00a0\n%\n50.25\u00a0\n%\n48.84\u00a0\n%\nEfficiency ratio - Banking segment only\n4\n47.76\u00a0\n%\n41.61\u00a0\n%\n41.95\u00a0\n%\nCapital Ratios:\nEquity to assets at end of period\n9.42\u00a0\n%\n9.44\u00a0\n%\n9.82\u00a0\n%\nAxos Financial, Inc.:\nTier 1 leverage (to adjusted average assets)\n8.96\u00a0\n%\n9.25\u00a0\n%\n8.82\u00a0\n%\nCommon equity tier 1 capital (to risk-weighted assets)\n10.94\u00a0\n%\n9.86\u00a0\n%\n11.36\u00a0\n%\nTier 1 capital (to risk-weighted assets)\n10.94\u00a0\n%\n9.86\u00a0\n%\n11.36\u00a0\n%\nTotal capital (to risk-weighted assets)\n13.82\u00a0\n%\n12.73\u00a0\n%\n13.78\u00a0\n%\nAxos Bank:\nTier 1 leverage (to adjusted average assets)\n9.68\u00a0\n%\n10.65\u00a0\n%\n9.45\u00a0\n%\nCommon equity tier 1 capital (to risk-weighted assets)\n11.63\u00a0\n%\n11.24\u00a0\n%\n12.28\u00a0\n%\nTier 1 capital (to risk-weighted assets)\n11.63\u00a0\n%\n11.24\u00a0\n%\n12.28\u00a0\n%\nTotal capital (to risk-weighted assets)\n12.50\u00a0\n%\n12.01\u00a0\n%\n13.21\u00a0\n%\nAxos Clearing LLC:\nNet capital\n$\n35,221\u00a0\n$\n38,915\u00a0\n$\n35,950\u00a0\nExcess capital\n$\n29,905\u00a0\n$\n32,665\u00a0\n$\n27,904\u00a0\nNet capital as percentage of aggregate debit item\n13.25\u00a0\n%\n12.45\u00a0\n%\n8.94\u00a0\n%\nNet capital in excess of 5% aggregate debit item\n$\n21,930\u00a0\n$\n23,290\u00a0\n$\n15,836\u00a0\nAsset Quality Ratios:\nNet annualized charge-offs (recoveries) to average loans outstanding\n0.04\u00a0\n%\n0.02\u00a0\n%\n0.12\u00a0\n%\nNet annualized charge-offs (recoveries) to average loans outstanding excluding tax products\n0.04\u00a0\n%\n0.02\u00a0\n%\n0.07\u00a0\n%\nNon-performing loans and leases to total loans\n0.52\u00a0\n%\n0.83\u00a0\n%\n1.26\u00a0\n%\nNon-performing assets to total assets\n0.47\u00a0\n%\n0.68\u00a0\n%\n1.07\u00a0\n%\nAllowance for credit losses - loans to total loans held for investment at end of period\n1.00\u00a0\n%\n1.04\u00a0\n%\n1.15\u00a0\n%\nAllowance for credit losses - loans to non-performing loans\n191.23\u00a0\n%\n125.74\u00a0\n%\n91.57\u00a0\n%\n1 \nSee \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations-Use of Non-GAAP Financial Measures.\u201d\n2 \nInterest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate paid on interest-bearing liabilities.\n3 \nNet interest margin represents net interest income as a percentage of average interest-earning assets.\n4 \nEfficiency ratio represents non-interest expense as a percentage of the aggregate of net interest income and non-interest income.\n46\nTable of Cont\nents\nAVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID\nThe following table presents information regarding (i)\u00a0average balances; (ii)\u00a0the total amount of interest income from interest-earning assets and the weighted-average yields on such assets; (iii)\u00a0the total amount of interest expense on interest-bearing liabilities and the weighted-average rates paid on such liabilities; (iv)\u00a0net interest income; (v)\u00a0interest rate spread; and (vi)\u00a0net interest margin:\nFor the Fiscal Years Ended June\u00a030,\n2023\n2022\n2021\n(Dollars\u00a0in\u00a0thousands)\nAverage\nBalance\n1\nInterest\nIncome /\nExpense\nAverage\nYields\nEarned /\nRates   \u00a0Paid\nAverage\nBalance\n1\nInterest\nIncome /\nExpense\nAverage\nYields\nEarned /\nRates\u00a0  Paid\nAverage\nBalance\n1\nInterest\nIncome /\nExpense\nAverage\nYields\nEarned /\nRates\u00a0  Paid\nAssets:\nLoans\n2,3\n$\n15,571,290\u00a0\n$\n1,048,874\u00a0\n6.74\u00a0\n%\n$\n12,576,873\u00a0\n$\n626,628\u00a0\n4.98\u00a0\n%\n$\n11,332,020\u00a0\n$\n584,410\u00a0\n5.16\u00a0\n%\nInterest-earning deposits in other financial institutions\n1,761,902\u00a0\n73,467\u00a0\n4.17\u00a0\n%\n1,233,983\u00a0\n4,501\u00a0\n0.36\u00a0\n%\n1,600,811\u00a0\n2,185\u00a0\n0.14\u00a0\n%\nInvestment securities\n259,473\u00a0\n14,669\u00a0\n5.65\u00a0\n%\n176,951\u00a0\n6,952\u00a0\n3.93\u00a0\n%\n192,420\u00a0\n9,560\u00a0\n4.97\u00a0\n%\nSecurities borrowed and margin lending\n4\n388,386\u00a0\n18,657\u00a0\n4.80\u00a0\n%\n687,363\u00a0\n20,512\u00a0\n2.98\u00a0\n%\n613,735\u00a0\n20,466\u00a0\n3.33\u00a0\n%\nStock of the regulatory agencies\n20,936\u00a0\n1,471\u00a0\n7.03\u00a0\n%\n21,844\u00a0\n1,135\u00a0\n5.20\u00a0\n%\n20,588\u00a0\n1,242\u00a0\n6.03\u00a0\n%\nTotal interest-earning assets\n18,001,987\u00a0\n$\n1,157,138\u00a0\n6.43\u00a0\n%\n14,697,014\u00a0\n$\n659,728\u00a0\n4.49\u00a0\n%\n13,759,574\u00a0\n$\n617,863\u00a0\n4.49\u00a0\n%\nNon-interest-earning assets\n735,783\u00a0\n658,494\u00a0\n394,085\u00a0\nTotal assets\n$\n18,737,770\u00a0\n$\n15,355,508\u00a0\n$\n14,153,659\u00a0\nLiabilities and Stockholders\u2019 Equity:\nInterest-bearing demand and savings\n$\n10,211,737\u00a0\n$\n305,655\u00a0\n2.99\u00a0\n%\n$\n6,773,321\u00a0\n$\n20,053\u00a0\n0.30\u00a0\n%\n$\n7,204,698\u00a0\n$\n29,031\u00a0\n0.40\u00a0\n%\nTime deposits\n1,225,537\u00a0\n33,826\u00a0\n2.76\u00a0\n%\n1,226,774\u00a0\n13,567\u00a0\n1.11\u00a0\n%\n1,825,795\u00a0\n31,498\u00a0\n1.73\u00a0\n%\nSecurities loaned\n303,932\u00a0\n3,673\u00a0\n1.21\u00a0\n%\n469,051\u00a0\n1,124\u00a0\n0.24\u00a0\n%\n412,385\u00a0\n1,496\u00a0\n0.36\u00a0\n%\nAdvances from the FHLB\n423,612\u00a0\n12,644\u00a0\n2.98\u00a0\n%\n349,796\u00a0\n4,625\u00a0\n1.32\u00a0\n%\n211,077\u00a0\n4,672\u00a0\n2.21\u00a0\n%\nBorrowings, subordinated notes and debentures\n362,733\u00a0\n18,219\u00a0\n5.02\u00a0\n%\n302,454\u00a0\n13,201\u00a0\n4.36\u00a0\n%\n340,699\u00a0\n12,424\u00a0\n3.65\u00a0\n%\nTotal interest-bearing liabilities\n12,527,551\u00a0\n$\n374,017\u00a0\n2.99\u00a0\n%\n9,121,396\u00a0\n$\n52,570\u00a0\n0.58\u00a0\n%\n9,994,654\u00a0\n$\n79,121\u00a0\n0.79\u00a0\n%\nNon-interest-bearing demand deposits\n3,730,524\u00a0\n3,927,195\u00a0\n2,182,009\u00a0\nOther non-interest-bearing liabilities\n695,617\u00a0\n764,542\u00a0\n671,581\u00a0\nStockholders\u2019 equity\n1,784,078\u00a0\n1,542,375\u00a0\n1,305,415\u00a0\nTotal liabilities and stockholders\u2019 equity\n$\n18,737,770\u00a0\n\u00a0\n$\n15,355,508\u00a0\n\u00a0\n$\n14,153,659\u00a0\n\u00a0\nNet interest income\n$\n783,121\u00a0\n$\n607,158\u00a0\n$\n538,742\u00a0\nInterest rate spread\n5\n3.44\u00a0\n%\n3.91\u00a0\n%\n3.70\u00a0\n%\nNet interest margin\n6\n\u00a0\n\u00a0\n4.35\u00a0\n%\n\u00a0\n\u00a0\n4.13\u00a0\n%\n\u00a0\n\u00a0\n3.92\u00a0\n%\n1\n \nAverage balances are obtained from daily data.\n2\n Loans includes loans held for sale, loan premiums, discounts and unearned fees.\n3\n \nInterest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees.\n4\n \nMargin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the audited consolidated balance sheets.\n5\n \nInterest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate paid on interest-bearing liabilities.\n6\n \nNet interest margin represents net interest income as a percentage of average interest-earning assets.\n47\nTable of Cont\nents\nRESULTS OF OPERATIONS\nOur results of operations depend on our net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Our net interest income has increased primarily as a result of both increased rates earned on and growth in our interest-earning assets and is subject to competitive factors in online banking and other markets. Our net interest income is reduced by our estimate of credit loss provisions for our loan portfolio. We earn non-interest income primarily from mortgage banking activities, banking products and service activity, asset custody services, broker-dealer clearing and related services, prepayment fee income from multifamily and commercial borrowers who repay their loans before maturity and from gains on sales of other loans and investment securities. Losses on sales of investment securities reduce non-interest income. The largest component of non-interest expense is salary and benefits, which is a function of the number of personnel, which increased to 1,455 full-time equivalent employees at June\u00a030, 2023, from 1,335 full-time employees at June\u00a030, 2022. We are subject to federal and state income taxes, and our effective tax rates were 28.85%, 29.19% and 29.45% for the fiscal years ended June\u00a030, 2023, 2022, and 2021, respectively. Other factors that affect our results of operations include expenses relating to data processing, advertising, depreciation, occupancy, professional services, and other miscellaneous expenses.\nCOMPARISON OF THE FISCAL YEARS ENDED JUNE 30, 2023 AND JUNE 30, 2022 \nNet Interest Income\n.\n The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i)\u00a0effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); and (ii)\u00a0effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to each based on the relative changes attributable to volume and changes attributable to rate.\nFiscal Year Ended June 30, 2023 vs 2022\nIncrease (Decrease) Due to\n(Dollars in thousands)\nVolume\nRate\nTotal\nIncrease\n(Decrease)\nIncrease (decrease) in interest income:\nLoans\n$\n169,961\u00a0\n$\n252,285\u00a0\n$\n422,246\u00a0\nInterest-earning deposits in other financial institutions\n2,680\u00a0\n66,286\u00a0\n68,966\u00a0\nInvestment securities\n3,981\u00a0\n3,736\u00a0\n7,717\u00a0\nSecurities borrowed and margin lending\n(11,179)\n9,324\u00a0\n(1,855)\nStock of the regulatory agencies\n(49)\n385\u00a0\n336\u00a0\nTotal increase (decrease) in interest income\n$\n165,394\u00a0\n$\n332,016\u00a0\n$\n497,410\u00a0\nIncrease (decrease) in interest expense:\nInterest-bearing demand and savings\n$\n15,302\u00a0\n$\n270,300\u00a0\n$\n285,602\u00a0\nTime deposits\n(14)\n20,273\u00a0\n20,259\u00a0\nSecurities loaned\n(525)\n3,074\u00a0\n2,549\u00a0\nAdvances from the FHLB\n1,152\u00a0\n6,867\u00a0\n8,019\u00a0\nOther borrowings\n2,852\u00a0\n2,166\u00a0\n5,018\u00a0\nTotal increase (decrease) in interest expense\n$\n18,767\u00a0\n$\n302,680\u00a0\n$\n321,447\u00a0\nInterest Income\n.\n For fiscal year 2023, interest income increased $497.4 million, or 75.4%, compared to interest income in fiscal year 2022, primarily attributable to growth of 23.8% in average loan balances, a 176 basis point increase in rates earned on loans and a 381 basis point increase in rates earned on interest-earning deposits placed with other financial institutions.\nInterest Expense\n.\n For fiscal year 2023, interest expense increased $321.4 million, or 611.5% compared to interest expense in fiscal year 2022, primarily attributable to a 269 basis point increase in rates paid on interest-bearing demand and savings deposits, a 165 increase in rates paid on time deposits and growth of 50.8% in average interest-bearing demand and savings deposit balances.\nProvision for Credit Losses\n.\n For fiscal year 2023, provision for credit losses increased $6.3 million compared to the provision for credit losses in fiscal year 2022. See \u201cAsset Quality and Allowance for Credit Losses - Loans\u201d for discussion of our allowance for credit losses and the related loss provisions.\n48\nTable of Cont\nents\nNon-interest Income\n.\n The following table sets forth information regarding our non-interest income:\nFor\u00a0the\u00a0Fiscal\u00a0Year\u00a0Ended\u00a0June\u00a030,\n(Dollars in thousands)\n2023\n2022\nBroker-dealer fee income\n$\n46,503\u00a0\n$\n22,880\u00a0\nAdvisory fee income\n28,324\u00a0\n29,230\u00a0\nBanking and service fees\n32,938\u00a0\n28,752\u00a0\nMortgage banking income\n7,101\u00a0\n19,198\u00a0\nPrepayment penalty fee income\n5,622\u00a0\n13,303\u00a0\nTotal non-interest income\n$\n120,488\u00a0\n$\n113,363\u00a0\nFor fiscal year 2023, non-interest income increased $7.1 million, or 6.3% compared to non-interest income in fiscal year 2022. The increase was primarily the result of an increase of $23.6 million in broker-dealer fee income driven by higher rates earned on cash sorting balances at non-affiliated banks. Also contributing to the increase was a $4.2 million increase in banking and service fees. The overall increase was partially offset by a decrease of $12.1 million in mortgage banking income as higher mortgage rates contributed to lower originations and loan sales, and the impact of change in the fair value of our mortgage servicing rights (\u201cMSRs\u201d) as well as a decrease of $7.7 million in prepayment penalty income due to slower prepayments.\nNon-interest Expense\n.\n The following table sets forth information regarding our non-interest expense for the periods shown:\nFor\u00a0the\u00a0Fiscal\u00a0Year\u00a0Ended\u00a0June\u00a030,\n(Dollars in thousands)\n2023\n2022\nSalaries and related costs\n$\n204,271\u00a0\n$\n167,390\u00a0\nData processing\n60,557\u00a0\n50,159\u00a0\nDepreciation and amortization\n23,387\u00a0\n24,596\u00a0\nAdvertising and promotional\n37,150\u00a0\n13,580\u00a0\nOccupancy and equipment\n15,647\u00a0\n13,745\u00a0\nProfessional services\n29,268\u00a0\n22,482\u00a0\nBroker-dealer clearing charges\n13,433\u00a0\n15,184\u00a0\nFDIC and regulatory fees\n15,534\u00a0\n11,823\u00a0\nGeneral and administrative expenses\n47,868\u00a0\n43,103\u00a0\nTotal non-interest expense\n$\n447,115\u00a0\n$\n362,062\u00a0\nFor fiscal year 2023, non-interest expense increased $85.1 million, or 23.5% compared to non-interest expense in fiscal year 2022. \nSalaries and related costs increased $36.9 million in fiscal year 2023 compared to fiscal year 2022, primarily corresponding to increased headcount to 1,455 as of June\u00a030, 2023, from 1,335 as of June\u00a030, 2022, as well as higher compensation.\nData processing increased $10.4 million in fiscal year 2023 compared to fiscal year 2022, primarily due to enhancements of core processing systems, customer interfaces and clearing and custody technology platforms.\nDepreciation and amortization decreased $1.2 million in fiscal year 2023 compared to fiscal year 2022, primarily due to certain capitalized software becoming fully depreciated.\nAdvertising and promotional expense increased $23.6 million in fiscal year 2023 compared to fiscal year 2022, primarily due to increased deposit marketing and lead generation costs.\nOccupancy and equipment expense increased $1.9 million in fiscal year 2023 compared to fiscal year 2022, primarily due to growth in our office footprint and annual increases on our existing office space.\nProfessional services increased $6.8 million in fiscal year 2023 compared to fiscal year 2022, primarily due to higher consulting expenses and increased legal expenses related to litigation.\nBroker-dealer clearing charges decreased $1.8 million in fiscal year 2023 compared to fiscal year 2022, primarily due to reduced customer trading activity.\n49\nTable of Cont\nents\nThe Federal Deposit Insurance Corporation (\u201cFDIC\u201d) and regulator fees increased by $3.7 million in fiscal year 2023 compared to fiscal year 2022, corresponding to a growth in average liabilities at the Bank and increased assessment rates during fiscal year 2023.\nGeneral and administrative expenses increased by $4.8 million in fiscal year 2023 compared to fiscal year 2022. The increase was primarily attributable to a $16.0\u00a0million expense accrual in 2023 as a result of an adverse legal judgment that has not been finalized, partially offset by a $11.0 million charge due to a one-time resolution of a contractual claim in the prior fiscal year.\nIncome Tax Expense\n.\n For fiscal year 2023, income tax expense increased $25.3 million, or 25.5% compared to income tax expense in fiscal year 2022. The fiscal year 2023 effective tax rate of 28.85%, decreased by 0.34% compared to fiscal year 2022.\nThe Company received federal and state tax credits for the years ended June 30, 2023 and 2022, respectively. These tax credits reduced the effective tax rate by approximately 0.45% and 0.44%, respectively.\nSEGMENT RESULTS\nThe Company determines reportable segments based on the services offered, the significance of the services offered, the significance of those services to the Company\u2019s financial condition and operating results and management\u2019s regular review of the operating results of those services. The Company operates through two operating segments: Banking Business and Securities Business. In order to reconcile the two segments to the consolidated totals, the Company includes parent-only activities and intercompany eliminations. Inter-segment transactions are eliminated in consolidation and primarily include non-interest income earned by the Securities Business segment and non-interest expense incurred by the Banking Business segment for cash sorting fees related to deposits sourced from Securities Business segment customers, as well as interest expense paid by the Banking Business segment to each of the wholly-owned subsidiaries of the Company and to the Company itself for their operating cash held on deposit with the Banking Business segment. The following tables present the operating results of the segments: \nFiscal Year Ended June 30, 2023\n(Dollars in thousands)\nBanking Business\nSecurities Business\nCorporate/Eliminations\nAxos Consolidated\nNet interest income\n$\n776,294\u00a0\n$\n21,042\u00a0\n$\n(14,215)\n$\n783,121\u00a0\nProvision for credit losses\n24,750\u00a0\n\u2014\u00a0\n\u2014\u00a0\n$\n24,750\u00a0\nNon-interest income\n42,260\u00a0\n141,107\u00a0\n(62,879)\n$\n120,488\u00a0\nNon-interest expense\n390,911\u00a0\n102,572\u00a0\n(46,368)\n$\n447,115\u00a0\nIncome (loss) before taxes\n$\n402,893\u00a0\n$\n59,577\u00a0\n$\n(30,726)\n$\n431,744\u00a0\nFiscal Year Ended June 30, 2022\n(Dollars in thousands)\nBanking Business\nSecurities Business\nCorporate/Eliminations\nAxos Consolidated\nNet interest income\n$\n597,833\u00a0\n$\n17,580\u00a0\n$\n(8,255)\n$\n607,158\u00a0\nProvision for credit losses\n18,500\u00a0\n\u2014\u00a0\n\u2014\u00a0\n$\n18,500\u00a0\nNon-interest income\n60,881\u00a0\n64,069\u00a0\n(11,587)\n$\n113,363\u00a0\nNon-interest expense\n274,079\u00a0\n84,014\u00a0\n3,969\u00a0\n$\n362,062\u00a0\nIncome (loss) before taxes\n$\n366,135\u00a0\n$\n(2,365)\n$\n(23,811)\n$\n339,959\u00a0\nBanking Business\nFor the fiscal year ended June\u00a030, 2023, we had pre-tax income of $402.9 million compared to pre-tax income of $366.1 million for the fiscal year ended June\u00a030, 2022. For the fiscal year ended June\u00a030, 2023, the increase in pre-tax income was primarily related to the increase in net interest income due largely to growth in the volume and rates earned on loans and leases, primarily from commercial real estate and commercial & industrial lending, partially offset by an increase in volume and rates on interest-bearing demand and savings deposits.\n50\nTable of Cont\nents\nWe consider the ratios shown in the table below to be key indicators of the performance of our Banking Business segment:\nFiscal Year Ended\nJune 30, 2023\nJune 30, 2022\nEfficiency ratio\n47.76\u00a0\n%\n41.61\u00a0\n%\nReturn on average assets\n1.60\u00a0\n%\n1.64\u00a0\n%\nInterest rate spread\n3.56\u00a0\n%\n4.18\u00a0\n%\nNet interest margin\n4.48\u00a0\n%\n4.36\u00a0\n%\nOur Banking segment\u2019s net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our Banking Business and reduce our consolidated net interest margin, such as the borrowing costs at the Company and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in our Securities Business, including items related to securities financing operations.\nThe following table presents our Banking segment\u2019s information regarding (i)\u00a0average balances; (ii)\u00a0the total amount of interest income from interest-earning assets and the weighted-average yields on such assets; (iii)\u00a0the total amount of interest expense on interest-bearing liabilities and the weighted-average rates paid on such liabilities; (iv)\u00a0net interest income; (v)\u00a0interest rate spread; and (vi)\u00a0net interest margin:\nFor the Fiscal Years Ended June\u00a030,\n2023\n2022\n(Dollars in thousands)\nAverage Balance\n1\nInterest Income/ Expense\nAverage Yields Earned/Rates Paid\nAverage Balance\n1\nInterest Income/Expense\nAverage Yields Earned/Rates Paid\nAssets:\nLoans\n2,3\n$\n15,548,042\u00a0\n$\n1,047,580\u00a0\n6.74\u00a0\n%\n$\n12,539,502\u00a0\n$\n624,501\u00a0\n4.98\u00a0\n%\nInterest-earning deposits in other financial institutions\n1,510,076\u00a0\n64,707\u00a0\n4.29\u00a0\n%\n953,490\u00a0\n3,189\u00a0\n0.33\u00a0\n%\nInvestment securities\n3\n268,072\u00a0\n14,849\u00a0\n5.54\u00a0\n%\n198,637\u00a0\n7,410\u00a0\n3.73\u00a0\n%\nStock of the regulatory agencies, at cost\n20,936\u00a0\n1,462\u00a0\n6.98\u00a0\n%\n18,789\u00a0\n1,132\u00a0\n6.02\u00a0\n%\nTotal interest-earning assets\n17,347,126\u00a0\n1,128,598\u00a0\n6.51\u00a0\n%\n13,710,418\u00a0\n636,232\u00a0\n4.64\u00a0\n%\nNon-interest-earning assets\n345,535\u00a0\n296,228\u00a0\nTotal Assets\n$\n17,692,661\u00a0\n$\n14,006,646\u00a0\nLiabilities and Stockholder's Equity:\nInterest-bearing demand and savings\n$\n10,299,234\u00a0\n$\n305,832\u00a0\n2.97\u00a0\n%\n$\n6,843,840\u00a0\n$\n20,207\u00a0\n0.30\u00a0\n%\nTime deposits\n1,225,537\u00a0\n33,826\u00a0\n2.76\u00a0\n%\n1,226,774\u00a0\n13,567\u00a0\n1.11\u00a0\n%\nAdvances from the FHLB\n423,612\u00a0\n12,644\u00a0\n2.98\u00a0\n%\n349,796\u00a0\n4,625\u00a0\n1.32\u00a0\n%\nBorrowings, subordinated notes and debentures\n36\u00a0\n\u2014\u00a0\n\u2014\u00a0\n%\n93\u00a0\n\u2014\u00a0\n\u2014\u00a0\n%\nTotal interest-bearing liabilities\n$\n11,948,419\u00a0\n$\n352,302\u00a0\n2.95\u00a0\n%\n$\n8,420,503\u00a0\n$\n38,399\u00a0\n0.46\u00a0\n%\nNon-interest-bearing demand deposits\n3,789,607\u00a0\n4,012,615\u00a0\nOther non-interest-bearing liabilities\n189,457\u00a0\n143,841\u00a0\nStockholder's equity\n1,765,178\u00a0\n1,429,687\u00a0\nTotal Liabilities and Stockholders' Equity\n$\n17,692,661\u00a0\n$\n14,006,646\u00a0\nNet interest income\n$\n776,296\u00a0\n$\n597,833\u00a0\nInterest rate spread\n4\n3.56\u00a0\n%\n4.18\u00a0\n%\nNet interest margin\n5\n4.48\u00a0\n%\n4.36\u00a0\n%\n1\nAverage balances are obtained from daily data.\n2\nLoans include loans held for sale, loan premiums and unearned fees.\n3\nInterest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees.\n4\nInterest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate paid on interest-bearing liabilities.\n5\nNet interest margin represents annualized net interest income as a percentage of average interest-earning assets.\n51\nTable of Cont\nents\nNet Interest Income\n.\n The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i)\u00a0effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); and (ii)\u00a0effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to both, based on their relative absolute values.\nFiscal Year Ended June 30, 2023 vs 2022\nIncrease (Decrease) Due to\n(Dollars in thousands)\nVolume\nRate\nTotal\nIncrease\n(Decrease)\nIncrease (decrease) in interest income:\nLoans and leases\n$\n171,078\u00a0\n$\n252,001\u00a0\n$\n423,079\u00a0\nInterest-earning deposits in other financial institutions\n2,854\u00a0\n58,664\u00a0\n61,518\u00a0\nInvestment securities\n3,115\u00a0\n4,324\u00a0\n7,439\u00a0\nStock of the regulatory agencies\n138\u00a0\n192\u00a0\n330\u00a0\nTotal increase (decrease) in interest income\n$\n177,185\u00a0\n$\n315,181\u00a0\n$\n492,366\u00a0\nIncrease (decrease) in interest expense:\nInterest-bearing demand and savings\n$\n15,333\u00a0\n$\n270,292\u00a0\n$\n285,625\u00a0\nTime deposits\n(14)\n20,273\u00a0\n20,259\u00a0\nAdvances from the FHLB\n1,152\u00a0\n6,867\u00a0\n8,019\u00a0\nTotal increase (decrease) in interest expense\n$\n16,471\u00a0\n$\n297,432\u00a0\n$\n313,903\u00a0\nFor the fiscal year 2023, the Banking segment\u2019s net interest income increased $178.5 million, or 29.9%, compared to net interest income in fiscal year 2022. The growth of net interest income is reflective of growth in the average balance of loans and leases combined with higher rates earned on loans and leases and interest-earning deposits in other financial institutions. The growth of interest income was offset by increased rates paid on interest-bearing demand and savings deposits and on time deposits combined with growth in the average interest-bearing demand and savings deposits.\nFor the fiscal year 2023, the Banking segment\u2019s non-interest income decreased $18.7 million, or 30.6% compared to non-interest income in fiscal year 2022. The decrease in non-interest income was primarily the result of increased prevailing market interest rates which caused decreases of $12.1 million in mortgage banking income and $7.7 million in prepayment penalty income, which were partially offset by a $1.1 million increase in banking and servicing fees.\nFor the fiscal year 2023, the Banking segment\u2019s non-interest expense increased $116.8 million, or 42.6% compared to non-interest expense in fiscal 2022. The increase in non-interest expense was primarily driven by a $74.2 million increase in advertising and promotional expense, a $24.8 million increase in salaries and related costs and a $16.0\u00a0million accrual in the first quarter of 2023 as a result of an adverse legal judgment that has not been finalized.\nSecurities Business\nFor the fiscal year ended June\u00a030, 2023, our Securities Business segment had income before taxes of $59.6 million compared to the loss before taxes of $2.4 million for the fiscal year ended June\u00a030, 2022. \nThe following table provides our Securities Business operating results:\nFor the Fiscal Year Ended June 30,\n(Dollars in thousands)\n2023\n2022\nNet interest income\n$\n21,042\u00a0\n$\n17,580\u00a0\nNon-interest income\n141,107\u00a0\n64,069\u00a0\nNon-interest expense\n102,572\u00a0\n84,014\u00a0\nIncome (Loss) before taxes\n$\n59,577\u00a0\n$\n(2,365)\nFor the fiscal year 2023, the Securities Business\u2019s net interest income increased $3.5 million, or 19.7% compared to fiscal year 2022, resulting in large part from an increase in the rates earned on interest bearing cash deposit balances and margin lending. In the Securities Business, interest is earned through margin loan balances, securities borrowed and cash deposit balances. Interest expense is incurred from cash borrowed through bank lines and securities lending.\nFor the fiscal year 2023, the Securities Business\u2019s non-interest income increased $77.0 million compared to fiscal year 2022, primarily attributable to a $74.9 million increase in broker-dealer fee income attributable to increased cash-sorting fee revenue.\n52\nTable of Cont\nents\nFor the fiscal year 2023, the Securities Business\u2019s non-interest expense increased $18.6 million compared to non-interest expense in fiscal year ended June\u00a030, 2022, primarily related to a $12.2 million increase in salaries and related expenses, a $2.4 million increase in data processing expenses and a $1.7 million increase in professional services.\nSelected information concerning Axos Clearing follows as of each date indicated:\nJune 30,\n(Dollars in thousands)\n2023\n2022\nFDIC insured program balances at banks\n$\n1,627,053\u00a0\n$\n3,452,358\u00a0\nMargin balances\n$\n205,880\u00a0\n$\n285,894\u00a0\nCash reserves for the benefit of customers\n$\n149,059\u00a0\n$\n372,112\u00a0\nSecurities lending:\nInterest-earning assets \u2013 stock borrowed\n$\n134,339\u00a0\n$\n338,980\u00a0\nInterest-bearing liabilities \u2013 stock loaned\n$\n159,832\u00a0\n$\n474,400\u00a0\nCOMPARISON OF THE FISCAL YEARS ENDED JUNE\u00a030, 2022 AND JUNE\u00a030, 2021 \nFor a comparison of our fiscal year 2022 results compared to 2021 results, see Part II, Item 7, \u201cComparison of the Fiscal Years Ended June\u00a030, 2022 and June\u00a030, 2021\u201d in the Annual Report on Form 10-K for the year-ended June\u00a030, 2022 filed with the SEC.\nCOMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2023 AND JUNE 30, 2022 \nOur total assets increased $2.9 billion, or 16.9%, to $20.3 billion, as of June\u00a030, 2023, up from $17.4 billion at June\u00a030, 2022. The loan portfolio increased $2.4 billion on a net basis, primarily from portfolio loan originations of $8.3 billion, less principal repayments and other adjustments of $5.9 billion. Total cash increased by $0.8 billion primarily due to increased deposits.\n \nTotal liabilities increased by $2.7 billion or 17.0%, to $18.4 billion at June\u00a030, 2023, up from $15.8 billion at June\u00a030, 2022. The increase in total liabilities resulted primarily from growth in deposits of $3.2 billion, partially offset by decreased securities loaned of $0.3 billion and decreased borrowings, subordinated notes and debentures of $0.1 billion. Stockholders\u2019 equity increased by $274.2 million, or 16.7%, to $1.9 billion at June\u00a030, 2023, up from $1.6 billion at June\u00a030, 2022. The increase was largely the result of $307.2 million in net income for the fiscal year and $20.0 million vesting and issuance of RSUs and stock-based compensation expense, partially offset by $49.3 million from purchases of treasury stock and a $3.7 million unrealized loss in other comprehensive income, net of tax.\nASSET QUALITY AND ALLOWANCE FOR CREDIT LOSSES - LOANS\nNon-performing loans and foreclosed assets or \u201cnon-performing assets\u201d consisted of the following:\nAt June\u00a030,\n(Dollars in thousands)\n2023\n2022\n2021\nNon-performing assets:\nNon-accrual loans:\nSingle Family - Mortgage & Warehouse\n$\n30,714\u00a0\n$\n66,424\u00a0\n$\n105,708\u00a0\nMultifamily and Commercial Mortgage\n35,103\u00a0\n33,410\u00a0\n20,428\u00a0\nCommercial Real Estate\n14,852\u00a0\n14,852\u00a0\n15,839\u00a0\nCommercial & Industrial - Non-RE\n2,989\u00a0\n2,989\u00a0\n2,942\u00a0\nAuto & Consumer\n1,457\u00a0\n439\u00a0\n278\u00a0\nOther\n2,045\u00a0\n80\u00a0\n\u2014\u00a0\nTotal non-accrual loans\n87,160\u00a0\n118,194\u00a0\n145,195\u00a0\nForeclosed real estate\n6,966\u00a0\n\u2014\u00a0\n6,547\u00a0\nRepossessed - Autos\n1,133\u00a0\n798\u00a0\n235\u00a0\nTotal non-performing assets\n$\n95,259\u00a0\n$\n118,992\u00a0\n$\n151,977\u00a0\nTotal non-performing loans as a percentage of total loans\n0.52\u00a0\n%\n0.83\u00a0\n%\n1.26\u00a0\n%\nTotal non-performing assets as a percentage of total assets\n0.47\u00a0\n%\n0.68\u00a0\n%\n1.10\u00a0\n%\nOur non-performing assets decreased to $95.3 million at June\u00a030, 2023 from $119.0 million at June\u00a030, 2022. The decrease in non-performing assets during the fiscal year ended June\u00a030, 2023 was primarily the result of a decrease in non-performing loans of $31.0 million, mainly in single family mortgage loans. Non-performing assets as a percentage of total assets decreased to 0.47% at June\u00a030, 2023 from 0.68% at June\u00a030, 2022. The decrease in non-performing assets during the \n53\nTable of Cont\nents\nfiscal year ended June\u00a030, 2022 compared to June 30, 2021 was primarily due to a decrease in non-performing loans of $27.0 million, primarily single family mortgage loans.\nAllowance for Credit Losses - Loans\n.\nThe following table sets forth the changes in our allowance for credit losses, by portfolio class for the dates indicated: \n(Dollars in thousands)\nSingle Family - Mortgage & Warehouse\nMultifamily and Commercial Mortgage\nCommercial Real Estate\nCommercial & Industrial - Non-RE\nAuto & Consumer\nOther\nTotal\nTotal           \u00a0Allowance\nas a % of Total\nLoans\nBalance at June 30, 2020\n$\n25,899\u00a0\n$\n4,719\u00a0\n$\n21,052\u00a0\n$\n9,954\u00a0\n$\n9,462\u00a0\n$\n4,721\u00a0\n$\n75,807\u00a0\n0.71\u00a0\n%\nEffect of Adoption of ASC 326\n6,318\u00a0\n7,408\u00a0\n25,893\u00a0\n7,042\u00a0\n610\u00a0\n29\u00a0\n47,300\u00a0\nProvision for credit losses\n(3,242)\n1,196\u00a0\n11,238\u00a0\n14,251\u00a0\n(1,354)\n1,661\u00a0\n23,750\u00a0\nCharge-offs\n(2,502)\n(177)\n(255)\n(2,833)\n(3,517)\n(7,274)\n(16,558)\nRecoveries\n131\u00a0\n\u2014\u00a0\n\u2014\u00a0\n46\u00a0\n1,318\u00a0\n1,164\u00a0\n2,659\u00a0\nBalance at June 30, 2021\n26,604\u00a0\n13,146\u00a0\n57,928\u00a0\n28,460\u00a0\n6,519\u00a0\n301\u00a0\n132,958\u00a0\n1.15\u00a0\n%\nProvision for credit losses\n(7,009)\n1,332\u00a0\n11,411\u00a0\n2,544\u00a0\n10,492\u00a0\n(270)\n18,500\u00a0\nCharge-offs\n(82)\n\u2014\u00a0\n\u2014\u00a0\n(322)\n(4,024)\n\u2014\u00a0\n(4,428)\nRecoveries\n157\u00a0\n177\u00a0\n\u2014\u00a0\n126\u00a0\n1,127\u00a0\n\u2014\u00a0\n1,587\u00a0\nBalance at June 30, 2022\n19,670\u00a0\n14,655\u00a0\n69,339\u00a0\n30,808\u00a0\n14,114\u00a0\n31\u00a0\n148,617\u00a0\n1.04\u00a0\n%\nProvision for credit losses\n(2,302)\n2,193\u00a0\n3,416\u00a0\n15,521\u00a0\n5,938\u00a0\n(16)\n24,750\u00a0\nCharge-offs\n(314)\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(9,142)\n\u2014\u00a0\n(9,456)\nRecoveries\n449\u00a0\n\u2014\u00a0\n\u2014\u00a0\n18\u00a0\n2,302\u00a0\n\u2014\u00a0\n2,769\u00a0\nBalance at June 30, 2023\n$\n17,503\u00a0\n$\n16,848\u00a0\n$\n72,755\u00a0\n$\n46,347\u00a0\n$\n13,212\u00a0\n$\n15\u00a0\n$\n166,680\u00a0\n1.00\u00a0\n%\nNet Charge-Offs to Average  Loans - Year Ended June 30, 2023\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n1.12\u00a0\n%\n\u2014\u00a0\n%\n0.04\u00a0\n%\nNet Charge-Offs (Recoveries)  to Average  Loans - Year Ended June 30, 2022\n\u2014\u00a0\n%\n(0.01)\n%\n\u2014\u00a0\n%\n0.01\u00a0\n%\n0.60\u00a0\n%\n\u2014\u00a0\n%\n0.02\u00a0\n%\nNet Charge-Offs to Average  Loans - Year Ended June 30, 2021\n0.05\u00a0\n%\n0.01\u00a0\n%\n0.01\u00a0\n%\n0.30\u00a0\n%\n0.67\u00a0\n%\n3.96\u00a0\n%\n0.12\u00a0\n%\nThe Company\u2019s allowance for credit losses increased $18.1 million or 12.2% from June\u00a030, 2022 to June\u00a030, 2023. As a percentage of the outstanding loan balance, the Company\u2019s allowance was 1.00% and 1.04% at June\u00a030, 2023 and 2022, respectively. Provisions for credit losses were $24.8 million and $18.5 million for fiscal year 2023 and 2022, respectively. For a discussion of the provision for credit losses in fiscal year 2023, see Note 5 \u2013 \n\u201cLoans & Allowance for Credit Losses.\u201d\nFor fiscal year 2023, net charge-offs were $6.7 million and increased $3.8 million compared to net charge-offs for fiscal year 2022, primarily due to the net charge-offs in the auto and consumer portfolio. Certain auto loans are insured for credit losses through which the Company recognizes fee income upon the receipt of insurance proceeds following the charge off of the loans.\nFor fiscal year 2022, net charge-offs were $2.8 million and decreased $6.7 million compared to net charge-offs for fiscal year 2021. The decrease year-over-year was primarily due to decreases in net charge-offs of $6.1 million in the fully reserved Refund Advance loan portfolio.\nBetween June\u00a030, 2022 and 2023, the Company\u2019s total allowance for credit losses as a proportion of the loan portfolio decreased 4 basis points primarily due to updates in economic and business conditions and loan mix.\nLIQUIDITY AND CAPITAL RESOURCES\nLiquidity\n. \nFor Axos Bank, our sources of liquidity include deposits, borrowings, payments and maturities of outstanding loans, sales of loans, maturities or sales of investment securities and other short-term investments. While scheduled loan payments and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. We generally invest excess funds in overnight deposits and other short-term interest-earning assets. We use cash generated through retail deposits, our largest funding source, to offset the cash utilized in lending and investing activities. Our short-term interest-earning investment securities are used to provide liquidity for lending and other operational requirements. \n54\nTable of Cont\nents\nAxos Bank can borrow up to 40% of its total assets from the FHLB. Borrowings are collateralized by pledging certain mortgage loans and investment securities to the FHLB. Based on loans and securities pledged at June\u00a030, 2023, we had a total borrowing availability of an additional $3.1 billion available immediately and an additional $4.5 billion available with additional collateral, for advances from the FHLB for terms of up to ten years. As of June\u00a030, 2023, the Company pledged $5,128.4 million of loans and $0.2 million of securities to the FHLB to secure its borrowings. At June\u00a030, 2023, we had $225.0 million in unsecured federal funds lines of credit with four major banks under which there were no borrowings outstanding.\nThe Bank can borrow from the discount window at the FRBSF. FRBSF borrowings are collateralized by commercial loans, consumer loans and mortgage-backed securities pledged to the FRBSF. Based on loans and securities pledged at June\u00a030, 2023, the Bank had a total borrowing capacity of approximately $2.7 billion, all of which was available for use. At June 30, 2023 we had $3.7 billion of loans pledged to the FRBSF.\nOur future borrowings will depend on the growth of our lending operations and our exposure to interest rate risk. We expect to continue to use deposits and advances from the FHLB as the primary sources of funding our future asset growth.\nAxos Clearing has $150.0 million of secured lines of credit available for borrowing. As of June\u00a030, 2023, there was $11.5 million outstanding. These credit facilities bear interest at rates based on the Federal Funds rate and borrowings are due upon demand. The weighted-average interest rate on the borrowings at June\u00a030, 2023 was 7.0%.\nAxos Clearing has a $190.0 million unsecured line of credit available for limited purpose borrowing, which includes $100.0 million from Axos Financial, Inc. As of June\u00a030, 2023, there was $15.7 million outstanding after elimination of intercompany balances. This credit facility bears interest at rates based on the Federal Funds rate and borrowings are due upon demand. The unsecured line of credit requires Axos Clearing to operate in accordance with specific covenants with respect to capital and debt ratios. Axos Clearing was in compliance with all covenants as of June\u00a030, 2023.\nIn December\u00a02004, we completed a transaction that resulted in the issuance of $5.2 million of junior subordinated debentures for our company with a stated maturity date of February\u00a023, 2035. We have the right to redeem the debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indenture plus any accrued but unpaid interest through the redemption date. Prior to June 30, 2023, interest accrued at the rate of three-month LIBOR plus 2.4%, for a rate of 7.79% as of June\u00a030, 2023, with interest paid quarterly. Following June 30, 2023, interest accrues at three-month term SOFR plus of 0.26161%.\nIn March 2016, Axos completed the sale of $51.0 million aggregate principal amount of our 6.25% Subordinated Notes due February 28, 2026 (the \u201c2026 Notes\u201d). On March 31, 2021, the Company completed the redemption of $51.0 million aggregate principal amount. The 2026 Notes were redeemed for cash by the Company at 100% of their principal amount, plus accrued and unpaid interest, in accordance with the terms of the indenture governing the 2026 Notes. On March 31, 2021, the Company completed the redemption of $51.0\u00a0million aggregate principal amount of its 2026 Notes. The 2026 Notes were redeemed for cash by the Company at 100% of their principal amount, plus accrued and unpaid interest, in accordance with the terms of the indenture governing the 2026 Notes. Remaining unamortized deferred financing costs associated with such notes were expensed and included under \u201cInterest Expense - Other Borrowings in the Consolidated Statements of Income.\u201d\nIn January 2019, we issued subordinated notes totaling $7.5 million to the principal stockholders of Cor Securities Holdings, Inc. (\u201cCOR Securities\u201d) in an equal principal amount, with a maturity of 15 months, to serve as the source of payment of indemnification obligations of the principal stakeholders of COR Securities under the Merger Agreement. Interest accrues at a rate of 6.25% per annum. During the fiscal year ended June\u00a030, 2019, $0.1 million of subordinated loans were repaid. The Company has made an indemnification claim against the $7.4 million remaining amount.\nIn September 2020, the Company completed the sale of $175.0 million aggregate principal amount of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030 (the \u201c2030 Notes\u201d). The 2030 Notes mature on October 1, 2030 and accrue interest at a fixed rate per annum equal to 4.875%, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2021. From and including October 1, 2025, to, but excluding October 1, 2030 or the date of early redemption, the 2030 Notes will bear interest at a floating rate per annum equal to the three-month term SOFR plus a spread of 476 basis points, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on January 2026. The 2030 Notes may be redeemed on or after October 1, 2025, which date may be extended at the Company\u2019s discretion, at a redemption price equal to principal plus accrued and unpaid interest, subject to certain conditions.\nIn March 2021, we filed a new shelf registration with the SEC which allows us to issue up to $400.0\u00a0million through the sale of debt securities, common stock, preferred stock and warrants. \nIn February 2022, the Company completed the sale of $150.0\u00a0million aggregate principal amount of its 4.00% Fixed-to-Floating Rate Subordinated Notes (the \u201c2032 Notes\u201d). The 2032 Notes are obligations only of Axos Financial, Inc. The 2032 \n55\nTable of Cont\nents\nNotes mature on March 1, 2032 and accrue interest at a fixed rate per annum equal to 4.00%, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2022. From and including March 1, 2027, to, but excluding March 1, 2032 or the date of early redemption, the 2032 Notes will bear interest at a floating rate per annum equal to three-month term SOFR plus a spread of 227 basis points, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, commencing on June 1, 2027. The 2032 Notes may be redeemed on or after March 1, 2027, which date may be extended at the Company\u2019s discretion, at a redemption price equal to principal plus accrued and unpaid interest, subject to certain conditions. Fees and costs incurred in connection with the debt offering amortize to interest expense over the term of the 2032 Notes.\nWe view our liquidity sources to be stable and adequate for our anticipated needs and contingencies for both the short and long-term. Due to the diversified sources of our deposits, while maintaining approximately 90% of our total Bank deposits in insured or collateralized accounts as of June\u00a030, 2023, we believe we have the ability to increase our level of deposits, and have available other potential sources of funding, to address our liquidity needs for the foreseeable future.\nFor additional information on certain contractual and other obligations, see Note 10 - \n\u201cLeases,\u201d \nNote 11 - \n\u201cDeposits,\u201d\n Note 12 - \n\u201cAdvances from the Federal Home Loan Bank\u201d\n and Note 13 - \n\u201cBorrowings, Subordinated Debt and Debentures.\u201d\nOff-Balance Sheet Commitments\n.\n At June\u00a030, 2023, we had unfunded commitments to originate loans with an aggregate outstanding principal balance of $2,917.6 million, commitments to sell loans with an aggregate outstanding principal balance at the time of sale of $24.9 millions, and no commitments to purchase loans, investment securities or any other unused lines of credit. See Item 3. Legal Proceedings for further information on pending litigation.\nConsolidated and Bank Capital Requirements\n.\n Our Company and Bank are subject to regulatory capital adequacy requirements promulgated by federal bank regulatory agencies. Failure by our Company or Bank to meet minimum capital requirements could result in certain mandatory and discretionary actions by regulators that could have a material adverse effect on our consolidated financial statements. The Federal Reserve establishes capital requirements for our Company and the OCC has similar requirements for our Bank. The following tables present regulatory capital information for our Company and Bank. Information presented for June\u00a030, 2023, reflects the Basel III capital requirements for both our Company and Bank. Under these capital requirements and the regulatory framework for prompt corrective action, our Company and Bank must meet specific capital guidelines that involve quantitative measures of our Company and Bank\u2019s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our Company\u2019s and Bank\u2019s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors.\nQuantitative measures established by regulation require our Company and Bank to maintain certain minimum capital amounts and ratios. Federal bank regulators require our Company and Bank maintain minimum ratios of core capital to adjusted average assets of 4.0%, common equity tier 1 capital to risk-weighted assets of 4.5%, tier 1 capital to risk-weighted assets of 6.0% and total risk-based capital to risk-weighted assets of 8.0%. To be \u201cwell capitalized,\u201d our Company and Bank must maintain minimum leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. At June\u00a030, 2023, our Company and Bank met all the capital adequacy requirements to which they were subject to and were \u201cwell capitalized\u201d under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since June\u00a030, 2023 that would materially adversely change the Company\u2019s and Bank\u2019s capital classifications. From time to time, we may need to raise additional capital to support our Company\u2019s and Bank\u2019s further growth and to maintain their \u201cwell capitalized\u201d status.\nThe Company and Bank both elected the five-year CECL transition guidance for calculating regulatory capital and ratios. The amounts in the following table reflect this election. This guidance allowed an entity to add back to regulatory capital 100% of the impact of the day one CECL transition adjustment and 25% of the subsequent increases to the allowance for credit losses through June\u00a030, 2022. Beginning with fiscal year 2023, this cumulative amount is phased out of regulatory capital at 25% per year until it is 100% phased out of regulatory capital beginning in fiscal year 2026.\n56\nTable of Cont\nents\nThe Company\u2019s and Bank\u2019s capital ratios and requirements were as follows:\nMinimum Capital Requirement\nMinimum Capital Requirement with Capital Buffer \nMinimum to Be Well\u00a0\nCapitalized\nJune 30,\n2023\n2022\n2021\nRegulatory Capital Ratios (Company):\nTier 1 leverage ratio\n8.96\u00a0\n%\n9.25\u00a0\n%\n8.82\u00a0\n%\n4.00\u00a0\n%\n4.00\u00a0\n%\nN/A\nCommon equity tier 1 capital ratio\n10.94\u00a0\n%\n9.86\u00a0\n%\n11.36\u00a0\n%\n4.50\u00a0\n%\n7.00\u00a0\n%\nN/A\nTier 1 risk-based capital ratio\n10.94\u00a0\n%\n9.86\u00a0\n%\n11.36\u00a0\n%\n6.00\u00a0\n%\n8.50\u00a0\n%\nN/A\nTotal risk-based capital ratio\n13.82\u00a0\n%\n12.73\u00a0\n%\n13.78\u00a0\n%\n8.00\u00a0\n%\n10.50\u00a0\n%\nN/A\nRegulatory Capital Ratios (Bank):\nTier 1 leverage ratio\n9.68\u00a0\n%\n10.65\u00a0\n%\n9.45\u00a0\n%\n4.00\u00a0\n%\n4.00\u00a0\n%\n5.00\u00a0\n%\nCommon equity tier 1 capital ratio\n11.63\u00a0\n%\n11.24\u00a0\n%\n12.28\u00a0\n%\n4.50\u00a0\n%\n7.00\u00a0\n%\n6.50\u00a0\n%\nTier 1 risk-based capital ratio\n11.63\u00a0\n%\n11.24\u00a0\n%\n12.28\u00a0\n%\n6.00\u00a0\n%\n8.50\u00a0\n%\n8.00\u00a0\n%\nTotal risk-based capital ratio\n12.50\u00a0\n%\n12.01\u00a0\n%\n13.21\u00a0\n%\n8.00\u00a0\n%\n10.50\u00a0\n%\n10.00\u00a0\n%\nAxos Clearing Capital Requirements. \nPursuant to the net capital requirements of the Exchange Act, Axos Clearing, is subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act). Under this rule, Axos Clearing has elected to operate under the alternate method and is required to maintain minimum net capital of $250,000 or 2% of aggregate debit balances arising from client transactions, as defined. Under the alternate method, Axos Clearing may not repay subordinated debt, pay cash distributions, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.\nThe net capital position of Axos Clearing was as follows:\n(Dollars in thousands)\nJune 30, 2023\nJune 30, 2022\nNet capital\n$\n35,221\u00a0\n$\n38,915\u00a0\nLess: required net capital\n5,316\u00a0\n6,250\u00a0\nExcess capital\n$\n29,905\u00a0\n$\n32,665\u00a0\nNet capital as a percentage of aggregate debit items\n13.25\u00a0\n%\n12.45\u00a0\n%\nNet capital in excess of 5% aggregate debit items\n$\n21,930\u00a0\n$\n23,290\u00a0\nAxos Clearing, as a clearing broker, is subject to SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the benefit of customers. At June\u00a030, 2023, the Company calculated a deposit requirement of $169.5 million and maintained a deposit of $116.8 million. On July 5, 2023, Axos Clearing made a deposit of $81.0 million to satisfy the deposit requirement. At June\u00a030, 2022, the Company calculated a deposit requirement of $286.9 million and maintained a deposit of $335.8 million. On July 1, 2022, Axos Clearing made a withdrawal of excess deposits of $39.0 million.\nCertain broker-dealers have chosen to maintain brokerage customer accounts at Axos Clearing. To allow these broker-dealers to classify their assets held by the Company as allowable assets in their computation of net capital, the Company computes a separate reserve requirement for Proprietary Accounts of Brokers (PAB). At June\u00a030, 2023, the Company calculated a deposit requirement of $26.8 million and maintained a deposit of $32.0 million. On July 1, 2023, Axos Clearing did not have to make a deposit to satisfy the deposit requirement. At June\u00a030, 2022, the Company calculated a deposit requirement of $29.1 million and maintained a deposit of $36.3 million. On July 1, 2022, Axos Clearing made a withdrawal of $6.1 million of excess deposits.",
+  "item7a": ">ITEM\u00a07A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nMarket risk is defined as the sensitivity of income and capital to changes in interest rates, foreign currency exchange rates, commodity prices and other relevant market rates or prices. The primary market risk to which we are exposed is interest rate risk. Changes in interest rates can have a variety of effects on our business. In particular, changes in interest rates affect our net interest income, net interest margin, net income, the value of our securities portfolio, the volume of loans originated, and the amount of gain or loss on the sale of our loans.\n57\nTable of Cont\nents\nWe are exposed to different types of interest rate risk. These risks include lag, repricing, basis, prepayment and lifetime cap risk, each of which is described in further detail below:\nLag/Repricing Risk\n.\n Lag risk results from the inherent timing difference between the repricing of our adjustable rate assets and our liabilities. Repricing risk is caused by the mismatch of repricing methods between interest-earning assets and interest-bearing liabilities. Lag/repricing risk can produce short-term volatility in our net interest income during periods of interest rate movements even though the effect of this lag generally balances out over time. One example of lag risk is the repricing of assets indexed to the monthly treasury average (\u201cMTA\u201d). The MTA index is based on a moving average of rates outstanding during the previous 12 months. A sharp movement in interest rates in a month will not be fully reflected in the index for 12 months resulting in a lag in the repricing of our loans and securities based on this index. We expect more of our interest-earning assets will mature or reprice within one year than will our interest-bearing liabilities, resulting in a one year positive interest rate sensitivity gap (the difference between our interest rate sensitive assets maturing or repricing within one year and our interest rate sensitive liabilities maturing or repricing within one year, expressed as a percentage of total interest-earning assets). In a rising interest rate environment, an institution with a positive gap would generally be expected, absent the effects of other factors, to experience a greater increase in its yield on assets relative to its cost on liabilities, and thus an increase in its net interest income. If our interest-bearing liabilities lag in repricing is shorter, or reprices faster, than our interest-earning assets lag, then it would result in a reduction to our net interest income.\nBasis Risk\n.\n Basis risk occurs when assets and liabilities have similar repricing timing but repricing is based on different market interest rate indices. Our earning assets that reprice are directly tied to various indices, such as: U.S. Treasury, SOFR, Ameribor, BSBY, Eleventh District Cost of Funds, Federal Funds (\u201cFed Funds\u201d), Interest Rate on Excess Reserves (\u201cIOER\u201d), Prime and, until June 30, 2023, LIBOR. Generally, our deposit rates are not directly tied to these same indices. A portion of the Bank\u2019s deposits are based on administrative rates controlled by management and the remaining portion are directly tied to Fed Funds. Certain debt is linked to Fed Funds and, until June 30, 2023, LIBOR. Therefore, if liability-linked indices rise faster than asset-linked indices and there are no other changes in our asset/liability mix, our net interest income will likely decline due to basis risk.\nPrepayment Risk\n.\n Prepayment risk results from the right of customers to pay their loans prior to maturity. Generally, loan prepayments increase in falling interest rate environments and decrease in rising interest rate environments. In addition, prepayment risk results from the right of customers to withdraw their time deposits before maturity. Generally, early withdrawals of time deposits increase during rising interest rate environments and decrease in falling interest rate environments. When estimating the future performance of our assets and liabilities, we make assumptions as to when and how much of our loans and deposits will be prepaid. If the assumptions prove to be incorrect, the asset or liability may perform differently than expected. In 2022 and 2021, the Bank experienced high rates of loan prepayments due to historically low interest rates; however, as interest rates increased throughout 2023 loan prepayments have slowed considerably.\nLifetime Cap Risk\n.\n Our adjustable rate loans have lifetime interest rate caps. In periods of rising interest rates, it is possible for the fully indexed interest rate (index rate plus the margin) to exceed the lifetime interest rate cap. This feature prevents the loan from repricing to a level that exceeds the cap\u2019s specified interest rate, thus adversely affecting net interest income in periods of relatively high interest rates. On a weighted-average basis, our adjustable rate loans at June\u00a030, 2023 had lifetime rate caps that were 601 basis points greater than their current stated note rates. If market rates rise by more than the interest rate cap, we will not be able to increase these loan rates above the interest rate cap.\nThe principal objective of our asset/liability management is to manage the sensitivity of market value of equity (\u201cMVE\u201d) to changing interest rates. Asset/liability management is governed by policies reviewed and approved annually by our Board of Directors. Our Board of Directors has delegated the responsibility to oversee the administration of these policies to the Bank\u2019s asset/liability committee (\u201cALCO\u201d). The interest rate risk strategy currently deployed by ALCO is to primarily use \u201cnatural\u201d balance sheet hedging. ALCO makes adjustments to the overall MVE sensitivity by recommending investment and borrowing strategies. The management team then executes the recommended strategy by increasing or decreasing the duration of the investments and borrowings, resulting in the appropriate level of market risk the Board of Directors wants to maintain. Other examples of ALCO policies designed to reduce our interest rate risk include limiting the premiums paid to purchase mortgage loans or mortgage-backed securities. This policy addresses mortgage prepayment risk by capping the yield loss from an unexpected high level of mortgage loan prepayments. At least once a quarter, ALCO members report to our Board of Directors the status of our interest rate risk profile.\nWe measure interest rate sensitivity as the difference between amounts of interest-earning assets and interest-bearing liabilities that mature within a given period of time. The difference, or the interest rate sensitivity gap, provides an indication of the extent to which an institution\u2019s interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. In a rising interest rate \n58\nTable of Cont\nents\nenvironment, an institution with a positive gap would be in a better position than an institution with a negative gap to invest in higher yielding assets or to have its asset yields adjusted upward, which would result in the yield on its assets to increase at a faster pace than the cost of its interest-bearing liabilities. During a period of falling interest rates, however, an institution with a positive gap would tend to have its assets mature at a faster rate than one with a negative gap, which would tend to reduce the growth in its net interest income.\nBanking Business\nThe following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at June\u00a030, 2023 and the portions of each financial instrument that are expected to mature or reset interest rates in each future period:\nTerm to Repricing, Repayment, or Maturity at\nJune 30, 2023\n(Dollars in thousands)\nSix Months or Less\nOver Six \nMonths Through \nOne Year\nOver One\nYear\nthrough\nFive Years\nOver Five\nYears\nTotal\nInterest-earning assets:\nCash and cash equivalents\n$\n2,164,284\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n2,164,284\u00a0\nMortgage-backed and other investment securities\n1\n209,049\u00a0\n2,526\u00a0\n14,017\u00a0\n13,790\u00a0\n$\n239,382\u00a0\nStock of the FHLB, at cost\n17,250\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n$\n17,250\u00a0\nLoans\n2\n11,444,889\u00a0\n1,252,109\u00a0\n3,762,452\u00a0\n142,313\u00a0\n$\n16,601,763\u00a0\nLoans held for sale\n23,979\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n$\n23,979\u00a0\nTotal interest-earning assets\n13,859,451\u00a0\n1,254,635\u00a0\n3,776,469\u00a0\n156,103\u00a0\n19,046,658\u00a0\nNon-interest-earning assets\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n371,219\u00a0\n$\n371,219\u00a0\nTotal assets\n$\n13,859,451\u00a0\n$\n1,254,635\u00a0\n$\n3,776,469\u00a0\n$\n527,322\u00a0\n$\n19,417,877\u00a0\nInterest-bearing liabilities:\nInterest-bearing deposits\n3\n$\n8,087,273\u00a0\n$\n6,056,512\u00a0\n$\n164,276\u00a0\n$\n\u2014\u00a0\n$\n14,308,061\u00a0\nAdvances from the FHLB\n\u2014\u00a0\n\u2014\u00a0\n30,000\u00a0\n60,000\u00a0\n$\n90,000\u00a0\nOther borrowings\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n$\n\u2014\u00a0\nTotal interest-bearing liabilities\n8,087,273\u00a0\n6,056,512\u00a0\n194,276\u00a0\n60,000\u00a0\n14,398,061\u00a0\nOther non-interest-bearing liabilities\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n3,135,290\u00a0\n$\n3,135,290\u00a0\nStockholders\u2019 equity\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n1,884,526\u00a0\n$\n1,884,526\u00a0\nTotal liabilities and equity\n$\n8,087,273\u00a0\n$\n6,056,512\u00a0\n$\n194,276\u00a0\n$\n5,079,816\u00a0\n$\n19,417,877\u00a0\nNet interest rate sensitivity gap\n$\n5,772,178\u00a0\n$\n(4,801,877)\n$\n3,582,193\u00a0\n$\n96,103\u00a0\n$\n4,648,597\u00a0\nCumulative gap\n$\n5,772,178\u00a0\n$\n970,301\u00a0\n$\n4,552,494\u00a0\n$\n4,648,597\u00a0\n$\n4,648,597\u00a0\nNet interest rate sensitivity gap\u2014as a % of total interest-earning assets\n30.31\u00a0\n%\n(25.21)\n%\n18.81\u00a0\n%\n0.50\u00a0\n%\n24.41\u00a0\n%\nCumulative gap\u2014as a % of total cumulative interest-earning assets\n30.31\u00a0\n%\n5.09\u00a0\n%\n23.90\u00a0\n%\n24.41\u00a0\n%\n24.41\u00a0\n%\n1\n \nComprised of U.S. government securities, mortgage-backed securities and other securities, which are classified as trading and available-for-sale. The table reflects contractual repricing dates.\n2\n \nLoans includes loan premiums, discounts and unearned fees. The table reflects either contractual repricing dates, or maturities. \n3\n \nThe table assumes that the principal balances for demand deposit and savings accounts will reprice in the first year.\nThe above table provides an approximation of the projected re-pricing of assets and liabilities at June\u00a030, 2023 on the basis of contractual maturities, adjusted for anticipated prepayments of principal and scheduled rate adjustments. The loan and securities prepayment rates reflected are based on historical experience. For the non-maturity deposit liabilities, we use decay rates and rate adjustments based upon our historical experience. Actual repayments of these instruments could vary substantially if future experience differs from our historic experience.\nAlthough \u201cgap\u201d analysis is a useful measurement device available to management in determining the existence of interest rate exposure, its static focus as of a particular date makes it necessary to utilize other techniques in measuring exposure to changes in interest rates. For example, gap analysis is limited in its ability to predict trends in future earnings and makes no assumptions about changes in prepayment tendencies, deposit or loan maturity preferences or repricing time lags that may occur in response to a change in the interest rate environment.\n59\nTable of Cont\nents\nThe following table indicates the sensitivity of net interest income movements to parallel instantaneous shocks in interest rates for the 1-12 months and 13-24 months\u2019 time periods. For purposes of modeling net interest income sensitivity the Bank assumes no growth in the balance sheet other than for retained earnings: \nAs of June 30, 2023\nFirst 12 Months\nNext 12 Months\n(Dollars in thousands)\nNet Interest Income\nPercentage Change from Base\nNet Interest Income\nPercentage Change from Base\nUp 200 basis points\n$\n1,072,045\u00a0\n20.1\u00a0\n%\n$\n1,064,324\u00a0\n9.7\u00a0\n%\nBase\n$\n892,695\u00a0\n\u2014\u00a0\n%\n$\n969,968\u00a0\n\u2014\u00a0\n%\nDown 200 basis points\n$\n795,482\u00a0\n(10.9)\n%\n$\n901,698\u00a0\n(7.0)\n%\nWe attempt to measure the effect market interest rate changes will have on the net present value of assets and liabilities, which is defined as market value of equity. We analyze the market value of equity sensitivity to an immediate parallel and sustained shift in interest rates derived from the underlying interest rate curves.\nThe following table indicates the sensitivity of market value of equity to the interest rate movement as described above:\nAs of June 30, 2023\n(Dollars in thousands)\nMarket Value of Equity\nPercentage\nChange\u00a0from Base\nMVE as a\nPercentage\u00a0of Assets\nUp 200 basis points\n$\n1,817,575\u00a0\n(1.4)\n%\n9.5\u00a0\n%\nUp 100 basis points\n$\n1,846,771\u00a0\n0.2\u00a0\n%\n9.6\u00a0\n%\nBase\n$\n1,843,498\u00a0\n\u2014\u00a0\n%\n9.5\u00a0\n%\nDown 100 basis points\n$\n1,841,132\u00a0\n(0.1)\n%\n9.5\u00a0\n%\nDown 200 basis points\n$\n1,812,345\u00a0\n(1.7)\n%\n9.2\u00a0\n%\nThe computation of the prospective effects of hypothetical interest rate changes is based on numerous assumptions, including relative levels of interest rates, asset prepayments, runoffs in deposits and changes in repricing levels of deposits to general market rates, and should not be relied upon as indicative of actual results. Furthermore, these computations do not take into account any actions that we may undertake in response to future changes in interest rates. Those actions include, but are not limited to, making changes in loan and deposit interest rates and changes in our asset and liability mix.\nSecurities Business\nOur Securities Business is exposed to market risk primarily due to its role as a financial intermediary in customer transactions, which may include purchases and sales of securities, securities lending activities, and in our trading activities, which are used to support sales, underwriting and other customer activities. We are subject to the risk of loss that may result from the potential change in value of a financial instrument as a result of fluctuations in interest rates, market prices, investor expectations and changes in credit ratings of the issuer.\nOur Securities Business is exposed to interest rate risk as a result of maintaining inventories of interest rate sensitive financial instruments and other interest earning assets including customer and correspondent margin loans and securities borrowing activities. Our exposure to interest rate risk is also from our funding sources including customer and correspondent cash balances, bank borrowings and securities lending activities. Interest rates on customer and correspondent balances and securities produce a positive spread with rates generally fluctuating in parallel.\nWith respect to securities held, our interest rate risk is managed by setting and monitoring limits on the size and duration of positions and on the length of time securities can be held. The majority of the interest rates on customer and correspondent margin loans are indexed and can vary daily. Our funding sources are generally short term with interest rates that can vary daily.\nAt June\u00a030, 2023, Axos Clearing held municipal obligations classified as trading securities and had maturities greater than 10 years.\nOur Securities Business is engaged in various brokerage and trading activities that expose us to credit risk arising from potential non-performance from counterparties, customers or issuers of securities. This risk is managed by setting and \n60\nTable of Cont\nents\nmonitoring position limits for each counterparty, conducting periodic credit reviews of counterparties, reviewing concentrations of securities and conducting business through central clearing organizations.\nCollateral underlying margin loans to customers and correspondents and underlying securities lending activities is marked to market daily and additional collateral is obtained or refunded, as necessary.",
+  "cik": "1299709",
+  "cusip6": "05465C",
+  "cusip": ["05465C100", "05465C950", "05465C900", "05465c100"],
+  "names": ["AXOS FINANCIAL INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1299709/000129970923000198/0001299709-23-000198-index.htm"
+}
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+{
+  "item1": ">Item 1.\n \nBusiness\u00a0\nOverview\nAnterix Inc (\u201cAnterix,\u201d \u201cwe,\u201d \u201cour,\u201d or the \u201cCompany\u201d) is a wireless communications company focused on commercializing our spectrum assets to enable our targeted utility and critical infrastructure customers to deploy private broadband networks and on offering innovative broadband solutions to the same target customers. We are the largest holder of licensed spectrum in the 900 MHz band (896 - 901 / 935 - 940 MHz) with nationwide coverage throughout the contiguous United States, Hawaii, Alaska and Puerto Rico.\u00a0On May\u00a013, 2020, the FCC approved\u00a0the Report and Order to modernize and realign the 900 MHz band to increase its usability and capacity by allowing it to be utilized for the deployment of broadband networks, technologies and solutions. The Report and Order was published in the Federal Register on July 16, 2020 and became effective on August 17, 2020. We are now engaged in qualifying for and securing broadband licenses from the FCC. At the same time, we are pursuing opportunities to monetize the broadband spectrum we secure to our targeted utility and critical infrastructure customers.\nOur Spectrum Assets\nOur spectrum is our most valuable owned asset. We hold licenses nationwide, including approximately 50% of the 900 MHz band in the United States. However, where spectrum is the highest priced, top 20 metropolitan market areas in the United States which cover approximately 38% of the U.S. population, we hold on average more than 6 MHz worth of spectrum. We acquired the majority of our 900 MHz spectrum and certain related equipment from Sprint in September 2014.\nIn the 900 MHz band, the FCC historically allocated approximately 10 MHz of spectrum, sub-divided into 40 10-channel blocks (for a total of 399 contiguous channels) alternating between blocks designated for the operation of\u00a0Specialized Mobile Radio (\u201cSMR\u201d)\u00a0commercial systems and blocks designated for B/ILT, with the FCC\u2019s rules also enabling B/ILT licenses to be converted to SMR use.\u00a0Subsequently, the FCC conducted overlay auctions on the SMR designated blocks that awarded geographic-based licenses on an MTA basis while affording operational protection to incumbent, site-based licensees in those areas.\u00a0Certain MTA licenses were not purchased at auction or have been returned to the FCC. In addition, the FCC never auctioned the 20 blocks of B/ILT spectrum in some parts of the United States, therefore no users acquired site-based licenses utilizing this spectrum.\u00a0As a result, the FCC is currently holding over 20% of 900 MHz narrowband spectrum in its inventory in most counties throughout the United States.\nBroadband licenses\nAs of March\u00a031, 2023 and 2022, we were granted by the FCC broadband licenses for 105 and 21 counties, respectively. As a result, we relinquished to the FCC our narrowband licenses and made the necessary Anti-Windfall Payments for the same 105 and 21 counties, respectively, as required by the Report and Order.\nOur Business Strategy\nOur mission is to provide transformative broadband solutions for critical infrastructure industries and enterprises including\u00a0private wireless connectivity\u00a0on 900 MHz spectrum and next-generation communications platforms. We support digital transformations, infrastructure modernization, and cybersecurity strategies that will establish the new standard for performance and safety. Leveraging Anterix solutions, critical infrastructure customers can tackle their most impactful opportunities, unlocking applications from analytics to automation to edge monitoring and artificial intelligence. Together with Anterix, customers can build solutions that will scale and evolve with business needs.\u00a0To that end, we are pursuing a two-pronged strategy focused on: 1) converting our nationwide narrowband 900 MHz spectrum position into valuable broadband spectrum; and 2) offering long-term leasing of broadband spectrum or other creative solutions in complex system areas to monetize spectrum and platform services and solutions to utility and critical infrastructure enterprises nationwide.\nConverting our Nationwide Narrowband 900 MHz Spectrum Position to Broadband\nConverting our spectrum from narrowband to broadband licenses nationwide is a foundational component of our two-pronged strategy as it provides the underpinning for achieving our business strategy. To achieve this conversion, we are focused on intentionally clearing incumbents out of the broadband license segment and obtaining broadband licenses in those counties (i) in which we have customer contracts, (ii) where we believe we have near-term commercial prospects, or (iii) may be strategically advantageous to achieve optimum costs for broadband licenses over time.\nSecure Broadband Licenses\nIn the Report and Order, the FCC chose to make counties the \u201cbase unit of measure\u201d for calculating whether an entity is eligible to hold a broadband license. As a result of this decision and our extensive accumulated spectrum holdings, Anterix\u2014and only Anterix\u2014is an essential party in every one of the nation\u2019s 3,233 counties. And while we intend to continue to \nPage 3\nTable of Contents\nprioritize our spectrum transactions in areas where we have customer opportunities, we also plan to pursue spectrum transactions opportunistically to recognize a positive return on our investments in spectrum clearing costs. We have been proactive in this effort and to date have completed, and intend to continue to pursue, spectrum transactions to support our efforts to satisfy the broadband license eligibility requirements.\nClear Covered Incumbents\nWe have been proactive in our clearing efforts in preparation for the broadband licensing process. Our dedicated clearing teams are focused on negotiating agreements to move Covered Incumbents from the broadband segment of the 900 MHz spectrum band to the segments allocated for continued narrowband operations within the 900 MHz band or out of 900 MHz band entirely. Our team has worked with Covered Incumbents and negotiated and contracted approximately two-thirds of the transactions required to clear the licensed broadband segment channels.\nDeploying our Commercial Business Offering\nWith the Report and Order issued, paving the way for the deployment of broadband in the 900 MHz band, the second key prong of our strategy is establishing our commercial positioning and accelerating adoption of our principal commercial business offering. We are implementing this strategy through targeted outreach and education by our sales, marketing, business development, commercial sales operations and industry government affairs organizations, by participating in the Utilities Broadband Alliance (\u201cUBBA\u201d) along with other industry associations, and by attracting vendors to the Anterix Active Ecosystem Program (\u201cAAEP\u201d). UBBA membership currently includes 30 electric utilities among its nearly 100 members. The AAEP includes participation of over 100 leading technology companies that provide deployment and application solutions for private broadband targeting our Nation\u2019s electric grid innovators. We launched the AAEP to foster, strengthen, and expand the landscape of 900 MHz devices, services and solutions. Participation from the broad range of technology innovators will bring extensive value to utilities and other critical infrastructure providers who deploy PLTE. The primary intent of our business is to lease the broadband licenses we secure to customers for long term-leases (generally 20 years or longer) containing additional long-term renewal options. Based upon our analysis and discussions with current and potential customers to date, we are seeing strong and growing indications of demonstrated intent for PLTE networks using 900 MHz spectrum. To fulfill our business offering, we will be responsible for the costs of securing the broadband licenses from the FCC, including the costs of clearing and acquiring sufficient spectrum to meet the broadband requirements.\nBy contrast, we expect that most of our customers will bear the costs of deploying and operating their private broadband networks, technologies and solutions. And, beyond our principal commercial business offering, we are also exploring additional opportunities to offer electric utility companies additional value-added services to support their network deployments and operations.\nAccordingly, our approach to driving the second key prong of our strategy includes: 1) advancing our potential customers through the pipeline by assisting them with their decisions and evaluation process of private wireless networks; 2) encouraging federal and state agencies to support the investment and deployment of PLTE solutions in the 900 MHz band by utilities and critical infrastructure companies; 3) participating in demonstrations and tests with laboratories such as National Renewable Energy Lab (\u201cNREL\u201d) and National Institute of Standards and Technology (\u201cNIST\u201d) to validate the benefits of PLTE systems; 4) developing expanded value-added business offerings; 5) enabling and growing the AAEP; 6)\u00a0participating in UBBA and other relevant industry associations to promote our solution; and 7) continually evaluating potential opportunities to expand the application of private wireless broadband networks built on 900 MHz spectrum.\nContinue to Build the Customer Pipeline\nOur sales and support teams are actively working with many of the largest Investor Owned Utilities (\u201cIOU\u201d). More specifically, these teams are working in coordination with representatives from our target customers, long-term evolution (\u201cLTE\u201d) infrastructure vendors, end-user device manufacturers, system integrators and other technology companies in addition to responding to Requests for Information (\u201cRFI\u201d), Requests for Proposals (\u201cRFP\u201d) and requests to support technology trials related to using our 900 MHz spectrum for broadband services. To date, there have been nine experimental licenses granted to IOUs or their subsidiaries (including Ameren Corporation (\u201cAmeren\u201d), Evergy, Inc. (\u201cEvergy\u201d), San Diego Gas & Electric Company, a subsidiary of Sempra Energy (\u201cSDG&E\u201d), and Xcel Energy Services Inc. (\u201cXcel Energy\u201d)), two experimental licenses to other utilities and six experimental licenses to vendors and labs to showcase and promote 900 MHz broadband.\nBuild Support with Federal and State Agencies\nThe vast majority of our targeted critical infrastructure customers are highly regulated by both federal and state agencies. Electric utilities, for example, may be regulated by the Federal Energy Regulatory Commission, the Public Utilities Commissions within the states they serve and/or other state and municipal governance or regulatory bodies. Other agencies that guide utility regulations include the Department of Energy, the Department of Homeland Security, and NIST, as well as regional transmission organizations and independent system operators. We are working with each of these agencies to educate \nPage 4\nTable of Contents\nthem about the security, reliability and priority access benefits that private broadband LTE networks, technologies and solutions can offer to utilities. We are also working with a number of state agencies and commissions who regulate electric utilities and have a strong influence over electric utility investment decisions. Our goal with these state agencies and commissions is to ensure they have the right information and are properly educated on the immense benefits of utility-scale private wireless broadband networks for end-use customers so they can confidently approve utilities to include the costs of leasing of our spectrum assets and deploying private broadband LTE networks, technologies and solutions into their respective rate making filings. Utility control of communications for grid modernization programs enhances their ability to provide safe, secure, reliable and resilient electricity for the ratepayers. Broadband networks also support greater operating efficiencies, for example, as multiple narrowband networks are unified and combined into one network. When included in rate bases, utilities are permitted to recover costs and earn a customary rate of return on these prudent investments.\nDevelop a Roadmap for Expanded Services\nThrough our day-to-day interactions with prospective utility and critical infrastructure customers, and our responses and subsequent discussions related to RFIs and RFPs, we have identified additional areas of opportunity to support our current and prospective customers in the implementation and operation of\u00a0PLTE networks. We are performing due diligence to determine how best to meet these customer needs, including using our internal expertise, collaborating with industry partners and working with specific service providers.\nEnable the Anterix Active Ecosystem with U.S. Band 8\nOur spectrum assets are located in the international 3GPP global standard Band 8 channel which is a frequency division duplex pair assigned to the 880 - 915 / 925 - 960 MHz spectrum bands. This pairing is aligned for use with both 4G and 5G technologies and is currently being utilized with commercial LTE and 5G broadband networks globally in Asia, Europe, and other parts of the world. Our efforts are ongoing to facilitate continued adoption of 900 MHz Band 8 radio access network equipment and end-user devices in the U.S. by working with chipmakers and module and device vendors to help ensure that customers who employ 900MHz for PLTE have timely access to 3GPP standards-compliant Band 8 devices that meet the technical operating specifications established in the FCC\u2019s Report and Order. We also worked with an FCC certification testing lab to develop testing protocols to enable quick certification of Band 8 devices for use in the United States. The benefit of working with a global standard is that many existing devices, network components, and solutions are well suited for the working environment of our targeted critical infrastructure and enterprise customers. Global standards also provide a long-term evolution path for the technology chosen by our customers including forward and backward compatibility.\nIdentify and Evaluate New Opportunities\n \nfor Our Spectrum\nThe wireless communications industry is highly competitive and subject to rapid regulatory, technological and market changes.\u00a0A key part of our business strategy is to continually monitor changes in the wireless industry and to evaluate how these changes could enable us to maximize the value of our spectrum assets.\u00a0Additionally, although we are initially focusing on the electric utility industry, we have identified other customer groups, including ports, railroads, water, oil and gas facilities, and mining operations, where we believe there is both customer demand and a good fit for the private wireless broadband networks, technologies, and solutions that our spectrum assets could support. As proof of the potential demand for and value of our spectrum assets, two recent FCC spectrum auctions exceeded consensus valuation estimates and brought in the first and third highest auction proceeds ever for the U.S. Treasury, which we believe demonstrates the continued demand for licensed broadband spectrum.\nOur Broadband Market Opportunity\nWe have currently identified utility and critical infrastructure enterprises as the primary customers for our current and future broadband spectrum assets.\u00a0We have identified the electric utility industry as our initial focused customer group. We believe that security, priority access, latency, redundancy, private ownership, control and unique coverage requirements are just some of the reasons utility and critical infrastructure enterprises would be interested in obtaining rights to deploy the private wireless broadband networks, technologies and solutions that can be enabled through use of our licensed spectrum.\nThe electric utility industry is undergoing a fundamental transformation.\u00a0Grid modernization efforts and the drive to reduce carbon emissions have disrupted the need for utilities to build new large-scale, centralized facilities.\u00a0Today, power is generated by smaller, more geographically distributed facilities that can switch from a power producer to a recipient of power generated by a variety of other disparate sources, including wind and solar installations.\u00a0Grid architecture must now accommodate end-users that are both generators and consumers, converting back and forth rapidly and carrying power in both directions, something the existing grid was not originally designed to handle.\u00a0Technological advancements have produced sensors and smart devices to enable the new two-way grid and offer operators the ability to control and run the grid efficiently, safely and reliably.\u00a0Wireless communication networks, technologies and solutions can help utilities move the large volumes\u00a0of data generated by these sensors and smart devices to their control systems for decision making, analytics and responsiveness to \nPage 5\nTable of Contents\nmarket demand and emergencies.\u00a0The legacy communications systems utilized by many utilities have increasing interference and/or higher cyber threats, are not designed to handle this new data load, are inefficient and costly to maintain, and, in many cases, have associated equipment that is approaching end of life.\nOur targeted customers have historically built, maintained and operated communication networks, including private Land Mobile Radio (\u201cLMR\u201d) networks and supervisory control and data acquisition (\u201cSCADA\u201d) networks on narrowband frequencies licensed exclusively to them by the FCC.\u00a0Based on our discussions with these targeted customers, these entities commonly express their desire to retain the positive elements of their aging LMR and SCADA networks, namely private ownership, tight control and custom features (such as specialized coverage and priority access), while adding the benefits of broadband and other advanced technologies (such as solving a broader set of use cases, including high-speed data transmission, video services and economies of scale).\u00a0However, due to the general unavailability of low band spectrum (i.e., below 1 GHz), these entities have had limited opportunities to license or acquire the spectrum required to deploy cost-effective wireless broadband or other advanced technologies.\nIn contrast to legacy systems, the wireless broadband networks, technologies and solutions that can be deployed utilizing our spectrum assets can address the communication demands of the modern grid, both now and in the future. Our licensed 900 MHz Broadband Spectrum offers the assurance of absolute control over access to and use of that spectrum, allowing our spectrum to be utilized to provide customers with guaranteed levels of service and the ability for customers to prescribe and enforce purpose-built \u201crules of the road\u201d for the provision of those services.\u00a0Our spectrum assets can also serve as the foundational element to allow customers to implement LTE capabilities and evolve to 5G when there is a need. Recent FCC actions, including various auctions, have created significant opportunities for blocks of shared, unlicensed spectrum and/or licensed spectrum in the mid and high spectrum bands. The additional shared, unlicensed spectrum and/or licensed spectrum can enable future 5G networks, technologies and solutions. While we intend to build our existing and future business strategies around our 900 MHz licensed spectrum, the ability for our critical infrastructure and enterprise customers to combine our licensed 900 MHz spectrum with additional spectrum in one or more licensed, shared and/or unlicensed bands can provide them with an advantageous solution.\nBusiness Development \nWe have invested in building our business development, sales, marketing and other supporting teams, which include both external and internal resources, to help foster our evolving customer relationships in furtherance of growing and maturing our pipeline. Since the FCC\u2019s issuance of the Report and Order, our sales and marketing efforts have been focused on pursuing spectrum lease arrangements and introducing our integrated platform solutions to our targeted utility and critical infrastructure customers. \nOur business development, sales and marketing organizations exercise the following three key methods to grow and mature our pipeline: (i) direct account-based sales and marketing efforts to our targeted customers; (ii) regulatory outreach and support; and (iii) industry trade organization collaboration. These efforts are enhanced with sales and marketing partnerships with a variety of third parties, such as integrators and technology and equipment vendors, with whom we will seek active promotion of our broadband spectrum assets and\u00a0support for our broadband spectrum assets with their products, technologies, solutions and services. Additionally, our senior executives, engineering, technology, commercial sales operations and marketing teams support our sales efforts through presentations, branded participation through sponsorships and speaking engagements at major trade events, associations and organizations, customer meetings, collateral, and product demonstrations to expand our reach and brand awareness.\nLong-Term Leases of 900 MHz Broadband Spectrum\nAmeren Agreements\nIn December\u00a02020, we entered into our first long-term 900 MHz Broadband Spectrum lease agreements (the \u201cAmeren Agreements\u201d) covering Ameren\u2019s service territories.\u00a0The Ameren Agreements will enable Ameren to deploy a PLTE network in its service territories in Missouri and Illinois, covering approximately 7.5\u00a0million people.\u00a0Each Ameren Agreement is for an initial term of 30 years with a 10-year renewal option for an additional payment.\u00a0In August 2021, the FCC granted the first 900 MHz broadband licenses to us for several counties in Ameren\u2019s service territory, for which the Ameren Agreements were also subsequently approved by the FCC. The scheduled prepayments for the 30-year initial terms of the Ameren Agreements total $47.7\u00a0million, of which $0.3 million we received in February 2021, $5.4 million in September 2021 and $17.2 million in October 2021. The prepayments received to date encompass the initial upfront payment(s) due upon signing of the Ameren Agreements and payments for delivery of the relevant 1.4 x 1.4 cleared spectrum in several metropolitan counties throughout Missouri and Illinois, in accordance with the terms of the Ameren Agreements. The remaining prepayments of $24.8 million, excluding potential penalties, for the 30-year initial term are due by mid-2026, per the terms of the Ameren Agreements and as we deliver the relevant cleared 900 MHz Broadband Spectrum and the associated broadband licenses. The Ameren Agreements are subject to customary provisions regarding remedies for non-delivery, including refund of amounts paid and termination rights if we fail to perform our contractual obligations, including failure to deliver the relevant cleared 900 MHz Broadband \nPage 6\nTable of Contents\nSpectrum in accordance with the terms of the Ameren Agreements. We are working with incumbents to clear the 900 MHz Broadband Spectrum allocation in Ameren\u2019s service territory. In accordance with ASC 606 Revenue from Contracts with Customers, the payments of prepaid fees under the Ameren Agreements will be accounted for as deferred revenue on our Consolidated Balance Sheets. Revenue will be recognized over time as the performance obligations of clearing the 900 MHz Broadband Spectrum and the associated broadband licenses are delivered by respective county, over the contractual term of approximately 30-years.\nThe following table represents the contractual delivery milestones under the Ameren Agreements and the allocated value ascribed for each term of the milestone. \nAmeren\nMilestone\nTotal allocated value (in millions)*\nStart of revenue recognition**\nTerm**\nUpfront deposit\n$\n0.3\u00a0\nQ3 FY22\n30 years\nMilestone 1\n1.7\u00a0\nQ3 FY22\n3 years\nMilestone 2\n21.0\u00a0\nQ1 FY25\n27 years\nMilestone 3\n1.9\u00a0\nQ1 FY25\n27 years\nMilestone 4\n22.8\u00a0\nQ1 FY27\n25 years\n* Total allocated value is subject to change based on final delivery date of the broadband licenses for the associated milestone, which may include penalties associated with delayed deliveries.\n** Revenue recognition occurs upon delivery of broadband licenses for the associated milestone, which may differ from the estimates noted above. Term is calculated based on the expected delivery date, which correlates to the period of time the revenue will be recognized for the associated milestone.\nEvergy Agreement\nIn September 2021, we entered into a long-term lease agreement of 900 MHz Broadband Spectrum with Evergy, (the \u201cEvergy Agreement\u201d). The Evergy service territories covered by the Evergy Agreement are in Kansas and Missouri with a population of approximately 3.9 million people. The Evergy Agreement is for an initial term of 20 years with two 10-year renewal options for additional payments. Prepayment in full of the $30.2 million for the 20-year initial term, which was due and payable within thirty (30) days after execution of the Evergy Agreement, was received by us in October 2021. The Evergy Agreement is subject to customary provisions regarding remedies for non-delivery, including refund of amounts paid and termination rights if we fail to perform our contractual obligations, including failure to deliver the relevant cleared 900 MHz Broadband Spectrum in accordance with the terms of the Evergy Agreement. We are working with incumbents to clear the 900 MHz Broadband Spectrum allocation covered by the Evergy Agreement. In accordance with ASC 606 Revenue from Contracts with Customers, the payments of prepaid fees under the Evergy Agreement will be accounted for as deferred revenue on our Consolidated Balance Sheets. Revenue will be recognized over time as the performance obligations of clearing the 900 MHz Broadband Spectrum and the associated broadband licenses are delivered by respective county, over the contractual term of approximately 20-years.\nThe following table represents the contractual delivery milestones under the Evergy Agreement and the allocated value ascribed for each term of the milestone. \nEvergy\nMilestone\nTotal allocated value (in millions)*\nStart of revenue recognition**\nTerm**\nMilestone 1\n$\n0.9\u00a0\nQ2 FY23\n1 year\nMilestone 2\n29.3\u00a0\nQ2 FY24\n19 years\n* Total allocated value is subject to change based on final delivery date of the broadband licenses for the associated milestone, which may include penalties associated with delayed deliveries.\n** Revenue recognition occurs upon delivery of broadband licenses for the associated milestone which may differ from the estimates noted above. Term is calculated based on the expected delivery date, which correlates to the period of time the revenue is expected to be recognized for the associated milestone.\nXcel Energy Agreement\nIn October 2022, we entered into an agreement with Xcel Energy providing Xcel Energy dedicated long-term usage of our 900 MHz Broadband Spectrum for a term of 20 years throughout Xcel Energy\u2019s service territory in eight states (the \u201cXcel \nPage 7\nTable of Contents\nEnergy Agreement\u201d) including Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas and Wisconsin. The Xcel Energy Agreement also provides Xcel Energy an option to extend the agreement for two 10-year terms for additional payments. The Xcel Energy Agreement allows Xcel Energy to deploy a PLTE network to support its grid modernization initiatives for the benefit of its approximately 3.7 million electricity customers and 2.1 million natural gas customers. The scheduled prepayments for the 20-year initial term of the Xcel Energy Agreement total $80.0 million, of which $8.0 million was received in December 2022. The Xcel Energy Agreement is subject to customary provisions regarding remedies for non-delivery, including refund of amounts paid and termination rights if we fail to perform our contractual obligations, including failure to deliver the relevant cleared 900 MHz Broadband Spectrum in accordance with the terms of the Xcel Energy Agreement. The remaining prepayments for the 20-year initial term are due by mid-2028, per the terms of the Xcel Energy Agreement and as we deliver the relevant cleared 900 MHz Broadband Spectrum and the associated broadband licenses. We are working with incumbents to clear the 900 MHz Broadband Spectrum allocation in Xcel Energy service territories. In accordance with ASC 606 Revenue from Contracts with Customers, the payments of prepaid fees under the Xcel Energy Agreement will be accounted for as deferred revenue on our Consolidated Balance Sheets. Revenue will be recognized over time as the performance obligations of clearing the 900 MHz Broadband Spectrum and the associated broadband licenses are delivered by respective county, over the contractual term of approximately 20 years.\nThe following table represents the contractual delivery milestones under the Xcel Energy Agreement and the allocated value ascribed for each term of the milestone.\nXcel Energy\nMilestone\nTotal allocated value (in millions)*\nStart of revenue recognition**\nTerm**\nMilestone 1\n$\n36.5\u00a0\nQ2 FY24\n20 years\nMilestone 2\n16.7\u00a0\nQ4 FY24\n20 years\nMilestone 3\n10.9\u00a0\nQ1 FY25\n19 years\nMilestone 4\n8.9\u00a0\nQ2 FY26\n18 years\nMilestone 5\n7.0\u00a0\nQ2 FY29\n15 years\n* Total allocated value is subject to change based on final delivery date of the broadband licenses for the associated milestone, which may include penalties associated with delayed deliveries.\n** Revenue recognition occurs upon delivery of broadband licenses for the associated milestone which may differ from the estimates noted above. Term is calculated based on the expected delivery date, which correlates to the period of time the revenue is expected to be recognized for the associated milestone.\nSales of 900 MHz Broadband Spectrum\nSDG&E Agreement\nIn February 2021, we entered into an agreement with SDG&E to sell 900 MHz Broadband Spectrum throughout SDG&E\u2019s California service territory, including San Diego and Imperial Counties and portions of Orange County (the \u201cSDG&E Agreement\u201d) for a total payment of $50.0 million. The SDG&E Agreement will support SDG&E\u2019s deployment of a PLTE network for its California service territory, with a population of approximately 3.6 million people. As part of the SDG&E Agreement, SDG&E and Anterix are collaborating to accelerate the utility industry momentum for private networks. The SDG&E Agreement includes the assignment of 6 MHz of 900 MHz Broadband Spectrum, 936.5 \u2013 939.5 MHz paired with 897.5 \u2013 900.5 MHz, within SDG&E\u2019s service territory following the FCC\u2019s issuance of the broadband licenses to us. We commenced delivery to SDG&E of the relevant 900 MHz Broadband Spectrum and the associated broadband licenses by county in the fiscal year ended 2023 (\u201cFiscal 2023\u201d) and delivery is scheduled for completion before the end of fiscal year 2024. The total payment of $50.0 million is comprised of an initial payment of $20.0 million, received in February 2021 and the remaining $30.0 million payment, which is due through fiscal year 2024 as we deliver the relevant cleared 900 MHz Broadband Spectrum and the associated broadband licenses to SDG&E. In September 2022, we delivered to SDG&E 1.4 x 1.4 cleared 900 MHz Broadband Spectrum and the associated broadband license related to Imperial County and received a milestone payment of $0.2 million. The SDG&E Agreement is subject to customary provisions regarding remedies for non-delivery, including refund of amounts paid and termination rights if Anterix fails to perform its contractual obligations, including failure to deliver the relevant cleared 900 MHz Broadband Spectrum in accordance with the terms of the SDG&E Agreement. A gain or loss on the sale of spectrum will be recognized for each county once we deliver the cleared 900 MHz Broadband Spectrum and the associated broadband licenses to SDG&E in full.\nPage 8\nTable of Contents\nLCRA Agreement\nIn April 2023, we entered into an agreement with Lower Colorado River Authority (\u201cLCRA\u201d) to sell 900 MHz Broadband Spectrum covering 68 counties and more than 30 cities in LCRA\u2019s wholesale electric, transmission, and water service area (the \u201cLCRA Agreement\u201d) for total payments of $30.0\u00a0million plus the contribution of select LCRA 900 MHz narrowband spectrum. The LCRA Agreement will support LCRA\u2019s deployment of a PLTE network which will provide a host of capabilities including grid awareness, communications and operational intelligence that will enhance resilience and spur innovation at LCRA. The new licenses will enable LCRA to move from narrowband to next generation broadband and provide mission-critical data and voice services within LCRA and to more than 100 external customers such as electric cooperatives, schools and transit authorities across more than 73,000 square miles. The payment of $30.0 million is due through fiscal year 2026 as we deliver the relevant cleared 900 MHz Broadband Spectrum and the associated broadband licenses to LCRA. The LCRA Agreement is subject to customary provisions regarding remedies for non-delivery, including refund of amounts paid and termination rights if Anterix fails to perform its contractual obligations, including failure to deliver the relevant cleared 900 MHz Broadband Spectrum in accordance with the terms of the LCRA Agreement. A gain or loss on the sale of spectrum will be recognized for each county once we deliver the cleared 900 MHz Broadband Spectrum and the associated broadband licenses to LCRA in full.\nMotorola Lease\nIn 2014, we entered into an agreement with Motorola (the \u201c2014 Motorola Spectrum Agreement\u201d) to lease a portion of our 900 MHz licenses in exchange for an upfront, fully paid lease fee of $7.5\u00a0million and a $10 million investment in our subsidiary, PDV Spectrum Holding Company, LLC (the \u201cSubsidiary\u201d), which we formed to hold our 900 MHz spectrum licenses.\u00a0Motorola\u2019s investment in the Subsidiary was convertible, at the option of either party, into shares of our common stock at a price equal to $20.00 per share (the \u201cConversion Right\u201d). In May 2022, Motorola exercised its Conversion Right, and we issued Motorola 500,000 shares of our common stock (the \u201cShares\u201d) in conversion of Motorola\u2019s ownership of 500,000 Class B Units (the \u201cUnits\u201d) in our Subsidiary. In June 2022, we filed a Registration Statement on Form S-3 (File No. 333-265930) to register the 500,000 shares of our common stock held by Motorola for resale or other disposition by Motorola (the \u201cResale Registration Statement\u201d). The Resale Registration Statement was declared effective by the SEC on July 15, 2022.\nMotorola is not entitled to any profits, dividends, or other distribution from the operations of the Subsidiary. Under the terms of this lease agreement with Motorola, Motorola can use the leased channels to provide narrowband services to certain qualified end-users. The end-users can only use the leased channels for their internal communication purposes. The end-users cannot sublease the channels to any other end-users or any commercial radio system operations or carriers. The lease agreement limits the total number of channels that Motorola can lease in any market area. The lease agreement provides us with flexibility regarding the future use and management of our spectrum, including relocation and repurposing policies designed to facilitate any necessary realignment of frequencies that may be associated with our efforts to clear spectrum for broadband uses.\nCompetition\nOur competitors include retail wireless network providers, such as Verizon, AT&T, T-Mobile, Dish and UScellular, private radio operators and other public and private companies who own spectrum, supply communication networks, technologies, products and solutions to our targeted utility and critical infrastructure enterprises. Many of these competitors have a long track record of providing technologies, products and solutions to our targeted customers and have greater political and regulatory influence than we do. In addition, many of our competitors have more resources, substantially greater product development and marketing budgets, greater name and brand recognition, a significantly greater base of customers in which to spread their operating costs and more financial and personnel resources than we do. All of these factors could prevent, delay or increase the costs of commercializing the broadband licenses we secure to our targeted customers.\nIn addition, these and other competitors have developed or may develop services, technologies, products and solutions that directly compete with the broadband networks, technologies, products and solutions that can be deployed with our spectrum assets. If competitors offer services, technologies, products and solutions to our targeted customers at prices and terms that make the licensing of our spectrum assets unattractive, we may be unable to attract customers at prices or on terms that would be favorable, or at all, which could have an adverse effect on our financial results and prospects.\nFurther, the FCC and other federal, state and local governmental authorities could adopt new regulations or take actions, including making additional spectrum available that can be utilized by our targeted customers, which could harm our ability to license our spectrum assets. For example, the federal government created and funded the First Responder Network Authority (\u201cFRNA\u201d), which the federal government authorized to help accomplish, fund, and oversee the deployment of a dedicated Nationwide Public Safety Broadband Network (\u201cNPSBN\u201d),\u00a0which is marketed as \u201cFirstNet.\u201d The NPSBN is an additional source of competition to utilizing our 900 MHz spectrum assets by our targeted utility and critical infrastructure enterprises.\nPage 9\nTable of Contents\nOur Historical FCC Initiatives\nJoint Petition\nWhile our current licensed spectrum can support narrowband and wideband wireless services, the most significant business opportunities we identified require contiguous spectrum that allows for greater bandwidth than allowed by the original configuration of the 900 MHz band. In November 2014, in conjunction with the Enterprise Wireless Alliance (\u201cEWA\u201d), we submitted a Joint Petition for Rulemaking (the \u201cJoint Petition\u201d) to the FCC proposing a realignment of a portion of the 900 MHz band to create a 6 MHz broadband segment, while retaining 4 MHz for continued narrowband operations.\u00a0In May 2015, we and the EWA filed proposed rules with the FCC related to our Joint Petition recommending procedural and technical operating parameters and processes related to the administration and technical sequencing of the proposed realignment of the 900 MHz band.\u00a0Our proposed rules included the requirement for the broadband operator to provide comparable facilities to incumbent licensees, to pay the costs of their realignment and to utilize available filtering technologies to protect incumbents adjacent to the proposed broadband portion of the 900 MHz band.\u00a0\nNotice of Inquiry\nIn August 2017, the FCC issued a Notice of Inquiry (\u201cNOI\u201d) announcing that it had commenced a proceeding to examine whether it would be in the public interest to change the existing rules governing the 900 MHz band to increase access to spectrum, improve spectrum efficiency and expand flexibility for a variety of potential uses and applications, including broadband and other advanced technologies and services.\u00a0We and EWA filed a joint response to the FCC\u2019s NOI in October\u00a02017 and submitted reply comments in November\u00a02017.\nNotice of Proposed Rulemaking\nOn March 14, 2019, the FCC unanimously adopted a Notice of Proposed Rulemaking (\u201cNPRM\u201d) endorsing our objective of creating a broadband opportunity in the 900 MHz band for critical infrastructure and other enterprise users.\u00a0In the NPRM, the FCC set to determine (i) what mechanism and requirements should be imposed before a broadband applicant can acquire the FCC\u2019s inventory of spectrum, including how to mitigate a windfall that might be attributed to the broadband applicant by the FCC\u2019s action; (ii) what mechanism should be used to enable the broadband applicant to clear sufficient spectrum to qualify for a broadband license, including how to prevent potential holdouts; (iii) what size systems being operated by incumbents should be deemed to be \u201cComplex Systems\u201d and exempt from any Mandatory Retuning requirements; and (v) what approaches, including potential overlay auctions, should be used in counties where the broadband segment cannot be cleared of incumbents.\nWe filed our comments to the NPRM in June 2019 and submitted reply comments in July 2019.\u00a0\nThe 900 MHz Report and Order\nOn May 13, 2020, the\u00a0FCC\u00a0approved the Report and Order to modernize and realign the 900 MHz band to increase its usability and capacity by allowing it to be utilized for the deployment of broadband networks, technologies and solutions. In the Report and Order, the FCC reconfigured the 900 MHz band to create a 6 MHz broadband segment (240 channels) and two narrowband segments, consisting of a 3 MHz narrowband segment (120 channels) and a 1 MHz narrowband segment (39 channels).\u00a0FIGURE\u00a0I below illustrates the FCC realignment as outlined in the Report and Order.\nFIGURE\u00a0I\nPage 10\nTable of Contents\nThe Role of the County\nUnder the Report and Order, the FCC established the \u201ccounty\u201d as the base unit of measure in determining whether a broadband applicant is eligible to secure a broadband license. There are 3,233 counties in the United States, including Puerto Rico and other U.S. territories.\nBroadband License Eligibility Requirements\nThe Report and Order establishes three eligibility requirements to obtain broadband licenses in a county, which we refer to herein as (i) the \u201c50% Licensed Spectrum Test,\u201d (ii) the \u201c90% Broadband Segment Test\u201d and (iii) the \u201c240 Channel Requirement.\u201d\nTreatment of Complex Systems\nThe Report and Order exempts Complex Systems from the Mandatory Retuning process, even when a broadband applicant meets the 90% Broadband Segment Test, because retuning these systems would potentially be disruptive to the operators. MAP 1 below illustrates the nine current Complex Systems.\nThe Association of American Railroads\nThe nation\u2019s railroads, particularly the major freight lines, operate on six narrowband 900 MHz channels licensed to their trade association, the Association of American Railroads (\u201cAAR\u201d). Three of these narrowband channels are located in the 900 MHz broadband segment created by the FCC. In January\u00a02020, we entered into an agreement with the AAR in which we agreed to cancel licenses in the 900 MHz band to enable the AAR to relocate its operations, including operations utilizing the three channels located in the 900 MHz broadband segment (the \u201cAAR Agreement\u201d).\u00a0The FCC referenced the AAR agreement in the Report and Order and required us to cancel our licenses and return them to the FCC in accordance with the AAR Agreement.\u00a0We cancelled these licenses in June 2020. The Report and Order provides that the FCC will make the channels associated with these licenses available to the AAR to enable the AAR to relocate their current operations within five years.\u00a0The Report and Order also provides that the FCC will credit us for our cancelled licenses for purposes of determining our eligibility to secure broadband licenses and the calculation of any Anti-Windfall Payments.\nBroadband Licensing Process\nIn May 2021, the FCC\u2019s Wireless Telecommunication Bureau released a Public Notice detailing the application requirements and timeline for obtaining broadband licenses. The broadband licensing process includes filing an application with the FCC used for new wireless licenses, completing an Eligibility Certification and developing a Transition Plan describing the agreements the prospective broadband applicant has entered into with Covered Incumbents. We intend to pursue and file \nPage 11\nTable of Contents\napplications based on the timing of customer opportunities, strategic initiatives and our spectrum clearing results and shortly thereafter surrender our underlying licenses. The Anti-Windfall Payment to the U.S. Treasury for any spectrum we obtain from the FCC\u2019s inventory to reach the 240 Channel Requirement will be made as soon as possible after the FCC provides us the amount due for these channels. In cases where we have satisfied the 90% Broadband Segment Test but have not reached an agreement with all Covered Incumbents, the Mandatory Retuning process will commence after we receive the broadband license.\n1.\n50% Licensed Spectrum Test\n. To be eligible for a broadband license in a particular county, a broadband applicant must demonstrate that it holds more than 50% of the outstanding licensed channels in that county. As noted above, the 900 MHz band is made up of a maximum of 399 channels in each county. The FCC has licensed less than the maximum number of 399 channels in all but the most populous counties. Because the 50% Licensed Spectrum Test is based on licensed channels, any channels that are not licensed by the FCC are not included in the denominator when determining whether the broadband applicant has satisfied this test. As of the date of this filing, we alone satisfy the 50% Licensed Spectrum Test in approximately 3,200 counties of the 3,233 counties in the United States and its territories. MAP 2 below illustrates our licensed channels by county in the entire 900 MHz band segment created by the Report and Order.\n2.\n90% Broadband Segment Test\n.\u00a0The second test, the 90% Broadband Segment Test, addresses the balance between a voluntary market process to clear any \u201cCovered Incumbent\u201d (i.e., holders of licenses in the broadband segment) and the Mandatory Retuning process established by the FCC in the Report and Order (which applies to all Covered Incumbents, except for those Covered Incumbents operating Complex Systems. This test requires the broadband applicant to hold, have agreements with or protect Covered Incumbents\u00a0equal to 90% or more of the licensed channels in the broadband segment in a particular county and within 70 miles of the county\u2019s boundaries before the FCC will issue a broadband license and therefore commence the mandatory retuning period. The broadband segment in the 900 MHz band has a total of 240 channels. The 90% Broadband Segment Test is calculated using outstanding licensed channels, which means that if the FCC has licensed all 240 channels, the broadband applicant would be required to have control of, or agreements covering, 216 channels within the broadband segment. In most counties in the United States, the FCC has licensed fewer than 240 channels in the broadband segment and these unlicensed channels are not included in the denominator when determining whether the broadband applicant has satisfied this 90% Broadband Segment Test.\nA broadband applicant can satisfy the 90% Broadband Segment Test by purchasing channels from Covered Incumbents for cash or other consideration, by paying to relocate Covered Incumbents to replacement spectrum channels outside the broadband segment, or by demonstrating that the broadband applicant\u2019s facilities will be far enough from the Covered Incumbent\u2019s narrowband system to allow the two types of networks to co-exist.\nPage 12\nTable of Contents\nBefore filing for a broadband license, the broadband applicant must satisfy the 90% Broadband Segment Test by utilizing its channel holdings and negotiating with Covered Incumbents on a purely voluntary basis for any additional channels it requires to satisfy this test. Only after the 50% Licensed Spectrum Test and the 90% Broadband Segment Test are both satisfied will the FCC issue to the broadband applicant a broadband license and commence the \u201cMandatory Retuning\u201d period. During this Mandatory Retuning period, any Covered Incumbents that remain in the broadband segment (other than Complex Systems) are required to negotiate in good faith with the broadband applicant to sell their channels or otherwise clear the broadband segment, subject to intervention by the FCC if the parties cannot reach an agreement.\nMAP 3 below illustrates our licensed holdings and licensed holdings we have under contract by county in the 6 MHz broadband segment created by the Report and Order. This map does not reflect licenses that may meet the protection criteria as that is evaluated on a county basis as each broadband transition plan is prepared.\n3.\n240 Channel Requirement.\n The Report and Order requires the broadband applicant to surrender 6 MHz of narrowband spectrum (or 240 channels) in the applicable county to the FCC in exchange for a broadband license. If the broadband applicant does not have sufficient channels in the county to return 240 channels to the FCC, it can elect to make an Anti-Windfall Payment to the U.S. Treasury to effectively purchase unlicensed channels in the FCC\u2019s inventory. The Anti-Windfall Payment for these channels will be based on prices paid in the applicable county in the 600 MHz auction conducted by the FCC. To satisfy the 240 Channel Requirement, the broadband applicant has the option on a county-by-county basis to determine whether it is more cost-effective to make the Anti-Windfall Payment, purchase channels from incumbents (where available), or possibly a combination of both.\nImportantly, the markets where the FCC has channels in inventory and where we may need to make Anti-Windfall Payments to effectively return 240 channels to the FCC are generally in smaller urban, suburban and rural markets. Our spectrum position is greatest in the largest, most populated and therefore most expensive markets, with a few exceptions as shown in MAP 4 below. Although we will need to make Anti-Windfall Payments to secure broadband licenses in some counties, the average cost in aggregate for the channels will be lower than the nationwide average amount of $0.93 per MHz of population covered (\u201cPOP\u201d) paid in the FCC\u2019s 600 MHz auction.\nPage 13\nTable of Contents\nCosts of Securing Broadband\n\u00a0\nLicenses\nAs discussed above, to obtain a broadband license in a county, the broadband applicant must satisfy (i) the 50% Licensed Spectrum Test, (ii) the 90% Broadband Segment Test and (iii) the 240 Channel Requirement. As the broadband applicant, we can satisfy these channel requirements by including our existing licensed channels in the 900 MHz band and by acquiring or clearing additional channels when necessary, through (i) spectrum purchases, (ii) spectrum retuning and/or (iii) by making Anti-Windfall Payments. Under the Report and Order, we have the option of using each of these options alone, or in any combination required, to satisfy the broadband license eligibility requirements for a particular county.\n1.\nSpectrum Purchase.\n In 2015, we began acquiring targeted additional channels in the 900 MHz band in various markets in anticipation of the Report and Order. We have and will continue to employ spectrum acquisition as a tool for those situations where a Covered Incumbent desires to exit the 900 MHz band. We may selectively acquire channels outside the 900 MHz broadband segment and use them to swap for channels within the broadband segment. For purposes of our broadband \nPage 14\nTable of Contents\nlicense eligibility, any potential acquisitions we negotiate in the 900 MHz band may be included as part of our broadband application, but the acquisition does not need to be consummated at the time we submit our broadband license application.\n2.\nSpectrum Retuning.\n Retuning is the exercise of modifying incumbents\u2019 licenses to remove the broadband segment channels held by Covered Incumbents and swapping narrowband segments channels to facilitate a move to channels outside of the 900 MHz broadband segment established by the Report and Order. An agreement to retune adds to the number of channels we hold for computational purposes of the 90% Broadband Segment Test. We began retuning channels with interested Covered Incumbents in 2015 in anticipation of the Report and Order. We have continued retuning channels with Covered Incumbents since that time. For purposes of broadband license eligibility, any potential spectrum retuning agreements we negotiate in the 900 MHz band will be included as part of our broadband application, but the retune is not required to be completed before we submit our broadband license application.\n3.\nAnti-Windfall Payment.\n To obtain a 6 MHz broadband license, we must surrender 240 licensed channels in the county. As this band has been underutilized historically, most counties in the United States do not have 240 outstanding licensed\u00a0channels that can be surrendered. To make up the difference, we may effectively pay for channels from the FCC\u2019s spectrum inventory by making an Anti-Windfall Payment. As noted above, the FCC will use a reference per channel price based on the average price paid in the FCC\u2019s 600 MHz auction in each given county.\nOur Intellectual Property\nWe rely on a combination of patent, copyright, trademark and trade-secret laws, as well as confidentiality provisions in our contracts, to protect our intellectual property.\u00a0We have several trademarks and service marks to protect our current and future corporate name, services offerings, goodwill and brand. There are currently no claims or litigation regarding these trademarks, patents, copyrights, or service marks. We also rely on trade secret protection of our intellectual property. We enter into confidentiality agreements with third parties, employees and consultants when appropriate.\nRegulation of Our Business\nWe hold FCC spectrum licenses in the 900 MHz band throughout the contiguous United States, plus Hawaii, Alaska and Puerto Rico. The FCC regulates our wireless spectrum holdings, the issuance of broadband licenses in the 900 MHz band in accordance with the Report and Order, our future leasing or sale of any broadband licenses we secure, and the future construction and operation of wireless networks, technologies and solutions utilizing our spectrum assets.\nLicensing\nWe are authorized to provide our wireless communication services on specified frequencies within specified geographic areas and in doing so must comply with the rules, regulations and policies adopted by the FCC. The FCC issues each spectrum license for a fixed period, typically ten years in the case of the FCC narrowband licenses we currently hold and 15 years for any broadband licenses in accordance with the Report and Order. Any broadband licenses we secure will also have performance requirements at the 6- and 12-year marks to demonstrate that the broadband spectrum is being used to serve the public interest. While the FCC has generally renewed licenses held by operating companies like us, the FCC has the authority to both revoke a license for cause and to deny a license renewal if it determines that license renewal is not in the public interest. Furthermore, we could be subject to fines, forfeitures and other penalties for failure to comply with FCC regulations, even if any such non-compliance is unintentional. The loss of any licenses, or any related fines or forfeitures, could adversely affect our business, results of operations or financial condition.\nThe Communications Act of 1934, as amended, and FCC rules and regulations require us to obtain the FCC\u2019s prior approval before assigning or transferring control of wireless licenses, with limited exceptions.\u00a0The FCC\u2019s rules and regulations also govern spectrum lease arrangements for a range of wireless radio service licenses, including the licenses we hold. These same requirements apply to any licenses or leases we may wish to enter into, transfer, or acquire as part of our broadband initiatives.\u00a0The FCC may prohibit or impose conditions on any proposed acquisitions, sales, or other transfers of control of licenses or leases. The FCC engages in a case-by-case review of transactions that involve the consolidation or sale of spectrum licenses or leases and may apply a spectrum \u201cscreen\u201d in examining such transactions. Because an FCC license is necessary to lawfully provide the wireless services we plan to enable, if the FCC were to disapprove any such request to acquire, assign, or otherwise transfer a license or lease, our business plans would be adversely affected. Approval from the Federal Trade Commission and the Department of Justice, as well as state or local regulatory authorities, also may be required if we sell or acquire spectrum.\nFCC Regulations\nThe FCC does not currently regulate rates for services offered by wireless providers.\u00a0However, we may be subject to other FCC regulations that impose obligations on wireless providers, such as Federal Universal Service Fund obligations, which require communications providers to contribute to a fund that supports subsidized communications services to underserved areas and users; rules governing billing, subscriber privacy and customer proprietary network information; roaming obligations; \nPage 15\nTable of Contents\nrules that require wireless service providers to configure their networks to facilitate electronic surveillance by law enforcement officials; rules governing spam, telemarketing and truth-in-billing and rules requiring us to offer equipment and services that are accessible to and usable by persons with disabilities, among others. There are also pending proceedings that may affect spectrum aggregation limits and/or adjustment of the FCC\u2019s case-by-case spectrum screens; regulation surrounding the deployment of advanced wireless broadband infrastructure; the imposition of text-to-911 capabilities; and the transition to IP networks, among others. Some of these requirements and pending proceedings (of which the previous examples are not an exhaustive list) pose technical and operational challenges for which we, and the industry as a whole, have not yet developed clear solutions. We are unable to predict how these pending or future FCC proceedings may affect our business, financial condition, or results of operations. Our failure to comply with any applicable FCC regulations could subject us to significant fines or forfeitures.\nState and Local Regulation\nIn addition to FCC regulation, we are subject to certain state regulatory requirements. The Communications Act of 1934, as amended, preempts state and local regulation of the entry of, or the rates charged by, any wireless provider. State and local governments, however, are permitted to manage public rights of way and can require fair and reasonable compensation from wireless providers for use of those rights of way so long as the compensation required is publicly disclosed by the government. The siting of base stations also remains subject to some degree of control by state and local jurisdiction.\nTower Siting\nOur current and future customers who deploy broadband networks will be required to comply with various federal, state and local regulations that govern the siting, lighting and construction of transmitter towers and antennas, including requirements imposed by the FCC and the Federal Aviation Administration (\u201cFAA\u201d). Federal rules subject certain tower site locations to extensive zoning, environmental and historic preservation requirements and mandate consultation with various parties, including State and Tribal Historic Preservation Offices, which can make it more difficult and expensive to deploy facilities. The FCC antenna structure registration process also imposes public notice requirements when plans are made for construction of, or modification to, antenna structures that require FAA approval, potentially adding to the delays and burdens associated with tower siting, including potential challenges from special interest groups. To the extent governmental agencies continue to impose additional requirements like this on the tower siting process, the time and cost to construct towers could be negatively impacted. The FCC has, however, imposed a tower siting \u201cshot clock\u201d that requires local authorities to address tower applications within a specific timeframe, which can assist carriers in more rapid deployment of towers.\u00a0More recently, the FCC also has adopted rules intended to accelerate broadband deployment by removing barriers to infrastructure investment, in particular for \u201csmall cell\u201d equipment.\u00a0Those rules have been challenged by certain municipalities and tribal nations both at the FCC and in court.\nNational Security\nWith a range of weather-related and cyber security impacts on the nation\u2019s grid over the last several years, national security and disaster recovery issues continue to receive attention at the federal, state and local levels.\u00a0For example, Congress is expected to again consider cyber security legislation to increase the security and resiliency of the nation\u2019s digital infrastructure. Our current and future customers who deploy broadband networks may be required to comply with potential federal, state and local regulations that govern elements of the electric grid.\nReport and Order\nThe FCC regulates the issuance of broadband licenses in the 900 MHz band in accordance with the Report and Order.\nHuman Capital Management\nWe believe we have an experienced, talented, motivated and dedicated team. We are committed to supporting the development of all our employees and to continuing to build on our strong culture. As of March\u00a031, 2023, we had 82 full-time employees. We engage consultants and contract workers on an as-needed basis. We believe the relations with our employees and consultants are good.\nCompany Culture\nWe are guided by our core values \u2013 Integrity, Courage, Camaraderie, Transformative, and Excellence \u2013 that express how we aspire to be when we are at our best. With these values as the backbone of our corporate culture, we work tirelessly to act as responsible stewards \u2013 to our employees, communities and other stakeholders who rely on us. In addition, we are committed to governing and operating our business with the highest levels of integrity and ethics.\nWe are focused on regular evaluation of our culture. In 2021, we invited all employees to participate in an initial Employee Engagement by completing an anonymous survey. Eighty percent of our employees participated in the cultural survey providing a good basis to gauge employee sentiment. Our management team reviewed the feedback and shared the \nPage 16\nTable of Contents\nsurvey results with employees at a quarterly Town Hall meeting. The survey showed that we have a highly engaged workforce that overwhelmingly views our work environment favorably. Where our employees identified areas for improvement, we worked with various functional areas to create and implement action plans to address any issues. Our second Employee Engagement survey is set to launch in Fall 2023.\nDiversity, Equity and Inclusion \nWe are committed to hiring inclusively, providing training and development opportunities, fostering an inclusive culture, ensuring equitable pay for employees, and focusing on attracting and retaining diverse representation at every level within the Company. Anterix GROW was launched in February 2023. The focus of GROW is to embed inclusion into everyday life, personally and professionally. We are committed to fostering a culture of inclusivity by providing more actionable opportunities, and resources including days of service, employee resource groups, more lunch and learns and new inclusion tools.\nPartnerships with organizations like INROADS and Talent Hue provide further avenues for recruiting diverse talent. As of March\u00a031, 2023, 33% of our Board members and 28% of our workforce identify as diverse. In Fiscal 2023, 31% of our new hires were females and our overall workforce is 35% female.\nEmployee Growth and Development\nWe offer a meaningful work environment with experiences and opportunities to grow and develop. This starts with the opportunity for continuous learning and the opportunity to do challenging, transformative work that helps our team build skills at all levels, including leadership opportunities, coaching, and mentoring. In addition to mandatory training on compliance matters and policies, we provide and encourage employees to partake in optional career development, health and wellness, and employee engagement activities and training.\nWe conduct surveys that gauge employee sentiment in areas like career development, manager performance and inclusivity, and we are committed to taking steps to address areas needing improvement.\nEmployee Health and Safety\nWe strive to provide a safe workplace environment and have implemented policies to support the health and safety of our employees, including a work-from-home policy. Following a shift to work from home in response to the global COVID-19 pandemic crisis, we have moved to a hybrid model requiring employees to work from the office three days a week, three weeks a month. We believe this approach balances the benefits of team development of office-based work with the personal and environmental benefits of working from home. Employees needing in-person access to laboratories or other resources onsite are not eligible for hybrid work. We believe that we have learned to operate successfully in this unique environment, and we remain committed to supporting our team\u2019s new, more carbon-friendly, hybrid work program.\nOur Corporate Information\nOur principal executive offices are located at 3 Garret Mountain Plaza, Suite 401, Woodland Park, New Jersey 07424 and 8260 Greensboro Drive, Suite 501, McLean, Virginia. Our main telephone number is (973)\u00a0771-0300.\u00a0We were originally incorporated in California in 1997 and reincorporated in Delaware in 2014.\u00a0Our website is www.anterix.com.\u00a0\nAvailable Information\nOur Annual Reports on From 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d) are made available free of charge on our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commissions (\u201cSEC\u201d). The SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We include our website address in this Annual Report only as an inactive textual reference. The information on or accessible through our website is not incorporated into this Annual Report, and you should not consider any information on, or that can be accessed through, our website a part of this Annual Report or our other filings with the SEC.",
+  "item1a": ">Item\u00a01A.\u00a0Risk Factors.\nYou should carefully consider the following risk factors, together with the other information contained in this Annual Report and our other reports and filings made with the SEC, in evaluating our business and prospects.\u00a0If any of the risks discussed in this Annual Report occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our common stock could decline significantly. Some statements in this Annual Report, including statements in the following risk factors, constitute forward-looking statements.\u00a0Please refer to the section entitled \u201cCautionary Statement Concerning Forward-Looking Statements.\u201d\nPage 17\nTable of Contents\nRisks Related to Obtaining Broadband Licenses, the Retuning Process and the Use of Our Spectrum\nOur plans to commercialize our 900 MHz spectrum assets depend on our ability to qualify for and obtain broadband licenses from the FCC in accordance with the requirements of the Report and Order. If we are unable to obtain broadband licenses on favorable terms and on a timely basis,\n \nour business, liquidity, results of operations and prospects will be materially adversely affected.\nOur plans to commercialize our 900 MHz spectrum assets depend on our ability to obtain broadband licenses in accordance with the requirements of the Report and Order. The Report and Order establishes three general eligibility requirements to obtain a broadband license, which we refer to herein as (i) the \u201c50% Licensed Spectrum Test,\u201d (ii) the \u201c90% Broadband Segment Test\u201d and (iii) the \u201c240 Channel Requirement.\u201d We will need to satisfy all eligibility requirements in each county in the United States for which we desire to obtain a broadband license. Under the 50% Licensed Spectrum Test, we must demonstrate that we hold more than 50% of the licensed channels in the 900 MHz band in the applicable county. Under the 90% Broadband Segment Test, we must provide the FCC with a plan demonstrating that we hold, or have agreements with Covered Incumbents for, at least 90% of the licensed channels in the 6 MHz broadband segment designated by the FCC and within 70 miles of the county boundary. Under the 240 Channel Requirement, we must surrender 6 MHz of broadband or narrowband spectrum (or 240 channels) in the applicable county to the FCC. If we do not have a sufficient number of channels to satisfy any of these eligibility requirements, we will be required to purchase the additional channels from incumbents in privately negotiated transactions, swap our existing channels with incumbents (including any required retuning of the incumbent radio systems), demonstrate the ability to protect Covered Incumbents or effectively purchase channels not previously licensed by the FCC by making an Anti-Windfall Payment. The amount of spectrum we will be required to purchase and/or swap and the amount of any Anti-Windfall Payment will vary in each county based on our existing spectrum holdings in such county. Our ability to acquire and/or swap the additional spectrum necessary to secure broadband licenses in a desired county on a timely and cost-effective basis will depend on the incumbents who hold the additional spectrum we need to acquire or swap and their operations that we may need to retune or replace. Obtaining the required spectrum to qualify for broadband licenses may take longer and be more expensive than we currently anticipate. In addition, as discussed in more detail below, incumbents may elect not to sell or swap their existing channels on reasonable terms, or at all, and until we obtain a broadband license from the FCC, we will not be able to utilize the Mandatory Retuning procedures the FCC established in the Report and Order. If we are unable to obtain broadband licenses on favorable terms and on a timely basis, or at all, our business, liquidity, results of operations and prospects will be materially adversely affected. In addition, significant costs or delays beyond what we have anticipated in our business plan will further delay us from commercializing our spectrum assets, and may prevent us from returning capital to stockholders (through dividends or stock repurchases) and require us to seek additional sources of capital and liquidity in order to carry out our business and plans, which could cause significant dilution to our existing stockholders. See the risk factor entitled \u201c\nWe may not be able to correctly estimate our operating expenses or\n\u00a0\nfuture revenues, which could lead to cash shortfalls, and may prevent us from returning capital to our stockholders and require us to secure additional financing\n.\u201d\nThe\n v\noluntary exchange process established by the FCC in the Report and Order may not allow us to clear or relocate incumbents in a timely manner and on commercially reasonable terms, or at all.\nThe Report and Order establishes a market-driven, voluntary exchange process for clearing the channels in the broadband segment on a county-by-county basis. When we apply for a broadband license, we will need to demonstrate that we satisfy the 90% Broadband Segment Test. The fact that we will need to account for 90% of the licensed channels in the broadband segment before we can file for a broadband application, can lead to holdouts by Covered Incumbents. For example, a Covered\u00a0Incumbent may demand compensation in an amount that is disproportionate to the cost of relocating its system or any reasonable reflection of the value of its spectrum holdings or may elect not to negotiate an agreement at all. In the Report and Order, the FCC has established that a Broadband license can trigger a Mandatory Retuning process to help a broadband applicant clear the remaining channels in the broadband segment. There is no assurance, however, that we can swap or acquire sufficient channels, including purchasing additional spectrum, swapping spectrum or entering into protective agreements with Covered Incumbents, to satisfy the 90% Broadband Segment Test on a timely basis and on commercially reasonable terms, or at all. Further, even if we satisfy the 90% Broadband Segment Test, as part of the Mandatory Retuning process we will be required to pay any costs associated with providing Covered Incumbents with comparable facilities and paying relocation costs.\nIn addition, the FCC has exempted channels from the Mandatory Retuning process that are being utilized by incumbents operating Complex Systems. The FCC exempted Complex Systems from the Mandatory Retuning requirements because retuning these systems could be complex and disruptive to the incumbent operators. Complex Systems are located in some of the largest business and population centers in the United States. Most are operated by electric utilities, including some utilities that actively opposed our 900 MHz Broadband Spectrum initiatives that resulted in the Report and Order. This exemption effectively prevents us from obtaining broadband licenses in counties where these Complex Systems are located (or if a Complex System is being operated within 70 miles of a county boundary for which we are attempting to obtain a broadband license) without the incumbent\u2019s consent, which could be withheld for any reason, or for no reason. As a result, the incumbents \nPage 18\nTable of Contents\noperating Complex Systems can make demands that are not commercially reasonable (including the commercial terms to obtain the use of our spectrum), delay their decision or refuse to negotiate with us altogether. Our inability to obtain broadband licenses in counties where Complex Systems are currently being operated (or are being operated within 70 miles of a county boundary for which we are attempting to obtain a broadband license) could have a material adverse effect on our operations and business plan, our future prospects and opportunities and on our ability to develop a profitable business.\nThe members of the\n \nAAR\n \nmay delay or hinder our ability to commercialize broadband licenses.\nThe AAR holds a nationwide geographic license for six non-contiguous channels in the 900 MHz band, three of which are located within the broadband segment established by the FCC in the Report and Order. These channels are used by freight railroads for Advanced Train Control System operations. We recognized from the outset of the 900 MHz proceedings the importance of reaching agreements with the railroads about their relocation and worked with them throughout the FCC process. The Report and Order acknowledged the agreement we had reached with\u00a0the AAR. In January\u00a02020, we formalized our AAR Agreement with the AAR in which we agreed to provide licenses in the 900 MHz band to enable the AAR to relocate its operations, including operations utilizing the three channels located in the 900 MHz broadband segment.\u00a0We cancelled these licenses in June 2020 in accordance with the AAR Agreement and the FCC Report and Order. Delays by members of the AAR in clearing their channels in the broadband segment could delay or hinder our ability to commercialize broadband licenses and the ability of our customers to deploy 3 x 3 MHz broadband networks in the affected area, which could cause delays, penalties or have a material adverse effect on our operations and business plan, our future prospects and opportunities and on our ability to develop a profitable business.\nWe may not be successful in commercializing our spectrum assets on a timely basis or in accordance with our business plans and expectations.\nWe have identified utilities and other critical infrastructure enterprises as our initial target customers. As of the date of this filing, we have signed long-term leases of our spectrum assets with Ameren, Evergy and Xcel Energy and have entered into agreements to sell our spectrum assets to SDG&E and LCRA. Although we are in discussions with other utilities and critical infrastructure enterprises, there is no assurance that these discussions will continue to progress or eventually result in contracts with these entities or that we will be successful in our efforts to commercialize our spectrum assets and other service offerings. For example, utilities or other critical infrastructure enterprises may not elect to acquire use of any broadband licenses we secure on terms satisfactory to us or for a consideration that represents what we believe is the fair market value for the rights to our spectrum, on a timely basis, or at all. Similarly, there is no assurance that utilities or other critical infrastructure customers will retain us for any other value-added services we offer them. As a result,\u00a0our prospects must be considered in light of the uncertainties, risks, expenses and difficulties frequently encountered by companies in their early stages of implementing a new business plan and pursuing opportunities in highly competitive and rapidly developing markets.\nIn addition, under our current business plan, we generally intend to enter into long-term leasing or other transfer arrangements for our spectrum assets in one county with one customer, or a limited number of customers, in each geographic area. We also expect that our customers will pay what we believe is the fair market value for rights to our spectrum and bear the costs of deploying and operating their private broadband networks. As a result, many geographic areas may have only one or a limited number of potential customers and if we are not successful with this customer or limited number of customers, our spectrum may not be utilized, and we will not be able to generate revenues from owning spectrum in that geographic area. In addition, even if we enter a long-term lease or transfer arrangement for a geographic area, we expect payments by our customer in such area will be contingent on our ability to clear incumbents and take the other necessary actions to secure broadband licenses on a timely basis. Our customers also will typically require rights to all spectrum we have in its geographic operating area. Because of this, we may not have additional spectrum assets to lease in such geographical area to other potential customers. Further, other than our lease or transfer arrangements, we will not generate revenue from the operation of the broadband networks or technologies deployed by our customers. As a result, there is considerable uncertainty as to whether we can generate sufficient revenues to develop a profitable business from leasing or otherwise transferring our licensed 900 MHz spectrum on a timely basis, or at all.\nOur ability to successfully commercialize our spectrum assets will also depend on the commercial availability of technology, products and solutions that can both utilize the broadband licenses we secure and satisfy our customers\u2019 demands. Our spectrum assets are located within the 3GPP global standard of Band 8 (also known as the E-GSM band, or 880 - 915 MHz paired with 925 - 960 MHz).\u00a0Band 8 has been internationally approved and is currently being utilized with LTE broadband networks. However, we may not be able to continue to convince chipmakers and other technology, product and solution manufacturers and vendors to develop the technology, products and solutions required to satisfy our customers\u2019 various use cases and meet the technical specifications established in the Report and Order. Further, adverse economic conditions, including as a result of health pandemics, inflation, regulatory actions and policy changes, and geopolitical matters, may result in supply chain issues which limit our customer\u2019s ability to obtain the necessary technology and products to deploy an LTE broadband network utilizing our spectrum. If such technologies, products and solutions are not available or competitively priced or are \nPage 19\nTable of Contents\nsignificantly delayed, our customers may decide not to lease any broadband licenses we secure on acceptable terms, on a timely basis, or at all.\nFurther, our assessment that we should target utilities and other critical infrastructure entities as customers for our spectrum is based on our determination that these entities have regulatory and other incentives to install a significant number of new technologies, such as smart devices and sensors, that will generate an increasing amount of data that cannot be addressed well by their existing communication networks and systems. Our potential customers, however, are large organizations and their decision to implement private broadband networks, technologies and solutions is an involved decision and will require significant capital outlays. Any negotiation and contract process with these potential customers has taken, and likely will continue to take, a significant amount of time and effort to work through their approval and funding processes. In addition, there is no assurance that the governmental agencies that regulate these entities will allow them to pass the capital costs of implementing broadband networks, technologies and solutions utilizing our spectrum on to their ratepayers, which could cause these entities to be unable to afford, or to elect not to pursue, rights to our spectrum assets. In addition, although there is broad availability of broadband LTE, there is no assurance that our targeted customers will be able to utilize existing broadband networks, technologies and solutions with our spectrum for their desired use cases without requiring modifications to existing equipment or engaging in product and/or service development efforts, any of which could result in deployment delays, require them or us to invest in technology or other development activities or otherwise adversely limit the potential benefits or value of our spectrum assets. If any of these risks occur or continue beyond our plans and expectations, our plans to commercialize our spectrum assets may not be as valuable as we expect and we may experience significant delays in our commercialization plans, which will have an adverse effect on our business, liquidity, results of operations and prospects.\nWe are subject to contingencies and obligations under our commercial agreements with our customers including the delivery of cleared spectrum and broadband licenses on a timely basis, and as a result, there is no assurance that we will receive payments from such customers in the amounts and on the timeline we currently expect, or that any payments we have received to date, including from Evergy, will not be subject to repayment or\n \nthat we will not be subject to contract claims, including rights of termination.\nWe are subject to contingencies and obligations under our commercial agreements with Ameren, SDG&E, Evergy, Xcel Energy and LCRA, including the delivery of cleared spectrum and broadband licenses in the designated service territories on a timely basis. There is no assurance that we will be able to clear incumbents from Ameren\u2019s, SDG&E\u2019s, Evergy\u2019s, Xcel Energy\u2019s, and/or LCRA\u2019s respective service territories and obtain broadband licenses from the FCC on the timeline required under our agreements, or at all.\u00a0Ameren\u2019s, SDG&E\u2019s, Evergy\u2019s, Xcel Energy\u2019s, and LCRA\u2019s respective payment obligations, including our ability to maintain any upfront payments and any future payment obligations under these agreements, are contingent on our ability to deliver cleared spectrum and Broadband Spectrum licenses on the timelines required in these agreements.\u00a0As a result, there is no assurance that we will be able to retain any upfront payments or receive future payments in the amounts and on the timeline we currently expect, or at all.\u00a0Further, Ameren, Evergy and Xcel Energy may not elect to exercise their options for additional terms contemplated by the terms of the long-term lease agreements.\u00a0Further, our costs to clear incumbents, qualify for broadband licenses and perform our other obligations under our agreements with Ameren, SDG&E, Evergy, Xcel Energy and LCRA may be significantly more than we currently anticipate, which could increase our capital expenses and reduce the net revenue or proceeds we recognize from these agreements.\nMacroeconomic pressures resulting from health epidemics, including the recent COVID-19 pandemic, unfavorable market conditions, regulatory and policy changes,\n \nand ongoing geopolitical matters, may have an adverse impact on our business, financial results, stock price and results of operations as well as the business of our current and potential customers.\nWhile the severity of the recent COVID-19 pandemic has lessened significantly, the pandemic has had a significant negative impact on the macroeconomic environment, such as decreases in per capital income and level of disposable income, inflation, rising interest rates, and supply chain issues. Ongoing geopolitical matters have also contributed to difficult macroeconomic conditions and exacerbated supply chain issues, resulting in significant economic uncertainty as well as volatility in the financial markets and new regulatory and policy initiatives particularly in the United States. Such conditions may adversely impact our business, financial results, and prospects and our target customers\u2019 businesses. In addition, such macroeconomic conditions could impact our ability to access the public markets as and when appropriate or necessary to carry out our operations or our strategic goals. We cannot predict the ongoing extent, duration or severity of these conditions, nor the extent to which we may be impacted.\nTo the extent macroeconomic conditions worsen, our business, operations and results of operation could be negatively impacted. Additionally, to the extent that there is a resurgence in the COVID-19 pandemic, or other health epidemics or outbreaks, our operations could be disrupted and our business adversely impacted. Such disruptions or impacts may be similar to those we faced during the COVID-19 pandemic, such as mandated business closures in impacted areas, limitations with employee resources due to stay at home orders or sickness of employees or their families, reduction of our business operations \nPage 20\nTable of Contents\nand the business operations of our targeted utility and critical infrastructure customers, all of which may have an adverse impact on our business, financial results, stock price and results of operations.\nOur initiatives with the federal and state agencies and commissions that regulate electric utilities may not be successful.\nOur targeted utility and critical infrastructure customers are highly regulated by both federal and state agencies. Electrical utilities, for example, are regulated by federal agencies including the Department of Energy, the Department of Homeland Security, the Federal Energy Regulatory Commission and the NIST. We are working with each of these agencies to educate them about the potential benefits that private broadband LTE networks, technologies and solutions utilizing our spectrum assets can offer utilities. We are also working with state agencies and commissions who regulate the electrical utilities in their respective states, and who have a strong influence over electric utility buying decisions in their jurisdictions. Our goal with these state agencies and commissions is to gain their support for allowing utilities to pass the capital costs of leasing our spectrum assets and deploying private broadband LTE networks, technologies and solutions to ratepayers, including at a customary rate of return for the utility company. We are in the early stages of our initiatives with these federal and state agencies and commissions. We may not be successful in gaining support from these governmental bodies on a timely basis, or at all, which could hinder or delay our commercialization efforts with utilities and other entities. If we do not gain support from these governmental bodies, our targeted critical infrastructure customers may not find it commercially feasible to lease our spectrum assets.\nWe may not be able to maintain any broadband licenses that we\n \nown and/or\n \nobtain from the FCC.\nThe FCC issues each spectrum license for a fixed period, typically ten years in the case of the FCC licenses for the narrowband spectrum we currently hold and 15 years for any broadband licenses we have or intend to secure in the future. The Report and Order establishes \u201cperformance\u201d or build-out requirements that we will be required to meet to retain and renew any broadband licenses we obtain (\u201cBuild-out Requirements\u201d). Performance will be measured at the six- and twelve-year anniversaries of each broadband license. Although we have contractual rights and remedies with our licensees in the event of their failure to meet the Build-Out Requirements, a failure to satisfy the six-year anniversary requirements, accelerates the twelve-year anniversary to a ten-year anniversary requirement. A failure to satisfy these requirements could result in the FCC\u2019s termination of a broadband license or refusal to renew a previously issued broadband license. In addition, under our business plan, we intend for our customers to be responsible to pay the build-out and operating costs of such broadband systems. Such Build-Out Requirements could impose a significant expense and could cause potential customers to decide not to license broadband licenses from us, or to seek alternative communication solutions from other providers.\nGovernment regulations or actions taken by governmental bodies could adversely affect our business prospects, liquidity and results of operations, including any changes by the FCC to the Report and Order or to the FCC rules and regulations governing the 900 MHz band.\nThe licensing and sale of spectrum assets, as well as the deployment and operation of wireless networks and technologies, are regulated by the FCC and, depending on the jurisdiction, by state and local regulatory agencies. In particular, the FCC imposes significant regulation on licensees of wireless spectrum with respect to how FCC licenses may be transferred or sold. The FCC also regulates how the spectrum is used by licensees, the nature of the services that licensees may offer and how the services may be offered, including resolution of issues of interference between spectrum bands. Failure to comply with FCC requirements applicable to a given licensee could result in revocation or non-renewal of the license, depending on the nature and severity of the non-compliance. If we, or any of the future licensees of our spectrum assets, fail to comply with applicable FCC regulations, we may be subject to sanctions or lose our FCC licenses, which would have a material adverse effect on our business, liquidity, results of operations and prospects.\nIn addition, the FCC and other federal, state and local governmental authorities could adopt new regulations or take actions, including imposing taxes or fees on our business that could have a materially adverse effect on our business, liquidity, results of operations and prospects. Further, the FCC or Congress may make additional spectrum available for communications services, which may result in the introduction of additional competitive entrants to the already crowded wireless communications marketplace in which we compete. For example, the federal government created and funded the FRNA which the federal government authorized to help accomplish, fund and oversee the deployment of the dedicated NPSBN. The NPSBN, which is marketed as \u201cFirstNet\u201d, may provide an additional source of competition to utilizing our 900 MHz spectrum assets by our targeted critical infrastructure and enterprise customers.\nPage 21\nTable of Contents\nThe value of our spectrum assets may fluctuate significantly based on supply and demand, as well as technical and regulatory changes.\nThe FCC spectrum licenses we hold are our most valuable asset.\u00a0The value of our spectrum, however, may fluctuate based on various factors, including, among others:\n\u2022\nthe cost and time required to comply with the FCC\u2019s requirements to obtain broadband licenses in the 900 MHz band, including purchasing additional spectrum and retuning and relocating incumbents;\n\u2022\nour ability to enter long-term leases or transfer arrangements with our targeted utility and critical infrastructure customers on a timely basis and on commercially reasonable terms;\n\u2022\npotential uses of our spectrum based on the Report and Order and available technology;\n\u2022\nthe market availability of, and demand for, broadband spectrum;\n\u2022\nthe demand for private broadband networks, technologies and solutions by our targeted utility and critical infrastructure customers; and\n\u2022\nregulatory changes by the FCC to make additional spectrum available or to promote more flexible uses of existing spectrum in other bands. \nSimilarly, the price of any additional spectrum we desire to purchase to enable us to qualify for broadband licenses or our future business plans will also fluctuate based on similar factors.\u00a0Any decline in the value of our spectrum or increases in the cost of the spectrum we acquire could have an adverse effect on our market value and our business and operating results.\nRisks Related to Our Business\nWe may not be able to correctly estimate our operating expenses or future revenues, which could lead to cash shortfalls, and\n \nmay prevent us from returning capital to our stockholders and\n \nrequire us to secure additional financing.\nWe dedicated significant resources to support the FCC\u2019s approval of the Report and Order. We have expended, and will need to continue to expend substantial resources for the foreseeable future, to commercialize and promote the benefits of deploying broadband systems to our targeted utility and critical infrastructure customers. We also will need to expend substantial resources for the foreseeable future to qualify for and obtain broadband licenses, including the costs related to retuning incumbent systems, purchasing additional spectrum from incumbents and/or making Anti-Windfall Payments to the U.S. Treasury to commercialize our spectrum assets. We believe our cash and cash equivalents on hand, along with contracted proceeds from customers will be sufficient to meet our financial obligations through at least 12 months from the date of this filing.\nOur budgeted expense levels are based in part on our expectations and assumptions regarding the timing and costs to qualify for and obtain broadband licenses, the demand by our target customers to utilize our spectrum assets to deploy broadband networks, technologies and solutions and the time required to enter into binding contracts with our target customers. However, we may not correctly predict the amount or timing of our future revenues and our operating expenses, which may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control, and may be materially different than our announced plans and expectations. These factors include:\n\u2022\nthe cost and time required to obtain broadband licenses, including the costs to clear the 900 MHz band and to acquire additional spectrum from incumbents and/or to make Anti-Windfall Payments;\n\u2022\nour ability to qualify for and utilize the Mandatory Retuning process established by the Report and Order;\n\u2022\nour ability to negotiate agreements with the operators of Complex Systems;\n\u2022\nthe cost and time to promote, market and commercialize our spectrum assets, including the long sales cycle required to enter commercial arrangements with our targeted utility and critical infrastructure customers;\n\u2022\nthe commercial terms, including the length of the lease and the timing of payments, in our future commercial arrangements with our targeted customers; \n\u2022\nthe costs associated with increasing the size of our organization, including the costs to attract and retain personnel with the skills required to support our business plans; \n\u2022\nadverse economic conditions, including as a result of inflation, that delay or otherwise hinder our commercialization efforts; and\n\u2022\nthe funds we return to stockholders through our share repurchase program.\nOther costs may arise that we currently do not anticipate and unanticipated events may occur that reduce the amounts and delay the timing of our future revenues. We may not be able to adjust our operations in a timely manner to compensate for any shortfall in our revenues, delays in obtaining broadband licenses, delays in entering commercial agreements for our spectrum or increases in the expenses required to secure broadband licenses and implement our commercialization and business plans.\nFurther, our assumptions regarding the terms of any spectrum transactions we enter into with our targeted customers, including the timing of customer payments, may turn out to be inaccurate. As a result, a significant shortfall in our planned revenues, a significant delay in obtaining broadband licenses and entering into agreements for our spectrum assets, customers \nPage 22\nTable of Contents\nelecting not to make significant pre-payments under the terms of any agreements we enter into or significant increases in our planned expenses could have an immediate and material adverse effect on our business, liquidity, results of operations and prospects. In such case, we may not be able to return capital to our stockholders through dividends and stock repurchases and may be required to issue additional equity or debt securities or enter into other commercial arrangements to secure the additional financial resources to support our future operations and the implementation of our business plans.\u00a0Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business, prospects and results of operations. In addition, we may seek additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.\nWe have a limited operating history with our current business plan, which makes it difficult to evaluate our prospects and future financial results and our business activities, strategic approaches and plans may not be successful.\nAlthough we were incorporated in 1997, our business is now reliant on our ability to secure broadband licenses pursuant to the Report and Order and to commercialize our spectrum assets to our targeted utility and critical infrastructure customers.\u00a0Since the Report and Order, we have signed commercial agreements with five of our target utility and critical infrastructure customers for the long-term lease or transfer of our spectrum assets. Although we are in discussions with other utilities and critical infrastructure companies, and we believe many of these utility and critical infrastructure customers have demonstrated an intention to acquire use of our 900 MHz Broadband Spectrum based on their level of engagement, there is no assurance that these discussions will continue to progress or will eventually result in contracts with these entities. There also is no assurance regarding the terms of any agreements we enter into with our target customers, including the time required to enter into an agreement and the amount or timing of any payments from any executed agreement. In addition, there is no assurance that we will be able to satisfy our obligations under our commercial agreements, including our obligations to secure broadband licenses on a timely basis and on commercially reasonable terms, or at all. As a result, there is no assurance that we will be successful in our efforts to commercialize our spectrum assets and other service offerings. Further, our ability to forecast our future operating results is limited and subject to a number of risks and uncertainties, including our ability to accurately forecast and estimate our future revenues and the expenses and time required to obtain broadband licenses and pursue our commercialization plans. We have encountered, and expect to continue to encounter, risks and uncertainties frequently experienced by new businesses in highly competitive, technical and rapidly changing markets. If our assumptions regarding these risks and uncertainties are incorrect, or if there are adverse changes in our commercialization plans or opportunities or general economic conditions, or if we do not manage or address these risks and uncertainties successfully, our results of operations could differ materially and adversely from our expectations.\nAs a business with a limited operating history with our current business plan, any future success will depend, in large part, on our ability to, among other things:\n\u2022\ncomply with the requirements and restrictions the FCC has established in the Report and Order to qualify for and obtain broadband licenses in key geographic areas on a timely and cost-effective basis;\n\u2022\nsuccessfully commercialize our spectrum assets to our targeted utility and critical infrastructure customers on favorable terms, on a timely basis, or at all;\n\u2022\ncomply with our obligations under our existing and any future agreements with our customers on a timely basis and on commercially reasonable terms;\n\u2022\ncompete against other wireless companies, such as Verizon, AT&T, T-Mobile, Dish and UScellular, manufacturers and vendors who have significantly greater resources and pricing flexibility, long-term relationships with our targeted customers and greater political and regulatory influence;\n\u2022\nsuccessfully convince chipmakers and other technology, product and solution manufacturers and vendors to develop the technology, products and solutions required to satisfy our customers\u2019 various use cases and meet the technical specifications established in the Report and Order; and\n\u2022\nsuccessfully manage and grow our internal business, regulatory, technical and commercial operations in an efficient and cost-effective manner\n.\nAny failure to achieve one or more of these objectives could adversely affect our business, our results of operations and our financial condition.\nMany of the third parties who offer spectrum and communication technologies, products and solutions to our targeted customers have existing long-term relationships with these targeted customers and have significantly more resources and greater political and regulatory influence than we do, and we may not be able to successfully compete with these third parties.\nOur competitors include retail wireless network providers, such as Verizon, AT&T, T-Mobile, Dish and UScellular, private radio operators and other public and private companies who supply communication networks, technologies, products and solutions to our targeted utility and critical infrastructure entities. Many of these competitors have significantly more resources, a longer track record of providing technologies, products and solutions to our targeted customers and greater political and regulatory influence than we do, all of which could prevent, delay or increase the costs of commercializing the broadband \nPage 23\nTable of Contents\nlicenses we secure to our targeted customers. In addition, we expect our targeted customers will bear the cost of installing and operating the broadband networks, technologies and solutions utilizing our licensed spectrum, thereby requiring the replacement of some or all of their existing communication systems. Given these significant capital requirements, there is no assurance that we will be able to successfully commercialize our spectrum assets, especially in light of the competitive environment in which we operate, and the wide variety of technologies, products and solutions offered by our competitors. Further, in the process of pursuing broadband licenses, we may be required to make significant concessions or contractual commitments, make significant payments or assume significant costs, purchase additional spectrum or replacement communication systems or limit the use of our spectrum assets or restrict our pursuit of business opportunities to address the concerns expressed by incumbents and other interested parties.\nIn addition, the FCC and other federal, state and local governmental authorities could adopt new regulations or take actions, including making additional spectrum available that can be utilized by our targeted customers, which could harm our ability to license our spectrum assets. For example, the federal government created and funded the FRNA, which the federal government authorized to help accomplish, fund, and oversee the deployment of a dedicated NPSBN. The NPSBN, which is marketed as \u201cFirstNet\u201d, may provide an additional source of competition to utilizing our 900 MHz spectrum assets by our targeted utility and critical infrastructure enterprises.\nSome of our competitors, \nsuch as Verizon, AT&T, T-Mobile, Dish and UScellular\n, have significantly greater pricing flexibility, have taken steps and may decide to compete against us more aggressively. These and other competitors may own or acquire spectrum that directly competes with our 900 MHz spectrum and/or have developed or may develop technologies that directly compete with our solutions. If competitors offer spectrum rights or services, technologies and solutions to our targeted customers at prices and terms that make the licensing of our spectrum assets unattractive, our ability to license or otherwise commercialize our spectrum assets could be impaired. As a result, we may be unable to attract customers at prices or on terms that would be favorable, or at all, which could have an adverse effect on the growth and timing of any future revenues. In addition, we may not be able to fund or invest in certain areas of our business to the same degree as our competitors. Many have substantially greater product development and marketing budgets and other financial and regulatory personnel resources than we do. Many also have greater name and brand recognition and a larger base of customers than we have. Competition could increase our selling and marketing expenses and related customer acquisition costs. We may not have the financial resources, technical expertise or marketing and support capabilities to compete successfully.\nIf we are unable to attract new customers, our results of operations and our business will be adversely affected.\nOur targeted customers are large, heavily-regulated enterprises and our business plan requires these customers to commit to long-term transactions for our spectrum and then to purchase and deploy broadband network equipment, solutions and services utilizing our leased spectrum. There\n \nare\n \ntypically a number of constituencies within each of our targeted customers that need to review and approve the commercial agreements of our spectrum before signing a contract with us. As a result, we have experienced, and we expect to continue to experience, long sales cycles with our targeted customers.\n \nIn addition, numerous other factors, many of which are out of our control, may now or in the future impact our ability to acquire new customers, including not gaining support from governmental bodies that regulate our customers, the ability of our customers to pass their broadband spectrum use and deployment costs to their ratepayers, our customers\u2019 existing commitments to other providers or communication solutions, real or perceived costs of leasing our spectrum assets and deploying broadband networks, solutions and services, our failure to expand, retain and motivate our sales and marketing personnel, our failure to develop or expand relationships with the manufacturers or suppliers of broadband technologies, solutions and services that can be utilized on our spectrum, negative media, industry or financial analyst commentary regarding us or our solutions, litigation, the spectrum and service offerings of our competitors, the adverse impacts of the health pandemics and deteriorating general economic conditions and events. Any of these factors could impact our ability to attract new customers to lease or obtain rights to our spectrum assets. As a result of these and other factors, we may be unable to timely attract enough customers to support our operating costs, which would harm our business and results of operations.\nWe have had net losses each year since our inception and may not achieve or maintain profitability in the future.\nWe have incurred net losses each year since our inception and we may not achieve or maintain profitability in the future for a number of reasons, including without limitation, the costs to obtain broadband licenses, including the costs to clear the 900 MHz band, the costs to promote and commercialize our spectrum assets to our targeted utility and critical infrastructure customers, our inability to commercialize our spectrum assets to our targeted utility and critical infrastructure customers on a timely basis and on commercially favorable terms and changes in our revenue recognition policies.\u00a0Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown factors that may result in significant delays in our business plans, levels of revenue below our current expectations, or losses or expenses that exceed our current expectations.\u00a0If our losses or expenses exceed our expectations or our revenue assumptions are not met in future periods, we may never achieve or maintain profitability in the future.\nPage 24\nTable of Contents\nOur ability to use our net operating losses to offset future taxable income, if any, may be subject to certain limitations.\nAs of March\u00a031, 2023, we had approximately $90.3 million of federal net operating loss (\u201cNOL\u201d) carryforwards, expiring in various amounts from 2023 through 2038, to offset future taxable income and the remaining $237.5 million of which can be carried forward indefinitely but limited to 80% of future taxable income when used. In the United States, utilization of the NOL carryforwards may be subject to a substantial annual limitation under Section\u00a0382 of the Internal Revenue Code of 1986, as amended (the \u201cCode\u201d), and similar state provisions due to ownership change limitations that have occurred previously or that could occur in the future. The NOL carryforwards and certain other tax attributes of ours may also be subject to limitations as a result of ownership changes. If we were to lose the benefits of these NOL carryforwards, our future earnings and cash resources would be materially and adversely affected.\u00a0We have incurred net losses since our inception, and we anticipate that we will continue to incur significant losses for the foreseeable future; thus, we do not know whether or when we will generate the U.S. federal taxable income necessary to utilize our NOLs.\nOur reputation and business may be harmed, and we may be subject to legal claims if there is loss, disclosure, or misappropriation of,\n \nor access to,\n \nour customers\u2019 information.\nWe make extensive use of online services and centralized data processing, including through third-party service providers. The secure maintenance and transmission of customer information is an important element of our operations. Our information technology and other systems, and those of our service providers or contract partners, that maintain and transmit customer information, including location or personal information, may be compromised by a malicious third-party penetration of our network security, or that of our third-party service providers or contract partners, or impacted by unauthorized intentional or inadvertent actions or inactions by our employees, or by the employees of our third-party service providers or contract partners. Cyber-attacks, which include the use of malware, computer viruses and other means of disruption or unauthorized access, have increased in frequency, scope and potential harm in recent years. While, to date, we have not been subject to cyber-attacks or other cyber incidents which, individually or in the aggregate, have been material to our operations or financial condition, the preventive actions we and our third-party service providers and contract partners take to reduce the risk of cyber incidents and protect information technology resources and networks may be insufficient to repel a major cyber-attack in the future. As a result, our customers\u2019 information may be lost, disclosed, accessed, used, corrupted, destroyed or taken without the customers\u2019 consent.\u00a0Any significant compromise of our data or network security, failure to prevent or mitigate the loss of customer information and delays in detecting any such compromise or loss could disrupt our operations, impact our reputation and subject us to additional costs and liabilities, including litigation, which could produce material and adverse effects on our business and results of operations.\nRisks Related to Our Organization and Structure\nWe may change our operations and business strategies without stockholder consent.\nOur executive management team, with oversight from our Board, establishes our operational plans, our commercialization plans and our business strategies. Our Board and executive management team may make changes to or approve transactions that deviate from our current operations and strategies without a vote of, or prior notice to, our stockholders. This authority to change our operations, commercialization plans and business strategies could result in us conducting operational matters, making investments, pursuing spectrum opportunities, or implementing business or growth strategies in a manner different than those that we are currently pursuing. Under any of these circumstances, we may expose ourselves to different and more significant risks, decrease our revenues or increase our expenses and financial requirements, any of which could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.\nOur future success depends on our ability to retain our executive officers and key personnel and to attract, retain and motivate qualified personnel.\nOur success depends to a significant degree upon the contributions of our executive officers and key personnel, who have unique experience and expertise in the telecommunications industry, large scale and multi-year solution selling to utilities, wireless broadband networks, FCC rulemaking and retuning and clearing spectrum to obtain FCC licenses. Although we have adopted a severance plan for our executive officers, we do not otherwise have long-term employment agreements with any of our executive officers or key personnel.\u00a0There is no guarantee that these individuals will remain employed with us.\u00a0In addition, we have not obtained and do not expect to obtain key man life insurance that would provide us with proceeds in the event of the death or disability of any of our executive officers or key personnel. If any of our executive officers or key personnel were to cease employment with us, our operating results and the implementation of our commercial and business terms could suffer. Further, the process of attracting and retaining suitable replacements for our executive officers and key personnel would result in transition costs and would divert the attention of other members of our senior management team from our existing operations. As a result, the loss of services from our executive officers or key personnel or a limitation in their availability could materially and adversely impact our business, prospects and results of operations. Further, such a loss could be negatively perceived in the capital markets.\nPage 25\nTable of Contents\nRecruiting and retaining qualified personnel, including effective sales personnel, are critical to our success. Competition to hire qualified personnel in our industry is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous telecommunications companies for similar personnel.\nWe will need to continue to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.\nWe have significantly expanded our commercialization organization since the Report and Order was issued in May 2020. As we continue to pursue broadband licenses and implement our commercialization plans, we expect to need additional managerial, operational, technical, sales, marketing, financial, legal and other resources.\u00a0Our management may need to divert its attention away from its day-to-day activities and devote a substantial amount of time to managing these growth activities.\u00a0We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees.\u00a0Our expected growth could require significant expenditures and may divert financial resources from other projects.\u00a0If our management is unable to effectively manage our growth, our expenses may increase more than expected or budgeted, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our currently anticipated business strategy.\u00a0Our future financial performance and our ability to commercialize our spectrum assets and compete effectively will depend, in part, on our ability to effectively manage any future growth. Failure to manage this growth could disrupt our business operations and negatively impact our ability to achieve success.\nIf we fail to implement and maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud.\u00a0As a result, our stockholders could lose confidence in our financial results, which would materially and adversely affect our value and our ability to raise any required capital in the future.\nEffective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We have discovered in the past and may discover in the future areas of our internal controls that need improvement or additional documentation. For example, subsequent to filing the Quarterly Report on Form 10-Q for the period ended September 30, 2021, we determined that our controls and procedures were not effective as the result of a material weakness in our internal controls over financial reporting related to the identification, review, analysis and recording of our intangible assets, more specifically, non-monetary exchanges of our narrowband licenses for broadband licenses. The material weakness was remediated as of March 31, 2022 as the applicable remedial controls operated for a sufficient period of time and management has concluded through testing, that these controls were operating effectively as of the end of the period covered by this Annual Report.\nWe cannot be certain that we will be successful in implementing or maintaining effective internal controls for all financial periods. As we grow our business, our internal controls will become more complex, and we will require significantly more resources to ensure our internal controls remain effective. The existence of any material weakness or significant deficiency in the future may require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. In addition, the existence of any material weakness in our internal controls could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect our value and our ability to raise any required capital in the future.\nRisks Related to Our Common Stock\nThere is\n \nno assurance that a robust market in our common stock will develop or be sustained.\nSince our common stock began trading on the Nasdaq Stock Market in 2015, we have had limited daily trading volume. We cannot assure you that a more active or liquid trading market for our common stock will develop, or will be sustained if it does develop, either of which could materially and adversely affect the market price of our common stock, our ability to raise capital in the future and the ability of stockholders to sell their shares at the volume, prices and times desired.\u00a0In addition, the risks and uncertainties related to our ability to obtain broadband licenses and our proposed business strategies makes it difficult to evaluate our business, our prospects and the valuation of our Company, which limits the liquidity and volume of our common stock and may have a material adverse effect on the market price of our common stock.\nOur common stock prices may be volatile, which could cause the value of our common stock to decline.\nThe market price of our common stock may be highly volatile and subject to wide fluctuations. Some of the factors that could negatively affect or result in fluctuations in the market price of our common stock include:\n\u2022\nthe timing and costs of securing broadband licenses;\n\u2022\nour ability to enter into contracts with our targeted utility and critical infrastructure customers, on a timely basis or at all;\n\u2022\nthe terms of our customer contracts, including pre-payments and our contractual obligations;\nPage 26\nTable of Contents\n\u2022\nour ability to comply with our obligations, on a timely and cost-effective basis, under our existing customer contracts;\n\u2022\nmarket reaction to any changes in our business plans or strategies;\n\u2022\nannouncements, offerings or actions by our competitors;\n\u2022\ngovernmental regulations or actions taken by governmental bodies;\n\u2022\nadditions or departures of any of our executive officers or key personnel;\n\u2022\nactions by our stockholders;\n\u2022\nspeculation in the press or investment community;\n\u2022\ngeneral market, economic and political conditions, including an economic slowdown, inflation or dislocation in the global credit markets;\n\u2022\nour operating performance and the performance of other similar companies;\n\u2022\nchanges in accounting principles, judgments or assumptions; and\n\u2022\npassage of legislation or other regulatory developments that adversely affect us or our industry.\nConcentration of ownership will limit your ability to influence corporate matters.\nBased on our review of publicly available filings as of June\u00a009, 2023, funds affiliated with Owl Creek Asset Management (\u201cOwl Creek\u201d) beneficially owned approximately 28.4%, funds affiliated with Heard Capital LLC owned approximately 7.9%, funds affiliated with Morgan Stanley Investment Management Inc. owned approximately 6.8%, funds affiliated with BlackRock, Inc. owned approximately 6.8%, and funds affiliated with GIC Private Limited owned approximately 6.1% of our outstanding common stock. These four investment firms collectively beneficially own approximately 56.0% of our outstanding shares of common stock.\u00a0Although we are not aware of any voting arrangements between these stockholders, our significant stockholders can determine (if acting together) or significantly influence: (i) the outcome of any corporate actions submitted by our Board for approval by our stockholders and (ii) any proposals or director nominees submitted by a stockholder.\u00a0Further, they could place significant pressure on our Board to pursue corporate actions, director candidates and business opportunities they identify. For example, in the fiscal year ended March 31, 2022 (\u201cFiscal 2022\u201d) we engaged in cooperative discussions with Owl Creek regarding Owl Creek\u2019s interest in nominating an individual to our Board and in Fiscal 2023 we added Jeffrey Altman, managing member of the general partner of Owl Creek, to our Board. In addition, in its recent filings with the SEC, Owl Creek reported that it expects to continue to engage in cooperative discussions with our management and Board concerning ways to work together to achieve our strategic objectives. Owl Creek and our other significant stockholders could effectively block a proposed sale of the company, even if recommended by our Board. Alternatively, these stockholders could place pressure on our Board to pursue a sale of the company or its assets. As a result of this concentration of ownership, our other stockholders may have no effective voice in our corporate actions or the operations of our business, which may adversely affect the market price of our common stock.\u00a0\nFuture sales of our common stock, or preferred stock, or of other securities convertible into our common stock or preferred stock, could cause the market value of our common stock to decline and could result in dilution of your shares.\nOur\u00a0Board is authorized, without stockholder approval, to permit us to issue additional shares of common stock or to raise capital through the creation and issuance of preferred stock, other debt securities convertible into common stock or preferred stock, options, warrants and other rights, on terms and for consideration as our Board in its sole discretion may determine.\u00a0\nSales of substantial amounts of our common stock, including sales by our officers, directors or 5% and greater stockholders, or of preferred stock could cause the market price of our common stock to decrease significantly. We cannot predict the effect, if any, of future sales of our common stock, or the availability of our common stock for future sales, on the value of our common stock. Sales of substantial amounts of our common stock by any one or more of our large stockholders, or the perception that such sales could occur, may adversely affect the market price of our common stock.\nWe cannot guarantee that our share repurchase program will be utilized to the full value approved or that it will enhance long-term stockholder value. Repurchases we consummate could increase the volatility of the price of our common stock and could have a negative impact on our available cash balance. \nOur Board authorized a share repurchase program pursuant to which we may repurchase up to $50.0 million of our common stock on or before September 29, 2023. The manner, timing and amount of any share repurchases may fluctuate and will be determined by us based on a variety of factors, including the market price of our common stock, our priorities for the use of cash to support our business operations and plans, general business and market conditions, tax laws, and alternative investment opportunities. The share repurchase program authorization does not obligate us to acquire any specific number or dollar value of shares. Further, our share repurchases could have an impact on our share trading prices, increase the volatility of the price of our common stock, or reduce our available cash balance such that we will be required to seek financing to support our operations. Our share repurchase program may be modified, suspended or terminated at any time, which may result in a decrease in the trading prices of our common stock. Even if our share repurchase program is fully implemented, it may not \nPage 27\nTable of Contents\nenhance long-term stockholder value. Additionally, repurchases are subject to the 1% Share Repurchase Excise Tax enacted by the Inflation Reduction Act, which may be offset by shares newly issued during that fiscal year (the \u201cShare Repurchase Excise Tax\u201d). We have and will continue to take the Share Repurchase Excise Tax into account with respect to our decisions to repurchase shares.\nFuture offerings of debt securities or preferred stock, which would rank senior to our common stock\u00a0in the event of\u00a0our bankruptcy or liquidation, may adversely affect the market price of our common stock.\nIn the future, we may attempt to increase our capital resources by making offerings of debt securities or otherwise incurring debt.\u00a0In the event of our\u00a0bankruptcy or liquidation, holders of our debt securities may be entitled to receive distributions of our available assets prior to the holders of our common stock. In addition, we may offer preferred stock that provides holders with a preference on liquidating distributions or a preference on dividend payments or both or that could otherwise limit our ability to pay dividends or make liquidating distributions to the holders of our common stock. Although we have no present plans to do so, our decision to issue debt securities or to issue preferred stock in any future offerings or otherwise incur debt may depend on market conditions and other factors beyond our control. As a result, we cannot predict or estimate the amount, timing or nature of our future offerings, and investors in our common stock bear the risk of our future offerings reducing the market price of our common stock and/or diluting their ownership interest in us.\nCertain anti-takeover defenses and applicable law may limit the ability of a third party to acquire control of us.\nCertain provisions of our amended and restated certificate of incorporation, as amended (the \u201cAmended and\u00a0Restated Certificate of Incorporation\u201d) and amended and restated bylaws, as amended (the \u201cAmended and Restated Bylaws\u201d), could discourage, delay, or prevent a merger, acquisition, or other change of control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for our common stock, thereby depressing the market price of our common stock.\u00a0These provisions, among other things:\n\u2022\nallow the authorized number of directors to be changed only by resolution of our Board;\n\u2022\nauthorize our Board to issue, without stockholder approval, preferred stock, the rights of which will be determined at the discretion of our Board and that, if issued, could operate as a \u201cpoison pill\u201d to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that our Board does not approve;\n\u2022\nestablish advance notice requirements for stockholder nominations to our Board or for stockholder proposals that can be acted on at stockholder meetings; and\n\u2022\nlimit who may call a stockholders meeting.\nIn addition, we are subject to Section\u00a0203 of the Delaware General Corporation Law (the \u201cDGCL\u201d).\u00a0In general, Section\u00a0203 of the DGCL prevents an \u201cinterested stockholder\u201d (as defined in the DGCL) from engaging in a \u201cbusiness combination\u201d (as defined in the DGCL) with us for three years following the date that person becomes an interested stockholder unless one or more of the following occurs:\n\u2022\nbefore that person became an interested stockholder, our Board approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination;\n\u2022\nupon consummation of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) stock held by directors who are also officers of our Company and by employee stock plans that do not provide employees with the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or\n\u2022\nfollowing the transaction in which that person became an interested stockholder, the business combination is approved by our Board and authorized at a meeting of stockholders by the affirmative vote of the holders of at least 66 2/3% of our outstanding voting stock not owned by the interested stockholder.\nThe DGCL generally defines \u201cinterested stockholder\u201d as any person who, together with affiliates and associates, is the owner of 15% or more of our outstanding voting stock or is our affiliate or associate and was the owner of 15% or more of our outstanding voting stock at any time within the three-year period immediately before the date of determination.\u00a0As a result, our election to be subject to Section 203 of the DGCL could limit the ability of a third party to acquire control of us.\nPage 28\nTable of Contents\nClaims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.\nOur Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. In addition, as permitted by Section\u00a0145 of the DGCL, our Amended and Restated Bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:\n\u2022\nwe will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person\u2019s conduct was unlawful;\n\u2022\nwe may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;\n\u2022\nwe are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification;\n\u2022\nwe will not be obligated pursuant to our Amended and Restated Bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnities, except with respect to proceedings authorized by our Board or brought to enforce a right to indemnification;\n\u2022\nthe rights conferred in our Amended and Restated Bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and\n\u2022\nwe may not retroactively amend our bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.\nAs a result, claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.",
+  "item7": ">ITEM\u00a07. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThe following management\u2019s discussion and analysis of financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and the related notes\n.\u00a0\nThis management\u2019s discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions\n.\u00a0\nAny statements that are not statements of historical fact are forward-looking statements\n.\u00a0\nThese forward-looking statements are subject to risks and uncertainties that could cause our actual results or events to differ materially from those expressed or implied by the forward-looking statements\n.\u00a0\nFactors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled \u201cRisk Factors\u201d included elsewhere in this Annual Report\n.\u00a0\nExcept as required by applicable law we do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.\nThis management\u2019s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America\n \n(\u201cU.S. GAAP\u201d)\n.\u00a0\nThe preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods\n.\u00a0\nOn an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below\n.\u00a0\nWe base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources\n.\u00a0\nOur actual results may differ from these estimates under different assumptions or conditions.\nOverview\nWe are a wireless communications company focused on commercializing our spectrum assets to enable our targeted utility and critical infrastructure customers to deploy private broadband networks and on offering innovative broadband solutions to the same target customers. We are the largest holder of licensed spectrum in the 900 MHz band (896 - 901 / 935 - 940 MHz) with nationwide coverage throughout the contiguous United States, Hawaii, Alaska and Puerto Rico. On May 13, 2020, the FCC approved the Report and Order to modernize and realign the 900 MHz band to increase its usability and capacity by allowing it to be utilized for the deployment of broadband networks, technologies and solutions. The Report and Order was published in the Federal Register on July 16, 2020 and became effective on August 17, 2020. We are now engaged in qualifying for and securing broadband licenses from the FCC. At the same time, we are pursuing opportunities to monetize the broadband spectrum we secure to our targeted utility and critical infrastructure customers.\nRefer to our Business Section of this Annual Report for a more complete description of the nature of our business, including details regarding the process and costs to secure our broadband licenses.\nBusiness Developments\nOn October 28, 2022, we entered into an agreement with Xcel Energy providing Xcel Energy dedicated long-term usage of our 900 MHz Broadband Spectrum for a term of 20 years throughout Xcel Energy\u2019s service territory in eight states. The Xcel Energy Agreement also provides Xcel Energy an option to extend the agreement for two 10-year terms for additional payments. The Xcel Energy Agreement allows Xcel Energy to deploy a PLTE network to support its grid modernization initiatives for the benefit of its approximately 3.7 million electricity customers and 2.1 million natural gas customers. The scheduled prepayments for the 20-year initial term of the Xcel Energy Agreement total $80.0 million, of which $8.0 million was received in December 2022.\nIn September 2021, we entered into a long-term lease agreement of 900 MHz Broadband Spectrum with Evergy. The Evergy service territories covered by the Evergy Agreement are in Kansas and Missouri with a population of approximately 3.9 million people. The Evergy Agreement is for an initial term of 20 years with two 10-year renewal options for additional payments. We received full prepayment of $30.2 million for the initial 20-year term in October 2021. During the year ended March\u00a031, 2023, we delivered to Evergy the 1.4 x 1.4 cleared 900 MHz Broadband Spectrum and the associated broadband licenses for 81 counties. The revenue recognized for the year ended March 31, 2023 was approximately $0.6\u00a0million.\nIn February 2021, we entered into an agreement with SDG&E, to provide 900 MHz Broadband Spectrum throughout SDG&E\u2019s California service territory, including San Diego and Imperial Counties and portions of Orange County for a total payment of $50.0 million.\u00a0The total payment of $50.0 million is comprised of an initial payment of $20.0 million received in February 2021 and the remaining $30.0 million payment, which is due through fiscal year 2024 as we deliver the associated broadband licenses to SDG&E and the relevant cleared 900 MHz Broadband Spectrum. In September 2022, we delivered to SDG&E 1.4 x 1.4 cleared 900 MHz Broadband Spectrum and the associated broadband license related to Imperial County and received a milestone payment of $0.2 million.\nPage 32\nTable of Contents\nIn May 2022, we issued Motorola 500,000 shares of our common stock. Motorola received the Shares by electing to convert 500,000 Class B Units it held in our subsidiary, PDV Spectrum Holding Company, LLC. Motorola acquired the Units in September 2014 in connection with the 2014 Motorola Spectrum Agreement, Motorola leased a portion of our narrowband spectrum, which was held by the Subsidiary, in consideration for an upfront, fully-paid leasing fee of $7.5\u00a0million and a $10.0\u00a0million investment in the Units. Motorola had the right at any time to convert its Units into the Shares, representing a conversion price of $20.00 per share. In June 2022, we filed a Registration Statement on Form S-3 to register the 500,000 shares of our common stock held by Motorola for resale or other disposition by Motorola. The Resale Registration Statement was declared effective by the SEC on July 15, 2022.\nRecent Developments\nOn April 20, 2023, we entered into a license purchase agreement with LCRA under which LCRA will purchase 900 MHz Broadband Spectrum covering 68 counties and more than 30 cities in LCRA\u2019s wholesale electric, transmission, and water service area for total payments of $30.0\u00a0million plus the contribution of select LCRA 900 MHz narrowband spectrum. The Agreement will support LCRA\u2019s deployment of a PLTE network which will provide a host of capabilities including grid awareness, communications and operational intelligence that will enhance resilience and spur innovation at LCRA.\nResults of Operations\n\u00a0\nComparison of the years ended March\u00a031, 2023, 2022 and 2021\nThe following table sets forth our results of operations for the fiscal years ended March\u00a031, 2023 (\u201cFiscal 2023\u201d), March\u00a031, 2022 (\u201cFiscal 2022\u201d) and March\u00a031, 2021 (\u201cFiscal 2021\u201d).\u00a0The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.\nOperating revenues\nFor the years ended March 31,\nAggregate Change\nAggregate Change\n(in thousands)\n2023\n2022\n2021\n2023 from 2022\n2022 from 2021\nService revenue\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n192\u00a0\n$\n\u2014\u00a0\n0\u00a0\n%\n$\n(192)\n-100\u00a0\n%\nSpectrum lease revenue\n1,919\u00a0\n1,084\u00a0\n729\u00a0\n835\u00a0\n77\u00a0\n%\n355\u00a0\n49\u00a0\n%\nTotal operating revenues\n$\n1,919\u00a0\n$\n1,084\u00a0\n$\n921\u00a0\n$\n835\u00a0\n77\u00a0\n%\n$\n163\u00a0\n18\u00a0\n%\nOverall operating revenues increased by $0.8 million, or 77%, to $1.9 million in Fiscal 2023 from $1.1 million in Fiscal 2022.\u00a0The increase in our spectrum lease revenue was attributable to revenue recognized in connection with our agreements with Ameren and Evergy of approximately $0.3\u00a0million and $0.6\u00a0million, respectively, for the current year. Overall operating revenues increased by $0.2 million, or 18%, to $1.1 million in Fiscal 2022 from $0.9 million in Fiscal 2021. The increase in our spectrum lease revenue was attributable to revenue recognized in connection with the Ameren Agreements of approximately $0.4\u00a0million. For a discussion of our revenue recognition policy, refer to Note 2 \nSummary of Significant Accounting Policies\n\u00a0in the Notes to the Consolidated Financial Statements contained within this Annual Report.\nOperating expenses \nFor the years ended March 31,\nAggregate Change\nAggregate Change\n(in thousands)\n2023\n2022\n2021\n2023 from 2022\n2022 from 2021\nDirect cost of revenue (exclusive of depreciation and amortization)\n$\n\u2014\u00a0\n$\n5\u00a0\n$\n1,606\u00a0\n$\n(5)\n-100\u00a0\n%\n$\n(1,601)\n-100\u00a0\n%\nGeneral and administrative\n45,177\u00a0\n39,525\u00a0\n39,302\u00a0\n5,652\u00a0\n14\u00a0\n%\n223\u00a0\n1\u00a0\n%\nSales and support\n5,733\u00a0\n4,461\u00a0\n2,942\u00a0\n1,272\u00a0\n29\u00a0\n%\n1,519\u00a0\n52\u00a0\n%\nProduct development\n4,439\u00a0\n3,593\u00a0\n4,343\u00a0\n846\u00a0\n24\u00a0\n%\n(750)\n-17\u00a0\n%\nDepreciation and amortization\n1,420\u00a0\n1,450\u00a0\n3,533\u00a0\n(30)\n-2\u00a0\n%\n(2,083)\n-59\u00a0\n%\nImpairment of long-lived assets\n\u2014\u00a0\n\u2014\u00a0\n85\u00a0\n\u2014\u00a0\n0\u00a0\n%\n(85)\n-100\u00a0\n%\nOperating expenses\n$\n56,769\u00a0\n$\n49,034\u00a0\n$\n51,811\u00a0\n$\n7,735\u00a0\n16\u00a0\n%\n$\n(2,777)\n-5\u00a0\n%\nDirect cost of revenue\nDirect cost of revenue decreased from $5,000 for Fiscal 2022 to zero for Fiscal 2023.\n \nDirect cost of revenue decreased by $1.6 million to $5,000 for Fiscal 2022, or 100%, from $1.6 million for Fiscal 2021.\u00a0The decrease is due to lower support costs related to the transfer of pdvConnect customers to the Team Connect LLC as part of our December 2018 restructuring efforts as discussed in Note 3 \nRevenue\n\u00a0in the Notes to the Consolidated Financial Statements contained within this Annual Report.\nPage 33\nTable of Contents\nGeneral and administrative expenses\nGeneral and administrative expenses increased by $5.7 million to $45.2 million for Fiscal 2023, or 14%, from $39.5 million for Fiscal 2022.\n \nThe increase primarily resulted from $4.3\u00a0million higher stock compensation expense due to additional grants awarded during Fiscal 2023, $1.0\u00a0million higher headcount and related costs, $0.4\u00a0million higher travel and meeting costs, $0.3\u00a0million higher regulatory fees, and $0.1\u00a0million higher IT related costs, partially offset by $0.3\u00a0million lower site related costs and $0.1\u00a0million lower professional services. General and administrative expenses increased by $0.2 million to $39.5 million for Fiscal 2022, or 1%, from $39.3 million for Fiscal 2021.\n \nThe increase primarily resulted from $1.5\u00a0million higher headcount and employee related costs, $0.8\u00a0million higher professional service fees due to our strategic spectrum initiatives, $0.7\u00a0million higher site rent related costs and $0.3\u00a0million recruiting costs partially offset by $2.7\u00a0million lower stock compensation expense and $0.4\u00a0million lower management fees.\nSales and support expenses\nSales and support expenses increased by $1.3 million, or 29%, to $5.7 million for Fiscal 2023 from $4.5 million for Fiscal 2022. The increase primarily resulted from $0.8\u00a0million higher headcount and employee related costs, $0.3\u00a0million higher marketing costs related to advertising, sponsorships and trade shows and $0.2\u00a0million higher travel and meeting costs. Sales and support expenses increased by $1.5 million, or 52%, to $4.5 million for Fiscal 2022 from $2.9 million for Fiscal 2021.\u00a0The increase primarily resulted from $0.6\u00a0million higher headcount and employee related costs, $0.5\u00a0million higher marketing costs related to advertising, sponsorships and trade shows, $0.1\u00a0million higher contract consulting costs and $0.3\u00a0million higher stock compensation expense.\nProduct development expenses\nProduct development expenses increased by $0.8 million, or 24%, to $4.4 million for Fiscal 2023 from $3.6 million for Fiscal 2022. The increase primarily resulted from $0.6\u00a0million higher non-recurring engineering costs, $0.5\u00a0million higher contract consulting costs and $0.1\u00a0million higher costs related to professional services, partially offset by $0.4\u00a0million lower headcount and related cost. Product development expenses decreased by $0.8 million, or 17%, to $3.6 million for Fiscal 2022 from $4.3 million for Fiscal 2021.\u00a0The decrease primarily resulted from $0.4\u00a0million lower consulting fees and $0.4\u00a0million lower technology related costs.\nDepreciation and amortization\u00a0\nDepreciation and amortization in\u00a0Fiscal 2023 remained relatively flat as compared to Fiscal 2022.\u00a0Depreciation and amortization expenses decreased by $2.1 million, or 59%, to $1.5 million for Fiscal 2022 from $3.5 million for Fiscal 2021. The decrease was due to the change in the useful life for our market network sites during Fiscal 2021 that resulted in higher depreciation expense. Market network site assets for our historical business were fully depreciated by December 31, 2020. \nImpairment of long-lived assets\nThere were no impairment of long-lived assets expenses for Fiscal 2023 and Fiscal 2022. Impairment of long-lived assets expenses were $0.1 million for Fiscal 2021\n.\n(Gain)/loss from disposal of intangible assets, net\nFor the years ended March 31,\nAggregate Change\nAggregate Change\n(in thousands)\n2023\n2022\n2021\n2023 from 2022\n2022 from 2021\n(Gain)/loss from disposal of intangible assets, net\n$\n(38,399)\n$\n(11,209)\n$\n3,849\u00a0\n$\n(27,190)\n243\u00a0\n%\n$\n(15,058)\n-391\u00a0\n%\nDuring Fiscal 2023, we exchanged our narrowband licenses for broadband licenses in 84 counties. In connection with the exchange, we recorded an estimated accounting cost basis of $46.2 million for the new broadband licenses and disposed of $7.8 million related to the value ascribed to the narrowband licenses we relinquished to the FCC for those same 84 counties. As a result, we recorded a $38.4 million gain from disposal of the intangible assets on our Consolidated Statements of Operations. Refer to Note 5\n Intangible Assets\n in the Notes to the Consolidated Financial Statements contained within this Annual Report for further discussion on the exchanges.\nDuring Fiscal 2022, we exchanged our narrowband licenses for broadband licenses in 21 counties. In connection with the exchange, we recorded an estimated accounting cost basis of $15.3 million for the new broadband licenses and disposed of $4.1 million related to the value ascribed to the narrowband licenses we relinquished to the FCC for those same 21 counties. As a result, we recorded a $11.2 million gain from disposal of the intangible assets on our Consolidated Statements of Operations. Refer to Note 5 \nIntangible Assets\n in the Notes to the Consolidated Financial Statements contained within this Annual Report for further discussion on the exchanges.\nPage 34\nTable of Contents\nIn\u00a0June\u00a02020, we cancelled licenses in the 900 MHz band in accordance with the Report and Order and our agreement with the AAR.\u00a0Because we did not receive any licenses nor monetary reimbursement in exchange for the cancellation, but only credit for purposes of determining our future eligibility and payment requirements for broadband licenses under the Report and Order, we recorded a $5.0\u00a0million loss from disposal of the intangible assets on our Consolidated Statements of Operations for Fiscal\u00a02021.\nIn September\u00a02020, we closed an agreement with a third party for the exchange of 900 MHz licenses.\u00a0Under the agreement, we received spectrum licenses at their estimated fair value of approximately $0.2\u00a0million and a payment of $1.2\u00a0million in cash.\u00a0Under the agreement, we transferred spectrum licenses with a book value of approximately $0.3\u00a0million to the third party.\u00a0We recognized a $1.1\u00a0million gain from disposal of intangible assets on our Consolidated Statements of Operations when the deal closed in September 2020.\nLoss from disposal of long-lived assets, net\nFor the years ended March 31,\nAggregate Change\nAggregate Change\n(in thousands)\n2023\n2022\n2021\n2023 from 2022\n2022 from 2021\nLoss from disposal of long-lived assets, net\n$\n10\u00a0\n$\n107\u00a0\n$\n70\u00a0\n$\n(97)\n-91\u00a0\n%\n$\n37\u00a0\n53\u00a0\n%\nLoss on disposal of long-lived assets, net decreased by $0.1 million, or -91%, to $10 thousand in Fiscal 2023, as compared to $0.1 million Fiscal 2022. The decrease was primarily due to the company disposing less assets in the current year than in the prior year. Loss on disposal of long-lived assets, net\u00a0in Fiscal 2022 remained relatively flat as compared to Fiscal 2021.\nInterest income\nFor the years ended March 31,\nAggregate Change\nAggregate Change\n(in thousands)\n2023\n2022\n2021\n2023 from 2022\n2022 from 2021\nInterest income\n$\n1,140\u00a0\n$\n56\u00a0\n$\n124\u00a0\n$\n1,084\u00a0\n1936\u00a0\n%\n$\n(68)\n-55\u00a0\n%\nInterest income increased by $1.1 million, or 1936%, to $1.1 million for Fiscal 2023 as compared to $56,000 from Fiscal 2022. The increase was primarily attributable to higher interest rates. Interest income decreased by $68,000, or 55%,\u00a0to $56,000 for Fiscal 2022 as compared to $0.1 million from Fiscal 2021 due to lower interest rates.\nOther income\nFor the years ended March 31,\nAggregate Change\nAggregate Change\n(in thousands)\n2023\n2022\n2021\n2023 from 2022\n2022 from 2021\nOther income\n$\n266\u00a0\n$\n256\u00a0\n$\n414\u00a0\n$\n10\u00a0\n4\u00a0\n%\n$\n(158)\n-38\u00a0\n%\nOther income in Fiscal 2023 remained relatively flat as compared to Fiscal 2022. Other income decreased by $0.2 million, or 38%, to $0.3 million for Fiscal 2022 from $0.4 million for Fiscal 2021 due to lower payments received from our historical business.\nLoss on equity method investment\nFor the years ended March 31,\nAggregate Change\nAggregate Change\n(in thousands)\n2023\n2022\n2021\n2023 from 2022\n2022 from 2021\nLoss on equity method investment\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n(39)\n$\n\u2014\u00a0\n0\u00a0\n%\n$\n39\u00a0\n-100\u00a0\n%\nWe reported loss on investment for Fiscal 2021 amounting to $39,000, relating to the 19.5% ownership interest in\u00a0the LLC. (See Note 7 \nRelated Party Transactions \nin the Notes to the Consolidated Financial Statements contained within this Annual Report).\nIncome tax expense\nFor the years ended March 31,\nAggregate Change\nAggregate Change\n(in thousands)\n2023\n2022\n2021\n2023 from 2022\n2022 from 2021\nIncome tax expense\n$\n1,262\u00a0\n$\n983\u00a0\n$\n124\u00a0\n$\n279\u00a0\n28\u00a0\n%\n$\n859\u00a0\n693\u00a0\n%\nFor Fiscal 2023, Fiscal 2022 and Fiscal 2021, we recorded a total deferred tax expense of $1.3 million, $1.0 million and $0.1 million, respectively, due to the inability to use some portion of our federal and state NOL carryforwards against the deferred tax liability created by amortization of indefinite-lived intangibles.\nPage 35\nTable of Contents\nLiquidity and Capital Resources\u00a0\nOur principal source of liquidity is our cash and cash equivalents generated from customer contract proceeds. On March\u00a031, 2023, we had cash and cash equivalents of $43.2 million.\nWe believe our cash and cash equivalents on hand, along with contracted proceeds from customers, will be sufficient to meet our financial obligations through at least 12 months from the date of this Annual Report. As noted above, our future capital requirements will depend on a number of factors, including among others, the costs and timing of our spectrum retuning activities, spectrum acquisitions and the Anti-Windfall Payments to the U.S. Treasury, our operating activities, any cash proceeds we generate through our commercialization activities and our ability to timely deliver broadband licenses to our customers in accordance with our contractual obligations. We deploy this capital at our determined pace based on several key ongoing factors, including customer demand, market opportunity, and offsetting income from spectrum leases. As we cannot predict the duration or scope of the current negative macroeconomic environment, including any adverse effects of the health pandemics, inflation, regulatory and policy changes, and geopolitical matters, or their respective impacts on our business or our targeted customers, we cannot reasonably estimate any respective potential negative financial impact to our results of operations, commercialization efforts and financial condition. We are actively managing our business to maintain our cash flow and believe that we currently have adequate liquidity. To implement our business plans and initiatives, however, we may need to raise additional capital. We cannot predict with certainty the exact amount or timing for any future capital raises. See \u201cRisk Factors\u201d in Item 1A of Part I of this Annual Report for a reference to the risks and uncertainties that could cause our costs to be more than we currently anticipate and/or our revenue and operating results to be lower than we currently anticipate. If required, we intend to raise additional capital through debt or equity financings or through some other financing arrangement. However, we cannot be sure that additional financing will be available if and when needed, or that, if available, we can obtain financing on terms favorable to our stockholders and to us. Any failure to obtain financing when required will have a material adverse effect on our business, operating results, financial condition and liquidity.\nIn April 2020, we filed the Shelf Registration Statement on Form S-3 with the SEC that was declared effective by the SEC on April 20, 2020, which permitted us to offer up to $150.0 million of common stock, preferred stock, warrants or units in one or more offerings and in any combination, including in units from time to time. Our Shelf Registration Statement expired on April 20, 2023.\nCash Flows from Operating, Investing and Financing Activities\nFor the years ended March 31,\n(in thousands)\n2023\n2022\n2021\nNet cash (used in) provided by operating activities\n$\n(27,250)\n$\n17,913\u00a0\n$\n(9,959)\nNet cash used in investing activities\n$\n(27,130)\n$\n(27,411)\n$\n(14,174)\nNet cash (used in) provided by financing activities\n$\n(8,062)\n$\n(2,416)\n$\n4,218\u00a0\nNet cash (used in) provided by operating activities\nNet cash used in operating activities was approximately $27.3 million in Fiscal 2023 an increase of $45.2 million from Fiscal 2022. The net cash used in operating activities in Fiscal 2023 was due to the following:\n\u2022\n$16.3 million net loss, offset by the following non-cash activity:\n\u25e6\nincrease of $1.4 million for depreciation and amortization as a result of assets placed in service during the year;\n\u25e6\nincrease of $17.9 million in stock-based compensation expense due to additional grants awarded; and\n\u25e6\ndecrease of $38.4 million related to the non-monetary gain on disposals of intangible assets in connection to our exchange of narrowband licenses for broadband licenses;\noffset by the following:\n\u2022\n$6.1 million increase in deferred revenue due to $8.0 million cash proceeds from our 900 MHz Broadband Spectrum customer prepayments offset by $1.9 million in revenue recognition in connection with the delivery of cleared 900 MHz Broadband Spectrum.\nNet cash used in operating activities was approximately $17.9 million in Fiscal 2022. The net cash used in operating activities in Fiscal 2022 due to the following:\n\u2022\n$37.5 million net loss, offset by the following non-cash activity:\n\u25e6\nincrease of $1.5 million for depreciation and amortization as a result of assets placed in service during the year;\n\u25e6\nincrease of $13.6 million in stock-based compensation expense due to additional grants awarded; and\nPage 36\nTable of Contents\n\u25e6\ndecrease of $11.2 million related to the non-monetary gain on disposals of intangible assets in connection to our exchange of narrowband licenses for broadband licenses;\noffset by the following:\n\u2022\n$51.7 million increase in deferred revenue due to $52.8\u00a0million cash proceeds from our 900 MHz Broadband Spectrum customer prepayments offset by $1.1 million in revenue recognition in connection with the delivery of cleared 900 MHz Broadband Spectrum.\nNet cash used in operating activities was approximately $10.0 million in Fiscal 2021. The net cash used in operating activities in Fiscal 2021 due to the following:\n\u2022\n$54.4 million net loss, offset by the following non-cash activity:\n\u25e6\nincrease of $3.5 million depreciation and amortization as a result of assets placed in service during the year;\n\u25e6\nincrease of $15.9 million in stock-based compensation expense due to additional grants awarded; and\n\u25e6\nincrease of $3.8 million related to the non-monetary gain on disposals of intangible assets in connection to our exchange of narrowband licenses for broadband licenses;\noffset by the following:\n\u2022\n$20.0 million increase in contingent liability relating to the upfront payment we received from SDG&E.\nNet cash used in investing activities\nNet cash used in investing activities was approximately $27.1 million, $27.4 million and $14.2 million in Fiscal 2023, Fiscal 2022 and Fiscal 2021, respectively. For Fiscal 2023, the net cash used in investing activities resulted from $25.0 million in wireless license acquisitions including refundable deposits and $2.1 million for purchases of equipment. For Fiscal 2022, the net cash used for investing activities resulted from $26.4 million in wireless license acquisitions including refundable deposits and $1.1 million for purchases of equipment. For Fiscal 2021, the net cash used for investing activities resulted from $13.9 million in wireless license acquisitions including refundable deposits and $0.2 million for purchases of equipment.\nNet cash (used in) provided by financing activities\nNet cash used in financing activities was approximately $8.1 million and $2.4 million in Fiscal 2023 and Fiscal 2022, respectively. Net cash provided by financing activities was $4.2 million in Fiscal 2021. For Fiscal 2023, net cash used in financing activities was primarily from the repurchase of common stock of $8.2 million, partially offset by the proceeds from stock option exercises of $1.7 million, net of payments of withholding tax on net issuance of restricted stock of $1.6 million. For Fiscal 2022, net cash used in financing activities was primarily from the repurchase of common stock of $15.0 million, partially offset by the proceeds from stock option exercises of $14.0 million, net of payments of withholding tax on net issuance of restricted stock of $1.5 million. For Fiscal 2021, the net cash provided by financing activities primarily resulted $4.2 million in cash received from the proceeds of stock option exercises.\nContracted cash proceeds\nThe following table illustrates the estimated contracted customer proceeds for Fiscal 2024 and thereafter (in thousands):\nCustomers\nFiscal 2024*\nThereafter*\nAmeren\n$\n\u2014\u00a0\n$\n24,800\u00a0\nSDG&E\n26,600\u00a0\n3,200\u00a0\nXcel Energy\n59,200\u00a0\n12,800\u00a0\nLCRA\n15,000\u00a0\n15,000\u00a0\nTotal\n$\n100,800\u00a0\n$\n55,800\u00a0\n* Total cash proceeds are subject to change based on final delivery date of the broadband licenses for the associated milestone, which may include penalties associated with delayed deliveries.\nMaterial Cash Requirements\nOur future capital requirements will depend on many factors, including: costs and time related to the commercialization of our spectrum assets; and our ability to sign customer contracts and generate revenues from the license or transfer of any broadband licenses we secure; and our ability to timely deliver broadband licenses and clear spectrum to our customers in accordance with our contractual obligation; the timeline and costs to acquire broadband licenses pursuant to the Report and Order, including the costs to acquire additional spectrum, the costs related to retuning, or swapping spectrum held by 900 MHz site-based licensees in the broadband segment that is required under section 90.621(b) to be protected by a \nPage 37\nTable of Contents\nbroadband licensee with a base station at any location within the county, or any 900 MHz geographic-based SMR licensee in the broadband segment whose license area completely or partially overlaps the county, and the costs of paying Anti-Windfall Payments to the U.S. Treasury.\nWe are obligated under certain lease agreements for office space with lease terms expiring on various dates from October 31, 2023 through June 30, 2027, which includes a three to ten-year lease extension for our corporate headquarters.\u00a0We have also entered into multiple lease agreements for tower space related to our historical TeamConnect business and in connection with obtaining spectrum licenses.\u00a0The lease expiration dates range from May 31, 2023 to August 31 2029. Total estimated payments for these lease agreements are approximately $5.5 million (exclusive of real estate taxes, utilities, maintenance and other costs borne by us). In addition to the lease payments for our tower space, we also have an obligation to clear the tower site locations, for which we recorded an asset retirement obligation (the \u201cARO\u201d). Total estimated payments as a result of the ARO is approximately $0.6 million. See Note 2 \nSummary of Significant Accounting Policies\n in the Notes to the Consolidated Financial Statements contained within this Annual Report for further information on the AROs.\nXcel Energy Guaranty\nIn connection with Xcel Energy Agreement, we entered into a guaranty agreement, under which we guaranteed the delivery of the relevant 900 MHz Broadband Spectrum and the associated broadband licenses in Xcel Energy\u2019s service territory in eight states along with other commercial obligations. In the event of default or non-delivery of the specific territory\u2019s 900 MHz Broadband Spectrum, we are required to refund payments we have received. In addition, to the extent Anterix has performed any obligations, our liability and remaining obligations under the Xcel Energy Agreement will extend only to the remaining unperformed obligations. We recorded $8.0 million in deferred revenue in connection with the prepayment received as delivery of the relevant cleared 900 MHz Broadband licenses or counties is expected to commence in the first quarter of Fiscal 2024 through 2029. As of March\u00a031, 2023, the maximum potential liability of future undiscounted payments under this agreement is approximately $8.0 million.\nShare Repurchase Program\nIn September 2021, our Board authorized a share repurchase program pursuant to which we may repurchase up to $50.0 million of our common stock on or before September 29, 2023. The manner, timing and amount of any share repurchases will be determined by us based on a variety of factors, including price, general business and market conditions and alternative investment opportunities. The share repurchase program authorization does not obligate us to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. We currently anticipate the cash used for the share repurchase program will come primarily from our prepaid customer agreements.\nThe following table presents the share repurchase activity for Fiscal 2023, Fiscal 2022 and Fiscal 2021 (in thousands, except per share data):\nFor the years ended March 31,\n2023\n2022\n2021\nNumber of shares repurchased and retired\n216\u00a0\n252\u00a0\n\u2014\u00a0\nAverage price paid per share*\n$\n47.05\u00a0\n$\n57.50\u00a0\n$\n\u2014\u00a0\nTotal cost to repurchase\n$\n8,223\u00a0\n$\n14,962\u00a0\n$\n\u2014\u00a0\n* Average price paid per share includes costs associated with the repurchases.\nAs of March\u00a031, 2023, $26.8 million is remaining under the share repurchase program.\nCritical Accounting\n \nEstimates\u00a0\nThe accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, our actual results could differ from those based on such estimates and assumptions. Further, to the extent that there are differences between our estimates and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical performance, as these policies relate to the more significant areas involving our judgments and estimates.\nWe believe that the areas described below are the most critical to aid in fully understanding and evaluating our reported financial results, as they require management\u2019s significant judgments in the application of accounting policy or in making estimates and assumptions that are inherently uncertain and that may change in subsequent periods. Our significant \nPage 38\nTable of Contents\naccounting policies are set forth in Note 2 \nSummary of Significant Accounting Policies\n \nin the Notes to the Consolidated Financial Statements contained within this Annual Report. Of those policies, we believe that the policy discussed below may involve a higher degree of judgment and may be more critical to an accurate reflection of our financial condition and results of operations.\nEvaluation of Indefinite-Lived Intangible Assets for Impairment\nUnit of accounting of wireless licenses not associated with closed deals is based on geographic markets. Unit of accounting of wireless licenses associated with closed deals is based on the deal markets. Our wireless licenses not associated with closed deals are tested for impairment based on the geographic markets, as we will be utilizing the existing wireless narrowband licenses, or broadband licenses if applicable, as part of facilitating broadband spectrum networks at a geographic market level. Our wireless licenses associated with closed deals are tested for impairment based at the deal market level. We use a market-based approach to estimate fair value for impairment testing purposes.\nThe valuation approach used to estimate fair value for the purpose of impairment testing requires management to use complex assumptions and estimates such as population, discount rates, industry and market considerations, long-term market equity risk, as well as other factors. These assumptions and estimates depend on our ability to accurately predict forward looking assumptions including successfully applying for broadband licenses, commercializing our 900 MHz Broadband Spectrum and properly estimating favorable deal terms over the life of the contract. For impairment testing, estimated fair value is determined using a market-based approach primarily using the 600 MHz auction price. As noted in the Report and Order, the FCC will use the spectrum price based on the average price paid in the FCC\u2019s 600 MHz auction to calculate the Anti-Windfall Payments. In addition, we performed a sensitivity analysis to recent auctions and transactions noting that while in some cases the value was lower than the 600 MHz auction price, the values were well above our carrying value. Furthermore, if management determines that for impairment testing purposes, the 600 MHz auction price is not the appropriate market-based fair value, and the new estimated fair value is lower by over 50%, our intangible assets would still not be impaired as the current estimated fair value for impairment testing purposes exceeds book value by more than 50%. \n During Fiscal 2023, we shifted from a probability analysis approach to a more detailed approach with measurable qualitative metrics. The new approach, Demonstrated Intent (\u201cDI\u201d), determines how likely a deal is to close based on certain qualitative factors, like applying for an experimental license, entering into a request for proposal, joining certain utility board or publicly backing 900 MHz Broadband Spectrum and its application. As a result, we will utilize the DI scores on a go-forward basis for our impairment analysis. We performed a step one quantitative approach impairment test as of January 1, 2023, to determine if the fair value of the combined licenses by the associated geographical or deal market exceeds the carrying value for each geographical or deal market. Based on the results of the impairment test, there were no impairment charges recorded during the year ended March\u00a031, 2023.\nRecent Accounting Pronouncements\nInformation regarding recent accounting pronouncements, including those recently adopted, is provided in Note 2 \nSummary of Significant Accounting Policies \nin the Notes to the Consolidated Financial Statements contained within this Annual Report.",
+  "item7a": ">ITEM\u00a07A.\u00a0QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nInterest Rate Risk\nOur financial instruments consist of cash, cash equivalents, trade accounts receivable and accounts payable. We consider investments in highly liquid instruments purchased with original maturities of 90 days or less to be cash equivalents. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term nature of the highly liquid instruments in our portfolio, a 10% change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operations.\nForeign Currency Exchange Rate Fluctuations\nOur operations are based in the United States and, accordingly, all of our transactions are denominated in U.S. dollars. We are currently not exposed to market risk from changes in foreign currency.\nInflation Risk\nInflationary factors may adversely affect our operating results. As a result of recent increases in inflation, certain of our operating expenses have increased. Additionally, although difficult to quantify, we believe that the current macroeconomic environment, including inflation, could have an adverse effect on our target customers\u2019 businesses, which may harm our commercialization efforts and negatively impact our revenues. Continued periods of high inflation could have a material adverse effect on our business, operating results and financial condition if we are not able to control our higher operating costs \nPage 39\nTable of Contents\nor if our commercialization efforts are slowed or negatively impacted, continued periods of high inflation could have a material adverse effect on our business, operating results and financial condition.\nWe continue to monitor our market risk exposure, including any adverse impacts related to health pandemics or the current macroeconomic environment, which has resulted in significant market volatility.\n ",
+  "cik": "1304492",
+  "cusip6": "03676C",
+  "cusip": ["03676C950", "03676C900", "03676C100"],
+  "names": ["ANTERIX INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1304492/000130449223000030/0001304492-23-000030-index.htm"
+}
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+{
+  "item1": ">Item 1. Business\nGeneral\nPalo Alto Networks, Inc. is a global cybersecurity provider with a vision of a world where each day is safer and more secure than the one before. We were incorporated in 2005 and are headquartered in Santa Clara, California.\nWe empower enterprises, organizations, service providers, and government entities to protect themselves against today\u2019s most sophisticated cyber threats. Our cybersecurity platforms and services help secure enterprise users, networks, clouds, and endpoints by delivering comprehensive cybersecurity backed by industry-leading artificial intelligence and automation. We are a leading provider of zero trust solutions, starting with next-generation zero trust network access to secure today\u2019s remote hybrid workforces and extending to securing all users, applications, and infrastructure with zero trust principles. Our security solutions are designed to reduce customers\u2019 total cost of ownership by improving operational efficiency and eliminating the need for siloed point products. Our company focuses on delivering value in four fundamental areas:\nNetwork Security:\n\u2022\nOur network security platform, designed to deliver complete zero trust solutions to our customers, includes our hardware and software ML-Powered Next-Generation Firewalls, as well as a cloud-delivered Secure Access Service Edge (\u201cSASE\u201d). Prisma\n\u00ae\n Access, our Security Services Edge (\u201cSSE\u201d) solution, when combined with Prisma SD-WAN, provides a comprehensive single-vendor SASE offering that is used to secure remote workforces and enable the cloud-delivered branch. We have been recognized as a leader in network firewalls, SSE, and SD-WAN. Our network security platform also includes our cloud-delivered security services, such as Advanced Threat Prevention, Advanced WildFire\n\u00ae\n, Advanced URL Filtering, DNS Security, IoT/OT Security, GlobalProtect\n\u00ae\n, Enterprise Data Loss Prevention (\u201cEnterprise DLP\u201d), Artificial Intelligence for Operations (\u201cAIOps\u201d), SaaS Security API, and SaaS Security Inline. Through these add-on security services, our customers are able to secure their content, applications, users, and devices across their entire organization. Panorama\n\u00ae\n, our network security management solution, can centrally manage our network security platform irrespective of form factor, location, or scale.\nCloud Security:\n\u2022\nWe enable cloud-native security through our Prisma Cloud platform. As a comprehensive Cloud Native Application Protection Platform (\u201cCNAPP\u201d), Prisma Cloud secures multi- and hybrid-cloud environments for applications, data, and the entire cloud native technology stack across the full development lifecycle; from code to runtime. For inline\u00a0network security on multi- and hybrid-cloud environments, we also offer our VM-Series and CN-Series Firewall\u00a0offerings.\nSecurity Operations:\n\u2022\nWe deliver the next generation of security automation, security analytics, endpoint security, and attack surface management solutions through our Cortex portfolio. These include Cortex XSIAM, our AI security automation platform, Cortex XDR\n\u00ae\n for the prevention, detection, and response to complex cybersecurity attacks on the endpoint, Cortex XSOAR\n\u00ae\n for security orchestration, automation, and response (\u201cSOAR\u201d), and Cortex Xpanse\nTM\n for attack surface management (\u201cASM\u201d). These products are delivered as SaaS or software subscriptions.\nThreat Intelligence and Security Consulting (Unit\u00a042):\n\u2022\nUnit 42 brings together world-renowned threat researchers with an elite team of incident responders and security consultants to create an intelligence-driven, response-ready organization to help customers proactively manage cyber risk. Our consultants serve as trusted advisors to our customers by assessing and testing their security controls against the right threats, transforming their security strategy with a threat-informed approach, and responding to security incidents on behalf of our clients.\n- 4 \n-\nTable of Contents\nProduct, Subscription, and Support\nOur customer offerings are available in the form of the product, subscription, and support offerings described below:\nPRODUCTS\nHardware and software firewalls.\n Our ML-Powered Next Generation Firewalls embed machine learning in the core of the firewall and employ inline deep learning in the cloud, empowering our customers to stop zero-day threats in real time, see and secure their entire enterprise including IoT, and reduce errors with automatic policy recommendations. All of our hardware and software firewalls incorporate our PAN-OS\n\u00ae\n operating system and come with the same rich set of features, ensuring consistent operation across our entire product line. The content, applications, users, and devices\u2014the elements that run a business\u2014become integral components of an enterprise\u2019s security policy via our Content-ID\u2122, App-ID\u2122, User-ID\u2122, and Device-ID technologies. In addition to these components, key features include site-to-site virtual private network (\u201cVPN\u201d), remote access Secure Sockets Layer (\u201cSSL\u201d) VPN, and Quality-of-Service (\u201cQoS\u201d). Our appliances and software are designed for different performance requirements throughout an organization and are classified based on throughput, ranging from our PA-410, which is designed for small organizations and branch offices, to our top-of-the-line PA-7080, which is designed for large-scale data centers and service provider use. Our firewalls come in a hardware form factor, a containerized form factor, called CN-Series, as well as a virtual form factor, called VM-Series, that is available for virtualization and cloud environments from companies such as VMware,\u00a0Inc. (\u201cVMware\u201d), Microsoft Corporation (\u201cMicrosoft\u201d), Amazon.com,\u00a0Inc. (\u201cAmazon\u201d), and Google,\u00a0Inc. (\u201cGoogle\u201d), and in Kernel-based Virtual Machine (\u201cKVM\u201d)/OpenStack environments. We also offer Cloud NGFW, a managed next-generation firewall (\u201cNGFW\u201d) offering, to secure customers\u2019 applications on Amazon Web Services (\u201cAWS\u201d) and Microsoft Azure (\u201cAzure\u201d).\nSD-WAN.\n Our SD-WAN is integrated with PAN-OS so that our end-customers can get the security features of our PAN-OS ML-Powered Next-Generation Firewall together with SD-WAN functionality. The SD-WAN overlay supports dynamic, intelligent path selection based on the applications, services, and conditions of the links that each application or service is allowed to use, allowing applications to be prioritized based on criteria such as whether the application is mission-critical, latency-sensitive, or meets certain health criteria.\nPanorama.\n Panorama is our centralized security management solution for global control of our network security platform. Panorama can be deployed as a virtual appliance or a physical appliance. Panorama is used for centralized policy management, device management, software licensing and updates, centralized logging and reporting, and log storage. Panorama controls the security, network address translation (\u201cNAT\u201d), QoS, policy-based forwarding, decryption, application override, captive portal, and distributed denial of service/denial of service (\u201cDDoS/DoS\u201d) protection aspects of the network security systems under management. Panorama centrally manages device software and associated updates, including SSL-VPN clients, SD-WAN, dynamic content updates, and software licenses. Panorama offers network security monitoring through the ability to view logs and run reports for our network security platform in one location without the need to forward the logs and reliably expands log storage for long-term event investigation and analysis.\nSUBSCRIPTIONS\nWe offer a number of subscriptions as part of our network security platform. Of these subscription offerings, cloud-delivered security services, such as Advanced Threat Prevention, Advanced WildFire, Advanced URL Filtering, DNS Security, IoT/OT Security, SaaS Security Inline, GlobalProtect, Enterprise DLP, and AIOps, are sold as options to our hardware and software firewalls, whereas SaaS Security API, Prisma Access, Prisma SD-WAN, Prisma Cloud, Cortex XSIAM, Cortex XDR, Cortex XSOAR, and Cortex Xpanse are sold on a per-user, per-endpoint, or capacity-based basis. Our subscription offerings include:\nCloud-delivered security services:\n\u2022\nAdvanced Threat Prevention.\n This cloud-delivered security service provides intrusion detection and prevention capabilities and blocks vulnerability exploits, viruses, spyware, buffer overflows, denial-of-service attacks, and port scans from compromising and damaging enterprise information resources. It includes mechanisms\u2014such as protocol decoder-based analysis, protocol anomaly-based protection, stateful pattern matching, statistical anomaly detection, heuristic-based analysis, custom vulnerability and spyware \u201cphone home\u201d signatures, and workflows\u2014to manage popular open-source signature formats to extend our coverage. In addition, it offers inline deep learning to deliver real-time detection and prevention of unknown, evasive, and targeted command-and-control (\u201cC2\u201d) communications over HTTP, unknown-TCP, unknown-UDP, and encrypted over SSL. Advanced Threat Prevention is the first offering to protect patient zero from unknown command and control in real-time.\n- 5 \n-\nTable of Contents\n\u2022\nAdvanced WildFire. \nThis cloud-delivered security service provides protection against targeted malware and advanced persistent threats and provides a near real-time analysis engine for detecting previously unseen malware while resisting attacker evasion techniques. Advanced WildFire combines dynamic and static analysis, recursive analysis, and a custom-built analysis environment with network traffic profiling and fileless attack detection to discover even the most sophisticated and evasive threats. A machine learning module derived from the cloud sandbox environment is now delivered inline on the ML-Powered Next-Generation Firewalls to identify the majority of unknown threats without cloud connectivity. In addition, Advanced WildFire defeats highly evasive modern malware at scale with a new infrastructure and patented analysis techniques, including intelligent runtime memory analysis, dependency emulation, malware family fingerprinting, and more. Once identified, whether in the cloud or\u00a0inline, preventive measures are automatically generated and delivered in seconds or less to our network security\u00a0platform.\n\u2022\nAdvanced URL Filtering.\n This cloud-delivered security service offers the industry\u2019s first Inline Deep Learning powered web protection engine. It delivers real-time detection and prevention of unknown, evasive, and targeted web-based threats, such as phishing, malware, and C2. While many vendors use machine learning to categorize web content or prevent malware downloads, Advanced URL Filtering is the industry\u2019s first inline web protection engine capable of detecting never-before-seen web-based threats and preventing them in real-time. In addition, it includes a cloud-based URL filtering database which consists of millions of URLs across many categories and is designed to analyze web traffic and prevent web-based threats, such as phishing, malware, and C2.\n\u2022\nDNS Security.\n This cloud-delivered security service uses machine learning to proactively block malicious domains and stop attacks in progress. Unlike other solutions, it does not require endpoint routing configurations to be maintained and therefore cannot be bypassed. It allows our network security platform access to DNS signatures that are generated using advanced predictive analysis, machine learning, and malicious domain data from a growing threat intelligence sharing community of which we are a part. Expanded categorization of DNS traffic and comprehensive analytics allow deep insights into threats, empowering security personnel with the context to optimize their security posture. It offers comprehensive DNS attack coverage and includes industry-first protections against multiple emerging DNS-based network attacks.\n\u2022\nIoT/OT Security.\n \nThis cloud-delivered security service uses machine learning to accurately identify and classify various IoT and operational technology (\u201cOT\u201d) devices, including never-been-seen-before devices, mission-critical OT devices, and unmanaged legacy systems. It uses machine learning to baseline normal behavior, identify anomalous activity, assess risk, and provide policy recommendations to allow trusted behavior with a new Device-ID policy construct on our network security platform. Other subscriptions have also been enhanced with IoT context to prevent threats on various devices, including IoT and OT devices.\n\u2022\nSaaS Security API.\n SaaS Security API (formerly Prisma SaaS) is a multi-mode, cloud access security broker (\u201cCASB\u201d) that helps govern sanctioned SaaS application usage across all users and helps prevent breaches and non-compliance. Specifically, the service enables the discovery and classification of data stored in supported SaaS applications, protects sensitive data from accidental exposure, identifies and protects against known and unknown malware, and performs user activity monitoring to identify potential misuse or data exfiltration. It delivers complete visibility and granular enforcement across all user, folder, and file activity within sanctioned SaaS applications, and can be combined with SaaS Security Inline for a complete integrated CASB.\n\u2022\nSaaS Security Inline. \nSaaS Security Inline adds an inline service to automatically gain visibility and control over thousands of known and new sanctioned, unsanctioned and tolerated SaaS applications in use within organizations today. It provides enterprise data protection and compliance across all SaaS applications and prevents cloud threats in real time with best-in-class security. The solution is easy to deploy being natively integrated on network security platform, eliminating the architectural complexity of traditional CASB products, while offering low total cost of ownership. It can be combined with SaaS Security API as a complete integrated CASB.\n\u2022\nGlobalProtect.\n This subscription provides protection for users of both traditional laptop and mobile devices. It expands the boundaries of the end-users\u2019 physical network, effectively establishing a logical perimeter that encompasses remote laptop and mobile device users irrespective of their location. When a remote user logs into the device, GlobalProtect automatically determines the closest gateway available to the roaming device and establishes a secure connection. Regardless of the operating systems, laptops, tablets, and phones will stay connected to the corporate network when they are on a network of any kind and, as a result, are protected as if they never left the corporate campus. GlobalProtect ensures that the same secure application enablement policies that protect users at the corporate site are enforced for all users, independent of their location.\n\u2022\nEnterprise DLP.\n \nThis cloud-delivered security service provides consistent, reliable protection of sensitive data, such as personally identifiable information (\u201cPII\u201d) and intellectual property, for all traffic types, applications, and users. Native integration with our products makes it simple to deploy, and advanced machine learning minimizes management complexity. Enterprise DLP allows organizations to consistently discover, classify, monitor, and protect sensitive data, wherever it may reside. It helps minimize the risk of a data breach both on-premises and in the cloud\u2014such as in Office/Microsoft 365\u2122, Salesforce\n\u00ae\n, and Box\u2014and assists in meeting stringent data privacy and compliance regulations, including GDPR, CCPA, PCI DSS, HIPAA, and others.\n- 6 \n-\nTable of Contents\n\u2022\nAIOps:\n \nAIOps is available in both free and licensed premium versions. AIOps redefines network operational experience by empowering security teams to proactively strengthen security posture and resolve network disruptions. AIOps provides continuous best practice recommendations powered by machine learning (\u201cML\u201d) based on industry standards, security policy context, and advanced telemetry data collected from our network security customers to improve security posture. It also intelligently predicts health, performance, and capacity problems up to seven days in advance and provides actionable insights to resolve the predicted disruptions.\nSecure Access Service Edge:\n\u2022\nPrisma Access. \nPrisma Access is a cloud-delivered security offering that helps organizations deliver consistent security to remote networks and mobile users. Located in more than 100\u00a0locations around the world, Prisma Access consistently inspects all traffic across all ports and provides bidirectional networking to enable branch-to-branch and branch-to-headquarter traffic. Prisma Access consolidates point-products into a single converged cloud-\ndelivered offering, transforming network security and allowing organizations to enable secure hybrid workforces. Prisma Access protects all application traffic with complete, best-in-class security while ensuring an exceptional user experience with industry-leading service-level agreements (\u201cSLA\u201ds).\n\u2022\nPrisma SD-WAN.\n \nOur Prisma SD-WAN solution is a next-generation SD-WAN solution that makes the secure cloud-delivered branch possible. Prisma SD-WAN enables organizations to replace traditional Multiprotocol Label Switching (\u201cMPLS\u201d) based WAN architectures with affordable broadband and internet transport types that promote improved bandwidth availability, redundancy and performance at a reduced cost. Prisma SD-WAN leverages real-time application performance SLAs and visibility to control and intelligently steer application traffic to deliver an exceptional user experience. Prisma SD-WAN also provides the flexibility of deploying with an on-premises controller to help businesses meet their industry-specific security compliance requirements and manage deployments with application-defined policies. Our Prisma SD-WAN simplifies network and security operations using machine learning and automation.\nCloud Security:\n\u2022\nPrisma Cloud.\n Prisma Cloud is a comprehensive Cloud-Native Application Protection Platform (\u201cCNAPP\u201d), securing both cloud-native and lift-and-shift applications across multi- and hybrid-cloud environments. With broad security and compliance coverage and a flexible agentless, as well as agent-based, architecture, Prisma Cloud protects cloud-native applications across their lifecycle from code to cloud. The platform helps developers prevent risks as they code and build the application, secures the software supply chain and the continuous integration and continuous development (\u201cCI/CD\u201d) pipeline, and provides complete visibility and real-time protection for applications in the cloud.\nWith its code-to-cloud security capabilities, Prisma Cloud uniquely stitches together a complete security picture by tracing back thousands of cloud risks and vulnerabilities that occur in the application runtime to their origin in the code-and-build phase of the application. The platform enables organizations to \u201cshift security left\u201d and fix issues at the source (in code) before they proliferate as a large number of risks in the cloud. The contextualized visibility to alerts, attack paths, and vulnerabilities delivered by Prisma Cloud facilitates collaboration between security and development teams to drive down risks and deliver better security outcomes. The context helps security teams block attacks in the cloud runtime and developers fix risks in source code.\nA comprehensive library of compliance frameworks included in Prisma Cloud vastly simplifies the task of maintaining compliance. Seamless integration with security orchestration tools ensures rapid remediation of vulnerabilities and security issues.\nWith a flexible, integrated platform that enables customers to license and activate cloud security capabilities that match their need, Prisma Cloud helps secure organizations at every stage in their cloud adoption journey. The platform enables security teams to consolidate multiple products that address individual risks with an integrated solution that also delivers best-in-class capabilities. Including the recently launched CI/CD security module, Prisma Cloud\u2019s code-to-cloud CNAPP delivers comprehensive protection for applications and their code, infrastructure (workloads, network, and storage), data, APIs, and associated identities.\nSecurity Operations:\n\u2022\nCortex XSIAM.\n This cloud-based subscription is the AI security automation platform for the modern SOC, harnessing the power of AI to radically improve security outcomes and transform security operations. Cortex XSIAM customers can consolidate multiple products into a single unified platform, including EDR, XDR, SOAR, ASM, user behavior analytics (\u201cUBA\u201d), threat intelligence platform (\u201cTIP\u201d), and security information and event management (\u201cSIEM\u201d). Using a security-specific data model and applying AI, Cortex XSIAM automates data integration, analysis, and triage to respond to most alerts, enabling analysts to focus on only the incidents that require human intervention.\n- 7 \n-\nTable of Contents\n\u2022\nCortex XDR. \nThis cloud-based subscription enables organizations to collect telemetry from endpoint, network, identity and cloud data sources and apply advanced analytics and machine learning, to quickly find and stop targeted attacks, insider abuse, and compromised endpoints. Cortex XDR has two product tiers: XDR Prevent and XDR Pro. XDR Prevent delivers enterprise-class endpoint security focused on preventing attacks. XDR Pro extends endpoint detection and response (\u201cEDR\u201d) to include cross-data analytics, including network, cloud, and identity data. Going beyond EDR, Cortex XDR detects the most complex threats using analytics across key data sources and reveals the root cause, which can significantly reduce investigation time as compared to siloed tools and manual\u00a0processes.\n\u2022\nCortex XSOAR.\n Available as a cloud-based subscription or an on-premises appliance, Cortex XSOAR is a comprehensive security orchestration automation and response (\u201cSOAR\u201d) offering that unifies playbook automation, case management, real-time collaboration, and threat intelligence management to serve security teams across the incident lifecycle. With Cortex XSOAR, security teams can standardize processes, automate repeatable tasks, and manage incidents across their security product stack to improve response time and analyst productivity. It learns from the real-life analyst interactions and past investigations to help SOC\u00a0teams with analyst assignment suggestions, playbook\u00a0enhancements, and best next steps for investigations. Many of our customers see significantly faster SOC response times and a significant reduction in the number of SOC alerts which require human\u00a0intervention.\n\u2022\nCortex Xpanse. \nThis cloud-based subscription provides attack surface management (\u201cASM\u201d), which is the ability for an organization to identify what an attacker would see among all of its sanctioned and unsanctioned Internet-facing assets. In addition, Cortex Xpanse detects risky or out-of-policy communications between Internet-connected assets that can be exploited for data breaches or ransomware attacks. Cortex Xpanse continuously identifies Internet assets, risky services, or misconfigurations in third parties to help secure a supply chain or identify risks for mergers and acquisitions due diligence. Finally, compliance teams use Cortex Xpanse to improve their audit processes and stay in compliance by assessing their access controls against regulatory frameworks.\nSUPPORT\nCustomer Support.\n \nGlobal customer support helps our customers achieve their security outcomes with services and support capabilities covering the customer's entire journey with Palo Alto Networks. This post-sales, global organization advances our customers\u2019 security maturity, supporting them when, where, and how they need it. We offer Standard Support, Premium Support, and Platinum Support to our end-customers and channel partners. Our channel partners that operate a Palo Alto Networks Authorized Support Center (\u201cASC\u201d) typically deliver level-one and level-two support. We provide level-three support 24\u00a0hours a day, seven days a week through regional support centers that are located worldwide. We also offer a service offering called Focused Services that includes Customer Success Managers (\u201cCSM\u201d) to provide support for end-customers with unique or complex support requirements. We offer our end-customers ongoing support for hardware, software, and certain cloud offerings, which includes ongoing security updates, PAN-OS upgrades, bug fixes, and repairs. End-customers typically purchase these services for a one-year or longer term at the time of the initial product sale and typically renew for successive one-year or longer periods. Additionally, we provide expedited replacement for any defective hardware. We use a third-party logistics provider to manage our worldwide deployment of spare appliances and other\u00a0accessories.\nThreat Intelligence, Incident Response and Security Consulting. \nUnit\u00a042 brings together world-renowned threat researchers, incident responders, and security consultants to create an intelligence-driven, response-ready organization that is passionate about helping clients proactively manage cyber risk. We help security leaders assess and test their security controls, transform their security strategy with a threat-informed approach, and respond to incidents rapidly. The Unit\u00a042 Threat Intelligence team provides threat research that enables security teams to understand adversary intent and attribution, while enhancing protections offered by our products and services to stop advanced attacks. Our security consultants serve as trusted partners with state-of-the-art cyber risk expertise and incident response capabilities, helping customers focus on their business before, during, and after a breach.\nProfessional Services. \nProfessional services are primarily delivered directly by Palo Alto Networks and through a global network of authorized channel partners to our end-customers and include on-location and remote, hands-on experts who plan, design, and deploy effective security solutions tailored to our end-customers\u2019 specific requirements. These services include architecture design and planning, implementation, configuration, and firewall migrations for all our products, including Prisma and Cortex deployments. Customers can also purchase on-going technical experts to be part of customer\u2019s security teams to aid in the implementation and operation of their Palo Alto Networks capabilities. Our education services include certifications, as well as free online technical courses and in-classroom training, which are primarily delivered through our authorized training partners.\n- 8 \n-\nTable of Contents\nRESEARCH AND DEVELOPMENT\nOur research and development efforts are focused on developing new hardware and software and on enhancing and improving our existing product and subscription offerings. We believe that hardware and software are both critical to expanding our leadership in the enterprise security industry. Our engineering team has deep networking, endpoint, and security expertise and works closely with end-customers to identify their current and future needs. Our scale and position in multiple areas of the security market enable us to leverage core competencies across hardware, software, and SaaS and also share expertise and research around threats, which allows us to respond to the rapidly changing threat landscape. We supplement our own research and development efforts with technologies and products that we license from third parties. We test our products thoroughly to certify and ensure interoperability with third-party hardware and software products.\nWe believe that innovation and timely development of new features and products is essential to meeting the needs of our end-customers and improving our competitive position. During fiscal 2023, we introduced several new offerings, including: Cortex XSIAM\u00a01.0, major updates to Prisma Cloud (including three new security modules), Prisma Access\u00a04.0, PAN-OS\u00a011.0, Cloud NGFW for AWS, and Cloud NGFW for Azure. Additionally, we acquired productive investments that fit well within our long-term strategy. For example, we acquired Cider Security Ltd. (\u201cCider\u201d), which we expect will support our Prisma Cloud\u2019s platform approach to securing the entire application security lifecycle from code to cloud.\nWe plan to continue to significantly invest in our research and development efforts as we evolve and extend the capabilities of our portfolio.\nINTELLECTUAL PROPERTY\nOur industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. In particular, leading companies in the enterprise security industry have extensive patent portfolios and are regularly involved in both offensive and defensive litigation. We continue to grow our patent portfolio and own intellectual property and related intellectual property rights around the world that relate to our products, services, research and development, and other activities, and our success depends in part upon our ability to protect our core technology and intellectual property. We file patent applications to protect our intellectual property and believe that the duration of our issued patents is sufficient when considering the expected lives of our products.\nWe actively seek to protect our global intellectual property rights and to deter unauthorized use of our intellectual property by controlling access to, and use of, our proprietary software and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, end-customers, and partners, and our software is protected by U.S. and international copyright laws. Despite our efforts to protect our intellectual property rights, our rights may not be successfully asserted in the future or may be invalidated, circumvented, or challenged. In addition, the laws of various foreign countries where our offerings are distributed may not protect our intellectual property rights to the same extent as laws in the United States. See \u201cRisk Factors-\nClaims by others that we infringe their intellectual property rights could harm our business\n,\u201d \u201cRisk Factors-\nOur proprietary rights may be difficult to enforce or protect, which could enable others to copy or use aspects of our products or subscriptions without compensating us\n,\u201d and \u201cLegal Proceedings\u201d below for additional information.\nGOVERNMENT REGULATION\nWe are subject to numerous U.S. federal, state, and foreign laws and regulations covering a wide variety of subject matters. Like other companies in the technology industry, we face scrutiny from both U.S. and foreign governments with respect to our compliance with laws and regulations. Our compliance with these laws and regulations may be onerous and could, individually or in the aggregate, increase our cost of doing business, impact our competitive position relative to our peers, and/or otherwise have an adverse impact on our business, reputation, financial condition, and operating results. For additional information about government regulation applicable to our business, see Part\u00a0I, Item\u00a01A \u201cRisk Factors\u201d in this Form\u00a010-K.\nCOMPETITION\nWe operate in the intensely competitive enterprise security industry that is characterized by constant change and innovation. Changes in the application, threat, and technology landscape result in evolving customer requirements for the protection from threats and the safe enablement of applications. Our main competitors fall into four categories:\n\u2022\nlarge companies that incorporate security features in their products, such as Cisco Systems,\u00a0Inc. (\u201cCisco\u201d), Microsoft, or those that have acquired, or may acquire, security vendors and have the technical and financial resources to bring competitive solutions to the market;\n\u2022\nindependent security vendors, such as Check Point Software Technologies\u00a0Ltd. (\u201cCheck Point\u201d), Fortinet,\u00a0Inc. (\u201cFortinet\u201d), Crowdstrike,\u00a0Inc. (\u201cCrowdstrike\u201d), and Zscaler,\u00a0Inc. (\u201cZscaler\u201d), that offer a mix of security products;\n- 9 \n-\nTable of Contents\n\u2022\nstartups and point-product vendors that offer independent or emerging solutions across various areas of security; and\n\u2022\npublic cloud vendors and startups that offer solutions for cloud security (private, public, and hybrid cloud).\nAs our market grows, it will attract more highly specialized vendors, as well as larger vendors that may continue to acquire or bundle their products more effectively.\nThe principal competitive factors in our market include:\n\u2022\nproduct features, reliability, performance, and effectiveness;\n\u2022\nproduct line breadth, diversity, and applicability;\n\u2022\nproduct extensibility and ability to integrate with other technology infrastructures;\n\u2022\nprice and total cost of ownership;\n\u2022\nadherence to industry standards and certifications;\n\u2022\nstrength of sales and marketing efforts; and\n\u2022\nbrand awareness and reputation.\nWe believe we generally compete favorably with our competitors on the basis of these factors as a result of the features and performance of our portfolio, the ease of integration of our security solutions with technological infrastructures, and the relatively low total cost of ownership of our products. However, many of our competitors have\u00a0substantially greater financial, technical, and other resources, greater name recognition, larger sales and marketing budgets, broader distribution, more diversified product lines, and larger and more mature intellectual property portfolios.\nSALES, MARKETING, SERVICES, AND SUPPORT\nCustomers.\n \nOur end-customers are predominantly medium to large enterprises, service providers, and government entities. Our end-customers operate in a variety of industries, including education, energy, financial services, government entities, healthcare, Internet and media, manufacturing, public sector, and telecommunications. Our end-customers deploy our portfolio of solutions for a variety of security functions across a variety of deployment scenarios. Typical deployment scenarios include the enterprise network, the enterprise data center, cloud locations, and branch or remote locations. No single end-customer accounted for more than 10% of our total revenue in fiscal 2023, 2022, or\u00a02021.\nDistribution.\n We primarily sell our products and subscription and support offerings to end-customers through our channel partners utilizing a two-tier, indirect fulfillment model whereby we sell our products and subscription and support offerings to our distributors, which, in turn, sell to our resellers, which then sell to our end-customers. Sales are generally subject to our standard, non-exclusive distributor agreement, which provides for an initial term of one year, one-year renewal terms, termination by us with 30 to 90\u00a0days written notice prior to the renewal date, and payment to us from the channel partner within 30 to 45\u00a0calendar days of the date we issue an invoice for such sales. For fiscal 2023, 49.7% of our total revenue was derived from sales to three distributors.\nWe also sell our VM-Series virtual firewalls directly to end-customers through Amazon\u2019s AWS Marketplace, Microsoft\u2019s Azure Marketplace, and Google\u2019s Cloud Platform Marketplace under a usage-based licensing model.\nSales.\n Our sales organization is responsible for large-account acquisition and overall market development, which includes the management of the relationships with our channel partners, working with our channel partners in winning and supporting end-customers through a direct-touch approach, and acting as the liaison between our end-customers and our marketing and product development organizations. We pursue sales opportunities both through our direct sales force and as assisted by our channel partners, including leveraging cloud service provider marketplaces. We expect to continue to grow our sales headcount to expand our reach in all key growth sectors.\nOur sales organization is supported by sales engineers with responsibility for pre-sales technical support, solutions engineering for our end-customers, and technical training for our channel partners.\nChannel Program.\n \nOur NextWave Channel Partner program is focused on building in-depth relationships with solutions-oriented distributors and resellers that have strong security expertise. The program rewards these partners based on a number of attainment goals, as well as provides them access to marketing funds, technical and sales training, and support. To promote optimal productivity, we operate a formal accreditation program for our channel partners\u2019 sales and technical professionals. As of July\u00a031, 2023, we had more than 7,100 channel partners.\nGlobal Customer Success.\n Our Global Customer Success (\u201cGCS\u201d) organization is responsible for delivering professional, educational, and support services directly to our channel partners and end-customers. We leverage the capabilities of our channel partners and train them in the delivery of professional, educational, and support services to enable these services to be locally delivered. We believe that a broad range of support services is essential to the successful customer deployment and ongoing support of our products, and we have hired support engineers with proven experience to provide those services.\n- 10 \n-\nTable of Contents\nMarketing.\n Our marketing is focused on building our brand reputation and the market awareness of our portfolio and driving pipeline and end-customer demand. Our marketing team consists primarily of product marketing, brand, demand generation, field marketing, digital marketing, communications, analyst relations, and marketing analytics functions. Marketing activities include pipeline development through demand generation, social media and advertising programs, managing the corporate website and partner portal, trade shows and conferences, analyst relationships, customer advocacy, and customer awareness. Every year we organize multiple signature events, such as our end-customer conference \u201cIgnite\u201d and focused conferences such as \u201cCortex Symphony\u201d and \u201cSASE Converge.\u201d We also publish threat intelligence research, such as the Unit\u00a042 Cloud Threat Report and the Unit\u00a042 Network Threat Trends Research Report, which are based on data from our global threat intelligence team, Unit\u00a042. These activities and tools benefit both our direct and indirect channels and are available at no cost to our channel partners.\nBacklog.\n \nOrders for subscription and support offerings for multiple years are generally billed upfront upon fulfillment and are included in deferred revenue. Contract amounts that are not recorded in deferred revenue or revenue are considered backlog. We expect backlog related to subscription and support offerings will change from period to period for various reasons, including the timing and duration of customer orders and varying billing cycles of those orders. Products are billed upon hardware shipment or delivery of software license. The majority of our product revenue comes from orders that are received and shipped in the same quarter. However, insufficient supply and inventory may delay our hardware product shipments. As such, we do not believe that our product backlog at any particular time is necessarily indicative of our future operating results.\nSeasonality.\n \nOur business is affected by seasonal fluctuations in customer spending patterns. We have begun to see seasonal patterns in our business, which we expect to become more pronounced as we continue to grow, with our strongest sequential revenue growth generally occurring in our fiscal second and fourth quarters.\nMANUFACTURING\nWe outsource the manufacturing of our products to various manufacturing partners, which include our electronics manufacturing services provider (\u201cEMS provider\u201d) and original design manufacturers. This approach allows us to reduce our costs as it reduces our manufacturing overhead and inventory and also allows us to adjust more quickly to changing end-customer demand. Our EMS provider is Flextronics International,\u00a0Ltd. (\u201cFlex\u201d), who assembles our products using design specifications, quality assurance programs, and standards that we establish, and procures components and assembles our products based on our demand forecasts. These forecasts represent our estimates of future demand for our products based upon historical trends and analysis from our sales and product management functions as adjusted for overall market conditions.\nThe component parts within our products are either sourced by our manufacturing partners or by us from various component suppliers. Our manufacturing and supply contracts, generally, do not guarantee a certain level of supply or fixed pricing, which increases our exposure to supply shortages or price increases.\nHUMAN CAPITAL\nWe believe our ongoing success depends on our employees. Development and investment in our people is central to who we are, and will continue to be so. With a global workforce of 13,948 as of July\u00a031, 2023, our People Strategy is a critical element of our overall company strategy. Our People Strategy is a comprehensive approach to source, hire, onboard, develop, engage, and reward employees. Our approach is grounded on core tenants: respect each employee as an individual, demonstrate fairness and equity in all we do, facilitate flexibility, personalization, and choice whenever possible, and nurture a culture where employees are supported in doing the best work of their careers. Our values of disruption, execution, collaboration, inclusion, and integrity were co-created with employees and serve as the foundation of our culture.\nSource & Hire.\n \nSourcing diverse talent who possess the skills and capabilities to execute and add value to our culture form the cornerstone of our comprehensive approach to talent acquisition\u2014a philosophy we call \u201cThe Way We Hire.\u201d We utilize an array of methods to identify subject matter experts in their respective fields, emphasizing sourcing channels that connect us with underrepresented talents.\nIn an effort to foster career growth within Palo Alto Networks, we prioritize internal mobility. This allows current employees to progress either through a traditional career path or by exploring roles across various business functions, often culminating in promotions. We encourage existing employees to refer qualified individuals for our open positions, thus leveraging the collective networks of our team to attract a diverse range of expertise and perspectives.\nWe have made strides to understand job requirements and implement structured interviewing practices to identify candidates of the highest quality. By conducting thorough job analyses and creating success profiles, we have developed a deeper understanding of what is required for success in critical roles. We equip our hiring managers with essential training to identify and mitigate potential unconscious biases. Our interviewing process emphasizes values and competencies that we believe enhance our culture. This commitment extends to conducting interviews with diverse panelists and providing a balanced evaluation and quality interview experience for a diverse slate of candidates. We remain steadfast in our commitment to fairness, bias reduction, and equal opportunities for all potential hires.\n- 11 \n-\nTable of Contents\nA key to our hiring process is the Global Hiring Committees, introduced in fiscal 2023. These committees play a significant role in elevating our hiring standards by promoting shared understanding, reducing biases, enhancing objectivity, and ensuring the recruitment of diverse talent. The Committees foster effective collaboration using a common language and consensus-driven decision-making.\nOnboard & Develop.\n \nWe believe that each member of our workforce is unique, and that their integration into Palo Alto Networks and their career journey involve unique needs, interests, and goals. That is why our development programs are grounded on individualization, flexibility, and choice. From onboarding to ongoing development, our FLEXLearn philosophy offers multiple paths to assess, develop, and grow.\nOur onboarding experience starts with \u201cpre-boarding.\u201d Before an employee\u2019s start date, they are provided access to foundational tools to help them prepare to join Palo Alto Networks. We view pre-boarding as fundamental to introducing new employees to our culture, building trust, and facilitating rapid productivity. Welcome Day is a combination of in-person, virtual learning platforms and communication channels that provide new employees with inspirational, often personalized, onboarding experiences that carry on through the first year of employment. We have specialized learning tracks for interns and new graduates that have been recognized as best in class externally to support early-in-career individuals in acclimating to our culture as they progress on their career journey. As part of our merger and acquisition strategy, we have also established a robust integration program with the goal to enable individuals joining our teams to feel part of our culture at speed.\nFollowing onboarding, there are a variety of ways that employees can assess their interests and skills, build a development plan specific to those insights, and continue to grow. Our development initiatives are delivered to employees through a comprehensive platform, FLEXLearn. The platform contains curated content and programs, such as assessment instruments, thousands of courses, workshops, and mentoring and coaching services. Leaders and executives also have access to specialized learning tracks that help them strategize, mobilize, and deliver maximum personal and team performance. Employees have full agency to direct their growth at their pace and choosing. Development information about core business elements, working in a distributed hybrid environment, as well as required company-wide compliance training, such as Code of Conduct, privacy and security, anti-discrimination, anti-harassment, and anti-bribery training, is also deployed through the FLEXLearn platform for all employees. In addition, FLEXLearn provides employees with events and activities that motivate and spark critical thinking, on topics ranging from inclusion to well-being and collaboration. On average, employees had completed 33\u00a0hours of development through the FLEXLearn platform during fiscal 2023.\nEngage & Reward.\n \nWe aim to foster engagement through a multifaceted approach to collect, understand, and act on employee feedback. Our comprehensive communication and listening strategy utilizes in-person and technology-enabled channels. We share and collect information through corporate and functional \u201cAll Hands\u201d meetings, including several meetings specifically focused on employee-centered topics in an \u201cAsk Me Anything\u201d format. Digital Displays across our sites, our intranet platform, monthly and weekly email communications, and an active Slack platform provide a regular flow of information to and between employees and leadership. In addition to these channels that reach large audiences, we conduct regular executive listening sessions, including small group convenings with our CEO and other C-suite leaders, and ad-hoc pulse surveys to better understand employee engagement, sentiment, well-being, and the ability to transition to a hybrid work model.\nEmployee sentiment is also collected from external sources, such as web platforms that crowdsource feedback. Employees provide commentary to platforms such as Glassdoor, Comparably, and others and insights from those platforms are used to measure engagement. In addition, based on employee participation in an anonymous survey, the Best Practice Institute has certified Palo Alto Networks as a \u201cmost loved workplace\u201d (2021, 2022, and 2023). Palo Alto Networks has been recognized by Glassdoor, Comparably, Human Rights Campaign, Disability Index, and others as an employer of choice. Our CEO has also earned a 92% employee approval rating on Glassdoor, a top percentile score.\nIn addition to a comprehensive compensation and diverse benefits program, we believe in an always-on feedback and rewards philosophy. From recurring 1:1\u00a0sessions, quarterly performance feedback, semi-annual performance reviews to use of our Cheers for Peers peer recognition program, employees get continuous input about the value they bring to the organization.\nThese engagement and recognition strategies have informed our holistic People Strategy, including our Inclusion and Diversity (\u201cI&D\u201d) initiatives and Internal Mobility program. Based on the outcomes from external sources, insights from internal sources, our modest attrition rate (compared to market trends), and strong participation in our Internal Mobility program, we believe employees at Palo Alto Networks feel engaged and rewarded.\nInclusion & Diversity.\n We are intentional about including diverse points of view, perspectives, experiences, backgrounds, and ideas in our decision-making processes. We deeply believe that true diversity exists when we have representation of all ethnicities, genders, orientations and identities, and cultures in our workforce. Our corporate I&D programs focus on five principles\u2014our workforce should feel psychologically safe, they should understand, listen, and support one another, and they should elevate others. These principles are the foundation of our approach to I&D, which we call P.U.L.S.E.\n- 12 \n-\nTable of Contents\nWe have eleven employee network groups (\u201cENG\u201ds) that play a vital role in building understanding and awareness. Over 29% of our global workforce was involved in at least one ENG as of July\u00a031, 2023. ENGs are also allocated funding to make charitable grants to organizations advancing their causes. We involve our ENGs in listening sessions with executive teams and we work in partnership to develop our annual I&D plans because we believe involvement is\u00a0critical.\nOur I&D philosophy is fully embedded in our talent acquisition, learning and development, performance elevation, and rewards and recognition programs. The diversity of our board of directors, with women representing 40% of our board as of July\u00a031, 2023, is an example of our commitment to inclusion and diversity.\nENVIRONMENTAL, SOCIAL, AND GOVERNANCE\nWe recognize our duty to address environmental, social, and governance (\u201cESG\u201d) practices. From our science-based approach to emissions reductions and our social impact programs to our Supplier Responsibility initiatives and Code of Business Conduct and Ethics, we value the opportunity to have meaningful outcomes that reinforce our intention to respect our planet, uplift our communities, and advance our industry.\nEnvironmental.\n We recognize climate change is a global crisis and are committed to doing our part to reduce environmental impacts. We remain committed to our goals of utilizing 100% renewable energy by 2030, reducing our greenhouse gas (\u201cGHG\u201d) emissions and working across our value chain, and with coalitions, to address climate change. We made progress towards our goals in fiscal 2023 through several milestones. We engaged with a local utility provider to power our Santa Clara, California headquarters with 100% renewable energy effective January\u00a01, 2023. Our near-term scope 1, 2, and 3\u00a0emissions reduction goals, aligned to a warming scenario of 1.5\u00b0\u00a0Celsius, were verified by the Science Based Targets initiative. We were recognized by Carbon Disclosure Project (\u201cCDP\u201d) as an \u201cA-List\u201d company and a \u201cSupplier Engagement Leader.\u201d We remain committed to being transparent about our progress over time through annual reporting.\nSocial.\n In addition to our People Strategy described in the section titled \u201cHuman Capital\u201d above, we prioritized the health and safety of our global workforce. Through the deployment of our Global Supplier Code of Conduct, we continued to reach across our supply chain to communicate our expectations regarding labor standards, business practices, and workplace health and safety conditions. During fiscal 2023, we maintained our affiliate membership in the Responsible Business Alliance and maintained our commitment to Supplier Diversity. We value our role as a good corporate citizen and in fiscal 2023 continued to execute our social impact programs. We made charitable grants to support organizations providing services in our core funding areas of education, including academic scholarships, diversity, and basic needs. We expanded our work to provide cybersecurity curriculum to schools, universities, and nonprofit organizations to help individuals of all ages protect their digital way of life and to prepare diverse adults for careers in cybersecurity. Employees continued to participate in our giving, matching, and volunteer programs to make impacts in their local communities.\nGovernance. \nIntegrity is one of our core values. Our corporate behavior and leadership practices model ethical decision-making. All employees are informed about our governance expectations through our Codes of Conduct, compliance training programs, and ongoing communications. Our board of directors is governed by Corporate Governance Guidelines, which are amended from time to time to incorporate best practices in corporate governance. Reinforcing the importance of our ESG performance, the charter of the ESG and Nominating Committee of the board of directors includes the primary oversight of ESG.\nAVAILABLE INFORMATION\nOur website is located at www.paloaltonetworks.com, and our investor relations website is located at investors.paloaltonetworks.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form\u00a010-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections\u00a013(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d), are available free of charge on the Investors portion of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (\u201cSEC\u201d). We also provide a link to the section of the SEC\u2019s website at www.sec.gov that has all of our public filings, including Annual Reports on Form\u00a010-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, our Proxy Statements, and other ownership-related filings.\nWe also use our investor relations website as a channel of distribution for important company information. For example, webcasts of our earnings calls and certain events we participate in or host with members of the investment community are on our investor relations website. Additionally, we announce investor information, including news and commentary about our business and financial performance, SEC filings, notices of investor events, and our press and earnings releases, on our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts and RSS feeds. Further corporate governance information, including our corporate governance guidelines, board committee charters, and code of conduct, is also available on our investor relations website under the heading \u201cGovernance.\u201d The contents of our websites are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. All trademarks, trade names, or service marks used or mentioned herein belong to their respective owners.\n- 13 \n-\nTable of Contents",
+  "item1a": ">Item 1A. Risk Factors\nOur operations and financial results are subject to various risks and uncertainties including those described below. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks or others not specified below materialize, our business, financial condition, and operating results could be materially adversely affected, and the market price of our common stock could decline. In addition, the impacts of any worsening of the economic environment may exacerbate the risks described below, any of which could have a material impact on us. \nRisk Factor Summary\nOur business is subject to numerous risks and uncertainties. These risks include, but are not limited to, the following:\n\u2022\nOur operating results may be adversely affected by unfavorable economic and market conditions and the uncertain geopolitical environment.\n\u2022\nOur business and operations have experienced growth in recent periods, and if we do not effectively manage any future growth or are unable to improve our systems, processes, and controls, our operating results could be adversely\u00a0affected.\n\u2022\nOur revenue growth rate in recent periods may not be indicative of our future performance, and we may not be able to maintain profitability, which could cause our business, financial condition, and operating results to suffer.\n\u2022\nOur operating results may vary significantly from period to period, which makes our results difficult to predict and could cause our results to fall short of expectations, and such results may not be indicative of future performance.\n\u2022\nSeasonality may cause fluctuations in our revenue.\n\u2022\nIf we are unable to sell new and additional product, subscription, and support offerings to our end-customers, especially to large enterprise customers, our future revenue and operating results will be harmed.\n\u2022\nWe rely on revenue from subscription and support offerings, and because we recognize revenue from subscription and support over the term of the relevant service period, downturns or upturns in sales or renewals of these subscription and support offerings are not immediately reflected in full in our operating results.\n\u2022\nThe sales prices of our products, subscriptions, and support offerings may decrease, which may reduce our revenue and gross profits and adversely impact our financial results.\n\u2022\nWe rely on our channel partners to sell substantially all of our products, including subscriptions and support, and if these channel partners fail to perform, our ability to sell and distribute our products and subscriptions will be limited and our operating results will be harmed.\n\u2022\nWe are exposed to the credit and liquidity risk of our customers, and to credit exposure in weakened markets, which could result in material losses.\n\u2022\nA portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.\n\u2022\nWe face intense competition in our market and we may lack sufficient financial or other resources to maintain or improve our competitive position.\n\u2022\nWe may acquire other businesses, which could subject us to adverse claims or liabilities, require significant management attention, disrupt our business, adversely affect our operating results, may not result in the expected benefits of such acquisitions, and may dilute stockholder value.\n\u2022\nIf we do not accurately predict, prepare for, and respond promptly to rapidly evolving technological and market developments and successfully manage product and subscription introductions and transitions to meet changing end-customer needs in the enterprise security industry, our competitive position and prospects will be harmed.\n\u2022\nIssues in the development and deployment of Artificial Intelligence (\u201cAI\u201d) may result in reputational harm and legal liability and could adversely affect our results of operations. \n\u2022\nA network or data security incident may allow unauthorized access to our network or data, harm our reputation, create additional liability, and adversely impact our financial results.\n\u2022\nDefects, errors, or vulnerabilities in our products, subscriptions, or support offerings, the failure of our products or subscriptions to block a virus or prevent a security breach or incident, misuse of our products, or risks of product liability claims could harm our reputation and adversely impact our operating results.\n\u2022\nOur ability to sell our products and subscriptions is dependent on the quality of our technical support services and those of our channel partners, and the failure to offer high-quality technical support services could have a material adverse effect on our end-customers\u2019 satisfaction with our products and subscriptions, our sales, and our operating\u00a0results.\n\u2022\nClaims by others that we infringe their intellectual property rights could harm our business.\n- 14 \n-\nTable of Contents\n\u2022\nOur proprietary rights may be difficult to enforce or protect, which could enable others to copy or use aspects of our products or subscriptions without compensating us.\n\u2022\nOur use of open source software in our products and subscriptions could negatively affect our ability to sell our products and subscriptions and subject us to possible litigation.\n\u2022\nWe license technology from third parties, and our inability to maintain those licenses could harm our business.\n\u2022\nBecause we depend on manufacturing partners to build and ship our hardware products, we are susceptible to manufacturing and logistics delays and pricing fluctuations that could prevent us from shipping customer orders on time, if at all, or on a cost-effective basis, which may result in the loss of sales and end-customers.\n\u2022\nManaging the supply of our hardware products and product components is complex. Insufficient supply and inventory would result in lost sales opportunities or delayed revenue, while excess inventory would harm our gross\u00a0margins.\n\u2022\nBecause some of the key components in our hardware products come from limited sources of supply, we are susceptible to supply shortages or supply changes, which, in certain cases, have disrupted or delayed our scheduled product deliveries to our end-customers, increased our costs and may result in the loss of sales and end-customers.\n\u2022\nIf we are unable to attract, retain, and motivate our key technical, sales, and management personnel, our business could suffer.\n\u2022\nWe generate a significant amount of revenue from sales to distributors, resellers, and end-customers outside of the United States, and we are therefore subject to a number of risks associated with international sales and operations.\n\u2022\nWe are exposed to fluctuations in foreign currency exchange rates, which could negatively affect our financial condition and operating results.\n\u2022\nWe face risks associated with having operations and employees located in Israel.\n\u2022\nWe are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.\n\u2022\nOur actual or perceived failure to adequately protect personal data could have a material adverse effect on our\u00a0business.\n\u2022\nWe may have exposure to greater than anticipated tax liabilities.\n\u2022\nIf our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.\n\u2022\nWe are obligated to maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or our internal control may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.\n\u2022\nOur reputation and/or business could be negatively impacted by environmental, social, and governance (\u201cESG\u201d) matters and/or our reporting of such matters.\n\u2022\nFailure to comply with governmental laws and regulations could harm our business.\n\u2022\nWe may not have the ability to raise the funds necessary to settle conversions of our Notes, repurchase our Notes upon a fundamental change, or repay our Notes in cash at their maturity, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of our Notes.\n\u2022\nWe may still incur substantially more debt or take other actions that would diminish our ability to make payments on our Notes when due.\n\u2022\nThe market price of our common stock historically has been volatile, and the value of an investment in our common stock could decline.\n\u2022\nThe convertible note hedge and warrant transactions may affect the value of our common stock.\n\u2022\nThe issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans, the conversion of our Notes or exercise of the related Warrants, or otherwise will dilute stock held by all other stockholders.\n\u2022\nWe cannot guarantee that our share repurchase program will be fully consummated or that it will enhance shareholder value, and share repurchases could affect the price of our common stock.\n\u2022\nWe do not intend to pay dividends for the foreseeable future.\n\u2022\nOur charter documents and Delaware law, as well as certain provisions contained in the indentures governing our Notes, could discourage takeover attempts and lead to management entrenchment, which could also reduce the market price of our common stock.\n\u2022\nOur business is subject to the risks of earthquakes, fire, power outages, floods, health risks, and other catastrophic events, and to interruption by man-made problems, such as terrorism.\n\u2022\nOur failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products and subscriptions could reduce our ability to compete and could harm our business.\n- 15 \n-\nTable of Contents\nRisks Related to Global Economic and Geopolitical Conditions\nOur operating results may be adversely affected by unfavorable economic and market conditions and the uncertain geopolitical environment.\nWe operate globally, and as a result, our business and revenues are impacted by global economic and geopolitical conditions. The instability in the global credit markets, inflation, changes in public policies such as domestic and international regulations, taxes, any increases in interest rates, fluctuations in foreign currency exchange rates, or international trade agreements, international trade disputes, geopolitical turmoil, and other disruptions to global and regional economies and markets continue to add uncertainty to global economic conditions. Military actions or armed conflict, including Russia\u2019s invasion of Ukraine and any related political or economic responses and counter-responses, and uncertainty about, or changes in, government and trade relationships, policies, and treaties could also lead to worsening economic and market conditions and geopolitical environment. In response to Russia\u2019s invasion of Ukraine, the United States, along with the European Union, has imposed restrictive sanctions on Russia, Russian entities, and Russian citizens (\u201cSanctions on Russia\u201d). We are subject to these governmental sanctions and export controls, which may subject us to liability if we are not in full compliance with applicable laws. Any continued or further uncertainty, weakness or deterioration in economic and market conditions or the geopolitical environment could have a material and adverse impact on our business, financial condition, and results of operations, including reductions in sales of our products and subscriptions, longer sales cycles, reductions in subscription or contract duration and value, slower adoption of new technologies, alterations in the spending patterns or priorities of current and prospective customers (including delaying purchasing decisions), increased costs for the chips and components to manufacture our products, and increased price competition.\nRisks Related to Our Business\nRISKS RELATED TO OUR GROWTH\nOur business and operations have experienced growth in recent periods, and if we do not effectively manage any future growth or are unable to improve our systems, processes, and controls, our operating results could be adversely\u00a0affected.\nWe have experienced growth and increased demand for our products and subscriptions over the last few years. As a result, our employee headcount has increased, and we expect it to continue to grow over the next year. For example, from the end of fiscal 2022 to the end of fiscal 2023, our headcount increased from 12,561 to 13,948\u00a0employees. In addition, as we have grown, the number of end-customers has also increased, and we have managed more complex deployments of our products and subscriptions with larger end-customers. The growth and expansion of our business and product, subscription, and support offerings places a significant strain on our management, operational, and financial resources. To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems and controls, and our ability to manage headcount, capital, and processes in an efficient manner.\nWe may not be able to successfully implement, scale, or manage improvements to our systems, processes, and controls in an efficient or timely manner, which could result in material disruptions of our operations and business. In addition, our existing systems, processes, and controls may not prevent or detect all errors, omissions, or fraud. We may also experience difficulties in managing improvements to our systems, processes, and controls, or in connection with third-party software licensed to help us with such improvements. Any future growth would add complexity to our organization and require effective coordination throughout our organization. Failure to manage any future growth effectively could result in increased costs, disrupt our existing end-customer relationships, reduce demand for or limit us to smaller deployments of our products, or materially harm our business performance and operating results. \nOur revenue growth rate in recent periods may not be indicative of our future performance, and we may not be able to maintain profitability, which could cause our business, financial condition, and operating results to suffer.\nWe have experienced revenue growth rates of 25.3% and 29.3% in fiscal 2023 and fiscal 2022, respectively. Our revenue for any quarterly or annual period should not be relied upon as an indication of our future revenue or revenue growth for any future period. If we are unable to maintain consistent or increasing revenue or revenue growth, the market price of our common stock could be volatile, and it may be difficult for us to maintain profitability or maintain or increase cash flow on a consistent basis. \n- 16 \n-\nTable of Contents\nIn addition, we have incurred losses in fiscal years prior to fiscal 2023 and, as a result, we had an accumulated deficit of $1.2\u00a0billion as of July\u00a031, 2023. We anticipate that our operating expenses will continue to increase in the foreseeable future as we continue to grow our business. Our growth efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenues sufficiently, or at all, to offset increasing expenses. Revenue growth may slow or revenue may decline for a number of possible reasons, including slowing demand for our products or subscriptions, increasing competition, a decrease in the growth of, or a demand shift in, our overall market, or a failure to capitalize on growth opportunities. We have also entered into a substantial amount of capital commitments for operating lease obligations and other purchase commitments. Any failure to increase our revenue as we grow our business could prevent us from maintaining profitability or maintaining or increasing cash flow on a consistent basis, or satisfying our capital commitments. If we are unable to navigate these challenges as we encounter them, our business, financial condition, and operating results may suffer.\nOur operating results may vary significantly from period to period, which makes our results difficult to predict and could cause our results to fall short of expectations, and such results may not be indicative of future performance.\nOur operating results have fluctuated in the past, and will likely continue to fluctuate in the future, as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including those factors described in this Risk Factor section. For example, we have historically received a substantial portion of sales orders and generated a substantial portion of revenue during the last few weeks of each fiscal quarter. If expected revenue at the end of any fiscal quarter is delayed for any reason, including the failure of anticipated purchase orders to materialize (particularly for large enterprise end-customers with lengthy sales cycles), our logistics partners\u2019 inability to ship products prior to fiscal quarter-end to fulfill purchase orders received near the end of a fiscal quarter, our failure to manage inventory to meet demand, any failure of our systems related to order review and processing, or any delays in shipments based on trade compliance requirements (including new compliance requirements imposed by new or renegotiated trade agreements), our revenue could fall below our expectations and the estimates of analysts for that quarter. Due to these fluctuations, comparing our revenue, margins, or other operating results on a period-to-period basis may not be meaningful, and our past results should not be relied on as an indication of our future performance. \nThis variability and unpredictability could also result in our failure to meet our revenue, margin, or other operating result expectations contained in any forward-looking statements (including financial or business expectations we have provided) or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these, or any other, reasons, the market price of our common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.\nSeasonality may cause fluctuations in our revenue.\nWe believe there are significant seasonal factors that may cause our second and fourth fiscal quarters to record greater revenue sequentially than our first and third fiscal quarters. We believe that this seasonality results from a number of factors, including:\n\u2022\nend-customers with a December 31 fiscal year-end choosing to spend remaining unused portions of their discretionary budgets before their fiscal year-end, which potentially results in a positive impact on our revenue in our second fiscal quarter;\n\u2022\nour sales compensation plans, which are typically structured around annual quotas and commission rate accelerators, which potentially results in a positive impact on our revenue in our fourth fiscal quarter; and\n\u2022\nthe timing of end-customer budget planning at the beginning of the calendar year, which can result in a delay in spending at the beginning of the calendar year, potentially resulting in a negative impact on our revenue in our third fiscal quarter.\nAs we continue to grow, seasonal or cyclical variations in our operations may become more pronounced, and our business, operating results, and financial position may be adversely affected.\nRISKS RELATED TO OUR PRODUCTS AND TECHNOLOGY\nIf we are unable to sell new and additional product, subscription, and support offerings to our end-customers, especially to large enterprise customers, our future revenue and operating results will be harmed.\nOur future success depends, in part, on our ability to expand the deployment of our portfolio with existing end-customers, especially large enterprise customers, and create demand for our new offerings, The rate at which our end-customers purchase additional products, subscriptions, and support depends on a number of factors, including the perceived need for additional security products, including subscription and support offerings, as well as general economic conditions. If our efforts to sell additional products and subscriptions to our end-customers are not successful, our revenues may grow more slowly than expected or\u00a0decline.\n- 17 \n-\nTable of Contents\nSales to large enterprise end-customers, which is part of our growth strategy, involve risks that may not be present, or that are present to a lesser extent, with sales to smaller entities, such as (a) longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end-customer that elects not to purchase our products, subscriptions, and support, and (b) increased purchasing power and leverage held by large end-customers in negotiating contractual arrangements. Deployments for large enterprise end-customers are also more complex, require greater product functionality, scalability, and a broader range of services, and are more time-consuming. All of\u00a0these factors add further risk to business conducted with these end-customers. Failure to realize sales from large enterprise end-customers could materially and adversely affect our business, operating results, and financial\u00a0condition.\nWe rely on revenue from subscription and support offerings, and because we recognize revenue from subscription and support over the term of the relevant service period, downturns or upturns in sales or renewals of these subscription and support offerings are not immediately reflected in full in our operating results.\nSubscription and support revenue accounts for a significant portion of our revenue, comprising 77.1% of total revenue in fiscal 2023, 75.2% of total revenue in fiscal 2022, and 73.7% of total revenue in fiscal 2021. Sales and renewals of subscription and support contracts may decline and fluctuate as a result of a number of factors, including end-customers\u2019 level of satisfaction with our products and subscriptions, the frequency and severity of subscription outages, our product uptime or latency, the prices of our products and subscriptions, and reductions in our end-customers\u2019 spending levels. Existing end-customers have no contractual obligation to, and may not, renew their subscription and support contracts after the completion of their initial contract period. Additionally, our end-customers may renew their subscription and support agreements for shorter contract lengths or on other terms that are less economically beneficial to us. If our sales of new or renewal subscription and support contracts decline, our total revenue and revenue growth rate may decline, and our business will suffer. In addition, because we recognize subscription and support revenue over the term of the relevant service period, which is typically one to five years, a decline in subscription or support contracts in any one fiscal quarter will not be fully or immediately reflected in revenue in that fiscal quarter but will negatively affect our revenue in future fiscal quarters.\nThe sales prices of our products, subscriptions, and support offerings may decrease, which may reduce our revenue and gross profits and adversely impact our financial results.\nThe sales prices for our products, subscriptions, and support offerings may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of products, subscriptions, and support offerings, anticipation of the introduction of new products, subscriptions, or support offerings, or promotional programs or pricing pressures. Furthermore, we anticipate that the sales prices and gross profits for our products could decrease over product life cycles. Declining sales prices could adversely affect our revenue, gross profits, and profitability.\nWe rely on our channel partners to sell substantially all of our products, including subscriptions and support, and if these channel partners fail to perform, our ability to sell and distribute our products and subscriptions will be limited and our operating results will be harmed.\nSubstantially all of our revenue is generated by sales through our channel partners, including distributors and resellers. For fiscal 2023, three distributors individually represented 10% or more of our total revenue and in the aggregate represented 49.7% of our total revenue. As of July\u00a031, 2023, two distributors individually represented 10% or more of our gross accounts receivable and in the aggregate represented 37.6% of our gross accounts receivable.\nWe provide our channel partners with specific training and programs to assist them in selling our products, including subscriptions and support offerings, but there can be no assurance that these steps will be utilized or effective. In addition, our channel partners may be unsuccessful in marketing, selling, and supporting our products and subscriptions. We may not be able to incentivize these channel partners to sell our products and subscriptions to end-customers and, in particular, to large enterprises. These channel partners may also have incentives to promote our competitors\u2019 products and may devote more resources to the marketing, sales, and support of competitive products. Our agreements with our channel partners may generally be terminated for any reason by either party with advance notice prior to each annual renewal date. We cannot be certain that we will retain these channel partners or that we will be able to secure additional or replacement channel partners. In addition, any new channel partner requires extensive training and may take several months or more to achieve productivity. Our channel partner sales structure could subject us to lawsuits, potential liability, and reputational harm if, for example, any of our channel partners misrepresent the functionality of our products or subscriptions to end-customers or violate laws or our corporate policies. If we fail to effectively manage our sales channels or channel partners, our ability to sell our products and subscriptions and operating results will be harmed.\n- 18 \n-\nTable of Contents\nWe are exposed to the credit and liquidity risk of our customers, and to credit exposure in weakened markets, which could result in material losses.\nMost of our sales are made on an open credit basis. Beyond our open credit arrangements, we have also experienced demands for customer financing and deferred payments due to, among other things, macro-economic conditions. To respond to this demand, our customer financing activities have increased and will likely continue to increase in the future. Increases in deferred payments result in payments being made over time, negatively impacting our short-term cash flows, and subject us to risk of non-payment by our customers, including as a result of insolvency. We monitor customer payment capability in granting such financing arrangements, seek to limit the amounts to what we believe customers can pay and maintain reserves we believe are adequate to cover exposure for doubtful accounts to mitigate credit risks of these customers. However, there can be no assurance that these programs will be effective in reducing our credit risks. To the degree that turmoil in the credit markets makes it more difficult for some customers to obtain financing, those customers\u2019 ability to pay could be adversely impacted, which in turn could have a material adverse impact on our business, operating results, and financial condition.\nOur exposure to the credit risks relating to the financing activities described above may increase if our customers are adversely affected by a global economic downturn or periods of economic uncertainty. If we are unable to adequately control these risks, our business, operating results, and financial condition could be harmed. In addition, in the past, we have experienced non-material losses due to bankruptcies among customers. If these losses increase due to global economic conditions, they could harm our business and financial condition.\nA portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.\nSales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. The substantial majority of our sales to date to government entities have been made indirectly through our channel partners. Government certification requirements for products and subscriptions like ours may change, thereby restricting our ability to sell into the federal government sector until we have attained the revised certification. If our products and subscriptions are late in achieving or fail to achieve compliance with these certifications and standards, or our competitors achieve compliance with these certifications and standards, we may be disqualified from selling our products, subscriptions, and support offerings to such governmental entity, or be at a competitive disadvantage, which would harm our business, operating results, and financial condition. Government demand and payment for our products, subscriptions, and support offerings may be impacted by government shutdowns, public sector budgetary cycles, contracting requirements, and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products, subscriptions, and support offerings. Government entities may have statutory, contractual, or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact our future operating results. Governments routinely investigate and audit government contractors\u2019 administrative processes, and any unfavorable audit could result in the government refusing to continue buying our products, subscriptions, and support offerings, a reduction of revenue, or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely impact our operating results in a material way. Additionally, the U.S. government may require certain of the products that it purchases to be manufactured in the United States and other relatively high-cost manufacturing locations, and we may not manufacture all products in locations that meet such requirements, affecting our ability to sell these products, subscriptions, and support offerings to the U.S. government.\nWe face intense competition in our market and we may lack sufficient financial or other resources to maintain or improve our competitive position.\nThe industry for enterprise security products is intensely competitive, and we expect competition to increase in the future from established competitors and new market entrants. Our main competitors fall into four categories:\n\u2022\nlarge companies that incorporate security features in their products, such as Cisco, Microsoft, or those that have acquired, or may acquire, security vendors and have the technical and financial resources to bring competitive solutions to the market;\n\u2022\nindependent security vendors, such as Check Point, Fortinet, Crowdstrike, and Zscaler, that offer a mix of security products;\n\u2022\nstartups and point-product vendors that offer independent or emerging solutions across various areas of security; and\n\u2022\npublic cloud vendors and startups that offer solutions for cloud security (private, public, and hybrid cloud).\n- 19 \n-\nTable of Contents\nMany of our competitors have greater financial, technical, marketing, sales, and other resources, greater name recognition, longer operating histories, and a larger base of customers than we do. They may be able to devote greater resources to the promotion and sale of products and services than we can, and they may offer lower pricing than we do. Further, they may have greater resources for research and development of new technologies, the provision of customer support, and the pursuit of acquisitions. They may also have larger and more mature intellectual property portfolios, and broader and more diverse product and service offerings, which allow them to leverage their relationships based on other products or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our products and subscriptions, including incorporating cybersecurity features into their existing products or services and product bundling, selling at zero or negative margins, and offering concessions or a closed technology offering. Some competitors may have broader distribution and established relationships with distribution partners and end-customers. Other competitors specialize in providing protection from a single type of security threat, which may allow them to deliver these specialized security products to the market more quickly than we can.\nWe also face competition from companies that have entrenched legacy offerings at end-user customers. End-user customers have also often invested substantial personnel and financial resources to design and operate their networks and have established deep relationships with other providers of networking and security products. As a result, these organizations may prefer to purchase from their existing suppliers rather than add or switch to a new supplier such as us. In addition, as our customers refresh the security products bought in prior years, they may seek to consolidate vendors, which may result in current customers choosing to purchase products from our competitors. Due to budget constraints or economic downturns, organizations may add solutions to their existing network security infrastructure rather than replacing it with our products and subscriptions.\nConditions in our market could change rapidly and significantly as a result of technological advancements, partnering or acquisitions by our competitors, or continuing market consolidation. Our competitors and potential competitors may be able to develop new or disruptive technologies, products, or services, and leverage new business models that are equal or superior to ours, achieve greater market acceptance of their products and services, disrupt our markets, and increase sales by utilizing different distribution channels than we do. In addition, new and enhanced technologies, including AI and machine learning, continue to increase our competition. To compete successfully, we must accurately anticipate technology developments and deliver innovative, relevant, and useful products, services, and technologies in a timely manner. Some of our competitors have made or could make acquisitions of businesses that may allow them to offer more directly competitive and comprehensive solutions than they had previously offered and adapt more quickly to new technologies and end-customer needs. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources. \nThese competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins, and loss of market share. If we are unable to compete successfully, or if competing successfully requires us to take aggressive pricing or other actions, our business, financial condition, and results of operations would be adversely affected.\nWe may acquire other businesses, which could subject us to adverse claims or liabilities, require significant management attention, disrupt our business, adversely affect our operating results, may not result in the expected benefits of such acquisitions, and may dilute stockholder value.\nAs part of our business strategy, we acquire and make investments in complementary companies, products, or technologies. The identification of suitable acquisition candidates is difficult, and we may not be able to complete such acquisitions on favorable terms, if at all. In addition, we may be subject to claims or liabilities assumed from an acquired company, product, or technology; acquisitions we complete could be viewed negatively by our end-customers, investors, and securities analysts; and we may incur costs and expenses necessary to address an acquired company\u2019s failure to comply with laws and governmental rules and regulations. Additionally, we may be subject to litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders, or other third parties, which may differ from or be more significant than the risks our business faces. \nIf we are unsuccessful at integrating past or future acquisitions in a timely manner, or the technologies and operations associated with such acquisitions, into our company, our revenue and operating results could be adversely affected. Any integration process may require significant time and resources, which may disrupt our ongoing business and divert management\u2019s attention, and we may not be able to manage the integration process successfully or in a timely manner. We may have difficulty retaining key personnel of the acquired business. We may not successfully evaluate or utilize the acquired technology or personnel, realize anticipated synergies from the acquisition, or accurately forecast the financial impact of an acquisition transaction and integration of such acquisition, including accounting charges and any potential impairment of goodwill and intangible assets recognized in connection with such acquisitions. In addition, any acquisitions may be viewed negatively by our customers, financial markets, or investors and may not ultimately strengthen our competitive position or achieve our goals and business strategy.\nWe may have to pay cash, incur debt, or issue equity or equity-linked securities to pay for any future acquisitions, each of which could adversely affect our financial condition or the market price of our common stock. Furthermore, the sale of equity or issuance of equity-linked debt to finance any future acquisitions could result in dilution to our stockholders. The occurrence of any of these risks could harm our business, operating results, and financial condition.\n- 20 \n-\nTable of Contents\nIf we do not accurately predict, prepare for, and respond promptly to rapidly evolving technological and market developments and successfully manage product and subscription introductions and transitions to meet changing end-customer needs in the enterprise security industry, our competitive position and prospects will be harmed.\nThe enterprise security industry has grown quickly and continues to evolve rapidly. Moreover, many of our end-customers operate in markets characterized by rapidly changing technologies and business plans, which require them to add numerous network access points and adapt increasingly complex enterprise networks, incorporating a variety of hardware, software applications, operating systems, and networking protocols. If we fail to effectively anticipate, identify, and respond to rapidly evolving technological and market developments in a timely manner, our business will be harmed. \nIn order to anticipate and respond effectively to rapid technological changes and market developments, as well as evolving security threats, we must invest effectively in research and development to increase the reliability, availability, and scalability of our existing products and subscriptions and introduce new products and subscriptions. Our investments in research and development, including investments in AI, may not result in design or performance improvements, marketable products, subscriptions, or features, or may not achieve the cost savings or additional revenue that we expect. In addition, new and evolving products and services, including those that use AI, require significant investment and raise ethical, technological, legal, regulatory, and other challenges, which may negatively affect our brands and demand for our products and services. Because all of these investment areas are inherently risky, no assurance can be given that such strategies and offerings will be successful or will not harm our reputation, financial condition, and operating results.\nIn addition, we must continually change our products and expand our business strategy in response to changes in network infrastructure requirements, including the expanding use of cloud computing. For example, organizations are moving portions of their data to be managed by third parties, primarily infrastructure, platform, and application service providers, and may rely on such providers\u2019 internal security measures. While we have historically been successful in developing, acquiring, and marketing new products and product enhancements that respond to technological change and evolving industry standards, we may not be able to continue to do so, and there can be no assurance that our new or future offerings will be successful or will achieve widespread market acceptance. If we fail to accurately predict and address end-customers\u2019 changing needs and emerging technological trends in the enterprise security industry, including in the areas of AI, mobility, virtualization, cloud computing, and software-defined networks, our business could be harmed. \nThe technology in our portfolio is especially complex because it needs to effectively identify and respond to new and increasingly sophisticated methods of attack, while minimizing the impact on network performance. Additionally, some of our new features and related enhancements may require us to develop new hardware architectures that involve complex, expensive, and time-consuming research and development processes. The development of our portfolio is difficult and the timetable for commercial release and availability is uncertain as there can be long time periods between releases and availability of new features. If we experience unanticipated delays in the availability of new products, features, and subscriptions, and fail to meet customer expectations for such availability, our competitive position and business prospects will be harmed. \nThe success of new features depends on several factors, including appropriate new product definition, differentiation of new products, subscriptions, and features from those of our competitors, and market acceptance of these products, services, and features. Moreover, successful new product introduction and transition depends on a number of factors, including our ability to manage the risks associated with new product production ramp-up issues, the availability of application software for new products, the effective management of purchase commitments and inventory, the availability of products in appropriate quantities and costs to meet anticipated demand, and the risk that new products may have quality or other defects or deficiencies, especially in the early stages of introduction. There can be no assurance that we will successfully identify opportunities for new products and subscriptions, develop and bring new products and subscriptions to market in a timely manner, achieve market acceptance of our products and subscriptions, or that products, subscriptions, and technologies developed by others will not render our products, subscriptions, and technologies obsolete or noncompetitive.\nIssues in the development and deployment of AI may result in reputational harm and legal liability and could adversely affect our results of operations. \nWe have incorporated, and are continuing to develop and deploy, AI into many of our products and solutions, including services that support our products and solutions. AI presents challenges and risks that could affect our products and solutions, and therefore our business. For example, AI algorithms may have flaws, and datasets used to train models may be insufficient or contain biased information. These potential issues could subject us to regulatory risk, legal liability, including under new proposed legislation regulating AI in jurisdictions such as the EU and regulations being considered in other jurisdictions, and brand or reputational harm.\nThe rapid evolution of AI, including potential government regulation of AI, requires us to invest significant resources to develop, test, and maintain AI in our products and services in a manner that meets evolving requirements and expectations. The rules and regulations adopted by policymakers over time may require us to make changes to our business practices. Developing, testing, and deploying AI systems may also increase the cost profile of our offerings due to the nature of the computing costs involved in such systems.\n- 21 \n-\nTable of Contents\nThe intellectual property ownership and license rights surrounding AI technologies, as well as data protection laws related to the use and development of AI, are currently not fully addressed by courts or regulators. The use or adoption of AI technologies in our products may result in exposure to claims by third parties of copyright infringement or other intellectual property misappropriation, which may require us to pay compensation or license fees to third parties. The evolving legal, regulatory, and compliance framework for AI technologies may also impact our ability to protect our own data and intellectual property against infringing use.\nA network or data security incident may allow unauthorized access to our network or data, harm our reputation, create additional liability, and adversely impact our financial results.\nIncreasingly, companies are subject to a wide variety of attacks on their networks on an ongoing basis. In addition to traditional computer \u201chackers,\u201d malicious code (such as viruses and worms), phishing attempts, employee theft or misuse, and denial of service attacks, sophisticated nation-state and nation-state supported actors engage in intrusions and attacks (including advanced persistent threat intrusions and supply chain attacks), and add to the risks to our internal networks, cloud-deployed enterprise and customer-facing environments and the information they store and process. Incidences of cyberattacks and other cybersecurity breaches and incidents have increased and are likely to continue to increase. We and our third-party service providers face security threats and attacks from a variety of sources. Despite our efforts and processes to prevent breaches of our internal networks, systems, and websites, our data, corporate systems, and security measures, as well as those of our third-party service providers, are still vulnerable to computer viruses, break-ins, phishing attacks, ransomware attacks, or other types of attacks from outside parties, or breaches due to employee error, malfeasance, or some combination of these. We cannot guarantee that the measures we have taken to protect our networks, systems, and websites will provide adequate security. Furthermore, as a well-known provider of security solutions, we may be a more attractive target for such attacks. The conflict in Ukraine and associated activities in Ukraine and Russia may increase the risk of cyberattacks on various types of infrastructure and operations, and the United States government has warned companies to be prepared for a significant increase in Russian cyberattacks in response to the Sanctions on Russia. \nA security breach or incident, or an attack against our service availability suffered by us, or our third-party service providers, could impact our networks or networks secured by our products and subscriptions, creating system disruptions or slowdowns and exploiting security vulnerabilities of our products. In addition, the information stored or otherwise processed on our networks, or those of our third-party service providers, could be accessed, publicly disclosed, altered, lost, stolen, rendered unavailable, or otherwise used or processed without authorization, which could subject us to liability and cause us financial harm. Any actual or perceived breach of security in our systems or networks, or any other actual or perceived data security incident we or our third-party service providers suffer, could result in significant damage to our reputation, negative publicity, loss of channel partners, end-customers, and sales, loss of competitive advantages over our competitors, increased costs to remedy any problems and otherwise respond to any incident, regulatory investigations and enforcement actions, demands, costly litigation, and other liability. In addition, we may incur significant costs and operational consequences of investigating, remediating, eliminating, and putting in place additional tools, devices, and other measures designed to prevent actual or perceived security breaches and other security incidents, as well as the costs to comply with any notification obligations resulting from any security incidents. Any of these negative outcomes could adversely impact the market perception of our products and subscriptions and end-customer and investor confidence in our company and could seriously harm our business or operating results. \nDefects, errors, or vulnerabilities in our products, subscriptions, or support offerings, the failure of our products or subscriptions to block a virus or prevent a security breach or incident, misuse of our products, or risks of product liability claims could harm our reputation and adversely impact our operating results.\nBecause our products and subscriptions are complex, they have contained and may contain design or manufacturing defects or errors that are not detected until after their commercial release and deployment by our end-customers. For example, from time to time, certain of our end-customers have reported defects in our products related to performance, scalability, and compatibility. Additionally, defects may cause our products or subscriptions to be vulnerable to security attacks, cause them to fail to help secure networks, or temporarily interrupt end-customers\u2019 networking traffic. Because the techniques used by computer hackers to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques and provide a solution in time to protect our end-customers\u2019 networks. In addition, due to the Russian invasion of Ukraine, there could be a significant increase in Russian cyberattacks against our customers, resulting in an increased risk of a security breach of our end-customers\u2019 systems. Furthermore, defects or errors in our subscription updates or our products could result in a failure to effectively update end-customers\u2019 hardware and cloud-based products. Our data centers and networks may experience technical failures and downtime or may fail to meet the increased requirements of a growing installed end-customer base, any of which could temporarily or permanently expose our end-customers\u2019 networks, leaving their networks unprotected against the latest security threats. Moreover, our products must interoperate with our end-customers\u2019 existing infrastructure, which often have varied specifications, utilize multiple protocol standards, deploy products from multiple vendors, and contain multiple generations of products that have been added over time. As a result, when problems occur in a network, it may be difficult to identify the sources of these problems. \n- 22 \n-\nTable of Contents\nThe occurrence of any such problem in our products and subscriptions, whether real or perceived, could result in:\n\u2022\nexpenditure of significant financial and product development resources in efforts to analyze, correct, eliminate, or work-around errors or defects or to address and eliminate vulnerabilities;\n\u2022\nloss of existing or potential end-customers or channel partners;\n\u2022\ndelayed or lost revenue;\n\u2022\ndelay or failure to attain market acceptance;\n\u2022\nan increase in warranty claims compared with our historical experience, or an increased cost of servicing warranty claims, either of which would adversely affect our gross margins; and\n\u2022\nlitigation, regulatory inquiries, investigations, or other proceedings, each of which may be costly and harm our\u00a0reputation.\nFurther, our products and subscriptions may be misused by end-customers or third parties that obtain access to our products and subscriptions. For example, our products and subscriptions could be used to censor private access to certain information on the Internet. Such use of our products and subscriptions for censorship could result in negative press coverage and negatively affect our reputation.\nThe limitation of liability provisions in our standard terms and conditions of sale may not fully or effectively protect us from claims as a result of federal, state, or local laws or ordinances, or unfavorable judicial decisions in the United States or other countries. The sale and support of our products and subscriptions also entails the risk of product liability claims. Although we may be indemnified by our third-party manufacturers for product liability claims arising out of manufacturing defects, because we control the design of our products and subscriptions, we may not be indemnified for product liability claims arising out of design defects. While we maintain insurance coverage for certain types of losses, our insurance coverage may not adequately cover any claim asserted against us, if at all. In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation, divert management\u2019s time and other resources, and harm our reputation.\nIn addition, our classifications of application type, virus, spyware, vulnerability exploits, data, or URL categories may falsely detect, report, and act on applications, content, or threats that do not actually exist. This risk is heightened by the inclusion of a \u201cheuristics\u201d feature in our products and subscriptions, which attempts to identify applications and other threats not based on any known signatures but based on characteristics or anomalies which indicate that a particular item may be a threat. These false positives may impair the perceived reliability of our products and subscriptions and may therefore adversely impact market acceptance of our products and subscriptions and could result in damage to our reputation, negative publicity, loss of channel partners, end-customers and sales, increased costs to remedy any problem, and costly litigation.\nOur ability to sell our products and subscriptions is dependent on the quality of our technical support services and those of our channel partners, and the failure to offer high-quality technical support services could have a material adverse effect on our end-customers\u2019 satisfaction with our products and subscriptions, our sales, and our operating\u00a0results.\nAfter our products and subscriptions are deployed within our end-customers\u2019 networks, our end-customers depend on our technical support services, as well as the support of our channel partners, to resolve any issues relating to our products. Many larger enterprise, service provider, and government entity end-customers have more complex networks and require higher levels of support than smaller end-customers. If our channel partners do not effectively provide support to the satisfaction of our end-customers, we may be required to provide direct support to such end-customers, which would require us to hire additional personnel and to invest in additional resources. If we are not able to hire such resources fast enough to keep up with unexpected demand, support to our end-customers will be negatively impacted, and our end-customers\u2019 satisfaction with our products and subscriptions will be adversely affected. Additionally, to the extent that we may need to rely on our sales engineers to provide post-sales support while we are ramping up our support resources, our sales productivity will be negatively impacted, which would harm our revenues. Accordingly, our failure, or our channel partners\u2019 failure, to provide and maintain high-quality support services could have a material adverse effect on our business, financial condition, and operating results.\nRISKS RELATED TO INTELLECTUAL PROPERTY AND TECHNOLOGY LICENSING\nClaims by others that we infringe their intellectual property rights could harm our business.\nCompanies in the enterprise security industry own large numbers of patents, copyrights, trademarks, domain names, and trade secrets and frequently enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property rights. In addition, non-practicing entities also frequently bring claims of infringement of intellectual property rights. Third parties are asserting, have asserted, and may in the future assert claims of infringement of intellectual property rights against us. \n- 23 \n-\nTable of Contents\nThird parties may also assert such claims against our end-customers or channel partners, whom our standard license and other agreements obligate us to indemnify against claims that our products and subscriptions infringe the intellectual property rights of third parties. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited, that they have divulged proprietary or other confidential information, or that their former employers own their inventions or other work product. Furthermore, we may be unaware of the intellectual property rights of others that may cover some or all of our technology, products, subscriptions, and services. As we expand our footprint, both in our platforms, products, subscriptions, and services and geographically, more overlaps occur and we may face more infringement claims both in the United States and abroad. \nWhile we have been increasing the size of our patent portfolio, our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. In addition, litigation has involved and will likely continue to involve patent-holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents may therefore provide little or no deterrence or protection. In addition, we have not registered our trademarks in all of our geographic markets and failure to secure those registrations could adversely affect our ability to enforce and defend our trademark rights. Any claim of infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim, could distract our management from our business, and could require us to cease use of such intellectual property. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. A successful claimant could secure a judgment, or we may agree to a settlement that prevents us from distributing certain products or performing certain services or that requires us to pay substantial damages, royalties, or other fees. Any of these events could seriously harm our business, financial condition, and operating results.\nOur proprietary rights may be difficult to enforce or protect, which could enable others to copy or use aspects of our products or subscriptions without compensating us.\nWe rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants, and third parties with whom we have relationships, as well as trademark, copyright, patent, and trade secret protection laws, to protect our proprietary rights. We have filed various applications for certain aspects of our intellectual property. Valid patents may not issue from our pending applications, and the claims eventually allowed on any patents may not be sufficiently broad to protect our technology or products and subscriptions. We cannot be certain that we were the first to make the inventions claimed in our pending patent applications or that we were the first to file for patent protection, which could prevent our patent applications from issuing as patents or invalidate our patents following issuance. Additionally, the process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Any issued patents may be challenged, invalidated or circumvented, and any rights granted under these patents may not actually provide adequate defensive protection or competitive advantages to us. Additional uncertainty may result from changes to patent-related laws and court rulings in the United States and other jurisdictions. As a result, we may not be able to obtain adequate patent protection or effectively enforce any issued patents.\nDespite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or subscriptions or obtain and use information that we regard as proprietary. We generally enter into confidentiality or license agreements with our employees, consultants, vendors, and end-customers, and generally limit access to and distribution of our proprietary information. However, we cannot be certain that we have entered into such agreements with all parties who may have or have had access to our confidential information or that the agreements we have entered into will not be breached. We cannot guarantee that any of the measures we have taken will prevent misappropriation of our technology. Because we may be an attractive target for computer hackers, we may have a greater risk of unauthorized access to, and misappropriation of, our proprietary information. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States. From time to time, we may need to take legal action to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could negatively affect our business, operating results, and financial condition. Attempts to enforce our rights against third parties could also provoke these third parties to assert their own intellectual property or other rights against us or result in a holding that invalidates or narrows the scope of our rights, in whole or in part. If we are unable to protect our proprietary rights (including aspects of our software and products protected other than by patent rights), we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time, and effort required to create the innovative products that have enabled us to be successful to date. Any of these events would have a material adverse effect on our business, financial condition, and operating results.\n- 24 \n-\nTable of Contents\nOur use of open source software in our products and subscriptions could negatively affect our ability to sell our products and subscriptions and subject us to possible litigation.\nOur products and subscriptions contain software modules licensed to us by third-party authors under \u201copen source\u201d licenses. Some open source licenses contain requirements that we make available applicable source code for modifications or derivative works we create based upon the type of open source software we use. If we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar products or subscriptions with lower development effort and time and ultimately could result in a loss of product sales for us.\nAlthough we monitor our use of open source software to avoid subjecting our products and subscriptions to conditions we do not intend, the terms of many open source licenses have not been interpreted by United States courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products and subscriptions. From time to time, there have been claims against companies that distribute or use open source software in their products and subscriptions, asserting that open source software infringes the claimants\u2019 intellectual property rights. We could be subject to suits by parties claiming infringement of intellectual property rights in what we believe to be licensed open source software. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third parties to continue offering our products and subscriptions on terms that are not economically feasible, to reengineer our products and subscriptions, to discontinue the sale of our products and subscriptions if reengineering could not be accomplished on a timely basis, or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, operating results, and financial condition.\nIn addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or assurance of title or controls on origin of the software. In addition, many of the risks associated with usage of open source software, such as the lack of warranties or assurances of title, cannot be eliminated, and could, if not properly addressed, negatively affect our business. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source software, but we cannot be sure that our processes for controlling our use of open source software in our products and subscriptions will be effective. \nWe license technology from third parties, and our inability to maintain those licenses could harm our business.\nWe incorporate technology that we license from third parties, including software, into our products and subscriptions. We cannot be certain that our licensors are not infringing the intellectual property rights of third parties or that our licensors have sufficient rights to the licensed intellectual property in all jurisdictions in which we may sell our products and subscriptions. In addition, some licenses may be non-exclusive, and therefore our competitors may have access to the same technology licensed to us. Some of our agreements with our licensors may be terminated for convenience by them. We may also be subject to additional fees or be required to obtain new licenses if any of our licensors allege that we have not properly paid for such licenses or that we have improperly used the technologies under such licenses, and such licenses may not be available on terms acceptable to us or at all. If we are unable to continue to license any of this technology because of intellectual property infringement claims brought by third parties against our licensors or against us, or claims against us by our licensors, or if we are unable to continue our license agreements or enter into new licenses on commercially reasonable terms, our ability to develop and sell products and subscriptions containing such technology would be severely limited and our business could be harmed. Additionally, if we are unable to license necessary technology from third parties, we may be forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner or at all, and we may be required to use alternative technology of lower quality or performance standards. This would limit and delay our ability to offer new or competitive products and subscriptions and increase our costs of production. As a result, our margins, market share, and operating results could be significantly harmed.\nRISKS RELATED TO OPERATIONS\nBecause we depend on manufacturing partners to build and ship our hardware products, we are susceptible to manufacturing and logistics delays and pricing fluctuations that could prevent us from shipping customer orders on time, if at all, or on a cost-effective basis, which may result in the loss of sales and end-customers.\nWe depend on manufacturing partners, primarily our EMS provider, Flex, to manufacture our hardware product lines. Our reliance on these manufacturing partners reduces our control over the manufacturing process and exposes us to risks, including reduced control over quality assurance, product costs, product supply, timing, and transportation risk. Our hardware products are manufactured by our manufacturing partners at facilities located primarily in the United States. Some of the components in our products are sourced either through Flex or directly by us from component suppliers outside the United States. The portion of our hardware products that are sourced outside the United States may subject us to geopolitical risks, additional logistical risks or risks associated with complying with local rules and regulations in foreign countries. \n- 25 \n-\nTable of Contents\nSignificant changes to existing international trade agreements could lead to sourcing or logistics disruption resulting from import delays or the imposition of increased tariffs on our sourcing partners. For example, the United States and Chinese governments have each enacted, and discussed additional, import tariffs. Some components that we import for final manufacturing in the United States have been impacted by these tariffs. As a result, our costs have increased and we have raised, and may be required to further raise, prices on our hardware products, all of which could severely impair our ability to fulfill orders. \nOur manufacturing partners typically fulfill our supply requirements on the basis of individual purchase orders. We do not have long-term contracts with these manufacturers that guarantee capacity, the continuation of particular pricing terms, or the extension of credit limits. Accordingly, they are not obligated to continue to fulfill our supply requirements and the prices we pay for manufacturing services could be increased on short notice. Our contract with Flex permits them to terminate the agreement for their convenience, subject to prior notice requirements. If we are required to change manufacturing partners, our ability to meet our scheduled product deliveries to our end-customers could be adversely affected, which could cause the loss of sales to existing or potential end-customers, delayed revenue or an increase in our costs which could adversely affect our gross margins. Any production interruptions for any reason, such as a natural disaster, epidemic or pandemic, capacity shortages, or quality problems at one of our manufacturing partners would negatively affect sales of our product lines manufactured by that manufacturing partner and adversely affect our business and operating results.\nManaging the supply of our hardware products and product components is complex. Insufficient supply and inventory would result in lost sales opportunities or delayed revenue, while excess inventory would harm our gross\u00a0margins.\nOur manufacturing partners procure components and build our hardware products based on our forecasts, and we generally do not hold inventory for a prolonged period of time. These forecasts are based on estimates of future demand for our products, which are in turn based on historical trends and analyses from our sales and product management organizations, adjusted for overall market conditions. In order to reduce manufacturing lead times and plan for adequate component supply, from time to time we may issue forecasts for components and products that are non-cancelable and non-returnable.\nOur inventory management systems and related supply chain visibility tools may be inadequate to enable us to forecast accurately and effectively manage supply of our hardware products and product components. If we ultimately determine that we have excess supply, we may have to reduce our prices and write-down inventory, which in turn could result in lower gross margins. If our actual component usage and product demand are lower than the forecast we provide to our manufacturing partners, we accrue for losses on manufacturing commitments in excess of forecasted demand. Alternatively, insufficient supply levels may lead to shortages that result in delayed hardware product revenue or loss of sales opportunities altogether as potential end-customers turn to competitors\u2019 products that are readily available. If we are unable to effectively manage our supply and inventory, our operating results could be adversely affected.\nBecause some of the key components in our hardware products come from limited sources of supply, we are susceptible to supply shortages or supply changes, which, in certain cases, have disrupted or delayed our scheduled product deliveries to our end-customers, increased our costs and may result in the loss of sales and end-customers.\nOur hardware products rely on key components, including integrated circuit components, which our manufacturing partners purchase on our behalf from a limited number of component suppliers, including sole source providers. The manufacturing operations of some of our component suppliers are geographically concentrated in Asia and elsewhere, which makes our supply chain vulnerable to regional disruptions, such as natural disasters, fire, political instability, civil unrest, power outages, or health risks. In addition, we continue to experience supply chain disruption and have incurred increased costs resulting from inflationary pressures. We are also monitoring the tensions between China and Taiwan, and between the U.S. and China, which could have an adverse impact on our business or results of operations in future\u00a0periods.\nFurther, we do not have volume purchase contracts with any of our component suppliers, and they could cease selling to us at any time. If we are unable to obtain a sufficient quantity of these components in a timely manner for any reason, sales of our hardware products could be delayed or halted, or we could be forced to expedite shipment of such components or our hardware products at dramatically increased costs. Our component suppliers also change their selling prices frequently in response to market trends, including industry-wide increases in demand. Because we do not have, for the most part, volume purchase contracts with our component suppliers, we are susceptible to price fluctuations related to raw materials and components and may not be able to adjust our prices accordingly. Additionally, poor quality in any of the sole-sourced components in our products could result in lost sales or sales\u00a0opportunities.\nIf we are unable to obtain a sufficient volume of the necessary components for our hardware products on commercially reasonable terms or the quality of the components do not meet our requirements, we could also be forced to redesign our products and qualify new components from alternate component suppliers. The resulting stoppage or delay in selling our hardware products and the expense of redesigning our hardware products would result in lost sales opportunities and damage to customer relationships, which would adversely affect our business and operating results.\n- 26 \n-\nTable of Contents\nIf we are unable to attract, retain, and motivate our key technical, sales, and management personnel, our business could suffer.\nOur future success depends, in part, on our ability to continue to attract, retain, and motivate the members of our management team and other key employees. For example, we are substantially dependent on the continued service of our engineering personnel because of the complexity of our offerings. Competition for highly skilled personnel, particularly in engineering, including in the areas of AI and machine learning, is often intense, especially in the San Francisco Bay Area, where we have a substantial presence and need for such personnel. In addition, the industry in which we operate generally experiences high employee attrition. Our future performance depends on the continuing services and contributions of our senior management to execute on our business plan and to identify and pursue new opportunities and product innovations. If we are unable to hire, integrate, train, or retain the qualified and highly skilled personnel required to fulfill our current or future needs, our business, financial condition, and operating results could be harmed.\nFurther, we believe that a critical contributor to our success and our ability to retain highly skilled personnel has been our corporate culture, which we believe fosters innovation, inclusion, teamwork, passion for end-customers, focus on execution, and the facilitation of critical knowledge transfer and knowledge sharing. As we grow and change, we may find it difficult to maintain these important aspects of our corporate culture. While we are taking steps to develop a more inclusive and diverse workforce, there is no guarantee that we will be able to do so. Any failure to preserve our culture as we grow could limit our ability to innovate and could negatively affect our ability to retain and recruit personnel, continue to perform at current levels or execute on our business strategy.\nWe generate a significant amount of revenue from sales to distributors, resellers, and end-customers outside of the United States, and we are therefore subject to a number of risks associated with international sales and operations.\nOur ability to grow our business and our future success will depend to a significant extent on our ability to expand our operations and customer base worldwide. Many of our customers, resellers, partners, suppliers, and manufacturers operate around the world. Operating in a global marketplace, we are subject to risks associated with having an international reach and compliance and regulatory requirements. We may experience difficulties in attracting, managing, and retaining an international staff, and we may not be able to recruit and maintain successful strategic distributor relationships internationally. Business practices in the international markets that we serve may differ from those in the United States and may require us in the future to include terms other than our standard terms related to payment, warranties, or performance obligations in end-customer contracts. \nAdditionally, our international sales and operations are subject to a number of risks, including the following:\n\u2022\npolitical, economic, and social uncertainty around the world, health risks such as epidemics and pandemics like COVID-19, macroeconomic challenges in Europe, terrorist activities, Russia\u2019s invasion of Ukraine, tensions between China and Taiwan, and continued hostilities in the Middle East;\n\u2022\nunexpected changes in, or the application of, foreign and domestic laws and regulations (including intellectual property rights protections), regulatory practices, trade restrictions, and foreign legal requirements, including those applicable to the importation, certification, and localization of our products, tariffs, and tax laws and treaties, including regulatory and trade policy changes adopted by the current administration, such as the Sanctions on Russia, or foreign countries in response to regulatory changes adopted by the current administration; and\n\u2022\nnon-compliance with U.S. and foreign laws, including antitrust regulations, anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, U.S. or foreign sanctions regimes and export or import control laws, and any trade regulations ensuring fair trade practices.\nThese and other factors could harm our future international revenues and, consequently, materially impact our business, operating results, and financial condition. The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources. Our failure to successfully manage our international operations and the associated risks effectively could limit the future growth of our business.\nWe are exposed to fluctuations in foreign currency exchange rates, which could negatively affect our financial condition and operating results.\nOur sales contracts are denominated in U.S. dollars, and therefore, our revenue is not subject to foreign currency risk; however, in the event of a strengthening of the U.S. dollar against foreign currencies in which we conduct business, the cost of our products to our end-customers outside of the United States would increase, which could adversely affect our financial condition and operating results. In addition, increased international sales in the future, including through our channel partners and other partnerships, may result in foreign currency denominated sales, increasing our foreign currency risk. \n- 27 \n-\nTable of Contents\nOur operating expenses incurred outside the United States and denominated in foreign currencies are generally increasing and are subject to fluctuations due to changes in foreign currency exchange rates. If we are not able to successfully hedge against the risks associated with foreign currency fluctuations, our financial condition and operating results could be adversely affected. We have entered into forward contracts in an effort to reduce our foreign currency exchange exposure related to our foreign currency denominated expenditures. As of July\u00a031, 2023, the total notional amount of our outstanding foreign currency forward contracts was $\n957.5\n\u00a0million. For more information on our hedging transactions, refer to Note\u00a06. Derivative Instruments in Part\u00a0II, Item\u00a08 of this Annual Report on Form 10-K. The effectiveness of our existing hedging transactions and the availability and effectiveness of any hedging transactions we may decide to enter into in the future may be limited, and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and operating results.\nWe face risks associated with having operations and employees located in Israel.\nAs a result of various of our acquisitions, including Cider, Cyber Secdo Ltd. (\u201cSecdo\u201d), PureSec Ltd. (\u201cPureSec\u201d), and Twistlock Ltd. (\u201cTwistlock\u201d), we have offices and employees located in Israel. Accordingly, political, economic, and military conditions in Israel directly affect our operations, including the recent political unrest in Israel. The future of peace efforts between Israel and its Arab neighbors remains uncertain. The effects of hostilities and violence on the Israeli economy and our operations in Israel are unclear, and we cannot predict the effect on us of further increases in these hostilities or future armed conflict, political instability, or violence in the region. Current or future tensions and conflicts in the Middle East could adversely affect our business, operating results, financial condition, and cash flows.\nIn addition, many of our employees in Israel are obligated to perform annual reserve duty in the Israeli military and are subject to being called for active duty under emergency circumstances. We cannot predict the full impact of these conditions on us in the future, particularly if emergency circumstances or an escalation in the political situation occurs. If many of our employees in Israel are called for active duty for a significant period of time, our operations and our business could be disrupted and may not be able to function at full capacity. Any disruption in our operations in Israel could adversely affect our business.\nWe are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.\nBecause we incorporate encryption technology into our products, certain of our products are subject to U.S. export controls and may be exported outside the United States only with the required export license or through an export license exception. If we were to fail to comply with U.S. export licensing requirements, U.S. customs regulations, U.S. economic sanctions, or other laws, we could be subject to substantial civil and criminal penalties, including fines, incarceration for responsible employees and managers, and the possible loss of export or import privileges. Obtaining the necessary export license for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products to U.S. embargoed or sanctioned countries, governments, and persons. Even though we take precautions to ensure that our channel partners comply with all relevant regulations, any failure by our channel partners to comply with such regulations could have negative consequences for us, including reputational harm, government investigations, and penalties.\nIn addition, various countries regulate the import of certain encryption technology, including through import permit and license requirements, and have enacted laws that could limit our ability to distribute our products or could limit our end-customers\u2019 ability to implement our products in those countries. Changes in our products or changes in export and import regulations may create delays in the introduction of our products into international markets, prevent our end-customers with international operations from deploying our products globally or, in some cases, prevent or delay the export or import of our products to certain countries, governments, or persons altogether. Any change in export or import regulations, economic sanctions, such as the Sanctions on Russia, or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons, or technologies targeted by such regulations could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations. Any decreased use of our products or limitation on our ability to export to or sell our products in international markets would likely adversely affect our business, financial condition, and operating results.\n- 28 \n-\nTable of Contents\nRISKS RELATED TO PRIVACY AND DATA PROTECTION\nOur actual or perceived failure to adequately protect personal data could have a material adverse effect on our\u00a0business.\nA wide variety of laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data in jurisdictions where we and our customers operate. Compliance with these laws and regulations is difficult and costly. These laws and regulations are also subject to frequent and unexpected changes, new or additional laws or regulations may be adopted, and rulings that invalidate prior laws or regulations may be issued. For example, we are subject to the E.U. General Data Protection Regulation (\u201cE.U. GDPR\u201d) and the U.K. General Data Protection Regulation (\u2018U.K. GDPR,\u201d and collectively the \u201cGDPR\u201d), both of which impose stringent data protection requirements, provide for costly penalties for noncompliance (up to the greater of (a) \u20ac20\u00a0million under the \u201cE.U. GDPR\u201d or \u00a317.5 million under the \u201cU.K. GDPR,\u201d and (b) 4% of annual worldwide turnover), and confer the right upon data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations.\nThe GDPR requires, among other things, that personal data be transferred outside of the E.U. (or, in the case of the U.K. GDPR, the U.K.) to the United States and other jurisdictions only where adequate safeguards are implemented or a derogation applies. In practice, we rely on standard contractual clauses approved under the GDPR to carry out such transfers and to receive personal data subject to the GDPR (directly or indirectly) in the United States. In the future, we may self-certify to the EU-U.S. Data Privacy Framework (\u201cEU-U.S. DPF\u201d), which has been approved for transfers of personal data subject to the GDPR to the United States and requires public disclosures of adherence to data protection principles and the submission of jurisdiction to European regulatory authorities. Following the \u201cSchrems\u00a0II\u201d decision by the Court of Justice of the European Union, transfers of personal data to recipients in third countries are also subject to additional assessments and safeguards beyond the implementation of approved transfer mechanisms. The decision imposed a requirement for companies to carry out an assessment of the laws and practices governing access to personal data in the third country to ensure an essentially equivalent level of data protection to that afforded in the E.U. \nAmong other effects, we may experience additional costs associated with increased compliance burdens, reduced demand for our offerings from current or prospective customers in the European Economic Area (\u201cEEA\u201d), Switzerland, and the U.K. (collectively, \u201cEurope\u201d) to use our products, on account of the risks identified in the Schrems II decision, and we may find it necessary or desirable to make further changes to our processing of personal data of European residents. The regulatory environment applicable to the handling of European residents\u2019 personal data, and our actions taken in response, may cause us to assume additional liabilities or incur additional costs, including in the event we self-certify to the EU-U.S. DPF. Moreover, much like with Schrems II, we anticipate future legal challenges to the approved data transfer mechanisms between Europe and the United States, including a challenge to the EU-U.S. DPF. Such legal challenges could result in additional legal and regulatory risk, compliance costs, and in our business, operating results, and financial condition being harmed. Additionally, we and our customers may face risk of enforcement actions by data protection authorities in Europe relating to personal data transfers to us and by us from Europe. Any such enforcement actions could result in substantial costs and diversion of resources, and distract management and technical personnel. These potential liabilities and enforcement actions could also have an overall negative affect on our business, operating results, and financial condition.\nWe are also subject to the California Consumer Privacy Act, as amended by the California Privacy Rights Act (collectively, the \u201cCCPA\u201d). The CCPA requires, among other things, covered companies to provide enhanced disclosures to California consumers and to afford such consumers certain rights regarding their personal data, including the right to opt out of data sales for targeted advertising, and creates a private right of action to individuals affected by a data breach, if the breach was caused by a lack of reasonable security. The effects of the CCPA have been significant, requiring us to modify our data processing practices and policies and to incur substantial costs and expenses for compliance. Moreover, additional state privacy laws have been passed and will require potentially substantial efforts to obtain compliance. These include laws enacted in at least ten states, which all go into effect by January 1, 2026. \nWe may also from time to time be subject to obligations relating to personal data by contract, or face assertions that we are subject to self-regulatory obligations or industry standards. Additionally, the Federal Trade Commission and many state attorneys general are more regularly bringing enforcement actions in connection with federal and state consumer protection laws for false or deceptive acts or practices in relation to the online collection, use, dissemination, and security of personal data. Internationally, data localization laws may mandate that personal data collected in a foreign country be processed and stored within that country. New legislation affecting the scope of personal data and personal information where we or our customers and partners have operations, especially relating to classification of Internet Protocol (\u201cIP\u201d) addresses, machine identification, AI, location data, and other information, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing or uses of data, and may require significant expenditures and efforts in order to comply. Notably, public perception of potential privacy, data protection, or information security concerns\u2014whether or not valid\u2014may harm our reputation and inhibit adoption of our products and subscriptions by current and future end-customers. Each of these laws and regulations, and any changes to these laws and regulations, or new laws and regulations, could impose significant limitations, or require changes to our business model or practices or growth strategy, which may increase our compliance expenses and make our business more costly or less efficient to conduct.\n- 29 \n-\nTable of Contents\nTax, Accounting, Compliance, and Regulatory Risks\nWe may have exposure to greater than anticipated tax liabilities.\nOur income tax obligations are based in part on our corporate structure and intercompany arrangements, including the manner in which we develop, value, and use our intellectual property and the valuations of our intercompany transactions. The tax laws applicable to our business, including the laws of the United States and various other jurisdictions, are subject to interpretation and certain jurisdictions may aggressively interpret their laws, regulations, and policies, including in an effort to raise additional tax revenue. The tax authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed or acquired technology or determining the proper charges for intercompany arrangements, which could increase our worldwide effective tax rate and harm our financial position and operating results. Some tax authorities of jurisdictions other than the United States may seek to assert extraterritorial taxing rights on our transactions or operations. It is possible that domestic or international tax authorities may subject us to tax examinations, or audits, and such tax authorities may disagree with certain positions we have taken, and any adverse outcome of such an examination, review or audit could result in additional tax liabilities and penalties and otherwise have a negative effect on our financial position and operating results. Further, the determination of our worldwide provision for or benefit from income taxes and other tax liabilities requires significant judgment by management, and there are transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded on our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made.\nIn addition, our future income tax obligations could be adversely affected by changes in, or interpretations of, tax laws, regulations, policies, or decisions in the United States or in the other jurisdictions in which we operate. \nIf our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.\nThe preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported on our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue, and expenses that are not readily apparent from other sources. For more information, refer to the section entitled \u201cCritical Accounting Estimates\u201d in \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in Part\u00a0II, Item\u00a07 of this Annual Report on Form 10-K. In general, if our estimates, judgments, or assumptions relating to our critical accounting policies change or if actual circumstances differ from our estimates, judgments, or assumptions, our operating results may be adversely affected and could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.\nWe are obligated to maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or our internal control may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.\nIf we are unable to assert that our internal controls are effective, our independent registered public accounting firm may not be able to formally attest to the effectiveness of our internal control over financial reporting. If, in the future, our chief executive officer, chief financial officer, or independent registered public accounting firm determines that our internal control over financial reporting is not effective as defined under Section 404, we could be subject to one or more investigations or enforcement actions by state or federal regulatory agencies, stockholder lawsuits, or other adverse actions requiring us to incur defense costs, pay fines, settlements, or judgments, causing investor perceptions to be adversely affected and potentially resulting in a decline in the market price of our stock.\nOur reputation and/or business could be negatively impacted by ESG matters and/or our reporting of such matters.\nThere is an increasing focus from regulators, certain investors, and other stakeholders concerning ESG matters, both in the United States and internationally. We communicate certain ESG-related initiatives, goals, and/or commitments regarding environmental matters, diversity, responsible sourcing and social investments, and other matters in our annual ESG Report, on our website, in our filings with the SEC, and elsewhere. These initiatives, goals, or commitments could be difficult to achieve and costly to implement. We could fail to achieve, or be perceived to fail to achieve, our ESG-related initiatives, goals, or commitments. In addition, we could be criticized for the timing, scope or nature of these initiatives, goals, or commitments, or for any revisions to them. To the extent that our required and voluntary disclosures about ESG matters increase, we could be criticized for the accuracy, adequacy, or completeness of such disclosures. Our actual or perceived failure to achieve our ESG-related initiatives, goals, or commitments could negatively impact our reputation, result in ESG-focused investors not purchasing and holding our stock, or otherwise materially harm our business.\n- 30 \n-\nTable of Contents\nFailure to comply with governmental laws and regulations could harm our business.\nOur business is subject to regulation by various federal, state, local, and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, privacy, data security, and data-protection laws, anti-bribery laws (including the U.S. Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act), import/export controls, federal securities laws, and tax laws and regulations. These laws and regulations may also impact our innovation and business drivers in developing new and emerging technologies (e.g., AI and machine learning). In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation resulting from any alleged noncompliance, our business, operating results, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management\u2019s attention and resources and an increase in professional fees. Enforcement actions, litigation, and sanctions could harm our business, operating results, and financial condition.\nRisks Related to Our Notes and Common Stock\nWe may not have the ability to raise the funds necessary to settle conversions of our Notes, repurchase our Notes upon a fundamental change, or repay our Notes in cash at their maturity, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of our Notes.\nIn June 2020, we issued our 2025 Notes (the \u201c2025 Notes\u201d). We will need to make cash payments (a)\u00a0if holders of our 2025 Notes require us to repurchase all, or a portion of, their 2025 Notes upon the occurrence of a fundamental change (e.g., a change of control of Palo Alto Networks,\u00a0Inc.) before the maturity date, (b)\u00a0upon conversion of our 2025 Notes, or (c)\u00a0to repay our 2025 Notes in cash at their maturity unless earlier converted or repurchased. Effective August 1, 2023 through October 31, 2023, all of the 2025 Notes are convertible. If all of the note holders decided to convert their 2025 Notes, we would be obligated to pay the $2.0 billion principal amount of the 2025 Notes in cash. Under the terms of the 2025 Notes, we also have the option to settle the amount of our conversion obligation in excess of the aggregate principal amount of the 2025 Notes in cash or shares of our common stock. If our cash provided by operating activities, together with our existing cash, cash equivalents, and investments, and existing sources of financing, are inadequate to satisfy these obligations, we will need to obtain third-party financing, which may not be available to us on commercially reasonable terms or at all, to meet these payment obligations.\nIn addition, our ability to repurchase or to pay cash upon conversion of our 2025 Notes may be limited by law, regulatory authority, or agreements governing our future indebtedness. Our failure to repurchase our 2025 Notes at a time when the repurchase is required by the applicable indenture governing such 2025 Notes or to pay cash upon conversion of such 2025 Notes as required by the applicable indenture would constitute a default under the indenture. A default under the applicable indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase our 2025 Notes or to pay cash upon conversion of our 2025 Notes.\nWe may still incur substantially more debt or take other actions that would diminish our ability to make payments on our Notes when due.\nWe and our subsidiaries may incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, that could have the effect of diminishing our ability to make payments on our Notes when due. \nThe market price of our common stock historically has been volatile, and the value of an investment in our common stock could decline.\nThe market price of our common stock has historically been, and is likely to continue to be, volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control and unrelated to our business, operating results, or financial condition. These fluctuations could cause a loss of all or part of an investment in our common stock. Factors that could cause fluctuations in the market price of our common stock include, but are not limited to:\n\u2022\nannouncements of new products, subscriptions or technologies, commercial relationships, strategic partnerships, acquisitions, or other events by us or our competitors;\n\u2022\nprice and volume fluctuations in the overall stock market from time to time;\n\u2022\nnews announcements that affect investor perception of our industry, including reports related to the discovery of significant cyberattacks;\n\u2022\nsignificant volatility in the market price and trading volume of technology companies in general and of companies in our industry;\n\u2022\nfluctuations in the trading volume of our shares or the size of our public float;\n- 31 \n-\nTable of Contents\n\u2022\nactual or anticipated changes in our operating results or fluctuations in our operating results;\n\u2022\nwhether our operating results meet the expectations of securities analysts or investors;\n\u2022\nactual or anticipated changes in the expectations of securities analysts or investors, whether as a result of our forward-looking statements, our failure to meet such expectations or otherwise;\n\u2022\ninaccurate or unfavorable research reports about our business and industry published by securities analysts or reduced coverage of our company by securities analysts;\n\u2022\nlitigation involving us, our industry, or both;\n\u2022\nactions instituted by activist shareholders or others; \n\u2022\nregulatory developments in the United States, foreign countries, or both;\n\u2022\nmajor catastrophic events;\n\u2022\nsales or repurchases of large blocks of our common stock or substantial future sales by our directors, executive officers, employees, and significant stockholders;\n\u2022\ndepartures of key personnel; or\n\u2022\ngeopolitical or economic uncertainty around the world.\nIn the past, following periods of volatility in the market price of a company\u2019s securities, securities class action litigation has often been brought against that company. Securities litigation could result in substantial costs, divert our management\u2019s attention and resources from our business, and have a material adverse effect on our business, operating results, and financial condition.\nThe convertible note hedge and warrant transactions may affect the value of our common stock.\nIn connection with the sale of our 2025 Notes, we entered into convertible note hedge transactions (the \u201c2025 Note Hedges\u201d) with certain counterparties. In connection with each such sale of the 2025 Notes, we also entered into warrant transactions with the counterparties pursuant to which we sold warrants (the \u201c2025 Warrants\u201d) for the purchase of our common stock. In addition, we also entered into warrant transactions in connection with our 2023 Notes (together with the 2025 Warrants, the \u201cWarrants\u201d). The Note Hedges for our 2025 Notes are generally expected to reduce the potential dilution to our common stock upon any conversion of our 2025 Notes. The Warrants could separately have a dilutive effect to the extent that the market price per share of our common stock exceeds the applicable strike price of the Warrants unless, subject to certain conditions, we elect to cash settle such Warrants.\nThe applicable counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the outstanding 2025 Notes (and are likely to do so during any applicable observation period related to a conversion of our 2025 Notes). This activity could also cause or prevent an increase or a decrease in the market price of our common stock or our 2025 Notes, which could affect a note holder\u2019s ability to convert its 2025 Notes and, to the extent the activity occurs during any observation period related to a conversion of our 2025 Notes, it could affect the amount and value of the consideration that the note holder will receive upon conversion of our 2025 Notes.\nWe do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the price of our 2025 Notes or our common stock. In addition, we do not make any representation that the counterparties or their respective affiliates will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.\nThe issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans, the conversion of our Notes or exercise of the related Warrants, or otherwise will dilute stock held by all other stockholders.\nOur amended and restated certificate of incorporation authorizes us to issue up to 1.0\u00a0billion shares of common stock and up to 100.0\u00a0million shares of preferred stock with such rights and preferences as may be determined by our board of directors. Subject to compliance with applicable rules and regulations, we may issue shares of common stock or securities convertible into shares of our common stock from time to time in connection with a financing, acquisition, investment, our stock incentive plans, the conversion of our Notes, the settlement of our Warrants related to each such series of the Notes, or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the market price of our common stock to decline.\n- 32 \n-\nTable of Contents\nWe cannot guarantee that our share repurchase program will be fully consummated or that it will enhance shareholder value, and share repurchases could affect the price of our common stock.\nAs of July\u00a031, 2023, we had $\n750.0\n\u00a0million available under our share repurchase program which will expire on December\u00a031, 2023. Such share repurchase program may be suspended or discontinued by the Company at any time without prior notice. Although our board of directors has authorized a share repurchase program, we are not obligated to repurchase any specific dollar amount or to acquire any specific number of shares under the program. The share repurchase program could affect the price of our common stock, increase volatility, and diminish our cash reserves. In addition, the program may be suspended or terminated at any time, which may result in a decrease in the price of our common stock. \nWe do not intend to pay dividends for the foreseeable future.\nWe have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. As a result,\u00a0stockholders may only receive a return on their investments in our common stock if the market price of our common stock increases.\nOur charter documents and Delaware law, as well as certain provisions contained in the indentures governing our Notes, could discourage takeover attempts and lead to management entrenchment, which could also reduce the market price of our common stock.\nProvisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change in control of our company or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:\n\u2022\nestablish that our board of directors is divided into three classes, Class\u00a0I, Class\u00a0II, and Class\u00a0III, with three-year staggered terms;\n\u2022\nauthorize our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval;\n\u2022\nprovide our board of directors with the exclusive right to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death, or removal of a director;\n\u2022\nprohibit our stockholders from taking action by written consent;\n\u2022\nspecify that special meetings of our stockholders may be called only by the chairman of our board of directors, our president, our secretary, or a majority vote of our board of directors;\n\u2022\nrequire the affirmative vote of holders of at least 66\u00a02/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws;\n\u2022\nauthorize our board of directors to amend our bylaws by majority vote; and\n\u2022\nestablish advance notice procedures with which our stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders\u2019 meeting.\nThese provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for our stockholders to replace members of our board of directors, which is responsible for appointing the members of management. In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. Additionally, certain provisions contained in the indenture governing our Notes could make it more difficult or more expensive for a third party to acquire us. The application of Section\u00a0203 or certain provisions contained in the indenture governing our Notes also could have the effect of delaying or preventing a change in control of us. Any of these provisions could, under certain circumstances, depress the market price of our common stock. \n- 33 \n-\nTable of Contents\nGeneral Risk Factors\nOur business is subject to the risks of earthquakes, fire, power outages, floods, health risks, and other catastrophic events, and to interruption by man-made problems, such as terrorism.\nBoth our corporate headquarters and the location where our products are manufactured are located in the San Francisco Bay Area, a region known for seismic activity. In addition, other natural disasters, such as fire or floods, a significant power outage, telecommunications failure, terrorism, an armed conflict, cyberattacks, epidemics and pandemics such as COVID-19, or other geo-political unrest could affect our supply chain, manufacturers, logistics providers, channel partners, end-customers, or the economy as a whole, and such disruption could impact our shipments and sales. These risks may be further increased if the disaster recovery plans for us and our suppliers prove to be inadequate. To the extent that any of the above should result in delays or cancellations of customer orders, the loss of customers, or the delay in the manufacture, deployment, or shipment of our products, our business, financial condition, and operating results would be adversely affected.\nOur failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products and subscriptions could reduce our ability to compete and could harm our business.\nWe intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features to enhance our portfolio, improve our operating infrastructure, or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we engage in future debt financings, the holders of such additional debt would have priority over the holders of our common stock. Current and future indebtedness may also contain terms that, among other things, restrict our ability to incur additional indebtedness. In addition, we may be required to take other actions that would otherwise be in the interests of the debt holders and would require us to maintain specified liquidity or other ratios, any of which could harm our business, operating results, and financial condition. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.\n- 34 \n-\nTable of Contents",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations \nThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The following discussion and analysis contains forward-looking statements based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those anticipated or implied by any forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed under the caption \u201cRisk Factors\u201d in Part I, Item 1A of this report.\nOur Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (\u201cMD&A\u201d) is organized as\u00a0follows:\n\u2022\nOverview.\n A discussion of our business and overall analysis of financial and other highlights in order to provide context for the remainder of MD&A.\n\u2022\nKey Financial Metrics.\n A summary of our U.S. GAAP\u00a0and non-GAAP key financial metrics, which management monitors to evaluate our performance.\n\u2022\nResults of Operations.\n A discussion of the nature and trends in our financial results and an analysis of our financial results comparing fiscal 2023 to fiscal 2022. For discussion and analysis related to our financial results comparing fiscal 2022 to 2021, refer to Part\u00a0II, Item\u00a07. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal 2022, which was filed with the Securities and Exchange Commission on September\u00a06, 2022.\n\u2022\nLiquidity and Capital Resources.\n An analysis of changes on our balance sheets and cash flows, and a discussion of our financial condition and our ability to meet cash needs.\n\u2022\nCritical Accounting Estimates.\n A discussion of our accounting policies that require critical estimates, assumptions, and judgments.\nOverview\nWe empower enterprises, organizations, service providers, and government entities to protect themselves against today\u2019s most sophisticated cyber threats. Our cybersecurity platforms and services help secure enterprise users, networks, clouds, and endpoints by delivering comprehensive cybersecurity backed by industry-leading artificial intelligence and automation. We are a leading provider of zero trust solutions, starting with next-generation zero trust network access to secure today\u2019s remote hybrid workforces and extending to securing all users, applications, and infrastructure with zero trust principles. Our security solutions are designed to reduce customers\u2019 total cost of ownership by improving operational efficiency and eliminating the need for siloed point products. Our company focuses on delivering value in four fundamental areas:\nNetwork Security:\n\u2022\nOur network security platform, designed to deliver complete zero trust solutions to our customers, includes our hardware and software ML-Powered Next-Generation Firewalls, as well as a cloud-delivered Secure Access Service Edge (\u201cSASE\u201d). Prisma\n\u00ae\n Access, our Security Services Edge (\u201cSSE\u201d) solution, when combined with Prisma SD-WAN, provides a comprehensive single-vendor SASE offering that is used to secure remote workforces and enable the cloud-delivered branch. We have been recognized as a leader in network firewalls, SSE, and SD-WAN. Our network security platform also includes our cloud-delivered security services, such as Advanced Threat Prevention, Advanced WildFire\n\u00ae\n, Advanced URL Filtering, DNS Security, IoT/OT Security, GlobalProtect\n\u00ae\n, Enterprise Data Loss Prevention (\u201cEnterprise DLP\u201d), Artificial Intelligence for Operations (\u201cAIOps\u201d), SaaS Security API, and SaaS Security Inline. Through these add-on security services, our customers are able to secure their content, applications, users, and devices across their entire organization. Panorama\n\u00ae\n, our network security management solution, can centrally manage our network security platform irrespective of form factor, location, or scale.\nCloud Security:\n\u2022\nWe enable cloud-native security through our Prisma Cloud platform. As a comprehensive Cloud Native Application Protection Platform (\u201cCNAPP\u201d), Prisma Cloud secures multi- and hybrid-cloud environments for applications, data, and the entire cloud native technology stack across the full development lifecycle; from code to runtime. For inline\u00a0network security on multi- and hybrid-cloud environments, we also offer our VM-Series and CN-Series Firewall\u00a0offerings.\n- 38 \n-\nTable of Contents\nSecurity Operations:\n\u2022\nWe deliver the next generation of security automation, security analytics, endpoint security, and attack surface management solutions through our Cortex portfolio. These include Cortex XSIAM, our AI security automation platform, Cortex XDR\n\u00ae\n for the prevention, detection, and response to complex cybersecurity attacks on the endpoint, Cortex XSOAR\n\u00ae\n for security orchestration, automation, and response (\u201cSOAR\u201d), and Cortex Xpanse\nTM\n for attack surface management (\u201cASM\u201d). These products are delivered as SaaS or software subscriptions.\nThreat Intelligence and Security Consulting (Unit 42):\n\u2022\nUnit 42 brings together world-renowned threat researchers with an elite team of incident responders and security consultants to create an intelligence-driven, response-ready organization to help customers proactively manage cyber risk. Our consultants serve as trusted advisors to our customers by assessing and testing their security controls against the right threats, transforming their security strategy with a threat-informed approach, and responding to security incidents on behalf of our clients.\nFor fiscal 2023 and 2022, total revenue was $6.9 billion and $5.5\u00a0billion, respectively, representing year-over-year growth of 25.3%. Our growth reflects the increased adoption of our portfolio, which consists of product, subscriptions, and support. We believe our portfolio will enable us to benefit from recurring revenues and new revenues as we continue to grow our end-customer base. As of July\u00a031, 2023, we had end-customers in over 180\u00a0countries. Our end-customers represent a broad range of industries, including education, energy, financial services, government entities, healthcare, Internet and media, manufacturing, public sector, and telecommunications, and include almost all of the Fortune\u00a0100 companies and a majority of the Global\u00a02000 companies. We maintain a field sales force that works closely with our channel partners in developing sales opportunities. We primarily use a two-tiered, indirect fulfillment model whereby we sell our products, subscriptions, and support to our distributors, which, in turn, sell to our resellers, which then sell to our end-customers. \nOur product revenue grew to $1.6 billion or 22.9% of total revenue for fiscal 2023, representing year-over-year growth of 15.8%. Product revenue is derived from sales of our appliances, primarily our ML-Powered Next-Generation Firewall. Product revenue also includes revenue derived from software licenses of Panorama, SD-WAN, and the VM-Series. Our ML-Powered Next-Generation Firewall incorporates our PAN-OS operating system, which provides a consistent set of capabilities across our entire network security product line. Our appliances and software licenses include a broad set of built-in networking and security features and functionalities. Our products are designed for different performance requirements throughout an organization, ranging from our PA-410, which is designed for small organizations and remote or branch offices, to our top-of-the-line PA-7080, which is designed for large-scale data centers and service provider use. The same firewall functionality that is delivered in our physical appliances is also available in our VM-Series virtual firewalls, which secure virtualized and cloud-based computing environments, and in our CN-Series container firewalls, which secure container environments and traffic.\nOur subscription and support revenue grew to $5.3 billion or 77.1% of total revenue for fiscal 2023, representing year-over-year growth of 28.4%. Our subscriptions provide our end-customers with near real-time access to the latest antivirus, intrusion prevention, web filtering, modern malware prevention, data loss prevention, and cloud access security broker capabilities across the network, endpoints, and the cloud. When end-customers purchase our physical, virtual, or container firewall appliances, or certain cloud offerings, they typically purchase support in order to receive ongoing security updates, upgrades, bug fixes, and repairs. In addition to the subscriptions purchased with these appliances, end-customers may also purchase other subscriptions on a per-user, per-endpoint, or capacity-based basis. We also offer professional services, including incident response, risk management, and digital forensic\u00a0services.\nWe continue to invest in innovation as we evolve and further extend the capabilities of our portfolio, as we believe that innovation and timely development of new features and products are essential to meeting the needs of our end-customers and improving our competitive position. During fiscal 2023, we introduced several new offerings, including: Cortex XSIAM\u00a01.0, major updates to Prisma Cloud (including three new security modules), Prisma Access\u00a04.0, PAN-OS\u00a011.0, Cloud NGFW for AWS, and Cloud NGFW for Azure. Additionally, we acquired productive investments that fit well within our long-term strategy. For example, in December 2022, we acquired Cider, which we expect will support our Prisma Cloud\u2019s platform approach to securing the entire application security lifecycle from code to cloud.\nWe believe that the growth of our business and our short-term and long-term success are dependent upon many factors, including our ability to extend our technology leadership, grow our base of end-customers, expand deployment of our portfolio and support offerings within existing end-customers, and focus on end-customer satisfaction. To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems and controls, and our ability to manage headcount, capital, and processes in an efficient manner. While these areas present significant opportunities for us, they also pose challenges and risks that we must successfully address in order to sustain the growth of our business and improve our operating results. For additional information regarding the challenges and risks we face, see the \u201cRisk Factors\u201d section in Part\u00a0I, Item\u00a01A of this Annual Report on Form 10-K.\n- 39 \n-\nTable of Contents\nImpact of Macroeconomic Developments and Other Factors on Our Business\nOur overall performance depends in part on worldwide economic and geopolitical conditions and their impact on customer behavior. Worsening economic conditions, including inflation, higher interest rates, slower growth, fluctuations in foreign exchange rates, and other conditions, may adversely affect our results of operations and financial performance. \nWe continue to experience supply chain disruption and incur increased costs resulting from inflationary pressures. We are monitoring the tensions between China and Taiwan, and between the U.S. and China, which could have an adverse impact on our business or results of operations in future periods.\nKey Financial Metrics \nWe monitor the key financial metrics set forth in the tables below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. We discuss\u00a0revenue, gross margin, and the components of operating income (loss) and margin below under \u201cResults of\u00a0Operations.\u201d\nJuly 31,\n2023\n2022\n(in millions)\nTotal deferred revenue\n$\n9,296.4\u00a0\n$\n6,994.0\u00a0\nCash, cash equivalents, and investments\n$\n5,437.9\u00a0\n$\n4,686.4\u00a0\nYear Ended July 31,\n2023\n2022\n2021\n(dollars in millions)\nTotal revenue\n$\n6,892.7\u00a0\n$\n5,501.5\u00a0\n$\n4,256.1\u00a0\nTotal revenue year-over-year percentage increase\n25.3\u00a0\n%\n29.3\u00a0\n%\n24.9\u00a0\n%\nGross margin\n72.3\u00a0\n%\n68.8\u00a0\n%\n70.0\u00a0\n%\nOperating income (loss)\n$\n387.3\u00a0\n$\n(188.8)\n$\n(304.1)\nOperating margin\n5.6\u00a0\n%\n(3.4)\n%\n(7.1)\n%\nBillings\n$\n9,194.4\u00a0\n$\n7,471.5\u00a0\n$\n5,452.2\u00a0\nBillings year-over-year percentage increase\n23.1\u00a0\n%\n37.0\u00a0\n%\n26.7\u00a0\n%\nCash flow provided by operating activities\n$\n2,777.5\u00a0\n$\n1,984.7\u00a0\n$\n1,503.0\u00a0\nFree cash flow (non-GAAP)\n$\n2,631.2\u00a0\n$\n1,791.9\u00a0\n$\n1,387.0\u00a0\n\u2022\nDeferred Revenue.\n Our deferred revenue primarily consists of amounts that have been invoiced but have not been recognized as revenue as of the period end. The majority of our deferred revenue balance consists of subscription and support revenue that is recognized ratably over the contractual service period. We monitor our deferred revenue balance because it represents a significant portion of revenue to be recognized in future periods.\n\u2022\nBillings.\n We define billings as total revenue plus the change in total deferred revenue, net of acquired deferred revenue, during the period. We consider billings to be a key metric used by management to manage our business. We believe billings provides investors with an important indicator of the health and visibility of our business because it includes subscription and support revenue, which is recognized ratably over the contractual service period, and product revenue, which is recognized at the time of hardware shipment or delivery of software license, provided that all other conditions for revenue recognition have been met. We consider billings to be a useful metric for management and investors, particularly if we continue to experience increased sales of subscriptions and strong renewal rates for subscription and support offerings, and as we monitor our near-term cash flows. While we believe that billings provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management, it is important to note that other companies, including companies in our industry, may not use billings, may calculate billings differently, may have different billing frequencies, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of billings as a comparative measure. We calculate billings in the following manner:\n- 40 \n-\nTable of Contents\nYear Ended July 31,\n2023\n2022\n2021\n(in millions)\nBillings:\nTotal revenue\n$\n6,892.7\u00a0\n$\n5,501.5\u00a0\n$\n4,256.1\u00a0\nAdd: change in total deferred revenue, net of acquired deferred\u00a0revenue\n2,301.7\u00a0\n1,970.0\u00a0\n1,196.1\u00a0\nBillings\n$\n9,194.4\u00a0\n$\n7,471.5\u00a0\n$\n5,452.2\u00a0\n\u2022\nCash Flow Provided by Operating Activities.\n We monitor cash flow provided by operating activities as a measure of our overall business performance. Our cash flow provided by operating activities is driven in large part by sales of our products and from up-front payments for subscription and support offerings. Monitoring cash flow provided by operating activities enables us to analyze our financial performance without the non-cash effects of certain items such as share-based compensation costs, depreciation and amortization, thereby allowing us to better understand and manage the cash needs of our business.\n\u2022\nFree Cash Flow (non-GAAP).\n We define free cash flow, a non-GAAP financial measure, as cash provided by operating activities less purchases of property, equipment, and other assets. We consider free cash flow to be a profitability and liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures. A limitation of the utility of free cash flow as a measure of our financial performance and liquidity is that it does not represent the total increase or decrease in our cash balance for the period. In addition, it is important to note that other companies, including companies in our industry, may not use free cash flow, may calculate free cash flow in a different manner than we do, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a comparative measure. A reconciliation of free cash flow to cash flow provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, is provided below:\nYear Ended July 31,\n2023\n2022\n2021\n(in millions)\nFree cash flow (non-GAAP):\nNet cash provided by operating activities\n$\n2,777.5\u00a0\n$\n1,984.7\u00a0\n$\n1,503.0\u00a0\nLess: purchases of property, equipment, and other assets\n146.3\u00a0\n192.8\u00a0\n116.0\u00a0\nFree cash flow (non-GAAP)\n$\n2,631.2\u00a0\n$\n1,791.9\u00a0\n$\n1,387.0\u00a0\nNet cash used in investing activities\n$\n(2,033.8)\n$\n(933.4)\n$\n(1,480.6)\nNet cash used in financing activities\n$\n(1,726.3)\n$\n(806.6)\n$\n(1,104.0)\n- 41 \n-\nTable of Contents\nResults of Operations\nThe following table summarizes our results of operations for the periods presented and as a percentage of our total revenue for those periods based on our consolidated statements of operations data. The period-to-period comparison of results is not necessarily indicative of results for future periods.\nYear Ended July 31,\n2023\n2022\n2021\nAmount\n% of Revenue\nAmount\n% of Revenue\nAmount\n% of Revenue\n(dollars in millions)\nRevenue:\nProduct\n$\n1,578.4\u00a0\n22.9\u00a0\n%\n$\n1,363.1\u00a0\n24.8\u00a0\n%\n$\n1,120.3\u00a0\n26.3\u00a0\n%\nSubscription and support\n5,314.3\u00a0\n77.1\u00a0\n%\n4,138.4\u00a0\n75.2\u00a0\n%\n3,135.8\u00a0\n73.7\u00a0\n%\nTotal revenue\n6,892.7\u00a0\n100.0\u00a0\n%\n5,501.5\u00a0\n100.0\u00a0\n%\n4,256.1\u00a0\n100.0\u00a0\n%\nCost of revenue:\nProduct\n418.3\u00a0\n6.1\u00a0\n%\n455.5\u00a0\n8.3\u00a0\n%\n308.5\u00a0\n7.2\u00a0\n%\nSubscription and support\n1,491.4\u00a0\n21.6\u00a0\n%\n1,263.2\u00a0\n22.9\u00a0\n%\n966.4\u00a0\n22.8\u00a0\n%\nTotal cost of revenue\n(1)\n1,909.7\u00a0\n27.7\u00a0\n%\n1,718.7\u00a0\n31.2\u00a0\n%\n1,274.9\u00a0\n30.0\u00a0\n%\nTotal gross profit\n4,983.0\u00a0\n72.3\u00a0\n%\n3,782.8\u00a0\n68.8\u00a0\n%\n2,981.2\u00a0\n70.0\u00a0\n%\nOperating expenses:\nResearch and development\n1,604.0\u00a0\n23.3\u00a0\n%\n1,417.7\u00a0\n25.8\u00a0\n%\n1,140.4\u00a0\n26.8\u00a0\n%\nSales and marketing\n2,544.0\u00a0\n36.9\u00a0\n%\n2,148.9\u00a0\n39.0\u00a0\n%\n1,753.8\u00a0\n41.1\u00a0\n%\nGeneral and administrative\n447.7\u00a0\n6.5\u00a0\n%\n405.0\u00a0\n7.4\u00a0\n%\n391.1\u00a0\n9.2\u00a0\n%\nTotal operating expenses\n(1)\n4,595.7\u00a0\n66.7\u00a0\n%\n3,971.6\u00a0\n72.2\u00a0\n%\n3,285.3\u00a0\n77.1\u00a0\n%\nOperating income (loss)\n387.3\u00a0\n5.6\u00a0\n%\n(188.8)\n(3.4)\n%\n(304.1)\n(7.1)\n%\nInterest expense\n(27.2)\n(0.4)\n%\n(27.4)\n(0.5)\n%\n(163.3)\n(3.8)\n%\nOther income, net\n206.2\u00a0\n3.0\u00a0\n%\n9.0\u00a0\n0.1\u00a0\n%\n2.4\u00a0\n\u2014\u00a0\n%\nIncome (loss) before income taxes\n566.3\u00a0\n8.2\u00a0\n%\n(207.2)\n(3.8)\n%\n(465.0)\n(10.9)\n%\nProvision for income taxes\n126.6\u00a0\n1.8\u00a0\n%\n59.8\u00a0\n1.1\u00a0\n%\n33.9\u00a0\n0.8\u00a0\n%\nNet income (loss)\n$\n439.7\u00a0\n6.4\u00a0\n%\n$\n(267.0)\n(4.9)\n%\n$\n(498.9)\n(11.7)\n%\n(1)\nIncludes share-based compensation as follows:\nYear Ended July 31,\n2023\n2022\n2021\n(in millions)\nCost of product revenue \n$\n9.8\u00a0\n$\n9.3\u00a0\n$\n6.2\u00a0\nCost of subscription and support revenue \n123.4\u00a0\n110.2\u00a0\n93.0\u00a0\nResearch and development\n488.4\u00a0\n471.1\u00a0\n428.9\u00a0\nSales and marketing\n335.3\u00a0\n304.7\u00a0\n269.9\u00a0\nGeneral and administrative\n130.4\u00a0\n118.1\u00a0\n128.9\u00a0\nTotal share-based compensation\n$\n1,087.3\u00a0\n$\n1,013.4\u00a0\n$\n926.9\u00a0\n- 42 \n-\nTable of Contents\nREVENUE\nOur revenue consists of product revenue and subscription and support revenue. Revenue is recognized upon transfer of control of the corresponding promised products and subscriptions and support to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those products and subscriptions and support. We expect our revenue to vary from quarter to quarter based on seasonal and cyclical factors. \nPRODUCT REVENUE\nProduct revenue is derived from sales of our appliances, primarily our ML-Powered Next-Generation Firewall. Product revenue also includes revenue derived from software licenses of Panorama, SD-WAN, and the VM-Series. Our appliances and software licenses include a broad set of built-in networking and security features and functionalities. We recognize product revenue at the time of hardware shipment or delivery of software license.\nYear Ended July 31,\nYear Ended July 31,\n\u00a0\n2023\n2022\nChange\n2022\n2021\nChange\nAmount\nAmount\nAmount\n%\nAmount\nAmount\nAmount\n%\n\u00a0\n(dollars in millions)\nProduct\n$\n1,578.4\u00a0\n$\n1,363.1\u00a0\n$\n215.3\u00a0\n15.8\u00a0\n%\n$\n1,363.1\u00a0\n$\n1,120.3\u00a0\n$\n242.8\u00a0\n21.7\u00a0\n%\nProduct revenue increased for fiscal 2023 compared to fiscal 2022 driven by increased demand for our new generation of hardware products, increased software revenue primarily due to a new go-to-market strategy for certain Network Security offerings and an increased demand for our VM-Series virtual firewalls, partially offset by decreased revenue from our prior generation of hardware products. \nSUBSCRIPTION AND SUPPORT REVENUE\nSubscription and support revenue is derived primarily from sales of our subscription and support offerings. Our subscription and support contracts are typically one to five years. We recognize revenue from subscriptions and support over time as the services are performed. As a percentage of total revenue, we expect our subscription and support revenue to vary from quarter to quarter and increase over the long term as we introduce new subscriptions, renew existing subscription and support contracts, and expand our installed end-customer base.\nYear Ended July 31,\nYear Ended July 31,\n\u00a0\n2023\n2022\nChange\n2022\n2021\nChange\nAmount\nAmount\nAmount\n%\nAmount\nAmount\nAmount\n%\n\u00a0\n(dollars in millions)\nSubscription\n$\n3,335.4\u00a0\n$\n2,539.0\u00a0\n$\n796.4\u00a0\n31.4\u00a0\n%\n$\n2,539.0\u00a0\n$\n1,898.8\u00a0\n$\n640.2\u00a0\n33.7\u00a0\n%\nSupport\n1,978.9\u00a0\n1,599.4\u00a0\n379.5\u00a0\n23.7\u00a0\n%\n1,599.4\u00a0\n1,237.0\u00a0\n362.4\u00a0\n29.3\u00a0\n%\nTotal subscription and\u00a0support\n$\n5,314.3\u00a0\n$\n4,138.4\u00a0\n$\n1,175.9\u00a0\n28.4\u00a0\n%\n$\n4,138.4\u00a0\n$\n3,135.8\u00a0\n$\n1,002.6\u00a0\n32.0\u00a0\n%\nSubscription and support revenue increased for fiscal 2023 compared to fiscal 2022 due to increased demand for our subscription and support offerings from our end-customers. The mix between subscription revenue and support revenue will fluctuate over time, depending on the introduction of new subscription offerings, renewals of support services, and our ability to increase sales to new and existing end-customers.\n- 43 \n-\nTable of Contents\nREVENUE BY GEOGRAPHIC THEATER\nYear Ended July 31,\nYear Ended July 31,\n\u00a0\n2023\n2022\nChange\n2022\n2021\nChange\nAmount\nAmount\nAmount\n%\nAmount\nAmount\nAmount\n%\n\u00a0\n(dollars in millions)\nAmericas\n$\n4,719.9\u00a0\n$\n3,802.6\u00a0\n$\n917.3\u00a0\n24.1\u00a0\n%\n$\n3,802.6\u00a0\n$\n2,937.5\u00a0\n$\n865.1\u00a0\n29.5\u00a0\n%\nEMEA\n1,359.6\u00a0\n1,055.8\u00a0\n303.8\u00a0\n28.8\u00a0\n%\n1,055.8\u00a0\n817.3\u00a0\n238.5\u00a0\n29.2\u00a0\n%\nAPAC\n813.2\u00a0\n643.1\u00a0\n170.1\u00a0\n26.5\u00a0\n%\n643.1\u00a0\n501.3\u00a0\n141.8\u00a0\n28.3\u00a0\n%\nTotal revenue\n$\n6,892.7\u00a0\n$\n5,501.5\u00a0\n$\n1,391.2\u00a0\n25.3\u00a0\n%\n$\n5,501.5\u00a0\n$\n4,256.1\u00a0\n$\n1,245.4\u00a0\n29.3\u00a0\n%\nRevenue from the Americas, Europe, the Middle East, and Africa\u00a0(\u201cEMEA\u201d) and Asia Pacific and Japan (\u201cAPAC\u201d) increased year-over-year for fiscal 2023 as we continued to increase investment in our global sales force in order to support our growth and innovation. Our three geographic theaters had similar year-over-year revenue growth rates for fiscal 2023, with the Americas contributing the highest increase in revenue due to its larger scale. \nCOST OF REVENUE\nOur cost of revenue consists of cost of product revenue and cost of subscription and support revenue.\nCOST OF PRODUCT REVENUE\nCost of product revenue primarily includes costs paid to our manufacturing partners for procuring components and manufacturing our products. Our cost of product revenue also includes personnel costs, which consist of salaries, benefits, bonuses, share-based compensation, and travel associated with our operations organization, amortization of intellectual property licenses, product testing costs, shipping and tariff costs, and shared costs. Shared costs consist of certain facilities, depreciation, benefits, recruiting, and information technology costs that we allocate based on headcount. We expect our cost of product revenue to fluctuate with our revenue from hardware products.\n\u00a0\nYear Ended July 31,\nYear Ended July 31,\n\u00a0\n2023\n2022\nChange\n2022\n2021\nChange\nAmount\nAmount\nAmount\n%\nAmount\nAmount\nAmount\n%\n\u00a0\n(dollars in millions)\nCost of product revenue\n$\n418.3\u00a0\n$\n455.5\u00a0\n$\n(37.2)\n(8.2)\n%\n$\n455.5\u00a0\n$\n308.5\u00a0\n$\n147.0\u00a0\n47.6\u00a0\n%\nCost of product revenue decreased for fiscal 2023 compared to fiscal 2022 due to a favorable hardware product mix.\nCOST OF SUBSCRIPTION AND SUPPORT REVENUE\nCost of subscription and support revenue includes personnel costs for our global customer support and technical operations organizations, customer support and repair costs, third-party professional services costs, data center and cloud hosting service costs, amortization of acquired intangible assets and capitalized software development costs, and shared costs. We expect our cost of subscription and support revenue to increase as our installed end-customer base grows and adoption of our cloud-based subscription offerings increases. \n\u00a0\nYear Ended July 31,\nYear Ended July 31,\n\u00a0\n2023\n2022\nChange\n2022\n2021\nChange\nAmount\nAmount\nAmount\n%\nAmount\nAmount\nAmount\n%\n\u00a0\n(dollars in millions)\nCost of subscription and support revenue\n$\n1,491.4\u00a0\n$\n1,263.2\u00a0\n$\n228.2\u00a0\n18.1\u00a0\n%\n$\n1,263.2\u00a0\n$\n966.4\u00a0\n$\n296.8\u00a0\n30.7\u00a0\n%\nCost of subscription and support revenue increased for fiscal 2023 compared to fiscal 2022 primarily due to increased costs to support the growth of our subscription and support offerings. Cloud hosting service costs, which support our cloud-based subscription offerings, increased $101.0\u00a0million for fiscal 2023 compared to fiscal 2022. Personnel costs grew $97.0\u00a0million for fiscal 2023 compared to fiscal 2022 primarily due to headcount growth. \n- 44 \n-\nTable of Contents\nGROSS MARGIN\nGross margin has been and will continue to be affected by a variety of factors, including the introduction of new products, manufacturing costs, the average sales price of our products, cloud hosting service costs, personnel costs, the mix of products sold, and the mix of revenue between product and subscription and support offerings. Our virtual and higher-end firewall products generally have higher gross margins than our lower-end firewall products within each product series. We expect our gross margins to vary over time depending on the factors described above.\n\u00a0\nYear Ended July 31,\n\u00a0\n2023\n2022\n2021\n\u00a0\nAmount\nGross\nMargin\nAmount\nGross\nMargin\nAmount\nGross\nMargin\n\u00a0\n(dollars in millions)\nProduct\n$\n1,160.1\u00a0\n73.5\u00a0\n%\n$\n907.6\u00a0\n66.6\u00a0\n%\n$\n811.8\u00a0\n72.5\u00a0\n%\nSubscription and support\n3,822.9\u00a0\n71.9\u00a0\n%\n2,875.2\u00a0\n69.5\u00a0\n%\n2,169.4\u00a0\n69.2\u00a0\n%\nTotal gross profit\n$\n4,983.0\u00a0\n72.3\u00a0\n%\n$\n3,782.8\u00a0\n68.8\u00a0\n%\n$\n2,981.2\u00a0\n70.0\u00a0\n%\nProduct gross margin increased for fiscal 2023 compared to fiscal 2022 primarily due to increased software revenue and a favorable hardware product mix.\nSubscription and support gross margin increased for fiscal 2023 compared to fiscal 2022, primarily due to our growth in subscription and support revenue, which outpaced the subscription and support costs.\nOPERATING EXPENSES\nOur operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, share-based compensation, travel and entertainment, and with regard to sales and marketing expense, sales commissions. Our operating expenses also include shared costs, which consist of certain facilities, depreciation, benefits, recruiting, and information technology costs that we allocate based on headcount to each department. We expect operating expenses generally to increase in absolute dollars and decrease over the long term as a percentage of revenue as we continue to scale our business. As of July\u00a031, 2023, we expect to recognize approximately $2.0\u00a0billion of share-based compensation expense over a weighted-average period of approximately 2.6 years, excluding additional share-based compensation expense related to any future grants of share-based awards. Share-based compensation expense is generally recognized on a straight-line basis over the requisite service periods of the awards.\nRESEARCH AND DEVELOPMENT\nResearch and development expense consists primarily of personnel costs. Research and development expense also includes prototype-related expenses and shared costs. We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services, although our research and development expense may fluctuate as a percentage of total revenue.\n\u00a0\nYear Ended July 31,\nYear Ended July 31,\n\u00a0\n2023\n2022\nChange\n2022\n2021\nChange\nAmount\nAmount\nAmount\n%\nAmount\nAmount\nAmount\n%\n\u00a0\n(dollars in millions)\nResearch and development\n$\n1,604.0\u00a0\n$\n1,417.7\u00a0\n$\n186.3\u00a0\n13.1\u00a0\n%\n$\n1,417.7\u00a0\n$\n1,140.4\u00a0\n$\n277.3\u00a0\n24.3\u00a0\n%\nResearch and development expense increased for fiscal 2023 compared to fiscal 2022 primarily due to increased personnel costs, which grew $154.2\u00a0million, largely due to headcount growth.\n- 45 \n-\nTable of Contents\nSALES AND MARKETING\nSales and marketing expense consists primarily of personnel costs, including commission expense. Sales and marketing expense also includes costs for market development programs, promotional and other marketing costs, professional services, and shared costs. We continue to strategically invest in headcount and have grown our sales presence. We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales and marketing organizations to grow our customer base, increase touch points with end-customers, and\u00a0expand our global presence, although our sales and marketing expense may fluctuate as a percentage of total\u00a0revenue.\n\u00a0\nYear Ended July 31,\nYear Ended July 31,\n\u00a0\n2023\n2022\nChange\n2022\n2021\nChange\nAmount\nAmount\nAmount\n%\nAmount\nAmount\nAmount\n%\n\u00a0\n(dollars in millions)\nSales and marketing\n$\n2,544.0\u00a0\n$\n2,148.9\u00a0\n$\n395.1\u00a0\n18.4\u00a0\n%\n$\n2,148.9\u00a0\n$\n1,753.8\u00a0\n$\n395.1\u00a0\n22.5\u00a0\n%\nSales and marketing expense increased for fiscal 2023 compared to fiscal 2022 primarily due to increased personnel costs, which grew $290.7\u00a0million, largely due to headcount growth and increased travel and entertainment expenses. The increase in sales and marketing expense was further driven by increased costs associated with sales and marketing events and go-to-market initiatives.\nGENERAL AND ADMINISTRATIVE\nGeneral and administrative expense consists primarily of personnel costs and shared costs for our executive, finance, human resources, information technology, and legal organizations, and professional services costs, which consist primarily of legal, auditing, accounting, and other consulting costs. We expect general and administrative expense to increase in absolute dollars over time as we increase the size of our general and administrative organizations and incur additional costs to support our business growth, although our general and administrative expense may fluctuate as a percentage of total revenue. \n\u00a0\nYear Ended July 31,\nYear Ended July 31,\n\u00a0\n2023\n2022\nChange\n2022\n2021\nChange\nAmount\nAmount\nAmount\n%\nAmount\nAmount\nAmount\n%\n\u00a0\n(dollars in millions)\nGeneral and administrative\n$\n447.7\u00a0\n$\n405.0\u00a0\n$\n42.7\u00a0\n10.5\u00a0\n%\n$\n405.0\u00a0\n$\n391.1\u00a0\n$\n13.9\u00a0\n3.6\u00a0\n%\nGeneral and administrative expenses increased for fiscal 2023 compared to fiscal 2022 primarily due to increased personnel costs, which grew $23.2\u00a0million, largely due to share-based compensation related to our recent acquisitions and headcount growth. The increase in general and administrative expense was further driven by slightly higher reserves due to increased receivables as a result of our business growth. \nINTEREST EXPENSE\nInterest expense primarily consists of interest expense related to our 0.75% Convertible Senior Notes due 2023 (the \u201c2023 Notes\u201d) and the 0.375% Convertible Senior Notes due 2025 (the \u201c2025 Notes,\u201d and together with \u201c2023 Notes,\u201d the \u201cNotes\u201d).\n\u00a0\nYear Ended July 31,\nYear Ended July 31,\n\u00a0\n2023\n2022\nChange\n2022\n2021\nChange\nAmount\nAmount\nAmount\n%\nAmount\nAmount\nAmount\n%\n\u00a0\n(dollars in millions)\nInterest expense\n$\n27.2\u00a0\n$\n27.4\u00a0\n$\n(0.2)\n(0.7)\n%\n$\n27.4\u00a0\n$\n163.3\u00a0\n$\n(135.9)\n(83.2)\n%\nInterest expense remained relatively flat for fiscal 2023 compared to fiscal 2022. \n- 46 \n-\nTable of Contents\nOTHER INCOME, NET\nOther income, net includes interest income earned on our cash, cash equivalents, and investments, and gains and losses from foreign currency remeasurement and foreign currency transactions.\n\u00a0\nYear Ended July 31,\nYear Ended July 31,\n\u00a0\n2023\n2022\nChange\n2022\n2021\nChange\nAmount\nAmount\nAmount\n%\nAmount\nAmount\nAmount\n%\n\u00a0\n(dollars in millions)\nOther income, net\n$\n206.2\u00a0\n$\n9.0\u00a0\n$\n197.2\u00a0\n2,191.1\u00a0\n%\n$\n9.0\u00a0\n$\n2.4\u00a0\n$\n6.6\u00a0\n275.0\u00a0\n%\nOther income, net increased for fiscal 2023 compared to fiscal 2022 primarily due to higher interest income as a result of higher interest rates and higher average cash, cash equivalent, and investments balances for fiscal 2023 compared to fiscal 2022.\nPROVISION FOR INCOME TAXES\nProvision for income taxes consists primarily of U.S. taxes driven by capitalization of research and development expenditures, foreign income taxes, and withholding taxes. We maintain a full valuation allowance for domestic and certain foreign deferred tax assets, including net operating loss carryforwards and certain domestic tax credits. Our valuation allowance has caused, and may continue to cause, disproportionate relationships between our overall effective tax rate and other jurisdictional measures. We regularly evaluate the need for a valuation allowance. Due to\u00a0recent profitability, a reversal of our valuation allowance in certain jurisdictions in the foreseeable future is reasonably\u00a0possible.\n\u00a0\nYear Ended July 31,\nYear Ended July 31,\n\u00a0\n\u00a0\n\u00a0\n2023\n2022\nChange\n2022\n2021\nChange\n\u00a0\nAmount\nAmount\nAmount\n%\nAmount\nAmount\nAmount\n%\n\u00a0\n(dollars in millions)\nProvision for income taxes\n$\n126.6\u00a0\n$\n59.8\u00a0\n$\n66.8\u00a0\n111.7\u00a0\n%\n$\n59.8\u00a0\n$\n33.9\u00a0\n$\n25.9\u00a0\n76.4\u00a0\n%\nEffective tax rate\n22.4\u00a0\n%\n(28.9)\n%\n(28.9)\n%\n(7.3)\n%\nOur provision for income taxes for fiscal 2023 was primarily due to U.S. federal and state income taxes, withholding taxes, and foreign income taxes. Our effective tax rate varied for fiscal 2023 compared to fiscal 2022, primarily due to our profitability in fiscal 2023 and an increase in U.S. taxes driven by capitalization of research and development expenditures with no offsetting deferred benefit due to our valuation allowance. This increase was offset by releases of uncertain tax positions during fiscal 2023 resulting from tax settlements. Refer to Note 15. Income Taxes in Part\u00a0II, Item\u00a08 of this Annual Report on Form 10-K for more information.\nLiquidity and Capital Resources\nJuly 31,\n2023\n2022\n(in millions)\nWorking capital\n(1)\n$\n(1,689.5)\n$\n(1,891.4)\nCash, cash equivalents, and investments:\nCash and cash equivalents\n$\n1,135.3\u00a0\n$\n2,118.5\u00a0\nInvestments\n4,302.6\u00a0\n2,567.9\u00a0\nTotal cash, cash equivalents, and investments\n$\n5,437.9\u00a0\n$\n4,686.4\u00a0\n(1)\nCurrent liabilities included net carrying amounts of convertible senior notes of $2.0 billion and $3.7 billion as of July\u00a031, 2023 and 2022, respectively. Refer to Note 10. Debt in Part\u00a0II, Item\u00a08 of this Annual Report on Form 10-K for information on the Notes.\nAs of July\u00a031, 2023, our total cash, cash equivalents, and investments of $5.4 billion were held for general corporate purposes. As of July\u00a031, 2023, we had no unremitted earnings when evaluating our outside basis difference relating to our U.S. investment in foreign subsidiaries. However, there could be local withholding taxes due to various foreign countries if certain lower tier earnings are distributed. Withholding taxes that would be payable upon remittance of these lower tier earnings are not expected to be material.\n- 47 \n-\nTable of Contents\nDEBT\nIn July 2018, we issued the 2023 Notes with an aggregate principal amount of $1.7\u00a0billion. The 2023 Notes were converted prior to or settled on the maturity date of July 1, 2023. During fiscal 2023, we repaid in cash $1.7 billion in aggregate principal amount of the 2023 Notes and issued 11.4\u00a0million shares of common stock to the holders for the conversion value in excess of the principal amount of the 2023 Notes converted, which were fully offset by shares we received from our exercise of the associated note hedges. In June 2020, we issued the 2025 Notes with an aggregate principal amount of $2.0 billion. The 2025 Notes mature on June\u00a01, 2025; however, under certain circumstances, holders may surrender their 2025 Notes for conversion prior to the applicable maturity date. Upon conversion of the 2025 Notes, we will pay cash equal to the aggregate principal amount of the 2025 Notes to be converted, and, at our election, will pay or deliver cash and/or shares of our common stock for the amount of our conversion obligation in excess of the aggregate principal amount of the 2025 Notes being converted. The sale price condition for the 2025 Notes was met during the fiscal quarter ended July\u00a031, 2023, and as a result, holders may convert their 2025 Notes during the fiscal quarter ending October 31, 2023. If all of the holders convert their 2025 Notes during this period, we would be obligated to settle the $2.0 billion principal amount of the 2025 Notes in cash. We believe that our cash provided by operating activities, our existing cash, cash equivalents and investments, and existing sources of and access to financing will be sufficient to meet our anticipated cash needs should the holders choose to convert their 2025 Notes during the fiscal quarter ending October\u00a031, 2023 or hold the 2025 Notes until maturity on June 1, 2025. As of July\u00a031, 2023, substantially all of our 2025 Notes remained outstanding. Refer to Note\u00a010. Debt in Part\u00a0II, Item\u00a08 of this Annual Report on Form 10-K for more information on the Notes.\nIn April 2023, we entered into a new credit agreement (the \u201c2023 Credit Agreement\u201d) that provides for a $400.0\u00a0million unsecured revolving credit facility (the \u201c2023 Credit Facility\u201d), with an option to increase the amount of the 2023 Credit Facility by up to an additional $350.0\u00a0million, subject to certain conditions. The interest rates and commitment fees are also subject to upward and downward adjustments based on our progress towards the achievement of certain sustainability goals related to greenhouse gas emissions. As of July\u00a031, 2023, there were no amounts outstanding, and we were in compliance with all covenants under the 2023 Credit Agreement. Refer to Note\u00a010. Debt in Part\u00a0II, Item\u00a08 of this Annual Report on Form 10-K for more information on the Credit Agreement. \nCAPITAL RETURN\nIn February 2019, our board of directors authorized a $1.0 billion share repurchase program. In December 2020, August 2021, and August 2022, our board of directors authorized additional $700.0\u00a0million, $676.1\u00a0million, and $915.0\u00a0million increases to this share repurchase program, respectively, bringing the total authorization under this share repurchase program to $3.3\u00a0billion. Repurchases will be funded from available working capital and may be made at management\u2019s discretion from time to time. The expiration date of this repurchase authorization was extended to December\u00a031, 2023, and our repurchase program may be suspended or discontinued at any time. As of July\u00a031, 2023, $750.0\u00a0million remained available for future share repurchases under this repurchase program. Refer to Note\u00a013. Stockholders\u2019 Equity in Part\u00a0II, Item\u00a08 of this Annual Report on Form 10-K for information on these repurchase programs. \nLEASES AND OTHER MATERIAL CASH REQUIREMENTS\nWe have entered into various non-cancelable operating leases primarily for our facilities with original lease periods expiring through the year ending July\u00a031, 2033, with the most significant leases relating to our corporate headquarters in Santa Clara, California. As of July\u00a031, 2023, we have total operating lease obligations of $339.4\u00a0million recorded on our consolidated balance sheet.\nAs of July\u00a031, 2023, our commitments to purchase products, components, cloud and other services totaled $1.8\u00a0billion. Refer to Note 12. Commitments and Contingencies in Part\u00a0II, Item\u00a08 of this Annual Report on Form 10-K for more information on these commitments.\nCASH FLOWS\nThe following table summarizes our cash flows for the years ended July\u00a031, 2023, 2022, and 2021:\nYear Ended July 31,\n2023\n2022\n2021\n(in millions)\nNet cash provided by operating activities\n$\n2,777.5\u00a0\n$\n1,984.7\u00a0\n$\n1,503.0\u00a0\nNet cash used in investing activities\n(2,033.8)\n(933.4)\n(1,480.6)\nNet cash used in financing activities\n(1,726.3)\n(806.6)\n(1,104.0)\nNet increase (decrease) in cash, cash equivalents, and restricted cash\n$\n(982.6)\n$\n244.7\u00a0\n$\n(1,081.6)\n- 48 \n-\nTable of Contents\nCash from operations could be affected by various risks and uncertainties detailed in Part\u00a0I, Item\u00a01A \u201cRisk Factors\u201d in this Form\u00a010-K. We believe that our cash flow from operations with existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12\u00a0months and thereafter for the foreseeable future. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and subscription and support offerings, the costs to acquire or invest in complementary businesses and technologies, the costs to ensure access to adequate manufacturing capacity,\u00a0the investments in our infrastructure to support the adoption of our cloud-based subscription offerings, the repayment obligations associated with our Notes, the continuing market acceptance of our products and subscription and support offerings and macroeconomic events. In addition, from time to time, we may incur additional tax liability in connection with certain corporate structuring decisions.\nWe may also choose to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition may be adversely affected.\nOPERATING ACTIVITIES\nOur operating activities have consisted of net income (losses) adjusted for certain non-cash items and changes in assets and liabilities. Our largest source of cash provided by our operations is receipts from our billings.\nCash provided by operating activities during fiscal 2023 was $2.8 billion, an increase of $792.8\u00a0million compared to fiscal 2022. The increase was primarily due to growth of our business as reflected by increases in collections during fiscal 2023, partially offset by higher cash expenditure to support our business growth.\nINVESTING ACTIVITIES\nOur investing activities have consisted of capital expenditures, net investment purchases, sales, and maturities, and business acquisitions. We expect to continue such activities as our business grows.\nCash used in investing activities during fiscal 2023 was $2.0\u00a0billion, an increase of $1.1\u00a0billion compared to fiscal 2022. The increase was primarily due to an increase in purchases of investments and an increase in net cash payments for business acquisitions, partially offset by an increase in proceeds from sales and maturities of investments during fiscal\u00a02023.\nFINANCING ACTIVITIES \nOur financing activities have consisted of cash used to repurchase shares of our common stock, proceeds from sales of shares through employee equity incentive plans, and payments for tax withholding obligations of certain employees related to the net share settlement of equity awards. \nCash used in financing activities during fiscal 2023 was $1.7\u00a0billion, an increase of $919.7\u00a0million compared to fiscal 2022. The increase was primarily due to repayments of our 2023 Notes upon maturity, partially offset by a decrease in repurchases of our common stock during fiscal 2023.\nCritical Accounting Estimates \nOur consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of\u00a0assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on\u00a0various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and\u00a0assumptions on an ongoing basis. Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the current economic environment. To the extent that there are material differences between these estimates and our actual results, our future consolidated financial statements will be\u00a0affected. \nWe believe that of our significant accounting policies described in Note\u00a01. Description of Business and Summary of Significant Accounting Policies in Part\u00a0II, Item\u00a08 of this Annual Report on Form 10-K, the critical accounting estimates, assumptions, and judgments that have the most significant impact on our consolidated financial statements are described below.\n- 49 \n-\nTable of Contents\nREVENUE RECOGNITION\nThe majority of our contracts with our customers include various combinations of our products and subscriptions and support. Our appliances and software licenses have significant standalone functionalities and capabilities. Accordingly, these appliances and software licenses are distinct from our subscriptions and support services as the customer can benefit from the product without these services and such services are separately identifiable within the contract. We account for multiple agreements with a single customer as a single contract if the contractual terms and/or substance of those agreements indicate that they may be so closely related that they are, in effect, parts of a single contract. The amount of consideration we expect to receive in exchange for delivering on the contract is allocated to each performance obligation based on its relative standalone selling price.\nWe establish standalone selling price using the prices charged for a deliverable when sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price based on our pricing model and our go-to-market strategy, which include factors such as type of sales channel (channel partner or end-customer), the geographies in which our offerings were sold (domestic or international), and offering type (products, subscriptions, or support). As our business offerings evolve over time, we may be required to modify our estimated standalone selling prices, and as a result the timing and classification of our revenue could be affected.\nINCOME TAXES\nWe account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. In addition, deferred tax assets are recorded for all future benefits including, but not limited to, net operating losses, research and development credit carryforwards, and basis differences relating to our global intangible low-taxed income. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount more likely than not to be realized.\nSignificant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.\nWe recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more likely than not to be realized upon ultimate settlement.\nSignificant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may impact the provision for income taxes in the period in which such determination is made.\nMANUFACTURING PARTNER AND SUPPLIER LIABILITIES\nWe outsource most of our manufacturing, repair, and supply chain management operations to our EMS provider, which procures components and assembles our products based on our demand forecasts. These forecasts of future demand are based upon historical trends and analysis from our sales and product management functions as adjusted for overall market conditions. We accrue costs for manufacturing purchase commitments in excess of our forecasted demand, including costs for excess components or for carrying costs incurred by our manufacturing partners and component suppliers. Actual component usage and product demand may be materially different from our forecast and could be caused by factors outside of our control, which could have an adverse impact on our results of operations. Through July\u00a031, 2023, we have not accrued significant costs associated with this exposure.\nLOSS CONTINGENCIES\nWe are subject to the possibility of various loss contingencies arising in the ordinary course of business. We accrue for loss contingencies when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. If we determine that a loss is reasonably possible, then we disclose the possible loss or range of the possible loss or state that such an estimate cannot be made. We regularly evaluate current information available to us to determine whether an accrual is required, an accrual should be adjusted, or a range of possible loss should be disclosed.\n- 50 \n-\nTable of Contents\nFrom time to time, we are involved in disputes, litigation, and other legal actions. However, there are many uncertainties associated with any litigation, and these actions or other third-party claims against us may cause us to incur substantial settlement charges, which are inherently difficult to estimate and could adversely affect our results of operations. The actual liability in any such matters may be materially different from our estimates, which could result in the need to adjust our liability and record additional expenses. Refer to the \u201cLitigation\u201d subheading in Note\u00a012. Commitments and Contingencies in Part\u00a0II, Item\u00a08 of this Annual Report on Form 10-K for more information regarding our litigation.",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk\nForeign Currency Exchange Risk\nOur sales contracts are denominated in U.S. dollars. A portion of our operating expenditures are incurred outside of the United States and are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. The effect of an immediate 10% adverse change in foreign exchange rates on monetary assets and liabilities at July\u00a031, 2023 would not be material to our financial condition or results of operations. As of July\u00a031, 2023, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our consolidated financial statements. We enter into foreign currency derivative contracts with maturities of 24 months or less, which we designate as cash flow hedges, to manage the foreign currency exchange risk associated with our foreign currency denominated operating expenditures. The effectiveness of our existing hedging transactions and the availability and effectiveness of any hedging transactions we may decide to enter into in the future may be limited, and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and operating results. Refer to Note\u00a06. Derivative Instruments in Part\u00a0II, Item\u00a08 of this Annual Report on Form 10-K for more information.\nAs our international operations grow, our risks associated with fluctuations in foreign currency exchange rates will become greater, and we will continue to reassess our approach to managing this risk. In addition, a weakening U.S. dollar can increase the costs of our international expansion and a strengthening U.S. dollar can increase the real cost of our products and services to our end-customers outside of the United States, leading to delays in the purchase of our products and services. For additional information, see the risk factor entitled \n\u201cWe are exposed to fluctuations in foreign currency exchange rates, which could negatively affect our financial condition and operating results.\u201d\n in Part\u00a01, Item\u00a01A of this Annual Report on Form 10-K.\nInterest Rate Risk\nThe primary objectives of our investment activities are to preserve principal, provide liquidity, and maximize income without significantly increasing risk. Most of the securities we invest in are subject to interest rate risk. To minimize this risk, we maintain a diversified portfolio of cash, cash equivalents, and investments, consisting only of investment-grade securities. To assess the interest rate risk, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio. Based on investment positions as of July\u00a031, 2023, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $55.5 million decline in the fair market value of the portfolio. Such losses would only be realized if we sold the investments prior to maturity. Conversely, a hypothetical 100 basis point decrease in interest rates would lead to a $55.5 million increase in the fair market value of the portfolio.\nIn June 2020, we issued $2.0 billion aggregate principal amount of 0.375% Convertible Senior Notes due 2025 (the \u201c2025 Notes\u201d). We carry these instruments at face value less unamortized issuance costs on our consolidated balance sheets. As these instruments have a fixed annual interest rate, we have no financial and economic exposure associated with changes in interest rates. However, the fair value of fixed rate debt instruments fluctuates when interest rates change, and additionally, in the case of the 2025 Notes, when the market price of our common stock fluctuates.\n- 51 \n-\nTable of Contents",
+  "cik": "1327567",
+  "cusip6": "697435",
+  "cusip": ["697435AF2", "697435905", "697435955", "697435AD7", "697435105"],
+  "names": ["Palo Alto Networks Inc.", "PALO ALTO NETWORKS INC", "PALO ALTO NETWORKS INC PUT", "None"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1327567/000132756723000024/0001327567-23-000024-index.htm"
+}
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+{
+  "item1": ">Item 1.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Business\nOur Company \nWe are a Silicon Valley-based provider of accelerated compute platforms that are application-optimized high performance and high-efficiency server and storage systems for a variety of markets, including enterprise data centers, cloud computing, artificial intelligence (\u201cAI\u201d), 5G and edge computing. Our Total IT Solutions include complete servers, storage systems, modular blade servers, blades, workstations, full rack scale solutions, networking devices, server sub-systems, server management and security software. We also provide global support and services to help our customers install, upgrade and maintain their computing infrastructure. We offer our customers a high degree of flexibility and customization by providing a broad array of server models and configurations from which they can choose the best solutions to fit their computing needs. Our server and storage systems, sub-systems and accessories are architecturally designed to provide high levels of reliability, quality, configurability, and scalability.\nOur in-house design competencies, design control over many of the components used within our server and storage systems, and our Server Building Block Solutions\u00ae (an innovative, modular and open architecture) enable us to rapidly develop, build and test our compute platforms along with our server and storage systems, sub-systems and accessories with unique configurations. As a result, when new technologies are brought to market, we are generally able to quickly assemble a broad portfolio of solutions by leveraging common building blocks across product lines. We work closely with the leading microprocessor, graphics processing units (\u201cGPU\u201d), memory, disk/flash, and interconnect vendors and other hardware and software suppliers to coordinate our new products' design with their product release schedules. This enhances our ability to introduce new products incorporating the latest technology rapidly. We seek to be the first to market with products incorporating new technologies and to offer the broadest selection of products using those technologies to our customers. \nTo reduce the high cost of operating datacenters, IT managers increasingly turn to suppliers of high-performance products that are also cost-effective, energy-efficient, and green. Our resource saving architecture supports our efforts to lead in green IT innovation. This architecture disaggregates CPU and memory, which enables each resource to be refreshed independently, thereby allowing data centers to significantly reduce both refresh cycle costs and e-waste. In addition, we offer product lines that are designed to share common computing resources, thereby saving both valuable space and power as compared to general-purpose rackmount servers. We believe our approach of leveraging an overall architecture that balances data center power requirements, cooling, shared resources and refresh cycles helps the environment and provides total cost of ownership (\u201cTCO\u201d) savings for our customers.\nSMCI | 2023 Form 10-K | 1\n \nWe conduct our operations principally from our Silicon Valley headquarters, Taiwan and Netherlands facilities. Our sales and marketing activities operate through a combination of our direct sales force and indirect sales channel partners. We work with distributors, value-added resellers, system integrators, and original equipment manufacturers (\"OEMs\") to market and sell our optimized solutions to their end customers in our indirect sales channels. \nStrategy\nOur objective is to be the world\u2019s leading provider of solutions using accelerated compute platforms that are application-optimized offering high-performance server, storage and networking. Achieving this objective requires continuous development and innovation of our Total IT Solutions with better price-performance and architectural advantages compared with our prior generation of solutions and with solutions offered by our competitors. Through our strategy, we seek to maintain or improve our relative competitive position in many product areas and pursue markets that provide us with additional long-term growth opportunities. Key elements of our strategy include executing upon the following:\nA Strong Internal Research and Development and Internal Manufacturing Capability\nWe are continually investing in our engineering organization. As of June 30, 2023, we had over 2,400 employees in our research and development organization. These resources, along with our understanding of complex computing and storage requirements, enable us to deliver product innovation featuring advanced functionality and capabilities required by our customers. Also, substantially all of our servers are tested and assembled in our facilities, and more than half of our final server and storage production is completed in San Jose, California. Our engineering aptitude, coupled with our internal manufacturing capability, enables rapid prototyping and product roll-out, contributing to a high level of responsiveness to our customers. \nIntroducing More Innovative Products, Faster\nWe seek to sustain advantages in both time-to-market and breadth of products incorporating the latest technological innovations, such as new processors, advancements in storage and evolving I/O technologies. We seek these advantages by leveraging our in-house design capabilities and our Building Block Solutions \u00ae architecture. This allows us to offer customers a broad choice of products to match their target application requirements. In fiscal year 2023, we announced more than 50 products supporting Intel\u2019s new Sapphire Rapids data center CPU. During the second half of fiscal year 2023, our product portfolio was enhanced to support AMD\u2019s Genoa data center CPU. In March 2023, we released a high-density petascale class all-flash NVMe server family supporting next-generation EDSFF form factor, including the E3.S and E1.S devices. Also in March 2023, we unveiled comprehensive portfolio of GPU systems including servers in 8U, 6U, 5U, 4U, 2U, and 1U form factors, as well as workstations that support the full range of new NVIDIA H100 GPUs.\nCapitalizing on New Applications and Technologies\nIn addition to serving traditional needs for server and storage systems, we have devoted, and will continue to devote, substantial resources to developing systems that support emerging and growing applications including AI, cloud computing, 5G/edge computing, storage and others. We believe there are significant opportunities for us in each of these rapidly developing markets due to stringent design requirements for these applications that often require the use of the latest technologies, allowing us to leverage our capabilities in product innovation, superior time-to-market, and portfolio breadth.\nDriving Software and Services Sales to our Global Enterprise Customers\nWe seek to grow our global enterprise revenue by bolstering and expanding our software management products and support services. These software products and services are required for large scale deployments, help meet service level agreements and address uptime requirements. In addition to our internal software development efforts, we also integrate and partner with external software vendors to meet customer requirements.\nLeveraging Our Global Operating Structure\nWe plan to continue to increase our worldwide manufacturing capacity and logistics abilities in the United States, Taiwan and the Netherlands to more efficiently serve our customers and lower our overall manufacturing costs. \nSMCI | 2023 Form 10-K | 2\nProducts and Services\nWe offer a broad range of accelerated compute platforms that are application-optimized server solutions, rackmount and blade servers, storage, and subsystems and accessories, which can be used to build complete server and storage systems. These Total IT Solutions and products are designed to serve a variety of markets, such as enterprise data centers, cloud computing, AI and 5G/edge computing.\u00a0The percentage of our net sales represented by sales of server and storage systems increased to 92.2% in fiscal year 2023 compared to 85.9% in fiscal year 2022 and 78.4% in fiscal year 2021, and the percentage of our net sales represented by sales of subsystems and accessories was\n \n7.8%\n \nin fiscal year 2023, 14.1% in fiscal year 2022 and 21.6% in fiscal year 2021. During fiscal year 2023, we experienced increased revenue from server and storage systems, particularly from our large enterprise and datacenter customers. The year-over-year increase in net sales of server and storage systems and corresponding decrease in net sales of subsystems and accessories was primarily due to our emphasis on selling full systems and servers which require utilization of the subcomponents. We complement our accelerated compute platforms inclusive of server and storage system offerings with software management/security solutions, global services and support, the revenue for which is included in our server and storage systems revenue.\n\u00a0\u00a0\u00a0\u00a0\nServer and Storage Systems\nWe sell accelerated compute platforms comprised of a combination of server and storage systems in rackmount, blade, multi-node and embedded form factors, which support single, dual, and multiprocessor architectures.  Our key product lines include:\n\u2022\nSuperBlade\n\u00ae\n and \nMicroBlade\n\u2122\u00ae system families designed to share common computing resources, thereby saving space and power over standard rackmount servers;\n\u2022\nSuperStorage\n systems that provide high-density storage while leveraging an efficient use of power to achieve performance-per-watt savings;\n\u2022\nTwin\n family of multi-node server systems designed for density, performance, and power efficiency;\n\u2022\nUltra Server\n systems for demanding enterprise workloads;\n\u2022\nGPU\n or \nAccelerated\n systems for rapidly growing AI markets;\n\u2022\nData Center Optimized\n server systems that deliver increased scalability and performance-per-watt with an improved thermal architecture;\n\u2022\nEmbedded (5G/IoT/Edge)\n systems optimized for evolving networks and intelligent management of connected devices; and\n\u2022\nMicroCloud\n server systems that deliver node density in environments with space and power constraints.\nIn addition to our accelerated compute platforms business, we offer a large array of modular server subsystems and accessories, such as server boards, chassis, power supplies and other accessories. These subsystems are the foundation of platform solutions and span product offerings from the entry-level single and dual-processor server segment to the high-end multiprocessor market. The majority of the subsystems and accessories we sell individually are designed to work together to improve performance and are ultimately integrated into complete server and storage systems.\nServer Software Management Solutions\nOur open industry-standard remote system management solutions, such as our Server Management suite, including Supermicro Server Manager (\u201cSSM\u201d), Supermicro Power Management software (\u201cSPM\u201d), Supermicro Update Manager (\u201cSUM\u201d), SuperCloud Composer and SuperDoctor 5, have been designed to help manage large-scale heterogeneous data center environments. \nSMCI | 2023 Form 10-K | 3\nSupermicro Global Services\nWe provide global service and support offerings for our direct and OEM customers and our indirect sales channel partners directly or through approved distributors and third-party partners. Our services include server and storage system integration, configuration and software upgrades and updates. We also identify service requirements, create and execute project plans, conduct verification testing and training and provide technical documentation.\nGlobal Services:\n Our strategic direct and OEM customers may purchase a variety of on-site support service plans. Our service plans vary depending on specific services, response times, coverage hours and duration, repair priority levels, spare parts requirements, logistics, data privacy and security needs. Our Global Services team provides help desk services and on-site product support for our server and storage systems.\nSupport Services:\n Our customer support services offer competitive market warranties, generally from one-to-three years, and warranty extension options for products sold by our direct sales team and approved indirect sales channel partners. Our customer support team provides ongoing maintenance and technical support for our products through our website and 24-hour continuous direct phone-based support.\nResearch and Development\nWe perform most of our research and development activities in-house in the United States at our facilities in San Jose, California, and in Taiwan, increasing the communication and collaboration between design teams to streamline the development process and reduce time-to-market. We believe that the combination of our focus on internal research and development activities, our close working relationships with customers and vendors and our modular design approach allows us to decrease time-to-market. We continue to invest in reducing our design and manufacturing costs and improving the performance, cost-effectiveness and power- and space-efficiency of our Total IT Solutions.\nOur research and development teams focus on the development of new and enhanced products that can support emerging technological and engineering innovations while achieving high overall system performance. Much of our research and development activity relates to the new product cycles of leading processor vendors. We work closely with Intel, NVIDIA and AMD, among others, to develop products that are compatible with the latest generation of industry-standard technologies under development. Our collaborative approach with these vendors allows us to coordinate the design of our new products with their product release schedules, thereby enhancing our ability to rapidly introduce new products incorporating the latest technology. We work closely with their respective development teams to enhance system performance and reduce system-level issues. Similarly, we work very closely with our customers to identify their needs and develop our new product plans accordingly.\nCustomers\nDuring each of fiscal years 2023, 2022 and 2021, we sold to over 1,000 direct customers in over 100 countries. In addition, over the three years ended June 30, 2023, we have sold to thousands of end users through our indirect sales channel. These customers represent a diverse set of market verticals including enterprise data centers, cloud computing, AI, 5G and edge computing markets. In each of fiscal years 2023, 2022 and 2021, no customer represented greater than 10% of our total net sales.\n \n \nSales and Marketing \nOur sales and marketing activities are conducted through a combination of our direct sales force and our indirect sales channel partners. Our direct sales force is primarily focused on selling Total IT Solutions, including management software and global services to large scale cloud, enterprise and OEM customers. In addition, we are planning to offer optimized products with our command-center-based services, starting with a comprehensive product auto-configurator. The command center is the foundation of our expanding B2C and B2B programs.   \nWe work with distributors, value-added resellers, system integrators, and OEMs to market and sell our optimized solutions to their end customers. We provide sales and marketing assistance and training to our indirect sales channel partners and OEMs, who in turn provide service and support to end customers. We leverage our relationships in our indirect sales channel and with our OEMs to penetrate select industry segments where our products can provide better alternatives to existing solutions.\nSMCI | 2023 Form 10-K | 4\nWe maintain close contact with our indirect sales channel partners and end customers. We often collaborate during the sales process with our indirect sales channel partners and the end customer\u2019s technical staff to help determine the optimal system configuration for the customer\u2019s needs. Our interaction with our indirect sales channel partners and end customers allows us to monitor customer requirements and develop new products to meet their needs.\nInternational Sales\nOur global sales efforts are supported both by our international offices in the Netherlands, Taiwan, South Korea, United Kingdom, China and Japan as well as by our United States based sales team. Product fulfillment and first level support for our international customers are provided by Supermicro Global Services and through our indirect sales channel and OEMs. Sales to customers located outside of the United States represented 32.1%, 41.6% and 40.7% of net sales in fiscal years 2023, 2022 and 2021, respectively.\nMarketing\nOur marketing programs are designed to create a global awareness and branding for our company and products, as well as an understanding of the significant value we bring to customers. These programs also inform existing and potential customers, the trade press, market analysts, indirect sales channel partners and OEMs about the strong capabilities and benefits of using our products and solutions. Our marketing efforts support the sale and distribution of our products through both direct sales and indirect channels. We rely on a variety of marketing vehicles, including advertising, public relations, web, social media, participation in industry trade shows and conferences to help gain market acceptance. We provide funds for cooperative marketing to our indirect sales channel partners to extend the reach of our marketing efforts. We also actively utilize our suppliers\u2019 cooperative marketing programs and jointly benefit from their marketing development funds to which we are entitled.\nIntellectual Property\nWe seek to protect our intellectual property rights with a combination of patents, trademarks, copyrights, trade secret laws, and disclosure restrictions. We rely primarily on trade secrets, technical know-how, and other unpatented proprietary information relating to our design and product development activities. We also enter into confidentiality and proprietary rights agreements with our employees, consultants, and other third parties and control access to our designs, documentation and other proprietary information.\nManufacturing and Quality Control\nWe manufacture the majority of our systems at our San Jose, California headquarters. We believe we are the only major server, storage and accelerated compute platform vendor that designs, develops, and manufactures a significant portion of their systems in the United States. Global assembly, test and quality control of our servers are performed at our manufacturing facilities in San Jose, California, Taiwan and the Netherlands. Each of our facilities Quality and Environmental Management System has been certified according to ISO 9001, ISO 14001 and/or ISO 13485 standards. Our suppliers and contract manufacturers are required to support the same standards to maintain consistent product and service quality and continuous improvement of quality and environmental performance.\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nWe use several third-party suppliers and contract manufacturers for materials and sub-assemblies. We believe that selectively using outsourced manufacturing services allows us to focus on our core competencies in product design and development and increases our operational flexibility. We believe our manufacturing strategy allows us to adjust manufacturing capacity in response to changes in customer demand and to rapidly introduce new products to the market. We use Ablecom Technology, Inc. (\u201cAblecom\u201d) and its affiliate Compuware Technology, Inc. (\"Compuware\"), both of which are related parties, for contract design and manufacturing coordination support. We work with Ablecom to optimize modular designs for our chassis and several other components. Ablecom also coordinates the manufacturing of chassis for us. In addition to providing a large volume of contract manufacturing services to us, Ablecom warehouses multiple components and subassemblies manufactured by various suppliers before shipment to our facilities in the United States, Europe and Asia. We also have a series of agreements with Compuware, including multiple product development, production and service agreements, product manufacturing agreements and lease agreements for office space. See Part II, Item 8, Note 9, \u201cRelated Party Transactions,\u201d to the consolidated financial statements and Part III, Item 13, \u201cCertain Relationships and Related Transactions and Director Independence.\u201d\nSMCI | 2023 Form 10-K | 5\nWe monitor our inventory continuously to be able to meet customer delivery requirements and to avoid inventory obsolescence. Due to our building-block designs, our inventory can generally be used with multiple different products, lowering working capital requirements and reducing the risk of inventory write-downs.\nCompetition\nThe market for our products is highly competitive, rapidly evolving and subject to new technological developments, changing customer needs and new product introductions. We compete primarily with large vendors of x86-based general purpose servers and components. In addition, we also compete with smaller vendors that specialize in the sale of server components and systems. In recent years, we have experienced increased competition from original design manufacturers (\"ODMs\u201d) that benefit from their scale and very low-cost manufacturing and are increasingly offering their own branded products. We believe our principal competitors include:\n\u2022\nGlobal technology vendors, such as Cisco, Dell, Hewlett-Packard Enterprise, and Lenovo; \n\u2022\nODMs, such as Foxconn, Quanta Computer, and Wiwynn Corporation; and\n\u2022\nOEMs, such as Inspur.\nThe principal competitive factors in our market include the following:\n\u2022\nFirst to market with new emerging technologies;\n\u2022\nHigh product performance, efficiency and reliability;\n\u2022\nEarly identification of emerging opportunities;\n\u2022\nCost-effectiveness;\n\u2022\nInteroperability of products;\n\u2022\nScalability; and\n\u2022\nLocalized and responsive customer support on a worldwide basis.\nWe believe that we compete favorably with respect to most of these factors. However, most of our competitors have longer operating histories, significantly greater resources, greater name recognition and deeper market penetration. They may be able to devote greater resources to the development, promotion and sale of their products than we can, which could allow them to respond more quickly to new technologies and changes in customer needs. In addition, it is possible that new competitors could emerge and acquire significant market share. See Part I, Item 1A, \"Risk Factors\" risk titled \u201cThe market in which we participate is highly competitive, and if we do not compete effectively, we may not be able to increase our market penetration, grow our net sales or improve our gross margins.\u201d\nGovernment Regulation\nOur worldwide business activities subject us to various federal, state, local, and foreign laws in the countries in which we operate, and our Total IT Solutions are subject to laws and regulations affecting their sale. To date, costs and accruals incurred to comply with these governmental regulations, including environmental regulations, have not been material to our capital expenditures, results of operations, and competitive position. Although there is no assurance that existing or future governmental laws and regulations, including environmental regulations, applicable to our operations or Total IT Solutions will not have a material adverse effect on our capital expenditures, results of operations, and competitive position, we do not currently anticipate material increases in expenditures for compliance with government regulations.\nHuman Capital Resources and Management\nMission, Culture, and Engagement\n\u201cThe key to success in technology is designing a company around people committed to work that they love,\u201d said Charles Liang, Supermicro Founder, President, Chief Executive Officer, and Chairman of the Board. We aim to attract, develop, and retain a high performing and engaged global workforce. \nAs of June 30, 2023, we employed 5,126 full time employees, consisting of 2,448 employees in research and development, 585 employees in sales and marketing, 465 employees in general and administrative and 1,628 employees in manufacturing. Of these employees, 2,291 employees are based in our San Jose facilities. We consider our highly qualified and motivated employees to be a key factor in our business success. Our employees are not represented by any collective bargaining organization, and we have never experienced a work stoppage. \nSMCI | 2023 Form 10-K | 6\nWe are committed to protecting the environment through our \u201cWe Keep IT Green\u201d initiative as a first to market innovator in high-performance, high-efficiency server, storage, networking and management total solutions. We recognize the critical importance of talent and culture to our success and ability to fulfill this vision.\nWe encourage opportunities for growth and conduct regular performance reviews that set clear expectations to motivate employees and align their performance with company objectives. Supermicro Portal, our internal intranet, was created to keep employees informed about key changes to our business and company-wide resources.\nDiversity, Equity, Inclusion, and Belonging\nWe strive to create a culture that promotes diversity, equity, inclusion, and belonging to boost team dynamics, productivity, and innovation within the organization. Employees should be treated fairly and respectfully despite differences and should feel accepted in the workplace to contribute their perspective and be valued. We are committed to increasing diversity in our workforce at all levels and regularly monitor our recruitment process with an aim to improve the diversity of our workforce and candidate pool. \nTalent Development, Acquisition, Retention and Rewards\nTalent Strategy\nOur talent strategy focuses on attracting skilled, engaged employees who contribute the talent and skills critical to our innovative and forward-looking workforce. Our recruiting process actively sources talent supporting our ability to hire candidates with professional qualifications and potential. We identify opportunities through tracking and analyzing data from various sources such as annual performance reviews to assess our progress in ensuring critical talent are in critical roles.  \nIt is our policy to ensure equal employment opportunity for all applicants and employees without regard to prohibited considerations of race, color, religion, sex (including pregnancy, gender identity and sexual orientation), national origin, age, disability or genetic information, marital status or any other classification protected by applicable local, state or federal laws. All employees receive training in the prevention of sexual harassment and abusive conduct in the workplace.\nTotal Rewards Program\nOur total rewards program is designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders.  We provide employees with compensation packages that include base salary, incentive bonus programs, and long-term equity awards, including restricted stock units and options, tied to the value of our stock price. We believe that a compensation program with both short-term and long-term awards provides fair and competitive compensation and aligns employee and stockholder interests, including by incentivizing business and individual performance (pay for performance), motivating based on long-term company performance and integrating compensation with our business plans. In addition to cash and equity compensation, we also offer U.S. employees benefits such as life and health (medical, dental & vision) insurance, paid time off, sick leave, holiday pay, and a 401(k) plan. Outside of the U.S., we provide benefits based on local requirements and needs.\nHealth,\n \nSafety & Wellness\nThroughout our history, we have maintained our commitment to providing a safe workplace that protects against and limits personal injury and environmental harm. We follow international standards and regulations for product safety and security. Our health and safety programs emphasize personal accountability, professional conduct, and regulatory compliance, while our culture fosters a sense of proactivity, caution, and communication. In the development of our products, we define and perform various tests to ensure Product Safety and Security. We evaluate risks using both government-required procedures and best practices to ensure we understand residual risk and appropriately protect our employees. We engage in proactive efforts to prevent occupational illnesses and injuries which allows us to maintain a safe, healthy, and secure workplace. We have a Safety Committee, which is designed to promote communications regarding health, safety, and emergency response procedures and to help implement improvements to our work areas and practices. \nSMCI | 2023 Form 10-K | 7\nWe are committed to complying with applicable laws, including those associated with labor and employment, across all areas of our operations. In addition, we abide by global standards, irrespective of legal requirements, regarding the treatment of workers such as those detailed by the Responsible Business Alliance. These include prevention of excessive working hours and unfair wages, controls to prohibit child labor and human trafficking and bolstering workplace health and safety measures. \nBoard Oversight of Human Capital Management\nOur Board of Directors, as a part of its overall responsibility to provide oversight, has purview over matters related to human capital management. Our Compensation Committee provides oversight of various matters related to human capital management, such as incentive compensation plans and equity compensation plans and the administration of such plans, compensation matters outside of the ordinary course, and compensation policies.\nCorporate Information\nWe were founded in and maintain our worldwide headquarters and the majority of our employees in San Jose, California. We are one of the largest employers in the City of San Jose and an active member of the San Jose and Silicon Valley community.\nWe were incorporated in California in September 1993. We reincorporated in Delaware in March 2007. Our common stock is listed on the Nasdaq Global Select Market under the symbol \u201cSMCI.\u201d Our principal executive offices are located at 980 Rock Avenue, San Jose, California 95131, and our telephone number is (408) 503-8000. Our website address is www.supermicro.com.\nFinancial Information about Segments and Geographic Areas\nPlease see Part II, Item 8, Note 14, \u201cSegment Reporting\u201d to the consolidated financial statements in this Annual Report for information regarding segment reporting and Part II, Item 8, Note 3, \u201cRevenue - Disaggregation of Revenue\u201d to the consolidated financial statements in this Annual Report for information regarding our net sales by geographic region. See Part I, Item 1A, \u201cRisk Factors\u201d for further information on risks associated with our international operations.\nWorking Capital\nWe focus considerable attention on managing our inventories and other working capital related items. We manage inventories by communicating with our customers and partners and using our industry experience to forecast demand. We place manufacturing orders for our products that are based on forecasted demand. We generally maintain substantial inventories of our products because the computer server industry is characterized by short lead-time orders and quick delivery schedules. Additionally, during the fiscal year 2023, the computer server industry experienced global supply chain shortage, which requires us to carry more inventories to fulfill our customers and partners\u2019 demands and backlogs. \nAvailable Information\nOur Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d), are available free of charge, on or through our website at \nwww.supermicro.com\n as soon as reasonably practicable after we electronically file such reports with, or furnish those reports to, the SEC. Information contained on our website is not incorporated by reference in, or made part of, this Annual Report or our other filings with, or reports furnished to, the SEC. The SEC also maintains a website that contains our SEC filings.\n\u00a0\nSMCI | 2023 Form 10-K | 8",
+  "item1a": ">Item 1A.\n \nRisk Factors \nThe risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our business, financial condition, results of operations, cash flows, other key metrics and the trading price of our common stock.\nRisk Factor Summary \nOperational and Execution Risks\n\u2022\nAdverse economic conditions may harm our business.\n\u2022\nRecent events in eastern Europe and the Taiwan Strait present challenges and risks to us, and no assurances can be given that current or future developments would not have a material adverse effect on our business, results of operations and financial condition. \n\u2022\nOur quarterly operating results have fluctuated and will likely fluctuate in the future.            \n\u2022\nOur revenue and margins for a particular period are difficult to predict, and a shortfall in revenue or decline in margins may harm our operating results. \n\u2022\nAs we increasingly target larger customers and larger sales opportunities, our customer base may become more concentrated, our cost of sales may increase, our margins may be lower, our borrowings may be higher with effects on our cash flow, we are exposed to inventory risks,\n \nand our sales may be less predictable. \n\u2022\nIf we fail to meet any publicly announced financial guidance or other expectations about our business, it could cause our stock to decline in value. \n\u2022\nWe may be unable to secure additional financing on favorable terms, or at all, which in turn could impair the rate of our growth.\n\u2022\nIncreases in average selling prices for our Total IT Solutions have historically significantly contributed to increases in net sales in some of the periods covered. Such prices are subject to decline if customers do not continue to purchase our latest generation products or additional components, which could harm our results of operations.\n\u2022\nOur cost structure and ability to deliver server solutions to customers in a timely manner may be adversely affected by volatility of the market for core components and certain materials for our products.\n\u2022\nWe may lose sales or incur unexpected expenses relating to insufficient, excess or obsolete inventory.\n\u2022\nDifficulties we encounter relating to automating internal controls utilizing our ERP systems or integrating processes that occur in other IT applications could adversely impact our controls environment.\n\u2022\nSystem security violations, data protection breaches, cyber-attacks and other related cyber-security issues could disrupt our internal operations or compromise the security of our products, and any such disruption could reduce our expected revenues, increase our expenses, damage our reputation and adversely affect our stock price.\n\u2022\nAny failure to adequately expand or retain our sales force will impede our growth. \n\u2022\nConflicts of interest may arise with Ablecom and Compuware, and they may adversely affect our operations. \n\u2022\nOur reliance on Ablecom could be subject to risks associated with our reliance on a limited source of contract manufacturing services and inventory warehousing.\n\u2022\nIf negative publicity arises with respect to us, our employees, our third-party service providers or our partners, our business and operating results could be adversely affected, regardless of whether the negative publicity is true.\n\u2022\nIf we lose Charles Liang, our President, Chief Executive Officer and Chairman, or any other key employee, we may not be able to implement our business strategy in a timely manner.\n\u2022\nOur direct sales efforts may create confusion for our end customers and harm our relationships in our indirect sales channel and with our OEMs.\n\u2022\nIf we are unable to attract and integrate additional key employees in a manner that enables us to scale our business and operations effectively, or if we do not maintain competitive compensation policies to retain our employees, our ability to operate effectively and efficiently could be limited.\nStrategic and Industry Risks\n\u2022\nIf we do not successfully manage the expansion of our international manufacturing capacity and business operations, our business could be harmed.\n\u2022\nWe may not be able to successfully manage our business for growth and expansion.\n\u2022\nOur growth into markets outside the United States exposes us to risks inherent in international business operations.\n\u2022\nWe depend upon the development of new products & enhancements to existing products. If we fail to predict or respond to emerging technological trends & our customers\u2019 changing needs, our operating results and market share may suffer.\nSMCI | 2023 Form 10-K | 9\n\u2022\nThe market in which we participate is highly competitive.\n\u2022\nIndustry consolidation may lead to increased competition and may harm our operating results.\n\u2022\nWe must work closely with our suppliers to make timely new product introductions.\n\u2022\nOur suppliers\u2019 failure to improve the functionality and performance of materials and key components for our products may impair or delay our ability to deliver innovative products to our customers.\n\u2022\nWe rely on a limited number of suppliers for certain components used to manufacture our products.\n\u2022\nWe rely on indirect sales channels and any disruption in these channels could adversely affect our sales. \n\u2022\nOur failure to deliver high quality server and storage solutions could damage our reputation and diminish demand for our products.\n\u2022\nOur results of operations may be subject to fluctuations based upon our investment in corporate ventures.\nLegal and Regulatory Risks\n\u2022\nBecause our products and services may store, process and use data, some of which contains personal information, we are subject to complex and evolving laws and regulations regarding privacy, data protection and other matters.\n\u2022\nOur operations could involve the use of regulated materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive.\n\u2022\nIf we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decrease.\n\u2022\nFailure to comply with the U.S. Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, and applicable trade control laws could subject us to penalties and other adverse consequences.\n\u2022\nAny failure to protect our intellectual property could impair our brand and our competitiveness.\n\u2022\nResolution of claims that we have violated or may violate the intellectual property rights of others could require us to indemnify others or pay significant royalties to third parties.\n\u2022\nProvisions of our governance documents and Delaware law might discourage, delay or prevent a change of control of our company or changes in our management.\nFinancial Risks\n\u2022\nOur R&D expenditures, as a percentage of our net sales, are considerably higher than many of our competitors.\n\u2022\nOur future effective income tax rates could be affected by changes in the relative mix of our operations and income among different geographic regions and by changes in domestic and foreign income tax laws. \n\u2022\nBacklog does not provide a substantial portion of our net sales in any quarter.\nRisks Related to Owning our Common Stock\n\u2022\nThe trading price of our common stock is likely to be volatile.\n\u2022\nFuture sales of shares by existing stockholders, including any shares that have vested or may in the future vest under the 2021 CEO Performance Award, could cause our stock price to decline.\n\u2022\nThe concentration of our capital stock ownership with insiders likely limits your ability to influence corporate matters.\n\u2022\nWe do not expect to pay any cash dividends for the foreseeable future.\nGeneral Risks\n\u2022\nOur products may not be viewed as supporting climate change mitigation in the IT sector.\n\u2022\nOur business and operations may be impacted by natural disaster events, including those brought on by climate change.\n\u2022\nThe use of AI by our workforce may present risks to our business.\n\u2022\nExpectations relating to environmental, social and governance considerations expose us to potential liabilities, reputational harm and other unforeseen adverse effects on our business.  \nSMCI | 2023 Form 10-K | 10\nOperational and Execution Risks \nAdverse economic conditions may harm our business. \nOur business depends on the overall demand for accelerated compute platforms. Global financial developments and downturns seemingly unrelated to us or our industry may harm us. If economic conditions, including inflation, increased interest rates, economic output and currency exchange rates, in these markets and other key potential markets for our Total IT Solutions remain uncertain or further deteriorate, including as a result of the downturn in the global economy, the Russia-Ukraine conflict and related sanctions and trade restrictions, the effects of the COVID-19 pandemic or other reasons, customers may delay or reduce their spending. General economic weakness may also lead to longer collection cycles for payments due from our customers, an increase in customer bad debt, and impairment of investments. Furthermore, continued weakness and uncertainty in worldwide credit markets may harm our customers\u2019 available budgetary spending, which could lead to cancellations or delays in planned purchases of our Total IT Solutions. If our customers or potential customers experience economic hardship, this could reduce the demand for our Total IT Solutions, delay and lengthen sales cycles, increase requests for customer credit which may increase our risks in the event customers do not pay or make timely payment, lower prices for our Total IT Solutions, and lead to slower growth or even a decline in our revenues, operating results and cash flows.\nInflation in the U.S. has recently increased at a rate not seen in several decades, which may result in decreased demand for our Total IT Solutions, increases in our operating costs including our labor costs, constrained credit and liquidity, reduced spending and volatility in financial markets. Inflation may continue to increase, both in the U.S. and globally, which could increase our operating costs and reduce demand for our Total IT Solutions. The Federal Reserve has significantly raised, and may again raise, interest rates in response to concerns over inflation risk, which may increase our own borrowing costs and/or reduce our clients\u2019 access to debt financing, reduce technology expenditures and demand for our Total IT Solutions.\nRecent events in eastern Europe and the Taiwan strait present challenges and risks to us, and no assurances can be given that current or future developments will not have a material adverse effect on our business, results of operations and financial condition.\nThe crisis in eastern Europe continues to pose challenges to global companies, including us, which have customers in the impacted regions. The U.S. and other global governments have placed restrictions on how companies may transact with businesses in these regions, particularly Russia, Belarus and restricted areas in Ukraine. Because of these restrictions and the growing logistical and other challenges, we have paused sales to Russia, Belarus and the restricted areas in Ukraine. This decision, which is in line with the approach of other global technology companies, helps us comply with our obligations under the various requirements in the U.S. and around the world. While it is difficult to estimate the impact on our business and financial position of both (i) our pause in sales to Russia, Belarus and the restricted areas in Ukraine and the current or future sanctions and (ii) tensions in the Taiwan strait, our pause in sales and these sanctions and continuing rising tensions could have adverse impacts on us in future periods, although they have not been material to date. For example, with respect to Russia, Belarus and the restricted areas in Ukraine, we did not, prior to the imposition of restrictions, make a material portion of our sales or acquire a material portion of our parts or components directly from impacted regions; however, our suppliers and their suppliers may acquire raw materials for parts or components from the impacted regions. Supply disruptions may make it harder for them to find favorable pricing and reliable sources for materials they need, which may put further upward pressure on their costs and increasing the risks that our costs may increase and that it may be more difficult, or we may be unable, to acquire materials needed. In addition, the crises may further exacerbate inflationary pressures that have indirect impacts on our business, such as further increasing our logistics costs from rising fuel prices and/or continuing to increase our compensation expense. In addition, no assurances can be given that additional developments in the impacted regions, and responses thereto from the U.S. and other global governments, would not have a material adverse effect on our business, results of operations and financial condition.\nOur quarterly operating results have fluctuated and will likely fluctuate in the future, which could cause rapid declines in our stock price. \n \nWe believe that our quarterly operating results will continue to be subject to fluctuation due to various factors, many of which are beyond our control. Factors that may affect quarterly operating results include: \n\u2022\nFluctuations in demand for our products, in part due to changes in the global economic environment;\n\u2022\nFluctuations based upon seasonality, with the quarters ending March 31 and September 30 typically being weaker;\nSMCI | 2023 Form 10-K | 11\n\u2022\nContinuing lingering effects from the COVID-19 pandemic, the occurrence of other global pandemics, and other events that impact the global economy or one or more sectors thereof, such as the global economic downturn and recent events in eastern Europe;\n\u2022\nThe ability of our customers and suppliers to obtain financing or fund capital expenditures; \n\u2022\nFluctuations in the timing and size of large customer orders, including with respect to changes in sales and implementation cycles of our products into our customers\u2019 spending plans and associated revenue;\n\u2022\nVariability of our margins based on the mix of server and storage systems, subsystems and accessories we sell and the percentage of our sales to internet data center, cloud computing customers or certain geographical regions;\n\u2022\nFluctuations in availability and costs associated with key components, particularly semiconductors, memory, storage solutions, and other materials needed to satisfy customer requirements;\n\u2022\nThe timing of the introduction of new products by leading microprocessor vendors and other suppliers;\n\u2022\nThe introduction and market acceptance of new technologies and products, and our success in emergent and rapidly evolving markets (such as AI), and incorporating emerging technologies in our products, as well as the adoption of new standards;\n\u2022\nChanges in our product pricing policies, including those made in response to new product announcements and fluctuations in availability and costs of key components;\n\u2022\nMix of whether customer purchases are of partially or fully integrated systems or subsystems and accessories and whether made directly or through our indirect sales channel partners;\n\u2022\nThe effect of mergers and acquisitions among our competitors, suppliers, customers, or partners; \n\u2022\nGeneral economic conditions in our geographic markets;\n\u2022\nGeopolitical tensions, including trade wars, tariffs and/or sanctions in our geographic markets; and\n\u2022\nImpact of regulatory changes on our cost of doing business.\n \nIn addition, customers may hesitate to purchase, or not continue to purchase, our products based upon past unwarranted reports about security risks associated with the use of our products. Accordingly, our growth and results of operations may fluctuate on a quarterly basis. If we fail to meet expectations of investors or analysts, our stock price may fall rapidly and without notice. Furthermore, the fluctuation of quarterly operating results may render less meaningful period-to-period comparisons of our operating results, and you should not rely upon them as an indication of future performance.\nOur revenue and margins for a particular period are difficult to predict, and a shortfall in revenue or decline in margins may harm our operating results. \nAs a result of a variety of factors discussed in this Annual Report, our revenue and margins for a particular quarter are difficult to predict, especially in light of a challenging and inconsistent global macroeconomic environment, lingering impacts of the COVID-19 pandemic, the global economic downturn, recent events in eastern Europe, volatility in emergent and rapidly evolving markets (such as AI), steps we are taking in response thereto, increased competition, the effects of the ongoing trade disputes between the United States and China and related market uncertainty. Our revenue may grow at a slower rate than in past periods or decline. Our ability to meet financial expectations could also be adversely affected if the nonlinear sales pattern seen in some of our past quarters recurs in future periods.  \nThe timing of large orders can also have a significant effect on our business and operating results from quarter to quarter. From time to time, we receive large orders that have a significant effect on our operating results in the period in which the order is recognized as revenue. For instance, our larger customers may seek to fulfill all or substantially all of their requirements in a single or a few orders, and not make another significant purchase for a substantial period of time. The timing of such orders is difficult to predict, and the timing of revenue recognition from such orders may affect period to period changes in revenue. When we issue credit in connection with large orders, in the event customers to do not pay or make timely payment our ability to collect amounts owed to us creates risk. We have in the past, and may continue in the future, on a case by case basis, take steps to mitigate collection risks, such as seeking third party insurance with respect to credit issued and taking a security interest in goods we have sold to customers pending collection of any credit given. However, we cannot assure that such measures will be effective to collect on all or part of any such credit issued. As a result, our operating results could vary materially from quarter to quarter based on the receipt of such orders and their ultimate recognition as revenue.\nWe plan our operating expense levels based primarily on forecasted revenue levels. These expenses and the impact of long-term commitments are relatively fixed in the short term. A shortfall in revenue could lead to operating results being below expectations because we may not be able to quickly reduce these fixed expenses in response to short-term business changes. Any of the above factors could have a material adverse impact on our operations and financial results. \nSMCI | 2023 Form 10-K | 12\nAs we increasingly target larger customers and larger sales opportunities, our customer base may become more concentrated, our cost of sales may increase, our margins may be lower, our borrowings to fund purchases of key components may be higher, we are exposed to inventory risks and increased credit risks, and our sales may be less predictable.  \n We have become increasingly dependent upon larger sales to grow our business. In particular, in recent years, we have completed larger sales to leading internet data center and cloud customers, large enterprise customers and OEMs. While no single customer accounted for 10% or more of net sales in any of fiscal years 2023, 2022 or 2021, we may have customers account for 10% or more of net sales in the future. If customers buy our products in greater volumes and their business becomes a larger percentage of our net sales, we may grow increasingly dependent on those customers to maintain our growth. If our largest customers do not purchase our products, or we are unable to supply such customers with products, at the levels, in the timeframes or within the geographies that we expect, including as a result of the global economic downturn, lingering impacts of the COVID-19 pandemic, or recent events in eastern Europe on their or our businesses, our ability to maintain or grow our net sales will be adversely affected. \n \nIncreased sales to larger customers may also cause fluctuations in results of operations. Large orders are generally subject to intense competition and pricing pressure which can have an adverse impact on our margins and results of operations. Accordingly, a significant increase in revenue during the period in which we recognize the revenue from a large customer may be followed by a period of time during which the customer either does not purchase any products or only a small number of our products. \n Additionally, as we and our partners focus increasingly on selling to larger customers and attracting larger orders, we expect greater costs of sales. Our sales cycle may become longer, and more expensive, as larger customers typically spend more time negotiating contracts than smaller customers. Such larger orders may require greater commitments of working capital, which may require increased borrowings under our credit facilities to fund purchases of key components (such as CPUs, memory, SSDs and GPUs) necessary for such orders, which could adversely affect our cash flow and expose us to the risk of holding excess and obsolete inventory, if there are delays or cancellations. Furthermore, larger customers also often seek greater levels of support in the implementation and use of our server solutions. An actual or perceived inability to meet customer support demands may adversely affect our relationship with such customers, which may affect the likelihood of future purchases of our products. Larger customers may also request larger amounts of credit or longer payment terms, which, if granted, increases our risks in the event customers to do not pay or make timely payment, which risk is exacerbated in the event our payment terms with major suppliers of necessary components for such orders do not match the payment terms of our customers.\n As a result of the above factors, our quarter-to-quarter results of operations may be subject to greater fluctuation and our stock price may be adversely affected.\nSMCI | 2023 Form 10-K | 13\nIf we fail to meet any publicly announced financial guidance or other expectations about our business, it could cause our stock to decline in value. \n \nWe \ng\nenerally provide forward looking financial guidance when we announce our financial results for the prior quarter. No assurances can be given that we will continue to provide forward looking financial guidance, and if we do issue forward looking guidance, the uncertainties related to these items could cause us to revise such guidance. If issued, we undertake no obligation to update any forward-looking guidance at any time. In the past, our financial results have failed to meet the guidance we provided. There are a number of reasons why we have at times failed to meet guidance in the past and might fail again in the future, including, but not limited to, the factors described in these Risk Factors.\nWe may be unable to secure additional financing on favorable terms, or at all, which in turn could impair the rate of our growth.\nWe had net income of $640.0 million, $285.2 million and $111.9 million in fiscal years 2023, 2022 and 2021, respectively. We believe that our current cash, cash equivalents, borrowing capacity available from our credit facilities and internally generated cash flows will be sufficient to support our operating businesses and maturing debt and interest payments for the 12 months following the issuance of the financial statements included in this Annual Report. Nevertheless, we intend to continue to grow our business, which could require additional capital. Since our initial public offering, we have funded our growth primarily through the cash raised from our operations and credit facilities with banking institutions. We may need to expand our existing credit facilities, enter into new credit facilities or engage in equity, debt or other type of financings to secure additional capital to continue or increase our rate of growth. If we raise additional capital through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we may issue could have rights, preferences and privileges superior to those holders of our common stock. Any credit facility or debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which could make it more difficult for us to raise additional capital and to pursue our growth strategies. If we are unable to secure additional funding on favorable terms, or at all, when we seek it, we may not be able to continue the rate of our growth.  In addition, no assurances can be given that in the event that we secure such financing that the proceeds thereof will be used effectively or result in growth.\nIncreases in average selling prices for our solutions have significantly contributed to increases in net sales in some of the periods covered by this Annual Report. Such prices are subject to decline if customers do not continue to purchase our latest generation products or additional components, which could harm our results of operations.\n Increases in average selling prices for our server solutions have significantly contributed to increases in net sales in some of the periods covered by this Annual Report. The market for key components became, and continues to be, more volatile during the global economic downturn, the COVID-19 pandemic and lingering effects thereof, and recent events in eastern Europe. As with most electronics-based products, average selling prices of server and storage products are typically highest at the time of introduction of new products, which utilize the latest technology, and tend to decrease over time as such products become commoditized and are ultimately replaced by even newer generation products. We cannot predict the timing or amount of any decline in the average selling prices of our server solutions that we may experience in the future, which may be exacerbated by the global economic downturn, lingering effects from the COVID-19 pandemic, and recent events in eastern Europe. In some instances, our agreements with our indirect sales channel partners limit our ability to reduce prices unless we make such price reductions available to them, or price protect their inventory. If we are unable to either (i) decrease the average per unit manufacturing costs faster than the rate at which average selling prices decline or (ii) increase the average selling prices at the same pace at which average per unit manufacturing costs increase, our business, financial condition and results of operations will be harmed.\nSMCI | 2023 Form 10-K | 14\nOur cost structure and ability to deliver server solutions to customers in a timely manner may be adversely affected by volatility of the market for core components and certain materials for our products.\n Prices of certain materials and core components utilized in the manufacture of our server and storage solutions, such as GPUs, serverboards, chassis, CPUs, memory, hard drives and SSDs, represent a significant portion of our cost of sales. While we have increased our purchases of certain critical materials and core components in response to the supply and demand uncertainties, we do not have long-term supply contracts for all critical materials and core components, but instead often purchase these materials and components on a purchase order basis. Prices and availability of these core components and materials are volatile, and, as a result, it is difficult to predict expense levels and operating results. In addition, if our business growth renders it necessary or appropriate to transition to longer term contracts with materials and core component suppliers, our costs may increase, and our gross margins could correspondingly decrease.\n Because we often acquire materials and key components on an as needed basis, we may be limited in our ability to effectively and efficiently respond to customer orders because of the then-current availability or the terms and pricing of these materials and key components, particularly for GPUs during periods of growth of new emerging markets (such as for AI). Our industry has experienced materials shortages and delivery delays in the past, including as a result of increased demand during periods of growth of new emerging markets (such as for AI), the negative impact of COVID-19, the global economic downturn and recent events in eastern Europe on global supply chains, and we may experience shortages or delays of critical materials or increased logistics costs to obtain necessary materials in a timely manner in the future. The COVID-19 pandemic, other macroeconomic factors exacerbated by the COVID-19 pandemic, lingering effects from the COVID-19 pandemic, and other factors, have in the past resulted in, and may in future result in additional shortages of key semiconductors. From time to time, we have been forced to delay the introduction of certain of our products or the fulfillment of customer orders as a result of shortages of materials and key components, which can adversely impact our revenue. If shortages, supply or demand imbalances or delays arise, the prices of these materials and key components may increase or the materials and key components may not be available at all. In the event of shortages, some of our larger competitors may have greater abilities to obtain materials and key components due to their larger purchasing power. We may not be able to secure enough key components or materials at reasonable prices or of acceptable quality to build new products to meet customer demand, which could adversely affect our business, results of operations and financial condition. In addition, from time to time, we have accepted customer orders with various types of component pricing protection. Such arrangements have increased our exposure to component pricing fluctuations and have adversely affected our financial results in certain quarters.\n If we were to lose any of our current supply or contract manufacturing relationships, the process of identifying and qualifying a new supplier or contract manufacturer who meets our quality and delivery requirements, and who will appropriately safeguard our intellectual property, may require a significant investment of time and resources, adversely affecting our ability to satisfy customer purchase orders and delaying our ability to rapidly introduce new products to market. Similarly, if any of our suppliers were to cancel, materially change contracts or commitments to us or fail to meet the quality or delivery requirements needed to satisfy customer demand for our products, whether due to shortages or other reasons, our reputation and relationships with customers could be damaged. We could lose orders, be unable to develop or sell some products cost-effectively or on a timely basis, if at all, and have significantly decreased revenues, margins and earnings, which would have a material adverse effect on our business, results of operations and financial condition.\nSMCI | 2023 Form 10-K | 15\nWe may lose sales or incur unexpected expenses relating to insufficient, excess or obsolete inventory.\n \nTo offer greater choices and optimization of our products to benefit our customers, we maintain a high level of inventory. If we fail to maintain sufficient inventory, we may not be able to meet demand for our products on a timely basis, and our sales may suffer. If we overestimate customer demand for our products, we could experience excess inventory of our products and be unable to sell those products at a reasonable price, or at all. As a result, we may need to record higher inventory reserves. In addition, from time to time we assume greater inventory risk in connection with the purchase or manufacture of more specialized components in connection with higher volume sales opportunities. In the past, we have taken certain actions including our increased purchase of certain critical materials and components as a part of our response planning for various uncertainties and risks, such as those related to the COVID-19 pandemic and lingering effects therefrom. Specifically, we sought to actively manage our supply chain for potential risks of shortage by first building inventories of critical components required for our motherboards and other system printed circuit boards and continued to add to our inventories of key components such as CPUs, memory, SSDs and to a lesser extent GPUs such that customer orders can be fulfilled as they are received. We may continue to take similar actions in the future based upon our assessment of uncertainties and risks. Nevertheless, no assurances can be given that any such efforts will be successful to manage inventory, and we could be exposed to risks of insufficient, excess, or obsolete inventory. We have from time to time experienced inventory write downs associated with higher volume sales that were not completed as anticipated. We expect that we will experience such write downs from time-to-time in the future related to existing and future commitments, and potentially related to any proactive purchase of certain critical materials and components as part of our planning for uncertainties and risks. Excess or obsolete inventory levels for these or other reasons could result in unexpected expenses or increases in our reserves against potential future charges which would adversely affect our business, results of operations and financial condition.\nDifficulties we encounter relating to automating internal controls utilizing our ERP systems or integrating processes that occur in other IT applications could adversely impact our controls environment.\nMany companies have experienced challenges with their ERP systems that have had a negative effect on their business. We have incurred and expect to continue to incur additional expenses related to our ERP systems, particularly as we continue to further enhance and develop them including by automating certain internal controls. Any future disruptions, delays or deficiencies relating to automating internal controls utilizing our ERP systems or integrating processes that occur in other IT applications could adversely affect our ability to file reports with the SEC in a timely manner, deliver accurate financial statements and otherwise impact our controls environment. Any of these consequences could have an adverse effect on our business, results of operations and financial condition.\nSystem security violations, data protection breaches, cyber-attacks\n \nand other related cyber-security issues could disrupt our internal operations or compromise the security of our products, and any such disruption could reduce our expected revenues, increase our expenses, damage our reputation and adversely affect our stock price.\n \nMalicious computer programmers and hackers may be able to penetrate our network and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products. While we employ a number of protective measures, including firewalls, anti-virus and endpoint detection and response technologies, regular annual training of employees with respect to cyber-security, these measures may fail to prevent or detect attacks on our systems. While there have been unauthorized intrusions into our network in the past, none of these intrusions, individually or in the aggregate, had a material adverse effect on our business, operations, or products. We have taken steps to enhance the security of our network and computer systems and we provide regular updates to our Board at our quarterly meetings with respect to cyber-security matters. Despite these efforts, we may experience future intrusions, which could adversely affect our business, operations, or products. In addition, our hardware and software or third-party components and software that we utilize in our products may contain defects in design or manufacture, including \u201cbugs\u201d and other problems that could unexpectedly interfere with the operation or security of the products. The costs to us to eliminate or mitigate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and, if our efforts to address these problems are not successful, could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions. Any claim that our products or systems are subject to a cyber-security risk, whether valid or not, could damage our reputation and adversely impact our revenues and results of operations.   \nSMCI | 2023 Form 10-K | 16\n \nWe manage and store various proprietary information and sensitive or confidential data relating to our business as well as information from our suppliers and customers. Breaches of our or any of our third party suppliers\u2019 security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers or suppliers, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us or our customers or suppliers to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise harm our business.\n \nTo the extent we experience cyber-security incidents in the future, our relationships with our customers and suppliers may be materially impacted, our brand and reputation may be harmed and we could incur substantial costs in responding to and remediating the incidents and in resolving any investigations or disputes that may arise with respect to them, any of which would cause our business, operations, or products to be adversely affected. In addition, the cost and operational consequences of implementing and adding further data protection measures could be significant. \nAny failure to adequately expand or retain our sales force will impede our growth. \n \nWe expect that our direct sales force will continue to grow as larger customers increasingly require a direct sales approach. Competition for direct sales personnel with the advanced sales skills and technical knowledge we need is intense, and we face significant competition for direct sales personnel from our competitors. Our ability to grow our revenue in the future will depend, in large part, on our success in recruiting, training, retaining and successfully managing sufficient qualified direct sales personnel. New hires require significant training and may take six months or longer before they reach full productivity. Our recent hires and planned hires may not become as productive as we would like, we may be unable to hire sufficient numbers of qualified individuals in the future in the markets where we do business, and individuals we hire may not perform pursuant to our expectations in the event of inadequate supervision. If we are unable to hire, develop and retain sufficient numbers of productive sales personnel, our customer relationships and resulting sales of our server solutions will suffer.\nConflicts of interest may arise with Ablecom and Compuware, and they may adversely affect our operations. \n \nWe use Ablecom, a related party, for contract design and manufacturing coordination support and warehousing, and Compuware, also a related party and an affiliate of Ablecom, for distribution, contract manufacturing and warehousing. We work with Ablecom to optimize modular designs for our chassis and certain of other components. We outsource to Compuware a portion of our design activities and a significant part of our manufacturing of subassemblies, particularly power supplies. Our purchases of products from Ablecom and Compuware represented 6.6%, 8.3% and 7.8% of our cost of sales for fiscal years 2023, 2022 and 2021, respectively. Ablecom and Compuware\u2019s sales to us constitute a substantial majority of Ablecom\u2019s and Compuware\u2019s net sales. Ablecom and Compuware are both privately held Taiwan-based companies. In addition, we have entered into a distribution agreement with Compuware, under which we have appointed Compuware as a nonexclusive distributor of our products in Taiwan, China and Australia. Each of Ablecom and Compuware are also developing campuses in close proximity to the campus we are developing in Malaysia to expand our manufacturing.\nSteve Liang, Ablecom\u2019s Chief Executive Officer and largest shareholder, is the brother of Charles Liang, our President, Chief Executive Officer and Chairman of our Board of Directors (the \u201cBoard\u201d). Steve Liang owned no shares of our common stock as of June 30, 2023, 2022 or 2021. Charles Liang and his spouse, Sara Liu, our Co-Founder, Senior Vice President and Director, jointly owned approximately 10.5% of Ablecom\u2019s capital stock, while Mr. Steve Liang and other family members owned approximately 28.8% of Ablecom\u2019s outstanding common stock as of June 30, 2023. Bill Liang, a brother of both Charles Liang and Steve Liang, is a member of the Board of Directors of Ablecom as well.\n \nIn October 2018, our Chief Executive Officer, Charles Liang, personally borrowed approximately $12.9\u00a0million from Chien-Tsun Chang, the spouse of Steve Liang. The loan is unsecured, has no maturity date and bore interest at 0.8% per month for the first six months, increased to 0.85% per month through February 28, 2020, and reduced to 0.25% effective March 1, 2020. The loan was originally made at Mr. Liang's request to provide funds to repay margin loans to two financial institutions, which loans had been secured by shares of our common stock that he held. The lenders called the loans in October 2018, following the suspension of our common stock from trading on NASDAQ in August 2018 and the decline in the market price of our common stock in October 2018. As of June 30, 2023, the amount due on the unsecured loan (including principal and accrued interest) was approximately $16.0 million. \nSMCI | 2023 Form 10-K | 17\n Bill Liang is also the Chief Executive Officer of Compuware, a member of Compuware\u2019s Board of Directors and a holder of a significant equity interest in Compuware. Steve Liang is also a member of Compuware\u2019s Board of Directors and is an equity holder of Compuware.\n \nMr. Charles Liang is our Chief Executive Officer and Chairman of the Board, is a significant stockholder of our company, and has considerable influence over the management of our business relationships. Accordingly, we may be disadvantaged by the economic interests of Mr. Charles Liang and his spouse, Ms. Sara Liu, as stockholders of Ablecom and Mr. Charles Liang's personal relationship with Ablecom\u2019s Chief Executive Officer and Compuware's Chief Executive Officer. We may not negotiate or enforce contractual terms as aggressively with Ablecom or Compuware as we might with an unrelated party, and the commercial terms of our agreements may be less favorable than we might obtain in negotiations with third parties. If our business dealings with Ablecom or Compuware are not as favorable to us as arms-length transactions, our results of operations may be harmed.\n If Ablecom or Compuware are acquired or sold, new ownership could reassess the business and strategy of Ablecom or Compuware, and as a result, our supply chain could be disrupted or the terms and conditions of our agreements with Ablecom or Compuware may change. As a result, our operations could be negatively impacted or costs could increase, either of which could adversely affect our margins and results of operations.\nOur reliance on Ablecom could be subject to risks associated with our reliance on a limited source of contract manufacturing services and inventory warehousing.\n \nWe plan to continue to maintain our manufacturing relationship with Ablecom in Asia. In order to provide a larger volume of contract manufacturing services for us, we anticipate that Ablecom will continue to warehouse for us an increasing number of components and subassemblies manufactured by multiple suppliers prior to shipment to our facilities in the United States and Europe. We also anticipate that we will continue to lease office space from Ablecom in Taiwan to support our research and development efforts. We operate a joint management company with Ablecom to manage the common areas shared by us and Ablecom for our separately constructed manufacturing facilities in Taiwan.\n If our commercial relationship with Ablecom deteriorates, we may experience delays in our ability to fulfill customer orders. Similarly, if Ablecom\u2019s facility in Asia is subject to damage, destruction or other disruptions, our inventory may be damaged or destroyed, and we may be unable to find adequate alternative providers of contract manufacturing services in the time that we or our customers require. We could lose orders and be unable to develop or sell some products cost-effectively or on a timely basis, if at all.\n \nCurrently, we purchase contract manufacturing services primarily for our chassis products from Ablecom. If our commercial relationship with Ablecom were to deteriorate or terminate, establishing direct relationships with those entities supplying Ablecom with key materials for our products or identifying and negotiating agreements with alternative providers of warehouse and contract manufacturing services might take a considerable amount of time and require a significant investment of resources. Pursuant to our agreements with Ablecom and subject to certain exceptions, Ablecom has the exclusive right to be our supplier of the specific products developed under such agreements. As a result, if we are unable to obtain such products from Ablecom on terms acceptable to us, we may need to discontinue a product or develop substitute products, identify a new supplier, change our design and acquire new tooling, all of which could result in delays in our product availability and increased costs. If we need to use other suppliers, we may not be able to establish business arrangements that are, individually or in the aggregate, as favorable as the terms and conditions we have established with Ablecom. If any of these things should occur, our net sales, margins and earnings could significantly decrease, which would have a material adverse effect on our business, results of operations and financial condition.\nSMCI | 2023 Form 10-K | 18\nIf negative publicity arises with respect to us, our employees, our third-party service providers or our partners, our business and operating results could be adversely affected, regardless of whether the negative publicity is true.\nNegative publicity about our company or our products, even if inaccurate or untrue, could adversely affect our reputation and the confidence in our products, which could harm our business and operating results. For example, in October 2018, a news article was published alleging that malicious hardware chips were implanted on our motherboards during the manufacturing process at the facilities of a contract manufacturer in China. We undertook a thorough investigation of this claim with the assistance of a leading, independent third-party investigations firm wherein we tested a representative sample of our motherboards, including the specific type of motherboard depicted in the news article and motherboards purchased by companies referenced in the article, as well as more recently manufactured motherboards. After completing these examinations as well as a range of functional tests, the investigations firm reported that it had found no evidence of malicious hardware on our motherboards. In addition, neither the publisher of the news article nor any of our customers have ever provided a single example of any such altered motherboard. However, despite repeated denials of any tampering by our customers and us, and the announcement of the results of this independent investigation, the publication of this false allegation in 2018 had a substantial negative impact on the trading price of our common stock and our reputation. The October 2018 news article, the follow up news article published in January 2021, and any similar future article making similar false allegations, may continue to have a negative impact in the future.\nHarm to our reputation can also arise from many other sources, including employee misconduct, which we have experienced in the past, and misconduct by our partners, consultants and outsourced service providers. Additionally, negative publicity with respect to our partners or service providers could also affect our business and operating results to the extent that we rely on these partners or if our customers or prospective customers associate our company with these partners.\nIf we lose Charles Liang, our President, Chief Executive Officer and Chairman, or any other key employee or are unable to attract additional key employees, we may not be able to implement our business strategy in a timely manner.\n Our future success depends in large part upon the continued service of our current executive management team and other key employees. In particular, Charles Liang, our President, Chief Executive Officer and Chairman of the Board, is critical to the overall management of our company as well as to our strategic direction. Mr. Liang co-founded our company and has been our Chief Executive Officer since our inception. His experience in leading our business and his personal involvement in key relationships with suppliers, customers and strategic partners are extremely valuable to our company. We currently do not have a succession plan for the replacement of Mr. Liang if it were to become necessary. Additionally, we are particularly dependent on the continued service of our existing research and development personnel because of the complexity of our products and technologies. Our employment arrangements with our executives and employees do not require them to provide services to us for any specific length of time, and they can terminate their employment with us at any time, with or without notice, without penalty. The loss of services of any of these executives or of one or more other key members of our team could seriously harm our business.\nOur direct sales efforts may create confusion for our end customers and harm our relationships in our indirect sales channel and with our OEMs.\n \nWe expect our direct sales force to continue to grow as our business grows. As our direct sales force becomes larger, our direct sales efforts may lead to conflicts in our indirect sales channel and with our OEMs, who may view our direct sales efforts as undermining their efforts to sell our products. If an indirect sales channel partner or OEM deems our direct sales efforts to be inappropriate, they may not effectively market our products, may emphasize alternative products from competitors, or may seek to terminate our business relationship. Disruptions in our indirect channels could cause our revenues to decrease or fail to grow as expected. Our failure to implement an effective direct sales strategy that maintains and expands our relationships in our indirect sales channel and with our OEMs could lead to a decline in sales, harm relationships\n \nand adversely affect our business, results of operations and financial condition.\nSMCI | 2023 Form 10-K | 19\nIf we are unable to attract and integrate additional key employees in a manner that enables us to scale our business and operations effectively, or if we do not maintain competitive compensation policies to retain our employees, our ability to operate effectively and efficiently could be limited.\n \nTo execute our growth plan, we must attract additional highly qualified personnel, including additional engineers and executive staff. Competition for qualified personnel is intense, especially in Silicon Valley, where we are headquartered. We have experienced and may continue to experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. If we are unable to attract and integrate additional key employees in a manner that enables us to scale our business and operations effectively, or if we do not maintain competitive compensation policies to retain our employees, our ability to operate effectively and efficiently could be limited.\nStrategic and Industry Risks\nIf we do not successfully manage the expansion of our international manufacturing capacity and business operations, our business could be harmed.\n \nSince inception, we have conducted a majority of our manufacturing operations in San Jose, California. We continue to increase our manufacturing capacity in Taiwan and in the Netherlands and have sought to accelerate manufacturing in Taiwan in order to better diversify our geographical manufacturing concentration. In order to continue to successfully increase our operations in Taiwan, we must efficiently manage our Taiwan operations from our headquarters in San Jose, California and continue to develop a strong local management team. \nWe are also pursuing an expansion of our manufacturing operations into Malaysia. During the second quarter of fiscal year 2023, we entered into a letter of understanding to acquire land in Malaysia. A definitive agreement to acquire such land, subject to various conditions, was subsequently executed in January 2023. We are obtaining early access to such land prior to acquisition, and we anticipate significant capital expenditures will be required for such initiative. To the extent we are unable to recoup expenditures made during our period of early access to such land and we are subsequently unable to complete the acquisition of the land, we could be materially and adversely affected. Furthermore, if we are unable to successfully ramp up our international manufacturing capacity in Taiwan, the Netherlands, Malaysia, or any other jurisdictions we pursue, including the associated construction, increased logistics and warehousing, we may incur unanticipated costs, difficulties in making timely delivery of products or suffer other business disruptions which could adversely impact our results of operations.\nWe may not be able to successfully manage our business for growth and expansion.\n \nWe expect to continue to make investments to pursue new customers, expand our product and service offerings to grow our business, and pursue new business markets and opportunities. We also expect that our annual operating expenses will continue to increase as we invest in sales and marketing, research and development, manufacturing and production infrastructure, software and product service offerings, strengthen customer service and support resources for our customers, and pursue new business markets and opportunities. Our failure to expand operational and financial or internal control systems timely or efficiently could result in additional operating inefficiencies, which could increase our costs and expenses more than we had planned and prevent us from successfully executing our business plan. We may not be able to offset the costs of operation expansion by leveraging the economies of scale from our growth in negotiations with our suppliers and contract manufacturers. Additionally, if we increase our operating expenses in anticipation of the growth of our business and this growth does not meet our expectations, our financial results will be negatively impacted. There are also no assurances that investments we make to pursue new business markets and opportunities (such as ecommerce in B2B and B2C markets and data center offerings) will be successful or profitable, given the investment costs necessary to pursue these markets and opportunities, which includes investments in technology, people, time, and other overhead costs. \n As our business continues to grows, we will have to manage additional product design projects, materials procurement processes and sales efforts and marketing for an increasing number of SKUs, provide and update an increasing amount of software utilized in our hardware offerings, provide more sophisticated product service offerings to support our customers, expand the number and scope of our relationships with suppliers, distributors and end customers, and (for new business markets and opportunities we pursue) manage different and increasingly complex regulatory landscapes they are subject to. If we fail to manage these additional responsibilities and relationships successfully, we may incur significant costs, which may negatively impact our operating results. Additionally, in our efforts to be first to market with new products with innovative functionality and features, we may devote significant research and development resources to products and product features for which a market does not develop quickly, or at all. If we are not able to predict market trends accurately, we may not benefit from such research and development activities, and our results of operations may suffer.\nSMCI | 2023 Form 10-K | 20\nManaging our business for long-term growth also requires us to successfully manage our employee headcount. We must continue to hire, train and manage new employees as needed. If our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new employees, or if we are not successful in retaining our employees, our business may be harmed. A growth in headcount would continue to increase our cost base, which would make it more difficult for us to offset any future revenue shortfalls by offsetting expense reductions in the short term. If we fail to successfully manage our growth, we will be unable to execute our business plan.\nOur growth into markets outside the United States exposes us to risks inherent in international business operations.\n \nWe market and sell our systems and subsystems and accessories both inside and outside the United States. We intend to expand our international sales efforts, especially into Asia, and we are expanding our business operations in Europe and Asia, particularly in Taiwan, Malaysia, the Netherlands and Japan. In particular, we have made, and continue to make, substantial investments for the purchase of land and the development of new facilities in Taiwan and Malaysia to accommodate our expected growth and the migration of a substantial portion of our contract manufacturing operations. \n Our international expansion efforts may not be successful. Our international operations expose us to risks and challenges that we would otherwise not face if we conducted our business only in the United States, such as:\n\u2022\nHeightened price sensitivity from customers in emerging markets;\n\u2022\nOur ability to establish local manufacturing, support and service functions, and to form channel relationships with value added resellers in non-United States markets;\n\u2022\nLocalization of our systems and components, including translation into foreign languages and the associated expenses;\n\u2022\nCompliance with multiple, conflicting and changing governmental laws and regulations;\n\u2022\nForeign currency fluctuations and inflation;\n\u2022\nLimited visibility into sales of our products by our channel partners;\n\u2022\nGreater concentration of competitors in some foreign markets than in the United States;\n\u2022\nLaws favoring local competitors;\n\u2022\nWeaker legal protections of intellectual property rights and mechanisms for enforcing those rights;\n\u2022\nMarket disruptions created by world events, such as the global economic downturn and recent events in eastern Europe, or by other public health crises in regions outside the United States, such as avian flu, SARS and other diseases;\n\u2022\nImport and export tariffs;\n\u2022\nDifficulties in staffing and the costs of managing foreign operations, including challenges presented by relationships with workers\u2019 councils and labor unions; and\n\u2022\nChanging regional economic and political conditions.\n These factors could limit our future international sales or otherwise adversely impact our operations or our results of operations.\nWe depend upon the development of new products and enhancements to our existing products, and if we fail to predict or respond to emerging technological trends and our customers\u2019 changing needs, our operating results and market share may suffer.\nThe markets for our products are characterized by rapidly changing technology, evolving industry standards, new product introductions, and evolving methods of operations. While our revenues increased in fiscal year 2023, the global economic downturn may affect customer purchasing trends, and our operating results depend on our ability to develop and introduce new products into existing and emerging markets (such as AI) and to reduce the production costs of existing products. If our customers do not purchase our products, our business will be harmed. \nSMCI | 2023 Form 10-K | 21\nThe process of developing products incorporating new technologies is complex and uncertain, and if we fail to accurately predict customers\u2019 changing needs and emerging technological trends our business could be harmed. We must commit significant resources, including the investments we have been making in our strategic priorities to developing new products before knowing whether our investments will result in products and services the market will accept. If the industry does not evolve as we believe it will, or if our strategy for addressing this evolution is not successful, many of our strategic initiatives and investments may be of no or limited value. Also, suppliers of our key components may introduce new technologies that are critical to the functionality of our products at a slower rate than their competition, which could adversely impact our ability to timely develop and provide competitive offerings to our customers. Similarly, our business could be harmed if we fail to develop, or fail to develop in a timely fashion, offerings to address other transitions, or if the offerings addressing these other transitions that ultimately succeed are based on technology, or an approach to technology, different from ours.  In addition, our business could be adversely affected in periods surrounding our new product introductions if customers delay purchasing decisions to qualify or otherwise evaluate the new product offerings.\nFurthermore, we may not execute successfully on our vision or strategy because of challenges with regard to product planning and timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources. This could result in competitors, some of which may also be our suppliers, providing those solutions before we do and loss of market share, revenue, and earnings. The success of new products depends on several factors, including proper new product and service definition, component costs, timely completion and introduction of these products, differentiation of new products from those of our competitors, market acceptance of these products, and providing appropriate support of these products. There can be no assurance that we will successfully identify new product opportunities, develop and bring new products to market in a timely manner, or achieve market acceptance of our products or that products and technologies developed by others will not render our products or technologies obsolete or noncompetitive. The products and technologies in our other product categories and key priority and growth areas may not prove to have the market success we anticipate, and we may not successfully identify and invest in other emerging or new products.\nThe market in which we participate is highly competitive, and if we do not compete effectively, we may not be able to increase our market penetration, grow our net sales or improve our gross margins.\n \nThe market for server and storage solutions is intensely competitive and rapidly changing. The market continues to evolve with the growth of public cloud shifting server and storage purchasing from traditional data centers to lower margin public cloud vendors. Barriers to entry in our market are relatively low and we expect increased challenges from existing as well as new competitors. Some of our principal competitors offer server solutions at a lower price, which has resulted in pricing pressures on sales of our server solutions. We expect further downward pricing pressure from our competitors and expect that we will have to price some of our server and storage solutions aggressively to increase our market share with respect to those products or geographies, particularly for internet data center and cloud customers and other large sale opportunities. If we are unable to maintain the margins on our server and storage solutions, our operating results could be negatively impacted. In addition, if we do not develop new innovative solutions, or enhance the reliability, performance, efficiency and other features of our existing server and storage solutions, our customers may turn to our competitors for alternatives. In addition, pricing pressures and increased competition generally may also result in reduced sales, less efficient utilization of our manufacturing operations, lower margins or the failure of our products to achieve or maintain widespread market acceptance, any of which could have a material adverse effect on our business, results of operations and financial condition.\n \nOur principal competitors include global technology companies such as Cisco, Dell, Hewlett-Packard Enterprise and Lenovo. In addition, we also compete with a number of other vendors who also sell application optimized servers, contract manufacturers/OEMs and ODMs, such as Foxconn, Inspur, Quanta Computer and Wiwynn Corporation. ODMs sell server solutions marketed or sold under a third-party brand.\nSMCI | 2023 Form 10-K | 22\nMany of our competitors enjoy substantial competitive advantages, such as:\n\u2022\nGreater name recognition and deeper market penetration;\n\u2022\nLonger operating histories;\n\u2022\nLarger sales and marketing organizations and research and development teams and budgets;\n\u2022\nMore established relationships with customers, contract manufacturers and suppliers and better channels to reach larger customer bases and larger sales volume allowing for better costs;\n\u2022\nLarger customer service and support organizations with greater geographic scope;\n\u2022\nA broader and more diversified array of products and services; and\n\u2022\nSubstantially greater financial, technical and other resources.\n \nSome of our current or potential ODM competitors are also currently or have in the past been suppliers to us. As a result, they may possess sensitive knowledge or experience which may be used against us competitively and/or which may require us to alter our supply arrangements or sources in a way which could adversely impact our cost of sales or results of operations.\nOur competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. Competitors may seek to copy our innovations and use cost advantages from greater size to compete aggressively with us on price. Certain customers are also current or prospective competitors and as a result, assistance that we provide to them as customers may ultimately result in increased competitive pressure against us. Furthermore, because of these advantages, even if our application optimized server and storage solutions are more effective than the products that our competitors offer, potential customers might accept competitive products in lieu of purchasing our products. The challenges we face from larger competitors will become even greater if consolidation or collaboration between or among our competitors occurs in our industry. Also, initiatives to establish more industry standard data center configurations, could have the impact of supporting an approach which is less favorable to the flexibility and customization that we offer. These changes could have a significant impact on the market and impact our results of operations. For all of these reasons, we may not be able to compete successfully against our current or future competitors, and if we do not compete effectively, our ability to increase our net sales may be impaired.\nIndustry consolidation may lead to increased competition and may harm our operating results.\nThere has been a trend toward consolidation in our industry. We expect this trend to continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations. Companies that are suppliers in some areas of our business may acquire or form alliances with our competitors, thereby reducing their business with us. We believe that industry consolidation may result in stronger competitors that are more likely to compete as sole-source vendors for customers. Additionally, at times in the past, our competitors have acquired certain customers of ours and terminated our business relationships with such customers. As such, acquisitions by our competitors could also lead to more variability in our operating results and could have a material adverse effect on our business, operating results, and financial condition. \nWe must work closely with our suppliers to make timely new product introductions.\n \nWe rely on our close working relationships with our suppliers, including Intel, AMD and NVIDIA, to anticipate and deliver new products on a timely basis when new generation materials and key components are made available. If we are not able to maintain our relationships with our suppliers or continue to leverage their research and development capabilities to develop new technologies desired by our customers, our ability to quickly offer advanced technology and product innovations to our customers would be impaired. We have no long-term agreements that obligate our suppliers to continue to work with us or to supply us with products.\nSMCI | 2023 Form 10-K | 23\nOur suppliers\u2019 failure to improve the functionality and performance of materials and key components for our products may impair or delay our ability to deliver innovative products to our customers.\n We need our material and key component suppliers, such as Intel, AMD and NVIDIA, to provide us with components that are innovative, reliable and attractive to our customers. Due to the pace of innovation in our industry, many of our customers may delay or reduce purchase decisions until they believe that they are receiving best of breed products that will not be rendered obsolete by an impending technological development. Accordingly, demand for new server and storage systems that incorporate new products and features is significantly impacted by our suppliers\u2019 new product introduction schedules and the functionality, performance and reliability of those new products. If our materials and key component suppliers fail to deliver new and improved materials and components for our products, we may not be able to satisfy customer demand for our products in a timely manner, or at all. If our suppliers\u2019 components do not function properly, we may incur additional costs and our relationships with our customers may be adversely affected.\nWe rely on a limited number of suppliers for certain components used to manufacture our products.\nCertain components used in the manufacture of our products are available from a limited number of suppliers. Shortages could occur in these essential materials due to an interruption of supply, including interruptions on the global supply chain (such as did occur in connection with the COVID-19 pandemic, the global economic downturn, and recent events in eastern Europe) or increased demand in the industry (such as did occur due to volatility in emergent and rapidly evolving markets, including AI). Similar future events may cause additional interruptions on the global supply chain. Two of our suppliers accounted for 13.5% and 30.7% of total purchases for the fiscal year ended June 30, 2023. The same two suppliers accounted for 18.1% and 11.4% of total purchases for the fiscal year ended June 30, 2022. The same two suppliers accounted for 20.3% and 11.8% of total purchases for the fiscal years ended June 30, 2021. Ablecom and Compuware, related parties, accounted for\n \n6.6%\n, \n8.3% and 7.8% of our total cost of sales for the fiscal years ended June 30, 2023, 2022 and 2021, respectively. If any of our largest suppliers discontinue their operations or if our relationships with them are adversely impacted, we could experience a material adverse effect on our business, results of operations and financial condition. See also \u201c\u2014 Our cost structure and ability to deliver server solutions to customers in a timely manner may be adversely affected by volatility of the market for core components and certain materials for our products.\u201d\nWe rely on indirect sales channels and any disruption in these channels could adversely affect our sales. \n \nWe depend on our indirect sales channel partners to assist us in promoting market acceptance of our products. To maintain and potentially increase our revenue and profitability, we will have to successfully preserve and expand our existing distribution relationships as well as develop new channel relationships. Our indirect sales channel partners also sell products offered by our competitors and may elect to focus their efforts on these sales. If our competitors offer our indirect sales channel more favorable terms or have more products available to meet the needs of their customers, or utilize the leverage of broader product lines sold through the indirect sales channel, those channel partners may de-emphasize or decline to carry our products. In addition, the order decision-making process in our indirect sales channel is complex and involves several factors, including end customer demand, warehouse allocation and marketing resources, which can make it difficult to accurately predict total sales for the quarter until late in the quarter. We also do not control the pricing or discounts offered by our indirect sales channel partners to the end customers. To maintain our participation in the marketing programs of our indirect sales channel partners, we have provided and expect to continue to offer cooperative marketing arrangements and offer short-term pricing concessions.\nThe discontinuation of cooperative marketing arrangements or pricing concessions could have a negative effect on our business, results of operations and financial condition. Our indirect sales channel partners could also modify their business practices, such as payment terms, inventory levels or order patterns. If we are unable to maintain successful relationships in our indirect sales channel or expand our channel or we experience unexpected changes in payment terms, inventory levels or other practices in our indirect sales channel, our business will suffer.\nSMCI | 2023 Form 10-K | 24\nOur failure to deliver high quality server and storage solutions could damage our reputation and diminish demand for our products.\n \nOur server and storage solutions are critical to our customers\u2019 business operations. Our customers require our server and storage solutions to perform at a high level, contain valuable features and be extremely reliable. The design of our server and storage solutions is sophisticated and complex, and the process for manufacturing, assembling and testing our server solutions is challenging. Occasionally, our design or manufacturing processes may fail to deliver products of the quality that our customers require. For example, in the past certain vendors have provided us with defective components that failed under certain applications. As a result, our products needed to be repaired and we incurred costs in connection with the recall and diverted resources from other projects.\nNew flaws or limitations in our server and storage solutions may be detected in the future. Part of our strategy is to bring new products to market quickly, and first-generation products may have a higher likelihood of containing undetected flaws. If our customers discover defects or other performance problems with our products, our customers\u2019 businesses, and our reputation, may be damaged. Customers may elect to delay or withhold payment for defective or underperforming server and storage solutions, request remedial action, terminate contracts for untimely delivery, or elect not to order additional products, which could result in a decrease in revenue, an increase in our provision for doubtful accounts or in collection cycles for accounts receivable or subject us to the expense and risk of litigation. We may incur expense in recalling, refurbishing or repairing defective server and storage solutions sold to our customers or remaining in our inventory. If we do not properly address customer concerns about our products, our reputation and relationships with our customers may be harmed. For all of these reasons, customer dissatisfaction with the quality of our products could substantially impair our ability to grow our business.\nOur results of operations may be subject to fluctuations based upon our investment in corporate ventures.\n \nWe have a 30% minority interest in a China corporate venture that was established to market and sell corporate venture branded systems in China based upon products and technology we supply. We record earnings and losses from the corporate venture using the equity method of accounting. Our loss exposure is limited to the remainder of our equity investment in the corporate venture which as of June 30, 2023 and 2022 was $2.0 million and $5.3\u00a0million, respectively. We currently do not intend to make any additional investment in this corporate venture. See Part II, Item 8, Note 9, \u201cRelated Party Transactions\u201d to the consolidated financial statements in this Annual Report. We may make investments in other corporate ventures. We do not control this corporate venture and any fluctuation in the results of operations of the corporate venture or any other similar transaction that we may enter into in the future could adversely impact, or result in fluctuations in, our results of operations.\nIn June 2020, the third-party parent company that controls our corporate venture was placed on a U.S. government export control list, along with several related entities. In addition, the United States has further prohibitions on conducting business with certain entities in China and continued to impose additional tariffs. If economic conditions or trade disputes, including trade restrictions and tariffs such as those between the United States and China, in the areas in which we market and sell our products and other key potential markets for our products continue to remain uncertain or deteriorate, it may further affect the value of our investment in the corporate venture. \nLegal and Regulatory Risks\nBecause our products and services may store, process and use data, some of which contains personal information, we are subject to complex and evolving domestic and international laws and regulations regarding privacy, data protection and other matters, which are subject to change.\nBecause our products and services store, process and use data, some of which contains personal information, we are subject to complex and evolving domestic and international laws and regulations regarding privacy, data protection, rights of publicity, content, protection of minors and consumer protection. Many of these laws and regulations, which can be particularly restrictive outside of the U.S., are subject to change and uncertain interpretation. Even our inadvertent failure to comply with such laws and regulations could result in investigations, claims, damages to our reputation, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could materially adversely affect our business, results of operations and financial condition. Costs to comply with and implement these privacy-related and data protection measures could be significant. \nSMCI | 2023 Form 10-K | 25\nGlobal privacy legislation, enforcement, and policy activity for privacy and data protection are rapidly expanding and creating a complex regulatory compliance environment. Costs to comply with and implement these privacy-related and data protection measures could be significant. For example, the EU General Data Protection Regulation 2016/679 (\u201cGDPR\u201d), and further amendments and interpretations thereof, impose stringent EU data protection requirements on companies established in the European Union or companies that offer goods or services to, or monitor the behavior of, individuals in the European Union. The GDPR establishes a robust framework of data subjects\u2019 rights and imposes onerous accountability obligations on companies, including certain data transfer and security mechanisms. Noncompliance with the GDPR can trigger steep fines of up to the greater of 20 million euros or four percent of annual global revenue. \n \nJurisdictions outside of the European Union are also considering and/or enacting comprehensive data protection legislation. For example, on July 8, 2019, Brazil enacted the General Data Protection Law, or the LGPD, and on June 5, 2020, Japan passed amendments to its Act on the Protection of Personal Information, or the APPI. Both laws broadly regulate the processing of personal information in a manner comparable to the GDPR, and violators of the LGPD and APPI face substantial penalties. We also continue to see jurisdictions, such as Russia, imposing data localization laws, which under Russian laws require personal information of Russian citizens to be, among other data processing operations, initially collected, stored, and modified in Russia. Similarly, on November 1, 2021, China\u2019s Personal Information Protection law came into effect, which places restrictions on the transfer of personal information to third parties within China or overseas. These regulations may deter customers from using services such as ours, and may inhibit our ability to expand into those markets or prohibit us from continuing to offer services in those markets without significant financial burden.\nIn addition, numerous states in the U.S. are also expanding data protection through legislation. For example, California\u2019s Consumer Privacy Act (\u201cCCPA\u201d) gives California residents expanded privacy rights and protections and provides for civil penalties for violations and a private right of action for data breaches. Further, California voters approved the ballot initiative known as the California Privacy Rights Act of 2020 (\u201cCPRA\u201d), enforcement of which began on July 1, 2023. The CPRA significantly expands privacy rights for California consumers and creates additional obligations on businesses, which could subject us to additional compliance costs as well as potential fines, individual claims and commercial liabilities. The CPRA also establishes the California Privacy Protection Agency, which has the power to implement and enforce the CCPA and CPRA through administrative actions, including administrative fines. The effects of the CCPA and the CPRA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation.\nOther U.S. states have also enacted data privacy laws that began to take effect in 2023 and impose similar privacy obligations to the CCPA and CPRA. We anticipate that more states may enact legislation similar to these laws, by providing consumers with new privacy rights and increasing the privacy and security obligations of entities handling certain personal information of such consumers. The CCPA continues to prompt a number of proposals for new federal and state-level privacy legislation. Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.\nWe have developed and implemented policies and procedures to address applicable data privacy and protection law requirements. However, because the interpretation and application of many privacy and data protection laws, commercial frameworks, and standards are uncertain, it is possible that these laws, frameworks, and standards may be interpreted and applied in a manner that is inconsistent with our existing data protection practices. If so, we and our customers are at risk of enforcement actions taken by data protection authorities or litigation from consumer advocacy groups acting on behalf of data subjects. In addition to the possibility of fines, lawsuits, breach of contract claims, and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our solutions, which could materially adversely affect our business, results of operations and financial condition.  \nSMCI | 2023 Form 10-K | 26\nOur operations could involve the use of regulated materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive, and may affect our business, results of operations and financial condition.\n \nWe are subject to federal, state and local regulations relating to the use, handling, storage, disposal and human exposure to materials, including hazardous and toxic materials. If we were to violate or become liable under environmental, health and safety laws in the future as a result of our inability to obtain permits, human error, accident, equipment failure or other causes, we could be subject to fines, costs or civil or criminal sanctions, face third-party property damage or personal injury claims or be required to incur substantial investigation or remediation costs, any of which could have a material adverse effect on business, results of operations and financial condition.\n \nWe also face increasing complexity in our product design as we adjust to new requirements relating to the materials composition, energy efficiency and recyclability of our products, including EU eco-design requirements for servers and data storage products (Commission Regulation (EU) 2019/424). We are also subject to laws and regulations providing consumer warnings, such as California\u2019s \u201cProposition 65\u201d which requires warnings for certain chemicals deemed by the State of California to be dangerous. We expect that our operations will be affected by other new environmental laws and regulations on an ongoing basis that will likely result in additional costs and could require that we change the design and/or manufacturing of products, and could have a material adverse effect on business, results of operations or financial condition.\nWe are also subject to the Section 1502 of the Dodd Frank Act concerning the supply of certain minerals coming from the conflict zones in and around the Democratic Republic of Congo and adhere to broader industry best practices to source minerals responsibly from all Conflict-Affected and High-Risk Areas (CAHRA). These requirements and best practices can affect the cost and ease of sourcing minerals used in the manufacture of electronics.\nIf we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decrease.\n \nAs a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report and attestation from our independent registered public accountant on our internal control over financial reporting. Both our evaluation and the external attestation have and will continue to increase our and our independent public accountant costs and expenses.\nIn the past, we have had one or more material weaknesses, which we have remediated.  If we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective, which could cause our stock price to decline. A \u201cmaterial weakness\u201d is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.\nIf we have material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective or if our independent registered public accounting firm is unable to attest that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decrease. We could also become subject to stockholder or other third-party litigation as well as investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources and could result in fines, penalties, trading suspensions or other remedies.\nSMCI | 2023 Form 10-K | 27\nFailure to comply with the U.S. Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, and applicable trade control laws could subject us to penalties and other adverse consequences.\n \nWe manufacture and sell our products in several countries outside of the United States, both to direct and OEM customers as well as through our indirect sales channel. Our operations are subject to the U.S. Foreign Corrupt Practices Act (the \u201cFCPA\u201d) as well as the anti-corruption and anti-bribery laws in the countries where we do business. The FCPA prohibits covered parties from offering, promising, authorizing or giving anything of value, directly or indirectly, to a \u201cforeign government official\u201d with the intent of improperly influencing the official\u2019s act or decision, inducing the official to act or refrain from acting in violation of lawful duty or obtaining or retaining an improper business advantage. The FCPA also requires publicly traded companies to maintain records that accurately and fairly represent their transactions, and to have an adequate system of internal accounting controls. In addition, other applicable anti-corruption laws prohibit bribery of domestic government officials, and some laws that may apply to our operations prohibit commercial bribery, including giving or receiving improper payments to or from non-government parties, as well as so-called \u201cfacilitation\u201d payments. \nIn addition, we are subject to U.S. and other applicable trade control regulations that restrict with whom we may transact business, including the trade sanctions enforced by the U.S. Treasury, Office of Foreign Assets Control. If we fail to comply with laws and regulations restricting dealings with sanctioned countries or companies and/or persons on restricted lists, we may be subject to civil or criminal penalties. Any future violations could have an adverse impact on our ability to sell our products to United States federal, state and local government and related entities. We have business relationships with companies in China and elsewhere in eastern Europe who have been, or may in the future be, added to the restricted party list. We take steps to minimize business disruption when these situations arise; however, we may be required to terminate or modify such relationships if our activities are prohibited by U.S. laws. Further, our association with these parties could subject us to greater scrutiny or reputational harm among current or prospective customers, partners, suppliers, investors, other parties doing business with us or using our products, or the general public. The United States and other countries continually update their lists of export-controlled items and technologies, and may impose new or more-restrictive export requirements on our products in the future. As a result of regulatory changes, we may be required to obtain licenses or other authorizations to continue supporting existing customers or to supply existing products to new customers in China, eastern Europe and elsewhere. Further escalations in trade restrictions or hostilities, particularly between the United States and China, could impede our ability to sell or support our products. We do not sell products or provide services to the Russian Federal Security Service (the \u201cFSB\u201d).  We had last recorded revenue from Russia on February 23, 2022.\n \nIn addition, while we have implemented policies, internal controls and other measures reasonably designed to promote compliance with applicable anti-corruption and anti-bribery laws and regulations, and certain safeguards designed to ensure compliance with U.S. trade control laws, our employees or agents have in the past engaged and may in the future engage in improper conduct for which we could be held responsible. If we, or our employees or agents acting on our behalf, are found to have engaged in practices that violate these laws and regulations, we could suffer severe fines and penalties, profit disgorgement, injunctions on future conduct, securities litigation, bans on transacting government business and other consequences that may have a material adverse effect on our business, results of operations and financial condition. In addition, our brand and reputation, our sales activities or our stock price could be adversely affected if we become the subject of any negative publicity related to actual or potential violations of anti-corruption, anti-bribery or trade control laws and regulations.\nAny failure to protect our intellectual property rights, trade secrets and technical know-how could impair our brand and our competitiveness.\n \nOur ability to prevent competitors from gaining access to our technology is essential to our success. If we fail to protect our intellectual property rights adequately, we may lose an important advantage in the markets in which we compete. Trademark, patent, copyright and trade secret laws in the United States and other jurisdictions as well as our internal confidentiality procedures and contractual provisions are the core of our efforts to protect our proprietary technology and our brand. Our patents and other intellectual property rights may be challenged by others or invalidated through administrative process or litigation, and we may initiate claims or litigation against third parties for infringement of our proprietary rights. Such administrative proceedings and litigation are inherently uncertain and divert resources that could be put towards other business priorities. We may not be able to obtain a favorable outcome and may spend considerable resources in our efforts to defend and protect our intellectual property.\nSMCI | 2023 Form 10-K | 28\n \nFurthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our products are available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate.\n \nAccordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property and using our technology for their competitive advantage. Any such infringement or misappropriation could have a material adverse effect on our business, results of operations and financial condition.\nResolution of claims that we have violated or may violate the intellectual property rights of others could require us to indemnify our customers, indirect sales channel partners or vendors, redesign our products, or pay significant royalties to third parties, and materially harm our business.\n \nOur industry is marked by a large number of patents, copyrights, trade secrets and trademarks and by frequent litigation based on allegations of infringement or other violation of intellectual property rights. Our primary competitors have substantially greater numbers of issued patents than we have which may position us less favorably in the event of any claims or litigation with them. Other third parties have in the past sent us correspondence regarding their intellectual property or filed claims that our products infringe or violate third parties\u2019 intellectual property rights. In addition, increasingly non-operating companies are purchasing patents and bringing claims against technology companies. We have been subject to several such claims and may be subject to such claims in the future. \n \nSuccessful intellectual property claims against us from others could result in significant financial liability or prevent us from operating our business or portions of our business as we currently conduct it or as we may later conduct it. In addition, resolution of claims may require us to redesign our technology to obtain licenses to use intellectual property belonging to third parties, which we may not be able to obtain on reasonable terms, to cease using the technology covered by those rights, and to indemnify our customers, indirect sales channel partners or vendors. Any claim, regardless of its merits, could be expensive and time consuming to defend against, and divert the attention of our technical and management resources.\nProvisions of our certificate of incorporation and bylaws and Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, as a result, depress the trading price of our common stock.\n \nOur certificate of incorporation and bylaws contain provisions that could discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:\n\u2022\nEstablish a classified Board of Directors so that not all members of our Board are generally elected at one time;\n\u2022\nRequire super-majority voting to amend some provisions in our certificate of incorporation and bylaws;\n\u2022\nAuthorize the issuance of \u201cblank check\u201d preferred stock that our Board could issue to increase the number of outstanding shares and to discourage a takeover attempt;\n\u2022\nLimit the ability of our stockholders to call special meetings of stockholders;\n\u2022\nProhibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;\n\u2022\nProvide that our Board is expressly authorized to adopt, alter or repeal our bylaws; and\n\u2022\nEstablish advance notice requirements for nominations for election to our Board or for proposing matters that can be acted upon by stockholders at stockholder meetings.\n In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits \u201cbusiness combinations\u201d between a Delaware corporation and an \u201cinterested stockholder,\u201d which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation\u2019s voting stock for a three-year period following the date that the stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their best interests.\n These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and cause us to take corporate actions other than those stockholders desire.\nSMCI | 2023 Form 10-K | 29\nFinancial Risks\nOur research and development expenditures, as a percentage of our net sales, are considerably higher than many of our competitors and our earnings will depend upon maintaining revenues and margins that offset these expenditures.\n One of our key strategies is to focus on being consistently first-to-market with flexible and application optimized server and storage systems that take advantage of our own internal development and the latest technologies offered by microprocessor manufacturers and other component vendors. Consistent with this strategy, we believe we spend higher amounts, as a percentage of revenues, on research and development costs than many of our competitors. If we cannot sell our products in sufficient volume and with adequate gross margins to compensate for such investment in research and development, our earnings may be materially and adversely affected.\nOur future effective income tax rates could be affected by changes in the relative mix of our operations and income among different geographic regions and by changes in domestic and foreign income tax laws, which could affect our future operating results, financial condition and cash flows. \n \nWe receive significant tax benefits from sales to our non-U.S. customers. These benefits are contingent upon existing tax laws and regulations in the U.S. and in the countries in which our international operations are located. Future changes in domestic or international tax laws and regulations or a change in how we manage our international operations could adversely affect our ability to continue realizing these tax benefits. \nMany countries around the world are beginning to implement legislation and other guidance to align their international tax rules with the Organization for Economic Co-operation and Development\u2019s Base Erosion and Profit Shifting recommendations and related action plans that aim to standardize and modernize global corporate tax policy, including changes to cross-border tax, transfer-pricing documentation rules and nexus-based tax incentive practices. As a result, many of these changes, if enacted, could increase our worldwide effective tax rate and harm our operating results, financial condition, and cash flows. \nOur effective tax rate could also be adversely affected by changes in tax laws and regulations and interpretations of such laws and regulations, which in turn would negatively impact our earnings and cash and cash equivalent balances we currently maintain. Additionally, our effective tax rate could also be adversely affected if there is a change in international operations, our tax structure and how our operations are managed and structured, and as a result, we could experience harm to our operating results and financial condition. \nBacklog does not provide a substantial portion of our net sales in any quarter.\n \nWhile we had greater than normal backlog during certain periods of fiscal year 2023, historically, our net sales are difficult to forecast because we do not have sufficient backlog of unfilled orders or sufficient recurring revenue to meet our quarterly net sales targets at the beginning of a quarter. Rather, a majority of our net sales in any quarter depend upon customer orders that we receive and fulfill in that quarter. Because our expense levels are based in part on our expectations as to future net sales and to a large extent are fixed in the short term, we might be unable to adjust spending in time to compensate for any shortfall in net sales. Accordingly, any significant shortfall of revenues in relation to our expectations would harm our operating results.\nRisks Related to Owning Our Stock\nThe trading price of our common stock is likely to be volatile, and you might not be able to sell your shares at or above the price at which you purchased the shares.\n The trading prices of technology company securities historically have been highly volatile. In addition, the global markets have been volatile, and experienced volatility as a result of matters such as the COVID-19 pandemic, the global economic downturn and recent events in eastern Europe. The trading price of our common stock has been and is likely to continue to be subject to wide fluctuations. Factors, in addition to those outlined elsewhere in this filing, that may affect the trading price of our common stock include:\n\u2022\nActual or anticipated variations in our operating results, including failure to achieve previously provided guidance;\nSMCI | 2023 Form 10-K | 30\n\u2022\nAnnouncements of technological innovations, new products or product enhancements, strategic alliances or significant agreements by us or by our competitors;\n\u2022\nChanges in recommendations by any securities analysts that elect to follow our common stock;\n\u2022\nThe financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;\n\u2022\nFalse or misleading press releases or articles regarding our company or our products;\n\u2022\nThe loss of a key customer;\n\u2022\nThe loss of key personnel;\n\u2022\nTechnological advancements rendering our products less valuable;\n\u2022\nLawsuits filed against us; \n\u2022\nChanges in operating performance and stock market valuations of other companies that sell similar products;\n\u2022\nPrice and volume fluctuations in the overall stock market;\n\u2022\nMarket conditions in our industry, the industries of our customers and the economy as a whole; and\n\u2022\nOther events or factors, including those resulting from war, incidents of terrorism, political instability, pandemics or responses to these events.\nFuture sales of shares by existing stockholders, including any shares that have vested or may in the future vest under the 2021 CEO Performance Award, could cause our stock price to decline.\n Attempts by existing stockholders to sell substantial amounts of our common stock in the public market could cause the trading price of our common stock to decline significantly. All of our shares are eligible for sale in the public market, including shares held by directors, executive officers and other affiliates, sales of which are subject to volume limitations and other requirements under Rule 144 under the Securities Act. In addition, shares subject to outstanding options and reserved for future issuance under our stock option plans, including those underlying the 2021 CEO Performance Award that have vested or vest in the future, are eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements. See \u201cItem 11.  Executive Compensation \u2013 Compensation Discussion and Analysis (\u201cCD&A\u201d) \u2013 Fiscal Year 2023 CEO Compensation \u2013 Discussion and Analysis of 2021 CEO Performance Award.\u201d If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our common stock could decline.\nFurthermore, additional tranches of the 2021 CEO Performance Award may vest, subject to the achievement of specified annualized revenue milestones (the \u201cAnnualized Revenue Milestones\u201d) and a matching stock price milestone, and if such additional tranches do vest, they would be subject to the risks discussed above. In connection therewith, the Company has determined that the Annualized Revenue Milestones that have not yet been achieved are \u201cprobable of achievement,\u201d for purposes of determining whether to recognize expense associated with the applicable tranche. Such determination is based upon management\u2019s subjective judgment and is not a guarantee that it will be achieved. See Note 10, Stock-based Compensation and Stockholders\u2019 Equity in the Notes to Consolidated Financial Statements.\nThe concentration of our capital stock ownership with insiders likely limits your ability to influence corporate matters.\n As of July 31, 2023, our executive officers, directors, current five percent or greater stockholders and affiliated entities together beneficially owned 42.3% of our common stock, net of treasury stock. As a result, these stockholders, acting together, have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.\nWe do not expect to pay any cash dividends for the foreseeable future.\nWe do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future. In addition, under the terms of the credit agreement with Bank of America, dated April 19, 2018, we cannot pay any dividends, with limited exceptions. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends in the foreseeable future should not purchase our common stock. \nSMCI | 2023 Form 10-K | 31\nGeneral Risks\nOur products may not be viewed as supporting climate change mitigation in the IT sector.\nOur ability to create energy saving products will be a part of climate change mitigation, and we believe one of the keys to our business success. In addition, climate change reporting and product certification are increasingly sought by customers and regulators. If we do not satisfy customer requirements for products that help mitigate climate change, and document how they contribute to such change, it could have a material adverse impact on our business, operating results, and financial conditions.\nOur business and operations may be impacted by natural disaster events, including those brought on by climate change.\nLand, sea and air routes between economic centers are subject to weather events exacerbated by climate change and can disrupt commercial activity. Our most significant business offices, research and development, and manufacturing locations, are in the San Jose, California area and in Taiwan. We are also in the process of developing manufacturing operations in Malaysia. Each region is subject to climate change events and known for earthquakes. While we have adopted a business continuity plan and are taking steps to further diversify our manufacturing locations, there is no certainty it will be effective for significant natural disasters, which could have a material adverse impact on business, operating results, and financial condition.\nThe use of AI by our workforce may present risks to our business.\n \nOur workforce may use AI tools on an unauthorized basis which poses additional risks relating to the protection of data, including the potential exposure of our proprietary confidential information to unauthorized recipients and the misuse of our or third-party intellectual property. Use of AI technology by our workforce may result in allegations or claims against us related to violation of third-party intellectual property rights, unauthorized access to or use of proprietary information and failure to comply with open source software requirements. AI technology may also produce inaccurate responses that could lead to errors in our decision-making, solution development or other business activities, which could have a negative impact on our business, operating results and financial condition. Our ability to mitigate these risks will depend on our continued effective training, monitoring and enforcement of appropriate policies and procedures governing the use of AI technology, and compliance by our workforce.\nExpectations relating to environmental, social and governance considerations expose us to potential liabilities, reputational harm and other unforeseen adverse effects on our business.\nMany governments, regulators, investors, employees, customers and other stakeholders are increasingly focused on environmental, social and governance considerations relating to businesses, including climate change and greenhouse gas emissions, human capital and diversity, equity and inclusion. We make statements about our environmental, social and governance goals and initiatives through information provided on our website, press statements and other communications Responding to these environmental, social and governance considerations and implementation of these goals and initiatives involves risks and uncertainties and requires ongoing investments. The success of our goals and initiatives may be impacted by factors that are outside our control. In addition, some stakeholders may disagree with our goals and initiatives and the focus and views of stakeholders may change and evolve over time and vary depending on the jurisdictions in which we operate. Any failure, or perceived failure, by us to achieve our goals, further our initiatives, adhere to our public statements, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and views could materially adversely affect our business, reputation, results of operations, financial position and stock price.",
+  "item7": ">Item 7.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Management's Discussion and Analysis of Financial Condition and Results of Operations\nThe following discussion should be read in conjunction with the consolidated financial statements and related notes which appear elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report, particularly under the heading \"Risk Factors.\" \nOverview\nWe are a Silicon Valley-based provider of accelerated compute platforms that are application-optimized high performance and high-efficiency server and storage systems for a variety of markets, including enterprise data centers, cloud computing, AI, 5G and edge computing. Our Total IT Solutions include complete servers, storage systems, modular blade servers, blades, workstations, full rack-scale solutions, networking devices, server sub-systems, server management and security software. We also provide global support and services to help our customers install, upgrade and maintain their computing infrastructure. \nWe commenced operations in 1993 and have been profitable every year since inception. For fiscal years 2023, 2022 and 2021, our net income was $640.0 million, $285.2 million and $111.9 million, respectively. In order to increase our sales and profits, we believe that we must continue to develop flexible and application optimized server and storage solutions and be among the first to market with new features and products. We must also continue to expand our software and customer service and support offerings, particularly as we increasingly focus on larger enterprise customers. Additionally, we must focus on development of our sales partners and distribution channels to further expand our market share. We measure our financial success based on various indicators, including growth in net sales, gross profit margin and operating margin. Among the key non-financial indicators of our success is our ability to rapidly introduce new products and deliver the latest application-optimized server and storage solutions. In this regard, we work closely with microprocessor and other key component vendors to take advantage of new technologies as they are introduced. Historically, our ability to introduce new products rapidly has allowed us to benefit from technology transitions such as the introduction of new microprocessors and storage technologies, and as a result, we monitor the product introduction cycles of Intel Corporation, NVIDIA Corporation, Advanced Micro Devices, Inc., Samsung Electronics Company Limited, Micron Technology, Inc. and others closely and carefully. This also impacts our research and development expenditures as we continue to invest more in our current and future product development efforts.\nCOVID-19 Pandemic Impact \nOur business and financial outlook have experienced, and may continue to face, challenges due to adverse macroeconomic conditions and uncertainties. These factors encompass labor shortages, disruptions in the supply chain, inflation, higher interest rates, and fluctuations in capital markets. The global business landscape encountered widespread disruption as a consequence of the COVID-19 pandemic, which commenced in early 2020. The extent of its direct or indirect impact on general market conditions, as well as our business, results of operations, cash flows, and financial condition, is contingent upon uncertain future developments, including the emergence of new variants.\nWe remain committed to continuously assessing the nature and extent of the impact of general macroeconomic conditions and the ongoing COVID-19 pandemic on our business. For a more comprehensive discussion, please refer to the \"Risk Factors\" included in Part I, Item 1A of this Annual Report on Form 10-K.\nFinancial Highlights\nThe following is a summary of financial highlights of fiscal years 2023 and 2022:\n\u2022\nNet sales increased by 37.1% in fiscal year 2023 as compared to fiscal year 2022.\n\u2022\nGross margin increased to 18.0% in fiscal year 2023 from 15.4% in fiscal year 2022, primarily due to product and customer mix and decreased logistic costs.\n\u2022\nOperating expenses increased by 12.3% in fiscal year 2023 as compared to fiscal year 2022, primarily due to the increase in personnel expenses as a result of salary increases, equity grants and a higher headcount.\nSMCI | 2023 Form 10-K | 37\n\u2022\nNet income increased to $640.0 million in fiscal year 2023 as compared to $285.2 million in fiscal year 2022, which was primarily due to the higher net sales and lower operating expenses as a percentage of revenues in fiscal year 2023 as compared to fiscal year 2022.\n\u2022\nOur cash and cash equivalents were $440.5 million and $267.4 million at the end of fiscal years 2023 and 2022, respectively. In fiscal year 2023, we generated net cash of $172.4 million, comprised of $663.6 million provided by operating activities primarily due to increased net income, $448.3 million used in financing activities primarily due to repayment of debt and stock repurchase, and $39.5 million cash used in investing activities primarily due to $36.8\u00a0million in purchases of property and equipment.\nCritical Accounting Policies and Estimates\nGeneral\nOur discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, net sales and expenses. We evaluate our estimates on an on-going basis based on a) historical experience, b) assumptions we believe to be reasonable under the circumstances and are not readily apparent from other sources, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Because these estimates can vary depending on the situation, actual results may differ from the estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and statement of cash flows. These estimates and judgements have not fluctuated significantly for the fiscal year ended June 30, 2023 compared to prior fiscal years.\nA summary of significant accounting policies is included in Part II, Item 8, Note 1, \u201cOrganization and Summary of Significant Accounting Policies\u201d in our notes to the consolidated financial statements in this Annual Report. Management believes the following are the most critical accounting policies and reflect the significant estimates and assumptions used in the preparation of the consolidated financial statements.\nRevenue Recognition\nThe most critical accounting policy estimate and judgments required in applying ASC 606, Revenue Recognition of Contracts from Customers, and our revenue recognition policy relate to the determination of the transaction price, distinct performance obligations and the evaluation of the standalone selling price (the \u201cSSP\u201d) for each performance obligation.\nWe generate revenues from the sale of server and storage systems, subsystems, accessories, services, server software management solutions, and support services. Many of our customer contracts include multiple performance obligations. Judgment is required in determining whether each performance obligation within a customer contract is distinct. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such goods or services are separable from the other aspects of the contractual relationship.\nAs part of determining the transaction price in contracts with customers, we may be required to estimate variable consideration when determining the amount of revenue to recognize. We estimate reserves for future sales returns based on a review of our history of actual returns. Based upon historical experience, a refund liability is recorded at the time of sale for estimated product returns and an asset is recognized for the amount expected to be recorded in inventory upon product return, less the expected recovery costs. We also estimate the costs of customer and distributor programs and incentive offerings such as price protection, customer rebates, as well as the estimated costs of cooperative marketing arrangements where the fair value of the benefit derived from the costs cannot be reasonably estimated. Any provision is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience.\nSMCI | 2023 Form 10-K | 38\nWe allocate the transaction price for each customer contract to each performance obligation based on the relative SSP for each performance obligation within each contract. We recognize the amount of transaction price allocated to each performance obligation within a customer contract as revenue at the time the respective performance obligation is satisfied by transferring control of the promised good or service to a customer. Determining the relative SSP for contracts that contain multiple performance obligations requires significant judgement. We determine standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we apply judgment to estimate the SSP. For substantially all performance obligations, we are able to establish the SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers. We typically establish an SSP range for our products and services, which is reassessed on a periodic basis or when facts and circumstances change. SSP for our products and services can evolve over time due to changes in our pricing practices, internally approved pricing guidelines with respect to geographies, customer type, internal costs, and gross margin objectives for the related performance obligations which can also be influenced by intense competition, changes in demand for our products and services, economic and other factors.\nInventories\nInventories are stated at lower of cost, using weighted average cost method, or net realizable value. Net realizable value is the estimated selling price of our products in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventories consist of purchased parts and raw materials (principally electronic components), work in process (principally products being assembled) and finished goods. We evaluate inventory on a quarterly basis for lower of cost or net realizable value and excess and obsolescence and, as necessary, write down the valuation of inventories based upon our inventory aging, forecasted usage and sales, anticipated selling price, product obsolescence and other factors. Once inventory is written down, its new value is maintained until it is sold or scrapped.\nWe receive various rebate incentives from certain suppliers based on our contractual arrangements, including volume-based rebates. The rebates earned are recognized as a reduction of cost of inventories and reduce the cost of sales in the period when the related inventory is sold. We determine the volume-based rebates to be recognized in the cost of sales on a first-in, first-out basis.\nIncome Taxes\nAs part of the process of preparing our consolidated financial statements, we are required to estimate our taxes in each of the jurisdictions in which we operate. We estimate actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as accruals and allowances not currently deductible for tax purposes. These differences result in deferred tax assets, which are included in our consolidated balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of income become deductible expenses under applicable income tax laws, or when loss or credit carryforwards are utilized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the valuation allowance on deferred tax assets would be recorded in the consolidated statements of income for the period that the adjustment is determined to be required.\nWe recognize tax liabilities for uncertain income tax positions on the income tax return based on the two-step process. The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. Estimating these amounts requires us to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors, including changes in facts or circumstances, changes in applicable tax law, settlement of issues under audit and new exposures. If we later determine that our exposure is lower or that the liability is not sufficient to cover our revised expectations, we adjust the liability and reflect a related charge in our tax provision during the period in which we make such a determination.\nSMCI | 2023 Form 10-K | 39\nStock-Based Compensation\nWe measure and recognize compensation expense for all share-based awards made to employees and non-employees, including stock options, restricted stock units (\"RSUs\") and performance-based restricted stock units (\u201cPRSUs\u201d). We recognize the grant date fair value of all share-based awards over the requisite service period and account for forfeitures as they occur. Stock option and RSU awards are recognized to expense on a straight-line basis over the requisite service period. PRSU awards are recognized to expense using an accelerated method only when it is probable that a performance condition is met during the vesting period. If it is not probable, no expense is recognized and the previously recognized expense is reversed. We base initial accrual of compensation expense on the estimated number of PRSUs that are expected to vest over the requisite service period. That estimate is revised if subsequent information indicates that the actual number of PRSUs is likely to differ from previous estimates. The cumulative effect on current and prior periods of a change in the estimated number of PRSUs expected to vest is recognized in stock-based compensation expense in the period of the change. Previously recognized compensation expense is not reversed if vested stock options, RSUs or PRSUs for which the requisite service has been rendered and the performance condition has been met expire unexercised or are not settled.\nThe fair value of RSUs and PRSUs is based on the closing market price of our common stock on the date of grant. We estimate the fair value of stock options granted using a Black-Scholes option pricing model. This model requires us to make estimates and assumptions with respect to the expected term of the option and the expected volatility of the price of our common stock. The expected term represents the period that our stock-based awards are expected to be outstanding and was determined based on our historical experience. The expected volatility is based on the historical volatility of our common stock. The assumptions used to determine the fair value of the option awards represent management\u2019s best estimates. These estimates involve inherent uncertainties and the application of management\u2019s judgment. Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.\nResults of Operations \nThe following table presents certain items of our consolidated statements of operations expressed as a percentage of revenue.\nYears Ended June\u00a030,\n2023\n2022\n2021\nNet sales\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\nCost of sales\n82.0\u00a0\n%\n84.6\u00a0\n%\n85.0\u00a0\n%\nGross profit\n18.0\u00a0\n%\n15.4\u00a0\n%\n15.0\u00a0\n%\nOperating expenses:\nResearch and development\n4.3\u00a0\n%\n5.2\u00a0\n%\n6.3\u00a0\n%\nSales and marketing\n1.6\u00a0\n%\n1.7\u00a0\n%\n2.4\u00a0\n%\nGeneral and administrative\n1.4\u00a0\n%\n2.0\u00a0\n%\n2.8\u00a0\n%\nTotal operating expenses\n7.3\u00a0\n%\n8.9\u00a0\n%\n11.5\u00a0\n%\nIncome from operations\n10.7\u00a0\n%\n6.5\u00a0\n%\n3.5\u00a0\n%\nOther income (expense), net\n0.1\u00a0\n%\n0.2\u00a0\n%\n(0.1)\n%\nInterest expense\n(0.1)\n%\n(0.1)\n%\n(0.1)\n%\nIncome before income tax provision\n10.7\u00a0\n%\n6.6\u00a0\n%\n3.3\u00a0\n%\nIncome tax provision\n(1.6)\n%\n(1.0)\n%\n(0.2)\n%\nShare of (loss) income from equity investee, net of taxes\n(0.1)\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\nNet income\n9.0\u00a0\n%\n5.6\u00a0\n%\n3.1\u00a0\n%\nSMCI | 2023 Form 10-K | 40\nNet Sales\nNet sales consist of sales of our server and storage solutions, including systems and related services and subsystems and accessories. The main factors that impact net sales of our server and storage systems are the number of compute nodes sold and the average selling prices per node. The main factors that impact net sales of our subsystems and accessories are units shipped and the average selling price per unit. The prices for our server and storage systems range widely depending upon the configuration, including the number of compute nodes in a server system as well as the level of integration of key components such as SSDs and memory. The prices for our subsystems and accessories can also vary widely based on whether a customer is purchasing power supplies, server boards, chassis or other accessories.\nA compute node is an independent hardware configuration within a server system capable of having its own CPU, memory and storage and that is capable of running its own instance of a non-virtualized operating system. The number of compute nodes sold, which can vary by product, is an important metric we use to track our business. Measuring volume using compute nodes enables more consistent measurement across different server form factors and across different vendors. As with most electronics-based product life cycles, average selling prices typically are highest at the time of introduction of new products that utilize the latest technology and tend to decrease over time as such products mature in the market and are replaced by next generation products. Additionally, in order to remain competitive throughout all industry cycles, we actively change our selling price per unit in response to changes in costs for key components such as CPU/GPU, memory and storage.\nThe following table presents net sales by product type for fiscal years 2023, 2022 and 2021 (dollars in millions):\nYears Ended June\u00a030,\n2023 over 2022 Change\n2022 over 2021 Change\n2023\n2022\n2021\n$\n%\n$\n%\nServer and storage systems\n$\n6,569.8\u00a0\n$\n4,463.8\u00a0\n$\n2,790.3\u00a0\n$\n2,106.0\u00a0\n47.2\u00a0\n%\n$\n1,673.5\u00a0\n60.0\u00a0\n%\nPercentage of total net sales\n92.2\u00a0\n%\n85.9\u00a0\n%\n78.4\u00a0\n%\nSubsystems and accessories\n553.7\u00a0\n732.3\u00a0\n767.1\u00a0\n(178.6)\n(24.4)\n%\n(34.8)\n(4.5)\n%\nPercentage of total net sales\n7.8\u00a0\n%\n14.1\u00a0\n%\n21.6\u00a0\n%\nTotal net sales\n$\n7,123.5\u00a0\n$\n5,196.1\u00a0\n$\n3,557.4\u00a0\n$\n1,927.4\u00a0\n37.1\u00a0\n%\n$\n1,638.7\u00a0\n46.1\u00a0\n%\nFiscal Year 2023 Compared with Fiscal Year 2022\nDuring fiscal year 2023 we experienced increased revenue from server and storage systems, particularly from our large enterprise and datacenter customers. The year-over-year increase in net sales of server and storage systems was primarily due to the strong demands from such customers for GPU, high performance computing (\u201cHPC\u201d), and rack-scale solutions which are generally more complex and of higher value, resulting in an increase of average selling prices. The year-over-year decrease in net sales of subsystems and accessories was primarily due to our emphasis on selling full systems and servers. Our services and software revenue, included in server and storage systems revenue, increased by $28.0 million year-over-year. \nFiscal Year 2022 Compared with Fiscal Year 2021\n\u00a0\u00a0\u00a0\u00a0\nDuring fiscal year 2022 we experienced increased revenue from server and storage systems, particularly from our large enterprise and datacenter customers. The year-over-year increase in net sales of server and storage systems was primarily due to an increase of average selling prices per compute node by approximately 32% as well as an increase of approximately 23% in the number of units of compute nodes sold. The year-over-year decrease in net sales of subsystems and accessories was primarily due to our emphasis on selling full systems and servers. Our services and software revenue, included in server and storage systems revenue, increased by $2.5\u00a0million year-over-year. \nSMCI | 2023 Form 10-K | 41\nThe following table presents percentages of net sales by geographic region for fiscal years 2023, 2022 and 2021 (dollars in millions): \nYears Ended June\u00a030,\n2023 over 2022 Change\n2022 over 2021 Change\n2023\n2022\n2021\n$\n%\n$\n%\nUnited States\n$\n4,834.1\u00a0\n$\n3,035.5\u00a0\n$\n2,107.9\u00a0\n$\n1,798.6\u00a0\n59.3\u00a0\n%\n$\n927.6\u00a0\n44.0\u00a0\n%\nPercentage of total net sales\n67.9\u00a0\n%\n58.4\u00a0\n%\n59.3\u00a0\n%\nAsia\n1,050.8\u00a0\n1,139.9\u00a0\n699.7\u00a0\n(89.1)\n(7.8)\n%\n440.2\u00a0\n62.9\u00a0\n%\nPercentage of total net sales\n14.7\u00a0\n%\n21.9\u00a0\n%\n19.7\u00a0\n%\nEurope\n1,003.1\u00a0\n825.2\u00a0\n614.8\u00a0\n177.9\u00a0\n21.6\u00a0\n%\n210.4\u00a0\n34.2\u00a0\n%\nPercentage of total net sales\n14.1\u00a0\n%\n15.9\u00a0\n%\n17.3\u00a0\n%\nOthers\n235.5\u00a0\n195.5\u00a0\n135.0\u00a0\n40.0\u00a0\n20.5\u00a0\n%\n60.5\u00a0\n44.8\u00a0\n%\nPercentage of total net sales\n3.3\u00a0\n%\n3.7\u00a0\n%\n3.7\u00a0\n%\nTotal net sales\n$\n7,123.5\u00a0\n$\n5,196.1\u00a0\n$\n3,557.4\u00a0\n$\n1,927.4\u00a0\n37.1\u00a0\n%\n$\n1,638.7\u00a0\n46.1\u00a0\n%\nFiscal Year 2023 Compared with Fiscal Year 2022\nThe year-over-year increase in overall net sales is the result of increased selling prices and units shipped of product  sold especially to large enterprise and datacenter customers. The United States experienced the highest percentage growth among all regions. This is due to increased demand from datacenter customers in the United States for GPU, high performance computing (\u201cHPC\u201d), and rack-scale solutions. The year-over-year decrease in Asia is mainly due to economic slowdown in China and Japan during fiscal year 2023 which heavily reduced the sales activities in that region.\nFiscal Year 2022 Compared with Fiscal Year 2021\nThe year-over-year increase in overall net sales is the result of increased selling prices and quantities of product shipments. Asia experienced the highest percentage growth among all regions. China, Japan and Korea exceeded the overall regional average of growth, which was the primary driver of the increases in net sales in Asia. Russia experienced a year over year decrease due to the conflict in that region, which decrease had an immaterial impact on our overall performance.\nCost of Sales and Gross Margin\nCost of sales primarily consists of the costs to manufacture our products, including the costs of materials, contract manufacturing, shipping, personnel expenses, including salaries, benefits, stock-based compensation and incentive bonuses, equipment and facility expenses, warranty costs and inventory excess and obsolescence provisions. The primary factors that impact our cost of sales are the mix of products sold and cost of materials, which include purchased parts and material costs, shipping costs, salary and benefits and overhead costs related to production as well as economies of scale gained from higher production volume in our facilities. Cost of sales as a percentage of net sales may increase or decrease over time if the changes in average selling prices are not matched by corresponding changes in our costs. Our cost of sales as a percentage of net sales is also impacted by the extent to which we are able to efficiently utilize our expanding manufacturing capacity. Because we generally do not have long-term fixed supply agreements, our cost of sales is subject to frequent change based on the availability of materials and other market conditions.\nWe use several suppliers and contract manufacturers to design and manufacture subsystems in accordance with our specifications, with most final assembly and testing performed at our manufacturing facilities in the same region where our products are sold. We work with Ablecom, one of our key contract manufacturers and also a related party, to optimize modular designs for our chassis and certain other components. We also outsource to Compuware, also a related party, a portion of our design activities and a significant part of the manufacturing of components, particularly power supplies. Our purchases of products from Ablecom and Compuware combined represented 6.6%, 8.3% and 7.8% of our cost of sales for fiscal years 2023, 2022 and 2021, respectively. For further details on our dealings with related parties, see Part II, Item 8, Note 9, \u201cRelated Party Transactions.\u201d \nSMCI | 2023 Form 10-K | 42\nCost of sales and gross margin for fiscal years 2023, 2022 and 2021, are as follows (dollars in millions):\nYears Ended June\u00a030,\n2023 over 2022 Change\n2022 over 2021 Change\n2023\n2022\n2021\n$\n%\n$\n%\nCost of sales\n$\n5,840.5\u00a0\n$\n4,396.1\u00a0\n$\n3,022.9\u00a0\n$\n1,444.4\u00a0\n32.9\u00a0\n%\n$\n1,373.2\u00a0\n45.4\u00a0\n%\nGross profit\n1,283.0\u00a0\n800.0\u00a0\n534.5\u00a0\n483.0\u00a0\n60.4\u00a0\n%\n265.5\u00a0\n49.7\u00a0\n%\nGross margin\n18.0\u00a0\n%\n15.4\u00a0\n%\n15.0\u00a0\n%\n2.6\u00a0\n%\n0.4\u00a0\n%\nFiscal Year 2023 Compared with Fiscal Year 2022\nThe year-over-year increase in cost of sales was primarily attributed to an increase of $1,379.6 million in costs of materials and contract manufacturing expenses primarily related to the increased shipments of our products and solutions, a $59.2 million increase in overhead costs which includes labor costs attributed to increase of operation activities, a $36.6 million increase in inventory reserves, and a $13.6 million increase in other cost of sales partially offset by a $44.6 million decrease in freight charges due to a reduced need to expedite shipments due to disruptions in the supply chain caused by the COVID-19 pandemic.\n \nThe year-over-year increase in the gross margin percentage was primarily due to favorable product and customer mix and lower other cost of goods sold as a percentage of sales, based on higher volumes.\nFiscal Year 2022 Compared with Fiscal Year 2021\nThe year-over-year increase in cost of sales was primarily attributed to an increase of $1,262.6\u00a0million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume, a $54.9\u00a0million increase in freight charges, a $23.6\u00a0million increase in overhead costs, a $18.9\u00a0million increase due to lower cost recovery of cost paid in prior periods, a $8.3\u00a0million increase in excess and obsolete inventory charges and a $4.9\u00a0million increase in other cost of sales.  \nThe year-over-year increase in the gross margin percentage was primarily due to sales prices increases, product and customer mix and higher capitalization of manufacturing overhead due to higher inventory levels, offset by higher costs from freight, overhead, other cost of sales, excess and obsolete inventory charges, and lower recovery of costs from prior periods.  Since the start of the COVID-19 pandemic, we have experienced an increase in costs of sales, logistics costs as well as direct labor costs as we incentivized our employees. This increase in costs negatively impacts our gross margin, and we expect these higher costs to continue for the duration of the COVID-19 pandemic.\nOperating Expenses \nResearch and development expenses consist of personnel expenses, including salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our research and development personnel, as well as product development costs such as materials and supplies, consulting services, third-party testing services and equipment and facility expenses related to our research and development activities. All research and development costs are expensed as incurred. We occasionally receive non-recurring engineering (\"NRE\") funding from certain suppliers and customers for joint development. Under these arrangements, we are reimbursed for certain research and development costs that we incur as part of the joint development efforts with our suppliers and customers. These amounts offset a portion of the related research and development expenses and have the effect of reducing our reported research and development expenses.\nSales and marketing expenses consist primarily of personnel expenses, including salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our sales and marketing personnel, cost for tradeshows, independent sales representative fees and marketing programs. From time to time, we receive marketing development funding from certain suppliers. Under these arrangements, we are reimbursed for certain marketing costs that we incur as part of the joint promotion of our products and those of our suppliers. These amounts offset a portion of the related expenses and have the effect of reducing our reported sales and marketing expenses. The timing, magnitude and estimated usage of these programs can result in significant variations in reported sales and marketing expenses from period to period. Spending on cooperative marketing, reimbursed by our suppliers, typically increases in connection with new product releases by our suppliers.\nSMCI | 2023 Form 10-K | 43\nGeneral and administrative expenses consist primarily of general corporate costs, including personnel expenses such as salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our general and administrative personnel, financial reporting, information technology, corporate governance and compliance, outside legal, audit, tax fees, insurance and bad debt reserves on accounts receivable.\nOperating expenses for fiscal years 2023, 2022 and 2021 are as follows (dollars in millions):\nYears Ended June\u00a030,\n2023 over 2022 Change\n2022 over 2021 Change\n2023\n2022\n2021\n$\n%\n$\n%\nResearch and development\n$\n307.3\u00a0\n$\n272.3\u00a0\n$\n224.4\u00a0\n$\n35.0\u00a0\n12.9\u00a0\n%\n$\n47.9\u00a0\n21.3\u00a0\n%\nPercentage of total net sales\n4.3\u00a0\n%\n5.2\u00a0\n%\n6.3\u00a0\n%\nSales and marketing\n115.0\u00a0\n90.1\u00a0\n85.7\u00a0\n24.9\u00a0\n27.6\u00a0\n%\n4.4\u00a0\n5.1\u00a0\n%\nPercentage of total net sales\n1.6\u00a0\n%\n1.7\u00a0\n%\n2.4\u00a0\n%\nGeneral and administrative\n99.6\u00a0\n102.4\u00a0\n100.5\u00a0\n(2.8)\n(2.7)\n%\n1.9\u00a0\n1.9\u00a0\n%\nPercentage of total net sales\n1.4\u00a0\n%\n2.0\u00a0\n%\n2.8\u00a0\n%\nTotal operating expenses\n$\n521.9\u00a0\n$\n464.8\u00a0\n$\n410.6\u00a0\n57.1\u00a0\n12.3\u00a0\n%\n54.2\u00a0\n13.2\u00a0\n%\n\u00a0\u00a0\u00a0\u00a0\nFiscal Year 2023 Compared with Fiscal Year 2022\n \n\u00a0\u00a0\u00a0\u00a0\nThe year-over-year increase in research and development expenses was primarily driven by a $43.5 million increase in compensation expenses due to salary increases, higher headcount and the cost of equity awards as we expanded our workforce and invested in key talent, and a $2.6 million increase in product development costs to support the development of next generation products and technologies, offset by a $11.1 million increase in research and development credits received from certain suppliers and customers.\nThe year-over-year increase in sales and marketing expenses was primarily driven by a $23.8\u00a0million increase in compensation expenses due to salary increases, higher headcount and the cost of equity awards and a $4.6 million increase in travel and trade show expenses to drive new sales opportunities for our products and customer support, offset by a $3.5 million increase in marketing development funds received.\nThe year-over-year decrease in general and administrative expenses was primarily due to a $5.2 million decrease in professional fees and other, a $2.0 million decrease in litigation settlement expenses relating to a derivative lawsuit, partially offset by an increase of $4.4 million in compensation expenses associated with the cost of equity awards.\nFiscal Year 2022 Compared with Fiscal Year 2021\n\u00a0\u00a0\u00a0\u00a0\nThe year-over-year increase in research and development expenses was primarily due to a $40.8\u00a0million increase in personnel expenses due to salary increases and a higher headcount, $3.7\u00a0million lower research and development credits from certain suppliers and customers towards our development efforts and a $3.4\u00a0million increase in product development costs.\nThe year-over-year increase in sales and marketing expenses was primarily due to a $9.6\u00a0million increase in personnel expenses due to salary increases and a higher headcount, offset by a $5.7\u00a0million increase in marketing development funds received and a $0.5\u00a0million increase in advertising and other expenses.\nThe year-over-year increase in general and administrative expenses was primarily due to a $4.1\u00a0million increase in legal and litigation settlement expenses and $6.6\u00a0million increase in personnel and other expenses due to salary increases and a higher headcount offset by decrease of $1.5\u00a0million in professional fees driven by lower expenses incurred to remediate the causes that led to the delay in filing our periodic reports with the SEC and the associated restatement of our previously issued financial statements and a $7.3\u00a0million decrease in expense from special performance awards.\nInterest and Other Income (Expense), Net\nOther income (expense), net consists primarily of interest earned on our investment and cash balances and foreign exchange gains and losses. \nInterest expense represents interest expense on our term loans and lines of credit.\nSMCI | 2023 Form 10-K | 44\nInterest and other income (expense), net for fiscal years 2023, 2022 and 2021 are as follows (dollars in millions):\nYears Ended June\u00a030,\n2023 over 2022 Change\n2022 over 2021 Change\n2023\n2022\n2021\n$\n%\n$\n%\nOther income (expense), net\n$\n3.6\u00a0\n$\n8.1\u00a0\n$\n(2.8)\n$\n(4.5)\n(55.6)\n%\n$\n10.9\u00a0\n(389.3)\n%\nInterest expense\n(10.5)\n(6.4)\n(2.5)\n(4.1)\n64.1\u00a0\n%\n(3.9)\n156.0\u00a0\n%\nInterest and other income (expense), net\n$\n(6.9)\n$\n1.7\u00a0\n$\n(5.3)\n$\n(8.6)\n(505.9)\n%\n$\n7.0\u00a0\n(132.1)\n%\nFiscal Year 2023 Compared with Fiscal Year 2022\nThe change of $8.6\u00a0million in interest and other income (expense), net was primarily attributable to a $4.5\u00a0million decrease in foreign exchange gain due to unfavorable currency fluctuations primarily related to our borrowing facilities in Taiwan and a $4.1\u00a0million increase in interest expense due to increase in interest rates on our outstanding loan balances.\nFiscal Year 2022 Compared with Fiscal Year 2021\nThe change of $7.0\u00a0million in interest and other income (expense), net was primarily attributable to a $10.9\u00a0million increase in foreign exchange gain due to favorable currency fluctuations primarily related to our borrowing facilities in Taiwan offset by a $3.9\u00a0million increase in interest expense due to increase in loan balances and interest rates.\nProvision for Income Taxes\nOur income tax provision is based on our taxable income generated in the jurisdictions in which we operate, which primarily include the United States, Taiwan, and the Netherlands. Our effective tax rate differs from the statutory rate primarily due to research and development tax credits, certain non-deductible expenses, tax benefits from foreign derived intangible income and stock-based compensation. A reconciliation of the federal statutory income tax rate to our effective tax rate is set forth in Part II, Item 8, Note 11, \u201cIncome Taxes\u201d to the consolidated financial statements in this Annual Report.\nProvision for income taxes and effective tax rates for fiscal years 2023, 2022 and 2021 are as follows (dollars in millions):\nYears Ended June\u00a030,\n2023 over 2022 Change\n2022 over 2021 Change\n2023\n2022\n2021\n$\n%\n$\n%\nIncome tax provision\n$\n110.7\u00a0\n$\n52.9\u00a0\n$\n6.9\u00a0\n$\n57.8\u00a0\n109.3\u00a0\n%\n$\n46.0\u00a0\n666.7\u00a0\n%\nPercentage of total net sales\n1.6\u00a0\n%\n1.0\u00a0\n%\n0.2\u00a0\n%\nEffective tax rate\n14.7\u00a0\n%\n15.7\u00a0\n%\n5.8\u00a0\n%\nFiscal Year 2023 Compared with Fiscal Year 2022\nThe year-over-year decrease in the effective tax rate is attributable to higher tax deductions from disqualified disposition of stock-based compensation, an increase in the R&D tax credit, and an increase in foreign-derived income. As a result of these favorable elements which were partially offset by certain unfavorable items including an increase in state taxes, the total effective tax rate decreased by 1%, declining from 15.7% in the fiscal year ended June 30, 2022, to 14.7% in the fiscal year ended June 30, 2023.\nFiscal Year 2022 Compared with Fiscal Year 2021\nThe year-over-year increase in the effective tax rate was primarily due to a significant increase in revenue and income before tax. Total effective tax rate increased by 9.5% from 5.8% for the fiscal year ended June 30, 2021 to 15.7% for the fiscal year ended June 30, 2022. This increase was driven by a 15.4% increase in the overall effective tax rate. R&D credit reduced the effective tax rate by 3.5% and foreign derived income reduced the effective tax rate by 1.4%.\nShare of Income (Loss) from Equity Investee, Net of Taxes\nShare of income from equity investee, net of taxes represents our share of income (loss) from the Corporate Venture in which we have a 30% ownership. \nSMCI | 2023 Form 10-K | 45\nShare of income (loss) from equity investee, net of taxes for fiscal years 2023, 2022 and 2021 are as follows (dollars in millions):\nYears Ended June\u00a030,\n2023 over 2022 Change\n2022 over 2021 Change\n2023\n2022\n2021\n$\n%\n$\n%\nShare of income (loss) from equity investee, net of taxes\n$\n(3.6)\n$\n1.2\u00a0\n$\n0.2\u00a0\n$\n(4.8)\n(400.0)\n%\n$\n1.0\u00a0\n(500.0)\n%\nPercentage of total net sales\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\nFiscal Year 2023 Compared with Fiscal Year 2022\nThe period-over-period decrease of $4.8\u00a0million in share of income from equity investee, net of taxes was primarily due to lower net income recognized by the Corporate Venture.\nFiscal Year 2022 Compared with Fiscal Year 2021\nThe period-over-period increase of $1.0\u00a0million in share of income from equity investee, net of taxes was primarily due to more net income recognized by the Corporate Venture.\nLiquidity and Capital Resources\nWe have financed our growth primarily with funds generated from operations, in addition to utilizing borrowing facilities, particularly in relation to an increase in the need for working capital due to longer supply chain manufacturing and delivery times as well as the financing of real property acquisitions and funds received from the exercise of employee stock options. Our cash and cash equivalents were $440.5 million and $267.4 million as of June 30, 2023 and 2022, respectively. Our cash in foreign locations was $192.3 million and $169.5 million as of June 30, 2023 and 2022, respectively. \nAmounts held outside of the U.S. are generally utilized to support non-U.S. liquidity needs. Repatriations generally will not be taxable from a U.S. federal tax perspective but may be subject to state income or foreign withholding tax. Where local restrictions prevent an efficient intercompany transfer of funds, our intent is to keep cash balances outside of the U.S. and to meet liquidity needs through operating cash flows, external borrowings, or both. We do not expect restrictions or potential taxes incurred on repatriation of amounts held outside of the U.S. to have a material effect on our overall liquidity, financial condition or results of operations.\nWe believe that our current cash, cash equivalents, borrowing capacity available from our credit facilities and internally generated cash flows will be sufficient to support our operating businesses and maturing debt and interest payments for the 12 months following the issuance of these consolidated financial statements. On June 17, 2023, the Company through the Taiwan subsidiary, entered into a Notification and Confirmation pursuant to which the Taiwan subsidiary and E.SUN Bank agreed to drawdowns of up to US$30 million for an import o/a financing loan with a tenor of 120 days (the \u201c2023 Import O/A Loan\u201d). We continue to evaluate financing options that may be required to support the growth of our business, if it occurs more rapidly than anticipated.\nOn January 29, 2021, a duly authorized subcommittee of the Board of Directors approved the Prior Repurchase Program, which permitted us to repurchase up to an aggregate of $200.0 million of our common stock at market prices. The program was effective until the earlier of July 31, 2022 or the date when the maximum amount of common stock is repurchased. We had $150.0 million of remaining availability under the Prior Repurchase Program as of June 30, 2022, and such program subsequently expired on July 31, 2022. \nOn August 3, 2022, after the expiration of the Prior Share Repurchase Program on July 31, 2022, a duly authorized subcommittee of our Board approved a new share repurchase program to repurchase shares of our common stock for up to $200 million at prevailing prices in the open market. The share repurchase program is effective until January 31, 2024 or until the maximum amount of common stock is repurchased, whichever occurs first. We repurchased 1,553,350 shares of common stock for $150 million during the fiscal year ended June 30, 2023 under this program and had $50.0 million of remaining availability as of June 30, 2023.\n\u00a0\u00a0\u00a0\u00a0\nSMCI | 2023 Form 10-K | 46\nOur key cash flow metrics were as follows (dollars in millions):\nYears Ended June\u00a030,\n2023 over 2022\n2022 over 2021\n2023\n2022\n2021\nNet cash provided by (used in) operating activities\n$\n663.6\u00a0\n$\n(440.8)\n$\n123.0\u00a0\n$\n1,104.4\u00a0\n$\n(563.8)\nNet cash used in investing activities\n$\n(39.5)\n$\n(46.3)\n$\n(58.0)\n$\n6.8\u00a0\n$\n11.7\u00a0\nNet cash (used in) provided by financing activities\n$\n(448.3)\n$\n522.9\u00a0\n$\n(44.4)\n$\n(971.2)\n$\n567.3\u00a0\nNet increase in cash, cash equivalents and restricted cash\n$\n172.4\u00a0\n$\n35.1\u00a0\n$\n21.1\u00a0\n$\n137.3\u00a0\n$\n14.0\u00a0\nOperating Activities\nNet cash provided by operating activities increased by $1,104.4 million for fiscal year 2023 as compared to fiscal year 2022. The increase was primarily due to an increase in net cash provided from net working capital of $796.7 million, a $354.8 million increase in net income due to the increase in sales of our products and solutions, a $21.6 million increase in stock-based compensation expense as a result of an increase in the cost of equity awards, a $11.1 million decrease in unrealized gain due to currency fluctuation, and a $6.4 million increase in other non-cash items. These changes are offset by an increase of $86.2 million in deferred income taxes primarily due to increase in capitalized research and development costs.\nNet cash provided by operating activities decreased by $563.8 million for fiscal year 2022 as compared to fiscal year 2021. The decrease was primarily due to an increase in net cash required for net working capital of $739.6 million to meet customer demand, support expected business growth and mitigate supply chain risk as a result of the COVID-19 pandemic environment and a $16.2 million decrease in unrealized gain and loss. These decreases are partially offset by increases in provision for excess and obsolete inventories of $8.3 million, depreciation and amortization expense of $4.3 million, stock-based compensation expense of $4.3 million and net income of $173.3 million. Since the beginning of the COVID-19 pandemic and the accompanying supply chain disruptions our management decided to increase our holdings of all components of our inventory (finished goods, work in process and purchased parts and raw materials). This decision reflected our belief that we had opportunities to increase our net sales if we could mitigate the risk of being unable to satisfy customer demand because of these supply chain disruptions, including longer lead times. We expect disruption of the supply chain and longer lead times to continue for the foreseeable future and therefore expect to continue to carry larger amounts of inventory than we would if the supply chain were functioning more normally and predictably.\nInvesting Activities\nNet cash used in investing activities was $39.5 million, $46.3 million and $58.0 million for fiscal years 2023, 2022 and 2021, respectively, as we invested in our Green Computing Park in San Jose to expand our manufacturing capacity and office, expanded our Bade Facility in Taiwan and made purchases of property, plant and equipment.\nFinancing Activities\nNet cash used in financing activities increased by $971.2 million for fiscal year 2023 as compared to fiscal year 2022 primarily due to repurchases of our common stock for $150.0 million reflecting our commitment to return value to our shareholders and repayment of net borrowings of $813.2 million. Net cash used in financing activities increased by $567.3 million for fiscal year 2022 as compared to fiscal year 2021 primarily due to an increase of $446.2 million in proceeds from borrowings net of repayment, offset by a $130.0 million decrease in stock repurchases.\nOther Factors Affecting Liquidity and Capital Resources\n \nRefer to Part II, Item 8, Note 7, \u201cShort-term and Long-term Debt\u201d in our notes to consolidated financial statements in this Annual Report on Form 10-K for further information on our outstanding debt.\nSMCI | 2023 Form 10-K | 47\nCapital Expenditure Requirements\nWe anticipate our capital expenditures in fiscal year 2024 will be in range of $105.0 million to $115.0 million, relating primarily to costs associated with our manufacturing capabilities, including tooling for new products, new information technology investments, and facilities upgrades. During the second quarter of fiscal year 2023, we entered into a letter of understanding to acquire land in Malaysia to expand our manufacturing operations. A definitive agreement to acquire such land, subject to various conditions, was subsequently executed in January 2023. We are obtaining early access to such land prior to the acquisition, and we anticipate additional capital expenditures in fiscal year 2024 of $75.0 million (included in the above range) for such initiative. In addition, we will continue to evaluate new business opportunities and new markets. As a result, our future growth within the existing business or new opportunities and markets may dictate the need for additional facilities and capital expenditures to support that growth. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment.\nWe intend to continue to focus our capital expenditures in fiscal year 2024 to support the growth of our operations. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced software and services offerings and investments in our office facilities and our IT system infrastructure.\nContractual Obligations\nOur estimated future obligations as of June 30, 2023, include both current and long term obligations. For our long-term debt as noted in Part II, Item 8, Note 7, \u201cShort-term and Long-term Debt\u201d, we have a current obligation of $170.1 million and a long-term obligation of $120.2 million. Under our operating leases as noted in Part II, Item 8, Note 8, \"Leases\", we have a current obligation of $7.8\u00a0million and a long-term obligation of $12.2\u00a0million. As noted in Part II, Item 8, Note 12, \"Commitments and Contingencies\", we have current obligations related to noncancelable purchase commitments of $2.3\u00a0billion. \nWe have not provided a detailed estimate of the payment timing of unrecognized tax benefits due to the uncertainty of \nwhen the related tax settlements will become due. See Part II, Item 8, Note 11, \u201cIncome Taxes\u201d to the consolidated financial statements in this Annual Report for a discussion of income taxes.\nRecent Accounting Pronouncements\nFor a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Part II, Item 8, Note 1, \u201cOrganization and Summary of Significant Accounting Policies\u201d to the consolidated financial statements in this Annual Report.\nSMCI | 2023 Form 10-K | 48",
+  "item7a": ">Item 7A.\u00a0\u00a0\u00a0\u00a0Quantitative and Qualitative Disclosure About Market Risk\nInterest Rate Risk\nThe primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing the risk. Some of the securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the fair value of the investment to fluctuate. To minimize this risk, we maintain our portfolio of cash equivalents and short-term investments in money market funds and certificates of deposit. Our investment in an auction rate security has been classified as non-current due to the lack of a liquid market for these securities. Since our results of operations are not dependent on investments, the risk associated with fluctuating interest rates is limited to our investment portfolio, and we believe that a 10% change in interest rates would not have a significant impact on our results of operations. As of June 30, 2023, our investments were in money market funds, certificates of deposits and auction rate securities. \nWe are exposed to changes in interest rates as a result of our borrowings under our term loan and revolving lines of credit. The interest rates for the term loans and the revolving lines of credit ranged from 1.20% to 7.08% at June 30, 2023. Based on the outstanding principal indebtedness of $290.3 million under our credit facilities as of June 30, 2023, we believe that a 10% change in interest rates would not have a significant impact on our results of operations. \nForeign Currency Risk\nTo date, our international customer and supplier agreements have been denominated primarily in U.S. dollars and accordingly, we have limited exposure to foreign currency exchange rate fluctuations from customer agreements, and do not currently engage in foreign currency hedging transactions. The functional currency of our subsidiaries in the Netherlands and Taiwan is the U.S. dollar. However, certain loans and transactions in these entities are denominated in a currency other than the U.S. dollar, and thus we are subject to foreign currency exchange rate fluctuations associated with re-measurement to U.S. dollars. Such fluctuations have not been significant historically. Realized and unrealized foreign exchange gain (loss) for fiscal years 2023, 2022 and 2021 was $0.2 million, $7.7 million and $(3.2) million, respectively.\nSMCI | 2023 Form 10-K | 49",
+  "cik": "1375365",
+  "cusip6": "86800U",
+  "cusip": ["86800U904", "86800U954", "86800u104", "86800U104"],
+  "names": ["SUPER MICRO COMPUTER INC", "Super Micro Computer", "Inc"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1375365/000137536523000036/0001375365-23-000036-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. \u00a0Business.\n\n\n\u00a0\n\n\nThe Company was incorporated in the State of New York on July 22, 1955 and is engaged in the design, development, manufacture and marketing of shock absorption, rate control, and energy storage devices for use in various types of machinery, equipment and structures. \u00a0In addition to manufacturing and selling existing product lines, the Company continues to develop new and advanced technology products. \u00a0\n\n\n\u00a0\n\n\nPrincipal Products\n\n\n\u00a0\n\n\nThe Company manufactures and sells a group of very similar products that have many different applications for customers. \u00a0These similar products are included in one of eight categories; namely, Seismic Dampers, Fluidicshoks\u00ae, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs, Vibration Dampers, Machined Springs and Custom Actuators. \u00a0Custom derivations of all of these products are designed and manufactured for many aerospace and defense applications. \u00a0The following is a summary of the capabilities and applications for these products. \n\n\n\u00a0\n\n\nSeismic Dampers are designed to mitigate the effects of earthquakes on structures and represent a substantial part of the business of the Company. \u00a0Fluidicshoks\u00ae are small, extremely compact shock absorbers with up to 19,200 inch-pound capacities, produced in 12 standard sizes for primary use in the defense, aerospace and commercial industry. \u00a0Crane and industrial buffers are larger versions of the Fluidicshoks\u00ae with up to 10,890,000 inch-pound capacities, produced in more than 50 standard sizes for industrial applications on cranes and crane trolleys, truck docks, ladle and ingot cars, ore trolleys and train car stops. \u00a0Self-adjusting shock absorbers, which include versions of Fluidicshoks\u00ae and crane and industrial buffers, automatically adjust to different impact conditions, and are designed for high cycle application primarily in heavy industry. \u00a0Liquid die springs are used as component parts of machinery and equipment used in the manufacture of tools and dies. \u00a0Vibration dampers are used primarily by the aerospace and defense industries to control the response of electronics and optical systems subjected to air, ship, or spacecraft vibration. \u00a0Machined springs are precisely controlled mechanical springs manufactured from a variety of materials. \u00a0These are used primarily for aerospace applications that require custom features that are not possible with conventional wound coil springs. \u00a0Custom actuators are typically of the gas-charged type, using high pressure, that have custom features not available from other suppliers. \u00a0These actuators are used for special aerospace and defense applications.\n\n\n\u00a0\n\n\nDistribution\n\n\n\u00a0\n\n\nThe Company does not rely on sales representatives in the United\u00a0States but uses the services of several representatives throughout the rest of the world. Specialized technical sales in custom marketing activities outside the U.S.A. are serviced by these sales representatives, under the direction and with the assistance of the Company's President and in-house technical sales staff. \u00a0Sales representatives typically have non-exclusive agreements with the Company, which, in most instances, provide for payment of commissions on sales at 5% to 10% of the product's net aggregate selling price. \u00a0A limited number of distributors also have non-exclusive agreements with the Company to purchase the Company's products for resale purposes. \n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nThe Company faces competition on mature aerospace and defense programs which may use more conventional products manufactured under less stringent government specifications. Two foreign companies and two U.S. companies are the Company's main competitors in the production of crane buffers.\n\n\n\u00a0\n\n\nThe Company competes directly against two other firms supplying structural damping devices for use in the United States. For structural applications outside of the USA, the Company competes directly with several other firms particularly in Japan and Taiwan. \u00a0The Company competes with numerous other firms that supply alternative seismic protection technologies.\n\n\n\u00a0\n\n\nRaw Materials and Supplies\n\n\n\u00a0\n\n\nThe principal raw materials and supplies used by the Company in the manufacture of its products are provided by numerous U.S. and foreign suppliers. \u00a0The loss of any one of these would not materially affect the Company's operations.\n\n\n4\n\n\n\n\n\u00a0\n\n\nDependence Upon Major Customers\n\n\n\u00a0\n\n\nThe Company is not dependent on any one or a few major customers. \u00a0Sales to five customers approximated 30% (7%, 6%, 6%, 6% and 5%, respectively) of net sales for 2023. \u00a0The loss of any or all of these customers, unless the business is replaced by the Company, could result in an adverse effect on the results for the Company.\n\n\n\u00a0\n\n\nPatents, Trademarks and Licenses\n\n\n\u00a0\n\n\nThe Company holds 6 patents expiring at different times until the year 2035.\n\n\n\u00a0\n\n\nTerms of Sale\n\n\n\u00a0\n\n\nThe Company does not carry significant inventory for rapid delivery to customers, and goods are not normally sold with return rights such as are available for consignment sales. \u00a0The Company had no inventory out on consignment and there were no consignment sales for the years ended May 31, 2023 and 2022. \u00a0No extended payment terms are offered. \u00a0During the year ended May 31, 2023, delivery time after receipt of orders averaged 8 to 10 weeks for the Company's standard products. \u00a0Due to the volatility of structural and aerospace/defense programs, progress payments are usually required for larger projects using custom designed components of the Company.\n\n\n\u00a0\n\n\nNeed for Government Approval of Principal Products or Services\n\n\n\u00a0\n\n\nContracts between the Company and the federal government or its independent contractors are subject to termination at the election of the federal government. \u00a0Contracts are generally entered into on a fixed price basis. \u00a0If the federal government should limit defense spending, these contracts could be reduced or terminated, which management believes would have a materially adverse effect on the Company.\n\n\n\u00a0\n\n\nResearch and Development\n\n\n\u00a0\n\n\nTo accommodate growth and to maintain its presence in current markets, the Company engages in product research and development activities in connection with the design of its products.\u00a0 Occasionally, research and development for products in the aerospace and defense sectors is funded by customers or the federal government.\u00a0 The Company also engages in research testing of its products.\u00a0 For the fiscal years ended May 31, 2023 and 2022, the Company expended $1,097,000 and $999,000, respectively, on product research. \u00a0For the years ended May 31, 2023 and 2022, defense sponsored research and development totaled $581,000 and $334,000, respectively.\n\n\n\u00a0\n\n\nGovernment Regulation\n\n\n\u00a0\n\n\nCompliance with federal, state, and local laws and regulations which have been enacted or adopted regulating the discharge of materials into the environment has had no material effect on the Company, and the Company believes that it is in substantial compliance with such provisions.\n\n\n\u00a0\n\n\nThe Company is subject to the Occupational Safety and Health Act (\"OSHA\") and the rules and regulations promulgated thereunder, which establish strict standards for the protection of employees, and impose fines for violations of such standards. \u00a0The Company believes that it is in substantial compliance with OSHA provisions and does not anticipate any material corrective expenditures in the near future. \u00a0The Company currently incurs only moderate costs with respect to disposal of hazardous waste and compliance with OSHA regulations.\n\n\n\u00a0\n\n\nThe Company is also subject to regulations relating to production of products for the federal government. \u00a0These regulations allow for frequent governmental audits of the Company's operations and fairly extensive testing of Company products. \u00a0The Company believes that it is in substantial compliance with these regulations and does not anticipate corrective expenditures in the future. \n\n\n\u00a0\n\n\nEmployees\n\n\n\u00a0\n\n\nExclusive of Company sales representatives and distributors, as of May 31, 2023, the Company had 125 employees, including three executive officers. \u00a0The Company has good relations with its employees.\n\n\n5\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A. \u00a0Risk Factors.\n\n\n\u00a0\n\n\nSmaller reporting companies are not required to provide the information required by this item.\n\n\n\u00a0\n\n",
+  "item7": ">Item 7. \u00a0Management's Discussion and Analysis of Financial Condition and Results of Operations.\n\n\n\u00a0\n\n\nCautionary Statement\n\n\n\u00a0\n\n\nThe Private Securities Litigation Reform Act of 1995 provides a \"safe harbor\" for forward-looking statements. \u00a0Information in this Item 7, \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" and elsewhere in this 10-K that does not consist of historical facts are \"forward-looking statements.\" \u00a0Statements accompanied or qualified by, or containing, words such as \"may,\" \"will,\" \"should,\" \"believes,\" \"expects,\" \"intends,\" \"plans,\" \"projects,\" \"estimates,\" \"predicts,\" \"potential,\" \"outlook,\" \"forecast,\" \"anticipates,\" \"presume,\" \"assume\" and \"optimistic\" constitute forward-looking statements and, as such, are not a guarantee of future performance. \u00a0The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. \u00a0Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; variations in timing and amount of customer orders; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may be beyond the Company's control. \u00a0Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. \u00a0The Company disclaims any obligation to release publicly any updates or revisions to the forward-looking statements herein to reflect any change in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement is based.\n\n\n9\n\n\n\n\n\u00a0\n\n\nApplication of Critical Accounting Policies and Estimates\n\n\n\u00a0\n\n\nThe Company's consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. \u00a0The preparation of the Company's financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported. \u00a0These estimates, assumptions and judgments are affected by management's application of accounting policies, which are discussed in Note 1, \"Summary of Significant Accounting Policies\", and elsewhere in the accompanying consolidated financial statements. As discussed below, our financial position or results of operations may be materially affected when reported under different conditions or when using different assumptions in the application of such policies. \u00a0In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. \u00a0Management believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company's financial statements.\n\n\n\u00a0\n\n\nAccounts Receivable\n\n\n\u00a0\n\n\nOur ability to collect outstanding receivables from our customers is critical to our operating performance and cash flows. \u00a0Accounts receivable are stated at an amount management expects to collect from outstanding balances. \u00a0Management provides for probable uncollectible accounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts after considering the age of each receivable and communications with the customers involved. \u00a0Balances that are collected, for which a credit to a valuation allowance had previously been recorded, result in a current-period reversal of the earlier transaction charging earnings and crediting a valuation allowance. \u00a0\u00a0Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable in the current period. \u00a0The actual amount of accounts written off over the five year period ended May 31, 2023 equaled less than 0.3% of sales for that period. \u00a0The balance of the valuation allowance has increased to $29,000 at May 31, 2023 from $16,000 at May 31, 2022. \u00a0Management does not expect the valuation allowance to materially change in the next twelve months for the current accounts receivable balance.\n\n\n\u00a0\n\n\nInventory\n\n\n\u00a0\n\n\nInventory is stated at the lower of average cost or net realizable value. Average cost approximates first-in, first-out cost.\n\n\n\u00a0\n\n\nMaintenance and other inventory represent stock that is estimated to have a product life-cycle in excess of twelve-months. \u00a0This stock represents certain items the Company is required to maintain for service of products sold, and items that are generally subject to spontaneous ordering.\n\n\n\u00a0\n\n\nThis inventory is particularly sensitive to technical obsolescence in the near term due to its use in industries characterized by the continuous introduction of new product lines, rapid technological advances, and product obsolescence. \u00a0Therefore, management of the Company has recorded an allowance for potential inventory obsolescence. \u00a0Based on certain assumptions and judgments made from the information available at that time, we determine the amount in the inventory allowance. \u00a0If these estimates and related assumptions or the market changes, we may be required to record additional reserves. \u00a0Historically, actual results have not varied materially from the Company's estimates. \u00a0There was $322,000 and $772,000 of inventory disposed of during the years ended May 31, 2023 and 2022. \u00a0The provision for potential inventory obsolescence was $295,000 and zero for the years ended May 31, 2023 and 2022. \u00a0\n\n\n\u00a0\n\n\nRevenue Recognition\n\n\n\u00a0\n\n\nRevenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services.\n\n\n10\n\n\n\n\n\u00a0\n\n\nA performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract\u2019s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations. \u00a0\n\n\nFor contracts with customers in which the Company satisfies a promise to the customer to provide a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time (generally less than one year), using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. \u00a0Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. \u00a0Contract costs include labor, material and overhead. \u00a0Total estimated costs for each of the contracts are estimated based on a combination of historical costs of manufacturing similar products and estimates or quotes from vendors for supplying parts or services towards the completion of the manufacturing process. \u00a0Adjustments to cost and profit estimates are made periodically due to changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements. \u00a0These changes may result in revisions to costs and income and are recognized in the period in which the revisions are determined. \u00a0Any losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. \u00a0\u00a0If total costs calculated upon completion of the manufacturing process in the current period for a contract are more than the estimated total costs at completion used to calculate revenue in a prior period, then the profits in the current period will be lower than if the estimated costs used in the prior period calculation were equal to the actual total costs upon completion. \u00a0Historically, actual results have not varied materially from the Company's estimates. \u00a0Other sales to customers are recognized upon shipment to the customer based on contract prices and terms. \u00a0In the year ended May 31, 2023, 61% of revenue was recorded for contracts in which revenue was recognized over time while 39% was recognized at a point in time. \u00a0In the year ended May 31, 2022, 60% of revenue was recorded for contracts in which revenue was recognized over time while 40% was recognized at a point in time. \n\n\nFor financial statement presentation purposes, the Company nets progress billings against the total costs incurred and estimated earnings on uncompleted contracts. \u00a0The asset, \"costs and estimated earnings in excess of billings,\" represents revenues recognized in excess of amounts billed. \u00a0The liability, \"billings in excess of costs and estimated earnings,\" represents billings in excess of revenues recognized.\n\n\n\u00a0\n\n\nIncome Taxes\n\n\n\u00a0\n\n\nThe provision for income taxes provides for the tax effects of transactions reported in the financial statements regardless of when such taxes are payable. \u00a0Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax and financial statement basis of assets and liabilities. \u00a0The deferred tax assets relate principally to asset valuation allowances such as inventory obsolescence reserves and bad debt reserves and also to liabilities including warranty reserves, accrued vacation, accrued commissions and others. \u00a0The deferred tax liabilities relate primarily to differences between financial statement and tax depreciation. \u00a0Deferred taxes are based on tax laws currently enacted with tax rates expected to be in effect when the taxes are actually paid or recovered. \u00a0\n\n\n\u00a0\n\n\nRealization of the deferred tax assets is dependent on generating sufficient taxable income at the time temporary differences become deductible. \u00a0The Company provides a valuation allowance to the extent that deferred tax assets may not be realized. \u00a0A valuation allowance has not been recorded against the deferred tax assets since management believes it is more likely than not that the deferred tax assets are recoverable. \u00a0The Company considers future taxable income and potential tax planning strategies in assessing the need for a potential valuation allowance. \u00a0In future years the Company will need to generate approximately $7.5 million of taxable income in order to realize our deferred tax assets recorded as of May 31, 2023 of $1,583,000. \u00a0This deferred tax asset balance is 81% ($707,000) more than at the end of the prior year. \u00a0The amount of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income are reduced. \u00a0If actual results differ from estimated results or if the Company adjusts these assumptions, the Company may need to adjust its deferred tax assets or liabilities, which could impact its effective tax rate. \u00a0\n\n\n\u00a0\n\n\nThe Company's practice is to recognize interest related to income tax matters in interest income / expense and to recognize penalties in selling, general and administrative expenses.\n\n\n\u00a0\n\n\nThe Company and its subsidiary file consolidated Federal and State income tax returns. \u00a0As of May 31, 2023, the Company had State investment tax credit carryforwards of approximately $424,000 expiring through May 2028.\n\n\n11\n\n\n\n\n\u00a0\n\n\nResults of Operations\n\n\n\u00a0\n\n\nA summary of the period-to-period changes in the principal items included in the consolidated statements of income is shown below:\n\n\n\u00a0\n\n\nSummary comparison of the years ended May 31, 2023 and 2022\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nIncrease /\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(Decrease)\n\n\n\u00a0\n\n\n\n\nSales, net\n\n\n\u00a0\n\n\n$\n9,332,000\n\u00a0\n\n\n\u00a0\n\n\n\n\nCost of goods sold\n\n\n\u00a0\n\n\n$\n2,893,000\n\u00a0\n\n\n\u00a0\n\n\n\n\nResearch and development costs\n\n\n\u00a0\n\n\n$\n98,000\n\u00a0\n\n\n\u00a0\n\n\n\n\nSelling, general and administrative expenses\n\n\n\u00a0\n\n\n$\n2,005,000\n\u00a0\n\n\n\u00a0\n\n\n\n\nIncome before provision for income taxes\n\n\n\u00a0\n\n\n$\n4,949,000\n\u00a0\n\n\n\u00a0\n\n\n\n\nProvision for income taxes\n\n\n\u00a0\n\n\n$\n901,000\n\u00a0\n\n\n\u00a0\n\n\n\n\nNet income\n\n\n\u00a0\n\n\n$\n4,048,000\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nFor the year ended May 31, 2023\n (All figures being discussed are for the year ended May 31, 2023 as compared to the year ended May 31, 2022.)\n\n\n\u00a0\n\n\n Year ended May 31 \n\n\n Change \n\n\n\n\n\u00a0\n\n\n2023 \n\n\n2022\n\n\n Amount \n\n\n\u00a0\n\n\nPercent \n\n\n\n\nNet Revenue\n\n\n$\n40,199,000\n\u00a0\n\n\n$\n30,867,000\n\u00a0\n\n\n$\n9,332,000\n\u00a0\n\n\n\u00a0\n\n\n30%\n\n\n\n\nCost of sales\n\n\n24,133,000\n\u00a0\n\n\n21,240,000\n\u00a0\n\n\n2,893,000\n\u00a0\n\n\n \u00a0\n\n\n14%\n\n\n\n\nGross profit\n\n\n$\n16,066,000\n\u00a0\n\n\n$\n9,627,000\n\u00a0\n\n\n$\n6,439,000\n\u00a0\n\n\n\u00a0\n\n\n67%\n\n\n\n\n\u2026 as a percentage of net revenues\n\n\n40%\n\n\n31%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nThe Company's consolidated results of operations showed a 30% increase in net revenues and an increase in net income of 181%. Revenues recorded in the current period for long-term projects (\u201cProject(s)\u201d) were 33% more than the level recorded in the prior year. \u00a0We had 52 Projects in process during the current period compared with 45 during the same period last year. \u00a0Revenues recorded in the current period for other-than long-term projects (non-projects) were 26% more than the level recorded in the prior year. \u00a0The number of Projects in-process fluctuates from period to period. \u00a0The changes from the prior period to the current period are not necessarily representative of future results.\n\n\n\u00a0\n\n\nSales of the Company's products are made to three general groups of customers: industrial, structural and aerospace / defense. \u00a0The Company saw a 27% increase from last year\u2019s level in sales to structural customers who were seeking seismic / wind protection for either construction of new buildings and bridges or retrofitting existing buildings and bridges along with a 25% increase in sales to customers in aerospace / defense and an 85% increase in sales to customers using our products in industrial applications. \u00a0The increase in sales to structural customers is primarily from domestic customers. \u00a0\n\n\n\u00a0\n\n\nA breakdown of sales to these three general groups of customers, as a percentage of total net revenue for fiscal years ended May 31, 2023 and 2022 is as follows: \n\n\n\u00a0\n\n\n\u00a0\n\n\nYear ended May 31\n\n\n\n\n\u00a0\n\n\n2023\n\n\n2022\n\n\n\n\nIndustrial\n\n\n10%\n\n\n \u00a07%\n\n\n\n\nStructural\n\n\n51%\n\n\n53%\n\n\n\n\nAerospace / Defense\n\n\n39%\n\n\n40%\n\n\n\n\n\n\n12\n\n\n\n\n\u00a0\n\n\nTotal sales within the USA increased 39% from last year. \u00a0Total sales to Asia increased 2% from the prior year. \u00a0Net revenue by geographic region, as a percentage of total net revenue for fiscal years ended May 31, 2023 and 2022 is as follows:\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear ended May 31\n\n\n\n\n\u00a0\n\n\n2023\n\n\n2022\n\n\n\n\nUSA\n\n\n81%\n\n\n76%\n\n\n\n\nAsia\n\n\n11%\n\n\n14%\n\n\n\n\nOther\n\n\n \u00a08%\n\n\n10%\n\n\n\n\n\n\n\u00a0\n\n\nThe gross profit as a percentage of net revenue of 40% in the current period is nine percentage points greater than the same period of the prior year (31%). The Company has been able to increase sales prices to recover more of the increased costs for materials and labor that were incurred over the past year. Management continues to work with suppliers to obtain more visibility of conditions affecting their respective markets. These actions combined with benefits from the Company\u2019s continuous improvement initiatives and increased volume have helped to improve the gross margin as a percentage of revenue over the prior year.\n\n\n\u00a0\n\n\nAt May 31, 2022, we had 135 open sales orders in our backlog with a total sales value of $23.7 million. \u00a0At May 31, 2023, we had 134 open sales orders in our backlog with a total sales value of $32.5 million. \u00a0$18.1 million of the current backlog is on Projects already in progress. \u00a0$7.6 million of the $23.7 million sales order backlog at May 31, 2022 was in progress at that date. \u00a081% of the sales value in the backlog is for aerospace / defense customers compared to 41% at the end of fiscal 2022. \u00a0As a percentage of the total sales order backlog, orders from structural customers accounted for 15% at May 31, 2023 and 50% at May 31, 2022. \u00a0The Company expects to recognize revenue for the majority of the backlog during the fiscal year ending May 31, 2024, with the remainder during fiscal year ending May 31, 2025. \n\n\n\u00a0\n\n\nThe Company's backlog, revenues, commission expense, gross margins, gross profits, and net income fluctuate from period to period. \u00a0Total sales in the current period and the changes in the current period compared to the prior period, are not necessarily representative of future results.\n\n\n\u00a0\n\n\nSelling, General and Administrative Expenses\n\n\n\u00a0\n\n\nResearch and Development Costs\n\n\n\u00a0\n\n\n\u00a0\n\n\nYears ended May 31\n\n\nChange\n\n\n\n\n\u00a0\n\n\n2023\n\n\n2022\n\n\n Amount \n\n\n\u00a0\n\n\nPercent\n\n\n\n\nR & D \n\n\n \u00a0$ 1,097,000\n\n\n$ 999,000\n\n\n$ \u00a0\u00a098,000\n\n\n\u00a0\n\n\n \u00a0\u00a010%\n\n\n\n\n \u00a0\u00a0\u2026\u00a0as a percentage of net revenues\n\n\n2.7%\n\n\n3.2%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nResearch and development costs increased 10% from the prior year.\n\n\n\u00a0\n\n\nSelling, General and Administrative Expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\nYears ended May 31\n\n\nChange\n\n\n\n\n\u00a0\n\n\n2023\n\n\n2022\n\n\n Amount \n\n\n\u00a0\n\n\nPercent\n\n\n\n\nS G & A\n\n\n$ 8,160,000\n\n\n$ 6,155,000\n\n\n$\u00a02,005,000\n\n\n\u00a0\n\n\n33%\n\n\n\n\n \u00a0\u00a0\u2026\u00a0as a percentage of net revenues\n\n\n20%\n\n\n20%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nSelling, general and administrative expenses increased 33% from the prior year, primarily from increased personnel costs.\n\n\n\u00a0\n\n\nOperating income of $6,809,000 for the year ended May 31, 2023, showed significant improvement from the $2,473,000 operating income in the prior year. \n\n\n\u00a0\n\n\nThe Company's effective tax rate (ETR) is calculated based upon current assumptions relating to the year's operating results and various tax related items. \u00a0The ETR for the fiscal year ended May 31, 2023 is 16%, compared to the ETR for the prior year of 12%. \u00a0\n\n\n13\n\n\n\n\n\u00a0\n\n\nA reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows:\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\nComputed tax provision at the expected statutory rate\n\n\n$\n1,575,000\u00a0\n\u00a0\n\n\n\u00a0\n\n\n$\n538,000\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\n\nTax effect of permanent differences:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nResearch tax credits\n\n\n(284,000)\n\u00a0\n\n\n\u00a0\n\n\n(275,000)\n\u00a0\n\n\n\u00a0\n\n\n\n\nForeign-derived intangible income deduction\n\n\n(67,000)\n\u00a0\n\n\n\u00a0\n\n\n(12,000)\n\u00a0\n\n\n\u00a0\n\n\n\n\nOther permanent differences\n\n\n1,000\u00a0\n\u00a0\n\n\n\u00a0\n\n\n3,000\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\n\nOther\n\n\n(7,000)\n\u00a0\n\n\n\u00a0\n\n\n63,000\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n$\n1,218,000\u00a0\n\u00a0\n\n\n\u00a0\n\n\n$\n317,000\u00a0\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nThe\n \nforeign-derived intangible income deduction is a tax deduction provided to corporations that sell goods or services to foreign customers. \u00a0It became available through Public Law 115-97, known as the Tax Cuts and Jobs Act. \n\n\n\u00a0\n\n\nStock Options\n\n\n\u00a0\n\n\nThe Company has stock option plans which provide for the granting of nonqualified or incentive stock options to officers, key employees and non-employee directors. \u00a0Options granted under the plans are exercisable over a ten-year term. \u00a0Options not exercised by the end of the term expire. \u00a0\n\n\n\u00a0\n\n\nThe Company measures compensation cost arising from the grant of share-based payments to employees at fair value and recognizes such cost in income over the period during which the employee is required to provide service in exchange for the award. \u00a0The Company recognized $417,000 and $201,000 of compensation cost for the years ended May 31, 2023 and 2022. \u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nThe fair value of each stock option grant has been determined using the Black-Scholes model. \u00a0The model considers assumptions related to exercise price, expected volatility, risk-free interest rate, and the weighted average expected term of the stock option grants. \u00a0The Company used a weighted average expected term. \u00a0Expected volatility assumptions used in the model were based on volatility of the Company's stock price for the thirty-month period immediately preceding the granting of the options. \u00a0The Company issued stock options in October 2022 and April 2023. \u00a0The risk-free interest rate is derived from the U.S. treasury yield. \u00a0\n\n\n\u00a0\n\n\nThe following assumptions were used in the Black-Scholes model in estimating the fair market value of the Company's stock option grants:\n\n\n\u00a0\n\n\n\u00a0\n\n\nOctober 2022\n\n\n\u00a0\n\n\nApril 2023\n\n\n\n\nRisk-free interest rate:\n\n\n\u00a0\n\n\n1.625%\n\n\n\u00a0\n\n\n3.25%\n\n\n\n\nExpected life of the options:\n\n\n\u00a0\n\n\n4.1 years\n\n\n\u00a0\n\n\n4.2 years\n\n\n\n\nExpected share price volatility:\n\n\n\u00a0\n\n\n30%\n\n\n\u00a0\n\n\n36%\n\n\n\n\nExpected dividends:\n\n\n\u00a0\n\n\nzero\n\n\n\u00a0\n\n\nzero\n\n\n\n\nThese assumptions resulted in estimated fair-market value per stock option:\n\n\n\u00a0\n\n\n$3.06\n\n\n\u00a0\n\n\n$6.72\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nThe ultimate value of the options will depend on the future price of the Company's common stock, which cannot be forecast with reasonable accuracy. \u00a0A summary of changes in the stock options outstanding during the year ended May 31, 2023 is presented below.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nWeighted-\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nNumber of\n\n\n\u00a0\n\n\nAverage\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nOptions\n\n\n\u00a0\n\n\nExercise Price\n\n\n\n\nOptions outstanding and exercisable at May 31, 2022:\n\n\n\u00a0\n\n\n283,000\n\u00a0\n\n\n\u00a0\n\n\n$\n11.43\n\u00a0\n\n\n\n\nOptions granted:\n\n\n\u00a0\n\n\n85,000\n\u00a0\n\n\n\u00a0\n\n\n$\n15.75\n\u00a0\n\n\n\n\nLess: Options exercised:\n\n\n\u00a0\n\n\n30,500\n\u00a0\n\n\n\u00a0\n\n\n$\n9.57\n\u00a0\n\n\n\n\nLess: Options expired:\n\n\n\u00a0\n\n\n4,500\n\u00a0\n\n\n\u00a0\n\n\n-\n\u00a0\n\n\n\n\nOptions outstanding and exercisable at May 31, 2023:\n\n\n\u00a0\n\n\n333,000\n\u00a0\n\n\n\u00a0\n\n\n$\n12.70\n\u00a0\n\n\n\n\nClosing value per share on NASDAQ at May 31, 2023:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n18.55\n\u00a0\n\n\n\n\n\n\n14\n\n\n\n\n\u00a0\n\n\nCapital Resources, Line of Credit and Long-Term Debt\n\n\n\u00a0\n\n\nThe Company's primary liquidity is dependent upon its working capital needs. \u00a0These are primarily short-term investments, inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued expenses and billings in excess of costs and estimated earnings. \u00a0The Company's primary source of liquidity has been operations. \u00a0\n\n\n\u00a0\n\n\nCapital expenditures for the year ended May 31, 2023 were $3,359,000 compared to $1,392,000 in the prior year. \u00a0Current year capital expenditures included new manufacturing machinery, testing equipment, upgrades to technology equipment and assembly / test facility improvements. \u00a0The Company has commitments to make capital expenditures of approximately $107,000 as of May 31, 2023. \u00a0These capital expenditures will be primarily for new manufacturing and testing equipment.\n\n\n\u00a0\n\n\nThe Company has a $10,000,000 bank demand line of credit, with interest payable at the Company's option of 30, 60 or 90 day LIBOR rate plus 2.25%. Interest payable will change from LIBOR rate plus 2.25% to SOFR rate plus 2.365% effective July 1, 2023. There is no outstanding balance at May 31, 2023 or May 31, 2022. \u00a0The line is secured by a negative pledge of the Company's real and personal property. \u00a0This line of credit is subject to the usual terms and conditions applied by the bank and is subject to renewal annually. \u00a0\n\n\n\u00a0\n\n\nThe bank is not committed to make loans under this line of credit and no commitment fee is charged.\n\n\n\u00a0\n\n\nInventory and Maintenance Inventory\n\n\n\u00a0\n\n\n May 31, 2023 \n\n\n May 31, 2022\n\n\nIncrease /(Decrease)\n\n\n\n\nRaw materials\n\n\n$\n674,000\n\u00a0\n\n\n\u00a0\n\n\n$\n489,000\n\u00a0\n\n\n\u00a0\n\n\n$\n185,000\u00a0\n\u00a0\n\n\n\u00a0\n\n\n38%\n\n\n\n\nWork-in-process\n\n\n5,005,000\n\u00a0\n\n\n\u00a0\n\n\n5,166,000\n\u00a0\n\n\n\u00a0\n\n\n(161,000)\n\u00a0\n\n\n\u00a0\n\n\n-3%\n\n\n\n\nFinished goods\n\n\n262,000\n\u00a0\n\n\n\u00a0\n\n\n200,000\n\u00a0\n\n\n\u00a0\n\n\n62,000\u00a0\n\u00a0\n\n\n\u00a0\n\n\n31%\n\n\n\n\nInventory\n\n\n5,941,000\n\u00a0\n\n\n \u00a086%\n\n\n5,855,000\n\u00a0\n\n\n \u00a084%\n\n\n86,000\u00a0\n\u00a0\n\n\n\u00a0\n\n\n1%\n\n\n\n\nMaintenance and other inventory\n\n\n1,003,000\n\u00a0\n\n\n \u00a014%\n\n\n1,107,000\n\u00a0\n\n\n \u00a016%\n\n\n(104,000)\n\u00a0\n\n\n\u00a0\n\n\n-9%\n\n\n\n\nTotal\n\n\n$\n6,944,000\n\u00a0\n\n\n100%\n\n\n$\n6,962,000\n\u00a0\n\n\n100%\n\n\n$\n(18,000)\n\u00a0\n\n\n\u00a0\n\n\n0%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nInventory turnover\n\n\n3.5\n\n\n\u00a0\n\n\n3.1\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nInventory, at $5,941,000 as of May 31, 2023, is one percent higher than at the prior year-end. \u00a0Of this, approximately 84% is work in process, 4% is finished goods, and 12% is raw materials. \u00a0All of the current inventory is expected to be consumed or sold within twelve months. \u00a0The level of inventory will fluctuate from time to time due to the stage of completion of the non-project sales orders in progress at the time. \n\n\n\u00a0\n\n\nThe Company disposed of approximately $322,000 and $772,000 of obsolete inventory during the years ended May 31, 2023 and 2022, respectively. \u00a0\n\n\n\u00a0\n\n\nAccounts Receivable, Costs and Estimated Earnings in Excess of Billings (\u201cCIEB\u201d) and Billings in Excess of Costs and Estimated Earnings (\u201cBIEC\u201d)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n May 31, 2023 \n\n\n May 31, 2022\n\n\nIncrease /(Decrease)\n\n\n\n\nAccounts receivable\n\n\n5,554,000 \n\n\n\u00a0\n\n\n4,467,000 \n\n\n\u00a0\n\n\n 1,087,000\n\n\n\u00a0\n\n\n24%\n\n\n\n\nCIEB\n\n\n4,124,000 \n\n\n\u00a0\n\n\n3,336,000 \n\n\n\u00a0\n\n\n788,000\n\n\n\u00a0\n\n\n24%\n\n\n\n\nLess: BIEC\n\n\n1,992,000 \n\n\n\u00a0\n\n\n1,123,000 \n\n\n\u00a0\n\n\n869,000\n\n\n\u00a0\n\n\n77%\n\n\n\n\nNet\n\n\n$ \u00a07,686,000 \n\n\n\u00a0\n\n\n$ \u00a06,680,000 \n\n\n\u00a0\n\n\n$ 1,106,000\n\n\n\u00a0\n\n\n15%\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nNumber of an average day\u2019s sales outstanding in accounts receivable (DSO)\n\n\n47\n\n\n\u00a0\n\n\n42\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n15\n\n\n\n\n\u00a0\n\n\nThe Company combines the totals of accounts receivable, the asset CIEB, and the liability BIEC, to determine how much cash the Company will eventually realize from revenue recorded to date. \u00a0As the accounts receivable figure rises in relation to the other two figures, the Company can anticipate increased cash receipts within the ensuing 30-60 days. \u00a0\n\n\n\u00a0\n\n\nAccounts receivable of $5,554,000 as of May 31, 2023 includes approximately $24,000 of amounts retained by customers on long-term construction projects. \u00a0The Company expects to collect all of these amounts, including the retained amounts, during the next twelve months. \u00a0The number of an average day's sales outstanding in accounts receivable (DSO) was 47 days at May 31, 2023 and 42 days at May 31, 2022. \u00a0The Company expects to collect the net accounts receivable balance, including the retainage, during the next twelve months.\n\n\n\u00a0\n\n\nThe status of the projects in-progress at the end of the current and prior fiscal years have changed in the factors affecting the year-end balances in the asset CIEB, and the liability BIEC:\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n2022\n\n\n\n\nNumber of projects in progress at year-end\n\n\n22\n\n\n19\n\n\n\n\nAggregate percent complete at year-end\n\n\n33%\n\n\n47%\n\n\n\n\nAverage total value of projects in progress at year-end\n\n\n$1,285,000\n\n\n$795,000\n\n\n\n\nPercentage of total value invoiced to customer\n\n\n29%\n\n\n35%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nThere are 3 more projects in-process at the end of the current fiscal year as compared with the prior year end and the average value of those projects has increased by 62% between those two dates. \u00a0\n\n\n\u00a0\n\n\nAs noted above, CIEB represents revenues recognized in excess of amounts billed. \u00a0Whenever possible, the Company negotiates a provision in sales contracts to allow the Company to bill, and collect from the customer, payments in advance of shipments. \u00a0Unfortunately, provisions such as this are often not possible. \u00a0The $4,124,000 balance in this account at May 31, 2023 is a 24% increase from the prior year-end. \u00a0This increase reflects the higher aggregate level of the percentage of completion of these Projects as of the current year end as compared with the Projects in process at the prior year end. \u00a0Generally, if progress billings are permitted under the terms of a project sales agreement, then the more complete the project is, the more progress billings will be permitted. \u00a0The Company expects to bill the entire amount during the next twelve months. \u00a046% of the CIEB balance as of the end of the last fiscal quarter, February 28, 2023, was billed to those customers in the current fiscal quarter ended May 31, 2023. \u00a0The remainder will be billed as the projects progress, in accordance with the terms specified in the various contracts.\n\n\n\u00a0\n\n\nThe year-end balances in the CIEB account are comprised of the following components:\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nMay 31, 2023\n\n\n\u00a0\n\n\nMay 31, 2022\n\n\n\n\nCosts\n\n\n$ \u00a03,006,000\n\n\n\u00a0\n\n\n$ \u00a03,250,000\n\n\n\n\nEstimated earnings\n\n\n2,648,000\n\n\n\u00a0\n\n\n2,642,000\n\n\n\n\nLess: Billings to customers\n\n\n1,530,000\n\n\n\u00a0\n\n\n2,556,000\n\n\n\n\nCIEB\n\n\n$ \u00a04,124,000\n\n\n\u00a0\n\n\n$ \u00a03,336,000\n\n\n\n\nNumber of projects in progress\n\n\n12\n\n\n\u00a0\n\n\n11\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAs noted above, BIEC represents billings to customers in excess of revenues recognized. \u00a0The $1,992,000 balance in this account at May 31, 2023 is in comparison to a $1,123,000 balance at the end of the prior year. \u00a0The balance in this account fluctuates in the same manner and for the same reasons as the account \"costs and estimated earnings in excess of billings,\" discussed above. \u00a0Final delivery of product under these contracts is expected to occur during the next twelve months.\n\n\n16\n\n\n\n\n\u00a0\n\n\nThe year-end balances in this account are comprised of the following components:\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nMay 31, 2023\n\n\n\u00a0\n\n\nMay 31, 2022\n\n\n\n\nBillings to customers\n\n\n$\n6,538,000\n\u00a0\n\n\n\u00a0\n\n\n$\n2,711,000\n\u00a0\n\n\n\n\nLess: \u00a0Costs\n\n\n2,343,000\n\u00a0\n\n\n\u00a0\n\n\n1,019,000\n\u00a0\n\n\n\n\nLess: Estimated earnings\n\n\n2,203,000\n\u00a0\n\n\n\u00a0\n\n\n569,000\n\u00a0\n\n\n\n\nBIEC\n\n\n$\n1,992,000\n\u00a0\n\n\n\u00a0\n\n\n$\n1,123,000\n\u00a0\n\n\n\n\nNumber of projects in progress\n\n\n10\n\u00a0\n\n\n\u00a0\n\n\n8\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nAccounts payable, at $1,718,000 as of May 31, 2023, is 20% more than the prior year-end. \u00a0This increase is normal fluctuation of this account and is not considered to be unusual. \u00a0The Company expects the current accounts payable amount to be paid during the next twelve months. \u00a0\u00a0\n\n\n\u00a0\n\n\nAccrued expenses of $4,078,000 increased 19% from the prior year level of $3,414,000. \u00a0This increase is due to increases in accrued incentive compensation resulting from increased earnings and sales order bookings, offset by a reduction in customer prepayments.\n\n\n\u00a0\n\n\nManagement believes that the Company's cash on hand, cash flows from operations, and borrowing capacity under the bank line of credit will be sufficient to fund ongoing operations and capital improvements for the next twelve months. \u00a0\n\n\n17\n\n\n\n\n\u00a0\n\n",
+  "item7a": ">Item 7A. \nQuantitative and Qualitative Disclosures About Market Risk.\n\n\n\u00a0\n\n\nSmaller reporting companies are not required to provide the information required by this item.\n\n\n\u00a0\n\n",
+  "cik": "96536",
+  "cusip6": "877163",
+  "cusip": ["877163105"],
+  "names": ["TAYLOR DEVICES INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/96536/000137647423000411/0001376474-23-000411-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item\u00a01. \nBusiness\nAviat Networks, Inc., together with its subsidiaries, is a global supplier of microwave networking and wireless access networking solutions, backed by an extensive suite of professional services and support. Aviat Networks, Inc. may be referred to as \u201cthe Company,\u201d \u201cAVNW,\u201d \u201cAviat Networks,\u201d \u201cAviat,\u201d \u201cwe,\u201d \u201cus\u201d and \u201cour\u201d in this Annual Report on Form\u00a010-K.\nAviat was incorporated in Delaware in 2006 to combine the businesses of Harris Corporation\u2019s Microwave Communications Division (\u201cMCD\u201d) and Stratex Networks, Inc. (\u201cStratex\u201d). On January 28, 2010, we changed our corporate name from Harris Stratex Networks, Inc. to Aviat Networks, Inc.\nOur principal executive offices are located at 200 Parker Dr., Suite C100A, Austin, Texas 78728, and our telephone number is (408)\u00a0941-7100. Our common stock is listed on the NASDAQ Global Select Market under the symbol AVNW. As of June\u00a030, 2023, we had 704 employees.\nOverview and Description of the Business\nWe design, manufacture and sell a range of wireless transport and access networking products, solutions and services to two principal customer types. \n1.\nCommunications Service Providers (\u201cCSPs\u201d): These include mobile and fixed telecommunications network operators, broadband and internet service providers and network\u00a0operators which generate revenues from the communications services that they provide.\n2.\nPrivate network operators: These are customers which do not resell communications services but build networks for reasons of economics, autonomy, and/or security to support a wide variety of mission critical performance applications. Examples include federal, state and local government agencies, transportation agencies, energy and utility companies, public safety agencies and broadcast network operators around the world. \nWe sell products and services directly to our customers, and, to a lesser extent, agents and resellers.\nOur products utilize microwave and millimeter wave technologies to create point to point and point to multi-point wireless links for short, medium and long-distance interconnections. In addition to our wireless products, we also provide routers and a range of premise and hosted private cloud-based software tools and applications to enable deployment, monitoring, network management, and optimization and operational assurance of our systems as well as to automate network design and procurement. We also source, qualify, supply, integrate, test and support third party equipment such as antennas, optical transmission equipment and other equipment necessary to build and deploy a complete telecommunications transmission network. We provide a full suite of professional services for planning, deployment, operations, optimization and maintenance of our customers\u2019 networks.\nOur wireless systems deliver urban, suburban, regional and country-wide communications links as the primary alternative to fiber optic, low earth orbit satellite and copper connections. Fiber optic connections are the primary connectivity alternative to wireless systems. In dense urban and suburban areas, wireless solutions can be faster to deploy and lower cost per mile than new fiber deployments. In developing nations, fiber infrastructure is often scarce and as a result wireless systems are used for both long and short distance connections. Wireless systems also have advantages over optical fiber in areas with rugged terrain, and to provide connections over bodies of water such as between islands or to offshore oil and gas production platforms. Through the air wireless transmission is also inherently lower in latency than transmission through optical cables and can be leveraged in time sensitive networking applications, such as high frequency trading. \nRevenue from our North America and international regions represented approximately 58% and 42% of our revenue in fiscal 2023, 66% and 34% of our revenue in fiscal 2022, and 67% and 33% of our revenue in fiscal 2021, respectively. Information about our revenue attributable to our geographic regions is set forth in \u201cItem\u00a07. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and in \u201cNote 10. Segment and Geographic Information\u201d of the accompanying consolidated financial statements in this Annual Report on Form 10-K.\n5\nTable of Contents\nMarket Overview\nWe believe that future demand for microwave and millimeter wave transmission systems will be influenced by a number of factors across several market segments. \nMobile/5G Networks\nAs mobile networks evolve and expand, add subscribers, and increase the number of wirelessly connected devices, sensors and machines, investment in backhaul infrastructure is required. Whether mobile network operators choose to self-build this backhaul infrastructure, or lease backhaul services from other network providers, we expect that the evolution of mobile networks will continue to drive demand for microwave and millimeter wave wireless backhaul transmission technologies. Within this overall scope, there are multiple individual drivers for investment in backhaul infrastructure.\n\u2022\n5G Deployments\n. Mobile Radio Access Network (\u201cRAN\u201d) technologies are evolving. With the evolution from 4G (HSPA+ and LTE) to 5G, technology is rapidly advancing and providing subscribers with higher speed access to the Internet, social media, and video streaming services. The dramatic increase in data to be transported through the RAN and across the backhaul infrastructure drives requirements for higher data transport links necessitating upgrades to or replacement of the existing backhaul infrastructure.\n\u2022\nSubscriber Growth.\n Traffic on the backhaul infrastructure increases as the number of unique subscribers grows.\n\u2022\nConnected Devices.\n The number of devices such as smart phones and tablets connected to the mobile network is far greater than the number of unique subscribers and is continuing to grow as consumers adopt multiple mobile device types. There is also rapid growth in the number and type of wireless enabled sensors and machines being connected to the mobile network creating new revenue streams for network operators in healthcare, agriculture, transportation and education. As a result, the data traffic crossing the backhaul infrastructure continues to grow.\n\u2022\nIoT\n. The Internet of Things (\u201cIoT\u201d) brings the potential of massive deployment of wireless end points for sensing and reporting data and remotely controlling machines and devices. The increase of data volume drives investment in network infrastructure.\n\u2022\nNetwork Densification\n. RAN frequency spectrum is a limited resource and shared between all of the devices and users within the coverage area of each base station. Meeting the combined demand of increasing subscribers and devices will require the deployment of much higher densities of base stations with smaller and smaller range (small cells) each requiring interconnection and proportionally driving increased demand for wireless backhaul and or fronthaul solutions as the primary alternative to optical fiber connectivity.\n\u2022\nGeographic Coverage.\n Expanding the geographic area covered by a mobile network requires the deployment of additional cellular base station sites. Each additional base station site also needs to be connected to the core of the mobile network through expansion of the backhaul system.\n\u2022\nLicense Mandates\n. Mobile Operators are licensed telecommunications service providers. Licenses will typically mandate a minimum geographic footprint within a specific period of time and/or a minimum proportion of a national or regional population served. This can pace backhaul infrastructure investment and cause periodic spikes in demand.\nRural Broadband\n\u2022\nMiddle Mile\n. Aviat transport equipment is used to deliver broadband connectivity to rural and suburban communities as an alternative to costly fiber. There are significant investments being made to improve rural household and enterprise connectivity and many of these investments target middle mile infrastructure builds. \n\u2022\nExpansion of Offered Services.\n Internet service providers, especially those in emerging markets, now own and operate the most modern communications networks within their respective regions. These network assets can be further leveraged to provide high speed broadband services to fixed locations such as small, medium and large business enterprises, airports, hotels, hospitals, and educational institutions. Microwave and millimeter wave backhaul is ideally suited to providing high speed broadband connections to these end points due to the lack of fiber infrastructure.\nPrivate Networks\nIn addition to mobile backhaul, we see demand for microwave technology in other vertical markets, including utility, public safety, energy and mining, government, financial institutions and broadcast.\n\u2022\nMany utility companies around the world are actively investing in \u201cSmart Grid\u201d solutions and energy demand management, which drive the need for network modernization and increased capacity of networks.\n6\nTable of Contents\n\u2022\nThe investments in network modernization in the public safety market can significantly enhance the capabilities of security agencies. Improving border patrol effectiveness, enabling inter-operable emergency communications services for local or state police, providing access to timely information from centralized databases, or utilizing video and imaging devices at the scene of an incident requires a high bandwidth and reliable network. The mission critical nature of public safety and national security networks can require that these networks are built, operated and maintained independently of other network infrastructure. Microwave is well suited to this environment because it is a cost-effective alternative to fiber.\n\u2022\nMicrowave technology can be used to engineer long distance and more direct connections than optical cable. Microwave signals also travel through the air much faster than light through glass and the combined effect of shorter distance and higher speed reduces latency, which is valued for trading applications in the financial industry. Our products have already been used to create low latency connections between major centers in the United States (\u201cU.S.\u201d), Europe and Asia and we see long-term interest in the creation of further low latency routes in various geographies around the world.\n\u2022\nEvolution to IP (internet protocol). Network Infrastructure capacity, efficiency and flexibility is greatly enhanced by transitioning from legacy SDH (synchronous digital hierarchy) / SONET (synchronous optical network) / TDM (time division multiplexing) to IP infrastructure. Our products offer integrated IP transport and routing functionality increasing the value they bring in the backhaul network. \n\u2022\nThe enhancement of border security and surveillance networks to counter terrorism and insurgency is aided by the use of wireless technologies including microwave backhaul.\n\u2022\nThe expected growth of remote and industrial access applications to support the evolution of smart networks for cities, oilfields, mines and remote rural broadband connectivity using fixed, nomadic and mobile wireless technologies, particularly where a high degree of environmental resilience and ruggedness is required.\nThese factors are combining to create a range of opportunities for continued investment in backhaul, transport and access networks that favor microwave and millimeter wave technologies. As we focus on executing future generations of our technology, our goal is to make wireless technology a viable choice for an ever-broadening range of network types.\nStrategy\nWe are engaging with customers on the evolution of use cases and applications as 5G mobile and broadband networks edge closer to implementation and begin to factor more strongly in the vendor selection process. We are confident in our ability to address current and future 5G market needs.\nWe are focused on building a sustainable and profitable business with growth potential. We have invested in our people and processes to create a platform for operational excellence across sales, services, product development and supply chain areas while continuing to make investments in strengthening our product and services portfolio and expanding our reach into targeted market areas.\nOur strategy has three main elements aligned to deliver a compelling Total Cost of Ownership (\u201cTCO\u201d) value proposition. The first is our portfolio of wireless transport products allowing our customers increased capacity and flexibility with a much better total cost solution. We are expanding the data-carrying capacity of our wireless products to address the increasing data demand in networks of all types, while reducing overall energy consumption. Our research and development is focused on innovations that increase capacity, reduce energy consumption and lower overall TCO.\nSecond, to address the operational complexity of planning, deploying, owning and operating microwave networks, we are investing in a combination of software applications, tools and services where simplification, process automation, optimization and performance assurance, combined with our unique expertise in wireless technology can make a significant difference for our customers and partners. \nFinally, Aviat is investing in e-commerce through our online platform, the \u201cAviat Store\u201d and supporting supply chain capabilities. Aviat can better service customers buying through the Aviat Store with lower costs, faster lead times and a simpler purchasing experience. The Aviat Store, together with our supply chain, enables customers (including ISP, Tier 2 and mobile 5G operators) to purchase products as needed, thus avoiding lengthy and variable lead times that come with other vendor solutions and allowing those customers to lower warehousing costs, reduce obsolete equipment, and lower the cost of capital by paying only when equipment is needed.\nWe continue to develop our professional services portfolio as key to our long-term strategy and differentiation. We offer a portfolio of hosted expert services and we continue to offer training and accreditation programs for microwave and IP network design, deployment and maintenance.\n7\nTable of Contents\nWe expect to continue to serve and expand upon our existing customer base and develop business with new customers. We intend to leverage our customer base, longstanding presence in many countries, distribution channels, comprehensive product line, superior customer service and our turnkey solution capability to continue to sell existing and new products and services to current and future customers.\nProducts and Solutions\nOur product and solutions portfolio is key to building and maintaining our base of customers. We offer a comprehensive product and solutions portfolio that meets the needs of service providers and network operators and that addresses a broad range of applications, frequencies, capacities and network topologies. \n\u2022\nBroad product and solution portfolio\n. We offer a comprehensive suite of wireless transport and access systems for microwave and millimeter wave networking applications. These solutions utilize a wide range of transmission frequencies, ranging from 450 MHz to 90 GHz, and can deliver a wide range of transmission capacities, ranging up to 20 Gigabits per second (Gbps). The major product families included in these solutions are CTR 8000, WTM 4000, RDL 3000, FDL 6000, IRU 600 UHP and AviatCloud. Our CTR 8000 platform is a range of routers purpose-built for transport applications, especially those that require high level of reliability and security. WTM 4000, the highest capacity microwave radio ever produced to date, and purpose built for software-defined networks (\u201cSDN\u201d). SDN technology is an approach to networking management that enables dynamic, programmatically efficient networking configuration to improve networking performance and monitoring, making it more like cloud computing than traditional networking management. We introduced multiple important variants to the WTM 4000 platform; WTM4100 & 4200 providing single and dual frequency microwave links with advanced XPIC and MIMO capabilities; WTM4500 for multi-channel aggregation of microwave channels in long distance applications; WTM4800 is the latest addition to address 5G network requirements and is capable of operating in the 80GHz E Band at up to 20Gbps capacity, with a unique Multi-Band capability which simultaneously uses microwave and E Band frequencies for maximum capacity, distance and reliability. WTM 4800 is the only single box multi-band solution for lowest total cost of ownership deployments. Our RDL 3000 platform is designed to support ruggedized fixed and nomadic wireless access in remote and industrial applications. RDL 6000 is a highly differentiated Private-LTE solution that provides the equivalent coverage of a macro-base station, but in a compact and cost-effective all-outdoor design. Our IRU 600 UHP is an ultra-high power indoor microwave radio that enables relocation of mission critical links from the 6 GHz band to the 11 GHz band to minimize potential interference and deliver longer links and more capacity. To address the issues of operational complexity in our customers\u2019 networks, AviatCloud is a platform with secure hosted software and services to automate networks and their operations.\n\u2022\nLow total cost of ownership.\n\u00a0Our wireless-based solutions focus on achieving a low total cost of ownership, including savings on the combined costs of initial acquisition, installation and ongoing operation and maintenance. Our latest generation system designs reduce rack space requirements, require less power, are software-configurable to reduce spare parts requirements, and are simple to install, operate, upgrade and maintain. Our advanced wireless features also enable operators to save on related costs, including spectrum fees and tower rental fees.\n\u2022\nFutureproof network\n.\u00a0Our solutions are designed to protect the network operator\u2019s investment by incorporating software-configurable capacity upgrades and plug-in modules that provide a smooth migration path to Carrier Ethernet and IP/MPLS (multiprotocol label switching) and segment routing based networking, without the need for costly equipment substitutions and additions. Our products include key technologies we believe will be needed by operators for their network evolution to support new broadband services.\n\u2022\nFlexible, easily configurable products.\n\u00a0We use flexible architectures with a high level of software configurable features. This design approach produces high-performance products with reusable components while at the same time allowing for a manufacturing strategy with a high degree of flexibility, improved cost and reduced time-to-market. The software features of our products offer our customers a greater degree of flexibility in installing, operating and maintaining their networks.\n\u2022\nComprehensive network management.\n\u00a0We offer a range of flexible network management solutions, from element management to enterprise-wide network management and service assurance that we can optimize to work with our wireless systems.\n\u2022\nComplete professional services.\n\u00a0In addition to our product offerings, we provide network planning and design, site surveys and builds, systems integration, installation, maintenance, network monitoring, training, customer service and many other professional services. Our services cover the entire evaluation, purchase, deployment and operational cycle and enable us to be one of the few complete, turnkey solution providers in the industry.\n8\nTable of Contents\nBusiness Operations\nSales and Service\nOur primary route to market is through our own direct sales, service and support organization. This provides us with the best opportunity to leverage our role as a technology specialist and differentiate ourselves from competitors. Our focus on key customers and geographies allows us to consistently achieve a high level of customer retention and repeat business. Our highest concentrations of sales and service resources are in the United States, Western and Southern Africa, the Philippines, and the European Union. We maintain a presence in a number of other countries, some of which are based in customer locations and include, but not limited to, Canada, Mexico, Kenya, India, Saudi Arabia, Australia, New Zealand, and Singapore.\nIn addition to our direct channel to market, we have relationships with original equipment manufacturers (\u201cOEMs\u201d) and system integrators especially focused towards large and complex projects in national security and government-related applications. Our role in these relationships ranges from equipment supply only to being a sub-contractor for a portion of the project scope where we will supply equipment and a variety of design, deployment and maintenance services.\nWe also use indirect sales channels, including dealers, resellers and sales representatives, in the marketing and sale of some lines of products and equipment on a global basis. These independent representatives may buy for resale or, in some cases, solicit orders from commercial or governmental customers for direct sales by us. Prices to the ultimate customer in many instances may be recommended or established by the independent representative and may be above or below our list prices. These independent representatives generally receive a discount from our list prices and are free to set the final sales prices paid by the customer.\nWe have a direct online sales option through our online \u201cAviat Store\u201d. The Aviat Store targets customers with a traditional high cost to serve via traditional channels. We provide online design tools for radio link planning and online ordering tools, which we fulfill directly from our Aviat Store with multiple options of product available for next day shipment. Shipments from Aviat Store commenced in late 2018. \nWe have repair and service centers in the Philippines and the United\u00a0States. We have customer service and support personnel who provide customers with training, installation, technical support, maintenance and other services on systems under contract. We install and maintain customer equipment directly, in some cases, and contract with third-party service providers in other cases.\nThe specific terms and conditions of our product warranties vary depending upon the product sold and country in which we do business. On direct sales, warranty periods generally start on the delivery date and continue for one to three years.\nManufacturing\nOur global manufacturing strategy follows an outsourced manufacturing model using contract manufacturing partners in Asia and the United States.\u00a0Our strategy is based on balancing cost and supplier performance as well as taking into account qualification for localization requirements of certain market segments, such as the Buy American Act.\u00a0\nAll manufacturing operations have been certified to International Standards Organization 9001, a recognized international quality standard. We have also been certified to the TL 9000 standard, a telecommunication industry-specific quality system standard.\nBacklog\nOur backlog was approximately $289 million at June\u00a030, 2023 and $245 million at July\u00a01, 2022, consisting primarily of contracts or purchase orders for both product and service deliveries and extended service warranties. Services include management\u2019s initial estimate of the value of a customer\u2019s commitment under a services contract. The calculation used by management involves estimates and judgments to gauge the extent of a customer\u2019s commitment, including the type and duration of the agreement, and the presence of termination charges or wind down costs. Contract extensions and increases in scope are treated as backlog only to the extent of the new incremental value. We regularly review our backlog to ensure that our customers continue to honor their purchase commitments and have the financial means to purchase and deploy our products and services in accordance with the terms of their purchase contracts. Backlog estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidation, adjustments for revenue not materialized and adjustments for currency.\n9\nTable of Contents\nWe expect to substantially deliver against the backlog as of June\u00a030, 2023 during fiscal 2024, but we cannot be assured that this will occur. Product orders in our current backlog are subject to changes in delivery schedules or to cancellation at the option of the purchaser without significant penalty as well as long-term projects that could take more than a year to complete. Accordingly, although useful for scheduling production, backlog as of any particular date may not be a reliable measure of sales for any future period because of the timing of orders, delivery intervals, customer and product mix and the possibility of changes in delivery schedules and additions or cancellations of orders. \nCustomers\nAlthough we have a large customer base, during any given fiscal year or quarter, a small number of customers may account for a significant portion of our revenue.\nDuring fiscal 2023 and 2021, no customers accounted for more than 10% of our total revenue. During fiscal 2022 one customer accounted for 13% of our total revenue.\nCompetition\nThe microwave and millimeter wave wireless networking business is a competitive and specialized segment of the telecommunications industry that is sensitive to technological advancements. Our principal competitors include business units of large mobile and IP network infrastructure manufacturers such as Ericsson, Huawei and Nokia Corporation, as well as a number of smaller microwave specialist companies such as Ceragon Networks Ltd., SIAE Microelectronica S.p.A., Cambium Networks Corporation and Airspan Networks. We also compete with fiber optic cable and low earth orbit satellites for networking connections.\nSome of our larger competitors may have greater name recognition, broader product lines (some including non-wireless telecommunications equipment and managed services), a larger installed base of products and longer-standing customer relationships. They may from time to time leverage their extensive overall portfolios into completely outsourced and managed network offerings restricting opportunities for specialist suppliers. In addition, some competitors may offer seller financing, which can be a competitive advantage under certain economic climates.\nSome of our larger competitors may also act as systems integrators through which we sometimes distribute and sell products and services to end users.\nThe smaller independent private and public specialist competitors typically leverage new technologies and low product costs but are generally less capable of offering a complete solution including professional services, especially in the North America and Africa regions which form the majority of our addressed market. \nWe concentrate on market opportunities that we believe are compatible with our resources, overall technological capabilities and objectives. Principal competitive factors are unique differentiators, Total Cost of Ownership (\u201cTCO\u201d), product quality and reliability, technological capabilities, service, ability to meet delivery schedules and the effectiveness of dealers in international areas. We believe that the combination of our network and systems engineering support and service, global reach, technological innovation, agility and close collaborative relationships with our customers are the key competitive strengths for us. However, customers may still make decisions based primarily on factors such as price, financing terms and/or past or existing relationships, where it may be difficult for us to compete effectively or profitably.\nResearch and Development\nWe believe that our ability to enhance our current products, develop and introduce new products on a timely basis, maintain technological competitiveness and meet customer requirements is essential to our success. Accordingly, we allocate, and intend to continue to allocate, a significant portion of our resources to research and development efforts in key technology areas and innovation to differentiate our overall portfolio from our competition. The majority of such research and development resources will be focused on technologies in microwave and millimeter wave RF, digital signal processing, networking protocols and software applications.\nOur research and development expenditures totaled $24.9 million, or 7.2% of revenue, in fiscal 2023, $22.6 million, or 7.5% of revenue, in fiscal 2022, and $21.8 million, or 7.9% of revenue, in fiscal 2021.\nResearch and development are primarily directed to the development of new products and to build technological capability. We are an industry innovator and intend to continue to focus significant resources on product development in an effort to maintain our competitiveness and support our entry into new markets. \n10\nTable of Contents\nOur product development teams totaled 173 employees as of June\u00a030, 2023, and were located primarily in New Zealand, Slovenia and Canada.\nRaw Materials and Supplies\nBecause of our range of products and services, as well as the wide geographic dispersion of our facilities, we use numerous sources of raw materials needed for our operations and for our products, such as electronic components, printed circuit boards, metals and plastics. We are dependent upon suppliers and subcontractors for a large number of components and subsystems and upon the ability of our suppliers and subcontractors to adhere to customers\u2019 requirements or regulatory restrictions and to meet performance and quality specifications and delivery schedules.\nOur strategy for procuring raw material and supplies includes dual sourcing (where possible) on strategic assemblies and components. In general, we believe this reduces our risk with regard to the potential financial difficulties in our supply base. In some instances, we are dependent upon one or a few sources, either because of the specialized nature of a particular item or because of local content preference requirements pursuant to which we operate on a given project. Examples of sole or limited source categories include metal fabrications and castings, for which we own the tooling and therefore limit our supplier relationships, and ASIC\u2019s and MMICs (types of integrated circuit used in manufacturing microwave radios), which we procure at volume discount from a single source. Our supply chain plan includes mitigation plans for alternative manufacturing sites which would also mitigate COVID-19 and other disruption risks.\nAlthough we have been affected by performance issues of some of our suppliers and subcontractors, we have not been materially adversely affected by the inability to obtain raw materials or products. In general, any performance issues causing short-term material shortages are within the normal frequency and impact range currently experienced by high-tech manufacturing companies and are due primarily to the highly technical nature of many of our purchased components.\nPatents and Other Intellectual Property\nWe consider our patents, trademarks and other intellectual property rights, in the aggregate, to constitute an important asset. We own a portfolio of patents, trade secrets, know-how, confidential information, trademarks, copyrights and other intellectual property. As of June\u00a030, 2023, we (collectively with our subsidiaries) own approximately 339 U.S. patents and 237 international patents and had 14 U.S. patent applications pending and 28 international patent applications pending. The United States Patent and Trademark Office (\u201cUSPTO\u201d) and international equivalent bodies have not yet concluded substantive examination of our pending patent applications. Therefore, it is unclear what scope of additional patent coverage, if any, will eventually be provided as a result of those pending applications. Failure to obtain comprehensive patent coverage could impair our ability to prevent competitors from replicating some portions or all of our products. We also license intellectual property to and from third parties. The costs we pay or revenue we receive from such licenses may be dependent on certain factors, such as the market for such licenses and whether such licenses can be negotiated on commercially acceptable terms. However, we do not consider our business to be materially dependent upon any single patent, license or other intellectual property right.\nFurther, changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property and may increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. In addition, Congress or other foreign legislative bodies may pass patent reform legislation that is unfavorable to us. For example, the United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the United States Congress, the United States federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and the patents we might obtain or license in the future.\nOur registered or unregistered trademarks or trade names may be challenged, circumvented, declared generic or determined to be infringing on other marks. There can be no assurance that competitors will not infringe our trademarks, that we will have adequate resources to enforce our trademarks or that any of our current or future trademark applications will be approved. During trademark registration proceedings, we may receive rejections and, although we are given an opportunity to respond, we may be unable to overcome such rejections. In addition, in proceedings before the USPTO \n11\nTable of Contents\nand in proceedings before comparable agencies in many foreign jurisdictions, trademarks are examined for registrability against prior pending and registered third-party trademarks, and third parties are given an opportunity to oppose registration of pending trademark applications and/or to seek cancellation of registered trademarks. Applications to register our trademarks may be finally rejected, and opposition or cancellation proceedings may be filed against our trademarks, which may necessitate a change in branding strategy if such rejections and proceedings cannot be overcome or resolved.\nAdditionally, competitors may try to develop products that are similar to ours and that may infringe, misappropriate or otherwise violate our intellectual property rights. As a result, from time to time, we might engage in litigation to enforce our patents or other intellectual property rights or defend against claims of alleged infringement asserted by third parties. Any of our patents, trade secrets, trademarks, copyrights and other intellectual property rights could be challenged, invalidated or circumvented, or may not provide competitive advantages. Despite our efforts to protect our intellectual property rights, we cannot be certain that the steps we have taken will be sufficient or effective to prevent the unauthorized access, use, copying, or the reverse engineering of our technology and other intellectual property, including by third parties who may use our technology or other proprietary information to develop products and services that compete with ours. Additionally, policing unauthorized use of our intellectual property and proprietary rights can be difficult, costly and time consuming. The enforcement of our intellectual property and proprietary rights also depends on any legal actions we may bring against any such parties being successful, but these actions are costly, time-consuming, and may not be successful, even when our rights have been infringed, misappropriated, or otherwise violated. Furthermore, our competitors or other third parties may assert that our products infringe, misappropriate or otherwise violate their intellectual property rights. Successful claims of infringement, misappropriation or other violations by a third party could prevent us from offering certain products or features, require us to develop alternate, non-infringing technology, which could require significant time and expense, and at which time we could be unable to continue to offer our affected products or solutions, or require us to obtain a license, which may not be available on reasonable terms or at all, or force us to pay substantial damages, royalties or other fees.\nIn addition, to protect our confidential information, including our trade secrets, we require our employees and contractors to sign confidentiality and invention assignment agreements. We also enter into non-disclosure agreements with our suppliers and appropriate customers to limit their access to and disclosure of our proprietary information.\nAlthough our ability to compete may be affected by our ability to protect our intellectual property rights and proprietary information, we believe that, because of the rapid pace of technological change in the wireless telecommunications industry, our innovative skills, technical expertise and ability to introduce new products on a timely basis is just as important in maintaining our competitive position as protecting our intellectual property. Trade secret, trademark, copyright and patent protections are important but must be supported by other factors such as the expanding knowledge, ability and experience of our personnel, new product introductions and product enhancements. Although we have and will continue to implement protective measures and intend to vigorously defend our intellectual property rights, there can be no assurance that these measures will be successful.\nEnvironmental and Other Regulations\nOur facilities and operations, in common with those of our industry in general, are subject to numerous domestic and international laws and regulations designed to protect the environment, particularly with regard to wastes and emissions. We believe that we have complied with these requirements and that such compliance has not had a material adverse effect on our results of operations, financial condition or cash flows. Based upon currently available information, we do not expect expenditures to protect the environment and to comply with current environmental laws and regulations over the next several years to have a material impact on our competitive or financial position but can give no assurance that such expenditures will not exceed current expectations. From time to time, we receive notices from the U.S.\u00a0Environmental Protection Agency or equivalent state or international environmental agencies that we are a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act, which is commonly known as the Superfund Act, and equivalent laws. Such notices may assert potential liability for cleanup costs at various sites, which include sites owned by us, sites we previously owned and treatment or disposal sites not owned by us, allegedly containing hazardous substances attributable to us from past operations. We are not presently aware of any such liability that could be material to our business, financial condition or operating results, but due to the nature of our business and environmental risks, we cannot provide assurance that any such material liability will not arise in the future.\nElectronic products are subject to environmental regulation in a number of jurisdictions. Equipment produced by us is subject to domestic and international requirements requiring end-of-life management and/or restricting materials in \n12\nTable of Contents\nproducts delivered to customers. We believe that we have complied with such rules and regulations, where applicable, with respect to our existing products sold into such jurisdictions.\nRadio communications are also subject to governmental regulation. Equipment produced by us is subject to domestic and international requirements to avoid interference among users of radio frequencies and to permit interconnection of telecommunications equipment. We believe that we have complied with such rules and regulations with respect to our existing products, and we intend to comply with such rules and regulations with respect to our future products. Reallocation of the frequency spectrum could impact our business, financial condition and results of operations.\nWe have a comprehensive policy and procedures in effect concerning conflict minerals compliance.\nHuman Capital Management\nAs of June\u00a030, 2023, we had 704 employees, of whom 685 were full-time employees and 270 were located in the U.S.\u00a0None of our employees in the U.S.\u00a0are represented by a labor union. In certain international subsidiaries, our employees are represented by workers\u2019 councils or statutory labor unions. In general, we believe that our employee relations are good.\nWe believe we offer a competitive compensation package, tailored to the job function and location of each employee. We have a global team, and we offer competitive compensation and benefits programs that meet the needs of our employees, while also reflecting local market practices. Our U.S. benefits plan includes health benefits, life and disability insurance, various voluntary insurances, flexible time off and leave programs, and a retirement plan with employer match. Our international benefits plans are competitive locally and generally provide similar benefits. We grant equity-based compensation to many of our employees. In addition, we offer benefits to support our employees\u2019 physical and mental health by providing tools and resources to help them improve or maintain their health and encourage healthy behaviors.\nInformation about our Executive Officers\nThe name, age, position held with us, and principal occupation and employment during at least the past 5\u00a0years for each of our executive officers as of August\u00a030, 2023, are as follows:\nName and Age\nPosition Currently Held and Past Business Experience\nPeter A. Smith, 57\nMr. Smith was appointed President and Chief Executive Officer in January 2020. Prior to joining Aviat Networks, Mr. Smith served as Senior Vice President, US Windows and Canada for Jeld-Wen from March 2017 to December 2019. Prior to Jeld-Wen, he served as President of Polypore International\u2019s Transportation and Industrial segment from October 2013 to March 2017. Previously, he served as Chief Executive Officer and a director of Voltaix Inc. from September 2011 to October 2013. Earlier in his career, Mr. Smith held various executive leadership positions at Fortune 100 and Fortune 500 companies, including Cooper Industries, Dover Knowles Electronics and Honeywell Specialty Materials. Mr. Smith also served on the board of Soleras Advanced Coatings from August 2015 to October 2018 and Adaptive 3D Technologies from December 2020 through its sale in May 2021. He has both a Bachelor of Science degree in Material (Ceramics) Engineering and PhD in Material Science and Engineering from Rutgers University, and holds a Master of Business Administration degree from Arizona State University.\nDavid M. Gray, 54\nAs Chief Financial Officer (CFO), Mr. Gray is responsible for worldwide finance, treasury, accounting, reporting, compliance and taxation. Prior to joining Aviat, Mr. Gray was Chief Financial Officer and Treasurer of Superior Essex, a $2.6 billion global manufacturer and distributor of communications and electrical equipment, and before that he served at Cooper Industries where he was CFO of an $800M revenue business focused on electrical, electronic and power management solutions. He also held a variety of executive finance and accounting positions at Newell Brands, Philips Electronics, and Autoliv. Mr. Gray holds a BS in Accounting from Penn State University, is a Certified Public Accountant (CPA) and Certified Management Accountant (CMA), and brings to Aviat significant CFO experience in complex multi-national businesses as well as a deep background in P&L leadership, cash flow management, and mergers and acquisitions.\n13\nTable of Contents\nBryan C. Tucker, 55\nAs Senior Vice President Americas, Mr. Tucker is responsible for sales and services in the Americas. Mr. Tucker joined the Company in 2005, and since, has served in a number of roles for Aviat Networks and its predecessor companies Harris Stratex Networks and Harris Microwave Communications Division (\u201cMCD\u201d). For example, as senior director for North America Operations, Mr. Tucker spearheaded major transitions in ERP systems, product lines and operational locations. He also led the company\u2019s post-merger systems unification with Harris MCD in 2007. Before joining Aviat Networks, Mr. Tucker worked for Sony Corp. as director of Manufacturing Engineering and Maintenance for two production facilities. Overall, Mr. Tucker has more than 25 years of experience in engineering and manufacturing operations with high-tech companies. He has a bachelor\u2019s degree in electrical engineering from the University of Florida, is Six Sigma Certified and has pursued postgraduate studies/research in semiconductor physics at Georgia Tech.\nErin R. Boase, 44\nAs General Counsel, Ms. Boase is responsible for all aspects of the Legal function. Ms. Boase brings a depth of experience to the team in privacy, employment, compliance, real estate, M&A, as well as, copyright, trademark and other product, software, service and cloud-related legal matters. Ms. Boase was previously at Lifesize, Inc. where she served as Head of Legal and Corporate Secretary. Prior to that she was the Senior Corporate Counsel at Cisco (formerly Duo Security, Inc.) where she managed the adoption of GDPR privacy compliance, development of company policies, copyright and trademark, technical compliance as well as other legal matters. Earlier in her career she held legal positions of progressive responsibility with Dell\u2019s Computer and Security business and Thomson Reuters. Erin holds a Juris Doctorate, Technology and Communications and graduated Cum Laude from Thomas Jefferson School of Law and a Bachelor of Arts from Midwestern State University.\nGary G. Croke, 51\nAs Vice President of Marketing, Mr. Croke is responsible for Aviat\u2019s global marketing which includes corporate and strategic marketing functions and product line management. Mr. Croke charts Aviat\u2019s global product and marketing strategy and ensures successful company-wide implementation. His team's primary focus is on achieving business growth through the definition and launch of new solutions that drive customer economic value. Mr. Croke has over 25 years of leadership experience in the data and mobile communications sectors and he is highly skilled at delivering creative and compelling value propositions with demand generation programs that produce business results. Gary has a bachelor\u2019s degree in electrical engineering from Memorial University of Newfoundland and has pursued postgraduate studies/research in business administration at the University of Ottawa.\nThere is no family relationship between any of our executive officers or directors, and there are no arrangements or understandings between any of our executive officers or directors and any other person pursuant to which any of them was appointed or elected as an officer or director, other than arrangements or understandings with our directors.\nWebsite Access to Aviat Networks\u2019 Reports; Available Information\nWe maintain a website at www.aviatnetworks.com. Our annual reports on Form\u00a010-K, quarterly reports on Form\u00a010-Q, current reports on Form\u00a08-K and amendments to such reports are available free of charge on our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (\u201cSEC\u201d). In addition to our reports filed or furnished with the SEC, we publicly disclose material information in press releases, at annual meetings of shareholders, in publicly accessible conferences and investor presentations, and through our website. References to our website in this Form 10-K are provided as a convenience and should not be deemed an incorporation by reference or a part of this Form 10-K.\nAdditional information relating to our business and operations is set forth in \u201cItem\u00a07. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in this Annual Report on Form 10-K.",
+  "item1a": ">Item\u00a01A.\n \nRisk Factors\nThe nature of the business activities conducted by the Company subjects us to certain hazards and risks. The following is a summary of some of the material risks relating to the Company\u2019s business activities. Other risks are described in \u201cItem 1. Business,\u201d \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and \u201cItem 7A. Quantitative and Qualitative Disclosures About Market Risk.\u201d Prospective and existing \n14\nTable of Contents\ninvestors are strongly urged to carefully consider the various cautionary statements and risks set forth in this Annual Report on Form 10-K and in our other public filings.\nWe face many business risks, including those related to our financial performance, investments in our common stock, operating our business and legal matters. If any of these risks occur, our financial condition and results of operations could be materially and adversely affected. In that case, the market price of the Company\u2019s common stock could decline.\nRisk Factors Summary\nThe following is a summary of the principal risks that could adversely affect our business, operations and financial results.\nBusiness and Operational Risk Factors\n\u2022\nOur sales cycle may be lengthy, and the timing of sales, along with additional services such as network design, installation and implementation of our products within our customers\u2019 networks, may extend over more than one period, which can make our operating results volatile and difficult to predict. \n\u2022\nWe face risks related to pandemics, threatened health epidemics and other outbreaks, which could significantly disrupt our manufacturing, sales and other operations.\n\u2022\nOur success will depend on new products introduced to the marketplace in a timely manner, successfully completing product transitioning and achieving customer acceptance. \n\u2022\nWe rely on various third-party service partners to help complement our global operations, and failure to adequately manage these relationships could adversely impact our financial results and relationships with customers. \n\u2022\nWe must respond to rapid technological change and comply with evolving industry standards and requirements for our products to be successful. \n\u2022\nOur average sales prices may decline in the future.\n\u2022\nCredit and commercial risks and exposures could increase if the financial condition of our customers declines. \n\u2022\nOur restructuring actions could harm our relationships with our employees and impact our ability to recruit new employees.\n\u2022\nOur business could be adversely affected if we are unable to attract and retain key personnel. \n\u2022\nWe face strong competition for maintaining and improving our position in the market, which can adversely affect our revenue growth and operating results. \n\u2022\nOur ability to sell our products and compete successfully is highly dependent on the quality of our customer service and support, and our failure to offer high quality service and support could have a material adverse effect on our sales and results of operations.\n\u2022\nProduct performance problems, including undetected errors in our hardware or software, or deployment delays could harm our business and reputation. \n\u2022\nIf we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs, which would adversely affect our business and results of operations. \n\u2022\nIf we fail to effectively manage our contract manufacturer relationships, we could incur additional costs or be unable to timely fulfill our customer commitments, which would adversely affect our business and results of operations and, in the event of an inability to fulfill commitments, would harm our customer relationships. \n\u2022\nWe depend on sole or limited sources and geographies for some key components and failure to receive timely delivery of any of these components could result in deferred or lost sales.\n\u2022\nBecause a significant amount of our revenue may come from a limited number of customers, the termination of any of these customer relationships may adversely affect our business.\n\u2022\nWe continually evaluate strategic transaction opportunities which could involve merger, divestiture, sale and/or acquisition activities that could disrupt our operations and harm our operating results.\n\u2022\nThe NEC Transaction may not be consummated on a timely basis or at all. Failure to complete the acquisition within the expected timeframe or at all could adversely affect our stock price and our future business and financial results.\n15\nTable of Contents\n\u2022\nThe NEC Transaction will require management to devote significant attention and resources to integrating the acquired NEC businesses with our business.\nFinancial and Macroeconomic Risk Factors\n\u2022\nAdverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations.\n\u2022\nDue to the volume of our international sales, we may be susceptible to a number of political, economic and geographic risks that could harm our business. \n\u2022\nThere are inherent limitations on the effectiveness of our controls. \n\u2022\nWe may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.\n\u2022\nThe effects of global financial and economic conditions in certain markets have had, and may continue to have, significant effects on our customers and suppliers, and has in the past, and may in the future have, a material adverse effect on our business, operating results, financial condition and stock price.\n\u2022\nChanges in tax laws, treaties, rulings, regulations or agreements, or their interpretation in any country in which we operate; the loss of a major tax dispute; a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries; or other factors could cause volatility in our effective tax rate and could adversely affect our operating results.\n\u2022\nOur ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes and other tax benefits may be limited.\nLegal and Regulatory Risk Factors\n\u2022\nContinued tension in U.S.-China trade relations may adversely impact our supply chain operations and business. \n\u2022\nIf we are unable to adequately protect our intellectual property rights, we may be deprived of legal recourse against those who misappropriate our intellectual property.\n\u2022\nIf sufficient radio frequency spectrum is not allocated for use by our products, or we fail to obtain regulatory approval for our products, our ability to market our products may be restricted. \n\u2022\nOur business is subject to changing regulation of corporate governance, public disclosure and anti-bribery measures which have resulted in increased costs and may continue to result in additional costs or potential liabilities in the future. \n\u2022\nOur products are used in critical communications networks which may subject us to significant liability claims.\n\u2022\nWe may be subject to litigation regarding our intellectual property. This litigation could be costly to defend and resolve and could prevent us from using or selling the challenged technology.\n\u2022\nWe are subject to laws, rules, regulations and policies regarding data privacy and security. Many of these laws and regulations are subject to change and reinterpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or other harm to our business.\n\u2022\nWe are subject to complex federal, state, local and international laws and regulations related to protection of the environment that could materially and adversely affect the cost, manner or feasibility of conducting our operations, as well as those of our suppliers and contract manufacturers.\n\u2022\nIncreased attention to environmental, social, and governance (\u201cESG\u201d) matters, conservation measures and climate change issues has contributed to an evolving state of environmental regulation, which could impact our results of operations, financial or competitive position and may adversely impact our business.\n\u2022\nAnti-takeover provisions of Delaware law, Tax Benefit Preservation Plan (the \u201cPlan\u201d), and provisions in our Amended and Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws could make a third-party acquisition of us difficult.\nGeneral Risk Factors\n\u2022\nNatural disasters or other catastrophic events such as terrorism and war could have an adverse effect on our business. \n16\nTable of Contents\n\u2022\nSystem security risks, data protection breaches, and cyberattacks could compromise our proprietary information, disrupt our internal operations and harm public perception of our products, which could cause our business and reputation to suffer and adversely affect our stock price. \nFor a more complete discussion of the material risks facing our business, see below.\nBusiness and Operational Risk Factors\nOur sales cycle may be lengthy, and the timing of sales, along with additional services such as network design, installation and implementation of our products within our customers\u2019 networks, may extend over more than one period, which can make our operating results volatile and difficult to predict. \nWe experience difficulty in accurately predicting the timing of the sale of products and amounts of revenue generated from sales of our products, primarily in developing countries. The establishment of a business relationship with a potential customer is a lengthy process, usually taking several months or more. Following the establishment of the relationship, the negotiation of purchase terms can be time-consuming, and a potential customer may require an extended evaluation and testing period. Once a purchase agreement has been executed, the timing and amount of revenue, if applicable, may remain difficult to predict. Our typical product sales cycle, which results in our products being designed into our customers\u2019 networks, can take 12 to 24 months. A number of factors contribute to the length of the sales cycle, including technical evaluations of our products and the design process required to integrate our products into our customers\u2019 networks. The completion of services such as installation and testing of the customer\u2019s networks and the completion of all other suppliers\u2019 network elements are subject to the customer\u2019s timing and efforts and other factors outside our control, each of which may prevent us from making predictions of revenue with any certainty and could cause us to experience substantial period-to-period fluctuations in our operating results.\nDue to the challenges from our lengthy sales cycle, our recognition of revenue from our selling efforts may be substantially delayed, our ability to forecast our future revenue may be more limited and our revenue may fluctuate significantly from quarter to quarter.\nOur operating results are expected to be difficult to predict and delays in product delivery or closing a sale can cause revenue, margins and net income or loss to fluctuate significantly from anticipated levels. A substantial portion of our contracts are completed in the latter part of a quarter and a significant percentage of these are large orders. Because a significant portion of our cost structure is largely fixed in the short term, revenue shortfalls tend to have a disproportionately negative impact on our profitability and can increase our inventory. The number of large new transactions also increases the risk of fluctuations in our quarterly results because a delay in even a small number of these transactions could cause our quarterly revenues and profitability to fall significantly short of our predictions. In addition, we may increase spending in response to competitive actions, in pursuit of new market opportunities, or to mitigate supply chain disruptions. Accordingly, we cannot provide assurances that we will be able to achieve profitability in the future or that if profitability is attained, that we will be able to sustain profitability, particularly on a quarter-to-quarter basis.\nWe face risks related to pandemics, threatened health epidemics and other outbreaks, which could significantly disrupt our manufacturing, sales and other operations.\nOur business could be adversely impacted by the effects of a widespread outbreak of contagious disease, such as COVID-19. A pandemic such as COVID-19 or other such health crisis could impact our supply operations; for example, if any of our suppliers cease operating, causing us to move production to an alternate supplier. In addition, constraints on supply operations as a result of a pandemic has in the past and could in the future result in component part shortages due to global capacity constraints. Such a constraint could and has caused lead times for our products to increase. In an effort to halt the outbreak of a pandemic such as COVID-19, governments have in the past and may in the future place significant restrictions on travel, leading to extended business closures, including closures at our third-party manufacturers. Our suppliers and third-party manufacturers have and could be disrupted by worker absenteeism, quarantines, office and factory closures, disruptions to ports and other shipping infrastructure, or other travel or health-related restrictions and such restrictions could spread to other locations where we outsource the manufacturing or distribution of our products if the virus and its variants continues to spread or resurge. If our supply chain operations are affected or are curtailed by the outbreak of diseases such as COVID-19, our supply chain, manufacturing and product shipments will be delayed, which could adversely affect our business, operations and customer relationships. We may need to seek alternate sources of supply which may be more expensive, unavailable or may result in delays in shipments to us from our supply chain and subsequently to our customers. Further, if our distributors\u2019 or end user customers\u2019 \n17\nTable of Contents\nbusinesses are similarly affected, they might delay or reduce purchases from us, which could adversely affect our results of operations.\nIn addition, freight and logistics constraints caused in part by restrictions imposed by governments to combat the COVID-19 pandemic and additionally due to container and carriage shortages, have resulted in increased costs and constrained available transport, for us and our channel partners, all at a time when global demand has increased. We have sought and may continue to seek alternate sources of supply which may be more expensive, unavailable or may result in delays in shipments to us and from our supply chain and subsequently to our customers.\nWe are conducting business with certain modifications to employee travel, employee work locations, and virtualization or cancellation of certain sales and marketing events, among other modifications. Our business is dependent on travel of our sales, operations, quality and technical support, and other managers and employees. Limitations placed on travel globally could limit our ability to manage post-contract support and maintenance activities. We 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 the best interest of our employees, customers, partners, suppliers and shareholders. Any such alterations or modifications may adversely impact our business, our customers and prospects, or our financial results.\nThe extent to which the COVID-19 pandemic or any other pandemic will impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of COVID-19 or other pandemics and its variants in the future, future government actions in response to the crisis, the acceptance and effectiveness of the COVID-19 vaccines and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. We cannot at this time quantify or forecast the business impact of COVID-19, and there can be no assurance that the COVID-19 pandemic or other health crisis will not have a material and adverse effect on our business, financial results and financial condition.\nOur success will depend on new products introduced to the marketplace in a timely manner, successfully completing product transitioning and achieving customer acceptance.\nThe market for our products and services is characterized by rapid technological change, evolving industry standards and frequent new product introductions. Our future success will depend, in part, on continuous timely development and introduction of new products and enhancements that address evolving market requirements and are attractive to customers. If we fail to develop or introduce, on a timely basis, new products or product enhancements or features that achieve market acceptance, our business may suffer. Additionally, we work closely with a variety of third-party partners to develop new product features and new platforms. Should our partners face delays in the development process, then the timing of the rollout of our new products may be significantly impacted which may negatively impact our revenue and gross margin. Another factor impacting our future success is the growth in the customer demand of our new products. Rapidly changing technology, frequent new product introductions and enhancements, short product life cycles and changes in customer requirements characterize the markets for our products. We believe that successful new product introductions provide a significant competitive advantage because of the significant resources committed by customers in adopting new products and their reluctance to change products after these resources have been expended. We have spent, and expect to continue to spend, significant resources on internal research and development to support our effort to develop and introduce new products and enhancements.\nAs we transition to new product platforms, we face significant risk that the development of our new products may not be accepted by our current customers or by new customers. To the extent that we fail to introduce new and innovative products that are adopted by customers, we could fail to obtain an adequate return on these investments and could lose market share to our competitors, which could be difficult or impossible to regain. Similarly, we may face decreased revenue, gross margins and profitability due to a rapid decline in sales of current products as customers hold spending to focus purchases on new product platforms. We could incur significant costs in completing the transition, including costs of inventory write-downs of the current product as customers transition to new product platforms. In addition, products or technologies developed by others may render our products non-competitive or obsolete and result in significant reduction in orders from our customers and the loss of existing and prospective customers.\nWe rely on various third-party service partners to help complement our global operations, and failure to\n \nadequately manage these relationships could adversely impact our financial results and relationships with customers.\nWe rely on a number of third-party service partners, to complement our global operations. We rely upon these partners for certain installation, maintenance, logistics and support functions. In addition, as our customers increasingly \n18\nTable of Contents\nseek to rely on vendors to perform additional services relating to the design, construction and operation of their networks, the scope of work performed by our service partners is likely to increase and may include areas where we have less experience providing or managing such services. We must successfully identify, assess, train and certify qualified service partners to ensure the proper installation, deployment and maintenance of our products. The vetting and certification of these partners can be costly and time-consuming, and certain partners may not have the same operational history, financial resources and scale as we have. Moreover, certain service partners may provide similar services for other companies, including our competitors. We may not be able to manage our relationships with our service partners effectively, and we cannot be certain that they will be able to deliver services in the manner or time required, that we will be able to maintain the continuity of their services, or that they will adhere to our approach to ethical business practices. \nIf we do not effectively manage our relationships with third-party service partners, or if they fail to perform these services in the manner or time required, our financial results and relationships with our customers could be adversely affected.\nWe must respond to rapid technological change and comply with evolving industry standards and requirements for our products to be successful.\nThe optical transport networking equipment market is characterized by rapid technological change, changes in customer requirements and evolving industry standards. We continually invest in research and development to sustain or enhance our existing products, but the introduction of new communications technologies and the emergence of new industry standards or requirements could render our products obsolete. Further, in developing our products, we have made, and will continue to make, assumptions with respect to which standards or requirements will be adopted by our customers and competitors. If the standards or requirements adopted by our prospective customers are different from those on which we have focused our efforts, market acceptance of our products would be reduced or delayed, and our business would be harmed.\nWe are continuing to invest a significant portion of our research and development efforts in the development of our next-generation products. We expect our competitors will continue to improve the performance of their existing products and introduce new products and technologies and to influence customers\u2019 buying criteria so as to emphasize product capabilities that we do not, or may not, possess. To be competitive, we must anticipate future customer requirements and continue to invest significant resources in research and development, sales and marketing, and customer support. If we do not anticipate these future customer requirements and invest in the technologies necessary to enable us to have and to sell the appropriate solutions, it may limit our competitive position and future sales, which would have an adverse effect on our business and financial condition. We may not have sufficient resources to make these investments and we may not be able to make the technological advances necessary to be competitive.\nOur average sales prices may decline in the future. \nWe have experienced, and could continue to experience, declining sales prices. This price pressure is likely to result in downward pricing pressure on our products and services. As a result, we are likely to experience declining average sales prices for our products. Our future profitability will depend upon our ability to improve manufacturing efficiencies, to reduce the costs of materials used in our products and to continue to introduce new lower-cost products and product enhancements and if we are unable to do so, we may not be able to respond to pricing pressures. If we are unable to respond to increased price competition, our business, financial condition and results of operations will be harmed. Because customers frequently negotiate supply arrangements far in advance of delivery dates, we may be required to commit to price reductions for our products before we are aware of how, or if, cost reductions can be obtained. As a result, current or future price reduction commitments and any inability on our part to respond to increased price competition could harm our business, financial condition and results of operations.\nCredit and commercial risks and exposures could increase if the financial condition of our customers declines. \nA substantial portion of our sales are to customers in the telecommunications industry. These customers may require their suppliers, including the Company, to provide extended payment terms, direct loans or other forms of financial support as a condition to obtaining commercial contracts. In addition, if local currencies cannot be hedged, we have an inherent exposure in our ability to convert monies at favorable rates from or to U.S. dollars. More generally, we expect to routinely enter into long-term contracts involving significant amounts to be paid by our customers over time. Pursuant to these contracts, we may deliver products and services representing an important portion of the contract price before receiving any significant payment from the customer. As a result of the financing that may be provided to customers and our commercial risk exposure under long-term contracts, our business could be adversely affected if the \n19\nTable of Contents\nfinancial condition of our customers erodes. Over the past few years, certain of our customers have filed with the courts seeking protection under the bankruptcy or reorganization laws of the applicable jurisdiction or have experienced financial difficulties. Our customers\u2019 financial conditions face additional challenges in many emerging markets, where our customers are being affected not only by recession, but by deteriorating local currencies and a lack of credit and, more broadly, by the COVID-19 pandemic and related economic effects. If customers fail to meet their obligations to us, we may experience reduced cash flows and losses in excess of reserves, which could materially adversely impact our results of operations and financial position.\nOur business requires extensive credit risk management that may not be adequate to protect against customer nonpayment. A risk of non-payment by customers is a significant focus of our business. We expect a significant amount of future revenue to come from international customers in developing countries. We do not generally expect to obtain collateral for sales, although we require letters of credit or credit insurance as appropriate for international customers. Because a significant amount of our revenue may come from a limited number of customers, the termination of any of these customer relationships may adversely affect our business. Our historical accounts receivable balances have been concentrated in a small number of significant customers. Unexpected adverse events impacting the financial condition of our customers, bank failures or other unfavorable regulatory, economic or political events in the countries in which we do business may impact collections and adversely impact our business, require increased bad debt expense or receivable write-offs and adversely impact our cash flows, financial condition and operating results, which could also result in a breach of our bank covenants.\nOur business could be adversely affected if we are unable to attract and retain key personnel. \nOur success and ability to invest and grow depend largely on our ability to attract and retain highly skilled technical, professional, managerial, sales and marketing personnel. Historically, competition for these key personnel has been intense. The loss of services of any of our key personnel, the inability to retain and attract qualified personnel in the future, delays in hiring required personnel, particularly engineering and sales personnel, or the loss of key personnel to competitors could make it difficult for us to meet key objectives, such as timely and effective product introductions and financial goals.\nWe face strong competition for maintaining and improving our position in the market, which can adversely affect our revenue growth and operating results. \nThe wireless access, interconnection and backhaul business is a specialized segment of the wireless telecommunications industry and is extremely competitive. Competition in this segment is intense, and we expect it to increase. Some of our competitors have more extensive engineering, manufacturing and marketing capabilities and significantly greater financial, technical and personnel resources than we have. In addition, some of our competitors have greater name recognition, broader product lines, a larger installed base of products and longer-standing customer relationships. Our competitors include established companies, such as Ericsson, Huawei and Nokia, as well as a number of other public and private companies, such as Ceragon and SIAE. Some of our competitors are OEMs or systems integrators through whom we market and sell our products, which means our business success may depend on these competitors to some extent. One or more of our largest customers could internally develop the capability to manufacture products similar to those manufactured or outsourced by us and, as a result, the demand for our products and services may decrease.\nIn addition, we compete for acquisition and expansion opportunities with many entities that have substantially greater resources than we have. Our competitors may enter business combinations to accelerate product development or to compete more aggressively and we may lack the resources to meet such enhanced competition.\nOur ability to compete successfully will depend on a number of factors, including price, quality, availability, customer service and support, breadth of product lines, product performance and features, rapid time-to-market delivery capabilities, reliability, timing of new product introductions by us, our customers and competitors, the ability of our customers to obtain financing and the stability of regional sociopolitical and geopolitical circumstances, and the ability of large competitors to obtain business by providing more seller financing especially for large transactions. We can give no assurances that we will have the financial resources, technical expertise, or marketing, sales, distribution, customer service and support capabilities to compete successfully, or that regional sociopolitical and geographic circumstances will be favorable for our successful operation.\n20\nTable of Contents\nOur ability to sell our products and compete successfully is highly dependent on the quality of our customer service and support, and our failure to offer high quality service and support could have a material adverse effect on our sales and results of operations.\nOnce our products are delivered, our customers depend on our service and support to resolve any issues relating to our products. Our support personnel includes employees in various geographic locations, who provide general technical support to our customers. A high level of support is important for the successful marketing and sale of our products. If we do not effectively help our customers quickly resolve issues or provide effective ongoing support, it could adversely affect our ability to sell our products to existing customers as well as demand for maintenance and renewal contracts and could harm our reputation with existing and potential customers.\nProduct performance problems, including undetected errors in our hardware or software, or deployment delays could harm our business and reputation.\nThe development and production of products with high technology content is complicated and often involves problems with hardware, software, components and manufacturing methods. Complex hardware and software systems, such as our products, can often contain undetected errors or bugs when first introduced or as new versions are released. In addition, errors associated with components we purchase from third parties, including customized components, may be difficult to resolve. We have experienced issues in the past in connection with our products, including failures due to the receipt of faulty components from our suppliers and performance issues related to software updates. From time to time we have had to replace certain components or provide software remedies or other remediation in response to errors or bugs, and we may have to do so again in the future. In addition, performance issues can be heightened during periods where we are developing and introducing multiple new products to the market, as any performance issues we encounter in one technology or product could impact the performance or timing of delivery of other products. Our products may also suffer degradation of performance and reliability over time.\nIf reliability, quality, security or network monitoring problems develop, a number of negative effects on our business could result, including:\n\u2022\nreduced orders from existing customers;\n\u2022\ndeclining interest from potential customers;\n\u2022\ndelays in our ability to recognize revenue or in collecting accounts receivables;\n\u2022\ncosts associated with fixing hardware or software defects or replacing products;\n\u2022\nhigh service and warranty expenses;\n\u2022\ndelays in shipments;\n\u2022\nhigh inventory excess and obsolescence expense;\n\u2022\nhigh levels of product returns;\n\u2022\ndiversion of our engineering personnel from our product development efforts; and\n\u2022\npayment of liquidated damages, performance guarantees or similar penalties.\nBecause we outsource the manufacturing of certain components of our products, we may also be subject to product performance problems as a result of the acts or omissions of third parties, and we may not have adequate compensating remedies against such third parties.\nFrom time to time, we encounter interruptions or delays in the activation of our products at a customer\u2019s site. These interruptions or delays may result from product performance problems or from issues with installation and activation, some of which are outside our control. If we experience significant interruptions or delays that we cannot promptly resolve, the associated revenue for these installations may be delayed or confidence in our products could be undermined, which could cause us to lose customers, fail to add new customers, and consequently harm our financial results.\nIf we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs, which would adversely affect our business and results of operations.\nIf we fail to accurately predict our manufacturing requirements or forecast customer demand, we may incur additional costs of manufacturing and our gross margins and financial results could be adversely affected. If we overestimate our requirements, our contract manufacturers may experience an oversupply of components and assess us \n21\nTable of Contents\ncharges for excess or obsolete components that could adversely affect our gross margins. If we underestimate our requirements, our contract manufacturers may have inadequate inventory or components, which could interrupt manufacturing and result in higher manufacturing costs, shipment delays, damage to customer relationships and/or our payment of penalties to our customers. Our contract manufacturers also have other customers and may not have sufficient capacity to meet all of their customers\u2019 needs, including ours, during periods of excess demand.\nIf we fail to effectively manage our contract manufacturer relationships, we could incur additional costs or be unable to timely fulfill our customer commitments, which would adversely affect our business and results of operations and, in the event of an inability to fulfill commitments, would harm our customer relationships. \nWe outsource all of our manufacturing and a substantial portion of our repair service operations to independent contract manufacturers and other third parties. Our contract manufacturers typically manufacture our products based on rolling forecasts of our product needs that we provide to them on a regular basis. The contract manufacturers are responsible for procuring components necessary to build our products based on our rolling forecasts, building and assembling the products, testing the products in accordance with our specifications and then shipping the products to us. We configure the products to our customer requirements, conduct final testing and then ship the products to our customers. There can be no assurance that we will not encounter problems with our contract manufacturer related to these manufacturing services or that we will be able to replace a contract manufacturer that is not able to meet our demand.\nIn addition, if we fail to effectively manage our relationships with our contract manufacturers or other service providers, or if they do not fully comply with their contractual obligations or should experience delays, disruptions, component procurement problems or quality control problems, then our ability to ship products to our customers or otherwise fulfill our contractual obligations to our customers could be delayed or impaired which would adversely affect our business, financial results and customer relationships.\nWe depend on sole or limited sources and geographies for some key components and failure to receive timely delivery of any of these components could result in deferred or lost sales.\nIn some instances, we are dependent upon one or a few sources, either because of the specialized nature of a particular item or because of local content preference requirements pursuant to which we operate on a given project. Examples of sole or limited sourcing categories include metal fabrications and castings, for which we own the tooling and therefore limit our supplier relationships, and MMICs (a type of integrated circuit used in manufacturing microwave radios), which we procure at a volume discount from a single source. Additionally, certain semiconductor supply is concentrated in Taiwan, with little to no availability in other geographies. As such, any military conflict between Taiwan and China could interrupt supply.\nOur supply chain strategy includes mitigation plans for alternative manufacturing sources and identified alternate suppliers. However, if these alternatives cannot address our requirements when our existing sources of these components fail to deliver them on time, we could suffer delayed shipments, canceled orders and lost or deferred revenues, as well as material damage to our customer relationships. Should this occur, our operating results, cash flows and financial condition could be materially adversely affected.\nBecause a significant amount of our revenue may come from a limited number of customers, the termination of any of these customer relationships may adversely affect our business. \nAlthough we have a large customer base, during any given quarter or fiscal year a small number of customers may account for a significant portion of our revenue. Principal customers for our products and services include domestic and international wireless/mobile service providers, OEMs, as well as private network users such as public safety agencies; government institutions; and utility, pipeline, railroad and other industrial enterprises that operate broadband wireless networks. \nIn addition, the telecommunications industry has experienced significant consolidation among its participants, and we expect this trend to continue. Some operators in this industry have experienced financial difficulty and have filed, or may file, for bankruptcy protection. Other operators may merge and one or more of our competitors may supply products to the customers of the combined company following those mergers. This consolidation could result in purchasing decision delays and decreased opportunities for us to supply products to companies following any consolidation. This consolidation may also result in lost opportunities for cost reduction and economies of scale, and could generally reduce our opportunities to win new customers to the extent that the number of potential customers decreases. Furthermore, as \n22\nTable of Contents\nour customers become larger, they may have more leverage to negotiate better pricing which could adversely affect our revenues and gross margins.\nIt is possible that a significant portion of our future product sales could become even more concentrated in a limited number of customers due to the factors described above. Product sales to major customers have varied widely from period to period. The loss of any existing customer, a significant reduction in the level of sales to any existing customer, the consolidation of existing customers, or our inability to gain additional customers could result in declines in our revenue or an inability to grow revenue.\nWe continually evaluate strategic transaction opportunities which could involve merger, divestiture, sale and/or acquisition activities that could disrupt our operations and harm our operating results. \nOur growth depends upon market growth, our ability to enhance our existing products and our ability to introduce new products on a timely basis. We intend to continue to address the need to develop new products and enhance existing products through acquisitions, or \u201ctuck-ins,\u201d product lines, technologies, and personnel. Strategic transactions involve numerous risks, including the following:\n\u2022\ndifficulties in integrating the operations, systems, technologies, products, and personnel of the combined companies, particularly companies with large and widespread operations and/or complex products;\n\u2022\ndiversion of management\u2019s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from business combinations, sales, divestitures and/or restructurings;\n\u2022\npotential difficulties in completing projects associated with in-process research and development intangibles;\n\u2022\ndifficulties in entering markets in which we have no or limited direct prior experience and where competitors in each market have stronger market positions;\n\u2022\ninitial dependence on unfamiliar supply chains or relatively small supply partners;\n\u2022\ninsufficient revenue to offset increased expenses associated with acquisitions; and\n\u2022\nthe potential loss of key employees, customers, resellers, vendors and other business partners of our Company or the companies with which we engage in strategic transactions following and continuing after announcement of an anticipated strategic transaction.\nStrategic transactions may also cause us to:\n\u2022\nissue common stock that would dilute our current stockholders or cause a change in control of the combined company;\n\u2022\nuse a substantial portion of our cash resources, or incur debt;\n\u2022\nsignificantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition;\n\u2022\nassume material liabilities;\n\u2022\nrecord goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges;\n\u2022\nincur amortization expenses related to certain intangible assets;\n\u2022\nincur tax expenses related to the effect of acquisitions on our intercompany R&D cost sharing arrangement and legal structure;\n\u2022\nincur large and immediate write-offs and restructuring and other related expenses; and\n\u2022\nbecome subject to intellectual property or other litigation.\nMergers, restructurings, sales and acquisitions of high-technology companies are inherently risky and subject to many factors outside of our control. No assurance can be given that any future strategic transactions will be successful and will not materially adversely affect our business, operating results or financial condition. Failure to manage and successfully complete a strategic transaction could materially harm our business and operating results. Even when an acquired or acquiring company has already developed and marketed products, there can be no assurance that product \n23\nTable of Contents\nenhancements will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such products.\nThe pending transaction with NEC Corporation may not be consummated on a timely basis or at all. Failure to complete the acquisition within the expected timeframe or at all could adversely affect our stock price and our future business and financial results.\nOn May 9, 2023, we entered into a Master Sale of Business Agreement with NEC Corporation and certain other parties thereto in connection with the NEC Transaction (the \u201cPurchase Agreement\u201d). We expect the NEC Transaction to close in the fourth quarter of calendar 2023. The NEC Transaction is subject to closing conditions. If these conditions are not satisfied or waived, the NEC Transaction will not be consummated. If the closing of the NEC Transaction is substantially delayed or does not occur at all, or if the terms of the NEC Transaction are required to be modified substantially, we may not realize the anticipated benefits of the transactions fully or at all or they may take longer to realize than expected. The closing conditions include (i) the counterparties\u2019 representations and warranties being true (subject to certain materiality qualifiers) as of the closing, (ii) the counterparties\u2019 performance, in all material respects, of all obligations and agreements required to be performed prior to closing, (iii) the receipt of all documents, instruments, certificates or other items required to be delivered at or as of the closing by the other parties to the Purchase Agreement, (iv) the absence of legal matters prohibiting the NEC Transaction, and (v) the absence or expiration of any required regulatory periods. We have incurred and will continue to incur substantial transaction costs whether or not the NEC Transaction is completed. Any failure to complete the NEC Transaction could have a material adverse effect on our stock price, our competitiveness and reputation in the marketplace, and our future business and financial results, including our ability to execute on our strategy to return capital to our stockholders.\nThe NEC Transaction will require management to devote significant attention and resources to integrating the acquired NEC businesses with our business. Potential difficulties that may be encountered in the integration process include, among others:\n\u2022\nthe inability to successfully integrate the acquired NEC business into the Aviat business in a manner that permits us to achieve the revenue we anticipated from the NEC Transaction;\n\u2022\ncomplexities associated with managing the larger, integrated business;\n\u2022\npotential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the NEC Transaction;\n\u2022\nintegrating personnel from the NEC companies while maintaining focus on providing consistent, high-quality products and services;\n\u2022\nintegrating relationships with customers, vendors and business partners;\n\u2022\nperformance shortfalls as a result of the diversion of management\u2019s attention caused by completing the NEC Transaction and integrating acquired NEC operations into Aviat; or\n\u2022\nthe disruption of, or loss of momentum in, each company\u2019s ongoing business or inconsistencies in standards, controls, procedures and policies.\nDelays or difficulties in the integration process could adversely affect our business, financial results, financial condition and stock price. Even if we are able to integrate our business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that we currently expect or have communicated from this integration or that these benefits will be achieved within the anticipated time frame.\nFinancial and Macroeconomic Risk Factors\nAdverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations.\nActual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future adversely affect our liquidity. In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and \n24\nTable of Contents\nliquidity sources, thereby making it more difficult for us to acquire financing on terms favorable to us, or at all. Any decline in available funding or access to our cash and liquidity resources could, among other things, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our contractual obligations or result in violations of federal or state wage and hour laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity, business, financial condition or results of operations.\nIn addition, any further deterioration in the macroeconomic economy or financial services industry could lead to losses or defaults by our customers or suppliers, which in turn, could have a material adverse effect on our current and/or projected business operations and results of operations and financial condition. Any customer or supplier bankruptcy or insolvency, or the failure of any customer to make payments when due, or any breach or default by a customer or supplier, or the loss of any significant supplier relationships, could result in material losses to the Company and may have a material adverse impact on our business.\nDue to the volume of our international sales, we may be susceptible to a number of political, economic, financial and geographic risks that could harm our business. \nWe are highly dependent on sales to customers outside the U.S. In fiscal 2023, our sales to international customers accounted for 43% of total revenue. Significant portions of our international sales are in less developed countries. Our international sales are likely to continue to account for a large percentage of our products and services revenue for the foreseeable future. As a result, the occurrence of any international, political, economic or geographic event could result in a significant decline in revenue. In addition, compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business in international jurisdictions. These numerous and sometimes conflicting laws and regulations include internal control and disclosure rules, data privacy and filtering requirements, anti-corruption laws, such as the Foreign Corrupt Practices Act, and other local laws prohibiting corrupt payments to governmental officials, and anti-competition regulations, among others. Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries, and could also materially affect our brand, our international expansion efforts, our ability to attract and retain employees, our business, and our operating results. Although we have implemented policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies.\nSome of the risks and challenges of doing business internationally include:\n\u2022\nunexpected changes in regulatory requirements;\n\u2022\nfluctuations in international currency exchange rates including its impact on unhedgeable currencies and our forecast variations for hedgeable currencies;\n\u2022\nimposition of tariffs and other barriers and restrictions;\n\u2022\nmanagement and operation of an enterprise spread over various countries;\n\u2022\nthe burden of complying with a variety of laws and regulations in various countries;\n\u2022\napplication of the income tax laws and regulations of multiple jurisdictions, including relatively low-rate and relatively high-rate jurisdictions, to our sales and other transactions, which results in additional complexity and uncertainty;\n\u2022\nthe conduct of unethical business practices in developing countries;\n\u2022\ngeneral economic and geopolitical conditions, including inflation and trade relationships;\n\u2022\nrestrictions on travel to locations where we conduct business, including those imposed due to COVID-19;\n\u2022\nwar and acts of terrorism;\n\u2022\nkidnapping and high crime rate;\n\u2022\nnatural disasters;\n\u2022\navailability of U.S. dollars especially in countries with economies highly dependent on resource exports, particularly oil; and\n\u2022\nchanges in export regulations.\nWhile these factors and the impacts of these factors are difficult to predict, any one or more of them could adversely affect our business, financial condition and results of operations in the future.\n25\nTable of Contents\nA portion of our sales and expenses stem from countries outside of the United States, and are in currencies other than U.S. dollars, and therefore subject to foreign currency fluctuation. Accordingly, fluctuations in foreign currency rates could have a material impact on our financial results in future periods. From time to time, we enter into foreign currency exchange forward contracts to reduce the volatility of cash flows primarily related to forecasted foreign currency expenses. These forward contracts reduce the impact of currency exchange rate movements on certain transactions, but do not cover all foreign-denominated transactions and therefore do not entirely eliminate the impact of fluctuations in exchange rates on our results of operations and financial condition.\nThere are inherent limitations on the effectiveness of our controls. \nWe do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system\u2019s objectives will be met. The design of a control system must reflect the fact that resource constraints exist, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual acts of some persons, by collusion of two or more people, or by management\u2019s override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate due to changes in conditions or deterioration in the degree of compliance with policies or procedures. If our controls become inadequate, we could fail to meet our financial reporting obligations, our reputation may be adversely affected, our business and operating results could be harmed, and the market price of our stock could decline.\nWe may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders. \nWe believe that our existing cash and cash equivalents, the available line of credit under our credit facility and future cash collections from customers will be sufficient to provide for our anticipated requirements for working capital and capital expenditures for the next 12 months and the foreseeable future. However, it is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our longer-term capital needs. If this occurs, we may need to sell assets, reduce capital expenditures, or obtain additional equity or debt financing. We have no assurance that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms if and when needed, our business, financial condition and results of operations could be harmed.\nIf we raise additional funds through the issuance of equity or convertible debt securities, the ownership of our existing stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. \nThe effects of global or market specific financial and economic conditions have, and may continue to have, significant effects on our customers and suppliers, and have in the past, and may in the future have, a material adverse effect on our business, operating results, financial condition and stock price. \nThe effects of global financial and economic conditions in certain markets include, among other things, significant reductions in available capital and liquidity from credit markets, supply or demand driven inflationary pressures, and substantial fluctuations in currency values worldwide.\nEconomic conditions in certain markets have adversely affected and may continue to adversely affect our customers\u2019 access to capital and/or willingness to spend capital on our products, and/or their levels of cash liquidity and/or their ability and/or willingness to pay for products that they will order or have already ordered from us, or result in their ceasing operations. Further, we have experienced an increasing number of our customers, principally in emerging markets, requesting longer payment terms, lease or vendor financing arrangements, longer terms for the letters of credit securing purchases of our products and services, which could potentially negatively impact our orders, revenue conversion cycle, and cash flows.\n26\nTable of Contents\nIn seeking to reduce their expenses, we have also seen significant pressure from our customers to lower prices for our products as they try to improve their operating performance and procure additional capital equipment within their reduced budget levels. To the extent that we lower prices on our products and services, our orders, revenues, and gross margins may be negatively impacted. Additionally, certain emerging markets are particularly sensitive to pricing as a key differentiator. Where price is a primary decision driver, we may not be able to effectively compete, or we may choose not to compete due to unacceptable margins.\nIn addition, economic conditions in certain markets could materially adversely affect our suppliers\u2019 access to capital and liquidity with which to maintain their inventories, production levels, or product quality, could cause them to raise prices or lower production levels, or result in their ceasing operations. Supply or demand driven scarcity can lead to significant inflationary pressures on the cost of our products from our suppliers. Our ability to substantially offset inflationary impacts by raising prices may be limited by the competitive factors discussed above.\nFurther, with respect to our credit facility discussed under \u201cLiquidity, Capital Resources and Financial Strategies\u201d in Item 7 of this Annual Report on Form 10-K, our ability to access the funds available under our credit facility could be materially adversely affected.\nThe potential effects of these economic factors are difficult to forecast and mitigate. As a consequence, our operating results for a particular period are difficult to predict and prior results are not necessarily indicative of results to be expected in future periods. Any of the foregoing effects could have a material adverse effect on our business, results of operations, and financial condition and could adversely affect our stock price.\nChanges in tax laws, treaties, rulings, regulations or agreements, or their interpretation in any country in which we operate; the loss of a major tax dispute; a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries; or other factors could cause volatility in our effective tax rate and could adversely affect our operating results. \nWe operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our future effective tax rate may be adversely affected by a number of factors, many of which are outside of our control, including:\n\u2022\nthe jurisdictions in which profits are determined to be earned and taxed;\n\u2022\nadjustments to estimated taxes upon finalization of various tax returns;\n\u2022\nincreases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairment of goodwill in connection with acquisitions;\n\u2022\nour ability to utilize net operating losses;\n\u2022\nchanges in available tax credits;\n\u2022\nchanges in share-based compensation expense;\n\u2022\nchanges in the valuation of our deferred tax assets and liabilities;\n\u2022\nchanges in domestic or international tax laws, treaties, rulings, regulations or agreements or the interpretation of such tax laws, treaties, rulings, regulations or agreements, including the impact of the Tax Cuts and Jobs Act of 2017 and any new administrations;\n\u2022\nthe resolution of issues arising from tax audits with various tax authorities, including the loss of a major tax dispute;\n\u2022\nlocal tax authority challenging our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries; \n\u2022\nthe tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations between reporting periods; and\n\u2022\ntaxes that may be incurred upon a repatriation of cash from foreign operations.\nAny significant increase in our future effective tax rates could impact our results of operations for future periods adversely.\nOur ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes and other tax benefits may be limited.\n27\nTable of Contents\nSection 382 of the Internal Revenue Code of 1986, as amended (the \u201cCode\u201d) imposes an annual limitation on the amount of taxable income that may be offset if a corporation experiences an \u201cownership change\u201d as defined in Section 382 of the Code. An ownership change occurs when a company\u2019s \u201cfive-percent shareholders\u201d (as defined in Section 382 of the Code) collectively increase their ownership in the company by more than 50 percentage points (by value) over a rolling three-year period. Additionally, various states have similar limitations on the use of state net operating losses (\u201cNOL\u201d) following an ownership change.\nIf we experience an ownership change, our ability to use our NOLs, any loss or deduction attributable to a \u201cnet unrealized built-in loss\u201d and other tax attributes (collectively, the \u201cTax Benefits\u201d) could be substantially limited, and the timing of the usage of the Tax Benefits could be substantially delayed, which could significantly impair the value of the Tax Benefits. There is no assurance that we will be able to fully utilize the Tax Benefits and we could be required to record an additional valuation allowance related to the amount of the Tax Benefits that may not be realized, which could adversely impact our results of operations.\nWe believe that these Tax Benefits are a valuable asset for us. On March 3, 2020, the Board approved The Plan (as amended and restated on August 27, 2020), in an effort to protect our Tax Benefits during the effective period of the Plan. We submitted the Plan to a stockholder vote and our stockholders approved the plan at the 2020 Annual Meeting of Stockholders. Although the Plan is intended to reduce the likelihood of an \u201cownership change\u201d that could adversely affect us, there is no assurance that the restrictions on transferability in the Plan will prevent all transfers that could result in such an \u201cownership change.\u201d An amendment to the Plan, approved by the Board of Directors on February 28, 2023, will be submitted to the Company\u2019s stockholders for ratification at the Company\u2019s 2023 annual meeting (the \u201cAnnual Meeting\u201d), which extends the final expiration date of the Plan until March 3, 2026.\nThe Plan could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, us or a large block of our common stock. A third party that acquires 4.9% or more of our common stock could suffer substantial dilution of its ownership interest under the terms of the Plan through the issuance of common stock or common stock equivalents to all stockholders other than the acquiring person. \nThe foregoing provisions may adversely affect the marketability of our common stock by discouraging potential investors from acquiring our stock. In addition, these provisions could delay or frustrate the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, or impede an attempt to acquire a significant or controlling interest in us, even if such events might be beneficial to us and our stockholders.\nLegal and Regulatory Risk Factors\nContinued tension in U.S.-China trade relations may adversely impact our supply chain operations and business. \nThe U.S. government has taken certain actions that change U.S. trade policies, including tariffs that affect certain products manufactured in China. Some components manufactured by our Chinese suppliers are subject to tariffs if imported into the United States. The Chinese government has taken certain reciprocal actions, including recently imposed tariffs affecting certain products manufactured in the United States. Certain of our products manufactured in our U.S. operations have been included in the tariffs imposed on imports into China from the United States. Although some of the products and components we import are affected by the tariffs, at this time, we do not expect these tariffs to have a material impact on our business, financial condition or results of operations.\n It is unknown whether and to what extent additional new tariffs (or other new laws or regulations) will be adopted that increase the cost or feasibility of importing and/or exporting products and components from China to the United States and vice versa. Further, the effect of any such new tariffs or retaliatory actions on our industry and customers is unknown and difficult to predict. As additional new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or if China or other affected countries take retaliatory trade actions, such changes could have a material adverse effect on our business, financial condition, results of operations or cash flows.\nIf we are unable to adequately protect our intellectual property rights, we may be deprived of legal recourse against those who misappropriate our intellectual property. \nOur ability to compete will depend, in part, on our ability to obtain and enforce intellectual property protection for our technology in the U.S. and internationally. We rely upon a combination of trade secrets, trademarks, copyrights, patents, contractual rights and technological measures to protect our intellectual property rights from infringement, misappropriation or other violations to maintain our brand and competitive position. We also make business decisions about when to seek patent protection for a particular technology and when to rely upon trade secret protection, and the \n28\nTable of Contents\napproach we select may ultimately prove to be inadequate. With respect to patents, we cannot be certain that patents will be issued as a result of any currently pending patent application or future patent applications, or that any of our patents, once issued, will provide us with adequate protection from competing products or intellectual property owned by others. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable or narrowed in scope. Furthermore, we may not be able to prevent infringement, misappropriation and unauthorized, use of our owned and exclusively-licensed intellectual property. We also cannot provide assurances that the protection provided to our intellectual property by the laws and courts of particular nations will be substantially similar to the protection and remedies available under U.S. law. Furthermore, we cannot provide assurances that third parties will not assert infringement claims against us in the U.S. or based on intellectual property rights and laws in other nations that are different from those established in the U.S.\nIn addition, we enter into confidentiality and invention assignment agreements with our employees and contractors and enter into non-disclosure agreements with our suppliers and appropriate customers so as to limit access to and disclosure of our proprietary information. We cannot guarantee that we have entered into such agreements with each party who has developed intellectual property on our behalf and each party that has or may have had access to our confidential information, know-how and trade secrets. These agreements may be insufficient or breached, or may not effectively prevent unauthorized access to or unauthorized use, disclosure, misappropriation or reverse engineering of our confidential information, intellectual property, or technology. Moreover, these agreements may not provide an adequate remedy for breaches or in the event of unauthorized use or disclosure of our confidential information or technology, or infringement of our intellectual property. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret or know-how, or misappropriated or violated intellectual property is difficult, expensive, and time-consuming, and the outcome is unpredictable.\nWe cannot give assurances that any steps taken by us will be adequate to deter infringement, misappropriation, violation, dilution or otherwise impede independent third-party development of similar technologies. Any of our intellectual property rights may be successfully challenged, opposed, diluted, misappropriated, violated or circumvented by others or invalidated, narrowed in scope or held unenforceable through administrative process or litigation in the United States or in non-U.S. jurisdictions. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain and any changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to enforce our trade secrets and other intellectual property rights. In the event that such intellectual property arrangements are insufficient, our business, financial condition and results of operations could be materially harmed. \nIf sufficient radio frequency spectrum is not allocated for use by our products, or we fail to obtain regulatory approval for our products, our ability to market our products may be restricted.\nWe may be affected by the allocation and auction of the radio frequency spectrum by governmental authorities both in the U.S. and internationally. The unavailability of sufficient radio frequency spectrum may inhibit the future growth of wireless communications networks. In addition, to operate in a jurisdiction, we must obtain regulatory approval for our products and each jurisdiction in which we market our products has its own regulations governing radio communications. If we are unable to obtain sufficient allocation of radio frequency spectrum by the appropriate governmental authority or obtain the proper regulatory approval for our products, our business, financial condition and results of operations may be harmed.\nOur business is subject to changing regulation of corporate governance, public disclosure and anti-bribery measures which have resulted in increased costs and may continue to result in additional costs or potential liabilities in the future. \nWe are subject to rules and regulations of federal and state regulatory authorities, The NASDAQ Stock Market LLC (\u201cNASDAQ\u201d) and financial market entities charged with the protection of investors and the oversight of companies whose securities are publicly traded, and foreign and domestic legislative bodies. During the past few years, these entities, including the Public Company Accounting Oversight Board, the SEC, NASDAQ and several foreign governments, have issued requirements, laws and regulations and continue to develop additional requirements, laws and regulations, most notably the Sarbanes-Oxley Act of 2002 (\u201cSOX\u201d), and recent laws and regulations regarding bribery and unfair competition, including the SEC\u2019s recently-proposed rules relating to the disclosure of a range of climate-related risks. Our efforts to comply with these requirements and regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of substantial management time and attention from revenue-generating activities to compliance activities.\n29\nTable of Contents\nMoreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs potentially necessitated by ongoing revisions to our disclosure and governance practices. Finally, if we are unable to ensure compliance with such requirements, laws, or regulations, we may be subject to costly prosecution and liability, and resulting reputational harm, from such noncompliance.\nOur products are used in critical communications networks which may subject us to significant liability claims.\nBecause our products are used in critical communications networks, we may be subject to significant liability claims if our products do not work properly. We warrant to our current customers that our products will operate in accordance with our product specifications. If our products fail to conform to these specifications, our customers could require us to remedy the failure or could assert claims for damages. The provisions in our agreements with customers that are intended to limit our exposure to liability claims may not preclude all potential claims. In addition, any insurance policies we have may not adequately limit our exposure with respect to such claims. Liability claims could require us to spend significant time and money in litigation or to pay significant damages. Any such claims, whether or not successful, would be costly and time-consuming to defend, and could divert management\u2019s attention and seriously damage our reputation and our business.\nWe may be subject to litigation regarding our intellectual property. This litigation could be costly to defend and resolve and could prevent us from using or selling the challenged technology.\nThe wireless telecommunications industry is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in often protracted and expensive litigation. Any litigation regarding patents or other owned or exclusively licensed intellectual property, including claims that our use of intellectual property infringes or violates the rights of others, could be costly and time-consuming and could divert our management and key personnel from our business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Such litigation or claims could result in substantial costs and diversion of resources. In the event of an adverse result in any such litigation, we could be required to pay substantial damages, cease the use and transfer of allegedly infringing technology or the sale of allegedly infringing products and expend significant resources to develop non-infringing technology or obtain licenses for the infringing technology. We can give no assurances that we would be successful in developing such non-infringing technology or that any license for the infringing technology would be available to us on commercially reasonable terms, if at all. This could have a materially adverse effect on our business, results of operation, financial condition, competitive position and prospects.\nWe are subject to laws, rules, regulations and policies regarding data privacy and security. Many of these laws and regulations are subject to change and reinterpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or other harm to our business.\nWe are subject to a variety of federal, state and local laws, directives, rules, standards, regulations, policies and contractual obligations relating to data privacy and security. The regulatory framework for data privacy and security worldwide is continuously evolving and developing and, as a result, interpretation and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. It is also possible inquiries and enforcement actions from governmental authorities regarding cybersecurity breaches increase in frequency and scope. These data privacy and security laws also are not uniform, which may complicate and increase our costs for compliance. As a result, we anticipate needing to dedicate substantial resources to comply with such laws, regulations, and other obligations relating to privacy and cybersecurity. Furthermore, we cannot provide assurance that we will not face claims, allegations, or other proceedings related to our obligations under applicable data privacy and security laws. Any failure or perceived failure by us or our third-party service providers to comply with any applicable laws relating to data privacy and security, or any compromise of security that results in the unauthorized access, improper disclosure, or misappropriation of personal data or other customer data, could result in significant liabilities, and negative publicity and reputational harm, one or all of which could have an adverse effect on our reputation, business, financial condition and operations.\nWe are subject to complex federal, state, local and international laws and regulations related to protection of the environment that could materially and adversely affect the cost, manner or feasibility of conducting our operations, as well as those of our suppliers and contract manufacturers.\nEnvironmental, health and safety regulations govern the manufacture, assembly and testing of our products, including without limitation regulations governing the emission of pollutants and the use, remediation, and disposal of \n30\nTable of Contents\nhazardous materials (including electronic wastes). Our failure or the failure of our suppliers or contract manufacturers to properly manage the use, transportation, emission, discharge, storage, recycling or disposal of wastes generated from our operations could subject us to increased compliance costs or liabilities such as fines and penalties. We may also be subject to costs and liabilities for environmental clean-up costs on sites owned by us, sites previously owned by us, or treatment and disposal of wastes attributable to us from past operations, under the Comprehensive Environmental Response, Compensation and Liability Act or equivalent laws. Existing and future environmental regulations may additionally restrict our and our suppliers\u2019 use of certain materials to manufacture, assemble and test products. New or more stringent environmental requirements applicable to our operations or the operations of our suppliers could adversely affect our costs of doing business and result in material costs to our operations.\nIncreased attention to Environmental, Social, and Governance (\u201cESG\u201d) matters, conservation measures and climate change issues has contributed to an evolving state of environmental regulation, which could impact our results of operations, financial or competitive position and may adversely impact our business. \nIncreasing attention to, and societal expectations on companies to address, climate change and other environmental and social impacts, investor and societal expectations regarding voluntary ESG disclosures may result in increased costs to us and our suppliers, contract manufacturers, and customers. Moreover, while we create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring and reporting on many ESG matters. Additionally, on March 21, 2022, the SEC proposed new rules relating to the disclosure of a range of climate-related risks. We are currently assessing the rule, but at this time we cannot predict the costs of implementation or any potential adverse impacts resulting from the rule. To the extent this rule is finalized as proposed, we could incur increased costs relating to the assessment and disclosure of climate-related risks.\nIncreased public awareness and worldwide focus on climate change issues has led to legislative and regulatory efforts to limit greenhouse gas emissions, and may result in more international, federal or regional requirements or industry standards to reduce or mitigate risks related to climate change. As a result, we may become subject to new or more stringent regulations, legislation or other governmental requirements or industry standards, and we anticipate that we will see increased demand to meet voluntary criteria related to reduction or elimination of certain constituents from products, reducing emissions of greenhouse gases, and increasing energy efficiency. Increased regulation of climate change concerns could subject us to additional costs and restrictions and require us to make certain changes to our manufacturing practices and/or product designs, which could negatively impact our business, results of operations, financial condition and competitive position.\nAnti-takeover provisions of Delaware law, the Amended and Restated Tax Benefit Preservation Plan (the \u201cPlan\u201d), and provisions in our Amended and Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws could make a third-party acquisition of us difficult. \nBecause we are a Delaware corporation, the anti-takeover provisions of Delaware law could make it more difficult for a third party to acquire control of us, even if the change in control would be supported by our stockholders. We are subject to the provisions of Section 203 of the General Corporation Law of Delaware, which prohibits us from engaging in certain business combinations, unless the business combination is approved in a prescribed manner. In addition, our Amended and Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws also contain certain provisions that may make a third-party acquisition of us difficult, including the ability of the Board to issue preferred stock and the requirement that nominations for directors and other proposals by stockholders must be made in advance of the meeting at which directors are elected or the proposals are voted upon.\nIn addition, the Plan and the amendments to our Amended and Restated Certificate of Incorporation, as amended (the \u201cCharter Amendments\u201d) could make an acquisition of us more difficult. \n31\nTable of Contents\nGeneral Risk Factors\nNatural disasters or other catastrophic events such as terrorism and war could have an adverse effect on our business. \nNatural disasters, such as hurricanes, earthquakes, fires, extreme weather conditions and floods, could adversely affect our operations and financial performance. In addition, climate change may contribute to the increased frequency or intensity of extreme weather events, including storms, wildfires, and other natural disasters. Further, acts of terrorism or war could significantly disrupt our supply chain and access to vital components. Such events have in the past and could [in the future] result in physical damage to one or more of our facilities, the temporary closure of one or more of our facilities or those of our suppliers, a temporary lack of an adequate work force in a market, a temporary or long-term disruption in the supply of products from local or overseas suppliers or contract manufacturers, a temporary disruption in the transport of goods from overseas, and delays in the delivery of goods. Accordingly, climate change and natural disasters may impact the availability and cost of materials and natural resources, sources and supply of energy necessary for our operations, and could also increase insurance and other operating costs. Many of our facilities around the world (and the operations of our suppliers) are in locations that may be impacted by the physical risks of climate change, and we face the risk of losses incurred as a result of physical damage to our facilities or those of our suppliers, such as loss or spoilage of inventory and business interruption caused by such events. In addition, if there is a natural disaster in any of the locations in which our significant customers are located, our customers may incur losses or sustained business interruption, or both, which may materially impair their ability to continue their purchase of products from us. Public health issues, whether occurring in the United States or abroad, could disrupt our operations, disrupt the operations of suppliers or customers, or have an adverse impact on customer demand. As a result of any of these events, we may be required to suspend operations in some or all of our locations, which could have an adverse effect on our business, financial condition, results of operations, and cash flows. These events could also reduce demand for our products or make it difficult or impossible to receive components from suppliers. Although we maintain business interruption insurance and other insurance intended to cover some or all of these risks, such insurance may be inadequate, whether because of coverage amount, policy limitations, the financial viability of the insurance companies issuing such policies, or other reasons.\nSystem security risks, data protection breaches, and cyber-attacks could compromise our proprietary information, disrupt our internal operations and harm public perception of our products, which could cause our business and reputation to suffer and adversely affect our stock price. \nIn the ordinary course of business, we store sensitive data, including intellectual property, our proprietary business information and proprietary information of our customers, suppliers and business partners, on our networks. The secure maintenance of this information is critical to our operations and business strategy. Increasingly, companies, including ours, are subject to a wide variety of attacks on their networks on an ongoing basis. Despite our security measures, our information technology and infrastructure may be vulnerable to interruption, disruption, destruction, penetration or attacks due to natural disasters, power loss, telecommunications failure, terrorist attacks, domestic vandalism, Internet failures, computer malware, ransomware, cyberattacks, social engineering attacks, phishing attacks, data breaches and other events unforeseen or generally beyond our control. Additionally, advances in technology, an increased level of sophistication and expertise of hackers, widespread access to generative AI, and new discoveries in the field of cryptography can result in a compromise or breach of our information technology systems or security measures implemented to protect our systems. Any such breach could compromise our systems and networks, which could cause system disruptions or slowdowns and exploitation of security vulnerabilities in our products, and lead to the information stored on our networks being accessed, publicly disclosed, lost or stolen, which could subject us to liability to our customers, suppliers, business partners and others, and cause us reputational and financial harm. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including \u201cbugs\u201d and other problems that could unexpectedly interfere with the operation of our networks. An increased number of our employees and service providers are working from home and connecting to our networks remotely on less secure systems, which we believe may further increase the risk of, and our vulnerability to, a cyber-attack or breach on our network. Any such actual or perceived security breach, incident or disruption could also divert the efforts of our technical and management personnel and could require us to incur significant costs and operational consequences in connection with investigating, remediating, eliminating and putting in place additional tools, devices, policies, and other measures designed to prevent such security breaches, incidents and system disruptions. Moreover, we could be required by applicable law in some jurisdictions, or otherwise find it appropriate to expend significant capital and other resources, to notify or respond to applicable third parties or regulatory authorities due to any actual or perceived security incidents or breaches to our systems and its root cause.\n32\nTable of Contents\nIf an actual or perceived breach of network security occurs in our network or in the network of a customer of our security products, regardless of whether the breach is attributable to our products, the market perception of the effectiveness and safety of our products could be harmed. Because the techniques used by computer programmers and hackers, many of whom are highly sophisticated and well-funded, to access or sabotage networks or systems change frequently and generally are not recognized until after they are used, we may be unable to anticipate or immediately detect these cyber-attacks. This could impede our sales, manufacturing, distribution or other critical functions. In addition, our ability to defend against and mitigate cyberattacks depends in part on prioritization decisions that we and third parties upon whom we rely make to address vulnerabilities and security defects. While we endeavor to address all identified vulnerabilities in our products, we must make determinations as to how we prioritize developing and deploying the respective fixes, and we may be unable to do so prior to an attack. The economic costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software systems and security vulnerabilities could be significant and may be difficult to anticipate or measure because the damage may differ based on the identity and motive of the programmer or hacker, which are often difficult to identify. Furthermore, even once a vulnerability has been addressed, for certain of our products, the fix will only be effective once a customer has updated the impacted product with the latest release, and customers that do not install and run the latest supported versions of our products may remain vulnerable to attack.\nAs cyber-attacks become more sophisticated, the need to develop, modify, upgrade or enhance our information technology infrastructure and measures to secure our business can lead to increased cybersecurity protection costs. Such costs may include making organizational changes, deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants. These efforts come at the potential cost of revenues and human resources that could be utilized to continue to enhance our product offerings, and such increased costs may adversely affect our operating margins.\nAdditionally, certain of our suppliers have in the past and may in the future experience cybersecurity attacks that can constrain their capacity and ability to meet our product demands. If our contract manufacturers and suppliers suffer future cyberattacks, our ability to ship products or otherwise fulfill our contractual obligations to our customers could be delayed or impaired which would adversely affect our business, financial results and customer relationships.",
+  "item7": ">Item\u00a07.\u00a0\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThe following discussion and analysis is intended to help the reader understand our results of operations and financial condition during the two-year period ended June\u00a030, 2023 (our fiscal 2023 and 2022). All references herein for the years 2023, 2022 and 2021 represent the fiscal years ended June\u00a030, 2023, July 1, 2022, and July 2, 2021, respectively. Our fiscal year ends on the Friday nearest to June 30. This discussion should be read in conjunction with our consolidated financial statements and the accompanying notes. For a comparison of our results of operations for fiscal 2022 and 2021, see our Annual Report on Form 10-K for the fiscal year ended July 1, 2022, filed with the SEC on September\u00a014, 2022.\nOverview\nAviat Networks, Inc. (\u201cAviat\u201d, \u201cwe\u201d, or the \u201cCompany\u201d) is a global supplier of microwave networking and access networking solutions, backed by an extensive suite of professional services and support. We sell radios, routers, software and services integral to the functioning of data transport networks. We have more than 3,000 customers and significant relationships with global service providers and private network operators. Our North America manufacturing base consists of a combination of contract manufacturing and assembly and testing operated in Austin, Texas by Aviat. Additionally, we utilize a contract manufacturer based in Asia for much of our international equipment demand. Our technology is underpinned by more than 500 patents. We compete on the basis of total cost of ownership, microwave radio expertise and solutions for mission critical communications. We have a global presence.\nWhile supply chain lead-times were difficult to manage through parts of fiscal 2023 and certain components remain on allocation, we have seen recent improvements in the supply chain environment. The impact that supply chain constraints had on our ability to fulfill orders during fiscal 2023 was minimal. Depending on the progression of factors such as supply allocations, lead-time trends and our ability to perform field services, we could experience constraints and delays in fulfilling customer orders in future periods. We continually monitor, assess and adapt to each situation to mitigate impacts on our business, supply chain and customer demand. We expect the potential for these challenges to continue.\nWe continue to be impacted by inflationary pressures incurred to overcome supply chain and logistical bottlenecks. We will monitor, assess and adapt to the situation and prepare for implications to our business, supply chain and customer demand. We expect these challenges to continue.\nAcquisitions\nNEC\u2019s Wireless Transport Business\nOn May 9, 2023, the Company entered into the Purchase Agreement with NEC Corporation. Pursuant to the Purchase Agreement, the Company will purchase certain assets and liabilities from NEC relating to NEC\u2019s wireless backhaul business. Initial consideration due at the closing of the NEC Transaction will be comprised of (i) an amount in cash equal to $45.0\u00a0million, subject to certain post-closing adjustments, and (ii) the issuance of $25.0\u00a0million in Company common stock. Aggregate consideration will be approximately $70.0\u00a0million. The Company has obtained permanent financing to fund the cash portion of the NEC Transaction. See Note 7. Credit Facility and Debt for further information.\nThe Purchase Agreement contains certain customary termination rights, including, among others, (i) the right of the Company or NEC to terminate if all the conditions to closing have not been either waived or satisfied on or before February 9, 2024 and (ii) there is a final non-appealable order of a government entity prohibiting the consummation of the NEC Transaction. The NEC Transaction remains subject to, among other things, regulatory approvals and satisfaction of other customary closing conditions.\nThe Company expects to complete the NEC Transaction in the fourth quarter of calendar year 2023.\nNEC is a leader in wireless backhaul networks with an extensive installed base of their Pasolink series products.\nRedline Communications Group Inc.\nOn July 5, 2022, we acquired Redline Communications Group Inc. (\u201cRedline\u201d), for a purchase price of $20.4 million. Redline is a leading provider of mission-critical data infrastructure. The acquisition of Redline allows Aviat to expand its Private Networks Offering with Private LTE/5G and Unlicensed Wireless Access Solutions, by creating an integrated end-to-end offering for wireless access and transport in the Private Networks segment, leveraging Aviat's sales \n37\nTable of Contents\nchannel to address a large dollar Private LTE/5G addressable market and increasing Aviat\u2019s reach in mission-critical industrial Private Networks.\nOperations Review\nThe market for mobile backhaul continued to be our primary addressable market segment globally in fiscal 2023. In North America, we supported 5G and long-term evolution (\u201cLTE\u201d) deployments of our mobile operator customers, public safety network deployments for state and local governments, and private network implementations for utilities and other customers. In international markets, our business continued to rely on a combination of customers increasing their capacity to handle subscriber growth and the ongoing build-out of some large LTE and 5G deployments. Our position continues to be to support our customers for 5G and LTE readiness and ensure that our technology roadmap is well aligned with evolving market requirements. Our strength in turnkey and after-sale support services is a differentiating factor that wins business for us and enables us to expand our business with existing customers. Additionally, we operate an e-commerce platform that provides low cost services, a simple experience, and fast delivery to mobile operator and private network customers. However, as disclosed in the \u201cRisk Factors\u201d section in Item 1A of this Annual Report on Form 10-K, a number of factors could prevent us from achieving our objectives, including ongoing pricing pressures attributable to competition and macroeconomic conditions in the geographic markets that we serve.\nFiscal 2023 Compared to Fiscal 2022\nRevenue\nWe manage our sales activities primarily on a geographic basis in North America and three international geographic regions: (1) Africa and the Middle East, (2) Europe and (3) Latin America and Asia Pacific. Revenue by region for fiscal 2023 and 2022 and the related changes were as follows:\n\u00a0\nFiscal Year\n(In thousands, except percentages)\n2023\n2022\n$ Change\n% Change\nNorth America\n$\n202,096\u00a0\n$\n199,801\u00a0\n$\n2,295\u00a0\n1.1\u00a0\n%\nAfrica and the Middle East\n60,416\u00a0\n47,527\u00a0\n12,889\u00a0\n27.1\u00a0\n%\nEurope\n18,772\u00a0\n12,973\u00a0\n5,799\u00a0\n44.7\u00a0\n%\nLatin America and Asia Pacific\n65,309\u00a0\n42,658\u00a0\n22,651\u00a0\n53.1\u00a0\n%\nTotal Revenue\n$\n346,593\u00a0\n$\n302,959\u00a0\n$\n43,634\u00a0\n14.4\u00a0\n%\nWe achieved revenue growth of 14.4% in fiscal 2023 driven by significant international share gains and the contribution from the Redline acquisition.\nRevenue in North America increased by $2.3 million, or 1.1%, in fiscal 2023 primarily due to increased tier one revenue, partially offset by lower private network volumes.\nRevenue in Africa and the Middle East increased by $12.9 million, or 27.1%, in fiscal 2023 primarily due to increased product sales to mobile and private network operators in the region and the contribution from the Redline acquisition.\nRevenue in Europe increased by $5.8 million, or 44.7%, in fiscal 2023 primarily due to higher sales to mobile operators.\nRevenue in Latin America and Asia Pacific increased by $22.7 million, or 53.1%, in fiscal 2023 primarily driven by a key customer win in Asia Pacific and increased product sales to mobile operators in Latin America.\n38\nTable of Contents\n\u00a0\nFiscal Year\n(In thousands, except percentages)\n2023\n2022\n$ Change\n% Change\nProduct sales\n$\n239,321\u00a0\n$\n208,100\u00a0\n$\n31,221\u00a0\n15.0\u00a0\n%\nServices\n107,272\u00a0\n94,859\u00a0\n12,413\u00a0\n13.1\u00a0\n%\nTotal Revenue\n$\n346,593\u00a0\n$\n302,959\u00a0\n$\n43,634\u00a0\n14.4\u00a0\n%\nOur revenue from product sales and services increased by 15.0% and 13.1% respectively in fiscal 2023 compared with fiscal 2022. The relatively proportionate increases were driven by the same overall factors of revenue growth discussed previously.\nGross Margin\n\u00a0\nFiscal Year\n(In thousands, except percentages)\n2023\n2022\n$ Change\n% Change\nRevenue\n$\n346,593\u00a0\n$\n302,959\u00a0\n$\n43,634\u00a0\n14.4\u00a0\n%\nCost of revenue\n222,422\u00a0\n193,724\u00a0\n28,698\u00a0\n14.8\u00a0\n%\nGross margin\n$\n124,171\u00a0\n$\n109,235\u00a0\n$\n14,936\u00a0\n13.7\u00a0\n%\n% of revenue\n35.8\u00a0\n%\n36.1\u00a0\n%\nProduct margin %\n36.9\u00a0\n%\n36.4\u00a0\n%\nService margin %\n33.4\u00a0\n%\n35.4\u00a0\n%\nGross margin for fiscal 2023 increased by $14.9 million, or 13.7%, primarily due to higher volume of private network and mobile operator business as well as the contribution from the Redline acquisition. Gross margin as a percentage of revenue for fiscal 2023 remained flat at 35.8%, primarily due to a higher mix of revenues generated outside of North America where margins are typically lower, offset by the contribution of the Redline acquisition.\nResearch and Development Expenses\n\u00a0\nFiscal Year\n(In thousands, except percentages)\n2023\n2022\n$ Change\n% Change\nResearch and development expenses\n$\n24,908\u00a0\n$\n22,596\u00a0\n$\n2,312\u00a0\n10.2\u00a0\n%\n% of revenue\n7.2\u00a0\n%\n7.5\u00a0\n%\nOur research and development expenses increased by $2.3 million, or 10.2%, in fiscal 2023 compared with fiscal 2022. The increase was primarily attributable to the addition of Redline\u2019s research and development program. \nSelling and Administrative Expenses\n\u00a0\nFiscal Year\n(In thousands, except percentages)\n2023\n2022\n$ Change\n% Change\nSelling and administrative expenses\n$\n69,842\u00a0\n$\n57,656\u00a0\n$\n12,186\u00a0\n21.1\u00a0\n%\n% of revenue\n20.2\u00a0\n%\n19.0\u00a0\n%\nOur selling and administrative expenses increased by $12.2 million, or 21.1%, in fiscal 2023 primarily due to the Redline acquisition, share-based compensation and merger and acquisition related expenses. \n39\nTable of Contents\nRestructuring Charges\n\u00a0\nFiscal Year\n(In thousands, except percentages)\n2023\n2022\n$ Change\n% Change\nRestructuring charges\n$\n3,012\u00a0\n$\n238\u00a0\n$\n2,774\u00a0\n1,165.5\u00a0\n%\n% of revenue\n0.9\u00a0\n%\n0.1\u00a0\n%\nDuring fiscal 2023, our Board of Directors approved restructuring plans, primarily associated with the acquisition of Redline and reductions in workforce in our operations outside the United States. The fiscal 2023 plans are expected to be completed through the end of first half of fiscal 2024.\nOur successfully executed restructuring initiatives have enabled us to restructure specific groups to optimize skill sets and align structure to execute on strategic deliverables, in addition to aligning cost structure with core of the business.\nOther (Expense) Income, Net\n\u00a0\nFiscal Year\n(In thousands, except percentages)\n2023\n2022\n$ Change\n% Change\nOther (expense) income, net\n$\n(3,306)\n$\n1,690\u00a0\n$\n(4,996)\n(295.6)\n%\nOur other (expense) income, net changed by $5.0 million, in fiscal 2023 compared with fiscal 2022, primarily due to losses recognized on the sale of marketable securities, higher interest expense and foreign exchange losses. \nIncome Taxes\n\u00a0\nFiscal Year\n(In thousands, except percentages)\n2023\n2022\n$ Change\n% Change\nIncome before income taxes\n$\n23,103\u00a0\n$\n30,435\u00a0\n$\n(7,332)\n(24.1)\n%\nProvision for income taxes\n11,575\u00a0\n9,275\u00a0\n2,300\u00a0\n24.8\u00a0\n%\nAs % of income before income taxes\n50.1\u00a0\n%\n30.5\u00a0\n%\nOur provision for income taxes was $11.6 million of expense for fiscal 2023 and $9.3 million of expense for fiscal 2022. Our tax expense for fiscal 2023 was primarily due to tax expense related to U.S. and profitable foreign subsidiaries, including tax expense associated with our acquisition of Redline in July 2022 and subsequent restructuring and integration impact. See Note 12. Acquisitions.\nOur tax expense for fiscal 2022 was primarily due to tax expenses related to U.S. and profitable foreign subsidiaries.\nFiscal 2022 Compared to Fiscal 2021\nFor a comparison of our results of operations for fiscal 2022 and 2021, see \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Annual Report on Form 10-K for the fiscal year ended July 1, 2022, filed with the SEC on September\u00a014, 2022.\nLiquidity, Capital Resources and Financial Strategies\nAs of June\u00a030, 2023, our cash and cash equivalents totaled $22.2 million. Approximately $7.5 million, or 33.9%, was held in the United States. The remaining balance of $14.7 million, or 66.1%, was held by entities outside the United States. Of the amount of cash and cash equivalents held by our foreign subsidiaries at\u00a0June\u00a030, 2023,\u00a0$13.8 million\u00a0was held in jurisdictions where our undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to foreign withholding taxes.\nOperating Activities\nCash used in or provided by operating activities is presented as net income adjusted for certain non-cash items and changes in operating assets and liabilities. Net cash used in operating activities was $1.6 million for fiscal 2023, \n40\nTable of Contents\ncompared with $2.8 million provided by operating activities for fiscal 2022. Cash used in operating activities increased by $4.4 million, primarily attributable to net changes in operating assets and liabilities, partially offset by improved net income prior to non-cash adjustments related to share-based compensation expense, depreciation of property, plant and equipment and losses recognized on the sale of marketable securities.\nNet changes in operating assets and liabilities resulted in $5.8 million of additional cash used by operating activities for fiscal 2023, primarily attributable to increases in accounts receivable and unbilled costs as a result of the timing of sales and billing activities and cash collections.\nInvesting Activities\nNet cash used in investing activities was $11.9 million for fiscal 2023, compared to $7.8 million for fiscal 2022. The $4.2 million increase is primarily due to the acquisition of Redline and higher capital expenditures, partially offset by proceeds on the sale of marketable securities originally purchased in fiscal 2022.\nFinancing Activities\nFinancing cash flows consist primarily of borrowings and repayments under our revolving credit line, repurchase of stock, and proceeds from the exercise of employee stock options. Net cash used in financing activities was $0.7 million for fiscal 2023, compared to $4.9 million in fiscal 2022. The $4.2 million decrease is primarily due to no share repurchases in the current year, partially offset by $0.8 million of payments of deferred financing costs associated with the Credit Facility (as defined below) entered into with Wells Fargo Bank in May 2023.\nAs of June\u00a030, 2023, our principal sources of liquidity consisted of $22.2 million in cash and cash equivalents, $40.0 million of available credit under our Credit Facility, and future collections of receivables from customers. We regularly require letters of credit from certain customers and, from time to time, these letters of credit are discounted without recourse shortly after shipment occurs to meet immediate liquidity requirements and to reduce our credit and sovereign risk. Historically, our primary sources of liquidity have been cash flows from operations and credit facilities. Additionally, we have an effective shelf registration statement on Form S-3 allowing us to offer and sell, either individually or in combination, in one or more offerings, up to a total dollar amount of $200.0 million of any combination of the securities described in the shelf registration statement or a related prospectus supplement.\nWe believe that our existing cash and cash equivalents, the available borrowings under our Credit Facility, the availability under our effective shelf registration statement and future cash collections from customers will be sufficient to provide for our anticipated requirements and plans for cash for the next 12 months. In addition, we believe these sources of liquidity will be sufficient to provide for our anticipated requirements and plans for cash beyond the next 12 months. \nAvailable Credit Facility, Borrowings and Repayment of Debt\nOn May 9, 2023, we entered into a Secured Credit Facility Agreement (the \u201cCredit Facility\u201d or \u201cCredit Agreement\u201d) with Wells Fargo Bank, National Association, as administrative agent, swingline lender and issuing lender and Wells Fargo Securities LLC, Citigroup Global Markets Inc., and Regions Capital Markets as lenders. The Credit Facility provides for a $40.0\u00a0million revolving credit facility (\u201cthe Revolver\u201d) and a $50.0\u00a0million Delayed Draw Term Loan Facility (the \u201cTerm Loan\u201d) with a maturity date of May 8, 2028. The $40.0\u00a0million revolving credit facility can be borrowed with a $10.0\u00a0million sublimit for letters of credit, and a $10.0\u00a0million swingline loan sublimit. The Term Loan has a funding date on or prior to the closing date of the previously announced NEC Transaction with the proceeds used to settle the cash portion of the consideration and related expense. See Note 12. Acquisitions for further information.\nAs of June\u00a030, 2023, available credit under the Revolver was $40.0 million. We borrowed $36.5 million and repaid $36.5 million against the Revolver during fiscal 2023. As of June\u00a030, 2023 there was no borrowing outstanding for either the Revolver or Term Loan.\nOutstanding borrowings under the Credit Facility bear interest at either: (a) Adjusted Term Secured Overnight Financing Rate (\u201cSOFR\u201d) plus the applicable margin; or (b) the Base Rate plus the applicable margin. The pricing levels for interest rate margins are determined based on the Consolidated Total Leverage Ratio as determined and adjusted quarterly.\n41\nTable of Contents\nThe Credit Facility requires the Company and its subsidiaries to maintain a fixed charge coverage ratio to be greater than 1.25 to 1.00 as of the last day of any fiscal quarter of the Company. The Credit Facility also requires that the Company maintain a maximum leverage ratio of 3.00 times EBITDA, with a step-down to 2.75 times EBITDA after four full quarters, and 2.50 times EBITDA after eight full quarters. The Credit Facility contains customary affirmative and negative covenants, including, among others, covenants limiting the ability of the Company and its subsidiaries to dispose of assets, permit a change in control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain restricted payments, and enter into transactions with affiliates, in each case subject to customary exceptions.\nAs of June\u00a030, 2023, we were in compliance with all financial covenants contained in the Credit Agreement.\nOn May 9, 2023, the Company and Silicon Valley Bank (\u201cSVB\u201d) terminated the Third Amended and Restated Loan and Security Agreement dated June 29, 2018, and as amended May 17, 2021 (the \u201cSVB Credit Facility\u201d), by and between the Company, as borrower, and SVB, as lender. We borrowed $65.7 million and repaid $65.7 million against the SVB Credit Facility during fiscal 2023. As of June 30, 2023, we had $2.6 million of collateralized cash on deposit with SVB associated with certain commercial commitments.\nRestructuring Payments\nWe had liabilities for restructuring activities totaling $0.6 million as of June\u00a030, 2023, which was classified as current liability and expected to be paid in cash over the next 12 months. We expect to fund these future payments with available cash and cash provided by operations. See Note 8. Restructuring Activities for further information.\nFinancial Risk Management\nIn the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates. We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks.\nExchange Rate Risk\nWe conduct business globally in numerous currencies and are therefore exposed to foreign currency risks. We use derivative instruments from time to time to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. We do not hold or issue derivatives for trading purposes or make speculative investments in foreign currencies.\nWe also enter into foreign exchange forward contracts to mitigate the change in fair value of specific non-functional currency assets and liabilities on the consolidated balance sheets. All balance sheet hedges are marked to market through earnings every period. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. We did not have any foreign exchange forward contracts outstanding as of June\u00a030, 2023.\nNet foreign exchange losses recorded in our consolidated statements of operations during fiscal 2023 and 2022 were $1.0 million and $1.1 million, respectively.\nCertain of our international business are transacted in non-U.S.\u00a0dollar currency. As discussed above, we utilize foreign currency hedging instruments to minimize the currency risk of international transactions. The impact of translating the assets and liabilities of foreign operations to U.S.\u00a0dollars is included as a component of stockholders\u2019 equity. As of June\u00a030, 2023 and July\u00a01, 2022, the cumulative translation adjustment decreased our stockholders\u2019 equity by $16.0 million and $16.0 million, respectively.\nInterest Rate Risk\nOur exposure to market risk for changes in interest rates relates primarily to our cash equivalents, short-term investments and borrowings under our credit facility.\nExposure on Cash Equivalents and Short-term Investments \nWe had $22.2 million in total cash and cash equivalents as of June\u00a030, 2023. Cash equivalents and short-term investments totaled $4.4 million as of June\u00a030, 2023 and were comprised of money market funds and certificates of deposit. Cash equivalents and short-term investments have been recorded at fair value on our consolidated balance sheets.\n42\nTable of Contents\nWe do not use derivative financial instruments in our short-term investment portfolio. We invest in high-credit quality issues and, by policy, limit the amount of credit exposure to any one issuer and country. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. The portfolio is also diversified by maturity to ensure that funds are readily available as needed to meet our liquidity needs. This policy reduces the potential need to sell securities to meet liquidity needs and therefore the potential effect of changing market rates on the value of securities sold.\nThe primary objective of our short-term investment activities is to preserve principal while maximizing yields, without significantly increasing risk. Our cash equivalents and short-term investments earn interest at fixed rates; therefore, changes in interest rates will not generate a gain or loss on these investments unless they are sold prior to maturity. Actual gains and losses due to the sale of our investments prior to maturity have been immaterial. The investments held as of June\u00a030, 2023, had weighted-average days to maturity of 43 days, and an average yield of 4.5%\u00a0per annum. A 10% change in interest rates on our cash equivalents and short-term investments is not expected to have a material impact on our financial position, results of operations or cash flows.\nExposure on Borrowings\n Our borrowings under the current Credit Facility bear interest at either: (a) Adjusted Term SOFR plus the applicable margin; or (b) the Base Rate plus the applicable margin. The pricing levels for interest rate margins are determined based on the Consolidated Total Leverage Ratio as determined and adjusted quarterly.\nOur borrowings under the now terminated SVB Credit Facility incurred interest at the prime rate plus a spread of 0.50% to 1.50% with such spread determined based on our adjusted quick ratio.\nDuring fiscal 2023, the weighted-average interest rate under our available credit facilities was 7.6%.\nA 10% change in interest rates on the current borrowings or on future borrowings is not expected to have a material impact on our financial position, results of operations or cash flows.\nCritical Accounting Estimates\nOur consolidated financial statements are prepared in accordance with U.S.\u00a0GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us.\nThese estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected.\nThe accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:\n\u2022\nrevenue recognition for estimated costs to complete over-time services;\n\u2022\ninventory valuation and provision for excess and obsolete inventory losses; \n\u2022\nincome taxes valuation; and\n\u2022\nbusiness combinations.\nIn some cases, the accounting treatment of a particular transaction is specifically dictated by U.S.\u00a0GAAP and does not require management\u2019s judgment in its application. There are also areas in which management\u2019s judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of the Board.\nThe following is not intended to be a comprehensive list of all of our accounting policies or estimates. Our significant accounting policies are more fully described in \u201cNote\u00a01. The Company and Summary of Significant Accounting Policies\u201d in the notes to consolidated financial statements. In preparing our financial statements and accounting for the underlying transactions and balances, we apply those accounting policies. We consider the estimates discussed below as critical to an understanding of our financial statements because their application places the most significant demands on our judgment, with financial reporting results relying on estimates about the effect of matters that are inherently uncertain.\n43\nTable of Contents\nBesides estimates that meet the \u201ccritical\u201d accounting estimate criteria, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenue and expenses as well as disclosures of contingent assets and liabilities. Estimates are based on experience and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known, including for estimates that we do not deem \u201ccritical.\u201d\nRevenue Recognition\nWe recognize revenue by applying the following five-step approach: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation.\nRevenue from services includes certain network planning and design, engineering, installation and commissioning, extended warranty, customer support, consulting, training, and education. Maintenance and support services are generally offered to our customers and recognized over a specified period of time and from sales and subsequent renewals of maintenance and support contracts. The network planning and design, engineering and installation related services noted are recognized based on an over-time recognition model using the cost-input method. Certain judgment is required when estimating total contract costs and progress to completion on the over-time arrangements, as well as whether a loss is expected to be incurred on the contract. The cost estimation process for these contracts is based on the knowledge and experience of the Company\u2019s project managers, engineers, and financial professionals. Changes in job performance and job conditions are factors that influence estimates of the total costs to complete those contracts and the Company\u2019s revenue recognition. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made in a timely manner. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in income in the period in which the circumstances that gave rise to the revision become known to us. We perform ongoing profitability analysis of our service contracts accounted for under this method to determine whether the latest estimates of revenues, costs, and profits require updating. In rare circumstances if these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately.\nInventory Valuation and Provisions for Excess and Obsolete Losses\nOur inventories have been valued at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We balance the need to maintain prudent inventory levels to ensure competitive delivery performance with the risk of excess or obsolete inventory due to changing technology and customer requirements, and new product introductions. The manufacturing of our products is handled primarily by contract manufacturers. Our contract manufacturers procure components and manufacture our products based on our forecast of product demand. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand, the stage of the product life cycle, anticipated end of product life and production requirements. Several factors may influence the sale and use of our inventories, including decisions to exit a product line, technological change, new product development and competing product offerings. These factors could result in a change in the amount of obsolete inventory quantities on hand. Additionally, our estimates of future product demand may prove to be inaccurate, in which case the provision required for excess and obsolete inventory may be overstated or understated. In the future, if we determine that our inventory is overvalued, we would be required to recognize such costs in cost of product sales and services in our consolidated statements of operations at the time of such determination. In the case of goods which have been written down below cost at the close of a fiscal quarter, such reduced amount is considered the new lower cost basis for subsequent accounting purposes, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. We did not make any material changes in the valuation methodology during the past three fiscal years.\nOur customer service inventories are stated at the lower of cost or net realizable value. We carry service parts because we generally provide product warranty for 12 to 36 months and earn revenue by providing enhanced and extended warranty and repair service during and beyond this warranty period. Customer service inventories consist of both component parts, which are primarily used to repair defective units, and finished units, which are provided for customer use permanently or on a temporary basis while the defective unit is being repaired. We record adjustments to reduce the carrying value of customer service inventories to their net realizable value. Factors influencing these adjustments include product life cycles, end of service life plans and volume of enhanced or extended warranty service \n44\nTable of Contents\ncontracts. Estimates of net realizable value involve significant estimates and judgments about the future, and revisions would be required if these factors differ from our estimates.\nIncome Taxes Valuation\nWe record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities of amounts reported in our consolidated balance sheets, as well as operating loss and tax credit carryforwards. Certain judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the opening and closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may result in an increase or decrease to our tax provision in a subsequent period in which such determination is made.\nWe record deferred taxes by applying enacted statutory tax rates to the respective jurisdictions and follow specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the consolidated balance sheets and provide necessary valuation allowances as required. Future realization of deferred tax assets ultimately depends on meeting certain criteria in Financial Accounting Standards Board (\u201cFASB\u201d) Accounting Standards Codification (\u201cASC\u201d) Topic 740, Income Taxes (\u201cASC 740\u201d). One of the major criteria is the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carry-back or carry-forward periods available under the tax law. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Our judgments regarding future profitability may change due to many factors, including future market conditions and our ability to successfully execute our business plans and/or tax planning strategies. Should there be a change in our ability to recover our deferred tax assets, our tax provision would increase or decrease in the period in which the assessment is changed.\nThe accounting estimates related to the liability for uncertain tax position require us to make judgments regarding the sustainability of each uncertain tax position based on its technical merits. It is inherently difficult and subjective to estimate our reserves for the uncertain tax positions. Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will be the same as these estimates. These estimates are updated quarterly based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues.\nBusiness Combinations\nThe Company accounts for acquisitions as required by FASB ASC Topic 805, Business Combinations (\u201cASC 805\u201d). The assets and liabilities of acquired businesses are recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management\u2019s judgment and often involves the use of estimates and assumptions. If our assumptions or estimates in the fair value calculation change based on information that becomes available during the one-year period from the acquisition date, we may record adjustments to the net assets acquired with a corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.\nImpact of Recently Issued Accounting Pronouncements\nSee \u201cNote 1. The Company and Summary of Significant Accounting Policies\u201d in the notes to consolidated financial statements for a full description of recently issued accounting pronouncements, including the respective expected dates of adoption and effects on our consolidated financial position and results of operations.",
+  "item7a": ">Item\u00a07A.\u00a0\nQuantitative and Qualitative Disclosures About Market Risk\nIn the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates. We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks. For a discussion of such policies and procedures and the related risks, see \u201cFinancial Risk Management\u201d in \u201cItem\u00a07. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations,\u201d which is incorporated by reference into this Item\u00a07A.\n45\nTable of Contents",
+  "cik": "1377789",
+  "cusip6": "05366Y",
+  "cusip": ["05366y201", "05366Y201"],
+  "names": ["AVIAT NETWORKS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1377789/000137778923000023/0001377789-23-000023-index.htm"
+}
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+  "item1": ">ITEM\u00a01.\u00a0\u00a0\u00a0\u00a0Business\nThe Broadridge Business\nBroadridge, a Delaware corporation and a part of the S&P 500\n\u00ae\n Index (\u201cS&P\u201d), is a global financial technology leader providing investor communications and technology-driven solutions to banks, broker-dealers, asset and wealth managers, public companies, investors and mutual funds. With over 60 years of experience, including over 15 years as an independent public company, we provide integrated solutions and an important infrastructure that powers the financial services industry. Our solutions enable better financial lives by powering investing, governance and communications and help reduce the need for our clients to make significant capital investments in operations infrastructure, thereby allowing them to increase their focus on core business activities.\nWe operate our business in two reportable segments: Investor Communication Solutions and Global Technology and Operations.\nInvestor Communication Solutions\nOur Regulatory Solutions, Data-Driven Fund Solutions, Corporate Issuer Solutions, and Customer Communications Solutions are provided as part of the Investor Communication Solutions segment. The Investor Communication Solutions segment is the larger of our two business segments and its revenues represented approximately 75% and 75% of our total Revenues in fiscal years 2023 and 2022, respectively, including the foreign exchange impact from revenues generated in currencies other than the United States of America (\u201cU.S.\u201d) dollar. See \u201cAnalysis of Reportable Segments \u2014 Revenues\u201d under \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\u201d We provide the following services and solutions through our Investor Communication Solutions segment:\nRegulatory Solutions \nWe handle the entire proxy materials distribution and voting process for our bank, broker-dealer, corporate issuer and fund clients. We offer traditional hard copy and electronic services for the delivery of proxy materials to investors and collection of consents; maintenance of a rules engine and database that contains the delivery method preferences of our clients\u2019 customers; posting of documents on their websites; email notification to investors notifying them that proxy materials are available; and proxy voting via paper, telephone, online or mobile app. We have the ability to combine stockholder communications for multiple stockholders residing at the same address which we accomplish by having ascertained the delivery preferences of investors. We also offer proxy vote solicitation services for the registered clients of fund companies, efficiently managing the entire proxy campaign. \nIn addition, we provide a complete outsourced solution for the processing of all international institutional and retail proxies, including shareholder disclosure management.\nA majority of publicly-traded shares are not registered in companies\u2019 records in the names of their ultimate beneficial owners. Instead, a substantial majority of all public companies\u2019 shares are held in \u201cstreet name,\u201d meaning that they are held of record by broker-dealers or banks through their depositories. Most street name shares are registered in the name \u201cCede & Co.,\u201d the name used by The Depository Trust and Clearing Corporation (\u201cDTCC\u201d), which holds shares on behalf of its participant broker-dealers and banks. These participant broker-dealers and banks (which are known as \u201cNominees\u201d because they hold securities in name only) in turn hold the shares on behalf of their customers, the individual beneficial owners. Nominees, upon request, are required to provide companies with the information of beneficial owners who do not object to having their names, addresses, and shareholdings supplied to companies, so called \u201cnon-objecting beneficial owners\u201d (or \u201cNOBOs\u201d). Objecting beneficial owners (or \u201cOBOs\u201d) may be contacted directly only by the broker-dealer or bank. As DTCC\u2019s role is only as the custodian, a number of mechanisms have been developed in order to pass the legal rights it holds as the record owner (such as the right to vote) to the beneficial owners. The first step in passing voting rights down the chain is the \u201comnibus proxy,\u201d which DTCC executes to transfer its voting rights to its participant Nominees. Under applicable rules, Nominees must deliver proxy materials to beneficial owners and request voting instructions.\n4\nGiven the large number of Nominees involved in the beneficial proxy process resulting from the large number of beneficial shareholders, we play a unique, central and integral role in ensuring that the beneficial proxy process occurs without issue for Nominees, companies, funds and investors. A large number of Nominees have contracted out the processes of distributing proxy materials and tabulating voting instructions to us. Nominees accomplish this by entering into agreements with Broadridge and transferring to us via powers of attorney the authority to execute a proxy, which authority the Nominee receives from the DTCC via an omnibus proxy. Through our agreements with Nominees for the provision of beneficial proxy services, we take on the responsibility of ensuring that the account holders of Nominees receive proxy materials on a timely basis digitally or in print, that their voting instructions are conveyed to the companies and funds conducting solicitations and that these services are fulfilled in accordance with the requirements of their particular solicitation. In order for us to provide the beneficial proxy services effectively, we interface and coordinate directly with each company and/or fund to ensure that the services are performed in an accurate and timely manner. As it would increase the costs for companies and funds to work with all of the Nominees through which their shares are held beneficially, companies and funds work with us for the performance of all the tasks and processes necessary to ensure that proxy materials are distributed on a timely basis to all beneficial owners and that their votes are accurately reported.\nThe SEC\u2019s rules require public companies to reimburse Nominees for the expense of distributing stockholder communications to beneficial owners of securities held in street name. The reimbursement rates are set forth in the rules of self-regulatory organizations (\u201cSROs\u201d), including the New York Stock Exchange (\u201cNYSE\u201d). We bill public companies for the proxy services performed, collect the fees and remit to the Nominee its portion of the fees. In addition, the NYSE rules establish fees for certain services provided by intermediaries such as Broadridge in the proxy process. The preparation and delivery of NOBO information is subject to reimbursement by the corporate issuers requesting the information. The reimbursement rates are based on the number of NOBOs produced pursuant to NYSE or other SRO rules. The rules also determine the fees to be paid to third-party intermediaries, such as Broadridge, who compile the NOBO information on behalf of Nominees who need to respond to corporate issuer requests for NOBO information.\nWe provide institutional investors with a suite of services to manage and track the entire proxy voting process, including meeting their reporting needs. ProxyEdge\n\u00ae \n(\u201cProxyEdge\u201d) is our innovative electronic proxy delivery and voting solution for institutional investors and financial advisors that integrates ballots for positions held across multiple custodians and presents them under a single proxy. Voting can be instructed for the entire position, by account vote group or on an individual account basis either manually or automatically based on the recommendations of participating governance research providers. ProxyEdge also provides for client reporting and regulatory reporting. ProxyEdge can be utilized for meetings of U.S. and Canadian companies and for meetings in many non-North American countries based on the holdings of our global custodian clients. ProxyEdge is offered in several languages and there are currently over 7,000 ProxyEdge users worldwide.\nOur pass-through voting solutions support fund clients in providing individual investors the ability to participate in the proxy voting process, helping them to expand their investor engagement efforts and receive valuable input for important investment decisions. Broadridge\u2019s institutional solution helps asset managers split the vote in portfolio companies and pass directly to institutional investors on a proportional basis. For retail investors, our solutions allow funds to poll their investors on voting preferences and provides investors the ability to give voting instructions, set standard voting preferences, or potentially cast a vote at pre-determined meetings. \nIn addition to our proxy services, we provide regulatory communications services that assist our fund clients in meeting their regulatory requirements. These services include prospectus delivery, distribution of annual and semi-annual shareholder reports, trade confirmations, account statements and other communications. Our clients have the ability to create and distribute these communications via print, e-delivery, online and mobile. In addition to our fund solutions, we also provide a range of other regulatory communications solutions, including reorganization communications notifying investors of U.S. reorganizations or corporate action events such as tender offers, mergers and acquisitions, and bankruptcies, and global class action services for the identification, filing and recovery of class actions and collective redress proceedings involving securities and other financial products.\nIn addition, we provide international corporate governance solutions addressing our clients\u2019 needs within Europe, the Middle East and Africa (\u201cEMEA\u201d) and the Asia-Pacific (\u201cAPAC\u201d) region.\n \nThese solutions include our global proxy and shareholder rights compliance services, as well as environmental, social and governance (\u201cESG\u201d) offerings and shareholder meeting analytics. Our international solutions help clients sharpen focus on their core businesses while helping them maintain global regulatory compliance, reduce costs, improve efficiency and gain data insights. \n5\nData-Driven Fund Solutions\nWe provide a full range of data-driven solutions that help our asset management and retirement service provider clients grow revenue, operate efficiently, and maintain compliance. Our communications solutions enable global asset managers to communicate with large audiences of investors efficiently and reliably by centralizing all investor communications through one resource. We provide composition, printing, filing, and distribution services for regulatory reports, prospectuses and proxy materials, as well as proxy solicitation services. We manage the entire communications process with both registered and beneficial stockholders. Our marketing and transactional communications solutions provide a content management and omni-channel distribution platform for marketing and sales communications for asset managers and retirement service providers. In addition, our data and analytics solutions provide investment product distribution data, analytical tools, and insights and research to enable asset managers to optimize product distribution across retail and institutional channels globally.\nThrough our Retirement and Workplace Trade Processing Solutions business (\u201cBroadridge Retirement and Workplace\u201d), we provide automated mutual fund and exchange-traded funds trade processing services for financial institutions that submit trades on behalf of their clients such as qualified and non-qualified retirement plans and individual wealth accounts.\n \nOur trust, trading and settlement services are integrated into our product suite thereby strengthening Broadridge\u2019s role as a provider of insight, technology and business process outsourcing to the asset management, wealth, and retirement industry. In addition, we provide fiduciary-focused learning and development, software and technology, and data and analytics services to advisors, institutions and asset managers across the retirement and wealth ecosystem.\nThrough our Fund Communication Solutions business, we provide fund managers with a single, integrated provider to manage data, perform calculations, compose documents, manage regulatory compliance and disseminate information across multiple jurisdictions. Our solutions help fund managers increase distribution opportunities, comply with both United Kingdom domestic and European Union regulations such as Solvency II and MiFID II, and makes information easily accessible for investors in a digital format. We also provide support to fund managers with document and data dissemination in the European market. This enables the receipt by distributors and investors of complete, accurate and timely information supporting fund sales.\nCorporate Issuer Solutions \nWe provide governance and communications services to corporate issuers supporting a full range of public company functions, including the annual meeting of stockholders, SEC reporting, capital markets transactions, transfer agency, shareholder engagement and ESG solutions. Our services provide corporate issuers a single source solution that spans the entire corporate disclosure and shareholder communications lifecycle.\nOur governance and communications services include a full suite of annual meeting and shareholder engagement solutions:\n\u2022\nProxy services \u2013 we provide complete project management for the entire annual meeting process including registered and beneficial proxy materials distribution, vote processing and tabulation through our ShareLink\n\u00ae\n solution.\n\u2022\nVirtual Shareholder Meeting\u2122 \u2013 electronic annual meetings via webcast, either on a stand-alone basis, or in conjunction with in-person annual meetings, including shareholder validation and voting services and the ability for shareholders to ask questions and for management to respond during the meetings.\n\u2022\nWe offer tools for corporate issuers to help them better engage with their shareholders and other stakeholders in connection with the annual meeting process as well as on an ongoing basis throughout the year. These services provide aggregated shareholder data and analytics, shareholder delivery preferences and voting trends.\n \n\u2022\nOur ESG services provide consulting in support of issuers and their ESG journey. The services include peer ESG disclosure benchmarking, ESG strategy and policy development, greenhouse gas emission assessments, and ESG and sustainability report content development. We also offer an ESG dashboard that provides ESG consensus ratings to allow corporate issuers to assess the progress of their ESG ratings and disclosure relative to their selection of peer companies.\nOur disclosure solutions provide compliance reporting and transactional reporting services for public companies, including the following:\n\u2022\nSEC Filing Services: proxy and annual report design and digitization, SEC filing, printing and web hosting services, as well as year-round SEC reporting including document composition, EDGARization and XBRL tagging.\n\u2022\nCapital Markets Transactional Services \u2013 typesetting, composition, printing and SEC filing services for capital markets transactions such as initial public offerings, spin-offs, acquisitions, and securities offerings. In addition, we provide transaction support services such as virtual deal rooms and translation services.\n6\nWe also provide registrar, stock transfer and record-keeping services through our transfer agency services. Our transfer agency services address the needs public companies have for more efficient and reliable stockholder record maintenance and communication services. In addition, we provide corporate actions services, including acting as the exchange agent, paying agent, or tender agent in support of acquisitions, initial public offerings and other significant corporate transactions. We also provide abandoned property compliance and reporting services.\nCustomer Communications Solutions \nWe support financial services, healthcare, insurance, consumer finance, telecommunications, utilities, and other service industries with their omni-channel customer communications management strategies for transactional communications, such as statements and bills, marketing communications, such as personalized microsites and campaigns, and regulatory communications, such as trade confirmations and explanation of benefits. \nThese services include digital and physical delivery of critical communications. Our physical delivery services operate through a network of seven highly automated facilities across North America. The Broadridge Communications Cloud\nSM\n is an omni-channel platform (the \u201cCommunications Cloud\u201d) that provides our clients the flexibility to implement only the modules and delivery channels needed to address their specific communication needs. The platform\u2019s open application programming interfaces and self-servicing tools help our clients improve their communications systems\u2019 efficiency and productivity. Through the Communications Cloud, our clients can:\n\u2022\ndevelop transactional, regulatory, and marketing communications with relevant, self-service content that drives customer action;\n\u2022\ndeliver customer communications across print, digital, email, short message service (SMS) and emerging channels, such as interactive microsites and personal cloud services, with one connection; and\n\u2022\ngain comprehensive reporting and analytics to improve communications and increase engagement based on customer behaviors.\nGlobal Technology and Operations\nTransactions involving securities and other financial market instruments can, for example, originate with an institutional or retail investor who places an order with a broker who in turn routes that order to an appropriate market for execution. At that point, the parties to the transaction coordinate payment and settlement of the transaction through a clearinghouse. The records of the parties involved must then be updated to reflect completion of the transaction. The transaction must comply with tax, custody, accounting and record-keeping requirements, and the customer\u2019s account information must correctly reflect the transaction. The accurate processing of trading activity from its initial inception and custody activity requires effective automation and information flow across multiple systems and functions within the firm and across the systems of the various parties that participate in the execution of a transaction. \nOur Global Technology and Operations business provides the non-differentiating yet mission-critical infrastructure to the global financial markets.\n \nAs a leading software as a service (\u201cSaaS\u201d) provider, we offer capital markets, wealth and investment management firms modern technology to enable growth, simplify their technology stacks and mutualize costs.\n \nOur highly scalable, resilient, component-based solutions automate the front-to-back transaction lifecycle of equity, mutual fund, fixed income, foreign exchange and exchange-traded derivatives, from order capture and execution through trade confirmation, margin, cash management, clearing and settlement, reference data management, reconciliations, securities financing and collateral management, asset servicing, compliance and regulatory reporting, portfolio accounting and custody-related services. Our Wealth Management business provides solutions for advisors and investors and also streamlines back- and middle-office operations for broker-dealers by providing systems for critical post-trade activities, including books and records, transaction processing, clearance and settlement, and reporting.\n \nOur Investment Management business provides portfolio and order management solutions for traditional and alternative asset managers, which bring insights into trading, portfolio construction, risk and analytics. Our solutions connect asset managers to a global network of broker-dealers for trade execution and post-trade matching and confirmation. In addition, we provide business process outsourcing services for our buy- and sell-side clients\u2019 businesses. These services combine our technology with our operations expertise to support the entire trade lifecycle, including securities clearing and settlement, reconciliations, record-keeping, wealth management asset servicing, and custody-related functions.\n7\nThe Global Technology and Operations segment\u2019s revenues represented approximately 25% and 25% of our total Revenues in fiscal years 2023 and 2022, respectively, which gives effect to the foreign exchange impact from revenues generated in currencies other than the U.S. dollar. See \u201cAnalysis of Reportable Segments \u2014 Revenues\u201d under \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\u201d Services and solutions offered through the Global Technology and Operations segment include the following:\nCapital Markets Solutions\nWe provide a set of multi-asset, multi-entity and multi-currency trading, connectivity and post-trade solutions that support processing of securities transactions in equities, options, fixed income securities, foreign exchange, exchange-traded derivatives and mutual funds. Largely provided on a SaaS basis within large user communities, Broadridge\u2019s technology is a global solution, processing trades, clearance and settlement in over 100 countries. Our solutions enable global capital markets firms to access market liquidity, drive more effective market making and efficient front-to-back trade processing. \nThese services include reference data management, securities financing, securities-based lending, collateral management, trade and transaction reporting, reconciliations, financial messaging and asset servicing. Our solutions can be deployed as a complete solution as well as discrete components supporting financial institutions.\nIn addition, we provide comprehensive fixed income transaction processing capabilities to support clearance, settlement, custody, P&L reporting and regulatory reporting for domestic and foreign fixed income instruments. Our solution includes extensive support for mortgage-backed securities and other structured products. It is a multi-currency, multi-entity solution that provides position and balance information, in addition to detailed accounting, financing, collateral management, and repurchase agreement functionality. The solution offers straight-through-processing capabilities, enterprise-wide integration and a robust technology infrastructure - all focused on supporting firms specializing in the fixed income marketplace. \nThrough Broadridge Trading and Connectivity Solutions\n, we offer a set of global front-office trade order and execution management systems and connectivity solutions that enable market participants to connect and trade. The combination of the front-office solutions from the 2021 acquisition of Itiviti Holding AB (\u201cItiviti\u201d) and our post-trade product suite and other capital markets capabilities enables our clients to streamline their front-to-back technology platforms and operations and increase straight-through-processing efficiencies, across equities, fixed income, exchange-traded derivatives, and other asset classes.\nWealth and Investment Management Solutions\nOur Wealth Management business delivers technology solutions, critical data and digital marketing services to enable full-service, regional and independent broker-dealers and investment advisors to better engage with customers to help grow their business. Our wealth solutions are designed to help optimize advisor productivity, improve investor outcomes, reduce friction in investing, increase financial literacy, and deliver more personalized advice and insights.\nWith respect to technology solutions, we offer an integrated, modern open-architecture wealth management platform through which we provide enhanced data-centric capabilities to improve the overall client experience across the entire front-, middle- and back-office wealth management lifecycle, including advisor, investor and operational workflows. This comprehensive wealth management platform streamlines all aspects of the service model, allowing our clients to digitally onboard customers, manage advisor compensation for multiple products and service models, and seamlessly transfer and service accounts. \nIn addition, we provide data-driven, digital\n \nsolutions to broker-dealers, financial advisors, insurers and other firms with large, distributed salesforces. Our data aggregation solution helps financial advisors manage and build client relationships by providing customer account data aggregation, performance reporting, household grouping, automated report creation, document storage, and integration with popular financial planning and productivity applications. \nOur digital marketing and content capabilities leverage analytics and machine-learning to enable financial advisors and wealth management firms to grow their businesses and deepen relationships with their customers. Financial advisors and wealth management firms can tap into our digital tools and library of omni-channel content to personalize touchpoints to engage their customers and prospects across digital channels including websites, social media, email and mobile.\nOur Investment Management business services the global investment management industry with a range of buy-side technology solutions. Our asset management solutions are portfolio management, compliance, fee billing and operational support solutions such as order management, data warehousing, reporting, reference data management, and risk management and portfolio accounting for hedge funds, family offices, alternative asset managers, traditional asset managers and the providers that service this space including prime brokers, fund administrators and custodians. The client base for these services includes institutional asset managers, public funds, start-up or emerging managers through some of the largest global hedge fund complexes and global fund administrators. \n8\nOur Strategy \nWe earn our clients\u2019 confidence every day by delivering real business value through leading technology-driven solutions that help our clients get ahead of today\u2019s challenges and capitalize on future growth opportunities. Our solutions harness people, technology and insights to help transform our clients\u2019 businesses by enriching customer engagement, navigating risk, optimizing efficiency and growing revenue.\nAs financial institutions look to transform and mutualize their mission-critical but non-differentiating operational and support functions, we have the proven technology, scale, innovation, experience and, most importantly, the network to achieve this goal and meet their needs.\n \nOur strategy addresses critical industry needs by utilizing our leading platform capabilities. Specifically, our growth strategy is focused on four key themes: (i) extend our strong and growing governance business, (ii) drive further growth in our capital markets business, (iii) build next generation wealth and investment management businesses and (iv) strengthen our international business.\nOur business model\nWe deliver multi-client technology and business process outsourcing services primarily through common SaaS based operations platforms. We create layers of value for clients by harnessing network benefits, providing deep data and analytics, and offering a comprehensive suite of digital capabilities all on a single platform. Our SaaS offerings allow our clients to mutualize key functions and thereby reduce their costs. All of this translates into our core value proposition to be a trusted provider of technology and services across a range of analytical, operational, and reporting functions.\nStrong positions in a large and growing financial services market\nOur technology and associates power the critical infrastructure and services behind investing, investment governance and investor communications. Broadridge makes our clients stronger, and through them, we enable better financial lives for investors around the globe. Our deep industry knowledge enables our clients to successfully solve complex technological and operational challenges, while adapting to the latest technology trends and regulatory standards. While financial services firms have historically kept much of their technology infrastructure work in-house, there are significant trends working in favor of Broadridge. Specifically, financial services firms globally are spending more on technology, and the respective budgets allocated for such technology are consistently growing year-over-year. Moreover, these firms are devoting a growing percentage of this spend to third-party technology, operations, and services. Broadridge, as a trusted outside service provider, can streamline and better integrate our clients\u2019 infrastructure and business processes. We expect the efficiencies that result from such undertaking by Broadridge will lead to growth in the market for our solutions.\nThree attractive growth platforms\nOur growth platforms address mission-critical client needs as described below. Through our integrated solutions and scalable infrastructure, we believe we are best positioned to serve them.\n\u2022\nGovernance\n. We create an integrated network through our governance platform that links broker-dealers, public companies, mutual funds, shareholders, and regulators. We continue to grow our governance solutions by transforming content and delivery and improving e-product capabilities to drive higher investor engagement. We aim to be an integral partner to broker-dealers, asset managers and retirement service providers by offering data-driven solutions that help them grow revenue, reduce costs and maintain compliance. We are also helping public companies improve their governance functions, offering an expanding suite of capabilities that allows them to provide better information and accessibility to shareholders. We continue to be a leading provider of investor communications and are at the forefront of delivering richer communication experiences, both digitally and through optimized print and mail services.\n\u2022\nCapital Markets. \nGlobal institutions have a strong need to simplify their complex technology environment, and our SaaS-based, global, multi-asset-class technology platforms address this need. As a leader in global trade lifecycle management, we are driving next-generation solutions that simplify our clients\u2019 operations, improve performance and resiliency, evolve to global operating models, adapt to new technologies, and enable our clients to better manage their data. We plan to continue building on our global platform capabilities, enabling our clients to simplify and improve their global operations across cash equity securities and other asset classes. Our 2021 acquisition of Itiviti, for example, expanded our services across the trade lifecycle for equities and exchange-traded derivatives and grew our international reach. We continue to develop component solutions that meet the regulatory, risk, data, and analytics needs of our clients, while also helping to drive more efficient liquidity, price discovery, and improved execution for the firms we serve.\n9\n\u2022\nWealth and Investment Management. \nWealth and investment management clients, including full-service, regional and independent broker-dealers, investment advisors, insurance companies and retirement solutions providers are all undergoing unprecedented change. These firms are in need of partners to help them navigate the demographic shift of advisors and investors, create more engaging client experiences, and deliver operational technologies that are essential to their business. These market dynamics are driving the need for more seamlessly integrated technology, and as well as data-centric digital wealth solutions that better service advisors and investors. This can be achieved by simplifying and modernizing their complicated and interwoven legacy systems. To address these demands, we have developed a holistic wealth management platform solution that provides seamless systems and data integration capabilities. Our platform enables firms to improve advisor productivity, provide a better investor experience, and realize operational process efficiencies. \nOn-ramp for next-generation technologies\nAcross financial services, the pace of change is only accelerating. Our clients understand that next-generation technology is a key driving force for change and efficiency and there is a need among our client base to leverage this technology to address their critical business challenges. However, they face obstacles in making the necessary investments and, more importantly, in applying the right talent and intellectual capital, which may be focused on their most differentiating functions. This continues to create opportunities for Broadridge to assist in the areas where we have scale and domain expertise, which includes areas such as artificial intelligence, blockchain, cloud, digital, and other new technologies. By leveraging our services, firms can benefit from highly skilled, experienced personnel with deep industry expertise, while mutualizing the costs and risks of technology innovation. We approach innovation through three actions: experimenting, partnering, and engaging. In turn, we help our clients stay on the cutting edge and realize the benefits of digital transformation at a quicker pace.\nHigh engagement and client-centric culture\nBroadridge is client-centric and has created and grown multi-entity infrastructures across a variety of functions with high client satisfaction. We conduct a client satisfaction survey for each of our major business units annually, the results of which are a component of all our associates\u2019 compensation because of the importance of client retention to the achievement of our revenue goals.\nWe have built a talent network focus of engaged and knowledgeable associates dedicated to serving clients well, which in turn creates a real and sustainable advantage for our business. Supporting this excellent client delivery takes engaged associates, and we are passionate about creating an environment in which every associate can thrive and build their knowledge and skills. All of this creates a culture that benefits our associates, our clients, and our stockholders.\nClients\nWe serve a large and diverse client base including banks, broker-dealers, mutual funds, retirement service providers, corporate issuers and wealth and asset management firms. Our clients in the financial services industry include retail and institutional brokerage firms, global banks, mutual funds, asset managers, insurance companies, annuity companies, institutional investors, specialty trading firms, clearing firms, third-party administrators, hedge funds, and financial advisors. Our corporate issuer clients are typically publicly held companies. In addition to financial services firms, we service corporate clients in the healthcare, insurance, consumer finance, telecommunications, utilities, and other service industries with their essential communications.\nIn fiscal year 2023, we:\u00a0\u00a0\u00a0\u00a0\n\u2022\nmanaged proxy voting for over 750 million equity proxy positions;\n\u2022\nprocessed\n over 7 billion investor and\n customer communications through print and digital channels;\n\u2022\nprocessed on average over $10 trillion in equity and fixed income trades per day of U.S. and Canadian securities;\n and\n\u2022\nprovided fixed income trade processing services to 20 of the 25 primary dealers of fixed income securities in the U.S.\n10\nCompetition\nWe operate in a highly competitive industry. Our Investor Communication Solutions business competes with companies that provide investor communication and corporate governance solutions as well as our clients\u2019 in-house operations. This includes independent proxy distribution service providers, transfer agents, proxy advisory firms, proxy solicitation firms, firms that process proxy votes, and financial printers. We also face competition from numerous firms in the compiling, printing and electronic distribution of statements, bills and other customer communications. Within our Global Technology and Operations business, our capital markets solutions compete with in-house operations and vendors that provide trade processing, back-office record keeping, and sell-side order and execution management systems. Similarly, our wealth management solutions compete with service providers that deliver data, technology solutions, and marketing services, and our investment management solutions compete with firms that provide portfolio management, compliance and operational support solutions.\nTechnology\nWe have several information processing systems that serve as the core foundation of our technology platform. We leverage these systems in order to provide our services. We are committed to maintaining extremely high levels of quality service through our skilled technical employees and the use of our technology within an environment that seeks continual improvement. Our mission-critical applications are designed to provide high levels of availability, scalability, reliability, and flexibility. They operate on industry standard enterprise architecture platforms that provide high degrees of horizontal and vertical scaling. This scalability and redundancy allows us to provide high degrees of system availability. As part of Broadridge\u2019s technology strategy, we leverage traditional data center services as well as private cloud and public cloud services.\nMost of our systems and applications operate in highly resilient data centers that employ multiple active power and cooling distribution paths and redundant components. Additionally, the data centers provide infrastructure capacity and capability to permit any planned activity without disruption to the critical load, and can sustain at least one worst-case, unplanned failure or event with no critical load impact. Our geographically dispersed processing centers also provide disaster recovery and business continuity processing.\nProduct Development\n \nWe manage a diverse portfolio of products and services across our core businesses. Our products and services are designed with reliability, availability, scalability, and flexibility so that we can fully meet our clients\u2019 processing needs. These products and services are built in a manner that allows us to meet the breadth and depth of requirements of our clients in a highly efficient manner. We continually upgrade, enhance, and expand our existing products and services, taking into account input from clients, industry-wide initiatives and regulatory changes affecting our clients.\n \nWe also enter strategic relationships with clients and other third parties to accelerate product development or gain access to capabilities complementary to our product development efforts.\nIntellectual Property\n \nWe own a portfolio of more than 150 U.S. and non-U.S. patents and patent applications. We also own registered marks for our trade name and own or have applied for trademark registrations for many of our services and products. We regard our products and services as proprietary and utilize internal security practices and confidentiality restrictions in contracts with employees, clients, and others for protection. We believe that we are the owner or in some cases, the licensee, of all intellectual property and other proprietary rights necessary to conduct our business. \nCybersecurity\nOur information security program is designed to meet the needs of our clients who entrust us with their sensitive information. Our program includes encryption, data masking technology, data loss prevention technology, authentication technology, entitlement management, access control, anti-malware software, and transmission of data over private networks, among other systems and procedures designed to protect against unauthorized access to information, including by cyber-attacks. Broadridge utilizes the National Institute of Standards and Technology Framework for Improving Critical Infrastructure Cybersecurity (the \u201cNIST Framework\u201d) issued by the U.S. government as a guideline to manage our cybersecurity-related risk. The NIST Framework outlines \n108 subcategories of security controls and outcomes over five functions:\n identify, protect, detect, respond and recover. \n11\nTo further demonstrate our commitment to maintaining the highest levels of quality service, information security, and client satisfaction within an environment that fosters continual improvement, most of our business units and our core applications and facilities for the provision of many services including our proxy services, U.S. equity and fixed income securities processing services, and Kyndryl, Inc.\u2019s data centers, are International Organization for Standardization (\u201cISO\u201d) 27001 certified. This security standard specifies the requirements for establishing, implementing, operating, monitoring, reviewing, maintaining and improving a documented Information Security Management System within the context of the organization\u2019s overall business risks. It specifies the requirements for the implementation of security controls customized to the needs of individual organizations. The ISO 27001 standard addresses confidentiality, access control, vulnerability, business continuity, and risk assessment.\nWe engage an independent third-party cybersecurity services and consulting firm to review our information security program quarterly and provide a quarterly report on the program to the Audit Committee of our Board of Directors. We also have a third-party firm conduct phishing tests on our associates and perform network penetration tests. In addition, we conduct regular security awareness training and testing of our employees. \nRegulation\nThe securities and financial services industries are subject to extensive regulation in the U.S. and in other jurisdictions. As a matter of public policy, regulatory bodies in the U.S. and the rest of the world are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of investors participating in those markets. Due to the nature of our services and the markets we serve, these regulatory bodies impact our businesses in various manners.\nIn the U.S., the securities and financial services industries are subject to regulation under both federal and state laws. At the federal level, the SEC regulates the securities industry, along with the Financial Industry Regulatory Authority, Inc. (\u201cFINRA\u201d), the various stock exchanges, and other SROs. In addition, SEC rules require public companies to reimburse banks and broker-dealers for the expense of distributing certain stockholder communications to beneficial owners of securities held in street name, and those reimbursement rates as well as fees that can be charged for proxy services are set by the NYSE. The Department of Labor (\u201cDOL\u201d) enforces the Employee Retirement Income Security Act of 1974 (\u201cERISA\u201d) regulations on plan fiduciaries and organizations that provide services to qualified retirement plans. As a provider of services to financial institutions and issuers of securities, our services, such as our proxy and shareholder report processing and distribution services, are provided in a manner to assist our clients in complying with the laws and regulations to which they are subject. As a result, the services we provide may be required to change as applicable laws and regulations are adopted or revised. We monitor legislative and rulemaking activity by the SEC, FINRA, DOL, and U.S. Internal Revenue Service (the \u201cIRS\u201d). the stock exchanges and other regulatory bodies that may impact our services, and if new laws or regulations are adopted or changes are made to existing laws or regulations applicable to our services, we expect to adapt our business practices and service offerings to continue to assist our clients in fulfilling their obligations under new or modified requirements.\nCertain aspects of our business are subject to regulatory compliance or oversight. As a provider of technology services to financial institutions, certain aspects of our U.S. operations are subject to regulatory oversight and examination by the Federal Financial Institutions Examination Council (\u201cFFIEC\u201d), an interagency body of the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the National Credit Union Administration and the Consumer Financial Protection Bureau. Periodic examinations by the FFIEC generally include areas such as internal audit, risk management, business continuity planning, information security, systems development, and third-party vendor management to identify potential risks related to our services that could adversely affect our banking and financial services clients. \nIn addition, our business process outsourcing, mutual fund processing and transfer agency solutions, as well as the entities providing those services, are subject to regulatory oversight. Our business process outsourcing and mutual fund processing services are performed by a broker-dealer, Broadridge Business Process Outsourcing, LLC (\u201cBBPO\u201d). BBPO is registered with the SEC, is a member of FINRA and is required to participate in the Securities Investor Protection Corporation (\u201cSIPC\u201d). Although BBPO\u2019s FINRA membership agreement allows it to engage in clearing and the retailing of corporate securities in addition to mutual fund retailing on a wire order basis, BBPO does not clear customer transactions, process any retail business or carry customer accounts. BBPO is subject to regulations concerning many aspects of its business, including trade practices, capital requirements, record retention, money laundering prevention, the protection of customer funds and customer securities, and the supervision of the conduct of directors, officers and employees. A failure to comply with any of these laws, rules or regulations could result in censure, fine, the issuance of cease-and-desist orders, or the suspension or revocation of SEC or FINRA authorization granted to allow the operation of its business or disqualification of its directors, officers or employees. There has been continual regulatory scrutiny of the securities industry including the outsourcing by firms of their operations or functions. This oversight could result in the future enactment of more restrictive laws or rules with respect to business process outsourcing. As a registered broker-dealer and member of FINRA, BBPO is subject to the Uniform Net Capital Rule 15c3-1 of the Securities Exchange Act of 1934, as amended, which requires BBPO to maintain a minimum net capital amount. At June 30, 2023, BBPO was in compliance with this capital requirement.\n12\nMatrix Trust Company (\u201cMatrix Trust\u201d), is a Colorado state chartered, non-depository trust company and National Securities Clearing Corporation trust member, whose primary business is to provide cash agent, custodial and directed trustee services to institutional customers, and investment management services to its collective investment trust funds (\u201cCITs\u201d). As a result, Matrix Trust is subject to various regulatory capital requirements administered by the Colorado Division of Banking and the Arizona Department of Insurance and Financial Institutions, as well as the National Securities Clearing Corporation. Specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items, when applicable, must be met. At June 30, 2023, Matrix Trust was in compliance with its capital requirements. In addition, in connection with the offering of CITs, Matrix Trust acts as a discretionary trustee and an ERISA fiduciary. CITs are subject to regulation by the IRS, SEC, federal and state banking regulators, and the DOL, which impose a number of duties on persons who are fiduciaries under ERISA. Matrix Trust is also subject to regulation by the Colorado Division of Banking and the Arizona Department of Financial Institutions which regulate CITs pursuant to guidance issued by the Office of the Comptroller of the Currency regulation. Matrix Trust maintains an Identity Theft Prevention Program for certain of its services. \nOur transfer agency business, Broadridge Corporate Issuer Solutions, is subject to certain SEC rules and regulations, including annual reporting, examination, internal controls, proper safeguarding of issuer and shareholder funds and securities, maintaining a written Identity Theft Prevention Program, and obligations relating to its operations. Our transfer agency business is subject to certain NYSE requirements concerning operational standards as a transfer agent or registrar for NYSE-listed companies and is also subject to IRS regulations. In addition, Broadridge Corporate Issuer Solutions complies with all applicable trade control laws and regulations, including country/territory-based sanctions and list-based sanctions maintained by the U.S. and other jurisdictions where we do business. Finally, state laws govern certain services performed by our transfer agency business.\nIn addition, we are required to comply with anti-money laundering laws and regulations, such as, in the U.S., the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001 (collectively, the \u201cBSA\u201d), and the BSA implementing regulations of the Financial Crimes Enforcement Network (\u201cFinCEN\u201d), a bureau of the U.S. Department of the Treasury. A variety of similar anti-money laundering requirements apply in other countries. We are also subject to the relevant aspects of regulations and guidance published by FinCEN (as discussed below), which includes the Know Your Customer (\u201cKYC\u201d) requirements promulgated by FinCEN.\nPrivacy and Information Security Regulations \nThe processing and transfer of personal information is required to provide certain of our services. Privacy laws and regulations in the U.S. and foreign countries apply to the access, collection, transfer, use, storage, and destruction of personal information. In the U.S., our financial institution clients are required to comply with privacy regulations imposed under the Gramm-Leach-Bliley Act (\u201cGLBA\u201d), in addition to other regulations. As a processor of personal information in our role as a provider of services to financial institutions, we must comply with the Federal Trade Commission (\u201cFTC\u201d) Safeguards Rule implementing certain provisions of GLBA with respect to maintenance of information security safeguards.\nWe perform services for healthcare companies and are, therefore, subject to compliance with laws and regulations regarding healthcare information, including in the U.S., the Health Insurance Portability and Accountability Act of 1996 (\u201cHIPAA\u201d). We also perform credit-related services and agree to comply with payment card standards, including the Payment Card Industry Data Security Standard. In addition, federal and state privacy and information security laws, and consumer protection laws, which apply to businesses that collect or process personal information, also apply to our businesses.\nPrivacy laws and regulations may require notification to affected individuals, federal and state regulators, and consumer reporting agencies in the event of a security breach that results in unauthorized access to, or disclosure of, certain personal information. Privacy laws outside the U.S. may be more restrictive and may require different compliance requirements than U.S. laws and regulations, and they may impose additional duties on us in the performance of our services.\nThe law in this area continues to develop and the changing nature of privacy laws in the U.S., the European Union and elsewhere could impact our processing of personal information of our employees and on behalf of our clients. For example, the European Union Parliament adopted the comprehensive General Data Protection Regulation (\u201cGDPR\u201d) and several U.S. states have also recently adopted new privacy laws or are proposing to pass their own state privacy laws, including California\u2019s recently effective California Privacy Rights Act (\u201cCPRA\u201d).\nWe continually monitor privacy and information security laws and regulations and while we believe that we are compliant with our regulatory responsibilities, information security threats continue to evolve, resulting in increased risk and exposure. In addition, legislation, regulation, litigation, court rulings, or other events could expose Broadridge to increased costs, liability, and possible damage to our reputation.\n13\nLegal Compliance \nRegulations issued by the Office of Foreign Assets Control (\u201cOFAC\u201d) of the U.S. Department of Treasury place prohibitions and restrictions on all U.S. citizens and entities, including the Company, with respect to transactions by U.S. persons with specified countries and individuals and entities identified on OFAC's sanctions lists and Specially Designated Nationals and Blocked Persons List (a published list of individuals and companies owned or controlled by, or acting for or on behalf of, countries subject to certain economic and trade sanctions, as well as terrorists, terrorist organizations and narcotics traffickers identified by OFAC under programs that are not country specific). Similar requirements apply to transactions and dealings with persons and entities specified in lists maintained in other countries. We have developed procedures and controls that are designed to monitor and address legal and regulatory requirements and developments to protect against having direct business dealings with such prohibited countries, individuals or entities.\nCompliance with laws and regulations that are applicable to our businesses with an international reach\n \ncan be complex and may increase our cost of doing business in international jurisdictions. Our international business could expose us to fines and penalties if we fail to comply with these regulations. These laws and regulations include import and export requirements, trade restrictions and embargoes, data privacy requirements, labor laws, tax laws, anti-competition regulations, U.S. laws such as the Foreign Corrupt Practices Act, and local laws prohibiting bribery and other improper payments or inducements, such as the U.K. Bribery Act. Although we have implemented policies, procedures and training designed to ensure compliance with applicable laws and regulations, there can be no assurance that our employees, contractors, vendors and agents will not take actions in violation of our policies or applicable laws and regulations, particularly as we expand our operations, including through acquisitions of businesses that were not previously subject to and may not have familiarity with laws and regulations applicable to us or compliance policies similar to ours. Any violations of sanctions or export control regulations or other laws could subject us to civil or criminal penalties, including the imposition of substantial fines and interest or prohibitions on our ability to offer our products and services to one or more countries, and could also damage our reputation, our international expansion efforts and our business, and negatively impact our operating results.\nHuman Capital Management \nAs of June 30, 2023, we had approximately 14,700 full-time associates, of which approximately 48% were employed in the U.S. Of the approximately 52% of associates located outside of the U.S., 37% are in the APAC region, where a substantial number of associates are in India, and 11% are in Europe. None of our U.S. employees are represented by a labor union. In some countries outside the U.S., we have works councils, or we are required by local law to enter into and/or comply with industry-wide collective bargaining agreements. We believe that our employee relations are good. \nWe are driven by the success of each of our associates, and we recognize that it is because of their hard work, talent and commitment that we continue to deliver outstanding results for our clients. That is why we strive to provide a workplace that fosters a collaborative and supportive culture where everyone feels welcomed, accepted, and empowered to be their best. At the center of our associate engagement efforts is the concept of the Service-Profit Chain, where engaged associates deliver world-class service, which creates satisfied clients and, in turn, produces strong, long-term value for stockholders. We survey our associates\u2019 engagement annually and our overall score this year is 81%, a four-point increase over last year\u2019s score.\n \nOur human capital strategies are developed and managed by our Chief Human Resources Officer, who reports to the Chief Executive Officer, and are overseen by the Company\u2019s Board of Directors and the Compensation Committee of the Board of Directors. Our Board of Directors believes that human capital management and succession planning are vital to our success. The Board annually reviews the Company\u2019s leadership bench and succession planning. In addition, the Board receives regular updates on talent and other human capital matters such as culture, attrition and retention, and quarterly updates on our progress on our diversity, equity and inclusion (\u201cDEI\u201d) initiatives and practices, including an annual update from our Chief Diversity Officer. The Compensation Committee\u2019s oversight includes initiatives and programs that concern our culture, talent, recruitment, retention and associate engagement.\n14\nDiversity, Equity and Inclusion \nWe are dedicated to fostering a diverse, equitable, inclusive and healthy environment. As a leading provider of technology, communications and data and analytics solutions to businesses around the world, we must understand, embrace and operate in a multicultural environment. Every associate has unique strengths, which, when fully appreciated and embraced, enable everyone to perform at their best, leading to our success. Our goal is to ensure our associates at every level of the organization represent the diversity of the clients we serve and the communities in which we work. We are committed to advancing DEI initiatives and values as part of our culture. Our commitment to developing a diverse workforce is evidenced by the fact that a component of our Executive Leadership Team\u2019s compensation is based on achievement of DEI goals. \nWe have an Executive Diversity Council, chaired by our President, that meets quarterly and provides insight and recommendations on critical DEI-related opportunities and challenges. In addition, we support several associate-led employee resource groups (our Associate Networks), where associates with similar backgrounds and interests can find peer support, shape company culture, receive mentorship and sponsorship from senior members and develop their careers. Broadridge\u2019s Associate Networks currently include: B.Pride, Disability Equity Associate Network (DEAN), Lead For Next (LFN), MultiCultural Associate Network (MCAN), Veteran + First Responder Network (VFN), Women\u2019s Leadership Forum (WLF) and BeGreen. Together, these networks support the LQBTQ+ community, associates with disabilities, young professionals, multicultural backgrounds, veterans and first responders, women, and associates with a passion for sustainability. \nWe have a Chief Diversity Officer, who implements a holistic DEI strategy and partners with our business units to develop the resources and competencies needed to drive this strategy. Our Chief Diversity Officer reports to our President, is a member of the Executive Diversity Council and Executive Leadership Team and provides regular updates to our Chief Executive Officer and Board of Directors. In addition, the Chief Diversity Officer serves as an advisor on global initiatives, such as our Associate Networks, and our recruitment and compliance efforts. \nWe continue to progress our DEI initiatives building off the opportunities identified in our inaugural DEI survey in 2022, which ran globally, and over 7,000 associates across 19 countries participated. The results of our inaugural survey revealed that an overwhelming majority of our associates believe that 1) the importance of DEI is reflected in the priorities of Broadridge's business, 2) we were successful in advancing DEI initiatives over the past year, and 3) we create a physically and psychologically safe environment where associates feel they belong, and they are included and treated fairly. In 2023, we ran additional associate engagement surveys, which covered various DEI topics related to workplace culture and associate experience. We are committed to associate feedback to provide a comprehensive view of our organization\u2019s culture, identify areas where improvements can be made to create a more welcoming and inclusive environment for all associates, and measure our progress over time. \nTalent and Development \nWe believe that our associates are among our most important assets. Encouraging professional development opportunities is a core part of our culture. One important resource we provide our associates is Broadridge University, a comprehensive suite of online courses and virtual and on-site training. We offer career-enhancing programs from top business schools, have a tuition reimbursement program, and support participation in external learning opportunities. We offer our technology associates with resources to supplement their work experience, including a skills inventory to identify strengths and new opportunities, and a Technology Expert Career Track, a transparent dual career path process that allows associates to grow as leaders and experts in the organization. We also empower associates to learn and grow as subject matter experts in the financial markets. In turn, this enables our associates to assist our clients with their expertise and adds value to our associates\u2019 own career development and skill sets. In addition to career-oriented education, we also require all associates to complete a variety of trainings on an annual basis, which focus on our commitment to high ethical standards and a culture of honesty, integrity and compliance.\nHealth, Safety and Wellness \nWe are committed to providing a safe workplace. We continuously strive to meet or exceed all laws, regulations and accepted practices pertaining to workplace safety. We have developed extensive safety policies, standards and procedures to which all associates are required to comply. Our policies are based on both U.S. Occupational Safety and Health Administration standards and site-specific guidelines to ensure that associates work in a safe and healthy environment. At our larger production facilities and at certain other locations, we house on-site Wellness Centers staffed with physicians, nurse practitioners and physician assistants who provide a wide variety of medical services at no cost to our associates.\nIn addition, we are committed to providing competitive health and wellness benefits to our associates. We recognize the importance of work-life balance and have designed our Connected Workplace model, which provides associates with flexible on- and off-site work options. Our other health and wellness benefits include travel allowances for certain types of health care and subsidized emergency backup care services for our U.S.-based associates, various educational health and wellness programs and webinars, and an employee assistance program, which provides free counseling and other mental health services. \n15\nAssociate Compensation and Benefits\nWe have demonstrated a history of investing in our workforce by offering competitive salaries and wages. In addition, we offer various types of compensation, which vary by associate role and country/region, and may include annual bonuses, stock awards, and retirement savings plans. Also, a portion of every associate\u2019s incentive compensation is tied to client satisfaction goals, which reinforces our commitment to the Service-Profit Chain and rewards associates for their contributions to Broadridge\u2019s overall client satisfaction performance. In addition we offer the following benefits, which may vary by country/region: healthcare and insurance benefits, tax efficient or savings programs, such as health and dependent care flexible spending accounts, health savings account and pretax commuter benefits or green transport tax savings programs, paid time off, including volunteer time off, paid parental leave, and sick time off, life and disability insurance, business travel accident insurance, charitable gift matching, tuition assistance and on-site health centers, among others. \nAssociate Engagement \nWe believe there is a direct connection between associate engagement and the satisfaction of our clients and the creation of stockholder value so we regularly conduct multiple surveys and focus groups to assess associate engagement and determine if and how perspectives have changed over time. Our surveys and focus group practices allow our associates to share their views on our workplace, the importance of various aspects of work life, among other topics. The themes and insights from our associate feedback are shared with our executive leadership and have been instrumental in shaping our workplace. In fiscal year 2023, we received an 81% overall favorable rating in the annual Great Place to Work survey. In addition, 83% of our associates stated that Broadridge is a \u201cgreat place to work,\u201d and we have received certification from Great Place to Work for our outstanding workplace culture in 14 countries: U.S., Canada, India, the United Kingdom, Ireland, Romania, Poland, Singapore, Japan, Czech Republic, France, Germany, Sweden and the Philippines. In the United Kingdom, we were recognized as one of the Best Workplaces, as well as one of the Best Workplaces for Wellbeing in 2023. The Great Place to Work Institute is a global authority on high-trust, high-performance workplaces. \nAvailable Information\nOur headquarters are located at 5 Dakota Drive, Lake Success, New York 11042, and our telephone number is (516) 472-5400.\nWe maintain an Investor Relations website at www.broadridge-ir.com. We make available free of charge, on or through this website, our annual, quarterly and current reports, and any amendments to those reports as soon as reasonably practicable following the time they are electronically filed with or furnished to the SEC. To access these reports, just click on the \u201cSEC Filings\u201d link found at the top of our Investor Relations page. You can also access our Investor Relations page through our main website at www.broadridge.com by clicking on the \u201cInvestor Relations\u201d link, which is located at the top of our homepage. Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K or any other report filed with or furnished to the SEC.\nIn addition, the SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.\n16",
+  "item1a": ">ITEM 1A. Risk Factors \nYou should carefully consider each of the following risks and all of the other information set forth in this Annual Report on Form 10-K or incorporated by reference herein. Based on the information currently known to us, we believe that the following information identifies the most significant factors affecting our company. However, additional risks and uncertainties not currently known to us or that we currently believe to be immaterial may also adversely affect our business.\nIf any of the following risks and uncertainties develop into actual events, they could have a material adverse effect on our business, financial condition, or results of operations.\nOur clients are subject to complex laws and regulations, and new laws or regulations and/or changes to existing laws or regulations could impact our clients and, in turn, adversely impact our business or may reduce our profitability.\n \nWe provide technology solutions to financial services firms that are generally subject to extensive regulation in the U.S. and in other jurisdictions. As a provider of products and services to financial institutions and issuers of securities, our products and services are provided in a manner designed to assist our clients in complying with the laws and regulations to which they are subject. Therefore, our services, such as our proxy, shareholder report and prospectus distribution, and customer communications services, are particularly sensitive to changes in laws and regulations, including those governing the financial services industry and the securities markets. Changes in laws and regulations could require changes in the services we provide or the manner in which we provide our services, or they could result in a reduction or elimination of the demand for our services.\nOur investor communications services and the fees we charge our clients for certain services are subject to change if applicable SEC or stock exchange rules or regulations are amended, or new laws or regulations are adopted, which could result in a material negative impact on our business and financial results. For example, the SEC\u2019s recently adopted modifications to the mutual fund and exchange-traded fund shareholder report disclosure framework could have an impact on our services, business and financial results.\nIn addition, new regulations governing our clients could result in significant expenditures that could cause them to reduce their use of our services, seek to renegotiate existing agreements, or cease or curtail their operations, all of which could adversely impact our business. Further, an adverse regulatory action that changes a client\u2019s business or adversely affects its financial condition, could decrease their ability to purchase, or their demand for, our products and services. The loss of business from any of our larger clients could have a material adverse effect on our revenues and results of operations. \nConsolidation in the financial services industry could adversely affect our revenues by eliminating some of our existing and potential clients and could make us increasingly dependent on a more limited number of clients. \nThere has been and may continue to be consolidation activity in the financial services industry. These mergers or consolidations of financial institutions could reduce the number of our clients and potential clients. For example, in the past few years alone there have been several major consolidations involving our clients. When our clients merge with or are acquired by other firms that are not our clients, or firms that use fewer of our services, they may discontinue or reduce the use of our services. In addition, it is possible that the larger financial institutions resulting from mergers or consolidations could decide to perform in-house some or all of the services that we currently provide or could provide. If we are unable to mitigate the impact of a loss or reduction of business resulting from a client consolidation, we could have a material adverse effect on our business and results of operations.\nA large percentage of our revenues are derived from a small number of clients in the financial services industry and the loss of any of such clients, a reduction of their demand for our services, or change in the method of delivery of our services could have a material impact on our financial results.\nIn fiscal year 2023, our largest client accounted for approximately 7% of our consolidated revenues. While our clients generally work with multiple business segments, the loss of business from any of our larger clients due to merger or consolidation, financial difficulties or bankruptcy, or the termination or non-renewal of contracts could have a material adverse effect on our revenues and results of operations.\n \nAlso, a delay in onboarding a client onto our technology would result in a delay in our recognition of revenue from that client.\n \nFurther, in the event of the loss of a client\u2019s business, a reduction of a client\u2019s demand for our services, or a change in the method of delivery of our services, then in addition to losing the revenue from that client, we could be required to write-off all or a portion of the related client investments or accelerate the amortization of certain costs, including costs incurred to onboard a client or convert a client\u2019s systems to function with our technology. Such costs for all clients represented approximately 11% of our total assets as of June 30, 2023, with one client representing a large portion of this amount. See Note 3, \u201cRevenue Recognition\u201d and Note 11, \u201cDeferred Client Conversion and Start-up Costs\u201d to our consolidated financial statements for more information. \n17\nSecurity breaches or cybersecurity attacks could adversely affect our ability to operate, could result in personal, confidential or proprietary information being misappropriated, and may cause us to be held liable or suffer harm to our reputation.\nWe process and transfer sensitive data, including personal information, valuable intellectual property and other proprietary or confidential data provided to us by our clients, which include financial institutions, public companies, mutual funds, and healthcare companies. We also handle personal information of our employees in connection with their employment. We maintain systems and procedures including encryption, authentication technology, data loss prevention technology, entitlement management, access control and anti-malware software, and transmission of data over private networks to protect against unauthorized access to physical and electronic information, including by cybersecurity attacks. However, information security threats continue to evolve resulting in increased risk and exposure and increased costs to protect against the threat of information security breaches or to respond to or alleviate problems caused by such breaches. \nIn certain circumstances, our third-party vendors may have access to sensitive data including personal information. It is also possible that a third-party vendor could intentionally or inadvertently disclose sensitive data, including personal information. We require our third-party vendors to have appropriate security controls if they have access to the personal information of our clients\u2019 customers or our employees. However, despite those safeguards, it is possible that unauthorized individuals could improperly access our systems or those of our vendors, or improperly obtain or disclose the sensitive data including personal information that we or our vendors process or handle.\nMany of our services are provided through the internet, which increases our exposure to potential cybersecurity attacks. We have experienced cybersecurity threats to our information technology infrastructure and have experienced non-material cybersecurity attacks, attempts to breach our systems and other similar incidents. Future threats could cause harm to our business and our reputation and challenge our ability to provide reliable service, as well as negatively impact our results of operations materially. Our insurance coverage may not be adequate to cover all the costs related to cybersecurity attacks or disruptions resulting from such events.\nAny unauthorized use or disclosure of certain personal information could put individuals at risk of identity theft and financial or other harm and result in costs to us in investigation, remediation, legal defense and in liability to parties who are financially harmed. We may incur significant costs to protect against the threat of information security breaches or to respond to or alleviate problems caused by such breaches. For example, laws may require notification to regulators, clients or employees and enlisting credit monitoring or identity theft protection in the event of a privacy breach. A cybersecurity attack could also be directed at our systems and result in interruptions in our operations or delivery of services to our clients and their customers. Furthermore, a security breach could cause us to lose revenues, lose clients or cause damage to our reputation.\nOur business and results of operations may be adversely affected if we do not comply with legal and regulatory requirements that apply to our services or businesses, and new laws or regulations and/or changes to existing laws or regulations to which we are subject may adversely affect our ability to conduct our business or may reduce our profitability. \nThe legislative and regulatory environment of the financial services industry is continuously changing. The SEC, FINRA, DOL, various stock exchanges and other U.S. and foreign governmental or regulatory authorities continuously review legislative and regulatory initiatives and may adopt new or revised laws and regulations or provide revised interpretations or they may change the enforcement priorities with respect to existing laws and regulations. These legislative and regulatory initiatives impact the way in which we conduct our business, requiring changes to the way we provide our services or additional investment which may make our business more or less profitable. Further, as a provider of technology services to financial institutions, certain aspects of our U.S. operations are subject to regulatory oversight and examination by the FFIEC. A sufficiently unfavorable review from the FFIEC could have a material adverse effect on our business. With an increased focus on cybersecurity and vendor risk management, the FFIEC and other regulatory agencies provide guidelines for overseeing technology service providers, increasing the contractual requirements with our clients and the cost of providing our services.\nOur business process outsourcing, mutual fund processing and transfer agency solutions as well as the entities providing those services are subject to regulatory oversight. Our provision of these services must comply with applicable rules and regulations of the SEC, FINRA, DOL, various stock exchanges and other regulatory bodies charged with safeguarding the integrity of the securities markets and other financial markets and protecting the interests of investors participating in these markets. If we fail to comply with any applicable regulations in performing these services, we could be subject to suits for breach of contract or to governmental proceedings, censures and fines. In addition, we could lose clients and our reputation could be harmed, negatively impacting our ability to attract new clients.\n18\nAs a provider of data and business processing solutions, our systems contain a significant amount of sensitive data, including personal information, related to our clients, customers of our clients, and our employees. We are, therefore, subject to compliance obligations under federal, state and foreign privacy and information security laws, including in the U.S., the GLBA, HIPAA, and the CPRA, and the GDPR in the European Union, and we are subject to compliance with various client industry standards such as PCI DSS as well as Medicare and Medicaid programs related to our clients. We are subject to penalties for failure to comply with such regulations and requirements, and such penalties could have a material adverse effect on our financial condition, results of operations, or cash flows. There has been increased public attention regarding the use of personal information, accompanied by legislation and regulations intended to strengthen data protection, information security and consumer and personal privacy. The law in these areas continues to develop, the number of jurisdictions adopting such laws continues to increase and these laws may be inconsistent from jurisdiction to jurisdiction. Furthermore, the changing nature of privacy laws in the U.S., the European Union and elsewhere could impact our processing of personal information of our employees and on behalf of our clients.\nOur ability to comply with applicable laws and regulations depends largely upon the maintenance of an effective compliance system which can be time consuming and costly, as well as our ability to attract and retain qualified compliance personnel. Any failure by our employees to comply with our policies and any laws and regulations applicable to our business, even if inadvertent, could have a negative impact on our business.\nOur revenues may decrease due to declines in the levels of participation and activity in the securities markets. \nWe generate significant revenues from the transaction processing fees we earn from our services. These revenue sources are substantially dependent on the levels of participation and activity in the securities markets. The number of unique securities positions held by investors through our clients and our clients\u2019 customer trading volumes reflect the levels of participation and activity in the markets, which are impacted by market prices, and the liquidity of the securities markets, among other factors. Volatility in the securities markets and sudden sharp or gradual but sustained declines in market participation and activity can result in reduced investor communications activity, including reduced proxy and event-driven communications processing such as mutual fund proxy, mergers and acquisitions and other special corporate event communications processing, and reduced trading volumes. In addition, our event-driven fee revenues are based on the number of special corporate events and transactions we process. Event-driven activity is impacted by financial market conditions and changes in regulatory compliance requirements, resulting in fluctuations in the timing and levels of event-driven fee revenues. As such, the timing and level of event-driven activity and its potential impact on our revenues and earnings are difficult to forecast. The occurrence of any of these events would likely result in reduced revenues and decreased profitability from our business operations.\n \nWe may be adversely impacted by a failure of third-party service providers to perform their functions. \nWe rely on relationships with third parties, including our service providers and other vendors for certain functions. If we are unable to effectively manage our third-party relationships and the agreements under which our third-party vendors operate, our financial results or reputation could suffer. We rely on these third parties, including for the provision of certain data center and cloud services, to provide services in a timely and accurate manner and to adequately address their own risks, including those related to cybersecurity. Failure by these third parties to adequately perform their services as expected could result in material interruptions in our operations, and negatively impact our services resulting in a material adverse effect on our business and financial results.\nCertain of our businesses rely on a single or a limited number of service providers or vendors. Changes in the business condition (financial or otherwise) of these service providers or vendors could impact their provision of services to us or they may no longer be able to provide services to us at all, which could have a material adverse effect on our business and financial results. In such circumstances, we cannot be certain that we will be able to replace our key third-party vendors in a timely manner or on terms commercially reasonable to us given, among other reasons, the scope of responsibilities undertaken by some of our service providers, the depth of their experience and their familiarity with our operations generally.\nIf we change a significant vendor, an existing service provider makes significant changes to the way it conducts its operations, or is acquired, or we seek to bring in-house certain services performed today by third parties, we may experience unexpected disruptions in the provision of our solutions and increased expenses, which could have a material adverse effect on our business, profitability, and financial results. Furthermore, certain third-party service providers or vendors may have access to sensitive data including personal information, valuable intellectual property and other proprietary or confidential data, including that provided to us by our clients. It is possible that a third-party vendor could intentionally or inadvertently disclose sensitive data including personal information, which could have a material adverse effect on our business and financial results and damage our reputation.\n19\nWe rely on the United States Postal Service (\u201cUSPS\u201d) and other third-party carriers to deliver communications and changes in our relationships with these carriers or an increase in postal rates or shipping costs may adversely impact demand for our products and services and could have an adverse impact on our business and results of operations.\nWe rely upon the USPS and third-party carriers, including the United Parcel Service, for timely delivery of communications on behalf of our clients. As a result, we are subject to carrier disruptions due to factors that are beyond our control, including employee strikes, inclement weather, and increased fuel costs. Any failure to deliver communications to or on behalf of our clients in a timely and accurate manner may damage our reputation and brand and could cause us to lose clients. In addition, the USPS has incurred significant financial losses in recent years and may, as a result, implement significant changes to the breadth or frequency of its mail delivery, causing disruptions in the service. If our relationship with any of these third-party carriers is terminated or impaired, or if any of these third parties are unable to distribute communications, we would be required to use alternative, and possibly more expensive, carriers to complete our distributions on behalf of our clients. We may be unable to engage alternative carriers on a timely basis or on acceptable terms, if at all, which could have an adverse effect on our business. In addition, future increases in postal rates or shipping costs, as well as changes in customer preferences, may result in decreased demand for our traditional printed and mailed communications resulting in an adverse effect on our business, financial condition and results of operations.\nIn the event of a disaster, our disaster recovery and business continuity plans may fail, which could result in the loss of client data and adversely interrupt operations. \nOur operations are dependent on our ability to protect our infrastructure against damage from catastrophe, natural disaster, or severe weather, as well as events resulting from unauthorized security breach, power loss, telecommunications failure, terrorist attack, pandemic, or other events that could have a significant disruptive effect on our operations. We have disaster recovery and business continuity plans in place in the event of system failure due to any of these events and we test our plans regularly. In addition, our data center services provider also has disaster recovery plans and procedures in place. However, we cannot be certain that our plans, or those of our data center services provider, will be successful in the event of a disaster. If our disaster recovery or business continuity plans are unsuccessful in a disaster recovery scenario, we could potentially lose client data or experience material adverse interruptions to our operations or delivery of services to our clients, and we could be liable to parties who are financially harmed by those failures. In addition, such failures could cause us to lose revenues, lose clients or damage our reputation.\nAny slowdown or failure of our computer or communications systems could impact our ability to provide services to our clients and support our internal operations and could subject us to liability for losses suffered by our clients or their customers. \nOur services depend on our ability to store, retrieve, process, and manage significant databases, and to receive and process transactions and investor communications through a variety of electronic systems. Our systems, those of our data center and cloud services providers, or any other systems with which our systems interact could slow down significantly or fail for a variety of reasons, including:\n\u2022\nmalware or undetected errors in internal software programs or computer systems;\n\u2022\ndirect or indirect hacking or denial of service cybersecurity attacks;\n\u2022\ninability to rapidly monitor all system activity;\n\u2022\ninability to effectively resolve any errors in internal software programs or computer systems once they are detected;\n\u2022\nfailure to maintain adequate operational systems and infrastructure;\n\u2022\nheavy stress placed on systems during peak times or due to high volumes or volatility; or\n\u2022\npower or telecommunications failure, fire, flood, pandemic or any other natural disaster or catastrophe.\nWhile we monitor system loads and performance and implement system upgrades to handle predicted increases in trading volume and volatility, we may not be able to predict future volume increases or volatility accurately or that our systems and those of our data center services and cloud services providers will be able to accommodate these volume increases or volatility without failure or degradation. In addition, we may not be able to prevent cybersecurity attacks on our systems. \n20\nMoreover, because we have outsourced our data center operations and use third-party cloud services providers for storage of certain data, the operation, performance and security functions of the data center and the cloud system involve factors beyond our control, and we cannot guarantee that our third-party providers will be able to provide their services at a satisfactory level. Any significant degradation or failure of our or our third-party providers\u2019 computer systems, communications systems or any other systems in the performance of our services could cause our clients or their customers to suffer delays in their receipt of our services. These delays could cause substantial losses for our clients or their customers, and we could be liable to parties who are financially harmed by those failures. In addition, such failures could cause us to lose revenues, lose clients or damage our reputation. \nThe inability to properly perform our services or operational errors in the performance of our services could lead to liability for claims, client loss and result in reputational damage.\nThe inability or the failure to properly perform our services could result in our clients and/or certain of our subsidiaries that operate regulated businesses being subjected to losses including censures, fines, or other sanctions by applicable regulatory authorities, and we could be liable to parties who are financially harmed by those errors. In addition, the inability to properly perform our services or errors in the performance of our services could result in a decline in confidence in our products and services and cause us to incur expenses including service penalties, lose revenues, lose clients or damage our reputation.  \nGlobal economic and political conditions, including global health crises and geopolitical instability, broad trends in business and finance that are beyond our control have had and may have a material impact on our business operations and those of our clients and contribute to reduced levels of activity in the securities markets, which could adversely impact our business and results of operations. \nAs a multinational company, our operations and our ability to deliver our services to our clients could be adversely impacted by general global economic and political conditions. \nOur business is highly dependent on the global financial services industry and exchanges and market centers around the world.\n \nAlso, in recent years, we have expanded our operations, entered strategic alliances, and acquired businesses outside the U.S.\n \nCompliance with foreign and U.S. laws and regulations that are applicable to our international operations could cause us to incur higher than anticipated costs, and inadequate enforcement of laws or policies such as those protecting intellectual property, could affect our business and the Company\u2019s overall results of operations.\nThese factors may include:\n\u2022\neconomic, political and market conditions;\n\u2022\nlegislative and regulatory changes;\n\u2022\nsocial and health conditions, including widespread outbreak of an illness or pandemic such as the Covid-19 pandemic;\n\u2022\nacts of war or terrorism and international conflict, such as the conflict between Russia and Ukraine;\n\u2022\nnatural or man-made disasters or other catastrophes;\n\u2022\nextreme or unusual weather patterns caused by climate change;\n\u2022\nthe availability of short-term and long-term funding and capital;\n\u2022\nthe level and volatility of interest rates;\n\u2022\ncurrency values and inflation; \n\u2022\nfinancial well-being of our clients; and\n\u2022\ntaxation levels affecting securities transactions.\nThese factors are beyond our control and may negatively impact our ability to perform our services or the demand for our services or may increase our costs resulting in an adverse impact on our business and results of operations. \nFor example, our services are impacted by the number of unique securities positions held by investors through our clients, the level of investor communications activity we process on behalf of our clients, trading volumes, market prices, and liquidity of the securities markets, which are in turn affected by general national and international economic and political conditions, and broad trends in business and finance that could result in changes in participation and activity in the securities markets. Accordingly, any significant reduction in participation and activity in the securities markets would likely adversely impact our business and results of operations. \n21\nIf the operational systems and infrastructure that we depend on fail to keep pace with our growth, we may experience operating inefficiencies, client dissatisfaction and lost revenue opportunities. \nThe growth of our business and expansion of our client base may place a strain on our management and operations. We believe that our current and anticipated future growth will require the implementation of new and enhanced communications and information systems, the training of personnel to operate these systems, and the expansion and upgrade of core technologies. While many of our systems are designed to accommodate additional growth without redesign or replacement, we may nevertheless need to make significant investments in additional hardware and software to accommodate growth, which may impact our profitability and business operations. In addition, we may not be able to predict the timing or rate of this growth accurately or expand and upgrade our systems and infrastructure on a timely basis.\nOur growth has required and will continue to require increased investments in management personnel and systems, financial systems and controls, and office facilities. We cannot assure you that we will be able to manage or continue to manage our future growth successfully. If we fail to manage our growth, we may experience operating inefficiencies, dissatisfaction among our client base, and lost revenue opportunities.\nIf we are unable to respond to the demands of our existing and new clients, or adapt to technological changes or advances, our business and future growth could be impacted. \nThe global financial services industry is characterized by increasingly complex and integrated infrastructures and products, new and changing business models and rapid technological and regulatory changes. Our clients\u2019 needs and demands for our products and services evolve with these changes. Our future success will depend, in part, on our ability to respond to our clients\u2019 demands for new services, capabilities and technologies on a timely and cost-effective basis. We also need to adapt to technological advancements such as artificial intelligence, machine learning, quantum computing, digital and distributed ledger and cloud computing and keep pace with changing regulatory standards to address our clients\u2019 increasingly sophisticated requirements. Transitioning to these new technologies may require close coordination with our clients, be disruptive to our resources and the services we provide and may increase our reliance on third-party service providers such as our cloud services provider.\nIn addition, we run the risk of disintermediation due to emerging technologies, fintech start-ups and new market entrants. If we fail to adapt or keep pace with new technologies in a timely manner, it could harm our ability to compete, decrease the value of our products and services to our clients, and harm our business and impact our future growth.\nIntense competition could negatively affect our ability to maintain or increase our business, financial condition, and results of operations. \nThe markets for our products and services continue to evolve and are highly competitive. We compete with a number of firms that provide similar products and services. In addition, our securities processing solutions compete with our clients\u2019 in-house capabilities to perform comparable functions. Our competitors may be able to respond more quickly to new or changing opportunities, technologies, and client requirements and may be able to undertake more extensive promotional activities, offer more attractive terms to clients and adopt more aggressive pricing policies than we will be able to offer or adopt. In addition, we expect that the markets in which we compete will continue to attract new competitors and new technologies. There can be no assurances that we will be able to compete effectively with current or future competitors. If we fail to compete effectively, our business, financial condition, and results of operations could be materially harmed.\nWe may be unable to attract and retain key personnel. \nOur continued success depends on our ability to attract and retain key personnel such as our senior management and other qualified personnel including highly skilled technical employees to conduct our business. Skilled and experienced personnel in the areas where we compete are in high demand, and competition for their talents is intense. There can be no assurance that we will be successful in our efforts to recruit and retain the required key personnel. If we are unable to attract and retain qualified individuals or our recruiting and retention costs increase significantly, our operations and financial results could be materially adversely affected.\nThe inability to identify, obtain, retain, enforce and protect important intellectual property rights could harm our business. \nThird parties may infringe or misappropriate our intellectual property, which includes a combination of patents, trademarks, service marks, copyrights, domain names and trade secrets. Our inability to protect our intellectual property and marks could adversely affect our business. In an effort to protect our intellectual property, we enter into confidentiality and invention assignment agreements with our employees, consultants and other third parties, and control access to our services, software and proprietary information. Moreover, we license or acquire technology that we incorporate into our services and products. Additional actions may be required to protect our intellectual property, including legal action, which could be time consuming and expensive and may negatively impact our business, financial condition, and results of operations.\n22\nDespite our efforts to identify, obtain, retain, enforce and protect our intellectual property rights and proprietary information, we cannot be certain that they will be effective or sufficient to prevent the unauthorized access, use, copying, theft or the reverse engineering of our intellectual property and proprietary information for a variety of reasons, including: (a) our inability to detect misappropriation by third parties of our intellectual property; (b) disparate legal protections for intellectual property across different countries; (c) constantly evolving intellectual property legal standards as to the scope of protection, validity, non-infringement, enforceability and infringement defenses; (d) failure to maintain appropriate contractual restrictions and other measures to protect our know- how and trade secrets, or contract breaches by others; (e) failure to identify and obtain patents on patentable innovations; (f) potential invalidation, unenforceability, scope narrowing, dilution and opposition, through litigation and administrative processes both in the U.S. and abroad, of our intellectual property rights; and (g) other business or resource limitations on intellectual property enforcement against third parties.\nOur products and services, and the products and services provided to us by third parties, may infringe upon intellectual property rights of third parties, and any infringement claims, whether initiated by or against us, could require us to incur substantial costs, distract our management, or prevent us from conducting our business. \nCostly, complex, time-consuming and unpredictable litigation may be necessary to enforce our intellectual property rights, or challenge the purported validity or scope of third-party intellectual property. Further, although we attempt to avoid infringing upon known proprietary rights of third parties, we are subject to the risk of claims alleging infringement of third-party proprietary rights. All intellectual property litigations, even baseless claims, result in significant expense and diversion of resources, our management and time. Any adverse outcome in an intellectual property litigation could prevent us from selling our products or services or require us to license the technology of others on unfavorable terms, which may materially and adversely affect our brand, business, operations and financial condition. Additionally, third parties that provide us with products or services that are integral to the conduct of our business may also be subject to similar infringement allegations from others, which could prevent such third parties from continuing to provide these products or services to us. As a result, we may need to undertake work-arounds or substantial reengineering of our products or services in order to continue offering them, and we may not succeed in doing so. Furthermore, a party asserting such an infringement claim could secure a judgment against us that requires us to pay substantial damages, grant such party injunctive relief, or grant other court ordered remedies that could prevent us from conducting our business.\nWe use third-party open source software in our products and services. Though we have a policy, review board, and review process in place governing the use of open source software, there is a risk that we incorporate into our products and services open source software with onerous licensing terms that purportedly require us to make the source code of our proprietary code, combined with such open source software, available under such license. Furthermore, U.S. courts have not interpreted the terms of various open source licenses, but could interpret them in a manner that imposes unanticipated conditions or restrictions on our products and services. Usage of open source software can lead to greater risks than use of third-party commercial software, given that licensors generally disclaim all warranties on their open source software, and hackers frequently exploit vulnerabilities in open source software. Any use of open source software inconsistent with its license or our policy could harm our business, operations and financial position.\nAcquisitions and integrating such acquisitions create certain risks and may affect operating results. \nAs part of our overall business strategy, we may make acquisitions and strategic investments in companies, technologies or products, or enter joint ventures. In fact, over the last three fiscal years we have completed 4 acquisitions and made strategic investments in seven firms. These transactions and the integration of acquisitions involve a number of risks. The core risks are in the areas of:\n\u2022\nvaluation\n: finding suitable businesses to acquire at affordable valuations or on other acceptable terms; competition for acquisitions from other potential acquirors, and negotiating a fair price for the business based on inherently limited due diligence reviews;\n\u2022\nintegration\n: managing the complex process of integrating the acquired company\u2019s people, products, technology, and other assets, and converting their financial, information security, privacy and other systems and controls to meet our standards, so as to achieve intended strategic objectives and realize the projected value, synergies and other benefits in connection with the acquisition; and\n\u2022\nlegacy issues\n: protecting against actions, claims, regulatory investigations, losses, and other liabilities related to the predecessor business.\n23\nAlso, the process of integrating these businesses may be difficult and expensive, disrupt our business and divert our resources. These risks may arise for a number of reasons including, for example:\n\u2022\nincurring unforeseen obligations or liabilities in connection with such acquisitions;\n\u2022\ndevoting unanticipated financial and management resources to an acquired business;\n\u2022\nborrowing money from lenders or selling equity or debt securities to the public to finance future acquisitions on terms that may be adverse to us;\n\u2022\nadditional debt incurred to finance an acquisition could impact our liquidity and may cause a credit downgrade;\n\u2022\nloss of clients of the acquired business;\n\u2022\nentering markets where we have minimal prior experience; and\n\u2022\nexperiencing decreases in earnings as a result of non-cash impairment charges.\nIn addition, international acquisitions, such as our 2021 acquisition of Itiviti, often involve additional or increased risks including, for example:\n\u2022\ngeographically separated organizations, systems, and facilities;\n\u2022\nintegrating personnel with diverse business backgrounds and organizational cultures;\n\u2022\ncomplying with non-U.S. regulatory requirements;\n\u2022\nenforcing intellectual property rights in some non-U.S. countries; and\n\u2022\ngeneral economic and political conditions.\nOur existing and future debt levels, and compliance with our debt service obligations, could have a negative impact on our financing options and liquidity position, which could adversely affect our business.\nAs of June 30, 2023, we had $3,413.3 million in aggregate principal amount of total debt. Additionally, our revolving credit facility has a remaining borrowing capacity of $1,500.0 million as of June 30, 2023. Our overall leverage and the terms of our financing arrangements could:\n\u2022\nlimit our ability to obtain additional financing in the future for working capital, capital expenditures or acquisitions, to fund growth or for general corporate purposes, even when necessary to maintain adequate liquidity;\n\u2022\nmake it more difficult for us to satisfy the terms of our debt obligations;\n\u2022\nlimit our ability to refinance our indebtedness on terms acceptable to us, or at all;\n\u2022\nlimit our flexibility to plan for and to adjust to changing business and market conditions and implement business strategies; \n\u2022\nrequire us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt, thereby limiting the availability of our cash flow to fund future investments, capital expenditures, working capital, business activities and other general corporate requirements; and\n\u2022\nincrease our vulnerability to adverse economic or industry conditions.\nOur liquidity position may be negatively affected by changes in general economic conditions, regulatory requirements and access to the capital markets, which may be limited if we were to fail to renew any of the credit facilities on their renewal dates or if we were to fail to meet certain ratios. Our ability to meet expenses and debt service obligations will depend on our future performance, which could be affected by financial, business, economic and other factors. If we are not able to pay our debt service obligations or comply with the financial or other restrictive covenants contained in the indenture governing our senior notes, or our credit facility, we may be required to immediately repay or refinance all or part of our debt, sell assets, borrow additional funds or raise additional equity capital, which could also result in a credit rating downgrade. In addition, if the credit ratings of our outstanding indebtedness are downgraded, or if rating agencies indicate that a downgrade may occur, our business, financial position, and results of operations could be adversely affected, and perceptions of our financial strength could be damaged. A downgrade would also have the effect of increasing our borrowing costs and could decrease the availability of funds we are able to borrow, adversely affecting our business, financial position, and results of operations. Further, a downgrade could adversely affect our relationships with our clients.\n24\nWe may incur non-cash impairment charges in the future associated with our portfolio of intangible assets, including goodwill.\nAs a result of past acquisitions, we carry a significant goodwill and other acquired intangible assets on our balance sheet. In addition, we also defer certain costs to onboard a client or convert a client\u2019s systems to function with our technology. Goodwill, intangible assets, net, and deferred client conversion and start-up costs accounted for approximately 71% of the total assets on our balance sheet as of June 30, 2023. We test goodwill for impairment annually as of March 31st and we test goodwill, intangible assets, net, and deferred client conversion and start-up costs for impairment at other times if events have occurred or circumstances exist that indicate the carrying value of such assets may no longer be recoverable. It is possible we may incur impairment charges in the future, particularly in the event of a prolonged economic recession or loss of a key client or clients. A significant non-cash impairment could have a material adverse effect on our results of operations.\nCertain of our services may be exposed to risk from our counterparties and third parties.\nOur mutual fund and exchange-traded fund processing services and our transfer agency services involve the settlement of transactions on behalf of our clients and third parties. With these activities, we may be exposed to risk in the event our clients, or broker-dealers, banks, clearing organizations, or depositories are unable to fulfill contractual obligations. Failure to settle a transaction may affect our ability to conduct these services or may reduce their profitability as a result of the reputational risk associated with failure to settle.",
+  "item7": ">ITEM 7.\u00a0\u00a0\u00a0\u00a0Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThis discussion summarizes the significant factors affecting the results of operations and financial condition of Broadridge during the fiscal years ended June\u00a030, 2023 and 2022, and should be read in conjunction with our Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein. Certain information contained in \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d are \u201cforward-looking statements\u201d within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature and which may be identified by the use of words such as \u201cexpects,\u201d \u201cassumes,\u201d \u201cprojects,\u201d \u201canticipates,\u201d \u201cestimates,\u201d \u201cwe believe,\u201d \u201ccould be,\u201d \u201con track\u201d and other words of similar meaning, are forward-looking statements. These statements are based on management\u2019s expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Our actual results, performance or achievements may differ materially from the results discussed in this Item\u00a07 because of various factors, including those set forth elsewhere herein. See \u201cForward-Looking Statements\u201d and \u201cRisk Factors\u201d included in Part\u00a01 of this Annual Report on Form 10-K.\nThe discussion summarizing the significant factors affecting the results of operations and financial condition of Broadridge during the fiscal year ended June\u00a030, 2022 can be found in Part II, \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Annual Report on Form 10-K for the fiscal year 2022 (the \u201c2022 Annual Report\u201d), which was filed with the Securities and Exchange Commission on August 12, 2022.\nDESCRIPTION OF THE COMPANY AND BUSINESS SEGMENTS\nBroadridge, a Delaware corporation and a part of the S&P 500\n\u00ae \nIndex, is a global financial technology leader providing investor communications and technology-driven solutions to banks, broker-dealers, asset and wealth managers, public companies, investors and mutual funds. Our services include investor communications, securities processing, data and analytics, and customer communications solutions. With over 60 years of experience, including over 15 years as an independent public company, we provide integrated solutions and an important infrastructure that powers the financial services industry. Our solutions enable better financial lives by powering investing, governance and communications and help reduce the need for our clients to make significant capital investments in operations infrastructure, thereby allowing them to increase their focus on core business activities. Our businesses operate in two reportable segments: Investor Communication Solutions and\u00a0Global Technology and Operations. \nACQUISITIONS\nAssets acquired and liabilities assumed in business combinations are recorded on the Company\u2019s Consolidated Balance Sheets as of the respective acquisition date based upon the estimated fair values at such date. The results of operations of the business acquired by the Company are included in the Company\u2019s Consolidated Statements of Earnings since the respective date of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed is allocated to Goodwill.\nDuring the fiscal years ended June 30, 2023 and June 30, 2022, there were no material acquisitions. \nBASIS OF PRESENTATION\nThe Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (\u201cGAAP\u201d) and in accordance with the SEC requirements for Annual Reports on Form 10-K. These financial statements present the consolidated position of the Company and include the entities in which the Company directly or indirectly has a controlling financial interest as well as various entities in which the Company has investments recorded under the equity method of accounting as well as certain marketable and non-marketable securities. Intercompany balances and transactions have been eliminated. Amounts presented may not sum due to rounding. Certain prior period amounts have been reclassified to conform to the current year presentation where applicable.\n28\nIn presenting the Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Management continually evaluates the accounting policies and estimates used to prepare the Consolidated Financial Statements. The estimates, by their nature, are based on judgment, available information, and historical experience and are believed to be reasonable. However, actual amounts and results could differ from those estimates made by management. In management\u2019s opinion, the Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of results reported. The results of operations reported for the periods presented are not necessarily indicative of the results of operations for subsequent periods.\nBeginning with the first quarter of fiscal year 2023, the Company changed reporting for segment revenues, segment earnings (loss) before income taxes, and segment amortization of acquired intangibles and purchased intellectual property to reflect the impact of actual foreign exchange rates applicable to the individual periods presented. The presentation of these metrics for the prior periods provided in this Form 10-K has been changed to conform to the current period presentation. Total consolidated revenues and earnings before income taxes were not impacted. Please refer to Note 3, \u201cRevenue Recognition\u201d and Note 21, \u201cFinancial Data by Segment\u201d to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K.\nSeasonality\nProcessing and distributing proxy materials and annual reports to investors comprises a large portion of our Investor Communication Solutions business. We process and distribute the greatest number of proxy materials and annual reports during our third and fourth fiscal quarters. The recurring periodic activity of this business is linked to significant filing deadlines imposed by law on public reporting companies. This has caused our revenues, operating income, net earnings, and cash flows from operating activities to be higher in our third and fourth fiscal quarters. The seasonality of our revenues makes it difficult to estimate future operating results based on the results of any specific fiscal quarter and could affect an investor\u2019s ability to compare our financial condition, results of operations, and cash flows on a fiscal quarter-by-quarter basis.\nCRITICAL ACCOUNTING ESTIMATES\nWe continually evaluate the accounting policies and estimates used to prepare the Consolidated Financial Statements. The estimates, by their nature, are based on judgment, available information, and historical experience and are believed to be reasonable. However, actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed below.\nGoodwill\n.\n We review the carrying value of all our Goodwill by comparing the carrying value of our reporting units to their fair values. We are required to perform this comparison at least annually or more frequently if circumstances indicate a possible impairment. When determining fair value of a reporting unit, we utilize the income approach which considers a discounted future cash flow analysis using various assumptions, including projections of revenues based on assumed long-term growth rates, estimated costs and appropriate discount rates based on the particular reporting unit\u2019s weighted-average cost of capital. The principal factors used in the discounted cash flow analysis requiring judgment are the projected future operating cash flows based on forecasted earnings before interest and taxes, and the selection of the terminal value growth rate and discount rate assumptions. The weighted-average cost of capital takes into account the relative weight of each component of our consolidated capital structure (equity and long-term debt). Our estimates of long-term growth and costs are based on historical data, various internal estimates and a variety of external sources, and are developed as part of our routine, long-range planning process. Changes in economic and operating conditions impacting these assumptions could result in goodwill impairments in future periods. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, not to exceed the total amount of Goodwill allocated to that reporting unit. We had $3,461.6 million of Goodwill as of June\u00a030, 2023. Given the significance of our Goodwill, an adverse change to the fair value of one of our reporting units could result in an impairment charge, which could be material to our earnings.\nThe Company performs a sensitivity analysis under the goodwill impairment test assuming hypothetical reductions in the fair values of our reporting units. A 10% change in our estimates of projected future operating cash flows, discount rates, or terminal value growth rates used in our calculations of the fair values of the reporting units would not result in an impairment of our Goodwill. \n29\nIncome Taxes\n.\n The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity\u2019s financial statements or tax returns. Judgment is required in addressing the future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws or interpretations thereof). The Company is subject to regular examination of its income tax returns by the U.S. federal, state and foreign tax authorities. A change in the assessment of the outcomes of such matters could materially impact our Consolidated Financial Statements. The Company has estimated foreign net operating loss carryforwards of approximately $45.1 million as of June\u00a030, 2023 of which $7.6 million are subject to expiration in the June 30, 2026 through June 30, 2042 period. The remaining $37.5 million of carryforwards has an indefinite utilization period. In addition, the Company has estimated U.S. federal net operating loss carryforwards of approximately $35.3 million of which $15.5 million are subject to expiration in the June 30, 2024 through June 30, 2037 period with the balance of $19.8 million having an indefinite utilization period. U.S. federal net operating loss carryforwards resulting from tax losses beginning with the fiscal year ended June 30, 2019 have an indefinite carryforward under the U.S. Tax Cuts and Jobs Act (the \u201cTax Act\u201d). The Company did not generate federal net operating losses for the fiscal year ended June\u00a030, 2023. \nValuation allowances are recognized to reduce deferred tax assets when it is more likely than not that the Company will not be able to utilize the deferred tax assets of certain subsidiaries to offset future taxable earnings. The Company has recorded valuation allowances of $10.3 million and $10.7 million at June\u00a030, 2023 and 2022, respectively. The determination as to whether a deferred tax asset will be recognized is made on a jurisdictional basis and is based on the evaluation of historical taxable income or loss, projected future taxable income, carryforward periods, scheduled reversals of deferred tax liabilities and tax planning strategies. Projected future taxable income is based on expected results and assumptions as to the jurisdiction in which the income will be earned. The assumptions used to project future taxable income requires significant judgment and are consistent with the plans and estimates used to manage the underlying businesses.\nShare-based Payments\n.\n Accounting for stock-based compensation requires the measurement of stock-based compensation expense based on the fair value of the award on the date of grant. We determine the fair value of stock options issued by using a binomial option-pricing model. The binomial option-pricing model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial option-pricing model are based on a combination of implied market volatilities, historical volatility of our stock price and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial option-pricing model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock option grants is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding. Determining these assumptions are subjective and complex, and therefore, a change in the assumptions utilized could impact the calculation of the fair value of our stock options. A hypothetical change of five percentage points applied to the volatility assumption used to determine the fair value of the fiscal year 2023 stock option grants would result in an approximate $3.1 million change in total pre-tax stock-based compensation expense for the fiscal year 2023 grants, which would be amortized over the vesting period. A hypothetical change of one year in the expected life assumption used to determine the fair value of the fiscal year 2023 stock option grants would result in an approximate $1.7 million change in the total pre-tax stock-based compensation expense for the fiscal year 2023 grants, which would be amortized over the vesting period. A hypothetical change of one percentage point in the forfeiture rate assumption used for the fiscal year 2023 stock option grants would result in an approximate $0.2 million change in the total pre-tax stock-based compensation expense for the fiscal year 2023 grants, which would be amortized over the vesting period. A hypothetical one-half percentage point change in the dividend yield assumption used to determine the fair value of the fiscal year 2023 stock option grants would result in an approximate $1.4\u00a0million change in the total pre-tax stock-based compensation expense for the fiscal year 2023 grants, which would be amortized over the vesting period.\n30\nKEY PERFORMANCE INDICATORS\nManagement focuses on a variety of key indicators to plan, measure and evaluate the Company\u2019s business and financial performance. These performance indicators include Revenue and Recurring revenue as well as not generally accepted accounting principles measures (\u201cNon-GAAP\u201d) of Adjusted Operating income, Adjusted Net earnings, Adjusted earnings per share, Free Cash flow, Recurring revenue growth constant currency, and Closed sales. In addition, management focuses on select operating metrics specific to Broadridge of Record Growth and Internal Trade Growth, as defined below.\nRefer to the section \u201cExplanation and Reconciliation of the Company\u2019s Use of Non-GAAP Financial Measures\u201d for a reconciliation of Adjusted Operating income, Adjusted Net earnings, Adjusted earnings per share, Free Cash flow, and Recurring revenue growth constant currency to the most directly comparable GAAP measures, and an explanation for why these Non-GAAP metrics provide useful information to investors and how management uses these Non-GAAP metrics for operational and financial decision-making. Refer to the section \u201cResults of Operations\u201d for a description of Closed sales and an explanation of why Closed sales is a useful performance metric for management and investors.\nRevenues\nRevenues are primarily generated from fees for processing and distributing investor communications and fees for technology-enabled services and solutions. The Company monitors revenue in each of our two reportable segments as a key measure of success in addressing our clients\u2019 needs. Revenues from fees are derived from both recurring and event-driven activity. The level of recurring and event-driven activity the Company processes directly impacts distribution revenues. While event-driven activity is highly repeatable, it may not recur on an annual basis. Event-driven revenues are based on the number of special events and corporate transactions the Company processes. Event-driven activity is impacted by financial market conditions and changes in regulatory compliance requirements, resulting in fluctuations in the timing and levels of event-driven revenues. Distribution revenues primarily include revenues related to the physical mailing of proxy materials, interim communications, transaction reporting, customer communications and fulfillment services as well as Broadridge Retirement and Workplace administrative services.\nRecurring revenue growth represents the Company\u2019s total annual revenue growth, less growth from event-driven and distribution revenues. We distinguish recurring revenue growth between organic and acquired:\n\u2022\nOrganic \u2013 We define organic revenue as the recurring revenue generated from Net New Business and Internal Growth.\n\u2022\nAcquired \u2013 We define acquired revenue as the recurring revenue generated from acquired services in the first twelve months following the date of acquisition. This type of growth comes as a result of our strategy to purchase, integrate, and leverage the value of assets we acquire. \nRevenues and Recurring revenue are useful metrics for investors in understanding how management measures and evaluates the Company\u2019s ongoing operational performance. See \u201cResults of Operations\u201d as well as Note 2, \u201cSummary of Significant Accounting Policies\u201d and Note 3, \u201cRevenue Recognition\u201d to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K.\n31\nRecord Growth and Internal Trade Growth\nThe Company uses select operating metrics specific to Broadridge of Record Growth and Internal Trade Growth in evaluating its business results and identifying trends affecting its business. Record Growth is comprised of stock record growth and interim record growth.\n \nStock record growth (also referred to as \u201cSRG\u201d or \u201cequity position growth\u201d) measures the estimated annual change in positions eligible for equity proxy materials.\n \nInterim record growth (also referred to as \u201cIRG\u201d or \u201cmutual fund/ETF position growth\u201d) measures the estimated change in mutual fund and exchange traded fund positions eligible for interim communications. These metrics are calculated from equity proxy and mutual fund/ETF position data reported to Broadridge for the same issuers or funds in both the current and prior year periods. \nInternal Trade Growth represents the estimated change in daily average trade volumes for Broadridge securities processing clients whose contracts are linked to trade volumes and who were on Broadridge\u2019s trading platforms in both the current and prior year periods. Record Growth and Internal Trade Growth are useful non-financial metrics for investors in understanding how management measures and evaluates Broadridge\u2019s ongoing operational performance within its Investor Communication Solutions and Global Technology and Operations reportable segments, respectively.\nThe key performance indicators for the fiscal years ended June\u00a030, 2023, and 2022, are as follows:\nSelect Operating Metrics\nYears Ended June 30,\n2023\n2022\nRecord Growth\n\u00a0\u00a0\u00a0Equity positions (Stock records)\n9\u00a0\n%\n18\u00a0\n%\n\u00a0\u00a0\u00a0Mutual fund / ETF positions (Interim records)\n8\u00a0\n%\n14\u00a0\n%\nInternal Trade Growth\n4\u00a0\n%\n1\u00a0\n%\n \nRESULTS OF OPERATIONS\nThe following discussions of Analysis of Consolidated Statements of Earnings and Analysis of Reportable Segments refer to the fiscal year ended June\u00a030, 2023 compared to the fiscal year ended June\u00a030, 2022. The Analysis of Consolidated Statements of Earnings should be read in conjunction with the Analysis of Reportable Segments, which provides a more detailed discussion concerning certain components of the Consolidated Statements of Earnings. Discussions of Analysis of Consolidated Statements of Earnings and Analysis of Reportable Segments for the fiscal year ended June\u00a030, 2022 compared to the fiscal year ended June\u00a030, 2021 is disclosed in Part II, \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of the 2022 Annual Report.\nThe following references are utilized in the discussions of Analysis of Consolidated Statements of Earnings and Analysis of Reportable Segments:\n\u201cAmortization of Acquired Intangibles and Purchased Intellectual Property\u201d and \u201cAcquisition and Integration Costs\u201d represent certain non-cash amortization expenses associated with acquired intangible assets and purchased intellectual property assets, as well as certain transaction and integration costs associated with the Company\u2019s acquisition activities, respectively.\n\u201cInvestment Gains\u201d represent non-operating, non-cash gains on privately held investments. \n\u201cReal Estate Realignment and Covid-19 Related Expenses\u201d are comprised of two major components: Real Estate Realignment Expenses, and Covid-19 Related Expenses. Real Estate Realignment Expenses are expenses associated with the exit of certain of the Company\u2019s leased facilities in response to the Covid-19 pandemic, which consist of the impairment of certain right of use assets, leasehold improvements and equipment, as well as other related facility exit expenses directly resulting from, and attributable to, the exit of these leased facilities. Covid-19 Related Expenses are direct and incremental expenses incurred by the Company to protect the health and safety of Broadridge associates during the Covid-19 outbreak, including expenses associated with monitoring the temperatures for associates entering our facilities, enhancing the safety of our office environment in preparation for workers to return to Company facilities on a more regular basis, ensuring proper social distancing in our production facilities, personal protective equipment, enhanced cleaning measures in our facilities, and other safety related expenses. \n32\n\u201cRestructuring Charges\u201d represent severance costs associated with the Company\u2019s initiative to streamline our management structure, reallocate work to lower cost locations, and reduce headcount in deprioritized areas.\n\u201cRussia-Related Exit Costs\u201d are direct and incremental costs associated with the Company\u2019s wind down of business activities in Russia in response to Russia\u2019s invasion of Ukraine, including relocation-related expenses of impacted associates.\n\u201cNet New Business\u201d refers to recurring revenue from Closed sales for the initial twelve-month contract period after which the client goes live with the Company\u2019s service(s), less recurring revenue from client losses. \n\u201cInternal Growth\u201d is a component of recurring revenue and generally reflects year over year changes in existing services to our existing customers\u2019 multi-year contracts beyond the initial twelve-month period in which it was included in Net New Business.\n\u201cRecurring revenue growth constant currency\u201d refers to our Recurring revenue growth presented on a constant currency basis to exclude the impact of foreign currency exchange fluctuations.\nThe following definitions describe the Company\u2019s Revenues:\nRevenues in the Investor Communication Solutions segment are derived from both recurring and event-driven activity, in addition to distribution revenues. The level of recurring and event-driven activity we process directly impacts revenues. While event-driven activity is highly repeatable, it may not recur on an annual basis. The types of services we provide that comprise event-driven activity are:\n\u2022\nMutual Fund Proxy: The proxy and related services we provide to mutual funds when certain events occur requiring a shareholder vote including changes in directors, sub-advisors, fee structures, investment restrictions, and mergers of funds.\n\u2022\nMutual Fund Communications: Mutual fund communications services consist primarily of the distribution on behalf of mutual funds of supplemental information required to be provided to the annual mutual fund prospectus as a result of certain triggering events such as a change in portfolio managers. In addition, mutual fund communications consist of notices and marketing materials such as newsletters.\n\u2022\nEquity Proxy Contests and Specials, Corporate Actions, and Other: The proxy services we provide in connection with shareholder meetings driven by special events such as proxy contests, mergers and acquisitions, and tender/exchange offers.\nEvent-driven revenues are based on the number of special events and corporate transactions we process. Event-driven activity is impacted by financial market conditions and changes in regulatory compliance requirements, resulting in fluctuations in the timing and levels of event-driven revenues. As such, the timing and level of event-driven activity and its potential impact on revenues and earnings are difficult to forecast. \nGenerally, mutual fund proxy activity has been subject to a greater level of volatility than the other components of event-driven activity. During fiscal year 2023, mutual fund proxy revenues were 51% lower than the prior fiscal year. During fiscal year 2022, mutual fund proxy revenues were 57% greater than the prior fiscal year. Although it is difficult to forecast the levels of event-driven activity, we expect that the portion of revenues derived from mutual fund proxy activity may continue to experience volatility in the future.\nDistribution revenues primarily include revenues related to the physical mailing of proxy materials, interim communications, transaction reporting, customer communications and fulfillment services, as well as Broadridge Retirement and Workplace administrative services.\nDistribution cost of revenues consists primarily of postage-related expenses incurred in connection with our Investor Communication Solutions segment, as well as Broadridge Retirement and Workplace administrative services expenses. These costs are reflected in Cost of revenues.\nClosed sales represent an estimate of the expected annual recurring revenue for new client contracts that were signed by Broadridge in the current reporting period. Closed sales does not include event-driven or distribution activity. We consider contract terms, expected client volumes or activity, knowledge of the marketplace and experience with our clients, among other factors, when determining the estimate. Management uses Closed sales to measure the effectiveness of our sales and marketing programs, as an indicator of expected future revenues and as a performance metric in determining incentive compensation. \nClosed sales is not a measure of financial performance under GAAP, and should not be considered in isolation or as a substitute for revenue or other income statement data prepared in accordance with GAAP. Closed sales is a useful metric for investors in understanding how management measures and evaluates our ongoing operational performance.\n33\nThe inherent variability of transaction volumes and activity levels can result in some variability of amounts reported as actual achieved Closed sales. Larger Closed sales can take up to 12 to 24 months or longer to convert to revenues, particularly for the services provided by our Global Technology and Operations segment. For the fiscal years ended June\u00a030, 2023 and June\u00a030, 2022, we reported Closed sales net of a 5.0% allowance adjustment. Consequently, our reported Closed sales amounts will not be adjusted for actual revenues achieved because these adjustments are estimated in the period the sale is reported. We assess this allowance amount at the end of each fiscal year to establish the appropriate allowance for the subsequent year using the trailing five years actual data as the starting point, normalized for outlying factors, if any, to enhance the accuracy of the allowance.\nFor the fiscal years ended June\u00a030, 2023 and 2022, Closed sales were $245.8 million and $279.5 million, respectively. The fiscal years ended June\u00a030, 2023 and 2022, are net of an allowance adjustment of $12.9 million and $14.8 million, respectively.\nRecent Developments\nNew SEC Rule on Tailored Shareholder Reports\nOn October 26, 2022, the SEC adopted a rule modifying mutual fund and exchange-traded fund investor communications. The SEC rule requires that shorter summary documents, referred to as tailored shareholder reports, be distributed in lieu of long-form annual and semi-annual fund reports or notices of the availability of such reports, which the SEC had permitted under Rule 30e-3. The rule went into effect on January 24, 2023 and includes an 18-month transition period for implementation by mutual funds and exchange-traded funds, with a final compliance date of July 24, 2024. We are reviewing the full impact of the new rule, however we currently estimate a reduction in our annual Recurring revenues of approximately $30 million phasing in over fiscal years 2025 and 2026, assuming no offset from new services. See the risk factor titled \u201c\nOur clients are subject to complex laws and regulations, and new laws or regulations and/or changes to existing laws or regulations could impact our clients and, in turn, adversely impact our business or may reduce our profitability.\n\u201d in Part I, Item 1A. \u201cRisk Factors\u201d in this Annual Report.  \nConflict in Ukraine\nWe are monitoring the events related to Russia\u2019s invasion of Ukraine and have been actively managing any exposure we may have through a cross-functional taskforce that includes members of our senior management. We have historically had a limited presence in Russia, and we have no presence in Ukraine. We do not store any client data in Russia. Prior to the conflict, we had approximately 280 associates in St. Petersburg, Russia who provided software development and support services for several of our GTO products, less than 2% of our total associates. As of June 30, 2023, we do not have any associates remaining in Russia. We have historically provided services to a very small number of Russian entities and subsidiaries of Russian entities. The revenues from those services represented less than 0.1% of our total revenues in fiscal year 2022 and 2023 and our outstanding accounts receivable from these entities is de minimis. We are in the process of terminating and winding down these relationships and have closed our operations in Russia. We have moved the services provided in Russia to other locations in Europe and Asia. We are monitoring and believe we are in compliance with all global sanctions arising out of Russia\u2019s invasion of Ukraine. We have taken actions to enhance our information security defenses in response to the Ukraine conflict. At present, we do not expect the Ukraine conflict and the actions we are taking in response to have a material impact on our core operations or financial results.\n \n34\nANALYSIS OF CONSOLIDATED STATEMENTS OF EARNINGS\nFiscal Year 2023 Compared to Fiscal Year 2022 \nThe table below presents Consolidated Statements of Earnings data for the fiscal years ended June\u00a030, 2023 and 2022, and the dollar and percentage changes between periods:\n\u00a0\nYears Ended June\u00a030,\n\u00a0\n2023\n2022\nChange\n\u00a0\n($)\u00a0\u00a0\u00a0\u00a0\n(%)\u00a0\u00a0\u00a0\u00a0\n\u00a0\n(in\u00a0millions,\u00a0except\u00a0for\u00a0per\u00a0share\u00a0amounts)\nRevenues\n$\n6,060.9\u00a0\n$\n5,709.1\u00a0\n$\n351.8\u00a0\n6\u00a0\n\u00a0\u00a0\nCost of revenues\n4,275.5\u00a0\n4,116.9\u00a0\n158.6\u00a0\n4\u00a0\n\u00a0\u00a0\nSelling, general and administrative expenses\n849.0\u00a0\n832.3\u00a0\n16.7\u00a0\n2\u00a0\n\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total operating expenses\n5,124.5\u00a0\n4,949.2\u00a0\n175.3\u00a0\n4\u00a0\nOperating income\n936.4\u00a0\n759.9\u00a0\n176.5\u00a0\n23\u00a0\nMargin\n15.4\u00a0\n%\n13.3\u00a0\n%\n2.1\u00a0\npts\nInterest expense, net\n(135.5)\n(84.7)\n(50.9)\n60\u00a0\nOther non-operating income (expenses), net\n(6.0)\n(3.0)\n(3.0)\n100\u00a0\nEarnings before income taxes\n794.9\u00a0\n672.2\u00a0\n122.7\u00a0\n18\u00a0\n\u00a0\u00a0\nProvision for income taxes\n164.3\u00a0\n133.1\u00a0\n31.2\u00a0\n23\u00a0\n\u00a0\u00a0\nEffective tax rate\n20.7\u00a0\n%\n19.8\u00a0\n%\n0.9\u00a0\npts\nNet earnings\n$\n630.6\u00a0\n$\n539.1\u00a0\n$\n91.4\u00a0\n17\u00a0\n\u00a0\u00a0\nBasic earnings per share\n$\n5.36\u00a0\n$\n4.62\u00a0\n$\n0.74\u00a0\n16\u00a0\n\u00a0\u00a0\nDiluted earnings per share\n$\n5.30\u00a0\n$\n4.55\u00a0\n$\n0.75\u00a0\n16\u00a0\n\u00a0\u00a0\nWeighted average shares outstanding:\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Basic\n117.7\n116.7\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Diluted\n119.0\n118.5\nRevenues\nThe table below presents Consolidated Statements of Earnings data for the fiscal years ended June\u00a030, 2023 and 2022, and the dollar and percentage changes between periods:\n\u00a0\nYears Ended June\u00a030,\n2023\n2022\nChange\n\u00a0\n$\n%\n\u00a0\n($ in\u00a0millions)\nRecurring revenues\n$\n3,986.7\u00a0\n$\n3,722.7\u00a0\n$\n264.0\u00a0\n7\u00a0\nEvent-driven revenues\n211.0\u00a0\n269.4\u00a0\n(58.3)\n(22)\nDistribution revenues\n1,863.1\u00a0\n1,717.0\u00a0\n146.2\u00a0\n9\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total\n$\n6,060.9\u00a0\n$\n5,709.1\u00a0\n$\n351.8\u00a0\n6\u00a0\nPoints of Growth\nNet New Business\nInternal Growth\nAcquisitions\nForeign Exchange\nTotal\nRecurring revenue Growth Drivers\n4pts\n4pts\n0pts\n-1pt\n7\u00a0\n%\nRevenues increased $351.8 million, or 6%, to $6,060.9 million from $5,709.1 million.\n\u2022\nRecurring revenues increased $264.0 million, or 7%, to $3,986.7 million. Recurring revenue growth constant currency (Non-GAAP) was 9%, all organic, driven by Net New Business growth and Internal Growth in both ICS and GTO.  \n35\n\u2022\nEvent-driven revenues decreased $58.3 million, or 22%, primarily due to the decrease in volume of mutual fund proxy communications.\n\u2022\nDistribution revenues increased $146.2 million, or 9%, driven by the impact of postage rate increases of $120.8 million and the impact of modestly higher mail volumes, primarily in Customer Communications Solutions.\nTotal operating expenses. \nOperating expenses increased $175.3 million, or 4%, to $5,124.5 million from $4,949.2 million primarily as a result of the increase in Cost of revenues:\n\u2022\nCost of revenues - The increase of $158.6 million in Cost of revenues primarily reflects the impact of higher postage and distribution expenses in our Investor Communication Solutions segment of $169.4 million, offset by lower acquisition amortization of $35.8 million.\n\u2022\nSelling, general and administrative expenses - The increase of $16.7 million in Selling, general, and administrative expenses primarily reflects higher compensation expenses of $21.8 million and higher technology related expenses of $4.3 million, offset by lower external labor costs. \nInterest expense, net. \nInterest expense, net, was $135.5 million, an increase of $50.9 million from $84.7 million in the fiscal year ended June\u00a030, 2022 primarily due to an increase in interest expense from higher borrowing costs.\nOther non-operating income (expenses), net. \nOther non-operating expense, net for the fiscal year ended\u00a0June\u00a030, 2023 was\u00a0$6.0 million, compared to\u00a0$3.0 million\u00a0of Other non-operating expense, net for the fiscal year ended\u00a0June\u00a030, 2022. The increased expense was primarily due to higher net gains on investments in the prior year period.\nProvision for income taxes\n. \n\u2022\nEffective tax rate for the fiscal year ended June\u00a030, 2023 - 20.7%.\n\u2022\nEffective tax rate for the fiscal year ended June\u00a030, 2022 - 19.8%.\nThe increase in the effective tax rate for the fiscal year ended June\u00a030, 2023 compared to the fiscal year ended June\u00a030, 2022 was driven by the lower excess tax benefit related to equity compensation as compared to the prior year.\nANALYSIS OF REPORTABLE SEGMENTS\nBroadridge has two reportable segments: (1)\u00a0Investor Communication Solutions and (2)\u00a0Global Technology and Operations. \nThe primary component of \u201cOther\u201d are certain gains, losses, corporate overhead expenses and non-operating expenses that have not been allocated to the reportable segments, such as interest expense. \nCertain corporate expenses, as well as certain centrally managed expenses, are allocated based upon budgeted amounts in a reasonable manner. Because the Company compensates the management of its various businesses on, among other factors, segment profit, the Company may elect to record certain segment-related operating and non-operating expense items in Other rather than reflect such items in segment profit.\nRevenues\n\u00a0\nYears Ended June\u00a030,\n2023\n2022\nChange\n$\n%\n\u00a0\n\u00a0($ in millions)\nInvestor Communication Solutions\n$\n4,535.6\u00a0\n$\n4,256.6\u00a0\n$\n279.0\u00a0\n7\u00a0\nGlobal Technology and Operations\n1,525.2\u00a0\n1,452.4\u00a0\n72.8\u00a0\n5\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total\n$\n6,060.9\u00a0\n$\n5,709.1\u00a0\n$\n351.8\u00a0\n6\u00a0\n\u00a0\n36\nEarnings Before Income Taxes\n\u00a0\nYears Ended June\u00a030,\n2023\n2022\nChange\n$\n%\n\u00a0\n\u00a0($ in millions)\nInvestor Communication Solutions\n$\n811.4\u00a0\n$\n724.7\u00a0\n$\n86.8\u00a0\n12\u00a0\nGlobal Technology and Operations\n183.9\u00a0\n139.4\u00a0\n44.5\u00a0\n32\u00a0\nOther\n(200.5)\n(191.9)\n(8.6)\n4\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total\n$\n794.9\u00a0\n$\n672.2\u00a0\n$\n122.7\u00a0\n18\u00a0\nThe amount of amortization of acquired intangibles and purchased intellectual property by segment is as follows:\n\u00a0\nYears Ended June\u00a030,\n2023\n2022\nChange\n$\n%\n\u00a0\n\u00a0($ in millions)\nInvestor Communication Solutions\n$\n55.5\u00a0\n$\n68.7\u00a0\n$\n(13.2)\n(19)\nGlobal Technology and Operations\n158.9\u00a0\n181.5\u00a0\n(22.6)\n(12)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total\n$\n214.4\u00a0\n$\n250.2\u00a0\n$\n(35.8)\n(14)\nInvestor Communication Solutions\nFiscal Year 2023 Compared to Fiscal Year 2022 \nRevenues increased $279.0 million to $4,535.6 million from $4,256.6 million, and earnings before income taxes increased $86.8 million to $811.4 million from $724.7 million.\n\u00a0\nYears Ended June\u00a030,\n2023\n2022\nChange\n$\n%\n\u00a0($ in millions)\nRevenues\nRecurring revenues\n$\n2,461.4\u00a0\n$\n2,270.3\u00a0\n$\n191.1\u00a0\n8\u00a0\nEvent-driven revenues\n211.0\u00a0\n269.4\u00a0\n(58.3)\n(22)\nDistribution revenues\n1,863.1\u00a0\n1,717.0\u00a0\n146.2\u00a0\n9\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total\n$\n4,535.6\u00a0\n$\n4,256.6\u00a0\n$\n279.0\u00a0\n7\u00a0\nEarnings before Income Taxes\nEarnings before income taxes\n$\n811.4\u00a0\n$\n724.7\u00a0\n$\n86.8\u00a0\n12\u00a0\nPre-tax Margin\n17.9\u00a0\n%\n17.0\u00a0\n%\nPoints of Growth\nNet New Business\nInternal Growth\nAcquisitions\nForeign Exchange\nTotal\nRecurring revenue Growth Drivers\n4pts\n5pts\n0pts\n0pts\n8\u00a0\n%\nFor the fiscal year ended June 30, 2023:\n\u2022\nRecurring revenues increased $191.1 million, or 8%, to $2,461.4 million. Recurring revenue growth constant currency (Non-GAAP) was 9%, all organic, driven by Internal Growth and Net New Business.\n \n37\n\u2022\nBy product line, Recurring revenue growth and Recurring revenue growth constant currency (Non-GAAP) were as follows:\n\u25e6\nRegulatory rose 6% and 7%, respectively, driven by equity position growth of 9% and mutual fund/ETF position growth of 8%; \n\u25e6\nData-Driven Fund Solutions rose 11% and 12%, respectively, driven by growth in our mutual fund trade processing business and continued growth in our data and analytics solutions;\n\u25e6\nIssuer rose 12% and 13%, respectively, driven by growth in our registered shareholder solutions and disclosure solutions; and\n\u25e6\nCustomer Communications rose 9% and 10%, respectively, driven by higher print and digital communications.  \n\u2022\nEvent-driven revenues decreased $58.3 million, or 22% primarily due to the decrease in volume of mutual fund proxy communications.\n\u2022\nDistribution revenues increased $146.2 million, or 9%, driven by the impact of postage rate increases of $120.8 million and the impact of modestly higher mail volumes, primarily in Customer Communications Solutions.\n\u2022\nEarnings before income taxes increased $86.8 million, or 12.0%. The earnings benefit from higher Recurring revenue was partially offset by lower event-driven revenues.\n \nOperating expenses rose 5%, or $192.2 million, to $3,724.2 million, primarily driven by distribution and other revenue related expenses.\n \nAmortization expense from acquired intangibles decreased by $13.2 million to $55.5 million from $68.7 million in the prior period.\n\u2022\nPre-tax margins increased by 0.9 percentage points to 17.9% from 17.0%. \nGlobal Technology and Operations\nFiscal Year 2023 Compared to Fiscal Year 2022 \nRevenues increased $72.8 million to $1,525.2 million from $1,452.4 million, and earnings before income taxes increased $44.5 million to $183.9 million from $139.4 million.\n\u00a0\nYears Ended June\u00a030,\n2023\n2022\nChange\n$\n%\n\u00a0\n\u00a0($ in millions)\nRevenues\nRecurring revenues\n$\n1,525.2\u00a0\n$\n1,452.4\u00a0\n$\n72.8\u00a0\n5\u00a0\nEarnings before Income Taxes\nEarnings before income taxes\n$\n183.9\u00a0\n$\n139.4\u00a0\n$\n44.5\u00a0\n32\u00a0\nPre-tax Margin\n12.1\u00a0\n%\n9.6\u00a0\n%\nPoints of Growth\nNet New Business\nInternal Growth\nAcquisitions\nForeign Exchange\nTotal\nRecurring revenue Growth Drivers\n4pts\n4pts\n0pts\n-3pts\n5\u00a0\n%\nFor the fiscal year ended June 30, 2023:\n\u2022\nRecurring revenues increased $72.8\u00a0million, or 5.0%, to $1,525.2\u00a0million.\n \nRecurring revenue growth constant currency (Non-GAAP) was 8%, all organic, driven by Net New Business and Internal Growth.  \n\u2022\nBy product line, Recurring revenue growth and Recurring revenue growth constant currency (Non-GAAP) were as follows: \n\u25e6\nCapital markets rose 7% and 11%, respectively, driven by a combination of Internal Growth and Net New Business; and\n\u25e6\nWealth and investment management rose 2% and 4%, respectively, primarily driven by Net New Business.\n38\n\u2022\nEarnings before income taxes increased $44.5\u00a0million, driven primarily by the $72.8 million growth in Recurring revenues, partially offset by increased labor costs. Amortization expense from acquired intangibles decreased by $22.6 million to $158.9 million in fiscal year 2023 from $181.5 million in the prior year period due to the impact of changes in foreign currency exchange rates and certain intangible assets now being fully amortized.\n\u2022\nPre-tax margins increased by 2.5 percentage points to 12.1% from 9.6%.\nOther\nLoss before income taxes was $200.5 million for the fiscal year ended June\u00a030, 2023, an increase of $8.6 million, or 4%, compared to $191.9 million for the fiscal year ended June\u00a030, 2022. The impact of a $50.9 million increase in net interest expense and higher severance costs related to the corporate restructuring initiative were partially offset by the absence of the prior year $30.5 million in Real Estate Realignment and Covid-19 related expenses and lower compensation related expenses.\nExplanation and Reconciliation of the Company\u2019s Use of Non-GAAP Financial Measures \nThe Company\u2019s results in this Annual Report on Form 10-K are presented in accordance with U.S. GAAP except where otherwise noted. In certain circumstances, Non-GAAP results have been presented. These Non-GAAP measures are Adjusted Operating income, Adjusted Operating income margin, Adjusted Net earnings, Adjusted earnings per share, Free cash flow, and Recurring revenue growth constant currency. These Non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company\u2019s reported results.\nThe Company believes our Non-GAAP financial measures help investors understand how management plans, measures and evaluates the Company\u2019s business performance. Management believes that Non-GAAP measures provide consistency in its financial reporting and facilitates investors\u2019 understanding of the Company\u2019s operating results and trends by providing an additional basis for comparison. Management uses these Non-GAAP financial measures to, among other things, evaluate our ongoing operations and for internal planning and forecasting purposes. In addition, and as a consequence of the importance of these Non-GAAP financial measures in managing our business, the Company\u2019s Compensation Committee of the Board of Directors incorporates Non-GAAP financial measures in the evaluation process for determining management compensation.\nAdjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Earnings and Adjusted Earnings Per Share\nThese Non-GAAP measures reflect Operating income, Operating income margin, Net earnings, and Diluted earnings per share, as adjusted to exclude the impact of certain costs, expenses, gains and losses and other specified items the exclusion of which management believes provides insight regarding our ongoing operating performance. Depending on the period presented, these adjusted measures exclude the impact of certain of the following items: (i) Amortization of Acquired Intangibles and Purchased Intellectual Property, (ii) Acquisition and Integration Costs, (iii) Restructuring Charges, (iv) Real Estate Realignment and Covid-19 Related Expenses, (v) Russia-Related Exit Costs, and (vi) Investment Gain. Amortization of Acquired Intangibles and Purchased Intellectual Property represents non-cash amortization expenses associated with the Company\u2019s acquisition activities. Acquisition and Integration Costs represent certain transaction and integration costs associated with the Company\u2019s acquisition activities. Restructuring Charges represent severance costs associated with the Company\u2019s initiative to streamline our management structure, reallocate work to lower cost locations, and reduce headcount in deprioritized areas. Real Estate Realignment and Covid-19 Related Expenses are comprised of two major components: Real Estate Realignment Expenses, and Covid-19 Related Expenses. Real Estate Realignment Expenses are expenses associated with the exit of certain of the Company\u2019s leased facilities in response to the Covid-19 pandemic, which consist of the impairment of certain right of use assets, leasehold improvements and equipment, as well as other related facility exit expenses directly resulting from, and attributable to, the exit of these leased facilities. Covid-19 Related Expense are direct and incremental expenses incurred by the Company to protect the health and safety of Broadridge associates during the Covid-19 outbreak, including expenses associated with monitoring the temperatures for associates entering our facilities, enhancing the safety of our office environment in preparation for workers to return to Company facilities on a more regular basis, ensuring proper social distancing in our production facilities, personal protective equipment, enhanced cleaning measures in our facilities, and other safety related expenses. Russia-Related Exit Costs are direct and incremental costs associated with the Company\u2019s wind down of business activities in Russia in response to Russia\u2019s invasion of Ukraine, including relocation-related expenses of impacted associates. Investment Gain represents a non-operating, non-cash gain on a privately held investment. \n39\nWe exclude Acquisition and Integration Costs, Restructuring Charges, Real Estate Realignment and Covid-19 Related Expenses, Russia-Related Exit Costs, and Investment Gain from our Adjusted Operating income (as applicable) and other adjusted earnings measures because excluding such information provides us with an understanding of the results from the primary operations of our business and enhances comparability across fiscal reporting periods, as these items are not reflective of our underlying operations or performance. We also exclude the impact of Amortization of Acquired Intangibles and Purchased Intellectual Property, as these non-cash amounts are significantly impacted by the timing and size of individual acquisitions and do not factor into the Company's capital allocation decisions, management compensation metrics or multi-year objectives. Furthermore, management believes that this adjustment enables better comparison of our results as Amortization of Acquired Intangibles and Purchased Intellectual Property will not recur in future periods once such intangible assets have been fully amortized. Although we exclude Amortization of Acquired Intangibles and Purchased Intellectual Property from our adjusted earnings measures, our management believes that it is important for investors to understand that these intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets.\nFree Cash Flow\nIn addition to the Non-GAAP financial measures discussed above, we provide Free cash flow information because we consider Free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated that could be used for dividends, share repurchases, strategic acquisitions, other investments, as well as debt servicing. Free cash flow is a Non-GAAP financial measure and is defined by the Company as Net cash flows provided by operating activities less Capital expenditures as well as Software purchases and capitalized internal use software.\nRecurring Revenue Growth Constant Currency\nAs a multi-national company, we are subject to variability of our reported U.S. dollar results due to changes in foreign currency exchange rates. The exclusion of the impact of foreign currency exchange fluctuations from our Recurring revenue growth, or what we refer to as amounts expressed \u201con a constant currency basis,\u201d is a Non-GAAP measure. We believe that excluding the impact of foreign currency exchange fluctuations from our Recurring revenue growth provides additional information that enables enhanced comparison to prior periods. \nChanges in Recurring revenue growth expressed on a constant currency basis are presented excluding the impact of foreign currency exchange fluctuations. To present this information, current period results for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average exchange rates in effect during the corresponding period of the comparative year, rather than at the actual average exchange rates in effect during the current fiscal year. \nReconciliation of such Non-GAAP measures to the most directly comparable GAAP measures (unaudited)\n:\u00a0\u00a0\u00a0\u00a0\n\u00a0\nYears ended June\u00a030,\n\u00a0\n2023\n2022\n\u00a0\n(in millions)\nOperating income (GAAP)\n$\n936.4\n$\n759.9\nAdjustments: \nAmortization of Acquired Intangibles and Purchased Intellectual Property\n214.4\n250.2\nAcquisition and Integration Costs\n15.8\n24.5\nRestructuring Charges\n20.4\n\u2014\u00a0\nReal Estate Realignment and Covid-19 Related Expenses (a)\n\u2014\n30.5\nRussia-Related Exit Costs (c)\n12.1\n1.4\nAdjusted Operating income (Non-GAAP)\n$\n1,199.1\n$\n1,066.4\nOperating income margin (GAAP)\n15.4\u00a0\n%\n13.3\u00a0\n%\nAdjusted Operating income margin (Non-GAAP)\n19.8\u00a0\n%\n18.7\u00a0\n%\n40\n\u00a0\nYears ended June\u00a030,\n\u00a0\n2023\n2022\n\u00a0\n(in millions)\nNet earnings (GAAP)\n$\n630.6\u00a0\n$\n539.1\u00a0\nAdjustments: \nAmortization of Acquired Intangibles and Purchased Intellectual Property\n214.4\u00a0\n250.2\u00a0\nAcquisition and Integration Costs\n15.8\u00a0\n24.5\u00a0\nRestructuring Charges\n20.4\u00a0\n\u2014\u00a0\nReal Estate Realignment and Covid-19 Related Expenses (a)\n\u2014\u00a0\n30.5\u00a0\nRussia-Related Exit Costs (c)\n10.9\u00a0\n1.4\u00a0\nInvestment Gains\n\u2014\u00a0\n(14.2)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Subtotal of adjustments\n261.6\u00a0\n292.3\u00a0\nTax impact of adjustments (d)\n(57.5)\n(65.7)\nAdjusted Net earnings (Non-GAAP)\n$\n834.6\u00a0\n$\n765.7\u00a0\n\u00a0\nYears ended June\u00a030, \n\u00a0\n2023\n2022\n\u00a0\nDiluted earnings per share (GAAP)\n$\n5.30\u00a0\n$\n4.55\u00a0\nAdjustments:\nAmortization of Acquired Intangibles and Purchased Intellectual Property\n1.80\u00a0\n2.11\u00a0\nAcquisition and Integration Costs\n0.13\u00a0\n0.21\u00a0\nRestructuring Charges\n0.17\u00a0\n\u2014\u00a0\nReal Estate Realignment and Covid-19 Related Expenses (b)\n\u2014\u00a0\n0.26\u00a0\nRussia-Related Exit Costs\n0.09\u00a0\n0.01\u00a0\nInvestment Gains\n\u2014\u00a0\n(0.12)\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Subtotal of adjustments\n2.20\u00a0\n2.47\u00a0\nTax impact of adjustments (d)\n(0.48)\n(0.55)\nAdjusted earnings per share (Non-GAAP)\n$\n7.01\u00a0\n$\n6.46\u00a0\n_________\n(a)\nReal Estate Realignment Expenses and Covid-19 Related Expenses were $23.0 million and $7.5 million for the fiscal year ended June 30, 2022, respectively.\n(b)\nReal Estate Realignment Expenses and Covid-19 Expenses impacted Adjusted earnings per share by $0.19 and $0.06 for the fiscal year ended June 30, 2022, respectively.\n(c)\nRussia-Related Exit Costs were $10.9 million and $1.4 million for the fiscal years ended June 30, 2023 and June 30, 2022, comprised of $12.1 million of operating expenses, offset by a gain of $1.2 million in non-operating income for the fiscal year ended June 30, 2023, and $1.4 million of operating expenses for the fiscal year ended June 30, 2022. \n(d)\nCalculated using the GAAP effective tax rate, adjusted to exclude $10.4 million of excess tax benefits (\u201cETB\u201d) associated with stock-based compensation for the fiscal year ended June\u00a030, 2023, and $18.1 million of ETB associated with stock-based compensation for the fiscal year ended June\u00a030, 2022. For purposes of calculating the Adjusted earnings per share, the same adjustments were made on a per share basis.\n41\n\u00a0\nYears ended June\u00a030,\n\u00a0\n2023\n2022\n\u00a0\n(in millions)\nNet cash flows provided by operating activities (GAAP)\n$\n823.3\u00a0\n$\n443.5\u00a0\nCapital expenditures and Software purchases and capitalized internal use software\n(75.2)\n(73.1)\nFree cash flow (Non-GAAP)\n$\n748.2\u00a0\n$\n370.4\u00a0\nYear Ended June 30, 2023\n\u00a0\nInvestor Communication Solutions\nRegulatory\nData-Driven Fund Solutions\nIssuer\nCustomer Communications\n\u00a0\nTotal\nRecurring revenue growth (GAAP)\n6\u00a0\n%\n11\u00a0\n%\n12\u00a0\n%\n9\u00a0\n%\n8\u00a0\n%\nImpact of foreign currency exchange\n\u2014\u00a0\n%\n1\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\nRecurring revenue growth constant currency (Non-GAAP)\n7\u00a0\n%\n12\u00a0\n%\n13\u00a0\n%\n10\u00a0\n%\n9\u00a0\n%\nYear Ended June 30, 2023\n\u00a0\nGlobal Technology and Operations\nCapital Markets\nWealth and Investment Management\nTotal\nRecurring revenue growth (GAAP)\n7\u00a0\n%\n2\u00a0\n%\n5\u00a0\n%\nImpact of foreign currency exchange\n4\u00a0\n%\n2\u00a0\n%\n3\u00a0\n%\nRecurring revenue growth constant currency (Non-GAAP)\n11\u00a0\n%\n4\u00a0\n%\n8\u00a0\n%\nYear Ended June 30, 2023\nConsolidated\nTotal\nRecurring revenue growth (GAAP)\n7\u00a0\n%\nImpact of foreign currency exchange\n1\u00a0\n%\nRecurring revenue growth constant currency (Non-GAAP)\n9\u00a0\n%\n42\nFINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES\nCash and cash equivalents consisted of the following:\n\u00a0\nJune 30,\n\u00a0\n2023\n2022\n\u00a0\n(in millions)\nCash and cash equivalents:\nDomestic cash\n$\n46.1\u00a0\n$\n43.4\u00a0\nCash held by foreign subsidiaries\n141.7\u00a0\n114.3\u00a0\nCash held by regulated entities\n64.5\u00a0\n67.0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0Total cash and cash equivalents\n$\n252.3\u00a0\n$\n224.7\u00a0\nAt June\u00a030, 2023 and 2022, Cash and cash equivalents were $252.3 million and $224.7 million, respectively. Total stockholders\u2019 equity was $2,240.6 million and $1,919.1 million at June\u00a030, 2023 and 2022, respectively. At the current time, and in future periods, we expect cash generated by our operations, together with existing cash, cash equivalents, and borrowings from the capital markets, to be sufficient to cover cash needs for working capital, capital expenditures, strategic acquisitions, dividends and common stock repurchases. \nWe expect existing domestic cash, cash equivalents, cash flows from operations and borrowing capacity to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as regular quarterly dividends, debt repayment schedules, and material capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. In addition, we expect existing foreign cash, cash equivalents, cash flows from operations and borrowing capacity to continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. If these funds are needed for our operations in the U.S., we may be required to pay additional foreign taxes to repatriate these funds. However, while we may do so at a future date, the Company does not need to repatriate future foreign earnings to fund U.S. operations.\n43\nOutstanding borrowings and available capacity under the Company\u2019s borrowing arrangements were as follows:\nExpiration\nDate\nPrincipal amount outstanding at June 30, 2023\nCarrying value at June 30, 2023\nCarrying value at June 30, 2022\nUnused\nAvailable\nCapacity\n\u00a0Fair Value at June 30, 2023\n(in millions)\nCurrent portion of long-term debt\nFiscal 2021 Term Loans (a)\nMay 2024\n$\n1,180.0\u00a0\n$\n1,178.5\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n1,180.0\u00a0\nTotal \n$\n1,180.0\u00a0\n$\n1,178.5\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n1,180.0\u00a0\nLong-term debt, excluding current portion\nFiscal 2021 Revolving Credit Facility:\nU.S. dollar tranche\nApril 2026\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n25.0\u00a0\n$\n1,100.0\u00a0\n$\n\u2014\u00a0\nMulticurrency tranche\nApril 2026\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n400.0\u00a0\n\u2014\u00a0\nTotal Revolving Credit Facility\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n25.0\u00a0\n$\n1,500.0\u00a0\n$\n\u2014\u00a0\nFiscal 2021 Term Loans (a)\nMay 2024\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n1,535.8\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\nFiscal 2016 Senior Notes\nJune 2026\n$\n500.0\u00a0\n$\n498.0\u00a0\n$\n497.4\u00a0\n$\n\u2014\u00a0\n$\n471.4\u00a0\nFiscal 2020 Senior Notes\nDecember 2029\n750.0\u00a0\n744.3\u00a0\n743.4\u00a0\n\u2014\u00a0\n641.0\u00a0\nFiscal 2021 Senior Notes\nMay 2031\n1,000.0\u00a0\n992.5\u00a0\n991.5\u00a0\n\u2014\u00a0\n817.4\u00a0\nTotal Senior Notes\n$\n2,250.0\u00a0\n$\n2,234.7\u00a0\n$\n2,232.3\u00a0\n$\n\u2014\u00a0\n$\n1,929.8\u00a0\nTotal long-term debt\n$\n2,250.0\u00a0\n$\n2,234.7\u00a0\n$\n3,793.0\u00a0\n$\n1,500.0\u00a0\n$\n1,929.8\u00a0\nTotal debt\n$\n3,430.0\u00a0\n$\n3,413.3\u00a0\n$\n3,793.0\u00a0\n$\n1,500.0\u00a0\n$\n3,109.8\u00a0\n_________\n(a)\nThe Fiscal 2021 Term Loans were reclassified from Long-term debt to Current portion of long-term debt in May 2023 to reflect the remaining maturity of less than a year.\nFuture principal payments on the Company\u2019s outstanding debt are as follows:\nYears ending June 30,\n2024\n2025\n2026\n2027\n2028\nThereafter\nTotal\n(in millions)\n$\n1,180.0\u00a0\n$\n\u2014\u00a0\n$\n500.0\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n1,750.0\u00a0\n$\n3,430.0\u00a0\nThe Company has a $1.5 billion five-year revolving credit facility (as amended on December 23, 2021 and May 23, 2023, the \u201cFiscal 2021 Revolving Credit Facility\u201d), which is comprised of a $1.1 billion U.S. dollar tranche and a $400.0 million multicurrency tranche. Under the Fiscal 2021 Revolving Credit Facility, revolving loans denominated in U.S. Dollars, Canadian Dollars, Euro, Swedish Kronor, and Yen initially bear interest at Adjusted Term SOFR, CDOR, EURIBOR, TIBOR and STIBOR, respectively, plus 1.200% (subject to step-ups to 1.275% and step-downs to 0.905% based on public debt ratings) and revolving loans denominated in Sterling bears interest at SONIA plus 1.1326% per annum (subject to step-ups to 1.2076% and step-downs to 0.8376% based on ratings). The Fiscal 2021 Revolving Credit Facility also has an annual facility fee equal to 15.0 basis points on the entire facility (subject to step-ups to 20.0 basis points and step-downs to 7.0 basis points based on ratings). On May 23, 2023, we amended the interest rate index from LIBOR to Adjusted SOFR. All other terms remained unchanged.\n44\nIn March 2021, the Company entered into a term credit agreement (as amended on December 23, 2021 and May 23, 2023, \u201cTerm Credit Agreement\u201d), providing for term loan commitments in an aggregate principal amount of $2.55 billion, comprised of a $1.0 billion tranche (\u201cTranche 1\u201d) and a $1.55 billion tranche (\u201cTranche 2,\u201d together with Tranche 1, the \u201cFiscal 2021 Term Loans\u201d). The Tranche 1 Loans were repaid in full in May 2021.\n \nThe Tranche 2 Loans will mature in May 2024 on the third anniversary of the Funding Date. The proceeds of the Fiscal 2021 Term Loans were used by the Company to solely finance the Itiviti acquisition and pay certain fees and expenses in connection therewith.\n \nInterest on the outstanding portion of the Fiscal 2021 Term Loans bears interest at Adjusted Term SOFR plus 1.100% per annum (subject to step-ups to Adjusted Term SOFR plus 1.350% or a step-down to SOFR plus 0.850% based on ratings). On May 23, 2023, we amended the interest rate index from LIBOR to Adjusted SOFR. All other terms remained unchanged.\nIn June 2016, the Company completed an offering of $500.0 million in aggregate principal amount of senior notes (the \u201cFiscal 2016 Senior Notes\u201d). Interest on the Fiscal 2016 Senior Notes is payable semiannually on June 27 and December 27\n \nof each year based on a fixed per annum rate equal to 3.40%. In December 2019, the Company completed an offering of $750.0 million in aggregate principal amount of senior notes (the \u201cFiscal 2020 Senior Notes\u201d). Interest on the Fiscal 2020 Senior Notes is payable semiannually on June 1 and December 1 of each year based on a fixed per annum rate equal to 2.90%.\n \nIn May 2021, the Company completed an offering of $1 billion in aggregate principal amount of senior notes (the \u201cFiscal 2021 Senior Notes\u201d). Interest on the Fiscal 2021 Senior Notes is payable semi-annually in arrears on May 1 and November 1 of each year based on a fixed per annum rate equal to 2.60%.\nThe Fiscal 2021 Revolving Credit Facility, Fiscal 2021 Term Loans, Fiscal 2016 Senior Notes, Fiscal 2020 Senior Notes and Fiscal 2021 Senior Notes are senior unsecured obligations of the Company and are ranked equally in right of payment.\nPlease refer to Note 14, \u201cBorrowings\u201d to our Consolidated Financial Statements under Item\u00a08 of Part II of this Annual Report on Form 10-K for a more detailed discussion.\nCash Flows\nFiscal Year 2023 Compared to Fiscal Year 2022 \n\u00a0\nYears Ended June\u00a030,\n\u00a0\n2023\n2022\n$ Change\n\u00a0\n(in\u00a0millions)\n\u00a0\nNet cash flows provided by operating activities\n$\n823.3\u00a0\n$\n443.5\u00a0\n$\n379.9\u00a0\nNet cash flows used in investing activities\n(80.4)\n(110.4)\n30.0\u00a0\nNet cash flows used in financing activities\n(714.7)\n(370.8)\n(344.0)\nEffect of exchange rate changes on Cash and cash equivalents\n(0.6)\n(12.2)\n11.6\u00a0\nNet change in Cash and cash equivalents\n$\n27.6\u00a0\n$\n(49.9)\n$\n77.5\u00a0\nFree cash flow:\nNet cash flows provided by operating activities (GAAP)\n$\n823.3\u00a0\n$\n443.5\u00a0\n$\n379.9\u00a0\nCapital expenditures and Software purchases and capitalized internal use software\n(75.2)\n(73.1)\n(2.1)\nFree cash flow (Non-GAAP)\n$\n748.2\u00a0\n$\n370.4\u00a0\n$\n377.8\u00a0\nThe increase in cash provided by operating activities of $379.9 million was primarily due to an increase in advance client billings as well as a decrease in client-related platform implementation and development, partially offset by higher cash used in working capital. \nThe decrease in cash used in investing activities of $30.0 million primarily reflects lower acquisition spend in the current fiscal year compared to the prior year period.\nThe increase in cash used in financing activities of $344.0 million primarily reflects higher repayments net of borrowing. \n45\nIncome Taxes\nThe Company, headquartered in the U.S., is routinely examined by the IRS and is also routinely examined by the tax authorities in the U.S. states and foreign countries in which it conducts business. The tax years under audit examination vary by tax jurisdiction. The Company regularly considers the likelihood of assessments in each of the jurisdictions resulting from examinations. To the extent the Company determines it has potential tax assessments in particular tax jurisdictions, the Company has established tax reserves which it believes are adequate in relation to the potential assessments. Once established, reserves are adjusted when there is more information available, when an event occurs necessitating a change to the reserves or the statute of limitations for the relevant taxing authority to examine the tax position has expired. The resolution of tax matters should not have a material effect on the financial condition of the Company or on the Company\u2019s Consolidated Statements of Earnings for a particular future period.\nEmployee Benefit Plans\nThe Company sponsors a Supplemental Officer Retirement Plan (the \u201cSORP\u201d), a Supplemental Executive Retirement Plan (the \u201cSERP\u201d), an Executive Retiree Health Insurance Plan, and certain non-US benefits-related plans. Please refer to Note 17, \u201cEmployee Benefit Plans\u201d to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for a discussion on the Company\u2019s Employee Benefit Plans.\nContractual Obligations\u00a0\u00a0\u00a0\u00a0\nThe following table summarizes our contractual obligations to third parties as of June\u00a030, 2023 and the effect such obligations are expected to have on our liquidity and cash flows in future periods:\n\u00a0\nPayments Due by Period\n\u00a0\nTotal\nLess\u00a0than\u00a01\nYear\n1-3\u00a0Years\n4-5\u00a0Years\nAfter 5\nYears\n\u00a0\n\u00a0\n\u00a0\n(in\u00a0millions)\n\u00a0\n\u00a0\nDebt(1)\n$\n3,430.0\u00a0\n$\n1,180.0\u00a0\n$\n500.0\u00a0\n$\n\u2014\u00a0\n$\n1,750.0\u00a0\nInterest and facility fee on debt(2)\n464.2\u00a0\n128.4\u00a0\n134.0\u00a0\n97.3\u00a0\n104.6\u00a0\nFacility and equipment operating leases(3)\n278.2\u00a0\n46.7\u00a0\n76.0\u00a0\n62.9\u00a0\n92.6\u00a0\nPurchase obligations(4)\n564.9\u00a0\n154.5\u00a0\n257.8\u00a0\n111.7\u00a0\n41.0\u00a0\nCapital commitment to fund investment(5)\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nUncertain tax positions(6)\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTotal(7)\n$\n4,737.3\u00a0\n$\n1,509.6\u00a0\n$\n967.7\u00a0\n$\n271.9\u00a0\n$\n1,988.1\u00a0\n_________\n(1)\nThese amounts represent the principal repayments of Long-term debt and are included on our Consolidated Balance Sheets. See Note 14, \u201cBorrowings\u201d to our Consolidated Financial Statements under Item\u00a08 of Part II of this Annual Report on Form 10-K for additional information about our Borrowings and related matters. \n(2)\nIncludes estimated future interest payments on our current portion of long-term debt and interest and facility fee on the revolving credit facility. \n(3)\nWe enter into operating leases in the normal course of business relating to facilities and equipment. The majority of our lease agreements have fixed payment terms based on the passage of time. Certain facility and equipment leases require payment of maintenance, real estate taxes and related executory costs, and contain escalation provisions based on future adjustments in price indices. Our future operating lease obligations could change if we exit certain contracts and if we enter into additional operating lease agreements. See Note 8, \u201cLeases\u201d to our Consolidated Financial Statements under Item\u00a08 of Part II of this Annual Report on Form 10-K for additional information about our Leases and related matters. \n(4)\nPurchase obligations relate to payments to Kyndryl, Inc. related to the Amended IT Services Agreement (as described below) that expires in fiscal year 2027, the Private Cloud Agreement (as described below) that expires in fiscal year 2030, the AWS Cloud Agreement (as described below) that expires in fiscal year 2027, as well as other data center arrangements and software license agreements including hosted software arrangements, and software and hardware maintenance and support agreements, and certain other related arrangements. Purchase obligations also includes $14.0 million of other liabilities recorded on the Company\u2019s Consolidated Balance Sheet as of June\u00a030, 2023. \n46\n(5)\nThe Company has a future commitment to fund $0.6\u00a0million to an investee that is not included in the table above due to the uncertainty of the timing of this future payment.\n(6)\nDue to the uncertainty related to the timing of the reversal of uncertain tax positions, only uncertain tax benefits related to certain settlements have been provided in the table above. The Company is unable to make reasonably reliable estimates related to the timing of the remaining gross unrecognized tax benefit liability of \n$72.9 million \n(inclusive of interest). See Note 18, \u201cIncome Taxes\u201d to our Consolidated Financial Statements under Item\u00a08 of Part II of this Annual Report on Form 10-K for further detail.\n(7)\nCertain post-employment benefit obligations reported in our Consolidated Balance Sheets in the amount of $73.8 million as of June\u00a030, 2023 were not included in the table above due to the uncertainty of the timing of these future payments. \nData Center Agreements\nThe Company is a party to an Amended and Restated IT Services Agreement with Kyndryl, Inc. (\u201cKyndryl\u201d), an entity formed by IBM\u2019s spin-off of its managed infrastructure services business, under which Kyndryl provides certain aspects of the Company\u2019s information technology infrastructure, including supporting its mainframe, midrange, network and data center operations, as well as providing disaster recovery services. The Amended and Restated IT Services Agreement expires on June 30, 2027, however the Company may renew the agreement for up to one additional 12-month period. Fixed minimum commitments remaining under the Amended and Restated IT Services Agreement at June\u00a030, 2023 are $151.2 million through June 30, 2027, the final year of the Amended and Restated IT Services Agreement. \nThe Company is a party to an information technology agreement for private cloud services (the \u201cPrivate Cloud Agreement\u201d) under which Kyndryl operates, manages and supports the Company\u2019s private cloud global distributed platforms and products, and operates and manages certain Company networks. The Private Cloud Agreement expires on March 31, 2030. Fixed minimum commitments remaining under the Private Cloud Agreement at June\u00a030, 2023 are $154.6 million through March 31, 2030, the final year of the contract.\nThe following table summarizes the capitalized costs related to data center agreements as of June\u00a030, 2023:\n\u00a0\nAmended and Restated IT Services Agreement\nOther\nTotal\n\u00a0\n(in millions)\nCapitalized costs, beginning balance\n$\n63.0\u00a0\n$\n7.6\u00a0\n$\n70.7\u00a0\nCapitalized costs incurred\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nImpact of foreign currency exchange\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTotal capitalized costs, ending balance\n63.0\u00a0\n7.7\u00a0\n70.7\u00a0\nTotal accumulated amortization\n(49.9)\n(5.8)\n(55.7)\nNet Deferred Kyndryl Costs\n$\n13.1\u00a0\n$\n1.9\u00a0\n$\n15.0\u00a0\nCloud Services Resale Agreement\nOn December 31, 2021, the Company and Presidio Networked Solutions LLC (\u201cPresidio\u201d), a reseller of services of Amazon Web Services, Inc. and its affiliates (collectively, \u201cAWS\u201d), entered into an Order Form and AWS Private Pricing Addendum, dated December 31, 2021 (the \u201cOrder Form\u201d), to the Cloud Services Resale Agreement, dated December 15, 2017, as amended (together with the Order Form, the \u201cAWS Cloud Agreement\u201d), whereby Presidio will resell to the Company certain public cloud infrastructure and related services provided by AWS for the operation, management and support of the Company\u2019s cloud global distributed platforms and products. The AWS Cloud Agreement expires on December 31, 2026. Fixed minimum commitments remaining under the AWS Cloud Agreement at June\u00a030, 2023 are $186.5\u00a0million in the aggregate through December 31, 2026.\nInvestments\nThe Company has an equity method investment that is a variable interest in a variable interest entity. The Company is not the primary beneficiary and therefore does not consolidate the investee. The Company\u2019s potential maximum loss exposure related to its unconsolidated investment in this variable interest entity totaled $37.0 million as of June 30, 2023, which represents the carrying value of the Company's investment.\nIn addition, as of June\u00a030, 2023, the Company also has a future commitment to fund $0.6\u00a0million to one of the Company\u2019s other investees. \n47\nOther Commercial Agreements\nCertain of the Company\u2019s subsidiaries established unsecured, uncommitted lines of credit with banks. There were no outstanding borrowings under these lines of credit at June\u00a030, 2023.\nOff-balance Sheet Arrangements\nIt is not our business practice to enter into off-balance sheet arrangements. However, we are exposed to market risk from changes in foreign currency exchange rates that could impact our financial position, results of operations, and cash flows. We manage our exposure to these market risks through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. \nIn January 2022, we executed a series of cross-currency swap derivative contracts with an aggregate notional amount of EUR 880 million which are designated as net investment hedges to hedge a portion of our net investment in our subsidiaries whose functional currency is the Euro. The cross-currency swap derivative contracts are agreements to pay fixed-rate interest in Euros and receive fixed-rate interest in U.S. Dollars, thereby effectively converting a portion of our U.S. Dollar denominated fixed-rate debt into Euro denominated fixed-rate debt. The cross-currency swaps mature in May 2031 to coincide with the maturity of the Fiscal 2021 Senior Notes. Accordingly, foreign currency transaction gains or losses on the qualifying net investment hedge instruments are recorded as foreign currency translation within other comprehensive income (loss), net in the Consolidated Statements of Comprehensive Income and will remain in Accumulated other comprehensive income (loss) in the Consolidated Balance Sheets until the sale or complete liquidation of the underlying foreign subsidiary. At June 30, 2023, our position on the cross-currency swaps was an asset of $66.7 million, and is recorded as part of Other non-current assets on the Consolidated Balance Sheets with the offsetting amount recorded as part of Accumulated other comprehensive income (loss), net of tax. We have elected the spot method of accounting whereby the net interest savings from the cross-currency swaps is recognized as a reduction in interest expense in our Consolidated Statements of Earnings. \n In connection with the acquisition of Itiviti in March 2021 the Company entered into two derivative instruments designed to mitigate the Company\u2019s exposure to the impact of (i) changes in foreign exchange rates on the acquisition of Itiviti purchase consideration, and (ii) changes in interest rates on the Fiscal 2021 Senior Notes.\nIn March 2021, the Company executed a forward foreign exchange derivative instrument (\u201cForward\u201d) with an aggregate notional amount of EUR 1.955\u00a0billion. The Forward acted as an economic hedge against the impact of changes in the Euro on the Company\u2019s purchase consideration for the acquisition of Itiviti. The Company recorded changes in fair value of the Forward as part of Other non-operating income (expenses), net in the Consolidated Statement of Earnings. In May 2021, the Company settled the Forward derivative for a cumulative pre-tax gain of $66.7\u00a0million.\nIn May 2021, we settled a forward treasury lock agreement that was designated as a cash flow hedge, for a pre-tax loss of  $11.0 million, after which the final settlement loss is being amortized into Interest expense, net ratably over the ten year term of the Fiscal 2021 Senior Notes. The expected amount of the existing loss that will be amortized into earnings before income taxes within the next twelve months is approximately $1.1 million.\nIn the normal course of business, we also enter into contracts in which it makes representations and warranties that relate to the performance of our products and services. We do not expect any material losses related to such representations and warranties, or collateral arrangements.\nRecently-issued Accounting Pronouncements\nPlease refer to Note 2, \u201cSummary of Significant Accounting Policies\u201d to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for a discussion on the impact of the adoption of new accounting pronouncements. ",
+  "item7a": ">ITEM 7A.\u00a0\u00a0\u00a0\u00a0Quantitative and Qualitative Disclosures About Market Risk\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nMarket Risks\nIn the ordinary course of business, the financial position of the Company is routinely subject to certain market risks, notably the effects of changes in interest rates and foreign currency exchange rates. We manage our exposure to these market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. As a result, the Company does not anticipate any material losses from these risks. We do not use derivatives for trading purposes, to generate income or to engage in speculative activity.\n48\nInterest Rate Risk  \nAs of June 30, 2023, $1,178.5 million, or 35%, of the Company\u2019s total outstanding debt balance of $3,413.3 million is based on floating interest rates. Our $1,178.5 million in variable rate debt at June 30, 2023 consists of the outstanding portion of our Fiscal 2021 Term Loans which bears interest at Adjusted Term SOFR plus 1.100% per annum (subject to step-ups to Adjusted Term SOFR plus 1.350% or a step-down to SOFR plus 0.850% based on ratings). We have assessed our exposure to changes in interest rates by analyzing the sensitivity to our earnings of a change in market interest rates on amounts borrowed from the revolving credit facility and Fiscal 2021 Term Loans during the fiscal year ended June 30, 2023. Assuming a hypothetical increase of one hundred basis points in interest rates on our variable rate debt during the fiscal year ended June 30, 2023 and June 30, 2022, our pre-tax earnings would have decreased by approximately $18.7 million and $19.7 million, respectively; however, for both years, this would have been offset by interest earned on cash balances.\n \n \nForeign Currency Risk\nWhile the substantial majority of our business is conducted within the U.S., approximately 13% of our fiscal year 2023 revenues were earned outside of the U.S. Our operations outside of the U.S. primarily reside in Canada, Europe and India. As a result, we are exposed to foreign currency risk from changes in the value of underlying assets and liabilities of our non-U.S. dollar-denominated foreign investments and foreign currency transactions, primarily with respect to the Canadian dollar, the British pound, the Euro, the Indian Rupee and the Swedish Krona.\nWe manage our foreign currency risk primarily by incurring, to the extent practicable, operating and financing expenses in the local currency in the countries in which we operate. In addition, we executed a series of cross-currency swap derivative contracts with an aggregate notional amount of EUR 880 million which are designated as net investment hedges to hedge a portion of our net investment in our subsidiaries whose functional currency is the Euro. At June 30, 2023, the fair value of these derivatives is an asset of $66.7 million. Refer to Note 19, \u201cContractual Commitments, Contingencies, and Off-Balance Sheet Arrangements\u201d to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for additional details on our cross-currency swap derivative contracts.\nFor the fiscal year ended June 30, 2023 and June 30, 2022, a hypothetical 10% decrease in the value of the Canadian dollar, the British pound, the Euro, the Indian Rupee and the Swedish Krona versus the U.S. dollar would have resulted in a decrease in our total pre-tax earnings of approximately $15.2 million and $12.8 million, respectively. \n49",
+  "cik": "1383312",
+  "cusip6": "11133T",
+  "cusip": ["11133T953", "11133t103", "11133T903", "11133T103"],
+  "names": ["BROADRIDGE FINL SOLU", "BROADRIDGE FINL SOLUTIONS IN"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1383312/000138331223000037/0001383312-23-000037-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\nBusiness \nForward Looking Statements \nThis Annual Report on Form\u00a010-K and the documents incorporated herein by reference contain forward-looking statements within the meaning of Section\u00a027A of the Securities Act of 1933, as amended, and Section\u00a021E of the Securities Exchange Act of 1934, as amended, which are subject to the \u201csafe harbor\u201d created by those sections.  Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management.  In some cases, you can identify forward-looking statements by terms such as \u201cmay,\u201d \u201cwill,\u201d \u201cshould,\u201d \u201ccould,\u201d \u201cintend,\u201d \u201cwould,\u201d \u201cexpect,\u201d \u201cplan,\u201d \u201canticipate,\u201d \u201cbelieve,\u201d \u201cestimate,\u201d \u201cproject,\u201d \u201cpredict,\u201d \u201cpotential\u201d and similar expressions intended to identify forward-looking statements.  These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements.  We discuss many of these risks, uncertainties and other factors in this Annual Report on Form\u00a010-K in greater detail in Item 1A.\u201cRisk Factors.\u201d Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements.  Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing.  You should read this Annual Report on Form\u00a010-K in its entirety and with the understanding that our actual future results may be materially different from what we expect.  We hereby qualify our forward-looking statements by these cautionary statements.  Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. \nOverview\u00a0\u00a0\u00a0\u00a0\nWe are a designer, developer and global supplier of a broad portfolio of power semiconductors.  Our portfolio of power semiconductors includes approximately 2,600 products, and has grown significantly with the introduction of over 60 new products in the fiscal year ended June\u00a030, 2023, and over 130 and 160 new products in the fiscal year ended June\u00a030, 2022 and 2021, respectively.  Our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors, which we believe enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics.  We have an extensive patent portfolio that consists of 918 patents and 45 patent applications in the United States as of June\u00a030, 2023.  We also have a total of 980 foreign patents, which were based primarily on our research and development efforts through June\u00a030, 2023.  We differentiate ourselves by integrating our expertise in technology, design, and advanced packaging to optimize product performance and cost.  Our portfolio of products targets high-volume applications, including portable computers, graphics cards, home appliances, power tools, smart phones, battery packs, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment.\nDuring the fiscal year ended June\u00a030, 2023, we continued our diversification strategy by developing new silicon and packaging platforms to expand our serviceable available market, or SAM, and offer higher performance products.  Our metal-oxide-semiconductor field-effect transistors, or MOSFET, portfolio expanded significantly across a full range of voltage applications.  We also developed new technologies and products designed to penetrate into markets beyond our MOSFET computing base, including the consumer, communications and industrial markets, Insulated Gate Bipolar Transistors, or IGBTs for the home appliance market, as well as power ICs for next generation computing and gaming applications.   \nOur business model leverages global resources, including research and development and manufacturing in the United States and Asia.  Our sales and technical support teams are localized in several growing markets around the world.  We operate an 8-inch wafer fabrication facility located in Hillsboro, Oregon (the \"Oregon fab\"), which is critical for us to accelerate proprietary technology development, new product introduction and improve our financial performance.  We also expanded and upgraded our manufacturing capabilities at the Oregon Fab in 2023.  To meet the market demand for the more mature high volume products, we also utilize the wafer manufacturing capacity of selected third party foundries.  We utilize both in house assembly and test facilities in China as well as subcontractors for industry standard packages.\n \nWe believe our in-house packaging and testing capability provides us with a competitive advantage in proprietary packaging technology, product quality, cost and sales cycle time.\nOn March 29, 2016, we entered into a joint venture contract (the \u201cJV Agreement\u201d) with two investment funds owned by the Municipality of Chongqing (the \u201cChongqing Funds\u201d), pursuant to which the Company and the Chongqing Funds formed a joint venture, (the \u201cJV Company\u201d), for the purpose of constructing and operating a power semiconductor packaging, testing and 12-inch wafer fabrication facility in the Liangjiang New Area of Chongqing, China (the \u201cJV Transaction\u201d).\n \nAs of December 1, 2021, we owned 50.9%, and the Chongqing Funds owned 49.1%, of the equity interest in the JV Company.\n \nThe Joint Venture \n1\nwas accounted under the provisions of the consolidation guidance since we had controlling financial interest until December 1, 2021.\n \nAs of December 2, 2021, we ceased having control over the JV Company.\n \nTherefore, we deconsolidated the JV Company as of that date.\n \nSubsequently, we have accounted for its investment in the JV Company using the equity method of accounting.\n \nAs of June 30, 2023, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2%.\n \nSuch reduction reflects (i) the sale by the Company of approximately 2.1% of the outstanding JV equity interest which resulted in the deconsolidation of the JV Company, (ii) additional sale by the Company of approximately 1.1% of outstanding JV equity interest in December 2021, (iii) the adoption of an employee equity incentive plan and the issuance of additional equity interest equivalent to 3.99% of the JV Company to investors in exchange for cash in December 2021, and (iv) issuance of additional equity interest of the JV to investors in January 2022.\nWe were incorporated in Bermuda on September\u00a027, 2000 as an exempted limited liability company.  The address of our registered office is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.  The address of our U.S. office is Alpha and Omega Semiconductor Incorporated, 475 Oakmead Parkway, Sunnyvale, CA 94085.  The telephone number of our U.S. office is (408)\u00a0830-9742.  We have incorporated various wholly-owned subsidiaries in different jurisdictions.  Please refer to Exhibit 21.1 to this Form 10-K for a complete list of our subsidiaries.\nOur industry \nSemiconductors are electronic devices that perform a variety of functions, such as converting or controlling signals, processing data and delivering or managing power.  The functionality and performance of semiconductors have generally increased over time, while size and cost have generally decreased.  These advances have led to a proliferation of more complex semiconductors being used in a wide variety of consumer, computing, communications and industrial markets and have contributed to the growth of the semiconductor industry.  Regulations governing energy efficiency have accelerated this process in many applications.\nAnalog semiconductors\nThe semiconductor industry is segmented into analog and digital.  Analog semiconductors process light, sound, motion, radio waves and electrical currents and voltages.  In contrast, digital semiconductors process binary signals represented by a sequence of ones and zeros.\nAs a result of these fundamental differences, the analog semiconductor industry is distinct from the digital semiconductor industry in terms of the complexity of design and the length of product cycle.  Improper interactions between analog circuit elements can potentially render an electronic system inoperable.  Experienced engineers engaged in the design process are necessary because computer-aided design cannot fully model the behavior of analog circuitry.  Therefore, experienced analog engineers with requisite knowledge are in great demand but short supply worldwide.  In addition, analog semiconductors tend to have a longer product life cycle because original design manufacturers, or ODMs and original equipment manufacturers, or OEMs typically design the analog portions of a system to span multiple generations of products.  Once designed into an application, the analog portion is rarely modified because even small changes to the analog portion can trigger unanticipated consequences in other components, resulting in system instability.\nPower semiconductors\nPower semiconductors are a subset of the analog semiconductor sector with their own set of characteristics unique to system power architecture and function.  Power semiconductors transfer, manage and switch electricity to deliver the appropriate amount of voltage or current to a broad range of electronic systems and also protect electronic systems from damage resulting from excessive or inadvertent electrical charges.\nPower semiconductors can be either discrete devices, which typically comprise only a few transistors or diodes, or ICs, which incorporate a greater number of transistors.\u00a0 The function of power discrete devices is power delivery by switching, transferring or converting electricity.\u00a0 Power transistors comprise the largest portion of the power discrete device market.  Power ICs, sometimes referred to as power management ICs, perform power delivery and power management functions, such as controlling and regulating voltage and current and controlling power discrete devices.\nThe power semiconductor market has been driven by several key factors in recent years. The proliferation of computer and consumer electronics, such as notebooks, tablets, smart phones, flat panel displays and portable media players created the need for sophisticated power management that increases power efficiency and extends battery life.  The evolution of these products is characterized by increased functionality, thinner and smaller form factors and decreasing prices.  Our Power IC and low voltage (5V-40V) MOSFET products address these markets.  In the area of AC-DC power supplies for electronic \n2\nequipment, data centers and servers, the market is characterized by a continuous demand for energy conservation through higher efficiency, which drives the market for our medium voltage (40V-400V) and high voltage (500V-1000V) MOSFET products.  The increased application of power semiconductors to control motors in white goods and industrial applications is driving demand for Insulated Gate Bipolar Transistors, or IGBTs.  IGBTs are also being used in renewable energy and automotive applications.\nThe evolution toward smaller form factors and complex power requirements in the low voltage areas has driven further integration in power semiconductors, resulting in power ICs that incorporate the functionalities of both power management and power delivery in a single device.  Power ICs can be implemented by incorporating all necessary power functions either on one piece of silicon or multiple silicon chips encapsulated into a single device.  Additionally, advancements in semiconductor packaging technology enables increased power density and shrinking form factors.\nPower semiconductor suppliers develop and manufacture their products using various approaches which tend to fall across a wide spectrum of balancing cost savings with proprietary technology advantages.  At one end of the spectrum are integrated design manufacturers, or IDMs, which own and operate the equipment used in the manufacturing process and design and manufacture products at their in-house facilities.  IDMs exercise full control over the implementation of process technologies and have maximum flexibility in setting priorities for production and delivery schedules.  At the other end of the spectrum are completely-outsourced fabless semiconductor companies, which rely entirely on off-the-shelf technologies and processes provided by manufacturing partners.  These companies seek to reduce or eliminate fixed costs by outsourcing both product manufacturing and development of process technologies to third parties.  Our model balances between technological advancement and cost effectiveness by using a dedicated in-house technology research and development team to drive rapid new product developments, while utilizing both in-house and third-party foundry capacity for our products.  This is particularly important in the development of power semiconductor products due to the unique nature of their technology.   While digital technologies are highly standardized in leading foundries, power semiconductor technologies tend to be more unique as they seek to accommodate a wider range of voltage applications.  Accordingly, third-party foundries, which are primarily designed and established for digital technologies, may have limited capabilities when it comes to the development of new power semiconductor technologies.\nOur strategies \nAOS seeks to advance our position as a designer, developer and global supplier of a broad portfolio of power semiconductors.  We have adopted strategies that allow us to balance the development of proprietary technology at in-house fabrication and packaging facilities and also utilize the capacity and manufacturing capability of third-party foundries and subcontractors. This enables us to bring new products to market faster, and improve our financial performance in the long run.  This model also allows us to respond more quickly to our customer demands, enhances relationships with strategic customers, provides flexibility in capacity management, and enables geographic diversification of our wafer supply chain.  Our in-house manufacturing capability allows us to retain a higher level of control over the development and application of our proprietary process technology, thereby reducing certain supply chain and operational risks.  In addition, we enhanced the manufacturing capability and capacity of our Oregon Fab by investing in new equipment and expanding factory facilities, which we expect will have a positive impact on our future new product development and revenue.  We intend to continue exploring opportunities to expand our manufacturing capabilities, including acquisition of existing facilities, formation of joint ventures or partnerships with third parties or applying for government funding or grants available in the semiconductor industry. \nAlthough our largest end-market is the personal computing (\u201cPC\u201d) market, we have successfully diversified our business by expanding into other markets, including consumer, communications, and industrial markets.  While we have made progress in our diversification and expansion into additional applications, we continue to support and grow our PC business by expanding bill-of-material content, gaining market share, and acquiring new customers.\nWe plan to further expand the breadth of our product portfolio to increase our total bill-of-materials within an electronic system and to address the power requirements of additional electronic systems.  Our product portfolio currently consists of approximately 2,600 products and we have introduced over 60 new products in this past fiscal year.  We will continue to leverage our expertise to further increase our product lines, including higher performance power ICs, IGBTs and high, medium and low voltage MOSFETs, in order to broaden our addressable market and improve our margin profile.  This includes expanding our power IC portfolio with multiphase controllers and smart power stages to address advanced System on Chip (SoC) products used in personal computing, graphics cards, and gaming.\nLeverage our power semiconductor expertise to drive new technology platforms\nWe believe that the ever-increasing demand for power efficiency in power semiconductors requires expertise in and a deep understanding of the interrelationship among device physics, process technologies, design and packaging.  We also \n3\nbelieve that engineers with experience and understanding of these multiple disciplines are in great demand but short supply.  Within this context, we believe that we are well positioned to be a leader in providing total power management solutions because of our extensive pool of experienced scientists and engineers and our strong IP portfolio.  Accordingly, we intend to leverage our expertise to increase the number of power discrete technology platforms and power IC designs, including future digital power controller products that are currently under development, to expand our product offerings and deliver complete power solutions for our targeted applications.  In addition, our ability to develop new technology is enhanced by the operation of our own manufacturing facilities in Oregon and Chongqing.\nIncrease direct relationships and product penetration with OEM and ODM customers\nWe have developed direct relationships with key OEMs that are responsible for branding, designing and marketing a broad array of electronic products, as well as ODMs that have traditionally been responsible for manufacturing these products.  While OEMs typically focus design efforts on flagship products, ODMs are increasingly responsible for designing portions, or entire systems, of the products they manufacture for OEMs.  In addition, several ODMs are beginning to design, manufacture and brand their own proprietary products which are sold directly to consumers. We intend to strengthen our existing relationships and form new ones with both OEMs and ODMs by aligning our product development efforts with their product requirements, thereby increasing the number of our products used within their systems, and leveraging relationships to penetrate other products.  In addition, we are focusing our research and development efforts to respond more directly to market demand by designing and developing new products based on feedback from our customers, which also allows us to reduce time-to-market and sales cycles.\nLeverage global business model for cost-effective growth\nWe intend to continue to leverage our global resources and regional strengths.  We will continue to deploy marketing, sales and technical support teams in close proximity to our end customers.  We will further expand and align our technical marketing and application support teams along with our sales team to better understand and address the needs of end customers and end-market applications, in particular for those with the new technology platforms developed in this past year and in the future.  This will assist us in identifying and defining new technology trends and products and to help us gain additional design wins.  While we no longer retain a controlling interest in the JV Company, we continue our strong relationship with the JV Company to support our manufacturing capacity.  Also, we entered into an agreement with the JV Company, pursuant to which the JV Company agrees to provide us with a monthly wafer production capacity guarantee, subject to future increase when the JV Company\u2019s production capacity reaches certain specified levels.  In addition, we continue to seek potential partners and collaborators to develop new technologies and products, as well as to explore other strategic transactions that will enable us to expand our manufacturing capacity and establish a global footprint.   \nOur products\u00a0\u00a0\u00a0\u00a0\nWe have created a broad product portfolio consisting of two major categories: power discretes and power ICs that serve the large and diverse analog market for power semiconductors.\nOur power discrete products consist of low, medium and high voltage power MOSFETs.  Our low voltage MOSFET series is based on our proprietary silicon and package technologies, with deep application know-how in various markets.  We have precisely defined technology platforms to address different requirements from various applications.  Our medium voltage MOSFETs provide optimized performance with high efficiency, high robustness and high reliability, and are widely used in applications such as TV backlighting, telecom power supplies, and industrial applications.  We expanded our high voltage 600V and 700V MOSFET portfolio based on our aMOS5 technology platform in order to address demanding consumer and industrial applications.  Our high-voltage portfolio includes our proprietary insulated-gate bipolar transistor (\"IGBT\") technology, which we provide highly robust and easy-to-use solutions for industrial motor control and white goods applications.  We have also deployed our 1200V SiC (Silicon carbide) products based on our AlphaSiC platform, designed to address high efficiency, high density industrial applications such as solar inverters, UPS, and battery management systems.\nOur power ICs deliver power as well as control and regulate the power management variables, such as the flow of current and level of voltage.  Our DrMOS family of products continue to grow as we paired our latest high performance MOSFET silicon with our latest Driver IC technologies.  We continue to expand our EZBuck power IC family with products that feature lower on-resistance, less power consumption, smaller footprint and thermally enhanced packages.  While we derive the majority of our revenue from the sale of power discrete products, sale of power ICs continued to gain traction during the past years.  Our Type C smart load switch product line has also expanded as it offers reverse blocking capability, designed to protect applications against high voltage exposure.\n4\nThe following table lists our product families and the principal end uses of our products:\n\u00a0\nProduct Family\nDescription\nProduct Categories\nwithin Product Type\nTypical Application\nPower\u00a0Discretes\nLow on-resistance switch used for routing current and switching voltages in power control circuits\nHigh power switches used for power circuits\nDC-DC for CPU/GPU\nDC-AC conversion\nAC-DC conversion\nLoad switching\nMotor control\nBattery protection\nPower factor correction\nSmart phone chargers, battery packs, notebooks, desktop and servers, data centers, base stations, graphics card, game boxes, TVs, AC adapters, power supplies, motor control, power tools, E-vehicles, white goods and industrial motor drives, UPS systems,  solar inverters and industrial welding\nPower\u00a0ICs\nIntegrated devices used for power management and power delivery\nDC-DC Buck conversion\nDC-DC Boost conversion\nSmart load switching                                                                                                      DrMOS power stage\nFlat panel displays, TVs, Notebooks, graphic cards, servers, DVD/Blu-Ray players, set-top boxes, and networking equipment\nAnalog power devices used for circuit protection and signal switching\nTransient voltage protection\nAnalog switch\nElectromagnetic interference filter\nNotebooks, desktop PCs, tablets, flat panel displays, TVs, smart phones, and portable electronic devices\nPower discrete products\nPower discretes are used across a wide voltage and current spectrum, requiring high efficiency and reliability under harsh conditions.  Due to the diverse nature of end-market applications, we market both general purpose MOSFETs that are used in multiple applications as well as application specific MOSFETs.\nOur current power discrete product line includes industry standard trench MOSFETs, SRFETs, XSFET, electrostatic discharge, protected MOSFETs, high and mid-voltage MOSFETs and IGBTs.\nPower IC products\nIn addition to the traditional monolithic or single chip design, we employ a multi-chip approach for the majority of our power ICs.  This multi-chip technique leverages our proprietary MOSFET and advanced packaging technologies to offer integrated solutions to our customers.  This allows us to update product portfolios by interchanging only the MOSFETs without changing the power management IC, thereby reducing the time required for new product introduction and providing optimal solutions to our customers.  We believe that our power IC products improve our competitive position by enabling us to provide higher power density solutions to our end customers than some of our competitors.\nThe incorporation of both power delivery and power management functions tends to make power ICs more application specific because these two functions have to be properly matched to a particular end product.  We have local technical marketing and applications engineers who closely collaborate with our end customers to help ensure that power IC specifications are properly defined at the beginning of the design stage.\nNew Product Introduction\nWe introduced several new products based on our proprietary technology platform and continue to expand our product families.  \nDuring the fourth quarter of fiscal year of 2023, we released the 600V \u03b1MOS7\u2122 Super Junction MOSFETs Family. These devices are designed to meet the high efficiency and high-density needs of servers, workstations, telecom rectifiers, solar Inverters, EV charging, motor drives and industrial power applications.           \nDuring the third quarter of fiscal year of 2023, we introduced a powerful duo of sink and source switches that can increase the power delivery capability of USB Type-C ports to 140W, paving the way for Type C extended power range (EPR) \n5\nimplementations.  The AOZ13937DI is suited for 28V Type C sinking applications while the AOZ15333DI is capable of Type C sourcing applications.  These new switches are suited for 28V Type C EPR implementations in high-performance laptops, personal computers, monitors, docking, and other applications.  Also, we introduced an extension to our active bridge driver, AlphaZBL\u2122 family.  The new device in this family is suitable for use in adapters for high-end laptops and televisions, as well as power supplies for Desktops, Game consoles, and Servers. \nDuring the second quarter of fiscal year of 2023, we introduced our new industry-leading 650V and 750V SiC MOSFET platform for both industrial and automotive applications. The 650V SiC MOSFETs are ideal switching solutions for industrial applications such as solar inverters, motor drives, industrial power supplies, and new energy storage systems, while the AEC-Q101 qualified 750V SiC MOSFET line is targeted for the high-reliability needs in electric vehicle (EV) systems such as the on-board charger (OBC) and the main traction inverter.  Also, we introduced an extension to our compact Smart Motor Module (SMM) family.  Available in an ultra-compact, thermally enhanced 3mm x 3mm QFN-18L package, the highly integrated AOZ9530QV SMM is a half-bridge power stage with a slew of features and protections that simplify motor drive designs. The AOZ9530QV SMM is suitable for use in a large number of BLDC fan applications ranging from PC and server fans, seat cooling and home appliances.  In addition, we released AONS30300, a 30V MOSFET with low on-resistance.  The AONS30300 features a high Safe Operating Area (SOA) capability making it ideally suited for demanding applications such as hot swap and eFuse.   \nDistributors and customers \u00a0\u00a0\u00a0\u00a0\nWe have established direct relationships with key OEMs, including Dell Inc., Hewlett-Packard Company, Samsung Group, and Stanley Black & Decker, Inc., most of whom we serve through our distributors and ODMs.  In addition, based on our historical design win activities, our power semiconductors are also incorporated into products sold to many other leading OEMs. \nThrough our distributors, we provide products to ODMs who traditionally are contract manufacturers for OEMs.  As the industry has evolved, ODMs are increasingly responsible for designing portions, or entire systems, of the products they manufacture for the OEMs.  In addition, several ODMs are beginning to design, manufacture and brand their own proprietary products, which they sell directly to consumers.  Our ODM customers include Compal Electronics, Inc., Foxconn, Quanta Computer Incorporated, Wistron Corporation and Delta Electronics.  \nIn order to take advantage of the expertise of end-customer fulfillment logistics and shorter payment cycles, we sell most of our products through distributors.  In general, under our agreements with distributors, they have limited rights to return unsold merchandise, subject to time and volume limitations.  As of June\u00a030, 2023, 2022 and 2021, our two largest distributors were WPG Holdings Limited, or WPG, and Promate Electronic Co. Ltd., or Promate.  Sales to WPG and Promate accounted for 35.6% and 21.6% of our revenue, respectively, for the fiscal year ended June\u00a030, 2023, 39.7% and 24.6% of our revenue, respectively, for the fiscal year ended June\u00a030, 2022, and 35.4% and 28.7% of our revenue, respectively, for fiscal year ended June\u00a030, 2021, respectively.\nSales and marketing\u00a0\u00a0\u00a0\u00a0\nOur marketing division is responsible for identifying high growth markets and applications where we believe our technology can be effectively deployed.  We believe that the technical background of our marketing team, including application engineers, helps us better define new products and identify potential end customers and geographic and product market opportunities.  For example, as part of our market diversification strategy, we have deployed and plan to recruit more, field application engineers, or FAEs, for our new product offerings, who provide real-time and local response to our end customers' needs.  FAEs work with our end customers to understand their requirements and resolve technical problems.  FAEs also strive to anticipate future customer needs and facilitate the design-in of our products into the end products of our customers.  We believe this strategy increases our share of revenue opportunities within the applications we currently serve, as well as in new end-market applications.\nOur sales team consists of sales personnel, field application engineers, customer service representatives and customer quality engineers who are responsible for key accounts.  We strategically position our team near our end customers through our offices in Taipei, Hong Kong, Shenzhen, Shanghai, Qingdao, SuZhou, Tokyo, Seoul, Heilbronn, and Sunnyvale, California, complemented by our applications centers in Sunnyvale and Shanghai.  In addition, our distributors and sales representatives assist us in our sales and marketing efforts by identifying potential customers, creating additional demand and promoting our products, in which case we may pay a sales commission.\nOur sales cycle varies depending on the types of products and can range from six to eighteen months.\u00a0 In general, our traditional power discrete products in PC and TV applications progress more rapidly through the customer's design and marketing processes, and therefore they generally have a shorter sales cycle.\u00a0 In contrast, our newer Power IC and IGBT \n6\nproducts, used mostly in the power supply, home appliance and industrial applications, require a more extended design and marketing timeline and thus have a longer sales cycle.\u00a0 Typically, our sales cycle for all products comprises the following steps:\n\u2022\nidentification of a customer design opportunity;\n\u2022\nqualification of the design opportunity by our FAEs through comparison of the power requirements against our product portfolio;\n\u2022\ndelivery of a product sample to the end customer to be included in the customer's pre-production model with the goal of being included in the final bill of materials; and\n\u2022\nplacement by the customer, or through its distributor, of a full production order as the end customer transitions to full volume production.\nCompetition\n\u00a0\u00a0\u00a0\u00a0\nThe power semiconductor industry is characterized by fragmentation with many competitors.  We compete with different power semiconductor suppliers, depending on the type of product lines and geographical area.  Our key competitors in power discretes and power ICs are primarily headquartered in the United States, Japan, Europe, China and Taiwan.  Our major competitors in power discretes include Infineon Technologies AG, ON Semiconductor Corp., STMicroelectronics N.V., Toshiba Corporation, Diodes Incorporated and Vishay Intertechnology, Inc.  Our major competitors for our power ICs include Monolithic Power Systems, Inc., ON Semiconductor Corp., Richtek Technology Corp., Semtech Corporation, Texas Instruments Inc. and Vishay Intertechnology, Inc.\nOur ability to compete depends on a number of factors, including:\n\u2022\nsuccess in expanding and diversifying our serviceable markets, and our ability to develop technologies and product solutions for these markets;\n\u2022\ncapability to quickly develop and introduce proprietary technology and best-in-class products;\n\u2022\nperformance and cost-effectiveness of our products relative to that of our competitors;\n\u2022\nability and capacity to manufacture, package and deliver products in large volume on a timely basis at a competitive price;\n\u2022\nsuccess in utilizing new and proprietary technologies to offer products and features previously not available in the marketplace;\n\u2022\nability to recruit and retain analog semiconductor designers and application engineers; and\n\u2022\nability to protect our intellectual property.\nSome of our competitors have longer operating histories, more brand recognition, and significantly greater financial, technical, research and development, sales and marketing, manufacturing and other resources.  However, we believe that we can compete effectively through our integrated and innovative technology platform and design capabilities, including our strong and extensive patent portfolio, strategic global business model, expanding suites of new products, diversified and broad customer base, and excellent on-the-ground support and quick time to market for our products.\n\u00a0\nSeasonality\nAs we provide power semiconductors used in consumer electronic products, our business is subject to seasonality.\n \nOur sales seasonality is affected by a number of factors, including global and regional economic conditions as well as the PC market condition, revenue generated from new products, changes in distributor ordering patterns in response to channel inventory adjustments and end customer demand for our products\n \nand fluctuations in consumer purchase patterns prior to major holiday seasons.\n \n \nBacklog\nOur sales are made primarily pursuant to standard purchase orders from distributors and direct customers.  The amount of backlog to be shipped during any period depends on different factors, and all orders are subject to cancellation or modification, \n7\nusually with no penalty to customers.  The quantities actually purchased by customers, as well as shipment schedules, are frequently revised to reflect changes in both the customers\u2019 requirements and in manufacturing availability.  Therefore, our backlog at any point in time is not a reliable indicator of our future revenue. \nResearch and development\u00a0\u00a0\u00a0\u00a0\nWe view technology as a competitive advantage, and we invest significant time and capital in research and development to address the technology-intensive needs of our end customers.  Our research and development expenditures for the fiscal years of 2023, 2022 and 2021 were $88.1 million, $71.3 million and $63.0 million, respectively.  Our research and development expenditures primarily consist of salaries, bonuses, benefits, share-based compensation expense, expenses associated with new product prototypes, travel expenses, fees for engineering services provided by outside contractors and consultants, amortization of software and design tools, depreciation of equipment and overhead costs.  We continue to invest in developing new technologies and products utilizing our own fabrication and packaging facilities as it is critical to our long-term success.  We also evaluate appropriate investment levels and stay focused on new product introductions to improve our competitiveness.  We have research and development teams in Silicon Valley (Sunnyvale, California), Oregon, Texas, Arizona, Korea, Taiwan, and China.  We believe that these diverse research and development teams enable us to develop leading edge technology platforms and new products.  Our areas of research and development focus include:\nPackaging technologies\n: Consumer demand for smaller and more compact electronic devices with higher power density is driving the need for advanced packaging technology.  Our group of dedicated packaging engineers focuses on smaller form factors, and higher power output with efficient heat dissipation and cost-effectiveness.  We have invested resources in developing and enhancing our proprietary packaging technologies, including the establishment of our in-house packaging and testing facilities.  Our efforts to develop innovative packaging technologies continues to provide new and cost-effective solutions with higher power density to our customers.  During the fiscal year ended June\u00a030, 2023, we continued our diversification strategies by developing new silicon and packaging platforms to expand our SAM and offer higher performance products.\nProcess technology and device physics:\n We focus on specialized process technology in the manufacturing of our products, including vertical DMOS, Shielded Gate Trench, Trench field stop IGBTs, charge-balance high voltage MOSFETs, Schottky Diode and BCDMOS processes.\n \nOur process engineers work closely with our design team to deploy and implement our proprietary manufacturing processes at our Oregon Fab, the Chongqing Fab as well as the third-party foundries that fabricate our wafers.\n \nTo improve our process technology, we continue to develop and enhance our expertise in device physics in order to better understand the physical characteristics of materials and the interactions among these materials during the manufacturing process.\nNew products and new technology platforms:\n We invest significantly in the development of new technology platforms and introduction of new products.  Because power management affects all electronic systems, we believe that developing a wide portfolio of products enables us to target new applications in addition to expanding our share of power management needs  within existing applications.\n As a technology company, we will continue our significant investment in research and development in our low voltage, medium voltage, and high voltage power discretes, IGBT and power modules and power ICs by developing new technology platforms and new products that allow for improved product performance, higher efficiency packages and higher levels of integration.\nOperations\u00a0\u00a0\u00a0\u00a0\nThe manufacture of our products is divided into two major steps: wafer fabrication and packaging and testing. \nWafer fabrication  \n\u00a0\u00a0\u00a0\u00a0\nOur Oregon Fab allows us to accelerate the development of our technology and products, as well as to provide better service to our customers.  We allocate our wafer production between our in-house facility and third-party foundries.  During the past three years, we have gradually reduced our reliance on third-party foundries and increased allocation of capacity to our Oregon Fab and Chongqing JV Fab.  We entered into an agreement with the JV Company for the Chongqing Fab, pursuant to which the JV Company agrees to provide us with a monthly wafer production capacity guarantee, subject to future increase when the JV Company\u2019s production capacity reaches certain specified levels.\n \nCurrently our main third-party foundry is Shanghai Hua Hong Grace Electronic Company Limited, (\"HHGrace\"), or formerly HHNEC, located in Shanghai.  HHGrace has been manufacturing wafers for us since 2002.  HHGrace manufactured 9.6%, 10.3% and 11.5% of the wafers used in our products for the fiscal years ended June\u00a030, 2023, 2022 and 2021, respectively. \n8\nPackaging and testing\nCompleted wafers from the foundries are sent to our in-house packaging and testing facilities or to our subcontractors, where the wafers are cut into individual die, soldered to lead frames, wired to terminals and then encapsulated in protective packaging.  After packaging, all devices are tested in accordance with our specifications and substandard or defective devices are rejected.  We have established quality assurance procedures that are intended to control quality throughout the manufacturing process, including qualifying new parts for production at each packaging facility, conducting root cause analysis, testing for lots with process defects and implementing containment and preventive actions.  The final tested products are then shipped to our distributors or customers.\nOur in-house and wholly-owned packaging and testing facilities are located in Shanghai, China which handle most of our packaging and testing requirements for our products.  In addition, the JV Company handles a portion of our packaging and testing requirement.  We continuously increase the outsourcing portion of our packaging and testing requirements to other contract manufacturers to improve our ability to respond to changes in market demand.  Our facilities have the combined capacity to package and test over 600\u00a0million parts per month and have available floor space for new package introductions.  We believe our ability to package and test our products internally represents a strategic advantage as it protects our proprietary packaging technology, increases the rate of new package introductions, reduces operating expenses and ultimately improves our profit margins.  \nQuality assurance\u00a0\u00a0\u00a0\u00a0\nOur quality assurance practices aim to consistently provide our end customers with products that are reliable, durable and free of defects.  We strive to do so through design for manufacturing, and continuous improvement in our product design and manufacturing and close collaboration with our manufacturing partners.  Our manufacturing operations in China and our manufacturing facility in Oregon are certified to the ISO9001 and IATF16949:2016.  These Quality Management System certifications represent a recognition of our high quality assurance standards.  Both ISO9001 and IATF16949:2016 are sets of criteria and procedures established by the International Organization of Standardization for developing a fundamental quality management system and focusing on continuous improvement, defect prevention and the reduction of variation and waste.  Our products are also in compliance with Restrictions on the use of Hazardous Substances, or RoHS 3.0.\nWe maintain a supplier management and process engineering team in Shanghai that works with our third-party foundries and packaging and testing subcontractors to monitor the quality of our products, which is designed to ensure that manufacturing of our products is in strict compliance with our process controls, monitoring procedures and product requirements.  We also conduct periodic reviews and annual audits to ensure supplier performance.  For example, we examine the results of statistical process control systems, implement preventive maintenance, verify the status of quality improvement projects and review delivery time metrics.  In addition, we rate and rank each of our suppliers every quarter based on factors such as their quality and performance.  Our facility in Oregon integrates manufacturing process controls through our manufacturing execution system, coupled with wafer process controls that include monitoring procedures, preventative maintenance, statistical process control, and testing to ensure that finished wafers delivered will meet and exceed quality and reliability requirements.  All materials used to manufacture wafers are controlled through a strict qualification process.\nOur manufacturing processes use many raw materials, including silicon wafers, gold, copper, molding compound, petroleum and plastic materials and various chemicals and gases.  We obtain our raw materials and supplies from a large number of sources.  Although supplies for raw materials used by us are currently adequate, shortages could occur in various essential materials due to interruption of supply or increased demand in the industry.\nIntellectual property rights \u00a0\u00a0\u00a0\u00a0\nIntellectual property is a critical component of our business strategy, and we intend to continue to invest in the growth, maintenance and protection of our intellectual property portfolio.  We own significant intellectual property in many aspects of power semiconductor technology, including device physics and structure, wafer processes, circuit designs, packaging, modules and subassemblies.  We have also entered into intellectual property licensing agreements with other companies, including On Semiconductor Corp. and Giant Semiconductor Corporation, to use selected third-party technology for the development of our products, although we do not believe our business is dependent to any significant degree on any individual third-party license agreement.  In February 2023, we entered into a license agreement with a customer to license our proprietary SiC technology and to provide 24-months of engineering and development services for a total fee of $45 million, consisting of upfront fees and fees upon the achievement of specified engineering services and product milestones.\nWhile we focus our patent efforts in the United States, we file corresponding foreign patent applications in other jurisdictions,\u00a0such as China and Taiwan, when filing is justified by cost and strategic importance.  The patents are increasingly \n9\nimportant to remain competitive in our industry, and a strong patent portfolio will facilitate the entry of our products into new markets.  As of June\u00a030, 2023, we had 918 patents issued in the United States, of which 911 were based on our research and development efforts and 7 were acquired, and these patents are set to expire between 2023 and 2041.  We also had a total of 980 foreign patents, including 446 Chinese patents, 489 Taiwanese patents, 24 Korean patents, 4 Hong Kong patents, 5 Philippine patents, 8 Japanese patents, 2 Europe patent and 2 India patent as of June\u00a030, 2023.  Substantially all of our foreign patents were based on our research and development efforts.  These foreign patents will expire in the years between 2023 and 2041.  In addition, as of June\u00a030, 2023, we had a total of 159 patent applications, of which 45 patents were pending in the United States, 81 patents were pending in China, 22 patents were pending in Taiwan and 11 patents were pending in other countries. \nAs our technologies are deployed in new applications and as we diversify our product portfolio based on new technology platforms, we may be subject to new potential infringement claims.  Patent litigation, if and when instituted against us, could result in substantial costs and a diversion of our management's attention and resources.  However, we are committed to vigorously defending and protecting our investment in our intellectual property.  Therefore, the strength of our intellectual property program, including the breadth and depth of our portfolio, will be critical to our success in the new markets we intend to pursue.\nIn addition to patent protection, we also rely on a combination of trademark, copyright (including mask work protection), trade secret laws, contractual provisions and similar laws in other jurisdictions.  We also enter into confidentiality and invention assignment agreements with our employees, consultants, suppliers, distributors and customers and seek to control access to, and distribution of, our proprietary information.\nHuman Capital Resources  \nAs of June\u00a030, 2023, we had 2,468 employees, of whom 781 were located in the United States, 1,502 were located in China, and 185 were located in other parts of the world.  None of our employees is represented by a collective bargaining agreement.  Notwithstanding our global footprint and various geographical locations, we have created an integrated workforce where employees worldwide work and collaborate as a team to advance our common business objectives, while retaining local and regional practices and cultures.\nWe are committed to providing a work environment in which our employees can realize fully their talents and develop successful careers.  As our strength is in our people, we invest significantly in our employees by providing a wide range of training and development opportunities, including mentoring, coaching, tuition reimbursement, attendance at external seminars and professional conferences, and regular in-house training sessions on specific topics.  We train our managers to become good stewards for our employees, balancing the need for quality of life with performance results.   We believe that these efforts contribute to the growth and well-being of our employees, as more than 50% of our managerial positions are filled through promotions of existing employees. \nWe also keep our employees engaged and informed by providing periodic all-staff communications, and semi-annual performance reviews to ensure that efforts and results are aligned with our business and strategic corporate objectives.  We value feedback from our employees and promote an open-door policy which encourages employees to have regular conversations with their managers to share feedback and express concerns.  We also solicit employee feedback informally through regular employee interactions such as one on one or functional team staff meetings.  In addition, we conduct employee satisfaction surveys at certain locations to help management identify areas that may require improvement.  As part of the AOS tradition, we organize regular and seasonal social events, such as team building activities, annual appreciation picnics, and holiday parties, inviting both employees and their families to join.  We believe these efforts enable us to build a strong and solid group of dedicated and happy employees who form the core of our human capital resource.\nWe are committed to providing an environment where employees from all walks of life are treated with respect, care and dignity.  We adhere strictly to the Company\u2019s Code of Business Conduct and Ethics and other policies, and ensure that our employment practices respect human rights and comply with national, state and local regulatory requirements at all locations where we conduct business.  To recruit new talent, we reach out to a broad range of sources, including employee referrals, on-line advertising, recruitment agencies, and other social media platforms to seek out the best qualified candidates regardless of their backgrounds.  We are also focused on ensuring a diverse workforce, including our management team.  Our Nominating and Corporate Governance Committee leads the effort in recruiting qualified directors to serve on our Board.  Our employees appreciate and value the strength of our people-oriented culture and the benefits our workplace diversity brings.\nWe commit to a fair and living wage for all employees. We offer competitive compensation and benefits packages for our employees that include a combination of base salary, annual bonus, discretionary bonus for outstanding achievements, an employee share purchase plan, time-based and performance-based long-term equity compensation.  Our equity related compensation programs are designed to motivate and incentivize our employees and align their rewards to financial and other business performance goals, while increasing our shareholder value.  We have an established Employee Recognition Award program which is regularly utilized to recognize the outstanding achievements of employees and teams that go above and beyond to achieve AOS business goals.  In addition, we have engaged nationally-recognized outside independent compensation \n10\nconsulting firms to independently evaluate the appropriateness and effectiveness of compensation for our executives and other officers and to provide benchmarks for executive compensation as compared to peer companies.   \nThe health and safety of our employees are paramount to our company.  While the COVID-19 global health emergency has ended,  COVID-19 and other infectious diseases remain a threat to the health and safety of employees.  As such, we continue to monitor and follow requirements and guidance related to COVID-19 prevention in the workplace published by applicable public health agencies in various jurisdictions in which we operate.  In addition, we have policies and procedures in place to respond to COVID-19 infection in the workplace including isolation requirements for employees infected with COVID-19 and close contact individuals.  We believe policies and procedures help to ensure the health and safety of our employees.\nEnvironmental matters\u00a0\u00a0\u00a0\u00a0\nThe semiconductor production process, including the semiconductor wafer manufacturing and packaging process, generates air emissions, liquid wastes, waste water and other industrial wastes.  We have installed various types of pollution control equipment for the treatment of air emissions and liquid waste and equipment for recycling and treatment of water in our packaging and testing facilities in China and wafer manufacturing facility in Oregon, USA.  Waste generated at our manufacturing facilities, including but not limited to acid waste, alkaline waste, flammable waste, toxic waste, oxide waste and self-igniting waste, is collected and sorted for proper disposal.  Our operations in China are subject to regulation and periodic monitoring by China\u2019s State Environmental Protection Bureau, as well as local environmental protection authorities, including those under the Shanghai Municipal Government, which may in some cases establish stricter standards than those imposed by the State Environmental Protection Bureau.  Our operation in Oregon is subject to Oregon Department of Environmental Regulations, Federal Environmental Protection Agency laws and regulations, and local jurisdictional regulations.  We believe that we have been in material compliance with applicable environmental regulations and standards and have not had a material or adverse effect on our results of operations from complying with these regulations.\nWe have implemented an ISO 14001 environmental management system in our manufacturing facilities in China and Oregon.  We also require our subcontractors, including foundries and assembly houses, to meet ISO 14001 standards.  We believe that we have adopted pollution control measures for the effective maintenance of environmental protection standards consistent with the requirements applicable to the semiconductor industry in China and the U.S.\nOur products sold in worldwide are subject to RoHS in Electrical and Electronic Equipment, which requires that the products do not contain more than agreed levels of lead, cadmium, mercury, hexavalent chromium, polybrominated biphenyl and polybrominated diphenyl ether flame retardants.  Our manufacturing facilities in China also obtained QC080000 certification, which is an IECQ Certificate of Conformity Hazardous Substance Process Management for European Directive 2002/95/EC requirements and a Certificate of Green Partner for Sony Green Partner Program.  We avoid using these restricted materials to the extent possible when we design our products.\nWe are also subject to SEC rules that require diligence, disclosure and reporting on whether certain minerals and metals, known as conflict minerals, used in our products originate from the Democratic Republic of Congo and adjoining countries.  As of June\u00a030, 2023, 2022 and 2021, we were in compliance with the related conflict minerals rule.\nExport Control\nWe are subject to export and import control laws, trade regulations and other trade requirements that limit which products we sell and where and to whom we sell our products. Because we are committed to complying with all applicable export control laws, regulations, and requirements, we have reviewed and revised our processes and procedures to ensure that our shipments to our customers remain compliant with applicable export laws.  As part of the enhanced process, we have also conducted extensive risk assessment on export control compliance and implemented training programs for our employees. \nExecutive Officers \u00a0\u00a0\u00a0\u00a0\nThe following table lists the names, ages and positions of our executive officers as of August 15, 2023. There are no family relationships between any executive officer, except that Mr. Stephen C. Chang is a son of Dr. Mike F. Chang. \n11\nName\nAge \u00a0\nPosition\u00a0\nStephen C. Chang\n46\nChief Executive Officer and Director\nMike F. Chang, Ph.D.\n78\nExecutive Chairman and Chairman of the Board \nYifan Liang\n59\nChief Financial Officer and Corporate Secretary\nWenjun Li, Ph.D.\n54\nChief Operating Officer\nBing Xue, Ph.D.\n59\nExecutive Vice President of Worldwide Sales and Business Development\nStephen C. Chang \nhas served as our Chief Executive Officer since March 2023 and as a director since November 2022.  Mr. Chang previously served as the Company\u2019s President from January 2021 to February 2023.  Prior to that, Mr. Chang served in various management positions, including Executive Vice President of Product Line Management, Senior VP of Marketing, VP of the MOSFET Product Line, and Senior Director of Product Marketing.  Mr. Chang has over 20 years of industry experience and leads the Company\u2019s business strategies, product and technology development, sales and marketing functions, manufacturing operation and supply chain management, and other managerial responsibilities.  Mr. Chang received his B.A. in Electrical Engineering from University of California, Berkeley, and M.B.A. from Santa Clara University.  \nMike F. Chang, Ph.D\n., is the founder of our company and serves as our Executive Chairman.  Dr. Chang served as Chief Executive Officer from the founding of our company until March 2023.  Prior to establishing our company, Dr. Chang served as the Executive Vice President at Siliconix Incorporated, a subsidiary of Vishay Intertechnology Inc., a global manufacturer and supplier of discrete and other power semiconductors, or Siliconix, from 1998 to 2000.  Dr. Chang also held various management positions at Siliconix from 1987 to 1998.  Earlier in his career, Dr. Chang focused on product research and development in various management positions at General Electric Company from 1974 to 1987.  Dr. Chang received his B.S. in electrical engineering from National Cheng Kung University, Taiwan, and M.S. and Ph.D. in electrical engineering from the University of Missouri.  \nYifan Liang\n has been serving as our Chief Financial Officer since August 2014 and Corporate Secretary since November 2013.  Mr. Liang served as our Interim Chief Financial Officer from November 2013 to August 2014, our Chief Accounting Officer since October 2006, and our Assistant Corporate Secretary from November 2009 to November 2013.  Mr.\u00a0Liang joined our company in August 2004 as our Corporate Controller.  Prior to joining us, Mr.\u00a0Liang held various positions at PricewaterhouseCoopers LLP, or PwC, from 1995 to 2004, including Audit Manager in PwC\u2019s San Jose office.  Mr.\u00a0Liang received his B.S. in management information system from the People's University of China and M.A. in finance and accounting from the University of Alabama.\nWenjun. Li, Ph.D\n., has been serving as our Chief Operating Officer since August 2021.  Prior to that, Dr. Li served in various management positions in our Company since 2012, including Executive Vice President of World-Wide Manufacturing, Senior Vice President of World-Wide Manufacturing, Vice President of Front-End Operation, the director of Process Integration and Senior Manager of Process Integration.  Dr. Li holds a B.S. in Chemistry and a M.S. in Chemical Engineering from Taiyuan University of Technology, and a Ph.D. in Microelectronics & Solid-State Electronics from the Research Institute of Micro-Nanometer Technology at Shanghai Jiao Tong University.\nBing Xue, Ph.D., \nhas been serving as our Executive Vice President of Worldwide Sales and Business Development since January 2021.  Prior to that, Dr. Xue held various managerial positions in our company since 2003, including Senior Vice President of Global Sales, Vice President of Global Sales, Vice President of Worldwide Manufacturing, and General Manager of China Operation.  Prior to joining us, Dr. Xue served as the Director of Engineering in Dowslake Microsystem from 2001 to 2003.  Dr. Xue received his B.S. in Physics from Xiamen University, and Ph.D. in Physical Chemistry from University of Pennsylvania.\nAvailable Information\nOur filing documents and information with the Securities and Exchange Commission (the \u201cSEC\u201d) are available free of charge electronically through our Internet website, \nwww.aosmd.com.\n as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.  In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy statements, and other information that we file electronically. \n12",
+  "item1a": ">Item 1A.\nRisk Factors \nOur operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. \nRisk Factor Summary \nRisks Related to Our Business\n\u2022\nWe may be adversely affected by the macroeconomic conditions and cyclicality of the semiconductor industry.\n\u2022\nThe decline of personal computing (\u201cPC\u201d) markets may have a material adverse effect on our results of operations.\n\u2022\nOur strategy of diversification into different market segments may not succeed according to our expectations. \n\u2022\nOur operating results may fluctuate from period to period due to many factors, which may make it difficult to predict our future performance.\n\u2022\nGeopolitical and economic conflicts between United States and China may adversely affect our business.\n\u2022\nOur lack of control over the JV Company may adversely affect our operations.\n\u2022\nOur revenue may fluctuate significantly from period to period due to ordering patterns from our distributors and seasonality.\n\u2022\nWe may not be able to introduce or develop new and enhanced products that meet or are compatible with our customer\u2019s product requirements in a timely manner.\n\u2022\nWe may not win sufficient designs, or our design wins may not generate sufficient revenue for us to maintain or expand our business.\n\u2022\nOur success depends upon the ability of our OEM end customers to successfully sell products incorporating our products.\n\u2022\nThe operation of our Oregon Fab subjects us to additional risks and the need for additional capital expenditures which may negatively impact our results of operations. \n\u2022\nDefects and poor performance in our products could result in loss of customers, decreased revenue, unexpected expenses and loss of market share.\n\u2022\nIf we do not forecast demand for our products accurately, we may experience product shortages, delays in product shipment, excess product inventory, or difficulties in planning expenses, which will adversely affect our business and financial condition.\n\u2022\nWe face intense competition and may not be able to compete effectively which could reduce our revenue and market share.\n\u2022\nOur reliance on third-party semiconductor foundries to manufacture our products subjects us to risks.\n\u2022\nOur reliance on distributors to sell a substantial portion of our products subjects us to a number of risks.\n\u2022\nWe have made and may continue to make strategic acquisitions of other companies, assets or businesses and these acquisitions introduce significant risks and uncertainties. \n\u2022\nIf we are unable to obtain raw materials in a timely manner or if the price of raw materials increases significantly, production time and product costs could increase, which may adversely affect our business.\n\u2022\nWe may not be able to accurately estimate provisions at fiscal period end for price adjustment and stock rotation rights under our agreements with distributors, and our failure to do so may impact our operating results.\n\u2022\nOur operation of two wholly-owned packaging and testing facilities are subject to risks that could adversely affect our business and financial results.\n\u2022\nWe may be adversely affected by any disruption in our information technology systems.\n\u2022\nWe depend on the continuing services of our senior management team and other key personnel.\n\u2022\nFailure to protect our patents and our other proprietary information could harm our business and competitive position.\n13\n\u2022\nIntellectual property disputes could result in lengthy and costly arbitration, litigation or licensing expenses or prevent us from selling our products.\n\u2022\nThe DOJ government investigation and evolving export control regulations may adversely affect our financial performance and business operations.\n\u2022\nGlobal or regional economic, political and social conditions could adversely affect our business and operating results.\n\u2022\nOur business operations could be significantly harmed by natural disasters or global epidemics.\n\u2022\nOur insurance may not cover all losses, including losses resulting from business disruption or product liability claims.\n\u2022\nOur international operations subject our company to risks not faced by companies without international operations.\n\u2022\nIf we fail to maintain an effective internal control environment as well as adequate control procedures over our financial reporting, investor confidence may be adversely affected thereby affecting the value of our stock price.\n\u2022\nWe are subject to the risk of increased income taxes and changes in existing tax rules.\n \n\u2022\nOur debt agreements include financial covenants that may limit our ability to pursue business and financial opportunities and subject us to risk of default.\n\u2022\nThe imposition of U.S. corporate income tax on our Bermuda parent and non-U.S. subsidiaries could adversely affect our results of operations. \n\u2022\nWe may be classified as a passive foreign investment company (\u201cPFIC\u201d), which could result in adverse U.S. federal income tax consequences for U.S. holders. \n\u2022\nThe average selling prices of products in our markets have historically decreased rapidly and will likely do so in the future, which could harm our revenue and gross margins.\nRisks Related to Doing Business in China\n\u2022\nChina\u2019s economic, political and social conditions, as well as government policies, could affect our business and growth.\n\u2022\nChanges in China\u2019s laws, legal protections or government policies on foreign investment in China may harm our business.\n\u2022\nThe continuing potential for new or additional tariffs on imported goods from China could adversely affect our business operations.\n\u2022\nUncertainties exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may impact us.\n\u2022\nLimitations on our ability to transfer funds to our China subsidiaries could adversely affect our ability to expand our operations, make investments that could benefit our businesses and otherwise fund and conduct our business.\n\u2022\nChina's currency exchange control and government restrictions on investment repatriation may impact our ability to transfer funds outside of China.\n\u2022\nThe M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.\n\u2022\nOur results of operations may be negatively impacted by fluctuations in foreign currency exchange rates between U.S. dollar and Chinese Yuan, or RMB.\n\u2022\nPRC labor laws may adversely affect our results of operations.\n\u2022\nRelations between Taiwan and China could negatively affect our business, financial condition and operating results and, therefore, the market value of our common shares.\nRisks Related to Our Corporate Structure and Our Common Shares\n\u2022\nOur share price may be volatile and you may be unable to sell your shares at or above the purchase price, if at all.\n14\n\u2022\nIf securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our common shares or if our operating results do not meet their expectations, the trading price of our common shares could decline. \n\u2022\nAnti-takeover provisions in our bye-laws could make an acquisition of us more difficult and may prevent attempts by our shareholders to replace or remove our current management.\n\u2022\nWe are a Bermuda company and the rights of shareholders under Bermuda law may be different from U.S. laws. \nRisks Related to Our Business \nOur operating results and financial conditions are affected by downturns in the semiconductor industry, changes in end-market demand and other macro-economic trends. \nThe semiconductor industry periodically experiences significant economic downturns characterized by diminished product and end-market demand, production overcapacity, excess inventory, which can result in rapid significant decline in shipment and sales, which may harm our operating results and financial condition.  The semiconductor market is also highly cyclical and is characterized by constant and rapid technological change such as product obsolescence and price erosion, evolving standards, uncertain product life cycles and wide fluctuations in product supply and demand.  Since mid-2022, we have experienced an industry-wide decline of customer demand for semiconductor products due primarily to the build-up of excess inventory prior to the cessation of the COVID-19 pandemic.  This decline has negatively affected our recent financial performance in 2023.  While we expect some recovery of the macroeconomic trend by the end of 2023 and early 2024, there is no guarantee that it will occur and a prolonged and extended downturn in the semiconductor industry will have a substantial impact on our operating results and financial conditions.  \nThe decline of personal computing (\u201cPC\u201d) markets may have a material adverse effect on our results of operations.\nA significant amount of our revenue is derived from sales of products in the PC markets such as notebooks, motherboards and notebook battery packs.\u00a0 Our revenue from the PC markets accounted for approximately 35.2%, 44.5% and 42.5% of our total revenue for the years ended June 30, 2023, 2022 and 2021, respectively.  The increasing popularity of smaller, mobile computing devices such as tablets and smart phones with touch interfaces is rapidly changing the PC markets both in the United States and abroad.\u00a0 In the past prior to the commencement of the COVID-19 pandemic, we experienced a significant reduction in the demand for our products due to the declining PC markets, which negatively impacted our revenue, profitability and gross margin.  While we experienced a surge of demand in the PC market as a result of the COVID-19 pandemic and related events, such demand began to return to normal level with the cessation of the COVID-19 pandemic, and recently declined due to an industry-wide inventory correction and the ensuing downturn in the semiconductor industry. We have implemented measures and strategies to mitigate the effect of such a downturn.  These measures and strategies may not be sufficient or successful, in which case our operating results may be adversely affected. \nOur strategy of diversification into different market segments may not succeed according to our expectations and may expose us to new risks and place significant strains on our management, operational, financial and other resources.\nAs part of the growth strategy to diversify our product portfolio and in response to the decline of the PC markets, we have been developing new technologies and products designed to penetrate into other markets and applications, including merchant power supplies, flat panel TVs, smart phones, tablets, gaming consoles, lighting, datacom, telecommunications, home appliances and industrial motor controls.  However, there is no guarantee that these diversification efforts will be successful.  As a new entrant to some of these markets, we may face intense competition from existing and more established providers and encounter other unexpected difficulties, any of which may hinder or delay our efforts to achieve success.  In addition, our new products may have long design and sales cycles.  Therefore, if our diversification efforts fail to keep pace with the declining PC markets, we may not be able to alleviate its negative impact on our results of operations.\nOur diversification into different market segments may place a significant strain on our management, operational, financial and other resources.  To manage this diversification effectively, we will need to take various actions, including:\n\u2022\nenhancing management information systems, including forecasting procedures;\n\u2022\nfurther developing our operating, administrative, financial and accounting systems and controls;\n\u2022\nmanaging our working capital and sources of financing;\n15\n\u2022\nmaintaining close coordination among our engineering, accounting, finance, marketing, sales and operations organizations;\n\u2022\nretaining, training and managing our employee base;\n\u2022\nenhancing human resource operations and improving employee hiring and training programs;\n\u2022\nrealigning our business structure to more effectively allocate and utilize our internal resources;\n\u2022\nimproving and sustaining our supply chain capability; and\n\u2022\nmanaging both our direct and distribution sales channels in a cost-efficient and competitive manner.\nOur failure to execute any of the above actions successfully or timely may have an adverse effect on our business and financial results.\nOur operating results may fluctuate from period to period due to many factors, which may make it difficult to predict our future performance.\nOur periodic operating results may fluctuate as a result of a number of factors, many of which are beyond our control.  These factors include, among others:\n\u2022\na deterioration in general demand for electronic products, particularly the PC market, as a result of global or regional financial crises and associated macro-economic slowdowns, and/or the cyclicality of the semiconductor industry;\n\u2022\na deterioration in business conditions at our distributors and /or end customers;\n\u2022\nadverse general economic conditions in the countries where our products are sold or used;\n\u2022\nthe emergence and growth of markets for products we are currently developing;\n\u2022\nour ability to successfully develop, introduce and sell new or enhanced products in a timely manner and the rate at which our new products replace declining orders for our older products;\n\u2022\nthe anticipation, announcement or introduction of new or enhanced products by us or our competitors;\n\u2022\nchanges in the selling prices of our products and in the relative mix in the unit shipments of our products, which have different average selling prices and profit margins;\n\u2022\nthe amount and timing of operating costs and capital expenditures, including expenses related to the maintenance and expansion of our business operations and infrastructure; \n\u2022\nthe announcement of significant acquisitions, disposition or partnership arrangements;\n\u2022\nthe ramp-up progress and operation of the JV Company, and announcement of significant transactions involving the JV Company;\n\u2022\nchanges in the utilization of our in-house manufacturing capacity;\n\u2022\nsupply and demand dynamics and the resulting price pressure on the products we sell;\n\u2022\nthe unpredictable volume and timing of orders, deferrals, cancellations and reductions for our products, which may depend on factors such as our end customers' sales outlook, purchasing patterns and inventory adjustments based on general economic conditions or other factors;\n\u2022\nchanges in laws and regulations affecting our business operations;\n\u2022\nchanges in costs associated with manufacturing of our products, including pricing of wafer, raw materials and assembly services;\n\u2022\nannouncement of significant share repurchase programs;\n\u2022\nour concentration of sales in consumer applications and changes in consumer purchasing patterns and confidence; and\n\u2022\nthe adoption of new industry standards or changes in our regulatory environment.\nAny one or a combination of the above factors and other risk factors described in this section may cause our operating results to fluctuate from period to period, making it difficult to predict our future performance.  Therefore, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance.\n16\nGeopolitical and economic conflicts between United States and China may adversely affect our business\nGeopolitical conflicts and tensions between the United States and China have threatened and destabilized trading relationships and economic activities between the two countries.  Because we have significant operations in both countries, such conflicts and tensions may negatively impact our business.  At various times during recent years, the United States and China have had disagreements over political and economic issues, including but not limited to, the recent imposition of tariffs by the U.S. on goods imported from China and to the U.S. government's efforts to restrict transfer and sharing of technologies, including semiconductor technologies, between the two countries.  In addition, the U.S. government may enact new and more restrictive export control regulations that may reduce our ability to ship and sell products to certain customers in China and Asia and increase our cost to implement additional measures to comply with such new regulations.  In addition, disagreements between the United States and China with respect to their political, military or economic policies toward Taiwan may contribute to further controversies.  These controversies and trade frictions could have a material adverse effect on our business by, among other things, making it more difficult for us to coordinate our operations between the United States and China causing a reduction in the demand for our products by customers in the United States or China and reducing our profitability due to increasing cost of compliance.\nOur lack of control over the JV Company may adversely affect our operations. \nWe formed the JV Company in 2016 which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing. The JV Company is our subcontractor, and we rely and expect to continue to rely substantially on the JV Company to provide us with foundry capacity to develop and manufacture our products and to enhance our market position in China. At the formation of the JV Company, we retained control over the business operation of the JV Company through our majority equity ownership and board representation. In December 2021, we relinquished control over the JV Company through a series of transactions, including the sale of a portion of our equity interests in the JV Company and issuance of additional equity interests by the JV Company to raise capital. As a result of these transactions, we currently own approximately 42.2% of outstanding equity interest in the JV Company and have the right to designate three (3) out of seven (7) directors, instead of four (4) directors prior to such transaction. The reduction of our equity ownership of the JV Company is part of a plan to enable the JV Company to raise capital more easily and to facilitate a future public listing on the Science and Technology Innovation Board, or STAR Market, of the Shanghai Stock Exchange (the \u201cChina IPO\u201d). Such reduction also caused the deconsolidation of the JV Company\u2019s financial statements from our Consolidated Financial Statements.\nBecause we no longer have a controlling interest in the JV Company, the JV Company is operating and will continue to operate more independently, and our influence on all aspects of the JV Company\u2019s business operations will be diminished. Accordingly, we might not be able to prevent the JV Company from taking actions adverse to our interests. For example, while we remain a major customer of the JV Company, the JV Company may decide to enter into business relationships with other customers and allocate foundry capacities to such customers, which may prevent us from securing a desirable or sufficient level of manufacturing capacity for our products. Even if the JV Company agrees to continue allocating sufficient manufacturing capacity to us, we may not be able to negotiate or obtain favorable pricing or service terms, which may increase our expenses and adversely affect our results of operations. \nOur lack of control over the JV Company may also make it more difficult for us to execute our broader business strategies in China, including our R&D, sales and marketing, product innovation efforts and protection of intellectual property rights, because the JV Company may decide not to cooperate with us in these matters. In addition, while we expect to achieve a financial return for our investment in the JV Company as a result of the China IPO, the China IPO process is complex, time-consuming and subject to a number of risks and there is no guarantee that the China IPO will be completed in a timely manner, or at all, and the JV Company\u2019s failure to close the China IPO will negatively affect our investment in the JV Company. \nIn order to fund its capital expenditures and cost of operation, the JV Company has incurred a significant amount of indebtedness from third-party lenders under several loan and lease financing agreements, some of which are secured by substantially all of the assets of the JV Company. If the JV Company is not able to generate sufficient cash flow to make payments under these loans, the JV Company may be in default, which will adversely affect its ability to continue operations and provide foundry services to us. In addition, the JV Company requires additional funding to continue its operations and to refinance its existing indebtedness. There is no guarantee that the JV Company will be able to obtain financing on favorable terms, or at all, and any such failure may negatively impact our ability to access its wafer manufacturing capacity.\n17\nAny of the foregoing risks could materially reduce the expected return of our investment in the JV Transaction and adversely affect our business operations, our financial performance and the trading price of our shares.\nOur revenue may fluctuate significantly from period to period due to ordering patterns from our distributors and seasonality.\nDemand for our products from our end customers fluctuates depending on their sales outlooks and market and economic conditions.  Accordingly, our distributors place purchase orders with us based on their forecasts of end customer demand.  Because these forecasts may not be accurate, channel inventory held at our distributors may fluctuate significantly due to the difference between the forecasts and actual demand.  As a result, distributors adjust their purchase orders placed with us in response to changing channel inventory levels, as well as their assessment of the latest market demand trends.  A significant decrease in our distributors\u2019 channel inventory in one period may lead to a significant rebuilding of channel inventory in subsequent periods, or vice versa, which may cause our quarterly revenue and operating results to fluctuate significantly.\nIn addition, because our power semiconductors are used in consumer electronics products, our revenue is subject to seasonality.  Our sales seasonality is affected by a number of factors, including global and regional economic conditions as well as the PC market conditions, revenue generated from new products, changes in distributor ordering patterns in response to channel inventory adjustments and end customer demand for our products\n \nand fluctuations in consumer purchase patterns prior to major holiday seasons.  In recent year, broad fluctuations in the semiconductor markets and the global economic conditions, in particular the decline of the PC market conditions, have had a more significant impact on our results of operations, than seasonality, and have made it difficult to assess the impact of seasonal factors on our business.  Our normal seasonality cycle has also been impacted by the recent COVID-19 pandemic and related events, making it more difficult to predict and determine a more consistent seasonality trend.  \nIf we are unable to introduce or develop new and enhanced products that meet or are compatible with our customer\u2019s product requirements in a timely manner, it may harm our business, financial position and operating results.\nOur success depends upon our ability to develop and introduce new and enhanced products that meet or are compatible with our customer\u2019s specifications, performance standards and other product requirements in a timely manner.  The development of new and enhanced products involves highly complex processes, and at times we have experienced delays in the introduction of new products.  Successful product development and introduction of new products depends on a number of factors, including the accurate product specification; timely completion of design; achievement of manufacturing yields; timely response to changes in customer\u2019s product requirements; quality and cost-effective production; and effective marketing.  Since many of our products are designed for specific applications, we must frequently develop new and enhanced products jointly with our customers.  In the past, we have encountered product compatibility issues with a major OEM that has negatively impacted our financial results, and although we have resolved fully such issues with the OEM, there is no guarantee that the same compatibility issues will not occur in the future with other OEMs.  If we are unable to develop or acquire new products that meet or are compatible with our customer\u2019s specification and other product requirements in a timely manner, we may lose revenue or market share with our customers, which could have a material adverse effect on our business, financial position and operating results.\nWe may not win sufficient designs, or our design wins may not generate sufficient revenue for us to maintain or expand our business.\nWe invest significant resources to compete with other power semiconductor companies to win competitive bids for our products in selection processes, known as \u201cdesign wins.\u201d  Our effort to obtain design wins may detract from or delay the completion of other important development projects, impair our relationships with existing end customers and negatively impact sales of products under development.  In addition, we cannot be assured that these efforts would result in a design win, that our product would be incorporated into an end customer's initial product design, or that any such design win would lead to production orders and generate sufficient revenue.  Furthermore, even after we have qualified our products with a customer and made sales, subsequent changes to our products, manufacturing processes or suppliers may require a new qualification process, which may result in delay and excess inventory.  If we cannot achieve sufficient design wins in the future, or if we fail to generate production orders following design wins, our ability to grow our business and improve our financial results will be harmed.\nOur success depends upon the ability of our OEM end customers to successfully sell products incorporating our products.\nThe consumer end markets, in particular the PC market, in which our products are used are highly competitive.  Our OEM end customers may not successfully sell their products for a variety of reasons, including:\n18\n\u2022\ngeneral global and regional economic conditions;\n\u2022\nlate introduction or lack of market acceptance of their products;\n\u2022\nlack of competitive pricing;\n\u2022\nshortage of component supplies;\n\u2022\nexcess inventory in the sales channels into which our end customers sell their products;\n\u2022\nchanges in the supply chain; and\n\u2022\nchanges as a result of regulatory restrictions applicable to China-exported products.\nOur success depends on the ability of our OEM end customers to sell their products incorporating our products.  In addition, we have expanded our business model to include more OEMs in our direct customer base.  The failure of our OEM end customers to achieve or maintain commercial success for any reason could harm our business, results of operations, and financial condition and prospects.\nThe operation of our Oregon Fab subjects us to additional risks and the need for additional capital expenditures which may negatively impact our results of operations.  \nThe operation of the Oregon Fab requires significant fixed manufacturing cost.  In order to manage the capacity of the wafer fabrication facility efficiently, we must perform a forecast of long-term market demand and general economic conditions for our products.  Because market conditions may vary significantly and unexpectedly, our forecast may change significantly at any time, and we may not be able to make timely adjustments to our fabrication capacity in response to these changes.  During periods of continued decline in market demand, in particular the decline of the PC market, we may not be able to absorb the excess inventory and additional costs associated with operating the facility at higher capacity, which may adversely affect our operating results.  Similarly, during periods of unexpected increase in customer demand, we may not be able to ramp up production quickly to meet these demands, which may lead to the loss of significant revenue opportunities.  The manufacturing processes of a fabrication facility are complex and subject to interruptions.  We may experience production difficulties, including lower manufacturing yields or products that do not meet our or our customers\u2019 specifications, and problems in ramping production and installing new equipment.  These difficulties could result in delivery delays, quality problems and lost revenue opportunities.  Any significant quality problems could also damage our reputation with our customers and distract us from the development of new and enhanced product which may have a significant negative impact on our financial results.\nDefects and poor performance in our products could result in loss of customers, decreased revenue, unexpected expenses and loss of market share, and we may face warranty and product liability claims arising from defective products.\nOur products are complex and must meet stringent quality requirements.  Products as complex as ours may contain undetected errors or defects, especially when first introduced or when new versions are released.  Errors, defects or poor performance can arise due to design flaws, defects in raw materials or components or manufacturing anomalies, which can affect both the quality and the yield of the product.  It can also be potentially dangerous as defective power components, or improper use of our products by customers, may lead to power overloads, which could result in explosion or fire.  Any actual or perceived errors, defects or poor performance in our products could result in the replacement or recall of our products, shipment delays, rejection of our products, damage to our reputation, lost revenue, diversion of our engineering personnel from our product development efforts in order to address or remedy any defects and increases in customer service and support costs, all of which could have a material adverse effect on our business and operations.\nFurthermore, as our products are typically sold at prices much lower than the cost of the equipment or other devices incorporating our products, any defective, inefficient or poorly performing products, or improper use by customers of power components, may give rise to warranty and product liability claims against us that exceed any revenue or profit we receive from the affected products.  We could incur significant costs and liabilities if we are sued and if damages are awarded against us.  There is no guarantee that our insurance policies will be available or adequate to protect against such claims.  Costs or payments we may make in connection with warranty and product liability claims or product recalls may adversely affect our financial condition and results of operations.\nThe average selling prices of products in our markets have historically decreased rapidly and will likely do so in the future, which could harm our revenue and gross margins.\n19\nAs is typical in the semiconductor industry, the average selling price of a particular product has historically declined significantly over the life of the product.  In the past, we have reduced the average selling prices of our products in anticipation of future competitive pricing pressures, new product introductions by us or our competitors and other factors.  We expect that we will have to similarly reduce prices in the future for older generations of products.  Reductions in our average selling prices to one customer could also impact our average selling prices to all customers.  A decline in average selling prices would harm our gross margins for a particular product.  If not offset by sales of other products with higher gross margins, our overall gross margins may be adversely affected.  Our business, results of operations, financial condition and prospects will suffer if we are unable to offset any reductions in our average selling prices by increasing our sales volumes, reducing our costs and developing new or enhanced products on a timely basis, with higher selling prices or gross margins.\nIf we do not forecast demand for our products accurately, we may experience product shortages, delays in product shipment, excess product inventory, or difficulties in planning expenses, which will adversely affect our business and financial condition.\nWe manufacture our products according to our estimates of customer demand.  This process requires us to make numerous forecasts and assumptions relating to the demand of our end customers, channel inventory, and general market conditions.  Because we sell most of our products to distributors, who in turn sell to our end customers, we have limited visibility as to end customer demand.  Furthermore, we do not have long-term purchase commitments from our distributors or end customers, and our sales are generally made by purchase orders that may be cancelled, changed or deferred without notice to us or penalty.  As a result, it is difficult to forecast future customer demand to plan our operations.\nThe utilization of our manufacturing facilities and the provisions for inventory write-downs are important factors in our profitability.  If we overestimate demand for our products, or if purchase orders are canceled or shipments delayed, we may have excess inventory, which may result in adjustments to our production plans.  These adjustments to our productions may affect the utilization of our own wafer fabrication and packaging facilities.  If we cannot sell certain portions of the excess inventory, it will affect our provisions for inventory write-downs.  Our inventory write-down provisions are subject to adjustment based on events that may not be known at the time the provisions are made, and such adjustments could be material and impact our financial results negatively.   \nIf we underestimate demand, we may not have sufficient inventory to meet end-customer demand, and we may lose market share and damage relationships with our distributors and end customers and we may have to forego potential revenue opportunities.  Obtaining additional supply in the face of product shortages may be costly or impossible, particularly in the short term, which could prevent us from fulfilling orders in a timely manner or at all.\nIn addition, we plan our operating expenses, including research and development expenses, hiring needs and inventory investments, based in part on our estimates of customer demand and future revenue.  If customer demand or revenue for a particular period is lower than we expect, we may not be able to proportionately reduce our fixed operating expenses for that period, which would harm our operating results.\nWe face intense competition and may not be able to compete effectively which could reduce our revenue and market share.\nThe power semiconductor industry is highly competitive and fragmented.  If we do not compete successfully against current or potential competitors, our market share and revenue may decline.  Our main competitors are primarily headquartered in the United States, Japan, Taiwan and Europe.  Our major competitors for our power discretes include Infineon Technologies AG, Magnachip Semiconductor Corporation, ON Semiconductor Corp., STMicroelectronics N.V., Toshiba Corporation, Diodes Incorporated and Vishay Intertechnology, Inc.  Our major competitors for our power ICs include Global Mixed-mode Technology Inc., Monolithic Power Systems, Inc., ON Semiconductor Corp., Richtek Technology Corp., Semtech Corporation, Texas Instruments Inc. and Vishay Intertechnology, Inc.\nWe expect to face competition in the future from our competitors, other manufacturers, designers of semiconductors and start-up semiconductor design companies.  Many of our competitors have competitive advantages over us, including:\n\u2022\nsignificantly greater financial, technical, research and development, sales and marketing and other resources, enabling them to invest substantially more resources than us to respond to the adoption of new or emerging technologies or changes in customer requirements;\n\u2022\ngreater brand recognition and longer operating histories;\n20\n\u2022\nlarger customer bases and longer, more established relationships with distributors or existing or potential end customers, which may provide them with greater reliability and information regarding future trends and requirements that may not be available to us;\n\u2022\nthe ability to provide greater incentives to end customers through rebates, and marketing development funds or similar programs;\n\u2022\nmore product lines, enabling them to bundle their products to offer a broader product portfolio or to integrate power management functionality into other products that we do not sell; \n\u2022\ngreater ability and more resources to influence and participate in the regulatory and legislative process for more favorable laws and regulations; and\n\u2022\ncaptive manufacturing facilities, providing them with guaranteed access to manufacturing facilities in times of global semiconductor shortages.\nIn addition, the semiconductor industry has experienced increased consolidation over the past several years that may adversely affect our competitive position.  Consolidation among our competitors could lead to a less favorable competitive landscape, capabilities and market share, which could harm our business and results of operations.\nIf we are unable to compete effectively for any of the foregoing or other reasons, our business, results of operations, and financial condition and prospects will be harmed.\nOur reliance on third-party semiconductor foundries to manufacture our products subject us to risks.\nThe allocation of our wafer production between in-house facility and third-party foundries may fluctuate from time to time.  We expect to continue to rely in part on third party foundries to meet our wafer requirements.  Although we use several independent foundries, our primary third-party foundry is HHGrace, which manufactured 9.6%, 10.3% and 11.5% of the wafers used in our products for the fiscal years ended June\u00a030, 2023, 2022 and 2021, respectively.\nIf any third-party foundry does not provide competitive pricing or is not able to meet our required capacity for any reason, we may not be able to obtain the required capacity to manufacture our products timely or efficiently.  From time to time, third party suppliers may extend lead-times, limit supplies or increase prices due to capacity constraints or other factors, and we may experience a shortage of capacity on an industry-wide basis that may last for an extended period of time.  There are no assurances that we will be able to maintain sufficient capacity to meet the full demand from our customers, and failure to do so will adversely affect our results of operations.  If we cannot maintain sufficient capacity or control pricing with our existing third-party foundries, we may need to increase our own manufacturing capacity, and there is no assurance that we can ramp up the production of the Oregon Fab timely to meet the increased demand.  If not, we may need to seek alternative foundries, which may not be available on commercially reasonable terms, or at all.  In addition, the process for qualifying a new foundry is time consuming, difficult and may not be successful, particularly if we cannot integrate our proprietary process technology with the process used by the new foundry.  Using a foundry with which we have no established relationship could expose us to potentially unfavorable pricing, unsatisfactory quality or insufficient capacity allocation. \nWe also rely on third-party foundries to effectively implement certain of our proprietary technology and processes and also require their cooperation in developing new fabrication processes.  Any failure to do so may impair our ability to introduce new products and on time delivery of wafers for our existing products.  In order to maintain our profit margins and to meet our customer demand, we need to achieve acceptable production yields and timely delivery of silicon wafers.  As is common in the semiconductor industry, we have experienced, and may experience from time to time, difficulties in achieving acceptable production yields and timely delivery from third-party foundry vendors.  Minute impurities in a silicon wafer can cause a substantial number of wafers to be rejected or cause numerous die on a wafer to be defective.  Low yields often occur during the production of new products, the migration of processes to smaller geometries or the installation and start up of new process technologies.\n\u00a0\nWe face a number of other significant risks associated with outsourcing fabrication, including:\n\u2022\nlimited control over delivery schedules, quality assurance and control and production costs;\n\u2022\ndiscretion of foundries to reduce deliveries to us on short notice, allocate capacity to other customers that may be larger or have long-term customer or preferential arrangements with foundries that we use;\n\u2022\nunavailability of, or potential delays in obtaining access to, key process technologies;\n\u2022\nlimited warranties on wafers or products supplied to us;\n21\n\u2022\ndamage to equipment and facilities, power outages, equipment or materials shortages that could limit manufacturing yields and capacity at the foundries;\n\u2022\npotential unauthorized disclosure or misappropriation of intellectual property, including use of our technology by the foundries to make products for our competitors;\n\u2022\nfinancial difficulties and insolvency of foundries; and\n\u2022\nacquisition of foundries by third parties.\n\u00a0\nAny of the foregoing risks could delay shipment of our products, result in higher expenses and reduced revenue, damage our relationships with customers and otherwise adversely affect our business and operating results.\nOur reliance on distributors to sell a substantial portion of our products subjects us to a number of risks.\nWe sell a substantial portion of our products to distributors, who in turn sell to our end customers.  Our distributors typically offer power semiconductor products from several different companies, including our direct competitors.  The distributors assume collection risk and provide logistical services to end customers, including stocking our products.  Two distributors, WPG and Promate, collectively accounted for 57.2%, 64.3% and 64.1% of our revenue for the fiscal years ended June\u00a030, 2023, 2022 and 2021, respectively.  We currently have effective agreements with Promate and WPO to serve as our distributors, and such agreement is renewed automatically for one-year period continuously unless terminated earlier pursuant to the terms of such agreements.  We believe that our success will continue to depend upon these distributors. Our reliance on distributors subjects us to a number of risks, including:\n\u2022\nwrite-downs in inventories associated with stock rotation rights and increases in provisions for price adjustments granted to certain distributors;\n\u2022\npotential reduction or discontinuation of sales of our products by distributors;\n\u2022\nfailure to devote resources necessary to sell our products at the prices, in the volumes and within the time frames that we expect;\n\u2022\nfocusing their sales efforts on products of our competitors;\n\u2022\ndependence upon the continued viability and financial resources of these distributors, some of which are small organizations with limited working capital and all of which depend on general economic conditions and conditions within the semiconductor industry;\n\u2022\ndependence on the timeliness and accuracy of shipment forecasts and resale reports from our distributors;\n\u2022\nmanagement of relationships with distributors, which can deteriorate as a result of conflicts with efforts to sell directly to our end customers; and\n\u2022\nour agreements with distributors which are generally terminable by either party on short notice.\n\u00a0\u00a0\u00a0\u00a0\nIf any significant distributor becomes unable or unwilling to promote and sell our products, or if we are not able to renew our contracts with the distributors on acceptable terms, we may not be able to find a replacement distributor on reasonable terms or at all and our business could be harmed.\nWe have made and may continue to make strategic acquisitions of other companies, assets or businesses or form joint ventures with partners to advance our business objectives.  These acquisitions and joint ventures involve significant risks and uncertainties. \nIn order to position ourselves to take advantage of growth opportunities, we have made, and may continue to make, strategic acquisitions, mergers, partnership, joint ventures and alliances that involve significant risks and uncertainties.  Successful acquisitions and alliances in the semiconductor industry are difficult to accomplish because they require, among other factors, efficient integration and aligning of product offerings and manufacturing operations and coordination of sales and marketing and research and development efforts.  We may also seek to establish partnerships, joint ventures and acquisition of assets in various foreign jurisdictions where we may not have significant operating experience.  In addition, we may encounter unanticipated challenges and difficulties, including regulatory and compliance issues, lack of local support and geopolitical tensions. The difficulties of integration and alignment may be increased by the necessity of coordinating geographically separated organizations, the complexity of the technologies being integrated and aligned and the necessity of integrating personnel with dissimilar business backgrounds.  Furthermore, there is no guarantee that we will be able to identify viable targets for strategic acquisition.  Also we may incur significant costs in efforts that may not result in a successful acquisitions.  \n22\nIn addition, we may also issue equity securities to pay for future acquisitions or alliances, which could be dilutive to existing shareholders.  We may also incur debt or assume contingent liabilities in connection with acquisitions and alliances, which could impose restrictions on our business operations and harm our operating results.\nIf we are unable to obtain raw materials in a timely manner or if the price of raw materials increases significantly, production time and product costs could increase, which may adversely affect our business.\nOur fabrication and packaging processes depend on raw materials such as silicon wafers, gold, copper, molding compound, petroleum and plastic materials and various chemicals and gases.  From time to time, suppliers may extend lead times, limit supplies or increase prices due to capacity constraints or other factors.  If the prices of these raw materials rise significantly, we may be unable to pass on the increased cost to our customers.  Our results of operations could be adversely affected if we are unable to obtain adequate supplies of raw materials in a timely manner or at reasonable price.  In addition, from time to time, we may need to reject raw materials because they do not meet our specifications or the sourcing of such materials do not comply with our conflict mineral policies, resulting in potential delays or declines in output.  Furthermore, problems with our raw materials may give rise to compatibility or performance issues in our products, which could lead to an increase in customer returns or product warranty claims.  Errors or defects may arise from raw materials supplied by third parties that are beyond our detection or control, which could lead to additional customer returns or product warranty claims that may adversely affect our business and results of operations.\nWe may not be able to accurately estimate provisions at fiscal period end for price adjustment and stock rotation rights under our agreements with distributors, and our failure to do so may impact our operating results.\nWe sell a majority of our products to distributors under arrangements allowing price adjustments and returns under stock rotation programs, subject to certain limitations.  As a result, we are required to estimate allowances for price adjustments and stock rotation for our products as inventory at distributors at each reporting period end.  Our ability to reliably estimate these allowances enables us to recognize revenue upon delivery of goods to distributors instead of upon resale of goods by distributors to end customers.\nWe estimate the allowance for price adjustment based on factors such as distributor inventory levels, pre-approved future distributor selling prices, distributor margins and demand for our products.  Our estimated allowances for price adjustments, which we offset against accounts receivable from distributors, were $40.0 million and $18.7 million at June\u00a030, 2023 and 2022, respectively.\nOur accruals for stock rotation are estimated based on historical returns and individual distributor agreement, and stock rotation rights, which are recorded as accrued liabilities on our consolidated balance sheets, are contractually capped based on the terms of each individual distributor agreement.  Our estimated liabilities for stock rotation at June\u00a030, 2023 and 2022 were $5.6 million and $4.8 million, respectively.\nOur estimates for these allowances and accruals may be inaccurate.  If we subsequently determine that any allowance and accrual based on our estimates is insufficient, we may be required to increase the size of our allowances and accrual in future periods, which would adversely affect our results of operations and financial condition.\nOur operation of two wholly-owned packaging and testing facilities are subject to risks that could adversely affect our business and financial results.\nWe have two wholly-owned packaging and testing facilities located in Shanghai, China that handle most of our packaging and testing requirements. The operation of high-volume packaging and testing facilities and implementation of our advanced packaging technology are complex and demand a high degree of precision and may require modification to improve yields and product performance. We have committed substantial resources to ensure that our packaging and testing facilities operate efficiently and successfully, including the acquisition of equipment and raw materials, and training and management of a large number of technical personnel and employees. Due to the fixed costs associated with operating our own packaging and testing facilities, if we are unable to utilize our in-house facilities at a desirable level of production, our gross margin and results of operations may be adversely affected. For example, a significant decline in our market share or sales orders may negatively impact our factory utilization and reduce our ability to achieve profitability.\nIn addition, the operation of our packaging and testing facilities is subject to a number of risks, including the following:\n23\n\u2022\nunavailability of equipment, whether new or previously owned, at acceptable terms and prices;\n\u2022\nfacility equipment failure, power outages or other disruptions;\n\u2022\nshortage of raw materials, including packaging substrates, copper, gold and molding compound;\n\u2022\nfailure to maintain quality assurance and remedy defects and impurities;\n\u2022\nchanges in the packaging requirements of customers;\n\u2022\nour limited experience in operating a high-volume packaging and testing facility; and\n\u2022\noperation stoppage due to the city-wide lockdown in response to public health emergencies or pandemics.\nAny of the foregoing risks could adversely affect our capacity to package and test our products, which could delay shipment of our products, result in higher expenses, reduce revenue, damage our relationships with customers and otherwise adversely affect our business, results of operations, financial condition and prospects.\nOur business operations and financial conditions may be adversely affected by any disruption in our information technology systems, including any cyberattacks and breaches.\nOur operations are dependent upon our information technology systems, which encompass all of our major business functions across offices internationally. We rely upon such information technology systems to manage and replenish inventory, complete and track customer orders, coordinate sales activities across all of our products and services, maintain vital data and information, perform financial and accounting tasks and manage and perform various administrative and human resources functions. A substantial disruption in our information technology systems for any extended time period (arising from, for example, system capacity limits from unexpected increases in our volume of business, outages or delays in our service) could result in delays in receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships. Our systems might be damaged or interrupted by natural or man\u2212made events or by computer viruses, physical or electronic break\u2212ins, cyber-attacks and similar disruptions affecting the global Internet. \nIn addition, recent widespread ransomware attacks and cybersecurity breaches in the U.S. and elsewhere have affected many companies, including the cybersecurity incident involving SolarWinds Orion in December 2020.  In the past, we also experienced ransomware attacks on our information technology system.  In April, 2022, we became aware of a cybersecurity incident involving unauthorized access to one of the Company's email accounts, resulting in unauthorized payments.  We recorded a loss of $1.5 million due to the incident for the three months ended March 31, 2022.  Immediately following the discovery, we commenced an investigation, contained the incident and implemented additional protective measures and internal control policies and procedures.  We also alerted law enforcement authorities and banking institutions in an effort to recover the lost amount.  This incident appears to be isolated and its financial impact identified was not material.  The Company believes that it has not incurred other damages and losses based on the conclusion of the full investigation.  \nWhile these attacks did not have a material adverse effect on our business operation or results of operations, they caused temporary disruptions and interfered with our operations.  Any cybersecurity breach and financial loss may also have a negative impact on our internal control over financial reporting.  While we have implemented additional measures to enhance our security protocol to protect our system and intend to do so in response to any threats, there is no guarantee that future attacks would be thwarted or prevented.  We also expect to incur additional costs and expenses to upgrade our information technology system and establish additional protective measures to prevent future breaches.  Furthermore, despite our efforts to investigate, improve and remediate the capability and performance of our information technology system, we may not be able to discover all weaknesses, breaches and vulnerabilities, and failure to do so may expose us to higher risk of data loss and adversely affect our business operations and results of operations.\nWe depend on the continuing services of our senior management team and other key personnel, and if we lose a member of our senior management or are unable to successfully retain, recruit and train key personnel, our ability to develop and market our products could be harmed.\nOur success depends upon the continuing services of members of our senior management team and various engineering and other technical personnel.  In particular, our engineers and other sales and technical personnel are critical to our future technological and product innovations.  Our industry is characterized by high demand and intense competition for talent and the pool of qualified candidates is limited.  We have entered into employment agreements with certain senior executives, but we do not have employment agreements with most of our employees.  Many of these employees could leave our company with little or no prior notice and would be free to work for a competitor.  If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all and other senior management may be required to divert attention from other aspects of our business.  In addition, we do not have \u201ckey person\u201d life insurance policies covering any member of \n24\nour management team or other key personnel.  The loss of any of these individuals or our inability to attract or retain qualified personnel, including engineers and others, could adversely affect our product introductions, overall business growth prospects, results of operations and financial condition.\nFailure to protect our patents and our other proprietary information could harm our business and competitive position.\nOur success depends, in part, on our ability to protect our intellectual property.  We rely on a combination of patent, copyright (including mask work protection), trademark and trade secret laws, as well as nondisclosure agreements, license agreements and other methods to protect our intellectual property rights, which may not be sufficient to protect our intellectual property.  As of June\u00a030, 2023, we owned 918 issued U.S. patents expiring between 2023 and 2041 and had 45 pending patent applications with the United States Patent and Trademark Office.  In addition, we own patents and have filed patent applications in several jurisdictions outside of the U.S, including China, Taiwan, Japan and Korea.\n\u00a0\nOur patents and patent applications may not provide meaningful protection from our competitors, and there is no guarantee that patents will be issued from our patent applications.  The status of any patent or patent application involves complex legal and factual determinations and the breadth of a claim is uncertain.  In addition, our efforts to protect our intellectual property may not succeed due to difficulties and risks associated with:\n\u2022\npolicing any unauthorized use of or misappropriation of our intellectual property, which is often difficult and costly and could enable third parties to benefit from our technologies without paying us;\n\u2022\nothers independently developing similar proprietary information and techniques, gaining authorized or unauthorized access to our intellectual property rights, disclosing such technology or designing around our patents;\n\u2022\nthe possibility that any patent or registered trademark owned by us may not be enforceable or may be invalidated, circumvented or otherwise challenged in one or more countries may limit our competitive advantages;\n\u2022\nuncertainty as to whether patents will be issued from any of our pending or future patent applications with the scope of the claims sought by us, if at all; and\n\u2022\nintellectual property laws and confidentiality laws may not adequately protect our intellectual property rights, including, for example, in China where enforcement of China intellectual property-related laws have historically been less effective, primarily because of difficulties in enforcement and low damage awards.\n\u00a0\nWe also rely on customary contractual protection with our customers, suppliers, distributors, employees and consultants, and we implement security measures to protect our trade secrets.  We cannot assure you that these contractual protections and security measures will not be breached, that we will have adequate remedies for any such breach or that our suppliers, employees, distributors or consultants will not assert rights to intellectual property arising out of such contracts.\nIn addition, we have a number of third-party patent and intellectual property license agreements, one of which requires us to make ongoing royalty payments.  In the future, we may need to obtain additional licenses, renew existing license agreements or otherwise replace existing technology.  We are unable to predict whether these license agreements can be obtained or renewed or the technology can be replaced on acceptable terms, or at all.\nIntellectual property disputes could result in lengthy and costly arbitration, litigation or licensing expenses or prevent us from selling our products.\nAs is typical in the semiconductor industry, we or our customers may receive claims of infringement from time to time or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties that may cover some of our technology, products and services or those of our end customers.  The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights which has resulted in protracted and expensive arbitration and litigation for many companies.  Patent litigation has increased in recent years due to increased assertions made by intellectual property licensing entities or non-practicing entities and increasing competition and overlap of product functionality in our markets.  \nAny litigation or arbitration regarding patents or other intellectual property could be costly and time consuming and could divert our management and key personnel from our business operations.  We have in the past and may from time \n25\nto time in the future become involved in litigation that requires our management to commit significant resources and time.  In addition, as part of our strategy to diversify our serviceable markets, we launched several key product families and technologies to enable high efficiency power conversion solutions and we plan to develop and commercialize new products in other power semiconductor markets.  Our entry into the commercial markets for high-voltage power semiconductors and other markets as a result of our diversification strategy may subject us to additional and increased risk of disputes or litigation relating to these products.\nBecause of the complexity of the technology involved and the uncertainty of litigation generally, any intellectual property arbitration or litigation involves significant risks.  Any claim of intellectual property infringement against us may require us to:\n\u2022\nincur substantial legal and personnel expenses to defend the claims or to negotiate for a settlement of claims;\n\u2022\npay substantial damages or settlement to the party claiming infringement;\n\u2022\nrefrain from further development or sale of our products;\n\u2022\nattempt to develop non-infringing technology, which may be expensive and time consuming, if possible at all;\n\u2022\nenter into costly royalty or license agreements that might not be available on commercially reasonable terms or at all;\n\u2022\ncross-license our technology with a competitor to resolve an infringement claim, which could weaken our ability to compete with that competitor; and\n\u2022\nindemnify our distributors, end customers, licensees and others from the costs of and damages of infringement claims by our distributors, end customers, licensees and others, which could result in substantial expenses for us and damage our business relationships with them.\nAny intellectual property claim or litigation against us harm our business, results of operations, financial condition and prospects.\nThe current government investigation and evolving export control regulations may adversely affect our financial performance and business operations.\nThe U.S. Department of Justice commenced an investigation into the Company\u2019s compliance with export control regulations relating to its business transactions with Huawei and its affiliates (\u201cHuawei\u201d), which were added to the \u201cEntity List\u201d by the Department of Commerce (\u201cDOC\u201d) in May 2019.  The Company is cooperating fully with federal authorities in the investigation.  The Company has continued to respond to inquiries and requests from DOJ for documents and information relating to the investigation, and the matter is currently pending at DOJ, and DOJ has not provided the Company with any specific timeline or indication as to when the investigation will be concluded or resolved.  In connection with this investigation, DOC previously requested the Company to suspend shipments of its products to Huawei.  The Company complied with such request, and the Company has not shipped any product to Huawei after December 31, 2019.  The Company continues to work with DOC to resolve this issue.  As part of this process and in response to DOC\u2019s request, the Company provided certain documents and materials relating to the Company\u2019s supply chain and shipment process to DOC, and DOC is currently reviewing this matter.  DOC has not informed the Company of any specific timeline or schedule under which DOC will complete its review.\nThe ongoing government investigations into our export control compliance also subject us to a number of financial and business risks.  We expect to incur significant costs and expenses, including legal fees, in connection with our effort to respond to the government investigation, as well as additional legal fees for defending securities class actions resulting from public disclosure of the government investigation.  Such additional costs will adversely affect our profitability.  While the Company has purchased a D&O insurance policy which may reimburse a portion of such fees and expenses, there is no guarantee that such policy will be sufficient to reduce our costs or that reimbursement can be obtained on a timely basis or at all.  Furthermore, the management has diverted its resources and time in response to the investigation, and might not be able to fully engage with the core operation and objectives of our business activities.  Finally, while we are fully cooperating with the government in the investigation, we are not able to predict its timing and outcome.  In the event that the government decides to bring enforcement action against us, it will result in a material adverse effect on our business operations, our financial conditions and our reputation.\nWe also expect that the U.S. export control regulations to evolve and change in response to the political and economic tension between the U.S. and China, including potential new export control regulations that may impose additional restrictions on our ability to continue to do business with certain customers in China and Asia.  If such \n26\nchanges occur, we may be required to reduce shipments to certain Asian customers, adjust our business practices and incur additional costs to implement new export control compliance procedures, policies and programs, each of which will adversely affect our financial conditions and results of operations.\nGlobal or regional economic, political and social conditions could adversely affect our business and operating results.\nExternal factors such as potential terrorist attacks, acts of war, financial crises, such as the global or regional economic recession, or geopolitical and social turmoil in those parts of the world that serve as markets for our products could have significant adverse effect on our business and operating results in ways that cannot presently be predicted.  Any future economic downturn or recession in the global economy in general and, in particular, on the economies in China, Taiwan and other countries where we market and sell our products, will have an adverse effect on our results of operations. \nOur business operations could be significantly harmed by natural disasters or global epidemics.\nWe have research and development facilities located in Taiwan and the Silicon Valley in Northern California.  Historically, these regions have been vulnerable to natural disasters and other risks, such as earthquakes, fires and floods, which may disrupt the local economy and pose physical risks to our property.  We also have sales offices located in Taiwan and Japan where similar natural disasters and other risks may disrupt the local economy and pose physical risks to our operations.  We are not currently covered by insurance against business disruption caused by earthquakes.  In addition, we currently do not have redundant, multiple site capacity in the event of a natural disaster or other catastrophic event.  In the event of such an occurrence, our business would suffer.\nOur business could be adversely affected by natural disasters such as epidemics, outbreaks or other health crisis.  An outbreak of avian flu or H1N1 flu in the human population, or another similar health crisis could adversely affect the economies and financial markets of many countries, particularly in Asia.  Moreover, any related disruptions to transportation or the free movement of persons could hamper our operations and force us to close our offices temporarily.\nThe occurrence of any of the foregoing or other natural or man-made disasters could cause damage or disruption to us, our employees, operations, distribution channels, markets and customers, which could result in significant delays in deliveries or substantial shortages of our products and adversely affect our business results of operations, financial condition or prospects.\nOur insurance may not cover all losses, including losses resulting from business disruption or product liability claims.\nWe have limited product liability, business disruption or other business insurance coverage for our operations.  In addition, we do not have any business insurance coverage for our operations to cover losses that may be caused by litigation or natural disasters.  Any occurrence of uncovered loss could harm our business, results of operations, financial condition and prospects.\nOur international operations subject our company to risks not faced by companies without international operations.\nWe have adopted a global business model under which we maintain significant operations and facilities through our subsidiaries located in the U.S., China, Taiwan and Hong Kong.  Our main research and development center is located in Silicon Valley, and our manufacturing and supply chain is located in China.  We also have sales offices and customers throughout Asia, the U.S. and elsewhere in the world.  Our international operations may subject us to the following risks:\n\u2022\neconomic and political instability, including trade tension between the U.S. and China;\n\u2022\ncosts and delays associated with transportations and communications;\n\u2022\ncoordination of operations through multiple jurisdictions and time zones;\n\u2022\nfluctuations in foreign currency exchange rates;\n\u2022\ntrade restrictions, changes in laws and regulations relating to, amongst other things, import and export tariffs, taxation, environmental regulations, land use rights and property; and\n\u2022\nthe laws of, including tax laws, and the policies of the U.S. toward, countries in which we operate.\nIf we fail to maintain an effective internal control environment as well as adequate control procedures over our financial reporting, investor confidence may be adversely affected thereby affecting the value of our stock price. \n27\nWe are required to maintain proper internal control over our financial reporting and adequate controls related to our disclosures. As defined in Rule 13a-15(f) under the Exchange Act, internal control over financial reporting is a process designed by, or under the supervision of the Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. If we fail to maintain adequate controls, our business, the results of operations, financial condition and/or the value of our stock may be adversely impacted.\nIn connection with management\u2019s evaluation of the effectiveness of our internal control over financial reporting, management identified a material weakness in our internal control over financial reporting due to the fact that (i) we did not design and maintain effective information technology general controls in the areas of user access, and segregation of duties for one of the information technology systems that supports the Company\u2019s financial reporting over inventory (work in process and finished goods) in costing and (ii) we did not identify and test control to ensure reliability of costing of inventory (work in process and finished goods).\nWe are in the process of remediating the material weakness identified above, including the implementation of additional policies and procedures to address the issues in our information technology control systems. For a more detailed description of the material weakness and our remediation plan, please see Item 9A of this Form 10-K.  If our remediation efforts are insufficient or if additional material weakness in internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and it could be required to revise or restate its financial results, which could materially and adversely affect our business, results of operations and financial condition, restrict its ability to access the capital markets, require it to expend significant resources to correct the material weakness, subject it to fines, penalties or judgments, harm its reputation or otherwise cause a decline in investor confidence.\nWe are subject to the risk of increased income taxes and changes in existing tax rules.  \nWe conduct our business in multiple jurisdictions, including Hong Kong, Macau, the U.S., China, Taiwan, South Korea, Japan and Germany.\n \nThe calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions.\n \nAny of these jurisdictions may assert that we have unpaid taxes.\n \nOur effective tax rate was 30.1%, 7.9% and 6.5% for the fiscal years ended June\u00a030, 2023, 2022 and 2021, respectively.  \nAny tax rate changes in the tax jurisdictions in which we operate could result in adjustments to our deferred tax assets, if applicable, which would affect our effective tax rate and results of operations.\n \nWe base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities.\n \nHowever, our tax position is subject to review and possible challenge by tax authorities and to possible changes in law, which may have a retroactive effect.\n \nIn particular, various proposals over the years have been made to change certain U.S. tax laws relating to foreign entities with U.S. connections.\n \nIn addition, the U.S. government has proposed various other changes to the U.S. international tax system, certain of which could adversely impact foreign-based multinational corporate groups, and increased enforcement of U.S. international tax laws. \nIn August 2022 the U.S. enacted the Chip and Science Act of 2022 (the Chips Act).\n \nThe Chips Act provides incentives to semiconductor chip manufacturers in the United States, including providing a 25% manufacturing investment credits for investments in semiconductor manufacturing property placed in service after December 31, 2022, for which construction begins before January 1, 2027.\n \nProperty investments qualify for the 25% credit if, among other requirements, the property is integral to the operation of an advanced manufacturing facility, defined as having a primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment.\n \nCurrently, we are evaluating the impact of the Chips Act to us.\nIt is possible that these or other changes in the U.S. tax laws, foreign tax laws, or proposed actions by international bodies such as the Organization of Economic Cooperation and Development (OECD) could significantly increase our U.S. or foreign income tax liability in the future, including as described further below in this risk factor.\nIn December 2017, the European Union (\u201cEU\u201d) identified certain jurisdictions (including Bermuda and Cayman Islands) which it considered had a tax system that facilitated offshore structuring by attracting profits without commensurate economic activity. In order to avoid EU \u201cblacklisting\u201d, both Bermuda and Cayman Islands introduced new legislation in December 2018, which came into force on January 1, 2019. These new laws require Bermuda and Cayman companies carrying on one or more \u201crelevant activity\u201d (including: banking, insurance, fund management, \n28\nfinancing, leasing, headquarters, shipping, distribution and service center, intellectual property or holding company) to maintain a substantial economic presence in Bermuda and Cayman Islands in order to comply with the economic substance requirements. Effective from December 31, 2019, we have structured our activities to comply with the new law.  However, there is no experience yet as to how the Bermuda and Cayman Islands authorities will interpret and enforce these new rules. The legislation remains subject to further clarification and, accordingly, there is no guarantee that we will be deemed to be compliant. Furthermore, this legislation may require us to make additional changes to the activities we carry on in Bermuda or Cayman Islands, which could increase our costs either directly in those locations or indirectly as a result of increased costs related to moving our operations to other jurisdictions. As a result, we are not able to determine the impact on our operations and net income as of the current period.\nIn addition, our subsidiaries provide products and services to, and may from time to time undertake certain significant transactions with, us and other subsidiaries in different jurisdictions.  We have adopted transfer pricing arrangements for transactions among our subsidiaries.  Related party transactions are generally subject to close review by tax authorities, including requirements that transactions be priced at arm's length and be adequately documented.  If any tax authorities were successful in challenging our transfer pricing policies or other tax judgments, our income tax expense may be adversely affected and we could also be subject to interest and penalty charges which may harm our business, financial condition and operating results.\nFurther, the U.S. Congress, the EU, the OECD, and other government agencies in jurisdictions where we and our affiliates do business have had an extended focus on issues related to the taxation of multinational corporations. One example is the OECD\u2019s initiative in the area of \u201cbase erosion and profit shifting,\u201d or \u201cBEPS\u201d. Many countries have implemented or begun to implement legislation and other guidance to align their international tax rules with the OECD\u2019s BEPS recommendations. In addition, the OECD has been working on an extension of the BEPS project, being referred to as \u201cBEPS 2.0\u201d, which focuses on two \u201cpillars\u201d of reform.  Pillar 1 is focused on global profit allocation and changing where large multinational corporations pay taxes, and pillar 2 includes a global minimum tax rate. The OECD published detailed blueprints of its proposals for pillar 1 and pillar 2 on October 14, 2020.  In June 2021, Finance Ministers from the Group of Seven (G7) nations reached an accord on the principles of pillar 2, backing the creation of a global minimum corporate tax rate of at least 15%. Following the G7 announcement, the OECD/G20 Inclusive Framework announced on July 1, 2021 broad agreement on the two pillars, and released a proposal, which has been endorsed by over 130 jurisdictions, for a global minimum tax rate of at least 15% for large multinational corporations on a jurisdiction-by-jurisdiction basis. The OECD/G20 Inclusive Framework will work towards an agreement and the release of an implementation plan, which will contemplate bringing pillar 2 into law in 2022 with an effective date in 2023. As a result of the focus on the taxation of multinational corporations, the tax laws in the countries in which we and our affiliates do business could change on a prospective or retroactive basis, and any such changes could adversely affect us.\n\u00a0\u00a0\u00a0\u00a0\nOur debt agreements include financial covenants that may limit our ability to pursue business and financial opportunities and subject us to risk of default.\nWe have entered into various debt agreements with certain financial institutions, which generally require us to maintain certain financial covenants that have the effect of limiting our ability to take certain actions, including actions to incur debt, repurchase stock, make certain investments and capital expenditures.  As we continue to grow our business and expand our operations, we expect to incur additional indebtedness, including loan agreement or equipment leases, in order to fund such capital expenditures.  These restrictions may limit our ability to pursue business and financial opportunities that are available or beneficial to us in response to changing and competitive economic environment, which may have an adverse effect on our financial conditions.  In addition, a breach of any of these financial covenants, if not waived by the lenders, could trigger an event of default under the debt agreements, which may result in the acceleration of our indebtedness or the loss of our collateral used to secure such indebtedness.\nThe imposition of U.S. corporate income tax on our Bermuda parent and non-U.S. subsidiaries could adversely affect our results of operations. \nWe believe that our Bermuda parent and non-U.S. subsidiaries each operate in a manner that they would not be subject to U.S. corporate income tax because they are not engaged in a trade or business in the United States.  Nevertheless, there is a risk that the U.S. Internal Revenue Service may assert that our Bermuda parent and non-U.S. subsidiaries are engaged in a trade or business in the United States.  If our Bermuda parent and non-U.S. subsidiaries were characterized as being so engaged, we would be subject to U.S. tax at the regular corporate rates on our income that is effectively connected with U.S. trade or business, plus an additional 30% \u201cbranch profits\u201d tax on the dividend equivalent amount, which is generally effectively connected income with certain adjustments, deemed withdrawn from the United States. Any such tax could materially and adversely affect our results of operations.\nWe may be classified as a passive foreign investment company (\u201cPFIC\u201d), which could result in adverse U.S. federal income tax consequences for U.S. holders. \n29\nBased on the current and anticipated valuation of our assets and the composition of our income and assets, we do not expect to be considered a PFIC, for U.S. federal income tax purposes for the foreseeable future.  However, we must make a separate determination for each taxable year as to whether we are a PFIC after the close of each taxable year and we cannot assure you that we will not be a PFIC for our June 30, 2023 taxable year or any future taxable year.  Under current law, a non-U.S. corporation will be considered a PFIC for any taxable year if either (1) at least 75% of its gross income is passive income or (2) at least 50% of the value of its assets, generally based on an average of the quarterly values of the assets during a taxable year, is attributable to assets that produce or are held for the production of passive income.  PFIC status depends on the composition of our assets and income and the value of our assets, including, among others, a pro rata portion of the income and assets of each subsidiary in which we own, directly or indirectly, at least 25% by value of the subsidiary's equity interests, from time to time.  Because we currently hold and expect to continue to hold a substantial amount of cash or cash equivalents, and because the calculation of the value of our assets may be based in part on the value of our common shares, which may fluctuate considerably given that market prices of technology companies historically often have been volatile, we may be a PFIC for any taxable year.  If we were treated as a PFIC for any taxable year during which a U.S. holder held common shares, certain adverse U.S. federal income tax consequences could apply for such U.S. holder.\nRisks Related to Doing Business in China\nChina's economic, political and social conditions, as well as government policies, could affect our business and growth.\nOur financial results have been, and are expected to continue to be, affected by the economy in China.  If China\u2019s economy is slowing down, it may negatively affect our business operation and financial results.  The China economy differs from the economies of most developed countries in many respects, including:\n\u2022\nhigher level of government involvement;\n\u2022\nearly stage of development of a market-oriented economy;\n\u2022\nrapid growth rate;\n\u2022\nhigher level of control over foreign currency exchange; and\n\u2022\nless efficient allocation of resources.\n\u00a0\nThe Chinese economy has been transitioning from a planned economy to a more market-oriented economy.  Although in recent years the China government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of corporate governance in business enterprises, the China government continues to retain significant control over the business and productive assets in China.  Any changes in China's government policy or China's political, economic and social conditions, or in relevant laws and regulations, may adversely affect our current or future business, results of operations or financial condition.  These changes in government policy may be implemented through various means, including changes in laws and regulations, implementation of anti-inflationary measures, change of basic interest rate, changes in the tax rate or taxation system and the imposition of additional restrictions on currency conversion and imports.  Furthermore, given China's largely export-driven economy, any changes in the economies of China's principal trading partners and other export-oriented nations may adversely affect our business, results of operations, financial condition and prospects.\nOur ability to successfully expand our business operations in China depends on a number of factors, including macroeconomic and other market conditions, and credit availability from lending institutions.  In response to the recent global and Chinese economic recession, the China government has promulgated several measures aimed at expanding credit and stimulating economic growth.  We cannot assure you that the various macroeconomic measures, monetary policies and economic stimulus package adopted by the China government to guide economic growth will be effective in maintaining or sustaining the growth rate of the Chinese economy.  If measures adopted by the China government fail to achieve further growth in the Chinese economy, it may adversely affect our growth, business strategies and operating results.  In addition, changes in political and social conditions of China may adversely affect our ability to conduct our business in the region.  For example, geopolitical disputes and increased tensions between China and its neighboring countries in which we conduct business could make it more difficult for us to coordinate and manage our international operations in such countries.   \nChanges in China's laws, legal protections or government policies on foreign investment in China may harm our business.\n30\nOur business and corporate transactions, including our operations through the JV Company, are subject to laws and regulations applicable to foreign investment in China as well as laws and regulations applicable to foreign-invested enterprises.  These laws and regulations frequently change, and their interpretation and enforcement involve uncertainties that could limit the legal protections available to us.  Regulations and rules on foreign investments in China impose restrictions on the means that a foreign investor like us may apply to facilitate corporate transactions we may undertake.  In addition, the Chinese legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, that may have a retroactive effect.  As a result, we may not be aware of our violation of these policies and rules until sometime after the violation.  If any of our past operations are deemed to be non-compliant with Chinese law, we may be subject to penalties and our business and operations may be adversely affected.  For instance, under Special Administrative Measures (Negative List) for Foreign Investment Access, some industries are categorized as sectors which are restricted or prohibited for foreign investment.  As the Negative List is updated every year, there can be no assurance that the China government will not change its policies in a manner that would render part or all of our business to fall within the restricted or prohibited categories.  If we cannot obtain approval from relevant authorities to engage in businesses which become prohibited or restricted for foreign investors, we may be forced to sell or restructure a business which has become restricted or prohibited for foreign investment.  Furthermore, the China government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance.  In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies.  If we are forced to adjust our corporate structure or business as a result of changes in government policy on foreign investment or changes in the interpretation and application of existing or new laws, our business, financial condition, results of operations and prospects may be harmed.  Moreover, uncertainties in the Chinese legal system may impede our ability to enforce contracts with our business partners, customers and suppliers, or otherwise pursue claims in litigation to recover damages or loss of property, which could adversely affect our business and operations.\nThe continuing trade tensions between the U.S. and China may result in increased tariffs on imported goods from China that could adversely affect our business operations. \nSince 2018, U.S. and China trade tensions led to higher and increasing tariffs imposed by both countries on the import of goods from the other country.  The U.S. government used various authorities to implement tariffs on a variety of Chinese goods and materials, which, absent exemptions, include products and applications, including consumer electronics, that incorporate our power discrete and power IC products.  In response, China has imposed tariffs on certain American products, and warned of additional actions if the U.S. imposes new or increased tariffs.  The continuing trade tensions could have significant adverse effects on world trade and the world economy.  While the two countries have negotiated and entered into agreements to gradually reduce certain tariffs, it\u2019s unclear whether those agreements will significantly reduce the tariffs affecting our business operations. The ultimate level of tariffs, the ultimate scope of them, and whether or how any proposed additional tariffs will impact our business is uncertain. We believe that the imposition of additional tariffs by the U.S. government on products incorporating our power semiconductors could deter our customers from purchasing our products originating from China. If so, this would reduce demand for our power semiconductor products or result in pricing adjustments that would lower our gross margin, which could have a material adverse effect on our business and results of operations. \nUncertainties exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.\n\u00a0\nOn March 15, 2019, the National People\u2019s Congress of the PRC promulgated the Foreign Investment Law, which took effect on January 1, 2020, and replaced the existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations.  The Foreign Investment Law embodies a PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. The Foreign Investment Law establishes the basic framework for the access, promotion, protection and administration of foreign investments in China in view of investment protection and fair competition.  For example, treatment of foreign investors on a national level will be no less favorable than the treatment received by domestic investors unless such investments fall within a \u201cnegative list\u201d.  On June 30, 2019, the National Development and Reform Commission (the \u201cNDRC\u201d) and the Ministry of Commerce of the PRC (the \u201cMOC\u201d) published the Special Administrative Measures for Market Access of Foreign Investment (Negative List), which identifies specific sectors where foreign investors will be subject to special administrative measures.  The Negative List has been updated twice in June 2020 for year 2021 and December 2021 for year 2022.  The current effective Negative List took effect on January 1, 2022.\n31\nSince the Foreign Investment Law was newly enacted, uncertainties still exist in relation to its interpretation and implementation.  For example, the Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within a five-year transition period, which means that we may be required to adjust the structure and corporate governance of certain of our China subsidiaries in such transition period.  Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations.\nIn addition, under the newly enacted Foreign Investment Law, foreign investors or the foreign invested enterprise should report investment information on the principle of necessity.  Any company found to be non-complaint with such investment information reporting obligation might be potentially subject to fines or administrative liabilities.\nLimitations on our ability to transfer funds to our China subsidiaries could adversely affect our ability to expand our operations, make investments that could benefit our businesses and otherwise fund and conduct our business.\nThe transfer of funds from us to our China subsidiaries, either as a shareholder loan or as an increase in registered capital, is subject to registration with or approval by the China's governmental authorities, including the State Administration of Foreign Exchange, or SAFE's, or the relevant examination and approval authority.  Our subsidiaries may also experience difficulties in converting our capital contributions made in foreign currencies into RMB due to changes in the China's foreign exchange control policies.  Therefore, it may be difficult to change capital expenditure plans once the relevant funds have been remitted from us to our China subsidiaries.  These limitations and the difficulties our China subsidiaries may experience on the free flow of funds between us and our China subsidiaries could restrict our ability to act in response to changing market situations in a timely manner.\nChina's currency exchange control and government restrictions on investment repatriation may impact our ability to transfer funds outside of\u00a0China.\nA significant portion of our business is conducted in China where the currency is the Renminbi.  Regulations in China permit foreign owned entities to freely convert the Renminbi into foreign currency for transactions that fall under the \u201ccurrent account,\u201d which includes trade related receipts and payments, interest and dividends.  Accordingly, our Chinese subsidiaries may use Renminbi to purchase foreign exchange for settlement of such \u201ccurrent account\u201d transactions without pre-approval.  However, pursuant to applicable regulations, foreign\u2011invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations.  In calculating accumulated profits, foreign investment enterprises in China are required to allocate 10% of their accumulated profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises.\nOther transactions that involve conversion of Renminbi into foreign currency are classified as \u201ccapital account\u201d transactions; examples of \u201ccapital account\u201d transactions include repatriations of investment by or loans to foreign owners, or direct equity investments in a foreign entity by a China domiciled entity.  \u201cCapital account\u201d transactions require prior approval from, or registration with China's State Administration of Foreign Exchange (SAFE) or its provincial branch or its authorized banks to convert a remittance into a foreign currency, such as U.S.\u00a0dollars, and transmit the foreign currency outside of\u00a0China.  \nAs a result of these and other restrictions under PRC laws and regulations, our China subsidiaries are restricted in their abil\nity to transfer a portion of their net assets to the parent.  Such restricted portion amounted to approximat\nely $93.2 million, or 10.5% of our total consolidated net assets attributed to the Company as of June\u00a030, 2023.  We have no assurance that the relevant Chinese\n governmental authorities in the future will not limit \nfurther or eliminate the ability of our China subsidiaries to purchase foreign currencies and transfer such funds to us to meet our liquidity or other business needs.  Any inability to access funds in China, if and when needed for use by the Company outside of China, could have a material and adverse effect on our liquidity and our\u00a0business.\nThe M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.\nThe Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances \n32\nthat the Ministry of Commerce (\"MOC\") be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise.  Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered.  In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise \u201cnational defense and security\u201d concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise \u201cnational security\u201d concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement.  On July 1, 2015, the National Security Law of China took effect, which provided that China would establish rules and mechanisms to conduct national security review of foreign investments in China that may impact national security. China\u2019s Foreign Investment Law, which became effective in January 2020, reiterates that China will establish a security review system for foreign investments. On December 19, 2020, the NDRC and the MOC jointly issued the Measures for the Security Review of Foreign Investments (the \u201cNew FISR Measures\u201d), which was made according to the National Security Law and the Foreign Investment Law of China and became effective on January 18, 2021. The New FISR Measures further expand the scope of national security review on foreign investment compared to the existing rules, while leaving substantial room for interpretation and speculation.  In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOC or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.\nOur results of operations may be negatively impacted by fluctuations in foreign currency exchange rates between U.S. dollar and Chinese Yuan, or RMB.\n\u00a0\u00a0\u00a0\u00a0\nWhile U.S. dollars is our main functional currency and our revenue and a significant portion of our operating expenses are denominated in U.S. dollars, we are required to maintain local currencies, primarily the RMB, in our cash balances in connection with the funding of our overseas operations.\u00a0\u00a0As a result, our costs and operating expenses may be exposed to adverse movements in foreign currency exchange rates between the U.S. dollar and RMB.\u00a0 We also do not utilize any financial instruments to hedge or reduce potential losses due to the fluctuation of foreign currency exchange rates.\u00a0 In general, any appreciation of U.S. dollars against a weaker RMB could reduce the value of our cash and cash equivalent balance, which could increase our operating expenses and negatively affect our cash flow, income and profitability.\u00a0 The value of RMB against the U.S. dollars may fluctuate and is affected by many factors outside of our control, including changes in political and economic conditions, implementation of new monetary policies by the Chinese government and changes in banking regulations, and there is no guarantee that we will be able to mitigate or recoup any losses due to a significant fluctuation in the U.S. dollar/RMB exchange rates.\nPRC labor laws may adversely affect our results of operations.\nThe PRC government promulgated the Labor Contract Law of the PRC, effective on January 1, 2008, as amended, to govern the establishment of employment relationships between employers and employees, and the conclusion, performance, termination of and the amendment to employment contracts.  The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer\u2019s decision to reduce its workforce.  Further, it requires that certain termination decisions be based upon seniority and not merit. In the event our subsidiaries decide to significantly change or decrease their workforce in China, the Labor Contract Law could adversely affect their ability to effect such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations.\nIn recent years, compensation in various industries in China has increased and may continue to increase in the future.  In order to attract and retain skilled personnel, we may need to increase the compensation of our employees.  Compensation may, also, increase as inflationary pressure increases in China.  In addition, under the Regulations on Paid Annual Leave for Employees, which became effective on January 1, 2008, employees who have served more than one year for a specific employer are entitled to a paid vacation ranging from 5 to 15 days, depending on length of service.  Employees who waive such vacation time at the request of employers must be compensated for three times their normal salaries for each waived vacation day.  This mandated paid-vacation regulation, coupled with the trend of increasing compensation, may result in increase in our employee-related costs and expenses and decrease in our profit margins.\nRelations between Taiwan and China could negatively affect our business, financial condition and operating results and, therefore, the market value of our common shares.\n33\nTaiwan has a unique international political status.  China does not recognize the sovereignty of Taiwan.  Although significant economic and cultural relations have been established during recent years between Taiwan and China, relations have often been strained.  A substantial number of our key customers and some of our essential sales and engineering personnel are located in Taiwan, and we have a large number of operational personnel and employees located in China.  Therefore, factors affecting military, political or economic relationship between China and Taiwan could have an adverse effect on our business, financial condition and operating results.\nRisks Related to Our Corporate Structure and Our Common Shares\nOur share price may be volatile and you may be unable to sell your shares at or above the purchase price, if at all.\nLimited trading volumes and liquidity of our common shares on the NASDAQ Global Select Market may limit the ability of shareholders to purchase or sell our common shares in the amounts and at the times they wish.\u00a0 In addition, the financial markets in the United States and other countries have experienced significant price and volume fluctuations, and market prices of technology companies have been and continue to be extremely volatile.  The trading price of our common shares on The NASDAQ Global Select Market ranged from a low of $23.36 to high of $44.89 from July 1, 2022 to June 30, 2023.  At July 31, 2023, the trading price of our common shares was $32.88.  Volatility in the price of our shares may be caused by factors outside our control and may be unrelated or disproportionate to our operating results.\nThe market price for our common shares may be volatile and subject to wide fluctuations in response to factors, including:\n\u2022\nactual or anticipated fluctuations in our operating results;\n\u2022\ngeneral economic, industry, regional and global market conditions, including the economic conditions of specific market segments for our products, including the PC markets;\n\u2022\nour failure to meet analysts' expectations, including expectation regarding our revenue, gross margin and operating expenses;\n\u2022\nchanges in financial estimates and outlook by securities research analysts;\n\u2022\nour ability to increase our gross margin;\n\u2022\nannouncements by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments; \n\u2022\nannouncements of technological or competitive developments;\n\u2022\nannouncement of acquisition, partnership and major corporate transactions;\n\u2022\nregulatory developments in our target markets affecting us, our customers or our competitors;\n\u2022\nour ability to enter into new market segments, gain market share, diversify our customer base and successfully secure manufacturing capacity;\n\u2022\nannouncements regarding intellectual property disputes or litigation involving us or our competitors;\n\u2022\nchanges in the estimation of the future size and growth rate of our markets;\n\u2022\nannouncement of significant legal proceedings, litigation or government investigation;\n\u2022\nadditions or departures of key personnel;\n\u2022\nrepurchase of shares under our repurchase program;\n\u2022\nannouncement of sales of our securities by us or by our major shareholders;\n\u2022\ngeneral economic or political conditions in China and other countries in Asia; and\n\u2022\nother factors.\n\u00a0\u00a0\nIn the past, securities class action litigation has often been brought against a company following periods of volatility in such company's share price.\u00a0 This type of litigation could result in substantial costs and divert our management's attention and resources which could negatively impact our business and financial conditions.  See Item 3. Legal Proceeding.\n34\nIf securities or industry analysts adversely change their recommendations regarding our common shares or if our operating results do not meet their expectations, the trading price of our common shares could decline. \nThe market price of our common shares is influenced by the research and reports that industry or securities analysts publish about us or our business.  There is no guarantee that these analysts will understand our business and results, or that their reports will be accurate or correctly predict our operating results or prospects.  If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the market price of our common shares or its trading volume to decline.  Moreover, if one or more of the analysts who cover our company downgrade our common shares or if our operating results or prospects do not meet their expectations, the market price of our common shares could decline significantly.\nAnti-takeover provisions in our bye-laws could make an acquisition of us more difficult and may prevent attempts by our shareholders to replace or remove our current management.\nCertain provisions in our bye-laws may delay or prevent an acquisition of us or a change in our management.  In addition, by making it more difficult for shareholders to replace members of our board of directors, these provisions also may frustrate or prevent any attempts by our shareholders to replace or remove our current management because our board of directors is responsible for appointing the members of our management team.  These provisions include:\n\u2022\nthe ability of our board of directors to determine the rights, preferences and privileges of our preferred shares and to issue the preferred shares without shareholder approval;\n\u2022\nadvance notice requirements for election to our board of directors and for proposing matters that can be acted upon at shareholder meetings; and\n\u2022\nthe requirement to remove directors by a resolution passed by at least two-thirds of the votes cast by the shareholders having a right to attend and vote at the shareholder meeting.\nThese provisions could make it more difficult for a third-party to acquire us, even if the third-party's offer may be considered beneficial by many shareholders.  As a result, shareholders may be limited in their ability to obtain a premium for their shares.\nWe are a Bermuda company and the rights of shareholders under Bermuda law may be different from U.S. laws. \nWe are a Bermuda limited liability exempted company.  As a result, the rights of holders of our common shares will be governed by Bermuda law and our memorandum of association and bye-laws.\u00a0 The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions, including the U.S.\u00a0 For example, some of our directors are not residents of the United States, and a substantial portion of our assets are located outside the United States.\u00a0 As a result, it may be difficult for investors to effect service of process on those persons in the U.S. or to enforce in the U.S. judgments obtained in U.S. courts against us or those persons based on civil liability provisions of the U.S. securities laws.\u00a0 It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the U.S., against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions. \n35",
+  "item7": ">Item 7.\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations \nYou should read the following discussion of the financial condition and results of our operations in conjunction with our consolidated financial statements and the notes to those statements included elsewhere in this annual report.  Our consolidated financial statements contained in this annual report are prepared in accordance with U.S. GAAP.\nOverview\nWe are a designer, developer and global supplier of a broad range of power discretes, ICs, modules and digital power solutions including a wide portfolio of Power MOSFET, SiC, IGBT,IPM, TVS, Gate Drivers, Power IC, and Digital Power products.  Our portfolio of power semiconductors includes approximately 2,600 products, and has grown significantly with the introduction of over 60 new products in the fiscal year ended June\u00a030, 2023, and over 130 and 160 new products in the fiscal year ended June\u00a030, 2022 and 2021, respectively.  Our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors, which we believe enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics.  We have an extensive patent portfolio that consists of 918 patents and 45 patent applications in the United States as of June\u00a030, 2023.  We also have a total of 980 foreign patents, which primarily were based on our research and development efforts through June\u00a030, 2023.  We differentiate ourselves by integrating our expertise in technology, design and advanced manufacturing and packaging to optimize product performance and cost.  Our portfolio of products targets high-volume applications, including personal computers, graphic cards, game consoles, flat panel TVs, home appliances, power tools, smart phones, battery packs, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment.\nOur business model leverages global resources, including research and development and manufacturing in the United States and Asia.  Our sales and technical support teams are localized in several growing markets. We operate an 8-inch wafer fabrication facility located in Hillsboro, Oregon, or the Oregon Fab, which is critical for us to accelerate proprietary technology development, new product introduction and improve our financial performance.  To meet the market demand for the more mature high volume products, we also utilize the wafer manufacturing capacity of selected third party foundries.  For assembly and test, we primarily rely upon our in-house facilities in China.  In addition, we utilize subcontracting partners for industry standard packages.  We believe our in-house packaging and testing capability provides us with a competitive advantage in proprietary packaging technology, product quality, cost and sales cycle time.\nOn March 29, 2016, we formed the JV Company with the Chongqing Funds, for the purpose of constructing and operating the Chongqing Fab in the LiangJiang New Area of Chongqing, China.  The Chongqing Fab was being built in phases.  As of December 1, 2021, we owned 50.9%, and the Chongqing Funds owned 49.1% of the equity interest in the JV Company.  The JV Company was accounted under the provisions of the consolidation guidance since we had controlling financial interest until December 1, 2021. \nOn December 1, 2021 (the \u201cEffective Date\u201d), Alpha & Omega Semiconductor (Shanghai) Ltd. (\u201cAOS SH\u201d) and Agape Package Manufacturing (Shanghai) Limited (\u201cAPM SH\u201d and, together with AOS SH, the \u201cSellers\u201d), each a wholly-owned subsidiary of the Company, entered into a share transfer agreement (\"STA\") with a third-party investor to sell a portion of the Company's equity interest in the JV Company which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing, China (the \u201cTransaction\u201d). The Transaction closed on December 2, 2021 (the \u201cClosing Date\u201d), which reduced the Company\u2019s equity interest in the JV Company from 50.9% to 48.8%.  Also, the Company\u2019s right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors, from four (4) directors prior to the Transaction.  As a result of the Transaction and other factors, the Company no longer has a controlling financial interest in the JV Company and has determined that the JV Company was deconsolidated from the Company\u2019s Consolidated Financial Statements effective as of the Closing Date.\nOn December 24, 2021, we entered into a share transfer agreement with another third-party investor, pursuant to which the Company sold to this investor 1.1% of outstanding equity interest held by us in the JV Company.  In addition, the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3.99% of the JV Company in exchange for cash.  As a result of these two transactions, the Company owned 45.8% of the equity interest in the JV Company as of December 31, 2021.\nOn January 26, 2022, the JV Company completed a financing transaction pursuant to a corporate investment agreement (the \u201cInvestment Agreement\u201d) between the JV Company and certain third-party investors (the \u201cNew Investors\u201d). Under the Investment Agreement, the New Investors purchased newly issued equity interest of the JV Company, representing approximately 7.82% of post-transaction outstanding equity interests of the JV Company, for a total purchase price of RMB 509 million (or approximately USD 80 million based on the currency exchange rate as of January 26, 2022) (the \u201cInvestment\u201d). Following the closing of the January 26, 2022 Investment, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2% at both June 30, 2022 and 2023.\n42\nWe reduced our ownership of the JV Company to below 50% to increase the flexibility of the JV Company to raise capital to fund its future expansion.  The JV Company is also contemplating an eventual listing on the Science and Technology Innovation Board, or STAR Market, of the Shanghai Stock Exchange.  The reduction of our ownership assists the JV Company in meeting certain regulatory listing requirements.  A potential STAR Market listing may take several years to consummate and there is no guarantee that such listing by the JV Company will be successful or will be completed in a timely manner, or at all.  In addition, the JV Company will continue to provide us with significant level of foundry capacity to enable us to develop and manufacture our products.  On July 12, 2022, the current shareholders of the JV Company entered into a shareholders contract, pursuant to which the JV Company provided us with a monthly wafer production capacity guarantee, subject to future increase when the JV Company\u2019s production capacity reaches certain specified level.\nImpact of COVID-19 Pandemic to Our Business\nDuring the first half of calendar year 2022, our operations were negatively impacted by China\u2019s zero-Covid policy that resulted in factory shutdowns and supply chain shortages, including the temporary suspension of our factory operations in Shanghai from April to June 2022.  In December 2022, the Chinese government issued new guidelines easing some of its strict zero-COVID policies, including the relaxation of testing requirements and travel restrictions.  In May 2023, World Health Organization (WHO) declared an end to the COVID-19 pandemic.  As of June 30, 2023, our business operations and financial performance were no longer affected by the pandemic.\nOther Factors Affecting Our Performance\nThe global, regional economic and PC market conditions\n: Because our products primarily serve consumer electronic applications, any significant changes in global and regional economic conditions could materially affect our revenue and results of operations. A significant amount of our revenue is derived from sales of products in the PC markets, such as notebooks, motherboards and notebook battery packs.  Therefore, a substantial decline in the PC market could have a material adverse effect on our revenue and results of operations. The PC markets have experienced a modest global decline in recent years due to continued growth of demand in tablets and smart phones, worldwide economic conditions and the industry inventory correction which had and may continue to have a material impact on the demand for our products.  Since mid-2022, we have experienced an industry-wide decline of customer demand for semiconductor products.  This decline has negatively affected our recent financial performance in 2023.  While we expect some continued recovery of our revenue in the September quarter of 2023, there is no guarantee that it will occur.  A prolonged and extended downturn in the semiconductor industry would have a substantial impact on our operating results and financial conditions. \nA decline of the PC market may have a negative impact on our revenue, factory utilization, gross margin, our ability to resell excess inventory, and other performance measures. We have executed and continue to execute strategies to diversify our product portfolio, penetrate other market segments, including the consumer, communications and industrial markets, and improve gross margins and profit by implementing cost control measures. While making efforts to reduce our reliance on the computing market, we continue to support our computing business and capitalize on the opportunities in this market with a more focused and competitive PC product strategy to gain market share.         \nManufacturing costs and capacity availability\n:  Our gross margin is affected by a number of factors including our manufacturing costs, utilization of our manufacturing facilities, the product mixes of our sales, pricing of wafers from third party foundries and pricing of semiconductor raw materials.  Capacity utilization affects our gross margin because we have certain fixed costs at our Shanghai facilities and our Oregon Fab.  If we are unable to utilize our manufacturing facilities at a desired level, our gross margin may be adversely affected.  In addition, from time to time, we may experience wafer capacity constraints, particularly at third party foundries, that may prevent us from meeting fully the demand of our customers. For example, the recent global shortage of semiconductor manufacturing capacity has provided us with both challenges and opportunities in the market, and highlighted the importance of maintaining sufficient and independent in-house manufacturing capabilities to meet increasing customer demands. While we can mitigate these constraints by increasing and re-allocating capacity at our own fab, we may not be able to do so quickly or at sufficient level, which could adversely affect our financial conditions and results of operations. In addition, we enhanced the manufacturing capability and capacity of our Oregon Fab by investing in new equipment and expanding our factory facilities, which we expect will have a positive impact on our future new product development and revenue, particularly during the period of global shortage of capacity.  We also rely substantially on the JV Company to provide foundry capacity to manufacture our products, therefore it is critical that we maintain continuous access to such capacity, which may not be available at sufficient level or at a pricing terms favorable to us because of lack of control over the JV Company\u2019s operation.  As a result of sales of our JV Company equity interests and issuance of additional equity interests by the JV Company to third-party investors in financing transactions, our equity interest in the JV Company was reduced to 42.2%, which reduced our control and influence over the JV Company.  We continue to maintain a business relationship with the JV Company to ensure uninterrupted supply of manufacturing capacity.  On July 12, 2022, we entered into an agreement with the JV Company, pursuant to which the JV Company agrees to provide us with a monthly wafer production capacity guarantee, subject to future increase when the JV Company\u2019s production capacity reaches certain specified level.  \n43\nBecause we continue to rely on the JV Company to provide us with manufacturing capacity, if the JV Company take actions or make decisions that prevents us from accessing required capacity, our operations may be adversely affected. \nErosion and fluctuation of average selling price\n:  Erosion of average selling prices of established products is typical in our industry. Consistent with this historical trend, we expect our average selling prices of existing products to decline in the future. However, in the normal course of business, we seek to offset the effect of declining average selling price by introducing new and higher value products, expanding existing products for new applications and new customers and reducing the manufacturing cost of existing products. These strategies may cause the average selling price of our products to fluctuate significantly from time to time, thereby affecting our financial performance and profitability.\nProduct introductions and customers\u2019 product requirements\n:  Our success depends on our ability to introduce products on a timely basis that meet or are compatible with our customers' specifications and performance requirements. Both factors, timeliness of product introductions and conformance to customers' requirements, are equally important in securing design wins with our customers. As we accelerate the development of new technology platforms, we expect to increase the pace at which we introduce new products and seek and acquire design wins. If we were to fail to introduce new products on a timely basis that meet customers\u2019 specifications and performance requirements, particularly those products with major OEM customers, and continue to expand our serviceable markets, then we would lose market share and our financial performance would be adversely affected.\nDistributor ordering patterns, customer demand and seasonality\n:  Our distributors place purchase orders with us based on their forecasts of end customer demand, and this demand may vary significantly depending on the sales outlook and market and economic conditions of end customers.  Because these forecasts may not be accurate, channel inventory held at our distributors may fluctuate significantly, which in turn may prompt distributors to make significant adjustments to their purchase orders placed with us.  As a result, our revenue and operating results may fluctuate significantly from quarter to quarter.  In addition, because our products are used in consumer electronics products, our revenue is subject to seasonality.  Our sales seasonality is affected by numerous factors, including global and regional economic conditions as well as the PC market conditions, revenue generated from new products, changes in distributor ordering patterns in response to channel inventory adjustments and end customer demand for our products and fluctuations in consumer purchase patterns prior to major holiday seasons.  In recent periods, broad fluctuations in the semiconductor markets and the global and regional economic conditions, in particular the decline of the PC market conditions, have had a more significant impact on our results of operations than seasonality.  Furthermore, our revenue may be impacted by the level of demand from our major customers due to factors outside of our control.  If these major customers experience significant decline in the demand of their products, encounter difficulties or defects in their products, or otherwise fail to execute their sales and marketing strategies successfully, it may adversely affect our revenue and results of operations.\nPrincipal line items of statements of operations\nThe following describes the principal line items set forth in our consolidated statements of operations:\nRevenue\nWe generate revenue primarily from the sale of power semiconductors, consisting of power discretes and power ICs. Historically, a majority of our revenue has been derived from power discrete products. Because our products typically have three-year to five-year life cycles, the rate of new product introduction is an important driver of revenue growth over time. We believe that expanding the breadth of our product portfolio is important to our business prospects, because it provides us with an opportunity to increase our total bill-of-materials within an electronic system and to address the power requirements of additional electronic systems. In addition, a small percentage of our total revenue is generated by providing packaging and testing services to third parties through one of our subsidiaries.\nOur product revenue is reported net of the effect of the estimated stock rotation returns and price adjustments that we expect to provide to our distributors. Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of products purchased by the distributor during a specified period. At our discretion or upon our direct negotiations with the original design manufacturers (\u201cODMs\u201d) or original equipment manufacturers (\u201cOEMs\u201d), we may elect to grant special pricing that is below the prices at which we sold our products to the distributors. In certain situations, we will grant price adjustments to the distributors reflecting such special pricing. We estimate the price adjustments for inventory at the distributors based on factors such as distributor inventory levels, pre-approved future distributor selling prices, distributor margins and demand for our products.\nIn February 2023, we entered into a license agreement with a customer to license our proprietary SiC technology and to provide 24-months of engineering and development services for a total fee of $45 million, consisting of an upfront fee of $18 million and 6.8 million paid to us in the March and July 2023, with the remaining amount to be paid upon the achievement of \n44\nspecified engineering services and product milestones.  The license and development fee is determined to be one performance obligation and is recognized over the 24 months when we perform the engineering and development services.  We use the input method to measure progression of the transfer of services.  We also entered an accompanying supply agreement to provide limited wafer supply to the customer.  \nCost of goods sold\nOur cost of goods sold primarily consists of costs associated with semiconductor wafers, packaging and testing, personnel, including share-based compensation expense, overhead attributable to manufacturing, operations and procurement, and costs associated with yield improvements, capacity utilization, warranty and valuation of inventories. As the volume of sales increases, we expect cost of goods sold to increase. While our utilization rates cannot be immune to the market conditions, our goal is to make them less vulnerable to market fluctuations. We believe our market diversification strategy and product growth will drive higher volume of manufacturing which will improve our factory utilization rates and gross margin in the long run.\nOperating expenses\nOur operating expenses consist of research and development, and selling, general and administrative expenses. We expect our operating expenses as a percentage of revenue to fluctuate from period to period as we continue to exercise cost control measures in response to the declining PC market as well as align our operating expenses to the revenue level.\nResearch and development expenses.\n \nOur research and development expenses consist primarily of salaries, bonuses, benefits, share-based compensation expense, expenses associated with new product prototypes, travel expenses, fees for engineering services provided by outside contractors and consultants, amortization of software and design tools, depreciation of equipment and overhead costs. We continue to invest in developing new technologies and products utilizing our own fabrication and packaging facilities as it is critical to our long-term success. We also evaluate appropriate investment levels and stay focused on new product introductions to improve our competitiveness. We expect that our research and development expenses will fluctuate from time to time.\nSelling, general and administrative expenses.\n \nOur selling, general and administrative expenses consist primarily of salaries, bonuses, benefits, share-based compensation expense, product promotion costs, occupancy costs, travel expenses, expenses related to sales and marketing activities, amortization of software, depreciation of equipment, maintenance costs and other expenses for general and administrative functions as well as costs for outside professional services, including legal, audit and accounting services. We expect our selling, general and administrative expenses to fluctuate in the near future as we continue to exercise cost control measures.\nIncome tax expense \nWe are subject to income taxes in various jurisdictions.  Significant judgment and estimates are required in determining our worldwide income tax expense.  The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations of different jurisdictions globally.  We establish accruals for potential liabilities and contingencies based on a more likely than not threshold to the recognition and de-recognition of uncertain tax positions.  If the recognition threshold is met, the applicable accounting guidance permits us to recognize a tax benefit measured at the largest amount of tax benefit that is more likely than not to be realized upon settlement with a taxing authority.  If the actual tax outcome of such exposures is different from the amounts that were initially recorded, the differences will impact the income tax and deferred tax provisions in the period in which such determination is made.  Changes in the location of taxable income (loss) could result in significant changes in our income tax expense.\nWe record a valuation allowance against deferred tax assets if it is more likely than not that a portion of the deferred tax assets will not be realized, based on historical profitability and our estimate of future taxable income in a particular jurisdiction.  Our judgments regarding future taxable income may change due to changes in market conditions, changes in tax laws, tax planning strategies or other factors.  If our assumptions and consequently our estimates change in the future, the deferred tax assets may increase or decrease, resulting in corresponding changes in income tax expense.  Our effective tax rate is highly dependent upon the geographic distribution of our worldwide profits or losses, the tax laws and regulations in each geographical region where we have operations, the availability of tax credits and carry-forwards and the effectiveness of our tax planning strategies.\n\"U.S. Tax Cuts and Jobs Act\", Enacted December 22, 2017 \nOn December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act (\u201cthe Tax Act\u201d), which significantly changes the existing U.S. tax laws, including, but not limited to, (1) a reduction in the corporate tax \n45\nrate from 35% to 21%, (2) a shift from a worldwide tax system to a territorial system, (3) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized, (4) bonus depreciation that will allow for full expensing of qualified property, (5) creating a new limitation on deductible interest expense and (6) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.\nThe Company is not currently subject to the Base Erosion and Anti-Abuse (BEAT) tax, which is a tax imposed on certain entities who make payments to their non U.S. affiliates, where such payments reduce the U.S. tax base . The BEAT tax is imposed at a rate of 10% on Adjusted Taxable Income, excluding certain payments to foreign related entities. It is an incremental tax over and above the corporate income tax and is recorded as a period cost. It is possible that this tax could be applicable in future periods, which would cause an increase to the effective tax rate and cash taxes.\n\"U.S. Coronavirus Aid, Relief and Economic Security Act\u201d (\u201cCARES Act\u201d), Enacted March 27, 2020\nOn March 27, 2020, the United States enacted the CARES Act, which made the changes to existing U.S. tax laws, including, but not limited to, (1) allowing U.S. federal net operating losses originated in the 2018, 2019 or 2020 tax years to be carried back five years to recover taxes paid based upon taxable income in the prior five years, (2) eliminated the 80% of taxable income limitation on net operating losses for the 2018, 2019 and 2020 tax years (the 80% limitation will be reinstated for tax years after 2020), (3) accelerating the refund of prior year alternative minimum tax credits, (4) modifying the bonus depreciation for qualified improvement property and (5) modifying the limitation on deductible interest expense.\nAs a result of the ability to carryback net operating losses from the June 2018 and June 2019 years to the June 2015 to June 2017 tax years, net operating losses which were previously tax-effected using the current 21% U.S. federal tax rate were revalued to the U.S. tax rates in effect for the June 2015 to June 2017 tax years due to the ability of receiving tax refunds for the taxes paid in these years.  Accordingly, we reported a discrete tax benefit of $1.1 million in the third quarter of fiscal year 2020 related to the re-measurement of the net operating losses that could be realized via the new net operating loss carryback provisions.   \n\u201cU.S. Consolidated Appropriations Act, 2021\u201d (\u201cCAA 2021\u201d), Enacted December 27, 2020\nOn December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, which made changes to existing U.S. tax laws.  There was no material impact of the tax law changes included in the Consolidated Appropriations Act, 2021 to the Company.\n\u201cThe American Rescue Plan Act of, 2021\u201d, Enacted March 11, 2021\nOn March 11, 2021, the United States enacted the American Rescue Plan Act of 2021, which made changes to existing U.S. tax laws.  There was no material impact of the tax law changes included in the American Rescue Plan Act of 2021 to the Company. \n\u201cThe Chip and Science Act of 2022\u201d, Enacted August 2, 2022\nIn August 2022 the U.S. enacted the Chip and Science Act of 2022 (the Chips Act).  The Chips Act provides incentives to semiconductor chip manufacturers in the United States, including providing manufacturing investment credits of 25% for investments in semiconductor manufacturing property placed in service after December 31, 2022, for which construction begins before January 1, 2027.  Property investments qualify for the 25% credit if, among other requirements, the property is integral to the operation of an advanced manufacturing facility, defined as having a primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment.  Currently, we are evaluating the impact of the Chips Act to us.\n\u201cThe Inflation Reduction Act\u201d, Enacted August 16, 2022\nIn August 2022 the United States enacted tax legislation through the Inflation Reduction Act (IRA).  The IRA introduces a 15% corporate alternative minimum tax (CAMT) for corporations whose average annual adjusted financial statement income (AFSI) for any consecutive three-tax-year period preceding the applicable tax year exceeds $1 billion.  The CAMT is effective for tax years beginning after 31 December 2022.  The CAMT is currently not applicable to the Company.\nEquity method investment income/loss from equity investee \nWe use the equity method of accounting when we have the ability to exercise significant influence, but we do not have control, as determined in accordance with generally accepted accounting principles, over the operating and financial policies of \n46\nthe company.  Effective December 2, 2021, we reduced our equity interest in the JV Company below 50% of outstanding equity ownership and experienced a loss of control of the JV Company.  As a result, we record our investment under equity method of accounting.  Since we are unable to obtain accurate financial information from the JV Company in a timely manner, we record our share of earnings or losses of such affiliate on a one quarter lag. \nWe record our interest in the net earnings of the equity method investee, along with adjustments for unrealized profits or losses on intra-entity transactions and amortization of basis differences, within earnings or loss from equity interests in the Consolidated Statements of Operations.  Profits or losses related to intra-entity sales with the equity method investee are eliminated until realized by the investor or investee.  Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to them.  Equity method goodwill is not amortized or tested for impairment.  Instead the total equity method investment balance, including equity method goodwill, is tested for impairment.  We review for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable.  In such a case, the decrease in value is recognized in the period the impairment occurs in the Consolidated Statement of Operations.\n47\nOperating results\nThe following tables set forth our results of operations and as a percentage of revenue for the fiscal years ended June\u00a030, 2023, 2022 and 2021.  Our historical results of operations are not necessarily indicative of the results for any future period.\n\u00a0\nYear Ended June 30,\n \n\u00a0\n2023\n2022\n2021\n2023\n2022\n2021\n(in thousands)\n(% of revenue)\nRevenue\n$\n691,321\u00a0\n$\n777,552\u00a0\n$\n656,902\u00a0\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\nCost of goods sold (1)\n491,785\u00a0\n508,996\u00a0\n452,359\u00a0\n71.1\u00a0\n%\n65.5\u00a0\n%\n68.9\u00a0\n%\nGross profit\n199,536\u00a0\n268,556\u00a0\n204,543\u00a0\n28.9\u00a0\n%\n34.5\u00a0\n%\n31.1\u00a0\n%\nOperating expenses:\nResearch and development (1)\n88,146\u00a0\n71,259\u00a0\n62,953\u00a0\n12.8\u00a0\n%\n9.2\u00a0\n%\n9.6\u00a0\n%\nSelling, general and administrative (1)\n88,861\u00a0\n95,259\u00a0\n77,514\u00a0\n12.8\u00a0\n%\n12.3\u00a0\n%\n11.8\u00a0\n%\nTotal operating expenses\n177,007\u00a0\n166,518\u00a0\n140,467\u00a0\n25.6\u00a0\n%\n21.5\u00a0\n%\n21.4\u00a0\n%\nOperating income\n22,529\u00a0\n102,038\u00a0\n64,076\u00a0\n3.3\u00a0\n%\n13.0\u00a0\n%\n9.7\u00a0\n%\nOther income (loss), net\n(1,730)\n999\u00a0\n2,456\u00a0\n(0.3)\n%\n0.1\u00a0\n%\n0.4\u00a0\n%\nInterest expense, net\n(1,087)\n(3,920)\n(6,308)\n(0.2)\n%\n(0.5)\n%\n(1.0)\n%\nGain on deconsolidation of the JV Company\n\u2014\u00a0\n399,093\u00a0\n\u2014\u00a0\n\u2014\u00a0\n%\n51.3\u00a0\n%\n\u2014\u00a0\n%\nLoss on changes of equity interest in the JV Company, net\n\u2014\u00a0\n(3,140)\n\u2014\u00a0\n\u2014\u00a0\n%\n(0.4)\n%\n\u2014\u00a0\n%\nNet income before income taxes\n19,712\u00a0\n495,070\u00a0\n60,224\u00a0\n2.8\u00a0\n%\n63.5\u00a0\n%\n9.1\u00a0\n%\nIncome tax expense \n5,937\u00a0\n39,258\u00a0\n3,935\u00a0\n0.9\u00a0\n%\n5.0\u00a0\n%\n0.6\u00a0\n%\nNet income before loss from equity method investment\n13,775\u00a0\n455,812\u00a0\n56,289\u00a0\n1.9\u00a0\n%\n58.5\u00a0\n%\n8.5\u00a0\n%\nEquity method investment loss from equity investee\n(1,411)\n(2,629)\n\u2014\u00a0\n(0.1)\n%\n(0.3)\n%\n\u2014\u00a0\n%\nNet income\n12,364\u00a0\n453,183\u00a0\n56,289\u00a0\n1.8\u00a0\n%\n58.2\u00a0\n%\n8.5\u00a0\n%\nNet income (loss) attributable to noncontrolling interest\n\u2014\u00a0\n20\u00a0\n(1,827)\n0.0\u00a0\n%\n0.0\u00a0\n%\n(0.3)\n%\nNet income attributable to Alpha and Omega Semiconductor Limited\n$\n12,364\u00a0\n$\n453,163\u00a0\n$\n58,116\u00a0\n1.8\u00a0\n%\n58.2\u00a0\n%\n8.8\u00a0\n%\n(1) Includes share-based compensation expense as follows:\n\u00a0\nYear Ended June 30,\n\u00a0\n2023\n2022\n2021\n2023\n2022\n2021\n(in thousands)\n(% of revenue)\nCost of goods sold\n$\n5,851\u00a0\n$\n5,125\u00a0\n$\n1,756\u00a0\n0.8\u00a0\n%\n0.7\u00a0\n%\n0.3\u00a0\n%\nResearch and development\n9,437\u00a0\n7,049\u00a0\n5,352\u00a0\n1.4\u00a0\n%\n0.9\u00a0\n%\n0.8\u00a0\n%\nSelling, general and administrative\n22,200\u00a0\n19,150\u00a0\n8,216\u00a0\n3.2\u00a0\n%\n2.5\u00a0\n%\n1.3\u00a0\n%\n$\n37,488\u00a0\n$\n31,324\u00a0\n$\n15,324\u00a0\n5.4\u00a0\n%\n4.1\u00a0\n%\n2.4\u00a0\n%\n48\nRevenue\n\u00a0\u00a0\u00a0\u00a0The following is a summary of revenue by product type:\nYear Ended June 30,\u00a0\nChange\n2023\n2022\n2021\n2023\n2022\n(in thousands)\n(in thousands)\n(in percentage)\n(in thousands)\n(in percentage)\nPower discrete\n$\n458,795\u00a0\n$\n545,135\u00a0\n$\n482,718\u00a0\n$\n(86,340)\n(15.8)\n%\n$\n62,417\u00a0\n12.9\u00a0\n%\nPower IC\n218,620\u00a0\n220,882\u00a0\n161,726\u00a0\n(2,262)\n(1.0)\n%\n59,156\u00a0\n36.6\u00a0\n%\nPackaging and testing services\n3,979\u00a0\n11,535\u00a0\n12,458\u00a0\n(7,556)\n(65.5)\n%\n(923)\n(7.4)\n%\nLicense and development services\n9,927\u00a0\n\u2014\u00a0\n\u2014\u00a0\n9,927\u00a0\n100.0\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n$\n691,321\u00a0\n$\n777,552\u00a0\n$\n656,902\u00a0\n$\n(86,231)\n(11.1)\n%\n$\n120,650\u00a0\n18.4\u00a0\n%\nYear Ended June 30,\u00a0\nChange\n2023\n2022\n2021\n2023\n2022\n(in thousands)\n(in thousands)\n(in percentage)\n(in thousands)\n(in percentage)\nComputing\n$\n243,286\u00a0\n$\n345,855\u00a0\n$\n279,150\u00a0\n$\n(102,569)\n(29.7)\n%\n$\n66,705\u00a0\n23.9\u00a0\n%\nConsumer\n180,753\u00a0\n160,808\u00a0\n145,346\u00a0\n19,945\u00a0\n12.4\u00a0\n%\n15,462\u00a0\n10.6\u00a0\n%\nCommunication\n103,218\u00a0\n110,356\u00a0\n97,395\u00a0\n(7,138)\n(6.5)\n%\n12,961\u00a0\n13.3\u00a0\n%\nPower Supply and Industrial\n150,158\u00a0\n149,000\u00a0\n122,553\u00a0\n1,158\u00a0\n0.8\u00a0\n%\n26,447\u00a0\n21.6\u00a0\n%\nPackaging and testing services\n3,979\u00a0\n11,533\u00a0\n12,458\u00a0\n(7,554)\n(65.5)\n%\n(925)\n(7.4)\n%\nLicense and development services\n9,927\u00a0\n\u2014\u00a0\n\u2014\u00a0\n9,927\u00a0\n100.0\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\n$\n691,321\u00a0\n$\n777,552\u00a0\n$\n656,902\u00a0\n$\n(86,231)\n(11.1)\n%\n$\n120,650\u00a0\n18.4\u00a0\n%\nFiscal 2023 vs 2022 \nTotal revenue was $691.3 million for fiscal year 2023, a decrease of $86.2 million, or 11.1%, as compared to $777.6 million for fiscal year 2022.  The decrease was primarily due to a decrease of $86.3 million and $2.3 million in sales of power discrete products and power IC products, respectively.  The decrease in power discrete and power IC product sales was primarily due to a 30.1% decrease in unit shipments, offset by a 26.9% increase in average selling price as compared to last fiscal year due to a shift in product mix.  The decrease in revenues was primarily driven by the significant decrease in the computing market, reflecting weaker demand for computers and inventory correction by our customers, in response to the industry-wide downturn in the semiconductor industry, partially offset by increased sales in the consumer markets, particularly in gaming products.  The decrease in revenue from packaging and testing services for the fiscal year 2023 as compared to last fiscal year was primarily due to decreased demand.  The increase in license and development services for the fiscal year 2023 was related to the license agreement with a customer to license our proprietary SiC technology and to provide 24-months of engineering and development services in February 2023.  During fiscal year 2023, we accelerated the development of new technology platforms which allowed us to introduce 19 medium and high voltage MOSFET products, targeting primarily the industrial markets and communication marketing, and 6 module products primarily for the consumer markets, as well as 4 low voltage MOSFET products primarily for the computing and communication markets.  In addition, we introduced 40 Power IC new products for computing applications, communication and consumer markets.\nFiscal 2022 vs 2021 \nTotal revenue was $777.6 million for fiscal year 2022, an increase of $120.7 million, or 18.4%, as compared to $656.9 million for fiscal year 2021.  The increase was primarily due to an increase of $62.4 million in sales of power discrete products and an increase of $59.2 million in sales of power IC products.  The increase in power discrete and power IC product sales was primarily due to a 21.0% increase in average selling price as compared to last fiscal year due to a shift in product mix, partially offset by a 2.1% decrease in unit shipments.  The decrease in revenue of packaging and testing services for the fiscal year 2022 as compared to last fiscal year was primarily due to decreased demand.  \n49\nCost of goods sold and gross profit\n\u00a0\nYear Ended June 30,\u00a0\nChange\n\u00a0\n2023\n2022\n2021\n2023\n2022\n\u00a0\n(in thousands)\n(in thousands)\n(in percentage)\n(in thousands)\n(in percentage)\nCost of goods sold\n$\n491,785\u00a0\n$\n508,996\u00a0\n$\n452,359\u00a0\n$\n(17,211)\n(3.4)\n%\n$\n56,637\u00a0\n12.5\u00a0\n%\n\u00a0\u00a0Percentage of revenue\n71.1\u00a0\n%\n65.5\u00a0\n%\n68.9\u00a0\n%\nGross profit\n$\n199,536\u00a0\n$\n268,556\u00a0\n$\n204,543\u00a0\n$\n(69,020)\n(25.7)\n%\n$\n64,013\u00a0\n31.3\u00a0\n%\n\u00a0\u00a0Percentage of revenue\n28.9\u00a0\n%\n34.5\u00a0\n%\n31.1\u00a0\n%\nFiscal 2023 vs 2022 \nCost of goods sold was $491.8 million for fiscal year 2023, a decrease of $17.2 million, or 3.4%, as compared to $509.0 million for fiscal year 2022.  The decrease was primarily due to 11.1% decrease in revenue.  Gross margin decreased by 5.6 percentage points to 28.9% for the fiscal year 2023, as compared to 34.5% for the fiscal year 2022.  The decrease in gross margin was primarily due to higher material costs and lower unit shipments during the fiscal year ended June 30, 2023.  We expect our gross margin to continue to fluctuate in the future as a result of variations in our product mix, semiconductor wafer and raw material pricing, manufacturing labor cost and general economic and PC market conditions. \nFiscal 2022 vs 2021 \nCost of goods sold was $509.0 million for fiscal year 2022, an increase of $56.6 million, or 12.5%, as compared to $452.4 million for fiscal year 2021.  The increase was primarily due to 18.4% increase in revenue.  Gross margin increased by 3.4 percentage points to 34.5% for the fiscal year 2022, as compared to 31.1% for the fiscal year 2021.  The increase in gross margin was primarily due to better product mix during the fiscal year ended June 30, 2022.  \nResearch and development expenses\n\u00a0\nYear Ended June 30,\u00a0\nChange\n\u00a0\n2023\n2022\n2021\n2023\n2022\n\u00a0\n(in thousands)\n(in thousands)\n(in percentage)\n(in thousands)\n(in percentage)\nResearch and development\n$\n88,146\u00a0\n$\n71,259\u00a0\n$\n62,953\u00a0\n$\n16,887\u00a0\n23.7\u00a0\n%\n$\n8,306\u00a0\n13.2\u00a0\n%\nFiscal 2023 vs 2022 \nResearch and development expenses were $88.1 million for fiscal year 2023, an increase of $16.9 million, or 23.7%, as compared to $71.3 million for fiscal year 2022.  The increase was primarily attributable to a $3.9 million increase in employee compensation and benefit expense mainly due to increased headcount and higher medical insurance expenses, partially offset by lower vacation accrual and lower bonus accrual, a $2.4 million increase in share-based compensation expense due to an increase in stock awards granted, a $3.6 million increase in depreciation expenses, a $2.2 million increase in allocation, and a $4.8 million increase in product prototyping engineering expense as a result of increased engineering activities.  We continue to evaluate and invest resources in developing new technologies and products utilizing our own fabrication and packaging facilities.  We believe the investment in research and development is important to meet our strategic objectives.\nFiscal 2022 vs 2021 \nResearch and development expenses were $71.3 million for fiscal year 2022, an increase of $8.3 million, or 13.2%, as compared to $63.0 million for fiscal year 2021.  The increase was primarily attributable to a $6.8 million increase in employee compensation and benefit expense mainly due to higher bonus accrual, increased headcount and annual merit increase, a $1.7 million increase in share-based compensation expense due to an increase in stock awards granted, a $0.2 million increase in depreciation expenses, and a $0.2 million increase in professional fees, partially offset by a $0.8 million decrease in product prototyping engineering expense as a result of decreased engineering activities.  \nSelling, general and administrative expenses\n50\n\u00a0\nYear Ended June 30,\u00a0\nChange\n\u00a0\n2023\n2022\n2021\n2023\n2022\n\u00a0\n(in thousands)\n(in thousands)\n(in percentage)\n(in thousands)\n(in percentage)\nSelling, general and administrative\n$\n88,861\u00a0\n$\n95,259\u00a0\n$\n77,514\u00a0\n$\n(6,398)\n(6.7)\n%\n$\n17,745\u00a0\n22.9\u00a0\n%\nFiscal 2023 vs 2022 \nSelling, general and administrative expenses were $88.9 million for fiscal year 2023, a decrease of $6.4 million, or 6.7%, as compared to $95.3 million for fiscal year 2022.  The decrease was primarily attributable to a $11.3 million decrease in employee compensation and benefits expenses mainly due to lower bonus expenses accrual and lower vacation accrual, partially offset by increased headcount, higher medical and business insurance expenses, as well as a $1.5 million decrease in cyber security incident, partially offset by a $3.1 million increase in share-based compensation expense due to an increase in stock award granted and the incremental expenses for one of our former officers' equity shares resulting from the modification, a $1.1 million increase in legal expenses, a $0.7 million increase in recruiting and consulting fees, a $1.2 million increase in allocation, and a $0.8 million increase in employee business expenses. \nFiscal 2022 vs 2021 \nSelling, general and administrative expenses were $95.3 million for fiscal year 2022, an increase of $17.7 million, or 22.9%, as compared to $77.5 million for fiscal year 2021.  The increase was primarily attributable to a $8.6 million increase in employee compensation and benefits expenses mainly due to increased headcount, annual merit increase, higher bonus expenses and increased employee and business insurance expenses, as well as $10.9 million increase in share-based compensation expense due to increase in stock award granted, partially offset by a $2.2 million decrease in legal expense related to the government investigation.\nOther income (loss), net   \n\u00a0\nYear Ended June 30,\u00a0\nChange\n\u00a0\n2023\n2022\n2021\n2023\n2022\n\u00a0\n(in thousands)\n(in thousands)\n(in percentage)\n(in thousands)\n(in percentage)\nOther income (loss), net\n$\n(1,730)\n$\n999\u00a0\n$\n2,456\u00a0\n$\n(2,729)\n(273.2)\n%\n$\n(1,457)\n(59.3)\n%\nOther income (loss), net decreased by $2.7 million in fiscal year 2023 as compared to the last fiscal year primarily due to increase in foreign currency exchange loss as a result of the depreciation of RMB against USD.\nOther income (loss), net decreased by $1.5 million in fiscal year 2022 as compared to the last fiscal year primarily due to increase in foreign currency exchange loss as a result of the depreciation of RMB against USD.\nInterest expense, net   \n\u00a0\nYear Ended June 30,\u00a0\nChange\n\u00a0\n2023\n2022\n2021\n2023\n2022\n\u00a0\n(in thousands)\n(in thousands)\n(in percentage)\n(in thousands)\n(in percentage)\nInterest expense, net\n$\n(1,087)\n$\n(3,920)\n$\n(6,308)\n$\n2,833\u00a0\n(72.3)\n%\n$\n2,388\u00a0\n(37.9)\n%\n \u00a0\u00a0\u00a0\u00a0\nInterest expense was primarily related to bank borrowings.  Interest expense decreased by $2.8 million in fiscal year 2023 as compared to the prior fiscal year primarily due to a $3.6 million increase in interest income as a result of higher interest rate, offset by a $0.7 million increase in interest expense as a result of an increase in bank borrowings during the periods.  \nInterest expense decreased by $2.4 million in fiscal year 2022 as compared to the fiscal year 2021 primarily because of deconsolidation of the JV Company in December 2021. \nGain on deconsolidation of the JV Company and Gain/loss on changes of equity interest in the JV Company \n51\nEffective December 1, 2021, we entered into the STA with the Investor, pursuant to which we sold to the Investor approximately 2.1% of outstanding equity interest held by us in the JV Company for an aggregate purchase price of RMB 108 million or approximately $16.9 million. The STA contained customary representations, warranties and covenants.\n \nThe Transaction was closed on December 2, 2021. As a result of the Transaction, as of the Closing Date, our equity interest in the JV Company decreased from 50.9% to 48.8%.\n \nAlso, our right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors, from four (4) directors prior to the Transaction.\n \nWe no longer have a controlling financial interest in the JV Company under generally accepted accounting principles.\n \nLoss of control is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding common stock in the subsidiary, lacks a controlling financial interest in the subsidiary and, is unable to unilaterally control the subsidiary through other means such as having, or the ability to obtain, a majority of the subsidiary\u2019s board of directors.\n \nAll of these loss of control factors were present for us as of December 2, 2021. Accordingly, since December 2, 2021, AOS has accounted for its investment in the JV Company using the equity method of accounting.\n \nOn December 24, 2021, we entered into a share transfer agreement with another third-party investor, pursuant to which we sold to this investor 1.1% of outstanding equity interest held by us in the JV Company for an aggregate purchase price of RMB 60 million or approximately $9.4 million. In addition, the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3.99% of the JV Company to exchange in cash.\n \nAs a result, the Company owned 45.8% of the equity interest in the JV Company as of December 31, 2021.\n \nOn January 26, 2022, the JV Company completed a financing transaction pursuant to the Financing Agreement between the JV Company and certain New Investors.\n \nUnder the Financing Agreement, the New Investors purchased newly issued equity interest of the JV Company for a total purchase price of RMB 509 million (or approximately $80 million based on the currency exchange rate as of January 26, 2022).\n \nFollowing the closing of the Investment, the percentage of outstanding JV Company equity interest beneficially owned by us was reduced to 42.2%.\nDuring the fiscal year ended June 30, 2022, we recorded a gain of $399.1 million on deconsolidation of the JV Company, and a $3.1 million of loss on changes of equity interest in the JV Company.\nWe account for our investment in the JV Company as an equity method investment and report our equity in earnings or loss of the JV Company on a three-month lag due to our inability to timely obtain financial information of the JV Company. For the fiscal year ended June\u00a030, 2023 and June\u00a030, 2022 using lag reporting, we recorded $1.4 million and 2.6 million of its equity in loss of the JV Company, respectively.\nIncome tax expense  \n\u00a0\nYear Ended June 30,\u00a0\nChange\n\u00a0\n2023\n2022\n2021\n2023\n2022\n\u00a0\n(in thousands)\n(in thousands)\n(in percentage)\n(in thousands)\n(in percentage)\nIncome tax expense\n$\n5,937\u00a0\n$\n39,258\u00a0\n$\n3,935\u00a0\n$\n(33,321)\n(84.9)\n%\n$\n35,323\u00a0\n897.7\u00a0\n%\nFiscal 2023 vs 2022   \nIncome tax expense for fiscal years 2023 and 2022 was $5.9 million and $39.3 million, respectively.  Income tax expense decreased by $33.3 million, or 84.9% in fiscal year 2023 as compared to fiscal year 2022.  The income tax expense of $5.9 million for the year ended June 30, 2023 included a $0.1 million discrete tax expense, and the income tax expense of $39.3 million for the year ended June 30, 2022 included a $33.5 million discrete tax expense related to the Company\u2019s $396.0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as the Company changed from the consolidation method of accounting to the equity method of accounting.  In addition, for the year ended June 30, 2022 we recorded a tax benefit of $0.4 million from other discrete income tax items.  Excluding the discrete income tax items, the effective tax rate for the years ended June 30, 2023 and 2022 was 29.4% and 6.3%, respectively.  The changes in the tax expense and effective tax rate between the periods resulted primarily from the Company reporting pretax book income of $19.7 million for the year ended June 30, 2023 as compared to a pretax book income of $495.0 million ($99.0 million of pretax book income plus the $396.0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain) for the year ended June 30, 2022 as well as changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year.\nFiscal 2022 vs 2021   \nIncome tax expense for fiscal years 2022 and 2021 was $39.3 million and $3.9 million, respectively.  Income tax expense increased by $35.3 million, or 897.7% in fiscal year 2022 as compared to fiscal year 2021.  The income tax expense of $39.3 million for the year ended June 30, 2022 included a $33.5 million discrete tax expense related to the Company\u2019s $396.0 million \n52\nof income from the sale of equity interest in a joint venture and the related deconsolidation gain as the Company changed from the consolidation method of accounting to the equity method of accounting.  In addition, we recorded a tax benefit of $0.4 million from other discrete income tax items.  The income tax expense of $3.9 million for the year ended June 30, 2021 included a $0.3 million discrete tax benefit.  Excluding the discrete income tax items ($396.0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as well as other discrete items), the effective tax rate for the years ended June 30, 2022 and 2021 was 6.3% and 7.1%, respectively.  The changes in the tax expense and effective tax rate between the periods resulted primarily from the Company reporting pretax book income of $495.0 million ($99.0 million of pretax book income plus the $396.0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain) for the year ended June 30, 2022 as compared to a pretax book income of $60.2 million for the year ended June 30, 2021 as well as changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year.\n53\nLiquidity and Capital Resources \nOur principal need for liquidity and capital resources is to maintain sufficient working capital to support our operations and to invest adequate capital expenditures to grow our business.  To date, we finance our operations and capital expenditures primarily through funds generated from operations and borrowings under our term loans, financing lease and other debt agreements.\nOn February 6, 2023, we entered into a license and engineering service agreement with a leading power semiconductor automotive supplier related to our Silicon Carbide (SiC) MOSFET and diode technology.  Pursuant to the agreement, we license and provide 24-months of engineering support for our proprietary SiC technology to the supplier for a total fee of $45 million, consisted of an upfront fees of $18 million and $6.8 million paid to us in March 2023 and July 2023, respectively, and the remaining amount to be paid upon our achievements of specified business and product milestones.  In addition, we entered an accompanying supply agreement with the supplier to provide it with limited wafer supply. \nIn January 2023, one of the Company's subsidiaries in China entered into a line of credit facility with Bank of Communications Limited in China.  The purpose of the credit facility is to provide working capital borrowings.  The Company could borrow up to approximately RMB 140 million or $20.6 million based on currency exchange rate between RMB and U.S. Dollar on January 31, 2023 with a maturity date of December 1, 2023. As of June 30, 2023, there was no outstanding balance for this loan.\nIn September 2022, one of the Company's subsidiaries in China entered into a line of credit facility with Industrial and Commercial Bank of China.  The purpose of the credit facility was to provide working capital borrowings.  The Company could borrow up to approximately RMB 72.0 million or $10.3 million based on currency exchange rate between RMB and U.S. Dollar on September 20, 2022 with a maturity date of September 30, 2023.  As of June\u00a030, 2023, there was no outstanding balance.\nIn September 2021, Jireh Semiconductor Incorporated (\u201cJireh\u201d), one of the wholly-owned subsidiaries, entered into a financing arrangement agreement with a company (\u201cLender\u201d) for the lease and purchase of a machinery equipment manufactured by a supplier.  This agreement has a 5 years term, after which Jireh has the option to purchase the equipment for $1.  The implied interest rate was 4.75% per annum which was adjustable based on every five basis point increase in 60-month U.S. Treasury Notes, until the final installation and acceptance of the equipment.  The total purchase price of this equipment was euro 12.0 million.  In April 2021, Jireh made a down payment of euro 6.0 million, representing 50% of the total purchase price of the equipment, to the supplier.  In June 2022, the equipment was delivered to Jireh after Lender paid 40% of the total purchase price, for euro 4.8 million, to the supplier on behalf of Jireh.  In September 2022, Lender paid the remaining 10% payment for the total purchase price and reimbursed Jireh for the 50% down payment, after the installation and configuration of the equipment.  The title of the equipment was transferred to Lender following such payment.  The agreement was amended with fixed implied interest rate of 7.51% and monthly payment of principal and interest effective in October 2022.  Other terms remain the same.  In addition, Jireh purchased hardware for the machine under this financing arrangement.  The purchase price of this hardware was $0.2 million.  The financing arrangement is secured by this equipment and other equipment which had the carrying amount of $15.2 million as of June 30, 2023.  As of June 30, 2023, the outstanding balance of this debt financing was $11.9 million. \nOn August 18, 2021, Jireh entered into a term loan agreement with a financial institution (the \"Bank\") in an amount up to $45.0 million for the purpose of expanding and upgrading the Company\u2019s fabrication facility located in Oregon.  The obligation under the loan agreement is secured by substantially all assets of Jireh and guaranteed by the Company.  The agreement has a 5.5 years term and matures on February 16, 2027.  Jireh is required to make consecutive quarterly payments of principal and interest.  The loan accrues interest based on adjusted LIBOR plus the applicable margin based on the outstanding balance of the loan.  This agreement contains customary restrictive covenants and includes certain financial covenants that the Company is required to maintain.  Jireh drew down $45.0 million on February 16, 2022 with the first payment of principal beginning in October 2022.  As of June 30, 2023, Jireh was in compliance with these covenants and the outstanding balance of this loan was $38.3 million.\nIn October 2019, one of the Company's subsidiaries in China entered into a line of credit facility with Bank of Communications Limited in China.  This line of credit matured on February 14, 2021 and was based on the China Base Rate multiplied by 1.05, or 4.99% on October 31, 2019.  The purpose of the credit facility is to provide short-term borrowings.  The Company could borrow up to approximately RMB 60.0 million or $8.5 million based on the currency exchange rate between the RMB and the U.S. Dollar on October 31, 2019.  In September 2021, this line of credit was renewed with maximum borrowings up to RMB 140.0 million with the same terms and a maturity date of September 18, 2022.  During the three months ended December 31, 2021, the Company borrowed RMB 11.0 million, or $1.6 million, at an interest rate of 3.85% per annum, with principal due on November 18, 2022.  As of June 30, 2023, there was no outstanding balance and this loan was expired. \nOn August 9, 2019, one of the Company's wholly-owned subsidiaries (the \"Borrower\") entered into a factoring agreement with the Hongkong and Shanghai Banking Corporation Limited (\u201cHSBC\u201d), whereby the Borrower assigns certain of its \n54\naccounts receivable with recourse.  This factoring agreement allows the Borrower to borrow up to 70% of the net amount of its eligible accounts receivable of the Borrower with a maximum amount of $30.0 million.  The interest rate is based on one month London Interbank Offered Rate (\"LIBOR\") plus 1.75% per annum.  The Company is the guarantor for this agreement.  The Company is accounting for this transaction as a secured borrowing under the Transfers and Servicing of Financial Assets guidance.  In addition, any cash held in the restricted bank account controlled by HSBC has a legal right of offset against the borrowing.  This agreement, with certain financial covenants required, has no expiration date.  On August 11, 2021, the Borrower signed an agreement with HSBC to decrease the borrowing maximum amount to $8.0 million with certain financial covenants required.  Other terms remain the same.  The Borrower was in compliance with these covenants as of June 30, 2023.  As of June 30, 2023, there was no outstanding balance and the Company had unused credit of approximately $8.0 million.\n \nOn November 16, 2018, one of the Company's subsidiaries in China entered into a line of credit facility with Industrial and Commercial Bank of China.  The purpose of the credit facility was to provide short-term borrowings.  The Company could borrow up to approximately RMB 72.0 million or $10.3 million based on currency exchange rate between RMB and U.S. Dollar on November 16, 2018.  The RMB 72.0 million consists of RMB 27.0 million for trade borrowings with a maturity date of December 31, 2021, and RMB 45.0 million for working capital borrowings or trade borrowings with a maturity date of September 13, 2022.  During the three months ended December 31, 2021, the Company borrowed RMB 5.0 million, or $0.8 million, at an interest rate of 3.7% per annum, with principal due on September 12, 2022.  As of June 30, 2023, there was no outstanding balance and this loan was expired.\nOn May 1, 2018, Jireh entered into a loan agreement with the Bank that provided a term loan in an amount of $17.8 million.  The obligation under the loan agreement is secured by certain real estate assets of Jireh and guaranteed by the Company.  The loan has a five-year term and matures on June 1, 2023.  Jireh made consecutive monthly payments of principal and interest to the Bank.  The outstanding principal shall accrue interest at a fixed rate of 5.04% per annum on the basis of a 360-day year.  The loan agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios.  In August 2021, Jireh signed an amendment of this loan with the Bank to modify the financial covenants requirement to align with the new term loan agreement entered into on August 18, 2021 discussed above.  The amendment was accounted for as a debt modification and no gain or loss was recognized.  The Company paid this loan in full on May 1, 2023.  As of June 30, 2023, there was no outstanding balance and this loan was expired.\nOn August 15, 2017, Jireh entered into a credit agreement with the Bank that provided a term loan in an amount up to $30.0 million for the purpose of purchasing certain equipment for the fabrication facility located in Oregon.  The obligation under the credit agreement was secured by substantially all assets of Jireh and guaranteed by the Company.  The credit agreement had a five-year term and matured on August 15, 2022.  In January 2018 and July 2018, Jireh drew down on the loan in the amount of $13.2 million and $16.7 million, respectively.  Beginning in October 2018, Jireh was required to pay to the Bank on each payment date, the outstanding principal amount of the loan in monthly installments.  The loan accrued interest based on an adjusted London Interbank Offered Rate (\"LIBOR\") as defined in the credit agreement, plus specified applicable margin in the range of 1.75% to 2.25%, based on the outstanding balance of the loan.  The credit agreement contained customary restrictive covenants and included certain financial covenants that required the Company to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio.  In August 2021, Jireh signed an amendment of this loan with the Bank to modify the financial covenants requirement to align with the new term loan agreement entered into on August 18, 2021, discussed above.  The amendment was accounted for as a debt modification and no gain or loss was recognized.  The loan was fully paid off in September, 2022.  As of June 30, 2023, there was no outstanding balance and this loan was expired.\nThe Chinese government imposes certain currency exchange controls on cash transfers out of China.  Regulations in China permit foreign owned entities to freely convert the Renminbi into foreign currency for transactions that fall under the \u201ccurrent account,\u201d which includes trade related receipts and payments, interests, and dividend payments.  Accordingly, subject to the review and verification of the underlying transaction documents and supporting documents by the account banks in China, our Chinese subsidiaries may use Renminbi to purchase foreign exchange currency for settlement of such \u201ccurrent account\u201d transactions without the pre-approval from China's State Administration of Foreign Exchange (SAFE) or its provincial branch.  Pursuant to applicable regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations.  In calculating accumulated profits, foreign-invested enterprises in China are required to allocate 10% of their profits each year, if any, to fund the equity reserve account unless the reserve has reached 50% of the registered capital of the enterprises.  While SAFE approval is not statutorily required for eligible dividend payments to the foreign parent, in practice, before making the dividend payment, the account bank may seek SAFE\u2019s opinion with respect to a dividend payment if the payment involves a relatively large amount, which may delay the dividend payment depending on the then overall status of cross-border payments and receipts of China.     \n55\nTransactions that involve conversion of Renminbi into foreign currency in relation to foreign direct investments and provision of debt financings in China are classified as \u201ccapital account\u201d transactions.  Examples of \u201ccapital account\u201d transactions include repatriations of investments by foreign owners and repayments of loan principal to foreign lenders.  \"Capital account\" transactions require prior approval from SAFE or its provincial branch or an account bank delegated by SAFE to convert a remittance into a foreign currency, such as U.S. dollars, and transmit the foreign currency outside of China.  As a result of this and other restrictions under PRC laws and regulations, our China subsidiaries are restricted in their ability to transfer a portion of their net assets to us, and such restriction may adversely affect our ability to generate sufficient liquidity to fund our operations or other expenditures.  As of June\u00a030, 2023 and 2022, such restricted portion amounted to approximately $93.2 million and $92.4 million, or 10.5% and 10.8%, of our total consolidated net assets attributable to the Company, respectively.  \n\u00a0\u00a0\u00a0\u00a0\nWe believe that our current cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs, including working capital and capital expenditures, for at least the next twelve months.  In the long-term, we may require additional capital due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue.  If our cash is insufficient to meet our needs, we may seek to raise capital through equity or debt financing.  The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and may include operating and financial covenants that would restrict our operations. We cannot be certain that any financing will be available in the amounts we need or on terms acceptable to us, if at all.\nCash, cash equivalents and restricted cash\nAs of June\u00a030, 2023 and 2022, we had $195.6 million and $314.7 million of cash, cash equivalents and restricted cash, respectively.  Our cash, cash equivalents and restricted cash primarily consisted of cash on hand, restricted cash and short-term bank deposits with original maturities of three months or less.  Of the $195.6 million and $314.7 million cash and cash equivalents, $108.2 million and $212.6 million, respectively, were deposited with financial institutions outside the United States.\nThe following table shows our cash flows from operating, investing and financing activities for the periods indicated:\n\u00a0\n\u00a0\nYear Ended June 30, \n\u00a0\n2023\n2022\n2021\n\u00a0\n(in thousands)\nNet cash provided by operating activities\n$\n20,473\u00a0\n$\n218,865\u00a0\n$\n128,744\u00a0\nNet cash used in investing activities\n(109,630)\n(130,822)\n(72,539)\nNet cash provided by (used in) financing activities\n(29,611)\n21,854\u00a0\n(18,991)\nEffect of exchange rate changes on cash, cash equivalents and restricted cash\n(280)\n(59)\n4,895\u00a0\nNet increase (decrease) in cash, cash equivalents and restricted cash\n$\n(119,048)\n$\n109,838\u00a0\n$\n42,109\u00a0\nCash flows from operating activities\nNet cash provided by operating activities of $20.5 million for fiscal year 2023 resulted primarily from net income of $12.4 million, non-cash charges of $80.9 million and net change in assets and liabilities providing net cash of $72.8 million.  The non-cash charges of $80.9 million included depreciation and amortization expenses of $43.2 million, share-based compensation expense of $37.5 million, equity method investment loss from equity investee of $1.4 million, the net deferred income taxes of $1.4 million and loss on disposal of property and equipment of $0.2 million.  The net change in assets and liabilities providing net cash of $72.8 million was primarily due to $45.5 million decrease in accrued and other liabilities, other payable on equity investee of $17.0 million, and $19.6 million decrease in accounts payable primarily due to timing of payment, $25.2 million increase in inventories, $18.7 million increase in other current and long-term assets primarily due to decrease in advance payments to suppliers, partially offset by $43.3 million decrease in accounts receivable due to timing of billings and collection of payments, $8.1 million increase in deferred revenue, and $2.0 million increase in income taxes payable.\nNet cash provided by operating activities of $218.9 million for fiscal year 2022 resulted primarily from net income of $453.2 million, non-cash charges of $287.6 million and net change in assets and liabilities providing net cash of $53.3 million.  The non-cash charges of $287.6 million included depreciation and amortization expenses of $42.9 million, share-based compensation expense of $31.3 million, gain on deconsoidation of the JV Company of $399.1 million, loss on changes of equity interest in the JV Company, net of $3.1 million, deferred income tax on deconsolidation and changes of equity interest in \n56\nthe JV Company of $30.0 million, equity method investment loss from equity investee of $2.6 million, and net deferred income taxes of $1.6 million.  The net change in assets and liabilities providing net cash of $53.3 million was primarily due to $76.4 million increase in accrued and other liabilities, income taxes payable on deconsolidation and changes of equity interest in the JV company of $3.5 million, other payable on equity investee of $48.2 million, and $23.8 million increase in accounts payable primarily due to timing of payment, partially offset by $30.1 million increase in accounts receivable due to timing of billings and collection of payments, $57.4 million increase in inventories, $9.4 million increase in other current and long-term assets primarily due to decrease in advance payments to suppliers, and $1.7 million decrease in income taxes payable.\nNet cash provided by operating activities of $128.7 million for fiscal year 2021 resulted primarily from net income of $56.3 million, non-cash charges of $70.0 million and net change in assets and liabilities providing net cash of $2.5 million.  The non-cash charges of $70.0 million included depreciation and amortization expenses of $52.7 million, share-based compensation expense of $15.3 million, loss on disposal of property and equipment of $0.4 million, and net deferred income taxes of $1.6 million.  The net change in assets and liabilities providing net cash of $2.5 million was primarily due to $48.5 million increase in accrued and other liabilities and $1.7 million increase in income taxes payable, partially offset by $22.5 million increase in accounts receivable due to timing of billings and collection of payments, $18.8 million increase in inventories, $5.8 million increase in other current and long-term assets primarily due to decrease in advance payments to suppliers, and $0.5 million decrease in accounts payable primarily due to timing of payments.\nCash flows from investing activities\nNet cash used in investing activities of $109.6 million for the fiscal year 2023 was primarily attributable to $110.4 million purchases of property and equipment, partially offset by $0.6 million government grant related to equipment and $0.2 million in proceeds from sale of property and equipment.\nNet cash used in investing activities of $130.8 million for the fiscal year 2022 was primarily attributable to $138.0 million purchases of property and equipment, and $20.7 million deconsolidation of cash and cash equivalents of the JV Company, partially offset by $1.4 million government grant related to equipment in the JV Company, $26.3 million proceeds from sale of equity interest in the JV Company and $0.1 million proceeds from sale of property and equipment.\nNet cash used in investing activities of $72.5 million for the fiscal year 2021 was primarily attributable to $72.7 million purchases of property and equipment, which was partially offset by $0.1 million government grant related to equipment in the JV Company.\nCash flows from financing activities\nNet cash used in financing activities of $29.6 million for the fiscal year 2023 was primarily attributable to $6.4 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, $0.8 million in payments of capital lease obligations, $26.6 million in repayments of borrowings, and $13.4 million of payments for repurchase of common shares, partially offset by $8.6 million of proceeds from borrowings and $9.0 million of proceeds from exercises of share options and issuance of shares under the ESPP. \nNet cash used in financing activities of $21.9 million for the fiscal year 2022 was primarily attributable to $64.3 million of proceeds from borrowings and $6.1 million of proceeds from exercises of share options and issuance of shares under the ESPP, partially offset by $8.6 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, $4.2 million in payments of capital lease obligations, and $35.7 million in repayments of borrowings.\nNet cash used in financing activities of $19.0 million for the fiscal year 2021 was primarily attributable to $6.9 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, $16.5 million in payments of capital lease obligations, and $66.6 million in repayments of borrowings, partially offset by $65.9 million of proceeds from borrowings and $5.1 million of proceeds from exercises of share options and issuance of shares under the ESPP.\n57\nContractual Obligations\nOur contractual obligations as of June\u00a030, 2023 are as follows:\n\u00a0\nPayments Due by Period\n\u00a0\nLess\u00a0than\n\u00a0\n\u00a0\nMore\u00a0than\n\u00a0\nTotal\n1 year\n1-3\u00a0years\n3-5years\n5 years\n\u00a0\n(in thousands)\n\u00a0\u00a0\u00a0Recorded liabilities:\nBank borrowings\n$\n49,887\u00a0\n$\n11,472\u00a0\n$\n23,535\u00a0\n$\n14,880\u00a0\n$\n\u2014\u00a0\nFinance leases\n4,768\u00a0\n1,144\u00a0\n2,288\u00a0\n1,336\u00a0\n\u2014\u00a0\nOperating leases\n29,149\u00a0\n5,452\u00a0\n8,430\u00a0\n6,964\u00a0\n8,303\u00a0\n$\n83,804\u00a0\n$\n18,068\u00a0\n$\n34,253\u00a0\n$\n23,180\u00a0\n$\n8,303\u00a0\n\u00a0\u00a0\u00a0Other:\nCapital commitments with respect to property and equipment\n$\n9,711\u00a0\n$\n9,711\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\nPurchase commitments with respect to inventories and others\n127,490\u00a0\n127,490\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n$\n137,201\u00a0\n$\n137,201\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\nTotal contractual obligations\n$\n221,005\u00a0\n$\n155,269\u00a0\n$\n34,253\u00a0\n$\n23,180\u00a0\n$\n8,303\u00a0\n \nAs of June\u00a030, 2023, we had recorded liabilities of $2.5 million for uncertain tax positions and $0.3 million for potential interest and penalties, which are not included in the above table because we are unable to reliably estimate the amount of payments in individual years that would be made in connection with these uncertain tax positions.\nCommitments\nSee Note 15 of the Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K for a description of commitments.\nOff-Balance Sheet Arrangements\nAs of June\u00a030, 2023, we had no off-balance sheet arrangements.\n58\nCritical Accounting Policies and Estimates \nThe preparation of our consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses.  To the extent there are material differences between these estimates and actual results, our consolidated financial statements will be affected.  On an ongoing basis, we evaluate the estimates, judgments and assumptions including those related to stock rotation returns, price adjustments, allowance for doubtful accounts, valuation of inventories, warranty accrual, income taxes, leases, equity method investment, share-based compensation, recoverability of and useful lives for property, plant and equipment and intangible assets.\nRevenue recognition\nWe determine revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied.  We recognize revenue at a point in time when product is shipped to the customer, net of estimated stock rotation returns and price adjustments to certain distributors.  We present revenue net of sales taxes and any similar assessments.  Our standard payment terms range from 30 to 60 days.   \nWe sell our products primarily to distributors, who in turn sell our products globally to various end customers.  Our revenue is net of the effect of the variable consideration relating to estimated stock rotation returns and price adjustments that we expect to provide to certain distributors.  Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of the products purchased by distributors during a specified period.  We estimate provision for stock rotation returns based on historical returns and individual distributor agreements.  We also provide special pricing to certain distributors primarily based on volume, to encourage resale of our products.  We estimate the expected price adjustments at the time the revenue is recognized based on distributor inventory levels, pre-approved future distributor selling prices, distributor margins and demand for our products.  If actual stock rotation returns or price adjustments differ from our estimates, adjustments may be recorded in the period when such actual information is known.  Allowance for price adjustments is recorded against accounts receivable and provision for stock rotation is recorded in accrued liabilities on the consolidated balance sheets. \nOur performance obligations relate to contracts with a duration of less than one year.  We elected to apply the practical expedient provided in ASC 606, \u201cRevenue from Contracts with Customers\u201d. Therefore, we are not required to disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. \nWe recognize the incremental direct costs of obtaining a contract, which consist of sales commissions, when control over the products they relate to transfers to the customer.  Applying the practical expedient, we recognize commissions as expense when incurred, as the amortization period of the commission asset we would have otherwise recognized is less than one year. \nPackaging and testing services revenue is recognized at a point in time upon shipment of serviced products to the customer. \nLicense and Development Revenue Recognition \nIn February 2023, we entered into a license agreement with a customer to license our proprietary SiC technology and to provide 24-months of engineering and development services for a total fee of $45 million, consisting of an upfront fee of $18 million and $6.8 million paid to us in March 2023 and July 2023, respectively, with the remaining amount to be paid upon the achievement of specified engineering services and product milestones. The license and development fee is determined to be one performance obligation and is recognized over the 24 months when we perform the engineering and development services.  We use the input method to measure progression, representing a faithful depiction of the transfer of services.  During the fiscal year ended June 30, 2023, we recorded $9.9 million of license and development revenue.  The amount of contract liability is recorded as deferred revenue on the consolidated balance sheets.  In addition, we also entered an accompanying supply agreement to provide limited wafer supply to the customer.\n \nEquity method investment\nWe use the equity method of accounting when we have the ability to exercise significant influence, but not control, as determined in accordance with general accepted accounting principles, over the operating and financial policies of the investee.  Effective December 2, 2021, we reduced our equity interest in the JV Company, which resulted in deconsolidation of our investment in the JV Company.  As a result, beginning December 2, 2021, we record our investment under equity method of accounting.  Due to difficulties in obtaining accurate financial information from the JV Company in a timely manner, we record our share of earnings or losses of such affiliate on a one quarter lag.  Therefore, our share of losses of the \n59\nJV Company for the period from December 2, 2021 to March 31, 2022 was recorded in our Consolidated Statement of Operations for the fiscal year ended June 30, 2022.  And our share of losses of the JV Company for the period of April 1, 2022 to March 31, 2023 was recorded in our Consolidated Statement of Operations for the fiscal year ended June 30, 2023.  We recognize and disclose intervening events at the JV Company in the lag period that could materially affect our consolidated financial statements.\nWe record our interest in the net earnings of the equity method investee, along with adjustments for unrealized profits or losses on intra-entity transactions and amortization of basis differences, within earnings or loss from equity interests in the Consolidated Statements of Operations.  Profits or losses related to intra-entity sales with the equity method investee are eliminated until realized by the investor and investee.  Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to them.  Equity method goodwill is not amortized or tested for impairment; instead the equity method investment is tested for impairment.  We review for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable.  In such a case, the decrease in value is recognized in the period the impairment occurs in the Consolidated Statements of Operations.\nValuation of inventories\nWe carry inventories at the lower of cost (determined on a first-in, first-out basis) or net realizable value.  Cost primarily consists of semiconductor wafers and raw materials, labor, depreciation expenses and other manufacturing expenses and overhead, and packaging and testing fees paid to third parties if subcontractors are used.  Valuation of inventories is based on our periodic review of inventory quantities on hand as compared with our sales forecasts, historical usage, aging of inventories, production yield levels and current product selling prices.  If actual market conditions are less favorable than those forecasted by us, additional future inventory write-downs may be required that could adversely affect our operating results.   Adjustments to inventory, once established are not reversed until the related inventory has been sold or scrapped.  If actual market conditions are more favorable than expected and the products that have previously been written down are sold, our gross margin would be favorably impacted. \nAccounting for income taxes \nWe are subject to income taxes in a number of jurisdictions.  We must make certain estimates and judgments in determining income tax expense for financial statement purposes.  These estimates and judgments occur in the calculation of tax credits, benefits and deductions, and in the calculation of certain tax assets and liabilities which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as interest and penalties related to uncertain tax positions.  There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.  We establish accruals for certain tax contingencies based on estimates of whether additional taxes may be due.  While the final tax outcome of these matters may differ from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.  As a result, significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.\nSignificant management judgment is also required in determining whether deferred tax assets will be realized in full or in part.  When it is more likely than not that all or some portion of specific deferred tax assets such as net operating losses or foreign tax credit carryforwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that cannot be realized.  We consider all available positive and negative evidence on a jurisdiction-by-jurisdiction basis when assessing whether it is more likely than not that deferred tax assets are recoverable.  We consider evidence such as our past operating results, the existence of cumulative losses in recent years and our forecast of future taxable income.  We will maintain a partial valuation allowance equal to the state research and development credit carryforwards until sufficient positive evidence exists to support reversal of the valuation allowance.\nWe have not provided for withholding taxes on the undistributed earnings of our foreign subsidiaries because we intend to reinvest such earnings indefinitely.  However, we have recorded a deferred tax liability of $27.9 million at June 30, 2023 related to our investment in the JV Company.  As of June 30, 2023, the cumulative amount of undistributed earnings of our foreign subsidiaries considered permanently reinvested was $374 million.  The determination of the unrecognized deferred tax liability on these earnings is not practicable. Should we decide to remit this income to the Bermuda parent company in a future period, our provision for income taxes may increase materially in that period. \nThe Financial Accounting Standards Board (\"FASB\") has issued guidance which clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized.  The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical \n60\nmerits of the position.  The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely to be realized upon ultimate settlement.  The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax law and regulations in a multitude of jurisdictions.  Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management.  If the ultimate resolution of tax uncertainties is different from what is currently estimated, a material impact on income tax expense could result.\nOur provision for income taxes is subject to volatility and could be adversely impacted by changes in earnings or tax laws and regulations in various jurisdictions.  We are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities.  We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.  There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition.  To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.  The provision for income taxes includes the impact of changes to reserves, as well as the related net interest and penalties.\nShare-based compensation expense\nWe maintain an equity-settled, share-based compensation plan to grant restricted share units and stock options.  We recognize expense related to share-based compensation awards that are ultimately expected to vest based on estimated fair values on the date of grant.  The fair value of restricted share units is based on the fair value of our common share on the date of grant.  For restricted stock awards subject to market conditions, the fair value of each restricted stock award is estimated at the date of grant using the Monte-Carlo pricing model.  The fair value of stock options is estimated on the date of grant using the Black-Scholes option valuation model.  Share-based compensation expense is recognized on the accelerated attribution basis over the requisite service period of the award, which generally equals the vesting period.\n \nThe Employee Share Purchase Plan (the \u201cESPP\u201d) is accounted for at fair value on the date of grant using the Black-Scholes option valuation model.  Share-based compensation expense is significant to the consolidated financial statements and is calculated using our best estimates, which involve inherent uncertainties and the application of management's judgment.  The Black-Scholes option valuation model requires the input of subjective assumptions, including the expected term and stock price volatility.  In addition, judgment is also required in estimating the number of stock-based awards that are expected to be forfeited.  Forfeitures are estimated based on historical experience at the time of grant.  Changes in estimated forfeitures are recognized in the period of change and impact the amount of stock compensation expenses to be recognized in future periods, which could be material if actual results differ significantly from estimates.\nRecently Issued Accounting Pronouncements \n\u00a0\u00a0\u00a0\u00a0See Note 1 of the Notes to the consolidated financial statements under Item 15 in this Annual Report on Form 10-K for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition.\n61",
+  "item7a": ">Item 7A.\nQuantitative and Qualitative Disclosures About Market Risk \nForeign currency risk \n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0We and our principal subsidiaries use U.S. dollars as our functional currency because most of the transactions are conducted and settled in U.S. dollars.  All of our revenue and a significant portion of our operating expenses are denominated in U.S. dollars.  The functional currency for our in-house packaging and testing facilities in China is U.S. dollars and a significant portion of our capital expenditures are denominated in U.S. dollars.  However, foreign currencies are required to fund our overseas operations, primarily in Taiwan and China.  Operating expenses of overseas operations are denominated in their respective local currencies.  In order to minimize exposure to foreign currencies, we maintained cash and cash equivalent balances in foreign currencies, including Chinese Yuan (\u201cRMB\u201d) as operating funds for our foreign operating expenses.  For our subsidiaries which use the local currency as the functional currency, the results and financial position are translated into U.S. dollar using exchange rates at balance sheet dates for assets and liabilities and using average exchange rates for income and expenses items.  The resulting translation differences are presented as a separate component of accumulated other comprehensive income (loss) and noncontrolling interest in the consolidated statements of equity.  Our management believes that our exposure to foreign currency translation risk is not significant based on a 10% sensitivity analysis in foreign currencies due to the fact that the net assets denominated in foreign currencies pertaining to foreign operations, principally in Taiwan and China, are not significant to our consolidated net assets. \nInterest rate risk \nOur interest-bearing assets comprise mainly interest-bearing short-term bank balances.  We manage our interest rate risk by placing such balances in instruments with various short-term maturities.  Borrowings expose us to interest rate risk.  Borrowings are drawn down after due consideration of market conditions and expectation of future interest rate movements.  As of June\u00a030, 2023, we had $49.8 million outstanding under our loan and $4.1 million outstanding under our financing leases, which were subject to fluctuations in interest rates.  For the year ended June\u00a030, 2023, a hypothetical 10% increase in the interest rate could result in $0.3 million additional annual interest expense.  The hypothetical assumptions made above will be different from what actually occurs in the future.  Furthermore, the computations do not anticipate actions that may be taken by our management should the hypothetical market changes actually occur over time.  As a result, actual impacts on our results of operations in the future will differ from those quantified above. \nCommodity Price Risk\nWe are subject to risk from fluctuating market prices of certain commodity raw materials, particularly gold, that are used in our manufacturing process and incorporated into our end products.  Supplies for such commodities may from time-to-time become restricted, or general market factors and conditions may affect the pricing of such commodities.  Over the past few years, the price of gold increased significantly and certain of our supply chain partners assess surcharges to compensate for the rising commodity prices.  We have been converting some of our products to use copper wires instead of gold wires.  Our results of operations may be materially and adversely affected if we have difficulty obtaining these raw materials, the quality of available raw materials deteriorates, or there are significant price changes for these raw materials.  For periods in which the prices of these raw materials are rising, we may be unable to pass on the increased cost to our customers which would result in decreased margins for the products in which they are used and could have a material adverse effect on our net earnings.  We also may need to record losses for adverse purchase commitments for these materials in periods of declining prices.  We do not enter into formal hedging arrangements to mitigate against commodity risk.  We estimate that a 10% increase or decrease in the costs of raw materials subject to commodity price risk, such as gold, would decrease or increase our current year's net earnings by $0.6 million, assuming that such changes in our costs have no impact on the selling prices of our products and that we have no pending commitments to purchase metals at fixed prices.\n62",
+  "cik": "1387467",
+  "cusip6": "G6331P",
+  "cusip": ["G6331P104", "G6331P954", "G6331P904"],
+  "names": ["ALPHA  OMEGA SEMICONDUCTOR", "ALPHA & OMEGA SEMICONDUCTOR"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1387467/000138746723000049/0001387467-23-000049-index.htm"
+}
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+++ b/GraphRAG/standalone/data/all/form10k/0001391127-23-000016.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item\u00a01.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Business \u00a0\u00a0\u00a0\u00a0\nWe were incorporated in Delaware in 2003 and have operated in the Phoenix metropolitan area since 2001 and elsewhere throughout the United States since 2003.\n \nWe began international operations in 2004.\n \nOur principal executive office is located at 11811 North Tatum Blvd., Suite 3031, Phoenix, Arizona, 85028, and our main telephone number is (602) 850-5000. We operate and report on a calendar year basis with our fiscal quarters ending March 31, June 30, September 30, and December 31.\nOn June 15, 2022, we changed our corporate name from Limelight Networks, Inc. to Edgio, Inc. (\u201cEdgio\u201d). Beginning June 15, 2022, our common stock is traded on the Nasdaq Global Select Market (the \u201cNasdaq\u201d) under the ticker symbol \u201cEGIO\u201d.\nAdditionally, on June 15, 2022, we completed the acquisition (the \u201cEdgecast Acquisition\u201d) of all of the outstanding shares of common stock of Edgecast Inc., a California corporation (\u201cEdgecast\u201d), and certain Edgecast-related businesses and assets from College Parent, L.P., a Delaware limited partnership (\u201cCollege Parent\u201d). Edgecast is a leading provider of edge security, content delivery and video services.\nOverview\nEdgio\u2019s goal is to enable clients to increase revenue generation and reduce costs in the development and delivery of their digital services. There are two primary types of companies who benefit from our capabilities. Companies for whom media is at the core of their business (e.g., entertainment companies, sporting organizations, content owners, Internet service providers (\u201cISPs\u201d), technology providers) and companies who have high digital interaction with their customers (e.g., retailers, financial services, travel and hospitality, consumer technology services.) Whether streaming content around the globe, or developing high-performance web properties, Edgio provides speed, security and value necessary in today\u2019s digital economy. The world's most innovative companies and online properties rely on our technology and services to power their business. When clients choose Edgio they gain a partner who prioritizes their needs, delivers innovation, and is focused on the experience of their customers.\nEdgio has a comprehensive strategic operating plan focused on evolving the company into a leading provider of edge services for outcome buyers by offering solutions that we believe provide superior performance and team productivity versus point solutions available from existing vendors. Edgio is targeting $14 billion of the total $40 billion marketplace with two customer-focused edge solutions: Media and Applications platforms. Both platforms run on our edge network - a large, global content delivery network (\u201cCDN\u201d) that currently powers four percent of the Internet with more than 300+ points- of presence (\u201cPoP\u201d) offering more than 100 million requests per second and 250+ terabits of global capacity. This network is the \u201coperating system\u201d that allows our solutions to perform and scale.\nThe foundation of our strategy is supported by three pillars, each of which balance our immediate and longer-term growth and profitability objectives. The first pillar is improving our core, which focuses on network performance and operating costs; the second pillar is expanding our core, which focuses on revenue growth with existing and new clients, and the third pillar is extending our core, which focuses on introducing new solutions that will increase network utilization, growth, and gross margins.\nBased on our Improve-Expand-Extend pillars, we have implemented a rigorous and disciplined process that spans all aspects of our network and client operations. This has resulted in significant growth and margin expansion since implementation.\nIndustry Trends\nWe live in a global, highly interconnected, digital world which requires a high quality and fully secure experience. Companies who seek to generate value from providing digital interactions and experiences are affected by five major trends:\n1\nSecurity of Digital Sites and Assets\n. 41% of organizations suffered from an application programming interface (\u201cAPI\u201d) security incident in the last 12 months, with 63% representing a data breach or loss, according to a 2022 API Security Trends survey by 451 Research. It\u2019s estimated that 39 percent of all data breaches start with a website application (\u201cweb app\u201d) or publicly-facing API. We believe that in 2023, leaders must invest in cloud- and edge-based holistic security solutions or risk customers leaving them forever. Businesses must stay ahead of costly attacks on logins, payments, and APIs used to deliver safe and reliable banking and e-commerce. \nFaster Web Apps.\n Consumer expectations for online experiences have never been higher. A website\u2019s user experience needs to be fast, seamless, and uninterrupted. According to a survey by Digital.com in July 2022, half of all shoppers expect page loads of less than three seconds and will abandon their cart if the page does not load. Google\u2019s search algorithm incorporates website speed as an important ranking signal as of 2021. This puts pressure on developers to release web apps that load at sub-second speeds. In addition to providing solutions that delivery fast performance, we believe having a fully integrated platform with developer workflow will be a growing requirement for businesses worldwide as they seek to improve developer and operational productivity.\nFaster Web App Teams\n. Teams that ship software faster, grow revenue faster. According to McKinsey analysis companies whose teams rank in the top quartile of their Developer Velocity Index grow revenue up to five times faster. We believe our holistic platform allows teams to ship updates to their apps significantly faster than today\u2019s state-of-the-art, which requires cobbling together over a dozen point cloud services from the hyperscale cloud, application security, web CDN, and observability vendors.\nThe Rise of Over The Top (\n\u201c\nOTT\n\u201d\n) Streaming. \nOnline video and the practice of \u201ccord cutting\u201d is now a primary choice for people to watch video content, whether it\u2019s via their personal computers, smartphones, tablets, smart televisions, or other connected devices. With streaming video quality now exceeding that of which consumers typically experience while viewing broadcast television, this puts a significant burden on publishers to not only produce compelling content, but also to deliver it in a way that meets high consumer expectations. We believe that as more content is made available in 4K resolution, more consumers will want to consume the higher-quality content, resulting in increased strain on Internet architecture and infrastructure.\nGrowth of Digital Downloads. \nConsumers increasingly purchase movies, music, video games, and applications digitally from a variety of retailers and download sizes have increased, especially for video games. The App Intelligence research data from Sensor Tower shows that the average mobile game file size has increased to nearly 465MB in 2020, with some games taking up to 4 GB of storage. PC game sizes are even bigger with twelve exceeding 100GB (\u201cPCGamer\u201d). As digital purchases of massive files increase further, we believe this will cause more strain on the Internet\u2019s infrastructure. We believe this will result in additional pressure on organizations and service providers to take steps to avoid congestion, latency, lengthening download times, and increasingly interrupted downloads, all of which we believe would undermine an organization\u2019s ability to deliver the best possible digital experience.\nOur Services\nEdgio is a globally-scaled, edge-enabled solutions provider for businesses looking to meet the growing demand for fast, secure and frictionless digital experiences.\n \nOur solutions include two platforms, Media and Applications, running on top of our global network.\n2\nMedia Platform.\n The media platform enables companies to stream large files (video, software downloads, live events) across the globe in a fast and secure way. Some of the largest global broadcasters use Edgio to stream live and on-demand video content.\n \nSome of the biggest names in gaming and SaaS solutions use our network to distribute application upgrades to their users. \nFor clients looking for a return on their investment in video, our Uplynk solution enables various business models to monetize their streaming content. Our capabilities include targeted advertising insertion, content syndication and seamless integration points to enable subscription and transaction businesses. Uplynk's unique set of capabilities streamline operations and reduce costs while maintaining high quality video experiences for our clients' viewers. One customer of Edgio\u2019s Uplynk solution streamed over 2,000 live events in a single season, many events running simultaneously, by leveraging Uplynk\u2019s orchestrated workflow solution and reducing their cost of operation.\nOur Open Edge solution enables counterparties, typically ISPs, around the world to add Edgio functionality to their networks, extending capacity, and improving functionality. This solution enables Edgio to expand the network at lower costs.\nApplications Platform\n. The Edgio apps platform enables our clients to build, secure, and accelerate their websites and APIs. Edgio e-commerce customers include some of the top brands in retail, transportation, automotive, and hospitality. We also have industry-leading clients from the banking, insurance, and online payment industries whose customers rely on their web and mobile apps and partner APIs to transact business.\nWeb apps' visitors require content and data to be displayed in less than a second. Our performance engine which works on top of our network makes that happen. Functionality within the performance engine allows the operations and engineering teams of our clients to prefetch and dynamically cache content so that their websites load significantly faster. One customer, for example, saw 300ms average page loads and 543ms browsing speeds allowing them to increase cart conversion by 13%.\nSome of our clients want even better performance and use our Sites product (built upon former Layer0 capabilities) to build headless websites that maximize transactional performance. We include key tools, integrations, and a seamless experience to make it easy for teams to create and release updates far more quickly and more safely than without Sites. One customer was able to increase user engagement by 65% through their newly designed mobile application built based on Edgio\u2019s Sites application.\nResiding across the entire Applications Platform is an integrated workflow that the development and operations teams use to take a web app from design to deployment including point-and click routing and traffic splitting capabilities. \n3\nFinally, our app platform includes a powerful security solution that secures and monitors both the web apps and APIs of our clients. Our unique dual-WAF mode enables faster and more accurate deployment of security rules with zero downtime. This security solution includes robust bot management, DDoS mitigation amongst other features all backed by a range of managed services including a 24x7 security operation center. One of our consumer tech clients increased security and mitigated threats more quickly all while migrating 100 domains to a Super PoP architecture that improves performance.\nEdgio Global Edge Network\nUnderneath all of our software based solutions is a high capacity, high speed private global network with distributed computing resources and extensive connectivity to last-mile broadband network providers. This network is ideal for emerging edge compute workloads where rapid response times are required. \nEdgio\u2019s network, formed through the integration of former Edgecast and Limelight networks delivers: offering more than 100 million requests per second and 250+ terabits of global capacity sub-second page loads, more than 300+ global PoPs, more than 71,000 ISP connections, and more than 60 countries served. This scale has protected our clients from some of the largest DDoS attacks on record.\nThis private fiber backbone enables traffic to bypass the congested public Internet, resulting in faster more reliable and more secure content delivery. Our infrastructure is densely architected with data centers distributed to major metropolitan locations and interconnected with thousands of major ISPs and other last-mile networks. Edgio provides an exceptional user experience in a more secure infrastructure with the capacity to support the most onerous digital traffic.\nProfessional and Managed Services\nEdgio expert and managed services are available to help clients build, test or deploy highly performant mobile and web e-commerce applications and prevent and remediate security attacks on online banking portals, as two common examples.\n \nOur 24x7 network operations and security operation centers continually monitor the speed, quality and security of customer environments. For example, our team helped one client create custom caching rules, and provide proactive service optimization to enable them to stream their content successfully 24x7.\nSales and Marketing\nCollectively, Edgio\u2019s go-to-market efforts are targeting the $14 billion of the $40 billion addressable market for web application and API protection (\u201cWAAP\u201d), edge development platforms, and large file streaming and web app delivery. As of December 31, 2022, we had approximately 954 direct clients and over 5,000 paying customers worldwide, including many notable brands in the world in the fields of online video, live sports, digital music, news media, games, rich media applications, e-commerce, financial services, travel, and software delivery.\nOur media platform is ideal for communications and media companies, and all OTT content delivery companies including pay TV, channel groups, streaming services providers, public broadcasters, and sports organizations. Increasingly, these companies seek to generate revenue from the video rights to their content and need a secure, highly performant provider to deliver for them.\n \nOur continual efforts to improve performance and quality while lowering costs and environmental impacts mean increased value for our existing and new clients.\n \nIn addition, we are focused on securing new clients who need non-peak traffic solutions.\n \nAfter we land customers to take advantage of our network, we expand our relationship through our Uplynk offer enabling them to perform pre-stream processing and drive their revenue acquisition plans.\n \nFinally, we are expanding our network in cost effective ways by enabling ISPs to bring Edgio capabilities to the edge of their networks at highly cost effective rates.\nOur apps platform is ideal for both new and existing clients focused on creating better digital experiences for their customers.\n \nThese companies want to improve personalization, secure their interactions, and load content faster.\n \nFurther they seek to augment the scale and centralization benefits of the cloud without compromising latency, real-time processing, and security.\n \nDifferent use cases drive different sales strategies.\n \nFor example, security may be a critical need for a customer that we can meet, we use that value to open the conversation to our wider integrated set of solutions.\n \nIn our focus to deliver value to our clients our goal is to land, perform and then expand our relationship.\nWe continue to work on our messaging and marketing efforts to ensure that current and potential clients are aware of and interested in working with us. We have increased our focus on both account-based and digital demand efforts.\n \nWe are investing in our go-to-market resources, both direct and indirect to ensure that these resources are trained and knowledgeable to represent our solutions effectively.\n4\nCompetition\nBuilding and operating a digital content delivery network has significant investment hurdles which provides barriers to entries for new players.\n \nHowever, it is also a highly competitive space, where the key players are focused on scale, performance, service, ease of use, product features and price. High volume clients continue to put pressure on price while demanding high quality and speed. \nWe believe our edge solutions platform is the broadest offering available. This offering solves multiple challenges for clients by removing their need to install, manage and provision software and hardware for storing and delivering digital content. \nMore importantly, we are offering value-added software, developed over the past 10 years, and services that further automate and make it easy for clients to monetize their digital content \u2013 whether through subscription and advertising for media broadcasters, or through faster more responsive and secure web apps for any company with an e-commerce presence, financial services, and communications/media companies. Our solutions include development and operational workflows to reduce costs and minimize risks for our clients. For our apps platform clients, the unique combination of our global-edge platform, developer productivity tools and integrated security is unique and differentiated. \nWe primarily face competition from Akamai, Amazon Web Services, Cloudflare, F5, Fastly, Imperva, and Lumen Technologiess.\n \nEach vendor has different edge performance capabilities and software.\n \nWe are focused on differentiating ourselves by providing the best outcomes for our clients by making ourselves easy to do business with \u2013 easy to implement, operate and secure.\nResearch and Development\nOur research and development (\u201cR&D\u201d) organization is responsible for the design, development, testing, and certification of our global Applications and Media platforms-as-a-service as well as the software, hardware, and network architecture of our global network. As of December 31, 2022, we had 403 employees and employee equivalents in our R&D group.\nOur engineering efforts support product development across all of our service areas, as well as innovation related to the global network itself. We employ experts in security, machine learning, network traffic engineering, high-scale systems, service reliability, global platform-as-a-service, and developer experience\n.\n We test our services to ensure scalability in times of peak demand. We use internally developed and third-party software to monitor and to improve the performance of our network in the major Internet consumer markets around the world. Edgio\u2019s R&D team is distributed across the United States and the globe to attract the best talent while keeping costs under control.\nThe acquisition of Layer0 and Edgecast \nadded significant technical talent to \nEdgio\n\u2019s R&D organization. They will be instrumental in carrying out our vision of enabling our solution sets within our global edge network for develop\ners and for overseeing \nEdgio\u2019s\n evolution as an edge solutions platform. \nOur R&D expenses were $83,652, $21,669, and $21,680 in 2022, 2021, and 2020, respectively, including stock-based compensation expenses of $15,655, $2,435, and $2,589 in 2022, 2021, and 2020, respectively. \nIntellectual Property\nOur success depends in part upon our ability to protect our core technology and other intellectual capital. To accomplish this, we rely on a combination of intellectual property rights, including patents, trade secrets, copyrights, trademarks, domain registrations, and contractual protections.\nAs of December 31, 2022, we had received 285 patents in the United States, expiring between 2023 and 2041, and we had 14 U.S. patent applications pending. We do not have any issued patents in foreign countries. We do not know whether any of our patent applications will result in the issuance of a patent or whether the examination process will require us to narrow our claims. Any patents that may be issued to us may be contested, circumvented, found unenforceable or invalidated, and we may not be able to prevent third parties from infringing them. Therefore, we cannot predict the exact effect of having a patent with certainty.\nAs of December 31, 2022, we had received 20 trademarks in the United States. Our former name, Limelight Networks, Inc., as well as Edgecast, Inc., have been filed for multiple classes in the United States, Antigua and Barbuda, Argentina, Australia, Benelux, Brazil, Canada, Chile, China, Columbia, Ecuador, the European Union, Hong Kong, India, Israel, Japan, Mexico, New Zealand, Norway, Peru, Philippines, Russian Federation, Singapore, South Africa, Switzerland, South Korea, Taiwan, Turkey, and the United Kingdom. We have 86 non-United States trademarks registered. There is a risk that pending \n5\ntrademark applications may not issue, and that those trademarks that have issued may be challenged by others who believe they have superior rights to the marks.\nWe generally control access to and use of our proprietary software and other confidential information through the use of internal and external controls, including physical and electronic security, contractual protections with employees, contractors, clients and partners, and domestic and foreign copyright laws.\nHuman Capital\nWe believe Edgio provides unmatched speed, security, and simplicity at the edge through globally-scaled media and applications platforms. The world\u2019s most innovative companies and online properties \u2013 from entertainment, technology, retail, and finance \u2013 rely on our technology and services to accelerate and defend their web applications, APIs, and content. As the world continues to move to the edge, we believe Edgio is the platform of choice to power valuable business outcomes.\nWe are building a culture where people can do their best work in a transparent, collaborative environment that\u2019s engaged and rewards accountability, ownership, and performance. As a leading provider of edge-enabled solutions, we are proudly and vehemently client obsessed and thrive on delivering value as experts in our field. Our work empowers businesses to achieve their goals, solve their biggest challenges, and propel their successes at the edge.\nCore Values.\nOur values are at the heart of everything we do; they empower our team (\u201cFirst Team\u201d) and are the foundation of our high-performing culture. They guide and inspire our First Team to create unmatched value and extraordinary results for our clients and stakeholders. OWNERSHIP means we focus on the job that is most required, treating time and resources as precious\u2014like it\u2019s your business. With a laser focus on PERFORMANCE, we achieve extraordinary results through work that is planned and managed. We are CLIENT OBSESSED. We give them our full attention; they pay for it. Our FIRST TEAM is radically committed to collaboration, trust, feedback, accountability and performance. We DESIGN, that means we create better experiences through simplicity and efficiency.\nInspired people. Extraordinary Results.\nWe truly embrace a First Team culture at Edgio. We trust our team to manage their workplace and schedule to achieve the best results. Trust, along with the right tools and technology, are the keys to better problem-solving, sharing of ideas, and creating a sense of community, culture and empowerment.\nThrough our People Experience Centers of Excellence (\u201cCOE\u201d), we are laser-focused on building a destination culture. \n\u2022\nOur People Sourcing and Performance COE leads in our pursuit of attracting and retaining high performers has led us to design programs that maximize achievement and potential while empowering our First Team to thrive.\n\u2022\nOur People Engagement and Culture COE represents our First Team\u2019s commitment to Edgio and strong alignment with our core values, mission and culture. Whether it\u2019s an EdgeTalks (speaker series), 2BeerExperience (small, informal, and interactive conversations with members of leadership), or First Team Quarterly meetings, the entire premise is built on creating a culture of open communication using honesty and transparency.\n\u2022\nOur People Rewards COE is designed to provide strong competitive advantages that attract top talent and retain our First Team through transparency surrounding compensation and rewards.\nAs of December 31, 2022, we had 980 employees and employee equivalents, an increase of 596 employees and employee equivalents from 552 employees and employee equivalents on December 31, 2021. The increase was primarily driven \n6\nby the acquisition of Edgecast in June 2022. Our employees are represented by approximately 14 self-identified nationalities working in approximately 20 different countries around the world. Collectively, we speak approximately 14 different languages. Our global workforce is highly educated, primarily experienced in the technology sector with approximately 85% of our employees working in R&D, Operations, Growth, and Client Success.\n7\nAvailable Information\nWe maintain a website at www.edg.io. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as our annual reports to shareholders and Section 16 reports on Forms 3, 4 and 5, are available free of charge on this site through the \u201cInvestors\u201d link as soon as reasonably practicable after we file or furnish these reports with the SEC. All reports we file with the SEC are also available free of charge via EDGAR through the SEC\u2019s website at https://www.sec.gov. Our Code of Ethics, on Corporate Governance Guidelines, and charters for our Board committees are also available on our website. The information contained on and linked from our website is not incorporated by reference into this Annual Report on Form 10-K.\nInformation about our Executive Officers \nOur executive officers and their ages and positions as of June\u00a029, 2023 are as follows:\nName\nAge\nPosition\nRobert Lyons\n55\nChief Executive Officer and Director\nStephen Cumming\n53\nChief Financial Officer\nRichard Diegnan\n53\nChief Legal Officer and Secretary\nAjay Kapur\n47\nChief Technology Officer\nKathy Austin\n60\nChief People Experience Officer\nEric Chang\n50\nChief Accounting Officer\nRobert Lyons\n \nhas served as our Chief Executive Officer and Director since February 2021. Prior to joining Edgio, from July 2018 to January 2021, Mr. Lyons was most recently CEO of Alert Logic, a global leader in cybersecurity, specifically in managed threat detection and response. There, he led the company through a multi-year strategic reposition that resulted in becoming a global leader in cybersecurity, specifically in managed threat detection and response. Prior to Alert Logic, from February 2014 to January 2018, Mr. Lyons held executive positions, including President, at Connexions Loyalty/Affinion Group, a leader in customer engagement and loyalty solutions. Mr. Lyons has also previously held executive positions at Ascend Learning, Stream Global Services, Avaya, Convergys, and United Health Care. Mr. Lyons earned his master\u2019s degree in management and technology from Rensselaer Polytechnic Institute in Troy, New York, and a bachelors\u2019 degree in business management from Moravian College in Bethlehem, Pennsylvania.\nStephen Cumming\n has served as our Chief Financial Officer since August 2022 and has nearly 30 years of global finance experience in the US and EMEA, and a proven track record of scaling businesses and building successful finance organizations in rapidly-growing technology companies. Stephen joined Edgio from network infrastructure company, Cambium Networks, where he was the CFO from July 2018 to April 2022 and took the company public in 2019. Before Cambium, Stephen was the CFO at privately held SaaS company, Kenandy, Inc., which was successfully sold to Rootstock. Stephen previously served as Chief Financial Officer and Vice President of Finance at Atmel Corporation, from 2008 to 2013. He was at Fairchild Semiconductor from 1997 to 2008 and held several senior executive positions including acting Chief Financial Officer and Vice President of Finance where he was responsible for all Business Unit Finance, Corporate Financial Planning and Analysis, Manufacturing Finance, and Sales & Marketing Finance. Prior to Fairchild, he served in various financial management positions at National Semiconductor Corporation in the UK and Germany. Stephen received a BSc. degree in Business from the University of Surrey, in the United Kingdom, and is a UK Chartered Management Accountant.\nRichard Diegnan \nhas served as our Chief Legal Officer and Secretary since July 2022. He has more than 20 years of experience representing public and private companies, primarily in the technology industry. Prior to joining Edgio, Rich was the Executive Vice President, General Counsel and Corporate Secretary at Internap Holding LLC, a high-performance Internet infrastructure company in the network, cloud, and co-location business, from November 2016 to October 2022. Prior to joining Internap, Rich was a partner in the law firm of Diegnan & Brophy, LLC, a boutique law firm that represented clients in commercial transactions, mergers and acquisitions, commercial litigation and day-to-day legal issues from April 2005 to November 2016. Rich also served as General Counsel to Travel Tripper LLC, a global technology company that provided a SaaS central reservation solution for the hospitality industry from January 2008 to November 2016. Rich began his legal career at McCarter & English LLP in Newark, New Jersey and then joined Milbank LLP in New York City as a corporate attorney representing public and private companies with a focus on international mergers and acquisitions, corporate finance and general corporate counseling. Rich received his B.S. in Finance from Providence College, an M.B.A. from Fairleigh Dickinson University, and his J.D. from Seton Hall University School of Law.\n8\nAjay Kapur\n has served as our Chief Technology Officer since September\u00a02021. Prior to joining us, Mr. Kapur was a founder and Chief Executive Officer of Moov Corporation (doing business as Layer0, which we acquired in September 2021) from 2010 to September 2021. Prior to founding Moov Corporation, Mr. Kapur worked for the private equity and investment banking divisions of Goldman Sachs from June 1999 to October 2002. Mr. Kapur earned an MBA from Stanford University and bachelor\u2019s degrees in Physics and Computer Science from University of California, Berkeley.  \nKathy Austin \nhas served as our Chief People Experience Officer since March 2021 and oversees all aspects of the People Experience at Edgio.\n \nMs. Austin has over 25 years of experience in technology driven organizations across all facets of Human Resources including People Acquisition and Performance, People Engagement and People Rewards. Prior to joining Edgio, from April 2018 to March 2021, Ms. Austin served as the Global VP, Human Resources for Vispero, the world\u2019s leading assistive technology provider for the visually impaired. From January 2015 to April 2018, Ms. Austin served as the VP, HR at Connexions Loyalty/Affinion Group, a leading provider of loyalty technology services. Prior to that, Ms. Austin has held various leadership positions since 1989. Ms. Austin earned her Bachelor\u2019s in Business Administration with a concentration in Human Resources Management from Virginia Commonwealth University.\nEric Chang\n has served as our Chief Accounting Officer since October 2022. Mr. Chang is a seasoned executive with a vision for continuous improvement, including performance-driven results in overseeing global finance functions for publicly traded and private companies. Prior to joining Edgio, Mr. Chang was Vice President, Finance and Accounting at Summit Interconnect, Inc., a private equity owned manufacturer of printed circuit boards, from January 2022 to September 2022. From February 2016 to October 2021, Mr. Chang last served as Chief Financial Officer and previously as Principal Accounting Officer at Aviat Networks, Inc., a publicly traded networking company. Prior to Aviat, Mr. Chang was Senior Director, Corporate Controller at Micrel, Incorporated, a semiconductor manufacturer, from November 2013 to February 2016. Mr. Chang began his career with PricewaterhouseCoopers LLP. Eric graduated from Indiana University Bloomington and is a Certified Public Accountant.",
+  "item1a": ">Item\u00a01A.\u00a0\u00a0\u00a0\u00a0Risk Factors\nInvesting in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including the section titled \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in Part II, Item 7, and our consolidated financial statements and related notes, before making a decision to invest in our common stock. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment. All information is presented in thousands, except per share amounts, client count, head count and where specifically noted.\nSummary of Risk Factors\nOur business is subject to numerous risks and uncertainties, including those highlighted in this section titled \u201cRisk Factors\u201d and summarized below. We have various categories of risks, including risks relating to our industry dynamics and competition; operations; clients and demand for our services; management of our human capital; intellectual property, litigation and regulatory concerns; strategic transactions; and general risks associated with ownership of our common stock, which are discussed more fully below. As a result, this risk factor summary does not contain all of the information that may be important to you, and you should read this risk factor summary together with the more detailed discussion of risks and uncertainties set forth following this section under the heading \u201cRisk Factors,\u201d as well as elsewhere in this Annual Report on Form 10-K. Additional risks, beyond those summarized below or discussed elsewhere in this Annual Report on Form 10-K, may apply to our business, activities or operations as currently conducted or as we may conduct them in the future or in the markets in which we operate or may in the future operate. These risks include, but are not limited to, the following:\n\u2022\nIf we are unable to develop, improve, and expand our new services, to extend enhancements to the existing portfolio of services that we offer, or if we fail to predict and respond to emerging technological trends and clients\u2019 changing needs, our operating results and market share may suffer.\n\u2022\nWe currently face competition from established competitors and may face competition from others in the future.\n\u2022\nAny unplanned interruption or degradation in the functioning or availability of our network or services, or attacks on or disruptions to our internal information technology systems, could lead to increased costs, a significant decline in our revenue, and harm to our reputation.\n\u2022\nIf we are unable to sell our services at acceptable prices relative to our costs, our revenue and gross margins will decrease, and our business and financial results will suffer.\n9\n\u2022\nOur operations are dependent in part upon communications capacity provided by third party telecommunications providers. A material disruption of the communications capacity could harm our results of operations, reputation, and client relations.\n\u2022\nOur business depends on continued and unimpeded access to third party-controlled end-user access networks.\n\u2022\nWe depend on a limited number of clients for a substantial portion of our revenue in any fiscal period, and the loss of, or a significant shortfall in demand from, these clients could significantly harm our results of operations.\n\u2022\nMany of our significant current and potential clients are pursuing emerging or unproven business models, which, if unsuccessful, or ineffective at monetizing delivery of their content, could lead to a substantial decline in demand for our content delivery and other services.\n\u2022\nIf we are unable to attract new clients or to retain our existing clients, our revenue could be lower than expected and our operating results may suffer.\n\u2022\nIf we are unable to retain our key employees and hire qualified personnel, our ability to compete could be harmed.\n\u2022\nIf we are not successful in integrating completed acquisitions in a timely manner, we may be required to reevaluate our business strategy, and we may incur substantial expenses and devote significant management time and resources without a productive result.\n\u2022\nOur business may be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties.\n\u2022\nWe need to defend our intellectual property and processes against patent or copyright infringement claims, which may cause us to incur substantial costs and threaten our ability to do business.\n\u2022\nOur indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition, and results of operations and impair our ability to satisfy our obligations.\n\u2022\nThe trading price of our common stock has been, and is likely to continue to be, volatile.\n\u2022\nThe minimum bid price of our common stock has been below $1 per share and we have a received a notice of deficiency from Nasdaq that could affect the listing of our common stock on Nasdaq.\n\u2022\nThe restatement may affect investor confidence and raise reputational issues and may subject us to additional risks and uncertainties, including increased professional costs and the increased possibility of legal proceedings.\n\u2022\nIf we do not effectively remediate the material weaknesses identified in internal control over financial reporting as of December 31, 2022, or if we otherwise fail to maintain an effective system of internal control, our ability to report our financial results on a timely and on an accurate basis could be impaired, which could adversely affect our stock price.\n\u2022\nIf we are unable to attract and retain highly qualified accounting personnel to evaluate the accounting implications of our complex and/or non-routine transactions such as the Open Edge arrangements, our ability to accurately report our financial results may be harmed.\n\u2022\nOur results of operations may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of securities analysts or investors, which could cause our stock price to decline.\n\u2022\nWe have a history of losses, and we may not achieve or maintain profitability in the future.\nRisks Related to Industry Dynamics and Competition\nWe currently face competition from established competitors and may face competition from others in the future.\nWe compete in markets that are intensely competitive, where differentiation is primarily measured by performance and cost where the difference between providers can be as small as a fraction of a percent or penny. In these markets, vendors offer a wide range of alternate solutions, and in a multi-CDN environment, our clients can route traffic to us, or away from us, within seconds, and at minimal costs. This naturally results in on-going price compression, and increased competition on features, functionality, integration and other factors. Several of our current competitors, as well as a number of our potential competitors, have longer operating histories, greater name recognition, broader client relationships and industry alliances, and substantially greater financial, technical and marketing resources than we do. As a consequence of the hyper competitive dynamics in our markets, we have experienced price compression, and an increased requirement for product advancement and innovation in order to remain competitive, which in turn have adversely affected and may continue to adversely affect our revenue, gross margin and operating results.\nOur primary competitors for our services include, among others, Akamai, Amazon Web Services, Cloudflare, F5, Fastly, Imperva, and Lumen Technologies. In addition, a number of companies have recently entered or are currently attempting to enter our market, either directly or indirectly. These new entrants include companies that have built internal content delivery networks to solely deliver their own traffic, rather than relying solely, largely or in part on content delivery specialists, such as us. Some of these new entrants may become significant competitors in the future. Given the relative ease by which clients typically can switch among service providers in a multi-CDN environment, differentiated offerings or pricing by competitors could lead to a rapid loss of clients. Some of our current or potential competitors may bundle their offerings with \n10\nother services, software or hardware in a manner that may discourage content providers from purchasing the services that we offer. In addition, we face different market characteristics and competition with local content delivery service providers as we expand internationally. Many of these international competitors are very well positioned within their local markets. Increased competition could result in price reductions and revenue shortfalls, loss of clients and loss of market share, which could harm our business, financial condition and results of operations.\nIf we are unable to develop, improve, and expand our new services, to extend enhancements to the existing portfolio of services that we offer, or if we fail to predict and respond to emerging technological trends and clients\u2019 changing needs, our operating results and market share may suffer.\nThe market for our services is characterized by rapidly changing technology, evolving industry standards, and new product and service introductions. Our operating results depend on our ability to help our clients deliver better digital experiences to their customers, understand user preferences, and predict industry changes. Our operating results also depend on our ability to improve and expand our solutions and services on a timely basis, and develop and extend new services into existing and emerging markets. This process is complex and uncertain. We must commit significant resources to improving and expanding our existing services before knowing whether our investments will result in services the market will accept. Furthermore, we may not successfully execute our initiatives because of errors in planning or timing, technical hurdles that we fail to overcome in a timely fashion, misunderstandings about market demand or a lack of appropriate resources. As prices for our core services fall, we will increasingly rely on new capabilities, product offerings, and other service offerings to maintain or increase our gross margins. Failures in execution, delays in improving and expanding our services, failures to extend our service offerings, or a market that does not accept the services and capabilities we introduce could result in competitors providing more differentiation than we do, which could lead to loss of market share, revenue, and earnings.\nRisks Relating to Our Operations\nAny unplanned interruption or degradation in the functioning or availability of our network or services, or attacks on or disruptions to our internal information technology systems, could lead to increased costs, a significant decline in our revenue, and harm to our reputation.\nOur business is dependent on providing our clients with an exceptional digital experience that is fast, efficient, safe, and reliable, every minute of every day. Our services could be disrupted by numerous events, including natural disasters, failure or refusal of our third-party network providers to provide the necessary capacity or access, failure of our software or global network infrastructure and power losses. In addition, we deploy our servers in third-party co-location facilities, and these third-party co-location providers could experience system outages or other disruptions that could constrain our ability to deliver our services. \nWe may also experience business disruptions caused by security incidents, such as software viruses and malware, unauthorized hacking, DDoS attacks, security system control failures in our own systems or from vendors we or our clients use, email phishing, software vulnerabilities, social engineering, or other cyberattacks. These types of security incidents have been increasing in sophistication and frequency and sometimes result in the unauthorized access to or use of, and/or loss of intellectual property, client or employee data, trade secrets, or other confidential information. The economic costs to us to eliminate or alleviate cyber or other security problems, viruses, worms, malicious software programs, and other security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service, and loss of existing or potential clients. \nAny material interruption or degradation in the functioning of our services for any reason could reduce our revenue and harm our reputation with existing and potential clients, and thus adversely impact our business and results of operations. This is true even if such interruption or degradation was for a relatively short period of time, but occurred during the streaming of a significant live event, launch by a client of a new streaming service, or the launch of a new video-on-demand offering.\nIf we are unable to sell our services at acceptable prices relative to our costs, our revenue and gross margins will decrease and our business and financial results will suffer.\nOur once innovative and highly valued content delivery service has become commoditized in its current form and we are often in a multi-CDN supplier environment, where our clients can route traffic to us, or away from us, within seconds. This naturally results in on-going price compression. Simultaneously, we invest significant amounts in purchasing capital equipment as part of our effort to increase the capacity of our global network. Our investments in our infrastructure are based upon our assumptions regarding future demand, anticipated network utilization, as well as prices that we will be able to charge for our services. These assumptions may prove to be wrong. If the price that we are able to charge clients to deliver their content falls to a greater extent than we anticipate, if we over-estimate future demand for our services, are unable to achieve an acceptable rate of network utilization, or if our costs to deliver our services do not fall commensurate with any future price declines, we \n11\nmay not be able to achieve acceptable rates of return on our infrastructure investments, and our gross profit and results of operations may suffer dramatically.\nAs we further expand our global network and services, and as we refresh our network equipment, we are dependent on significant future growth in demand for our services to justify additional capital expenditures. If we fail to generate significant additional demand for our services, our results of operations will suffer, and we may fail to achieve planned or expected financial results. There are numerous factors that could, alone or in combination with other factors, impede our ability to increase revenue, moderate expenses, or maintain gross margins, including:\n\u2022\ncontinued price declines arising from significant competition; \n\u2022\nincreasing settlement fees for certain peering relationships; \n\u2022\nfailure to increase sales of our services; \n\u2022\nincreases in electricity, bandwidth and rack space costs or other operating expenses, and failure to achieve decreases in these costs and expenses relative to decreases in the prices we can charge for our services and products; \n\u2022\nfailure of our current and planned services and software to operate as expected; \n\u2022\nloss of any significant or existing clients at a rate greater than our increase in sales to new or existing clients; \n\u2022\nfailure to increase sales of our services to current clients as a result of their ability to reduce their monthly usage of our services to their minimum monthly contractual commitment; \n\u2022\nfailure of a significant number of clients to pay our fees on a timely basis or at all or to continue to purchase our services in accordance with their contractual commitments; and \n\u2022\ninability to attract high quality clients to purchase and implement our current and planned services. \nA significant portion of our revenue is derived collectively from our video delivery, cloud security, edge compute, origin storage, and support services. These services tend to have higher gross margins than our content delivery services. We may not be able to achieve the growth rates in revenue from such services that we or our investors expect or have experienced in the past. If we are unable to achieve the growth rates in revenue that we expect for these service offerings, our revenue and operating results could be significantly and negatively affected.\nOur ability to use our net operating losses to offset future taxable income may be subject to certain limitations.\nOur ability to use our net operating losses to offset future taxable income may be subject to certain limitations. As of December 31, 2022, we had federal and state net operating loss carryforwards (\u201cNOL\u201d) of $308,768 and $214,485, respectively, due to prior period losses. In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the (\u201cCode\u201d), a corporation that undergoes an \u201cownership change\u201d can be subject to limitations on its ability to utilize its NOLs to offset future taxable income. Our existing NOLs may be subject to limitations arising from past ownership changes. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. In addition, under the Tax Cuts and Jobs Act (the \u201cTax Act\u201d), the amount of post 2017 NOLs that we are permitted to deduct in any taxable year is limited to 80% of our taxable income in such year, where taxable income is determined without regard to the NOL deduction itself. In addition, the Tax Act generally eliminates the ability to carry back any NOL to prior taxable years, while allowing post 2017 unused NOLs to be carried forward indefinitely. There is a risk that due to changes under the Tax Act, regulatory changes, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.\nWe may have difficulty scaling and adapting our existing architecture to accommodate increased traffic and technology advances or changing business requirements. This could lead to the loss of clients and cause us to incur unexpected expenses to make network improvements.\nOur services and solutions are highly complex and are designed to be deployed in and across numerous large and complex networks. Our global network infrastructure has to perform well and be reliable for us to be successful. \nWe will need to continue to invest in infrastructure and client success to account for the continued growth in traffic (and the increased complexity of that traffic) delivered via networks such as ours. \nWe have spent and expect to continue to spend\n \nsubstantial amounts on the purchase and lease of equipment and data centers and the upgrade of our technology and network\n \ninfrastructure to handle increased traffic over our network, implement changes to our network architecture and integrate\n \nexisting solutions and to roll out new solutions and services. This expansion is\n \nexpensive and complex and could result in inefficiencies, operational failures or defects in our network and related software. If\n \nwe do not implement such changes or expand successfully, or if we experience inefficiencies and operational failures, the\n \nquality of our solutions and services and user experience could decline. Cost increases or the failure to accommodate increased traffic or these evolving business demands without disruption could harm our operating results and financial condition. \nFor example, supply chain disruptions due t\no the COVID-19 pandemic,\n natural disasters, increased demand, and political unrest (among other reasons) impact,\n and will likely continue to impact, our \n12\nability to procure equipment for upgrades, replacement parts, and network expansion within our expected price range or in extreme cases, at all. Global supply chain issues also affect our ability to timely deploy equipment, such as servers and other components required to keep our network up-to-date and growing to meet our clients\u2019 needs. Such delays in procuring and deploying the equipment required for our network could affect the quality and delivery time of services to our existing clients and prevent us from acquiring the network equipment needed to expand our business. Also, from time to time, we have needed to correct errors and defects in our software or in other aspects of our network. In the future, there may be additional errors and defects that may harm our ability to deliver our services, including errors and defects originating with third party networks or software on which we rely. These occurrences could damage our reputation and lead to the loss of current and potential clients, which would harm our operating results and financial condition. \nRapid increase in the use of mobile and other devices to access the Internet present significant development and deployment challenges.\nThe number of people who access the Internet through devices other than PCs, including mobile devices, game consoles, and television set-top devices continues to increase dramatically. The capabilities of these devices are advancing exponentially, and the increasing need to provide a high-quality video experience will present us with significant challenges. If we are unable to deliver our service offerings to a substantial number of alternative device users and at a high quality, or if we are slow to develop services and technologies that are more compatible with these devices, we may fail to capture a significant share of an important portion of the market. Such a failure could limit our ability to compete effectively in an industry that is rapidly growing and changing, which, in turn, could cause our business, financial condition and results of operations to suffer.\nOur operations are dependent in part upon communications capacity provided by third party telecommunications providers. A material disruption of the communications capacity could harm our results of operations, reputation, and client relations.\nWe enter into arrangements for private line capacity for our backbone from third party providers. Our contracts for private line capacity generally have terms of three to four years. The communications capacity may become unavailable for a variety of reasons, such as physical interruption, technical difficulties, contractual disputes, or the financial health of our third party providers. Also, industry consolidation among communications providers could result in fewer viable market alternatives, which could have an impact on our costs of providing services. Alternative providers are currently available; however, it could be time consuming and expensive to promptly identify and obtain alternative third party connectivity. Additionally, as we grow, we anticipate requiring greater private line capacity than we currently have in place. If we are unable to obtain such capacity from third party providers on terms commercially acceptable to us or at all, our business and financial results would suffer. Similarly, if we are unable to timely deploy enough network capacity to meet the needs of our client base or effectively manage the demand for our services, our reputation and relationships with our clients would be harmed, which, in turn, could harm our business, financial condition and results of operations. \nWe face risks associated with international operations that could harm our business. \nWe have operations in numerous foreign countries and may continue to expand our sales and support organizations internationally. As part of our business strategy, we intend to expand our international network infrastructure. Expansion could require us to make significant expenditures, including the hiring of local employees or resources, in advance of generating any revenue. As a consequence, we may fail to achieve profitable operations that will compensate our investment in international locations. We are subject to a number of risks associated with international business activities that may increase our costs, lengthen our sales cycle and require significant management attention. These risks include, but are not limited to:\n\u2022\nincreased expenses associated with sales and marketing, deploying services and maintaining our infrastructure in foreign countries; \n\u2022\ncompetition from local service providers, many of which are very well positioned within their local markets; \n\u2022\nchallenges caused by distance, language, and cultural differences; \n\u2022\nunexpected changes in regulatory requirements preventing or limiting us from operating our global network or resulting in unanticipated costs and delays; \n\u2022\ninterpretations of laws or regulations that would subject us to regulatory supervision or, in the alternative, require us to exit a country, which could have a negative impact on the quality of our services or our results of operations; \n\u2022\nlegal systems that may not adequately protect contract and intellectual property rights, policies, and taxation\n\u2022\nthe physical infrastructure of the country;\n\u2022\npotential political turmoil and military conflict;\n\u2022\nlonger accounts receivable payment cycles and difficulties in collecting accounts receivable; \n\u2022\ncorporate and personal liability for violations of local laws and regulations; \n\u2022\ncurrency exchange rate fluctuations and repatriation of funds; \n13\n\u2022\npotentially adverse tax consequences; \n\u2022\ncredit risk and higher levels of payment fraud; and \n\u2022\nforeign exchange controls that might prevent us from repatriating cash earned outside the United States. \nThere can be no assurance that these international risks will not materially adversely affect our business.\u00a0Should there be significant productivity losses, or if we become unable to conduct operations in international locations in the future, and our contingency plans are unsuccessful in addressing the related risks, our business could be adversely affected.\nOur business depends on continued and unimpeded access to third party controlled end-user access networks.\nOur services depend on our ability to access certain end-user access networks in order to complete the delivery of rich media and other online content to end-users. Some operators of these networks may take measures that could degrade, disrupt or increase the cost of our or our clients\u2019 access to certain of these end-user access networks. Such measures may include restricting or prohibiting the use of their networks to support or facilitate our services, or charging increased fees to us, our clients or end-users in connection with our services. In 2015, the U.S. Federal Communications Commission (the \u201cFCC\u201d) released network neutrality and open Internet rules that reclassified broadband Internet access services as a telecommunications service subject to some elements of common carrier regulation. Among other things, the FCC order prohibited blocking or\u00a0discriminating\u00a0against lawful services and applications and prohibited \u201cpaid prioritization,\u201d or providing faster speeds or other benefits in return for compensation.\u00a0In 2017, the FCC overturned these rules. As a result, we or our clients could experience increased cost or slower data on these third-party networks. If we or our clients experience increased cost in delivering content to end users, or otherwise, or if end users perceive a degradation of quality, our business and that of our clients may be significantly harmed. This or other types of interference could result in a loss of existing clients, increased costs and impairment of our ability to attract new clients, thereby harming our revenue and growth.\nIn addition, the performance of our infrastructure depends in part on the direct connection of our network to a large number of end-user access networks, known as peering, which we achieve through mutually beneficial cooperation with these networks. In some instances, network operators charge us for the peering connections. If, in the future, a significant percentage of these network operators elected to no longer peer with our network or peer with our network on less favorable economic terms, then the performance of our infrastructure could be diminished, our costs could increase and our business could suffer.\nWe use certain \u201copen-source\u201d software, the use of which could result in our having to distribute our proprietary software, including our source code, to third parties on unfavorable terms, which could materially affect our business.\nCertain of our service offerings use software that is subject to open-source licenses. Open-source code is software that is freely accessible, usable and modifiable. Certain open-source code is governed by license agreements, the terms of which could require users of such open-source code to make any derivative works of such open-source code available to others on unfavorable terms or at no cost. Because we use open-source code, we may be required to take remedial action to protect our proprietary software. Such action could include replacing certain source code used in our software, discontinuing certain of our products or features or taking other actions that could divert resources away from our development efforts.\nIn addition, the terms relating to disclosure of derivative works in many open-source licenses are unclear. We periodically review our compliance with the open-source licenses we use and do not believe we will be required to make our proprietary software freely available. Nevertheless, if a court interprets one or more such open-source licenses in a manner that is unfavorable to us, we could be required to make some components of our software available at no cost, which could materially and adversely affect our business and financial condition.\nOur business requires the continued development of effective business support systems to support our client growth and related services.\nThe growth of our business depends on our ability to continue to develop effective business support systems. This is a complicated undertaking requiring significant resources and expertise. Business support systems are needed for implementing client orders for services, delivering these services, and timely and accurate billing for these services. The failure to continue to develop effective business support systems could harm our ability to implement our business plans and meet our financial goals and objectives.\nRising inflation rates could negatively impact our revenues and profitability if increases in the prices of our services or a decrease in consumer spending results in lower sales. In addition, if our costs increase and we are not able to pass along these price increases to our customers, our net income would be adversely affected, and the adverse impact may be material.\n14\nInflation rates, particularly in the United States and EMEA, have increased recently to levels not seen in years. Increased inflation may result in decreased demand for our products and services, increased operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks. In an inflationary environment, we may be unable to raise the sales prices of our products and services at or above the rate at which our costs increase, which could/would reduce our profit margins and have a material adverse effect on our financial results and net income. We also may experience lower than expected sales and potential adverse impacts on our competitive position if there is a decrease in consumer spending or a negative reaction to our pricing. A reduction in our revenue would be detrimental to our profitability and financial condition and could also have an adverse impact on our future growth. \nRisks Relating to our Clients and Demand for our Services\nWe depend on a limited number of clients for a substantial portion of our revenue in any fiscal period, and the loss of, or a significant shortfall in demand from, these clients could significantly harm our results of operations.\nA relatively small number of clients typically account for a significant percentage of our revenue. For the year ended December 31, 2022, sales to our top 20 clients accounted for approximately 73% of o\nur total revenue and we had two clients, Amazon and Verizon, which represented more than 10% of our total revenue. \nAs of December 31, 2022, Amazon, Verizon and Microsoft represented \nmore th\nan 10%\n of our \nof our total accounts receivable.\nIn the past, the clients that comprised our top 20 clients have continually changed, and we also have experienced significant fluctuations in our individual clients\u2019 usage of, or decreased usage of, our services. As a consequence, we may not be able to adjust our expenses in the short term to address the unanticipated loss of a large client during any particular period. As such, we may experience significant, unanticipated fluctuations in our operating results that may cause us to not meet our expectations or those of stock market analysts, which could cause our stock price to decline.\nRapidly evolving technologies or new business models could cause demand for our services to decline or could cause these services to become obsolete.\nClients, potential clients, or third parties may develop technological or business model innovations that address digital delivery requirements in a manner that is, or is perceived to be, equivalent or superior to our service offerings. This is particularly true as our clients increase their operations and begin expending greater resources on delivering their content using third party solutions. If we fail to offer services that are competitive to in-sourced solutions, we may lose additional clients or fail to attract clients that may consider pursuing this in-sourced approach, and our business and financial results would suffer.\nIf competitors introduce new products or services that compete with or surpass the quality or the price or performance of our services, we may be unable to renew our agreements with existing clients or attract new clients at the prices and levels that allow us to generate attractive rates of return on our investment. We may not anticipate such developments and may be unable to adequately compete with these potential solutions. In addition, our clients\u2019 business models may change in ways that we do not anticipate, and these changes could reduce or eliminate our clients\u2019 needs for our services. If this occurred, we could lose clients or potential clients, and our business and financial results would suffer.\nAs a result of these or similar potential developments, it is possible that competitive dynamics in our market may require us to reduce our prices faster than we anticipate, which could harm our revenue, gross margin and operating results.\nMany of our significant current and potential clients are pursuing emerging or unproven business models, which, if unsuccessful, or ineffective at monetizing delivery of their content, could lead to a substantial decline in demand for our content delivery and other services.\nMany of our clients\u2019 business models that center on the delivery of rich media and other content to users remain unproven. Some of our clients will not be successful in selling advertising, subscriptions, or otherwise monetizing the content we deliver on their behalf, and consequently, may not be successful in creating a profitable business model. This will result in some of our clients discontinuing their business operations and discontinuing use of our services and solutions. Further, any deterioration and related uncertainty in the global financial markets and economy could result in reductions in available capital and liquidity from banks and other providers of credit, fluctuations in equity and currency values worldwide, and concerns that portions of the worldwide economy may be in a prolonged recessionary period. Any of this could also have the effect of heightening many of the other risks described in this \u2018\u2018Risk Factors\u2019\u2019 section and materially adversely impact our clients\u2019 access to capital or willingness to spend capital on our services or, in some cases, ultimately cause the client to exit their business. This uncertainty may also impact our clients\u2019 levels of cash liquidity, which could affect their ability or willingness to timely pay for \n15\nservices that they will order or have already ordered from us. From time to time we discontinue service to clients for non-payment of services. We expect clients may discontinue operations or not be willing or able to pay for services that they have ordered from us.\nIf we are unable to attract new clients or to retain our existing clients, our revenue could be lower than expected and our operating results may suffer.\nIf our existing and prospective clients do not perceive our services to be of sufficiently high value and quality, we may not be able to retain or expand business with our current clients or attract new clients. We sell our services pursuant to service agreements that generally include some form of financial minimum commitment. Our clients have no obligation to renew their contracts for our services after the expiration of their initial commitment, and these service agreements may not be renewed at the same or higher level of service, if at all. Moreover, under some circumstances, some of our clients have the right to cancel their service agreements prior to the expiration of the terms of their agreements. Aside from minimum financial commitments, clients are not obligated to use our services for any particular type or amount of traffic. For those clients which utilize a multi-CDN strategy, they can route traffic to us, or away from us, within seconds. These facts, in addition to the hyper competitive landscape in our market, means that we cannot accurately predict future client renewal rates or usage rates. Our clients\u2019 usage or renewal rates may decline or fluctuate as a result of a number of factors, including:\n\u2022\ntheir satisfaction or dissatisfaction with our services; \n\u2022\nthe quality and reliability of our network;\n\u2022\nthe prices of our services; \n\u2022\nthe prices of services offered by our competitors; \n\u2022\ndiscontinuation by our clients of their Internet or web-based content distribution business; \n\u2022\nmergers and acquisitions affecting our client base; and \n\u2022\nreductions in our clients\u2019 spending levels. \nIf our clients do not renew their service agreements with us, or if they renew on less favorable terms, our revenue may decline and our business may suffer. Similarly, our client agreements often provide for minimum commitments that are often significantly below our clients\u2019 historical usage levels. Consequently, even if we have agreements with our clients to use our services, these clients could significantly curtail their usage without incurring any penalties under our agreements. In this event, our revenue would be lower than expected and our operating results could suffer. It also is an important component of our growth strategy to market our services and solutions to particular industries or market segments. As an organization, we may not have significant experience in selling our services into certain of these markets. Our ability to successfully sell our services into these markets to a meaningful extent remains unproven. If we are unsuccessful in such efforts, our business, financial condition and results of operations could suffer.\nWe generate our revenue primarily from the sale of content delivery services, and the failure of the market for these services to expand as we expect or the reduction in spending on those services by our current or potential clients would seriously harm our business.\nWhile we offer our clients a number of services and solutions, we generate the majority of our revenue from charging our clients for the content delivered on their behalf through our global network. We are subject to an elevated risk of reduced demand for these services. Furthermore, if the market for delivery of rich media content in particular does not continue to grow as we expect or grows more slowly, then we may fail to achieve a return on the significant investment we are making to prepare for this growth. Our success, therefore, depends on the continued and increasing reliance on the Internet for delivery of media content and our ability to cost-effectively deliver these services. Many different factors may have a general tendency to limit or reduce the number of users relying on the Internet for media content, the amount of content consumed by our clients\u2019 users, or the number of providers making this content available online, including, among others:\n\u2022\na general decline in Internet usage;\n\u2022\nthird party restrictions on online content, including copyright, digital rights management, and geographic restrictions;\n\u2022\nsystem impairments or outages, including those caused by hacking or cyberattacks; and\n\u2022\na significant increase in the quality or fidelity of off-line media content beyond that available online to the point where users prefer the off-line experience. \nThe influence of any of these or other factors may cause our current or potential clients to reduce their spending on content delivery services, which would seriously harm our operating results and financial condition.\nIf our ability to deliver media files in popular proprietary content formats was restricted or became cost-prohibitive, demand for our content delivery services could decline, we could lose clients and our financial results could suffer.\n16\nOur business depends on our ability to deliver media content in all major formats. If our legal right or technical ability to store and deliver content in one or more popular proprietary content formats was limited, our ability to serve our clients in these formats would be impaired and the demand for our services would decline by clients using these formats. Owners of proprietary content formats may be able to block, restrict, or impose fees or other costs on our use of such formats, which could lead to additional expenses for us and for our clients, or which could prevent our delivery of this type of content altogether. Such interference could result in a loss of clients, increased costs, and impairment of our ability to attract new clients, any of which would harm our revenue, operating results, and growth.\nRisks Relating to Human Capital Management\nFailure to effectively enhance our sales capabilities could harm our ability to increase our client base and achieve broader market acceptance of our services.\nIncreasing our client base and achieving broader market acceptance of our services will depend to a significant extent on our ability to enhance our sales and marketing operations. We have a widely deployed field sales force. Our sales personnel are closer to our current and potential clients. Nevertheless, adjustments that we make to improve productivity and efficiency to our sales force have been and will continue to be expensive and could cause some near-term productivity impairments. As a result, we may not be successful in improving the productivity and efficiency of our sales force, which could cause our results of operations to suffer.\nWe believe that there is significant competition for sales personnel with the sales skills and technical knowledge that we require. Our ability to achieve significant growth in revenue in the future will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel. New hires require significant training and, in most cases, take a significant period of time before they achieve full productivity. Our recent hires and planned hires may not become as productive as we would like, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future in the markets where we do business. Our business will be seriously harmed if our sales force productivity efforts do not generate a corresponding significant increase in revenue.\nIf we are unable to retain our key employees and hire qualified personnel, our ability to compete could be harmed.\nOur future success depends upon the continued services of our executive officers and other key technology, sales, marketing, and support personnel who have critical industry experience and relationships that they rely on in implementing our business plan. There is considerable competition for talented individuals with the specialized knowledge to deliver our services, and this competition affects our ability to hire and retain key employees. Historically, we have experienced a significant amount of employee turnover, especially with respect to our sales personnel. Sales personnel that are relatively new may need time to become fully productive.\nAdditionally, in connection with the Edgecast Acquisition, we may experience additional losses or departures of our senior management and other key personnel. If we lose the service of qualified management or other key personnel or are unable to attract and retain the necessary members of senior management or other key personnel, we may not be able to successfully execute on our business strategy, which could have an adverse effect on our business.\nOur recent reduction in force undertaken to re-balance our cost structure may not achieve our intended outcome.\nIn December 2022, we implemented a reduction in force affecting approximately 95 employees, or approximately 10% of our global workforce in order to meet strategic and financial objectives and to optimize resources for long term growth, and to improve margins. In connection with these actions, we will incur termination costs estimated to be $2.6 million for the reduction in force. This reduction in force is expected to result in approximately $14 million of annualized run rate cash savings associated with the 95 employees. \nWe incur substantial costs to implement restructuring plans, and our restructuring activities may subject us to litigation risk and expenses. Our past restructuring actions do not provide any assurance that additional restructuring plans will not be required or implemented in the future. Further, restructuring plans may have other consequences, such as attrition beyond our planned reduction in force, a negative impact on employee morale and productivity or our ability to attract highly skilled employees. Our competitors may also use our restructuring plans to seek to gain a competitive advantage over us. As a result, our restructuring plans may affect our revenue and other operating results in the future.\n17\nRisks Relating to Intellectual Property, Litigation, and Regulations\nOur involvement in litigation may have a material adverse effect on our financial condition and operations.\nWe have been involved in multiple intellectual property and shareholder lawsuits in the past. We are from time to time party to other lawsuits. The outcome of all litigation is inherently unpredictable. The expenses of defending these lawsuits, particularly fees paid to our lawyers and expert consultants, have been significant to date. If the cost of prosecuting or defending current or future lawsuits continues to be significant, it may continue to adversely affect our operating results during the pendency of such lawsuits. Lawsuits also require a diversion of management and technical personnel time and attention away from other activities to pursue the defense or prosecution of such matters. In addition, adverse rulings in such lawsuits either alone or cumulatively may have an adverse impact on our revenue, expenses, market share, reputation, liquidity, and financial condition. Further, we have recently acquired Moov and Edgecast and as a result of such acquisitions, multiple lawsuits have been brought against us. Further, our restatement of prior period consolidated financial statements has resulted in a class action lawsuit being filed against us. Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into similar transactions involving a sale of a line of business or other business combinations. In addition, we may be subject to private actions, collective actions, investigations, and various other legal proceedings by stockholders, clients, employees, suppliers, competitors, government agencies, or others. Even if the lawsuits are without merit, defending against these claims can result in substantial costs, damage to our reputation, and divert significant amounts of management time and resources. If any of these legal proceedings were to be determined adversely to us, or we were to enter into a settlement arrangement, we could be exposed to monetary damages or limits on our ability to operate our business, which could have an adverse effect on our business, liquidity financial condition, and operating results.\nWe need to defend our intellectual property and processes against patent or copyright infringement claims, which may cause us to incur substantial costs and threaten our ability to do business.\nCompanies, organizations or individuals, including our competitors and non-practicing entities, may hold or obtain patents or other proprietary rights that would prevent, limit or interfere with our ability to make, use or sell our services or develop new services, which could make it more difficult for us to operate our business. We have been and continue to be the target of intellectual property infringement claims by third parties. Companies holding Internet-related patents or other intellectual property rights are increasingly bringing suits alleging infringement of such rights or otherwise asserting their rights and seeking licenses. Any litigation or claims, whether or not valid, could result in substantial costs and diversion of resources from the defense of such claims. In addition, many of our agreements with clients require us to defend and indemnify those clients for third-party intellectual property infringement claims against them, which could result in significant additional costs and diversion of resources. If we are determined to have infringed upon a third party\u2019s intellectual property rights, we may also be required to do one or more of the following:\n\u2022\ncease selling, incorporating or using products or services that incorporate the challenged intellectual property; \n\u2022\npay substantial damages; \n\u2022\nobtain a license from the holder of the infringed intellectual property right, which license may or may not be available on reasonable terms or at all; or \n\u2022\nredesign products or services. \nIf we are forced to litigate any claims or to take any of these other actions, our business may be seriously harmed.\nOur business may be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties.\nWe rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We have applied for patent protection in the United States and a number of foreign countries. These legal protections afford only limited protection and laws in foreign jurisdictions may not protect our proprietary rights as fully as in the United States. Monitoring infringement of our intellectual property rights is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our intellectual property rights. Developments and changes in patent law, such as changes in interpretations of the joint infringement standard, could restrict how we enforce certain patents we hold. We also cannot be certain that any pending or future patent applications will be granted, that any future patent will not be challenged, invalidated or circumvented, or that rights granted under any patent that may be issued will provide competitive advantages to us. If we are unable to effectively protect our intellectual property rights, our business may be harmed.\nInternet-related and other laws relating to taxation issues, privacy, data security, and consumer protection and liability for content distributed over our network could harm our business.\nLaws and regulations that apply to communications and commerce conducted over the Internet are becoming more \n18\nprevalent, both in the United States and internationally, and may impose additional burdens on companies conducting business online or providing Internet-related services such as ours. Increased regulation could negatively affect our business directly, as well as the businesses of our clients, which could reduce their demand for our services. For example, tax authorities abroad may impose taxes on the Internet-related revenue we generate based on where our internationally deployed servers are located. In addition, domestic and international taxation laws are subject to change. Our services, or the businesses of our clients, may become subject to increased taxation, which could harm our financial results either directly or by forcing our clients to scale back their operations and use of our services in order to maintain their operations. Also, the Communications Act of 1934, as amended by the Telecommunications Act of 1996 (the \u201cAct\u201d), and the regulations promulgated by the FCC under Title II of the Act, may impose obligations on the Internet and those participants involved in Internet-related businesses.\u00a0In addition, the laws relating to the liability of private network operators for information carried on, processed by or disseminated through their networks are unsettled, both in the United States and abroad. Network operators have been sued in the past, sometimes successfully, based on the content of material disseminated through their networks. We may become subject to legal claims such as defamation, invasion of privacy and copyright infringement in connection with content stored on or distributed through our network. In addition, our reputation could suffer as a result of our perceived association with the type of content that some of our clients deliver. If we need to take costly measures to reduce our exposure to the risks\u00a0posed by laws and regulations that apply to communications and commerce conducted over the Internet, or are required to defend ourselves against\u00a0related\u00a0claims, our financial results could be negatively affected.\nSeveral other laws also could expose us to liability and impose significant additional costs on us. For example, the Digital Millennium Copyright Act has provisions that limit, but do not eliminate, our liability for the delivery of client content that infringe copyrights or other rights, so long as we comply with certain statutory requirements. Also, the Children\u2019s On-line Privacy Protection Act restricts the ability of online services to collect information from minors and the Protection of Children from Sexual Predators Act of 1998 requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances. There are also emerging regulation and standards regarding the collection and use of personal information and protecting the security of data on networks. Compliance with these laws, regulations, and standards is complex and any failure on our part to comply with these regulations may subject us to additional liabilities.\nWe are subject to stringent privacy and data protection requirements and any actual or perceived failure by us to comply with such requirements could expose us to liability and have an adverse impact on our business.\nWe are subject to stringent laws and legal requirements that regulate our collection, processing, storage, use and sharing of certain personal information, including the EU\n\u2019\ns General Data Protection Regulation (\u201cGDPR\u201d), Brazil\n\u2019\ns Lei Geral de Protecao de Dados Pessoais (\u201cLGPD\u201d), and in the United States, the California Consumer Privacy Act (\u201cCCPA\u201d), among others. GDPR specifically imposes strict rules regulating data transfers of personal data from the EU to the United States. These laws and regulations are costly to comply with, could expose us to civil penalties and substantial penalties for non-compliance, as well as private rights of action for data breaches, all of which could increase our potential liability. This could also delay or impede the development or adoption of our products and services, reduce the overall demand for our services, result in negative publicity, increase our operating costs, require significant management time and attention, slow the pace at which we close (or prevent us from closing) sales transactions. Furthermore, these laws have prompted a number of proposals for new US and global privacy legislation, which, if enacted, could add additional complexity and potential legal risk, require additional investment of resources, and impact strategies and require changes in business practices and policies.\n \nWe expect that we will continue to face uncertainty as to whether our evolving efforts to comply with our obligations under privacy laws will be sufficient. If we are investigated by data protection regulators, we may face fines and other penalties. Any such investigation or charges by data protection regulators could have a negative effect on our existing business and on our ability to attract and retain new clients. \nPrivacy concerns could lead to regulatory and other limitations on our business, including our ability to use \u201ccookies\u201d and video player \u201ccookies\u201d that are crucial to our ability to provide services to our clients.\nOur ability to compile data for clients depends on the use of \u201ccookies\u201d to identify certain online behavior that allows our clients to measure a website or video\u2019s effectiveness. A cookie is a small file of information stored on a user\u2019s computer that allows us to recognize that user\u2019s browser or video player when the user makes a request for a web page or to play a video. Certain privacy laws regulate cookies and/or require certain disclosures regarding cookies or place restrictions on the sending of unsolicited communications.\n \nIn addition, Internet users may directly limit or eliminate the placement of cookies on their computers by, among other things, using software that blocks cookies, or by disabling or restricting the cookie functions of their Internet browser software and in their video player software. If our ability to use cookies were substantially restricted due to the foregoing, or for any other reason, we would have to generate and use other technology or methods that allow the gathering of user data in order to provide services to clients. This change in technology or methods could require significant re-engineering time and resources, and may not be complete in time to avoid negative consequences to our business. In addition, alternative \n19\ntechnology or methods might not be available on commercially reasonable terms, if at all. If the use of cookies is prohibited and we are not able to efficiently and cost effectively create new technology, our business, financial condition and results of operations would be materially adversely affected.\nRisks Relating to Strategic Transactions\nAs part of our business strategy, we may acquire businesses or technologies and may have difficulty integrating these operations.\nWe may seek to acquire businesses or technologies that are complementary to our business in the future. Acquisitions are often complex and involve a number of risks to our business, including, among others:\n\u2022\nthe difficulty of integrating the operations, services, solutions and personnel of the acquired companies;\n\u2022\nthe potential disruption of our ongoing business; \n\u2022\nthe potential distraction of management;\n\u2022\nthe possibility that our business culture and the business culture of the acquired companies will not be compatible; \n\u2022\nthe difficulty of incorporating or integrating acquired technology and rights; \n\u2022\nexpenses related to the acquisition and to the integration of the acquired companies;\n\u2022\nthe impairment of relationships with employees and clients as a result of any integration of new personnel; \n\u2022\nemployee turnover from the acquired companies or from our current operations as we integrate businesses;\n\u2022\nrisks related to the businesses of acquired companies that may continue following the merger; and \n\u2022\npotential unknown liabilities associated with acquired companies. \nIf we are not successful in completing acquisitions, or integrating completed acquisitions in a timely manner, we may be required to reevaluate our business strategy, and we may incur substantial expenses and devote significant management time and resources without a productive result. Acquisitions will require the use of our available cash or dilutive issuances of securities. Future acquisitions or attempted acquisitions could also harm our ability to achieve profitability. For example, in September 2021, we acquired Moov and in June 2022, we acquired Edgecast. We have limited experience in making acquisitions. The process of integrating the people and technologies from completed acquisitions will likely require significant time and resources, require significant attention from management, and may disrupt the ordinary functioning of our business, and we may not be able to manage the process successfully, which could adversely affect our business, results of operations, and financial condition.\nRisks Related to Investments and Our Outstanding Convertible Notes\nIf we are required to seek funding, such funding may not be available on acceptable terms or at all.\nWe believe that our cash, cash equivalents and marketable securities plus cash from operations will be sufficient to fund our operations and proposed capital expenditures for at least the next twelve months. However, we may need or desire to obtain funding due to a number of factors, including a shortfall in revenue, increased expenses, increased investment in capital equipment, the acquisition of significant businesses or technologies,\n or adverse judgments or settlements in connection with future, unforeseen litigation\n. If we do need to obtain funding, it may not be available on commercially reasonable terms or at all. If we are unable to obtain sufficient funding, our business would be harmed. Even if we were able to find outside funding sources, we might be required to issue securities in a transaction that could be highly dilutive to our investors or we may be required to issue securities with greater rights than the securities we have outstanding today. We might also be required to take other actions that could lessen the value of our common stock, including borrowing money on terms that are not favorable to us. If we are unable to generate or raise capital that is sufficient to fund our operations, we may be required to curtail operations, reduce our capabilities or cease operations in certain jurisdictions or completely.\nOur indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition, and results of operations and impair our ability to satisfy our obligations under the Notes.\nIn July 2020, we incurred $125,000 principal amount of additional indebtedness as a result of our issuance of the Notes. We may also incur additional indebtedness to meet future financing needs, including under our credit facility with First Citizens Bank (formerly Silicon Valley Bank) (\u201cFCB\u201d). Our indebtedness could have significant negative consequences for our security holders and our business, results of operations, and financial condition by, among other things:\n\u2022\nincreasing our vulnerability to adverse economic and industry conditions;\n\u2022\nlimiting our ability to obtain additional financing;\n20\n\u2022\nrequiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;\n\u2022\nlimiting our flexibility to plan for, or react to, changes in our business;\n\u2022\ndiluting the interests of our stockholders as a result of issuing shares of our stock upon conversion of the Notes; and\n\u2022\nplacing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.\nOur business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, including the Notes, and our cash needs may increase in the future. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional debt or equity financing on terms that may be onerous or highly dilutive. Our ability to refinance any future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could results in acceleration of our debt repayment. In addition, the Loan and Security Agreement (as amended, the \u201cCredit Agreement\u201d) with FCB originally entered into in November 2015, matures on April 2, 2025, governing our credit facility contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. As of December 31, 2022, we were not in compliance with our Adjusted Quick Ratio requirement as it was below 1.0. On June\u00a027, 2023, we have received a waiver for, among others, such non-compliance. As of December 31, 2022 and 2021, we had no outstanding borrowings under the Credit Agreement. If we fail to comply with these covenants or obtain waivers for non-compliance or if we fail to make payments under our indebtedness when due, then we may be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full. \nWe may be unable to raise the funds necessary to repurchase the Notes for cash following a fundamental change, or to pay any cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase the Notes or pay cash upon their conversion.\nHolders of the Notes may require us to repurchase their Notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in shares of our common stock. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities, and the agreements governing our other indebtedness may restrict our ability to repurchase the Notes or pay the cash amounts due upon conversion. Our failure to repurchase the Notes or to pay the cash amounts due upon conversion when required will constitute a default under the indenture governing the Notes (the \u201cIndenture\u201d). A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the Notes.\nThe accounting method for the Notes could adversely affect our reported financial condition and results.\nThe accounting method for reflecting the Notes on our balance sheet, accruing interest expense for the Notes and reflecting the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition. We expect that, under applicable accounting principles, the initial liability carrying amount of the Notes will be the fair value of a similar debt instrument that does not have a conversion feature, valued using our cost of capital for straight, non-convertible debt. We expect to reflect the difference between the net proceeds from the offering of the Notes and the initial carrying amount as a debt discount for accounting purposes, which will be amortized into interest expense over the term of the Notes. As a result of this amortization, the interest expense that we expect to recognize for the Notes for accounting purposes will be greater than the future cash interest payments we will pay on the Notes, which will result in lower reported income or higher reported net losses. The lower reported net income or higher reported net losses resulting from this accounting treatment could depress the trading price of our common stock and the Notes.\nIn August 2020, the Financial Accounting Standards Board (\u201cFASB\u201d) published Accounting Standards Update (\n\u201c\nASU\n\u201d\n) 2020-06, eliminating the separate accounting for the debt and equity components as described above. On January 1, 2021, we early adopted ASU 2020-06. The adoption of ASU 2020-06 eliminated the separate accounting described above and will reduce the interest expense that we expect to recognize for the Notes for accounting purposes. In addition, ASU 2020-06 eliminates the use of the treasury stock method for convertible instruments that can be settled in whole or in part with equity, \n21\nand instead require application of the \u201cif-converted\u201d method. Under that method, diluted earnings per share would generally be calculated assuming that all the Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive. The application of the if-converted method may reduce our reported diluted earnings per share, if applicable. Also, if any of the conditions to the convertibility of the Notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the Notes as a current, rather than a long-term, liability. This reclassification could be required even if no Note-holders convert their Notes and could materially reduce our reported working capital or create a negative working capital.\nTransactions relating to our Notes may affect the value of our common stock.\nIn connection with the pricing of the Notes, we entered into capped call transactions (collectively, the \u201cCapped Calls\u201d) with one of the initial purchasers of the Notes and other financial institutions (collectively, the \u201cOption Counterparties\u201d). The Capped Calls cover, subject to customary adjustments, the number of shares of common stock initially underlying the Notes. The Capped Calls are expected generally to reduce the potential dilution of our common stock upon conversion of the Notes or at our election (subject to certain conditions) offset any cash payments we are required to make in excess of the aggregate principal amount of converted Notes, as the case may be, with such reduction or offset subject to a cap.\nIn addition, the Option Counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the Notes and from time to time prior to the maturity of the Notes (and are likely to do so on each exercise date of the Capped Calls, which are expected to occur during the 40 trading day period beginning on the 41st scheduled trading day prior to the maturity date of the Notes, or following any termination of any portion of the Capped Calls in connection with any repurchase, redemption, or conversion of the Notes if we make the relevant election under the Capped Calls). This activity could also cause or avoid an increase or a decrease in the market price of our common stock.\nWe are subject to counterparty risk with respect to the Capped Calls.\nThe Option Counterparties are financial institutions, and we will be subject to the risk that any or all of them might default under the Capped Calls. Our exposure to the credit risk of the Option Counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an Option Counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the Capped Calls with such Option Counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price subject to the cap and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the Option Counterparties.\nRisks Related to Ownership of Our Common Stock\n \nThe trading price of our common stock has been, and is likely to continue to be, volatile. \nThe trading prices of our common stock and the securities of technology companies generally have been highly volatile. Factors affecting the trading price of our common stock will include: \n\u2022\nvariations in our operating results; \n\u2022\nannouncements of technological innovations, new services or service enhancements, strategic alliances or significant agreements by us or by our competitors; \n\u2022\ncommencement or resolution of, our involvement in and uncertainties arising from litigation; \n\u2022\nrecruitment or departure of key personnel; \n\u2022\nchanges in the estimates of our operating results or changes in recommendations by securities analysts; \n\u2022\nif we or our stockholders sell substantial amounts of our common stock (including shares issued upon the exercise of options);\n\u2022\ndevelopments or disputes concerning our intellectual property or other proprietary rights; \n\u2022\nthe gain or loss of significant clients; \n\u2022\nmarket conditions in our industry, the industries of our clients, and the economy as a whole, including the economic impact of a global pandemic, such as the COVID-19 pandemic; and \n\u2022\nadoption or modification of regulations, policies, procedures or programs applicable to our business. \nIn addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results or financial \n22\ncondition. The trading price of our common stock might also decline in reaction to events or speculation of events that affect other companies in our industry even if these events do not directly affect us.\nIf securities or industry analysts do not publish research or reports about our business or if they issue an adverse or misleading opinion or report, our stock, our stock price, and trading volume could decline. \nThe trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If an analyst issues an adverse or misleading opinion, our stock price could decline. If one or more of these analysts cease covering us or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. \nFuture equity issuances or a sale of a substantial number of shares of our common stock may cause the price of our common stock to decline. \nBecause we may need to raise additional capital in the future to continue to expand our business and our research and development activities, among other things, we may conduct additional equity offerings. If we or our stockholders sell substantial amounts of our common stock (including shares issued upon the exercise of options) in the public market, the market price of our common stock could fall. A decline in the market price of our common stock could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. \nAnti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock. \nProvisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. These provisions: \n\u2022\nestablish that members of the board of directors may be removed only for cause upon the affirmative vote of stockholders owning a majority of our capital stock; \n\u2022\nauthorize the issuance of \u201cblank check\u201d preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; \n\u2022\nlimit who may call special meetings of stockholders; \n\u2022\nprohibit action by written consent, thereby requiring stockholder actions to be taken at a meeting of the stockholders; \n\u2022\nestablish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings; \n\u2022\nprovide for a board of directors with staggered terms; and \n\u2022\nprovide that the authorized number of directors may be changed only by a resolution of our board of directors. \nIn addition, Section\u00a0203 of the Delaware General Corporation Law, which imposes certain restrictions relating to transactions with major stockholders, may discourage, delay or prevent a third party from acquiring us. \nGeneral Risk Factors\nWe are subject to the effects of fluctuations in foreign exchange rates, which could affect our operating results.\nThe financial condition and results of operations of our operating foreign subsidiaries are reported in the relevant local currency and are then translated into U.S. dollars at the applicable currency exchange rate for inclusion in our consolidated U.S. dollar financial statements. Also, although a large portion of our client and vendor agreements are denominated in U.S. dollars, we may be exposed to fluctuations in foreign exchange rates with respect to client agreements with certain of our international clients.\u00a0Exchange rates between these currencies and U.S. dollars in recent years have fluctuated significantly and may do so in the future. In addition to currency translation risk, we incur currency transaction risk whenever one of our operating subsidiaries enters into a transaction using a different currency than the relevant local currency. Given the volatility of exchange rates, we may be unable to manage our currency transaction risks effectively. Currency fluctuations could have a material adverse effect on our future international sales and, consequently, on our financial condition and results of operations.\nWe could incur charges due to impairment of goodwill and long-lived assets.\nAs of December 31, 2022, we had a goodwill balance of approximately $169,156 which is subject to periodic testing for impairment. Our long-lived assets also are subject to periodic testing for impairment. A significant amount of judgment is involved in the periodic testing. Failure to achieve sufficient levels of cash flow could result in impairment charges for goodwill or impairment for long-lived assets, which could have a material adverse effect on our reported results of operations. Our goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of our reporting unit to our total market capitalization. If our stock trades below our book value, a significant and sustained decline in our stock price and market \n23\ncapitalization could result in goodwill impairment charges. During times of financial market volatility, significant judgment will be used to determine the underlying cause of the decline and whether stock price declines are short-term in nature or indicative of an event or change in circumstances. Impairment charges, if any, resulting from the periodic testing are non-cash. As of the annual impairment testing in the fourth quarter of 2022, we determined that goodwill was not impaired. During 2023, management identified indicators that the carrying amount of its goodwill may be impaired due to a decline in the company's stock price which could result in a future goodwill impairment charge to earnings, such charge may be material. Management will continue to monitor the relevant goodwill impairment indicators and significant estimates to determine whether an impairment is appropriate.\nOur results of operations may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of securities analysts or investors, which could cause our stock price to decline.\nOur results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control. If our results of operations fall below the expectations of securities analysts or investors, the price of our common stock could decline substantially. In addition to the effects of other risks discussed in this section, fluctuations in our results of operations may be due to a number of factors, including, among others:\n\u2022\nour ability to increase sales to existing clients and attract new clients to our services; \n\u2022\nthe addition or loss of large clients, or significant variation in their use of our services; \n\u2022\ncosts associated with future intellectual property lawsuits and other lawsuits; \n\u2022\ncosts associated with current or future shareholder class action or derivative lawsuits; \n\u2022\nservice outages or third party security breaches to our platform or to one or more of our clients\u2019 platforms; \n\u2022\nthe amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our business, operations and infrastructure and the adequacy of available funds to meet those requirements; \n\u2022\nthe timing and success of new product and service introductions by us or our competitors; \n\u2022\nthe occurrence of significant events in a particular period that result in an increase in the use of our services, such as a major media event or a client\u2019s online release of a new or updated video game or operating system; \n\u2022\nchanges in our pricing policies or those of our competitors; \n\u2022\nthe timing of recognizing revenue; \n\u2022\nlimitations of the capacity of our global network and related systems; \n\u2022\nthe timing of costs related to the development or acquisition of technologies, services or businesses; \n\u2022\nthe potential write-down or write-off of intangible or other long-lived assets; \n\u2022\ngeneral economic, industry and market conditions (such as fluctuations experienced in the stock and credit markets during times of deteriorated global economic conditions or during an outbreak of an epidemic or pandemic and those conditions specific to Internet usage; \n\u2022\nlimitations on usage imposed by our clients in order to limit their online expenses; and \n\u2022\nwar, threat of war or terrorism, including cyber terrorism, and inadequate cybersecurity. \nWe believe that our revenue and results of operations may vary significantly in the future and that period-to-period comparisons of our operating results may not be meaningful. You should not rely on the results of one period as an indication of future performance.\nWe have a history of losses and we may not achieve or maintain profitability in the future.\n\u00a0\u00a0\u00a0\u00a0\nWe incur significant expenses in developing our technology and maintaining and expanding our network. We also incur significant share-based compensation expense and have incurred (and may in the future incur) significant costs associated with litigation.\u00a0Accordingly, we may not be able to achieve or maintain profitability for the foreseeable future\n. We also may not achieve sufficient revenue to achieve or maintain profitability and thus may continue to incur losses in the future for a number of reasons, including, among others:\n\u2022\nslowing demand for our services;\n\u2022\nincreasing competition and competitive pricing pressures; \n\u2022\nany inability to provide our services in a cost-effective manner;\n\u2022\nincurring unforeseen expenses, difficulties, complications and delays; and\n\u2022\nother risks described in this report.\nIf we fail to achieve and maintain profitability, the price of our common stock could decline, and our business, financial condition and results of operations could suffer.\nWe have incurred, and will continue to incur, significant costs as a result of operating as a public company, and our management is required to devote substantial time to corporate governance.\n24\nWe have incurred, and will continue to incur, significant public company expenses, including accounting, legal and other professional fees, insurance premiums, investor relations costs, and costs associated with compensating our independent directors. In addition, rules implemented by the SEC and Nasdaq impose additional requirements on public companies, including requiring changes in corporate governance practices. For example, the Nasdaq listing requirements require that we satisfy certain corporate governance requirements. Our management and other personnel need to devote a substantial amount of time to these governance matters. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance. \nIf the accounting estimates we make, and the assumptions on which we rely, in preparing our consolidated financial statements prove inaccurate, our actual results may be adversely affected.\nOur consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (\u201cU.S. GAAP\u201d). The preparation of these consolidated financial statements requires us to make estimates and judgments about, among other things, taxes, revenue recognition, share-based compensation costs, contingent obligations, and doubtful accounts. These estimates and judgments affect the reported amounts of our assets, liabilities, revenue and expenses, the amounts of charges accrued by us, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances and at the time they are made. If our estimates or the assumptions underlying them are not correct, we may need to accrue additional charges or reduce the value of assets that could adversely affect our results of operations, investors may lose confidence in our ability to manage our business and our stock price could decline.\nIf we fail to maintain proper and effective internal controls or fail to implement our controls and procedures with respect to acquired or merged operations, our ability to produce accurate consolidated financial statements could be impaired, which could adversely affect our operating results, our ability to operate our business and investors\u2019 views of us.\nWe must ensure that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate consolidated financial statements on a timely basis. We are required to spend considerable effort on establishing and maintaining our internal controls, which is costly and time-consuming and needs to be re-evaluated frequently.\nWe have operated as a public company since June 2007, and we will continue to incur significant legal, accounting, and other expenses as we comply with Sarbanes-Oxley Act of 2002 (\u201cSarbanes-Oxley Act\u201d), as well as new rules implemented from time to time by the SEC and Nasdaq. These rules impose various requirements on public companies, including requiring changes in corporate governance practices, increased reporting of compensation arrangements, and other requirements. Our management and other personnel will continue to devote a substantial amount of time to these compliance initiatives. Moreover, new rules and regulations will likely increase our legal and financial compliance costs and make some activities more time-consuming and costly.\nSection\u00a0404 of SOX requires that we include in our annual report our assessment of the effectiveness of our internal control over financial reporting and our audited consolidated financial statements as of the end of each fiscal year. Furthermore, our independent registered public accounting firm, Ernst\u00a0& Young LLP (\u201cEY\u201d), is required to report on whether it believes we maintained, in all material respects, effective internal control over financial reporting as of the end of the year. Our continued compliance with Section\u00a0404 will require that we incur substantial expense and expend significant management time on compliance related issues, including our efforts in implementing controls, remediating material weaknesses and certain procedures related to acquired or merged operations. In future years, if we fail to timely complete this assessment, or if EY cannot timely attest, there may be a loss of public confidence in our internal controls, the market price of our stock could decline, and we could be subject to regulatory sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities, which would require additional financial and management resources. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to timely meet our regulatory reporting obligations.\nIf we cannot continue to satisfy The Nasdaq Global Select Market continued listing standards and other Nasdaq rules, our common stock could be delisted, which would harm our business, the trading price of our common stock, our ability to raise additional capital and the liquidity of the market for our common stock. \nOur common stock is currently listed on The Nasdaq Global Select Market. To maintain the listing of our common stock on the Nasdaq Global Select Market, we are required to meet certain listing requirements. There is no assurance that we will be able to maintain compliance with such requirements. On March 23, 2023, the company received a letter (the \u201c10-K Notice\u201d) from the Nasdaq Stock Market notifying the company that, as a result of the company\u2019s delay in filing its Annual Report on Form 10-K for the year ended December 31, 2022 (the \u201cForm 10-K\u201d), the company is not in compliance with the \n25\napplicable rule that requires Nasdaq-listed companies to timely file all required periodic financial reports with the SEC. On April 27, 2023, the company received a letter (the \u201cMinimum Price Notice\u201d) from The Nasdaq Stock Market notifying the company that, because the closing bid price for its common stock has been below $1.00 per share for 30 consecutive business days, it no longer complies with the minimum bid price requirement for continued listing on The Nasdaq Global Select Market. Neither the 10-K Notice nor the Minimum Price Notice has an immediate effect on the listing of the company\u2019s common stock on The Nasdaq Global Select Market. In each case, the company has been provided an initial compliance period of 180 calendar days to regain compliance with the applicable requirement. During the compliance period, the company\u2019s shares of common stock will continue to be listed and traded on The Nasdaq Global Select Market. To regain compliance, the Company must file its Form 10-K and the closing bid price of the company\u2019s common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during the applicable 180 calendar day grace period. The company intends to actively monitor the bid price for its common stock and will consider available options to regain compliance with the applicable listing requirements.\nIf our common stock were to be delisted from Nasdaq and was not eligible for quotation or listing on another market or exchange, trading of our common stock could be conducted only in the over-the-counter market such as the OTC Markets Group DTCQB. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price of our common stock to decline further.\nChanges in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported results of operations.\nA change in accounting standards or practices can have a significant effect on our operating results and may affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of existing accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.\nWe reached a determination to restate certain of our previously issued consolidated financial statements as a result of the identification of errors in previously issued consolidated financial statements, which resulted in unanticipated costs and may affect investor confidence and raise reputational issues.\nAs discussed in the Explanatory Note, in Note 3, Restatement of Previously Issued Consolidated Financial Statements, and in Note 24, Restatement of Unaudited Quarterly Results, in this Annual Report on Form 10-K for the year ended December 31, 2022, we reached a determination to restate certain of our historical consolidated financial statements and related disclosures for the periods disclosed in those notes after identifying errors in our accounting treatment of certain of our complex and/or non-routine transactions. The restatement also included corrections for previously identified immaterial errors in the impacted periods. As a result, we have incurred unanticipated costs for accounting and legal fees in connection with or related to the restatement, and have become subject to a number of additional risks and uncertainties, which may affect investor confidence in the accuracy of our financial disclosures and may raise reputational risks for our business, both of which could harm our business and financial results.\nWe recently identified material weaknesses in our internal control over financial reporting. If we do not effectively remediate the material weaknesses or if we otherwise fail to maintain effective internal control over financial reporting, our ability to report our financial results on a timely and on an accurate basis could be impaired, which may adversely affect the market price of our common stock.\nThe Sarbanes-Oxley Act requires, among other things, that public companies evaluate the effectiveness of their internal control over financial reporting and disclosure controls and procedures. We identified the material weaknesses in internal control over financial reporting as of December 31, 2022: non-routine and complex transactions, revenue accounting system controls and financial close reporting. Please see Item 9A, Controls and Procedures, in this Annual Report on Form 10-K for additional information regarding the identified material weaknesses and our actions to date to remediate the material weaknesses. \nAs a result, we may incur substantial costs, expend significant management time on compliance-related issues, and hire additional accounting, financial, and internal audit staff with appropriate public company experience and technical accounting knowledge. Moreover, if we or our independent registered public accounting firm identify additional deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. Any failure to maintain effective disclosure controls and procedures or internal control over financial reporting could have a material adverse effect on our business and operating results and cause a decline in the price of our common stock. \n26\nThe accounting treatment related to our Open Edge arrangements is complex, and if we are unable to attract and retain highly qualified accounting personnel to evaluate the accounting implications of our complex and/or non-routine transactions, our ability to accurately report our financial results may be harmed.\nOur Open Edge arrangements are classified as failed sale-leasebacks and accounted for as financing arrangements. The accounting rules related to these financing arrangements are complex and involve significant initial judgments in applying U.S. GAAP, and thus require experienced and highly skilled personnel to review and interpret the proper accounting treatment with respect thereto. Competition for senior finance and accounting personnel who have public company reporting experience is intense, and if we are unable to recruit and retain personnel with the required level of expertise to evaluate and accurately classify our revenue-generating transactions, our ability to accurately report our financial results may be harmed.",
+  "item7": ">Item\u00a07.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThis Annual Report on Form 10-K contains \u201cforward-looking statements\u201d within the meaning of Section 21E of the Exchange Act, as amended. Forward-looking statements include, among other things, statements as to industry trends, our future expectations, operations, financial condition and prospects, business strategies and other matters that do not relate strictly to historical facts. These statements are often identified by the use of words such as \u201cmay,\u201d \u201cwill,\u201d \u201cexpect,\u201d \u201cbelieve,\u201d \u201canticipate,\u201d \u201cintend,\u201d \u201ccould,\u201d \u201cestimate,\u201d or \u201ccontinue,\u201d and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled \u201cRisk Factors\u201d set forth in Part\u00a0I, Item\u00a01A and in the \u201cSpecial Note Regarding Forward-Looking Statements\u201d section preceding Part I of this Annual Report on Form 10-K. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Prior period information has been modified to conform to current year presentation. All information is presented in thousands, except per share amounts, client count and where specifically noted.\nIn this Annual Report on Form 10-K, we have restated our previously issued consolidated financial statements as of and for the years ended December 31, 2021 and 2020. Refer to the \u201cExplanatory Note\u201d preceding Item 1, \u201cBusiness\u201d for background on the restatement, the fiscal periods impacted, control considerations, and other information. As a result, we have also restated certain previously reported financial information as of and for the years ended December 31, 2021 and 2020 in this Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d, including but not limited \n29\nto information within the Results of Operations and Liquidity and Capital Resources sections to conform the discussion with the appropriate restated amounts. See Note 3, \u201cRestatement of Previously Issued Consolidated Financial Statements\u201d, in Item 8, \u201cFinancial Statements and Supplementary Data\u201d, for additional information related to the restatement, including descriptions of the errors and the impacts on our consolidated financial statements.\nOverview\nWe were founded in 2001 as a provider of content delivery network services to deliver digital content over the Internet. We began development of our infrastructure in 2001 and began generating meaningful revenue in 2002. Today, we are a leading provider of solutions that enable communications & media companies to optimize their digital content delivery AND we provide solutions that allow e-commerce, banking, and other interactive-heavy applications to improve their customer experiences. Our holistic solution allows customer teams to efficiently deliver instant, secure web applications that improve our client's revenue. We are a trusted partner to some of the world\u2019s notable brands and serve their global customers with experiences such as livestream sporting events, global movie launches, video games, and file downloads. We support some of the most trusted brands in their interactions with their customers including high fashion, automobile manufactures, giant online stores, banks and the like. We offer one of the largest, best-optimized private networks coupled with a global team of industry experts to provide edge services that are fast, secure, and reliable. Our mission is to deliver a globally-scaled edge platform that seamlessly powers faster, safer and simpler business solutions. We want to be the platform of choice to power video and application solutions at the edge of the Internet to make connected living faster, safer and simpler.\nOur business is dependent on creating an exceptional digital experience by providing our clients with fast, safe, efficient, and reliable edge access, distribution of content delivery and digital asset management services over the Internet every minute of every day. Because of this, we operate a globally distributed network with services that are available 24 hours a day, seven days a week, and 365 days a year. Our sophisticated and powerful network is fully redundant and includes extensive diversity through data centers and telecommunication suppliers within and across regions.\nA meaningful portion of our revenue and profit comes from our Applications Platform, a global edge-based service that allows teams to build, secure, and accelerate their most important customer-facing websites and APIs. The platform uniquely enables best-in-class security, instant-loading interactive experiences, and improved team velocity with few tradeoffs. Today\u2019s disjointed tools offered by the hyperscaler cloud, edge, security, and observability vendors force the market to choose between protection, performance, and team productivity. Our offering allows our customers to earn more revenue, reduce security risk, prevent more fraud, and lower costs through a holistic approach not easily realized through the current approach of assembling multiple vendors\u2019 point solutions. Further, to enable easy adoption by the market, clients can buy a small, best-of-breed piece of the offering before upgrading to the full suite. Clients have the option to purchase unique expert and managed services to ensure they realize the most value from the platform. Our Application Platform currently powers the largest US wireless carrier, the largest online payments service, several top 20 banks and insurers, name-brand social networks, three of the top five most valuable technology companies, and hundreds of other leaders in e-commerce, automotive, travel, and other industries.\nWe provide our services in a highly competitive industry in which differentiation is primarily measured by performance and cost and the difference between providers can be as small as a fraction of a percent. We have experienced the commoditization of our once innovative and highly valued content delivery service, which, when combined with the low switching costs in a multi-CDN environment, results in on-going price compression, despite the large, unmet market need for our services. In 2022, we continued to see a decline in our average selling price, primarily due to the on-going price compression with our multi-CDN clients.\nWe implemented a go-forward strategy designed to simultaneously address short-term headwinds and to position us to achieve near- and long-term success by building upon and more fully leveraging our ultra-low latency, global network, and operational expertise. We are focused on three key areas:\n\u2022 \nImproving Our Core.\n Our ability to consistently grow revenue requires us to do a better job at managing the cost structure of our network while anticipating and providing our clients with the tools and reliable performance they need and to do it sooner and better than our competitors. Our operating expenses are largely driven by payroll and related employee costs. Our employee and employee equivalent headcount increased from 552 on December 31, 2021, to 980 on December 31, 2022, primarily due to the Edgecast Acquisition. We implemented a broader and more detailed operating model in 2021, built on metrics, process discipline, and improvements to client satisfaction, performance, and cost. We are building an internal culture that embraces speed, transparency, and accountability. Since the close of the Edgecast Acquisition, we have put other cost savings measures into place. We recorded restructuring charges of $20,030 during the year ended December 31, 2022. We are continuously seeking opportunities to be more efficient and productive in order to achieve cost savings and improve our \n30\nprofitability. On June 6, 2023, we announced a restructuring plan to reduce additional 12% of our workforce with estimated future restructuring charges of approximately $3,700.\n\u2022 \nExpanding Our Core.\n We have redesigned our commercial and product approaches to strengthen and broaden our key client relationships, to support a land and expand strategy. We believe that this, coupled with new edge-based tools and solutions we anticipate bringing to market, will assist in our ability to re-accelerate growth. Key elements of our plan to Expand the Core include tightening the alignment between our Sales and Marketing organizations, moving to a \u201cclient success\u201d model that pairs client relationship managers with client performance managers to ensure proactive client success and exploring ways to dynamically optimize how we price our services that gives us more flexibility \u2013 and a renewed ability to sell more broadly into our existing client base. We are expanding the competency and capacity of our marketing and sales efforts and increasing our effectiveness through targeted go-to-market segmentation. \n\u2022 \nExtending Our Core. \nLonger term, we believe we can drive meaningful improvements to profitability and growth by diversifying our capabilities, clients, and revenue mix. We need to enable digital builders to easily load content faster, personalize it more and protect it outside of a controlled environment. We believe we have an opportunity of extending the use of our network to new clients with new solutions that utilize non-peak traffic solutions. \nIn September 2021, we acquired Moov Corporation (\u201cMoov\u201d), a California corporation doing business as Layer0, a sub-scale SaaS based application acceleration and developer platform. The combination of application acceleration development platform with security and a power edge network provides a unique offering for potential clients. \nIn June 2022, we completed the acquisition of Yahoo's Edgecast, a leading provider of edge security, content delivery and video services, in an all-stock transaction. Edgecast is a business unit of Yahoo, which was owned by funds managed by affiliates of Apollo and Verizon Communications. Edgio will deliver significantly increased scale and scope with diversified revenue across products, clients, geographies, and channels. \nThe acquisitions have provided Edgio with a highly-performant globally scaled, edge enabled network supported by software solutions with media solutions that generate value in video and live stream content delivery and apps solutions that enable the development, delivery, and operation of highly performant web and mobile applications. These combined give Edgio a $14 billion target market in the broader $40 billion marketplace.\nWe are committed to helping our clients deliver better digital experiences to their customers, create better returns for our shareholders, and provide our employees an environment in which they can grow, develop, and win. \n\u00a0\u00a0\u00a0\u00a0The following table summarizes our revenue, costs, and expenses for the periods indicated (in thousands of dollars and as a percentage of total revenue). \nYears\u00a0Ended December 31,\n2022\n2021\n2020\nAs Restated\nAs Restated\nRevenue\n$\n338,598\u00a0\n100.0\u00a0\n%\n$\n201,115\u00a0\n100.0\u00a0\n%\n$\n223,990\u00a0\n100.0\u00a0\n%\nCost of revenue\n231,058\u00a0\n68.2\u00a0\n%\n146,793\u00a0\n73.0\u00a0\n%\n143,713\u00a0\n64.2\u00a0\n%\nGross profit\n107,540\u00a0\n31.8\u00a0\n%\n54,322\u00a0\n27.0\u00a0\n%\n80,277\u00a0\n35.8\u00a0\n%\nOperating expenses\n235,346\u00a0\n69.5\u00a0\n%\n94,514\u00a0\n47.0\u00a0\n%\n97,500\u00a0\n43.5\u00a0\n%\nRestructuring charges\n20,030\u00a0\n5.9\u00a0\n%\n13,425\u00a0\n6.7\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\nOperating loss \n(147,836)\n(43.7)\n%\n(53,617)\n(26.7)\n%\n(17,223)\n(7.7)\n%\nTotal other expense\n(9,763)\n(2.9)\n%\n(6,395)\n(3.2)\n%\n(4,259)\n(1.9)\n%\nLoss before income taxes\n(157,599)\n(46.5)\n%\n(60,012)\n(29.8)\n%\n(21,482)\n(9.6)\n%\nIncome tax expense\n(21,080)\n(6.2)\n%\n1,154\u00a0\n0.6\u00a0\n%\n645\u00a0\n0.3\u00a0\n%\nNet loss\n$\n(136,519)\n(40.3)\n%\n$\n(61,166)\n(30.4)\n%\n$\n(22,127)\n(9.9)\n%\nCritical Accounting Estimates\nThe preparation of consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the company. Based on this definition, we have identified the critical accounting \n31\nestimates addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information on these other key accounting policies, see Note 2 \u201cSummary of Significant Accounting Policies\u201d of the Notes to Consolidated Financial Statements included in Part II, Item\u00a08 of this Annual Report on Form\u00a010-K. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.\nBusiness Combinations\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nWe account for business combinations using the acquisition method of accounting, which requires allocating the purchase consideration of the acquisition to the tangible assets, liabilities and identifiable intangible assets acquired based on each of the estimated fair values at the acquisition date. The excess of the purchase consideration over the fair values is recorded as goodwill. \nWhen determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future revenue growth rates and margins, attrition rates, future changes in technology, royalty rates, and discount rates.\nWhen the consideration transferred in a business combination includes a contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair value and is included as part of the consideration transferred in a business combination. Contingent consideration is classified as a liability when the obligation requires settlement in cash or other assets and is classified as equity when the obligation requires settlement in our own equity instruments. Where relevant, the fair value of contingent consideration is valued using a Monte Carlo simulation model. The assumptions used in preparing these models include estimates such as volatility, discount rates, dividend rates, dividend yield and risk-free interest rates.\nRevenue Recognition\nRevenues are recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.\nAt the inception of a client contract for service, we make an assessment as to that client\u2019s ability to pay for the services provided. If we subsequently determine that collection from the client is not probable, we record an allowance for credit losses for that clients\u2019 unpaid invoices and cease recognizing revenue for continued services provided until it is probable that revenue will not be reversed in a subsequent reporting period. Our standard payment terms vary by the type and location of our client but do not contain a financing component. \nCertain of our revenue arrangements include multiple promises to our clients. Revenue arrangements with multiple promises are accounted for as separate performance obligations if each promise is distinct. Judgment may be required in determining whether products or services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation. Revenue is recognized over the period in which the performance obligations are satisfied, which is generally monthly pursuant to the variable consideration allocation exception. We have determined that generally most of our products and services do not constitute an individual service offering to our clients, as our promise to the client is to provide a complete edge services platform, and therefore have concluded that such arrangements represent a single performance obligation.\nOur contractual arrangements with customers generally specify monthly billing terms, and we apply the variable consideration allocation exception and record revenue based on actual usage during the month. Certain contracts contain minimum commitments over the contractual term; however, we generally have concluded that these commitments are not substantive. Accordingly, the consideration for these contracts is substantially considered variable and is recognized based on actual usage as we apply the variable consideration allocation exception to these contracts. These customers have entered into contracts with contract terms generally from one to ten years. \nGoodwill\nWe have recorded goodwill as a result of business acquisitions. Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. In each of our acquisitions, the objective of the acquisition was to expand our product offerings and client base and to achieve synergies related to cross selling opportunities, all of which contributed to the recognition of goodwill. \nWe test goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate that goodwill might be impaired. We concluded that we have one reporting unit and assigned the entire balance of goodwill to \n32\nthis reporting unit. The estimated fair value of the reporting unit is determined using our market capitalization as of our annual impairment assessment date or more frequently if circumstances indicate the goodwill might be impaired. Items that could reasonably be expected to negatively affect key assumptions used in estimating fair value include but are not limited to: \n\u2022\nsustained decline in our stock price due to a decline in our financial performance due to the loss of key clients, loss of key personnel, emergence of new technologies or new competitors and/or unfavorable outcomes of intellectual property disputes; \n\u2022\ndecline in overall market or economic conditions leading to a decline in our stock price; and \n\u2022\ndecline in observed control premiums paid in business combinations involving comparable companies. \nThe estimated fair value of the reporting unit is determined using a market approach. Our market capitalization is adjusted for a control premium based on the estimated average and median control premiums of transactions involving companies comparable to us. As of our annual impairment testing on October 31, 2022, management determined that goodwill was not impaired. We noted that the estimated fair value of our reporting unit, using an estimated control premium of 30%, on October 31, 2022 and December 31, 2022, exceeded carrying value by approximately $508,485 or 192% and $86,401 or 36%, respectively. Adverse changes to certain key assumptions as described above could result in a future goodwill impairment charge to earnings, such charge may be material.\nResults of Continuing Operations \nDiscussion of our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 and for the year ended December 31, 2021 compared to the year ended December 31, 2020 is presented below.\nComparison of the Years Ended December\u00a031, 2022, 2021, and 2020\nRevenue\nWe derive revenue primarily from the sale of our Media and Applications platforms which include digital content delivery, video delivery, website development and acceleration, cloud security and monitoring, edge compute, and origin storage services. We also generate revenue through the sale of professional services and other infrastructure services, such as transit, and rack space services.\nThe following table reflects our revenue for the periods presented:\nYears Ended December 31,\n2022 to 2021\n2021 to 2020\n2022\n2021\n2020\n% Change\n% Change\nAs Restated\nAs Restated\nRevenue\n$\n338,598\u00a0\n$\n201,115\u00a0\n$\n223,990\u00a0\n68\u00a0\n%\n(10)\n%\n2022 Compared to 2021\nOur revenue increased by $137,483 during the year ended December 31, 2022, versus 2021 primarily due to the inclusion of revenue from the Edgecast Acquisition. Revenue from the Edgecast Acquisition for the period of June 16, 2022 to December 31, 2022 was $134,306. Our active clients worldwide increased to 954 as of December 31, 2022, compared to 570 as of December 31, 2021. The increase was primarily driven by the Edgecast Acquisition in June 2022. \n2021 Compared to 2020\nRevenue decreased by $22,875 during the year ended December 31, 2021, versus 2020 primarily due to a decrease in our delivery services revenue due to price compression. In addition to price compression, which is expected in the industry, the decrease in delivery services revenue was primarily due to lower traffic volumes with our largest client as a result of easing COVID-19 lockdown restrictions and a reduced amount of new content released for consumption. \nDuring the years ended December 31, 2022, 2021 and 2020, sales to our top 20 clients accounted for approximately 73%, 75% and 76%, respectively of our total revenue. The clients that comprised our top 20 clients change from time to time, and our large clients may not continue to be as significant going forward as they have been in the past.\n33\nDuring the year ended December 31, 2022, we had two clients, Amazon and Verizon, who each represented 17% and 12%, respectively, of our total revenue. During the year ended December 31, 2021, we had two clients, Amazon and Sony, who represented approximately 32% and 12%, respectively, of our total revenue. During the year ended December 31, 2020, we had two clients, Amazon and Sony, who represented approximately 37% and 11%, respectively, of our total revenue. As of December 31, 2022, Amazon, Verizon and Microsoft represented 20%, 13% and 10%, respectively, of our total accounts receivable. As of December 31, 2021, Amazon represented 33% of our total accounts receivable.\nRevenue by geography is based on the location of the client from which the revenue is earned based on bill to locations. The following table sets forth revenue by geographic area (in thousands and as a percentage of total revenue): \nYears Ended December 31,\n2022\n2021\n2020\nAs Restated\nAs Restated\nAmericas\n$\n245,633\u00a0\n73\u00a0\n%\n$\n129,014\u00a0\n64\u00a0\n%\n$\n136,261\u00a0\n61\u00a0\n%\nEMEA\n (1)\n23,892\u00a0\n7\u00a0\n%\n20,955\u00a0\n11\u00a0\n%\n36,838\u00a0\n16\u00a0\n%\nAsia Pacific\n69,073\u00a0\n20\u00a0\n%\n51,146\u00a0\n25\u00a0\n%\n50,891\u00a0\n23\u00a0\n%\nTotal revenue\n$\n338,598\u00a0\n100\u00a0\n%\n$\n201,115\u00a0\n100\u00a0\n%\n$\n223,990\u00a0\n100\u00a0\n%\n(1)\n Europe, Middle East, and Africa (\u201cEMEA\u201d)\nCost of Revenue\nCost of revenue consists primarily of fees paid to network providers for bandwidth and backbone, costs incurred for non-settlement free peering and connection to Internet service providers, and fees paid to data center operators for housing of our network equipment in third party network data centers, also known as co-location costs. Cost of revenue also includes leased warehouse space and utilities, depreciation of network equipment used to deliver our content delivery services, payroll and related costs, and share-based compensation for our network operations and professional services personnel. Other costs include \ncloud service costs, \nprofessional fees and outside services, travel and travel-related expenses and fees and license, and insurance costs.\nCost of revenue was composed of the following (in thousands and as a percentage of total revenue):\nYears\u00a0Ended December 31,\n2022\n2021\n2020\nAs Restated\nAs Restated\nBandwidth and co-location fees\n$\n141,209\u00a0\n41.7\u00a0\n%\n$\n94,180\u00a0\n46.8\u00a0\n%\n$\n88,473\u00a0\n39.5\u00a0\n%\nDepreciation - network\n28,171\u00a0\n8.3\u00a0\n%\n24,106\u00a0\n12.0\u00a0\n%\n21,787\u00a0\n9.7\u00a0\n%\nPayroll and related employee costs \n(1)\n22,192\u00a0\n6.6\u00a0\n%\n16,576\u00a0\n8.2\u00a0\n%\n18,467\u00a0\n8.2\u00a0\n%\nShare-based compensation\n2,443\u00a0\n0.7\u00a0\n%\n1,384\u00a0\n0.7\u00a0\n%\n1,998\u00a0\n0.9\u00a0\n%\nOther costs\n37,043\u00a0\n10.9\u00a0\n%\n10,547\u00a0\n5.2\u00a0\n%\n12,988\u00a0\n5.8\u00a0\n%\nTotal cost of revenue \n(2)\n$\n231,058\u00a0\n68.2\u00a0\n%\n$\n146,793\u00a0\n72.9\u00a0\n%\n$\n143,713\u00a0\n64.1\u00a0\n%\n(1) Includes $1,026 of acquisition related expenses for the year ended December 31, 2022.\n(2) Includes $859 of transition service agreement expenses for the year ended December 31, 2022 which were credited from College Parent and its related affiliates and recorded as capital contributions in the consolidated statements of stockholders\u2019 equity.\n2022 Compared to 2021\nOur cost of revenue increased in aggregate dollars and decreased as a percentage of total revenue for the year ended December 31, 2022, versus the comparable 2021 period. The changes in cost of revenue were primarily a result of the following:\n\u2022\nBandwidth and co-location fees increased in aggregate dollars due to continued expansion in existing and new geographies and capacity acquired with the Edgecast Acquisition. Bandwidth and co-location fees decreased as a percentage of total revenue primarily due to favorable product mix cost reductions and synergies realized from the Edgecast Acquisition. \n\u2022\nDepreciation expense increased in aggregate dollars due to capital equipment acquired in the Edgecast Acquisition \n34\nand an increase in deployments to meet customer demand.\n\u2022\nPayroll and related employee costs were higher as a result of increased headcount due to the Edgecast Acquisition. We have also increased the use of third party consultants to augment direct staffing expense.\n\u2022\nOther costs increased primarily due to costs associated with increased costs of operations from our acquisition of Edgecast acquired in June 2022\n, costs from a full year of operations from Moov acquired in September 2021\n, international re-seller costs, and professional fees including third party consultants. Other costs increased as a percentage of total revenue as a result of cloud service product mix costs, related to additional video streaming products included in the Edgecast Acquisition, and increased consulting fees. \n2021 Compared to 2020\nOur cost of revenue increased in both aggregate dollars and as a percentage of total revenue for the year ended December 31, 2021, versus the comparable 2020 period. The changes in cost of revenue were primarily a result of the following:\n\u2022\nBandwidth and co-location fees increased in aggregate dollars due to higher transit fees, as well as continued expansion in existing and new geographies.\n\u2022\nDepreciation expense increased due to increased capital expenditures year over year.\n\u2022\nPayroll and related employee costs were lower as a result of decreased network operations and professional services personnel and lower variable compensation.\n\u2022\nShare-based compensation decreased primarily as a result of lower variable compensation paid out in restricted stock units, and the impact of the reduction in workforce in March 2021 versus the comparable 2020 period. These decreases were offset by equity related to our recently completed business combination.\n\u2022\nOther costs increased primarily due to costs associated with increased international re-seller costs, professional fees, and increased fees and licenses. These increases were partially offset by decreased contract royalties, travel and entertainment expense, office supplies, and facilities. \nDue to advances in technology and improvements on how we operate our network equipment, we expect to change our estimate of the useful lives of our network equipment from three years to five years to better reflect the estimated period during which these assets will remain in service. This change in accounting estimate will be effective beginning January 1, 2023.\nGeneral and Administrative\nGeneral and administrative expense was composed of the following (in thousands and as a percentage of total revenue): \nYears\u00a0Ended December 31,\n2022\n2021\n2020\nPayroll and related employee costs\n$\n24,026\u00a0\n7.1\u00a0\n%\n$\n13,083\u00a0\n6.5\u00a0\n%\n$\n12,348\u00a0\n5.5\u00a0\n%\nProfessional fees and outside services\n12,825\u00a0\n3.8\u00a0\n%\n5,293\u00a0\n2.6\u00a0\n%\n4,305\u00a0\n1.9\u00a0\n%\nShare-based compensation\n8,659\u00a0\n2.6\u00a0\n%\n12,514\u00a0\n6.2\u00a0\n%\n7,611\u00a0\n3.4\u00a0\n%\nAcquisition and legal related expenses\n26,189\u00a0\n7.7\u00a0\n%\n2,640\u00a0\n1.3\u00a0\n%\n\u2014\u00a0\n\u2014\u00a0\n%\nOther costs\n16,451\u00a0\n4.9\u00a0\n%\n6,561\u00a0\n3.3\u00a0\n%\n7,020\u00a0\n3.1\u00a0\n%\nTotal general and administrative \n(1)\n$\n88,150\u00a0\n26.0\u00a0\n%\n$\n40,091\u00a0\n19.9\u00a0\n%\n$\n31,284\u00a0\n14.0\u00a0\n%\n(1) Includes $4,351 of transition service agreement expenses for the year ended December 31, 2022 which were credited from College Parent and its related affiliates and recorded as capital contributions in the consolidated statements of stockholders\u2019 equity.\n2022 Compared to 2021\nOur general and administrative expense increased in both aggregate dollars and as a percentage of total revenue for the year ended December 31, 2022, versus the comparable 2021 period. The increase in aggregate dollars for the year ended December 31, 2022, versus the comparable 2021 period was primarily driven by increased acquisition and legal related expenses, payroll and related employee costs, professional fees, and other costs, partially offset by a decrease in share based compensation. The increase in acquisition and legal related expenses was the result of expenses that have been incurred in \n35\nrelation to the Edgecast Acquisition. The increase in payroll and related employee costs was due to increased headcount as a result of the acquisitions of Moov and Edgecast. The increase in professional fees was due to increased costs for consulting, recruiting, and casual labor. Other costs increased due to increased costs for license and software fees, franchise and duty taxes, bad debt expense, and business insurance, partially offset by a decrease in facility related costs. The decrease in share-based compensation was the result of expense recorded in 2021 related to a transition agreement entered into between us and our former Chief Executive Officer who retired in January 2021. \n2021 Compared to 2020\nGeneral and administrative expense increased in both aggregate dollars and as a percentage of total revenue for the year ended December 31, 2021, versus the comparable 2020 period. The increase in aggregate dollars for the year ended December 31, 2021, versus the comparable 2020 period was primarily driven by an increase in share-based compensation, acquisition and legal related expenses, professional fees, and bad debt expense, which is included in other costs. The increase in share-based compensation was the result of a transition agreement entered into between us and our former CEO who retired in January 2021, which modified existing share-based awards and resulted in additional share-based compensation. Share-based compensation also increased as a result of our acquisition of Moov in September 2021, and for a sign-on bonus converted from cash to restricted stock units for our current CEO. Professional fees increased due to higher legal fees associated with corporate and governance matters, casual labor, and other outside services.\nWe expect our general and administrative expenses for 2023 to increase in aggregate dollars.\nSales and Marketing\nSales and marketing expense was composed of the following (in thousands and as a percentage of total revenue): \nYears\u00a0Ended December 31,\n2022\n2021\n2020\nPayroll and related employee costs \n(1)\n$\n33,551\u00a0\n9.9\u00a0\n%\n$\n21,243\u00a0\n10.6\u00a0\n%\n$\n31,355\u00a0\n14.0\u00a0\n%\nShare-based compensation\n3,836\u00a0\n1.1\u00a0\n%\n2,513\u00a0\n1.2\u00a0\n%\n3,519\u00a0\n1.6\u00a0\n%\nMarketing programs\n3,600\u00a0\n1.1\u00a0\n%\n1,555\u00a0\n0.8\u00a0\n%\n2,228\u00a0\n1.0\u00a0\n%\nOther costs\n7,816\u00a0\n2.3\u00a0\n%\n4,649\u00a0\n2.3\u00a0\n%\n5,843\u00a0\n2.6\u00a0\n%\nTotal sales and marketing\n$\n48,803\u00a0\n14.4\u00a0\n%\n$\n29,960\u00a0\n14.9\u00a0\n%\n$\n42,945\u00a0\n19.2\u00a0\n%\n(1) Includes $385 of acquisition related expenses for the year ended December 31, 2022.\n2022 Compared to 2021\nOur sales and marketing expense increased in aggregate dollars and decreased as a percentage of total revenue for the year ended December 31, 2022, versus the comparable 2021 period. The increase in aggregate dollars for the year ended December 31, 2022, versus the comparable 2021 period was primarily driven by an increase in payroll and related employee costs, other costs, marketing programs, and share-based compensation. The increase in payroll and related employee costs and the increase in share-based compensation was due to increased headcount associated with the acquisitions of Moov and Edgecast. The increase in other costs was mainly due to an increase in license, subscription, software, and professional fees (casual labor), as a result of increased headcount, partially offset by lower facilities costs. Marketing program expenses increased due to increased trade show, and promotional and advertising costs.\n2021 Compared to 2020\nSales and marketing expense decreased in both aggregate dollars and as a percentage of total revenue for the year ended December 31, 2021, versus the comparable 2020 period. The decrease in aggregate dollars for the year ended December 31, 2021, versus the comparable 2020 period was due to the impact of the reduction in workforce in March 2021 and lower variable compensation. Share-based compensation decreased primarily as a result of lower equity variable compensation in 2021 versus the comparable 2020 period. The decrease in other costs was due to decreased facility costs, decreased other employee costs, decreased fees and licenses, and decreased travel and entertainment. These decreases were offset by increases in casual labor and recruiting.\nWe expect our sales and marketing expenses for 2023 to increase in aggregate dollars due to a full year of expenses relating to the Edgecast acquisition offset in part by cost savings from restructuring initiatives.\n36\nResearch and Development\nResearch and development expense was composed of the following (in thousands and as a percentage of total revenue): \nYears\u00a0Ended December 31,\n2022\n2021\n2020\nPayroll and related employee costs \n(1)\n$\n48,524\u00a0\n14.3\u00a0\n%\n$\n13,325\u00a0\n6.6\u00a0\n%\n$\n14,334\u00a0\n6.4\u00a0\n%\nShare-based compensation\n15,655\u00a0\n4.6\u00a0\n%\n2,435\u00a0\n1.2\u00a0\n%\n2,589\u00a0\n1.2\u00a0\n%\nOther costs\n19,473\u00a0\n5.8\u00a0\n%\n5,909\u00a0\n2.9\u00a0\n%\n4,757\u00a0\n2.1\u00a0\n%\nTotal research and development \n(2)\n$\n83,652\u00a0\n24.7\u00a0\n%\n$\n21,669\u00a0\n10.8\u00a0\n%\n$\n21,680\u00a0\n9.7\u00a0\n%\n(1) Includes $4,093 of acquisition related expenses for the year ended December 31, 2022.\n(2) Includes $274 of transition service agreement expenses for the year ended December 31, 2022 which were credited from College Parent and its related affiliates and recorded as capital contributions in the consolidated statements of stockholders\u2019 equity.\n2022 Compared to 2021\nOur research and development expense increased in both aggregate dollars and as a percentage of total revenue for the year ended December\u00a031, 2022 versus the comparable 2021 period. The increase in aggregate dollars during the year ended December 31, 2022, versus the comparable 2021 period was primarily driven by an increase in payroll and related employee costs, share-based compensation, and other costs. The increase in payroll and related employee costs and the increase in share-based compensation was due to increased headcount associated with the acquisitions of Moov and Edgecast. The increase in other costs, was primarily due to increased professional fees, including casual labor and consulting, and increased fees and licenses, partially offset by lower facility related costs. Research and development expense increased as a percentage of total revenue as a result of increased headcount which more than doubled as a result of the Edgecast Acquisition.\n2021 Compared to 2020\nResearch and development expense slightly decreased in aggregate dollars and increased as a percentage of total revenue for the year ended December 31, 2021, versus the comparable 2020 period. The decrease in aggregate dollars was primarily related to a decrease in payroll and related employee costs partially mostly offset by an increase in other costs. The decrease in payroll and related employee costs was mainly due to reduced salaries and variable compensation due to lower headcount. The increase in other costs was primarily due to increased fees and licenses and other employee costs offset by lower facility costs and lower professional fees. \nWe expect our research and development expenses for 2023 to increase in aggregate dollars \ndue to a full year of expenses relating to the Edgecast acquisition offset in part by cost savings from restructuring initiatives.\nDepreciation and Amortization (Operating Expenses) \nDepreciation expense consists of depreciation on equipment used by general administrative, sales and marketing, and research and development personnel. Amortization expense consists of amortization of acquired intangible assets. \n2022 Compared to 2021\nDepreciation and amortization expense was $14,741 or 4.4%% of revenue, for the year ended December\u00a031, 2022, versus $2,794, or 1.4%% of revenue for the comparable 2021 period. The increase in depreciation and amortization expense for the year ended December 31, 2022, versus the comparable 2021 period was primarily due to the amortization of intangible assets acquired as part of the Edgecast Acquisition in June 2022.\n2021 Compared to 2020\nDepreciation and amortization expense for the year ended December 31, 2020 was $1,591, or 0.7% of revenue. The increase in depreciation and amortization expense for the year ended December 31, 2021, versus the comparable 2020 period expense was primarily due to the amortization of intangible assets acquired in the business combination in September. \nRestructuring Charges\nThe restructuring charges for the years ended December 31, 2022 and 2021, were the result of management's commitment to restructure certain parts of the company to focus on cost efficiencies, improved growth and profitability, and align our workforce and facility requirements with our continued investment in the business. As a result, we are incurring \n37\ncertain charges for facilities, right of use assets, outside service contracts, and professional fees. There were no material restructuring charges for the year ended December 31, 2020. Refer to Note 12 \u201cRestructuring Charges\u201d of the Notes to Consolidated Financial Statements included in Part II, Item\u00a08 of this Annual Report on Form\u00a010-K. Future restructuring charges related to these plans are expected to be immaterial. On June 6, we announced a restructuring plan to reduce an additional 12% of our workforce. As a result, restructuring charges of approximately $3,200 will be recorded in the second quarter of 2023. Remaining future estimated restructuring charges related to this plan are approximately $500 and expected be recorded in the third quarter of 2023.\nInterest Expense \nInterest expense was $6,094, $5,423, and $3,960 for the years ended December\u00a031, 2022, 2021, and 2020, respectively. \nInterest expense includes expense associated with the issuance of our senior convertible notes in July 2020 and fees associated with the Credit Agreement originally entered into in November 2015 and expenses relating to financing arrangements from our Open Edge arrangements.\nInterest Income \nInterest income was $510, $134, and $69\n \nfor the years ended December\u00a031, 2022, 2021, and 2020. Interest income includes interest earned on financing lease arrangements, invested cash balances, and marketable securities. \nOther Income (Expense)\nOther expense was $4,179,\n \n$1,106, and $368\n \nfor the years ended December\u00a031, 2022, 2021, and 2020\n. For the year ended December 31, 2022, other income (expense) consisted primarily of foreign currency transaction gains and losses and impairment charges related to a private company investment. F\nor the year ended December 31, 2021, other income (expense) consisted primarily of foreign currency transaction gains and losses, legal settlement, and the gain (loss) on sale of fixed assets. For the year ended December 31, 2020, other income (expense) consisted primarily of foreign currency transaction gains and losses, and the gain (loss) on sale of fixed assets.\nIncome Tax (Benefit) Expense \n2022 Compared to 2021\nIncome tax (benefit) expense for the year ended December 31, 2022, was a benefit of $21,080, compared to an expense of $1,154 for the comparable 2021 period. Income tax (benefit) expense on net loss before taxes was primarily due to a partial release of our valuation allowance against the deferred tax liabilities and nondeductible transaction costs resulting from the Edgecast Acquisition, offset by us providing for a valuation allowance on deferred tax assets primarily in the US, as well as state and foreign tax expense for the year. The effective income tax rate is based primarily upon income or loss for the year, the composition of the income or loss in different countries, and adjustments, if any, for the potential tax consequences, benefits or resolutions for tax audits.\n2021 Compared to 2020\nIncome tax expense for the year ended December 31, 2021 was $1,154 compared to an expense of $645 for the comparable 2020 period. Income tax expense was different than the statutory income tax rate primarily due to our providing for a valuation allowance on deferred tax assets in certain jurisdictions, share based compensation and recording of state and foreign tax expense for the year. The effective income tax rate is based primarily upon income or loss for the year, the composition of the income or loss in different countries, and adjustments, if any, for the potential tax consequences, benefits or resolutions for tax audits.\nLiquidity and Capital Resources\nAs of December\u00a031, 2022, our cash, cash equivalents, and marketable securities classified as current totaled $74,009. Included in this amount is approximately $26,505 of cash and cash equivalents held outside the United States. Changes in cash, cash equivalents and marketable securities are dependent upon changes in, among other things, working capital items such as deferred revenues, accounts payable, accounts receivable, and various accrued expenses, as well as purchases of property and equipment and changes in our capital and financial structure due to stock option exercises, sales of equity investments, and similar events.\nCash used in operations could also be affected by various risks and uncertainties, including, but not limited to, other risks detailed in Part I, Item 1A titled \u201cRisk Factors\u201d. However, we believe that our existing cash, cash equivalents and marketable securities, and available borrowing capacity will be sufficient to meet our anticipated cash needs for at least the next \n38\ntwelve\u00a0months. If the assumptions underlying our business plan regarding future revenue and expenses change or if unexpected opportunities or needs arise, we may seek to raise additional cash by selling equity or debt securities. \u00a0\u00a0\u00a0\u00a0\nThe major components of changes in cash flows for the years ended December\u00a031, 2022, and 2021 are discussed in the following paragraphs. \nOperating Activities \n2022 Compared to 2021\n\u00a0\u00a0\u00a0\u00a0\nNet cash used in operating activities was $11,672 for the year ended December\u00a031, 2022, compared to net cash provided by in operating activities of $1,086 for the comparable period in 2021, an increase of $12,758. Changes in operating assets and liabilities of $56,061 during the year ended December\u00a031, 2022, compared to $11,619 for the comparable 2021 period were primarily due to: \n\u2022\naccounts receivable increased $4,843 during the year ended December\u00a031, 2022, as a result of trade accounts receivable related to Edgecast customers recognized after June 15, 2022 as well as timing of collections as compared to a $3,021 increase in the comparable 2021 period; \n\u2022\nPrepaid expenses and other current assets increased $6,902 during the year ended December 31, 2022, compared to a decrease of $1,535 in the comparable 2021 period. The increase was primarily due to an increase in prepaid bandwidth and backbone expenses, prepaid expenses and insurance, and VAT receivable;\n\u2022\naccounts payable and other current liabilities increased $58,448 during the year ended December\u00a031, 2022, compared to an increase of $8,742 for the comparable 2021 period primarily due to an increase in accounts payable, accrued cost of services, compensation and benefit costs, accrued restructuring charges, and other accruals;\nThe timing and amount of future working capital changes and our ability to manage our days sales outstanding will also affect the future amount of cash used in or provided by operating activities. \n2021 Compared to 2020\n\u00a0\u00a0\u00a0\u00a0\nNet cash provided by operating activities was $1,086 for the year ended December\u00a031, 2021, versus net cash provided by operating activities of $20,352 for 2020, a decrease of $19,266. Changes in operating assets and liabilities of $11,619 during the year ended December\u00a031, 2021, versus $84 in 2020 were primarily due to: \n\u2022\naccounts receivable increased $3,021 during the year ended December 31, 2021, as a result of timing of collections as compared to a $4,370 decrease in the comparable 2020 period; \n\u2022\nprepaid expenses and other current assets decreased $1,535 during the year ended December 31, 2021, compared to an increase of $5,887 in the comparable 2020 period. The decrease was primarily due to a decrease in prepaid bandwidth and backbone expenses, and prepaid expenses and insurance. These decreases were offset by an increase in VAT receivable;\n\u2022\naccounts payable and other current liabilities increased $8,742 during the year ended December 31, 2021, versus a decrease of $1,737 for the comparable 2020 period due to increased accounts payable, accrued compensation and benefits, accrued account payable, accrued legal fees, and our restructuring charge accrual. \nInvesting Activities \n2022 Compared to 2021 Compared to 2020\nNet cash provided by investing activities was $12,572 for the year ended December\u00a031, 2022, compared to net cash used in investing activities of $15,097 and $105,070 for the comparable 2021 and 2020 period, respectively. For the year ended December\u00a031, 2022, net cash provided by investing activities was related to cash received from the sale and maturities of marketable securities and cash acquired in the Edgecast Acquisition, partially offset by from purchases of marketable securities and capital expenditures, primarily for servers and network equipment associated with the build-out and expansion of our global computing platform. For the year ended December\u00a031, 2021, net cash used in investing activities was related to the purchase of marketable securities, the Moov acquisition, and capital expenditures, partially offset by cash received from the sale and maturities of marketable securities. For the year ended December\u00a031, 2020, net cash used in investing activities was related to the purchase of marketable securities, and capital expenditures, partially offset by cash received from the sale and maturities of marketable securities. \n39\nWe expect to have ongoing capital expenditure requirements as we continue to invest in and expand our network. During the year ended December\u00a031, 2022, we made capital expenditures of $35,541, which represented approximately 10% of our total revenue. We currently expect capital expenditures in 2023 to be less than 10% of revenue.\nFinancing Activities \n2022 Compared to 2021 Compared to 2020\nNet cash provided by financing activities was $14,251 for the year ended December\u00a031, 2022, compared to net cash provided by financing activities of $9,707 and $112,899 for the comparable 2021 and 2020 periods, respectively. Net cash provided by financing activities in the year ended December\u00a031, 2022, primarily relates to cash received from proceeds from the Open Edge arrangements of $13,479 and from the exercise of stock options of $9,998, partially offset by the repayments of the Open Edge arrangements of $4,956 and the payments of employee tax withholdings related to the net settlement of vested restricted stock units of $4,270.\nNet cash provided by financing activities during the year ended December\u00a031, 2021, primarily related to cash received from proceeds from the Open Edge arrangements of $9,385 and the exercise of stock options and our employee stock purchase plan of $6,185, partially offset by the repayments of the Open Edge arrangements of $4,207 and the payments of employee tax withholdings related to the net settlement of vested restricted stock units of $1,626.\nNet cash provided by financing activities in the year ended December 31, 2020, primarily relates to cash received from the issuance of the Notes of $121,600, cash received from the exercise of stock options and our employee stock purchase plan of $10,068, proceeds from the Open Edge arrangements of $3,381, offset by $16,413 premium paid related to our capped call transactions, and the payments of employee tax withholdings related to the net settlement of vested restricted stock units of $4,878, and $859 payment of debt issuance costs.\nConvertible Senior Notes and Capped Call Transactions\n \nIn July 2020, we issued $125,000 aggregate principal amount of 3.50% Convertible Senior Notes due 2025 (the \u201cNotes\u201d), with an initial conversion rate of 117.2367 shares of our common stock (equal to an initial conversion rate of $8.53 per share), subject to adjustment in some events. The Notes will be senior, unsecured obligations of ours and will be equal in right of payment with our senior, unsecured indebtedness; senior in right of payment to our indebtedness that is expressly subordinated to the Notes; effectively subordinated to our senior, secured indebtedness, including future borrowings, if any, under our amended credit facility with First Citizens Bank (formerly Silicon Valley Bank) (\u201cFCB\u201d), to the extent of the value of the collateral securing that indebtedness; and structurally subordinated to all indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries. The Notes are governed by an indenture (the \n\u201cI\nndenture\u201d) between us, as the issuer, and U.S. Bank, National Association, as trustee (the \u201cTrustee\u201d). The Indenture does not contain any financial covenants.\nThe Notes mature on August 1, 2025, unless earlier converted, redeemed or repurchased in accordance with their term prior to the maturity date. Interest is payable semiannually in arrears on February 1 and August 1 of each year, beginning on February 1, 2021. We may not redeem the Notes prior to August 4, 2023. \nOn or after August 4, 2023, and on or before the 40th scheduled trading day immediately before the maturity date, we may redeem for cash all or any portion of the Notes if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. The redemption price will equal 100% of the principal amount of the Notes being redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.\n \nDuring the year ended December 31, 2022, the conditions allowing holders of the Notes to convert were not met and therefore the Notes are not yet convertible. \nIn connection with the offering of the Notes, we also entered into privately negotiated capped call transactions (collectively, the \n\u201c\nCapped Calls\n\u201d\n). The Capped Calls have an initial strike price of approximately $8.53 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have an initial cap price of $13.38 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, approximately 14.7 million shares of our common stock and are expected to offset the potential economic dilution to our common stock up to the initial cap price.\n40\nAs a result of the restatement of our previously issued consolidated financial statements described in the \u201cExplanatory Note\u201d preceding Item 1, we were unable to file our Annual Report on Form 10-K for the year ended December 31, 2022 on a timely basis. For the same reason, we were also unable to file our Quarterly Report on Form 10-Q for the quarter ended\nMarch 31, 2023. Pursuant to the terms of the Indenture, on April 12, 2023, we notified the Trustee that due to our failure to timely file with the SEC our Annual Report on Form 10-K for the year ended December 31, 2022, a default (as defined in the Indenture) had occurred. Pursuant to the terms of the Indenture, on June 12, 2023, we notified the Trustee that due to our\nfailure to timely file with the SEC our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, a default\n(as defined in the Indenture) had occurred.\nOn April 17, 2023, a holder of the Notes delivered a notice of default to the Trustee and the company notifying us that we were in breach of the Indenture for failing to provide the Trustee our Annual Report on Form 10-K for the year ended December 31, 2022. Under the terms of the Indenture, such default matured into an event of default (the \u201cReporting Event of Default\u201d) on June 17, 2023.\nBy notice to the holders of the Notes and the Trustee on June 12, 2023 and in accordance with the Indenture, we elected that the sole remedy for the Reporting Event of Default during the period beginning on June 17, 2023 (the \"Reporting Event of Default Date\") and ending on the earlier of (x) 365 calendar days after the Reporting Event of Default Date and (y) the date on which we deliver the Annual Report to the Trustee will consist of the accrual of additional interest (\"Special Interest\") at a rate equal to one quarter of one percent (0.25%) of the principal amount of the outstanding Notes for the first 180 calendar days on which Special Interest accrues and, thereafter, at a rate per annum equal to one half of one percent (0.50%) of the principal amount of the outstanding Notes. The Notes will be subject to acceleration pursuant to the Indenture on account of the Reporting Event of Default if we fail to pay Special Interest when due under the Indenture.\nLine of Credit\nIn November 2015, we entered into the original Loan and Security Agreement (the \u201cCredit Agreement\u201d) with FCB. Since the inception, there have been ten amendments, with the most recent amendment being in June 2023 (the \u201cTenth Amendment\u201d). Under the Tenth Amendment our borrowing capacity was reduced to the lesser of the commitment amount of $50,000 or 50% of eligible accounts receivable while the maturity date remains at April 2, 2025. All outstanding borrowings owed under the Credit Agreement become due and payable no later than the final maturity date of April 2, 2025.\nAs of December 31, 2022, borrowings under the Credit Agreement bear interest at the current prime rate minus 0.25%. In the event of default, obligations shall bear interest at a rate per annum which is 4% above the then applicable rate.\u00a0As of December 31, 2022 and 2021, we had no outstanding borrowings.\nFinancial Covenants and Borrowing Limitations\nThe Credit Agreement requires, and any future credit facilities will likely require, us to comply with specified financial requirements that may limit the amount we can borrow. A breach of any of these covenants could result in a default. Our ability to satisfy those covenants depends principally upon our ability to meet or exceed certain financial performance results. Any debt agreements we enter into in the future may further limit our ability to enter into certain types of transactions.\nWe are required to maintain an Adjusted Quick Ratio of at least 1.0. We are also subject to certain customary limitations on our ability to, among other things, incur debt, grant liens, make acquisitions and other investments, make certain restricted payments such as dividends, dispose of assets or undergo a change in control. As of December 31, 2022, we were not in compliance with our Adjusted Quick Ratio requirement. On June\u00a027, 2023, we have received a waiver for, among others, our non-compliance.\n \nFor a more detailed discussion regarding our Credit Agreement, please refer to Note 11 \n\u201c\nDebt - Line of Credit\n\u201d\n of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form\u00a010-K.\nWe may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by restrictive covenants within the Credit Agreement. These restrictions may also limit our ability to plan for or react to market conditions, meet capital needs or otherwise restrict our activities or business plans and adversely affect our ability to finance our operations, enter into acquisitions, execute our business strategy, effectively compete with companies that are not similarly restricted or engage in other business activities that would be in our interest. In the future, we may also incur debt obligations that might subject us to additional and different restrictive covenants that could affect our financial and operational flexibility. We cannot assure you that we will be granted waivers or amendments to the Indenture governing the Credit Agreement, or such other debt obligations if for any reason we are unable to comply with our obligations thereunder or that we will be able to refinance our debt on acceptable terms, or at all, should we seek to do so. Any such limitations on borrowing \n41\nunder the Credit Agreement, including payments related to litigation, could have a material adverse impact on our liquidity and our ability to continue as a going concern could be impaired. \u00a0\u00a0\u00a0\u00a0\nShare Repurchases\n\u00a0\u00a0\u00a0\u00a0On March 14, 2017, our board of directors authorized a $25,000 share repurchase program. Any shares repurchased under this program will be canceled and returned to authorized but unissued status. During the years ended December 31, 2022, 2021 and 2020, respectively, we did not repurchase any shares under the repurchase programs. As of December\u00a031, 2022, there remained $21,200 under this share repurchase program.\nContractual Obligations, Contingent Liabilities, and Commercial Commitments\nIn the normal course of business, we make certain long-term commitments for right-of-use (\n\u201c\nROU\n\u201d\n) assets (primarily office facilities), Open Edge partner commitments, and purchase commitments for bandwidth, and computer rack space. These commitments expire on various dates ranging from 2023 to 2030. We expect that the growth of our business will require us to continue to add to long-term commitments in 2023 and beyond. As a result of our growth strategies, we believe that our liquidity and capital resources requirements will grow. \nThe following table presents our contractual obligations and commercial commitments, as of December\u00a031, 2022 over the next five years and thereafter. See Item 8 of Part II, \u201cFinancial Statements and Supplementary Data - Note 19 - Leases and Commitments\u201d for additional information.\nPayments Due by Period\nLess than\nMore than\nTotal\n1 year\n1-3 years\n3-5 years\n5 years\nPurchase and Other Commitments\nOpen Edge partner commitments (1)\n$\n113,697\u00a0\n$\n35,359\u00a0\n$\n53,916\u00a0\n$\n24,422\u00a0\n$\n\u2014\u00a0\n\u00a0\u00a0Bandwidth commitments\n38,134\u00a0\n27,550\u00a0\n10,282\u00a0\n302\u00a0\n\u2014\u00a0\n\u00a0\u00a0Rack space commitments\n23,309\u00a0\n17,537\u00a0\n5,772\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTotal purchase and other commitments\n175,140\u00a0\n80,446\u00a0\n69,970\u00a0\n24,724\u00a0\n\u2014\u00a0\nRight-of-use assets and other operating leases\n15,787\u00a0\n5,158\u00a0\n3,800\u00a0\n2,965\u00a0\n3,864\u00a0\nOpen Edge arrangements' financing obligations (1)\n22,184\u00a0\n7,358\u00a0\n9,727\u00a0\n5,024\u00a0\n75\u00a0\nTotal\n$\n213,111\u00a0\n$\n92,962\u00a0\n$\n83,497\u00a0\n$\n32,713\u00a0\n$\n3,939\u00a0\n(1) The Open Edge partner commitments typically include a minimum fee commitment that is paid to the partners over the course of the arrangement. The aggregate minimum fee commitment is allocated between cost of services and financing obligations. Refer to Note 2 \u201cSummary of Significant Accounting Policies\u201d and Note 19 \u201cLeases and Commitments\u201d of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details. \nAs of December 31. 2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that may be material to investors.\nNew Accounting Pronouncements\nSee Item 8 of Part II, \u201cFinancial Statements and Supplementary Data - Note 2 - Summary of Significant Accounting Policies - Recent Accounting Standards.\u201d",
+  "item7a": ">Item\u00a07A.\u00a0\u00a0\u00a0\u00a0Quantitative and Qualitative Disclosures about Market Risk\nInterest Rate Risk \nOur exposure to market risk for changes in interest rates relates primarily to our debt and investment portfolio. In our investment portfolio, we do not use derivative financial instruments. Our investments are primarily with our commercial and investment banks and, by policy, we limit the amount of risk by investing primarily in money market funds, United States Treasury obligations, high quality corporate and municipal obligations, and certificates of deposit. The interest rate on our line of credit is at the current prime rate minus 0.25%.\u00a0In the event of default, obligations shall bear interest at a rate per annum which is 4% above the then applicable rate. An increase in interest rates of 100 basis points would add $10 of interest expense per year, to our results of operations, for each $1,000 drawn on the line of credit. As of December\u00a031, 2022, there were no outstanding borrowings against the line of credit. The interest rate on our Notes is 3.50%.\u00a0In connection with an event of default \n42\nwith respect to certain reporting obligations and our election to pay Special Interest in respect thereof, the Notes shall bear additional interest at a rate per annum of 0.25% of the principal amount for the first 180 days and 0.50% thereafter until the earlier of the date such event of default is cured and 365 days after the initial date of the event of default. An election to pay Special Interest in connection with such an event of default could add up to $471 of interest expense in a 365-day period.\nForeign Currency Risk\nWe operate in the Americas, EMEA and Asia-Pacific. As a result of our international business activities, our financial results could be affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets, and there is no assurance that exchange rate fluctuations will not harm our business in the future. We have foreign currency exchange rate exposure on our results of operations as it relates to revenues and expenses denominated in foreign currencies. A portion of our cost of revenues and operating expenses are denominated in foreign currencies as are our revenues associated with certain international clients. To the extent that the U.S.\u00a0dollar weakens, similar foreign currency denominated transactions in the future will result in higher revenues and higher cost of revenues and operating expenses, with expenses having the greater impact on our financial results. Similarly, our revenues and expenses will decrease if the U.S.\u00a0dollar strengthens against these foreign currencies. Although we will continue to monitor our exposure to currency fluctuations, and, where appropriate, may use financial hedging techniques in the future to minimize the effect of these fluctuations, we are not currently engaged in any financial hedging transactions. Assuming a 10% weakening of the U.S. dollar relative to our foreign currency denominated revenues and expenses, our net loss for the year ended December\u00a031, 2022, the impact would have been approximately $4,600. There are inherent limitations in the sensitivity analysis presented, primarily due to the assumption that foreign exchange rate movements across multiple jurisdictions are similar and would be linear and instantaneous. As a result, the analysis is unable to reflect the potential effects of more complex markets or other changes that could arise, which may positively or negatively affect our results of operations. \nInflation Risk\nWe do not believe that inflation has had a material effect on our business, financial condition, or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition or results of operations.\nCredit Risk\nDuring any given fiscal period, a relatively small number of clients typically account for a significant percentage of our revenue. For example, in 2022, 2021, and 2020, sales to our top 20 clients accounted for approximately 73%, 75%, and 76%, respectively, of our total revenue. During 2022, we had two clients, Amazon and Verizon, who represented approximately 17% and 12%, respectively, of our total revenue. During 2021 and 2020, we had two clients, Amazon and Sony which represented approximately 32% and 11%, respectively, and 37% and 11%, respectively of our total revenue.\n As of December 31, 2022, Amazon, Verizon and Microsoft represented 20%, 13% and 10%, respectively, of our total accounts receivable. As of December 31, 2021, Amazon represented 33% of our total accounts receivable.\n In 2023, we anticipate that our top twenty customer concentration levels will remain relatively consistent with 2022. In the past, the clients that comprised our top twenty customers have continually changed, and our large customers may not continue to be as significant going forward as they have been in the past.\n43",
+  "cik": "1391127",
+  "cusip6": "53261M",
+  "cusip": ["53261M904", "53261M104", "53261M954"],
+  "names": ["EDGIO INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1391127/000139112723000016/0001391127-23-000016-index.htm"
+}
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+{
+  "item1": "ITEM 1. BUSINESS.\nFiscal Years\nWe utilize a 52-53 week fiscal year ending on the last Friday in June. Our fiscal years 2023, 2022, and 2021 ended on June\u00a030, 2023, June\u00a024, 2022 and June\u00a025, 2021, and consisted of 53 weeks, 52 weeks and 52 weeks, respectively.\nRevenues\nWe believe we are able to expand our relationships with existing customers and attract new customers due to, among other factors, our broad range of complex engineering and manufacturing service offerings, flexible low-cost manufacturing platform, process optimization capabilities, advanced supply chain management, excellent customer service, and experienced management team. Although we expect the prices we charge for our manufactured products to decrease over time (partly as a result of competitive market forces), we believe we will be able to continue to maintain favorable pricing for our services because of our ability to reduce cycle time, adjust our product mix by focusing on more complicated products, improve product quality and yields, and reduce material costs for the products we manufacture. We believe these capabilities have enabled us to help our OEM customers reduce their manufacturing costs while maintaining or improving the design, quality, reliability, and delivery times for their products.\nRevenues, by percentage, from individual customers representing 10% or more of our revenues is set forth in Note 21 of our audited consolidated financial statements. Because we depend upon a small number of customers for a significant percentage of our total revenues, a reduction in orders from, a loss of, or any other adverse actions by, any one of these customers would reduce our revenues and could have a material adverse effect on our business, operating results and share price. Moreover, our customer concentration increases the concentration of our accounts receivable and payment default by any of our key customers will negatively impact our exposure. Many of our existing and potential customers have substantial debt burdens, have experienced financial distress or have static or declining revenues, all of which may be exacerbated by the continued uncertainty in the global economies. Certain customers have gone out of business or have been acquired or announced their withdrawal from segments of the optics market. We generate significant accounts payable and inventory for the services that we provide to our customers, which could expose us to substantial and potentially unrecoverable costs if we do not receive payment from our customers. Therefore, any financial difficulties that our key customers experience could materially and adversely affect our operating results and financial condition by generating charges for inventory write-offs, provisions for doubtful accounts, and increases in working capital requirements due to increased days inventory and in accounts receivable.\nFurthermore, reliance on a small number of customers gives those customers substantial purchasing power and leverage in negotiating contracts with us. In addition, although we enter into master supply agreements with our customers, the level of business to be transacted under those agreements is not guaranteed. Instead, we are awarded business under those agreements on a project-by-project basis. Some of our customers have at times significantly reduced or delayed the volume of manufacturing services that they order from us. If we are unable to maintain our relationships with our existing significant customers, our business, financial condition and operating results could be harmed.\nWe expect that disruptions in our supply chain and fluctuations in the availability of parts and materials will continue to have an adverse impact on our ability to generate revenue, despite strong demand from our customers. Furthermore, in some cases, our efforts to identify and secure alternative supply chain sources has resulted in our customers or their end customers requiring requalification and validation of components, a process that can often be lengthy and has negatively impacted the timing of our revenue. In addition, we expect the near-term inventory correction that our optical communications customers are experiencing to persist, which will have an adverse impact on our ability to generate revenue.\nRevenues by Geography\nWe generate revenues from three geographic regions: North America, Asia-Pacific and others, and Europe. Revenues are attributed to a particular geographic area based on the bill-to-location of our customers, notwithstanding that our customers may ultimately ship their products to end customers in a different geographic region. The substantial majority of our revenues are derived from our manufacturing facilities in Asia-Pacific.\nThe percentage of our revenues generated from a\u00a0bill-to\u00a0location outside of North America increased from 50.7% in fiscal year 2022 to 52.0% in fiscal year 2023, which was partially due to a decrease in sales to our customers in Europe by 4.9%. Based on the short- and medium-term indications and forecasts from our customers, we expect that the portion of our \n35\nTable of Contents\nfuture revenues attributable to customers in regions outside of North America will increase as compared with the portion of revenues attributable to such customers during fiscal year 2023.\nThe following table presents percentages of total revenues by geographic regions:\nYears Ended\nJune 30, 2023\nJune 24, 2022\nJune 25, 2021\nNorth America\n48.0\u00a0\n%\n49.3\u00a0\n%\n47.2\u00a0\n%\nAsia-Pacific\n43.2\u00a0\n37.0\u00a0\n35.6\u00a0\nEurope\n8.8\u00a0\n13.7\u00a0\n17.2\u00a0\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\nOur Contracts\nWe enter into supply agreements with our customers which generally have an initial term of up to three years, subject to automatic renewals for subsequent one-year terms unless expressly terminated. Although there are no minimum purchase requirements in our supply agreements, our customers provide us with rolling forecasts of their demand requirements. Our supply agreements generally include provisions for pricing and periodic review of pricing, consignment of our customer\u2019s unique production equipment to us, and the sharing of benefits from cost-savings derived from our efforts. We are generally required to purchase materials, which may include long lead-time materials and materials that are subject to minimum order quantities and/or non-cancelable or non-returnable terms, to meet the stated demands of our customers. After procuring materials, we manufacture products for our customers based on purchase orders that contain terms regarding product quantities, delivery locations and delivery dates. Our customers generally are obligated to purchase finished goods that we have manufactured according to their demand requirements. Materials that are not consumed by our customers within a specified period of time, or that are no longer required due to a product\u2019s cancellation or end-of-life, are typically designated as excess or obsolete inventory under our contracts. Once materials are designated as either excess or obsolete inventory, our customers are typically required to purchase such inventory from us even if they have chosen to cancel production of the related products. The excess or obsolete inventory is shipped to the customer and revenue is recognized upon shipment.\nCost of Revenues\nThe key components of our cost of revenues are material costs, employee costs, and infrastructure-related costs. Material costs generally represent the majority of our cost of revenues. Several of the materials we require to manufacture products for our customers are customized for their products and often sourced from a single supplier or in some cases, our own subsidiaries. Shortages from sole-source suppliers due to yield loss, quality concerns and capacity constraints, among other factors, may increase our expenses and negatively impact our gross profit margin or total revenues in a given quarter. Material costs include scrap material. Historically, scrap rate diminishes during a product\u2019s life cycle due to process, fixturing and test improvement and optimization.\nA second significant element of our cost of revenues is employee costs, including indirect employee costs related to design, configuration and optimization of manufacturing processes for our customers, quality testing, materials testing and other engineering services; and direct costs related to our manufacturing employees. Direct employee costs include employee salaries, insurance and benefits, merit-based bonuses, recruitment, training and retention. Historically, our employee costs have increased primarily due to increases in the number of employees necessary to support our growth and, to a lesser extent, costs to recruit, train and retain employees. Our cost of revenues is significantly impacted by salary levels in Thailand, the PRC and the United Kingdom, the fluctuation of the Thai baht, RMB and GBP against our functional currency, the U.S. dollar, and our ability to retain our employees. We expect our employee costs to increase as wages continue to increase in Thailand and the PRC. Wage increases may impact our ability to sustain our competitive advantage and may reduce our profit margin. We seek to mitigate these cost increases through improvements in employee productivity, employee retention and asset utilization.\nOur infrastructure costs are comprised of depreciation, utilities, facilities management and overhead costs. Most of our facility leases are long-term agreements. Our depreciation costs include buildings and fixed assets, primarily at our Pinehurst and Chonburi campuses in Thailand, and capital equipment located at each of our manufacturing locations.\nWe expect to incur incremental costs of revenue as a result of our planned expansion into new geographic markets, though we are not able to determine the amount of these incremental expenses.\n36\nTable of Contents\nDuring fiscal years 2023, 2022 and 2021, discretionary merit-based bonus awards were made to our non-executive employees. Charges included in cost of revenues for bonus awards to non-executive employees were $6.8 million, $6.0 million and $5.6 million for fiscal years 2023, 2022 and 2021, respectively.\nShare-based compensation expense included in cost of revenues was $6.7 million, $6.0 million and $6.2 million for fiscal years 2023, 2022 and 2021, respectively.\nWe expect to incur incremental costs of revenue as a result of our planned expansion into new geographic markets, though we are not able to determine the amount of these incremental expenses.\nSelling, General and Administrative Expenses\nOur SG&A expenses primarily consist of corporate employee costs for sales and marketing, general and administrative and other support personnel, including research and development expenses related to the design of customized optics and glass, travel expenses, legal and other professional fees, share-based compensation expense and other general expenses not related to cost of revenues. In fiscal year 2024, we expect our SG&A expenses will increase compared with our fiscal year 2023 SG&A expenses, mainly due to increase in employee costs, sales and marketing cost and investing in information technology hardware. \nThe compensation committee of our board of directors approved a fiscal year 2023 executive incentive plan with quantitative objectives based solely on achieving certain revenue targets and non-U.S. GAAP operating margin targets for fiscal year 2023. Bonuses under the fiscal year 2023 executive incentive plan are payable after the end of fiscal year 2023. In fiscal year 2022, the compensation committee approved a fiscal year 2022 executive incentive plan with quantitative objectives that were based solely on achieving certain revenue targets and non-U.S. GAAP operating margin targets for fiscal year 2022. In August 2022, the compensation committee awarded bonuses to our executive employees for Company achievements of performance under our fiscal year 2022 executive incentive plan. Discretionary merit-based bonus awards are also available to our non-executive employees and payable on a quarterly basis.\nCharges included in SG&A expenses for bonus distributions to non-executive and executive employees were $6.1 million, $5.0 million and $4.6 million for fiscal years 2023, 2022 and 2021, respectively.\nShare-based compensation expense included in SG&A expenses was $20.9 million, $22.1 million and $19.3 million for fiscal years 2023, 2022 and 2021, respectively.\nAdditional Financial Disclosures\nForeign Exchange\nAs a result of our international operations, we are exposed to foreign exchange risk arising from various currency exposures, and primarily with respect to the Thai baht. Although a majority of our total revenues is denominated in U.S. dollars, a substantial portion of our payroll plus certain other operating expenses are incurred and paid in Thai baht. The exchange rate between the Thai baht and the U.S. dollar has fluctuated substantially in recent years and may continue to fluctuate substantially in the future. We report our financial results in U.S. dollars and our results of operations have been and could in the future be negatively impacted if the Thai baht appreciates against the U.S. dollar. Smaller portions of our expenses are incurred in a variety of other currencies, including RMB, GBP, Canadian dollars, Euros, and Japanese yen, the appreciation of which may also negatively impact our financial results.\nIn order to manage the risks arising from fluctuations in foreign currency exchange rates, we use derivative instruments. We may enter into foreign currency exchange forward or put option contracts to manage foreign currency exposures associated with certain assets and liabilities and other forecasted foreign currency transactions and may designate these instruments as hedging instruments. The forward and put option contracts generally have maturities of up to 12 months. All foreign currency exchange contracts are recognized in the consolidated balance sheets at fair value. Gains or losses on our forward and put option contracts generally present gross amount in the assets, liabilities, and transactions economically hedged.\n37\nTable of Contents\nWe had foreign currency denominated assets and liabilities in Thai baht, RMB and GBP as follows:\nAs of June\u00a030, 2023\nAs of June\u00a024, 2022\n(in thousands, except percentages)\nForeign\nCurrency\n$\n%\nForeign\nCurrency\n$\n%\nAssets\nThai baht\n754,443\u00a0\n$\n21,198\u00a0\n61.1\u00a0\n753,924\u00a0\n$\n21,213\u00a0\n64.0\u00a0\nRMB\n65,669\u00a0\n9,088\u00a0\n26.2\u00a0\n34,382\u00a0\n5,132\u00a0\n15.5\u00a0\nGBP\n3,487\u00a0\n4,401\u00a0\n12.7\u00a0\n5,544\u00a0\n6,801\u00a0\n20.5\u00a0\nTotal\n$\n34,687\u00a0\n100.0\u00a0\n$\n33,146\u00a0\n100.0\u00a0\nLiabilities\nThai baht\n2,956,730\u00a0\n$\n83,078\u00a0\n93.5\u00a0\n2,393,112\u00a0\n$\n67,336\u00a0\n84.8\u00a0\nRMB\n40,477\u00a0\n5,602\u00a0\n6.3\u00a0\n61,191\u00a0\n9,133\u00a0\n11.5\u00a0\nGBP\n114\u00a0\n144\u00a0\n0.2\u00a0\n2,379\u00a0\n2,918\u00a0\n3.7\u00a0\nTotal\n$\n88,824\u00a0\n100.0\u00a0\n\u00a0\n$\n79,387\u00a0\n100.0\u00a0\nThe Thai baht assets represent cash and cash equivalents, trade accounts receivable, deposits and other current assets. The Thai baht liabilities represent trade accounts payable, accrued expenses, income tax payable and other payables. We manage our exposure to fluctuations in foreign exchange rates by the use of foreign currency contracts and offsetting assets and liabilities denominated in the same currency in accordance with management\u2019s policy. As of June\u00a030, 2023, there was $143.0 million in foreign currency forward contracts outstanding on the Thai baht payables. As of June\u00a024, 2022, there was $135.0 million in foreign currency forward contracts outstanding on the Thai baht payables.\nThe RMB assets represent cash and cash equivalents, trade accounts receivable and other current assets. The RMB liabilities represent trade accounts payable, accrued expenses, income tax payable and other payables. As of June\u00a030, 2023 and June\u00a024, 2022, we did not have any derivative contracts denominated in RMB.\nThe GBP assets represent cash and trade accounts receivable. The GBP liabilities represent trade accounts payable and other payables. As of June\u00a030, 2023 and June\u00a024, 2022, we did not have any derivative contracts denominated in GBP.\nFor fiscal years 2023 and 2022, we recorded an unrealized gain of $0.4 million and unrealized loss of $0.8 million, respectively, related to derivatives that are not designated as hedging instruments in the consolidated statements of operations and comprehensive income.\nCurrency Regulation and Dividend Distribution\nForeign exchange regulation in the PRC is primarily governed by the following rules:\n\u2022\nForeign Currency Administration Rules, as amended on August\u00a05, 2008, or the Exchange Rules;\n\u2022\nAdministration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules; and\n\u2022\nNotice on Perfecting Practices Concerning Foreign Exchange Settlement Regarding the Capital Contribution by Foreign-invested Enterprises, as promulgated by the State Administration of Foreign Exchange (\u201cSAFE\u201d), on August\u00a029, 2008, or Circular 142.\nUnder the Exchange Rules, RMB is freely convertible into foreign currencies for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. However, conversion of RMB for capital account items, such as direct investments, loans, security investments and repatriation of investments, is still subject to the approval of SAFE.\nUnder the Administration Rules, foreign-invested enterprises may only buy, sell, or remit foreign currencies at banks authorized to conduct foreign exchange business after providing valid commercial documents and relevant supporting documents and, in the case of capital account item transactions, obtaining approval from SAFE. Capital investments by foreign-invested enterprises outside of the PRC are also subject to limitations, which include approvals by the Ministry of Commerce, SAFE and the State Development and Reform Commission.\u00a0\n38\nTable of Contents\nCircular 142 regulates the conversion by a foreign-invested company of foreign currency into RMB by restricting how the converted RMB may be used. Circular 142 requires that the registered capital of a foreign-invested enterprise settled in RMB converted from foreign currencies may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the registered capital of foreign-invested enterprises settled in RMB converted from foreign currencies. The use of such RMB capital may not be changed without SAFE\u2019s approval and may not be used to repay RMB loans if the proceeds of such loans have not been used.\nOn January 5, 2007, SAFE promulgated the Detailed Rules for Implementing the Measures for the Administration on Individual Foreign Exchange, or the Implementation Rules. Under the Implementation Rules, PRC citizens who are granted share options by an overseas publicly-listed company are required, through a PRC agent or PRC subsidiary of such overseas publicly-listed company, to register with SAFE and complete certain other procedures.\nIn addition, the General Administration of Taxation has issued circulars concerning employee share options. Under these circulars, our employees working in the PRC who exercise share options will be subject to PRC individual income tax. Our PRC subsidiary has obligations to file documents related to employee share options with relevant tax authorities and withhold individual income taxes of those employees who exercise their share options.\nFurthermore, our transfer of funds to our subsidiaries in Thailand and the PRC are each subject to approval by governmental authorities in case of an increase in registered capital, or subject to registration with governmental authorities in case of a shareholder loan. These limitations on the flow of funds between our subsidiaries and us could restrict our ability to act in response to changing market conditions.\nIncome Tax\nOur effective tax rate is a function of the mix of tax rates in the various jurisdictions in which we do business. We are domiciled in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to tax in the Cayman Islands on income or capital gains until March 6, 2039.\nThroughout the period of our operations in Thailand, we have generally received income tax and other incentives from the Thailand Board of Investment. Preferential tax treatment from the Thai government in the form of a corporate tax exemption on income generated from projects to manufacture certain products at our Chonburi campus is currently available to us through June 2026. Similar preferential tax treatment was available to us through June 2020 with respect to products manufactured at our Pinehurst campus Building 6. After June 2020, 50% of our income generated from products manufactured at our Pinehurst campus will be exempted from tax through June 2025. New preferential tax treatment is available to us for products manufactured at our Chonburi campus Building 9, where income generated will be tax exempt through 2031, capped at our actual investment amount. Such preferential tax treatment is contingent on various factors, including the export of our customers\u2019 products out of Thailand and our agreement not to move our manufacturing facilities out of our current province in Thailand for at least 15 years from the date on which preferential tax treatment was granted. Currently, the corporate income tax rate for our Thai subsidiary is 20%.\nThe corporate income tax rates for our subsidiaries in the PRC, the U.S., the U.K. and Israel are 25%, 21%, 25% and 23%, respectively.\nCritical Accounting Policies and Use of Estimates\nWe prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities on the date of the consolidated financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The evaluation results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Because the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our consolidated financial statements, as their application places the most significant demands on our management\u2019s judgment.\nA quantitative sensitivity analysis is provided where such information is reasonably available, can be reliably estimated, and provides material information to investors. The amounts used to assess sensitivity are included for illustrative purposes only and do not represent management\u2019s predictions of variability.\n39\nTable of Contents\nOur critical accounting policies and the adoption of new accounting policies are disclosed in Note 2 \u2013 Summary of significant accounting policies. There were no changes to our accounting policies.\nRevenue Recognition\nWe derive total revenues primarily from the assembly of products under supply agreements with our customers and the fabrication of customized optics and glass. We recognize revenue relating to contracts that depict the transfer of promised goods or services to customers in an amount reflecting the consideration to which we expect to be entitled in exchange for such goods or services. In order to meet this requirement, we apply the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. Revenue is recognized net of any taxes collected from customers, which is subsequently remitted to governmental authorities.\nA performance obligation is a contractual promise to transfer a distinct good or service to the customer. In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether such obligation is distinct within the context of the contract at contract inception. The majority of our contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises under the contracts and, therefore, is not distinct.\nManagement uses judgment to identify performance obligations within a contract and to determine whether multiple promised goods or services in a contract should be accounted for separately or as a group. Judgment is also used in interpreting commercial terms and determining when transfer of control occurs. Moreover, judgment is used to estimate the contract\u2019s transaction price and allocate it to each performance obligation. Any material changes in the identification of performance obligations, determination and allocation of the transaction price to performance obligations, and determination of when transfer of control occurs to the customer, could impact the timing and amount of revenue recognition, which could have a material effect on our financial condition and results of operations.\nLong-Lived Assets\nWe review property, plant and equipment for impairment on a quarterly basis or when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or assets group exceeds its fair value. Recoverability of property and equipment is measured by comparing carrying amount to the projected undiscounted cash flows the property and equipment are expected to generate. If such assets are considered to be impaired, the impairment loss recognized, if any, is the amount by which the carrying amount of the property and equipment exceeds its fair value. The estimate of projected cash flows involves numerous assumptions which require significant judgment by us, including, but not limited to, future use of the assets for our operations versus sale or disposal of the assets, future selling prices for our products, and future production and sales volumes. In addition, significant judgment is required in determining the groups of assets for which impairment tests are separately performed.\nAllowance for Doubtful Accounts\nWe perform ongoing credit evaluations of our customers\u2019 financial condition and make provisions for doubtful accounts based on the outcomes of these credit evaluations. We evaluate the collectability of our accounts receivable based on specific customer circumstances, current economic trends, historical experience with collections, and the age of past due receivables. Changes in circumstances, such as an unexpected material adverse change in a major customer\u2019s ability to meet its financial obligation to us or its payment trends, may require us to further adjust estimates of the recoverability of amounts due to us, which could have a material adverse effect on our business, financial condition and results of operations.\nInventory Valuation\nOur inventory is stated at the lower of cost (on a first-in, first-out basis) or market value. Our industry is characterized by rapid technological change, short-term customer commitments, and rapid changes in demand. We make provisions for estimated excess and obsolete inventory based on regular reviews of inventory quantities on hand on a quarterly basis and the latest forecasts of product demand and production requirements from our customers. If actual market conditions or our customers\u2019 product demands are less favorable than those projected, additional provisions may be required. In addition, unanticipated changes in liquidity or the financial positions of our customers or changes in economic conditions may require additional provisions for inventory due to our customers\u2019 inability to fulfill their contractual obligations. As the market conditions or our customers\u2019 product demands are inherently difficult to predict, the actual volumes may vary significantly from projected volumes. Differences in forecasted volume used in calculating excess and obsolete inventory can result in a material adverse effect on our business, financial condition and results of operations. During fiscal year 2023 and fiscal year 2022, a change of 10% for excess and obsolete materials, based on product demand and production requirements from our customers, would have affected our net income by approximately $1.0\u00a0million and $0.7\u00a0million, respectively. \n40\nTable of Contents\nDeferred Income Taxes\nOur deferred income tax assets represent temporary differences between the carrying amount and the tax basis of existing assets and liabilities that will result in deductible and payable amounts in future years, including net operating loss carry forwards. Based on estimates, the carrying value of our net deferred tax assets assumes that it is more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions to realize these deferred income tax assets. Our judgments regarding future profitability may change depending on future market conditions, changes in U.S. or international tax laws, or other factors. If these estimates and related assumptions change in the future, we may be required to increase or decrease our valuation allowance against the deferred tax assets, resulting in additional or lesser income tax expense.\nDuring fiscal year 2020, one of our subsidiaries in the U.S. generated net operating loss and management expected that such subsidiary would continue to have net operating losses in the foreseeable future; therefore, management believed it was more likely than not that all of the deferred tax assets of such subsidiary would not be utilized. Thus, a full valuation allowance of $2.1 million for the deferred tax assets was set up as of the end of fiscal year 2020.\nDuring fiscal year 2021, our subsidiaries in the U.S. generated taxable income sufficient for the utilization of loss carryforwards due to better operating performance and effective control of operating expenses. Management determined that it was more likely than not that future taxable income would be sufficient to allow utilization of the deferred tax assets. Thus, a full valuation allowance of $2.1 million for the deferred tax assets was released as of June 25, 2021 and no valuation allowances for deferred tax assets of our subsidiaries in the U.S. have been set up as of June\u00a024, 2022 and June\u00a030, 2023. \nDuring fiscal year 2020, our subsidiary in the U.K. also generated net operating loss and management expected that such subsidiary would continue to have net operating losses in the foreseeable future. Therefore, management believed it was more likely than not that all of the deferred tax assets of such subsidiary would not be utilized. Thus, a full valuation allowance of $1.6 million for the deferred tax assets was set up as of the end of fiscal year 2020. A full valuation allowance of $4.9 million and $2.1 million were set up for the fiscal year ended June 24, 2022 and June 25, 2021, respectively.\nDuring fiscal year 2023, our subsidiary in the U.K. generated taxable income and was able to utilize loss carryforwards. Management determined that it was more likely than not that future taxable income would be sufficient to allow utilization of the deferred tax assets. Thus, a full valuation allowance of $1.6 million for the deferred tax assets was released as of June 30, 2023.\n41\nTable of Contents\nResults of Operations\nThe following table sets forth a summary of our consolidated statements of operations and comprehensive income. Note that period-to-period comparisons of operating results should not be relied upon as indicative of future performance.\nYears Ended\n(in thousands)\nJune 30, 2023\nJune 24, 2022\nJune 25, 2021\nRevenues\n$\n2,645,237\u00a0\n$\n2,262,224\u00a0\n$\n1,879,350\u00a0\nCost of revenues\n(2,308,964)\n(1,983,630)\n(1,657,987)\nGross profit\n336,273\u00a0\n278,594\u00a0\n221,363\u00a0\nSelling, general and administrative expenses\n(77,673)\n(73,941)\n(70,567)\nRestructuring and other related costs\n(6,896)\n(135)\n(43)\nOperating income\n251,704\u00a0\n204,518\u00a0\n150,753\u00a0\nInterest income\n11,234\u00a0\n2,205\u00a0\n3,783\u00a0\nInterest expense\n(1,472)\n(432)\n(1,100)\nForeign exchange gain (loss), net\n(1,211)\n2,302\u00a0\n508\u00a0\nOther income (expense), net\n(159)\n(1,627)\n(3,460)\nIncome before income taxes\n260,096\u00a0\n206,966\u00a0\n150,484\u00a0\nIncome tax expense\n(12,183)\n(6,586)\n(2,143)\nNet income\n247,913\u00a0\n200,380\u00a0\n148,341\u00a0\nOther comprehensive income (loss), net of tax\n4,678\u00a0\n(6,527)\n(5,119)\nNet comprehensive income\n$\n252,591\u00a0\n$\n193,853\u00a0\n$\n143,222\u00a0\nThe following table sets forth a summary of our consolidated statements of operations and comprehensive income as a percentage of total revenues for the periods indicated.\nYears Ended\n\u00a0\nJune 30, 2023\nJune 24, 2022\nJune 25, 2021\nRevenues\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\nCost of revenues\n(87.3)\n(87.7)\n(88.2)\nGross profit\n12.7\u00a0\n12.3\u00a0\n11.8\u00a0\nSelling, general and administrative expenses\n(2.9)\n(3.3)\n(3.8)\nRestructuring and other related costs\n(0.3)\n0.0\u00a0\n0.0\u00a0\nOperating income\n9.5\u00a0\n9.0\u00a0\n8.0\u00a0\nInterest income\n0.4\u00a0\n0.1\u00a0\n0.2\u00a0\nInterest expense\n(0.1)\n0.0\u00a0\n0.0\u00a0\nForeign exchange gain (loss), net\n0.0\u00a0\n0.1\u00a0\n0.0\u00a0\nOther income (expense), net\n0.0\u00a0\n(0.1)\n(0.2)\nIncome before income taxes\n9.8\u00a0\n9.1\u00a0\n8.0\u00a0\nIncome tax expense\n(0.4)\n(0.3)\n(0.1)\nNet income\n9.4\u00a0\n8.8\u00a0\n7.9\u00a0\nOther comprehensive income (loss), net of tax\n0.2\u00a0\n(0.3)\n(0.3)\nNet comprehensive income\n9.6\u00a0\n%\n8.5\u00a0\n%\n7.6\u00a0\n%\n42\nTable of Contents\nThe following table sets forth our revenues by end market for the periods indicated.\nYears Ended\n(in thousands)\nJune 30, 2023\nJune 24, 2022\nJune 25, 2021\nOptical communications\n$\n2,008,347\u00a0\n$\n1,782,799\u00a0\n$\n1,441,338\u00a0\nLasers, sensors, and other\n636,890\u00a0\n479,425\u00a0\n438,012\u00a0\nTotal\n$\n2,645,237\u00a0\n$\n2,262,224\u00a0\n$\n1,879,350\u00a0\nWe operate and internally manage a single operating segment. As such, discrete information with respect to separate product lines and segments is not accumulated.\nComparison of Fiscal Year 2023 with Fiscal Year 2022\nRevenues\n. Our revenues increased by $383.0 million, or 16.9%, to $2,645.2 million for fiscal year 2023, compared with $2,262.2 million for fiscal year 2022. This increase was primarily due to an increase in our key customers\u2019 demand for fiscal year 2023. Revenues from optical communications products represented 75.9% of our revenues for fiscal year 2023, compared with 78.8% for fiscal year 2022.\nCost of revenues\n. Our cost of revenues increased by $325.4 million, or 16.4%, to $2,309.0 million, or 87.3% of revenues, for fiscal year 2023, compared with $1,983.6 million, or 87.7% of revenues, for fiscal year 2022. The increase in cost of revenues was primarily due to a proportional increase in sales volume.\nGross profit\n. Our gross profit increased by $57.7 million, or 20.7%, to $336.3 million, or 12.7% of revenues, for fiscal year 2023, compared with $278.6 million, or 12.3% of revenues, for fiscal year 2022. The increase was primarily due to sales volume and product mix.\nSG&A expenses\n. Our SG&A expenses increased by $3.8 million, or 5.1%, to $77.7 million, or 2.9% of revenues, for fiscal year 2023, compared with $73.9 million, or 3.3% of revenues, for fiscal year 2022. Our SG&A expenses increased during fiscal year 2023, compared with fiscal year 2022, mainly due to (1) recognizing an actuarial loss on obligation of $1.1 million in fiscal year 2023, compared with recognizing an actuarial gain on obligation of $1.5 million in fiscal year 2022; (2) an increase in executive benefits of $1.0 million; (3) an increase in R&D expenses of $0.8 million; (4) an increase in legal and consulting fees of $0.6 million; and (5) an increase in insurance expenses of $0.3 million; offset by a net decrease in allowance for doubtful accounts of $1.5 million.\nRestructuring and other related costs. \nWe recorded restructuring and other related costs for fiscal year 2023 of $6.9 million.\nOperating income\n. Our operating income increased by $47.2 million, or 23.1%, to $251.7 million, or 9.5% of revenues, for fiscal year 2023, compared with $204.5 million, or 9.0% of revenues, for fiscal year 2022.\nInterest income\n. Our interest income increased by $9.0 million to $11.2 million for fiscal year 2023, compared with $2.2 million for fiscal year 2022. The increase was primarily due to a higher weighted average interest rate in fiscal year 2023 compared with fiscal year 2022.\nInterest expense\n. Our interest expense increased by $1.1 million to $1.5 million for fiscal year 2023, compared with $0.4 million for fiscal year 2022. The increase was primarily due to (1) lower interest expense capitalized of $0.9 million following the completion of a new manufacturing building at our Chonburi campus in July 2022, and (2) lower amortization of the fair value of interest rate swaps of $0.3 million during fiscal year 2023; offset by lower interest expense due to a decrease in the amount of outstanding long-term loans.\nForeign exchange gain (loss), net\n. We recorded foreign exchange loss, net of $1.2 million for fiscal year 2023, compared with foreign exchange gain, net of $2.3 million for fiscal year 2022. The foreign exchange loss was mainly due to (1) unrealized foreign exchange loss from revaluation of outstanding Thai baht assets and liabilities of $3.5 million for fiscal year 2023, and (2) realized foreign exchange loss from payment/receipt of $3.1 million for fiscal year 2023, offset by (1) foreign exchange gain from subsidiaries in the PRC and the U.K., totaling $1.5 million for fiscal year 2023, (2) unrealized foreign exchange gain from mark-to-market of forward contracts of $1.2 million for fiscal year 2023, and (3) unrealized foreign exchange gain from revaluation of other currencies of $0.4 million for fiscal year 2023.\n43\nTable of Contents\nIncome before income taxes\n. We recorded income before income taxes of $260.1 million for fiscal year 2023, compared with $207.0 million for fiscal year 2022.\nIncome tax expense\n. Our provision for income tax reflects an effective tax rate of 4.7% and 3.2% for fiscal year 2023 and fiscal year 2022, respectively. The increase was primarily due to higher income subject to tax in fiscal year 2023, as compared to fiscal year 2022.\nNet income\n. We recorded net income of $247.9 million, or 9.4% of revenues, for fiscal year 2023, compared with net income of $200.4 million, or 8.8% of revenues, for fiscal year 2022.\nOther comprehensive income (loss)\n. We recorded other comprehensive income of $4.7 million, or 0.2% of revenues, for fiscal year 2023, compared with other comprehensive loss of $6.5 million, or 0.3% of revenues, for fiscal year 2022. The other comprehensive income was mainly due to (1) unrealized gain from mark-to-market of available-for-sale debt securities of $9.1 million for fiscal year 2023, and (2) unrealized gain from mark-to-market of forward contracts and interest rate swap agreement of $2.1 million for fiscal year 2023.\nComparison of Fiscal Year 2022 with Fiscal Year 2021\nRevenues\n. Our revenues increased by $382.8 million, or 20.4%, to $2,262.2 million for fiscal year 2022, compared with $1,879.4 million for fiscal year 2021. This increase was primarily due to an increase in customers\u2019 demand for optical communications manufacturing services, particularly telecom manufacturing services, for fiscal year 2022. Revenues from optical communications products represented 78.8% of our revenues for fiscal year 2022, compared with 76.7% for fiscal year 2021.\nCost of revenues. \nOur cost of revenues increased by $325.6 million, or 19.6%, to $1,983.6 million, or 87.7% of revenues, for fiscal year 2022, compared with $1,658.0 million, or 88.2% of revenues, for fiscal year 2021. The increase in cost of revenues was primarily due to a proportional increase in sales volume.\nGross profit\n. Our gross profit increased by $57.2 million, or 25.8%, to $278.6 million, or 12.3% of revenues, for fiscal year 2022, compared with $221.4 million, or 11.8% of revenues, for fiscal year 2021.\nSG&A expenses\n. Our SG&A expenses increased by $3.3 million, or 4.7%, to $73.9 million, or 3.3% of revenues, for fiscal year 2022, compared with $70.6 million, or 3.8% of revenues, for fiscal year 2021. Our SG&A expenses increased during fiscal year 2022, compared with fiscal year 2021, mainly due to (1) an increase in share-based compensation expenses of $2.8 million from an increase in awards of performance share units and restricted share units; (2) a net increase in allowance for doubtful accounts of $1.6 million primarily due to a specific provision set up for one customer in fiscal year 2022; and (3) an increase in executive bonuses of $0.6 million; offset by actuarial gain on obligation of $1.5 million in fiscal year 2022.\nOperating income\n. Our operating income increased by $53.7 million, or 35.6%, to $204.5 million, or 9.0% of revenues, for fiscal year 2022, compared with $150.8 million, or 8.0% of revenues, for fiscal year 2021.\nInterest income\n. Our interest income decreased by $1.6 million to $2.2 million for fiscal year 2022, compared with $3.8 million for fiscal year 2021. The decrease was primarily due to a lower weighted average interest rate in fiscal year 2022 compared with fiscal year 2021.\nInterest expense\n. Our interest expense decreased by $0.7 million to $0.4 million for fiscal year 2022, compared with $1.1 million for fiscal year 2021. The decrease was primarily due to (1) interest expense capitalized to a new manufacturing building at our Chonburi campus of $0.9 million in fiscal year 2022, and (2) lower loan interest expense of $0.2 million in fiscal year 2022; offset by lower amortization of the fair value of interest rate swaps of $0.4 million in fiscal year 2022.\nForeign exchange gain (loss), net\n. We recorded foreign exchange gain, net of $2.3 million for fiscal year 2022, compared with foreign exchange gain, net of $0.5 million for fiscal year 2021. The increase in foreign exchange gain was mainly due to (1) realized foreign exchange gain from payment/receipt of $1.1 million for fiscal year 2022, as compared to realized foreign exchange loss from payment/receipt of 1.0 million for fiscal year 2021, (2) higher unrealized foreign exchange gain from revaluation of outstanding Thai baht assets and liabilities of $1.6 million, and (3) lower unrealized foreign exchange loss from mark-to-market of forward contracts of $0.7 million, offset by (1) realized foreign exchange loss from subsidiaries in the PRC and the U.K., totaling $1.2 million for fiscal year 2022, as compared to realized foreign exchange gain from subsidiaries in the PRC and the U.K., totaling $1.3 million for fiscal year 2021, and (2) lower unrealized foreign exchange gain from revaluation of other currencies of $0.1 million.\n44\nTable of Contents\nIncome before income taxes\n. We recorded income before income taxes of $207.0 million for fiscal year 2022, compared with $150.5 million for fiscal year 2021.\nIncome tax expense\n. Our provision for income tax reflects an effective tax rate of 3.2% and 1.4% for fiscal year 2022 and fiscal year 2021, respectively. The increase was primarily due to higher income subject to tax as well as more income subjected to tax in jurisdictions with higher tax rate in fiscal year 2022, as compared to fiscal year 2021.\nNet income\n. We recorded net income of $200.4 million, or 8.8% of total revenues, for fiscal year 2022, compared with net income of $148.3 million, or 7.9% of total revenues, for fiscal year 2021.\nOther comprehensive income (loss)\n. We recorded other comprehensive loss of $6.5 million, or 0.3% of revenues, for fiscal year 2022, compared with other comprehensive loss of $5.1 million, or 0.3% of revenues, for fiscal year 2021. The increase in other comprehensive loss was mainly due to (1) higher unrealized loss from mark-to-market of available-for-sale debt securities of $5.1 million, and (2) unrealized loss from foreign currency translation adjustment of $0.2 million for fiscal year 2022, as compared to unrealized gain from foreign currency translation adjustment of $0.6 million for fiscal year 2021; offset by lower unrealized loss from mark-to-market of forward contracts and interest rate swap agreement of $4.5 million.\nLiquidity and Capital Resources\nCash Flows and Working Capital\nWe primarily finance our operations through cash flow from operating activities. As of June\u00a030, 2023 and June\u00a024, 2022, we had cash, cash equivalents, and short-term investments of $550.5 million and $478.2 million, respectively, and outstanding debt of $12.2 million and $27.4 million, respectively.\nOur cash and cash equivalents, which primarily consist of cash on hand, demand deposits and liquid investments with original maturities of three months or less, are placed with banks and other financial institutions. The weighted average interest rate on our cash and cash equivalents for fiscal year 2023, fiscal year 2022 and fiscal year 2021 was 2.4%, 0.5% and 0.7%, respectively.\nOur cash investments are made in accordance with an investment policy approved by the audit committee of our board of directors. In general, our investment policy requires that securities purchased be rated A1, P-1, F1 or better. No security may have an effective maturity that exceeds three years. Our investments in fixed income securities are primarily classified as available-for-sale and held-to-maturity. Investments in debt securities that we have the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as available-for-sale with any unrealized gains and losses included in AOCI in the consolidated balance sheets. We determine realized gains or losses on sale of available-for-sale debt securities on a specific identification method and record such gains or losses as interest income in the consolidated statements of operations and comprehensive income.\nAs of June\u00a030, 2023 and June\u00a024, 2022, we had long-term borrowing under our credit facility agreement of $12.2 million and $27.4 million, respectively (See Note 13 of the Notes to Consolidated Financial Statements for further details). We anticipate that our internally generated working capital, along with our cash and cash equivalents will be adequate to repay these obligations. To better manage our cash on hand, we held short-term investments of $319.1 million as of June\u00a030, 2023.\nWe believe that our current cash and cash equivalents, short-term investments, cash flow from operations, and funds available through our credit facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months following the filing of this Annual Report on Form 10-K. Our ability to sustain our working capital position is subject to a number of risks that we discuss in Item 1A of this Annual Report on Form 10-K.\nWe also believe that our current manufacturing capacity is sufficient to meet our anticipated production requirements for at least the next few quarters.\n45\nTable of Contents\nThe following table shows our cash flows for the periods indicated:\nYears Ended\n(in thousands)\nJune 30, 2023\nJune 24, 2022\nJune 25, 2021\nNet cash provided by operating activities\n$\n213,310\u00a0\n$\n124,246\u00a0\n$\n122,157\u00a0\nNet cash used in investing activities\n$\n(98,717)\n$\n(135,543)\n$\n(8,934)\nNet cash used in financing activities\n$\n(80,984)\n$\n(92,934)\n$\n(42,754)\nNet increase (decrease) in cash, cash equivalents and restricted cash\n$\n33,609\u00a0\n$\n(104,231)\n$\n70,469\u00a0\nCash, cash equivalents and restricted cash, beginning of period\n$\n198,365\u00a0\n$\n303,123\u00a0\n$\n232,832\u00a0\nCash, cash equivalents and restricted cash, end of period\n$\n231,368\u00a0\n$\n198,365\u00a0\n$\n303,123\u00a0\nOperating Activities\nCash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities. The increase in cash provided by operating activities for fiscal year 2023 as compared to fiscal year 2022 was primarily driven by higher net income and was also affected by cash-favorable working capital changes.\nInvesting Activities\nInvesting cash flows consist primarily of investment purchases, sales, maturities, and disposals; and capital expenditures. Cash used in investing activities was lower for fiscal year 2023 as compared to cash used in investing activities for fiscal year 2022 primarily due to lower capital expenditures and net proceeds from sales and maturities of short-term investments.\nFinancing Activities\nFinancing cash flows consist primarily of repayment of long-term debt, share repurchases, and withholding tax related to net share settlement of restricted share units. Cash used in financing activities was lower for fiscal year 2023 as compared to the fiscal year 2022 primarily due to less cash paid for share repurchases and a decrease in withholding tax related to net share settlement of restricted share units, offset by an increase in the repayment of long-term borrowings due to an additional installment from the additional week in the first quarter of fiscal year 2023.\nMaterial Cash Requirements for Contractual Obligations\nAs of June\u00a030, 2023, we had material cash requirements of $13.5 million including scheduled payments within one year of $13.4 million and after one year of $0.1 million. These material cash requirements consisted of the following contractual and other obligations.\nTerm Loan and Interest Expenses\nAs of June\u00a030, 2023, there was $12.2 million outstanding under the term loan that will mature on June 30, 2024 (see Note 13), which only consists of scheduled debt payments within one year of $12.2 million.\nOperating Lease\nAs of June\u00a030, 2023, we have certain operating lease arrangements under which the lease payments are calculated using the straight-line method. Our rental expenses under these leases which will be paid within one year is $1.2 million and after one year is $0.1 million.\nCapital Expenditures\nThe following table sets forth our capital expenditures, which include amounts for which payments have been accrued, for the periods indicated.\nYears Ended\n(in thousands)\nJune 30, 2023\nJune 24, 2022\nJune 25, 2021\nCapital expenditures\n$\n66,712\u00a0\n$\n80,462\u00a0\n$\n52,054\u00a0\nDuring fiscal year 2023, fiscal year 2022, and fiscal year 2021, we invested in a manufacturing building at our Chonburi campus and continued to purchase equipment to support the expansion of our manufacturing facilities in Thailand, the PRC and Israel. We expect our capital expenditures for fiscal year 2024 to increase compared to fiscal year 2023 mainly due to the purchase of manufacturing equipment to support the expansion of manufacturing facilities and investment in our information technology infrastructure. \n46\nTable of Contents\nRecent Accounting Pronouncements\nSee Note 2 of the Notes to Consolidated Financial Statements for recent accounting pronouncements that could have an effect on us.",
+  "item1a": ">ITEM 1A.\nRISK FACTORS\nInvesting in our ordinary shares involves a high degree of risk. You should carefully consider the following risks as well as the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes, before investing in our ordinary shares. The risks and uncertainties described below are not the only ones that we may face. Additional risks and uncertainties of which we are unaware, or that we currently deem immaterial, also may become important factors that affect us or our ordinary shares. If any of the following risks actually occur, they may harm our business, financial condition and operating results. In this event, the market price of our ordinary shares could decline and you could lose some or all of your investment.\nCompany and Operational Risks\nOur sales depend on a small number of customers. A reduction in orders from any of these customers, the loss of any of these customers, or a customer exerting significant pricing and margin pressures on us could harm our business, financial condition and operating results.\nWe have depended, and will continue to depend, upon a small number of customers for a significant percentage of our revenues. During fiscal years 2023 and 2022, we had four and three customers, respectively, that each contributed 10% or more of our revenues. Such customers together accounted for 55.9% and 48.2% of our revenues during the respective periods. Dependence on a small number of customers means that a reduction in orders from, a loss of, or other adverse actions by any one of these customers would reduce our revenues and could have a material adverse effect on our business, financial condition and operating results.\nFurther, our customer concentration increases the concentration of our accounts receivable and our exposure to payment default by any of our key customers. Many of our existing and potential customers have substantial debt burdens, have experienced financial distress or have static or declining revenues, all of which may be exacerbated by the current global economic downturn and subsequent adverse conditions in the credit markets, as well as the impact of the U.S.-China trade dispute. Certain of our customers have gone out of business, declared bankruptcy, been acquired, or announced their withdrawal from segments of the optics market. We generate significant accounts payable and inventory for the services that we provide to our customers, which could expose us to substantial and potentially unrecoverable costs if we do not receive payment from our customers.\nOur reliance on a small number of customers gives our customers substantial purchasing power and leverage in negotiating contracts with us. In addition, although we enter into master supply agreements with our customers, the level of business to be transacted under those agreements is not guaranteed. Instead, we are awarded business under those agreements on a project-by-project basis. Some of our customers have at times significantly reduced or delayed the volume of manufacturing services that they order from us. If we are unable to maintain our relationships with our existing significant customers, our business, financial condition and operating results could be harmed.\nConsolidation in the markets we serve could harm our business, financial condition and operating results.\nConsolidation in the markets we serve has resulted in a reduction in the number of potential customers for our services. For example, Lumentum Holdings Inc. completed its acquisition of NeoPhotonics Corporation in August 2022; Coherent Corp. (formerly known as II-VI Incorporated) completed its acquisition of Coherent, Inc. in July 2022; and Cisco Systems, Inc. completed its acquisition of Acacia Communications Inc. in March 2021. In some cases, consolidation among our customers has led to a reduction in demand for our services as customers have acquired the capacity to manufacture products in-house.\nConsolidation among our customers and their customers will continue to adversely affect our business, financial condition and operating results in several ways. Consolidation among our customers and their customers may result in a smaller number of large customers whose size and purchasing power give them increased leverage that may result in, among other things, decreases in our average selling prices. In addition to pricing pressures, this consolidation may also reduce overall demand for our manufacturing services if customers obtain new capacity to manufacture products in-house or discontinue duplicate or competing product lines in order to streamline operations. If demand for our manufacturing services decreases, our business, financial condition and operating results could be harmed.\n15\nTable of Contents\nIf the optical communications market does not expand as we expect, our business may not grow as fast as we expect, which could adversely impact our business, financial condition and operating results.\nRevenues from optical communications products represented 75.9% and 78.8% of our revenues for fiscal year 2023 and fiscal year 2022, respectively. Our future success as a provider of precision optical, electro-mechanical and electronic manufacturing services for the optical communications market depends on the continued growth of the optics industry and, in particular, the continued expansion of global information networks, particularly those directly or indirectly dependent upon a fiber optic infrastructure. As part of that growth, we anticipate that demand for voice, video, and other data services delivered over high-speed connections (both wired and wireless) will continue to increase. Without network and bandwidth growth, the need for enhanced communications products would be jeopardized. Currently, demand for network services and for high-speed broadband access, in particular, is increasing but growth may be limited by several factors, including, among others: (1) relative strength or weakness of the global economy or the economy in certain countries or regions, (2) an uncertain regulatory environment, and (3) uncertainty regarding long-term sustainable business models as multiple industries, such as the cable, traditional telecommunications, wireless and satellite industries, offer competing content delivery solutions. The optical communications market also has experienced periods of overcapacity, some of which have occurred even during periods of relatively high network usage and bandwidth demands. If the factors described above were to slow, stop or reverse the expansion in the optical communications market, our business, financial condition and operating results would be negatively affected.\nOur quarterly revenues, gross profit margins and operating results have fluctuated significantly and may continue to do so in the future, which may cause the market price of our ordinary shares to decline or be volatile.\nOur quarterly revenues, gross profit margins, and operating results have fluctuated significantly and may continue to fluctuate significantly in the future. For example, any of the risks described in this \u201cRisk Factors\u201d section and, in particular, the following factors, could cause our revenues, gross profit margins, and operating results to fluctuate from quarter to quarter:\n\u2022\nany reduction in customer demand or our ability to fulfill customer orders as a result of disruptions in our supply chain;\n\u2022\nour ability to acquire new customers and retain our existing customers;\n\u2022\nthe cyclicality of the optical communications, industrial lasers, medical and sensors markets;\n\u2022\ncompetition;\n\u2022\nour ability to achieve favorable pricing for our services;\n\u2022\nthe effect of fluctuations in foreign currency exchange rates;\n\u2022\nour ability to manage our headcount and other costs; and\n\u2022\nchanges in the relative mix in our revenues.\nTherefore, we believe that quarter-to-quarter comparisons of our operating results may not be useful in predicting our future operating results. You should not rely on our results for one quarter as any indication of our future performance. Quarterly variations in our operations could result in significant volatility in the market price of our ordinary shares.\nIf we are unable to continue diversifying our precision optical and electro-mechanical manufacturing services across other markets within the optics industry, such as the semiconductor processing, biotechnology, metrology and material processing markets, or if these markets do not grow as fast as we expect, our business may not grow as fast as we expect, which could adversely impact our business, financial condition and operating results.\nWe intend to continue diversifying across other markets within the optics industry, such as the semiconductor processing, biotechnology, metrology, and material processing markets, to reduce our dependence on the optical communications market and to grow our business. Currently, the optical communications market contributes the significant majority of our revenues. There can be no assurance that our efforts to further expand and diversify into other markets within the optics industry will prove successful or that these markets will continue to grow as fast as we expect. If the opportunities presented by these markets prove to be less than anticipated, if we are less successful than expected in diversifying into these markets, or if our margins in these markets prove to be less than expected, our growth may slow or stall, and we may incur costs that are not offset by revenues in these markets, all of which could harm our business, financial condition and operating results.\n16\nTable of Contents\nWe face significant competition in our business. If we are unable to compete successfully against our current and future competitors, our business, financial condition and operating results could be harmed.\nOur current and prospective customers tend to evaluate our capabilities against the merits of their internal manufacturing as well as the capabilities of other third-party manufacturers. We believe the internal manufacturing capabilities of current and prospective customers are our primary competition. This competition is particularly strong when our customers have excess manufacturing capacity, as was the case when the markets that we serve experienced a significant downturn in 2008 and 2009 that resulted in underutilized capacity. Should our existing and potential customers have excess manufacturing capacity at their facilities, it could adversely affect our business. In addition, as a result of the 2011 flooding in Thailand, some of our customers began manufacturing products internally or using other third-party manufacturers that were not affected by the flooding. If our customers choose to manufacture products internally rather than to outsource production to us, or choose to outsource to a different third-party manufacturer, our business, financial condition and operating results could be harmed.\nCompetitors in the market for optical manufacturing services include Benchmark Electronics, Inc., Celestica Inc.,\u00a0Sanmina-SCI\u00a0Corporation, Jabil Circuit, Inc., and Venture Corporation Limited. Our customized optics and glass operations face competition from companies such as Browave Corporation, Fujian Castech Crystals, Inc., Photop Technologies, Inc., and Research Electro-Optic, Inc. Other existing contract manufacturing companies, original design manufacturers or outsourced semiconductor assembly and test companies could also enter our target markets. In addition, we may face new competitors as we attempt to penetrate new markets.\nMany of our customers and potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater resources than we have. These advantages may allow them to devote greater resources than we can to the development and promotion of service offerings that are similar or superior to our service offerings. These competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies or offer services that achieve greater market acceptance than ours. These competitors may also compete with us by making more attractive offers to our existing and potential employees, suppliers, and strategic partners. Further, consolidation in the optics industry could lead to larger and more geographically diverse competitors. New and increased competition could result in price reductions for our services, reduced gross profit margins or loss of market share. We may not be able to compete successfully against our current and future competitors, and the competitive pressures we face may harm our business, financial condition and operating results.\nCancellations, delays or reductions of customer orders and the relatively short-term nature of the commitments of our customers could harm our business, financial condition and operating results.\nWe do not typically obtain firm purchase orders or commitments from our customers that extend beyond 13 weeks. While we work closely with our customers to develop forecasts for periods of up to one year, these forecasts are not binding and may be unreliable. Customers may cancel their orders, change production quantities from forecasted volumes or delay production for a number of reasons beyond our control. Any material delay, cancellation or reduction of orders could cause our revenues to decline significantly and could cause us to hold excess materials. Many of our costs and operating expenses are fixed. As a result, a reduction in customer demand could decrease our gross profit and harm our business, financial condition and operating results. \nIn addition, we make significant decisions with respect to production schedules, material procurement commitments, personnel needs and other resource requirements based on our estimate of our customers\u2019 requirements. The short-term nature of our customers\u2019 commitments and the possibility of rapid changes in demand for their products reduce our ability to accurately estimate the future requirements of our customers. Inability to forecast the level of customer orders with certainty makes it difficult to allocate resources to specific customers, order appropriate levels of materials and maximize the use of our manufacturing capacity. This could also lead to an inability to meet a spike in production demand, all of which could harm our business, financial condition and operating results.\nOur exposure to financially troubled customers or suppliers could harm our business, financial condition and operating results.\nSome of our customers and suppliers have in the past and may in the future experience financial difficulty, particularly in light of the global economic downturn and uncertainty due to COVID-19 and subsequent adverse conditions in the credit markets that have affected access to capital and liquidity. In addition, the recent failures of Silicon Valley Bank and Signature Bank created significant market disruption and uncertainty within the U.S. banking sector, in particular with respect to regional banks. During challenging economic times, our customers may face difficulties in gaining timely access to sufficient credit, which could impact their ability to make timely payments to us. As a result, we devote significant resources to monitor \n17\nTable of Contents\nreceivables and inventory balances with certain of our customers. If our customers experience financial difficulty, we could have difficulty recovering amounts owed to us from these customers, or demand for our services from these customers could decline. If our suppliers experience financial difficulty, we could have trouble sourcing materials necessary to fulfill production requirements and meet scheduled shipments. Any such financial difficulty could adversely affect our operating results and financial condition by resulting in a reduction in our revenues, a charge for inventory write-offs, a provision for doubtful accounts, and larger working capital requirements due to increased days in inventory and days in accounts receivable.\nWe purchase some of the critical materials used in certain of our products from a single source or a limited number of suppliers. Supply shortages have in the past, and could in the future, impair the quality, reduce the availability or increase the cost of materials, which could harm our revenues, profitability and customer relations.\nWe rely on a single source or a limited number of suppliers for critical materials used in a significant number of the products we manufacture. We generally purchase these single or limited source materials through standard purchase orders and do not maintain long-term supply agreements with our suppliers. We generally use a rolling 12-month forecast based on anticipated product orders, customer forecasts, product order history, backlog, and warranty and service demand to determine our materials requirements. Lead times for the parts and components that we order vary significantly and depend on factors such as manufacturing cycle times, manufacturing yields, and the availability of raw materials used to produce the parts or components. Historically, we have experienced supply shortages resulting from various causes, including reduced yields by our suppliers, which prevented us from manufacturing products for our customers in a timely manner. The semiconductor supply chain is complex, and, in recent years, there has been a significant global shortage of semiconductors. Demand for consumer electronics surged during the COVID-19 pandemic and remains strong, which in turn has increased the demand for semiconductors. At the same time, wafer foundries that support chipmakers have not invested enough in recent years to increase capacities to the levels needed to support the increased demand from all of their customers. Further exacerbating the shortage is the long production lead-time for wafers, which can take up to 30 weeks in some cases. A shortage of semiconductors or other key components can cause a significant disruption to our production schedule and have a substantial adverse effect on our business, financial condition and operating results.\nOur revenues, profitability and customer relations will be harmed by continued fluctuations in the availability of materials, a stoppage or delay of supply, a substitution of more expensive or less reliable parts, the receipt of defective parts or contaminated materials, an increase in the price of supplies, or an inability to obtain reductions in price from our suppliers in response to competitive pressures. We continue to undertake programs to strengthen our supply chain. Nevertheless, we are experiencing, and expect for the foreseeable future to experience, strain on our supply chain, as well as periodic supplier problems. These supply chain issues have impacted, and will continue to impact, our ability to generate revenue. In addition, we have incurred, and expect for the foreseeable future to incur, increased costs related to our efforts to address these problems.\nManaging our inventory is complex and may require write-downs due to excess or obsolete inventory, which could cause our operating results to decrease significantly in a given fiscal period.\nManaging our inventory is complex. We are generally required to procure materials based upon the anticipated demand of our customers. The inaccuracy of these forecasts or estimates could result in excess supply or shortages of certain materials. Inventory that is not used or expected to be used as and when planned may become excess or obsolete. Generally, we are unable to use most of the materials purchased for one of our customers to manufacture products for any of our other customers. Additionally, we could experience reduced or delayed product shipments or incur additional inventory write-downs and cancellation charges or penalties, which would increase costs and could harm our business, financial condition and operating results. While our agreements with customers are structured to mitigate our risks related to excess or obsolete inventory, enforcement of these provisions may result in material expense, and delay in payment for inventory. If any of our significant customers becomes unable or unwilling to purchase inventory or does not agree to such contractual provisions in the future, our business, financial condition and operating results may be harmed.\nIf we fail to adequately expand our manufacturing capacity, we will not be able to grow our business, which would harm our business, financial condition and operating results. Conversely, if we expand too much or too rapidly, we may experience excess capacity, which would harm our business, financial condition and operating results.\nWe may not be able to pursue many large customer orders or sustain our historical growth rates if we do not have sufficient manufacturing capacity to enable us to commit to provide customers with specified quantities of products. If our customers do not believe that we have sufficient manufacturing capacity, they may: (1) outsource all of their production to another manufacturer that they believe can fulfill all of their production requirements; (2) look to a second manufacturer for the manufacture of additional quantities of the products that we currently manufacture for them; (3) manufacture the products themselves; or (4) decide against using our services for their new products.\n18\nTable of Contents\nMost recently, we expanded our manufacturing capacity by building a new facility at our Chonburi campus in Thailand in 2022. We may continue to devote significant resources to the expansion of our manufacturing capacity, and any such expansion will be expensive, will require management\u2019s time and may disrupt our operations. In the event we are unsuccessful in our attempts to expand our manufacturing capacity, our business, financial condition and operating results could be harmed.\nHowever, if we successfully expand our manufacturing capacity but are unable to promptly utilize the additional space due to reduced demand for our services or an inability to win new projects, add new customers or penetrate new markets, or if the optics industry does not grow as we expect, we may experience periods of excess capacity, which could harm our business, financial condition and operating results.\nWe may experience manufacturing yields that are lower than expected, potentially resulting in increased costs, which could harm our business, operating results and customer relations.\nManufacturing yields depend on a number of factors, including the following:\n\u2022\nthe quality of input, materials and\n \nequipment;\n\u2022\nthe quality and feasibility of our customer\u2019s\n \ndesign;\n\u2022\nthe repeatability and complexity of the manufacturing\n \nprocess;\n\u2022\nthe experience and quality of training of our manufacturing and engineering teams;\n \nand\n\u2022\nthe monitoring of the manufacturing\n \nenvironment.\nLower volume production due to continually changing designs generally results in lower yields. Manufacturing yields and margins can also be lower if we receive or inadvertently use defective or contaminated materials from our suppliers. In addition, our customer contracts typically provide that we will supply products at a fixed price each quarter, which assumes specific production yields and quality metrics. If we do not meet the yield assumptions and quality metrics used in calculating the price of a product, we may not be able to recover the costs associated with our failure to do so. Consequently, our operating results and profitability may be harmed.\nIf the products that we manufacture contain defects, we could incur significant correction costs, demand for our services may decline and we may be exposed to product liability and product warranty claims, which could harm our business, financial condition, operating results and customer relations.\nWe manufacture products to our customers\u2019 specifications, and our manufacturing processes and facilities must comply with applicable statutory and regulatory requirements. In addition, our customers\u2019 products and the manufacturing processes that we use to produce them are often complex. As a result, products that we manufacture may at times contain manufacturing or design defects, and our manufacturing processes may be subject to errors or fail to be in compliance with applicable statutory or regulatory requirements. Additionally, not all defects are immediately detectable. The testing procedures of our customers are generally limited to the evaluation of the products that we manufacture under likely and foreseeable failure scenarios. For various reasons (including, among others, the occurrence of performance problems that are unforeseeable at the time of testing or that are detected only when products are fully deployed and operated under peak stress conditions), these products may fail to perform as expected after their initial acceptance by a customer.\nWe generally provide a warranty of between one to five years on the products that we manufacture for our customers. This warranty typically guarantees that products will conform to our customers\u2019 specifications and be free from defects in workmanship. Defects in the products we manufacture, whether caused by a design, engineering, manufacturing or component failure or by deficiencies in our manufacturing processes, and whether such defects are discovered during or after the warranty period, could result in product or component failures, which may damage our business reputation, whether or not we are indemnified for such failures. We could also incur significant costs to repair or replace defective products under warranty, particularly when such failures occur in installed systems. In some instances, we may also be required to incur costs to repair or replace defective products outside of the warranty period in the event that a recurring defect is discovered in a certain percentage of a customer\u2019s products delivered over an agreed upon period of time. We have experienced product or component failures in the past and remain exposed to such failures, as the products that we manufacture are widely deployed throughout the world in multiple environments and applications. Further, due to the difficulty in determining whether a given defect resulted from our customer\u2019s design of the product or our manufacturing process, we may be exposed to product liability or product warranty claims arising from defects that are not attributable to our manufacturing process. In addition, if the number or \n19\nTable of Contents\ntype of defects exceeds certain percentage limitations contained in our contractual arrangements, we may be required to conduct extensive failure analysis, re-qualify for production or cease production of the specified products.\nProduct liability claims may include liability for personal injury or property damage. Product warranty claims may include liability for a recall, repair or replacement of a product or component. Although liability for these claims is generally assigned to our customers in our contracts, even where they have assumed liability our customers may not, or may not have the resources to, satisfy claims for costs or liabilities arising from a defective product. Additionally, under one of our contracts, in the event the products we manufacture do not meet the end-customer\u2019s testing requirements or otherwise fail, we may be required to pay penalties to our customer, including a fee during the time period that the customer or end-customer\u2019s production line is not operational as a result of the failure of the products that we manufacture, all of which could harm our business, operating results and customer relations. If we engineer or manufacture a product that is found to cause any personal injury or property damage or is otherwise found to be defective, we could incur significant costs to resolve the claim. While we maintain insurance for certain product liability claims, we do not maintain insurance for any recalls and, therefore, would be required to pay any associated costs that are determined to be our responsibility. A successful product liability or product warranty claim in excess of our insurance coverage or any material claim for which insurance coverage is denied, limited, is not available or has not been obtained could harm our business, financial condition and operating results.\nIf we fail to attract additional skilled employees or retain key personnel, our business, financial condition and operating results could suffer.\nOur future success depends, in part, upon our ability to attract additional skilled employees and retain our current key personnel. We have identified several areas where we intend to expand our hiring, including business development, finance, human resources, operations and supply chain management. We may not be able to hire and retain such personnel at compensation levels consistent with our existing compensation and salary structure. Our future also depends on the continued contributions of our executive management team and other key management and technical personnel, each of whom would be difficult to replace. Although we have key person life insurance policies on some of our executive officers, the loss of any of our executive officers or key personnel or the inability to continue to attract qualified personnel could harm our business, financial condition and operating results.\nRisks Related to Our International Operations\nFluctuations in foreign currency exchange rates and changes in governmental policies regarding foreign currencies could increase our operating costs, which would adversely affect our operating results.\nVolatility in the functional and non-functional currencies of our entities and the U.S. dollar could seriously harm our business, financial condition and operating results. The primary impact of currency exchange fluctuations is on our cash, receivables, and payables of our operating entities. We may experience significant unexpected losses from fluctuations in exchange rates. For example, in the three months ended December 30, 2022, we experienced a $3.9 million foreign exchange loss, which negatively affected our net income per share for the same period by $0.11.\nOur customer contracts generally require that our customers pay us in U.S. dollars. However, the majority of our payroll and other operating expenses are paid in Thai baht. As a result of these arrangements, we have significant exposure to changes in the exchange rate between the Thai baht and the U.S. dollar, and our operating results are adversely impacted when the U.S. dollar depreciates relative to the Thai baht and other currencies. As of June\u00a030, 2023, the U.S. dollar had appreciated approximately 12.0% against the Thai baht since June 25, 2021. While we attempt to hedge against certain exchange rate risks, we typically enter into hedging contracts with maturities of up to 12 months, leaving us exposed to longer term changes in exchange rates.\nAdditionally, we have significant exposure to changes in the exchange rate between the Chinese Renminbi (\u201cRMB\u201d) and pound sterling (\u201cGBP\u201d) and the U.S. dollar. The expenses of our subsidiaries located in the PRC and the United Kingdom are denominated in RMB and GBP, respectively. Currently, RMB are convertible in connection with trade and service-related foreign exchange transactions, foreign debt service, and payment of dividends. The PRC government may at its discretion restrict access in the future to foreign currencies for current account transactions. If this occurs, our PRC subsidiary may not be able to pay us dividends in U.S. dollars without prior approval from the PRC State Administration of Foreign Exchange. In addition, conversion of RMB for most capital account items, including direct investments, is still subject to government approval in the PRC. This restriction may limit our ability to invest the earnings of our PRC subsidiary. As of June\u00a030, 2023, the U.S. dollar had appreciated approximately 12.4% against the RMB since June 25, 2021. There remains significant international pressure on the PRC government to adopt a substantially more liberalized currency policy. GBP are convertible in connection with trade and service-related foreign exchange transactions and foreign debt service. As of June\u00a030, 2023, the U.S. \n20\nTable of Contents\ndollar had appreciated approximately 10.4% against the GBP since June 25, 2021. Any appreciation in the value of the RMB and GBP against the U.S. dollar could negatively impact our operating results.\nWe conduct operations in a number of countries, which creates logistical and communications challenges for us and exposes us to other risks and challenges that could harm our business, financial condition and operating results.\nThe vast majority of our operations, including manufacturing and customer support, are located primarily in the Asia- Pacific region. The distances between Thailand, the PRC and our customers and suppliers globally create a number of logistical and communications challenges for us, including managing operations across multiple time zones, directing the manufacture and delivery of products across significant distances, coordinating the procurement of raw materials and their delivery to multiple locations and coordinating the activities and decisions of our management team, the members of which are based in different countries.\nOur customers are located throughout the world, and our principal manufacturing facilities are located in Thailand. Revenues from the bill-to-location of customers outside of North America accounted for 52.0%, 50.7% and 52.8% of our revenues for fiscal year 2023, fiscal year 2022 and fiscal year 2021, respectively. We expect that revenues from the\u00a0bill-to-location\u00a0of customers outside of North America will continue to account for a significant portion of our revenues. Our customers also depend on international sales, which further exposes us to the risks associated with international operations. Conducting business outside the United States subjects us to a number of risks and challenges, including:\n\u2022\ncompliance\n \nwith\n \na\n \nvariety\n \nof\n \ndomestic\n \nand\n \nforeign\n \nlaws\n \nand\n \nregulations,\n \nincluding\n \ntrade\n \nregulatory\n \nrequirements;\n\u2022\nperiodic changes in a specific country or region\u2019s economic conditions, such as\n \nrecession;\n\u2022\nunanticipated restrictions on our ability to sell to foreign customers where sales of products and the provision of services\n \nmay\n \nrequire\n \nexport\n \nlicenses\n \nor\n \nare\n \nprohibited\n \nby\n \ngovernment\n \naction\n \n(for\n \nexample,\n \nthe\n \nU.S. Department of Commerce prohibited the export and sale of a broad category of U.S. products, as well as the provision of services, to ZTE Corporation in early 2018, and to Huawei in 2019, both of which are customers of certain of our customers);\n\u2022\nfluctuations in currency exchange\n \nrates;\n\u2022\ninadequate protection of intellectual property rights in some countries;\n \nand\n\u2022\npolitical, legal and economic instability, foreign conflicts, and the impact of regional and global infectious illnesses in the countries in which we and our customers and suppliers are located (for example, disruptions to international operations associated with the occurrence of the COVID-19 pandemic or the ongoing armed conflict in Ukraine).\nOur failure to manage the risks and challenges associated with our international operations could have a material adverse effect on our business.\nWe are subject to governmental export and import controls in several jurisdictions that subject us to a variety of risks, including liability, impairment of our ability to compete in international markets, and decreased sales and customer orders.\nWe are subject to governmental export and import controls in Thailand, the PRC, the United Kingdom and the United States that may limit our business opportunities. Various countries regulate the import of certain technologies and have enacted laws or taken actions that could limit (1) our ability to export or sell the products we manufacture and (2) our customers\u2019 ability to export or sell products that we manufacture for them. The export of certain technologies from the United States, the United Kingdom and other nations to the PRC is barred by applicable export controls, and similar prohibitions could be extended to Thailand, thereby limiting our ability to manufacture certain products. Any change in export or import regulations or related legislation, shift in approach to the enforcement of existing regulations, or change in the countries, persons or technologies targeted by such regulations could limit our ability to offer our manufacturing services to existing or potential customers, which could harm our business, financial condition and operating results.\nFor example, the May 2019 addition of Huawei and certain affiliates by the U.S. Commerce Department\u2019s Bureau of Industry and Security (\"BIS\") to the BIS Entity List denied Huawei the ability to purchase products, software and technology that are subject to U.S. Export Administration Regulations. Although we do not sell directly to Huawei, some of our customers do sell to Huawei (and its affiliates) directly. To ensure compliance, some of our customers immediately suspended shipments to Huawei in order to assess whether their products were subject to the restrictions resulting from the ban. This had an \n21\nTable of Contents\nimmediate impact on our customer orders in the three months ended June 28, 2019, which affected our revenue for that quarter. We expect this ban to continue to adversely affect orders from our customers for the foreseeable future.\nWe are subject to risks related to the ongoing U.S.-China trade dispute, including increased tariffs on materials that we use in manufacturing, which could adversely affect our business, financial condition and operating results.\nIn August 2019, the U.S. imposed tariffs on a wide range of products and goods manufactured in the PRC that are directly or indirectly imported into the U.S. Although the U.S. announced on January 15, 2020 the reduction of certain tariffs on Chinese imported goods and delayed the implementation of certain other related tariffs, we have no assurance that the U.S. will not continue to increase or impose tariffs on imports from the PRC or alter trade agreements and terms between the PRC and the U.S., which may include limiting trade with the PRC. Trade restrictions, including tariffs, quotas, embargoes, safeguards and customs restrictions, could increase the cost of materials we use to manufacture certain products, which could result in lower margins. The tariffs could also result in disruptions to our supply chain, as suppliers struggle to fill orders from companies trying to purchase goods in bulk ahead of announced tariffs taking effect. The adoption of trade tariffs both globally and between the U.S. and the PRC specifically could also cause a decrease in the sales of our customers\u2019 products to end-users located in the PRC, which could directly impact our revenues in the form of reduced orders. If existing tariffs are raised further, or if new tariffs are imposed on additional categories of components used in our manufacturing activities, and if we are unable to pass on the costs of such tariffs to our customers, our operating results would be harmed.\nPolitical unrest and demonstrations, as well as changes in the political, social, business or economic conditions in Thailand, could harm our business, financial condition and operating results.\nThe majority of our assets and manufacturing operations are located in Thailand. Therefore, political, social, business and economic conditions in Thailand have a significant effect on our business. Any changes to tax regimes, laws, exchange controls or political action in Thailand may harm our business, financial condition and operating results.\nThailand has a history of political unrest that includes the involvement of the military as an active participant in the ruling government. In recent years, political unrest in the country has sparked political demonstrations and, in some instances, violence. Any future political instability in Thailand could prevent shipments from entering or leaving the country, disrupt our ability to manufacture products in Thailand, and force us to transfer our operations to more stable, and potentially more costly, regions, which would harm our business, financial condition and operating results.\nFurther, the Thai government may raise the minimum wage standards for labor and could repeal certain promotional certificates that we have received or tax holidays for certain export and value added taxes that we enjoy, either preventing us from engaging in our current or anticipated activities or subjecting us to higher tax rates.\nWe expect to continue to invest in our manufacturing operations in the People's Republic of China (\"PRC\"), which will continue to expose us to risks inherent in doing business in the PRC, any of which risks could harm our business, financial condition and operating results.\nWe anticipate that we will continue to invest in our customized optics manufacturing facilities located in Fuzhou, the PRC. Because these operations are located in the PRC, they are subject to greater political, legal and economic risks than the geographies in which the facilities of many of our competitors and customers are located. In particular, the political and economic climate in the PRC (both at national and regional levels) is fluid and unpredictable. A large part of the PRC\u2019s economy is still being operated under varying degrees of control by the PRC government. By imposing industrial policies and other economic measures, such as control of foreign exchange, taxation, import and export tariffs, environmental regulations, land use rights, intellectual property and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the development of the PRC economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental and are expected to change further. Any changes to the political, legal or economic climate in the PRC could harm our business, financial condition and operating results.\nOur PRC subsidiary is a \u201cwholly foreign-owned enterprise\u201d and is therefore subject to laws and regulations applicable to foreign investment in the PRC, in general, and laws and regulations applicable to wholly foreign-owned enterprises, in particular. The PRC has made significant progress in the promulgation of laws and regulations pertaining to economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, the promulgation of new laws, changes in existing laws and abrogation of local regulations by national laws may have a negative impact on our business and prospects. In addition, these laws and regulations are relatively new, and published cases are limited in volume and non-binding. Therefore, the interpretation and enforcement of these laws and regulations involve significant uncertainties. \n22\nTable of Contents\nLaws may be changed with little or no prior notice, for political or other reasons. These uncertainties could limit the legal protections available to foreign investors. Furthermore, any litigation in the PRC may be protracted and result in substantial costs and diversion of resources and management\u2019s attention.\nNatural disasters, epidemics, acts of terrorism and political and economic developments could harm our business, financial condition and operating results.\nNatural disasters could severely disrupt our manufacturing operations and increase our supply chain costs. These events, over which we have little or no control, could cause a decrease in demand for our services, make it difficult or impossible for us to manufacture and deliver products or for our suppliers to deliver components allowing us to manufacture those products, require large expenditures to repair or replace our facilities, or create delays and inefficiencies in our supply chain. For example, the 2011 flooding in Thailand forced us to temporarily shut down all of our manufacturing facilities in Thailand and cease production permanently at our former Chokchai facility, which adversely affected our ability to meet our customers\u2019 demands during fiscal year 2012.\nIn some countries in which we operate, including the PRC, the U.S., and Thailand, outbreaks of infectious diseases such as COVID-19, H1N1 influenza virus, severe acute respiratory syndrome or bird flu could disrupt our manufacturing operations, reduce demand for our customers\u2019 products and increase our supply chain costs. For example, the outbreak of COVID-19 resulted in a two-week suspension of operations at our facility in Fuzhou, the PRC in February 2020 and caused labor shortages for us and some of our suppliers and customers in the PRC during the three months ended March 27, 2020, which negatively affected our revenues during the same period. Although we continue to take precautionary measures, including leaves of absence for affected employees and their close contacts, stringent contact tracing, and enhanced safe distancing measures, any worsening of the COVID-19 pandemic or the emergence of other infectious diseases may result in more stringent measures being implemented by local authorities, such as shutting down our manufacturing facilities, which would have a significant negative impact on our operations.\nIn addition, increased international political instability, evidenced by the threat or occurrence of terrorist attacks, enhanced national security measures, Russia\u2019s invasion of Ukraine, conflicts in the Middle East and Asia, strained international relations arising from these conflicts and the related decline in consumer confidence and economic weakness, may hinder our ability to do business. Any escalation in these events or similar future events may disrupt our operations and the operations of our customers and suppliers and may affect the availability of materials needed for our manufacturing services. Such events may also disrupt the transportation of materials to our manufacturing facilities and finished products to our customers. These events have had, and may continue to have, an adverse impact on the U.S. and world economy in general, and customer confidence and spending in particular, which in turn could adversely affect our total revenues and operating results. The impact of these events on the volatility of the U.S. and world financial markets also could increase the volatility of the market price of our ordinary shares and may limit the capital resources available to us, our customers and our suppliers.\nFinancial Risks\nUnfavorable worldwide economic conditions (including inflation and supply chain disruptions) may negatively affect our business, financial condition and operating results.\nThe current global economic downturn and volatility and adverse conditions in the capital and credit markets have negatively affected levels of business and consumer spending, heightening concerns about the likelihood of a global recession and potential default of various national bonds and debt backed by individual countries. Such developments, as well as the policies impacting these, could adversely affect our financial results. In particular, the economic disruption caused by COVID-19 has led to reduced demand in some of our customers\u2019 optical communications product portfolios and significant volatility in global stock markets and currency exchange rates. Uncertainty about worldwide economic conditions poses a risk as businesses may further reduce or postpone spending in response to reduced budgets, tight credit, negative financial news and declines in income or asset values, which could adversely affect our business, financial condition and operating results and increase the volatility of our share price. In addition, our ability to access capital markets may be restricted, which could have an impact on our ability to react to changing economic and business conditions and could also adversely affect our business, financial condition and operating results.\nInflation has also risen globally to historically high levels. If the inflation rate continues to increase, the costs of labor and other expenses could also increase. There is no assurance that our revenues will increase at the same rate to maintain the same level of profitability. Inflation and government efforts to combat inflation, such as raising the benchmark interest rate, could increase market volatility and have an adverse effect on the financial market and global economy. In addition, we expect that disruptions in our supply chain and fluctuations in the availability of parts and materials will continue to have a significant \n23\nTable of Contents\nimpact on our ability to generate revenue, despite strong demand from our customers. Such adverse conditions could negatively impact demand for our products, which could adversely affect our business, financial condition and operating results.\nThe loan agreements for our long-term debt obligations and other credit facilities contain financial ratio covenants that may impair our ability to conduct our business.\nThe loan agreements for our long-term and short-term debt obligations contain financial ratio covenants that may limit management\u2019s discretion with respect to certain business matters. These covenants require us to maintain a specified maximum total leverage ratio, minimum debt service coverage ratio (earnings before interest and depreciation and amortization plus cash on hand minus short-term debt), a minimum tangible net worth and a minimum quick ratio, which may restrict our ability to incur additional indebtedness and limit our ability to use our cash. In the event of our default on these loans or a breach of a covenant, the lenders may immediately cancel the loan agreement, deem the full amount of the outstanding indebtedness immediately due and payable, charge us interest on a monthly basis on the full amount of the outstanding indebtedness and, if we cannot repay all of our outstanding obligations, sell the assets pledged as collateral for the loan in order to fulfill our obligation. We may also be held responsible for any damages and related expenses incurred by the lender as a result of any default. Any failure by us or our subsidiaries to comply with these agreements could harm our business, financial condition and operating results.\nWe may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our shareholders.\nWe anticipate that our current cash and cash equivalents, together with cash provided by operating activities and funds available through our working capital and credit facilities, will be sufficient to meet our current and anticipated needs for general corporate purposes for at least the next 12 months. However, we operate in a market that makes our prospects difficult to evaluate. It is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs. If this occurs, we may need additional financing to execute on our current or future business strategies.\nFurthermore, if we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing shareholders. If adequate additional funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our manufacturing services, hire additional technical and other personnel, or otherwise respond to competitive pressures could be significantly limited.\nOur investment portfolio may become impaired by deterioration of the capital markets.\nWe use professional investment management firms to manage our excess cash and cash equivalents. Our short-term investments as of June\u00a030, 2023 are primarily investments in a fixed income portfolio, including liquidity funds, certificates of deposit and time deposits, corporate debt securities, and U.S. agency and U.S. Treasury securities. Our investment portfolio may become impaired by deterioration of the capital markets. We follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one issuer, as well as our maximum exposure to various asset classes. The policy also provides that we may not invest in short-term investments with a maturity in excess of three years.\nShould financial market conditions worsen, investments in some financial instruments may pose risks arising from market liquidity and credit concerns. In addition, any deterioration of the capital markets could cause our other income and expense to vary from expectations. As of June\u00a030, 2023, we did not record any impairment charges associated with our portfolio of short-term investments, and although we believe our current investment portfolio has little risk of material impairment, we cannot predict future market conditions or market liquidity, or credit availability, and can provide no assurance that our investment portfolio will remain materially unimpaired.\nWe are not fully insured against all potential losses. Natural disasters or other catastrophes could adversely affect our business, financial condition and operating results.\nOur current property and casualty insurance covers loss or damage to our property and third-party property over which we have custody and control, as well as losses associated with business interruption, subject to specified exclusions and limitations such as coinsurance, facilities location sub-limits and other policy limitations and covenants. Even with insurance coverage, natural disasters or other catastrophic events, including acts of war, could cause us to suffer substantial losses in our \n24\nTable of Contents\noperational capacity and could also lead to a loss of opportunity and to a potential adverse impact on our relationships with our existing customers resulting from our inability to produce products for them, for which we might not be compensated by existing insurance. This in turn could have a material adverse effect on our business, financial condition and operating results.\nThere are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with U.S. GAAP. Any changes in estimates, judgments and assumptions could have a material adverse effect on our business, financial condition and operating results.\nThe preparation of financial statements in accordance with U.S. GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities and related reserves, revenues, expenses and income. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets, liabilities, revenues, expenses and income. Any such changes could have a material adverse effect on our business, financial condition and operating results.\nIntellectual Property and Cybersecurity Risks\nOur business and operations would be adversely impacted in the event of a failure of our information technology infrastructure and/or cyber security attacks.\nWe rely upon the capacity, availability and security of our information technology hardware and software infrastructure. For instance, we use a combination of standard and customized software platforms to manage, record, and report all aspects of our operations and, in many instances, enable our customers to remotely access certain areas of our databases to monitor yields, inventory positions, work-in-progress status and vendor quality data. We are constantly expanding and updating our information technology infrastructure in response to our changing needs. Any failure to manage, expand and update our information technology infrastructure or any failure in the operation of this infrastructure could harm our business.\nDespite our implementation of security measures, our systems are vulnerable to damage caused by computer viruses, natural disasters, unauthorized access and other similar disruptions. Any system failure, accident or security breach could result in disruptions to our operations. To the extent that any disruption, cyber-attack or other security breach results in a loss or damage to our data or inappropriate disclosure of confidential information, our business could be harmed. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.\nIntellectual property infringement claims against our customers or us could harm our business, financial condition and operating results.\nOur services involve the creation and use of intellectual property rights, which subject us to the risk of intellectual property infringement claims from third parties and claims arising from the allocation of intellectual property rights among us and our customers.\nOur customers may require that we indemnify them against the risk of intellectual property infringement arising out of our manufacturing processes. If any claims are brought against us or our customers for such infringement, whether or not these claims have merit, we could be required to expend significant resources in defense of such claims. In the event of an infringement claim, we may be required to spend a significant amount of time and money to develop non-infringing alternatives or obtain licenses. We may not be successful in developing such alternatives or obtaining such licenses on reasonable terms or at all, which could harm our business, financial condition and operating results.\nAny failure to protect our customers\u2019 intellectual property that we use in the products we manufacture for them could harm our customer relationships and subject us to liability.\nWe focus on manufacturing complex optical products for our customers. These products often contain our customers\u2019 intellectual property, including trade secrets and know-how. Our success depends, in part, on our ability to protect our customers\u2019 intellectual property. We may maintain separate and secure areas for customer proprietary manufacturing processes and materials and dedicate floor space, equipment, engineers and supply chain management to protect our customers\u2019 proprietary drawings, materials and products. The steps we take to protect our customers\u2019 intellectual property may not adequately prevent its disclosure or misappropriation. If we fail to protect our customers\u2019 intellectual property, our customer relationships could be harmed, and we may experience difficulty in establishing new customer relationships. In addition, our customers might pursue legal claims against us for any failure to protect their intellectual property, possibly resulting in harm to our reputation and our business, financial condition and operating results.\n25\nTable of Contents\nTax, Compliance and Regulatory Risks\nWe are subject to the risk of increased income taxes, which could harm our business, financial condition and operating results.\nWe are subject to income and other taxes in Thailand, the PRC, the U.K., the U.S. and Israel. Our effective income tax rate, provision for income taxes and future tax liability could be adversely affected by numerous factors, including the results of tax audits and examinations, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in income tax rates, changes in the valuation of deferred tax assets and liabilities, failure to meet obligations with respect to tax exemptions, and changes in tax laws and regulations. From time to time, we engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. As of June\u00a030, 2023, our U.S. federal and state tax returns remain open to examination for the tax years 2018 through 2021. In addition, tax returns that remain open to examination in Thailand, the PRC, the U.K. and Israel range from the tax years 2016 through 2022. The results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and tax liability.\nWe base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. However, our tax position is subject to review and possible challenge by tax authorities and to possible changes in law, which may have retroactive effect. Fabrinet (the \u201cCayman Islands Parent\u201d) is an exempted company incorporated in the Cayman Islands. We maintain manufacturing operations in Thailand, the PRC, the U.S. and Israel. We cannot determine in advance the extent to which some jurisdictions may require us to pay taxes or make payments in lieu of taxes. Under the current laws of the Cayman Islands, we are not subject to tax in the Cayman Islands on income or capital gains until March 6, 2039.\nPreferential tax treatment from the Thai government in the form of a corporate tax exemption on income generated from projects to manufacture certain products at our Chonburi campus is available to us through June 2026. Similar preferential tax treatment was available to us through June 2020 with respect to products manufactured at our Pinehurst campus. After June 2020, 50% of our income generated from products manufactured at our Pinehurst campus will be exempted from tax through June 2025. New preferential tax treatment is available to us for products manufactured at our Chonburi campus Building 9, where income generated will be tax exempt through 2031, capped at our actual investment amount. Such preferential tax treatment is contingent on various factors, including the export of our customers\u2019 products out of Thailand and our agreement not to move our manufacturing facilities out of our current province in Thailand for at least 15 years from the date on which preferential tax treatment was granted. We will lose this favorable tax treatment in Thailand unless we comply with these restrictions, and as a result we may delay or forego certain strategic business decisions due to these tax considerations.\nThere is also a risk that Thailand or another jurisdiction in which we operate may treat the Cayman Islands Parent as having a permanent establishment in such jurisdiction and subject its income to tax. If we become subject to additional taxes in any jurisdiction or if any jurisdiction begins to treat the Cayman Islands Parent as having a permanent establishment, such tax treatment could materially and adversely affect our business, financial condition and operating results.\nCertain of our subsidiaries provide products and services to, and may from time to time undertake certain significant transactions with, us and our other subsidiaries in different jurisdictions. For instance, we have intercompany agreements in place that provide for our California and Singapore subsidiaries to provide administrative services for the Cayman Islands Parent, and the Cayman Islands Parent has entered into manufacturing agreements with our Thai subsidiary. In general, related party transactions and, in particular, related party financing transactions, are subject to close review by tax authorities. Moreover, several jurisdictions in which we operate have tax laws with detailed transfer pricing rules that require all transactions with non-resident related parties to be priced using arm\u2019s length pricing principles and require the existence of contemporaneous documentation to support such pricing. Tax authorities in various jurisdictions could challenge the validity of our related party transfer pricing policies. Such a challenge generally involves a complex area of taxation and a significant degree of judgment by management. If any tax authorities are successful in challenging our financing or transfer pricing policies, our income tax expense may be adversely affected and we could become subject to interest and penalty charges, which may harm our business, financial condition and operating results.\nSeveral governments are considering tax reform proposals that, if enacted, could increase our tax expense. The Organization for Economic Co-operation and Development (OECD) announced that it has reached agreement among its member countries to implement Pillar Two rules, a global minimum tax at 15% for certain multinational enterprises. Many countries are expected to issue laws and regulations to conform to this regime. We will continue to monitor legislative and regulatory developments to assess the impact on our business, financial condition and operating results. \n26\nTable of Contents\nWe have incurred and will continue to incur significant increased costs as a result of operating as a public company, and our management will be required to continue to devote substantial time to various compliance initiatives.\nThe Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as well as other rules implemented by the SEC and the New York Stock Exchange (\u201cNYSE\u201d), impose various requirements on public companies, including requiring changes in corporate governance practices. These and proposed corporate governance laws and regulations under consideration may further increase our compliance costs. If compliance with these various legal and regulatory requirements diverts our management\u2019s attention from other business concerns, it could have a material adverse effect on our business, financial condition and operating results. The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and disclosure controls and procedures quarterly. While we are able to assert in this Annual Report on Form 10-K that our internal control over financial reporting was effective as of June\u00a030, 2023, we cannot predict the outcome of our testing in future periods. If we are unable to assert in any future reporting periods that our internal control over financial reporting is effective (or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls), we could lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our share price.\nGiven the nature and complexity of our business and the fact that some members of our management team are located in Thailand while others are located in the U.S., control deficiencies may periodically occur. While we have ongoing measures and procedures to prevent and remedy control deficiencies, if they occur there can be no assurance that we will be successful or that we will be able to prevent material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Moreover, if we identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses in future periods, the market price of our ordinary shares could decline and we could be subject to potential delisting by the NYSE and review by the NYSE, the SEC, or other regulatory authorities, which would require us to expend additional financial and management resources. As a result, our shareholders could lose confidence in our financial reporting, which would harm our business and the market price of our ordinary shares.\nIf we are unable to meet regulatory quality standards applicable to our manufacturing and quality processes for the products we manufacture, our business, financial condition and operating results could be harmed.\nAs a manufacturer of products for the optics industry, we are required to meet certain certification standards, including the following: ISO 9001 for Manufacturing Quality Management Systems; ISO 14001 for Environmental Management Systems; TL 9000 for Telecommunications Industry Quality Certification; IATF 16949 for Automotive Industry Quality Certification; ISO 13485 for Medical Devices Industry Quality Certification; AS 9100 for Aerospace Industry Quality Certification; NADCAP (National Aerospace and Defense Contractors Accreditation Program) for Quality Assurance throughout the Aerospace and Defense Industries; ISO 45001 for Occupational Health and Safety Management Systems; and ISO 22301 for Business Continuity Management Systems. We also maintain compliance with various additional standards imposed by the FDA with respect to the manufacture of medical devices.\nAdditionally, we are required to register with the FDA and other regulatory bodies and are subject to continual review and periodic inspection for compliance with various regulations, including testing, quality control and documentation procedures. We hold the following additional certifications: ANSI ESD S20.20 for facilities and manufacturing process control, in compliance with ESD standard; TAPA and C-TPAT for Logistic Security Management System; and CSR-DIW for Corporate Social Responsibility in Thailand. In the European Union, we are required to maintain certain ISO certifications in order to sell our precision optical, electro-mechanical and electronic manufacturing services and we must undergo periodic inspections by regulatory bodies to obtain and maintain these certifications. If any regulatory inspection reveals that we are not in compliance with applicable standards, regulators may take action against us, including issuing a warning letter, imposing fines on us, requiring a recall of the products we manufactured for our customers, or closing our manufacturing facilities. If any of these actions were to occur, it could harm our reputation as well as our business, financial condition and operating results.\nFailure to comply with applicable environmental laws and regulations could have a material adverse effect on our business, financial condition and operating results.\nThe sale and manufacturing of products in certain states and countries may subject us to environmental laws and regulations. In addition, rules adopted by the SEC implementing the Dodd- Frank Wall Street Reform and Consumer Protection Act of 2010 impose diligence and disclosure requirements regarding the use of \u201cconflict minerals\u201d mined from the Democratic Republic of Congo and adjoining countries in the products we manufacture for our customers. Compliance with these rules has resulted in additional cost and expense, including for due diligence to determine and verify the sources of any conflict minerals used in the products we manufacture, and may result in additional costs of remediation and other changes to processes or sources of supply as a consequence of such verification activities. These rules may also affect the sourcing and availability of \n27\nTable of Contents\nminerals used in the products we manufacture, as there may be only a limited number of suppliers offering \u201cconflict free\u201d metals that can be used in the products we manufacture for our customers.\nAlthough we do not anticipate any material adverse effects based on the nature of our operations and these laws and regulations, we will need to ensure that we and, in some cases, our suppliers comply with applicable laws and regulations. If we fail to timely comply with such laws and regulations, our customers may cease doing business with us, which would have a material adverse effect on our business, financial condition and operating results. In addition, if we were found to be in violation of these laws, we could be subject to governmental fines, liability to our customers and damage to our reputation, which would also have a material adverse effect on our business, financial condition and operating results.\nRisks Related to Ownership of Our Ordinary Shares\nOur share price may be volatile due to fluctuations in our operating results and other factors, including the activities and operating results of our customers or competitors, any of which could cause our share price to decline.\nOur revenues, expenses and results of operations have fluctuated in the past and are likely to do so in the future from quarter-to-quarter and year-to-year due to the risk factors described in this section and elsewhere in this Annual Report on Form 10-K. In addition to market and industry factors, the price and trading volume of our ordinary shares may fluctuate in response to a number of events and factors relating to us, our competitors, our customers and the markets we serve, many of which are beyond our control. Factors such as variations in our total revenues, earnings and cash flow, announcements of new investments or acquisitions, changes in our pricing practices or those of our competitors, commencement or outcome of litigation, sales of ordinary shares by us or our principal shareholders, fluctuations in market prices for our services and general market conditions could cause the market price of our ordinary shares to change substantially. Any of these factors may result in large and sudden changes in the volume and price at which our ordinary shares trade. Volatility and weakness in our share price could mean that investors may not be able to sell their shares at or above the prices they paid and could also impair our ability in the future to offer our ordinary shares or convertible securities as a source of additional capital and/or as consideration in the acquisition of other businesses.\nFurthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may cause the market price of our ordinary shares to decline. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management\u2019s attention from other business concerns, which could seriously harm our business.\nIf securities or industry analysts do not publish research or if they publish misleading or unfavorable research about our business, the market price and trading volume of our ordinary shares could decline.\nThe trading market for our ordinary shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If securities or industry analysts stop covering us, or if too few analysts cover us, the market price of our ordinary shares could be adversely impacted. If one or more of the analysts who covers us downgrades our ordinary shares or publishes misleading or unfavorable research about our business, our market price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our ordinary shares could decrease, which could cause the market price or trading volume of our ordinary shares to decline.\nWe may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.\nBased upon estimates of the value of our assets, which are based in part on the trading price of our ordinary shares, we do not expect to be a passive foreign investment company (\u201cPFIC\u201d) for U.S. federal income tax purposes for the taxable year 2023 or for the foreseeable future. However, despite our expectations, we cannot guarantee that we will not become a PFIC for the taxable year 2023 or any future year because our PFIC status is determined at the end of each year and depends on the\ncomposition of our income and assets during such year. If we become a PFIC, our U.S. investors will be subject to increased tax liabilities under U.S. tax laws and regulations as well as burdensome reporting requirements.\n28\nTable of Contents\nOur business and share price could be negatively affected as a result of activist shareholders.\nIf an activist investor takes an ownership position in our ordinary shares, responding to actions by such activist shareholder could be costly and time-consuming, disrupt our operations and divert the attention of management and our employees. Additionally, perceived uncertainties as to our future direction as a result of shareholder activism or changes to the composition of our board of directors may lead to the perception of a change in the direction of our business or other instability, which may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel. If customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us because of any such issues, then our business, financial condition and operating results would be adversely affected. In addition, our share price could experience periods of increased volatility as a result of shareholder activism.\nCertain provisions in our constitutional documents may discourage our acquisition by a third party, which could limit our shareholders' opportunity to sell shares at a premium.\nOur constitutional documents include provisions that could limit the ability of others to acquire control of us, modify our structure or cause us to engage in change-of-control transactions, including, among other things, provisions that:\n\u2022\nestablish a classified board of directors;\n\u2022\nprohibit our shareholders from calling meetings or acting by written consent in lieu of a meeting;\n\u2022\nlimit the ability of our shareholders to propose actions at duly convened meetings; and\n\u2022\nauthorize our board of directors, without action by our shareholders, to issue preferred shares and additional ordinary shares.\nThese provisions could have the effect of depriving our shareholders of an opportunity to sell their ordinary shares at a premium over prevailing market prices by discouraging third parties from seeking to acquire control of us in a tender offer or similar transaction.\nOur shareholders may face difficulties in protecting their interests because we are incorporated under Cayman Islands law.\nOur corporate affairs are governed by our amended and restated memorandum and articles of association (\u201cMOA\u201d), by the Companies Law (as amended) of the Cayman Islands and the common law of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under the laws of the Cayman Islands are not as clearly established under statutes or judicial precedent as in jurisdictions in the U.S. Therefore, our shareholders may have more difficulty in protecting their interests than would shareholders of a corporation incorporated in a jurisdiction in the U.S., due to the comparatively less developed nature of Cayman Islands law in this area.\nThe Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.\nIn addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting convened for that purpose. The convening of the meeting and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. A dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved.\nWhen a takeover offer is made and accepted by holders of 90.0% of the shares within four months, the offeror may, within a\u00a0two-month\u00a0period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.\nIf the arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of a corporation incorporated in a \n29\nTable of Contents\njurisdiction in the U.S., providing rights to receive payment in cash for the judicially determined value of the shares. This may make it more difficult for our shareholders to assess the value of any consideration they may receive in a merger or consolidation or to require that the offeror give them additional consideration if they believe the consideration offered is insufficient.\nShareholders of Cayman Islands exempted companies have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders. Our directors have discretion under our MOA to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for our shareholders to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.\nSubject to limited exceptions, under Cayman Islands law, a minority shareholder may not bring a derivative action against the board of directors.\nCertain judgments obtained against us by our shareholders may not be enforceable.\nThe Cayman Islands Parent is a Cayman Islands exempted company and substantially all of our assets are located outside of the U.S. Given our domicile and the location of our assets, it may be difficult to enforce in U.S. courts judgments obtained against us in U.S. courts based on the civil liability provisions of the U.S. federal securities laws. In addition, there is uncertainty as to whether the courts of the Cayman Islands, Thailand or the PRC would recognize or enforce judgments of U.S. courts against us predicated upon the civil liability provisions of the securities laws of the U.S. or any state. In particular, a judgment in a U.S. court would not be recognized and accepted by Thai courts without a re-trial or examination of the merits of the case. In addition, there is uncertainty as to whether such Cayman Islands, Thai or PRC courts would be competent to hear original actions brought in the Cayman Islands, Thailand or the PRC against us predicated upon the securities laws of the U.S. or any state.\nGeneral Risks\nEnergy price volatility may negatively impact our business, financial condition and operating results.\nWe, along with our suppliers and customers, rely on various energy sources in our manufacturing and transportation activities. Energy prices have been subject to increases and general volatility caused by market fluctuations, supply and demand, currency fluctuation, production and transportation disruption, world events and government regulations. While we are currently experiencing lower energy prices, a significant increase is possible, which could increase our raw material and transportation costs. In addition, increased transportation costs of our suppliers and customers could be passed along to us. We may not be able to increase our prices to adequately offset these increased costs, and any increase in our prices may reduce our future customer orders, which could harm our business, financial condition and operating results.",
+  "item7": ">ITEM 7.\nMANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.\nIn addition to historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry\u2019s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:\n\u2022\nour goals and strategies;\n\u2022\nour and our customers\u2019 estimates regarding future revenues, operating results, expenses, capital requirements and liquidity;\n\u2022\nour belief that we will be able to maintain favorable pricing on our services;\n\u2022\nour expectation that the portion of our future revenues attributable to customers in regions outside of North America will increase compared with the portion of those revenues for fiscal year 2023;\n\u2022\nour expectation that we will incur incremental costs of revenue as a result of our planned expansion of our business into new geographic markets;\n\u2022\nour expectation that our fiscal year 2024 selling, general and administrative (\u201cSG&A\u201d) expenses will increase compared to our fiscal year 2023 SG&A expenses;\n\u2022\nour expectation that our employee costs will increase in Thailand and the People\u2019s Republic of China (\u201cPRC\u201d);\n\u2022\nour future capital expenditures and our needs for additional financing;\n\u2022\nthe expansion of our manufacturing capacity, including into new geographies;\n\u2022\nthe growth rates of our existing markets and potential new markets;\n\u2022\nour ability, and the ability of our customers and suppliers, to respond successfully to technological or industry developments;\n\u2022\nour expectations regarding the potential impact of macroeconomic conditions and international political instability on our business, financial condition and operating results;\n\u2022\nour suppliers\u2019 estimates regarding future costs;\n\u2022\nour ability to increase our penetration of existing markets and to penetrate new markets;\n\u2022\nour plans to diversify our sources of revenues;\n\u2022\nour plans to execute acquisitions;\n\u2022\ntrends in the optical communications, industrial lasers, and sensors markets, including trends to outsource the production of components used in those markets;\n\u2022\nour ability to attract and retain a qualified management team and other qualified personnel and advisors; and\n\u2022\ncompetition in our existing and new markets.\nThese forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, in particular, the risks discussed under the heading \u201cRisk Factors\u201d in Item 1A, as well as those discussed in other documents we file with the Securities and Exchange Commission. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. \u201cWe,\u201d \u201cus\u201d and \u201cour\u201d refer to Fabrinet and its subsidiaries.\n34\nTable of Contents\nOverview\nFor an overview of our business, see PART I \u2013 ",
+  "item7a": ">ITEM 7A.\nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.\nInterest Rate Risk\nWe had cash, cash equivalents, and short-term investments totaling $550.5 million, $478.2 million and $547.9 million, as of June\u00a030, 2023, June\u00a024, 2022 and June\u00a025, 2021, respectively. We have interest rate risk exposure relating to the interest income generated by excess cash invested in highly liquid investments with maturities of three months or less from the original dates of purchase. The cash, cash equivalents, and short-term investments are held for working capital purposes. We have not used derivative financial instruments in our investment portfolio. We have not been exposed nor do we anticipate being exposed to material risks due to changes in market interest rates. Declines in interest rates, however, will reduce future investment income. If overall interest rates had declined by 10 basis points during fiscal year 2023, fiscal year 2022 and fiscal year 2021, our interest income would have decreased by approximately $0.5 million, $0.4 million and $0.5 million, respectively, assuming consistent investment levels.\nWe also have interest rate risk exposure in movements in interest rates associated with our interest-bearing liabilities. The interest-bearing liabilities are denominated in U.S. dollars and until September 29, 2023, the interest expense is based on LIBOR, plus an additional margin, depending on the lending institution. If the LIBOR had increased by 100 basis points during fiscal year 2023, fiscal year 2022 and fiscal year 2021, our interest expense would have increased by approximately $0.2 million, $0.3 million and $0.4 million, respectively, assuming consistent borrowing levels.\nWe therefore entered into interest rate swap agreements (the \u201cSwap Agreements\u201d) to manage this risk and increase the profile of our debt obligation. The terms of the Swap Agreements allow us to effectively convert the floating interest rate to a fixed interest rate. This locks the variable interest expenses associated with our floating rate borrowings and results in fixed interest expenses that are unsusceptible to market rate increases. We designated the Swap Agreements as a cash flow hedge, and they qualify for hedge accounting because the hedges are highly effective. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings. From September 27, 2019, any gains or losses related to these outstanding interest rate swaps will be recorded in accumulated other comprehensive income in the consolidated balance sheets, with subsequent reclassification to interest expense when settled.\nWe maintain an investment portfolio in a variety of financial instruments, including, but not limited to, U.S. government and agency bonds, corporate obligations, money market funds, asset-backed securities, and other investment-grade securities. The majority of these investments pay a fixed rate of interest. The securities in the investment portfolio are subject to market price risk due to changes in interest rates, perceived issuer creditworthiness, marketability, and other factors. These investments are generally classified as available-for-sale and, consequently, are recorded on our consolidated balance sheets at fair value with unrealized gains or losses reported as a separate component of shareholders\u2019 equity.\nInvestments in both fixed-rate and floating-rate interest earning instruments carry a degree of interest rate risk. The fair market values of our fixed-rate securities decline if interest rates rise, while floating-rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may be less than we expect because of changes in interest rates, or we may suffer losses in principal if forced to sell securities that have experienced a decline in market value because of changes in interest rates.\nForeign Currency Risk\nAs a result of our foreign operations, we have significant expenses, assets and liabilities that are denominated in foreign currencies. Substantially all of our employees and most of our facilities are located in Thailand, the PRC and the United Kingdom. Therefore, a substantial portion of our payroll as well as certain other operating expenses are paid in Thai baht, RMB and GBP. The significant majority of our revenues are denominated in U.S. dollars because our customer contracts generally provide that our customers will pay us in U.S. dollars.\nAs a consequence, our gross profit margins, operating results, profitability and cash flows are adversely impacted when the dollar depreciates relative to the Thai baht, the GBP or the RMB. We have a particularly significant currency rate exposure to changes in the exchange rate between the Thai baht, the GBP, the RMB and the U.S. dollar. We must translate foreign currency-denominated results of operations, assets and liabilities for our foreign subsidiaries to U.S. dollars in our consolidated \n47\nTable of Contents\nfinancial statements. Consequently, increases and decreases in the value of the U.S. dollar compared with such foreign currencies will affect our reported results of operations and the value of our assets and liabilities on our consolidated balance sheets, even if our results of operations or the value of those assets and liabilities has not changed in its original currency. These transactions could significantly affect the comparability of our results between financial periods or result in significant changes to the carrying value of our assets, liabilities and shareholders\u2019 equity.\nWe attempt to hedge against these exchange rate risks by entering into derivative instruments that are typically one to twelve months in duration, leaving us exposed to longer term changes in exchange rates. We designated the foreign currency forward contracts used to hedge fluctuations in the U.S. dollar value of forecasted transactions denominated in Thai baht as cash flow hedges, as they qualified for hedge accounting because the hedges are highly effective. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings. From December 28, 2019, any gains or losses related to these outstanding foreign currency forward contracts will be recorded in accumulated other comprehensive income in the consolidated balance sheets, with subsequent reclassification to the same statement of operations and comprehensive income line item as the earnings effect of hedge items when settled. We recorded unrealized gain of $0.4 million and unrealized loss $0.8 million for the year ended June\u00a030, 2023 and June\u00a024, 2022, respectively, related to derivatives that are not designated as hedging instruments. As foreign currency exchange rates fluctuate relative to the U.S. dollar, we expect to incur foreign currency translation adjustments and may incur foreign currency exchange losses. For example, a 10% weakening in the U.S. dollar against the Thai baht, the RMB and the GBP would have resulted in a decrease in our net dollar position of approximately $6.0 million and $5.3 million as of June\u00a030, 2023 and June\u00a024, 2022, respectively. We cannot give any assurance as to the effect that future changes in foreign currency rates will have on our consolidated financial position, operating results or cash flows.\nCredit Risk\nCredit risk refers to our exposures to financial institutions, suppliers and customers that have in the past and may in the future experience financial difficulty, particularly in light of recent conditions in the credit markets and the global economy. As of June\u00a030, 2023, our cash and cash equivalents were held in deposits and highly liquid investment products with maturities of three months or less with banks and other financial institutions having credit ratings of A minus or above. Our short-term investments as of June\u00a030, 2023 are held in various financial institutions with a maturity limit not to exceed three years, and all securities are rated A1, P-1, F1 or better. We continue to monitor our surplus cash and consider investment in corporate and U.S. government debt as well as certain available-for-sale and held-to-maturity securities in accordance with our investment policy. We generally monitor the financial performance of our suppliers and customers, as well as other factors that may affect their access to capital and liquidity. Presently, we believe that we will not incur material losses due to our exposures to such credit risk.\n48\nTable of Contents",
+  "cik": "1408710",
+  "cusip6": "G3323L",
+  "cusip": ["G3323L100", "g3323l100"],
+  "names": ["FABRINET", "Fabrinet"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1408710/000140871023000028/0001408710-23-000028-index.htm"
+}
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+{
+  "item1": ">Item\u00a01.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Business.\nOur Business\nWe are a manufacturer of precision, large-scale fabricated and machined metal structural components and systems. We offer a full range of services required to transform raw materials into precision finished products. We sell these finished products to customers in two main industry groups: defense and precision industrial. The finished products are used in a variety of markets including defense, aerospace, nuclear, medical, and precision industrial. Our mission is to be a leading end-to-end service provider to our customers by furnishing custom, fully integrated solutions for complete products that require custom fabrication, precision machining, assembly, integration, inspection, non-destructive evaluation, and testing.\nWe work with our customers to manufacture products in accordance with the customers\u2019 drawings and specifications. Our work complies with specific national and international codes and standards applicable to our industry. We believe that we have earned our reputation through outstanding technical expertise, attention to detail, and a total commitment to quality and excellence in customer service.\nWe have two wholly-owned subsidiaries that are each reportable segments: Ranor and Stadco. Each reportable segment focuses on the manufacture and assembly of specific components, primarily for defense and other precision industrial customers. For discussion of the operating results of our reporting business segments, refer to \u201c\nItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\u201d and Note 16, Segment Information, in the Notes to the Consolidated Financial Statements under \u201c\nItem 8. Financial Statements and Supplementary Data.\n\u201d.\nAbout Us\nWe are a Delaware corporation organized in 2005 under the name Lounsberry Holdings II, Inc. On February 24, 2006, we acquired all of the issued and outstanding capital stock of our wholly owned subsidiary Ranor, Inc., or \u201cRanor.\u201d On March 6, 2006, following the acquisition of Ranor, we changed our corporate name to TechPrecision Corporation. Ranor, together with its predecessors, has been in continuous operation since 1956. From February 24, 2006, until our acquisition of Stadco in August 2021, our primary business has been the business of Ranor.\nOn August 25, 2021, the Company completed its acquisition of Stadco, a company in the business of manufacturing high-precision parts, assemblies and tooling for aerospace, defense, research and commercial customers, or the \u201cAcquisition\u201d, pursuant to that certain stock purchase agreement with Stadco New Acquisition, LLC, Stadco Acquisition, LLC, Stadco and each equity holder of Stadco Acquisition, LLC. On August 25, 2021, pursuant to the stock purchase agreement, and upon the terms and subject to the conditions therein, the Company, through Stadco New Acquisition, LLC, acquired all of the issued and outstanding capital stock of Stadco from Stadco Acquisition, LLC. As a result of the Acquisition, Stadco is now our wholly owned indirect subsidiary.\nOur executive offices are located at 1 Bella Drive, Westminster, Massachusetts 01473, and our telephone number is (978) 874-0591. Our website is www.techprecision.com. Information on our website, or any other website, is not incorporated by reference in this annual report.\nReferences in this annual report to the \u201cCompany,\u201d \u201cwe,\u201d \u201cus,\u201d \u201cour\u201d and similar words refer to TechPrecision Corporation and its subsidiaries, unless the context indicates otherwise, while references to \u201cTechPrecision\u201d refer to TechPrecision Corporation and not its subsidiaries.\nGeneral\nThe manufacturing operations of our Ranor subsidiary are situated on approximately 65 acres in North Central Massachusetts. Our 145,000 square foot facility houses state-of-the-art equipment which gives us the capability to manufacture products as large as 100 tons. We offer a full range of services required to transform raw material into precision finished products. Our manufacturing capabilities include fabrication operations (cutting, press and roll forming, assembly, welding, heat treating, blasting and painting) and machining operations including CNC (computer numerical controlled) horizontal and vertical milling centers. We also provide support services to our manufacturing capabilities: manufacturing engineering (planning, fixture and tooling development, and manufacturing), quality \n3\n\n\nTable of Contents\ncontrol (inspection and testing), materials procurement, production control (scheduling, project management and expediting), and final assembly.\nAll manufacturing at Ranor\u2019s facility is done in accordance with our written quality assurance program, which meets specific national codes, and international codes, standards, and specifications. The standards used for each customer project are specific to that customer\u2019s needs, and we have implemented such standards into our manufacturing operations.\nThe manufacturing operations of our Stadco subsidiary are situated in an industrial warehouse and office location comprised of approximately 183,000 square feet in Los Angeles, California. At this site, Stadco manufactures large flight-critical components on several high-profile commercial and military aircraft programs, including military helicopters. It has been a critical supplier to a blue-chip customer base that includes some of the largest OEMs and prime contractors in the defense and aerospace industries. Stadco also provides tooling, customized molds, fixtures, jigs and dies used in the production of aircraft components and operates a large electron beam welding machine allowing it to weld thick pieces of titanium and other metals.\nProducts\nWe manufacture a wide variety of products pursuant to customer contracts and based on individual customer needs. We can also provide manufacturing engineering services to assist customers in optimizing their engineering designs for manufacturing efficiency. We do not design the products we manufacture, but rather manufacture according to \u201cbuild-to-print\u201d requirements specified by our customers. Accordingly, we do not distribute the products that we manufacture on the open market, and we do not market any specific products on an on-going basis. We do not own the intellectual property rights to any proprietary marketed product, and we do not manufacture products in anticipation of orders. Manufacturing operations do not commence on any project before we receive a customer\u2019s purchase order. We only consider contracts that cover specific products within the capability of our resources.\nAlthough we seek continuous production programs with predictable cost structures that provide long-term integrated solutions for our customers, our activities include a variety of both custom-based and production-based requirements. The custom-based work is typically either a prototype or unique, one-of-a-kind product. The production-based work is repeat work or a single product with multiple quantity releases.\nChanges in market demand for our manufacturing expertise can be significant and sudden and require us to be able to adapt to the collective needs of the customers and industries that we serve.\u00a0Understanding this dynamic, we believe we have developed the capability to transform our workforce to manufacture products for customers across different industries.\nWe serve customers in the defense, aerospace, nuclear, medical, and precision industrial markets. Examples of products we have manufactured within such industries during recent years include, but are not limited to, custom components for ships and submarines, military helicopters, aerospace equipment, components for nuclear power plants and components for large scale medical systems. We manage and report financial information through our two reportable segments, Ranor and Stadco.\nSource of Supply\nOur manufacturing operations are partly dependent on the availability of raw materials. Most of our contracts with customers require the use of customer-supplied raw materials in the manufacture of their product. Accordingly, raw material requirements vary with each contract and are dependent upon customer requirements and specifications. We have established relationships with numerous suppliers. When we do buy raw materials, we endeavor to establish alternate sources of material supply to reduce our dependency on any one supplier and strive to maintain a minimal raw material inventory.\nOur projects include the manufacturing of products from various traditional as well as specialty metal alloys. These materials may include, but are not limited to steel, nickel, monel, inconel, aluminum, stainless steel, and other alloys. Certain of these materials are subject to long-lead time delivery schedules. In the fiscal year ended March 31, 2023, or \u201cfiscal 2023\u201d, one supplier accounted for 10% or more of our purchased material. In the fiscal year ended March 31, 2022, or \u201cfiscal 2022\u201d, two suppliers accounted for 10% or more of our purchased material.\n4\n\n\nTable of Contents\nMarketing\nWhile we have significant customer concentration, we endeavor to broaden our customer base as well as the industries we serve. We market to our existing customer base and initiate contacts with new potential customers through various sources including personal contacts, customer referrals, and referrals from other businesses. A significant portion of our business is the result of competitive bidding processes, and a significant portion of our business is from contract negotiation. We believe that the reputation we have developed with our current customers represents an important part of our marketing effort.\nRequests for quotations received from customers are reviewed to determine the specific requirements and our ability to meet such requirements. Quotations are prepared by estimating the material and labor costs and assessing our current backlog to determine our delivery commitments. Competitive bid quotations are submitted to the customer for review and award of contract. Negotiation bids typically require the submission of additional information to substantiate the quotation. The bidding process can range from several weeks for a competitive bid to several\u00a0months for a negotiation bid before the customer awards a contract.\nResearch and Product Development\nMany of our customers generate drawings illustrating their projected unit design and technology requirements. Our research and product development activities are limited and focused on delivering robust production solutions to such projected unit design and technology requirements. We follow this product development methodology in all our major product lines. For these reasons, we incurred no expenses for research and development in fiscal 2023 and fiscal 2022.\nPrincipal Customers\nA significant portion of our business is generated by a small number of major customers. The balance of our business consists of discrete projects for numerous other customers. As industry and market demand changes, our major customers may also change. Our ten largest customers generated approximately 96% and 90% of our total revenue in fiscal 2023 and fiscal 2022, respectively. Our group of largest customers can change from year to year. Our largest single customer in fiscal 2023 and fiscal 2022 was a prime defense contractor and accounted for 20% of our net sales during both fiscal 2023 and fiscal 2022. Our defense customers are engaged in the development, delivery and support of advanced defense, security, and aerospace systems, including the U.S. Navy\u2019s Virginia-class fast attack submarine program and the U.S. Navy\u2019s Columbia-class ballistic missile submarine program. We also manufacture large flight-critical components on several high-profile commercial and military aircraft programs, including military helicopters. We also serve customers who supply components to the nuclear power industry.\nWe historically have experienced, and continue to experience, customer concentration. A significant loss of business from our largest customer or a combination of several of our significant customers could result in lower operating profitability and/or operating losses if we are unable to replace such lost revenue from other sources. The revenue derived from all of our customers in the designated industry groups for the fiscal\u00a0years ended March\u00a031, 2023 and 2022 are displayed in the table below:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(dollars in thousands)\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u200b\nNet Sales\n\u200b\nAmount\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u200b\nAmount\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u200b\nDefense\n\u200b\n$\n 30,935\n\u200b\n 98\n%\n$\n 20,855\n\u00a0\n 94\n%\nPrecision Industrial\n\u200b\n$\n 497\n\u200b\n 2\n%\n$\n 1,427\n\u00a0\n 6\n%\n\u200b\n5\n\n\nTable of Contents\nThe following table displays revenue generated by individual customers in\u00a0specific industry sectors that accounted for 10% or more of our revenue in either fiscal 2023 or fiscal 2022:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(dollars in thousands)\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\nNet Sales\n\u200b\nAmount\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u200b\nAmount\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u00a0\nDefense Customer 1\n\u200b\n$\n 6,352\n\u00a0\n 20\n%\u00a0\u00a0\n$\n 4,449\n\u00a0\n 20\n%\nDefense Customer 2\n\u200b\n$\n 4,780\n\u00a0\n 15\n%\u00a0\u00a0\n$\n*\n\u00a0\n*\n%\nDefense Customer 3\n\u200b\n$\n 3,249\n\u00a0\n 10\n%\u00a0\u00a0\n$\n*\n\u00a0\n*\n%\nDefense Customer 4\n\u200b\n$\n *\n\u00a0\n *\n%\u00a0\u00a0\n$\n 3,535\n\u00a0\n 16\n%\nDefense Customer 5\n\u200b\n$\n 5,839\n\u200b\n 19\n%\u00a0\u00a0\n$\n 2,505\n\u200b\n 11\n%\n*\n\u00a0Less than 10% of total\nOn March\u00a031, 2023, we had a backlog of orders totaling approximately $44.0 million. We expect to deliver the backlog over the course of the next two to three fiscal\u00a0years.\u00a0The comparable backlog on March\u00a031, 2022 was $47.3 million.\nCompetition\nWe face competition from both domestic and foreign entities in the manufacture of metal fabricated and machined precision components and equipment. The industry in which we compete is fragmented with no one dominant player. We compete against companies that are both larger and smaller than us in size and capacity. Some competitors may be better known, have greater resources at their disposal, and have lower production costs. For certain products, being a domestic manufacturer may play a role in determining whether we are awarded a certain contract. For example, we face limited foreign competition for our defense products. For other products and markets, we may be competing against foreign manufacturers who have a lower cost of production. If a contracting party has a relationship with a vendor and is required to place a contract for bids, the preferred vendor may provide or assist in the development of the specification for the product which may be tailored to that vendor\u2019s products. In such event, we would be at a disadvantage in seeking to obtain that contract. We believe that customers focus on such factors as the quality of work, the reputation of the vendor, the perception of the vendor\u2019s ability to meet the required schedule, and price in selecting a vendor for their products. We believe that our strengths in these areas allow us to compete effectively, and that as a result, we are one of a select group of companies that can provide the products and services we are able to provide.\nGovernment Regulations\nWe provide a significant portion of our manufacturing services as a subcontractor to prime government contractors. Such prime government contractors are subject to government procurement and acquisition regulations which give the government the right to terminate these contracts for convenience, certain renegotiation rights, and rights of inspection. Any government action which affects our customers who are prime government contractors would affect us.\nBecause of the nature and use of our products, we are subject to compliance with quality assurance programs, compliance with which is a condition for our ability to bid on government contracts and subcontracts. We believe we are in compliance with all of these programs.\nWe are also subject to laws and regulations applicable to manufacturing operations, such as federal and state occupational health and safety laws, and environmental laws, which are discussed in more detail below under \n\u201c-Environmental Compliance\n.\u201d\nEnvironmental Compliance\nWe are subject to U.S. federal, state and local environmental laws and regulations that pertain to the use, disposal and cleanup of substances regulated by those laws and the filing of reports with environmental agencies, and we are subject to periodic inspections to monitor our compliance. We believe that we are currently in compliance with applicable environmental regulations. As part of our normal business practice, we are required to develop and file reports and maintain logbooks that document all environmental issues within our organization. We may engage outside consultants to assist us in keeping current on developments in environmental regulations. Expenditures for environmental compliance purposes during fiscal 2023 and 2022 were not material.\n6\n\n\nTable of Contents\nOccupational Health and Safety Laws\nOur business and operations are subject to numerous federal, state, and local laws and regulations intended to protect our employees. Due to the nature of manufacturing, we are subject to substantial regulations related to safety in the workplace. In addition to the requirements of the state government of Massachusetts and California and the local governments having jurisdiction over our plants in those states, we must comply with federal health and safety regulations, the most significant of which are enforced by the Occupational Safety and Health Administration (\u201cOSHA\u201d).\nFurther, our manufacturing and other business operations and facilities are subject to additional federal, state, or local laws or regulations including supply chain transparency, conflict minerals sourcing and disclosure, transportation and other laws or regulations relating to health and safety requirements, including COVID-19 safety and prevention. Our operations are also subject to federal, state, and local labor laws relating to employee privacy, wage and hour matters, overtime pay, harassment and discrimination, equal opportunity and employee leaves and benefits. We are also subject to existing and emerging federal and state laws relating to data security and privacy.\nIt is our policy and practice to comply with all legal and regulatory requirements and our procedures and internal controls are designed to promote such compliance. Expenditures for compliance with occupational health and safety laws and regulations during fiscal 2023 and 2022 were not material.\nIntellectual Property Rights\nPresently, we have no registered intellectual property rights other than certain trademarks for our name and other business and marketing materials. Over the course of our business, we develop know-how for use in the manufacturing process. Although we have non-disclosure policies in place with respect to our personnel and in our contractual relationships, we cannot assure you that we will be able to protect our intellectual property rights with respect to this know-how.\nHuman Capital Resources\nThe success of our business depends in large part on our ability to attract, retain, and develop a workforce of skilled employees at all levels of our organization. We provide our employees base wages and salaries that we believe are competitive and consistent with employee positions, and work with local, regional, and state-wide agencies to facilitate workforce hiring and development initiatives.\nAs of March 31, 2023, we had 155 employees, of whom all are full time employees. At Ranor and Stadco, 20 and 19 employees are salaried, and 67 and 49 employees are hourly, respectively. None of our employees are represented by a labor union.\nAvailable Information\nWe maintain a website at techprecision.com. Information on our website is not incorporated by reference into this Annual Report on Form\u00a010-K and does not constitute a part of this Annual Report on Form\u00a010-K. We make available, free of charge, on our website our annual report on Form\u00a010-K, quarterly reports on Form\u00a010-Q, current reports on Form\u00a08-K and amendments to those reports filed or furnished pursuant to Section\u00a013(a)\u00a0or 15(d)\u00a0of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. These reports are also available at the SEC\u2019s website at www.sec.gov.\nItem\u00a01A.\u00a0\u00a0\u00a0\u00a0\u00a0Risk Factors.\nOur business, results of operations and financial condition and the industry in which we operate are subject to various risks. We have listed below (not necessarily in order of importance or probability of occurrence) the most significant risk factors applicable to us, but they do not constitute all the risks that may be applicable to us. New risks may emerge from time to time, and it is not possible for us to predict all potential risks or to assess the likely impact of all risks. More information concerning certain of these risks is contained in other sections of this Annual Report on Form\u00a010-K, including in \u201c\nItem\u00a07. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n.\u201d\n7\n\n\nTable of Contents\nRisks Related to Our Business and Industry\nWe face strong competition in our markets.\nWe face competition from both domestic and foreign manufacturers in each of the markets we serve. No one company dominates the industry in which we operate. Our competitors include international, national, and local manufacturers, some of whom may have greater financial, manufacturing, marketing, and technical resources than we do, or greater penetration in or familiarity with a particular geographic market than we have.\nSome competitors may be better known or have greater resources at their disposal, and some may have lower production costs. For certain products, being a domestic manufacturer may play a role in determining whether we are awarded a certain contract. For other products, we may be competing against foreign manufacturers who have a lower cost of production. If a contracting party has a relationship with a vendor and is required to place a contract for bids, the preferred vendor may provide or assist in the development of the specification for the product which may be tailored to that vendor\u2019s products. In such event, we would be at a disadvantage in seeking to obtain that contract. We believe that customers focus on such factors as quality of work, reputation of the vendor, perception of the vendor\u2019s ability to meet the required schedule, and price in selecting a vendor for their products. Some of our customers have moved manufacturing operations or product sourcing overseas, which can negatively impact our sales. To remain competitive, we will need to invest continuously in our manufacturing capabilities and customer service, and we may need to reduce our prices, particularly with respect to customers in industries that are experiencing downturns, which may adversely affect our results of operations. We cannot provide assurance that we will be able to maintain our competitive position in each of the markets that we serve, and any failure by us to complete could have a material adverse effect on our business, financial condition and results of operations.\nBecause most of our contracts are individual purchase orders and not long-term agreements, there is no guarantee that we will be able to generate a similar amount of revenue in the future.\nWe must bid or negotiate each of our contracts separately, and when we complete a contract, there is generally no continuing source of revenue under that contract. As a result, we cannot assure you that we will have a continuing stream of revenue from any contract. Our failure to generate new business on an ongoing basis would materially impair our ability to operate profitably. Additionally, our reliance on individual purchase orders has historically caused, and may in future periods cause, our results of operations and cash flows to vary considerably and unpredictably from period to period. Because a significant portion of our revenue is derived from services rendered for the defense, aerospace, nuclear, large medical device and precision industrial markets, our operating results may suffer from conditions affecting these industries, including any budgeting, economic or other trends that have the effect of reducing the requirements for our services. Lingering impacts from the COVID-19 pandemic, labor shortages and/or supply chain disruptions in the broader economy may also reduce demand for our products and services because of delays or disruptions in our customers\u2019 ability to continue their own production, which could have a material adverse effect on our business, financial condition, or results of operation.\nOur business may be impacted by external factors that we may not be able to control, including health emergencies like epidemics or pandemics, and the war between Russia and Ukraine.\nWar, civil conflict, terrorism, natural disasters, and public health issues including domestic or international pandemics, have caused and could cause damage or disruption to domestic or international commerce by creating economic or political uncertainties. Additionally, volatility in the financial markets, instability in the banking sector and disruptions or downturns in other areas of the global or U.S. economies could negatively impact our business. These events could result in a decrease in demand for our products, make it difficult or impossible to deliver orders to customers or receive materials from suppliers, affect the availability or pricing of energy sources or result in other severe consequences that may or may not be predictable. As a result, our business, financial condition and results of operations could be materially adversely affected.\nWe could also be negatively affected by health emergencies, including epidemics or pandemics. The effects of any such health emergency and related governmental responses could include extended disruptions to supply chains and capital markets, reduced labor availability and productivity and a prolonged reduction in demand for our services and overall global economic activity. This could result in the Company experiencing significant disruptions, which could have a material adverse effect on our results of operations, financial condition, and cash flows.\n8\n\n\nTable of Contents\nTo date, the company has not experienced any material effects from the war between Russia and Ukraine and sanctions placed on the Russian Federation and Belarus. However, because of our reliance on certain raw materials and energy supplies, an economic environment of rising costs and interest rates could have an unfavorable impact our operations and financial condition. Additionally, recent events involving limited liquidity, defaults, non-performance or other adverse developments that affect banks, financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have recently and may in the future lead to market-wide liquidity problems, which could impact demand for our products. This uncertainty regarding liquidity concerns in the financial services industry could adversely impact our business, our business partners, or industry as a whole in ways that we cannot predict at this time.\nBecause of our dependence on a limited number of customers, our failure to generate major contracts from a small number of customers may impair our ability to operate profitably.\nWe have, in the past, been dependent in each year on a small number of customers who generate a significant portion of our business, and these customers change from year to year. For the year ended March 31, 2023, our four largest customers accounted for approximately 64% of our revenue. For the year ended March 31, 2022, our three largest customers accounted for approximately 47% of our revenue. In addition, our backlog on March 31, 2023 was $44.0 million, of which 83% was attributable to four customers.\nAs a result, we may have difficulty operating profitably if there is a default in payment by any of our major customers, we lose an existing order, or we are unable to generate orders from new or existing customers. Furthermore, to the extent that any one customer accounts for a large percentage of our revenue, the loss of that customer could materially affect our ability to operate profitably. For example, our largest customer in the fiscal years ended March 31, 2023 and 2022 accounted for 20% of our revenue for both years. The loss of these customers could have a material adverse effect upon our business and may impair our ability to operate profitably. We anticipate that our dependence on a limited number of customers in any given fiscal year will continue for the foreseeable future. There is always a risk that existing customers will elect not to do business with us in the future or will experience financial difficulties. If our customers experience financial difficulties or business reversals, or lose orders or anticipated orders, which would reduce or eliminate the need for the products which they ordered from us, they could be unable or unwilling to fulfill their contracts with us.\nThere is also a risk that our customers will attempt to impose new or additional requirements on us that reduce the profitability of the orders placed by those customers with us. Further, even if the orders are not changed, these orders may not generate margins equal to our recent historical or targeted results. If we do not book more orders with existing customers, or develop relationships with new customers, we may not be able to increase, or even maintain, our revenue, and our financial condition, results of operations, business and/or prospects may be materially adversely affected.\nOur backlog figures may not accurately predict future sales or recognizable revenue.\nWe expect to fill most items of backlog within the next three\u00a0years. However, because orders may be rescheduled or canceled and a significant portion of our net sales is derived from a small number of customers, backlog is not necessarily indicative of future sales levels. Moreover, we cannot be sure of when during the future 36-month period we will be able to recognize revenue corresponding to our backlog nor can we be certain that revenues corresponding to our backlog will not fall into periods beyond the 36-month horizon.\nAny decrease in the availability, or increase in the cost, of raw materials could materially affect our earnings.\nThe availability of certain critical raw materials, such as steel, nickel, monel, inconel, aluminum, stainless steel, and other alloys, is subject to factors that are not within our control. At any given time, we may be unable to obtain an adequate supply of these critical raw materials on a timely basis, at prices and other terms acceptable to us, or at all.\nIf suppliers increase the price of critical raw materials or are unwilling or unable to meet our demand, we may not have alternative sources of supply. In addition, to the extent that we have existing contracts or have quoted prices to customers and accepted customer orders for products prior to purchasing the necessary raw materials, we may be unable to raise the price of products to cover all or part of the increased cost of the raw materials.\nThe manufacture of some of our products is a complex process and requires long lead times. As a result, we may experience delays or shortages in the supply of raw materials. If we are unable to obtain adequate and timely deliveries of required raw materials, we may be \n9\n\n\nTable of Contents\nunable to complete our manufacturing projects and deliver finished products on a timely basis. This could cause us to lose sales, incur additional costs, delay new product introductions, or suffer harm to our reputation.\nIn addition, costs of certain critical raw materials have been volatile due to factors beyond our control. Raw material costs are included in our contracts with customers, but in some cases, we are exposed to changes in raw material costs from the time purchase orders are placed to when we purchase the raw materials for production. Changes in business conditions could adversely affect our ability to recover rapid increases in raw material costs and may adversely affect our results of operations.\nAdditionally, changes in international trade duties and other aspects of international trade policy, both in the U.S. and abroad, could materially impact the cost of raw materials. For example, from March 2018 until March 2021, the U.S. imposed an additional 25% tariff under Section 232 of the Trade Expansion Act of 1962, as amended, on steel products imported into the U.S. While these tariffs have mostly been lifted on imports from countries other than the Peoples\u2019 Republic of China, imports from many jurisdictions are subject to limitations on volume, after which substantial tariffs will be reimposed. The U.S. also imposed a 10% tariff on all aluminum imports into the United States, with initial exemptions for aluminum imported from certain U.S. trading partners. Such actions could increase steel and aluminum costs and decrease supply availability. In response to the invasion of Ukraine by the military forces of the Russian Federation, the United States, the European Union and other jurisdictions have imposed sanctions that, among other things, prohibit the importation of a wide array of commodities and products from Russia, which is a major global supplier of nickel. Any increase in nickel, steel and/or aluminum prices that is not offset by an increase in our prices could have an adverse effect on our business, financial position, results of operations or cash flows. In addition, if we are unable to acquire timely nickel, steel or aluminum supplies, we may need to decline bid and order opportunities, which could also have an adverse effect on our business, financial position, results of operations or cash flows.\nAll of our manufacturing and production is done at two locations, in California and Massachusetts. We may be exposed to significant disruption to our business as a result of unforeseeable developments at either geographic location.\nWe operate at two manufacturing and production facilities in Westminster, Massachusetts and Los Angeles, California. It is possible that we could experience prolonged periods of reduced production due to unforeseen catastrophic events occurring in or around our manufacturing and production facilities. It is also possible that operations could be disrupted due to other unforeseen circumstances such as power outages, explosions, fires (including wildfires), floods, earthquakes, accidents, and severe weather conditions. As a result, we may be unable to shift manufacturing capabilities to alternate locations, accept materials from suppliers, meet customer shipment needs or address other severe consequences that may be encountered, and we may suffer damage to our reputation. Our financial condition and results of our operations could be materially adversely affected were such events to occur.\nOur manufacturing processes are complex, must constantly be upgraded to remain competitive and depend upon critical, high-cost equipment that may require costly repair or replacement.\nIt is possible that we could experience prolonged periods of reduced production due to unplanned equipment failures, and we could incur significant repair or replacement costs in the event of those failures.\nWe must make regular capital investments and changes to our manufacturing processes to lower production costs, improve productivity, manufacture new or improved products and remain competitive. We may not be able to take advantage of business opportunities or respond to competitive pressures if we fail to update, replace or make additions to our equipment or our manufacturing processes in a timely manner. The cost to repair or replace much of our equipment or facilities could be significant. We cannot be certain that we will have sufficient internally generated cash or acceptable external financing to make necessary capital expenditures in the future.\nOur production facilities are energy-intensive, and we rely on third parties to supply energy consumed at our production facilities.\nThe prices for and availability of electricity, natural gas, oil, and other energy resources are subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond our control, including the imposition of sanctions on the Russian Federation that prevent it from selling its significant sources of oil and natural gas into key international markets, which impacts the global price of these commodities. Disruptions or lack of availability in the supply of energy resources could temporarily impair our ability to operate our production facility. Further, increases in energy costs, or changes in costs relative to energy costs paid by competitors, may adversely affect our profitability. To the extent that these uncertainties cause suppliers and customers to be more cost sensitive, increased energy prices may have an adverse effect on our results of operations and financial condition.\n10\n\n\nTable of Contents\nThe dangers inherent in our operations and the limits on insurance coverage could expose us to potentially significant liability costs and materially interfere with the performance of our operations.\nThe fabrication of large steel structures involves potential operating hazards that can cause personal injury or loss of life, severe damage to and destruction of property and equipment and suspension of operations. The failure of such structures during and after installation can result in similar injuries and damages. Although we believe that our insurance coverage is adequate, there can be no assurance that we will be able to maintain adequate insurance in the future at rates we consider reasonable or that our insurance coverage will be adequate to cover future claims that may arise. Claims for which we are not fully insured may adversely affect our working capital and profitability. In addition, changes in the insurance industry have generally led to higher insurance costs and decreased availability of coverage. The availability of insurance that covers risks we and our competitors typically insure against may decrease, and the insurance that we are able to obtain may have higher deductibles, higher premiums, and more restrictive policy terms.\nOur operating results may fluctuate significantly from quarter to quarter, and we cannot be certain that we will maintain profitability in every quarterly reporting period.\nOur operating results historically have been difficult to predict and have at times significantly fluctuated from quarter to quarter due to a variety of factors, many of which are outside of our control. Among these factors includes the fact that most of our contracts are individual purchase orders and not long-term agreements. Additionally, our ability to meet project completion schedules for an individual project and record the corresponding revenue over-time can fluctuate and cause significant changes in our revenue and other financial results. As a result of these factors, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our operating expenses do not always vary directly with revenue and may be difficult to adjust in the short term. As a result, if revenue for a particular quarter is below our expectations, we may not be able to proportionately reduce operating expenses for that quarter, and therefore such a revenue shortfall would have a disproportionate effect on our operating results for that quarter.\nWe recognize revenue for our defense contracts and some commercial contracts based on percentage of completion that requires significant management judgement. Errors made to our estimates of revenue and costs could result in overstated or understated profits or losses, subject to adjustment.\nFor most of our defense industry contracts, we recognize revenue over time as we perform services or deliver goods. In situations where control transfers or services are performed over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. We recognize revenue over time based on the transfer of control of the promised goods or services to the customer, or at a point in time. This transfer will occur over time when the Company\u2019s performance does not create an asset that has an alternative use to the Company, and we have an enforceable right to payment for performance completed to date. Otherwise, control to the promised goods or services transfers to customers at a point in time.\nDue to the size and nature of the work required to be performed on many of our contracts, the estimation of total revenue and cost at completion is complicated and subject to many variables. Contract costs include material, labor, and subcontracting costs, as well as an allocation of indirect costs. We are required to make assumptions regarding the number of labor hours required to complete a task, the complexity of the work to be performed, the availability and cost of materials and performance by our subcontractors. For contract change orders, claims or similar items, we apply judgment in estimating the amounts and assessing the potential for realization. Contract modifications - as well as other changes in estimates of sales, costs, and profits on a performance obligation - are recognized using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes in current and prior periods. If our estimate of total contract costs or our determination of whether the customer agrees that a milestone is achieved is incorrect, our revenue could be overstated or understated, and the profits or loss reported could be subject to adjustment. If our revenues and costs require adjustment, our stock price could decline.\nDemand in our end-use markets can be cyclical, impacting the demand for the products we produce.\nDemand in our end-use markets, including companies in the defense, aerospace, precision industrial, and nuclear industries, can be cyclical in nature and sensitive to general economic conditions, competitive influences, and fluctuations in inventory levels throughout the supply chain. Our sales are sensitive to the market conditions present in the industries in which the ultimate consumers of our products operate, which in some cases have been highly cyclical and subject to substantial downturns.\n11\n\n\nTable of Contents\nAs a result of the cyclical nature of these markets, we have experienced, and in the future, we may experience, significant fluctuations in our sales and results of operations with respect to a substantial portion of our total product offering, and such fluctuations could be material and adverse to our overall financial condition, results of operations and liquidity.\nWe could be adversely affected by reductions in defense spending.\nBecause certain of our products are used in a variety of military applications, including ships, submarines and helicopters, we derive most of our revenue from the defense industry. In fiscal 2023, approximately 98% of our revenue was derived from customers in the defense industry. Although many of the programs under which we sell products to prime U.S. government contractors extend several years, they are subject to annual funding through congressional appropriations. While spending authorizations for defense-related programs by the U.S. government have increased in recent years due to greater homeland security and foreign military commitments, these spending levels may not be sustainable and could significantly decline. Future levels of expenditures, authorizations, and appropriations for programs we support may decrease or shift to programs in areas where we do not currently provide services. Changes in spending authorizations, appropriations, and budgetary priorities could also occur due to a shift in the number, and intensity, of potential and ongoing conflicts, the rapid growth of the federal budget deficit, increasing political pressure to reduce overall levels of government spending, shifts in spending priorities from national defense as a result of competing demands for federal funds, or other factors. It is also possible that Russia\u2019s invasion of Ukraine causes a reorientation of US defense spending away from the naval submarine programs from which we derive substantial portions of our revenue towards land-based military projects, which could involve fewer programs in which our products would be needed. Our business prospects, financial condition or operating results could be materially harmed among other causes by the following: 1) budgetary constraints affecting U.S. government spending generally, or specific departments or agencies in particular, and changes in available funding, such as federal government sequestration (automatic spending cuts); 2) changes in U.S. government programs or requirements; and 3) a prolonged U.S. government shutdown and other potential delays in the appropriations process.\nFailure to obtain and retain skilled technical personnel could adversely affect our operations.\nOur production facilities require skilled personnel to operate and provide technical services and support for our business. Competition for the personnel required for our business intensifies as activity increases. In periods of high utilization, it may become more difficult to find and retain qualified individuals, and there can be no assurance that we will be successful in attracting and retaining qualified personnel to fulfill our current or future needs. This could increase our costs or have other adverse effects on our results of operations.\nThe extensive environmental, health and safety regulatory regimes applicable to our manufacturing operations create potential exposure to significant liabilities.\nThe nature of our manufacturing business subjects our operations to numerous and varied federal, state, local and international laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health. Failure to comply with these laws and regulations, or with the permits required for our operations, could result in fines or civil or criminal sanctions, third party claims for property damage or personal injury, and investigation and cleanup costs. Potentially significant expenditures could be required in order to comply with environmental laws that may be adopted or imposed in the future.\nWe have used, and currently use, certain substances that are considered hazardous, extremely hazardous or toxic under worker safety and health laws and regulations. Although we implement controls and procedures designed to reduce continuing risk of adverse impacts and health and safety issues, we could incur substantial cleanup costs, fines and civil or criminal sanctions, and third party property damage or personal injury claims as a result of violations, non-compliance or liabilities under these regulatory regimes.\nAs a manufacturing business, we also must comply with federal and state environmental laws and regulations which relate to the manner in which we store and dispose of materials and the reports that we are required to file. We cannot assure you that we will not incur additional costs to maintain compliance with environmental laws and regulations or that we will not incur significant penalties for failure to be in compliance any of which could have a material adverse effect on our business, financial condition and results of operations.\nOur systems and information technology infrastructure may be subject to security breaches and other cybersecurity incidents.\nWe rely on the accuracy, capacity, and security of our information technology systems to obtain, process, analyze, and manage data, as well as to facilitate the manufacture and distribution of products to and from our facility. We receive, process and ship orders, manage \n12\n\n\nTable of Contents\nthe billing of and collections from our customers, and manage the accounting for and payment to our vendors. Maintaining the security of computers, computer networks, and data storage resources is a critical issue for us and our customers, as security breaches could result in vulnerabilities and loss of and/or unauthorized access to confidential information. We may face attempts by experienced hackers, cybercriminals, hostile nation-state actors, or others with authorized access to our systems to misappropriate our proprietary information and technology, interrupt our business, and/or gain unauthorized access to confidential information. The reliability and security of our information technology infrastructure and software, and our ability to expand and continually update technologies in response to our changing needs is critical to our business. To the extent that any disruptions or security breaches result in a loss or damage to our data, it could cause harm to our reputation. This could lead some customers to stop using us for building their products and reduce or delay future purchases of our products or use competing products. In addition, we could face enforcement actions by U.S. states, the U.S. federal government, or foreign governments, which could result in fines, penalties, and/or other liabilities and which may cause us to incur legal fees and costs, and/or additional costs associated with responding to the cyberattack. Increased regulation regarding cybersecurity may increase our costs of compliance, including fines and penalties, as well as costs of cybersecurity audits. Any of these actions could materially adversely impact our business, financial condition and results of operations.\nWe are subject to regulations related to conflict minerals which could adversely impact our business.\nWe are subject to SEC rules\u00a0regarding disclosure of the use of tin, tantalum, tungsten, gold and certain other minerals, known as conflict minerals, in products manufactured by public companies. These rules\u00a0require that public companies conduct due diligence to determine whether such minerals originated from the Democratic Republic of Congo, or the DRC, or an adjoining country and whether such minerals helped finance the armed conflict in the DRC. These rules\u00a0require ongoing due diligence efforts, along with annual conflict minerals reports. There are costs associated with complying with these disclosure requirements, including costs to determine the origin of conflict minerals used in our products.\nIn addition, these rules\u00a0could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering conflict-free minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if the due diligence procedures we implement do not enable us to verify the origins for all conflict minerals or to determine that such minerals are DRC conflict-free. We may also encounter challenges to satisfy customers that may require all of the components of products purchased to be certified as DRC conflict-free because our supply chain is complex. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier.\nWe currently do not use any conflict minerals in the production of our products, but from time to time we may receive a customer order necessitating the use of conflict minerals. In the event we produce any products utilizing conflict minerals, we will be required to comply with the rules\u00a0discussed above.\nChanges in delivery schedules and order specifications may affect our revenue stream.\nAlthough we perform manufacturing services pursuant to orders placed by our customers, we have in the past experienced delays in scheduling and changes in the specification of our products. Delays in scheduling have been and, in the future, may be caused by disruptions relating to epidemics, pandemics and government-imposed lockdowns, or economy-wide supply chain disruptions, while changes in order specifications may result from a number of factors, including a determination by the customer that the product specifications need to be changed after receipt of an initial product or prototype. As a result of these changes, we may suffer a delay in the recognition of revenue from projects and may incur contract losses. We cannot assure you that our results of operations will not be affected in the future by delays or changes in specifications or that we will ever be able to recoup revenue which was lost as a result of the delays or changes. Further, if we cannot allocate our personnel to a different project, we will continue to incur expenses relating to the initial project, including labor and overhead. Thus, if orders are postponed, our results of operations would be impacted by our need to maintain staffing and other expense-generating aspects of production for the postponed projects, even though they were not fully utilized, and revenue associated with the project will not be recognized during this period. We cannot assure that our operating results will not decline in future periods as a result of changes in customers\u2019 orders.\n13\n\n\nTable of Contents\nNegative economic conditions may adversely impact the demand for our services and the ability of our customers to meet their obligations to us on a timely basis.\u00a0Any disputes with customers could also have an adverse impact on our income and cash flows.\nNegative economic conditions, including tightening of credit in financial markets as a result of increases in interest rates and/or instability in the banking system, may lead businesses to postpone spending, which may impact our customers, causing them to cancel, decrease or delay their existing and future orders with us. Declines in economic conditions may further impact the ability of our customers to meet their obligations to us on a timely basis. If customers are unable to meet their obligations to us on a timely basis, it could adversely impact the realization of receivables, the valuation of inventories and the valuation of long-lived assets. Additionally, we may be negatively affected by contractual disputes with customers, which could have an adverse impact on our financial condition and results of operations.\nIf our customers successfully assert product liability claims against us due to defects in our products, our operating results may suffer and our reputation may be harmed.\nDue to the circumstances under which many of our products are used and the fact that some of our products are relied upon by our customers in their facilities or operations, we face an inherent risk of exposure to claims in the event that the failure, use or misuse of our products results, or is alleged to result, in bodily injury, property damage or economic loss. We have been subject to product liability claims in the past, and we may be subject to claims in the future. A successful product liability claim or series of claims against us, or a significant warranty claim or series of claims against us could materially decrease our liquidity and impair our financial condition and also materially and adversely affect our results of operations.\nWe maintain a substantial amount of outstanding indebtedness, which could impair our ability to operate our business and react to changes in our business, remain in compliance with debt covenants and make payments on our debt.\nOur level of indebtedness could have important consequences, including, without limitation:\n\u25cf\nincreasing our vulnerability to general economic and industry conditions because our debt payment obligations may limit our ability to use our cash to respond to or defend against changes in the industry or the economy;\n\u25cf\nrequiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;\n\u25cf\nlimiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;\n\u25cf\nlimiting our ability to pursue our growth strategy, including restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;\n\u25cf\nplacing us at a disadvantage compared to our competitors who are less leveraged and may be better able to use their cash flow to fund competitive responses to changing industry, market or economic conditions; and\n\u25cf\nmaking us more vulnerable in the event of a downturn in our business, our industry, or the economy in general.\nBecause certain of our borrowing facilities contain variable interest rate provisions, many of the above consequences could be worsened if interest rates continue to rise. In addition, our current credit facilities contain, and any future credit facilities to which we become a party will likely contain, covenants and other provisions that restrict our operations. These restrictive covenants and provisions could limit our ability to obtain future financings, make needed capital expenditures, withstand a future downturn in our business, or the economy in general, or otherwise conduct necessary corporate activities, and may prevent us from taking advantage of business opportunities that arise in the future.\n14\n\n\nTable of Contents\nIf we refinance our credit facilities, we cannot guarantee that any new credit facility will not contain similar covenants and restrictions.\nOur liquidity is highly dependent on our available financing facilities and ability to improve our gross profit and operating income. Our failure to obtain new or additional financing, if required, could impair our ability to both serve our existing customer base and develop new customers and could result in our failure to continue to operate as a going concern. To the extent that we require new or additional financing, we cannot assure you that we will be able to get such financing on terms equal to or better than the terms of our current credit facilities with Berkshire Bank. If we are unable to borrow funds under an existing credit facility, it may be necessary for us to conduct an offering of debt and/or equity securities on terms which may be disadvantageous to us or have a negative impact on our outstanding securities and the holders of such securities. In the event of an equity offering, it may be necessary that we offer such securities at a price that is significantly below our current trading levels which may result in substantial dilution to our investors that do not participate in the offering and a new lower trading level for our common stock.\nWe may need new or additional financing in the future to expand our business or refinance existing indebtedness, and our inability to obtain capital on satisfactory terms or at all may have an adverse impact on our operations and our financial results.\nWe may need new or additional financing in the future to expand our business, refinance existing indebtedness or make strategic acquisitions, and our inability to obtain capital on satisfactory terms or at all may have an adverse impact on our operations, financial condition, or results of operations. As we grow our business, we may have to incur significant capital expenditures. We may make capital investments to, among other things, build new or upgrade our existing facilities, purchase or lease new equipment and enhance our production processes. If we are unable to access capital on satisfactory terms and conditions, we may not be able to expand our business or meet our payment requirements under our existing credit facilities. Our ability to obtain new or additional financing will depend on a variety of factors, many of which are beyond our control. We may not be able to obtain new or additional financing because we may have substantial debt, our current receivable and inventory balances may not support additional debt availability or because we may not have sufficient cash flows to service or repay our existing or future debt. In addition, depending on market conditions and our financial performance, equity financing may not be available on satisfactory terms or at all. Moreover, if we raise additional funds through issuances of equity or convertible debt securities, our current stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. If we are unable to access capital on satisfactory terms and conditions, this could have an adverse impact on our business, results of operations and financial condition.\nAny deterioration or disruption of the credit and capital markets may adversely affect our access to sources of funding.\nDisruptions in the credit markets can cause severely restricted access to capital for companies. In particular, recent events involving limited liquidity, defaults, non-performance or other adverse developments that have affected banks, financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, including, for example, Silicon Valley Bank, Signature Bank or First Republic Bank, or concerns or rumors about any events of these kinds or other similar risks, have and may in the future lead to market-wide liquidity problems. When credit markets deteriorate or are disrupted, our ability to incur additional indebtedness to fund a portion of our working capital needs and other general corporate purposes, or to refinance maturing obligations as they become due, may be constrained. This risk could be exacerbated by future deterioration in the Company\u2019s credit ratings. In addition, if the counterparty backing our existing credit facilities were unable to perform on its commitments, our liquidity could be impacted, which could adversely affect funding of working capital requirements and other general corporate purposes. In the event we need to access the capital markets or other sources of financing, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time, if at all. In addition, Russia\u2019s invasion of Ukraine, high inflation and increasing interest rates have significantly disrupted world financial markets, increased volatility in U.S. capital markets, and may reduce opportunities for us to seek additional funding. Our inability to obtain financing on terms and within a time acceptable to us could have an adverse impact on our results of operations, financial condition, and liquidity.\nRisks Related to our Common Stock\nThe Nasdaq Stock Market imposes listing standards on our common stock that we may not be able to fulfill, thereby leading to a possible delisting of our common stock.\nAs a listed Nasdaq Stock Market (\u201cNasdaq\u201d) company, we are subject to rules covering, among other things, certain major corporate transactions, the composition of our board of directors and committees thereof, the minimum bid price of our common stock and \n15\n\n\nTable of Contents\nminimum stockholders\u2019 equity. The failure to meet any Nasdaq requirements may result in the delisting of our common stock from Nasdaq, which could adversely affect the liquidity and market price of our common stock.\nIf our common stock were to be delisted, selling shares of our common stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and security analysts\u2019 coverage of us may be reduced. In addition, in the event our common stock is delisted, broker-dealers have certain regulatory requirements imposed upon them, which may discourage broker-dealers from effecting transactions in our common stock, further limiting the liquidity thereof. These factors could result in lower prices for shares of our common stock and/or limit an investor\u2019s ability to execute a transaction. In addition, delisting from Nasdaq could also impair our ability to raise additional necessary capital through equity or debt financing, and could lead to significant dilution to our stockholders caused by our issuing equity in financing or other transactions at a price per share significantly below the then market price.\nOur stock price may fluctuate significantly.\nThe stock market can experience significant volatility, and the volatility of stocks often does not relate to the operating performance of the companies represented by the stock. The market price of our common stock could be subject to significant fluctuations because of general market conditions and because of factors specifically related to our businesses.\nFactors that could cause volatility in the market price of our common stock include market conditions affecting our customers\u2019 businesses, including the level of mergers and acquisitions activity, anticipated changes in spending on national defense by the U.S. Government, and actual and anticipated fluctuations in our quarterly operating results, rumors relating to us or our competitors, actions of stockholders, including sales of shares by our directors and executive officers, additions or departures of key personnel, and developments concerning current or future strategic alliances or acquisitions. Volatility in our stock price may also be enhanced by the fact that our common stock is often thinly traded. Additionally, the economic and other consequences of the recent instability in the banking system, Russia\u2019s invasion of Ukraine, high inflation and increasing interest rates have resulted in significant volatility in the equity capital markets as the economy begins to recover.\nThese and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock at a profit and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, even if the lawsuit is without merit, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management.\nThe issuance of shares of our common stock as compensation may dilute the value of existing stockholders and may affect the market price of our stock.\nWe may use, and have in the past used, stock options, stock grants and other equity-based incentives to provide motivation and compensation to our directors, officers, employees and key independent consultants. The award of any such incentives will result in immediate and potentially substantial dilution to our existing stockholders and could result in a decline in the value of our stock price. The exercise of these options and the sale of stock issued upon such exercise or pursuant to stock grants may have an adverse effect upon the price of our stock.\nThe number of shares of common stock we registered for resale in January 2022 is significant in relation to the number of our outstanding shares of common stock.\nWe filed a Registration Statement on January 7, 2022, which was declared effective on January 18, 2022, to register the resale of shares of our common stock into the public market by certain stockholders that acquired shares of our common stock in transactions not registered under the Securities Act. These shares represent a significant number of shares of our total number of issued and outstanding shares of common stock. The resale by these stockholders of a significant number of these shares, or the perception in the public markets that such selling securityholders may sell all or a portion of such securities, could depress the market price of our Common Stock during the period the Registration Statement remains effective.\n16\n\n\nTable of Contents\nTrading volume of our common stock has fluctuated from time to time and is typically low, which may make it difficult for investors to sell their shares at times and prices that investors feel are appropriate.\nTo date, the trading volume of our common stock has fluctuated, and there is typically a low volume of trading in our common stock. Generally, lower trading volumes adversely affect the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts\u2019 and the media\u2019s coverage of us. This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock.\nBecause of our cash requirements and restrictions in our debt agreements, we may be unable to pay dividends.\nIn view of the cash requirements of our business, we expect to use any cash flow generated by our business to finance our operations and growth and to service our indebtedness. Further, we are subject to certain affirmative and negative covenants under our debt agreements which restrict our ability to declare or pay any dividend or other distribution on equity, purchase or retire any equity, or alter our capital structure. Accordingly, any return to stockholders will be limited to the appreciation of the value of their holdings of our stock.\nThe rights of the holders of our common stock may be impaired by the potential issuance of preferred stock.\nOur certificate of incorporation gives our board of directors the right to create new series of preferred stock. As a result, the board of directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation, or other rights that are superior to the rights associated with our common stock, which could adversely affect the voting power and equity interest of the holders of our common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be utilized as a method of discouraging, delaying, or preventing a change of control. The possible impact on takeover attempts could adversely affect the price of our common stock.\nGeneral Risk Factors\nIf securities analysts do not publish research or reports about our business, if they issue unfavorable commentary or downgrade their rating on our common stock, or if we fail to meet projections and estimates of earnings developed by such analysts, the price of our common stock could decline.\nThe trading market for our common stock relies in part on the research and reports that securities analysts publish about us and our business. The price of our common stock could decline if one or more analysts downgrade their rating on our common stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business. In addition, although we do not make projections relating to our future operating results, our operating results may fall below the expectations of securities analysts and investors. In this event, the market price of our common stock would likely be adversely affected.\nWe have identified a material weakness in our internal control over financial reporting, resulting from control deficiencies related to initial purchase accounting and continued fair value accounting associated with the Stadco acquisition. If we fail to maintain effective internal controls over financial reporting, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors\u2019 views of us.\nWe are subject to the Sarbanes-Oxley Act, which requires public companies to include in their annual report a statement of management\u2019s responsibilities for establishing and maintaining adequate internal control over financial reporting, together with an assessment of the effectiveness of those internal controls. Ensuring that we have effective internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock, and could result in us being the subject of regulatory scrutiny.\nDuring the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls over financial reporting are effective. For example, in \n17\n\n\nTable of Contents\nconnection with the audit of our financial statements as of and for the year ended March 31, 2023, we identified two material weaknesses in our internal control over financial reporting. The material weaknesses we identified pertain to (i) initial purchase accounting and the continuing fair value accounting associated with our acquisition of Stadco, and (ii) our failure to maintain a sufficient complement of tax accounting personnel necessary to perform management review controls related to activities for extracting information to determine the valuation allowance at Stadco on a timely basis. See \n\u201c\u2014Material Weakness\u201d\n and \n\u201c\u2014Management\u2019s Remediation Plan\u201d\n in the section titled \n\u201cItem 9A. Controls and Procedures\u201d\n for more details concerning this material weakness.\nWhile we have taken steps to enhance our internal control environment, we continue to address the underlying cause of the material weaknesses with the implementation of additional controls including those designed to raise the level of precision of management review controls to gain additional assurance regarding the timely completion of our quality control procedures. The steps we have taken to date were not sufficient and may not be sufficient to remediate these material weaknesses or to avoid the identification of other material weaknesses in the future. We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to avoid additional material weaknesses or significant deficiencies in our internal control over financial reporting in the future. If we are unable to conclude that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of shares of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.\nLaws and regulations governing international operations, including the Foreign Corrupt Practices Act, or FCPA, may require us to develop and implement costly compliance programs and the failure to comply with such laws may result in substantial penalties.\nWe must comply with laws and regulations relating to international business operations. The creation and implementation of compliance programs for international business practices is costly and such programs are difficult to enforce, particularly where reliance on third parties is required. Specifically, the Foreign Corrupt Practices Act, or the \u201cFCPA\u201d, prohibits any U.S. individual or business from paying, authorizing payment, or offering anything of value, directly or indirectly, to any foreign official, for the purpose of influencing any act or decision of the foreign official in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the company, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the U.S. Department of Justice.\nCompliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor.\nThe termination of a government contract or customer relationship because of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA\u2019s accounting provisions. The occurrence of any of these events could have a material adverse effect on our financial condition and results of operations.",
+  "item1a": ">Item\u00a01A. Risk Factors\n\u201d and elsewhere in this Annual Report on Form\u00a010-K, as well as those described in any other filings which we make with the SEC.\nAny forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this Annual Report on Form\u00a010-K, except as required by applicable law. Investors should evaluate any statements made by us in light of these important factors.\nOverview\nThrough our two wholly-owned subsidiaries, Ranor and Stadco (acquired on August 25, 2021), each of which is a reportable segment, we offer a full range of services required to transform raw materials into precision finished products. Our manufacturing capabilities include fabrication operations (cutting, press and roll forming, assembly, welding, heat treating, blasting, and painting) and machining operations including CNC (computer numerical controlled) horizontal and vertical milling centers. We also provide support services to our manufacturing capabilities: manufacturing engineering (planning, fixture and tooling development, manufacturing), quality control (inspection and testing), materials procurement, production control (scheduling, project management and expediting) and final assembly.\nAll manufacturing is done in accordance with our written quality assurance program, which meets specific national and international codes, standards, and specifications. The standards used are specific to the customers\u2019 needs, and our manufacturing operations are conducted in accordance with these standards.\nBecause\u00a0our revenues are derived from the sale of goods manufactured pursuant to contracts, and we do not sell from inventory, it is necessary for us to constantly seek new contracts. There may be a time lag between our completion of one contract and commencement of work on another contract. During such periods, we may continue to incur overhead expense but with lower revenue resulting in lower operating margins. Furthermore, changes in either the scope of an existing contract or related delivery schedules may impact the revenue we receive under the contract and the allocation of manpower. Although we provide manufacturing services for large governmental programs, we usually do not work directly for the government or its agencies. Rather, we perform our services for large governmental contractors. Our business is dependent in part on the continuation of governmental programs that require our services and products.\n21\n\n\nTable of Contents\nOur contracts are generated both through negotiation with the customer and from bids made pursuant to a request for proposal. Our ability to receive contract awards is dependent upon the contracting party\u2019s perception of such factors as our ability to perform on time, our history of performance, including quality, our financial condition and our ability to price our services competitively. Although some of our contracts contemplate the manufacture of one or a limited number of units, we continue to seek more long-term projects with predictable cost structures.\nAll the Company\u2019s operations, assets, and customers are located in the U.S.\nRecent Developments\nReverse Stock Split and Listing on the Nasdaq Capital Market\nOn February 23, 2023, as previously disclosed, the Company effected a one-for-four reverse stock split of its common stock, which was effective for trading purposes as of the commencement of trading on February 24, 2023. The reverse stock split was approved by the Company\u2019s stockholders on September 14, 2022, at the Company\u2019s regular annual meeting of stockholders, with authorization to determine the final ratio having been granted to the Company\u2019s Board of Directors. The reverse stock split was primarily intended to prepare for the potential listing of the Company\u2019s common stock on the Nasdaq Capital Market. The Company simultaneously affected a reduction in the number of authorized shares of common stock from 90,000,000 to 50,000,000. Also, as previously disclosed, on May 5, 2023, the Company\u2019s common stock began trading on the Nasdaq Capital Market under the trading symbol \u201cTPCS.\u201d\nStrategy\nWe aim to establish our expertise in program and project management and develop and expand a repeatable customer business model in all of our markets. We concentrate our sales and marketing activities on customers under two main industry groups: defense and precision industrial. Our strategy is to leverage our core competence as a manufacturer of high-precision, large-scale metal fabrications and machined components to optimize profitability of our current business and expand with key customers in markets that have shown increasing demand.\nDefense\nOur Ranor subsidiary performs precision fabrication and machining for the defense and aerospace industries, delivering defense components meeting our customers\u2019 stringent design specifications, as well as quality and safety manufacturing standards specifically for defense component fabrication and machining. Ranor has in recent\u00a0years delivered critical components in support of, among other projects, the U.S. Navy\u2019s Virginia-class fast attack submarine program and Columbia-class ballistic missile submarine program. In addition, the team at Ranor has successfully developed new, effective approaches to fabrication that continue to be utilized at our facility and at our customer\u2019s own defense component manufacturing facilities. We have endeavored to increase our business development efforts with large prime defense contractors. Based upon these efforts, we believe there are opportunities to secure additional business with existing and new defense contractors who are actively looking to increase outsourced content on certain defense programs over the next several\u00a0years, especially in connection with the submarine programs. We believe that the military quality certifications Ranor maintains and its ability to offer fabrication and manufacturing services at a single facility position it as an attractive outsourcing partner for prime contractors looking to increase outsourced production.\nOur Stadco subsidiary manufactures large flight-critical components on several high-profile commercial and military aircraft programs, including military helicopters. It has been a critical supplier to a blue-chip customer base that includes some of the largest OEMs and prime contractors in the defense and aerospace industries. Stadco also provides tooling, customized molds, fixtures, jigs and dies used in the production of aircraft components and has one of the largest electron beam welding machines set up in the United States, allowing it to weld thick pieces of titanium and other metals.\nSales to defense market customers have generated the largest proportion of our revenues from both of our reportable segments for the last two fiscal years, and we expect sales to defense customers to be our strongest market during fiscal 2024 as well.\n22\n\n\nTable of Contents\nPrecision Industrial\nThe customers within this market are impacted primarily by general economic conditions which may include changes in consumer consumption or demand for commercial construction for infrastructure. We serve several different customers in our precision industrial group. For example, we build components for customers in the power generation markets. We also manufacture large-scale medical device components for a customer in this group who installs their proprietary systems at certain medical institutions.\nThe power generation businesses among our energy market customers are impacted by pricing and demand for various forms of energy (e.g., coal, natural gas, oil, and nuclear). Our nuclear customers are typically dependent upon the need for new construction, maintenance, and overhaul and repair by nuclear energy providers. Also, changes in regulation may impact demand and supply. As such, we cannot assure that we will be able to develop any significant business from the nuclear industry. However, because we have manufacturing capabilities for producing components for new nuclear power plants and our historic relationships with suppliers in the nuclear power industry, we believe that we are positioned to benefit from any increased demand in the nuclear sector.\nCritical Accounting Policies and Estimates\nThe preparation of the consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We continually evaluate our estimates, including those related to revenue recognition, recovery of long-lived assets, and income taxes. These estimates and assumptions require management\u2019s most difficult, subjective, or complex judgments. Actual results may differ under different assumptions or conditions.\nRevenue and Related Cost Recognition\nWe recognize revenue over time based on the transfer of control of the promised goods or services to the customer, or at a point in time. This transfer will occur over time when the Company\u2019s performance does not create an asset that has an alternative use to the Company, and we have an enforceable right to payment for performance completed to date. Otherwise, control to the promised goods or services transfers to customers at a point in time.\nThe majority of the Company\u2019s contracts have a single performance obligation and provide title to, or grant a security interest in, work-in-process to the customer. In addition, these contracts contain enforceable rights to payment, allowing the Company to recover both its cost and a reasonable margin on performance completed to date. The combination of these factors indicates that the customer controls the asset (and revenue is recognized) as the asset is created or enhanced. The Company measures progress for performance obligations satisfied over time using input methods (e.g., costs incurred, resources consumed, labor hours expended, time elapsed).\nOur evaluation of whether revenue should be recognized over time requires significant judgment about whether the asset has an alternative use and whether the entity has an enforceable right to payment for performance completed to date. When any one of these factors is not present, the Company will recognize revenue at the point in time when control over the promised good or service transfers to the customer, i.e., when the customer has accepted the asset and taken physical possession of the product and has legal title, and the Company has a right to payment.\nWhen estimating contract costs, the Company takes into consideration a number of assumptions and estimates regarding risks related to technical requirements and scheduling. Management performs periodic reviews of the contracts to evaluate the underlying risks. Profit margin on any given project could increase if the Company is able to mitigate and retire such risks. Conversely, if the Company is not able to properly manage these risks, cost estimates may increase, resulting in a lower profit margin, or potentially, contract losses.\nThe cost estimation process requires significant judgment and is based upon the professional knowledge and experience of the Company\u2019s engineers, program managers, and financial professionals. Factors considered in estimating the work to be completed and ultimate contract recovery include the availability, productivity, and cost of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays in performance, the availability and timing of funding from the customer, and the recoverability of any claims included in the estimates to complete. Costs allocable to undelivered units are \n23\n\n\nTable of Contents\nreported as work in process, a component of inventory, in the consolidated balance sheet. Pre-contract fulfillment costs requiring capitalization are not material.\nChanges in job performance, job conditions, and estimated profitability are recognized in the period in which the revisions are determined. Costs incurred on uncompleted contracts consist of labor, overhead, and materials. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Our provision for losses at March 31, 2023 was $0.1 million, with approximately 76% of that total related to customer projects at our Stadco reportable segment, and remaining 24% at our Ranor reportable segment.\nLong-lived assets\nIn accordance with Accounting Standards Codification (ASC) 360,\n Property, Plant & Equipment\n, our property, plant and equipment is tested for impairment when triggering events occur and, if impaired, written-down to fair value based on either discounted cash flows or appraised values. The carrying amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group.\nIncome Taxes\nWe provide for federal and state income taxes currently payable, as well as those deferred because of temporary differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the\u00a0years in which those temporary differences are expected to be recoverable. The effect of the change in the tax rates is recognized as income or expense in the period of the change. A valuation allowance is established, when necessary, to reduce deferred income taxes to the amount that is more likely than not to be realized.\nIn assessing the recoverability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. If we determine that it is more likely than not that certain future tax benefits may not be realized, a valuation allowance will be recorded against deferred tax assets that are unlikely to be realized. Realization of the remaining deferred tax assets will depend on the generation of sufficient taxable income in the appropriate jurisdiction, the reversal of deferred tax liabilities, tax planning strategies and other factors prior to the expiration date of the carryforwards. A change in the estimates used to make this determination could require a reduction in the valuation allowance for deferred tax assets if they become realizable.\nAs of March\u00a031, 2023, our federal net operating loss carryforward was approximately $21.4 million. U.S. tax laws limit the time during which these carryforwards may be applied against future taxes.\nThe Company has recorded a net deferred tax asset of $1.9 million, which includes the benefit of $3.7 million in loss carryforwards. Realization is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards. Although the realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.\nAccounting Pronouncements\nNew Accounting Standards\nSee Note\u00a017, Accounting Standards Update, in the Notes\u00a0to the Consolidated Financial Statements under \u201c\nItem\u00a08. Financial Statements and Supplementary Data\n\u201d, for a discussion of recently adopted new accounting guidance and new accounting guidance not yet adopted.\nResults of Operations\nOur results of operations are affected by a number of external factors including the availability of raw materials, commodity prices (particularly steel), macroeconomic factors, including the availability of capital that may be needed by our customers, and political, regulatory, and legal conditions in the United States and in foreign markets. Generally, our product mix is made up of short-term \n24\n\n\nTable of Contents\ncontracts with a production timeline of twelve\u00a0months, more or less. However, contracts for larger complex components can take up to thirty-six\u00a0months to complete. Units manufactured under most of our customer contracts have historically been delivered on time and with a positive gross margin, with some exceptions. Our results of operations are also affected by our success in booking new contracts, the timing of revenue recognition, delays in customer acceptances of our products, delays in deliveries of ordered products and our rate of progress fulfilling\u00a0obligations under our contracts. A delay in deliveries or cancellations of orders could have an unfavorable impact on liquidity, cause us to have inventories in excess of our short-term needs, and delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog.\nWe evaluate the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs, which include executive and director compensation, stock-based compensation, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments. Also excluded are items that we consider not representative of ongoing operations, such as the unallocated PPP loan forgiveness and refundable employee retention tax credits.\nKey Performance Indicators\nWhile we prepare our financial statements in accordance with U.S. generally accepted accounting principles, or \u201cU.S. GAAP\u201d, we also utilize and present certain financial measures that are not based on or included in U.S. GAAP. We refer to these as non-GAAP financial measures. Please see the section titled \u201c\nEBITDA Non-GAAP Financial Measure\n\u201d below for further discussion of these financial measures, including the reasons why we use such financial measures and reconciliations of such financial measures to the most directly comparable U.S. GAAP financial measures.\nPercentages in the following tables and throughout this \n\u201cResults of Operations\u201d\n section may reflect rounding adjustments.\nFiscal\u00a0Years Ended March\u00a031, 2023 and 2022\nThe following table presents net sales, gross profit, and gross margin, consolidated and by reportable segment:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\nChanges\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\nPercent of\n\u200b\n\u200b\n\u200b\nPercent of\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(dollars in thousands)\n\u200b\nAmount\n\u00a0\u00a0\u00a0\u00a0\nNet sales\n\u200b\nAmount\n\u00a0\u00a0\u00a0\u00a0\nNet sales\n\u200b\nAmount\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u00a0\nNet Sales\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nRanor\n\u200b\n$\n 19,182\n\u00a0\n 61\n%\u00a0\u00a0\n$\n 14,581\n\u00a0\n 65\n%\u00a0\u00a0\n$\n 4,601\n\u00a0\n 32\n%\nStadco\n\u200b\n\u200b\n 12,250\n\u00a0\n 39\n%\u00a0\u00a0\n\u200b\n 7,756\n\u00a0\n 35\n%\u00a0\u00a0\n\u200b\n 4,494\n\u00a0\n 58\n%\nIntersegment elimination\n\u200b\n \n\u200b\n \u2014\n\u00a0\n \u2014\n%\u00a0\u00a0\n \n\u200b\n (54)\n\u00a0\n \u2014\n%\u00a0\u00a0\n \n\u200b\n 54\n\u00a0\n 100\n%\nConsolidated Net sales\n\u200b\n$\n 31,432\n\u00a0\n 100\n%\u00a0\u00a0\n$\n 22,283\n\u00a0\n 100\n%\u00a0\u00a0\n$\n 9,149\n\u00a0\n 41\n%\nCost of Sales\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\nRanor\n\u200b\n$\n 12,205\n\u00a0\n 39\n%\u00a0\u00a0\n$\n 11,131\n\u00a0\n 50\n%\u00a0\u00a0\n$\n 1,074\n\u00a0\n 10\n%\nStadco\n\u200b\n \n\u200b\n 14,323\n\u00a0\n 45\n%\u00a0\u00a0\n \n\u200b\n 7,775\n\u00a0\n 35\n%\u00a0\u00a0\n \n\u200b\n 6,548\n\u00a0\n 84\n%\nConsolidated Cost of sales\n\u200b\n$\n 26,528\n\u00a0\n 84\n%\u00a0\u00a0\n$\n 18,906\n\u00a0\n 85\n%\u00a0\u00a0\n$\n 7,622\n\u00a0\n 40\n%\nGross Profit\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\nRanor\n\u200b\n$\n 6,977\n\u200b\n 22\n%\u00a0\u00a0\n$\n 3,450\n\u200b\n 15\n%\u00a0\u00a0\n$\n 3,527\n\u200b\n 102\n%\nStadco\n\u200b\n \n\u200b\n (2,073)\n\u200b\n (6)\n%\u00a0\u00a0\n \n\u200b\n (73)\n\u200b\n \u2014\n%\u00a0\u00a0\n \n\u200b\n (2,000)\n\u200b\n nm\n%\nConsolidated Gross profit\n\u200b\n$\n 4,904\n\u200b\n 16\n%\u00a0\u00a0\n$\n 3,377\n\u200b\n 15\n%\u00a0\u00a0\n$\n 1,527\n\u200b\n 45\n%\nnm - not meaningful\n\u200b\nNet Sales\nConsolidated - \nNet sales were $31.4 million for fiscal 2023, or 41% higher when compared to consolidated net sales of $22.3 million for fiscal 2022. Net sales increased due to a $4.6 revenue increase at our Ranor segment and $4.5 million of new revenue from our Stadco segment. Stadco prior year results only included 31 weeks of business activity following the acquisition date. \n25\n\n\nTable of Contents\nRanor - \nNet sales were $19.2 million for the fiscal year ended March 31, 2023, or 32% higher when compared to the same prior year period. Net sales increased primarily on profitable orders of repeat business from customers in the defense sector which contributed to a favorable project mix for the fiscal 2023. Net sales to defense customers increased by $5.9 million. The defense backlog for Ranor remains strong as new orders for components related to a variety of programs, including the U.S. Navy submarine programs, continue to flow down from our existing customer base of prime defense contractors. Net sales to precision industrial markets decreased by $1.3 million due to lower project activity. We have repeat business in this sector, but the order flow can be uneven and difficult to forecast. The backlog at Ranor on March 31, 2023 was $17.7 million.\nStadco - \nNet sales were $12.3 million for the fiscal year ended March 31, 2023. Net sales for the fiscal year ended March 31, 2022 were $7.8 million but only included 31 weeks of business activity following the August 25, 2021 acquisition date. Our defense backlog for Stadco remains strong with new orders for components related to a variety of programs, including components for heavy lift helicopters. Stadco\u2019s backlog was $26.3 million as of March 31, 2023.\nGross Profit and Gross Margin\nConsolidated - \nCost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our cost of sales for the fiscal year ended March 31, 2023, was $7.6 million or 40% higher when compared to the fiscal year ended March 31, 2022. The increase in cost of sales was primarily the result of a full year of business activity at our Stadco segment when compared to only 31 weeks in the same period a year ago. Gross profit increased by $1.5 million, or 45% when compared to the fiscal year ended March 31, 2022, on a strong operating performance at Ranor, which more than offset weak operating results at Stadco. Gross margin in fiscal 2023 was 15.6% versus 15.2% in fiscal 2022.\nRanor - \nThe gross profit and gross margin significantly increased year over year, a result of improved throughput on new orders of profitable repeat business. This set of favorable conditions began to take hold in the fourth quarter of fiscal 2022 and accelerated as projects progressed in fiscal 2023 with better overhead absorption rates. We expect these conditions to continue in future periods.\nStadco - \nGross profit and gross margin was negative for every quarterly period throughout fiscal 2023. Gross margin showed gradual improvement over the first three quarters of fiscal 2023 but regressed in the fourth quarter. New projects with associated startup activities presented certain production issues with intermittent equipment down-time that resulted in unfavorable throughput and under-absorbed overhead. We expended approximately $0.6 million for repairs and maintenance in fiscal 2023, a $0.5 million increase when compared to the same period a year ago. We expect a gradual improvement in gross margin as current and new projects progress with better throughput and absorption rates in future periods.\nSelling, General and Administrative (SG&A) Expenses\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\nChanges\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nPercent of \n\u200b\n\u200b\n\u200b\n\u200b\nPercent of \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(dollars in thousands)\n\u00a0\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nNet Sales\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nNet Sales\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u00a0\nRanor\n\u200b\n$\n 1,826\n\u200b\n 6\n%\u00a0\u00a0\n$\n 1,935\n\u200b\n 8\n%\u00a0\u00a0\n$\n (109)\n\u200b\n (6)\n%\nStadco\n\u200b\n\u200b\n 1,832\n\u200b\n 6\n%\n\u200b\n 1,051\n\u200b\n 5\n%\n\u200b\n 781\n\u200b\n 74\n%\nCorporate and unallocated\n\u200b\n\u200b\n 2,351\n\u200b\n 7\n%\n\u200b\n 1,952\n\u200b\n 9\n%\n\u200b\n 399\n\u200b\n 20\n%\nConsolidated SG&A\n\u200b\n$\n 6,009\n\u200b\n 19\n%\n$\n 4,938\n\u200b\n 22\n%\n$\n 1,071\n\u200b\n 22\n%\nnm \u2013 not meaningful\nConsolidated - \nTotal selling, general and administrative expenses for the fiscal year ended March 31, 2023, increased by $1.1 million, or 22%. Stadco SG&A for the full twelve months was significantly higher as the comparable prior year period only included 31 weeks of business activity for the segment. The remaining increase was due to software and hardware service upgrades and business taxes. \nRanor \u2013 \nA reduction in outside advisory fees paid year over year more than offset an increase in travel expenses and other office costs as business activity returned to pre-pandemic levels.\n26\n\n\nTable of Contents\nStadco - \nSG&A for the fiscal year ended March 31, 2023 was higher as the comparable prior year period only included 31 weeks of activity. The SG&A expenses are composed of compensation, outside advisory services, and other office costs. Fiscal 2022 included expenses from Stadco operations from August 25, 2021 through March 31, 2022. \nCorporate and unallocated - \nSG&A increased by approximately $0.4 million, due primarily to the increased expenditures for insurance, outside services for software upgrades, and business taxes.\nOperating (loss) income\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\nChanges\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nPercent\u00a0of\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nPercent\u00a0of\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n(dollars in thousands)\n\u200b\nAmount\n\u200b\nnet\u00a0sales\n\u200b\nAmount\n\u200b\nnet\u00a0sales\n\u200b\nAmount\n\u200b\nPercent\n\u200b\nRanor\n\u200b\n$\n 5,151\n\u200b\n 16\n%\u00a0\u00a0\n$\n 1,515\n\u200b\n 7\n%\u00a0\u00a0\n$\n 3,636\n\u200b\n 240\n%\nStadco\n\u00a0\n\u200b\n (3,905)\n\u00a0\n (12)\n%\u00a0\u00a0\n\u200b\n (1,124)\n\u00a0\n (5)\n%\u00a0\u00a0\n\u200b\n (2,781)\n\u00a0\n (247)\n%\nCorporate and unallocated\n\u00a0\n\u200b\n (2,351)\n\u00a0\n (8)\n%\u00a0\u00a0\n\u200b\n (1,952)\n\u00a0\n (9)\n%\u00a0\u00a0\n\u200b\n (399)\n\u00a0\n (20)\n%\nOperating loss\n\u200b\n$\n (1,105)\n\u00a0\n (4)\n%\u00a0\u00a0\n$\n (1,561)\n\u00a0\n (7)\n%\u00a0\u00a0\n$\n 456\n\u00a0\n 29\n%\nnm \u2013 not meaningful\nConsolidated -\n As a result of the foregoing, for the fiscal year ended March 31, 2023, we reported an operating loss of $1.1 million compared to operating loss of $1.6 million for the fiscal year ended March 31, 2022. Strong operating income at Ranor was not enough to offset operating losses at Stadco due primarily to unfavorable throughput and unabsorbed overhead.\nRanor \u2013 \nOperating income was $3.6 million higher compared to prior fiscal year, due primarily to a profitable project mix and improved operating throughput.\nStadco \u2013 \nNew project startups with related production issues, including equipment downtime, led to unfavorable throughput and unabsorbed overhead that resulted in an operating loss of $3.9 million. The prior year period only included 31 weeks of business activity at Stadco.\nCorporate and unallocated - \nCorporate expenses were higher for the fiscal year ended March 31, 2023 due to an increase in business taxes following the Stadco acquisition and higher expenses for new subscription services.\nOther Income (Expense), net\nThe following table presents other income (expense) for the fiscal years ended March 31:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n$\u00a0Change\n\u00a0\u00a0\u00a0\u00a0\n%\u00a0Change\n\u00a0\nOther income (expense), net\n\u200b\n$\n 40,842\n\u200b\n$\n (28,385)\n\u200b\n$\n 69,227\n\u00a0\n 244\n%\nInterest expense\n\u200b\n$\n (295,692)\n\u200b\n$\n (221,125)\n\u200b\n$\n (74,567)\n\u00a0\n (34)\n%\nAmortization of debt issue costs\n\u200b\n$\n (59,916)\n\u200b\n$\n (48,251)\n\u200b\n$\n (11,665)\n\u00a0\n (24)\n%\n\u200b\nIn fiscal 2023, other income, net, was $40,842, and included certain business tax rebates and interest income for $33,716, and other income, net of $7,126 following the settlement of contingent consideration in connection with the Stadco acquisition. Other expense, net, for fiscal 2022 includes the initial measurement net of a change in fair value for contingent consideration of $63,436, offset in part by other income of $22,011 from the dissolution of a foreign subsidiary, a return of $10,000 for a retainer fee previously paid for outside advisory fees, and other income of $3,040.\nInterest expense was higher for the fiscal year ended March 31, 2023. The increase in interest expense was due primarily to borrowings under the Stadco Term Loan (as defined below) and higher amounts borrowed under the Revolver Loan (as defined below). We expect higher interest expense in future periods due to higher interest rates on the extended Ranor Term Loan (as defined below) and renewed Revolver Loan.\n27\n\n\nTable of Contents\nAmortization of debt issue costs in fiscal 2023 were higher when compared to fiscal 2022. New amortization periods commenced in December 2022 for costs incurred to extend the Ranor Term Loan and renew the Revolver Loan. \nEmployee Retention Tax Credit (ERTC)\nOther income for fiscal 2023 includes $636,564 for a refundable Employee Retention Tax Credit authorized under the Coronavirus Aid Relief and Economic Security (\u201cCARES\u201d) Act for eligible employers with qualified wages.\nPaycheck Protection Program (PPP) Loan Forgiveness\nOther income for fiscal 2022 includes a gain of $1,317,100 for forgiveness of the Company\u2019s PPP loan. On May 12, 2021, as authorized by Section 1106 of the CARES Act, the U.S. Small Business Administration remitted to Berkshire Bank, the lender of record for the PPP loan, a payment of principal in the amount of $1,317,100. The funds credited to the PPP loan paid this loan off in full. The loan to Ranor was made through Berkshire Bank.\nIncome Taxes\nFor fiscal year 2023, the Company recorded a tax expense of $195,584. For fiscal year 2022 the Company recorded a tax benefit of $192,355, a result of lower taxable income.\nDeferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The valuation allowance on deferred tax assets at March 31, 2023 was approximately $2.2 million. We believe that it is more likely than not that the benefit from certain state NOL carryforwards and other deferred tax assets will not be realized. In recognition of this risk, we continue to provide a valuation allowance on these items. In the event future taxable income is below management\u2019s estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company\u2019s effective tax rate.\nNet Loss \nAs a result of the foregoing, for fiscal 2023, we recorded a net loss of $979,006, or $0.11 per share basic and fully diluted, compared with a net loss of $349,834, or $0.04 per share basic and fully diluted in fiscal 2022.\nLiquidity and Capital Resources\nOur liquidity is highly dependent on the availability of financing facilities and our ability to maintain gross profit and operating income.\nAs of March 31, 2023, we had $4.7 million in total available liquidity, consisting of $0.5 million in cash and cash equivalents, and $4.2 million in undrawn capacity under our Revolver Loan. As of March 31, 2022, we had $3.9 million in total available liquidity, consisting of $1.1 million in cash and cash equivalents, and $2.8 million in undrawn capacity under our Revolver Loan.\nOn December 23, 2022, Ranor and certain affiliates of the Company entered into a Fifth Amendment to Amended and Restated Loan Agreement, Fifth Amendment to Promissory Note and First Amendment to Second Amended and Restated Promissory Note, or the \u201cAmendment\u201d. Effective as of December 20, 2022, the Amendment, among other things (i) extends the maturity date of the loan originally made to Ranor by Berkshire Bank in 2016, or the \u201cRanor Term Loan\u201d, to December 15, 2027, (ii) extends the maturity date of the Revolver Loan from December 20, 2022 to December 20, 2023, (iii) increases the interest rate on the Ranor Term Loan from 5.21% to 6.05% per annum, (iv) decreases the monthly payment on the Ranor Term Loan from $19,260 to $16,601, (v) replaces LIBOR as an option for the benchmark interest rate for the Revolver Loan with SOFR, (vi) replaces LIBOR-based interest pricing conventions with SOFR-based pricing conventions, including benchmark replacement provisions, and (vii) solely with respect to the fiscal quarter ending December 31, 2022, lowers the debt service coverage ratio from at least 1.2 to 1.0 to 1.1 to 1.0. Our capital expenditures are limited to $1.5 million annually and contain loan-to-value, and balance sheet leverage covenants.\nThere was $650,000 outstanding under the Revolver Loan at March 31, 2023. Interest payments made under the Revolver Loan were $33,156 for the fiscal year ended March 31, 2023. The weighted average interest rate at March 31, 2023 and March 31, 2022 was 5.02% \n28\n\n\nTable of Contents\nand 2.75%, respectively. Unused borrowing capacity at March 31, 2023 and March 31, 2022 was approximately $4.2 million and $2.8 million, respectively.\nAt March 31, 2023 our working capital was $5.6 million, an increase compared to $2.8 million at March 31, 2022. We believe our available cash, plus cash expected to be provided by operations, and borrowing capacity available under the Revolver Loan, will be sufficient to fund our operations, expected capital expenditures, and principal and interest payments under our lease and debt obligations through the next 12 months from the issuance date of our financial statements. We intend to refinance the Revolver Loan with Berkshire Bank or another lender at or prior to the next expiration date.\nThe table below presents selected liquidity and capital measures at the fiscal\u00a0years ended:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\n\u00a0\u00a0\u00a0\u00a0\nChange\n(dollars in thousands)\n\u200b\n2023\n\u200b\n2022\n\u200b\nAmount\nCash and cash equivalents\n\u200b\n$\n 534\n\u200b\n$\n 1,052\n\u200b\n$\n (518)\nWorking capital\n\u200b\n$\n 5,559\n\u200b\n$\n 2,753\n\u200b\n$\n 2,806\nTotal debt\n\u200b\n$\n 6,113\n\u200b\n$\n 7,356\n\u200b\n$\n (1,243)\nTotal stockholders\u2019 equity\n\u200b\n$\n 13,443\n\u200b\n$\n 15,264\n\u200b\n$\n (1,821)\n\u200b\nThe next table summarizes changes in cash by primary component in the cash flows statements for the fiscal\u00a0years ended:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\n\u00a0\u00a0\u00a0\u00a0\nChange\n(dollars in thousands)\n\u200b\n2023\n\u200b\n2022\n\u200b\nAmount\nOperating activities\n\u200b\n$\n 3,138\n\u200b\n$\n 258\n\u200b\n$\n 2,880\nInvesting activities\n\u200b\n\u00a0\n (2,318)\n\u200b\n\u00a0\n (8,735)\n\u200b\n\u00a0\n 6,417\nFinancing activities\n\u200b\n\u00a0\n (1,337)\n\u200b\n\u00a0\n 7,398\n\u200b\n\u00a0\n (8,735)\nNet decrease in cash\n\u200b\n$\n (517)\n\u200b\n$\n (1,079)\n\u200b\n$\n 562\n\u200b\nOperating activities\nApart from our loan facilities, our primary sources of cash are from accounts receivable collections. Our customers make advance payments and progress payments under the terms of each manufacturing contract. Our cash flows can fluctuate significantly from period to period as we mark progress with customer projects and the composition of our receivables collections mix changes between advance payments and customer payments made after shipment of finished goods.\nFiscal 2023 was generally marked by favorable project performance progress and delivery schedules that led to timely customer payments. Cash provided by operating activities for the fiscal year ended March 31, 2023 was $3.1 million, as customer cash advances and collections exceeded cash outflows on projects in-progress. Also included in that amount, was $0.6 million for refunds under the employee retention tax credit program, and a $1.0 million reimbursement under a certain customer project program.\nCash provided by operating activities for the fiscal year ended March 31, 2022 was approximately $258,000, as operating cash inflows exceeded outflows in the fiscal 2022 fourth quarter as work on new projects commenced and customer cash collections increased. Cash outlays for the fiscal year ended March 31, 2022 included a payment of $0.5 million to plaintiffs for a court approved final class action settlement, and $0.7 million of cash used to pay past due rent on the Stadco property and buildings.\nOverall, fiscal 2022 was marked by favorable project performance progress and delivery schedules which led to timely customer payments. After a slower third quarter, fourth quarter project activity at Ranor returned to normal levels as customers made advance payments and progress payments for projects started in December 2021.\nInvesting activities\nIn fiscal 2023, we invested $2.3 million in new factory machinery and equipment, with $1.4 million of that amount paid for the installation and construction of equipment for contract project work with a certain customer at our Ranor segment.\n29\n\n\nTable of Contents\nWe are subject to certain financial debt covenants and may not spend more than $1.5 million for new machinery and equipment during any single fiscal year, tested on an annual basis at the end of each fiscal year.\nWe estimate our spending on new machinery and equipment in fiscal 2024, which we expect will include expenditures for the installation and construction of equipment for contract project work with a certain customer, will again exceed the spending limitation. Based on the forecasted spending, the Company will need to modify the terms of the financial debt covenant limiting capital spending with the lender.\nOn June 12, 2023, we executed a waiver with the lender under which the lender agreed to waive the Company\u2019s noncompliance with this capital spending limit covenant, as it relates to the period ended March 31, 2023. The waiver also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024, any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures.\nIn fiscal 2022, we purchased Stadco\u2019s outstanding debt from Sunflower Bank, for $7.8 million, net of cash acquired. We also invested $0.9 million in new factory machinery and equipment in fiscal 2022.\nFinancing activities\nIn fiscal 2023 we drew down $10.9 million of proceeds under the Revolver Loan and repaid $11.5 million during the same period. We also used $0.7 million of cash to pay down debt principal, make periodic lease payments and pay costs in connection with the Ranor Term Loan.\nIn fiscal 2022 we sourced $3.5 million of cash by selling 800,682 shares of common stock at $4.40 per share in a private placement financing and $4.0 million in new debt with Berkshire bank. In addition, we drew down $4.6 million under the revolver loan used to fund the acquisition and operating activities since August 25, 2021, and repaid $3.3 million through the end of March 31, 2022.\nWe used $0.5 million of cash to make periodic lease payments and pay off certain lease and debt obligations, and $0.9 million of cash to pay private placement closing costs, debt issue costs, and repay debt principal.\nAll of the above activity resulted in a net decrease in cash of $0.5 million for the fiscal year ended March 31, 2023 compared with a net decrease in cash of $1.1 million for the fiscal year ended March 31, 2022.\nBerkshire Bank Loans\nOn August 25, 2021, the Company entered into an amended and restated loan agreement with Berkshire Bank (as amended to date, the \u201cLoan Agreement\u201d). Under the Loan Agreement, Berkshire Bank continues as lender of the \u201cRanor Term Loan\u201d, and the revolving line of credit, or the \u201cRevolver Loan\u201d. In addition, Berkshire Bank provided to Stadco a term loan in the original amount of $4.0 million, or the \u201cStadco Term Loan\u201d. The proceeds of the original Ranor Term Loan of $2.85 million were previously used to refinance existing mortgage debt of Ranor. The proceeds of the Revolver Loan are used for working capital and general corporate purposes of the Company. The proceeds of the Stadco Term Loan were to be used to support the acquisition of Stadco and refinance existing indebtedness of Stadco.\nPayments for the original Ranor Term Loan began on January 20, 2017, and until the facility was amended in December 2022, the Company paid monthly installments of $19,260 each, inclusive of interest at a fixed rate of 5.21% per annum. Since the effectiveness of the most recent amendment, the Company now makes monthly installment payments of $16,601 each, inclusive of interest at a fixed rate of 6.05% per annum. All outstanding principal and accrued interest is due and payable on the maturity date of December 15, 2027.\nUnder the Loan Agreement, Berkshire Bank also makes available to Ranor a revolving line of credit with, following certain modifications, a maximum principal amount available of $5.0 million. There was $650,000 outstanding under the Revolver Loan at March 31, 2023. The Company can elect to pay interest at an adjusted SOFR-based rate or an Adjusted Prime Rate. The minimum adjusted SOFR-based rate is 2.25% and the Adjusted Prime Rate is the greater of (i) the Prime Rate minus 70 basis points or (ii) 2.75%. Interest-only payments on advances made under the Revolver Loan will continue to be payable monthly in arrears. The previous LIBOR-based rate expired on December 20, 2022. Interest-only payments on advances made under the Revolver Loan during the fiscal year \n30\n\n\nTable of Contents\nended March 31, 2023 totaled $33,156 at a weighted average interest rate of 5.02%. Unused borrowing capacity on March 31, 2023 was approximately $4.2 million. The maturity date of the Revolver Loan is December 20, 2023.\nOn August 25, 2021, Stadco borrowed $4.0 million from Berkshire Bank under the Stadco Term Loan. Interest on the Stadco Term Loan is due on unpaid balances beginning on August 25, 2021, at a fixed rate per annum equal to the 7-year Federal Home Loan Bank of Boston Classic Advance Rate plus 2.25%. Since September 25, 2021, and on the 25th day of each month thereafter, Stadco has made and will continue to make monthly payments of principal and interest in the amount of $54,390 each, with all outstanding principal and accrued interest due and payable on August 25, 2028.\nThe Ranor Term Loan, the Stadco Term Loan and the Revolver Loan, or collectively, the \u201cBerkshire Loans,\u201d may be accelerated upon the occurrence of an event of default as defined in the Loan Agreement. Upon the occurrence and during the continuance of certain default events, at the option of Berkshire Bank, or automatically without notice or any other action upon the occurrence of certain other events specified in the Loan Agreement, the unpaid principal amount outstanding under the facility, together with accrued interest and all other obligations, would become immediately due and payable without presentment, demand, protest, or further notice of any kind. \nThe Company agreed to maintain compliance with certain financial covenants under the Loan Agreement. Namely, the Company agreed to maintain a ratio of Cash Flow-to-Total Debt Service of not less than 1.20 to 1.00, measured quarterly on the last day of each fiscal quarter or annual period on a trailing 12-month basis. Calculations are based on the audited (year-end) and unaudited (quarterly) consolidated financial statements of the Company. Quarterly tests will be measured based on the financial statements included in the Company\u2019s quarterly reports on Form 10-Q within 60 days of the end of each quarter, and annual tests will be measured based on the financial statements included in the Company\u2019s annual reports on Form 10-K within 120 days after the end of each fiscal annual period. For purposes of the covenant, \u201cCash Flow\u201d means an amount, without duplication, equal to the sum of net income of TechPrecision plus (i) interest expense, plus (ii) taxes, plus (iii) depreciation and amortization, plus (iv) stock based compensation expense taken by TechPrecision, plus (v) non-cash losses and charges and one time or non-recurring expenses at Berkshire Bank\u2019s discretion, less (vi) the amount of cash distributions, if any, made to stockholders or owners of TechPrecision, less (vii) cash taxes paid by the TechPrecision, all as determined in accordance with U.S. GAAP. For purposes of the covenant, \u201cTotal Debt Service\u201d means an amount, without duplication, equal to the sum of (i) all amounts of cash interest paid on liabilities, obligations and reserves of TechPrecision paid by TechPrecision, (ii) all amounts paid by TechPrecision in connection with current maturities of long-term debt and preferred dividends, and (iii) all payments on account of capitalized leases, all as determined in accordance with U.S. GAAP.\nAdditionally, the Company agreed to cause its Balance Sheet Leverage to be less than or equal 2.50 to 1.00. Compliance with this covenant is tested quarterly, as of the last day of each fiscal quarter. For purposes of the covenant, \u201cBalance Sheet Leverage\u201d means, at any date of determination, the ratio of the Company\u2019s (a) Total Liabilities, less Subordinated Debt, to (b) Net Worth, plus Subordinated Debt. The Company agreed that its combined annual capital expenditures will not exceed $1.5 million. Compliance is tested annually.\nFinally, the Company agreed to maintain a Loan-to-Value Ratio of not greater than 0.75 to 1.00. For purposes of the covenant, \u201cLoan-to-Value Ratio\u201d means the ratio of (a) the sum of the outstanding balance of the Ranor Term Loan and the Stadco Term Loan, to (b) the fair market value of the property pledged as collateral for the loan, as determined by an appraisal obtained from time to time by Berkshire Bank.\nAt March 31, 2023, the Company was in violation of the Loan Agreement as it exceeded the capital expenditure limit of $1.5 million as defined in the agreement. On June 12, 2023, the Company and Berkshire Bank executed a waiver under which Berkshire Bank waived the Company\u2019s noncompliance with the capital expenditure limit on March 31, 2023. The waiver document also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024, any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures. The Company was otherwise in compliance with all the financial covenants on March 31, 2023.\nCollateral securing all the above obligations comprises all personal and real property of the Company, including cash, accounts receivable, inventories, equipment, and financial assets.\n31\n\n\nTable of Contents\nSmall Business Administration Loan\nOn May 8, 2020, the Company, through its wholly owned subsidiary Ranor, Inc., issued a promissory note evidencing an unsecured PPP loan in the amount of $1,317,100 made to Ranor under the CARES Act. This PPP loan was made through Berkshire Bank.\nUnder the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs, certain group health care benefits and insurance premiums, and any payments of mortgage interest, rent, and utilities.\nThe Company applied for loan forgiveness with the SBA under the Paycheck Protection Program on March 26, 2021. On May 12, 2021, as authorized by Section 1106 of the CARES Act, the SBA remitted to Berkshire Bank, the lender of record, a payment of principal and interest in the amount of $1,317,100 and $13,207, respectively, for forgiveness of the Company\u2019s PPP loan. The funds credited to the PPP loan paid this loan off in full. Loan forgiveness is recorded as a gain under other income and expense in the consolidated statement of operations.\nCommitments and Contractual Obligations\nThe following contractual obligations associated with our normal business activities are expected to result in cash payments in future periods, and include the following material items on March 31, 2023:\n\u25cf\nOur long-term debt obligations, including fixed and variable-rate debt, totaled $5.5 million, with $2.0 million due as a balloon payment in December 2027. In addition, approximately $0.6 to $0.7 million is due annually for each of the next five years.\n\u25cf\nWe enter into various commitments with suppliers for the purchase of raw materials and work supplies. Our outstanding unconditional contractual commitments, including for the purchase of raw materials and supplies goods, totaled $5.7 million, all of it due to be paid within the next twelve months. These purchase commitments are in the normal course of business.\n\u25cf\nOur lease obligations, including imputed interest, totaled $6.8 million for buildings through 2030, with approximately $0.9 million due annually for each of the next seven years.\nWe believe our available cash, plus cash expected to be provided by operations and borrowing capacity available under the Revolver Loan (until December 2023 when the Company expects to refinance) will be sufficient to fund our operations, expected capital expenditures, and principal and interest payments under our lease and debt obligations through the next 12 months from the issuance date of our financial statements. There are no off-balance sheet arrangements as of March 31, 2023.\nEBITDA Non-GAAP Financial Measure\nTo complement our consolidated statements of operations and comprehensive loss and consolidated statements of cash flows, we use EBITDA, a non-GAAP financial measure. Net income (loss) is the financial measure calculated and presented in accordance with U.S. GAAP that is most directly comparable to EBITDA. We believe EBITDA provides our board of directors, management, and investors with a helpful measure for comparing our operating performance with the performance of other companies that have different financing and capital structures or tax rates. We also believe that EBITDA is a measure frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry, and is a measure contained in our debt covenants. However, while we consider EBITDA to be an important measure of operating performance, EBITDA and other non-GAAP financial measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under U.S. GAAP.\nWe define EBITDA as net income (loss) plus interest, income taxes, depreciation, and amortization. Net loss was $1.0 million for the fiscal year ended March 31, 2023, as compared to net loss of $0.3 million for the year ended March 31, 2022. EBITDA, a non-GAAP financial measure, was $1.8 million for the year ended March 31, 2023, as compared to $1.2 million for the year ended March 31, 2022. \n32\n\n\nTable of Contents\nThe following table provides a reconciliation of EBITDA to net income (loss), the most directly comparable U.S. GAAP measure reported in our consolidated financial statements for the fiscal years ended:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\n\u00a0\u00a0\u00a0\u00a0\nChange\n(dollars in thousands)\n\u200b\n2023\n\u200b\n2022\n\u200b\nAmount\nNet loss\n\u200b\n$\n (979)\n\u200b\n$\n (350)\n\u200b\n$\n (629)\nIncome tax provision (benefit) \n\u200b\n\u00a0\n 196\n\u200b\n \n\u200b\n (192)\n\u200b\n \n\u200b\n 388\nInterest expense \n(1)\n\u200b\n\u00a0\n 356\n\u200b\n\u00a0\n 269\n\u200b\n\u00a0\n 87\nDepreciation and amortization\n\u200b\n\u00a0\n 2,217\n\u200b\n\u00a0\n 1,460\n\u200b\n\u00a0\n 757\nEBITDA\n\u200b\n$\n 1,790\n\u200b\n$\n 1,187\n\u200b\n$\n 603\n(1)\nIncludes amortization of debt issue costs.",
+  "item7": ">Item\u00a07.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nStatement Regarding Forward Looking Disclosure\nThe following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes, which appear elsewhere in this Annual Report on Form\u00a010-K. This Annual Report on Form\u00a010-K, including this section titled \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations,\u201d may contain predictive or \u201cforward-looking statements\u201d within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of current or historical fact contained in this annual report, including statements that express our intentions, plans, objectives, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events, or conditions are forward-looking statements. The words \u201canticipate,\u201d \u201cbelieve,\u201d \u201ccontinue,\u201d \u201ccould,\u201d \u201cestimate,\u201d \u201cexpect,\u201d \u201cintend,\u201d \u201cmay,\u201d \u201cplan,\u201d \u201cpredict,\u201d \u201cproject,\u201d \u201cwill,\u201d \u201cshould,\u201d \u201cwould\u201d and similar expressions, as they relate to us, are intended to identify forward-looking statements.\nThese forward-looking statements are based on current expectations, estimates and projections made by management about our business, our industry and other conditions affecting our financial condition, results of operations or business prospects. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, the forward-looking statements due to numerous risks and uncertainties. Factors that could cause such outcomes and results to differ include, but are not limited to, risks and uncertainties arising from:\n\u25cf\nour reliance on individual purchase orders, rather than long-term contracts, to generate revenue;\n\u25cf\nour ability to balance the composition of our revenues and effectively control operating expenses;\n\u25cf\nexternal factors that may be outside of our control, including health emergencies, like epidemics or pandemics, the Russia-Ukraine conflict, price inflation, increasing interest rates, and supply-chain inefficiencies;\n\u25cf\nthe availability of appropriate financing facilities impacting our operations, financial condition and/or liquidity;\n\u25cf\nour ability to receive contract awards through competitive bidding processes;\n20\n\n\nTable of Contents\n\u25cf\nour ability to maintain standards to enable us to manufacture products to exacting specifications;\n\u25cf\nour ability to enter new markets for our services;\n\u25cf\nour reliance on a small number of customers for a significant\u00a0percentage of our business;\n\u25cf\ncompetitive pressures in the markets we serve;\n\u25cf\nchanges in the availability or cost of raw materials and energy for our production facilities;\n\u25cf\nrestrictions on our ability to operate our business due to our outstanding indebtedness;\n\u25cf\ngovernment regulations and requirements;\n\u25cf\npricing and business development difficulties;\n\u25cf\nchanges in government spending on national defense;\n\u25cf\nour ability to make acquisitions and successfully integrate those acquisitions with our business;\n\u25cf\nour failure to maintain effective internal controls over financial reporting;\n\u25cf\ngeneral industry and market conditions and growth rates;\n\u25cf\nunexpected costs, charges or expenses resulting from the recently completed acquisition of Stadco; and\n\u25cf\nthose risks discussed in \u201c",
+  "item7a": ">Item\u00a07A.\u00a0\u00a0\u00a0\u00a0Quantitative and Qualitative Disclosure About Market Risk.\nAs a smaller reporting company, we have elected not to provide the information required by this Item.\nItem\u00a08.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Financial Statements and Supplementary Data.\n\u200b\n33\n\n\nTable of Contents\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM \nTo the Audit Committee of the Board of Directors and Stockholders of \nTechPrecision Corporation\nOpinion on the Financial Statements\nWe have audited the accompanying consolidated balance sheets of TechPrecision Corporation (the \u201cCompany\u201d) as of March 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, stockholders\u2019 equity and cash flows for each of the two years in the period ended March 31, 2023, and the related notes (collectively referred to as the \u201cfinancial statements\u201d). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2023, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of America.\nBasis for Opinion\nThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (\"PCAOB\") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\nWe conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. \nOur audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.\nCritical Audit Matters\nThe critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.\nContract Estimates\nAs described in Note 2 of the consolidated financial statements, for those long-term fixed-price contracts for which control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The Company measures progress for performance obligations satisfied over time using input methods such as costs incurred, resources consumed, labor hours expended, and/or time elapsed. The estimation of progress toward completion is subject to assumptions and variables and requires significant judgment. Auditing the Company\u2019s estimate of total expected contract costs and effort necessary to completion is especially challenging due to the judgmental and subjective nature of the estimation of costs to complete, including material, labor and subcontracting costs, among others, unique to each revenue arrangement. Revisions in contract estimates can materially affect the Company\u2019s operating results.\n34\n\n\nTable of Contents\nWe obtained an understanding of and evaluated the Company\u2019s revenue recognition review procedures. To test the estimate of expected contract costs to complete and effort necessary to completion, our audit procedures included, among others, testing significant components of the estimate noted above, assessing the completeness of the cost estimates, reviewing changes in the estimates from previous periods and testing underlying data used by management. Further, our procedures included discussing project status with operations and finance management responsible for managing the contractual arrangements; inspecting evidence to support the assumptions made by management; evaluating the key assumptions utilized in development of the expected contract costs to complete the arrangement; and performing look-back procedures to assess previous estimates as well as performance on similar arrangements. We also reviewed documentation of management\u2019s estimates as well as continued progress on open arrangements through the reporting date for evidence of changes that would affect estimates as of the balance sheet date.\nGoing Concern\nAs discussed in Note 2 to the consolidated financial statements, the Company reported a net loss of approximately $979,000 for the year ended March 31, 2023. Also, as discussed in Note 12 in the consolidated financial statements, the Company has a revolver loan with a balance of $650,000 as of March 31, 2023 and is due to mature in December 2023. The Company plans to refinance the loan; however, if the Company is unable to refinance the loan, the loan would become due during the fiscal year ended March 31, 2024, which would cause substantial doubt about the Company\u2019s ability to continue as a going concern.\nWe identified going concern as a critical audit matter because of the significant estimates and assumptions management used in developing its financial forecast and the assumptions used in management\u2019s plan to alleviate the substantial doubt about the Company\u2019s ability to continue as a going concern. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management\u2019s assumptions.\nWe obtained management\u2019s plan and forecasted cash flow through June 30, 2024. Our audit procedures related to management\u2019s plan and forecasted cash flows included the following, among others:\n\u25cf\nWe assessed the reasonableness of the forecasted cash flows for the fiscal period ending June 30, 2024 by comparing them to actual results for the fiscal year ended March 31, 2023.\n\u25cf\nWe assessed the reasonableness of the forecasted revenue growth and operating margins over the cash flow forecast period by comparing them to historical periods.\n\u25cf\nWe performed sensitivity analysis of the significant assumptions used in the cash flow forecast.\n\u25cf\nWe reviewed the bank waiver that the Company received with respect to its capital expenditures.\n/s/ Marcum LLP\n\u200b\nMarcum LLP\n\u200b\nWe have served as the Company\u2019s auditor since 2013\nPhiladelphia, Pennsylvania\nJune 15, 2023\n\u200b\n35\n\n\nTable of Contents\nTECHPRECISION CORPORATION\nCONSOLIDATED BALANCE SHEETS\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMarch\u00a031,\u00a0\n\u200b\nMarch\u00a031,\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\nASSETS\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCurrent assets:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCash and cash equivalents\n\u200b\n$\n \n534,474\n\u200b\n$\n \n1,052,139\nAccounts receivable, net\n\u200b\n\u00a0\n \n2,336,481\n\u200b\n\u00a0\n \n3,009,249\nContract assets\n\u200b\n\u00a0\n \n8,947,811\n\u200b\n\u00a0\n \n8,350,231\nRaw materials\n\u200b\n\u200b\n \n1,692,852\n\u200b\n\u200b\n \n874,538\nWork-in-process \n\u200b\n\u200b\n \n719,736\n\u200b\n\u200b\n \n1,360,137\nOther current assets\n\u200b\n\u00a0\n \n348,983\n\u200b\n\u00a0\n \n1,421,459\nTotal current assets\n\u200b\n\u00a0\n \n14,580,337\n\u200b\n\u00a0\n \n16,067,753\nProperty, plant and equipment, net\n\u200b\n\u00a0\n \n13,914,024\n\u200b\n\u00a0\n \n13,153,165\nRight of use asset, net\n\u200b\n\u200b\n \n5,660,938\n\u200b\n\u200b\n \n6,383,615\nDeferred income taxes\n\u200b\n\u00a0\n \n1,931,186\n\u200b\n\u00a0\n \n2,126,770\nOther noncurrent assets, net\n\u200b\n\u00a0\n \n121,256\n\u200b\n\u00a0\n \n121,256\nTotal assets\n\u200b\n$\n \n36,207,741\n\u200b\n$\n \n37,852,559\nLIABILITIES AND STOCKHOLDERS\u2019 EQUITY:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCurrent liabilities:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAccounts payable\n\u200b\n$\n \n2,224,320\n\u200b\n$\n \n3,426,921\nAccrued expenses\n\u200b\n\u00a0\n \n2,533,185\n\u200b\n\u00a0\n \n3,435,866\nContract liabilities\n\u200b\n\u00a0\n \n2,333,591\n\u200b\n\u00a0\n \n1,765,319\nCurrent portion of long-term lease liability\n\u200b\n\u00a0\n \n711,727\n\u200b\n\u00a0\n \n593,808\nCurrent portion of long-term debt, net\n\u200b\n\u200b\n \n1,218,162\n\u200b\n\u200b\n \n4,093,079\nTotal current liabilities\n\u200b\n\u00a0\n \n9,020,985\n\u200b\n\u00a0\n \n13,314,993\nLong-term debt, net\n\u200b\n\u00a0\n \n4,749,139\n\u200b\n\u00a0\n \n3,114,936\nLong-term lease liability\n\u200b\n\u200b\n \n5,143,974\n\u200b\n\u200b\n \n5,853,791\nOther noncurrent liability\n\u200b\n\u200b\n \n2,699,492\n\u200b\n\u200b\n \n305,071\nTotal liabilities\n\u200b\n\u200b\n \n21,613,590\n\u200b\n\u200b\n \n22,588,791\nCommitments and contingent liabilities (see Note 15)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nStockholders\u2019 Equity:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCommon stock - par value $\n.0001\n per share, shares authorized: March 31, 2023 \u2013 \n50,000,000\n; Shares \nissued\n and \noutstanding\n: March 31, 2023 \u2013 \n8,613,408\n; March 31, 2022 \u2013 \n8,576,862\n\u200b\n\u00a0\n \n861\n\u200b\n\u00a0\n \n858\nAdditional paid in capital\n\u200b\n\u00a0\n \n14,949,729\n\u200b\n\u00a0\n \n14,640,343\nAccumulated other comprehensive income\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\nRetained earnings (accumulated deficit)  \n\u200b\n\u00a0\n (\n356,439\n)\n\u200b\n\u00a0\n \n622,567\nTotal stockholders\u2019 equity\n\u200b\n\u00a0\n \n14,594,151\n\u200b\n\u00a0\n \n15,263,768\nTotal liabilities and stockholders\u2019 equity\n\u200b\n$\n \n36,207,741\n\u200b\n$\n \n37,852,559\n\u200b\nSee accompanying notes to the consolidated financial statements.\n\u200b\n36\n\n\nTable of Contents\nTECHPRECISION CORPORATION\nCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears ended March 31,\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\nNet sales\n\u200b\n$\n \n31,431,614\n\u200b\n$\n \n22,282,495\nCost of sales\n\u200b\n\u00a0\n \n26,527,953\n\u200b\n\u00a0\n \n18,905,938\nGross profit\n\u200b\n\u00a0\n \n4,903,661\n\u200b\n\u00a0\n \n3,376,557\nSelling, general and administrative\n\u200b\n\u00a0\n \n6,008,881\n\u200b\n\u00a0\n \n4,938,086\nLoss from operations\n\u200b\n\u200b\n (\n1,105,220\n)\n\u200b\n\u200b\n (\n1,561,529\n)\nOther income (expense), net\n\u200b\n\u00a0\n \n40,842\n\u200b\n\u00a0\n (\n28,385\n)\nInterest expense\n\u200b\n\u00a0\n (\n355,608\n)\n\u200b\n\u00a0\n (\n269,375\n)\nRefundable employee retention tax credits\n\u200b\n\u00a0\n \n636,564\n\u200b\n\u00a0\n \u2014\nPPP loan forgiveness\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \n1,317,100\nTotal other income (expense), net\n\u200b\n\u00a0\n \n321,798\n\u200b\n\u00a0\n \n1,019,340\nLoss before income taxes\n\u200b\n\u00a0\n (\n783,422\n)\n\u200b\n\u00a0\n (\n542,189\n)\nIncome tax provision (benefit)\n\u200b\n\u200b\n \n195,584\n\u200b\n\u200b\n (\n192,355\n)\nNet loss  \n\u200b\n$\n (\n979,006\n)\n\u200b\n$\n (\n349,834\n)\nOther comprehensive loss before tax:\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\nForeign currency translation adjustments\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (\n1,909\n)\nForeign currency translation reclassification\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (\n19,929\n)\nOther comprehensive loss, net of tax\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (\n21,838\n)\nComprehensive loss \n\u200b\n$\n (\n979,006\n)\n\u200b\n$\n (\n371,672\n)\nNet loss per share \u2013 basic\n\u200b\n$\n (\n0.11\n)\n\u200b\n$\n (\n0.04\n)\nNet loss per share \u2013 diluted\n\u200b\n$\n (\n0.11\n)\n\u200b\n$\n (\n0.04\n)\nWeighted average number of shares outstanding \u2013 basic\n\u200b\n\u200b\n \n8,595,992\n\u200b\n\u200b\n \n8,095,058\nWeighted average number of shares outstanding \u2013 diluted\n\u200b\n\u200b\n \n8,595,992\n\u200b\n\u200b\n \n8,095,058\n\u200b\nSee accompanying notes to the consolidated financial statements.\n\u200b\n37\n\n\nTable of Contents\nTECHPRECISION CORPORATION\nCONSOLIDATED STATEMENTS OF STOCKHOLDERS\u2019 EQUITY\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAccumulated\n\u200b\nRetained\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\nCommon\n\u00a0\n\u200b\n\u200b\n\u00a0\nAdditional\n\u00a0\nOther\n\u00a0\nEarnings\n\u00a0\nTotal\n\u200b\n\u00a0\nStock\n\u200b\nPar\n\u00a0\nPaid\u00a0in\n\u00a0\nComprehensive\n\u00a0\n(Accumulated\n\u00a0\nStockholders\u2019\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nOutstanding\n\u00a0\u00a0\u00a0\u00a0\nValue\n\u00a0\u00a0\u00a0\u00a0\nCapital\n\u00a0\u00a0\u00a0\u00a0\nIncome (Loss)\n\u00a0\u00a0\u00a0\u00a0\nDeficit)\n\u00a0\u00a0\u00a0\u00a0\nEquity\nBalance 3/31/2021\n\u00a0\n \n7,374,665\n\u200b\n$\n \n737\n\u200b\n$\n \n8,946,872\n\u200b\n$\n \n21,838\n\u200b\n$\n \n972,401\n\u200b\n$\n \n9,941,848\nStock based compensation\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n155,754\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n155,754\nRestricted stock award\n\u200b\n \n30,000\n\u200b\n\u200b\n \n3\n\u200b\n\u200b\n (\n3\n)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\nIssuance of common stock\n\u200b\n \n5,000\n\u200b\n\u200b\n \n1\n\u200b\n\u200b\n \n34,999\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n35,000\nIssuance of warrants\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n46,256\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n46,256\nCommon stock issued for acquired business\n\u200b\n \n366,515\n\u200b\n\u200b\n \n37\n\u200b\n\u200b\n \n2,268,963\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n2,269,000\nProceeds from sale of common stock, net\n\u200b\n \n800,682\n\u200b\n\u200b\n \n80\n\u200b\n\u200b\n \n3,187,502\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n3,187,582\nNet loss\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (\n349,834\n)\n\u200b\n\u200b\n (\n349,834\n)\nForeign currency translation adjustment\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (\n21,838\n)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (\n21,838\n)\nBalance 3/31/2022\n\u200b\n \n8,576,862\n\u200b\n$\n \n858\n\u200b\n$\n \n14,640,343\n\u200b\n$\n \u2014\n\u200b\n$\n \n622,567\n\u200b\n$\n \n15,263,768\nStock based compensation\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n109,079\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n109,079\nStock issued for contingent consideration\n\u200b\n \n9,127\n\u200b\n\u200b\n \n1\n\u200b\n\u200b\n \n56,309\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n56,310\nStock award non-employee directors\n\u200b\n \n25,000\n\u200b\n\u200b\n \n2\n\u200b\n\u200b\n \n143,998\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n144,000\nStock split fractional share round up\n\u200b\n \n2,419\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\nNet loss \n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (\n979,006\n)\n\u200b\n\u200b\n (\n979,006\n)\nBalance 3/31/2023\n\u200b\n \n8,613,408\n\u200b\n$\n \n861\n\u200b\n$\n \n14,949,729\n\u200b\n$\n \u2014\n\u200b\n$\n (\n356,439\n)\n\u200b\n$\n \n14,594,151\n\u200b\nSee accompanying notes to the consolidated financial statements.\n\u200b\n38\n\n\nTable of Contents\nTECHPRECISION CORPORATION\nCONSOLIDATED STATEMENTS OF CASH FLOWS\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended March 31,\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\nCASH FLOWS FROM OPERATING ACTIVITIES\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\nNet loss  \n\u200b\n$\n (\n979,006\n)\n\u200b\n$\n (\n349,834\n)\nAdjustments to reconcile net loss to net cash provided by operating activities:\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\nDepreciation and amortization\n\u200b\n\u00a0\n \n2,217,472\n\u200b\n\u00a0\n \n1,460,439\nAmortization of debt issue costs\n\u200b\n\u00a0\n \n59,916\n\u200b\n\u00a0\n \n48,251\nGain on disposal of equipment\n\u200b\n\u00a0\n (\n468\n)\n\u200b\n\u00a0\n \u2014\nStock based compensation expense\n\u200b\n\u00a0\n \n253,079\n\u200b\n\u00a0\n \n190,754\nChange in contract loss provision\n\u200b\n\u00a0\n (\n237,318\n)\n\u200b\n\u00a0\n (\n223,111\n)\nDeferred income taxes\n\u200b\n\u00a0\n \n195,584\n\u200b\n\u00a0\n (\n192,355\n)\nPPP loan forgiveness\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (\n1,317,100\n)\nStock based expense for contingent consideration\n\u200b\n\u200b\n \n56,310\n\u200b\n\u200b\n \u2014\nChange in fair value for contingent consideration\n\u200b\n\u200b\n (\n63,436\n)\n\u200b\n\u200b\n \n50,454\nChanges in operating assets and liabilities:\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\nAccounts receivable\n\u200b\n\u00a0\n \n672,768\n\u200b\n\u00a0\n (\n842,943\n)\nContract assets\n\u200b\n\u00a0\n (\n597,580\n)\n\u200b\n\u00a0\n \n1,012,783\nWork-in-process and raw materials \n\u200b\n\u00a0\n (\n177,914\n)\n\u200b\n\u00a0\n (\n42,491\n)\nOther current assets\n\u200b\n\u00a0\n \n1,072,476\n\u200b\n\u00a0\n \n354,993\nOther noncurrent liabilities\n\u200b\n\u00a0\n \n2,394,420\n\u200b\n\u00a0\n (\n50,633\n)\nAccounts payable\n\u200b\n\u00a0\n (\n1,202,601\n)\n\u200b\n\u00a0\n \n245,743\nAccrued expenses and lease liabilities\n\u200b\n\u00a0\n (\n1,094,137\n)\n\u200b\n\u00a0\n (\n1,477,552\n)\nContract liabilities\n\u200b\n\u00a0\n \n568,273\n\u200b\n\u00a0\n \n1,390,441\nNet cash provided by operating activities\n\u200b\n\u00a0\n \n3,137,838\n\u200b\n\u00a0\n \n257,839\nCASH FLOWS FROM INVESTING ACTIVITIES\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\nBusiness acquisition, net of cash acquired\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (\n7,795,810\n)\nPurchases of property, plant, and equipment\n\u200b\n\u00a0\n (\n2,325,301\n)\n\u200b\n\u00a0\n (\n939,004\n)\nProceeds from sale of fixed assets\n\u200b\n\u00a0\n \n7,000\n\u200b\n\u00a0\n \u2014\nNet cash used in investing activities\n\u200b\n\u200b\n (\n2,318,301\n)\n\u200b\n\u200b\n (\n8,734,814\n)\nCASH FLOWS FROM FINANCING ACTIVITIES\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\nProceeds from term loan\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \n4,000,000\nClosing costs related to common stock sale\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (\n335,418\n)\nProceeds from sale of common stock \n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n3,523,000\nProceeds from revolver loan\n\u200b\n\u200b\n \n10,885,150\n\u200b\n\u200b\n \n4,612,002\nRepayment of revolver loan\n\u200b\n\u00a0\n (\n11,522,152\n)\n\u200b\n\u00a0\n (\n3,325,000\n)\nDebt issuance costs\n\u200b\n\u200b\n (\n57,723\n)\n\u200b\n\u200b\n (\n169,884\n)\nPrincipal payments for leases\n\u200b\n\u200b\n (\n36,572\n)\n\u200b\n\u200b\n (\n508,806\n)\nRepayment of long-term debt\n\u200b\n\u00a0\n (\n605,905\n)\n\u200b\n\u200b\n (\n397,490\n)\nNet cash (used in) provided by financing activities\n\u200b\n\u00a0\n (\n1,337,202\n)\n\u200b\n\u00a0\n \n7,398,404\nNet decrease in cash and cash equivalents\n\u200b\n\u00a0\n (\n517,665\n)\n\u200b\n\u00a0\n (\n1,078,571\n)\nCash and cash equivalents, beginning of period\n\u200b\n\u00a0\n \n1,052,139\n\u200b\n\u00a0\n \n2,130,711\nCash and cash equivalents, end of period\n\u200b\n$\n \n534,474\n\u200b\n$\n \n1,052,139\nSUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\nCash paid during the year for interest (net of interest capitalized)\n\u200b\n$\n \n288,085\n\u200b\n$\n \n236,575\n\u200b\nSee accompanying notes to the consolidated financial statements.\n39\n\n\nTable of Contents\nSUPPLEMENTAL INFORMATION - NONCASH OPERATING, INVESTING AND FINANCING TRANSACTIONS:\nFiscal Year Ended March 31, 2023 \nStadco entered into a payment arrangement agreement (the \u201cPayment Agreement\u201d) with the Department of Water and Power of the City of Los Angeles (the \u201cLADWP\u201d), to settle previously outstanding amounts for water, water service, electric energy and/or electric service in the aggregate amount of $\n1,770,201\n that are delinquent and unpaid. This liability amount was included in accounts payable on the Company\u2019s balance sheet as of March 31, 2022, and was reclassified as a current liability for $\n221,272\n to accrued expenses and to noncurrent liabilities for $\n1,548,929\n in December 2022.\nFiscal Year Ended March 31, 2022\nOn August 25, 2021, in exchange for the issuance of\u00a0\n366,515\n\u00a0shares of common stock and warrants, the Company acquired all of the issued and outstanding capital stock of Stadco, acquired certain other securities of Stadco and satisfied certain liabilities of Stadco. The fair value of the common stock transferred was $\n2,269,000\n\u00a0and based on the closing market price of the Company\u2019s common stock on the closing date, August 25, 2021. The fair value of the warrants transferred was $\n46,256\n and was estimated using the Black-Scholes option-pricing model.\nIn connection with the Stadco acquisition, the Company became party to an amended and restated lease agreement to rent buildings and property at the Stadco manufacturing location and recorded a right-of-use asset and liability of approximately $\n6.7\n\u00a0million.\n\u200b\n40\n\n\nTable of Contents\nNOTES\u00a0TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE\u00a01\u00a0- DESCRIPTION OF BUSINESS\nTechPrecision Corporation, or \u201cTechPrecision\u201d, is a Delaware corporation organized in February 2005 under the name Lounsberry Holdings II, Inc. On February 24, 2006, we acquired all the issued and outstanding capital stock of our wholly owned subsidiary Ranor, Inc., or \u201cRanor.\u201d Ranor, together with its predecessors, has been in continuous operation since 1956. The name was changed to TechPrecision Corporation on March 6, 2006.\nTechPrecision is the parent company of Ranor, Westminster Credit Holdings, LLC, or \u201cWCH\u201d, Stadco New Acquisition, LLC, or \u201cAcquisition Sub\u201d, Stadco and Wuxi Critical Mechanical Components Co., Ltd., or \u201cWCMC\u201d, a wholly foreign owned enterprise. WCMC was dissolved and deregistered in November 2021. TechPrecision, Ranor, WCH, WCMC (until November 2021), Acquisition Sub and Stadco are collectively referred to as the \u201cCompany\u201d, \u201cwe\u201d, \u201cus\u201d or \u201cour\u201d. \nOn August 25, 2021, the Company completed its acquisition of Stadco, pursuant to that certain stock purchase agreement with Acquisition Sub, Stadco Acquisition, LLC, Stadco and each equity holder of Stadco Acquisition, LLC. On the closing date, the Company, through Acquisition Sub, acquired all the issued and outstanding capital stock of Stadco from Stadco Acquisition, LLC in exchange for the issuance of shares of the Company\u2019s common stock to Stadco Acquisition, LLC. As a result of the acquisition, Stadco is now our wholly owned indirect subsidiary. See Note 3 for additional disclosures related to this business combination.\nWe manufacture large-scale metal fabricated and machined precision components and equipment. These products are used in a variety of markets including defense and aerospace, nuclear, medical, and precision industrial. All our operations and customers are in the United States, or \u201cU.S.\u201d.\n\u200b\nNOTE\u00a02\u00a0- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES\nBasis of Presentation and Consolidation - \nThe accompanying consolidated financial statements include the accounts of TechPrecision, Ranor, Stadco, Westminster Credit Holdings, LLC, and WCMC, until its dissolution. Intercompany transactions and balances have been eliminated in consolidation. On February 23, 2023, the Company effected a one-for-four reverse stock split with respect to the issued and outstanding shares of TechPrecision common stock. All share and per-share amounts included in this Form 10-K are presented as if the stock split had been effective from the beginning of the earliest period presented.\nUse of Estimates in the Preparation of Financial Statements\u00a0-\n In preparing the consolidated financial statements in conformity with generally accepted accounting principles in the United States, or \u201cU.S. GAAP\u201d, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reported period. We continually evaluate our estimates, including those related to revenue recognition, long-lived assets, and income taxes. We base our estimates on historical and current experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.\nRisks and Uncertainties -\n For the year ended March 31, 2023 and 2022, there were no events related to Coronavirus Disease (COVID-19) that had a material impact on our operating margins. The Company will continue to monitor the impacts of COVID-19 and any government-imposed actions thereto.\nFor the fiscal years ended March 31, 2023 and 2022, we reported a net loss of \n$979,006\n and $\n349,834\n, respectively. Our liquidity is highly dependent on the availability of financing facilities and our ability to maintain our gross profit and operating income. On December 23, 2022, we were successful extending the maturity date of the Ranor Term Loan to December 2027 and renewing the Revolver Loan for one year (each as defined below; see Note 12 \u2013 Debt). This new long-term financing allows us to continue operations beyond the next twelve months (the Company intends to renew or replace the Revolver Loan in December 2023) and be able to discharge our liabilities and commitments in the normal course of business. Additionally, we were able to meet certain financial and related loan covenants that the Company had failed in the fiscal 2023 second quarter. As such, the uncertainty with respect to the Company\u2019s ability to continue as a going concern has been alleviated.\n41\n\n\nTable of Contents\nWe are subject to certain financial debt covenants and may not spend more than $\n1.5\n million for new machinery and equipment during any single fiscal year, tested on an annual basis at the end of each fiscal year. On June 12, 2023, we executed a waiver with the lender under which the lender agreed to waive the Company\u2019s noncompliance with this capital spending limit covenant, as it relates to the period ended March 31, 2023. The waiver document also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024, any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures.\nWe estimate our spending on new machinery and equipment in fiscal 2024, which we expect will include expenditures for the installation and construction of equipment for contract project work with a certain customer, will again exceed the spending limitation. However, as a result of the agreement to exclude certain expenditures from the limitation imposed by the covenant, the Company does not anticipate this will result in noncompliance with the capital spending limit covenant for the period ended March 31, 2024.\nCash and cash equivalents -\n Holdings of highly liquid investments with maturities of three months or less, when purchased, are considered to be cash equivalents. Our deposit and money market accounts are maintained in a large U.S. regional bank.\nAccounts receivable and allowance for doubtful accounts\u00a0- \nAccounts receivable are comprised of amounts billed and currently due from customers. Accounts receivables are amounts related to any unconditional right the Company has for receiving consideration and are presented as accounts receivables in the consolidated balance sheets. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history with the customer, current industry trends, and changes in customer payment terms. Based on management\u2019s assessment, we provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances which remain outstanding after reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Historically, the level of uncollectible accounts has not been significant. An allowance was recorded for $\n22,000\n as of March 31, 2023. There was a $\n0\n balance in the allowance for doubtful accounts on March 31, 2022.\nInventories\u00a0- \nWork-in-process and raw materials are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out (FIFO) method.\nContract Assets\n\u00a0- Contract assets represent the Company\u2019s rights to consideration for work completed but not billed as of the reporting date when the right to payment is not just subject to the passage of time. The amount of contract assets recorded in the consolidated balance sheet reflects revenue recognized on contracts less associated advances and progress billings. These amounts are billed in accordance with the agreed-upon contract terms or upon achievement of contract milestones.\nProperty, plant and equipment, net\u00a0-\n Property, plant and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are accounted for on the straight-line method based on estimated useful lives. The amortization of leasehold improvements is based on the shorter of the lease term or the useful life of the improvement. Amortization of assets recorded under capital leases is included in depreciation expense. Betterments and large renewals, which extend the life of the asset, are capitalized whereas maintenance and repairs and small renewals are expensed as incurred. The estimated useful lives are machinery and equipment, \n5\n-\n15\u00a0years\n; buildings,\u00a0\n30 years\n; and leasehold improvements, \n2\n-\n5\u00a0years\n. Upon sale or retirement of machinery and equipment, costs and related accumulated depreciation are eliminated, and gains or losses are recognized in the statement of operations and comprehensive loss.\nInterest is capitalized for assets that are constructed or otherwise produced for our own use, including assets constructed or produced for us by others for which deposits or progress payments have been made. Interest is capitalized to the date the assets are available and ready for use. When an asset is constructed in stages, interest is capitalized for each stage until it is available and ready for use. We use the interest rate incurred on funds borrowed specifically for the project. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset\u2019s estimated useful life.\nIn accordance with Accounting Standards Codification (ASC)\u00a0360, \nProperty, Plant\u00a0& Equipment\n, our property, plant and equipment is tested for impairment when triggering events occur and, if impaired, written-down to fair value based on either discounted cash flows or appraised values. The carrying amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group.\n42\n\n\nTable of Contents\nDebt Issuance Costs\u00a0-\n Costs incurred in connection with obtaining financing for long-term debt are capitalized and presented as a reduction of the carrying amount of the related debt. Costs incurred in connection with obtaining financing for revolving credit facilities and lines of credit are capitalized and presented as reduction of the carrying amount of the revolver loan. Loan acquisition costs are being amortized using the effective interest method over the term of the loan.\nContract Liabilities\n\u00a0- Contract liabilities are comprised of advance payments, billings in excess of revenues, and deferred revenue amounts. Such advances are not generally considered a significant financing component because they are utilized to pay for contract costs within a one-year period. Contract liability amounts are recognized as revenue once control over the underlying performance obligation has transferred to the customer.\nFair Value Measurements\u00a0-\n We account for fair value of financial instruments in accordance with ASC 820,\n Fair Value Measurement\n, which defines fair value and establishes a framework to measure fair value and the related disclosures about fair value measurements. The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. The Financial Accounting Standards Board, or FASB, establishes a fair value hierarchy used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories: Level 1:\u00a0Inputs based upon quoted market prices for identical assets or\u00a0liabilities in active markets at the measurement date; Level 2:\u00a0Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and Level 3: Inputs that are management\u2019s best estimate of what market participants would use in pricing the asset or liability at the measurement date.\u00a0The inputs are unobservable in the market and significant to the instruments\u2019 valuation. In addition, we will measure fair value in an inactive or dislocated market based on facts and circumstances and significant management judgment. We will use inputs based on management estimates or assumptions or adjust observable inputs to determine fair value when markets are not active and relevant observable inputs are not available.\nThe following table provides the estimated fair values of the Company\u2019s financial instrument liabilities, for which fair value is measured for disclosure purposes only, compared to the recorded amounts on March 31:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nReported\u00a0Amount\n\u00a0\u00a0\u00a0\u00a0\nFair\u00a0Value\n\u00a0\u00a0\u00a0\u00a0\nReported\u00a0Amount\n\u00a0\u00a0\u00a0\u00a0\nFair\u00a0Value\nContingent consideration\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\n\u200b\n$\n \n63,436\n\u200b\n$\n \n63,436\n\u200b\nThe estimated liability associated with the above contingent consideration in connection with the Stadco acquisition was valued using a Monte Carlo model simulation. The fair value of the contingent consideration was estimated using closing stock prices and expected volatility of \n50.0\n% based on the historical volatility of our common stock.\nTo determine the value of the contingent consideration liability, we used a Monte Carlo simulation model, which takes into consideration the conversion target stock price, the stock market price of our common stock and historical volatility. Under this approach, a probability distribution is developed that reflects the what the stock price may be at a future date. The following table provides a summary of changes in our Level 3 fair value measurements:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nBalance at March 31, 2021\n\u00a0\u00a0\u00a0\u00a0\n$\n \n\u2014\nInitial measurement at fair value\n\u200b\n\u200b\n \n113,890\nChange in fair value recorded in the statement of operations and comprehensive loss\n\u200b\n\u00a0\n (\n50,454\n)\nBalance at March 31, 2022\n\u200b\n$\n \n63,436\nChange in fair value recorded in the statement of operations and comprehensive loss\n\u200b\n\u200b\n (\n63,436\n)\nBalance at March 31, 2023\n\u200b\n$\n \n\u2014\n\u200b\nThe Company settled the obligation associated with the contingent consideration by issuing \n9,127\n shares of common stock valued at $\n56,310\n on August 25, 2022.\n43\n\n\nTable of Contents\nASC 825\n,\n Financial Instruments\n, requires disclosures about the fair value of financial instruments. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, as presented in the balance sheet, approximates fair value due to the short-term nature of these instruments. The carrying value of short and long-term borrowings approximates their fair value.\nRevenue Recognition\n\u00a0- The Company accounts for revenue under Accounting Standards Update (ASU) 2014-09, \nRevenue from Contracts with Customers (Topic 606), \nor \u201cASC 606\u201d, and related amendments\n.\n ASC 606 sets forth five steps for revenue recognition: identification of the contract, identification of any separate performance obligations in the contracts, determination of the transaction price, allocation of the transaction price to separate performance obligations, and revenue recognition when performance obligations are satisfied.\nThe Company recognizes revenue over time based on the transfer of control of the promised goods or services to the customer. This transfer occurs over time when the Company has an enforceable right to payment for performance completed to date, and our performance does not create an asset that has an alternative use to the Company. Otherwise, control to the promised goods or services transfers to customers at a point in time.\nThe majority of the Company\u2019s contracts have a single performance obligation and provide title to, or grant a security interest in, work-in-process to the customer. In addition, these contracts contain enforceable rights to payment, allowing the Company to recover both its cost and a reasonable margin on performance completed to date. The combination of these factors indicates that the customer controls the asset and revenue is recognized as the asset is created or enhanced. The Company measures progress for performance obligations satisfied over time using input methods (e.g., costs incurred, resources consumed, labor hours expended, and time elapsed).\nUnder arrangements where the customer does not have title to, or a security interest in, the work-in-process, our evaluation of whether revenue should be recognized over time requires significant judgment about whether the asset has an alternative use and whether the entity has an enforceable right to payment for performance completed to date. When one or both of these factors is not present, the Company will recognize revenue at the point in time where control over the promised good or service transfers to the customer, i.e. when the customer has taken physical possession of the product the Company has built for the customer.\nThe Company and its customers may occasionally enter into contract modifications, including change orders. The Company may account for the modification as a separate contract, the termination of an old contract and creation of a new contract, or as part of the original contract, depending on the nature and pricing of the goods or services included in the modification. In general, contract modifications\u00a0- as well as other changes in estimates of sales, costs, and profits on a performance obligation\u00a0- are recognized using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes in current and prior periods. A significant change in an estimate on one or more contracts in a period could have a material effect on the consolidated balance sheet or results of operations for that period. For the fiscal\u00a0year ended March\u00a031, 2023 and 2022, net cumulative catch-up adjustments were not material. No individual adjustment was material to the Company\u2019s consolidated statements of operations and comprehensive loss for the fiscal\u00a0year ended March\u00a031, 2023 and 2022.\nIf incentives and other contingencies are provided as part of the contract, the Company will include in the initial transaction price the consideration to which it expects to be entitled under the terms and conditions of the contract, generally estimated using an expected value or most likely amount approach. In the context of variable consideration, the Company limits, or constrains, the transaction price to amounts for which the Company believes a significant reversal of revenue is not probable. Adjustments to constrain the transaction price may be due to a portion of the transaction price being more than approved funding, a lack of history with the customer, a lack of history with the goods or services being provided, or other items.\nShipping and handling fees and costs incurred in connection with products sold are recorded in cost of sales in the consolidated statements of operations and comprehensive loss and are not considered a performance obligation to our customers.\nContract Estimates\n\u00a0- In estimating contract costs, the Company takes into consideration a number of assumptions and estimates regarding risks related to technical requirements and scheduling. Management performs periodic reviews of the contracts to evaluate the underlying risks. Profit margin on any given project could increase if the Company is able to mitigate and retire such risks. Conversely, if the Company is not able to properly manage these risks, cost estimates may increase, resulting in a lower profit margin, or potentially, contract losses.\n44\n\n\nTable of Contents\nThe cost estimation process requires significant judgment and is based upon the professional knowledge and experience of the Company\u2019s engineers, program managers, and financial professionals. Factors considered in estimating the work to be completed and ultimate contract recovery include the availability, productivity, and cost of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays in performance, the availability and timing of funding from the customer, and the recoverability of any claims included in the estimates to complete. Costs allocable to undelivered units are reported as work in process, a component of inventory, in the consolidated balance sheet. Pre-contract fulfillment costs requiring capitalization are not material.\nSelling, general and administrative\n\u00a0- Selling, general and administrative (SG&A) expenses include items such as executive compensation and benefits, professional fees, business travel and office costs. Advertising costs are nominal and expensed as incurred. Other general and administrative expenses include items for our administrative functions and include costs for items such as office supplies, insurance, legal, accounting, telephone, and other outside services. SG&A consisted of the following for the fiscal\u00a0years ended March\u00a031:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\nSalaries and related expenses\n\u00a0\n$\n \n2,823,979\n\u00a0\n$\n \n2,484,723\nProfessional fees\n\u200b\n\u200b\n \n1,795,904\n\u200b\n\u200b\n \n1,630,151\nOther general and administrative\n\u200b\n\u00a0\n \n1,388,998\n\u200b\n\u00a0\n \n823,212\nTotal Selling, General and Administrative\n\u200b\n$\n \n6,008,881\n\u200b\n$\n \n4,938,086\n\u200b\nStock-based Compensation\u00a0-\n Stock-based compensation represents the cost related to stock-based awards granted to our board of directors, employees, and consultants. We measure stock-based compensation cost at the grant date based on the estimated fair value of the award and recognize the cost as expense on a straight-line basis over the requisite service period. We estimate the fair value of stock options using a Black-Scholes valuation model. Stock-based compensation included in selling, general and administrative expense amounted to $\n253,079\n and $\n190,754\n for the fiscal years ended March 31, 2023 and 2022, respectively. See Note 7 for additional disclosures related to stock-based compensation.\nNet Loss per Share of Common Stock - \nBasic net loss per common share is computed by dividing net loss income by the weighted average number of shares outstanding during the year. Diluted net loss income per common share is calculated using net loss divided by diluted weighted-average shares. Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of stock options calculated using the treasury stock method. See Note 6 for additional disclosures related to net loss per share.\nForeign currency translation - \nAll our business is transacted in U.S. dollars. However, the functional currency of our dissolved subsidiary in China was the local currency, the Chinese Yuan Renminbi. In accordance with ASC 830, \nForeign Currency Matters\n, foreign currency translation adjustments of subsidiaries operating outside the United States were accumulated in other comprehensive income, a separate component of equity. Foreign currency transaction gains and losses were recognized in the determination of net income and were not material for each of the reportable periods. As a result of the WCMC dissolution, for the fiscal year ended March 31, 2022, we reclassified $\n19,929\n from Accumulated Other Comprehensive (Loss) Income to the other (expense) income, net line in the Consolidated Statement of Operations and Comprehensive (Loss) Income.\nIncome Taxes\u00a0-\n In accordance with ASC\u00a0740, \nIncome Taxes\n, income taxes are accounted for under the asset and liability method\n.\n Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.\nDeferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the\u00a0years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.\nValuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. We recognize the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.\n45\n\n\nTable of Contents\nWe recognize interest and penalties accrued related to income tax liabilities in selling, general and administrative expense in our Consolidated Statements of Operations and Comprehensive Loss.\nNOTE\u00a03\u00a0\u2013 BUSINESS COMBINATION\nStadco Acquisition\nOn August 25, 2021, the closing date, the Company completed its previously announced acquisition of Stadco, pursuant to that certain stock purchase agreement, dated as of October 16, 2020, or the \u201cSPA\u201d, among TechPrecision, Stadco New Acquisition LLC, Stadco Acquisition, LLC, or Holdco, and each stockholder of Holdco. Stadco is a company in the business of manufacturing high-precision parts, assemblies and tooling for aerospace, defense, and industrial customers.\nAlso on the closing date, the Company completed its previously announced acquisition of certain indebtedness obligations of Stadco, pursuant to that certain Amended and Restated Loan Purchase and Sale Agreement, dated as of April 23, 2021, with Sunflower Bank, N.A., as amended by Amendment to Amended and Restated Loan Purchase and Sale Agreement, dated as of June 28, 2021, together, the \u201cLoan Purchase Agreement\u201d. On August 25, 2021, WCH, as assignee of Stadco New Acquisition LLC, paid $\n7.9\n\u00a0million in the aggregate to Sunflower Bank, N.A., under the terms of the Loan Purchase Agreement, to purchase the indebtedness.\nPursuant to the SPA, and upon the terms and subject to the conditions therein, the Company acquired all of the issued and outstanding capital stock of Stadco in exchange for the issuance of\u00a0\n166,666\n\u00a0shares of the Company\u2019s common stock to Holdco. In connection with the acquisition of Stadco, the Company reached an agreement with the holders of certain other non-bank indebtedness of Stadco, under which each such lender agreed to forgive such indebtedness in exchange for an aggregate of\n\u00a0\n49,849\n\u00a0shares of the Company\u2019s common stock. In addition, the Company reached an agreement with a certain other security holder who agreed to sell its Stadco securities to the Company in exchange for the issuance by the Company of\u00a0\n150,000\n\u00a0shares of the Company\u2019s common stock and a warrant to purchase \n25,000\n shares of the Company\u2019s common stock. The fair value of the\n\u00a0\n366,515\n\u00a0shares of common stock issued as aggregate consideration was $\n2.3\n\u00a0million based on the closing market price of the Company\u2019s common stock on the August 25, 2021 closing date. The fair value of the warrants is estimated using the Black-Scholes option-pricing model. The warrants vested in full on the issue date, have a three-year term and exercise price of $\n5.72\n per share. The fair value of the warrants was $\n46,256\n and estimated using the Black-Scholes option-pricing model based on the closing stock prices at the grant date and the weighted average assumptions specific to the grant. Expected volatility of \n46.7\n% was based on the historical volatility of our common stock. The risk-free interest rate of \n0.4\n% was selected based upon yields of three-year U.S. Treasury bond.\nOn August 25, 2021, the Company entered into a Securities Purchase Agreement with a limited number of institutional and other accredited investors, pursuant to which investors committed to subscribe for and purchase\u00a0\n800,682\n\u00a0shares of the Company\u2019s common stock at a purchase price of $\n4.40\n\u00a0per share. Costs directly attributable to this offering of securities totaled $\n0.3\n\u00a0million.\nStadco\u2019s assets and liabilities were measured at estimated fair values on August 25, 2021, primarily using Level 1 and Level 3 inputs. Estimates of fair value represent management\u2019s best estimate and require a complex series of judgments about future events and uncertainties. Third-party valuation specialists were engaged to assist in the valuation of these assets and liabilities.\nIncluded in the total consideration transferred is $\n113,890\n\u00a0related to a contingent provision in the agreements that could have required payment based on the difference between the TechPrecision stock price and contract target stock price. The contingent provision allowed the issuer, TechPrecision, to settle the contingency with stock or cash, or a combination of each. If after one year following the closing of the acquisition, the fair value of the consideration stock was less than the target stock price stated in each agreement, TechPrecision would have had to issue to the holder additional shares of consideration stock or cash, or some combination of stock and cash. The target stock price stated in the agreements were guaranteed and, only the number of shares issued could vary, with the final measurement date and amount to be determined on the one-year anniversary date. Since the contract does not specify a fixed maximum number of shares to be issued on the anniversary date, should the company have determined to satisfy the contingent consideration with shares, then a number of shares higher than the amount currently authorized by the company\u2019s certificate of incorporation may have been required to be issued. In any case, the maximum value of the contingent consideration was $\n2,269,000\n, whether paid in shares of common stock or in cash, or both. The estimated liability associated with the contingent consideration was valued under a Monte Carlo simulation based on the closing stock prices at the period end date and expected volatility of \n50.0\n% based on the historical volatility of our common stock and had a balance of $\n63,436\n on March 31, 2022. The Company settled the obligation associated with the contingent consideration by \n46\n\n\nTable of Contents\nissuing \n9,127\n shares of common stock valued at $\n56,310\n on August 25, 2022. The fair value of the contingent consideration was based on the closing stock price on the issuance date.\nMeasurement Period Adjustments\nThe Company completed the process of measuring the fair value of assets acquired and liabilities assumed. In the third and fourth quarters of fiscal 2022, the Company made certain measurement period adjustments to reflect the facts and circumstances in existence at the acquisition date. These measurement period adjustments are related to changes in preliminary assumptions and initial estimates that would have been recognized if all the facts and circumstances had been known at the time of acquisition. The table below presents the fair value of assets acquired and liabilities assumed on the acquisition date based on the best information it has received to date in accordance with ASC 805.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAdjusted\n\u200b\n\u200b\nTotals\n\u200b\nERTC\n\u200b\nCustomer\n\u200b\nFixed\n\u200b\nTotals\n\u200b\n\u200b\nAugust\u00a025,\n\u200b\nrefundable\n\u200b\nclaim\n2\n\u200b\nAsset\n\u200b\nAugust\u00a025,\n\u200b\n\u200b\n2021\n\u200b\ncredit\n1\n\u200b\nWarrant\n3\n\u200b\nValuation\n4\n\u200b\n2021\nTotal consideration transferred\n\u200b\n$\n \n10,163,164\n\u200b\n\u200b\n \u2014\n\u200b\n$\n \n46,256\n\u200b\n\u200b\n \u2014\n\u200b\n$\n \n10,209,420\nRecognized amounts of identifiable assets acquired and liabilities assumed:\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\u00a0\nAccounts receivable\n\u00a0\n\u200b\n \n1,247,015\n\u00a0\n\u200b\n \u2014\n\u00a0\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u00a0\n\u200b\n \n1,247,015\nInventory \n\u200b\n\u200b\n \n927,188\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n927,188\nOther current assets\n\u00a0\n\u200b\n \n4,323,593\n\u00a0\n\u200b\n \n1,093,661\n\u00a0\n\u200b\n \u2014\n\u00a0\n\u200b\n \u2014\n\u00a0\n\u200b\n \n5,417,254\nProperty, plant, and equipment and right of use assets\n\u00a0\n\u200b\n \n15,074,273\n\u00a0\n\u200b\n \u2014\n\u00a0\n\u200b\n \u2014\n\u200b\n\u200b\n \n897,488\n\u00a0\n\u200b\n \n15,971,761\nAccounts payable, accrued expenses, and other current liabilities\n\u00a0\n\u200b\n (\n5,882,048\n)\n\u00a0\n\u200b\n (\n164,049\n)\n\u00a0\n\u200b\n (\n606,415\n)\n\u00a0\n\u200b\n \u2014\n\u00a0\n\u200b\n (\n6,652,512\n)\nLease obligations\n\u00a0\n\u200b\n (\n6,701,286\n)\n\u00a0\n\u200b\n \u2014\n\u00a0\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u00a0\n\u200b\n (\n6,701,286\n)\nNet assets\n\u00a0\n\u200b\n \n8,988,735\n\u00a0\n\u200b\n \n929,612\n\u00a0\n\u200b\n (\n606,415\n)\n\u00a0\n\u200b\n \n897,488\n\u00a0\n\u200b\n \n10,209,420\nGoodwill\n\u00a0\n\u200b\n \n1,174,429\n\u00a0\n\u200b\n (\n929,612\n)\n\u00a0\n\u200b\n \n652,671\n\u00a0\n\u200b\n (\n897,488\n)\n\u00a0\n\u200b\n \u2014\nTotal\n\u200b\n$\n \n10,163,164\n\u200b\n$\n \u2014\n\u200b\n$\n \n46,256\n\u200b\n$\n \u2014\n\u200b\n$\n \n10,209,420\nAll measurement period adjustments were offset against goodwill:\n1\nIn calendar year 2021 our Stadco subsidiary filed for a refund of tax credits for \n$\n1,093,661\n from the IRS under the Employee Retention Credit, or ERC program. Fees associated with the filing totaled \n$\n164,049\n. \n2\nCustomer claim of \n$\n471,166\n accrued for additional costs incurred in connection with a certain product manufacturing project. Other adjustments to current liabilities totaled \n$\n135,249\n.\n3\nWarrant issued to former shareholder in connection with the acquisition valued at \n$\n46,256\n. \n4\nFixed asset adjustments related to changes in preliminary valuation assumptions and estimates, including estimates of asset useful lives.\nAcquisition related costs totaled approximately $\n320,000\n and are included under general and administrative expenses in our statement of operations for the year ended March 31, 2022.\n47\n\n\nTable of Contents\nUnaudited Supplemental Pro Forma Information\nThe following table discloses the actual results of Stadco since the August 25, 2021 acquisition which are included in the Company\u2019s consolidated financial statements. Also presented in the table below are pro forma results for the combined entities, assuming the acquisition date had occurred on April 1, 2020, for the following periods: \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nStadco Actual\n\u00a0\u00a0\u00a0\u00a0\nPro Forma\n\u200b\n\u200b\nAugust 25, 2021-\n\u200b\nYear ended\n\u200b\n\u200b\nMarch 31, 2022\n\u200b\nMarch 31, 2022\nNet sales\n\u200b\n$\n \n7,755,946\n\u200b\n$\n \n27,002,535\nOperating loss\n\u200b\n$\n (\n1,124,542\n)\n\u200b\n$\n (\n2,937,391\n)\nLoss before income taxes\n\u200b\n$\n (\n1,233,925\n)\n\u200b\n$\n (\n2,151,614\n)\nNet loss\n\u200b\n\u00a0\n \u2014\n\u200b\n$\n (\n1,393,987\n)\nEPS basic\n\u200b\n\u00a0\n \u2014\n\u200b\n$\n (\n0.16\n)\nEPS dilutive\n\u200b\n\u00a0\n \u2014\n\u200b\n$\n (\n0.16\n)\nWeighted average shares outstanding: \u2013 basic and diluted\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \n8,558,739\n\u200b\nThe pro forma results have been prepared for comparative purposes only and do not necessarily represent what the revenue or results of operations would have been had the acquisition been completed on April 1, 2020. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved from the acquisition.\nThe pro forma results include adjustments for the estimated purchase accounting impact, including, but not limited to, depreciation and amortization associated with the acquired tangible and intangible assets, and an adjustment for interest expense related to the new long-term debt, the alignment of accounting policies, and the elimination of transactions between TechPrecision and Stadco. Other adjustments reflected in the pro forma results are as follows:\nAdjustments to Unaudited Pro Forma Consolidated Statement of Operations for the fiscal year ended March 31, 2022\n\u25cf\nExcluded the net change in \ndepreciation and amortization\n of \n$\n0.3\n million from cost of goods sold, resulting from a valuation adjustment to Stadco\u2019s property, plant and equipment and the recognition of the right-of-use asset for Stadco\u2019s property lease against the reversal of historical rent expense.\n\u25cf\nFrom selling, general and administrative, excluded non-recurring expense of \n$\n0.3\n million related to consulting, legal, due diligence, bank fees, and nominal costs incurred during the fiscal year by TechPrecision related to the acquisition of Stadco. We also excluded \n$\n0.7\n million of management fees due to then-preferred stockholders of Stadco.\n\u25cf\nExcluded interest expense of \n$\n0.3\n million which represents the net change in interest expense resulting from the reduction in Stadco\u2019s bank debt and applicable interest rates, offset in part by estimated interest expense related to Stadco\u2019s new debt obligation. \n\u25cf\nIncluded an estimated tax benefit of \n$\n0.8\n million at a tax rate equal to TechPrecision\u2019s fiscal year 2022 statutory tax rate based on the proforma loss for the fiscal year ended March 31, 2022.\n\u200b\nNOTE\u00a04\u00a0\u2013 REVENUE\nThe Company generates revenue primarily from performance obligations completed under contracts with customers in two main market sectors: defense and precision industrial. The period over which the Company performs its obligations can be between \nthree\n and \nthirty -six months\n. The Company invoices and receives related payments based upon performance progress not less frequently than\u00a0monthly.\nRevenue is recognized over-time or at a point-in-time given the terms and conditions of the related contracts. The Company utilizes an inputs methodology based on estimated labor hours to measure performance progress. This model best depicts the transfer of control to \n48\n\n\nTable of Contents\nthe customer. The Company\u2019s contract portfolio is comprised of fixed-price contracts and provide for product type sales only. The following table presents net sales on a disaggregated basis by market and contract type:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNet Sales by market\n\u00a0\u00a0\u00a0\u00a0\nDefense\n\u00a0\u00a0\u00a0\u00a0\nIndustrial\n\u00a0\u00a0\u00a0\u00a0\nTotals\nYear ended March 31, 2023\n\u200b\n$\n \n30,935,138\n\u200b\n$\n \n496,476\n\u200b\n$\n \n31,431,614\nYear ended March 31, 2022\n\u200b\n$\n \n20,854,812\n\u200b\n$\n \n1,427,683\n\u200b\n$\n \n22,282,495\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNet Sales by contract type\n\u00a0\u00a0\u00a0\u00a0\nOver-time\n\u00a0\u00a0\u00a0\u00a0\nPoint-in-time\n\u00a0\u00a0\u00a0\u00a0\nTotals\nYear ended March 31, 2023\n\u200b\n$\n \n29,785,799\n\u200b\n$\n \n1,645,815\n\u200b\n$\n \n31,431,614\nYear ended March 31, 2022\n\u200b\n$\n \n19,992,438\n\u200b\n$\n \n2,290,057\n\u200b\n$\n \n22,282,495\n\u200b\nAs of March\u00a031, 2023, the Company had $\n44.0\n million of remaining performance obligations, of which $\n37.7\n million were less than \n50\n% complete. The Company expects to recognize all its remaining performance obligations as revenue within the next \nthirty-six\u00a0months\n.\nWe are dependent each\u00a0year on a small number of customers who generate a significant portion of our business, and these customers change from\u00a0year to\u00a0year. The following table sets forth revenues from customers who accounted for more than 10% of our net sales for the fiscal\u00a0years ended March 31:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u00a0\nCustomer\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u00a0\nCustomer A\n\u200b\n$\n \n6,352,394\n\u00a0\n \n20\n%\u00a0\u00a0\n$\n \n4,448,624\n\u00a0\n \n20\n%\nCustomer B\n\u200b\n$\n *\n\u00a0\n *\n%\u00a0\u00a0\n$\n \n3,534,619\n\u00a0\n \n16\n%\nCustomer C\n\u200b\n$\n \n4,779,592\n\u00a0\n \n15\n%\u00a0\u00a0\n$\n*\n\u00a0\n*\n%\nCustomer D\n\u200b\n$\n \n3,248,773\n\u200b\n \n10\n%\u00a0\u00a0\n$\n*\n\u200b\n*\n%\nCustomer E\n\u200b\n$\n \n5,838,734\n\u200b\n \n19\n%\n$\n \n2,505,205\n\u200b\n \n11\n%\n*\nLess than 10% of total\nIn our consolidated balance sheet, contract assets and contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. In fiscal 2023 and 2022, we recognized revenue of $\n1.8\n and $\n0.2\n million related to our contract liabilities at April\u00a01, 2022 and 2021, respectively. Contract assets consisted of the following at:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nProgress\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nUnbilled\n\u00a0\u00a0\u00a0\u00a0\nPayments\n\u00a0\u00a0\u00a0\u00a0\nTotal\nMarch 31, 2023\n\u200b\n$\n \n19,485,914\n\u200b\n$\n (\n10,538,103\n)\n\u200b\n$\n \n8,947,811\nMarch 31, 2022\n\u200b\n$\n \n14,216,187\n\u200b\n$\n (\n5,865,955\n)\n\u200b\n$\n \n8,350,231\n\u200b\n\u200b\nNOTE\u00a05\u00a0\u2013 INCOME TAXES\nWe account for income taxes under ASC 740, \nIncome Taxes\n. The following table reflects income and loss from continuing operations by location, and the provision for income taxes for the applicable fiscal\u00a0years ended March\u00a031:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\nLoss before income taxes \n\u200b\n$\n (\n783,422\n)\n\u200b\n$\n (\n542,189\n)\nIncome tax provision (benefit) \n\u200b\n\u00a0\n \n195,584\n\u200b\n\u00a0\n (\n192,355\n)\nNet loss \n\u200b\n$\n (\n979,006\n)\n\u200b\n$\n (\n349,834\n)\n\u200b\n49\n\n\nTable of Contents\nThe components of the income tax provision (benefit) consists of the following for the fiscal years ended March 31:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\nCurrent:\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\nFederal\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\nState\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\nTotal Current\n\u200b\n$\n \u2014\n\u200b\n$\n \u2014\nDeferred:\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n \n\u200b\nFederal\n\u200b\n$\n (\n261,372\n)\n\u200b\n$\n (\n567,459\n)\nState\n\u200b\n\u00a0\n \n456,956\n\u200b\n\u00a0\n \n375,104\nTotal Deferred\n\u200b\n$\n \n195,584\n\u200b\n$\n (\n192,355\n)\nIncome tax provision (benefit) \n\u200b\n$\n \n195,584\n\u200b\n$\n (\n192,355\n)\n\u200b\nOur fiscal 2023 and 2022 taxes were measured at the U.S. statutory income tax rate of \n21\n%.\nA reconciliation between income taxes computed at the U.S. federal statutory rate to the actual tax expense for income taxes reported in the Consolidated Statements of Operations and Comprehensive Loss follows for fiscal years ended March 31:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\nU.S. statutory income tax\n\u200b\n$\n (\n164,519\n)\n\u200b\n$\n (\n113,860\n)\n\u200b\nState income tax, net of federal benefit\n\u200b\n\u00a0\n (\n151,878\n)\n\u200b\n\u00a0\n (\n70,130\n)\n\u200b\nNontaxable PPP loan forgiveness\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (\n339,022\n)\n\u200b\nNondeductible items related to business combination and dissolved foreign entity\n\u200b\n\u200b\n \n65,482\n\u200b\n\u200b\n \n294,232\n\u200b\nChange in state NOLs\n\u200b\n\u200b\n \n239,622\n\u200b\n\u200b\n \n227,037\n\u200b\nChange in valuation allowance\n\u200b\n\u200b\n \n216,485\n\u200b\n\u200b\n (\n173,004\n)\n\u200b\nStock-based compensation\n\u200b\n\u00a0\n (\n20,983\n)\n\u200b\n\u00a0\n (\n4,620\n)\n\u200b\nOther\n\u200b\n\u00a0\n \n11,375\n\u200b\n\u00a0\n (\n12,988\n)\n\u200b\nIncome tax provision (benefit) \n\u200b\n$\n \n195,584\n\u200b\n$\n (\n192,355\n)\n\u200b\nEffective tax rate*\n\u200b\n\u00a0\n \n25.0\n%\u00a0\u00a0\n\u00a0\n (\n35.5\n)\n%\n*\n \nEffective tax rate is calculated by dividing the income tax provision (benefit) by loss before income taxes.\nThe following table summarizes the components of deferred income tax assets and liabilities at March 31:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\nDeferred tax assets:\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\nNet operating loss carryforward\n\u200b\n$\n \n5,839,915\n\u200b\n$\n \n6,099,169\nCompensation\n\u200b\n\u00a0\n \n213,308\n\u200b\n\u00a0\n \n191,976\nStock based compensation awards\n\u200b\n\u200b\n \n242,579\n\u200b\n\u200b\n \n234,752\nOther items not currently deductible\n\u200b\n\u00a0\n \n126,792\n\u200b\n\u00a0\n \n322,463\nTotal deferred tax assets\n\u200b\n\u00a0\n \n6,422,594\n\u200b\n\u00a0\n \n6,848,360\nValuation allowance\n\u200b\n\u200b\n (\n2,170,094\n)\n\u200b\n\u200b\n (\n1,953,609\n)\nNet deferred tax assets\n\u200b\n\u00a0\n \n4,252,500\n\u200b\n\u00a0\n \n4,894,751\nDeferred tax liabilities:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nDepreciation\n\u200b\n\u200b\n (\n1,971,644\n)\n\u200b\n\u200b\n (\n2,259,094\n)\nContract accounting methods \n\u200b\n\u200b\n (\n349,670\n)\n\u200b\n\u200b\n (\n508,887\n)\nTotal deferred tax liabilities\n\u200b\n\u00a0\n (\n2,321,314\n)\n\u200b\n\u00a0\n (\n2,767,981\n)\nDeferred taxes, net\n\u200b\n$\n \n1,931,186\n\u200b\n$\n \n2,126,770\n\u200b\nIn assessing the recoverability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We have determined that it is more likely than not that certain future tax benefits may not be realized. Accordingly, a valuation allowance has been recorded against deferred tax assets that are unlikely to be realized. Realization of the remaining deferred tax assets will depend on the generation of sufficient taxable income in the appropriate jurisdictions, the \n50\n\n\nTable of Contents\nreversal of deferred tax liabilities, tax planning strategies and other factors prior to the expiration date of the carryforwards. A change in the estimates used to make this determination could require an increase or a reduction the valuation allowance currently recorded against those deferred tax assets.\nThe valuation allowance on deferred tax assets was approximately $\n2.2\n million at March 31, 2023. We believe that it is more likely than not that the benefit from certain NOL carryforwards and other deferred tax assets will not be realized. In the event future taxable income is below management\u2019s estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase or decrease the valuation allowance for those deferred tax assets.\nThe following table summarizes carryforwards of net operating losses as of March\u00a031, 2023:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nBegins\u00a0to\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAmount\n\u00a0\u00a0\u00a0\u00a0\nExpire:\nFederal net operating losses\n\u200b\n$\n \n21,405,199\n\u00a0\n2026\nState net operating losses\n\u200b\n$\n \n36,832,273\n\u00a0\n2032\n\u200b\nThe Internal Revenue Code provides for a limitation on the annual use of net operating loss carryforwards following certain ownership changes that could limit our ability to utilize these carryforwards on a\u00a0yearly basis.\nWe experienced an ownership change in connection with the acquisition of Ranor in 2006. Accordingly, our ability to utilize certain carryforwards relating to 2006 and prior is limited. Our remaining pre-2006 net operating losses total approximately $\n0.4\n million. As of March\u00a031, 2023, we have approximately $\n6.9\n million of federal post-2006 losses available for carryforward, without limitation. U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, we may not be able to take full advantage of these carryforwards for Federal or state income tax purposes.\nCertain pre-2021 Stadco net operating loss carryforwards available for TechPrecision\u2019s consolidated tax group may be limited. Also, U.S. tax laws limit the time during which these loss carryforwards may be applied against future taxes. Our remaining pre-2021 net operating losses total approximately $\n9.8\n million.\nWe have not accrued any penalties with respect to uncertain tax positions. We file income tax returns in the U.S. federal jurisdiction and various U.S. state jurisdictions. Tax years 2019 and forward remain open for examination.\n\u200b\nNOTE\u00a06\u00a0\u2013 CAPITAL STOCK and EARNINGS PER SHARE\nReverse Stock Split\nOn February 23, 2023, the Company effected a \none\n-for-four reverse stock split of its common stock, which was effective for trading purposes as of the commencement of trading on February 24, 2023. The reverse stock split was approved by the Company\u2019s stockholders on September 14, 2022, at the Company\u2019s regular annual meeting of stockholders, with authorization to determine the final ratio having been granted to the Company\u2019s Board of Directors. \nAll share and per-share amounts have been effected retroactively for all years presented in our financial statements and notes thereto.\nThe reverse stock split was primarily intended to prepare for the potential listing of the Company\u2019s common stock on the Nasdaq Capital Market. The Company simultaneously affected a reduction in the number of authorized shares of common stock from \n90,000,000\n to \n50,000,000\n.\nCommon Stock\nWe had \n50,000,000\n and \n90,000,000\n authorized shares of common stock at March\u00a031, 2023 and 2022, respectively.\u00a0There were \n8,613,408\n and \n8,576,862\n shares of common stock outstanding at March\u00a031, 2023 and 2022, respectively.\n51\n\n\nTable of Contents\nPreferred Stock\nWe have \n10,000,000\n authorized shares of preferred stock and our board of directors has broad power to create \none\n or more series of preferred stock and to designate the rights, preferences, privileges, and limitations of the holders of such series. There were \nno\n shares of preferred stock outstanding at March\u00a031, 2023 and 2022.\nEarnings per Share\nAll earnings per share amounts included in this annual report on Form 10-K are presented as if the one-for-four reverse stock split had been effective April 1, 2022. Basic EPS is computed by dividing reported earnings available to stockholders by the weighted average shares outstanding. Diluted EPS also includes the effect of stock options that would be dilutive. The following table provides a reconciliation of the numerators and denominators reflected in the basic and diluted earnings per share computations, as required under FASB ASC 260.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\nBasic EPS\n\u200b\n\u200b\n \n\u200b\n\u200b\n\u200b\n\u200b\nNet loss\n\u200b\n$\n (\n979,006\n)\n\u200b\n$\n (\n349,834\n)\nWeighted average shares\n\u200b\n\u00a0\n \n8,595,992\n\u200b\n \n\u200b\n \n8,095,058\nNet loss per share\n\u200b\n$\n (\n0.11\n)\n\u200b\n$\n (\n0.04\n)\nDiluted EPS\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNet loss\n\u200b\n$\n (\n979,006\n)\n\u200b\n$\n (\n349,834\n)\nDilutive effect of stock options\n\u200b\n\u00a0\n \u2014\n\u200b\n \n\u200b\n \u2014\nWeighted average shares\n\u200b\n\u00a0\n \n8,595,992\n\u200b\n \n\u200b\n \n8,095,058\nNet loss per share\n\u200b\n$\n (\n0.11\n)\n\u200b\n$\n (\n0.04\n)\n\u200b\n\u200b\nAll potential common stock equivalents that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS due to net loss for both periods. For the fiscal years ended March 31, 2023 and 2022, there were potential anti-dilutive stock options and warrants, of \n680,000\n and \n25,000\n, respectively, none of which were included in the EPS calculations above.\n\u200b\nNOTE\u00a07\u00a0\u2013 STOCK-BASED COMPENSATION\nOur board of directors, upon the recommendation of the compensation committee of our board of directors, approved the 2016 TechPrecision Equity Incentive Plan, or the \u201c2016 Plan\u201d, on November 10, 2016. Our stockholders approved the 2016 Plan at the Company\u2019s Annual Meeting of Stockholders on December 8, 2016. The 2016 Plan succeeds the 2006 Plan (as defined below), and applies to awards granted after the 2016 Plan\u2019s adoption by the Company\u2019s stockholders. We have designed the 2016 Plan to reflect our commitment to having best practices in both compensation and corporate governance. Following the February 2023 reverse stock split, the 2016 Plan now provides for a share reserve of \n1,250,000\n shares of common stock.\nThe 2016 Plan authorizes the award of incentive and non-qualified stock options, restricted and unrestricted stock awards, restricted stock units, and performance awards to employees, directors, consultants, and other individuals who provide services to TechPrecision or its affiliates. The purpose of the 2016 Plan is to enable TechPrecision and its affiliated companies to recruit and retain highly qualified employees, directors, and consultants; and to provide those employees, directors, and consultants with an incentive for productivity, and an opportunity to share in the growth and value of the Company. Subject to adjustment as provided in the 2016 Plan, the maximum number of shares of common stock that may be issued with respect to awards under the 2016 Plan is \n1,250,000\n shares (inclusive of awards issued under the 2006 Long-Term Incentive Plan, or the \u201c2006 Plan\u201d, that remained outstanding as of the effective date of the 2016 Plan). Shares of our common stock subject to awards that expire unexercised or are otherwise forfeited shall again be available for awards under the 2016 Plan.\n52\n\n\nTable of Contents\nThe fair value of the options we grant is estimated using the Black-Scholes option-pricing model based on the closing stock prices at the grant date and the weighted average assumptions specific to the underlying options. Expected volatility assumptions are based on the historical volatility of our common stock. The average dividend yield over the historical period for which volatility was computed is zero. The risk-free interest rate was selected based upon yields of \nfive-year\n U.S. Treasury issues. We used the simplified method for all grants to estimate the expected life of the option. We assume that stock options will be exercised evenly over the period from vesting until the awards expire. We account for award forfeitures as they occur. As such, the assumed period for each vesting tranche is computed separately and then averaged together to determine the expected term for the award. On March 31, 2023, there were \n312,500\n shares available for grant under the 2016 Plan. The following table summarizes information about options granted during the two most recently completed fiscal years:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWeighted\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAverage\n\u200b\n\u200b\n\u200b\n\u200b\nWeighted\n\u200b\nAggregate\n\u200b\nRemaining\n\u200b\n\u200b\nNumber\u00a0Of\n\u200b\nAverage\n\u200b\nIntrinsic\n\u200b\nContractual\u00a0Life\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nOptions\n\u00a0\u00a0\u00a0\u00a0\nExercise\u00a0Price\n\u00a0\u00a0\u00a0\u00a0\nValue\n\u00a0\u00a0\u00a0\u00a0\n(in\u00a0years)\nOutstanding at 3/31/2021\n\u00a0\n \n679,750\n\u200b\n$\n \n1.49\n\u200b\n$\n \n3,597,700\n\u00a0\n 5.62\nCanceled\n\u200b\n (\n12,250\n)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n \u2014\nOutstanding at 3/31/2022\n\u200b\n \n667,500\n\u200b\n$\n \n1.37\n\u200b\n$\n \n3,597,700\n\u200b\n 4.66\nCanceled\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n \u2014\nOutstanding at 3/31/2023\n\u200b\n \n667,500\n\u200b\n$\n \n1.37\n\u200b\n$\n \n3,804,625\n\u200b\n 3.70\nVested or expected to vest at 3/31/2023\n\u00a0\n \n667,500\n\u200b\n$\n \n1.37\n\u200b\n$\n \n3,804,625\n\u00a0\n 3.70\nExercisable and vested at 3/31/2023\n\u00a0\n \n667,500\n\u200b\n$\n \n1.37\n\u200b\n$\n \n3,804,625\n\u00a0\n 3.70\n\u200b\nThe aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price on the last trading day of the fourth quarter of fiscal 2023 and fiscal 2022 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2023 and 2022. This amount changes based on the fair value of the Company\u2019s common stock.\nAt March 31, 2023, there was \nno\n remaining unrecognized compensation cost related to stock options. The maximum contractual term is \nten\u00a0years\n for option grants. Other information relating to stock options outstanding at March 31, 2023 is as follows:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWeighted\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\nAverage\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\nRemaining\n\u00a0\nWeighted\n\u200b\n\u200b\n\u00a0\nWeighted\n\u200b\n\u200b\nOptions\n\u00a0\nContractual\n\u200b\nAverage\n\u200b\nOptions\n\u200b\nAverage\nRange of Exercise Prices:\n\u00a0\u00a0\u00a0\u00a0\nOutstanding\n\u00a0\u00a0\u00a0\u00a0\nTerm\n\u00a0\u00a0\u00a0\u00a0\nExercise\u00a0Price\n\u00a0\u00a0\u00a0\u00a0\n\u00a0Exercisable\n\u00a0\u00a0\u00a0\u00a0\nExercise\u00a0Price\n$\n0.01\n-$\n0.99\n\u00a0\n \n317,500\n\u00a0\n 2.61\n\u200b\n$\n \n0.46\n\u00a0\n \n317,500\n\u200b\n$\n \n0.46\n$\n2.00\n-$\n2.99\n\u00a0\n \n350,000\n\u00a0\n 4.15\n\u200b\n$\n \n2.19\n\u00a0\n \n350,000\n\u200b\n$\n \n2.19\nTotals\n\u00a0\n \n667,500\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n \n667,500\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\nBoard of Directors Common Stock Award\nOn September 15, 2022, the board of directors granted each non-employee director \n6,250\n shares of common stock for a total of \n25,000\n shares of common stock in the aggregate, of fully vested stock awards under the Plan in recognition of such directors\u2019 service and in lieu of the annual grant to purchase Company common stock previously approved by the Board as annual director compensation. The fair value of the award was $\n144,000\n based on the closing market price of the Company\u2019s common stock on the grant date.\nRestricted Stock Awards\nOur board authorizes the issuance of restricted stock as service-based awards measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company\u2019s common stock. The shares of restricted stock fully vested and ceased to be subject to forfeiture one year from the grant date. Each grantee is required to have been serving as a director on the vesting date and must have been continuously serving in such capacity from the grant date through the vesting date for the shares of restricted stock to vest. Prior to the vesting date, the grantee is not permitted to sell, transfer, pledge, assign or otherwise encumber the \n53\n\n\nTable of Contents\nshares of restricted stock and if the grantee\u2019s service with the Company has terminated prior to the vesting date, subject to certain exceptions, the grantee\u2019s restricted stock is to have been forfeited automatically.\nOn September 17, 2021, we granted a total of \n25,000\n shares of restricted stock under the 2016 Plan to the board of directors. The stock-based compensation expense of $\n175,000\n for service-based restricted stock was measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company\u2019s common stock.\nOn January 24, 2022, the board of directors, in recognition of their special efforts in completing the previously disclosed acquisition of Stadco, granted (a) \n5,000\n shares of restricted stock under the 2016 Plan and (b) a cash award of $\n35,000\n, to each of Alexander Shen, the Company\u2019s chief executive officer, and Thomas Sammons, the Company\u2019s chief financial officer. The shares were measured at fair value at $\n34,000\n on the date of grant based on the number of shares expected to vest and the quoted market price of the Company\u2019s common stock. The shares of restricted stock fully vested and ceased to be subject to forfeiture on January 24, 2023. Each grantee was required to have been serving as an executive officer on the vesting date and must have been continuously serving in such capacity from the grant date through the vesting date for the shares of restricted stock to vest. Prior to the vesting date, the grantee was not permitted to sell, transfer, pledge, assign or otherwise encumber the shares of restricted stock and if the grantee\u2019s service with the Company had terminated prior to the vesting date, the grantee\u2019s restricted stock would have been forfeited automatically, subject to certain exceptions. \nTotal recognized compensation cost related to the restricted stock awards for the fiscal year ended March 31, 2023 and 2022 was $\n109,079\n and $\n155,754\n, respectively. On March 31, 2023, there was \nno\n remaining unrecognized compensation cost related to the restricted stock awards.\nNonemployee Stock Based Payment\nOn October 5, 2021, the Company issued\u00a0\n5,000\n\u00a0shares of common stock to a third-party consultant as payment of a finder\u2019s fee in connection with the acquisition of Stadco. The estimated fair value of the award is $\n35,000\n\u00a0and was measured on the date of grant based on the number of shares issued and the quoted market price of the Company\u2019s common stock.\n\u200b\nNOTE\u00a08\u00a0- CONCENTRATION OF CREDIT RISK\nWe maintain bank account balances, which, at times, may exceed insured limits. We have not experienced any losses with these accounts and believe that we are not exposed to any significant credit risk on cash.\nIn the fiscal year ended March 31, 2023, one supplier accounted for \n10\n% or more of our purchased material. In the fiscal year ended March 31, 2022, two suppliers accounted for \n10\n% or more of our purchased material.\nOn\u00a0March\u00a031, 2023, there were trade accounts receivable balances outstanding from \nthree\n customers comprising \n53\n% of the total trade receivables balance. The following table sets forth information as to trade accounts receivable from customers who accounted for more than \n10\n% of our accounts receivable balance as of:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMarch\u00a031,\u00a02023\n\u200b\nMarch\u00a031,\u00a02022\n\u00a0\nCustomer\n\u00a0\u00a0\u00a0\u00a0\nDollars\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u00a0\u00a0\u00a0\u00a0\nDollars\n\u00a0\u00a0\u00a0\u00a0\nPercent\n\u00a0\nA\n\u200b\n$\n*\n\u00a0\n*\n%\u00a0\u00a0\n$\n \n1,079,264\n\u00a0\n \n36\n%\nB\n\u200b\n$\n*\n\u00a0\n*\n%\u00a0\u00a0\n$\n \n436,051\n\u00a0\n \n14\n%\nC\n\u200b\n$\n \n730,514\n\u00a0\n \n31\n%\u00a0\u00a0\n$\n*\n\u00a0\n*\n%\nD\n\u200b\n$\n \n260,177\n\u00a0\n \n11\n%\u00a0\u00a0\n$\n \n382,789\n\u00a0\n \n13\n%\nE\n\u200b\n$\n*\n\u00a0\n*\n%\u00a0\u00a0\n$\n \n309,500\n\u00a0\n \n10\n%\nF\n\u200b\n$\n \n265,755\n\u200b\n \n11\n%\u00a0\u00a0\n$\n*\n\u200b\n*\n%\n*\nless than 10% of total\n\u200b\n54\n\n\nTable of Contents\nNOTE\u00a09\u00a0- OTHER CURRENT ASSETS\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOther current assets included the following as of:\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02023\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02022\nPrepaid taxes\n\u200b\n$\n \n9,616\n\u200b\n$\n \n26,497\nERC refundable credits\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n1,093,661\nPrepaid insurance\n\u200b\n\u00a0\n \n162,075\n\u200b\n\u00a0\n \n184,275\nPrepaid subscriptions\n\u200b\n\u00a0\n \n120,570\n\u200b\n\u00a0\n \n66,098\nDeposits\n\u200b\n\u200b\n \n21,706\n\u200b\n\u200b\n \n21,100\nEmployee advances\n\u200b\n\u00a0\n \n4,561\n\u200b\n\u00a0\n \n9,668\nPrepaid advisory fees, other\n\u200b\n\u00a0\n \n30,455\n\u200b\n\u00a0\n \n20,160\nTotal\n\u200b\n$\n \n348,983\n\u200b\n$\n \n1,421,459\n\u200b\n\u200b\nNOTE\u00a010\u00a0- PROPERTY, PLANT AND EQUIPMENT, NET\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nProperty, plant and equipment, net consisted of the following as of:\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02023\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02022\nLand\n\u200b\n$\n \n110,113\n\u200b\n$\n \n110,113\nBuilding and improvements\n\u200b\n\u00a0\n \n3,293,986\n\u200b\n\u00a0\n \n3,289,901\nMachinery equipment, furniture, and fixtures\n\u200b\n\u00a0\n \n23,018,713\n\u200b\n\u00a0\n \n20,860,152\nConstruction-in-progress\n\u200b\n\u00a0\n \n149,576\n\u200b\n\u00a0\n \u2014\nTotal property, plant, and equipment\n\u200b\n\u00a0\n \n26,572,388\n\u200b\n\u00a0\n \n24,260,166\nLess: accumulated depreciation\n\u200b\n\u00a0\n (\n12,658,364\n)\n\u200b\n\u00a0\n (\n11,107,001\n)\nTotal property, plant and equipment, net\n\u200b\n$\n \n13,914,024\n\u200b\n$\n \n13,153,165\n\u200b\n\u200b\nWe capitalize interest on borrowings during active construction period for major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. Capitalized interest for the years ended March 31, 2023 and 2022 were $\n14,297\n and $\n0\n, respectively.\n\u200b\nNOTE\u00a011\u00a0- ACCRUED EXPENSES\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAccrued expenses included the following as of:\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02023\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02022\nAccrued compensation\n\u200b\n$\n \n1,257,245\n\u200b\n$\n \n947,938\nProvision for claims \n\u200b\n\u200b\n \n256,227\n\u200b\n\u200b\n \n935,382\nProvision for contract losses\n\u200b\n\u00a0\n \n102,954\n\u200b\n\u00a0\n \n340,272\nAccrued professional fees\n\u200b\n\u00a0\n \n241,195\n\u200b\n\u00a0\n \n513,379\nAccrued project costs\n\u200b\n\u00a0\n \n440,550\n\u200b\n\u00a0\n \n487,869\nContingent consideration\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \n63,436\nOther\n\u200b\n\u00a0\n \n235,014\n\u200b\n\u00a0\n \n147,590\nTotal\n\u200b\n$\n \n2,533,185\n\u200b\n$\n \n3,435,866\n\u200b\nAccrued compensation includes amounts for executive bonuses, payroll and vacation and holiday pay. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in the provision are recorded in cost of sales. Accrued project costs are estimates for certain project expenses during the reporting period.\n\u200b\nA customer of our Stadco subsidiary provided notice for collection of additional costs incurred in connection with a certain product manufacturing project. In fiscal 2022, Stadco booked a contingent loss for approximately $\n0.8\n million which is included on the provision for claims line in the above table. The claim was resolved to the satisfaction of both parties in fiscal 2023, and the accrual was reversed against related accounts receivable.\n55\n\n\nTable of Contents\nNOTE\u00a012\u00a0\u2013 DEBT\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nLong-term debt included the following as of:\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02023\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02022\nStadco Term Loan, at \n3.79\n% interest, due August 2028\n\u200b\n$\n \n3,186,495\n\u200b\n$\n \n3,705,792\nRanor Term Loan, at \n6.05\n% interest, due December 2027\n\u200b\n\u200b\n \n2,276,518\n\u200b\n\u200b\n \n2,363,126\nRanor Revolver Loan, at \n6.93\n% interest, due December 2023\n\u200b\n\u200b\n \n650,000\n\u200b\n\u200b\n \n1,287,002\nTotal debt\n\u200b\n$\n \n6,113,013\n\u200b\n$\n \n7,355,920\nLess: debt issue costs unamortized\n\u200b\n$\n \n145,712\n\u200b\n$\n \n147,905\nTotal debt, net\n\u200b\n$\n \n5,967,301\n\u200b\n$\n \n7,208,015\nLess: Current portion of long-term debt\n\u200b\n$\n \n1,218,162\n\u200b\n$\n \n4,093,079\nTotal long-term debt, net\n\u200b\n$\n \n4,749,139\n\u200b\n$\n \n3,114,936\n\u200b\nAmended and Restated Loan Agreement\nOn August 25, 2021, the Company entered into an amended and restated loan agreement with Berkshire Bank, or the \u201cLoan Agreement\u201d. Under the Loan Agreement, Berkshire Bank will continue to provide the Ranor Term Loan (as defined below) and the revolving line of credit, or the Revolver Loan. In addition, Berkshire Bank provided the Stadco Term Loan (as defined below) in the original amount of $\n4.0\n million. The proceeds of the original Ranor Term Loan of $\n2.85\n million were previously used to refinance existing mortgage debt of Ranor. The proceeds of the Revolver Loan are used for working capital and general corporate purposes of the Company. The proceeds of the Stadco Term Loan were to be used to support the acquisition of Stadco and refinance existing indebtedness of Stadco.\nStadco Term Loan\nOn August 25, 2021, Stadco borrowed $\n4.0\n\u00a0million from Berkshire Bank, or the \u201cStadco Term Loan\u201d. Interest on the Stadco Term Loan is due on unpaid balances beginning on August 25, 2021 at a fixed rate per annum equal to the\u00a0\n7 year\n\u00a0Federal Home Loan Bank of Boston Classic Advance Rate plus\u00a0\n2.25\n%. Since September 25, 2021 and on the 25th day of each month thereafter, Stadco had made and will make monthly payments of principal and interest in the amount of $\n54,390\n\u00a0each, with all outstanding principal and accrued interest due and payable on August 25, 2028. Interest shall be calculated based on actual days elapsed and a 360-day year.\nThe Company shall pay a late charge in the amount of\u00a0\n5\n% of each payment due under the Stadco Term Loan (other than the balloon payment due at maturity) which is more than ten days in arrears. In addition, from and after the date on which the Stadco Term Loan becomes due, or at Berkshire Bank\u2019s option, could become due and payable (whether accelerated or not), at maturity, upon default or otherwise, interest shall accrue and shall be immediately due and payable at the default rate equal to\u00a0\n5\n% per annum greater than the interest rate otherwise in effect, but in no event higher than the maximum interest rate permitted by law.\nUnamortized debt issue costs on March 31, 2023 and 2022 were $\n44,482\n and $\n71,617\n, respectively.\nRanor Term Loan and Revolver Loan\nA term loan was made to Ranor by Berkshire Bank in 2016 in the amount of $\n2.85\n million, or the \u201cRanor Term Loan\u201d. Payments began on January 20, 2017, and were made in monthly installments of $\n19,260\n each, inclusive of interest at a fixed rate of \n5.21\n% per annum, with all outstanding principal and accrued interest due and payable on the original maturity date, December 20, 2021. \nOn December 17, 2021, Ranor and certain affiliates of the Company entered into a First Amendment to the Amended and Restated Loan Agreement and First Amendment to Promissory Note to extend the maturity date of the Ranor Term Loan from December 20, 2021 to March 18, 2022.\nOn March 18, 2022, Ranor and certain affiliates of the Company entered into a Second Amendment to Amended and Restated Loan Agreement and Second Amendment to Promissory Note to further extend the maturity date of the Ranor Term Loan to June 16, 2022.\nOn June 16, 2022, Ranor and certain affiliates of the Company entered into a Third Amendment to the Amended and Restated Loan Agreement and Third Amendment to the Promissory Note to further extend the maturity date of the Ranor Term Loan to September 16, 2022.\n56\n\n\nTable of Contents\nOn September 15, 2022, Ranor and certain affiliates of the Company entered into a Fourth Amendment to the Amended and Restated Loan Agreement and Fourth Amendment to the Promissory Note to further extend the maturity date of the Ranor Term Loan to December 15, 2022.\nOn December 23, 2022, Ranor and certain affiliates of the Company entered into a Fifth Amendment to Amended and Restated Loan Agreement, Fifth Amendment to Promissory Note and First Amendment to Second Amended and Restated Promissory Note, or the \u201cAmendment\u201d. Effective as of December 20, 2022, the Amendment, among other things (i) extends the maturity date of the Ranor Term Loan to December 15, 2027, (ii) extends the maturity date of the Revolver Loan from December 20, 2022 to December 20, 2023, (iii) increases the interest rate on the Ranor Term Loan from \n5.21\n% to \n6.05\n% per annum, (iv) decreases the monthly payment on the Ranor Term Loan from $\n19,260\n to $\n16,601\n, (v) replaces LIBOR as an option for the benchmark interest rate for the Revolver Loan with SOFR, (vi) replaces LIBOR-based interest pricing conventions with SOFR-based pricing conventions, including benchmark replacement provisions, and (vii) solely with respect to the fiscal quarter ending December 31, 2022, lowers the debt service coverage ratio from at least \n1.2\n to 1.0 to \n1.1\n to 1.0.\nUnder the Loan Agreement, Berkshire Bank also makes available to Ranor a revolving line of credit with, following certain modifications, a maximum principal amount available of $\n5.0\n million. In accordance with the amended loan agreement, the maximum amount that can now be borrowed under the Revolver loan is $\n5.0\n million. Advances under the Revolver Loan are subject to a borrowing base equal to the lesser of (a) $\n5.0\n million or (b) the sum of (i)\n80\n% of the net outstanding amount of Base Accounts, plus (ii) the lesser of (x) \n25\n% of Eligible Raw Material Inventory, and (y) $\n250,000\n, plus (iii) \n80\n% of the Appraised Value of the Eligible Equipment, as such terms are defined in the Loan Agreement.\nThe Company agrees to pay to Berkshire Bank, as consideration for Berkshire Bank\u2019s agreement to make the Revolver Loan available, a nonrefundable Revolver Loan fee equal to \n0.25\n% per annum (computed based on a year of 360 days and actual days elapsed) on the difference between the amount of: (a) $\n5.0\n million, and (b) the average daily outstanding balance of the Revolver Loan during the quarterly period then ended. All Revolver Loan fees are payable quarterly in arrears on the first day of each January, April, July and October and on the Revolver Maturity Date, or upon acceleration of the Revolver Loan, if earlier.\nUnder the amended promissory note for the Revolver Loan, the Company can elect to pay interest at an adjusted SOFR-based rate or an Adjusted Prime Rate. The minimum adjusted LIBOR-based rate is \n2.75\n% and the Adjusted Prime Rate is the greater of (i) the Prime Rate minus \n70\n basis points or (ii) \n2.75\n%. Interest-only payments on advances made under the Revolver Loan will continue to be payable monthly in arrears. The LIBOR-based rate expired on December 20, 2022.\nThere was approximately $\n0.7\n million outstanding under the Revolver Loan at March 31, 2023. Interest payments made under the Revolver Loan were $\n33,156\n for the fiscal year ended March 31, 2023. The weighted average interest rate at March 31, 2023 and March 31, 2022 was \n5.02\n% and \n2.75\n%, respectively. Unused borrowing capacity at March 31, 2023 and March 31, 2022 was approximately $\n4.2\n million and $\n2.8\n million, respectively.\nUnamortized debt issue costs at March 31, 2023 and March 31, 2022 were $\n101,230\n and $\n76,288\n, respectively.\nBerkshire Loan Covenants\nFor purposes of this discussion, Ranor and Stadco are referred to together as the \u201cBorrowers\u201d. The Ranor Term Loan, the Stadco Term Loan and the Revolver Loan, or together, the \u201cBerkshire Loans\u201d, may be accelerated upon the occurrence of an event of default as defined in the Berkshire Loan Agreement. Upon the occurrence and during the continuance of certain default events, at the option of Berkshire Bank, or automatically without notice or any other action upon the occurrence of certain other events specified in the loan agreement, the unpaid principal amount of the Loans and the Notes together with accrued interest and all other Obligations owing by the Borrowers to Berkshire Bank would become immediately due and payable without presentment, demand, protest, or further notice of any kind.\nThe Company agreed to maintain compliance with certain financial covenants under the Loan Agreement. Namely, The Borrowers agree to maintain the ratio of the Cash Flow of TechPrecision to the Total Debt Service of TechPrecision of not less than \n1.20\n to \n1.00\n, (except for the fiscal quarter ended December 31, 2022, in which case such ratio of Cash Flow to Total Debt Service was not to be less than \n1.10\n to \n1.00\n), measured quarterly on the last day of each fiscal quarter-annual period of TechPrecision on a trailing 12-month basis, commencing with the fiscal quarter ending as of September 30, 2021. Calculations will be based on the audited (year-end) and unaudited \n57\n\n\nTable of Contents\n(quarterly) consolidated financial statements of TechPrecision. Quarterly tests will be measured based on the financial statements included in the Company\u2019s quarterly reports on Form 10-Q within 60 days of the end of each quarter, and annual tests will be measured based on the financial statements included in the Company\u2019s annual reports on Form 10-K within 120 days after the end of each fiscal annual period. Cash Flow means an amount, without duplication, equal to the sum of net income of TechPrecision plus (i) interest expense, plus (ii) taxes, plus (iii) depreciation and amortization, plus (iv) stock based compensation expense taken by TechPrecision, plus (v) non-cash losses and charges and one time or non-recurring expenses at Berkshire Bank\u2019s discretion, less (vi) the amount of cash distributions, if any, made to shareholders or owners of TechPrecision, less (vii) cash taxes paid by the TechPrecision, all as determined in accordance with U.S. GAAP. \u201cTotal Debt Service\u201d means an amount, without duplication, equal to the sum of (i) all amounts of cash interest paid on liabilities, obligations and reserves of TechPrecision paid by TechPrecision, (ii) all amounts paid by TechPrecision in connection with current maturities of long-term debt and preferred dividends, and (iii) all payments on account of capitalized leases, all as determined in accordance with U.S. GAAP.\nThe Borrowers agree to cause their Balance Sheet Leverage to be less than or equal \n2.50\n to \n1.00\n. Compliance with the foregoing shall be tested quarterly, as of the last day of each fiscal quarter of the Borrowers, commencing with the fiscal quarter ending September 30, 2021. \u201cBalance Sheet Leverage\u201d means, at any date of determination, the ratio of Borrowers\u2019 (a) Total Liabilities, less Subordinated Debt, to (b) Net Worth, plus Subordinated Debt.\nThe Borrowers agree that their combined annual capital expenditures shall not exceed $\n1.5\n million. Compliance shall be tested annually, commencing with the fiscal year ending March 31, 2022.\nThe Borrowers agree to maintain a Loan-to-Value Ratio of not greater than \n0.75\n to \n1.00\n. \u201cLoan-to-Value Ratio\u201d means the ratio of (a) the sum of the outstanding balance of the Ranor Term Loan and the Stadco Term Loan, to (b) the fair market value of the property pledged as collateral for the loan, as determined by an appraisal obtained from time to time by Berkshire Bank, but not more frequently than one time during each \n365\n day period (provided that Berkshire Bank may obtain an appraisal at any time after either the Ranor Term Loan or the Stadco Term Loan has been accelerated), which appraisals shall be at the expense of the Borrowers.\nThe Company was in compliance with all of the financial covenants at March 31, 2023, except for the combined capital expenditures limit. The Company was in violation of the Loan Agreement as it exceeded the capital expenditure limit of $\n1.5\n million as defined in the agreement. On June 12, 2023, the Company and Berkshire Bank executed a waiver under which Berkshire Bank waived the Company\u2019s noncompliance with the capital expenditure limit on March 31, 2023. The waiver document also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024 any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures. \u00a0\nCollateral securing all the above obligations comprises all personal and real property of the Company, including cash, accounts receivable, inventories, equipment, and financial assets. The carrying value of short and long-term borrowings approximates their fair value. The Company\u2019s short-term and long-term debt is all privately held with no public market for this debt and is considered to be Level 3 under the fair value hierarchy.\nThe scheduled principal maturities for our total debt by fiscal year are:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n2024\n\u00a0\u00a0\u00a0\u00a0\n$\n \n1,250,200\n2025\n\u200b\n\u00a0\n \n625,791\n2026\n\u200b\n\u00a0\n \n651,827\n2027\n\u200b\n\u00a0\n \n678,980\n2028\n\u200b\n\u00a0\n \n2,636,854\nThereafter\n\u200b\n\u00a0\n \n269,361\nTotal\n\u200b\n$\n \n6,113,013\n\u200b\nSmall Business Administration Loan \nOn May 8, 2020, the Company, through its wholly owned subsidiary Ranor, issued a promissory note, or the \u201cNote\u201d, evidencing an unsecured loan in the amount of $\n1,317,100\n made to Ranor under the Paycheck Protection Program, or the \u201cPPP\u201d. The PPP was established under the CARES Act and is administered by the U.S. Small Business Administration, or the \u201cSBA\u201d. The loan to Ranor was \n58\n\n\nTable of Contents\nmade through Berkshire Bank. In fiscal year 2022, on May 12, 2021, as authorized by Section 1106 of the CARES Act, the SBA remitted to Berkshire Bank, the lender of record, a payment of principal and interest in the amounts of $\n1,317,000\n and $\n13,207\n, respectively, for forgiveness of the Company\u2019s PPP loan. The funds credited to the PPP loan pay this loan off in full. Loan forgiveness is recorded as a gain under other income and expense in the consolidated statement of operations and comprehensive loss.\n\u200b\nNOTE\u00a013\u00a0- OTHER NONCURRENT LIABILITY\nThe Company purchased new equipment in fiscal 2022 for contract project work with a certain customer. Under an addendum to the contract purchase orders, that customer agreed to reimburse the Company for the cost of the new equipment. We received the first payment in January 2022 and two additional payments in April 2022. In case of a contract breach, at the time of the breach, the customer may claw back the funds based on a prorated ten-year straight-line annual declining balance recovery period. Customer payments received of $\n1.0\n million and $\n0.3\n million are recorded as a noncurrent liability in the condensed consolidated balance sheets at March 31, 2023 and March 31, 2022, respectively.\nStadco entered into the Payment Agreement with the LADWP to settle previously outstanding amounts for water, water service, electric energy and/or electric service in the aggregate amount of $\n1,770,201\n that were delinquent and unpaid. Under the Payment Agreement, Stadco will make monthly installment payments on the unpaid balance beginning on December 15, 2022, in an aggregate amount of $\n18,439\n per month until the earlier of November 15, 2030, or the amount due is paid in full. Late payments under the Payment Agreement accrue a late payment charge equal to an \n18\n% annual rate on the unpaid balance. This liability amount was included in accounts payable on the Company\u2019s balance sheet as of March 31, 2022, and was reclassified to accrued expenses as a current liability for $\n0.2\n million, and to noncurrent liability for $\n1.5\n million as of March 31, 2023.\nNOTE\u00a014\u00a0\u2013 LEASES\nOn August 25, 2021, Stadco became party to an amended building and property operating lease and recorded a right of use asset and liability of $\n6.6\n\u00a0million. Monthly base rent for the property is $\n82,998\n\u00a0per month. The term of the lease will expire on June 30, 2030, and the lessee has no right of renewal beyond the expiration date. The lease contains customary default provisions allowing the landlord to terminate the lease if the lessee fails to remedy a breach of its obligations under the lease within the period specified in the lease, or upon certain events of bankruptcy or seizure or attachment of the lessee\u2019s assets or interest in the lease. The lease also contains other customary provisions for real property leases of this type.\nThe following table lists our right-of-use assets and liabilities on our consolidated balance sheets at:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMarch 31, 2023\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02022\nFinance lease:\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\nRight of use asset \u2013 operating lease\n\u200b\n$\n \n6,629,396\n\u200b\n$\n \n6,649,744\nRight of use asset \u2013 finance leases\n\u200b\n\u200b\n \n65,016\n\u200b\n\u00a0\n \n125,032\nAmortization\n\u200b\n\u200b\n (\n1,033,474\n)\n\u200b\n\u200b\n (\n391,161\n)\nRight of use asset, net\n\u200b\n$\n \n5,660,938\n\u200b\n$\n \n6,383,615\nLease liability \u2013 operating lease\n\u200b\n$\n \n5,819,365\n\u200b\n$\n \n6,374,691\nLease liability \u2013 finance leases\n\u200b\n\u200b\n \n36,336\n\u200b\n\u200b\n \n72,908\nTotal lease liability\n\u200b\n$\n \n5,855,701\n\u200b\n$\n \n6,447,599\n\u200b\nOther supplemental information regarding our leases is contained in the following tables:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nComponents of lease expense for the year ended:\n\u00a0\u00a0\u00a0\u00a0\nMarch 31, 2023\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02022\nOperating lease amortization\n\u200b\n$\n \n638,732\n\u200b\n$\n \n363,206\nFinance lease amortization\n\u200b\n$\n \n20,829\n\u200b\n$\n \n27,955\nFinance lease interest\n\u200b\n$\n \n1,536\n\u200b\n$\n \n1,851\n\u200b\n59\n\n\nTable of Contents\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWeighted average lease term and discount rate at:\n\u00a0\u00a0\u00a0\u00a0\nMarch 31, 2023\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02022\n\u00a0\nLease term (years) \u2013 operating lease\n\u00a0\n 7.25\n\u200b\n 8.25\n\u200b\nLease term (years) \u2013 finance lease\n\u200b\n 0.75\n\u200b\n 2.48\n\u200b\nLease rate \u2013 operating lease\n\u200b\n \n4.5\n%\n \n4.5\n%\nLease rate \u2013 finance lease\n\u00a0\n \n4.5\n%\n \n3.9\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nSupplemental cash flow information related to leases for the year ended:\n\u00a0\u00a0\u00a0\u00a0\nMarch 31, 2023\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a02022\nCash used in operating activities\n\u200b\n$\n \n851,806\n\u200b\n$\n \n448,206\nCash used in financing activities\n\u200b\n$\n \n36,572\n\u200b\n$\n \n508,806\n\u200b\nMaturities of lease liabilities at March 31, 2023 for the next five years and thereafter:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n2023\n\u00a0\u00a0\u00a0\u00a0\n$\n \n957,495\n2024\n\u200b\n\u00a0\n \n948,701\n2025\n\u200b\n\u00a0\n \n948,702\n2026\n\u200b\n\u00a0\n \n938,801\n2027\n\u200b\n\u00a0\n \n938,802\nThereafter\n\u200b\n\u00a0\n \n2,111,578\nTotal lease payments\n\u200b\n$\n \n6,844,079\nLess: imputed interest\n\u200b\n\u00a0\n \n988,378\nTotal\n\u200b\n$\n \n5,855,701\n\u200b\n\u200b\n\u200b\nNOTE\u00a015\u00a0- COMMITMENTS\nEmployment Agreements\nWe have employment agreements with each of our executive officers. Such agreements provide for minimum salary levels, adjusted annually, and incentive bonuses that are payable if specified company goals are attained. The aggregate commitment at March 31, 2023 for future executive salaries was approximately $\n0.6\n million. The aggregate commitment at March 31, 2023 was approximately $\n1.0\n million for accrued payroll, vacation and holiday pay for the remainder of our employees.\nPurchase Commitments\nAs of March\u00a031, 2023, we had approximately $\n5.7\n\u00a0million in purchase obligations outstanding, which primarily consisted of contractual commitments to purchase new materials and supplies.\nRetirement Benefits\nRanor has a defined contribution and savings plan that covers substantially all Ranor employees who have completed 90 days of service. Ranor retains the option to match employee contributions. The Company contributed $\n84,889\n and $\n89,316\n for the\u00a0years ended March\u00a031, 2023 and 2022, respectively.\nProvision for claims settlement\nOn March 15, 2021, the court approved the final class action settlement for all outstanding claims related to a civil class action brought by former employees for past wages claimed under a paid time-off program. As such, the plaintiffs\u2019 claims have been fully and finally dismissed, and the $\n495,000\n payment to the plaintiffs\u2019 counsel was paid on May 10, 2021.\n\u200b\nNOTE\u00a016\u00a0\u2013 SEGMENT INFORMATION\nThe Company has \ntwo\n wholly owned subsidiaries, Ranor and Stadco that are each reportable segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. All the Company\u2019s operations, assets, and customers are located in the U.S.\n60\n\n\nTable of Contents\nEach reportable segment focuses on the manufacture and assembly of specific components, primarily for defense, aerospace and other industrial customers. However, both segments have separate operating, engineering, and sales teams. The Chief Operating Decision Maker, or CODM, evaluates the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs. Corporate costs include executive and director compensation, stock-based compensation, and other corporate and administrative expenses not allocated to the segments. The segment operating profit metric is what the CODM uses in evaluating our results of operations and the financial measure that provides insight into our overall performance and financial position.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nThe following table provides summarized financial information for our segments:\n\u00a0\u00a0\u00a0\u00a0\nMarch 31, 2023\n\u00a0\u00a0\u00a0\u00a0\nMarch 31, 2022\nRanor\n\u200b\n$\n \n19,181,539\n\u200b\n$\n \n14,580,306\nStadco\n\u200b\n\u00a0\n \n12,250,075\n\u200b\n\u00a0\n \n7,755,946\nEliminate intersegment revenue\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (\n53,757\n)\nNet sales from external customers\n\u200b\n$\n \n31,431,614\n\u200b\n$\n \n22,282,495\nRanor operating income\n\u200b\n\u00a0\n \n5,150,821\n\u200b\n\u00a0\n \n1,514,790\nStadco operating loss\n\u200b\n\u00a0\n (\n3,905,323\n)\n\u200b\n\u00a0\n (\n1,124,542\n)\nCorporate and unallocated \n(1)\n\u200b\n\u200b\n (\n2,350,718\n)\n\u200b\n\u200b\n (\n1,951,777\n)\nOperating loss \n\u200b\n$\n (\n1,105,220\n)\n\u200b\n$\n (\n1,561,529\n)\nInterest expense and other expense\n\u200b\n\u00a0\n (\n314,766\n)\n\u200b\n\u00a0\n (\n297,761\n)\nRefundable employee retention tax credits\n\u200b\n\u00a0\n \n636,564\n\u200b\n\u00a0\n \u2014\nUnallocated PPP loan forgiveness\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \n1,317,100\nConsolidated loss before income taxes\n\u200b\n$\n (\n783,422\n)\n\u200b\n$\n (\n542,189\n)\nAssets\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n \n\u200b\nRanor\n\u200b\n\u00a0\n \n11,350,905\n\u200b\n\u00a0\n \n10,654,579\nStadco\n\u200b\n\u00a0\n \n23,817,425\n\u200b\n\u00a0\n \n24,907,656\nCorporate and unallocated\n\u200b\n\u00a0\n \n1,039,411\n\u200b\n\u00a0\n \n2,290,324\nTotals\n\u200b\n$\n \n36,207,741\n\u200b\n$\n \n37,852,559\nDepreciation and amortization\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n \n\u200b\nRanor\n\u200b\n\u00a0\n \n523,683\n\u200b\n\u00a0\n \n595,536\nStadco\n\u200b\n\u00a0\n \n1,693,789\n\u200b\n\u00a0\n \n864,903\nTotals\n\u200b\n$\n \n2,217,472\n\u200b\n$\n \n1,460,439\nCapital expenditures\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n \n\u200b\nRanor\n\u200b\n\u00a0\n \n1,599,966\n\u200b\n\u00a0\n \n825,608\nStadco\n\u200b\n\u00a0\n \n725,335\n\u200b\n\u00a0\n \n113,396\nTotals\n\u200b\n$\n \n2,325,301\n\u200b\n$\n \n939,004\n(1) Corporate general costs include executive and director compensation, and other corporate administrative expenses not allocated to the segments.\n \nPrior period segment data is restated to reflect changes in corporate and administrative expenses not allocated to the segments.\nNOTE 17 \u2013 ACCOUNTING STANDARDS UPDATE\nNew Accounting Standards Recently Adopted\nIn November 2021, the Financial Accounting Standards Board, or the \u201cFASB\u201d, issued Accounting Standards Update (\u201cASU\u201d) No. 2021-10, Government Assistance (Topic 832): \nDisclosures by Business Entities About Government Assistance\n. The amendments in this update require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: 1) information about the nature of the transactions and the related accounting policy used to account for the transactions, 2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item, 3) significant terms and conditions of the transactions, including commitments and contingencies. The adoption of this ASU on April 1, 2022 did not have a significant impact on the Company\u2019s financial statements and disclosures.\n61\n\n\nTable of Contents\nIn October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805),\n Accounting for Contract Assets and Contract Liabilities from Contracts with Customers\n, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within these fiscal years. The adoption of this ASU on April 1, 2023 did not have a significant impact on the Company\u2019s financial statements and disclosures.\nIn May 2021, the FASB issued ASU 2021-04,\u00a0\nIssuer\u2019s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options Issuer\u2019s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.\u00a0\nThe FASB issued this update to clarify and reduce diversity in issuers accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments that relate to the recognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in Topic 260,\u00a0\nEarnings Per Share\n. The adoption of these amendments on April 1, 2022 did not have a material impact on our financial statements and disclosures.\nIn June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended subsequently by ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11 and 2020-03. The guidance in these ASUs requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used. The standard also establishes additional disclosures related to credit risks. This standard is effective for fiscal years beginning after December 15, 2022. The Company is in the process of determining the impact adoption of the amendment may have on the Company\u2019s financial statements and disclosures.\nItem\u00a09.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.\nNone.\nItem\u00a09A.\u00a0\u00a0\u00a0\u00a0Controls and Procedures.\nEvaluation of Disclosure Controls and Procedures.\nDisclosure controls and procedures (as defined in Rules\u00a013a-15(e)\u00a0and 15d-15(e)\u00a0under the Exchange Act) are controls and procedures that are designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC\u2019s rules\u00a0and forms, and includes controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.\nAs of the end of the period covered by this report, an evaluation was carried out, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March\u00a031, 2023, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting described below.\nManagement\u2019s Responsibility for Internal Controls\nThe Company\u2019s internal control over financial reporting is designed under the supervision of our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The Company\u2019s internal control over financial reporting includes those policies and procedures that: (i)\u00a0pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company\u2019s assets; (ii)\u00a0provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that the Company\u2019s receipts and expenditures are being made only in accordance with authorizations of the Company\u2019s management and directors; and (iii)\u00a0provide reasonable assurance regarding \n62\n\n\nTable of Contents\nprevention or timely detection of unauthorized acquisition, use, or disposition of the Company\u2019s assets that could have a material effect on the financial statements.\nInherent Limitations Over Internal Controls\nManagement, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company\u2019s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.\nManagement\u2019s Report of Internal Control over Financial Reporting.\nManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules\u00a013a-15(f)\u00a0and 15d-15(f)\u00a0under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March\u00a031, 2023, based on the 2013 framework established by the Committee of Sponsoring Organizations of the Treadway Commission in \nInternal Control\u00a0- Integrated Framework\n. Based on that assessment, management concluded that, as of March\u00a031, 2023, the Company\u2019s internal control over financial reporting was not effective due to a material weaknesses as described below.\nMaterial Weaknesses\nWe identified two material weaknesses in our internal control over financial reporting as of March 31, 2023. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of our financial statements for this Annual Report on Form 10-K, management identified the following material weaknesses:\n1)\nwe did not maintain proper controls, processes and procedures over the initial purchase accounting and the fair value accounting associated with our acquisition of Stadco that were adequately designed, documented, and executed to support the accurate and timely reporting of our financial results regarding the initial purchase accounting and the fair value accounting associated with the Stadco acquisition; and\n2)\nwe did not maintain a sufficient complement of tax accounting personnel necessary to perform management review controls related to activities for extracting information to determine the valuation allowance at Stadco on a timely basis. Because of this material weakness, we made a late or post-closing adjustment to our valuation allowance while preparing the consolidated financial statements and footnotes included in this Annual Report on Form 10-K.\nNotwithstanding the material weaknesses, management believes the consolidated financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, the Company\u2019s financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP.\nManagement\u2019s Remediation Plan\nOur management, with the oversight of our audit committee, has initiated steps and plans to take additional measures to remediate the underlying causes of the material weakness, which we currently believe will be primarily through the development and implementation of new procedures, policies, processes, including revising the precision level of management review controls and gaining additional assurance regarding timely completion of our quality control procedures. It is possible that we may determine that additional remediation steps will be necessary in the future.\n63\n\n\nTable of Contents\nOur remediation plan will require that, going forward, management will:\n1)\nutilize a valuation specialist with the requisite knowledge to perform all required valuations for all acquisitions of businesses, and\n2)\nutilize a tax specialist with the requisite knowledge to perform the required basic and detailed tax calculations so that all the parties can make a timely assessment of the Company\u2019s tax provision.\nThe material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We can provide no assurance as to when the remediation of these material weaknesses will be completed to provide for an effective control environment.\nChanges in Internal Control\n \nover Financial Reporting\nOther than the material weaknesses described above, for the quarter ended March\u00a031, 2023, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. The Company continues to evaluate Stadco\u2019s internal controls over financial reporting and integrating such with its own internal controls over financial reporting.\nItem\u00a09B.\u00a0\u00a0\u00a0\u00a0Other Information.\nNot Applicable.\nItem 9C.\u00a0\u00a0\u00a0\u00a0\u00a0Disclosure Regarding Foreign Jurisdictions that Prevent Inspection.\nNot Applicable.\nPART\u00a0III\nItem\u00a010.\u00a0\u00a0\u00a0\u00a0Directors, Executive Officers and Corporate Governance\na)\nDirectors of the Registrant.\nInformation with respect to Directors of the Company will be set forth under the heading \u201cCorporate Governance - Election of Directors\u201d in the Company\u2019s Proxy Statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference.\nb)\nExecutive Officers of the Registrant.\nInformation with respect to executive officers of the Company is set forth under \u201c\nItem 4A Executive Officers of the Registrant\n\u201d in this Annual Report on Form 10-K.\nc)\nIdentification of the Audit Committee.\nInformation concerning the audit committee of the Company will be set forth under the heading \u201cInformation About Our Board of Directors \u2013 Committees\u201d in the Company\u2019s Proxy Statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference.\nd)\nAudit Committee Financial Expert.\nInformation concerning the audit committee financial expert of the Company will be set forth under the heading \u201cInformation About Our Board of Directors \u2013 Committees\u201d in the Company\u2019s Proxy Statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference.\n64\n\n\nTable of Contents\ne)\nShareholder Nomination Process.\nInformation concerning any material changes to the way in which security holders may recommend nominees to the Company\u2019s Board of Directors will be set forth under the heading \u201cStockholders\u2019 Proposals for the 2023 Annual Meeting\u201d in the Company\u2019s Proxy Statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference.\nf)\nCode of Ethics for Chief Executive Officer and Senior Financial Officers.\nThe Company has adopted a Code of Ethics for the principal executive officer, principal financial officer and principal accounting officer of the Company, which may be found on the Company\u2019s website at www.techprecision.com. Any amendments to the Code of Ethics or any grant of a waiver from the provisions of the Code of Ethics requiring disclosure under applicable SEC rules will be disclosed on the Company\u2019s website.\nItem\u00a011.\u00a0\u00a0\u00a0\u00a0Executive Compensation\nInformation regarding executive compensation will be set forth under the heading \u201cExecutive Compensation\u201d in the Company\u2019s Proxy Statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference.\nItem 12.\n\u00a0\u00a0\u00a0\u00a0Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\nInformation regarding security ownership of certain beneficial owners and management will be set forth under the heading \u201cSecurity Ownership of TechPrecision\u201d in the Company\u2019s Proxy Statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference.\nItem\u00a013.\n\u00a0\u00a0\u00a0\u00a0Certain Relationships and Related Transactions, and Director Independence\nInformation regarding transactions with related persons will be set forth under the headings \u201cRelated Party Transactions - Certain Relationships and Related Transactions\u201d and \u201cInformation about our Board of Directors - Independence\u201d in the Company\u2019s Proxy Statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference.\nItem\u00a014.\n\u00a0\u00a0\u00a0\u00a0Principal Accountant Fees and Services\nInformation regarding fees paid to the Company\u2019s principal accountant will be set forth under the heading \u201cPrincipal Accountant Fees\u201d in the Company\u2019s Proxy Statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference.\nPart\u00a0IV\nItem\u00a015.\u00a0\u00a0\u00a0\u00a0Exhibits and Financial Statement Schedules.\nThe following documents are filed as part of this report:\n(1)\nFinancial Statements, included in Part\u00a0II, \u201c",
+  "cik": "1328792",
+  "cusip6": "878739",
+  "cusip": ["878739101", "878739200"],
+  "names": ["TechPrecision Corp New", "TECH PRECISION CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1328792/000141057823001442/0001410578-23-001442-index.htm"
+}
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+{
+  "item1": ">Item 1.\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nBusiness\nAMREP Corporation was organized in 1961 as an Oklahoma corporation and, through its subsidiaries, is primarily engaged in two business segments: land development and homebuilding. The Company has no foreign sales or activities outside the United States. The Company conducts a substantial portion of its business in Rio Rancho, New Mexico (\u201cRio Rancho\u201d) and certain adjoining areas of Sandoval County, New Mexico. Rio Rancho is the third largest city in New Mexico with a population of approximately 108,000.\nLand Development\nAs of April 30, 2023, the Company owned approximately 17,000 acres in Sandoval County, New Mexico. The Company offers for sale both developed and undeveloped real property to national, regional and local homebuilders, commercial and industrial property developers and others. Activities conducted or arranged by the Company include land and site planning, obtaining governmental and environmental approvals (\u201centitlements\u201d), installing utilities and storm drains, ensuring the availability of water service, building or improving roads necessary for land development and constructing community amenities. The Company develops both residential lots and sites for commercial and industrial use as demand warrants. Engineering work is performed by both the Company\u2019s employees and outside firms, but development work is generally performed by outside contractors. The Company also provides limited landscaping services, generally servicing homebuilders and homeowners\u2019 associations.\nThe Company markets land for sale or lease both directly and through brokers. With respect to residential development, the Company generally focuses its sales efforts on a limited number of homebuilders, with 95% of 2023 developed residential land sale revenues having been made to four homebuilders. The number of new construction single-family residential starts in Rio Rancho by the Company, the Company\u2019s customers and other builders was 585 in 2023 and 876 in 2022. The development of residential, commercial and industrial properties requires, among other things, financing or other sources of funding, which may not be available.\nThe Company opportunistically acquires land, focusing primarily in New Mexico, after completion of market research, soil tests, environmental studies and other engineering work, a review of zoning and other governmental requirements, discussions with homebuilders or other prospective end-users of the property and financial analysis of the project and estimated development costs. \nThe continuity and future growth of the Company\u2019s real estate business, if the Company pursues such growth, will require that the Company acquire new properties in New Mexico or expand to other markets to provide sufficient assets to support a meaningful real estate business. The Company competes with other owners and developers of land that offer for sale developed and undeveloped residential lots and sites for commercial and industrial use.\n\u200b\n1\n\n\nThe following table presents information on the large land development projects of the Company in New Mexico as of April 30, 2023:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nDeveloped\n1\n\u200b\nUnder\u00a0Development\n2\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCommercial\u00a0\n\u200b\n\u200b\nCommercial\n\u200b\n\u200b\n\u200b\n\u200b\nResidential\n\u200b\n/\u00a0Industrial\n\u200b\nResidential\n\u200b\n\u00a0/\u00a0Industrial\n\u200b\nUndeveloped\n3\n\u200b\n\u200b\nLots\n\u200b\nAcres\n\u200b\nAcres\n\u200b\nAcres\n\u200b\nAcres\nLomas Encantadas\n\u00a0\u00a0\u00a0\u00a0\n 103\n\u00a0\u00a0\u00a0\u00a0\n \u2014\n\u00a0\u00a0\u00a0\u00a0\n 198\n\u00a0\u00a0\u00a0\u00a0\n 6\n\u00a0\u00a0\u00a0\u00a0\n \u2014\nHawk Site\n\u00a0\n 89\n\u00a0\n \u2014\n\u00a0\n 103\n\u00a0\n 129\n\u00a0\n \u2014\nHawk Adjacent\n\u200b\n \u2014\n\u200b\n \u2014\n\u200b\n 44\n\u200b\n \u2014\n\u200b\n \u2014\nEnchanted Hills/ Commerce Center\n\u00a0\n \u2014\n\u00a0\n 29\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u00a0\n \u2014\nPapillon\n\u200b\n \u2014\n\u200b\n \u2014\n\u200b\n \u2014\n\u200b\n \u2014\n\u200b\n 308\nPaseo Gateway\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u00a0\n 290\nLa Mirada\n\u00a0\n \u2014\n\u00a0\n \u2014\n\u00a0\n 7\n\u00a0\n 2\n\u00a0\n \u2014\n\u200b\nLomas Encantadas is located in the eastern section of Unit 20 in Rio Rancho. Hawk Site and Hawk Adjacent are located in the northern section of Unit 25 in Rio Rancho. Enchanted Hills/Commerce Center is located in the eastern section of Unit 20 in Rio Rancho. Papillon is located in the northern section of Unit 25 in Rio Rancho. Paseo Gateway is located in the southern section of Unit 20 in Rio Rancho. La Mirada is located in Albuquerque, New Mexico.\nThe following table presents information on certain small residential land development projects of the Company in New Mexico as of April 30, 2023:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nDeveloped\n1\n\u200b\nUnder\u00a0Development\n2\n\u200b\n\u200b\n\u200b\n\u200b\nLots\n\u200b\nAcres\n\u200b\nLocation\nLavender Fields\n\u00a0\u00a0\u00a0\u00a0\n 15\n\u00a0\u00a0\u00a0\u00a0\n \u2014\n\u00a0\u00a0\u00a0\u00a0\nBernalillo County, New Mexico\nVista Entrada\n\u00a0\n 6\n\u00a0\n \u2014\n\u00a0\nEastern section of Unit 20 in Rio Rancho\nTierra Contenta\n\u00a0\n 30\n\u00a0\n \u2014\n\u00a0\nSanta Fe, New Mexico\nGeoPark\n\u200b\n \u2014\n\u200b\n 8\n\u200b\nSanta Fe, New Mexico\nNorthern Meadows J-1\n\u200b\n \u2014\n\u200b\n 3\n\u200b\nSouthern section of Unit 22 in Rio Rancho\n\u200b\nIn addition to the property listed in the tables above, as of April 30, 2023, the Company held undeveloped property in Sandoval County, New Mexico of approximately 16,000 acres in high contiguous ownership areas and low contiguous ownership areas. High contiguous ownership areas may be suitable for special assessment districts or city redevelopment areas that may allow for development under the auspices of local government. Low contiguous ownership areas may require the purchase of a sufficient number of adjoining lots to create tracts suitable for development or may be offered for sale individually or in small groups.\nInfrastructure Reimbursement Mechanisms\n. A portion of the Lomas Encantadas subdivision and a portion of the Enchanted Hills subdivision are subject to a public improvement district. The public improvement district reimburses the Company for certain on-site and off-site costs of developing the subdivisions by imposing a special levy on the real property owners within the district. The Company has accepted discounted prepayments of amounts due under the public improvement district.\n1\n Developed lots/acreage are any tracts of land owned by the Company that have been entitled with infrastructure work that is substantially complete.\n\u200b\n2\n Acreage under development is real estate owned by the Company for which entitlement or infrastructure work is currently being completed. However, there is no assurance that the acreage under development will be developed because of the nature and cost of the approval and development process and market demand for a particular use. In addition, the mix of residential and commercial acreage under development may change prior to final development. The development of this acreage will require significant additional financing or other sources of funding, which may not be available.\n\u200b\n3\n There is no assurance that undeveloped acreage will be developed because of the nature and cost of the approval and development process and market demand for a particular use. Undeveloped acreage is real estate that can be sold \u201cas is\u201d (e.g., where no entitlement or infrastructure work has begun on such property).\n\u200b\n2\n\n\nThe Company instituted private infrastructure reimbursement covenants in Lavender Fields and on a portion of the property in Hawk Site. Similar to a public improvement district, the covenants are expected to reimburse the Company for certain on-site and off-site costs of developing the subject property by imposing an assessment on the real property owners subject to the covenants. The Company has accepted discounted prepayments of amounts due under the private infrastructure reimbursement covenants. \nImpact fees are charges or assessments payable by homebuilders to local governing authorities in order to generate revenue for funding or recouping the costs of capital improvements or facility expansions necessitated by and attributable to the new development. The Company receives credits, allowances and offsets applicable to impact fees in connection with certain off-site costs incurred by the Company in developing subdivisions, which the Company generally sells to homebuilders.\nCommercial Property\n. Out of the eight commercial lots in the La Mirada subdivision, the Company sold four of the commercial lots in 2023 and two of the commercial lots in 2022. As of April 30, 2023, the Company is in the process of constructing a 2,800 square foot single tenant building on a commercial lot in the La Mirada subdivision and a 2,800 square foot single tenant building on a commercial lot in Unit 10 in Rio Rancho. In 2022, the Company also sold approximately 1.8 acres of commercial property in the Enchanted Hills/Commerce Center subdivision.\nMineral Rights\n. The Company owns certain minerals and mineral rights in and under approximately 55,000 surface acres of land in Sandoval County, New Mexico.\nOther Real Estate Interests\n. The Company owns an approximately 160-acre property in Brighton, Colorado planned for 410 homes. In 2022, the Company sold its approximately 5-acre property in Parker, Colorado and 143,000 square foot warehouse and office facility located in Palm Coast, Florida.\nHomebuilding\nIn fiscal year 2020, the Company commenced operations in New Mexico of its internal homebuilder, Amreston Homes. The Company offers a variety of home floor plans and elevations at different prices and with varying levels of options and amenities to meet the needs of homebuyers. The Company focuses on selling single-family detached and attached homes. The Company selects locations for homebuilding based on available land inventory and completion of a feasibility study. The Company utilizes internal and external sales brokers for home sales. Model homes are generally used to showcase the Company\u2019s homes and their design features. The Company provides built-to-order homes where construction of the homes does not begin until the customer signs the purchase agreement and speculative (\u201cspec\u201d) homes for homebuyers that require a home within a short time frame. Sales contracts with homebuyers generally require payment of a deposit at the time of contract signing and sometimes additional deposits upon selection of certain options or upgrade features for their homes. Sales contracts also typically include a financing contingency that provides homebuyers with the right to cancel if they cannot obtain mortgage financing at specified interest rates within a specified period. Contracts may also include other contingencies, such as the sale of an existing home. \nThe construction of homes is conducted under the supervision of the Company\u2019s on-site construction field managers. Most construction work is performed by independent subcontractors under contracts that establish a specific scope of work at an agreed-upon price. Although the Company does not yet have sufficient historical experience to observe any seasonal effect on sales and construction activities, the Company does expect some seasonality in sales and construction activities which can affect the timing of closings. But any such seasonal effect on sales is expected to be relatively insignificant compared to the effect of the timing of opening of a property for sale and the subsequent timing of closings.\nThe housing industry in New Mexico is highly competitive. Numerous national, regional and local homebuilders compete for homebuyers on the basis of location, price, quality, reputation, design and community amenities. This competition with other homebuilders could reduce the number of homes the Company delivers or cause the Company to accept reduced margins to maintain sales volume. The Company also competes with resales of existing homes and available rental housing. Increased competitive conditions in the residential resale or rental market could decrease demand for new homes or unfavorably impact pricing for new homes.\nMaterials and Labor\nDuring 2023 and 2022, the Company experienced supply chain constraints, increases in the prices of building materials, shortages of skilled labor and delays in municipal approvals and inspections in both the land development business segment and homebuilding business segment, which caused delays in construction and the realization of revenues and increases in cost of revenues. Generally, construction materials for the Company\u2019s operations are available from numerous sources. However, the cost and availability of certain building materials, especially lumber, steel, concrete, copper and petroleum-based materials, is influenced by changes in local and global commodity prices and capacity as well as government regulation, such as government-imposed tariffs or trade restrictions on supplies such as steel and lumber. The ability to consistently source qualified labor at reasonable prices remains challenging as labor supply \n3\n\n\ngrowth has not kept pace with construction demand. To partially protect against changes in construction costs, labor and materials costs are generally established prior to or near the time when related sales contracts are signed with homebuilders or homebuyers. However, the Company cannot determine the extent to which necessary building materials and labor will be available at reasonable prices in the future.\nRegulatory and Environmental Matters\nThe Company\u2019s operations are subject to extensive regulations imposed and enforced by various federal, state and local governing authorities. These regulations are complex and include building codes, land zoning and other entitlement restrictions, health and safety regulations, labor practices, marketing and sales practices, environmental regulations and various other laws, rules and regulations. The applicable governing authorities frequently have broad discretion in administering these regulations. The Company may experience extended timelines for receiving required approvals from municipalities or other government agencies that can delay anticipated development and construction activities.\nGovernment restrictions, standards and regulations intended to reduce greenhouse gas emissions or potential climate change impacts may result in restrictions on land development or homebuilding in certain areas and may increase energy, transportation or raw material costs, which could reduce the Company\u2019s profit margins and adversely affect the Company\u2019s results of operations. Weather conditions and natural disasters can harm the Company. The occurrence of natural disasters or severe weather conditions can adversely affect the cost or availability of materials or labor, delay or increase costs of land development or damage homes or land development under construction. These matters may result in delays, may cause the Company to incur substantial compliance, remediation, mitigation and other costs, and can prohibit or severely restrict land development and homebuilding activity in environmentally sensitive areas.\nHuman Capital Resources\nAs of April 30, 2023, the Company employed 28 full-time employees. The Company believes the people who work for the Company are its most important resource and are critical to the Company\u2019s continued success. The Company focuses significant attention on attracting and retaining talented and experienced individuals to manage and support the Company\u2019s operations. The Company strives to reward employees through competitive industry pay, benefits and other programs; instill the Company\u2019s culture with a focus on ethical behavior; and enhance employees\u2019 performance through investments in technology, tools and training to enable employees to operate at a high level. The Company\u2019s employees are not represented by any union. The Company considers its employee relations to be good. The Company offers employees a broad range of company-paid benefits, and the Company believes its compensation package and benefits are competitive with others in the industry. All employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace. All employees must adhere to a code of conduct that sets standards for appropriate ethical behavior.\nAVAILABLE INFORMATION\nThe Company maintains a website at www.amrepcorp.com. The Company\u2019s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through the Company\u2019s website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The information found on the Company\u2019s website is not part of this or any other report that the Company files with, or furnishes to, the Securities and Exchange Commission.\nIn addition to the Company\u2019s website, the Securities and Exchange Commission maintains an Internet site that contains the Company\u2019s reports, proxy and information statements, and other information that the Company electronically files with, or furnishes to, the Securities and Exchange Commission at www.sec.gov.\n\u200b",
+  "item1a": ">Item 1A. \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nRisk Factors\nAs a smaller reporting company, the Company has elected not to provide the disclosure under this item.\n\u200b",
+  "item7": ">Item 7. \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nFor a description of the Company\u2019s business, refer to Item 1 of Part\u00a0I of this annual report on Form\u00a010-K. As indicated in Item 1, the Company, through its subsidiaries, is primarily engaged in two business segments: land development and homebuilding. The Company has no foreign sales. The following provides information that management believes is relevant to an assessment and understanding of the Company\u2019s consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and accompanying notes.\nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\nThe Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. The Company discloses its significant accounting policies in the notes to its audited consolidated financial statements.\nThe preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of those financial statements as well as the amounts reported in the financial statements and accompanying notes. Areas that require significant judgments and estimates to be made include: (1) land sale cost of revenues, net calculations, which are based on land development budgets and estimates of costs to complete; (2) cash flows, asset groupings and valuation assumptions in performing asset impairment tests of long-lived assets and assets held for sale; (3) actuarially determined defined benefit pension obligations and other pension plan accounting and disclosures; (4) risk assessment of uncertain tax positions; and (5) the determination of the recoverability of net deferred tax assets. Actual results could differ from those estimates.\nThere are numerous critical assumptions that may influence accounting estimates in these and other areas. Management bases its critical assumptions on historical experience, third-party data and various other estimates that it believes to be reasonable under the circumstances. The most critical assumptions made in arriving at these accounting estimates include the following:\n\u25cf\nland sale cost of revenues, net are incurred throughout the life of a project, and the costs of initial sales from a project frequently must include a portion of costs that have been budgeted based on engineering estimates or other studies, but not yet incurred;\n\u25cf\nwhen events or changes in circumstances indicate the carrying value of an asset may not be recoverable, a test for asset impairment may be required. Asset impairment determinations are based upon the intended use of assets, the grouping of those assets, the expected future cash flows and estimates of fair value of assets. For real estate projects under development, an estimate of future cash flows on an undiscounted basis is determined using estimated future expenditures necessary to complete such projects and using management\u2019s best estimates about sales prices and holding periods. Testing of long-lived assets includes an estimate of future cash flows on an undiscounted basis using estimated revenue streams, operating margins, administrative expenses and terminal values. The estimation process involved in determining if assets have been impaired and in the determination of estimated future cash flows is inherently uncertain because it requires estimates of future revenues and costs, as well as future events and conditions. If the excess of undiscounted cash flows over the carrying value of a particular asset group is small, there is a greater risk of future impairment and any resulting impairment charges could be material;\n\u25cf\ndefined benefit pension obligations and other pension plan accounting and disclosures are based upon numerous assumptions and estimates, including the expected rate of investment return on pension plan assets, the discount rate used to determine the present value of liabilities, and certain employee-related factors such as turnover, retirement age and mortality;\n\u25cf\nthe Company assesses risk for uncertain tax positions and recognizes the financial statement effects of a tax position when it is more likely than not that the position will be sustained upon examination by tax authorities; and\n\u25cf\nthe Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. In making this determination, the Company projects its future earnings (including currently unrealized gains on real estate inventory) for the future recoverability of net deferred tax assets.\n6\n\n\nRESULTS OF OPERATIONS\nYear Ended April 30, 2023 Compared to Year Ended April\u00a030, 2022\nFor 2023, the Company had net income of $21,790,000, or $4.11 per diluted share, compared to net income of $15,862,000, or $2.21 per diluted share, in 2022. As discussed in more detail below, during 2023, the Company recognized a non-cash income tax benefit of $16,071,000 as a result of a worthless stock deduction related to its former fulfillment services business and a non-cash pre-tax pension settlement general and administrative expense of $7,597,000 due to (a) the Company\u2019s defined benefit pension plan paying certain lump sum payouts of pension benefits to former employees and (b) the transfer of nearly all remaining pension benefit liabilities to an insurance company through an annuity purchase.\nDuring 2023 and 2022, the Company has experienced supply chain constraints, increases in the prices of building materials, shortages of skilled labor and delays in municipal approvals and inspections in both the land development business segment and homebuilding business segment, which caused delays in construction and the realization of revenues and increases in cost of revenues. In addition, in response to inflation, the Federal Reserve increased benchmark interest rates during 2023 and 2022 and has signaled it expects additional future interest rate increases, which has resulted in a significant increase in mortgage interest rates during 2023 and 2022, impacting home affordability and consumer sentiment and tempering demand for new homes and finished residential lots. The rising cost of housing due to increases in average sales prices in recent years and the recent increases in mortgage interest rates, coupled with general inflation in the U.S. economy and other macroeconomic factors, have placed pressure on overall housing affordability and have caused many potential homebuyers to pause and reconsider their housing choices. Given the affordability challenges described above and the resulting impact on demand, the Company has increased sales incentives on certain homes classified as homebuilding model inventory or homebuilding construction in process, opportunistically leased completed homes and slowed the pace of housing starts and land development projects. The Company believes these conditions will continue to impact the land development and homebuilding industries for at least the remainder of calendar year 2023.\nFuture economic conditions and the demand for land and homes are subject to continued uncertainty due to many factors, including the recent increase in mortgage interest rates, higher inflation, low supplies of new and existing home inventory available for sale, ongoing disruptions from supply chain challenges and labor shortages, the ongoing impact of the COVID-19 pandemic and government directives, and other factors. While construction and land costs remain elevated, the Company has been able to offset these cost increases through land and home price increases in 2023 and 2022 due to a strong pricing environment, which may not continue. The Company\u2019s past performance may not be indicative of future results.\nRevenues\n. The following presents information on revenues (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nYear\u00a0Ended\u00a0April\u00a030,\u00a0\u00a0\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\nIncrease (decrease)\n\u00a0\nLand sale revenues\n\u200b\n$\n 30,659\n\u200b\n$\n 36,200\n\u00a0\n$\n (5,541)\n\u200b\n (15)\n%\nHome sale revenues\n\u200b\n\u00a0\n 16,691\n\u200b\n\u00a0\n 13,565\n\u00a0\n\u200b\n 3,126\n\u200b\n 23\n%\nBuilding sales and other revenues\n\u200b\n\u00a0\n 1,326\n\u200b\n\u00a0\n 9,161\n\u00a0\n\u200b\n (7,835)\n\u200b\n (86)\n%\nTotal \n\u200b\n$\n 48,676\n\u200b\n$\n 58,926\n\u00a0\n\u200b\n (10,250)\n\u200b\n (17)\n%\n\u200b\n\u25cf\nThe change in land sale revenues for 2023 compared to 2022 was primarily due to a decrease in revenue of developed commercial land and undeveloped land offset in part by an increase in revenue of developed residential land. The Company\u2019s land sale revenues consist of (dollars in thousands):\n\u200b\n7\n\n\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear\u00a0Ended\u00a0April\u00a030,\u00a02023\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAcres\u00a0Sold\n\u00a0\u00a0\u00a0\u00a0\nRevenue\n\u00a0\u00a0\u00a0\u00a0\nRevenue Per\u00a0Acre\n1\nDeveloped\n\u200b\n\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\n\u200b\nResidential\n\u00a0\n 46.5\n\u200b\n$\n 25,651\n\u200b\n$\n 552\nCommercial\n\u00a0\n 3.8\n\u200b\n\u00a0\n 4,832\n\u200b\n\u00a0\n 1,272\nTotal Developed\n\u00a0\n 50.3\n\u200b\n\u200b\n 30,483\n\u200b\n\u200b\n 606\nUndeveloped\n\u00a0\n 10.8\n\u200b\n\u00a0\n 176\n\u200b\n\u00a0\n 16\nTotal\n\u00a0\n 61.1\n\u200b\n$\n 30,659\n\u200b\n\u200b\n 502\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear\u00a0Ended\u00a0April\u00a030,\u00a02022\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAcres\u00a0Sold\n\u00a0\u00a0\u00a0\u00a0\nRevenue\n\u00a0\u00a0\u00a0\u00a0\nRevenue Per\u00a0Acre\n1\nDeveloped\n\u200b\n\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\n\u200b\nResidential\n\u00a0\n 47.6\n\u200b\n$\n 21,973\n\u200b\n$\n 462\nCommercial\n\u00a0\n 7.7\n\u200b\n\u00a0\n 6,054\n\u200b\n\u00a0\n 786\nTotal Developed\n\u00a0\n 55.3\n\u200b\n\u200b\n 28,027\n\u200b\n\u200b\n 507\nUndeveloped\n\u00a0\n 1,233.5\n\u200b\n\u00a0\n 8,173\n\u200b\n\u00a0\n 7\nTotal\n\u00a0\n 1,288.8\n\u200b\n$\n 36,200\n\u200b\n\u200b\n 28\n\u200b\nThe changes in the revenue per acre of developed residential land, developed commercial land and undeveloped land for 2023 compared to 2022 were primarily due to the location and mix of lots sold. The Company sold 1,196 acres of contiguous undeveloped land in Sandoval County, New Mexico in 2022, representing $7,107,000 of revenue, to one purchaser. The Company does not expect the sale of a significant amount of undeveloped land in 2022 to be indicative of the sale of such undeveloped land in the future.\n\u25cf\nThe change in home sale revenues for 2023 compared to 2022 was primarily due to an increase in average selling prices offset in part by a decrease in the number of homes sold as a result of decreases in demand (including from the affordability challenges described above), supply chain constraints, shortages of skilled labor and delays in municipal approvals and inspections. The Company\u2019s home sale revenues consist of (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear\u00a0Ended\u00a0April\u00a030,\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\nHomes sold\n\u00a0\n\u200b\n 32\n\u00a0\n\u200b\n 41\nAverage selling price\n\u200b\n$\n 525\n\u200b\n$\n 331\n\u200b\nAs of April 30, 2023, the Company had 18 homes in production, including 10 homes under contract, which homes under contract represented $5,640,000 of expected home sale revenues when closed, subject to customer cancellations and change orders. As of April 30, 2022, the Company had 38 homes in production, including 17 homes under contract, which homes under contract represented $8,713,000 of expected home sale revenues when closed, subject to customer cancellations and change orders.\n\u25cf\nBuilding sales and other revenues consist of (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear\u00a0Ended\u00a0April\u00a030,\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\nSales of buildings \n\u200b\n$\n \u2014\n\u200b\n$\n 8,439\nOil and gas royalties\n\u200b\n\u00a0\n 146\n\u200b\n\u00a0\n 276\nLandscaping revenues\n\u200b\n\u00a0\n 585\n\u200b\n\u00a0\n \u2014\nMiscellaneous other revenues\n\u200b\n\u00a0\n 595\n\u200b\n\u00a0\n 446\nTotal\n\u200b\n$\n 1,326\n\u200b\n$\n 9,161\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n1\n Revenues per acre may not calculate precisely due to the rounding of revenues to the nearest thousand dollars.\n\u200b\n8\n\n\nSales of buildings during 2022 consisted of revenues from the sale of a 4,338 square foot, single tenant retail building in the La Mirada subdivision and from the sale of a 143,000 square foot warehouse and office facility located in Palm Coast, Florida. The Company does not expect the sale of the warehouse and office facilities located in Palm Coast, Florida to be indicative of future sales of such properties since the Company has no other similar properties. Landscaping revenues consisted of landscaping services, generally servicing homebuilders and homeowners\u2019 associations, provided by the Company.\nMiscellaneous other revenues for 2023 primarily consisted of extension fees for purchase contracts, forfeited deposits and residential rental revenues. Miscellaneous other revenues for 2022 primarily consisted of rent received from a tenant at a building in Palm Coast, Florida and tenants at a shopping center in Albuquerque, New Mexico, a non-refundable option payment and proceeds from the sale of equipment.\n\u200b\nCost of Revenues\n. The following presents information on cost of revenues (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear\u00a0Ended\u00a0April\u00a030,\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\nIncrease (decrease)\n\u00a0\nLand sale cost of revenues, net\n\u200b\n$\n 17,379\n\u200b\n$\n 17,645\n\u00a0\n$\n (266)\n\u200b\n (2)\n%\nHome sale cost of revenues\n\u200b\n\u00a0\n 12,037\n\u200b\n\u00a0\n 10,237\n\u00a0\n\u200b\n 1,800\n\u200b\n 18\n%\nBuilding sales and other cost of revenues\n\u200b\n\u00a0\n 361\n\u200b\n\u00a0\n 4,387\n\u00a0\n\u200b\n (4,026)\n\u200b\n (92)\n%\nTotal\n\u200b\n$\n 29,777\n\u200b\n$\n 32,269\n\u00a0\n\u200b\n (2,492)\n\u200b\n (8)\n%\n\u200b\n\u25cf\nLand sale cost of revenues, net consist of (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nYear\u00a0Ended\u00a0April\u00a030,\n\u200b\n\u200b\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\nLand sale cost of revenues\n\u200b\n$\n 22,477\n\u200b\n$\n 21,198\nLess:\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\nPublic improvement district reimbursements\n\u200b\n\u00a0\n (759)\n\u200b\n\u00a0\n (558)\nPrivate infrastructure covenant reimbursements\n\u200b\n\u00a0\n (626)\n\u200b\n\u00a0\n (184)\nPayments for impact fee credits\n\u200b\n\u00a0\n (3,713)\n\u200b\n\u00a0\n (2,811)\nLand sale cost of revenues, net\n\u200b\n$\n 17,379\n\u200b\n$\n 17,645\n\u200b\nLand sale gross margins were 42% for 2023 compared to 51% for 2022. The change in gross margin was primarily due to the location, size and mix of property sold (including the sale of 1,233.5 acres in 2022 versus 10.8 acres in 2023 of undeveloped land with a low associated land sale cost of revenues) offset in part by lower than estimated costs in 2022 associated with certain completed projects. As a result of many factors, including the nature and timing of specific transactions and the type and location of land being sold, revenues, average selling prices and related gross margin from land sales can vary significantly from period to period and prior results are not necessarily a good indication of what may occur in future periods.\n\u25cf\nThe change in home sale cost of revenues for 2023 compared to 2022 was primarily due to location, size of homes, increases in the prices of building materials and shortages of skilled labor. Despite such increase in home sale cost of revenues, home sale gross margins were 28% for 2023 compared to 25% for 2022. The change in gross margin was primarily due to the location and mix of homes sold and to operational efficiencies. \n\u25cf\nBuilding sales and other cost of revenues for 2023 consisted of cost of goods sold for landscaping services. \u00a0Building sales and other cost of revenues for 2022 consisted of expenses associated with the sale of a 143,000 square foot warehouse and office facility located in Palm Coast, Florida and the sale of a 4,338 square foot, single tenant retail building in the La Mirada subdivision.\n9\n\n\nGeneral and Administrative Expenses\n. The following presents information on general and administrative expenses (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear\u00a0Ended\u00a0April\u00a030,\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\nIncrease (decrease)\n\u00a0\nOperations\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nLand development\n\u200b\n$\n 2,843\n\u200b\n$\n 3,258\n\u00a0\n$\n (415)\n\u200b\n (13)\n%\nHomebuilding\n\u200b\n\u00a0\n 1,016\n\u200b\n\u00a0\n 878\n\u00a0\n\u200b\n 138\n\u200b\n 16\n%\nCorporate\n\u200b\n\u00a0\n 1,613\n\u200b\n\u00a0\n 1,218\n\u00a0\n\u200b\n 395\n\u200b\n 32\n%\nOperations Total\n\u200b\n$\n 5,472\n\u200b\n$\n 5,354\n\u200b\n\u200b\n 118\n\u200b\n 2\n%\nPension settlement\n\u200b\n$\n 7,597\n\u200b\n$\n \u2014\n\u00a0\n\u200b\n 7,597\n\u200b\n(a)\n\u200b\n\u200b\n(a)\nPercentage not meaningful.\n\u200b\n\u25cf\nThe change in land development general and administrative expenses for 2023 compared to 2022 was primarily due to a refund of certain property taxes. The Company did not record any non-cash impairment charges on real estate inventory or investment assets in 2023 or 2022. Due to volatility in market conditions and development costs, the Company may experience future impairment charges.\n\u25cf\nThe change in homebuilding general and administrative expenses for 2023 compared to 2022 was primarily due to expansion of the Company\u2019s homebuilding operations.\n\u25cf\nThe change in corporate general and administrative expenses for 2023 compared to 2022 was primarily due to increases in pension benefit expenses, payroll and professional services offset in part by decreases in office rent and expenses and depreciation. \u00a0\n\u25cf\nThe pension settlement general and administrative expense was due to (a) the Company\u2019s defined benefit pension plan paying certain lump sum payouts of pension benefits to former employees and (b) the transfer of nearly all remaining pension benefit liabilities to an insurance company through an annuity purchase. No such pension settlement general and administrative expense was incurred in 2022.\nInterest Income (Expense)\n. Interest income (expense), net increased to $8,000 for 2023 from $2,000 for 2022. Interest and loan costs of $57,000 and $224,000 were capitalized in real estate inventory for 2023 and 2022.\nOther Income\n. Other income of $1,803,000 for 2023 consisted of the sale of all of the Company\u2019s minerals and mineral rights in and under approximately 147 surface acres of land in Brighton, Colorado. Other income of $261,000 for 2022 primarily consisted of $185,000 received in connection with the bankruptcy of a warranty provider, $45,000 of debt forgiveness with respect to a note payable and $30,000 received from a life insurance policy for a retired executive of the Company.\nIncome Taxes\n. The Company had a benefit for income taxes of $14,149,000 for 2023 compared to a provision for income taxes of $5,704,000 for 2022. The benefit for income taxes for 2023 was primarily due to the income tax benefit related to the Company\u2019s worthless stock deduction offset in part by income taxes for the amount of income before income taxes during the year. The provision for income taxes for 2022 correlated to the amount of income before income taxes during the year. Refer to Note 13 to the consolidated financial statements contained in this annual report on Form 10-K for detail regarding the Company\u2019s worthless stock deduction.\nLIQUIDITY AND CAPITAL RESOURCES\nThe Company had cash and cash equivalents of $19,993,000 and $15,721,000 as of April 30, 2023 and April 30, 2022. AMREP Corporation is a holding company that conducts substantially all of its operations through subsidiaries. As a holding company, AMREP Corporation is dependent on its available cash and on cash from subsidiaries to pay expenses and fund operations. The Company\u2019s liquidity is affected by many factors, including some that are based on normal operations and some that are related to the real estate industry and the economy generally. \nThe Company\u2019s primary sources of funding for working capital requirements are cash flow from operations, bank financing for specific real estate projects, a revolving line of credit and existing cash balances. Land and homebuilding properties generally cannot be sold quickly, and the ability of the Company to sell properties has been and will continue to be affected by market conditions. The ability of the Company to generate cash flow from operations is primarily dependent upon its ability to sell the properties it has selected for disposition at the prices and within the timeframes the Company has established for each property. The development of additional lots \n10\n\n\nfor sale, construction of homes or pursuing other real estate projects may require financing or other sources of funding, which may not be available on acceptable terms (or at all). If the Company is unable to obtain such financing, the Company\u2019s results of operations could be adversely affected. \nThe Company expects the primary demand for funds in the future will be for the development and acquisition of land, construction of home and commercial projects and general and administrative expenses. The development and acquisition of land and construction of home and commercial projects is generally required to satisfy delivery obligations of developed land or finished homes to customers. Further, the Company regularly evaluates property available for purchase from third parties for possible acquisition and development by the Company. To the extent the sources of capital described above are insufficient to meet its needs, the Company may conduct public or private offerings of securities, dispose of certain assets or draw on existing or new debt facilities. The Company believes that it has adequate cash, bank financing and cash flows from operations to provide for its anticipated spending in fiscal year 2024.\nCOVID-19\n. Any epidemic, pandemic or similar serious public health issue, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent the Company from operating its business in the ordinary course for an extended period. As a result, the impact of such public health issues and the related governmental actions could materially impact the Company\u2019s financial position, results of operations and cash flows. For instance, in March 2020, the World Health Organization declared COVID-19 a global pandemic, resulting in extraordinary and wide-ranging actions taken by public health and governmental authorities to contain and combat the outbreak and spread of COVID-19, including quarantines, shelter-in-place orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. These restrictions had an adverse impact on the Company beginning in the spring of 2020. As effective treatment and mitigation measures for COVID-19 advanced, economic activity gradually resumed and demand for new homes improved significantly. The effects of the pandemic on economic activity, combined with the strong demand for new homes, caused many disruptions to the Company\u2019s supply chain and shortages in certain building components and materials, as well as labor shortages. These conditions caused construction cycles to lengthen and while the Company\u2019s business is now fully functioning, some of those conditions continue to impact the Company\u2019s operations and financial performance.\nThere is continuing uncertainty regarding how long COVID-19 and its resultant effect on the economy will continue to impact the Company\u2019s supply chain and operations. The Company\u2019s operational and financial performance could be impacted by a resurgence in the pandemic and any containment or mitigation measures put in place as a result of the resurgence, all of which are highly uncertain, unpredictable and outside the Company\u2019s control. If COVID-19 or any of its variants continues to have a significant negative impact on the economy, or if a new pandemic emerges, the Company\u2019s results of operations and financial condition could be adversely impacted.\nPension Plan\n. The Company has a defined benefit pension plan for which accumulated benefits were frozen and future service credits were curtailed as of March 1, 2004. Under generally accepted accounting principles, the Company\u2019s defined benefit pension plan was overfunded as of April 30, 2023 by $747,000, with $1,030,000 of assets and $283,000 of liabilities, and was overfunded as of April 30, 2022 by $90,000, with $18,054,000 of assets and $17,964,000 of liabilities. The pension plan liabilities were determined using a weighted average discount interest rate of 4.51% per year as of April 30, 2023 and 3.97% per year as of April 30, 2022, which are based on the FTSE Pension Discount Curve as of such dates as it corresponds to the projected liability requirements of the pension plan. The pension plan is subject to minimum IRS contribution requirements, but these requirements can be satisfied by the use of the pension plan\u2019s existing credit balance. No cash contributions to the pension plan were required during 2023 or 2022 and the Company did not make any contributions to the pension plan during 2023 or 2022. The Company recognized a non-cash pre-tax pension settlement general and administrative expense of $7,597,000 during 2023 due to (a) the Company\u2019s defined benefit pension plan paying certain lump sum payouts of pension benefits to former employees and (b) the transfer of nearly all remaining pension benefit liabilities to an insurance company through an annuity purchase.\nCash Flow\n. The following presents information on the cash flows for the Company (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear\u00a0Ended\u00a0April\u00a030,\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\nIncrease\u00a0(decrease)\n\u200b\nNet cash provided by operating activities\n\u200b\n$\n 6,389\n\u200b\n$\n 15,476\n\u00a0\n$\n (9,087)\n\u200b\n (59)\n%\nNet cash used in investing activities\n\u200b\n\u00a0\n (131)\n\u200b\n\u00a0\n (1,195)\n\u00a0\n\u200b\n 1,064\n\u200b\n89\n%\nNet cash used in financing activities\n\u200b\n\u00a0\n (1,986)\n\u200b\n\u00a0\n (23,361)\n\u00a0\n\u200b\n 21,375\n\u200b\n91\n%\nIncrease (decrease) in cash and cash equivalents\n\u200b\n$\n 4,272\n\u200b\n$\n (9,080)\n\u00a0\n\u200b\n 13,352\n\u200b\n(a)\n\u200b\n\u200b\n(a)\nPercentage not meaningful.\n\u200b\n\u25cf\nOperating Activities\n. The net cash provided by operating activities for 2023 was primarily due to cash generated from business operations and a reduction real estate inventory offset in part by an increase in investment assets and other assets and a reduction in accounts payable and accrued expenses, notes payable and income taxes payable. The net cash provided by operating \n11\n\n\nactivities for 2022 was primarily due to cash generated from business operations offset in part by an increase in real estate inventory and investment assets and other assets and a reduction in accounts payable and accrued expenses and income taxes payable.\n\u25cf\nInvesting Activities\n. The net cash used in investing activities for each of 2023 and 2022 was primarily due to an increase in capital expenditures of property and equipment, including the acquisition in 2022 of a 7,000 square foot office building in Rio Rancho from which the Company\u2019s real estate business now operates\n\u25cf\nFinancing Activities\n. The net cash used in financing activities for 2023 was primarily due to principal debt repayments. The net cash used in financing activities for 2022 was primarily due to the Company\u2019s share repurchase activity and principal debt repayments offset in part by the proceeds from debt financing. Notes payable decreased from $2,030,000 as of April 30, 2022 to $44,000 as of April 30, 2023, primarily due to principal debt repayments. Refer to Note 6 to the consolidated financial statements contained in this annual report on Form 10-K for detail regarding each of the Company\u2019s notes payable. Refer to Note 15 to the consolidated financial statements contained in this annual report on Form 10-K for detail regarding the Company\u2019s share repurchase activity. The Company does not expect the Company\u2019s share repurchase activity to be indicative of its future activity in this area.\nAsset and Liability Levels\n.  The following presents information on certain assets and liabilities (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nApril\u00a030,\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\nIncrease (decrease)\n\u00a0\nReal estate inventory\n\u200b\n$\n 65,625\n\u200b\n$\n 67,249\n\u00a0\n$\n (1,624)\n\u200b\n (2)\n%\nInvestment assets, net\n\u200b\n\u00a0\n 13,747\n\u200b\n\u00a0\n 9,017\n\u00a0\n\u200b\n 4,730\n\u200b\n 52\n%\nOther assets\n\u200b\n\u00a0\n 3,249\n\u200b\n\u00a0\n 1,882\n\u00a0\n\u200b\n 1,367\n\u200b\n 73\n%\nDeferred income taxes, net\n\u200b\n\u00a0\n 12,493\n\u200b\n\u00a0\n 958\n\u00a0\n\u200b\n 11,535\n\u200b\n(a)\n\u200b\nPrepaid pension costs\n\u200b\n\u00a0\n 747\n\u200b\n\u00a0\n 90\n\u00a0\n\u200b\n 657\n\u200b\n(a)\n\u200b\nAccounts payable and accrued expenses\n\u200b\n\u00a0\n 4,851\n\u200b\n\u00a0\n 6,077\n\u00a0\n\u200b\n (1,226)\n\u200b\n (20)\n%\nIncome taxes receivable (payable), net\n\u200b\n\u00a0\n 41\n\u200b\n\u00a0\n (3,648)\n\u00a0\n\u200b\n 3,689\n\u200b\n(a)\n\u200b\n\u200b\n(a)\nPercentage not meaningful.\n\u25cf\nReal estate inventory consists of (dollars in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nApril\u00a030,\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\nIncrease (decrease)\n\u00a0\nLand inventory in New Mexico\n\u200b\n$\n 59,361\n\u200b\n$\n 59,374\n\u00a0\n$\n (13)\n\u200b\n(a)\n\u200b\nLand inventory in Colorado\n\u200b\n\u00a0\n 3,445\n\u200b\n\u00a0\n 3,434\n\u00a0\n\u200b\n 11\n\u200b\n(a)\n\u200b\nHomebuilding model inventory\n\u200b\n\u00a0\n 1,171\n\u200b\n\u00a0\n 1,135\n\u00a0\n\u200b\n 36\n\u200b\n 3\n%\nHomebuilding construction in process\n\u200b\n\u00a0\n 1,648\n\u200b\n\u00a0\n 3,306\n\u00a0\n\u200b\n (1,658)\n\u200b\n (50)\n%\nTotal\n\u200b\n$\n 65,625\n\u200b\n$\n 67,249\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(a)\nPercentage not meaningful.\nRefer to Note 2 to the consolidated financial statements contained in this annual report on Form 10-K for detail regarding real estate inventory. From April 30, 2022 to April 30, 2023, the change in land inventory in New Mexico was primarily due to land development activity and the acquisition and sale of land, the change in homebuilding model inventory was primarily due to the sale of homes offset in part by the completion of homes not yet sold and the change in homebuilding construction in process was primarily due to supply chain constraints, shortages of skilled labor and delays in municipal approvals and inspections causing construction cycle time to lengthen.\n\u25cf\nInvestment assets, net consist of (dollars in thousands):\n12\n\n\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nApril\u00a030,\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\nIncrease (decrease)\n\u00a0\nLand held for long-term investment\n\u200b\n$\n 8,961\n\u200b\n$\n 9,017\n\u00a0\n$\n (56)\n\u200b\n (1)\n%\nOwned real estate leased or intended to be leased\n\u200b\n\u00a0\n 4,802\n\u200b\n\u00a0\n \u2014\n\u00a0\n\u200b\n 4,802\n\u200b\n(a)\n\u200b\nLess accumulated depreciation\n\u200b\n\u00a0\n (16)\n\u200b\n\u00a0\n \u2014\n\u00a0\n\u200b\n (16)\n\u200b\n(a)\n\u200b\nOwned real estate leased or intended to be leased, net\n\u200b\n\u00a0\n 4,786\n\u200b\n\u00a0\n \u2014\n\u00a0\n\u200b\n 4,786\n\u200b\n(a)\n\u200b\nTotal\n\u200b\n$\n 13,747\n\u200b\n$\n 9,017\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(a)\nPercentage not meaningful.\nLand held for long-term investment represents property located in areas that are not planned to be developed in the near term and that has not been offered for sale in the normal course of business. \nOwned real estate leased or intended to be leased represents homes and buildings leased or intended to be leased to third parties. As of April 30, 2023, eight homes are leased to residential tenants and two buildings under construction have been leased to commercial tenants. Given the impact on demand as a result of affordability challenges described in Note 16 to the consolidated financial statements contained in this annual report on Form 10-K, the Company has opportunistically leased completed homes. Depreciation associated with owned real estate leased or intended to be leased was $16,000 for 2023; there was no such depreciation in 2022.\n\u25cf\nFrom April 30, 2022 to April 30, 2023:\no\nThe change in other assets was primarily due to an increase in prepaid expenses related to a land development cash collateralized performance guaranty and stock compensation. \no\nThe change in deferred income taxes, net was primarily due to the income tax effect of the Company\u2019s worthless stock deduction offset in part by the income tax effect of the amount of income before income taxes during the year. Refer to Note 13 to the consolidated financial statements contained in this annual report on Form 10-K for detail regarding the Company\u2019s worthless stock deduction and refer to Note 11 to the consolidated financial statements contained in this annual report on Form 10-K for detail regarding the pension settlement general and administrative expense.\no\nThe change in accounts payable and accrued expenses was primarily due to the payment of invoices offset in part by an increase in customer deposits.\no\nThe change in taxes (receivable) payable, net was primarily due to the payment of taxes offset by the elimination of the current year tax provision.\no\nThe change in prepaid pension costs was primarily due to the funding levels of the Company\u2019s frozen defined benefit pension plan. The Company recorded, net of tax, other comprehensive income of $5,743,000 for 2023 and $50,000 for 2022 reflecting the change in accrued pension costs during each period net of the related deferred tax and unrecognized prepaid pension amounts.\nOff-Balance Sheet Arrangements\n. As of April 30, 2023 and April 30, 2022, the Company did not have any off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K).\nRecent Accounting Pronouncements\n. Refer to Note 1 to the consolidated financial statements contained in this annual report on Form 10-K for a discussion of recently issued accounting pronouncements. \nIMPACT OF INFLATION\nThe Company\u2019s operations can be impacted by inflation. Inflation can cause increases in the cost of land, materials, services, interest rates and labor. Unless such increased costs are recovered through increased sales prices or improved operating efficiencies, operating margins will decrease. The Company\u2019s homebuilding segment as well as homebuilders that are customers of the Company\u2019s land development business segment face inflationary concerns that rising housing costs, including interest costs, may substantially outpace increases in the incomes of potential purchasers and make it difficult for them to purchase a new home or sell an owned home. If this situation were to exist, the demand for homes produced by the Company\u2019s homebuilding segment could decrease and the demand for the Company\u2019s land by homebuilder customers could decrease. Although the rate of inflation has been historically low in recent years, \n13\n\n\nit increased significantly in 2023 and 2022 and the Company has and is experiencing significant increases in the prices of labor and certain materials as a result of this increase and increased demand for new homes. Inflation may also increase the Company\u2019s financing costs. While the Company attempts to pass on to its customers increases in costs through increased sales prices, market forces may limit the Company\u2019s ability to do so. If the Company is unable to raise sales prices enough to compensate for higher costs, or if mortgage interest rates increase significantly, the Company\u2019s revenues, gross margins and net income could be adversely affected.\nFORWARD-LOOKING STATEMENTS\nThe Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements that are \u201cforward-looking\u201d, including statements contained in this annual report on Form 10-K and other filings with the Securities and Exchange Commission, reports to the Company\u2019s shareholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of the Company. Words such as \u201cexpects\u201d, \u201canticipates\u201d, \u201cintends\u201d, \u201cplans\u201d, \u201cbelieves\u201d, \u201cseeks\u201d, \u201cestimates\u201d, \u201cprojects\u201d, \u201cforecasts\u201d, \u201cmay\u201d, \u201cshould\u201d, variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and contingencies that are difficult to predict. All forward-looking statements speak only as of the date of this annual report on Form 10-K or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on behalf of the Company are qualified by the cautionary statements in this section. Many of the factors that will determine the Company\u2019s future results are beyond the ability of management to control or predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. \n\u200b\nThe forward-looking statements contained in this annual report on Form 10-K include, but are not limited to, statements regarding (1) the Company\u2019s ability to finance its future working capital, land development, acquisition of land, homebuilding, commercial projects, general and administrative expenses and capital expenditure needs, (2) the Company\u2019s expected liquidity sources, including the availability of bank financing for projects and the utilization of existing bank financing, (3) anticipated development of the Company\u2019s real estate holdings, (4) the development and construction of possible future commercial properties to be marketed to tenants, (5) the designs, pricing and levels of options and amenities with respect to the Company\u2019s homebuilding operations, (6) the amount and timing of reimbursements under, and the general effectiveness of, the Company\u2019s public improvement districts and private infrastructure reimbursement covenants, (7) the number of planned residential lots in the Company\u2019s subdivisions, (8) estimates of the Company\u2019s exposure to warranty claims, estimates of the cost to complete of common land development costs and the estimated relative sales value of individual parcels of land in connection with the allocation of common land development costs, (9) the sale of a significant amount of undeveloped land in 2022 and the sale of the warehouse and office facilities located in Palm Coast, Florida not being indicative of future operating results and the Company\u2019s share repurchase activity not being indicative of future financing activities, (10) estimates and assumptions used in determining future cash flows of real estate projects, (11) the conditions resulting in homebuyer affordability challenges persisting through calendar year 2023, (12) the backlog of homes under contract and in production, the dollar amount of expected sale revenues when such homes are closed and homes and buildings leased or intended to be leased to third parties, (13) the effect of recent accounting pronouncements, (14) contributions by the Company to the pension plan, the amount of future annual benefit payments to pension plan participants payable from plan assets, the appropriateness of valuation methods to determine the fair value of financial instruments in the pension plan and the expected return on assets in the pension plan, (15) the timing of recognizing unrecognized compensation expense related to shares of common stock issued under the AMREP Corporation 2016 Equity Compensation Plan, (16) the Company\u2019s belief that its compensation package and benefits offered to employees are competitive with others in the industry, (17) the future issuance of deferred stock units to directors of the Company, (18) the future business conditions that may be experienced by the Company, including the pace of the Company\u2019s housing starts and land development projects, (19) the dilution to earnings per share that outstanding options to purchase shares of common stock of the Company may cause in the future, (20) the adequacy of the Company\u2019s facilities, (21) the materiality of claims and legal actions arising in the normal course of the Company\u2019s business, (22) projections of future earnings for the future recoverability of deferred tax assets and state net operating losses that are not expected to be realizable, (23) the duration, effect and severity of any pandemic and (24) the measures that governmental authorities may take to address a pandemic which may precipitate or exacerbate one or more of the above-mentioned or other risks and significantly disrupt or prevent the Company from operating in the ordinary course for an extended period of time. The Company undertakes no obligation to update or publicly release any revisions to any forward-looking statement to reflect events, circumstances or changes in expectations after the date of such forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.\n\u200b",
+  "item7a": ">Item 7A.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nQuantitative and Qualitative Disclosures About Market Risk\nNot required.\n\u200b\n14\n\n",
+  "cik": "6207",
+  "cusip6": "032159",
+  "cusip": ["032159105"],
+  "names": ["AMREP CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/6207/000141057823001494/0001410578-23-001494-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\n\n\n\n\nBusiness\n.\n\n\n\n\n\u00a0\n\n\nAs used herein, unless we otherwise specify, the terms \n\u201c\nwe,\n\u201d\n \n\u201c\nus,\n\u201d\n \n\u201c\nour,\n\u201d\n \n\u201c\nNathan\n\u2019\ns,\n\u201d\n \n\u201c\nNathan\n\u2019\ns Famous\n\u201d\n and the \n\u201c\nCompany\n\u201d\n mean Nathan\n\u2019\ns Famous, Inc. and its subsidiaries. References to the fiscal 2023 period mean the fiscal year ended March 26, 2023 and references to the fiscal 2022 period mean the fiscal year ended March 27, 2022. In addition, references to the \n\u201c\nNotes\n\u201d\n, \n\u201c\n2025 Notes\n\u201d\n or the \n\u201c\n2025 Senior Secured Notes\n\u201d\n refer to the $80,000,000 6.625% Senior Secured Notes due 2025 and references to the \n\u201c\n2020 Notes\n\u201d\n or the \n\u201c\n2020 Senior Secured Notes\n\u201d\n refer to the $135,000,000 10.000% Senior Secured Notes which were redeemed on November 16, 2017.\n\n\n\u00a0\n\n\nWe are a leading branded licensor, wholesaler and retailer of products marketed under our Nathan\u2019s Famous brand, including our popular Nathan\u2019s World Famous Beef Hot Dogs. What began as a nickel hot dog stand on Coney Island in 1916 has evolved into a highly recognized brand throughout the United States and the world. Our innovative business model seeks to maximize the points of distribution for and the consumption of Nathan\u2019s World Famous Beef Hot Dogs, crinkle-cut French fries and our other products across a wide-range of grocery retail and foodservice formats. Our products are currently marketed for sale in approximately 79,000 locations, including supermarkets, mass merchandisers and club stores, selected foodservice locations and our Company-owned and franchised restaurants throughout the United States and in eighteen foreign countries. The Company considers itself to be in the foodservice industry and has pursued co-branding initiatives within other foodservice environments. Our major channels of distribution are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nOur licensing program contracts with certain third parties to manufacture, distribute, market and sell a broad variety of Nathan\u2019s Famous branded products including our hot dogs, sausages, frozen crinkle-cut French fries and additional products through retail grocery channels and club stores throughout the United States. As of March 26, 2023, packaged Nathan\u2019s World Famous Beef Hot Dogs continued to be sold in supermarkets, mass merchandisers and club stores including Walmart, Kroger, Ahold, Publix, Albertsons, Safeway, ShopRite, Target, Sam\u2019s Club, Costco and BJ\u2019s Wholesale Club located in all 50 states. We earn revenue through royalties on products sold by our licensees.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nOur Branded Product Program provides foodservice operators in a variety of venues the opportunity to capitalize on our Nathan\u2019s Famous brand by marketing and selling certain Nathan\u2019s Famous hot dog products. We believe that the program has broad appeal to foodservice operators due to its flexibility to deliver our products to a wide variety of distribution channels. In conjunction with the program, operators are granted a limited use of the Nathan\u2019s Famous trademark, as well as Nathan\u2019s Famous point of purchase materials. Unlike our licensing and franchise programs, we do not generate revenue from royalties, but rather by selling our hot dog products either directly to foodservice operators or to various foodservice distributors who resell the products to foodservice operators.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n3\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nOperating quick-service restaurants featuring Nathan\u2019s World Famous Beef Hot Dogs, crinkle-cut French fries, and a variety of other menu offerings, which operate under the name \u201cNathan\u2019s Famous,\u201d\u00a0the name first used at our original Coney Island restaurant which opened in 1916.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nOur franchised restaurant operations are comprised predominately of our Nathan\u2019s Famous concept, which features a menu consisting of Nathan\u2019s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages as well as other items. In fiscal 2021, we opened our first virtual kitchens (existing kitchens with no Nathan\u2019s Famous branded storefront presence, used to fill online orders). We earn royalties on sales at these franchise locations and virtual kitchens. In addition to our traditional franchised restaurants and virtual kitchens, we enable approved foodservice operators to offer a Nathan\u2019s Famous menu of Nathan\u2019s World Famous Beef Hot Dogs, crinkle-cut French fries, proprietary toppings and a limited menu of other Nathan\u2019s products through our Branded Menu Program (\u201cBMP\u201d). We earn royalties on Nathan\u2019s products purchased by our BMP franchise operators.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe also own the Arthur Treacher\u2019s brand and trademarks. We use the Arthur Treacher\u2019s brand, products and trademarks as a branded seafood menu-line extension for inclusion in certain Nathan\u2019s Famous restaurants, as well as virtual kitchens.\n\n\n\u00a0\n\n\nOur Competitive Strengths\n\n\n\u00a0\n\n\nWe believe that we benefit from the following competitive strengths:\n\n\n\u00a0\n\n\nIconic Brand with Global Recognition \n\n\n\u00a0\n\n\nFor over 100 years, we have cultivated Nathan\u2019s Famous into an iconic brand with global recognition. From our authentic origins on Coney Island to our popular Nathan\u2019s Famous Hot Dog Eating Contest, the Nathan\u2019s Famous brand has become synonymous with premium hot dogs enjoyed throughout the year including cookouts, and July 4\nth\n celebrations. Over time, we have continued expanding the number and types of points of distribution for Nathan\u2019s Famous products by leveraging our highly recognizable brand.\n\n\n\u00a0\n\n\nThe Frank of Choice \n\n\n\u00a0\n\n\nSince our beginnings as a nickel hot dog stand in 1916, we have focused on creating the best premium hot dog. Using premium cuts of meat, our proprietary spice mix and based on a recipe originally developed in 1916, our hot dogs have a unique flavor and texture that consumers are drawn to.\n\n\n\u00a0\n\n\nOur hot dogs have received numerous awards and recognition from critics and reviewers.\n\n\n\u00a0\n\n\nRecognition as an award-winning hot dog has strengthened our brand and created a devoted fan base. We believe that our high brand awareness allows us to sell hot dogs at a premium price to competing brands across all channels of distribution.\n\n\n\u00a0\n\n\nMulti-Channel Business Model Provides Diversified Revenue Streams \n\n\n\u00a0\n\n\nWe believe that our flexible business model enables us to diversify across multiple channels of distribution and customers. Our products are distributed through supermarkets, mass merchandisers, club stores, Company-owned restaurants, franchised restaurants, virtual kitchens, food service distributors and other food service operators such as gas stations, movie theaters and sporting venues. We believe that there is potential to increase our sales by converting sales of non-branded products throughout the foodservice industry.\n\n\n\u00a0\n\n\nHigh Margin Licensing Revenue Streams\n\n\n\u00a0\n\n\nWe earn stable and high-margin revenue through multiple licensing programs. Through licensing programs with such companies as Smithfield Foods, Inc., and Lamb Weston, Inc., over twenty Nathan\u2019s Famous branded SKUs are sold through grocery retail channels. All of our licensing agreements combined produced $33,455,000 and $31,824,000 of high margin revenue for fiscal 2023 and 2022, respectively.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n4\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nGrowth Strategies \n\n\n\u00a0\n\n\nWe continue to pursue the following strategies:\n\n\n\u00a0\n\n\nLeverage Nathan\n\u2019\ns Famous brand and iconic products to grow sales\n \u2013 We believe that our brand is widely recognized by virtue of our long history and broad geographic footprint, which allows us to enjoy high consumer awareness in the United States and abroad and allows us the opportunity to grow in markets and channels where the brand is known but has not yet achieved optimal market penetration. We believe that our highly visible brand and reputation for high quality products have allowed us to expand our food offerings beyond our signature hot dogs and command a premium price across our portfolio of products.\n\n\n\u00a0\n\n\nRetail licensing\n \u2013 We expect that our retail licensing program may continue to grow, centered around our licensing program with Smithfield Foods, Inc. Smithfield Foods, Inc. brings superior sales and marketing resources to our brand through its national scale, broad distribution platform, strong retail relationships and research and development infrastructure capable of developing and introducing new products. As a result of our partnership with Smithfield Foods, Inc., we expect Nathan\u2019s Famous products to continue penetrating the grocery, mass merchandising and club channels by expanding points of distribution in targeted, underpenetrated regions and through the development of new products. We believe Smithfield Foods, Inc. expects to continue to leverage this relationship with continued full-scale marketing efforts, both inside and outside of stores, highlighted by exciting customer events and brand representation and support of our Nathan\u2019s Famous Hot Dog Eating Contests.\n\n\n\u00a0\n\n\nWe may offer the licensing of other signature products to other qualified manufacturers.\n\n\n\u00a0\n\n\nBranded Products\n \u2013 We expect to continue the growth of our Branded Products Program through the addition of new accounts and venues. We believe that the flexible design of the Branded Products Program makes it well-suited for sales to all segments of the broad foodservice industry. We intend to keep targeting sales to a broad line of food distributors, which we believe complements our continuing focus on sales to various foodservice retailers. We continue to believe that as consumers look to brands and products with high standards, and integrity with the quality of the food that they purchase, there is great potential to increase our sales by converting existing sales of non-branded products to Nathan\u2019s branded products throughout the foodservice industry.\n\n\n\u00a0\n\n\nFranchising\n \u2013 We expect to continue to market our franchise program and Branded Menu Program to large, experienced and successful operators with the financial and business capability to develop multiple franchise locations, as well as to individual-owner operators with evidence of restaurant management experience, net worth and sufficient capital. We also expect to continue developing master franchise programs in foreign countries.\n\n\n\u00a0\n\n\nCompany-owned restaurants\n \u2013 We may selectively consider opening new Company-owned restaurants on an opportunistic basis. We may also consider new opportunities in both traditional and captive market settings.\n\n\n\u00a0\n\n\nImprove Company-owned restaurant profitability\n \u2013 We continue to focus on managing our expenses in the operation of our Company-owned restaurants, with a particular emphasis on cost of goods sold, including food costs, paper costs and labor costs while not sacrificing on overall quality and service that our customers expect. Macroeconomic factors including, but not limited to, inflation have resulted in upward pressures in certain of these operating costs. We continue to explore opportunities and strategies to help mitigate the impact on our operations.\n\n\n\u00a0\n\n\nDelivery Only Locations\n \u2013 We expect to continue our presence via delivery and virtual kitchens on an opportunistic basis.\n\n\n\u00a0\n\n\nThese virtual kitchens have different rights and obligations than our traditional franchise agreements, including royalty rates and advertising contribution rates, and the sales levels at these locations differs from the sales levels at our traditional franchise restaurants.\n\n\n\u00a0\n\n\n\n\n5\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAdvertising and promotion\n \u2013 The Company continues to focus its efforts using a multiple pronged approach, with a particular emphasis on geo-targeted, social media advertising to drive customers directly to online restaurant menus for ease of ordering for delivery or pick-up. The online effort is focused on platforms including Facebook, Instagram and Twitter. Our marketing strategy focuses on our premium food offerings and limited time offerings to help drive sales and customer traffic.\n\n\n\u00a0\n\n\nRecent Developments\n\n\n\u00a0\n\n\nThe impact of the global pandemic, COVID-19, in fiscal 2023 was more modest than in fiscal 2022. COVID-19 has contributed to labor challenges within our restaurant operations, including our Company-owned restaurants, our franchised locations, and our Branded Menu Program locations. These labor challenges have contributed to increased wages and salaries.\n\n\n\u00a0\n\n\nWe continue to monitor the dynamic nature of the COVID-19 pandemic on our business; however, due to the continuous development and fluidity of this pandemic and potential resurgences of new variants of the virus we cannot determine the ultimate impact that the COVID-19 pandemic will have on our business, results of operations and financial condition.\n\n\n\u00a0\n\n\nAdditionally, during the latter part of fiscal 2022 and extending throughout fiscal 2023, high rates of inflation have been experienced throughout the United States which have resulted in increases in commodity costs, including beef and beef trimmings, paper costs, labor costs and utility costs. These inflationary pressures have directly impacted our restaurant operations as well as our Branded Product Program.\n\n\n\u00a0\n\n\nFurther inflationary pressures may have an adverse impact on our business and results of operations if we and our franchisees are unable to adjust prices to offset the impact of these cost increases.\n\n\n\u00a0\n\n\nThe impact of the COVID-19 pandemic and inflationary pressures on our results of operations and liquidity is discussed in Item\u00a07 - \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" of this Form 10-K.\n\n\n\u00a0\n\n\nCorporate History\n\n\n\u00a0\n\n\nWe were incorporated in Delaware on July 10, 1992 under the name \u201cNathan\u2019s Famous Holding Corporation\u201d to act as the parent of a Delaware corporation then-known as Nathan\u2019s Famous, Inc. On December 15, 1992, we changed our name to Nathan\u2019s Famous, Inc., and our Delaware subsidiary changed its name to Nathan\u2019s Famous Operating Corp. The Delaware subsidiary was organized in October 1989 in connection with its re-incorporation in Delaware from that of a New York corporation named \u201cNathan\u2019s Famous, Inc.\u201d The New York Nathan\u2019s was incorporated on July 10, 1925, as a successor to the sole-proprietorship that opened the first Nathan\u2019s restaurant in Coney Island in 1916. On July 23, 1987, Equicor Group, Ltd. merged with and into the New York Nathan\u2019s in a \u201cgoing private\u201d transaction. The New York Nathan\u2019s, the Delaware subsidiary and Equicor may all be deemed to be our predecessors.\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\nOur fiscal year ends on the last Sunday in March, which will result in a 52 or 53 week year. The fiscal years ended March 26, 2023 and March 27, 2022 were each on the basis of a 52 week reporting period.\n\n\n\u00a0\n\n\nRestaurant Operations\n\n\n\u00a0\n\n\nCompany-owned restaurants\n\n\n\u00a0\n\n\nAs of March 26, 2023, we operated four Company-owned restaurants (including one seasonal unit), within the New York metropolitan area. Our seasonal location on the Coney Island Boardwalk was open from April 1, 2022 to October 30, 2022. It reopened for the summer season on March 26, 2023.\n\n\n\u00a0\n\n\n\n\n6\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThree\n \nof our Company-owned restaurants range in size from approximately 3,500 square feet to 10,000\n \nsquare feet and have seating to accommodate between 60 and 125 customers. These restaurants are open seven days a week on a year-round basis and are designed to appeal to consumers of all ages. We have established high standards for food quality, cleanliness, and service at our restaurants and regularly monitor the operations of our restaurants to ensure adherence to these standards.\n\n\n\u00a0\n\n\nTwo of our Company-owned restaurants have contemporary service areas, seating, signage, and general decor. Our Coney Island restaurant, which first opened in 1916, remains unique in its presentation and operations.\n\n\n\u00a0\n\n\nOur Company-owned restaurants typically carry a broader selection of menu items than our franchise restaurants and generally attain sales levels higher than the average of our newer franchise restaurants. The non-core menu items at the Company-owned restaurants, tend to have lower margins than the core menu.\n \n\n\n\u00a0\n\n\nOur Company-owned restaurants contributed $12,161,000 in revenue in fiscal 2023, representing a 12% increase over fiscal 2022. Customer traffic at our Company-owned restaurants, in particular at Coney Island, during the fiscal 2023 period increased by approximately 12% over the fiscal 2022 period.\n\n\n\u00a0\n\n\nOur Coney Island flagship location has been open for over 100 years and is the home of the annual Nathan\u2019s Hot Dog Eating Contest, which has been broadcast on ESPN each 4\nth\n of July since 2004 and achieved more than one million viewers in fiscal 2023.\n\n\n\u00a0\n\n\nCOVID-19 related pressures on our Company-owned restaurants continued during the fiscal 2023 period, although to a lesser extent than during the fiscal 2022 period. As a result of the COVID-19 pandemic, we continue to focus on digital and social media initiatives, as well as direct mail, to enhance the customer experience; to increase customer traffic; and to promote off-premise capabilities. We believe that these initiatives play an important role in creating a more seamless and more efficient customer experience and meeting consumer expectations for speed and convenience.\n\n\n\u00a0\n\n\nWe remain principally focused on the well-being and safety of our guests and restaurant employees. Since there continues to be uncertainty around the COVID-19 pandemic, as variants continue to emerge, we may implement additional safety measures in line with health authority recommendations and regulatory requirements.\n\n\n\u00a0\n\n\nFranchise Operations\n\n\n\u00a0\n\n\nAt March 26, 2023, our franchise system, including our Branded Menu Program, consisted of 232 locations operating in 17\n \nstates and 13 foreign countries. It also included 267 virtual kitchens (existing kitchens with no Nathan\u2019s Famous branded storefront presence, used to fill online orders) located in 19 states and 4 foreign countries.\n\n\n\u00a0\n\n\nOur franchise operations contributed $4,292,000 in revenue in fiscal 2023, representing an 11% increase over fiscal 2022. As travel continued to increase during the COVID-19 recovery, we experienced increased customer traffic across our franchise system including airport locations; highway travel plazas; shopping malls; movie theaters; and casino locations, primarily in Las Vegas, Nevada.\n\n\n\u00a0\n\n\nOur franchise system includes among its franchisees such well-known companies as Applegreen USA Welcome Centres, LLC, HMS Host, Areas USA, National Amusements, Inc., Hershey Entertainment & Resorts Company, Bruster\u2019s Real Ice Cream, and Frisch\u2019s Big Boy. We continue to seek out and to market our franchising programs to larger, experienced and successful operators with the financial and business capability to develop multiple franchise locations, as well as to individual owner-operators with evidence of restaurant management experience, net worth and sufficient capital.\n\n\n\u00a0\n\n\nDuring the fiscal 2023 period, we entered into an agreement with Frisch\u2019s Big Boy restaurants to carry our signature all-beef natural casing hot dogs. This agreement expands our presence in the Midwest, including Ohio, Kentucky and Indiana.\n\n\n\u00a0\n\n\n\n\n7\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nDuring the fiscal 2023 period, no single franchisee accounted for over 10% of our consolidated revenue. At March 26, 2023, Applegreen USA Welcome Centres, LLC operated seven franchised locations within highway travel plazas and HMS Host operated four franchised locations, including three units at airports, and one unit within a mall. Additionally, twenty-five mobile carts were registered to operate in New York, NY. Fifteen Bruster\u2019s Real Ice Cream shops were selling Nathan\u2019s products under our Branded Menu Program.\n\n\n\u00a0\n\n\nDuring the fiscal 2023 period, 11 franchised locations opened, including 3 Branded Menu Program locations. Additionally, 18 franchised locations closed, including 5 Branded Menu Program locations.\n\n\n\u00a0\n\n\nNathan\n\u2019\ns Famous Concept and Menus \n\n\n\u00a0\n\n\nOur Nathan\u2019s Famous concept is scalable, offering a wide range of facility designs and sizes, suitable to a vast variety of locations, featuring a core menu consisting of Nathan\u2019s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages. Nathan\u2019s menu is designed to take advantage of site-specific market opportunities by adding complementary food items to the core menu. The Nathan\u2019s concept is suitable to stand-alone or can be co-branded with other nationally recognized brands.\n\n\n\u00a0\n\n\nNathan\u2019s World Famous Beef Hot Dogs are flavored with our secret blend of spices created by Ida Handwerker in 1916, which historically have distinguished Nathan\u2019s World Famous Beef Hot Dogs. Our hot dogs are prepared and served in accordance with procedures which have not varied significantly since our inception over 100 years ago in our Company-owned and franchised restaurants. Our signature crinkle-cut French fries are featured at each Nathan\u2019s restaurant. We believe the majority of sales in our Company-owned restaurants consist of Nathan\u2019s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages.\n\n\n\u00a0\n\n\nIndividual Nathan\u2019s restaurants supplement their core menu of Nathan\u2019s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages with a variety of other quality menu choices including: the Nathan\u2019s Famous NY Cheesesteak by Pat LaFreida, our fresh angus hamburgers and our hand-dipped chicken. We have historically used the Arthur Treacher\u2019s brand, products and trademarks as a branded seafood menu-line extension for inclusion in certain Nathan\u2019s Famous restaurants, as well as virtual kitchens.\n\n\n\u00a0\n\n\nWe also partner with major third-party delivery service providers, such as DoorDash, UberEats, GrubHub, and Postmates, providing multiple options for our guests to enjoy Nathan\u2019s Famous products at home.\n\n\n\u00a0\n\n\nNathan\u2019s restaurant designs are available in a range of sizes from 300 to 4,000 square feet. We have also developed various Nathan\u2019s carts, kiosks, mobile food carts, trucks and modular units. Our smaller units may not have customer seating areas, although they may often share seating areas with other fast food or quick service outlets in food court settings. Other units generally provide seating for 45 to 125 customers. Carts, kiosks and modular units generally carry only the core menu. Our food trucks may carry the full Nathan\u2019s Famous menu.\n\n\n\u00a0\n\n\nWe believe that Nathan\u2019s carts, kiosks, modular units and food court designs are particularly well-suited for placement in non-traditional sites, such as airports, travel plazas, stadiums, schools, convenience stores, entertainment facilities, military facilities, business and industry foodservice, within larger retail operations and other captive markets. Many of these settings may also be appropriate for expanding our Branded Menu Program or Branded Product Program. All of these units feature the Nathan\u2019s Famous logo and utilize a contemporary design.\n\n\n\u00a0\n\n\nNathan\n\u2019\ns Standard Franchise Program\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nFranchisees are required to execute a standard franchise agreement prior to opening each Nathan\u2019s Famous location. Our current standard Nathan\u2019s Famous franchise agreement provides for, among other things, a one-time $30,000 franchise fee payable upon execution of the agreement, a monthly royalty payment based on 5.5% of restaurant sales and the expenditure of up to 2.0% of restaurant sales on advertising. The initial term of the typical franchise agreement is 10 years, with a 5-year renewal option by the franchisee, subject to conditions contained in the franchise agreement. We may offer alternatives to the standard franchise agreement, having to do with the term, franchise royalties, fees or advertising requirements.\n\n\n\u00a0\n\n\nFranchisees are approved on the basis of their business background, evidence of restaurant management experience, net worth and capital available for investment in relation to the proposed scope of the development agreement.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n8\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe provide numerous support services to our Nathan\u2019s Famous franchisees. We assist in and approve all site selections. Thereafter, we provide architectural plans suitable for restaurants of varying sizes and configurations for use in food court, in-line and free-standing locations. We also assist in establishing building design specifications, reviewing construction compliance, equipping the restaurant and providing appropriate menus to coordinate with the restaurant design and location selected by the franchisee.\n\n\n\u00a0\n\n\nWe offer various management training courses for management personnel of Company-owned and franchised restaurants. A restaurant manager from each restaurant must successfully complete our mandated management training program. We also offer additional operations and general management training courses for all restaurant managers and other managers with supervisory responsibilities. We provide standard manuals to each franchisee covering training and operations, products and equipment and local marketing programs. We also provide ongoing advice and assistance to franchisees. We meet with our franchisees to discuss upcoming marketing events, menu development and other topics, each of which is designed to provide individual restaurant and system-wide benefits.\n\n\n\u00a0\n\n\nFranchised restaurants are required to be operated in accordance with uniform operating standards and specifications relating to the selection, quality and preparation of menu items, signage, decor, equipment, uniforms, suppliers, maintenance and cleanliness of premises and customer service. All standards and specifications are developed by us to be applied on a system-wide basis. We regularly monitor franchisee operations and inspect restaurants. Franchisees are required to furnish us with monthly sales or operating reports which assist us in monitoring the franchisee\u2019s compliance with its franchise agreement. We make both announced and unannounced inspections of restaurants to ensure that our practices and procedures are followed. We have the right to terminate a franchise if a franchisee does not operate and maintain a restaurant in accordance with the requirements of its franchise agreement, including for non-payment of royalties, sale of unauthorized products, bankruptcy or conviction of a felony.\n\n\n\u00a0\n\n\nA franchisee who desires to open multiple locations in a specific territory within the United States may enter into an area development agreement under which we would expect to receive an area development fee based upon the number of proposed locations which the franchisee is authorized to open. With respect to our international development, we generally grant exclusive territorial rights in foreign countries for the development of Nathan\u2019s locations based upon compliance with a predetermined development schedule. Additionally, we may further grant exclusive manufacturing and distribution rights in foreign countries, and we may require an exclusivity fee to be conveyed for such exclusive rights.\n\n\n\u00a0\n\n\nNathan\n\u2019\ns Branded Menu Program\n\n\n\u00a0\n\n\nOur Nathan\u2019s Famous Branded Menu Program enables qualified foodservice operators to offer a Nathan\u2019s Famous menu of Nathan\u2019s World Famous Beef Hot Dogs, crinkle-cut French fries, proprietary toppings, and a limited menu of other Nathan\u2019s products. Under the Branded Menu Program, the operator may use the Nathan\u2019s Famous trademarks on signage and as part of its menu boards. Additionally, the operator may use Nathan\u2019s Famous paper goods and point of sale marketing materials. Nathan\u2019s also provides architectural and design services, training and operation manuals in conjunction with this program. The operator provides Nathan\u2019s with a fee and is required to sign a 10-year agreement. We may offer alternatives to the term of the typical Branded Menu Program agreement. Nathan\u2019s does not collect a royalty based on the operator\u2019s sales and the operator is not required to report sales to Nathan\u2019s as required by the standard franchise arrangements. Instead, the Branded Menu Program operator is required to purchase products from Nathan\u2019s approved distributors and we earn our royalties from such purchases.\n\n\n\u00a0\n\n\nArthur Treacher\n\u2019\ns\n\n\n\u00a0\n\n\nArthur Treacher\u2019s Fish-n-Chips, Inc. was originally founded in 1969. Arthur Treacher\u2019s main product is its \u201cOriginal Fish-n-Chips,\u201d consisting of fish fillets coated with a special batter prepared under a proprietary formula, deep-fried golden brown, and served with English-style chips and corn meal \u201chush puppies.\u201d\n\n\n\u00a0\n\n\nAs of March 26, 2023, Arthur Treacher\u2019s, as a co-brand, was included within twenty-two Nathan\u2019s Famous restaurants. Additionally, there are seven\n \nArthur Treacher\u2019s BMP locations and 56 Arthur Treacher\u2019s virtual kitchens.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n9\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nInternational Development\n\n\n\u00a0\n\n\nAs of March 26, 2023, Nathan\u2019s Famous franchisees operated 74 locations in thirteen foreign countries.\n \n\n\n\u00a0\n\n\nThrough separate licensed manufacturing agreements, Nathan\u2019s World Famous Beef Hot Dogs are currently manufactured in Brazil, Germany and the United Arab Emirates.\n\n\n\u00a0\n\n\nWe continue to pursue international expansion opportunities. During fiscal 2023, we opened franchised locations in the following international markets: Egypt and Mexico.\n\n\n\u00a0\n\n\nWe may seek to continue granting exclusive territorial rights for franchising and for the manufacturing and distribution rights in foreign countries, and we expect to require that an exclusivity fee be conveyed for these rights. We plan to develop the restaurant franchising system internationally through the use of master franchising agreements based upon individual or combined use of our existing restaurant concepts and for the distribution of Nathan\u2019s products.\n\n\n\u00a0\n\n\nThe following table is a summary of our international operations for the fiscal years ended March 26, 2023 and March 27, 2022: See Item 1A-\u201cRisk Factors.\u201d\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nMarch 26,\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nMarch 27,\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2023\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nTotal revenue\n\n\n\n\n\u00a0\n\n\n$\n\n\n5,898,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,223,000\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGross profit (a)\n\n\n\n\n\u00a0\n\n\n$\n\n\n1,387,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,023,000\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n(a) Gross profit represents the difference between revenue and cost of sales.\n\n\n\u00a0\n\n\nLocation Summary\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nThe following table shows the number of our Company-owned restaurants and franchised locations in operation at March 26, 2023 and their geographical distribution:\n\n\n\u00a0\n\n\n\n\n\n\n\n\nDomestic Locations\n\n\n\n\n\u00a0\n\n\n\n\nCompany\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFranchise (1)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nTotal (1)\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nConnecticut\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\n\n\nFlorida\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGeorgia\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n\u00a0\n\n\n\n\n\n\n\n\nKentucky\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\n\n\nMaryland\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\n\n\nMassachusetts\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\n\n\n\n\n\nMissouri\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNevada\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNew Jersey\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n23\n\n\n\u00a0\n\n\n\u00a0\n\n\n23\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNew York\n\n\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n69\n\n\n\u00a0\n\n\n\u00a0\n\n\n73\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNorth Carolina\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\n\n\n\n\n\nOhio\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\n\n\nPennsylvania\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\n\n\n\n\n\nRhode Island\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\n\n\nSouth Carolina\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\n\n\nTexas\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\n\n\nVirginia\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n\u00a0\n\n\n\n\n\n\n\n\nDomestic Subtotal\n\n\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n158\n\n\n\u00a0\n\n\n\u00a0\n\n\n162\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n10\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nInternational Locations\n\n\n\n\n\u00a0\n\n\n\n\nCompany\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFranchise (1)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nTotal (1)\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nBrazil\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\n\n\nDominican Republic\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n\u00a0\n\n\n\n\n\n\n\n\nEgypt\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\n\n\nFrance\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n\u00a0\n\n\n\n\n\n\n\n\nKazakhstan\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\n\n\nKingdom of Saudi Arabia\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n\u00a0\n\n\n\n\n\n\n\n\nMexico\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\n\n\nPanama\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\n\n\n\n\n\nPhilippines\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\n\n\n\n\n\nSpain\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n\u00a0\n\n\n\n\n\n\n\n\nUkraine (2)\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n\u00a0\n\n\n\n\n\n\n\n\nUnited Arab Emirates\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\n\n\nUnited Kingdom\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\n\n\n\n\n\nInternational Subtotal\n\n\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n74\n\n\n\u00a0\n\n\n\u00a0\n\n\n74\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGrand Total\n\n\n\n\n\u00a0\n\n\n4\n\n\n\u00a0\n\n\n\u00a0\n\n\n232\n\n\n\u00a0\n\n\n\u00a0\n\n\n236\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n(1)\n\n\n\n\n\n\nAmounts include 120 locations operated pursuant to our Nathan\u2019s and Arthur Treacher\u2019s Branded Menu Programs. Units operating pursuant to our Branded Product Program and our virtual kitchens are excluded.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n(2)\n\n\n\n\n\n\nTwo locations in Ukraine are temporarily closed as a result of the Russia-Ukraine conflict.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nBranded Product Program \n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nThe impact of COVID-19 on our Branded Product Program eased significantly in fiscal 2023 as compared to fiscal 2022. As the level of comfort of consumers gathering in social settings increased and travel increased, our Branded Product Program customers, including professional sports arenas, amusement parks, shopping malls, and movies theaters experienced stronger traffic and attendance contributing to higher sales. The total volume of hot dogs sold in the Branded Product Program increased by approximately 15% over fiscal 2022, rebounding and exceeding pre-pandemic levels. Our Branded Product Program contributed $78,884,000 in revenue in fiscal 2023, representing a 19% increase over fiscal 2022. \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nBeginning in fiscal 2022 and continuing in fiscal 2023, we have experienced inflationary pressures on commodity prices, including beef and beef trimmings. Our average cost of hot dogs during fiscal 2023 was approximately 1.4% higher than during fiscal 2022. Our average cost of hot dogs during fiscal 2022 was approximately 19% higher than fiscal 2021. We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2024.\n\n\n\u00a0\n\n\nAs of March 26, 2023, the Branded Product Program distributed product in all 50 states, the District of Columbia, Puerto Rico, Canada, the U.S. Virgin Islands, Guam and Mexico. Pursuant to the Branded Product Program, Nathan\u2019s World Famous Beef Hot Dogs are being offered in national restaurant chains such as Auntie Anne\u2019s, Hot Dog On A Stick and Johnny Rockets; national movie theater chains such as Regal Entertainment, National Amusements and Cinemex in Mexico; amusement parks such as Universal Studios; casino hotels such as Foxwoods Casino in Connecticut; and convenience store chains such as RaceTrac and Holiday Station stores. The Branded Products Program also distributes product in professional sports arenas with Nathan\u2019s World Famous Beef Hot Dogs being served in stadiums and arenas that host the New York Yankees, New York Mets, Miami Marlins, Tampa Bay Rays, Brooklyn Nets, Dallas Cowboys, and Green Bay Packers.\n\n\n\u00a0\n\n\nAdditionally, our products are offered in numerous other foodservice operations including cafeterias, snack bars and vending machines located in many different types of foodservice outlets and venues, including airports, highway travel plazas, colleges and universities, gas and convenience stores, military installations, and Veterans Administration hospitals throughout the United States.\n \n\n\n\u00a0\n\n\nNathan\u2019s expects to continue to seek out and evaluate a variety of alternative environments designed to maximize and grow our Branded Product Program.\n\n\n\u00a0\n\n\n\n\n11\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nLicensing Program\n\n\n\u00a0\n\n\nPursuant to an agreement expiring in March 2032, Smithfield Foods, Inc., has been granted, among other things, (i) the exclusive right and obligation to manufacture, distribute, market and sell \u201cNathan\u2019s Famous\u201d branded hot dogs, and sausages in refrigerated consumer packages to be resold through retail channels (e.g., supermarkets, groceries, mass merchandisers and club stores) within the United States, (ii) a right of first offer to license any other \u201cNathan\u2019s Famous\u201d branded refrigerated meat products in consumer packages to be resold through retail channels within the United States, on terms to be negotiated in good faith, (iii) the right and obligation to manufacture \u201cNathan\u2019s Famous\u201d branded hot dog and sausage products in bulk for use in the food service industry within the United States, and (iv) the non-exclusive right and obligation to supply \u201cNathan\u2019s Famous\u201d natural casing and skinless hot dogs in bulk for use in the \u201cNathan\u2019s Famous\u201d restaurant system within the United States. The agreement provides for royalties on packaged products sold to supermarkets, club stores and grocery stores, payable on a monthly basis to the Company equal to 10.8% of net sales, subject to minimum annual guaranteed royalties. Pursuant to this agreement, Nathan\u2019s earned royalties of approximately $28,688,000 in fiscal 2023 and $27,907,000 in fiscal 2022 representing 21.9% and 24.3% of total revenues, respectively. We believe our future operating results will continue to be substantially impacted by the terms and conditions of the agreement with Smithfield Foods, Inc., but there can be no assurance thereof (See Item 1A - \u201cRisk Factors\u201d). Since 2002, Smithfield Foods, Inc. has licensed from us the right to manufacture and sell branded hot dogs and sausages to select foodservice accounts.\u00a0 Pursuant to this arrangement, we earned royalties of $1,310,000 and $1,063,000 during the fiscal 2023 and 2022 periods, respectively.\u00a0 The majority of these royalties were earned from one company. \n \nAs of March 26, 2023, packaged Nathan\u2019s World Famous Beef Hot Dogs continued to be sold in supermarkets, mass merchandisers and club stores including Walmart, Kroger, Ahold, Publix, Albertsons, Safeway, ShopRite, Target, Sam\u2019s Club, Costco and BJ\u2019s Wholesale Club located in all 50 states. We believe that the overall exposure of the brand and opportunity for consumers to enjoy the Nathan\u2019s World Famous Beef Hot Dog in their homes helps promote \u201cNathan\u2019s Famous\u201d restaurant patronage. Royalties earned under the retail agreement, including the foodservice program, were approximately 90% of our fiscal 2023 period license revenues.\n\n\n\u00a0\n\n\nWe license the manufacture of the proprietary spices which are used to produce Nathan\u2019s World Famous Beef Hot Dogs to Saratoga Specialties, Inc., a wholly-owned subsidiary of Solina. During fiscal 2023 and 2022, we earned royalties of $1,298,000 and $1,216,000, respectively, from this license. Through this agreement, we control the manufacture of all \u201cNathan\u2019s Famous\u201d branded hot dogs.\n\n\n\u00a0\n\n\nDuring fiscal 2023, our licensee, Lamb Weston, Inc., continued to produce and distribute Nathan\u2019s Famous frozen crinkle-cut French fries and onion rings for retail sale pursuant to a license agreement. These products were distributed within thirty-nine\n \nstates, primarily on the East Coast, Southwest and West Coast during fiscal 2023. During fiscal 2023 and 2022, we earned royalties of $1,501,000 and $954,000, respectively, under this agreement. For the contract year ended in July 2022 we earned royalties of $581,000 in excess of the annual minimum. Lamb Weston, Inc. continues to seek to further expand its market penetration throughout the United States. Lamb Weston, Inc. exercised its fourth option to extend the license agreement through July 2024, pursuant to which the minimum royalties will increase 4% annually.\n\n\n\u00a0\n\n\nDuring fiscal 2023, our licensee, Bran-Zan Holdings, LLC continued to produce and distribute miniature bagel dogs, franks-in-a-blanket, mozzarella sticks and other hors d\u2019oeuvres through club stores, supermarkets, and other retail food stores. During fiscal 2023 and 2022, we earned royalties of $340,000 and $333,000, respectively, under this agreement.\n\n\n\u00a0\n\n\nDuring fiscal 2023, our licensee, Hermann Pickle Packers, Inc. continued to produce and distribute Nathan\u2019s Famous sauerkraut\n \nand pickles pursuant to a license agreement. During fiscal 2023 and 2022, we earned royalties of $318,000 and $291,000, respectively, under this agreement.\n\n\n\u00a0\n\n\n\n\n12\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nProvisions and Supplies \n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nNathan\u2019s World Famous Beef Hot Dogs are primarily manufactured by Smithfield Foods, Inc. for sale by our Branded Product Program, our restaurant system, and at retail. Smithfield Foods, Inc. and another hot dog manufacturer supply the hot dogs for our Company-owned and franchise-operated restaurants. All hot dogs are manufactured in accordance with Nathan\u2019s recipes, quality standards and proprietary spice formulations. Nathan\u2019s believes that it has reliable sources of supply; however, in the event of any significant disruption in supply, management believes that alternative sources of supply are available. (See Item 1A- \u201cRisk Factors\u201d).\n \n Saratoga Specialties, Inc. produces Nathan\u2019s proprietary spice formulations, and we have, in the past, engaged Newly Weds Foods, Inc. as an alternative source of supply. Our frozen crinkle-cut French fries have been produced primarily by Lamb Weston, Inc.\n\n\n\u00a0\n\n\nMost other Company provisions are purchased from multiple sources to prevent disruption in supply and to obtain competitive prices. We approve all products and product specifications. We negotiate directly with our suppliers on behalf of the entire system for all primary food ingredients and beverage products sold in the restaurants in an effort to ensure adequate supply of high-quality items at competitive prices.\n\n\n\u00a0\n\n\nWe currently utilize a cooperative distribution system pursuant to an agreement with UniPro Foodservice, Inc., National Distribution Alliance (formerly the Multi-Unit Group), which is comprised of institutional food and non-food distributors organized to procure, distribute, and market food service and non-food merchandise for the distribution needs of our domestic restaurant system. The initial term of the agreement was for five years through November 15, 2022. The agreement was subsequently renewed through June 30, 2025, and continuing for two (2) successive one (1) year renewal periods upon mutual consent. We believe this arrangement allows for more flexibility in expanding into new markets throughout the United States, as well as proves to be cost efficient for our current franchisees. The strategic distribution partners under this agreement include: DiCarlo Distributors, Inc., Tapia Brothers Co., Cheney Brothers, Inc., Feesers, Inc., Lipari Foods, LLC, Hillcrest Foods, Sutherland\u2019s Foodservice, and Chain Distribution Services LLC.\n \n \nOur branded products are delivered to our ultimate customers throughout the country by numerous distributors, including US Foodservice, Inc., SYSCO Corporation, Performance Food Group Company, McLane Company, Inc. and DOT Foods.\n\n\n\u00a0\n\n\nMarketing, Promotion and Advertising\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \n\n\n\u00a0\n\n\nNathan\u2019s believes that an integral part of its brand marketing strategy is to continue to build brand awareness through its complimentary points of distribution strategy of selling its signature products through Company-owned and franchised restaurants (including virtual kitchens), the Branded Product Program, the Branded Menu Program, and through retail grocery channels including supermarkets and club stores. We believe that as we continue to build brand awareness and expand our reputation for quality and value, we will continue to seek to grow existing markets and expand into new markets. The Nathan\u2019s Famous brand continues to enjoy tremendous exposure and awareness from our Nathan\u2019s Famous Hot Dog Eating Contests. Due to the COVID-19 pandemic, all regional hot dog eating contests were canceled in fiscal 2023. However, while the regionals were canceled, our annual July 4\nth\n Hot Dog Eating Contest Championship returned to our flagship restaurant on the corner of Surf Avenue and Stillwell Avenue in Coney Island, New York. ESPN aired our July 4\nth\n Hot Dog Eating Championship Contest as it has done since 2004.\n\n\n\u00a0\n\n\nNathan\u2019s Famous continues to look to sports sponsorships as a strategic marketing opportunity to further brand recognition. In addition to the branded signage opportunity, Nathan\u2019s sells its Nathan\u2019s World Famous Beef Hot Dogs and crinkle-cut French fries. In many venues, Nathan\u2019s World Famous Beef Hot Dogs and crinkle-cut French fries are sold at Nathan\u2019s concession stands and as menu items that are served in suites and throughout premium seating areas. Our current professional sports sponsorships include:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nBaseball: Yankee Stadium \u2013\u00a0New York Yankees; Citi Field \u2013\u00a0New York Mets; Loan Depot Park \u2013\u00a0Miami Marlins; Tropicana Field \u2013\u00a0Tampa Bay Rays; and\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nBasketball: The Barclays Center \u2013\u00a0Brooklyn Nets; and\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nFootball: AT&T Stadium \u2013\u00a0Dallas Cowboys; Lambeau Field \u2013\u00a0Green Bay Packers. \n\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n13\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe believe that the Company\u2019s overall sales and exposure have also been complemented by the sales of Nathan\u2019s World Famous Beef Hot Dogs and other Nathan\u2019s products through the publicity generated by our Hot Dog Eating Contests and our affiliation with a number of high profile sports arenas. In addition to marketing our products at these venues, the Nathan\u2019s Famous brand has also been televised regionally, nationally and internationally.\n\n\n\u00a0\n\n\nWe maintain an advertising fund for local, regional and national advertising under the Nathan\u2019s Famous Systems, Inc. Franchise Agreement. Nathan\u2019s Famous franchisees are generally required to spend on local marketing activities or contribute to the advertising fund up to 2.0% of restaurant sales for advertising and promotion. Franchisee contributions to the advertising fund for national marketing support are generally based upon the type of restaurant and its location. The difference, if any, between 2.0% and the contribution to the advertising fund are to be expended on local programs approved by us as to form, content and method of dissemination. Certain franchisees, including those operating pursuant to our Branded Menu Program were not obligated to contribute to the advertising fund during fiscal 2023. Some vendors that supply products to the Company and our restaurant system also contribute to the advertising fund based upon purchases made by our franchisees and at Company-owned restaurants.\n\n\n\u00a0\n\n\nIn fiscal 2023, Nathan\u2019s marketing efforts were largely focused on the annual July 4\nth\n Hot Dog Eating Contest and its sports sponsorships, as well as digital and social media to drive customers directly to the online menus of our franchisees. This included geo-targeted efforts and direct mail to generate awareness and sales through third party delivery platforms.\n\n\n\u00a0\n\n\nNathan\u2019s marketing efforts include employing an \u201calways on\u201d social media strategy to support the brand and franchise operations through our centralized brand presence. The social media objectives include increasing our reach among our core customer base, while building brand awareness amongst the engaged younger generation.\n\n\n\u00a0\n\n\nThe objective of our Branded Product Program has historically been to seek to provide our foodservice operator customers with value-added, premium quality products supported with differentiated point of sale materials and other forms of operational support.\n\n\n\u00a0\n\n\nDuring fiscal 2023, Nathan\u2019s marketing efforts for the Branded Product Program concentrated primarily on participation in national industry trade shows, and regional, local distributor trade events, some of which were held virtually due to the COVID-19 pandemic. We have also advertised our products in distributor and trade periodicals. New arrangements with Branded Product Program points of sale are achieved through the combined efforts of Company personnel and a network of foodservice brokers and distributors who are also responsible for direct sales to national, regional and \u201cstreet\u201d accounts.\n\n\n\u00a0\n\n\nDuring fiscal 2024, we may seek to further expand our internal marketing resources along with our network of foodservice brokers and distributors. We may attempt to emphasize specific venues as we expand our broker network, focus management and broker responsibilities on a regional basis and expand the use of sales incentive programs. We continue to upgrade our social media platforms by enhancing our corporate website and Facebook page and expanding the use of Instagram and Twitter.\n\n\n\u00a0\n\n\nHuman Capital\n\n\n\u00a0\n\n\nAs of March 26, 2023, the Company employed 138 people, 32 of whom were corporate management and administrative employees, 17 of whom were restaurant managers and 89 of whom were hourly full-time and part-time foodservice employees.\n\n\n\u00a0\n\n\nAs of March 26, 2023, approximately 47% of our employees were female and approximately 69% of our employee population were comprised of racial and ethnic minorities.\n\n\n\u00a0\n\n\nWe generally employ approximately 270-300 seasonal employees during the spring and summer months. Food service employees at two Company-owned restaurants are currently represented by Local 1102 RWSDU UFCW AFL-CIO, CLC, Retail, Wholesale and Department Store Union, under an agreement that expires on June 30, 2023. We expect to renew this agreement prior to its expiration. Employees at a third Company-owned restaurant are represented by the same union pursuant to a different agreement that expires on November 30, 2025.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n14\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe believe that our efforts to manage our workforce have been effective as evidenced by the fact that the Company has not suffered any strike or work stoppage for more than 49 years.\n\n\n\u00a0\n\n\nCulture and Diversity\n\n\n\u00a0\n\n\nCreating and fostering inclusive work environments and teams allows us to create an engaging and welcoming culture for our employees, which we believe positively affects the quality of products and experience we deliver to our customers.\n\n\n\u00a0\n\n\nThe Company works to ensure our recruiting and hiring initiatives are reaching a broad audience, so that our workforce represents the communities in which we serve. We seek to provide opportunities for growth and development at all levels of our organization.\n\n\n\u00a0\n\n\nOur workforce represents nearly all demographics, with diversity in age, race, ethnicity and gender. Specifically, more employees identify as racial and ethnic minorities, than white.\n\n\n\u00a0\n\n\nWe are committed to high standards of ethical, moral and legal business conduct and strive to be an open and honest workplace, providing a positive work environment. To support this commitment, we have a Code of Conduct that provides clear direction for behavioral expectations. We also provide annual training on sexual harassment. In addition, we maintain an anonymous hotline, which includes an 800 number where our employees can report theft or fraudulent behavior.\n\n\n\u00a0\n\n\nCompensation and Benefits\n\n\n\u00a0\n\n\nThe Company is committed to providing market-competitive and equitable pay and benefits to attract and retain great talent. In addition to competitive hourly rates and base salaries, all management employees at our Company-owned restaurants are eligible for performance-based cash incentive bonuses based on the attainment of certain financial metrics, along with all corporate management and administrative employees, at the discretion of our Board of Directors.\n\n\n\u00a0\n\n\nThe Company attempts to provide a range of benefits to its corporate and nonunion employees and their families, including medical and prescription drug, dental and vision, long-term disability coverage, as well as a 401(k) savings plan and flexible spending accounts. The Company has historically matched contributions to its 401(k) savings plan at a rate of $0.25 per dollar contributed by the employee up to a maximum of 3% of the employee\u2019s annual salary. The Company pays the union medical and pension benefits on behalf of the union employees.\n\n\n\u00a0\n\n\nTalent Development\n\n\n\u00a0\n\n\nWe offer various management training courses for management personnel of our Company-owned and franchised restaurants. A restaurant manager from each restaurant must successfully complete our mandated management training program.\n\n\n\u00a0\n\n\nWorkplace Safety\n\n\n\u00a0\n\n\nWe are committed to providing safe work environments and providing our employees with the resources they need to promote their well-being. We are also committed to providing a safe and healthy environment for our restaurant patrons. Since the onset of the COVID-19 pandemic, we continue to monitor public health guidance and to follow recommendations by federal, state and local governments.\n\n\n\u00a0\n\n\nGovernment Regulation\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \n\n\n\u00a0\n\n\nWe are subject to a Federal Trade Commission (\u201cFTC\u201d) regulation and several states\u2019 laws that regulate the offer and sale of franchises. We are also subject to a number of state laws which regulate substantive aspects of the franchisor-franchisee relationship.\n\n\n\u00a0\n\n\n\n\n15\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe FTC\u2019s \u201cTrade Regulation Rule Concerning Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures\u201d (the \u201cFTC Franchise Rule\u201d) requires us to disclose certain information to prospective franchisees. Fifteen states, including New York, also require similar disclosure. While the FTC Franchise Rule does not require registration or filing of the disclosure document at the federal level, 14 states require franchisors to register the disclosure document (or obtain exemptions from that requirement) before offering or selling a franchise in that state. The laws of 17 other states require some form of registration (or a determination that a company is exempt or otherwise not required to register) under \u201cbusiness opportunity\u201d laws, which sometimes apply to franchisors such as the Company. These laws have not precluded us from seeking or awarding franchisees in any given area.\n\n\n\u00a0\n\n\nLaws that regulate one or another aspect of the franchisor-franchisee relationship presently exist in 24 states as well as Puerto Rico and the U.S. Virgin Islands. These laws regulate the franchise relationship by, for example, requiring the franchisor to deal with its franchisees in good faith, prohibiting interference with the right of free association among franchisees, limiting the imposition of standards of performance on a franchisee, and regulating discrimination among franchisees. Although these laws may also restrict a franchisor in the termination of a franchise agreement by, for example, requiring \u201cgood cause\u201d to exist as a basis for the termination, advance notice to the franchisee of the termination, an opportunity to cure a default, and repurchase of inventory or other compensation, these provisions have not had a significant effect on our operations. Our international franchise operations are subject to franchise-related and other laws in the jurisdictions in which our franchisees operate. These laws in the United States and overseas have not precluded us from enforcing the terms of our franchise agreements, and we do not believe that these laws are likely to significantly affect our operations. We do not believe that the Russia-Ukraine conflict has had or will have a serious impact on our operations.\n\n\n\u00a0\n\n\nWe are not aware of any pending franchise legislation in the United States that we believe is likely to significantly affect our operations.\n\n\n\u00a0\n\n\nEach Company-owned and franchised restaurant is subject to regulation as to operational matters by federal agencies and to licensing and regulation by state and local health, sanitation, safety, fire, and other departments. An inability to obtain or retain health department or other licenses could adversely affect our operations.\n\n\n\u00a0\n\n\nWe are subject to the Federal Fair Labor Standards Act and various other federal and state laws that govern minimum wages, overtime, working conditions, mandatory benefits, health insurance, and other matters. Other regulatory interpretations (such as the National Labor Relations Board\u2019s review of joint employment standards under the National Labor Relations Act, the Labor Department\u2019s review of the Fair Labor Standards Act, the Small Business Administration\u2019s review of independence standards applicable to reviewing franchisee loan applications, etc.) may have an impact on our overall business as well, although we do not believe that these will significantly affect our operations.\n\n\n\u00a0\n\n\nGovernmental authorities have placed an increased focus on environmental matters, particularly in the area of climate change. We cannot predict the precise nature of these initiatives. However, we expect that they may impact our business both directly and indirectly. There is a possibility that government initiatives, as well as the actual or perceived risks of climate change, could have an impact on our business, which we cannot predict at this time.\n \n\n\n\u00a0\n\n\nWe are also subject to federal and state environmental regulations, which have not had a material effect on our operations. More stringent and varied requirements of local governmental bodies with respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations. In addition, the federal Americans with Disabilities Act of 1990 applies with respect to the design, construction, and renovation of all restaurants in the United States.\n\n\n\u00a0\n\n\nEach company that manufactures, supplies, or sells our products is subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, safety, and other departments.\n\n\n\u00a0\n\n\n\n\n16\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn fiscal 2021, various governmental bodies in the United States addressed the spread of COVID-19 by imposing limitations on business operations or recommending that residents adopt stringent \u201csocial distancing\u201d measures. These restrictions continued into fiscal 2022. As approved vaccines were more widely distributed and administered, these restrictions were significantly eased in fiscal 2023. Due to the fluidity and uncertainty around COVID-19, these measures may be reinstituted periodically and in some regions in an effort to inhibit the spread of new virus variants. Those formal and informal restraints, as well as consumer behavior and other factors (such as supply chain issues), may have a material impact on our ability to operate our business at least while those restrictions are in effect, which may possibly have a longer-term impact on our business and the demand for our products and restaurant services.\n\n\n\u00a0\n\n\nWe are also subject to the requirement that our restaurants post certain calorie content information for standard menu items, pursuant to Section 4205 of the Patient Protection and Affordable Care Act of 2010. Some of our restaurants are subject to similar requirements that are imposed by certain localities around the country.\n\n\n\u00a0\n\n\nAlcoholic beverage control regulations require that each restaurant that sells such products apply to a state authority and, in certain locations, county and municipal authorities, for a license or permit to sell alcoholic beverages on the premises. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the restaurants, including minimum age of customers and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. Three of our Company-owned restaurants offer beer or wine coolers for sale. Each of these restaurants has current alcoholic beverage licenses permitting the sale of these beverages. We have never had an alcoholic beverage license revoked\n. \n\n\n\u00a0\n\n\nWe may be subject in certain states to \u201cdram-shop\u201d statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment which wrongfully served alcoholic beverages to such person. We carry liquor liability coverage as part of our existing comprehensive general liability insurance and have never been named as a defendant in a lawsuit involving \u201cdram-shop\u201d statutes.\n\n\n\u00a0\n\n\nThe Sarbanes-Oxley Act of 2002, the Dodd-Frank Act of 2010, and rules promulgated thereunder by the Securities and Exchange Commission (\u201cSEC\u201d) and the Nasdaq Stock Market have imposed substantial regulations and disclosure requirements in the areas of corporate governance (including director independence, director selection and audit, corporate governance and compensation committee responsibilities), equity compensation plans, auditor independence, pre-approval of auditor fees and services and disclosure and internal control procedures. We are committed to industry best practices in these areas.\n\n\n\u00a0\n\n\nWe believe that we operate in substantial compliance with applicable laws and regulations governing our operations, including the FTC Franchise Rule and state franchise laws.\n\n\n\u00a0\n\n\nTrademarks\n\n\n\u00a0\n\n\nWe hold trademark and/or service mark registrations for NATHAN\u2019S, NATHAN\u2019S FAMOUS, NATHAN\u2019S FAMOUS and design, NATHAN\u2019S and Coney Island design, SINCE 1916 NATHAN\u2019S FAMOUS and design, SINCE 1916 NATHAN\u2019S FAMOUS, INC. and design, THE ORIGINAL SINCE 1916 NATHAN\u2019S FAMOUS and design, SINCE 1916 NATHAN\u2019S FAMOUS THIS IS THE ORIGINAL, THE ORIGINAL NATHAN\u2019S FAMOUS, THE ORIGINAL NATHAN\u2019S FAMOUS 100TH ANNIVERSARY and design in color, SINCE 1916 NATHAN\u2019S FAMOUS and hot dog design in color, SINCE 1916 NATHAN\u2019S FAMOUS and hot dog, fries and drink design in color, and NATHAN\u2019S FAMOUS EXPRESS within the United States, with some of these marks holding corresponding foreign trademark and service mark registrations in over 80 international jurisdictions, including Canada and China.\u00a0 We also hold various package design registrations and other related marks, FRANKSTERS, FROM A HOT DOG TO AN INTERNATIONAL HABIT, and MORE THAN JUST THE BEST HOT DOG! and design, for restaurant services and some food items.\u00a0\n\n\n\u00a0\n\n\nWe hold trademark and/or service mark registrations for the marks ARTHUR TREACHER\u2019S (stylized), ARTHUR TREACHER\u2019S FISH & CHIPS (stylized), KRUNCH PUP and ORIGINAL within the United States.\u00a0 We hold service mark registrations for ARTHUR TREACHER\u2019S in China and Japan. We also hold service mark registrations for ARTHUR TREACHER\u2019S FISH & CHIPS in Canada, ARTHUR TREACHER\u2019S FISH & CHIPS and design in Canada and Mexico, and ARTHUR TREACHER\u2019S FISH & CHIPS and design in Colombia, Costa Rica, Kuwait, Malaysia, Singapore and the United Arab Emirates.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n17\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur trademark and service mark registrations were granted and expire on various dates. We believe that these trademarks and service marks provide significant value to us and are an important factor in the marketing of our products and services.\u00a0 We believe that we do not infringe on the trademarks or other intellectual property rights of any third parties.\u00a0\n\n\n\u00a0\n\n\nSeasonality\n\n\n\u00a0\n\n\nOur routine business pattern is affected by seasonal fluctuations, including the effects of weather and economic conditions. Historically, sales from our Company-owned restaurants, principally at Coney Island, and franchised restaurants from which franchise royalties are earned and the Company\u2019s earnings have been highest during our first two fiscal quarters, with the fourth fiscal quarter typically representing the slowest period. Routine seasonality is primarily attributable to weather conditions in the marketplace for our Company-owned and franchised restaurants, which are principally located in the Northeast of the United States. Additionally, revenues from our Branded Product Program and retail licensing program generally follow similar seasonal fluctuations, although not to the same degree. We believe that future revenues and profits will continue to be highest during our first two fiscal quarters, with the fourth fiscal quarter representing the slowest period.\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nThe fast-food restaurant industry is highly competitive and can be significantly affected by many factors, including changes in local, regional or national economic conditions, supply chain challenges, changes in consumer tastes, consumer concerns about the nutritional quality of quick-service food, as well as the increases in and the locations of, competing restaurants.\n\n\n\u00a0\n\n\nOur restaurant system competes with numerous restaurants and drive-in units operating on both a national and local basis, including major national chains with greater financial and other resources than ours. We also compete with local restaurants and diners on the basis of menu diversity, food quality, price, size, site location and name recognition. There is also active competition for management personnel, as well as for suitable commercial sites for Company-owned or franchised restaurants.\n\n\n\u00a0\n\n\nWe believe that our emphasis on our signature products and the reputation of these products for taste and quality set us apart from our major competitors. Many fast-food companies have adopted \u201cvalue pricing\u201d and/or deep discount strategies. Nathan\u2019s markets our own form of \u201cvalue pricing,\u201d selling combinations of different menu items for a total price lower than the usual sale price of the individual items and other forms of price sensitive promotions.\n\n\n\u00a0\n\n\nWe also compete with many restaurant franchisors and other business concepts for the sale of franchises to qualified and financially capable franchisees.\n\n\n\u00a0\n\n\nOur Branded Product Program competes directly with a variety of other nationally recognized hot dog companies and other food companies; many of these entities have significantly greater resources than we do. Our products primarily compete based upon price, quality and value to the foodservice operator and consumer. We believe that Nathan\u2019s reputation for superior quality, along with the ability to provide operational support to the foodservice operator, provides Nathan\u2019s with a competitive advantage.\n\n\n\u00a0\n\n\nOur retail licensing program for the sale of packaged foods within retail grocery channels including supermarkets and club stores competes primarily on the basis of reputation, flavor, quality and price. In most cases, we compete against other nationally recognized brands that may have significantly greater resources than those at our disposal.\n\n\n\u00a0\n\n\nSegment Reporting\n\n\n\u00a0\n\n\nThe Company is comprised of the following segments: (1) Branded Product Program, (2) Product licensing, and (3) Restaurant operations. Refer to Footnote I, \nSegment Information\n, in the notes to our consolidated financial statements for more information.\n\n\n\u00a0\n\n\n\n\n18\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAvailable Information\n\n\n\u00a0\n\n\nWe file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and a proxy statement on Schedule 14A. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information about issuers such as us that file electronically with the SEC.\n\n\n\u00a0\n\n\nIn addition, electronic copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statement on Schedule 14A and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) under the Securities Exchange Act of 1934, as amended (\u201cthe Exchange Act\u201d) are available free of charge on our website, www.nathansfamous.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The reference to our website address and the SEC website address do not constitute incorporation by reference of the information contained on the website and should not be considered part of this document.\n\n\n\u00a0\n\n\nThe Board of Directors (\u201cthe Board\u201d) has also adopted, and we have posted in the Investor Relations section of our website, written Charters for each of the Board\u2019s standing committees. We will provide without charge a copy of the Charter of any standing committee of the Board upon a stockholder\u2019s request to us at Nathan\u2019s Famous, Inc., One Jericho Plaza, Second Floor - Wing A, Jericho, NY 11753, Attention: Secretary.\n\n\n\u00a0\n\n\nFor financial information regarding our results of operations, please see our consolidated financial statements beginning on page F-1.\n\n\n\u00a0\n\n\n\n\n19\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nItem\u00a01A.\n\n\n\n\n\n\nRisk Factors.\n \n\n\n\n\n\n\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\nOur business is subject to various risks. Certain risks are specific to certain ways we do business, such as through Company-owned restaurants, franchised restaurants, virtual kitchens, branded products and retail, while other risks, such as health-related or economic risks, may affect all of the ways that we do business.\n\n\n\u00a0\n\n\nInvestors should carefully consider all of the information set forth in this Form 10-K, including the following risk factors, before deciding to invest in any of the Company\u2019s securities. The following risk factors are not exhaustive. Additional risks and uncertainties not presently known to the Company may also adversely impact its business. The Company\u2019s business, financial condition, results of operations or prospects could be adversely affected by any of these risks. In that case, the trading price of the Company\u2019s common stock could decline. This Form 10-K also contains forward-looking statements that involve risks and uncertainties. The Company\u2019s results could materially differ from those anticipated in these forward-looking statements as a result of certain factors, including the risks it faces described below and elsewhere. See \u201cForward-Looking Statements\u201d above.\n\n\n\u00a0\n\n\nRisks Related to Our Business and Operations\n\n\n\u00a0\n\n\nThe COVID-19 pandemic and local, state and federal government responses to the COVID-19 pandemic have previously significantly impacted our business and could continue to adversely affect our business, financial condition, and results of operations in the future\n. \n\n\n\u00a0\n\n\nThe global crisis resulting from the spread of COVID-19 had a substantial impact on our operations for the fiscal year ended March 28, 2021 and to a lesser extent for the fiscal years ended March 27, 2022 and March 26, 2023. A recurrence of COVID-19 or new variants of COVID-19 could substantially impact customer traffic at our Company-owned restaurants and franchised restaurants, as well as sales to our Branded Product Program customers and royalties earned from our licensing activities.\n\n\n\u00a0\n\n\nThe Company cannot predict if new variants of COVID-19 will be discovered, what additional restrictions may be enacted by local, state and the federal government, to what extent it can maintain off-premises sales volumes, whether it can maintain sufficient staffing levels at our Company-owned restaurants, or if individuals will be comfortable congregating in our dining rooms or venues such as professional sports arenas, amusement parks, shopping malls or movie theaters or following social distancing protocols, and what long-lasting effects the COVID-19 pandemic may have on the Company as a whole. The COVID-19 pandemic has heightened many of the other risks described in this Item 1A, \u201cRisk Factors.\u201d\n\n\n\u00a0\n\n\nIncreases in the cost of food and paper products could harm our profitability and operating results.\n\n\n\u00a0\n\n\nGeneral economic conditions, including economic downturns related to the COVID-19 pandemic, have adversely affected our results of operations and may continue to do so. Similarly, significant inflation has negatively affected our labor, food, commodity and paper costs and may continue to do so.\n\n\n\u00a0\n\n\nFood and paper products represent approximately 25% to 30% of our cost of restaurant sales. We purchase large quantities of beef and our beef costs in the United States represent approximately 80% to 90% of our cost of sales. The market for beef is particularly volatile and is subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand, inflationary pressures and other macroeconomic factors beyond our control.\n\n\n\u00a0\n\n\nWe have experienced and may continue to experience certain supply chain disruptions resulting from, among other things, capacity, transportation, fuel costs, staffing, and other COVID-19 related challenges, which have and may continue to increase the cost of food, commodity and paper products and, in turn, may adversely affect our business, results of operations and financial condition. Future shortages or disruptions could be caused by the factors noted above as well as factors such as natural disasters, health epidemics and pandemics (including the COVID-19 pandemic), social unrest, the impacts of climate change, and inflationary pressures.\n\n\n\u00a0\n\n\nWe cannot assure that our Company-owned restaurants or our franchised restaurants will be able to purchase its food, commodity or paper products at reasonable prices, or that the cost of such food, commodity or paper products will remain stable in the future.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n20\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2024. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. If the price of beef or other food products that we use in our operations significantly increases, particularly in the Branded Product Program, and we choose not to pass, or cannot pass, these increases on to our customers, our operating margins will decrease and such decrease in operating margins could have a material adverse effect on our business, results of operations or financial condition.\n\n\n\u00a0\n\n\nFrom time to time, we have sought to lock in the cost of a portion of our beef purchases by entering into various commitments to purchase hot dogs during certain periods in an effort to ensure supply of product at a fixed cost of product. However, we may be unable to enter into similar purchase commitments in the future. In addition, we do not have the ability to effectively hedge our beef purchases using futures or forward contracts without incurring undue financial cost and risk.\n\n\n\u00a0\n\n\nPrice increases may impact customer visits.\n\n\n\u00a0\n\n\nThe Company and our franchisees have increased prices on selected menu items in order to offset rising food and commodity costs. Although we have not experienced significant resistance to our past price increases, future price increases may deter customers from visiting our Company-owned restaurants and franchised restaurants and may adversely affect our restaurant operations.\n\n\n\u00a0\n\n\nOur licensing revenue and overall profitability is substantially dependent on our agreement with Smithfield Foods, Inc. and the loss or a significant reduction of this revenue would have a material adverse effect on our financial condition and results of operations.\n\n\n\u00a0\n\n\nWe earned license royalties from Smithfield Foods, Inc. of approximately $29,998,000 in fiscal 2023 and approximately $28,970,000 in fiscal 2022 representing 23% and 25% of total revenues, respectively. As a result of our agreement with Smithfield Foods, Inc. which expires in 2032, we expect that most of our license revenues will be earned from Smithfield Foods, Inc. for the foreseeable future. In addition, the increase in our adjusted EBITDA (a non-GAAP financial measure (see Reconciliation of GAAP and Non-GAAP measures on page 44\u00a0of this report)) from $31,153,000 in fiscal 2022 to $36,383,000 in fiscal 2023 and income from operations from $29,863,000 in fiscal 2022 to $34,445,000 in fiscal 2023 was partially attributable to the license royalties earned from Smithfield Foods, Inc. Accordingly, in the event that (i) Smithfield Foods, Inc. experiences financial difficulties, (ii) there is a disruption or termination of the Smithfield Foods, Inc. agreement or (iii) there is a significant decrease in our revenue from Smithfield Foods, Inc., it would have a material adverse effect on our business, results of operations and financial condition.\n\n\n\u00a0\n\n\nA significant amount of our Branded Product Program revenue is from a small number of accounts. The loss of any one or more of those accounts could harm our profitability and operating results.\n\n\n\u00a0\n\n\nA small number of our Branded Product Program customers account for a significant portion of our Branded Product Program revenues. Sales to our five largest Branded Product Program customers were 76% and 78% of our Branded Product Program revenues in fiscal 2023 and fiscal 2022, respectively. In the event that any one of these Branded Product Program customers experience financial difficulties or, upon the expiration of their existing agreements, if applicable, are not willing to do business with us in the future on terms acceptable to the Company, there could be a material adverse effect on our business, results of operations and financial condition.\n\n\n\u00a0\n\n\nSmithfield Foods, Inc. currently has two manufacturing facilities producing different Nathan\n\u2019\ns products and a long-term significant interruption of a primary facility could potentially disrupt our operations.\n\n\n\u00a0\n\n\nSmithfield Foods, Inc. currently has two manufacturing facilities producing different Nathan\u2019s products. A temporary closure at either of these plants could potentially cause a temporary disruption to our source of supply, potentially causing some or all of certain shipments to customers to be delayed. A longer-term significant interruption at either of these production facilities, whether as a result of a natural disaster or other causes, could significantly impair our ability to operate our business on a day-to-day basis while Smithfield Foods, Inc. determines how to make up for any lost production capabilities, during which time we may not be able to secure sufficient alternative sources of supply on acceptable terms, if at all. In addition, a long-term disruption in supply to our customers could cause our customers to determine not to purchase some or all of their hot dogs from us in the future, which in turn would adversely affect our business, results of operations and financial condition. Furthermore, a supply disruption or other events might affect our brand in the eyes of consumers and the retail trade, which damage might negatively impact our overall business in general, which could result in a material adverse effect on our business, results of operations or financial condition.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n21\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe loss of one or more of our key suppliers could lead to supply disruptions, increased costs and lower operating results.\n\n\n\u00a0\n\n\nWe have historically relied on one supplier for the majority of our hot dogs and another supplier for a majority of our supply of frozen crinkle-cut French fries for our restaurant system. An interruption in the supply of product from either of these suppliers without our obtaining an alternative source of supply on comparable terms could lead to supply disruptions, increased costs and lower operating results. We have an agreement with a secondary hot dog manufacturer that continues to also supply natural casing hot dogs for our restaurant business.\n\n\n\u00a0\n\n\nIn the event that the hot dog or French fry suppliers are unable to fulfill our requirements for any reason, including due to a significant interruption in its manufacturing operations, whether as a result of a natural disaster or for other reasons, such interruption could significantly impair our ability to operate our business on a day-to-day basis.\n\n\n\u00a0\n\n\nIn the event that we are unable to find one or more alternative suppliers of hot dogs or French fries on a timely basis, there could be a disruption in the supply of product to our Company-owned restaurants, franchised restaurants and Branded Product Program accounts, which would damage our business, our franchisees and our Branded Product Program customers and, in turn, negatively impact our financial results. In addition, any gap in supply to retail customers would result in lost license royalty income to us, which could have a significant adverse financial impact on our results of operations. Furthermore, any gap in supply to retail customers may damage our brand in the eyes of consumers and the retail trade, which might negatively impact our overall business in general and impair our ability to continue our retail licensing program.\n\n\n\u00a0\n\n\nAdditionally, there is no assurance that any supplemental sources of supply would be capable of meeting our specifications and quality standards on a timely and consistent basis or that the financial terms of such supply arrangement will be as favorable as our present terms with our hot dog or French fry supplier, as the case may be.\n\n\n\u00a0\n\n\nAny of the foregoing occurrences may cause disruptions in the supply of our hot dog or French fry products, as the case may be, and may damage our franchisees and our Branded Product Program customers, which could result in a material adverse effect on our business, results of operations or financial condition.\n\n\n\u00a0\n\n\nOur earnings and business growth strategy depend in large part on the success of our product licensees and product manufacturers. Our reputation and the reputation of our brand may be harmed by actions taken by our product licensees or product manufacturers that are otherwise outside of our control.\n\n\n\u00a0\n\n\nA significant portion of our earnings has come from royalties paid by our product licensees, such as Smithfield Foods, Inc., Saratoga Food Specialties, Inc., a wholly-owned subsidiary of Solina, and Lamb Weston Holdings, Inc. Although our agreements with these licensees contain numerous controls and safeguards, and we monitor the operations of our product licensees, our licensees are independent contractors, and their employees are not our employees. Accordingly, we cannot necessarily control the performance of our licensees under their license agreements, including without limitation, the licensee\u2019s continued best efforts to manufacture our products for retail distribution and our foodservice businesses, to timely deliver the licensed products, to market the licensed products and to assure the quality of the licensed products produced and/or sold by a product licensee. Any shortcoming in the quality, quantity and/or timely delivery of a licensed product is likely to be attributed by consumers to an entire brand\u2019s reputation, potentially adversely affecting our business, results of operations and financial condition. In addition, a licensee\u2019s failure to effectively market the licensed products may result in decreased sales, which would adversely affect our business, results of operations and financial condition. Also, to the extent that the terms and conditions of any of these license agreements change or we change any of our product licensees, our business, results of operations and financial condition could be materially affected. \n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n22\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe quick-service restaurant business is highly competitive, and that competition could lower revenues, margins and market share.\n\n\n\u00a0\n\n\nThe quick-service restaurant business of the foodservice industry is intensely competitive with respect to taste preferences, price, service, location, brand reputation, advertising and promotional initiatives, personnel, and the type and quality of menu offerings. We and our franchisees compete with international, national, regional and local restaurant chains. Other key competitive factors include the number and location of restaurants, quality and speed of service, attractiveness of facilities, effectiveness of digital and social media engagement, and new product development. We anticipate competition will continue to focus on quality, convenience and pricing. Many of our competitors have substantially larger marketing budgets, which may provide them with a competitive advantage. Changes in pricing or other marketing strategies by these competitors can have an adverse impact on our sales, earnings and growth. For example, many of those competitors have adopted \u201cvalue pricing\u201d strategies intended to lure customers away from other companies, including our Company. Consequently, these strategies could have the effect of drawing customers away from companies which do not engage in discount pricing and could also negatively impact the operating margins of competitors which attempt to match their competitors\u2019 price reductions. Extensive price discounting in the quick-service restaurant business could have an adverse effect on our financial results.\n\n\n\u00a0\n\n\nIn addition, we and our franchisees compete within the foodservice market and the quick-service restaurant business not only for customers but also for management and hourly employees and qualified franchisees. If we are unable to maintain our competitive position, we could experience downward pressure on prices, lower demand for products, reduced margins, the inability to take advantage of new business opportunities and the loss of market share.\n\n\n\u00a0\n\n\nWe also face growing competition from food delivery services including virtual kitchens, particularly in urbanized areas, and this trend, which accelerated following the onset of the COVID-19 pandemic, may continue.\n\n\n\u00a0\n\n\nChanges in economic, market and other conditions could adversely affect us and our franchisees, and thereby our operating results.\n\n\n\u00a0\n\n\nThe quick-service restaurant business is affected by changes in international, national, regional, and local economic conditions, consumer preferences and spending patterns, demographic trends, consumer perceptions of food safety and health, diet and nutrition, weather, traffic patterns, the type, number and location of competing restaurants, and the effects of war or terrorist activities and any governmental responses thereto. Factors such as inflation, higher costs for each of food, labor, benefits and utilities, the availability and cost of suitable sites, rising insurance rates, state and local regulations and licensing requirements, legal claims, and the availability of an adequate number of qualified management and hourly employees also adversely affect restaurant operations and administrative expenses. Our ability and our franchisees\u2019 ability to finance new restaurant development, to make improvements and additions to existing restaurants, and the acquisition of restaurants from, and sale of restaurants to, franchisees is affected by economic conditions, including interest rates and other government policies impacting land and construction costs and the cost and availability of borrowed funds.\n\n\n\u00a0\n\n\nFurther, we are dependent upon consumer discretionary spending and are subject to changes in or uncertainty regarding macroeconomic conditions in the United States and in other regions of the world. If the economy experiences a downturn or there are other uncertainties regarding economic prosperity, or other negative global and local macroeconomic conditions, consumer spending may be negatively impacted which may adversely affect our sales and operating profit.\n\n\n\u00a0\n\n\nCurrent restaurant locations may become unattractive, and attractive new locations may not be available for a reasonable price, if at all, which may reduce our revenue.\n\n\n\u00a0\n\n\nThe success of any restaurant depends in substantial part on its location. There can be no assurance that current locations will continue to be attractive as demographic patterns change. Neighborhood or economic conditions where restaurants are located could decline in the future, thus resulting in potentially reduced sales in those locations. If we and our franchisees cannot obtain desirable additional and alternative locations at reasonable prices, our results of operations would be adversely affected.\n\n\n\u00a0\n\n\nAny perceived or real health risks related to the food industry could adversely affect our ability to sell our products\n.\n\n\n\u00a0\n\n\nWe are subject to risks affecting the food industry generally, including risks posed by the following: food spoilage or food contamination; consumer product liability claims; product tampering; and the potential cost and disruption of a product recall.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n23\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur products are susceptible to contamination by disease-producing organisms, or pathogens, such as salmonella, norovirus, hepatitis A, trichinosis and generic E. coli. In addition, our beef products are also subject to the risk of contamination from bovine spongiform encephalopathy. Because these pathogens are generally found in the environment, there is a risk that these pathogens could be introduced to our products as a result of improper handling at the manufacturing, processing, foodservice or consumer level. Our suppliers\u2019 manufacturing facilities and products, as well as our franchisee and Company-owned restaurant operations, are subject to extensive laws and regulations relating to health, food preparation, sanitation and safety standards. Difficulties or failures in obtaining any required licenses or approvals or otherwise complying with such laws and regulations could adversely affect our revenue. Furthermore, we cannot assure you that compliance with governmental regulations by our suppliers or in connection with restaurant operations will eliminate the risks related to food safety.\n\n\n\u00a0\n\n\nEvents reported in the media, or\n \nincidents involving food-borne illnesses or food tampering, whether or not accurate, can cause damage to our brand\u2019s reputation and affect sales and profitability. Reports, whether true or not, of food-borne illnesses (such as e-coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis or salmonella) and injuries caused by food tampering have in the past severely injured the reputations of participants in the quick-service restaurant business and could in the future affect our business as well. Our brand\u2019s reputation is an important asset to the business; as a result, anything that damages our brand\u2019s reputation could immediately and severely hurt system-wide sales and, accordingly, revenue and profits. If customers become ill from food-borne illnesses or food tampering, we could also be forced to temporarily close some, or all, restaurants. In addition, instances of food-borne illnesses or food tampering, even those occurring solely at the restaurants of competitors, could, by resulting in negative publicity about the restaurant industry, adversely affect system sales on a local, regional or system-wide basis. A decrease in customer traffic as a result of these health concerns or negative publicity, or as a result of a temporary closure of any of our Company-owned restaurants or our franchisees\u2019 restaurants, could materially harm our business, results of operations and financial condition. \n \n\n\n\u00a0\n\n\nAdditionally, we may be subject to liability if the consumption of any of our products causes injury, illness, or death. A significant product liability judgment or a widespread product recall may negatively impact our sales and profitability for a period of time depending on product availability, competitive reaction, and consumer attitudes. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. Injury to our brand\u2019s reputation would likely reduce revenue and profits.\n\n\n\u00a0\n\n\nNegative publicity, including complaints on social media platforms and other internet-based communications, could damage our reputation and harm our guest traffic, and in turn, negatively impact our business, financial condition, results of operations and prospects.\n\n\n\u00a0\n\n\nThere has been a marked increase in the use of social media platforms and other forms of internet-based communications, including video sharing and instant messaging platforms that allow individuals to access a broad audience of consumers and other interested persons. The availability of information on these social media platforms and internet-based communications is virtually immediate, as is its impact. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning our business and products may be posted on such platforms at any time. Information posted may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects or business. The harm may be immediate without affording us an opportunity for redress or correction. Such platforms could also be used for dissemination of trade secret information, compromising valuable Company assets. The dissemination of information online, regardless of its accuracy, could harm our business, results of operations and financial condition.\n\n\n\u00a0\n\n\nThe use of social media has become a larger element of our advertising and promotional efforts. These marketing initiatives may not be successful, resulting in expenses incurred without a corresponding increase in sales, increased customer awareness or engagement or brand awareness.\n\n\n\u00a0\n\n\nChanging health or dietary preferences may cause consumers to avoid products offered by us in favor of alternative foods.\n\n\n\u00a0\n\n\nThe foodservice industry is affected by consumer preferences and perceptions, including calories, sodium, carbohydrates or fat. If prevailing health or dietary preferences, perceptions and governmental regulation cause consumers to avoid the products we offer in favor of alternative or healthier foods, demand for our products may be reduced and could materially adversely affect our business, results of operations and financial condition.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n24\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe may not be able to adequately protect our intellectual property, which could decrease the value of our business or the value of our brands and products.\n\n\n\u00a0\n\n\nThe success of our business depends on the continued ability to use existing trademarks, service marks and other components of each of our brands in order to increase brand awareness and further develop branded products. We may not be able to adequately protect our trademarks, and the use of these trademarks may result in liability for trademark infringement, trademark dilution or unfair competition. All of the steps we have taken to protect our intellectual property may not be adequate.\n\n\n\u00a0\n\n\nWe have registered or applied to register many of our trademarks and service marks both in the United States and in foreign countries. Due to the differences in foreign trademark laws, our trademark rights may not receive the same degree of protection in foreign countries as they would in the United States. We also cannot assure you that our trademark and service mark applications will be approved. In addition, third parties may oppose our trademark and service mark applications, or otherwise challenge our use of the trademarks or service marks. In the event that our trademarks or service marks are successfully challenged, we could be forced to rebrand our products and services, which could result in loss of brand recognition, and could require us to devote resources towards advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe upon our marks, or that we will have adequate resources to enforce our trademarks or service marks.\n\n\n\u00a0\n\n\nWe also license third party franchisees and other licensees to use our trademarks and service marks. We enter into franchise agreements with our franchisees and license agreements with other licensees which govern the use of our trademarks and service marks. Although we make efforts to monitor the use of our trademarks and service marks by our franchisees and other licensees, we cannot assure you that these efforts will be sufficient to ensure that our franchisees and other licensees abide by the terms of the trademark licenses. In the event that our franchisees and licensees fail to do so, our trademark and service mark rights could be diluted.\n\n\n\u00a0\n\n\nOur earnings and business growth strategy depend in large part on the success of our restaurant franchisees and on new restaurant openings. Our corporate reputation or brand reputation may be harmed by actions taken by restaurant franchisees that are otherwise outside of our control.\n\n\n\u00a0\n\n\nA portion of our earnings comes from royalties, fees and other amounts paid by our restaurant franchisees. The opening and success of franchised restaurants depends on various factors, including the demand for our franchises and the selection of appropriate franchisee candidates, the availability of suitable restaurant sites, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the availability of financing and the financial and other capabilities of our franchisees and area developers. We cannot assure you that area developers planning the opening of franchised restaurants will have the business abilities or sufficient access to financial resources necessary to open the restaurants required by their agreements. We cannot assure you that franchisees will successfully participate in our strategic initiatives or operate their restaurants in a manner consistent with our concept and standards. Our franchisees are independent contractors, and their employees are not our employees. We provide training and support to, and monitor the operations of, our franchisees, but the quality of their restaurant operations may be diminished by any number of factors beyond our control. Consequently, the franchisees may not successfully operate their restaurants in a manner consistent with our high standards and requirements, and franchisees may not hire and train qualified managers and other restaurant personnel. Any operational shortcoming of a franchised restaurant is likely to be attributed by consumers to an entire brand or our system, thus damaging our corporate or brand reputation, potentially adversely affecting our business, results of operations and financial condition.\n\n\n\u00a0\n\n\nGrowth in our restaurant revenue and earnings is significantly dependent on new restaurant openings. Numerous factors beyond our control may affect restaurant openings. These factors include but are not limited to: our ability to attract new franchisees; the availability of site locations for new restaurants; the ability of potential restaurant owners to obtain financing, which may become more difficult due to current market conditions and rising interest rates; the ability of restaurant owners to hire, train and retain qualified operating personnel; construction and development costs of new restaurants, particularly in highly-competitive markets; the ability of restaurant owners to secure required governmental approvals and permits in a timely manner, or at all; and adverse weather conditions.\n\n\n\u00a0\n\n\nWe cannot assure you that franchisees will renew their franchise agreements or that franchised restaurants will remain open. Closings of franchised restaurants are expected in the ordinary course and may cause our royalty revenues and financial performance to decline. Our principal competitors may have greater influence over their respective restaurant systems than we do because of their significantly higher percentage of company restaurants and/or ownership of franchisee real estate and, as a result, may have a greater ability to implement operational initiatives and business strategies, including their marketing and advertising programs.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n25\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAs our franchisees are independent operators, we have limited influence over their ability to invest in other businesses or incur excessive indebtedness. Some of our franchisees have invested in other businesses, including other restaurant concepts. Such franchisees may use the cash generated by their Nathan\u2019s restaurants to expand their other businesses or to subsidize losses incurred by such businesses. Additionally, as independent operators, franchisees do not require our consent to incur indebtedness. Consequently, our franchisees have in the past, and may in the future, experience financial distress as a result of over-leveraging. To the extent that our franchisees use the cash from their Nathan\u2019s restaurants to subsidize their other businesses or experience financial distress, due to over-leveraging, delayed or reduced payments of royalties, advertising fund contributions and rents for properties we lease to them, or otherwise, it could have a material adverse effect on our business, results of operations and financial condition. In addition, lenders to our franchisees may be less likely to provide current or prospective franchisees necessary financing on favorable terms, or at all, due to market conditions and operating results.\n\n\n\u00a0\n\n\nWe rely on the performance of major retailers, wholesalers, specialty distributors and mass merchants for the success of our business, and should they perform poorly or give higher priority to other brands or products, our business could be adversely affected.\n\n\n\u00a0\n\n\nWe sell our products to retail outlets and wholesale distributors including, traditional supermarkets, mass merchandisers, warehouse clubs, wholesalers, food service distributors and convenience stores. The replacement by or poor performance of our major wholesalers, retailers or chains or our inability to collect accounts receivable from our customers could materially and adversely affect our business, results of operations and financial condition. In addition, our customers offer branded and private label products that compete directly with our products for retail shelf space and consumer purchases. Accordingly, there is a risk that our customers may give higher priority to their own products or to the products of our competitors. In the future, our customers may not continue to purchase our products or provide our products with adequate levels of promotional support. A significant decline in the purchase of our products would have a material adverse effect on our business, results of operations and financial condition.\n\n\n\u00a0\n\n\nThe sophistication and buying power of our customers could have a negative impact on profits.\n\n\n\u00a0\n\n\nOur customers, such as supermarkets, warehouse clubs, and food distributors, have continued to consolidate, resulting in fewer customers with which to do business. These consolidations and the growth of supercenters have produced large, sophisticated customers with increased buying power and negotiating strength who are more capable of resisting price increases and can demand lower pricing, increased promotional programs, or specialty tailored products. In addition, larger retailers have the scale to develop supply chains that permit them to operate with reduced inventories or to develop and market their own retailer brands. If the larger size of these customers results in additional negotiating strength and/or increased private label or store brand competition, our profitability could decline.\n\n\n\u00a0\n\n\nConsolidation also increases the risk that adverse changes in our customers\u2019 business operations or financial performance will have a corresponding material adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases.\n\n\n\u00a0\n\n\nOur annual and quarterly financial results may fluctuate depending on various factors, many of which are beyond our control, and, if we fail to meet the expectations of investors, our share price may decline.\n\n\n\u00a0\n\n\nOur sales and operating results can vary from quarter to quarter and year to year depending on various factors, many of which are beyond our control. Certain events and factors may directly and immediately decrease demand for our products. These events and factors include:\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\ncontinued recovery from the COVID-19 pandemic;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nchanges in customer demand;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nsales promotions by Nathan\u2019s and its competitors;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nvariations in the timing and volume of Nathan\u2019s sales and franchisees\u2019\u00a0sales;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nchanges in the terms of our existing license/supply agreements and/or the replacement of existing licenses or suppliers;\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n26\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nchanges in average same-store sales and customer visits;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nvariations in the price, availability and shipping costs of supplies;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\ntax expense, asset impairment charges and other non-operating costs;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nseasonal effects on demand for Nathan\u2019s products;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nunexpected slowdowns in new store development efforts;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nchanges in competitive and macroeconomic conditions in the United States and in other regions of the world, including the Russia-Ukraine conflict;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nchanges in the cost or availability of ingredients or labor and our inability to offset these higher costs with price increases;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nweather and acts of God; and\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nchanges in the number of franchises sold and franchise agreement renewals.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur operations are influenced by adverse weather conditions.\n\n\n\u00a0\n\n\nWeather, which is unpredictable, can impact our sales. Harsh weather conditions that keep customers from dining out result in lost opportunities for our Company-owned and our franchisees\u2019 restaurants. A heavy snowstorm or a tropical storm or hurricane in the Northeast can shut down an entire metropolitan area, resulting in a reduction in sales in that area at Company-owned and franchised restaurants. Our fourth quarter includes winter months and historically has a lower level of sales at Company-owned and franchised restaurants. Additionally, our Company-owned restaurants at Coney Island are heavily dependent on favorable weather conditions during the summer season. Rain during the weekends and/or unseasonably cold temperatures will negatively impact the number of patrons going to the Coney Island beach locations. Because a significant portion of our restaurant operating costs is fixed or semi-fixed in nature, the loss of sales during these periods adversely impacts our operating margins, and can result in restaurant operating losses. For these reasons, a quarter-to-quarter comparison may not be a good indication of our performance or how it may perform in the future.\n\n\n\u00a0\n\n\nDue to the concentration of our restaurants in particular geographic regions, our business results could be impacted by the adverse economic conditions prevailing in those regions regardless of the state of the national economy as a whole.\n\n\n\u00a0\n\n\nAs of March 26, 2023, we and our franchisees (including locations operated pursuant to our Branded Menu Program) operated Nathan\u2019s restaurants in 17\n \nstates and 13 foreign countries. As of March 26, 2023, the highest concentration of operating units was in the Northeast, principally in New York and New Jersey. This geographic concentration in the Northeast can cause economic conditions in particular areas of the country to have a disproportionate impact on our overall results of operations. It is possible that adverse economic conditions in states or regions that contain a high concentration of Nathan\u2019s restaurants could have a material adverse impact on our business, results of operations and financial condition.\n\n\n\u00a0\n\n\nWe rely extensively on computer systems, point of sales system and information technology to manage our business. Any disruption in our computer systems, point of sales system or information technology may adversely affect our ability to run our business.\n\n\n\u00a0\n\n\nWe are significantly dependent upon our computer systems, point of sales system and information technology to properly conduct our business. A failure or interruption of computer systems, point of sales systems or information technology could result in the loss of data, business interruptions or delays in business operations. Many of these systems are provided and managed by third parties, and we are reliant on these third-party providers to implement protective measures that ensure the security, availability and integrity of their systems. Despite our considerable efforts to secure our computer systems and these third-party systems, security breaches, such as unauthorized access and computer viruses, may occur resulting in system disruptions, shutdowns or unauthorized disclosure of confidential information. Any security breach of our computer systems, and/or these third-party systems may result in adverse publicity, loss of sales and profits, penalties or loss resulting from misappropriation of information.\n\n\n\u00a0\n\n\nIf any of our critical information technology systems were to become unreliable, unavailable, compromised or otherwise fail, and we were unable to recover in a timely manner, we could experience an interruption that could have a material adverse effect on our business, results of operations and financial condition.\n\n\n\u00a0\n\n\n\n\n27\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCyberattacks and breaches could cause operational disruptions, fraud or theft of sensitive information. \n\n\n\u00a0\n\n\nAspects of our operations are reliant upon internet-based activities, such as ordering supplies and back-office functions such as accounting and transaction processing, making payments and accepting credit card payments in our restaurants, as well as at third party online ordering and delivery businesses, processing payroll and other administrative functions, etc. For instance, if we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs.\n\n\n\u00a0\n\n\nWe also use third-party vendors. While we select third-party vendors carefully, we do not control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyberattacks and security breaches at a vendor could adversely affect our ability to deliver products and services to conduct our business.\n\n\n\u00a0\n\n\nAlthough we have taken measures to protect our technology systems and infrastructure, including working to upgrade our existing information technology systems and provide employee training around phishing, malware and other cyber risks, there can be no assurance that we will be successful and fully protected against cyber risks and security breaches. A security breach could result in operational disruptions, theft or fraud, or exposure of sensitive information to unauthorized parties. Such events could result in additional costs related to operational inefficiencies, damages, claims or fines.\n\n\n\u00a0\n\n\nCatastrophic events may disrupt our business.\n\n\n\u00a0\n\n\nUnforeseen events, or the prospect of such events, including war, terrorism and other international conflicts, including the Russia-Ukraine conflict, public health issues such as epidemics or pandemics (including, without limitation, as a result of the COVID-19 pandemic), labor unrest and natural disasters such as earthquakes, hurricanes or other extreme adverse weather and climate conditions, whether occurring in the United States or abroad, could disrupt our operations, disrupt the operations of franchisees, suppliers or customers, or result in political or economic instability. These events could negatively impact consumer spending, thereby reducing demand for our products, or the ability to receive products from suppliers. We do not have insurance policies that insure against certain of these risks. To the extent that we do maintain insurance with respect to some of these risks, our receipt of the proceeds of such policies may be delayed or the proceeds may be insufficient to offset our losses fully.\n\n\n\u00a0\n\n\nOur international operations are subject to various factors of uncertainty.\n\n\n\u00a0\n\n\nOur business outside of the United States is subject to a number of additional factors, including international economic and political conditions, differing cultures and consumer preferences, currency regulations and fluctuations, diverse government regulations and tax systems, uncertain or differing interpretations of rights (including intellectual property rights) and obligations in connection with international franchise agreements and the collection of royalties from international franchisees, the availability and cost of land and construction costs, and the availability of appropriate franchisees. In developing markets, we may face risks associated with new and untested laws and judicial systems. Although we believe we have developed the support structure required for international growth, there is no assurance that such growth will occur or that international operations will be profitable.\n\n\n\u00a0\n\n\nOur business operations and future development could be significantly disrupted if we lose key personnel.\n\n\n\u00a0\n\n\nThe success of our business continues to depend to a significant degree upon the continued contributions of our senior officers and key employees, both individually and as a group. Our future performance will be substantially dependent, in particular, on our ability to retain and motivate our executive officers, for certain of whom we currently have employment agreements in place. The loss of the services of any of our executive officers could have a material adverse effect on our business, financial condition, results of operations and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n28\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAdditionally, our Company-owned restaurants and franchised restaurants are highly service-oriented, and our success depends in part upon the ability to attract, retain and motivate a sufficient number of qualified employees, including franchisee management, restaurant managers and other crew members. The market for qualified employees in the retail food industry is very competitive. We are experiencing and may continue to experience a shortage of labor for positions in our Company-owned restaurants and franchised restaurants, due to the current competitive labor market.\n\n\n\u00a0\n\n\nWe face risks of litigation and pressure tactics, such as strikes, boycotts and negative publicity from customers, franchisees, suppliers, employees and others, which could divert our financial, and management resources and which may negatively impact our financial condition and results of operations.\n\n\n\u00a0\n\n\nClass action lawsuits have been filed, and may continue to be filed, against various quick-service restaurants alleging, among other things, that quick-service restaurants have failed to disclose the health risks associated with high-fat foods and that quick-service restaurant marketing practices have targeted children and encouraged obesity. In addition, we face the risk of lawsuits and negative publicity resulting from injuries, including injuries to infants and children, allegedly caused by our products, toys and other promotional items available in our restaurants.\n\n\n\u00a0\n\n\nIn addition, activist groups, including animal rights activists and groups acting on behalf of franchisees, the workers who work for suppliers and others, have in the past, and may in the future, use pressure tactics to generate adverse publicity by alleging, for example, inhumane treatment of animals by our suppliers, poor working conditions or unfair purchasing policies. These groups may be able to coordinate their actions with other groups, threaten strikes or boycotts or enlist the support of well-known persons or organizations in order to increase the pressure on us to achieve their stated aims. In the future, these actions or the threat of these actions may force us to change our business practices or pricing policies, which may have a material adverse effect on our business, results of operations and financial condition.\n\n\n\u00a0\n\n\nFurther, we may be subject to employee, franchisee and other claims in the future based on, among other things, mismanagement of the system, unfair or unequal treatment, discrimination, harassment, wrongful termination and wage, rest break and meal break issues, including those relating to overtime compensation. We have been subject to these types of claims in the past, and if one or more of these claims were to be successful or if there is a significant increase in the number of these claims, our business, results of operations and financial condition could be harmed.\n\n\n\u00a0\n\n\nRisks Related to Regulatory Matters\n\n\n\u00a0\n\n\nChanges to minimum wage rates have increased our labor costs.\n\n\n\u00a0\n\n\nWe must comply with the Fair Labor Standards Act and various federal and state laws governing minimum wages.\u00a0 Increases in the minimum wage and\u00a0labor regulations\u00a0have increased our\u00a0labor costs.\u00a0 The minimum hourly wage in New York state for fast food workers of restaurant chains with 30 or more locations nationwide is $15.00 per hour. Additionally, the federal government and a number of other states are evaluating various proposals to increase their respective minimum wage. As minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage. As a\u00a0result, we anticipate that our labor costs will continue to increase.\u00a0 If we are unable to pass on these higher costs through price increases, our margins and profitability as well as the profitability and margins of our franchisees\u00a0will be adversely impacted which could have a material adverse effect on our business, results of operations or financial condition. Our business could be further negatively impacted if the decrease in margins for our franchisees results in the potential loss of new franchisees or the closing of a significant number of existing franchised restaurants.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n29\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nChanges in franchise regulations and laws could impact our ability to obtain or retain licenses or approvals and adversely affect our business, financial condition, results of operations and prospects.\n\n\n\u00a0\n\n\nWe are subject to federal statutes and regulations, including the rules promulgated by the U.S. Federal Trade Commission, as well as certain state laws governing the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition provisions and on provisions concerning the termination or non-renewal of a franchise. Some states require that certain materials be filed for a franchisor to be registered and approved, before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could have a material adverse effect on our business, financial condition, results of operations and prospects. The FTC is also considering adopting changes to (and potentially bans upon) enforcement of covenants against competition and similar contractual arrangements between a business and its workers; although as announced by the FTC, that proposed regulation would not apply to franchisor-franchisee relationships. However, the FTC has sought comment on whether the pending regulation should apply to the franchisor-franchisee relationship and we cannot predict the form in which it will ultimately be promulgated by the FTC. In the form that the FTC originally proposed, we do not expect the pending non-competition rule to significantly impact our business; however, should the FTC limit enforcement of covenants against competition in franchise relationships, that might have a significant impact on our operations.\n\n\n\u00a0\n\n\nWe are subject to health, employment, environmental and other government regulations, and failure to comply with existing or future government regulations could expose us to litigation, damage our corporate reputation or the reputation of our brands and lower profits.\n\n\n\u00a0\n\n\nWe and our franchisees are subject to various federal, state and local laws, rules or regulations affecting our businesses. To the extent that the standards imposed by local, state and federal authorities are inconsistent, they can adversely affect popular perceptions of our business and increase our exposure to litigation or governmental investigations or proceedings. We may be unable to manage effectively the impact of new, potential or changing regulations that affect or restrict elements of our business. The successful development and operation of restaurants depends to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use (including the placement of drive-thru windows), environmental (including litter), traffic and other regulations. There can be no assurance that we and our franchisees will not experience material difficulties or failures in obtaining the necessary licenses or approvals for new restaurants which could delay the opening of such restaurants in the future. Restaurant operations are also subject to licensing and regulation by state and local departments relating to health, food preparation, sanitation and safety standards, federal and state labor laws (including applicable minimum wage requirements, overtime, working and safety conditions and citizenship requirements), federal and state laws prohibiting discrimination and other laws regulating the design and operation of facilities. If we fail to comply with any of these laws, we may be subject to governmental action or litigation, and accordingly our reputation could be harmed.\n\n\n\u00a0\n\n\nInjury to us or our brand\u2019s reputation would, in turn, likely reduce revenue and profits. In addition, difficulties or failures in obtaining any required licenses or approvals could delay or prevent the development or opening of a new restaurant or renovations to existing restaurants, which would adversely affect our revenue.\n\n\n\u00a0\n\n\nFailure by third-party manufacturers or suppliers of raw materials to comply with food safety, environmental or other regulations may disrupt our supply of certain products and adversely affect our business. \n\n\n\u00a0\n\n\nWe rely on third-party manufacturers to produce our products and on other suppliers to supply raw materials. Such manufacturers and other suppliers, whether in the United States or outside the United States, are subject to a number of regulations, including food safety and environmental regulations. Failure by any of our manufacturers or other suppliers to comply with regulations, or allegations of compliance failure, may disrupt their operations. Disruption of the operations of a manufacturer or other suppliers could disrupt our supply of product or raw materials, which could have an adverse effect on our business, results of operations, and financial condition. Additionally, actions we may take to mitigate the impact of any such disruption or potential disruption, including increasing inventory in anticipation of a potential production or supply interruption, may adversely affect our business, results of operations, and financial condition.\n\n\n\u00a0\n\n\nSupply chain risk could increase our costs and limit the availability of ingredients and supplies that are critical to our operations. The markets for some of our ingredients, such as beef and beef trimmings are particularly volatile due to factors beyond our control such as limited sources, seasonal shifts, climate conditions and industry demand, including as a result of animal disease outbreaks, food safety concerns, product recalls and government regulation. In addition, we have a limited number of suppliers and distributors. We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; however, beginning in the latter part of fiscal 2022 and continuing during fiscal 2023 costs for certain supplies and ingredients, such as packaging, beef and beef trimmings, and freight, increased materially and rapidly, which combined with inflationary pressures could continue. Such factors may have a material adverse effect on our business, results of operations and financial condition.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n30\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe are subject to many federal, state and local laws, as well as statutory and regulatory requirements. Failure to comply with, or changes in these laws or requirements, could have an adverse impact on our business.\n\n\n\u00a0\n\n\nThe National Labor Relations Board (\u201cNLRB\u201d) is considering, and has previously considered whether to hold certain franchisors responsible as a \u201cjoint employer\u201d of its franchisees\u2019 staff under certain fact patterns. There is also the possibility of administrative action from other agencies, state governments, and in private lawsuits that may allege that a franchisor and its franchisee \u201cjointly employ\u201d the franchisee\u2019s staff, that the franchisor is responsible for the franchisees\u2019 staff (under theories of apparent agency, ostensible agency, or actual agency), or otherwise. If the United States Department of Labor and agencies such as the Occupational Safety and Health Administration and the NLRB take a more aggressive position on defining and enforcing joint employer status, or if Congress passes the proposed \u201cPRO Act,\u201d and it is signed into law, that might change the status quo and expose Nathan\u2019s to the possibility of being deemed a \u201cjoint employer\u201d of our franchisees\u2019 staff together with our franchisees and possibly to some franchisees being reclassified as \u201cemployees.\u201d\n\n\n\u00a0\n\n\nAmong other things, a determination that Nathan's and its franchisees are joint employers of one or more franchisees\u2019 staff may make it easier to organize our franchisees\u2019 staff into unions, provide the staff and their union representatives with bargaining power to request that we have our franchisees raise wages, and make it more expensive and less profitable to operate a Nathan\u2019s franchised restaurant. A decrease in profitability or the closing of a significant number of franchised restaurants could significantly impact our business (as well as our franchisees\u2019 businesses), and we may also be impacted if the NLRB or a private party, successfully brought an action alleging that we are a \u201cjoint employer\u201d of our franchisees\u2019 staff, all of which might impact our results of operations and financial condition.\n\n\n\u00a0\n\n\nAdditionally, state and local laws such as the recently passed Fast Food Accountability and Standards (FAST) Recovery Act (AB257) in California may require wage increases and working hour and working condition standards that may increase our costs without corresponding benefits. Although implementation and enforcement of the FAST Act is stayed pending a referendum in 2024, it is possible that it will pass, and that other jurisdictions may pass similar laws.\n\n\n\u00a0\n\n\nCalifornia also adopted a new law to address data privacy. The California Consumer Privacy Act (\u201cCCPA\u201d) took effect at the beginning of 2020, and imposes stringent data security standards, which might apply more broadly than only within the borders of that state (for example, if a California resident buys products or has them shipped into the state and pays with a credit or debit card). Other states, including Connecticut, Colorado, Illinois, New York, Utah and Virginia have since adopted laws that apply to data and other biometric technology which may be broadly interpreted. It remains uncertain whether the CCPA and the laws adopted in other states will have a material impact on our operations or that of our franchisees.\n\n\n\u00a0\n\n\nOur business is subject to an increasing focus on Environmental, Social, and Governance (ESG) matters.\n\n\n\u00a0\n\n\nIn recent years, there has been an increasing focus by stakeholders \u2013 including employees, franchisees, customers, suppliers, governmental and non-governmental organizations, and investors \u2013 on ESG matters. A failure, whether real or perceived, to address ESG could adversely affect our business, including by heightening other risks disclosed in this Item 1A, \u201cRisk Factors.\u201d In the restaurant industry, concerns have been expressed regarding energy management, water management, food and packaging waste management, supply chain management and labor practices.\n\n\n\u00a0\n\n\nWe may also face increased pressure from stakeholders to provide expanded disclosure and establish additional commitments, targets or goals, and take actions to meet them, which could expose us to additional market, operational, execution and reputational costs and risks.\n\n\n\u00a0\n\n\nChanges in tax laws and unfavorable resolution of tax contingencies could adversely affect our tax expense. \n\n\n\u00a0\n\n\nOur future effective tax rates could be adversely affected by changes in tax laws, both domestically and internationally. From time to time, the United States Congress and foreign, state and local governments consider legislation that could increase our effective tax rates. If changes to applicable tax laws are enacted, our results of operations could be negatively impacted. Our tax returns and positions (including positions regarding jurisdictional authority of foreign governments to impose tax) are subject to review and audit by federal, state, local and international taxing authorities. An unfavorable outcome to a tax audit could result in higher tax expense, thereby negatively impacting our results of operations.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n31\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nRisks Related to Organizational Structure\n\n\n\u00a0\n\n\nOur certificate of incorporation and by-laws and other corporate documents include anti-takeover provisions which may deter or prevent a takeover attempt.\n\n\n\u00a0\n\n\nSome provisions of our certificate of incorporation, by-laws, other corporate documents, including the terms and condition of our Notes, and provisions of Delaware law may discourage takeover attempts and hinder a merger, tender offer or proxy contest targeting us, including transactions in which stockholders might receive a premium for their shares. This may limit the ability of stockholders to approve a transaction that they may think is in their best interest.\n\n\n\u00a0\n\n\nThe corporate documents include:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nEmployment Contracts.\n\u00a0\u00a0The employment agreements between us and each of Howard M. Lorber and Eric Gatoff provide that in the event there is a change in control of Nathan\u2019s, the employee has the option, exercisable within one year for each of Messrs. Lorber and Gatoff, of his becoming aware of the change in control, to terminate his employment agreement. Upon such termination, Mr. Gatoff has the right to receive a lump sum payment equal to his salary and annual bonus for a one-year period, and Mr. Lorber has the right to receive a lump sum payment equal to the greater of (i) his salary and annual bonuses for the remainder of the employment term or (ii) 2.99 times his salary and annual bonus plus the difference between the exercise price of any exercisable options having an exercise price of less than the then current market price of our common stock and such current market price. Mr. Lorber will also receive a tax gross up payment to cover any excise tax.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWhile we have approved a quarterly dividend policy, there can be no assurance as to the declaration of future dividends or the amount of such dividends. \n\n\n\u00a0\n\n\nOur declaration and payment of future cash dividends \u00a0are subject to the final determination \u00a0by our Board of Directors that (i) the dividend will be made in compliance with laws applicable to the declaration and payment of cash dividends, including Section 170 of the Delaware General \u00a0Business Corporation Law, (ii) the dividend complies with the terms of the Indenture, and (iii) the payment of dividends remains in our best interests, which determination will be based on a number of factors, including the impact of changing laws and regulations, economic conditions, our results of operations and/or financial condition, capital resources, the ability to satisfy financial covenants and other factors considered relevant by the Board of Directors. There can be no assurance our Board of Directors will approve the payment of cash dividends in the future or the amount of a cash dividend. Any discontinuance of the payment of a dividend or changes to the amount of a dividend compared to prior dividends could cause our stock price to decline.\n\n\n\u00a0\n\n\nRisks Related to the Notes\n\n\n\u00a0\n\n\nOur substantial indebtedness makes us more sensitive to adverse economic conditions, may limit our ability to plan for or respond to significant changes in our business, and requires a significant amount of cash to service our debt payment obligations that we may be unable to generate or obtain.\n\n\n\u00a0\n\n\nAs of March 26, 2023, we had total outstanding indebtedness of $80,000,000 which is due in 2025. Subject to the terms of any future agreements, we and our subsidiaries may be able to incur additional indebtedness in the future, which would increase the risks related to our high level of indebtedness. If new debt is added to our existing debt levels, the related risks that we face would intensify and we may not be able to meet all our debt obligations, including the repayment of the Notes.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n32\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nSpecifically, our high level of indebtedness could have important potential consequences, including, but not limited to:\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nincreasing our vulnerability to, and reducing our flexibility to plan for and respond to, adverse economic and industry conditions and changes in our business and the competitive environment;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nmake it more difficult for us to satisfy our other financial obligations, including our obligations relating to the Notes;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nrequiring the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions, dividends, share repurchases or other corporate purposes;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nmake it more difficult for us to satisfy our obligations to the holders of the Notes, resulting in possible defaults on and acceleration of such indebtedness;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nlimit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nplace us at a competitive disadvantage compared to our competitors that have less debt;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nincreasing our vulnerability to a downgrade of our credit rating, which could adversely affect our cost of funds, liquidity, value and trading of the Notes and access to capital markets;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nrestricting us from making strategic acquisitions or causing us to make non-strategic divestitures;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nlimit our ability to borrow additional funds or increase our cost of borrowing;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nplacing us at a disadvantage compared to other less leveraged competitors or competitors with comparable debt at more favorable interest rates;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nincreasing our exposure to the risk of increased interest rates insofar as current and future borrowings are subject to variable rates of interest;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nmaking it more difficult for us to repay, refinance or satisfy our obligations relating to the Notes;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nlimiting our ability to borrow additional funds in the future and increasing the cost of any such borrowing;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nimposing restrictive covenants on our operations as the result of the terms of our indebtedness, which, if not complied with, could result in an event of default, which in turn, if not cured or waived, could result in the acceleration of our debts, including the Notes.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThere is no assurance that we will generate cash flow from operations or that future debt or equity financings will be available to us to enable us to pay our indebtedness or to fund other liquidity needs. If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us in amounts sufficient to pay our indebtedness or to fund other liquidity needs, our financial condition and results of operations may be adversely affected. As a result, we may need to refinance all or a portion of our indebtedness on or before maturity. There is no assurance that we will be able to refinance any of our indebtedness on favorable terms, or at all. Any inability to generate sufficient cash flow or refinance our indebtedness on favorable terms could have a material adverse effect on our business and financial condition.\n\n\n\u00a0\n\n\n\n\n33\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n",
+  "item1a": ">Item 1A.\n\n\n\n\nRisk Factors.\n\n\n\n\n\n\n20\n\n\n\n\n\n\n\n\nItem 1B.\n\n\n\n\n\n\nUnresolved Staff Comments.\n\n\n\n\n\n\n34\n\n\n\n\n\n\n\n\n\n\nItem 2.\n\n\n\n\n\n\nProperties.\n\n\n\n\n\n\n34\n\n\n\n\n\n\n\n\n\n\nItem 3.\n\n\n\n\n\n\nLegal Proceedings.\n\n\n\n\n\n\n34\n\n\n\n\n\n\n\n\n\n\nItem 4.\n\n\n\n\n\n\nMine Safety Disclosures.\n\n\n\n\n\n\n34\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nPART II\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nItem 5.\n\n\n\n\n\n\nMarket for Registrant\u2019s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.\n\n\n\n\n\n\n35\n\n\n\n\n\n\n\n\n\n\nItem 6.\n\n\n\n\n\n\nReserved.\n\n\n\n\n\n\n35\n\n\n\n\n\n\n\n\n\n\nItem 7.\n\n\n\n\n\n\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\n\n\n\n\n\n\n36\n\n\n\n\n\n\n\n\n\n\nItem 7A.\n\n\n\n\n\n\nQuantitative and Qualitative Disclosures About Market Risk.\n\n\n\n\n\n\n48\n\n\n\n\n\n\n\n\n\n\nItem 8.\n\n\n\n\n\n\nFinancial Statements and Supplementary Data.\n\n\n\n\n\n\n49\n\n\n\n\n\n\n\n\n\n\nItem 9.\n\n\n\n\n\n\nChanges in and Disagreements with Accountants on Accounting and Financial Disclosure.\n\n\n\n\n\n\n49\n\n\n\n\n\n\n\n\n\n\nItem 9A.\n\n\n\n\n\n\nControls and Procedures.\n\n\n\n\n\n\n49\n\n\n\n\n\n\n\n\n\n\nItem 9B.\n\n\n\n\n\n\nOther Information.\n\n\n\n\n\n\n50\n\n\n\n\n\n\n\n\n\n\nItem 9C.\n\n\n\n\n\n\nDisclosure Regarding Foreign Jurisdictions that Prevent Inspections.\n\n\n\n\n\n\n50\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nPART III\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nItem 10.\n\n\n\n\n\n\nDirectors, Executive Officers and Corporate Governance.\n\n\n\n\n\n\n52\n\n\n\n\n\n\n\n\n\n\nItem 11.\n\n\n\n\n\n\nExecutive Compensation.\n\n\n\n\n\n\n52\n\n\n\n\n\n\n\n\n\n\nItem 12.\n\n\n\n\n\n\nSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.\n\n\n\n\n\n\n52\n\n\n\n\n\n\n\n\n\n\nItem 13.\n\n\n\n\n\n\nCertain Relationships and Related Transactions, and Director Independence.\n\n\n\n\n\n\n52\n\n\n\n\n\n\n\n\n\n\nItem 14.\n\n\n\n\n\n\nPrincipal Accountant Fees and Services.\n\n\n\n\n\n\n53\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nPART IV\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nItem 15.\n\n\n\n\n\n\nExhibits and Financial Statement Schedules.\n\n\n\n\n\n\n54\n\n\n\n\n\n\n\n\n\n\nItem 16.\n\n\n\n\n\n\nForm 10-K Summary.\n\n\n\n\n\n\n56\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nSignatures\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nIndex to Financial Statements\n\n\n\n\n\n\nF-1\n\n\n\n\n\n\n\u00a0\n\n\n\n\n2\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nPART I\n\n\n\u00a0\n\n\nForward-Looking Statements\n\n\n\u00a0\n\n\nThis Form 10-K contains \u201cforward-looking statements\u201d within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1933, as amended, that involve risks and uncertainties. You can identify forward-looking statements because they contain words such as \u201cbelieves\u201d, \u201cexpects\u201d, \u201cprojects\u201d, \u201cmay\u201d, \u201cwould\u201d, \u201cshould\u201d, \u201cseeks\u201d, \u201cintends\u201d, \u201cplans\u201d, \u201cestimates\u201d, \u201canticipates\u201d or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements contained in this Form 10-K are based upon information available to us on the date of this Form 10-K.\n\n\n\u00a0\n\n\n\n\n\n\n\n",
+  "item7": ">Item 7.\n\n\n\n\nManagement\n\u2019\ns Discussion and Analysis of Financial Condition and Results of Operations.\n\n\n\n\n\u00a0\n\n\nIntroduction \n\n\n\u00a0\n\n\nOverview of the Impact of COVID-19\n\n\n\u00a0\n\n\nIn March 2020, the World Health Organization declared a global pandemic related to the outbreak of a novel strain of coronavirus, designated COVID-19.\n\n\n\u00a0\n\n\nCOVID-19 related pressures continued during the fiscal year ended March 26, 2023 (\u201cfiscal 2023 period\u201d), although to a lesser extent than during the fiscal year ended March 27, 2022 (\u201cfiscal 2022 period\u201d).\n\n\n\u00a0\n\n\nCustomer traffic at our Company-owned restaurants, in particular at Coney Island, during the fiscal 2023 period increased by approximately 12% over the fiscal 2022 period. Additionally, we experienced increased customer traffic within our franchise system, including airport locations; highway travel plazas; shopping malls; movie theaters; and casino locations, primarily in Las Vegas, Nevada. The increase in customer traffic translated into higher Company-owned restaurant sales and higher franchise fees and royalties during the fiscal 2023 period as compared to the fiscal 2022 period.\n\n\n\u00a0\n\n\nAdditionally, as the level of comfort of consumers gathering in social settings increased and travel continued to increase, our Branded Product Program customers, including professional sports arenas, amusement parks, shopping malls and movie theaters experienced stronger attendance contributing to higher sales.\n\n\n\u00a0\n\n\nWe continue to follow guidance from health officials in determining the appropriate restrictions, if any, to place within our operations. Our Company-owned and franchised restaurants could be disrupted by COVID-19 related employee absences or due to changes in the availability and cost of labor.\n\n\n\u00a0\n\n\nWe cannot predict the ultimate duration, scope and severity of the COVID-19 pandemic or its ultimate impact on our business in the short or long-term. The ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels, and may result in reduced customer traffic and consumer spending trends that may adversely impact our financial condition and results of operations.\n\n\n\u00a0\n\n\nInflation\n\n\n\u00a0\n\n\nWe remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; however, we have experienced rising transportation costs, rising costs of hot dogs due to the higher costs for beef and beef trimmings, and other food costs and paper products, which could continue into fiscal 2024.\n\n\n\u00a0\n\n\nIn general, we have been able to offset cost increases resulting from inflation by increasing prices and adjusting product mix. We continue to monitor these inflationary pressures and will continue to implement mitigation plans as needed. Inherent volatility in commodity markets, including beef and beef trimmings, could have a significant impact on our results of operations. Delays in implementing price increases, competitive pressures, consumer spending levels and other factors may limit our ability to implement further price increases in the future.\n\n\n\u00a0\n\n\n\n\n36\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nBusiness Overview\n\n\n\u00a0\n\n\nWe are engaged primarily in the marketing of the \u201cNathan\u2019s Famous\u201d brand and the sale of products bearing the \u201cNathan\u2019s Famous\u201d trademarks through several different channels of distribution. Historically, our business has been the operation and franchising of quick-service restaurants featuring Nathan\u2019s World Famous Beef Hot Dogs, crinkle-cut French fries, and a variety of other menu offerings. Our Company-owned restaurants and franchised units operate under the name \u201cNathan\u2019s Famous,\u201d the name first used at our original Coney Island restaurant opened in 1916. Nathan\u2019s product licensing program sells packaged hot dogs and other meat products to retail customers through supermarkets or grocery-type retailers for off-site consumption. Our Branded Product Program enables foodservice retailers and others to sell some of Nathan\u2019s proprietary products outside of the realm of a traditional franchise relationship. In conjunction with this program, purchasers of Nathan\u2019s products are granted a limited use of the Nathan\u2019s Famous trademark with respect to the sale of the purchased products, including Nathan\u2019s World Famous Beef Hot Dogs, certain other proprietary food items and paper goods. Our Branded Menu Program is a limited franchise program, under which foodservice operators may sell a greater variety of Nathan\u2019s Famous menu items than under the Branded Product Program.\n\n\n\u00a0\n\n\nOur revenues are generated primarily from selling products under Nathan\u2019s Branded Product Program, operating Company-owned restaurants, licensing agreements for the sale of Nathan\u2019s products within supermarkets and club stores, the sale of Nathan\u2019s products directly to other foodservice operators, the manufacture of certain proprietary spices by third parties and franchising the Nathan\u2019s restaurant concept (including the Branded Menu Program and virtual kitchens).\n\n\n\u00a0\n\n\nThe following summary reflects the openings and closings of the Nathan\u2019s franchise system (including the Branded Menu Program) for the fiscal years ended March 26, 2023 and March 27, 2022.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nMarch 26,\n\n\n2023\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nMarch 27,\n\n\t\t\t2022\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nBeginning balance\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n239\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n213\n\n\n\u00a0\n\n\n\n\n\n\n\n\nOpened\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n11 \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n54\n\n\n\u00a0\n\n\n\n\n\n\n\n\nClosed\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(18\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(28\n\n\n)\n\n\n\n\n\n\n\n\nEnding balance\n\n\n\n\n\u00a0\n\n\n\u00a0(\nA) (B\n) \n\n\n232\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n239\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n(a)\n\n\n\n\n\n\nIncluding two Branded Menu Program locations in Ukraine which are temporarily closed as a result of the Russia-Ukraine conflict.\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n(b)\n\n\n\n\n\n\nUnits operating pursuant to our Branded Product Program and our virtual kitchens are excluded.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAt March 26, 2023, our franchise system consisted of 232 Nathan\u2019s franchised locations, including 120 Branded Menu locations located in 17 states, and 13 foreign countries. We also operate four Company-owned restaurants (including one seasonal unit), within the New York metropolitan area.\n\n\n\u00a0\n\n\nOur strategic emphasis is focused on increasing the number of distribution points for our products across all of our business platforms, including our Licensing Program for distribution of Nathan\u2019s Famous branded consumer packaged goods, our Branded Products Program for distribution of Nathan\u2019s Famous branded bulk products to the foodservice industry, and our namesake restaurant system comprised of both Company-owned restaurants and franchised units, including virtual kitchens. The primary drivers of our growth have been our Licensing and Branded Product Programs, which are the largest contributors to the Company\u2019s revenues and profits.\n\n\n\u00a0\n\n\nWhile we do not expect to significantly increase the number of Company-owned restaurants, we may opportunistically and strategically invest in a small number of new units as showcase locations for prospective franchisees and master developers as we seek to grow our franchise system. We continue to seek opportunities to drive sales in a variety of ways as we adapt to the ever-changing consumer and business climate.\n\n\n\u00a0\n\n\n\n\n37\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAs described in Item 1A. \"Risk Factors\" and other sections in this Annual Report on Form 10-K for the year ended March 26, 2023, our future results could be impacted by many developments including the impact of the COVID-19 pandemic and inflationary pressures on our business, as well as our dependence on Smithfield Foods, Inc. as our principal supplier, and the dependence of our licensing revenue and overall profitability on our agreement with Smithfield Foods, Inc. Our future operating results could be impacted by supply constraints on beef or by increased costs of beef, beef trimmings and other commodities due to inflationary pressures compared to earlier periods.\n\n\n\u00a0\n\n\nOn November 1, 2017, the Company issued $150,000,000 of 6.625% Senior Secured Notes due 2025 (the \"2025 Notes\") in a private offering in accordance with Rule 144A under the Securities Act of 1933, as amended (the \u201cSecurities Act\u201d).\u00a0 The 2025 Notes were issued pursuant to an indenture, dated November 1, 2017, (the \u201cIndenture\u201d) by and among the Company, certain of its wholly-owned subsidiaries, as guarantors, and U.S. Bank Trust Company, National Association (formerly U.S. Bank National Association), as trustee and collateral trustee.\u00a0 The Company used the net proceeds of the 2025 Notes offering to redeem the 2020 Notes, paid a portion of a special $5.00 cash dividend and used the remaining proceeds for general corporate purposes, including working capital.\n\n\n\u00a0\n\n\nThe 2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1\nst\n and November 1\nst\n of each year. During the fiscal year ended March 26, 2023, the Company made its required semi-annual interest payments on May 1, 2022 and November 1, 2022. On January 26, 2022, the Company redeemed $40,000,000 in aggregate principal amount of its 2025 Notes. On March 21, 2023, the Company redeemed an additional $30,000,000 in aggregate principal amount of its 2025 Notes. $80,000,000 of the 2025 Notes were outstanding as of March 26, 2023. \n \nOn May 1, 2023, the Company paid its first semi-annual interest payment of fiscal 2024.\n\n\n\u00a0\n\n\nThe 2025 Notes have no scheduled principal amortization payments prior to its final maturity on November 1, 2025.\n\n\n\u00a0\n\n\nOur future results may be impacted by our interest obligations under the 2025 Notes. As a result of the 2025 Notes and the subsequent partial redemption which occurred on March 21, 2023, the Company expects to incur annual interest expense of $5,300,000 per annum and annual amortization of debt issuance costs of approximately $369,000.\n\n\n\u00a0\n\n\nCritical Accounting Policies and Estimates\n\n\n\u00a0\n\n\nOur consolidated financial statements and the notes to our consolidated financial statements contain information that is pertinent to management\u2019s discussion and analysis. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities. We believe the following critical accounting policies involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related asset and liability amounts. The following discussion should be read in conjunction with the consolidated financial statements included in Part IV, Item 15 of this Form 10-K.\n\n\n\u00a0\n\n\nLeases\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nWe determine if a contract contains a lease at inception. Our material operating leases consist of our Company-owned restaurants and Corporate office space. Renewal options are typically not included in the lease term as it is not reasonably certain at commencement date that we would exercise the option to extend the lease. Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds. Fixed minimum rent payments are recognized on a straight-line basis over the lease term. Contingent rent payments are recognized each period as the liability is incurred.\n\n\n\u00a0\n\n\nOperating lease assets and liabilities are recognized at time of lease inception. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned.\n\n\n\u00a0\n\n\n\n\n38\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe lease liability equals the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rate implicit in the Company\u2019s leases is not readily determinable. This incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. If the estimate of our incremental borrowing rate was changed, our operating lease assets and liabilities could differ materially.\n\n\n\u00a0\n\n\nRevenue Recognition\n\n\n\u00a0\n\n\nWe earn revenues through our Company-owned restaurants, franchised restaurants and virtual kitchens. Retail sales from franchised restaurants and virtual kitchens are reported to us by our franchisees and virtual kitchen operators and are not included in our revenues. Retail sales from Company-owned restaurants are recognized at the point of sale. Royalty revenues resulting from the retail sales from franchised restaurants and virtual kitchens are generally based on a percentage of sales and recognized on a monthly basis when it is earned and deemed collectible. Franchise fees, renewal fees, area development fees, and transfer fees are recognized as revenue over the term of each respective agreement, or upon termination of the franchise agreement. Revenues from Company-owned restaurants and revenues from franchisees and our virtual kitchen operators can fluctuate from time-to-time as a result of restaurant count and sales level changes.\n\n\n\u00a0\n\n\nWe may also generate revenues from advertising contributions which are made to the Company\u2019s advertising fund which are also generally based on a percentage of sales. Some vendors that supply products to the Company and our restaurant system also contribute to the advertising fund based upon purchases made by our franchisees and at Company-owned restaurants.\n\n\n\u00a0\n\n\nRevenue from license royalties is generally based on a percentage of sales, subject to certain annual minimum royalties, recognized on a monthly basis when it is earned and deemed collectible.\n\n\n\u00a0\n\n\nThe Company recognizes sales from the Branded Product Program and certain products sold from the Branded Menu Program upon delivery to Nathan\u2019s customers via third party common carrier.\n\n\n\u00a0\n\n\nImpairment of Goodwill and Other Intangible Assets\n\n\n\u00a0\n\n\nGoodwill and intangible assets consist of (i) goodwill of $95,000 resulting from the acquisition of Nathan\u2019s in 1987; and (ii) trademarks, and the trade name and other intellectual property of $869,000 in connection with Arthur Treacher\u2019s. Goodwill is not amortized, but is tested for impairment annually during the fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. As of March 26, 2023 and March 27, 2022, the Company performed its annual impairment test of goodwill and has determined no impairment was deemed to exist.\n\n\n\u00a0\n\n\nThe Company determined its intangible asset to have a finite useful life based on the expected future use of this intangible asset. Based upon the review of the current Arthur Treacher\u2019s co-branding agreements, the Company determined that the remaining useful lives of these agreements is six years concluding in fiscal 2028 and the intangible asset is subject to annual amortization. The Company has recorded amortization expense of $174,000\n \nand $113,000 during each of the fiscal years ending March 26, 2023 and March 27, 2022. The Company\u2019s definite-lived intangible asset is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company tested for recoverability of its definite-lived intangible asset based on the projected undiscounted cash flows to be derived from such co-branding agreements. Based on the quantitative test performed, the Company determined that the definite-lived intangible asset was recoverable and no impairment charge was recorded for the fiscal years ended March 26, 2023 and March 27, 2022. Cash flow projections require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record an impairment charge in future periods and such impairment could be material.\n\n\n\u00a0\n\n\n\n\n39\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nImpairment of Long-Lived Assets\n\n\n\u00a0\n\n\nLong-lived assets include property, equipment and right-of-use assets for operating leases with finite useful lives. Impairment losses are recorded on long-lived assets whenever impairment factors are determined to be present. The Company considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations. The Company tests the recoverability of its long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such assets. If the projected undiscounted future cash flows are less than the carrying value of the assets, the Company will record an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the assets. The Company generally measures fair value by considering discounted estimated future cash flows from such assets. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairment charges in future periods and such impairments could be material. No long-lived assets were deemed impaired during the fiscal years ended March 26, 2023 and March 27, 2022.\n\n\n\u00a0\n\n\nIncome Taxes \n\n\n\u00a0\n\n\nThe Company\u2019s current provision for income taxes is based upon its estimated taxable income in each of the jurisdictions in which it operates, after considering the impact on taxable income of temporary differences resulting from different treatment of items for tax and financial reporting purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and any operating loss or tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible. Should management determine that it is more likely than not that some portion of the deferred tax assets will not be realized, a valuation allowance against the deferred tax assets would be established in the period such determination was made.\n\n\n\u00a0\n\n\nUncertain Tax Positions \n\n\n\u00a0\n\n\nThe Company has recorded liabilities for underpayment of income taxes and related interest and penalties for uncertain tax positions based on the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Nathan\u2019s recognizes accrued interest and penalties associated with unrecognized tax benefits as part of the income tax provision. See Note H of the notes to our consolidated financial statements.\n\n\n\u00a0\n\n\n\n\n40\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nNew Accounting Standard Not Yet Adopted \n\n\n\u00a0\n\n\nIn June 2016, the FASB issued ASU 2016-13, \u201c\nFinancial Instruments \n\u2013\n Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,\n\u201d\n \nwhich significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under the new standard, the Company will be required to use a current expected credit loss model (\u201cCECL\u201d) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the consolidated financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. The Company will adopt the new guidance on a modified retrospective basis beginning with its first fiscal quarter of 2024. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.\n\n\n\u00a0\n\n\nThe Company does not believe that any other recently issued, but not yet effective accounting standards, when adopted, will have a material effect on the accompanying consolidated financial statements.\n\n\n\u00a0\n\n\nResults of Operations \n\n\n\u00a0\n\n\nFiscal year ended March 26, 2023 compared to fiscal year ended March 27, 2022\n\n\n\u00a0\n\n\nRevenues \n\n\n\u00a0\n\n\nTotal revenues increased by 14% to $130,785,000 for the fifty-two weeks ended March 26, 2023 (\"fiscal 2023\") as compared to $114,882,000 for the fifty-two weeks ended March 27, 2022 (\"fiscal 2022\").\n \n\n\n\u00a0\n\n\nTotal sales increased by 18% to $91,045,000 for the fiscal 2023 period as compared to $77,227,000 for the fiscal 2022 period. Foodservice sales from the Branded Product Program were $78,884,000 for the fiscal 2023 period as compared to sales of $66,322,000 for the fiscal 2022 period. During the fiscal 2023 period, the total volume of hot dogs sold in the Branded Product Program increased by approximately 15% as compared to the fiscal 2022 period. Our average selling prices, which are partially correlated to the beef markets, increased by approximately 4% as compared to the fiscal 2022 period.\n\n\n\u00a0\n\n\nTotal Company-owned restaurant sales increased by 12% to $12,161,000 during the fiscal 2023 period as compared to $10,905,000 during the fiscal 2022 period. The increase was primarily due to an increase in traffic at our Coney Island locations.\n\n\n\u00a0\n\n\nLicense royalties increased by 5% to $33,455,000 in the fiscal 2023 period as compared to $31,824,000 in the fiscal 2022 period. Total royalties earned on sales of hot dogs from our license agreement with Smithfield Foods, Inc. at retail and foodservice, increased 4% to $29,998,000 for the fiscal 2023 period as compared to $28,970,000 for the fiscal 2022 period. The increase is due to a 7% increase in average net selling price as compared to the fiscal 2022 period which was offset, in part, by a 4% decrease in retail volume. The foodservice business earned higher royalties of $247,000 as compared to the fiscal 2022 period. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan\u2019s products increased by $603,000 during the fiscal 2023 period as compared to the fiscal 2022 period primarily due to additional royalties earned on sales of French fries, cocktail franks, mozzarella sticks, pickles and seasonings.\n\n\n\u00a0\n\n\nFranchise fees and royalties increased by 11% to $4,292,000 in the fiscal 2023 period as compared to $3,859,000 in the fiscal 2022 period. Total royalties were $3,636,000 in the fiscal 2023 period as compared to $3,304,000 in the fiscal 2022 period. Royalties earned under the Branded Menu Program were $630,000 in the fiscal 2023 period as compared to $580,000 in the fiscal 2022 period. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases. Virtual kitchen royalties were $149,000 in the fiscal 2023 period as compared to $318,000 in the fiscal 2022 period. Traditional franchise royalties were $2,857,000 in the fiscal 2023 period as compared to $2,406,000 in the fiscal 2022 period. Franchise restaurant sales increased to $63,739,000 in the fiscal 2023 period as compared to $52,319,000 in the fiscal 2022 primarily due to higher sales at airport locations; highway travel plazas; shopping malls; movie theaters; and casino locations, primarily in Las Vegas, Nevada. Comparable domestic franchise sales (consisting of 63 Nathan\u2019s locations, excluding sales under the Branded Menu Program) were $51,926,000 during the fiscal 2023 period as compared to $40,112,000 during the fiscal 2022 period.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n41\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAt March 26, 2023, 232 franchised locations, including domestic, international and Branded Menu Program outlets were operating as compared to 239 franchised locations, including domestic, international and Branded Menu Program outlets at March 27, 2022. Total franchise fee income was $656,000 in the fiscal 2023 period as compared to $555,000 in the fiscal 2022 period. Domestic franchise fee income was $110,000 in the fiscal 2023 period as compared to $133,000 in the fiscal 2022 period. International franchise fee income was $280,000 in the fiscal 2023 period as compared to $241,000 in the fiscal 2022 period.\n\n\n\u00a0\n\n\nWe recognized $266,000 and $181,000 of forfeited fees in the fiscal 2023 and fiscal 2022 periods, respectively. During the fiscal 2023 period, 11 franchise locations opened, including 3 new Branded Menu Program outlets. Additionally, 18 franchise locations closed, including 5 Branded Menu Program outlets. During the fiscal 2022 period, 54 franchised locations opened, including 37\n \nBranded Menu Program outlets. Additionally, 28 franchise locations closed, including 9 Branded Menu Program outlets.\n\n\n\u00a0\n\n\nAdvertising fund revenue, after eliminating Company contributions, was $1,993,000 in the fiscal 2023 period and $1,972,000 during the fiscal 2022 period.\n\n\n\u00a0\n\n\nCosts and Expenses \n\n\n\u00a0\n\n\nOverall, our cost of sales increased by 15% to $75,172,000 in the fiscal 2023 period as compared to $65,164,000 in the fiscal 2022 period. Our gross profit (representing the difference between sales and cost of sales) was $15,873,000 or 17% of sales during the fiscal 2023 period as compared to $12,063,000 or 16% of sales during the fiscal 2022 period.\n\n\n\u00a0\n\n\nCost of sales in the Branded Product Program increased by 17% to $67,646,000 during the fiscal 2023 period as compared to $57,942,000 in the fiscal 2022 period, primarily due to the 15% increase in the volume of hot dogs sold as discussed above, as well as a 1.4% increase in the average cost per pound of our hot dogs. Inflationary pressures eased somewhat during the latter half of fiscal 2023, yet pricing pressures on commodities, including beef and beef trimmings remain.\n\n\n\u00a0\n\n\nWe did not make any purchase commitments for beef during the fiscal 2023 or the fiscal 2022 period. If the cost of beef and beef trimmings increases and we are unable to pass on these higher costs through price increases or otherwise reduce any increase in our costs through the use of purchase commitments, our margins will be adversely impacted.\n\n\n\u00a0\n\n\nWith respect to Company-owned restaurants, our cost of sales during the fiscal 2023 period was $7,526,000 or 62% of restaurant sales, as compared to $7,222,000 or 66% of restaurant sales in the fiscal 2022 period. The increase in cost of sales during the fiscal 2023 period was primarily due to the 12% increase in sales discussed above. The decrease in cost of sales, as a percent of total restaurant sales, was due to an increase in customer counts driving higher sales. Food and paper costs as a percentage of Company-owned restaurant sales were 29%, down from 30% in the comparable period of the prior year. Labor and related expenses as a percentage of Company-owned restaurant sales were 33%, down from 36% in the comparable period in the prior year due to labor wage increases as a result of competitive pressures, offset by higher sales.\n\n\n\u00a0\n\n\nRestaurant operating expenses increased by $325,000 to $3,984,000 in the fiscal 2023 period as compared to $3,659,000 in the fiscal 2022 period. We incurred higher occupancy expenses of $129,000, higher utility expenses of $19,000, higher marketing expenses of $60,000, higher repairs and maintenance expenses of $23,000, and higher insurance expenses of $88,000\n.\n\n\n\u00a0\n\n\nDepreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, were $1,135,000 in the fiscal 2023 period as compared to $1,054,000 in the fiscal 2022 period.\n\n\n\u00a0\n\n\nGeneral and administrative expenses increased $916,000 or 7% to $14,061,000 in the fiscal 2023 period as compared to $13,145,000 in the fiscal 2022 period. The increase in general and administrative expenses was primarily attributable to higher incentive compensation expenses of $161,000, higher share-based compensation expense of $184,000, higher bad debt expense of $271,000 and higher marketing and trade show related expenses of $284,000.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n42\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAdvertising fund expense, after eliminating Company contributions, was $1,988,000 in the fiscal 2023 period, as compared to $1,997,000 in the fiscal 2022 period. The Company had previously projected that the advertising fund\u2019s normal seasonal deficit was not going to be recovered during the fiscal 2023 period and recorded a projected $175,000 deficit in its second quarter fiscal 2023 results of operations. As a result of the cancellation of certain marketing initiatives in the fourth quarter fiscal 2023, the projected deficit was eliminated.\n\n\n\u00a0\n\n\nOther Items \n\n\n\u00a0\n\n\nOn March 21, 2023, the Company completed the partial redemption, in the principal amount of $30,000,000, of the 2025 Notes. In connection with the partial redemption, the Company recorded a loss on early extinguishment of debt of $357,000 that reflected the write-off of a portion of previously recorded debt issuance costs.\n\n\n\u00a0\n\n\nOn January 26, 2022, the Company completed the partial redemption, in the principal amount of $40,000,000, of the 2025 Notes. In connection with the partial redemption, the Company recorded a loss on early extinguishment of debt of $1,354,000 that primarily reflected the redemption premium of $662,000 and the write-off of a portion of previously recorded debt issuance costs of $692,000.\n\n\n\u00a0\n\n\nInterest expense of $7,742,000 in fiscal 2023 represented interest expense of $7,234,000 on the 2025 Notes and amortization of debt issuance costs of $508,000.\n\n\n\u00a0\n\n\nInterest expense of $10,135,000\n \nin fiscal 2022 represented interest expense of $9,475,000 on the 2025 Notes and amortization of debt issuance costs of $660,000.\n\n\n\u00a0\n\n\nInterest income of $440,000 for the fiscal 2023 period represented amounts earned by the Company on its interest bearing bank and money market accounts, as compared to $110,000 in the fiscal 2022 period.\n\n\n\u00a0\n\n\nOther income, net was $18,000 in the fiscal 2023 period which primarily related to sublease income from a franchised restaurant, offset by a net loss on disposal of assets for capitalized software no longer in use of $87,000.\n\n\n\u00a0\n\n\nProvision for Income Taxes\n\n\n\u00a0\n\n\nThe effective income tax rate for the fiscal 2023 period was 26.8% compared to 26.7% in the fiscal 2022 period. The effective income tax rate for the fiscal 2023 period reflected income tax expense of $7,181,000 recorded on $26,804,000 of pre-tax income. The effective income tax rate for the fiscal 2022 period reflected income tax expense of $4,940,000 recorded on $18,536,000 of pre-tax income. The effective tax rates are higher than the statutory rates primarily due to state and local taxes.\n\n\n\u00a0\n\n\nThe amount of unrecognized tax benefits at March 26, 2023 was $432,000 all of which would impact Nathan\u2019s effective tax rate, if recognized. As of March 26, 2023, Nathan\u2019s had $305,000 of accrued interest and penalties in connection with unrecognized tax benefits.\n\n\n\u00a0\n\n\nNathan\u2019s estimates that its unrecognized tax benefit excluding accrued interest and penalties could be further reduced by up to $19,000 during the fiscal year ending March 31, 2024.\n\n\n\u00a0\n\n\nReconciliation of GAAP and Non-GAAP Measures\n\n\n\u00a0\n\n\nIn addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America (\"US GAAP\"), the Company has provided EBITDA, a non-GAAP financial measure, which is defined as net income excluding (i) interest expense; (ii) provision for income taxes and (iii) depreciation and amortization expense. The Company has also provided Adjusted EBITDA, a non-GAAP financial measure, which is defined as EBITDA, excluding (i) the loss on disposal of property and equipment; (ii) loss on debt extinguishment; and (iii) share-based compensation that the Company believes will impact the comparability of its results of operations.\n\n\n\u00a0\n\n\n\n\n43\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe Company believes that EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, are useful to investors to assist in assessing and understanding the Company's operating performance and underlying trends in the Company's business because EBITDA and Adjusted EBITDA are (i) among the measures used by management in evaluating performance and (ii) are frequently used by securities analysts, investors and other interested parties as a common performance measure.\n\n\n\u00a0\n\n\nEBITDA and Adjusted EBITDA are not recognized terms under US GAAP and should not be viewed as alternatives to net income or other measures of financial performance or liquidity in conformity with US GAAP. Additionally, our definitions of EBITDA and Adjusted EBITDA may differ from other companies. Analysis of results and outlook on a non-US GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with US GAAP.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n(In thousands)\n\n\n\n\n\u00a0\n\n\n\n\n2023\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNet income\n\n\n\n\n\u00a0\n\n\n$\n\n\n19,623\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13,596\n\n\n\u00a0\n\n\n\n\n\n\n\n\nInterest expense\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,742\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,135\n\n\n\u00a0\n\n\n\n\n\n\n\n\nIncome taxes\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,181\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,940\n\n\n\u00a0\n\n\n\n\n\n\n\n\nDepreciation & amortization\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,135\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,054\n\n\n\u00a0\n\n\n\n\n\n\n\n\nEBITDA\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n35,681\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29,725\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nLoss on disposal of property and equipment\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n87\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\n\n\nLoss on debt extinguishment\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n357\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,354\n\n\n\u00a0\n\n\n\n\n\n\n\n\nShare-based compensation\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n258\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n74\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nADJUSTED EBITDA\n\n\n\n\n\u00a0\n\n\n$\n\n\n36,383\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n31,153\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nCash at March 26, 2023 aggregated $29,861,000, a $20,202,000 decrease during the fiscal 2023 period as compared to cash of $50,063,000 at March 27, 2022. Net working capital decreased to $30,652,000 from $48,988,000 at March 27, 2022 due primarily to the redemption of $30,000,000 of the Company\u2019s 2025 Notes. Through March 26, 2023, the Company also declared and paid quarterly cash dividends aggregating $7,563,000. During the fiscal 2023 period, the Company made its required semi-annual interest payments on the 2025 Notes of $3,643,750 on May 1, 2022 and November 1, 2022, as well as its required interest payment of $773,000 on March 21, 2023 in connection with the partial redemption of its 2025 Notes. On May 1, 2023, we made the first semi-annual interest payment of $2,650,000 for fiscal 2024.\n\n\n\u00a0\n\n\nOn February 14, 2023, the Company announced its intent to complete the partial redemption, in the principal amount of $30,000,000, of the 2025 Notes. On March 21, 2023, the Company completed the redemption by paying cash of $30,773,000, inclusive of accrued interest, and recognized a loss on early extinguishment of approximately $357,000 that primarily reflected the write-off of a portion of previously recorded debt issuance costs. Please refer to Note J \u2013 Long-Term Debt in the accompanying consolidated financial statements for a further discussion regarding the Company\u2019s indebtedness.\n\n\n\u00a0\n\n\n\n\n44\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCash provided by operations of $19,837,000 in the fiscal 2023 period is primarily attributable to net income of $19,623,000 in addition to other non-cash operating items of $2,856,000, offset by changes in other operating assets and liabilities of $2,642,000. Non-cash operating expenses consist principally of a loss on debt extinguishment of $357,000, depreciation and amortization of $1,135,000, amortization of debt issuance costs of $508,000, share-based compensation expense of $258,000, bad debts of $457,000 and a loss on disposal of assets of $87,000. In the fiscal 2023 period, accounts and other receivables increased by $2,149,000 due primarily to higher Branded Product Program receivables of $1,788,000. Prepaid expenses and other current assets increased by $454,000 due primarily to an increase in prepaid income taxes of $146,000; an increase in prepaid marketing and other expenses of $239,000 and an increase in prepaid insurance expenses of $62,000. Accounts payable, accrued expenses and other current liabilities increased by $377,000 due principally to an increase in accrued payroll and other benefits of $301,000 due primarily to higher incentive compensation accruals; an increase in accrued rebates of $532,000 due under the Branded Product Program; and an increase in deferred revenue of $530,000. Offsetting these increases was a reduction in accrued interest expense of $825,000 due to the partial redemption of our 2025 Notes.\n\n\n\u00a0\n\n\nCash used in investing activities was $584,000 in the fiscal 2023 period primarily in connection with capital expenditures incurred for our Branded Product Program, our Coney Island restaurants and our general ledger and accounting system upgrade.\n\n\n\u00a0\n\n\nCash used in financing activities of $39,455,000 in the fiscal 2023 period relates primarily to the payment of $30,000,000 in connection with the partial redemption of the 2025 Notes and the payments of the Company\u2019s quarterly $0.45 per share cash dividends on June 24, 2022, September 2, 2022, December 2, 2022 and the Company\u2019s quarterly $0.50 per share cash dividend on March 3, 2023 totaling $7,563,000. Additionally, during the fiscal 2023 period, the Company repurchased 35,434 shares of common stock at an average price of $53.39 for $1,892,000 under a 10b5-1 Plan which expired on September 13, 2022.\n\n\n\u00a0\n\n\nAt March 26, 2023 and March 27, 2022, Nathan\u2019s did not have any open purchase commitments to purchase hot dogs. Nathan\u2019s may enter into additional purchase commitments in the future as favorable market conditions become available.\n\n\n\u00a0\n\n\nIn 2016, the Board authorized increases to the sixth stock repurchase plan for the repurchase of up to 1,200,000 shares of its common stock on behalf of the Company. As of March 26, 2023, Nathan\u2019s has repurchased 1,101,884 shares at a cost of approximately $39,000,000 under the sixth stock repurchase plan. At March 26, 2023, there were 98,116 shares remaining to be repurchased pursuant to the sixth stock repurchase plan. The plan does not have a set expiration date. Purchases under the Company\u2019s stock repurchase program may be made from time to time, depending on market conditions, in open market or privately negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the repurchases.\n\n\n\u00a0\n\n\nAs discussed above, we had cash at March 26, 2023 aggregating $29,861,000. Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. On February 2, 2023, the Board authorized the increase of its regular quarterly dividend to $0.50 from $0.45. During the fiscal 2023 period, the Company declared and paid three quarterly dividends of $0.45 per share and one quarterly dividend of $0.50 per share, aggregating $7,563,000.\n\n\n\u00a0\n\n\nEffective June 8, 2023, the Board declared its first quarterly cash dividend of $0.50 per share for fiscal 2024 which is payable on June 28, 2023 to stockholders of record as of the close of business on June 20, 2023.\n\n\n\u00a0\n\n\nIf the Company pays regular quarterly cash dividends for the remainder of fiscal 2024 at the same rate as declared in the first quarter of fiscal 2024, the Company\u2019s total cash requirement for dividends for all of fiscal 2024 would be approximately $8,159,000 based on the number of shares of common stock outstanding at June 2, 2023. The Company intends to declare and pay quarterly cash dividends; however, there can be no assurance that any additional quarterly dividends will be declared or paid or of the amount or timing of such dividends, if any.\n\n\n\u00a0\n\n\nOur ability to pay future dividends is limited by the terms of the Indenture for the 2025 Notes. In addition, the payment of any cash dividends in the future, are subject to final determination of the Board and will be dependent upon our earnings and financial requirements. We may also return capital to our stockholders through stock repurchases, subject to any restrictions in the Indenture, although there is no assurance that the Company will make any repurchases under its existing stock repurchase plan.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n45\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe may from time to time seek to redeem additional portions of our 2025 Notes, through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on market conditions, our liquidity requirements, and other factors.\n\n\n\u00a0\n\n\nWe expect that in the future we will make investments in certain existing restaurants, support the growth of the Branded Product and Branded Menu Programs, service the outstanding debt, fund our dividend program and may continue our stock repurchase programs, funding those investments from our operating cash flow. We may also incur capital and other expenditures or engage in investing activities in connection with opportunistic situations that may arise on a case-by-case basis. In the fiscal year ending March 26, 2023, we were required to make interest payments of $8,061,000, all of which have been made as of March 21, 2023. During the fiscal year ending March 31, 2024, we will be required to make interest payments of $5,300,000. On May 1, 2023, we made the first semi-annual interest payment of $2,650,000 for fiscal 2024.\n\n\n\u00a0\n\n\nManagement believes that available cash and cash generated from operations should provide sufficient capital to finance our operations, satisfy our debt service requirements, fund dividend distributions and stock repurchases for at least the next 12 months.\n\n\n\u00a0\n\n\nAt March 26, 2023, we sublet one property to a franchisee that we lease from a third party. We remain contingently liable for all costs associated with this property including: rent, property taxes and insurance. We may incur future cash payments with respect to such property, consisting primarily of future lease payments, including costs and expenses associated with terminating such lease.\n\n\n\u00a0\n\n\nOur contractual obligations primarily consist of the 2025 Notes and the related interest payments, operating leases, and employment agreements with certain executive officers. These contractual obligations impact our short-term and long-term liquidity and capital resource needs. There have been no material changes in our contractual obligations since March 27, 2022 except for the partial redemption of the 2025 Notes on March 21, 2023 discussed above.\n\n\n\u00a0\n\n\nInflationary Impact\n\n\n\u00a0\n\n\nInflationary pressures on labor and rising commodity prices have impacted our consolidated results of operations during fiscal 2023, and we expect this trend will continue into fiscal 2024.\n\n\n\u00a0\n\n\nOur average cost of hot dogs during fiscal 2023 was approximately 1.4% higher than during fiscal 2022. Our average cost of hot dogs during fiscal 2022 was approximately 19% higher than during fiscal 2021. Inherent volatility experienced in certain commodity markets, such as those for beef and beef trimmings due to seasonal shifts, climate conditions, industry demand, inflationary pressures and other macroeconomic factors could have an adverse effect on our results of operations. This impact will depend on our ability to manage such volatility through price increases and product mix.\n\n\n\u00a0\n\n\nWe have experienced competitive pressure on labor rates as a result of the increase in the minimum hourly wage for fast food workers which increased to $15.00 in New York state during fiscal 2022 where our Company-owned restaurants are located. Additionally, there has been an increased demand for labor at all levels which has resulted in greater challenges retaining adequate staffing levels at our Company-owned restaurants; our franchised restaurants and Branded Menu Program locations; as well as for certain vendors in our supply chain that we depend on for our commodities. We remain in contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain.\n\n\n\u00a0\n\n\nWe are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2024. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. In the past, we have entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. We may attempt to enter into purchase arrangements for hot dogs and other products in the future. Additionally, we expect to continue experiencing volatility in oil and gas prices on our distribution costs for our food products and utility costs in the Company-owned restaurants and volatile insurance costs resulting from the uncertainty of the insurance markets.\n\n\n\u00a0\n\n\n\n\n46\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nContinued increases in labor costs, commodity prices and other operating expenses, including health care, could adversely affect our operations. We attempt to manage inflationary pressures and rising commodity costs, at least in part, through raising prices. Delays in implementing price increases, competitive pressures, consumer spending levels and other factors may limit our ability to offset these rising costs. Volatility in commodity prices, including beef and beef trimmings could have a significant adverse effect on our results of operations.\n\n\n\u00a0\n\n\nWe believe the increases in the minimum wage and other changes in employment laws have had a significant financial impact on our financial results and the results of our franchisees that operate in New York State. Our business could be negatively impacted if the decrease in margins for our franchisees results in the potential loss of new franchisees or the closing of a significant number of franchised restaurants.\n\n\n\u00a0\n\n\nThe Company\u2019s business, financial condition, operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth above in \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations,\u201d any one of which could cause our actual results to vary materially from recent results or from our anticipated future results. For a discussion identifying additional risk factors and important factors that could cause actual results to differ materially from those anticipated, also see the discussions in \u201cForward-Looking Statements\u201d, \u201cRisk Factors\u201d, and \u201cNotes to Consolidated Financial Statements\u201d in this Form 10-K.\n\n\n\u00a0\n\n\n\n\n47\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n",
+  "item7a": ">Item 7A. \n\n\n\n\nQuantitative and Qualitative Disclosures About Market Risk.\n\n\n\n\n\u00a0\n\n\nCash and Cash Equivalents\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nWe have historically invested our cash in money market funds or short-term, fixed rate, highly rated and highly liquid instruments which are generally reinvested when they mature. Although these existing investments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on short-term investments could be affected at the time of reinvestment as a result of intervening events. As of March 26, 2023, Nathan\u2019s cash balance\n \naggregated $29,861,000. Earnings on this cash would increase or decrease by approximately $75,000 per annum for each 0.25% change in interest rates.\n\n\n\u00a0\n\n\nBorrowings\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nAt March 26, 2023, we had $80,000,000 of 6.625% 2025 Notes outstanding which are due in November 2025. Interest expense on these borrowings would increase or decrease by approximately $200,000 per annum for each 0.25% change in interest rates. We currently do not anticipate entering into interest rate swaps or other financial instruments to hedge our borrowings.\n\n\n\u00a0\n\n\nCommodity Costs \n\n\n\u00a0\n\n\nInflationary pressures on labor and rising commodity prices have directly impacted our consolidated results of operation during fiscal 2023, most notably within our restaurant operations and Branded Product Program segments. We expect this trend to continue into fiscal 2024. Our average cost of hot dogs during fiscal 2023 was approximately 1.4% higher than during fiscal 2022.\n\n\n\u00a0\n\n\nWe are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2024.\n \n Factors that affect beef prices are outside of our control and include foreign and domestic supply and demand, inflation, weather and seasonality. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. In the past, we have entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. We may attempt to enter into purchase arrangements for hot dogs and other products in the future. Additionally, we expect to continue experiencing volatility in oil and gas prices on our distribution costs for our food products and utility costs in the Company-owned restaurants and volatile insurance costs resulting from rising rates.\n\n\n\u00a0\n\n\nWith the exception of purchase commitments, we have not attempted to hedge against fluctuations in the prices of the commodities we purchase using future, forward, option or other instruments. As a result, we expect that the majority of our future commodity purchases will be subject to market changes in the prices of such commodities. We have attempted to enter sales agreements with our customers that are correlated to our cost of beef, thus reducing our market volatility, or have passed through permanent increases in our commodity prices to our customers that are not on formula pricing, thereby reducing the impact of long-term increases on our financial results. A short-term increase or decrease of 10% in the cost of our food and paper products for the year ended March 26, 2023 would have increased or decreased our cost of sales by approximately $6,934,000.\n \n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nForeign Currencies\n\n\n\u00a0\n\n\nForeign franchisees generally conduct business with us and make payments in United States dollars, reducing the risks inherent with changes in the values of foreign currencies. As a result, we have not purchased future contracts, options or other instruments to hedge against changes in values of foreign currencies and we do not believe fluctuations in the value of foreign currencies would have a material impact on our financial results.\n\n\n\u00a0\n\n\n\n\n48\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n",
+  "cik": "69733",
+  "cusip6": "632347",
+  "cusip": ["632347100"],
+  "names": ["NATHANS FAMOUS INC NEW"],
+  "source": "https://www.sec.gov/Archives/edgar/data/69733/000143774923016924/0001437749-23-016924-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. Business\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nSeneca Foods Corporation (\u201cSeneca\u201d or the \u201cCompany\u201d) was founded in 1949 and has evolved through internal growth and strategic acquisitions into a leading provider of packaged fruits and vegetables, with 26 main facilities located throughout the United States. The facilities are comprised of plants for packaging, can manufacturing, seed production, a farming operation and a logistical support network. Food packaging operations are primarily supported by plant locations in New York, Michigan, Oregon, Wisconsin, Washington, Idaho, Illinois, and Minnesota. The Company also maintains warehouses which are generally located adjacent to its packaging plants. The Company is incorporated in New York with its headquarters located at 350 WillowBrook Office Park Fairport, New York and its telephone number is (585) 495-4100.\n\n\n\u00a0\n\n\nThe Company\u2019s business strategies are designed to grow its market share and enhance sales and margins. These strategies include: 1) expand the Company\u2019s leadership in the packaged fruit and vegetable industry; 2) provide low-cost, high-quality vegetable products to consumers through the elimination of costs from the Company\u2019s supply chain and investment in state-of-the-art production and logistical technology; 3) focus on growth opportunities to capitalize on higher expected returns; and 4) pursue strategic acquisitions that leverage the Company\u2019s core competencies.\n\n\n\u00a0\n\n\nAvailable Information\n\n\n\u00a0\n\n\nThe Company\u2019s Internet address is \nwww.senecafoods.com\n. The Company\u2019s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available on the Company\u2019s web site, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. All such filings on the Company\u2019s web site are available free of charge. Information on our website is not part of the annual report on Form 10-K.\n\n\n\u00a0\n\n\nIn addition, the Company's website includes items related to corporate governance matters, including charters of various committees of the Board of Directors and the Company's Code of Business Conduct and Ethics. The Company intends to disclose on its website any amendment to or waiver of any provision of the Code of Business Conduct and Ethics that would otherwise be required to be disclosed under the rules of the SEC and NASDAQ.\n\n\n\u00a0\n\n\nFinancial Information about Industry Segments\n\n\n\u00a0\n\n\nThe Company has historically managed its business on the basis of three reportable food packaging segments: (1) fruits and vegetables, (2) prepared food products and (3) snack products. The other category comprises non-food packaging sales which relate to the sale of cans, ends, seed, and outside revenue from the Company's trucking and aircraft operations. During fiscal year 2021, the Company sold its prepared foods business, leaving just two reportable segments along with the other category. The Company\u2019s food operation constituted 98% of total net sales in fiscal year 2023. Canned vegetables represented 83%, frozen vegetables represented 8%, fruit products represented 6%, and chip products represented 1% of the total food packaging net sales. Non-food packaging sales represented 2% of the Company's fiscal year 2023 net sales. Refer to the information set forth under the heading \u201c\nSegment Information\n\u201d in Note 14 of the Notes to Consolidated Financial Statements in Part II, Item 8, \u201cFinancial Statements and Supplementary Data\u201d, for additional discussion about the Company\u2019s segments.\n\n\n\u00a0\n\n\nPrincipal products and markets \n\n\n\u00a0\n\n\nThe Company\u2019s principal product offerings include canned, frozen and bottled produce, and snack chips. The Company manufactures and sells the following:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nprivate label products to retailers, such as supermarkets, mass merchandisers, and specialty retailers, for resale under the retailers\u2019\u00a0own or controlled labels;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nprivate label and branded products to the foodservice industry, including foodservice distributors and national restaurant operators;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nbranded products under national and regional brands that the Company owns or licenses, including Seneca\u00ae, Libby\u2019s\u00ae, Aunt Nellie\u2019s\u00ae, Cherryman\u00ae, Green Valley\u00ae\u00a0and READ\u00ae;\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nbranded products under co-pack agreements to other major branded companies for their distribution; and\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nproducts to the Company\u2019s industrial customer base for repackaging in portion control packages and for use as ingredients by other food manufacturers.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n2\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company\u2019s fruits and vegetables are sold nationwide by major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores and dollar stores. The Company also sells its products to foodservice distributors, restaurants chains, industrial markets, other food processors, export customers in approximately 60 countries and federal, state and local governments for school and other food programs. Additionally, the Company packs canned and frozen vegetables under contract packing agreements. The following table summarizes net sales by major product category for fiscal years 2023 and 2022 (in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFiscal Year:\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2023\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nCanned vegetables\n\n\n\n\n\u00a0\n\n\n$\n\n\n1,253,257\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,135,983\n\n\n\u00a0\n\n\n\n\n\n\n\n\nFrozen vegetables\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n121,211\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n123,895\n\n\n\u00a0\n\n\n\n\n\n\n\n\nFruit products\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n91,495\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n84,708\n\n\n\u00a0\n\n\n\n\n\n\n\n\nSnack products\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,661\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,332\n\n\n\u00a0\n\n\n\n\n\n\n\n\nOther\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,728\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,362\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,509,352\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,385,280\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nSource and Availability of Raw Materials \n\n\n\u00a0\n\n\nThe Company\u2019s high-quality products are primarily sourced from approximately 1,400 American farms. The Company purchases other raw materials, including steel, ingredients and packaging materials from commodity processors, steel producers and packaging suppliers. Raw materials and other input costs, such as labor, fuel, utilities and transportation, are subject to fluctuations in price attributable to a number of factors. Fluctuations in commodity prices can lead to retail price volatility and can influence consumer and trade buying patterns. The cost of raw materials, fuel, labor, distribution and other costs related to our operations can increase from time to time significantly and unexpectedly.\n\n\n\u00a0\n\n\nThe Company continues to experience material cost inflation for many of its raw materials and other input costs attributable to a number of factors, including but not limited to, supply chain disruptions (including raw material shortages), labor shortages, and the war in Ukraine. While the Company has no direct exposure to Russia and Ukraine, it has experienced increased costs for transportation, energy, and raw materials due in part to the negative impact of the Russia-Ukraine conflict on the global economy. The Company attempts to manage cost inflation risks by locking in prices through short-term supply contracts, advance grower purchase agreements, and by implementing cost saving measures. The Company also attempts to offset rising input costs by raising sales prices to its customers. However, increases in the prices the Company charges its customers may lag behind rising input costs. Competitive pressures also may limit the Company\u2019s ability to quickly raise prices in response to rising costs. To the extent the Company is unable to avoid or offset any present or future cost increases its operating results could be materially adversely affected.\n\n\n\u00a0\n\n\nDomestic and International Sales\n\n\n\u00a0\n\n\nThe following table sets forth domestic and international sales (In thousands, except percentages):\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFiscal Year\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2023\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n2022\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNet sales:\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nDomestic\n\n\n\n\n\u00a0\n\n\n$\n\n\n1,408,710\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,285,540\n\n\n\u00a0\n\n\n\n\n\n\n\n\nInternational\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n100,642\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n99,740\n\n\n\u00a0\n\n\n\n\n\n\n\n\nTotal net sales\n\n\n\n\n\u00a0\n\n\n$\n\n\n1,509,352\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,385,280\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nAs a percentage of net sales:\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nDomestic\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n93.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n92.8\n\n\n%\n\n\n\n\n\n\n\n\nInternational\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n7.2\n\n\n%\n\n\n\n\n\n\n\n\nTotal\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\nIntellectual Property\n\n\n\u00a0\n\n\nThe Company's most significant brand name, Libby's\u00ae, is held pursuant to a trademark license granted to the Company in March 1982 and renewable by the Company every 10 years for an aggregate period expiring in March 2081. The original licensor was Libby, McNeill & Libby, Inc., then an indirect subsidiary of Nestl\u00e9, S. A. (\"Nestl\u00e9\") and the license was granted in connection with the Company's purchase of certain of the licensor's canned vegetable operations in the United States. Corlib Brands Management, LTD acquired the license from Nestl\u00e9 during 2006. The license is limited to vegetables which are shelf-stable, frozen, and thermally packaged, and includes the Company's major vegetable varieties \u2013 corn, peas and green beans \u2013 as well as certain other thermally packaged vegetable varieties and sauerkraut.\n\n\n\u00a0\n\n\n\n\n\n\n\n3\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company is required to pay an annual royalty to Corlib Brands, now known as Libby's Brand Holding, Ltd., who may terminate the license for non-payment of royalty, use of the trademark in sales outside the licensed territory, failure to achieve a minimum level of sales under the licensed trademark during any calendar year or a material breach or default by the Company under the agreement (which is not cured within the specified cure period). A total of $0.1 million was paid as a royalty fee for the fiscal year ended March 31, 2023.\n\n\n\u00a0\n\n\nThe Company also sells canned vegetables, frozen vegetables, jarred fruit, and other food products under several other brands for which the Company has obtained registered trademarks, including, Aunt Nellie\u2019s\u00ae, CherryMan\u00ae, Green Valley\u00ae, READ\u00ae, Seneca\u00ae, and other regional brands.\n\n\n\u00a0\n\n\nSeasonality\n\n\n\u00a0\n\n\nWhile individual vegetables have seasonal cycles of peak production and sales, the different cycles are somewhat offsetting. Minimal food packaging occurs in the Company's last fiscal quarter ending March 31, which is the optimal time for maintenance, repairs and equipment changes in its packaging plants. The supply of commodities, current pricing, and expected new crop quantity and quality affect the timing and amount of the Company\u2019s sales and earnings. When the seasonal harvesting periods of the Company's major vegetables are newly completed, inventories for these packaged vegetables are at their highest levels. For peas, the peak inventory time is mid-summer and for corn and green beans, the Company's highest volume vegetables, the peak inventory is in mid-autumn. The seasonal nature of the Company\u2019s production cycle results in inventory and accounts payable reaching their lowest point late in the fourth quarter/early in the first quarter prior to the new seasonal pack commencing. As the seasonal pack progresses, these components of working capital both increase until the pack is complete.\n\n\n\u00a0\n\n\nThe Company\u2019s revenues typically are highest in the second and third fiscal quarters. This is due, in part, because the Company\u2019s fruit and vegetable sales exhibit seasonal increases in the third fiscal quarter due to increased retail demand during the holiday season. In addition, the Company sells canned and frozen vegetables to a co-pack customer on a bill and hold basis at the end of each pack cycle, which typically occurs during these quarters.\n\n\n\u00a0\n\n\nThese seasonal fluctuations are illustrated in the following table, which presents certain unaudited quarterly financial information for the periods indicated (in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFirst\n\n\t\t\tQuarter\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nSecond\n\n\nQuarter\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nThird\n\n\t\t\tQuarter\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFourth\n\n\nQuarter\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nFiscal Year 2023:\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNet sales\n\n\n\n\n\u00a0\n\n\n$\n\n\n265,193\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n439,842\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n473,254\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n331,063\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGross margin\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n22,843\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41,779\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n53,789\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,485\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNet earnings\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,103\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,131\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,054\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9,150\n\n\n)\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nFiscal Year 2022:\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNet sales\n\n\n\n\n\u00a0\n\n\n$\n\n\n235,042\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n372,256\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n445,593\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n332,389\n\n\n\u00a0\n\n\n\n\n\n\n\n\nGross margin\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n33,623\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,728\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n44,985\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,596\n\n\n\u00a0\n\n\n\n\n\n\n\n\nNet earnings\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,136\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,654\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,664\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,553\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nCompetition in the packaged food industry is substantial with brand recognition and promotion, quality, service, and pricing being the major determinants in the Company\u2019s relative market position. The Company believes that it is a major producer of canned vegetables, frozen vegetables, and jarred fruit but some producers of these products have sales which exceed the Company's sales. The Company is aware of at least 13 competitors in the U.S. packaged fruit and vegetable industry, many of which are privately held companies.\n\n\n\u00a0\n\n\nGovernment Regulation\n\n\n\u00a0\n\n\nThe Company is subject to extensive regulations in the United States by federal, state and local government authorities. In the United States, the federal agencies governing the manufacture, marketing and distribution of our products include, among others, the Federal Trade Commission (\u201cFTC\u201d), the United States Food & Drug Administration (\u201cFDA\u201d), the United States Department of Agriculture (\u201cUSDA\u201d), the United States Environmental Protection Agency (\u201cEPA\u201d) and the Occupational Safety and Health Administration (\u201cOSHA\u201d). Under various statutes, these agencies prescribe and establish, among other things, the requirements and standards for quality, safety and representation of the Company\u2019s products to the consumer in labeling and advertising.\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n4\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nEnvironmental protection is an area that has been worked on diligently at each food packaging facility. In all locations, the Company has cooperated with federal, state, and local environmental protection authorities in developing and maintaining suitable antipollution facilities. In general, we believe our pollution control facilities are equal to or somewhat superior to those of our competitors and are within environmental protection standards. The Company does not expect any capital expenditures out of the ordinary course of business in order to comply with environmental regulations in the near future.\n\n\n\u00a0\n\n\nThere has been a broad range of proposed and promulgated state, national and international regulations aimed at reducing the effects of climate change. In the United States, there is a significant possibility that some form of regulation will be forthcoming at the federal level to address the effects of climate change. Such regulation could result in the creation of additional costs in the form of taxes, consultant expenses, the restriction of output, investments of capital to maintain compliance with laws and regulations or required acquisition or trading of emission allowances.\n\n\n\u00a0\n\n\nHuman Capital\n\n\n\u00a0\n\n\nEmployment\n\n\n\u00a0\n\n\nAs of March 31, 2023, Seneca Foods employed 2,809 full-time employees and averaged approximately an additional 3,600 seasonal employees during the Company\u2019s peak summer harvest season. 100% of our employees are located in the United States, distributed across the Company\u2019s facilities.\n\n\n\u00a0\n\n\nCulture\n\n\n\u00a0\n\n\nAt Seneca Foods, we work hard every day to feed the world safe and nutritious products, while adhering to our fundamental beliefs (which can be found on our website). These beliefs include acting with integrity in all matters, treating employees with respect, and maintaining the highest standards for protecting our workers. We also believe in promoting from within, which has resulted in many long-tenured employees in leadership positions throughout the Company.\n\n\n\u00a0\n\n\nEmployee Health and Safety\n\n\n\u00a0\n\n\nThe health and safety of our employees is a top priority at Seneca Foods. The Company complies with all national and local laws of the jurisdictions in which we operate regarding worker health and safety. In addition, we work to continuously improve our safety record with worker safety training and Seneca\u2019s HERO (Health Environment Risk Observation) program, in which employees proactively identify and mitigate potential safety risks. At Seneca Foods, we believe that safety is everyone\u2019s responsibility, and the HERO program reflects that commitment, with close to 100% employee participation.\n\n\n\u00a0\n\n\nThe Company also conducts annual safety audits at all processing locations to ensure compliance with Seneca and OSHA safety standards. External risk management services are also consulted as part of this process. The Company\u2019s management recognizes plants that achieve at least one million work hours or 1,000 days worked without a lost time injury to employees with the President\u2019s \u201cBronze Eagle\u201d award, which is prominently displayed at many of our processing facilities.\n\n\n\u00a0\n\n\nEmployee Training and Development\n\n\n\u00a0\n\n\nSeneca Foods believes in developing internal talent and providing employees with an opportunity for education and advancement. In support of this endeavor, we have developed two key programs\n. SAVES\n (Seneca Adding Value Employee System) focuses on employee empowerment, education, and application of lean manufacturing principles. The Company\u2019s dedicated \nSAVES\n instructors and project leaders educate employees and empower them to make process improvements at all of our processing facilities. \nGROWS\n (Get Rid of Waste Systemically) supports our leadership development efforts through continuous improvement project leadership.\n\n\n\u00a0\n\n\nDiversity, Equity and Inclusion\n\n\n\u00a0\n\n\nSeneca Foods believes that everyone should feel respected and welcome in our workplace. The Company is committed to providing equal opportunity in all aspects of employment, and to applying fair labor practices while respecting the national and local laws of the countries and communities where we have operations. The Company does not engage in or tolerate discrimination, intimidation, harassment, or any other unlawful conduct. We believe that a diverse and inclusive workforce provides the Company with the benefits of different viewpoints and perspectives, as well as a talented and innovative employee base.\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A. Risk Factors\n\n\n\u00a0\n\n\nThe following factors as well as factors described elsewhere in this Form 10-K or in other filings by the Company with the SEC, could adversely affect the Company\u2019s consolidated financial position, results of operations or cash flows. Other factors not presently known to us or that we presently believe are not material could also affect our business operations or financial results. The Company refers to itself as \u201cwe\u201d, \u201cour\u201d or \u201cus\u201d in this section.\n\n\n\u00a0\n\n\n\n\n\n\n\n5\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFruit and Vegetable Industry Risks\n\n\n\u00a0\n\n\nExcess capacity in the fruit and vegetable industry has a downward impact on selling price.\n\n\n\u00a0\n\n\nIf canned vegetable, frozen vegetable, or jarred fruit categories decline, less shelf space will be devoted to these categories in the supermarkets. Fresh and perishable businesses are improving their delivery systems around the world and the availability of fresh produce is impacting the consumers purchasing patterns relating to packaged fruit and vegetables. Our financial performance and growth are related to conditions in the United States\u2019 fruit and vegetable packaging industry which is a mature industry. Our net sales are a function of product availability and market pricing. In the fruit and vegetable packaging industry, product availability and market prices tend to have an inverse relationship: market prices tend to decrease as more product is available and to increase if less product is available. Product availability is a direct result of plantings, growing conditions, crop yields and inventory levels, all of which vary from year to year. Moreover, fruit and vegetable production outside the United States, particularly in Europe, Asia and South America, is increasing at a time when worldwide demand for certain products is being impacted by the global economic slowdown. These factors may have a significant effect on supply and competition and create downward pressure on prices. In addition, market prices can be affected by the planting and inventory levels and individual pricing decisions of our competitors. Generally, market prices in the fruit and vegetable packaging industry adjust more quickly to variations in product availability than an individual packager can adjust its cost structure; thus, in an oversupply situation, a packager\u2019s margins likely will weaken. We typically have experienced lower margins during times of industry oversupply.\n\n\n\u00a0\n\n\nIn the past, the fruit and vegetable packaging industry has been characterized by excess capacity, with resulting pressure on our prices and profit margins. We have closed packaging plants in past years in response to the downward pressure on prices. There can be no assurance that our margins will improve in response to favorable market conditions or that we will be able to operate profitably during depressed market conditions.\n\n\n\u00a0\n\n\nGrowing cycles and adverse weather conditions may decrease our results from operations.\n\n\n\u00a0\n\n\nOur operations are affected by the growing cycles of the vegetables we package. When the vegetables are ready to be picked, we must harvest and package them quickly or forego the opportunity to package fresh picked vegetables for an entire year. Most of our vegetables are grown by farmers under contract with us. Consequently, we must pay the contract grower for the vegetables even if we cannot or do not harvest or package them. Most of our production occurs during the second quarter (July through September) of our fiscal year, which corresponds with the quarter that the growing season ends for most of the produce packaged by us. A majority of our sales occur during the second and third quarters of each fiscal year due to seasonal consumption patterns for our products. Accordingly, inventory levels are highest during the second and third quarters, and accounts receivable levels are highest during the second and third quarters. Net sales generated during our second and third fiscal quarters have a significant impact on our results of operations. Because of these seasonal fluctuations, the results of any particular quarter, particularly in the first half of our fiscal year, will not necessarily be indicative of results for the full year or for future years.\n\n\n\u00a0\n\n\nWe set our planting schedules without knowing the effect of the weather on the crops or on the entire industry\u2019s production. Weather conditions during the course of each vegetable crop\u2019s growing season will affect the volume and growing time of that crop. As most of our vegetables are produced in more than one part of the U.S., this somewhat reduces the risk that our entire crop will be subject to disastrous weather. The upper Midwest is the primary growing region for the principal vegetables which we pack, namely peas, green beans and corn, and it is also a substantial source of our competitors\u2019 vegetable production. A sizeable portion of our vegetable production areas are serviced with irrigation systems to help minimize (i) wet conditions for planting and (ii) dry conditions during the growing season. Any adverse effects of weather-related reduced production may be partially mitigated by higher selling prices for the vegetables which are produced.\n\n\n\u00a0\n\n\nThe commodity materials that we package or otherwise require are subject to price increases that could adversely affect our profitability. \n\n\n\u00a0\n\n\nThe materials that we use, such as raw fruit and vegetables, steel, ingredients, pouches and other packaging materials as well as the electricity, diesel fuel, and natural gas used in our business, are commodities that may experience price volatility caused by external factors, including market fluctuations, availability, currency fluctuations and changes in governmental regulations and agricultural programs. General inventory positions of major commodities, such as field corn, soybeans and wheat, all commodities with which we must compete for acreage, can have dramatic effects on prices for those commodities, which can translate into similar swings in prices needed to be paid for our contracted commodities. These programs and other events can result in reduced supplies of these commodities, higher supply costs or interruptions in our production schedules. If prices of these commodities increase beyond what we can pass along to our customers, our operating income will decrease.\n\n\n\u00a0\n\n\n\n\n\n\n\n6\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nRisks Associated With Our Operations\n\n\n\u00a0\n\n\nChanges in economic conditions that impact consumer spending could harm our business.\n\n\n\u00a0\n\n\nThe food products industry and our financial performance are sensitive to changes in overall economic conditions that impact consumer spending, including not limited to, inflation, economic volatility resulting from a pandemic and the war in Ukraine. Future economic conditions affecting consumer income such as employment levels, business conditions, interest rates, inflation and tax rates could reduce consumer spending or cause consumers to shift their spending to other products. Historic increases in inflation following the COVID-19 pandemic may cause consumers to be more sensitive to price changes. A general reduction in the level of consumer spending or shifts in consumer spending to other products could have a material adverse effect on our growth, sales, and profitability.\n\n\n\u00a0\n\n\nPandemics or disease outbreaks may disrupt our business, including among other things, our supply chain, our manufacturing operations and customer and consumer demand for our products, and could have a material adverse impact on our business.\n\n\n\u00a0\n\n\nThe spread of pandemics or disease outbreaks may negatively affect our operations. If a significant percentage of our workforce or the workforce of our third-party business partners is unable to work, including because of illness or travel or government restrictions in connection with a pandemic or disease outbreak, our operations may be negatively impacted. Some of our workforce dwell in company provided housing and therefore any outbreaks would need to be managed, to the extent possible, to meet health care protocols. Pandemics or disease outbreaks could result in a widespread health crisis that could adversely affect economies and financial markets, consumer spending and confidence levels resulting in an economic downturn that could affect customer and consumer demand for our products.\n\n\n\u00a0\n\n\nOur efforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control, including the duration and severity of any pandemic or disease outbreak, as well as third party actions taken to contain its spread and mitigate public health effects.\n\n\n\u00a0\n\n\nThe ultimate impact of a pandemic on our business will depend on many factors, including, among others, the duration of social distancing and stay-at-home mandates, our ability to continue to operate our manufacturing facilities and maintain the supply chain without material disruption, and the extent to which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery may impact consumer eating habits.\n\n\n\u00a0\n\n\nWe depend upon key customers.\n\n\n\u00a0\n\n\nOur products are sold in a highly competitive marketplace, which includes increased concentration and a growing presence of large-format retailers and discounters. Dependence upon key customers could lead to increased pricing pressure by these customers. A relatively limited number of customers account for a large percentage of the Company\u2019s total net sales. The top ten customers represented approximately 55%, and 53% of net sales for fiscal years 2023 and 2022, respectively. If we lose a significant customer or if sales to a significant customer materially decrease, our business, financial condition and results of operations may be materially and adversely affected.\n\n\n\u00a0\n\n\nIf we do not maintain the market shares of our products, our business and revenues may be adversely affected. \n\n\n\u00a0\n\n\nAll of our products compete with those of other national and regional food packaging companies under highly competitive conditions. The fruit and vegetable products which we sell under our own brand names not only compete with fruit and vegetable products produced by food packaging competitors, but also compete with products we produce and sell under contract packing agreements with other companies who market those products under their own brand names and the vegetables we sell to various retail grocery chains which carry our customer\u2019s own brand names.\n\n\n\u00a0\n\n\nThe customers who buy our products to sell under their own brand names control the marketing programs for those products. In recent years, many major retail food chains have been increasing their promotions, offerings and shelf space allocations for their own fruit and vegetable brands, to the detriment of fruit and vegetable brands owned by the packagers, including our own brands. We cannot predict the pricing or promotional activities of our customers/competitors or whether they will have a negative effect on us. There are competitive pressures and other factors, which could cause our products to lose market share or result in significant price erosion that could materially and adversely affect our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nIncreases in logistics and other transportation-related costs could materially adversely impact our results of operations. \n\n\n\u00a0\n\n\nOur ability to competitively serve our customers depends on the availability of reliable and low-cost transportation. We use multiple forms of transportation to bring our products to market. They include trucks, intermodal, rail cars, and ships. Disruption to the timely supply of these services or increases in the cost of these services for any reason, including availability or cost of fuel, regulations affecting the industry, or labor shortages in the transportation industry, could have an adverse effect on our ability to serve our customers, and could materially and adversely affect our business, financial condition and results of operations.\n\n\n\u00a0\n\n\n\n\n\n\n\n7\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nA recall of our products could have a material adverse effect on our business. In addition, we may be subject to significant liability should the consumption of any of our products cause injury, illness or death.\n\n\n\u00a0\n\n\nThe sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from mislabeling,\u00a0tampering by unauthorized third parties or product contamination or spoilage, including the presence of foreign objects, undeclared allergens, substances, chemicals, other agents or residues introduced during the growing, manufacturing, storage, handling or transportation phases of production. Under certain circumstances, we may be required to recall products, leading to a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. Even if a situation does not necessitate a recall, product liability claims might be asserted against us. We have from time to time been involved in product liability lawsuits, none of which have been material to our business. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, if the consumption of any of our products causes, or is alleged to have caused, a health-related illness in the future we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused injury, illness or death could adversely affect our reputation with existing and potential customers and our corporate and brand image. Moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. We maintain product liability insurance in an amount we believe to be adequate. However, we cannot assure you that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a product recall or the damage to our reputation resulting therefrom could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.\n\n\n\u00a0\n\n\nPending and future litigation may lead us to incur significant costs.\n\n\n\u00a0\n\n\nWe are, or may become, party to various lawsuits and claims arising in the normal course of business, which may include lawsuits or claims relating to contracts, intellectual property, product recalls, product liability, the marketing and labeling of products, employment matters, environmental matters or other aspects of our business. Even when not merited, the defense of these lawsuits may divert our management\u2019s attention, and we may incur significant expenses in defending these lawsuits. In addition, we may be required to pay damage awards or settlements or become subject to injunctions or other equitable remedies, which could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. The outcome of litigation is often difficult to predict, and the outcome of pending or future litigation may have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.\n\n\n\u00a0\n\n\nWe face risks associated with our defined benefit pension plan.\n\n\n\u00a0\n\n\nWe maintain a company-sponsored defined benefit pension plan. A deterioration in the value of plan assets resulting from poor market performance, a general financial downturn or otherwise could cause an increase in the amount of contributions we are required to make to these plans. For example, our defined benefit pension plan may from time to time move from an overfunded to underfunded status driven by decreases in plan asset values that may result from changes in long-term interest rates and disruptions in U.S. or\u00a0global financial markets. For a more detailed description of the pension plan, refer to the information set forth under the heading \u201c\nRetirement Plans\n\u201d\n \nin Note 10 of the Notes to Consolidated Financial Statements in Part II, Item 8, \u201cFinancial Statements and Supplementary Data.\u201d An obligation to make additional, unanticipated contributions to our defined benefit plans could reduce the cash available for working capital and other corporate uses, and may have a material adverse effect on our business, consolidated financial position, results of operations and liquidity.\n\n\n\u00a0\n\n\nOur business is dependent on our information technology systems and software, and failure to protect against or effectively respond to cyber-attacks, security breaches, or other incidents involving those systems, could adversely affect day-to-day operations and decision making processes and have an adverse effect on our performance and reputation.\n\n\n\u00a0\n\n\nThe efficient operation of our business depends on our information technology systems, which we rely on to effectively manage our business data, communications, logistics, accounting, regulatory and other business processes. If we do not allocate and effectively manage the resources necessary to build and sustain an appropriate technology environment, our business, reputation, or financial results could be negatively impacted. In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including systems failures, natural disasters, terrorist attacks, viruses, ransomware, security breaches or cyber incidents. Cyber-attacks are becoming more sophisticated and are increasing in the number of attempts and frequency by groups and individuals with a wide range of motives. A security breach of sensitive information could result in damage to our reputation and our relations with our customers or employees. Any such damage or interruption could have a material adverse effect on our business.\n\n\n\u00a0\n\n\n\n\n\n\n\n8\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe generate agricultural food packaging wastes and are subject to substantial environmental regulation.\n\n\n\u00a0\n\n\nAs a food packager, we regularly dispose of produce wastes (silage) and processing water as well as materials used in plant operation and maintenance and our plant boilers, which generate heat used in packaging and can manufacturing operations, producing generally small emissions into the air. These activities and operations are regulated by federal and state laws and the respective federal and state environmental agencies. Occasionally, we may be required to remediate conditions found by the regulators to be in violation of environmental law or to contribute to the cost of remediating waste disposal sites, which we neither owned nor operated, but in which, we and other companies deposited waste materials, usually through independent waste disposal companies. Future possible costs of environmental remediation, contributions and penalties could materially and adversely affect our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nOur production capacity for certain products and commodities is concentrated in a limited number of facilities, exposing us to a material disruption in production in the event that a disaster strikes.\n\n\n\u00a0\n\n\nWe only have one plant that produces fruit products and one plant that produces pumpkin products. We have two plants that manufacture empty cans, one with substantially more capacity than the other, which are not interchangeable since each plant cannot necessarily produce all the can sizes needed. Although we maintain property and business interruption insurance coverage, there can be no assurance that this level of coverage is adequate in the event of a catastrophe or significant disruption at these or other Company facilities. If such an event occurs, it could materially and adversely affect our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nWe may undertake acquisitions or product innovations and may have difficulties integrating them or may not realize the anticipated benefits.\n\n\n\u00a0\n\n\nIn the future, we may undertake acquisitions of other businesses or introduce new products, although there can be no assurances that these will occur. Such undertakings involve numerous risks and significant investments. There can be no assurance that we will be able to identify and acquire acquisition candidates on favorable terms, to profitably manage or to successfully integrate future businesses that we may acquire or new products we may introduce without substantial costs, delays or problems. Any of these outcomes could materially and adversely affect our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nWe are dependent upon a seasonal workforce and our inability to hire sufficient employees may adversely affect our business.\n\n\n\u00a0\n\n\nAt the end of December 2022, we had roughly 3,000 employees of which approximately 2,800 were full time, 100 seasonal employees worked in food packaging, and 100 employees worked in other activities. During the peak summer harvest period, we averaged approximately 3,600 additional seasonal employees to help package fruit and vegetables. If there is a shortage of seasonal labor, or if there is an increase to minimum wage rates, this could have a negative impact on our cost of operations. Many of our packaging operations are located in rural communities that may not have sufficient labor pools, requiring us to hire employees from other regions. An inability to hire and train sufficient employees during the critical harvest period could materially and adversely affect our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nIncreases in Labor Costs or Work Stoppages or Strikes Could Materially and Adversely Affect Our Financial Condition and Results of Operations\n\n\n\u00a0\n\n\nPersonnel costs, including the costs of medical and other employee health and welfare benefits, have increased. These costs can vary substantially as a result of an increase in the number, mix and experience of our employees and changes in health care and other employment-related laws. There are no assurances that we will succeed in reducing future increases in such costs. Increases in personnel costs can also be amplified by low unemployment rates, preferences among workers in the labor market and general tight labor market conditions in any of the areas where we operate. Our inability to control such costs could materially and adversely affect our financial condition and results of operations. Although we consider our labor relations to be good, if a significant number of our employees engaged in a work slowdown, or other type of labor unrest, it could in some cases impair our ability to supply our products to customers, which could result in reduced sales, and may distract our management from focusing on our business and strategic priorities. Any of these activities could materially and adversely affect our financial condition and results of operations.\n\n\n\u00a0\n\n\nEnvironmental and other regulation of our business, including potential climate change regulation, could adversely impact us by increasing our production cost or restricting our ability to import certain products into the United States.\n\n\n\u00a0\n\n\nClimate change serves as a risk multiplier increasing both the frequency and severity of natural disasters that may affect our business operations. Moreover, there has been a broad range of proposed and promulgated state, national and international regulation aimed at reducing the effects of climate change. In the United States, there is a significant possibility that some form of regulation will be enacted at the federal level to address the effects of climate change. Such regulation could take several forms that could result in additional costs in the form of taxes, consultant costs, the restriction of output, investments of capital to maintain compliance with laws and regulations, or required acquisition or trading of emission allowances. Climate change regulation continues to evolve, and it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation.\n\n\n\u00a0\n\n\n\n\n\n\n\n9\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThere may be increased governmental legislative and regulatory activity in reaction to consumer perception related to enamels.\n\n\n\u00a0\n\n\nThere has been continued state legislative activity to ban certain enamels used to line cans; such as Bisphenol-A (\"BPA\"). These legislative decisions are predominantly driven by consumer perception that BPA may be harmful. These actions have been taken despite the scientific evidence and general consensus of United States and international government agencies that BPA is safe and does not pose a risk to human health. The legislative actions combined with growing public perception about food safety may require us to change some of the materials used as linings in our packaging materials. Failure to do so could result in a loss of sales as well as loss in value of the inventory utilizing certain materials. In collaboration with other can makers as well as enamel suppliers, we have aggressively worked to find alternative materials for can linings not manufactured using BPA. We have transitioned to BPANI (BPA Non-intent) and less than 1% of our canned product volume still includes BPA. Even though BPANI has been fully approved by the Food and Drug Administration (\u201cFDA\u201d), there could be future legislative or regulatory actions that claim BPANI also poses a risk to human health. Future changes or additional health and safety laws and regulations in connection with our products, packaging or processes may also impose upon us new requirements, costs, and changes to production. Such requirements, changes, liabilities, and costs could materially and adversely affect our business, financial condition and results of operations.\u00a0\n\n\n\u00a0\n\n\nThe implementation of the Food Safety Modernization Act of 2011 may affect operations.\n\n\n\u00a0\n\n\nThe\u00a0Food Safety Modernization Act (\"FSMA\") was enacted with the goal of\u00a0enabling the FDA to better protect public health by strengthening the food safety system.\u00a0FSMA was designed\u00a0to focus\u00a0the efforts of FDA\u00a0on preventing food safety problems rather than relying primarily on reacting to problems after they occur. The law also provides the FDA with new enforcement authorities designed to achieve higher rates of compliance with prevention and risk-based food safety standards and to better respond to and contain problems when they do occur.\u00a0\u00a0The increased inspections, mandatory recall authority of the FDA, increased scrutiny of foreign sourced or supplied food products, and increased records access may have an impact on our business. As we are already in a highly regulated business, operating under the increased scrutiny of more FDA authority does not appear likely to negatively impact our business.\u00a0\u00a0The law also gives FDA important new tools to hold imported foods to the same standards as domestic foods.\n\n\n\u00a0\n\n\nOur results are dependent on successful marketplace initiatives and acceptance by consumers of our products. \n\n\n\u00a0\n\n\nOur product introductions and product improvements, along with other marketplace initiatives, are designed to capitalize on new customer or consumer trends.\u00a0The FDA has issued a statement on sodium which referred to an Institute of Medicine statement that too much sodium is a major contributor to high blood pressure. Some of our products contain a moderate amount of sodium per recommended serving, which is based on consumer\u2019s preferences for taste. \u00a0In order to remain successful, we must anticipate and react to these new trends and develop new products or packages to address them. While we devote significant resources to meeting this goal, we may not be successful in developing new products or packages, or our new products or packages may not be accepted by customers or consumers.\n\n\n\u00a0\n\n\nFinancing Risks\n\n\n\u00a0\n\n\nGlobal economic conditions may materially and adversely affect our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nUnfavorable economic conditions, including the impact of recessions in the United States and throughout the world, may negatively affect our business and financial results. These economic conditions could negatively impact (i) consumer demand for our products, (ii) the mix of our products\u2019 sales, (iii) our ability to collect accounts receivable on a timely basis, (iv) the ability of suppliers to provide the materials required in our operations and (v) our ability to obtain financing or to otherwise access the capital markets. The strength of the U.S. dollar versus other world currencies could result in increased competition from imported products and decreased sales to our international customers. A prolonged recession could result in decreased revenue, margins and earnings. Additionally, the economic situation could have an impact on our lenders or customers, causing them to fail to meet their obligations to us. The occurrence of any of these risks could materially and adversely affect our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nOur ability to manage our working capital and our Revolver is critical to our success. \n\n\n\u00a0\n\n\nAs of March 31, 2023, we had a $180.6 million outstanding balance on our revolving credit facility (\u201cRevolver\u201d).\u00a0 During our second and third fiscal quarters, our operations generally require more cash than is available from operations.\u00a0In these circumstances, it is necessary to borrow under our Revolver.\u00a0Our ability to obtain financing in the future through credit facilities will be affected by several factors, including our creditworthiness, our ability to operate in a profitable manner and general market and credit conditions.\u00a0Significant changes in our business or cash outflows from operations could create a need for additional working capital.\u00a0An inability to obtain additional working capital on terms reasonably acceptable to us or access the Revolver would materially and adversely affect our operations. Additionally, if we need to use a portion of our cash flows to pay principal and interest on our debt, it will reduce the amount of money we have for operations, working capital, capital expenditures, expansions, acquisitions or general corporate or other business activities.\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n10\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFailure to comply with the requirements of our debt agreements could have a material adverse effect on our business.\n\n\n\u00a0\n\n\nOur debt agreements contain financial and other restrictive covenants which, among other things, limit our ability to borrow money, including with respect to the refinancing of existing indebtedness. These provisions may limit our ability to conduct our business, take advantage of business opportunities and respond to changing business, market and economic conditions. In addition, they may place us at a competitive disadvantage relative to other companies that may be subject to fewer, if any, restrictions. Failure to comply with the requirements of our debt agreements could materially and adversely affect our business, financial condition and results of operations. We have pledged our accounts receivable, inventory, equipment, certain facilities, capital stock, or other ownership interests that we own in our subsidiaries to secure certain debt. If a default occurred and was not cured, secured lenders could foreclose on this collateral.\n\n\n\u00a0\n\n\nRisks Relating to Our Stock \n\n\n\u00a0\n\n\nOur existing shareholders, if acting together, may be able to exert control over matters requiring shareholder approval. \n\n\n\u00a0\n\n\nHolders of our Class B common stock are entitled to one vote per share, while holders of our Class\u00a0A common stock are entitled to one-twentieth of a vote per share. In addition, holders of our 10% Cumulative Convertible Voting Preferred Stock, Series A, our 10% Cumulative Convertible Voting Preferred Stock, Series B and, solely with respect to the election of directors, our 6% Cumulative Voting Preferred Stock, which we refer to as our voting preferred stock, are entitled to one vote per share. As of March 31, 2023, holders of Class B common stock and voting preferred stock held 90.2% of the combined voting power of all shares of capital stock then outstanding and entitled to vote. These shareholders, if acting together, would be in a position to control the election of our directors and to effect or prevent certain corporate transactions that require majority or supermajority approval of the combined classes, including mergers and other business combinations. This may result in us taking corporate actions that you may not consider to be in your best interest and may affect the price of our common stock.\n\n\n\u00a0\n\n\nAs of March 31, 2023, our current executive officers and directors beneficially owned 11.4% of our outstanding shares of Class\u00a0A common stock, 50.07% of our outstanding shares of Class B common stock and 23.1% of our voting preferred stock, or 37.2% of the combined voting power of our outstanding shares of capital stock. This concentration of voting power may inhibit changes in control of the Company and may adversely affect the market price of our common stock.\n\n\n\u00a0\n\n\nOur certificate of incorporation and bylaws contain provisions that discourage corporate takeovers. \n\n\n\u00a0\n\n\nCertain provisions of our certificate of incorporation and bylaws and provisions of the New York Business Corporation Law may have the effect of delaying or preventing a change in control. Various provisions of our certificate of incorporation and bylaws may inhibit changes in control not approved by our directors and may have the effect of depriving shareholders of any opportunity to receive a premium over the prevailing market price of our common stock in the event of an attempted unsolicited takeover. In addition, the existence of these provisions may adversely affect the market price of our common stock. These provisions include:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\na classified board of directors;\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\na requirement that special meetings of shareholders be called only by our directors or holders of 25% of the voting power of all shares outstanding and entitled to vote at the meeting;\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nour board of directors has the power to classify and reclassify any of our unissued shares of capital stock into shares of capital stock with such preferences, rights, powers and restrictions as the board of directors may determine;\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nthe affirmative vote of two-thirds of the shares present and entitled to vote is required to amend our bylaws or remove a director; and\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nunder the New York Business Corporation Law, in addition to certain restrictions which may apply to \u201cbusiness combinations\u201d\u00a0involving us and an \u201cinterested shareholder\u201d, a plan for our merger or consolidation must be approved by two-thirds of the votes of all outstanding shares entitled to vote thereon. See \u201cOur existing shareholders, if acting together, may be able to exert control over matters requiring shareholder approval.\u201d\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe have not paid dividends on our common stock in the past. \n\n\n\u00a0\n\n\nWe have not declared or paid any cash dividends on our common stock in the past. In addition, payment of cash dividends on our common stock is not permitted by the terms of our revolving credit facility. This policy may be revisited under the correct circumstances in the future.\n\n\n\u00a0\n\n\n\n\n\n\n\n11\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOther Risks\n\n\n\u00a0\n\n\nTax legislation could impact future cash flows.\n\n\n\u00a0\n\n\nWe\u00a0use the Last-In, First-Out (LIFO) method of inventory accounting. As of March 31, 2023, we had a LIFO reserve of $264.5 million which, at the U.S. corporate tax rate, represents approximately $66.1 million of income taxes, payment of which is delayed to future dates based upon changes in inventory costs. From time-to-time, discussions regarding changes in U.S. tax laws have included the potential of LIFO being repealed. Should LIFO be repealed, the $66.1 million of postponed taxes, plus any future benefit realized prior to the date of repeal, would likely have to be repaid over some period of time. Repayment of these postponed taxes will reduce the amount of cash that we would have available to fund our operations, working capital, capital expenditures, expansions, acquisitions or general corporate or other business activities. This could materially and adversely affect our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nThe tax status of our insurance subsidiary could be challenged resulting in an acceleration of income tax payments.\n\n\n\u00a0\n\n\nIn conjunction with our workers\u2019 compensation program, we operate a wholly owned insurance subsidiary, Dundee Insurance Company, Inc. We recognize this subsidiary as an insurance company for federal income tax purposes with respect to our consolidated federal income tax return. In the event the Internal Revenue Service (\u201cIRS\u201d) were to determine that this subsidiary does not qualify as an insurance company, we could be required to make accelerated income tax payments to the IRS that we otherwise would have deferred until future periods.\n\n\n\u00a0\n\n",
+  "item7": ">Item 7. Management\u2019\ns Discussion and Analysis of Financial Condition and Results of Operations \n\n\n\u00a0\n\n\nRefer to the information in the 2023 Annual Report, attached as Exhibit 13 to this Annual Report on Form 10-K, under the section\u00a0\u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d, which is incorporated by reference.\n\n\n\u00a0\n\n",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures about Market Risk\n\n\n\u00a0\n\n\nRefer to the information in the 2023 Annual Report, attached as Exhibit 13 to this Annual Report on Form 10-K, under the section\u00a0\u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d, which is incorporated by reference.\n\n\n\u00a0\n\n",
+  "cik": "88948",
+  "cusip6": "817070",
+  "cusip": ["817070105", "817070501"],
+  "names": ["SENECA FOODS CORP - CL B", "SENECA FOODS CORP - CL A"],
+  "source": "https://www.sec.gov/Archives/edgar/data/88948/000143774923017258/0001437749-23-017258-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1.\u00a0 \u00a0\nBusiness\n\n\n\u00a0\n\n\nDescription of Business\n\n\n\u00a0\n\n\nThe Company was incorporated as a Georgia corporation in 1957 and was reincorporated as a Delaware corporation in 2003. The Company\u2019s executive offices are located at 916 South Burnside Avenue, Suite 300, Gonzales, Louisiana 70737, its telephone number is (225) 647-9100 and its internet address is \nwww.crowncrafts.com\n.\n\n\n\u00a0\n\n\nThe Company operates indirectly through four of its wholly-owned subsidiaries, NoJo Baby & Kids, Inc. (\u201cNoJo\u201d), Sassy Baby, Inc. (\u201cSassy\u201d), Manhattan Group, LLC (\u201cManhattan\u201d) and Manhattan Toy Europe Limited (\u201cMTE\u201d) in the infant, toddler and juvenile products segment within the consumer products industry. The infant, toddler and juvenile products segment consists of infant and toddler bedding and blankets, bibs, soft bath products, disposable products, developmental toys and accessories. Most sales of the Company\u2019s products are generally made directly to retailers, such as mass merchants, large chain stores, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, wholesale clubs and internet-based retailers. The Company's products are marketed under a variety of Company-owned trademarks, under trademarks licensed from others and as private label goods.\u00a0 Manhattan also sells direct to consumer through its website, \nwww.manhattantoy.com\n.\n\n\n\u00a0\n\n\nThe Company's fiscal year ends on the Sunday nearest to or on March 31. References herein to \u201cfiscal year 2023\u201d or \u201c2023\u201d represent the 52-week period ended April 2, 2023, and references herein to \u201cfiscal year 2022\u201d or \u201c2022\u201d represent the 53-week period ended April 3, 2022.\n\n\n\u00a0\n\n\nOn March 17, 2023 (the \u201cClosing Date\u201d), the Company acquired Manhattan and MTE, Manhattan\u2019s wholly-owned subsidiary (the \u201cManhattan Acquisition\u201d), for a purchase price of $17.0\u00a0million, subject to adjustments for cash as of the Closing Date and\u00a0to the extent that actual net working capital as of the Closing Date differs from target net working capital of $13.75 million. The Manhattan Acquisition was funded with available cash and borrowings under the Company\u2019s revolving line of credit with The CIT Group/Commercial Services (\u201cCIT\u201d).\n\n\n\u00a0\n\n\nDuring the first 54 days of fiscal 2022, the Company also operated indirectly through Carousel Designs, LLC (\u201cCarousel\u201d), a wholly-owned subsidiary that manufactured and marketed infant and toddler bedding directly to consumers online from a facility in Douglasville, Georgia. On May 5, 2021, the Company\u2019s Board of Directors (the \u201cBoard\u201d) approved the closure of Carousel due to a history of high costs, declining sales and operating and cash flow losses, as well as management\u2019s determination that such losses were likely to continue. Accordingly, the operations of Carousel ceased at the close of business on May 21, 2021.\n\n\n\u00a0\n\n\nThe Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available free of charge on its website at \nwww.crowncrafts.com\n as soon as reasonably practicable after such material has been electronically filed with the SEC. These reports are also available without charge on the SEC\u2019s website at \nwww.sec.gov\n.\n\n\n\u00a0\n\n\nInternational Sales\n\n\n\u00a0\n\n\nSales to customers in countries other than the U.S. represented 5% and 4% of the Company\u2019s total gross sales during fiscal years 2023 and 2022, respectively. International sales are based upon the location that predominately represents what the Company believes to be the final destination of the products delivered to the Company\u2019s customers.\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nThe infant, toddler and juvenile consumer products industry is highly competitive. The Company competes with a variety of distributors and manufacturers (both branded and private label), including large infant, toddler and juvenile product companies and specialty infant, toddler and juvenile product manufacturers, on the basis of quality, design, price, brand name recognition, service and packaging. The Company\u2019s ability to compete depends principally on styling, price, service to the retailer and continued high regard for the Company\u2019s products and trade names.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      3\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nHuman Capital Resources\n\n\n\u00a0\n\n\nAs of June 15, 2023, the Company had 172 employees, all of whom are full-time and none of whom is represented by a labor union or is otherwise a party to a collective bargaining agreement. The Company attracts and maintains qualified personnel by paying competitive salaries and benefits and offering opportunities for advancement. The Company considers its relationship with its employees to be good.\n\n\n\u00a0\n\n\nTrademarks, Copyrights and Patents\n\n\n\u00a0\n\n\nThe Company considers its intellectual property to be of material importance to its business. Sales of products marketed under the Company\u2019s trademarks, including Sassy\u00ae, Manhattan Toy\u00ae, NoJo\u00ae and Neat Solutions\u00ae accounted for 35% and 30% of the Company\u2019s total gross sales during fiscal years 2023 and 2022, respectively. Protection for these trademarks is obtained through domestic and foreign registrations. The Company also markets designs that are subject to copyrights and design patents owned by the Company.\n\n\n\u00a0\n\n\nProduct Sourcing\n\n\n\u00a0\n\n\nForeign and domestic contract manufacturers produce most of the Company\u2019s products, with the largest concentration being in China. The Company makes sourcing decisions on the basis of quality, timeliness of delivery and price, including the impact of ocean freight and duties. Although the Company maintains relationships with a limited number of suppliers, the Company believes that its products may be readily manufactured by several alternative sources in quantities sufficient to meet the Company\u2019s requirements. The Company\u2019s management and quality assurance personnel visit the third-party facilities regularly to monitor and audit product quality and to ensure compliance with labor requirements and social and environmental standards. In addition, the Company closely monitors the currency exchange rate. The impact of future fluctuations in the exchange rate or changes in safeguards cannot be predicted with certainty.\n\n\n\u00a0\n\n\nThe Company maintains a foreign representative office located in Shanghai, China, which is responsible for the coordination of production, purchases and shipments, seeking out new vendors and overseeing inspections for social compliance and quality.\n\n\n\u00a0\n\n\nThe Company\u2019s products are warehoused and distributed domestically from leased facilities located in Compton, California and Eden Valley, Minnesota and internationally from third party logistics warehouses in the Netherlands, Belgium and the United Kingdom.\n\n\n\u00a0\n\n\nLicensed Products\n\n\n\u00a0\n\n\nCertain products are manufactured and sold pursuant to licensing agreements for trademarks. Also, many of the designs used by the Company are copyrighted by other parties, including trademark licensors, and are available to the Company through copyright license agreements. The licensing agreements are generally for an initial term of one to three years and may or may not be subject to renewal or extension. Sales of licensed products represented 40% of the Company\u2019s gross sales in fiscal year 2023, which included 29% of sales under the Company\u2019s license agreements with affiliated companies of The Walt Disney Company (\u201cDisney\u201d), which expire as set forth below:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nLicense Agreement\n \n\n\n \nExpiration\n \n\n\n\n\n\n\n \nInfant Bedding\n \n\n\n \nDecember 31, 2024\n \n\n\n\n\n\n\n \nInfant Feeding and Bath\n \n\n\n \nDecember 31, 2023\n \n\n\n\n\n\n\n \nToddler Bedding\n \n\n\n \nDecember 31, 2023\n \n\n\n\n\n\n\n \nSTAR WARS Toddler Bedding\n \n\n\n \nDecember 31, 2023\n \n\n\n\n\n\n\n \nSTAR WARS - Lego Plush\n \n\n\n \nDecember 31, 2023\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nCustomers\n\n\n\u00a0\n\n\nThe Company\u2019s customers consist principally of mass merchants, large chain stores, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, internet accounts and wholesale clubs. The Company does not enter into long-term or other purchase agreements with its customers. The table below sets forth those customers that represented at least 10% of the Company\u2019s gross sales in fiscal years 2023 and 2022.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\n\nWalmart Inc.\n\n\n\u00a0\n\n\n\u00a0\n\n\n51\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n52\n\n\n%\n\n\n\n\n\n\nAmazon.com, Inc.\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      4\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nProducts\n\n\n\u00a0\n\n\nThe Company\u2019s primary focus is on infant, toddler and juvenile products, including the following:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \ndevelopmental toys\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \ndolls and plush toys\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nreusable and disposable bibs\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \ninfant and toddler bedding\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nblankets and swaddle blankets\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nnursery and toddler accessories\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nroom d\u00e9cor\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nburp cloths\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nhooded bath towels and washcloths\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nreusable and disposable placemats and floor mats\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \ndisposable toilet seat covers and changing mats\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nfeeding and care goods\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nother infant, toddler and juvenile soft goods\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nSeasonality and Inventory Management\n\n\n\u00a0\n\n\nApproximately one-third of Manhattan\u2019s annual sales are anticipated to occur during the Company\u2019s third fiscal quarter (October through December). There are no significant variations in the seasonal demand for the Company\u2019s other products from year to year. Sales are generally higher in periods when customers take initial shipments of new products, as these orders typically include enough products for initial sets for each store and additional quantities for the customer\u2019s distribution centers. The timing of these initial shipments varies by customer and depends on when the customer finalizes store layouts for the upcoming year and whether the customer has any mid-year introductions of products. Sales may also be higher or lower, as the case may be, in periods when customers are restricting internal inventory levels. Customer returns of merchandise shipped are historically less than 1% of gross sales.\n\n\n\u00a0\n\n\nConsistent with the expected introduction of specific product offerings, the Company carries necessary levels of inventory to meet the anticipated delivery requirements of its customers. The Company will also typically increase the purchases and inventory levels of its products in the months prior to the Lunar New Year, a celebration beginning in late January to mid-February during which the Company\u2019s contract manufacturers in China cease operations for 2-4 weeks.\n\n\n\u00a0\n\n\nGovernment Regulation and Environmental Control\n\n\n\u00a0\n\n\nThe Company is subject to various federal, state and local environmental laws and regulations, which regulate, among other things, product safety and the discharge, storage, handling and disposal of a variety of substances and wastes, and to laws and regulations relating to employee safety and health, principally the Occupational Safety and Health Administration Act and regulations thereunder. The Company believes that it currently complies in all material respects with applicable environmental, health and safety laws and regulations and that future compliance with such existing laws or regulations will not have a material adverse effect on its capital expenditures, earnings or competitive position. However, there is no assurance that such requirements will not become more stringent in the future or that the Company will not have to incur significant costs to comply with such requirements.\n\n\n\u00a0\n\n\nProduct Design and Styling\n\n\n\u00a0\n\n\nThe Company believes that its creative team is one of its key strengths. The Company\u2019s product designs are primarily created internally and are supplemented by numerous additional sources, including independent artists, decorative fabric manufacturers and apparel designers. Ideas for product design creations are drawn from various sources and are reviewed and modified by the design staff to ensure consistency within the Company\u2019s existing product offerings and the themes and images associated with such existing products. In order to respond effectively to changing consumer preferences, the Company\u2019s designers and stylists attempt to stay abreast of emerging lifestyle trends in color, fashion and design. When designing products under the Company\u2019s various licensed brands, the Company\u2019s designers coordinate their efforts with the licensors\u2019 design teams to provide for a more fluid design approval process and to effectively incorporate the image of the licensed brand into the product. The Company\u2019s designs include traditional, contemporary, textured and whimsical patterns across a broad spectrum of retail price points.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      5\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nUtilizing state of the art computer technology, the Company continually develops new designs throughout the year for all of its product groups. This continual development cycle affords the Company design flexibility, multiple opportunities to present new products to customers and the ability to provide timely responses to customer demands and changing market trends. The Company also creates designs for exclusive sale by certain of its customers under the Company\u2019s brands, as well as the customers\u2019 private label brands.\n\n\n\u00a0\n\n\nSales and Marketing\n\n\n\u00a0\n\n\nThe Company\u2019s products are marketed through a national sales force consisting of salaried sales executives and employees located in Gonzales, Louisiana; Compton, California; Minneapolis, Minnesota; Grand Rapids, Michigan; Bentonville, Arkansas; and London, United Kingdom; and by independent commissioned sales representatives located throughout the United States.\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A.\u00a0 \u00a0\nRisk Factors\n\n\n\u00a0\n\n\nThe following risk factors as well as the other information contained in this Annual Report and other filings made by the Company with the SEC should be considered in evaluating the Company\n\u2019\ns business. Additional risks and uncertainties that are not presently known or that are not currently considered material may also impair the Company\n\u2019\ns business operations. If any of the following risks actually occur, then operating results may be affected in future periods.\n\n\n\u00a0\n\n\nRisks Associated with the Company, Business and Industry\n\n\n\u00a0\n\n\nThe loss of one or more of the Company\n\u2019\ns key customers could result in a material loss of revenues.\n\n\n\u00a0\n\n\nThe Company\u2019s top two customers represented approximately 71% of gross sales in fiscal year 2023. Although the Company does not enter into contracts with its key customers, it expects its key customers to continue to be a significant portion of its gross sales in the future. The loss of, or a decline in orders from, one or more of these customers could result in a material decrease in the Company\u2019s revenue and operating income.\n\n\n\u00a0\n\n\nThe loss of one or more of the Company\n\u2019\ns licenses could result in a material loss of revenues.\n\n\n\u00a0\n\n\nSales of licensed products represented 40% of the Company\u2019s gross sales in fiscal year 2023, which included 29% of sales associated with the Company\u2019s license agreements with Disney. The Company could experience a material loss of revenues if it is unable to renew its major license agreements or obtain new licenses. The volume of sales of licensed products is inherently tied to the success of the characters, films and other licensed programs of the Company\u2019s licensors. A decline in the popularity of these licensed programs or the inability of the licensors to develop new properties for licensing could also result in a material loss of revenues to the Company. Additionally, the Company\u2019s license agreements with Disney and others require a material amount of minimum guaranteed royalty payments. The failure by the Company to achieve the sales envisioned by the license agreements could result in the payment by the Company of shortfalls in the minimum guaranteed royalty payments, which would adversely impact the Company\u2019s operating results.\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns inability to anticipate and respond to consumers\n\u2019\n tastes and preferences could adversely affect the Company\n\u2019\ns revenues.\n\n\n\u00a0\n\n\nSales are driven by consumer demand for the Company\u2019s products. There can be no assurance that the demand for the Company\u2019s products will not decline or that the Company will be able to anticipate and respond to changes in demand related to consumers\u2019 tastes and preferences. The infant and toddler consumer products industry is characterized by the continual development of cutting-edge new products to meet the high standards of parents. The Company\u2019s failure to adapt to these changes or to develop new products could lead to lower sales and excess inventory, which could have a material adverse effect on the Company\u2019s financial condition and operating results.\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns business is impacted by general economic conditions and related uncertainties, including a declining birthrate, affecting markets in which the Company operates.\n\n\n\u00a0\n\n\nThe Company\u2019s growth is largely influenced by the birthrate, and in particular, the rate of first births. Economic conditions, including the real and perceived threat of a recession, could lead individuals to decide to forgo or delay having children. Even under optimal economic conditions, shifts in demographic trends and preferences could have the consequence of individuals starting to have children later in life and/or having fewer children.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      6\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn recent years, the birthrate in the United States has steadily declined. These conditions could result in reduced demand for some of\u00a0the Company\u2019s\u00a0products, increased order cancellations and returns, an increased risk of excess and obsolete inventories and increased pressure on the prices of the Company\u2019s products.\u00a0 Also, although the Company\u2019s use of a commercial factor significantly reduces the risk associated with collecting accounts receivable, such factor may at any time terminate or limit its approval of shipments to a particular customer.\u00a0 The bankruptcy of a customer, the perceived pending threat of a bankruptcy of a customer, or an adverse change in overall economic conditions are among the events that would increase the likelihood that the factor would terminate or limit its approval of shipments to customers.\u00a0 Such an action by the factor could result in the loss of future sales to such affected customers.\n\n\n\u00a0\n\n\nEconomic conditions could result in an increase in the amounts paid for the Company\n\u2019\ns products.\n\n\n\u00a0\n\n\nSignificant increases in freight costs and the price of raw materials that are components of the Company\u2019s products, including cotton, oil and labor, could adversely affect the amounts that the Company must pay its suppliers for its finished goods. If the Company is unable to pass these cost increases along to its customers, its profitability could be adversely affected.\n\n\n\u00a0\n\n\nWidespread outbreaks of contagious disease may adversely affect the Company\n\u2019\ns business operations, employee availability, financial condition, liquidity and cash flow.\n\n\n\u00a0\n\n\nSignificant outbreaks of contagious diseases could have adverse effects on the overall economy and impact the Company\u2019s supply chain, manufacturing and distribution operations, transportation services, customers and employees, as well as consumer sentiment in general and traffic within the retail stores that carry the Company\u2019s products. A pandemic could adversely affect the Company\u2019s revenues, earnings, liquidity and cash flows and require significant actions in response, including employee furloughs, closings of Company facilities, expense reductions or discounts of the pricing of the Company\u2019s products, all in an effort to mitigate such effects.\n\n\n\u00a0\n\n\nDuring fiscal years 2022 and 2021, the COVID-19 pandemic led global government authorities to implement numerous public health measures, including quarantines, business closures, travel bans and lockdowns to confront the pandemic. China\u2019s efforts to control\u00a0the spread of the COVID-19 virus by locking down its largest cities placed a strain on already-stressed global supply chains. Several of the Company\u2019s customers experienced financial difficulties as a result of the COVID-19 pandemic.\n\n\n\u00a0\n\n\nA resurgence of the COVID-19 pandemic, or any other outbreak of contagious disease, could adversely affect the Company's revenues, earnings, liquidity and cash flows and may require significant actions in response, including employee furloughs, closings of Company facilities, expense reductions or discounts of the pricing of the Company's products, all in an effort to mitigate such effects.\u00a0\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns sourcing and marketing operations in foreign countries are subject to anti-corruption laws.\n\n\n\u00a0\n\n\nThe Company\u2019s foreign operations are subject to laws prohibiting improper payments and bribery, including the U.S. Foreign Corrupt Practices Act and similar laws and regulations in foreign jurisdictions, which apply to the Company\u2019s directors, officers, employees and agents acting on behalf of the Company. Failure to comply with these laws could result in damage to the Company\u2019s reputation, a diversion of management\u2019s attention from its business, increased legal and investigative costs, and civil and criminal penalties, any or all of which could adversely affect the Company\u2019s operating results.\n\n\n\u00a0\n\n\nThe strength of the Company\n\u2019\ns competitors may impact the Company\n\u2019\ns ability to maintain and grow its sales, which could decrease the Company\n\u2019\ns revenues.\n\n\n\u00a0\n\n\nThe infant and toddler consumer products industry is highly competitive. The Company competes with a variety of distributors and manufacturers, both branded and private label. The Company\u2019s ability to compete successfully depends principally on styling, price, service to the retailer and continued high regard for the Company\u2019s products and trade names. Several of these competitors are larger than the Company and have greater financial resources than the Company, and some have experienced financial challenges from time to time, including servicing significant levels of debt. Those facing financial pressures could choose to make particularly aggressive pricing decisions in an attempt to increase revenue. The effects of increased competition could result in a material decrease in the Company\u2019s revenues.\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns success is dependent upon retaining key management personnel.\n\n\n\u00a0\n\n\nCertain of the Company\u2019s executive management and other key personnel have been integral to the Company\u2019s operations and the execution of its growth strategy. The departure from the Company of one or more of these individuals, along with the inability of the Company to attract qualified and suitable individuals to fill the Company\u2019s open positions, could adversely impact the Company\u2019s growth and operating results.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      7\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company may need to write down or write off inventory.\n\n\n\u00a0\n\n\nIf product programs end before the inventory is completely sold, then the remaining inventory may have to be sold at less than carrying value. The market value of certain inventory items could drop to below carrying value after a decline in sales, at the end of programs, or when management makes the decision to exit a product group. Such inventory would then need to be written down to the lower of carrying or market value, or possibly completely written off, which would adversely affect the Company\u2019s operating results.\n\n\n\u00a0\n\n\nThe Company could experience losses associated with its intellectual property.\n\n\n\u00a0\n\n\nThe Company relies upon the fair interpretation and enforcement of patent, copyright, trademark and trade secret laws in the U.S., similar laws in other countries, and agreements with employees, customers, suppliers, licensors and other parties. Such reliance serves to establish and maintain the intellectual property rights associated with the products that the Company develops and sells. However, the laws and courts of certain countries at times do not protect intellectual property rights or respect contractual agreements to the same extent as the laws of the U.S. Therefore, in certain jurisdictions the Company may not be able to protect its intellectual property rights against counterfeiting or enforce its contractual agreements with other parties. Specifically, as discussed above, the Company sources its products primarily from foreign contract manufacturers, with the largest concentration being in China. Article VII of the National Intelligence Law of China requires every commercial entity in China, by simple order of the Chinese government, to act as an agent of the government by committing espionage, technology theft, or whatever else the government deems to be in the national interest of China. Finally, a party could claim that the Company is infringing upon such party\u2019s intellectual property rights, and claims of this type could lead to a civil complaint. An unfavorable outcome in litigation involving intellectual property could result in any or all of the following: (i) civil judgments against the Company, which could require the payment of royalties on both past and future sales of certain products, as well as plaintiff\u2019s attorneys\u2019 fees and other litigation costs; (ii) impairment charges of up to the carrying value of the Company\u2019s intellectual property rights; (iii) restrictions on the ability of the Company to sell certain of its products; (iv) legal and other costs associated with investigations and litigation; and (v) adverse effects on the Company\u2019s competitive position.\n\n\n\u00a0\n\n\nRecalls or product liability claims could increase costs or reduce sales. \n\n\n\u00a0\n\n\nThe Company must comply with the Consumer Product Safety Improvement Act, which imposes strict standards to protect children from potentially harmful products and which requires that the Company\u2019s products be tested to ensure that they are within acceptable levels for lead and phthalates. The Company must also comply with related regulations developed by the Consumer Product Safety Commission and similar state regulatory authorities. The Company\u2019s products could be subject to involuntary recalls and other actions by these authorities, and concerns about product safety may lead the Company to voluntarily recall, accept returns or discontinue the sale of select products. Product liability claims could exceed or fall outside the scope of the Company\u2019s insurance coverage. Recalls or product liability claims could result in decreased consumer demand for the Company\u2019s products, damage to the Company\u2019s reputation, a diversion of management\u2019s attention from its business and increased customer service and support costs, any or all of which could adversely affect the Company\u2019s operating results.\n\n\n\u00a0\n\n\nChanges in international trade regulations and other risks associated with foreign trade could adversely affect the Company\n\u2019\ns sourcing.\n\n\n\u00a0\n\n\nThe Company sources its products primarily from foreign contract manufacturers, with the largest concentration being in China. Difficulties encountered by these suppliers, such as fires, accidents, natural disasters, outbreaks of infectious diseases (including the COVID-19 pandemic) and the instability inherent in operating within an authoritarian political structure, could halt or disrupt production and shipment of the Company\u2019s products. The Chinese government could make allegations against the Company of corruption or antitrust violations, or could adopt regulations related to the manufacture of products within China, including quotas, duties, taxes and other charges or restrictions on the exportation of goods produced in China.\n\n\n\u00a0\n\n\nIn response to Russia\u2019s invasion of Ukraine, the U.S. government and other allied countries across the world have levied coordinated and wide-ranging economic sanctions against Russia. If similar sanctions were levied against China, up to and including a ban on the importation of goods manufactured in China, then the Company could be forced to source its products from suppliers in other countries.\n\n\n\u00a0\n\n\nAny of these actions could result in an increase in the cost of the Company\u2019s products, if the Company was even in a position to maintain the current sourcing of its products. Also, an arbitrary strengthening of the Chinese currency versus the U.S. Dollar could increase the prices at which the Company purchases finished goods. In addition, changes in U.S. customs procedures or delays in the clearance of goods through customs could result in the Company being unable to deliver goods to customers in a timely manner or the potential loss of sales altogether. The occurrence of any of these events could adversely affect the Company\u2019s profitability.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      8\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company could experience adjustments to its effective tax rate or its prior tax obligations, either of which could adversely affect its results of operations.\n\n\n\u00a0\n\n\nThe Company is subject to income taxes in the many jurisdictions in which it operates, including the U.S., several U.S. states and China. At any particular point in time, several tax years are subject to general examination or other adjustment by these various jurisdictions.\u00a0 Although the Company believes that the calculations and positions taken on its filed income tax returns are reasonable and justifiable, administrative or legal proceedings leading to the outcome of any examination could result in an adjustment to the position that the Company has taken. Such adjustment could result in further adjustment to one or more income tax returns for other jurisdictions, or to income tax returns for prior or subsequent tax years, or both. To the extent that the Company\u2019s reserve for unrecognized tax liabilities is not adequate to support the cumulative effect of such adjustments, the Company could experience a material adverse impact on operating results.\n\n\n\u00a0\n\n\nThe Company\u2019s provision for income taxes is based on its effective tax rate, which in any given financial statement period could fluctuate based on changes in tax laws or regulations, changes in the mix and level of earnings by taxing jurisdiction, changes in the amount of certain expenses within the consolidated statements of income that will never be deductible on the Company\u2019s income tax returns and certain charges deducted on the Company\u2019s income tax returns that are not included within the consolidated statements of income. These changes could cause fluctuations in the Company\u2019s effective tax rate either on an absolute basis, or in relation to varying levels of the Company\u2019s pre-tax income. Such fluctuations in the Company\u2019s effective tax rate could adversely affect its results of operations.\n\n\n\u00a0\n\n\nCustomer pricing pressures could result in lower selling prices, which could negatively affect the Company\n\u2019\ns operating results.\n\n\n\u00a0\n\n\nThe Company\u2019s customers could place pressure on the Company to reduce the prices of its products. The Company continuously strives to stay ahead of its competition in sourcing, which allows the Company to obtain lower cost products while maintaining high standards for quality. There can be no assurance that the Company could respond to a decrease in sales prices by proportionately reducing its costs, which could adversely affect the Company\u2019s operating results.\n\n\n\u00a0\n\n\nDisruptions to the Company\n\u2019\ns information technology systems could negatively affect the Company\n\u2019\ns results of operations.\n\n\n\u00a0\n\n\nThe Company\u2019s operations are highly dependent upon computer hardware and software systems, including customized information technology systems and cloud-based applications. The Company also employs third-party systems and software that are integral to its operations. These systems are vulnerable to cybersecurity incidents, including disruptions and security breaches, which can result from unintentional events or deliberate attacks by insiders or third parties, such as cybercriminals, competitors, nation-states, computer hackers and other cyber terrorists. The Company faces an evolving landscape of cybersecurity threats in which evildoers use a complex array of means to perpetrate attacks, including the use of stolen access credentials, malware, ransomware, phishing, structured query language injection attacks and distributed denial-of-service attacks.\n\n\n\u00a0\n\n\nThe Company has implemented security measures to securely maintain confidential and proprietary information stored on the Company\u2019s information systems and continually invests in maintaining and upgrading the systems and applications to mitigate these risks. There is no assurance that these measures and technology will adequately prevent an intrusion or that a third party that is relied upon by the Company will not suffer an intrusion, that unauthorized individuals will not gain access to confidential or proprietary information or that any such incident will be timely detected and effectively countered. A significant data security breach could result in negative consequences, including a disruption to the Company\u2019s operations and substantial remediation costs, such as liability for stolen assets or information, repairs of system damage, and incentives to customers or other business partners in an effort to maintain relationships after an attack. An assault against the Company\u2019s information technology infrastructure could also lead to other adverse impacts to its results of operations such as increased future cybersecurity protection costs, which may include the costs of making organizational changes, deploying additional personnel and protection technologies, and engaging third-party experts and consultants.\n\n\n\u00a0\n\n\nA significant disruption to the Company\n\u2019\ns distribution network or to the timely receipt of inventory could adversely impact sales or increase transportation costs, which would decrease the Company\n\u2019\ns profits.\n\n\n\u00a0\n\n\nNearly all of the Company\u2019s products are imported from China into the Port of Long Beach in Southern California and the Port of Prince Rupert in British Columbia. There are many links in the distribution chain, including the availability of ocean freight, cranes, dockworkers, containers, tractors, chassis and drivers. The timely receipt of the Company\u2019s products is dependent upon efficient operations at these ports. Any shortages in the availability of any of these links or disruptions in port operations, including strikes, lockouts or other work stoppages or slowdowns, could cause bottlenecks and other congestion in the distribution network, which could adversely impact the Company\u2019s ability to obtain adequate inventory on a timely basis and result in lost sales, increased transportation costs and an overall decrease of the Company\u2019s profits.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      9\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nGeneral Risk Factors\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns ability to successfully identify, consummate and integrate acquisitions, divestitures and other significant transactions could have an adverse impact on the Company\n\u2019\ns financial results, business and prospects.\n\n\n\u00a0\n\n\nAs part of its business strategy, the Company has made acquisitions of businesses, divestitures of businesses and assets, and has entered into other transactions to further the interests of the Company\u2019s business and its stockholders. Risks associated with such activities include the following, any of which could adversely affect the Company\u2019s financial results:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nThe active management of acquisitions, divestitures and other significant transactions requires varying levels of Company resources, including the efforts of the Company\u2019s key management personnel, which could divert attention from the Company\u2019s ongoing business operations.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nThe Company may not fully realize the anticipated benefits and expected synergies of any particular acquisition or investment, or may experience a prolonged timeframe for realizing such benefits and synergies.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nIncreased or unexpected costs, unanticipated delays or failure to meet contractual obligations could make acquisitions and investments less profitable or unprofitable.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nThe failure to retain executive management members and other key personnel of the acquired business that may have been integral to the operations and the execution of the growth strategy of the acquired business.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns debt covenants may affect its liquidity or limit its ability to pursue acquisitions, incur debt, make investments, sell assets or complete other significant transactions.\n\n\n\u00a0\n\n\nThe Company\u2019s credit facility contains usual and customary covenants regarding significant transactions, including restrictions on other indebtedness, liens, transfers of assets, investments and acquisitions, merger or consolidation transactions, transactions with affiliates and changes in or amendments to the organizational documents for the Company and its subsidiaries. Unless waived by the Company\u2019s lender, these covenants could limit the Company\u2019s ability to pursue opportunities to expand its business operations, respond to changes in business and economic conditions and obtain additional financing, or otherwise engage in transactions that the Company considers beneficial.\n\n\n\u00a0\n\n\nThe Company\n\u2019\ns ability to comply with its credit facility is subject to future performance and other factors.\n\n\n\u00a0\n\n\nThe Company\u2019s ability to make required payments of principal and interest on its debts, to refinance its maturing indebtedness, to fund capital expenditures or to comply with its debt covenants will depend upon future performance. The Company\u2019s future performance is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. The breach of any of the debt covenants could result in a default under the Company\u2019s credit facility. Upon the occurrence of an event of default, the Company\u2019s lender could make an immediate demand of the amount outstanding under the credit facility. If a default was to occur and such a demand was to be made, there can be no assurance that the Company\u2019s assets would be sufficient to repay the indebtedness in full.\n\n\n\u00a0\n\n\nA stockholder could lose all or a portion of his or her investment in the Company.\n\n\n\u00a0\n\n\nThe Company\u2019s common stock has historically experienced a degree of price variability, and the price could be subject to rapid and substantial fluctuations. The Company\u2019s common stock has also historically been thinly traded, a circumstance that exists when there is a relatively small volume of buy and sell orders for the Company\u2019s common stock at any given point in time. In such situations, a stockholder may be unable to liquidate his or her position in the Company\u2019s common stock at the desired price. Also, as an equity investment, a stockholder\u2019s investment in the Company is subordinate to the interests of the Company\u2019s creditors, and a stockholder could lose all or a substantial portion of his or her investment in the Company in the event of a bankruptcy filing or liquidation.\n\n\n\u00a0\n\n",
+  "item7": ">ITEM 7.\u00a0 \u00a0\nManagement's Discussion and Analysis of Financial Condition and Results of Operations\n\n\n\u00a0\n\n\nObjective\n\n\n\u00a0\n\n\nThe following discussion and analysis is intended to provide material information relevant to an assessment of the Company\u2019s financial condition and results of operations, as well as an evaluation of the amounts and certainty of cash flows from operations and from outside sources. This discussion and analysis is further intended to provide details concerning material events and uncertainties known to management that are reasonably likely to cause reported financial information to not be necessarily indicative of future operating results or future financial condition. This data includes descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that management has assessed to be reasonably likely to have a material impact on future operations. Management expects that this discussion and analysis will enhance a reader\u2019s understanding of the Company\u2019s financial condition, results of operations, cash flows, liquidity and capital resources. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report.\n\n\n\u00a0\n\n\nResults of Operations\n\n\n\u00a0\n\n\nThe following table contains results of operations for fiscal years 2023 and 2022 and the dollar and percentage changes for those periods (in thousands, except percentages).\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n$\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet sales by category:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nBedding, blankets and accessories\n \n\n\n\u00a0\n\n\n$\n\n\n36,747\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n45,341\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(8,594\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-19.0\n\n\n%\n\n\n\n\n\n\n \nBibs, bath, developmental toy, feeding, baby care and disposable products\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n38,306\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,019\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,713\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-8.8\n\n\n%\n\n\n\n\n\n\n \nTotal net sales\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n75,053\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n87,360\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12,307\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-14.1\n\n\n%\n\n\n\n\n\n\n \nCost of products sold\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n55,225\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n64,052\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,827\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-13.8\n\n\n%\n\n\n\n\n\n\n \nGross profit\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n19,828\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,308\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,480\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-14.9\n\n\n%\n\n\n\n\n\n\n \n% of net sales\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n26.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n26.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nMarketing and administrative expenses\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n12,655\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,002\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(347\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-2.7\n\n\n%\n\n\n\n\n\n\n \n% of net sales\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n16.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nInterest (income) expense - net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(81\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n50\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(131\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-262.0\n\n\n%\n\n\n\n\n\n\n \nGain on extinguishment of debt\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,985\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,985\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-100.0\n\n\n%\n\n\n\n\n\n\n \nOther income - net of other expense\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n172\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n85\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n87\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n102.4\n\n\n%\n\n\n\n\n\n\n \nIncome tax expense\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,776\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,408\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(632\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-26.2\n\n\n%\n\n\n\n\n\n\n \nNet income\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5,650\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,918\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,268\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-43.0\n\n\n%\n\n\n\n\n\n\n \n% of net sales\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n7.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nNet Sales:\n\n\n\u00a0\n\n\nSales decreased to $75.1 million for 2023, compared with $87.4 million in 2022, a decrease of $12.3 million, or 14.1%. Sales of bedding, blankets and accessories decreased by $8.6 million, and sales of bibs, toys and disposable products decreased by $3.7 million. The decreases in sales are primarily due to lower replenishment orders at retailers due to the Company\u2019s customers reducing their purchases as a result of excessive inventory purchases during the first quarter of calendar 2022, as well as consumers\u2019 response to macroeconomic conditions, including trading down to lower priced items, buying fewer items, or foregoing some items altogether due to inflationary concerns. Sales were also negatively impacted in the second half of the current year by the Company\u2019s decision to stop shipping to a customer experiencing significant credit issues. Additionally, 2022 contained 53 weeks of sales as opposed to 52 weeks for 2023, resulting in an extra week of sales for 2022.\n\n\n\u00a0\n\n\nGross Profit:\n\n\n\u00a0\n\n\nGross profit decreased by $3.5 million and decreased from 26.7% of net sales for 2022 to 26.4% of net sales for 2023. The decrease in the gross profit amount for the current year is associated with the decline in sales during the periods and is net of the positive impact of the closure of Carousel, which in the prior year recognized a gross loss of $681,000, including losses from the sale of inventory below cost and the recognition of charges of $334,000 associated with the settlement with a supplier of a commitment to purchase fabric and $265,000 associated with the liquidation of Carousel\u2019s remaining inventory upon the closure of the business. Although the gross profit in the prior year was impacted by increases in costs across the entire supply chain, the Company in the current year has realized some stabilization in most of its input costs. However, beginning in February 2023, the Company experienced a rent increase at its warehouse and distribution facility in Compton, California. Finally, the Company has benefited from recent increases in the selling prices of its products.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      12\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nMarketing and Administrative Expenses:\n\n\n\u00a0\n\n\nMarketing and administrative expenses decreased by $347,000 but increased from 14.9% of net sales for fiscal year 2022 to 16.9% of net sales for fiscal year 2023. Overall compensation costs were $785,000 lower in the current year as compared with the prior year, and the prior year included $500,000 for charges incurred by Carousel that were not incurred in the current year. These decreases were offset by the following charges that occurred in the current year but not in the prior year: $371,000 in costs associated with the Manhattan Acquisition, and a $263,000 charge for the amount receivable from a customer that has declared bankruptcy.\n\n\n\u00a0\n\n\nGain on Extinguishment of Debt:\n\n\n\u00a0\n\n\nDuring fiscal year 2022, the Company recorded a gain on extinguishment of debt in the amount of $1,985,000 associated with the forgiveness of a loan made pursuant to the Paycheck Protection Program (the \"PPP Loan\"), administered by the U.S. Small Business Administration under the Coronavirus Aid, Relief and Economic Security Act.\u00a0 The gain on extinguishment of debt\u00a0has been presented below income from operations in the accompanying consolidated statements of income. The Company did not record such a gain during fiscal year 2023.\n\n\n\u00a0\n\n\nIncome Tax Expense:\n\n\n\u00a0\n\n\nThe Company\u2019s provision for income taxes is based upon an annual effective tax rate (\u201cETR\u201d) on continuing operations, which was 23.2% and 20.1% during the fiscal years ended April 2, 2023 and April 3, 2022, respectively.\n\n\n\u00a0\n\n\nManagement evaluates items of income, deductions and credits reported on the Company\u2019s various federal and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if those positions are more likely than not to be sustained. The Company applies the provisions of accounting guidelines requiring a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.\u00a0 After considering all relevant information regarding the calculation of the state portion of its income tax provision, the Company believes that the technical merits of the tax position that the Company has taken with respect to state apportionment percentages would more likely than not be sustained. However, the Company also realizes that the ultimate resolution of such tax position could result in a tax charge that is more than the amount realized based upon the application of the tax position taken. Therefore, the Company\u2019s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording discrete reserves for unrecognized tax liabilities during fiscal years 2023 and 2022 of $73,000 and $59,000, respectively, in the accompanying consolidated statements of income.\n\n\n\u00a0\n\n\nIn August 2020, the Company received notification from the Franchise Tax Board of the State of California (the \u201cFTB\u201d) of its intention to examine the Company\u2019s California consolidated income tax returns that the Company had filed for the fiscal years ended April 2, 2017, April 1, 2018 and March 31, 2019. On May 30, 2023, the Company and the FTB entered into an agreement to settle (\u201cSettlement Agreement\u201d) the FTB\u2019s proposed assessment of additional income tax in respect of these consolidated income tax returns under examination for the amount of $442,000, payment of which was made by the Company to the FTB on May 31, 2023. Because the examination was ongoing as of April 2, 2023, and because the Settlement Agreement was entered into prior to the issuance of the accompanying consolidated financial statements, the Company recorded the effect of the Settlement Agreement in the accompanying consolidated balance sheet as of April 2, 2023 and the consolidated statement of income for fiscal year 2023. The Company\u2019s adjustment to its reserve for unrecognized tax liabilities associated with the tax returns under examination resulted in a discrete income tax benefit during fiscal year 2023, net of the impact of federal income tax, of $81,000, and a net decrease to interest expense of $86,000.\n\n\n\u00a0\n\n\nIn February 2021, the Company was notified by the U.S. Internal Revenue Service (the \u201cIRS\u201d) that it\u00a0had selected for examination the Company\u2019s original and amended federal consolidated income tax returns for the fiscal year ended April 2, 2017. On March 15, 2023, the Company agreed to accept the proposal by the IRS to disallow the Company\u2019s claim for refund in the amount of $81,000 that was associated with the Company\u2019s amended federal consolidated income tax return for the fiscal year ended April 2, 2017.\n\n\n\u00a0\n\n\nDuring fiscal year 2023, the Company recorded a discrete income tax charge of $6,000 to reflect the effect of the net tax shortfall arising from the exercise of stock options and the vesting of non-vested stock. During fiscal year 2022, the Company recorded a discrete income tax benefit of $83,000 to reflect the effect during the period of the net excess tax benefit from the exercise of stock options and the vesting of non-vested stock.\n\n\n\u00a0\n\n\nThe ETR on continuing operations and the discrete income tax charges and benefits discussed above contributed to an overall provision for income taxes of 23.9% and 19.5% for fiscal years 2023 and 2022, respectively.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      13\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nKnown Trends and Uncertainties\n\n\n\u00a0\n\n\nThe Company\u2019s financial results are closely tied to sales to the Company\u2019s top two customers, which represented approximately 71% of the Company\u2019s gross sales in fiscal year 2023. A significant downturn experienced by either or both of these customers could lead to decreased sales.\n\n\n\u00a0\n\n\nDuring fiscal year 2023, consumers responded to macroeconomic conditions by trading down to lower priced items, buying fewer items, or foregoing some items altogether due to inflationary concerns. The Company monitors the impact of inflation on its operations on an ongoing basis and may need to adjust its prices to mitigate the impact of changes to the rate of inflation in future periods. Future volatility of prices could affect consumer purchases of our products. Additionally, the impact of inflation on input and other operational costs could adversely affect the Company's financial results.\n\n\n\u00a0\n\n\nDuring fiscal year 2022, the Company at times faced higher costs associated with the Company\u2019s sourcing activities in China, including freight and higher duties on some products. Future increases in these costs could adversely affect the profitability of the Company if it cannot pass the cost increases along to its customers in the form of price increases or if the timing of price increases does not closely match the cost increases.\n\n\n\u00a0\n\n\nSignificant outbreaks of contagious diseases could have adverse effects on the overall economy and impact the Company\u2019s supply chain, manufacturing and distribution operations, transportation services, customers and employees, as well as consumer sentiment in general and traffic within the retail stores that carry the Company\u2019s products. During fiscal years 2022 and 2021, the COVID-19 pandemic led global government authorities to implement numerous public health measures, including quarantines, business closures and lockdowns to confront the pandemic. China\u2019s efforts to control the spread of the COVID-19 virus by locking down its largest cities placed a strain on already-stressed global supply chains. Several of the Company\u2019s customers experienced financial difficulties as a result of the COVID-19 pandemic.\n\n\n\u00a0\n\n\nA resurgence of the COVID-19 pandemic, or any other outbreak of contagious disease, could adversely affect the Company's revenues, earnings, liquidity and cash flows and may require significant actions in response, including employee furloughs, closings of Company facilities, expense reductions or discounts of the pricing of the Company's products, all in an effort to mitigate such effects.\n\n\n\u00a0\n\n\nFor an additional discussion of trends, uncertainties and other factors that could impact the Company\u2019s operating results, refer to \u201cRisk Factors\u201d in Item 1A, Part I. of this Annual Report.\n\n\n\u00a0\n\n\nFinancial Position, Liquidity and Capital Resources\n\n\n\u00a0\n\n\nNet cash provided by operating activities decreased from $8.3 million for the fiscal year ended April 3, 2022 to $7.7 million for the fiscal year ended April 2, 2023. The Company in the current year experienced a decrease in its net income that was $4.3 million lower than in the prior year; the Company experienced a decrease in the deferred income tax liability that $1.9 million higher than the increase in the prior year; the Company in the current year experienced a decrease in its accounts payable balances that was $1.6 million higher than the increase in the prior year; the Company experienced a decrease in its accrued liabilities balances that was $1.2\u00a0million higher than the increase in the prior year; and the Company experienced a decrease in the reserve for unrecognized tax liabilities that was $525,000 higher than the decrease in the prior year. As offsets to these increases in cash provided by operating activities, the Company in the current year experienced a decrease in its accounts receivable balances that was $7.4 million higher than the increase in the prior year and the Company recognized a\n \ngain on extinguishment of debt of $1,985,000 that was associated with the forgiveness of the PPP Loan in the prior year that did not occur in the current year.\n\n\n\u00a0\n\n\nNet cash used in investing activities was $490,000 in fiscal year 2022 compared with $16.9 million in fiscal year 2023. The increase in fiscal year 2023 was primarily due to the $16.1 million payment made in the current year to complete the Manhattan Acquisition, net of cash acquired of $1.3 million.\n\n\n\u00a0\n\n\nNet cash used in financing activities was $6.8 million in fiscal year 2022 compared with $9.3 million in cash provided by financing activities in fiscal year 2023. The Company incurred net borrowings under its revolving line of credit of $12.7 million in the current year that did not occur in the prior year, such borrowings primarily being required to fund the Manhattan Acquisition. Also, dividend payments were $3.5 milion lower in the current year than in the prior year.\n\n\n\u00a0\n\n\nThe Company\u2019s future performance is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. Based upon the current level of operations, the Company believes that its cash flow from operations and the availability on its revolving line of credit will be adequate to meet its liquidity needs.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      14\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company\u2019s credit facility at April 2, 2023 consisted of a revolving line of credit under a financing agreement with CIT of up to $35.0 million, which includes a $1.5 million sub-limit for letters of credit, bearing interest at the rate of prime minus 0.5% or the Secured Overnight Financing Rate (\u201cSOFR\u201d) plus 1.6%, and which is secured by a first lien on all assets of the Company.\n\n\n\u00a0\n\n\nThe financing agreement was scheduled to mature on July 11, 2025, but on March 17, 2023 the financing agreement was amended to extend the maturity date to July 11, 2028. As of April 2, 2023, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the SOFR option, which was 6.4%. The financing agreement also provides for the payment by CIT to the Company of interest on daily negative balances, if any, held by CIT at the rate of prime as of the beginning of the calendar month minus 2.0%, which was 6.0% as of April 2, 2023.\n\n\n\u00a0\n\n\nAs of April 2, 2023, there was a balance of $12.7 million owed on the revolving line of credit, there was no letter of credit outstanding and $20.0 million was available under the revolving line of credit based on the Company\u2019s eligible accounts receivable and inventory balances. As of April 3, 2022, there was no balance owed on the revolving line of credit, there was no letter of credit outstanding and $26.0 million was available under the revolving line of credit based on the Company\u2019s eligible accounts receivable and inventory balances.\n\n\n\u00a0\n\n\nThe financing agreement contains usual and customary covenants for agreements of that type, including limitations on other indebtedness, liens, transfers of assets, investments and acquisitions, merger or consolidation transactions, transactions with affiliates, and changes in or amendments to the organizational documents for the Company and its subsidiaries. The Company believes it was in compliance with these covenants as of April 2, 2023.\n\n\n\u00a0\n\n\nTo reduce its exposure to credit losses, the Company assigns substantially all of its trade accounts receivable to CIT pursuant to factoring agreements, which have expiration dates that are coterminous with that of the financing agreement described above. Under the terms of the factoring agreements, CIT remits customer payments to the Company as such payments are received by CIT. Credit losses are borne by CIT with respect to assigned accounts receivable from approved shipments, while the Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts. CIT may at any time terminate or limit its approval of shipments to a particular customer. If such a termination or limitation occurs, then the Company either assumes (and may seek to mitigate) the credit risk for shipments to the customer after the date of such termination or limitation or discontinues shipments to the customer. Factoring fees, which are included in marketing and administrative expenses in the accompanying consolidated statements of income, were $287,000 and $344,000 during fiscal years 2023 and 2022, respectively.\n\n\n\u00a0\n\n\nCritical Accounting Policies and Estimates\n\n\n\u00a0\n\n\nThe Company prepares its financial statements to conform with accounting principles generally accepted in the U.S. (\u201cGAAP\u201d) as promulgated by the Financial Accounting Standards Board (\u201cFASB\u201d). References herein to GAAP are to topics within the FASB Accounting Standards Codification (the \u201cFASB ASC\u201d), which the FASB periodically revises through the issuance of an Accounting Standards Update (\u201cASU\u201d) and which has been established by the FASB as the authoritative source for GAAP recognized by the FASB to be applied by nongovernmental entities.\n\n\n\u00a0\n\n\nUse of Estimates:\u00a0\nThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated balance sheets and the reported amounts of revenues and expenses during the reporting period. The listing below, while not inclusive of all of the Company's accounting policies, sets forth those accounting policies which the Company's management believes embody the most significant judgments due to the uncertainties affecting their application and the likelihood that materially different amounts would be reported under different conditions or using different assumptions.\n\n\n\u00a0\n\n\nRevenue Recognition:\n Revenue is recognized upon the satisfaction of all contractual performance obligations and the transfer of control of the products sold to the customer. The majority of the Company\u2019s sales consists of single performance obligation arrangements for which the transaction price for a given product sold is equivalent to the price quoted for the product, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product as directed by the customer. Shipping and handling costs that are charged to customers are included in net sales, and the Company\u2019s costs associated with shipping and handling activities are included in cost of products sold. A provision for anticipated returns, which are based upon historical returns and claims, is provided through a reduction of net sales and cost of products sold in the reporting period within which the related sales are recorded. Actual returns and claims experienced in a future period may differ from historical experience, and thus, the Company\u2019s provision for anticipated returns at any given point in time may be over-funded or under-funded.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      15\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nRevenue from sales made directly to consumers is recorded when the shipped products have been received by customers, and excludes sales taxes collected on behalf of governmental entities. Revenue from sales made to retailers is recorded when legal title has been passed to the customer based upon the terms of the customer\u2019s purchase order, the Company\u2019s sales invoice, or other associated relevant documents. Such terms usually stipulate that legal title will pass when the shipped products are no longer under the control of the Company, such as when the products are picked up at the Company\u2019s facility by the customer or by a common carrier. Payment terms can vary from prepayment for sales made directly to consumers to payment due in arrears (generally, 60 days of being invoiced) for sales made to retailers.\n\n\n\u00a0\n\n\nAllowances Against Accounts Receivable:\u00a0\nRevenue from sales made to retailers is reported net of allowances for anticipated returns and other allowances, including cooperative advertising allowances, warehouse allowances, placement fees, volume rebates, coupons and discounts. Such allowances are recorded commensurate with sales activity or using the straight-line method, as appropriate, and the cost of such allowances is netted against sales in reporting the results of operations. The provision for the majority of the Company\u2019s allowances occurs on a per-invoice basis. When a customer requests to have an agreed-upon deduction applied against the customer\u2019s outstanding balance due to the Company, the allowances are correspondingly reduced to reflect such payments or credits issued against the customer\u2019s account balance. The Company analyzes the components of the allowances for customer deductions monthly and adjusts the allowances to the appropriate levels. Although the timing of funding requests for advertising support can cause the net balance in the allowance account to fluctuate from period to period, such timing has no impact on the consolidated statements of income since such costs are accrued commensurate with sales activity or using the straight-line method, as appropriate.\n\n\n\u00a0\n\n\nValuation of Long-Lived Assets and Identifiable Intangible Assets: \nIn addition to the systematic annual depreciation and amortization of the Company\u2019s fixed assets and identifiable intangible assets, the Company reviews for impairment long-lived assets and identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. An impairment loss must be recognized if the carrying amount of a long-lived asset group is not recoverable and exceeds its fair value. Assets to be disposed of, if any, are recorded at the lower of net book value or fair market value, less estimated costs to sell at the date management commits to a plan of disposal, and are classified as assets held for sale on the consolidated balance sheets. Actual results could differ materially from those estimates.\n\n\n\u00a0\n\n\nInventory Valuation: \nOn a periodic basis, management reviews its inventory quantities on hand for obsolescence, physical deterioration, changes in price levels and the existence of quantities on hand which may not reasonably be expected to be sold within the Company\u2019s normal operating cycle. To the extent that any of these conditions is believed to exist or the market value of the inventory expected to be realized in the ordinary course of business is otherwise no longer as great as its carrying value, an allowance against the inventory value is established. To the extent that this allowance is established or increased during an accounting period, an expense is recorded in cost of products sold in the Company's consolidated statements of income. Only when inventory for which an allowance has been established is later sold or is otherwise disposed is the allowance reduced accordingly. Significant management judgment is required in determining the amount and adequacy of this allowance.\u00a0 In the event that actual results differ from management's estimates or these estimates and judgments are revised in future periods, the Company may not fully realize the carrying value of its inventory or may need to establish additional allowances, either of which could materially impact the Company's financial position and results of operations.\n\n\n\u00a0\n\n\nBusiness Combinations:\n\u00a0 The Company accounts for acquisitions using the acquisition method of accounting in accordance with FASB ASC Topic 805, \nBusiness Combinations\n.\u00a0 An acquisition is accounted for as a purchase and the appropriate account balances and operating activities are recorded in the Company's consolidated financial statements as of the acquisition date and thereafter.\u00a0 Assets acquired, liabilities assumed and noncontrolling interests, if any, are measured at fair value as of the acquisition date using the appropriate valuation method.\u00a0 The Company may engage an independent third party to assist with these measurements.\u00a0 Goodwill resulting from an acquisition is recognized for the excess of the purchase price over the fair value of the tangible and identifiable intangible assets, less the liabilities assumed.\u00a0 In determining the fair value of the identifiable intangible assets and any noncontrolling interests, the Company uses various valuation techniques, including the income approach, the cost approach and the market approach.\u00a0 These valuation methods require significant management judgement to make estimates and assumptions surrounding projected revenues and costs, growth rates and discount rates.\u00a0 In the event that actual results differ from management's estimates, the Company may need to recognize an impairment to all or a portion of the carrying value of these assets in a future period, which could materially impact the Company's financial position and results of operations.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      16\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n      \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n",
+  "item7a": ">ITEM 7A.\u00a0 \u00a0\nQuantitative and Qualitative Disclosures About Market Risk\n\n\n\u00a0\n\n\nFor a detailed discussion of market risk and other factors that could impact the Company\u2019s operating results, refer to \u201cRisk Factors\u201d in Item 1A. of Part I. of this Annual Report on Form 10-K.\n\n\n\u00a0\n\n\nInterest Rate Risk\n\n\n\u00a0\n\n\nAs of April 2, 2023, the Company had $12.7 million of indebtedness that bears interest at a variable rate, comprised of borrowings under the revolving line of credit. Based upon this level of outstanding debt, the Company\u2019s annual net income would decrease by approximately $97,000 for each increase of one percentage point in the interest rate applicable to the debt.\n\n\n\u00a0\n\n\nCommodity Rate Risk\n\n\n\u00a0\n\n\nThe Company sources its products primarily from foreign contract manufacturers, with the largest concentration being in China. The Company\u2019s exposure to commodity price risk primarily relates to changes in the prices in China of cotton, oil and labor, which are the principal inputs used in a substantial number of the Company\u2019s products. In addition, although the Company pays its Chinese suppliers in U.S. dollars, a strengthening of the rate of the Chinese currency versus the U.S. dollar could result in an increase in the cost of the Company\u2019s finished goods. There is no assurance that the Company could timely respond to such increases by proportionately increasing the prices at which its products are sold to the Company\u2019s customers.\n\n\n\u00a0\n\n\nMarket Concentration Risk\n\n\n\u00a0\n\n\nThe Company\u2019s financial results are closely tied to sales to its top two customers, which represented approximately 71% of the Company\u2019s gross sales in fiscal year 2023. In addition, 40% of the Company\u2019s gross sales in fiscal year 2023 consisted of licensed products, which included 29% of sales associated with the Company\u2019s license agreements with affiliated companies of the Walt Disney Company. The Company\u2019s results could be materially impacted by the loss of one or more of these licenses.\n\n\n\u00a0\n\n\nITEM 8.\u00a0 \u00a0\nFinancial Statements and Supplementary Data\n\n\n\u00a0\n\n\nSee pages 22 and F-1 through F-21\u00a0of this Annual Report.\n\n\n\u00a0\n\n\nITEM 9.\u00a0 \u00a0\nChanges in and Disagreements with Accountants on Accounting and Financial Disclosure\n\n\n\u00a0\n\n\nNot applicable.\n\n\n\u00a0\n\n\nITEM 9A.\u00a0 \u00a0\nControls and Procedures\n\n\n\u00a0\n\n\nDisclosure Controls and Procedures\n\n\n\u00a0\n\n\nDisclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC\u2019s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this Annual Report, the Company carried out an evaluation, under the supervision and with the participation of the Company\u2019s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company\u2019s disclosure controls and procedures. Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company\u2019s disclosure controls and procedures are effective.\n\n\n\u00a0\n\n\nManagement\n\u2019\ns Annual Report on Internal Control over Financial Reporting\n\n\n\u00a0\n\n\nThe Company\u2019s management is responsible for establishing and maintaining for the Company adequate internal control over financial reporting, as such term is defined in Rules\u00a013a-15(f) and 15d-15(f) under the Exchange Act (\u201cICFR\u201d). With the participation of the Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of ICFR based on the framework and the criteria established in \nInternal Control\n\u00a0\u2014\n Integrated Framework (2013)\n issued by the Committee of Sponsoring Organizations of the Treadway Commission.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      17\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n      \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn management\u2019s evaluation of ICFR during fiscal year 2023, the Company has excluded an evaluation of the ICFR related to the operations of Manhattan and MTE, which were acquired by the Company on March 17, 2023. During fiscal year 2023, the combined net sales of Manhattan and MTE were $773,000, which was 1.0% of the Company\u2019s total net sales. As of April 2, 2023, the combined total assets of Manhattan and MTE amounted to $21.4 million (including $787,000 in goodwill), which was 23.5% of the Company\u2019s total assets. Based on management\u2019s evaluation of ICFR, taking into account the exclusion of an evaluation of the ICFR related to the operations of Manhattan and MTE, management has concluded that ICFR was effective as of April 2, 2023.\n\n\n\u00a0\n\n\nThe Company\u2019s internal control system has been designed to provide reasonable assurance to the Company\u2019s management and the Board regarding the reliability of financial reporting and the preparation and fair presentation of financial statements in accordance with GAAP. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only a reasonable, rather than absolute, assurance that the Company\u2019s financial statements are free of any material misstatement, whether caused by error or fraud.\n\n\n\u00a0\n\n\nChanges in Internal Control over Financial Reporting\n\n\n\u00a0\n\n\nThe Company\u2019s management, with the participation of the Company\u2019s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the Company\u2019s ICFR as required by Rule 13a-15(d) under the Exchange Act and, in connection with such evaluation and taking into account the exclusion of the evaluation of the ICFR related to the operations of Manhattan and MTE referred to above, determined that no changes occurred during the Company\u2019s fiscal quarter ended April 2, 2023 that have materially affected, or are reasonably likely to materially affect, the Company\u2019s ICFR.\n\n\n\u00a0\n\n\nITEM 9B.\u00a0 \u00a0\nOther Information\n\n\n\u00a0\n\n\nNot applicable.\n\n\n\u00a0\n\n\n\u00a0\n\n\nITEM 9C.\u00a0 \u00a0\nDisclosure Regarding Foreign Jurisdictions that Prevent Inspections\n\n\n\u00a0\n\n\nNot applicable.\n\n\n\u00a0\n\n\n\n   \u00a0\n  \n\n\nPART III\n\n\n\u00a0\n\n\nITEM 10.\u00a0 \u00a0\nDirectors, Executive Officers and Corporate Governance\n\n\n\u00a0\n\n\nThe information with respect to the Company\u2019s directors and executive officers will be set forth in the Company\u2019s Proxy Statement for the Annual Meeting of Stockholders to be held in 2023 (the \u201cProxy Statement\u201d) under the captions \u201cProposal 1 \u2013 Election of Directors\u201d and \u201cExecutive Compensation \u2013 Executive Officers\u201d and is incorporated herein by reference. The information with respect to Item 406 of Regulation S-K will be set forth in the Proxy Statement under the caption \u201cCorporate Governance \u2013 Code of Business Conduct and Ethics; Code of Conduct for Directors\u201d and is incorporated herein by reference. The information with respect to Item 407 of Regulation S-K will be set forth in the Proxy Statement under the captions \u201cCorporate Governance \u2013 Board Committees\u201d and \u201cReport of the Audit Committee\u201d and is incorporated herein by reference.\n\n\n\u00a0\n\n\nITEM 11.\u00a0 \u00a0\nExecutive Compensation\n\n\n\u00a0\n\n\nThe information set forth under the captions \u201cExecutive Compensation\u201d and \u201cCorporate Governance \u2013 Compensation Committee Interlocks and Insider Participation\u201d in the Proxy Statement is incorporated herein by reference.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      18\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n      \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nITEM 12.\u00a0 \u00a0\nSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\n\n\n\u00a0\n\n\nThe information set forth under the caption \u201cSecurity Ownership of Certain Beneficial Owners and Management\u201d in the Proxy Statement is incorporated herein by reference.\n\n\n\u00a0\n\n\nSecurities Authorized for Issuance under Equity Compensation Plans\n\n\n\u00a0\n\n\nThe table below sets forth information regarding shares of the Company\u2019s common stock that may be issued upon the exercise of options, warrants and other rights granted to employees, consultants or directors under all of the Company\u2019s existing equity compensation plans as of April 2, 2023.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nPlan Category\n \n\n\n\u00a0\n\n\n \nNumber of\n \nsecurities to be\n \nissued upon\n \nexercise of\n \noutstanding\n \noptions, warrants\n \nand rights\n \n\n\n\u00a0\n\n\n \nWeighted-\n \naverage exercise\n \nprice of\n \noutstanding\n \noptions,\n \nwarrants and\n \nrights\n \n\n\n\u00a0\n\n\n \nNumber of\n \nsecurities\n \nremaining\n \navailable for\n \nfuture issuance\n \nunder equity\n \ncompensation\n \nplans\n \n\n\n\n\n\n\nEquity compensation plans approved by security holders:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n2006 Omnibus Incentive Plan\n \n\n\n\u00a0\n\n\n \n\u00a0 62,500\n \n\n\n\u00a0\n\n\n \n$7.62\n \n\n\n\u00a0\n\n\n \n0\n \n\n\n\n\n\n\n2014 Omnibus Equity Compensation Plan\n\n\n\u00a0\n\n\n553,000\n\n\n\u00a0\n\n\n$7.46\n\n\n\u00a0\n\n\n0\n\n\n\n\n\n\n2021 Incentive Plan\n\n\n\u00a0\n\n\n120,000\n\n\n\u00a0\n\n\n$6.54\n\n\n\u00a0\n\n\n765,439\n\n\n\n\n\n\n\n\n\u00a0\n\n\nITEM 13.\u00a0 \u00a0\nCertain Relationships and Related Transactions, and Director Independence\n\n\n\u00a0\n\n\nThe information set forth under the captions \u201cCorporate Governance \u2013 Director Independence\u201d and \u201cCertain Relationships and Related Transactions\u201d in the Proxy Statement is incorporated herein by reference.\n\n\n\u00a0\n\n\nITEM 14.\u00a0 \u00a0\nPrincipal Accountant Fees and Services\n\n\n\u00a0\n\n\nThe information set forth under the caption \u201cProposal 2 \u2013 Ratification of Appointment of Independent Registered Public Accounting Firm\u201d in the Proxy Statement is incorporated herein by reference.\n\n\n\u00a0\n\n\n\n\n\n    19\n   \n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n   \u00a0\n  \n\n\nPART IV\n\n\n\u00a0\n\n\nITEM 15.\u00a0 \u00a0\nExhibits and Financial Statement Schedules\n\n\n\u00a0\n\n\n(a)(1). Financial Statements\n\n\n\u00a0\n\n\nThe following consolidated financial statements of the Company are included in Part II, Item 8. of this Annual Report:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \n\u00a0 -\u00a0 Report of Independent Registered Public Accounting Firm\n \n\n\n\n\n\n\n \n\u00a0 -\u00a0 Consolidated Balance Sheets as of April 2, 2023 and April 3, 2022\n \n\n\n\n\n\n\n \n\u00a0 -\u00a0 Consolidated Statements of Income for the Fiscal Years Ended April 2, 2023 and April 3, 2022\n \n\n\n\n\n\n\n \n\u00a0 -\u00a0 Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Years Ended April 2, 2023 and April 3, 2022\n \n\n\n\n\n\n\n \n\u00a0 -\u00a0 Consolidated Statements of Cash Flows for the Fiscal Years Ended April 2, 2023 and April 3, 2022\n \n\n\n\n\n\n\n \n\u00a0 -\u00a0 Notes to Consolidated Financial Statements\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n(a)(2). Financial Statement Schedule\n\n\n\u00a0\n\n\nThe following financial statement schedule of the Company is included with this Annual Report:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nSchedule II \u2014\u00a0Valuation and Qualifying Accounts\n \n\n\n \nPage 22\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAll other schedules not listed above have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto.\n\n\n\u00a0\n\n\n\n\n\n    20\n   \n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n   \u00a0\n  \n\n\n\n\nSCHEDULE II\n\n\n\u00a0\n\n\nCROWN CRAFTS, INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nANNUAL REPORT ON FORM \n10\n-K\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n \nValuation and Qualifying Accounts\n \n\u00a0\n\n\n \nColumn A\n \n\u00a0\n \nColumn B\n \n\u00a0\n\u00a0\n \nColumn C\n \n\u00a0\n\u00a0\n \nColumn D\n \n\u00a0\n\u00a0\n \nColumn E\n \n\u00a0\n\n\n\u00a0\n\u00a0\n \nBalance at\n Beginning\n \n\u00a0\n\u00a0\n \nCharged to\n \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n \nBalance at \n \nEnd of\n \n\u00a0\n\n\n\u00a0\n\u00a0\n \nof Period\n \n\u00a0\n\u00a0\n \nExpenses\n \n\u00a0\n\u00a0\n \nDeductions\n \n\u00a0\n\u00a0\n \nPeriod\n \n\u00a0\n\n\n\u00a0\n\u00a0\n \n(in thousands)\n \n\u00a0\n\n\n \nAccounts Receivable Valuation Accounts:\n \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nYear Ended April 3, 2022\n \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nAllowance for customer deductions\n \n\u00a0\n$\n723\n\u00a0\n\u00a0\n$\n6,052\n\u00a0\n\u00a0\n$\n5,830\n\u00a0\n\u00a0\n$\n945\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nYear Ended April 2, 2023\n \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nAllowance for customer deductions\n \n\u00a0\n$\n945\n\u00a0\n\u00a0\n$\n5,746\n\u00a0\n\u00a0\n$\n5,217\n\u00a0\n\u00a0\n$\n1,474\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n21\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n(a)(3). Exhibits\n\n\n\u00a0\n\n\nExhibits required to be filed by Item 601 of SEC Regulation S-K are included as Exhibits to this Annual Report and listed below.\n\n\n\u00a0\n\n\nIn reviewing the agreements included as exhibits to this Annual Report, investors are reminded that the agreements are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. Some of the agreements contain representations and warranties made by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nShould not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nHave been qualified by the disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nMay apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nWere made only as of the date of the applicable agreement or such other date or dates may be specified in the agreement and are subject to more recent developments.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAccordingly, the representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Annual Report and the Company\u2019s other public filings with the SEC.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nExhibit\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nNumber\n \n\n\n\u00a0\n\n\n \nDescription of Exhibits\n \n\n\n\n\n\n\n \n2.1\n \n\n\n \n\u2014\n \n\n\n \nEquity Purchase Agreement, dated as of March 17, 2023, between the Company and H Enterprises International, LLC. (33)\n \n\n\n\n\n\n\n \n3.1\n \n\n\n \n\u2014\n \n\n\n \nAmended and Restated Certificate of Incorporation of the Company. (1)\n \n\n\n\n\n\n\n \n3.2\n \n\n\n \n\u2014\n \n\n\n \nCertificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company. (10)\n \n\n\n\n\n\n\n \n3.3\n \n\n\n \n\u2014\n \n\n\n \nBylaws of the Company, as amended and restated through November 15, 2016. (19)\n \n\n\n\n\n\n\n \n4.1*\n \n\n\n \n\u2014\n \n\n\n \nCrown Crafts, Inc. 2006 Omnibus Incentive Plan (As Amended August 14, 2012). (12)\n \n\n\n\n\n\n\n \n4.2*\n \n\n\n \n\u2014\n \n\n\n \nForm of Non-Qualified Stock Option Agreement (Employees). (4)\n \n\n\n\n\n\n\n \n4.3*\n \n\n\n \n\u2014\n \n\n\n \nCrown Crafts, Inc. 2014 Omnibus Equity Compensation Plan. (14)\n \n\n\n\n\n\n\n \n4.4*\n \n\n\n \n\u2014\n \n\n\n \nForm of Non-Qualified Stock Option Grant Agreement. (15)\n \n\n\n\n\n\n\n \n4.5*\n \n\n\n \n\u2014\n \n\n\n \nForm of Restricted Stock Grant Agreement. (15)\n \n\n\n\n\n\n\n \n4.6*\n \n\n\n \n\u2014\n \n\n\n \nCrown Crafts, Inc. 2021 Incentive Plan. (28)\n \n\n\n\n\n\n\n \n4.7*\n \n\n\n \n\u2014\n \n\n\n \nForm of Incentive Stock Option Grant Agreement. (29)\n \n\n\n\n\n\n\n \n4.8*\n \n\n\n \n\u2014\n \n\n\n \nForm of Nonstatutory Stock Option Grant Agreement. (29)\n \n\n\n\n\n\n\n \n4.9*\n \n\n\n \n\u2014\n \n\n\n \nForm of Restricted Stock Grant Agreement. (29)\n \n\n\n\n\n\n\n \n4.10*\n \n\n\n \n\u2014\n \n\n\n \nForm of Performance Share Grant Agreement (effective February 23, 2022). (30)\n \n\n\n\n\n\n\n \n4.11\n \n\n\n \n\u2014\n \n\n\n \nDescription of Capital Stock (35)\n \n\n\n\n\n\n\n \n10.1\n \n\n\n \n\u2014\n \n\n\n \nFinancing Agreement dated as of July\u00a011, 2006 by and among the Company, Churchill Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (3)\n \n\n\n\n\n\n\n \n10.2\n \n\n\n \n\u2014\n \n\n\n \nStock Pledge Agreement dated as of July\u00a011, 2006 by and among the Company, Churchill Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (3)\n \n\n\n\n\n\n\n \n10.3\n \n\n\n \n\u2014\n \n\n\n \nFirst Amendment to Financing Agreement dated as of November 5, 2007 by and among the Company, Churchill Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (5)\n \n\n\n\n\n\n\n \n10.4*\n \n\n\n \n\u2014\n \n\n\n \nEmployment Agreement dated November 6, 2008 by and between the Company and Olivia W. Elliott (6)\n \n\n\n\n\n\n\n \n10.5\n \n\n\n \n\u2014\n \n\n\n \nThird Amendment to Financing Agreement dated as of July 2, 2009 by and among the Company, Churchill Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (7)\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      22\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \n10.6\n \n\n\n \n\u2014\n \n\n\n \nSixth Amendment to Financing Agreement dated as of March 5, 2010 by and among the Company, Churchill Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (8)\n \n\n\n\n\n\n\n \n10.7\n \n\n\n \n\u2014\n \n\n\n \nSeventh Amendment to Financing Agreement dated as of May 27, 2010 by and among the Company, Churchill Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (9)\n \n\n\n\n\n\n\n \n10.8\n \n\n\n \n\u2014\n \n\n\n \nEighth Amendment to Financing Agreement dated as of March 26, 2012 by and among the Company, Churchill Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (11)\n \n\n\n\n\n\n\n \n10.9\n \n\n\n \n\u2014\n \n\n\n \nNinth Amendment to Financing Agreement dated May 21, 2013 by and among the Company, Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (13)\n \n\n\n\n\n\n\n \n10.10\n \n\n\n \n\u2014\n \n\n\n \nTenth Amendment to Financing Agreement dated as of December 28, 2015 by and among the Company, Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (16)\n \n\n\n\n\n\n\n \n10.11\n \n\n\n \n\u2014\n \n\n\n \nEleventh Amendment to Financing Agreement dated as of March 31, 2016 by and among the Company, Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (17)\n \n\n\n\n\n\n\n \n10.12*\n \n\n\n \n\u2014\n \n\n\n \nAmendment No. 1 to the Crown Crafts, Inc. 2014 Omnibus Equity Compensation Plan. (18)\n \n\n\n\n\n\n\n \n10.13*\n \n\n\n \n\u2014\n \n\n\n \nForm of Incentive Stock Option Grant Agreement (effective November 2016). (18)\n \n\n\n\n\n\n\n \n10.14*\n \n\n\n \n\u2014\n \n\n\n \nForm of Nonqualified Stock Option Grant Agreement (effective November 2016). (18)\n \n\n\n\n\n\n\n \n10.15*\n \n\n\n \n\u2014\n \n\n\n \nForm of Restricted Stock Grant Agreement (effective November 2016). (18)\n \n\n\n\n\n\n\n \n10.16\n \n\n\n \n\u2014\n \n\n\n \nJoinder Agreement dated as of August 4, 2017 by and among the Company, Hamco, Inc., Crown Crafts Infant Products, Inc., Carousel Acquisition, LLC and The CIT Group/Commercial Services, Inc. (20)\n \n\n\n\n\n\n\n \n10.17\n \n\n\n \n\u2014\n \n\n\n \nTwelfth Amendment to Financing Agreement dated as of December 15, 2017 by and among the Company, Hamco, Inc., Carousel Designs, LLC, Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (21)\n \n\n\n\n\n\n\n \n10.18\n \n\n\n \n\u2014\n \n\n\n \nThirteenth Amendment to Financing Agreement dated as of August 7, 2018 by and among the Company, Hamco, Inc., Carousel Designs, LLC, Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (22)\n \n\n\n\n\n\n\n \n10.19*\n \n\n\n \n\u2014\n \n\n\n \nEmployment Agreement dated January 18, 2019 by and between NoJo Baby & Kids, Inc. and Donna Sheridan. (23)\n \n\n\n\n\n\n\n \n10.20\n \n\n\n \n\u2014\n \n\n\n \nNote dated as of April 19, 2020 made by the Company in favor of CIT Bank, N.A. (24)\n \n\n\n\n\n\n\n \n10.21\n \n\n\n \n\u2014\n \n\n\n \nConditional Consent to Paycheck Protection Program Loan dated as of April 19, 2020 by and between the Company, Sassy Baby, Inc., Carousel Designs, LLC, NoJo Baby & Kids, Inc. and The CIT Group/Commercial. (24)\n \n\n\n\n\n\n\n \n10.22*\n \n\n\n \n\u2014\n \n\n\n \nAmendment to Amended and Restated Employment and Severance Protection Agreement dated as of April 14, 2022 by and between the Company and E. Randall Chestnut. (31)\n \n\n\n\n\n\n\n \n10.23*\n \n\n\n \n\u2014\n \n\n\n \nEmployment Agreement dated February 22, 2021 by and between the Company and Craig Demarest. (25)\n \n\n\n\n\n\n\n \n10.24*\n \n\n\n \n\u2014\n \n\n\n \nLetter Agreement regarding Employment Agreement dated February 22, 2021 by and between the Company and Craig Demarest. (27)\n \n\n\n\n\n\n\n \n10.25\n \n\n\n \n\u2014\n \n\n\n \nLiquidation Agreement dated as of May 13, 2021 by and among the Company, NoJo Baby & Kids, Inc., Sassy Baby, Inc., Carousel Designs, LLC and The CIT Group/Commercial Services, Inc. (27)\n \n\n\n\n\n\n\n \n10.26\n \n\n\n \n\u2014\n \n\n\n \nFourteenth Amendment to Financing Agreement dated as of May 31, 2021, by and among the Company, NoJo Baby & Kids, Inc., Sassy Baby, Inc., Carousel Designs, LLC and The CIT Group/Commercial Services, Inc. (26)\n \n\n\n\n\n\n\n \n10.27*\n \n\n\n \n\u2014\n \n\n\n \nPerformance Share Award Certificate, dated March 1, 2022, between the Company and Olivia W. Elliott. (30)\n \n\n\n\n\n\n\n \n10.28*\n \n\n\n \n\u2014\n \n\n\n \nPerformance Share Award Certificate, dated March 1, 2022, between the Company and Donna E. Sheridan. (30)\n \n\n\n\n\n\n\n \n10.29*\n \n\n\n \n\u2014\n \n\n\n \nAmendment to Employment Agreement dated June 7, 2022 by and between the Company and Olivia W. Elliott. (32)\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      23\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \n10.30\n \n\n\n \n\u2014\n \n\n\n \nFifteenth Amendment to Financing Agreement dated as of June 2, 2022, by and among the Company, NoJo Baby & Kids, Inc., Sassy Baby, Inc., Carousel Designs, LLC and The CIT Group/Commercial Services, Inc. (32)\n \n\n\n\n\n\n\n \n10.31\n \n\n\n \n\u2014\n \n\n\n \nSixteenth Amendment to Financing Agreement, dated as of March 17, 2023, by and among the Company, NoJo Baby & Kids, Inc., Sassy Baby, Inc., Manhattan Group, LLC, Manhattan Toy Europe Limited and the CIT Group/Commercial Services, Inc. (33)\n \n\n\n\n\n\n\n \n10.32*\n \n\n\n \n\u2014\n \n\n\n \nAmended and Restated Employment Agreement dated June 13, 2023 by and between the Company and Olivia W. Elliott. (34)\n \n\n\n\n\n\n\n \n14.1\n \n\n\n \n\u2014\n \n\n\n \nCode of Ethics. (2)\n \n\n\n\n\n\n\n \n21.1\n \n\n\n \n\u2014\n \n\n\n \nSubsidiaries of the Company. (35)\n \n\n\n\n\n\n\n \n23.1\n \n\n\n \n\u2014\n \n\n\n \nConsent of KPMG LLP. (35)\n \n\n\n\n\n\n\n \n31.1\n \n\n\n \n\u2014\n \n\n\n \nRule 13a-14(a)/15d-14(a) Certification by the Company\u2019s Chief Executive Officer. (35)\n \n\n\n\n\n\n\n \n31.2\n \n\n\n \n\u2014\n \n\n\n \nRule 13a-14(a)/15d-14(a) Certification by the Company\u2019s Chief Financial Officer. (35)\n \n\n\n\n\n\n\n \n32.1\n \n\n\n \n\u2014\n \n\n\n \nSection 1350 Certification by the Company\u2019s Chief Executive Officer. (36)\n \n\n\n\n\n\n\n \n32.2\n \n\n\n \n\u2014\n \n\n\n \nSection 1350 Certification by the Company\u2019s Chief Financial Officer. (36)\n \n\n\n\n\n\n\n \n101\n \n\n\n \n\u2014\n \n\n\n \nThe following information from the Registrant\u2019s Annual Report on Form 10-K for the fiscal year ended April 2, 2023, formatted as interactive data files in iXBRL (Inline eXtensible Business Reporting Language):\n \n(i)\u00a0\u00a0\u00a0Consolidated Statements of Income;\n \n(ii)\u00a0\u00a0Consolidated Balance Sheets;\n \n(iii)\u00a0Consolidated Statements of Changes in Shareholders\u2019\u00a0Equity;\n \n(iv)\u00a0Consolidated Statements of Cash Flows; and\n \n(v)\u00a0\u00a0Notes to Consolidated Financial Statements.\n \n\n\n\n\n\n\n104\n\n\n\u00a0\n\n\nInteractive Data File (embedded within the Inline XBRL and contained in Exhibit 101)\n\n\n\n\n\n\n\n\n\u00a0\n\n\n*\u00a0 Management contract or a compensatory plan or arrangement.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(1)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Quarterly Report on Form 10-Q for the quarter ended December 28, 2003.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(2)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Annual Report on Form 10-K for the fiscal year ended March 28, 2004.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(3)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated July 17, 2006.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(4)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Registration Statement on Form S-8 dated August 24, 2006.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(5)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated November 9, 2007.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(6)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K/A dated November 7, 2008.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(7)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated July 6, 2009.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(8)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated March 8, 2010.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(9)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated May 27, 2010.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(10)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated August 9, 2011.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(11)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated March 27, 2012.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(12)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Registration Statement on Form S-8 dated August 14, 2012.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(13)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated May 21, 2013.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(14)\n \n\n\n \nIncorporated herein by reference to Appendix A to the Registrant\u2019s Definitive Proxy Statement on Schedule 14A filed on June 27, 2014.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(15)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Registration Statement on Form S-8 dated November 10, 2014.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(16)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated December 28, 2015.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(17)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated April 4, 2016.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(18)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Quarterly Report on Form 10-Q for the quarter ended October 2, 2016.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(19)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated November 16, 2016.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(20)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated August 7, 2017.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(21)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated December 18, 2017.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(22)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Quarterly Report on Form 10-Q for the quarter ended July 1, 2018.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(23)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated January 22, 2019.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(24)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated April 23, 2020.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(25)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated February 22, 2021.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(26)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated June 3, 2021.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(27)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Annual Report on Form 10-K for the fiscal year ended March 28, 2021.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(28)\n \n\n\n \nIncorporated herein by reference to Appendix A to the Registrant\u2019s Definitive Proxy Statement on Schedule 14A filed on June 28, 2021.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n      24\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(29)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated August 11, 2021.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(30)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K/A dated March 1, 2022.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(31)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated April 15, 2022.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(32)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Annual Report on Form 10-K for the fiscal year ended April 3, 2022.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(33)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated March 20, 2023.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(34)\n \n\n\n \nIncorporated herein by reference to Registrant\u2019s Current Report on Form 8-K dated June 15, 2023.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(35)\n \n\n\n \nFiled herewith.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(36)\n \n\n\n \nFurnished herewith.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nITEM 16.\u00a0 \u00a0\nForm 10-K Summary\n\n\n\u00a0\n\n\nNot applicable.\n\n\n\u00a0\n\n\n\n\n\n    25\n   \n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n   \u00a0\n  \n\n",
+  "cik": "25895",
+  "cusip6": "228309",
+  "cusip": ["228309100"],
+  "names": ["CROWN CRAFTS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/25895/000143774923018305/0001437749-23-018305-index.htm"
+}
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+{
+  "item1": ">ITEM 1.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nBUSINESS \n\n\n\u00a0\n\n\nGENERAL\n\n\n\u00a0\n\n\nNational Beverage Corp. innovatively refreshes America with a distinctive portfolio of sparkling waters, juices, energy drinks and, to a lesser extent, carbonated soft drinks. We believe our creative product designs, innovative packaging and imaginative flavors, along with our corporate culture and philosophy, make National Beverage unique as a stand-alone entity in the beverage industry.\n\n\n\u00a0\n\n\nPoints of differentiation include the following:\n\n\n\u00a0\n\n\nHealthy Transformation \n\u2013 We focus on developing and delighting consumers with healthier beverages in response to the global shift in consumer buying habits and lifestyles. We believe our portfolio satisfies the preferences of a diverse mix of consumers including \u2018crossover consumers\u2019 \u2013 a growing group desiring healthier alternatives to artificially sweetened or high-calorie beverages.\n\n\n\u00a0\n\n\nCreative Innovations \n\u2013\n \nBuilding on a rich tradition of flavor and brand innovation with more than a 130-year history of development with iconic brands such as Shasta\u00ae and Faygo\u00ae, we have extended our flavor and essence leadership and technical expertise to the sparkling water category. Proprietary flavors and our naturally-essenced beverages are developed and tested in-house and made commercially available only after extensive concept and sensory evaluation. Our variety of distinctive flavors provides us a unique advantage with today\u2019s consumers who demand variety and refreshing beverage alternatives.\n\n\n\u00a0\n\n\nInnovation Ethic\n \u2013 We believe that innovative marketing, packaging and consumer engagement is more effective in today\u2019s marketplace than traditional higher-cost national advertising. In addition to our cost-effective social media platforms, we utilize regionally-focused marketing programs and in-store \u201cbrand ambassadors\u201d to interact with and obtain feedback from our consumers. We also believe the design of our packages and the overall optical effect of their placement on the shelf (\u201cshelf marketing\u201d) has become more important as millennials and younger generations become increasingly influential consumers, and are now influencing baby boomers and older generations.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       1\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nPresently, our primary market focus is the United States and Canada. Certain of our products are also distributed on a limited basis in other countries and options to expand distribution to other regions are being considered.\n\n\n\u00a0\n\n\nNational Beverage Corp. is incorporated in Delaware and began trading as a public company on the NASDAQ Stock Market in 1991. In this report, the terms \u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d \u201cCompany\u201d and \u201cNational Beverage\u201d mean National Beverage Corp. and its subsidiaries unless indicated otherwise.\n\n\n\u00a0\n\n\nBRANDS\n\n\n\u00a0\n\n\nOur brands consist of beverages geared to the active and health-conscious consumer (\u201cPower+ Brands\u201d) including sparkling waters, energy drinks, and juices. Our portfolio of Power+ Brands includes LaCroix\u00ae, LaCroix C\u00farate\u00ae, and LaCroix NiCola\u00ae sparkling water products; Clear Fruit\u00ae; Rip It\u00ae energy drinks and shots; and Everfresh\u00ae, Everfresh Premier Varietals\u2122 and Mr. Pure\u00ae 100% juice and juice-based products. Additionally, we produce and distribute carbonated soft drinks (\u201cCSDs\u201d) including Shasta\u00ae and Faygo\u00ae, iconic brands whose consumer loyalty spans more than 130 years.\n\n\n\n    \u00a0\n  \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       2\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nPower+ Brands \n\u2013\n\n\n\u00a0\n\n\nLaCroix\n\n\n\u00a0\n\n\n\n\n Continual flavor and packaging innovations for LaCroix in recent years include the unique flavor of Cherry Blossom \u2013 a botanical twist of sweet and just a \u2018kiss\u2019 of tart. The distinctive taste and stunning packaging of Cherry Blossom conveys the \u2018Dazzling Taste of Spring!\u2019 The launch of Cherry Blossom featured an integrated effort involving social and outdoor media, spot radio, consumer sampling and attractive retail in-store displays. In June 2022, PEOPLE Magazine recognized LaCroix Cherry Blossom as the winner of the Flavored Water Category in the PEOPLE\u2019s Food Awards 2022. PEOPLE described Cherry Blossom as \u201cspring in a can\u2026with fruity, lightly floral notes.\u201d \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nCherry Blossom joined the innovative trio of Beach Plum, Black Razzberry and Guava S\u00e3o Paulo launched in the fourth quarter of fiscal year 2021. Beach Plum excites the imagination and inspires dreams of summer with the delectable coolness of the luscious fruit native to the east coast of the U.S.; the sweet twist of Black Razzberry makes taste buds sing with decadent, smooth and irresistible fruit flavor; and consumers savor the sweet tropical delicacy and vibrant essence of Guava S\u00e3o Paulo.\n\n\n\u00a0\n\n\nOther successful\u00a0LaCroix additions include\u00a0Hi-Biscus, a unique flavor that adds the delicate essence of the hibiscus flower to sparkling water;\u00a0the enticing savor of LimonCello, which instantly transports fans to the Italian Riviera;\u00a0and the refreshing taste of Past\u00e8que, which captures the lusciousness of a sweet picnic watermelon.\n\n\n\n    \u00a0\n  \n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nLaCroix\u2019s dynamic \u2018theme\u2019 LaCroix C\u00farate\u00ae (\u2018Cure Yourself\u2019) celebrates French sophistication with Spanish zest and bold flavor pairings. Packaged in sleek 12 oz. tall cans, popular flavors include Cerise Lim\u00f3n, which pairs sweet cherry with tangy lime for a tasteful infusion that tickles the senses; Pi\u00f1a Fraise, an aromatic combination of pineapple and ripe strawberries that creates a tropical blend delight; and M\u00fare Pepino, which combines sweet and sour blackberry notes with crisp cucumber to create a sensory and taste sensation.\u00a0\n\n\n\n    \u00a0\n  \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       3\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAdditional LaCroix flavors are in development that will continue to feature unique packaging and flavor concepts designed to capitalize on LaCroix brand loyalty and popularity of the sparkling water category.\n\n\n\u00a0\n\n\nEverfresh and Mr. Pure\n\n\n\u00a0\n\n\n\n\n Everfresh Premier Varietals, a unique theme from Everfresh, is positioned as a stand-alone brand for display in the produce section of supermarkets. Everfresh Premier Varietals is a premium line of apple juice derived from a variety of apples specific to the taste of the varietal, such as Granny Smith, McIntosh, Honey Crisp, Golden Delicious, Fuji and Pink Lady.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nClear Fruit is a crisp, clear, non-carbonated water beverage enhanced with fruit flavors. Clear Fruit is available in 14 delicious flavors, including consumer favorites Cherry Blast, Strawberry Watermelon, and Fruit Punch. Clear Fruit is available in 20-ounce and 16.9-ounce bottles with consumer-favored sports caps.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\n\u00a0\n\n\nRip It\n\n\n\u00a0\n\n\n\n\n\n    \u00a0\n  \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       4\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nCarbonated Soft Drinks \n\u2013\n \n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nMany of our carbonated soft drink brands enjoy a regional identification that we believe fosters long-term consumer loyalty and makes them more competitive as a consumer choice. In addition, products produced locally often generate retailer-sponsored promotional activities and receive media exposure through community activities rather than costly national advertising.\n\n\n\u00a0\n\n\nIn recent years, we reformulated many of our brands to reduce caloric content while still preserving their time-tested flavor profiles. Our brands, optically and ingredient-wise, are continually evolving. We always strive to make all our drinks healthier while maintaining their iconic taste profiles.\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\n\u00a0\n\n\nPRODUCTION\n\n\n\u00a0\n\n\n\n\n We believe the innovative and controlled vertical integration of our production facilities provides an advantage over certain of our competitors that rely on independent third-party bottlers to manufacture and market their products. Since we control all production, distribution and marketing of our brands, we believe we can more effectively manage quality control and consumer appeal while responding quickly to changing market conditions.\n\n\n\n    \u00a0\n  \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       5\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nDISTRIBUTION \n\n\n\u00a0\n\n\nTo service a diverse customer base that includes numerous national retailers, as well as thousands of smaller \u201cup-and-down-the-street\u201d accounts, we utilize a hybrid distribution system to deliver our products through three primary distribution channels: take-home, convenience and food-service.\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWarehouse distribution system products are shipped from our production facilities to the retailer\u2019s centralized distribution centers and then distributed by the retailer to each of its store locations with other goods. This method allows our retail partners to further maximize their assets by utilizing their ability to pick-up product at our warehouses, thus lowering their/our product costs. Products sold through the direct-store delivery system are distributed directly to the customer\u2019s retail outlets by our direct-store delivery fleet and by independent distributors.\n\n\n\u00a0\n\n\nWe distribute our products to the convenience channel through our own direct-store delivery fleet and those of independent distributors. The convenience channel consists of convenience stores, gas stations and other smaller \u201cup-and-down-the-street\u201d accounts. Because of the higher retail prices and margins that typically prevail, we have developed packaging and graphics specifically targeted to this market.\n\n\n\u00a0\n\n\nOur food-service division distributes products to independent, specialized distributors who sell to hospitals, schools, military bases, hotels and food-service wholesalers. Also, our Company-owned direct-store delivery fleet distributes products to schools and food-service locations.\n\n\n\n    \u00a0\n  \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       6\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\nOur take-home, convenience and food-service operations use vending machines and glass-door coolers as marketing and promotional tools for our brands. We provide vending machines and coolers on a placement or purchase basis to our customers. We believe vending and cooler equipment expands on-site visual trial, thereby increasing sales and enhancing brand awareness.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nSALES AND MARKETING\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur marketing emphasizes programs designed to reach consumers directly through innovative digital marketing, digital social marketing, social media engagement, sponsorships and creative content. We are focused on increasing our digital presence and capabilities to further enhance the consumer experience across our brands. We periodically retain agencies to assist with social media content creative and platform selection for our brands.\n\n\n\u00a0\n\n\nAdditionally, we maintain and enhance consumer brand recognition and loyalty through a combination of participation in regional events, special event marketing, endorsements, consumer coupon distribution and product sampling. We also offer numerous promotional programs to retail customers, including cooperative advertising support, \u2018Brand\nED\n\u2019 ambassadors, in-store promotional activities and other incentives. These elements allow marketing and other consumer programs to be tailored to meet local and regional demographics. Additionally, the Company\u2019s \u2018MerchMx\u2019 representatives work to develop a rapport with store managers for the purpose of optimizing shelf space, building displays, placing point-of-sale materials and expanding distribution.\n\n\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\nRAW MATERIALS \n\n\n\u00a0\n\n\nOur centralized procurement group maintains relationships with numerous suppliers of ingredients and packaging. By consolidating the purchasing function for our production facilities, we believe we procure more competitive arrangements with our suppliers, thereby enhancing our ability to compete as an efficient producer of beverages.\n\n\n\n    \u00a0\n  \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       7\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe products we produce and sell are made from various materials including aluminum cans, glass and plastic bottles, water, carbon dioxide, juice and flavor concentrates, sweeteners, cartons and closures. We craft a substantial portion of our flavors and concentrates while purchasing the remaining raw materials from multiple suppliers.\n\n\n Substantially all of the materials and ingredients we purchase are available from several suppliers, although strikes, weather conditions, utility shortages, governmental control or regulations, national emergencies, quality, price or supply fluctuations or other events outside our control could adversely affect the supply of specific materials. A significant portion of our raw material purchases, including aluminum cans, plastic bottles, high fructose corn syrup, corrugated packaging and juice concentrates, are derived from commodities. Therefore, pricing and availability tend to fluctuate based upon worldwide commodity market conditions. In certain cases, we may elect to enter into multi-year agreements for the supply of these materials with one or more suppliers, the terms of which may include variable or fixed pricing, minimum purchase quantities and/or the requirement to purchase all supplies for specified locations. Additionally, we use derivative financial instruments to partially mitigate our exposure to changes in certain raw material costs.\n\n\n\u00a0\n\n\n\u00a0\n\n\nSEASONALITY\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\n\u00a0\n\n\nCOMPETITION\n\n\n\u00a0\n\n\nWhile LaCroix Sparkling Water is the brand of choice as the number one premium domestic sparkling water throughout the United States, the beverage industry is highly competitive and our competitive position may vary by market area. Our products compete with many varieties of liquid refreshment, including water products, soft drinks, juices, fruit drinks, energy drinks and sports drinks, as well as powdered drinks, coffees, teas, dairy-based drinks, functional beverages and various other nonalcoholic beverages. We compete with bottlers and distributors of national, regional and private label products. Several competitors, including those that dominate the beverage industry, such as Nestl\u00e9 S.A., PepsiCo and The Coca-Cola Company, have greater financial resources than we have and aggressive promotion of their products may adversely affect sales of our brands.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       8\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTRADEMARKS\n\n\n\u00a0\n\n\nWe own numerous trademarks for our brands that are significant to our business. We intend to continue to maintain all registrations of our significant trademarks and use the trademarks in the operation of our businesses.\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nGOVERNMENTAL REGULATION\n\n\n\u00a0\n\n\nThe production, distribution and sale of our products in the United States are subject to the Federal Food, Drug and Cosmetic Act; the Dietary Supplement Health and Education Act of 1994; the Occupational Safety and Health Act; various environmental statutes; and various other federal, state and local statutes regulating the production, transportation, sale, safety, advertising, labeling and ingredients of such products. We believe that we are in compliance, in all material respects, with such existing legislation.\n\n\n\u00a0\n\n\nCertain states and localities require a deposit or tax on the sale of certain beverages. These requirements vary by each jurisdiction. Similar legislation has been or may be proposed in other states or localities or by Congress. We are unable to predict whether such legislation will be enacted but believe its enactment would not have a material adverse impact on our business, financial condition or results of operations.\n\n\n\u00a0\n\n\nAll of our facilities in the United States are subject to federal, state and local environmental laws and regulations. Compliance with these provisions has not had any material adverse effect on our financial or competitive position. We believe our current practices and procedures for the control and disposition of toxic or hazardous substances comply in all material respects with applicable law.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       9\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nHUMAN CAPITAL\n\n\n\u00a0\n\n\nAs of April 29, 2023, we employed approximately 1,593\u00a0people, of which 374\u00a0are covered by collective bargaining agreements. These collective bargaining agreements generally address working conditions, as well as wage rates and benefits, and expire over varying terms over the next several years. We believe these agreements can be renegotiated on terms satisfactory to us as they expire and we believe we maintain good relationships with our employees and their representative organizations.\n\n\n\u00a0\n\n\nWe support a culture of diversity and inclusion that mirrors the markets we serve. We take a comprehensive view of diversity and inclusion across different races, ethnicities, religions and expressions of gender and sexual identity. Approximately 62 percent and 24 percent of our employee base identify as persons of color or female, respectively.\n\n\n\u00a0\n\n\nOur compensation programs are designed to ensure we attract and retain talent while maintaining alignment with market compensation. We utilize a mix of short-term incentive programs throughout the organization and provide long-term incentive programs to more senior employees generally through stock-based compensation programs. We offer competitive employee benefits that are effective in attracting and retaining talent and are designed to support the physical, mental and financial health of our employees. Our employee benefits program includes comprehensive health, dental, life and disability, and profit-sharing benefits.\n\n\n\u00a0\n\n\nOur operating philosophy emphasizes the health and safety of our employees. Our operations personnel, supplemented by risk management professionals, review all aspects of employee tasks and work environment to minimize risk. We strive to achieve an injury-free work environment in our operations. Key to these efforts are data analysis and preventative actions. We measure and benchmark lost-time incident rate, a reliable indication of total recordable injuries rate and severity, and use a risk- reduction process that thoroughly analyzes injuries and near misses.\n\n\n\u00a0\n\n\nDuring the COVID-19 pandemic, we took comprehensive measures to safeguard the well-being of our employees. These measures included enhanced sanitation procedures, physical distancing, and other health protocols. We continue to monitor the health and safety of our work force.\n\n\n\u00a0\n\n\n\u00a0\n\n\nSUSTAINABILITY \n\n\n\u00a0\n\n\nNational Beverage Corp. is dedicated to sustainable operations and responsible business initiatives. All our beverage products are produced in the U.S., providing thousands of jobs in local communities and boasting a lower carbon footprint than imported brands. In addition, the majority of our products are delivered through the warehouse distribution system which provides more efficient and lower greenhouse gas emissions than direct-store delivery systems.\n\n\n\u00a0\n\n\nWater is critical to our business, and we periodically conduct water quality assessments on a variety of measurements. All of our packaging is recyclable and we continually focus on reducing packaging content. More than 80% of our products are in aluminum cans, which generally contain approximately 73% recycled material. Each of our facilities has programs in place designed to minimize the use of water, energy, and other natural resources.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       10\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAVAILABLE INFORMATION\n\n\n\u00a0\n\n\nOur Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports are available free of charge on our website at \nwww.nationalbeverage.com\n as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission. In addition, our Code of Ethics is available on our website. The information on the Company\u2019s website is not part of this Annual Report on Form 10-K or any other report that we file with, or furnish to, the Securities and Exchange Commission.\n\n\n\u00a0\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nRISK FACTORS\n\n\n\u00a0\n\n\nIn addition to other information in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating the Company\u2019s business. Our business, financial condition, results of operations and cash flows could be materially and adversely affected by any of these risks. Additional risks and uncertainties, including risks and uncertainties not presently known to the Company, or that the Company currently deems immaterial, may also impair our business, financial position, results of operations and cash flows.\n\n\n\u00a0\n\n\nBrand image and consumer preferences.\n Our beverage portfolio is comprised of a number of unique brands with reputations and consumer loyalty that have been built over time. Our investments in social media and marketing as well as our strong commitment to product quality are intended to have a favorable impact on brand image and consumer preferences. Unfavorable publicity, or allegations of quality issues, even if false or unfounded, may tarnish our reputation and brand image and cause consumers to choose other products. In addition, if we do not adequately anticipate and react to changing demographics, consumer trends, health concerns and product preferences, our financial position could be adversely affected.\n\n\n\u00a0\n\n\nCompetition. \nThe beverage industry is extremely competitive. Our products compete with a broad range of beverage products, most of which are manufactured and distributed by companies with substantially greater financial, marketing and distribution resources. Discounting and other actions by our competitors could adversely affect our ability to sustain revenues and profits.\n\n\n\u00a0\n\n\nCustomer relationships. \nOur retail customer base has been consolidating over many years resulting in fewer customers with increased purchasing power. This increased purchasing power can limit our ability to increase pricing for our products with certain of our customers. Additionally, e-commerce transactions and value stores are experiencing rapid growth. Our inability to adapt to customer requirements could lead to a loss of business and adversely affect our financial position.\n\n\n\u00a0\n\n\nRaw materials and energy.\n The production of our products is dependent on certain raw materials, including aluminum, resin, corn, linerboard, water and fruit juice. In addition, the production and distribution of our products is dependent on energy sources, including natural gas, diesel fuel, carbon dioxide and electricity. These items are subject to supply chain disruptions and price volatility caused by numerous factors. Commodity price increases ultimately result in a corresponding increase in the cost of raw materials and energy. We may be limited in our ability to pass these increases on to our customers or may incur a loss in sales volume to the extent price increases are taken. In addition, strikes, weather conditions, governmental controls, tariffs, national emergencies, natural disasters, supply shortages or other events could affect our continued supply and cost of raw materials and energy. If raw materials or energy costs increase, or their availability is limited, our financial position could be adversely affected.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       11\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nGovernmental regulation. \nOur business and properties are subject to various federal, state and local laws and regulations, including those governing the production, packaging, quality, labeling and distribution of beverage products. In addition, various governmental agencies have enacted or are considering changes in corporate tax laws as well as additional taxes on soft drinks and other sweetened beverages. Compliance with or changes in existing laws or regulations could require material expenses and negatively affect our financial position.\n\n\n\u00a0\n\n\nSustained increases in the cost of employee wages and benefits.\n Our profitability is affected by the cost of employee wages as well as medical and other benefits provided to employees, including employees covered under collective bargaining agreements and multi-employer pension plans. Competition in the labor marketplace for qualified employees has led to increased costs, such as higher wages and benefit costs in order to recruit and retain employees. A prolonged labor shortage or inflation in labor costs could adversely impact our financial results.\n\n\n\u00a0\n\n\nUnfavorable weather conditions.\n Unfavorable weather conditions could have an adverse impact on our revenue and profitability. Unusually cold or rainy weather may temporarily reduce demand for our products and contribute to lower sales, which could adversely affect our profitability for such periods. Prolonged drought conditions in the geographic regions in which we do business could lead to restrictions on the use of water, which could adversely affect our ability to produce and distribute products.\n\n\n\u00a0\n\n\nDependence on key personnel.\n Our performance significantly depends upon the continued contributions of our executive officers and key employees, both individually and as a group, and our ability to retain and motivate them. Our officers and key personnel have many years of experience with us and in our industry and it may be difficult to replace them. If we lose key personnel or are unable to recruit qualified personnel, our operations and ability to manage our business may be adversely affected.\n\n\n\u00a0\n\n\nDependence on information technology and third-party service providers. \nWe use information technology and third-party service providers to support our business processes and activities. Continuity of business applications and services may in the future be disrupted by events such as infection by viruses or malware or other cybersecurity breaches or attacks; issues with systems\u2019 maintenance or security; power outages; hardware or software failures; telecommunication failures; natural disasters; and other catastrophic occurrences. If our controls, disaster recovery and business continuity plans or those of our third party providers do not effectively respond to or resolve the issues related to any such disruptions in a timely manner, our sales, financial condition and results of operations may be adversely affected.\n\n\n\u00a0\n\n\n\u00a0\n\n",
+  "item7": ">ITEM 7.\n\n\n \nMANAGEMENT\n\u2019\nS DISCUSSION AND ANALYSIS OF FINANCIAL \nCONDITION AND RESULTS OF OPERATIONS\n \n\n\n\u00a0\n\n\n\u00a0\n\n\nOVERVIEW\n\n\n\u00a0\n\n\nThe following Management\u2019s Discussion and Analysis of Operations is intended to provide information\n\n\nabout the Company\u2019s operations and business environment and should be read in conjunction with our Consolidated Financial Statements and the accompanying Notes contained in Item 8 of this report.\n\n\n\u00a0\n\n\nNational Beverage Corp. innovatively refreshes America with a distinctive portfolio of sparkling waters, juices, energy drinks (Power+ Brands) and, to a lesser extent, carbonated soft drinks. We believe our creative product designs, innovative packaging and imaginative flavors, along with our corporate culture and philosophy, make National Beverage unique as a stand-alone entity in the beverage industry.\n\n\n\u00a0\n\n\nNational Beverage Corp., in recent years, has transformed to an innovative, healthier refreshment company. From our corporate philosophy, development of products and marketing to manufacturing, we are converting consumers to a \u2018\nBetter for You\n\u2019\n \nthirst quencher that compassionately cares for their nutritional health. We are committed to our quest to innovate for the joy, benefit and enjoyment of our consumers\u2019 healthier lifestyle!\n\n\n\u00a0\n\n\nWe believe our brands are uniquely positioned in three distinctive ways:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(1)\n \n\n\n \nThe new consumer is the most competent/knowledgeable product analyzer ever, and personal mental/physical lifestyles demand that healthier is their preferred choice. Calories must qualify as worthy; sugar being enemy #1 in the life of the Millennial and younger consumers.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(2)\n \n\n\n \nThe retail industry is in a revolution. In prior years, each retailer induced their consumer with a proprietary brand (especially soft drinks), but today understands that the well-informed, smart consumer is demanding that retailers provide recognizable brands that have earned their respective consumer standing on their merits.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(3)\n \n\n\n \nRetail today is in the most competitively-indexed service industry, without exception. Innovation, plus the urgent time demands on the consumer, requires quick, expedient shopping. Home delivery is even more of a current shoppers\u2019\u00a0choice. Retailers cannot carry slower-moving items that home delivery will not support.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur strategy seeks the profitable growth of our products by (i) developing healthier beverages in response to the global shift in consumer buying habits and tailoring our beverage portfolio to the preferences of a diverse mix of \u2018crossover consumers\u2019 \u2013 a growing group desiring a healthier alternative to artificially sweetened and high-caloric beverages; (ii) emphasizing unique flavor development and variety throughout our brands that appeal to multiple demographic groups; (iii) maintaining points of difference through innovative marketing, packaging and consumer engagement and (iv) responding faster and more creatively to changing consumer trends than larger competitors who are burdened by legacy production and distribution complexity and costs.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       15\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nPresently, our primary market focus is the United States and Canada. Certain of our products are also distributed on a limited basis in other countries and options to expand distribution to other regions are being considered. To service a diverse customer base that includes numerous national retailers, as well as thousands of smaller \u201cup-and-down-the-street\u201d accounts, we utilize a hybrid distribution system consisting of warehouse and direct-store delivery. The warehouse delivery system allows our retail partners to further maximize their assets by utilizing their ability to pick up product at our warehouses, further lowering their/our product costs.\n\n\n\u00a0\n\n\nNational Beverage Corp. is incorporated in Delaware and began trading as a public company on the NASDAQ Stock Market in 1991. In this report, the terms \u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d \u201cCompany\u201d and \u201cNational Beverage\u201d mean National Beverage Corp. and its subsidiaries unless indicated otherwise.\n\n\n\u00a0\n\n\nOur operating results are affected by numerous factors, including fluctuations in the costs of raw materials, holiday and seasonal programming and weather conditions. While prior years witnessed more seasonality, higher sales are realized during the summer when outdoor activities are more prevalent.\n\n\n\u00a0\n\n\nTraditional and typical are not a part of an innovator\u2019s vocabulary.\n\n\n\u00a0\n\n\n\n\n\n     16\n   \n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nRESULTS OF OPERATIONS\n\n\n\u00a0\n\n\nThe following section generally discusses the fiscal years ended April 29, 2023 (Fiscal 2023) and April 30, 2022 (Fiscal 2022) items and year-to-year comparisons between Fiscal 2023 and Fiscal 2022. Discussions of fiscal year ended May 1, 2021 (Fiscal 2021) items and year-to-year comparisons between Fiscal 2022 and Fiscal 2021 can be found in \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in Part II, Item 7 of our Annual Report on Form 10-K for the year ended April 30, 2022, which is available free of charge on our website at \nwww.nationalbeverage.com\n.\n\n\n\u00a0\n\n\nNet Sales\n\n\nNet sales for Fiscal 2023 increased 3.1% to $1,173 million compared to $1,138 million for Fiscal 2022. The increase in sales resulted from a 8.4% increase in average selling price offset in part by a 4.9% decline in case volume, which impacted both Power+Brands and carbonated soft drinks.\n\n\n\u00a0\n\n\nGross Profit\n\n\nGross profit for Fiscal 2023 was $396.8 million compared to $417.8 million for Fiscal 2022. The average cost per case increased 13.4% and gross margin decreased to 33.8% from 36.7% for Fiscal 2022. The decrease in gross margin is due to increases in packaging, ingredients and freight costs offset in part by increased average selling price. Gross profit per case was flat.\n\n\n\u00a0\n\n\nShipping and handling costs are included in selling, general and administrative expenses, the classification of which is consistent with many beverage companies. However, our gross margin may not be comparable to companies that include shipping and handling costs in cost of sales. See Note 1 of Notes to the Consolidated Financial Statements.\n\n\n\u00a0\n\n\nSelling, General and Administrative Expenses\n\n\nSelling, general and administrative expenses were approximately $210 million for both Fiscal 2023, and Fiscal 2022. Marketing and shipping costs declined and were offset by increased administrative costs. The decline in marketing costs was primarily due to reduced programs with retail partners. As a percent of net sales, selling, general and administrative expenses declined to 17.9% from 18.4% in Fiscal 2022.\n\n\n\u00a0\n\n\nOther (Expense) Income - Net\n\n\nOther (expense) income, net includes interest income of $2.3 million for Fiscal 2023 and $.1 million for Fiscal 2022.\u00a0 The increase in interest income is due to increased average invested balances and higher return on investments.\u00a0\n\n\n\u00a0\n\n\nIncome Taxes\n\n\nOur effective tax rate was 23.7% for Fiscal 2023 and 23.6% for Fiscal 2022. The differences between the effective rate and the federal statutory rate of 21% were primarily due to the effects of state income taxes.\n\n\n\u00a0\n\n\n\n\n\n     17\n   \n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nLIQUIDITY AND FINANCIAL CONDITION\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\n\nOur principal source of funds is cash generated from operations. At April 29, 2023, we had $158.1 million in cash and cash equivalents and maintained $150 million in unsecured revolving credit facilities, under which no borrowings were outstanding and $2.2 million was reserved for standby letters of credit. We believe that existing capital resources will be sufficient to meet our liquidity and capital requirements for the next twelve months. See Note 5 of Notes to the Consolidated Financial Statements.\n\n\n\u00a0\n\n\nExpenditures for property, plant and equipment amounted to $22.0 million for Fiscal 2023 primarily for capital projects to expand our capacity, enhance sustainability and packaging capabilities and\u00a0improve efficiencies at our production facilities. We intend to continue capacity and efficiency improvement projects in Fiscal 2024 and expect capital expenditures to be comparable to Fiscal 2022.\n\n\n\u00a0\n\n\nPursuant to a management agreement, we incurred a fee to Corporate Management Advisors, Inc. (CMA) of $11.9 million for Fiscal 2023 and $11.4 million for Fiscal 2022. Included in current liabilities were amounts due CMA of $2.9 million at April 29, 2023 and $4.0 million at April 30, 2022. See Note 6 of Notes to the Consolidated Financial Statements.\n\n\n\u00a0\n\n\nCash Flows\n\n\nDuring Fiscal 2023, $161.7 million was provided by operating activities, $22.0 million was used in investing activities and $29.7 million was used in financing activities. Cash provided by operating activities increased $28.5 million due to reduced net working capital other than cash, change in deferred taxes offset in part by lower net income. Cash used in investing activities decreased $7.1 million due to lower capital expenditures. Cash used in financing activities includes a $30 million repayment of\u00a0our Loan Facility.\n\n\n\u00a0\n\n\nFinancial Position\n\n\nDuring Fiscal 2023, our working capital increased $92.9 million to $222.1 million. The increase in working capital resulted from increased cash and equivalents generated by operations, increased trade receivables offset in part by lower inventories and reduced income tax prepayments. Trade receivables increased $11.3 million and days sales outstanding was 33.3 days at April 29, 2023 compared to 30 days at April 30, 2022. Inventories decreased $9.7 million as a result of the reduced quantities of finished goods and raw materials. Annual inventory turns decreased to 7.9 from 8.2 times. At April 29, 2023, the current ratio was 2.5 to 1 compared to 1.9 to 1 at April 30, 2022.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       18\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nCONTRACTUAL OBLIGATIONS \n\n\n\u00a0\n\n\nContractual obligations at April 29, 2023 are payable as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n(In thousands)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n1 Year\n \nOr less\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2 to 3\n \nYears\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n4 to 5\n \nYears\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nMore Than\n \n5 Years\n \n\n\n\u00a0\n\n\n\n\n\n\n \nOperating leases\n \n\n\n\u00a0\n\n\n$\n\n\n44,674\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n12,798\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n17,903\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10,304\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,669\n\n\n\u00a0\n\n\n\n\n\n\n \nPurchase commitments\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n19,535\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,535\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n$\n\n\n64,209\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n32,333\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n17,903\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10,304\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,669\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nWe contribute to certain pension plans under collective bargaining agreements and to a discretionary profit sharing plan. Annual contributions were $3.8 million for Fiscal 2023 and $4.0 million for Fiscal 2022. See Note 11 of Notes to Consolidated Financial Statements.\n\n\n\u00a0\n\n\nWe maintain self-insured and deductible programs for certain liability, medical and workers\u2019 compensation exposures. Other long-term liabilities include known claims and estimated incurred but not reported claims not otherwise covered by insurance based on actuarial assumptions and historical claims experience. Since the timing and amount of claim payments vary significantly, we are not able to reasonably estimate future payments for specific periods and therefore such payments have not been included in the table above. Standby letters of credit aggregating $2.2 million have been issued in connection with our self-insurance programs. These standby letters of credit expire through March 2024 and are expected to be renewed.\n\n\n\u00a0\n\n\nOFF-BALANCE SHEET ARRANGEMENTS AND ESTIMATES\n\n\n\u00a0\n\n\nWe do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition.\n\n\n\u00a0\n\n\nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\n\n\n\u00a0\n\n\nThe preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management\u2019s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. We believe that the critical accounting policies described in the following paragraphs comprise the most significant estimates and assumptions used in the preparation of our consolidated financial statements. For these policies, we caution that future events rarely develop exactly as estimated and the best estimates routinely require adjustment.\n\n\n\u00a0\n\n\nCredit Risk\n\n\nWe sell products to a variety of customers and extend credit based on an evaluation of each customer\u2019s financial condition, generally without requiring collateral. Exposure to credit losses varies by customer principally due to the financial condition of each customer. We monitor our exposure to credit losses and maintain allowances for anticipated losses based on our experience with past due accounts, collectability and our analysis of customer data.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       19\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nImpairment of Long-Lived Assets\n\n\nAll long-lived assets, excluding goodwill and intangible assets not subject to amortization, are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Goodwill and intangible assets not subject to amortization are evaluated for impairment annually or sooner if we believe such assets may be impaired. An impairment loss is written down to its estimated fair market value based on discounted future cash flows.\n\n\n\u00a0\n\n\nIncome Taxes\n\n\nThe Company\u2019s effective income tax rate is based on estimates of taxes which will ultimately be payable. Deferred taxes are recorded to give recognition to temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. Valuation allowances are established to reduce the carrying amounts of deferred tax assets when it is deemed, more likely than not, that the benefit of deferred tax assets will not be realized.\n\n\n\u00a0\n\n\nInsurance Programs\n\n\nWe maintain self-insured and deductible programs for certain liability, medical and workers\u2019 compensation exposures. Accordingly, we accrue for known claims and estimated incurred but not reported claims not otherwise covered by insurance based on actuarial assumptions and historical claims experience.\n\n\n\u00a0\n\n\nRevenue Recognition\n\n\nWe recognize revenue upon delivery to our customers, based on written sales terms that do not allow a right of return except in rare instances. Our products are typically sold on credit; however smaller direct-store delivery accounts may be sold on a cash basis. Our credit terms normally require payment within 30 days of delivery and may allow discounts for early payment. We estimate and reserve for bad debt exposure based on our experience with past due accounts, collectability and our analysis of customer data.\n\n\n\u00a0\n\n\nWe offer various sales incentive arrangements to our customers that require customer performance or achievement of certain sales volume targets. Sales incentives are accrued over the period of benefit or expected sales. When the incentive is paid in advance, the aggregate incentive is recorded as a prepaid and amortized over the period of benefit. The recognition of these incentives involves the use of judgment related to performance and sales volume estimates that are made based on historical experience and other factors. Sales incentives are accounted for as a reduction of sales and actual amounts ultimately realized may vary from accrued amounts. Such differences are recorded once determined and have historically not been significant.\n\n\n\u00a0\n\n\n\n\n\n     20\n   \n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\nFORWARD-LOOKING STATEMENTS\n\n\n\u00a0\n\n\nNational Beverage Corp. and its representatives may make written or oral statements relating to future events or results relative to our financial, operational and business performance, achievements, objectives and strategies. These statements are \u201cforward-looking\u201d within the meaning of the Private Securities Litigation Reform Act of 1995 and include statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our stockholders. Certain statements including, without limitation, statements containing the words \u201cbelieves,\u201d \u201canticipates,\u201d \u201cintends,\u201d \u201cplans,\u201d \u201cexpects,\u201d and \u201cestimates\u201d constitute \u201cforward-looking statements\u201d and involve known and unknown risk, uncertainties and other factors that may cause the actual results, performance or achievements of our Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following: general economic and business conditions, pricing of competitive products, success of new product and flavor introductions, fluctuations in the costs and availability of raw materials and packaging supplies, ability to pass along cost increases to our customers, labor strikes or work stoppages or other interruptions in the employment of labor, continued retailer support for our products, changes in brand image, consumer demand and preferences and our success in creating products geared toward consumers\u2019 tastes, success in implementing business strategies, changes in business strategy or development plans, government regulations, taxes or fees imposed on the sale of our products, unfavorable weather conditions and other factors referenced in this report, filings with the Securities and Exchange Commission and other reports to our stockholders. We disclaim any obligation to update any such factors or to publicly announce the results of any revisions to any forward-looking statements contained herein to reflect future events or developments.\n\n\n\u00a0\n\n\n\u00a0\n\n",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\n\n\u00a0\n\n\nCommodities\n\n\nWe purchase various raw materials, including aluminum cans, plastic bottles, high fructose corn syrup, corrugated packaging and juice concentrates, the prices of which fluctuate based on commodity market conditions. Our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. At times, we manage our exposure to this risk through the use of supplier pricing agreements that enable us to establish all, or a portion of, the purchase prices for certain raw materials. Additionally, we use derivative financial instruments to partially mitigate our exposure to changes in certain raw material costs.\n\n\n\u00a0\n\n\nInterest Rates\n\n\nAt April 29, 2023, the Company had no borrowings outstanding. Based on a 1 percentage point increase, interest rates would have increased interest expense by $.1 million in Fiscal 2023. We are also subject to interest rate risk related to our investment in highly liquid short duration investment securities. These investments are managed with the guidelines of the Company\u2019s investment policy. Our policy requires investments to be investment grade, with the primary objective of minimizing the risk of principal loss. In addition, our policy limits the amount of credit exposure to any one issue.\n\n\n\u00a0\n\n\n\n\n\n     21\n   \n\n\n\n\n\n\n\n\n\n\nTable of Contents\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\n\n\n\n\n\n\n ",
+  "cik": "69891",
+  "cusip6": "635017",
+  "cusip": ["635017956", "635017906", "635017106"],
+  "names": ["NATIONAL BEVERAGE CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/69891/000143774923018790/0001437749-23-018790-index.htm"
+}
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+++ b/GraphRAG/standalone/data/all/form10k/0001437749-23-020727.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. Business. \n\n\n\u00a0\n\n\nOur Company \n\n\n\u00a0\n\n\nTilray Brands, Inc., a Delaware corporation (collectively, along with its subsidiaries, the \u201cCompany\u201d, \u201cTilray\u201d, \u201cwe\u201d, \u201cus\u201d and \u201cour\u201d) \u00a0is a leading global cannabis-lifestyle and consumer packaged goods company, which was incorporated on January 24, 2018 and headquartered in Leamington and New York, with operations in Canada, the United States, Europe, Australia\u00a0and Latin America that is changing people\u2019s lives for the better \u2013 one person at a time \u2013 by inspiring and empowering a worldwide community to live their very best life enhanced by moments of connection and wellbeing. Tilray\u2019s mission is to be the most responsible, trusted and market leading cannabis-lifestyle and consumer packaged goods company in the world with a portfolio of innovative, high-quality and beloved brands that address the needs of the consumers, customers and patients we serve. Patients and consumers trust Tilray Brands to be the most responsible, trusted and market leading cannabis consumer products company in the world with a portfolio of innovative, high-quality, and beloved brands that address the needs of the consumers, customers, and patients we serve.\u00a0 Our business consists of four reporting segments, which are defined by the industry in which we compete, target consumer and need and route-to-market.\u00a0 These reporting segments consist of medical cannabis, adult-use cannabis, beverage alcohol and wellness.\n\n\n\u00a0\n\n\nWe were among the first companies to be permitted to cultivate and sell legal medical cannabis. Today, we supply high-quality medical cannabis products to tens of thousands of patients in 21 countries spanning five continents through our global subsidiaries, and through agreements with established pharmaceutical distributors. We are also a leader in the recreational adult-use market in Canada.\u00a0 In the United States, we are one of the largest craft brewers and have businesses in the distilled spirits and hemp-based foods industries.\u00a0 \u00a0\u00a0\n\n\n\u00a0\n\n\nOn April 30, 2021, Tilray acquired all of the issued and outstanding common shares of Aphria Inc. via a plan of arrangement (the \u201cArrangement\u201d). The Arrangement brought together two highly complementary businesses to create a leading cannabis-lifestyle and consumer packaged goods company with one of the largest global geographic footprints in the industry.\u00a0\u00a0\n\n\n\u00a0\n\n\nOn November 7, 2022, Tilray acquired Montauk Brewing Company, Inc. (\"Montauk\"), a leading craft brewer in Metro New York located in Montauk, New York (the \u201cMontauk Acquisition\u201d). Montauk is well-known for its beloved product portfolio, premium price point, and distribution across over 6,400 points of distribution and is a welcomed addition to our growing craft alcohol and beer businesses.\n\n\n\u00a0\n\n\nOn March\u00a016, 2023, Tilray\u2019s stockholders formally approved a proposal to amend its certificate of incorporation (the\u00a0\u201cCharter Amendment\u201d), which modified Tilray\u2019s existing certificate of incorporation by canceling its Class 1 Common Stock and re-allocating such authorized shares to Class 2 Common Stock. In addition, the Charter Amendment reclassified each issued and outstanding share of Class 2 Common Stock as one share of Common Stock of Tilray.\n\n\n\u00a0\n\n\nOn\u00a0April 10, 2023,\u00a0we entered into an Arrangement Agreement (the \u201cArrangement Agreement\u201d) with HEXO Corp. (\u201cHEXO\u201d), pursuant to which Tilray agreed to acquire all of the issued and outstanding common shares of HEXO pursuant to a plan of arrangement under the Business Corporations Act (Ontario) (the \u201cArrangement\u201d). This transaction builds on the successful strategic alliance between the two companies and positions Tilray for continued strong growth and market leadership in Canada, the largest federally legal cannabis market in the world. We closed the acquisition of HEXO on June 22, 2023.\n\n\n\u00a0\n\n\n\u00a0\n\n\nOur Strategy and Outlook \n\n\n\u00a0\n\n\nOur overall strategy is to leverage our brands, infrastructure, expertise and capabilities to drive market share in the industries in which we compete, achieve industry-leading, profitable growth and build sustainable, long-term shareholder value. In order to ensure the long-term sustainable growth of our Company, we continue to focus on developing strong capabilities in consumer insights, drive category management leadership and assess growth opportunities with the introduction of new products and entries into new geographies. In addition, we are relentlessly focused on managing our cost of goods and expenses in order to maintain our strong financial position. Finally, our experienced leadership team provides a strong foundation to accelerate our growth. Our management team is complemented by experienced operators, cannabis industry experts, veteran beer and beverage industry leaders and leaders that are well-established in wellness foods, all of whom apply an innovative and consumer-centric approach to our businesses.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       4\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nTo achieve our vision of building the leading global cannabis-lifestyle and consumer packaged goods company that is changing people\u2019s lives for the better \u2013 one person at a time \u2013 by inspiring and empowering the worldwide community to live their very best life, we will focus on the following strategies:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nBuild global brands that lead in their respective industries by winning the hearts and minds of our consumers and patients\n.\u00a0We have a portfolio of marketing leading brands, which are beloved and trusted by our consumers and patients.\u00a0 Through this extensive portfolio, we seek to continue to build loyalty by providing our consumers and patients with a differentiated and expanded portfolio designed to meet their needs and desires, driven by research and insights.\u00a0\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nDevelop innovative products and form factors that change the way the world consumes cannabis.\n\u00a0We plan to continue to develop innovative products that possess the most consumer demand and are truly differentiated from our competitors, while optimizing our cultivation and production facilities. We will continue to invest in innovation in order to continue to provide our patients and consumers with a differentiated portfolio of products that exceeds their expectations and meets their needs.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nGrow and leverage our investment in craft beer, spirits and hemp-based food\n.\n\u00a0\u00a0Within the U.S., our strategic acquisitions of beverage alcohol businesses are the cornerstone of our longer-term U.S. strategy and an important step towards achieving our vision to change people's lives for the better by inspiring and empowering the worldwide community to live their very best life.\u00a0\u00a0In addition to acquiring strong brands and profitable businesses, our strategic investments in beverage alcohol and food in the U.S. provides us with a platform and infrastructure within the U.S. to enable us to access the U.S. market more quickly in the event of federal legalization.\u00a0\u00a0In advance of federal legalization, we are focused on leading the craft beer segment, including growing our SweetWater, Alpine, Green Flash and, most recently, Montauk brands by bringing new consumers into the segment focusing on new product development and innovation that delights our consumers and building brand awareness.\u00a0\u00a0We have also diversified our presence in the beverage alcohol space through the purchase of Breckenridge, known for its award-winning bourbon whiskey collection and innovative craft spirits portfolio.\u00a0\u00a0In addition to driving growth in our beverage alcohol businesses, we also seek to drive growth in our Tilray Wellness platform, which currently consists of our Manitoba Harvest brand and other hemp-based food and ingredients products by leveraging our consumer insights and consumer marketing activities, new product development as well as educating the consumer on the benefits from hemp-based foods. In the event of federal legalization in the U.S., we expect to be well-positioned to compete in the U.S. cannabis market given our existing strong brands and distribution system in addition to our track record of growth in consumer-packaged goods and cannabis products.\u00a0 Until federal legalization, we intend to continue to diversify and grow our businesses while maximizing their profitability.\u00a0 \u00a0\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nExpand the availability of high quality, consistent medical cannabis products for patients around the world, wherever they are legal.\n\u00a0Since 2014, we have seen an increase in the demand for medical cannabis from both patients, doctors and governments in conjunction with a shift in the medical community, which is increasingly recognizing medical cannabis as a viable option for the treatment of patients suffering from a variety of health conditions. We area focused on driving availability to high-quality medical cannabis that is accessible to all. Internationally, we have made significant investments in our operations within Europe and we are well-positioned to pursue international growth opportunities with our strong medical cannabis brands, distribution network in Germany with CC Pharma, and end-to-end European Union Good Manufacturing Practices (\u201cEU-GMP\u201d) supply chain, which includes EU-GMP production facilities in Portugal and Germany. We intend to continue to maximize the utilization of our existing assets and investments in connection with the development and execution of our international growth plans, while leveraging our cannabis expertise and well-established medical brands. Through our well positioned cultivation facilities in Portugal and Germany, we intend to fuel the demand for our EU GMP certified medical grade cannabis internationally. By building on this foundation, we strive to maintain our leadership position in the international cannabis industry.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nOptimize and drive efficiencies in our global operations with a relentless focus on cost reduction and cash generation.\n\u00a0\n \n\u00a0In each of our pillars, we continuously evaluate our cost structure for efficiencies and synergies and eliminate cost when warranted.\u00a0 In cannabis, our state-of-the-art facilities are among the lowest cost production operations with the capabilities to produce a complete portfolio of form factors and products, including flower, pre-roll, capsules, vapes, edibles and beverages.\u00a0\u00a0\u00a0This approach has permitted us to maintain a strong, flexible balance sheet, cash balance and access to capital, which we believe will assist us to accelerate growth and deliver long-term sustainable value for our stockholders.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       5\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nReportable Segments\n\n\n\u00a0\n\n\nOur business consists of four reporting segments, which are defined by the industry in which we compete, target consumer and need, route to market, and margins.\u00a0\u00a0This enables us to track and measure our performance and build processes for repeatable success in each of these categories. Our defined reporting segments align with how our Chief Operating Decision Maker (\u201cCODM\u201d) evaluates and manages our business, including resource allocation and performance assessment.\u00a0\u00a0We report our operating results in four reportable segments:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nCannabis business\n\u00a0\u2013\u00a0Cultivation, production, distribution and sale of both medical and adult-use cannabis products\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nDistribution business\n\u00a0\u2013\u00a0Purchase and resale of pharmaceutical and wellness products\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nBeverage alcohol business\n\u00a0\u2013\u00a0Production, marketing and sale of beverage alcohol products\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nWellness business\n\u00a0\u2013\u00a0Production, marketing and distribution of hemp-based food and other wellness products\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nRevenue in these four reportable business segments, and the year over year comparison, is as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYear Ended\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% of Total\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYear Ended\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% of Total\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYear Ended\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% of Total\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(In thousands of U.S. dollars)\n \n\n\n\u00a0\n\n\n \nMay 31, 2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nRevenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nMay 31, 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nRevenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nMay 31, 2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nRevenue\n \n\n\n\u00a0\n\n\n\n\n\n\n \nCannabis business\n \n\n\n\u00a0\n\n\n$\n\n\n220,430\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n237,522\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n201,392\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n39\n\n\n%\n\n\n\n\n\n\n \nDistribution business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n258,770\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n259,747\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n277,300\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n54\n\n\n%\n\n\n\n\n\n\n \nBeverage alcohol business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n95,093\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n71,492\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,599\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n%\n\n\n\n\n\n\n \nWellness business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n52,831\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,611\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,794\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n%\n\n\n\n\n\n\n \nTotal net revenue\n \n\n\n\u00a0\n\n\n$\n\n\n627,124\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n628,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n513,085\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nRevenue in these four reportable business segments as reported in constant currency\n1\n, and the year over year comparison, is as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYear Ended\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYear Ended\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nMay 31, 2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nMay 31, 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n(In thousands of U.S. dollars)\n \n\n\n\u00a0\n\n\n \nas reported in constant currency\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% of Total Revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nas reported in constant currency\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% of Total Revenue\n \n\n\n\u00a0\n\n\n\n\n\n\n \nCannabis business\n \n\n\n\u00a0\n\n\n$\n\n\n233,227\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n237,522\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n38\n\n\n%\n\n\n\n\n\n\n \nDistribution business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n285,115\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n43\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n259,747\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41\n\n\n%\n\n\n\n\n\n\n \nBeverage alcohol business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n95,093\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n71,492\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\n\n\n\n \nWellness business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n54,429\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,611\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\n\n\n\n \nTotal net revenue\n \n\n\n\u00a0\n\n\n$\n\n\n667,864\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n628,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nRevenue from our cannabis operations from the following sales channel and the year over year comparison is as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYear Ended\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% of Total\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYear Ended\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% of Total\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYear Ended\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% of Total\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(In thousands of U.S. dollars)\n \n\n\n\u00a0\n\n\n \nMay 31, 2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nRevenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nMay 31, 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nRevenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nMay 31, 2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nRevenue\n \n\n\n\u00a0\n\n\n\n\n\n\n \nRevenue from Canadian medical cannabis\n \n\n\n\u00a0\n\n\n$\n\n\n25,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n30,599\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n25,539\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\n\n\n\n \nRevenue from Canadian adult-use cannabis\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n214,319\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n97\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n209,501\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n88\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n222,930\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n110\n\n\n%\n\n\n\n\n\n\n \nRevenue from wholesale cannabis\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,436\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,904\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,615\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\n\n\n\n \nRevenue from international cannabis\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n43,559\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n53,887\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,250\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n%\n\n\n\n\n\n\n \nLess excise taxes\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(63,884\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-29\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(63,369\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-27\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(62,942\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-31\n\n\n%\n\n\n\n\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n$\n\n\n220,430\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n237,522\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n201,392\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       6\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nRevenue from our cannabis operations from the following sales channel\u00a0as reported in constant currency\n1\n and the year over year comparison is as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYear Ended\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYear Ended\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nMay 31, 2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nMay 31, 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n(In thousands of U.S. dollars)\n \n\n\n\u00a0\n\n\n \nas reported in constant currency\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% of Total Revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nas reported in constant currency\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% of Total Revenue\n \n\n\n\u00a0\n\n\n\n\n\n\n \nRevenue from Canadian medical cannabis\n \n\n\n\u00a0\n\n\n$\n\n\n26,612\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n30,599\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\n\n\n\n \nRevenue from Canadian adult-use cannabis\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n225,694\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n97\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n209,501\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n88\n\n\n%\n\n\n\n\n\n\n \nRevenue from wholesale cannabis\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,529\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,904\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\n\n\n\n \nRevenue from international cannabis\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n47,434\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n53,887\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23\n\n\n%\n\n\n\n\n\n\n \nLess excise taxes\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(68,042\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-29\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(63,369\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-27\n\n\n%\n\n\n\n\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n$\n\n\n233,227\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n237,522\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \n(1)\n \n\n\n \nThe constant currency presentation of our Cannabis revenue based on market channel is a non-GAAP financial measure.\n\u00a0\nSee\n\u00a0\u201c\nUse of Non-GAAP Measures\n\u00a0\u2013\nConstant Currency Presentation\n\u201d\u00a0\nfor a discussion of these Non-GAAP Measures.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur Brands and Products \n\n\n\u00a0\n\n\nOur brand and product strategy centers on developing a broad portfolio of differentiated brands and products designed to appeal to diverse groups of patients and consumers driven by research and insights. Our brand and product activities are designed to comply with all local regulations and requirements, including applicable labelling and marketing restrictions.\n\n\n\u00a0\n\n\nOur Medical Cannabis Brands\n\n\n\u00a0\n\n\nWe were among the first companies to be permitted to cultivate and sell legal medical cannabis. Today, we supply high-quality medical cannabis products to tens of thousands of patients in over 21 countries spanning five continents through our global subsidiaries, and through agreements with established pharmaceutical distributors.\u00a0 Tilray Medical is dedicated to transforming lives and fostering dignity for patients in need through safe and reliable access to a global portfolio of medical cannabis brands, including Tilray, Aphria, Broken Coast, Symbios, Navcora, and Charlotte's Web. Tilray grew from being one of the first companies to become an approved licensed producer of medical cannabis in Canada to building the first GMP-certified cannabis production facilities in Europe, first in Portugal and later in Germany. Today, Tilray Medical is one of the largest suppliers of medical cannabis brands to patients, physicians, hospitals, pharmacies, researchers, and governments, in 21 countries and across five continents.\u00a0\u00a0Our medical cannabis brands consist of:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nTilray\u00ae\n - The Tilray brand is a medical cannabis brand designed for prescribers and patients in the global medical market by offering a wide range of high-quality, consistent pharmaceutical-grade medical cannabis and cannabinoid-based products.\u00a0\u00a0We believe patients and prescribers choose the Tilray brand because of our rigorous quality standards and the brand is a trusted, scientific based brand known for its medical-grade products. In Canada, Tilray has also partnered with Indiva to carry a wider array of product offerings, specifically in the edibles category, through its medical platform to better serve the interests of our patients.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nAphria\u00ae\n- Since 2014, the Aphria brand is a leading, trusted choice for Canadian patients seeking high quality pharmaceutical-grade medical cannabis. Today, the Aphria brand continues to be a leading brand in Canada and, we will continue to leverage its market leadership as we develop our medical cannabis markets internationally under the Aphria brand.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nBroken Coast\u00ae\n\u00a0- Medical cannabis products under the Broken Coast brand are grown in small batches in single-strain rooms, with a commitment to product quality in order to meet our Canadian patient expectations. Subsequent to the year-ended May 31, 2023, the Company completed its first shipment of Broken Coast product to Australia where the reputation and quality of the flower makes it a highly sought after product in this market.\u00a0\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       7\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nSymbios\u00ae\n\u00a0- Launched in 2021, Symbios was developed to provide Canadian patients with a broader spectrum of formats and unique cannabinoid ratios at a better price point while offering a full comprehensive assortment of products, including flower, oils, and pre-rolls.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nNavcora\u00ae \n- Launched in 2020, Navcora is dedicated to making pharmaceutical grade cannabis more accessible and reliable in the German market. The Navcora brand is complementary to our existing Tilray medical brand, and is designed to increase our points of distribution in the German medical cannabis market.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nCharlotte's Web\nTM\n - During the\u00a0year, the Company entered into a strategic alliance which includes licensing, manufacturing, quality, marketing and distribution for Charlotte\u2019s Web\nTM\n\u00a0CBD hemp extract products in Canada. For the first time, Canadians will have the ease of nationwide availability of Charlotte\u2019s Web\nTM\n\u00a0full spectrum CBD products through Tilray\u2019s medical cannabis distribution network. While no shipments were completed during the fiscal year, production commenced and the Company anticipates the first sale to be in the first half of fiscal year 2024.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe are committed to meeting the needs of our patients whether they are looking for more natural options for their medical needs, exploring their options in wellness, or seeking alternatives in their lifestyle. Accessibility is a top priority for Tilray. We are committed to ensuring patients have access to the medication they depend on through a strong supply chain and dedicated support through our dedicated patient care teams. Our product lines focus on active ingredients and standardized, well-defined preparation methods. We use formulations and delivery formats that are intended to allow for consistent and measured dosing, and we test all our products for potency and purity. Each of our commercial products are developed with comprehensive analysis and thorough documentation.\n \n\n\n\u00a0\n\n\nWe take a scientific approach to our medical-use product development which we believe establishes credibility and trust in the medical community. We produce products that are characterized by well-defined and reproducible cannabinoid and terpene content, formulated for stable pharmacokinetic profiles, which are customizable in a variety of formulations. We continue to conduct extensive research and development activities and develop and promote new products for medical use.\u00a0\u00a0\n\n\n\u00a0\n\n\nOur Adult-Use Cannabis Brands \n\n\n\u00a0\n\n\nWe are a leader in the recreational adult-use market in Canada where we offer a broad-based portfolio of adult-use brands and products and continue to expand our portfolio to include new innovative cannabis products and formats. We maintain agreements to supply all Canadian provinces and territories with our adult-use products for sale through their established retail distribution systems. We believe that our differentiated portfolio of brands, which is designed to resonate with consumers in all categories, sets us apart from our competitors and is providing us with the ability to establish a leading position in the adult-use market in Canada. Therefore, we are investing in brand building with our consumers, new product innovation, insights, distribution, trade marketing and cannabis education to drive market share in the Canadian adult-use cannabis industry.\n\n\n\u00a0\n\n\nWe believe that our portfolio of brands, developed for consumers across broad demographics and targeted segments, remains unmatched in the industry. With a focus on brand building, innovation, loyalty and conversion, we seek to drive growth with our differentiated portfolio of brands and products, both in sales and market share across categories. The Company is investing capital and resources to establish a leadership position in the adult-use market in Canada. These investments are focused on brand building with consumers, product innovation, distribution, trade marketing and cannabis education. Our strategy is to develop a brand focused portfolio that resonates with consumers in all category segments.\n\n\n\u00a0\n\n\nWe are positioned to grow our adult-use brand portfolio to specifically meet the needs and preferences of different consumer segments of the adult-use cannabis market. We leverage our selection of strains to offer each consumer segment a different experience through its product and terpene profiles, while also focusing on the value proposition for each of these segments as it relates to price, potency and product assortment.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       8\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nEach brand is unique to a specific consumer segment and designed to meet the needs of these targeted segments, as described below. Our portfolio of brands and products and our marketing activities have been carefully curated and structured to enable us to develop and promote our brands and product lines in an effective and compliant manner. We continue to develop additional brands and new products, such as edibles and beverages, with more innovative products in our pipeline. Our brand portfolio consists of the following:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nECONOMY BRANDS\n \n\n\n\n\n\n\n \nB!NGO\n \n\n\n \nB!NGO is like a nice cold beer on a summer\u2019s day. Our products hit the spot and gives consumers that little something that lets them enjoy the moment.\n \nIt\u2019s the everyday companion that keeps it light and simple.\n \n\n\n\n\n\n\n \nThe Batch\n \n\n\n \nA no-frills cannabis value brand focused on delivering quality cannabis flower and pre-rolls at competitive prices. The Batch categorizes its product offering by potency rather than cultivar, allowing us to offer quality cannabis at prices that beat the illicit market.\n \n\n\n\n\n\n\n \nVALUE BRANDS\n \n\n\n\n\n\n\n \nDubon\n \n\n\n \n\u201cThe good stuff\u201d, a vibrantly Qu\u00e9b\u00e9cois cannabis brand and champion of inspired, creative living. Dubon offers master-crafted cannabis cultivars as whole flower and pre-rolls, exclusively available in Qu\u00e9bec.\n \n\n\n\n\n\n\n \nCORE BRANDS\n \n\n\n\n\n\n\n \nGood Supply\n \n\n\n \nQuality Bud, No B.S.\u00a0\u00a0Good Supply is brand that embraces the goodness of classic cannabis culture \u2013\u00a0it speaks your language and reminds you of when you first fell in love with cannabis.\n \n\n\n\n\n\n\n \nSolei Sungrown Cannabis (\n\u201c\nSolei\n\u201d\n)\n \n\n\n \nSolei is a brand designed to embrace the bright Moments in your day. Solei\u2019s Moments-based products help to make cannabis simple, approachable and welcoming.\n \n\n\n\n\n\n\n \nChowie Wowie\n \n\n\n \nAn edibles\u2019\u00a0brand bringing the \u2018wow\u2019\u00a0with perfectly crafted fusions of flavor offered in an array of reliably dosed cannabis-infused chocolates and gummies in THC and CBD varieties.\n \n\n\n\n\n\n\n \nCanaca\n \n\n\n \nA brand that proudly builds on its homegrown heritage with cannabis whole flower, pre-rolls, oil products and pure cannabis vapes handcrafted by and for Canadian cannabis enthusiasts. Our plants are sourced in BC and expertly cultivated in Ontario for homegrown, down-to-earth quality that\u2019s enjoyed across Canada.\n \n\n\n\n\n\n\n \nPREMIUM BRANDS\n \n\n\n\n\n\n\n \nRIFF\n \n\n\n \nRIFF is not your conventional cannabis brand. It is a brand by creatives for creatives. An unconventional brand, fueled by creativity and collaboration\n \n\n\n\n\n\n\n \nPREMIUM + BRANDS\n \n\n\n\n\n\n\n \nBroken Coast\n \n\n\n \nWest Coast, Naturally.\u00a0\u00a0Broken Coast relies on small batch growing techniques / craft approach with a reputation for its high-quality flower, aroma, bud composition, and heavy trichome appearance that delivers an incredible experience.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur Wellness Brands\n\n\n\u00a0\n\n\nOur Tilray Wellness segment primarily consists of the Manitoba Harvest branded hemp-based food business, which develops, manufactures, markets and distributes a diverse portfolio of hemp-based food and wellness products under various brands, which include Manitoba Harvest, Hemp Yeah!, Just Hemp Foods, and Happy Flower. Manitoba Harvest products are sold in major retailers across the U.S. and Canada.\n\n\n\u00a0\n\n\nOur Beverage Alcohol and Spirits Brands\n\n\n\u00a0\n\n\nWe are also a major player in the craft alcohol and beverage business through SW Brewing Company, LLC (\u201cSweetWater\u201d), the 9th largest craft brewery in the United States according to the Brewers Association.\u00a0 Founded in 1997, SweetWater has broad consumer appeal and has established strong distribution across the United States.\u00a0 From its state-of-the-art breweries in Atlanta, Georgia and Colorado, SweetWater produces a balanced variety of year-round and seasonal specialty craft brews, under the SweetWater Green Flash, Alpine and Montauk brands. The Company also operates in the craft spirits businesses through Breckenridge Distillery, which was founded in 2008 as a small craft spirits brand in Breckenridge, Colorado but has since grown its award-winning bourbon whiskey collection and innovative craft spirits portfolio to be distributed in all 50 states in addition to owning two tasting rooms/retail shops and a world class restaurant.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       9\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur beverage alcohol brands include:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nSweetWater\n\u00a0\u2013 The 9th\u00a0largest craft brewery in the United States according to the Brewers Association has created an award-winning lineup of year-round, seasonal and specialty beers under a portfolio of brands closely aligned with a cannabis lifestyle, which include the flagship 420 alcoholic beverage offerings, its SweetWater Spirits, a new collection of\u00a0bright and refreshing ready-to-drink mixed cocktails in a can and our newest innovation SweetWater Gummies, a fruit forward 9.5% ABV of refreshing double IPA. We believe the SweetWater product offerings, including the new Red White and Blue American Lager resonate across all consumer\u2019s that want to drink flavorful and refreshing products and that it will be a staple at backyard barbecues, tailgates, and get-togethers. We also continue to be innovative with our 420 Strain G13 IPA, which plays a critical role in our portfolio and resonates as a cannabis lifestyle brand. SweetWater\u2019s various 420 strains of craft brews use plant-based terpenes and natural hemp flavors that, when combined with select hops, emulate the flavors and aromas of popular cannabis strains to appeal to a loyal consumer base.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nBreckenridge Distillery \n\u2013\n\u00a0\nA highly sought-after and award-winning brand widely known for its blended bourbon whiskey and its collection of artisanal spirits including vodka and gin that brings to life the best that Colorado has to offer. Breckenridge continues to be\u00a0one of the most awarded craft distilleries in the U.S.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nAlpine Beer Company \n\u2013\n \nAn award-winning craft brand founded in 1999, and is rated a top 50 brand in the United States with highly-rated favorites including Nelson IPA and Duet IPA. We recently launched Infinite Haze, a brilliant Hazy IPA bursting with endless aromas of citrus and sweet, tropical fruits which complement our existing product offerings that make up our highly acclaimed year-round lineup.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nGreen Flash \n\u2013\n \nAn award-winning, independently owned and operated craft brand founded in 2002 to bring fresh ideas and a sense of adventure to craft beer. Green Flash delivers an eclectic lineup of specialty craft beers and distributes them throughout the west. Our staple brand, West Coast IPA, as well as our newly launched Hazy West Coast IPA, continue to excite consumers across the west coast. Green Flash has now created a variety 12-pack that takes the best of the west and the east to make an exciting and adventurous consumer experience.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nMontauk\u00a0\n\u2013\n \nAs the #1 craft brewer in Metro New York. Montauk\u00a0is well-known for its beloved product portfolio, premium price point, and distribution across over 6,400 points of distribution. Wave Chaser IPA is a staple of Montauk and has expanded into The Surf Beer, a Golden Ale, Tropical IPA, Juicy IPA and Eastern Haze a Hazy IPA. We have also launched Project 4:20, a terpene flavored beer with earthy aromas which is focused on giving back to local green charities. Montauk\u2019s brand reach has predominantly been in New York City, Long Island, and northern New Jersey, but has now been expanded into Connecticut, Rhode Island, Upstate New York, Pennsylvania and the remainder of New Jersey. \u00a0\u00a0\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur Operations\n\n\n\u00a0\n\n\nThrough our cannabis reporting segment, we have invested in state-of-the-art facilities and infrastructure, and we believe that we maintain some of the highest-quality, lowest cost cannabis production operations in Canada, with the scale and distribution network that differentiates us from our competitors in the industry. We also made significant investments in our operations within Europe and we are well-positioned to pursue international growth opportunities with our strong medical cannabis brands, distribution network in Germany, and end-to-end European Union Good Manufacturing Practices (\u201cEU-GMP\u201d) supply chain, which includes EU-GMP production facilities in Portugal and Germany.\u00a0\u00a0We seek to continue to invest in the expansion of our global supply chain to address the unmet needs of patients around the world.\n\n\n\u00a0\n\n\nWe currently maintain key international operations in Portugal, Germany, Italy, United Kingdom, Australia, New Zealand and Argentina as well as strategic relationships in Denmark, Luxembourg and Poland. In establishing our international footprint, we sought to create operational hubs in those continents where we identified the biggest opportunities for growth and designed our operations to ensure consistent, high-quality supply of cannabis products as well as a distribution network.\u00a0\u00a0While these markets are still at various stages of development, and the regulatory environment around them is either newly formed or still being formed, we are uniquely positioned to bring the knowledge and expertise gained in Canada and leverage our operational footprint in order to generate profitable growth in these geographies.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       10\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn beverage alcohol, we have state-of-the-art breweries in Atlanta, Georgia, Fort Collins, Colorado and New York from which SweetWater and Montauk produce\u00a0a balanced variety of year-round and seasonal specialty craft brews under the SweetWater, Alpine,\u00a0Green Flash and Montauk brands as well as Breckenridge Distillery, the world\u2019s highest distillery, located in Breckenridge, Colorado. Most recently, the Company entered into a new partnership with\u00a0Mercedes-Benz Stadium\u00a0and is opening two new SweetWater branded bars at Atlanta\u2019s premier sports and entertainment venue, which is home to the NFL\u2019s\u00a0Atlanta Falcons\u00a0and Atlanta United of\u00a0Major League Soccer.\u00a0\n\n\n\u00a0\n\n\nLastly, in Wellness, we own two BRC accredited facilities located in Manitoba, Canada that are dedicated to hemp processing and packaging Manitoba Harvest, Just Hemp Foods, and Hemp Yeah! Branded products including hulled hemp seeds, hemp oil, and hemp protein.\n\n\n\u00a0\n\n\nDistribution \n\n\n\u00a0\n\n\nCanadian Adult-use Market\n\n\n\u00a0\n\n\nUnder the Canadian legislative regime, provincial, territorial and municipal governments have the authority to prescribe regulations regarding retail and distribution of\u00a0adult-use\u00a0cannabis. As such, the distribution model for\u00a0adult-use\u00a0cannabis is prescribed by provincial regulations and differs from province to province. Some provinces utilize government run retailers, while others utilize government-licensed private retailers, and some a combination of the two. All of our\u00a0adult-use\u00a0sales are conducted according to the applicable provincial and territorial legislation and through applicable local agencies.\u00a0\n\n\n\u00a0\n\n\nThrough our subsidiaries, Aphria and High Park Holdings Ltd. (\u201cHigh Park\u201d), we maintain supply agreements for\u00a0adult-use\u00a0cannabis with all the provinces and territories in Canada.\u00a0\n\n\n\u00a0\n\n\nTilray is party to a distribution agreement with Great North Distributors to provide sales force and wholesale/retail channel expertise required to efficiently distribute our adult-use products through each of the provincial/territorial cannabis control agencies, excluding\u00a0Quebec. We also engage Rose Life Sciences Ltd. as our sale agent exclusively for the Province of Quebec, representing our entire brand portfolio.\n\n\n\u00a0\n\n\nCanadian Medical Market\n\n\n\u00a0\n\n\nIn Canada, Tilray Medical operates a direct to patient distribution model and online platform for patients to effectively and efficiently manage the process of registering and ordering medical products from Tilray Medical\u2019s full portfolio of medical brands including Tilray, Aphria, Broken Coast, Symbios and Charlotte's Web\nTM\n.\n\n\n\u00a0\n\n\nInternational Medical Markets\n\n\n\u00a0\n\n\nTilray Medical currently offers broad access to medical cannabis products in legal medical markets across Europe, Australia, New Zealand and Latin America. Our global portfolio of medical cannabis products includes high-quality and GMP-certified flower and extracts. Through our various subsidiaries and partnerships with distributors, our medical products are available to patients in 21 countries on 5 continents, which include the following international distribution channels:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nCC Pharma, our wholly-owned subsidiary, is a leading importer and distributor of pharmaceuticals\u00a0for the German market and we are leveraging its distribution network in Germany for medical cannabis.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nOur products are also distributed by multiple wholesalers and directly to pharmacies in Germany. As a result, we are able to fulfill prescriptions for our medical cannabis products throughout Germany.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nWe import and distribute compliant medical cannabis products into other international markets, including Italy,\u00a0Poland, Czech Republic, Switzerland, United Kingdom, Portugal, Croatia, Malta, Ireland and Luxembourg.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nIn Argentina, ABP, S.A., our wholly-owned subsidiary, distributes medical cannabis throughout Argentina under the Argentinian \u201cCompassionate Use\u201d\u00a0national law, which allows patients with refractory epilepsy, holding a medical prescription from a neurologist, to apply for special access to imported medical cannabis products.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       11\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWholesale\n\n\n\u00a0\n\n\nIn Canada, we are authorized to sell wholesale bulk and finished cannabis products to other licensees under the Cannabis Regulations. The bulk wholesale sales and distribution channel requires minimal selling, administrative, and fulfillment costs. Our focus on the right strain assortment, quality of flower, extraction capabilities and processing, enables us to drive wholesale channel opportunities for revenue growth.\u00a0\n\n\n\u00a0\n\n\nChanges in the Canadian market continue to result in more competitors moving towards an asset light model through the rationalization of cultivation facilities. As this transition occurs, the Company anticipates demand for its saleable flower to increase, providing new opportunities in the wholesale channel.\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nWe also intend to expand our capabilities outside of saleable flower, as our quality of extraction processes continue to grow into new categories including the latest in cannabis 3.0 products. We plan to be selective in choosing partners, with the intent to secure supply agreements to further optimize and drive efficiency within our supply chain and operations.\u00a0 While we intend to pursue wholesale sales channels as part of our growth strategies in Canada, these sales will continue to be used to aid in balancing inventory levels.\n\n\n\u00a0\n\n\nWellness Sales and Distribution\n\n\n\u00a0\n\n\nOur wellness sales consist of hemp and other hemp-based food products, which are sold to retailers, wholesalers, and direct to consumers. We are a leading provider of hemp seeds and related food products that are sold in over 21,000 retail locations in the United States and Canada and available globally in 18 countries.\n\n\n\u00a0\n\n\nBeverage Alcohol Sales and Distribution\n\n\n\u00a0\n\n\nIn the U.S., our craft beer, including SweetWater, Alpine, Green Flash and Montauk, are distributed under a three-tier model utilized for beverage alcohol. Distribution points include approximately 29,000 off-premises retail locations ranging from independent bottle shops to national chains. SweetWater\u2019s significant on-premises business allows consumers to enjoy its varietals in more than 10,000 restaurants and bars. Further, in addition to its traditional distribution footprint, SweetWater Elevated HAZY IPA and 420 Strain series are served on all Delta Air Lines flights nationwide plus internationally, totaling more than 50 countries across six continents which have served to extend SweetWater\u2019s brand reach on both a national and international level. The Company supplements this distribution with Delta Air Lines through a kiosk in Atlanta\u2019s Hartsfield-Jackson Airport and secured access to distribute through an on-premises location at the Denver International Airport. SweetWater is also available in Canada through limited distribution within Ontario and Quebec. Montauk is distributed across over 6,400 points of distribution, including many of the\u00a0top national retailers. In addition, our craft spirit brands from Breckenridge are distributed in all 50-states, and in two on-premises tasting and retail store locations. Breckenridge is also distributed in 8 different countries, including Canada, Germany, UK, Macau, Australia, New Zealand, and Singapore, with the intention of further expanding our international distribution.\n\n\n\u00a0\n\n\nRegulatory Environment \n\n\n\u00a0\n\n\nCanadian Medical and Adult-Use \n\n\n\u00a0\n\n\nMedical and adult-use cannabis in Canada is regulated under the federal \nCannabis Act\n (Canada) (the \u201cCannabis Act\u201d) and the Cannabis Regulations (\u201cCR\u201d) promulgated under the Cannabis Act. Both the Cannabis Act and CR came into force in October 2018, superseding earlier legislation that only permitted commercial distribution and home cultivation of medical cannabis. The following are the highlights of the current federal legislation:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \na federal license is required for companies to cultivate, process and sell cannabis for medical or non-medical purposes. Health Canada, a federal government entity, is the oversight and regulatory body for cannabis licenses in Canada;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nallows individuals to purchase, possess and cultivate limited amounts of cannabis for medical purposes and, for individuals over the age of 18 years, for adult-use recreational purposes;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nenables the provinces and territories to regulate other aspects associated with recreational adult-use. In particular, each province or territory may adopt its own laws governing the distribution, sale and consumption of cannabis and cannabis accessory products, and those laws may set lower maximum permitted quantities for individuals and higher age requirements;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       12\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \npromotion, packaging and labelling of cannabis is strictly regulated. For example, promotion is largely restricted to the place of sale and age-gated environments (\ni.e.,\n\u00a0environments with verification measures in place to restrict access to persons of legal age). Promotions that appeal to underage individuals are prohibited;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nsince the current federal regime came into force on October 17, 2018, certain classes of cannabis, including dried cannabis and oils, have been permitted for sale into the medical and adult-use markets;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nfollowing amendments to the CR that came into force on October 17, 2019 (often referred to as Cannabis 2.0 regulations), other non-combustible form-factors, including edibles, topicals, and extracts (both ingested and inhaled), are permitted in the medical and adult-use markets;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nexport is restricted to medical cannabis, cannabis for scientific purposes, and industrial hemp; and\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nsale of medical cannabis occurs on a direct-to-patient basis from a federally licensed provider, while sale of adult-use cannabis occurs through retail-distribution models established by provincial and territorial governments.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAll provincial and territorial governments have, to varying degrees, enacted regulatory regimes for the distribution and sale of recreational adult-use cannabis within their jurisdiction, including minimum age requirements. The retail-distribution models for adult-use cannabis varies nationwide:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nQuebec, New Brunswick, Nova Scotia and Prince Edward Island adopted a government-run model for retail and distribution;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nOntario, British Columbia, Alberta, and Newfoundland and Labrador adopted a hybrid model with some aspects, including distribution and online retail being government-run while allowing for private licensed retail stores;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nManitoba and Saskatchewan adopted a private model, with privately-run retail stores and online sales, with distribution in Manitoba managed by the provincial government;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nthe three northern territories of Yukon, Northwest Territories and Nunavut adopted a model that mirrors their government-run liquor distribution model.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn addition, the cannabis industry is subject to substantial federal and provincial excise taxes. Excise taxes may be increased in the future by the federal or any provincial government or both.\n\n\n\u00a0\n\n\nUnited States Regulation of Hemp-Based CBD\n\n\n\u00a0\n\n\nHemp products are subject to state and federal regulation in respect to the production, distribution and sale of products intended for human ingestion or topical application. Hemp is categorized as Cannabis sativa L., a subspecies of the cannabis genus. Numerous unique, chemical compounds are extractable from Hemp, including CBD. Hemp, as defined in the Agriculture Improvement Act of 2018 (the \u201c2018 Farm Bill\u201d), is distinguishable from marijuana, which also comes from the Cannabis sativa L. subspecies, by its absence of more than trace amounts (0.3% or less) of the psychoactive compound THC.\u00a0\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       13\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe 2018 Farm Bill preserves the authority and jurisdiction of the Food and Drug Administration (the \u201cFDA\u201d), under the Food Drug & Cosmetic Act (the \u201cFD&C Act\u201d), to regulate the manufacture, marketing, and sale of food, drugs, dietary supplements, and cosmetics, including products that contain Hemp extracts and derivatives, such as CBD. As a result, the FD&C Act will continue to apply to Hemp-derived food, drugs, dietary supplements, cosmetics, and devices introduced, or prepared for introduction, into interstate commerce. The 2018 Farm Bill has also enabled production of hemp seed in the U.S. and the FDA approved these products for sale as a food by acknowledging them as GRAS (Generally Recognized as Safe). As a producer and marketer of Hemp-derived products and hemp seed-derived food products, the Company must comply with the FDA regulations applicable to manufacturing and marketing of certain products, including food, dietary supplements, and cosmetics. \u00a0\n\n\n\u00a0\n\n\nAs a result of the 2018 Farm Bill, federal law dictates that CBD derived from Hemp is not a controlled substance; however, CBD derived from Hemp may still be considered a controlled substance under applicable state law. Individual states take varying approaches to regulating the production and sale of Hemp and Hemp-derived CBD. Some states explicitly authorize and regulate the production and sale of Hemp-derived CBD or otherwise provide legal protection for authorized individuals to engage in commercial Hemp activities. Other states, however, maintain drug laws that do not distinguish between marijuana and Hemp and/or Hemp-derived CBD which results in Hemp being classified as a controlled substance under certain state laws.\u00a0\u00a0\n\n\n\u00a0\n\n\nEuropean Union Medical Use \n\n\n\u00a0\n\n\nWhile each country in the European Union (\u201cEU\u201d) has its own laws and regulations, many common practices are being adopted relative to the developing and growing medical cannabis market. For example, to ensure quality and safe products for patients, many EU countries only permit the import and sale of medical cannabis from EU-GMP certified manufacturers.\n\n\n\u00a0\n\n\nThe EU requires adherence to EU-GMP standards for the manufacture of active substances and medicinal products, including cannabis products. The EU system for certification of GMP allows a Competent Authority of any EU member state to conduct inspections of manufacturing sites and, if the strict EU-GMP standards are met, to issue a certificate of EU-GMP compliance that is also accepted in other EU member countries.\n\n\n\u00a0\n\n\nCraft Brewing in the United States\n\n\n\u00a0\n\n\nThe alcoholic beverage industry in the United States is regulated by federal, state and local governments. These regulations govern the production, sale and distribution of alcoholic beverages, including permitting, licensing, marketing and advertising. To operate their production facilities, SweetWater and Breckenridge must obtain and maintain numerous permits, licenses and approvals from various governmental agencies, including but not limited to, the Alcohol and Tobacco Tax and Trade Bureau (the \u201cTTB\u201d), the FDA, state alcohol regulatory agencies and state and federal environmental agencies. Our brewery operations are subject to audit and inspection by the TTB at any time.\n\n\n\u00a0\n\n\nIn addition, the alcohol industry is subject to substantial federal and state excise taxes.\u00a0\u00a0Excise taxes may be increased in the future by the federal government or any state government or both. In the past, increases in excise taxes on alcoholic beverages have been considered in connection with various governmental budget-balancing or funding proposals.\n\n\n\u00a0\n\n\nEnvironmental Regulation\n\n\n\u00a0\n\n\nOur cannabis, brewing and spirits operations are subject to a variety of federal, state and local environmental laws and regulations and local permitting requirements and agreements regarding, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of hazardous waste. In addition, any new products introduced by us are subject to a comprehensive environmental assessment by an independent third-party expert, including an assessment of how such products may create environmental risks.\n\n\n\u00a0\n\n\nWhile we have no reason to believe the operation of our facilities violates any such regulation or requirement, including the Clean Air Act, the Clean Water Act and the Resource Conservation and Recovery Act, environmental regulation is evolving in a manner which may require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. If a violation were to occur, or if environmental regulations were to become more stringent in the future, we could be adversely affected.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       14\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nCompetitive Conditions \n\n\n\u00a0\n\n\nCannabis Market\n\n\n\u00a0\n\n\nWe continue to face intense competition from the illicit market as well as other companies, some of which may have longer operating histories and more financial resources and manufacturing and marketing experience.\u00a0With potential consolidation in the cannabis industry, we could face increased competition by larger and better financed competitors.\n\n\n\u00a0\n\n\nGrowers of cannabis and retailers operating in the illicit market continue to hold significant market share in Canada and are effectively competitors to our business.\u00a0\u00a0Illicit market participants divert customers away through product offering, price point, anonymity and convenience.\u00a0\n\n\n\u00a0\n\n\nOutdoor cultivation also significantly reduces the barrier to entry by reducing the\u00a0start-up\u00a0capital required for new entrants in the cannabis industry. It may also ultimately lower prices as capital expenditure requirements related to growing outside are typically much lower than those associated with indoor growing. Further, the licensed outdoor cultivation capacity is extremely large. While outdoor cultivation is almost exclusively extraction grade, its presence in the market will have a negative effect on pricing of extraction grade wholesale cannabis.\n\n\n\u00a0\n\n\nAs of May 31, 2023, Health Canada has issued approximately 980 active licenses to cannabis cultivators, processors and sellers. Health Canada licenses are limited to individual properties. As such, if a licensed producer seeks to commence production at a new site, it must apply to Health Canada for a new license. As of May 31, 2023, approximately 3,700 authorized retail cannabis stores have opened across Canada. As demand for legal cannabis increases and the number of authorized retail distribution points increases, we believe new competitors are likely to enter the Canadian cannabis market. Nevertheless, we believe our brand recognition combined with the quality, consistency, and variety of cannabis products we offer will allow us to maintain a prominent position in the Canadian adult use and medical markets.\n\n\n\u00a0\n\n\nCompetition is also based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing and promotional activity, the ability to identify and satisfy consumer preferences, as well as convenience and service.\n\n\n\u00a0\n\n\nInternationally, cannabis companies are limited to those countries which have legalized aspects of the cultivation, distribution, sale or use of cannabis. We focused on developing assets in certain strategic international jurisdictions, which maintain legalized aspects of the cannabis business. We possess operational hubs in continents with significant growth opportunities and the production capability and distribution network to distribute such products throughout the region served by each hub. The barrier to entry for competitors in these jurisdictions is significantly influenced by the national regulatory landscape with respect to cannabis and the economic climate subsisting in each region.\n\n\n\u00a0\n\n\nWe expect more countries to pass regulation allowing for the use of medical and/or recreational cannabis. While expansion of the global cannabis market will provide more opportunities to grow our international business, we also expect to experience increased global competition.\n\n\n\u00a0\n\n\nCraft Brewing and Craft Distillery Markets\n\n\n\u00a0\n\n\nThrough SweetWater, Montauk\u00a0and Breckenridge, we compete in the craft brewing and distillery markets, respectively, as well as in the much larger alcohol beverage market, which encompasses domestic and imported beers, flavored alcohol beverages, spirits, wine, hard ciders and hard seltzers. With the proliferation of participants and offerings in the wider alcohol beverage market and within the craft beer and craft spirits segments, we face significant competition. There have also been numerous acquisitions and investments in craft brewers by larger breweries and private equity and other investors, which further intensified competition within the craft beer market.\u00a0\n\n\n\u00a0\n\n\nWhile the craft beer and craft spirits markets are highly competitive, we believe that we possess certain competitive advantages. Our unique portfolio combines an award-winning lineup of craft beers and craft spirits with a unique portfolio of brands closely aligned with a cannabis lifestyle, and supported by state-of-the-art breweries and distilleries and strong distribution across the United States. Additionally, as domestic breweries and distillery, we maintain certain competitive advantages over imported beers and spirits, such as lower transportation costs, a lack of import charges and superior product freshness.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       15\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nSeasonality\n\n\n\u00a0\n\n\nSweetWater\u2019s and Montauk's sales of craft beer and Breckenridge\u2019s sales of craft spirits generally reflect a degree of seasonality, with comparatively higher sales in the summer and the winter holiday season. Typically, the demand for cannabis and hemp-based products is fairly consistent throughout the calendar year, with an increase in the pre-roll cannabis category in the Canadian adult-use market during the summer months. Therefore, the results for any particular quarter may not be indicative of the results to be achieved for the full year.\n\n\n\u00a0\n\n\nEnvironmental and Social\n\n\n\u00a0\n\n\nEnvironmental\n\n\n\u00a0\n\n\nTilray recognizes the importance of climate change and the potential risks it poses to our business and the environment. We are committed to playing our part in mitigating climate change by monitoring our greenhouse gas (GHG) emissions, minimizing our environmental footprint, and promoting sustainable practices within our operations. We understand that climate change presents both risks and opportunities to our business. As a global cannabis-lifestyle and consumer packaged goods company, we recognize that climate-related risks may include changing weather patterns, water scarcity, and regulatory developments related to emissions and energy consumption. These risks can affect our supply chain, cultivation processes, and distribution networks, potentially impacting our financial performance. On the other hand, we see opportunities in adopting sustainable practices, developing innovative solutions, and embracing renewable energy sources. By proactively managing climate-related risks and identifying opportunities, we aim to enhance our resilience, reduce costs, and create long-term value for our shareholders. As such, the Company has implemented several initiatives to address climate change and promote sustainability across our operations which include:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nGHG Emissions Monitoring: We are committed to monitoring our GHG emissions by assessing energy-efficient technologies, optimizing transportation logistics, and monitoring our energy consumption.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nSupply Chain Sustainability: We are working closely with our suppliers to encourage innovative solutions to improve our environmental footprint. This includes assessing suppliers' environmental performance, promoting responsible sourcing, and supporting initiatives that enhance sustainability throughout the value chain. Specifically, in our Cannabis business we recently adopted the use of biodegradable Hemp packaging on certain products to reduce the use of single-use plastics.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nWaste Management: We have implemented waste management programs to minimize waste generation and promote recycling and reuse. Through these efforts, we strive to reduce our environmental impact and contribute to the circular economy.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nSocial\n\n\n\u00a0\n\n\nAs a socially responsible corporation, Tilray recognizes the importance of addressing the social dimensions of our operations and their impact on various stakeholders. We actively engage with the communities in which we operate, understanding that our success is intertwined with their well-being. Through donations to the Erie Shores Community Hospital in Leamington, support to our Canadian veterans and other compassionate use cannabis programs, and donations from SweetWater to\u00a0Ch8sing Waterfalls in Atlanta, a non-profit focused on empowering women of color, we aim to address local needs and contribute to social development. Additionally, the Company donated a substantial amount of medical supplies from our subsidiary CC Pharma, to the Ukraine to aid them during the existing conflict. We strive to help\u00a0inspire and empower the worldwide community to live their very best life, and build long-lasting relationships based on trust and mutual benefit.\n\n\n\u00a0\n\n\nEmployees and Human Capital Resources\n\n\n\u00a0\n\n\nOur Commitments and Values\n\n\n\u00a0\n\n\nOur vision and purpose unite, inform and inspire our employees to apply their talents to make a positive difference.\u00a0 We foster a collaborative and dynamic work environment providing all employees with the opportunity to work cross-functionally and easily gain exposure to other teams\u2019 diverse opinions and perspectives. We strive for every employee to reach their full potential and grow with Tilray.\u00a0 \u00a0\n\n\n\u00a0\n\n\nWe continue to focus on developing a culture of compliance, which includes annual training for the Company's employees on applicable corporate policies, including our Code of Conduct, Insider Trading and Trading Window Policy, Corporate Governance Guidelines and Open Door Policy for Reporting Complaints Regarding Accounting and Auditing Matters.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       16\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn an emerging and constantly evolving industry, our values unite us, informing and inspiring the way we work with one another and our patients, consumers, customers and partners. The following core values serve as our compass in our strategic direction and decisions:\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\n\n\n \nWe foster a culture of openness, inclusivity and belonging;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\n\n\n \nWe continually set the bar higher for ourselves and are resilient and adaptive in the face of change;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\n\n\n \nWe make choices rooted in the belief that transparency, integrity & accountability are at the core of all that we do; and\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u2022\n\n\n \nWe strive for excellence and are steadfast yet agile in the pursuit of our goals.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAt Tilray, we recognize that our people are our greatest asset, and we strive to create a workplace that fosters their growth, development, and wellbeing. As of May 31, 2023, we have approximately 1,600 employees worldwide. We consider relations with our employees to be good and have never experienced work stoppages. Aside from Portugal, none of our employees are represented by labor unions or are subject to collective bargaining agreements. As is common for most companies doing business in Portugal, we are subject to a government-mandated collective bargaining agreement which grants employees nominal additional benefits beyond those required by the local labor code.\n\n\n\u00a0\n\n\nOur human capital resource management approach is centered on the following key areas:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nTalent Acquisition and Development. \nWe have implemented a comprehensive talent acquisition and development program to attract, retain, and develop our employees. This includes regular performance assessments, feedback mechanisms, and opportunities for skill-building and career advancement.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nDiversity and Inclusion\n. We are committed to creating a diverse and inclusive workplace, where all employees feel valued, respected, and supported. We have globally mandated unconscious bias training, and are focused on setting strategies for increasing diversity, promoting inclusivity, and reducing biases across the organization. Diversity and inclusion is a priority for our company, and we seek out talented people from a variety of backgrounds to staff our teams in all our markets.\u00a0\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nHealth and Safety.\n We are committed to providing a safe and healthy workplace for all employees. We have implemented strict health and safety protocols, including regular safety training, ergonomic assessments, and mental health support.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nCompensation and Benefits\n. We strive to provide competitive compensation and benefits packages that align with industry standards and reflect the value that our employees bring to the organization.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nEmployee Engagement.\n We prioritize employee engagement and satisfaction, as we believe that engaged employees are more productive, innovative, and committed.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAvailable Information\n\n\n\u00a0\n\n\nOur website address is \nwww.tilray.com\n. We file or furnish annual, quarterly and current reports, proxy statements and other information with the United States Securities and Exchange Commission (\u201cSEC\u201d). You may obtain a copy of any of these reports, free of charge, from the investors section of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an Internet site that also contains these reports at: www.sec.gov. In addition, copies of our annual report are available, free of charge, on written request to us.\n\n\n\u00a0\n\n\nWe have a Code of Conduct that applies to our Board of Directors (\u201cBoard\u201d) and all of our officers and employees, including, without limitation, our Chief Executive Officer and Chief Financial Officer. You can obtain a copy of our Code of Conduct, as well as our Corporate Governance Guidelines and charters for each of the Board\u2019s standing committees, from the Investors section of our website at: \nwww.tilray.com\n. If we change or waive any portion of the Code of Conduct that applies to any of our directors, executive officers or senior financial officers, we will disclose such information. Information on our website is not incorporated by reference into this Form 10-K or any other report filed with the SEC.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       17\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nItem 1A. Risk Factors.\n\n\n\u00a0\n\n\nRisks Related to each of the HEXO Transaction and MedMen Investment\n\n\n\u00a0\n\n\nWe may experience difficulties integrating Tilray and HEXO\n\u2019\ns operations and realizing the expected benefits of the Arrangement Agreement.\n\n\n\u00a0\n\n\nThe success of the Arrangement Agreement will depend in part on our ability to realize the expected operational efficiencies and associated cost synergies and anticipated business opportunities and growth prospects from combining Tilray and HEXO in an efficient and effective manner. We may not be able to fully realize the operational efficiencies and associated cost synergies or leverage the potential business opportunities and growth prospects to the extent anticipated or at all. Additionally, closing of the Arrangement transactions remains subject to the satisfaction of various closing conditions set forth in the Arrangement Agreement.\n\n\n\u00a0\n\n\nThe Arrangement Agreement was entered into on April 10, 2023, which closed on June 22, 2023, and we are in the early stages of our integration efforts. The integration of operations and corporate and administrative infrastructures may require substantial resources and divert management attention. Challenges associated with the integration may include those related to retaining and motivating executives and other key employees, blending corporate cultures, eliminating duplicative operations, and making necessary modifications to internal control over financial reporting and other policies and procedures in accordance with applicable laws. Some of these factors are outside our control, and any of them could delay or increase the cost of our integration efforts.\n\n\n\u00a0\n\n\nThe integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company\u2019s ongoing businesses, increased tax costs, inefficiencies, and inconsistencies in standards, controls, information technology systems, policies and procedures, any of which could adversely affect our ability to maintain relationships with employees, customers or other third parties, or our ability to achieve the anticipated benefits of the transaction, and could harm our financial performance. If we are unable to successfully integrate certain aspects of the operations of Tilray and HEXO or experience delays, we may incur unanticipated liabilities and be unable to fully realize the potential benefit of the revenue growth, synergies and other anticipated benefits resulting from the arrangement, and our business, results of operations and financial condition could be adversely affected.\u00a0 Even if we are able to successfully close the Arrangement transactions, the foregoing risks for the Company would still exist.\n\n\n\u00a0\n\n\nWe have made substantial commitments of resources and capital in connection with the MedMen investment. \n\n\n\u00a0\n\n\nAlso, on August 13, 2021 the Company acquired $165.8 million of certain senior secured convertible notes and related warrants issued by MedMen Enterprises Inc., via the Company\u2019s ownership interest in a limited partnership. These investments, separately and in the aggregate, represent a significant commitment of capital by the Company, and there can be no assurance that the Company will be able to realize returns on these investments or recoup its initial investments.\n\n\n\u00a0\n\n\nRisks Related to the Cannabis Business\n\n\n\u00a0\n\n\nOur cannabis business is dependent upon regulatory approvals and licenses, ongoing compliance and reporting obligations, and timely renewals.\n\n\n\u00a0\n\n\nOur ability to cultivate, process, and sell medical and adult-use cannabis, cannabis-derived extracts and derivative cannabis products in Canada is dependent on maintaining the licenses issued to our operating subsidiaries by Health Canada under the Cannabis Regulations, or CR. These licenses allow us to produce cannabis in bulk and finished forms and to sell and distribute such cannabis in Canada. They also allow us to export medical cannabis in bulk and finished form to and from specified jurisdictions around the world, subject to obtaining, for each specific shipment, an export approval from Health Canada and an import approval (or no objection notice) from the applicable regulatory authority in the country to or from which the export or import is being made. These CR licenses and other approvals are valid for fixed periods and we must obtain renewals on a periodic basis.\u00a0\u00a0There can be no assurance that existing licenses will be renewed or new licenses obtained on the same or similar terms as our existing licenses, nor can there be any assurance that Health Canada will continue to issue import or export permits on the same terms or on the same timeline, or that other countries will allow, or continue to allow, imports or exports.\u00a0\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       18\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe are also required to obtain and maintain certain permits, licenses or other approvals from regulatory agencies in countries and markets outside of Canada in which we operate or to which we export our product, including, in the case of certain countries, the ability to demonstrate compliance with EU-GMP standards. We have received certification of compliance with EU-GMP standards for cultivation and production at Tilray Portugal and Aphria RX in Germany, as well as Part II EU-GMP certification for Aphria One and Part I EU-GMP certification for ARA-Avanti Rx Analytics Inc.\u2019s (\u201cAvanti\u201d) approved facility. These GMP certified facilities are subject to extensive ongoing compliance reviews to ensure that we continue to maintain compliance with current GMP standards. There can be no assurance that we will be able to continue to comply with these standards. Moreover, future governmental actions in countries where we operate, or export products, may limit or altogether restrict the import and/or export of cannabis products.\n\n\n\u00a0\n\n\nAny future cannabis production facilities that we operate in Canada or elsewhere will also be subject to separate licensing requirements under the CR or applicable local requirements. Although we believe that we will meet the requirements for future renewals of our existing licenses and obtain requisite licenses for future facilities, there can be no assurance that existing licenses will be renewed or new licenses obtained on the same or similar terms as our existing licenses, nor can there be any assurance that Health Canada will continue to issue import or export permits on the same terms or on the same timeline, or that other countries will allow, or continue to allow, imports or exports.\u00a0\u00a0An agency\u2019s denial of or delay in issuing or renewing a permit, license or other approval, or revocation or substantial modification of an existing permit, license or approval, could restrict or prevent us from continuing the affected operations, or limit the export and/or import of our cannabis products. In addition, the export and import of cannabis is subject to United Nations treaties establishing country-by-country national estimates and our export and import permits are subject to these estimates which could limit the amount of cannabis we can export to any particular country.\n\n\n\u00a0\n\n\nFurther, our facilities are subject to ongoing inspections by the governing regulatory authority to monitor our compliance with their licensing requirements. Our existing licenses and any new licenses that we may obtain in the future in Canada or other jurisdictions may be revoked or restricted in the event that we are found not to be in compliance. Should we fail to comply with the applicable regulatory requirements or with conditions set out under our licenses, should our licenses not be renewed when required, be renewed on different terms, or be revoked, we may not be able to continue producing or distributing cannabis in Canada or other jurisdictions or to import or export cannabis products. In addition, we may be subject to enforcement proceedings resulting from a failure to comply with applicable regulatory requirements in Canada or other jurisdictions, which could result in damage awards, the suspension, withdrawal or non-renewal of our existing approvals or denial of future approvals, recall of products, the imposition of future operating restrictions on our business or operations or the imposition of fines or other penalties.\n\n\n\u00a0\n\n\nGovernment regulation is evolving, and unfavorable changes or lack of commercial legalization could impact our ability to carry on our business as currently conducted and the potential expansion of our business. \n\n\n\u00a0\n\n\nWe operate in a highly regulated and rapidly evolving industry. The successful execution of our business objectives is contingent upon compliance with all applicable laws and regulatory requirements in Canada (including the Cannabis Act and CR), Europe and other jurisdictions, and obtaining all required regulatory approvals for the production, sale, import and export of our cannabis products. The laws, regulations and guidelines generally applicable to the cannabis industry domestically and internationally may change in ways currently unforeseen. Any amendment to or replacement of existing laws, regulations, guidelines or policies may cause adverse effects to our operations, financial condition, results of operations and prospects.\n\n\n\u00a0\n\n\nThe federal legislative framework pertaining to the Canadian cannabis market is still very new. In addition, the governments of every Canadian province and territory have implemented different regulatory regimes for the distribution and sale of cannabis for adult-use purposes within those jurisdictions. There is no guarantee that the Canadian legislative framework regulating the cultivation, processing, distribution and sale of cannabis will not be amended or replaced or the current legislation will create the growth opportunities we currently anticipate.\n\n\n\u00a0\n\n\nIn the United States, despite cannabis having been legalized at the state level for medical use in many states and for adult-use in a number of states, cannabis meeting the statutory definition of \u201cmarijuana\u201d continues to be categorized as a Schedule I controlled substance under the federal Controlled Substances Act, or the CSA, and subject to the Controlled Substances Import and Export Act, or the CSIEA. Hemp and marijuana both originate from the Cannabis sativa plant and CBD is a constituent of both. \u201cMarihuana\u201d or \u201cmarijuana\u201d is defined in the CSA as a Schedule I controlled substance whereas \u201chemp\u201d is essentially any parts of the Cannabis sativa plant that has not been determined to be marijuana. Pursuant to the 2018 Farm Bill, \u201chemp,\u201d or cannabis and cannabis derivatives containing no more than 0.3% of tetrahydrocannabinol, or THC, is now excluded from the statutory definition of \u201cmarijuana\u201d and, as such, is no longer a Schedule I controlled substance under the CSA. As a result, our activity in the United States is limited to (a) certain corporate and administrative services, including accounting, legal and creative services, (b) supply of study drug for clinical trials under DEA and FDA authorization, and (c) participation in the market for hemp and hemp-derived products containing CBD in compliance with the 2018 Farm Bill.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       19\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThere can be no assurance that the United States will implement federal legalization of cannabis.\u00a0\u00a0With respect to CBD and hemp, while the 2018 Farm Bill exempts hemp and hemp derived products from the CSA, the commercialization of hemp products in the United States is subject to various laws, including the 2018 Farm Bill, the FD&C Act, the Dietary Supplement Health and Education Act, or (the \u201cDSHEA\u201d), applicable state and/or local laws, and FDA regulations. See also Risk Factor \u201c\nUnited States regulations relating to hemp-derived CBD products are new and rapidly evolving, and changes may not develop in the timeframe or manner most favorable to our business objectives\n\u201d\n.\n\n\n\u00a0\n\n\nOur ability to expand internationally is also contingent, in part, upon compliance with applicable regulatory requirements enacted by governmental authorities and obtaining all requisite regulatory approvals. We cannot predict the impact of the compliance regime that governmental authorities may implement to regulate the adult-use or medical cannabis industry. Similarly, we cannot predict how long it will take to secure all appropriate regulatory approvals for our products, or the extent of testing and documentation that may be required by governmental authorities. The impact of the various compliance regimes, any delays in obtaining, or failure to obtain regulatory approvals may significantly delay or impact the development of markets, products and sales initiatives and could have a material adverse effect on our business, financial condition, results of operations and prospects. As the commercial cannabis industry develops in Canada and other jurisdictions, we anticipate that regulations governing cannabis in Canada and globally will continue to evolve.\u00a0\u00a0Further, Health Canada or the regulatory authorities in other countries in which we operate or to which we export our cannabis products may change their administration or application of the applicable regulations or their compliance or enforcement procedures at any time. There is no assurance that we will be able to comply or continue to comply with applicable regulations, which could impact our ability to continue to carry on business as currently conducted and the potential expansion of our business.\n\n\n\u00a0\n\n\nWe currently incur and will continue to incur ongoing costs and obligations related to regulatory compliance. A failure on our part to comply with regulations may result in additional costs for corrective measures, penalties or restrictions on our business or operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on our business, financial condition, results of operations and prospects.\n\n\n\u00a0\n\n\nOur production and processing facilities are integral to our business and adverse changes or developments affecting our facilities may have an adverse impact on our business.\n\n\n\u00a0\n\n\nOur cultivation and processing facilities are integral to our business and the licenses issued by applicable regulatory authorities is specific to each of these facilities. Adverse changes or developments affecting these facilities, including, but not limited to, disease or infestation of our crops, a fire, an explosion, a power failure, a natural disaster, an epidemic, pandemic or other public health crisis, or a material failure of our security infrastructure, could reduce or require us to entirely suspend operations at the affected facilities.\u00a0\n\n\n\u00a0\n\n\nA significant failure of our site security measures and other facility requirements, including failure to comply with applicable regulatory requirements, could have an impact on our ability to continue operating under our facility licenses and our prospects of renewing our licenses, and could also result in a suspension or revocation of these licenses.\n\n\n\u00a0\n\n\nWe face intense competition, and anticipate competition will increase, which could hurt our business.\n\n\n\u00a0\n\n\nWe face, and we expect to continue to face, intense competition from other Licensed Producers and other potential competitors, some of which have longer operating histories and more financial resources than we have. In addition, we anticipate that the cannabis industry will continue to undergo consolidation, creating larger companies with financial resources, manufacturing and marketing capabilities and product offerings that may be greater than ours. As a result of this competition, we may be unable to maintain our operations or develop them as currently proposed, on terms we consider acceptable, or at all.\n\n\n\u00a0\n\n\nHealth Canada has issued hundreds of licenses for Licensed Producers. The number of licenses granted and the number of Licensed Producers ultimately authorized by Health Canada could have an adverse impact on our ability to compete for market share in Canada. We expect to face additional competition from new market entrants and may experience downward price pressure on our cannabis products as new entrants increase production. If the number of users of cannabis in Canada increases, the demand for products will increase and the Company expects that competition will become more intense, as current and future competitors begin to offer an increasing number of diversified products and pricing strategies.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       20\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur commercial opportunity in the medical and adult-use markets could also be impacted if our competitors produce and commercialize products that, among other things, are safer, more effective, more convenient or less expensive than the products that we may produce, have greater sales, marketing and distribution support than our products, enjoy enhanced timing of market introduction and perceived effectiveness advantages over our products and receive more favorable publicity than our products. To remain competitive, we intend to continue to invest in research and development, marketing and sales and client support.\u00a0\u00a0We may not have sufficient resources to maintain research and development, marketing and sales and client support efforts on a competitive basis.\n\n\n\u00a0\n\n\nIn addition to the foregoing, the legal landscape for medical and adult-use cannabis is changing internationally. We maintain operations outside of Canada, which may be affected as other countries develop, adopt and change their laws related to medical and adult-use cannabis. Increased international competition, including competition from suppliers in other countries who may be able to produce at lower cost, and limitations placed on us by Canadian or other regulations, might lower the demand for our cannabis products on a global scale.\n\n\n\u00a0\n\n\nCompetition from the illicit cannabis market could impact our ability to succeed.\n\n\n\u00a0\n\n\nWe face competition from illegal market operators that are unlicensed and unregulated including illegal dispensaries and illicit market suppliers selling cannabis and cannabis-based products. As these illegal market participants do not comply with the regulations governing the cannabis industry, their operations may have significantly lower costs. The perpetuation of the illegal market for cannabis may have a material adverse effect on our business, results of operations, as well as the perception of cannabis use. Furthermore, given the restrictions on regulated cannabis retail, it is possible that legal cannabis consumers revert to the illicit market as a matter of convenience.\n\n\n\u00a0\n\n\nThe cannabis industry and market are relatively new and evolving, which could impact our ability to succeed in this industry and market.\n\n\n\u00a0\n\n\nWe are operating our business in a relatively new industry and market that is expanding globally, and our success depends on our ability to attract and retain consumers and patients. There are many factors which could impact our ability to attract and retain consumers and patients, including but not limited to brand awareness, our ability to continually produce desirable and effective cannabis products and the ability to bring new consumers and patients into the category. The failure to acquire and retain consumers and patients could have a material adverse effect on our business, financial condition, results of operations and prospects.\n\n\n\u00a0\n\n\nTo remain competitive, we will continue to innovate new products, build brand awareness and make significant investments in our business strategy and production capacity. These investments include introducing new products into the markets in which we operate, adopting quality assurance protocols and procedures, building our international presence and undertaking research and development. These activities may not promote our products as effectively as intended, or at all, and we expect that our competitors will undertake similar investments to compete with us for market share. Competitive conditions, consumer preferences, regulatory conditions, patient requirements, prescribing practices, and spending patterns in this industry and market are relatively unknown and may have unique characteristics that differ from other existing industries and markets and that cause our efforts to further our business to be unsuccessful or to have undesired consequences. As a result, we may not be successful in our efforts to attract and retain customers or to develop new cannabis products and produce and distribute these products in time to be effectively commercialized, or these activities may require significantly more resources than we currently anticipate in order to be successful.\n\n\n\u00a0\n\n\nRegulations constrain our ability to market and distribute our products in Canada.\n\n\n\u00a0\n\n\nIn Canada, there are significant regulatory restrictions on the marketing, branding, product formats, product composition, packaging, and distribution of adult-use cannabis products. For instance, the CR includes a requirement for health warnings on product packaging, the limited ability to use logos and branding (only one brand name and one brand element per package), restrictions on packaging itself, and restrictions on types and avenues of marketing. Cannabis 2.0 regulations, which govern the production and sale of new classes or forms of cannabis products (including vapes and edibles), impose considerable restrictions on product composition, labeling, and packaging in addition to being subject to similar marketing restrictions as existing form factors.\u00a0\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       21\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nFurther, each province and territory of Canada has the ability to separately regulate the distribution of cannabis within such province or territory (including the legal age), and the rules and regulations adopted vary significantly.\u00a0\u00a0Additional marketing and product composition restrictions have been imposed by some provinces and territories. Such federal and provincial restrictions may impair our ability to differentiate our products and develop our adult-use brands.\u00a0\u00a0Some provinces and territories also impose significant restrictions on our ability to merchandise products; for example, some provinces impose restrictions on investment in retailers or distributors as well as in our ability to negotiate for preferential retail space or in-store marketing. If we are unable to effectively market our products and compete for market share, our sales and results of operations may be adversely affected.\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\nResearch regarding the health effects of cannabis is in relatively early stages and subject to further study which could impact demand for cannabis products.\n\n\n\u00a0\n\n\nResearch and clinical trials on the potential benefits and the short-term and long-term effects of cannabis use on human health remains in relatively early stages and there is limited standardization. As such, there are inherent risks associated with using cannabis and cannabis derivative products. Moreover, future research and clinical trials may draw opposing conclusions to statements contained in articles, reports and studies we relied on or could reach different or negative conclusions regarding the benefits, viability, safety, efficacy, dosing or other facts and perceptions related to cannabis, which could adversely affect social acceptance of cannabis and the demand for our products.\n\n\n\u00a0\n\n\nUnited States regulations relating to hemp-derived CBD products are new and rapidly evolving, and changes may not develop in the timeframe or manner most favorable to our business objectives.\n\n\n\u00a0\n\n\nOur participation in the market for hemp-derived CBD products in the United States and elsewhere may require us to employ novel approaches to existing regulatory pathways. Although the passage of the 2018 Farm Bill legalized the cultivation of hemp in the United States to produce products containing CBD and other non-THC cannabinoids, it remains unclear whether and when the FDA will propose or implement new or additional regulations. While, to date, there are no laws or regulations enforced by the FDA which specifically address the manufacturing, packaging, labeling, distribution, or sale of hemp or hemp-derived CBD products and the FDA has issued no formal regulations addressing such matters, the FDA has issued various guidance documents and other statements reflecting its non-binding opinion on the regulation of such products.\n\n\n\u00a0\n\n\nThe hemp plant and the cannabis/marijuana plant are both part of the same cannabis sativa genus/species of plant, except that hemp, by definition, has less than 0.3% THC content, but the same plant with a higher THC content is cannabis/marijuana, which is legal under certain state laws, but which is not legal under United States federal law. The similarities between these two can cause confusion, and our activities with legal hemp in the United States may be incorrectly perceived as us being involved in federally illegal cannabis. The FDA has stated in guidance and other public statements that it is prohibited to sell a food, beverage or dietary supplement to which THC or CBD has been added. While the FDA does not have a formal policy of enforcement discretion with respect to any products with added CBD, the agency has stated that its primary focus for enforcement centers on products that put the health and safety of consumers at risk, such as those claiming to prevent, diagnose, mitigate, treat, or cure diseases in the absence of requisite approvals. While the agency\u2019s enforcement to date has therefore focused on products containing CBD and that make drug-like claims, there is the risk that the FDA could expand its enforcement activities and require us to alter our marketing for our hemp-derived CBD products or cease distributing them altogether. The FDA could also issue new regulations that prohibit or limit the sale of hemp-derived CBD products. Such regulatory actions and associated compliance costs may hinder our ability to successfully compete in the market for such products.\n\n\n\u00a0\n\n\nIn addition, such products may be subject to regulation at the state or local levels. State and local authorities have issued their own restrictions on the cultivation or sale of hemp or hemp-derived CBD. This includes laws that ban the cultivation or possession of hemp or any other plant of the cannabis genus and derivatives thereof, such as CBD. State regulators may take enforcement action against food and dietary supplement products that contain CBD, or enact new laws or regulations that prohibit or limit the sale of such products.\n\n\n\u00a0\n\n\nThe regulation of hemp and CBD in the United States has been constantly evolving, with changes in federal and state laws and regulation occurring on a frequent basis. Violations of applicable FDA and other laws could result in warning letters, significant fines, penalties, administrative sanctions, injunctions, convictions or settlements arising from civil proceedings.\u00a0\u00a0Unforeseen regulatory obstacles or compliance costs may hinder our ability to successfully compete in the market for such products.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       22\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nRisks related to the Beverage Alcohol Business\n\n\n\u00a0\n\n\nChanges in consumer preferences or public attitudes about alcohol could decrease demand for our beverage alcohol products. \n\n\n\u00a0\n\n\nIf general consumer trends lead to a decrease in the demand for SweetWater\u2019s and Montauk's beers and other alcohol products or Breckenridge\u2019s whiskey products, including craft beer, our sales and results of operations in the beverage alcohol segment may be adversely affected. There is no assurance that the craft brewing segment will experience growth in future periods. If the markets for wine, spirits or flavored alcohol beverages continue to grow, this could draw consumers away from the industry in general and our beverage alcohol products specifically.\n\n\n\u00a0\n\n\nFurther, the alcoholic beverage industry is subject to public concern and political attention over alcohol-related social problems, including drunk driving, underage drinking and health consequences from the misuse of alcohol. In reaction to these concerns, steps may be taken to restrict advertising, to impose additional cautionary labeling or packaging requirements, or to increase excise or other taxes on beverage alcohol products. Any such developments may have an adverse impact on the financial condition, operating results and cash flows for SweetWater, Montauk\u00a0and Breckenridge.\n\n\n\u00a0\n\n\nDevelopments affecting production at our brewery in Atlanta or our distillery in Breckenridge could negatively impact financial results for our beverage alcohol business segment.\n\n\n\u00a0\n\n\nAdverse changes or developments affecting our brewery in Atlanta or our distillery in Breckenridge, including, fire, power failure, natural disaster, public health crisis, or a material failure of our security infrastructure, could reduce or require us to entirely suspend operations.\u00a0\u00a0Additionally, due to many factors, including seasonality and production schedules of our various products and packaging, actual production capacity may fluctuate throughout the year and may not reach full working capacity. If we experience contraction in our sales and production volumes, the excess capacity and unabsorbed overhead may have an adverse effect on gross margins, operating cash flows and overall financial performance of SweetWater, Montauk\u00a0or Breckenridge.\n\n\n\u00a0\n\n\nSweetWater, Breckenridge and Montauk\u00a0each face substantial competition in the beer industry and the broader market for alcoholic beverage products which could impact our business and financial results.\n\n\n\u00a0\n\n\nThe market for alcoholic beverage products within the United States is highly competitive due to the increasing number of domestic and international beverage companies with similar pricing and target drinkers, the introduction and expansion of hard seltzers and ready-to-drink beverages, gains in market share achieved by domestic specialty beers and imported beers, and the acquisition of craft brewers and smaller producers by larger companies. We anticipate competition among domestic craft brewers and distillers will also remain strong as existing facilities build more capacity, expand geographically and add more products, flavors and styles. The continued growth in the sales of hard seltzers, craft-brewed domestic beers and imported beers is expected to increase competition in the market for alcoholic beverages within the United States and, as a result, prices and market share of SweetWater\u2019s, Montauk Brewing's and Breckenridge\u2019s products may fluctuate and possibly decline.\n\n\n\u00a0\n\n\nThe alcohol industry has seen continued consolidation among producers in order to take advantage of cost savings opportunities for supplies, distribution and operations. Due to the increased leverage that these combined operations have in distribution and sales and marketing expenses, the costs to SweetWater, Montauk\u00a0and Breckenridge of competing could increase. The potential also exists for these large competitors to increase their influence with their distributors, making it difficult for smaller producers to maintain their market presence or enter new markets. The increase in the number and availability of competing products and brands, the costs to compete and potential decrease in distribution support and opportunities may adversely affect our business and financial results.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       23\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nSweetWater, Breckenridge and Montauk\u00a0are each dependent on distributors to deliver sustained growth and distribute products.\n\n\n\u00a0\n\n\nIn the United States, each of SweetWater, Breckenridge and Montauk\u00a0sells its alcohol beverages to independent distributors for distribution to retailers and, ultimately, to consumers. No assurance can be given that SweetWater, Breckenridge and Montauk\u00a0will be able to maintain their current distribution networks or secure additional distributors on favorable terms.\u00a0\u00a0If existing distribution agreements are terminated, it may not be possible to enter into new distribution agreements on substantially similar terms or to timely put in place replacement distribution agreements, which may result in an impairment to distribution and an increase in the costs of distribution.\u00a0\u00a0\n\n\n\u00a0\n\n\nGeneral Business Risks and Risks Related to Our Financial Condition and Operations\n\n\n\u00a0\n\n\nAdditional impairments of our goodwill, impairments of our intangible and other long-lived assets, and changes in the estimated useful lives of intangible assets could have a material adverse impact on our financial results. \n\n\n\u00a0\n\n\nGoodwill, intangible and other long-lived assets comprise a significant portion of our total assets. As of May 31, 2023 our goodwill and intangible assets totaled $2.0 billion and $971.3 million, respectively. We test goodwill and indefinite lived intangible assets for impairment annually, while our other long-lived assets, including our finite-lived intangible assets, are tested for impairment when circumstances indicate that the carrying amount may not be recoverable, in accordance with Generally Accepted Accounting Principles in the U.S. (\u201cGAAP\u201d). A decrease in our market capitalization or profitability, or unfavorable changes in market, economic or industry conditions could increase the risk of additional impairment.\u00a0 Any resulting additional impairments could have a negative impact on our stock price.\n\n\n\u00a0\n\n\nFor the year ended May 31, 2023, the Company recognized non-cash impairment charges of $603.5 million in cannabis goodwill and $15 million in wellness goodwill, $205 million in intangible assets and $104 million in capital assets. These non-cash impairment charges were a result of a decline in the Company's market value which was determined to be other than temporary, as well as increased borrowing rates which forced the Company to adjust the company specific risk premium.\n\n\n\u00a0\n\n\nWe will continue to monitor key assumptions and other factors utilized in our goodwill, intangible and other long-lived assets impairment analysis, and if business or other market conditions develop that are materially different than we currently anticipate, we will conduct an additional impairment evaluation. Any reduction in or impairment of the value of goodwill, intangible assets and long-lived assets will result in a charge against earnings, which could have a material adverse impact on our reported financial results.\n\n\n\u00a0\n\n\nWe have a limited operating history and a history of net losses, and we may not achieve or maintain profitability in the future.\n\n\n\u00a0\n\n\nWe began operating in 2014 and have yet to generate a profit. We intend to continue to expend significant funds to explore potential opportunities and complete strategic mergers and acquisitions, invest in research and development, expand our marketing and sales operations and meet the compliance requirements as a public company.\n\n\n\u00a0\n\n\nOur efforts to grow our business may be more costly than we expect and we may not be able to increase our revenue enough to offset higher operating expenses. We may incur significant losses in the future for a number of reasons, including as a result of unforeseen expenses, difficulties, complications and delays, the other risks described herein and other unknown events. The amount of future net losses will depend, in part, on the growth of our future expenses and our ability to generate revenue. If we continue to incur losses in the future, the net losses and negative cash flows incurred to date, together with any such future losses, will have an adverse effect on our stockholders\u2019 equity and working capital. Because of the numerous risks and uncertainties associated with producing and selling cannabis and beverage alcohol products, as outlined herein, we are unable to accurately predict when, or if, we will be able to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. If we are unable to achieve and sustain profitability, the market price of our common stock may significantly decrease and our ability to raise capital, expand our business or continue our operations may be impaired.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       24\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe are subject to litigation, arbitration and demands, which could result in significant liability and costs, and impact our resources and reputation.\n\n\n\u00a0\n\n\nTilray has previously been named as a defendant in a class action relating to the prior merger of Privateer Holdings, Inc. with and into a wholly owned subsidiary (referred to as the Downstream Merger), and a class action related to the drop in our stock price. In addition, legal proceedings covering a wide range of matters are pending or threatened in various U.S. and foreign jurisdictions against the Company. The type of claims that may be raised in these proceedings include product liability, unfair trade practices, antitrust, tax, contraband shipments, patent infringement, employment matters, claims for contribution and claims of competitors, shareholders or distributors. Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending or future cases.\n\n\n\u00a0\n\n\nWe are also subject to other litigation and demands relating to business decisions, regulatory and industry changes, supply relationships, and our business acquisition matters and related activities. Litigation may include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages. Tilray and its various subsidiaries are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding our business. These matters could result in adverse judgments, settlements, fines, penalties, injunctions or other relief.\n\n\n\u00a0\n\n\nWe have incurred\n \nand may continue to incur substantial costs and expenses relating directly to these actions. Responding to such actions could divert management\u2019s attention away from our business operations and result in substantial costs. For more information on our pending legal proceedings, see \u201c\nPart I, Item 3. Legal Proceedings\n\u201d.\n\n\n\u00a0\n\n\nWe are exposed to risks relating to the laws of various countries as a result of our international operations.\n\n\n\u00a0\n\n\nWe currently conduct operations in multiple countries and plan to expand these international operations. As a result of our operations, we are exposed to various levels of political, economic, legal and other risks and uncertainties associated with operating in or exporting to these jurisdictions. These risks and uncertainties include, but are not limited to, changes in the laws, regulations and policies governing the production, sale and use of our products, political instability, instability at the United Nations level, currency controls, fluctuations in currency exchange rates and rates of inflation, labor unrest, changes in taxation laws, regulations and policies, restrictions on foreign exchange and repatriation and changing political conditions and governmental regulations relating to foreign investment and the cannabis business more generally.\n\n\n\u00a0\n\n\nChanges, if any, in the laws, regulations and policies relating to the advertising, production, sale and use of our products or in the general economic policies in these jurisdictions, or shifts in political attitude related thereto, may adversely affect the operations, or profitability of our operations, in these countries. As we explore novel business models, such as global co-branded products, cannabinoid clinics and cannabis retail, international regulations will become increasingly challenging to manage. Specifically, our operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on advertising, production, price controls, export controls, controls on currency remittance, increased income taxes, restrictions on foreign investment, land and water use restrictions and government policies rewarding contracts to local competitors or requiring domestic producers or vendors to purchase supplies from a particular jurisdiction. Failure to comply strictly with applicable laws, regulations and local practices could result in additional taxes, costs, civil or criminal fines or penalties or other expenses being levied on our international operations, as well as other potential adverse consequences such as the loss of necessary permits or governmental approvals.\n\n\n\u00a0\n\n\nFurthermore, there is no assurance that we will be able to secure the requisite import and export permits for the international distribution of our products. Countries may also impose restrictions or limitations on imports that require the use of, or confer significant advantages upon, producers within that particular country. As a result, we may be required to establish facilities in one or more countries in the EU (or elsewhere) where we wish to distribute our products in order to take advantage of the favorable legislation offered to producers in these countries.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       25\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe are required to comply concurrently with all applicable laws in each jurisdiction where we operate or to which we export our products, and any changes to such laws could adversely impact our business. \n\n\n\u00a0\n\n\nVarious federal, state, provincial and local laws and regulations govern our business in the jurisdictions in which we operate or propose to operate, and in which we export or propose to export our products. Such laws and regulations include those relating to health and safety, conduct of operations and the production, management, transportation, storage and disposal of our products and of certain material used in our operations. In many cases, we must concurrently comply with complex federal, provincial, state and/or local laws in multiple jurisdictions. These laws change frequently and may be difficult to interpret and apply. Compliance with these laws and regulations requires the investment of significant financial and managerial resources, and a determination that we are not in compliance with any of these laws and regulations could harm our brand image and business. Moreover, it is impossible for us to predict the cost or effect of such laws, regulations or guidelines upon our future operations. Changes to these laws or regulations could negatively affect our competitive position within our industry and the markets in which we operate, and there is no assurance that various levels of government in the jurisdictions in which we operate will not pass legislation or regulation that adversely impacts our business.\n\n\n\u00a0\n\n\nOur strategic alliances and other third-party business relationships may not achieve the intended beneficial impact and expose us to risks.\n\n\n\u00a0\n\n\nWe currently have, and may adjust the scope of, and may in the future enter into, strategic alliances with third parties that we believe will complement or augment our existing business. Our ability to complete further strategic alliances is dependent upon, and may be limited by, among other things, the availability of suitable candidates and capital. In addition, strategic alliances could present unforeseen integration obstacles or costs, may not enhance our business or profitability and may involve risks that could adversely affect us, including the investment of significant amounts of management time that may be diverted from operations in order to pursue and complete such transactions or maintain such strategic alliances. We may become dependent on our strategic partners and actions by such partners could harm our business. Future strategic alliances could result in the incurrence of debt, impairment charges, costs and contingent liabilities, and there can be no assurance that future strategic alliances will achieve, or that our existing strategic alliances will continue to achieve, the expected benefits to our business or that we will be able to consummate future strategic alliances on satisfactory terms, or at all.\n\n\n\u00a0\n\n\nWe may not be able to successfully identify and execute future acquisitions, dispositions or other equity transactions or to successfully manage the impacts of such transactions on our operations.\n\n\n\u00a0\n\n\nMaterial acquisitions, dispositions and other strategic transactions involve a number of risks, including: (i) the potential disruption of our ongoing business; (ii) the distraction of management away from the ongoing oversight of our existing business activities; (iii) incurring additional indebtedness; (iv) the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; (v) an increase in the scope and complexity of our operations; (vi) the loss or reduction of control over certain of our assets; and (vii) capital stock or cash to pay for the acquisition. Material acquisitions and strategic transactions have been and continue to be material to our business strategy. There can be no assurance that we will find suitable opportunities for strategic transactions at acceptable prices, have sufficient capital resources to pursue such transactions, be successful in negotiating required agreements, or successfully close transactions after signing such agreements. There is no guarantee that any acquisitions will be accretive, or that past or future acquisitions will not result in additional impairments or write downs.\n\n\n\u00a0\n\n\nThe existence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition could result in our incurring those liabilities. A strategic transaction may result in a significant change in the nature of our business, operations and strategy, and we may encounter unforeseen obstacles or costs in implementing a strategic transaction or integrating any acquired business into our operations.\n\n\n\u00a0\n\n\nWe are subject to risks inherent in an agricultural business, including the risk of crop failure.\n\n\n\u00a0\n\n\nWe grow cannabis, which is an agricultural process. As such, our business is subject to the risks inherent in the agricultural business, including risks of crop failure presented by weather, climate change, forest fires, insects, plant diseases and similar agricultural risks. Although we primarily grow our products indoors under climate-controlled conditions, we also have certain outdoor cultivation capacity and there can be no assurance that natural elements, such as insects, climate change and plant diseases, will not interrupt our production activities or have an adverse effect on our business.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       26\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe depend on significant customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue could decline significantly.\n\n\n\u00a0\n\n\nWe derive a significant portion of revenue from the supply contracts we have with 12 Canadian provinces and territories for adult-use cannabis products. There are many factors which could impact our contractual agreements with the provinces and territories, including but not limited to availability of supply, product selection and the popularity of our products with retail customers. If our supply agreements with certain Canadian provinces and territories are amended, terminated or otherwise altered, our sales and results of operations could be adversely affected, which could have a material adverse effect on our business, financial condition, results of operations and prospects.\n\n\n\u00a0\n\n\nIn addition, not all of our supply contracts with the Canadian provinces and territories contain purchase commitments or otherwise obligate the provincial or territorial wholesaler to buy a minimum or fixed volume of cannabis products from us. The amount of cannabis that the provincial or territorial wholesalers may purchase under the supply contracts may therefore vary from what we expect or planned for. As a result, our revenues could fluctuate materially in the future and could be materially and disproportionately impacted by the purchasing decisions of the provincial or territorial wholesalers. In the future, these customers may decide to purchase less product from us than they have in the past, may alter purchasing patterns or return inventory, or may decide not to continue to purchase our products, any of which could cause our revenue to decline materially and materially harm our financial condition and results of operations. If we are unable to diversify our customer base, we will continue to be susceptible to risks associated with customer concentration.\n\n\n\u00a0\n\n\nWe may be unable to attract or retain key personnel, and we may be unable to attract, develop and retain additional employees required for our development and future success.\n\n\n\u00a0\n\n\nOur success is largely dependent on the performance of our management team and certain employees and our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. The loss of the services of any key personnel, or an inability to attract other suitably qualified persons when needed, could prevent us from executing on our business plan and strategy, and we may be unable to find adequate replacements on a timely basis, or at all.\n\n\n\u00a0\n\n\nFurther, officers, directors, and certain key personnel at each of our facilities that are licensed by Health Canada are subject to the requirement to obtain and maintain a security clearance from Health Canada under the CR. Moreover, under the CR, an individual with security clearance must be physically present on site when other individuals are conducting activities with cannabis. Under the CR, a security clearance is valid for a limited time and must be renewed before the expiry of a current security clearance. There is no assurance that any of our existing personnel who presently or may in the future require a security clearance will be able to obtain or renew such clearances or that new personnel who require a security clearance will be able to obtain one. A failure by an individual in a key operational position to maintain or renew his or her security clearance could result in a reduction or complete suspension of our operations. In addition, if an individual in a key operational position leaves us, and we are unable to find a suitable replacement who is able to obtain a security clearance required by the CR in a timely manner, or at all, we may not be able to conduct our operations at planned production volume levels or at all.\n\n\n\u00a0\n\n\nThe CR also requires us to designate a qualified individual in charge who is responsible for supervising activities relating to the production of study drugs for clinical trials, which individual must meet certain educational and security clearance requirements. If our current designated qualified person in charge fails to maintain their security clearance, or leaves us and we are unable to find a suitable replacement who meets these requirements, we may no longer be able to continue our clinical trial activities.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       27\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIncreased labor costs, potential organization of our workforce, employee strikes, and other labor-related disruption may adversely affect our operations.\n\n\n\u00a0\n\n\nOutside Portugal, none of our employees are represented by a labor union or subject to a collective bargaining agreement. In Portugal, none of our employees are represented by a labor union or subject to any workforce-initiated labor agreement. As with other companies carrying on business in Portugal, we are subject to a government-mandated collective bargaining agreement, which grants employees nominal additional benefits beyond those required by the local labor code. We cannot assure that our labor costs going forward will remain competitive based on various factors, such as: (i) our workforce may organize in the future and labor agreements may be put in place that have significantly higher labor rates and company obligations; (ii) our competitors may maintain significantly lower labor costs, thereby reducing or eliminating our comparative advantages vis-\u00e0-vis one or more of our competitors or the larger industry; and (iii) our labor costs may increase in connection with our growth.\n\n\n\u00a0\n\n\nSignificant interruptions in our access to certain supply chains for key inputs such as raw materials, supplies, electricity, water and other utilities may impair our operations.\n\n\n\u00a0\n\n\nOur business is dependent on a number of key inputs and their related costs (certain of which are sourced in other countries and on different continents), including raw materials, supplies and equipment related to our operations, as well as electricity, water and other utilities. We operate global manufacturing facilities, and have dispersed suppliers and customers. Governments may regulate or restrict the flow of labor or products, and the Company's operations, suppliers, customers and distribution channels could be severely impacted. While we have not experienced any material supply chain disruptions, any significant future governmental-mandated or market-related interruption, price increase or negative change in the availability or economics of the supply chain for key inputs and, in particular, rising or volatile energy costs could curtail or preclude our ability to continue production. In addition, our operations would be significantly affected by a prolonged power outage.\n\n\n\u00a0\n\n\nOur ability to compete is dependent on us having access, at a reasonable cost and in a timely manner, to skilled labor, equipment, parts and components. No assurances can be given that we will be successful in maintaining our required supply of labor, equipment, parts and components. In addition, the invasion of Ukraine by Russia and the resulting measures that have been taken, and could be taken in the future, have and may continue to have a negative impact on our costs, including for input materials, energy and transportation.\u00a0\u00a0\n\n\n\u00a0\n\n\nFluctuations in cannabinoid prices relative to contracted prices with third party suppliers could negatively impact our earnings.\n\n\n\u00a0\n\n\nA portion of our results of operations and financial condition, as well as the selling prices for our products, are dependent upon cannabinoid supply contracts. Production and pricing of cannabinoids are determined by constantly changing market forces of supply and demand over which we have limited or no control. The market for cannabis biomass is particularly volatile compared to other commoditized markets due to the relatively nascent maturity of the industry in which we operate. The lack of centralized data and large variations in product quality make it difficult to establish a \u201cspot price\u201d for cannabinoids and develop an effective price hedging strategy. Accordingly, supply contracts with any term may prove to be costly in the future to the extent cannabinoid prices decrease dramatically or at a faster rate than anticipated.\n\n\n\u00a0\n\n\nOur failure to successfully negotiate supply contracts that address such market vagaries could result in us being contractually obligated to purchase products, some of which may be priced above then-current market prices, or interruption of the supply of inputs for the manufacturing of our products, all of which could have a material adverse effect on our business, results of operations, financial condition, liquidity and prospects.\n\n\n\u00a0\n\n\nWe may be negatively impacted by volatility in the political and economic environment, and a period of sustained inflation across the markets in which we operate could result in higher operating costs.\n\n\n\u00a0\n\n\nTrade, monetary and fiscal policies, and political and economic conditions may substantially change, and credit markets may experience periods of constriction and variability. These conditions may impact our business. Further rising inflation may negatively impact our business, raise cost and reduce profitability. While we would take actions, wherever possible, to reduce the impact of the effects of inflation, in the case of sustained inflation across several of the markets in which we operate, it could become increasingly difficult to effectively mitigate the increases to our costs. In addition, the effects of inflation on consumers\u2019 budgets could result in the reduction of our customers\u2019 spending habits. If we are unable to take actions to effectively mitigate the effect of the resulting higher costs, our profitability and financial position could be negatively impacted.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       28\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe face risks associated with the transportation of our products to consumers in a safe and efficient manner.\n\n\n\u00a0\n\n\nWe depend on fast, cost-effective, and efficient courier services to distribute our products to both wholesale and retail customers. Any prolonged disruption of third-party transportation services could have a material adverse effect on our sales volumes or satisfaction with our services. Rising costs associated with third-party transportation services used by us to ship our products may also adversely impact our profitability, and more generally our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nThe security of our products during transportation to and from our facilities is of the utmost concern. A breach of security during transport or delivery could result in the loss of high-value product and forfeiture of import and export approvals, since such approvals are shipment specific. Any failure to take steps necessary to ensure the safekeeping of our cannabis products could also have an impact on our ability to continue supplying provinces and territories, to continue operating under our existing licenses, to renew or receive amendments to our existing licenses or to obtain new licenses.\n\n\n\u00a0\n\n\nOur products may be subject to recalls for a variety of reasons, which could require us to expend significant management and capital resources.\n\n\n\u00a0\n\n\nManufacturers and distributors of cannabis, hemp and beverage alcohol products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, adulteration, unintended harmful side effects or interactions with other substances, packaging safety, and inadequate or inaccurate labeling disclosure. Although we have detailed procedures in place for testing finished products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits, whether frivolous or otherwise. If any of the products produced by us are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. As a result of any such recall, we may lose a significant amount of sales and may not be able to replace those sales at an acceptable gross profit or at all. In addition, a product recall may require significant management attention or damage our reputation and goodwill or that of our products or brands.\n\n\n\u00a0\n\n\nAdditionally, product recalls may lead to increased scrutiny of our operations by Health Canada or other regulatory agencies, requiring further management attention, increased compliance costs and potential legal fees, fines, penalties and other expenses. Any product recall affecting the cannabis industry more broadly, whether or not involving us, could also lead consumers to lose confidence in the safety and security of cannabis products generally, including products sold by us.\n\n\n\u00a0\n\n\nWe may be subject to product liability claims or regulatory action. This risk is exacerbated by the fact that cannabis use may increase the risk of serious adverse side effects.\n\n\n\u00a0\n\n\nAs a manufacturer and distributor of products which are ingested by humans, we face the risk of exposure to product liability claims, regulatory action and litigation if our products are alleged to have caused loss or injury. We may be subject to these types of claims due to allegations that our products caused or contributed to injury or illness, failed to include adequate instructions for use or failed to include adequate warnings concerning possible side effects or interactions with other substances. This risk is exacerbated by the fact that cannabis use may increase the risk of developing schizophrenia and other psychoses, symptoms for individuals with bipolar disorder, and other side effects. Furthermore, we are now offering an expanded assortment of form factors, some of which may have additional adverse side effects, such as vaping products. See also Risk Factor \u201c\nOur vape business is subject to uncertainty in the evolving vape market due to negative public sentiment and regulatory scrutiny.\n\u201d\u00a0\u00a0Previously unknown adverse reactions resulting from human consumption of cannabis or beverage alcohol products alone or in combination with other medications or substances could also occur.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       29\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn addition, the manufacture and sale of our products, like the manufacture and sale of any ingested product, involves a risk of injury to consumers due to tampering by unauthorized third parties or product contamination. We have in the past recalled, and may again in the future have to recall, certain products as a result of potential contamination and quality assurance concerns. A product liability claim or regulatory action against us could result in increased costs and could adversely affect our reputation and goodwill with our customers and consumers generally. There can be no assurance that we will be able to maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could result in us becoming subject to significant liabilities that are uninsured and adversely affect our commercial arrangements with third parties.\n\n\n\u00a0\n\n\nWe, or the cannabis industry more generally, may receive unfavorable publicity or become subject to negative consumer or investor perception.\n\u00a0\u00a0\n\n\n\u00a0\n\n\nWe believe that the cannabis industry is highly dependent upon positive consumer and investor perception regarding the benefits, safety, efficacy and quality of the cannabis distributed to consumers. The perception of the cannabis industry and cannabis products, currently and in the future, may be significantly influenced by scientific research or findings, regulatory investigations, litigation, political statements, media attention and other publicity (whether or not accurate or with merit) both in Canada and in other countries relating to the consumption of cannabis products, including unexpected safety or efficacy concerns arising with respect to cannabis products or the activities of industry participants. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market or any particular cannabis product or will be consistent with earlier publicity. Adverse scientific research reports, findings and regulatory proceedings that are, or litigation, media attention or other publicity that is, perceived as less favorable than, or that questions, earlier research reports, findings or publicity (whether or not accurate or with merit) could result in a significant reduction in the demand for our products. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of cannabis, or our products specifically, or associating the consumption of cannabis with illness or other negative effects or events, could adversely affect us. This adverse publicity could arise even if the adverse effects associated with cannabis products resulted from consumers\u2019 failure to use such products legally, appropriately or as directed.\n\n\n\u00a0\n\n\nFailure to comply with safety, health and environmental regulations applicable to our operations and industry may expose us to liability and impact operations.\n\n\n\u00a0\n\n\nSafety, health and environmental laws and regulations affect nearly all aspects of our operations, including product development, working conditions, waste disposal, emission controls, the maintenance of air and water quality standards and land reclamation, and, with respect to environmental laws and regulations, impose limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Compliance with GMP requires satisfying additional standards for the conduct of our operations and subjects us to ongoing compliance inspections in respect of these standards in connection with our GMP certified facilities. Compliance with safety, health and environmental laws and regulations can require significant expenditures, and failure to comply with such safety, health and environmental laws and regulations may result in the imposition of fines and penalties, the temporary or permanent suspension of operations, the imposition of clean-up costs resulting from contaminated properties, the imposition of damages and the loss of or refusal of governmental authorities to issue permits or licenses to us or to certify our compliance with GMP standards. Exposure to these liabilities may arise in connection with our existing operations, our historical operations and operations that we may undertake in the future. We could also be held liable for worker exposure to hazardous substances and for accidents causing injury or death. There can be no assurance that we will at all times be in compliance with all safety, health and environmental laws and regulations notwithstanding our attempts to comply with such laws and regulations.\n\n\n\u00a0\n\n\nIn addition, government environmental approvals and permits are currently, and may in the future be required in connection with our operations. To the extent such approvals are required and not obtained, we may be curtailed or prohibited from its proposed business activities or from proceeding with the development of our operations as currently proposed. Failure to comply with applicable environmental laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. We may be required to compensate those suffering loss or damage due to our operations and may have civil or criminal fines or penalties imposed for violations of applicable environmental laws or regulations.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       30\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nChanges in applicable safety, health and environmental standards may impose stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. We are not able to determine the specific impact that future changes in safety, health and environmental laws and regulations may have on our industry, operations and/or activities and our resulting financial position; however, we anticipate that capital expenditures and operating expenses will increase in the future as a result of the implementation of new and increasingly stringent safety, health and environmental laws and regulations. Further changes in safety, health and environmental laws and regulations, new information on existing safety, health and environmental conditions or other events, including legal proceedings based upon such conditions or an inability to obtain necessary permits in relation thereto, may require increased compliance expenditures by us.\n\n\n\u00a0\n\n\nWe may experience breaches of security at our facilities, which could result in product loss and liability.\n\n\n\u00a0\n\n\nBecause of the nature of our products and the limited legal channels for distribution, as well as the concentration of inventory in our facilities, we are subject to the risk of theft of our products and other security breaches. A security breach at any one of our facilities could result in a significant loss of available products, expose us to additional liability under applicable regulations and to potentially costly litigation or increase expenses relating to the resolution and future prevention of similar thefts, any of which could have an adverse effect on our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nWe may be subject to risks related to our information technology systems, including service interruption, cyber-attacks and misappropriation of data, which could disrupt operations and may result in financial losses and reputational damage.\n\n\n\u00a0\n\n\nWe have entered into agreements with third parties for hardware, software, telecommunications and other information technology, or IT, services in connection with our operations. Our operations depend, in part, on how well we and our vendors protect networks, equipment, IT systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage and destruction, fire, power loss, hacking, computer viruses, vandalism, theft, malware, ransomware and phishing attacks. We are increasingly reliant on Cloud-based systems for economies of scale and our mobile workforce, which could result in increased attack vectors or other significant disruptions to our work processes. Any of these and other events could result in IT system failures, delays or increases in capital expenses. Our operations also depend on the timely maintenance, upgrade and replacement of networks, equipment and IT systems and software, as well as preemptive expenses to mitigate the risks of failures. The failure of IT systems or a component of IT systems could, depending on the nature of any such failure, adversely impact our reputation and results of operations.\n\n\n\u00a0\n\n\nThere are a number of laws protecting the confidentiality of personal information and patient health information, and restricting the use and disclosure of that protected information. In particular, the privacy rules under the Personal Information Protection and Electronics Documents Act (Canada), or PIPEDA, the European Unions\u2019 General Data Protection Regulation, or the GDPR, and similar laws in other jurisdictions, protect personal information, including medical records of individuals. We collect and store personal information about our employees and customers and are responsible for protecting that information from privacy breaches. A privacy breach may occur through a procedural or process failure, an IT malfunction or deliberate unauthorized intrusions. Theft of data for competitive purposes, particularly patient lists and preferences, is an ongoing risk whether perpetrated through employee collusion or negligence or through deliberate cyber-attack. Moreover, if we are found to be in violation of the privacy or security rules under PIPEDA or other laws protecting the confidentiality of patient health information, including as a result of data theft and privacy breaches, we could be subject to sanction, litigation and civil or criminal penalties, which could increase our liabilities and harm our reputation.\n\n\n\u00a0\n\n\nAs cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. While we have implemented security resources to protect our data security and information technology systems, such measures may not prevent such events. Significant disruption to our information technology system or breaches of data security could have a material adverse effect on our business, financial condition and results of operations.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       31\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe cannabis industry continues to face significant funding challenges, and we may not be able to secure adequate or reliable sources of funding, which may impact our operations and potential expansion.\n\n\n\u00a0\n\n\nThe continued development of our business will require significant additional financing, and there is no assurance that we will be able to obtain the financing necessary to achieve our business objectives. Our ability to obtain additional financing will depend on investor demand, our performance and reputation, market conditions, and other factors. Our inability to raise such capital could result in the delay or indefinite postponement of our current business objectives or our inability to continue to operate our business. There can be no assurance that additional capital or other types of equity or debt financing will be available if needed or that, if available, the terms of such financing will be favorable to us.\n\n\n\u00a0\n\n\nIn addition, from time to time, we may enter into transactions to acquire assets or the capital stock or other equity interests of other entities. Our continued growth may be financed, wholly or partially, with debt, which may increase our debt levels above industry standards.\n\n\n\u00a0\n\n\nOur existing and future debt agreements may contain covenant restrictions that limit our ability to operate our business and pursue beneficial transactions.\n\n\n\u00a0\n\n\nOur existing debt agreements and future debt agreements may contain, covenant restrictions that limit our ability to operate our business, including restrictions on our ability to invest in our existing facilities, incur additional debt or issue guarantees, create additional liens, repurchase stock or make other restricted payments. As a result of these covenants, our ability to respond to changes in business and economic conditions and engage in beneficial transactions, including to obtain additional financing and pursue business opportunities, may be restricted. Furthermore, our failure to comply with our debt covenants could result in a default under our debt agreements, which could permit the holders to accelerate our obligation to repay the debt and to enforce security over our assets. If any of our debt is accelerated, we may not have sufficient funds available to repay it or be able to obtain new financing to refinance the debt.\n\n\n\u00a0\n\n\nServicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.\n\n\n\u00a0\n\n\nOur substantial consolidated indebtedness (refer to the consolidated financial statements included elsewhere in this Form 10-K) may increase our vulnerability to any generally adverse economic and industry conditions. We and our subsidiaries may, subject to the limitations in the terms of our existing and future indebtedness, incur additional debt, secure existing or future debt or recapitalize our debt. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our current and future indebtedness, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control, including rising interest rates. Our business has not generated positive cash flow from operations. If this continues in the future, we may not have sufficient cash flows to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our current and future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.\n\n\n\u00a0\n\n\nManagement may not be able to successfully establish and maintain effective internal controls over financial reporting.\n\n\n\u00a0\n\n\nManagement is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rules 13a-15(f) and 15d(f) under the Exchange Act, internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with United States Generally Accepted Accounting Principles (\u201cGAAP\u201d). Due to the work around integration and modification to internal control over financial reporting and other policies and procedures, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       32\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIt is not expected that our disclosure controls and procedures and internal controls over financial reporting will prevent all error or fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system\u2019s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements. The inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual acts of certain persons, by collusion of two or more people or by management override of the controls. Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected in a timely manner or at all. We cannot guarantee that we will not have a material weakness in our internal controls in the future. If we experience any material weakness in our internal controls in the future, our financial statements may contain misstatements and we could be required to restate our financial statements.\n\n\n\u00a0\n\n\nBecause a significant portion of our sales are generated in Canada and other countries outside the United States, fluctuations in foreign currency exchange rates could harm our results of operations.\n\n\n\u00a0\n\n\nThe reporting currency for our financial statements is the United States dollar. We derive a significant portion of our revenue and incur a significant portion of our operating costs in Canada and Europe, as well as other countries outside the United States, including Australia. As a result, changes in the exchange rate in these jurisdictions relative to the United States dollar, may have a significant, and potentially adverse, effect on our results of operations. Our primary risk of loss regarding foreign currency exchange rate risk is caused by fluctuations in the exchange rates between the United States dollar against the Canadian dollar and the Euro, although as we expand internationally, we will be subject to additional foreign currency exchange risks. Because we recognize revenue in Canada in Canadian dollars and revenue in Europe in Euros, if either or both of these currencies weaken against the United States dollar it would have a negative impact on our Canadian and/or European operating results upon the translation of those results into United States dollars for the purposes of consolidation. In addition, a weakening of these foreign currencies against the United States dollar would make it more difficult for us to meet our obligations under the convertible securities we have issued. We have not historically engaged in hedging transactions and do not currently contemplate engaging in hedging transactions to mitigate foreign exchange risks. As we continue to recognize gains and losses in foreign currency transactions, depending upon changes in future currency rates, such gains or losses could have a significant, and potentially adverse, effect on our results of operations.\n\n\n\u00a0\n\n\nWe may have exposure to greater than anticipated tax liabilities, which could harm our business.\n\n\n\u00a0\n\n\nOur income tax obligations are based on our corporate operating structure and third-party and intercompany arrangements, including the manner in which we develop, value and use our intellectual property and the valuations of our intercompany transactions. The tax laws applicable to our international business activities, including the laws of the United States, Canada and other jurisdictions, are subject to change and uncertain interpretation. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology, intercompany arrangements, or transfer pricing, all of which could increase our worldwide effective tax rate and the amount of taxes that we pay and harm our business. Taxing authorities may also determine that the manner in which we operate our business is not consistent with how we report our income, which could increase our effective tax rate and the amount of taxes that we pay and could seriously harm our business. In addition, our future income taxes could fluctuate because of earnings being lower than anticipated in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities or by changes in tax laws, regulations or accounting principles.\n\n\n\u00a0\n\n\nWe are subject to regular review and audit by federal, state, provincial and local tax authorities. Any adverse outcome from a review or audit could seriously harm our business. In addition, determining our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are many transactions where the ultimate tax determination is uncertain. Although we believe that the amounts recorded in our financial statements are reasonable, the ultimate tax outcome relating to such amounts may differ for such period or periods and may seriously harm our business. Furthermore, due to shifting economic and political conditions, tax policies, laws, or rates in various jurisdictions, we may be subject to significant changes in ways that impair our financial results. Our results of operations and cash flows could be adversely affected by additional taxes imposed on us prospectively or retroactively or additional taxes or penalties resulting from the failure to comply with any collection obligations or failure to provide information for tax reporting purposes to various government agencies.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       33\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe may not be able to utilize our net operating loss carryforwards which could result in greater than anticipated tax liabilities.\n\u00a0\n\n\n\u00a0\n\n\nWe have accumulated net operating loss carryforwards in the United States, Canada and other jurisdictions.\u00a0\u00a0Our ability to use our net operating loss carryforwards is dependent upon our ability to generate taxable income in future periods. In addition, these\u00a0net operating loss carryforwards could expire unused or be subject to limitations which impact our ability to offset future income tax liabilities. U.S. federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely.\u00a0 However, our\u00a0Canadian net operating loss carry-forwards begin to expire in 2028, and limited carryforward periods also exist in other jurisdictions. As a result, we may not be able realize the full benefit of our\u00a0net operating loss\u00a0carryforwards in Canada and other jurisdictions, which could result in increased future tax liability to us.\u00a0 Further, our ability to utilize net operating loss carryforwards in the United States and other jurisdictions could be limited from ownership changes in the current and/or prior periods.\n\n\n\u00a0\n\n\nRisks Related to our Intellectual Property\n\n\n\u00a0\n\n\nWe may not be able to adequately protect our intellectual property.\n\n\n\u00a0\n\n\nAs long as cannabis remains illegal under U.S. federal law as a Schedule I controlled substance under the CSA, the benefit of certain federal laws and protections that may be available to most businesses, such as federal trademark and patent protection, may not be available to us. As a result, our intellectual property may not be adequately or sufficiently protected against the use or misappropriation by third parties under such U.S. laws. In addition, since the regulatory framework of the cannabis industry is in a state of flux, we can provide no assurance that we will obtain protection for our intellectual property, whether on a federal, state or local level.\n\n\n\u00a0\n\n\nWe may not realize the full benefit of the clinical trials or studies that we participate in if we are unable to secure ownership or the exclusive right to use the resulting intellectual property on commercially reasonable terms.\n\n\n\u00a0\n\n\nAlthough we have participated in several clinical trials, we are not the sponsor of many of these trials and, as such, do not have full control over the design, conduct and terms of the trials. In some cases, for instance, we are only the provider of a cannabis study drug for a trial that is designed and initiated by an independent investigator within an academic institution. In such cases, we are often not able to acquire rights to all the intellectual property generated by the trials. Although the terms of all clinical trial agreements entered into by us provide us with, at a minimum, ownership of intellectual property relating directly to the study drug being trialed (\ne.g.\n intellectual property relating to use of the study drug), ownership of intellectual property that does not relate directly to the study drug is often retained by the institution. As such, we are vulnerable to any dispute among the investigator, the institution and us with respect to classification and therefore ownership of any particular piece of intellectual property generated during the trial. Such a dispute may affect our ability to make full use of intellectual property generated by a clinical trial.\n\n\n\u00a0\n\n\nWhere intellectual property generated by a trial is owned by the institution, we are often granted a right of first negotiation to obtain an exclusive license to such intellectual property. If we exercise such a right, there is a risk that the parties will fail to come to an agreement on the license, in which case such intellectual property may be licensed to other parties or commercialized by the institution.\n\n\n\u00a0\n\n\nRisks Related to Ownership of Our Securities\n\n\n\u00a0\n\n\nThe price of our common stock in public markets has experienced and may continue to experience severe volatility and fluctuations.\n\n\n\u00a0\n\n\nThe market price for our common stock, and the market price of stock of other companies operating in the cannabis industry, has been extremely volatile. For example, during the 2023\u00a0fiscal year, the trading price of our common stock ranged between a low sales price of $1.78 and a high sales price of $5.12. The market price of our common stock may continue to be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond our control, including the following: (i) actual or anticipated fluctuations in our quarterly results of operations; (ii) recommendations by securities research analysts; (iii) changes in the economic performance or market valuations of other issuers that investors deem comparable to us; (iv) the addition or departure of our executive officers or other key personnel; (v) the release or expiration of lock-up or other transfer restrictions on our common stock; (vi) sales or perceived sales, or the expectation of future sales, of our common stock; (vii) significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; (viii) news reports or social media relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in the cannabis industry or our target markets; and (ix) the increase in the number of retail investors and their participation in social media platforms targeted at speculative investing.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       34\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe volatility of our stock and the stockholder base may hinder or prevent us from engaging in beneficial corporate initiatives.\n\n\n\u00a0\n\n\nOur stockholder base is comprised of a large number of retail (or non-institutional) investors, which creates more volatility since stock changes hands frequently.\u00a0\u00a0In accordance with our governing documents and applicable laws, there are a number of initiatives that require the approval of stockholders at the annual or a special meeting. To hold a valid meeting, a quorum comprised of stockholders representing one-third of the voting power of our outstanding shares of common stock is necessary. A record date is established to determine which stockholders are eligible to vote at the meeting, which record date must be 30 \u2013 60 days prior to the meeting. Since our stocks change hands frequently, there can be a significant turnover of stockholders between the record date and the meeting date which makes it harder to get stockholders to vote.\u00a0While we make every effort to engage retail investors, such efforts can be expensive and the frequent turnover creates\u00a0logistical issues. Further retail investors tend to be less likely to vote in comparison to institutional investors.\u00a0Failure to secure sufficient votes or\u00a0to achieve the minimum quorum needed for a meeting to happen\u00a0may impede our ability to move forward with initiatives that are intended to grow the business and create stockholder value or prevent us from engaging in such initiatives at all.\u00a0If we find it necessary to delay or adjourn meetings or to seek approval again, it will be time consuming and we will incur additional costs.\u00a0\n\n\n\u00a0\n\n\nThe terms of our outstanding warrants may limit our ability to raise additional equity capital or pursue acquisitions, which may impact funding of our ongoing operations and cause significant dilution to existing stockholders.\n\n\n\u00a0\n\n\nOn March\u00a013, 2020, we entered into an underwriting agreement with Canaccord Genuity LLC relating to the issuance and sale of shares of our common stock at a price to the public of $4.76 per share and included warrants to purchase additional common stock at a price of $4.7599 per warrant.\u00a0\u00a0As of May 31, 2023, 6,209,000 warrants remain outstanding and do not expire until March 13, 2025. The warrants contain a price protection, or anti-dilution feature, pursuant to which, the exercise price of such warrants will be reduced to the consideration paid for, or the exercise price or conversion price of, as the case may be, any newly issued securities issued at a discount to the original warrant exercise price of $5.95 per share. Therefore, the exercise price of the warrants may end up being lower than $5.95 per share, which could result in incremental dilution to existing stockholders.\n\n\n\u00a0\n\n\nAdditionally, so long as the warrants remain outstanding, we may only issue up to $20 million in aggregate gross proceeds under our at-the-market offering program at prices less than the exercise price of the warrants, and in no event more than $6 million per quarter at prices below the exercise price of the warrants, without triggering the warrant\u2019s anti-dilution feature described in the paragraph immediately above. If our stock price were to remain below the warrant exercise price of $5.95 per share for an extended time, we may be forced to lower the warrant exercise price at unfavorable terms in order to fund our ongoing operations. As of May 31, 2023, the warrant exercise price was $3.15. Refer to Part II, Item 8, Note 20, \nWarrants\n, of this form 10-K for additional information.\n\n\n\u00a0\n\n\nIf securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.\n\n\n\u00a0\n\n\nThe trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the securities or industry analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       35\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe may not have the ability to raise the funds necessary to settle conversions of the Convertible Securities in cash or to repurchase the Convertible Securities upon a fundamental change.\n\n\n\u00a0\n\n\nWe issued various securities convertible into shares of our common stock, or Convertible Securities. Holders of certain Convertible Securities have the right to require us to repurchase their Convertible Securities upon the occurrence of a fundamental change. In addition, upon conversion, unless we deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Convertible Securities being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Convertible Securities surrendered. In addition, our ability to repurchase the Convertible Securities or to pay cash upon conversions of the Convertible Securities may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase Convertible Securities at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the Convertible Securities as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our existing or future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Convertible Securities or make cash payments upon conversions thereof.\n\n\n\u00a0\n\n\nThe conditional conversion feature of the Convertible Securities, if triggered, may adversely affect our financial condition and operating results.\n\n\n\u00a0\n\n\nIn the event a conditional conversion feature of the Convertible Securities is triggered, holders of Convertible Securities will be entitled to convert the Convertible Securities at any time during specified periods at their option. If one or more holders elect to convert their Convertible Securities, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders of Convertible Securities do not elect to convert their Convertible Securities, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Securities as a current rather than long-term liability, which would result in a material reduction of our net working capital.\n\n\n\u00a0\n\n\nConversion of the Convertible Securities may dilute the ownership interest of our stockholders or may otherwise depress the price of our common stock.\n\n\n\u00a0\n\n\nThe conversion of some or all of the Convertible Securities may dilute the ownership interests of our stockholders. Upon conversion of the Convertible Securities, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock. If we elect to settle our conversion obligation in shares of our common stock or a combination of cash and shares of our common stock, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Convertible Securities may encourage short selling by market participants because the conversion of the Convertible Securities could be used to satisfy short positions, or anticipated conversion of the Convertible Securities into shares of our common stock could depress the price of our common stock.\n\n\n\u00a0\n\n\nCertain provisions in the indentures governing the Convertible Securities may delay or prevent an otherwise beneficial takeover attempt of us.\n\n\n\u00a0\n\n\nCertain provisions in the indentures governing the Convertible Securities may make it more difficult or expensive for a third party to acquire us. For example, we may be required to repurchase certain Convertible Securities for cash upon the occurrence of a fundamental change and, in certain circumstances, to increase the relevant conversion rate for a holder that converts its Convertible Securities in connection with a make-whole fundamental change. A takeover of us may trigger the requirement that we repurchase the Convertible Securities and/or increase the conversion rate, which could make it more costly for a potential acquirer to engage in such takeover. Such additional costs may have the effect of delaying or preventing a takeover of us that would otherwise be beneficial to investors.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       36\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur stockholders may be subject to dilution resulting from future offerings of common stock by us.\n\n\n\u00a0\n\n\nWe may raise additional funds in the future by issuing common stock or equity-linked securities. Holders of our securities have no preemptive rights in connection with such further issuances. Our board of directors has the discretion to determine if an issuance of our capital stock is warranted, the price at which such issuance is to be effected and the other terms of any future issuance of capital stock. In addition, additional common stock will be issued by us in connection with the exercise of options or grant of other equity awards granted by us. Such additional equity issuances could, depending on the price at which such securities are issued, substantially dilute the interests of the holders of our existing securities.\n\n\n\u00a0\n\n\nProvisions in our corporate charter documents could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current board of directors.\n\n\n\u00a0\n\n\nProvisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. Among others, these provisions include the following:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nOur board of directors is divided into three classes with staggered three-year terms which may delay or prevent a change of our management or a change in control;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nOur board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nExcept in limited circumstances, our stockholders may not act by written consent or call special stockholders\u2019\u00a0meetings; as a result, a holder, or holders, controlling a majority of our capital stock would not be able to take certain actions other than at annual stockholders\u2019\u00a0meetings or special stockholders\u2019\u00a0meetings called by the board of directors, the chairman of the board or our chief executive officer;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nOur certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nStockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders\u2019\u00a0meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer\u2019s own slate of directors or otherwise attempting to obtain control of our company; and\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nOur board of directors may issue, without stockholder approval, shares of undesignated preferred stock; the ability to issue undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nGeneral Risk Factors\n\n\n\u00a0\n\n\nWe may not be able to maintain adequate insurance coverage, the premiums may not continue to be commercially justifiable, and coverage limitations or exclusions may leave us exposed to uninsured liabilities.\n\n\n\u00a0\n\n\nWe currently maintain insurance coverage, including product liability insurance, protecting many, but not all, of our assets and operations. Our insurance coverage is subject to coverage limits and exclusions and may not be available for all of the risks and hazards to which we are exposed, or the coverage limits may not be sufficient to protect against the full amount of loss. In addition, no assurance can be given that such insurance will be adequate to cover our liabilities, including potential product liability claims, or will be generally available in the future or, if available, that premiums will be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, we may be exposed to material uninsured liabilities that could diminish our liquidity, profitability or solvency.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       37\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe financial reporting obligations of being a public company and maintaining a dual listing on the TSX and on NASDAQ requires significant company resources and management attention.\n\n\n\u00a0\n\n\nWe are subject to the public company reporting obligations under the \nExchange Act\n and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act, the Dodd-Frank Act, and the listing requirements of Nasdaq Global Select Market (\u201cNASDAQ\u201d) and the Toronto Stock Exchange (\u201cTSX\u201d). We incur significant legal, accounting, reporting and other expenses in order to maintain a dual listing on both the TSX and NASDAQ. Moreover, our listing on both the TSX and NASDAQ may increase price volatility due to various factors, including the ability to buy or sell common shares, different market conditions in different capital markets and different trading volumes. In addition, low trading volume may increase the price volatility of the common shares.\n\n\n\u00a0\n\n\nAs a cannabis company, we may be subject to heightened scrutiny in Canada and the United States that could materially adversely impact the liquidity of our shares of common stock.\n\n\n\u00a0\n\n\nOur existing operations in the United States, and any future operations, may become the subject of heightened scrutiny by regulators, stock exchanges and other authorities in the United States and Canada.\n\n\n\u00a0\n\n\nGiven the heightened risk profile associated with cannabis in the United States, the Canadian Depository for Securities Ltd., or CDS, may implement procedures or protocols that would prohibit or significantly impair the ability of CDS to settle trades for companies that have cannabis businesses or assets in the United States.\n\n\n\u00a0\n\n\nOn February 8, 2018, following discussions with the Canadian Securities Administrators and recognized Canadian securities exchanges, the TMX Group, the parent company of CDS, announced the signing of a Memorandum of Understanding (the \u201cTMX MOU\u201d) with Aequitas NEO Exchange Inc., the CSE, the Toronto Stock Exchange, and the TSX Venture Exchange. The TMX MOU outlines the parties\u2019 understanding of Canada\u2019s regulatory framework applicable to the rules, procedures, and regulatory oversight of the exchanges and CDS as it relates to issuers with cannabis-related activities in the United States. The TMX MOU confirms, with respect to the clearing of listed securities, that CDS relies on the exchanges to review the conduct of listed issuers. As a result, there is no CDS ban on the clearing of securities of issuers with cannabis-related activities in the United States. However, there can be no assurances given that this approach to regulation will continue in the future. If such a ban were to be implemented, it could have a material adverse effect on the ability of holders of the common stock to settle trades. In particular, the shares of common stock would become highly illiquid until an alternative was implemented, and investors would have no ability to effect a trade of the common stock through the facilities of a stock exchange.\n\n\n\u00a0\n\n\nTax and accounting requirements may change in ways that are unforeseen to us and we may face difficulty or be unable to implement or comply with any such changes.\n\n\n\u00a0\n\n\nWe are subject to numerous tax and accounting requirements, and changes in existing accounting or taxation rules or practices, or varying interpretations of current rules or practices, could have a significant adverse effect on our financial results, the manner in which we conduct our business or the marketability of any of our products. We currently maintain international operations and plan to expand such operations in the future. These operations, and any expansion thereto, will require us to comply with the tax laws and regulations of multiple jurisdictions, which may vary substantially. Complying with the tax laws of these jurisdictions can be time consuming and expensive and could potentially subject us to penalties and fees in the future if we fail to comply.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       38\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe may be materially adversely affected by negative impacts on the global economy, capital markets or other geopolitical conditions resulting from the recent invasion of Ukraine by Russia and subsequent sanctions against Russia, Belarus and related individuals and entities. \n\n\n\u00a0\n\n\nUnited States and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the recent invasion of Ukraine by Russia in February 2022. In response to such invasion, the North Atlantic Treaty Organization (\u201cNATO\u201d) deployed additional military forces to eastern Europe, and the United States, the United Kingdom, the European Union and other countries have announced various sanctions and restrictive actions against Russia, Belarus and related individuals and entities, including the removal of certain financial institutions from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment system. Certain countries, including the United States, have also provided and may continue to provide military aid or other assistance to Ukraine during the ongoing military conflict, increasing geopolitical tensions with Russia. The invasion of Ukraine by Russia and the resulting measures that have been taken, and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing military conflict in Ukraine is highly unpredictable, the conflict could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. Additionally, Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets.\n\n\n\u00a0\n\n\nAny of the above mentioned factors, or any other negative impact on the global economy, capital markets or other geopolitical conditions resulting from the Russian invasion of Ukraine and subsequent sanctions, could adversely affect our business. The extent and duration of the Russian invasion of Ukraine, resulting sanctions and any related market disruptions are impossible to predict, but could be substantial, particularly if current or new sanctions continue for an extended period of time or if geopolitical tensions result in expanded military operations on a global scale. Any such disruptions may also have the effect of heightening many of the other risks described in this \u201cRisk Factors\u201d section, such as those related to the market for our securities, cross-border transactions or our ability to raise equity or debt financing. If these disputes or other matters of global concern continue for an extensive period of time, our operations may be adversely affected.\n\n\n\u00a0\n\n\nIn addition, the recent invasion of Ukraine by Russia, and the impact of sanctions against Russia, and the potential for retaliatory acts from Russia, could result in increased cyber-attacks\u00a0against U.S. companies.\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A. Risk Factors\u201d\n and the financial information and the notes thereto included in Part II, Item 8 of this Form 10-K in this Annual Report for the fiscal year ended May 31, 2023 (\n\u201c\nAnnual Report\n\u201d\n). We use certain non-GAAP measures that are more fully described below under the caption \n\u201c\u2014\nUse of Non-GAAP Measures,\n\u201d\n which we believe are appropriate supplemental non-GAAP measures to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions.\n\n\n\u00a0\n\n\nAmounts are presented in thousands of United States dollars, except for shares, warrants, per share data and per warrant data or as otherwise noted. \n\n\n\u00a0\n\n\nCompany Overview \n\n\n\u00a0\n\n\nWe are a leading global cannabis-lifestyle and consumer packaged goods company headquartered in Leamington and New York, with operations in Canada, the United States, Europe, Australia, and Latin America that is changing people\u2019s lives for the better \u2013 one person at a time \u2013 by inspiring and empowering a worldwide community to live their very best life, enhanced by moments of connection and wellbeing. Tilray\u2019s mission is to be the most responsible, trusted and market leading cannabis consumer products company in the world with a portfolio of innovative, high-quality and beloved brands that address the needs of the consumers, customers and patients we serve.\n\n\n\u00a0\n\n\nOur overall strategy is to leverage our brands, infrastructure, expertise and capabilities to drive market share in the industries in which we compete, achieve industry-leading, profitable growth and build sustainable, long-term shareholder value. In order to ensure the long-term sustainable growth of our Company, we continue to focus on developing strong capabilities in consumer insights, drive category management leadership and assess growth opportunities with the introduction of new products and entries into new geographies. In addition, we are relentlessly focused on managing our cost of goods and expenses in order to maintain our strong financial position.\n\n\n\u00a0\n\n\nTrends and Other Factors Affecting Our Business\n\n\n\u00a0\n\n\nCanadian cannabis market trends.\n\n\n\u00a0\n\n\nThe cannabis industry in Canada continues\u00a0to evolve at a rapid pace during the early periods following the federal legalization of adult-use cannabis. Through analysis of the current market conditions, the following key trends have emerged and are anticipated to influence the near-term future in the industry:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nPrice compression.\n\u00a0We have historically seen price compression in the market, when compared to the prior fiscal year, which was driven by intense competition from the approximately 1,000 Licensed Producers in Canada. The price compression year over year has reduced the Company's revenue by approximately $32.8 million for the year ended May 31, 2023.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nExcise taxes.\n\u00a0Given the impacts of the above-referenced\u00a0price compression, excise tax has grown to become a larger component of net revenue as it is predominantly computed as a fixed price\u00a0on grams sold rather than as a percentage of the selling price. The Cannabis Council of Canada has formed an Excise Task Force to present these challenges to the Ministry of Finance in Canada and continues to pursue reform. Additionally, as many as two-thirds of Canadian licensed producers had excise tax deficits owed, which they were unable to pay on time. The Company believes this will be a key element of potential consolidation in the industry and we believe long term there is a possibility of some level of reform but it will likely not occur in the next 12 months;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nMarket share\n. Tilray continues to maintain its market leadership position in Canada and we experienced an increase in share from 8.1% to an 8.3% market share, from the immediately preceding quarter, as reported by Hifyre data for all provinces excluding Quebec where Weedcrawler was deemed more accurate. This increase in the final quarter of the year, was attributed to our relentless dedication to our innovation pipeline which we anticipate to keep driving market share increases in the coming fiscal year. This increase was offset by challenges in the province of Quebec during the year, which had a negative impact on adult-use revenue during the year.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       44\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nChange in potency preferences\n. Evolving consumer demand for higher potency products has caused a substantial shift in consumer purchasing patterns. We revised our flower strategy to remain innovative and evolve with the industry, launching a large volume of new beta flower strains in the current year which continue to be newly listed in the provinces during the remainder of the fiscal year to contend with this change in demand.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThese identified trends have had impacts on the current period results of operations and are discussed in greater detail in the respective section.\u00a0\n\n\n\u00a0\n\n\nInternational cannabis market trends. \n\n\n\u00a0\n\n\nThe cannabis industry in Europe is in its early stages of development whereby countries within Europe are at different stages of legalization of medical and adult-use cannabis as some countries have expressed a clear political ambition to legalize adult-use cannabis (Germany, Portugal, Luxembourg and Czech Republic), some are engaging in an experiment for adult-use (Netherlands, Switzerland) and some are debating regulations for cannabinoid-based medicine (France, Spain, Italy, and the United Kingdom). In Europe, we believe that, despite continuing recessionary economic conditions and the Russian conflict with Ukraine, cannabis legalization (both medicinal and adult-use) will continue to gain traction albeit more slowly than originally expected. We also continue to believe that Tilray remains uniquely positioned to maintain and gain significant market share in these markets with its infrastructure and its investments, which is comprised of two EU-GMP cultivation facilities within Europe located in Portugal and Germany, our distribution network and our demonstrated commitment to the availability, quality and safety of our cannabinoid-based medical products. Today, Germany remains the largest medical cannabis market in Europe.\n\n\n\u00a0\n\n\nThe following is a summary of the state of cannabis legalization within Europe:\n\n\n\u00a0\n\n\nGermany\n. The new coalition government led by chancellor Olaf Schulz declared its intention to legalize adult-use cannabis use, which aims to regulate the controlled dispensing of\u00a0cannabis for adult-use consumption. In late October 2022, the German government published key details of its plan to legalize and regulate adult-use cannabis, including what Health Minister Karl Lauterbach described as \u201ccomplete\u201d cultivation within the country. Subsequently, Lauterbach announced that a first draft of the proposed regulations shall be issued in the first quarter of calendar year 2023, which will be evaluated by the European Union Commission in a formal notification procedure.\n\n\n\u00a0\n\n\nRecently, Mr. Lauterbach advised that the proposal had been revised and that the new plan is a two-part model, which appears to be designed in order to legalize cannabis as broadly as possibly without running afoul of European Union rules. On July 6, 2023, it was announced that the draft regulations pertaining to decriminalization, home cultivation and non-commercial \u201ccultivation associations\u201d (i.e., social clubs) had been finalized by the health ministry and was ready to be delivered to the German parliament.\n\n\n\u00a0\n\n\nWe continue to believe that Tilray is well-positioned in Germany to provide consistent and sustainable cannabis products for the adult-use market whether only in-country cultivation is permitted or whether imports are also allowed given our Aphria RX facility located in Germany and our EU-GMP-certified production facility in Portugal, as well as our distribution platform, which provides us with access to 13,000 pharmacies in Germany.\n\n\n\u00a0\n\n\nSwitzerland.\n\u00a0In October 2021, Switzerland announced its intention to legalize cannabis by allowing production, cultivation, trade, and consumption. In the meantime, a three-year pilot project commenced on January 30, 2023, which permits selected participants to purchase cannabis for adult-use in various pharmacies in Basel, and more recently in Zurich,\u00a0to conduct studies on the cannabis market and its impact on Swiss society. It is the first trial for the legal distribution of adult-use cannabis containing THC in Europe.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nSpain.\n\u00a0The\u00a0Spanish Congress' Health Committee has recently approved a Medical Cannabis Report that paves the way for a government-sponsored bill on medical cannabis. The Report explicitly opens the door to standardized preparations other than the drugs already approved, highlighting their advantages in relation to safety, security and stability; as well as the possibility to prescribe medical cannabis in community pharmacies and not only in hospitals, favoring the access to the patients that may need it.\n\n\n\u00a0\n\n\nFrance\n. France launched a two-year pilot experiment to supply approximately 3,000 patients with medical cannabis. To date, 2,300 patients are enrolled in the experiment, which has been extended for another year and is now ending March 2024 in order to collect more data and to adopt a legal framework. The first results of the experimentation are positive. Several independent agencies have produced reports that show the effectiveness of medical cannabis, especially in situations of chronic pain.\n\n\n\u00a0\n\n\nCzech Republic.\n The Czech Republic has discussed plans to launch a fully regulated adult-use cannabis market in first half of calendar year 2023.\n\n\n\u00a0\n\n\nMalta\n.\u00a0 In 2021, became the first country in the European Union\u00a0to legalize personal possession of the drug and permit private \u201ccannabis clubs,\u201d where members can grow and share the drug.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       45\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nBeverage alcohol market trends.\n\n\n\u00a0\n\n\nThe beverage alcohol category, while more established, continues to shift with changes in consumer trends for the craft industry. Specifically, based on IRI data for the last 10 weeks ended May 31, 2023, the US beer industry declined 0.6%, with craft beer down 2.7% during the same period SweetWater however, outperformed both the US craft beer market and the US beer industry in the same period as the brand grew 7.7% on total sales for multi-outlet. The Company anticipates continuing to grow its beer sales by expanding distribution points of its SweetWater, Green Flash, Alpine and Montauk brands as well as launching innovative products such as hard seltzers, rose beer, lager, hazy IPAs and pale ales to continue to be a market leader in the craft beer industry.\n\n\n\u00a0\n\n\nBreckenridge Distillery is a leader in the Colorado bourbon industry and continues to gain market share in both the vodka and gin markets. A primary growth objective is to continue expansion of market share across the United States, as well as expanding the national chains footprint, to maintain a double-digit annual top-line growth. To ensure continued growth in the future, the company is focused on expanding the marketing strategy, highlighting its quality products. Breckenridge Distillery\u2019s commitment to quality has been recognized in recent awards by Whisky Magazine as the World's Best Blended, Best American Blended Malt, Best American Blended Limited Release, and Best American Blended. The overall bourbon market continues to grow, although competition from tequila and RTD\u2019s remains a challenge. The integration of the national distributer agreement signed with RNDC in Fall 2022 has been slow, but will also be a growth driver for the business.\n\n\n\u00a0\n\n\nWellness market trends.\n\n\n\u00a0\n\n\nManitoba Harvest\u2019s branded hemp business continued to expand its U.S. and Canadian leading market share position this year. These market share gains were offset by many customers reducing inventory levels amidst the current economic climate to conserve cash. During the year, the Company successfully expanded its Hemp Food portfolio into more accessible consumer formats and launched a breakthrough CBD wellness beverage, Happy Flower\u2122. The Company will look to expand the Happy Flower\u2122 brand with retail distribution into key markets, focusing on states with established CBD permissibility and sales momentum in future periods.\u00a0\n\n\n\u00a0\n\n\nAcquisitions, Strategic Transactions and Synergies\n\n\n\u00a0\n\n\n\u00a0We strive to continue to expand our business on a consolidated basis, through a combination of organic growth and acquisition. While we continue to execute against our strategic initiatives that we believe will result in the long-term, sustainable growth and value to our stockholders, we continue to evaluate potential acquisitions and other strategic transactions of businesses that we believe complement our existing portfolio, infrastructure and capabilities or provide us with the opportunity to enter attractive new geographic markets and product categories as well as expand our existing capabilities. In addition, we have exited certain businesses and continue to evaluate certain businesses within our portfolio that are dilutive to profitability and cash flow. As a result, we incur transaction costs in connection with identifying and completing acquisitions and strategic transactions, as well as ongoing integration costs as we combine acquired companies and continue to achieve synergies, which is offset by income generated in connection with the execution of these transactions.\u00a0 For the year ended May 31, 2023, we incurred $1.6 million of transaction costs, net of recoveries.\n\n\n\u00a0\n\n\nOur acquisition and wind down strategy has had a material impact on the Company\u2019s results in the current quarter and we expect will continue to persist into future periods generating accretive impacts for our stockholders. There are currently three primary cost saving initiatives as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nTilray and HEXO strategic alliance and Arrangement Agreement:\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOn July 12, 2022, Tilray acquired the HEXO Convertible Note from HTI and entered into\u00a0a strategic alliance with HEXO Corp. (\u201cHEXO\u201d) as discussed in Note 11 (Convertible notes receivable) and Note 17 (Convertible debentures payable). In addition, Tilray and HEXO entered into various commercial transaction agreements, including (i) an advisory services agreement regarding Tilray\u2019s provision of advisory services to HEXO in exchange for an $18 million annual advisory fee payable to Tilray; (ii) a co-manufacturing agreement providing for third-party manufacturing services between the parties and setting forth the terms of Tilray\u2019s international bulk supply to HEXO; and (iii) a procurement and cost savings agreement for shared savings related to specified optimization activities, procurement, and other similar cost savings realized by the parties as a result of the foregoing commercial arrangements.\u00a0\n\n\n\u00a0\n\n\nThrough this strategic alliance, Tilray achieved substantial cash savings and production efficiencies. In the year ended May 31, 2023, the Company recognized\u00a0$40.4 million of advisory services revenue included in Canadian adult-use cannabis revenue. Included in interest expense, net is $7.7 million of interest income for the year ended May 31, 2023. The Company earned $47.9 from this transaction during the year, which exceeded the initial target of $40 million to be earned during the first 12 month period in connection with the HEXO Convertible Note transaction.\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       46\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOn April 10, 2023, Tilray entered into an Arrangement Agreement to purchase 100% of the outstanding shares of HEXO to be satisfied through the issuance of 0.4352 of Tilray Common Stock for each outstanding HEXO share, see Note 30\u00a0(Subsequent events). The acquisition of HEXO builds on the successful strategic alliance between the two companies and positions\u00a0Tilray\u00a0for continued strong growth and market leadership in\u00a0Canada, the largest federally legal cannabis market in the world. The company expects to realize $25 million of additional synergies over the first two years from the transaction close date.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nCanadian Cannabis business cost reduction plan:\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nDuring our fourth quarter of our fiscal year ended May 31, 2022, the Company launched a $30 million cost optimization plan of our existing cannabis business to solidify our position as an industry leading low-cost producer. The Company took decisive action to manage cash flow\u00a0amid an evolving retail environment by identifying opportunities to leverage technology, supply chain, procurement, and packaging efficiencies while driving labor savings. During the year ended May 31, 2023, we have achieved $22 million of our cost optimization plan on an annualized run-rate basis of which $18.5 million represented actual cost savings during the period. The amount achieved is comprised of the following items:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nOptimizing cultivation\n. We made impactful strides to right-size our cultivation footprint by maximizing our yield per plant and by honing the ability to flex production during optimal growing seasons to manage our cost to grow.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nRefining selling fees.\n\u00a0We assessed our current product-to-market strategy to optimize our direct and controllable selling fees as a percentage of revenue without compromising our sales strategy on a go-forward basis.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nReducing general and administrative costs\n. We remain focused on reducing operating expenses by leveraging innovative solutions to maintain a lean organization. We plan to further automate processes, reducing outside spend where efficient, and ensuring we are obtaining competitive pricing on our administrative services.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nInternational Cannabis business cost reduction plan:\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nDuring our fiscal year ended May 31 2023, the Company launched an $8.0 million cost optimization plan for our international cannabis business to adapt to changing market dynamics and slower than anticipated legalization in Europe. During the year, the Company achieved an annualized run-rate basis of $6.2 million of cost savings. This was driven by the integration of our Distribution and European cannabis business for redundant costs including headcount consolidation in addition to\u00a0optimization of our facility utilization. \u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nTilray-Aphria Arrangement Agreement:\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn connection with the Tilray-Aphria Arrangement Agreement, we committed to achieving $80 million, subsequently increased to $100 million, of synergies in connection with the integration of Tilray and Aphria and developed a robust plan and timeline to achieve such synergies. In executing our integration plan, we evaluated and optimized the organizational structure, evaluated and retained the talent and capabilities we identified as necessary to achieve our longer-term growth plan and vision, reviewed contracts and arrangements, and analyzed our supply chain and our strategic partnerships. Due to the Company\u2019s actions in connection with the integration of Tilray and Aphria, during the prior fiscal year ended May 31, 2022, we exceeded the identified $80 million of cost synergies by $5 million and achieved such synergies ahead of our plan.\n\n\n\u00a0\n\n\nDuring the year ended May 31, 2023, the Company achieved the remaining $15 million of the targeted $100 million in cost-saving synergies on an annualized run-rate basis. While this milestone marks the completion of the Tilray and Aphria Arrangement Agreement synergy plan, the Company intends to continue to prioritize cost saving initiatives in the future while remaining committed to our growth plan and vision.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\u2022\n\n\n \nStrategic transactions related to facility closures and exits:\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn connection with evaluating the profitability of our CC Pharma distribution business, Tilray decided to discontinue its partnership in a medical device reprocessing business given it was not core to CC Pharma's business and was both dilutive from a profitability and cash flow perspective.\u00a0In connection with evaluating the profitability of our international cannabis business, Tilray also discontinued transactions with one of its customers in Israel to\u00a0focus on markets which we believe are more accretive to our profitability and cash flow. In addition, Tilray terminated its relationship with a supplier in Uruguay due to a breach of the underlying contract. During the year ended May 31, 2023 the Company sold its interest in ASG Pharma Ltd., a wholly-owned subsidiary incorporated in Malta.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       47\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAs a result of these strategic business decisions, there were the following impacts on the results for the year ended May 31, 2023\u00a0aggregating\u00a0$9.3\u00a0million which increased our net loss, summarized as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nwe recognized a one-time return adjustment of $3.1 million in our international cannabis revenue from a customer in Israel;\u00a0\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nwe recognized a decrease in gross profit of $1.4 million which related to the above mentioned return from a customer in Israel;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nWe recognized restructuring charges of $1.6 million of exit costs and $2.8 million for inventory adjustments from the termination of our producer partnership in Uruguay due to a breach of the underlying contract;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nthere was an increase to office and general expenses of $1.6 million for a bad debt expense related to the aforementioned customer in Israel; and\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nthe Company recognized a $2.2 million of restructuring costs as a result of CC pharma discontinuing its partnership in the medical reprocessing business.\u00a0\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n-\n \n\n\n \nthe Company recognized a $0.3 million gain on the disposal of our investment in ASG Malta in other non-operating (loss) gain, net.\u00a0\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe impacts of the items discussed in this section are assessed further in our analysis of the results of operations below.\u00a0\n\n\n\u00a0\n\n\nBusiness Acquisitions\n\n\n\u00a0\n\n\nAcquisition of Montauk Brewing Company, Inc.\n\n\n\u00a0\n\n\nOn November 7, 2022, Tilray acquired Montauk Brewing Company, Inc. (\u201cMontauk\u201d), a leading craft brewer company based in Montauk, New York.\u00a0 As consideration for the acquisition of Montauk, the Company paid after post closing adjustments\u00a0of\u00a0$35.1 million, which was paid with $28.7 million in cash and\u00a0$6.4 million from the issuance of 1,708,521 shares of Tilray's common stock. In the event that Montauk\u00a0achieves certain volume and/or EBITDA targets on or before December 31, 2025, the stockholders of Montauk shall be eligible to receive as\u00a0additional contingent\u00a0cash consideration of up to $18 million. The Company, determined that the closing date fair\u00a0value\u00a0of this contingent consideration was\u00a0$10.2 million. In connection with this transaction, the Company is leveraging\u00a0SweetWater\u2019s existing nationwide infrastructure and Montauk\u2019s northeast influence to significantly expand our distribution network and drive profitable growth in our beverage-alcohol segment. This distribution network is part of Tilray\u2019s strategy to leverage our growing portfolio of CPG brands and ultimately to launch THC-based product adjacencies upon federal legalization in the\u00a0U.S.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       48\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nResults of Operations\n\n\n\u00a0\n\n\nOur consolidated results, in millions except for per share data, are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands of U.S. dollars)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 vs. 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet revenue\n \n\n\n\u00a0\n\n\n$\n\n\n627,124\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n628,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n513,085\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,248\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n115,287\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22\n\n\n%\n\n\n\n\n\n\n \nCost of goods sold\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n480,164\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n511,555\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n389,903\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(31,391\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n121,652\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31\n\n\n%\n\n\n\n\n\n\n \nGross profit\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n146,960\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n116,817\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n123,182\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,143\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,365\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5\n\n\n)%\n\n\n\n\n\n\n \nOperating expenses:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nGeneral and administrative\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n165,159\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n162,801\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n111,575\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,358\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n51,226\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n46\n\n\n%\n\n\n\n\n\n\n \nSelling\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n34,840\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34,926\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,576\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(86\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,350\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31\n\n\n%\n\n\n\n\n\n\n \nAmortization\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n93,489\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n115,191\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35,221\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(21,702\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n79,970\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n227\n\n\n%\n\n\n\n\n\n\n \nMarketing and promotion\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n30,937\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,934\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,539\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,395\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n76\n\n\n%\n\n\n\n\n\n\n \nResearch and development\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n682\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,518\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n830\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(836\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(55\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n688\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n83\n\n\n%\n\n\n\n\n\n\n \nChange in fair value of contingent consideration\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n855\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(44,650\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n45,505\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(102\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(44,650\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\n\n\n\n \nImpairments\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n934,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n378,241\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n555,759\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n147\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n378,241\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\n\n\n\n \nOther than temporary change in fair value of convertible notes receivable\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n246,330\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n246,330\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\n\n\n\n \nLitigation (recovery) costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(505\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,518\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,251\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17,023\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(103\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,267\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n408\n\n\n%\n\n\n\n\n\n\n \nRestructuring costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n9,245\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n795\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,450\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,063\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n795\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\n\n\n\n \nTransaction costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,613\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,944\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n60,361\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(29,331\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(95\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(29,417\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(49\n\n\n)%\n\n\n\n\n\n\n \nTotal operating expenses\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,516,645\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n727,218\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n255,353\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n789,427\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n109\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n471,865\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n185\n\n\n%\n\n\n\n\n\n\n \nOperating loss\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,369,685\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(610,401\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(132,171\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(759,284\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n124\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(478,230\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n362\n\n\n%\n\n\n\n\n\n\n \nInterest expense, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(13,587\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(27,944\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(27,977\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,357\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(51\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n33\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0\n\n\n)%\n\n\n\n\n\n\n \nNon-operating (expense) income, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(66,909\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n197,671\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(184,838\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(264,580\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(134\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n382,509\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(207\n\n\n)%\n\n\n\n\n\n\n \nLoss before income taxes\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,450,181\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(440,674\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(344,986\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,009,507\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n229\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(95,688\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n28\n\n\n%\n\n\n\n\n\n\n \nIncome tax benefits, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,181\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,542\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,972\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(639\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,430\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(27\n\n\n)%\n\n\n\n\n\n\n \nNet loss\n \n\n\n\u00a0\n\n\n$\n\n\n(1,443,000\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(434,132\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(336,014\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,008,868\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n232\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(98,118\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n29\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nUse of Non-GAAP Measures\n\n\n\u00a0\n\n\nThe Company reports its financial results in accordance with U.S. GAAP. However, throughout this Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K, we discuss non-GAAP financial measures, including reference to:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nadjusted gross profit (excluding purchase price allocation (\u201cPPA\u201d) step up and inventory valuation allowance) for each reporting segment (Cannabis, Beverage alcohol, Distribution and Wellness),\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nadjusted gross margin (excluding purchase price allocation (\u201cPPA\u201d) step up and inventory valuation allowance) for each reporting segment (Cannabis, Beverage alcohol, Distribution and Wellness),\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nadjusted EBITDA,\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \ncash and marketable securities, and\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nconstant currency presentation of net revenue.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       49\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAll these non-GAAP financial measures should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America, (\u201cGAAP\u201d). These measures are presented to help investors\u2019 overall understanding of our financial performance and should not be considered in isolated or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.\u00a0\u00a0Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These non-GAAP financial measures reflect an additional way of viewing aspects of operations that, when viewed with U.S. GAAP results, provide a more complete understanding of the business. The Company strongly encourages investors and shareholders to review Company financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. Please see \u201cReconciliation of Non-GAAP Financial Measures to GAAP Measures\u201d below for a reconciliation of such non-GAAP Measures to the most directly comparable GAAP financial measures, as well as a discussion of our adjusted gross margin, adjusted gross profit and adjusted EBITDA measures and the calculation of such measures.\n\n\n\u00a0\n\n\nConstant Currency Presentation\n\n\n\u00a0\n\n\nWe believe that this measure provides useful information to investors because it provides transparency to underlying performance in our consolidated net sales by excluding the effect that foreign currency exchange rate fluctuations have on period-to-period comparability given the volatility in foreign currency exchange markets. To present this information for historical periods, current period net sales for entities reporting in currencies other than the U.S. Dollar are translated into U.S. Dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year rather than at the actual average monthly exchange rate in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.\n\n\n\u00a0\n\n\nCash and Marketable Securities\n\n\n\u00a0\n\n\nThe Company combines the Cash and cash equivalent financial statement line item with the Marketable securities financial statement line item as an aggregate total as reconciled in the liquidity and capital resource section below. The Company\u2019s management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its short-term liquidity position by combing these two GAAP metrics.\n\n\n\u00a0\n\n\nOperating Metrics and Non-GAAP Measures\n\n\n\u00a0\n\n\nWe use the following operating metrics and non-GAAP measures to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. Other companies, including companies in our industry, may calculate non-GAAP measures and operating metrics with similar names differently which may reduce their usefulness as comparative measures.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the years ended May 31,\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands of U.S. dollars)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet cannabis revenue\n \n\n\n\u00a0\n\n\n$\n\n\n220,430\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n237,522\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n201,392\n\n\n\u00a0\n\n\n\n\n\n\n \nNet beverage alcohol revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n95,093\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71,492\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,599\n\n\n\u00a0\n\n\n\n\n\n\n \nDistribution Revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n258,770\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n259,747\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n277,300\n\n\n\u00a0\n\n\n\n\n\n\n \nWellness revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n52,831\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,611\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,794\n\n\n\u00a0\n\n\n\n\n\n\n \nCannabis costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n162,755\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n194,834\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n130,511\n\n\n\u00a0\n\n\n\n\n\n\n \nBeverage alcohol costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n48,770\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32,033\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,687\n\n\n\u00a0\n\n\n\n\n\n\n \nDistribution costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n231,309\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n243,231\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n242,472\n\n\n\u00a0\n\n\n\n\n\n\n \nWellness costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n37,330\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41,457\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,233\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal adjusted gross profit (excluding PPA step-up and inventory valuation adjustments)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n206,442\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n186,031\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n143,936\n\n\n\u00a0\n\n\n\n\n\n\n \nCannabis adjusted gross margin (excluding inventory valuation adjustments)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n51\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n43\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n45\n\n\n%\n\n\n\n\n\n\n \nBeverage alcohol adjusted gross margin (excluding PPA step-up)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n53\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n58\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n59\n\n\n%\n\n\n\n\n\n\n \nDistribution gross margin (excluding inventory valuation adjustments)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\n\n\n\n \nWellness gross margin\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n29\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n30\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n%\n\n\n\n\n\n\n \nAdjusted EBITDA\n \n\n\n\u00a0\n\n\n$\n\n\n61,479\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n48,047\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n40,771\n\n\n\u00a0\n\n\n\n\n\n\n \nCash and marketable securities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n448,529\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n415,909\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n488,466\n\n\n\u00a0\n\n\n\n\n\n\n \nWorking capital\n \n\n\n\u00a0\n\n\n$\n\n\n340,050\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n523,161\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n482,368\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \n(1) \n \n\n\n \nAdjusted EBITDA, adjusted gross profit and adjusted gross margin for each of our segments are non-GAAP financial measures. See\n\u00a0\u201c\nReconciliation of Non-GAAP Financial Measures to GAAP Measures\n\u201d\u00a0\nbelow for a reconciliation of these Non-GAAP Measures to our most comparable GAAP measure.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       50\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nSegment Reporting\n\n\n\u00a0\n\n\nOur reportable segments revenue is primarily comprised of revenues from our cannabis, distribution, wellness and beverage alcohol operations, as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands of U.S. dollars)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 vs. 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nCannabis business\n \n\n\n\u00a0\n\n\n$\n\n\n220,430\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n237,522\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n201,392\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(17,092\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n36,130\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n%\n\n\n\n\n\n\n \nDistribution business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n258,770\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n259,747\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n277,300\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(977\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17,553\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6\n\n\n)%\n\n\n\n\n\n\n \nBeverage alcohol business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n95,093\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71,492\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,599\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,601\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,893\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n150\n\n\n%\n\n\n\n\n\n\n \nWellness business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n52,831\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,611\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,794\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,780\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n53,817\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n929\n\n\n%\n\n\n\n\n\n\n \nTotal net revenue\n \n\n\n\u00a0\n\n\n$\n\n\n627,124\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n628,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n513,085\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(1,248\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n115,287\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur reportable segments revenue reported in constant currency\n(1)\n are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nas reported in constant currency\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% Change\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands of U.S. dollars)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\n\n\n\n \nCannabis business\n \n\n\n\u00a0\n\n\n$\n\n\n233,227\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n237,522\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(4,295\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)%\n\n\n\n\n\n\n \nDistribution business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n285,115\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n259,747\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,368\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\n\n\n\n \nBeverage alcohol business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n95,093\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71,492\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,601\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n33\n\n\n%\n\n\n\n\n\n\n \nWellness business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n54,429\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,611\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,182\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9\n\n\n)%\n\n\n\n\n\n\n \nTotal net revenue\n \n\n\n\u00a0\n\n\n$\n\n\n667,864\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n628,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n39,492\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur geographic revenue is, as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands of U.S. dollars)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 vs. 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNorth America\n \n\n\n\u00a0\n\n\n$\n\n\n324,645\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n314,132\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n229,120\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10,513\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n85,012\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n37\n\n\n%\n\n\n\n\n\n\n \nEMEA\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n284,567\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n296,911\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n279,062\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12,344\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,849\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n%\n\n\n\n\n\n\n \nRest of World\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n17,912\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,329\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,903\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n583\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,426\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n253\n\n\n%\n\n\n\n\n\n\n \nTotal net revenue\n \n\n\n\u00a0\n\n\n$\n\n\n627,124\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n628,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n513,085\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(1,248\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n115,287\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n22\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur geographic revenue in constant currency\n(1)\n is, as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nas reported in constant currency\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% Change\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands of U.S. dollars)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNorth America\n \n\n\n\u00a0\n\n\n$\n\n\n335,243\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n314,132\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n21,111\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n%\n\n\n\n\n\n\n \nEMEA\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n309,152\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n296,911\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,241\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n%\n\n\n\n\n\n\n \nRest of World\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n23,469\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,329\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,140\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35\n\n\n%\n\n\n\n\n\n\n \nTotal net revenue\n \n\n\n\u00a0\n\n\n$\n\n\n667,864\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n628,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n39,492\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       51\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur geographic capital assets are, as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands of U.S. dollars)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNorth America\n \n\n\n\u00a0\n\n\n$\n\n\n319,173\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n464,370\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(145,197\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(31\n\n\n)%\n\n\n\n\n\n\n \nEMEA\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n107,131\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n119,409\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12,278\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10\n\n\n)%\n\n\n\n\n\n\n \nRest of World\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n3,363\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,720\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(357\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10\n\n\n)%\n\n\n\n\n\n\n \nTotal capital assets\n \n\n\n\u00a0\n\n\n$\n\n\n429,667\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n587,499\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(157,832\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(27\n\n\n)%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nCannabis revenue \n\n\n\u00a0\n\n\nCannabis revenue based on market channel is, as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands of US dollars)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 vs. 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nRevenue from Canadian medical cannabis\n \n\n\n\u00a0\n\n\n$\n\n\n25,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n30,599\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n25,539\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(5,599\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(18\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n5,060\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n%\n\n\n\n\n\n\n \nRevenue from Canadian adult-use cannabis\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n214,319\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n209,501\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n222,930\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,818\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(13,429\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6\n\n\n)%\n\n\n\n\n\n\n \nRevenue from wholesale cannabis\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,436\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,904\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,615\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,468\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(79\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n289\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n%\n\n\n\n\n\n\n \nRevenue from international cannabis\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n43,559\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n53,887\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,250\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10,328\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n44,637\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n483\n\n\n%\n\n\n\n\n\n\n \nTotal cannabis revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n284,314\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n300,891\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n264,334\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16,577\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n36,557\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n%\n\n\n\n\n\n\n \nExcise taxes\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(63,884\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(63,369\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(62,942\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(515\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(427\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n%\n\n\n\n\n\n\n \nTotal cannabis net revenue\n \n\n\n\u00a0\n\n\n$\n\n\n220,430\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n237,522\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n201,392\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(17,092\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n36,130\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nCannabis revenue based on market channel in constant currency\n(1)\n is, as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nas reported in constant currency\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n% Change\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands of US dollars)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\n\n\n\n \nRevenue from Canadian medical cannabis\n \n\n\n\u00a0\n\n\n$\n\n\n26,612\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n30,599\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(3,987\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(13\n\n\n)%\n\n\n\n\n\n\n \nRevenue from Canadian adult-use cannabis\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n225,694\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n209,501\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,193\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n%\n\n\n\n\n\n\n \nRevenue from wholesale cannabis\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,529\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,904\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,375\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(78\n\n\n)%\n\n\n\n\n\n\n \nRevenue from international cannabis\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n47,434\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n53,887\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,453\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12\n\n\n)%\n\n\n\n\n\n\n \nTotal cannabis revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n301,269\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n300,891\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n378\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\n\n\n\n \nExcise taxes\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(68,042\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(63,369\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,673\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n7\n\n\n%\n\n\n\n\n\n\n \nTotal cannabis net revenue\n \n\n\n\u00a0\n\n\n$\n\n\n233,227\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n237,522\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(4,295\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \n(1)\n \n\n\n \nThe constant currency presentation of our Cannabis revenue based on market channel is a non-GAAP financial measure.\n\u00a0\nSee\n\u00a0\u201c\nUse of Non-GAAP Measures\n\u00a0\u2013\nConstant Currency Presentation\n\u201d\u00a0\nabove for a discussion of these Non-GAAP Measures.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       52\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nRevenue from medical cannabis: \nRevenue from Canadian medical cannabis\u00a0decreased 18%\u00a0to\u00a0$25.0 million for the year ended May 31, 2023\n,\n compared to revenue of $30.6 million for the year ended May 31, 2022. On a constant currency basis revenue from Canadian medical cannabis\u00a0decreased to\u00a0$26.6 million from $30.6 million for the year ended May 31, 2022.\u00a0This decrease in revenue from medical cannabis is primarily driven by increased competition from the adult-use recreational market and its related price compression impacting the medical cannabis market.\n\n\n\u00a0\n\n\nRevenue from adult-use cannabis: \nDuring the year ended, May 31, 2023, our revenue from Canadian adult-use cannabis product\u00a0increased\u00a02% to\u00a0$214.3 million compared to revenue of $209.5 million for the prior year. Due to the decline in the Canadian dollar, on a constant currency basis,\u00a0our revenue from Canadian adult-use cannabis\u00a0increased\u00a08% to $225.7 million for the year ended May 31, 2023. Included in the current period results was the favorable impact of the HEXO arrangement which resulted in\u00a0$40.4 million of\u00a0advisory services revenue for the year ended May 31, 2023 that did not occur in the prior period comparative. This increase was offset by the negative impacts of price compression, challenges in the province of Quebec and change in potency preferences.\n\n\n\u00a0\n\n\nWholesale cannabis revenue:\u00a0\nRevenue from wholesale cannabis\u00a0decreased to\u00a0$1.4 million for the year ended May 31, 2023, compared to revenue of\u00a0 $6.9 million for the prior year same period which is consistent on a constant currency basis. The Company continues to believe that wholesale cannabis revenue will remain subject to quarter-to-quarter variability and is based on opportunistic sales.\n\n\n\u00a0\n\n\nInternational cannabis revenue:\n Revenue from international cannabis\u00a0decreased to\u00a0$43.6 million for the year ended May 31, 2023, compared to revenue of\u00a0 $53.9 million for the year ended May 31, 2022. Given the deterioration of the Euro against the U.S. Dollar in the quarter, on a constant currency basis, revenue from international cannabis\u00a0decreased to\u00a0$47.4 million from\u00a0$53.9 million in the prior year same period. During the year, the Company recognized a one-time return adjustment of $3.1 million related to a customer in Israel. In addition, the Company had $9.8 million of revenue in the prior year to Israel, which did not repeat in the current period results given the challenging and severe deterioration of market conditions in Israel. These negative impacts were partially offset by expansion into other European countries that have legalized medical cannabis.\n\n\n\u00a0\n\n\nDistribution revenue \n\n\n\u00a0\n\n\nRevenue from Distribution operations\u00a0decreased to\u00a0$258.8 million for the year ended May 31, 2023 compared to revenue of\u00a0$259.7 million for the prior year same period. Revenue was negatively impacted during year from the deterioration of the Euro against the U.S. Dollar, which when the impacts are eliminated on a constant currency basis, revenue\u00a0increased to\u00a0$285.1 million for the year ended May 31, 2023 when compared to prior year same period. However, this impact is offset by the impact of the flood that occurred in the comparative prior period and forced a business closure\u00a0for\u00a0approximately five days leading to a decrease in net revenue in the prior\u00a0period of almost $5.0 million, which did not recur in the current year. Additionally, the Company is continuing to prioritize higher margin sales, and as a result of our focus on higher margin sales and capacity constraints, management believes in future periods we can continue to drive larger profit margins despite not increasing revenue in our distribution business as we approach full utilization of our facility.\n\n\n\u00a0\n\n\nBeverage alcohol revenue \n\n\n\u00a0\n\n\nRevenue from our Beverage operations\u00a0increased to $95.1 million the year ended May 31, 2023, compared to revenue of\u00a0$71.5 million for the prior year same period. The increase in the year relates primarily to our acquisition of Montauk on November 7, 2022.\n\n\n\u00a0\n\n\nWellness revenue \n\n\n\u00a0\n\n\nOur Wellness revenue from Manitoba Harvest\u00a0decreased to\u00a0$52.8 million for the year ended May 31, 2023 compared to\u00a0$59.6 million for the prior year same period. On a constant currency basis for the\u00a0year ended May 31, 2023, Wellness revenue\u00a0decreased to\u00a0$54.4 million from\u00a0$59.6 million. The decrease in revenue for the year related to continual changes of inventory management by one of our customers based on a warehousing strategy as well as a decline in sales velocity from a recent price increase required to protect our margin given the inflation on our ingredient costs.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       53\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nGross profit and gross margin\n\n\n\u00a0\n\n\nOur gross profit and gross margin for the years ended May 31, 2023, 2022 and 2021, is as follows, for our each of our operating segments:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \n(in thousands of U.S. dollars)\n \n\n\n\u00a0\n\n\n \nFor the year ended May 31.\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \nCannabis\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 vs. 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet revenue\n \n\n\n\u00a0\n\n\n$\n\n\n220,430\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n237,522\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n201,392\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(17,092\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n36,130\n\n\n\u00a0\n\n\n\n\n\n\n \nCost of goods sold\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n162,755\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n194,834\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n130,511\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(32,079\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n64,323\n\n\n\u00a0\n\n\n\n\n\n\n \nGross profit (loss)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n57,675\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,688\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n70,881\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,987\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(28,193\n\n\n)\n\n\n\n\n\n\n \nGross margin\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n26\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n35\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-17\n\n\n%\n\n\n\n\n\n\n \nInventory valuation adjustments\n \n\n\n\u00a0\n\n\n \n55,000\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,500\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,919\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,500\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n39,581\n\n\n\u00a0\n\n\n\n\n\n\n \nAdjusted gross profit (1)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n112,675\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n102,188\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n90,800\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,487\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,388\n\n\n\u00a0\n\n\n\n\n\n\n \nAdjusted gross margin (1)\n \n\n\n\u00a0\n\n\n \n51\n \n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n43\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n45\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-2\n\n\n%\n\n\n\n\n\n\n \nDistribution\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nNet revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n258,770\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n259,747\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n277,300\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(977\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17,553\n\n\n)\n\n\n\n\n\n\n \nCost of goods sold\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n231,309\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n243,231\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n242,472\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(11,922\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n759\n\n\n\u00a0\n\n\n\n\n\n\n \nGross profit\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n27,461\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,516\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34,828\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,945\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(18,312\n\n\n)\n\n\n\n\n\n\n \nGross margin\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7\n\n\n%)\n\n\n\n\n\n\n \nInventory valuation adjustments\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,500\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,500\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,500\n\n\n\u00a0\n\n\n\n\n\n\n \nAdjusted gross profit (1)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n27,461\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,016\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34,828\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,445\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10,812\n\n\n)\n\n\n\n\n\n\n \nAdjusted gross margin (1)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-4\n\n\n%\n\n\n\n\n\n\n \nBeverage alcohol\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nNet revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n95,093\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71,492\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28,599\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,601\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n42,893\n\n\n\u00a0\n\n\n\n\n\n\n \nCost of goods sold\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n48,770\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32,033\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,687\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,737\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,346\n\n\n\u00a0\n\n\n\n\n\n\n \nGross profit\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n46,323\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n39,459\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,912\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,864\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n23,547\n\n\n\u00a0\n\n\n\n\n\n\n \nGross margin\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n49\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n55\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n56\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n%)\n\n\n\n\n\n\n \nPurchase price accounting step-up\n \n\n\n\u00a0\n\n\n4,482\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,214\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n835\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,268\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,379\n\n\n\u00a0\n\n\n\n\n\n\n \nAdjusted gross profit (1)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n50,805\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41,673\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,747\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,132\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,926\n\n\n\u00a0\n\n\n\n\n\n\n \nAdjusted gross margin (1)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n53\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n58\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n59\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-1\n\n\n%\n\n\n\n\n\n\n \nWellness\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nNet revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n52,831\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,611\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,794\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,780\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n53,817\n\n\n\u00a0\n\n\n\n\n\n\n \nCost of goods sold\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n37,330\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n41,457\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,233\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,127\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n37,224\n\n\n\u00a0\n\n\n\n\n\n\n \nGross profit\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n15,501\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,154\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,561\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,653\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,593\n\n\n\u00a0\n\n\n\n\n\n\n \nGross margin\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n29\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n30\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n%)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\n\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nNet revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n627,124\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n628,372\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n513,085\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,248\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n115,287\n\n\n\u00a0\n\n\n\n\n\n\n \nCost of goods sold\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n480,164\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n511,555\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n389,903\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(31,391\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n121,652\n\n\n\u00a0\n\n\n\n\n\n\n \nGross profit (loss)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n146,960\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n116,817\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n123,182\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,143\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,365\n\n\n)\n\n\n\n\n\n\n \nGross margin\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n23\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n19\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-5\n\n\n%\n\n\n\n\n\n\n \nInventory valuation adjustments\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n55,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,919\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12,000\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n47,081\n\n\n\u00a0\n\n\n\n\n\n\n \nPurchase price accounting step-up\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n4,482\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,214\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n835\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,268\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,379\n\n\n\u00a0\n\n\n\n\n\n\n \nAdjusted gross profit (1)\n \n\n\n\u00a0\n\n\n$\n\n\n206,442\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n186,031\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n143,936\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n20,411\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n42,095\n\n\n\u00a0\n\n\n\n\n\n\n \nAdjusted gross margin (1)\n \n\n\n\u00a0\n\n\n \n33\n \n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n30\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n28\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \n(1)\n \n\n\nAdjusted gross profit is our Gross profit (adjusted to exclude inventory valuation adjustment and purchase price accounting valuation step-up) and adjusted gross margin\n\u00a0\nis our Gross margin (adjusted to exclude inventory valuation adjustment and purchase price accounting valuation step-up) and are non-GAAP financial measures. See\n \u201c\nReconciliation of Non-GAAP Financial Measures to GAAP Measures\n\u201d\n for additional discussion regarding these non-GAAP measures. The Company\n\u2019\ns management believes that adjusted gross profit and adjusted gross margin are useful to our management to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. We do not consider adjusted gross profit and adjusted gross margin in isolation or as an alternative to financial measures determined in accordance with GAAP.\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       54\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAdjusted Gross Profit and Adjusted Gross Margin\n\n\n\u00a0\n\n\nAdjusted gross profit and adjusted gross margin are non-GAAP financial measures and may not be comparable to similar measures presented by other companies.\u00a0 Adjusted gross profit is our Gross profit (adjusted to exclude inventory valuation adjustment and purchase price accounting valuation step-up) and adjusted gross margin is our Gross margin (adjusted to exclude inventory valuation adjustment and purchase price accounting valuation step-up) and are non-GAAP financial measures. The Company\u2019s management believes that adjusted gross profit and adjusted gross margin are useful to our management to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions.\u00a0 We do not consider adjusted gross profit and adjusted gross margin percentage in isolation or as an alternative to financial measures determined in accordance with GAAP.\n\n\n\u00a0\n\n\nCannabis gross margin:\n Gross margin\u00a0increased during the year ended May 31, 2023, to 26% from\u00a018% for the prior year same periods. The largest impact in the change in cannabis gross margin was related to the non-cash inventory valuation adjustments that occurred in the current year which was higher in the prior year. Excluding these valuation adjustments, adjusted gross margin\u00a0during the year\u00a0ended May 31, 2023,\u00a0increased to 51%\u00a0 from\u00a043% when comparing the same prior year period. The largest impact on the current period adjusted gross margin is the inclusion of the\u00a0$40.4 million of HEXO advisory fee revenue included in cannabis revenue. When this revenue is excluded from this computation, our adjusted cannabis gross margin would have been 40%. The reason for the decline in the year when excluding the impacts from HEXO is attributed to the impacts of price compression as well as a decrease in utilization of our cannabis facilities to manage demand requirements. Additionally, the Company recognized a one-time return as discussed in the international cannabis revenue section that reduced our top line revenue as well as a one-time inventory disposals incurred as exit costs from Israel for a combined impact of reducing gross profit by $1.4 million. Further impacting the decrease in the adjusted gross cannabis margin is a shift in strategic priorities to focus on pursuing cash flow generating activities. The Company has made the business decision to lower production in our cannabis facilities as a result of slower than anticipated legalization globally. We will continue to prioritize reductions in operational costs as we continue to assess additional potential cost saving initiatives.\n\n\n\u00a0\n\n\nDistribution gross margin:\n Gross margin of\u00a011% for the year ended May 31, 2023,\u00a0increased from\u00a06% the year ended May 31, 2022.\u00a0The distribution gross margin for the year ended May 31, 2023, increased to 11% from the prior year's adjusted gross margin of 9%, which included\u00a0a write-off of $7.5 million from excess inventory related to medicines purchased during the peak of the pandemic that occurred in prior period comparative figure and did not recur. The adjusted year over year increase relates to a change in product mix as the Company continues to focus on higher margin sales in the current year.\n\n\n\u00a0\n\n\nBeverage alcohol gross margin:\n Gross margin of\u00a049% for the year ended May 31, 2023,\u00a0decreased from\u00a055% the prior year ended May 31, 2022. Adjusted gross margin of\u00a053% decreased in the year ended May 31, 2023, from\u00a058% in the year ended May 31, 2022. The adjusted gross margin for Beverage alcohol was\u00a053% in the year compared to 58% for the prior year. The\u00a0decrease in beverage alcohol gross margin for\u00a0the year is a result of the\u00a0Montauk acquisition\u00a0that was\u00a0not completed in the prior period comparison and the Breckenridge acquisition which was only in two quarters of the comparative period. Both acquired companies operate at a slightly lower margin than SweetWater, which contributed to the decrease. Additionally, SweetWater has expanded operations in Colorado in the current period which has had negative impacts on the margin as it is still in the start-up phase.\n\n\n\u00a0\n\n\nWellness gross margin:\n\u00a0\u00a0Gross margin of\u00a029% for the year ended May 31, 2023,\u00a0decreased from a gross margin of\u00a030% for the year ended May 31, 2022. The decrease is related to the impacts of higher input costs of seed ingredients as a result of inflation. The Company increased prices in the second quarter to combat the impacts of this inflation and as a result the gross margin has remained overall consistent.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       55\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOperating expenses\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands of US dollars)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 vs. 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nGeneral and administrative\n \n\n\n\u00a0\n\n\n$\n\n\n165,159\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n162,801\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n111,575\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,358\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n51,226\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n46\n\n\n%\n\n\n\n\n\n\n \nSelling\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n34,840\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n34,926\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n26,576\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(86\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,350\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31\n\n\n%\n\n\n\n\n\n\n \nAmortization\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n93,489\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n115,191\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35,221\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(21,702\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n79,970\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n227\n\n\n%\n\n\n\n\n\n\n \nMarketing and promotion\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n30,937\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,934\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,539\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,395\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n76\n\n\n%\n\n\n\n\n\n\n \nResearch and development\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n682\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,518\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n830\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(836\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(55\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n688\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n83\n\n\n%\n\n\n\n\n\n\n \nChange in fair value of contingent consideration\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n855\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(44,650\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n45,505\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(102\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(44,650\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\n \nImpairments\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n934,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n378,241\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n555,759\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n147\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n378,241\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\n \nOther than temporary change in fair value of convertible notes receivable\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n246,330\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n246,330\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\n \nLitigation (recovery) costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(505\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,518\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,251\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17,023\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(103\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,267\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n408\n\n\n%\n\n\n\n\n\n\n \nRestructuring costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n9,245\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n795\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,450\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,063\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n795\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\n \nTransaction costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,613\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,944\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n60,361\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(29,331\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(95\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(29,417\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(49\n\n\n)%\n\n\n\n\n\n\n \nTotal operating expenses\n \n\n\n\u00a0\n\n\n$\n\n\n1,516,645\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n727,218\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n255,353\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n789,427\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n109\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n471,865\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n185\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nTotal operating expenses for the year ended May 31, 2023,\u00a0increased by\u00a0$789.4 million to $1,516.6 million from\u00a0$727.2 million as compared to prior year. Operating expenses are comprised of general and administrative, share-based compensation, selling, amortization, marketing and promotion, research and development, change in fair value of contingent consideration, impairments, litigation (recovery) costs, restructuring costs and transaction (income) costs. This increase was primarily a result of the non-cash impairments and changes in fair value of convertible notes receivable recorded in the period described in detail below.\n\n\n\u00a0\n\n\nGeneral and administrative costs\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands of US dollars)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 vs. 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nExecutive compensation\n \n\n\n\u00a0\n\n\n$\n\n\n13,655\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14,128\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n8,645\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(473\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n5,483\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n63\n\n\n%\n\n\n\n\n\n\n \nOffice and general\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n27,845\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,153\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,503\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n692\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,650\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n39\n\n\n%\n\n\n\n\n\n\n \nSalaries and wages\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n57,228\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n51,693\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n37,126\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,535\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,567\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n39\n\n\n%\n\n\n\n\n\n\n \nStock-based compensation\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n39,595\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35,994\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,351\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,601\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,643\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n107\n\n\n%\n\n\n\n\n\n\n \nInsurance\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n12,033\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,536\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,257\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,503\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(31\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,279\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n43\n\n\n%\n\n\n\n\n\n\n \nProfessional fees\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n7,166\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,047\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,779\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,881\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(45\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,268\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n11\n\n\n%\n\n\n\n\n\n\n \nGain on sale of capital assets\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(48\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(682\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n634\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(93\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(682\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\n \nInsurance proceeds\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,032\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,032\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(100\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,032\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\n \nTravel and accommodation\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n4,530\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,203\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,711\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n327\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,492\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n55\n\n\n%\n\n\n\n\n\n\n \nRent\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n3,155\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,761\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,203\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(606\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,558\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n71\n\n\n%\n\n\n\n\n\n\n \nTotal general and administrative costs\n \n\n\n\u00a0\n\n\n$\n\n\n165,159\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n162,801\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n111,575\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2,358\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n51,226\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n46\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nExecutive compensation\u00a0decreased by\u00a03% in the year ended May 31, 2023 compared to\u00a0$14.1 the prior year, primarily due to a minor changes in the executive team structure and otherwise remained consistent.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       56\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOffice and general increased\u00a0by 3%\u00a0in the year ended May 31, 2023 compared to\u00a0$27.2 the prior year, primarily due to the acquisition of Montauk, increased operations and some reclassification of other expenses during the period.\u00a0\u00a0\n\n\n\u00a0\n\n\nSalaries and wages increased\u00a011% in the year ended May 31, 2023 compared to\u00a0$51.7 the prior year. The\u00a0increase is primarily due to additions associated with the inclusion of Breckenridge employees, who were partially included in the prior year and Montauk employees, who were not included in the prior year.\n\n\n\u00a0\n\n\nThe Company\u00a0recognized\u00a0stock-based compensation expense of $39.6\u00a0million in the year ended May 31, 2023 compared to $36.0\u00a0million to the prior year. The increase is primarily driven by the increased number of employees and the accelerated vesting of certain elements of our stock-based compensation awards.\n\n\n\u00a0\n\n\nInsurance expenses decreased\u00a0by 31%\u00a0in the year ended May 31, 2023 compared to the prior year, due primarily to our revised directors and officers\u2019 insurance policy. This item was a target of the Tilray-Aphria Arrangement Agreement synergies.\n\n\n\u00a0\n\n\nProfessional fees decreased by 45% to $7.2 million in the year ended May 31, 2023 from $13.0 when compared to the prior year. This item was a target of the Tilray-Aphria Arrangement Agreement synergies which drove the large decrease in the year. As well, some of our charter amendment costs were recorded in transactions costs during the period.\n\n\n\u00a0\n\n\nThe Company recognized\u00a0$4.0\u00a0million in the year ended May 31, 2022\u00a0related to insurance recoveries under the business interruption and extra expense portions of CC Pharma\u2019s property insurance and had no recoveries in 2023.\n\n\n\u00a0\n\n\nSelling costs\n\n\n\u00a0\n\n\nFor the year ended May 31, 2023, the Company incurred selling costs of $34.8\u00a0million or\u00a05.6% of revenue as compared to $34.9 or\u00a05.6% of revenue in the prior year. These costs relate to third-party distributor commissions, shipping costs, Health Canada cannabis fees, and patient acquisition and maintenance costs. Patient acquisition and ongoing patient maintenance costs include funding to individual clinics to assist with additional costs incurred by clinics resulting from the education of patients using the Company\u2019s products. The amount has remained consistent as a percentage of revenue on a year over year basis.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       57\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAmortization\n\n\n\u00a0\n\n\nThe Company incurred non-production related amortization charges of $93.5\u00a0million for the year ended May 31, 2023 compared to $115.2\u00a0million in 2022. The decreased amortization is a result of the reduced intangible asset levels.\n\n\n\u00a0\n\n\n\u00a0\n\n\nMarketing and promotion cost\n\n\n\u00a0\n\n\nFor the year ended May 31, 2023, the Company incurred marketing and promotion costs of $30.9\u00a0million, as compared to $30.9\u00a0in the prior year. This amount has remained consistent period over period as marketing is not directly proportionate to sales and is discretionary.\n\n\n\u00a0\n\n\nResearch and development\n\n\n\u00a0\n\n\nResearch and development costs were $0.7\u00a0million in the year ended May 31, 2023, compared to $1.5\u00a0million in the prior year. Research and development costs relate to external costs associated with the development of new products.\n\n\n\u00a0\n\n\nImpairment\n\n\n\u00a0\n\n\nBased upon a combination of factors including a sustained decline in the Company\u2019s market capitalization below the Company\u2019s carrying value, coupled with challenging macro-economic conditions, most particularly the rising interest rate environment and slower than anticipated progress in global cannabis legalization, the Company concluded that it is more likely than not that indicators of impairment were present in the Company's third quarter ended February 28, 2023. Accordingly, the Company performed the applicable impairment tests by computing the fair value of each reporting segment by using the income approach, and a combination of the income approach and the market approach for all other asset categories identified to have indicators of impairment as summarized below. As a result the Company incurred a non-cash impairment expense for the year ended May 31, 2023 of $934.0\u00a0million which is comprised of the following components:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nCapital asset impairments of $81.5 million on a production facility in Canada and $22.5 million on equipment which the Company has temporarily made idle in order to reduce cultivation costs and right-size the Company's production to align with current and projected demand, as references in Note 6 (Capital assets), and;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nIntangible asset impairments of $110.0 million on customer relationships & distribution channels, $55.0 million of its licenses, permits & applications and $40.0 million of its intellectual property, trademarks, knowhow & brands, as a result of the decline in market share in its Canadian cannabis with certain product lines and customers, as referenced in Note 8 (Intangible assets), and;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nGoodwill impairments of $603.5 million in cannabis goodwill and $15.0 million in wellness goodwill, as a result of the increased Company specific risk premium which was driven by increased borrowing rates and the decline of the company\u2019s market capitalization, as referenced in Note 10 (Goodwill), and;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nOther current assets impairments of $6.5 million.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThis non-cash impairment expense has no impact on the Company\u2019s compliance with debt covenants, its cash flows or available liquidity.\n\n\n\u00a0\n\n\nOther than temporary write-down of convertible notes receivable\n\n\n\u00a0\n\n\nDuring the year the Company recognized an other-than-temporary change in fair value, which resulted in a non-cash impairment expense of convertible notes receivable impairments of $128.6 million on the HEXO Convertible Notes Receivable\u00a0due to changes in the HEXO share price and HEXO operations, which culminated in HEXO's assessment of a going concern issue primarily surrounding their ability to meet their minimum liquidity covenant and $117.8 million on the MedMen Convertible Notes due to the deterioration of capital market conditions from increased interest rates and recent delays in US Federal cannabis legalization, as referenced in Note 11 (Convertible Notes Receivable). Subsequent to year-end, the Company converted the HEXO Convertible Notes Receivable and acquired all the outstanding shares of HEXO, see Note 30 (Subsequent events).\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       58\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nLitigation costs\n\n\n\u00a0\n\n\nLitigation costs of ($0.5)\u00a0million were expensed during the year ended May 31, 2023 compared to $16.5\u00a0million in the prior year. Litigation costs include fees and expenses incurred in connection with defending and settling ongoing litigation matters, net of any judgments or settlement recoveries received from third parties. See Note 27 (Commitments and Contingencies)\n \nfor additional information on significant litigation matters.\n\n\n\u00a0\n\n\nRestructuring costs \n\n\n\u00a0\n\n\nIn connection with executing our acquisition strategy and strategic transactions, the Company incurred non-recurring restructuring and exit costs associated with the integration efforts of these transactions. For the year ended May 31, 2023\u00a0and May 31, 2022\u00a0respectively, the Company incurred $9.2\u00a0million and\u00a0$0.8\u00a0million of restructuring costs. The breakdown of the restructuring charges for the year ended May 31, 2023\u00a0are as follows:\n\n\n\u00a0\n\n\nIn the year the Company incurred $2.7 million of expenses related to severance costs required to right size the Company's production to better align with current demand requirements. The Company also incurred $1.6 million of exit cost and $2.8 million for inventory adjustments from the termination of our producer partnership in Uruguay due to a breach of the underlying contract in our International cannabis business. Additionally, amounts related to the Tilray-Aphria arrangement agreement for the closure of our Canadian cannabis facility in Enniskillen were reclassified from transaction costs to restructuring costs during the quarter in the amount of $1.4 million.\u00a0 It is anticipated that there will continue to be additional costs associated with this transaction until the resolution of our lease termination for our Enniskillen facility and the restructuring of Nanaimo facility are completed. The Company also incurred $2.2 million of write-offs from the exit of our medical device reprocessing business in our distribution reporting segment. These one-time non-cash charges were a required exit cost as we determined this business venture was no longer accretive to our focus of being free cash flow positive and is not anticipated to have ongoing expenses.\n\n\n\u00a0\n\n\nTransaction costs\n\n\n\u00a0\n\n\nItems classified as transaction (income) costs are non-recurring in nature and correspond largely to our acquisitions, and synergy strategy. The decrease of 95%\u00a0from $30.9 million in the prior year to $1.6 million in the current year is related to the following items:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nthe prior year included fees related to the MedMen transaction, and there are no further expected costs to be incurred unless the Triggering Event arises;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nwe recognized a change in fair value\u00a0of $18.3 million on the HTI Share Consideration's purchase price derivative as a result of an increase in our share price on the shares paid for the HEXO convertible note receivable Note 11 (Convertible notes receivable). This gain was payable to the Company from HTI and was collected in cash during the current year. This gain offsets the following\u00a0items in the year and contributes to the year over year decrease in transaction costs,\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \na non-reimbursed compensation payment of $5.0 million,\u00a0as a result of the HEXO transaction;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nfees incurred for the Montauk acquisition in the current year which differed from the fees incurred for the Breckenridge acquisitions which occurred in the prior year; and\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nfees associated with amending our charter during the year.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nNon-operating income (expense), net\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands of US dollars)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 vs. 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nChange in fair value of convertible debenture payable\n \n\n\n\u00a0\n\n\n$\n\n\n(43,651\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n163,670\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(170,453\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(207,321\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(127\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n334,123\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(196\n\n\n)%\n\n\n\n\n\n\n \nChange in fair value of warrant liability\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n12,438\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n63,913\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,234\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(51,475\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(81\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n62,679\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,079\n\n\n%\n\n\n\n\n\n\n \nForeign exchange loss\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(25,535\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(28,383\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(22,347\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,848\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,036\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n27\n\n\n%\n\n\n\n\n\n\n \nLoss on long-term investments\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,190\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,737\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,352\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,547\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(67\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,385\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n186\n\n\n%\n\n\n\n\n\n\n \nOther non-operating (losses) gains, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,971\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,208\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,080\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(13,179\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(253\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,872\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(43\n\n\n)%\n\n\n\n\n\n\n \nTotal non-operating income (expense)\n \n\n\n\u00a0\n\n\n$\n\n\n(66,909\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n197,671\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(184,838\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(264,580\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(134\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n382,509\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(207\n\n\n)%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       59\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nFor the year ended May 31, 2023, the Company recognized a gain on the change in fair value of its APHA 24 convertible debentures of ($43.7)\u00a0million, compared to a loss on the change in fair value of $163.7\u00a0million for the prior year. The change is driven primarily by the changes in the Company\u2019s share price and the change in the trading price of the convertible debentures. For the year ended May 31, 2023, the Company recognized a change in fair value of its warrants of $12.4\u00a0million compared to a change in fair value of $63.9\u00a0million for the prior year.\u00a0Furthermore, for the year ended May 31, 2023, the Company recognized a loss of ($25.5)\u00a0million, resulting from the changes in foreign exchange rates during the period, compared to a loss of ($28.4)\u00a0million for the prior year, largely associated with the strengthening of the US dollar against the Canadian dollar. The remaining other losses relate to changes in fair value in the Company\u2019s convertible notes receivable and long-term investments.\n\n\n\u00a0\n\n\nReconciliation of Non-GAAP Financial Measures to GAAP Measures\n\n\n\u00a0\n\n\nAdjusted EBITDA\n\n\n\u00a0\n\n\nAdjusted EBITDA is a non-GAAP financial measure that does not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. The Company calculates adjusted EBITDA as net (loss) income before income taxes, interest expense, net, non-operating expense (income), net, amortization, stock-based compensation, change in fair value of contingent consideration, impairment, inventory valuation adjustments, purchase price accounting step up, facility start-up and closure costs, lease expense, litigation costs and transaction costs.\n\n\n\u00a0\n\n\nThe Company\u2019s management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its consolidated results of operations and financial condition before non-controlling interests. In addition, management uses this measure for reviewing the financial results of the Company and as a component of performance-based executive compensation.\n\n\n\u00a0\n\n\nWe do not consider adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of adjusted EBITDA is that it excludes certain expenses and income that are required by GAAP to be recorded in our consolidated financial statements. In addition, adjusted EBITDA is subject to inherent limitations as this metric reflects the exercise of judgment by management about which expenses and income are excluded or included in determining adjusted EBITDA. In order to compensate for these limitations, management presents adjusted EBITDA in connection with GAAP results.\n\n\n\u00a0\n\n\nFor the year ended May 31, 2023, adjusted EBITDA increased by $13.5 million to $61.5 million compared to\u00a0$48.0 in the prior year.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \nAdjusted EBITDA reconciliation:\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 vs. 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet (loss) income\n \n\n\n\u00a0\n\n\n$\n\n\n(1,443,000\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(434,132\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(336,014\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(1,008,868\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n232\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n(98,118\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n29\n\n\n%\n\n\n\n\n\n\n \nIncome tax benefits, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,181\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,542\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,972\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(639\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,430\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(27\n\n\n)%\n\n\n\n\n\n\n \nInterest expense, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n13,587\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,944\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,977\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(14,357\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(51\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(33\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0\n\n\n)%\n\n\n\n\n\n\n \nNon-operating income (expense), net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n66,909\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(197,671\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n184,838\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n264,580\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(134\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(382,509\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(207\n\n\n)%\n\n\n\n\n\n\n \nAmortization\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n130,149\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n154,592\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67,832\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(24,443\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n86,760\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n128\n\n\n%\n\n\n\n\n\n\n \nStock-based compensation\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n39,595\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35,994\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,351\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,601\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,643\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n107\n\n\n%\n\n\n\n\n\n\n \nChange in fair value of contingent consideration\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n855\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(44,650\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n45,505\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(102\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(44,650\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\n \nImpairments\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n934,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n378,241\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n555,759\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n147\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n378,241\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\n \nOther than temporary change in fair value of convertible notes receivable\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n246,330\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n246,330\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\n \nInventory valuation adjustments\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n55,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n67,000\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,919\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(12,000\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(18\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n47,081\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n236\n\n\n%\n\n\n\n\n\n\n \nPurchase price accounting step-up\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n4,482\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,214\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n835\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,268\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n102\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,379\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n165\n\n\n%\n\n\n\n\n\n\n \nFacility start-up and closure costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n7,600\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,700\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,056\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,100\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(45\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n11,644\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n566\n\n\n%\n\n\n\n\n\n\n \nLease expense\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n2,800\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,100\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,337\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(300\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(10\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,763\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n132\n\n\n%\n\n\n\n\n\n\n \nLitigation (recovery) costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(505\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,518\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,251\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17,023\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(103\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,267\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n408\n\n\n%\n\n\n\n\n\n\n \nRestructuring costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n9,245\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n795\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,450\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,063\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n795\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\n \nTransaction costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,613\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,944\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n60,361\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(29,331\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(95\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(29,417\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(49\n\n\n)%\n\n\n\n\n\n\n \nAdjusted EBITDA\n \n\n\n\u00a0\n\n\n$\n\n\n61,479\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n48,047\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n40,771\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n13,432\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n7,276\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       60\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAdjusted EBITDA should not be considered in isolation from, or as a substitute for, net loss. There are a number of limitations related to the use of adjusted EBITDA as compared to net loss, the closest comparable GAAP measure. Adjusted EBITDA excludes:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nNon-cash inventory valuation adjustments;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nNon-cash amortization\u00a0expenses, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nStock-based compensation expenses, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nNon-cash impairment charges, as the charges are not expected to be a recurring business activity;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nNon-cash other than temporary write-down of convertible notes receivable, as the charges are not expected to be a recurring business activity;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nNon-cash foreign exchange gains or losses, which accounts for the effect of both realized and unrealized foreign exchange transactions. Unrealized gains or losses represent foreign exchange revaluation of foreign denominated monetary assets and liabilities;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nNon-cash change in fair value of warrant liability;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nInterest expense, net;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nCosts incurred to start up new facilities such as Sweetwater Colorado, and to fund emerging market operations such as Malta and our German cultivation facilities and closure costs to run facilities through the wind-down of operations;\u00a0\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nLease expense, to conform with competitors who report under IFRS;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nTransaction costs includes acquisition related expenses, which vary significantly by transactions and are excluded to evaluate ongoing operating results;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nLitigation (recovery) costs includes costs related to ongoing litigations, legal settlements and recoveries which are excluded to evaluate ongoing operating results;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nRestructuring costs;\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nAmortization of purchase accounting step-up in inventory value included in costs of sales - product costs; and\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nCurrent and deferred income tax expenses and recoveries, which are a significant recurring expense or recovery in our business in the future and reduce or increase cash available to us.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nCritical Accounting Policies and Significant Judgments and Estimates\n\n\n\u00a0\n\n\nOur consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (\u201cGAAP\u201d). A detailed discussion of our significant accounting policies can be found in Part II, Item 8, Note 3, \u201c\nSummary of Significant Accounting Policies\n\u201d, and the impact and risks associated with our accounting policies are discussed throughout this Form 10\u2011K and in the Notes to the Consolidated Financial Statements. We have identified certain policies and estimates as critical to our business operations and the understanding of our past or present results of operations related to (i) long-term investments and convertible notes receivable, (ii) estimated useful lives, impairment consideration and amortization of capital and intangible assets, (iii) stock-based compensation, (iv) business combinations, (v) convertible debentures and (vi) warrant liability. These policies and estimates are considered critical because they had a material impact, or they have the potential to have a material impact, on our consolidated financial statements and because they require us to make significant judgments, assumptions or estimates. We believe that the estimates, judgments and assumptions made when accounting for the items described below were reasonable, based on information available at the time they were made. Actual results could differ materially from these estimates.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       61\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(i)\n \n\n\n \nRevenue recognition\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nRevenue is recognized\u00a0when the control of the promised goods, through performance obligation, is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for the performance obligations or as advisory services are provided. Payments received for the goods or services in advance of performance are recognized as a contract liability.\n\n\n\u00a0\n\n\nExcise taxes remitted to tax authorities are government-imposed excise taxes on cannabis and beer. Excise taxes are recorded as a reduction of sales in net revenue in the consolidated statements of operations and recognized as a current liability within accounts payable and other current liabilities on the consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority.\n\n\n\u00a0\n\n\nIn addition, amounts disclosed as net revenue are net of excise taxes, sales tax, duty tax, allowances, discounts and rebates.\n\n\n\u00a0\n\n\nIn determining the transaction price for the sale of goods, the Company considers the effects of variable consideration and the existence of significant financing components, if any.\n\n\n\u00a0\n\n\nSome contracts for the sale of goods may provide customers with a right of return, volume discount, bonuses for volume/quality achievement, or sales allowance. In addition, the Company may provide in certain circumstances, a retrospective price reduction to a customer based primarily on inventory movement. These items give rise to variable consideration. The Company uses the expected value method to estimate the variable consideration because this method best predicts the amount of variable consideration to which the Company will be entitled. The Company uses historical evidence, current information and forecasts to estimate the variable consideration. The Company reduces revenue and recognizes a contract liability equal to the amount expected to be refunded to the customer in the form of a future rebate or credit for a retrospective price reduction, representing its obligation to return the customer\u2019s consideration. The estimate is updated at each reporting period date.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(ii)\n \n\n\n \nValuation of inventory\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nRefer to Part II, Item 8, Note 3, \u201c\nSummary of Significant Accounting Policies\n\u201d for further details on our inventory cost policy. At the end of each reporting period, the Company performs an assessment of inventory and records write-downs for excess and obsolete inventories based on the Company\u2019s estimated forecast of product demand, production requirements, market conditions, regulatory environment, and spoilage. Actual inventory losses may differ from management\u2019s estimates and such differences could be material to the Company\u2019s statements of financial position, statements of loss and comprehensive loss and statements of cash flows. Changes in the regulatory structure, lack of retail distribution locations or lack of consumer demand could result in future inventory reserves.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(iii)\n \n\n\n \nImpairment of goodwill and indefinite-lived intangible assets\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nGoodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently when events or circumstances indicate that impairment may have occurred. As part of the impairment evaluation, we may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value of the indefinite-lived intangible asset or the reporting unit (for goodwill) is less than its carrying value, a quantitative impairment test to compare the fair value to the carrying value is performed. An impairment charge is recorded if the carrying value exceeds the fair value. The assessment of whether an indication of impairment exists is performed at the end of each reporting period and requires the application of judgment, historical experience, and external and internal sources of information. We make estimates in determining the future cash flows and discount rates in the quantitative impairment test to compare the fair value to the carrying value.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(iv)\n \n\n\n \nStock-based compensation\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe measure and recognize compensation expenses for stock options and restricted stock units (\u201cRSUs\u201d) to employees, directors and consultants on a straight-line basis over the vesting period based on their grant date fair values. We estimate the fair value of stock options on the date of grant using the Black-Scholes option pricing model. The fair value of RSUs is based on the share price as at the date of grant. We estimate forfeitures at the time of grant and revise these estimates in subsequent periods if actual forfeitures differ from those estimates.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       62\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nDetermining the estimated fair value at the grant date requires judgment in determining the appropriate valuation model and assumptions, including the fair value of common shares on the grant date, risk-free rate, volatility rate, annual dividend yield and the expected term. Volatility is estimated by using the historical volatility of the accounting acquirer and, other companies that we consider comparable and have trading and volatility history.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(v)\n \n\n\n \nBusiness combinations and goodwill\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe use judgement in applying the acquisition method of accounting for business combinations and estimates to value contingent consideration, identifiable assets and liabilities assumed at the acquisition date. Estimates are used to determine cash flow projections, including the period of future benefit, and future growth and discount rates, among other factors. The values allocated to the acquired assets and liabilities assumed affect the amount of goodwill recorded on acquisition. Fair value of assets acquired and liabilities assumed is typically estimated using an income approach, which is based on the present value of future discounted cash flows. Significant estimates in the discounted cash flow model include the discount rate, rate of future revenue growth and profitability of the acquired business and working capital effects. The discount rate considers the relevant risk associated with the business-specific characteristics and the uncertainty related to the ability to achieve projected cash flows. These estimates and the resulting valuations require significant judgment. Management engages third party experts to assist in the valuation of material acquisitions.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(vi)\n \n\n\n \nConvertible notes receivable\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nConvertible notes receivables include various investments in which the Company has the right, or potential right to convert the indenture into common stock shares of the investee and are classified as available-for-sale and are recorded at fair value. Unrealized gains and losses during the year, net of the related tax effect, are excluded from income and reflected in other comprehensive income (loss), and the cumulative effect is reported as a separate component of shareholders\u2019 equity until realized. We use judgement to assess convertible notes receivables for impairment at each measurement date. Convertible notes receivables are impaired when a decline in fair value is determined to be other-than-temporary. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the duration and extent to which the fair value is less than cost. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in the statements of loss and comprehensive loss and a new cost basis for the investment is established. We also evaluate whether there is a plan to sell the security, or it is more likely than not that we will be required to sell the security before recovery. If neither of the conditions exist, then only the portion of the impairment loss attributable to credit loss is recorded in the statements of net loss and the remaining amount is recorded in other comprehensive income (loss).\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(vii)\n \n\n\n \nWarrants\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWarrants are accounted for in accordance with applicable accounting guidance provided in ASC Topic 815, Derivatives and Hedging \u2013 Contracts in Entity's Own Equity (\u201cASC 815\u201d), as either liabilities or as equity instruments depending on the specific terms of the warrant agreement. Our warrants are classified as liabilities and are recorded at fair value. The warrants are subject to re-measurement at each settlement date and at each balance sheet date and any change in fair value is recognized as a component of change in fair value of warrant liability in the statements of net loss and comprehensive loss. Transaction costs allocated to warrants that are presented as a liability are expensed immediately within transaction costs in the statements of net loss and comprehensive loss.\n\n\n\u00a0\n\n\nWe estimate the fair value of the warrant liability using a Black-Scholes pricing model. We are required to make assumptions and estimates in determining an appropriate risk-free interest rate, volatility, term, dividend yield, discount due to exercise restrictions, and the fair value of common stock. Any significant adjustments to the unobservable inputs would have a direct impact on the fair value of the warrant liability.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(viii)\n \n\n\n \nConvertible debentures\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company accounts for its convertible debentures in accordance with ASC 470-20 \nDebt with Conversion and Other Options\n, whereby the convertible instrument is initially accounted for as a single unit of account, unless it contains a derivative that must be bifurcated from the host contract in accordance with ASC 815-15 \nDerivatives and Hedging \n\u2013\n Embedded Derivatives\n or the substantial premium model in ASC 470-20 \nDebt \n\u2013\n Debt with Conversion and Other Options \napplies. Where the substantial premium model applies, the premium is recorded in additional paid-in capital. The resulting debt discount is amortized over the period during which the convertible notes are expected to be outstanding as additional non-cash interest expenses.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       63\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nUpon repurchase of convertible debt instruments, ASC 470-20 requires the issuer to allocate total settlement consideration, inclusive of transaction costs, amongst the liability and equity components of the instrument based on the fair value of the liability component immediately prior to repurchase. The difference between the settlement consideration allocated to the liability component and the net carrying value of the liability component, including unamortized debt issuance costs, would be recognized as gain (loss) on extinguishment of debt in the statements of loss and comprehensive loss. The remaining settlement consideration allocated to the equity component would be recognized as a reduction of additional paid-in capital in the statements of financial position.\n\n\n\u00a0\n\n\nFor convertible debentures with an embedded conversion feature that did not meet the equity scope exception from derivative accounting pursuant to ASC 815-15, the Company elected the fair value option under ASC 825 \nFair Value Measurements\n. When the fair value option is elected, the convertible debenture is initially recognized at fair value on the statements of financial position and all subsequent changes in fair value, excluding the impact of the change in fair value related to instrument-specific credit risk are recorded in non-operating income (loss). The changes in fair value related to instrument-specific credit risk is recorded through other comprehensive income (loss). Transaction costs directly attributable to the issuance of the convertible debenture is immediately expensed in the statements of loss and comprehensive loss.\n\n\n\u00a0\n\n\nNew Standards and Interpretations Applicable Effective June 1, 2022\n\n\n\u00a0\n\n\nRefer to Part II, Item 8, Note 3, \nSignificant Accounting Policies,\n of this Form 10-K for additional information on changes in accounting policies. There have been no new standards or interpretations applicable to the Company during the year.\n\n\n\u00a0\n\n\nLiquidity and Capital Resources \n\n\n\u00a0\n\n\nWe actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, and make acquisitions. On March 3, 2022, we entered into an at the market offering arrangement (the \"ATM Program\") pursuant to which we offered and sold our common stock having an aggregate offering price of up to $400 million. The ATM Program was intended to strengthen our balance sheet and improve our liquidity position and was utilized to offer and sell common stock having a total of $400 million. The Company\u00a0fully completed its sales of shares under the ATM Program during the fiscal year. In addition, the Company issued additional convertible debentures payable (Note 17) to pay off certain existing convertible debentures. We believe that existing cash, cash equivalents, short-term investments and cash generated by operations, together with received proceeds from the ATM Program and access to external sources of funds, will be sufficient to meet our domestic and foreign capital needs for a short and long term outlook.\u00a0\n\n\n\u00a0\n\n\nFor the Company's short-term liquidity requirements, we are focused on generating positive cash flows from operations and being free cash flow positive.\u00a0 As a result of delays in legalization across multiple markets, management continues to reduce operations, headcount, as well as the elimination of other discretionary operational costs. Some of these actions may be less\u00a0accretive to our Adjusted EBITDA in the short term, however we believe that they\u00a0will be required for our liquidity aspirations in the near term future. Additionally, the Company continues to invest our excess cash in the short-term in marketable securities which are comprised of U.S. treasury bills and term deposits with major Canadian banks.\n\n\n\u00a0\n\n\nFor the Company's long-term liquidity requirements, we will be focused on funding operations through profitable organic and inorganic growth through acquisitions. We may need to take on additional debt or equity financing arrangements in order to achieve these ambitions on a long-term basis.\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       64\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe following table sets forth the major components of our statements of cash flows for the periods presented:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the Year ended May 31,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 vs. 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 vs. 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet cash provided by (used in) operating activities\n \n\n\n\u00a0\n\n\n$\n\n\n7,906\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(177,262\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(44,717\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n185,168\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(104\n\n\n)%\n\n\n\u00a0\n\n\n$\n\n\n(132,545\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n296\n\n\n%\n\n\n\n\n\n\n \nNet cash (used in) provided by investing activities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(285,111\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(21,533\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n46,105\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(263,578\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,224\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(67,638\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(147\n\n\n)%\n\n\n\n\n\n\n \nNet cash provided by financing activities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n70,158\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n128,196\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n124,308\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(58,038\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(45\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,888\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3\n\n\n%\n\n\n\n\n\n\n \nEffect on cash of foreign currency translation\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,230\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,958\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,124\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(272\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n14\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,082\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(192\n\n\n)%\n\n\n\n\n\n\n \nCash and cash equivalents, beginning of period\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n415,909\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n488,466\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n360,646\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(72,557\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(15\n\n\n)%\n\n\n\u00a0\n\n\n\u00a0\n\n\n127,820\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(176\n\n\n)%\n\n\n\n\n\n\n \nCash and cash equivalents, end of period\n \n\n\n\u00a0\n\n\n$\n\n\n206,632\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n415,909\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n488,466\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(209,277\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-50\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n(72,557\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n35\n\n\n%\n\n\n\n\n\n\n \nMarketable securities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n241,897\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n241,897\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nNM\n\n\n\u00a0\n\n\n\n\n\n\n \nCash and marketable securities\n \n\n\n\u00a0\n\n\n$\n\n\n448,529\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n415,909\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n488,466\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n32,620\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8\n\n\n%\n\n\n\u00a0\n\n\n$\n\n\n(72,557\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(222\n\n\n)%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nCash flows from operating activities\n\n\n\u00a0\n\n\nThe improvement in net cash provided by operating activities of $7.9 million during the year ended May 31, 2023, compared to the net cash used in operating activities of\u00a0$177.3 million in the prior year same period is primarily related to improved operating efficiencies realized through our synergy and cost optimization programs, improved management of our working capital requirements, the $18.3 million of the cash collected from the HTI Share Consideration\u2019s purchase price derivative and the $33.0 million of cash received from the SLC Settlement.\n\n\n\u00a0\n\n\nCash flows from investing activities\n\n\n\u00a0\n\n\nThe increase in net cash used in investing activities to\u00a0$285.1 million from\u00a0$21.5 million in\u00a02023 compared to\u00a02022 changed primarily due to the $243.1 million purchase of marketable securities and the $26.7 million for our acquisition of Montauk Brewing Company.\n\n\n\u00a0\n\n\nCash flows from financing activities\n\n\n\u00a0\n\n\nThe decrease in cash provided by financing activities to\u00a0$70.2 million from\u00a0$128.2 million in 2023 compared to 2022 is primarily due to less funds received from the ATM financing completed in fiscal year 2023, and the early payment on the Company\u2019s convertible debentures of $187.4 million in fiscal year 2023 compared to $88.0 million in fiscal year 2022, offset by the convertible debt financing for $145.1 million completed in fiscal year 2023 that did not occur in fiscal year 2022.\n\n\n\u00a0\n\n\nCash resources and working capital requirements\n\n\n\u00a0\n\n\nThe Company constantly monitors and manages its cash flows to assess the liquidity necessary to fund operations. As of May 31, 2023, the Company maintained $448.5\u00a0million of cash and cash equivalents on hand and marketable securities, compared to $415.9 million in cash and cash equivalents at May 31, 2022.\n\n\n\u00a0\n\n\nWorking capital provides funds for the Company to meet its operational and capital requirements. As of May 31, 2023, the Company maintained working capital of $340.1\u00a0million. We historically financed our operations through the issuance of common stock, sale of convertible notes and revenue generating activities. While we believe we have sufficient cash to meet existing working capital requirements in the short term, we may need additional sources of capital and/or financing, to meet our U.S. growth ambitions, expansion of our international operations and other strategic transactions.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       65\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nContractual obligations \n\n\n\u00a0\n\n\nWe lease various facilities, under non-cancelable operating leases, which expire at various dates through September 2040:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nOperating\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nleases\n \n\n\n\u00a0\n\n\n\n\n\n\n \n2024\n \n\n\n\u00a0\n\n\n$\n\n\n4,106\n\n\n\u00a0\n\n\n\n\n\n\n \n2025\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n3,295\n\n\n\u00a0\n\n\n\n\n\n\n \n2026\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n3,486\n\n\n\u00a0\n\n\n\n\n\n\n \n2027\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n3,412\n\n\n\u00a0\n\n\n\n\n\n\n \nThereafter\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n4,012\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal minimum lease payments\n \n\n\n\u00a0\n\n\n$\n\n\n18,311\n\n\n\u00a0\n\n\n\n\n\n\n \nImputed interest\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,952\n\n\n)\n\n\n\n\n\n\n \nObligations recognized\n \n\n\n\u00a0\n\n\n$\n\n\n10,359\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nPurchase and other commitments\n\n\n\u00a0\n\n\nThe Company has payments for long-term debt, convertible debentures, material purchase commitments and constructions commitments, as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2024\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2025\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2026\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2027\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nThereafter\n \n\n\n\u00a0\n\n\n\n\n\n\n \nLong-term debt repayment\n \n\n\n\u00a0\n\n\n$\n\n\n161,707\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n24,080\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n14,208\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n41,798\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10,522\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n71,099\n\n\n\u00a0\n\n\n\n\n\n\n \nConvertible notes payable\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n464,070\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n177,330\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n136,740\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n150,000\n\n\n\u00a0\n\n\n\n\n\n\n \nMaterial purchase obligations\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n24,468\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,726\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,140\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n602\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\n \nConstruction commitments\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n8,410\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,410\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n$\n\n\n658,655\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n228,546\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n156,088\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n42,400\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10,522\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n221,099\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nExcept as disclosed elsewhere in this Part II, Item 7, \nManagement\n\u2019\ns Discussion and Analysis of Financial Condition and Results of Operations\n, there have been no material changes with respect to the contractual obligations of the Company during the year-to-date period except for those related to the Company\u2019s acquisitions.\n\n\n\u00a0\n\n\nContingencies\n\n\n\u00a0\n\n\nIn the normal course of business, we may receive inquiries or become involved in legal disputes regarding various litigation matters. In the opinion of management, any potential liabilities resulting from such claims would not have a material adverse effect on our consolidated financial statements.\n\n\n\u00a0\n\n",
+  "item7": ">Item 7. Management\u2019\ns Discussion and Analysis of Financial Condition and Results of Operations.\n\n\n\u00a0\n\n\nThe following Management\n\u2019\ns Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand our operations and our present business environment from the perspective of management. You should read the following discussion and analysis of our financial condition and results of operations together with the \n\u201c\nCautionary Note Regarding Forward-Looking Statements\n\u201d\n; the sections in Part I entitled \n\u201c",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk. \n\n\n\u00a0\n\n\nThe Company has exposure to the following risks from its use of financial instruments: credit; liquidity; currency rate; and, interest rate price.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(a)\n \n\n\n \nCredit risk\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nCredit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The maximum credit exposure at May 31, 2023, is the carrying amount of cash and cash equivalents, accounts receivable, prepaids and other current assets and convertible notes receivable. All cash and cash equivalents are placed with major financial institutions in Canada, Australia, Portugal, Germany, Colombia, Argentina and the United States.\n \nTo date, the Company has not experienced any losses on its cash deposits. Accounts receivable are unsecured, and the Company does not require collateral from its customers.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       66\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(b)\n \n\n\n \nLiquidity risk\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAs at May 31, 2023, the Company\u2019s financial liabilities consist of bank indebtedness and accounts payable and accrued liabilities, which have contractual maturity dates within one-year, long-term debt, and convertible debentures which have contractual maturities over the next five years.\n\n\n\u00a0\n\n\nThe Company maintains debt service charge and leverage covenants on certain loans secured by its Aphria Diamond facilities and 420 that are measured quarterly.\u00a0\u00a0The Company believes that it has sufficient operating room with respect to its financial covenants for the next fiscal year and does not anticipate being in breach of any of its financial covenants.\u00a0\u00a0\n\n\n\u00a0\n\n\nThe Company manages its liquidity risk by reviewing its capital requirements on an ongoing basis. Based on the Company\u2019s working capital position at May 31, 2023, management regards liquidity risk to be low.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(c)\n \n\n\n \nCurrency rate risk\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAs at May 31, 2023, a portion of the Company\u2019s financial assets and liabilities held in Canadian dollars and Euros consist of cash and cash equivalents, convertible notes receivable, and long-term investments. The Company\u2019s objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows by transacting, to the greatest extent possible, with third parties in the functional currency. The Company is exposed to currency rate risk in other comprehensive income, relating to foreign subsidiaries which operate in a foreign currency. The Company does not currently use foreign exchange contracts to hedge its exposure of its foreign currency cash flows as management has determined that this risk is not significant at this point in time.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n(d)\n \n\n\n \nInterest rate price risk\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company\u2019s exposure to changes in interest rates relates primarily to the Company\u2019s outstanding debt. The Company manages interest rate risk by restricting the type of investments and varying the terms of maturity and issuers of marketable securities. Varying the terms to maturity reduces the sensitivity of the portfolio to the impact of interest rate fluctuations.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       67\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n",
+  "cik": "1731348",
+  "cusip6": "88688T",
+  "cusip": ["88688T100", "88688t100", "88688T900", "88688T950"],
+  "names": ["Tilray", "TILRAY BRANDS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1731348/000143774923020727/0001437749-23-020727-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0001437749-23-020982.json b/GraphRAG/standalone/data/all/form10k/0001437749-23-020982.json
new file mode 100644
index 0000000000..fa575f30df
--- /dev/null
+++ b/GraphRAG/standalone/data/all/form10k/0001437749-23-020982.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. BUSINESS.\n\n\n\u00a0\n\n\nValue Line, Inc. is a New York corporation headquartered in New York City and formed in 1982. The Company's core business is producing investment periodicals and their underlying research and making available certain Value Line copyrights, Value Line trademarks and Value Line Proprietary Ranks and other proprietary information, to third parties under written agreements for use in third-party managed and marketed investment products and for other purposes. Value Line markets under well-known brands including \nValue Line\n\u00ae\n, the Value Line \nlogo\u00ae, \nThe Value Line Investment Survey\n\u00ae\n, Smart Research, Smarter Investing\n\u2122\n \nand \nThe Most Trusted Name in Investment Research\n\u00ae\n.\n The name \"Value Line\" as used to describe the Company, its products, and its subsidiaries, is a registered trademark of the Company. Effective December 23, 2010, EULAV Asset Management Trust (\u201cEAM\u201d) was established to provide investment management services to the Value Line Funds accounts and provides distribution, marketing, and administrative services to the Value Line Funds. Value Line holds substantial non-voting revenues and non-voting profits interests in EAM.\n\n\n\u00a0\n\n\nThe Company is the successor to substantially all of the operations of Arnold Bernhard & Co, Inc. (\"AB&Co.\"). AB&Co. is the controlling shareholder of the Company and, as of April 30, 2023, owns 91.51% of the outstanding shares of the common stock of the Company.\n\n\n\u00a0\n\n\nA. Investment Related Periodicals & Publications\n\n\n\u00a0\n\n\nThe investment periodicals and related publications offered by Value Line Publishing LLC (\u201cVLP\u201d), a wholly-owned entity of the Company, cover a broad spectrum of investments including stocks, mutual funds, ETFs and options. The Company\u2019s periodicals and related publications and services are marketed to individual and professional investors, as well as to institutions including municipal and university libraries and investment firms.\n\n\n\u00a0\n\n\nThe services generally fall into four categories:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nComprehensive reference periodical publications\n \n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nTargeted, niche periodical newsletters\n \n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nInvestment analysis software\n \n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nCurrent and historical financial databases\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe comprehensive research services (\nThe Value Line Investment Survey, The Value Line Investment Survey - Small and Mid-Cap, The Value Line 600, \nand \nThe Value Line Fund Advisor Plus\n) provide both statistical and text coverage of a large number of investment securities, with an emphasis placed on Value Line\u2019s proprietary research, analysis and statistical ranks. \nThe Value Line Investment Survey\n is the Company\u2019s flagship service, published each week in print and daily on the web.\n\n\n\u00a0\n\n\nThe niche newsletters (\nValue Line Select\n\u00ae, \nValue Line Select: Dividend Income & Growth\n, \nValue Line Select: ETFs, The Value Line Special Situations Service\n\u00ae, \nThe Value Line M&A Service\n, \nThe Value Line Climate Change Investing Service, \nand The Value Line \nInformation You Should Know\n Wealth Newsletter) provide information on a less comprehensive basis for securities that the Company believes will be of particular interest to subscribers and may include topics of interest on markets and the business environment.\u00a0\nValue Line Select\n\u00ae\u00a0is a targeted service with an emphasis on Value Line\u2019s\u00a0proprietary in-depth research analysis and statistical selections, highlighting monthly a stock with strong return potential and reasonable risk.\u00a0\u00a0\nValue Line Select: Dividend Income & Growth\n\u00a0represents Value Line's targeted coverage of dividend paying stocks with good growth potential. \nValue Line Select: ETFs \nrecommends a new ETF for purchase each month. \nThe Value Line Special Situations Service\n provides in-depth research analysis on selected small and mid-cap stocks. \nThe Value Line M&A Service \nrecommends stocks of companies that Value Line thinks may be acquired by other corporations or private equity firms. \nThe Value Line Climate Change Investing Service\n recommends stocks that should benefit from addressing the challenge of climate change. \nThe Value Line Information You Should Know Wealth Newsletter\n provides insightful information on various personal finance topics.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       5\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nValue Line offers digital versions of most of its products through the Company\u2019s website, www.valueline.com. Subscribers to the print versions have, in some cases, received free access to the corresponding digital versions, although digital subscribers do not receive a free print edition. The most comprehensive of the Company\u2019s online platforms is \nThe Value Line Research Center\n, which allows subscribers to access most of the Company\u2019s research and publications at a packaged price via the Internet.\n\n\n\u00a0\n\n\nInvestment analysis software (\nThe Value Line Investment Analyzer\u00a0\nand \nThe New Value Line ETFs Service\n) includes data sorting and filtering tools. In addition, for institutional and professional subscribers, VLP offers current and historical financial databases (\nDataFile, Estimates & Projections, \nand \nMutual Funds\n) via the Internet.\n\n\n\u00a0\n\n\nThe print and digital services include, but are not limited to the following:\n\n\n\u00a0\n\n\nThe Value Line Investment Survey \n\n\n\u00a0\n\n\nThe Value Line Investment Survey\n is an investment periodical research service providing both timely articles on economic, financial and investment matters and analysis and ranks for equity securities. Two of the evaluations for covered equity securities are \"Timeliness\u2122\" and \"Safety\u2122\u201d. \u201cTimeliness\u201d Ranks relate to the probable relative price performance of one stock over the next six to twelve months, as compared to the rest of the stock coverage universe. Ranks are updated each week and range from Rank 1 for the expected best performing stocks to Rank 5 for the expected poorest performers. \"Safety\" Ranks are a measure of risk and are based on the issuer's relative Financial Strength and its stock's Price Stability. \"Safety\" ranges from Rank 1 for the least risky stocks to Rank 5 for the riskiest. VLP employs analysts and statisticians who prepare articles of interest for each periodical and who evaluate stock performance and provide future earnings estimates and quarterly written evaluations with more frequent updates when relevant. \nThe Value Line Investment Survey\n is comprised of three parts: The \"\nSummary & Index\n\" provides updated Timeliness and Safety Ranks, selected financial data, and \"screens\" of key financial measures; the \"\nRatings & Reports\n\" section contains the updated reports on stocks each week; and the \u201c\nSelection & Opinion\n\u201d section provides economic commentary and data, articles, and model portfolios managed by analysts covering a range of investment approaches.\n\n\n\u00a0\n\n\nThe Value Line Investment Survey - Small and Mid-Cap \n\n\n\u00a0\n\n\nThe Value Line Investment Survey - Small and Mid-Cap\n is an investment research tool introduced in 1995 that provides short descriptions of and extensive data for small and medium-capitalization stocks, many listed on The NASDAQ Exchange, beyond the equity securities of generally larger-capitalization companies covered in \nThe Value Line Investment Survey\n. Like \nThe Value Line Investment Survey\n, the \nSmall and Mid-Cap\n has its own \"\nSummary & Index\n\" providing updated performance ranks and other data, as well as \"screens\" of key financial measures and two model portfolios. The print portion of the service is issued monthly. The 400 stocks of the Small & Mid-Cap universe selected for inclusion in the print component of the service are those of most importance to subscribers and are mailed to subscribers in updated monthly groups. Each stock is covered 4 times per year \u2013 once per quarterly cycle. The Digital component of the service remains unchanged -- updated weekly with the complete stock coverage universe available for review. The Performance Rank is designed to predict relative price performance over the next six to twelve months.\n\n\n\u00a0\n\n\nThe Value Line Fund Advisor Plus\n\n\n\u00a0\n\n\nThe Value Line Mutual Fund Ranking System was introduced in 1993. It is the system utilized in the \nFund Advisor Plus, \nfeaturing load, no-load, and low-load open-end mutual funds. Each issue offers strategies for maximizing total return, and highlights of specific mutual funds. It also includes information about retirement planning and industry news. A full statistical review, including latest performance, ranks, and sector weightings, is updated each month on approximately 800 leading load, no-load and low-load funds. Included with this product is online access to Value Line\u2019s database of approximately 20,000 mutual funds, including screening tools and full-page printable reports on each fund. Four model portfolios are also part of the service. One recommends specific U.S. mutual funds from different objective groups, while the other highlights similar exchange traded funds (ETFs). The remaining two highlight mutual funds and ETFs globally. \nThe Value Line Fund Advisor Plus \ncontains data on approximately 20,000 no-load and low-load funds and a digital screener.\n\n\n\u00a0\n\n\nThe Value Line Special Situations Service \n\n\n\u00a0\n\n\nThe Value Line Special Situations Service\n\u2019s core focus is on smaller companies whose equity securities are perceived by Value Line\u2019s analysts as having exceptional appreciation potential. This publication was introduced in 1951.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       6\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Value Line Daily Options Survey \n\n\n\u00a0\n\n\nThe Value Line Daily Options Survey \nis a daily digital service that evaluates and ranks approximately 600,000 U.S. equity and equity index options. Features include an interactive database, spreadsheet tools, and a weekly email newsletter. This product is only offered as an online subscription.\n\n\n\u00a0\n\n\nValue Line Select \n\n\n\u00a0\n\n\nValue Line Select\n is a monthly stock selection service and was first published in 1998. It focuses each month on a single company that the Value Line Research Department has selected from a group of high-quality companies whose stocks are viewed as having a superior risk/reward ratio. Recommendations are backed by in-depth research and are subject to ongoing monitoring by research personnel.\n\n\n\u00a0\n\n\nValue Line Select: Dividend Income & Growth\n\n\n\u00a0\n\n\nValue Line Select: Dividend Income & Growth \n(formerly\n Value Line Dividend Select\n), a monthly stock selection service, was introduced in June 2011. This product focuses on companies with dividend yields greater than the average of all stocks covered by Value Line, with a preference for companies that have consistently increased their dividends above the rate of inflation over the longer term and, based on Value Line analysis, have the financial strength both to support and increase dividend payments in the future.\n\n\n\u00a0\n\n\nValue Line Select: ETFs\n\n\n\u00a0\n\n\nIn May 2017, we launched \nValue Line Select: ETFs\n, a monthly ETF selection service. This product focuses on ETFs that appear poised to outperform the broader market. The selection process utilizes an industry approach, with the same data-focused analysis that is the hallmark of Value Line.\n\n\n\u00a0\n\n\nThe New Value Line ETFs Service\n\n\n\u00a0\n\n\nIn September 2019, we introduced \nThe New Value Line ETFs Service\n. This online-only, web based analysis software\u00a0provides data, analysis, and screening capabilities on more than 2,700 publicly traded ETFs. Almost all of the ETFs tracked in the product are ranked by The Value Line ETF Ranking System, a proprietary estimate with the goal of predicting an ETF\u2019s future performance relative to all other ranked ETFs. The screener includes more than 30 fields, and each ETF has its own full PDF report. All data and information can be downloaded, exported, and printed.\n\n\n\u00a0\n\n\nThe Value Line 600\n\n\n\u00a0\n\n\nThe Value Line 600\n is a monthly publication, which contains full-page research reports on approximately 600 equity securities. Its reports provide information on many actively traded, larger capitalization issues as well as some smaller growth stocks. It offers investors who want the same type of analysis provided in \nThe Value Line Investment Survey\n, but who do not want or need coverage of all the companies covered by that product a suitable alternative. Readers also receive supplemental reports as well as a monthly Index, which includes updated statistics, including proprietary ranks and ratings.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       7\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nValue Line Information You Should Know Wealth Newsletter\n\n\n\u00a0\n\n\nThis is a monthly service that started in January 2020. It is a general interest publication focusing on useful and actionable investing and financial information. It is a succinct 4 page newsletter covering topics such as. \u201cHow Can I Avoid Probate? And Should I?\u201d, \u201cHow to Handle Your Investments in a Bear Market\u201d. It is available as a print product or as a PDF delivered via email. The newsletter is marketed via a variety of channels including as an add-on in select direct mail campaigns and email.\n\n\n\u00a0\n\n\nThe Value Line M&A Service\n\n\n\u00a0\n\n\nThis is a monthly service that was launched in September 2020. The objective of the service is to identify companies that possess characteristics, such as a successful product lineup, market position or important technology that would interest larger corporations or private equity firms. The main feature of the M&A Service consists of a detailed, multipage highlight on a stock that Value Line thinks is a good acquisition candidate. New recommendations are then added to the M&A Model Portfolio.\n\n\n\u00a0\n\n\nThe Value Line Climate Change Investing Service\n\n\n\u00a0\n\n\nThis monthly service was introduced in April 2021. This publication, designed for the climate-conscious, profit-oriented investor, seeks to provide key climate news alongside a managed portfolio of twenty stocks, chosen by our analysts, which stand to benefit from responses to climate change. Selections are vetted based not only on time-tested financial measures, but also the potential impact of climate change and measures taken to combat it on their business. Our selections fall into two main groups: businesses that are focused on providing environmental solutions, and those that are likely to thrive in a changing climate. Every issue features new updates to our portfolio.\n\n\n\u00a0\n\n\nValue Line Investment Analyzer\n\n\n\u00a0\n\n\nValue Line Investment Analyzer\n is a powerful menu-driven software program with fast filtering, ranking, reporting and graphing capabilities utilizing more than 230 data fields for various industries and indices and for the stocks covered in VLP\u2019s flagship publication, \nThe Value Line Investment Survey\n. \nValue Line Investment Analyzer\n allows subscribers to apply numerous charting and graphing variables for comparative research, and is integrated with the Value Line databases via the Internet.\u00a0 \nValue Line Investment Analyzer Professional\n is a more comprehensive product which covers nearly 5,500 stocks and allows subscribers to create customized screens.\n\n\n\u00a0\n\n\nValue Line DataFile Products\n\n\n\u00a0\n\n\nFor our institutional customers, Value Line offers both current and historical data for equities, mutual funds and exchange traded funds (\u201cETFs\u201d). Value Line DataFile products are offered via an FTP site. Below is a listing of the DataFile products:\n\n\n\u00a0\n\n\nFundamental DataFile I and II\n\n\n\u00a0\n\n\nThe\n \nValue Line Fundamental DataFile I\n contains fundamental data (both current and historical) on nearly 5,500 publicly traded companies that follow U.S. generally accepted accounting principles (\u201cGAAP\u201d). This data product provides annual data from 1955, quarterly data from 1963, and full quarterly data as reported to the SEC from 1985. Value Line also offers historical data on over 9,500 companies that no longer exist in nearly 100 industries via our \u201cDead Company\u201d File. The \nFundamental DataFile\n has over 400 annual and over 80 quarterly fields for each of the companies included in the database. DataFile is sold primarily to the institutional and academic markets. Value Line also offers a scaled down DataFile product, \nFundamental DataFile II\n, which includes a limited set of historical fundamental data.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       8\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nEstimates and Projections DataFile\n\n\n\u00a0\n\n\nThis DataFile offering contains the proprietary estimates and projections from Value Line analysts on a wide range of the stocks traded on U.S. exchanges. Data includes earnings, sales, cash flow, book value, margin, and other popular fields. Estimates are for the current year and next year, while projections encompass the three to five year period.\n\n\n\u00a0\n\n\nMutual Fund DataFile\n\n\n\u00a0\n\n\nThe Value Line \nMutual Fund DataFile \ncovers approximately 20,000 mutual funds with up to 20 years of historical data with more than 200 data fields. The \nMutual Fund DataFile\n provides monthly pricing, basic fund information, weekly performance data, sector weights, and many other important mutual fund data fields. This file is updated monthly and delivered via FTP.\n\n\n\u00a0\n\n\nValue Line Research Center\n\n\n\u00a0\n\n\nThe \nValue Line Research Center\n provides on-line access to select Company investment research services covering stocks, mutual funds, options, ETFs, and special situations stocks. This service includes full digital subscriptions to \nThe Value Line Investment Survey, The Value Line Fund Advisor Plus, The Value Line Daily Options Survey, The Value Line Investment Survey\n - \nSmall and Mid-Cap, The New Value Line ETFs Service \nand \nThe Value Line Special Situations Service\n. For our library subscribers, the Research Center also includes the Value Line Climate Change Investing Service. Users can screen more than 250 data fields, create graphs using multiple different variables, and access technical history.\n\n\n\u00a0\n\n\nDigital Services\n\n\n\u00a0\n\n\nThe Value Line Investment Survey - Smart Investor\n offers digital access to full page reports, analyst commentary and Value Line proprietary ranks with coverage on stocks that comprise over 90% of the value of all stocks that trade on U.S. exchanges. Online tools include a screener, alerts, watch-lists and charting. Print capabilities are included.\n\n\n\u00a0\n\n\nThe Value Line Investment Survey - Savvy Investor \noffers digital access to full page reports and Value Line proprietary ranks on the stocks of both \nThe Investment Survey (Smart Investor)\n and \nThe\n \nSmall Cap Investor\n. Online tools include a screener, alerts, watch-lists and charting. Print capabilities are included.\n\n\n\u00a0\n\n\nThe Value Line Investment Survey - Small Cap Investor \noffers digital access to full page reports and Value Line proprietary ranks and short descriptions of and extensive data for small and medium-capitalization stocks generally with market capitalizations under $10 billion. One year of history is included. Online tools include a screener, alerts, watch-lists and charting. Print capabilities are included.\n\n\n\u00a0\n\n\nThe Value Line Investment Survey - Investor 600\n, equivalent to \nThe Value Line 600 \nprint, offers digital access to full page reports, analyst commentary and Value Line proprietary ranks on approximately 600 selected stocks covering the same variety of industries as \nThe Value Line Investment Survey\n. Online tools include a screener, alerts, watch-lists and charting. Print capabilities are included.\n\n\n\u00a0\n\n\nValue Line Pro Premium \ndigital service includes \nThe Value Line Investment Survey\n\u00ae\u00a0and \nThe Value Line Investment Survey\n\u00ae\n \n\u2014\n Small & Mid-Cap\n. This equity package monitors more than 3,300 companies with market values ranging from less than $1 billion to nearly $3 trillion across 100 industries. There are over 250 data fields that can be screened to help make informed decisions. Features of the service include three years of historical reports and data, customizable modules, alerts and screening.\n\n\n\u00a0\n\n\nValue Line Pro Basic\n digital service has coverage on stocks drawn from 100 industries. There are over 200 data fields that can be screened to help make informed decisions. Features of the service include three years of historical reports and data, customizable modules, alerts and screening.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       9\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nValue Line\n\u00a0\nPro Elite\n digital service includes \nThe Value Line Investment Survey\n\u00ae and \nThe Value Line Investment Survey\n\u00ae\n \n\u2014\n Small & Mid-Cap.\n \nPro Elite \nservice package aimed at professional industry includes digital access to full page reports and Value Line proprietary ranks. In addition, our database of mostly microcap firms adds more than 2,000 additional names. Five years\u2019 history is included. Online tools include a screener, alerts, watch-lists and charting. Downloading and print capabilities are included.\n\n\n\u00a0\n\n\nThe Value Line Investment Survey \n\u2013\n Library Basic\n has coverage on stocks that comprise over 90% of the value of all stocks that trade on U.S. exchanges included in \nThe Value Line Investment Survey\n, drawn from nearly 100 industries. There are over 200 data fields that can be applied to help you make more informed decisions. Value Line has led its subscribers towards financial success by satisfying the demand for actionable insights and tools to manage equity investments.\n\n\n\u00a0\n\n\nThe Value Line Investment Survey \n\u2013\n Library Elite \noffers libraries digital access to full reports, analyst commentary and Value Line proprietary ranks. This equity package monitors more than 3,300 companies. Online tools include a screener, and charting. Print capabilities are included.\n\n\n\u00a0\n\n\nThe Value Line Pro Equity Research Center\n is an equities-only package that includes access to exclusive premium services and provides online access to all of Value Line\u2019s equity products. This service offered both to financial advisers and high-net-worth individuals, includes full online subscriptions to \nThe Value Line Investment Survey\n, \nThe Value Line Investment Survey \n\u2013\n Small & Mid-Cap\n, \nValue Line Select\n, \nValue Line Select: Dividend Income and Growth\n, \nThe Value Line Special Situations Service, The Value Line M&A Service, \nand\n The Value Line Pro ETF Package\n. Users can screen more than 250 data fields, create graphs using multiple different variables, and access technical history. \nThe Value Line Pro Equity Research Center\n has the ability to track model portfolios (large, small and mid-cap) as well as providing ranks and news.\n\n\n\u00a0\n\n\nValue Line Library Research Center \n\n\n\u00a0\n\n\nThe Value Line Library Research Center\n provides on-line access to select Company investment research services covering stocks, mutual funds, options, special situations stocks, and climate change investing. This service includes full digital subscriptions to \nThe Value Line Investment Survey, The Value Line Fund Advisor Plus, The Value Line Daily Options Survey, The Value Line Investment Survey - Small and Mid-Cap, The New Value Line ETFs Service, The Value Line Special Situations Service, \nand\n The Value Line Climate Change Investing Service\n. Users can screen more than 250 data fields, create graphs using multiple different variables, and access technical history. \nValue Line Library Research Center \nhas the ability to track model portfolios (large, small and mid-cap) as well as providing ranks and news.\n\n\n\u00a0\n\n\nQuantitative Strategies \n\n\n\u00a0\n\n\nValue Line Quantitative Strategy Portfolios are developed based on our renowned proprietary Ranking Systems for TimelinessTM, Performance and SafetyTM, Financial Strength Ratings, and a comprehensive database of fundamental research and analysis. All of these quantitative investment products have a solid theoretical foundation and have demonstrated superior empirical results. These strategies are available for licensing by Financial Professionals such as RIAs and Portfolio Managers.\n\n\n\u00a0\n\n\nAll the digital services have Charting features, including many options to chart against popular indexes with the ability to save settings and print. Products offer an Alerts Hub which allows the user to set up alerts for up to 25 companies, with delivery via text or email.\n\n\n\u00a0\n\n\nB.\n \nCopyright Programs\n\n\n\u00a0\n\n\nThe Company\u2019s available copyright services, which include certain proprietary Ranking System results and other proprietary information are made available for use in third party products, such as unit investment trusts, variable annuities, managed accounts and exchange traded funds. The sponsors of these products act as wholesalers and distribute the products generally by syndicating them through an extensive network of national and regional brokerage firms. The sponsors of these products will typically receive Proprietary Ranking System results, which may include Value Line Timeliness, Safety, Technical and Performance ranks, as screens for their portfolios. The sponsors are also given permission to associate Value Line\u2019s trademarks with the products. Value Line collects a copyright fee from each of the product sponsors/managers primarily based upon the market value of assets invested in each product\u2019s portfolio utilizing the Value Line proprietary data. Since these fees are based on the market value of the respective portfolios using the Value Line proprietary data, the payments to Value Line, which are typically received on a quarterly basis, will fluctuate.\n\n\n\u00a0\n\n\nValue Line\u2019s primary copyright products are structured as ETFs and Unit Investment Trusts, all of which have in common some degree of reliance on the Value Line Ranking System for their portfolio creation. These products are offered and distributed by independent sponsors.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       10\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nC.\n \nInvestment Management Services \n\n\n\u00a0\n\n\nPursuant to the EAM Declaration of Trust, the Company receives an interest in certain revenues of EAM and a portion of the residual profits of EAM but has no voting authority with respect to the election, removal or replacement of the trustees of EAM. The business of EAM is managed by five individual trustees and a Delaware resident trustee (collectively, the \u201cTrustees\u201d) and by its officers subject to the direction of the Trustees.\n\n\n\u00a0\n\n\nCollectively, the holders of the voting profits interests in EAM are entitled to receive 50% of the residual profits of the business, subject to temporary adjustments in certain circumstances. Value Line holds a non-voting profits interest representing 50% of residual profits, subject to temporary adjustments in certain circumstances, and has no power to vote for the election, removal or replacement of the trustees of EAM. Value Line also has a non-voting revenues interest in EAM pursuant to which it is entitled to receive a portion of the non-distribution revenues of the business ranging from 41% at non-distribution fee revenue levels of $9 million or less to 55% at such revenue levels of $35 million or more. In the event the business is sold or liquidated, the first $56.1 million of net proceeds plus any additional capital contributions (Value Line or any holder of a voting profits interest, at its discretion, may make future contributions to its capital account in EAM), which contributions would increase its capital account but not its percentage interest in operating profits, will be distributed in accordance with capital accounts; 20% of the next $56.1 million will be distributed to the holders of the voting profits interests and 80% to the holder of the non-voting profits interests (currently, Value Line); and the excess will be distributed 45% to the holders of the voting profits interests and 55% to the holder of the non-voting profits interest (Value Line). EAM has elected to be taxed as a pass-through entity similar to a partnership.\n\n\n\u00a0\n\n\nAlso, pursuant to the EAM Declaration of Trust, Value Line (1) granted each Fund use of the name \u201cValue Line\u201d so long as EAM remains the Fund\u2019s adviser and on the condition that the Fund does not alter its investment objectives or fundamental policies from those in effect on the date of the investment advisory agreement with EAM, provided also that the Funds do not use leverage for investment purposes or engage in short selling or other complex or unusual investment strategies that create a risk profile similar to that of so-called hedge funds, (2) agreed to provide EAM its proprietary Ranking System information without charge or expense on as favorable basis as to Value Line\u2019s best institutional customers and (3) agreed to capitalize the business with $7 million of cash and cash equivalents at inception.\n\n\n\u00a0\n\n\nEAM is organized as a Delaware statutory trust and has no fixed term. However, in the event that control of the Company\u2019s majority shareholder changes, or in the event that the majority shareholder no longer beneficially owns 5% or more of the voting securities of the Company, then the Company has the right, but not the obligation, to buy the voting profits interests in EAM at a fair market value to be determined by an independent valuation firm in accordance with the terms of the EAM Declaration of Trust.\n\n\n\u00a0\n\n\nValue Line also has certain consent rights with respect to extraordinary events involving EAM, such as a proposed sale of all or a significant part of EAM, material acquisitions, entering into businesses other than asset management and fund distribution, paying compensation in excess of the mandated limit of 22.5%-30% of non-distribution fee revenues (depending on the level of such revenues), declaring voluntary bankruptcy, making material changes in tax or accounting policies or making substantial borrowings, and entering into related party transactions. These rights were established to protect Value Line\u2019s non-voting revenues and non-voting profits interests in EAM.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       11\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nEAM acts as the Adviser to the Value Line Funds. EULAV Securities acts as the Distributor for the Value Line Funds. State Street Bank, an unaffiliated entity, is the custodian of the assets of the Value Line Funds and provides them with fund accounting and administrative services. Shareholder services for the Value Line Funds are provided by SS&C, formerly named DST Asset Manager Solutions.\n\n\n\u00a0\n\n\nThe Company maintains a significant interest in the cash flows generated by EAM and will continue to receive ongoing payments in respect of its non-voting revenues and non-voting profits interests, as discussed below. Total assets in the Value Line Funds managed and/or distributed by EAM at April 30, 2023, were $3.09 billion, which is $0.27 billion, or 8.0%, below total assets of $3.36 billion in the Value Line Funds managed and/or distributed by EAM at April 30, 2022. \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nTotal net assets of the Value Line Funds at April 30, 2023, were:\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n($ in thousands)\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nValue Line Asset Allocation Fund\n \n\n\n\u00a0\n\n\n$\n\n\n937,202\n\n\n\u00a0\n\n\n\n\n\n\n \nValue Line Capital Appreciation Fund\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n406,868\n\n\n\u00a0\n\n\n\n\n\n\n \nValue Line Mid Cap Focused Fund\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n695,794\n\n\n\u00a0\n\n\n\n\n\n\n \nValue Line Small Cap Opportunities Fund\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n408,656\n\n\n\u00a0\n\n\n\n\n\n\n \nValue Line Select Growth Fund\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n366,324\n\n\n\u00a0\n\n\n\n\n\n\n \nValue Line Larger Companies Focused Fund\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n236,706\n\n\n\u00a0\n\n\n\n\n\n\n \nValue Line Core Bond Fund\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n41,104\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal EAM managed net assets\n \n\n\n\u00a0\n\n\n$\n\n\n3,092,654\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nInvestment management fees and distribution service fees (\u201c12b-1 fees\u201d) vary among the Value Line Funds and may be subject to certain limitations. Certain investment strategies among the equity funds include, but are not limited to, reliance on the Value Line Timeliness \u2122 Ranking System (the \u201cRanking System\u201d) and/or the Value Line Performance Ranking System in selecting securities for purchase or sale. Each Ranking System seeks to compare the estimated probable market performance of each stock during the next six to twelve months to that of all stocks under review in each system and ranks stocks on a scale of 1 (highest) to 5 (lowest). All the stocks followed by the Ranking System are listed on U.S. stock exchanges or traded in the U.S. over-the-counter markets. Prospectuses and annual reports for each of the Value Line open end mutual funds are available on the Funds\u2019 website \nwww.vlfunds.com\n. Each mutual fund may use \"Value Line\" in its name only to the extent permitted by the terms of the EAM Declaration of Trust.\n\n\n\u00a0\n\n\nD. Wholly-Owned Operating Subsidiaries\n\n\n\u00a0\n\n\nWholly-owned operating subsidiaries of the Company as of April 30, 2023 include the following:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n1.\n \n\n\n \nValue Line Publishing LLC (\u201cVLP\u201d) is the publishing unit for the investment related periodical publications and copyrights.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n2.\n \n\n\n \nVanderbilt Advertising Agency, Inc. places advertising on behalf of the Company's publications.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n3.\n \n\n\n \nValue Line Distribution Center, Inc. (\u201cVLDC\u201d) distributes Value Line\u2019s print publications.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       12\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nE. Trademarks\n\n\n\u00a0\n\n\nThe Company holds trademark and service mark registrations for various names and logos in multiple countries. Value Line believes that these trademarks and service marks provide significant value to the Company and are an important factor in the marketing of its products and services, as well as in the marketing of the Value Line Funds, now managed by EAM. The Company maintains registrations of all active and eligible trademarks.\n\n\n\u00a0\n\n\nF. Investments\n\n\n\u00a0\n\n\nAs of April 30, 2023 and April 30, 2022, the Company held total investment assets (excluding its interests in EAM) with a fair market value of $54,474,000 and $28,122,000, respectively, including equity securities and available-for-sale fixed income securities on the Consolidated Balance Sheets. As of April 30, 2023 and April 30, 2022, the Company held equity securities, which consist of investments in the SPDR Series Trust S&P Dividend ETF (SDY), First Trust Value Line Dividend Index ETF (FVD), ProShares Trust S&P 500 Dividend Aristocrats ETF (NOBL), IShares DJ Select Dividend ETF (DVY) and other Exchange Traded Funds and common stock equity securities. As of April 30, 2023 and April 30, 2022, the Company held fixed income securities classified as available-for-sale, that consist of securities issued by United States federal government and bank certificates of deposit within the United States.\n\n\n\u00a0\n\n\nG. Employees\n\n\n\u00a0\n\n\nAt April 30, 2023, the Company and its subsidiaries employed 138 people.\n\n\n\u00a0\n\n\nThe Company and its affiliates, officers, directors and employees may from time to time own securities which are also held in the portfolios of the Value Line Funds or recommended in the Company's publications. Value Line analysts are not permitted to own securities of the companies they cover. The Company has adopted rules requiring reports of securities transactions by employees for their respective accounts. The Company has also established policies restricting trading in securities whose ranks are about to change in order to avoid possible conflicts of interest.\n\n\n\u00a0\n\n\nH. Principal Business Segments\n\n\n\u00a0\n\n\n\u00a0\n\n\nThe information with respect to revenues from external customers and profit and loss of the Company's identifiable principal business segments is incorporated herein by reference to Note 18 of the Notes to the Company's Consolidated Financial Statements included in this Form 10-K.\n\n\n\u00a0\n\n\nThe investment periodicals and related publications (retail and institutional) and Value Line copyrights and Value Line Proprietary Ranks and other proprietary information, consolidated into one segment called Publishing. The Publishing segment constitutes the Company\u2019s only reportable business segment.\n\n\n\u00a0\n\n\nI. Competition\n\n\n\u00a0\n\n\nThe investment information and publishing business conducted by the Company and the investment management business conducted by EAM are very competitive. There are many competing firms and a wide variety of product offerings. Some of the firms in these industries are substantially larger and have greater financial resources than the Company and EAM. The Internet continues to increase the amount of competition in the form of free and paid online investment research. With regard to the investment management business conducted by EAM, the prevalence of broker supermarkets or platforms permitting easy transfer of assets among mutual funds, mutual fund families, and other investment vehicles tends to increase the speed with which shareholders can leave or enter the Value Line Funds based, among other things, on short-term fluctuations in performance.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       13\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nJ. Executive Officers of the Registrant\n\n\n\u00a0\n\n\nThe following table lists the names, ages (at June 30, 2023), and principal occupations and employment during the past five years of the Company's Executive Officers. All officers are elected to terms of office for one year. Except as noted, each of the following has held an executive position with the companies indicated for at least five years.\n\n\n\u00a0\n\n\n\n\n\n\n\n\nName\u00a0\u00a0\n\n\nAge\u00a0\n\n\nPrincipal Occupation or Employment\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nHoward A. Brecher\n\n\n\u00a069\u00a0\n\n\nChairman and Chief Executive Officer since October 2011; Acting Chairman and Acting Chief Executive Officer from November 2009 to October 2011; Chief Legal Officer; Vice President and Secretary until January 2010; Vice President and Secretary of each of the Value Line Funds from June 2008 to December 2010; Secretary of EAM LLC from February 2009 until December 2010; Director and General Counsel of AB&Co. Mr. Brecher has been an officer of the Company for more than 20 years.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nStephen R. Anastasio\n\n\n64\u00a0\n\n\nVice President since December 2010; Director since February 2010; Treasurer since 2005. Mr. Anastasio has been an officer of the Company for more than 10 years.\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWEBSITE ACCESS TO SEC REPORTS\n\n\n\u00a0\n\n\nThe Company\u2019s Internet site address is \nwww.valueline.com\n. The Company\u2019s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports are made available on the \u201cCorporate Filings\u201d page under the \u201cAbout Value Line\u201d tab on the Company\u2019s website @www.valueline.com/About/corporate_filings.aspx. free of charge as soon as reasonably practicable after the reports are filed electronically with the SEC. All of the Company\u2019s SEC reports are also available on the SEC Internet site, \nwww.sec.gov\n.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       14\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A. RISK FACTORS\n\n\n\u00a0\n\n\nIn addition to the risks referred to elsewhere in this Form 10-K, the following risks, among others, sometimes may have affected, and in the future could affect, the Company\u2019s businesses, financial condition or results of operations and/or the investment management business conducted by EAM and consequently, the amount of revenue we receive from EAM. The risks described below are not the only ones we face. Additional risks not discussed or not presently known to us or that we currently deem insignificant, may also impact our businesses.\n\n\n\u00a0\n\n\nThe Company and its subsidiaries are dependent on the efforts of its executives and professional staff.\n\n\nThe Company\u2019s future success relies upon its ability to retain and recruit qualified professionals and executives. The Company\u2019s executive officers do not have employment agreements with the Company and the Company does not maintain \u201ckey man\u201d insurance policies on any of its executive officers. The loss of the services of key personnel could have an adverse effect on the Company.\n\n\n\u00a0\n\n\nA decrease in the revenue generated by EAM\n\u2019\ns investment management business could adversely affect the Company\n\u2019\ns cash flow and financial condition.\n\n\nThe Company derives a significant portion of its cash flow from its non-voting revenues and non-voting profits interests in EAM. A decrease in the revenue generated by EAM\u2019s investment management business, whether resulting from performance, competitive, regulatory or other reasons, would reduce the amount of cash flow received by the Company from EAM, which reduction could adversely affect the Company\u2019s cash flow and financial condition.\n\n\n\u00a0\n\n\nEAM\n\u2019\ns assets under management, which impact EAM\n\u2019\ns revenue, and consequently the amount of the cash flow that the Company receives from EAM, are subject to fluctuations based on market conditions and individual fund performance. \n\n\nFinancial market declines and/or adverse changes in interest rates would generally negatively impact the level of EAM\u2019s assets under management and consequently its revenue and net income. Major sources of investment management revenue for EAM (i.e., investment management and service and distribution fees) are calculated as percentages of assets under management. A decline in securities prices or in the sale of investment products or an increase in fund redemptions would reduce fee income. A prolonged recession or other economic or political events could also adversely impact EAM\u2019s revenue if it led to decreased demand for products, a higher redemption rate, or a decline in securities prices. Good performance of managed assets relative to both competing products and benchmark indices generally assists in both retention and growth of assets, and may result in additional revenues. Conversely, poor performance of managed assets relative to competing products or benchmark indices tends to result in decreased sales and increased redemptions with corresponding decreases in revenues to EAM. Poor performance could therefore reduce the amount of cash flow that the Company receives from EAM, which reduction could adversely affect the Company\u2019s financial condition.\n\n\n\u00a0\n\n\nEAM derives nearly all of its investment management fees from the Value Line Funds.\n\n\nEAM is dependent upon management contracts and service and distribution contracts with the Value Line Funds under which these fees are paid. As required by the Investment Company Act of 1940 (the \u201c1940 Act\u201d), the Trustees/Directors of the Funds, all of whom are independent of the Company and EAM (except for the CEO of EAM), have the right to terminate such contracts. If any of these contracts are terminated, not renewed, or amended to reduce fees, EAM\u2019s financial results, and consequently, the amount of cash flow received by the Company from EAM, and the Company\u2019s financial condition, may be adversely affected.\n\n\n\u00a0\n\n\nA decrease in the revenue generated by a significant customer could adversely affect the Company\n\u2019\ns cash flow and financial condition.\n\n\nThe Company derives a significant portion of its cash flow and publishing revenues from a single significant customer.\n\n\n\u00a0\n\n\nIf the Company does not maintain its subscriber base, its operating results could suffer.\n\u00a0\n\n\nA substantial portion of the Company\u2019s revenue is generated from print and digital subscriptions, which are paid in advance by subscribers. Unearned revenues are accounted for on the Consolidated Balance Sheets of the Company within current and long-term liabilities. The backlog of orders is primarily generated through renewals and new subscription marketing efforts as the Company deems appropriate. Future results will depend on the renewal of existing subscribers and obtaining new subscriptions for the investment periodicals and related publications. The availability of competitive information on the Internet at low or no cost has had and may continue to have a negative impact on the demand for our products.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       15\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company believes that the negative trend in retail print subscription revenue experienced in recent years is likely to continue.\n\n\nDuring the last several years, the Company has experienced a negative trend in retail print subscription revenue. While circulation of some print publications has increased, others have experienced a decline in circulation or in average yearly price realized. It is expected that print revenues will continue to decline long-term, while the Company emphasizes digital offerings. The Company has established the goal of maintaining competitive digital products and marketing them through traditional and digital channels to retail and institutional customers. However, the Company is not able to predict whether revenues from digital retail publications will grow more than print revenues decline.\n\n\n\u00a0\n\n\nLoss of copyright clients or decline in their customers, or assets managed by third party sponsors could reduce the Company\n\u2019\ns revenues.\n\n\nCopyright agreements are based on market interest in the respective proprietary information. The Company believes this part of the business is dependent upon the desire of third parties to use the Value Line trademarks and proprietary research for their products, competition and on fluctuations in segments of the equity markets. If the fees from proprietary information decline, the Company\u2019s operating results could suffer.\n\n\n\u00a0\n\n\nFailure to protect its intellectual property rights and proprietary information could harm the Company\n\u2019\ns ability to compete effectively and could negatively affect operating results.\n\n\nThe Company\u2019s trademarks are important assets to the Company. Although its trademarks are registered in the United States and in certain foreign countries, the Company may not always be successful in asserting global trademark protection. In the event that other parties infringe on its intellectual property rights and it is not successful in defending its intellectual property rights, the result may be a dilution in the value of the Company\u2019s brands in the marketplace. If the value of the Company\u2019s brands becomes diluted, such developments could adversely affect the value that its customers associate with its brands, and thereby negatively impact its sales. Any infringement of our intellectual property rights would also likely result in a commitment of Company resources to protect these rights through litigation or otherwise. In addition, third parties may assert claims against our intellectual property rights and we may not be able successfully to resolve such claims. The Company is utilizing all of its trademarks and properly maintaining registrations for them.\n\n\n\u00a0\n\n\nAdverse changes in market and economic conditions could lower demand for the Company\n\u2019\ns and EAM\n\u2019\ns products and\n\u00a0\nservices.\n\u00a0\n\n\nThe Company provides its products and services to individual investors, financial advisors, and institutional clients. Adverse conditions in the financial and securities markets may\u00a0have an impact on the Company\u2019s subscription revenues, securities income, and copyright fees which could adversely affect the Company\u2019s results of operations and financial condition. Adverse conditions in the financial and securities markets could also have an adverse effect on EAM\u2019s investment management revenues and reduce the amount of cash flow that the Company receives from EAM, which reduction could adversely affect the Company\u2019s financial condition.\n\n\n\u00a0\n\n\nThe Company and EAM face significant competition in their respective businesses. \n\n\nBoth the investment information and publishing business conducted by the Company and the investment management business conducted by EAM are very competitive. There are many competing firms and a wide variety of product offerings. Some of the firms in these industries are substantially larger and have greater financial resources than the Company and EAM. With regard to the investment information and publishing business, barriers to entry have been reduced by the minimal cost structure of the Internet and other technologies. With regard to the investment management business, the absence of significant barriers to entry by new investment management firms in the mutual fund industry increases competitive pressure. Competition in the investment management business is based on various factors, including business reputation, investment performance, quality of service, marketing, distribution services offered, the range of products offered and fees charged. Access to mutual fund distribution channels has also become increasingly competitive.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       16\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nGovernment regulations, any changes to government regulations, and regulatory proceedings and litigation may adversely impact the business. \n\n\nChanges in legal, regulatory, accounting, tax and compliance requirements could have an effect on EAM\u2019s operations and results, including but not limited to increased expenses and restraints on marketing certain funds and other investment products. EAM is registered with the SEC under the Investment Advisers Act of 1940 (the \u201cAdvisers Act\u201d). The Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary, record keeping, operational and disclosure obligations. ES is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority, also known as \u201cFINRA\u201d. Each Value Line Fund is a registered investment company under the 1940 Act. The 1940 Act requires numerous compliance measures, which must be observed, and involves regulation by the SEC. Each fund and its shareholders may face adverse tax consequences if the Value Line Funds are unable to maintain qualification as registered investment companies under the Internal Revenue Code of 1986, as amended. Those laws and regulations generally grant broad administrative powers to regulatory agencies and bodies such as the SEC and FINRA. If these agencies and bodies believe that EAM, ES or the Value Line Funds have failed to comply with their laws and regulations, these agencies and bodies have the power to impose sanctions. EAM, ES and the Value Line Funds, like other companies, can also face lawsuits by private parties. Regulatory proceedings and lawsuits are subject to uncertainties, and the outcomes are difficult to predict. Changes in laws, regulations or governmental policies, and the costs associated with compliance, could adversely affect the business and operations of the EAM, ES and the Value Line Funds. An adverse resolution of any regulatory proceeding or lawsuit against the EAM or ES could result in substantial costs or reputational harm to them or to the Value Line Funds and have an adverse effect on their respective business and operations. An adverse effect on the business and operations of EAM, ES and/or the Value Line Funds could reduce the amount of cash flow that the Company receives in respect of its non-voting revenues and non-voting profits interests in EAM and, consequently, could adversely affect the Company\u2019s cash flows, results of operations and financial condition.\n\n\n\u00a0\n\n\nTerrorist attacks could adversely affect the Company and EAM. \n\n\nA terrorist attack, including biological or chemical weapons attacks, and the response to such terrorist attacks, could have a significant impact on the New York City area, the local economy, the United States economy, the global economy, and U.S. and/or global financial markets, and could also have a material adverse effect on the Company\u2019s business and on the investment management business conducted by EAM.\n\n\n\u00a0\n\n\nFuture pandemic outbreaks could disrupt the Company\n\u2019\ns operations.\n\n\nA substantial recurrence of infections of the COVID-19 virus or its variants could disrupt Company printing and distribution operations, or supplies of materials and services needed for the print publishing business. While the Company believes that its office, editorial, and administrative operations, and those of its suppliers of data and other services, are adequately backed-up for fully remote operations if needed, likewise a future pandemic outbreak could interfere with the continuity of printing and distribution operations, as well as endangering personnel of the Company and its supply chain partners.\n\n\n\u00a0\n\n\nOur controlling stockholder exercises voting control over the Company and has the ability to elect or remove from office all of our directors.\n\n\nAs of April 30, 2023, AB&Co., Inc. beneficially owned 91.51% of the outstanding shares of the Company\u2019s voting stock. AB&Co. is therefore able to exercise voting control with respect to all matters requiring stockholder approval, including the election or removal from office of all of our directors.\n\n\n\u00a0\n\n\nWe are not subject to most of the listing standards that normally apply to companies whose shares are quoted on NASDAQ.\n\n\nOur shares of common stock are quoted on the NASDAQ Capital Market (\u201cNASDAQ\u201d). Under the NASDAQ listing standards, we are deemed to be a \u201ccontrolled company\u201d by virtue of the fact that AB&Co. has voting power with respect to more than 50% of our outstanding shares of voting stock. A controlled company is not required to have a majority of its board of directors comprised of independent directors. Director nominees are not required to be selected or recommended for the board\u2019s selection by a majority of independent directors or a nomination committee comprised solely of independent directors, nor do the NASDAQ listing standards require a controlled company to certify the adoption of a formal written charter or board resolution, as applicable, addressing the nominations process. A controlled company is also exempt from NASDAQ\u2019s requirements regarding the determination of officer compensation by a majority of the independent directors or a compensation committee comprised solely of independent directors. Although we currently comply with certain of the NASDAQ listing standards that do not apply to controlled companies, our compliance is voluntary, and there can be no assurance that we will continue to comply with these standards in the future.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       17\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe are subject to cyber risks and may incur costs in connection with our efforts to enhance and ensure security from cyber attacks.\n\n\nSubstantial aspects of our\u00a0business depend on the secure operation of our computer systems and e-commerce\u00a0websites. Security breaches could expose us to a risk of loss or misuse of\u00a0sensitive information, including our own proprietary information and that of our customers\u00a0and employees.\u00a0While we devote substantial resources to maintaining adequate levels of cyber security,\u00a0our resources\u00a0and technical sophistication may not be adequate to prevent all of the rapidly evolving types of cyber attacks. Anticipated attacks and risks may cause us to incur increasing costs for technology, personnel, insurance and services to enhance security or to respond to occurrences. We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any possible future breaches of our systems.\n\n\n\u00a0\n\n\nChanges to existing accounting pronouncements or taxation rules or practices may affect how we conduct our business and affect our reported results of operations.\n\n\nNew accounting pronouncements or tax rules and varying interpretations of accounting pronouncements or taxation practice have occurred and may occur in the future. A change in accounting pronouncements or interpretations or taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. Changes to existing rules and pronouncements, future changes, if any, or the questioning of current practices or interpretations may adversely affect our reported financial results or the way we conduct our business.\n\n\n\u00a0\n\n",
+  "item7": ">Item 7. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.\n\n\n\u00a0\n\n\nThe following Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (\u201cMD&A\u201d) is intended to help a reader understand Value Line, its operations and business factors. The MD&A should be read in conjunction with Item 1, \u201cBusiness\u201d, and Item 1A, \u201cRisk Factors\u201d of Form 10-K, and in conjunction with the consolidated financial statements and the accompanying notes contained in Item 8 of this report.\n\n\n\u00a0\n\n\nThe MD&A includes the following subsections:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nExecutive Summary of the Business\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nResults of Operations\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nLiquidity and Capital Resources\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nRecent Accounting Pronouncements\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nCritical Accounting Estimates and Policies\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nExecutive Summary of the Business\n\n\n\u00a0\n\n\nThe Company's core business is producing investment periodicals and their underlying research and making available certain Value Line copyrights, Value Line trademarks and Value Line Proprietary Ranks and other proprietary information, to third parties under written agreements for use in third-party managed and marketed investment products and for other purposes. Value Line markets under well-known brands including \nValue Line\n\u00ae\n, the Value Line \nlogo\u00ae, \nThe Value Line Investment Survey\n\u00ae\n, Smart Research, Smarter Investing\n\u2122\n \nand \nThe Most Trusted Name in Investment Research\n\u00ae\n.\n The name \"Value Line\" as used to describe the Company, its products, and its subsidiaries, is a registered trademark of the Company. EULAV Asset Management Trust (\u201cEAM\u201d) was established to provide the investment management services to the Value Line Funds, institutional and individual accounts and provide distribution, marketing, and administrative services to the Value Line\u00ae Mutual Funds (\"Value Line Funds\"). The Company maintains a significant investment in EAM from which it receives payments in respect of its non-voting revenues and non-voting profits interests.\n\n\n\u00a0\n\n\nThe Company\u2019s target audiences within the investment research field are individual investors, colleges, libraries, and investment management professionals. Individuals come to Value Line for complete research in one package. Institutional licensees consist of corporations, financial professionals, colleges, and municipal libraries. Libraries and universities offer the Company\u2019s detailed research to their patrons and students. Investment management professionals use the research and historical information in their day-to-day businesses. The Company has a dedicated department that solicits institutional subscriptions.\n\n\n\u00a0\n\n\nPayments received for new and renewal subscriptions and the value of receivables for amounts billed to retail and institutional customers are recorded as unearned revenue until the order is fulfilled. As the orders are fulfilled, the Company recognizes revenue in equal installments over the life of the particular subscription. Accordingly, the subscription fees to be earned by fulfilling subscriptions after the date of a particular balance sheet are shown on that balance sheet as unearned revenue within current and long-term liabilities.\n\n\n\u00a0\n\n\nThe investment periodicals and related publications (retail and institutional) and Value Line copyrights and Value Line Proprietary Ranks and other proprietary information consolidate into one segment called Publishing. The Publishing segment constitutes the Company\u2019s only reportable business segment.\n\n\n\u00a0\n\n\nAsset Management and Mutual Fund Distribution Businesses \n\n\n\u00a0\n\n\nPursuant to the EAM Declaration of Trust, the Company maintains an interest in certain revenues of EAM and a portion of the residual profits of EAM but has no voting authority with respect to the election or removal of the trustees of EAM or control of its business.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       21\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe business of EAM is managed by its trustees each owning 20% of the voting interest in EAM and by its officers subject to the direction of the trustees. The Company\u2019s non-voting revenues and non-voting profits interests in EAM entitle it to receive a range of 41% to 55% of EAM\u2019s revenues (excluding distribution revenues) from EAM\u2019s mutual fund and separate account business and 50% of the residual profits of EAM (subject to temporary increase in certain limited circumstances). The Voting Profits Interest Holders will receive the other 50% of residual profits of EAM. Distribution is not less than 90% of EAM\u2019s profits payable each fiscal quarter under the provisions of the EAM Trust Agreement.\n\n\n\u00a0\n\n\nBusiness Environment \n\n\n\u00a0\n\n\nThe pace of economic growth slowed moderately in the first half of calendar 2023. The gross domestic product (GDP) expanded by an annualized rate of 2.0% in the March period and the consensus forecast expected\u00a0that the pace eased to around 1.0% in the June interim. (The first estimate for second-quarter GDP surprised to the upside with a reading of 2.4%.) This followed respective annualized advances of 3.2% and 2.6% in the third and fourth quarters of 2022. The Federal Reserve\u2019s increasingly restrictive monetary policies\u2014implemented to battle inflation by slowing demand for goods and services and ultimately putting downward pressure on prices\u2014hurt the housing and manufacturing sectors, though recent data suggests that the housing market may be emerging from a recessionary phase in 2022. \u00a0\u00a0\n\n\n\u00a0\n\n\nThe Federal Reserve, faced with inflation running at a 40-year high entering 2022, embarked on a highly restrictive monetary policy tightening course. This resulted in the central bank hiking the benchmark short-term interest rate at 10-consecutive Federal Open Market Committee (FOMC) meetings before pausing at the June meeting. This hawkish stance raised the federal funds rate from near-zero in the spring of 2022 to the current range of\u00a05.25% to 5.50% announced on July 26th. Recent data have shown that inflation eased some this spring, with both consumer and producer price growth well off multi-decade highs established in 2021. On point, the June Consumer Price Index (CPI) showed prices rose 0.2% on a month-to-month basis, which was up modestly from the May reading of 0.2%, but came in below the consensus expectation calling for an increase of 0.3%. Furthermore, the core CPI, which excludes the more volatile food and energy components, increased 0.2% in June, which was half the prior month\u2019s pace. On a 12-month basis, the CPI rose 3.0%, which was down markedly from the May rate of 4.0%.\n\n\n\u00a0\n\n\nHowever, several Federal Open Market Committee voting members believe that multiple interest-rate hikes are still plausible in the second half of 2023, including a quarter-point increase at the soon-to-commence July FOMC meeting. Those senior Fed officials, including Chairman Jerome Powell, think the federal funds rate needs to rise to the lead bank\u2019s recently revised 2023 target of 5.60% and stay at or above that level for an extended period to bring price growth closer to its long-term target rate of 2.0%. Wall Street remains skeptical that the Fed will be that hawkish, as the central bank said it will be \u201cdata dependent\u201d in formulating monetary policy. Thus, with many market pundits thinking that a continued downward trend in prices will be seen in the upcoming inflation readings, the Street believes that the Fed may reconsider its hawkish position.\n\n\n\u00a0\n\n\nThe economic data of late have been better than expected, highlighted by surprising recoveries in homebuilding activity and auto sales during the month of May. This, along with the continued strength of the consumer and labor markets, despite the Fed\u2019s best efforts to slow demand for goods and services and ultimately push prices lower, gives more credence to the notion that the Fed can orchestrate a \u201csoft landing\u201d for the economy, as it likely nears the end of its most aggressive interest-rate tightening course in four decades.\n\n\n\u00a0\n\n\nThe Federal Reserve\u2019s push to stabilize prices has not yet hurt the other part of its dual mandate. Indeed, the labor market remains healthy, with recently laid-off workers and those looking for a better position still finding new jobs rather quickly. Labor market conditions remain tight, despite a lower-than-expected jobs gain of 209,000 in June. Overall, nonfarm payrolls increased by 1.67 million positions through the first half of 2023. The health of the labor market has been a key driver behind the resiliency of the consumer sector amid high inflation. Whether this will continue is the big question, as some headwinds for the consumer are swirling. These include consumer credit card balances rising to record levels this year, the resumption of student loan repayments this September, and the likely reduction of COVID-19 stimulus-enhanced savings accounts. Given these factors, it is hard to envision the consumer keeping up the recent hot pace of spending beyond the latter stages of this year.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       22\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn conclusion, the aggressive monetary policy tightening stance by the Federal Reserve may ultimately push the U.S. economy into a recession, but the narrative calling for a \u201csoft landing\u201d has gained steam, given the recent improved economic data. The continued inversion of the Treasury market yield curve (that occurs when rates on longer-term obligations are lower than those of shorter-term durations), the sharp reduction in the U.S. money supply, two-consecutive quarters of corporate earnings declines, and the recent economic struggles for China and Germany (two important trading partners of the United States), may indicate some economic challenges ahead. From a stock market perspective, the price-to-earnings ratio of the S&P 500 companies in early July stood at nearly 19, compared to the 10-year average of 17.4x. This elevated valuation may leave equities vulnerable to any disappointing news on the economic, earnings, and geopolitical fronts.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       23\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nResults of Operations for Fiscal Years 2023, 2022 and 2021\n\n\n\u00a0\n\n\nThe following table illustrates the Company\u2019s key components of revenues and expenses.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFiscal Years Ended April 30,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n($ in thousands, except earnings per share)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n'23 vs. '22\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n'22 vs. '21\n \n\n\n\u00a0\n\n\n\n\n\n\n \nIncome from operations\n \n\n\n\u00a0\n\n\n$\n\n\n11,470\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n10,800\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7,535\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n43.3\n\n\n%\n\n\n\n\n\n\n \nGain on forgiveness of SBA loan\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,331\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nn/a\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nn/a\n\n\n\u00a0\n\n\n\n\n\n\n \nNon-voting revenues and non-voting profits interests from EAM Trust\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n11,131\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,041\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,321\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-38.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.2\n\n\n%\n\n\n\n\n\n\n \nIncome from operations plus non-voting revenues and non-voting profits interests from EAM Trust and gain on SBA loan forgiveness\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n22,601\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,172\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,856\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-27.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n25.4\n\n\n%\n\n\n\n\n\n\n \nOperating expenses\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n28,225\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29,725\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32,857\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-5.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-9.5\n\n\n%\n\n\n\n\n\n\n \nInvestment gains / (losses)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,174\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(534\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,420\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nn/a\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nn/a\n\n\n\u00a0\n\n\n\n\n\n\n \nIncome before income taxes\n \n\n\n\u00a0\n\n\n$\n\n\n23,775\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n30,638\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n30,276\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-22.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.2\n\n\n%\n\n\n\n\n\n\n \nNet income\n \n\n\n\u00a0\n\n\n$\n\n\n18,069\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,822\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,280\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-24.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.3\n\n\n%\n\n\n\n\n\n\n \nEarnings per share\n \n\n\n\u00a0\n\n\n$\n\n\n1.91\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2.50\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2.43\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-23.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.9\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2023, the Company\u2019s net income of $18,069,000, or $1.91 per share, was 24.1% below net income of $23,822,000, or $2.50 per share, for the twelve months ended April 30, 2022. Fiscal 2022 included a gain of $2,331,000 from the tax-free forgiveness of SBA\u2019s PPP loan to the Company. During the twelve months ended April 30, 2023, the Company\u2019s income from operations of $11,470,000 was 6.2% above income from operations of $10,800,000 during the twelve months ended April 30, 2022. For the twelve months ended April 30, 2023, operating expenses decreased 5.0% below those during the twelve months ended April 30, 2022.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2023, there were 9,458,605 average common shares outstanding as compared to 9,544,421 average common shares outstanding during the twelve months ended April 30, 2022.\n\n\n\u00a0\n\n\nDuring the three months ended April 30, 2023, the Company\u2019s net income of $4,033,000, or $0.43 per share, was 5.9% below net income of $3,807,000, or $0.40 per share, for the three months ended April 30, 2022. During the three months ended April 30, 2023, the Company\u2019s income from operations of $2,757,000 was 5.7% below income from operations of $2,923,000 during the three months ended April 30, 2022.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       24\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2022, the Company\u2019s net income of $23,822,000, or $2.50 per share, was 2.3% above net income of $23,280,000, or $2.43 per share, for the twelve months ended April 30, 2021. During the twelve months ended April 30, 2022, the Company\u2019s income from operations of $10,800,000 was 43.3% above income from operations of $7,535,000 during the twelve months ended April 30, 2021. For the twelve months ended April 30, 2022, operating expenses decreased 9.5% below those during the twelve months ended April 30, 2021. The largest factors in the increase in net income during the twelve months ended April 30, 2022, compared to the prior fiscal year, were a gain on forgiveness by the SBA of the Company\u2019s PPP loan, an increase in copyright fees, an increase from revenues and profits interests in EAM Trust and well controlled expenses.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2022, there were 9,544,421 average common shares outstanding as compared to 9,596,912 average common shares outstanding during the twelve months ended April 30, 2021.\n\n\n\u00a0\n\n\nDuring the three months ended April 30, 2022, the Company\u2019s net income of $3,807,000, or $0.40 per share, was 37.1% below net income of $6,051,000, or $0.64 per share, for the three months ended April 30, 2021. During the three months ended April 30, 2022, the Company\u2019s income from operations of $2,923,000 was 248.8% above income from operations of $838,000 during the three months ended April 30, 2021 due to an increase in copyright fees and well controlled expenses in the fourth fiscal quarter of 2022.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2021, the Company\u2019s net income of $23,280,000, or $2.43 per share, was 55.8% above net income of $14,943,000, or $1.55 per share, for the twelve months ended April 30, 2020. During the twelve months ended April 30, 2021, the Company\u2019s income from operations of $7,535,000 was 17.1% below income from operations of $9,090,000 during the twelve months ended April 30, 2020. For the twelve months ended April 30, 2021, operating expenses increased 5.3% above those during the twelve months ended April 30, 2020.\n\n\n\u00a0\n\n\nDuring the three months ended April 30, 2021, the Company\u2019s net income of $6,051,000, or $0.64 per share, was 234.9% above net income of $1,807,000, or $0.19 per share, for the three months ended April 30, 2020. During the three months ended April 30, 2021, the Company\u2019s income from operations of $838,000 was 35.9% below income from operations of $1,307,000 during the three months ended April 30, 2020.\n\n\n\u00a0\n\n\nTotal operating revenues \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFiscal Years Ended April 30,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n($ in thousands)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n'23 vs. '22\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n'22 vs. '21\n \n\n\n\u00a0\n\n\n\n\n\n\n \nInvestment periodicals and related publications:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nPrint\n \n\n\n\u00a0\n\n\n$\n\n\n9,963\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11,253\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11,929\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-11.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-5.7\n\n\n%\n\n\n\n\n\n\n \nDigital\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n16,269\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,892\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,700\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n1.2\n\n\n%\n\n\n\n\n\n\n \nTotal investment periodicals and related publications\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n26,232\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,145\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n27,629\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-3.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-1.8\n\n\n%\n\n\n\n\n\n\n \nCopyright fees\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n13,463\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,380\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,763\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.8\n\n\n%\n\n\n\n\n\n\n \nTotal operating revenues\n \n\n\n\u00a0\n\n\n$\n\n\n39,695\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n40,525\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n40,392\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-2.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.3\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nWithin investment periodicals and related publications, subscription sales orders are derived from print and digital products. The following chart illustrates the changes in the sales orders associated with print and digital subscriptions.\n\n\n\u00a0\n\n\nSources of subscription sales\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nFiscal Years Ended April 30,\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nPrint\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nDigital\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nPrint\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nDigital\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nPrint\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nDigital\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNew Sales\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n10.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n11.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n13.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n15.4\n\n\n%\n\n\n\n\n\n\n \nRenewal Sales\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n89.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n89.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n88.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n87.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n85.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n84.7\n\n\n%\n\n\n\n\n\n\n \nTotal Gross Sales\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n100.0\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2023, new sales of print and digital publications decreased as a percent of the total gross sales versus the prior fiscal years as a result of weakened sentiment among prospective customers in a period of market volatility. During the twelve months ended April 30, 2023, renewal sales of print and digital publications increased as a percent of the total gross sales versus the prior fiscal years.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2022, new sales of print and digital publications decreased as a percent of the total gross sales versus the prior fiscal year. During the twelve months ended April 30, 2022, renewal sales of print and digital publications increased as a percent of the total gross sales versus the prior fiscal year as a result of increased efforts by our in-house Retail and Institutional Sales departments.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       25\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nAs of April 30,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n($ in thousands)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n'23 vs. '22\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n'22 vs. '21\n \n\n\n\u00a0\n\n\n\n\n\n\n \nUnearned subscription revenue (current and long-term liabilities)\n \n\n\n\u00a0\n\n\n$\n\n\n22,973\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,773\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n25,088\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-3.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-5.2\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\nA certain amount of variation is to be expected due to the volume of new orders and timing of renewal orders, direct mail campaigns and large Institutional Sales orders.\n\n\n\u00a0\n\n\nInvestment periodicals and related publications revenues\n\n\n\u00a0\n\n\nInvestment periodicals and related publications revenues of $26,232,000 (excluding copyright fees) during the twelve months ended April 30, 2023 were 3.4% below publishing revenues of $27,145,000, as compared to the prior fiscal year. The Company continued activity to attract new subscribers, primarily digital subscriptions through various marketing channels, primarily direct mail, e-mail, and by the efforts of our sales personnel. As fewer individual investors manage their own portfolios, total product line circulation at April 30, 2023, was 10.4% below total product line circulation at April 30, 2022. However, during the twelve months ended April 30, 2023, Institutional Sales department total sales orders, representing our growing business with financial advisors and professional investors, reached a record of $15,236,000, 10.0% above the prior fiscal year. The retail telemarketing sales team generated total sales orders of $7,409,000 or 10.6% below the prior fiscal year.\n\n\n\u00a0\n\n\nOur circulation declined as a result of management\u2019s decision to reduce marketing efforts while the challenging stock market environment persisted. Total print circulation at April 30, 2023 was 16.0% below the total print circulation at April 30, 2022. During the twelve months ended April 30, 2023, print publication revenues of $9,963,000, decreased 11.5%, below print publication revenues of $11,253,000 during April of 2022 because we deferred advertising in light of negative sentiment among prospective individual customers in a challenging market environment. Total digital circulation at April 30, 2023 was 2.7% below total digital circulation at April 30, 2022 with the professional clientele offsetting individual subscribers. During the twelve months ended April 30, 2023, digital revenues of $16,269,000 were up 2.4% as compared to the prior fiscal year. These figures reflect weak investor sentiment, likely temporary, and the ongoing shift from our print services to digital counterparts. Further, publishing revenue is fairly steady, despite the dip in print circulation. Sales of our higher-price, higher-profit, publications have been stronger than sales of lower price \u201cstarter\u201d products.\n\n\n\u00a0\n\n\nInvestment periodicals and related publications revenues of $27,145,000 (excluding copyright fees) during the twelve months ended April 30, 2022 were 1.8% below publishing revenues of $27,629,000, which included an extra week of servings for the weekly print products during the twelve months ended April 30, 2021, (decreased 1.1% excluding the extra week of print products servings), as compared to the prior fiscal year. The Company continued activity to attract new subscribers, primarily digital subscriptions through various marketing channels, primarily direct mail, e-mail, and by the efforts of our sales personnel. Total product line circulation at April 30, 2022, was 4.7% below total product line circulation at April 30, 2021. During the twelve months ended April 30, 2022, Institutional Sales department generated total sales orders of $13,853,000 and the retail telemarketing sales team generated total sales orders of $8,292,000.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       26\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nTotal print circulation at April 30, 2022 was 7.6% below the total print circulation at April 30, 2021. During the twelve months ended April 30, 2022, print publication revenues of $11,253,000, decreased 5.7%, below print publication revenues of $11,929,000, which included the extra week of servings for the weekly print products during the twelve months ended April 30, 2021, (decreased 4.2% excluding the extra week of print products servings) as compared to the prior fiscal year. Total digital circulation at April 30, 2022 was comparable to total digital circulation at April 30, 2021. During the twelve months ended April 30, 2022, digital revenues of $15,892,000 were up 1.2% partially offsetting the decrease in revenues from print publications, as compared to the prior fiscal year.\n\n\n\u00a0\n\n\nInvestment periodicals and related publications revenues of $27,629,000 (excluding copyright fees) during the twelve months ended April 30, 2021, which included an extra week of servings for the weekly print products were comparable with publishing revenues in the prior fiscal year, (decreased 0.6% excluding the extra week of print products servings) during the twelve months ended April 30, 2021, as compared to the prior fiscal year. Total product line circulation at April 30, 2021, was 5.9% above total product line circulation at April 30, 2020, reversing a long term trend. During the twelve months ended April 30, 2021, Institutional Sales department generated total sales orders of $15,067,000 or 11.1% above the prior fiscal year and the retail telemarketing sales team generated total sales orders of $8,658,000 or 4.0% above the prior fiscal year.\n\n\n\u00a0\n\n\nTotal print circulation at April 30, 2021 was 6.5% above the total print circulation at April 30, 2020. Print publication revenues of $11,929,000, which included the extra week of servings for the weekly print products decreased 3.4%, (4.8% excluding the extra week of print products servings) during the twelve months ended April 30, 2021 as compared to the prior fiscal year. Total digital circulation at April 30, 2021 was 5.1% above total digital circulation at April 30, 2020. Digital revenues of $15,700,000 were up 2.8% offsetting the decrease in revenues from print publications, as compared to the prior fiscal year.\n\n\n\u00a0\n\n\nValue Line serves primarily individual and professional investors in stocks, who pay mostly on annual subscription plans, for basic services or as much as $100,000 or more annually for comprehensive premium quality research, not obtainable elsewhere. The ongoing goal of adding new subscribers has led us to introduce publications and packages at a range of price points. Further, new services and new features for existing services are regularly under consideration. Prominently introduced in fiscal 2020 and 2021 were new features in the \nValue Line Research Center\n, which are \nThe New Value Line ETFs Service\n, new monthly publication \nValue Line Information You Should Know Wealth Newsletter, The Value Line M & A Service, \nand our\n Value Line Climate Change Investing Service\n.\n\n\n\u00a0\n\n\nThe Value Line Proprietary Ranks (the \u201cRanking System\u201d), a component of the Company\u2019s flagship product, \nThe Value Line Investment Survey\n, is also utilized in the Company\u2019s copyright business. The Ranking System is made available to EAM for specific uses without charge. During the six month period ended April 30, 2023, the combined Ranking System \u201cRank 1 & 2\u201d stocks\u2019 increase of 7.0% compared to the Russell 2000 Index\u2019s decrease of 4.2% during the comparable period. During the twelve month period ended April 30, 2023, the combined Ranking System \u201cRank 1 & 2\u201d stocks\u2019 were flat\u00a0compared to the Russell 2000 Index\u2019s decrease of 5.1% during the comparable period.\n\n\n\u00a0\n\n\nCopyright fees \n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2023, copyright fees of $13,463,000 were 0.6% above those during the corresponding period in the prior fiscal year. During the twelve months ended April 30, 2022, copyright fees of $13,380,000 were 4.8% above those during the corresponding period in the prior fiscal year. During the twelve months ended April 30, 2021, copyright fees of $12,763,000 were 0.7% above those during the corresponding period in the prior fiscal year.\n\n\n\u00a0\n\n\nInvestment management fees and services \n\u2013\n (unconsolidated)\n\n\n\u00a0\n\n\nThe Company has substantial non-voting revenues and non-voting profits interests in EAM, the asset manager to the Value Line Mutual Funds. Accordingly, the Company does not report this operation as a separate business segment, although it maintains a significant interest in the cash flows generated by this business and will receive ongoing payments in respect of its non-voting revenues and non-voting profits interests.\n\n\n\u00a0\n\n\nTotal assets in the Value Line Funds managed and/or distributed by EAM at April 30, 2023, were $3.09 billion, which is $0.27 billion, or 8.0%, below total assets of $3.36 billion in the Value Line Funds managed and/or distributed by EAM at April 30, 2022. The decrease in net assets was primarily due to fund shareholder redemptions and closing of two variable annuity funds.\n\n\n\u00a0\n\n\nTotal assets in the Value Line Funds managed and/or distributed by EAM at April 30, 2022, were $3.36 billion, which is $1.6 billion, or 32.4%, below total assets of $4.96 billion in the Value Line Funds managed and/or distributed by EAM at April 30, 2021.\n\n\n\u00a0\n\n\nValue Line Funds experienced net redemptions and the associated net asset outflows (redemptions less new sales) in fiscal 2023 and fiscal 2022.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       27\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe following table shows the change in assets for the past three fiscal years including sales (inflows), redemptions (outflows), dividends and capital gain distributions, and market value changes. Inflows for sales, and outflows for redemptions reflect decisions of individual investors and/or their investment advisors. The table also illustrates the assets within the Value Line Funds broken down into equity funds, variable annuity funds (prior to fiscal 2023) and fixed income funds as of April 30, 2023, 2022 and 2021.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nAsset Flows\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nFor the Years Ended April 30,\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nvs.\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nvs.\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nValue Line equity fund assets (excludes variable annuity)\u2014 beginning\n \n\n\n\u00a0\n\n\n$\n\n\n3,312,889,678\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,432,630,658\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,107,549,794\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-25.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n42.6\n\n\n%\n\n\n\n\n\n\n \nSales/inflows\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n514,725,223\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n489,135,580\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,444,784,921\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-66.1\n\n\n%\n\n\n\n\n\n\n \nDividends/Capital Gains Reinvested\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n194,068,940\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n350,143,149\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n245,356,118\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-44.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n42.7\n\n\n%\n\n\n\n\n\n\n \nRedemptions/outflows\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(858,248,017\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,228,854,315\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,265,805,045\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-30.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-2.9\n\n\n%\n\n\n\n\n\n\n \nDividend and Capital Gain Distributions\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(202,981,966\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(365,486,450\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(257,754,064\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-44.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n41.8\n\n\n%\n\n\n\n\n\n\n \nMarket value change\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n91,096,182\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(364,678,944\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,158,498,934\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-125.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-131.5\n\n\n%\n\n\n\n\n\n\n \nValue Line equity fund assets (non-variable annuity)\u2014 ending\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n3,051,550,040\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,312,889,678\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,432,630,658\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-7.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-25.3\n\n\n%\n\n\n\n\n\n\n \nVariable annuity fund assets \u2014 beginning\n \n\n\n\u00a0\n\n\n$\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n431,605,833\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n365,271,893\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18.2\n\n\n%\n\n\n\n\n\n\n \nSales/inflows\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,277,236\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,494,490\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-4.8\n\n\n%\n\n\n\n\n\n\n \nDividends/Capital Gains Reinvested\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n329,335,773\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n46,943,739\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n601.6\n\n\n%\n\n\n\n\n\n\n \nRedemptions/outflows (1)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(444,323,548\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(48,782,673\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n810.8\n\n\n%\n\n\n\n\n\n\n \nDividend and Capital Gain Distributions\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(329,335,773\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(46,943,739\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n601.6\n\n\n%\n\n\n\n\n\n\n \nMarket value change\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,440,479\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n110,622,123\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-92.4\n\n\n%\n\n\n\n\n\n\n \nVariable annuity fund assets \u2014 ending\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n431,605,833\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-100.0\n\n\n%\n\n\n\n\n\n\n \nFixed income fund assets \u2014 beginning\n \n\n\n\u00a0\n\n\n$\n\n\n44,736,495\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n100,536,371\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n103,255,601\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-55.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-2.6\n\n\n%\n\n\n\n\n\n\n \nSales/inflows\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n196,436\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,519,668\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,690,636\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-92.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-6.4\n\n\n%\n\n\n\n\n\n\n \nDividends/Capital Gains Reinvested\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n808,077\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,140,663\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,810,046\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-29.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-37.0\n\n\n%\n\n\n\n\n\n\n \nRedemptions/outflows (2)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,240,355\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(52,180,984\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(8,240,615\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-93.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n533.2\n\n\n%\n\n\n\n\n\n\n \nDividend and Capital Gain Distributions\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(877,002\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,219,715\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2,084,557\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-28.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-41.5\n\n\n%\n\n\n\n\n\n\n \nMarket value change\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(519,400\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(6,059,508\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,105,260\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-91.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-295.1\n\n\n%\n\n\n\n\n\n\n \nFixed income fund assets \u2014 ending\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n41,104,251\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n44,736,495\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100,536,371\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-8.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-55.5\n\n\n%\n\n\n\n\n\n\n \nAssets under management \u2014 ending\n \n\n\n\u00a0\n\n\n$\n\n\n3,092,654,291\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,357,626,173\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,964,772,862\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-7.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-32.4\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \n(1)\n \n\n\n \nGuardian Insurance redeemed from Value Line Centurion and Value Line Strategic Asset Management on April 29, 2022 and the two funds were closed and subsequently liquidated.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \n(2)\n \n\n\n \nThe Value Line Tax Exempt Fund liquidated November 2021.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAs of April 30, 2023, four of six Value Line equity and hybrid mutual funds held an overall four or five star rating by Morningstar, Inc.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       28\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nEAM Trust - Results of operations before distribution to interest holders\n\n\n\u00a0\n\n\nThe gross fees and net income of EAM\u2019s investment management operations during the twelve months ended April 30, 2023, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $19,824,000, 12b-1 fees and other fees of $5,964,000 and other net gains of $142,000. For the same period, total investment management fee waivers were $164,000 and 12b-1 fee waivers were $105,000. During the twelve months ended April 30, 2023, EAM's net income was $1,468,000 after giving effect to Value Line\u2019s non-voting revenues interest of $10,397,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.\n\n\n\u00a0\n\n\nThe gross fees and net income of EAM\u2019s investment management operations during the twelve months ended April 30, 2022, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $29,598,000, 12b-1 fees and other fees of $9,310,000 and other net losses of $20,000. For the same period, total investment management fee waivers were $547,000 and 12b-1 fee waivers were $644,000. During the twelve months ended April 30, 2022, EAM's net income was $4,284,000 after giving effect to Value Line\u2019s non-voting revenues interest of $15,899,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.\n\n\n\u00a0\n\n\nThe gross fees and net income of EAM\u2019s investment management operations during the twelve months ended April 30, 2021, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $29,022,000, 12b-1 fees and other fees of $9,604,000 and other net income of $361,000. For the same period, total investment management fee waivers were $121,000 and 12b-1 fee waivers for three Value Line Funds were $651,000. During the twelve months ended April 30, 2021, EAM's net income was $4,262,000 after giving effect to Value Line\u2019s non-voting revenues interest of $15,190,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.\n\n\n\u00a0\n\n\nAs of April 30, 2023, one of the Value Line Funds has full 12b-1 fees waivers in place, and five funds have partial investment management fee waivers in place. Although, under the terms of the EAM Declaration of Trust, the Company does not receive or share in the revenues from 12b-1 distribution fees, the Company could benefit from the fee waivers to the extent that the resulting reduction of expense ratios and enhancement of the performance of the Value Line Funds attracts new assets.\n\n\n\u00a0\n\n\nThe Value Line equity and hybrid funds\u2019 assets represent 98.7% and fixed income fund assets represent 1.3%, respectively, of total fund assets under management (\u201cAUM\u201d) as of April 30, 2023. At April 30, 2023, equity and hybrid AUM decreased by 7.9% and fixed income AUM decreased by 8.1% as compared to last year at April 30, 2022.\n\n\n\u00a0\n\n\nThe Value Line equity and hybrid funds\u2019 assets represent 98.7% and fixed income fund assets represent 1.3%, respectively, of total fund assets under management (\u201cAUM\u201d) as of April 30, 2022. At April 30, 2022, equity and hybrid AUM decreased by 25.3% and fixed income AUM decreased by 55.5% as compared to fiscal 2021.\n\n\n\u00a0\n\n\nEAM - The Company\n\u2019\ns non-voting revenues and non-voting profits interests \n\n\n\u00a0\n\n\nThe Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business, and 50% of EAM\u2019s net profits, not less than 90% of which is distributed in cash every fiscal quarter.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       29\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company recorded income from its non-voting revenues interest and its non-voting profits interest in EAM as follows:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFiscal Years Ended April 30,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n($ in thousands)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n'23 vs. '22\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n'22 vs. '21\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNon-voting revenues interest\n \n\n\n\u00a0\n\n\n$\n\n\n10,397\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n15,899\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n15,190\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-34.6\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.7\n\n\n%\n\n\n\n\n\n\n \nNon-voting profits interest\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n734\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,142\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,131\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-65.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n0.5\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n11,131\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n18,041\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n17,321\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-38.3\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.2\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nOperating expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFiscal Years Ended April 30,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n($ in thousands)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n'23 vs. '22\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n'22 vs. '21\n \n\n\n\u00a0\n\n\n\n\n\n\n \nAdvertising and promotion\n \n\n\n\u00a0\n\n\n$\n\n\n3,049\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,223\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n3,745\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-5.4\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-13.9\n\n\n%\n\n\n\n\n\n\n \nSalaries and employee benefits\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n15,203\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,323\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,865\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-12.2\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-8.2\n\n\n%\n\n\n\n\n\n\n \nProduction and distribution\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5,210\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,003\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,440\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-8.0\n\n\n%\n\n\n\n\n\n\n \nOffice and administration\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n4,763\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,176\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,807\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-13.1\n\n\n%\n\n\n\n\n\n\n \nTotal expenses\n \n\n\n\u00a0\n\n\n$\n\n\n28,225\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n29,725\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n32,857\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-5.0\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n-9.5\n\n\n%\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nExpenses within the Company are categorized into advertising and promotion, salaries and employee benefits, production and distribution, office and administration.\n\n\n\u00a0\n\n\nOperating expenses of $28,225,000 during the twelve months ended April 30, 2023, were 5.0% below those during the twelve months ended April 30, 2022 as a result of cost controls in fiscal year 2023. Operating expenses of $6,961,000 during the three months ended April 30, 2023, were 3.4% below those during the three months ended April 30, 2022.\n\n\n\u00a0\n\n\nOperating expenses of $29,725,000 during the twelve months ended April 30, 2022, were 9.5% below those during the twelve months ended April 30, 2021 as a result of cost controls in fiscal year 2022. Operating expenses of $7,205,000 during the three months ended April 30, 2022, were 18.9% below those during the three months ended April 30, 2021.\n\n\n\u00a0\n\n\nOperating expenses of $32,857,000 during the twelve months ended April 30, 2021, were 5.3% above those during the twelve months ended April 30, 2020. Operating expenses of $8,886,000 during the three months ended April 30, 2021, were 4.6% above those during the three months ended April 30, 2020.\n\n\n\u00a0\n\n\n\u00a0\n\n\nAdvertising and promotion\n\n\n\u00a0\n\n\nDuring twelve months ended April 30, 2023, advertising and promotion expenses of $3,049,000 decreased 5.4% as compared to the prior fiscal year. During the twelve months ended April 30, 2023, decreases were primarily due to decreases in media advertising expenses and direct mail campaigns, partially offset by the increases in renewal solicitation costs and institutional sales commissions.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2022, advertising and promotion expenses of $3,223,000 decreased 13.9% as compared to the prior fiscal year. During the twelve months ended April 30, 2022, decreases were primarily due to a decline in direct mail campaigns and lower media marketing and lower institutional sales commissions. Total sales commissions decreased 8% during the twelve months ended April 30, 2022.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       30\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2021, advertising and promotion expenses of $3,745,000 increased 11.8% as compared to the prior fiscal year. During the twelve months ended April 30, 2021, increases were primarily due to advertising expenses and institutional sales promotion. Total sales commissions increased by $110,000 during the twelve months ended April 30, 2021. During the twelve months ended April 30, 2021, Institutional gross sales increased by $1.5 million and the retail telemarketing gross sales orders increased by $336,000 above the prior fiscal year.\n\n\n\u00a0\n\n\nSalaries and employee benefits\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2023, salaries and employee benefits of $15,203,000 decreased 12.2% below the prior fiscal year, primarily due to decreases in salaries and employee benefits resulting from a reduced employee headcount in fiscal year 2023, as well as reductions in payment for a profit sharing contribution and the company\u2019s share of medical benefits.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2022, salaries and employee benefits of $17,323,000 decreased 8.2% below the prior fiscal year, primarily due to decreases in salaries and employee benefits resulting from a reduced employee headcount in fiscal year 2022 along with a decrease in Profit Sharing employee benefits expense.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2021, salaries and employee benefits of $18,865,000 increased 3.7% above the prior fiscal year. The increase during the twelve months ended April 30, 2021, was primarily due to increases in Profit Sharing employee benefits during fiscal 2021 and increases in salaries and employee benefits.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2023, 2022 and 2021, the Company recorded profit sharing expenses of $410,000, $557,000 and $980,000, respectively.\n\n\n\u00a0\n\n\nProduction and distribution\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2023, production and distribution expenses of $5,210,000 increased 4.1% above prior fiscal year. Increases in production support of the Company\u2019s website and maintenance of the Company\u2019s publishing and application software and operating systems were partially offset by lower paper and printing costs resulting from decreases in print circulation.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2022, production and distribution expenses of $5,003,000 decreased 8.0% below the prior fiscal year, primarily due to decreases in service mailers and distribution expenses and a decrease in production support of the Company\u2019s website, maintenance of the Company\u2019s publishing and application software and operating systems.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2021, production and distribution expenses of $5,440,000 increased 10.0% above the prior fiscal year. The increase of $440,000 during the twelve months ended April 30, 2021, was attributable to costs related to production support of the Company\u2019s website, maintenance of the Company\u2019s publishing and application software and operating systems as compared to fiscal 2020.\n\n\n\u00a0\n\n\nOffice and administration\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2023, office and administrative expenses of $4,763,000 increased 14.1% above the prior fiscal year, primarily due to an increases in settlement costs and professional fees.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2022, office and administrative expenses of $4,176,000 decreased 13.1% below the prior fiscal year, primarily due to a reversal of selected settlement reserves and favorable settlement of a disputed fee with a contractor and decreases in outside data processing (communication, server hosting backup, antivirus software).\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       31\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2021, office and administrative expenses of $4,807,000 increased 1.7% above the prior fiscal year. The increase during the twelve months ended April 30, 2021 was primarily a result of an increase in bank service costs based on higher credit card gross receipts of $13.2 million in fiscal 2021 which were 18.5% higher than credit card gross receipts of $11.2 million in the prior fiscal year.\n\n\n\u00a0\n\n\nConcentration\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2023, 33.9% of total publishing revenues of $39,695,000 were derived from a single customer. During the twelve months ended April 30, 2022, 33.0% of total publishing revenues of $40,525,000 were derived from a single customer. During the twelve months ended April 30, 2021, 31.6% of total publishing revenues of $40,392,000 were derived from a single customer.\n\n\n\u00a0\n\n\nLease Commitments\n\n\n\u00a0\n\n\nOn November 30, 2016, Value Line, Inc. received consent from the landlord at 551 Fifth Avenue, New York, NY to the terms of a new sublease agreement between Value Line, Inc. and ABM Industries, Incorporated commencing on December 1, 2016. Pursuant to the agreement Value Line leased from ABM 24,726 square feet of office space located on the second and third floors at 551 Fifth Avenue, New York, NY (\u201cBuilding\u201d or \u201cPremises\u201d) beginning on December 1, 2016 and ending on November 29, 2027. Base rent under the sublease agreement is $1,126,000 per annum during the first year with an annual increase in base rent of 2.25% scheduled for each subsequent year, payable in equal monthly installments on the first day of each month, subject to customary concessions in the Company\u2019s favor and pass-through of certain increases in utility costs and real estate taxes over the base year. The Company provided a security deposit represented by a letter of credit in the amount of $469,000 in October 2016, which was reduced to $305,000 on October 3, 2021 and is to be fully refunded after the sublease ends. This Building became the Company\u2019s new corporate office facility. The Company is required to pay for certain operating expenses associated with the Premises as well as utilities supplied to the Premises. The sublease terms provide for a significant decrease (23% initially) in the Company\u2019s annual rental expenditure taking into account free rent for the first six months of the sublease. Sublandlord provided Value Line a work allowance of $417,000 which accompanied with the six months free rent worth $563,000 was applied against the Company\u2019s obligation to pay rent at our NYC headquarters, delaying the actual rent payments until November 2017.\n\n\n\u00a0\n\n\nOn February 29, 2016, the Company\u2019s subsidiary VLDC and Seagis Property Group LP (the \u201cLandlord\u201d) entered into a lease agreement, pursuant to which VLDC has leased 24,110 square feet of warehouse and appurtenant office space located at 205 Chubb Ave., Lyndhurst, NJ (\u201cWarehouse\u201d) beginning on May 1, 2016 and ending on April 30, 2024 (\u201cLease\u201d). Base rent under the Lease is $192,880 per annum payable in equal monthly installments on the first day of each month, in advance during fiscal 2017 and will gradually increase to $237,218 in fiscal 2024, subject to customary increases based on operating costs and real estate taxes. The Company provided a security deposit in cash in the amount of $32,146, which will be fully refunded after the lease term expires. The lease is a net lease requiring the Company to pay for certain operating expenses associated with the Warehouse as well as utilities supplied to the Warehouse.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       32\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nInvestment gains / (losses)\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFiscal Years Ended April 30,\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \n($ in thousands)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n'23 vs. '22\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n'22 vs. '21\n \n\n\n\u00a0\n\n\n\n\n\n\n \nDividend income\n \n\n\n\u00a0\n\n\n$\n\n\n595\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n851\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n573\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-30.1\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n48.5\n\n\n%\n\n\n\n\n\n\n \nInterest income\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n706\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n137\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nn/a\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-86.9\n\n\n%\n\n\n\n\n\n\n \nInvestment gains/(losses) recognized on sale of equity securities during the period\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(81\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,568\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n835\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-94.8\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\nn/a\n\n\n\u00a0\n\n\n\n\n\n\n \nUnrealized gains/(losses) recognized on equity securities held at the end of the period\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(45\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n167\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,875\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-126.9\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\nn/a\n\n\n\u00a0\n\n\n\n\n\n\n \nOther\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(1\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(2\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nn/a\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nn/a\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal investment gains/(losses)\n \n\n\n\u00a0\n\n\n$\n\n\n1,174\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(534\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n5,420\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nn/a\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nn/a\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2023, the Company\u2019s investment gains, primarily derived from dividend and interest income, investment gains recognized on sales of equity securities during the period and unrealized gains recognized on equity securities held at the end of the period in fiscal 2023, resulted in a gain of $1,174,000.\u00a0Proceeds from maturities and sales of government debt securities classified as available-for-sale during the twelve months ended April 30, 2023 and April 30, 2022, were $9,907,000 and $2,496,000, respectively. Proceeds from the sales of equity securities during the twelve months ended April 30, 2023 and April 30, 2022 were $4,706,000 and $12,039,000, respectively. There were no capital gain distributions from ETFs in fiscal 2023 or fiscal 2022.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2022, the Company\u2019s investment gains, primarily derived from dividend and interest income, investment losses recognized on sales of equity securities during the period and unrealized gains recognized on equity securities held at the end of the period in fiscal 2022, resulted in a loss of $534,000. During the twelve months ended April 30, 2021, the Company\u2019s investment gains, primarily derived from dividend and interest income, investment gains recognized on sales of equity securities during the period and unrealized gains recognized on equity securities held at the end of the period in fiscal 2021, was $5,420,000. Proceeds from maturities and sales of government debt securities classified as available-for-sale during the twelve months ended April 30, 2022 and April 30, 2021, were $2,496,000 and $14,902,000, respectively. Proceeds from the sales of equity securities during the twelve months ended April 30, 2022 and April 30, 2021 were $12,039,000 and $8,212,000, respectively. There were no capital gain distributions from ETFs in fiscal 2022 or fiscal 2021.\n\n\n\u00a0\n\n\nEffective income tax rate\n \n\n\n\u00a0\n\n\nThe overall effective income tax rates, as a percentage of pre-tax ordinary income for the twelve months ended April 30, 2023, April 30, 2022 and April 30, 2021 were 24.00%, 22.25% and 23.11%, respectively. The increase in the effective tax rate during for the twelve months ended April 30, 2023 as compared to April 30, 2022, is primarily a result of the non-taxable revenue derived from forgiveness of the PPP loan by the SBA offset by an increase in the state and local income taxes from 3.12% to 3.25% as a result of changes in state and local income tax allocation factors, on deferred taxes in fiscal 2023. The Company's annualized overall effective tax rate fluctuates due to a number of factors, in addition to changes in tax law, including but not limited to an increase or decrease in the ratio of items that do not have tax consequences to pre-income tax, the Company's geographic profit mix between tax jurisdictions, taxation method adopted by each locality, new interpretations of existing tax laws and rulings and settlements with tax authorities.\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\n\n\u00a0\n\n\nThe Company had working capital, defined as current assets less current liabilities, of $42,788,000 as of April 30, 2023 and $37,580,000 as of April 30, 2022. These amounts include short-term unearned revenue of $16,771,000 and $17,688,000 reflected in total current liabilities at April 30, 2023 and April 30, 2022, respectively. Cash and short-term securities were $62,064,000 and $57,825,000 as of April 30, 2023 and April 30, 2022, respectively.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       33\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe Company\u2019s cash and cash equivalents include $7,240,000 and $28,965,000 at April 30, 2023 and April 30, 2022, respectively, invested primarily in commercial banks and in Money Market Funds at brokers, which operate under Rule 2a-7 of the 1940 Act and invest primarily in short-term U.S. government securities.\n\n\n\u00a0\n\n\nCash from operating activities\n\n\n\u00a0\n\n\nThe Company had cash inflows from operating activities of $18,178,000 during the twelve months ended April 30, 2023, compared to cash inflows from operations of $24,646,000 and $16,410,000 during the twelve months ended April 30, 2022 and 2021, respectively. The decrease in cash flows from fiscal 2022 to fiscal 2023 is primarily attributable to lower pre-tax income and a decrease in cash receipts from EAM and the timing of receipts from copyright programs. The increase in cash flows from fiscal 2021 to fiscal 2022 is primarily attributable to higher pre-tax income and an increase in cash receipts from EAM and the timing of receipts from copyright programs.\n\n\n\u00a0\n\n\nCash from investing activities\n\n\n\u00a0\n\n\nThe Company\u2019s cash outflows from investing activities of $26,116,000 during the twelve months ended April 30, 2023, compared to cash outflows from investing activities of $3,389,000 and cash inflows of $7,381,000 for the twelve months ended April 30, 2022 and April 30, 2021, respectively. Cash outflows for the twelve months ended April 30, 2023 and April 30, 2022, were primarily due to the Company\u2019s decision to invest in additional fixed income securities, primarily United States government obligations, in fiscal 2023 and 2022.\n\n\n\u00a0\n\n\nCash from financing activities\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2023, the Company\u2019s cash outflows from financing activities were $14,175,000 and compared to cash outflows from financing activities of $10,889,000 and $9,574,000 for the twelve months ended April 30, 2022 and 2021, respectively. Cash outflows for financing activities included $4,704,000, $2,484,000 and $1,526,000 for the repurchase of 75,303 shares, 53,327 shares and 53,551 shares of the Company\u2019s common stock under the July 2021, March 2022, May 2022 & October 2022 board approved common stock repurchase programs, during fiscal years 2023, 2022 and 2021, respectively. During fiscal 2020, the Company applied for and received an SBA loan under the Paycheck Protection Program in the amount of $2,331,000. The obligation to repay the SBA loan under the Paycheck Protection Program was forgiven during fiscal 2022. Quarterly regular dividend payments of $0.25 per share during fiscal 2023 aggregated $9,471,000. Quarterly regular dividend payments of $0.22 per share during fiscal 2022 aggregated $8,405,000. Quarterly regular dividend payments of $0.21 per share during fiscal 2021 aggregated $8,068,000.\n\n\n\u00a0\n\n\nAt April 30, 2023 there were 9,434,540 common shares outstanding as compared to 9,509,843 common shares outstanding at April 30, 2022. The Company expects financing activities to continue to include use of cash for dividend payments for the foreseeable future.\n\n\n\u00a0\n\n\nManagement believes that the Company\u2019s cash and other liquid asset resources used in its business together with the proceeds from the SBA loan and the future cash flows from operations and from the Company\u2019s non-voting revenues and non-voting profits interests in EAM will be sufficient to finance current and forecasted liquidity needs for the next twelve months and beyond next year. Management does not anticipate making any additional borrowings during the next twelve months. As of April 30, 2023, retained earnings and liquid assets were $95,979,000 and $62,064,000, respectively. As of April 30, 2022, retained earnings and liquid assets were $87,645,000 and $57,825,000, respectively.\n\n\n\u00a0\n\n\nSeasonality\n\n\n\u00a0\n\n\nOur publishing revenues are comprised of subscriptions which are generally annual subscriptions. Our cash flows from operating activities are minimally seasonal in nature, primarily due to the timing of customer payments made for orders and subscription renewals.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       34\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nRecent Accounting Pronouncements\n\n\n\u00a0\n\n\nIn December 2019, the Financial Accounting Standards Board (\u201cFASB\u201d) issued ASU 2019-12, \u201cIncome Taxes (Topic740): Simplifying the Accounting for Income Taxes\u201d as part of its initiative to reduce complexity in the accounting standards. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes including interim-period accounting for enacted changes in tax laws. The Company adopted this guidance effective May 1, 2021. The adoption of this standard did not have a material impact on the Company\u2019s financial statements.\n\n\n\u00a0\n\n\nOn June 21, 2018, the United States Supreme Court reversed the 1992 ruling in \nQuill\n, which protected firms delivering items by common carrier into a state where it had no physical presence from having to collect sales tax in such state. The Company has integrated the effects of the various state laws into its operations and continues to do so.\n\n\n\u00a0\n\n\nCritical Accounting Estimates and Policies\n\n\n\u00a0\n\n\nThe Company prepares its consolidated financial statements in accordance with Generally Accepted Accounting Principles as in effect in the United States (U.S. \u201cGAAP\u201d). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent, and the Company evaluates its estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies reflect the significant judgments and estimates used in the preparation of its Consolidated Financial Statements:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nValuation of EAM\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nInvestment in EAM Trust\n\n\n\u00a0\n\n\nThe Company accounts for its investment in EAM using the equity method of accounting. The value of its investment in EAM is the fair value of the contributed capital at inception, plus the Company\u2019s share of non-voting revenues and non-voting profits from EAM, less distributions received from EAM. The Company evaluates its investment in EAM on a regular basis for other-than-temporary impairment, which requires significant judgment and includes quantitative and qualitative analysis of identified events or circumstances that impact the fair value of the investment.\n\n\n\u00a0\n\n\nShould the fair value of the investment fall below its carrying value, the Company will determine whether the investment is other-than-temporarily impaired, which includes assessing the severity and duration of the impairment and the likelihood of recovery. If the investment is considered to be other-than-temporarily impaired, the Company will write down the investment to its fair value. Since the inception of EAM, the Company has not recognized any other-than-temporary impairment in the investment.\n\n\n\u00a0\n\n\nContractual Obligations\n\n\n\u00a0\n\n\nWe are a party to lease contracts which will result in cash payments to landlords in future periods. Operating lease liabilities are included in our Consolidated Balance Sheets. Estimated payments of these liabilities in each of the next four fiscal years and thereafter are (in thousands): $1,634 in 2024; $1,429 in 2025; $1,461 in 2026; $1,493 in 2027 and $882 thereafter totaling $6,899.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       35\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n",
+  "item7a": ">Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.\n\n\n\u00a0\n\n\nMarket Risk Disclosures\n\n\n\u00a0\n\n\nThe Company\u2019s Consolidated Balance Sheet includes a substantial amount of assets whose fair values are subject to market risks. The Company\u2019s market risks are primarily associated with interest rates and equity price risk. The following sections address the significant market risks associated with the Company\u2019s investment activities.\n\n\n\u00a0\n\n\nInterest Rate Risk\n\n\n\u00a0\n\n\nThe Company\u2019s strategy has been to acquire debt securities with low credit risk. Despite this strategy management recognizes and accepts the possibility that losses may occur. To limit the price fluctuation in these securities from interest rate changes, the Company\u2019s management invests primarily in short-term obligations maturing within one year.\n\n\n\u00a0\n\n\nThe fair values of the Company\u2019s fixed maturity investments will fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of those instruments. Additionally, fair values of interest rate sensitive instruments may be affected by prepayment options, relative values of alternative investments, and other general market conditions.\n\n\n\u00a0\n\n\nFixed income securities consist of certificates of deposits and securities issued by federal, state and local governments within the United States. As of April 30, 2023 the aggregate cost and fair value of fixed income securities classified as available-for-sale were $39,455,000 and $39,928,000, respectively. As of April 30, 2022 the aggregate cost and fair value of fixed income securities classified as available-for-sale were $10,505,000 and $10,475,000, respectively.\n\n\n\u00a0\n\n\nThe following table summarizes the estimated effects of hypothetical increases and decreases in interest rates on assets that are subject to interest rate risk. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risks. The hypothetical changes in market interest rates do not reflect what could be deemed best or worst case scenarios. Variations in market interest rates could produce significant changes in the timing of repayments due to prepayment options available. For these reasons, actual results might differ from those reflected in the table.\n\n\n\u00a0\n\n\n\u00a0\n\n\nFixed Income Securities\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nEstimated Fair Value after\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nHypothetical Change in Interest Rates\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(in thousands)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(bp = basis points)\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1 year\n\n\n\u00a0\n\n\n\u00a0\n\n\n1 year\n\n\n\u00a0\n\n\n\u00a0\n\n\n1 year\n\n\n\u00a0\n\n\n\u00a0\n\n\n1 year\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFair\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n50 bp\n\n\n\u00a0\n\n\n\u00a0\n\n\n50 bp\n\n\n\u00a0\n\n\n\u00a0\n\n\n100 bp\n\n\n\u00a0\n\n\n\u00a0\n\n\n100 bp\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nValue\n\n\n\u00a0\n\n\n\u00a0\n\n\nincrease\n\n\n\u00a0\n\n\n\u00a0\n\n\ndecrease\n\n\n\u00a0\n\n\n\u00a0\n\n\nincrease\n\n\n\u00a0\n\n\n\u00a0\n\n\ndecrease\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nAs of April 30, 2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nInvestments in securities with fixed maturities\n \n\n\n\u00a0\n\n\n$\n\n\n39,928\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n39,202\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n39,512\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n39,048\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n39,667\n\n\n\u00a0\n\n\n\n\n\n\n \nAs of April 30, 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nInvestments in securities with fixed maturities\n \n\n\n\u00a0\n\n\n$\n\n\n10,505\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nN/A\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nManagement regularly monitors the maturity structure of the Company\u2019s investments in debt securities in order to maintain an acceptable price risk associated with changes in interest rates.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       36\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nEquity Price Risk \n\n\n\u00a0\n\n\nThe carrying values of investments subject to equity price risks are based on quoted market prices as of the balance sheet dates. Market prices are subject to fluctuation and, consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the issuer, the relative price of alternative investments and general market conditions. Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold.\n\n\n\u00a0\n\n\nThe Company\u2019s equity investment strategy has been to acquire equity securities across a diversity of industry groups. The portfolio consists of ETFs held for dividend yield that attempt to replicate the performance of certain equity indexes and ETFs that hold preferred shares primarily of financial institutions. In order to maintain liquidity in these securities, the Company\u2019s policy has been to invest in and hold in its portfolio, no more than 5% of the approximate average daily trading volume in any one issue.\n\n\n\u00a0\n\n\nAs of April 30, 2023 and April 30, 2022, the aggregate cost of the equity securities, which consist of investments in the SPDR Series Trust S&P Dividend ETF (SDY), First Trust Value Line Dividend Index ETF (FVD), ProShares Trust S&P 500 Dividend Aristocrats ETF (NOBL), IShares DJ Select Dividend ETF (DVY) and other Exchange Traded Funds and common stock equity securities was a combined total $10,169,000 and $13,318,000, respectively, and the fair value was $14,546,000 and $17,647,000, respectively.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\nEquity Securities\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \n\u00a0\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nEstimated Fair Value after\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nHypothetical Percentage\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nHypothetical\n \n\n\n\u00a0\n\n\n \nHypothetical\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nIncrease (Decrease) in\n \n\n\n\u00a0\n\n\n\n\n\n\n \n($ in thousands)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFair Value\n \n\n\n\u00a0\n\n\n \nPrice Change\n \n\n\n\u00a0\n\n\n \nChange in Prices\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nShareholders\u2019 Equity\n \n\n\n\u00a0\n\n\n\n\n\n\n \nAs of April 30, 2023\n \n\n\n \nEquity Securities and ETFs held for dividend yield\n \n\n\n\u00a0\n\n\n$\n\n\n14,546\n\n\n\u00a0\n\n\n \n30% increase\n \n\n\n\u00a0\n\n\n$\n\n\n18,910\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.12\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n30% decrease\n \n\n\n\u00a0\n\n\n$\n\n\n10,182\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-4.12\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nEquity Securities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nEstimated Fair Value after\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nHypothetical Percentage\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nHypothetical\n \n\n\n\u00a0\n\n\n \nHypothetical\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nIncrease (Decrease) in\n \n\n\n\u00a0\n\n\n\n\n\n\n \n($ in thousands)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFair Value\n \n\n\n\u00a0\n\n\n \nPrice Change\n \n\n\n\u00a0\n\n\n \nChange in Prices\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nShareholders\u2019 Equity\n \n\n\n\u00a0\n\n\n\n\n\n\n \nAs of April 30, 2022\n \n\n\n \nEquity Securities and ETFs held for dividend yield\n \n\n\n\u00a0\n\n\n$\n\n\n17,647\n\n\n\u00a0\n\n\n \n30% increase\n \n\n\n\u00a0\n\n\n$\n\n\n22,942\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4.92\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n30% decrease\n \n\n\n\u00a0\n\n\n$\n\n\n12,353\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-4.92\n\n\n%\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       37\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\nItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.\n\n\n\u00a0\n\n\n\u00a0\n\n\nThe following consolidated financial statements of the registrant and its subsidiaries are included as a part of this Form 10-K:\n\n\n\u00a0\n\n\n\u00a0\nPage Number\n\n\n\u00a0\n\u00a0\n\n\nReport of independent auditors (PCAOB ID No. \n921\n)\n49\n\n\nConsolidated balance sheets at April 30, 2023 and 2022\n51\n\n\nConsolidated statements of income for the fiscal years ended April 30, 2023, 2022 and 2021\n52\n\n\nConsolidated statements of comprehensive income for the fiscal years ended April 30, 2023, 2022 and 2021\n53\n\n\nConsolidated statements of cash flows for the fiscal years ended April 30, 2023, 2022 and 2021\n54\n\n\nConsolidated statement of changes in shareholders\u2019 equity for the fiscal years ended April 30, 2023, 2022 and 2021\n55\n\n\nNotes to the consolidated financial statements\n56\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n    38\n   \n\n\n\n\n\n\n\n\n\n\n\n\n\n    \u00a0\n   \n\n\n\n\n\n\n\n\n\u00a0\n\n\nItem 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.\n\n\n\u00a0\n\n\nNone.\n\n\n\u00a0\n\n\nItem 9A. CONTROLS AND PROCEDURES.\n\n\n\u00a0\n\n\n\u00a0\n \n(a)\n \n \nEvaluation of Disclosure Controls and Procedures.\n \n\n\n\n\n\u00a0\n\n\nThe Company's Chief Executive Officer and Vice President & Treasurer carried out an evaluation of the effectiveness of the Company's \"disclosure controls and procedures\" (as defined in the Securities Exchange Act of 1934 (the \u201cExchange Act\u201d) Rules 13a-15(e) or 15d-15(e)) as of April 30, 2023, as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15. The Company\u2019s Chief Executive Officer and Vice President & Treasurer are engaged in a comprehensive effort to review, evaluate and improve the Company's controls; however, management does not expect that the Company's disclosure controls or its internal controls over financial reporting can prevent all possible errors and fraud.\n\n\n\u00a0\n\n\nThe Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company\u2019s reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC\u2019s rules and forms, and that such information is accumulated and communicated to the Company\u2019s management, including its Chief Executive Officer and Vice President & Treasurer, as appropriate, to allow timely decisions regarding required disclosure.\n\n\n\u00a0\n\n\nThe Company\u2019s management has evaluated, with the participation of the Company\u2019s Chief Executive Officer and, the effectiveness of the Company\u2019s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Vice President & Treasurer have concluded that the Company\u2019s disclosure controls and procedures were effective as of the end of the period covered by this\u00a0report.\n\n\n\u00a0\n\n\nThis Form 10-K does not include an attestation report of the Company's registered public accounting firm regarding the Company\u2019s internal control over financial reporting. Under applicable SEC rules, no such attestation report by the Company's registered public accounting firm is required.\n\n\n\u00a0\n\n\nChanges in Internal Controls\n\n\n\u00a0\n\n\nIn the course of the evaluation of disclosure controls and procedures, the Chief Executive Officer and Vice President & Treasurer considered certain internal control areas in which the Company has made and is continuing to make changes to improve and enhance controls. Based upon that evaluation, the Chief Executive Officer and Vice President & Treasurer of the Company concluded that there were no changes in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fourth quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.\n\n\n\u00a0\n\n\n\u00a0\n \n(b)\n \n \nManagement\u2019s Annual Report on Internal Control over Financial Reporting.\n \n\n\n\n\n\u00a0\n\n\nThe Company\u2019s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule\u00a013a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, the Company\u2019s principal executive and principal financial officers, and effected by the board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP including those policies and procedures that: (I)\u00a0pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii)\u00a0provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company, and (iii)\u00a0provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company\u2019s assets that could have a material effect on the financial statements.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n    39\n   \n\n\n\n\n\n\n\n\n\n\n\n\n\n    \u00a0\n   \n\n\n\n\n\n\n\n\n\u00a0\n\n\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.\n\n\n\u00a0\n\n\nUnder the supervision and with the participation of management, including the Chief Executive Officer and the Vice President & Treasurer, acting as Principal Financial Officer, the Company has assessed the effectiveness of its internal control over financial reporting as of April 30, 2023. In making this assessment, management used the criteria described in Internal Control\u00a0- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment and those criteria, management concluded that the Company did maintain effective internal control over financial reporting as of April 30, 2023.\n\n\n\u00a0\n\n\nChanges in Internal Control over Financial Reporting\n\n\n\u00a0\n\n\nThere have been no changes in the Company\u2019s internal control systems over financial reporting during the fourth quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The Company administrative and finance personnel have been operating on a near-fully remote basis during the entirety of the fiscal year ended April 30, 2023 as a result of pandemic restrictions and precautions. The internal control systems have remained intact.\n\n\n\u00a0\n\n\n\u00a0\n\n\nItem 9B. OTHER INFORMATION.\n\n\n\u00a0\n\n\nNone.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n    40\n   \n\n\n\n\n\n\n\n\n\n\n\n\n\n    \u00a0\n   \n\n\n\n\n\n\n\n\n\u00a0\n\n\nPart III\n\n\n\u00a0\n\n\nItem 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.\n\n\n\u00a0\n\n\n\u00a0\n \nDirector\n \n\n\n \n(a) Names of Directors, Age as of June 30, 2023 and Principal Occupation\n \n \nSince\n \n\n\n \nStephen R. Anastasio* (64). Vice President of the Company since December 2010; Treasurer since September 2005 and Director since February 2010. Mr. Anastasio has been employed by Value Line, Inc. for more than 30 years. In addition to his current roles with the Company, he has served as Chief Financial Officer, Treasurer, Chief Accounting Officer and Corporate Controller of the Company. Mr. Anastasio is a graduate of Fairleigh Dickinson University and is a Certified Public Accountant.\n \n \n2010\n \n\n\n \nMary Bernstein* (73). Retired. Director of Accounting of the Company since 2010; Accounting Manager of the Company from 2000 to 2010. Mrs. Bernstein holds an MBA Degree in accounting from Baruch College of CUNY and is a Certified Public Accountant. Mrs. Bernstein had been employed by Value Line, Inc. for more than 25 years. She retired as an employee on July 31, 2022.\n \n \n2010\n \n\n\n \nHoward A. Brecher* (69). Chairman and Chief Executive Officer of the Company since October 2011; Acting Chairman and Acting Chief Executive Officer of the Company from November 2009 until October 2011; Chief Legal Officer of the Company from prior to 2005 to the present; Vice President and Secretary of the Value Line Funds from June 2008 until December 2010; Secretary of EAM LLC from February 2009 until December 2010; Director and General Counsel of AB&Co., Inc. from prior to 2005 to the present.\n \n \n1992\n \n\n\n \nMr. Brecher has been an officer of the Company for more than 25 years. In addition to his current roles with the Company, he has also served as Secretary of the Company and as a senior officer of significant affiliates of the Company. Mr. Brecher is a graduate of Harvard College, Harvard Business School and Harvard Law School. He also holds a Master\u2019s Degree in tax law from New York University.\n \n\u00a0\n\n\n \nStephen P. Davis (71). Retired Deputy Commissioner, New York City Police Department (\u201cNYPD\u201d), from 2014 to 2018. Managing Member, Davis Investigative Group, LLC from 2001 to 2013, and since April, 2018. Mr. Davis served as a senior appointed official in the NYPD from which he retired in 1992 as a uniformed senior officer. He has successfully managed his own business serving the financial services industry and other clients for more than 15 years.\n \n \n2010\n \n\n\n \nAlfred R. Fiore (67). Retired Chief of Police, Westport, CT from 2004 to 2011. Mr. Fiore served as the senior official of a municipal department with both executive and budget responsibilities. He was Chief of Police, Westport, CT for seven years and was a member of that Police Department for more than 33 years.\n \n \n2010\n \n\n\n \nGlenn J. Muenzer (65). Special Agent (Retired), Federal Bureau of Investigation (the \u201cFBI\u201d) from 1991 to 2012. Mr. Muenzer is an accomplished law enforcement professional with extensive law enforcement and financial investigative experience. Prior to joining the FBI, Mr. Muenzer was Vice President and Manager of Internal Audit at Thomson McKinnon Securities, Inc.; Assistant Vice President of Internal Audit at EF Hutton; Senior Auditor with Deloitte. Mr. Muenzer is a Certified Public Accountant and Certified in Financial Forensics.\n \n \n2012\n \n\n\n\n\n\u00a0\n\n\n* Member of the Executive Committee of the Board of Directors.\n\n\n\u00a0\n\n\nExcept as noted, the directors have held their respective positions for at least five years. Information about the experience, qualifications, attributes and skills of the directors is incorporated by reference from the section entitled \"Director Qualifications\" in the Company's Proxy Statement for the 2023 Annual Meeting of Shareholders.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n \n(b)\n \n \nThe information pertaining to executive officers of the Company is set forth in Part I, Item I, subsection J under the caption \"Executive Officers of the Registrant\" of this Form 10-K.\n \n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n    41\n   \n\n\n\n\n\n\n\n\n\n\n\n\n\n    \u00a0\n   \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAudit Committee\n\n\n\u00a0\n\n\nThe Company has a standing Audit Committee performing the functions described in Section 3(a) (58) (A) of the Securities Exchange Act of 1934, the members of which are: Mr. Glenn Muenzer, Mr. Stephen Davis, and Mr. Alfred Fiore. Mr. Muenzer, a qualified financial expert, was elected Chairman of the Audit Committee in 2012. The Board of Directors have determined that Mr. Muenzer is an \u201caudit committee financial expert\u201d (as defined in the rules and regulations of the SEC). The Board of Directors believes that the experience and financial sophistication of the members of the Audit Committee are sufficient to permit the members of the Audit Committee to fulfill the duties and responsibilities of the Audit Committee. All members of the Audit Committee meet the NASDAQ\u2019s financial sophistication requirements for audit committee members.\n\n\n\u00a0\n\n\nCode of Ethics\n\n\n\u00a0\n\n\nThe Company\u2019s Code of Business Conduct and Ethics that applies to its principal executive officer, principal financial officer, all other officers, and all other employees is available on the Company\u2019s website at www.valueline.com/About/Code of Ethics.aspx.\n\n\n\u00a0\n\n\nProcedures for Shareholders to Nominate Directors\n\n\n\u00a0\n\n\nThere have been no material changes to the procedures by which shareholders of the Company may recommend nominees to the Company's Board of Directors.\n\n\n\u00a0\n\n\n\u00a0\n\n\nSection\n\u00a0\n16(a) Beneficial Ownership Reporting Compliance \n\n\n\u00a0\n\n\nSection\u00a016(a) of the Securities Exchange Act of 1934 requires the Company's executive officers and directors, and persons who own more than ten percent of a registered class of the Company\u2019s equity securities, to file reports of ownership and changes in ownership with the SEC on Forms\u00a03, 4 and 5. Executive officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish the Company with copies of all Forms\u00a03, 4 and 5 they file.\n\n\n\u00a0\n\n\nBased on the Company's review of the copies of such forms that it has received and written representations from certain reporting persons confirming that they were not required to file Forms 5 for the fiscal year ended April 30, 2023, the Company believes that all its executive officers, directors and greater than ten percent shareholders complied with applicable SEC filing requirements during fiscal 2023.\n\n\n\u00a0\n\n\n\u00a0\n\n\nItem 11. EXECUTIVE COMPENSATION.\n\n\n\u00a0\n\n\nThe information required in response to this Item 11, Executive Compensation, is incorporated by reference from the section entitled \u201cCompensation of Directors and Executive Officers\u201d in the Company\u2019s Proxy Statement for the 2023 Annual Meeting of Shareholders.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n    42\n   \n\n\n\n\n\n\n\n\n\n\n\n\n\n    \u00a0\n   \n\n\n\n\n\n\n\n\n\u00a0\n\n\nItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.\n\n\n\u00a0\n\n\nThe following table sets forth information as of April 30, 2023 as to shares of the Company's Common Stock held by persons known to the Company to be the beneficial owners of more than 5% of the Company's Common Stock.\n\n\n\u00a0\n\n\n \nName and Address of\n \nBeneficial Owner\n \n \nNumber of Shares\n \nBeneficially Owned\n \n \nPercentage of Shares\n \nBeneficially Owned\n \n\n\n \nArnold Bernhard & Co., Inc.*\n \n \n8,633,733\n \n \n91.51%\n \n\n\n \n551 Fifth Avenue\n \n\u00a0\n\u00a0\n\n\n \nNew York, NY 10176\n \n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\n\n*All of the outstanding voting stock of Arnold Bernhard & Co., Inc. is owned by Jean B. Buttner.\n\n\n\u00a0\n\n\nThe following table sets forth information as of June 30, 2023, with respect to shares of the Company's Common Stock owned by each director of the Company, by each executive officer listed in the Summary Compensation Table and by all executive officers and directors as a group.\n\n\n\u00a0\n\n\n\u00a0\n \nNumber of Shares\n \n \nPercentage of Shares\n \n\n\n \nName and Address of Beneficial Owner\n \nBeneficially Owned\nBeneficially Owned\n\n\n \nStephen R. Anastasio\n \n \n600\n \n \n*\n \n\n\n \nMary Bernstein\n \n \n200\n \n \n*\n \n\n\n \nHoward A. Brecher\n \n \n1,600\u00a0 \u00a0\n \n \n*\n \n\n\n \nStephen P. Davis\n \n \n200\n \n \n*\n \n\n\n \nAlfred R. Fiore\n \n \n400\n \n \n*\n \n\n\n \nGlenn J. Muenzer\n \n \n200\n \n \n*\n \n\n\n \nAll directors and executive officers as a group\n \n \n3,200\u00a0 \u00a0\n \n \n*\n \n\n\n \n(6 persons)\n \n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\n\n* Less than one percent\n\n\n\u00a0\n\n\nSecurities Authorized for Issuance under Equity Compensation Plans\n\n\n\u00a0\n\n\nThere are no securities of the Company authorized for issuance under equity compensation plans.\n\n\n\u00a0\n\n\nItem 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.\n\n\n\u00a0\n\n\nAB&Co., which owns 91.51% of the outstanding shares of the Company\u2019s common stock as of April 30, 2023, utilizes the services of officers and employees of the Company to the extent necessary to conduct its business. The Company and AB&Co. allocate costs for office space, equipment and supplies and shared staff pursuant to a servicing and reimbursement agreement. During the fiscal years ended April 30, 2023 and April 30, 2022, the Company was reimbursed $369,000 and $385,000, respectively for payments it made on behalf of and services it provided to AB&Co. There were no receivables due from the Parent at April 30, 2023 or April 30, 2022. In addition, a tax-sharing arrangement allocates the tax liabilities of the two companies between them. The Company is included in the consolidated federal income tax return filed by AB&Co. The Company pays to AB&Co. an amount equal to the Company's liability as if it filed a separate federal income tax return. For the years ended April 30, 2023 and 2022, the Company made payments to AB&Co. for federal income taxes amounting to $4,425,000 and $5,400,000, respectively.\n\n\n\u00a0\n\n\nThe Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from the Value Line Mutual Funds and separate accounts business, and 50% of EAM\u2019s net profits.\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2023 and April 30, 2022, the Company recorded income of $11,131,000 and $18,041,000, respectively, consisting of $10,397,000 and $15,899,000, from its non-voting revenues interest in EAM and $734,000 and $2,142,000, from its non-voting profits interest in EAM without incurring any directly related expenses.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n    43\n   \n\n\n\n\n\n\n\n\n\n\n\n\n\n    \u00a0\n   \n\n\n\n\n\n\n\n\n\u00a0\n\n\nDuring the twelve months ended April 30, 2021, the Company recorded income of $17,321,000, consisting of $15,190,000, from its non-voting revenues interest in EAM and $2,131,000, from its non-voting profits interest in EAM without incurring any directly related expenses.\n\n\n\u00a0\n\n\nIncluded in the Company\u2019s Investment in EAM Trust are receivables due from EAM of $2,601,000 and $3,657,000 at April 30, 2023 and April 30, 2022, respectively, for the unpaid portion of Value Line\u2019s non-voting revenues and non-voting profits interests. The non-voting revenues and non-voting profits interests due from EAM are payable to Value Line quarterly under the provisions of the EAM Declaration of Trust.\n\n\n\u00a0\n\n\nThe Company has adopted a written Related Party Transactions Policy as part of its Code of Business Conduct and Ethics.\u00a0 This policy requires that any related party transaction which would be required to be disclosed under Item 404(a) of Regulation S-K must be approved or ratified by the Audit Committee of the Board of Directors.\u00a0 Transactions covered for the fiscal year ended April 30, 2023 include the matters described in the preceding paragraphs of this Item 13.\n\n\n\u00a0\n\n\nDirector Independence\n\n\n\u00a0\n\n\nThe information required with respect to director independence and related matters are incorporated by reference from the section entitled \u201cCompensation of Directors and Executive Officers\u201d in the Company\u2019s Proxy Statement for the 2023 Annual Meeting of Shareholders.\n\n\n\u00a0\n\n\nItem 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.\n\n\n\u00a0\n\n\nAudit and Non-Audit Fees\n\n\n\u00a0\n\n\nThe following table illustrates the fees billed by the Company\u2019s independent auditor, Horowitz & Ullmann P.C., for services provided:\n\n\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n \nFiscal Years Ended April 30,\n \n\u00a0\n\n\n\u00a0\n\u00a0\n \n2023\n \n\u00a0\n\u00a0\n \n2022\n \n\u00a0\n\u00a0\n \n2021\n \n\u00a0\n\n\n \nAudit fees\n \n\u00a0\n$\n166,000\n\u00a0\n\u00a0\n$\n158,100\n\u00a0\n\u00a0\n$\n158,100\n\u00a0\n\n\n \nAudit-related fees\n \n\u00a0\n\u00a0\n9,365\n\u00a0\n\u00a0\n\u00a0\n11,310\n\u00a0\n\u00a0\n\u00a0\n9,375\n\u00a0\n\n\n \nTax related fees\n \n\u00a0\n\u00a0\n141,885\n\u00a0\n\u00a0\n\u00a0\n178,685\n\u00a0\n\u00a0\n\u00a0\n169,000\n\u00a0\n\n\n \nTotal\n \n\u00a0\n$\n317,250\n\u00a0\n\u00a0\n$\n348,095\n\u00a0\n\u00a0\n$\n336,475\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nIn the above table, in accordance with the SEC's definitions and rules, \u201caudit fees\u201d are fees billed by Horowitz & Ullmann, P.C. for professional services for the audit of the Company's consolidated financial statements for the fiscal years ended April 30, 2023, 2022 and 2021 included in Form 10-K and the review of consolidated condensed financial statements and included in Form 10-Qs and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements; \u201caudit-related fees\u201d are fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company's consolidated financial statements; and \u201ctax fees\u201d are fees for tax compliance, tax advice and tax planning.\n\n\n\u00a0\n\n\nAudit Committee Pre-Approval Policies and Procedures.\n\n\n\u00a0\n\n\nThe Audit Committee of the Company's Board of Directors approves all services provided by Horowitz & Ullmann, P.C., prior to the provision of those services. The Audit Committee has not adopted any specific pre-approval policies and procedures.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n    44\n   \n\n\n\n\n\n\n\n\n\n\n\n\n\n    \u00a0\n   \n\n\n\n\n\n\n\n\n\u00a0\n\n\nPart IV\n\n\n\u00a0\n\n\nItem 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.\n\n\n\u00a0\n\n\n(a)\u00a0 \u00a0 \u00a0 \u00a0 \u00a0(1) \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Financial Statements - See Part II Item 8.\n\n\n\u00a0\n\n\nAll other Schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.\n\n\n\u00a0\n\n\n \n(b)\n \n \nExhibits\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n3.1\n \n \nCertificate of Incorporation of the Company, as amended through April 7, 1983, is incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 of Value Line, Inc. filed with the SEC on April 7, 1983.\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n3.2\n \n \nCertificate of Amendment of Certificate of Incorporation dated October 24, 1989 is incorporated by reference to Exhibit 3.2 to the Amended Annual Report on Form 10-K/A for the year ended April 30, 2008 filed with the SEC on June 8, 2009.\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n3.3\n \n \nBy-laws of the Company, as amended through January 18, 1996, are incorporated by reference to Exhibit 99. (A) 3 to the Amended Quarterly Report on Form 10-Q/A for the quarter ended January 31, 1996 filed with the SEC on March 19, 1996.\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n10.1\n \n \nForm of tax allocation arrangement between the Company and AB&Co., Inc. is incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 of Value Line, Inc. filed with the SEC on April 7, 1983.\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n10.2\n \n \nForm of Servicing and Reimbursement Agreement between the Company and AB&Co., dated as of November 1, 1982, is incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1 of Value Line, Inc. filed with the SEC on April 7, 1983.\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n10.4\n \n \nForm of indemnification agreement, dated July 13, 2010, by and between the Company and each of Howard A. Brecher, Stephen Davis, Alfred Fiore, William E. Reed, Mitchell E. Appel, Stephen R. Anastasio and Thomas T. Sarkany is incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K for the year ended April 30, 2010 filed with the SEC on July 16, 2010.\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n10.5\n \n \nEULAV Asset Management Declaration of Trust dated as of December 23, 2010 is incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q for the quarter ended January 31, 2011 filed with the SEC on March 24, 2011.\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n10.6(a)\n \n \nAgreement of Sublease, dated as of February 7, 2013, for the Company\u2019\ns premises at 485 Lexington Ave., New York, NY, is incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended January 31, 2013 filed with the SEC on March 13, 2013.\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n10.6(b)\n \n \nLease Modification, dated as of February 7, 2013, is incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended January 31, 2013 filed with the SEC on March 13, 2013.\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n10.7\n \n \nAgreement of Lease, dated as of February 29, 2016, between the Company\u2019\ns subsidiary, VLDC and SPG 205 Chubb Ave., Lyndhurst, NJ, is incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended January 31, 2016 filed with the SEC on March 11, 2016.\n \n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n    45\n   \n\n\n\n\n\n\n\n\n\n\n\n\n\n    \u00a0\n   \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n \n10.8\n \n \nAgreement of Sublease, dated as of October 3, 2016, possession commencing December 1, 2016 for The Company\u2019\ns premises at 551 Fifth Ave., New York, NY and Consent of Landlord dated November 30, 2016, is incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended October 31, 2016 filed with the SEC on December 13, 2016.\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n14.1\n \n \nCode of Business Conduct and Ethics is incorporated by reference to Exhibit 14.1 to the Annual Report on Form 10-K for the fiscal year ended April 30, 2021 filed with the SEC on July 29, 2021.\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n21.1\n \n \nList of subsidiaries of Value Line, Inc.*\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n31.1\n \n \nCertification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n31.2\n \n \nCertification of Principal Financial Officer and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n32.1\n \n \nCertification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit shall not be deemed \u201cfiled\u201d as a part of this Annual Report on Form 10-K.*\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n32.2\n \n \nCertification of the Principal Financial Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit shall not be deemed \u201cfiled\u201d as a part of this Annual Report on Form 10-K.*\n \n\n\n\n\n\u00a0\n\n\n\u00a0\n \n99.1\n \n \nEULAV Asset Management Audited Consolidated Financial Statements as of April 30, 2023. Separate financial statements of subsidiaries not consolidated and fifty percent or less owned persons.*\n \n\n\n\n\n\u00a0\n\n\n* Filed herewith.\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n101.INS\n \n\u00a0\n \n101.SCH\n \n\u00a0\n \n101.CAL\n \n\u00a0\n \n101.DEF\n \n\u00a0\n \n101.LAB\n \n\u00a0\n \n101.PRE\n \n\u00a0\n \n104\n \n \nInline XBRL Instance Document\n \n\u00a0\n \nInline XBRL Taxonomy Extension Schema Document\n \n\u00a0\n \nInline XBRL Taxonomy Extension Calculation Linkbase Document\n \n\u00a0\n \nInline XBRL Taxonomy Extension Definition Linkbase Document\n \n\u00a0\n \nInline XBRL Taxonomy Extension Label Linkbase Document\n \n\u00a0\n \nInline XBRL Taxonomy Extension Presentation Linkbase Document\n \n\u00a0\n \nCover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)\n \n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n    46\n   \n\n\n\n\n\n\n\n\n\n\n\n\n\n    \u00a0\n   \n\n\n\n\n\n\n\n\n\u00a0\n\n\nSIGNATURES\n\n\n\u00a0\n\n\n\u00a0\n\n\nPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nVALUE LINE, INC.\n\n\n(Registrant)\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\u00a0\n \n \n\u00a0\n \n \n\u00a0\n \n \n\u00a0\n \n\n\n \n\u00a0\n \n \nBy: \n \n \n/s/\u00a0\nHoward A. Brecher\n \n \n\u00a0\n \n\n\n \n\u00a0\n \n \n\u00a0\n \n \n\u00a0\nHoward A. Brecher\n \n \n\u00a0\n \n\n\n \n\u00a0\n \n \n\u00a0\n \n \n\u00a0\nChairman & Chief Executive Officer\n \n \n\u00a0\n \n\n\n\u00a0\n\u00a0\n\u00a0(Principal Executive Officer)\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\u00a0\n \n \n\u00a0\n \n \n\u00a0\n \n \n\u00a0\n \n\n\n \n\u00a0\n \n \nBy: \n \n \n/s/\u00a0\nHoward A. Brecher\n \n \n\u00a0\n \n\n\n \n\u00a0\n \n \n\u00a0\n \n \n\u00a0\nHoward A. Brecher\n \n \n\u00a0\n \n\n\n \n\u00a0\n \n \n\u00a0\n \n \n\u00a0\nChairman & Chief Executive Officer and Director\n \n \n\u00a0\n \n\n\n\u00a0\n\u00a0\n\u00a0(Principal Executive Officer)\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\u00a0\n \n \n\u00a0\n \n \n\u00a0\n \n \n\u00a0\n \n\n\n \n\u00a0\n \n \nBy: \n \n \n/s/\u00a0\nStephen R. Anastasio\n \n \n\u00a0\n \n\n\n \n\u00a0\n \n \n\u00a0\n \n \n\u00a0\nStephen R. Anastasio\n \n \n\u00a0\n \n\n\n \n\u00a0\n \n \n\u00a0\n \n \n\u00a0\nVice President & Treasurer and Director\n \n \n\u00a0\n \n\n\n\u00a0\n\u00a0\n\u00a0(Principal Financial Officer and Principal Accounting Officer)\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nDated: July 28, 2023\n\n\n\u00a0\n\n\n\n\n\n  47\n \n\n\n\n\n\n  \u00a0\n \n\n\n\n\n\u00a0\n\n\nPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the undersigned on behalf of the Registrant as Directors of the Registrant.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n/s/ Glenn J. Muenzer\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\nGlenn Muenzer\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n/s/ Stephen P. Davis\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\nStephen Davis\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\nDirector\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n/s/ Alfred R. Fiore\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\nAlfred Fiore\n\n\nDirector\n\n\n\u00a0\n\n\n\u00a0\n\n\n/s/ Mary Bernstein\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\nMary Bernstein\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\nDirector\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nDated: July 28, 2023\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n    48\n   \n\n\n\n\n\n\n\n\n\n\n\n\n\n    \u00a0\n   \n\n\n\n\n\n\n\n\n\u00a0\n\n\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\n\n\n\u00a0\n\n\n\u00a0\n\n\nTo the Shareholders and \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n Board of Directors of Value Line, Inc.\n\n\n\u00a0\n\n\n\u00a0\n\n\nOpinion on the Financial Statements\n\n\n\u00a0\n\n\nWe have audited the accompanying consolidated balance sheets of Value Line, Inc. and Subsidiaries (the \u201cCompany\u201d) as of April 30, 2023 and 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders\u2019 equity, and cash flows for each of the years in the three-year period ended April 30, 2023, and the related notes (collectively referred to as the \u201cfinancial statements\u201d). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended April 30, 2023, in conformity with accounting principles generally accepted in the United States of America.\n\n\n\u00a0\n\n\nBasis for Opinion\n\n\n\u00a0\n\n\nThese financial statements are the responsibility of the Company\u2019s management. Our responsibility is to express an opinion on the Company\u2019s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (\u201cPCAOB\u201d) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\n\n\u00a0\n\n\nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company\u2019s internal control over financial reporting. Accordingly, we express no such opinion.\n\n\n\u00a0\n\n\nOur audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.\n\n\n\u00a0\n\n\nCritical Audit Matters\n\n\n\u00a0\n\n\nThe critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to the accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n    49\n   \n\n\n\n\n\n\n\n\n\n\n\n\n\n    \u00a0\n   \n\n\n\n\n\n\n\n\n\u00a0\n\n\nInvestment in Unconsolidated Entity\n\n\n\u00a0\n\n\nAs described in note 4 to the consolidated financial statements, the Company uses the equity method of accounting to report its investment in its unconsolidated entity. As of April 30, 2023, the carrying value of the investment was $58,775,000. On an annual basis, management performs an impairment assessment to ensure that the carrying value of the investment in its unconsolidated entity is properly reflected.\n\n\n\u00a0\n\n\nThe principal considerations for our determination that performing procedures relating to such assessment is a critical audit matter are that there were significant judgements made by management in estimating the fair value of the investment and the fact that management utilized a specialist to assist in its determination of fair value. This in turn led to a high degree of auditor judgement, subjectivity, and audit effort in evaluating management\u2019s estimation of the fair value of the investment in its unconsolidated entity, including management\u2019s assessment of the unconsolidated entity\u2019s financial condition and results of operations.\n\n\n\u00a0\n\n\nAddressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, reviewing management\u2019s process for estimating the fair value of the investment in its unconsolidated entity, evaluating the appropriateness of the valuation model, testing the completeness and accuracy of data used in the model, and evaluating the significant assumptions used by management.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n/s/ \nHorowitz & Ullmann, P.C\n.\n\n\n\u00a0\n\n\nWe have served as the Company\u2019s auditor since 1996.\n\n\n\u00a0\n\n\nNew York, NY\n\n\nJuly 27, 2023\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n    50\n   \n\n\n\n\n\n\n\n\n\n\n\n\n\n    \u00a0\n   \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\n\n\n\n\n\n\n \nPart II\n \n\n\n\n\n\n\n \nItem 8.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nValue Line, Inc.\n \n\n\n\n\n\n\n \nConsolidated Balance Sheets\n \n\n\n\n\n\n\n \n(in thousands, except share amounts)\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n \nApril 30,\n \n\u00a0\n\u00a0\n \nApril 30,\n \n\u00a0\n\n\n\u00a0\n\u00a0\n \n2023\n \n\u00a0\n\u00a0\n \n2022\n \n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nAssets\n \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nCurrent Assets:\n \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nCash and cash equivalents (including short term investments of $\n7,240\n and $\n28,965\n, respectively)\n \n\u00a0\n$\n7,590\n\u00a0\n\u00a0\n$\n29,703\n\u00a0\n\n\n \nEquity securities\n \n\u00a0\n\u00a0\n14,546\n\u00a0\n\u00a0\n\u00a0\n17,647\n\u00a0\n\n\n \nAvailable-for-sale Fixed Income securities\n \n\u00a0\n\u00a0\n39,928\n\u00a0\n\u00a0\n\u00a0\n10,475\n\u00a0\n\n\n \nAccounts receivable, net of allowance for doubtful accounts of $\n36\n and $\n31\n, respectively\n \n\u00a0\n\u00a0\n2,124\n\u00a0\n\u00a0\n\u00a0\n1,677\n\u00a0\n\n\n \nPrepaid and refundable income taxes\n \n\u00a0\n\u00a0\n425\n\u00a0\n\u00a0\n\u00a0\n588\n\u00a0\n\n\n \nPrepaid expenses and other current assets\n \n\u00a0\n\u00a0\n1,463\n\u00a0\n\u00a0\n\u00a0\n1,248\n\u00a0\n\n\n \nTotal current assets\n \n\u00a0\n\u00a0\n66,076\n\u00a0\n\u00a0\n\u00a0\n61,338\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nLong term assets:\n \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nInvestment in EAM Trust\n \n\u00a0\n\u00a0\n58,775\n\u00a0\n\u00a0\n\u00a0\n59,971\n\u00a0\n\n\n \nRestricted money market investments\n \n\u00a0\n\u00a0\n305\n\u00a0\n\u00a0\n\u00a0\n305\n\u00a0\n\n\n \nProperty and equipment, net\n \n\u00a0\n\u00a0\n5,788\n\u00a0\n\u00a0\n\u00a0\n7,058\n\u00a0\n\n\n \nCapitalized software and other intangible assets, net\n \n\u00a0\n\u00a0\n132\n\u00a0\n\u00a0\n\u00a0\n71\n\u00a0\n\n\n \nTotal long term assets\n \n\u00a0\n\u00a0\n65,000\n\u00a0\n\u00a0\n\u00a0\n67,405\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nTotal assets\n \n\u00a0\n$\n131,076\n\u00a0\n\u00a0\n$\n128,743\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nLiabilities and Shareholders' Equity\n \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nCurrent Liabilities:\n \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nAccounts payable and accrued liabilities\n \n\u00a0\n$\n1,263\n\u00a0\n\u00a0\n$\n1,314\n\u00a0\n\n\n \nAccrued salaries\n \n\u00a0\n\u00a0\n961\n\u00a0\n\u00a0\n\u00a0\n1,137\n\u00a0\n\n\n \nDividends payable\n \n\u00a0\n\u00a0\n2,642\n\u00a0\n\u00a0\n\u00a0\n2,378\n\u00a0\n\n\n \nAccrued taxes on income\n \n\u00a0\n\u00a0\n307\n\u00a0\n\u00a0\n\u00a0\n2\n\u00a0\n\n\n \nOperating lease obligation-short term\n \n\u00a0\n\u00a0\n1,344\n\u00a0\n\u00a0\n\u00a0\n1,239\n\u00a0\n\n\n \nUnearned revenue\n \n\u00a0\n\u00a0\n16,771\n\u00a0\n\u00a0\n\u00a0\n17,688\n\u00a0\n\n\n \nTotal current liabilities\n \n\u00a0\n\u00a0\n23,288\n\u00a0\n\u00a0\n\u00a0\n23,758\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nLong term liabilities:\n \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nUnearned revenue\n \n\u00a0\n\u00a0\n6,202\n\u00a0\n\u00a0\n\u00a0\n6,085\n\u00a0\n\n\n \nOperating lease obligation-long term\n \n\u00a0\n\u00a0\n4,784\n\u00a0\n\u00a0\n\u00a0\n6,129\n\u00a0\n\n\n \nDeferred income taxes\n \n\u00a0\n\u00a0\n13,129\n\u00a0\n\u00a0\n\u00a0\n13,126\n\u00a0\n\n\n \nTotal long term liabilities\n \n\u00a0\n\u00a0\n24,115\n\u00a0\n\u00a0\n\u00a0\n25,340\n\u00a0\n\n\n \nTotal liabilities\n \n\u00a0\n\u00a0\n47,403\n\u00a0\n\u00a0\n\u00a0\n49,098\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nShareholders' Equity:\n \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nCommon stock, $\n0.10\n par value; authorized \n30,000,000\n shares; issued \n10,000,000\n shares\n \n\u00a0\n\u00a0\n1,000\n\u00a0\n\u00a0\n\u00a0\n1,000\n\u00a0\n\n\n \nAdditional paid-in capital\n \n\u00a0\n\u00a0\n991\n\u00a0\n\u00a0\n\u00a0\n991\n\u00a0\n\n\n \nRetained earnings\n \n\u00a0\n\u00a0\n95,979\n\u00a0\n\u00a0\n\u00a0\n87,645\n\u00a0\n\n\n \nTreasury stock, at cost (\n565,460\n shares and \n490,157\n shares, respectively)\n \n\u00a0\n\u00a0\n(\n14,671\n)\n\u00a0\n\u00a0\n(\n9,967\n)\n\n\n \nAccumulated other comprehensive income, net of tax\n \n\u00a0\n\u00a0\n374\n\u00a0\n\u00a0\n\u00a0\n(\n24\n)\n\n\n \nTotal shareholders' equity\n \n\u00a0\n\u00a0\n83,673\n\u00a0\n\u00a0\n\u00a0\n79,645\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n \nTotal liabilities and shareholders' equity\n \n\u00a0\n$\n131,076\n\u00a0\n\u00a0\n$\n128,743\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nSee independent auditor's report and accompanying notes to the consolidated financial statements.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       51\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\n\n\n\n\n\n\n \nPart II\n \n\n\n\n\n\n\n \nItem 8.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nValue Line, Inc.\n \n\n\n\n\n\n\n \nConsolidated Statements of Income\n \n\n\n\n\n\n\n \n(in thousands, except share & per share amounts)\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the Fiscal Years Ended\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nApril 30,\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nRevenues:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nInvestment periodicals and related publications\n \n\n\n\u00a0\n\n\n$\n\n\n26,232\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n27,145\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n27,629\n\n\n\u00a0\n\n\n\n\n\n\n \nCopyright fees\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n13,463\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,380\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,763\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal publishing revenues\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n39,695\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n40,525\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n40,392\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nExpenses:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nAdvertising and promotion\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n3,049\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,223\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,745\n\n\n\u00a0\n\n\n\n\n\n\n \nSalaries and employee benefits\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n15,203\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,323\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,865\n\n\n\u00a0\n\n\n\n\n\n\n \nProduction and distribution\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5,210\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,003\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,440\n\n\n\u00a0\n\n\n\n\n\n\n \nOffice and administration\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n4,763\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,176\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,807\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal expenses\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n28,225\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n29,725\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n32,857\n\n\n\u00a0\n\n\n\n\n\n\n \nIncome from operations\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n11,470\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,800\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,535\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nGain on forgiveness of SBA loan\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,331\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nRevenues interest in EAM Trust\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n10,397\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,899\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,190\n\n\n\u00a0\n\n\n\n\n\n\n \nProfits interest in EAM Trust\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n734\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,142\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,131\n\n\n\u00a0\n\n\n\n\n\n\n \nInvestment gains/(losses)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,174\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n534\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,420\n\n\n\u00a0\n\n\n\n\n\n\n \nIncome before income taxes\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n23,775\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,638\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n30,276\n\n\n\u00a0\n\n\n\n\n\n\n \nIncome tax provision\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n5,706\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,816\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,996\n\n\n\u00a0\n\n\n\n\n\n\n \nNet income\n \n\n\n\u00a0\n\n\n$\n\n\n18,069\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,822\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,280\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nEarnings per share, basic & fully diluted\n \n\n\n\u00a0\n\n\n$\n\n\n1.91\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2.50\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n2.43\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nWeighted average number of common shares\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n9,458,605\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,544,421\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,596,912\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nSee independent auditor's report and accompanying notes to the consolidated financial statements.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       52\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\n\n\n\n\n\n\n \nPart II\n \n\n\n\n\n\n\n \nItem 8.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nValue Line, Inc.\n \n\n\n\n\n\n\n \nConsolidated Statements of Comprehensive Income\n \n\n\n\n\n\n\n \n(in thousands)\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the Fiscal Years Ended\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nApril 30,\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nNet income\n \n\n\n\u00a0\n\n\n$\n\n\n18,069\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,822\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,280\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nOther comprehensive income/(loss), net of tax:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nChange in unrealized gains on Fixed Income securities, net of taxes\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n398\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n27\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n128\n\n\n)\n\n\n\n\n\n\n \nOther comprehensive income/(loss)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n398\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n27\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n128\n\n\n)\n\n\n\n\n\n\n \nComprehensive income\n \n\n\n\u00a0\n\n\n$\n\n\n18,467\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,795\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,152\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nSee independent auditor's report and accompanying notes to the consolidated financial statements.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       53\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\n\n\n\n\n\n\n \nPart II\n \n\n\n\n\n\n\n \nItem 8.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nValue Line, Inc.\n \n\n\n\n\n\n\n \nConsolidated Statements of Cash Flows\n \n\n\n\n\n\n\n \n(in thousands)\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nFor the Fiscal Years Ended\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nApril 30,\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nCash flows from operating activities:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nNet income\n \n\n\n\u00a0\n\n\n$\n\n\n18,069\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,822\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n23,280\n\n\n\u00a0\n\n\n\n\n\n\n \nAdjustments to reconcile net income to net cash provided by operating activities:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nDepreciation and amortization\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,349\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,336\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,293\n\n\n\u00a0\n\n\n\n\n\n\n \nInvestment (gains)/losses\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n125\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,402\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4,710\n\n\n)\n\n\n\n\n\n\n \nNon-voting profits interest in EAM Trust\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n734\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,142\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,131\n\n\n)\n\n\n\n\n\n\n \nNon-voting revenues interest in EAM Trust\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n10,397\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n15,899\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n15,190\n\n\n)\n\n\n\n\n\n\n \nRevenues distribution received from EAM Trust\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n11,284\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,608\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,907\n\n\n\u00a0\n\n\n\n\n\n\n \nProfits distributions received from EAM Trust\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,043\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,439\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,602\n\n\n\u00a0\n\n\n\n\n\n\n \nFull forgiveness of SBA, PPP loan\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,331\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\n \nDeferred rent\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,240\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,087\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n962\n\n\n)\n\n\n\n\n\n\n \nDeferred income taxes\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n20\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n89\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n543\n\n\n\u00a0\n\n\n\n\n\n\n \nChanges in operating assets and liabilities:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nUnearned revenue\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n800\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,315\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n350\n\n\n\u00a0\n\n\n\n\n\n\n \nAccounts payable & accrued expenses\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n51\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n763\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n21\n\n\n\u00a0\n\n\n\n\n\n\n \nAccrued salaries\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n176\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n26\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n18\n\n\n\u00a0\n\n\n\n\n\n\n \nAccrued taxes on income\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n185\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n321\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,487\n\n\n)\n\n\n\n\n\n\n \nPrepaid and refundable income taxes\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n163\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n28\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n616\n\n\n)\n\n\n\n\n\n\n \nPrepaid expenses and other current assets\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n215\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n34\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n39\n\n\n\u00a0\n\n\n\n\n\n\n \nAccounts receivable\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n447\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,308\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n453\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal adjustments\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n109\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n824\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n6,870\n\n\n)\n\n\n\n\n\n\n \nNet cash provided by operating activities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n18,178\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24,646\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n16,410\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nCash flows from investing activities:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nPurchases/sales of securities classified as available-for-sale:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nProceeds from sales of equity securities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n4,706\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n12,039\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,212\n\n\n\u00a0\n\n\n\n\n\n\n \nPurchases of equity securities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,732\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n7,508\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n12,958\n\n\n)\n\n\n\n\n\n\n \nProceeds from sales of Fixed Income securities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n9,907\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,496\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,902\n\n\n\u00a0\n\n\n\n\n\n\n \nPurchases of Fixed Income securities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n38,857\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n10,405\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,597\n\n\n)\n\n\n\n\n\n\n \nAcquisition of property and equipment\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n30\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n11\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n33\n\n\n)\n\n\n\n\n\n\n \nExpenditures for capitalized software\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n110\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n145\n\n\n)\n\n\n\n\n\n\n \nNet cash provided by/(used in) investing activities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n26,116\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n3,389\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,381\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nCash flows from financing activities:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nPurchase of treasury stock at cost\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n4,704\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n2,484\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n1,526\n\n\n)\n\n\n\n\n\n\n \nReceivable from clearing broker\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n608\n\n\n\u00a0\n\n\n\n\n\n\n \nPayable to clearing broker\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n588\n\n\n)\n\n\n\n\n\n\n \nDividends paid\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n9,471\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n8,405\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n8,068\n\n\n)\n\n\n\n\n\n\n \nNet cash used in financing activities\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n14,175\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n10,889\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n9,574\n\n\n)\n\n\n\n\n\n\n \nNet change in cash and cash equivalents\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(\n22,113\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,368\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,217\n\n\n\u00a0\n\n\n\n\n\n\n \nCash, cash equivalents and restricted cash at beginning of year\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n30,008\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,640\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,423\n\n\n\u00a0\n\n\n\n\n\n\n \nCash, cash equivalents and restricted cash at end of year\n \n\n\n\u00a0\n\n\n$\n\n\n7,895\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n30,008\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n19,640\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       54\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n\n\n\n\n\n\n\n \nPart II\n \n\n\n\n\n\n\n ",
+  "cik": "717720",
+  "cusip6": "920437",
+  "cusip": ["920437100"],
+  "names": ["VALUE LINE INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/717720/000143774923020982/0001437749-23-020982-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. Business\n\n\n\u00a0\n\n\nStandex International Corporation and subsidiaries (\"we,\" \"us,\" \"our,\" the \"Company\" and \"Standex\"\u00a0is a diversified industrial manufacturer with leading positions in a variety of products and services that are used in diverse commercial and industrial markets. Headquartered in Salem, New Hampshire, we have six\u00a0operating segments aggregated into five\u00a0reportable segments: Electronics, Engraving,\u00a0Scientific, Engineering Technologies,\u00a0and Specialty Solutions. Two\u00a0operating segments are aggregated into Specialty Solutions.\u00a0Our businesses work in close partnership with our customers to deliver custom solutions or engineered components that solve their unique and specific needs, an approach we call \"Customer Intimacy.\"\n\n\n\u00a0\n\n\nStandex was incorporated in 1975 and is the successor of a corporation organized in 1955. We have paid dividends each quarter since Standex became a public corporation in November 1964. Overall management, strategic development and financial control are led by the executive staff at our corporate headquarters. Our growth strategy is focused on four key areas: (1) Increasing our presence in rapidly growing markets and applications (2) executing\u00a0new product development in both core and adjacent market applications; (3) expanding geographically where meaningful business opportunities exist; and (4) undertaking strategically aligned acquisitions that strengthen and/or expand\u00a0these core businesses. We direct our investments towards markets with long term, secular growth prospects such as renewable energy, electric vehicles, smart power grid, military and defense and life sciences.\u00a0\n\n\n\u00a0\n\n\nUnless otherwise noted, references to years are to fiscal years. Currently our fiscal year end is June 30.\u00a0Our fiscal year 2023\u00a0includes the twelve-month period from July 1, 2022\u00a0to June 30, 2023.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       2\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\nOur long-term business strategy\u00a0is to create, improve, and enhance shareholder value by building more profitable, focused industrial platforms through our Standex Value Creation System.\u00a0This methodology\u00a0employs four components: Balanced Performance Plan, Growth Disciplines, Operational Excellence, and Talent Management and provides both\u00a0a company-wide framework and tools used to achieve our goals.\u00a0We intend to continue investing organically and inorganically in high margin and growth businesses using this balanced and proven approach.\n\n\n\u00a0\n\n\nIt is our objective to grow larger and more profitable business units through both organic and inorganic initiatives. We have a particular focus on identifying and investing in opportunities that complement our products and will increase the overall scale, global presence and capabilities of our businesses.\u00a0 We recently established an innovation and technology function focused on accelerating new, longer-term growth opportunities for emerging technologies, including our ongoing development project with a global renewable energy company. We continue to execute on acquisitions where strategically aligned with our businesses and where the opportunity meets our investment metrics. We\u00a0have divested, and likely will continue to divest, businesses that we feel are not strategic or do not meet our growth and return expectations.\n\n\n\u00a0\n\n\nThe Company\u2019s strong historical cash flow has been a cornerstone for funding our capital allocation strategy.\u00a0 We use cash flow generated from operations to fund investments in capital assets to upgrade our facilities, improve productivity and lower costs, invest in the strategic growth programs described above, including organic and inorganic growth, and to return cash to our shareholders through payment of dividends and stock buybacks.\u00a0\n\n\n\u00a0\n\n\nPlease visit our website at www.standex.com to learn more about us or to review our most recent SEC filings. The information on our website is for informational purposes only and is not incorporated into this Annual Report on Form 10-K.\u00a0\n\n\n\u00a0\n\n\nDescription of Segments\n\n\n\u00a0\n\n\nElectronics\n\u00a0\n\n\n\u00a0\n\n\nOur Electronics\u00a0group is a global component and value-added solutions provider of both sensing and switching technologies as well as magnetic power conversion components and assemblies. Electronics competes on the basis of Customer Intimacy by\u00a0designing, engineering, and manufacturing innovative solutions, components and assemblies to solve our customers\u2019 application needs through our Partner/Solve/Deliver\u00ae approach.\u00a0 Our approach allows us to expand the business through\u00a0organic growth with current customers as well as\u00a0developing new products, driving geographic expansion, and pursuing inorganic growth through strategic acquisitions.\n\n\n\u00a0\n\n\nComponents are manufactured in plants located in the U.S., Mexico, the U.K., Germany, Japan, China and India.\n\n\n\u00a0\n\n\nMarkets and Applications\n\n\n\u00a0\n\n\nOur highly engineered products and vertically integrated manufacturing capabilities provide solutions to an array of markets and provide safe and efficient power transformation, current monitoring, and isolation, as well as switch, sensor\u00a0and relay solutions\u00a0to monitor systems for function and safety. The end-user of our engineered solution is typically an original equipment manufacturer (\u201cOEM\u201d) or\u00a0industrial equipment manufacturer. End-user markets include, but are not limited to, appliances, electrification (electric vehicles, solar, smart-grid, alternative energy),\u00a0security, military, medical, aerospace, test and measurement, power distribution, transportation, and general industrial applications.\n\n\n\u00a0\n\n\nBrands\n\n\n\u00a0\n\n\nBusiness unit names are Standex Electronics, Standex-Meder Electronics, Renco Electronics,\u00a0Northlake Engineering, Agile Magnetics, Sensor Solutions,\u00a0Standex Electronics Japan.\u00a0Other associated brand names include the MEDER, KENT, and KOFU reed switch brands.\n\n\n\u00a0\n\n\nProducts and Services\n\n\n\u00a0\n\n\nOur sensing products employ reed switch, Hall effect, inductive, conductive and other technologies. Sensing based solutions include reed relays, fluid level, proximity, motion, flow, HVAC condensate as well as custom electronic sensors containing our core technologies. The magnetics or power conversion products include custom wound transformers and inductors for low and high frequency applications, current sense technology, advanced planar transformer technology, value added assemblies, and mechanical packaging.\n\n\n\u00a0\n\n\nCustomers\n\n\n\u00a0\n\n\nThe business sells globally to a wide variety of mainly OEM\u00a0customers focused in the end markets noted previously through a direct sales force, regional sales managers, field applications engineers, commissioned agents, representative groups, and distribution channels.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       3\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\nEngraving\n\n\n\u00a0\n\n\nOur Engraving group is a global creator and provider of\u00a0custom textures and surface finishes on tooling that\u00a0enhance the beauty and function of a wide range of consumer good\u00a0and automotive products. We focus on continuing to meet the needs of a changing marketplace by offering experienced craftsmanship while investing in new\u00a0technologies such as laser engraving and soft surface skin texturized tooling. Our growth strategy is to continue to develop and/or acquire\u00a0technologies to enhance\u00a0surface textures that also allow our customers to introduce more sustainable manufacturing processes and reduce their own energy consumption.\u00a0We are one company operating in 19 countries using a consistent approach to guarantee harmony on global programs in service of our customers.\n\n\n\u00a0\n\n\nMarkets and Applications\n\n\n\u00a0\n\n\nStandex Engraving Mold Tech has become the global leader in its industry by offering a full range of services to OEM\u2019s, Tier 1\u00a0suppliers, mold makers and product designers. From start to finish, these services include the design of bespoke textures, the verification of the texture on a prototype, engraving a mold, enhancing and polishing it, and then offering on-site try-out support with ongoing tool maintenance and texture repair capabilities. In addition to these services, we also produce soft trim tooling such as in mold graining (IMG) and nickel shells.\n\n\n\u00a0\n\n\nBrands\u00a0\n\n\n\u00a0\n\n\nIn addition to the Mold Tech brand, Engraving companies and brands also include:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nPiazza Rosa and World Client Services (WCS), which both offer laser engraving and tool finishing in Europe and Mexico.\n \n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nTenibac-Graphion, which provides additional texturizing and prototyping capabilities in North America and China.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nGS Engineering, which employs advanced processes and\u00a0technology to rapidly produce molds for the creation of soft-touch surfaces.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nInnovent,\u00a0which is a specialized supplier of tools and machines used to produce diapers and products that contain absorbent materials between layers of non-woven fabric.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nProducts and Services\n\n\n\u00a0\n\n\nTexturing\n \nis achieved with either a laser or a chemical etching technique.\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nLaser Engraving\u00a0offers superior features, such as multiple gloss levels, the elimination of paint and optimized scratch performance, and sharp definition for precise geometric patterns.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nChemical Engraving\u00a0produces carefully designed textures and finishes without seams or distortion. Our Digital Transfer Technology offers an exclusive service which guarantees consistency, pattern integrity and texture harmony around the world.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nArchitexture Design Studio\n\u00a0uses proprietary technology called Model-Tech\u00ae which utilizes proven expertise to create and test custom textures. During the Model-Tech process, an original texture is first designed to offer beauty and function, which ultimately is used to create a large-format skin that can be wrapped on a model for testing.\n\n\n\u00a0\n\n\nTooling Performance\n \nservices include the enhancement, finishing and repair of a tool to improve its use during manufacturing.\u00a0\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nTool Enhancement\u00a0services increase the wear resistance of the mold. Processes include advanced tool finishing services,\u00a0anti-scratch, laser hardening in localized areas, Tribocoat\u00ae and Release Coat.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nTool Finishing\u00a0and Repair allows customers to achieve outstanding quality while saving valuable time. These services include laser micro-welding, polishing and lapping, laser cladding to accommodate engineering changes, mold assembly, tool management, maintenance, texture repair and on-site support.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nSoft Trim Tooling\n \nand nickel shell molds\u00a0are used to produce soft surfaces that emulate the feel of natural materials. The IMG process we support consumes significantly less energy in our customers' operations than the traditional slush molding process.\n\n\n\u00a0\n\n\nCustomers\n\n\n\u00a0\n\n\nThe Engraving business has become the global leader providing these products and services by offering a full range of services to automotive OEM\u2019s, product designers, Tier 1 suppliers, and toolmakers all around the world.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       4\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\nScientific\n\n\n\u00a0\n\n\nOur Scientific\u00a0business is a provider of specialty temperature-controlled equipment for the medical, scientific, pharmaceutical, biotech and industrial markets. The group designs and produces its products in Summerville, SC.\n\n\n\u00a0\n\n\nOur product portfolio is used to control the temperatures of critical healthcare products, medications, vaccines and laboratory samples.\u00a0 We focus on solving customer problems for these critical applications and deliver innovative products and solutions meeting both exacting regulatory requirements and the unique needs of our customers.\n\n\n\u00a0\n\n\nMarkets and Applications\n\n\n\u00a0\n\n\nThe scientific and healthcare equipment that we design, assemble\u00a0and manufacture is used in hospitals, pharmacies, clinical laboratories, reference laboratories, physicians\u2019 offices, life science laboratories, government and academic facilities, and industrial testing laboratories.\u00a0 Our product offerings include:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nLaboratory and medical grade refrigerators, freezers and accessories,\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nCryogenic storage tanks and accessories, and\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nEnvironmental stability chambers and incubators.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nBrands\n\n\n\u00a0\n\n\nOur products are sold under various\u00a0brands including American BioTech Supply (ABS), Lab Research Products (LRP),Corepoint, Cryosafe, CryoGuard, and\u00a0Scientific.\n\n\n\u00a0\n\n\nProducts and Services\n\n\n\u00a0\n\n\nWe manufacture\u00a0and provide\u00a0specialty-controlled temperature equipment purpose-built for the medical, scientific, pharmaceutical, biotech and industrial markets. Our comprehensive portfolio includes a range of innovative reach in cold storage solutions for medications, vaccines, blood products and patient samples.\n\n\n\u00a0\n\n\nCustomers\n\n\n\u00a0\n\n\nScientific products are sold to medical and laboratory distributors, healthcare facilities, research universities, pharmaceutical companies, and pharmacies.\n\n\n\u00a0\n\n\nEngineering Technologies\n\n\n\u00a0\n\n\nOur Engineering Technologies\u00a0Group (ETG) is a provider of innovative,\u00a0metal-formed solutions for OEM and Tier 1 manufacturers for use in their advanced engineering designs.\n\n\n\u00a0\n\n\nOur solutions seek to address unique customer design challenges such as\u00a0reduction of\u00a0input weight, material cost, part count, and complexity involving all formable materials with particular focus on large dimensions, large thickness or thin-wall construction, complex shapes and contours, and/or single-piece construction requirements. Engineering Technologies devises and manufactures these cost-effective components and assemblies by combining a portfolio of best-in-class forming technologies and technical experience, vertically integrated manufacturing processes, and group wide technical and design expertise.\n\n\n\u00a0\n\n\nWe intend to grow sales and product offerings by investing in advancements in our current and new technologies and identifying new cutting-edge solutions for these capabilities in existing and adjacent markets via customer and research collaboration.\u00a0\n\n\n\u00a0\n\n\nOur segment is comprised of our Spincraft businesses\u00a0with locations in Billerica, MA, New Berlin, WI, and Newcastle upon Tyne in the U.K.\n\n\n\u00a0\n\n\nMarkets and Applications\n\n\n\u00a0\n\n\nSpincraft products serve applications within the space, aviation, defense, energy, medical, and general industrial markets.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nThe space market we serve is\u00a0comprised of components and assemblies for space launch vehicles, engines, crewed and uncrewed spacecraft and other space infrastructure.\u00a0\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nThe aviation market offerings include a large portfolio of components and assemblies\u00a0for commercial and private aircraft engines, nacelles and fuel systems.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nThe defense market we serve covers a wide spectrum of applications including components for missiles, naval propulsion and structures, large dimension exhaust systems and military aircraft engine solutions.\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nApplications within the energy market include components and assemblies for new and MRO gas turbines, as well as solutions for oil & gas exploration operations.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       5\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nBrands\n\n\n\u00a0\n\n\nThis group's brand name\u00a0is Spincraft.\n\n\n\u00a0\n\n\nProducts and Services\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\nSpace: Fuel tanks and fuel tank domes, rocket engine components, crew vehicle and unmanned spacecraft structures and bulkheads\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nAviation: Nacelle inlet lipskins & ducts, engine components and fuel tank elements\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\nDefense: Missile nose cones & structures, naval propulsion components and structures, exhaust assemblies, and military aircraft engine & exhaust components\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\nEnergy: Power generation turbine & other assemblies, oil & gas exploration connection components\n\n\n\n\n\n\n\n\n\u00a0\n\n\nCustomers\n\n\n\u00a0\n\n\nEngineering Technologies\u00a0components are sold directly to large space, aviation, defense, energy and medical companies, or suppliers to those companies.\n\n\n\u00a0\n\n\nSpecialty Solutions \n\n\n\u00a0\n\n\nSpecialty\u00a0Solutions is comprised\u00a0of two\u00a0businesses: Federal Industries and Custom Hoists. These businesses differentiate themselves in their respective markets by collaborating with customers to develop and deliver custom solutions.\u00a0\n\n\n\u00a0\n\n\nFederal Industries provides merchandising solutions to retail and food service customers whose revenue stream is enhanced through food presentation.\u00a0Federal Industries focuses on the challenges of enabling retail and food service establishments to provide food and beverages that are fresh and appealing while at the same time providing for food safety, and energy efficiency. Our key differentiator is the ability to customize products to match customers\u2019 d\u00e9cor within industry lead-time. This differentiator is used to target the convenience store, school cafeterias and quick-service restaurant segments.\n\n\n\u00a0\n\n\nCustom Hoists is a supplier of engineered hydraulic cylinders that meet customer specific requirements for demanding applications. Our engineering expertise coupled with broad manufacturing capabilities and responsiveness to customer needs drives our\u00a0top line growth opportunities.\u00a0 We leverage our full line of products for the construction markets in dump truck and trailer applications and deep expertise in the refuse market to expand into new adjacent markets, targeting the most challenging custom applications.\u00a0 Flexible design capability, a global supply chain and speed to market enable us to be successful in growing our business.\u00a0 Our team is dedicated to superior customer service through our technical engineering support and on-time delivery.\u00a0\u00a0\n\n\n\u00a0\n\n\nSpecialty\u00a0Solutions products are designed and/or manufactured in Hayesville, OH;\u00a0Belleville, WI; and Tianjin, China.\n\n\n\u00a0\n\n\nMarkets and Applications\n\n\n\u00a0\n\n\nFederal Industries custom designs and manufactures refrigerated, heated and dry merchandising display cases for bakery, deli, confectionary and packaged food products utilized in restaurants, convenience stores, quick-service restaurants, supermarkets, drug stores and institutions such as hotels, hospitals, and school cafeterias.\n\n\n\u00a0\n\n\nCustom Hoist products are utilized by OEMs on vehicles such as dump trucks, dump trailers, bottom dumps, garbage trucks (both recycling and rear loader), container roll off vehicles, hook lift trucks, liquid waste handlers, vacuum trucks,\u00a0compactors, balers, airport catering vehicles, container handling equipment for airlines, lift trucks, yard tractors, and underground mining vehicles.\u00a0\n\n\n\u00a0\n\n\nBrands\n\n\n\u00a0\n\n\nFederal Industries products are sold under the Federal brand.\u00a0\n\n\n\u00a0\n\n\nCustom Hoists products are sold under the Custom Hoist brand.\u00a0\n\n\n\u00a0\n\n\nProducts and Services\n\n\n\u00a0\n\n\nFederal Industries offers a selection of display cases, including innovative customization,\u00a0for fresh food merchandising requirements.\u00a0\n\n\n\u00a0\n\n\nCustom Hoists\u00a0designs and manufactures single and double acting telescopic and piston rod hydraulic cylinders for original and aftermarket use in construction equipment, refuse, airline support, mining, oil and gas, and other material handling applications.\u00a0\u00a0\n\n\n\u00a0\n\n\nCustomers\n\n\n\u00a0\n\n\nSpecialty\u00a0Solutions products are sold to OEMs, distributors, service organizations, aftermarket repair outlets, end-users, dealers, buying groups, consultants, government agencies and manufacturers.\n\n\n\u00a0\n\n\nThe following provides a description of key areas impacting our Company.\u00a0\n\n\n\u00a0\n\n\nWorking Capital\n\n\n\u00a0\n\n\nOur primary source of working capital is the cash generated from continuing operations. No segments require any special working capital needs outside of the normal course of business.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       6\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\nCompetition\n\n\n\u00a0\n\n\nStandex manufactures and markets products many of which have achieved\u00a0a unique or leadership position in their market,\u00a0however, we encounter competition in varying degrees in all product groups and for each product line. Competitors include domestic and foreign producers of the same and similar products. The principal methods of competition are industry and design expertise, product performance and technology, price, delivery schedule, quality of services, and other terms and conditions. Standex competes on the basis of Customer Intimacy\u00a0in which our teams work as extensions of our customers organizations to apply our expertise and technology to address needs with customer solutions.\n\n\n\u00a0\n\n\nInternational Operations\n\n\n\u00a0\n\n\nInternational operations are conducted at 37 locations, in Europe, Canada, China, Japan, India, Southeast Asia, Korea,\u00a0Mexico, and South Africa. See the Notes to Consolidated Financial Statements for international operations financial data. Our net sales from continuing international operations decreased slightly from 42% in fiscal year\u00a0\u00a02022\u00a0to 39% in fiscal year\u00a0\u00a02023. International operations are subject to certain inherent risks in connection with the conduct of business in foreign countries including, exchange controls, price controls, limitations on participation in local enterprises, nationalizations, expropriation and other governmental action, restrictions of repatriation of earnings, and changes in currency exchange rates.\n\n\n\u00a0\n\n\nResearch and Development\n\n\n\u00a0\n\n\nWe develop and design new products to meet customer needs in order to offer enhanced products or to provide customized solutions for customers. Developing new and improved products, broadening the application of established products, and continuing efforts to improve our methods, processes, and equipment continues to drive our success.\u00a0Research and development costs are quantified in the Notes to Consolidated Financial Statements.\u00a0\n\n\n\u00a0\n\n\nEnvironmental Matters\n\n\n\u00a0\n\n\nBased on our knowledge and current known facts, we believe that we are presently in substantial compliance with all existing applicable environmental laws and regulations and do not anticipate (i) any instances of non-compliance that will have a material effect on our future capital expenditures, earnings or competitive position or (ii) any material capital expenditures for environmental control facilities.\n\n\n\u00a0\n\n\nFinancial Information about Geographic Areas\n\n\n\u00a0\n\n\nInformation regarding revenues from external customers attributed to the United States, all foreign countries and any individual foreign country, if material, is contained in the Notes to Consolidated Financial Statements, \u201cRevenue from Contracts with Customers.\u201d\n\n\n\u00a0\n\n\nHuman Capital Resources\u00a0\n\n\n\u00a0\n\n\nStandex International recognizes that its long, successful history and future opportunities are directly linked to dedicated, engaged and diverse employees that serve the Company in all business operations. As of June 30, 2023, we employ\u00a0approximately 3,800 employees of which approximately 1,200 are in the United States. About 200 of our U.S. employees are represented by unions. Wages and benefits are competitive with those of other manufacturers in the geographic areas in which our facilities are located. We strive to maintain open, two-way communication and build excellent relationships with both our non-union employee population and the various unions and works councils within our business segments. Employees participate in regular training programs appropriate for their responsibility and optional training programs have been developed for those who seek professional and personal growth opportunities. Our global Standex Safety Council, with representatives from all Standex sites, meets regularly, as we work continuously to enhance our safety culture and closely monitor our Total Recordable Incident Rate.\u00a0\n\n\n\u00a0\n\n\nThe Company\u2019s Chief Human Resources Officer meets regularly with the Chief Executive Officer to align Human Capital strategy, plan and initiatives with business strategy and goals. Our goal is to strive to provide a rewarding employee experience across the company. We continuously review our Human Capital Resources metrics, including safety metrics, turnover, and culture survey responses and associated action plans, to promote an emotionally and physically safe and inclusive working environment. Our LEAP performance management and development process places emphasis on both manager engagement and employee ownership. We regularly conduct employee engagement and satisfaction surveys, including our annual Culture Survey, completed in fiscal year 2023. Results from these surveys and engagement activities drive advances in senior management focus to continuously improve our culture and way of working.\n\n\n\u00a0\n\n\nStandex hosts an annual meeting event in the first quarter of the fiscal year with the extended global leadership team, representative of all our business segments and corporate functions, in which participants join together to align on business and culture goals, participate in leadership development training, share best practices and build unity across the company.\n\n\n\u00a0\n\n\nThe Company established the Inclusion Advisory Council (IAC) as a collaboration of employee voices that helps\u00a0to inform and align the company\u2019s commitment to inclusivity and represents the diverse world in which we live and engage with our employees, communities, customers and shareholders. The IAC provides operational input and guidance to the Executive Leadership Team in three areas.\u00a0 First, the IAC sets global goals and objectives to promote inclusivity and diversity.\u00a0 Second, the IAC collaborates with Corporate Communications and the global Standex community to help develop internal and external communications highlighting the work and progress of the IAC.\u00a0 Finally, the IAC champions the adoption and implementation of IAC initiatives and projects within our respective businesses. We also launched our Women and Leadership Employee Resource Group in fiscal year\u00a02023, which aims to continue increasing representation of women at all levels to contribute to the Company\u2019s business success through relationships, and partnerships.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       7\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nExecutive Officers of Standex\n\n\n\u00a0\n\n\nThe executive officers of the Company \nas of June 30,\u00a0\n2023\n are a\ns follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n \nName\n \n\n\n \nAge\n \n\n\n \nPrincipal Occupation During the Past Five Years\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nDavid Dunbar\n \n\n\n \n61\n \n\n\n \nPresident and Chief Executive Officer of the Company since January 2014.\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nAdemir Sarcevic\n \n\n\n \n48\n \n\n\n \nVice President and Chief Financial Officer of the Company since September\u00a02019. Various positions over the years at Pentair plc from 2012 to September\u00a02019 with increasing responsibility ending as Senior Vice President and Chief Accounting Officer.\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nAlan J. Glass\n \n\n\n \n59\n \n\n\n \nVice President, Chief Legal Officer and Secretary of the Company since April 2016.\u00a0\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nSean Valashinas\n \n\n\n \n52\n \n\n\n \nVice President, Chief Accounting Officer and Assistant Treasurer of the Company since October 2007.\n \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\nAnnemarie Bell\n\n\n59\n\n\nVice President, Chief Human Resources Officer since July 2021, Vice President of Human Resources from June 2019 to July 2021, Interim Vice President of Human Resources from October 2018 through June 2019; Vice President of Human Resources for four of Standex business units from October 2015 through October 2018\n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe executive officers are elected each year at the first meeting of the Board of Directors subsequent to the annual meeting of stockholders, to serve for one-year terms of office. There are no family relationships among any of the directors or executive officers of the Company.\n\n\n\u00a0\n\n\nLong-Lived Assets\n\n\n\u00a0\n\n\nLong-lived assets are described and discussed in the Notes to Consolidated Financial Statements under the caption \u201cLong-Lived Assets.\u201d\n\n\n\u00a0\n\n\nAvailable Information\n\n\n\u00a0\n\n\nStandex\u2019s corporate headquarters are at 23\u00a0Keewaydin Drive, Salem, New Hampshire 03079, and our telephone number at that location is (603) 893-9701.\n\n\n\u00a0\n\n\nThe U.S. Securities and Exchange Commission (the \u201cSEC\u201d) maintains an internet website at www.sec.gov that contains our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and all amendments thereto. Standex\u2019s internet website address is www.standex.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and all amendments thereto, are available free of charge on our website as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. In addition, our code of business conduct, our code of ethics for senior financial management, our corporate governance guidelines, and the charters of each of the committees of our Board of Directors (which are not deemed filed by this reference), are available on our website and are available in print to any Standex shareholder, without charge, upon request in writing to \u201cChief Legal Officer, Standex International Corporation, 23\u00a0Keewaydin Drive, Salem, New Hampshire, 03079.\u201d\n\n\n\u00a0\n\n\n\u00a0\n\n",
+  "item1a": ">Item 1A. Risk Factors\n\n\n\u00a0\n\n\nAn investment in the Company involves various risks, including those mentioned below and those that are discussed from time to time in our other periodic filings with the Securities and Exchange Commission. Investors should carefully consider these risks, along with the other information filed in this report, before making an investment decision regarding the Company. Any of these risks could have a material adverse effect on our financial condition, results of operations and/or value of an investment in the Company.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       8\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nA pandemic or other global health crisis could adversely affect our revenues, operating results, cash flow and financial condition.\n\n\n\u00a0\n\n\nOur business and operations, and the operations of our suppliers, business partners and customers, were adversely affected by the Coronavirus (or COVID-19) pandemic which is impacted worldwide economic activity including in many countries or localities in which we operate, sell, or purchase\u00a0goods and services. Any future pandemics or other global health crises could similarly have an adverse effect on our revenues, operating results, cash flow and financial condition. The ultimate extent to which\u00a0any such circumstance impacts our business will depend on the severity, location and duration of the issue, the actions undertaken in response by local and world governments and health officials, and the success of medical efforts\u00a0to address and mitigate the threat.\n\n\n\u00a0\n\n\nA deterioration in the domestic and international economic environment, whether by way of current inflationary conditions or potential recessionary\u00a0conditions,\u00a0could adversely affect our operating results, cash flow and financial condition.\n\n\n\u00a0\n\n\nRecent inflationary conditions in the United States, Europe and other parts of the world have increased virtually all of our costs including our cost of materials, labor and transportation. We attempt to maintain our profit margins by anticipating such inflationary pressures and increasing our prices where possible in accordance with contractual requirements and competitive conditions. While we thus far have been largely successful in mitigating the impact of such\u00a0inflationary conditions, we may be unable to continue to increase our own prices sufficiently to offset cost increases, and, to the extent that we are able to do so, we may not be able to maintain existing operating margins and profitability. Additionally, competitors operating in regions with less inflationary pressure may be able to compete more effectively which could further impact our ability to increases prices and/or result in lost sales.\u00a0\n\n\n\u00a0\n\n\nRecessionary economic conditions, with or without a tightening of credit, could adversely impact major markets served by our businesses, including cyclical markets such as automotive, aviation, energy and power, heavy construction vehicle, general industrial, consumer appliances and food service. An economic recession could adversely affect our business by:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nreducing demand for our products and services, particularly in markets where demand for our products and services is cyclical;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \ncausing delays or cancellations of orders for our products or services;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nreducing capital spending by our customers;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nincreasing price competition in our markets;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nincreasing difficulty in collecting accounts receivable;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nincreasing the risk of excess or obsolete inventories;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nincreasing the risk of impairment to long-lived assets due to reduced use of manufacturing facilities;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nincreasing the risk of supply interruptions that would be disruptive to our manufacturing processes; and\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nreducing the availability of credit and spending power for our customers.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       9\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe rely on our credit facility to provide us with sufficient capital to operate our businesses\n and to fund acquisitions\n.\n\n\n\u00a0\n\n\nWe rely on our revolving credit facility, in part along with operating cash flow, to provide us with sufficient capital to operate our businesses and to fund acquisitions. The availability of borrowings under our revolving credit facility is dependent upon our compliance with the covenants set forth in the facility, including the maintenance of certain financial ratios. Our ability to comply with these covenants is dependent upon our future performance, which is subject to economic conditions in our markets along with factors that are beyond our control. Violation of those covenants could result in our lenders restricting or terminating our borrowing ability under our credit facility, cause us to be liable for covenant waiver fees or other obligations, or trigger an event of default under the terms of our credit facility, which could result in acceleration of the debt under the facility and require prepayment of the debt before its due date. Even if new financing is available, in the event of a default under our current credit facility, the interest rate charged on any new borrowing could be substantially higher than under the current credit facility, thus adversely affecting our overall financial condition. If our lenders reduce or terminate our access to amounts under our credit facility, we may not have sufficient capital to fund our working capital needs and/or acquisitions or we may need to secure additional capital or financing to fund our working capital requirements or to repay outstanding debt under our credit facility or to fund acquisitions.\n\n\n\u00a0\n\n\nOur credit facility contains covenants that restrict our activities.\n\n\n\u00a0\n\n\nOur revolving credit facility contains covenants that restrict our activities, including our ability to:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nincur additional indebtedness;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nmake investments, including acquisitions;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \ncreate liens;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \npay cash dividends to shareholders unless we are compliant with the financial covenants set forth in the credit facility; and\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nsell material assets.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOur global operations subject us to international business risks.\n\n\n\u00a0\n\n\nWe operate in\n\u00a037\u00a0locations \noutside of the United States in Europe, Canada, China, Japan, India, Singapore, Korea,\u00a0Mexico,\u00a0Turkey, Malaysia, and South Africa. If we are unable to successfully manage the risks inherent to the operation and expansion of our global businesses, those risks could have a material adverse effect on our results of operations, cash flow or financial condition. These international business risks include:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nfluctuations in currency exchange rates;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nchanges in government regulations;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nrestrictions on repatriation of earnings;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nimport and export controls;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \npolitical, social and economic instability;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \npotential adverse tax consequences;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \ndifficulties in staffing and managing multi-national operations;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nunexpected changes in zoning or other land-use requirements;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \ndifficulties in our ability to enforce legal rights and remedies; and\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nchanges in regulatory requirements.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nFailure to achieve expected savings and synergies could adversely impact our operating profits and cash flows.\n\n\n\u00a0\n\n\nWe focus on improving profitability through LEAN enterprise, low-cost sourcing and manufacturing initiatives, improving working capital management, developing new and enhanced products, consolidating factories where appropriate, automating manufacturing processes, diversification efforts and completing acquisitions which deliver synergies to stimulate sales and growth. If we are unable to successfully execute these programs, such failure could adversely affect our operating profits and cash flows. In addition, actions we may take to consolidate manufacturing operations to achieve cost savings or adjust to market developments may result in restructuring charges that adversely affect our profits.\n\n\n\u00a0\n\n\nViolation of anti-bribery or similar laws by our employees, business partners or agents could result in fines, penalties, damage to our reputation or other adverse consequences.\n\n\n\u00a0\n\n\nWe cannot assure that our internal controls, code of conduct and training of our employees will provide complete protection from reckless or criminal acts of our employees, business partners or agents that might violate United States or international laws relating to anti-bribery or similar topics. A violation of these laws could subject us to civil or criminal investigations that could result in substantial civil or criminal fines and penalties, and which could damage our reputation.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       10\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe face significant competition in our markets and, if we are not able to respond to competition in our markets, our net sales, profits and cash flows could decline.\n\n\n\u00a0\n\n\nOur businesses operate in highly competitive markets. To compete effectively, we must retain long standing relationships with significant customers, offer attractive pricing, maintain product quality, meet customer delivery requirements, develop enhancements to products that offer performance features that are superior to our competitors and which maintain our brand recognition, continue to automate our manufacturing capabilities, continue to grow our business by establishing relationships with new customers, diversify into emerging markets and penetrate new markets. In addition, many of our businesses experience sales churn as customers seek lower cost suppliers. We attempt to offset this churn through our continual pursuit of new business opportunities. However, if we are unable to compete effectively or succeed in our pursuit of new business opportunities, our net sales, profitability and cash flows could decline. Pricing pressures resulting from competition may adversely affect our net sales and profitability.\n\n\n\u00a0\n\n\nIf we are unable to successfully introduce new products and product enhancements, our future growth could be impaired.\n\n\n\u00a0\n\n\nOur ability to develop new products and innovations to satisfy customer needs or demands in the markets we serve can affect our competitive position and often requires significant investment of resources. Difficulties or delays in research, development or production of new products and services or failure to gain market acceptance of new products and technologies may significantly reduce future net sales and adversely affect our competitive position.\n\n\n\u00a0\n\n\nIncreased prices or significant shortages of the commodities that we use in our businesses could result in lower net sales, profits and cash flows.\n\n\n\u00a0\n\n\nWe purchase large quantities of steel, aluminum, refrigeration components, freight services, and other metal commodities for the manufacture of our products. We also purchase significant quantities of relatively rare elements used in the manufacture of certain of our electronics products. Historically, prices for commodities and rare elements have fluctuated, and we are unable to enter into long-term contracts or other arrangements to hedge the risk of price increases in many of these commodities. Significant price increases for these commodities and rare elements could adversely affect our operating profits if we cannot timely mitigate the price increases by successfully sourcing lower cost commodities or rare elements or by passing the increased costs on to customers. Shortages or other disruptions in the supply of these commodities or rare elements could delay sales or increase costs.\n\n\n\u00a0\n\n\nCurrent and threatened tariffs on components and finished goods from China and other countries could result in lower net sales, profits and cash flows and could impair the value of our investments in our Chinese operations.\n\n\n\u00a0\n\n\nAs part of our low-cost country sourcing strategy, we (i) maintain manufacturing facilities in China and (ii) import certain components and finished goods from our own facilities and third-party suppliers in China. Many of the components and finished goods we import from China are subject to tariffs enacted by the United States government. While we attempt to pass on these additional costs to our customers, competitive factors (including competitors who import from other countries not subject to such tariffs) may limit our ability to sustain price increases and, as a result, may adversely impact our net sales, profits and cash flows. The maintenance of such tariffs over the long-term also could impair the value of our investments in our Chinese operations. In addition, the imposition of tariffs may influence the sourcing habits of certain end users of our products and services which, in turn, could have a direct impact on the requirements of our direct customers for our products and services. Such an impact could adversely affect our net sales, profits and cash flows.\n\n\n\u00a0\n\n\nAn inability to identify or complete future acquisitions could adversely affect our future growth.\n\n\n\u00a0\n\n\nAs part of our growth strategy, we intend to pursue acquisitions that provide opportunities for profitable growth for our businesses and enable us to leverage our competitive strengths. While we continue to evaluate potential acquisitions, we may not be able to identify and successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms, obtain regulatory approval for certain acquisitions or otherwise complete acquisitions in the future. An inability to identify or complete future acquisitions could limit our future growth.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       11\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nWe may experience difficulties in integrating acquisitions.\n\n\n\u00a0\n\n\nIntegration of acquired companies involves several risks, including:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \ninability to operate acquired businesses profitably;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nfailure to accomplish strategic objectives for those acquisitions;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nunanticipated costs relating to acquisitions or to the integration of the acquired businesses;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \ndifficulties in achieving planned cost savings synergies and growth opportunities; and\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \npossible future impairment charges for goodwill and non-amortizable intangible assets that are recorded as a function of\u00a0acquisitions.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAdditionally, our level of indebtedness may increase in the future if we finance acquisitions with debt, which would cause us to incur additional interest expense and could increase our vulnerability to general adverse economic and industry conditions and limit our ability to service our debt or obtain additional financing. We cannot assure that future acquisitions will not have a material adverse effect on our financial condition, results of operations and cash flows.\n\n\n\u00a0\n\n\nImpairment charges could reduce our profitability.\n\n\n\u00a0\n\n\nWe test goodwill and our other intangible assets with indefinite useful lives for impairment on an annual basis or on an interim basis if a potential impairment factor arises that indicates the fair value of the reporting unit may fall below its carrying value. Various uncertainties, including\u00a0adverse conditions in the capital markets or changes in general economic conditions, could impact the future operating performance at one or more of our businesses which could significantly affect our valuations and could result in additional future impairments. The recognition of an impairment of a significant portion of goodwill would negatively affect our results of operations.\n\n\n\u00a0\n\n\nMaterially adverse or unforeseen legal judgments, fines, penalties or settlements could have an adverse impact on our profits and cash flows.\n\n\n\u00a0\n\n\nWe are and may, from time to time, become a party to legal proceedings incidental to our businesses, including, but not limited to, alleged claims relating to product liability, environmental compliance, patent infringement, commercial disputes and employment and regulatory matters. In accordance with United States generally accepted accounting principles, we establish reserves based on our assessment of contingent liabilities. Subsequent developments in legal proceedings may affect our assessment and estimates of loss contingencies, recorded as reserves, which could require us to record additional reserves or make material payments which could adversely affect our profits and cash flows. Even the successful defense of legal proceedings may cause us to incur substantial legal costs and may divert management's time and resources away from our businesses.\n\n\n\u00a0\n\n\nThe costs of complying with existing or future environmental regulations, and of correcting any violations of these regulations, could impact adversely our profitability.\n\n\n\u00a0\n\n\nWe are subject to a variety of environmental laws relating to the storage, discharge, handling, emission, generation, use and disposal of chemicals, hazardous waste and other toxic and hazardous materials used to manufacture, or resulting from the process of manufacturing, our products and providing our services. We cannot predict the nature, scope or effect of regulatory requirements to which our operations might be subject or the manner in which existing or future laws will be administered or interpreted. We are also exposed to potential legacy environmental risks relating to businesses we no longer own or operate. Future regulations could be applied to materials, products or activities that have not been subject to regulation previously. The costs of complying with new or more stringent regulations, or with more vigorous enforcement of these or existing regulations, could be significant.\n\n\n\u00a0\n\n\nIn addition, properly permitted waste disposal facilities used by us as a legal and legitimate repository for hazardous waste may in the future become mismanaged or abandoned without our knowledge or involvement. In such event, legacy landfill liability could attach to or be imposed upon us in proportion to the waste deposited at any disposal facility.\n\n\n\u00a0\n\n\nEnvironmental laws require us to maintain and comply with a number of permits, authorizations and approvals and to maintain and update training programs and safety data regarding materials used in our processes. Violations of these requirements could result in financial penalties and other enforcement actions. We could be required to halt one or more portions of our operations until a violation is cured. Although we attempt to operate in compliance with these environmental laws, we may not succeed in this effort at all times. The costs of curing violations or resolving enforcement actions that might be initiated by government authorities could be substantial.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       12\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe \ncosts of complying with existing or future regulations applicable to our products, and of correcting any violations of such regulations, could adversely impact our profitability.\n\n\n\u00a0\n\n\nCertain of our products are subject to regulations promulgated by administrative agencies such as the Department of Energy, Occupational Health and Safety Administration and the Food and Drug Administration. Such regulations, among other matters, specify requirements regarding energy efficiency and product safety. Regulatory violations could result in financial penalties and other enforcement actions. We could be required to halt production of one or more products until a violation is cured. Although we attempt to produce our products in compliance with these requirements, the costs of curing violations or resolving enforcement actions that might be initiated by administrative agencies could be substantial.\n\n\n\u00a0\n\n\nOur results could be adversely affected by natural disasters, political crises, labor unrest or other catastrophic events\n.\n\n\n\u00a0\n\n\nNatural disasters, such as hurricanes, tornadoes, floods, earthquakes, and other adverse weather and climate conditions; political crises, such as terrorist attacks, war, labor unrest, and other political instability; or other catastrophic events, such as disasters occurring at our suppliers' manufacturing facilities, whether occurring in the United States or internationally, could disrupt our operations or the operations of one or more of our suppliers. Certain of our key manufacturing facilities are located in geographic areas with a higher than nominal risk of earthquake and flood (such as Japan) and hurricane (such as South Carolina). The effects of global warming have elevated the possibility of natural catastrophes which could impact these and other locations as well as the locations of certain of our customers and suppliers. Certain of our key facilities are in areas of higher than nominal political risk (such as China). The labor workforces in four of our U.S. facilities belong to unions and a strike, slowdown or other concerted effort could adversely impact production at the affected facility. To the extent any of these events occur, our operations and financial results could be adversely affected.\n\n\n\u00a0\n\n\nAn expansion of the\u00a0war in Ukraine could adversely affect our results of operations and financial condition.\n\n\n\u00a0\n\n\nTo date, we have experienced\u00a0minimal impacts on our businesses related to the ongoing war in Ukraine, beyond the\u00a0general impact on global energy prices and other economic conditions. However, customer demand for our products and services as well as raw material and components from our suppliers may be impacted in the future if the war was to extend beyond Ukrainian borders, especially into Europe. Any of these impacts could have an adverse effect on our results of operations and financial condition.\n\n\n\u00a0\n\n\nWe depend on our key personnel and the development of high potential employees; the loss of their services may adversely affect our business\n.\n\n\n\u00a0\n\n\nWe believe that our success depends on our ability to hire new talent, develop existing talent\u00a0and the continued employment of our senior management team and other key personnel. If one or more members of our senior management team or other key personnel were unable or unwilling to continue in their present positions, our business could be seriously harmed. In addition, if any of our key personnel joins a competitor or forms a competing company, some of our customers might choose to use the services of that competitor or those of a new company instead of our own. Other companies seeking to develop capabilities and products or services similar to ours may hire away some of our key personnel. If we are unable to maintain and develop our key personnel and attract new employees, the execution of our business strategy may be hindered and our growth limited.\n\n\n\u00a0\n\n\nStrategic divestitures and contingent liabilities from businesses that we sell could adversely affect our results of operations and financial condition.\n\n\n\u00a0\n\n\nFrom time to time, we have sold and may continue to sell business that we consider to be either underperforming or no longer part of our strategic vision. The sale of any such business could result in a financial loss and/or write-down of goodwill which could have a material adverse effect on our results for the financial reporting period during which such sale occurs. In addition, in connection with such divestitures, we have retained, and may in the future retain responsibility for some of the known and unknown contingent liabilities related to certain divestitures such as lawsuits, tax liabilities, product liability claims, and environmental matters.\n\n\n\u00a0\n\n\nThe trading price of our common stock has been volatile, and investors in our common stock may experience substantial losses.\n\n\n\u00a0\n\n\nThe trading price of our common stock has been volatile and may become volatile again in the future. The trading price of our common stock could decline or fluctuate in response to a variety of factors, including:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nour failure to meet the performance estimates of securities analysts;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nchanges in financial estimates of our net sales and operating results or buy/sell recommendations by securities analysts;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nfluctuations in our quarterly operating results;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nsubstantial sales of our common stock;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nchanges in the amount or frequency of our payment of dividends or repurchases of our common stock;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \ngeneral stock market conditions; or\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nother economic or external factors.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       13\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nDecreases in discount rates and actual rates of return could require an increase in future pension contributions to our pension plans which could limit our flexibility in managing our Company.\n\n\n\u00a0\n\n\nThe discount rate and the expected rate of return on plan assets represent key assumptions inherent in our actuarially calculated pension plan obligations and pension plan expense. If discount rates and actual rates of return on invested plan assets were to decrease significantly, our pension plan obligations could increase materially. Although our pension plans have been frozen, the size of future required pension contributions could require us to dedicate a greater portion of our cash flow from operations to making contributions, which could negatively impact our financial flexibility.\n\n\n\u00a0\n\n\nOur business could be negatively impacted by cybersecurity threats, information systems and network interruptions, and other security threats or disruptions.\n\n\n\u00a0\n\n\nOur information technology networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. Cybersecurity threats are persistent, evolve quickly, and include, but are not limited to, computer viruses, ransomware, attempts to access information, denial of service and other electronic security breaches. These events could disrupt our operations or customers and other third-party IT systems in which we are involved and could negatively impact our reputation among our customers and the public which could have a negative impact on our financial conditions, results of operations, or liquidity.\n\n\n\u00a0\n\n\nWe are subject to increasing regulation associated with data privacy and processing, the violation of which could result in significant penalties and harm our reputation.\n\n\n\u00a0\n\n\nRegulatory scrutiny of privacy, data protection, collection, use and sharing of data is increasing on a global basis.\u00a0Like all global companies, we are subject to a number of laws, rules and directives (\u201cprivacy laws\u201d) relating to the collection, use, retention, security, processing and transfer (\u201cprocessing\u201d) of personally identifiable information about our employees, customers and suppliers (\u201cpersonal data\u201d) in the countries where we operate. The most notable of these privacy laws is the EU\u2019s General Data Protection Regulation (\u201cGDPR\u201d), which came into effect in 2018. GDPR extends the scope of the EU data protection law to all foreign companies processing data of EU residents and imposes a strict data protection compliance regime with severe penalties for non-compliance of up to the greater of 4% of worldwide turnover and \u20ac20 million. While we continue to strengthen our data privacy and protection policies and to train our personnel accordingly, a determination that there have been violations of GDPR or other privacy or data protection laws could expose us to significant damage awards, fines and other penalties that could, individually or in the aggregate, materially harm our results of operations and reputation.\n\n\n\u00a0\n\n\nVarious restrictions in our charter documents, Delaware law and our credit agreement could prevent or delay a change in control that is not supported by our board of directors.\n\n\n\u00a0\n\n\nWe are subject to several provisions in our charter documents, Delaware law and our credit facility that may discourage, delay or prevent a merger, acquisition or change of control that a stockholder may consider favorable. These anti-takeover provisions include:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nmaintaining a classified board and imposing advance notice procedures for nominations of candidates for election as directors and for stockholder proposals to be considered at stockholders' meetings;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \na provision in our certificate of incorporation that requires the approval of the holders of 80% of the outstanding shares of our common stock to adopt any agreement of merger, the sale of substantially all of the \nassets of the Company to a third party or the issuance or transfer by the Company of voting securities having a fair market value of $1 million or more to a third party, if in any such case such third party is the beneficial owner of 10% or more of the outstanding shares of our common stock, unless the transaction has been approved prior to its consummation by all of our directors;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nrequiring the affirmative vote of the holders of at least 80% of the outstanding shares of our common stock for stockholders to amend our amended and restated by-laws;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \ncovenants in our credit facility restricting mergers, asset sales and similar transactions; and\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u2022\n \n\n\n \nthe Delaware anti-takeover statute contained in Section 203 of the Delaware General Corporation Law.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\nSection 203 of the Delaware General Corporation Law prohibits a merger, consolidation, asset sale or other similar business combination between the Company and any stockholder of 15% or more of our voting stock for a period of three years after the stockholder acquires 15% or more of our voting stock, unless (1) the transaction is approved by our board of directors before the stockholder acquires 15% or more of our voting stock, (2) upon completing the transaction the stockholder owns at least 85% of our voting stock outstanding at the commencement of the transaction, or (3) the transaction is approved by our board of directors and the holders of 66 2/3% of our voting stock, excluding shares of our voting stock owned by the stockholder.\n\n\n\u00a0\n\n\n\u00a0\n\n",
+  "item7": ">Item 7.\u00a0 Management's Discussion and Analysis of Financial Condition and Results of Operations\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nWe are a diversified industrial manufacturer with leading positions in a variety\u00a0of products and services that are used in diverse commercial and industrial markets. We have six operating\u00a0segments that aggregate to five reportable segments.\u00a0Please refer to Item 1. Business, above, for additional information regarding our segment structure and management strategy.\n\n\n\u00a0\n\n\nAs part of our ongoing strategy:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\no\n\n\n \nO\nn July 31, 2023, we acquired Minntronix, a privately held company. Minntronix designs and manufactures customized as well as standard magnetics components and products including transformers, inductors, current sensors, coils, chokes, and filters. The products are used in applications across cable fiber, smart meters, industrial control and lighting, electric vehicles, and home security markets. Its results will be\u00a0reported in the Electronics segment.\u00a0\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n\u00a0\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \no\n \n\n\n \nIn the third quarter of fiscal year 2023, we\u00a0divested our Procon business for $75.0 million. This transaction reflects the continued simplification of our portfolio and enables greater focus on managing our larger platforms and pursuing growth opportunities. Proceeds will be deployed towards organic and inorganic initiatives and returning capital to shareholders. Its results are reported within our\u00a0Specialty Solutions segment. In fiscal year 2023, we received $67.0 million cash consideration\u00a0and recorded a pre-tax gain\u00a0on the sale of $62.1 million in the Consolidated Financial Statements. Cash consideration received at closing excludes amounts held in escrow and was net of closing cash.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \no\n \n\n\n \nIn the third quarter of fiscal year 2022, we acquired Sensor Solutions, a designer and manufacturer of customized standard magnetic sensor products including hall effect switch and latching sensors, linear and rotary sensors, and specialty sensors. Sensor Solutions' customer base in automotive, industrial, medical, aerospace, military and consumer electronics end markets are a strategic fit and expand our presence in these markets. Sensor Solution's operates one light manufacturing facility in Colorado. Its results are reported within our\u00a0Electronics segment.\u00a0\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \no\n \n\n\n \nIn the third quarter of fiscal year 2021, we\u00a0divested Enginetics Corporation (\u201cEnginetics\u201d) our jet engine components business reported within our Engineering Technologies segment, to Enjet Aero, LLC, a privately held aerospace engine component manufacturing company.\u00a0This\u00a0divestiture allows\u00a0us to\u00a0focus on the higher growth and margin opportunities of our core spin forming solutions business that serves the space, commercial aviation and defense end markets.\u00a0\u00a0We received $11.7 million cash consideration and recorded a pre-tax loss on the sale of $14.6 million in the Consolidated Financial Statements including a goodwill impairment charge of $7.6 million, assigned to the entirety of the Engineering Technologies segment, and a $5.4 million write-down of intangible assets.\u00a0\u00a0\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \no\n \n\n\n \nDuring the first quarter of fiscal year\u00a02021,\u00a0we acquired Renco Electronics, a designer and manufacturer of customized standard magnetics components and products including transformers, inductors, chokes and coils for power and RF applications.\u00a0 Renco\u2019s end markets and customer base in areas such as consumer and industrial applications are highly complementary to our existing business with the potential to further expand key account relationships and capitalize on cross selling opportunities between the two companies.\u00a0 Renco operates one manufacturing facility in Florida and is supported by contract manufacturers\u00a0in Asia.\u00a0 Renco\u2019s results are reported within our Electronics\u00a0segment beginning in fiscal year 2021.\n \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       18\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nAs\u00a0a result of these portfolio moves, we have transformed Standex to a company with a more\u00a0focused group of businesses selling customized solutions to high value end markets via a compelling customer value proposition.\u00a0 The narrowing of the portfolio allows for greater management focus on driving operational disciplines and positions us well\u00a0to use our cash flow from operations to invest selectively in our ongoing pipeline of organic and inorganic opportunities.\n\n\n\u00a0\n\n\nThe Company\u2019s strong historical cash flow has been a cornerstone for funding our capital allocation strategy.\u00a0 We use cash flow generated from operations to fund investments in capital assets to upgrade our facilities, improve productivity and lower costs, invest in the strategic growth programs described above, including organic growth and acquisitions, and to return cash to our shareholders through payment of dividends and stock buybacks.\u00a0\n\n\n\u00a0\n\n\nRestructuring expenses reflect costs associated with\u00a0our efforts of continuously improving operational efficiency and expanding globally in order to remain competitive in our end-user markets.\u00a0 We incur costs for actions to size our businesses to a level appropriate for current economic conditions, improve our cost structure, enhance our competitive position and increase operating margins.\u00a0 Such expenses include costs for moving facilities to locations that allow for lower fixed and variable costs, external consultants who provide additional expertise starting up plants after relocation, downsizing operations because of changing economic conditions, and other costs resulting from asset redeployment decisions.\u00a0 Shutdown costs include severance, benefits, stay bonuses, lease and contract terminations, asset write-downs, costs of moving fixed assets, and moving and relocation costs. Vacant facility costs include maintenance, utilities, property taxes and other costs.\n\n\n\u00a0\n\n\nBecause of the diversity of the Company\u2019s businesses, end user markets and geographic locations, management does not use specific external indices to predict the future performance of the Company, other than general information about broad macroeconomic trends.\u00a0 Each of our individual business units serves niche markets and attempts to identify trends other than general business and economic conditions which are specific to its business and which could impact their performance.\u00a0 Those units report pertinent information to senior management, which uses it to the extent relevant to assess the future performance of the Company.\u00a0 A description of any such material trends is described below in the applicable segment analysis.\n\n\n\u00a0\n\n\nWe monitor a number of key performance indicators (\u201cKPIs\u201d) including net sales, income from operations, backlog, effective income tax rate, gross profit margin, and operating cash flow.\u00a0 A discussion of these KPIs is included below.\u00a0 We may also supplement the discussion of these KPIs by identifying the impact of foreign exchange rates, acquisitions, and other significant items when they have a material impact on a specific KPI.\u00a0\n\n\n\u00a0\n\n\nWe believe the discussion of these items provides enhanced information to investors by disclosing their impact on the overall trend which provides a clearer comparative view of the KPI, as applicable.\u00a0 For discussion of the impact of foreign exchange rates on KPIs, the Company calculates the impact as the difference between the current period KPI calculated at the current period exchange rate as compared to the KPI calculated at the historical exchange rate for the prior period.\u00a0 For discussion of the impact of acquisitions, we isolate the effect on the KPI amount that would have existed regardless of our acquisition.\u00a0 Sales resulting from synergies between the acquisition and existing operations of the Company are considered organic growth for the purposes of our discussion.\n\n\n\u00a0\n\n\nUnless otherwise noted, references to years are to fiscal years.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       19\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nConsolidated Results from Continuing Operations (in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet sales\n \n\n\n\u00a0\n\n\n$\n\n\n741,048\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n735,339\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n656,232\n\n\n\u00a0\n\n\n\n\n\n\n \nGross profit margin\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n38.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n36.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n36.8\n\n\n%\n\n\n\n\n\n\n \nRestructuring costs\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n3,831\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,399\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,478\n\n\n\u00a0\n\n\n\n\n\n\n \nAcquisition related expenses\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n557\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,618\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n931\n\n\n\u00a0\n\n\n\n\n\n\n \nOther operating (income) expense, net\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(611\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,745\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\n\n\n\n \n(Gain) loss on sale of business\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(62,105\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n-\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,624\n\n\n\u00a0\n\n\n\n\n\n\n \nIncome from operations\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n171,089\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n88,294\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n59,165\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nBacklog (realizable within 1 year)\n \n\n\n\u00a0\n\n\n$\n\n\n238,050\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n256,248\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n210,491\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet sales\n \n\n\n\u00a0\n\n\n$\n\n\n741,048\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n735,339\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n656,232\n\n\n\u00a0\n\n\n\n\n\n\n \nComponents of change in sales:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nEffect of acquisitions\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n1,919\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,918\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n25,554\n\n\n\u00a0\n\n\n\n\n\n\n \nEffect of exchange rates\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(23,902\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9,874\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,471\n\n\n\u00a0\n\n\n\n\n\n\n \nEffect of business divestitures\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(11,947\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9,239\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(3,633\n\n\n)\n\n\n\n\n\n\n \nOrganic sales change\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n39,639\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n96,302\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,305\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nNet sales increased for fiscal year 2023\u00a0by $5.7 million, or 0.8%,\u00a0when compared to the prior year period. Organic sales\u00a0increased by $39.6\u00a0million, or 5.7% excluding the impact of the Procon divestiture,\u00a0primarily due to pricing actions and strong demand in our Engraving,\u00a0Specialty and ETG segments. Acquisitions had a $1.9 million, or 0.3%, positive\u00a0impact on sales, offset by negative\u00a0impacts on sales for divestitures of\u00a0$11.9 million, or 1.9%,\u00a0and\u00a0foreign currency of\u00a0$23.9\u00a0million, or 3.3%.\u00a0\n\n\n\u00a0\n\n\nNet sales increased for fiscal year 2022 by $79.1\u00a0million or 12.1% when compared to the prior year.\u00a0Organic sales increased $96.3 million or 14.7% primarily due to pricing actions and strong demand in our Electronics segment, acquisitions had a $1.9\u00a0million impact on sales,\u00a0and foreign currency had a $9.9 million or 1.5% negative\u00a0impact on sales. Net sales in the prior year included revenue of $9.2 million related to our divested Enginetics business.\n\n\n\u00a0\n\n\nWe discuss our results and outlook for each segment below.\u00a0\n\n\n\u00a0\n\n\nGross Profit\u00a0\n\n\n\u00a0\n\n\nGross profit in fiscal year 2023 increased to $285.1\u00a0million, or a gross margin of 38.5%, as compared to $269.9 million, or a gross margin of 36.7%, for the prior year period.\u00a0This increase was a result of organic sales increases of $39.6 million and productivity initiatives, which offset approximately $11.4 million of inflationary impacts in the areas of raw material and labor. Organic sales increases were attributed to $82.5 million to fast growth markets, targeted pricing initiatives in most of our businesses\u00a0and volume in each business, with the exception of Scientific. Gross profit was also negatively impacted by the divestiture of the Procon business.\u00a0\n\n\n\u00a0\n\n\nGross profit in fiscal year 2022 increased to $269.9 million, or a gross margin of 36.7% as compared to $241.3 million, or a gross margin of 36.8% in fiscal year 2021. This increase was a result of organic sales increases of $96.3 million, productivity initiatives and targeted prices increases to offset approximately $38 million of inflationary impacts in the areas of ocean freight, raw material, and labor. Organic sales increases were partially a result of an approximate $20 million increase in sales to fast growth markets such as electric vehicles, green energy, and the commercialization of space. Gross profit increases were partially offset by increased costs of sales of $50.4 million which included a\u00a0one-time project related charge at Engineering Technologies of $0.8 million, along with production decreases due to a temporary work stoppage in our Specialty Solutions segment which was resolved during the first quarter.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       20\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nSelling, General, and Administrative Expenses\n\n\n\u00a0\n\n\nSelling, general, and administrative expenses, (\u201cSG&A\u201d) for the fiscal year 2023\u00a0were $172.3 million, or 23.3%\u00a0of sales, compared to $169.9 million, or\u00a023.1% of sales, during the prior year period.\u00a0SG&A expenses during the period\u00a0were primarily impacted by increased research and development spending to drive future product initiatives.\n\n\n\u00a0\n\n\nSelling, general, and administrative expenses, (\u201cSG&A\u201d) for the fiscal year 2022\u00a0were $169.9 million, or\u00a023.1% of sales compared to $163.1 million, or 24.8% of sales during the prior year. SG&A expenses during this period were primarily impacted by increased distribution expenses associated with the customer mix and higher organic sales volume and increased research and development spending to drive future product initiatives.\n\n\n\u00a0\n\n\nRestructuring Costs\n\n\n\u00a0\n\n\nDuring fiscal year 2023, we incurred restructuring expenses of $3.8 million, primarily related to productivity improvements, facility rationalization activities, and global headcount reductions primarily within our Engraving and\u00a0Electronics segments\u00a0and Corporate\u00a0headquarters.\n\n\n\u00a0\n\n\nDuring fiscal year 2022, we incurred restructuring expenses of $4.4 million, primarily related to productivity improvements, facility rationalization activities, and global headcount reductions within our Engraving and Electronics segments.\n\n\n\u00a0\n\n\n(Gain) Loss\u00a0on Sale of Business\n\n\n\u00a0\n\n\nWe recorded a pre-tax gain on sale of the Procon business of $62.1\u00a0million for fiscal year 2023. The\u00a0goodwill balance of $0.2\u00a0million was written off as a part of the transaction. The sale transaction and financial results of Procon are classified as continuing operations in the Consolidated Financial Statements.\n\n\n\u00a0\n\n\nWe recorded a pre-tax loss on sale of the Enginetics business of $14.6 million for fiscal year\u00a02021. The loss included a $7.6 million impairment of goodwill assigned to the entirety of the Engineering Technologies segment and a $5.4 million write-down of intangible assets.\u00a0\n\n\n\u00a0\n\n\nAcquisition Related Costs\n\n\n\u00a0\n\n\nWe incurred acquisition related expenses of $0.6 million and $1.6\u00a0million\u00a0in fiscal year 2023 and 2022, respectively. Acquisition related costs typically consist of due diligence, integration, and valuation expenses incurred\u00a0in connection with recent or pending acquisitions.\n\n\n\u00a0\n\n\nOther Operating (Income) Expense, Net\n\n\n\u00a0\n\n\nWe incurred expense of $5.7 million in fiscal year 2022 related to a litigation accrual.\u00a0 In the third quarter of fiscal year 2023, we received\u00a0$1.0 million from our insurance provider as recoupment related to this litigation matter.\u00a0Refer to Part II, Item 8, Note 12, \"CONTINGENCIES,\" in the Notes to the Consolidated Financial Statements for details.\n\n\n\u00a0\n\n\nIncome from Operations\n\n\n\u00a0\n\n\nIncome from operations for the fiscal year 2023\u00a0was $171.1 million, compared to $88.3 million during the prior year.\u00a0 The increase\u00a0of $82.8\u00a0million, or 93.8%, is primarily due to the divestiture of the Procon business for a gain of $62.1 million as well as\u00a0income from organic sales increases and pricing actions, along with cost reduction activities and productivity improvement initiatives,\u00a0partially offset by foreign currency, material inflation, and increased logistics and labor costs.\n\n\n\u00a0\n\n\nIncome from operations for the fiscal year 2022 was $88.3 million, compared to $59.2 million during the prior year. The $29.1 million increase, or 49.2% is primarily due to the loss on sale of the Enginetics business of $14.6 million in the prior year,\u00a0income from organic sales increases and pricing actions, along with cost reduction activities and productivity improvement initiatives implemented in all of our businesses, partially offset by\u00a0material inflation, logistics and labor costs as well as the impact of the COVID-19 lockdown in China in the fourth fiscal quarter of 2022 and a litigation charge of $5.7 million.\n\n\n\u00a0\n\n\nDiscussion of the performance of each of our reportable segments is fully explained in the segment analysis that follows.\u00a0\u00a0\n\n\n\u00a0\n\n\nInterest Expense\n\n\n\u00a0\n\n\nInterest expense for fiscal year\u00a02023 was $5.4 million a decrease of $0.5\u00a0million as compared to the prior year. Our effective interest rate\u00a0was 2.97%. Interest expense for\u00a0fiscal year\u00a02022 was $5.9 million a decrease of $0.1\u00a0million as compared to the prior year.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       21\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIncome Taxes\n\n\n\u00a0\n\n\nThe income tax provision from continuing operations for the fiscal year ended June 30, 2023 was $24.8 million, or an effective rate of 15.1%, compared to $19.8 million, or an effective rate of 24.4%, for the year ended June 30, 2022, and $14.2 million, or an effective rate of 26.9%, for the year ended June 30, 2021. Changes in the effective tax rates from period to period may be significant as they depend on many factors including, but not limited to, the amount of our income or loss, the mix of income earned in the U.S.\u00a0versus outside the U.S.,\u00a0the effective tax rate in each of the countries in which we earn income, and any one-time tax issues which occur during the period.\n\n\n\u00a0\n\n\nThe income tax provision from continuing operations for the fiscal year ended June 30, 2023 was impacted by the following items: (i) a tax benefit of $4.3 million due to the mix of income in various jurisdictions, (ii) tax benefits of $14.3 million primarily related to foreign tax credits of $11.6 million, as well as Federal R&D tax credits of $2.7 million, (iii) a tax provision of $11.3 million related to the U.S. tax effects of international operations, and (iv) a tax benefit of $5.0\u00a0million relating to the partial release of the valuation allowance on capital loss carryforwards, which were utilized against the capital gain recognized on the divestiture of the Procon\u00a0business.\n\n\n\u00a0\n\n\nThe income tax provision from continuing operations for the fiscal year ended June 30, 2022 was impacted by the following items:\u00a0(i)\u00a0a tax provision of $4.3 million due to the mix of income in various jurisdictions, (ii) a tax benefit of $2.2 million\u00a0related to Federal R&D credit and Foreign Tax Credit, (iii) a tax benefit of $1.3 million related to return-to-accrual adjustments to true-up\u00a0prior-period provision amounts, and (iv) a tax expense of $1.0 million\u00a0related to uncertain tax position.\n\n\n\u00a0\n\n\nThe\u00a0income tax provision from continuing operations for the fiscal year ended June 30, 2021 was impacted by the following items: (i)\u00a0a tax provision of $5.1 million due to the mix of income in various jurisdictions, (ii) a tax benefit of $1.0 million from our 2019 and 2020 tax losses that the CARES Act allows to be carried back to 2014 and 2015, when the U.S. federal income tax rate was 35%, (iii) a tax benefit of $0.8 million\u00a0related to Federal R&D credit and Foreign Tax Credit, (iv) a tax benefit of $1.7 million related to return-to-accrual adjustments to true-up up prior-period provision amounts, and (v) the tax expense of $1.2 million attributable to the divestiture of the Enginetics Corporation during the year.\n\n\n\u00a0\n\n\nCapital Expenditures\n\n\n\u00a0\n\n\nOur capital spending is focused on growth initiatives, cost reduction activities, and upgrades to extend the capabilities of our capital assets.\u00a0 In general, we anticipate our capital expenditures over the long-term will be approximately 3% to 5% of net sales.\u00a0\n\n\n\u00a0\n\n\nDuring fiscal year 2023, capital expenditures were $24.3 million or 3.3% of net sales, as compared to $23.9 million, or 3.2%, of net sales in the prior year.\u00a0We expect 2024 capital spending to be between $35 million and $40 million.\n\n\n\u00a0\n\n\nBacklog\n\n\n\u00a0\n\n\nBacklog includes all active or open orders for goods and services.\u00a0 Backlog also includes any future deliveries based on executed customer contracts, so long as such deliveries are based on agreed upon delivery schedules.\u00a0Backlog orders are not necessarily an indicator of future sales levels because of variations in lead times and customer production demand pull systems, with the exception of Engineering Technologies. Customers may delay delivery of products or cancel orders prior to shipment, subject to possible cancellation penalties. Due to the nature of long-term agreements in the Engineering Technologies segment, the timing of orders and delivery dates can vary considerably resulting in significant backlog changes from one period to another.\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       22\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\nBacklog orders are as follows (in thousands):\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nAs of June 30, 2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nAs of June 30, 2022\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nBacklog under\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nBacklog under\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nBacklog\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n1 year\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nBacklog\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n1 year\n \n\n\n\u00a0\n\n\n\n\n\n\n \nElectronics\n \n\n\n\u00a0\n\n\n$\n\n\n150,061\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n129,911\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n179,778\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n149,247\n\n\n\u00a0\n\n\n\n\n\n\n \nEngraving\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n36,817\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n31,434\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n19,794\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,250\n\n\n\u00a0\n\n\n\n\n\n\n \nScientific\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n2,506\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,506\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,356\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,356\n\n\n\u00a0\n\n\n\n\n\n\n \nEngineering Technologies\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n63,769\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n52,565\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n49,990\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n43,644\n\n\n\u00a0\n\n\n\n\n\n\n \nSpecialty Solutions\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n21,749\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,634\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n47,569\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n44,751\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal\n \n\n\n\u00a0\n\n\n$\n\n\n274,902\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n238,050\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n301,487\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n256,248\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nTotal backlog realizable within one year decreased $18.2 million, or 7.1% to $238.1 million at June 30,\u00a02023 from $256.3 million at June 30, 2022.\u00a0\u00a0Changes in backlog under 1 year are as follows (in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nAs of June 30, 2023\n \n\n\n\u00a0\n\n\n\n\n\n\n \nBacklog under 1 year, prior year period\n \n\n\n\u00a0\n\n\n$\n\n\n256,248\n\n\n\u00a0\n\n\n\n\n\n\n \nComponents of change in backlog:\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n \nOrganic change\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(10,817\n\n\n)\n\n\n\n\n\n\n \nEffect of divestitures\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(7,381\n\n\n)\n\n\n\n\n\n\n \nBacklog under 1 year, current period\n \n\n\n\u00a0\n\n\n$\n\n\n238,050\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nSegment Analysis (in thousands)\n\n\n\u00a0\n\n\nOverall Outlook\n\n\n\u00a0\n\n\nLooking forward to fiscal year 2024, we expect to be well-positioned, with anticipated continued improvement in key financial metrics, supported by productivity initiatives.\u00a0\n\n\n\u00a0\n\n\nIn general, for fiscal year 2024, we expect:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \ncontinued growth in transportation markets from electric vehicle program with a\u00a0ramp up of\u00a0new business opportunities, including sensors for charger\u00a0plugs and soft trim growth;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nvaccine storage demand\u00a0to remain stable\u00a0after the record COVID-19 related surge in fiscal year 2021 and early fiscal year 2022;\n \n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\ncommercial aviation and defense end markets demand to increase based on current program expectations;\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\u00a0\n \n\n\n \n\u25cf\n \n\n\n \nspace markets to remain attractive,\u00a0with volume to slightly increase from fiscal year 2023 due to new product development for existing customers;\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n \n\u25cf\n \n\n\n \nrefuse and dump end markets to remain stable while being supported by investments in the U.S. infrastructure bill;\n \n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nstable demand levels in food service equipment markets.\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nElectronics\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 compared to 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 compared to 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands except\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\n\n\n\n \npercentages)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet sales\n \n\n\n\u00a0\n\n\n$305,872\n\n\n\u00a0\n\n\n\u00a0\n\n\n$304,290\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n0.5%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n$304,290\n\n\n\u00a0\n\n\n\u00a0\n\n\n$253,369\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n20.1%\n \n\n\n\u00a0\n\n\n\n\n\n\n \nIncome from operations\n \n\n\n\u00a0\n\n\n68,979\n\n\n\u00a0\n\n\n\u00a0\n\n\n70,428\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(2.1%)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n70,428\n\n\n\u00a0\n\n\n\u00a0\n\n\n46,600\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n51.1%\n \n\n\n\u00a0\n\n\n\n\n\n\n \nOperating income margin\n \n\n\n\u00a0\n\n\n \n22.6%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n23.1%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n23.1%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n18.4%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       23\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nNet sales in fiscal year 2023\u00a0increased $1.6\u00a0million, or 0.5%, when compared to the prior year.\u00a0 Organic sales increased by $13.7 million, or 4.5%, reflecting positive trends\u00a0in end markets like industrial applications, power management, renewable energy technologies, and electric vehicle related applications.\u00a0Sensor Solutions was acquired in the third quarter of fiscal year 2022, adding $1.9 million, or 0.6%, in sales for the period.\u00a0The foreign currency impact decreased sales by\u00a0$14.0\u00a0million, or 4.6%.\n\n\n\u00a0\n\n\nIncome from operations in the fiscal year\u00a02023\u00a0decreased $1.4\u00a0million, or 2.1%, when compared to the prior year.\u00a0The operating income decrease was the result of inflationary impacts, mix and foreign exchange offset partially by organic sales growth\u00a0and various cost saving initiatives.\n\n\n\u00a0\n\n\nIn the first quarter of fiscal year 2024, on a sequential basis, we expect slightly higher revenue primarily due to the recently announced acquisition and continued strength in our fast growth end markets, partially offset by continued slow\u00a0recovery in China and Europe. Sequentially, we\u00a0expect\u00a0similar operating margin.\n\n\n\u00a0\n\n\nNet sales in fiscal year\u00a02022\u00a0increased\u00a050.9\u00a0million, or 20.1%, when compared to the prior year. Organic sales increased $56.1 million, or 22.2%, reflecting a broad-based geographical recovery with continued strong demand for all product groups as well as new business opportunities, including the impact of a COVID-19 lockdown in China in the fourth fiscal quarter.\u00a0Acquisitions in fiscal year 2022\u00a0added $1.9 million, or 0.8%\u00a0in sales.\u00a0The foreign currency impact\u00a0decreased sales by $7.1 million, or 2.8%.\u00a0\n\n\n\u00a0\n\n\nIncome from operations in the fiscal year 2022\u00a0increased\u00a0$23.8\u00a0million, or\u00a051.1%\u00a0when compared to the prior year. The operating income increase was the result of organic sales growth, various pricing actions and cost saving initiatives, partially offset by material and freight cost increases.\n\n\n\u00a0\n\n\nEngraving\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 compared to 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 compared to 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands except\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\n\n\n\n \npercentages)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet sales\n \n\n\n\u00a0\n\n\n$152,067\n\n\n\u00a0\n\n\n\u00a0\n\n\n$146,255\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n4.0%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n$146,255\n\n\n\u00a0\n\n\n\u00a0\n\n\n$147,016\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(0.5%)\n \n\n\n\u00a0\n\n\n\n\n\n\n \nIncome from operations\n \n\n\n\u00a0\n\n\n25,462\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,825\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n16.7%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n21,825\n\n\n\u00a0\n\n\n\u00a0\n\n\n22,510\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(3.0%)\n \n\n\n\u00a0\n\n\n\n\n\n\n \nOperating income margin\n \n\n\n\u00a0\n\n\n \n16.7%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n14.9%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n14.9%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n15.3%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nNet sales in fiscal year 2023\u00a0increased\u00a0by $5.8\u00a0million, or 4.0%, compared to the prior year.\u00a0Organic sales increased\u00a0by $14.3\u00a0million, or 9.8%,\u00a0as a result of timing of customer projects. The organic\u00a0sales increase was partially offset by foreign exchange impacts of\u00a0$8.5 million, or 5.8%.\u00a0\n\n\n\u00a0\n\n\nIncome from operations in fiscal year 2023\u00a0increased by $3.6\u00a0million, or 16.7%, when compared to the prior year. Operating income increased during the period reflecting the organic sales increase and productivity actions, offsetting the foreign exchange impacts.\n\n\n\u00a0\n\n\nIn the\u00a0first quarter of fiscal year 2024, we expect slightly lower revenue reflecting timing of customer projects\u00a0and slightly higher\u00a0operating margin.\n\n\n\u00a0\n\n\nNet sales in fiscal year\u00a02022\u00a0decreased by $0.8\u00a0million or 0.5%\u00a0compared to the prior year. Organic sales increased by $0.9 million, or\u00a00.6%, as a result of timing of projects. The sales increase was offset by foreign exchange impacts of $1.6\u00a0million, or 1.1%.\n\n\n\u00a0\n\n\nIncome from operations in fiscal year\u00a02022 decreased\u00a0by $0.7 million, or 3.0%, when compared to the prior year. The decrease reflected\u00a0geographic mix, partially offset by productivity initiatives.\n\n\n\u00a0\n\n\nScientific\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 compared to 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 compared to 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands except\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\n\n\n\n \npercentages)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet sales\n \n\n\n\u00a0\n\n\n$74,924\n\n\n\u00a0\n\n\n\u00a0\n\n\n$83,850\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(10.6%)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n$83,850\n\n\n\u00a0\n\n\n\u00a0\n\n\n$79,421\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n5.6%\n \n\n\n\u00a0\n\n\n\n\n\n\n \nIncome from operations\n \n\n\n\u00a0\n\n\n17,109\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,861\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(4.2%)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n17,861\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,240\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(2.1%)\n \n\n\n\u00a0\n\n\n\n\n\n\n \nOperating income margin\n \n\n\n\u00a0\n\n\n \n22.8%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n21.3%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n21.3%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n23.0%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nNet sales in fiscal year\u00a02023\u00a0decreased\u00a0by $8.9\u00a0million, or\u00a010.6% when compared to the prior year.\u00a0 Net sales decreased as expected due to lower demand for cold storage surrounding COVID-19 vaccine distribution partially offset by pricing actions.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       24\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIncome from operations in fiscal year\u00a02023 decreased\u00a0by $0.8 million, or\u00a04.2%,\u00a0when compared to the prior year. Operating income\u00a0decrease reflects lower sales volume, partially offset by pricing and productivity actions and lower oceanic freight costs.\n\n\n\u00a0\n\n\nIn the first quarter of fiscal year 2024, on a sequential basis, we expect similar revenue and operating margin.\n\n\n\u00a0\n\n\nNet sales in fiscal year\u00a02022\u00a0increased\u00a0by $4.4\u00a0million, or\u00a05.6% when compared to the prior year. The net sales increase reflected\u00a0overall growth in end markets, such as pharmaceutical channels, clinical settings, and academic laboratories, including continued strong demand for cold storage surrounding COVID-19 vaccine distribution and the general market recovery as well as pricing actions.\n\n\n\u00a0\n\n\nIncome from operations in fiscal year\u00a02022 decreased\u00a0$0.4 million or\u00a02.1%, reflected\u00a0higher freight costs and investments in new product development, offset by revenue growth and pricing actions.\n\n\n\u00a0\n\n\nEngineering Technologies\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 compared to 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 compared to 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands except\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\n\n\n\n \npercentages)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet sales\n \n\n\n\u00a0\n\n\n$81,079\n\n\n\u00a0\n\n\n\u00a0\n\n\n$78,117\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n3.8%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n$78,117\n\n\n\u00a0\n\n\n\u00a0\n\n\n$75,562\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n3.4%\n \n\n\n\u00a0\n\n\n\n\n\n\n \nIncome from operations\n \n\n\n\u00a0\n\n\n11,050\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,776\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n25.9%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n8,776\n\n\n\u00a0\n\n\n\u00a0\n\n\n6,164\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n42.4%\n \n\n\n\u00a0\n\n\n\n\n\n\n \nOperating income margin\n \n\n\n\u00a0\n\n\n \n13.6%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n11.2%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n11.2%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n8.2%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nNet sales in fiscal year\u00a02023 increased $3.0 million, or 3.8%, when compared to the prior year.\u00a0Organic sales increased by $4.1 million, or 5.3%, offset by\u00a0foreign currency impacts of $1.1 million, or 1.5%, as compared to the prior year period. Organic sales change was primarily due to increases in new product development of\u00a0 new solutions provided to customers in\u00a0the\u00a0aerospace and defense markets.\u00a0\n\n\n\u00a0\n\n\nIncome from operations in fiscal year\u00a02023 increased $2.3 million, or 25.9%, when compared to the prior year. The increase was primarily due to\u00a0productivity initiatives, volume increases and the impact of a one-time project related charge in first quarter of fiscal year 2022 that did not repeat. \u00a0\n\n\n\u00a0\n\n\nIn the first quarter of fiscal year 2024, on a sequential basis, we expect a\u00a0significant decrease in revenue reflecting timing of projects and a slight to moderate decrease in operating margin, with productivity initiatives mostly offsetting the impact of volume decline and higher mix of development projects. The long-term demand remains robust with the current backlog and new platform development funnel expected to provide solid foundation for growth in the second half of fiscal year 2024 and beyond. \u00a0\u00a0\n\n\n\u00a0\n\n\nNet sales in fiscal year\u00a02022\u00a0decreased $2.6 million, or 3.4%, when compared to the prior year. Sales distribution by market in 2022 was as follows: 40% space, 23% aviation, 19% defense, 7% energy, and 11% other markets. Sales in the prior year period included revenue of $9.2 million related to our divested Enginetics business. Excluding the impact of the divestiture, sales increased $11.8 million\u00a0primarily due to customer demand in the commercial aviation market, along with an increase in sales into the space end market, particularly related to commercialization of space and a medical market customer demand surge.\u00a0\n\n\n\u00a0\n\n\nIncome from operations in fiscal year\u00a02022 increased $2.6 million, or 42.4%, when compared to the prior year. The increase was primarily due to cost saving measures implemented during the pandemic and maintained as economic activity resumed along with the absences of losses associated with the Enginetics business, offset by a $1.1 million one-time project-related charge.\n\n\n\u00a0\n\n\nSpecialty\u00a0Solutions\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 compared to 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 compared to 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands except\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\n\n\n\n \npercentages)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \nNet sales\n \n\n\n\u00a0\n\n\n$127,106\n\n\n\u00a0\n\n\n\u00a0\n\n\n$122,827\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n3.5%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n$122,827\n\n\n\u00a0\n\n\n\u00a0\n\n\n$100,864\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n21.8%\n \n\n\n\u00a0\n\n\n\n\n\n\n \nIncome from operations\n \n\n\n\u00a0\n\n\n25,368\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,579\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n62.8%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n15,579\n\n\n\u00a0\n\n\n\u00a0\n\n\n14,358\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n8.5%\n \n\n\n\u00a0\n\n\n\n\n\n\n \nOperating income margin\n \n\n\n\u00a0\n\n\n \n20.0%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n12.7%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n12.7%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n14.2%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nNet sales for fiscal year\u00a02023 increased $4.3 million, or 3.5% when compared to the prior year.\u00a0Organic sales\u00a0increased\u00a0$16.7 million, or 13.6% excluding Procon, as compared to the prior year period.\u00a0The increased sales volume is primarily due to pricing realization, strong market demand and the\u00a0absence of the labor work stoppage in two plants during the prior year. The impact of the Procon divestiture partially offset\u00a0the organics sales increase.\u00a0\n\n\n\u00a0\n\n\nIncome from operations for fiscal year\u00a02023\u00a0increased $9.8\u00a0million, or 62.8%, when compared to the prior year.\u00a0 Operating income increased due to sales increases\u00a0in Display Merchandising,\u00a0pricing actions\u00a0and the impact of the labor work stoppage in two plants during the prior year.\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       25\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn the first quarter of fiscal year 2024, on a sequential basis, we expect a slight decrease in revenue and operating margin.\n\n\n\u00a0\n\n\nNet sales for fiscal year\u00a02022\u00a0increased $22.0 million, or 21.8%, when compared to the prior year. Organic sales increased $22.9 million, or 22.7%. Increased sales volume was\u00a0primarily due to a continued recovery in the Pumps and Merchandising businesses and pricing actions, partially offset by the impact of a temporary work stoppage which was resolved during the first quarter.\n\n\n\u00a0\n\n\nIncome from operations for fiscal year\u00a02022\u00a0increased $1.2 million, or 8.5%, when compared to the prior year primarily as a result of increased\u00a0sales volume in the Pumps and Merchandising businesses, partially offset by higher costs of labor, including the temporary work stoppage in the first quarter and higher raw material and ocean freight costs.\n\n\n\u00a0\n\n\nCorporate, Restructuring and Other\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023 compared to 2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022 compared to 2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \n(in thousands except\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n%\n \n\n\n\u00a0\n\n\n\n\n\n\n \npercentages)\n \n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \nChange\n \n\n\n\u00a0\n\n\n\n\n\n\n \nCorporate\n \n\n\n\u00a0\n\n\n \n$ (35,207)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n$ (34,413)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2.3%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n$ (34,413)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n$ (29,674)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n16.0%\n \n\n\n\u00a0\n\n\n\n\n\n\n \nGain (loss) on sale of business\n \n\n\n\u00a0\n\n\n \n62,105\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n-\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n100.0%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n-\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(14,624)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n100.0%\n \n\n\n\u00a0\n\n\n\n\n\n\n \nRestructuring costs\n \n\n\n\u00a0\n\n\n \n(3,831)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(4,399)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(12.9%)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(4,399)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(3,478)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n26.5%\n \n\n\n\u00a0\n\n\n\n\n\n\n \nAcquisition related costs\n \n\n\n\u00a0\n\n\n \n(557)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(1,618)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(65.6%)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(1,618)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(931)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n73.8%\n \n\n\n\u00a0\n\n\n\n\n\n\n \nOther operating income (expense), net\n \n\n\n\u00a0\n\n\n \n611\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(5,745)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n100.0%\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n(5,745)\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n-\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n-\n \n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nCorporate expenses in fiscal year\u00a02023\u00a0increased $0.8\u00a0million, or 2.3%, when compared to the prior year, primarily due to employee related compensation accruals and research and development costs.\n\n\n\u00a0\n\n\nCorporate expenses\u00a0in fiscal year 2022\u00a0increased\u00a0$4.7 million, or 16%, when compared to the prior year, primarily due to employee related compensation accruals and research and development costs.\n\n\n\u00a0\n\n\nThe gain on sale of business, restructuring costs, acquisition related costs and other operating income (expense), net have been discussed above in the Company Overview.\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\nDiscontinued Operations\n\n\n\u00a0\n\n\nIn pursing our business strategy, the Company may divest certain businesses. Future divestitures may be classified as discontinued operations based on their strategic significance to the Company.\u00a0 Activity related to discontinued operations is as follows (in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \nYear Ended June 30,\n \n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2021\n \n\n\n\u00a0\n\n\n\n\n\n\n \nProfit (loss) before taxes\n \n\n\n\u00a0\n\n\n$\n\n\n(204\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(113\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(2,620\n\n\n)\n\n\n\n\n\n\n \nBenefit (provision) for taxes\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n43\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n24\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n550\n\n\n\u00a0\n\n\n\n\n\n\n \nNet income (loss) from discontinued operations\n \n\n\n\u00a0\n\n\n$\n\n\n(161\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(89\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(2,070\n\n\n)\n\n\n\n\n\n\n\n\n\u00a0\n\n\nLiquidity and Capital Resources \n\n\n\u00a0\n\n\nAt June 30, 2023, our total cash balance was $195.7 million, of which $98.6 million was held outside of the United States.\u00a0 During fiscal years 2023, 2022 and 2021, we repatriated $29.1 million, $30.8 million, and $37.6 million of our cash previously held outside of the United States, respectively.\u00a0 The amount and timing of cash repatriation is\u00a0dependent upon foreign exchange rates and each business unit\u2019s operational needs including requirements to fund working capital, capital expenditure, and jurisdictional tax payments.\u00a0 The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to capital controls; however, those balances are generally available without legal restrictions to fund ordinary business operations.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       26\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nCash Flow\n\n\n\u00a0\n\n\nNet cash provided by continuing operating activities for the year ended June 30, 2023 was $90.8\u00a0million compared to net cash provided by continuing operating activities of $78.1\u00a0million in the prior year. We generated $116.6 million from income statement activities and used $18.2\u00a0million of cash to fund working capital and other balance sheet account increases. Cash flow provided by investing activities for the year ended June 30, 2023 totaled $41.6\u00a0million. We generated $67.0 million in proceeds from the divestiture of the Procon business and\u00a0$24.3 million was used for capital expenditures.\u00a0Cash used by financing activities for the year ended June 30, 2023 was $40.0 million and included stock repurchases of $25.5 million, cash paid for dividends of $13.0\u00a0million, contingent consideration payments to\u00a0the sellers of the Renco business of $1.2 million\u00a0and debt modification costs of $1.7 million.\u00a0\n\n\n\u00a0\n\n\nNet cash provided by continuing operating activities for the year ended June 30, 2022 was $78.1\u00a0million compared to net cash provided by continuing operating activities of $81.9\u00a0million in the prior year. We generated $101.7 million from income statement activities and used $23.1 million of cash to fund working capital increases. Cash flow used in investing activities for the year ended June 30, 2022 totaled $31.0\u00a0million. Uses of investing cash consisted primarily of capital expenditures of $23.9 million, $13.0 million for the acquisitions, $1.0 million used in other investing activities, offset by $5.0 million generated by proceeds from a life insurance policy related to the death of a retired Company executive and\u00a0$1.8 million generated by sales of property, plant, and equipment. Cash used by financing activities for the year ended June 30, 2022 were $69.4 million and included stock repurchases of $31.4 million, repayments of debt of $25.0 million,\u00a0cash paid for dividends of $12.2\u00a0million, and contingent consideration payments due to the seller of the Renco business of $2.2 million.\n\n\n\u00a0\n\n\nWe sponsor a number of defined benefit and defined contribution retirement plans.\u00a0 The U.S. pension plan is frozen for all participants.\u00a0 We have evaluated the current and long-term cash requirements of these plans, and our existing sources of liquidity are expected to be sufficient to cover required contributions under ERISA and other governing regulations.\u00a0\n\n\n\u00a0\n\n\nThe fair value of the Company's U.S. defined benefit pension plan assets was $142.1 million at June 30, 2023, as compared to $157.9 million as of June 30, 2022.\u00a0We participate in two multi-employer pension plans and sponsor five defined benefit plans including two in the U.S. and one each in the U.K., Germany\u00a0and Japan.\u00a0 The Company\u2019s pension plan is frozen for U.S. employees and participants in the plan ceased accruing future benefits.\u00a0 Our primary U.S. defined benefit plan is not 100% funded under ERISA rules at June 30, 2023.\u00a0Obligations under our defined benefit plan operated in Ireland have been transferred to the buyer of the Procon business as part of the divestiture.\n\n\n\u00a0\n\n\nU.S. defined benefit plan contributions of $0.2\u00a0million were made during fiscal year 2023 compared to $0.2 million during fiscal year 2022. There are\u00a0required contributions of $9.8\u00a0million\u00a0to the United States funded pension plan for fiscal year 2024. The Company expects to make contributions during fiscal year 2024 of $0.2 million and $0.2\u00a0million to its unfunded defined benefit plans in the U.S. and Germany, respectively. Any subsequent plan contributions will depend on the results of future actuarial valuations.\n\n\n\u00a0\n\n\nWe have evaluated the current and long-term cash requirements of our defined benefit and defined contribution plans as of June 30, 2023\u00a0and determined our operating cash flows from continuing operations and available liquidity are expected to be sufficient to cover the required contributions under ERISA and other governing regulations.\u00a0\n\n\n\u00a0\n\n\nWe have an insurance program in place to fund supplemental retirement income benefits for three retired executives.\u00a0 Current executives and new hires are not eligible for this program.\u00a0At June 30, 2023, the underlying policies had a cash surrender value of $11.7 million and are reported net of loans of $5.0\u00a0million for which we have the legal right of offset. These amounts are reported net on our balance sheet.\n\n\n\u00a0\n\n\nCapital Structure\n\n\n\u00a0\n\n\nDuring the third quarter of fiscal year 2023, the Company entered into a Third Amended & Restated Credit Agreement which renewed the existing Credit Agreement for an additional five-year period\u00a0(\u201ccredit agreement\u201d, or \u201cfacility\u201d) with a borrowing limit of $500 million.\u00a0 The facility can be increased by an amount of up to $250 million, in accordance with specified conditions contained in the agreement.\u00a0 The facility also includes a $10 million sublimit for swing line loans and a $35 million sublimit for letters of credit.\u00a0\n\n\n\u00a0\n\n\nUnder the terms of the Credit Facility, we will pay a variable rate of interest and a fee on borrowed amounts as well as a commitment fee on unused amounts under the facility. The amount of the commitment fee will depend upon both the undrawn amount remaining available under the facility and the Company\u2019s funded debt to EBITDA (as defined in the agreement) ratio at the last day of each quarter.\n\n\n\u00a0\n\n\nFunds borrowed under the facility may be used for the repayment of debt, working capital, capital expenditures, acquisitions (so long as certain conditions, including a specified funded debt to EBITDA leverage ratio is maintained), and other general corporate purposes. As of June 30,\u00a02023, the Company has used $3.0 million against the letter of credit sub-facility and had the ability to borrow $371.5\u00a0million under the facility based on our current trailing twelve-month EBITDA. The facility contains customary representations, warranties and restrictive covenants, as well as specific financial covenants. The Company\u2019s current financial covenants under the facility are as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       27\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nInterest Coverage Ratio\n - The Company is required to maintain a ratio of Earnings Before Interest and Taxes, as Adjusted (\u201cAdjusted EBIT per the Credit Facility\u201d), to interest expense for the trailing twelve months of at least 2.75:1. Adjusted EBIT per the Credit Facility specifically excludes extraordinary and certain other defined items such as cash restructuring and acquisition related charges up to the lower of $20.0 million or 10% of EBITDA. The facility allows for unlimited non-cash charges including purchase accounting and goodwill adjustments. At June 30, 2023, the Company\u2019s Interest Coverage Ratio was 20.61:1.\n\n\n\u00a0\n\n\nLeverage Ratio\n- The Company\u2019s ratio of funded debt to trailing twelve month Adjusted EBITDA per the Credit Facility, calculated as Adjusted EBIT per the Credit Facility plus depreciation and amortization, may not exceed 3.5:1. Under certain circumstances in connection with a Material Acquisition (as defined in the Facility), the Facility allows for the leverage ratio to go as high as 4.0:1 for a four-fiscal quarter period. At June 30, 2023, the Company\u2019s Leverage Ratio was 0.84:1.\n\n\n\u00a0\n\n\nAs of June 30, 2023, we had borrowings under our facility of $175.0 million.\u00a0 In order to manage our interest rate exposure on these borrowings, we are party to $175.0 million of active floating to fixed rate swaps.\u00a0 These swaps convert our interest payments from SOFR to a weighted average rate of 1.13%.\u00a0 The effective rate of interest for our outstanding borrowings, including the impact of the interest rate swaps, was 2.97%.\u00a0 Our primary cash requirements in addition to day-to-day operating needs include interest payments, capital expenditures, acquisitions, share repurchases, and dividends.\u00a0\n\n\n\u00a0\n\n\nIn connection with the acquisition of Renco, we assumed $0.7 million of debt under the Paycheck Protection Program, within the United States Coronavirus Aid, Relief, and Economic Security (\"CARES\") Act. These borrowings were forgiven in June 2021.\u00a0\n\n\n\u00a0\n\n\nOur primary sources of cash\u00a0are cash flows from continuing operations and borrowings under the facility.\u00a0 We expect that fiscal year 2024\u00a0depreciation and amortization expense will be between $22.0 million and $24.0 million and $8.0 million and $10.0 million, respectively.\n\n\n\u00a0\n\n\nThe following table sets forth our capitalization at June 30:\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2023\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n \n2022\n \n\n\n\u00a0\n\n\n\n\n\n\n \nLong-term debt\n \n\n\n\u00a0\n\n\n$\n\n\n173,441\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n174,830\n\n\n\u00a0\n\n\n\n\n\n\n \nLess cash and cash equivalents\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n195,706\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n104,844\n\n\n\u00a0\n\n\n\n\n\n\n \nNet (cash) debt\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n(22,265\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n69,986\n\n\n\u00a0\n\n\n\n\n\n\n \nStockholders' equity\n \n\n\n\u00a0\n\n\n\u00a0\n\n\n607,449\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n499,343\n\n\n\u00a0\n\n\n\n\n\n\n \nTotal capitalization\n \n\n\n\u00a0\n\n\n$\n\n\n585,184\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n569,329\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nStockholders\u2019 equity increased year over year by $108.1\u00a0million, primarily as a result of current year net income of $139.0 million\u00a0offset by $38.5 million of cash returned to shareholders in the form of dividends and stock repurchases.\u00a0The Company's net (cash) debt to capital percentage changed to (3.8)% as of June 30,\u00a02023 from 12.3% in the prior year.\u00a0\n\n\n\u00a0\n\n\nAt June 30, 2023, we expect to pay estimated interest payments of $7.9 million within the next five years. This estimate is based upon effective interest rates as of June 30,\u00a02023 and excludes any interest rate swaps which are assets to us. See Item 7A for further discussions surrounding interest rate exposure on our variable rate borrowings.\n\n\n\u00a0\n\n\nPost-retirement benefits and pension plan contribution payments represents future pension payments to comply with local funding requirements. Our policy is to fund domestic pension liabilities in accordance with the minimum and maximum limits imposed by the Employee Retirement Income Security Act of 1974 (\"ERISA\"), federal income tax laws and the funding requirements of the Pension Protection Act of 2006. At June 30, 2023, we expect to pay estimated post-retirement benefit payments of $10.2 million during fiscal year 2024. See \"Item 8. Financial Statements and Supplementary Data, Note 16. Employee Benefit Plans\" for additional information regarding these obligations.\n\n\n\u00a0\n\n\nAt June 30, 2023, we had $33.8 million of operating lease obligations. See \"Item 8. Financial Statements and Supplementary Data, Note 20. Leases\" for additional information regarding these obligations.\u00a0\n\n\n\u00a0\n\n\nAt June 30, \n2023\n, we had $9.5 million of non-current liabilities for uncertain tax positions. We are not able to provide a reasonable estimate of the timing of future payments related to these obligations.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       28\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nOther Matters\n\n\n\u00a0\n\n\nInflation \u2013 \nCertain of our expenses, such as wages and benefits, occupancy costs, freight\u00a0and equipment repair and replacement, are subject to normal inflationary pressures. Inflation for medical costs can impact both our employee benefit costs as well as our reserves for workers' compensation claims. We monitor the inflationary rate and make adjustments to reserves whenever it is deemed necessary. Our ability to control worker compensation insurance medical cost inflation is dependent upon our ability to manage claims and purchase insurance coverage to limit the maximum exposure for us. Each of our segments is subject to the effects of changing raw material costs caused by the underlying commodity price movements.\u00a0In the past year, we have\u00a0experienced price fluctuations for a number of materials including rhodium, steel, and other metal commodities.\u00a0 These materials are some of the key elements in the products manufactured in these segments.\u00a0 Wherever possible, we will implement price increases to offset the impact of changing prices.\u00a0 The ultimate acceptance of these price increases, if implemented, will be impacted by our affected divisions\u2019 respective competitors and the timing of their price increases. In general, we do not enter into purchase contracts that extend beyond one operating cycle. While Standex considers our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.\n\n\n\u00a0\n\n\nForeign Currency Translation\n \u2013 Our primary functional currencies used by our non-U.S. subsidiaries are the Euro, British Pound Sterling (Pound), Japanese (Yen), and Chinese (Yuan).\n\n\n\u00a0\n\n\nDefined Benefit Pension Plans\n \u2013 We record expenses related to these plans based upon various actuarial assumptions such as discount rates and assumed rates of returns.\u00a0 The Company\u2019s pension plan is frozen for\u00a0all eligible U.S. employees and participants in the plan ceased accruing future benefits.\u00a0\n\n\n\u00a0\n\n\nEnvironmental Matters\n \n\u2013\n To the best of our knowledge, we believe that we are presently in substantial compliance with all existing applicable environmental laws and regulations and do not anticipate any instances of non-compliance that will have a material effect on our future capital expenditures, earnings or competitive position.\n\n\n\u00a0\n\n\nSeasonality\n \u2013 We are a diversified business with generally low levels of seasonality.\n\n\n\u00a0\n\n\nEmployee Relations\n \u2013 The Company has labor agreements with four\u00a0union locals in the United States and various European employees belong to European trade unions.\u00a0\n\n\n\u00a0\n\n\nCritical Accounting Policies\n\n\n\u00a0\n\n\nThe Consolidated Financial Statements include accounts of the Company and all of our subsidiaries.\u00a0 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying Consolidated Financial Statements.\u00a0 Although, we believe that materially different amounts would not be reported due to the accounting policies described below, the application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.\u00a0 We have listed a number of accounting policies which we believe to be the most critical.\u00a0\n\n\n\u00a0\n\n\nRevenue Recognition \n\u2013 Most of the Company\u2019s contracts have a single performance obligation which represents, the product or service being sold to the customer. Some contracts include multiple performance obligations such as a product and the related installation and/or extended warranty. Additionally, most of the Company\u2019s contracts offer assurance type warranties in connection with the sale of a product to customers. Assurance type warranties provide a customer with assurance that the product complies with agreed-upon specifications. Assurance type warranties do not represent a separate performance obligation.\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       29\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nIn general, the Company recognizes revenue at the point in time control transfers to their customer based on predetermined shipping terms. Revenue is recognized over time under certain long-term contracts within the Engineering Technologies and Engraving groups for highly customized customer products that have no alternative use and in which the contract specifies the Company has a right to payment for its costs, plus a reasonable margin. For products recognized\u00a0over time, the transfer of control is measured pro rata, based upon current estimates of costs to complete such contracts. Losses on contracts are fully recognized in the period in which the losses become determinable. Revisions in profit estimates are reflected on a cumulative basis in the period in which the basis for such revision becomes known.\n\n\n\u00a0\n\n\nCollectability of Accounts Receivable\n \u2013 Accounts Receivable are reduced by an allowance for amounts that represent management's best estimate of estimated losses over the life of the underlying asset.\u00a0Our estimate for the allowance for credit loss accounts related to trade receivables includes evaluation of specific accounts where we have information that the customer may have an inability to meet its financial obligation together with a detailed review of the collectability of pooled assets based on a combination of qualitative and quantitative factors.\n\n\n\u00a0\n\n\nRealizability of Inventories \n\u2013 Inventories are valued at the lower of cost or market.\u00a0 The Company regularly reviews inventory values on hand using specific aging categories and records a write down\u00a0for obsolete and excess inventory based on historical usage and estimated future usage.\u00a0 As actual future demand or market conditions may vary from those projected by management, adjustments to inventory valuations may be required.\n\n\n\u00a0\n\n\nRealization of Goodwill\n \u2013 Goodwill and certain indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying amount of the asset.\u00a0 The Company\u2019s annual test for impairment is performed using a May 31st measurement date. We have identified six\u00a0reporting units for impairment testing: Electronics, Engraving, Scientific, Engineering Technologies, Federal, and Hydraulics.\n\n\n\u00a0\n\n\nAs quoted market prices are not available for the Company\u2019s reporting units, the fair value of the reporting units is determined using a discounted cash flow model (income approach).\u00a0 This method uses various assumptions that are specific to each individual reporting unit in order to determine the fair value.\u00a0 In addition, the Company compares the estimated aggregate fair value of its reporting units to its overall market capitalization.\n\n\n\u00a0\n\n\nOur annual impairment testing at each reporting unit relied on assumptions surrounding general market conditions, short-term growth rates, a terminal growth rate of 2.5%, and detailed management forecasts of future cash flows prepared by the relevant reporting unit.\u00a0 Fair values were determined primarily by discounting estimated future cash flows at a weighted average cost of capital of 11.5%.\u00a0 During our annual impairment testing, we evaluated the sensitivity of our most critical assumption, the discount rate, and determined that a 100-basis point change in the discount rate selected would not have impacted the test results.\u00a0 Additionally, the Company could reduce the terminal growth rate from its current 2.5% to 1.0% and the fair value of all reporting units would still exceed their carrying value.\n\n\n\u00a0\n\n\nWhile we believe that our estimates of future cash flows are reasonable, changes in assumptions could significantly affect our valuations and result in impairments in the future.\u00a0 The most significant assumption involved in the Company\u2019s determination of fair value is the cash flow projections of each reporting unit.\u00a0\n\n\n\u00a0\n\n\nAs a result of our annual assessment in the fourth quarter of fiscal year 2023, the Company determined that the fair value of the six reporting units substantially exceeded their respective carrying values.\u00a0 Therefore, no impairment charges were recorded in connection with our annual assessment during the fourth quarter of fiscal year 2023.\u00a0\n\n\n\u00a0\n\n\nCost of Employee Benefit Plans\n \u2013 We provide a range of benefits to certain retirees, including pensions and some postretirement benefits.\u00a0 We record expenses relating to these plans based upon various actuarial assumptions such as discount rates, assumed rates of return, compensation increases and turnover rates.\u00a0 The expected return on plan assets assumption of 6.5% in the U.S. is based on our expectation of the long-term average rate of return on assets in the pension funds and is reflective of the current and projected asset mix of the funds and considers the historical returns earned on the funds.\u00a0 We have analyzed the rates of return on assets used and determined that these rates are reasonable based on the plans\u2019 historical performance relative to the overall markets as well as our current expectations for long-term rates of returns for our pension assets.\u00a0 The U.S. discount rate of 5.6% reflects the current rate at which pension liabilities could be effectively settled at the end of the year.\u00a0 The discount rate is determined by matching our expected benefit payments from a stream of AA- or higher bonds available in the marketplace, adjusted to eliminate the effects of call provisions.\u00a0 We review our actuarial assumptions, including discount rate and expected long-term rate of return on plan assets, on at least an annual basis and make modifications to the assumptions based on current rates and trends when appropriate.\u00a0 Based on information provided by our actuaries and other relevant sources, we believe that our assumptions are reasonable.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       30\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nThe cost of employee benefit plans includes the selection of assumptions noted above.\u00a0 A twenty-five-basis point change in the U.S. expected return on plan assets assumptions, holding our discount rate and other assumptions constant, would increase or decrease pension expense by approximately $0.5\n\u00a0\nmillion per year.\u00a0 A twenty-five-basis point change in our discount rate, holding all other assumptions constant, would have no impact on 2023\u00a0pension expense as changes to amortization of net losses would be offset by changes to interest cost.\u00a0 In future years, the impact of discount rate changes could yield different sensitivities. See the Notes to the Consolidated Financial Statements for further information regarding pension plans.\u00a0\n\n\n\u00a0\n\n\nBusiness Combinations\n - The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business and the allocation of those cash flows to identifiable intangible assets in determining the estimated fair values for assets acquired and liabilities assumed.\u00a0 The fair values assigned to tangible and intangible assets acquired and liabilities assumed, are based on management\u2019s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill\u00a0or require acceleration of the amortization expense of finite-lived intangible assets.\n\n\n\u00a0\n\n\nAllocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocation. During this measurement period, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date.\u00a0 All changes that do not qualify as measurement period adjustments are included in current period earnings.\n\n\n\u00a0\n\n\n\u00a0\nRecently Issued Accounting Pronouncements\n\n\n\u00a0\n\n\nSee \"Item\u00a08. Financial Statements and Supplementary Data, Note\u00a01. Summary of Accounting Policies\u201d for information regarding the effect of recently issued accounting pronouncements on our consolidated statements of operations, comprehensive income, stockholders\u2019 equity, cash flows, and notes for the year ended June 30, 2023.\n\n\n\u00a0\n\n",
+  "item7a": ">Item 7A.\u00a0 Quantitative and Qualitative Disclosures About Market Risk\n\n\n\u00a0\n\n\nRisk Management\n\n\n\u00a0\n\n\nWe are exposed to market risks from changes in interest rates, commodity prices and changes in foreign currency exchange.\u00a0 To reduce these risks, we selectively use, from time to time, financial instruments and other proactive management techniques.\u00a0 We have internal policies and procedures that place financial instruments under the direction of the Treasurer and restrict all derivative transactions to those intended for hedging purposes only.\u00a0 The use of financial instruments for trading purposes (except for certain investments in connection with the non-qualified defined contribution plan) or speculation is strictly prohibited.\u00a0 The Company has no majority-owned subsidiaries that are excluded from the consolidated financial statements.\u00a0 Further, we have no interests in or relationships with any special purpose entities.\u00a0\n\n\n\u00a0\n\n\nExchange Risk\n\n\n\u00a0\n\n\nWe are exposed to both transactional risk and translation risk associated with exchange rates.\u00a0 The transactional risk is mitigated, in large part, by natural hedges developed with locally denominated debt service on intercompany accounts and the fact that most of our foreign currency sales are transacted in their functional currency.\u00a0\u00a0We also mitigate certain of our foreign currency exchange rate risks by entering into forward foreign currency contracts from time to time.\u00a0 The contracts are used as a hedge against anticipated foreign cash flows, such as loan payments, customer remittances, and materials purchases, and are not used for trading or speculative purposes.\u00a0 The fair values of the forward foreign currency exchange contracts are sensitive to changes in foreign currency exchange rates, as an adverse change in foreign currency exchange rates from market rates would decrease the fair value of the contracts.\u00a0 However, any such losses or gains would generally be offset by corresponding gains and losses, respectively, on the related hedged asset or liability.\u00a0 At June 30, 2023\u00a0and 2022, the fair value, in the aggregate, of the Company\u2019s open foreign exchange contracts was a liability of $1.7 million and\u00a0$0.6 million respectively.\u00a0\n\n\n\u00a0\n\n\nOur primary translation risk is with the Euro, British Pound Sterling, Peso, Japanese Yen and Chinese Yuan.\u00a0 A hypothetical 10% appreciation or depreciation of the value of any these foreign currencies to the U.S. Dollar at June 30, 2023, would not result in a material change in our operations, financial position, or cash flows.\u00a0 We hedge our most significant foreign currency translation risks primarily through cross currency swaps and other instruments, as appropriate.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       31\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\nInterest Rate\n\n\n\u00a0\n\n\nThe Company\u2019s effective interest rate on borrowings was 2.97% and 2.53% at June 30, 2023\u00a0and 2022, respectively.\u00a0 Our interest rate exposure is limited primarily to interest rate changes on our variable rate borrowings\u00a0and is mitigated by our use of interest rate swap agreements to modify our exposure to interest rate movements.\u00a0 At June 30, 2023, we have $175.0 million of active floating to fixed rate swaps with terms ranging from one to three years.\u00a0 These swaps convert our interest payments from SOFR to a weighted average rate of 1.13%.\u00a0 At June 30, 2023,\u00a0the fair value, in the aggregate, of the Company\u2019s interest rate swaps were assets\u00a0of $10.2 million. At June 30,\u00a02022, the fair value, in the aggregate, of the Company\u2019s interest rate swaps were assets\u00a0of\u00a0$8.4 million.\u00a0A 25-basis point increase in interest rates would not change our\u00a0annual interest expense as all of our outstanding debt is currently converted to fixed rate debts by means of interest rate swaps.\n\n\n\u00a0\n\n\nConcentration of Credit Risk\n\n\n\u00a0\n\n\nWe have a diversified customer base.\u00a0 As such, the risk associated with concentration of credit risk is inherently minimized.\u00a0 As of June 30, 2023, no one customer accounted for more than 5% of our consolidated outstanding receivables or of our sales.\n\n\n\u00a0\n\n\nCommodity Prices\n\n\n\u00a0\n\n\nThe Company is exposed to fluctuating market prices for all commodities used in its manufacturing processes.\u00a0 Each of our segments is subject to the effects of changing raw material costs caused by the underlying commodity price movements.\u00a0 In general, we do not enter into purchase contracts that extend beyond one operating cycle.\u00a0 While Standex considers our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.\n\n\n\u00a0\n\n\nThe Engineering Technologies, Specialty Solutions, and Electronics segments are all sensitive to price increases for steel and aluminum products, other metal commodities such as rhodium and copper, and petroleum-based products. We continue to experience\u00a0price fluctuations for a number of materials including rhodium, steel, and other metal commodities.\u00a0 These materials are some of the key elements in the products manufactured in these segments.\u00a0 Wherever possible, we will implement price increases to offset the impact of changing prices.\u00a0 The ultimate acceptance of these price increases, if implemented, will be impacted by our affected divisions\u2019 respective competitors and the timing of their price increases.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\n       32\n     \n\n\n\n\n\n\n\n\n\n\n\n\n\n       \u00a0\n     \n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n    \u00a0\n  \n\n",
+  "cik": "310354",
+  "cusip6": "854231",
+  "cusip": ["854231107"],
+  "names": ["STANDEX INTL CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/310354/000143774923022156/0001437749-23-022156-index.htm"
+}
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+{
+  "item1": ">ITEM 1.\n\u00a0\u00a0\nBUSINESS \n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nEthan Allen Interiors Inc., through its wholly-owned subsidiary, Ethan Allen Global, Inc., and Ethan Allen Global, Inc.\u2019s subsidiaries (collectively, \u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d \u201cEthan Allen\u201d or the \u201cCompany\u201d), is a Delaware corporation and a leading interior design company, manufacturer and retailer in the home furnishings marketplace. We are a global luxury home fashion brand that is vertically integrated from product design through home delivery, which offers our customers stylish product offerings, artisanal quality, and personalized service. We are known for the quality and craftsmanship of our products as well as for the exceptional personal service from design to delivery, and for our commitment to social responsibility and sustainable operations. Our strong network of entrepreneurial leaders and interior designers provide complimentary interior design service to our clients and sell a full range of home furnishing products through a retail network of design centers located throughout the United States and abroad as well as online at\u00a0ethanallen.com.\n\n\n\u00a0\n\n\nEthan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations. As of June 30, 2023, the Company operates 139 retail design centers with 135 located in the United States and four in Canada. Our independently-operated design centers are located in the United States, Asia, the Middle East and Europe. We also own and operate ten manufacturing facilities, including four manufacturing plants, one sawmill, one rough mill and one kiln dry lumberyard in the United States, two manufacturing plants in Mexico and one manufacturing plant in Honduras. Approximately 75% of our products are manufactured in our North American manufacturing plants and we also partner with various suppliers located in Europe, Asia, and other countries to produce products that support our business.\n\n\n\u00a0\n\n\nBusiness Strategy\n\n\n\u00a0\n\n\nWe strive to deliver value to our shareholders through the execution of our strategic initiatives focused on the concept of constant reinvention. Ethan Allen has a distinct vision of American style, rooted in the kind of substance that we believe differentiates us from our competitors. Our business model is to maintain continued focus on (i) providing relevant product offerings, (ii) capitalizing on the professional and personal service offered to our customers by our interior design professionals, (iii) leveraging the benefits of our vertical integration including a strong manufacturing presence in North America, (iv) regularly investing in new technologies across key aspects of our vertically integrated business, (v) maintaining a strong logistics network, (vi) communicating our messages with strong advertising and marketing campaigns, and (vii) utilizing our website, ethanallen.com, as a key marketing tool to drive traffic to our retail design centers.\n\n\n\u00a0\n\n\nWe aim to position Ethan Allen as a premier interior design destination and a preferred brand offering products of superior style, quality, and value to customers with a comprehensive solution for their home furnishing and interior design needs. We operate our business with an entrepreneurial attitude, staying focused on long-term growth, and treating our employees, vendors, and customers with dignity and respect, which we believe are important amidst the constant changes taking place in the world.\n\n\n\u00a0\n\n\nProduct \n\n\n\u00a0\n\n\nBy harnessing the expertise of skilled artisans within our North American facilities, we design and build 75% of the items we offer. Every product bears the distinctive quality of the Ethan Allen brand. Meticulous hand-guided stitching, dress our upholstery frames, and our case goods furniture crafted from premium lumber and veneers, individually finished and customized. Our commitment to using top-tier construction techniques is evident, including using mortise and tenon joinery and four-corner glued dovetail joinery for drawers. These elements are the bedrock of Ethan Allen's identity, solidifying our role as a premier influencer of quality and style in home furnishings.\n\n\n\u00a0\n\n\nOur vertically integrated approach empowers us to seamlessly introduce new products, oversee design specifications, and uphold consistent levels of excellence across all product lines. Alongside our seven manufacturing facilities in the United States, we possess two upholstery manufacturing plants in Mexico and a case goods manufacturing facility in Honduras. We selectively outsource the remaining 25% of our products, primarily from Asia. Our sourcing partners are chosen with the utmost care, and we insist on unwavering adherence to our quality standards, specifications, and social responsibility. If any of these suppliers experience financial or other difficulties, we believe we have alternative sources of supply to prevent temporary disruptions in our imported product flow. The prices paid for these imported products began to decrease in fiscal 2023 as our supply chain constraints relaxed and demand across the industry decreased, which helped lower costs. We believe our strategic investments in manufacturing facilities and the judicious outsourcing from foreign and domestic suppliers position us to accommodate future growth while retaining control over costs, quality, and customer service.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n5\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nProjection\n\n\n\u00a0\n\n\nOur design centers have evolved into an interior design destination, with technology-driven projections and dedicated workstations that foster collaboration between designers and clients. Each workstation highlights the breadth of selection within a home furnishings category, including available custom fabrics, leathers, finishes, and options, where relevant. Clients can also use touchscreens located throughout the store to perform product research at their own pace. Upon entering our design centers clients can immediately view our design studio. The design center showcases our talented interior designers, with freestanding workstations equipped with large touch-screen flat panel displays where clients can view both before-and-after photos and 3D floor plans of single rooms or even entire homes. The large, high-resolution screens bring digital design plans to life, so clients can preview an incredibly realistic version of their designed space before placing an order. Customers are also able to view hundreds of fabrics, leathers, finishes, and other customized options on site; from room plan to furniture details, the experience is personalized.\n\n\n\u00a0\n\n\nDuring fiscal 2023, we relocated two design centers, Skokie, Illinois and San Jose, California, both of which project the variety of our styles, under the umbrella of \nClassics with a Modern Perspective\n, in a bright, open, modern layout that follows our best and most current interior design concepts. We plan to further expand our retail design center footprint in fiscal 2024 through the addition of new design centers located in The Villages, Florida, Manhattan, New York and Avon, Ohio.\n\n\n\u00a0\n\n\nTechnology\n\n\n\u00a0\n\n\nOur unique combination of personal service and technology enhances the customers\u2019 Ethan Allen experience including the use of virtual design appointment capabilities at ethanallen.com. We continue to leverage EA inHome\u00ae, an augmented reality mobile app, which empowers clients to preview Ethan Allen products in their homes, at scale, in a variety of fabrics and finishes. With the 3D Room Planner, our designers generate both 2D floor plans and immersive 4K, realistic 3D walk-throughs of the interior designs they create. In addition, our virtual design center showcases the timeless aesthetic of Ethan Allen\u2019s vast product portfolio while fostering collaboration between our interior designers and our customers. Clients can access our home furnishings while either co-browsing live with an Ethan Allen interior designer or browsing on their own, at their own pace. Clients can view items in 3D, read product details, share, and save item lists, and utilize augmented reality views in their homes, either via a QR code on their desktop or directly when browsing on a mobile device. With so much of our product customizable, we encourage our customers to get personal help from our interior design professionals either in person or by chatting online. All of these technologies have been pivotal to our ability to service clients and provide even more ways for us to collaborate and create a timely and exceptional experience.\n\n\n\u00a0\n\n\nMarketing\n\n\n\u00a0\n\n\nEthan Allen\u2019s marketing emphasizes our core brand values of quality and craftsmanship, combining personal service with technology, and a commitment to social responsibility. We amplify those values through our dynamic brand story built around a core projection and philosophy: \nClassics with a Modern Perspective\n. By adopting a fresh, ever-evolving creative approach, using digital marketing to drive traffic to our retail locations, we continue to broaden our reach and enhance desirability and visibility. Our combination of creative and analytics-driven strategies enables us to secure both new and repeat client traffic, to our design centers worldwide and to our website at ethanallen.com. Using our customer relationship management system, we work toward creating personalized customer journeys and targeted communications. Our creative messaging is relevant and aspirational and conveyed through a variety of media, including digital marketing that includes social media and email marketing campaigns, plus direct mail and TV. Additionally, grassroots marketing is a critical initiative that is driven by our local design center teams. Taken together, these strategies help ensure that we are continuing to add to our client base while maintaining our existing relationships.\n\n\n\u00a0\n\n\nE-Commerce\n\n\n\u00a0\n\n\nWe consider our website an extension of our retail design centers and not a separate segment of our business. Most clients will use the internet for inspiration and as a start to their shopping process to view products and prices. With so much of our product customizable, we encourage our website customers to get personal help from our interior design professionals either in person or by chatting online. We believe this complimentary direct contact with one of our interior design professionals, whether remotely or in-person, creates a competitive advantage through our excellent personal service. In addition, recent improvements to our ethanallen.com website include improved on-site search capabilities, expanded live chat services, online appointment booking capability, and product listing and display page enhancements.\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n6\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nRaw Materials and Supply Chain\n\n\n\u00a0\n\n\nThe principal raw materials we use in manufacturing are lumber, logs, veneers, plywood, hardware, glue, finishing materials, glass, steel, fabrics, leather, frames, foam and filling material. The various types of wood used in our products include soft maple, wormy maple, red oak, prima vera, birch, rubber wood and cherry. These raw materials used for manufacturing are for cover (primarily fabrics and leather), polyester batting and polyurethane foam for cushioning and padding, lumber and plywood for frames, steel for motion mechanisms and various other metal components for fabrication of product.\u00a0\n\n\n\u00a0\n\n\nOur raw materials are purchased both domestically and outside the United States. We have no significant long-term supply contracts and believe we have sufficient alternate sources of supply to prevent significant long-term disruption to our operations. Appropriate amounts of lumber and fabric inventory are typically stocked to maintain adequate production levels. We believe that our sources of supply for these materials are sufficient and that we are not dependent on any one supplier. We have been able to minimize our exposure to any one particular country or manufacturing location through our vertical integration. This manufacturing structure leaves us with limited exposure to any one particular country on the 25% of product we import. We enter into standard purchase agreements with foreign and domestic suppliers to source selected products. The terms of these arrangements are customary for the industry and do not contain any long-term contractual obligations on our behalf. We believe we maintain good relationships with our suppliers.\n\n\n\u00a0\n\n\nDuring fiscal 2023, we began to see more price stabilization within our raw materials as we sourced from multiple different suppliers, modified our production to include alternatives, saw inflationary cost pressures decrease and benefited from more raw material availability within the industry. Lumber prices and availability can also fluctuate over time based on various factors, including supply and demand and new home construction.\n\n\n\u00a0\n\n\nSegments\n\n\n\u00a0\n\n\nWe have strategically aligned our business into two reportable segments: wholesale and retail. Our operating segments are aligned with how the Company, including our chief executive officer (defined as our chief operating decision maker), manages the business. These two segments represent strategic business areas of our vertically integrated enterprise that operate separately and provide their own distinctive services. This vertical structure enables us to offer our complete line of home furnishings and accents while better controlling quality and cost. We evaluate performance of the respective segments based upon net sales and operating income. Intersegment transactions result, primarily, from the wholesale sale of inventory to the retail segment, including the related profit margin. Financial information, including sales, operating income and long-lived assets related to our segments are disclosed in Note 19, \nSegment Information,\n of the notes to our consolidated financial statements included under Item 8 of this Annual Report on Form 10-K.\n\n\n\u00a0\n\n\nSeasonality\n\n\n\u00a0\n\n\nWe believe that the demand for home furnishings generally reflects sensitivity to overall economic conditions, including consumer confidence, discretionary spending, housing starts, sales of new and existing homes, housing values, the level of mortgage refinancing, debt levels, retail trends and unemployment rates. In a typical year, we schedule production to maintain consistent manufacturing activity throughout the year whenever possible. We typically shut down our domestic plants for one week at the beginning of each fiscal year to perform routine maintenance. For both our segments, historically, including in fiscal 2023, no one particular fiscal quarter contributed more than 28% of annual sales volume, thus limiting our exposure to seasonality. During the last three fiscal years, our sales volume and production schedules did not follow the aforementioned typical trends due to the impact of COVID-19. As a result of the heightened demand during the COVID-19 pandemic, a significant backlog was built in the prior years. In response, we took several actions to increase our production capacity throughout the last two fiscal years and as a result, our segments both experienced their largest sales volume in the fourth quarter of fiscal 2022. During fiscal 2023, our wholesale and retail business sales volumes began trending to more historical levels; therefore, we anticipate the typical seasonal trends will return to normal in fiscal 2024.\n\n\n\u00a0\n\n\nBacklog\n\n\n\u00a0\n\n\nWe define backlog as any written order received that has not yet been delivered. Our wholesale backlog consists of written orders received from our retail network of independently operated design centers, Company-operated design centers, and contract business customers that have not yet been delivered. Our retail backlog is undelivered written orders associated with end retail customers. Our backlog fluctuates based on the timing of net orders booked, manufacturing production, the timing of imported product receipts, the timing and volume of shipments, and the timing of various promotional events. Historically, the size of our backlog at a given time varies and may not be indicative of our future sales, and therefore, we do not rely entirely on backlogs to predict future sales. We ended the fiscal 2023 year with wholesale backlog of $74.0 million, down 27.7% from a year ago as we were able to reduce the number of weeks of backlog. Manufacturing productivity and related shipments outpaced incoming written orders which helped reduce backlog and improve our delivery times during fiscal 2023. However, our wholesale backlog remains approximately 60% higher than pre-pandemic levels and our teams are effectively managing the business to work through this order backlog and to service our customers.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n7\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nDistribution and Logistics\n\n\n\u00a0\n\n\nWe distribute our products through three national distribution centers, owned by the Company, strategically located in North Carolina and Virginia. These distribution centers provide efficient cross-dock operations to receive and ship product from our manufacturing facilities and third-party suppliers to our retail network of Company and independently operated retail home delivery centers. Retail home delivery centers prepare products for delivery into customers\u2019 homes. At June 30, 2023, our Company-operated retail design centers were supported by 17 Company-operated retail home delivery centers and 9 home delivery centers operated by third parties. We utilize independent carriers to ship our products. Our practice has been to sell our products at the same delivered cost to all Company and independently operated design centers throughout the United States, regardless of their shipping point. This policy creates pricing credibility with our wholesale customers while providing our retail segment the opportunity to achieve more consistent margins by removing fluctuations attributable to the cost of shipping.\n\n\n\u00a0\n\n\nHuman Capital Management\n\n\n\u00a0\n\n\nWe operate our business with an entrepreneurial attitude, staying focused on long-term growth, and treating our employees, vendors, and customers with dignity and respect. At June 30, 2023, our employee count totaled 3,748, with 2,674 employees in our wholesale segment and 1,074 in our retail segment. The majority of our employees are employed on a full-time basis and none of our employees are represented by unions or collective bargaining agreements. In managing our business, we focus on a number of key human capital objectives, which are rooted in our core values and include the following.\n\n\n\u00a0\n\n\nCulture and Values\n\n\n\u00a0\n\n\nOur employees are vital to our success and are one of the main reasons we continue to execute at a high level. Since our founding, we have aimed to build a collaborative culture that emphasizes treating people with dignity and respect while offering employees a variety of opportunities and experiences. We believe our employees have an entrepreneurial spirit, a passion for style, a drive for excellence, and endless creativity that has fostered a culture that embraces integrity, diversity, innovation and inclusion of people from all backgrounds.\n\n\n\u00a0\n\n\nDiversity, Equity and Inclusion\n\n\n\u00a0\n\n\nDiversity, Equity and inclusion (\u201cDEI\u201d) are a part of our core values, as we recognize that our employees\u2019 unique backgrounds, experiences and perspectives enable us to create and deliver the best-quality product and provide outstanding service to meet the needs of our customer base and the communities we serve. We believe in creating and fostering a workplace in which all our employees feel valued, included and empowered to do their best work and contribute their ideas and perspectives. We are committed to recruiting and retaining diverse talent so that our workforce better reflects the communities in which we live and work. Our DEI initiatives include developing impactful practices to advance our Company\u2019s DEI policies, supporting diversity awareness across our organization, maintaining an inclusive environment free from discrimination or harassment of any kind, and continuing to offer our employees equal employment opportunities based solely on merit and qualifications. Ethan Allen provides multiple avenues through which to report inappropriate behavior, including a confidential whistleblower hotline. Aligning with our purpose and values, we work every day to capitalize on the talents of women, promoting them to leadership positions in both our retail network and in our corporate management. We are proud to support the advancement of women in the workplace with 70% of our retail division leaders and 65% of our Company-wide leaders women.\n\n\n\u00a0\n\n\nHealth and Safety\n\n\n\u00a0\n\n\nEthan Allen is committed to protecting the health and safety of our employees. We have safety programs in place for our employees to receive the proper training and education to ensure they are able to work in a safe environment each day. In addition, we have partnered with local communities in some of our North American manufacturing workshops to provide transportation to and from work and offer daily low-cost meals. In coordination with national healthcare systems for our manufacturing facilities outside of the United States, we provide on-site medical clinics staffed by a doctor and a team of experienced nurses, who also provide a pharmacy to prescribe over-the-counter medications. In addition to offering onsite medical care, we partner with local physicians to provide medical care for every associate\u2019s family\u00a0members. This commitment and focus enables us to continuously run our business operations without sacrificing the safety of our employees and customers.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n8\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nA Culture of Social Responsibility\n\n\n\u00a0\n\n\nThroughout our history, philanthropy has been a core value to Ethan Allen. We strive to develop exceptional programs based on partnerships where employees feel a sense of connection and pride in their communities and our mission is to enhance the quality of life in the communities in which we work and live. During fiscal 2023, and for the fourth year in a row, Ethan Allen\u2019s upholstery workshop in Mexico was awarded the prestigious designation \u201cEmpresa Socialmente Responsable\u201d (meaning \u201cSocially Responsible Company,\u201d which is based on standards of conduct on social and environmental issues) by the Mexican Center for Corporate Philanthropy and the Alliance for Corporate Social Responsibility. These organizations recognize corporate policies that promote a positive social impact in Mexico and Latin America.\n\n\n\u00a0\n\n\nCompensation and Other Benefits\n\n\n\u00a0\n\n\nOur compensation programs are designed to attract, retain, and motivate team members to achieve strong results.\u00a0We benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located. We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled labor throughout our enterprise. Certain of the benefits we offer include access to healthcare plans, financial and physical wellness programs, paid time off, parental leave and retirement benefits, including a 401(k) plan with Company matching contributions.\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nThe home furnishings industry is a highly fragmented and competitive business. There has been growth from internet only retailers and those with a brick-and-mortar presence. We believe the home furnishings industry competes primarily on the basis of product styling and quality, personal service, prompt delivery, product availability and price. We compete with numerous individual retail home furnishing stores as well as national and regional chains. We further believe that we are well-positioned to compete on the basis of each of these factors and that, more specifically under our vertical integration structure, our complimentary interior design service, direct manufacturing, a logistics network including white glove delivery service and relevant product offerings create a competitive advantage, further supporting our mission of providing customers with a one-stop shopping design and furnishing solution. We also believe that we differentiate ourselves further with the quality of our interior design service through our extensive training programs, the caliber of our interior design professionals, and our investments in technology.\n\n\n\u00a0\n\n\nEnvironmental Sustainability and Social Responsibility \n\n\n\u00a0\n\n\nEthan Allen\u2019s stance on environmental issues and personal health and safety are cornerstones of our mission statement and we believe how we impact the world at large is our responsibility as an industry leader. We continue to be focused on environmental and social responsibility while incorporating uniform social, environmental, health and safety programs into our global manufacturing standards.\n\n\n\u00a0\n\n\nOur environmental (green) initiatives include but are not limited to the use of responsibly harvested Appalachian woods, and water-based finishes and measuring our carbon footprint, greenhouse gases and recycled materials from our operations. We have eliminated the use of heavy metals and hydrochlorofluorocarbons in all packaging. Our mattresses and custom upholstery use foam made without harmful chemicals and substances. Our United States manufacturing, distribution and home delivery centers strive to create and maintain a culture of conservation and environmental stewardship by integrating socio-economic policies and sustainable business practices into their operations.\n\n\n\u00a0\n\n\nRegulatory activities concerning per- and polyfluoroalkyl substances (\u201cPFAS\u201d) are accelerating in the United States, Europe and elsewhere. These activities include gathering of exposure and use information, risk assessment activities, consideration of regulatory approaches, and increasingly strict restrictions on various uses of PFAS in products and on PFAS in manufacturing emissions. Ethan Allen\u2019s approach is to convert, where and when reasonably feasible, to becoming PFAS-free throughout all businesses categories including area rugs, broadloom, draperies and fabrics. During fiscal 2023, we undertook initiatives designed to transition through our fabric inventory and, as new fabrics become available, they will be PFAS-free.\n\n\n\u00a0\n\n\nThe Company requires its sourcing facilities that manufacture Ethan Allen branded products to implement a labor compliance program and meet or exceed the standards established for preventing child labor, involuntary labor, coercion and harassment, discrimination, and restrictions to freedom of association. These facilities are also required to provide a safe and healthy environment in all workspaces, compliance with all local wage and hour laws and regulations, compliance with all applicable environmental laws and regulations, and are required to authorize Ethan Allen or its designated agents (including third-party auditing companies) to engage in monitoring activities to confirm compliance. We work to ensure our products are safe in our customers\u2019 homes through responsible use of chemicals and manufacturing substances.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n9\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nIntellectual Property\n\n\n\u00a0\n\n\nWe currently hold, or have registration applications pending for, trademarks, service marks and copyrights for the Ethan Allen name, logos and designs in a broad range of classes for both products and services in the United States and in many foreign countries. In addition, we have registered, or have applications pending for certain of our slogans utilized in connection with promoting brand awareness, retail sales and other services and certain collection names. In addition, we have registered and maintain the internet domain name of ethanallen.com. We view such trademarks, logos, service marks and domain names as valuable assets and have an ongoing program to diligently monitor and defend, through appropriate action, against their unauthorized use. The Company routinely reviews the necessity for renewal as registrations expire.\n\n\n\u00a0\n\n\nCorporate Contact Information\n\n\n\u00a0\n\n\nFounded in\u00a01932, Ethan Allen Interiors Inc. is a Delaware corporation with its principal executive office located in Danbury, Connecticut.\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nMailing address of the Company\u2019s headquarters: 25 Lake Avenue Ext., Danbury, Connecticut 06811-5286\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nTelephone number: +1 (203) 743-8000\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nWebsite address: ethanallen.com\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\u25cf\n\n\n\n\n\n\nIncorporated in Delaware in 1989\n\n\n\n\n\n\n\n\n\u00a0\n\n\nAvailable Information\n\n\nInformation contained in our Investor Relations section of our website at \nhttps://ir.ethanallen.com\n is not part of this Annual Report on Form 10-K. Information that we furnish or file with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K or exhibits included in these reports are available for download, free of charge, on our Investor Relations website soon after such reports are filed with or furnished to the SEC. Our SEC filings, including exhibits filed therewith, are also available free of charge through the SEC\u2019s website at www.sec.gov.\n\n\n\u00a0\n\n\nAdditionally, we broadcast live our quarterly earnings calls via the News & Events section of our Investor Relations website. We also provide notifications of news or announcements regarding our financial performance, including SEC filings, press and earnings releases, and investor events as part of our Investor Relations website. The contents of this website section are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document the Company files with the SEC and any reference to this section of our website is intended to be inactive textual references only.\n\n\n\u00a0\n\n\nAdditional Information\n\n\n\u00a0\n\n\nAdditional information with respect to the Company\u2019s business is included in the following pages and is incorporated herein by reference:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\n\nPage\n\n\n\n\n\n\n\n\n\n\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\n\n\n\n\n\n21\n\n\n\n\n\n\n\n\n\n\nQuantitative and Qualitative Disclosures about Market Risk\n\n\n\n\n\n\n35\n\n\n\n\n\n\n\n\n\n\nNote 1 to Consolidated Financial Statements entitled \nOrganization and Nature of Business\n\n\n\n\n\n\n46\n\n\n\n\n\n\n\n\n\n\nNote 19 to Consolidated Financial Statements entitled \nSegment Information\n\n\n\n\n\n\n67\n\n\n\n\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A. RISK FACTORS\n\n\n\u00a0\n\n\nThe following risks could materially and adversely affect our business, financial condition, cash flows, results of operations and the trading price of our common stock could decline. These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Investors should also refer to the other information set forth in this Annual Report on Form 10-K, including \nManagement\n\u2019\ns Discussion and Analysis of Financial Condition and Results of Operations\n and our financial statements including the related notes. Investors should carefully consider all risks, including those disclosed, before making an investment decision.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n10\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nHome Furnishings Industry Risks\n\n\n\u00a0\n\n\nDeclines in certain economic conditions, which impact consumer confidence and consumer spending, could negatively impact our sales, results of operations and liquidity.\n\n\n\u00a0\n\n\nHistorically, the home furnishings industry has been subject to cyclical variations in the general economy and to uncertainty regarding future economic prospects. Should current economic conditions weaken, the current rate of housing starts further decline, or elevated inflation persist, consumer confidence and demand for home furnishings could deteriorate which could adversely affect our business through its impact on the performance of our Company-operated design centers, as well as on our independent licensees and the ability of a number of them to meet their obligations to us. Our principal products are consumer goods that may be considered postponable purchases. Economic downturns and prolonged negative conditions in the economy could affect consumer spending habits by decreasing the overall demand for discretionary items, including home furnishings. Factors influencing consumer spending include general economic and financial market conditions, consumer disposable income, fuel prices, recession and fears of recession, United States government default or shutdown or the risk of such default or shutdown, unemployment, war and fears of war, availability of consumer credit, consumer debt levels, conditions in the housing market, increased interest rates, sales tax rates and rate increases, inflation, civil disturbances and terrorist activities, consumer confidence in future economic and political conditions, natural disasters and inclement weather and consumer perceptions of personal well\u2011being and security, including health epidemics or pandemics.\n\n\n\u00a0\n\n\nOther financial or operational difficulties due to competition may result in a decrease in our sales, earnings and liquidity.\n\n\n\u00a0\n\n\nThe residential home furnishings industry is highly competitive and fragmented. We currently compete with many other manufacturers and retailers, including online retailers, some of which offer widely advertised products, and others, several of which are large retail dealers offering their own store-branded products. Competition in the residential home furnishings industry is based on quality, style of products, perceived value, price, service to the customer, promotional activities, and advertising. The highly competitive nature of the industry means we are constantly subject to the risk of losing market share, which would likely decrease our future sales, earnings and liquidity.\n\n\n\u00a0\n\n\nA significant shift in consumer preference toward purchasing products online could have a materially adverse impact on our sales and operating margin.\n\n\n\u00a0\n\n\nA majority of our business relies on physical design centers that merchandise and sell our products and a significant shift in consumer preference towards exclusively purchasing products online could have a materially adverse impact on our sales and operating margin. We are attempting to meet consumers where they prefer to shop by expanding our online capabilities and improving the user experience at ethanallen.com as well as at our Virtual Design Center to drive more sales.\n\n\n\u00a0\n\n\nRapidly evolving technologies are altering the manner in which the Company and its competitors communicate and transact with customers. Customers adoption of new technology and related changes in customer behavior, presents a specific risk in the event we are unable to successfully execute our technology plans or adjust them over time if needed. Further, unanticipated changes in pricing and other practices of competitors, including promotional activity, such as thresholds for free shipping and rapid price fluctuation enabled by technology, may adversely affect our performance.\n\n\n\u00a0\n\n\nRisks Related to our Brand and Product Offerings\n\n\n\u00a0\n\n\nInability to maintain and enhance our brand may materially adversely impact our business.\n\n\n\u00a0\n\n\nMaintaining and enhancing our brand is critical to our ability to expand our base of customers and may require us to make substantial investments. Our advertising campaigns utilize direct mail, digital, newspapers, magazines, television, and radio to maintain and enhance our existing brand equity. We cannot provide assurance that our marketing, advertising and other efforts to promote and maintain awareness of our brand will not require us to incur substantial costs. If these efforts are unsuccessful or we incur substantial costs in connection with these efforts, our business, operating results and financial condition could be materially adversely affected.\n\n\n\u00a0\n\n\nFailure to successfully anticipate or respond to changes in consumer tastes and trends in a timely manner could materially adversely impact our business, operating results and financial condition.\n\n\n\u00a0\n\n\nSales of our products are dependent upon consumer acceptance of our product designs, styles, quality and price. We continuously monitor changes in home design trends through attendance at trade shows, industry events, fashion shows, internal and external marketing research, and regular communication with our retailers and design professionals who provide valuable input on consumer tendencies. However, as with many retailers, our business is susceptible to changes in consumer tastes and trends. Such tastes and trends can change rapidly and any delay or failure to anticipate or respond to changing consumer tastes and trends in a timely manner could materially adversely impact our business and operating results.\n\n\n\u00a0\n\n\nWe may not be able to maintain our current design center locations at current costs. We may also fail to successfully select and secure design center locations.\n\n\n\u00a0\n\n\nOur design centers are typically located in busy urban settings as freestanding destinations or as part of suburban strip malls or shopping malls, depending upon the real estate opportunities in a particular market. Our business competes with other retailers and as a result, our success may be affected by our ability to renew current design center leases and to select and secure appropriate retail locations for existing and future design centers.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n11\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nWe have potential exposure to market risk related to conditions in the commercial real estate market. As of June 30, 2023, there were 139 Company-operated retail design centers averaging approximately 14,100 square feet in size per location. Of the 139 Company-operated retail design centers, 49 of the properties are owned and 90 are leased. Our retail segment real estate holdings could suffer significant impairment in value if we are forced to close design centers and sell or lease the related properties during periods of weakness in certain markets. We are also exposed to risk related to conditions in the commercial real estate rental market with respect to the right-of-use assets we carry on our balance sheet for leased design center locations and retail service centers. At June 30, 2023, the unamortized balance of such right-of-use assets totaled $115.9 million. Should we have to close or abandon one of these leased locations, we could incur additional impairment charges if rental market conditions do not support a fair value for the right of use asset in excess of its carrying value.\n\n\n\u00a0\n\n\nSupply Chain Risks\n \n\n\n\u00a0\n\n\nDisruptions of our supply chain and supply chain management could have a material adverse effect on our operating and financial results.\n\n\n\u00a0\n\n\nDisruption of the Company\u2019s supply chain capabilities due to trade restrictions, political instability, severe weather, natural disasters, public health crises, terrorism, product recalls, global unrest, war, labor supply or stoppages, the financial and/or operational instability of key suppliers and carriers, or other reasons could impair the Company\u2019s ability to distribute its products. To the extent we are unable to mitigate the likelihood or potential impact of such events, there could be a material adverse effect on our operating and financial results.\n\n\n\u00a0\n\n\nDuring the COVID-19 pandemic, supply chain challenges were faced by the entire home furnishings industry, including the Company, as a result of labor shortages, supply chain disruptions, and ocean freight capacity issues which resulted in unprecedented increases in material and freight costs, as well as significant unavailability or delay of raw materials or finished goods. While the pandemic-era disruptions have diminished, further transportation delays, increases on shipping containers, more extensive travel restrictions, closures or disruptions of businesses and facilities or social, economic, political or labor instability in the affected areas, could impact either our or our suppliers\u2019 operations and have a material adverse effect on our consolidated results of operations.\n\n\n\u00a0\n\n\nFluctuations in the price, availability and quality of raw materials and imported finished goods could result in increased costs and cause production delays which could result in a decline in sales, either of which could materially adversely impact our earnings.\n\n\n\u00a0\n\n\nIn manufacturing furniture, we use various types of logs, lumber, fabrics, plywood, frames, leathers, finishing materials, foam, steel and other raw materials. Fluctuations in the price, availability and quality of raw materials could result in increased costs or a delay in manufacturing our products, which in turn could result in a delay in delivering products to our customers. Although we have instituted measures to ensure our supply chain remains open to us, continued high raw material prices and costs of sourced products could have an adverse effect on our future margins. While we strive to maintain a number of sources for our raw materials, decreased availability on raw materials and increased demand on our supply chain, may create additional pricing and availability pressures. Imported finished goods represent approximately 25% of our consolidated sales. The prices paid for these imported products include inbound freight. Elevated ocean freight container rates may be impacted by container supply and elevated demand. To the extent that we experience incremental costs in any of these areas, we may increase our selling prices to offset the impact. However, increases in selling prices may not fully mitigate the impact of the cost increases which would adversely impact operating income. Furthermore, supply chain disruptions could materially adversely impact our manufacturing production and fulfillment of backlog.\n\n\n\u00a0\n\n\nManufacturing Risks\n\n\n\u00a0\n\n\nCompetition from overseas manufacturers and domestic retailers may materially adversely affect our business, operating results or financial condition.\n\n\n\u00a0\n\n\nOur wholesale business segment is involved in the development of our brand, which encompasses the design, manufacture, sourcing, sales and distribution of our home furnishings products, and competes with other United States and foreign manufacturers. Our retail network sells home furnishings to consumers through a network of independently operated and Company-operated design centers, and competes against a diverse group of retailers ranging from specialty stores to traditional home furnishings and department stores, any of which may operate locally, regionally, nationally or globally, as well as over the internet. We also compete with these and other retailers for retail locations as well as for qualified design professionals and management personnel. Such competition could adversely affect our future financial performance.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n12\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nIndustry globalization has led to increased competitive pressures brought about by the increasing volume of imported finished goods and components, particularly for case good products, and the development of manufacturing capabilities in other countries, specifically within Asia. In addition, because many foreign manufacturers are able to maintain lower production costs, including the cost of labor and overhead, imported product may be capable of being sold at a lower price to consumers, which, in turn, could lead to some measure of further industry\u2010wide price deflation.\n\n\n\u00a0\n\n\nWe cannot provide assurance that we will be able to establish or maintain relationships with sufficient or appropriate manufacturers, whether foreign or domestic, to supply us with selected case goods, upholstery and home accent items to enable us to maintain our competitive advantage. In addition, the emergence of foreign manufacturers has served to broaden the competitive landscape. Some of these competitors produce products not manufactured by us and may have greater financial resources available to them or lower costs of operating. This competition could materially adversely affect our future financial performance.\n\n\n\u00a0\n\n\nOur number of manufacturing sites may increase our exposure to business disruptions and could result in higher costs.\n\n\n\u00a0\n\n\nWe have a limited number of manufacturing sites in our case goods and upholstery operations. Our upholstery operations consist of three upholstery plants in North Carolina and two plants in Mexico. The Company operates two manufacturing plants in Vermont and Honduras and one sawmill, one rough mill and one kiln dry lumberyard in support of our case goods operations. If any of our manufacturing sites experience significant business interruption, our ability to manufacture or deliver our products in a timely manner would likely be impacted. Fewer locations have resulted in longer distances for delivery and could result in higher costs to transport products if fuel costs increase significantly.\n\n\n\u00a0\n\n\nEnvironmental, Health and Safety Risks\n\n\n\u00a0\n\n\nOur current and former manufacturing and retail operations and products are subject to increasingly stringent environmental, health and safety requirements.\n\n\n\u00a0\n\n\nWe use and generate hazardous substances in our manufacturing operations. In addition, the manufacturing properties on which we currently operate and those on which we have ceased operations are and have been used for industrial purposes. Our manufacturing operations and, to a lesser extent, our retail operations involve risk of personal injury or death. We are subject to increasingly stringent environmental, health and safety laws and regulations relating to our products, current and former properties and our current operations. These laws and regulations provide for substantial fines and criminal sanctions for violations and sometimes require the installation of costly pollution control or safety equipment, or costly changes in operations to limit pollution or decrease the likelihood of injuries. In addition, we may become subject to potentially material liabilities for the investigation and cleanup of contaminated properties and to claims alleging personal injury or property damage resulting from exposure to or releases of hazardous substances or personal injury because of an unsafe workplace. In addition, noncompliance with, or stricter enforcement of, existing laws and regulations, adoption of more stringent new laws and regulations, discovery of previously unknown contamination or imposition of new or increased requirements could require us to incur costs or become the basis of new or increased liabilities that could be material.\n\n\n\u00a0\n\n\nProduct recalls or product safety concerns could materially adversely affect our sales and operating results.\n\n\n\u00a0\n\n\nIf the Company's merchandise offerings do not meet applicable safety standards or consumers' expectations regarding safety, the Company could experience decreased sales, increased costs and/or be exposed to legal and reputational risk. Although we require that all of our vendors comply with applicable product safety laws and regulations, we are dependent on them to ensure that the products we buy comply with all safety standards. Events that give rise to actual, potential or perceived product safety concerns could expose the Company to government enforcement action and/or private litigation. Reputational damage caused by real or perceived product safety concerns or product recalls could negatively affect the Company's business and results of operations.\n\n\n\u00a0\n\n\nWe may incur significant increased costs and become subject to additional potential liabilities under environmental and other laws and regulations aimed at combating climate change.\n\n\n\u00a0\n\n\nWe believe it is likely that the increased focus by the United States and other governmental authorities on climate change and other environmental matters will lead to enhanced regulation in these areas, which could also result in increased compliance costs and subject us to additional potential liabilities. The extent of these costs and risks is difficult to predict and will depend in large part on the extent of new regulations and the ways in which those regulations are enforced. We operate manufacturing facilities in multiple regions across the globe, and the impact of additional regulations in this area is likely to vary by region. It is possible the costs we incur to comply with any such new regulations and implementation of our own sustainability goals could be material.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n13\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nOur goals and future disclosures related to Environmental, Social and Governance (\n\u201c\nESG\n\u201d\n) matters may expose us to numerous risks, including risks to our reputation and stock price.\n\n\n\u00a0\n\n\nThere has been an increased focus on ESG practices within the general markets. We plan to establish goals and objectives related to such ESG matters. These goals will reflect our plans and aspirations and are not guarantees that we will be able to achieve them. Our efforts to accomplish and accurately report on these goals and objectives present numerous operational, reputational, financial, legal, and other risks, any of which could have a material negative impact, including on our reputation, stock price, and results of operation. We could also incur additional costs and require additional resources to implement various ESG practices to make progress against our goals and to monitor and track performance with respect to such goals.\n\n\n\u00a0\n\n\nThe standards for tracking and reporting on ESG matters are relatively new, have not been formalized and continue to evolve. Collecting, measuring, and reporting ESG information and metrics can be difficult and time consuming. Our selected disclosure framework or standards may need to be changed from time to time, which may result in a lack of consistent or meaningful comparative data from period to period. In addition, our interpretation of reporting frameworks or standards may differ from those of others and such frameworks or standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals.\n\n\n\u00a0\n\n\nOur ability to achieve any ESG-related goal or objective is subject to numerous risks, many of which are outside of our control, including the availability and cost of low-or non-carbon-based energy sources and technologies, evolving regulatory requirements affecting ESG standards or disclosures, the availability of vendors and suppliers that can meet our sustainability, diversity and other standards, and the availability of raw materials that meet and further our sustainability goals. If our ESG practices do not meet evolving standards or our goals, then our reputation, our ability to attract or retain employees and our competitiveness, could be negatively impacted. Furthermore, if our competitors\u2019 ESG performance is perceived to be better than ours, potential or current customers and investors may elect to do business with our competitors instead, and our ability to attract or retain employees could be negatively impacted. Our failure, or perceived failure, to pursue or fulfill our goals, targets, and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also expose us to government enforcement actions and private litigation.\n\n\n\u00a0\n\n\nTechnology and Data Security Risks\n\n\n\u00a0\n\n\nWe rely extensively on information technology systems to process transactions, summarize results, and manage our business and that of certain independent retailers. Disruptions in both our primary and back-up systems could adversely affect our business and operating results.\n\n\n\u00a0\n\n\nOur primary and back-up information technology systems are subject to damage or interruption from power outages, computer and telecommunications failures, viruses, phishing attempts, cyber-attacks, malware and ransomware attacks, security breaches, severe weather, natural disasters, and errors by employees or third-party contractors. Though losses arising from some of these issues may be covered by insurance, interruptions of our critical business information technology systems or failure of our back-up systems could result in longer production times or negatively impact customers resulting in damage to our reputation and a reduction in sales. If our critical information technology systems or back-up systems were damaged or ceased to function properly, we might have to make a significant investment to repair or replace them.\n\n\n\u00a0\n\n\nFurther, information systems of our suppliers or service providers may be vulnerable to attacks by hackers and other security breaches, including computer viruses and malware, through the internet, email attachments and persons with access to these information systems. If our suppliers or service providers were to experience a system disruption, attack or security breach that impacts a critical function, it could result in disruptions in our supply chain, the loss of sales and customers, potential liability for damages to our customers, reputational damage and incremental costs, which could adversely affect our business, results of operations and profitability.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n14\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nSuccessful cyber-attacks and the failure to maintain adequate cyber-security systems and procedures could materially harm our operations.\n\n\n\u00a0\n\n\nCyber-attacks designed to gain access to and extract sensitive information or otherwise affect or compromise the confidentially, integrity, and availability of information, including phishing attempts, denial of service attacks, and malware or ransomware incidents, have occurred over the last several years at a number of major global companies and have resulted in, among other things, the unauthorized release of confidential information, system failures including material business disruptions, and negative brand and reputational impacts. Despite widespread recognition of the cyber-attack threat and improved data protection methods, cyber-attacks on organizations continue to be sophisticated, persistent, and ever-changing, making it difficult to prevent and detect these attacks. Additionally, we rely on third-party service providers to execute certain business processes and maintain certain information technology systems and infrastructure, and we supply such third-party providers with the personal information required for those services.\n\n\n\u00a0\n\n\nCyber-attacks are becoming more sophisticated, and in some cases have caused significant harm. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. We operate many aspects of our business through server and web\u2010based technologies, and store various types of data on such servers or with third parties who in turn store it on servers and in the cloud. Any disruption to the internet or to the Company's or its service providers' global technology infrastructure, including malware, insecure coding, \u201cActs of God,\u201d attempts to penetrate networks, data theft or loss and human error, could have adverse effects on the Company's operations. A cyber-attack of our systems or networks that impairs our information technology systems could disrupt our business operations and result in loss of service to customers. We have a comprehensive cybersecurity program designed to protect and preserve the integrity of our information technology systems. We expect to continue to experience attempted cyber-attacks of our IT systems or networks; however, none of the attempted cyber-attacks had a material impact on our operations or financial condition.\n\n\n\u00a0\n\n\nWhile we devote significant resources to network security, data encryption and other security measures to protect our systems and data, including our own proprietary information and the confidential and personally identifiable information of our customers, employees, and business partners, these measures cannot provide absolute security. The costs to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful, resulting potentially in the theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which could cause harm to our business operations. Moreover, if a computer security breach or cyber-attack affects our systems or results in the unauthorized release of proprietary or personally identifiable information, our reputation could be materially damaged, our customer confidence could be diminished, and our operations, including technical support for our devices, could be impaired. We would also be exposed to a risk of loss or litigation and potential liability, which could have a material adverse effect on our business, results of operations and financial condition.\n\n\n\u00a0\n\n\nWhere necessary and applicable, we have enabled certain employees to arrange for a hybrid work approach. Although we continue to implement strong physical and cybersecurity measures to ensure that our business operations remain functional and to ensure uninterrupted service to our customers, our systems and our operations remain vulnerable to cyberattacks and other disruptions due to the fact that certain employees work remotely and we cannot guarantee that our mitigation efforts will be effective.\n\n\n\u00a0\n\n\nLoss, corruption and misappropriation of data and information relating to customers could materially adversely affect our operations.\n\n\n\u00a0\n\n\nWe have access to sensitive customer information in the ordinary course of business. If a significant data breach occurred, the loss, disclosure or misappropriation of our business information may adversely affect our reputation, customer confidence may be diminished, or we may be subject to legal claims, or legal proceedings, including regulatory investigations and actions, which may lead to regulatory enforcement actions against us, and may materially adversely affect our business, operating results and financial condition.\n\n\n\u00a0\n\n\nLegal and Regulatory Risks\n\n\n\u00a0\n\n\nGlobal and local economic uncertainty may materially adversely affect our manufacturing operations or sources of merchandise and international operations.\n\n\n\u00a0\n\n\nEconomic uncertainty, as well as other variations in global economic conditions such as fuel costs, wage and benefit inflation, and currency fluctuations, may cause inconsistent and unpredictable consumer spending habits, while increasing our own input costs. These risks resulting from global and local economic uncertainty could also severely disrupt our manufacturing operations, which could have a material adverse effect on our financial performance. We import approximately 25% of our merchandise from outside of the United States as well as operate manufacturing plants in Mexico and Honduras and retail design centers in Canada. As a result, our ability to obtain adequate supplies or to control our costs may be adversely affected by events affecting international commerce and businesses located outside the United States, including natural disasters, public health crises, changes in international trade including tariffs, central bank actions, changes in the relationship of the U.S. dollar versus other currencies, labor availability and cost, and other domestic governmental policies and the countries from which we import our merchandise or in which we operate facilities.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n15\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nChanges in the United States trade and tax policy could materially adversely affect our business and results of operations.\n\n\n\u00a0\n\n\nChanges in the political environment in the United States may require us to modify our current business practices. We are subject to risks relating to increased tariffs on imports, and other changes affecting imports because we manufacture components and finished goods in Mexico and Honduras and purchase components and finished goods manufactured in foreign countries. We may not be able to substantially mitigate the impact of tariffs, pass price increases on to our customers, or secure adequate alternative sources of products or materials. The tariffs, along with any additional tariffs or retaliatory trade restrictions implemented by other countries, could negatively impact customer sales, including potential delays in product received from our vendors, our cost of goods sold and results of operations.\n\n\n\u00a0\n\n\nOur business may be materially adversely affected by changes to tax policies.\n\n\n\u00a0\n\n\nChanges in United States or international income tax laws and regulations may have a material adverse effect on our business in the future or require us to modify our current business practices. In the ordinary course of business, we are subject to tax examinations by various governmental tax authorities. The global and diverse nature of our business means that there could be additional examinations by governmental tax authorities and the resolution of ongoing and other probable audits, which could impose a future risk to the results of our business.\n\n\n\u00a0\n\n\nHuman Capital Risk\n\n\n\u00a0\n\n\nOur business is dependent on certain key personnel; if we lose key personnel or are unable to hire additional qualified personnel, our business may be harmed.\n\n\n\u00a0\n\n\nThe success of our business depends upon our ability to retain continued service of certain key personnel, including our Chairman of the Board, President and Chief Executive Officer, M. Farooq Kathwari, and to attract and retain additional qualified key personnel in the future. We face risks related to loss of any key personnel and we also face risks related to any changes that may occur in key senior leadership executive positions. Any disruption in the services of our key personnel could make it more difficult to successfully operate our business and achieve our business goals and could adversely affect our results of operation and financial condition. These changes could also increase the volatility of our stock price.\n\n\n\u00a0\n\n\nThe market for qualified employees and personnel in the retail and manufacturing industries is highly competitive. Our success depends upon our ability to attract, retain and motivate qualified artisans, professional and clerical employees and upon the continued contributions of these individuals. We cannot provide assurance that we will be successful in attracting and retaining qualified personnel. A shortage of qualified personnel may require us to enhance our wage and benefits package in order to compete effectively in the hiring and retention of qualified employees. This could have a material adverse effect on our business, operating results and financial condition.\n\n\n\u00a0\n\n\nLabor challenges could have a material adverse effect on our business and results of operations.\n\n\n\u00a0\n\n\nIn our current operating environment, due in part to macroeconomic factors, we continue to experience various labor challenges, including, for example significant competition for skilled manufacturing and production employees; pressure to increase wages as a result of inflationary pressures, and at times, a shortage of qualified full-time labor. Outside suppliers that we rely on have also experienced similar labor challenges. The future success of our operations depends on our ability, and the ability of third parties on which we rely, to identify, recruit, develop and retain qualified and talented individuals in order to supply and deliver our products. A prolonged shortage or inability to retain qualified labor could decrease our ability to effectively produce and meet customer demand and efficiently operate our facilities, which could negatively impact our business and have a material adverse effect on our results of operations. Higher wages to attract new and retain existing employees, as well as higher costs to purchase services from third parties, could negatively impact our results of operations.\n\n\n\u00a0\n\n\nFinancial Risks\n\n\n\u00a0\n\n\nOur total assets include substantial amounts of long-lived assets. Changes to estimates or projections used to assess the fair value of these assets, financial results that are lower than current estimates at certain design center locations or determinations to close underperforming locations may cause us to incur future impairment charges, negatively affecting our financial results.\n\n\n\u00a0\n\n\nWe make certain accounting estimates and projections with regard to individual design center operations as well as overall Company performance in connection with our impairment analysis for long-lived assets in accordance with applicable accounting guidance. An impairment charge may be required if the impairment analysis indicates that the carrying value of an asset exceeds the sum of the expected undiscounted cash flows of the asset. The projection of future cash flows used in this analysis requires the use of judgment and a number of estimates and projections of future operating results, including sales growth rates. If actual results differ from Company estimates, additional charges for asset impairments may be required in the future. If impairment charges are significant, our financial results could be negatively affected.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n16\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nAccess to consumer credit could be interrupted as a result of conditions outside of our control, which could reduce sales and profitability.\n\n\n\u00a0\n\n\nOur ability to continue to access consumer credit for our customers could be negatively affected by conditions outside our control. If capital market conditions have a material negative change, there is a risk that our business partner that issues our private label credit card program may not be able to fulfill its obligations under that agreement. In addition, the tightening of credit markets\u00a0as well as increased borrowing rates may restrict the ability and willingness of customers to make purchases.\n\n\n\u00a0\n\n\nWe are subject to risks associated with self-insurance related to health benefits.\n\n\n\u00a0\n\n\nWe are self-insured for our health benefits and maintain per employee stop loss coverage; however, we retain the insurable risk at an aggregate level. Therefore, unforeseen or significant losses in excess of our insured limits could have a material adverse effect on the Company\u2019s financial condition and operating results.\n\n\n\u00a0\n\n\nRecent events affecting the financial services industry could have an adverse impact on the Company's business operations, financial condition, and results of operations.\n \n\n\n\u00a0\n\n\nClosures of certain banks in 2023 created bank-specific and broader financial institution liquidity risk and concerns. Future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access working capital needs, and create additional market and economic uncertainty. Although the Company does not have any deposits with any of the banks that have failed, closed or been placed into receivership to date, some of our customers may have deposits with them, which may expose us to potential risks that could impact our financial position and operations. This could include an adverse impact on the ability of our customers to pay amounts they owe to the Company. In addition, if any of our vendors have relationships with any of the banks that have been closed, it could negatively impact their ability to deliver goods and services to the Company.\n\n\n\u00a0\n\n\nMore generally, these events have resulted in market disruption and volatility and could lead to greater instability in the credit and financial markets and a deterioration in confidence in economic conditions. Our operations may be adversely affected by any such economic downturn, liquidity shortages, volatile business environments, or unpredictable market conditions. These events could also make any necessary debt or equity financing more difficult and costly.\n\n\n\u00a0\n\n\nGeneral Risk Factors\n\n\n\u00a0\n\n\nFailure to protect our intellectual property could materially adversely affect us.\n\n\n\u00a0\n\n\nWe believe that our copyrights, trademarks, service marks, trade secrets, and all of our other intellectual property are important to our success. We rely on patent, trademark, copyright and trade secret laws, and confidentiality and restricted use agreements, to protect our intellectual property and may seek licenses to intellectual property of others. Some of our intellectual property is not covered by any patent, trademark, or copyright or any applications for the same. We cannot provide assurance that agreements designed to protect our intellectual property will not be breached, that we will have adequate remedies for any such breach, or that the efforts we take to protect our proprietary rights will be sufficient or effective. Any significant impairment of our intellectual property rights or failure to obtain licenses of intellectual property from third parties could harm our business or our ability to compete. Moreover, we cannot provide assurance that the use of our technology or proprietary \u201cknow\u2010how\u201d or information does not infringe the intellectual property rights of others. If we have to litigate to protect or defend any of our rights, such litigation could result in significant expense.\n\n\n\u00a0\n\n\nOur operations present hazards and risks which may not be fully covered by insurance, if insured.\n\n\n\u00a0\n\n\nAs protection against operational hazards and risks, we maintain business insurance against many, but not all, potential losses or liabilities arising from such risks. We may incur costs in repairing any damage beyond our applicable insurance coverage. Uninsured losses and liabilities from operating risks could reduce the funds available to us for capital and investment spending and could have a material adverse impact on the results of operations.\n\n\n\u00a0\n\n\n\n\n17\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n",
+  "item7": ">Item 7, \n Management\n\u2019\ns Discussion and Analysis of Financial Condition and Results of Operations\n,\n of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC on August 29, 2022.\n\n\n\u00a0\n\n\nOther Arrangements\n\n\n\u00a0\n\n\nWe do not utilize or employ any other arrangements in operating our business. As such, we do not maintain any retained or contingent interests, derivative instruments or variable interests which could serve as a source of potential risk to our future liquidity, capital resources and results of operations.\n\n\n\u00a0\n\n\nProduct Warranties\n. \nAs of June 30, 2023 and 2022, our product warranty liability totaled $1.3 million and $1.2 million, respectively. Our products, including our case goods, upholstery and home accents, generally carry explicit product warranties and are provided based on terms that are generally accepted in the industry. All our domestic independent retailers are required to enter into and perform in accordance with the terms and conditions of a warranty service agreement. We record provisions for estimated warranty and other related costs at time of sale based on historical warranty loss experience and make periodic adjustments to those provisions to reflect actual experience. On rare occasions, certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. We provide for such warranty issues as they become known and are deemed to be both probable and estimable.\n\n\n\u00a0\n\n\nGovernment Contracts\n\n\n\u00a0\n\n\nOther than standard provisions contained in our contracts with the United States government, we do not believe that any significant portion of our business is subject to material renegotiation of profits or termination of contracts or subcontracts at the election of government entities. The Company sells to the United States government both through General Services Administration (\u201cGSA\u201d) Multiple Award Schedule Contracts and through competitive bids. The GSA Multiple Award Schedule Contract pricing is principally based upon our commercial price list in effect when the contract is initiated. We are required to receive GSA approval to apply list price increases during the term of the Multiple Award Schedule Contract period.\n\n\n\u00a0\n\n\nContingencies\n\n\n\u00a0\n\n\nWe are involved in various claims and litigation as well as environmental matters, which arise in the normal course of business. Although the final outcome of these legal and environmental matters cannot be determined, based on the facts presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n32\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nCritical Accounting Estimates\n\n\n\u00a0\n\n\nWe prepare our consolidated financial statements in conformity with GAAP. In some cases, these principles require management to make difficult and subjective judgments regarding uncertainties and, as a result, such estimates and assumptions may significantly impact our financial results and disclosures. We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. We base our estimates on currently known facts and circumstances, prior experience and other assumptions we believe to be reasonable. We use our best judgment in valuing these estimates and may, as warranted, use external advice. Actual results could differ from these estimates, assumptions, and judgments and these differences could be significant. We make frequent comparisons throughout the year of actual experience to our assumptions to reduce the likelihood of significant adjustments and will record adjustments when differences are known.\n\n\n\u00a0\n\n\nThe following critical accounting estimates affect our consolidated financial statements.\n\n\n\u00a0\n\n\nImpairment of Long-Lived Assets, including the Assessment of the Carrying Value of Retail Design Center Long-lived Assets\n\n\n\u00a0\n\n\nThe recoverability of our retail design centers\u2019 long-lived assets is evaluated for impairment whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of an asset or asset group. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of an asset, change in the intended use of an asset, a product recall or an adverse action or assessment by a regulator. If the sum of the estimated undiscounted future cash flows over the remaining life of the primary asset is less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, usually determined by the estimated discounted cash flow analysis or independent third-party appraisal of the asset or asset group. While determining fair value requires a variety of input assumptions and judgment, we believe our estimates of fair value are reasonable. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail segment is the individual design center. For retail design center level long-lived assets, expected cash flows are determined based on our estimate of future net sales, margin rates and expenses over the remaining expected terms of the leases.\n\n\n\u00a0\n\n\nGoodwill and Indefinite-Lived Intangible Assets\n\n\n\u00a0\n\n\nWe review the carrying value of our goodwill and other intangible assets with indefinite lives at least annually, during the fourth quarter, or more frequently if an event occurs or circumstances change, for possible impairment. Both goodwill and indefinite-lived intangible assets are assigned to our wholesale reporting unit which is principally involved in the development of the Ethan Allen brand and encompasses all aspects of design, manufacturing, sourcing, marketing, sale and distribution of the Company\u2019s broad range of home furnishings and accents.\n\n\n\u00a0\n\n\nGoodwill. \nWe may elect to evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit or fair value of indefinite lived intangible assets is less than its carrying value. If the qualitative evaluation indicates that it is more likely than not that the fair value of a reporting unit or indefinite lived intangible asset is less than its carrying amount, a quantitative impairment test is required. Alternatively, we may bypass the qualitative assessment for a reporting unit or indefinite lived intangible asset and directly perform a quantitative assessment.\n\n\n\u00a0\n\n\nA quantitative impairment test involves estimating the fair value of each reporting unit and indefinite lived intangible asset and comparing these estimated fair values with the respective reporting unit or indefinite lived intangible asset carrying value. If the carrying value of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to such excess, limited to the total amount of goodwill allocated to the reporting unit. If the carrying value of an individual indefinite lived intangible asset exceeds its fair value, such individual indefinite lived intangible asset is written down by an amount equal to such excess. Estimating the fair value of reporting units and indefinite lived intangible assets involves the use of significant assumptions, estimates and judgments with respect to a number of factors, including sales, gross margin, general and administrative expenses, capital expenditures, EBITDA and cash flows, the selection of an appropriate discount rate, as well as market values and multiples of earnings and revenue of comparable public companies.\n\n\n\u00a0\n\n\nTo evaluate goodwill in a quantitative impairment test, the fair value of the reporting units is estimated using a combination of Market and Income approaches.\u00a0The Market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). In the Market approach, the method focuses on comparing the Company\u2019s risk profile and growth prospects to reasonably similar publicly traded companies.\u00a0Key assumptions used include multiples for revenues, EBITDA and operating cash flows, as well as consideration of control premiums.\u00a0The selected multiples are determined based on public companies within our peer group, and if appropriate, recent comparable transactions are also considered. Control premiums are determined using recent comparable transactions in the open market. Under the Income approach, a discounted cash flow method is used, which includes a terminal value, and is based on management\u2019s forecasts and budgets. The long-term terminal growth rate assumptions reflect our current long-term view of the market in which we compete.\u00a0Discount rates use the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium factors.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n33\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nThe Company performed its annual goodwill impairment test during the fourth quarter of fiscal 2023 utilizing a qualitative analysis and concluded it was more likely than not the fair value of our wholesale reporting unit was greater than its respective carrying value and\u00a0no\u00a0impairment charge was required. In performing the qualitative assessment, we considered such factors as macroeconomic conditions, industry and market conditions in which we operate including the competitive environment and any significant changes in demand. We also considered our stock price both in absolute terms and in relation to peer companies.\n\n\n\u00a0\n\n\nOther Indefinite-Lived Intangible Assets. \nWe also annually evaluate whether our trade name continues to have an indefinite life. Our trade name is reviewed for impairment annually in the fourth quarter and may be reviewed more frequently if indicators of impairment are present. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of an asset, a product recall or an adverse action or assessment by a regulator. Factors used in the valuation of intangible assets with indefinite lives include, but are not limited to, management\u2019s plans for future operations, recent results of operations and projected future cash flows.\n\n\n\u00a0\n\n\nSimilar to goodwill, we may elect to perform a qualitative assessment. If the qualitative evaluation indicates that it is more likely than not that the fair value of our trade name was less than its carrying value, a quantitative impairment test is required. Alternatively, we may bypass the qualitative assessment for our indefinite lived intangible asset and directly perform a quantitative assessment. To evaluate our trade name using a quantitative analysis, its fair value is calculated using the relief-from-royalty method. Significant factors used in the trade name valuation are rates for royalties, future revenue growth and a discount factor.\u00a0Royalty rates are determined using an average of recent comparable values, review of the operating margins and consideration of the specific characteristics of the trade name.\u00a0Future growth rates are based on the Company\u2019s perception of the long-term values in the market in which we compete, and the discount rate is determined using the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium factors.\n\n\n\u00a0\n\n\nWe performed our annual indefinite-lived intangible asset impairment test during the fourth quarter of fiscal 2023 utilizing a qualitative analysis and concluded it was more likely than not the fair value of our trade name was greater than its carrying value and\u00a0no\u00a0impairment charge was required. Qualitative factors reviewed included a review for significant adverse changes in customer demand or business climate that could affect the value of the asset, a product recall or an adverse action or assessment by a regulator.\n\n\n\u00a0\n\n\nInventories\n\n\n\u00a0\n\n\nInventories (finished goods, work in process and raw materials) are stated at the lower of cost, determined on a first-in, first-out basis, and net realizable value. Cost is determined based solely on those charges incurred in the acquisition and production of the related inventory (i.e. material, labor and manufacturing overhead costs). We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-downs, taking into account future demand and market conditions. Our inventory reserves contain uncertainties that require management to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends. We adjust our inventory reserves for net realizable value and obsolescence based on trends, aging reports, specific identification and estimates of future retail sales prices. If actual demand or market conditions change from our prior estimates, we adjust our inventory reserves accordingly throughout the period. We have not made any material changes to our assumptions included in the calculations of the lower of cost or net realizable value reserves during the periods presented. At June 30, 2023 and 2022, our inventory reserves totaled $1.9 million and $2.1 million, respectively.\n\n\n\u00a0\n\n\nIncome Taxes\n\n\n\u00a0\n\n\nWe are subject to income taxes in the United States and other foreign jurisdictions. Our tax provision is an estimate based on our understanding of laws in Federal, state and foreign tax jurisdictions. These laws can be complicated and are difficult to apply to any business, including ours. The tax laws also require us to allocate our taxable income to many jurisdictions based on subjective allocation methodologies and information collection processes.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n34\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nWe use the asset and liability method to account for income taxes. We recognize deferred tax assets and liabilities based on the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates in effect for the year in which we expect to recover or settle those temporary differences. When we record deferred tax assets, we are required to estimate, based on forecasts of taxable earnings in the relevant tax jurisdiction, whether we are more likely than not to recover them. In making judgments about realizing the value of our deferred tax assets, we consider historic and projected future operating results, the eligible carry-forward period, tax law changes and other relevant considerations.\n\n\n\u00a0\n\n\nThe Company evaluates, on a quarterly basis, uncertain tax positions taken or expected to be taken on tax returns for recognition, measurement, presentation, and disclosure in its consolidated financial statements. If an income tax position exceeds a 50% probability of success upon tax audit, based solely on the technical merits of the position, the Company recognizes an income tax benefit in its financial statements. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The liability associated with an unrecognized tax benefit is classified as a long-term liability except for the amount for which a cash payment is expected to be made or tax positions settled within one year.\n\n\n\u00a0\n\n\nBusiness Insurance Reserves\n\n\n\u00a0\n\n\nWe have insurance programs in place for workers\u2019 compensation and health care under certain employee benefit plans provided by the Company. The insurance programs, which are funded through self-insured retention, are subject to various stop-loss limitations. We accrue estimated losses using actuarial models and assumptions based on historical loss experience. As of June 30, 2023, we had a liability of $2.4 million related to health care coverage compared to $2.0\u00a0million in the prior year period. We also carry workers\u2019 compensation insurance subject to a deductible amount for which the Company is responsible on each claim. As of June 30, 2023, we had accrued liabilities of $4.2 million\u00a0related to workers\u2019 compensation claims, primarily for claims that do\u00a0not\u00a0meet the per-incident deductible, compared to $3.8\u00a0million in the prior year period. These business insurance reserves are recorded within\u00a0\nAccrued compensation and benefits\n\u00a0on our consolidated balance sheets.\n\n\n\u00a0\n\n\nAlthough we believe that the insurance reserves are adequate, the reserve estimates are based on historical experience, which may not be indicative of current and future losses. In addition, the actuarial calculations used to estimate insurance reserves are based on numerous assumptions, some of which are subjective. We adjust insurance reserves, as needed, in the event that future loss experience differs from historical loss patterns.\n\n\n\u00a0\n\n\nSignificant Accounting Policies\n\n\n\u00a0\n\n\nSee Note 3,\u00a0\nSummary of Significant Accounting Policies\n, in the notes to our consolidated financial statements included under Part II, Item 8, for a full description of our significant accounting policies.\n\n\n\u00a0\n\n\nRecent Accounting Pronouncements\n\n\n\u00a0\n\n\nSee Note 3,\u00a0\nSummary of Significant Accounting Policies\n, in the notes to our consolidated financial statements included under Part II, Item 8, for a full description of recent accounting pronouncements, including the expected dates of adoption.\n\n\n\u00a0\n\n",
+  "item7a": ">ITEM 7A. \n\u00a0\u00a0\u00a0\nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\n\n\u00a0\n\n\nIn the normal course of business, we are exposed to the following market risks, which could impact our financial position and results of operations.\n\n\n\u00a0\n\n\nInterest Rate Risk\n\n\n\u00a0\n\n\nDebt\n\n\n\u00a0\n\n\nInterest rate risk exists primarily through our borrowing activities. Short-term debt, if required, is used to meet working capital requirements and long-term debt, if required, is generally used to finance long-term investments. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and our future financing requirements. While we had no fixed or variable rate borrowings outstanding at June 30, 2023, we could be exposed to market risk from changes in risk-free interest rates if we incur variable rate debt in the future as interest expense will fluctuate with changes in the Secured Overnight Financing Rate (\u201cSOFR\u201d).\u00a0Based on our current and expected levels of exposed liabilities, we estimate that a hypothetical 100 basis point change (up or down) in interest rates based on one-month SOFR would not have a material impact on our results of operations and financial condition.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n35\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nCash and Cash Equivalents and Investments\n\n\n\u00a0\n\n\nThe fair market value of our cash and cash equivalents as of June 30, 2023 was $62.1 million while our short-term investments balance was $110.6 million. Our cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value. Our short-term investments consist of United States Treasury Bills with maturities of one year or less and at fair value based on observable inputs.\u00a0Our primary objective for holding available-for-sale securities is to achieve an appropriate investment return consistent with preserving principal and managing risk. Pursuant to our established investment guidelines, we try to achieve high levels of credit quality, liquidity and diversification. At any time, a sharp rise in market interest rates could have an impact on the fair value of our available-for-sale securities portfolio. Conversely, declines in interest rates, including the impact from lower credit spreads, could have an adverse impact on interest income for our investment portfolio. However, because of our investment policy and the short-term nature of our investments, our financial exposure to fluctuations in interest rates has been low and is expected to remain low. We do not believe that the value or liquidity of our cash equivalents and investments have been materially impacted by current market events. Our available-for-sale securities are held for purposes other than trading and are not leveraged as of June 30, 2023. We monitor our interest rate and credit risks of our cash equivalents and believe the overall credit quality of our portfolio is strong. It is anticipated that the fair market value of our cash equivalents and short-term investments will continue to be immaterially affected by fluctuations in interest rates.\n\n\n\u00a0\n\n\nForeign Currency Exchange Risk\n\n\n\u00a0\n\n\nForeign currency exchange risk is primarily limited to our four Company-operated retail design centers located in Canada and our manufacturing plants in Mexico and Honduras, as substantially all purchases of imported parts and finished goods are denominated in U.S. dollars. As such, foreign exchange gains or losses resulting from market changes in the value of foreign currencies have not had, nor are they expected to have, a material effect on our consolidated results of operations. A decrease in the value of foreign currencies relative to the U.S. dollar may affect the profitability of our vendors, but as we employ a balanced sourcing strategy, we believe any impact would be moderate relative to peers in our industry.\n\n\n\u00a0\n\n\nThe financial statements of our foreign locations are translated into U.S. dollars using period-end rates of exchange for assets and liabilities and average rates for the period for revenues and expenses. Translation gains and losses that arise from translating assets, liabilities, revenues and expenses of foreign operations are recorded in accumulated other comprehensive loss as a component of shareholders\u2019 equity. Foreign exchange gains or losses resulting from market changes in the value of foreign currencies did not have a material impact during any of the fiscal periods presented.\n\n\n\u00a0\n\n\nA hypothetical 10% weaker United States dollar against all foreign currencies as of June 30, 2023 would have had an immaterial impact on our consolidated results of operations and financial condition. We currently do not engage in any foreign currency hedging activity and we have no intention of doing so in the foreseeable future.\n\n\n\u00a0\n\n\nDuties and Tariffs Market Risk\n\n\n\u00a0\n\n\nWe are exposed to market risk with respect to duties and tariffs assessed on raw materials, component parts, and finished goods we import. Additionally, we are exposed to duties and tariffs on our finished goods that we export from our manufacturing plants. As these tariffs and duties increase, we determine whether a price increase to our customers to offset these costs is warranted. To the extent that an increase in these costs would have a material impact on our results of operations, we believe that our competitors would experience a similar impact.\n\n\n\u00a0\n\n\nRaw Materials and other Commodity Price Risk\n\n\n\u00a0\n\n\nWe are exposed to market risk from changes in the cost of raw materials used in our manufacturing processes, principally wood, fabric and foam products. The cost of foam products, which are petroleum-based, is sensitive to changes in the price of oil. We are also exposed to risk with respect to transportation costs, including fuel prices, for delivering our products. As commodity prices and transportation costs rise, we determine whether a price increase to our customers to offset these costs is warranted. To the extent that an increase in these costs would have a material impact on our results of operations, we believe that our competitors would experience a similar impact.\n\n\n\u00a0\n\n\nInflation Risk\n\n\n\u00a0\n\n\nOur results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflationary pressure, we believe any inflationary impact on our product and operating costs would be offset by our ability to increase selling prices, create operational efficiencies and seek lower cost alternatives.\n\n\n\u00a0\n\n\n\n\n\n\n\n\n36\n\n\n\n\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\nETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES\n\n\n\u00a0\n\n\nCommercial Real Estate Market Risk\n\n\n\u00a0\n\n\nWe have potential exposure to market risk related to conditions in the commercial real estate market. As of June 30, 2023, there were 139 Company-operated retail design centers averaging approximately 14,100 square feet in size per location. Of the 139 Company-operated retail design centers, 49 of the properties are owned and 90 are leased. Our retail real estate holdings could suffer significant impairment in value if we are forced to close design centers and sell or lease the related properties during periods of weakness in certain markets. We are also exposed to risk related to conditions in the commercial real estate rental market with respect to the right-of-use assets we carry on our balance sheet for leased design center and service center locations. At June 30, 2023, the unamortized balance of such right-of-use assets totaled $115.9 million. Should we have to close or otherwise abandon one of these leased locations, we could incur additional impairment charges if rental market conditions do not support a fair value for the right of use asset in excess of its carrying value.\n\n\n\u00a0\n\n",
+  "cik": "896156",
+  "cusip6": "297602",
+  "cusip": ["297602904", "297602104"],
+  "names": ["ETHAN ALLEN INTERIORS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/896156/000143774923024609/0001437749-23-024609-index.htm"
+}
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+{
+  "item1": ">ITEM 1. BUSINESS\n\n\n\u00a0\n\n\nSummary\n\n\n\u00a0\n\n\nBiotricity Inc. (the\n\u201cCompany\u201d, \u201cBiotricity\u201d, \u201cwe\u201d, \u201cus\u201d, \u201cour\u201d) is a leading-edge medical\ntechnology company focused on biometric data monitoring and diagnostic solutions. We deliver innovative, remote monitoring solutions\nto the medical, healthcare, and consumer markets, with a focus on diagnostic and post-diagnostic solutions for lifestyle and chronic\nillnesses. We approach the diagnostic side of remote patient monitoring by applying innovation within existing business models where\nreimbursement is established. We believe this approach reduces the risk associated with traditional medical device development and\naccelerates the path to revenue. In post-diagnostic markets, we intend to apply medical grade biometrics to enable consumers to\nself-manage, thereby driving patient compliance and reducing healthcare costs. Our initial focus was on the diagnostic mobile\ncardiac outpatient monitoring (COM) market. Since then, we have expanded our ecosystem of\ncardiac technologies to include all accepted forms of cardiac diagnostic studies.\n\n\n\u00a0\n\n\nWe developed and received\nFDA clearance on our Bioflux\u00ae (\u201cBioflux\u201d) technology, comprised of a monitoring device and software components,\nwhich we made available to the market under limited release on April 6, 2018, in order to establish and develop sales processes and\nassess market dynamics. The fiscal year ended March 30, 2020 marked the Company\u2019s first year of expanded commercialization\nefforts, focused on sales growth and expansion. In 2021, the Company announced the initial launch of Bioheart, a direct-to-consumer\nheart monitor that offers the same continuous heart monitoring technology used by physicians. In addition to developing and\nreceiving regulatory approval or clearance of other technologies that enhance its ecosystem, in 2022, the Company announced the\nlaunch of its Biotres Cardiac Monitoring Device (\u201cBiotres\u201d), a three-lead device for ECG and arrhythmia monitoring\nintended for lower risk patients, a much broader addressable market segment. We have since expanded our sales efforts to 31 states,\nwith intention to expand further and compete in the broader US market using an insourcing business model. Our technology has a large\npotential total addressable market, which includes hospitals, clinics and physicians\u2019 offices, as well as other Independent\nDiagnostic Testing Facilities (\u201cIDTFs)\u201d. We believe our solution\u2019s insourcing model, which empowers physicians\nwith state-of-the-art technology and charges technology service fees for its use, has the benefit of a reduced operating overhead\nfor the Company, and enabling a more efficient market penetration and distribution strategy. The Company offers an established\necosystem of state-of-the-art technologies intended to monitor and diagnose cardiac arrhythmias and support cardiac disease\nmanagement; its technology provides enhanced patient outcomes, with improved patient compliance, and a corresponding reduction of\nhealthcare costs.\n\n\n\u00a0\n\n\nOur principal executive office\nis located at 203 Redwood Shores Pkwy Suite 600, Redwood City, California, and our telephone number is (800) 590-4155. Our website address\nis www.biotricity.com. The information on our website is not part of this Annual Report on Form 10-K.\n\n\n\u00a0\n\n\nHistory\n\n\n\u00a0\n\n\nOur company was incorporated on\nAugust 29, 2012 in the State of Nevada.\n\n\n\u00a0\n\n\niMedical Innovations Inc.\n(\u201ciMedical\u201d) was incorporated on July 3, 2014 under the Canada Business Corporations Act. On February 2, 2016, we\ncompleted the acquisition of iMedical and moved the operations of iMedical into Biotricity Inc. through a reverse take-over (the\n\u201cAcquisition Transaction\u201d).\n\n\n\u00a0\n\n\nDescription of Business\n\n\n\u00a0\n\n\nCompany Overview\n\n\n\u00a0\n\n\nBiotricity Inc.\n (\u201cCompany\u201d, \u201cBiotricity\u201d,\n\u201cwe\u201d, \u201cus\u201d or \u201cour\u201d)\n\n\n\u00a0\n\n\nBiotricity Inc. (the \u201cCompany\u201d,\n\u201cBiotricity\u201d, \u201cwe\u201d, \u201cus\u201d, \u201cour\u201d) is a medical technology company focused on\nbiometric data monitoring and diagnostic solutions. Our aim is to deliver remote monitoring solutions to the medical, healthcare,\nand consumer markets, with a focus on diagnostic and post-diagnostic solutions for lifestyle and chronic illnesses. We approach the\ndiagnostic side of remote patient monitoring by applying innovation within existing business models where reimbursement is\nestablished. To do this, we do the heavy lifting involved with developing proprietary technology that meets the regulatory standards\nof the U.S. Food and Drug Administration (\u201cFDA\u201d), to allow medical professionals to utilize our technology and gain\nreimbursement for their services through Medicare, Medicaid and private health insurers. In post-diagnostic markets, we apply\nmedical grade biometrics to enable physicians to manage their patients and consumers to self-manage.\n\n\n\u00a0\u00a0\n\n\n\n\n3\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe build and deploy our technology in a\ntechnology-as-a-service model, focused on earning utilization-based recurring technology fee revenue.\nThe Company\u2019s ability to grow this type of revenue is predicated on the size and quality of its sales force and their ability\nto penetrate the market and place devices with clinically focused, repeat users of its cardiac technology. The Company plans\nto grow its sales force to address new markets and achieve sales penetration in the markets currently served.\n\n\n\u00a0\n\n\nHistory and Recent Highlights\n\n\n\u00a0\n\n\nWe developed our FDA-cleared Bioflux\u00ae\n(\u201cBioflux\u201d) technology, comprised of a monitoring device and software components, which we made available to the market\nunder limited release on April 6, 2018, to assess, establish and develop sales processes and market dynamics. Full market release of\nthe Bioflux device for commercialization occurred in April 2019. To\ncommence commercialization, we ordered device inventory from our FDA-approved manufacturer and hired a small, captive sales force,\nwith deep experience in cardiac technology sales; we expanded on our limited market release, which identified potential anchor\nclients who could be early adopters of our technology. By increasing our sales force and geographic footprint, we have grown continuously since launching have had sales in 31 U.S. states by December 31, 2022.\n\n\n\u00a0\n\n\nFollowing Bioflux, the Company developed several breakthrough\ntechnologies in 2021, including:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nBiotres, a unique ECG Holter solution that addresses the limitations of existing solutions in the Holter market, with built-in connectivity, ability to recharge, and 3 channels (instead of 1). \n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nBioheart, a unique personal cardiac monitoring solution for consumers that addresses the limitations of existing solutions, designed with built-in connectivity, ability to recharge, and 3 channels\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nBiocare, a unique cardiac disease management platform for chronic care management (CCM) and remote patient monitoring (RPM) to help physicians holistically manage their patients\n\n\n\n\n\u00a0\n\n\nOn January 24, 2022 the Company announced that\nit has received the 510(k) FDA clearance of its Biotres patch solution, which is a novel product in the field of Holter monitoring.\nThis three-lead technology can provide connected Holter monitoring that is designed to produce more accurate arrythmia detection\nthan is typical of competing one-lead holter patch solutions. It is also a platform technology, with other developments and features\nthat are currently unavailable in the marketplace with other clinical and consumer patch solutions.\n\n\n\u00a0\n\n\nThe Company has also developed or is developing several\nother ancillary technologies, which will require application for further FDA clearances, which the Company anticipates applying for within\nthe next twelve to eighteen months. Among these are:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nadvanced\n    ECG analysis software that can analyze and synthesize patient ECG monitoring data to identify the most important information for clinical intervention, while reducing the amount\n    of human intervention necessary in the process;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nthe Bioflux\u00ae 2.0, which is the next generation of our award winning Bioflux\u00ae\n\n\n\n\n\u00a0\n\n\nDuring 2021 and the early part of 2022, the Company also commercially launched its Bioheart technology, which is\na cutting-edge consumer technology whose development was based on the Company\u2019s clinical technologies and leverages its clinical\necosystem, the Biosphere. In recognition of this market advancement and how innovative the product is, in November 2022, Bioheart received\nrecognition as one of Time Magazine\u2019s Best Inventions of 2022.\n\n\n\u00a0\n\n\n\n\n4\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn October 2022, the Company launched its Biocare\nCardiac Disease Management Solution, after successfully piloting this technology in two facilities that provide cardiac care to over\n60,000 patients. This technology and other consumer technologies and applications such as the Biokit and Biocare have been developed\nto allow the Company to use its strong cardiac footprint to expand into remote chronic care management solutions that are complementary\nand additive to its existing solutions. The technology puts actionable data into the hands of physicians to assist them in better managing\ntheir patients and making effective treatment decisions quickly.\n\n\n\u00a0\n\n\nAdditionally, in September 2022, the\nCompany was awarded a NIH Grant from the National Heart, Blood, and Lung Institute for AI-Enabled real-time monitoring, and\npredictive analytics for stroke due to chronic kidney failure. This is a significant achievement that broadens our technology\nplatform\u2019s disease space demographic. The grant is focused on the expansion of Bioflux-AI for monitoring and prediction of stroke episodes in chronic kidney disease patients. The Company received $238,703\nunder this award in March 2023, used to defray research, development and other associated costs.\n\n\n\u00a0\n\n\nDuring the twelve months ended March 31, 2023, the\nCompany continued to develop a telemedicine platform, with capabilities of real-time streaming of medical devices. The COVID-19 pandemic\nhas highlighted the importance of telemedicine and remote patient monitoring technologies. Telemedicine offers patients the ability to\ncommunicate directly with their health care providers without the need to leave their home. The introduction of a telemedicine solution\nis intended to align with the Company\u2019s Bioflux product and facilitate remote visits and remote prescriptions for cardiac diagnostics.\nIt will also serve as a means of establishing referral and other synergies across the network of doctors and patients that use the technologies\nwe are building within the Biotricity ecosystem. The intention is to continue to provide improved care to patients that may otherwise\nelect not to go to medical facilities while providing economic benefits and costs savings to healthcare service providers and payers.\nThe Company\u2019s goal is to position itself as an all-in-one cardiac diagnostic and disease management solution. The Company continues\nto grow its data set of billions of patient heartbeats, allowing it to further develop its predictive capabilities relative to cardiac\nconditions.\n\n\n\u00a0\n\n\nThe Company identified the importance of recent developments in accelerating its path to profitability, including\nthe launch of important new products identified, which have a ready market through cross-selling to existing large customer clinics, and\nlarge new distribution partnerships that allow the Company to sell into hospital networks.\n\n\n\u00a0\n\n\nMarket Overview\n\n\n\u00a0\n\n\nChronic\ndiseases are the number one burden on the healthcare system, driving up costs year over year. Lifestyle related illnesses such as obesity\nand hypertension are the top contributing factors of chronic conditions including diabetes and heart disease. Government and healthcare\norganizations are focused on driving costs down by shifting to evidence-based healthcare where individuals, especially those suffering\nfrom chronic illnesses, engage in self-management. This has led to growth in the connected health market, which is projected to reach\n$150 billion by 2024 at a compound annual growth rate (CAGR) of 25%\n1\n. Remote patient monitoring (RPM), one of the key areas\nof focus for self-management and evidence-based practice, is projected to reach $96.67 billion by 2030 at a CAGR of 17.6%\n2\n.\nToday, 20% of large healthcare facilities in the US are already using remote monitoring with a projected 30 million US patients utilizing\nremote monitoring by 2024\n3\n.\n\n\n\u00a0\n\n\nThe number\none cost to the healthcare system is cardiovascular disease, estimated to be responsible for 1 in every 6 healthcare dollars spent in\nthe US\n4\n. Since cardiovascular disease is the number one cause of death worldwide, early detection, diagnosis, and management\nof chronic cardiac conditions are necessary to relieve the increasing burden on the healthcare infrastructure. Diagnostic tests such as\nECGs are used to detect, diagnose and track certain types of cardiovascular conditions. We believe that the rise of lifestyle related\nillnesses associated with heart disease has created a need to develop cost-effective diagnostic solutions to fill a hole in the current\nECG market. These solutions will not only deliver faster and earlier diagnoses but also build the foundation for disease management,\nsupporting the transition from diagnosis to disease management.\n\n\n\u00a0\n\n\nThe\nglobal ECG market is growing at a CAGR of 8.3%\n5\n. The factors driving this market include an aging population, an increase\nin chronic diseases related to lifestyle choices, improved technology in diagnostic ECG devices, and high growth rates of ECG device\nsales. As of 2022, the United States accounted for approximately 25% of the global ECG market and is comprised of three major segments:\nresting (non-stress) ECG systems, stress ECG systems, and holter monitoring systems.\n\n\n\u00a0\n\n\nIn the US, COM tests are primarily\nconducted through outsourced IDTFs that are reimbursed at an estimated average rate of approximately\n$850 per diagnostic test, based on pricing information provided by the Centers for Medicare & Medicaid Services, a part of the U.S.\nDepartment of Health and Human Services, and weighted towards the largest markets of New York, California, Texas and Florida. Reimbursement\nrates can be lower in smaller markets, although the national average is $801. Further, we believe private insurers provide for similar\nor better reimbursement rates.\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n1\n\nhttps://market.us/report/connected-healthcare-market/\n\n\n2\n\nhttps://www.researchandmarkets.com/reports/5264375/global-remote-patient-monitoring-market-by\n\n\n3\n\nhttps://blog.prevounce.com/27-remote-patient-monitoring-statistics-every-practice-should-know\n\n\n4\n\nhttps://www.alliedmarketresearch.com/electrocardiograph-ECG-market\n\n\n5\nhttps://www.alliedmarketresearch.com/electrocardiograph-ECG-market\n\n\n\u00a0\n\n\n\n\n5\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur initial device offerings\nintended to revolutionize the COM and Holter markets by providing convenient, cost-effective, integrated solutions, inclusive of\nboth software and hardware for physician providers and their patients. Biotricity, however, has a broader strategic vision to offer\nan ecosystem of technologies that engage the patient-user and their medical practitioner(s) in sustained monitoring, diagnosis,\ncommunication and pro-active treatment and management of chronic care conditions. Our core solution is designed as a\nplatform to encompass multiple segments of the remote monitoring market, and its future growth.\n\n\n\u00a0\n\n\nMarket Opportunity\n\n\n\u00a0\n\n\nCardiac Diagnostics\n\n\n\u00a0\n\n\nECGs\nare a key diagnostic test utilized in the diagnosis of cardiovascular disease, the number one cause of death worldwide. The global ECG\nmarket is growing at a CAGR of 8.3%\n6\n, and, assuming the U.S. continues to hold approximately 25% of the global market (based\non 2022 statistics), approximately $1.8 billion would be attributed to the US ECG market1,2. In the US in 2016, statistics show that\nthere were 121.5 million adults living with cardiovascular disease, whereas 28.2 million adults had been diagnosed with the disease.\nThe increasing market size is attributed to an aging population and an influx in chronic diseases related to lifestyle choices.\n\n\n\u00a0\n\n\nThe US ECG market is divided into\nthree major product segments:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n1.\n\n\nEvent monitoring systems;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n2.\n\n\nStress ECG systems; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n3.\n\n\nResting (non-stress) ECG systems.\n\n\n\n\n\u00a0\n\n\nEvent monitoring systems are projected\nto grow the fastest due to a shift from in-hospital/clinic monitoring to outpatient monitoring. This shift is expected to help reduce\nhealth care costs by limiting the number of overnight hospital stays for patient monitoring. We believe that physicians prefer event monitoring\nsystems over resting and stress ECG systems because they provide better insight to the patient\u2019s condition for diagnostic purposes.\n\n\n\u00a0\n\n\nThe event monitoring market is\ndivided into the Holter/Extended Holter, Event Loop and Mobile Cardiac Outpatient Monitoring (COM) product segments, of which Holter, and its variant\nExtended Holter, and Event Loop are the current market leaders. Among event monitoring systems, we believe that the preferred choice of\nphysicians and cardiologists is COM, because of its ability to continuously analyze patient data and transmit, thereby speeding up diagnoses. COM devices have built-in arrhythmia analysis and\nregular communication , which allow physicians\nto prescribe the device for a longer period of time; thereby enabling prolonged data collection and delivering a more complete picture\nfor diagnosis.\n\n\n\u00a0\n\n\nTypical Holter/Extended Holter and Event Loop solutions lack the ability to alert the patient or provider in case\nof an anomaly. Holters are typically used as a short-term solution, up to 3 days, whereas Event Loop is used for up to 30 days. Extended\nHolter, the long-term variant of Holter can be used for up to 21 days. It is the most recent of the cardiac monitoring options and was\ncreated for longer term holter recordings. Since Event Loop is also long term, reimbursement for Extended Holter and Event Loop are converging.\nReimbursement for these is much lower compared to COM due to the nature of the solution, recording vs monitoring. With Holter and Event\nLoop monitoring, ECG data is not uploaded or transmitted regularly. Comparatively, if the patient were monitored through a COM device\nwith regular ECG data transfer and cellular connectivity, then in the event of cardiac anomalies, the monitoring center could send communication\nto the patient\u2019s physician.\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n6\n\nhttps://www.alliedmarketresearch.com/electrocardiograph-ECG-market\n\n\n\u00a0\n\n\n\n\n6\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nSince COM requires an FDA-cleared\ndevice (meaning for our purposes that it can be used to review medical ECG data from ECG devices), FDA-cleared ECG reporting software,\nand remote monitoring capabilities, regulatory and development hurdles have resulted in relatively few companies being able to successfully\ndevelop an all-encompassing solution. We believe that there are currently only 5 COM solutions within the market. Some of these solutions\nare sold to the market through solutions providers that have not developed and do not manufacture their own device.\n\n\n\u00a0\n\n\nOf the COM systems currently available\nin the market, most are IDTFs who employ an outsourcing business model, focused on providing clinical services for which they\ncan earn reimbursement; this means that they would typically not sell their devices to physicians, but offer their clinical services.\nSome COM providers choose to sell their solution by charging high prices for devices and upfront software costs, as well as a per cardiac\nstudy monitoring fee. Among these are solutions that are not scalable; some lack monitoring software, requiring a customer to acquire\nthird party software and incur integration expenses. These would require an investment by the physician, to incur upfront costs that would\ntake time to recoup before profits are realized.\n\n\n\u00a0\n\n\nThe limited number of competitors\nmakes this an attractive market for new entrants. However, entry into the market requires a hardware device coupled with complex algorithms,\nECG software and access to a monitoring center. Two of the five COM players have done so by building their own monitoring infrastructure,\ndeveloping their own ECG software and utilizing TZ Medical\u2019s COM device. However, this is capital intensive and we believe cost\nprohibitive for most hospitals and clinics. These barriers are in our opinion among the key reasons as to why Holter and Event Loop have\nmaintained a significant portion of the US event monitoring market despite the increase in patient safety and improved outcomes with COM.\n\n\n\u00a0\n\n\nThe Bioflux solution and\nbusiness model attempts to address these complications with its complete, turn-key solution for providers to deliver cardiac diagnostics directly. Technologically, the Bioflux solution is superior as a one-piece\nsolution as opposed to a two-piece and collects 3 channels of ECG compared with 2, resulting in better data and higher quality diagnoses.\nCombined with our insourced business model, providers can deliver better and faster care while also billing. This combination has lead\nto our continued growth and high customer retention rates.\n\n\n\u00a0\n\n\n\n\n7\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nChronic\nCare and Remote Patient Monitoring\n\n\n\u00a0\n\n\n\n\n\n\nChronic\ndiseases are the number one healthcare expense and are continuing to grow as the population ages. Lifestyle related illnesses such as\nobesity, hypertension, cardiovascular diseases, and diabetes are the top contributing factors of chronic conditions. Government and healthcare\norganizations are focused on driving costs down by shifting to holistic management where individuals, especially those suffering from\nchronic illnesses, are supported outside of the clinic. This has led to growth in chronic care management market, which is projected\nto reach $8.7 billion in the US by 2027 at a compound annual growth rate (CAGR) of 18%\n7\n.\n\n\n\u00a0\n\n\nRemote\n    patient monitoring (RPM), one of the key areas of focus for disease-management and evidence-based practice, is projected to reach\n    $96.67 billion by 2030 at a CAGR of 17.6%\n8\n. Today, 20% of large healthcare facilities in the US are already using remote\n    monitoring with a projected 30 million US patients utilizing remote monitoring by 2024\n9\n.\n\n\n\u00a0\n\n\nSimilar\n    to chronic care and RPM, lifestyle management is seeing increasing growth where stable patients are becoming more and more engaged\n    in lifestyle management. The global wearable lifestyle market has already reached $61.3 billion with an expected CAGR of 14.6%\n10\n.\n    The US portion of the wearable lifestyle market is $15.3 billion.\n\n\n\u00a0\n\n\nThe\n    primary driver of each of these markets are individuals diagnosed with or at risk-for chronic conditions. Cardiac diseases are the\n    number one expense and the number one killer, making up the bulk of the individuals utilizing such solutions. Despite this, existing\n    solutions are not tailored for cardiac patients but for diabetes, obesity, and hypertension as these conditions are supported by\n    medical or personal devices that can track biometrics that support management. Up until now, there has been no solution available\n    to support cardiac patients as technology was limited to manual short term heart rhythm collection or heart rate monitors.\n\n\n\u00a0\n\n\nBiotricity\n    changed this with the creation of Bioheart and Biocare, which delivers the first cardiac tailored solution for disease management.\n    The engine of this solution is the Bioheart, the first-of-its-kind continuous heart rhythm monitor that autonomously and continuously\n    collect heart rhythm data with no limitation on duration, a necessity for cardiac issues. Just as diabetic patients have continuous\n    glucose monitoring, individuals with cardiac issues now have continuous heart monitoring.\n\n\n\u00a0\n\n\nCombining\n    our technological innovation with our business model delivers a solution that is not only industry leading technologically and clinically,\n    but one that also supports providers to deliver better care while creating a new revenue stream. We believe this leap in innovation\n    will help us compete with the more generic solutions as well as those limited by shorter duration data collection. The leap in innovation\n    created by Bioheart was also recognized by Time Magazine, where they named Bioheart one of the Best Inventions of the World in 2022.\n\n\n\n\n\n\n\u00a0\n\n\nMarket Strategy\n\n\n\u00a0\n\n\nCardiac Diagnostics\n\n\n\u00a0\n\n\nOur\ncardiac diagnostics strategy is focused on the target addressable market of approximately 23,018 physician offices\n11\n (approximately\n10% of all physician offices in the U.S.), 612 hospitals\n12\n (approximately 10% of all hospitals in the U.S.), and 300 IDTFs\n(an estimated 10% of all IDTFs in the U.S.). To do this, we invested in the hiring of top caliber sales professionals with a proven track\nrecord in cardiac technology and device sales, and strong business relationships with providers of cardiac medical services. To further\nexpand our market reach, we have partnered with leading distributors and GPOs.\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n7\n\nhttps://www.precedenceresearch.com/us-complex-and-chronic-condition-management-market\n\n\n8\n\nhttps://www.researchandmarkets.com/reports/5264375/global-remote-patient-monitoring-market-by\n\n\n9\n\nhttps://blog.prevounce.com/27-remote-patient-monitoring-statistics-every-practice-should-know\n\n\n10\n\nhttps://www.grandviewresearch.com/industry-analysis/wearable-technology-market\n\n\n11\n\nhttps://en.wikipedia.org/wiki/Group_medical_practice_in_the_United_States\n\n\n12\nhttps://www.aha.org/statistics/fast-facts-us-hospitals\n\n\n\u00a0\n\n\n\n\n\n\n8\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCOM\n\n\n\u00a0\n\n\nThe Bioflux solution is deployed into physicians\u2019 offices, clinics, hospitals, and IDTFs. For the prescribing physician, the COM diagnostic read is\na reimbursable service from payers such as Medicare and insurance companies. In the United States, billing codes for an COM diagnostic\nread are available under the American Medical Association Current Procedural Terminal, with a current average reimbursement\nrate of $850 per read (a read is between 1 and 30 days long).\n\n\n\u00a0\n\n\nWe believe that\nBioflux\u2019s revenue model, which is a platform or technology \nas\na service\n model (\nPAAS\n or \nTAAS\n),\nis a significant and disruptive departure from the pricing and reimbursement strategies of the existing competitors in the COM\nmarket, which apply an outsourced model to COM diagnostics, where the entire procedure and reimbursement is outsourced; the COM\nsolutions provider takes over the clinical responsibilities and earns the reimbursement and pays the physician a small\nadministrative stipend. Bioflux\u2019s technology, revenue and insourced business model entail differentiators that are expected to\ncreate barriers to entry for other competitors seeking to emulate our strategy.\n\n\n\u00a0\n\n\nWe\nalso believe the Bioflux solution is not only financially superior but also clinically superior. Existing COM solutions are two-piece\nsolutions with 2 channel ECGs. Comparatively, Bioflux is a one-piece solution with 3 channels of ECG, delivering more and higher quality\ndata with better patient compliance. This is a significant barrier to entry for existing and new competitors as they would need to develop\nan entirely new solution that encompasses multiple channels and integrated cellular connectivity to compete with the Bioflux.\n\n\n\u00a0\n\n\nHolter/Extended\nHolter\n\n\n\u00a0\n\n\nThe\nBiotres solution is purpose-built for the holter and extended holter market and is deployed into physicians\u2019 offices, clinics,\nhospitals, and IDTFs. For the prescribing physician, the Holter/Extended Holter diagnostic read is a reimbursable service from payers\nsuch as Medicare and insurance companies. In the United States, billing codes for a Holter and Extended Holter diagnostics are available\nunder the American Medical Association Current Procedural Terminal, with a current blended average reimbursement rate of $200 per test,\nwhere a test is between 1 and 21 days long.\n\n\n\u00a0\n\n\nWe\nbelieve that Biotres\u2019 revenue model, which is a platform or technology \nas a service\n model (\nPAAS\n or \nTAAS\n),\nis a significant and disruptive departure from the pricing and reimbursement strategies of the existing competitors in the Holter market,\nwhich apply an outsourced model to Holter diagnostics, where the entire procedure and reimbursement is outsourced; the Holter solutions\nprovider takes over the clinical responsibilities and earns the reimbursement and pays the physician a small administrative stipend.\nBiotres\u2019 technology, revenue and insourced business model entail differentiators that are expected to create barriers to entry\nfor other competitors seeking to emulate our strategy.\n\n\n\u00a0\n\n\nAdditionally,\nwe believe the Biotres solution is not only financially superior but also clinically superior. Existing holter patch solutions are 1\nchannel devices that lack connectivity. This leads to cardiac diagnostic results taking up to 2 weeks. Biotres is a connected 3 channel\npatch solution, delivering more and higher quality data while reducing the time to diagnosis from 2 weeks to 3 days or less. This is\na significant barrier to entry for existing and new competitors as they would need to develop an entirely new solution that encompasses\nconnectivity and multiple channels to compete with the Biotres.\n\n\n\u00a0\n\n\nChronic\nCare Management (CCM) and Remote Patient Monitoring (RPM)\n\n\n\u00a0\n\n\nOur chronic care management and remote patient monitoring strategy is focused on the same target addressable market of approximately 23,018\nphysician offices (approximately 10% of all physician offices in the U.S.), 612 hospitals (approximately 10% of all hospitals in the U.S.),\nand 300 IDTFs (an estimated 10% of all IDTFs in the U.S.) that we are targeting for our diagnostics. The difference in our strategy here\nis a focus on selling into existing accounts and new diagnostic accounts as opposed to building out a new channel strategy. These solutions\nare complementary to our diagnostics solution and can be sold as part of a complete platform to target new and existing customers.\n\n\n\u00a0\n\n\nProduct and Technology\n\n\n\u00a0\n\n\nBioflux\n\n\n\u00a0\n\n\nBioflux is an advanced, integrated\nECG device and software solution for the COM market. The Bioflux device is comprised of a wet electrode and worn on a belt clip around\nthe waist. The Bioflux ECG reporting software will allow doctors and labs to view a patient\u2019s ECG data for monitoring and diagnostic\npurposes.\n\n\n\u00a0\n\n\nThe Bioflux device has been developed,\namong other things, with the following features:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\n3 channels\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nBuilt-in cellular connectivity for global cellular network compatibility;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nExtended battery size for up to48 hours of battery life.\n\n\n\n\n\u00a0\n\n\n\n\n9\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe Bioflux platform has a built-in\ncellular chipset and a real-time embedded operating system which allows for our technology to be utilized as an Internet of Things (IoT)\nplatform. This technology can be leveraged into other applications and industries by utilizing the platform and OS side of Bioflux.\n\n\n\u00a0\n\n\nBiotres\n\n\n\u00a0\n\n\nHolter\nand Extended Holter monitors are significantly simplified versions of cardiac diagnostics that lack connectivity and analysis. Holter\nand Extended Holter monitors require data to be downloaded manually, resulting in diagnostic results taking up to 2 weeks or longer.\nThe Biotres device has been designed to address the limitations of existing solutions while providing the same disruptive business model\nas the Bioflux. Responding to our customer needs, the Biotres was developed with the following features:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\n3 channels\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nConnectivity\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nRechargeable\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nReusable\n\n\n\n\n\u00a0\n\n\nThe\nBiotres is also a platform technology that can be leveraged and used to enter other markets and support future product enhancements.\nThe company has already developed a number of enhancements for Biotres that will be available in the next generation of the solution.\n\n\n\u00a0\n\n\nBiocare,\nBioheart and Biokit\n\n\n\u00a0\n\n\nIt\nis widely reported that chronic illnesses related to lifestyle diseases are on the rise, resulting in increased healthcare costs. This\nhas caused a major shift in the US healthcare market, emphasizing a need for evidence-based healthcare system focused on overall health\noutcomes. Patient compliance is a critical component in driving improved health outcomes, where the patient adheres to and implements\ntheir physician\u2019s recommendation. Unfortunately, poor patient compliance is one of the most pressing issues in the healthcare market.\nOne of the key contributing factors to this is the lack of a feedback mechanism to measure improvement and knowledge. Studies show that\npoor patient compliance costs the US healthcare system $100 to $289 billion annually\n1\n, representing 3% to 10% of total US\nhealthcare costs\n2\n\u00a0. Studies have proven that regular monitoring of chronic care conditions improves patient outcomes\nin the form of lower morbidity rates and reduce the financial burden on the healthcare system by empowering preventative care.\n\n\n\u00a0\n\n\nThe\nCompany has developed Biocare to support medical practitioners as they gather data and regularly monitor and treat patients with two\nor more chronic care conditions. We expect that Bioheart combined with our Biocare platform, our fourth product, is focused on filling\nthis need by providing a clinically relevant, preventative care and disease management solution for the consumer. A key underlying component\nof Bioheart is the ability to measure patient improvements\u2014with clinical accuracy\u2014helping to drive feedback and support patient\ncompliance. This approach is implemented in our development process by focusing on a disease/chronic illness profile, as opposed to a\ncustomer profile. We are focused on cardiovascular disease for our first preventative care solution since Bioflux is aimed at the same\nhealth segment.\n\n\n\u00a0\n\n\nThe\nfocus on cardiovascular disease states make the combination of Bioheart and Biocare a unique offering within the chronic care management\nspace which is primarily focused on diabetes. With no long term consumer solution for heart patients, chronic care management has focused\non those conditions that do have personal devices, mainly diabetes, hypertension, and COPD. This is why we developed Bioheart, a consumer\nsolution for personal use for individuals with cardiac issues. Combined with our Biocare platform, it is one of the first disease management\nsolutions capable of delivering holistic chronic care management to cardiovascular patients.\n\n\n\u00a0\n\n\nTaking\nit a step further, we developed Biokit to support cardiac patients that had other chronic conditions such as hypertension or COPD. Biokit\nis a remote patient monitoring kit that combines a blood pressure cuff, an pulse oximeter and a digital thermometer into the Biocare\nplatform to support the collection of additional biometrics for those patients with multiple conditions. Biocare was developed with the\nfollowing features:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nIntegration\n    with cardiac diagnostics: Bioflux and Biotres\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nBioheart\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nBiokit\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nVirtual Clinic\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nAutomated biometric reporting\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nPatient Dashboards\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nAutomated time tracking\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nBuilt-in patient reminders\n    and calling\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nAsynchronous chat\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nMonthly data summaries\n\n\n\n\n\u00a0\n\n\nBiocare\nis also a platform technology that can be leveraged and used to enter other chronic condition markets and support future product enhancements.\nThe company has already developed a number of enhancements for Biocare that will be available in the next generation of the solution.\n\n\n\u00a0\n\n\nFuture Markets\n\n\n\u00a0\n\n\nIn the next few years, we intend\nto expand use of our technology platform with medical-grade solutions for the monitoring of blood pressure, diabetes, sleep apnea, chronic\npain, as well as fetal monitoring, and other adjacent healthcare and lifestyle markets.\n\n\n\u00a0\n\n\nBionatal is a proposed product\nfor monitoring fetus\u2019 health by remote cardiac telemetry. In the US, there were approximately 24,073 fetal deaths at 20 or more\nweeks gestation in 2012\n3\n. The rise of older mothers and mothers with chronic conditions have driven high-risk pregnancies to\na new high; high-risk complications now occur in 6 to 8 percent of all pregnancies\n4\n.\n\n\n\u00a0\n\n\nThe Company has also received an NIH grant to investigate cardiac anomalies in chronic kidney disease patients, which\nis designed to be a predictive or early detection tool for CKD patients. This and other new technology that the Company is developing is applicable to\nthe market segments that the Company intends to serve and will continue to adhere to the Company\u2019s revenue model of deriving income\nfrom technology fees.\n\n\n\u00a0\n\n\n\n\n10\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nCardiac Diagnostics\n\n\n\u00a0\n\n\nCardiac Outpatient Monitoring\n\n\n\u00a0\n\n\nThe medical technology equipment\nindustry is characterized by strong competition and rapid technological change. There are a number of companies developing technologies\nthat are competitive to our existing and proposed products, many of them, when compared to our Company, having significantly longer operational\nhistory and greater financial and other resources.\n\n\n\u00a0\n\n\nWithin the US event monitoring\nsystems market, we are aware of six main competitors in the COM product segment. These competitors have increased market presence and\ndistribution primarily by working through existing IDTFs. The existing competitors have maintained a competitive advantage within the\nmarket by controlling the distribution of all available COM devices and software solutions. Our primary competitors in the COM market\nare:\n\n\n\u00a0\n\n\n\u25cf \nBiotelemetry\n(formerly CardioNet), recently acquired by Philips for a reported $2.8B\n. We believe that BioTelemetry, Inc. (NASDAQ:BEAT), has\nthe largest network of IDTFs within the COM market. BioTelemetry is considered a complete solution provider as it produces and\ndistributes its own COM device, software solution, and COM monitoring centers. The company acquired its COM device through the\nacquisition of a COM manufacturer, Braemar. Upon acquisition of Braemar, BioTelemetry offered limited support to other clients\nutilizing Braemar\u2019s technology. This resulted in BioTelemetry increasing the use of its device and software solution, enabling\nwide market penetration. We believe that BioTelemetry business model is focused on providing the COM diagnostic service, as opposed\nto selling COM solutions to other IDTFs or service providers, which enables a perpetual per-read fee as opposed to one time device\nor software sales. Equity research analysts categorize BioTelemetry as a clinical health provider, because of its business model,\nrather than as a medical device company. As such, we believe that BioTelemetry market cap is limited by the low multiples associated\nwith that type of business, and, as a clinical health provider, BioTelemetry has significant overhead and fixed costs associated\nwith monitoring centers and health professionals.\n\n\n\u00a0\n\n\n\u25cf \nPreventice\n(formerly eCardio.), recently acquired by Boston Scientific for a reported $1.2B.\n Preventice is a private company, based in\nHouston, Texas. Preventice\u2019s device is manufactured by a third party medical device company, TZ Medical. Preventice has\nintegrated TZ Medical\u2019s device with its software solution to create a complete COM solution. Similar to Biotelemetry, we\nbelieve eCardio follows the same business model of offering the COM service and acting as a clinical health provider.\n\n\n\u00a0\n\n\n\u25cf \nScottCare\n. ScottCare\nis a private company in the US and a subsidiary of Scott Fetzer Company, a division of Berkshire Hathaway. ScottCare provides equipment\nfor cardiovascular clinics and diagnostic technicians. ScottCare has built its own COM device and software solution, and white-labeled\nTZ Medical\u2019s device. Unlike the others, ScottCare offers its solution in an insourced model, where the physician has the opportunity\nto bill. This model requires the physician to purchase a minimum number of devices at an approximate average cost of $2,000 and their\nsoftware at a cost of $25,000 to $40,000. After this initial upfront cost, ScottCare charges an additional per test fee for monitoring.\nWe believe the above model creates a long return on investment for the physician. In our opinion, this has resulted in little market penetration\nfor ScottCare as compared to the others.\n\n\n\u00a0\n\n\n\u25cf \nInfobionic\n. Infobionic\nis a private company located in Waltham, Massachusetts. It follows a leasing model where it leases it\u2019s technology at a fixed monthly\nrate, whether technology is used or not. They have a complete solution, comprised of a device and software. We believe that they have\na good model that will enable them to be competitive in the market. In our opinion, there is room for both Biotricity and Infobionic within\nthe marketplace, though we believe that our solution is superior in two ways. Firstly, our device has a screen which allows better patient\nfeedback and improved patient hookup at the clinic. Secondly, our business model is based on usage. The physician is charged a technology\nfee when the technology is used. If it is not used, there is no charge. This makes it attractive compared to Infobionic\u2019s model\nwhere the physician is charged even if the technology is not used.\n\n\n\u00a0\n\n\n\n\n11\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn addition, we note that:\n\n\n\u00a0\n\n\n\u25cf \nMedtronic\n. Medtronic\nis a major medical device conglomerate. It has an COM solution by the name of SEEQ that was added to their portfolio through the acquisition\nof Corventis. We have seen no significant activity or usage with SEEQ in our market analysis. We also note that SEEQ is a patch based\nCOM solution that only collects data on 1 lead. As such, it has strong competition from 3 lead systems which are the standard for COM.\nIn early 2018, Medtronic withdrew SEEQ from the marketplace. We do not view Medtronic as a primary competitor, but, given the size and\nreach of Medtronic, they are an organization that we must continuously watch and be aware of.\n\n\n\u00a0\n\n\n\u25cf \nTZ Medical\n. TZ\nMedical is a medical device company that focuses on manufacturing a variety of medical devices. We do not consider TZ Medical to be a\ndirect competitor as they produce an COM device that is available for purchase, and sold to competitors such as to Scottcare and Preventice,\ndescribed above. However, we do not believe that TZ Medical has a software solution, requiring any new entrant to either acquire or build\nout a software solution and then integrate that with the TZ Medical device. This creates a requirement for a large upfront capital investment.\nAs a result, we believe this approach only works for organizations looking to become COM solution providers with the same business model\nas the others.\n\n\n\u00a0\n\n\nWe believe that our Bioflux COM\nsolution will successfully compete because:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nit is designed as a platform to encompass all segments of the event monitoring market;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nof the insourcing business model which we believe is applicable to a significantly larger portion of the total available market and enable more efficient strategic penetration and distribution; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nfor the other reasons described earlier under \u201c\u2013Market Opportunity.\u201d\n\n\n\n\n\u00a0\n\n\nHolter/Extended Holter\n\n\n\u00a0\n\n\nWithin the US event monitoring\nsystems market, we are aware of three main competitors in the Holter patch product segment. These competitors have increased market presence\nand distribution primarily by working with Hospitals. The existing competitors have maintained a competitive advantage within the market\nby a first mover advantage. Our primary competitors in the Holter patch market are:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\niRhythm Technologies: iRhythm is the leader in holter patch technology with the largest footprint. They are primarily hospital focused and operate as an IDTF, much like our COM competitors. Their core product is the Zio patch, which is a 1 channel holter with no connectivity and is not rechargeable\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nBardyDx (\nRecently Acquired by Hilrom\n): BardyDx is the second largest player in the holter space. They operate as an IDTF as well. Their core product is a 1 channel patch with no connectivity with a removable chip for data uploads. \n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nVitalConnect: is a small player in the holter space. They have a disposable patch monitor that can be used for a limited time, making it unusable for long term studies. They operate as an IDTF. \n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nCardiac Disease Management\n\n\n\u00a0\n\n\nWithin the US cardiac disease\nmanagement market, we are aware of three main competitors in the cardiac care management segment. These competitors have different approaches,\nsolutions, and technologies but we still regard them as competitors. Technologically we have a number of differentiators as we are the\nonly company that has a continuous heart monitor. Our primary competitors in the cardiac disease management market are:\n\n\n\u00a0\n\n\nBioheart:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nAlivecor is a direct to consumer cardiac monitoring company. They are the biggest brand in consumer cardiac care and have a simple to use handheld cardiac device. They operate as a service provider, providing cardiac insights direct to individuals. \n\n\n\n\n\u00a0\n\n\nBiocare:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nOptimize Health: Optimize health is a chronic care and RPM platform for a variety of chronic conditions. Thought it is platform with no focus on cardiac specifically, it provides a complete platform for clinics and hospitals to utilize and build out a chronic disease management program. \n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nHelloHeart: Hello Heart is a disease management program focused on hypertension. It is one of the few disease management programs that is focused on a heart related chronic disease\n\n\n\n\n\u00a0\n\n\n\n\n12\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn the digital health space, we have noticed that\nwe have competitors for different products but not a single competitor that has the entire product portfolio that we have. This adds a\nlayer of differentiation and competitive advantage as customer can deal with one vendor as opposed to multiple vendors that they have\nto integrate.\n\n\n\u00a0\n\n\nIntellectual Property\n\n\n\u00a0\n\n\nWe primarily rely on trade secret\nprotection for our proprietary information. No assurance can be given that we can meaningfully protect our trade secrets. Others may independently\ndevelop substantially equivalent confidential and proprietary information or otherwise gain access to, or disclose, our trade secrets.\n\n\n\u00a0\n\n\nWe have and generally plan to\ncontinue to enter into non-disclosure, confidentiality and intellectual property assignment agreements with all new employees as a condition\nof employment. In addition, we intend to also generally enter into confidentiality and non-disclosure agreements with consultants, manufacturers\u2019\nrepresentatives, distributors, suppliers and others to attempt to limit access to, use and disclosure of our proprietary information.\nThere can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets\nin the event of unauthorized use or disclosure of such information.\n\n\n\u00a0\n\n\nWe also may from time to time\nrely on other intellectual property developed or acquired, including patents, technical innovations, laws of unfair competition and various\nother licensing agreements to provide our future growth and to build our competitive position. We have filed an industrial design patent\nin Canada, and we may decide to file for additional patents as we continue to expand our intellectual property portfolio. However, we\ncan give no assurance that competitors will not infringe on our patent or other rights or otherwise create similar or non-infringing competing\nproducts that are technically patentable in their own right. We fully intend to vigorously defend our intellectual property and patents.\n\n\n\u00a0\n\n\nCurrently, we have a number of\nregistered trademarks; we may obtain additional registrations in the future.\n\n\n\u00a0\n\n\nResearch and Development\n\n\n\u00a0\n\n\nOur research and development programs\nare generally pursued by engineers and scientists employed by us in California and Toronto on a full-time basis or hired as per diem consultants\nor through partnerships with industry leaders in manufacturing and design and researchers and academia. We are also working with subcontractors\nin developing specific components of our technologies. In all cases, we ensure that all areas of IP are owned and controlled by the Company.\n\n\n\u00a0\n\n\nThe primary objective of our research\nand development program is to advance the development of our existing and proposed products, to enhance the commercial value of such products.\n\n\n\u00a0\n\n\nWe incurred research and development\ncosts of $3.0 million for the fiscal year ended March 31, 2023 and $2.7 million for the fiscal year ended March 31, 2022.\n\n\n\u00a0\n\n\nGovernment Regulation\n\n\n\u00a0\n\n\nGeneral\n\n\n\u00a0\n\n\nOur medical device products are\nsubject to regulation by the U.S. FDA and various other federal and state agencies, as well as by foreign governmental\nagencies. These agencies enforce laws and regulations that govern the development, testing, manufacturing, labeling, advertising, marketing\nand distribution, and market surveillance of our medical device products.\n\n\n\u00a0\n\n\n\n\n13\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn addition to those indicated\nbelow, the only other regulations we encounter are regulations that are common to all businesses, such as employment legislation, implied\nwarranty laws, and environmental, health and safety standards, to the extent applicable. We will also encounter in the future industry-specific\ngovernment regulations that would govern our products, if and when developed for commercial use. It may become the case that other regulatory\napprovals will be required for the design and manufacture of our products and proposed products.\n\n\n\u00a0\n\n\nU.S. Regulation\n\n\n\u00a0\n\n\nThe FDA governs the following\nactivities that Biotricity performs, will perform, upon the clearance or approval of its product candidates, or that are performed on\nits behalf, to ensure that medical products distributed domestically or exported internationally are safe and effective for their intended\nuses:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nproduct design, and development;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nproduct safety, testing, labeling and storage;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nrecord keeping procedures; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nproduct marketing.\n\n\n\n\n\u00a0\n\n\nThere are numerous FDA regulatory\nrequirements governing the approval or clearance and subsequent commercial marketing of Biotricity\u2019s products. These include:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nthe timely submission of product listing and establishment registration information, along with associated establishment user fees;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\ncontinued compliance with the Quality System Regulation, or QSR, which require specification developers and manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures \u202fduring all aspects of the manufacturing process;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nlabeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label use or indication;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nclearance or approval of product modifications that could significantly affect the safety or effectiveness of the device or that would constitute a major change in intended use;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nMedical Device Reporting regulations (MDR), which require that manufacturers keep detailed records of investigations or complaints against their devices and to report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nadequate use of the Corrective and Preventive Actions process to identify and correct or prevent significant systemic failures of products or processes or in trends which suggest same;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\npost-approval restrictions or conditions, including post-approval study commitments;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\npost-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nnotices of correction or removal and recall regulations.\n\n\n\n\n\u00a0\n\n\n\n\n14\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nDepending on the classification\nof the device, before Biotricity can commercially distribute medical devices in the United States, it had to obtain, either prior 510(k)\nclearance, 510(k) de-novo clearance or premarket approval (PMA), from the FDA unless a respective exemption applied. The FDA classifies\nmedical devices into one of three classes based on the degree of risk associated with each medical device and the extent of regulatory\ncontrols needed to ensure the device\u2019s safety and effectiveness:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nClass I devices, which are low risk and subject to only general controls (e.g., registration and listing, medical device labeling compliance, MDRs, Quality System Regulations, and prohibitions against adulteration and misbranding) and, in some cases, to the 510(k) premarket clearance requirements;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nClass II devices, which are moderate risk and generally require 510(k) or 510(k) de-novo premarket clearance before they may be commercially marketed in the United States as well as general controls and potentially special controls like performance standards or specific labeling requirements; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nClass III devices, which are devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a predicate device. Class III devices generally require the submission and approval of a PMA supported by clinical trial data.\n\n\n\n\n\u00a0\n\n\nThe custom software and hardware\nof our products are classified as Class II. Class II devices are those for which general controls alone are insufficient to provide reasonable\nassurance of safety and effectiveness and there is sufficient information to establish special controls. Special controls can include\nperformance standards, post-market surveillance, patient histories and FDA guidance documents. Premarket review and clearance by the FDA\nfor these devices is generally accomplished through the 510(k) or 510(k) de-novo premarket notification process. As part of the 510(k)\nor 510(k) de-novo notification process, the FDA may have required the following:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nDevelopment of comprehensive product description and indications for use.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nCompletion of extensive preclinical tests and preclinical animal studies, performed in accordance with the FDA\u2019s Good Laboratory Practice (GLP) regulations.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nComprehensive review of predicate devices and development of data supporting the new product\u2019s substantial equivalence to one or more predicate devices.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nIf appropriate and required, certain types of clinical trials (IDE submission and approval may be required for conducting a clinical trial in the US).\n\n\n\n\n\u00a0\n\n\nIf required, clinical trials involve\nuse of the medical device on human subjects under the supervision of qualified investigators in accordance with current Good Clinical\nPractices (GCPs), including the requirement that all research subjects provide informed consent for their participation in the clinical\nstudy. A written protocol with predefined end points, an appropriate sample size and pre-determined patient inclusion and exclusion criteria,\nis required before initiating and conducting a clinical trial. All clinical investigations of devices to determine safety and effectiveness\nmust be conducted in accordance with the FDA\u2019s Investigational Device Exemption, or IDE, regulations that among other things, govern\ninvestigational device labeling, prohibit promotion of the investigational device, and specify recordkeeping, reporting and monitoring\nresponsibilities of study sponsors and study investigators. If the device presents a \u201csignificant risk,\u201d as defined by the\nFDA, the agency requires the device sponsor to submit an IDE application, which must become effective prior to commencing human clinical\ntrials. The IDE will automatically become effective 30 days after receipt by the FDA, unless the FDA denies the application or notifies\nthe company that the investigation is on hold and may not begin. If the FDA determines that there are deficiencies or other concerns with\nan IDE that requires modification, the FDA may permit a clinical trial to proceed under a conditional approval. In addition, the study\nmust be approved by, and conducted under the oversight of, an Institutional Review Board (IRB) for each clinical site. If the device presents\na non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs\nwithout separate approval from the FDA, but it must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring\nthat the investigators obtain informed consent, and labeling and record-keeping requirements.\n\n\n\u00a0\n\n\n\n\n15\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nGiven successful completion of\nall required testing, a detailed 510(k) premarket notification or 510(k) de-novo was submitted to the FDA requesting clearance to market\nthe product. The notification included all relevant data from pertinent preclinical and clinical trials, together with detailed information\nrelating to the product\u2019s manufacturing controls and proposed labeling, and other relevant documentation.\n\n\n\u00a0\n\n\nA 510(k) clearance letter from\nthe FDA then authorized commercial marketing of the device for one or more specific indications of use.\n\n\n\u00a0\n\n\nAfter 510(k) clearance, Biotricity\nis required to comply with a number of post-clearance requirements, including, but not limited to, Medical Device Reporting and complaint\nhandling, and, if applicable, reporting of corrective actions. Also, quality control and manufacturing procedures must continue to conform\nto QSRs. The FDA periodically inspects manufacturing facilities to assess compliance with QSRs, which impose extensive procedural, substantive,\nand record keeping requirements on medical device manufacturers. In addition, changes to the manufacturing process are strictly regulated,\nand, depending on the change, validation activities may need to be performed. Accordingly, manufacturers must continue to expend time,\nmoney and effort in the area of production and quality control to maintain compliance with QSRs and other types of regulatory controls.\n\n\n\u00a0\n\n\nAfter a device receives 510(k)\nclearance from FDA, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change\nin its intended use or technological characteristics, requires a new 510(k) clearance or could require a PMA. The FDA requires each manufacturer\nto make the determination of whether a modification requires a new 510(k) notification or PMA in the first instance, but the FDA can review\nany such decision. If the FDA disagrees with a manufacturer\u2019s decision not to seek a new 510(k) clearance or PMA for a particular\nchange, the FDA may retroactively require the manufacturer to seek 510(k) clearance or PMA. The FDA can also require the manufacturer\nto cease U.S. marketing and/or recall the modified device until additional 510(k) clearance or PMA approval is obtained.\n\n\n\u00a0\n\n\nThe FDA and the Federal Trade\nCommission, or FTC, will also regulate the advertising claims of Biotricity\u2019s products to ensure that the claims it makes are consistent\nwith its regulatory clearances, that there is scientific data to substantiate the claims and that product advertising is neither false\nnor misleading.\n\n\n\u00a0\n\n\nWe received 510(k) clearance for\nboth the software and hardware components of our Bioflux and Biotres products. To obtain 510(k) clearance, a company must submit a notification to\nthe FDA demonstrating that its proposed device is substantially equivalent to a predicate device (i.e., a device that was in commercial\ndistribution before May 28, 1976, a device that has been reclassified from Class III to Class I or Class II, or a 510(k)-cleared device).\nThe FDA\u2019s 510(k) clearance process generally takes from three to 12 months from the date the application is submitted but also can\ntake significantly longer. If the FDA determines that the device or its intended use is not substantially equivalent to a predicate device,\nthe device is automatically placed into Class III, requiring the submission of a PMA. Once the information is submitted, there is no guarantee\nthat the FDA will grant a company 510(k) clearance for its pipeline products, and failure to obtain the necessary clearances for its products\nwould adversely affect its ability to grow its business. Delays in receipt or failure to receive the necessary clearances, or the failure\nto comply with existing or future regulatory requirements, could reduce its business prospects.\n\n\n\u00a0\n\n\nDevices that cannot be cleared\nthrough the 510(k) process due to lack of a predicate device but would be considered low or moderate risk may be eligible for the 510(k)\nde-novo process. In 1997, the Food and Drug Administration Modernization Act, or FDAMA added the de novo classification pathway now codified\nin section 513(f)(2) of the 29&C Act. This law established an alternate pathway to classify new devices into Class I or II that had\nautomatically been placed in Class III after receiving a Not Substantially Equivalent, or NSE, determination in response to a 510(k) submission.\nThrough this regulatory process, a sponsor who receives an NSE determination may, within 30 days of receipt, request FDA to make a risk-based\nclassification of the device through what is called a \u201cde novo request.\u201d In 2012, section 513(f)(2) of the 29&C Act was\namended by section 607 of the Food and Drug Administration Safety and Innovation Act (FDASIA), in order to provide a second option for\nde novo classification. Under this second pathway, a sponsor who determines that there is no legally marketed device upon which to base\na determination of substantial equivalence can submit a de novo request to FDA without first submitting a 510(k).\n\n\n\u00a0\n\n\n\n\n16\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn the event that a company receives\na Not Substantially Equivalent determination for its candidates in response to a 510(k) submission, the device may still be eligible for\nthe 510(k) de-novo classification process.\n\n\n\u00a0\n\n\nDevices that cannot be cleared\nthrough the 510(k) or 510(k) de-novo classification process require the submission of a PMA. The PMA process is much more time consuming\nand demanding than the 510(k) notification process. A PMA must be supported by extensive data, including but not limited to data obtained\nfrom preclinical and/or clinical studies and data relating to manufacturing and labeling, to demonstrate to the FDA\u2019s satisfaction\nthe safety and effectiveness of the device. After a PMA application is submitted, the FDA\u2019s in-depth review of the information generally\ntakes between one and three years and may take significantly longer. If the FDA does not grant 510(k) clearance to its future products,\nthere is no guarantee that Biotricity will submit a PMA or that if it does, that the FDA would grant a PMA approval of Biotricity\u2019s\nfuture products, either of which would adversely affect Biotricity\u2019s business.\n\n\n\u00a0\n\n\nWe have installed a suitable\nand effective quality management system, which establishes controlled processes for our product design, manufacturing, and distribution.\nWe plan to do this in compliance with the internationally recognized standard ISO 13485:2013 Medical Devices \u2013 Quality Management\nSystems \u2013 Requirements for Regulatory Purposes. Following the introduction of a product, the FDA and foreign agencies engage in\nperiodic reviews of our quality systems, as well as product performance and advertising and promotional materials. These regulatory controls,\nas well as any changes in FDA policies, can affect the time and cost associated with the development, introduction and continued availability\nof new products. Where possible, we anticipate these factors in our product development processes. These agencies possess the authority\nto take various administrative and legal actions against us, such as product recalls, product seizures and other civil and criminal sanctions.\n\n\n\u00a0\n\n\nForeign Regulation\n\n\n\u00a0\n\n\nIn addition to regulations in\nthe United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution\nof our products in foreign countries. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the\ncomparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries.\nThe approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements\ngoverning the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.\n\n\n\u00a0\n\n\nThe policies of the FDA and foreign\nregulatory authorities may change and additional government regulations may be enacted which could prevent or delay regulatory approval\nof our products and could also increase the cost of regulatory compliance. We cannot predict the likelihood, nature or extent of adverse\ngovernmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.\n\n\n\u00a0\n\n\nManufacturing and Suppliers\n\n\n\u00a0\n\n\nEarlier in the life-cycle of the Company, we focused primarily on research\nand development of the first generation version of the Bioflux. We have since completed the development of Biotres and of Bioheart and\ntheir proposed marketing and distribution. We currently assemble our devices at our Redwood City, California facility. In order to maintain\ncompliance with FDA and other regulatory requirements, our manufacturing facilities must be periodically re-evaluated and qualified under\na quality system to ensure they meet production and quality standards. Suppliers of components and products used to manufacture our devices\nmust also comply with FDA regulatory requirements, which often require significant resources and subject us and our suppliers to potential\nregulatory inspections and stoppages.\n\n\n\u00a0\n\n\nWe have a scalable manufacturing\nstrategy and goals and use Providence Enterprises (\nherein\n \u201c\nProvidence\n\u201d), which is an FDA qualified manufacturer\nfor contract manufacturing. We do not have a contract with Providence or any obligation to use them (nor do they have any obligations\nwith respect to us other than with respect to any specific orders we may make) and we enter into purchase orders for each manufacturing\nrequest we have with Providence, as we would with other vendors. Despite our working relationship with Providence, we intend to continue\nto identify and develop other efficient, automated, low-cost manufacturing capabilities and options to meet the quality, price, engineering,\ndesign and production standards or production volumes required to successfully mass market our products, especially at the low-cost levels\nwe require to facilitate our business plan.\n\n\n\u00a0\n\n\n\n\n17\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe currently rely on a number\nof principal suppliers for the components that make up our products and proposed products; these include Digikey Corporation and Mouser\nElectronics for electronics and connectors, Telit/Stollmann for Bluetooth modules, Yongan Innovations for batteries, Dongguan Bole RP&M\nCp. Ltd. for plastics, Unimed Medical and Conmed for ECG cables and electrodes, and Medico Systems for touch-panel LCD displays. We believe\nthat the raw materials used or expected to be used in our planned products can be acquired from multiple sources and are readily available\non the market.\n\n\n\u00a0\n\n\nEmployees\n\n\n\u00a0\n\n\nWe currently have 55 full-time\nemployees and approximately 20 consultants who are based in our offices located in Silicon Valley, California and Toronto, Canada. These\nemployees oversee day-to-day operations of the Company and, together with the consultants, support management, engineering, manufacturing,\nand administration. We have no unionized employees.\n\n\n\u00a0\n\n\nWe\nplan to hire 10 \nto\n 15 additional full-time employees within the next 12 months\n, as needed to support continued growth in our business.\nTheir principal responsibilities will be the support of our sales, marketing, research and development, and clinical development activities.\n\n\n\u00a0\n\n\nWe consider relations with our\nemployees to be satisfactory.\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A. RISK FACTORS\n    \n17\n\n\n\n\nITEM 1B. UNRESOLVED STAFF COMMENTS\n\n\n33\n\n\n\n\nITEM 2. PROPERTIES\n\n\n33\n\n\n\n\nITEM 3. LEGAL PROCEEDINGS\n\n\n33\n\n\n\n\nITEM 4. MINE SAFETY DISCLOSURES.\n\n\n33\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nPART II\n\n\n34\n\n\n\n\nITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES\n\n\n34\n\n\n\n\nITEM 6. SELECTED FINANCIAL DATA\n\n\n36\n\n\n\n\nITEM 7. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS [UPDATE]\n\n\n36\n\n\n\n\nITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\n\n51\n\n\n\n\nITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA\n\n\n51\n\n\n\n\nITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES\n\n\n51\n\n\n\n\nITEM 9A. CONTROLS AND PROCEDURES\n\n\n51\n\n\n\n\nITEM 9B. OTHER INFORMATION\n\n\n52\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nPART III\n\n\n53\n\n\n\n\nITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE\n\n\n53\n\n\n\n\nITEM 11. EXECUTIVE COMPENSATION\n\n\n55\n\n\n\n\nITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT\n\n\n59\n\n\n\n\nITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE\n\n\n60\n\n\n\n\nITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES\n\n\n61\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nPART IV\n\n\n61\n\n\n\n\nITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES\n\n\n61\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nSIGNATURES\n\n\n63\n\n\n\u00a0\n\n\n\n\n2\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nPART I\n\n\n\u00a0\n\n",
+  "item7": ">ITEM 7. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS\nOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\n\n\u00a0\n\n\nThe following Management\u2019s\nDiscussion and Analysis of Financial Condition and Results of Operations (\u201c\nMD&A\n\u201d) covers information pertaining\nto the Company up to March 31, 2023 and should be read in conjunction with our financial statements and related notes of the Company as\nof and for the fiscal years ended March 31, 2023 and 2022 contained elsewhere in this Annual Report on Form 10-K. Except as otherwise\nnoted, the financial information contained in this MD&A and in the financial statements has been prepared in accordance with accounting\nprinciples generally accepted in the United States of America. All amounts are expressed in U.S. dollars unless otherwise noted.\n\n\n\u00a0\n\n\nForward Looking Statements\n\n\n\u00a0\n\n\nCertain information contained\nin this MD&A and elsewhere in this Annual Report on Form 10-K includes \u201cforward-looking statements.\u201d Statements which\nare not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition\nand results of operations, prospects and opportunities and are based upon information currently available to us and our management and\ntheir interpretation of what is believed to be significant factors affecting our existing and proposed business, including many assumptions\nregarding future events. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities\ncould differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result\nof various risks, uncertainties and other factors, including those risks described in detail in the section entitled \u201cRisk Factors\u201d\nas well as elsewhere herein.\n\n\n\u00a0\n\n\n\n\n37\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nForward-looking statements, which\ninvolve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words \u201cmay,\u201d\n\u201cshould,\u201d \u201cwould,\u201d \u201cwill,\u201d \u201ccould,\u201d \u201cscheduled,\u201d \u201cexpect,\u201d \u201canticipate,\u201d\n\u201cestimate,\u201d \u201cbelieve,\u201d \u201cintend,\u201d \u201cseek,\u201d or \u201cproject\u201d or the negative of these\nwords or other variations on these words or comparable terminology.\n\n\n\u00a0\n\n\nIn light of these risks and uncertainties,\nand especially given the nature of our existing and proposed business, there can be no assurance that the forward-looking statements contained\nin this section and elsewhere in herein will in fact occur. Potential investors should not place undue reliance on any forward-looking\nstatements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking\nstatements, whether as a result of new information, future events, changed circumstances or any other reason.\n\n\n\u00a0\n\n\nCompany\nOverview\n\u00a0\n\n\n\u00a0\n\n\nBiotricity Inc. (the \u201cCompany\u201d,\n\u201cBiotricity\u201d, \u201cwe\u201d, \u201cus\u201d, \u201cour\u201d) is a medical technology company focused on biometric\ndata monitoring solutions. Our aim is to deliver innovative, remote monitoring solutions to the medical, healthcare, and consumer markets,\nwith a focus on diagnostic and post-diagnostic solutions for lifestyle and chronic illnesses. We approach the diagnostic side of remote\npatient monitoring by applying innovation within existing business models where reimbursement is established. We believe this approach\nreduces the risk associated with traditional medical device development and accelerates the path to revenue. In post-diagnostic markets,\nwe intend to apply medical grade biometrics to enable consumers to self-manage, thereby driving patient compliance and reducing healthcare\ncosts. We intend to first focus on a segment of the diagnostic mobile cardiac telemetry market, otherwise known as COM, while providing\nour chosen markets with the capability to also perform other cardiac studies.\n\n\n\u00a0\n\n\nWe developed our FDA-cleared Bioflux\u00ae COM technology, comprised of\na monitoring device and software components, which we made available to the market under limited release on April 6, 2018, in order to\nassess, establish and develop sales processes and market dynamics. The fiscal year ended March 31, 2021 marked the Company\u2019s first\nyear of expanded commercialization efforts, focused on sales growth and expansion. In 2021, the Company announced the initial launch of\nBioheart, a direct-to-consumer heart monitor that offers the same continuous heart monitoring technology used by physicians. In addition\nto developing and receiving regulatory approval or clearance of other technologies that enhance its ecosystem, in 2022, the Company announced\nthe launch of its Biotres Cardiac Monitoring Device (\u201cBiotres\u201d), a three-lead device for ECG and arrhythmia monitoring intended\nfor lower risk patients, a much broader addressable market segment. We have since expanded our sales efforts to 31 states, with intention\nto expand further and compete in the broader US market using an insourcing business model. Our technology has a large potential total\naddressable market, which can include hospitals, clinics and physicians\u2019 offices, as well as other Independent Diagnostic Testing\nFacilities (\u201cIDTFs)\u201d. We believe our solution\u2019s insourcing model, which empowers physicians with state-of-the-art technology\nand charges technology service fees for its use, has the benefit of a reduced operating overhead for the Company, and enables a more efficient\nmarket penetration and distribution strategy.\n\n\n\u00a0\n\n\nWe are a technology company focused on earning utilization-based\nrecurring technology fee revenue. The Company\u2019s ability to grow this type of revenue is predicated on the size and quality of its\nsales force and their ability to penetrate the market and place devices with clinically focused, repeat users of its cardiac study technology.\nThe Company plans to grow its sales force in order to address new markets and achieve sales penetration in the markets currently served.\n\n\n\u00a0\n\n\nFull market release of the Bioflux COM device for\ncommercialization launched in April 2019, after receiving its second and final required FDA clearance. To commence commercialization,\nwe ordered device inventory from our FDA-approved manufacturer and hired a small, captive sales force, with deep experience in cardiac\ntechnology sales; we expanded on our limited market release, which identified potential anchor clients who could be early adopters of\nour technology. By increasing our sales force and geographic footprint, we had launched sales in 31 U.S. states by December 31, 2022.\n\n\n\u00a0\n\n\nOn January 24, 2022 the Company announced that it\nhas received the 510(k) FDA clearance of its Biotres patch solution, which is a novel product in the field of Holter monitoring. This\nthree-lead technology can provide connected Holter monitoring that is designed to produce more accurate arrythmia detection than is typical\nof competing remote patient monitoring solutions. It is also foundational, since already developed improvements to this technology will\nfollow which are not known by the Company to be currently available in the market, for clinical and consumer patch solution applications.\n\n\n\u00a0\n\n\n\n\n38\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nDuring 2021, the Company also announced that it received\na 510(k) clearance from the FDA for its Bioflux Software II System, engineered to improve workflows and reduce estimated analysis time\nfrom 5 minutes to 30 seconds. ECG monitoring requires significant human oversight to review and interpret incoming patient data to discern\nactionable events for clinical intervention, highlighting the necessity of driving operational efficiency. This improvement in analysis\ntime reduces operational costs and allows the company to continue to focus on excellent customer service and industry-leading response\ntimes to physicians and their at-risk patients. Additionally, these advances mean we can focus our resources on high-level operations\nand sales.\n\n\n\u00a0\n\n\nThe Company has also developed or is developing several\nother ancillary technologies, which will require application for further FDA clearances, which the Company anticipates applying for within\nthe next to twelve months. Among these are:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nadvanced ECG analysis software that can analyze and synthesize patient ECG monitoring data with the purpose of distilling it down to the important information that requires clinical intervention, while reducing the amount of human intervention necessary in the process;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\nthe Bioflux\u00ae 2.0, which is the next generation of our award winning Bioflux\u00ae\n\n\n\n\n\u00a0\n\n\nDuring 2021 and the early part of 2022, the Company\nhas also commercially launched its Bioheart technology, which is a consumer technology whose development was forged out of prior the development\nof the clinical technologies that are already part of the Company\u2019s technology ecosystem, the BioSphere. In recognition of its product\ndevelopment, in November 2022, the Company\u2019s Bioheart received recognition as one of Time Magazine\u2019s Best Inventions of 2022.\n\n\n\u00a0\n\n\nThe COVID-19 pandemic has highlighted the importance\nof telemedicine and remote patient monitoring technologies. During the twelve months ended March 31, 2023, the Company continued to\ndevelop a telemedicine platform, with capabilities of real-time streaming of medical devices. Telemedicine offers patients the ability\nto communicate directly with their health care providers without the need of leaving their home. The introduction of a telemedicine solution\nis intended to align with the Company\u2019s Bioflux product and facilitate remote visits and remote prescriptions for cardiac diagnostics,\nbut it will also serve as a means of establishing referral and other synergies across the network of doctors and patients that use the\ntechnologies we are building within the Biotricity ecosystem. The intention is to continue to provide improved care to patients that may\notherwise elect not to go to medical facilities and continue to provide economic benefits and costs savings to healthcare service providers\nand payers that reimburse. The Company\u2019s goal is to position itself as an all-in-one cardiac diagnostic and disease management solution.\nThe Company continues to grow its data set of billions of patient heartbeats, allowing it to further develop its predictive capabilities\nrelative to atrial fibrillation and arrythmias.\n\n\n\u00a0\n\n\nIn October 2022, the Company launched its Biocare\nCardiac Disease Management Solution, after successfully piloting this technology in two facilities that provide cardiac care to more\nthan 60,000 patients. This technology and other consumer technologies and applications such as the Biokit and Biocare have been developed\nto allow the Company to transform and use its strong cardiac footprint to expand into remote chronic care management solutions that will\nbe part of the BioSphere. The technology puts actionable data into the hands of physicians in order to assist them in making effective\ntreatment decisions quickly. During March 2023, the Company launched its patient-facing Biocare app on Android and Apple app stores.\nThis further allows the Company to expand its footprint in providing full-cycle chronic care management solutions to its clinic and patient\nnetwork.\n\n\n\u00a0\n\n\nThe Company identified the importance of recent\ndevelopments in accelerating its path to profitability, including the launch of important new products identified, which have a\nready market through cross-selling to existing large customer clinics, and large new distribution partnerships that allow the\nCompany to sell into large hospital networks. \nAdditionally, in September 2022, the Company\nwas awarded a NIH Grant from the National Heart, Blood, and Lung Institute for AI-Enabled real-time monitoring, and predictive\nanalytics for stroke due to chronic kidney failure. This is a significant achievement that broadens our technology platform\u2019s\ndisease space demographic. The grant focusses on Bioflux-AI as an innovative system for real-time monitoring and prediction of\nstroke episodes in chronic kidney disease patients. The Company received $238,703 under this award in March 2023, used to defray research, development and other associated\ncosts. \n\n\n\u00a0\n\n\n\n\n39\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nResults of Operations\n\n\n\u00a0\n\n\nBiotricity incurred a net loss attributed to common stockholders of $19.5\nmillion (loss per share of 37.6 cents) during the year ended March 31, 2023 as compared to $30.2 million (loss per share 66.5 cents) during\nthe year ended March 31, 2022. From the Company\u2019s inception in 2009 through March 31, 2023, the Company has generated an accumulated\ndeficit of $112.6 million. We devoted, and expect to continue to devote, significant resources in the areas of sales and marketing and\nresearch and development costs. We also expect to incur additional operating losses, as we build the infrastructure required to support\nhigher sales volume.\n\n\n\u00a0\n\n\nComparison\nof the Fiscal Years and the Three Months Periods Ended March 31, 2023 and 2022\n\n\n\u00a0\n\n\nThe following table sets forth our results of operations\nfor the fiscal years ended March 31, 2023 and 2022.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nFor the years ended\n\n\nMarch 31,\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nPeriod to\n\n\nPeriod\n\n\nChange\n\n\n\u00a0\n\n\n\n\nRevenue\n\n\n\u00a0\n\n\n$\n\n\n9,639,057\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n7,650,269\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,988,788\n\n\n\u00a0\n\n\n\n\nCost of revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,197,024\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,080,116\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,116,908\n\n\n\u00a0\n\n\n\n\nGross profit\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,442,033\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,570,153\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n871,880\n\n\n\u00a0\n\n\n\n\nGross Margin\n\n\n\u00a0\n\n\n\u00a0\n\n\n56.5\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n59.7\n\n\n%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nOperating expenses:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nSelling, general and administrative\n\n\n\u00a0\n\n\n\u00a0\n\n\n17,621,865\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n18,556,827\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(940,504\n\n\n)\n\n\n\n\nResearch and development\n\n\n\u00a0\n\n\n\u00a0\n\n\n3,229,879\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,744,587\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n485,292\n\n\n\u00a0\n\n\n\n\nTotal operating expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n20,851,744\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n21,301,414\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(455,212\n\n\n)\n\n\n\n\nLoss from operations\n\n\n\u00a0\n\n\n\u00a0\n\n\n(15,409,711\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(16,731,261\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,327,092\n\n\n\u00a0\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,839,159\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,289,112\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(555,589\n\n\n)\n\n\n\n\nAccretion and amortization expenses\n\n\n\u00a0\n\n\n\u00a0\n\n\n(743,459\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(9,286,023\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,542,564\n\n\n\u00a0\n\n\n\n\nChange in fair value of derivative liabilities\n\n\n\u00a0\n\n\n\u00a0\n\n\n(483,873\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(683,559\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n199,686\n\n\n\u00a0\n\n\n\n\nLoss upon convertible promissory note conversion and redemption\n\n\n\u00a0\n\n\n\u00a0\n\n\n(71,119\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(1,155,642\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,084,523\n\n\n\u00a0\n\n\n\n\nOther (expense) income\n\n\n\u00a0\n\n\n\u00a0\n\n\n(110,822\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n15,120\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(125,942\n\n\n)\n\n\n\n\nNet loss before income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n(18,658,143\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(29,130,477\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n10,472,334\n\n\n\u00a0\n\n\n\n\nIncome taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\nNet loss before dividends\n\n\n\u00a0\n\n\n$\n\n\n(18,658,143\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(29,130,477\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n10,472,334\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe\nfollowing table sets forth our results of operations for the three months ended March 31, 2023 and 2022.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFor the 3 months ended\n \nMarch 31,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\u00a0\n\n\nPeriod to\n \nPeriod\n \nChange\n\u00a0\n\n\n\n\nRevenue\n\u00a0\n\n\n$\n2,742,435\n\u00a0\n\u00a0\n\n\n$\n2,148,742\n\u00a0\n\u00a0\n\n\n$\n593,693\n\u00a0\n\n\n\n\nCost of revenue\n\u00a0\n\n\n\u00a0\n1,207,734\n\u00a0\n\u00a0\n\n\n\u00a0\n708,105\n\u00a0\n\u00a0\n\n\n\u00a0\n499,629\n\u00a0\n\n\n\n\nGross profit\n\u00a0\n\n\n\u00a0\n1,534,709\n\u00a0\n\u00a0\n\n\n\u00a0\n1,440,637\n\u00a0\n\u00a0\n\n\n\u00a0\n94,064\n\u00a0\n\n\n\n\nGross Margin\n\u00a0\n\n\n\u00a0\n56.0\n%\n\u00a0\n\n\n\u00a0\n67.0\n%\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nOperating expenses:\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nSelling, general and administrative\n\u00a0\n\n\n\u00a0\n4,284,977\n\u00a0\n\u00a0\n\n\n\u00a0\n5,544,627\n\u00a0\n\u00a0\n\n\n\u00a0\n(1,259,650\n)\n\n\n\n\nResearch and development\n\u00a0\n\n\n\u00a0\n703,329\n\u00a0\n\u00a0\n\n\n\u00a0\n629,453\n\u00a0\n\u00a0\n\n\n\u00a0\n73,876\n\u00a0\n\n\n\n\nTotal operating expenses\n\u00a0\n\n\n\u00a0\n4,988,306\n\u00a0\n\u00a0\n\n\n\u00a0\n6,174,080\n\u00a0\n\u00a0\n\n\n\u00a0\n(1,185,774\n)\n\n\n\n\nLoss from operations\n\u00a0\n\n\n\u00a0\n(3,453,605\n)\n\u00a0\n\n\n\u00a0\n(4,733,443\n)\n\u00a0\n\n\n\u00a0\n1,279,838\n\u00a0\n\n\n\n\nInterest expense\n\u00a0\n\n\n\u00a0\n(665,350\n)\n\u00a0\n\n\n\u00a0\n(380,288\n)\n\u00a0\n\n\n\u00a0\n(285,062\n)\n\n\n\n\nAccretion and amortization expenses\n\u00a0\n\n\n\u00a0\n(559,956\n)\n\u00a0\n\n\n\u00a0\n(451,295\n)\n\u00a0\n\n\n\u00a0\n(108,661\n)\n\n\n\n\nChange in fair value of derivative liabilities\n\u00a0\n\n\n\u00a0\n(13,902\n)\n\u00a0\n\n\n\u00a0\n(7,387\n)\n\u00a0\n\n\n\u00a0\n(6,515\n)\n\n\n\n\nLoss upon convertible promissory note conversion and redemption\n\u00a0\n\n\n\u00a0\n14,418\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n14,418\n\u00a0\n\n\n\n\nOther (expense) income\n\u00a0\n\n\n\u00a0\n6,167\n\u00a0\n\u00a0\n\n\n\u00a0\n(39,427\n)\n\u00a0\n\n\n\u00a0\n45,594\n\u00a0\n\n\n\n\nNet loss before income taxes\n\u00a0\n\n\n\u00a0\n(4,672,228\n)\n\u00a0\n\n\n\u00a0\n(5,611,840\n)\n\u00a0\n\n\n\u00a0\n939,612\n\u00a0\n\n\n\n\nIncome taxes\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\n\n\n\nNet loss before dividends\n\u00a0\n\n\n$\n(4,672,228\n)\n\u00a0\n\n\n$\n(5,611,840\n)\n\u00a0\n\n\n$\n939,612\n\u00a0\n\n\n\n\n\u00a0\n\n\nRevenue and cost of revenue\n\n\n\u00a0\n\n\nBy increasing our sales force and geographic footprint, we have launched\nsales in 31 U.S. states by March 31, 2023. The Company earned combined device sales and technology fee income totaling $9.6 million during\nthe year ended March 31, 2023, a 26% increase over the $7.7 million earned in the preceding fiscal year. During three months ended March 31, 2023, the Company earned total sales of $2.7 million, a 28% increase over the\n$2.1 million sales earned in the corresponding quarter in prior year.\n\n\n\u00a0\n\n\nOur gross profit percentage\nwas 56.7% during the year ended March 31, 2023 as compared to 59.7% during the comparable prior year period. The slight decrease period\nover period was due to a decrease in gross margin related to sales of device hardware as we continue providing discounts on sales of device\nhardware in order to increase volumes and expand our scale on subscription billings for the technology fees. The decrease in gross margin\nrelated to sales of device hardware was partially offset by increased margin on technology fee sales. We expect the gross margin related to technology fees to continue improving going forward as we achieve greater economy\nof scale on our technology services, including the cost of monitoring. \nGiven\nconsistent gross margin on technology fees of approximately 70%, and an evolving revenue mix where technology fees are expected to comprise\nan increasing proportion of revenue, we anticipate continued improvement in overall blended gross margin over time.\n\n\n\u00a0\n\n\nGross profit percentage was 56% during three months ended March 31, 2023 as compared to 67% in the corresponding\nquarter in the prior year. This was mainly a result of service revenue of $500K that was earned in three months ended March 31, 2022,\nwhich had a gross margin significantly higher than the Company\u2019s regular revenue streams.\n\n\n\u00a0\n\n\n\n\n40\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOperating Expenses\n\n\n\u00a0\n\n\nTotal operating expenses for the\nfiscal year ended March 31, 2023 were $20.9 million compared to $21.3 million for the fiscal year ended March 31, 2022. Total operating expenses for the three months ended March 31, 2022 were $5.0 million as compared $6.2 million for\nthe three months ended March 31, 2022. See further explanations below.\n\n\n\u00a0\n\n\nSelling, General and administrative expenses\n\n\n\u00a0\n\n\nOur selling, general and\nadministrative expenses for the fiscal year and three months ended March 31, 2023 decreased to $17.6 million and $4.3 million,\nrespectively, compared to approximately $18.6 million and $5.5 million during the fiscal year and three months ended March 31, 2022.\nDespite our increased spending on sales efforts, our total selling, general and administrative expenses decreased by $0.9 million\nand $1.3 million, respectively, for the fiscal year and the fiscal quarter ended March 31, which was primarily due increased\nmonitoring of spending efficiency over our fixed general and administrative expenses.\n\n\n\u00a0\n\n\nResearch and development expenses\n\n\n\u00a0\n\n\nDuring the fiscal year and\nthree months ended March 31, 2023 we recorded research and development expenses of $3.0 million and $0.7 million, respectively,\ncompared to $2.7 million and $0.6 million incurred in the fiscal year and three months ended March 31, 2022. The research and\ndevelopment activity related to both existing and new products. The increase in research and development activity was a result of\ncontinuous development of new technologies for our ecosystem and product enhancements.\n\n\n\u00a0\n\n\nInterest Expense\n\n\n\u00a0\n\n\nDuring the fiscal year ended March\n31, 2023 and March 31, 2022, we incurred interest expenses of $1.8 million and $1.3 million, respectively. During three months ended March 31, 2023 and March 31, 2022, we incurred interest expenses of $665 thousand and $380\nthousand, respectively. The increase in interest expense\ncorresponded to an increase in borrowings and market increases in interest rates period over period.\n\n\n\u00a0\n\n\nAccretion and amortization expenses\n\n\n\u00a0\n\n\nDuring the fiscal year ended March\n31, 2023 and March 31, 2022, we incurred accretion expense of $0.7 million and $9.3 million, respectively. The decrease from the prior\nyear period was primarily the result of full amortization of the debt discount related to Series A and Series B convertible notes by the\nend of the prior year. The amortization during the current year related primarily to the amortization of debt discount related to the\nCompany\u2019s term loan, and a small amount of amortization of debt discount related to new convertible notes entered towards end of\nthe current fiscal year. During the three months ended March 31, 2023 and March 31, 2022, we incurred accretion expenses of $560 thousand\nand $451 thousand, respectively. The slight increase was a result of debt discount amortization related to new convertible notes entered\ntowards end of the current fiscal year.\n\n\n\u00a0\n\n\nChange in fair value of derivative liabilities\n\n\n\u00a0\n\n\nDuring the year ended March 31,\n2023 and March 31, 2022, the Company recognized $484 thousand and $684 thousand, respectively, related to the change in fair value of\nderivative liabilities. During the three months ended March 31, 2023 and March 31, 2022, the Company recognized $14 thousand and $7 thousand,\nrespectively, related to the change in fair value of derivative liabilities.\n\n\n\u00a0\n\n\nLoss upon convertible promissory notes conversion\n\n\n\u00a0\n\n\nDuring the years ended March\n31, 2023 and 2022, we recorded a loss of $71 thousand and $1.2 million, respectively, related to the conversion of our convertible\npromissory notes. During the three months ended March 31, 2023 and 2022, we recorded a gain of $14 thousand and Nil, respectively,\nrelated to the conversion and redemption of our convertible promissory notes. The decrease of loss upon conversion and redemption is\na result of decreased volumes of conversions during fiscal 2023 as compared to prior year.\n\n\n\u00a0\n\n\nOther (expense) income\n\n\n\u00a0\n\n\nDuring the year ended March 31,\n2023, we recognized $111 thousand in net other expense, as compared to net other income of $15 thousand in the corresponding prior year\nperiod. The change in net other (expense) income is mainly a result of loss upon debt extinguishments during current year. During the three months ended March 31, 2023, we recognized $6 thousand in net other income, as compared to net other\nloss of $39 thousand in the corresponding prior year quarter.\n\n\n\u00a0\n\n\n\n\n41\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nEBITDA and Adjusted EBITDA\n\n\n\u00a0\n\n\nEarnings before interest, taxes,\ndepreciation and amortization expenses (EBITDA) and Adjusted EBITDA, which are presented below, are non-generally accepted accounting\nprinciples (non-GAAP) measures that we believe are useful to management, investors and other users of our financial information in evaluating\noperating profitability. EBITDA is calculated by adding back interest, taxes, depreciation and amortization expenses to net income.\n\n\n\u00a0\n\n\nAdjusted EBITDA is calculated\nby excluding from EBITDA the effect of the following non-operational items: equity in earnings and losses of unconsolidated businesses\nand other income and expense, net, as well as the effect of special items that related to one-time, non-recurring expenditures . We believe\nthat this measure is useful to management, investors and other users of our financial information in evaluating the effectiveness of our\noperations and underlying business trends in a manner that is consistent with management\u2019s evaluation of business performance. Further,\nthe exclusion of non-operational items and special items enables comparability to prior period performance and trend analysis. See notes\nin the table below for additional information regarding special items.\n\n\n\u00a0\n\n\nIt is management\u2019s intent\nto provide non-GAAP financial information to enhance the understanding of Biotricity\u2019s GAAP financial information, and it should\nbe considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. We believe\nthat providing these non-GAAP measures in addition to the GAAP measures allows management, investors and other users of our financial\ninformation to more fully and accurately assess business performance. The non-GAAP financial information presented may be determined or\ncalculated differently by other companies and may not be directly comparable to that of other companies.\n\n\n\u00a0\n\n\n\n\n\n\nEBITDA and Adjusted EBITDA\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n12 months ended March 31, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n12 months ended March 31, 2022\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n3 months\n\n\nended March 31, 2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n3 months\n\n\nended March 31, 2022\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n\n\nNet loss attributable to common stockholders\n\n\n\u00a0\n\n\n\u00a0\n\n\n(19,533,683\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(30,219,454\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,857,438\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,981,731\n\n\n)\n\n\n\n\nAdd:\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nProvision for income taxes\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\nInterest expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,839,159\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,283,570\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n665,350\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n380,288\n\n\n\u00a0\n\n\n\n\nDepreciation expense\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,953\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n2,308\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,488\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,488\n\n\n\u00a0\n\n\n\n\nEBITDA\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17,688,571\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(28,933,576\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,190,600\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,599,955\n\n\n)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nAdd (Less)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nAccretion expense related to convertible note conversion (1)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n4,485,143\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\nExpense (gain) related to convertible note conversion and redemption (2)\n\n\n\u00a0\n\n\n\u00a0\n\n\n71,119\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n1,155,642\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(14,418\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\nFair value change on derivative liabilities (3)\n\n\n\u00a0\n\n\n\u00a0\n\n\n483,873\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n683,559\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n13,902\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,387\n\n\n\u00a0\n\n\n\n\nUplisting transaction expense (4)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n946,763\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\nOther expense related to debt extinguishments (5)\n\n\n\u00a0\n\n\n\u00a0\n\n\n126,158\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u2014\n\n\n\u00a0\n\n\n\n\nAdjusted EBITDA\n\n\n\u00a0\n\n\n\u00a0\n\n\n(17,007,421\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(21,662,469\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(4,191,116\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(5,592,568\n\n\n)\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nWeighted average number of common shares outstanding\n\n\n\u00a0\n\n\n\u00a0\n\n\n51,957,841\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n45,449,720\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n52,394,387\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n50,650,735\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nAdjusted Loss per Share, Basic and Diluted\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.327\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.477\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.080\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n(0.110\n\n\n)\n\n\n\n\n\u00a0\n\n\n(1) This relates to one-time recognition of accretion\nexpenses relate to the remaining debt discount balances on notes that were converted.\n\n\n\u00a0\n\n\n\n\n42\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n(2) This relates to one-time recognition of\nexpenses reflecting the difference between the book value of the convertible note, relevant unamortized discounts and derivative liabilities derecognized upon conversion, and the fair\nvalue of shares that the notes were converted into, or cash paid upon redemption.\n\n\n(3) Fair value changes on derivative liabilities corresponds\nto changes in the underlying stock value and thus does not reflect our day to day operations.\n\n\n(4) These are one-time legal, professional and regulatory\nfees related to uplisting to Nasdaq during Q2 2022.\n\n\n(5) This relates to the extinguishment loss attributed\nto convertible note and relevant investor warrant amendments.\n\n\n\u00a0\n\n\nNet Loss\n\n\n\u00a0\n\n\nAs a result of the foregoing,\nthe net loss attributable to common stockholders for the fiscal year ended March 31, 2023 was $19.5 million compared to a net loss of\n$30.2 million during the fiscal year ended March 31, 2022.\n\n\n\u00a0\n\n\nTranslation Adjustment\n\n\n\u00a0\n\n\nTranslation adjustment for\nthe fiscal year ended March 31, 2023 was a gain of $616 thousand compared to a loss of $134 thousand for the fiscal year ended March\n31, 2022. Translation adjustment was a loss of $10 thousand and $133 thousand, respectively, for the three months ended March 31,\n2023 and March 31, 2022. This translation adjustment represents gains and losses that result from the translation of currency in the\nfinancial statements from our functional currency of Canadian dollars to the reporting currency in U.S. dollars over the course of\nthe reporting period.\n\n\n\u00a0\n\n\nGlobal Economic Conditions\n\n\n\u00a0\n\n\nGenerally, worldwide economic\nconditions remain uncertain, particularly due to the effects of the COVID-19 pandemic and increased inflation. The general economic and\ncapital market conditions both in the U.S. and worldwide, have been volatile in the past and at times have adversely affected our access\nto capital and increased the cost of capital. The capital and credit markets may not be available to support future capital raising activity\non favorable terms. If economic conditions decline, our future cost of equity or debt capital and access to the capital markets could\nbe adversely affected.\n\n\n\u00a0\n\n\nThe COVID-19 pandemic that began\nin late 2019 introduced significant volatility to the global economy, disrupted supply chains and had a widespread adverse effect on the\nfinancial markets.\u00a0Additionally, our operating results could be materially impacted by changes in the overall macroeconomic environment\nand other economic factors. Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the conflict\nin Ukraine, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus\nand spending programs, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary\npolicy, including increased interest rates.\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\n\n\u00a0\n\n\nOn March 31, 2023, we had cash deposits in the aggregate of approximately $0.6 million. Management has noted the\nexistence of substantial doubt about our ability to continue as a going concern. Additionally, our independent registered public accounting\nfirm included an explanatory paragraph in the report on our financial statements as of and for the years ended March 31, 2023 and 2022,\nrespectively, noting the existence of substantial doubt about our ability to continue as a going concern. Our existing cash deposits may\nnot be sufficient to fund our operating expenses through at least twelve months from the date of this filing. To continue to fund operations,\nwe will need to secure additional funding through public or private equity or debt financings, through collaborations or partnerships\nwith other companies or other sources. We may not be able to raise additional capital on terms acceptable to us, or at all. Any failure\nto raise capital when needed could compromise our ability to execute our business plan. If we are unable to raise additional funds, or if our anticipated operating results are\nnot achieved, we believe planned expenditure may need to be reduced in order to extend the time period that existing resources can fund our operations.\nIf we are unable to obtain the necessary capital, it may have a material adverse effect on our operations and the development of our technology,\nor we may have to cease operations altogether.\n\n\n\u00a0\n\n\nThe development and commercialization of our product offerings are subject to numerous uncertainties, and we could\nuse our cash resources sooner than we expect. Additionally, the process of developing our products is costly, and the timing of progress\ncan be subject to uncertainty; our ability to successfully transition to profitability may be dependent upon achieving further regulatory\napprovals and achieving a level of product sales adequate to support our cost structure. Though we are optimistic with respect to our\nrevenue growth trajectory and our cost control initiatives, we cannot be certain that we will ever be profitable or generate positive\ncash flow from operating activities.\n\n\n\u00a0\n\n\nThe Company is in commercialization\nmode, while continuing to pursue the development of its next generation COM product as well as new products that are being developed.\n\n\n\u00a0\n\n\nWe generally require cash to:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u25cf\n\n\npurchase devices that will be placed in the field for pilot projects and to produce revenue,\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf \n\n\nlaunch sales initiatives,\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf \n\n\nfund our operations and working capital requirements,\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf \n\n\ndevelop and execute our product development and market introduction plans,\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf \n\n\nfund research and development efforts, and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u25cf \n\n\npay any expense obligations as they come due.\n\n\n\n\n\u00a0\n\n\n\n\n43\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe Company is in the early stages\nof commercializing its products. It is concurrently in development mode, operating a research and development program in order to develop\nan ecosystem of medical technologies, and, where required or deemed advisable, obtain regulatory approvals for, and commercialize other\nproposed products. The Company launched its first commercial sales program as part of a limited market release, during the year ended\nMarch 31, 2019, using an experienced professional in-house sales team. A full market release ensued during the year ended March 31, 2020.\nManagement anticipates the Company will continue on its revenue growth trajectory and improve its liquidity through continued business\ndevelopment and after additional equity or debt capitalization of the Company. The Company has incurred recurring losses from operations,\nand as at March 31, 2023, has an accumulated deficit of $112.5 million. On August 30, 2021 the Company completed an underwritten public\noffering of its common stock that concurrently facilitated its listing on the Nasdaq Capital Market. On March 31, 2023, the Company has\na working capital deficit of $6.4 million (March 31, 2022 \u2013 working capital surplus of $10.5 million). Prior to listing on the\nNasdaq Capital Market, the Company had also filed a shelf Registration Statement on Form S-3 (No. 333-255544) with the Securities and\nExchange Commission on April 27, 2021, which was declared effective on May 4, 2021. This facilitates better transactional preparedness\nwhen the Company seeks to issue equity or debt to potential investors, since it continues to allow the Company to offer its shares to\ninvestors only by means of a prospectus, including a prospectus supplement, which forms part of an effective registration statement.\n\n\n\u00a0\n\n\nThe Company has developed and\ncontinues to pursue sources of funding that management believes will be sufficient to support the Company\u2019s operating plan and\nalleviate any substantial doubt as to its ability to meet its obligations at least for a period of one year from the date of these consolidated\nfinancial statements. During the fiscal year ended March 31, 2021, the Company closed a number of private placements offering of convertible\nnotes, which have raised net cash proceeds of $11,375,690. During fiscal quarter ended June 30,\n2021, the Company raised an additional $499,900 through government EIDL loan. During the fiscal\nquarter ended September 30, 2021, the Company raised total net proceeds of $14,545,805 through the underwritten public offering that was concurrent\nwith its listing onto the Nasdaq Capital Markets. During the fiscal quarter ended December 31, 2021, the Company raised additional net\nproceeds of $11,756,563 through a term loan transaction (Note 6) and made repayment of the previously issued promissory notes and short-term\nloan. In connection with this loan, the Company and Lender also entered into a Guarantee and Collateral Agreement wherein the Company\nagreed to secure the Credit Agreement with all of the Company\u2019s assets. The Company and Lender also entered into an Intellectual\nProperty Security Agreement dated December 21, 2021 wherein the Credit Agreement is also secured by the Company\u2019s right title and\ninterest in the Company\u2019s Intellectual Property. During the fiscal year ended March 31, 2023, the Company raised short-term loans\nand promissory notes, net of repayments of $1,476,121 from various lenders. During the fiscal year ended March 31, 2023, the Company raised\nconvertible notes, net of redemptions of $2,355,318 from various lenders.\n\n\n\u00a0\n\n\nAs we proceed with the commercialization\nof the Bioflux, Biotres and Biocare products and continue their development, we expect to continue to devote significant resources on\ncapital expenditures, as well as research and development costs and operations, marketing and sales expenditures.\n\n\n\u00a0\n\n\nWe expect to require additional\nfunds to further develop our business plan, including the continuous commercialization and expansion of the technologies that will form\npart of its BioSphere eco-system. Based on the current known facts and assumptions, we believe our existing cash and cash equivalents,\naccess to funding sources, along with anticipated near-term debt and equity financings, will be sufficient to meet our needs for the next\ntwelve months from the filing date of this report. We intend to seek and opportunistically acquire additional debt or equity capital to\nrespond to business opportunities and challenges, including our ongoing operating expenses, protecting our intellectual property, developing\nor acquiring new lines of business and enhancing our operating infrastructure. The terms of our future financings may be dilutive to,\nor otherwise adversely affect, holders of our common stock. We may also seek additional funds through arrangements with collaborators\nor other third parties. There can be no assurance we will be able to raise this additional capital on acceptable terms, or at all. If\nwe are unable to obtain additional funding on a timely basis, we may be required to modify our operating plan and otherwise curtail or\nslow the pace of development and commercialization of our proposed product lines.\n\n\n\u00a0\n\n\nThe following is a summary of\ncash flows for each of the periods set forth below.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFor the Years Ended\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nMarch 31,\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\nNet cash used in operating activities\n\u00a0\n\n\n$\n(13,547,935\n)\n\u00a0\n\n\n$\n(15,163,384\n)\n\n\n\n\nNet cash used in investing activities\n\u00a0\n\n\n\u00a0\n\u2014\n\u00a0\n\u00a0\n\n\n\u00a0\n(29,767\n)\n\n\n\n\nNet cash provided by financing activities\n\u00a0\n\n\n\u00a0\n2,001,603\n\u00a0\n\u00a0\n\n\n\u00a0\n25,168,230\n\u00a0\n\n\n\n\nNet (decrease) increase in cash\n\u00a0\n\n\n$\n(11,546,332\n)\n\u00a0\n\n\n$\n9,975,079\n\u00a0\n\n\n\n\n\u00a0\n\n\nNet Cash Used in Operating Activities\n\n\n\u00a0\n\n\nDuring the fiscal year ended March\n31, 2023, we used cash in operating activities in the amount of $13.5 million compared to $15.2 million for the fiscal year ended March\n31, 2022. For each of the fiscal years ended March 31, 2023 and March 31, 2022, the cash in operating activities was primarily due to\nselling expenses as well as research, product development, business development, marketing and general operations. The decrease in cash used reflects management\u2019s concerted effort to contain costs while increasing revenues,\non the path of achieving break-even.\n\n\n\u00a0\n\n\n\n\n44\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nNet Cash Used in Investing Activities\n\n\n\u00a0\n\n\nNet cash used in investing activities was Nil and $30 thousand\nrespectively in the fiscal years ended March 31, 2023 and March 31, 2022.\n\n\n\u00a0\n\n\nNet Cash Provided by Financing Activities\n\n\n\u00a0\n\n\nNet cash provided by\nfinancing activities was $2.0 million for the fiscal year ended March 31, 2023 compared to $25.2 million for the fiscal year ended\nMarch 31, 2022. The financing activities of fiscal 2022 reflected the concurrent capital raise that accompanied the Company\u2019s\nlisting on the Nasdaq Capital Markets Exchange.\n\n\n\u00a0\n\n\nFor the fiscal year ended March\n31, 2023, the cash provided by financing activities was primarily from proceeds in connection with the issuance of convertible notes and\nloans, net of repayments, in the amount of $3.8 million. The financing proceeds were partially offset by the payment of preferred stock\ndividends in the amount of $0.9 million and by the redemption of preferred stock in the amount of $0.9 million.\n\n\n\u00a0\n\n\nFor the fiscal year ended March\n31, 2022, the cash provided by financing activities was primarily due to the issuance of shares from up listing of $14.5 million (net\nproceeds) and proceeds of $11.7 million from term loans, net of other financing and repayment activities.\n\n\n\u00a0\n\n\nCritical Accounting Policies\n\u00a0\n\n\n\u00a0\n\n\nThe financial statements have\nbeen prepared in accordance with accounting principles generally accepted in the United States of America (\u201cUS GAAP\u201d) and\nare expressed in United States Dollars. Significant accounting policies are summarized below:\n\n\n\u00a0\n\n\nRevenue Recognition\n\n\n\u00a0\n\n\nThe Company adopted Accounting\nStandards Codification Topic 606, \u201cRevenue from Contracts with Customers\u201d (\u201cASC 606\u201d) on April 1, 2018. In accordance\nwith ASC 606, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration\nto which the Company expects to be entitled in exchange for those goods or services by applying the core principles \u2013 1) identify\nthe contract with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate\nthe transaction price to performance obligations in the contract, and 5) recognize revenue as performance obligations are satisfied.\n\n\n\u00a0\n\n\nThe Bioflux mobile cardiac telemetry\ndevice, a wearable device, is worn by patients for a monitoring period up to 30 days. The cardiac data that the device monitors and collects\nis curated and analyzed by the Company\u2019s proprietary algorithms and then securely communicated to a remote monitoring facility for\nelectronic reporting and conveyance to the patient\u2019s prescribing physician or other certified cardiac medical professional. Revenues\nearned with respect to this device are comprised of device sales revenues and technology fee revenues (technology as a service). The device,\ntogether with its licensed software, is available for sale to the medical center or physician, who is responsible for the delivery of\nclinical diagnosis and therapy. The remote monitoring, data collection and reporting services performed by the technology culminate in\na patient study that is generally billable when it is complete and is issued to the physician. In order to recognize revenue, management\nconsiders whether or not the following criteria are met: persuasive evidence of a commercial arrangement exists, and delivery has occurred\nor services have been rendered. For sales of devices, which are invoiced directly, additional revenue recognition criteria include that\nthe price is fixed and determinable and collectability is reasonably assured; for device sales contracts with terms of more than one year,\nthe Company recognizes any significant financing component as revenue over the contractual period using the effective interest method,\nand the associated interest income is reflected accordingly on the statement of operations and included in other income; for revenue that\nis earned based on customer usage of the proprietary software to render a patient\u2019s cardiac study, the Company recognizes revenue\nwhen the study ends based on a fixed billing rate. Costs associated with providing the services are recorded as the service is provided\nregardless of whether or when revenue is recognized.\n\n\n\u00a0\n\n\n\n\n45\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe Company may also earn service-related\nrevenue from contracts with other counterparties with which it consults. This contract work is separate and distinct from services provided\nto clinical customers, but may be with a reseller or other counterparties that are working to establish their operations in foreign jurisdictions\nor ancillary products or market segments in which the Company has expertise and may eventually conduct business.\n\n\n\u00a0\n\n\nThe Company recognized the following\nforms of revenue for the fiscal years ended March 31, 2023 and 2022:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\n2022\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u00a0\n\n\n\n\nTechnology fees\n\n\n\u00a0\n\n\n\u00a0\n\n\n8,802,032\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n5,904,393\n\n\n\u00a0\n\n\n\n\nDevice sales\n\n\n\u00a0\n\n\n\u00a0\n\n\n827,035\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n995,876\n\n\n\u00a0\n\n\n\n\nService-related and other revenue\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n750,000\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n9,639,057\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n7,650,269\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe\nCompany recognized the following forms of revenue for the three months ended March 31, 2023 and 2022:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n$\n\u00a0\n\u00a0\n\n\n$\n\u00a0\n\n\n\n\nTechnology fees\n\u00a0\n\n\n\u00a0\n2,561,990\n\u00a0\n\u00a0\n\n\n\u00a0\n1,539,101\n\u00a0\n\n\n\n\nDevice sales\n\u00a0\n\n\n\u00a0\n180,444\n\u00a0\n\u00a0\n\n\n\u00a0\n109,641\n\u00a0\n\n\n\n\nService-related and other revenue\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n500,000\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n\u00a0\n2,742,435\n\u00a0\n\u00a0\n\n\n\u00a0\n2,148,742\n\u00a0\n\n\n\n\n\u00a0\n\n\nInventory\n\n\n\u00a0\n\n\nInventory is stated at the\nlower of cost and market value, cost being determined on a weighted average cost basis. Market value of our finished goods inventory\nis determined based on its estimated net realizable value, which is generally the\nselling price less normally predictable costs of disposal and transportation. The Company records write-downs of inventory that is\nobsolete or in excess of anticipated demand or market value based on consideration of product lifecycle stage, technology trends,\nproduct development plans and assumptions about future demand and market conditions. Actual demand may differ from forecasted\ndemand, and such differences may have a material effect on recorded inventory values. Inventory write-downs are charged to cost of\nrevenue and establish a new cost basis for the inventory.\n\n\n\u00a0\n\n\nSignificant accounting estimates and assumptions\n\n\n\u00a0\n\n\nThe preparation of the consolidated\nfinancial statements requires the use of estimates and assumptions to be made in applying the accounting policies that affect the reported\namounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. The estimates and related\nassumptions are based on previous experiences and other factors considered reasonable under the circumstances, the results of which form\nthe basis for making the assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources.\n\n\n\u00a0\n\n\nThe estimates and underlying assumptions\nare reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the\nrevision affects only that period or in the period of the revision and future periods if the revision affects both current and future\nperiods.\n\n\n\u00a0\n\n\nSignificant accounts that require\nestimates as the basis for determining the stated amounts include share-based compensation, impairment analysis and fair value of warrants,\nstructured notes, convertible debt and conversion liabilities.\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\nFair value of stock options\n\n\n\n\n\u00a0\n\n\nThe Company measures\nthe cost of equity-settled transactions with employees by reference to the fair value of equity instruments at the date at which they\nare granted. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant of such\ninstruments, which is dependent on the terms and conditions of the grant. The estimate also requires determining the most appropriate\ninputs to the Black-Scholes option pricing model, including the expected life of the instrument, risk-free rate, volatility, and dividend\nyield.\n\n\n\u00a0\n\n\n\n\n46\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\nFair value of warrants\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0In determining the fair value of the warrant issued for services and issue pursuant to financing transactions, the Company used the Black-Scholes option pricing model with the following assumptions: volatility rate, risk-free rate, and the remaining expected life of the warrants that are classified under equity.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\nFair value of derivative liabilities\n\n\n\n\n\u00a0\n\n\nIn determining the\nfair values of the derivative liabilities from the conversion and redemption features, the Company used valuation models with the following\nassumptions: dividend yields, volatility, risk-free rate and the remaining expected life. Changes in those assumptions and inputs could\nin turn impact the fair value of the derivative liabilities and can have a material impact on the reported loss and comprehensive loss\nfor the applicable reporting period.\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\nFunctional currency\n\n\n\n\n\u00a0\n\n\nDetermining the appropriate\nfunctional currencies for entities in the Company requires analysis of various factors, including the currencies and country-specific\nfactors that mainly influence labor, materials, and other operating expenses.\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\nUseful life of property and equipment\n\n\n\n\n\u00a0\n\n\nThe Company employs\nsignificant estimates to determine the estimated useful lives of property and equipment, considering industry trends such as technological\nadvancements, past experience, expected use and review of asset useful lives. The Company makes estimates when determining depreciation\nmethods, depreciation rates and asset useful lives, which requires considering industry trends and company-specific factors. The Company\nreviews depreciation methods, useful lives and residual values annually or when circumstances change and adjusts its depreciation methods\nand assumptions prospectively.\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\nProvisions\n\n\n\n\n\u00a0\n\n\nProvisions are recognized\nwhen the Company has a present obligation, legal or constructive, as a result of a previous event, if it is probable that the Company\nwill be required to settle the obligation and a reliable estimate can be made of the obligation. The amount recognized is the best estimate\nof the expenditure required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties\nsurrounding the obligations. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate\nof the expected future cash flows.\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\nContingencies\n\n\n\n\n\u00a0\n\n\nContingencies can\nbe either possible assets or possible liabilities arising from past events, which, by their nature, will be resolved only when one or\nmore uncertain future events occur or fail to occur. The assessment of the existence and potential impact of contingencies inherently\ninvolves the exercise of significant judgment and the use of estimates regarding the outcome of future events.\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\nInventory obsolescence\n\n\n\n\n\u00a0\n\n\nInventories are stated\nat the lower of cost and market value. Market value of our inventory, which is all purchased finished goods, is determined based on its\nestimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation. The\nCompany estimates net realizable value as the amount at which inventories are expected to be sold, taking into consideration fluctuations\nin retail prices less estimated costs necessary to make the sale. Inventories are written down to net realizable value when the cost of\ninventories is estimated to be unrecoverable due to obsolescence, damage, or declining selling prices.\n\n\n\u00a0\n\n\n\n\n47\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\nIncome and other taxes\n\n\n\n\n\u00a0\n\n\nThe calculation of\ncurrent and deferred income taxes requires the Company to make estimates and assumptions and to exercise judgment regarding the carrying\nvalues of assets and liabilities which are subject to accounting estimates inherent in those balances, the interpretation of income tax\nlegislation across various jurisdictions, expectations about future operating results, the timing of reversal of temporary differences\nand possible audits of income tax filings by the tax authorities. In addition, when the Company incurs losses for income tax purposes,\nit assesses the probability of taxable income being available in the future based on its budgeted forecasts. These forecasts are adjusted\nto take into account certain non-taxable income and expenses and specific rules on the use of unused credits and tax losses.\n\n\n\u00a0\n\n\nWhen the forecasts\nindicate that sufficient future taxable income will be available to deduct the temporary differences, a deferred tax asset is recognized\nfor all deductible temporary differences. Changes or differences in underlying estimates or assumptions may result in changes to the current\nor deferred income tax balances on the consolidated statements of financial position, a charge or credit to income tax expense included\nas part of net income (loss) and may result in cash payments or receipts. Judgment includes consideration of the Company\u2019s future\ncash requirements in its tax jurisdictions. All income, capital and commodity tax filings are subject to audits and reassessments. Changes\nin interpretations or judgments may result in a change in the Company\u2019s income, capital, or commodity tax provisions in the future.\nThe amount of such a change cannot be reasonably estimated.\n\n\n\u00a0\n\n\n\n\n\n\n\u25cf\n\n\nIncremental borrowing rate for lease \n\n\n\n\n\u00a0\n\n\nThe determination\nof the Company\u2019s lease obligation and right-of-use asset depends on certain assumptions, which include the selection of the discount\nrate. The discount rate is set by reference to the Company\u2019s incremental borrowing rate. Significant assumptions are required to\nbe made when determining which borrowing rates to apply in this determination. Changes in the assumptions used may have a significant\neffect on the Company\u2019s consolidated financial statements.\n\n\n\u00a0\n\n\nEarnings (Loss) Per Share\n\n\n\u00a0\n\n\nThe Company has adopted the Financial\nAccounting Standards Board\u2019s (\u201cFASB\u201d) Accounting Standards Codification (\u201cASC\u201d) Topic 260-10 which provides\nfor calculation of \u201cbasic\u201d and \u201cdiluted\u201d earnings per share. Basic earnings per share includes no dilution and\nis computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding\nfor the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity.\nDiluted earnings per share exclude all potentially dilutive shares if their effect is anti-dilutive. There were no potentially dilutive\nshares outstanding as at March 31, 2023 and 2022.\n\n\n\u00a0\n\n\nCash\n\n\n\u00a0\n\n\nCash includes cash on hand and\nbalances with banks.\n\n\n\u00a0\n\n\nForeign Currency Translation\n\n\n\u00a0\n\n\nThe functional currency of the\nCompany\u2019s Canadian-based subsidiary is the Canadian dollar and the US-based parent is the U.S. dollar. Transactions denominated\nin currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates\nof the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing\nat the balance sheet date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction.\nAll exchange gains or losses arising from translation of these foreign currency transactions are included in net income (loss) for the\nyear. In translating the financial statements of the Company\u2019s Canadian subsidiaries from their functional currency into the Company\u2019s\nreporting currency of United States dollars, balance sheet accounts are translated using the closing exchange rate in effect at the balance\nsheet date and income and expense accounts are translated using an average exchange rate prevailing during the reporting period. Adjustments\nresulting from the translation, if any, are included in cumulative other comprehensive income (loss) in stockholders\u2019 equity. The\nCompany has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign\ncurrency fluctuations.\n\n\n\u00a0\n\n\n\n\n48\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAccounts Receivable\n\n\n\u00a0\n\n\nAccounts receivable consists of\namounts due to the Company from medical facilities, which receive reimbursement from institutions and third-party government and commercial\npayors and their related patients, as a result of the Company\u2019s normal business activities. Accounts receivable is reported on the\nbalance sheets net of an estimated allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts for estimated\nuncollectible receivables based on historical experience, assessment of specific risk, review of outstanding invoices, and various assumptions\nand estimates that are believed to be reasonable under the circumstances, and recognizes the provision as a component of selling, general\nand administrative expenses. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been\nexhausted and when it is deemed that a balance is uncollectible.\n\n\n\u00a0\n\n\nFair Value of Financial Instruments\n\n\n\u00a0\n\n\nASC 820 defines fair value, establishes\na framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. ASC 820-10\ndefines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal\nor most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.\nASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the\nuse of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:\n\n\n\u00a0\n\n\n\u25cf Level 1 \u2013 Valuation based on quoted\nmarket prices in active markets for identical assets or liabilities.\n\n\n\u00a0\n\n\n\u25cf Level 2 \u2013 Valuation based on quoted\nmarket prices for similar assets and liabilities in active markets.\n\n\n\u00a0\n\n\n\u25cf Level 3 \u2013 Valuation based on unobservable\ninputs that are supported by little or no market activity, therefore requiring management\u2019s best estimate of what market participants\nwould use as fair value.\n\n\n\u00a0\n\n\nIn instances where the determination\nof the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy\nwithin which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement\nin its entirety. The Company\u2019s assessment of the significance of a particular input to the fair value measurement in its entirety\nrequires judgment, and considers factors specific to the asset or liability.\n\n\n\u00a0\n\n\nFair value estimates discussed\nherein are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain\non-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments or interest rates\nthat are comparable to market rates. These financial instruments include cash, accounts receivable, deposits and other receivables, convertible\npromissory notes, and accounts payable and accrued liabilities. The Company\u2019s cash and derivative liabilities, which are carried\nat fair values, are classified as a Level 1 and Level 3, respectively. The Company\u2019s bank accounts are maintained with financial\ninstitutions of reputable credit, therefore, bear minimal credit risk.\n\n\n\u00a0\n\n\nProperty and Equipment\n\n\n\u00a0\n\n\nProperty and equipment are stated\nat cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the\nassets. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. Maintenance\nand repairs are charged to expense as incurred, and improvements and betterments are capitalized. Depreciation of property and equipment\nis provided using the straight-line method for substantially all assets with estimated lives as follow:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nOffice equipment \n\n\n5 years\n\n\n\n\n\u00a0\n\n\nLeasehold improvement \n\n\n5 years\n\n\n\n\n\u00a0\n\n\n\n\n49\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nImpairment for Long-Lived Assets\n\n\n\u00a0\n\n\nThe Company applies the provisions\nof ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of\nlong-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets, including right-of-use assets, used in operations\nwhen indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the\nassets\u2019 carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair\nvalue of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values\nare reduced for the cost of disposal. Based on its review at March 31, 2023 and 2022, the Company believes there was no impairment of\nits long-lived assets.\n\n\n\u00a0\n\n\nLeases\n\n\n\u00a0\n\n\nOn April 1, 2019, the Company\nadopted Accounting Standards Codification Topic 842, \u201cLeases\u201d (\u201cASC 842\u201d) to replace existing lease accounting\nguidance. This pronouncement is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use\nassets and corresponding lease liabilities on the balance sheet for most leases. Expenses associated with leases will continue to be recognized\nin a manner like previous accounting guidance. The Company adopted ASC 842 utilizing the transition practical expedient added by the Financial\nAccounting Standards Board (\u201cFASB\u201d), which eliminates the requirement that entities apply the new lease standard to the comparative\nperiods presented in the year of adoption.\n\n\n\u00a0\n\n\nThe Company is the lessee in a\nlease contract when the Company obtains the right to use the asset. Operating leases are included in the line items right-of-use asset,\nlease obligation, current, and lease obligation, long-term in the consolidated balance sheet. Right-of-use (\u201cROU\u201d) asset represents\nthe Company\u2019s right to use an underlying asset for the lease term and lease obligations represent the Company\u2019s obligations\nto make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments\nover the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on the consolidated\nbalance sheet and are expensed on a straight-line basis over the lease term in our consolidated statement of income. The Company determines\nthe lease term by agreement with lessor. As our lease does not provide an implicit interest rate, the Company uses the Company\u2019s\nincremental borrowing rate based on the information available at commencement date in determining the present value of future payments.\n\n\n\u00a0\n\n\nIncome Taxes\n\n\n\u00a0\n\n\nThe Company accounts for income\ntaxes in accordance with ASC 740. The Company provides for Federal and Provincial income taxes payable, as well as for those deferred\nbecause of the timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred\ntax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amount of assets\nand liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are\nmeasured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected\nto be recoverable or settled. The effect of a change in tax rates is recognized as income or expense in the period of the change. A valuation\nallowance is established, when necessary, to reduce deferred income tax assets to the amount that is more likely than not to be realized.\n\n\n\u00a0\n\n\nResearch and Development\n\n\n\u00a0\n\n\nResearch and development costs,\nwhich relate primarily to product and software development, are charged to operations as incurred. Under certain research and development\narrangements with third parties, the Company may be required to make payments that are contingent on the achievement of specific developmental,\nregulatory and/or commercial milestones. Before a product receives regulatory approval, milestone payments made to third parties are expensed\nwhen the milestone is achieved\n. \nMilestone payments made to third parties after regulatory approval is received are capitalized\nand amortized over the estimated useful life of the approved product.\n\n\n\u00a0\n\n\n\n\n50\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nSelling, General and Administrative\n\n\n\u00a0\n\n\nSelling,\ngeneral and administrative expenses consist primarily of personnel-related costs including stock-based compensation for personnel in functions\nnot directly associated with research and development activities. Other significant costs include sales and marketing costs, investor\nrelation and legal costs relating to corporate matters, professional fees for consultants assisting with business development and financial\nmatters, and office and administrative expenses.\n\n\n\u00a0\n\n\nStock Based Compensation\n\n\n\u00a0\n\n\nThe Company accounts for share-based\npayments in accordance with the provision of ASC 718, which requires that all share-based payments issued to acquire goods or services,\nincluding grants of employee stock options, be recognized in the statement of operations based on their fair values, net of estimated\nforfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual\nforfeitures differ from those estimates. Compensation expense related to share-based awards is recognized over the requisite service period,\nwhich is generally the vesting period.\n\n\n\u00a0\n\n\nThe Company accounts for stock-based\ncompensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered\nor the instruments issued in exchange for such services, whichever is more readily determinable, using the guidelines in ASC 505-50. The\nCompany issues compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate\ncommunication, financial and administrative consulting services.\n\n\n\u00a0\n\n\nConvertible Notes Payable and Derivative Instruments\n\n\n\u00a0\n\n\nThe Company has adopted the provisions\nof ASU 2017-11 to account for the down round features of warrants issued with private placements effective as of April 1, 2017. In doing\nso, warrants with a down round feature previously treated as derivative liabilities in the consolidated balance sheet and measured at\nfair value are henceforth treated as equity, with no adjustment for changes in fair value at each reporting period. Previously, the Company\naccounted for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate\nconversion options embedded in convertible notes from their host instruments and to account for them as free-standing derivative financial\ninstruments. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional,\nas defined by ASC 815-40. The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional\nconvertible notes which qualify as equity under ASC 815, in accordance with the provisions of ASC 470-20, which provides guidance on accounting\nfor convertible securities with beneficial conversion features. Accordingly, the Company records, as a discount to convertible notes,\nthe intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the\ncommitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements\nare amortized over the term of the related debt.\n\n\n\u00a0\n\n\nPreferred Shares Extinguishments\n\n\n\u00a0\n\n\nThe Company accounted for preferred\nstock redemptions and conversions in accordance to ASU-260-10-S99. For preferred stock redemptions and conversion, the difference between\nthe fair value of consideration transferred to the holders of the preferred stock and the carrying amount of the preferred stock is accounted\nas deemed dividend distribution and subtracted from net income.\n\n\n\u00a0\n\n\nRecently Issued Accounting Pronouncements\n\n\n\u00a0\n\n\nRefer to \u201cNote 3\u2014\nSummary of Significant Accounting Policies\u201d to our consolidated financial statements included in \u201cPart I1, Item 8 \u2013\nFinancial Statements and Supplementary Data\u201d in this Annual Report for a discussion of recently issued accounting pronouncements.\n\n\n\u00a0\n\n\n\n\n51\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOff Balance Sheet Arrangements\n\n\n\u00a0\n\n\nWe have no off-balance sheet arrangements\nthat have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues\nor expenses, results of operations, liquidity, capital expenditures or capital resources.\n\n\n\u00a0\n\n",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES\nABOUT MARKET RISK\n\n\n\u00a0\n\n\nNot applicable to a smaller reporting\ncompany.\n\n\n\u00a0\n\n",
+  "cik": "1630113",
+  "cusip6": "09074H",
+  "cusip": ["09074H104"],
+  "names": ["BIOTRICITY INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1630113/000149315223022974/0001493152-23-022974-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0001493152-23-028498.json b/GraphRAG/standalone/data/all/form10k/0001493152-23-028498.json
new file mode 100644
index 0000000000..4060836227
--- /dev/null
+++ b/GraphRAG/standalone/data/all/form10k/0001493152-23-028498.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. Business\n    \n3\n\n\n\n\nTrust Objective\n\n\n3\n\n\n\n\nDescription of the Gold Industry\n\n\n4\n\n\n\n\nOperation of the Gold Market\n\n\n6\n\n\n\n\nSecondary Market Trading\n\n\n8\n\n\n\n\nValuation of Gold; Computation of Net Asset Value\n\n\n8\n\n\n\n\nTrust Expenses\n\n\n9\n\n\n\n\nDeposit of Gold; Issuance of Baskets\n\n\n10\n\n\n\n\nRedemption of Baskets\n\n\n11\n\n\n\n\nFees and Expenses of the Trustee\n\n\n11\n\n\n\n\nThe Sponsor\n\n\n11\n\n\n\n\nThe Trustee\n\n\n12\n\n\n\n\nThe Custodian\n\n\n12\n\n\n\n\nInspection of Gold\n\n\n13\n\n\n\n\nDescription of the Shares\n\n\n13\n\n\n\n\nCustody of the Trust\u2019s Gold\n\n\n14\n\n\n\n\nUnited States Federal Income Tax Consequences\n\n\n15\n\n\n\n\nERISA and Related Considerations\n\n\n19\n\n\n\n",
+  "item1a": ">Item 1A. Risk Factors\n    \n19\n\n\n\n",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n    \n30\n\n\n\n",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures about Market Risk\n    \n33\n\n\n\n",
+  "cik": "1690437",
+  "cusip6": "38748G",
+  "cusip": ["38748G101"],
+  "names": ["GraniteShares Gold ETF"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1690437/000149315223028498/0001493152-23-028498-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0001558370-23-011469.json b/GraphRAG/standalone/data/all/form10k/0001558370-23-011469.json
new file mode 100644
index 0000000000..e63551bea1
--- /dev/null
+++ b/GraphRAG/standalone/data/all/form10k/0001558370-23-011469.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item\u00a01.\n\u200b\nBusiness\n\u200b\n3\n\u200b",
+  "item1a": ">Item\u00a01A.\n\u200b\nRisk Factors\n\u200b\n23\n\u200b",
+  "item7": ">Item\u00a07.\n\u200b\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\u200b\n58\n\u200b",
+  "item7a": ">Item\u00a07A.\n\u200b\nQuantitative and Qualitative Disclosures About Market Risk\n\u200b\n72\n\u200b",
+  "cik": "1368622",
+  "cusip6": "008073",
+  "cusip": ["008073108", "008073908", "008073958"],
+  "names": ["AEROVIRONMENT INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1368622/000155837023011469/0001558370-23-011469-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0001558370-23-011516.json b/GraphRAG/standalone/data/all/form10k/0001558370-23-011516.json
new file mode 100644
index 0000000000..0d576b6ffe
--- /dev/null
+++ b/GraphRAG/standalone/data/all/form10k/0001558370-23-011516.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item\u00a01.\u00a0\u00a0\u00a0 \u00a0\nBusiness\nOverview\nGSI provides in-place associative computing solutions for applications in high growth markets such as artificial intelligence (\u201cAI\u201d) and high-performance computing (\u201cHPC\u201d), including natural language processing and computer vision. Our associative processing unit (\u201cAPU\u201d) products are focused on applications using similarity search.  Similarity search is used in visual search queries for ecommerce, computer vision, drug discovery, cyber security and service markets such as NoSQL, Elasticsearch, and OpenSearch. Our extensive historical experience in developing high speed synchronous static random access memory, or SRAM, facilitated our ability to transform the focus of our business to the development of reliable hardware AI products and solutions like the APU.\nEven as we expand our offering of in-place associative computing solutions, we continue to be committed to the synchronous SRAM market, by making available exceedingly high density performance memory products for incorporation into high-performance networking and telecommunications equipment, such as routers, switches, wide area network infrastructure equipment, wireless base stations and network access equipment.  Our position in the synchronous SRAM market is well established and we have long-term supplier relationships with many of the leading original equipment manufacturer, or OEM, customers including Nokia.\u00a0 The revenue generated by these sales of high-speed synchronous SRAM products is being used to finance the development of our new in-place associative computing solutions and new types of SRAM products. We also serve the ongoing needs of the military/defense and aerospace markets by offering robust high-quality radiation-tolerant and radiation-hardened space grade SRAMs in addition to new in-place associative computing solutions including synthetic aperture radar (\u201cSAR\u201d) image processing.\nWe utilize a fabless business model for the manufacture of our APU and SRAM products, which allows us both to focus our resources on research and development, product design and marketing, and to gain access to advanced process technologies with only modest capital investment and fixed costs.  \nGSI\u2019s fiscal year 2023 net revenue decreased by 11% compared to net revenue in fiscal year 2022, reflecting an easing of the semiconductor supply chain shortage that previously caused customers to purchase extra buffer stock of GSI\u2019s products coupled with its customers continuing to work through the remaining levels of their past \n3\n\n\nTable of Contents\nbuffer stock purchases, the impact of rising interest rates, worldwide inflationary pressures, significant fluctuations in energy prices and the decline in the global economic environment, all of which resulted in a decline in demand for our SRAM products and delays in completing the productization of our APU products. GSI\u2019s gross margin improved by 4.0% compared to the prior fiscal year, reflecting increased sales of higher-margin products and our ability to manage supply chain challenges and increased costs brought on by the pandemic. Despite the difficult financial climate in fiscal 2023, \nour first-place wins in the MAFAT challenge and the \nMobile Standoff Autonomous Indoor Capabilities\n (\u201cMoSAIC\u201d) challenge have given GSI high-profile exposure to the leading agencies in the Israeli and American military and defense organizations allowing us to pursue opportunities such as our proof of concept order from Elta Systems Ltd, a subsidiary of Israeli Aerospace Industries, which funded a SAR image processing acceleration system based on our APU technology.\nIn June 2023, we announced the receipt of an award of a prototype agreement with the Space Development Agency (\u201cSDA\u201d) for the development of a Next-Generation Associative Processing Unit-2 (\u201cAPU2\u201d) for Enhanced Space-Based Capabilities. Our next-generation non-Von-Neumann Associative Processing Unit compute in-memory integrated circuit (\u201cIC\u201d) offers unique capabilities to address the challenges faced by the U.S. Space Force (\u201cUSSF\u201d) in processing extensive sets of big data in space. Our overarching objective is to enable and enhance current and future mission capabilities through the deployment of compute in-memory integrated systems that can efficiently handle vast amounts of data in real-time at the edge. The APU, featuring a scalable format, compact footprint, and low power consumption, presents an ideal solution for edge applications where prompt and precise responses are crucial. These capabilities empower the USSF to swiftly detect, warn, analyze, attribute, and forecast potential and actual threats in space, ultimately bolstering the ability of the United States to maintain and leverage space superiority. The U.S. Space Force is actively seeking solutions to address current limitations in processing big data that is needed to execute the mission objectives of the Space Development Agency within the evolving and challenging space environment. This award will be funded by the Small Business Innovation Research program, a competitive program funded by various U.S. government agencies, that encourages small businesses to engage in federal research and development with the potential for commercialization. Under the terms of this Direct to Phase II award, we will develop an advanced non-Von-Neumann Associative Processing Unit-2, compute in-memory IC, and design and fabricate an APU2 Evaluation Board. Pursuant to an agreed-upon schedule, we will receive milestone payments totaling an estimated $1.25 million upon the successful completion of predetermined milestones.\nWe are marketing our\n OpenSearch Software-as-a-Service (\u201cSaaS\u201d) acceleration platform to \nstrategic customers \nand intend to support Amazon Web Services (\u201cAWS\u201d), Azure, or Google Cloud Storage (\u201cGCS\u201d) users with fast vector search acceleration with a software plugin. \nWe support customers with prebuilt APIs and libraries to support their parallel programming of the Gemini APU in C, C++. The software stack accelerates development by providing an integrated framework environment for the compute-in-memory as well as host, and management code modules. In calendar 2023, we plan on releasing an update to this compiler stack framework allowing customers to write their applications in Python, taking advantage of groundbreaking speed and debug advantages of L-Python. \nIn the first quarter of fiscal 2023, we started a program with a major prime contractor for a radiation-hardened SRAM prototype that shipped in the first half of fiscal 2023 and has prospects for increasing GSI\u2019s net revenue in fiscal 2024 and beyond.\nWe were incorporated in California in 1995 under the name Giga Semiconductor,\u00a0Inc. We changed our name to GSI Technology in December 2003 and reincorporated in Delaware in June 2004 under the name GSI Technology,\u00a0Inc. Our principal executive offices are located at 1213 Elko Drive, Sunnyvale, California, 94089, and our telephone number is (408)\u00a0331-8800.\n4\n\n\nTable of Contents\nIndustry and Market Strategy\nAssociative Processing Unit Computing Market Overview\nThe markets for associating processing computing solutions are significant and growing rapidly.  The total addressable market (\u201cTAM\u201d) for APU search applications, which is the market where GSI is focusing its commercialization efforts, has been determined by GSI to be approximately $232 billion in 2023, and growing at a compound annual growth rate (\u201cCAGR\u201d) of 13% to $380 billion by 2027. GSI has similarly determined that the Serviceable Available Market (\u201cSAM\u201d) for APU search applications is approximately $7.1 billion in 2023, and anticipated to grow at a CAGR of 16% to $12.8 billion by 2027. The search market segments included in GSI\u2019s TAM and SAM analyses include vector search HPC. Some market applications in these segments are computer vision, synthetic aperture radar, drug discovery, and cybersecurity; and service markets such as NoSQL, Elasticsearch, and OpenSearch.\nThe growth in demand for associative processing computing solutions is being driven by the increasing market adoption and usage of graphics processing unit (\u201cGPU\u201d) and CPU farms for AI processing of large data collections, including parallel computing in scientific research.  However, the large-scale usage of GPU and CPU farms for AI processing of data is demonstrating the limits of GPU and CPU processing speeds and resulting in ever higher energy consumption. The amounts of data being processed, which is coming from increasing numbers of users and continuously increasing amounts of collected data, has resulted in efforts to split and store the processed data among multiple databases, through a process called sharding.  Sharding substantially increases processing costs and worsens the power consumption factors associated with processing so much data.  As the environmental impacts of data processing are becoming increasingly important, and complex workloads are migrating to edge computing for real-time applications, it is becoming increasingly difficult to achieve market demands for low power, smaller footprints and faster results.\nThe GSI APU has been demonstrated to outperform CPU\u2019s and GPU\u2019s in the market for AI search of large data collections by providing lower latency and increased capacity in a smaller form-factor and achieve such results with lower power consumption.  In addition, GSI\u2019s compute-in-place technology has wide application. The APU has several benefits that are particularly useful to overcoming the data processing challenges noted above. First, the APU does not have the word size limitation of traditional CPU and GPU processors. Because traditional data processors move data around to various parts of a system, they need to select or duplicate resources of particular word sizes, be they 8-bit, 16-bit, 32-bit or 64-bit. The APU is based on a memory line structure, which means the APU can operate on legacy instruction widths of 8 or 16-bits, or just as seamlessly operate on instructions of arbitrary widths from 1 bit to 768-bits or 2048-bits.  The APU can operate on any word width that makes sense for the problem and also for what makes sense at the current processing step. This dynamic flexibility is a tremendous advantage for non-linear processing like trigonometry. The APU is also an associative machine, which means that data that is resident in the device can be applied to a function only if it is deemed associated (for example, with a meta-tag) to the processing. Such processing is similar to a person looking for his car in a parking lot, but ignoring all cars that are not the color of his car. Another strength of the APU design is that it is multi-threaded. One sensor or query input can be simultaneously applied to multiple functions or searches in the device.\nOur associative computing technology utilizes in-memory associative processor structures to address the bottlenecks that limit performance and increase power consumption in CPUs, GPUs, and Field Programable Gate Arrays (\u201cFPGAs\u201d) when processing large datasets.  By constantly having to move operands and results in and out of devices with ever increasing processing speeds and bus speeds, current solutions are focused on memory transfers rather than addressing the basic computation problem.\u00a0By changing the computational framework to parallel processing and having search functions conducted directly in a processing memory array, the APU can greatly expedite computation and response times in many \u201cbig data\u201d applications. We are creating a new category of \n5\n\n\nTable of Contents\ncomputing products that are expected to have substantial target markets and a large new customer base in those markets. \nOur commercialization efforts for the APU product are focused on markets where the APU shows factors of improvement against CPU or GPU-only systems. The APU differentiates itself most for similarity search, multi-modal vector search, real-time very large database search, and several scientific high-performance computing workloads processing sensor data. The APU\u2019s improved performance over CPU or GPU systems provides a paradigm-shifting ability to process data in real-time. As a result, we see demand for the APU in artificial intelligence applications, including approximate nearest neighbor searches, natural language processing, cryptography, and synthetic aperture radar as well as other fields whose processing in the datacenter can benefit from the APU\u2019s smaller footprint, superior productivity, and low system power consumption. GSI is currently in development and field testing with potential customers in the computer vision, synthetic aperture radar, and cybersecurity market segments. We have a solution to accelerate multimodal vector search as an on-prem or SaaS solution for OpenSearch and Fast Vector Search (\u201cFVS\u201d).  Our expectations of demand for the APU have been supported by comparisons of the power usage for processing large area SAR image in real-time at high resolution.  In one comparison, the APU used on average 93% less power than CPU or GPU systems.\n \nSimilarity search uses a technique called distance metric learning, in which learning algorithms measure how similar related objects are.  The APU is well suited for very fast similarity search because its design determines distance metric at fast computation speeds with high degrees of accuracy. Our APU is further differentiated from other solutions in the market by its scalability for very large datasets.  The APU has demonstrated its ability to increase the rate of computation for visual search by orders of magnitude with greater accuracy and reduced power consumption. The APU also adds multi-modal search capability to this computational performance. For instance, the ability to search on a picture of a product on an ecommerce website, with pricing and specific filters, does not impede the performance of the in-memory search versus a traditional text only search. This kind of performance has the potential to transform online retailers\u2019 capabilities to run search queries and improve customers\u2019 online shopping experience.\nThe APU\u2019s higher speeds and increased accuracy in similarity search has been shown to speed drug discovery, which can potentially lower drug discovery costs, an important consideration for research organizations dependent on funding. The APU is well suited for enhancing drug discovery work because it can perform similarity searches using very descriptive molecular representations in a virtual environment. The APU\u2019s ability to process word lengths of 2000-8000 bits can significantly reduce the cost of developing drugs by allowing virtual screening and more effective use of physical laboratory resources. Use of AI products like the APU could reduce costs, increase drug efficacy and safety, and increase speed to market thereby potentially saving billions of dollars. For these reasons, the APU is drawing interest from prospective customers in the pharmaceutical and genomics industries.\n \nNew Markets for the APU\nThe APU is capable of processing large data arrays in a cost competitive solution for large database similarity search, but the mathematical capabilities of the APU also create new opportunities for using real-time causal processing. Examples of real-time causal processing are SAR, image re-registration, and mathematical structural similarity index measure (\u201cSSIM\u201d). This combination of sensor processing, image processing, and computer vision at high performance has the potential to bring application processing that normally requires several resources in a data center to real-time edge applications. Possible examples are in-asset aircraft reconnaissance and satellite image processing. Furthermore, GSI\u2019s expertise in developing radiation-tolerant components creates new opportunities in the growing market for AI products that can be used in low earth orbit and space applications, where other AI products are not able to survive the harsh environment.\n6\n\n\nTable of Contents\nRecent excitement relating to ChatGPT has brought the market for AI search to the forefront of consumer awareness. Applications using ChatGPT for natural language processing as well as similarity coding structures are situations where our APU has already shown benefits of higher speeds, higher accuracy and lower power consumption. \nPossible uses for ChatGPT are accelerating customer interest in technologies and services that can increase AI search capacity and significantly lower their utilization costs.\nFor even smaller footprint applications such as satellites or networking blades, GSI is looking to license the intellectual property (\u201cIP\u201d) underlying the APU to companies that have their own chip design capabilities to incorporate GSI\u2019s IP into their custom products.\nAPU Board Level Product\nThe APU is currently available as a full-size PCIe card, which is our LEDA-E product, and is used in enterprise, datacenter, and edge server installations. We are now productizing a 1U SSD-type E1.L form factor card, that is our LEDA-S board level product. The E1.L form factor enables the use of market standard SSD rack enclosures to build a dense APU compute appliance, such as a 16 card LEDA-S 1U form factor server. We envision that this dense appliance would be of high interest for in-plane real-time SAR applications, for instance. Software and systems are being developed to allow a single LEDA-S to be used without the need for a host PC so that, as an example, it can be packaged in a compact case for quad-copter use. These small appliances would allow functions such as location recognition, object recognition, and GPS-denied alternate routing useful for drone product delivery or reconnaissance applications. The APU board level products are also integrated and sold as server appliances that include software for turn-key applications in various markets such as medical molecular search and edge SAR image processing.\nAPU SaaS Product\nWe are also commercializing the APU as a service. This service offering runs on servers in a datacenter that have a direct connection to Amazon Web Services. Customers can access the APU via the AWS Cognito user identity and data synchronization service for GSI-packaged SaaS applications, or a customer\u2019s own custom APU-accelerated applications. The cloud connected cards in this datacenter are also connected via the same ultra-low latency system to provide approximate nearest neighbor (\u201cANN\u201d) and multi-modal extension capability to OpenSearch. We envision customers who use OpenSearch for their database storage would use our SaaS product to accelerate searches run on OpenSearch.  Customers who are building their own search engines for special use case products could use our SaaS product to support high volume searches run on their products. There are early indications that our SaaS product can be used by vendors of SAR mapping and analysis services to enhance their own product offerings. \nAPU Commercialization Risk\nSales of APU products have not been material to date, and our commercialization efforts have taken much longer than anticipated. If we fail to commercialize our APU products, we may not generate sufficient revenues to offset our development costs and other expenses, which will have an adverse impact on our business including a potential impairment of intangible assets and a negative impact on our market capitalization. \n7\n\n\nTable of Contents\nHigh-Speed Synchronous SRAM Market Overview\nHigh-speed synchronous SRAMs are incorporated into networking and telecom equipment, military/defense and aerospace applications, audio/video processing, test and measurement equipment, medical and automotive applications, and other miscellaneous applications.  The networking and telecom market demand for high-speed synchronous SRAMs has been, and is expected to continue to decline due to the industry trend of embedding greater amounts of SRAM into each generation of ASICs/controllers products, thereby reducing the need for external SRAMs.  As a result, the demand for external high-speed synchronous SRAMs in new end-products is being driven by markets such as military/defense and aerospace applications.  Such applications require a combination of high densities and high random transaction rates that GSI is well positioned to serve, being the only SRAM manufacturer to offer 288Mb densities as well as offering the highest truly random transaction rate in the industry \u2013 1866 million transactions per second (MT/s).  To further serve the military/defense and aerospace markets, GSI has been focusing on qualifying its products for space/satellite applications to capitalize on opportunities resulting from the development of near-earth orbiting satellite mega constellations, as well as the more traditional geo-stationary earth orbit satellite communication platforms and national assets.  \nHigh-Speed Synchronous SRAM Products\nWe offer four families of high-speed synchronous SRAMs \u2013 SyncBurst\n\u2122\n, NBT\n\u2122\n, SigmaQuad\n\u2122\n, and SigmaDDR\n\u2122\n.  All four SRAM families\u00a0\nfeature high density, high transaction rate, high data bandwidth, low latency, and low power consumption. These four product families provide the basis for approximately 10,000 individual part numbers.  They are available in several density and data width configurations, and are available in a variety of performance, feature, temperature, and package options. Our products can be found in a wide range of networking and telecommunications equipment, including routers, universal gateways, fast Ethernet switches and wireless base stations. We also sell our products to OEMs\u00a0that manufacture products for military/defense and aerospace applications such as radar and guidance systems and satellites, for test and measurement applications such as high-speed testers, for automotive applications such as smart cruise control, and for medical applications such as ultrasound and CAT scan equipment\n.\nWe have introduced and are marketing radiation-hardened, or \u201cRadHard\u201d, and radiation-tolerant, or \u201cRadTolerant\u201d, SRAMs for military/defense and aerospace applications such as networking satellites and missiles.  Our initial RadHard and RadTolerant products are 288 megabit, 144 megabit, and 72 megabit devices from our SigmaQuad-II+ family.  We have also expanded our product offerings to include 144 megabit, 72 megabit, and 32 megabit SyncBurst and NBT SRAMs RadTolerant products to enable the avionics and other space platforms that have historically leveraged smaller asynchronous devices.  The RadHard products are housed in a hermetically-sealed ceramic column grid array package, and undergo a special fabrication process that diminishes the adverse effects of high-radiation environments.\nSRAM Leadership in the High Performance Memory Market\nWe endeavor to address the overall needs of our SRAM customers, not only satisfying their immediate requirements for our latest generation, highest performance networking memory, but also providing them with the ongoing long-term support necessary during the entire lives of the systems in which our products are utilized. Accordingly, the key elements of our SRAM solution include:\n\u25cf\n \nProduct Performance Leadership\n.  Through the use of advanced architectures and design methodologies, we have developed high-performance SRAM products offering superior high speed performance capabilities and low power consumption, while our advanced silicon process technologies allow us to optimize yields, lower manufacturing costs and improve quality.\n\u200b\n8\n\n\nTable of Contents\n\u25cf\n \nProduct Innovation\n.  We believe that we have established a position as a technology leader in the design and development of Very Fast SRAMs.  We are believed to have the industry\u2019s highest density RadHard SRAM, the SigmaQuad-II+, which is an example of our industry-leading product innovation.\n\u200b\n\u25cf\n \nBroad and Readily Available Product Portfolio\n.  We have what we believe is the broadest catalog of Very Fast SRAM products.\n\u200b\n\u25cf\n \nMaster Die Methodology\n.  Our master die methodology enables multiple product families, and variations thereof, to be manufactured from a single mask set so that we are able to maintain a common pool of wafers that incorporate all available master die, allowing rapid fulfillment of customer orders and reducing costs.\n\u200b\n\u25cf\n \nCustomer Responsiveness\n.  We work closely with leading networking and telecommunications OEMs, as well as their chip-set suppliers, to anticipate their requirements and to rapidly develop and implement solutions that allow them to meet their specific product performance objectives.  \n\u200b\nBusiness Transformation Strategy\nOur objective is to market and sell transformative new products utilizing our cutting-edge in-place associative computing technology in high growth markets, while continuing to profitably increase our share of the external SRAM market.  Our strategy includes the following key elements: \n\u25cf\n \nComplete productization of our initial In-place Associative Computing product\n.  Our principal operations objective is the completion of productization efforts for our initial in-place associative computing product, including the second release of our compiler stack in the second half of calendar 2023. \n\u200b\n\u25cf\nIdentifying and developing new long tail markets where the APU is differentiated\n. Realization of this goal will require additional development and marketing efforts in calendar 2023. Our initial focus is in the markets for artificial intelligence and high-performance computing, including natural language processing, computer vision and cyber security with a focus in this area being for similarity search applications including facial recognition, drug discovery and drug toxicity, signal and object detection and cryptography.\n\u200b\n\u25cf\nIdentify opportunities and rapidly increase sales of RadHard and RadTolerant SRAMs\n. We continue to  aggressively target the military/defense and aerospace markets with our RadHard and RadTolerant devices. We plan to continue expansion into the military/defense and aerospace markets with our APU platform that has shown design robustness.\n\u200b\n\u25cf\n \nExploit opportunities to expand the market for our SRAM products\n.  We are continuing the expansion of sales of our high-performance SRAM products in the military, industrial, test and measurement, and medical markets and intend to continue penetrating these and other new markets with similar needs for high-performance SRAM technologies.\n\u200b\n\u25cf\n \nCollaborate with wafer foundry to leverage advanced process technologies\n.  We will continue to utilize complementary metal-oxide semiconductor fabrication process technologies from Taiwan Semiconductor Manufacturing Company (\u201cTSMC\u201d) to design our products.\n\u200b\n\u25cf\n \nSeek new market opportunities\n.  We intend to supplement our internal development activities by seeking additional opportunities to acquire other businesses, product lines or technologies, or enter into strategic partnerships, that would complement our current product lines, expand the breadth of our markets, enhance our technical capabilities, or otherwise provide growth opportunities.\n\u200b\n9\n\n\nTable of Contents\nCustomers\nFor our compute-in-memory associative computing solutions, we are focusing sales and marketing efforts in the markets for artificial intelligence and high-performance computing, with leading applications in natural language processing, computer vision and synthetic aperture radar. Our focus in this area being for similarity search acceleration in fast vector search applications and real-time mobile applications in aerospace and defense.\n \nWith the SRAM market, we are focusing our sales on network/telecom OEMs and military/defense and aerospace with our radiation hardened and radiation tolerant product offerings.\nThe following is a representative list of our OEM customers that directly or indirectly purchased more than $600,000 of our SRAM products in the fiscal year ended March 31, 2023:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nBAE Systems\n\u00a0\nCiena\n\u00a0\nHoneywell\nLockheed\n\u00a0\nNokia\n\u00a0\nRaytheon\n\u200b\n\u200b\nRockwell\n\u200b\n\u200b\n\u200b\nMany of our OEM customers use contract manufacturers to assemble their equipment. Accordingly, a significant percentage of our net revenues has been derived from sales to these contract manufacturers, and less frequently, to consignment warehouses who purchase products from us for use by contract manufacturers. In addition, we sell our products to OEM customers indirectly through domestic and international distributors.\nIn the case of sales of our products to distributors and consignment warehouses, the decision to purchase our products is typically made by the OEM customers. In the case of contract manufacturers, OEM customers typically provide a list of approved products to the contract manufacturer, which then has discretion whether or not to purchase our products from that list.\nDirect sales to contract manufacturers and consignment warehouses accounted for 19.8%, 31.0% and 43.7% of our net revenues for fiscal 2023, 2022 and 2021, respectively. Sales to foreign and domestic distributors accounted for 77.5%, 66.8% and 54.7% of our net revenues for fiscal 2023, 2022 and 2021, respectively.\nThe following direct customers accounted for 10% or more of our net revenues in one or more of the following periods:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal\u00a0Year\u00a0Ended\n\u200b\n\u200b\n\u200b\nMarch\u00a031,\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\nContract manufacturers and consignment warehouses:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFlextronics Technology\n\u200b\n 10.4\n%\u00a0\u00a0\n 16.0\n%\u00a0\u00a0\n 21.1\n%\nSanmina\n\u200b\n 8.8\n\u200b\n 11.2\n\u200b\n 21.5\n\u200b\nDistributors:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAvnet Logistics\n\u200b\n 48.1\n\u200b\n 38.0\n\u200b\n 29.8\n\u200b\nNexcomm\n\u200b\n 16.6\n\u200b\n 17.2\n\u200b\n 14.7\n\u200b\n\u200b\nNokia was our largest customer in fiscal 2023, 2022 and 2021.  Nokia purchases products directly from us and through contract manufacturers and distributors.  Based on information provided to us by its contract manufacturers and our distributors, purchases by Nokia represented approximately 17%, 29% and 39% of our net revenues in fiscal 2023, 2022 and 2021, respectively. To our knowledge, none of our other OEM customers accounted for more than 10% of our net revenues in any of these periods.\n10\n\n\nTable of Contents\nSales, Marketing and Technical Support\nWe sell our products primarily through our worldwide network of independent sales representatives and distributors. As of March 31, 2023, we employed 16 sales and marketing personnel, and were supported by over 200 independent sales representatives, which we believe will enable us to address an expanded customer base with the continuing introduction of our associative computing products in fiscal 2024. We believe that our relationship with our U.S. distributors, Avnet, Mouser and Digi-Key, put us in a strong position to address the Very Fast SRAM memory market in the United States. We currently have regional sales offices located in China, Hong Kong, Israel and the\n \nUnited States.\n \nWe believe this international coverage allows us to better serve our distributors and OEM customers by providing them with coordinated support. We believe that our customers\u2019 purchasing decisions are based primarily on product performance, low power consumption, availability, features, quality, reliability, price, manufacturing flexibility and service. Many of our OEM customers have had long-term relationships with us based on our success in meeting these criteria.\nOur sales are generally made pursuant to purchase orders received between one and twelve months prior to the scheduled delivery date. Because industry practice allows customers to reschedule or cancel orders on relatively short notice, these orders are not firm and hence we believe that backlog is not a good indicator of our future sales. \nWe experienced increased costs as a result of supply chain constraints in fiscal 2022 and 2023 for wafers, including a 20% increase in the cost of wafers that was implemented in early calendar 2022 and a 6% increase that was implemented in early calendar 2023, as well as varying cost increases in outsourced assembly, burn-in and test operations\n. We have responded with increased pricing to our customers. We typically provide a warranty of up to 36\u00a0months on our products. Liability for a stated warranty period is usually limited to replacement of defective products.\nOur marketing efforts are, first and foremost, focused on ensuring that the products we develop meet or exceed our customers\u2019 needs. Our marketing efforts are currently focused on marketing our in-place associative computing solutions and our radiation-tolerant and radiation-hardened space grade SRAMs. Previously, those efforts were focused on defining our high-performance SRAM product roadmap. We work closely with key customers to understand their roadmaps and to ensure that the products we develop meet their requirements (primary aspects of which include functionality, performance, electrical interfaces, power, and schedule).  Our marketing group also provides technical, strategic and tactical sales support to our direct sales personnel, sales representatives and distributors. This support includes in-depth product presentations, datasheets, application notes, simulation models, sales tools, marketing communications, marketing research, trademark administration and other support functions.  We also engage in various marketing activities to increase brand awareness.\n We emphasize customer service and technical support in an effort to provide our OEM customers with the knowledge and resources necessary to successfully use our products in their designs. Our customer service organization includes a technical team of applications engineers, technical marketing personnel and, when required, product design engineers. We provide customer support throughout the qualification and sales process and continue providing follow-up service after the sale of our products and on an ongoing basis. In addition, we provide our OEM customers with comprehensive datasheets, application notes and reference designs and access to our FPGA controller IP for use in their product development.\nManufacturing\nWe outsource our wafer fabrication, assembly and wafer sort testing, which enables us to focus on our design strengths, minimize fixed costs and capital expenditures and gain access to advanced manufacturing technologies. Our engineers work closely with our outsource partners to increase yields, reduce manufacturing costs, and help assure the quality of our products.\n11\n\n\nTable of Contents\nCurrently, all of our SRAM and APU wafers are manufactured by TSMC under individually negotiated purchase orders. We do not currently have a long-term supply contract with our foundry, and, therefore, TSMC is not obligated to manufacture products for us for any specified period, in any specified quantity or at any specified price, except as may be provided in a particular purchase order. Our future success depends in part on our ability to secure sufficient capacity at TSMC or other independent foundries to supply us with the wafers we require.\nOur APU products are manufactured at TSMC using 28 nanometer process technology. The majority of our current SRAM products are manufactured using 0.13 micron, 90 nanometer, 65 nanometer and 40 nanometer process technologies on 300 millimeter wafers at TSMC. \nOur master die methodology enables multiple product families, and variations thereof, to be manufactured from a single mask set. As a result, based upon the way available die from a wafer are metalized, wire bonded, packaged and tested, we can create a number of different products. The manufacturing process consists of two phases, the first of which takes approximately thirteen to fifteen weeks and results in wafers that have the potential to yield multiple products within a given product family. After the completion of this phase, the wafers are stored pending customer orders. Once we receive orders for a particular product, we perform the second phase, consisting of final wafer processing, assembly, burn-in and test, which takes approximately eight to ten weeks to complete. Substrates are required in the second phase before the assembly process can begin for many of our products. This two-step manufacturing process enables us to significantly shorten our product lead times, providing flexibility for customization and to increase the availability of our products.\nAll of our manufactured wafers, including wafers for our APU product, are tested for electrical compliance and most are packaged at Advanced Semiconductor Engineering (\u201cASE\u201d) which is located in Taiwan. Wistron Neweb Corporation in Taiwan manufactures the boards for our APU product line. Our test procedures require that all of our products be subjected to accelerated burn-in and extensive functional electrical testing which is performed at our Taiwan and U.S. test facilities. Our radiation-hardened products are assembled and tested at Silicon Turnkey Solutions Inc., located near our Sunnyvale, California headquarters facility.\nResearch and Development\nWe have devoted substantial resources in the last seven years on the development of our APU products. Our research and development staff includes engineering professionals with extensive experience in the areas of high-speed circuit design, including APU design, as well as SRAM design and systems level networking and telecommunications equipment design. Additionally, we have assembled a team of software development experts in Israel needed for the development of the various levels of software required in the use of our APU products. The design process for our products is complex. As a result, we have made substantial investments in computer-aided design and engineering resources to manage our design process.\nCompetition\nOur existing and potential competitors include many large domestic and international companies, some of which have substantially greater resources, offer other types of memory and/or non-memory technologies and may have longer standing relationships with OEM customers than we do. Unlike us, some of our principal competitors maintain their own semiconductor fabs, which may, at times, provide them with capacity, cost and technical advantages.\nOur principal competitors include NVIDIA Corporation and Intel Corporation for our in-place associative computing solutions and \nInfineon Technologies AG\n, Integrated Silicon Solution and REC for our SRAM products.  We expect additional competitors to enter the associative computing market as well. While some of our competitors \n12\n\n\nTable of Contents\noffer a broader array of products and offer some of their products at lower prices than we do, we believe that our focus on performance leadership\u00a0provides us with key competitive advantages.\nIn December 2021, we were among the leaders in the Billion-Scale Approximate Nearest Neighbor Search Challenge held at the NeurIPS 2021 Conference performing on par with NVIDIA and Intel. Our results in the ANNS Challenge proved that our technology could perform on par with the category leaders in AI. The Billion-Scale ANNS Challenge was created to provide a comparative understanding of algorithmic ideas and their application at scale, promote the development of new techniques for the problem and demonstrate their value, and introduce a standard benchmarking approach.\nIn April 2022, we announced that our submission to the MoSAIC Challenge won first place in the Human/Object Tagging category. The MoSAIC Challenge was designed to identify best-in-class, cutting-edge hardware and software solutions to address challenging and longstanding technological gaps concerning remote autonomous indoor maneuvers. The MoSAIC Challenge was led by the U.S. Department of Defense (\u201cDoD\u201d), Irregular Warfare Technical Support Directorate (\u201cIWTSD\u201d), and the Israel Ministry of Defense (\u201cIMOD\u201d), Directorate of Defense Research and Engineering (DDR&D), along with the Merage Institute.\nWe believe that our ability to compete successfully in the rapidly evolving markets for \u201cbig data\u201d and memory products for the networking and telecommunications markets depends on a number of factors, including:\n\u25cf\n \nproduct performance, features, including low power consumption, quality, reliability and price; \n\u25cf\n \nmanufacturing flexibility, product availability and customer service throughout the lifetime of the product; \n\u25cf\nthe availability of software tools, such as compilers and libraries that enable customers to easily design products for their specific needs;\n\u25cf\n \nthe timing and success of new product introductions by us, our customers and our competitors; and \n\u25cf\n \nour ability to anticipate and conform to new industry standards.\nWe believe we compete favorably with our competitors based on these factors. However, we may not be able to compete successfully in the future with respect to any of these factors. Our failure to compete successfully in these or other areas could harm our business.\nThe market for networking memory products is competitive and is characterized by technological change, declining average selling prices and product obsolescence. Competition could increase in the future from existing competitors and from other companies that may enter our existing or future markets with solutions that may be less costly or provide higher performance or more desirable features than our products. This increased competition may result in price reductions, reduced profit margins and loss of market share.\nIn addition, we are vulnerable to advances in technology by competitors, including new SRAM architectures as well as new forms of Dynamic Random Access Memory (\u201cDRAM\u201d) and other new memory technologies. Because we have limited experience developing integrated circuit (\u201cIC\u201d) products other than Very Fast SRAMs, any efforts by us to introduce new products based on new technology, including our new in-place associative computing products, may not be successful and, as a result, our business may suffer.\n13\n\n\nTable of Contents\nIntellectual Property\nOur ability to compete successfully depends, in part, upon our ability to protect our proprietary technology and information. We rely on a combination of patents, copyrights, trademarks, trade secret laws, non-disclosure and other contractual arrangements and technical measures to protect our intellectual property. We believe that it is important to maintain a large patent portfolio to protect our innovations. We currently hold 123 United States patents, including 63 memory patents and 60 associative computing patents, and have in excess of a dozen patent applications pending. We cannot assure you that any patents will be issued as a result of our pending applications. We believe that factors such as the technological and creative skills of our personnel and the success of our ongoing product development efforts are also important in maintaining our competitive position. We generally enter into confidentiality or license agreements with our employees, distributors, customers and potential customers and limit access to our proprietary information. Our intellectual property rights, if challenged, may not be upheld as valid, may not be adequate to prevent misappropriation of our technology or may not prevent the development of competitive products. Additionally, we may not be able to obtain patents or other intellectual property protection in the future. Furthermore, the laws of certain foreign countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products or intellectual property rights to the same extent as do the laws of the United States and thus make the possibility of piracy of our technology and products more likely in these countries.\nThe semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights, which have resulted in significant and often protracted and expensive litigation. We or our foundry from time to time are notified of claims that we may be infringing patents or other intellectual property rights owned by third parties. We have been involved in patent infringement litigation in the past.  We have been subject to other intellectual property claims in the past and we may be subject to additional claims and litigation in the future. Litigation by or against us relating to allegations of patent infringement or other intellectual property matters could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not such litigation results in a determination favorable to us. In the event of an adverse result in any such litigation, we could be required to pay substantial damages, cease the manufacture, use and sale of infringing products, expend significant resources to develop non-infringing technology, discontinue the use of certain processes or obtain licenses to the infringing technology. Licenses may not be offered or the terms of any offered licenses may not be acceptable to us. If we fail to obtain a license from a third party for technology used by us, we could incur substantial liabilities and be required to suspend the manufacture of products or the use by our foundry of certain processes.\nHuman Capital Resources\nIn November 2022, we announced measures taken to reduce our operating expenses by approximately $7.0 million on an annualized basis, primarily from salary reductions related to reduced headcount and salary decreases for certain retained employees, as well as targeted reductions in research and development spending. These strategic cost reduction measures are expected to enable us to better focus on our operational resources on advancing our proprietary APU technology. None of our Gemini-II chip development and core APU software development efforts, including the building of the APU compiler, was affected by the reduction in research and development spending. The APU marketing, sales, and APU engineering efforts will retain priority in our budget. The spending reductions are not expected to impact the launch of Gemini-I in target markets, including SAR, search, and SaaS. The cost reduction initiative is expected to be completed by September 30, 2023 and will result in an approximate 15% decrease in our global workforce. In total, we expect to incur approximately $917,000 in cash expenditures for termination costs, including the payout of accrued vacation, of which $490,000 was incurred in fiscal 2023.  \n\u00a0\n14\n\n\nTable of Contents\nAs of March 31, 2023, we had 156 full-time employees, including 107 engineers, of which 70 are engaged in research and development and 48 have PhD or MS degrees, 16 employees in sales and marketing, 10 employees in general and administrative capacities and 60 employees in manufacturing. Of these employees, 51 are based in our Sunnyvale facility, 55 are based in our Taiwan facility and 35 are based in our Israel facility.\n \nWe believe that our future success will depend in large part on our ability to attract and retain highly-skilled, engineering, managerial, sales and marketing personnel. Our employees are not represented by any collective bargaining unit, and we have never experienced a work stoppage. We believe that our employee relations are good.\nCompensation and benefits\n\u200b\nOur goal is to attract, motivate and retain talent with a focus on encouraging performance, promoting accountability and adhering to our company values. The future growth and success of our company largely depends on our ability to attract, train and retain qualified professionals. As part of our effort to do so, we offer competitive compensation and benefit programs including a 401(k) Plan, stock options for all employees, flexible spending accounts and paid time off. We understand that effective compensation and benefits programs are important in retaining high-performing and qualified individuals. We continue to assess our healthcare and retirement benefits each year in order to provide competitive benefits to our employees.\nDiversity, inclusion and belonging\n\u200b\nWe are committed to our continued efforts to increase diversity and foster an inclusive work environment that supports the global workforce and the communities we serve. We recruit the best people for the job regardless of gender, ethnicity or other protected traits and it is our policy to fully comply with all laws applicable to discrimination in the workplace. Our diversity, equity and inclusion principles are also reflected in our employee training and policies. We continue to enhance our diversity, equity and inclusion policies which are guided by our executive leadership team.\nEthics & Corporate Responsibility\n\u200b\nWe are committed to ensuring ethical organizational governance, embracing diversity and inclusion in the board room and throughout the organization and are committed to observing fair, transparent, and accountable operating practices. We seek to create and foster a healthy, balanced, and ethical work environment for everyone in our organization. To this end, we promote an ethical organizational culture and encourage all employees to raise questions or concerns about actual or potential ethical issues and company policies and to offer suggestions about how we can make our organization better. These practices are set forth in our Code of Business Conduct and Ethics, which is periodically reviewed by all of our employees and is available on our website under \u201cCorporate Governance.\u201d\nHealth and safety\n\u200b\nWe are committed to maintain a safe and healthy workplace for our employees. Our policies and practices are intended to protect our employees.\nSince fiscal 2021, in response to the COVID-19 pandemic, we implemented safety protocols and new procedures to protect our employees. These protocols, which were no longer being enforced, included complying with social distancing and other health and safety standards as required by state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.\n \n15\n\n\nTable of Contents\nInvestor Information\nYou can access financial and other information in the Investor Relations section of our website at \nwww.gsitechnology.com\n. We make available, on our website, free of charge, copies of our annual report on Form\u00a010-K, quarterly reports on Form\u00a010-Q, current reports on Form\u00a08-K, and amendments to those reports filed or furnished pursuant to Section\u00a013(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.\nThe charters of our Audit Committee, our Compensation Committee, and our Nominating and Governance Committee, our code of conduct (including code of ethics provisions that apply to our principal executive officer, principal financial officer, controller, and senior financial officers) and our corporate governance guidelines are also available at our website under \u201cCorporate Governance.\u201d These items are also available to any stockholder who requests them by calling (408)\u00a0331-8800. The contents of our website are not incorporated by reference in this report.\nThe SEC maintains an Internet site that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC at \nwww.sec.gov\n.\nInformation About Our Executive Officers\nThe following table sets forth certain information concerning our executive officers as of June\u00a01, 2023:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nName\n\u00a0\u00a0\u00a0\u00a0\nAge\n\u00a0\u00a0\u00a0\u00a0\nTitle\nLee-Lean Shu\n\u200b\n68\n\u200b\n\u200b\nPresident, Chief Executive Officer and Chairman\nAvidan Akerib\n\u200b\n67\n\u200b\n\u200b\nVice President, Associative Computing\nDidier Lasserre\n\u200b\n58\n\u200b\n\u200b\nVice President, Sales\nDouglas Schirle\n\u200b\n68\n\u200b\n\u200b\nChief Financial Officer\nBor-Tay Wu\n\u200b\n71\n\u200b\n\u200b\nVice President, Taiwan Operations\nPing Wu\n\u200b\n66\n\u200b\n\u200b\nVice President, U.S. Operations\nRobert Yau\n\u200b\n70\n\u200b\n\u200b\nVice President, Engineering, Secretary and Director\nLee-Lean Shu\n co-founded our company in March 1995 and has served as our President and Chief Executive Officer and as a member of our Board of Directors since inception. Since October 2000, Mr.\u00a0Shu has also served as Chairman of our Board. From January 1995 to March 1995, Mr.\u00a0Shu was Director, SRAM Design at Sony Microelectronics Corporation, a semiconductor company and a subsidiary of Sony Corporation, and from July 1990 to January 1995, he was a design manager at Sony Microelectronics Corporation.\nAvidan Akerib\n has served as our Vice President, Associative Computing since MikaMonu Group Ltd. was acquired in November 2015. From July 2011 to November 2015, Dr. Akerib served as co-founder and chief technologist of MikaMonu Group Ltd, a developer of computer in-memory and storage technologies.\u00a0From July 2008 to March 2011, Dr. Akerib served as chief scientist of ZikBit Ltd., a developer of DRAM computing technologies. From Jan 2001 to July 2007, Dr. Akerib was the General Manager of NeoMagic Israel, a supplier of low-power audio and video integrated circuits for mobile use. Dr. Akerib has a PhD in applied mathematics and computer science from the Weizmann Institute of Science, Israel, and an MSc and BSc in electrical engineering from Tel Aviv University and Ben Gurion University, respectively. Dr. Akerib is the inventor of more than 50 patents related to parallel and In Memory Associative Computing.\nDidier Lasserre\n has served as our Vice President, Sales since July 2002. From November 1997 to July 2002, Mr.\u00a0Lasserre served as our Director of Sales for the Western United States and Europe. From July 1996 to October \n16\n\n\nTable of Contents\n1997, Mr.\u00a0Lasserre was an account manager at Solectron Corporation, a provider of electronics manufacturing services. From June 1988 to July 1996, Mr.\u00a0Lasserre was a field sales engineer at Cypress Semiconductor Corporation, a semiconductor company.\nDouglas Schirle\n has served as our Chief Financial Officer since August 2000. From June 1999 to August 2000, Mr.\u00a0Schirle served as our Corporate Controller. From March 1997 to June 1999, Mr.\u00a0Schirle was the Corporate Controller at Pericom Semiconductor Corporation, a provider of digital and mixed signal integrated circuits. From November 1996 to February 1997, Mr.\u00a0Schirle was Vice President, Finance for Paradigm Technology, a manufacturer of SRAMs, and from December 1993 to October 1996, he was the Controller for Paradigm Technology. Mr.\u00a0Schirle was formerly a certified public accountant.\nBor-Tay Wu\n has served as our Vice President, Taiwan Operations since January 1997. From January 1995 to December 1996, Mr.\u00a0Wu was a design manager at Atalent, an IC design company in Taiwan.\nPing Wu\n has served as our Vice President, U.S. Operations since September 2006. He served in the same capacity from February 2004 to April 2006. From April 2006 to August 2006, Mr.\u00a0Wu was Vice President of Operations at QPixel Technology, a semiconductor company. From July 1999 to January 2004, Mr.\u00a0Wu served as our Director of Operations. From July 1997 to June 1999, Mr.\u00a0Wu served as Vice President of Operations at Scan Vision, a semiconductor manufacturer.\nRobert Yau\n co-founded our company in March 1995 and has served as our Vice President, Engineering and as a member of our Board of Directors since inception. From December 1993 to February 1995, Mr.\u00a0Yau was design manager for specialty memory devices at Sony Microelectronics Corporation. From 1990 to 1993, Mr.\u00a0Yau was design manager at MOSEL/VITELIC, a semiconductor company.",
+  "item1a": ">Item\u00a01A.\u00a0\u00a0\u00a0\u00a0\nRisk Factors\nOur future performance is subject to a variety of risks. If any of the following risks actually occur, our business, financial condition and results of operations could suffer and the trading price of our common stock could decline. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business operations. You should also refer to other information contained in this report, including our consolidated financial statements and related notes.\nRisk Factor Summary\nOur business is subject to numerous risks and uncertainties, which are more fully described in the Risk Factors below. These risks include, but are not limited to:\nRisks Related to Our Business and Financial Condition\n\u25cf\nUnpredictable fluctuations in our operating results could cause our stock price to decline.\n\u25cf\nOur largest OEM customer accounts for a significant percentage of our net revenues. If this customer, or any of our other major customers, reduces the amount they purchase, stops purchasing our products or fails to pay us, our financial position and operating results will suffer. \n\u25cf\nRising interest rates, worldwide inflationary pressures, bank failures, the military conflict in Ukraine, significant fluctuations in energy prices and the decline in the global economic environment may continue to adversely affect our financial condition.\n\u25cf\nWe have incurred significant losses and may incur losses in the future.\n17\n\n\nTable of Contents\n\u25cf\nWe have identified a material weakness in our internal control over financial reporting, and if our remediation of such material weakness is not effective, our ability to produce timely and accurate financial statements could be impaired.\n\u25cf\nGoodwill impairment and related charges, as well as other accounting charges or adjustments could negatively impact our operating results. \n\u25cf\nWe depend upon the sale of our Very Fast SRAMs for most of our revenues and the market for Very Fast SRAMs is highly competitive.\n\u25cf\nIf we do not successfully implement certain cost reduction initiatives, we may suffer adverse impacts on our business and operations.\n\u25cf\nWe are dependent on a number of single source suppliers.\n\u25cf\nIf we do not successfully develop and introduce the new in-place associative computing products, which entails certain significant risks, our business will be harmed.\n\u25cf\nIf we are unable to offset increased wafer fabrication and assembly costs, our gross margins will suffer.\n\u25cf\nWe are subject to the highly cyclical nature of the networking and telecommunications markets.\n\u25cf\nWe rely heavily on distributors and our business will be negatively impacted if we are unable to develop and manage distribution channels and accurately forecast future sales through our distributors.\n\u25cf\nThe average selling prices of our products are expected to decline.\n\u25cf\nWe are substantially dependent on the continued services of our senior management and other key personnel. If we are unable to recruit or retain qualified personnel, our business could be harmed.\n\u25cf\nCyber-attacks could disrupt our operations or the operations of our partners, and result in reduced revenue, increased costs, liability claims and harm our reputation or competitive position.\n\u25cf\nDemand for our products may decrease if our OEM customers experience difficulty manufacturing, marketing or selling their products.\n\u25cf\nOur products have lengthy sales cycles that make it difficult to plan our expenses and forecast results.\n\u25cf\nOur business could be negatively affected as a result of actions of activist stockholders or others.\n\u25cf\nOur acquisition of companies or technologies could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results.\n\u25cf\nOur business will suffer if we are unable to protect our intellectual property or if there are claims that we infringe third party intellectual property rights.\n\u25cf\nCurrent unfavorable economic and market conditions may adversely affect our business, financial condition, results of operations and cash flows.\n\u25cf\nIf our business grows, such growth may place a significant strain on our management and operations.\nRisks Related to Manufacturing and Product Development\n\u25cf\nWe may experience difficulties in transitioning our manufacturing process technologies, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.\n\u25cf\nManufacturing process technologies are subject to rapid change and require significant expenditures. \n\u25cf\nOur products may contain defects, which could reduce revenues or result in claims against us.\n18\n\n\nTable of Contents\nRisks Related to Our International Business and Operations\n\u25cf\nThe international political, social and economic environment, particularly as it relates to Taiwan, may affect our business performance.\n\u25cf\nCertain of our independent suppliers and OEM customers have operations in the Pacific Rim, an area subject to significant risk of natural disasters and outbreak of contagious diseases such as COVID-19.\n\u25cf\nThe United States could materially modify certain international trade agreements, or change tax provisions related to the global manufacturing and sales of our products. \n\u25cf\nSome of our products are incorporated into advanced military electronics, and changes in international geopolitical circumstances and domestic budget considerations may hurt our business.\nRisks Relating to Our Common Stock and the Securities Market\n\u25cf\nThe trading price of our common stock is subject to fluctuation and is likely to be volatile.\n\u25cf\nWe may need to raise additional capital in the future, which may not be available on favorable terms or at all, and which may cause dilution to existing stockholders.\n\u25cf\nUse of a portion of our cash reserves to repurchase shares of our common stock presents potential risks and disadvantages to us and our continuing stockholders. \n\u25cf\nOur executive officers, directors and their affiliates hold a substantial percentage of our common stock.\n\u25cf\nThe provisions of our charter documents might inhibit potential acquisition bids that a stockholder might believe are desirable, and the market price of our common stock could be lower as a result.\nRisks Related to Our Business and Financial Condition\nUnpredictable fluctuations in our operating results could cause our stock price to decline.\nOur quarterly and annual revenues, expenses and operating results have varied significantly and are likely to vary in the future. For example, in the twelve fiscal quarters ended March 31, 2023,\n \nwe recorded net revenues of as much as $9.0\u00a0million and as little as $5.4 million, and operating losses from $2.9 million to $5.7 million. We therefore believe that period-to-period comparisons of our operating results are not a good indication of our future performance, and you should not rely on them to predict our future performance or the future performance of our stock price. Furthermore, if our operating expenses exceed our expectations, our financial performance could be adversely affected. Factors that may affect periodic operating results in the future include:\n\u25cf\ncommercial acceptance of our associative computing products;\n\u25cf\ncommercial acceptance of our RadHard and RadTolerant products;\n\u25cf\nchanges in our customers' inventory management practices;\n\u25cf\nunpredictability of the timing and size of customer orders, since most of our customers purchase our products on a purchase order basis rather than pursuant to a long-term contract;\n\u25cf\nchanges in our product pricing policies, including those made in response to new product announcements, pricing changes of our competitors and price increases by our foundry and suppliers;\n\u25cf\nour ability to anticipate and conform to new industry standards;\n\u25cf\nfluctuations in availability and costs associated with materials and manufacturing services needed to satisfy customer requirements caused by supply constraints;\n19\n\n\nTable of Contents\n\u25cf\nrestructuring, asset and goodwill impairment and related charges, as well as other accounting changes or adjustments;\n\u25cf\nmanufacturing defects, which could cause us to incur significant warranty, support and repair costs, lose potential sales, harm our relationships with customers and result in write-downs; and\n\u25cf\nour ability to address technology issues as they arise, improve our products' functionality and expand our product offerings.\nOur expenses are, to a large extent, fixed, and we expect that these expenses will increase in the future. \nIn fiscal years 2022 and 2023, we experienced price increases for raw materials, including a 20% increase in the price of wafers that was implemented in early calendar 2022 and a 6% increase that was implemented in early calendar 2023, as well as varying pricing increases for manufacturing services due to the supply chain constraints in the semiconductor market\n. We expect to experience additional price increases for raw materials in fiscal year 2024 due to worldwide inflationary pressures. We will not be able to adjust our spending quickly if our revenues fall short of our expectations. If this were to occur, our operating results would be harmed. If our operating results in future quarters fall below the expectations of market analysts and investors, the price of our common stock could fall.\nRising interest rates, worldwide inflationary pressures, bank failures, the military conflict in Ukraine, significant fluctuations in energy prices and the decline in the global economic environment have caused increased stock market volatility and uncertainty in customer demand and the worldwide economy in general, and we may continue to experience decreased sales and revenues in the future. We expect such impact will in particular affect our SRAM sales and has also impacted the launch of our APU product to some degree and the adoption of RadHard and RadTolerant SRAM products by aerospace and military customers. However, the magnitude of such impact on our business and its duration is highly uncertain.\nOur largest OEM customer accounts for a significant percentage of our net revenues. If this customer, or any of our other major customers, reduces the amount they purchase or stop purchasing our products, our operating results will suffer.\nNokia, our largest customer, purchases our products directly from us and through contract manufacturers and distributors.  Purchases by Nokia represented approximately 17%, 29% and 39% of our net revenues in fiscal 2023, 2022 and 2021, respectively. We expect that our operating results in any given period will continue to depend significantly on orders from our key OEM customers, particularly Nokia, and our future success is dependent to a large degree on the business success of this customer\u00a0\nover which we have no control. We do not have long-term contracts with Nokia or any of our other major OEM customers, distributors or contract manufacturers that obligate them to purchase our products.  We expect that future direct and indirect sales to Nokia and our other key OEM customers will continue to fluctuate significantly on a quarterly basis and that such fluctuations may substantially affect our operating results in future periods. If we fail to continue to sell to our key OEM customers, distributors or contract manufacturers in sufficient quantities, our business could be harmed.\nRising interest rates, worldwide inflationary pressures, bank failures, the military conflict in Ukraine, significant fluctuations in energy prices and the resulting decline in the global economic environment are expected to adversely affect our revenues, results of operations and financial condition.\nOur business is expected to be materially adversely affected by rising interest rates, worldwide inflationary pressures, bank failures, the military conflict in Ukraine and the significant fluctuations in energy prices, all of which are contributing to a decline in the global economic environment. \nOur quarterly revenues have been flat and trended downward in the past year due to the decline in the global economic environment that has resulted in less demand for GSI\u2019s products. We expect that a continued rise in interest rates, continued inflationary pressures, recent bank failures, continued uncertainties in the business climate \n20\n\n\nTable of Contents\ncaused by the military conflict in Ukraine and related fluctuations in energy prices will adversely impact demand for new and existing products, and to impact the mindset of potential commercial partners to launch new products using GSI\u2019s technology.  The resulting decline in the global economic environment \nis expected to have an adverse impact on our business and financial condition.\nDisruptions in the capital and financial markets as a result of rising interest rates, worldwide inflationary pressures, bank failures, the military conflict in Ukraine, significant fluctuations in energy prices and the decline in the global economic environment may also adversely affect our ability to obtain additional liquidity should the impacts of a decline in the global economic environment continue for a prolonged period\n.\nWe have incurred significant losses and may incur losses in the future.\nWe have incurred significant losses. We incurred net losses of $16.0 million, $16.4 million and $21.5 million during fiscal 2023, 2022 and 2021, respectively. There can be no assurance that our Very Fast SRAMs\u00a0will continue to receive broad market acceptance, that our new product development initiatives will be successful or that we will be able to achieve sustained revenue growth or profitability.\nWe have identified a material weakness in our internal control over financial reporting, and if our remediation of such material weakness is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.\nIn the course of preparing our financial statements for the fiscal year ended March 31, 2022, we identified a material weakness in our internal control over financial reporting which remained un-remediated at March 31, 2023.  A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified pertains to the design and maintenance of control over the review of the forecasts used to calculate the contingent consideration liability, used in the goodwill impairment test and used in the recoverability test for intangible assets. This material weakness has not been remediated as of March 31, 2023. Our management is taking steps to remediate our material weakness, including re-evaluating the methodology and procedures involved in developing forecasts as well as the review and oversight of the forecasting process. \nWe are in the process of implementing a detailed plan for the remediation of the material weakness, including enhancing management\u2019s review controls over the \nforecasts used to calculate the contingent consideration liability, used in the recoverability test for intangible assets and used in the goodwill impairment test\n. Although we have begun implementing the enhancements described above, the material weakness will not be considered remediated until the applicable controls operate for a sufficient\u00a0period of time\u00a0and management has concluded, through testing, that these controls are operating effectively. Until this material weakness is remediated, we plan to continue to perform additional analyses and other procedures to ensure that our consolidated financial statements are prepared in accordance with GAAP\n.\nIf we are unable to further implement and maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price. If we are unable to assert that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected and we could become subject to litigation or investigations by Nasdaq, the SEC or other regulatory authorities, which could require additional financial and management resources. \n21\n\n\nTable of Contents\nFurthermore, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weakness in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business.  Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.  Any failure to implement and maintain effective internal control over financial reporting could adversely affect the results of periodic management evaluations.\nIf we determine that our goodwill and intangible assets have become impaired, we may incur impairment charges, which would negatively impact our operating results.\nGoodwill represents the difference between the purchase price and the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination, such as our acquisition of MikaMonu Group Ltd. in fiscal 2016.  We test for goodwill impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset is more likely than not impaired.  If the carrying value of a material asset is determined to be impaired, it will be written down to fair value by a charge to operating earnings. As of March 31, 2023, we had a goodwill balance of $8.0 million and intangible assets of $1.8 million, respectively, from the MikaMonu acquisition. An adverse change in market conditions, including a sustained decline in our stock price, \nloss of significant customers, or a weakened demand for our products could be considered to be an impairment triggering event. If such change has the effect of changing one of our critical assumptions or estimates, a change to the estimation of fair value could result in an impairment charge to our goodwill or intangible assets, which would negatively impact our operating results and harm our business. In the fiscal year ended March 31, 2023, we identified sustained declines in our stock price that resulted in our market capitalization being below the carrying value of our stockholders\u2019 equity. We concluded the sustained declines in our stock price were triggering events and proceeded with quantitative\u00a0goodwill impairment assessments. \nThe results of the quantitative goodwill impairment assessments that we performed indicated the fair value of our sole reporting unit exceeded its carrying value as of December 31, 2022, February 28, 2023 and March 31, 2023.\nWe depend upon the sale of our Very Fast SRAMs\u00a0for most of our revenues, and a downturn in demand for these products could significantly reduce our revenues and harm our business.\nWe derive most of our revenues from the sale of Very Fast SRAMs, and we expect that sales of these products will represent the substantial majority of our revenues for the foreseeable future. Our business depends in large part upon continued demand for our products in the markets we currently serve, which will continue to be adversely impacted by the decline in the global economic environment, and adoption of our products in new markets. Market adoption will be dependent upon our ability to increase customer awareness of the benefits of our products and to prove their high-performance and cost-effectiveness. We may not be able to sustain or increase our revenues from sales of our products, particularly if the networking and telecommunications markets were to experience another significant downturn in the future. Any decrease in revenues from sales of our products could harm our business more than it would if we offered a more diversified line of products.\nOur future success is substantially dependent on the successful introduction of new in-place associative computing products which entails significant risks.  \nSince 2015, our principal strategic objective has been the development of our first in-place associative computing product.  We have devoted, and will continue to devote, substantial efforts and resources to the development of our new family of in-place associative computing products.  This ongoing project involves the commercialization of new, cutting-edge technology, will require a continuing substantial effort during fiscal 2024 \n22\n\n\nTable of Contents\nand will be subject to significant risks.  In addition to the typical risks associated with the development of technologically advanced products, this project will be subject to enhanced risks of technological problems related to the development of this entirely new category of products, substantial risks of delays or unanticipated costs that may be encountered, and risks associated with the establishment of entirely new markets and customer and partner relationships. The establishment of new customer and partner relationships and selling our in-place associative computing products to such new customers is a significant undertaking that requires us to invest heavily in our sales team, enter into new channel partner relationships, expand our marketing activities and change the focus of our business and operations. Our inability to successfully establish a market for the product that we have developed will have a material adverse effect on our future financial and business success, including our prospects for increased revenues. Additionally, if we are unable to meet the expectations of market analysts and investors with respect to this major product introduction effort, then the price of our common stock could fall.\nWe are dependent on a number of single source suppliers, and if we fail to obtain adequate supplies, our business will be harmed and our prospects for growth will be curtailed.\nWe currently purchase several key components used in the manufacture of our products from single sources and are dependent upon supply from these sources to meet our needs. If any of these suppliers cannot provide components on a timely basis, at the same price or at all, our ability to manufacture our products will be constrained and our business will suffer. For example, due to worldwide inflationary pressures, the cost of wafers and assembly services have increased by approximately 25% since the beginning of fiscal 2021. Most significantly, we obtain wafers for our Very Fast SRAM and APU products from a single foundry, TSMC, and most of them are packaged at ASE.\u00a0\u00a0If we are unable to obtain an adequate supply of wafers from TSMC or find alternative sources in a timely manner, we will be unable to fulfill our customer orders and our operating results will be harmed. We do not have supply agreements with TSMC, ASE or any of our other independent assembly and test suppliers, and instead obtain manufacturing services and products from these suppliers on a purchase-order basis. Our suppliers, including TSMC, have no obligation to supply products or services to us for any specific product, in any specific quantity, at any specific price or for any specific time period. As a result, the loss or failure to perform by any of these suppliers could adversely affect our business and operating results.\nShould any of our single source suppliers experience manufacturing failures or yield shortfalls, be disrupted by natural disaster, military action or political instability, choose to prioritize capacity or inventory for other uses or reduce or eliminate deliveries to us for any other reason, we likely will not be able to enforce fulfillment of any delivery commitments and we would have to identify and qualify acceptable replacements from alternative sources of supply. In particular, if TSMC is unable to supply us with sufficient quantities of wafers to meet all of our requirements, we would have to allocate our products among our customers, which would constrain our growth and might cause some of them to seek alternative sources of supply. Since the manufacturing of wafers and other components is extremely complex, the process of qualifying new foundries and suppliers is a lengthy process and there is no assurance that we would be able to find and qualify another supplier without materially adversely affecting our business, financial condition and results of operations.\nIf we do not successfully develop new products to respond to rapid market changes due to changing technology and evolving industry standards, particularly in the networking and telecommunications markets, our business will be harmed. \nIf we fail to offer technologically advanced products and respond to technological advances and emerging standards, we may not generate sufficient revenues to offset our development costs and other expenses, which will hurt our business. The development of new or enhanced products is a complex and uncertain process that requires the accurate anticipation of technological and market trends. In particular, the networking and telecommunications markets are rapidly evolving and new standards are emerging. We are vulnerable to advances in technology by competitors, including new SRAM architectures, new forms of DRAM and the emergence of new memory \n23\n\n\nTable of Contents\ntechnologies that could enable the development of products that feature higher performance or lower cost. In addition, the trend toward incorporating SRAM into other chips in the networking and telecommunications markets has the potential to reduce future demand for Very Fast SRAM products. We may experience development, marketing and other technological difficulties that may delay or limit our ability to respond to technological changes, evolving industry standards, competitive developments or end-user requirements. For example, because we have limited experience developing integrated circuits, or IC, products other than Very Fast SRAMs, our efforts to introduce new products may not be successful and our business may suffer. Other challenges that we face include:\n\u00b7\nour products may become obsolete upon the introduction of alternative technologies; \n\u00b7\nwe may incur substantial costs if we need to modify our products to respond to these alternative technologies;\n\u00b7\nwe may not have sufficient resources to develop or acquire new technologies or to introduce new products capable of competing with future technologies;\n \n\u00b7\nnew products that we develop may not successfully integrate with our end-users\u2019 products into which they are incorporated; \n\u00b7\nwe may be unable to develop new products that incorporate emerging industry standards; \n\u00b7\nwe may be unable to develop or acquire the rights to use the intellectual property necessary to implement new technologies; and \n\u00b7\nwhen introducing new or enhanced products, we may be unable to effectively manage the transition from older products.\nIf we do not successfully implement the cost reduction initiatives that were announced on November 30, 2022, we may suffer adverse impacts on our business and operations.\nOn November 30, 2022, we announced the implementation of cost reduction initiatives.  The cost reduction initiatives are expected to be completed by September 30, 2023, and will result in an approximate 15% decrease in our global workforce. The aim of these initiatives is to reduce GSI Technology\u2019s operating expenses by approximately $7.0 million on an annualized basis, primarily from salary reductions related to reduced headcount and salary decreases for certain retained employees, as well as targeted reductions in research and development spending.  The implementation of these cost reduction initiatives may result in unintended and adverse impacts on our business and operations.  Any failure to successfully implement the cost reduction initiatives could prevent us from focusing our operational resources on advancing GSI Technology\u2019s proprietary APU technology.\nIf we are unable to offset increased wafer fabrication and assembly costs by increasing the average selling prices of our products, our gross margins will suffer.\nIf there is a significant upturn in the demand for the manufacturing and assembly of semiconductor products as occurred in fiscal 2022, the available supply of wafers and packaging services may be limited. As a result, we could be required to obtain additional manufacturing and assembly capacity in order to meet increased demand. Securing additional manufacturing and assembly capacity may cause our wafer fabrication and assembly costs to increase. Inflationary pressures may also cause our wafer fabrication costs to increase. If we are unable to offset these increased costs by increasing the average selling prices of our products, our gross margins will decline.\nWe are subject to the highly cyclical nature of the networking and telecommunications markets.\nOur Very Fast SRAM products are incorporated into routers, switches, wireless local area network infrastructure equipment, wireless base stations and network access equipment used in the highly cyclical \n24\n\n\nTable of Contents\nnetworking and telecommunications markets. We expect that the networking and telecommunications markets will continue to be highly cyclical, characterized by periods of rapid growth and contraction. Our business and our operating results are likely to fluctuate, perhaps quite severely, as a result of this cyclicality.\nThe market for Very Fast SRAMs\u00a0is highly competitive.\nThe market for Very Fast SRAMs, which are used primarily in networking and telecommunications equipment, is characterized by price erosion, rapid technological change, cyclical market patterns and intense foreign and domestic competition. Several of our competitors offer a broad array of memory products and have greater financial, technical, marketing, distribution and other resources than we have. Some of our competitors maintain their own semiconductor fabrication facilities, which may provide them with capacity, cost and technical advantages over us. We cannot assure you that we will be able to compete successfully against any of these competitors. Our ability to compete successfully in this market depends on factors both within and outside of our control, including:\n\u00b7\nreal or perceived imbalances in supply and demand of Very Fast SRAMs; \n\u00b7\nthe rate at which OEMs\u00a0incorporate our products into their systems; \n\u00b7\nthe success of our customers\u2019 products; \n\u00b7\nthe price of our competitors\u2019 products relative to the price of our products; \n\u00b7\nour ability to develop and market new products; and\n\u00b7\nthe supply and cost of wafers.\nIn fiscal 2022 and 2023 we experienced increases of 20% and 6%, respectively, in wafer fabrication costs due to supply chain constraints, which resulted in us increasing the cost of our products. Inflationary pressures are expected to result in additional increases in our wafer fabrication costs, which may require us to further increase the cost of our products. Our customers may decide to purchase products from our competitors rather than accept these price increases and our business may suffer. There can be no assurance that we will be able to compete successfully in the future. Our failure to compete successfully in these or other areas could harm our business.\n \nWe rely heavily on distributors and our success depends on our ability to develop and manage our indirect distribution channels.\nA significant percentage of our sales are made to distributors and to contract manufacturers who incorporate our products into end products for OEMs.\u00a0For example, in fiscal 2023, 2022 and 2021, our largest distributor Avnet Logistics accounted for 48.1%, 38.0% and 29.8%, respectively, of our net revenues. Avnet Logistics and our other existing distributors may choose to devote greater resources to marketing and supporting the products of other companies. Since we sell through multiple channels and distribution networks, we may have to resolve potential conflicts between these channels. For example, these conflicts may result from the different discount levels offered by multiple channel distributors to their customers or, potentially, from our direct sales force targeting the same equipment manufacturer accounts as our indirect channel distributors. These conflicts may harm our business or reputation.\nThe average selling prices of our products are expected to decline, and if we are unable to offset these declines, our operating results will suffer.\nHistorically, the average unit selling prices of our products have declined substantially over the lives of the products, and we expect this trend to continue. A reduction in overall average selling prices of our products could result in reduced revenues and lower gross margins. Our ability to increase our net revenues and maintain our gross \n25\n\n\nTable of Contents\nmargins despite a decline in the average selling prices of our products will depend on a variety of factors, including our ability to introduce lower cost versions of our existing products, increase unit sales volumes of these products, and introduce new products with higher prices and greater margins. If we fail to accomplish any of these objectives, our business will suffer. To reduce our costs, we may be required to implement design changes that lower our manufacturing costs, negotiate reduced purchase prices from our independent foundries and our independent assembly and test vendors, and successfully manage our manufacturing and subcontractor relationships. Because we do not operate our own wafer foundry or assembly facilities, we may not be able to reduce our costs as rapidly as companies that operate their own foundries or facilities.\nWe are substantially dependent on the continued services and performance of our senior management and other key personnel.\nOur future success is substantially dependent on the continued services and continuing contributions of our senior management who must work together effectively in order to design our products, expand our business, increase our revenues and improve our operating results. Members of our senior management team have long-standing and important relationships with our key customers and suppliers.  The loss of services, whether as a result of illness, resignation, retirement or death, of Lee-Lean Shu, our President and Chief Executive Officer, Dr. Avidan Akerib, our Vice President of Associative Computing, any other executive officer or other key employee could significantly delay or prevent the achievement of our development and strategic objectives. We do not have employment contracts with, nor maintain key person insurance on, any of our executive officers or other key employees.\nSystem security risks, data protection, cyber-attacks and systems integration issues could disrupt our internal operations or the operations of our business partners, and any such disruption could harm our reputation or cause a reduction in our expected revenue, increase our expenses, negatively impact our results of operation or otherwise adversely affect our stock price.\nSecurity breaches, computer malware and cyber-attacks have become more prevalent and sophisticated and may increase in the future due to a number of our employees working from home and the potential for retaliatory cyber-attacks as a result of the military conflict in Ukraine. Experienced computer programmers and hackers may be able to penetrate our network security or the network security of our business partners, and misappropriate or compromise our confidential and proprietary information, create system disruptions or cause shutdowns. The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions and delays that may impede our sales, manufacturing, distribution or other critical functions.\nWe manage and store various proprietary information and sensitive or confidential data relating to our business on the cloud. Breaches of our security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or confidential data about us, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our reputation or otherwise harm our business. In addition, the cost and operational consequences of implementing further data protection measures could be significant.\nPortions of our IT infrastructure also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and resource-intensive than originally anticipated. Such disruptions could adversely impact our ability to attract and retain customers, fulfill orders and interrupt other processes and could adversely affect our business, financial results, stock price and reputation.\n26\n\n\nTable of Contents\nWe may be unable to accurately forecast future sales through our distributors, which could harm our ability to efficiently manage our resources to match market demand.\nOur financial results, quarterly product sales, trends and comparisons are affected by fluctuations in the buying patterns of the OEMs\u00a0that purchase our products from our distributors. While we attempt to assist our distributors in maintaining targeted stocking levels of our products, we may not consistently be accurate or successful. This process involves the exercise of judgment and use of assumptions as to future uncertainties, including end user demand. Inventory levels of our products held by our distributors may exceed or fall below the levels we consider desirable on a going-forward basis. This could result in distributors returning unsold inventory to us, or in us not having sufficient inventory to meet the demand for our products. If we are not able to accurately forecast sales through our distributors or effectively manage our relationships with our distributors, our business and financial results will suffer.\nA small number of customers generally account for a significant portion of our accounts receivable in any period, and if any one of them fails to pay us, our financial position and operating results will suffer.\nAt March 31, 2023, three customers accounted for 36%, 25% and 19% of our accounts receivable, respectively. If any of these customers do not pay us, our financial position and operating results will be harmed. Generally, we do not require collateral from our customers.\nDemand for our products may decrease if our OEM customers experience difficulty manufacturing, marketing or selling their products.\nOur products are used as components in our OEM customers\u2019 products, including routers, switches and other networking and telecommunications products. Accordingly, demand for our products is subject to factors affecting the ability of our OEM customers to successfully introduce and market their products, including:\n\u00b7\ncapital spending by telecommunication and network service providers and other end-users who purchase our OEM customers\u2019 products; \n\u00b7\nthe competition our OEM customers face, particularly in the networking and telecommunications industries; \n\u00b7\nthe technical, manufacturing, sales and marketing and management capabilities of our OEM customers; \n\u00b7\nthe financial and other resources of our OEM customers; and \n\u00b7\nthe inability of our OEM customers to sell their products if they infringe third-party intellectual property rights.\nAs a result, if OEM customers reduce their purchases of our products, our business will suffer.\nOur products have lengthy sales cycles that make it difficult to plan our expenses and forecast results.\nOur products are generally incorporated in our OEM customers\u2019 products at the design stage. However, their decisions to use our products often require significant expenditures by us without any assurance of success, and often precede volume sales, if any, by a year or more. If an OEM customer decides at the design stage not to incorporate our products into their products, we will not have another opportunity for a design win with respect to that customer\u2019s product for many months or years, if at all. Our sales cycle can take up to 24\u00a0months to complete, and because of this lengthy sales cycle, we may experience a delay between increasing expenses for research and development and our sales and marketing efforts and the generation of volume production revenues, if any, from these expenditures. Moreover, the value of any design win will largely depend on the commercial success of our \n27\n\n\nTable of Contents\nOEM customers\u2019 products. There can be no assurance that we will continue to achieve design wins or that any design win will result in future revenues.\nWe are developing a subscription business model for certain of our new APU products, which will take time to implement and will be subject to execution risks.  The sales cycle for subscription products is different from our hardware sales business and we will need to implement strategies to manage customer retention, which may be more volatile than the hardware sales to OEM customers.  We anticipate that there will be quarterly fluctuations in the revenue and expenses associated with this new license-based business as we optimize the sales process for our target customers.  Furthermore, because of the time it takes to build a meaningful subscription business, we expect to incur significant expenses relating to the subscription business before generating revenue from that new business.\nOur business could be negatively affected as a result of actions of activist stockholders or others.\nWe may be subject to actions or proposals from stockholders or others that may not align with our business strategies or the interests of our other stockholders. Responding to such actions can be costly and time-consuming, disrupt our business and operations, and divert the attention of our board of directors, management, and employees from the pursuit of our business strategies. Such activities could interfere with our ability to execute our strategic plan. Activist stockholders or others may create perceived uncertainties as to the future direction of our business or strategy which may be exploited by our competitors and may make it more difficult to attract and retain qualified personnel and potential customers, and may affect our relationships with current customers, vendors, investors, and other third parties. In addition, a proxy contest for the election of directors at our annual meeting would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and our board of directors. The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities.\nClaims that we infringe third party intellectual property rights could seriously harm our business and require us to incur significant costs.\nThere has been significant litigation in the semiconductor industry involving patents and other intellectual property rights.  We were previously involved in protracted patent infringement litigation, and we could become subject to additional claims or litigation in the future as a result of allegations that we infringe others\u2019 intellectual property rights or that our use of intellectual property otherwise violates the law. Claims that our products infringe the proprietary rights of others would force us to defend ourselves and possibly our customers, distributors or manufacturers against the alleged infringement. Any such litigation regarding intellectual property could result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition and results of operations. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or impractical. If any claims received in the future were to be upheld, the consequences to us could require us to:\n\u00b7\nstop selling our products that incorporate the challenged intellectual property; \n\u00b7\nobtain a license to sell or use the relevant technology, which license may not be available on reasonable terms or at all; \n\u00b7\npay damages; or \n\u00b7\nredesign those products that use the disputed technology.\nAlthough patent disputes in the semiconductor industry have often been settled through cross-licensing arrangements, we may not be able in any or every instance to settle an alleged patent infringement claim through a cross-licensing arrangement in part because we have a more limited patent portfolio than many of our competitors. If a successful claim is made against us or any of our customers and a license is not made available to us on \n28\n\n\nTable of Contents\ncommercially reasonable terms or we are required to pay substantial damages or awards, our business, financial condition and results of operations would be materially adversely affected.\nOur acquisition of companies or technologies could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results.\nIn November 2015, we acquired all of the outstanding capital stock of privately held MikaMonu Group Ltd., a development-stage, Israel-based company that specializes in in-place associative computing for markets including big data, computer vision and cyber security. We also acquired substantially all of the assets related to the SRAM memory device product line of Sony Corporation in 2009. We intend to supplement our internal development activities by seeking opportunities to make additional acquisitions or investments in companies, assets or technologies that we believe are complementary or strategic. Other than the MikaMonu and Sony acquisitions, we have not made any such acquisitions or investments, and therefore our experience as an organization in making such acquisitions and investments is limited. In connection with the MikaMonu acquisition, we are subject to risks related to potential problems, delays or unanticipated costs that may be encountered in the development of products based on the MikaMonu technology and the establishment of new markets and customer relationships for the potential new products.  In addition, in connection with any future acquisitions or investments we may make, we face numerous other risks, including:\n\u00b7\ndifficulties in integrating operations, technologies, products and personnel; \n\u00b7\ndiversion of financial and managerial resources from existing operations; \n\u00b7\nrisk of overpaying for or misjudging the strategic fit of an acquired company, asset or technology; \n\u00b7\nproblems or liabilities stemming from defects of an acquired product or intellectual property litigation that may result from offering the acquired product in our markets;\n\u00b7\nchallenges in retaining key employees to maximize the value of the acquisition or investment; \n\u00b7\ninability to generate sufficient return on investment; \n\u00b7\nincurrence of significant one-time write-offs; and \n\u00b7\ndelays in customer purchases due to uncertainty.\nIf we proceed with additional acquisitions or investments, we may be required to use a considerable amount of our cash, or to finance the transaction through debt or equity securities offerings, which may decrease our financial liquidity or dilute our stockholders and affect the market price of our stock. As a result, if we fail to properly evaluate and execute acquisitions or investments, our business and prospects may be harmed.\nIf we are unable to recruit or retain qualified personnel, our business and product development efforts could be harmed.\nWe must continue to identify, recruit, hire, train, retain and motivate highly skilled technical, managerial, sales and marketing and administrative personnel. Competition for these individuals is intense, and we may not be able to successfully recruit, assimilate or retain sufficiently qualified personnel. We may encounter difficulties in recruiting and retaining a sufficient number of qualified engineers, which could harm our ability to develop new products and adversely impact our relationships with existing and future end-users at a critical stage of development. The failure to recruit and retain necessary technical, managerial, sales, marketing and administrative personnel could harm our business and our ability to obtain new OEM customers and develop new products.\n29\n\n\nTable of Contents\nOur business will suffer if we are unable to protect our intellectual property.\nOur success and ability to compete depends in large part upon protecting our proprietary technology. We rely on a combination of patent, trade secret, copyright and trademark laws and non-disclosure and other contractual agreements to protect our proprietary rights. These agreements and measures may not be sufficient to protect our technology from third-party infringement. Monitoring unauthorized use of our intellectual property is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Our attempts to enforce our intellectual property rights could be time consuming and costly. In the past, we have been involved in litigation to enforce our intellectual property rights and to protect our trade secrets. Additional litigation of this type may be necessary in the future. Any such litigation could result in substantial costs and diversion of resources. If competitors are able to use our technology without our approval or compensation, our ability to compete effectively could be harmed.\nAny significant order cancellations or order deferrals could adversely affect our operating results.\nWe typically sell products pursuant to purchase orders that customers can generally cancel or defer on short notice without incurring a significant penalty. Any significant cancellations or deferrals in the future could materially and adversely affect our business, financial condition and results of operations. Cancellations or deferrals could cause us to hold excess inventory, which could reduce our profit margins, increase product obsolescence and restrict our ability to fund our operations. We generally recognize revenue upon shipment of products to a customer. If a customer refuses to accept shipped products or does not pay for these products, we could miss future revenue projections or incur significant charges against our income, which could materially and adversely affect our operating results.\nIf our business grows, such growth may place a significant strain on our management and operations and, as a result, our business may suffer.\nWe are endeavoring to expand our business, and any growth that we are successful in achieving could place a significant strain on our management systems, infrastructure and other resources. To manage the potential growth of our operations and resulting increases in the number of our personnel, we will need to invest the necessary capital to continue to improve our operational, financial and management controls and our reporting systems and procedures. Our controls, systems and procedures may prove to be inadequate should we experience significant growth. In addition, we may not have sufficient administrative staff to support our operations. For example, we currently have only four employees in our finance department in the United States, including our Chief Financial Officer. Furthermore, our officers have limited experience in managing large or rapidly growing businesses. If our management fails to respond effectively to changes in our business, our business may suffer.\nRisks Related to Manufacturing and Product Development\nWe may experience difficulties in transitioning to smaller geometry process technologies and other more advanced manufacturing process technologies, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.\nIn order to remain competitive, we expect to continue to transition the manufacture of our products to smaller geometry process technologies. This transition will require us to migrate to new manufacturing processes for our products and redesign certain products. The manufacture and design of our products is complex, and we may experience difficulty in transitioning to smaller geometry process technologies or new manufacturing processes. These difficulties could result in reduced manufacturing yields, delays in product deliveries and increased expenses. We are dependent on our relationships with TSMC to transition successfully to smaller geometry process technologies and to more advanced manufacturing processes. If we or TSMC experience significant delays in this \n30\n\n\nTable of Contents\ntransition or fail to implement these transitions, our business, financial condition and results of operations could be materially and adversely affected.\nManufacturing process technologies are subject to rapid change and require significant expenditures for research and development.\nWe continuously evaluate the benefits of migrating to smaller geometry process technologies in order to improve performance and reduce costs. Historically, these migrations to new manufacturing processes have resulted in significant initial design and development costs associated with pre-production mask sets for the manufacture of new products with smaller geometry process technologies.  For example, in the second quarter of fiscal 2019, we incurred approximately $1.0 million in research and development expense associated with a pre-production mask set that will not be used in production as part of the transition to our new 28 nanometer SRAM process technology for our APU product.  We will incur similar expenses in the future as we continue to transition our products to smaller geometry processes. The costs inherent in the transition to new manufacturing process technologies will adversely affect our operating results and our gross margin.\nOur products are complex to design and manufacture and could contain defects, which could reduce revenues or result in claims against us.\nWe develop complex products. Despite testing by us and our OEM customers, design or manufacturing errors may be found in existing or new products. These defects could result in a delay in recognition or loss of revenues, loss of market share or failure to achieve market acceptance. These defects may also cause us to incur significant warranty, support and repair costs, divert the attention of our engineering personnel from our product development efforts, result in a loss of market acceptance of our products and harm our relationships with our OEM customers. Our OEM customers could also seek and obtain damages from us for their losses. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend. Defects in wafers and other components used in our products and arising from the manufacturing of these products may not be fully recoverable from TSMC or our other suppliers.\nRisks Related to Our International Business and Operations\nChanges in Taiwan\u2019s political, social and economic environment may affect our business performance.\nBecause much of the manufacturing and testing of our products is conducted in Taiwan, our business performance may be affected by changes in Taiwan\u2019s political, social and economic environment. For example, political instability or restrictions on transportation logistics for our products resulting from changes in the relationship among the United States, Taiwan and the People\u2019s Republic of China could negatively impact our business. Any significant armed conflict related to this matter would be expected to materially and adversely damage our business. Moreover, the role of the Taiwanese government in the Taiwanese economy is significant. Taiwanese policies toward economic liberalization, and laws and policies affecting technology companies, foreign investment, currency exchange rates, taxes and other matters could change, resulting in greater restrictions on our ability and our suppliers\u2019 ability to do business and operate facilities in Taiwan. If any of these changes were to occur, our business could be harmed and our stock price could decline.\nOur international business exposes us to additional risks.\nProducts shipped to destinations outside of the United States accounted for 51.4%,\n \n53.5% and 55.4% of our net revenues in fiscal 2023, 2022 and 2021, respectively. Moreover, a substantial portion of our products is manufactured and tested in Taiwan, and the software development for our associative computing products occurs in \n31\n\n\nTable of Contents\nIsrael. We intend to continue expanding our international business in the future. Conducting business outside of the United States subjects us to additional risks and challenges, including:\n\u00b7\npotential political and economic instability in, or armed conflicts that involve or affect, the countries in which we, our customers and our suppliers are located;\n\u00b7\nuncertainties regarding taxes, tariffs, quotas, export controls and license requirements, trade wars, policies that favor domestic companies over nondomestic companies, including government efforts to provide for the development and growth of local competitors, and other trade barriers;\n\u00b7\nheightened price sensitivity from customers in emerging markets; \n\u00b7\ncompliance with a wide variety of foreign laws and regulations and unexpected changes in these laws and regulations; \n\u00b7\nfluctuations in freight rates and transportation disruptions;\n\u00b7\ndifficulties and costs of staffing and managing personnel, distributors and representatives across different geographic areas and cultures, including assuring compliance with the U. S. Foreign Corrupt Practices Act and other U. S. and foreign anti-corruption laws; \n\u00b7\ndifficulties in collecting accounts receivable and longer accounts receivable payment cycles; and\n\u00b7\nlimited protection for intellectual property rights in some countries. \nMoreover, our reporting currency is the U.S. dollar. However, a portion of our cost of revenues and our operating expenses is denominated in currencies other than the U.S. dollar, primarily the New Taiwanese dollar and Israeli Shekel. As a result, appreciation or depreciation of other currencies in relation to the U.S. dollar could result in transaction gains or losses that could impact our operating results. We do not currently engage in currency hedging activities to reduce the risk of financial exposure from fluctuations in foreign exchange rates.\nTSMC, as well as our other independent suppliers and many of our OEM customers, have operations in the Pacific Rim, an area subject to significant risk of earthquakes, typhoons and other natural disasters and adverse consequences related to the outbreak of contagious diseases.\nThe foundry that manufactures our Fast SRAM and APU products, TSMC, and all of the principal independent suppliers that assemble and test our products are located in Taiwan. Many of our customers are also located in the Pacific Rim. The risk of an earthquake in these Pacific Rim locations is significant. The occurrence of an earthquake, typhoon or other natural disaster near the fabrication facilities of TSMC or our other independent suppliers could result in damage, power outages and other disruptions that impair their production and assembly capacity. Any disruption resulting from such events could cause significant delays in the production or shipment of our products until we are able to shift our manufacturing, assembling, packaging or production testing from the affected contractor to another third-party vendor. In such an event, we may not be able to obtain alternate foundry capacity on favorable terms, or at all.\nThe recent COVID-19 global pandemic, along with the previous outbreaks of SARS, H1N1 and the Avian Flu, curtailed travel between and within countries, including in the Asia-Pacific region.  Outbreaks of new contagious diseases or the resurgence of existing diseases that significantly affect the Asia-Pacific region could disrupt the operations of our key suppliers and manufacturing partners.  In addition, our business could be harmed if such an outbreak resulted in travel being restricted, the implementation of stay-at-home or shelter-in-place orders or if it adversely affected the operations of our OEM customers or the demand for our products or our OEM customers\u2019 products.\n32\n\n\nTable of Contents\nWe do not maintain sufficient business interruption and other insurance policies to compensate us for all losses that may occur. Any losses or damages incurred by us as a result of a catastrophic event or any other significant uninsured loss in excess of our insurance policy limits could have a material adverse effect on our business.\nThe United States could materially modify certain international trade agreements, or change tax provisions related to the global manufacturing and sales of our products. \nA portion of our business activities are conducted in foreign countries, including Taiwan and Israel. Our business benefits from free trade agreements, and we also rely on various U.S. corporate tax provisions related to international commerce as we develop, manufacture, market and sell our products globally. Any action to materially modify international trade agreements, change corporate tax policy related to international commerce or mandate domestic production of goods, could adversely affect our business, financial condition and results of operations.\nSome of our products are incorporated into advanced military electronics, and changes in international geopolitical circumstances and domestic budget considerations may hurt our business.\nSome of our products are incorporated into advanced military electronics such as radar and guidance systems. Military expenditures and appropriations for such purchases rose significantly in recent years. However, if current U.S. military operations around the world are scaled back, demand for our products for use in military applications may decrease, and our operating results could suffer. Domestic budget considerations may also adversely affect our operating results. For example, if governmental appropriations for military purchases of electronic devices that include our products are reduced, our revenues will likely decline.\nRisks Relating to Our Common Stock and the Securities Market\nThe trading price of our common stock is subject to fluctuation and is likely to be volatile.\nThe trading price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including:\n\u25cf\nthe establishment of a market for our new associative computing products; \n\u25cf\nactual or anticipated declines in operating results;\n\u25cf\nchanges in financial estimates or recommendations by securities analysts; \n\u25cf\nthe institution of legal proceedings against us or significant developments in such proceedings;\n\u25cf\nannouncements by us or our competitors of financial results, new products, significant technological innovations, contracts, acquisitions, strategic relationships, joint ventures, capital commitments or other events; \n\u25cf\nchanges in industry estimates of demand for Very Fast SRAM, RadHard and RadTolerant products; \n\u25cf\nthe gain or loss of significant orders or customers; \n\u25cf\nrecruitment or departure of key personnel; and \n\u25cf\nmarket conditions in our industry, the industries of our customers and the economy as a whole.\nIn recent years, the stock market in general, and the market for technology stocks in particular, have experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected \n33\n\n\nTable of Contents\ncompanies. The market price of our common stock might experience significant fluctuations in the future, including fluctuations unrelated to our performance. These fluctuations could materially adversely affect our business relationships, our ability to obtain future financing on favorable terms or otherwise harm our business. In addition, in the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. This risk is especially acute for us because the extreme volatility of market prices of technology companies has resulted in a larger number of securities class action claims against them. Due to the potential volatility of our stock price, we may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management\u2019s attention and resources. This could harm our business and cause the value of our stock to decline.\nWe may need to raise additional capital in the future, which may not be available on favorable terms or at all, and which may cause dilution to existing stockholders.\nWe may need to seek additional funding in the future. We do not know if we will be able to obtain additional financing on favorable terms, if at all. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, and we may be required to reduce operating costs, which could seriously harm our business. In addition, if we issue equity securities, our stockholders may experience dilution or the new equity securities may have rights, preferences or privileges senior to those of our common stock.\nOur executive officers, directors and entities affiliated with them hold a substantial percentage of our common stock.\nAs of May 31, 2023\n, \nour executive officers, directors and entities affiliated with them beneficially owned approximately 32% of our outstanding common stock. As a result, these stockholders will be able to exercise substantial influence over, and may be able to effectively control, matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, which could have the effect of delaying or preventing a third party from acquiring control over or merging with us.\nThe provisions of our charter documents might inhibit potential acquisition bids that a stockholder might believe are desirable, and the market price of our common stock could be lower as a result.\nOur Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock. Our Board of Directors can fix the price, rights, preferences, privileges and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock might delay or prevent a change in control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders might be adversely affected. The issuance of preferred stock might result in the loss of voting control to other stockholders. We have no current plans to issue any shares of preferred stock. Our charter documents also contain other provisions, which might discourage, delay or prevent a merger or acquisition, including:\n\u00b7\nour stockholders have no right to act by written consent; \n\u00b7\nour stockholders have no right to call a special meeting of stockholders; and\n\u00b7\nour stockholders must comply with advance notice requirements to nominate directors or submit proposals for consideration at stockholder meetings.\nThese provisions could also have the effect of discouraging others from making tender offers for our common stock. As a result, these provisions might prevent the market price of our common stock from increasing substantially in response to actual or rumored takeover attempts. These provisions might also prevent changes in our management.\n34\n\n\nTable of Contents\nUse of a portion of our cash reserves to repurchase shares of our common stock presents potential risks and disadvantages to us and our continuing stockholders. \nSince November 2008, we have repurchased and retired an aggregate of 12,004,779 shares of our common stock at a total cost of $60.7\u00a0million, including 3,846,153 shares repurchased at a total cost of $25\u00a0\nmillion pursuant to a modified \u201cDutch auction\u201d self-tender offer that we completed in August 2014 and additional shares repurchased in the open market pursuant to our stock repurchase program.  At March 31, 2023, we had outstanding authorization from our Board of Directors to purchase up to an additional $4.3\u00a0million of our common stock from time to time under our repurchase program.\n \nAlthough our Board has determined that these repurchases are in the best interests of our stockholders, they expose us to certain risks including: \n\u00b7\nthe risks resulting from a reduction in the size of our \u201cpublic float,\u201d which is the number of shares of our common stock that are owned by non-affiliated stockholders and available for trading in the securities markets, which may reduce the volume of trading in our shares and result in reduced liquidity and, potentially, lower trading prices;  \n\u00b7\nthe risk that our stock price could decline and that we would be able to repurchase shares of our common stock in the future at a lower price per share than the prices we have paid in our tender offer and repurchase program; and \n\u00b7\nthe risk that the use of a portion of our cash reserves for this purpose has reduced, or may reduce, the amount of cash that would otherwise be available to pursue potential cash acquisitions or other strategic business opportunities.",
+  "item7": ">Item\u00a07.\u00a0\u00a0\u00a0\u00a0\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThe following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ substantially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under \u201cRisk Factors\u201d and elsewhere in this report. The following discussion should be read together with our consolidated financial statements and the related notes included elsewhere in this report.\nThis discussion and analysis generally covers our financial condition and results of operations for the fiscal year ended March 31, 2023, including year-over-year comparisons versus the fiscal year ended March 31, 2022. Our \nAnnual Report on Form 10-K \nfor the fiscal year ended March 31, 2022 includes year-over-year comparisons versus the fiscal year ended March 31, 2021 in Item 7 of Part II, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\u201d\n \n\u200b\nOverview\nWe are a leading provider of high-performance semiconductor memory solutions for in-place associative computing applications in high growth markets such as artificial intelligence and high-performance computing, including natural language processing and computer vision. Our initial associative processing unit (\u201cAPU\u201d) products are focused on applications using similarity search, but have not resulted in material revenues to date. Similarity search is used in visual search queries for ecommerce, computer vision, drug discovery, cyber security and service markets such as NoSQL, Elasticsearch, and OpenSearch.  We also design, develop and market static random access memories, or SRAMs, that operate at speeds of less than 10 nanoseconds, which we refer to as Very Fast SRAMs, primarily for the networking and telecommunications and the military/defense and aerospace markets. We are subject to the highly cyclical nature of the semiconductor industry, which has experienced significant fluctuations, often in connection with fluctuations in demand for the products in which semiconductor devices are used. Our revenues have been substantially impacted by significant fluctuations in sales to our largest customer, Nokia. We expect that future direct and indirect sales to Nokia will continue to fluctuate significantly on a quarterly basis. The networking and telecommunications market has accounted for a significant portion of our net revenues in the past and has declined during the past several years and is expected to continue to decline.  In anticipation of the decline of the networking and telecommunications market, we have been using the revenue generated by the sales of high-speed synchronous SRAM products to finance the development of our new in-place associative computing solutions and the marketing and sale of new types of SRAM products such as radiation-hardened and radiation-tolerant SRAMs. However, with no debt and substantial liquidity, we believe we are in a better financial position than many other companies of our size.\nOur revenues in recent years have been impacted by changes in customer buying patterns and communication limitations related to COVID-19 restrictions that required a significant number of our customer contacts to work from home. Our results for the fiscal years ended March 31, 2021 and 2022 demonstrated the challenges that we have faced during the COVID-19 global pandemic, which restricted the activities of our sales force and distributors, reduced customer demand and caused the postponement of investment in certain customer sectors. These challenges impacted us as we entered new markets and engaged with target customers to sell our new APU product. Industry conferences and on-site training workshops, which are typically used for building a sales pipeline, were limited due to COVID-19 related restrictions. We adapted our sales strategies for the COVID-19 environment, where we could not have face-to-face meetings and conduct secure meetings with government and defense customers. While the COVID-19 pandemic has ended, the significant fluctuations in energy prices, worldwide inflationary pressures, rising interest rates and decline in the global economic environment have had, and may continue to have, an adverse impact on our business and financial condition. Furthermore, the easing of supply chain shortages and prior buffer stock purchases from significant customers have led to a decrease in fiscal 2023 revenues.\n37\n\n\nTable of Contents\nAs of March 31, 2023, we had cash, cash equivalents and short-term investments of $30.6 million, with no debt. We have a team in-place with tremendous depth and breadth of experience and knowledge, with a legacy business that is providing an ongoing source of funding for the development of new product lines. We have a strong balance sheet and liquidity position that we anticipate will provide financial flexibility and security in the current environment of economic uncertainty.  Generally, our primary source of liquidity is cash equivalents and short-term investments. Our level of cash equivalents and short-term investments has historically been sufficient to meet our current and longer term operating and capital needs. We believe that during the next 12 months, continued inflationary pressures and rising interest rates will continue to negatively impact general economic activity and demand in our end markets. Although it is difficult to estimate the length or gravity of the continued inflationary pressures and rising interest rates, the impact of recent bank failures, significant fluctuations in energy prices and the decline in the global economic environment, are expected to have an adverse effect on our results of operations, financial position, including potential impairments, and liquidity in fiscal 2024.\nIn November 2022, we announced measures taken to reduce our operating expenses by approximately $7.0 million on an annualized basis, primarily from salary reductions related to reduced headcount and salary decreases for certain retained employees, as well as targeted reductions in research and development spending. These strategic cost reduction measures are expected to enable us to better focus on our operational resources on advancing our proprietary APU technology. None of the Gemini-II chip development and core APU software development, including the APU compiler, will be affected by the reduction in research and development spending. The APU marketing, sales, and APU engineering efforts will retain priority in the budget. The spending reductions are not expected to impact the launch of Gemini-I in target markets, including SAR, search, and SaaS. The cost reduction initiative is expected to be completed by September 30, 2023 and will result in an approximate 15% decrease in our global workforce. In total, we expect to incur approximately $917,000 in cash expenditures for termination costs, including the payout of accrued vacation, of which $490,000 was incurred in fiscal 2023.\nRevenues.\n\u00a0Substantially all of our revenues are derived from sales of our Very Fast SRAM products. Sales to networking and telecommunications OEMs\u00a0accounted for 32% to 53% of our net revenues during our last three fiscal years. We also sell our products to OEMs\u00a0that manufacture products for military and aerospace applications such as radar and guidance systems and satellites, for test and measurement applications such as high-speed testers, for automotive applications such as smart cruise control, and for medical applications such as ultrasound and CAT scan equipment\n.\nAs is typical in the semiconductor industry, the selling prices of our products generally decline over the life of the product. Our ability to increase net revenues, therefore, is dependent upon our ability to increase unit sales volumes of existing products and to introduce and sell new products with higher average selling prices in quantities sufficient to compensate for the anticipated declines in selling prices of our more mature products.  Although we expect the average selling prices of individual products to decline over time, we believe that, over the next several quarters, our overall average selling prices will increase due to a continuing shift in product mix to a higher percentage of higher price, higher density products, and to a lesser extent, recent price increases to our customers due to supply constraints. Our ability to increase unit sales volumes is dependent primarily upon increases in customer demand but, particularly in periods of increasing demand, can also be affected by our ability to increase production through the availability of increased wafer fabrication capacity from TSMC, our wafer supplier, and our ability to increase the number of good integrated circuit die produced from each wafer through die size reductions and yield enhancement activities.\nWe may experience fluctuations in quarterly net revenues for a number of reasons. Historically, orders on hand at the beginning of each quarter are insufficient to meet our revenue objectives for that quarter and are generally cancelable up to 30\u00a0days prior to scheduled delivery. Accordingly, we depend on obtaining and shipping orders in the same quarter to achieve our revenue objectives. In addition, the timing of product releases, purchase \n38\n\n\nTable of Contents\norders and product availability could result in significant product shipments at the end of a quarter. Failure to ship these products by the end of the quarter may adversely affect our operating results. Furthermore, our customers may delay scheduled delivery dates and/or cancel orders within specified timeframes without significant penalty.\nWe sell our products through our direct sales force, international and domestic sales representatives and distributors. Our revenues have been and are expected to continue to be impacted by changes in customer buying patterns and communication limitations related to changes in working habits that have resulted in a significant number of our customer contacts working from home. Our customer contracts, which may be in the form of purchase orders, contracts or purchase agreements, contain performance obligations for delivery of agreed upon products.  Delivery of all performance obligations contained within a contract with a customer typically occurs at the same time (or within the same accounting period).  Transfer of control occurs at the time of shipment or at the time the product is pulled from consignment as that is the point at which delivery has occurred, title and the risks and rewards of ownership have passed to the customer, and we have a right to payment. Thus, we will recognize revenue upon shipment of the product for direct sales and sales to our distributors. Sales to consignment warehouses, who purchase products from us for use by contract manufacturers, are recorded upon delivery to the contract manufacturer.\nHistorically, a small number of OEM customers have accounted for a substantial portion of our net revenues, and we expect that significant customer concentration will continue for the foreseeable future. Many of our OEMs\u00a0use contract manufacturers to manufacture their equipment. Accordingly, a significant percentage of our net revenues is derived from sales to these contract manufacturers and to consignment warehouses. In addition, a significant portion of our sales are made to foreign and domestic distributors who resell our products to OEMs, as well as their contract manufacturers. Direct sales to contract manufacturers and consignment warehouses accounted for 19.8%, 31.0% and 43.7% of our net revenues for fiscal 2023, 2022 and 2021, respectively. Sales to foreign and domestic distributors accounted for 77.5%, 66.8% and 54.7%\n \nof our net revenues for fiscal 2023, 2022 and 2021, respectively. The following direct customers accounted for 10% or more of our net revenues in one or more of the following periods:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal\u00a0Year\u00a0Ended\n\u200b\n\u200b\n\u200b\nMarch\u00a031,\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\nContract manufacturers and consignment warehouses:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFlextronics Technology\n\u200b\n 10.4\n%\u00a0\u00a0\n 16.0\n%\u00a0\u00a0\n 21.1\n%\nSanmina\n\u200b\n 8.8\n\u200b\n 11.2\n\u200b\n 21.5\n\u200b\nDistributors:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAvnet Logistics\n\u200b\n 48.1\n\u200b\n 38.0\n\u200b\n 29.8\n\u200b\nNexcomm\n\u200b\n 16.6\n\u200b\n 17.2\n\u200b\n 14.7\n\u200b\nNokia was our largest customer in fiscal 2023, 2022 and 2021.  Nokia purchases products directly from us and through contract manufacturers and distributors.  Based on information provided to us by its contract manufacturers and our distributors, purchases by Nokia represented approximately 17%, 29% and 39% of our net revenues in fiscal 2023, 2022 and 2021, respectively. Our revenues have been substantially impacted by significant fluctuations in sales to Nokia, and we expect that future direct and indirect sales to Nokia will continue to fluctuate substantially on a quarterly basis and that such fluctuations may significantly affect our operating results in future periods.  To our knowledge, none of our other OEM customers accounted for more than 10% of our net revenues in fiscal 2023, 2022 or 2021.\nCost of Revenues.\n\u00a0\u00a0\u00a0\u00a0Our cost of revenues consists primarily of wafer fabrication costs, wafer sort, assembly, test and burn-in expenses, the amortized cost of production mask sets, stock-based compensation and the cost of materials and overhead from operations. All of our wafer manufacturing and assembly operations, and a significant \n39\n\n\nTable of Contents\nportion of our wafer sort testing operations, are outsourced. Accordingly, most of our cost of revenues consists of payments to TSMC and independent assembly and test houses. Because we do not have long-term, fixed-price supply contracts, our wafer fabrication, assembly and other outsourced manufacturing costs are subject to the cyclical fluctuations in demand for semiconductors. We have experienced increased costs as a result of supply chain constraints for wafers and outsourced assembly, burn-in and test operations. We expect these increased manufacturing costs will continue into fiscal 2024. Cost of revenues also includes expenses related to supply chain management, quality assurance, and final product testing and documentation control activities conducted at our headquarters in Sunnyvale, California and our branch operations in Taiwan.\nGross Profit.\n\u00a0\u00a0\u00a0\u00a0Our gross profit margins vary among our products and are generally greater on our radiation hardened and radiation tolerant SRAMs, on our higher density products and, within a particular density, greater on our higher speed and industrial temperature products. We expect that our overall gross margins will fluctuate from period to period as a result of shifts in product mix, changes in average selling prices and our ability to control our cost of revenues, including costs associated with outsourced wafer fabrication and product assembly and testing.\nResearch and Development Expenses.\n\u00a0\u00a0\u00a0\u00a0Research and development expenses consist primarily of salaries and related expenses for design engineers and other technical personnel, the cost of developing prototypes, stock-based compensation and fees paid to consultants. We charge all research and development expenses to operations as incurred. We charge mask costs used in production to cost of revenues over a 12-month period. However, we charge costs related to pre-production mask sets, which are not used in production, to research and development expenses at the time they are incurred. These charges often arise as we transition to new process technologies and, accordingly, can cause research and development expenses to fluctuate on a quarterly basis. We believe that continued investment in research and development is critical to our long-term success, and we expect to continue to devote significant resources to product development activities. In particular, we are devoting substantial resources to the development of a new category of in-place associative computing products. Accordingly, we expect that our research and development expenses will continue to be substantial in future periods and may lead to operating losses in some periods. Such expenses as a percentage of net revenues may fluctuate from period to period.\nSelling, General and Administrative Expenses.\n\u00a0\u00a0\u00a0\u00a0\u00a0Selling, general and administrative expenses consist primarily of commissions paid to independent sales representatives, salaries, stock-based compensation and related expenses for personnel engaged in sales, marketing, administrative, finance and human resources activities, professional fees, costs associated with the promotion of our products and other corporate expenses. We expect that our sales and marketing expenses will increase in absolute dollars in future periods if we are able to grow and expand our sales force but that, to the extent our revenues increase in future periods, these expenses will generally decline as a percentage of net revenues. We also expect that, in support of any future growth that we are able to achieve, general and administrative expenses will generally increase in absolute dollars.\nAcquisition\nOn November 23, 2015, we acquired all of the outstanding capital stock of privately held MikaMonu Group Ltd. (\u201cMikaMonu\u201d), a development-stage, Israel-based company that specialized in in-place associative computing for markets including big data, computer vision and cyber security.  MikaMonu, located in Tel Aviv, held 12\u00a0United States patents and had a number of pending patent applications. \nThe acquisition was undertaken in order to gain access to the MikaMonu patents and the potential markets, and new customer base in those markets, that can be served by new products that we are developing using the in-place associative computing technology. \nThe acquisition has been accounted for as a purchase under authoritative guidance for business combinations.\u00a0\u00a0The purchase price of the acquisition was allocated to the intangible assets acquired, with the excess \n40\n\n\nTable of Contents\nof the purchase price over the fair value of assets acquired recorded as goodwill. We perform a goodwill impairment test near the end of each fiscal year and if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. \nUnder the terms of the acquisition agreement, we paid the former MikaMonu shareholders initial cash consideration of approximately $4.9\u00a0million, and cash retention payments totaling $2.5\u00a0million in 2017, 2018 and 2019 to the former MikaMonu shareholders, that were conditioned on the continued employment of Dr.\u00a0\nAvidan Akerib, MikaMonu\u2019s co-founder and chief technologist.  \nWe will also make \u201cearnout\u201d payments to the former MikaMonu shareholders in cash or shares of our common stock, at our discretion, during a period of up to ten years following the closing if certain product development milestones and revenue targets for products based on the MikaMonu technology are achieved.  Earnout amounts of $750,000 were paid in the fiscal year ended March 31, 2019 based on the achievement of certain product development milestones. Earnout payments, up to a maximum of $30.0\u00a0million, equal to 5% of net revenues from the sale of qualifying products in excess of certain thresholds, will be made quarterly through December\u00a0\n31, 2025.  \nThe portion of the retention payment made to Dr.\u00a0Akerib (approximately $1.2\u00a0million) was recorded as compensation expense over the period that his services were provided to us. The portion of the retention payment made to the other former MikaMonu shareholders (approximately $1.3\u00a0million) plus the maximum amount of the potential earnout payments totals approximately $30.0\u00a0million at March 31, 2023. We determined that the fair value of this contingent consideration liability was $5.8\u00a0million at the acquisition date. The contingent consideration liability is included in contingent consideration, non-current on the Consolidated Balance Sheet at March 31, 2022 and 2023 in the amount of $2.7 million and $1.1 million, respectively.\nAt each reporting period, the contingent consideration liability will be re-measured at then current fair value with changes recorded in the Consolidated Statements of Operations.  Changes in any of the inputs may result in significant adjustments to the recorded fair value. Re-measurement of the contingent consideration liability during the fiscal year ended March 31, 2023 resulted in a decrease of the contingent consideration liability of $1.9 million. \nThe allocation of the purchase price to acquired identifiable intangible assets and goodwill was based on their estimated fair values at the date of acquisition. The fair value allocated to patents was $3.5 million and the residual value allocated to goodwill was $8.0 million. \n41\n\n\nTable of Contents\nResults of Operations\nThe following table sets forth statement of operations data as a percentage of net revenues for the periods indicated: \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended March\u00a031,\u00a0\n\u200b\n\u200b\n\u200b\n2023\n\u200b\n\u200b\n2022\n\u200b\nNet revenues\n\u200b\n100.0 \n%\u00a0\u00a0\n\u200b\n100.0 \n%\u00a0\u00a0\nCost of revenues\n\u200b\n40.4 \n\u200b\n\u200b\n44.5 \n\u200b\nGross profit\n\u200b\n59.6 \n\u200b\n\u200b\n55.5 \n\u200b\nOperating expenses: \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nResearch and development\n\u200b\n79.3 \n\u200b\n\u200b\n73.9 \n\u200b\nSelling, general and administrative\n\u200b\n33.5 \n\u200b\n\u200b\n30.6 \n\u200b\nTotal operating expenses\n\u200b\n112.8 \n\u200b\n\u200b\n104.5 \n\u200b\nLoss from operations\n\u200b\n(53.2)\n\u200b\n\u200b\n(49.0)\n\u200b\nInterest and other income (expense), net\n\u200b\n0.7 \n\u200b\n\u200b\n(0.2)\n\u200b\nLoss before income taxes\n\u200b\n(52.5)\n\u200b\n\u200b\n(49.2)\n\u200b\nProvision (benefit) for income taxes\n\u200b\n1.3 \n\u200b\n\u200b\n(0.2)\n\u200b\nNet loss\n\u200b\n(53.8)\n\u200b\n\u200b\n(49.0)\n\u200b\n\u200b\nFiscal Year Ended March 31, 2023 Compared to Fiscal Year Ended March 31, 2022\nNet Revenues.\n\u00a0\u00a0\u00a0\u00a0Net revenues decreased by 11.1% from $33.4\u00a0million in fiscal 2022 to $29.7 million in fiscal 2023.\n \nThe overall average selling price of all units shipped in fiscal 2023 increased by 2.1% in fiscal 2023 compared to the prior fiscal year. The decrease in net revenues in fiscal 2023 compared to fiscal 2022 is related to the decline in the global economic environment during the period. Units shipped decreased by 13.7% in fiscal 2023 compared to fiscal 2022. The networking and telecommunications markets represented 32% and 49% of shipments in fiscal 2023 and in fiscal 2022, respectively. Direct and indirect sales to Nokia, currently our largest customer, decreased by $4.6 million from $9.6 million in fiscal 2022 to $5.0 million fiscal 2023 due to buffer stock purchases in fiscal 2022 which did not recur in fiscal 2023 as supply shortages eased. Shipments to Nokia will continue to fluctuate as a result of demand and shipments to its end customers. Shipments of our SigmaQuad product line accounted for 49.1% of total shipments in fiscal 2023 compared to 51.2% of total shipments in fiscal 2022. \nWhile recent customer order patterns have been particularly variable, these fluctuations are related to economic and external factors, which include \nthe rapid rise in energy prices, worldwide inflationary pressures, rising interest rates and the decline in the global economic environment\n.\nCost of Revenues.\n\u00a0\u00a0\u00a0\u00a0Cost of revenues decreased by 19.1% from $14.8\u00a0million in fiscal 2022 to $12.0\u00a0million in fiscal 2023. Cost of revenues decreased as a result of the lower volume of units shipped in fiscal 2023 compared to fiscal 2022 as discussed above. Cost of revenues included a provision for excess and obsolete inventories of $226,000 in fiscal 2023 compared to $402,000 in fiscal 2022. Cost of revenues included stock-based compensation expense of $202,000 and $248,000, respectively, in fiscal 2023 and fiscal 2022. \nGross Profit.\n\u00a0\u00a0\u00a0\u00a0Gross profit decreased by 4.6% from $18.5\u00a0\nmillion in fiscal 2022 to $17.7 million in fiscal 2023.  Gross margin increased from 55.5% in fiscal 2022 to 59.6% in fiscal 2023. The change in gross profit is primarily related to the change in net revenues discussed above.  The increase in gross margin was primarily related to changes in the mix of products and customers and, to a lesser extent, a 20% price increase effective in December 2021 for the majority of our products.\nResearch and Development Expenses.\n\u00a0\u00a0\u00a0\u00a0Research and development expenses decreased 4.5% from $24.7 million in fiscal 2022 to $23.6\u00a0million in fiscal 2023. The reduction in research and development spending in fiscal \n42\n\n\nTable of Contents\n2023 reflects the impact of cost reduction measures implemented in the quarter ended December 31, 2022. The decrease in research and development spending was primarily related to decreases of $1.7 million in payroll related expenses and $360,000 in stock-based compensation expense, partially offset by increases of $436,000 in outside consulting expenses and $253,000 in software maintenance expense. Research and development expenses included stock-based compensation expense of $1.3 million and $1.7 million in fiscal 2023 and fiscal 2022, respectively.\nSelling, General and Administrative Expenses.\n\u00a0\u00a0\u00a0\u00a0Selling, general and administrative expenses increased 1.4% from $10.2\u00a0million in fiscal 2022 to $10.4 million in fiscal 2023. In fiscal 2023, the value of contingent consideration liability resulting from the MikaMonu acquisition decreased by $1.5 million compared to a decrease of $1.6 million in fiscal 2022 as a result of re-measurement of contingent consideration liability in each year. The increase in selling, general and administrative expenses included increases of $348,000 in professional fees and $121,000 in facility related expenses, partially offset by decreases of $423,000 in payroll related expenses and $118,000 in stock-based compensation expense. Payroll related expenses included approximately $200,000 for severance payments made to terminated employees as a result of our cost cutting measures discussed above. Selling, general and administrative expenses included stock-based compensation expense of $951,000 and $1.1 million, respectively, in fiscal 2023 and fiscal 2022.\nInterest and Other Income (Expense), Net.\n\u00a0\u00a0Interest and other income (expense), net increased from an expense of $60,000 in fiscal 2022 to income of $202,000\u00a0\nin fiscal 2023. Interest income increased by $252,000 due to higher interest rates received on cash and short-term and long-term investments, partially offset by lower levels of short-term and long-term investments.  The foreign currency exchange loss decreased from ($131,000) in fiscal 2022 to ($121,000) in fiscal 2023. The exchange loss in each period was primarily related to our Taiwan branch operations and operations in Israel.\nProvision (benefit) for Income Taxes.\n\u00a0\u00a0\u00a0\u00a0The provision for income taxes increased from a benefit from income taxes of ($45,000) in fiscal 2022 to a provision of $372,000 in fiscal 2023. The benefit for income taxes in fiscal 2022 included a benefit of ($220,000) related to the approval by the Israel tax authorities of a \u201cPreferred Company\u201d tax rate that was retroactively applied to fiscal 2018 and subsequent fiscal years. Because we recorded a cumulative three-year loss on a U.S. tax basis for the year ended March 31, 2023 and the realization of our deferred tax assets is questionable, we recorded a tax provision reflecting a valuation allowance of $17.5 million in net deferred tax assets in fiscal 2023. Reductions in uncertain tax benefits due to lapses in the statute of limitations were not significant in the years ended March 31, 2023 and 2022.\nNet Loss.\n\u00a0\u00a0\u00a0\u00a0\nNet loss was ($16.4) million in fiscal 2022 compared to a net loss of ($16.0) million in fiscal 2023.  This decrease was primarily due to the changes in net revenues, gross profit and operating expenses discussed above.\n43\n\n\nTable of Contents\nLiquidity and Capital Resources\nAs of March 31, 2023, our principal sources of liquidity were cash, cash equivalents and short-term investments of $30.6\u00a0million\n \ncompared to $44.0\u00a0million as of March 31, 2022. Cash, cash equivalents and short-term investments totaling $21.4 million were held in foreign locations as of March 31, 2023. Net cash used in operating activities was $16.8 million and $13.8 million for fiscal 2023 and fiscal 2022, respectively. \nThe primary uses of cash in fiscal 2023 were the net loss of $16.0 million, a reduction in accrued expenses and other liabilities of $2.3 million and an increase in inventories of $2.0 million. The reduction in accrued expenses and other liabilities was primarily related to the payment of fiscal 2022 year-end accruals for incentive compensation. The uses of cash in fiscal 2023 were less than the net loss due to non-cash items including stock-based compensation of $2.5 million and depreciation and amortization expenses of $1.0 million. The primary source of cash in fiscal 2023 was a decrease in accounts receivable of $1.1 million. The primary uses of cash in fiscal 2022 were the net loss of $16.4 million and increases in accounts receivable, inventory and accrued expenses and other liabilities. The uses of cash in fiscal 2022 were less than the net loss due to non-cash items including stock-based compensation of $3.0 million and depreciation and amortization expenses of $1.0 million. \nNet cash provided by investing activities was $6.7 million and $4.2 million in fiscal 2023 and 2022, respectively. Investment activities in fiscal 2023 primarily consisted of the maturity of certificates of deposit and agency bonds of $7.0 million partially offset by the purchase of property and equipment of $316,000. Investment activities in fiscal 2022 primarily consisted of the maturity of certificates of deposit and agency bonds of $12.1 million partially offset by the purchase of certificates of deposit of $7.2 million. \nCash provided by financing activities was $402,000 and $2.4 million in fiscal 2023 and fiscal 2022, respectively and consisted of the net proceeds from the sale of common stock pursuant to our employee stock plans. \nAt March 31, 2023, we had total minimum lease obligations of approximately $686,000 from April\u00a01, 2023 through February 29, 2024, under non-cancelable operating leases for our facilities.\nWhile the disruptions in the capital markets as a result of rising interest rates, worldwide inflationary pressures, significant fluctuations in energy prices and the decline in the global economic environment have created significant uncertainty as to general economic and capital market conditions for the remainder of 2023 and beyond, we believe that our existing balances of cash, cash equivalents and short-term investments, and cash flow expected to be generated from our future operations, will be sufficient to meet our cash needs for working capital and capital expenditures for at least the next 12\u00a0months, although we could be required, or could elect, to seek additional funding prior to that time. Our future capital requirements will depend on many factors, including the rate of revenue growth, if any, that we experience, any additional manufacturing cost increases resulting from supply constraints, the extent to which we utilize subcontractors, the levels of inventory and accounts receivable that we maintain, the timing and extent of spending to support our product development efforts and the expansion of our sales and marketing efforts. A material decline in the global economic environment could result in a need to raise additional capital or incur additional indebtedness to fund strategic initiatives or operating activities, particularly if we pursue additional acquisitions of businesses, products or technologies. We cannot assure you that additional equity or debt financing, if required, will be available on terms that are acceptable or at all.\nAs of March 31, 2023, we had $1.7 million in purchase obligations for facility leases and software and test purchase obligations that are binding commitments, of which $1.3 million are payable in the next twelve months and $416,000 are committed in the long term.\n\u200b\nAs of March 31, 2023, the current portion of our unrecognized tax benefits was $0, and the long-term portion was $0. \n44\n\n\nTable of Contents\nIn connection with the acquisition of MikaMonu on November 23, 2015, we are required to make contingent consideration payments to the former MikaMonu shareholders conditioned upon the achievement of certain revenue targets for products based on the MikaMonu technology. As of March 31, 2023, the accrual for potential payment of contingent consideration was $1.1 million.\nCritical Accounting Policies and Estimates\nThe preparation of our consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States (\u201cGAAP\u201d) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates are inherent in the preparation of the consolidated financial statements and include estimates affecting obsolete and excess inventory, contingent consideration and the valuation of intangibles and goodwill. We believe that we consistently apply these judgments and estimates and that our financial statements and accompanying notes fairly represent our financial results for all periods presented. However, any errors in these judgments and estimates may have a material impact on our balance sheet and statement of operations. Critical accounting estimates, as defined by the Securities and Exchange Commission, are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult and subjective judgments and estimates of matters that are inherently uncertain. Our critical accounting estimates include those regarding the valuation of inventories, contingent consideration and the valuation of intangibles and goodwill.\nRevenue Recognition.\n Revenue is recognized upon transfer of control which occurs at the point at which delivery has occurred, title and the risks and rewards of ownership have passed to the customer, and the Company has a right to payment. For all transactions apart from consignment sales, the Company will recognize revenue upon shipment of the product.  For consignment sales, revenue is recognized at the time that the product is pulled from consignment warehouses. \nThere was no revenue in fiscal 2023 resulting from sales of SaaS applications. See the policy in Note 2 \u2013 Revenue Recognition.\nValuation of Inventories.\n\u00a0\u00a0\u00a0\u00a0Inventories are stated at the lower of cost or net realizable value, cost being determined on a weighted average basis. Our inventory write-down allowance is established when conditions indicate that the selling price of our products could be less than cost due to physical deterioration, obsolescence based on changes in technology and demand, changes in price levels, or other causes. We consider the need to establish the allowance for excess inventory generally based on inventory levels in excess of 12\u00a0months of forecasted customer demand for each specific product, which is based on historical sales and expected future orders. At any point in time, some portion of our inventory is subject to the risk of being materially in excess of our projected demand. Additionally, our average selling prices could decline due to market or other conditions, which creates a risk that costs of manufacturing our inventory may not be recovered. These factors contribute to the risk that we may be required to record additional inventory write-downs in the future, which could be material. In addition, if actual market conditions are more favorable than expected, inventory previously written down may be sold to customers resulting in lower cost of sales and higher income from operations than expected in that period.\n\u200b\nAccounting for Income Taxes.\n\u00a0\u00a0\u00a0\u00a0\nWe account for income taxes under the liability method, whereby deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. We make certain estimates and judgments in the calculation of tax liabilities and the determination of deferred tax assets, which arise from temporary differences between tax and financial statement recognition methods. We record a valuation allowance to reduce our deferred tax assets to the amount that management estimates is more likely than not \n45\n\n\nTable of Contents\nto be realized. \nDue to historical losses in the U.S., we have a full valuation allowance on our U.S. federal and state deferred tax assets. \nIf, in the future we determine that we are likely to realize all or part of our net deferred tax assets, an adjustment to deferred tax assets would be added to earnings in the period such determination is made.\nIn addition, the calculation of tax liabilities involves inherent uncertainty in the application of complex tax laws. We record tax reserves for additional taxes that we estimate we may be required to pay as a result of future potential examinations by federal and state taxing authorities. If the payment ultimately proves to be unnecessary, the reversal of these tax reserves would result in tax benefits being recognized in the period we determine such reserves are no longer necessary. If an ultimate tax assessment exceeds our estimate of tax liabilities, an additional charge to provision for income taxes will result. See the policy in Note 6 \u2013 Income Taxes.\nStock-Based Compensation Expense. \n\u00a0Stock-based compensation expense recognized in the statement of operations is based on options ultimately expected to vest, reduced by the amount of estimated forfeitures. We chose the straight-line method of allocating compensation cost over the requisite service period of the related award in accordance with the authoritative guidance. We calculated the expected term based on the historical average period of time that options were outstanding as adjusted for expected changes in future exercise patterns, which, for options granted in fiscal 2023, 2022 and 2021, resulted in an expected term of approximately 4.6 to 5.0 years, 5.0 years and 5.0 years, respectively. We used our historical volatility to estimate expected volatility in fiscal 2023, 2022 and 2021. The risk-free interest rate is based on the U.S. Treasury yields in effect at the time of grant for periods corresponding to the expected life of the options. The dividend yield is 0% based on the fact that we have never paid dividends and have no present intention to pay dividends. Determining some of these assumptions requires significant judgment and changes to these assumptions could result in a significant change to the calculation of stock-based compensation in future periods. See Accounting for stock-based compensation in Note 1.\nContingent Consideration. \nThe fair value of the contingent consideration liability potentially payable in connection with our acquisition of MikaMonu was initially determined as of the acquisition date using unobservable inputs. These inputs included the estimated amount and timing of future cash flows, the probability of achievement of the forecast, and a risk-adjusted discount rate to adjust the probability-weighted cash flows to their present value. Since the acquisition date, at each reporting period, the contingent consideration liability is re-measured at its then current fair value with changes recorded selling, general and administrative expenses in the Consolidated \nStatements of Operations. Due to revisions to the amount of expected revenue, the timing of revenue to be recognized prior to the end of the earnout period and the probability of achievement of the APU revenue forecast, the contingent consideration liability decreased by $1.7 million from March 31, 2022 to March 31, 2023. Future changes to any of the inputs, including forecasted revenues from a new product, which are inherently difficult to estimate, or the valuation model selected, may result in material adjustments to the recorded fair value\n.\nValuation of Goodwill and Intangibles.  \nGoodwill represents the difference between the purchase price and the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination. We test for goodwill impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset is more likely than not impaired. We have\u00a0one\u00a0reporting unit. We assess goodwill for impairment on an annual basis on the last day of February in the fourth quarter of our fiscal year.\nWe had a goodwill balance of $8.0 million as of both March 31, 2023 and March 31, 2022. The goodwill resulted from the acquisition of MikaMonu Group Ltd. in fiscal 2016. We completed our annual goodwill impairment test during the fourth quarter of fiscal 2023 and concluded that there was no impairment, as the fair value of our sole reporting unit exceeded its carrying value. \nFor the fiscal year ended March 31, 2023, we identified sustained declines in our stock price that resulted in our market capitalization being below the carrying value of our stockholders\u2019 equity. We concluded the sustained declines in our stock price were triggering events and proceeded with quantitative\u00a0goodwill impairment assessments. \n46\n\n\nTable of Contents\nThe results of the quantitative goodwill impairment assessments that we performed indicated the fair value of our sole reporting unit exceeded its carrying value as of December 31, 2022, February 28, 2023, and March 31, 2023.\n The quantitative impairment assessments were performed as of December 1, 2022, February 28, 2023, and March 31, 2023, utilizing an equal weighting of the income approach and the market comparable method. The analysis required the comparison of our carrying value with our fair value, with an impairment recorded for any excess of carrying value over the fair value. The income approach utilized a discounted cash flow analysis to determine the fair value of our single reporting unit. Key assumptions used in the discounted cash flow analysis included, but are not limited to, a discount rate of approximately 22% to account for risk in achieving the forecast and a terminal growth rate for cash flows of 2%. The market comparable method was used to determine the fair value of the reporting unit by multiplying forecasted revenue by a market multiple. The revenue market multiple was calculated by comparing the enterprise value to revenue for comparable companies in the semiconductor industry and then applying a control premium. The equal weighting of the income approach and the market comparable method was then reconciled to the market approach. The market approach was calculated by multiplying the average closing share price of our common stock for the 30 days prior to the measurement date, by the number of outstanding shares of our common stock and adding a\u00a0\ncontrol premium \nthat reflected the premium a hypothetical buyer might pay. The\u00a0\ncontrol premium\n was \nestimated using historical acquisition transactions in the semiconductor industry over the past five years. The results of the quantitative analysis performed indicated the fair value of the reporting unit exceeded its carrying value. As a result, we concluded there was no\u00a0\ngoodwill impairment \nas of December 31, 2022, February 28, 2023, or March 31, 2023.\nA number of significant assumptions and estimates are involved in the income approach and the market comparable method. The income approach assumes the future cash flows reflect market expectations. The market comparable method requires an estimate of a revenue market multiple and an appropriate control premium. These fair value measurements require significant judgements using Level 3 inputs, such as discounted cash flows from operations and revenue forecasts, which are not observable from the market, directly or indirectly. There is uncertainty in the projected future cash flows used in our impairment analysis, which requires the use of estimates and assumptions. If actual performance does not achieve the projections, or if the assumptions used in the analysis change in the future, we may be required to recognize impairment charges in future periods. Key assumptions in the market approach include determining a\u00a0control premium. We believe our procedures for determining fair value are reasonable and consistent with current market conditions as of December 31, 2022 and March 31, 2023.\nIntangible assets with finite useful lives are amortized over their estimated useful lives, generally on a straight-line basis over five to fifteen years. We review identifiable amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value. Based on the uncertainty of forecasts, events such as the failure to generate revenue from future product launches could result in impairment in the future.\n \nWe identified a potential impairment indicator for the finite lived intangible assets and performed a recoverability test by comparing the sum of the estimated undiscounted future cash flows of the asset group to the carrying amount as of December 31, 2022 and March 31, 2023. The result of the recoverability tests indicated that the sum of the expected future cash flows was greater than the carrying amount of the finite lived intangible assets. Based on the uncertainty of forecasts inherent with a new product, events such as the failure to generate forecasted revenue from the APU product could result in a non-cash impairment charge in future periods.\nRecent Accounting Pronouncements\nPlease refer to Note 1 to our consolidated financial statements appearing under Part II, Item 8 for a discussion of recent accounting pronouncements that may impact the Company.\n47\n\n\nTable of Contents\nItem\u00a0\n7A.   \nQuantitative and Qualitative Disclosures About Market Risk\nForeign Currency Exchange Risk.\n\u00a0\u00a0\u00a0\u00a0Our revenues and expenses, except those expenses related to our operations in Israel and Taiwan, including subcontractor manufacturing expenses in Taiwan, are denominated in U.S. dollars. As a result, we have relatively little exposure for currency exchange risks, and foreign exchange losses have been minimal to date. We do not currently enter into forward exchange contracts to hedge exposure denominated in foreign currencies or any other derivative financial instruments for trading or speculative purposes. In the future, if we believe our foreign currency exposure has increased, we may consider entering into hedging transactions to help mitigate that risk.\nInterest Rate Sensitivity.\n\u00a0\u00a0\u00a0\u00a0\nWe had cash, cash equivalents, short term investments and long-term investments totaling $30.6\u00a0million at March 31, 2023. These amounts were invested primarily in money market funds, certificates of deposit and agency bonds. The cash, cash equivalents and short-term marketable securities are held for working capital purposes. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. We believe a hypothetical 100 basis point increase in interest rates would not materially affect the fair value of our interest-sensitive financial instruments. Declines in interest rates, however, will reduce future investment income.\n\u200b\n48\n\n\nTable of Contents",
+  "item7a": ">Item 7A.\nQuantitative and Qualitative Disclosures About Market Risk\n48\nItem 8.\nFinancial Statements and Supplementary Data\n49\nItem 9.\nChanges in and Disagreements with Accountants on Accounting and Financial Disclosure\n87\nItem 9A.\nControls and Procedures\n87\nItem 9B.\nOther Information\n88\nItem 9C.\nDisclosure Regarding Foreign Jurisdictions that Prevent Inspections\n88\n\u200b\n\u200b\n\u200b\nPART III\n\u200b\n89\nItem 10.\nDirectors, Executive Officers and Corporate Governance\n89\nItem 11.\nExecutive Compensation\n89\nItem 12.\nSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\n89\nItem 13.\nCertain Relationships and Related Transactions, and Director Independence\n89\nItem 14.\nPrincipal Accountant Fees and Services\n89\n\u200b\n\u200b\n\u200b\nPART IV\n\u200b\n90\nItem\u00a015.\nExhibits and Financial Statement Schedules\n90\nItem 16.\nForm 10-K Summary\n93\n\u200b\n\u200b\nSIGNATURES\n94\n\u200b\n\u200b\n2\n\n\nTable of Contents\nForward-looking Statements\nIn addition to historical information, this Annual Report on Form\u00a010-K includes forward-looking statements within the meaning of Section\u00a027A of the Securities Act of 1933, as amended, and Section\u00a021E of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d). These forward-looking statements involve risks and uncertainties. Forward-looking statements are identified by words such as \u201canticipates,\u201d \u201cbelieves,\u201d \u201cexpects,\u201d \u201cintends,\u201d \u201cmay,\u201d \u201cwill,\u201d and other similar expressions. In addition, any statements which refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those set forth in this report under \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and \u201cRisk Factors,\u201d those described elsewhere in this report, and those described in our other reports filed with the Securities and Exchange Commission (\u201cSEC\u201d). We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report, and we undertake no obligation to update these forward-looking statements after the filing of this report. You are urged to review carefully and consider our various disclosures in this report and in our other reports publicly disclosed or filed with the SEC that attempt to advise you of the risks and factors that may affect our business.\nPART I",
+  "cik": "1126741",
+  "cusip6": "36241U",
+  "cusip": ["36241U106"],
+  "names": ["GSI TECHNOLOGY INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1126741/000155837023011516/0001558370-23-011516-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM\u00a01. BUSINESS\nOverview\nUrban One,\u00a0Inc. (a Delaware corporation originally formed in 1980 and hereinafter referred to as \u201cUrban One\u201d) and its subsidiaries (collectively, the \u201cCompany\u201d) is an urban-oriented, multi-media company that primarily targets African-American and urban consumers. Our core business is our radio broadcasting franchise which is the largest radio broadcasting operation that primarily targets African-American and urban listeners. As of December\u00a031, 2022, we owned and/or operated 66 independently formatted, revenue producing broadcast stations (including 55 FM or AM stations, 9 HD stations, and the 2 low power television stations we operate), located in 13 of the most populous African-American markets in the United States. While a core source of our revenue has historically been and remains the sale of local and national advertising for broadcast on our radio stations, our strategy is to operate the premier multi-media entertainment and information content platform targeting African-American and urban consumers. Thus, we have diversified our revenue streams by making acquisitions and investments in other complementary media properties. Our diverse media and entertainment interests include TV One, LLC (\u201cTV One\u201d), which operates two cable television networks targeting African-American and urban viewers, TV One and CLEO TV; our 80.0% ownership interest in Reach Media,\u00a0Inc. (\u201cReach Media\u201d), which operates the Rickey Smiley Morning Show and our other syndicated programming assets, including the Get Up! Mornings with Erica Campbell Show, Russ Parr Morning Show and the DL Hughley Show; and Interactive One, LLC (\u201cInteractive One\u201d), our wholly owned digital platform serving the African-American community through social content, news, information, and entertainment websites, including its iONE Digital, Cassius and Bossip, HipHopWired and MadameNoire digital platforms and brands. We also held a minority ownership interest in MGM National Harbor Casino, a gaming resort located in Prince George\u2019s County, Maryland. Through our national multi-media operations, we provide advertisers with a unique and powerful delivery mechanism to communicated with African-American and urban audiences.\nOur core radio broadcasting franchise operates under the brand \u201cRadio One.\u201d\u00a0 We also operate other media brands, such as TV One, CLEO TV, Reach Media, iONE Digital, and One Solution, while developing additional branding reflective of our diverse media operations and our targeting of African-American and urban audiences.\nRecent Developments\nOn June 13, 2022, the Company entered into a definitive asset purchase agreement with Emmis Communications (\u201cEmmis\u201d) to purchase its Indianapolis Radio Cluster to expand the Company\u2019s market share. The deal was subject to FCC approval and other customary closing conditions and, after obtaining the approvals, closed on August 31, 2022. Urban One acquired radio stations WYXB (B105.7FM), WLHK (97.1FM), WIBC (93.1FM), translators W228CX and W298BB (The Fan 93.5FM and 107.5FM), and Network Indiana for $25\u00a0million. As part of the transaction, the Company disposed of its former WHHH radio broadcasting license along with the intellectual property related to WNOW (there was a call letter change from WHHH to WNOW immediately prior to the close) to a third party for approximately $3.2\u00a0million. The fair value of the assets disposed of approximated the carrying value of the assets. \nSegments\nAs part of our consolidated financial statements, consistent with our financial reporting structure and how the Company currently manages its businesses, we have provided selected financial information on the Company\u2019s four reportable segments: (i)\u00a0radio broadcasting; (ii) cable television; (iii)\u00a0Reach Media; and (iv)\u00a0digital. Business activities unrelated to these four segments are included in an \u201call other\u201d category which the Company refers to as \u201cAll Other - Corporate/Eliminations.\u201d\nOur Radio Station Portfolio, Strategy and Markets\nAs noted above, our core business is our radio broadcasting franchise which is the largest radio broadcasting operation in the country primarily targeting African-American and urban listeners. Within the markets in which we operate, we strive to build clusters of radio stations with each radio station targeting different demographic segments of the African-American population. This clustering and programming segmentation strategy allows us to achieve greater penetration within the \n8\n\n\nTable of Contents\ndistinct segments of our overall target market. In addition, we have been able to achieve operating efficiencies by consolidating office and studio space where possible to minimize duplicative management positions and reduce overhead expenses. Depending on market conditions, changes in ratings methodologies and economic and demographic shifts, from time to time, we may reprogram some of our stations in underperforming segments of certain markets.\nAs of December\u00a031, 2022, we owned and/or operated 66 independently formatted, revenue producing broadcast stations (including 55 FM or AM stations, 9 HD stations, and the 2 low power television stations we operate but excluding translators) located in 13 of the most populous African-American markets in the United States. The following tables set forth further selected information about our portfolio of radio stations that we owned and/or operated as of December\u00a031, 2022.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nUrban\u00a0One\u00a0 \n\u200b\nMarket\u00a0Data\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nEntire\u00a0Audience\n\u200b\nRanking\u00a0by\u00a0Size\u00a0of\n\u200b\nEstimated\u00a0Fall\u00a02022\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFour\u00a0Book\n\u200b\nAfrican-American\n\u200b\nMetro\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAverage\u00a0Audience\u00a0\n\u200b\nPopulation\u00a0Persons\n\u200b\nPopulation\u00a0Persons\nMarket\n\u200b\nNumber\u00a0of\u00a0Stations*\n\u200b\nShare(1)\n\u200b\n\u00a012+(2)\n\u200b\n\u00a012+\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAfrican-\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal\u00a0\n\u200b\n\u00a0American\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nFM\n\u00a0\u00a0\u00a0\u00a0\nAM\n\u00a0\u00a0\u00a0\u00a0\nHD\n\u00a0\u00a0\u00a0\u00a0\u00a0\nLP/TV**\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n(millions)\n\u00a0\u00a0\u00a0\u00a0\n%\nAtlanta\n\u00a0\n 4\n\u00a0\n\u00a0\u00a0\n\u00a0\n 1\n\u00a0\n\u00a0\u00a0\n\u00a0\n 13.0\n\u00a0\n 2\n\u00a0\n 5.2\n\u00a0\n 36\nWashington, DC\n\u00a0\n 4\n\u00a0\n 2\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n 9.8\n\u00a0\n 3\n\u00a0\n 5.1\n\u00a0\n 27\nDallas\n\u00a0\n 2\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n 3.8\n\u00a0\n 5\n\u00a0\n 6.6\n\u00a0\n 18\nHouston\n\u00a0\n 3\n\u00a0\n\u200b\n\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n 10.1\n\u00a0\n 6\n\u00a0\n 6.2\n\u00a0\n 18\nPhiladelphia\n\u00a0\n 2\n\u00a0\n\u200b\n\u00a0\n 2\n\u00a0\n\u00a0\u00a0\n\u00a0\n 3.7\n\u00a0\n 7\n\u00a0\n 4.7\n\u00a0\n 20\nBaltimore\n\u00a0\n 2\n\u00a0\n 2\n\u00a0\n 1\n\u00a0\n\u00a0\u00a0\n\u00a0\n 13.3\n\u00a0\n 11\n\u00a0\n 2.4\n\u00a0\n 30\nCharlotte\n\u00a0\n 5\n\u00a0\n 1\n\u00a0\n 1\n\u00a0\n\u00a0\u00a0\n\u00a0\n 18.1\n\u00a0\n 12\n\u00a0\n 2.5\n\u00a0\n 23\nRaleigh-Durham\n\u00a0\n 4\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n 15.3\n\u00a0\n 19\n\u00a0\n 1.8\n\u00a0\n 21\nCleveland\n\u00a0\n 2\n\u00a0\n 2\n\u00a0\n 1\n\u00a0\n\u00a0\u00a0\n\u00a0\n 13.5\n\u00a0\n 21\n\u00a0\n 1.8\n\u00a0\n 20\nRichmond\n\u00a0\n 4\n\u00a0\n 2\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n 18.2\n\u00a0\n 25\n\u00a0\n 1.1\n\u00a0\n 29\nColumbus\n\u00a0\n 5\n\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n 1\n\u00a0\n 6.7\n\u00a0\n 26\n\u00a0\n 1.8\n\u00a0\n 18\nIndianapolis\n\u00a0\n 5\n\u00a0\n 1\n\u00a0\n 2\n\u00a0\n 1\n\u00a0\n 35.1\n\u00a0\n 30\n\u00a0\n 1.7\n\u00a0\n 17\nCincinnati\n\u00a0\n 2\n\u00a0\n 1\n\u00a0\n 1\n\u00a0\n\u00a0\u00a0\n\u00a0\n 5.9\n\u00a0\n 34\n\u00a0\n 1.9\n\u00a0\n 13\nTotal\n\u00a0\n 44\n\u00a0\n 11\n\u00a0\n 9\n\u00a0\n 2\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n(1)\nAudience share data are for the 12+ demographic and derived from the Nielsen Survey ending with the Fall 2022 Nielsen Survey.\n(2)\nPopulation estimates are from the Nielsen Radio Market Survey Population, Rankings and Information, Fall 2022.\n*\n20 non-independently formatted HD stations and 14 non-independently formatted translators owned and operated by the Company are not included in the above station count. Changes in the programming of our HD stations or translators may alter our station count from time to time.\n**\nLow power television station\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMarket\u00a0Rank\u00a0Metro\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\nMarket\n\u200b\nPopulation\u00a02022\n\u200b\nFormat\n\u200b\nTarget\u00a0Demo\nAtlanta\n\u00a0\n7\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWAMJ/WUMJ\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban AC\n\u00a0\n25-54\nWHTA\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nWPZE\n\u00a0\n\u00a0\u00a0\n\u00a0\nContemporary Inspirational\n\u00a0\n25-54\nWAMJ-HD-2\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n25-54\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nBaltimore\n\u00a0\n23\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWERQ\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nWOLB\n\u00a0\n\u00a0\u00a0\n\u00a0\nNews/Talk\n\u00a0\n35-64\n9\n\n\nTable of Contents\nWWIN-FM\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban AC\n\u00a0\n25-54\nWWIN-AM\n\u00a0\n\u00a0\u00a0\n\u00a0\nGospel\n\u00a0\n35-64\nWLIF-HD-2\n\u00a0\n\u00a0\u00a0\n\u00a0\nContemporary Inspirational\n\u00a0\n25-54\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCharlotte\n\u00a0\n21\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWPZS\n\u00a0\n\u00a0\u00a0\n\u00a0\nContemporary Inspirational\n\u00a0\n25-54\nWOSF\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban AC / Old School\n\u00a0\n25-54\nWOSF-HD2\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nWBT-AM\n\u00a0\n\u00a0\u00a0\n\u00a0\nNews Talk\n\u00a0\n25-54\nWBT-FM\n\u00a0\n\u00a0\u00a0\n\u00a0\nNews Talk\n\u00a0\n25-54\nWFNZ\n\u00a0\n\u00a0\u00a0\n\u00a0\nSports Talk\n\u00a0\n25-54\nWLNK\n\u00a0\n\u00a0\u00a0\n\u00a0\nHot Adult Contemporary\n\u00a0\n25-54\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCincinnati\n\u00a0\n33\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWIZF\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nWOSL\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban AC / Old School\n\u00a0\n25-54\nWDBZ-AM\n\u00a0\n\u00a0\u00a0\n\u00a0\nTalk\n\u00a0\n35-64\nWIZF-HD3\n\u200b\n\u200b\n\u200b\nHispanic\n\u200b\n25-54\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCleveland\n\u00a0\n35\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWENZ\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nWERE-AM\n\u00a0\n\u00a0\u00a0\n\u00a0\nNews/Talk\n\u00a0\n35-64\nWJMO-AM\n\u00a0\n\u00a0\u00a0\n\u00a0\nContemporary Inspirational\n\u00a0\n35-64\nWZAK\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban AC\n\u00a0\n25-54\nWENZ-HD-2\n\u00a0\n\u00a0\u00a0\n\u00a0\nContemporary Inspirational\n\u00a0\n35-64\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nColumbus\n\u00a0\n36\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWCKX\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nWXMG\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban AC\n\u00a0\n25-54\nWHTD\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nWJYD\n\u00a0\n\u00a0\u00a0\n\u00a0\nContemporary Inspirational\n\u00a0\n25-54\nWWLG\n\u00a0\n\u00a0\u00a0\n\u00a0\nHispanic\n\u00a0\n25-54\nWQMC-TV\n\u00a0\n\u00a0\u00a0\n\u00a0\nTelevision\n\u00a0\n25-54\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nDallas\n\u00a0\n5\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nKBFB\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nKZJM\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n25-54\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nHouston\n\u00a0\n6\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nKBXX\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nKMJQ\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban AC\n\u00a0\n25-54\nKROI\n\u00a0\n\u00a0\u00a0\n\u00a0\nContemporary Inspirational\n\u00a0\n18-34\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nIndianapolis\n\u00a0\n38\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWTLC-FM\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban AC\n\u00a0\n25-54\nWHHH\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nWTLC-AM\n\u00a0\n\u00a0\u00a0\n\u00a0\nContemporary Inspirational\n\u00a0\n35-64\n10\n\n\nTable of Contents\nWIBC\n\u200b\n\u200b\n\u200b\nNews Talk\n\u200b\n25-54\nWHHH-HD2, HD3\n\u00a0\n\u00a0\u00a0\n\u00a0\nRegional Mexican\n\u00a0\n25-54\nWLHK\n\u200b\n\u200b\n\u200b\nCountry\n\u200b\n25-54\nWIBC-HD2\n\u200b\n\u200b\n\u200b\nSports Talk\n\u200b\n25-54\nWYXB\n\u200b\n\u200b\n\u200b\nAdult Contemporary\n\u200b\n25-54\nWDNI-TV\n\u00a0\n\u00a0\u00a0\n\u00a0\nTelevision\n\u00a0\n25-54\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nPhiladelphia\n\u00a0\n9\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWPPZ\n\u00a0\n\u00a0\u00a0\n\u00a0\nAdult Contemporary\n\u00a0\n25-54\nWRNB\n\u00a0\n\u00a0\u00a0\n\u00a0\nMainstream Urban\n\u00a0\n25-54\nWPPZ-HD2\n\u00a0\n\u00a0\u00a0\n\u00a0\nContemporary Inspirational\n\u00a0\n25-54\nWRNB-HD2\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban AC\n\u00a0\n25-54\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nRaleigh\n\u00a0\n37\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWFXC/WFXK\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban AC\n\u00a0\n25-54\nWQOK\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nWNNL\n\u00a0\n\u00a0\u00a0\n\u00a0\nContemporary Inspirational\n\u00a0\n25-54\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nRichmond\n\u00a0\n53\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWKJS/WKJM\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban AC\n\u00a0\n25-54\nWCDX\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nWPZZ\n\u00a0\n\u00a0\u00a0\n\u00a0\nContemporary Inspirational\n\u00a0\n25-54\nWXGI-AM/WTPS-AM\n\u00a0\n\u00a0\u00a0\n\u00a0\nClassic Hip Hop\n\u00a0\n25-54\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWashington DC\n\u00a0\n8\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWKYS\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban Contemporary\n\u00a0\n18-34\nWMMJ/WDCJ\n\u00a0\n\u00a0\u00a0\n\u00a0\nUrban AC\n\u00a0\n25-54\nWPRS\n\u00a0\n\u00a0\u00a0\n\u00a0\nContemporary Inspirational\n\u00a0\n25-54\nWOL-AM\n\u00a0\n\u00a0\u00a0\n\u00a0\nNews/Talk\n\u00a0\n35-64\nWYCB-AM\n\u00a0\n\u00a0\u00a0\n\u00a0\nGospel\n\u00a0\n35-64\n\u200b\nAC-refers to Adult Contemporary\nCHR-refers to Contemporary Hit Radio\nPop-refers to Popular Music\nOld School\u00a0- refers to Old School Hip/Hop\nFor the\u00a0year ended December\u00a031, 2022, approximately 32.3% of our net revenue was generated from the sale of advertising in our core radio business, excluding Reach Media. We consider our radio broadcasting segment to be our core radio business. Within our core radio business, seven (Atlanta, Baltimore, Charlotte, Dallas, Houston, Indianapolis, and Washington, DC) of the 13 markets in which we operated radio stations throughout 2022 or a portion thereof accounted for approximately 73.8% of our radio station net revenue for the\u00a0year ended December\u00a031, 2022. Revenue from the operations of Reach Media, along with revenue from the seven significant contributing radio markets, accounted for approximately 32.5% of our total consolidated net revenue for the\u00a0year ended December\u00a031, 2022. Adverse events or conditions (economic, including government cutbacks or otherwise) could lead to declines in the contribution of Reach Media or declines in one or more of the seven significant contributing radio markets, which could have a material adverse effect on our overall financial performance and results of operations.\n11\n\n\nTable of Contents\nRadio Advertising Revenue\nSubstantially all net revenue generated from our radio franchise is generated from the sale of local, national and network advertising. Local sales are made by the sales staff located in our markets. National sales are made primarily by Katz Communications,\u00a0Inc. (\u201cKatz\u201d), a firm specializing in radio advertising sales on the national level. Katz is paid agency commissions on the advertising sold. Approximately 57.3% of our net revenue from our core radio business for the\u00a0year ended December\u00a031, 2022, was generated from the sale of local advertising and 38.8% from sales to national advertisers, including network/syndication advertising. The balance of net revenue from our radio segment is primarily derived from ticket sales, and revenue related to sponsored events, management fees and other alternative revenue.\nAdvertising rates charged by radio stations are based primarily on:\n\u25cf\na radio station\u2019s audience share within the demographic groups targeted by the advertisers;\n\u25cf\nthe number of radio stations in the market competing for the same demographic groups; and\n\u25cf\nthe supply and demand for radio advertising time.\nA radio station\u2019s listenership is measured by the Portable People Meter\nTM\n (the \u201cPPM\nTM\n\u201d) system or diary ratings surveys, both of which estimate the number of listeners tuned to a radio station and the time they spend listening to that radio station. Ratings are used by advertisers to evaluate whether to advertise on our radio stations, and are used by us to chart audience size, set advertising rates and adjust programming. Advertising rates are generally highest during the morning and afternoon commuting hours.\nCable Television, Reach Media and Digital Segments, Strategy and Sources of Revenue and Income\nWe have expanded our operations to include other media forms that are complementary to our radio business. In a strategy similar to our radio market segmentation, we have multiple complementary media and online brands. Each of these brands focuses on a different segment of African-American consumers. With our multiple brands, we are able to direct advertisers to specific audiences within the urban communities in which we are located, or to bundle the brands for advertising sales purposes when advantageous.\nTV One, our primary cable television franchise targeting the African-American and urban communities, derives its revenue from advertising and affiliate revenue. Advertising revenue is derived from the sale of television airtime to advertisers and is recognized when the advertisements are run. TV One also derives revenue from affiliate fees under the terms of various affiliation agreements generally based upon a per subscriber royalty for the right to distribute the Company\u2019s programming under the terms of the distribution contracts. Our other cable television franchise, CLEO TV, is a lifestyle and entertainment network targeting Millennial and Gen X women of color that is also operated by TV One, LLC. CLEO TV derives its revenue principally from advertising.\nReach Media, our syndicated radio unit, primarily derives its revenue from the sale of advertising in connection with its syndicated radio shows, including the Rickey Smiley Morning Show, Get Up! Mornings with Erica Campbell, the Russ Parr Morning Show, and the DL Hughley Show. In addition to being broadcast on 48 Urban One stations, our syndicated radio programming also was available on 215 non-Urban One stations throughout the United States as of December\u00a031, 2022.\nWe have launched websites that simultaneously stream radio station content for each of our radio stations, and we derive revenue from the sale of advertisements on those websites. We generally encourage our web advertisers to run simultaneous radio campaigns and use mentions in our radio airtime to promote our websites. By providing streaming, we have been able to broaden our listener reach, particularly to \u201coffice hour\u201d listeners, including at home \u201coffice hour\u201d listeners. We believe streaming has had a positive impact on our radio stations\u2019 reach to listeners. In addition, our station websites link to our other online properties operated by our primary digital unit,\u00a0Interactive One. Interactive One operates the largest social networking site primarily targeting African-Americans and other branded websites, including Bossip, \n12\n\n\nTable of Contents\nHipHopWired and MadameNoire. Interactive One derives revenue from advertising services on non-radio station branded websites, and studio services where Interactive One provides services to other publishers. Advertising services include the sale of banner and sponsorship advertisements. Advertising revenue is recognized as impressions (the number of times advertisements appear in viewed pages) are delivered. \nFinally, our MGM National Harbor investment entitled us to an annual cash distribution based on net gaming revenue from gaming activities conducted on the site of the facility. In March 2023, the Company exercised the put option available to it and received approximately $136.8 million at the time of settlement of the put option in April 2023. Please refer to Note 18 \u2013 \nSubsequent Events\n of our consolidated financial statements for further details. Future opportunities could include investments in, acquisitions of, or the development of companies in diverse media businesses, gaming and entertainment, music production and distribution, movie distribution, internet-based services, and distribution of our content through emerging distribution systems such as the Internet, smartphones, cellular phones, tablets, and the home entertainment market.\nCompetition\nThe media industry is highly competitive and we face intense competition across our core radio franchise and all of our complementary media properties. Our media properties compete for audiences and advertising revenue with other radio stations and with other media such as broadcast and cable television, the Internet, satellite radio, newspapers, magazines, direct mail and outdoor advertising, some of which may be owned or controlled by horizontally-integrated companies. Audience ratings and advertising revenue are subject to change and any adverse change in a market could adversely affect our net revenue in that market. If a competing radio station converts to a format similar to that of one of our radio stations, or if one of our competitors strengthens its signal or operations, our stations could suffer a reduction in ratings and advertising revenue. Other media companies which are larger and have more resources may also enter or increase their presence in markets or segments in which we operate. Although we believe our media properties are well positioned to compete, we cannot assure you that our properties will maintain or increase their current ratings, market share or advertising revenue.\nProviding content across various platforms is a highly competitive business. Our digital and cable television segments compete for the time and attention of internet users and viewers and, thus, advertisers and advertising revenues with a wide range of internet companies such as Amazon\nTM\n, Netflix\nTM\n, Yahoo!\nTM\n, Google\nTM\n, and Microsoft\nTM\n, with social networking sites such as Facebook\nTM\n and TikTok\nTM\n and with traditional media companies, which are increasingly offering their own digital products and services both organically and through acquisition. We experience competition for the development and acquisition of content, distribution of content, sale of commercial time on our digital and cable television networks and viewership. There is competition from other digital companies, production studios and other television networks for the acquisition of content and creative talent such as writers, producers and directors. Our ability to produce and acquire popular content is an important competitive factor for the distribution of our content, attracting viewers and the sale of advertising. Our success in securing popular content and creative talent depends on various factors such as the number of competitors providing content that targets the same genre and audience, the distribution of our content, viewership, and the production, marketing and advertising support we provide.\nOur TV One and CLEO TV cable television networks compete with other networks and platforms for the acquisition and distribution of content and for fees charged to cable television operators, DTH satellite service providers, and other distributors that carry our content. Our ability to secure distribution agreements is necessary to ensure the retention of our audiences. Our contractual agreements with distributors are renewed or renegotiated from time to time in the ordinary course of business. Growth in the number of networks distributed, consolidation and other market conditions in the cable and satellite distribution industry, and increased popularity of other platforms may adversely affect our ability to obtain and maintain contractual terms for the distribution of our content that are as favorable as those currently in place. The ability to secure distribution agreements is dependent upon the production, acquisition and packaging of original content, viewership, the marketing and advertising support and incentives provided to distributors, the product offering across a series of networks within a region, and the prices charged for carriage.\nOur networks and digital products compete with other television networks, including broadcast, cable, local networks and other content distribution outlets for their target audiences and the sale of advertising. Our success in selling advertising \n13\n\n\nTable of Contents\nis a function of the size and demographics of our audiences, quantitative and qualitative characteristics of the audience of each network, the perceived quality of the network and of the particular content, the brand appeal of the network and ratings/algorithms as determined by third-party research companies or search engines, prices charged for advertising and overall advertiser demand in the marketplace.\nFederal Antitrust Laws\nThe agencies responsible for enforcing the federal antitrust laws, the Federal Trade Commission or the Department of Justice, may investigate certain acquisitions. We cannot predict the outcome of any specific FTC or Department of Justice investigation. Any decision by the FTC or the Department of Justice to challenge a proposed acquisition could affect our ability to consummate the acquisition or to consummate it on the proposed terms. For an acquisition meeting certain size thresholds, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires the parties to file Notification and Report Forms concerning antitrust issues with the FTC and the Department of Justice and to observe specified waiting period requirements before consummating the acquisition.\nFederal Regulation of Radio Broadcasting\nThe radio broadcasting industry is subject to extensive and changing regulation by the FCC and other federal agencies of ownership, programming, technical operations, employment and other business practices. The FCC regulates radio broadcast stations pursuant to the Communications Act of 1934, as amended (the \u201cCommunications Act\u201d). The Communications Act permits the operation of radio broadcast stations only in accordance with a license issued by the FCC upon a finding that the grant of a license would serve the public interest, convenience and necessity. Among other things, the FCC:\n\u25cf\nassigns frequency bands for radio broadcasting;\n\u25cf\ndetermines the particular frequencies, locations, operating power, interference standards, and other technical parameters for radio broadcast stations;\n\u25cf\nissues, renews, revokes and modifies radio broadcast station licenses;\n\u25cf\nimposes annual regulatory fees and application processing fees to recover its administrative costs;\n\u25cf\nestablishes technical requirements for certain transmitting equipment to restrict harmful emissions;\n\u25cf\nadopts and implements regulations and policies that affect the ownership, operation, program content, employment, and business practices of radio broadcast stations; and\n\u25cf\nhas the power to impose penalties, including monetary forfeitures, for violations of its rules\u00a0and the Communications Act.\nThe Communications Act prohibits the assignment of an FCC license, or the transfer of control of an FCC licensee, without the prior approval of the FCC. In determining whether to grant or renew a radio broadcast license or consent to the assignment or transfer of control of a license, the FCC considers a number of factors, including restrictions on foreign ownership, compliance with FCC media ownership limits and other FCC rules, the character and other qualifications of the licensee (or proposed licensee) and compliance with the Anti-Drug Abuse Act of 1988. A licensee\u2019s failure to comply with the requirements of the Communications Act or FCC rules\u00a0and policies may result in the imposition of sanctions, including admonishment, fines, the grant of a license renewal for less than a full eight-year term or with conditions, denial of a license renewal application, the revocation of an FCC license, and/or the denial of FCC consent to acquire additional broadcast properties.\nCongress, the FCC and, in some cases, other federal agencies and local jurisdictions are considering or may in the future consider and adopt new laws, regulations and policies that could affect the operation, ownership and profitability of \n14\n\n\nTable of Contents\nour radio stations, result in the loss of audience share and advertising revenue for our radio broadcast stations or affect our ability to acquire additional radio broadcast stations or finance such acquisitions. Such matters include or may include:\n\u25cf\nchanges to the license authorization and renewal process;\n\u25cf\nproposals to increase record keeping, including enhanced disclosure of stations\u2019 efforts to serve the public interest;\n\u25cf\nproposals to impose spectrum use or other fees on FCC licensees;\n\u25cf\nchanges to rules\u00a0relating to political broadcasting, including proposals to grant free airtime to candidates, and other changes regarding political and non-political program content, political advertising rates and sponsorship disclosures;\n\u25cf\nrevised rules\u00a0and policies regarding the regulation of the broadcast of indecent content;\n\u25cf\nproposals to increase the actions stations must take to demonstrate service to their local communities;\n\u25cf\ntechnical and frequency allocation matters;\n\u25cf\nchanges in broadcast multiple ownership, foreign ownership, cross-ownership and ownership attribution rules and policies;\n\u25cf\nservice and technical rules\u00a0for digital radio, including possible additional public interest requirements for terrestrial digital audio broadcasters;\n\u25cf\nlegislation that would provide for the payment of sound recording royalties to artists, musicians or record companies whose music is played on terrestrial radio stations; and\n\u25cf\nchanges to tax laws affecting broadcast operations and acquisitions.\nThe FCC also has adopted procedures for the auction of broadcast spectrum in circumstances where two or more parties have filed mutually exclusive applications for authority to construct new stations or certain major changes in existing stations. Such procedures may limit our efforts to modify or expand the broadcast signals of our stations.\nWe cannot predict what changes, if any, might be adopted or considered in the future, or what impact, if any, the implementation of any particular proposals or changes might have on our business.\nFCC License Grants and Renewals\n. In making licensing determinations, the FCC considers an applicant\u2019s legal, technical, character and other qualifications. The FCC grants radio broadcast station licenses for specific periods of time and, upon application, may renew them for additional terms. A station may continue to operate beyond the expiration date of its license if a timely filed license renewal application is pending. Under the Communications Act, radio broadcast station licenses may be granted for a maximum term of eight\u00a0years.\nGenerally, the FCC renews radio broadcast licenses without a hearing upon a finding that:\n\u25cf\nthe radio station has served the public interest, convenience and necessity;\n\u25cf\nthere have been no serious violations by the licensee of the Communications Act or FCC rules\u00a0and regulations; and\n15\n\n\nTable of Contents\n\u25cf\nthere have been no other violations by the licensee of the Communications Act or FCC rules\u00a0and regulations which, taken together, indicate a pattern of abuse.\nAfter considering these factors and any petitions to deny or informal objections against a license renewal application (which may lead to a hearing), the FCC may grant the license renewal application with or without conditions, including renewal for a term less than the maximum otherwise permitted. Historically, our licenses have been renewed for full eight-year terms without any conditions or sanctions; however, there can be no assurance that the licenses of each of our stations will be renewed for a full term without conditions or sanctions.\nTypes of FCC Broadcast Licenses.\n The FCC classifies each AM and FM radio station. An AM radio station operates on either a clear channel, regional channel or local channel. A clear channel serves wide areas, particularly at night. A regional channel serves primarily a principal population center and the contiguous rural areas. A local channel serves primarily a community and the suburban and rural areas immediately contiguous to it. AM radio stations are designated as Class\u00a0A, Class\u00a0B, Class\u00a0C or Class\u00a0D. Class\u00a0A, B and C stations each operate unlimited time. Class\u00a0A radio stations render primary and secondary service over an extended area. Class\u00a0B stations render service only over a primary service area. Class\u00a0C stations render service only over a primary service area that may be reduced as a consequence of interference. Class\u00a0D stations operate either during daytime hours only, during limited times only, or unlimited time with low nighttime power.\nFM class designations depend upon the geographic zone in which the transmitter of the FM radio station is located. The minimum and maximum facilities requirements for an FM radio station are determined by its class. In general, commercial FM radio stations are classified as follows, in order of increasing power and antenna height: Class\u00a0A, B1, C3, B, C2, C1, C0 and C. The FCC has adopted a rule\u00a0subjecting Class\u00a0C FM stations that do not satisfy a certain antenna height requirement to an involuntary downgrade in class to Class\u00a0C0 under certain circumstances.\nUrban One\u2019s Licenses\n. The following table sets forth information with respect to each of our radio stations for which we held the license as of December\u00a031, 2022. Stations which we did not own as of December\u00a031, 2022, but operated under an LMA, are not reflected on this table. A broadcast station\u2019s market may be different from its community of license. The coverage of an AM radio station is chiefly a function of the power of the radio station\u2019s transmitter, less dissipative power losses and any directional antenna adjustments. For FM radio stations, signal coverage area is chiefly a function of the radio station\u2019s ERP and the HAAT of the radio station\u2019s antenna. \u201cERP\u201d refers to the effective radiated power of an FM \n16\n\n\nTable of Contents\nradio station. \u201cHAAT\u201d refers to the antenna height above average terrain of an FM radio station antenna. The table below excludes HD radio and LPTV stations.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nAntenna\n\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nERP\u00a0(FM)\n\u00a0\n\u200b\nHeight\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nPower\n\u00a0\n\u200b\n(AM)\n\u00a0\n\u200b\n\u200b\n\u200b\nExpiration\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\nYear\u00a0of\n\u00a0\n\u00a0\u00a0\u00a0\u00a0\nFCC\n\u00a0\n\u200b\n(AM)\u00a0in\n\u00a0\n\u200b\nHAAT\u00a0in\n\u00a0\n\u200b\nOperating\n\u00a0\n\u200b\n\u00a0\nDate\u00a0of\u00a0FCC\nMarket\n\u200b\nStation\u00a0Call\u00a0Letters\n\u200b\nAcquisition\n\u200b\nClass\n\u200b\nKilowatts\n\u200b\nMeters\n\u200b\nFrequency\n\u200b\n\u00a0\nLicense\nAtlanta\n\u00a0\nWUMJ-FM\n\u00a0\n1999\n\u00a0\nC3\n\u00a0\n 8.5\n\u00a0\n 165.0\n\u00a0\n97.5 MHz\n\u00a0\n4/1/2028\n\u200b\n\u00a0\nWAMJ-FM\n\u00a0\n1999\n\u00a0\nC2\n\u00a0\n 33.0\n\u00a0\n 185.0\n\u00a0\n107.5 MHz\n\u00a0\n4/1/2028\n\u200b\n\u00a0\nWHTA-FM\n\u00a0\n2002\n\u00a0\nC2\n\u00a0\n 35.0\n\u00a0\n 177.0\n\u00a0\n107.9 MHz\n\u00a0\n4/1/2028\n\u200b\n\u00a0\nWPZE-FM\n\u00a0\n1999\n\u00a0\nA\n\u00a0\n 3.0\n\u00a0\n 143.0\n\u00a0\n102.5 MHz\n\u00a0\n4/1/2028\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWashington, DC\n\u00a0\nWOL-AM\n\u00a0\n1980\n\u00a0\nC\n\u00a0\n 0.4\n\u00a0\nN/A\n\u00a0\n1450 kHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWMMJ-FM\n\u00a0\n1987\n\u00a0\nA\n\u00a0\n 2.9\n\u00a0\n 146.0\n\u00a0\n102.3 MHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWKYS-FM\n\u00a0\n1995\n\u00a0\nB\n\u00a0\n 24.5\n\u00a0\n 215.0\n\u00a0\n93.9 MHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWPRS-FM\n\u00a0\n2008\n\u00a0\nB\n\u00a0\n 20.0\n\u00a0\n 244.0\n\u00a0\n104.1 MHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWYCB-AM\n\u00a0\n1998\n\u00a0\nC\n\u00a0\n 1.0\n\u00a0\nN/A\n\u00a0\n1340 kHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWDCJ-FM\n\u00a0\n2017\n\u00a0\nA\n\u00a0\n 2.2\n\u00a0\n 169.0\n\u00a0\n92.7 MHz\n\u00a0\n10/1/2027\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nPhiladelphia\n\u00a0\nWRNB-FM\n\u00a0\n2000\n\u00a0\nB\n\u00a0\n 17.0\n\u00a0\n 263.0\n\u00a0\n100.3 MHz\n\u00a0\n8/1/2030\n\u200b\n\u00a0\nWPPZ-FM\n\u00a0\n2004\n\u00a0\nA\n\u00a0\n 0.8\n\u00a0\n 276.0\n\u00a0\n107.9 MHz\n\u00a0\n6/1/2030\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nHouston\n\u00a0\nKMJQ-FM\n\u00a0\n2000\n\u00a0\nC\n\u00a0\n 100.0\n\u00a0\n 524.0\n\u00a0\n102.1 MHz\n\u00a0\n8/1/2029\n\u200b\n\u00a0\nKBXX-FM\n\u00a0\n2000\n\u00a0\nC\n\u00a0\n 100.0\n\u00a0\n 585.0\n\u00a0\n97.9 MHz\n\u00a0\n8/1/2029\n\u200b\n\u00a0\nKROI-FM\n\u00a0\n2004\n\u00a0\nC1\n\u00a0\n 40.0\n\u00a0\n 421.0\n\u00a0\n92.1 MHz\n\u00a0\n8/1/2029\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nDallas\n\u00a0\nKBFB-FM\n\u00a0\n2000\n\u00a0\nC\n\u00a0\n 100.0\n\u00a0\n 574.0\n\u00a0\n97.9 MHz\n\u00a0\n8/1/2029\n\u200b\n\u00a0\nKZMJ-FM\n\u00a0\n2001\n\u00a0\nC\n\u00a0\n 100.0\n\u00a0\n 591.0\n\u00a0\n94.5 MHz\n\u00a0\n8/1/2029\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nBaltimore\n\u00a0\nWWIN-AM\n\u00a0\n1992\n\u00a0\nC\n\u00a0\n 0.5\n\u00a0\nN/A\n\u00a0\n1400 kHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWWIN-FM\n\u00a0\n1992\n\u00a0\nA\n\u00a0\n 3.0\n\u00a0\n 91.0\n\u00a0\n95.9 MHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWOLB-AM\n\u00a0\n1993\n\u00a0\nD\n\u00a0\n 0.3\n\u00a0\nN/A\n\u00a0\n1010 kHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWERQ-FM\n\u00a0\n1993\n\u00a0\nB\n\u00a0\n 37.0\n\u00a0\n 173.0\n\u00a0\n92.3 MHz\n\u00a0\n10/1/2027\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCharlotte\n\u00a0\nWFNZ-FM\n\u00a0\n2000\n\u00a0\nC3\n\u00a0\n 10.5\n\u00a0\n 154.0\n\u00a0\n92.7 MHz\n\u00a0\n12/1/2027\n\u200b\n\u00a0\nWPZS-FM\n\u00a0\n2004\n\u00a0\nA\n\u00a0\n 6.0\n\u00a0\n 94.0\n\u00a0\n100.9 MHz\n\u00a0\n12/1/2027\n\u200b\n\u00a0\nWOSF-FM\n\u00a0\n2014\n\u00a0\nC1\n\u00a0\n 51.0\n\u00a0\n 395.0\n\u00a0\n105.3 MHz\n\u00a0\n12/1/2027\n\u200b\n\u200b\nWBT-FM\n\u200b\n2021\n\u200b\nC3\n\u200b\n 7.7\n\u200b\n 182.2\n\u200b\n99.3 MHz\n\u200b\n12/1/2027\n\u200b\n\u200b\nWBT-AM\n\u200b\n2021\n\u200b\nA\n\u200b\n 50.0\n\u200b\nN/A\n\u200b\n1110 MHz\n\u200b\n12/1/2027\n\u200b\n\u200b\nWFNZ-AM\n\u200b\n2021\n\u200b\nB\n\u200b\n 5.0\n\u200b\nN/A\n\u200b\n610 MHz\n\u200b\n12/1/2027\n\u200b\n\u200b\nWLNK-FM\n\u200b\n2021\n\u200b\nC\n\u200b\n 100.0\n\u200b\n 516.0\n\u200b\n107.9 MHz\n\u200b\n12/1/2027\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCleveland\n\u00a0\nWJMO-AM\n\u00a0\n1999\n\u00a0\nB\n\u00a0\n 5.0\n\u00a0\nN/A\n\u00a0\n1300 kHz\n\u00a0\n10/1/2028\n\u200b\n\u00a0\nWENZ-FM\n\u00a0\n1999\n\u00a0\nB\n\u00a0\n 16.0\n\u00a0\n 272.0\n\u00a0\n107.9 MHz\n\u00a0\n10/1/2028\n\u200b\n\u00a0\nWZAK-FM\n\u00a0\n2000\n\u00a0\nB\n\u00a0\n 27.5\n\u00a0\n 189.0\n\u00a0\n93.1 MHz\n\u00a0\n10/1/2028\n\u200b\n\u00a0\nWERE-AM\n\u00a0\n2000\n\u00a0\nC\n\u00a0\n 1.0\n\u00a0\nN/A\n\u00a0\n1490 kHz\n\u00a0\n10/1/2028\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nRaleigh-Durham\n\u00a0\nWQOK-FM\n\u00a0\n2000\n\u00a0\nC2\n\u00a0\n 50.0\n\u00a0\n 146.0\n\u00a0\n97.5 MHz\n\u00a0\n12/1/2027\n\u200b\n\u00a0\nWFXK-FM\n\u00a0\n2000\n\u00a0\nC1\n\u00a0\n 100.0\n\u00a0\n 299.0\n\u00a0\n104.3 MHz\n\u00a0\n12/1/2027\n\u200b\n\u00a0\nWFXC-FM\n\u00a0\n2000\n\u00a0\nC3\n\u00a0\n 13.0\n\u00a0\n 141.0\n\u00a0\n107.1 MHz\n\u00a0\n12/1/2027\n\u200b\n\u00a0\nWNNL-FM\n\u00a0\n2000\n\u00a0\nC3\n\u00a0\n 7.9\n\u00a0\n 176.0\n\u00a0\n103.9 MHz\n\u00a0\n12/1/2027\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nRichmond\n\u00a0\nWPZZ-FM\n\u00a0\n1999\n\u00a0\nC1\n\u00a0\n 100.0\n\u00a0\n 299.0\n\u00a0\n104.7 MHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWCDX-FM\n\u00a0\n2001\n\u00a0\nB1\n\u00a0\n 4.5\n\u00a0\n 235.0\n\u00a0\n92.1 MHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWKJM-FM\n\u00a0\n2001\n\u00a0\nA\n\u00a0\n 6.0\n\u00a0\n 100.0\n\u00a0\n99.3 MHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWKJS-FM\n\u00a0\n2001\n\u00a0\nA\n\u00a0\n 2.3\n\u00a0\n 162.0\n\u00a0\n105.7 MHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWTPS-AM\n\u00a0\n2001\n\u00a0\nC\n\u00a0\n 1.0\n\u00a0\nN/A\n\u00a0\n1240 kHz\n\u00a0\n10/1/2027\n\u200b\n\u00a0\nWXGI-AM\n\u00a0\n2017\n\u00a0\nD\n\u00a0\n 3.9\n\u00a0\nN/A\n\u00a0\n950 kHz\n\u00a0\n10/1/2027\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nColumbus\n\u00a0\nWCKX-FM\n\u00a0\n2001\n\u00a0\nA\n\u00a0\n 1.9\n\u00a0\n 126.0\n\u00a0\n107.5 MHz\n\u00a0\n10/1/2028\n\u200b\n\u00a0\nWHTD-FM\n\u00a0\n2001\n\u00a0\nA\n\u00a0\n 6.0\n\u00a0\n 99.0\n\u00a0\n106.3 MHz\n\u00a0\n10/1/2028\n\u200b\n\u00a0\nWXMG-FM\n\u00a0\n2016\n\u00a0\nB\n\u00a0\n 21.0\n\u00a0\n 232.0\n\u00a0\n95.5 MHz\n\u00a0\n10/1/2028\n\u200b\n\u00a0\nWJYD-FM\n\u00a0\n2016\n\u00a0\nA\n\u00a0\n 6.0\n\u00a0\n 100.0\n\u00a0\n107.1 MHz\n\u00a0\n10/1/2028\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nIndianapolis\n\u00a0\nWTLC-FM\n\u00a0\n2000\n\u00a0\nA\n\u00a0\n 6.0\n\u00a0\n 99.0\n\u00a0\n106.7 MHz\n\u00a0\n8/1/2028\n\u200b\n\u00a0\nWHHH-FM\n\u00a0\n2000\n\u00a0\nA\n\u00a0\n 6.0\n\u00a0\n 100.0\n\u00a0\n100.9 MHz\n\u00a0\n8/1/2028\n\u200b\n\u00a0\nWTLC-AM\n\u00a0\n2001\n\u00a0\nB\n\u00a0\n 5.0\n\u00a0\nN/A\n\u00a0\n1310 kHz\n\u00a0\n8/1/2028\n\u200b\n\u200b\nWIBC-FM\n\u200b\n2022\n\u200b\nB\n\u200b\n 13.5\n\u00a0\n 302.0\n\u00a0\n93.1 MHz\n\u00a0\n8/1/2028\n\u200b\n\u200b\nWYXB-FM\n\u200b\n2022\n\u200b\nB\n\u200b\n 50.0\n\u00a0\n 150.0\n\u00a0\n105.7 MHz\n\u00a0\n8/1/2028\n\u200b\n\u200b\nWLHK-FM\n\u200b\n2022\n\u200b\nB\n\u200b\n 23.0\n\u00a0\n 223.0\n\u00a0\n97.1 MHz\n\u00a0\n8/1/2028\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCincinnati\n\u00a0\nWIZF-FM\n\u00a0\n2001\n\u00a0\nA\n\u00a0\n 2.5\n\u00a0\n 155.0\n\u00a0\n101.1 MHz\n\u00a0\n8/1/2028\n\u200b\n\u00a0\nWDBZ-AM\n\u00a0\n2007\n\u00a0\nC\n\u00a0\n 1.0\n\u00a0\nN/A\n\u00a0\n1230 kHz\n\u00a0\n10/1/2028\n\u200b\n\u00a0\nWOSL-FM\n\u00a0\n2006\n\u00a0\nA\n\u00a0\n 3.1\n\u00a0\n 141.0\n\u00a0\n100.3 MHz\n\u00a0\n10/1/2028\n\u200b\n17\n\n\nTable of Contents\nTo obtain the FCC\u2019s prior consent to assign or transfer control of a broadcast license, an appropriate application must be filed with the FCC. If the assignment or transfer involves a substantial change in ownership or control of the licensee, for example, the transfer of more than 50% of the voting stock, the applicant must give public notice and the application is subject to a 30-day period for public comment. During this time, interested parties may file petitions with the FCC to deny the application. Informal objections may be filed at any time until the FCC acts upon the application. If the FCC grants an assignment or transfer application, administrative procedures provide for petitions seeking reconsideration or full FCC review of the grant. The Communications Act also permits the appeal of a contested grant to a federal court.\nUnder the Communications Act, a broadcast license may not be granted to or held by any person who is not a U.S. citizen or by any entity that has more than 20% of its capital stock owned or voted by non-U.S. citizens or entities or their representatives, or by foreign governments or their representatives. The Communications Act prohibits more than 25% indirect foreign ownership or control of a licensee through a parent company if the FCC determines the public interest will be served by such prohibition. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before this 25% limit may be exceeded. Since we serve as a holding company for subsidiaries that serve as licensees for our stations, we are effectively restricted from having more than one-fourth of our stock owned or voted directly or indirectly by non-U.S. citizens or their representatives, foreign governments, representatives of foreign governments, or foreign business entities unless we seek and obtain FCC authority to exceed that level. The FCC will entertain and authorize, on a case-by-case basis and upon a sufficient public interest showing and favorable executive branch review, proposals to exceed the 25% indirect foreign ownership limit in broadcast licensees.\nThe FCC applies its media ownership limits to \u201cattributable\u201d interests. The interests of officers, directors and those who directly or indirectly hold five\u00a0percent or more of the total outstanding voting stock of a corporation that holds a broadcast license (or a corporate parent) are generally deemed attributable interests, as are any limited partnership or limited liability company interests that are not properly \u201cinsulated\u201d from management activities. Certain passive investors that hold stock for investment purposes only are deemed attributable with the ownership of 20% or more of the voting stock of a licensee or parent corporation. An entity with one or more radio stations in a market that enters into a local marketing agreement or a time brokerage agreement with another radio station in the same market obtains an attributable interest in the brokered radio station if the brokering station supplies programming for more than 15% of the brokered radio station\u2019s weekly broadcast hours. Similarly, a radio station owner\u2019s right under a joint sales agreement (\u201cJSA\u201d) to sell more than 15% per week of the advertising time on another radio station in the same market constitutes an attributable ownership interest in such station for purposes of the FCC\u2019s ownership rules. Debt instruments, non-voting stock, unexercised options and warrants, minority voting interests in corporations having a single majority shareholder, and limited partnership or limited liability company membership interests where the interest holder is not \u201cmaterially involved\u201d in the media-related activities of the partnership or limited liability company pursuant to FCC-prescribed \u201cinsulation\u201d provisions, generally do not subject their holders to attribution unless such interests implicate the FCC\u2019s equity-debt-plus (or \u201cEDP\u201d) rule. Under the EDP rule, a major programming supplier or the holder of an attributable interest in a same-market radio station will have an attributable interest in a station if the supplier or same-market media entity also holds debt or equity, or both, in the station that is greater than 33% of the value of the station\u2019s total debt plus equity. For purposes of the EDP rule, equity includes all stock, whether voting or nonvoting, and interests held by limited partners or limited liability company members that are \u201cinsulated\u201d from material involvement in the company\u2019s media activities. A major programming supplier is any supplier that provides more than 15% of the station\u2019s weekly programming hours.\nThe Communications Act and FCC rules\u00a0generally restrict ownership, operation or control of, or the common holding of attributable interests in, radio broadcast stations serving the same local market in excess of specified numerical limits.\nThe numerical limits on radio stations that one entity may own in a local market are as follows:\n\u25cf\nin a radio market with 45 or more commercial radio stations, a party may hold an attributable interest in up to eight commercial radio stations, not more than five of which are in the same service (AM or FM);\n\u25cf\nin a radio market with 30 to 44 commercial radio stations, a party may hold an attributable interest in up to seven commercial radio stations, not more than four of which are in the same service (AM or FM);\n18\n\n\nTable of Contents\n\u25cf\nin a radio market with 15 to 29 commercial radio stations, a party may hold an attributable interest in up to six commercial radio stations, not more than four of which are in the same service (AM or FM); and\n\u25cf\nin a radio market with 14 or fewer commercial radio stations, a party may hold an attributable interest in up to five commercial radio stations, not more than three of which are in the same service (AM or FM), except that a party may not hold an attributable interest in more than 50% of the radio stations in such market.\nTo apply these tiers, the FCC currently relies on Nielsen Metro Survey Areas, where they exist. In other areas, the FCC relies on a contour-overlap methodology. The FCC has initiated a rulemaking to determine how to define local radio markets in areas located outside Nielsen Metro Survey Areas. The market definition used by the FCC in applying its ownership rules\u00a0may not be the same as that used for purposes of the Hart-Scott-Rodino Act. In 2003, when the FCC changed its methodology for defining local radio markets, it grandfathered existing combinations of radio stations that would not comply with the modified rules. The FCC\u2019s rules provide that these grandfathered combinations may not be sold intact except to certain \u201celigible entities,\u201d which the FCC defines as entities qualifying as a small business consistent with Small Business Administration standards. \nThe media ownership rules\u00a0are subject to review by the FCC every four\u00a0years. In August\u00a02016, the FCC issued an order concluding its 2010 and 2014 quadrennial reviews. The August\u00a02016 decision retained the local radio ownership rule and limitations on radio/television cross-ownership and newspaper/broadcast cross-ownership without significant changes. In November\u00a02017, the FCC adopted an order reconsidering the August\u00a02016 decision and modifying it in a number of respects. The November\u00a02017 order on reconsideration did not significantly modify the August\u00a02016 decision with respect to the local radio ownership limits. It did, however, eliminate the FCC\u2019s previous limits on radio/television cross-ownership and newspaper/broadcast cross-ownership. In September\u00a02019, a federal appeals court vacated the FCC\u2019s November\u00a02017 order on reconsideration, as a result of which the radio/television and newspaper/broadcast cross-ownership rules\u00a0were reinstated. On April 1, 2021, however, the U.S. Supreme Court reversed the September\u00a02019 appeals court ruling, resulting in the elimination of the radio/television and newspaper/broadcast cross-ownership rules effective June 30, 2021. The FCC\u2019s 2018 and 2022 quadrennial reviews of its media ownership rules, which commenced in December\u00a02018 and December 2022 respectively, are currently pending. \nThe attribution and media ownership rules\u00a0limit the number of radio stations we may acquire or own in any particular market and may limit the prospective buyers of any stations we want to sell. The FCC\u2019s rules\u00a0could affect our business in a number of ways, including, but not limited to, the following:\n\u25cf\nthe FCC\u2019s radio ownership limits could have an adverse effect on our ability to accumulate stations in a given area or to sell a group of stations in a local market to a single entity;\n\u25cf\nrestricting the assignment and transfer of control of \u201cgrandfathered\u201d radio combinations that exceed the ownership limits as a result of the FCC\u2019s 2003 change in local market definition could adversely affect our ability to buy or sell a group of stations in a local market from or to a single entity; and\n\u25cf\nin general terms, future changes in the way the FCC defines radio markets or in the numerical station caps could limit our ability to acquire new stations in certain markets, our ability to operate stations pursuant to certain agreements, and our ability to improve the coverage contours of our existing stations.\nProgramming and Operations.\n The Communications Act requires broadcasters to serve the \u201cpublic interest\u201d by presenting programming that responds to community problems, needs and interests and by maintaining records demonstrating such responsiveness. The FCC considers complaints from viewers or listeners about a broadcast station\u2019s programming. All radio stations are now required to maintain their public inspection files on a publicly accessible FCC-hosted online database. Moreover, the FCC has from time to time proposed rules\u00a0designed to increase local programming content and diversity, including renewal application processing guidelines for locally-oriented programming and a requirement that broadcasters establish advisory boards in the communities where they own stations. Stations also must follow FCC rules\u00a0and policies regulating political advertising, obscene or indecent programming, sponsorship \n19\n\n\nTable of Contents\nidentification, contests and lotteries and technical operation, including limits on human exposure to radio frequency radiation.\nThe FCC requires that licensees not discriminate in hiring practices on the basis of race, color, religion, national origin or gender. It also requires stations with at least five full-time employees to broadly disseminate information about all full-time job openings and undertake outreach initiatives from an FCC list of activities such as participation in job fairs, internships, or scholarship programs. The FCC is considering whether to apply these recruitment requirements to part-time employment positions. Stations must retain records of their outreach efforts and keep an annual Equal Employment Opportunity (\u201cEEO\u201d) report in their public inspection files and post an electronic version on their websites.\nFrom time to time, complaints may be filed against any of our radio stations alleging violations of these or other rules. In addition, the FCC may conduct audits or inspections to ensure and verify licensee compliance with FCC rules\u00a0and regulations. Failure to observe these or other rules\u00a0and regulations can result in the imposition of various sanctions, including fines or conditions, the grant of \u201cshort\u201d (less than the maximum eight\u00a0year) renewal terms or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license.\nHuman Capital\nAs of December\u00a031, 2022, we employed 881 full-time employees and 408 part-time employees. Our employees are not unionized.\nWe believe that our success largely depends upon our continued ability to attract and retain highly skilled employees. We provide our employees with competitive salaries and bonuses, development programs that enable continued learning and growth, and offer an employment package that promotes well-being across all aspects of their lives, including health care, retirement planning and paid time off.\nAs a business founded by an African-American woman, diversity and inclusion is engrained in our corporate history. Our Board of Directors is diverse; Catherine L. Hughes, our Founder and Chairperson, is an African-American woman, and four of our six directors are minorities. Our President and Chief Executive Officer, who is also a director, Alfred C. Liggins, III is an African-American male, as is our Senior Vice President and General Counsel, Kristopher Simpson. Further, Karen Wishart, our Executive Vice President and Chief Administrative Officer, is an African-American woman, as is Michelle\u00a0Rice, President of TV ONE. As of December 31, 2022, 74% of our employees were racially diverse, and 45% of our employees were women. We are proud that our organization is governed and propelled by such a diverse group of individuals, which we believe contributes to our Company\u2019s success now, and in \nthe long-term.\n\u00a0\u00a0Our senior leadership team has introduced various initiatives to ensure that our Co\nmpany remains inclusive and supportive for all, including: (i) conducting workplace training, which includes focuses on unconscious bias, discrimination and harassment; (ii) leveraging a diverse slate of candidates for all job vacancies, including senior leadership; and (iii) developing content across our multi-media platform that elevates the voice of minority communities to \nfoster equality and inclusion in both the entertainment industry and across the nation\n.\nEnvironmental\nAs the owner, lessee or operator of various real properties and facilities, we are subject to federal, state and local environmental laws and regulations. Historically, compliance with these laws and regulations has not had a material adverse effect on our business. There can be no assurance, however, that compliance with existing or new environmental laws and regulations will not require us to make significant expenditures in the future.\nSeasonality\nSeasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures. Typically, revenues are lowest in the first calendar quarter of the year. Due to this seasonality and certain other factors, the results of interim periods may not necessarily be indicative of results for the full year. In \n20\n\n\nTable of Contents\naddition, our operations are impacted by political cycles and generally experience higher revenues in congressional and presidential election years. This cyclicity may affect comparability between years.\nCorporate Governance\nCode of Ethics.\n We have adopted a code of ethics that applies to all of our directors, officers (including our principal financial officer and principal accounting officer) and employees and meets the requirements of the SEC and the NASDAQ Stock Market Rules. Our code of ethics can be found on our website, \nwww.urban1.com.\n We will provide a paper copy of the code of ethics, free of charge, upon request.\nAudit Committee Charter.\n Our audit committee has adopted a charter as required by the NASDAQ Stock Market Rules. This committee charter can be found on our website, \nwww.urban1.com.\n We will provide a paper copy of the audit committee charter, free of charge, upon request.\nCompensation Committee Charter.\n Our Board of Directors has adopted a compensation committee charter. We will provide a paper copy of the compensation committee charter, free of charge, upon request.\nInternet Address and Internet Access to SEC Reports\nOur internet address is \nwww.urban1.com.\n You may obtain through our internet website, free of charge, copies of our proxies, annual reports on Form\u00a010-K and 10-K/A, quarterly reports on Form\u00a010-Q and Form 10-Q/A, current reports on Form\u00a08-K, and any amendments to those reports filed or furnished pursuant to Section\u00a013(a)\u00a0or 15(d)\u00a0of the Securities Exchange Act of 1934. These reports are available as soon as reasonably practicable after we electronically file them with or furnish them to the SEC. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this Form\u00a010-K.",
+  "item1a": ">ITEM\u00a01A. RISK FACTORS\nRisks Related to Our Business and Industry\nIn an enterprise as large and complex as ours, a wide range of factors could affect our business and financial results. The factors described below are considered to be the most significant, but are not listed in any particular order. There may be other currently unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The following discussion of risk factors should be read in conjunction with \u201cItem\u00a07. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and the consolidated financial statements and related notes in \u201cItem\u00a08. Financial Statements and Supplementary Data\u201d of this Form\u00a010-K.\nWe have identified material weaknesses in our internal control over financial reporting which could, if not remediated, result in material misstatements in our consolidated financial statements.\nAs discussed in Part II, Item 9A, \u201cControls and Procedures\u201d of this Form 10-K, management has concluded that our internal controls related to certain business processes and disclosure controls and procedures were not effective as of December 31, 2022 due to the identified material weaknesses. \nIn addition, as discussed in Note 2 \n\u2013\n \nRestatement of Financial Statements\n, management and our Audit Committee, after discussion with our independent registered public accounting firm, concluded that our previously issued financial statements for the Affected Periods should be restated due to understatements in the value of the MGM Investment. The restatement related to our material weakness in internal control over financial reporting over the investments in MGM National Harbor. In addition to the adjustments related to the MGM Investment, the Company also included corrections for previously identified out-of-period misstatements relating to radio broadcasting license impairment, misstatements relating to its right of use assets, misstatements relating to the fair value of the Reach Media redeemable noncontrolling \n21\n\n\nTable of Contents\ninterest, amortization of certain launch assets, misclassifications of certain line items in the balance sheets and statements of cash flows, and any related tax effects.\n\u200b\nOur management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act. Management identified material weaknesses in our internal control over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective based on criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission in Internal Control \u2013 An Integrated Framework. We are actively engaged in remediation efforts designed to address these material weaknesses. If our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results.\nThe material weaknesses, or a failure to promptly remediate them, may adversely affect our business, our reputation, our results of operations and the market price of our common stock. If we are unable to remediate the material weaknesses in a timely manner, our investors, customers and other business partners may lose confidence in our business or our financial reports, and our access to capital markets may be adversely affected. In addition, our ability to record, process, and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and regulations of the Securities and Exchange Commission and other regulatory authorities, could be adversely affected, which may result in violations of applicable securities laws, stock exchange listing requirements and the covenants under our debt agreements. We could also be exposed to lawsuits, investigations, or other legal actions. In such actions, a governmental authority may interpret a law, regulation or accounting principle differently than we have, exposing us to different or additional risks. We could incur significant costs in connection with these actions. We have not accrued for any such liabilities.\nThe control deficiencies resulting in the material weaknesses, in the aggregate, if not effectively remediated could also result in misstatements of accounts or disclosures that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected. In addition, we cannot be certain that we will not identify additional control deficiencies or material weaknesses in the future. If we identify future control deficiencies or material weaknesses, these may lead to adverse effects on our business, our reputation, our results of operations, and the market price of our common stock.\nWe face risks related to the restatement of our previously issued consolidated financial statements with respect to the Affected Periods.\nAs discussed in the Explanatory Note and in Note 2 to the consolidated financial statements in this Form 10-K, we reached a determination to restate certain financial information and related footnote disclosures in our previously issued consolidated financial statements for the Affected Periods. As a result, we have become subject to a number of additional risks and uncertainties, which may affect investor confidence in the accuracy of our financial disclosures and may raise reputational issues for our business. We expect to continue to face many of the risks and challenges related to the restatement, including the following:\n\u200b\n\u25cf\nwe may face potential for litigation or other disputes, which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement; and\n\u25cf\nthe processes undertaken to effect the restatement may not have been adequate to identify and correct all errors in our historical financial statements and, as a result, we may discover additional errors and our financial statements remain subject to the risk of future restatement.\n\u200b\nWe cannot assure that all of the risks and challenges described above will be eliminated or that general reputational harm will not persist. If one or more of the foregoing risks or challenges persist, our business, operations and financial condition are likely to be materially and adversely affected.\n22\n\n\nTable of Contents\nThe restatement of our previously issued financial statements has been time-consuming and expensive and could expose us to additional risks that could materially adversely affect our financial position, results of operations and cash flows.\nWe have incurred significant expenses, including audit, legal, consulting and other professional fees, in connection with the restatement of our previously issued financial statements and the ongoing remediation of material weaknesses in our internal control over financial reporting. We have implemented and will continue to implement additional processes utilizing existing resources and adding new resources as needed. To the extent these steps are not successful, we could be forced to incur additional time and expense. Our management\u2019s attention has also been diverted from the operation of our business in connection with the restatements and ongoing remediation of material weaknesses in our internal controls.\nThe delayed filing of our annual report has made us currently ineligible to use a registration statement on Form S-3 to register the offer and sale of securities, which could adversely affect our ability to raise future capital or complete acquisitions.\nAs a result of the delayed filing of our annual report with the SEC, we will not be eligible to register the offer and sale of our securities using a short form registration statement on Form S-3 until one year from the date we regain and maintain status as a current filer. Should we wish to register the offer and sale of our securities to the public prior to the time we are eligible to use a short form registration statement on Form S-3, both our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to timely execute any such transaction successfully and potentially harming our financial condition.\nRisks Related to the Nature and Operations of Our Business\nImpact of Public Health Crisis\nAn epidemic or pandemic disease outbreak, such as the COVID-19 pandemic, has caused, and may cause in the future, disruption to the media industry and to our business operations. Preventative and protective measures taken by governmental authorities and private actors in response to a global health crisis may disrupt the ways in which Americans live, work and spend. Further, the demand for advertising across our various segments/platforms is linked to the level of economic activity and employment in the U.S. and the ways in and rates at which various media are consumed. Specifically, our business is heavily dependent on the demand for advertising from consumer-focused companies. Dislocation of consumer demand due to changes in commuter volume and patterns and/or hybrid work models has caused, and could further cause, advertisers to reduce, postpone or otherwise change their marketing spending generally, and on our platforms in particular. Such results could have a material adverse effect on our business and financial condition. \nWe are continuing to see some of the foregoing effects and could see additional effects in the future from COVID-19 which are not within our control and cannot be accurately predicted and are uncertain. \nThe state and condition of the global financial markets and fluctuations in the global and U.S. economies may have an unpredictable impact on our business and financial condition.\nFrom time to time, including as a result of inflation, changes in interest rates, recession or the current pandemic, the global equity and credit markets experience high levels of volatility and disruption. At various points in time, the markets have produced upward and/or downward pressure on stock prices and limited credit capacity for certain companies without regard to those companies\u2019 underlying financial strength. In addition, advertising is a discretionary and variable business expense which may be reduced as companies contend with higher expenses, including higher costs of capital. Spending on advertising tends to decline disproportionately during an economic recession or downturn as compared to other types of business spending. Consequently, a downturn in the United States economy generally has an adverse effect on our advertising revenue and, therefore, our results of operations. A recession or downturn in the economy of any individual geographic market, particularly a major market in which we operate, also may have a significant effect on us. Radio revenues in the markets in which we operate may also face greater challenges than the U.S. economy generally and may remain so. Radio revenues in certain markets in which we operate have lagged the growth of the general United States economy as audiences have not returned to pre-pandemic levels. \u00a0\n23\n\n\nTable of Contents\nAdverse developments affecting the financial services industry could adversely affect our liquidity, financial condition, and results of operations, either directly or through adverse impacts on certain of our vendors and customers.\nAdverse developments that affect financial institutions, such as events involving liquidity that are rumored or actual, have in the past and may in the future lead to bank failures and/or market-wide liquidity problems. These events could have an adverse effect on our financial condition and results of operations, either directly or through an adverse impact on certain of our vendors and customers. For example, on March 10, 2023, Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (\u201cFDIC\u201d) as receiver. Similarly, on March 12, 2023, Signature Bank was put into receivership. Since that time, there have been reports of instability at other U.S. banks. Although the Federal Reserve Board, the Department of the Treasury and the FDIC have taken steps to ensure that depositors at Silicon Valley Bank and Signature Bank can access all of their funds, including funds held in uninsured deposit accounts, and have taken additional steps to provide liquidity to other banks, there is no guarantee that, in the event of the closure of other banks or financial institutions in the future, depositors would be able to access uninsured funds or that they would be able to do so in a timely fashion.\nTo date, we have not experienced any adverse impact to our liquidity, financial condition or results of operations as a result of the events described above. However, failures of other banks or financial institutions may expose us to additional risks, either directly or through the effect on vendors or other third parties, and may lead to significant disruptions to our operations, financial condition and reputation. Moreover, uncertainty remains over liquidity concerns in the broader financial services industry. Our business may be adversely impacted by these developments in ways that we cannot predict at this time, there may be additional risks that we have not yet identified, and we cannot guarantee that we will be able to avoid negative consequences directly or indirectly from any failure of one or more banks or other financial institutions.\nAny deterioration in the economy could negatively impact our results of operations.\nMany financial and economic analysts have forecasted a recession in calendar year 2023 and/or 2024. Our results of operations could be negatively impacted by recession, economic fluctuations, or future economic downturns. Also, expenditures by advertisers tend to be cyclical, reflecting overall economic conditions. Even in the absence of a general recession or downturn in the economy, an individual business sector (such as the automotive industry or the hospitality industry) that tends to spend more on advertising than other sectors might be forced to reduce its advertising expenditures if that sector experiences a downturn. If any such sector\u2019s spending represents a significant portion of our advertising revenues, any reduction in its advertising expenditures may affect our revenue. \u00a0\nThe risks associated with our business could be more acute in periods of a slowing economy or recession, which may be accompanied by a decrease in advertising expenditures. A decrease in advertising expenditures could adversely impact our business, financial condition, and results of operations. \u00a0There can be no assurance that we will not experience an adverse impact on our ability to access capital, which could adversely impact our business, ability to make future investments, our financial condition and results of operations. In addition, our ability to access the capital markets may be severely restricted at a time when we would like or need to do so, which could have an adverse impact on our capacity to react to changing economic and business conditions.\nWe are exposed to credit risk on our accounts receivable. This risk is heightened during periods of uncertain economic conditions.\nOur outstanding accounts receivable are not covered by collateral or credit insurance. While we have procedures to monitor and limit exposure to credit risk on our receivables, this risk is heightened during periods of uncertain economic conditions and there can be no assurance such procedures will effectively limit our credit risk. \u00a0Such failures could have a material adverse effect on our financial condition, results of operations and cash flow.\nIncreases in interest rates and the reduced availability of financing for consumer products may impact the demand for advertising.\u00a0\nIn general, demand for certain consumer products may be adversely affected by increases in interest rates and the reduced availability of financing. Also, trends in the financial industry which influence the requirements used by lenders \n24\n\n\nTable of Contents\nto evaluate potential consumers can result in reduced availability of financing. If interest rates or lending requirements increase and consequently, the ability of prospective consumers to finance purchases of products is adversely affected, the demand for advertising may also be adversely impacted and the impact may be material. \u00a0In addition, our borrowing costs could be impacted, and such cost changes could reduce the expected returns on certain of our corporate development and other investment opportunities.\n\u200b\nThe terms of our indebtedness and the indebtedness of our direct and indirect subsidiaries may restrict our current and future operations, particularly our ability to respond to changes in market conditions or to take some actions.\nOur debt instruments impose operating and financial restrictions on us. These restrictions limit or prohibit, among other things, our ability and the ability of our subsidiaries to incur additional indebtedness, issue preferred stock, incur liens, pay dividends, enter into asset purchase or sale transactions, merge or consolidate with another company, dispose of all or substantially all of our assets or make certain other payments or investments. These restrictions could limit our ability to grow our business through acquisitions and could limit our ability to respond to market conditions or meet extraordinary capital needs.\nWe have historically incurred net losses which could resume in the future.\nWe have historically reported net losses in our consolidated statements of operations, due mostly in part to recording non-cash impairment charges for write-downs to radio broadcasting licenses and goodwill, interest expenses (both cash and non-cash), and revenue declines caused by weakened advertising demand resulting from the current economic environment. These results have had a negative impact on our financial condition and could be exacerbated in a poor economic climate. If such items recur in the future, they could have a material adverse effect on our financial condition.\nOur revenue is substantially dependent on spending and allocation decisions by advertisers, and seasonality and/or weakening economic conditions may have an impact upon our business.\nSubstantially all of our revenue is derived from sales of advertisements and program sponsorships to local and national advertisers. Any reduction in advertising expenditures or changes in advertisers\u2019 spending priorities and/or allocations across different types of media/platforms or programming could have an adverse effect on the Company\u2019s revenues and results of operations. We do not obtain long-term commitments from our advertisers and advertisers may cancel, reduce, or postpone advertisements without penalty, which could adversely affect our revenue. Seasonal net revenue fluctuations are common in the media industries and are due primarily to fluctuations in advertising expenditures by local and national advertisers. In addition, advertising revenues in even-numbered\u00a0years tend to benefit from advertising placed by candidates for political offices. The effects of such seasonality (including the weather), combined with the severe structural changes that have occurred in the U.S. economy, make it difficult to estimate future operating results based on the previous results of any specific quarter and may adversely affect operating results.\nOur success is dependent upon audience acceptance of our content, particularly our television and radio programs, which is difficult to predict.\nRadio, video, and digital content production and distribution are inherently risky businesses because the revenues derived from the production and distribution of media content or a radio program, and the licensing of rights to the intellectual property associated with the content or program, depend primarily upon their acceptance and perceptions by the public, which can change quickly and are difficult to predict. The commercial success of content or a program also depends upon the quality and acceptance of other competing programs released into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions, and other tangible and intangible factors, all of which are difficult to predict. Our failure to obtain or retain rights to popular content on any part of our multi-media platform could adversely affect our revenues. \nRatings for broadcast stations and traffic on a particular website are also factors that are weighed when advertisers determine which outlets to use and in determining the advertising rates that the outlet receives. Poor ratings or traffic levels can lead to a reduction in pricing and advertising revenues. For example, if there is an event causing a change of programming at one of our stations, there could be no assurance that any replacement programming would generate the \n25\n\n\nTable of Contents\nsame level of ratings, revenues, or profitability as the previous programming. In addition, changes in ratings methodology, search engine algorithms and technology could adversely impact our businesses and negatively affect our advertising revenues.\nTelevision content production is inherently a risky business because the revenues derived from the production and distribution of a television program and the licensing of rights to the associated intellectual property depends primarily upon the public\u2019s level of acceptance, which is difficult to predict. The commercial success of a television program also depends upon the quality and acceptance of other competing programs in the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions, and other tangible and intangible factors, all of which are difficult to predict. Rating points are also factors that are weighed when determining the advertising rates that TV One/CLEO TV receive. Poor ratings can lead to a reduction in pricing and advertising revenues. Consequently, low public acceptance of TV One/CLEO TV\u2019s content may have an adverse effect on our cable television segment\u2019s results of operations. Further, networks or programming launched by Netflix\nTM\n, Oprah Winfrey (OWN\nTM\n), Sean Combs (REVOLT TV\nTM\n), and Magic Johnson (ASPIRE\nTM\n), could take away from our audience share and ratings and thus have an adverse effect on our cable television\u2019s results of operations.\nIncreases in or new royalties, including through legislation, could adversely impact our business, financial condition and results of operations.\nWe currently pay royalties to song composers and publishers through BMI, ASCAP, SESAC and GMR but not to record labels or recording artists for exhibition or use of over the air broadcasts of music. We must also pay royalties to the copyright owners of sound recordings for the digital audio transmission of such sound recordings on the Internet. We pay such royalties under federal statutory licenses and pay applicable license fees to Sound Exchange, the non-profit organization designated by the United States Copyright Royalty Board to collect such license fees. The royalty rates applicable to sound recordings under federal statutory licenses are subject to adjustment. The royalty rates we pay to copyright owners for the public performance of musical compositions on our radio stations and internet streams could increase as a result of private negotiations and the emergence of new performing rights organizations, which could adversely impact our businesses, financial condition, results of operations and cash flows. Further, from time to time, Congress considers legislation which could change the copyright fees and the procedures by which the fees are determined. The legislation historically has been the subject of considerable debate and activity by the broadcast industry and other parties affected by the proposed legislation. It cannot be predicted whether any proposed future legislation will become law or what impact it would have on our results from operations, cash flows or financial position.\nA disproportionate share of our radio segment revenue comes from a small number of geographic markets and our syndicated radio business, Reach Media.\nFor the\u00a0year ended December\u00a031, 2022, approximately 32.3% of our net revenue was generated from the sale of advertising in our core radio business, excluding Reach Media. Within our core radio business, seven (Atlanta, Baltimore, Charlotte, Dallas, Houston, Indianapolis, and Washington, DC) of the 13 markets in which we operated radio stations throughout 2022 or a portion thereof accounted for approximately 73.8% of our radio station net revenue for the\u00a0year ended December\u00a031, 2022. Revenue from the operations of Reach Media, along with revenue from the seven significant contributing radio markets, accounted for approximately 32.5% of our total consolidated net revenue for the\u00a0year ended December\u00a031, 2022. Adverse events or conditions (economic, including government cutbacks or otherwise) could lead to declines in the contribution of Reach Media or declines in one or more of the seven significant contributing radio markets, which could have a material adverse effect on our overall financial performance and results of operations. \nWe may lose audience share and advertising revenue to our competitors.\nOur media properties compete for audiences and advertising revenue with other radio stations and station groups and other media such as broadcast television, newspapers, magazines, cable television, satellite television, satellite radio, outdoor advertising, \u201cover the top providers\u201d on the internet and direct mail. Adverse changes in audience ratings, internet traffic, and market shares could have a material adverse effect on our revenue. Larger media companies, with more financial resources than we have may target our core audiences or enter the segments or markets in which we operate, causing competitive pressure. Further, other media and broadcast companies may change their programming format or \n26\n\n\nTable of Contents\nengage in aggressive promotional campaigns to compete directly with our media properties for our core audiences and advertisers. Competition for our core audiences in any of our segments or markets could result in lower ratings or traffic and, hence, lower advertising revenue for us, or cause us to increase promotion and other expenses and, consequently, lower our earnings and cash flow. Changes in population, demographics, audience tastes and other factors beyond our control, could also cause changes in audience ratings or market share. Failure by us to respond successfully to these changes could have an adverse effect on our business and financial performance. We cannot assure that we will be able to maintain or increase our current audience ratings and advertising revenue.\nWe must respond to the rapid changes in technology, content offerings, services, and standards across our entire platform in order to remain competitive.\nTechnological standards across our media properties are evolving and new distribution technologies/platforms are emerging at a rapid pace. We cannot assure that we will have the resources to acquire new technologies or to introduce new features, content or services to compete with these new technologies. New media has resulted in fragmentation in the advertising market, and we cannot predict the effect, if any, that additional competition arising from new technologies or content offerings may have across any of our business segments or our financial condition and results of operations, which may be adversely affected if we are not able to adapt successfully to these new media technologies or distribution platforms. The continuing growth and evolution of channels and platforms has increased our challenges in differentiating ourselves from other media platforms. We continually seek to develop and enhance our content offerings and distribution platforms/methodologies. Failure to effectively execute in these efforts, actions by our competitors, or other failures to deliver content effectively could hurt our ability to differentiate ourselves from our competitors and, as a result, have adverse effects across our business.\nThe loss of key personnel, including certain on-air talent, could disrupt the management and operations of our business.\nOur business depends upon the continued efforts, abilities and expertise of our executive officers and other key employees, including certain on-air personalities. We believe that the combination of skills and experience possessed by our executive officers and other key employees could be difficult to replace, and that the loss of one or more of them could have a material adverse effect on us, including the impairment of our ability to execute our business strategy. In addition, several of our on-air personalities and syndicated radio programs hosts have large loyal audiences in their respective broadcast areas and may be significantly responsible for the ratings of a station. The loss of such on-air personalities or any change in their popularity could impact the ability of the station to sell advertising and our ability to derive revenue from syndicating programs hosted by them. We cannot be assured that these individuals will remain with us or will retain their current audiences or ratings.\nIf our digital segment does not continue to develop and offer compelling and differentiated content, products and services, our advertising revenues could be adversely affected.\nIn order to attract consumers and generate increased activity on our digital properties, we believe that we must offer compelling and differentiated content, products and services. However, acquiring, developing, and offering such content, products and services may require significant costs and time to develop, while consumer tastes may be difficult to predict and are subject to rapid change. If we are unable to provide content, products and services that are sufficiently attractive to our digital users, we may not be able to generate the increases in activity necessary to generate increased advertising revenues. In addition, although we have access to certain content provided by our other businesses, we may be required to make substantial payments to license such content. Many of our content arrangements with third parties are non-exclusive, so competitors may be able to offer similar or identical content. If we are not able to acquire or develop compelling content and do so at reasonable prices, or if other companies offer content that is similar to that provided by our digital segment, we may not be able to attract and increase the engagement of digital consumers on our digital properties.\nContinued growth in our digital business also depends on our ability to continue offering a competitive and distinctive range of advertising products and services for advertisers and publishers and our ability to maintain or increase prices for our advertising products and services. Continuing to develop and improve these products and services may require significant time and costs. If we cannot continue to develop and improve our advertising products and services or if prices \n27\n\n\nTable of Contents\nfor our advertising products and services decrease, our digital advertising revenues could be adversely affected. Finally, recently, our digital business has seen significant growth in its business due to advertisers increased interest in minority controlled media given recent social justice/equality trends. \u00a0Should these trends reverse or decline, revenues within our digital and other segments could be adversely impacted.\nMore individuals are using devices other than personal and laptop computers to access and use the internet, and, if we cannot make our products and services available and attractive to consumers via these alternative devices, our internet advertising revenues could be adversely affected.\nDigital users are increasingly accessing and using the internet through mobile tablets, smartphones and wearable devices. In order for consumers to access and use our products and services via these devices, we must ensure that our products and services are technologically compatible with such devices. If we cannot effectively make our products and services available on these devices, fewer internet consumers may access and use our products and services and our advertising revenue may be negatively affected.\nUnrelated third parties may claim that we infringe on their rights based on the nature and content of information posted on websites we maintain.\nWe host internet services that enable individuals to exchange information, generate content, comment on our content, and engage in various online activities. The law relating to the liability of providers of these online services for activities of their users is currently unsettled both within the United States and internationally. While we monitor postings to such websites, claims may be brought against us for defamation, negligence, copyright or trademark infringement, unlawful activity, tort, including personal injury, fraud, or other theories based on the nature and content of information that may be posted online or generated by our users. Our defense of such actions could be costly and involve significant time and attention of our management and other resources.\nIf we are unable to protect our domain names and/or content, our reputation and brands could be adversely affected.\nWe currently hold various domain name registrations relating to our brands, including urban1.com, radio-one.com and interactiveone.com. The registration and maintenance of domain names are generally regulated by governmental agencies and their designees. Governing bodies may establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we may be unable to register or maintain relevant domain names. We may be unable, without significant cost or at all, to prevent third parties from registering domain names that are similar to, infringe upon, or otherwise decrease the value of our trademarks and other proprietary rights. Failure to protect our domain names could adversely affect our reputation and brands, and make it more difficult for users to find our websites and our services. In addition, piracy of the Company\u2019s content, including digital piracy, may decrease revenue received from the exploitation of the Company\u2019s programming and other content and adversely affect its businesses and profitability.\nFuture asset impairment to the carrying values of our FCC licenses and goodwill could adversely impact our results of operations and net worth.\nAs of December\u00a031, 2022, we had approximately $488.4 million in broadcast licenses and $216.6 million in goodwill, which totaled $705.0 million, and represented approximately 52.7% of our total assets. Therefore, we believe estimating the fair value of goodwill and radio broadcasting licenses is a critical accounting estimate because of the significance of their carrying values in relation to our total assets. \nWe are required to test our goodwill and indefinite-lived intangible assets for impairment at least annually, which we have traditionally done as of October 1 each year, or on an interim basis when events or changes in circumstances suggest impairment may have occurred. Impairment is measured as the excess of the carrying value of the goodwill or indefinite-lived intangible asset over its fair value. Impairment may result from deterioration in our performance, changes in anticipated future cash flows, changes in business plans, adverse economic or market conditions, adverse changes in applicable laws and regulations, or other factors beyond our control. The amount of any impairment must be expensed as a charge to operations. Fair values of FCC licenses have been estimated using the income approach, which incorporates \n28\n\n\nTable of Contents\nseveral judgmental assumptions over a 10-year model including, but not limited to, market revenue and projected revenue growth by market, mature market share, mature operating profit margin, discount rate and terminal growth rate. Fair values of goodwill have been estimated using the income approach, which incorporates several judgmental assumptions over a 10-year model including, but not limited to, revenue growth rates, future operating profit margins, discount rate and terminal growth rate. We also utilize a market-based approach to evaluate our fair value estimates. There are inherent uncertainties related to these assumptions and our judgment in applying them to the impairment analysis.\nChanges in certain events or circumstances could result in changes to our estimated fair values and may result in further write-downs to the carrying values of these assets. Additional impairment charges could adversely affect our financial results, financial ratios and could limit our ability to obtain financing in the future.\nOur business depends on maintaining our licenses with the FCC. We could be prevented from operating a radio station if we fail to maintain its license.\nWithin our core radio business, we are required to maintain radio broadcasting licenses issued by the FCC. These licenses are ordinarily issued for a maximum term of eight\u00a0years and are renewable. Currently, subject to renewal, our radio broadcasting licenses expire at various times beginning October 2027 through August 1, 2030. While we anticipate receiving renewals of all of our broadcasting licenses, interested third parties may challenge our renewal applications. A station may continue to operate beyond the expiration date of its license if a timely filed license renewal application was filed and is pending, as is the case with respect to each of our stations with licenses that have expired. During the periods when a renewal application is pending, informal objections and petitions to deny the renewal application can be filed by interested parties, including members of the public, on a variety of grounds. In addition, we are subject to extensive and changing regulation by the FCC with respect to such matters as programming, indecency standards, technical operations, employment and business practices. If we or any of our significant stockholders, officers, or directors violate the FCC\u2019s rules\u00a0and regulations or the Communications Act of 1934, as amended (the \u201cCommunications Act\u201d), or is convicted of a felony or found to have engaged in certain other types of non-FCC related misconduct, the FCC may commence a proceeding to impose fines or other sanctions upon us. Examples of possible sanctions include the imposition of fines, the renewal of one or more of our broadcasting licenses for a term of fewer than eight\u00a0years or the revocation of our broadcast licenses. If the FCC were to issue an order denying a license renewal application or revoking a license, we would be required to cease operating the radio station covered by the license only after we had exhausted administrative and judicial review without success.\nDisruptions or security breaches of our information technology infrastructure could interfere with our operations, compromise client information and expose us to liability, possibly causing our business and reputation to suffer.\nOur industry is prone to cyber-attacks by third parties seeking unauthorized access to our data or users\u2019 data. Any failure to prevent or mitigate security breaches and improper access to or disclosure of our data or user data could result in the loss or misuse of such data, which could harm our business and reputation and diminish our competitive position. In addition, computer malware, viruses, social engineering (predominantly spear phishing attacks), and general hacking have become more prevalent in general. Our efforts to protect our company\u2019s data or the information we receive may be unsuccessful due to software bugs or other technical malfunctions; employee, contractor, or vendor error or malfeasance; government surveillance; or other threats that evolve. In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data or our users\u2019 data on a continual basis.\nAny internal technology breach, error or failure impacting systems hosted internally or externally, or any large scale external interruption in technology infrastructure we depend on, such as power, telecommunications or the Internet, may disrupt our technology network. Any individual, sustained or repeated failure of technology could impact our customer service and result in increased costs or reduced revenues. Our technology systems and related data also may be vulnerable to a variety of sources of interruption due to events beyond our control, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues. Our technology security initiatives, disaster recovery plans and other measures may not be adequate or implemented properly to prevent a business disruption and its adverse financial consequences to our reputation.\n29\n\n\nTable of Contents\nIn addition, as a part of our ordinary business operations, we may collect and store sensitive data, including personal information of our clients, listeners and employees. The secure operation of the networks and systems on which this type of information is stored, processed and maintained is critical to our business operations and strategy. Any compromise of our technology systems resulting from attacks by hackers or breaches due to employee error or malfeasance could result in the loss, disclosure, misappropriation of or access to clients\u2019, listeners\u2019, employees\u2019 or business partners\u2019 information. Any such loss, disclosure, misappropriation or access could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption of our operations and damage to our reputation, any or all of which could adversely affect our business. Although we have developed systems and processes that are designed to protect our data and user data, to prevent data loss, and to prevent or detect security breaches, we cannot assure you that such measures will provide absolute security.\nIn the event of a technical or cyber event, we could experience a significant, unplanned disruption, or substantial and extensive degradation of our services, or our network may fail in the future. Despite our significant infrastructure investments, we may have insufficient communications and server capacity to address these or other disruptions, which could result in interruptions in our services. Any widespread interruption or substantial and extensive degradation in the functioning of our IT or technical platform for any reason could negatively impact our revenue and could harm our business and results of operations. If such a widespread interruption occurred, or if we failed to deliver content to users as expected, our reputation could be damaged severely. Moreover, any disruptions, significant degradation, cybersecurity threats, security breaches, or attacks on our internal information technology systems could impact our ratings and cause us to lose listeners, users or viewers or make it more difficult to attract new ones, either of which could harm our business and results of operations.\nOur business could be materially and adversely affected as a result of natural disasters, terrorism or other catastrophic events.\nAny economic failure or other material disruption caused by war, climate change or natural disasters, including fires, floods, hurricanes, earthquakes, and tornadoes; power loss or shortages; environmental disasters; telecommunications or business information systems failures or similar events could also adversely affect our ability to conduct business. If such disruptions contribute to a general decrease in economic activity or corporate spending on IT, or impair our ability to meet our customer demands, our operating results and financial condition could be materially adversely affected.\nThere is also an increasing concern over the risks of climate change and related environmental sustainability matters. In addition to physical risks, climate change risk includes longer-term shifts in climate patterns, such as extreme heat, sea level rise, and more frequent and prolonged drought. Such events could disrupt our operations or those of our customers or third parties on which we rely, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility.\nThe Company\u2019s business diversification efforts, including its efforts to expand its gaming investments, are subject to risks and uncertainties.\nOn May 20, 2021, the City of Richmond, Virginia (the \u201cCity\u201d) announced that it had selected the Company\u2019s wholly-owned unrestricted subsidiary RVA Entertainment Holdings, LLC (\u201cRVAEH\u201d), as the City\u2019s preferred casino gaming operator to develop and operate a casino resort in Richmond (\u201cCasino Resort\u201d). Pursuant to the Virginia Casino Act, the City is one of five cities in the Commonwealth of Virginia eligible to host a casino gaming establishment, subject to the citizens of the City approving a referendum (the \u201cReferendum\u201d). In November 2021, the required Referendum was conducted and failed to pass. On January 24, 2022, the Richmond City Council adopted a new resolution in efforts to bring the ONE Casino + Resort to the City. The new resolution was the first of several steps in pursuit of a second referendum. After the resolution was passed, the Virginia General Assembly passed legislation that sought to delay the second referendum that was anticipated to occur in November 2022. While there was some question as to the applicability of the legislation, RVAEH and the City determined to adhere to the legislation and to seek a second referendum in November 2023. If the voters approve the second referendum then the Commonwealth may issue one license permitting operation of a casino in Richmond. While the path to a second referendum remains, efforts have been made by third parties to move potential grant of the final casino license out of the City and there can be no assurance that a second \n30\n\n\nTable of Contents\nreferendum will be ordered, pass with the required voter approval or that we will otherwise be able to move forward with the Casino Resort or any similar initiative. As with all corporate development activities the Company may engage in, any of our current and future business diversification efforts, including pursuit of the Casino Resort, are subject to a number of risks, including but not limited to:\n\u200b\n\u25cf\ndelays in obtaining or inability to obtain necessary permits, licenses and approvals; \n\u25cf\nchanges to plans and/or specifications;\n\u25cf\nlack of sufficient, or delays in the availability of, financing;\n\u25cf\nchanges in laws and regulations, or in the interpretation and enforcement of laws and \nregulations, applicable to gaming, leisure, real estate development or construction projects;\n\u25cf\navailability of qualified contractors and subcontractors;\n\u25cf\nenvironmental, health and safety issues, including site accidents and the spread of viruses;\n\u25cf\nweather interferences or delays; and\n\u25cf\nother unanticipated circumstances or cost increases.\n\u200b\nIn addition, in engaging in certain of these corporate development activities, we may rely on key contracts and business relationships, and if any of our business partners or contracting\u00a0counterparties\u00a0fail to perform, or terminate, any of their contractual arrangements with us for any reason or cease operations, our business could be disrupted and our revenues could be adversely affected. The failure to perform or termination of any of the agreements by a partner or a\u00a0counterparty, the discontinuation of operations of a partner or\u00a0counterparty, the loss of good relations with a partner or\u00a0counterparty\u00a0or our inability to obtain similar relationships or agreements, may have an adverse effect on our financial condition, results of operations and cash flow. Our former operating partner, Pacific Peninsula Entertainment, sold substantially all of its assets, including its interest in the ONE Casino + Resort project to Churchill Downs, Incorporated, the owner of the Kentucky Derby. \u00a0While the Company views this as a positive development for the project, there can be no assurance that this development will not have any negative impact on the development of the project.\n\u200b\nCertain Regulatory Risks\nThe FCC\u2019s media ownership rules\u00a0could restrict our ability to acquire radio stations.\nThe Communications Act and FCC rules\u00a0and policies limit the number of broadcasting properties that any person or entity may own (directly or by attribution) in any market and require FCC approval for transfers of control and assignments of licenses. The FCC\u2019s media ownership rules\u00a0remain subject to further agency and court proceedings. As a result of the FCC media ownership rules, the outside media interests of our officers and directors could limit our ability to acquire stations. The filing of petitions or complaints against Urban One or any FCC licensee from which we are acquiring a station could result in the FCC delaying the grant of, refusing to grant or imposing conditions on its consent to the assignment or transfer of control of licenses. The Communications Act and FCC rules\u00a0and policies also impose limitations on non-U.S. ownership and voting of our capital stock.\nEnforcement by the FCC of its indecency rules\u00a0against the broadcast industry could adversely affect our business operations.\nThe FCC\u2019s rules\u00a0prohibit the broadcast of obscene material at any time and indecent or profane material on broadcast stations between the hours of 6\u00a0a.m.\u00a0and 10\u00a0p.m.\u00a0Broadcasters risk violating the prohibition against broadcasting indecent material because of the vagueness of the FCC\u2019s indecency and profanity definitions, coupled with the spontaneity of live programming. The FCC has in the past vigorously enforced its indecency rules\u00a0against the broadcasting industry and has threatened to initiate license revocation proceedings against broadcast licensees for \u201cserious\u201d indecency violations. In June\u00a02012, the Supreme Court issued a decision which, while setting aside certain FCC indecency enforcement actions on narrow due process grounds, declined to rule\u00a0on the constitutionality of the FCC\u2019s indecency policies. Following the \n31\n\n\nTable of Contents\nSupreme Court\u2019s decision, the FCC requested public comment on the appropriate substance and scope of its indecency enforcement policy. It is not possible to predict whether and, if so, how the FCC will revise its indecency enforcement policies or the effect of any such changes on us. The fines for broadcasting indecent material are a maximum of $325,000 per utterance. The determination of whether content is indecent is inherently subjective and, as such, it can be difficult to predict whether particular content could violate indecency standards. The difficulty in predicting whether individual programs, words or phrases may violate the FCC\u2019s indecency rules\u00a0adds significant uncertainty to our ability to comply with the rules. Violation of the indecency rules\u00a0could lead to sanctions which may adversely affect our business and results of operations. In addition, third parties could oppose our license renewal applications or applications for consent to acquire broadcast stations on the grounds that we broadcast allegedly indecent programming on our stations. Some policymakers support the extension of the indecency rules\u00a0that are applicable to over-the-air broadcasters to cover cable programming and/or attempts to increase enforcement of or otherwise expand existing laws and rules. If such an extension, attempt to increase enforcement, or other expansion took place and was found to be constitutional, some of TV One\u2019s content could be subject to additional regulation and might not be able to attract the same subscription and viewership levels.\nChanges in current federal regulations could adversely affect our business operations.\nCongress and the FCC have considered, and may in the future consider and adopt, new laws, regulations and policies that could, directly or indirectly, affect the profitability of our broadcast stations. In particular, Congress may consider and adopt a revocation of terrestrial radio\u2019s exemption from paying royalties to performing artists and record companies for use of their recordings (radio already pays a royalty to songwriters, composers and publishers). In addition, commercial radio broadcasters and entities representing artists are negotiating agreements that could result in broadcast stations paying royalties to artists. A requirement to pay additional royalties could have an adverse effect on our business operations and financial performance. Moreover, it is possible that our license fees and negotiating costs associated with obtaining rights to use musical compositions and sound recordings in our programming could sharply increase as a result of private negotiations, one or more regulatory rate-setting processes, or administrative and court decisions. Finally, there has been in the past and there could be again in the future proposed legislation that requires radio broadcasters to pay additional fees such as a spectrum fee for the use of the spectrum. We cannot predict whether such actions will occur.\nThe television and distribution industries in the United States are highly regulated by U.S. federal laws and regulations issued and administered by various federal agencies, including the FCC. The television broadcasting industry is subject to extensive regulation by the FCC under the Communications Act. The U.S. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations, and policies regarding a wide variety of matters that could, directly or indirectly, affect the operations of our cable television segment. For example, the FCC has initiated a proceeding to examine and potentially regulate more closely embedded advertising such as product placement and product integration. Enhanced restrictions affecting these means of delivering advertising messages may adversely affect our cable television segment\u2019s advertising revenues. Changes to the media ownership and other FCC rules\u00a0may affect the competitive landscape in ways that could increase the competition faced by TV One/CLEO TV. Proposals have also been advanced from time to time before the U.S. Congress and the FCC to extend the program access rules\u00a0(currently applicable only to those cable program services which also own or are owned by cable distribution systems) to all cable program services. TV One/CLEO TV\u2019s ability to obtain the most favorable terms available for its content could be adversely affected should such an extension be enacted into law. We are unable to predict the effect that any such laws, regulations or policies may have on our cable television segment\u2019s operations.\nNew or changing federal, state or international privacy regulation or requirements could hinder the growth of our internet business.\nA variety of federal and state laws govern the collection, use, retention, sharing and security of consumer data that our business uses to operate its services and to deliver certain advertisements to its customers, as well as the technologies used to collect such data. Not only are existing privacy-related laws in these jurisdictions evolving and subject to potentially disparate interpretation by governmental entities, new legislative proposals affecting privacy are now pending at both the federal and state level in the U.S. Further, third-party service providers may from time to time change their privacy requirements. Changes to the interpretation of existing law or the adoption of new privacy-related requirements by governments or other businesses could hinder the growth of our business and cause us to incur new and additional costs and expenses. Also, a failure or perceived failure to comply with such laws or requirements or with our own policies and \n32\n\n\nTable of Contents\nprocedures could result in significant liabilities, including a possible loss of consumer or investor confidence or a loss of customers or advertisers.\nUnique Risks Related to Our Cable Television Segment\nThe loss of affiliation agreements could materially adversely affect our cable television segment\u2019s results of operations.\nOur cable television segment is dependent upon the maintenance of affiliation agreements with cable and direct broadcast distributors for its revenues, and there can be no assurance that these agreements will be renewed in the future on terms acceptable to such distributors. The loss of one or more of these arrangements could reduce the distribution of TV One\u2019s and/or CLEO TV\u2019s programming services and reduce revenues from subscriber fees and advertising, as applicable. Further, the loss of favorable packaging, positioning, pricing or other marketing opportunities with any distributor could reduce revenues from subscribers and associated subscriber fees. In addition, consolidation among cable distributors and increased vertical integration of such distributors into the cable or broadcast network business have provided more leverage to these distributors and could adversely affect our cable television segment\u2019s ability to maintain or obtain distribution for its network programming on favorable or commercially reasonable terms, or at all. The results of renewals could have a material adverse effect on our cable television segment\u2019s revenues and results and operations. We cannot assure you that TV One and/or CLEO TV will be able to renew their affiliation agreements on commercially reasonable terms, or at all. The loss of a significant number of these arrangements or the loss of carriage on basic programming tiers could reduce the distribution of our content, which may adversely affect our revenues from subscriber fees and our ability to sell national and local advertising time.\nChanges in consumer behavior resulting from new technologies and distribution platforms may impact the performance of our businesses.\nOur cable television segment faces emerging competition from other providers of digital media, some of which have greater financial, marketing and other resources than we do. In particular, content offered over the internet has become more prevalent as the speed and quality of broadband networks have improved. Providers such as Netflix\nTM\n, Hulu\nTM\n, Apple\nTM\n, Amazon\nTM\n and Google\nTM\n, as well as gaming and other consoles such as Microsoft\u2019s Xbox\nTM\n, Sony\u2019s PS5\nTM\n, Nintendo\u2019s Wii\nTM\n, and Roku\nTM\n, are aggressively establishing themselves as alternative providers of video content and services, including new and independently developed long form video content. Most recently, new online distribution services have emerged offering live sports and other content without paying for a traditional cable bundle of channels. These services and the growing availability of online content, coupled with an expanding market for mobile devices and tablets that allow users to view content on an on-demand basis and internet-connected televisions, may impact our cable television segment\u2019s distribution for its services and content. Additionally, devices or services that allow users to view television programs away from traditional cable providers or on a time-shifted basis and technologies that enable users to fast-forward or skip programming, including commercials, such as DVRs and portable digital devices and systems that enable users to store or make portable copies of content, have caused changes in consumer behavior that may affect the attractiveness of our offerings to advertisers and could therefore adversely affect our revenues. If we cannot ensure that our distribution methods and content are responsive to our cable television segment\u2019s target audiences, our business could be adversely affected.\nUnique Risks Related to Our Capital Structure\nOur President and Chief Executive Officer has an interest in TV One that may conflict with your interests.\nPursuant to the terms of employment with our President and Chief Executive Officer, Mr.\u00a0Alfred C. Liggins,\u00a0III, in recognition of Mr.\u00a0Liggins\u2019 contributions in founding TV One on our behalf, he is eligible to receive an award amount equal to approximately 4% of any proceeds from distributions or other liquidity events in excess of the return of our aggregate investment in TV One (the \u201cEmployment Agreement Award\u201d). Our obligation to pay the award was triggered after our recovery of the aggregate amount of capital contribution in TV One, and payment is required only upon actual receipt of distributions of cash or marketable securities or proceeds from a liquidity event in excess of such invested amount. Mr.\u00a0Liggins\u2019 rights to the Employment Agreement Award (i)\u00a0cease if he is terminated for cause or he resigns without good reason and (ii)\u00a0expire at the termination of his employment (but similar rights could be included in the terms \n33\n\n\nTable of Contents\nof a new employment agreement or arrangement). As a result of this arrangement, the interest of Mr.\u00a0Liggins\u2019 with respect to TV One may conflict with your interests as holders of our debt or equity securities.\nTwo common stockholders have a majority voting interest in Urban One and have the power to control matters on which our common stockholders may vote, and their interests may conflict with yours.\nAs of December\u00a031, 2022, our Chairperson and her son, our President and CEO, together held in excess of 75% of the outstanding voting power of our common stock. As a result, our Chairperson and our CEO control our management and policies and decisions involving or impacting Urban One, including transactions involving a change of control, such as a sale or merger. The interests of these stockholders may differ from the interests of our other stockholders and our debt holders. In addition, certain covenants in our debt instruments require that our Chairperson and the CEO maintain a specified ownership and voting interest in Urban One, and prohibit other parties\u2019 voting interests from exceeding specified amounts. Our Chairperson and the CEO have agreed to vote their shares together in elections of members to the Board of Directors of Urban One.\nFurther, we are a \u201ccontrolled company\u201d under rules\u00a0governing the listing of our securities on the NASDAQ Stock Market because more than 50% of our voting power is held by our Chairperson and the CEO. Therefore, we are not subject to NASDAQ Stock Market listing rules\u00a0that would otherwise require us to have: (i)\u00a0a majority of independent directors on the board; (ii)\u00a0a compensation committee composed solely of independent directors; (iii)\u00a0a nominating committee composed solely of independent directors; (iv)\u00a0compensation of our executive officers determined by a majority of the independent directors or a compensation committee composed solely of independent directors; and (v)\u00a0director nominees selected, or recommended for the board\u2019s selection, either by a majority of the independent directors or a nominating committee composed solely of independent directors. While a majority of our board members are currently independent directors, we do not make any assurances that a majority of our board members will be independent directors at any given time.\nWe are a smaller reporting company as defined by Item 10 of Regulation S-K\n \nand we cannot be certain if the reduced disclosure requirements applicable to our filing status will make our common stock less attractive to investors.\n\u200b\nWe are a \u201csmaller reporting company\u201d and, thus, have certain decreased disclosure obligations in our SEC filings, including, among other things, simplified executive compensation disclosures and only being required to provide two\u00a0years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as a \u201csmaller reporting company\u201d may make it harder for investors to analyze our results of operations and financial prospects and may make our common stock a less attractive investment.\nIf we fail to meet the continued listing standards of Nasdaq, our common stock may be delisted, which could have a material adverse effect on the liquidity and market price of our common stock and expose the Company to litigation.\n\u00a0\n\u00a0\nOur common stock is currently traded on the Nasdaq Stock Exchange. The Nasdaq Stock Market\u00a0LLC (\u201cNASDAQ\u201d) has requirements that a company must meet in order to remain listed. \u00a0On April 3, 2023, we were notified that we were not in compliance with requirements of NASDAQ Listing Rule 5250(c)(1) (the \u201cRule\u201d) as a result of not having timely filed the Company\u2019s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the \u201c2022 Form 10-K\u201d), with the Securities and Exchange Commission (\u201cSEC\u201d). On May 19, 2023, the Company received a second letter (the \u201cSecond \u00a0Nasdaq Letter\u201d) notifying the Company that it was not in compliance with requirements of the Rule as a result of not having timely filed its 2022 Form 10-K and its Quarterly Report on Form 10-Q for the period ended March 31, 2023 (the \u201cQ1 2023 Form 10-Q\u201d and, together with the 2022 Form 10-K, the \u201cDelinquent Reports\u201d), with the SEC.\u00a0\n\u00a0\nIn accordance with the Second Nasdaq Letter, the Company had until June 2, 2023, to submit a plan to file both Delinquent Reports or to submit a plan to regain compliance with respect to these Delinquent Reports. The Company submitted its plan to regain compliance with respect to these Delinquent Reports on May 26, 2023, and on June 5, 2023, the Company received a letter from Nasdaq granting an exception to enable the Company to regain compliance with the Rule. Under the terms of the exception, on or before September 27, 2023, the Company must file its Form 10-K and Form 10-Q for the period ended December 31, 2022, and March 31, 2023, as required by the Rule.\n \u00a0\n34\n\n\nTable of Contents\nDuring this time, our common stock will continue to be listed on the NASDAQ, subject to our compliance with other NASDAQ continued listing requirements. If our common stock were to be delisted, the liquidity of our common stock would be adversely affected and the market price of our common stock could decrease. In addition, the Delinquent Reports could expose the Company to risk of litigation concerning any impact upon the Company\u2019s price of the Company\u2019s common stock. Any such litigation could distract management from day-to-day operations and further adversely affect the market price of our common stock. \u00a0\n\u200b",
+  "item7": ">ITEM\u00a07. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThe following information should be read in conjunction with the Consolidated Financial Statements and Notes\u00a0thereto included elsewhere in this report.\nRestatement of Previously Issued Financial Statements\nThis Management\u2019s Discussion and Analysis (\u201cMD&A\u201d) has been restated to give effect to the restatement of the Company\u2019s consolidated financial statements, as more fully described in Note 2, \nRestatement of Financial Statements\n. For further detail regarding the restatement, see \u201cExplanatory Note\u201d and Item 9A, \u201cControls and Procedures.\u201d \n\u200b\nOverview\nFor the\u00a0year ended December\u00a031, 2022, consolidated net revenue increased approximately 10.1% compared to the\u00a0year ended December\u00a031, 2021. For 2023, our strategy will be to: (i)\u00a0grow market share; (ii)\u00a0improve audience share in certain markets and improve revenue conversion of strong and stable audience share in certain other markets; and (iii)\u00a0grow and diversify our revenue by successfully executing our multimedia strategy.\nThe impact of the COVID pandemic, including the impact of variants and government interventions that limit normal economic activity, competition from digital audio players, the internet, cable television and satellite radio, among other new media outlets, audio and video streaming on the internet, and consumers\u2019 increased focus on mobile applications, are some of the reasons our core radio business has experienced volatility. In addition to making overall cutbacks, advertisers continue to shift their advertising budgets away from traditional media such as newspapers, broadcast television and radio to new media outlets. Internet companies have evolved from being large sources of advertising revenue for radio companies to being significant competitors for radio advertising dollars. While these dynamics present significant challenges for companies that are focused solely in the radio industry, through our diversified platform, which includes our radio websites,\u00a0Interactive One and other online verticals, as well as our cable television business, we are poised to provide advertisers and creators of content with a multifaceted way to reach African-American consumers.\nResults of Operations\nRevenue\nWithin our core radio business, we primarily derive revenue from the sale of advertising time and program sponsorships to local and national advertisers on our radio stations. Advertising revenue is affected primarily by the advertising rates our radio stations are able to charge, as well as the overall demand for radio advertising time in a market. These rates are largely based upon a radio station\u2019s audience share in the demographic groups targeted by advertisers, the number of radio stations in the related market, and the supply of, and demand for, radio advertising time. Advertising rates are generally highest during morning and afternoon commuting hours.\nNet revenue consists of gross revenue, net of local and national agency and outside sales representative commissions. Agency and outside sales representative commissions are calculated based on a stated\u00a0percentage applied to gross billing.\n37\n\n\nTable of Contents\nThe following chart shows the\u00a0percentage of consolidated net revenue generated by each reporting segment.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December 31,\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n(As Restated)\n\u200b\nRadio broadcasting segment\n\u200b\n 32.3\n%\u00a0\u00a0\n 31.9\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nReach Media segment\n\u200b\n 8.9\n%\u00a0\u00a0\n 10.6\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nDigital segment\n\u200b\n 16.2\n%\u00a0\u00a0\n 13.6\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCable television segment\n\u200b\n 43.3\n%\u00a0\u00a0\n 44.7\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAll other - corporate/eliminations\n\u200b\n (0.7)\n%\u00a0\u00a0\n (0.8)\n%\n\u200b\nThe following chart shows the\u00a0percentages generated from local and national advertising as a subset of net revenue from our core radio business.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended\n\u00a0\n\u200b\n\u200b\nDecember\u00a031,\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\nPercentage of core radio business generated from local advertising\n\u200b\n 57.3\n%\u00a0\u00a0\n 59.2\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nPercentage of core radio business generated from national advertising, including network advertising\n\u200b\n 38.8\n%\u00a0\u00a0\n 36.3\n%\n\u200b\nNational and local advertising also includes advertising revenue generated from our digital segment. The balance of net revenue from our radio segment was generated from ticket sales and revenue related to our sponsored events, management fees and other revenue.\nThe following chart shows the sources of our net revenue for the\u00a0years ended December\u00a031, 2022 and 2021:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n$ Change\n\u00a0\u00a0\u00a0\u00a0\n% Change\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(As Restated)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(In\u00a0thousands)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\nRadio advertising\n\u00a0\n$\n 177,268\n\u00a0\n$\n 165,244\n\u00a0\n$\n 12,024\n\u00a0\n 7.3\n%\nPolitical advertising\n\u200b\n\u200b\n 13,226\n\u200b\n\u200b\n 3,494\n\u200b\n\u200b\n 9,732\n\u00a0\n 278.5\n\u200b\nDigital advertising\n\u200b\n\u200b\n 76,730\n\u200b\n\u200b\n 59,812\n\u200b\n\u200b\n 16,918\n\u00a0\n 28.3\n\u200b\nCable television advertising\n\u200b\n\u200b\n 112,857\n\u200b\n\u200b\n 95,589\n\u200b\n\u200b\n 17,268\n\u00a0\n 18.1\n\u200b\nCable television affiliate fees\n\u200b\n\u200b\n 96,963\n\u200b\n\u200b\n 101,203\n\u200b\n\u200b\n (4,240)\n\u00a0\n (4.2)\n\u200b\nEvent revenues & other\n\u200b\n\u200b\n 7,560\n\u200b\n\u200b\n 14,943\n\u200b\n\u200b\n (7,383)\n\u00a0\n (49.4)\n\u200b\nNet revenue\n\u00a0\n$\n 484,604\n\u00a0\n$\n 440,285\n\u00a0\n$\n 44,319\n\u00a0\n 10.1\n%\n\u200b\nIn the broadcasting industry, radio stations and television stations often utilize trade or barter agreements to reduce cash expenses by exchanging advertising time for goods or services. In order to maximize cash revenue for our spot inventory, we closely manage the use of trade and barter agreements.\nWithin our digital segment, Interactive One generates the majority of the Company\u2019s digital revenue. Our digital revenue is principally derived from advertising services on non-radio station branded, but Company-owned websites. Advertising services include the sale of banner and sponsorship advertisements. As the Company runs its advertising campaigns, the customer simultaneously receives benefits as impressions are delivered, and revenue is recognized over time. The amount of revenue recognized each month is based on the number of impressions delivered multiplied by the effective per impression unit price, and is equal to the net amount receivable from the customer. \n\u200b\n38\n\n\nTable of Contents\nOur cable television segment generates the Company\u2019s cable television revenue, and derives its revenue principally from advertising and affiliate revenue. Advertising revenue is derived from the sale of television airtime to advertisers and is recognized when the advertisements are run. Our cable television segment also derives revenue from affiliate fees under the terms of various multi-year affiliation agreements generally based on a per subscriber royalty for the right to distribute the Company\u2019s programming under the terms of the distribution contracts. \nReach Media primarily derives its revenue from the sale of advertising in connection with its syndicated radio shows, including the Rickey Smiley Morning Show, the Russ Parr Morning Show and the DL Hughley Show. Reach Media also operates www.BlackAmericaWeb.com, an African-American targeted news and entertainment website, in addition to providing various other event-related activities.\nExpenses\nOur significant expenses are: (i)\u00a0employee salaries and commissions; (ii)\u00a0programming expenses; (iii)\u00a0marketing and promotional expenses; (iv)\u00a0rental of premises for office facilities and studios; (v)\u00a0rental of transmission tower space; (vi)\u00a0music license royalty fees; and (vii)\u00a0content amortization. We strive to control these expenses by centralizing certain functions such as finance, accounting, legal, human resources and management information systems and, in certain markets, the programming management function. We also use our multiple stations, market presence and purchasing power to negotiate favorable rates with certain vendors and national representative selling agencies. In addition to salaries and commissions, major expenses for our internet business include membership traffic acquisition costs, software product design, post-application software development and maintenance, database and server support costs, the help desk function, data center expenses connected with internet service provider (\u201cISP\u201d)\u00a0hosting services and other internet content delivery expenses. Major expenses for our cable television business include content acquisition and amortization, sales and marketing.\nWe generally incur marketing and promotional expenses to increase and maintain our audiences. However, because Nielsen reports ratings either\u00a0monthly or quarterly, depending on the particular market, any changed ratings and the effect on advertising revenue tends to lag behind both the reporting of the ratings and the incurrence of advertising and promotional expenditures.\n\u200b\n\u200b\n39\n\n\nTable of Contents\nURBAN ONE,\u00a0INC. AND SUBSIDIARIES\nRESULTS OF OPERATIONS\nThe following table summarizes our historical consolidated results of operations:\nYear Ended December\u00a031, 2022 Compared to\u00a0Year Ended December\u00a031, 2021 (In thousands)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\nIncrease/(Decrease)\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(As Restated)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nStatements of Operations:\n\u200b\n\u00a0\n \u00a0\u00a0 \n\u200b\n\u00a0\n \u00a0\u00a0 \n\u200b\n\u00a0\n \u00a0\u00a0 \n\u00a0\n \u00a0\u00a0 \n\u200b\nNet revenue\n\u00a0\n$\n 484,604\n\u00a0\n$\n 440,285\n\u00a0\n$\n 44,319\n\u00a0\n 10.1\n%\nOperating expenses:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nProgramming and technical, excluding stock-based compensation\n\u200b\n\u200b\n 122,629\n\u200b\n\u200b\n 119,072\n\u200b\n\u200b\n 3,557\n\u00a0\n 3.0\n\u200b\nSelling, general and administrative, excluding stock-based compensation\n\u200b\n\u200b\n 159,991\n\u200b\n\u200b\n 141,979\n\u200b\n\u200b\n 18,012\n\u00a0\n 12.7\n\u200b\nCorporate selling, general and administrative, excluding stock-based compensation\n\u200b\n\u200b\n 49,985\n\u200b\n\u200b\n 50,837\n\u200b\n\u200b\n (852)\n\u00a0\n (1.7)\n\u200b\nStock-based compensation\n\u200b\n\u200b\n 6,595\n\u200b\n\u200b\n 565\n\u200b\n\u200b\n 6,030\n\u00a0\n 1,067.3\n\u200b\nDepreciation and amortization\n\u200b\n\u200b\n 10,034\n\u200b\n\u200b\n 9,289\n\u200b\n\u200b\n 745\n\u00a0\n 8.0\n\u200b\nImpairment of long-lived assets\n\u200b\n\u200b\n 40,683\n\u200b\n\u200b\n 2,104\n\u200b\n\u200b\n 38,579\n\u00a0\n 1,833.6\n\u200b\nTotal operating expenses\n\u200b\n\u200b\n 389,917\n\u200b\n\u200b\n 323,846\n\u200b\n\u200b\n 66,071\n\u00a0\n 20.4\n\u200b\nOperating income\n\u200b\n\u200b\n 94,687\n\u200b\n\u200b\n 116,439\n\u200b\n\u200b\n (21,752)\n\u00a0\n (18.7)\n\u200b\nInterest income\n\u200b\n\u200b\n 939\n\u200b\n\u200b\n 218\n\u200b\n\u200b\n 721\n\u00a0\n 330.7\n\u200b\nInterest expense\n\u200b\n\u200b\n 61,751\n\u200b\n\u200b\n 65,702\n\u200b\n\u200b\n (3,951)\n\u00a0\n (6.0)\n\u200b\n(Gain) loss on retirement of debt\n\u200b\n\u200b\n (6,718)\n\u200b\n\u200b\n 6,949\n\u200b\n\u200b\n 13,667\n\u00a0\n 196.7\n\u200b\nOther income, net\n\u200b\n\u200b\n (16,083)\n\u200b\n\u200b\n (8,134)\n\u200b\n\u200b\n 7,949\n\u00a0\n 97.7\n\u200b\nIncome before provision for income taxes and noncontrolling interests in income of subsidiaries\n\u200b\n\u200b\n 56,676\n\u200b\n\u200b\n 52,140\n\u200b\n\u200b\n 4,536\n\u00a0\n 8.7\n\u200b\nProvision for income taxes\n\u200b\n\u200b\n 16,721\n\u200b\n\u200b\n 13,034\n\u200b\n\u200b\n 3,687\n\u00a0\n 28.3\n\u200b\nNet income \n\u200b\n\u200b\n 39,955\n\u200b\n\u200b\n 39,106\n\u200b\n\u200b\n 849\n\u00a0\n 2.2\n\u200b\nNet income attributable to noncontrolling interests\n\u200b\n\u200b\n 2,626\n\u200b\n\u200b\n 2,315\n\u200b\n\u200b\n 311\n\u00a0\n 13.4\n\u200b\nNet income attributable to common stockholders\n\u00a0\n$\n 37,329\n\u00a0\n$\n 36,791\n\u00a0\n$\n 538\n\u00a0\n 1.5\n%\n\u200b\n\u200b\n40\n\n\nTable of Contents\nNet revenue\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u200b\nIncrease/(Decrease)\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n(As Restated)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 484,604\n\u00a0\n$\n 440,285\n\u00a0\n$\n 44,319\n\u00a0\n 10.1\n%\n\u200b\nDuring the\u00a0year ended December\u00a031, 2022, we recognized approximately $484.6 million in net revenue compared to approximately $440.3 million during the\u00a0year ended December\u00a031, 2021. These amounts are net of agency and outside sales representative commissions. The increase in net revenue was due primarily to increased political advertising revenue, continued mitigation of the economic impacts of the COVID-19 pandemic which began in March 2020, and to increased demand for minority focused media. Net revenues from our radio broadcasting segment increased 11.7% from the same period in 2021. Based on reports prepared by the independent accounting firm Miller, Kaplan, Arase\u00a0& Co., LLP (\u201cMiller Kaplan\u201d), the radio markets we operate in (excluding Richmond and Raleigh, both of which do not participate in Miller Kaplan) increased 6.7% in total revenues for the\u00a0year ended December\u00a031, 2022, consisting of an increase of 3.8% in local revenues, an increase of 4.6% in national revenues, and an increase of 17.2% in digital revenues. With the exception of our Richmond and Washington DC markets, we experienced net revenue improvements in all of our radio markets, primarily due to higher advertising sales. Same station net revenue for our radio broadcasting segment, excluding political advertising, increased 2.5% compared to the same period in 2021. Net revenue for our Reach Media segment decreased 7.1% for the\u00a0year ended December\u00a031, 2022, compared to the same period in 2021, due primarily to our cruise that sailed during the fourth quarter of 2021 which did not occur in 2022. We recognized approximately $209.9 million from our cable television segment for the\u00a0year ended December\u00a031, 2022, compared to approximately $197.0 million of revenue for the same period in 2021, with the increase due primarily to increased advertising sales. Net revenue from our digital segment increased approximately $18.6 million for the\u00a0year ended December\u00a031, 2022, compared to the same period in 2021 due primarily to stronger direct revenues.\nOperating expenses\nProgramming and technical, excluding stock-based compensation\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u200b\nIncrease/(Decrease)\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n$\n 122,629\n\u00a0\n$\n 119,072\n\u00a0\n$\n 3,557\n\u00a0\n 3.0\n%\n\u200b\nProgramming and technical expenses include expenses associated with on-air talent and the management and maintenance of the systems, tower facilities, and studios used in the creation, distribution and broadcast of programming content on our radio stations. Programming and technical expenses for the radio segment also include expenses associated with our programming research activities and music royalties. For our digital segment, programming and technical expenses include software product design, post-application software development and maintenance, database and server support costs, the help desk function, data center expenses connected with ISP hosting services and other internet content delivery expenses. For our cable television segment, programming and technical expenses include expenses associated with technical, programming, production, and content management. The increase in programming and technical expenses for the\u00a0year ended December\u00a031, 2022, compared to the same period in 2021 is primarily due to higher expenses in our radio broadcasting, Reach Media and digital segments, which was partially offset by a decrease in expenses at our cable television segment. Our radio broadcasting segment experienced an increase of approximately $2.5 million for the\u00a0year ended December\u00a031, 2022, compared to the same period in 2021 due primarily to higher compensation costs, contract labor, research and software license fees. Our Reach Media segment experienced an increase of $787,000 for the\u00a0year ended December\u00a031, 2022, compared to the same period in 2021 due primarily to higher contract labor costs. Our digital segment experienced an increase of approximately $3.3 million for the\u00a0year ended December\u00a031, 2022, compared to the same period in 2021 due primarily to higher compensation expenses, consulting, content expenses and video production costs. Our cable television segment experienced a decrease of approximately $2.9 million for the\u00a0year ended December\u00a031, 2022, compared to the same period in 2021 due primarily to lower content amortization expense. \n41\n\n\nTable of Contents\nSelling, general and administrative, excluding stock-based compensation\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nIncrease/(Decrease)\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n(As Restated)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 159,991\n\u200b\n$\n 141,979\n\u200b\n$\n 18,012\n\u00a0\n 12.7\n%\n\u200b\nSelling, general and administrative expenses include expenses associated with our sales departments, offices and facilities and personnel (outside of our corporate headquarters), marketing and promotional expenses, special events and sponsorships and back office expenses. Expenses to secure ratings data for our radio stations and visitors\u2019 data for our websites are also included in selling, general and administrative expenses. In addition, selling, general and administrative expenses for the radio broadcasting segment and digital segment include expenses related to the advertising traffic (scheduling and insertion) functions. Selling, general and administrative expenses also include membership traffic acquisition costs for our online business. The increase in expense for the\u00a0year ended December\u00a031, 2022, compared to the same period in 2021, is primarily due to higher compensation costs, higher employee commissions and national representative fees due to improved revenue and higher promotional expenses and travel and entertainment spending. Our radio broadcasting segment experienced an increase of approximately $8.1 million for the\u00a0year ended December\u00a031, 2022, compared to the same period in 2021 primarily due to higher compensation costs, research and promotional accounts. Our cable television segment experienced an increase of approximately $5.4 million for the\u00a0year ended December\u00a031, 2022, compared to the same period in 2021 primarily due to higher promotional and advertising expenses, compensation costs and research expenses. Our digital segment experienced an increase of approximately $10.7 million for the\u00a0year ended December\u00a031, 2022 compared to the same period in 2021, primarily due to higher compensation costs, higher traffic acquisition costs and web services fees. Finally, our Reach Media segment experienced a decrease of approximately $6.0 million for the\u00a0year ended December\u00a031, 2022, compared to the same period in 2021, primarily due to our cruise that sailed during the fourth quarter of 2021 which did not occur in 2022.\nCorporate selling, general and administrative, excluding stock-based compensation\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nIncrease/(Decrease)\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n$\n 49,985\n\u200b\n$\n 50,837\n\u200b\n$\n (852)\n\u00a0\n (1.7)\n%\n\u200b\nCorporate expenses consist of expenses associated with our corporate headquarters and facilities, including personnel as well as other corporate overhead functions. There was a decrease in professional fees in 2022 related to corporate development activities in connection with potential gaming and other business development activities, which was partially offset by an increase in compensation costs, software license fees, contract labor, recruiting, and travel and entertainment expenses as employee travel returns to pre-pandemic levels.\nStock-based compensation\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nIncrease/(Decrease)\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n$\n 6,595\n\u200b\n$\n 565\n\u200b\n$\n 6,030\n\u00a0\n 1,067.3\n%\n\u200b\nThe increase in stock-based compensation for the\u00a0year ended December\u00a031, 2022, compared to the same period in 2021, was primarily due to the timing of grants and vesting of stock awards for executive officers and other management personnel.\nDepreciation and amortization\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\nIncrease/(Decrease)\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n$\n 10,034\n\u00a0\n$\n 9,289\n\u00a0\n$\n 745\n\u00a0\n 8.0\n%\n\u200b\n42\n\n\nTable of Contents\nDepreciation and amortization expense increased slightly to approximately $10.0 million for the\u00a0year ended December\u00a031, 2022, compared to approximately $9.3 million for the\u00a0year ended December\u00a031, 2021, due to increased depreciation of capital expenditures.\nImpairment of long-lived assets\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u200b\nIncrease/(Decrease)\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n(As Restated)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 40,683\n\u00a0\n$\n 2,104\n\u00a0\n$\n 38,579\n\u00a0\n 1,833.6\n%\n\u200b\nThroughout 2022, there was continued slowing in certain general economic conditions and a rising interest rate environment, which we deemed to be an impairment indicator that warranted interim impairment testing of certain markets\u2019 radio broadcasting licenses. \nThe impairment of long-lived assets for the \nyear ended December\u00a031, 2022\n, was related to a non-cash impairment charge of approximately \n$33.5 million associated with certain of our radio market broadcasting licenses, and approximately $7.2 million related to our Atlanta and Philadelphia market goodwill balances.\n\u200b\nInterest expense\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u200b\nIncrease/(Decrease)\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n$\n 61,751\n\u00a0\n$\n 65,702\n\u00a0\n$\n (3,951)\n\u00a0\n (6.0)\n%\n\u200b\nInterest expense decreased to approximately $61.8 million for the year ended December\u00a031, 2022 compared to approximately $65.7 million for the year ended December\u00a031, 2021, due to lower overall debt balances outstanding and lower average interest rates on the Company\u2019s debt. On January 25, 2021, the Company closed on a new financing in the form of the 2028 Notes. The proceeds from the 2028 Notes were used to repay in full each of: (i)\u00a0the 2017 Credit Facility; (ii)\u00a0the 2018 Credit Facility; (iii)\u00a0the MGM National Harbor Loan; (iv)\u00a0the remaining amounts of our 7.375% Notes; and (v)\u00a0our 8.75% Notes that were issued in the November\u00a02020 Exchange Offer. We entered into a PPP loan arrangement in 2021, and during the year ended December\u00a031, 2022, the PPP loan and related accrued interest was forgiven and recorded as other income in the amount of $7.6 million. During the year ended December\u00a031, 2022, the Company repurchased approximately $75.0 million of its 2028 Notes at an average price of approximately 89.5% of par. This reduction in the outstanding debt balances led to a reduction in interest expense.\n(Gain) loss on retirement of debt\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u200b\nIncrease/(Decrease)\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n$\n (6,718)\n\u00a0\n$\n 6,949\n\u00a0\n$\n 13,667\n\u00a0\n 196.7\n%\n\u200b\nAs discussed above, the Company repurchased approximately $75.0 million of its 2028 Notes at an average price of approximately 89.5% of par, resulting in a net gain on retirement of debt of approximately $6.7 million for the year ended December\u00a031, 2022. Upon settlement of the 2028 Notes Offering, the 2017 Credit Facility, the 2018 Credit Facility and the MGM National Harbor Loan were terminated and the indentures governing the 7.375% Notes and the 8.75% Notes were satisfied and discharged. There was a net loss on retirement of debt of approximately $6.9 million for the year ended December\u00a031, 2021 associated with the settlement of the 2028 Notes. \nOther income, net\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nIncrease/(Decrease)\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n$\n (16,083)\n\u200b\n$\n (8,134)\n\u200b\n$\n 7,949\n\u00a0\n 97.7\n%\n\u200b\nOther income, net, was approximately $16.1 million and $8.1 million for the\u00a0years ended December\u00a031, 2022 and 2021, respectively. We recognized other income in the amount of approximately $8.8 million and $7.7 million, for \n43\n\n\nTable of Contents\nthe\u00a0years ended December\u00a031, 2022 and 2021, respectively, related to our MGM investment. In addition, and as noted above, during the year ended December\u00a031, 2022, the PPP loan and related accrued interest was forgiven and recorded as other income in the amount of $7.6 million. \u00a0\nProvision for income taxes\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u200b\nIncrease/(Decrease)\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n(As Restated)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 16,721\n\u00a0\n$\n 13,034\n\u00a0\n$\n 3,687\n\u00a0\n 28.3\n%\n\u200b\nDuring the\u00a0year ended December\u00a031, 2022, the provision for income taxes was approximately $16.7 million compared to approximately $13.0 million for the\u00a0year ended December\u00a031, 2021. The increase in the provision for income taxes was primarily due to higher taxable income and an increase to the Company\u2019s effective tax rate during the period. The effective tax rates were 29.5% and 25.0% for the\u00a0years ended December\u00a031, 2022 and 2021, respectively. The 2022 and 2021 annual effective tax rates primarily reflect taxes at statutory tax rates, and the impact of permanent tax adjustments, including non-taxable PPP Loan income forgiveness for the year ended December 31, 2022.\nNoncontrolling interests in income of subsidiaries\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December\u00a031,\u00a0\n\u200b\nIncrease/(Decrease)\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n$\n 2,626\n\u00a0\n$\n 2,315\n\u00a0\n$\n 311\n\u00a0\n 13.4\n%\n\u200b\nThe increase in noncontrolling interests in income of subsidiaries was primarily due to higher net income recognized by Reach Media for the\u00a0year ended December\u00a031, 2022, versus the same period in 2021.\nNon-GAAP Financial Measures\n\u200b\nThe presentation of\u00a0non-GAAP\u00a0financial measures is not intended to be considered in isolation from, as a substitute for, or superior to the financial information prepared and presented in accordance with GAAP. We use\u00a0non-GAAP\u00a0financial measures including broadcast and digital operating income and Adjusted EBITDA as additional means to evaluate\u00a0our business and operating results through period-to-period\u00a0comparisons. Reconciliations of our\u00a0non-GAAP financial measures to the most directly comparable GAAP financial measures are included below for review. Reliance should not be placed on any single financial measure to evaluate our business.\n\u200b\nMeasurement of Performance\nWe monitor and evaluate the growth and operational performance of our business using net income and the following key metrics:\n(a)\nNet revenue\n:\u00a0\u00a0The performance of an individual radio station or group of radio stations in a particular market is customarily measured by its ability to generate net revenue. Net revenue consists of gross revenue, net of local and national agency and outside sales representative commissions consistent with industry practice. Net revenue is recognized in the period in which advertisements are broadcast. Net revenue also includes advertising aired in exchange for goods and services, which is recorded at fair value, revenue from sponsored events, and other revenue. Net revenue is recognized for our online business as impressions are delivered. Net revenue is recognized for our cable television business as advertisements are run, and during the term of the affiliation agreements at levels appropriate for the most recent subscriber counts reported by the affiliate, net of launch support.\n(b)\nBroadcast and digital operating income\n:\u00a0\u00a0The radio broadcasting industry commonly refers to \u201cstation operating income\u201d which consists of net income (loss) before depreciation and amortization, income taxes, interest expense, interest income, noncontrolling interests in income of subsidiaries, other (income) expense, corporate selling, general and \n44\n\n\nTable of Contents\nadministrative expenses, stock-based compensation, impairment of long-lived assets and (gain) loss on retirement of debt. However, given the diverse nature of our business, station operating income is not truly reflective of our multi-media operation and, therefore, we use the term \u201cbroadcast and digital operating income.\u201d Broadcast and digital operating income is not a measure of financial performance under accounting principles generally accepted in the United States of America (\u201cGAAP\u201d). Nevertheless, broadcast and digital operating income is a significant measure used by our management to evaluate the operating performance of our core operating segments. Broadcast and digital operating income provides helpful information about our results of operations, apart from expenses associated with our fixed and long-lived intangible assets, income taxes, investments, impairment charges, debt financings and retirements, corporate overhead and stock-based compensation. Our measure of broadcast and digital operating income is similar to industry use of station operating income; however, it reflects our more diverse business and therefore is not completely analogous to \u201cstation operating income\u201d or other similarly titled measures as used by other companies. Broadcast and digital operating income does not represent operating income or loss, or cash flow from operating activities, as those terms are defined under GAAP, and should not be considered as an alternative to those measurements as an indicator of our performance.\nBroadcast and digital operating income increased to approximately $202.0 million for the\u00a0year ended December\u00a031, 2022, compared to approximately $179.2 million for the\u00a0year ended December\u00a031, 2021, an increase of approximately $22.8 million or 12.7%. This increase was due to higher broadcast and digital operating income at each of our segments. Our radio broadcasting segment generated approximately $47.9 million of broadcast and digital operating income during the\u00a0year ended December\u00a031, 2022, compared to approximately $42.0 million during the\u00a0year ended December\u00a031, 2021, an increase of approximately $5.9 million, primarily due to higher net revenues, partially offset by higher expenses. Reach Media generated approximately $18.9 million of broadcast and digital operating income during the\u00a0year ended December\u00a031, 2022, compared to approximately $17.0 million during the\u00a0year ended December\u00a031, 2021, primarily due to lower expenses. Our digital segment generated approximately $21.8 million of broadcast and digital operating income during the\u00a0year ended December\u00a031, 2022, compared to approximately $17.2 million during the\u00a0year ended December\u00a031, 2021, primarily due to an increase in net revenues, partially offset by increased expenses. Finally, our cable television segment generated approximately $113.4 million of broadcast and digital operating income during the\u00a0year ended December\u00a031, 2022, compared to approximately $103.0 million during the\u00a0year ended December\u00a031, 2021, with the increase primarily due to higher net revenues, partially offset by higher expenses.\n(c)\nAdjusted EBITDA\n: Adjusted EBITDA consists of net income (loss) plus (1)\u00a0depreciation and amortization, income taxes, interest expense, noncontrolling interests in income of subsidiaries, impairment of long-lived assets, stock-based compensation, (gain) loss on retirement of debt, employment agreement and other compensation, contingent consideration from acquisition, corporate development costs, severance-related costs, investment income, less (2)\u00a0other income and interest income. Net income before interest income, interest expense, income taxes, depreciation and amortization is commonly referred to in our business as \u201cEBITDA.\u201d Adjusted EBITDA and EBITDA are not measures of financial performance under GAAP. We believe Adjusted EBITDA is often a useful measure of a company\u2019s operating performance and is a significant measure used by our management to evaluate the operating performance of our business. Accordingly, based on the previous description of Adjusted EBITDA, we believe that it provides useful information about the operating performance of our business, apart from the expenses associated with our fixed assets and long-lived intangible assets or capital structure. Adjusted EBITDA is frequently used as one of the measures for comparing businesses in the broadcasting industry, although our measure of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including, but not limited to the fact that our definition includes the results of all four of our operating segments (radio broadcasting, Reach Media, digital and cable television). Business activities unrelated to these four segments are included in an \u201call other\u201d category which the Company refers to as \u201cAll other - corporate/eliminations.\u201d Adjusted EBITDA and EBITDA do not purport to represent operating income or cash flow from operating activities, as those terms are defined under GAAP, and should not be considered as alternatives to those measurements as an indicator of our performance.\n45\n\n\nTable of Contents\nSummary of Performance\nThe table below provides a summary of our performance based on the metrics described above:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYears Ended December 31,\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(As Restated)\n\u200b\n\u200b\n\u200b\n(In thousands)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNet revenue\n\u200b\n$\n 484,604\n\u200b\n$\n 440,285\n\u200b\nNet income attributable to common stockholders\n\u200b\n\u200b\n 37,329\n\u200b\n\u200b\n 36,791\n\u200b\nBroadcast and digital operating income\n\u200b\n\u00a0\n 201,984\n\u200b\n\u00a0\n 179,234\n\u200b\nAdjusted EBITDA\n\u200b\n\u200b\n 165,592\n\u200b\n\u200b\n 150,222\n\u200b\n\u200b\nThe reconciliation of net income to broadcast and digital operating income is as follows:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\nYears Ended December 31,\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(As Restated)\n\u200b\n\u200b\n(In thousands)\nNet income attributable to common stockholders\n\u200b\n$\n 37,329\n\u200b\n$\n 36,791\nAdd back non-broadcast and digital operating income items included in net income:\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\nInterest income\n\u200b\n\u00a0\n (939)\n\u200b\n\u00a0\n (218)\nInterest expense\n\u200b\n\u00a0\n 61,751\n\u200b\n\u00a0\n 65,702\nProvision for income taxes\n\u200b\n\u00a0\n 16,721\n\u200b\n\u00a0\n 13,034\nCorporate selling, general and administrative, excluding stock-based compensation\n\u200b\n\u00a0\n 49,985\n\u200b\n\u00a0\n 50,837\nStock-based compensation\n\u200b\n\u00a0\n 6,595\n\u200b\n\u00a0\n 565\n(Gain) loss on retirement of debt\n\u200b\n\u00a0\n (6,718)\n\u200b\n\u00a0\n 6,949\nOther income, net\n\u200b\n\u00a0\n (16,083)\n\u200b\n\u00a0\n (8,134)\nDepreciation and amortization\n\u200b\n\u00a0\n 10,034\n\u200b\n\u00a0\n 9,289\nNoncontrolling interests in income of subsidiaries\n\u200b\n\u00a0\n 2,626\n\u200b\n\u00a0\n 2,315\nImpairment of long-lived assets\n\u200b\n\u200b\n 40,683\n\u200b\n\u200b\n 2,104\nBroadcast and digital operating income\n\u200b\n$\n 201,984\n\u200b\n$\n 179,234\n\u200b\n46\n\n\nTable of Contents\nThe reconciliation of net income to adjusted EBITDA is as follows:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\nYears Ended December 31,\n\u200b\n\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(As Restated)\n\u200b\n\u200b\n(In thousands)\nNet income attributable to common stockholders\n\u200b\n$\n 37,329\n\u200b\n$\n 36,791\nAdd back non-broadcast and digital operating income items included in net income:\n\u200b\n\u200b\n \n\u200b\n\u200b\n\u200b\n \n\u200b\nInterest income\n\u200b\n\u200b\n (939)\n\u200b\n\u200b\n (218)\nInterest expense\n\u200b\n\u200b\n 61,751\n\u200b\n\u200b\n 65,702\nProvision for income taxes\n\u200b\n\u200b\n 16,721\n\u200b\n\u200b\n 13,034\nDepreciation and amortization\n\u200b\n\u200b\n 10,034\n\u200b\n\u200b\n 9,289\nEBITDA\n\u200b\n$\n 124,896\n\u200b\n$\n 124,598\nStock-based compensation\n\u200b\n\u200b\n 6,595\n\u200b\n\u200b\n 565\n(Gain) loss on retirement of debt\n\u200b\n\u200b\n (6,718)\n\u200b\n\u200b\n 6,949\nOther income, net\n\u200b\n\u200b\n (16,083)\n\u200b\n\u200b\n (8,134)\nNoncontrolling interests in income of subsidiaries\n\u200b\n\u200b\n 2,626\n\u200b\n\u200b\n 2,315\nCorporate development costs\n\u200b\n\u200b\n 1,810\n\u200b\n\u200b\n 6,727\nEmployment Agreement Award and other compensation\n\u200b\n\u200b\n 2,129\n\u200b\n\u200b\n 6,163\nContingent consideration from acquisition\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 280\nSeverance-related costs\n\u200b\n\u200b\n 850\n\u200b\n\u200b\n 965\nImpairment of long-lived assets\n\u200b\n\u200b\n 40,683\n\u200b\n\u200b\n 2,104\nInvestment income from MGM National Harbor\n\u200b\n\u200b\n 8,804\n\u200b\n\u200b\n 7,690\nAdjusted EBITDA\n\u200b\n$\n 165,592\n\u200b\n$\n 150,222\n\u200b\n\u200b\n\u200b\n\u200b\n47\n\n\nTable of Contents\nLiquidity and Capital Resources\nOur primary source of liquidity is cash provided by operations and, to the extent necessary, borrowings available under our asset-backed credit facility. Our cash, cash equivalents and restricted cash balance is approximately $95.4 million as of December 31, 2022. As of December 31, 2022, there were no borrowings outstanding on the Current ABL Facility (as defined below).\nSince early 2020, the COVID-19 pandemic had a negative impact on certain of our revenue and alternative revenue sources. Most notably, the impacts included a reduction in revenue due to advertisers changing their advertising spend, a change in how people work and commute which affected our overall audience size for broadcast radio, and the postponement of or cancellation of our tent pole special events including impaired or limited ticket sales for such events. In 2022, we have seen revenues begin to recover, particularly in our radio broadcasting segment, aided by the continued economic recovery from the COVID-19 pandemic. However, due to the evolving and uncertain nature of the COVID-19 pandemic and the risk of new variants, we are not able to estimate the full extent of the impact that COVID-19 will have on our business in the near to medium term.\nAs of December\u00a031, 2022, no amounts were outstanding on our Current ABL Facility (as further defined below). Further, after we refinanced our debt structure in January 2021, we anticipate meeting our debt service requirements and obligations for the foreseeable future, including through one year from the date of issuance of our most recent consolidated financial statements. Our estimates however, remain subject to substantial uncertainty, in particular due to the unpredictable extent and duration of the impact of the COVID-19 pandemic on our business and the economy generally, the possibility of new variants of the coronavirus and the concentration of certain of our revenues in areas that could be deemed \u201chotspots\u201d for the pandemic.\nIn August 2020, the Company entered into an arrangement (the \u201c2020 Open Market Sales Agreement\u201d) to sell shares, from time to time, of its Class A common stock, par value $0.001 per share (the \u201cClass A Shares\u201d). During the year ended December 31, 2020, the Company issued 2,859,276 shares of its Class A Shares at a weighted average price of $5.39 for approximately $14.7 million of net proceeds after associated fees and expenses. In January 2021, the Company issued and sold an additional 1,465,826 shares for approximately $9.3 million of net proceeds after associated fees and expenses, which completed the 2020 Open Market Sales Agreement. Subsequently, in January 2021, the Company entered into an arrangement (the \u201c2021 Open Market Sale Agreement\u201d) to sell additional Class A Shares from time to time. During the three months ended March 31, 2021, the Company issued and sold 420,439 Class A Shares for approximately $2.8 million of net proceeds after associated fees and expenses. During the three months ended June\u00a030, 2021, the Company issued and sold an additional 1,893,126 Class\u00a0A Shares for approximately $21.2 million of net proceeds after associated fees and expenses, which completed its 2021 Open Market Sales Agreement. \nOn May 17, 2021, the Company entered into an Open Market Sale Agreement\u00a0(the \u201cClass D Sale Agreement\u201d) under which the Company may offer and sell, from time to time at its sole discretion, shares of its Class D common stock, par value $0.001 per share (the \u201cClass D Shares\u201d). On May 17, 2021, the Company filed a prospectus supplement pursuant to the Class D Sale Agreement for the offer and sale of its Class D Shares having an aggregate offering price of up to \n$25.0 million\n. As of December 31, 2022, the Company has not sold any Class D Shares under the Class D Sale Agreement. \nThe Company may from time to time also enter into new additional ATM programs and issue additional common stock from time to time under those programs.\nDuring the year ended December 31, 2022, the Company repurchased 4,779,969 shares of Class D common stock in the amount of approximately $25.0 million at an average price of $5.24 per share. During the\u00a0year ended December 31, 2022, the Company executed Stock Vest Tax Repurchases of 344,702 shares of Class D Common Stock in the amount of approximately $1.5 million at an average price of $4.29 per share. See Note 13 \u2014 \nStockholders\u2019 Equity\n of our consolidated financial statements for further information on our common stock.\nOn January\u00a025, 2021, the Company closed on an offering (the \u201c2028 Notes Offering\u201d) of $825 million in aggregate principal amount of senior secured notes due 2028 (the \u201c2028 Notes\u201d) in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the \u201cSecurities Act\u201d).\u00a0 The 2028 Notes are general senior secured obligations of the Company and are guaranteed on a senior secured basis by certain of the Company\u2019s direct and indirect \n48\n\n\nTable of Contents\nrestricted subsidiaries.\u00a0 The 2028 Notes mature on February\u00a01, 2028 and interest on the Notes accrues and is payable semi-annually in arrears on February\u00a01 and August\u00a01 of each year, commencing on August\u00a01, 2021 at the rate of 7.375% per annum.\nThe Company used the net proceeds from the 2028 Notes Offering, together with cash on hand, to repay or redeem: (i)\u00a0the 2017 Credit Facility; (ii)\u00a0the 2018 Credit Facility; (iii)\u00a0the MGM National Harbor Loan; (iv)\u00a0the remaining amounts of our 7.375% Notes; and (v)\u00a0our 8.75% Notes that were issued in the November\u00a02020 Exchange Offer.\u00a0 Upon settlement of the 2028 Notes Offering, the 2017 Credit Facility, the 2018 Credit Facility and the MGM National Harbor Loan were terminated and the indentures governing the 7.375% Notes and the 8.75% Notes were satisfied and discharged.\nThe 2028 Notes Offering and the guarantees are secured, subject to permitted liens and except for certain excluded assets (i)\u00a0on a first priority basis by substantially all of the Company\u2019s and the Guarantors\u2019 current and future property and assets (other than accounts receivable, cash, deposit accounts, other bank accounts, securities accounts, inventory and related assets that secure our asset-backed revolving credit facility on a first priority basis (the \u201cABL Priority Collateral\u201d)), including the capital stock of each guarantor (collectively, the \u201cNotes Priority Collateral\u201d) and (ii)\u00a0on a second priority basis by the ABL Priority Collateral.\nOn February 19, 2021, the Company closed on an asset backed credit facility (the \u201cCurrent ABL Facility\u201d). The Current ABL Facility is governed by a credit agreement by and among the Company, the other borrowers party thereto, the lenders party thereto from time to time and Bank of America, N.A., as administrative agent. The Current ABL Facility provides for up to $50 million revolving loan borrowings in order to provide for the working capital needs and general corporate requirements of the Company. The Current ABL Facility also provides for a letter of credit facility up to $5 million as a part of the overall $50 million in capacity. The Asset Backed Senior Credit Facility entered into on April 21, 2016 among the Company, the lenders party thereto from time to time and Wells Fargo Bank National Association, as administrative agent (the \u201c2016 ABL Facility\u201d), was terminated on February 19, 2021. As of December 31, 2022, there were no borrowings outstanding on the Current ABL Facility.\n\u200b\nAt the Company\u2019s election, the interest rate on borrowings under the\u00a0Current ABL Facility are based on either (i) the then applicable margin relative to Base Rate Loans (as defined in the\u00a0Current ABL Facility) or (ii) the then applicable margin relative to LIBOR Loans (as defined in the\u00a0Current ABL Facility) corresponding to the average availability of the Company for the most recently completed fiscal quarter.\nAdvances under the\u00a0Current ABL Facility are limited to (a) eighty-five percent (85%) of the amount of Eligible Accounts (as defined in the\u00a0Current ABL Facility), less the amount, if any, of the Dilution Reserve (as defined in the\u00a0Current ABL Facility), minus (b) the sum of (i) the Bank Product Reserve (as defined in the\u00a0Current ABL Facility), plus (ii) the AP and Deferred Revenue Reserve (as defined in the Current ABL Facility), plus (iii) without duplication, the aggregate amount of all other reserves, if any, established by Administrative Agent.\nAll obligations under the\u00a0Current ABL Facility are secured by a first priority lien on all (i) deposit accounts (related to accounts receivable), (ii) accounts receivable, and (iii) all other property which constitutes\u00a0ABL\u00a0Priority Collateral (as defined in the\u00a0Current ABL Facility). The obligations are also guaranteed by all material restricted subsidiaries of the Company.\nThe\u00a0Current ABL Facility matures on the earlier to occur of (a) the date that is five (5) years from the effective date of the\u00a0Current ABL Facility, and (b) 91 days prior to the maturity of the Company\u2019s 2028 Notes.\nThe\u00a0Current ABL Facility is subject to the terms of the Revolver Intercreditor Agreement (as defined in the\u00a0Current ABL Facility) by and among the Administrative Agent and Wilmington Trust, National Association.\nOn January 29, 2021, the Company submitted an application for participation in the second round of the Paycheck Protection Program loan program (\u201cPPP\u201d) and on June 1, 2021, the Company received proceeds of approximately $7.5 million. \u00a0During the quarter ended June 30, 2022, the PPP loan and related accrued interest was forgiven and recorded as other income in the amount of approximately $7.6 million. Prior to being forgiven, the loan bore interest at a fixed rate of 1% per year and was scheduled to mature June 1, 2026. \u00a0\n49\n\n\nTable of Contents\nDuring the year ended December 31, 2022, the Company repurchased approximately $75.0 million of its 2028 Notes at an average price of approximately 89.5% of par. The Company recorded a net gain on retirement of debt of approximately $6.7 million for the year ended December 31, 2022.\nSee Note\u00a011 \u2014 \nLong-Term Debt\n of our consolidated financial statements for further information on liquidity and capital resources in the footnotes to the consolidated financial statements.\nThe following table summarizes the interest rates in effect with respect to our debt as of December\u00a031, 2022:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nApplicable\n\u00a0\n\u200b\n\u200b\nAmount\n\u200b\nInterest\n\u00a0\nType of Debt\n\u00a0\u00a0\u00a0\u00a0\nOutstanding \n\u00a0\u00a0\u00a0\u00a0\nRate\n\u00a0\n\u200b\n\u200b\n(In millions)\n\u200b\n\u200b\n\u00a0\n7.375% Senior Secured Notes, net of issuance costs (fixed rate)\n\u200b\n$\n 739.0\n\u00a0\n 7.375\n%\nAsset-backed credit facility (variable rate) (1)\n\u200b\n\u200b\n\u2014\n\u00a0\n\u2014\n\u200b\n\u200b\n(1)\nSubject to variable LIBOR or Prime plus a spread that is incorporated into the applicable interest rate.\nThe following table provides a summary of our statements of cash flows for the\u00a0years ended December\u00a031, 2022 and 2021:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nYears Ended December\u00a031,\u00a0\n\u200b\n\u200b\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n(In\u00a0thousands)\nNet cash flows provided by operating activities\n\u200b\n$\n 67,060\n\u200b\n$\n 80,150\nNet cash flows (used in) provided by investing activities\n\u200b\n\u200b\n (28,683)\n\u200b\n\u200b\n 1,714\nNet cash flows used in financing activities\n\u200b\n\u200b\n (95,216)\n\u200b\n\u200b\n (3,504)\n\u200b\nNet cash flows provided by operating activities were approximately $67.1 million and $80.2 million for the\u00a0years ended December\u00a031, 2022 and 2021, respectively. Cash flow from operating activities for the\u00a0year ended December\u00a031, 2022, decreased from the prior\u00a0year primarily due to timing of payments. Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet foreseeable cash requirements.\nNet cash flows used in investing activities were approximately $28.7 million for the\u00a0year ended December\u00a031, 2022 and net cash flows provided by investing activities were approximately $1.7 million for the\u00a0year ended December\u00a031, 2021. Capital expenditures, including digital tower and transmitter upgrades, and deposits for station equipment and purchases were approximately $6.8\u00a0million and $6.3\u00a0million for the\u00a0years ended December\u00a031, 2022 and 2021, respectively. The Company received approximately $3.1 million and $8.0 million during the years ended December\u00a031, 2022 and 2021, respectively from sales of its broadcasting assets. Finally, the Company paid approximately $25.0 million to complete the acquisition of broadcasting assets from Emmis Communications as described in Note 4 \u2013 \nAcquisitions and Dispositions\n.\n\u200b\nNet cash flows used in financing activities were approximately $95.2 million and $3.5 million for the\u00a0years ended December\u00a031, 2022 and 2021, respectively. During the\u00a0year ended December\u00a031, 2021, we repaid approximately $855.2 million in outstanding debt and we borrowed approximately $825.0 million on our 2028 Notes. During the\u00a0years ended December\u00a031, 2022 and 2021, we repurchased approximately $26.5 million and $970,000 of our Class\u00a0A and Class\u00a0D Common Stock, respectively. Reach Media paid approximately $1.6 million and $2.4 million, respectively in dividends to noncontrolling interest shareholders for the\u00a0years ended December\u00a031, 2022 and 2021. The Company also received proceeds of approximately $7.5 million on its PPP Loan during the year ended December\u00a031, 2021. During the\u00a0year ended December\u00a031, 2021, we paid approximately $11.2 million in debt refinancing costs. During the\u00a0years ended December\u00a031, 2022 and 2021, we received proceeds of $50,000 and $397,000, respectively, from the exercise of stock options. The Company received proceeds of approximately $33.3 million from the issuance of Class\u00a0A Common Stock, net of fees paid during the\u00a0years ended December\u00a031, 2021. During the year ended December\u00a031, 2022, the Company repurchased approximately $67.1 million of our 2028 Notes.\n50\n\n\nTable of Contents\nCredit Rating Agencies\nOn a continuing basis, Standard and Poor\u2019s, Moody\u2019s Investor Services and other rating agencies may evaluate our indebtedness in order to assign a credit rating. Our corporate credit ratings by Standard & Poor\u2019s Rating Services and Moody\u2019s Investors Service are speculative-grade and have been downgraded and upgraded at various times during the last several years. Any reductions in our credit ratings could increase our borrowing costs, reduce the availability of financing to us or increase our cost of doing business or otherwise negatively impact our business operations.\n\u200b\nRecent Accounting Pronouncements\nSee Note 3 \u2014 \nSummary of Significant Accounting Policies\n of our consolidated financial statements\u00a0for a summary of recent accounting pronouncements.\nCRITICAL ACCOUNTING ESTIMATES\nOur accounting policies are described in Note 3 \u2013 \nSummary of Significant Accounting Policies\n of our consolidated financial statements. We prepare our consolidated financial statements in conformity with GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the\u00a0year. Actual results could differ from those estimates. We consider the following policies and estimates to be most critical in understanding the judgments involved in preparing our financial statements and the uncertainties that could affect our results of operations, financial condition and cash flows.\nGoodwill and Radio Broadcasting Licenses\nGoodwill exists whenever the purchase price exceeds the fair value of tangible and identifiable intangible net assets acquired in business combinations. As of December\u00a031, 2022, we had approximately $488.4 million in broadcast licenses and $216.6 million in goodwill, which totaled $705.0 million, and represented approximately 52.7% of our total assets. \nThe Company accounts for goodwill and broadcasting licenses under ASC Topic 350, \nIntangibles \u2013 Goodwill and Other\n, which requires the Company to test goodwill at the reporting unit level and other indefinite-lived assets for impairment annually or whenever events or circumstances indicate that impairment may exist. \nOur annual impairment testing is performed as of October\u00a01 of each\u00a0year using an income approach. We test the reasonableness of the inputs and outcomes of our discounted cash flow models against available market data by comparing our overall average implied multiple based on our cash flow projections and fair values to recently completed sales transactions for goodwill, and by comparing our estimated fair values to the market capitalization of the Company for both goodwill and broadcasting licenses. The results of these comparisons confirmed that the fair value estimates resulting from our annual assessments in 2022 were reasonable. Impairment exists when the carrying value of these assets exceeds its respective fair value. When the carrying value exceeds fair value, an impairment amount is charged to operations for the excess.\nWe have 16 reporting units as of our October\u00a02022 annual impairment assessment, consisting of each of the 13 radio markets within the radio segment and each of the other three business segments. Significant impairment charges have been an ongoing trend experienced by media companies in general, and are not unique to us.\nWe believe our estimate of the value of our radio broadcasting licenses and goodwill is a critical accounting estimate as the value is significant in relation to our total assets, and our estimate of the value uses assumptions that incorporate variables based on past experiences and judgments about future operating performance. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and estimates and market factors. The key assumptions associated with determining the estimated fair value for radio broadcasting licenses include market revenue and projected revenue growth by market, mature market share, mature operating profit margin, terminal growth rate, and \n51\n\n\nTable of Contents\ndiscount rate. The key assumptions associated with determining the estimated fair value for goodwill include revenue growth rates of each radio market, future operating profit margins, terminal growth rate, and the discount rate. \nWhile we believe we have made reasonable estimates and assumptions to calculate the fair values, changes in any one estimate, assumption or a combination of estimates and assumptions, or changes in certain events or circumstances (including uncontrollable events and circumstances resulting from continued deterioration in the economy or credit markets) could require us to assess recoverability of broadcasting licenses and goodwill at times other than our\n annual\u202fOctober\u202f1 assessments, and could result in changes to our estimated fair values and further write-downs to the carrying values of these assets. Impairment charges are non-cash in nature, and as with current and past impairment charges, any future impairment charges will not impact our cash needs or liquidity or our bank ratio covenant compliance.\n\u00a0\nWe had a total goodwill carrying value of approximately $216.6 million across 10 of our 16 reporting units as of December\u00a031, 2022. The below table indicates the terminal growth rates assumed in our impairment testing and the terminal growth/decline rates that would result in additional goodwill impairment. However, should our estimates and assumptions for assessing the fair values of the remaining reporting units with goodwill worsen to reflect the below or lower terminal growth/decline rates, additional goodwill impairments may be warranted in the future. For three of the reporting units, we used a step zero qualitative analysis and therefore those reporting units are not included in the table below.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTerminal\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nGrowth/(Decline)\u00a0Rate\n\u00a0\n\u200b\n\u200b\nTerminal\n\u200b\nThat\u00a0Would\u00a0Result\u00a0in\n\u00a0\n\u200b\n\u200b\nGrowth\u00a0Rate\n\u200b\nCarrying\u00a0Value\u00a0that\u00a0is\u00a0less\n\u00a0\nReporting Unit\n\u200b\nUsed\n\u200b\nthan\u00a0Fair\u00a0Value\u00a0(a)\n\u00a0\n2\n\u00a0\n 0.5\n%\u00a0\u00a0\n\u200b\nImpairment not likely\n\u200b\n16\n\u00a0\n 0.7\n%\u00a0\u00a0\n\u200b\nImpairment not likely\n\u200b\n1\n\u00a0\n 0.8\n%\u00a0\u00a0\n\u200b\n(0.8)%\n\u200b\n11\n\u00a0\n 0.6\n%\u00a0\u00a0\n\u200b\n(2.4)%\n\u200b\n13\n\u00a0\n 0.5\n%\u00a0\u00a0\n\u200b\n(3.3)%\n\u200b\n10\n\u00a0\n 0.8\n%\u00a0\u00a0\n\u200b\n(6.8)%\n\u200b\n6\n\u00a0\n 0.6\n%\u00a0\u00a0\n\u200b\n(13.8)%\n\u200b\n\u200b\n(a)\nThe terminal growth/(decline) rate that would result in the carrying value of the reporting unit being less than the fair value of the reporting unit applies only to further goodwill impairment and not to any future license impairment that would result from lowering the terminal growth rates used.\nWe had a total radio broadcasting licenses carrying value of approximately $488.4 million across 13 of our 16 reporting units as of December\u00a031, 2022. Several of the licenses in our units of accounting have limited or no excess of fair values over their respective carrying values. As set forth in the table below, as of October\u00a01, 2022, which is the Company\u2019s annual impairment assessment date, we appraised the radio broadcasting licenses at a fair value of approximately $562.8 million, which was in excess of the $488.4 million carrying value by $74.4 million, or 15.2%. The fair values of the licenses exceeded the carrying values of the licenses for all units of accounting. Should our estimates, \n52\n\n\nTable of Contents\nassumptions, or events or circumstances for any upcoming valuations worsen in the units with no or limited fair value cushion, additional license impairments may be needed in the future.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nRadio\u00a0Broadcasting\u00a0Licenses\n\u00a0\n\u200b\n\u200b\nAs\u00a0of October 1, 2022\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\nCarrying\n\u200b\nFair\n\u200b\n\u200b\nExcess\n\u00a0\n\u200b\n\u200b\nValues\n\u200b\nValues\n\u200b\n\u200b\n\u200b\n\u200b\n%\u00a0FV\n\u00a0\nUnit\u00a0of\u00a0Accounting\u00a0(a)\n\u200b\n(\u201cCV\u201d)\n\u200b\n(\u201cFV\u201d)\n\u200b\nFV\u00a0vs.\u00a0CV\n\u200b\nOver\u00a0CV\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n(In thousands)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nUnit of Accounting 2\n\u00a0\u00a0\u00a0\u00a0\n$\n 3,086\n\u00a0\u00a0\u00a0\u00a0\n$\n 29,362\n\u00a0\u00a0\u00a0\u00a0\n$\n 26,276\n\u00a0\u00a0\u00a0\u00a0\n 851.5\n%\nUnit of Accounting 5\n\u200b\n\u00a0\n 12,792\n\u200b\n\u00a0\n 12,792\n\u200b\n\u00a0\n \u2014\n\u00a0\u00a0\u00a0\u00a0\n \u2014\n%\nUnit of Accounting 7\n\u200b\n\u00a0\n 15,223\n\u200b\n\u00a0\n 18,101\n\u200b\n\u00a0\n 2,878\n\u00a0\u00a0\u00a0\u00a0\n 18.9\n%\nUnit of Accounting 14\n\u200b\n\u00a0\n 17,064\n\u200b\n\u00a0\n 17,279\n\u200b\n\u00a0\n 215\n\u00a0\u00a0\u00a0\u00a0\n 1.3\n%\nUnit of Accounting 6\n\u200b\n\u00a0\n 22,642\n\u200b\n\u00a0\n 28,604\n\u200b\n\u00a0\n 5,962\n\u00a0\u00a0\u00a0\u00a0\n 26.3\n%\nUnit of Accounting 12\n\u200b\n\u00a0\n 32,968\n\u200b\n\u00a0\n 33,322\n\u200b\n\u00a0\n 354\n\u00a0\u00a0\u00a0\u00a0\n 1.1\n%\nUnit of Accounting 11\n\u200b\n\u00a0\n 34,095\n\u200b\n\u00a0\n 37,926\n\u200b\n\u00a0\n 3,831\n\u00a0\u00a0\u00a0\u00a0\n 11.2\n%\nUnit of Accounting 13\n\u200b\n\u00a0\n 36,500\n\u200b\n\u00a0\n 36,500\n\u200b\n\u00a0\n \u2014\n\u00a0\u00a0\u00a0\u00a0\n \u2014\n%\nUnit of Accounting 4\n\u200b\n\u00a0\n 37,224\n\u200b\n\u00a0\n 40,422\n\u200b\n\u00a0\n 3,198\n\u00a0\u00a0\u00a0\u00a0\n 8.6\n%\nUnit of Accounting 8\n\u200b\n\u00a0\n 48,253\n\u200b\n\u00a0\n 48,253\n\u200b\n\u00a0\n \u2014\n\u00a0\u00a0\u00a0\u00a0\n \u2014\n%\nUnit of Accounting 16\n\u200b\n\u00a0\n 54,670\n\u200b\n\u00a0\n 80,039\n\u200b\n\u00a0\n 25,369\n\u00a0\u00a0\u00a0\u00a0\n 46.4\n%\nUnit of Accounting 1\n\u200b\n\u00a0\n 76,135\n\u200b\n\u00a0\n 82,458\n\u200b\n\u00a0\n 6,323\n\u00a0\u00a0\u00a0\u00a0\n 8.3\n%\nUnit of Accounting 10\n\u200b\n\u00a0\n 97,767\n\u200b\n\u00a0\n 97,767\n\u200b\n\u00a0\n \u2014\n\u00a0\u00a0\u00a0\u00a0\n \u2014\n%\nTotal\n\u200b\n$\n 488,419\n\u200b\n$\n 562,825\n\u200b\n$\n 74,406\n\u00a0\n 15.2\n%\n\u200b\n(a)\nThe units of accounting are not disclosed on a specific market basis so as to not make publicly available sensitive information that could be competitively harmful to the Company.\nThe following table presents a sensitivity analysis showing the impact on our quantitative annual impairment testing resulting from: (i)\u00a0a 100 basis point decrease in industry or reporting unit terminal growth rates; (ii)\u00a0a 100 basis point decrease in operating profit margins; (iii)\u00a0a 100 basis point increase in the discount rate; and (iv)\u00a0both a 5% and 10% reduction in the fair values of broadcasting licenses and reporting units.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nHypothetical\u00a0Increase\u00a0in the\n\u200b\n\u200b\nRecorded\u00a0Impairment Charge\n\u200b\n\u200b\nFor\u00a0the\u00a0Year Ended \n\u200b\n\u200b\nDecember\u00a031,\u00a02022\n\u200b\n\u200b\nBroadcasting\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nLicenses\n\u200b\nGoodwill\u00a0(a)\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n(In\u00a0millions)\nImpairment charge recorded:\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\nRadio market reporting units\n\u200b\n$\n 33.5\n\u200b\n$\n 7.2\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nHypothetical change for radio market reporting units:\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\nA 100 basis point decrease in radio industry terminal growth rates\n\u200b\n$\n 24.5\n\u200b\n$\n \u2014\nA 100 basis point decrease in operating profit margin in the projection period\n\u200b\n\u200b\n 7.6\n\u200b\n\u200b\n \u2014\nA 100 basis point increase in the applicable discount rate\n\u200b\n\u200b\n 39.8\n\u200b\n\u200b\n0.5\nA 5% reduction in the fair value of broadcasting licenses and reporting units\n\u200b\n\u200b\n 12.2\n\u200b\n\u200b\n \u2014\nA 10% reduction in the fair value of broadcasting licenses and reporting units\n\u200b\n\u200b\n 29.5\n\u200b\n\u200b\n0.6\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(a)\nGoodwill impairment charge applies only to further goodwill impairment and not to any potential license impairment that could result from changing other assumptions.\n53\n\n\nTable of Contents\nSee Note 6 \u2013 \nGoodwill, Radio Broadcasting Licenses and Other Intangible Assets\n, of our consolidated financial statements for further discussion.\n\u200b\nImpairment of Intangible Assets Excluding Goodwill, Radio Broadcasting Licenses and Other Indefinite-Lived Intangible Assets\nIntangible assets, excluding goodwill, radio broadcasting licenses and other indefinite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, we will evaluate recoverability by a comparison of the carrying amount of the asset or group of assets to future undiscounted net cash flows expected to be generated by the asset or group of assets. Assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the assets are impaired, the impairment is measured by the amount by which the carrying amount exceeds the fair value of the assets determined by estimates of discounted cash flows. The discount rate used in any estimate of discounted cash flows would be the rate required for a similar investment of like risk. The Company reviewed certain intangibles for impairment during 2022 and 2021 and determined no impairment charges were necessary. Any changes in the valuation estimates and assumptions or changes in certain events or circumstances could result in changes to the estimated fair values of these intangible assets and may result in future write-downs to the carrying values.\nIncome Taxes\nTo address the exposures of uncertain tax positions, we recognize the impact of a tax position in the financial statements if it is more likely than not that the position would be sustained on examination based on the technical merits of the position. As of December\u00a031, 2022, we had $688,000 in unrecognized tax benefits. Future outcomes of our tax positions may be more or less than the currently recorded liability, which could result in recording additional taxes, or reversing some portion of the liability and recognizing a tax benefit once it is determined the liability is no longer necessary as potential issues get resolved, or as statutes of limitations in various tax jurisdictions close.\nAs of each reporting date, management considers new evidence, both positive and negative, that could affect its conclusions regarding the future realization of the Company\u2019s deferred tax assets (\u201cDTAs\u201d). During the year ended December 31, 2022, management continues to believe that there is sufficient positive evidence to conclude that it is more likely than not the DTAs are realizable. The assessment to determine the value of the DTAs to be realized under ASC 740 is highly judgmental and requires the consideration of all available positive and negative evidence in evaluating the likelihood of realizing the tax benefit of the DTAs in a future period. Circumstances may change over time such that previous negative evidence no longer exists, and new conditions should be evaluated as positive or negative evidence that could affect the realization of the DTAs. Since the evaluation requires consideration of events that may occur some years into the future, significant judgment is required, and our conclusion could be materially different if certain expectations do not materialize.\nAs of the year ended December 31, 2022, management continues to weigh the objectively verifiable evidence associated with its cumulative income or loss position over the most recent three-year period. The Company continues to maintain three years of rolling cumulative income since the quarter ended December 31, 2018. Management also considered the cumulative income includes non-deductible pre-tax expenditures that, while included in pre-tax earnings, are not a component of taxable income and therefore are not expected to negatively impact the Company's ability to realize the tax benefit of the DTAs in current or future years.\nAs part of the 2017 Tax Act,\u00a0IRC Section\u00a0163(j)\u00a0limits the timing of the tax deduction for interest expense. In conjunction with evaluating and weighing the aforementioned negative and positive evidence from the Company\u2019s historical cumulative income or loss position, management also evaluated the impact that interest expense has had on our cumulative income or loss position over the most recent three-year period. A material component of the Company\u2019s expenses is interest and has been the primary driver of historical pre-tax losses. As part of our evaluation of positive evidence, management is adjusting for the IRC Section\u00a0163(j)\u00a0interest expense limitation on projected taxable income as \n54\n\n\nTable of Contents\npart of developing forecasts of taxable income sufficient to utilize the Company\u2019s federal and state net operating losses that are not subject to annual limitation resulting from the 2009 ownership shift as defined under IRC Section\u00a0382.\nRealization of the Company\u2019s DTAs is dependent on generating sufficient taxable income in future periods, and although management believes it is more likely than not future taxable income will be sufficient to realize the DTAs, realization is not assured and future events may cause a change to the judgment of the realizability of the DTAs. If a future event causes management to re-evaluate and conclude that it is not more likely than not, that all or a portion of the DTAs are realizable, the Company would be required to establish a valuation allowance against the assets at that time, which would result in a charge to income tax expense and a decrease to net income in the period which the change of judgment is concluded.\nThe Company continues to assess potential tax strategies, which if successful, may reduce the impact of the annual limitations and potentially recover NOLs that otherwise would expire before being applied to reduce future income tax liabilities. If successful, the Company may be able to recover additional federal and state NOLs in future periods, which could be material. If we conclude that it is more likely than not that we will be able to realize additional federal and state NOLs, the tax benefit could materially impact future quarterly and annual periods. The federal and state NOLs expire in various years from 2023 to 2039.\nFair Value Measurements\nPrior to and as of the period ended September 30, 2022, the Company accounted for its MGM Investment at cost less impairment under ASC 321, \u201c\nInvestments \u2013 Equity Securities\n\u201d (\u201cASC 321\u201d). In connection with the preparation of its financial statements for the year ended December 31, 2022, the Company identified that the MGM Investment should have been classified as an available-for-sale debt security in accordance with ASC 320, \u201c\nInvestments \u2013 Debt Securities\n\u201d (\u201cASC 320\u201d). As a result, the Company has made adjustments to correct this error. Refer to Note 2 - \nRestatement of Financial Statements\n for further details.\nThe MGM Investment is preferred stock that has a non-transferable put right and is classified as an available-for-sale debt security. For the periods restated, the Company considered two models: the dividend discount model and the contractual valuation approach. The Company evaluated the appropriateness of each valuation technique as of each reporting period and ultimately determined that the dividend discount model should be utilized for the periods from the fourth quarter of 2020 up until the third quarter of 2022, based on the facts, circumstances, and information available at the time. The Company estimates the fair value, which is considered to be a Level 3 measurement due to the use of significant unobservable inputs. Significant inputs to the dividend discount model include revenue growth rates, discount rate and a terminal growth rate. During the fourth quarter of 2022, the Company determined that the contractual valuation approach should be utilized, as it believes this more closely approximates the fair value of the investment at that time. This method relies on a contractually agreed upon formula established between the Company and MGM National Harbor as defined in the Second Amended and Restated Operating Agreement of MGM National Harbor, LLC (\u201cthe Agreement\u201d), rather than market-based inputs or traditional valuation methods. As defined in the Agreement, the calculation of the put is based on operating results, Enterprise Value and the Put Price Multiple. The inputs used in this measurement technique are specific to the entity, MGM National Harbor, and there are no current observable prices for investments in private companies that are comparable to MGM National Harbor. The inputs used to measure the fair value of this security are classified as Level 3 within the fair value hierarchy.\nThe Company accounts for an award called for in the CEO\u2019s employment agreement (the \u201cEmployment Agreement\u201d) at fair value. According to the Employment Agreement, executed in April\u00a02008, the CEO is eligible to receive an award (the \u201cEmployment Agreement Award\u201d) in an amount equal to approximately 4% of any proceeds from distributions or other liquidity events in excess of the return of the Company\u2019s aggregate investment in TV One. The Company\u2019s obligation to pay the award was triggered after the Company recovered the aggregate amount of capital contributions in TV One, and payment is required only upon actual receipt of distributions of cash or marketable securities or proceeds from a liquidity event with respect to such invested amount. The long-term portion of the award is recorded in other long-term liabilities and the current portion is recorded in other current liabilities in the consolidated balance sheets. The CEO was fully vested in the award upon execution of the Employment Agreement, and the award\u00a0lapses if the CEO voluntarily leaves the Company or is terminated for cause. In September\u00a02022, the Compensation Committee of the Board of Directors of the \n55\n\n\nTable of Contents\nCompany approved terms for a new employment agreement with the CEO, including a renewal of the Employment Agreement Award upon similar terms as in the prior Employment Agreement.\nThe Company estimated the fair value of the Employment Agreement Award as of December\u00a031, 2022, at approximately $26.3 million and, accordingly, adjusted the liability to that amount. The fair value estimate incorporated a number of assumptions and estimates, including but not limited to TV One\u2019s future financial projections. As the Company will measure changes in the fair value of this award at each reporting period as warranted by certain circumstances, different estimates or assumptions may result in a change to the fair value of the award amount previously recorded.\nRedeemable noncontrolling interests are interests in subsidiaries that are redeemable outside of the Company\u2019s control either for cash or other assets. These interests are classified as mezzanine equity and measured at the greater of estimated redemption value at the end of each reporting period or the historical cost basis of the noncontrolling interests adjusted for cumulative earnings allocations. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid-in-capital.\nThe Company assesses the fair value of the redeemable noncontrolling interest in Reach Media as of the end of each reporting period. The fair value of the redeemable noncontrolling interests as of December\u00a031, 2022 and 2021, was approximately $25.3 million and $18.7 million, respectively. The determination of fair value incorporated a number of assumptions and estimates including, but not limited to, revenue growth rates, future operating profit margins, discount rate and a terminal growth rate. Different estimates and assumptions may result in a change to the fair value of the redeemable noncontrolling interests amount previously recorded.\nContent Assets\nOur cable television segment has entered into contracts to license entertainment programming rights and programs from distributors and producers. The license periods granted in these contracts generally run from one\u00a0year to five\u00a0years. Contract payments are typically made in quarterly installments over the terms of the contract period. Each contract is recorded as an asset and a liability at an amount equal to its gross contractual commitment when the license period begins, and the program is available for its first airing. The Company also has programming for which the Company has engaged third parties to develop and produce, and it owns most or all rights (commissioned programming). For programming that is predominantly monetized as part of a content group, such as the Company\u2019s commissioned programs, capitalized costs are amortized based on an estimate of our usage and benefit from such programming. The estimates require management\u2019s judgement and include consideration of factors such as expected revenues to be derived from the programming and the expected number of future airings, among other factors. The Company\u2019s acquired programs\u2019 capitalized costs are amortized based on projected usage, generally resulting in a straight-line amortization pattern.\nThe Company utilizes judgment and prepares analyses to determine the amortization patterns of our content assets. Key assumptions include the categorization of content based on shared characteristics and the use of a quantitative model to predict revenue. For each film group, which the Company defines as a genre, this model takes into account projected viewership which is based on (i) estimated household universe; (ii) ratings; and (iii) expected number of airings across different broadcast time slots.\nManagement regularly reviews, and revises, when necessary, its total revenue estimates, which may result in a change in the rate of amortization and/or a write down of the asset to fair value. The result of the content amortization analysis is either an accelerated method or a straight-line amortization method over the estimated useful lives of generally one to five years.\nContent that is predominantly monetized within a film group is assessed for impairment at the film group level and is tested for impairment if circumstances indicate that the fair value of the content within the film group is less than its unamortized costs. The Company\u2019s film groups for commission programming are generally aligned along genre, while the Company\u2019s licensed content is considered a separate film group. The Company evaluates the fair value of content at the group level by considering expected future revenue generation using a cash flow analysis when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized costs. Estimates of future revenues consider historical airing patterns and future plans for airing content, \n56\n\n\nTable of Contents\nincluding any changes in strategy. Given the significant estimates and judgments involved, actual demand or market conditions may be less favorable than those projected, requiring a write-down to fair value. The Company determined there were no impairment indicators evident during the year ended December 31, 2022. For the\u00a0year ended December\u00a031, 2021, the Company recorded an impairment and additional amortization expense of $695,000, as a result of evaluating its contracts for impairment. Impairment and amortization of content assets is recorded in the consolidated statements of operations as programming and technical expenses. All commissioned and licensed content is classified as a long-term asset, except for the portion of the unamortized content balance that is expected to be amortized within one\u00a0year which is classified as a current asset.\nTax incentives that state and local governments offer that are directly measured based on production activities are recorded as reductions in production costs.\nCapital and Commercial Commitments\nIndebtedness\nAs of December\u00a031, 2022, we had approximately $750.0 million of our 2028 Notes outstanding within our corporate structure. The Company used the net proceeds from the 2028 Notes, together with cash on hand, to repay or redeem: (i)\u00a0the 2017 Credit Facility; (ii)\u00a0the 2018 Credit Facility; (iii)\u00a0the MGM National Harbor Loan; (iv)\u00a0the remaining amounts of our 7.375% Notes; and (v)\u00a0our 8.75% Notes that were issued in the November\u00a02020 Exchange Offer.\u00a0 Upon settlement of the 2028 Notes, the 2017 Credit Facility, the 2018 Credit Facility and the MGM National Harbor Loan were terminated and the indentures governing the 7.375% Notes and the 8.75% Notes were satisfied and discharged. \nSee \u201c\nLiquidity and Capital Resources\n.\u201d See the balances outstanding as of December\u00a031, 2022 in the \u201cType of Debt\u201d section as part of the \u201c\nLiquidity and Capital Resources\n\u201d section above. \nLease Obligations\nWe have non-cancelable operating leases for office space, studio space, broadcast towers and transmitter facilities that expire over the next nine\u00a0years.\nOperating Contracts and Agreements\nWe have other operating contracts and agreements including employment contracts, on-air talent contracts, severance obligations, retention bonuses, consulting agreements, equipment rental agreements, programming related agreements, and other general operating agreements that expire over the next five\u00a0years.\nRoyalty Agreements\nMusical works rights holders, generally songwriters and music publishers, have been traditionally represented by performing rights organizations, such as the American Society of Composers, Authors and Publishers (\u201cASCAP\u201d), Broadcast Music,\u00a0Inc. (\u201cBMI\u201d) and SESAC,\u00a0Inc. (\u201cSESAC\u201d). The market for rights relating to musical works is changing rapidly. Songwriters and music publishers have withdrawn from the traditional performing rights organizations, particularly ASCAP and BMI, and new entities, such as Global Music Rights, Inc. (\u201cGMR\u201d), have been formed to represent rights holders. These organizations negotiate fees with copyright users, collect royalties and distribute them to the rights holders. We currently have arrangements with ASCAP, SESAC and GMR. On April 22, 2020, the Radio Music License Committee (\u201cRMLC\u201d), an industry group which the Company is a part of, and BMI reached agreement on the terms of a new license agreement that covers the period January 1, 2017, through December 31, 2021. Upon approval of the court of the BMI/RMLC agreement, the Company automatically became a party to the agreement and to a license with BMI through December 31, 2021.\n On April 12, 2022, the RMLC announced that it had reached an interim licensing agreement with BMI. The radio industry\u2019s previous agreement with BMI covering calendar years 2017 to 2021 expired December 31, 2021 (the \u201c2017 Licensing Terms\u201d), but the interim arrangement will keep the 2017 Licensing Terms in place until a new arrangement is agreed upon.\u00a0The Company is party to the interim arrangement and, therefore, will continue to operate under the 2017 Licensing Terms. \nOn February 7, 2022, the RMLC and GMR reached a settlement and achieved certain \n57\n\n\nTable of Contents\nconditions which effectuate a four-year license to which the Company is a party for the period April 1, 2022 to March 31, 2026. \u00a0The license includes an optional three-year extended term that the Company may effectuate prior to the end of the initial term. \n\u200b\nReach Media Redeemable Noncontrolling Interests \nBeginning on January\u00a01, 2018, the noncontrolling interest shareholders of Reach Media have had an annual right to require Reach Media to purchase all or a portion of their shares at the then current fair market value for such shares (the \u201cPut Right\u201d).\u00a0This annual right is exercisable for a 30-day period beginning January\u00a01 of each\u00a0year. The purchase price for such shares may be paid in cash and/or registered Class\u00a0D common stock of Urban One, at the discretion of Urban One. The noncontrolling interest shareholders of Reach Media did not exercise their Put Right for the 30-day period ending January\u00a031, 2023. Management, at this time, cannot reasonably determine the period when and if the put right will be exercised by the noncontrolling interest shareholders.\nContractual Obligations Schedule\nThe following table represents our scheduled contractual obligations as of December\u00a031, 2022:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nPayments\u00a0Due\u00a0by\u00a0Period\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n2028 and\n\u200b\n\u200b\n\u200b\nContractual Obligations\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2024\n\u00a0\u00a0\u00a0\u00a0\n2025\n\u00a0\u00a0\u00a0\u00a0\n2026\n\u00a0\u00a0\u00a0\u00a0\n2027\n\u00a0\u00a0\u00a0\u00a0\nBeyond\n\u00a0\u00a0\u00a0\u00a0\nTotal\n\u200b\n\u00a0\n(In thousands)\n7.375% Subordinated Notes (1)\n\u200b\n$\n 55,313\n\u200b\n$\n 55,313\n\u200b\n$\n 55,313\n\u200b\n$\n 55,313\n\u200b\n$\n 55,313\n\u200b\n$\n 754,609\n\u200b\n$\n 1,031,174\nOther operating contracts/agreements (2)\n\u200b\n\u00a0\n 77,445\n\u200b\n\u200b\n 36,049\n\u200b\n\u200b\n 26,164\n\u200b\n\u200b\n 12,893\n\u200b\n\u200b\n 3,834\n\u200b\n\u200b\n 12,959\n\u200b\n\u00a0\n 169,344\nOperating lease obligations\n\u200b\n\u00a0\n 11,697\n\u200b\n\u200b\n 10,690\n\u200b\n\u200b\n 6,834\n\u200b\n\u200b\n 4,860\n\u200b\n\u200b\n 3,417\n\u200b\n\u200b\n 7,140\n\u200b\n\u00a0\n 44,638\nTotal\n\u200b\n$\n 144,455\n\u200b\n$\n 102,052\n\u200b\n$\n 88,311\n\u200b\n$\n 73,066\n\u200b\n$\n 62,564\n\u200b\n$\n 774,708\n\u200b\n$\n 1,245,156\n\u200b\n(1)\nIncludes interest obligations based on effective interest rates on senior secured notes outstanding as of December\u00a031, 2022. \n(2)\nIncludes employment contracts (including the Employment Agreement Award), severance obligations, on-air talent contracts, consulting agreements, equipment rental agreements, programming related agreements, launch liability payments, asset-backed credit facility (if applicable) and other general operating agreements. Also includes contracts that our cable television segment has entered into to acquire entertainment programming rights and programs from distributors and producers. These contracts relate to their content assets as well as prepaid programming related agreements.\nOf the total amount of other operating contracts and agreements included in the table above, approximately $96.6 million has not been recorded on the balance sheet as of December\u00a031, 2022, as it does not meet recognition criteria. Approximately $13.0 million relates to certain commitments for content agreements for our cable television segment, approximately $38.7 million relates to employment agreements, and the remainder relates to other agreements.\nOff-Balance Sheet Arrangements\nThe Company currently is under a letter of credit reimbursement and security agreement with capacity of up to $1.2 million which expires on October\u00a08, 2024. As of December\u00a031, 2022, the Company had letters of credit totaling $871,000 under the agreement for certain operating leases and certain insurance policies. Letters of credit issued under the agreement are required to be collateralized with cash. In addition, the Current ABL Facility provides for letter of credit capacity of up to $5 million subject to certain limitations on availability. \n58\n\n\nTable of Contents",
+  "item7a": ">ITEM\u00a07A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK\nNot required for smaller reporting companies.",
+  "cik": "1041657",
+  "cusip6": "91705J",
+  "cusip": ["91705J204", "91705J105"],
+  "names": ["URBAN ONE INC", "Urban One Inc"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1041657/000155837023011650/0001558370-23-011650-index.htm"
+}
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+{
+  "item1": ">ITEM\u00a01. BUSINESS\n \n\u200b\nLamb Weston Holdings,\u00a0Inc. (\u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d \u201cthe Company,\u201d or \u201cLamb Weston\u201d) is a leading global producer, distributor, and marketer of value-added frozen potato products and is headquartered in Eagle, Idaho. We are the number one supplier of value-added frozen potato products in North America and a leading supplier of value-added frozen potato products internationally, with a strong presence in high-growth emerging markets. We offer a broad product portfolio to a diverse channel and customer base in over 100 countries. French fries represent most of our value-added frozen potato product portfolio.\n\u200b\nWe were organized as a Delaware corporation in July 2016. Our common stock trades under the ticker symbol \u201cLW\u201d on the New York Stock Exchange.\n\u200b\n3\n\n\nTable of Contents\nSegments\n\u200b\nIn July 2022, we acquired an additional 40 percent interest in Lamb Weston Alimentos Modernos S.A. (\u201cLWAMSA\u201d), our joint venture in Argentina, and, in February 2023, we acquired the remaining equity interest in LW EMEA, our joint venture in Europe. With the completion of the transactions, we own 90 percent and 100 percent of the equity interests in LWAMSA and LW EMEA, respectively. Accordingly, we consolidated LWAMSA\u2019s and LW EMEA\u2019s financial results in our consolidated financial statements beginning in our fiscal first and fourth quarters, respectively. The results are included in our Global segment. \n\u200b\nDuring fiscal 2023, we had four reportable segments: Global, Foodservice, Retail, and Other. For further segment and financial information, see \u201cPart II, Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and Note\u00a013, Segments, of the Notes\u00a0to Consolidated Financial Statements in \u201cPart\u00a0II, Item\u00a08. Financial Statements and Supplementary Data\u201d of this Form\u00a010-K.\n\u200b\nEffective May 29, 2023, in connection with our recent acquisitions and to align with our expanded global footprint, our management, including our chief executive officer, who is our chief operating decision maker, began managing our operations as two business segments based on management\u2019s change to the way it monitors performance, aligns strategies, and allocates resources. This resulted in a change from four reportable segments to two (North America and International), effective the beginning of fiscal 2024. \n\u200b\nGlobal\n\u200b\nOur Global segment includes frozen potato products sold in North America and international markets generally to the top 100 North American based restaurant chains and international customers comprised of global and regional quick service and full-service restaurant chains, foodservice distributors, and retailers. We have included foodservice and retail customers outside of North America in the Global segment due to efficiencies associated with coordinating sales to all customer types within specific markets, as well as due to these customers\u2019 smaller scale and dependence on local economic conditions. The Global segment\u2019s product portfolio includes frozen potatoes and appetizers sold under the \nLamb Weston\n brand, as well as many customer labels.\n\u200b\nFoodservice\n\u200b\nOur Foodservice segment includes frozen potato products sold throughout the U.S. and Canada to commercial distributors, restaurant chains generally outside the top 100 North American based restaurant chains, and non-commercial channels. The Foodservice segment\u2019s primary products are frozen potatoes, commercial ingredients, and appetizers sold under the \nLamb Weston\n brand, as well as many customer labels.\n\u200b\nRetail\n\u200b\nOur Retail segment includes consumer-facing frozen potato products sold primarily to grocery, mass merchants, club, and specialty retailers. The Retail segment\u2019s primary products are frozen potatoes sold under our owned or licensed brands, including \nGrown in Idaho\n and \nAlexia\n, other licensed equities comprised of brand names of major North American restaurant chains, and the retailers\u2019 own brands.\n\u200b\nOther\n\u200b\nThe Other reporting segment primarily includes our vegetable and dairy businesses, as well as unrealized \nmark-to-market adjustments associated with commodity hedging contracts.\n\u200b\nJoint Venture Relationships\n\u200b\nWe hold a 50 percent ownership interest in Lamb-Weston/RDO Frozen (\u201cLamb Weston RDO\u201d), a joint venture with RDO Frozen Co., that operates a single potato processing facility in the U.S. We provide all sales and marketing services to Lamb Weston RDO and receive a fee for these services based on a percentage of the net sales of the venture. \n4\n\n\nTable of Contents\nWe account for our investment in Lamb Weston RDO under the equity method of accounting. We accounted for our investments in LW EMEA and LWAMSA under the equity method of accounting until February 2023 and July 2022, respectively, when we acquired the majority ownership of these entities and began consolidating their respective financial results in our consolidated financial statements. In addition, LW EMEA owns a 75 percent interest in a joint venture in Austria. This joint venture\u2019s financial results are consolidated in our financial statements.\n\u200b\nFor more information, see Note 4, Joint Venture Investments, of the Notes to Consolidated Financial Statements in \u201cPart II, Item 8. Financial Statements and Supplementary Data\u201d of this Form 10-K.\n\u200b\nSales, Distribution and Customers\n\u200b\nWe benefit from strong relationships with a diverse set of customers. We sell our products through a network of internal sales personnel and independent brokers, agents, and distributors to chain restaurants, wholesale, grocery, mass merchants, club retailers, specialty retailers, and foodservice distributors and institutions, including businesses, educational institutions, independent restaurants, regional chain restaurants, and convenience stores. We have long-tenured relationships with leading quick service and fast casual restaurant chains, global foodservice distributors, large grocery retailers, and mass merchants.\n\u200b\nOur largest customer, McDonald\u2019s Corporation, accounted for approximately 13%, 10%, and 11% of our consolidated net sales in fiscal 2023, 2022, and 2021, respectively. Sales to McDonald\u2019s Corporation are included in our Global segment. No other customer accounted for more than 10% of our fiscal 2023, 2022, or 2021 consolidated net sales. \n\u200b\nResearch and Development\n\u200b\nWe leverage our research and development resources for both growth and efficiency initiatives.\u00a0We seek to drive growth through innovation by creating new products, enhancing the quality of existing products, and participating in joint menu planning exercises with our customers.\u00a0We also evaluate the sustainability impacts of our manufacturing processes and products in our research and development activities and continue to drive processing innovations aimed at reducing waste and water usage and improving food safety and quality.\n\u200b\nTrademarks, Licenses and Patents\n\u200b\nOur trademarks are material to our business and are protected by registration or other means in the U.S. and most other geographic markets where the related food items are sold. Depending on the country, trademarks generally remain valid for as long as they are in use and their registrations are maintained. Trademark registrations generally are for renewable, fixed terms. Our significant trademarks include: \nLamb Weston, Lamb Weston Supreme, Lamb Weston Seeing Possibilities in Potatoes\n (and design), \nLamb Weston Seasoned, Lamb Weston Private Reserve, Lamb Weston Stealth Fries, Lamb Weston Colossal Crisp, Lamb Weston Crispy on Delivery, Lamb Weston Twisters, Lamb Weston Twister Fries, Lamb Weston Crisscuts,\n \nSweet Things, \nand\n Butler.\n We also sell certain products, such as \nGrown in Idaho\n and \nAlexia\n, which we license from third parties. \n\u200b\nWe own numerous patents worldwide. We consider our portfolio of patents, patent applications, patent licenses, proprietary trade secrets, technology, know-how processes, and related intellectual property rights to be material to our operations. Patents, issued or applied for, cover inventions, including packaging, manufacturing processes, equipment, formulations, and designs. Our issued patents extend for varying periods according to the date of the patent application filing or grant, the legal term of patents in the various countries where patent protection is obtained, and, in most countries, the payment of fees to maintain the patents. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage as determined by the patent office or courts in the country, and the availability of legal remedies in the country. \n\u200b\n5\n\n\nTable of Contents\nRaw Materials\n\u200b\nOur primary raw materials are potatoes, edible oils, packaging, grains, starches, and energy inputs. We source a significant amount of our raw potatoes under both strategic, long-term grower relationships and short-term annual contracts. In the U.S., most of the potato crop used in our products is grown in Washington, Idaho, and Oregon. In Europe, growing regions for the necessary potatoes are concentrated in the Netherlands, Austria, Belgium, Germany, France, and the United Kingdom. We also have potato growing regions in Canada, China, Australia, and Argentina that support our processing facilities in those countries. We believe that the grower networks to which we have access provide a sufficient source of raw potato inputs year-to-year. We source edible oils through strategic relationships with key suppliers, and we source packaging and energy inputs through multiple suppliers under a variety of agreement types.\n\u200b\nThe prices paid for these raw materials, as well as other raw materials used in making our products, generally reflect factors such as weather, commodity market fluctuations, currency fluctuations, tariffs, and the effects of governmental agricultural programs. The prices of raw materials can fluctuate as a result of these factors.\n\u200b\nDuring fiscal 2023, we continued to face increased costs for our primary raw materials, including potatoes, edible oils, packaging, grains, starches, and energy inputs. We seek to mitigate higher input costs through long-term relationships, contract strategies, and hedging activities where an active market for an input exists, as well as through our pricing and productivity initiatives. See \u201cPart II, Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations,\u201d of this Form 10-K for further discussion.\n\u200b\nManufacturing\n\u200b\nWe operate 26 production facilities for our products. See \"Item 2. Properties\" for more information about our production facilities. In addition to our own production facilities, we source a portion of our products under \u201cco-packing\u201d agreements, a common industry practice in which manufacturing is outsourced to other companies. We regularly evaluate our co-packing arrangements to ensure the most cost-effective manufacturing of our products and to utilize company-owned production facilities most effectively.\n\u200b\nInternational Operations \n\u200b\nAt May 28, 2023, we had operations in 31 countries, with sales support in each of these countries and production and processing facilities in 8 countries. See Note 13, Segments, of the Notes to Consolidated Financial Statements in \u201cPart II, Item 8. Financial Statements and Supplementary Data\u201d of this Form 10-K for additional information on our U.S. and non-U.S. operations. Also see \u201cItem 2. Properties,\u201d for more information on our production and other facilities. For a discussion of risks related to our operations outside the U.S., see \u201cItem 1A. Risk Factors\u201d of this Form 10-K. \n\u200b\nCompetition\n\u200b\nThe value-added frozen potato products industry in North America, Europe and other international markets is highly competitive.\u00a0Competitors include large North American and European frozen potato product companies that compete globally, as well as local and regional companies. Significant competitors include Agristo NV, Aviko B.V., Cavendish Farms Corporation, Clarebout Potatoes NV, Farm Frites International B.V., J.R. Simplot Company, The Kraft Heinz Company, and McCain Foods Limited. Some of our competitors are larger and have substantially more financial, sales and marketing, and other resources than us. We compete with producers of similar products on the basis of, among other things, customer service, value, product innovation, product quality, brand recognition and loyalty, price, and the ability to identify and satisfy customer preferences. The markets in which we operate are expected to remain highly competitive for the foreseeable future. See also \u201cItem 1A. Risk Factors \u2013 Industry Risks \u2013 Increased competition may result in reduced sales or profits\u201d of this Form 10-K.\n\u200b\n6\n\n\nTable of Contents\nSeasonality\n\u200b\nOur product contribution margin percentage, inventory levels, net sales, and cash flows are affected by seasonality. In general, our product contribution margin percentage tends to be highest in our fiscal third quarter, reflecting the cost benefit of freshly-harvested potatoes. We typically harvest potatoes in the Pacific Northwest of the U.S. and Europe in July through October, which is primarily in our fiscal second quarter. While the quality of potatoes affects production efficiency, overall, freshly-harvested potatoes process more efficiently in our production lines and are not subject to storage or secondary transport costs. We typically hold 50 to 90 days of finished goods inventory on a first-in-first-out basis, so the costs incurred from our fiscal second quarter harvest, which are generally favorable, will flow through our income statement in our fiscal third quarter. Inventory levels also tend to be higher in our fiscal third quarter, requiring more working capital at that time. In general, net sales and cash flows tend to be higher in our fiscal fourth quarter, reflecting customer and consumer buying patterns.\n\u200b\nDue to severe impacts of the government mandated shutdowns in response to COVID-19, seasonal variation in the demand for our products in fiscal 2021 differed from prior and subsequent years.\n\u200b\nHuman Capital Resources\n\u200b\nWe believe that our employees and our workplace culture are among our most important assets, and that our employees are integral to our ability to achieve our strategic objectives. Attracting, developing, and retaining the best talent globally with the right skills to drive our mission, vision, and values are central components of our strategies for long-term growth. As of July 17, 2023, we had approximately 10,300 employees, of which approximately 2,600 employees work outside of the U.S. As of July 17, 2023, approximately 30% of our employees are parties to collective bargaining agreements with terms that we believe are typical for the industry in which we operate. Most of the union workers at our facilities are represented under contracts that expire at various times over the next several years. Of the hourly employees who are represented by these contracts, 51% are party to a collective bargaining agreement scheduled to expire over the course of the next twelve months. As the agreements expire, we believe they will be renegotiated on terms satisfactory to the parties.\n\u200b\nHealth and Safety\n\u200b\nOur employees\u2019 health, safety, and well-being are our highest priority. We strive for world-class safety at every one of our facilities. This means we continuously focus on creating a zero-incident culture, where every employee goes home every day, accident free. To help achieve this goal, we foster safety leadership throughout the organization as part of our comprehensive environment, health, safety, and sustainability management system. Through ongoing communications, routine assessments of our safety programs, safety and job-related training, daily risk assessments at facilities, defined standards, and safety measures, we strive to improve our safety performance each year. \n\u200b\n7\n\n\nTable of Contents\nTotal Rewards \n\u200b\nOur compensation and benefits are designed to support the financial, mental, and physical well-being of our employees. We are committed to equal pay for equal work, regardless of gender, race, ethnicity, or other personal characteristics. As part of this commitment, we benchmark and set pay ranges based on market data and consider various factors such as an employee\u2019s role and experience, job location, and performance. We also regularly review our compensation practices to promote fair and equitable pay. In addition to base salaries, many employees also participate in an annual short-term incentive program and may also receive long-term equity awards. Benefits for U.S. employees include an employee savings 401(k) plan and company matching contributions, health insurance, disability insurance, life insurance, health savings and flexible spending accounts, wellness incentives, annual on-site health screenings, paid time-off, family leave, parental leave, employee assistance programs, and tuition reimbursement opportunities. Benefits for employees outside of the U.S. vary by country but are generally market competitive and representative of prevalent local company sponsored benefit programs. We have also adopted a hybrid work policy for office-based employees intended to allow employees flexibility in work location while maintaining productivity and performance expectations. Eligibility for, and the level of, compensation and benefits vary depending on an employee\u2019s full-time or part-time status, work location, job and career level, and tenure with the Company. We regularly review our compensation and benefit programs with the aim of keeping them competitive and designed to meet our employees\u2019 health and wellness needs, which we believe is important to attract and retain the best available talent.\n\u200b\nDiversity, Equity, and Inclusion (\u201cDEI\u201d)\n\u200b\nAs a global company, we strive to honor and celebrate diversity in our team, which we believe enriches our work lives and drives diversity of perspectives in our decision-making as a company. We define diversity as the unique abilities, experiences, and cultural backgrounds our employees bring to our Company\u2019s workplace. We are committed to providing a work environment that fosters respect, inclusion, fairness, and dignity, and is free of harassment, discrimination, or fear of retaliation. In fiscal 2023, we launched our first business resource groups, which are voluntary, team member-led groups that bring employees together aligned around affinity areas. We believe these groups help create community and build inclusion. We have three business resource groups centered on women, multiculture and young professionals. In addition, in fiscal 2023, we introduced a DEI learning and development platform to our global workforce to support team members\u2019 DEI learning.\n\u200b\nRecruitment, Training, and Development\n\u200b\nWe believe maintaining a robust pipeline of talent is crucial to our ongoing success and is a key aspect of succession planning efforts across the organization. We use recruitment vehicles, including partnerships with universities and communities, local and national organizations, and various social media outlets, to attract strong talent to our organization. Our leadership and people teams are responsible for attracting and retaining top talent by facilitating an environment where employees feel supported and encouraged in their professional and personal development. Specifically, we promote employee development by regularly reviewing strategic positions and identifying potential internal candidates to fill those roles, evaluating job skill sets to identify competency gaps, and creating developmental plans to facilitate employee professional growth. We invest in our employees through training and development programs, including both custom internal training and external learning resources, utilizing both live and virtual learning experiences, on the job experiences, rotational assignments, annual and mid-year manager reviews and coaching. These offerings are designed to position employees to execute with excellence in their current roles, accelerate their learning curves, and grow their careers by taking advantage of continuing learning opportunities. For example, in our production facilities, we provide multiple training sessions focused on quality and safety. We also hold courses focused on leadership development for employees and people leaders across our global organization. In addition, with both in-person and our e-learning resources, employees can also focus on timely and topical development areas, including leadership capabilities, management excellence, functional skill building, and DEI. \n\u200b\n8\n\n\nTable of Contents\nEmployee Engagement\n\u200b\nWe believe that having a workplace culture that supports and values all employees is critical to our success. To understand employee sentiments, we conduct a bi-annual engagement survey of our global workforce. This survey was completed in fiscal 2022 and was administered and analyzed by an independent third-party. The survey results were then reviewed by our executive leadership team and our Compensation and Human Capital Committee of the Board of Directors. Department leaders were also given the engagement survey results and tasked with taking action based on their employees\u2019 anonymous feedback (both quantitative and qualitative). In addition, following our acquisition of the remaining equity interest in LW EMEA, we conducted a global employee culture survey to help assess employees\u2019 reactions to the acquisition and plans for the full integration of LW EMEA with our other operations. Similar to our fiscal 2022 engagement survey, our executive leadership team reviewed the results of the survey and shared those results with our Compensation and Human Capital Committee. By paying close attention to the results of both surveys and implementing actions based on our findings, both at an aggregate enterprise level as well as at department, business, and work group levels, we believe that we have been able to enhance our workplace culture and improve overall employee engagement levels.\n\u200b\nWe are also committed to creating and building a culture of giving. We encourage and enable our employees to support many charitable causes. This includes engaging in volunteer programs promoted by the Company or employees. Our locations also manage their own community outreach programs through local giving committees, which provide opportunities for employees to financially engage with local nonprofits and volunteer their time. Annually, we make cash grants through the Lamb Weston Foundation, including through our Pay it Forward program, which gives our employees a role in directing some of the Foundation\u2019s funds. In addition, we offer a matching gifts program to employees, paid volunteer time off, non-profit board service grants, and an employee dependent scholarship program. Further, in fiscal 2023, we adopted a volunteer reward program that allows employees to provide monetary donations to organizations where they volunteer and established the Team Member Relief Fund to provide financial support to employees experiencing hardships such as catastrophic events, illness, domestic violence, and other unforeseen circumstances.\n\u200b\nInformation About Our Executive Officers\n\u200b\nThe following are our executive officers as of July 17, 2023: \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nName\n\u200b\nTitle\n\u200b\nAge\nThomas P. Werner\n\u200b\nDirector, President and Chief Executive Officer\n\u200b\n 57\nBernadette M. Madarieta\n\u200b\nChief Financial Officer\n\u200b\n 48\nSharon L. Miller\n\u200b\nPresident, North America\n\u200b\n 57\nSukshma Rajagopalan\n\u200b\nChief Information and Digital Officer\n\u200b\n 49\nGerardo Scheufler\n\u200b\nChief Supply Chain Officer\n\u200b\n 55\nMarc Schroeder\n\u200b\nPresident, International\n\u200b\n 52\nMichael J. Smith\n\u200b\nChief Operating Officer\n\u200b\n 46\nEryk J. Spytek\n\u200b\nGeneral Counsel and Chief Compliance Officer\n\u200b\n 55\nSteven J. Younes\n\u200b\nChief Human Resources Officer\n\u200b\n 57\n\u200b\nThomas P. Werner\n has served as our President and Chief Executive Officer and a member of our board of directors since November 2016. Prior to that, he served as President, Commercial Foods, for Conagra, a food company, since May 2015. In that role, he led the company\u2019s Lamb Weston and Foodservice businesses, as well as its previously divested Spicetec Flavors & Seasonings and J.M. Swank operations. Mr. Werner also served as interim President of Conagra\u2019s Private Brands from June 2015 through its divestiture in February 2016. Before his appointment as President, Commercial Foods, Mr. Werner served as Senior Vice President of Finance for Conagra\u2019s Private Brands and Commercial Foods operating segments from June 2013 to April 2015, and Senior Vice President of Finance for Lamb Weston from May 2011 until June 2013.\n\u200b\n9\n\n\nTable of Contents\nBernadette M. Madarieta\n has served as our Chief Financial Officer since August 2021. She also served as Senior Vice President from August 2021 to May 2023. Ms. Madarieta joined Lamb Weston in October 2016 as our Vice President and Controller and Principal Accounting Officer. Before that, Ms. Madarieta served as Vice President and Controller of Packaging Corporation of America, a containerboard and corrugated packaging manufacturer, from October 2013 to March 2016, and Vice President and Controller at Boise Inc., a packaging and paper products manufacturer, from February 2011 to October 2013. Ms. Madarieta has more than 25 years of finance management and leadership experience spanning public and privately held companies and Big 4 public accounting firms.\n\u200b\nSharon L. Miller\n has served as our President, North America since May 29, 2023. Before that, she served as our Senior Vice President and General Manager, Global Business Unit since September 2016 and Conagra\u2019s Vice President and General Manager, Lamb Weston Global Business Unit from 2015 to August 2016. Since joining Conagra in 1999, Ms. Miller has held various leadership positions, including Vice President of Sales for LW EMEA. Prior to that, Ms. Miller was a key sales and business leader within Lamb Weston in both the U.S. and Canada. She also has held various sales positions with North American food manufacturers and foodservice distributors.\n\u200b\nSukshma Rajagopalan \nhas served as our Chief Information and Digital Officer since June 2023. Ms. Rajagopalan has more than 25 years of experience leading digital and information technology teams, most recently as Senior Vice President and Chief Digital Officer at Avantor, Inc., a life sciences company, from March 2020 to May 2023. At Avantor, Ms. Rajagopalan led the company\u2019s global enterprise digital roadmap, including finance, supply chain and commercial solutions, as well as data and analytics including automation and artificial intelligence. Prior to joining Avantor, she spent 15 years at PepsiCo, Inc., a food and beverage company, and held various information technology and digital leadership roles, most recently as Vice President, Global Applications from March 2018 to March 2020.\n\u200b\nGerardo Scheufler\n has served as our Chief Supply Chain Officer since August 2019. He also served as Senior Vice President from August 2019 to May 2023. Prior to joining Lamb Weston, Mr. Scheufler served as Vice President of Global Operations at Mondel\u0113z International, Inc., a food and beverage company, from July 2014 until August 2019. During his tenure at Mondel\u0113z International, Mr. Scheufler oversaw a major global restructuring program to optimize the global supply chain footprint, including the manufacturing, customer service, quality, logistics, health, safety and environment, and innovation functions. Prior to that, Mr. Scheufler spent more than 20 years at The Procter & Gamble Company, a consumer goods corporation, in a variety of roles of increasing responsibility after starting his career in manufacturing operations in 1990.\n\u200b\nMarc Schroeder\n has served as our President, International since May 29, 2023. Mr. Schroeder is a Dutch national and joined Lamb Weston in February 2023 following the completion of our acquisition of the remaining equity interest in LW EMEA, having previously served as Chief Executive Officer of our former European joint venture since January 2021. Before joining LW EMEA, Mr. Schroeder served as Chief Executive Officer of Pepsi Lipton, a joint venture between PepsiCo, Inc. and Unilever for tea branded products, from February 2016 to November 2020. Prior to that, he spent more than 14 years at PepsiCo, Inc., a food and beverage company, and held various operating, commercial and corporate leadership roles, including Senior Vice President Global Nutrition Group from August 2014 to January 2016, Vice President Global Grains (Quaker) from September 2012 to July 2014 and General Manager of Frito-Lay in Russia from October 2009 to August 2012.\n\u200b\nMichael J. Smith \nhas served as our Chief Operating Officer since May 29, 2023. Prior to that, he served as Senior Vice President and General Manager of Foodservice, Retail, Marketing and Innovation since April 2018 and Senior Vice President, Growth and Strategy from September 2016 until March 2018. Mr. Smith also served as Vice President and General Manager of Lamb Weston Retail from May 2011 to September 2016, Vice President and General Manager of Conagra\u2019s Private Brands from March 2014 to February 2016, and Vice President of Global Marketing of Lamb Weston from July 2012 to March 2014. Prior to joining Conagra in 2007, Mr. Smith held various brand management roles at Dean Foods Company, a food and beverage company, and its WhiteWave division from May 2003 until December 2007.\n\u200b\n10\n\n\nTable of Contents\nEryk J. Spytek\n has served as our General Counsel and Chief Compliance Officer since October 2016. He also served as Senior Vice President from October 2016 to May 2023 and Corporate Secretary from October 2016 to November 2020. From June 2015 until October 2016, Mr. Spytek was Of Counsel at Winston & Strawn LLP, a law firm. Before returning to Winston & Strawn LLP, he served from December 2009 until April 2015 in a variety of roles with Mead Johnson Nutrition Company, a manufacturer of infant formula, including as Vice President, Deputy General Counsel and Assistant Secretary from April 2013 to April 2015 and as Vice President, Associate General Counsel and Assistant Secretary from December 2009 to April 2013. Before that, Mr. Spytek served as Senior Vice President, General Counsel and Secretary at SIRVA, Inc., a moving and relocation services provider, from February 2006 to February 2009. Before joining SIRVA, Inc., Mr. Spytek was a partner at Winston & Strawn LLP, which he joined as an associate in 1996.\n\u200b\nSteven J. Younes\n has served as our Chief Human Resources Officer since January 2022. He also served as Senior Vice President from January 2022 to May 2023. Mr. Younes joined Lamb Weston from Loews Hotels & Co., a hospitality company, where he served as Executive Vice President and Chief Human Resources Officer from April 2019 through December 2021. Prior to that, Mr. Younes was Senior Vice President of Human Resources for Ascension, a not-for-profit healthcare company, from July 2013 to December 2018. An employment lawyer by background, he spent 12 years in private practice and served as employment counsel to a number of organizations earlier in his career. Mr. Younes has more than 30 years of experience in human resources and employment law.\n\u200b\nEthics and Governance\n\u200b\nWe have adopted a code of conduct that applies to all of our employees, as well as a code of ethics for senior corporate financial officers that applies to our Chief Executive Officer, Chief Financial Officer, and Controller. These codes are available on our website at www.lambweston.com through the \u201cInvestors \u2013 Corporate Governance\u201d link. We will disclose any waiver we grant to our Chief Executive Officer, Chief Financial Officer, or Controller under our codes, or certain amendments to the codes, on our website at www.lambweston.com.\n\u200b\nIn addition, we adopted Corporate Governance Principles and charters for the Audit and Finance Committee, Nominating and Corporate Governance Committee, and Compensation and Human Capital Committee. All of these materials are available on our website at www.lambweston.com and will be provided free of charge to any stockholder requesting a copy by writing to: Corporate Secretary, Lamb Weston Holdings, Inc., 599 S. Rivershore Lane, Eagle, Idaho 83616. \n\u200b\nThe information on our website is not, and shall not be deemed to be, a part of this Form 10-K or incorporated into any other filings we make with the SEC.\n\u200b\nFood Safety and Labeling\n\u200b\nWe are subject to extensive regulation, including, among other things, the Food, Drug and Cosmetic Act, as amended by the Food Safety Modernization Act, the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, and the rules and regulations promulgated thereunder by the U.S. Food and Drug Administration (\u201cFDA\u201d). This comprehensive and evolving regulatory program governs, among other things, the manufacturing, composition and ingredients, labeling, packaging, and safety of food, including compliance with current Good Manufacturing Practices. In addition, the Nutrition Label Reform Act of 2016 and regulations promulgated thereunder by the FDA prescribe the format and content in which specific nutrition information is required to appear on the labels of food products. We are also subject to regulation by certain other governmental agencies, including the U.S. Department of Agriculture.\n\u200b\nOur operations and products are also subject to state and local regulation, including the registration and licensing of production facilities, enforcement by state health agencies of various state standards, and the registration and inspection of facilities. Compliance with federal, state, and local regulation is costly and time-consuming. Enforcement actions for violations of federal, state, and local regulations may include seizure and condemnation of products, cease and desist orders, injunctions, voluntary or mandatory recalls or market withdrawals of products, and monetary penalties. We believe that our practices are sufficient to maintain compliance with applicable government regulations.\n\u200b\n11\n\n\nTable of Contents\nEnvironmental, Health and Safety Regulations\n\u200b\nWe are subject to a number of foreign, domestic, federal, state, and local laws and other regulations relating to the protection of human health, the environment and the safety and health of personnel. These requirements apply to a broad range of our activities, including: the regulation and discharge of pollutants into the air, land and water; the identification, generation, storage, handling, transportation, disposal, recordkeeping, labeling, spill prevention and reporting of, and emergency response in connection with, hazardous materials and chemical substances; noise and odor emissions from our facilities; and safety and health standards, practices, and procedures that apply to the workplace and the operation of our facilities. \n\u200b\nIn order to comply with these requirements, we may need to spend substantial amounts of money and other resources from time to time to: (i) construct or acquire new equipment, (ii) acquire or amend permits to authorize facility operations, (iii) modify, upgrade, or replace existing and proposed equipment, and (iv) clean up or decommission our facilities or other locations in accordance with regulatory requirements. Our capital and operating budgets include costs and expenses associated with complying with these laws and other requirements. \n\u200b\nAvailable Information\n\u200b\nWe make available, free of charge on our website at www.lambweston.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. We use our website, through the \u201cInvestors\u201d link, as a channel for routine distribution of important information, including news releases, analyst presentations, and financial information. The information on our website is not, and shall not be deemed to be, a part of this Form 10-K or incorporated into any other filings we make with the SEC unless expressly noted in other such filings.\n\u200b",
+  "item1a": ">ITEM 1A. RISK FACTORS\n \n\u00a0\nOur business is subject to various risks and uncertainties. Any of the risks and uncertainties described below could materially and adversely affect our business, financial condition, and results of operations and should be considered in evaluating us. Although the risks are organized by heading, and each risk is described separately, many of the risks are interrelated. While we believe we have identified and discussed below the material risks affecting our business, there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be material that may adversely affect our business, financial condition, or results of operations in the future.\n\u200b\nBusiness and Operating Risks\n\u200b\nWe may not be able to offset cost increases due to inflationary pressures on inputs necessary for the production and distribution of our products, such as labor, raw materials, energy, fuel, and packaging materials. \n\u200b\nA significant portion of our cost of goods comes from commodities such as raw potatoes, edible oil, grains, starches, and energy. These commodities are subject to price volatility and fluctuations in availability caused by many factors, including: changes in global supply and demand, weather conditions (including any potential effects of climate change), fire, natural disasters (such as a hurricane, tornado, earthquake, wildfire or flooding), disease or pests, agricultural uncertainty, water stress, health epidemics or pandemics or other contagious outbreaks, such as the COVID-19 pandemic, governmental incentives and controls (including import/export restrictions, such as new or increased tariffs, sanctions, quotas or trade barriers including the financial and economic sanctions imposed by the U.S. and certain foreign governments in response to the war in Ukraine), limited or sole sources of supply, inflation, political uncertainties, acts of terrorism, governmental instability, war, or currency exchange rates.\n\u200b\n12\n\n\nTable of Contents\nDuring fiscal 2023, we experienced significantly elevated commodity and supply chain costs, including the costs of labor, raw materials, energy, fuel, packaging materials, and other inputs necessary for the production and distribution of our products.\n \nFor example, labor shortages and inflation have increased our costs. Additionally, we expect to face continued industry-wide cost inflation for various inputs, including commodities, ingredients, packaging materials, other raw materials, transportation, warehousing, and labor. Commodity price increases, or a sustained interruption or other constraints in the supply or availability of key commodities, including necessary services such as transportation and warehousing, could adversely affect our business, financial condition, and results of operations. Our attempts to offset these cost pressures, such as through increases in the selling prices of some of our products, may not be successful. Higher product prices may result in reductions in sales volume. To the extent that price increases are not sufficient to offset these increased costs adequately or in a timely manner, and/or if they result in significant decreases in sales volume, our business, financial condition, or results of operations may be adversely affected. \n\u200b\nWe also may not be successful in mitigating the effects of these cost increases through productivity initiatives or through our commodity hedging activity. Our future success and earnings growth depend in part on our ability to maintain the appropriate cost structure and operate efficiently in the highly competitive value-added frozen potato product category. We continue to implement profit-enhancing initiatives that improve the efficiency of our supply chain and general and administrative functions. These initiatives are focused on cost-saving opportunities in procurement, manufacturing, logistics, and customer service, as well as general and administrative functions. However, gaining additional efficiencies may become more difficult over time. In addition, there is currently no active derivatives market for potatoes in the U.S. Although we have experience in hedging against commodity price increases, these practices and experience reduce, but do not eliminate, the risk of negative profit impacts from commodity price increases. As a result, the risk management procedures that we use may not always work as we intend. To the extent we are unable to offset present and future cost increases, our business, financial condition, and results of operations could be materially and adversely affected.\n\u200b\nDisruption to our supply chain could adversely affect our business\n.\n\u200b\nOur ability to manufacture or sell our products may be impaired by damage or disruption to our manufacturing, warehousing or distribution capabilities, or to the capabilities of our suppliers, logistics service providers, or independent distributors. This damage or disruption could result from execution issues, as well as factors that are difficult to predict or beyond our control such as increased temperatures due to climate change, water stress, extreme weather events, natural disasters, product or raw material scarcity, fire, terrorism, pandemics (such as the COVID-19 pandemic), armed hostilities (including the ongoing war in Ukraine), strikes, labor shortages, cybersecurity breaches, governmental restrictions or mandates, disruptions in logistics, supplier capacity constraints, or other events. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, may adversely affect our business, financial condition, and results of operations. Further, the inability of any supplier, logistics service provider, or independent distributor to deliver or perform for us in a timely or cost-effective manner could cause our operating costs to increase and our profit margins to decrease. We have experienced, and may continue to experience, disruptions in our supply chain, including as a result of temporary workforce disruptions, labor shortages, increased transportation and warehousing costs, and other factors related to the effects of the COVID-19 pandemic and the ongoing war in Ukraine. In addition, the occurrence of a significant supply chain disruption or the inability to access or deliver products that meet requisite quality and safety standards in a timely and efficient manner, could lead to increased warehouse and other storage costs or otherwise adversely affect our profitability and weaken our competitive position or harm our business.\n\u200b\nLabor shortages or stoppages, an inability to attract and retain key personnel, increased turnover or increases in labor costs could adversely affect our business, financial condition, and results of operations.\n\u200b\nLabor is a primary component of operating our business. A number of factors may adversely affect the labor force available to us or increase labor costs, including high employment levels, federal unemployment subsidies, including unemployment benefits offered in response to the COVID-19 pandemic, and other government regulations. The labor market has become increasingly tight and competitive, and we may face sudden and unforeseen challenges in the availability of labor, such as we have experienced during fiscal 2022 and 2023 at some of our production facilities, which reduced our production run-rates and increased our manufacturing costs. A sustained labor shortage or increased turnover rates within our workforce, caused by COVID-19 or as a result of general macroeconomic factors, have led and could in the future lead to production or shipping delays, increased costs, such as increased overtime to meet demand and increased \n13\n\n\nTable of Contents\nwage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our production and distribution facilities and overall business. Further, our success depends on our ability to attract, retain, and develop effective leaders and personnel with professional and technical expertise, such as agricultural and food manufacturing experience, as well as finance, marketing, and other senior management professionals. The loss of the services of these persons could deplete our institutional knowledge and could have a material adverse effect on our business, financial condition, and results of operations. The market for these employees is competitive, and we could experience difficulty from time to time in hiring and retaining the personnel necessary to support our business. Our ability to recruit and retain a highly skilled workforce could also be materially impacted if we fail to adequately respond to rapidly changing employee expectations regarding fair compensation, an inclusive and diverse workplace, flexible working, or other matters. If we are unable to hire and retain employees capable of performing at a high-level, develop adequate training and succession plans for leadership positions, or if mitigation measures we may take to respond to a decrease in labor availability, such as overtime and third-party outsourcing, have unintended negative effects, our business could be adversely affected. \nSimilarly, we have been negatively impacted and may in the future continue to be negatively impacted by labor shortages or increased labor costs experienced by our third-party business partners, including our logistics providers, suppliers, and customers. For example, \nreduced availability of trucking capacity due to shortages of drivers, primarily as a result of the COVID-19 pandemic, caused an increase in the cost of transportation for us and our suppliers in fiscal 2022. An overall labor shortage, lack of skilled labor, increased turnover, or labor inflation, caused by COVID-19 or as a result of general macroeconomic factors, could have a material adverse impact on our business, financial condition, and results of operations.\n\u200b\nIn addition, health care and workers\u2019 compensation costs are increasing. Inflationary pressures and any shortages in the labor market could continue to increase labor costs, which could have a material adverse effect on our business, financial condition, or results of operations. Our labor costs include the cost of providing employee benefits in the U.S. and foreign jurisdictions, including pension, health and welfare, and severance benefits. Changes in interest rates, mortality rates, health care costs, early retirement rates, investment returns, and the market value of plan assets can affect the funded status of our defined benefit plans and cause volatility in the future funding requirements of the plans. A significant increase in our obligations or future funding requirements could have a negative impact on our results of operations and cash flows from operations. Additionally, the annual costs of benefits vary with increased costs of health care and the outcome of collectively bargained wage and benefit agreements. Furthermore, we may be subject to increased costs or experience adverse effects on our operating results if we are unable to renew collectively bargained agreements on satisfactory terms as they expire. Our financial condition and ability to meet the needs of our customers could be materially and adversely affected if strikes or work stoppages or interruptions occur as a result of delayed negotiations with union-represented employees within or outside the U.S.\n\u200b\nChanges in our relationships with our growers could adversely affect us.\n\u200b\nWe expend considerable resources to develop and maintain relationships with many potato growers. In some instances, we have entered into long-term agreements with growers; however, a portion of our potato needs are sourced on an annual contracted basis. To the extent we are unable to maintain positive relationships with our long-term growers, contracted growers deliver less supply than we expect, or we are unable to secure sufficient potatoes from uncontracted growers in a given year, we may not have sufficient potato supply to satisfy our business opportunities. To obtain sufficient potato supply, we may be required to purchase potatoes at prices substantially higher than expected, or forgo sales to some market segments, which would reduce our profitability. If we forgo sales to such market segments, we may lose customers and may not be able to regain or replace them later.\n\u200b\n14\n\n\nTable of Contents\nPandemics or other contagious outbreaks and government actions taken in response thereto, may adversely impact, and in the case of the COVID-19 pandemic, have adversely impacted and may continue to adversely impact, our business, financial condition, and results of operations.\n\u200b\nThe ultimate impact that the COVID-19 pandemic and any future pandemic or other contagious outbreak will have on our business, financial condition, and results of operations is uncertain. Although COVID-19-related restrictions, such as quarantines, travel bans, shutdowns and shelter-in-place orders, have generally been lifted, these restrictions and measures, and our efforts to act in the best interests of our employees, customers, suppliers, vendors, joint ventures, and other business partners, have affected and may continue to affect our business and operations. Some of the impacts our business has experienced, and may continue to experience, as a result of the COVID-19 pandemic, or any future pandemic or other contagious outbreak, include, but are not limited to, the following:\n\u200b\n\u25cf\ndecreased sales to our foodservice customers resulting from the closure or reduction in capacity of many full-service restaurants and other commercial operations (e.g., hotels, schools and universities, sporting venues), which caused and can cause a significant reduction in consumer traffic; \n\u25cf\nreduced demand at quick service restaurants, in particular in our international markets where most consumption is dine-in or carry-out as drive-thru options are more limited; \n\u25cf\nshutdowns of one or more of our production facilities or lines, or disruption in our production timing and operations, including but not limited to, as a result of illness, labor shortages, government restrictions, or other workforce disruptions; \n\u25cf\ncontinued commodity cost volatility, including higher edible oil, grain, and starch costs, which may not be sufficiently offset by our commodity hedging activities; \n\u25cf\nincreased transportation and warehousing costs, as well as disruptions in the transport of goods, including limited availability of shipping containers, from our supply chain to us and from us to our customers, which caused us to rely more heavily on higher cost transportation to maintain customer service levels; \n\u25cf\ndisruptions to our distribution capabilities or to our distribution channels, including those of our suppliers, logistics service providers, or independent distributors;\n\u25cf\nfailure of third parties on which we rely, including but not limited to, those that supply our packaging, ingredients, equipment and other necessary operating materials, co-manufacturers and independent contractors, to meet their obligations to us, or significant disruptions in their ability to do so;\n\u25cf\na change in demand for, or availability of, one or more of our products as a result of restaurants, other foodservice providers, retailers, or distributors, modifying their inventory, fulfillment or shipping practices;\n\u25cf\nincreased reliance on our information technology system as a result of work-from-home Company policies, causing us to be more vulnerable to cyberattacks or other disruptions as a result of team members accessing our networks and systems from off-site; and\n\u25cf\nbusiness disruptions and uncertainties related to a future pandemic for a sustained period of time could result in delays or modifications to our strategic plans, capital expansion projects and other initiatives and hinder our ability to achieve anticipated cost savings and productivity initiatives on the original timelines.\n\u200b\nThese impacts have caused, and may continue to cause, changes in the mix of products sold, decreases in revenue, and increases in costs resulting in decreased profitability and cash flows from operations, which have caused, and may continue to cause, an adverse effect on our business, financial condition, and results of operations that may be material. COVID-19 has disrupted, and the spread of future pandemics or other contagious outbreaks may also disrupt, our customers, suppliers, vendors and joint venture and other business partners, and each of their financial conditions. Any material adverse effect on these parties could adversely impact us. In this regard, the potential duration and impacts of pandemics or other contagious outbreaks such as the COVID-19 pandemic, including the emergence and spread of COVID-19 variants and the continued availability and effectiveness of vaccines in the markets where we operate, on the global economy and on our business, financial condition, and results of operations are difficult to predict and cannot be estimated with any degree of certainty. The pandemic has resulted in significant disruption of global financial markets, labor shortages, supply chain interruptions, increased commodity costs, inflation, and economic uncertainty, which has adversely impacted our business and may continue to do so. \n\u200b\n15\n\n\nTable of Contents\nOur business, financial condition, and results of operations could be adversely affected by the political and economic conditions of the countries in which we conduct business and other factors related to our international operations, including foreign currency risks and trade barriers.\n\u200b\nWe conduct a substantial and growing amount of business with customers located outside the U.S., including through our joint ventures. During each of fiscal 2023, 2022 and 2021, net sales outside the U.S., primarily in Australia, Canada, China, Europe, Japan, Korea, Mexico, and Taiwan, accounted for approximately 23%, 17%, and 17% of our net sales, respectively. The amounts for fiscal 2022 and 2021 do not include any impact of unconsolidated net sales associated with LWAMSA and LW EMEA, which are also subject to risks associated with international operations. In fiscal 2023, we acquired additional equity interests in LWAMSA and LW EMEA, thereby increasing our ownership in LWAMSA and LW EMEA to 90% and 100%, respectively. We began consolidating the financial results of LWAMSA and LW EMEA in our consolidated financial statements in the first quarter and fourth quarter of fiscal 2023, respectively. \u00a0\n\u200b\nFactors relating to our domestic and international sales and operations, many of which are outside of our control, have had, and could continue to have, a material adverse impact on our business, financial condition, and results of operations, including:\n\u25cf\npandemics and other public health crises, such as the flu, which may lead, and in the case of the COVID-19 pandemic, have led, to measures that decrease revenues, disrupt our supply chain or otherwise increase our storage, production or distribution costs and adversely affect our workforce, local suppliers, customers and consumers of our products;\n\u25cf\nforeign exchange rates, foreign currency exchange and transfer restrictions, which may unpredictably and adversely impact our combined operating results, asset and liability balances, and cash flow in our consolidated financial statements, even if their value has not changed in their original currency;\n\u25cf\nour consolidated financial statements are presented in U.S. dollars, and we must translate the assets, liabilities, revenue and expenses into U.S. dollars for external reporting purposes; \n\u25cf\nchanges in trade, monetary and fiscal policies of the U.S. and foreign governments, including modification or termination of existing trade agreements or treaties (e.g., the U.S. \u2013 Mexico \u2013 Canada Agreement), creation of new trade agreements or treaties, trade regulations, and increased or new tariffs, sanctions, quotas, import or export licensing requirements, and other trade barriers imposed by governments. In particular, changes in U.S. trade programs and trade relations with other countries, including the imposition of trade protection measures by foreign countries in favor of their local producers of competing products, such as governmental subsidies, tax benefits, and other measures giving local producers a competitive advantage over Lamb Weston, may adversely affect our business and results of operations in those countries; \n\u25cf\nchanges in capital controls, including currency exchange controls, government currency policies or other limits on our ability to import raw materials or finished products into various countries or repatriate cash from outside the United States;\n\u25cf\nnegative economic developments in economies around the world and the instability of governments, including the actual or threat of wars, terrorist attacks, epidemics or civil unrest, including the war in Ukraine;\n\u25cf\nearthquakes, tsunamis, droughts, floods or other major disasters that may limit the supply of raw materials that are purchased abroad for use in our international operations or domestically; \n\u25cf\nvolatile commodity prices and increased costs of raw and packaging materials, labor, energy and transportation, disruptions in shipping or reduced availability of freight transportation and warehousing, such as the reduced availability of shipping containers that we encountered in fiscal 2022;\n\u25cf\ndiffering employment practices and labor standards in the international markets in which we operate; \n\u25cf\ndiffering levels of protection of intellectual property across the international markets in which we operate;\n\u25cf\ndifficulties and costs associated with complying with U.S. laws and regulations applicable to entities with overseas operations, including the Foreign Corrupt Practices Act; \n\u25cf\nthe threat that our operations or property could be subject to nationalization and expropriation; \n\u25cf\nvarying regulatory, tax, judicial and administrative practices in the international markets in which we operate;\n\u25cf\ndifficulties associated with operating under a wide variety of complex foreign laws, treaties and regulations; and \n\u25cf\npotentially burdensome taxation.\n\u200b\n16\n\n\nTable of Contents\nThe nature and degree of the various risks we face can differ significantly among our regions and businesses. All of these factors could result in increased costs or decreased revenues and could have an adverse effect on our business, financial condition, and results of operations.\n\u200b\nOur business, financial condition, and results of operations could be adversely affected by disruptions in the global economy related to the ongoing war in Ukraine.\n\u200b\nThe global economy has been negatively impacted by the ongoing war in Ukraine. Further, the U.S. and certain foreign governments, including those of the European Union, have imposed financial and economic sanctions on certain industry sectors and parties in Russia. In this regard, in September 2022, LW EMEA completed its previously announced withdrawal from its joint venture that operated a production facility in Russia. Increased trade barriers or restrictions on global trade also could adversely affect our business, financial condition, and results of operations. Although LW EMEA has exited the Russian market and we have no operations in Russia or Ukraine, we have experienced shortages in materials and increased costs for transportation, energy, and raw material due in part to the negative impact of the war in Ukraine on the global economy. The scope and duration of the war in Ukraine is uncertain, rapidly changing and hard to predict. Further escalation of geopolitical tensions related to the military conflict could result in cyberattacks, supply disruptions, plant closures and an inability to obtain key supplies and materials, as well as adversely affect our business and our supply chain, our international subsidiaries and joint ventures, business partners or customers in the broader region, including our European growing regions for potatoes. We operate processing facilities in Europe, including Austria, the Netherlands and the United Kingdom. In many instances, these sites depend on the availability of natural gas for use in the production of products, which may originate from Russia. Destabilizing effects that the military conflict may pose for the European continent or the global oil and natural gas markets could adversely impact our ability to operate these facilities. In addition, the effects of the military conflict could heighten many of our other risks described in this Form 10-K.\n\u200b\nChanges in our relationships with significant customers could adversely affect us.\n\u200b\nWe maintain a diverse customer base across our reporting segments. Customers include global, national and regional quick service and fast casual restaurants as well as small, independently operated restaurants, multinational, broadline foodservice distributors, regional foodservice distributors, and major food retailers. Some of these customers independently represent a meaningful portion of our sales. In addition, we depend on foodservice distributors to help us create end-customer demand, provide technical support and other value-added services to customers, fill customer orders, and stock our products. A material change in our relationship with one or more of these distributors or their failure to perform as expected could reduce our revenue. The foodservice distributors also sell products that compete with our products, and we sometimes need to reduce prices or provide rebates and other incentives to focus them on the sale of our products. \n\u200b\nThere can be no assurance that our customers will continue to purchase our products in the same quantities or on the same terms as in the past. The loss of a significant customer or a material reduction in sales to a significant customer could materially and adversely affect our business, financial condition, and results of operations. In addition, the financial condition of our significant customers, including restaurants, distributors and retailers, are affected by events that are largely beyond our control, such as the impacts of the COVID-19 pandemic and possible future pandemics or other contagious outbreaks, and political or military conflicts, such as the war in Ukraine. Specifically, some customers, including McDonald\u2019s Corporation, have exited from Russia. Deterioration in the financial condition of significant customers could materially and adversely affect our business, financial condition, and results of operations.\n\u200b\nDisruption of our access to export mechanisms could have an adverse impact on our business, financial condition, and results of operations.\n\u200b\nTo serve our customers globally, we rely in part on our international joint venture and operations, but also on exports from the U.S. During fiscal 2023, 2022, and 2021, export sales from the U.S. accounted for approximately 11%, 12% and 13%, respectively, of our total net sales. Circumstances beyond our control, such as a labor dispute at a port, or workforce disruption, including those due to pandemics such as the COVID-19 pandemic or other contagious outbreaks, could prevent us from exporting our products in sufficient quantities to meet customer opportunities. During the latter half of fiscal 2022, limited shipping container availability along the U.S. West Coast and disruptions to ocean freight networks \n17\n\n\nTable of Contents\nacross the Pacific Ocean resulted in lower export volumes in our Global segment. We have access to production outside of the U.S. through our facilities in Australia, Austria, Canada, China, the Netherlands, the United Kingdom, and a joint venture in Argentina, but we may be unsuccessful in mitigating any future disruption to export mechanisms. If this occurs, we may be unable to adequately supply all our existing customers\u2019 needs and new customer opportunities, which could adversely affect our business, financial condition, and results of operations.\n\u200b\nOur operations are dependent on a wide array of third parties. \n\u200b\nThe success of our end-to-end supply chain relies on the continued performance of a wide array of third parties. Suppliers, co-packers, third-party outsourcers, warehousing partners, and transportation providers are among our critical partners. Although we take steps to qualify and audit third parties with whom we do business, we cannot guarantee that all third parties will perform dependably or at all. It is possible that events beyond our control, such as operational failures, labor issues, heightened inflation, recession, financial and credit market disruptions, or other economic conditions, cybersecurity events, global geopolitical conflict, such as the war in Ukraine, pandemics or other health issues, such as COVID-19, or other issues could impact our third parties. If our third parties fail to deliver on their commitments, introduce unplanned risk to our operations (e.g., through cyber activity), or are unable to fulfill their obligations, we could experience manufacturing challenges, shipment delays, increased costs, or lost revenue, which could also impact our relationships with customers and our brand image. \n\u200b\nIn addition to our own production facilities, we source a portion of our products under co-packing agreements. The success of our business depends, in part, on maintaining a strong sourcing and manufacturing platform. We believe that there are a limited number of competent, high-quality co-packers in the industry, and if we were required to obtain additional or alternative co-packing agreements or arrangements in the future, we can provide no assurance that we would be able to do so on satisfactory terms or in a timely manner. Our inability to enter into satisfactory co-packing agreements could limit our ability to implement our business plan or meet customer demand.\n\u200b\nDamage to our reputation as a trusted partner to customers and good corporate citizen could have a material adverse effect on our business, financial condition, and results of operations.\n \n\u200b\nOur customers rely on us and our co-manufacturers to manufacture safe, high quality food products. Product contamination or tampering, the failure to maintain high standards for product quality, safety, and integrity, or allegations of product quality issues, mislabeling or contamination, even if untrue, may damage the reputation of our customers, and ultimately our reputation as a trusted industry partner. Damage to either could reduce demand for our products or cause production and delivery disruptions.\n\u200b\nOur reputation could also be adversely impacted by any of the following, or by adverse publicity (whether or not valid) relating thereto: the failure to maintain high ethical, social, and environmental standards for our operations and activities, including the health, safety, and security of our employees; our research and development efforts; our environmental impact, including use of agricultural materials, packaging, energy use, and waste management, and the failure to achieve any stated goals with respect to such matters; our failure to comply with local laws and regulations; our failure to maintain an effective system of internal controls; or our failure to provide accurate and timely financial information. Moreover, the growing use of social and digital media by consumers and other stakeholders has greatly increased the speed and extent that information or misinformation and opinions can be shared. Damage to our reputation or loss of customer confidence in our products for any of these or other reasons could result in decreased demand for our products and could have a material adverse effect on our business, financial condition, and results of operations, as well as require additional resources to rebuild our reputation.\n\u200b\nIf we are unable to execute on large capital projects, our business, financial condition, and results of operations could be materially and adversely affected.\n\u200b\nDemand for frozen potato products is growing, and we believe that this demand will continue to grow over the long-term. To support our customers\u2019 growth, we believe we must invest in our production capabilities either through capital expansion or acquisitions. In 2021 and 2022, we announced capital investments in new french fry processing lines in American Falls, Idaho, and new french fry processing facilities in Argentina, China, and the Netherlands. If we are \n18\n\n\nTable of Contents\nunable to complete these or other large capital projects, or encounter unexpected delays, higher costs or other challenges, including those related to supply chain disruptions and availability of necessary labor, materials, and equipment, our business, financial condition, and results of operations could be materially and adversely affected.\n\u200b\nOur results may be adversely affected by our inability to complete or realize the projected benefits of acquisitions, divestitures and other strategic transactions.\n\u200b\nOur ability to meet our objectives with respect to acquisitions and other strategic transactions may depend in part on our ability to identify suitable counterparties, negotiate favorable financial and other contractual terms, obtain all necessary regulatory approvals on the terms expected and complete those transactions. Potential risks also include:\n\u200b\n\u25cf\nthe inability to integrate acquired businesses into our existing operations in a timely and cost-efficient manner, including our recent acquisition of the remaining equity interests in LW EMEA;\n\u25cf\ndiversion of management's attention from other business concerns;\n\u25cf\npotential loss of key employees, suppliers and/or customers of acquired businesses;\n\u25cf\nassumption of unknown risks and liabilities;\n\u25cf\nthe inability to achieve anticipated benefits, including revenues or other operating results;\n\u25cf\noperating costs of acquired businesses may be greater than expected;\n\u25cf\ndifficulties integrating personnel and financial and other systems;\n\u25cf\ninaccurate estimates of fair value made in the accounting for acquisitions and amortization of acquired intangible assets, which would reduce future reported earnings;\n\u25cf\nindemnities and potential disputes with the sellers; and\n\u25cf\nthe inability to promptly implement an effective control environment.\n\u200b\nIf we are unable to complete or realize the projected benefits of recent or future acquisitions, including our acquisition of LW EMEA, divestitures or other strategic transactions, our business or financial results may be adversely impacted.\n\u200b\nIndustry Risks\n\u200b\nOur business is affected by potato crop performance.\n\u200b\nOur primary input is potatoes and every year, we must procure potatoes that meet the quality standards for processing into value-added products. Environmental and climate conditions, such as soil quality, moisture, and temperature, affect the yield and quality of the potato crop on a year-to-year basis. As a result, we source potatoes from specific regions of the U.S. and specific countries abroad, including Argentina, Australia, Austria, Belgium, Canada, China, France, Germany, the Netherlands, and the United Kingdom, where we believe the optimal potato growing conditions exist. However, severe weather conditions, including protracted periods of extreme heat or cold, during the planting and growing season in these regions can significantly affect potato crop performance, such as the extreme heat in the Pacific Northwest in the summer of 2021 and the drought in Europe during fiscal 2019, both of which resulted in poor crop and significantly limited supply. Further, because of the poor quality of the crop in the Pacific Northwest that was harvested in fall 2021, we encountered lower raw potato utilization rates in our production facilities during the second half of fiscal 2022 and early fiscal 2023, which increased our production costs. On the other hand, too much water, such as in times of prolonged heavy rainfalls or flooding, can promote harmful crop conditions like mildew growth and increase risks of diseases, as well as affect our ability to harvest the potatoes. Potatoes are also susceptible to pest diseases and insects that can cause crop failure, decreased yields, and negatively affect the physical appearance of the potatoes. We have deep experience in agronomy and actively work to monitor the potato crop. However, if a weather or pest-related event occurs in a particular crop year, and our agronomic programs are insufficient to mitigate the impacts thereof, we may have insufficient potatoes to meet our existing customers\u2019 needs and new customer opportunities, or we may experience manufacturing inefficiencies and higher costs, and our competitiveness and profitability could decrease. Alternatively, overly favorable growing conditions can lead to high per acre yields and over-supply. An increased supply of potatoes could lead to overproduction of finished goods and associated increased storage costs or destruction of unused potatoes at a loss.\n\u200b\n19\n\n\nTable of Contents\nOur business relies on a potato crop that has a concentrated growing region.\n\u200b\nIdeal growing conditions for the potatoes necessary for our value-added products (e.g., french fries) are concentrated in a few geographic regions globally. In the U.S., most of the potato crop used in value-added products is grown in Washington, Idaho, and Oregon. European growing regions for the necessary potatoes are concentrated in Austria, Belgium, Germany, France, the Netherlands, and the United Kingdom. Recent agronomic developments have opened new growing regions, but the capital-intensive nature of our industry\u2019s production processes has kept production highly concentrated in the historical growing regions noted above. Unfavorable crop conditions in any one region could lead to significant demand on the other regions for production, which occurred in connection with the drought in Europe during fiscal 2019. Our inability to mitigate any such conditions by leveraging our production capabilities in other regions could negatively impact our ability to meet existing customers\u2019 needs and new customer opportunities and could decrease our profitability. See also \u201c- Legal and Regulatory Risks - Climate change, or legal, regulatory, or market measures to address climate change, may negatively affect our business and operations,\u201d in this Item 1A. Risk Factors below.\n\u200b\nThe sophistication and buying power of some of our customers could have a negative impact on profits.\n \n\u200b\nSome of our customers are large and sophisticated, with buying power and negotiating strength. These customers may be more capable of resisting price increases and more likely to demand lower pricing, increased promotional programs, or specialty tailored products. In addition, some of these customers (e.g., larger distributors and supermarkets) have the scale to develop supply chains that permit them to operate with reduced inventories or to develop and market their own brands. Shelf space at food retailers is not guaranteed, and large retail customers may choose to stock their own retailer and other economy brands that compete with some of our products. This could be exacerbated with a shift in consumer spending as a result of an economic downturn and consumers moving to private label or lower priced products. If the initiatives we undertake to counteract these pressures, including efficiency programs and investments in innovation and quality, are unsuccessful and we are unable to counteract the negotiating strength of these customers, our profitability could decline. \n\u200b\nIncreased competition may result in reduced sales or profits.\n\u200b\nOur business, value-added frozen potato products, is highly competitive. Competitors include large North American and European frozen potato product companies that compete globally, local and regional companies, and retailers and foodservice distributors with their own branded and private label products. Some of our competitors are larger and have substantial financial, sales and marketing, and other resources. We compete based on, among other things, customer service, value, product innovation, product quality, brand recognition and loyalty, price, and the ability to identify and satisfy customer preferences. A strong competitive response from one or more of our competitors to our marketplace efforts could result in us reducing pricing, increasing spend on promotional activity, or losing market share. Competitive pressures may restrict our ability to increase prices, including in response to commodity and other input cost increases or additional improvements in product quality. Our profits could decrease if a reduction in prices or increased costs are not counterbalanced with increased sales volume. \n\u200b\nIncreased industry capacity may result in reduced sales or profits.\n\u200b\nIn recent years, market demand for value-added frozen potato products has exceeded industry capacity to produce these products. As additional industry capacity comes online, or market demand otherwise decreases, including as a result of inflation or pandemics such as the COVID-19 pandemic or other contagious outbreaks, we may face competitive pressures that would restrict our ability to increase or maintain prices, or we may lose market share. For example, during fiscal 2021, we faced increased pricing pressure for private label products due to excess production capacity in Europe that resulted from decreased demand following government-imposed COVID-related social restrictions, which caused us to lose some private label volume. Our profits would decrease as a result of a reduction in prices or sales volume.\n\u200b\n20\n\n\nTable of Contents\nWe must identify changing consumer preferences and consumption trends and develop and offer food products to our customers that help meet those preferences and trends.\n\u200b\nConsumer preferences evolve over time and our success depends on our ability to identify the tastes and dietary habits of consumers and offer products that appeal to those preferences. We need to continue to respond to these changing consumer preferences and support our customers in their efforts to evolve to meet those preferences. For example, as consumers continue to focus on freshly prepared foods, some restaurants may choose to limit the frying capabilities of their kitchens. As a result, we must evolve our product offering to provide alternatives that work in such a preparation environment. In addition, our products contain carbohydrates, sodium, genetically modified ingredients, added sugars, saturated fats, and preservatives, the diet and health effects of which remain the subject of public scrutiny. We must continue to reformulate our products, introduce new products and create product extensions without a loss of the taste, texture, and appearance that consumers demand in value-added potato products. All of these efforts require significant research and development and marketing investments. If our products fail to meet consumer preferences or customer requirements, or we fail to introduce new and improved products on a timely basis, then the return on those investments will be less than anticipated, which could materially and adversely affect our business, financial condition, and results of operations.\n\u200b\nIn addition, we compete against branded products as well as private label products. Our products must provide higher value and/or quality to our customers and consumers than alternatives, particularly during periods of economic uncertainty. Consumers may not buy our products if relative differences in value and/or quality between our products and private label products change in favor of competitors\u2019 products or if consumers perceive this type of change. If consumers prefer private label products, which are typically sold at lower prices, then we could lose market share or sales volumes or shift our product mix to lower margin offerings. During an economic downturn, factors such as increased unemployment, decreases in disposable income, inflation, and declines in consumer confidence could cause a decrease in demand for our overall product offerings, particularly higher priced products, which could materially and adversely affect our business, financial condition, and results of operations. Distributors, restaurants, and retailers may also become more conservative in response to these conditions and seek to reduce their inventories. A change in consumer preferences could also cause us to increase capital, marketing, and other expenditures, which could materially and adversely affect our business, financial condition, and results of operations.\n\u200b\nFinancial and Economic Risks\n\u200b\nOur substantial debt may limit cash flow available to invest in the ongoing needs of our business and could prevent us from fulfilling our debt obligations.\n\u200b\nWe have incurred substantial indebtedness. As of May 28, 2023, we had approximately $3.5 billion of debt, including current portion, and short-term borrowings, recorded on our Consolidated Balance Sheet. Our level of debt could have important consequences. For example, it could: \n\u200b\n\u25cf\nmake it more difficult for us to make payments on our debt;\n\u25cf\nrequire us to dedicate a substantial portion of our cash flow from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, and other general corporate purposes; \n\u25cf\nincrease our vulnerability to adverse economic or industry conditions; \n\u25cf\nlimit our ability to obtain additional financing in the future to enable us to react to changes in our business; or \n\u25cf\nplace us at a competitive disadvantage compared to businesses in our industry that have less debt.\n\u200b\nThe agreements governing our debt contain various covenants that impose restrictions on us that may affect our ability to operate our business.\n\u200b\nThe credit agreements governing our term loans and revolving credit facilities and the indentures governing our senior notes contain covenants that, among other things, limit our ability to: \n21\n\n\nTable of Contents\n\u25cf\nborrow money or guarantee debt;\n\u25cf\ncreate liens; \n\u25cf\npay dividends on or redeem or repurchase stock;\n\u25cf\nmake specified types of investments and acquisitions;\n\u25cf\nenter into agreements that limit the ability of our subsidiaries to pay dividends or other payments to us; \n\u25cf\nenter into transactions with affiliates; and\n\u25cf\nsell assets or merge with other companies.\n\u200b\nThese restrictions on our ability to operate our business could harm our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition, or other corporate opportunities. Various risks, uncertainties, and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. Also, the limitations imposed by these financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. \n\u200b\nIn addition, the restrictive covenants in our credit agreements require us to maintain specified financial ratios and satisfy other financial condition tests. We cannot provide assurance that we will continue to be in compliance with these ratios and tests. Our ability to continue to meet those financial ratios and tests will depend on our ongoing financial and operating performance, which, in turn, will be subject to economic conditions and to financial, market, and competitive factors, many of which are beyond our control. A breach of any of these covenants could result in a default under one or more of our debt instruments, including as a result of cross default provisions and, in the case of our revolving credit facility, permit the lenders thereunder to cease making loans to us. Upon the occurrence of an event of default under our credit facilities, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable and terminate all commitments to extend further credit. Such action by the lenders could cause cross-defaults under our senior notes indentures. \u00a0\n\u200b\nAny failure to meet required payments on our debt, or failure to comply with any covenants in the instruments governing our debt, could result in a downgrade to our credit ratings. A downgrade in our credit ratings could limit our access to capital and increase our borrowing costs.\n\u200b\nWe face risks related to heightened inflation, recession, financial and credit market disruptions,\n\u00a0\nand other economic conditions.\n\u200b\nCustomer and consumer demand for our products may be impacted by weak economic conditions, recession, equity market volatility, or other negative economic factors in the U.S. or other countries. For example, the U.S. experienced significantly heightened inflationary pressures in 2022, which have continued into 2023. In addition, if the U.S. economy enters a recession in fiscal 2024, we may experience sales declines and may have to decrease prices, all of which could have a material adverse impact on our business, financial condition, and results of operations.\n\u200b\n22\n\n\nTable of Contents\nSimilarly, disruptions in financial and/or credit markets may impact our ability to manage normal commercial relationships with our customers, suppliers, and creditors and\u00a0might cause us to not be able to continue to have access to preferred sources of liquidity when needed or on terms we find acceptable, and our borrowing costs could increase. An economic or credit crisis could occur and impair credit availability and our ability to raise capital when needed. In addition, disruptions in financial and/or credit markets could result in some of our customers experiencing a significant decline in profits and/or reduced liquidity. A significant adverse change in the financial and/or credit position of a customer could require us to assume greater credit risk relating to that customer and could limit our ability to collect receivables. A significant adverse change in the financial and/or credit position of a supplier or co-packer could result in an interruption of supply. This could have a material adverse effect on our business, financial condition, results of operations, and liquidity. A disruption in the financial markets may also have a negative effect on our derivative counterparties and could impair our banking or other business partners, on whom we rely for access to capital and as counterparties to our derivative contracts. In addition, changes in tax or interest rates in the U.S. or other countries, whether due to recession, economic disruptions, or other reasons, may adversely impact us.\n\u200b\nTechnology Risks\n\u200b\nWe are significantly dependent on information technology, and we may be unable to protect our information systems against service interruption, misappropriation of data, or breaches of security.\n\u200b\nWe rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic and financial information, to manage and support a variety of business processes and activities, and to comply with regulatory, legal, and tax requirements. We also depend upon our information technology infrastructure for digital marketing activities and for electronic communications among our locations, personnel, customers, third-party manufacturers and suppliers. The importance of such networks and systems has increased due to our adoption of flexible work-from-home policies for some of our functional support areas, which in turn has heightened our vulnerability to cyberattacks or other disruptions. Despite careful security and controls design, implementation and updating, monitoring and routine testing, independent third-party verification, and annual training of employees on information security and data protection, our information technology systems, some of which are dependent on services provided by third parties, may be vulnerable to, among other things, damage, invasions, disruptions, or shutdowns due to any number of causes such as catastrophic events, natural disasters, infectious disease outbreaks and other public health crises, fires, power outages, systems failures, telecommunications failures, security breaches, computer viruses, ransomware and malware, hackers, employee error or malfeasance, potential failures in the incorporation of artificial intelligence, and other causes. While we have experienced threats to our data and systems, to date, we are not aware that we have experienced a material breach to our systems. However, third parties, including our partners and vendors, could also be a source of security risk to us, or cause disruptions to our normal operations, in the event of a breach of their own products, components, networks, security systems, and infrastructure. For example, in December 2021, our third-party service provider for our workforce management software, the Ultimate Kronos Group (\u201cKronos\u201d), experienced a ransomware attack that resulted in Kronos temporarily decommissioning the functionality of certain of its cloud software, requiring us to find and implement other procedures to continue our payroll processes, which was time consuming and burdensome but did not have a material adverse impact on our business. In addition, in April 2023, Americold Realty Trust, Inc. (\u201cAmericold\u201d), a third-party finished goods storage provider, suffered a cyber incident that impacted its operations and resulted in considerable delays in the delivery of our products to our customers and interrupted other key business processes. While the incident impacted our business and we were unable to ship to certain customers for a short period of time, it did not have a material adverse impact on our business.\n\u200b\nAs evidenced by the attacks on Kronos and Americold, cyber threats are constantly evolving, are becoming more frequent and more sophisticated and are being made by groups of individuals with a wide range of expertise and motives, which increases the difficulty of detecting and successfully defending against them. Further, continued geopolitical turmoil, including the ongoing war in Ukraine, has heightened the risk of cyberattacks. Sophisticated cybersecurity threats, including potential cyberattacks from Russia targeted against the U.S., pose a potential risk to the security and viability of our information technology systems, as well as the confidentiality, integrity, and availability of the data stored on those systems, including cloud-based platforms. In addition, new technology, such as artificial intelligence, that could result in greater operational efficiency may further expose our computer systems to the risk of cyberattacks. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure and associated \n23\n\n\nTable of Contents\nautomated and manual control processes, we could be subject to billing and collection errors, business disruptions, or damage resulting from security breaches. If any of our significant information technology systems suffer severe damage, disruption, or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition, and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results. Any interruption of our information technology systems could have operational, reputational, legal, and financial impacts that may have a material adverse effect on our business, financial condition, and results of operations. Further, in the event our suppliers or customers experience a breach or system failure, their businesses could be disrupted or otherwise negatively affected, which may result in a disruption in our supply chain or reduced customer orders, which would adversely affect our business and financial results.\n\u200b\nIn addition, if we are unable to prevent security breaches or unauthorized disclosure of non-public information, we may suffer financial and reputational damage, litigation or remediation costs, fines, or penalties because of the unauthorized disclosure of confidential information belonging to us or to our partners, customers, or suppliers. Misuse, leakage, or falsification of information could result in violations of data privacy laws and regulations, potentially significant fines and penalties, damage to our reputation and credibility, loss of strategic opportunities, and loss of ability to commercialize products developed through research and development efforts and, therefore, could have a negative impact on net sales. In addition, we may face business interruptions, litigation, and financial and reputational damage because of lost or misappropriated confidential information belonging to us, our current or former employees, or to our suppliers or customers, and may become subject to legal action and increased regulatory oversight. We could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and information systems. While we maintain a cyber insurance policy that provides coverage for security incidents, we cannot be certain that our coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on financially reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. There is no assurance that the measures we have taken to protect our information systems will prevent or limit the impact of a future cyber incident.\n \n\u200b\nProblems with the transition, design, or implementation of our new ERP system could interfere with our business and operations and adversely affect our financial condition.\n\u200b\nWe are in the process of building a new ERP system to replace our existing operating and financial systems. The ERP system is designed to accurately maintain our financial records, enhance operational functionality, and provide timely information to our management team related to the operation of the business. The ERP system implementation process has required, and will continue to require, the investment of significant personnel and financial resources. Due to the uncertainty caused by COVID-19, we paused ERP work in fiscal 2021, after completing the first phase of implementation. We have resumed designing the next phase of our ERP implementation of central functions in North America and are in the test stage. We expect to begin implementing this next phase in fiscal 2024. We have experienced, and may continue to experience, difficulties as we transition to new upgraded systems and business processes. These difficulties have or may include loss of data; difficulty in making payments to third-parties; difficulty in completing financial reporting and filing reports with the SEC in a timely manner; or challenges in otherwise running our business. We may also experience decreases in productivity as our personnel implement and become familiar with new systems and processes. Any disruptions, delays, or deficiencies in the transition, design, and implementation of a new ERP system, particularly any disruptions, delays, or deficiencies that impact our operations, could have a material adverse effect on our business, financial condition, and results of operations. Even if we do not encounter adverse effects, the transition, design, and implementation of a new ERP system, may be much more costly than we anticipated. \n\u200b\nLegal and Regulatory Risks\n\u200b\nWe may be subject to product liability claims and product recalls, which could negatively impact our relationships with customers and harm our business. \n\u200b\nWe sell food products for human consumption, which involves risks such as product contamination or spoilage, product tampering, other adulteration of food products, mislabeling, and misbranding. We may voluntarily recall or withdraw products from the market in certain circumstances, which would cause us to incur associated costs; those costs could be meaningful. We may also be subject to litigation, requests for indemnification from our customers, or liability if \n24\n\n\nTable of Contents\nthe consumption or inadequate preparation of any of our products causes injury, illness, or death. A significant product liability judgment or a widespread product recall may negatively impact our sales and profitability for a period of time depending on the costs of the recall, the destruction of product inventory, product availability, competitive reaction, customer reaction, and consumer attitudes. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. \n\u200b\nAdditionally, as a manufacturer and marketer of food products, we are subject to extensive regulation by the FDA and other national, state and local government agencies. The Food, Drug & Cosmetic Act, the Food Safety Modernization Act, other laws and their respective regulations govern, among other things, the manufacturing, composition and ingredients, packaging, and safety of food products. Some aspects of these laws use a strict liability standard for imposing sanctions on corporate behavior, meaning that no intent is required to be established. If we fail to comply with applicable laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls, or seizures, as well as criminal sanctions, any of which could have a material adverse effect on our business, financial condition, and results of operations. \n\u200b\nNew regulations imposed by the FDA or EFSA around acrylamide formation in potato products could adversely affect us.\n\u200b\nThe regulation of food products, both within the U.S. and internationally, continues to be a focus for governmental scrutiny. The presence and/or formation of acrylamide in potato products cooked at high temperatures has become a global regulatory issue as both the FDA and the European Food Safety Authority (\u2018\u2018EFSA\u2019\u2019) have issued guidance to the food processing industry to work to reduce conditions that favor the formation of this naturally occurring compound. Acrylamide formation is the result of heat processing reactions that give \u2018\u2018browned foods\u2019\u2019 their desirable flavor. Acrylamide formation occurs in many food types in the human diet, including but not limited to breads, toast, cookies, coffee, crackers, potatoes, and olives. The regulatory approach to acrylamide has generally been to encourage the industry to achieve as low as reasonably achievable content levels through process control (e.g., temperature) and material testing (e.g., low sugar and low asparagine). However, limits for acrylamide exposure have been established in the State of California, and point of sale consumer warnings are required if products exceed those limits. In addition, the EFSA has promulgated regulations establishing specific mitigation measures, sampling, and analysis procedures and benchmark levels for acrylamide in certain food products. If the global regulatory approach to acrylamide becomes more stringent and additional legal limits are established, our manufacturing costs could increase. In addition, if consumer perception regarding the safety of our products is negatively impacted due to regulation, sales of our products could decrease. \n\u200b\nIf we fail to comply with the many laws and regulations applicable to our business, we may face lawsuits or incur significant fines and penalties.\n\u200b\nOur facilities and products are subject to many laws and regulations administered by the U.S. Department of Agriculture, the FDA, the Occupational Safety and Health Administration, and other federal, state, local, and foreign governmental agencies relating to the processing, packaging, storage, distribution, advertising, labeling, quality, and safety of food products, and the health and safety of our employees. Our failure to comply with applicable laws and regulations could subject us to additional costs, product detentions, substantial delays or a temporary shutdown in manufacturing, lawsuits, administrative penalties, and civil remedies, including fines, injunctions, and recalls of our products.\n\u200b\nOur operations are also subject to extensive and increasingly stringent regulations administered by foreign government agencies, the U.S. Environmental Protection Agency, and comparable state agencies, which pertain to the protection of human health and the environment, including, but not limited to, the discharge of materials into the environment and the handling and disposition of wastes. Failure to comply with these regulations can have serious consequences, including civil and administrative penalties and negative publicity. Changes in applicable laws or regulations or evolving interpretations thereof, including increased government regulations to limit the emissions of toxic air pollutants and carbon dioxide and other greenhouse gas emissions as a result of concern over climate change, may result in increased compliance costs, capital expenditures, and other financial obligations for us, which could affect our profitability or impede the production or distribution of our products, which could adversely affect our business, financial condition, and results of operations.\n25\n\n\nTable of Contents\n\u200b\nClimate change, or legal, regulatory, or market measures to address climate change, may negatively affect our business and operations. \n\u200b\nThere is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. In the event that climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as potatoes and edible oils. Adverse weather conditions and natural disasters can reduce crop size and crop quality, which in turn could reduce our supplies of raw potatoes, lower recoveries of usable raw potatoes, increase the prices of our raw potatoes, increase our cost of transporting and storing raw potatoes, or disrupt our production schedules or efficiencies. Natural disasters and extreme weather conditions may disrupt the productivity of our facilities or the operation of our supply chain. In addition, water is an important part of potato processing. In times of water stress, we may be subject to decreased availability or less favorable pricing for water, which could impact our manufacturing and distribution operations. Further, a decrease in the availability of water in certain regions caused by droughts or other factors could increase competition for land and resources in areas that have more favorable growing conditions, and thereby increase costs for such land and resources.\n\u200b\nThe increasing concern over climate change also may result in more regional, federal, and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases, as well as more stringent regulation of water rights. In the event that such regulation is enacted and is more aggressive than the sustainability measures that we are currently undertaking to monitor our emissions, improve our energy efficiency, and reduce and reuse water, we may be subject to curtailment or reduced access to resources or experience significant increases in our costs of operation and delivery. In particular, a new regulation in the Netherlands intended to reduce emissions of nitrogen oxide and ammonia mandates the harvest of potatoes grown on sandy soil by October 1, 2023, which is earlier than previous harvests and is expected to reduce potato capacity in the region. As a result, we may experience reduced potato availability and higher costs. In addition, increasing regulation of utility providers, fuel emissions, or fuel suppliers could substantially increase the distribution and supply chain costs of our products. Further, we may experience significant increases in our compliance costs, capital expenditures, and other financial obligations to adapt our business and operations to meet new regulations and standards. \n\u200b\nEven if we make changes to align ourselves with such legal or regulatory requirements, we may still be subject to significant penalties or potential litigation if such laws and regulations are interpreted and applied in a manner inconsistent with our practices. Also, consumers and customers may place an increased priority on purchasing products that are sustainably grown and made, requiring us to incur increased costs for additional transparency, due diligence, and reporting. In addition, we might fail to effectively address increased attention from the media, stockholders, activists, and other stakeholders on climate change and related environmental sustainability matters. From time to time, we establish and publicly announce goals and commitments, including those related to reducing our impact on the environment. Our ability to achieve any stated goal, target or objective is subject to numerous factors and conditions, many of which are outside of our control, including evolving regulatory requirements, the pace of scientific and technological developments, and the availability of suppliers that can meet our standards. We may be required to expend significant resources to meet these goals and commitments, which could significantly increase our operational costs. There can be no assurance of the extent to which any of our goals or commitments will be achieved, or that any future investments we make in furtherance of achieving these goals will meet customer or investor expectations. Any delay or failure to achieve our goals with respect to reducing our impact on the environment or perception of a delay or failure to act responsibly with respect to the environment or to effectively respond to regulatory requirements concerning climate change can lead to adverse publicity, which could damage our reputation, as well as expose us to enforcement actions and litigation. See also \u201cIndustry Risks \u2013 Our business is affected by potato crop performance,\u201d in this Item 1A. Risk Factors above.\n\u200b\n26\n\n\nTable of Contents\nOur intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands.\n\u200b\nWe consider our intellectual property rights to be a significant and valuable aspect of our business. We attempt to protect our intellectual property rights through a combination of trademark, patent, copyright and trade secret protection, contractual agreements and policing of third-party misuses of our intellectual property. Our failure to timely obtain or adequately protect our intellectual property or any change in law that lessens or removes the current legal protections of our intellectual property may diminish our competitiveness and adversely affect our business and financial results. We also license certain intellectual property, most notably \nGrown in Idaho\n and \nAlexia\n, from third parties. To the extent that we are not able to contract with these third parties on favorable terms or maintain our relationships with these third parties, our rights to use certain intellectual property could be impacted. \n\u200b\nCompeting intellectual property claims that impact our brands or products may arise unexpectedly. Any litigation or disputes regarding intellectual property may be costly and time-consuming and may divert the attention of our management and key personnel from our business operations. We also may be subject to significant damages or injunctions against development, launch, and sale of certain products. Any of these occurrences may harm our business and financial results.\n\u200b",
+  "item7": ">ITEM\u00a07. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\u200b\nThe following management\u2019s discussion and analysis of our results of operations and financial condition, which we refer to in this filing as \u201cMD&A,\u201d should be read in conjunction with the audited financial statements and the notes thereto. Discussions of fiscal 2021 items and fiscal year comparisons between fiscal 2022 and 2021 that are not included in this Form 10-K can be found in \u201cPart\u00a0II, Item\u00a07. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Annual Report on Form 10-K for the fiscal year ended May 29, 2022, which we filed with the SEC on July 27, 2022. Results for the fiscal year ended May 28, 2023 are not necessarily indicative of results that may be attained in the future.\n\u200b\nOur MD&A is based on financial data derived from the financial statements prepared in accordance with U.S. generally accepted accounting principles (\u201cGAAP\u201d) and certain other financial data (including product contribution margin on a consolidated basis, Adjusted earnings before interest, taxes, depreciation and amortization (\u201cEBITDA\u201d), Adjusted EBITDA including unconsolidated joint ventures, Adjusted Income from Operations, Adjusted Net Income, and Adjusted Diluted earnings per share (\u201cEPS\u201d)) that is prepared using non-GAAP financial measures. Refer to \u201cNon-GAAP Financial Measures\u201d below for the definitions of product contribution margin, Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Income from Operations, Adjusted Net Income, and Adjusted Diluted EPS, and a reconciliation of these non-GAAP financial measures to \ntheir most directly comparable GAAP financial measures, gross profit, income from operations, net income, or diluted EPS, as applicable.\n\u200b\nAcquisitions of Joint Venture Interests\n\u200b\nIn February 2023, we completed the acquisition of the remaining 50 percent equity interest in Lamb-Weston/Meijer v.o.f. (\u201cLW EMEA\u201d), and in July 2022, we acquired an additional 40 percent interest in Lamb Weston Alimentos Modernos S.A. (\u201cLWAMSA\u201d). With the completion of the transactions, we own 100 percent and 90 percent of the equity interests in LW EMEA and LWAMSA (the \u201cAcquisitions\u201d), respectively. We\n acquired the remaining interest in LW EMEA (the \u201cLW EMEA Acquisition\u201d) for consideration consisting of \u20ac531.6 million ($564.0 million) in cash, \nwhich excludes settlement of pre-existing relationships and cash held by LW EMEA, \nand 1,952,421 shares of our common stock. \nWe used $42.3 million of cash to acquire the additional equity interest in LWAMSA. \nWe \nbegan consolidating LW EMEA\u2019s and LWAMSA\u2019s results in our consolidated financial statements following the respective acquisitions. The results are included in our Global segment. We discuss the Acquisitions in more detail in Note 3, Acquisitions, in \u201cPart II, Item 8. Financial Statements and Supplementary Data\u201d of this Form 10-K. Changes in our fiscal 2023 financial results compared to fiscal 2022 were primarily driven by the consolidation of the financial results of LW EMEA in fiscal 2023.\n\u200b\nOverview\n\u200b\nLamb Weston is a leading global producer, distributor, and marketer of value-added frozen potato products. We are the number one supplier of value-added frozen potato products in North America and are a leading supplier of value-added frozen potato products internationally, with a strong and growing presence in high-growth emerging markets. We offer a broad product portfolio to a diverse channel and customer base in over 100 countries. French fries represent most of our value-added frozen potato product portfolio. \n\u200b\nDuring fiscal 2023, we operated our business in four reportable segments: Global, Foodservice, Retail, and Other. We report net sales and product contribution margin by segment and on a consolidated basis. Product contribution margin, when presented on a consolidated basis, is a non-GAAP financial measure. Product contribution margin represents net sales less cost of sales and advertising and promotion (\u201cA&P\u201d) expenses. Product contribution margin includes A&P expenses because those expenses are directly associated with the performance of our segments. Net sales and product contribution margin are the primary measures reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance. For additional information on our reportable segments and product contribution margin, see \u201cNon-GAAP Financial Measures\u201d below and Note 13, Segments, of the Notes to Consolidated Financial Statements in \u201cPart II, Item 8. Financial Statements and Supplementary Data\u201d in this Form 10-K.\n\u200b\n32\n\n\nTable of Contents\nEffective May 29, 2023, in connection with our recent acquisitions and to align with our expanded global footprint, our management, including our chief executive officer, who is our chief operating decision maker, began managing our operations as two business segments based on management\u2019s change to the way it monitors performance, aligns strategies, and allocates resources. This resulted in a change from four reportable segments to two (North America and International), effective the beginning of fiscal 2024. All summary financial information on a prospective basis will be presented under the new reportable segments beginning with the Company\u2019s Quarterly Report on Form 10-Q for the fiscal quarter ending August 27, 2023.\n\u200b\nExecutive Summary \n\u200b\nThe following highlights our financial results for fiscal 2023. For more information, refer to the \u201cResults of Operations\u201d and \u201cNon-GAAP Financial Measures\u201d sections below. \n\u200b\nIn fiscal 2023, we delivered record net sales and earnings through a combination of improved pricing and supply chain productivity savings, while we continued to operate in a significant input cost inflation environment. Our net sales growth was driven primarily by pricing actions across each of our core business segments, as well as incremental sales attributable to the acquisitions of additional equity interests in LW EMEA and LWAMSA. Sales volume declined, largely reflecting our efforts to strategically manage customer and product mix by exiting certain lower-priced and lower-margin business. To a lesser extent, sales volumes towards the end of fiscal 2023 were also negatively affected by softening traffic in casual dining and full-service restaurant channels (which largely impacted our Foodservice segment), certain international customers reverting to pre-Covid inventory practices (impacted our Global segment), and certain customers in select U.S. retail channels temporarily lowering prices to reduce private label inventories (impacted our Retail segment). Outside of North America, frozen potato demand varied, although restaurant traffic trends in our key markets, including Europe, generally softened as customers and consumers both faced similar or more severe macroeconomic environments, including persistent inflation and rising interest rates, than in the U.S.\n\u200b\nGross profit \nin fiscal 2023 increased as favorable \nprice/mix more than offset higher manufacturing costs on a per pound basis and the impact of lower sales volumes. Incremental earnings from the consolidation of the financial results of LW EMEA beginning in the fiscal fourth quarter also contributed to the increase. Increased gross profit was partially offset by higher selling, general and administrative (\u201cSG&A\u201d) expenses, resulting in the increase in income from operations. Higher income from operations drove the increase in net income and diluted EPS. \n\u200b\nIn fiscal 2023, we generated net cash from operating activities of $761.7 million, up $343.1 million versus the prior year, due to higher earnings, partially offset by increased working capital. We ended fiscal 2023 with $304.8 million of cash and cash equivalents and a $1.0 billion undrawn U.S. revolving credit facility. In addition, we returned $191.1 million to our stockholders, including $146.1 million in cash dividends and $45.0 million of share repurchases.\n\u200b\nOutlook\n\u200b\nIn fiscal 2024, we expect to deliver net sales and earnings growth, and to benefit from incremental sales and earnings during the first three quarters of the fiscal year attributable to the consolidation of the financial results of LW EMEA, as compared to the first three quarters of fiscal 2023. In addition to the incremental sales for the consolidation of LW EMEA, we expect our net sales growth to be largely driven by pricing actions (which may be more modest than fiscal 2023) to counter input cost inflation, and expect sales volumes will be pressured by our continued efforts to strategically manage our customer and product mix by exiting certain lower-priced and lower-margin business. We also anticipate that demand for our products in the near term may be tempered by ongoing softening restaurant traffic trends in the U.S. and other key markets as our customers and consumers both respond to challenging macroeconomic environments. \n\u200b\n33\n\n\nTable of Contents\nWe expect our earnings growth to be largely driven by sales and gross profit growth, and that the rate of input cost inflation, driven largely by higher potato costs, will, in aggregate, moderate as compared to fiscal 2023 inflation rates. In addition, our expectation of gross profit growth presumes that the yield and quality of the potato crops in our growing regions will be largely consistent with historical averages. We anticipate that the increase in gross profit will be partially offset by higher SG&A, reflecting incremental expense attributable to the consolidation of the financial results of LW EMEA, increased investments to upgrade our information systems and enterprise resource planning (\u201cERP\u201d) infrastructure, the non-cash amortization of intangible assets associated with the LW EMEA Acquisition as well as prior investments in our ERP infrastructure, and higher compensation and benefits expense due to increased headcount.\n\u200b\nWe believe in the long-term growth outlook for the frozen potato category and that Lamb Weston is well-positioned to drive sustainable, profitable growth, and to better serve customers around the world as we leverage the commercial and operational benefits of LW EMEA, as well as our previously announced capacity expansion investments in China, the U.S., Argentina, and the Netherlands.\n\u200b\nResults of Operations\n\u200b\nFiscal\u00a0Year Ended May 28, 2023 Compared to Fiscal\u00a0Year Ended May 29, 2022\n\u200b\nNet Sales, Gross Profit, and Product Contribution Margin\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMay\u00a028,\n\u00a0\u00a0\u00a0\u00a0\nMay\u00a029,\n\u00a0\u00a0\u00a0\u00a0\n%\n(in millions, except percentages)\n\u00a0\n2023\n\u200b\n2022\n\u00a0\nIncrease (Decrease)\nSegment net sales\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nGlobal\n\u200b\n$\n 2,934.4\n\u200b\n$\n 2,064.2\n\u00a0\n42% \nFoodservice\n\u200b\n\u00a0\n 1,489.1\n\u00a0\u00a0\n\u200b\n 1,318.2\n\u00a0\u00a0\n13% \nRetail \n\u200b\n\u00a0\n 797.7\n\u200b\n\u00a0\n 594.6\n\u00a0\n34% \nOther\n\u200b\n\u00a0\n 129.4\n\u200b\n\u00a0\n 121.9\n\u00a0\n6% \n\u200b\n\u200b\n$\n 5,350.6\n\u200b\n$\n 4,098.9\n\u00a0\n31% \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nSegment product contribution margin\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nGlobal\n\u200b\n$\n 595.5\n\u200b\n$\n 252.2\n\u00a0\n136% \nFoodservice\n\u200b\n\u200b\n 551.0\n\u00a0\u00a0\n\u200b\n 449.3\n\u00a0\u00a0\n23% \nRetail\n\u200b\n\u00a0\n 280.1\n\u200b\n\u00a0\n 109.4\n\u00a0\n156% \nOther\n\u200b\n\u00a0\n (28.9)\n\u200b\n\u00a0\n 2.2\n\u00a0\n(1,414%)\n\u200b\n\u200b\n\u200b\n 1,397.7\n\u200b\n\u200b\n 813.1\n\u00a0\n72% \nAdd: Advertising and promotion expenses\n\u200b\n\u200b\n 34.4\n\u200b\n\u200b\n 18.9\n\u200b\n82% \nGross profit\n\u200b\n$\n 1,432.1\n\u200b\n$\n 832.0\n\u200b\n72% \n\u200b\nNet Sales\n\u200b\nLamb Weston\u2019s net sales for fiscal 2023 increased $1,251.7 million, or 31%, to $5,350.6 million, and included $421.0 million of incremental sales attributable to the consolidation of the financial results of LW EMEA and LWAMSA beginning in our fiscal fourth and first quarters, respectively. Net sales, excluding the incremental sales attributable to the Acquisitions, increased 20% versus the prior year. Price/mix increased 26%, reflecting the benefit of pricing actions across each of our core business segments to counter input and manufacturing cost inflation. Volume declined 6%, largely reflecting our efforts to exit certain lower-priced and lower-margin business as we continued to strategically manage customer and product mix, as well as softer demand due to a slowdown in casual and full-service restaurant traffic. To a lesser extent, in late fiscal 2023, inventory destocking by certain customers in international markets as well as in select U.S. retail channels contributed to the volume decline. \n\u200b\nGlobal net sales increased $870.2 million, or 42%, to $2,934.4 million, and included $421.0 million of incremental sales attributable to the consolidation of the financial results of LW EMEA and LWAMSA. Net sales, excluding the incremental sales attributable to the Acquisitions, grew 22%. The benefit of domestic and international \n34\n\n\nTable of Contents\npricing actions to counter multi-year inflationary pressures, as well as favorable mix, drove a 27% increase in price/mix. Volume declined 5%, largely reflecting our efforts to exit certain lower-priced and lower-margin business in international and domestic markets, and to a lesser extent, lower shipments in response to inventory destocking by certain customers in international markets late in fiscal 2023.\n\u200b\nFoodservice net sales increased $170.9 million, or 13%, to $1,489.1 million, with price/mix up 22% and volume down 9%. The carryover benefits of pricing actions taken in the prior year, as well as actions taken in fiscal 2023, to counter inflationary pressures drove the increase in price/mix. The impact of our efforts to exit certain lower-priced and lower-margin business and a slowdown in casual dining and other full-service restaurant traffic drove the volume decline.\n\u200b\nRetail net sales increased $203.1 million, or 34%, to $797.7 million. The carryover benefits of pricing actions taken in the prior year, as well as actions taken in fiscal 2023, across the branded and private label portfolios to counter inflationary pressures drove a 38% increase in price/mix. Volume fell 4%, largely driven by our efforts to exit certain low-margin, private label business, and to a lesser extent, the impact of certain customers in select retail channels taking actions to reduce private label inventories late in fiscal 2023.\n\u200b\nOther net sales increased $7.5 million, or 6%, to $129.4 million, reflecting the benefit of pricing actions and volume growth in our vegetable business.\n\u200b\nGross Profit and Product Contribution Margin\n\u200b\nGross profit in fiscal 2023 increased $600.1 million, or 72%, to $1,432.1 million, \nand included $45.7 million ($33.9 million after-tax, or $0.23 per share) of costs impacting comparability in the fiscal fourth quarter, which included the sale of inventory stepped-up in the LW EMEA Acquisition and unrealized loss related to mark-to-market adjustments associated with natural gas and electricity hedging contracts at LW EMEA as the market experienced significant volatility. \n\u200b\nExcluding these items, gross profit increased $645.8 million, or 78%, to $1,477.8 million driven primarily by the benefits from pricing actions more than offsetting the impacts of higher costs on a per pound basis and lower volumes. Incremental earnings from the consolidation of the financial results of LW EMEA beginning in the fiscal fourth quarter also contributed to the increase. The higher costs per pound primarily reflected double-digit cost inflation for key inputs, including: raw potatoes, edible oils, ingredients such as grains and starches used in product coatings, labor, and energy. The increase in gross profit was partially offset by a $29.0 million change in unrealized mark-to-market adjustments associated with commodity hedging contracts, reflecting a $38.5 million loss in the current year, compared with a $9.5 million loss related to these items in the prior year.\n\u200b\nLamb Weston\u2019s overall product contribution margin in fiscal 2023 increased $584.6 million, or 72%, to $1,397.7 million. The increase was driven by higher gross profit (as described above), partially offset by a $15.5 million increase in advertising and promotion (\u201cA&P\u201d) expenses.\n\u200b\nGlobal product contribution margin increased $343.3 million, or 136%, to $595.5 million, and included $27.0 million ($20.0 million after-tax, or $0.14 per share) of costs associated with the sale of inventory stepped-up in the LW EMEA Acquisition. Excluding this item, product contribution margin increased $370.3 million, or 147%, to $622.5 million. Pricing actions, incremental earnings from the consolidation of the financial results of LW EMEA, and favorable mix drove the increase, which was partially offset by higher costs per pound. Global cost of sales was $2,328.1 million, \nup 29%, primarily due to higher manufacturing costs.\n\u200b\nFoodservice product contribution margin increased $101.7 million, or 23%, to $551.0 million. Pricing actions drove the increase, which was partially offset by higher costs per pound and the impact of lower sales volumes. \nFoodservice cost of sales was $930.8 million, up 8%, primarily due to higher manufacturing costs, partially offset by lower sales volumes.\n\u200b\nRetail product contribution margin increased $170.7 million, or 156%, to $280.1 million in fiscal 2023.\n \nPricing actions drove the increase, which was partially offset by higher costs per pound and a $7.6 million increase in A&P expenses. \nRetail cost of sales was $501.9 million, up 5%, primarily due to higher manufacturing costs, partially offset by lower sales volumes.\n35\n\n\nTable of Contents\n\u200b\nOther product contribution margin decreased $31.1 million to a loss of $28.9 million in fiscal 2023, as compared to a $2.2 million gain in fiscal 2022. These amounts include a $48.4 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in fiscal 2023, and a $10.4 million loss related to contracts in fiscal 2022. Excluding these mark-to-market adjustments, product contribution margin increased $6.9 million, largely due to higher prices in our vegetable business.\n\u200b\nSelling, General and Administrative Expenses\n\u200b\nSG&A expenses in fiscal 2023 increased $162.4 million, or 42%, to $550.0 million, and included a net $21.8 million gain ($12.2 million after-tax, or $0.08 per share) related to actions taken to mitigate the effect of changes in currency rates on the purchase price of LW EMEA, net of other \nacquisition-related costs.\n \nExcluding this net gain, SG&A increased $184.2 million to $571.8 million,\n \nprimarily due to higher compensation and benefits expense, incremental expenses attributable to the consolidation of the financial results of LW EMEA in the fiscal fourth quarter, higher expenses related to improving our information systems and ERP infrastructure, and a $15.5 million increase in A&P expenses.\n\u200b\nInterest Expense, Net\n\u200b\nInterest expense, net in fiscal 2023 declined $51.8 million to $109.2 million. The decrease \nreflects a $53.3 million ($40.5 million after-tax, or $0.27 per share) loss on extinguishment of debt associated with the redemption of our previously outstanding senior notes due 2024 and 2026, which occurred in fiscal 2022. Excluding this loss, interest expense, net increased $1.5 million due primarily to additional interest expense associated with debt incurred for the LW EMEA Acquisition. \nFor more information, see Note\u00a08, Debt and Financing Obligations, of the Notes to Consolidated Financial Statements in \u201cPart II, Item 8. Financial Statements and Supplementary Data\u201d in this Form 10-K.\n\u200b\nIncome Taxes\n\u200b\nOur effective tax rate was 18.2% for fiscal 2023, compared to 26.3% in fiscal 2022. Excluding $34.3 million of net tax expense and a $4.6 million benefit from items impacting comparability in fiscal 2023 and 2022, respectively, our effective tax rate was 21.8% for fiscal 2023 and 21.4% in fiscal 2022. Our effective tax rate varies from the U.S. statutory tax rate of 21% principally due to the impact of U.S. state taxes, foreign taxes, permanent differences, and discrete items.\n\u200b\nFor further information on income taxes, see Note 5, Income Taxes, of the Notes to Consolidated Financial Statements in \u201cPart II, Item 8. Financial Statements and Supplementary Data\u201d in this Form 10-K.\n\u200b\nEquity Method Investment Earnings (Loss)\n\u200b\nWe conducted meaningful business through unconsolidated joint ventures until we acquired the remaining interest of LW EMEA in February 2023. In fiscal 2023 and 2022, our share of earnings (loss) from our equity method investments was $460.6 million of earnings and a $10.7 million loss, respectively. The fiscal 2023 results include a $425.8 million ($379.5 million after-tax, or $2.62 per share) non-cash gain related to remeasuring our initial 50 percent equity interests in LW EMEA and LWAMSA to fair value. Equity method earnings also includes a $31.1 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts, of which $37.8 million ($28.0 million after-tax, or $0.19 per share) related to losses in natural gas and electricity derivatives as commodity markets in Europe have experienced significant volatility. Equity method investment gains in fiscal 2022 included a $26.5 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts, of which $31.7 million ($23.5 million after-tax, or $0.16 per share) related to gains in natural gas and electricity derivatives\n. \nEquity method investment earnings in fiscal 2022 also included a $62.7 million (before and after-tax, or $0.43 per share) non-cash impairment charge to write-off our then-current portion of LW EMEA\u2019s net investment in its former joint venture in Russia.\n\u200b\nExcluding these items (non-cash acquisition gains and impairment charge, and mark-to-market adjustments related to natural gas and electricity derivatives) and the other mark-to-market adjustments, earnings from equity method investments increased $52.3 million compared to the prior year, reflecting \nthe benefit of pricing actions, partially offset by higher costs per pound, in both Europe and the U.S.\n\u200b\n36\n\n\nTable of Contents\nFiscal 2023 Compared to Fiscal 2022 Balance Sheet Changes\n\u200b\nThe changes in our Consolidated Balance Sheet, compared with May 29, 2022, related primarily to the LW EMEA Acquisition and liabilities incurred to fund the LW EMEA Acquisition. We increased our assets approximately $1,896.8 million and our liabilities approximately $449.3 million in total based on the fair values of LW EMEA\u2019s assets and liabilities, respectively, on the acquisition date. In addition, we incurred $450.0 million of new borrowings, which were used to fund a portion of the purchase price for the acquisition and for general corporate purposes, and also issued 1,952,421 million shares of our common stock as additional consideration for the acquisition. For more information about the LW EMEA Acquisition, see Note 3, Acquisitions, of the Notes to Consolidated Financial Statements in \u201cPart II, Item 8. Financial Statements and Supplementary Data\u201d of this Form 10-K.\n\u200b\nLiquidity and Capital Resources\n\u200b\nWe ended fiscal 2023 with $304.8 million of cash and cash equivalents and a $1.0 billion undrawn U.S. revolving credit facility. We believe we have sufficient liquidity to meet our business requirements for at least the next 12 months. Cash generated by operations, supplemented by our total cash and availability under our revolving credit facilities, is our primary source of liquidity for funding business requirements. Our funding requirements include capital expenditures for announced manufacturing expansions in China, Idaho, the Netherlands, and Argentina, as well as capital investments to upgrade information systems and ERP infrastructure, working capital requirements, and dividends. We expect capital investments in fiscal 2024 to be approximately $800 million to $900 million, depending on timing of projects and excluding acquisitions, if any. \nThese expenditures could increase or decrease as a result of a number of factors, including our financial results, future economic conditions, supply chain constraints for equipment, and our regulatory compliance requirements.\n At May 28, 2023, we had commitments for capital expenditures of $623.9 million.\n\u200b\nCash Flows\n\u200b\nBelow is a summary table of our cash flows, followed by a discussion of the sources and uses of cash through operating, investing, and financing activities:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFor the Fiscal Years Ended May\n(in millions)\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\nNet cash flows provided by (used for):\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\nOperating activities\n\u200b\n$\n 761.7\n\u200b\n$\n 418.6\nInvesting activities\n\u200b\n\u00a0\n (1,340.9)\n\u200b\n\u00a0\n (310.5)\nFinancing activities\n\u200b\n\u00a0\n 340.8\n\u200b\n\u00a0\n (363.4)\n\u200b\n\u200b\n\u00a0\n (238.4)\n\u200b\n\u00a0\n (255.3)\nEffect of exchange rate changes on cash and cash equivalents\n\u200b\n\u00a0\n 18.2\n\u00a0\u00a0\n\u00a0\n (3.2)\nNet decrease in cash and cash equivalents \n\u200b\n\u200b\n (220.2)\n\u200b\n\u200b\n (258.5)\nCash and cash equivalents, beginning of period\n\u200b\n\u200b\n 525.0\n\u200b\n\u200b\n 783.5\nCash and cash equivalents, end of period\n\u200b\n$\n 304.8\n\u200b\n$\n 525.0\n\u200b\nOperating Activities\n\u200b\nDuring fiscal 2023, cash provided by operating activities increased $343.1 million to $761.7 million, compared to $418.6 million for fiscal 2022. The increase related to a $306.8 million increase in net income, adjusted for non-cash income and expenses, in addition to an increase of $36.3 million of cash provided by favorable changes in working capital. \nSee \u201cResults of Operations\u201d in this MD&A for more information related to the increase in income from operations. Favorable changes in working capital primarily related to an increase in accounts payable due to timing, a decrease in receivables attributable to timing of collection, and an increase in accrued liabilities due to higher compensation and benefits accrued in fiscal 2023, compared with fiscal 2022. These favorable changes were offset by an unfavorable change in higher-cost finished goods inventories, due primarily to increased potato and input cost inflation.\n\u200b\n37\n\n\nTable of Contents\nInvesting Activities\n\u200b\nInvesting activities used $1,340.9 million of cash in fiscal 2023, compared with $310.5 million in fiscal 2022. \nThe increase primarily relates to our investments in our chopped and formed capacity expansion and construction of our french fry processing line in Idaho and our greenfield french fry processing facility in China, and investments to \nupgrade our information systems and ERP infrastructure\n. In addition, in fiscal 2023, we used $610.4 million to purchase the remaining equity interest in LW EMEA and an additional 40 percent equity interest in LWAMSA.\n\u200b\nFinancing Activities\n\u200b\nDuring fiscal 2023, financing activities provided net proceeds of $340.8 million, compared with $363.4 million used in during fiscal 2022. During fiscal 2023, financing activities included $529.5 million of proceeds from debt issuances including a new $450.0 million term loan facility to fund a portion of the LW EMEA Acquisition and $79.5 million of borrowings on other credit facilities. We also had proceeds of $41.4 million from short-term borrowings on other facilities. These activities were partially offset by the payment of $146.1 million of cash dividends to common stockholders and $32.6 million of debt and financing obligation repayments. In addition, we used $51.6 million of cash to repurchase 569,698 shares of our common stock at an average price of $78.99 per share and withheld 83,974 shares from employees to cover income and payroll taxes on equity awards that vested during the year. \nAs of May 28, 2023, $223.9 million remained authorized for repurchase under our share repurchase program.\n\u200b\nDuring fiscal 2022, financing activities primarily related to issuing U.S. dollar-denominated senior notes and a RMB-denominated loan facility for combined net proceeds of $1,676.1 million, offset by $1,698.1 million of debt and financing obligation repayments, including cash used to redeem our previously outstanding senior notes due 2024 and 2026 (including the payment of a call premium of $39.6 million), and the payment of $138.4 million of cash dividends to common stockholders. In addition, we used $158.4 million of cash to repurchase 2,407,184 shares of our common stock at an average price of $62.59 per share and withheld 118,204 shares from employees to cover income and payroll taxes on equity awards that vested during the year.\n\u200b\nFor more information about our debt, including among other items, interest rates, maturity dates, and covenants, see Note\u00a08, Debt and Financing Obligations, of the Notes to the Consolidated Financial Statements in \u201cPart II, Item 8. Financial Statements and Supplementary Data\u201d of this Form 10-K. At May 28, 2023, we were in compliance with all covenants contained in our credit agreements.\n\u200b\nObligations and Commitments\n\u200b\nAs part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as debt agreements, lease agreements, potato supply agreements, and unconditional purchase obligations. The unconditional purchase obligation arrangements are entered into in the normal course of business to ensure adequate levels of sourced product are available. \n\u200b\nA summary of our material cash requirements for our known contractual obligations as of May 28, 2023 are as follows:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(in millions)\n\u200b\nTotal\n\u200b\nPayable within 12 Months\nShort-term borrowings and long-term debt, including current portion (a)\n\u00a0\n$\n 3,479.8\n\u00a0\n$\n 214.4\nInterest on long-term debt (b)\n\u200b\n\u200b\n 960.3\n\u200b\n\u200b\n 169.3\nLeases (a)\n\u200b\n\u200b\n 200.5\n\u200b\n\u200b\n 34.8\nPurchase obligations and capital commitments (a)\n\u200b\n\u200b\n 1,233.9\n\u200b\n\u200b\n 717.1\nTotal\n\u00a0\n$\n 5,874.5\n\u00a0\n$\n 1,135.6\n(a)\nSee the below Notes to the Consolidated Financial Statements included in \u201cPart II, Item 8. Financial Statements and Supplementary Data\u201d of this Form 10-K for more information.\n\u200b\n\u25cf\nShort-term borrowings and long-term debt, including current portion\n. See Note 8, Debt and Financing Obligations, for more information on debt payments and the timing of expected future payments.\n38\n\n\nTable of Contents\n\u25cf\nLeases\n. \nSee Note 9, Leases, \nfor more information on our operating and finance lease obligations and timing of expected future payments.\n\u25cf\nPurchase obligations and capital commitments\n. See Note 14, Commitments, Contingencies, Guarantees, and Legal Proceedings, for more information on our purchase obligations and the timing of future payments and capital commitments in connection with the expansion and replacement of existing facilities and equipment.\n\u200b\n(b)\nAmounts represent estimated future interest payments assuming our long-term debt is held to maturity and using interest rates in effect as of May 28, 2023.\n\u200b\nOff-Balance Sheet Arrangements\n\u200b\nWe do not have any off-balance sheet arrangements as of May 28, 2023 that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.\n\u200b\nCritical Accounting Estimates\n\u200b\nManagement\u2019s discussion and analysis of financial condition and results of operations are based upon the Company\u2019s consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to our trade promotions, income taxes, and impairment, among others. We base our estimates on historical experiences combined with management\u2019s understanding of current facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. \n\u200b\nCritical accounting estimates are those that are most important to the portrayal of our financial condition and operating results. These estimates require management\u2019s most difficult, subjective, or complex judgments. We review the development, selection, and disclosure of our critical accounting estimates with the Audit and Finance Committee of our Board of Directors.\n\u200b\nWe have made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be affected.\n\u200b\nAcquisitions\n\u200b\nFrom time to time, we may enter into business combinations. In July 2022 and February 2023, we acquired an additional 40 percent interest in LWAMSA and the remaining equity interest in LW EMEA, respectively. With the completion of the Acquisitions, we own 90 percent and 100 percent of the equity interests in LWAMSA and LW EMEA, respectively\n. \nWe recorded the assets acquired and the liabilities assumed at their estimated acquisition date fair values with the excess purchase price recorded as goodwill. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values (fair value is determined using the income approach, cost approach and/or market approach) of inventory, property, plant and equipment, identifiable intangible assets, deferred tax asset valuation allowances, and liabilities related to uncertain tax positions, among others. Additionally, for acquisitions of previously held equity interests, we remeasure the previously held equity interest to fair value based on consideration at the acquisition date utilizing a market approach based on comparable control premiums within our industry. This method also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to retroactively adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations.\n\u200b\n39\n\n\nTable of Contents\nSignificant estimates and assumptions in determining the fair value of brands and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic\u00a0lives change, depreciation or amortization expenses could increase or decrease.\n\u200b\nSales Incentives and Trade Promotion Allowances\n\u200b\nWe promote our products with advertising, consumer incentives, and trade promotions. Sales promotions include, but are not limited to, discounts, coupons, rebates, and volume-based incentives. The estimates for sales incentives are based principally on historical sales and redemption rates, influenced by judgments about current market conditions such as competitive activity in specific product categories.\n\u200b\nTrade promotion programs include introductory marketing funds such as slotting fees, cooperative marketing programs, temporary price reductions, and other activities conducted by our customers to promote our products. The costs of these programs are recognized as a reduction to revenue with a corresponding accrued liability. The estimate of trade promotions is inherently difficult due to information limitations as the products move beyond distributors and through the supply chain to operators. Estimates made by management in accounting for these costs are based primarily on our historical experience with marketing programs, with consideration given to current circumstances and industry trends and include the following: quantity of customer sales, timing of promotional activities, current and past trade-promotion spending patterns, the interpretation of historical spending trends by customer and category, and forecasted costs for activities within the promotional programs.\n\u200b\nThe determination of sales incentive and trade promotion costs requires judgment and may change in the future as a result of changes in customer demand for our products, promotion participation, particularly for new programs related to the introduction of new products. Final determination of the total cost of promotion is dependent upon customers providing information about proof of performance and other information related to the promotional event. Because of the complexity of some of these trade promotions, the ultimate resolution may result in payments that are different from our estimates. As additional information becomes known, we may change our estimates. At May 28, 2023 and May 29, 2022, we had $86.1 million and $41.2 million, respectively, of accrued trade promotions payable recorded in \u201cAccrued liabilities\u201d on our Consolidated Balance Sheets. The increase from May 29, 2022 is primarily due to the LW EMEA Acquisition.\n\u200b\nIncome Taxes\n\u200b\nWe compute the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. We measure deferred tax assets and liabilities using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled.\n\u200b\nInherent in determining the annual tax rate are judgments regarding business plans, planning opportunities, and expectations about future outcomes. Management judgments are required for the following items:\n\u200b\n\u25cf\nManagement reviews deferred tax assets for realizability. Valuation allowances are established when management believes that it is more likely than not that some portion of the deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the tax provision. \n\u200b\n40\n\n\nTable of Contents\n\u25cf\nWe establish accruals for unrecognized tax benefits when, despite the belief that our tax return positions are fully supported, we believe that an uncertain tax position does not meet the recognition threshold of Accounting Standards Codification (\u201cASC\u201d) 740, \nIncome Taxes\n. These contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, the expiration of the statute of limitations for the relevant taxing authority to examine a tax return, case law and emerging legislation. While it is difficult to predict the final outcome or timing of resolution for any particular matter, we believe that the accruals for unrecognized tax benefits at May 28, 2023, reflect the estimated outcome of known tax contingencies as of such date in accordance with accounting for uncertainty in income taxes under ASC 740. \n\u200b\n\u25cf\nWe recognize the tax impact of including certain foreign earnings in U.S. taxable income as a period cost. We have not recognized deferred income taxes for local country income and withholding taxes that could be incurred on distributions of certain non-U.S. earnings or for outside basis differences in our subsidiaries, because we plan to indefinitely reinvest such earnings and basis differences. Remittances of non-U.S. earnings are based on estimates and judgments of projected cash flow needs, as well as the working capital and investment requirements of our non-U.S. and U.S. operations. Material changes in our estimates of cash, working capital, and investment needs in various jurisdictions could require repatriation of indefinitely reinvested non-U.S. earnings, which could be subject to applicable non-U.S. income and withholding taxes. While we believe the judgments and estimates discussed above and made by management are appropriate and reasonable under the circumstances, actual resolution of these matters may differ from recorded estimated amounts. Further information on income taxes is provided in Note 5, Income Taxes, of the Notes to Consolidated Financial Statements in \u201cPart II, Item 8. Financial Statements and Supplementary Data\u201d of this Form 10-K.\n \n\u200b\nNew and Recently Issued Accounting Standards\n\u200b\nFor a listing of new and recently issued accounting standards, see Note\u00a01, Nature of Operations and Summary of Significant Accounting Policies, of the Notes\u00a0to Consolidated Financial Statements in \u201cPart\u00a0II, Item\u00a08. Financial Statements and Supplementary Data\u201d of this Form\u00a010-K.\n\u200b\nNon-GAAP Financial Measures\n\u200b\nTo supplement the financial information included in this report, we have presented product contribution margin on a consolidated basis, Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Income from Operations, Adjusted Net Income, and Adjusted Diluted EPS, each of which is considered a non-GAAP financial measure. \n\u200b\nProduct contribution margin is one of the primary measures reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance. Product contribution margin represents net sales less cost of sales and A&P expenses. Product contribution margin includes A&P expenses because those expenses are directly associated with the performance of our segments. Product contribution margin, when presented on a consolidated basis, is a non-GAAP financial measure. Our management also uses Adjusted Income from Operations, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures. \nManagement uses these non-GAAP financial measures to assist in analyzing what management views as our core operating performance for purposes of business decision making. Management believes that presenting these non-GAAP financial measures provides investors with useful supplemental information because they (i) provide meaningful supplemental information regarding financial performance by excluding certain items affecting comparability between periods, (ii) permit investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provide supplemental information that may be useful to investors in evaluating our results. In addition, we believe that the presentation of these non-GAAP financial measures, when considered together with the most directly comparable GAAP financial measures and the reconciliations to those GAAP financial measures, provides investors with additional tools to understand the factors and trends affecting our underlying business than could be obtained absent these disclosures.\n\u200b\n41\n\n\nTable of Contents\nThe non-GAAP financial measures provided in this report should be viewed in addition to, and not as alternatives for, \nfinancial measures prepared in accordance with GAAP that are presented in this report. These measures are not substitutes for their comparable GAAP financial measures, such as gross profit, income from operations, net income, diluted earnings per share, or other measures prescribed by GAAP, and there are limitations to using non-GAAP financial measures. For example, the non-GAAP financial measures presented in this report may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures the same way we do.\n\u200b\nSee \u201cResults of Operations \u2013 Fiscal Year Ended May 28, 2023 Compared to Fiscal Year Ended May 29, 2022 \u2013 Net Sales, Gross Profit, and Product Contribution Margin\u201d above for a reconciliation of product contribution margin on a consolidated basis to gross profit.\n\u200b\nThe following table reconciles net income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFor the Fiscal Years Ended May\n(in millions)\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022 \nNet income\n\u200b\n$\n 1,008.9\n\u200b\n$\n 200.9\nEquity method investment (earnings) loss\n\u200b\n\u200b\n (460.6)\n\u200b\n\u200b\n 10.7\nInterest expense, net\n\u200b\n\u200b\n 109.2\n\u200b\n\u200b\n 161.0\nIncome tax expense\n\u200b\n\u200b\n 224.6\n\u200b\n\u200b\n 71.8\nIncome from operations \n\u200b\n\u200b\n 882.1\n\u200b\n\u200b\n 444.4\nDepreciation and amortization\n\u200b\n\u200b\n 218.3\n\u200b\n\u200b\n 187.3\nItems impacting comparability\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAcquisition expenses, net (a)\n\u200b\n\u200b\n (21.8)\n\u200b\n\u200b\n \u2014\nLW EMEA derivative losses (gains) (a)\n\u200b\n\u200b\n 18.7\n\u200b\n\u200b\n \u2014\nInventory step-up (a)\n\u200b\n\u200b\n 27.0\n\u200b\n\u200b\n \u2014\nAdjusted EBITDA\n\u200b\n\u200b\n 1,124.3\n\u200b\n\u200b\n 631.7\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nUnconsolidated Joint Ventures\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nEquity method investment earnings (loss)\n\u200b\n\u200b\n 460.6\n\u200b\n\u200b\n (10.7)\nInterest expense, income tax expense, and depreciation and\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\namortization included in equity method investment earnings\n\u200b\n\u200b\n 29.1\n\u200b\n\u200b\n 42.0\nItems impacting comparability\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nLW EMEA derivative losses (gains) (b)\n\u200b\n\u200b\n 37.8\n\u200b\n\u200b\n (31.7)\nGain on acquisitions (b)\n\u200b\n\u200b\n (425.8)\n\u200b\n\u200b\n \u2014\nWrite-off of net investment in Russia (b)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 62.7\nAdd: Adjusted EBITDA from unconsolidated joint ventures\n\u200b\n\u200b\n 101.7\n\u200b\n\u200b\n 62.3\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA including unconsolidated joint ventures\n\u200b\n$\n 1,226.0\n\u200b\n$\n 694.0\n(a)\nI\nncome from operations for fiscal 2023 \nincluded \na net $21.8 million gain ($12.2 million after-tax, or $0.08 per share) related to actions taken to mitigate the effect of changes in currency rates on the purchase of the remaining equity interest in LW EMEA, net of other acquisition-related costs. Fiscal 2023 also includes an $18.7 million unrealized loss ($13.9 million after-tax, or $0.10 per share) related to mark-to-market adjustments associated with natural gas and electricity hedging contracts at our European operations as the market experienced significant volatility, and a $27.0 million ($20.0 million after-tax, or $0.14 per share) charge related to the step-up and sale of inventory acquired in the LW EMEA Acquisition.\n\u200b\n(b)\nEquity method investment \nearnings for fiscal 2023 included $425.8 million ($379.5 million, or $2.62 per share) of non-cash gains related to the remeasurement of our initial equity interests to fair value, including a $410.7 million non-cash gain ($364.4 million after-tax, or $2.52 per share) for LW EMEA and a $15.1 million non-cash gain (before and after-tax, or $0.10 per share\n) for LWAMSA. These gains were partially offset by a $37.8 million unrealized loss ($28.0 million after-tax, or $0.19 per share), related to mark-to-market adjustments associated with changes in natural gas and electricity derivatives as commodity markets in Europe have experienced significant volatility. Equity method investments earnings for fiscal 2022 included $31.7 million ($23.5 million after-tax, or $0.16 per share) of unrealized gains related to mark-to-market adjustments associated with changes in natural gas and electricity derivatives. Equity method investment earnings for fiscal 2022 included a non-cash impairment charge of $62.7 million (before and after-tax, or $0.43 per share) related to LW EMEA\u2019s withdrawal from its joint venture in Russia.\n\u200b\n42\n\n\nTable of Contents\nThe following table reconciles income from operations to Adjusted Income from Operations, net income to Adjusted Net Income, and diluted EPS to Adjusted Diluted EPS:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFor the Fiscal Years Ended May\n\u200b\n\u200b\n2023 \n\u200b\n2022 \n\u200b\n2023 \n\u200b\n2022 \n\u200b\n2023 (a)\n\u200b\n2022 (a)\n(in millions, except per share amounts)\n\u200b\nIncome from Operations\n\u200b\nNet Income\n\u200b\nDiluted EPS\nAs reported\n\u200b\n$\n 882.1\n\u200b\n$\n 444.4\n\u200b\n$\n 1,008.9\n\u200b\n$\n 200.9\n\u200b\n$\n 6.95\n\u200b\n$\n 1.38\nItems impacting comparability:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nLW EMEA acquisition-related items:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nGain on acquisitions (b)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (364.4)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (2.52)\n\u200b\n\u200b\n \u2014\nInventory step-up (c)\n\u200b\n\u200b\n 27.0\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 20.0\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 0.14\n\u200b\n\u200b\n \u2014\nAcquisition expenses, net (c)\n\u200b\n\u200b\n (21.8)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (12.2)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (0.08)\n\u200b\n\u200b\n \u2014\nTotal LW EMEA acquisition-related items impacting comparability\n\u200b\n\u200b\n 5.2\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (356.6)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (2.46)\n\u200b\n\u200b\n \u2014\nGain on acquisition of interest in LWAMSA (b)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (15.1)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (0.10)\n\u200b\n\u200b\n \u2014\nImpact of LW EMEA natural gas and electricity derivatives (c)\n\u200b\n\u200b\n 18.7\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 41.9\n\u200b\n\u200b\n (23.5)\n\u200b\n\u200b\n 0.29\n\u200b\n\u200b\n (0.16)\nLoss on extinguishment of debt (d)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 40.5\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 0.27\nWrite-off of net investment in Russia (e)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 62.7\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 0.43\nTotal items impacting comparability\n\u200b\n\u200b\n 23.9\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (329.8)\n\u200b\n\u200b\n 79.7\n\u200b\n\u200b\n (2.27)\n\u200b\n\u200b\n 0.54\nAdjusted\n\u200b\n$\n 906.0\n\u200b\n$\n 444.4\n\u200b\n$\n 679.1\n\u200b\n$\n 280.6\n\u200b\n$\n 4.68\n\u200b\n$\n 1.92\n(a)\nDiluted weighted average common shares were 145.2 million and 145.9 million in fiscal 2023 and 2022, respectively. \n\u200b\n(b)\nSee footnote (b) to the reconciliation of \nnet income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures above for a discussion of the item impacting comparability.\n\u200b\n(c)\nSee footnote (a) to the reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures above for a discussion of the item impacting comparability.\n\u200b\n(d)\nThe fiscal year ended May 29, 2022, includes a loss on the extinguishment of debt of $53.3 million ($40.5 million after-tax, or $0.27 per share), which consists of a call premium of $39.6 million related to the redemption of our senior notes due 2024 and 2026 and the write-off of $13.7 million of debt issuance costs associated with those notes.\n\u200b\n(e)\nSee footnote (b) to the reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures above for a discussion of the item impacting comparability.\n\u200b\n43\n\n\nTable of Contents",
+  "item7a": ">ITEM\u00a07A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n \n\u200b\nOur operations are exposed to market risks from adverse changes in commodity prices affecting the cost of raw materials and energy, changes in currency rates, and interest rates. In the normal course of business, we may periodically enter into derivatives to minimize these risks, but not for trading purposes. All of the following potential changes are based on sensitivity analyses performed on our financial positions as of May 28, 2023 and May 29, 2022. Actual results may differ materially.\n\u200b\nCommodity Price Risk\n\u200b\nThe objective of our commodity exposure management is to minimize volatility in earnings due to large fluctuations in the price of commodities. We may use commodity swap or forward purchase contracts, in addition to sourcing from multiple providers, to manage risks associated with market fluctuations in oil and energy prices. Based on our open commodity contract hedge positions as of May 28, 2023, a hypothetical 10\u00a0percent decline in market prices applied to the fair value of the instruments would result in a charge to \u201cCost of sales\u201d of $9.0\u00a0million ($6.8 million after-tax). Based on our open commodity hedge positions as of \nMay 29, 2022, a hypothetical 10\u00a0percent decline in market prices applied to the fair value of the instruments would have resulted in a charge to \u201cCost of sales\u201d of $4.5\u00a0million ($3.5 million after-tax) and a charge to \u201cEquity method investment earnings\u201d of $6.1 million ($4.6 million after-tax). It should be noted that any change in the fair value of the contracts, real or hypothetical, would be substantially offset by an inverse change in the value of the underlying hedged item.\n\u200b\nForeign Currency Exchange Rate Risk\n\u200b\nWe are subject to currency exchange rate risk through investments and businesses owned and operated in foreign countries. Our operations in foreign countries export to, and compete with imports from other regions. As such, currency movements can have a number of direct and indirect impacts on our financial statements. Direct impacts include the translation of international operations\u2019 local currency financial statements into U.S. dollars and the remeasurement impact associated with non-functional currency financial assets and liabilities. Indirect impacts include the change in competitiveness of exports out of the United States (and the impact on local currency pricing of products that are traded internationally). The currency that has the most impact is the Euro. From time to time, we may economically hedge currency risk with foreign currency contracts, such as forward contracts. Based on monetary assets and liabilities denominated in foreign currencies, we estimate that a hypothetical 10 percent adverse change in exchange rates versus the U.S. dollar would result in losses of $48.8 million ($37.1 million after-tax) and $6.5 million ($5.0 million after-tax) as of May 28, 2023 and May 29, 2022, respectively. The increased hypothetical risk from May 29, 2022 is primarily related to the increase in our non-U.S. assets and liabilities.\n\u200b\nInterest Rate Risk\n\u200b\nWe issue fixed and floating rate debt in a proportion that management deems appropriate based on current and projected market conditions. At May 28, 2023, we had $2,170.0 million of fixed-rate and $1,309.8 million of variable-rate debt outstanding. \nAt May 29, 2022, we had $2,170.0 million of fixed-rate and $575.0 million of variable-rate debt outstanding.\n A one percent increase in interest rates related to variable-rate debt would result in an annual increase in interest expense and a corresponding decrease in income before taxes of $13.3 million annually ($10.3 million after-tax) and $5.8 million annually ($4.5 million after-tax) at May 28, 2023 and May 29, 2022, respectively.\n\u200b\nFor more information about our debt, see Note\u00a08, Debt and Financing Obligations, of the Notes\u00a0to Consolidated Financial Statements in \u201cPart\u00a0II, Item\u00a08. Financial Statements and Supplementary Data\u201d of this Form\u00a010-K.\n44\n\n\nTable of Contents",
+  "cik": "1679273",
+  "cusip6": "513272",
+  "cusip": ["513272904", "513272104", "513272954"],
+  "names": ["LAMB WESTON HLDGS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1679273/000155837023012203/0001558370-23-012203-index.htm"
+}
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+{
+  "item1": ">Item 1. Business\nOverview\nIn this Annual Report on Form 10-K, Adtalem Global Education Inc., together with its subsidiaries, is collectively referred to as \u201cAdtalem,\u201d \u201cwe,\u201d \u201cour,\u201d \u201cus,\u201d or similar references. Adtalem was incorporated under the laws of the State of Delaware in August 1987. Adtalem\u2019s executive offices are located at 500 West Monroe Street, Chicago, Illinois, 60661, and the telephone number is (312)\u00a0651-1400.\nAdtalem is a national leader in post-secondary education and a leading provider of professional talent to the healthcare industry. The purpose of Adtalem is to empower students to achieve their goals, find success, and make inspiring contributions to our global community. Adtalem\u2019s institutions offer a wide array of programs, with a primary focus on healthcare programs.\n\u00a0Adtalem is committed to improving healthcare delivery through expanding access to aspiring healthcare clinicians and equipping them to advance health equity and address social determinants of health. Adtalem is dedicated to delivering superior value by consistently providing students a high quality and differentiated learning experience that enables them to ultimately achieve their academic and professional goals.\nAdtalem aims to create value for society and its stakeholders by offering responsive educational programs that are supported by exceptional services to its students and delivered with integrity and accountability. Towards this vision, Adtalem is proud to play a vital role in expanding access to higher education along with other institutions in the public, independent, and private sectors.\nAdtalem will continue to strive to achieve superior student outcomes by providing quality education and student services, growing and diversifying into new program areas, and building quality brands and the infrastructure necessary to compete.\nOn August 12, 2021, Adtalem completed the acquisition of all the issued and outstanding equity interest in Walden e-Learning, LLC, a Delaware limited liability company (\u201ce-Learning\u201d), and its subsidiary, Walden University, LLC, a Florida limited liability company (together with e-Learning, \u201cWalden\u201d), from Laureate Education, Inc. (\u201cLaureate\u201d or \u201cSeller\u201d) in exchange for a purchase price of $1.5 billion in cash (the \u201cAcquisition\u201d).\nOn March 10, 2022, we completed the sale of Association of Certified Anti-Money Laundering Specialists (\u201cACAMS\u201d), Becker Professional Education (\u201cBecker,\u201d) and OnCourse Learning (\u201cOCL\u201d) for $962.7 million, net of cash of $21.5 million, subject to post-closing adjustments. On June 17, 2022, we completed the sale of EduPristine for de minimis consideration.\n1\n\n\nTable of Contents\nSegments Overview\nWe present three reportable segments as follows:\nChamberlain\n \u2013 Offers degree and non-degree programs in the nursing and health professions postsecondary education industry. This segment includes the operations of Chamberlain University (\u201cChamberlain\u201d).\nWalden\n \u2013 Offers more than 100 online certificate, bachelor\u2019s, master\u2019s, and doctoral degrees, including those in nursing, education, counseling, business, psychology, public health, social work and human services, public administration and public policy, and criminal justice. This segment includes the operations of Walden, which was acquired by Adtalem on August 12, 2021. See Note 3 \u201cAcquisitions\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information on the acquisition.\nMedical and Veterinary\n \u2013 Offers degree and non-degree programs in the medical and veterinary postsecondary education industry. This segment includes the operations of the American University of the Caribbean School of Medicine (\u201cAUC\u201d), Ross University School of Medicine (\u201cRUSM\u201d), and Ross University School of Veterinary Medicine (\u201cRUSVM\u201d), which are collectively referred to as the \u201cmedical and veterinary schools.\u201d\n\u201cHome Office and Other\u201d includes activities not allocated to a reportable segment. Financial and descriptive information about Adtalem\u2019s reportable segments is presented in Note 22 \u201cSegment Information\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data.\u201d\nBeginning in the second quarter of fiscal year 2022, Adtalem eliminated its Financial Services segment when ACAMS, Becker, OCL, and EduPristine were classified as discontinued operations and assets held for sale. In accordance with U.S. generally accepted accounting principles (\u201cGAAP\u201d), we have classified the ACAMS, Becker, OCL, and EduPristine entities as \u201cHeld for Sale\u201d and \u201cDiscontinued Operations\u201d in all periods presented as applicable. As a result, all financial results, disclosures, and discussions of continuing operations in this Annual Report on Form 10-K exclude ACAMS, Becker, OCL, and EduPristine operations, unless otherwise noted. In addition, we continue to incur costs associated with ongoing litigation and settlements related to the DeVry University divestiture, which was completed during fiscal year 2019, and those costs are classified as expense within discontinued operations. See Note 4 \u201cDiscontinued Operations and Assets Held for Sale\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional discontinued operations information.\nChamberlain\nChamberlain was founded in 1889 as Deaconess College of Nursing and acquired by Adtalem in 2005. In May 2017, Chamberlain College of Nursing broadened its reach in healthcare education through the establishment of Chamberlain University and now offers its programs through its College of Nursing and College of Health Professions. Nursing degree offerings include a three-year onsite and online Bachelor of Science in Nursing (\u201cBSN\u201d) degree, an online Registered Nurse (\u201cRN\u201d) to BSN (\u201cRN-to-BSN\u201d) degree completion option, an online Master of Science in Nursing (\u201cMSN\u201d) degree, including Family Nurse Practitioner (\u201cFNP\u201d) and other specialties, and the online Doctor of Nursing Practice (\u201cDNP\u201d) degree.\nChamberlain offers an online Master of Public Health (\u201cMPH\u201d) degree program and an online Master of Social Work (\u201cMSW\u201d) degree program, which launched in July 2017 and September 2019, respectively, both of which are offered through its College of Health Professions. Chamberlain also offers a Master of Physician Assistant Studies (\u201cMPAS\u201d) degree program at the Chicago, Illinois campus; the first cohort began classes in September 2022.\nChamberlain provides an educational experience distinguished by a high level of care for students, academic excellence, and integrity delivered through its 23 campuses and online.\u00a0Chamberlain is committed to graduating health professionals who are empowered to transform healthcare worldwide. Chamberlain had 33,284\n \nstudents enrolled in the May 2023 session, an increase of 1.2% compared to the prior year.\nChamberlain\u2019s pre-licensure BSN degree is a baccalaureate program offered at its campus locations as well as online in specific states. The BSN program enables students to complete their BSN degree in three years of full-time study as opposed to the typical four-year BSN program with summer breaks. Beginning in September 2019, Chamberlain also \n2\n\n\nTable of Contents\nbegan offering an evening/weekend BSN option at select campuses. In September 2020, Chamberlain launched its online BSN option which offers a blend of flexibility, interactivity, and experiential learning. The program is available to students living in 29 states (Alabama, Alaska, Colorado, Delaware, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Texas, Utah, Vermont, Virginia, West Virginia, and Wisconsin). Chamberlain pre-licensure BSN students who completed the National Council Licensure Examination (\u201cNCLEX\u201d) had a first-time pass rate of 76% in 2022 and 85% in 2021. The national NCLEX pass rate was 82% for 2022 and 86% for 2021.\n \nStudents who already have passed their NCLEX exam and achieved RN designation through a diploma or associate degree can complete their BSN degree online through Chamberlain\u2019s RN-to-BSN completion option in three semesters of full-time study, although most students enroll part-time while they continue working as nurses.\nThe online MSN degree program offers five non-direct-care specialty tracks: Nurse Educator, Nurse Executive, Nursing Informatics, Population Health, and Healthcare Policy. These programs require 36 credit hours and 144 to 217 practicum hours and are designed to be completed in approximately two years of part-time study. The accelerated MSN program offers an Advanced Generalist and Clinical Nurse Leadership concentration. The Advanced Generalist concentration requires 30 credit hours and 144 practicum hours designed to be completed in as little as nine months of full-time study. The Clinical Nurse Leadership concentration requires 37 credit hours and 432 practicum hours designed to be completed in one year of full-time study. The accelerated RN-to-MSN program offers associate or diploma-prepared RNs an opportunity to earn an MSN versus a BSN with the option of completing the Advanced Generalist concentration requiring 45 credit hours and 144 practicum hours completed in one year of full-time study and the Clinical Nurse Leadership concentration requiring 52 credit hours and 432 practicum hours completed in one and a half years of full-time study.\nChamberlain also offers four direct-care nurse practitioner tracks: FNP, Adult-Gerontology Acute Care Nurse Practitioner (\u201cAGACNP\u201d), Adult-Gerontology Primary Care Nurse Practitioner (\u201cAGPCNP\u201d), and Psychiatric-Mental Health Nurse Practitioner (\u201cPMHNP\u201d). The FNP and AGPCNP programs require 45 credit hours and 650 lab and clinical hours and are designed to be completed in two and a half years of part-time study. The AGACNP program requires 48 credit hours and 750 lab and clinical hours, while the PMHNP program requires 47 credit hours and 650 lab and clinical hours, with both concentrations designed to be completed in two and a half years of part-time study. The AGPCNP and AGACNP programs launched in July 2020. The PMHNP program launched in November 2021.\nThe online DNP degree program is based on the eight essentials of doctoral education outlined by the American Association of Colleges of Nursing (\u201cAACN\u201d). The DNP program is designed for nurses seeking a terminal degree in nursing and offers an alternative to research-focused Ph.D. programs. The program requires 32 to 40 credit hours along with 1,024 clinical practicum hours. The program can be completed in five to six semesters of study.\nChamberlain\u2019s College of Health Professions MPH degree program focuses on preparing students to become public health practitioners to work with communities and populations globally to promote healthy communities and to prevent community health problems such as disease, poverty, health access disparities, and violence through interdisciplinary coursework. The program requires 43 credit hours. The MSW degree program aims to develop and empower students to be agents of social change in their communities and throughout the world. The MSW degree program prepares students for generalist or specialized practice and offers three tracks, including Crisis and Response Interventions, Trauma, and Medical Social Work. The program offers both a traditional and advanced standing option. The traditional option requires 60 credit hours, while the advanced standing option requires 36 credit hours and is for students who have completed a baccalaureate degree in social work. The MPAS degree program prepares students for the practice of general medicine as Physician Assistants in collaboration with a licensed physician and healthcare team. The program requires 109 credit hours, including 1,440 of direct patient care and is designed to be completed in two years.\nStudent Admissions and Admissions Standards\nPre-Licensure BSN Program\nThe Chamberlain undergraduate pre-licensure admission process comprises two phases: Academic Eligibility and Clinical Clearance. Applicants must complete both to be eligible for admission. Determining Academic Eligibility is the role of the Chamberlain BSN Unified Admission Committee. The committee reviews applicants using a weighted \n3\n\n\nTable of Contents\nevaluation system that considers several factors which may include previous coursework, grade point average, ACT/SAT scores and Health Education Systems, Inc. (\u201cHESI\u201d) Admission Assessment (A2) scores. All applicants deemed academically eligible by the committee must initiate drug, background, and fingerprint screenings, and clear all screenings within 120 days of the session start date. Applicants who enroll in the original session applied for may be granted full acceptance by signing a self-attestation and disclosure indicating their ability to clear all screenings within 120 days of the session start date. Chamberlain enrolls students in its pre-licensure program at least three times per year, during the January, May, and September sessions and select campuses may offer additional opportunities to start.\nRN-to-BSN Option\nAdmission to the RN-to-BSN option requires a nursing diploma or Associate Degree in Nursing from an accredited institution, a minimum grade point average of 2.0, and a current, active, unrestricted RN license in the U.S. or other jurisdiction that is an associate member of the National Council of State Boards of Nursing (\u201cNCSBN\u201d). Chamberlain enrolls students in its RN-to-BSN program six times per year, during the January, March, May, July, September, and November sessions.\nGraduate Programs\nTo enroll in the MSN program, a prospective student must possess a degree in nursing at the bachelor\u2019s level or higher from an accredited institution, a minimum grade point average of 3.0, and a current, active, unrestricted RN license in the U.S. or other jurisdiction that is an associate member of the NCSBN. Provisional admission may be granted to students who have a grade point average of at least 2.75 but less than 3.0.\nThe DNP program requires a degree at the master\u2019s level or higher from an accredited institution, a minimum grade point average of 3.0, and a current, active, unrestricted RN license in the U.S. or other jurisdiction that is an associate member of the NCSBN.\nEnrollment in the MPH program requires a bachelor\u2019s level degree or higher from an accredited institution and a minimum grade point average of 3.0.\nStudents seeking to enroll in the MSW program must have a bachelor\u2019s degree or higher from an accredited institution with a minimum grade point average of 2.5. Students must also pass a background and fingerprint check.\nStudents seeking to enroll in the MPAS program must have a bachelor\u2019s degree from an accredited institution recognized by the Council for Higher Education Accreditation (\u201cCHEA\u201d) with a minimum grade point average of 3.0, prerequisite science coursework with a grade of C or better, submission of scores from the Graduate Record Examination (\u201cGRE\u201d) taken within the last 10 years, recommendation letters, and completion of an on-campus interview. Students must also pass background and fingerprint checks.\nChamberlain enrolls students in its graduate nursing, MPH, and MSW programs six times per year, during the January, March, May, July, September, and November sessions. Chamberlain enrolls students in its graduate MPAS program once a year in the September session.\nWalden\nFor more than 50 years, Walden has provided an engaging learning experience for working professionals. Walden\u2019s mission is to provide a diverse community of career professionals with the opportunity to transform themselves as scholar-practitioners so that they can effect positive social change. Walden seeks to empower students to use their new knowledge to think creatively about problem-solving for social good. This mission of education as applied to promoting social good has allowed Walden to attract an extraordinary community of students and faculty members who share a commitment to using knowledge to create real and lasting positive social change.\nFounded in 1970 and first accredited by the Higher Learning Commission (\u201cHLC\u201d) in 1990, Walden has a strong legacy of providing innovative and alternative degree programs for adult students. Walden has grown to support more than 100 degree and certificate programs\u2014including programs at the bachelor\u2019s, master\u2019s, education specialist, and doctoral levels\u2014with over 350 specializations and concentrations. As of June 30, 2023, total student enrollment at Walden was \n4\n\n\nTable of Contents\n37,582, a decrease of 4.8% compared to June 30, 2022. A primarily graduate institution, Walden has ranked #1 among 380 accredited institutions for awarding research doctorates to African American students and #1 in awarding graduate degrees in multiple disciplines to African American students. Walden has ranked #2 for awarding research doctoral degrees in psychology, public health, and social service professions to Hispanic students. \nIn addition, Walden has rich experience in delivering innovative accelerated programs through distance delivery. Walden also has experience in delivering accelerated course-based programs where students can combine customized and classroom modalities to speed their time to completion (for example, the Accelerated Master of Science in Education) and degree completion programs (for example, the RN-to-BSN). Walden currently offers 17 programs/specializations and 2 certificates in a direct assessment competency-based education format through its Tempo\u00ae Learning modality. Through a culture of assessment and continuous improvement, Walden has developed the organization and resources required to deliver a quality academic learning experience to working adults via distance delivery. All Walden academic programs are delivered in an online format.\nWalden\u2019s colleges and programs are structured within two main divisions as follows: \n\u25cf\nDivision of Health Care Access and Quality\no\nCollege of Nursing\no\nCollege of Social and Behavioral Health, comprised of the School of Counseling and the Barbara Solomon School of Social Work\no\nCollege of Allied Health \n\u25cf\nDivision of Social Supports for Healthy Communities\no\nCollege of Management and Human Potential\no\nThe Richard W. Riley College of Education and Human Sciences\no\nCollege of Psychology and Community Services\no\nCollege of Health Sciences and Public Policy\no\nSchool of Interdisciplinary Undergraduate Studies\nWalden believes this organizational structure supports its mission via a focused effort promoting healthy communities and healthy people, as identified through the U.S. Department of Health and Human Services\u2019 Office of Disease Prevention and Health Promotion\u2019s national effort in this area known as Healthy People 2030, supported by the Social Determinants of Health Framework. \nStudent Admissions and Admissions Standards\nWalden has a long-standing commitment to providing educational opportunities to a diverse group of learners across all degree levels. Walden\u2019s programs are enriched by the cultural, economic, and educational backgrounds of its students and instructors. In the admissions process, Walden selects individuals who can benefit from a distributed educational or online learning approach and who will use their Walden education to contribute to their academic or professional communities.\nFor admissions review to take place, applicants must submit an online application for their intended program of study and an official transcript with a qualifying admitting degree from a U.S. school accredited by a regional, professional/specialized, or national accrediting organization recognized by the Council for Higher Education Accreditation or the U.S. Department of Education (\u201cED\u201d), or from an appropriately accredited non-U.S. institution. Additional materials or requirements to submit may vary depending on the academic program.\nApplicants with degrees and coursework from a non-U.S. institution have their academic record evaluated for comparability to a U.S. degree or coursework by our Global Transcript Evaluation (\u201cGTE\u201d) service offered by Walden or any credential evaluation service that is a member of the National Association of Credential Evaluation Services (\u201cNACES\u201d) or member of Association of International Credential Evaluators (\u201cAICE\u201d).\nApplicants may be offered conditional admission to Walden with a stipulation for academic performance at the level of a cumulative grade point average of 3.0 or higher for master\u2019s and doctoral students or a cumulative grade point average \n5\n\n\nTable of Contents\nof 2.0 or higher for undergraduate students, the successful completion of academic progress requirements during the initial term(s) of enrollment, the completion of prerequisites, and/or other stipulations (including receipt of official records).\nBachelor\u2019s\nAll applicants are required to have earned, at a minimum, a recognized high school diploma, high school equivalency certificate, or other state-recognized credential of high school completion. Applicants who have completed their secondary education from a country outside of the U.S. submit an official evaluation report completed by a member of NACES or the GTE service offered by Walden showing comparability to a U.S. high school diploma, along with a copy of their academic credential. If selected for verification, candidates may be asked to provide official documents showing evidence of high school completion or equivalent.\nIn addition to meeting the above criteria, candidates must meet at least one of the following:\n\u25cf\nBe 21 years of age or older,\n\u25cf\nBe less than 21 years of age with 12 quarter credit hours of college credit,\n\u25cf\nBe active military or a veteran (must provide documentation of service), or\n\u25cf\nBe concurrently enrolled in an approved partner institution with an articulation agreement with Walden.\nBachelor of Science in Nursing\nAll applicants are required to have an associate degree or diploma in nursing and a valid RN license.\nWalden Undergraduate Academy\nThe Academy is a general education program of study for first-time undergraduates who do not have any college credit prior to coming to Walden. Students take their courses as a cohort in a lock-step manner. This does not change the 181-quarterly credit model for undergraduate programs, nor does it impact available concentrations. Instead, the lock-step nature of the general education curriculum provides additional support to students as they build their scholarly acumen.\nMaster\u2019s and Master\u2019s Certificate\nThe Master\u2019s program requires a minimum grade point average of 2.5 in bachelor\u2019s degree coursework or a 3.0 in master\u2019s degree coursework. Specific program requirements may apply.\nMaster of Science in Nursing\nTwo tracks are offered to licensed RNs who seek to enter the MSN program. The BSN track is for students with a BSN degree. The RN track is for students with an associate degree in nursing or a diploma in nursing that has prepared them for licensure as a RN. RN-to-MSN applications will not be accepted without a nursing degree or diploma conferred.\nMaster of Social Work\nWalden offers three tracks for the MSW program. The traditional option may be the best fit for students looking to balance studies with work, family, and other responsibilities. The traditional fast track option is for students that want an intensive workload and have sufficient time to dedicate to their studies. The advanced standing option is for students that hold a Bachelor of Social Work (\u201cBSW\u201d) degree from a Council on Social Work Education (\u201cCSWE\u201d) accredited program and graduated with a minimum grade point average of 3.0. This option allows students to skip foundational courses and start their MSW with advanced-level courses.\nMSED Educational Leadership & Administration (Principal Licensure Preparation)\nThis program requires one year of lead K-12 teaching experience and a valid teaching certification.\n6\n\n\nTable of Contents\nDoctoral\nThe Doctor program requires a minimum grade point average of 3.0 in post-baccalaureate degree coursework. Certain programs require three years of professional/academic experience related to the program for which application is made. \nDoctor of Nursing Practice\nWalden offers two tracks for DNP. Most of our DNP specializations offer a BSN entry point. The BSN-to-DNP track is ideal for RNs who have earned a BSN degree. The MSN-to-DNP track is ideal for RNs who have earned a MSN degree.\nPh.D. in Nursing\nWalden offers three tracks for a Ph.D. in Nursing. The bridge option offers students who hold a DNP degree a shorter path to a Ph.D. in Nursing. The BSN-to-Ph.D. track is ideal for applicants that are a RN and have earned their BSN degree. The MSN-to-Ph.D. track is ideal for applicants that are a RN and have earned their MSN degree.\nProgram Admission Considerations (BSN-to-Ph.D.): To be considered for this doctoral program track, applicants must have a current, active RN license, a BSN or equivalent from an accredited school, and meet the general admission requirements.\n \nProgram Admission Considerations (MSN-to-Ph.D.): To be considered for this doctoral program track, applicants must have a current, active RN license, a MSN or higher from an accredited school, and meet the general admission requirements.\nDoctor of Social Work\nTo be considered for this program, applicants must hold a MSW degree from a CSWE accredited program with a minimum grade point average of 3.0 and have at least three years of full-time and equivalent practice experience beyond the master\u2019s degree. A resume is required to document experience. \nPh.D. in Social Work\nTo be considered for this program, applicants must hold a MSW degree from a CSWE accredited program with a minimum grade point average of 3.0.\nPh.D. in Counselor Education and Supervision\nTo be considered for this program, applicants must hold a master's degree or higher in a counseling/related degree and have 20 transferrable credits out of 39 pre-requisite credits.\nPsyD in Behavioral Health Leadership\nIn addition to the doctoral grade point average requirements, applicants for this program are required to show one year of post-master\u2019s degree related work experience.\nEdD Educational Administration & Leadership (for administrators)\nBecause of its unique structure, the Doctor of Education (\u201cEdD\u201d) with a specialization in Educational Administration and Leadership (for Administrators) has additional admission requirements, including a master\u2019s degree or education specialist degree and a minimum of 25 quarter credits or 15 semester credits from a university principal preparation program. These may have been acquired through a master\u2019s, specialist, or certification program at a university. A valid principal license, or eligibility for a principal license based on a university principal preparation program, is also required. If not certified, applicants should provide a university document that states eligibility for certification based on the program. Additionally, applicants must have had three years of administrative experience and must provide an acknowledgement form verifying they have access to and the ability to collect data from a K\u201312 school setting.\n7\n\n\nTable of Contents\nPh.D. in Public Health\nWalden offers two tracks for applicants. Applicants are eligible for track 1 if they have a MPH or a MS in Public Health. Applicants are eligible for track 2 if they have a bachelor\u2019s degree or higher in an academic discipline other than the public health field.\nPost-Master\u2019s Certificate\nA minimum grade point average of 3.0 in post-bachelor\u2019s degree coursework and three years of professional/academic experience related to the program for which application is made.\nMedical and Veterinary\nTogether, AUC, RUSM, and RUSVM, along with the Medical Education Readiness Program (\u201cMERP\u201d) and the Veterinary Preparation Program, had 4,869\n \nstudents enrolled in the May 2023 semester, an 8.2% decrease compared to the same term last year.\nAUC and RUSM\nAUC,\n \nfounded in 1978 and acquired by Adtalem in 2011, provides medical education and confers the Doctor of Medicine degree. AUC is located in St. Maarten and is one of the most established international medical schools in the Caribbean, producing over 7,500 graduates from over 78 countries. The mission of AUC is to train tomorrow\u2019s physicians, whose service to their communities and their patients is enhanced by international learning experiences, a diverse learning community, and an emphasis on social accountability and engagement. \nRUSM, founded in 1978 and acquired by Adtalem in 2003, provides medical education and confers the Doctor of Medicine degree. RUSM has graduated more than 15,000 physicians since inception. The mission of RUSM is to prepare highly dedicated students to become effective and successful physicians. RUSM seeks to accomplish this by focusing on imparting the knowledge, skills, and values required for its students to establish a successful and satisfying career as a physician. In January 2019, RUSM moved its basic science instruction from Dominica to Barbados.\nAUC\u2019s and RUSM\u2019s respective medical education programs are comparable to the educational programs offered at U.S. medical schools as evidenced by student performance on the U.S.\u00a0Medical Licensing Examination (\u201cUSMLE\u201d) tests and residency placement. AUC\u2019s and RUSM\u2019s programs consist of three academic semesters per year, which begin in January, May, and September, allowing students to begin their basic science instruction at the most convenient time for them.\nInitially, AUC and RUSM students complete a program of concentrated study of medical sciences after which they sit for Step 1 of the USMLE, which assesses whether students understand and can apply scientific concepts that are basic to the practice of medicine. Under AUC and RUSM direction, students then complete the remainder of their program by participating in clinical rotations conducted at over 40 affiliated teaching hospitals or medical centers connected with accredited medical education programs in the U.S., Canada, and the U.K. Towards the end of the clinical training and prior to graduation, AUC and RUSM students take USMLE, Step 2 CK (Clinical Knowledge), which assesses ability to apply medical knowledge, skills, and understanding of clinical science essential for the provision of patient care under supervision and includes emphasis on health promotion and disease prevention. Successfully passing USMLE Step 2 Clinical Skills previously was a requirement for graduation and for certification by the Educational Commission for Foreign Medical Graduates (\u201cECFMG\u201d) to enter the U.S. residency match. USMLE Step 2 Clinical Skills has been discontinued indefinitely. ECFMG has developed alternative pathways to replace this requirement, for which AUC and RUSM are generally eligible.\nUpon successful completion of their medical degree requirements, students apply for a residency position in their area of specialty through the National Residency Matching Program (\u201cNRMP\u201d). This process is also known as \u201cThe Match\u201d\u00ae and utilizes an algorithm to \u201cmatch\u201d applicants to programs using the certified rank order lists of the applicants and program directors.\nAUC students achieved an 84% and 77% first-time pass rate on the USMLE Step 1 exam in 2021 and 2022, respectively. Of first-time eligible AUC graduates, 96% and 97% attained residency positions in 2022 and 2023, respectively.\n8\n\n\nTable of Contents\nRUSM students achieved an 83% and 81% first-time pass rate on the USMLE Step 1 exam in 2021 and 2022, respectively. Of first-time eligible RUSM graduates, 96% and 98% attained residency positions in 2022 and 2023, respectively.\nIn September 2019, AUC opened its medical education program in the U.K. in partnership with University of Central Lancashire (\u201cUCLAN\u201d). The program offers students a Post Graduate Diploma in International Medical Sciences from UCLAN, followed by their Doctor of Medicine degree from AUC. Students are eligible to do clinical rotations at AUC\u2019s clinical sites, which include hospitals in the U.S., the U.K., and Canada. This program is aimed at preparing students for USMLEs. \nMERP is a 15-week medical school preparatory program focused on enhancing the academic foundation of prospective AUC and RUSM students and providing them with the skills they need to be successful in medical school and to achieve their goals of becoming physicians. Upon successful completion of the MERP program, students are guaranteed admission to AUC or RUSM. Data has shown that the performance of students who complete the MERP program is consistent with students who were admitted directly into medical school.\nRUSVM\nRUSVM, founded in 1982 and acquired by Adtalem in 2003, provides veterinary education and confers the Doctor of Veterinary Medicine, as well as Masters of Science and Ph.D. degrees. RUSVM is one of 54 American Veterinary Medical Association (\u201cAVMA\u201d) accredited veterinary education institutions in the world. RUSVM is located in St. Kitts and has graduated nearly 6,000\n \nveterinarians since inception. The mission of RUSVM is to provide the best learning environment to prepare students to become members and leaders of the worldwide public and professional healthcare system and to advance human and animal health through research and knowledge exchange.\nThe RUSVM program is structured to provide a veterinary education that is comparable to educational programs at U.S.\u00a0veterinary schools. RUSVM students complete a seven-semester, pre-clinical curriculum at the campus in St. Kitts. After completing their pre-clinical curriculum, RUSVM students enter a clinical clerkship under RUSVM direction lasting approximately 45\u00a0weeks at one of 31 clinical affiliates located in the U.S., Canada, Australia, Ireland, New Zealand, and the U.K.\nRUSVM offers a one-semester Veterinary Preparatory Program (\u201cVet Prep\u201d) designed to enhance the pre-clinical science knowledge and study skills that are critical to success in veterinary school. The Vet Prep advancement rate for 2021-2022 was 76%, which represents the percent of Vet Prep students in 2020-2021 who started at RUSVM within one year.\nIn 2020 and 2021, instruction for both the RUSVM and Vet Prep programs was partially offered online in response to the novel coronavirus (\u201cCOVID-19\u201d) travel restrictions. All students have returned to full-time instruction in St. Kitts.\nStudent Admissions and Admissions Standards\nAUC, RUSM, and RUSVM employ regional admissions representatives in locations throughout the U.S. and Canada who provide information to students interested in their respective programs. A successful applicant must have completed the required prerequisite courses and, for AUC and RUSM, taken the Medical College Admission Test (\u201cMCAT\u201d), while RUSVM applicants are strongly encouraged but not required to have completed the Graduate Record Exam (\u201cGRE\u201d). Candidates for admission must interview with an admissions representative and all admission decisions are made by the admissions committees of the medical and veterinary schools. AUC allows several entrance examinations for its international students. The MCAT (and other entrance exams) requirement was temporarily waived as permitted by ED due to lack of availability of testing caused by COVID-19 closures, and later resumed for incoming May 2022 students. RUSVM began waiving their GRE requirements for incoming classes starting in January 2021 because of limited testing availability due to COVID-19. RUSVM later revised their policy to highly recommend but not require applicants to submit a GRE score, giving priority in the application review process for those who have taken the GRE.\n9\n\n\nTable of Contents\nDiscontinued Operations\nIn accordance with GAAP, the ACAMS, Becker, OCL, and EduPristine entities, which were divested during fiscal year 2022, are classified as \u201cDiscontinued Operations.\u201d As a result, all financial results, disclosures, and discussions of continuing operations in this Annual Report on Form 10-K exclude these entities operations, unless otherwise noted. In addition, we continue to incur costs associated with ongoing litigation and settlements related to the DeVry University divestiture, which was completed during fiscal year 2019, and are classified as expense within discontinued operations.\nEduPristine\nOn June 17, 2022, Adtalem completed the sale of EduPristine for de minimis consideration. \nACAMS/Becker/OCL\nOn March 10, 2022, Adtalem completed the sale of ACAMS, Becker, and OCL to Wendel Group and Colibri Group (\u201cPurchaser\u201d), pursuant to the Equity Purchase Agreement (\u201cPurchase Agreement\u201d) dated January 24, 2022. Pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, Adtalem sold the issued and outstanding shares of ACAMS, Becker, and OCL to the Purchaser for $962.7 million, net of cash of $21.5 million, subject to certain post-closing adjustments. This sale is the culmination of a long-term strategy to sharpen the focus of our portfolio and enhance our ability to address the rapidly growing and unmet demand for healthcare professionals in the U.S.\nDeVry University\nOn December 11, 2018, Adtalem completed the sale of DeVry University to Cogswell Education, LLC (\u201cCogswell\u201d) pursuant to the purchase agreement dated December 4, 2017. To support DeVry University\u2019s future success, Adtalem transferred DeVry University with a working capital balance of $8.75 million at the closing date. In addition, Adtalem has agreed to indemnify Cogswell for certain losses including those related to certain pre-closing Defense to Repayment claims. The purchase agreement also includes an earn-out entitling Adtalem to payments of up to $20 million over a ten-year period payable based on DeVry University\u2019s free cash flow. Adtalem received $2.9 million and $4.1 million during fiscal year 2022 and 2023, respectively, related to the earnout.\nMarket Trends and Competition\nChamberlain\nChamberlain competes in the U.S. nursing education market, which has more than 2,000 programs leading to RN licensure. These include four-year educational institutions, two-year community colleges, and diploma schools of nursing. The market consists of two distinct segments: pre-licensure nursing programs that prepare students to take the NCLEX-RN licensure exam and post-licensure nursing programs that allow existing RNs to advance their education.\nIn the pre-licensure nursing market, capacity limitations and restricted new student enrollment are common among traditional four-year educational institutions and community colleges. Chamberlain has 23 campuses located in 15 states. In Fall 2022, according to data obtained from the American Association of Colleges of Nursing (\u201cAACN\u201d), Chamberlain had the largest pre-licensure program in the U.S based on total enrollments.\nIn post-licensure nursing education, there are more than 700 institutions offering RN-to-BSN programs and more than 600 institutions offering MSN programs. Chamberlain\u2019s RN-to-BSN degree completion option has received three certifications from Quality Matters, an independent global organization leading quality assurance in online teaching and learning environments. Chamberlain has earned the Online Learning Support, Online Teaching Support, and Online Learner Success certifications. Chamberlain\u2019s RN-to-BSN degree completion option, MSN degree program, and DNP degree program are approved in 50 states, the District of Columbia, and the U.S. Virgin Islands. The MSN FNP track is approved in 47 states and the U.S. Virgin Islands, the AGACNP and AGPCNP tracks are approved in 44 states and the U.S. Virgin Islands, and the PMHNP track is approved in 43 states and the U.S. Virgin Islands. The MPH and MSW programs are approved in 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.\n10\n\n\nTable of Contents\nIn Fall 2022, according to AACN data, Chamberlain had the largest DNP, MSN, and FNP programs in the U.S based on total enrollments.\nWalden\nThe market for fully online higher education, in which Walden competes, remains a highly competitive and growing space. As a comprehensive university offering degrees at the bachelor\u2019s, master\u2019s and doctoral level, in addition to certificates and a school of lifelong learning, the competition varies depending on the degree level and the discipline. While Walden\u2019s target market of working professionals 25 years and older was once underserved, it now has a variety of options to meet the growing need for higher education.\n \nWalden has degree programs in nursing, education, counseling, business, psychology, public health, social work and human services, public administration and public policy, and criminal justice. Walden competes both with other comprehensive universities and also more narrowly focused schools, which may only offer a few degree programs. Given the growing and ever-changing market, Walden competes with a wide variety of higher education institutions as well as other education providers.\n \nWalden competes with traditional public and private non-profit institutions and for-profit schools. As more campus-based institutions offer online programs, the competition for online higher education has been growing. Typically, public universities charge lower tuitions compared with Walden due to state subsidies, government grants, and access to other financial resources. On the other hand, tuition at private non-profit institutions is higher than the average tuition rates at Walden. Walden competes with other educational institutions principally based on price, quality of education, reputation, learning modality, educational programs, and student services. \nWalden has over 50 years of experience offering high quality distance education with a mission to provide access to higher education for working professionals. Walden remains a leader in many areas and is one of the leading doctoral degree conferrers in nursing, public health, public policy, business/management, education, and psychology and one of the leading conferrers of master\u2019s degrees in nursing, psychology, social work, human services, education, and counseling.\nMedical and Veterinary\nAUC and RUSM compete with approximately 150 U.S. schools of medicine, 48 U.S.\u00a0colleges of osteopathic medicine, and more than 40 Caribbean medical schools as well as with international medical schools recruiting U.S. students who may be eligible to receive funding from ED Title IV programs. RUSVM competes with AVMA accredited schools, of which 33 are U.S.-based, 5 are Canadian and 16 are other international veterinary schools.\nThere has been some recent expansion in the U.S. medical education and veterinary education enrollment capacities because of the growing supply/demand imbalance for medical doctors and veterinarians. Despite this expansion, management believes the imbalance will continue to spur demand for medical and veterinary education.\nAccreditation and Other Regulatory Approvals\nEducational institutions and their individual programs are awarded accreditation by achieving a level of quality that entitles them to the confidence of the educational community and the public they serve. Accredited institutions are subject to periodic review by accrediting bodies to ensure continued high performance and institutional and program improvement and integrity, and to confirm that accreditation requirements continue to be satisfied. College and university administrators depend on the accredited status of an institution when evaluating transfer credit and applicants to their schools; employers rely on the accreditation status of an institution when evaluating a candidate\u2019s credentials; parents and high school counselors look to accreditation for assurance that an institution meets quality educational standards; and many professions require candidates to graduate from an accredited program in order to obtain professional licensure in their respective fields. Moreover, in the U.S., accreditation is necessary for students to qualify for federal financial assistance and most scholarship commissions restrict their awards to students attending accredited institutions.\n11\n\n\nTable of Contents\nChamberlain\nChamberlain is institutionally accredited by the HLC, an institutional accreditation agency recognized by ED. In addition to institutional accreditation, Chamberlain has also obtained programmatic accreditation for specific programs. BSN, MSN, DNP, and post-graduate Advanced Practice Registered Nurses (\u201cAPRN\u201d) certificate programs are accredited by the Commission on Collegiate Nursing Education (\u201cCCNE\u201d). Chamberlain\u2019s MPH program is accredited by the Council on Education for Public Health. Chamberlain\u2019s MSW program is accredited by the Council on Social Work Education\u2019s Commission on Accreditation. The Accreditation Review Commission on Education for the Physician Assistant (\u201cARC-PA\u201d) has granted Accreditation-Provisional status to the Master of Physician Assistant Studies program. Accreditation-Provisional is an accreditation status granted when the plans and resource allocation, if fully implemented as planned, of a proposed program that has not yet enrolled students appear to demonstrate the program\u2019s ability to meet the ARC-PA Standards or when a program holding Accreditation-Provisional status appears to demonstrate continued progress in complying with the Standards as it prepares for the graduation of the first class (cohort) of students. Accreditation-Provisional does not ensure any subsequent accreditation status. It is limited to no more than five years from matriculation of the first class. Additionally, Chamberlain is an accredited provider of nursing continuing professional development credits by the American Nursing Credentialing Center.\nWalden\nWalden is institutionally accredited by the HLC, an institutional accreditation agency recognized by ED. In addition to its institutional accreditation, a number of Walden\u2019s programs have obtained programmatic accreditation. The BS in Information Technology program is accredited by the Accreditation Board for Engineering and Technology. A number of business programs (BS in Business Administration, Master of Business Administration, MS in Finance, Doctor of Business Administration, and Ph.D. in Management) are accredited by the Accreditation Council for Business Schools and Programs (\u201cACBSP\u201d). The BS and MS in Accounting programs are accredited by ACBSP\u2019s Separate Accounting Accreditation. The BSN, MSN, Post-Master\u2019s APRN certificates, and DNP programs are accredited by CCNE. The MS in Addiction Counseling, MS in School Counseling, MS in Clinical Mental Health Counseling, MS in Marriage, Couple, and Family Counseling, and Ph.D. in Counselor Education and Supervision programs are accredited by the Council for Accreditation of Counseling and Related Education Programs. Walden\u2019s initial teacher preparation programs, BS in Elementary Education and Master of Arts in Teaching with a specialization in Special Education, and advanced educator preparation programs, education specialist in Educational Leadership and Administration and MS in Education with a specialization in Educational Leadership and Administration, in the Richard W. Riley College of Education and Human Sciences are accredited by the Council for the Accreditation of Educator Preparation. The MPH and Doctor of Public Health programs are accredited by the Council on Education for Public Health. The Bachelor of Social Work and MSW programs are accredited by the Council on Social Work Education. The MS in Project Management program is accredited by the Project Management Institute Global Accreditation Center for Project Management Education Programs. Additionally, Walden is an accredited provider of continuing education credits by the American Nursing Credentialling Center.\nMedical and Veterinary\nThe Government of St. Maarten authorizes AUC to confer the Doctor of Medicine degree. AUC is accredited by the Accreditation Commission on Colleges of Medicine (\u201cACCM\u201d). The ACCM is an international medical school accrediting organization for countries that do not have a national medical school accreditation body. The U.S. Department of Education National Committee on Foreign Medical Education and Accreditation (\u201cNCFMEA\u201d) has affirmed that the ACCM has established and enforces standards of educational accreditation that are comparable to those promulgated by the U.S. Liaison Committee on Medical Education (\u201cLCME\u201d). In addition, AUC is authorized to place students in clinical rotations in the majority of U.S. states, including California, Florida, and New York, where robust processes are in place to evaluate and approve an international medical school\u2019s programs. AUC students can join residency training programs in all 50 states. AUC has also been deemed acceptable by the Graduate Medical Council (\u201cGMC\u201d), the accrediting body in the U.K., which allows AUC graduates to apply for residency programs in the U.K.\nRUSM\u2019s primary accreditor is Caribbean Accreditation Authority for Education in Medicine and other Health Professions (\u201cCAAM-HP\u201d). CAAM-HP is authorized to accredit medical programs by the government of Barbados. On July 26, 2018, Barbados authorized RUSM to confer the Doctor of Medicine degree. The NCFMEA has affirmed that CAAM-HP has established and enforces standards of educational accreditation that are comparable to those promulgated \n12\n\n\nTable of Contents\nby the LCME. In addition, RUSM is authorized to place students in clinical rotations in the majority of U.S. states, including California, Florida, New Jersey, and New York, where robust processes are in place to evaluate and accredit an international medical school\u2019s programs. RUSM students can join residency training programs in all 50 states.\nRUSVM has been recognized by the government of the Federation of St. Christopher and Nevis (\u201cSt. Kitts\u201d) and is chartered to confer the Doctor of Veterinary Medicine degree. The Doctor of Veterinary Medicine degree is accredited by the American Veterinary Medical Association Council on Education (\u201cAVMA COE\u201d). RUSVM has affiliations with 31 AVMA-accredited U.S.\u00a0and international colleges of veterinary medicine so that RUSVM students can complete their final three clinical semesters of study in the U.S. or abroad. RUSVM has received accreditation for its Postgraduate Studies program from the St. Christopher & Nevis Accreditation Board. The Postgraduate Studies program offers Master of Science and Ph.D. degrees in all research areas supported by RUSVM. Areas of emphasis are guided by RUSVM's themed research centers.\nRegulatory Environment\nFinancial Aid\nAll financial aid and assistance programs are subject to political and governmental budgetary considerations. In the U.S., the Higher Education Act (as reauthorized, the \u201cHEA\u201d) guides the federal government\u2019s support of postsecondary education. The HEA was last reauthorized by the U.S. Congress in July 2008 and was signed into law in August 2008. In the 118\nth\n Congress, a comprehensive HEA reauthorization bill has not been introduced. However, standalone bills impacting Title IV federal financial aid programs have been introduced in both chambers of Congress. Some of these bills could be included in a larger legislative package, which could include the HEA. When the HEA is reauthorized, existing programs and participation requirements are subject to change. Additionally, funding for student financial assistance programs may be impacted during appropriations and budget actions.\nInformation about Particular U.S. and Canadian Government Financial Aid Programs\nChamberlain, Walden, AUC, RUSM, and RUSVM students participate in many U.S. and Canadian financial aid programs. Each of these programs is briefly described below.\nU.S. Federal Financial Aid Programs\nStudents in the U.S. rely on three types of ED student financial aid programs under Title\u00a0IV of the HEA.\n1.\u00a0\nGrants.\n Chamberlain and Walden undergraduate students may participate in the Federal Pell Grant and Federal Supplemental Education Opportunity Grant programs.\n\u25cf\nFederal Pell Grants:\n\u00a0These funds do not have to be repaid and are available to eligible undergraduate students who demonstrate financial need and who have not already received a baccalaureate degree. For the 2022-2023 school year, eligible students could receive Federal Pell Grants ranging from $700 to $6,895.\n\u25cf\nFederal Supplemental Educational Opportunity Grant (\u201cFSEOG\u201d):\n\u00a0This is a supplement to the Federal Pell Grant and is only available to the neediest undergraduate students. Federal rules restrict the amount of FSEOG funds that may go to a single institution. The maximum individual FSEOG award is established by the institution but cannot exceed $4,000\u00a0per academic year. Educational institutions are required to supplement federal funds with a 25% matching contribution. Institutional matching contributions may be satisfied, in whole or in part, by state grants, scholarship funds (discussed below), or by externally provided scholarship grants.\n2.\u00a0\nLoans.\n\u00a0Chamberlain, Walden, AUC, RUSM, and RUSVM students may participate in the Direct Unsubsidized and PLUS programs within the Federal Direct Student Loan Program. Chamberlain and Walden undergraduate students may also be eligible for Subsidized Loans within the Federal Direct Student Loan Program.\n\u25cf\nDirect Subsidized Loan:\u00a0\nAwarded on the basis of student financial need, it is a low-interest loan (a portion of the interest is subsidized by the Federal government) available to undergraduate students with interest charges and principal repayment deferred until six months after a student no longer attends school on at least a half-time \n13\n\n\nTable of Contents\nbasis (the student is responsible for paying the interest charges during the six months after no longer attending school on at least a half-time basis for those loans with a first disbursement between July 1, 2012 and July 1, 2014). Loan limits per academic year range from $3,500 for students in their first academic year, $4,500 for their second academic year, to $5,500 for students in their third or higher undergraduate academic year.\n\u25cf\nDirect Unsubsidized Loan:\u00a0\nAwarded to students who do not meet the needs test or as an additional supplement to the Direct Subsidized Loan. These loans incur interest from the time funds are disbursed, but actual principal and interest payments may be deferred until six months after a student no longer attends school on at least a half-time basis. Direct Unsubsidized Loan limits vary based on dependency status and level of study, with $2,000 for undergraduate dependent students per academic year. Independent undergraduate students may borrow $6,000 in their first and second academic years, increasing to $7,000 in later undergraduate years. Direct Unsubsidized Loan limits then increase to $20,500\u00a0per academic year for graduate and professional program students. Additionally, a student without financial need may borrow an additional Direct Unsubsidized Loan amount up to the limit of the Direct Subsidized Loan at their respective academic grade level. The total Direct Subsidized and/or Direct Unsubsidized Loan aggregate borrowing limit for undergraduate students is $57,500 and $138,500 for graduate students, which is inclusive of Direct Subsidized and Direct Unsubsidized Loan amounts borrowed as an undergraduate.\n\u25cf\nDirect Grad PLUS and Direct Parent PLUS Loans\n:\u00a0Enables a graduate student or parents of a dependent undergraduate student to borrow additional funds to meet the cost of the student\u2019s education. These loans are not based on financial need, nor are they subsidized. These loans incur interest from the time funds are disbursed, but actual principal and interest payments may be deferred until a student no longer attends school on at least a half-time basis. Graduate students and parents may borrow funds up to the cost of attendance, which includes allowances for tuition, fees, and living expenses. Both Direct Grad PLUS and Direct Parent PLUS Loans are subject to credit approval, which generally requires the borrower to be free of any current adverse credit conditions. A co-borrower may be used to meet the credit requirements.\n3.\u00a0\nFederal Work-study.\n\u00a0Chamberlain participates in this program, which offers work opportunities, both on or off campus, on a part-time basis to students who demonstrate financial need. Federal Work-study wages are paid partly from federal funds and partly from qualified employer funds.\nState Financial Aid Programs\nCertain states, including Arizona, California, Florida, Illinois, Indiana, Ohio, and Vermont, offer state grants or loan assistance to eligible undergraduate students attending Adtalem institutions.\nCanadian Government Financial Aid Programs\nCanadian citizens or permanent residents of Canada (other than students from the Northwest Territories, Nunavet, or Quebec) are eligible for loans under the Canada Student Loans Program, which is financed by the Canadian government. Eligibility and amount of funding vary by province. Canadian students attending Walden or Chamberlain online while in the U.S., or attending AUC, RUSM, or RUSVM, may be eligible for the Canada Student Loan Program. The loans are interest-free while the student is in school, and repayment begins six months after the student leaves school. Qualified students also may benefit from Canada Study Grants (designed for students whose financial needs and special circumstances cannot otherwise be met), tax-free withdrawals from retirement savings plans, tax-free education savings plans, loan repayment extensions, and interest relief on loans.\nInformation about Other Financial Aid Programs\nPrivate Loan Programs\nSome Chamberlain, Walden, AUC, RUSM, and RUSVM students rely on private (non-federal) loan programs borrowed from private lenders for financial assistance. These programs are used to finance the gap between a student\u2019s cost of attendance and their financial aid awards. The amount of the typical loan varies significantly according to the student\u2019s enrollment and unmet need.\n14\n\n\nTable of Contents\nMost private loans are approved on the basis of the student\u2019s and/or a co-borrower\u2019s credit history.\u00a0The cost of these loans varies, but in almost all cases will be more expensive than the federal programs. The application process is separate from the federal financial aid process.\u00a0Student finance personnel at Adtalem\u2019s degree-granting institutions coordinate these processes so that students receive assistance from the federal and state programs before utilizing private loans.\nWith the exception of Chamberlain, Adtalem\u2019s institutions do not maintain preferred lender lists. However, all students are entirely free to utilize a lender of their choice.\nTax-Favored Programs\nThe U.S. has a number of tax-favored programs aimed at promoting savings for future college expenses. These include state-sponsored \u201c529\u201d college savings plans, state-sponsored prepaid tuition plans, education savings accounts (formerly known as education IRAs), custodial accounts for minors, Hope and Lifetime Learning tax credits, and tax deductions for interest on student loans.\nAdtalem-Provided Financial Assistance\nEach of our institutions offers a variety of scholarships to assist with tuition and fee expenses, some of which are one-time awards while others are renewable. Some students may also qualify for more than one scholarship at a time.\nChamberlain students are eligible for numerous institutional scholarships with awards up to $2,500 per semester. \nWalden offers a number of different scholarships discounts and other tuition assistance to eligible students. These vary by program and by term but usually consist of any of the following: $500-$1,000 grants per term over three to ten terms; scholarships specific to the company they work for; if they are an alumnus of Walden; or if they are in the military. Walden also offers a Believe & Achieve scholarship that rewards undergraduate and Masters\u2019 students free tuition upon completion of an agreed number of terms, depending on the program, modality of student, and credits earned. These range in value from $1,500-$14,985.\nStudents at AUC may be eligible for an institutional scholarship, ranging from $5,000 to $80,000 to cover expenses incurred from tuition and fees.\u00a0Students at RUSM may be eligible for various institutional scholarships, ranging from $3,000 to $100,000, to cover expenses incurred from housing, tuition and fees. Students at RUSVM may be eligible for an institutional scholarship, ranging from $2,000 to $22,683 to cover expenses incurred from tuition and fees.\nAdtalem\u2019s credit extension programs are available to students at Chamberlain, AUC, RUSM, and RUSVM. These credit extension programs are designed to assist students who are unable to completely cover educational costs consisting of tuition, books, and fees, and are available only after all other student financial assistance has been applied toward those purposes. In addition, AUC, RUSM, and RUSVM allow students to finance their living expenses. Repayment plans for financing agreements are developed to address the financial circumstances of the particular student. Interest charges at rates from 3.0% to 12.0% per annum accrue each month on the unpaid balance once a student withdraws or graduates from a program. Most students are required to begin repaying their loans while they are still in school with a minimum payment level designed to demonstrate their capability to repay, which reduces the possibility of over borrowing. Payments may increase upon completing or departing school. After a student leaves school, the student typically will have a monthly installment repayment plan.\nThe finance agreements do not impose any origination fees, in general have a fixed rate of interest, and most carry annual and aggregate maximums that ensure that they are only a supplemental source of funding and not relied on as the main source. Borrowers must be current in their payments in order to be eligible for subsequent disbursements. Borrowers are advised about the terms of the financing agreements and counseled to utilize all other available private and federal funding options before securing financing through the institution.\nAdtalem financing agreements are carried on our balance sheet, net of related reserves, and there are no relationships with external parties that reduce Adtalem\u2019s risk of collections.\n15\n\n\nTable of Contents\nEmployer-Provided Tuition Assistance\nChamberlain and Walden students who receive employer tuition assistance may choose from several deferred tuition payment plans. Students eligible for tuition reimbursement plans may have their tuition billed directly to their employers or payment may be deferred until after the end of the session.\nWalden students eligible for tuition reimbursement must make payment arrangements with Walden and then be reimbursed by their employer. When the employer pays on behalf of the employee, Walden will bill the employer and payment terms are due 20 days from the receipt of the billing statement.\nLegislative and Regulatory Requirements\nGovernment-funded financial assistance programs are governed by extensive and complex regulations in the U.S. Like any other educational institution, Adtalem\u2019s administration of these programs is periodically reviewed by various regulatory agencies and is subject to audit or investigation by other governmental authorities. Any violation could be the basis for penalties or other disciplinary action, including initiation of a suspension, limitation, or termination proceeding.\nU.S. Federal Regulations\nOur domestic postsecondary institutions are subject to extensive federal and state regulations. The HEA and the related ED regulations govern all higher education institutions participating in Title IV programs and provide for a regulatory triad by mandating specific regulatory responsibilities for each of the following: (1) the federal government through ED, (2) the accrediting agencies recognized by ED, and (3) state higher education regulatory bodies.\nTo be eligible to participate in Title IV programs, a postsecondary institution must be accredited by an accrediting body recognized by ED, must comply with the HEA and all applicable regulations thereunder, and must be authorized to operate by the appropriate postsecondary regulatory authority in each state in which the institution operates, as applicable.\nIn addition to governance by the regulatory triad, there has been increased focus by members of the U.S. Congress and federal agencies, including ED, the Consumer Financial Protection Bureau (\u201cCFPB\u201d), and the Federal Trade Commission (\u201cFTC\u201d), on the role that proprietary educational institutions play in higher education. We expect that this challenging regulatory environment will continue for the foreseeable future.\nChanges in or new interpretations of applicable laws, rules, or regulations could have a material adverse effect on our eligibility to participate in Title IV programs, accreditation, authorization to operate in various states, permissible activities, and operating costs. The failure to maintain or renew any required regulatory approvals, accreditation, or state authorizations could have a material adverse effect on us. ED regulations regarding financial responsibility provide that, if any one of our Title IV participating institutions (\u201cTitle IV Institutions\u201d) is unable to pay its obligations under its program participation agreement (\u201cPPA\u201d) as a result of operational issues and/or an enforcement action, our other Title IV Institutions, regardless of their compliance with applicable laws and regulations, would not be able to maintain their Title IV eligibility without assisting in the repayment of the non-compliant institution\u2019s Title IV obligations. As a result, even though Adtalem\u2019s Title IV Institutions are operated through independent entities, an enforcement action against one of our institutions could also have a material adverse effect on the businesses, financial condition, results of operations, and cash flows of Adtalem\u2019s other Title IV Institutions and Adtalem as a whole and could result in the imposition of significant restrictions on the ability of Adtalem\u2019s other Title IV Institutions and Adtalem as a whole to operate. For further information, see \u201c\nA bankruptcy filing by us or by any of our Title IV Institutions, or a closure of one of our Title IV Institutions, would lead to an immediate loss of eligibility to participate in Title IV programs\n\u201d under subsection \u201cRisks Related to Adtalem\u2019s Highly Regulated Industry\u201d in Item 1A. \u201cRisk Factors.\u201d\nWe have summarized the most significant current regulatory requirements applicable to our domestic postsecondary operations. Adtalem has been impacted by these regulations and enforcement efforts and is currently facing multiple related lawsuits arising from the enhanced scrutiny facing the proprietary education sector. For information regarding such pending investigations and litigation, and the potential impact such matters could have on our institutions or on Adtalem, see in this Annual Report on Form 10-K: (1) Note 21 \u201cCommitments and Contingencies\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data,\u201d (2) the subsection of Item 1A. \u201cRisk Factors\u201d titled \n16\n\n\nTable of Contents\n\u201cRisks Related to Adtalem\u2019s Highly Regulated Industry,\u201d and (3) the subsection of Item 7. \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d titled \u201cRegulatory Environment.\u201d\nEligibility and Certification Procedures\nThe HEA specifies the manner in which ED reviews institutions for eligibility and certification to participate in Title IV programs. Every educational institution participating in the Title IV programs must be certified to participate and is required to periodically renew this certification. Institutions that violate certain ED Title IV regulations, including its financial responsibility and administrative capability regulations, may lose their eligibility to participate in Title IV programs or may only continue participation under provisional certification. Institutions that do not meet financial responsibility requirements are typically required to be subject to heightened cash monitoring requirements and post a letter of credit (equal to a minimum of 10% of the Title IV aid it received in the institution\u2019s most recent fiscal year). Provisional certification status also carries fewer due process protections than full certification. As a result, ED may withdraw an institution\u2019s provisional certification more easily than if it is fully certified. Provisional certification does not otherwise limit access to Title IV program funds by students attending the institution. ED has published proposed rules to amend the certification procedures. We anticipate the amended rules will be effective on July 1, 2024.\nDefense to Repayment Regulations\nUnder the HEA, ED is authorized to specify in regulations, which acts or omissions of an institution of higher education a borrower may assert as a Defense to Repayment of a Direct Loan made under the Federal Direct Loan Program. On July 1, 2023, new Defense to Repayment regulations went into effect that include a lower threshold for establishing misrepresentation, provides for no statute of limitation for claims submission, expands reasons to file a claim including aggressive or deceptive recruitment tactics and omission of fact, weakens due processes afforded to institutions, and reinstates provisions for group discharges. ED also included a six-year statute of limitations for recovery from institutions. These changes may increase financial liability and reputational risk.\nThe \u201c90/10 Rule\u201d\nAn ED regulation known as the \u201c90/10 Rule\u201d affects only proprietary postsecondary institutions, such as Chamberlain, Walden, AUC, RUSM, and RUSVM. Under this regulation, an institution that derives more than 90% of its revenue on a cash basis from Title IV student financial assistance programs in two consecutive fiscal years loses eligibility to participate in these programs for at least two fiscal years. The American Rescue Plan Act of 2021 (the \u201cRescue Act\u201d) enacted on March 11, 2021 amended the 90/10 rule to require that a proprietary institution derive no more than 90% of its revenue from federal education assistance funds, including but not limited to previously excluded U.S. Department of Veterans Affairs and military tuition assistance benefits. This change was subject to negotiated rulemaking, which ended in March 2022. The amended rule applies to institutional fiscal years beginning on or after January 1, 2023. The following table details the percentage of revenue on a cash basis from federal financial assistance programs as calculated under the current regulations (excluding the U.S. Department of Veterans Affairs and military tuition assistance benefits) for each of Adtalem\u2019s Title IV-eligible institutions for fiscal years 2022 and 2021. Final data for fiscal year 2023 is not yet available. As institution\u2019s 90/10 compliance must be calculated using the financial results of an entire fiscal year, we are including Walden\u2019s amounts for the full fiscal year 2022 in the table below, including the portion of the year not under Adtalem\u2019s ownership.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year\n\u00a0\n\u200b\n\u200b\n2022\n\u200b\n2021\n\u00a0\nChamberlain University\n\u00a0\n 65\n%\n 66\n%\nWalden University\n\u200b\n 73\n%\nn/a\n\u200b\nAmerican University of the Caribbean School of Medicine\n\u00a0\n 81\n%\n 80\n%\nRoss University School of Medicine\n\u00a0\n 85\n%\n 85\n%\nRoss University School of Veterinary Medicine\n\u00a0\n 81\n%\n 82\n%\nConsolidated\n\u00a0\n 72\n%\n 73\n%\n17\n\n\nTable of Contents\nIncentive Compensation\nAn educational institution participating in Title\u00a0IV programs may not pay any commission, bonus, or other incentive payments to any person involved in student recruitment or awarding of Title\u00a0IV program funds, if such payments are based directly or indirectly in any part on success in enrolling students or obtaining student financial aid. The law and regulations governing this requirement have not established clear criteria for compliance in all circumstances, but, prior to 2011, there were 12 safe harbors that defined specific types of compensation that were deemed to constitute permissible incentive compensation. New rules effective in 2011 eliminated the 12 safe harbors. These changes increased the uncertainty about what constitutes incentive compensation and which employees are covered by the regulation. This makes the development of effective and compliant performance metrics more difficult to establish. As such, these changes have limited and are expected to continue to limit Adtalem\u2019s ability to compensate our employees based on their performance of their job responsibilities, which could make it more difficult to attract and retain highly-qualified employees. Management believes that Adtalem has not been, nor is currently, involved in any activities that violate the restrictions on commissions, bonuses, or other incentive payments to any person involved in student recruitment, admissions, or awarding of Title\u00a0IV program funds.\nStandards of Financial Responsibility\nAn ED defined financial responsibility test is required for continued participation by an institution in Title IV aid programs. For Adtalem\u2019s institutions, this test is calculated at the consolidated Adtalem level. Applying various financial elements from the fiscal year audited financial statements, the test is based upon a composite score of three ratios: an equity ratio that measures the institution\u2019s capital resources; a primary reserve ratio that measures an institution\u2019s ability to fund its operations from current resources; and a net income ratio that measures an institution\u2019s ability to operate profitably. A minimum score of 1.5 is necessary to meet ED\u2019s financial standards. Institutions with scores of less than 1.5 but greater than or equal to 1.0 are considered financially responsible but require additional oversight. These institutions are subject to heightened cash monitoring and other participation requirements. An institution with a score of less than 1.0 is considered not financially responsible. However, an institution with a score of less than 1.0 may continue to participate in the Title IV programs under provisional certification. In addition, this lower score typically requires that the institution be subject to heightened cash monitoring requirements and post a letter of credit (equal to a minimum of 10% of the Title IV aid it received in the institution's most recent fiscal year).\nFor the past several years, Adtalem\u2019s composite score has exceeded the required minimum of 1.5. As a result of the acquisition of Walden, Adtalem expects ED will conclude its consolidated fiscal year 2022 composite score will fall below 1.5. As a result, ED may impose certain additional conditions for continued access to federal funding including heightened cash monitoring and/or an additional letter of credit. Management does not believe such conditions, if any, will have a material adverse effect on Adtalem\u2019s operations.\nED also has proposed rules to amend the financial responsibility regulations. We anticipate any rules will be effective on July 1, 2024.\nAdministrative Capability\nThe HEA directs ED to assess the administrative capability of each institution to participate in Title IV programs. The failure of an institution to satisfy any of the criteria used to assess administrative capability may cause ED to determine that the institution lacks administrative capability and, therefore, subject the institution to additional scrutiny or deny its eligibility for Title IV programs. ED has proposed rules to amend the administrative capability regulations. We anticipate any amended rules will be effective on July 1, 2024.\nState Authorization\nInstitutions that participate in Title IV programs must be authorized to operate by the appropriate postsecondary regulatory authority in each state where the institution has a physical presence. Chamberlain is specifically authorized to operate in all of the domestic jurisdictions that require such authorizations. Some states assert authority to regulate all degree-granting institutions if their educational programs are available to their residents, whether or not the institutions maintain a physical presence within those states. Chamberlain has obtained licensure in states which require such licensure \n18\n\n\nTable of Contents\nand where their students are enrolled and is an institutional participant in the National Council for State Authorization Reciprocity Agreements (\u201cNC-SARA\u201d) initiative. Walden does not participate in NC-SARA, and therefore maintains licenses or exemptions in those states that require it to do so to enroll students in distance education programs where they are currently offered.\nOn December 19, 2016, ED published new rules concerning requirements for institutional eligibility to participate in Title IV programs. These regulations, which would have become effective beginning July 1, 2018, but were delayed until July 1, 2020, were subsequently renegotiated as part of the 2018-2019 Accreditation and Innovation rule-making sessions. The renegotiated rule went into effect on July 1, 2020 and requires an institution offering distance education or correspondence courses to be authorized by each state from which the institution enrolls students, if such authorization is required by the state. If an institution offers postsecondary education through distance education or correspondence courses in a state that participates in a state authorization reciprocity agreement, and the institution offering the program is located in a state where it is also covered by such an agreement, the institution would be considered legally authorized to offer postsecondary distance or correspondence education in the state where courses are offered via distance education, subject to any limitations in that agreement. The regulations also require an institution to document the state processes for resolving complaints from students enrolled in programs offered through distance education or correspondence courses. Lastly, the regulations require that an institution provide certain disclosures to enrolled and prospective students regarding its programs that lead to professional licensure. ED has proposed to amend the rules to require that a program meet state licensure requirements in lieu of the aforementioned disclosures. The earliest any amended rules will be effective is July 1, 2024.\nCohort Default Rates\nED has instituted strict regulations that penalize institutions whose students have high default rates on federal student loans. Depending on the type of loan, a loan is considered in default after the borrower becomes at least 270 or 360 days past due. For a variety of reasons, higher default rates are often found in private-sector institutions and community colleges, many of which tend to have a higher percentage of low-income students enrolled compared to four-year publicly supported and independent colleges and universities.\nEducational institutions are penalized to varying degrees under the Federal Direct Student Loan Program, depending on the default rate for the \u201ccohort\u201d defined in the statute. An institution with a cohort default rate that exceeds 20% for the year is required to develop a plan to reduce defaults, but the institution\u2019s operations and its students\u2019 ability to utilize student loans are not restricted. An institution with a cohort default rate of 30% or more for three consecutive years is ineligible to participate in these loan programs and cannot offer student loans administered by ED for the fiscal year in which the ineligibility determination is made and for the next two fiscal years. Students attending an institution whose cohort default rate has exceeded 30% for three consecutive years are also ineligible for Federal Pell Grants. Any institution with a cohort default rate of 40% or more in any year is subject to immediate limitation, suspension, or termination proceedings from all federal aid programs.\nAccording to ED, the three-year cohort default rate for all colleges and universities eligible for federal financial aid was 2.3% for the fiscal year 2019 cohort (the latest available) and 7.3% for the fiscal year 2018 cohort.\nDefault rates for Chamberlain, Walden, AUC, RUSM, and RUSVM students are as follows:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCohort Default Rate\n\u00a0\n\u200b\n\u200b\n2019\n\u200b\n2018\n\u00a0\nChamberlain University\n\u200b\n 0.5\n%\n 2.6\n%\nWalden University\n\u200b\n 1.1\n%\n 4.7\n%\nAmerican University of the Caribbean School of Medicine\n\u200b\n 0.2\n%\n 0.7\n%\nRoss University School of Medicine\n\u200b\n 0.2\n%\n 0.9\n%\nRoss University School of Veterinary Medicine\n\u200b\n 0.2\n%\n 0.4\n%\n19\n\n\nTable of Contents\nSatisfactory Academic Progress\nIn addition to the requirements that educational institutions must meet, student recipients of financial aid must maintain satisfactory academic progress toward completion of their program of study and an appropriate grade point average.\nChange of Ownership or Control\nAny material change of ownership or change of control of Adtalem, depending on the type of change, may have significant regulatory consequences for each of our Title IV Institutions. Such a change of ownership or control could require recertification by ED, the reevaluation of accreditation by each institution\u2019s accreditors, reauthorization by each institutions\u2019 state licensing agencies, and/or providing financial protections. If Adtalem experiences a material change of ownership or change of control, then our Title IV Institutions may cease to be eligible to participate in Title IV programs until recertified by ED. There is no assurance that such recertification would be obtained. After a material change in ownership or change of control, most institutions will participate in Title IV programs on a provisional basis for a period of one to three years.\nIn addition, each Title IV Institution is required to report any material change in stock ownership to its principal institutional accrediting body and would generally be required to obtain approval prior to undergoing any transaction that affects, or may affect, its corporate control or governance. In the event of any such change, each of our institution\u2019s accreditors may undertake an evaluation of the effect of the change on the continuing operations of our institution for purposes of determining if continued accreditation is appropriate, which evaluation may include a comprehensive review.\nIn addition, some states in which our Title IV Institutions are licensed require approval (in some cases, advance approval) of changes in ownership or control in order to remain authorized to operate in those states, and participation in grant programs in some states may be interrupted or otherwise affected by a change in ownership or control.\nRefer to the risk factor titled \u201c\nIf regulators do not approve, or delay their approval, of transactions involving a material change of ownership or change of control of Adtalem, the eligibility of our institutions to participate in Title IV programs, our institutions\u2019 accreditation and our institutions\u2019 state licenses may be impaired in a manner that materially and adversely affects our business\u201d \nunder subsection \u201cRisks Related to Adtalem\u2019s Highly Regulated Industry\u201d in Item 1A. \u201cRisk Factors.\u201d\nGainful Employment\nCurrent law states that proprietary institutions and non-degree programs at private non-profit and public institutions must prepare students for gainful employment in a recognized occupation. ED has published proposed rules to define and implement this existing law through what is referred to as the Gainful Employment (\u201cGE\u201d) rules. A prior version of this rule was rescinded on July 1, 2019. ED is proposing to use debt-to-earnings ratios and an earnings threshold in determining whether graduates were gainfully employed. Repeated failure of a program to meet these measures would result in the program losing Title IV eligibility. We anticipate the new rules will be effective on July 1, 2024.\nState Approvals and Licensing\nAdtalem institutions require authorizations from many state higher education authorities to recruit students, operate schools, and grant degrees. Generally, the addition of any new program of study or new operating location also requires approval by the appropriate licensing and regulatory agencies. In the U.S., each Chamberlain location is approved to grant degrees by the respective state in which it is located. Walden is registered in its home state of Minnesota with the Minnesota Office of Higher Education. Additionally, many states require approval for out-of-state institutions to recruit within their state or offer instruction through online modalities to residents of their states. Adtalem believes its institutions are in compliance with all state requirements as an out-of-state institution. AUC and RUSM clinical programs are accredited as part of their programs of medical education by their respective accrediting bodies, approved by the appropriate boards in those states that have a formal process to do so, and are reported to ED as required.\nMany states require private-sector postsecondary education institutions to post surety bonds for licensure. In the U.S., Adtalem has posted $31.9\u00a0million of surety bonds with regulatory authorities on behalf of Chamberlain, Walden, AUC, RUSM, and RUSVM.\n20\n\n\nTable of Contents\nCertain states have set standards of financial responsibility that differ from those prescribed by federal regulation. Adtalem believes its institutions are in compliance with state and Canadian provincial regulations. If Adtalem were unable to meet the tests of financial responsibility for a specific jurisdiction, and could not otherwise demonstrate financial responsibility, Adtalem could be required to cease operations in that state. To date, Adtalem has successfully demonstrated its financial responsibility where required.\nSeasonality\nThe seasonal pattern of Adtalem\u2019s enrollments and its educational programs\u2019 starting dates affect the timing of cash flows with higher cash inflows at the beginning of academic sessions.\nHuman Capital\nAs of June 30, 2023, Adtalem had the following number of employees:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFull-Time\n\u200b\nVisiting\n\u200b\nPart-Time\n\u200b\n\u200b\n\u200b\n\u200b\nStaff\n\u200b\nProfessors\n\u200b\nStaff\n\u200b\nTotal\nChamberlain\n\u200b\n 1,274\n\u200b\n 2,587\n\u200b\n 215\n\u200b\n 4,076\nWalden\n\u200b\n 1,097\n\u200b\n 2,342\n\u200b\n 15\n\u200b\n 3,454\nMedical and Veterinary\n\u200b\n 750\n\u200b\n 64\n\u200b\n 44\n\u200b\n 858\nHome Office\n\u200b\n 1,247\n\u200b\n \u2014\n\u200b\n 20\n\u200b\n 1,267\nTotal\n\u200b\n 4,368\n\u200b\n 4,993\n\u200b\n 294\n\u200b\n 9,655\nOur management believes that Adtalem has good relations with its employees.\nWe continue to regularly gather feedback from our employees. In the prior year we disclosed results from our summer 2022 engagement survey. We expect to conduct our next engagement survey during fiscal year 2024. We also gather employee feedback through the colleague lifecycle survey we call continuous listening. The lifecycle survey gathers feedback week one (preboarding), at three months (quality of hire), and at six months (onboarding) for regular new hires. We also send out an exit survey to regular colleagues that voluntarily resign. The overall experience results of these surveys are as follows:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year 2023\n\u200b\n\u200b\nFiscal Year 2022\n\u200b\n\u200b\n\u200b\nFavorability\n\u200b\n\u200b\nFavorability\n\u200b\nSurvey\n\u200b\n(top 2 ratings)\n\u200b\n\u200b\n(top 2 ratings)\n\u200b\nPreboarding (week one)\n\u200b\n 92\n%\n\u200b\n 89\n%\nQuality of hire (3 months)\n\u200b\n 75\n%\n\u200b\n 68\n%\nOnboarding (6 months)\n\u200b\n 86\n%\n\u200b\n 85\n%\nExit survey\n\u200b\n 56\n%\n\u200b\n 45\n%\nDiversity, Equity, and Inclusion (\u201cDEI\u201d) continue to be core tenets of our culture at Adtalem. During fiscal year 2023, we hired a vice president of DEI and talent management. We continuously measure representation amongst our employee population. As shown in the table below, our total female representation dropped from 75% as of June 30, 2022 to 71% as of June 30, 2023, driven by turnover during fiscal year 2023 being 78% female, while hiring was only 75% female.\n21\n\n\nTable of Contents\nAs of June 30, 2023 and 2022, our employee diversity was as follows:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFemale\n\u200b\n\u200b\nPeople of Color (U.S. Only)\n\u200b\nLevel\n\u200b\nJune 30, 2023\n\u200b\n\u200b\nJune 30, 2022\n\u200b\n\u200b\nJune 30, 2023\n\u200b\n\u200b\nJune 30, 2022\n\u200b\nAll Levels\n\u200b\n 71\n%\n\u200b\n 75\n%\n\u200b\n 37\n%\n\u200b\n 36\n%\nManagement\n\u200b\n 70\n%\n\u200b\n 71\n%\n\u200b\n 34\n%\n\u200b\n 31\n%\nDirector\n\u200b\n 67\n%\n\u200b\n 68\n%\n\u200b\n 24\n%\n\u200b\n 23\n%\nExecutive\n\u200b\n 47\n%\n\u200b\n 42\n%\n\u200b\n 23\n%\n\u200b\n 21\n%\nSegment\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nChamberlain\n\u200b\n 80\n%\n\u200b\n 87\n%\n\u200b\n 38\n%\n\u200b\n 36\n%\nWalden\n\u200b\n 72\n%\n\u200b\n 70\n%\n\u200b\n 34\n%\n\u200b\n 34\n%\nMedical and Veterinary\n\u200b\n 60\n%\n\u200b\n 59\n%\n\u200b\n 57\n%\n\u200b\n 54\n%\nHome Office\n\u200b\n 61\n%\n\u200b\n 60\n%\n\u200b\n 39\n%\n\u200b\n 39\n%\nAdtalem offers a comprehensive benefits package including wellness programs for eligible employees. The wellness strategy entitled Live Well takes a holistic approach to wellbeing through four pillars: Physical, Social, Financial and Emotional. Our health benefits remain competitive with generous paid time off, retirement plan, domestic partner benefits, adoption assistance, paid parent leave for both mothers and fathers, among others. We recently launched enhancements to our Employee Assistance Program and our mental health and well-being application, entitled Ginger. Employee participation for certain programs is listed below:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWellness Pillar\n\u200b\nSegment: U.S. Regular Employees\n\u200b\nParticipation\n\u200b\nFinancial\n\u200b\nRetirement planning (auto enrollment feature for new hire)\n\u200b\n 92\n%\nEmotional*\n\u200b\nMental health wellbeing - Ginger utilization\n\u200b\n 18\n%\nPhysical\n\u200b\nEmployees completing annual physicals\n\u200b\n 84\n%\n*EAP standard utilization is 3-5%\nFinally, Adtalem provides additional opportunities for employees to pursue their educational goals through our Education Assistance program. This program offers both tuition discounts and tuition reimbursement at multiple nationally and regionally accredited higher education institutions. We will continue to offer resources to maintain an engaged, healthy, motivated workforce focused on meeting business goals.\nIntellectual Property\nAdtalem owns and uses numerous trademarks and service marks, such as \u201cAdtalem,\u201d \u201cAmerican University of the Caribbean,\u201d \u201cChamberlain College of Nursing,\u201d \u201cRoss University,\u201d \u201cWalden University\u201d and others. All trademarks, service marks, certification marks, patents, and copyrights associated with its businesses are owned in the name of Adtalem Global Education Inc. or a subsidiary of Adtalem Global Education Inc. Adtalem vigorously defends against infringements of its trademarks, service marks, certification marks, patents, and copyrights.\nAvailable Information\nWe use our website (www.adtalem.com) as a routine channel of distribution of company information, including press releases, presentations, and supplemental information, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website in addition to following press releases, SEC filings, and public conference calls, and webcasts. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts. You may also access our annual reports on Form\u00a010-K, quarterly reports on Form\u00a010-Q, current reports on Form\u00a08-K, and amendments to those reports, as well as other reports relating to us that are filed with or furnished to the Securities and Exchange Commission (\u201cSEC\u201d), free of charge in the investor relations section of our website as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The content of the websites mentioned above is not incorporated into and should not be considered a part of this report.\n22\n\n\nTable of Contents",
+  "item1a": ">Item 1A. Risk Factors\nSummary of Risk Factors\nThe summary of risks below provides an overview of the principal risks we are exposed to in the normal course of our business activities:\nRisks Related to Adtalem\u2019s Highly Regulated Industry\n\u25cf\nWe are subject to regulatory audits, investigations, lawsuits, or other proceedings relating to compliance by the institutions in the Adtalem portfolio with numerous laws and regulations in the U.S. and foreign jurisdictions applicable to the postsecondary education industry.\n\u25cf\nThe ongoing regulatory effort aimed at proprietary postsecondary institutions of higher education could be a catalyst for additional legislative or regulatory restrictions, investigations, enforcement actions, and claims.\n\u25cf\nAdverse publicity arising from investigations, claims, or actions brought against us or other proprietary higher education institutions may negatively affect our reputation, business, or stock price, or attract additional investigations, lawsuits, or regulatory action.\n\u25cf\nGovernment and regulatory agencies and third parties have initiated, and could initiate additional investigations, claims, or actions against us, which could require us to pay monetary damages, halt certain business practices, or receive other sanctions. The defense and resolution of these matters could require us to expend significant resources.\n\u25cf\nThe U.S. Department of Education (\u201cED\u201d) has issued regulations setting forth new standards and procedures related to borrower defenses to repayment of Title IV loan obligations, and ED\u2019s right of recoveries against institutions following a successful borrower defense and institutional financial responsibility. It is possible that a finding or allegation arising from current or future legal proceedings or governmental administrative actions may create significant liability under the proposed regulations.\n\u25cf\nWithin Title IV regulations, pending or future lawsuits, investigations, program reviews, and other events could each trigger, automatically or in some cases at ED\u2019s discretion, the posting of letters of credit or other securities.\n\u25cf\nWe are subject to risks relating to regulatory matters. If we fail to comply with the extensive regulatory requirements for our operations, we could face fines and penalties, including loss of access to federal and state student financial aid for our students, loss of ability to enroll students in a state, and significant civil liability.\n\u25cf\nGovernment budgetary pressures and changes to laws governing financial aid programs could reduce our student enrollment or delay our receipt of tuition payments.\n\u25cf\nOur ability to comply with some ED regulations is affected by economic forces affecting our students and graduates that are not entirely within our control.\n\u25cf\nED rules prohibiting \u201csubstantial misrepresentation\u201d are very broad. As a result, we face increased exposure to litigation arising from student and prospective student complaints and enforcement actions by ED that could restrict or eliminate our eligibility to participate in Title IV programs.\n\u25cf\nRegulations governing the eligibility of our U.S. degree-granting institutions to participate in Title IV programs preclude us from compensating any employee or third-party involved in student recruitment, admissions, or the awarding of financial aid based on their success in those areas. These regulations could limit our ability to attract and retain highly-qualified employees, to sustain and grow our business, or to develop or acquire businesses that would not otherwise be subject to such regulations.\n\u25cf\nA failure to demonstrate financial responsibility or administrative capability may result in the loss of eligibility to participate in Title\u00a0IV programs.\n\u25cf\nIf ED does not recertify any one of our institutions to continue participating in Title IV programs, students at that institution would lose their access to Title IV program funds. Alternatively, ED could recertify our institutions but require our institutions to accept significant limitations as a condition of their continued participation in Title IV programs.\n\u25cf\nIf we fail to maintain our institutional accreditation or if our institutional accrediting body loses recognition by ED, we would lose our ability to participate in Title\u00a0IV programs.\n\u25cf\nA bankruptcy filing by us or by any of our Title IV Institutions, or a closure of one of our Title IV Institutions, would lead to an immediate loss of eligibility to participate in Title IV programs.\n\u25cf\nExcessive student loan defaults could result in the loss of eligibility to participate in Title\u00a0IV programs.\n\u25cf\nIf we fail to maintain any of our state authorizations, we would lose our ability to operate in that state and to participate in Title\u00a0IV programs in that state.\n23\n\n\nTable of Contents\n\u25cf\nOur ability to place our medical schools\u2019 students in hospitals in the U.S. may be limited by efforts of certain state government regulatory bodies, which may limit the growth potential of our medical schools, put our medical schools at a competitive disadvantage to other medical schools, or force our medical schools to substantially reduce their class sizes.\n\u25cf\nBudget constraints in states that provide state financial aid to our students could reduce the amount of such financial aid that is available to our students, which could reduce our enrollment and adversely affect our 90/10 Rule percentage.\n\u25cf\nWe could be subject to sanctions if we fail to calculate accurately and make timely payment of refunds of Title\u00a0IV program funds for students who withdraw before completing their educational program.\n\u25cf\nA failure of our vendors to comply with applicable regulations in the servicing of our students and institutions could subject us to fines or restrictions on or loss of our ability to participate in Title IV programs.\n\u25cf\nWe provide financing programs to assist some of our students in affording our educational offerings. These programs are subject to various federal and state rules and regulations. Failure to comply with these regulations could subject us to fines, penalties, obligations to discharge loans, and other injunctive requirements.\n\u25cf\nRelease of confidential information could subject us to civil penalties or cause us to lose our eligibility to participate in Title IV programs.\n\u25cf\nWe could be subject to sanctions if we fail to accurately and timely report sponsored students\u2019 tuition, fees, and enrollment to the sponsoring agency.\nRisks Related to Adtalem\u2019s Business\n\u25cf\nOutbreaks of communicable infections or diseases, or other public health pandemics in the locations in which we, our students, faculty, and employees live, work, and attend classes, could substantially harm our business.\n\u25cf\nNatural disasters or other extraordinary events or political disruptions may cause us to close some of our schools.\n\u25cf\nStudent enrollment at our schools is affected by legislative, regulatory, and economic factors that may change in ways we cannot predict. These factors outside our control limit our ability to assess our future enrollment effectively.\n\u25cf\nWe are subject to risks relating to enrollment of students. If we are not able to continue to successfully recruit and retain our students, our revenue may decline.\n\u25cf\nIf our graduates are unable to find appropriate employment opportunities or obtain professional licensure or certification, we may not be able to recruit new students.\n\u25cf\nWe face heightened competition in the postsecondary education market from both public and private educational institutions.\n\u25cf\nThe personal information that we collect may be vulnerable to breach, theft, or loss that could adversely affect our reputation and operations.\n\u25cf\nSystem disruptions and vulnerability from security risks to our computer network or information systems could severely impact our ability to serve our existing students and attract new students.\n\u25cf\nOur ability to open new campuses, offer new programs, and add capacity is dependent on regulatory approvals and requires financial and human resources.\n\u25cf\nWe may not be able to attract, retain, and develop key employees necessary for our operations and the successful execution of our strategic plans.\n\u25cf\nWe may not be able to successfully identify, pursue, or integrate acquisitions.\n\u25cf\nProposed changes in, or lapses of, U.S. tax laws regarding earnings from international operations could adversely affect our financial results.\n\u25cf\nChanges in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results.\n\u25cf\nWe and our subsidiaries may not be able to generate sufficient cash to service all of our indebtedness and may not be able to refinance our debt obligations.\nRisks Related to Shareholder Activism\n\u25cf\nWe may face risks associated with shareholder activism.\nAdtalem\u2019s business operations are subject to numerous risks and uncertainties, some of which are not entirely within our control. Investors should carefully consider the risk factors described below and all other information contained in this Annual Report on Form 10-K before making an investment decision with respect to Adtalem\u2019s common stock. If any of the following risks are realized, Adtalem\u2019s business, results of operations, financial condition, and cash flows could be materially and adversely affected, and as a result, the price of Adtalem\u2019s common stock could be materially and adversely \n24\n\n\nTable of Contents\naffected. Management cannot predict all the possible risks and uncertainties that may arise. Risks and uncertainties that may affect Adtalem\u2019s business include the following:\nRisks Related to Adtalem\u2019s Highly Regulated Industry\nWe are subject to regulatory audits, investigations, lawsuits, or other proceedings relating to compliance by the institutions in the Adtalem portfolio with numerous laws and regulations in the U.S. and foreign jurisdictions applicable to the postsecondary education industry.\nDue to the highly regulated nature of proprietary postsecondary institutions, we are subject to audits, compliance reviews, inquiries, complaints, investigations, claims of non-compliance, and lawsuits by federal and state governmental agencies, regulatory agencies, accrediting agencies, present and former students and employees, shareholders, and other third parties, any of whom may allege violations of any of the legal and regulatory requirements applicable to us. If the results of any such claims or actions are unfavorable to us or one or more of our institutions, we may be required to pay monetary judgments, fines, or penalties, be required to repay funds received under Title IV programs or state financial aid programs, have restrictions placed on or terminate our schools\u2019 or programs\u2019 eligibility to participate in Title IV programs or state financial aid programs, have limitations placed on or terminate our schools\u2019 operations or ability to grant degrees and certificates, have our schools\u2019 accreditations restricted or revoked, or be subject to civil or criminal penalties. ED regulations regarding financial responsibility provide that, if any one of our Title IV Institutions is unable to pay its obligations under its Program Participation Agreement (\u201cPPA\u201d) as a result of operational issues and/or an enforcement action, our other Title IV Institutions, regardless of their compliance with applicable laws and regulations, would not be able to maintain their Title IV eligibility without assisting in the repayment of the non-compliant institution\u2019s Title IV obligations. As a result, even though Adtalem\u2019s Title IV Institutions are operated through independent entities, an enforcement action against one of our institutions could also have a material adverse effect on the businesses, financial condition, results of operations, and cash flows of Adtalem\u2019s other Title IV Institutions and Adtalem as a whole and could result in the imposition of significant restrictions on the ability for Adtalem\u2019s other Title IV Institutions and Adtalem as a whole to operate.\nThe ongoing regulatory effort aimed at proprietary postsecondary institutions of higher education could be a catalyst for additional legislative or regulatory restrictions, investigations, enforcement actions, and claims.\nThe proprietary postsecondary education sector has at times experienced scrutiny from federal legislators, agencies, and state legislators and attorneys general. An adverse disposition of these existing inquiries, administrative actions, or claims, or the initiation of other inquiries, administrative actions, or claims, could, directly or indirectly, have a material adverse effect on our business, financial condition, result of operations, and cash flows and result in significant restrictions on us and our ability to operate.\nED has proposed new Gainful Employment (\u201cGE\u201d) rules that would condition Title IV eligibility for each program at Adtalem\u2019s institutions on passing debt to earnings ratio thresholds. These ratios would be based on the debt incurred by graduates and their post-graduate earnings. A program would lose eligibility if it failed in any two of three consecutive years that it was measured. Warnings must be issued to students and prospective students if a program may lose eligibility in the following GE year (e.g., if it failed in the first year). Adtalem\u2019s Title IV Institutions could be adversely impacted by the rule.\nAdverse publicity arising from investigations, claims, or actions brought against us or other proprietary higher education institutions may negatively affect our reputation, business, or stock price, or attract additional investigations, lawsuits, or regulatory action.\nAdverse publicity regarding any past, pending, or future investigations, claims, settlements, and/or actions against us or other proprietary postsecondary education institutions could negatively affect our reputation, student enrollment levels, revenue, profit, and/or the market price of our common stock. Unresolved investigations, claims, and actions, or adverse resolutions or settlements thereof, could also result in additional inquiries, administrative actions or lawsuits, increased scrutiny, the withholding of authorizations, and/or the imposition of other sanctions by state education and professional licensing authorities, taxing authorities, our accreditors and other regulatory agencies governing us, which, individually or \n25\n\n\nTable of Contents\nin the aggregate, could have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nGovernment and regulatory agencies and third parties have initiated, and could initiate additional investigations, claims, or actions against us, which could require us to pay monetary damages, halt certain business practices, or receive other sanctions. The defense and resolution of these matters could require us to expend significant resources.\nDue to the regulatory and enforcement efforts at times directed at proprietary postsecondary higher education institutions and adverse publicity arising from such efforts, we may face additional government and regulatory investigations and actions, lawsuits from private plaintiffs, and shareholder class actions and derivative claims. We may incur significant costs and other expenses in connection with our response to, and defense, resolution, or settlement of, investigations, claims, or actions, or group of related investigations, claims, or actions, which, individually or in the aggregate, could be outside the scope of, or in excess of, our existing insurance coverage and could have a material adverse effect on our financial condition, results of operations, and cash flows. As part of our resolution of any such matter, or group of related matters, we may be required to comply with certain forms of injunctive relief, including altering certain business practices, or pay substantial damages, settlement costs, fines, and/or penalties. In addition, findings or claims or settlements thereof could serve as a basis for additional lawsuits or governmental inquiries or enforcement actions, including actions under ED\u2019s Defense to Repayment regulations. Such actions, individually or combined with other proceedings, could have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate. Additionally, an adverse allegation, finding or outcome in any of these matters could also materially and adversely affect our ability to maintain, obtain, or renew licenses, approvals, or accreditation, and maintain eligibility to participate in Title IV, Department of Defense and Veterans Affairs programs or serve as a basis for ED to discharge certain Title IV student loans and seek recovery for some or all of its resulting losses from us under Defense to Repayment regulations, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nED has issued regulations setting forth new standards and procedures related to borrower defenses to repayment of Title IV loan obligations, and ED\u2019s right of recoveries against institutions following a successful borrower defense and institutional financial responsibility. It is possible that a finding or allegation arising from current or future legal proceedings or governmental administrative actions may create significant liability under the proposed regulations.\nUnder the Higher Education Act (\u201cHEA\u201d), ED is authorized to specify in regulations, which acts or omissions of an institution of higher education a borrower may assert as a Defense to Repayment of a Direct Loan made under the Federal Direct Loan Program. On July 1, 2023, new Defense to Repayment regulations went into effect that include a lower threshold for establishing misrepresentation, expands acts which lead to an approved claim, removes a statute of limitation for claims submission, implements a single federal standard regardless of when the loan was first disbursed, and reinstates provisions for group discharges.\nED also included a six-year statute of limitations for recovery from institutions. These changes may increase financial liability and reputational risk.\nThe outcome of any legal proceeding instituted by a private party or governmental authority, facts asserted in pending or future lawsuits, and/or the outcome of any future governmental inquiry, lawsuit, or enforcement action (including matters described in Note 21 \u201cCommitments and Contingencies\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d) could serve as the basis for claims by students or ED under the Defense to Repayment regulations, the posting of substantial letters of credit, or the termination of eligibility of our institutions to participate in the Title IV program based on ED\u2019s institutional capability assessment, any of which could, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\n26\n\n\nTable of Contents\nWhile we intend to defend ourselves vigorously in all pending and future legal proceedings, we may settle certain matters. Moreover, regardless of the merits of our actions and defenses, if we are unable to resolve certain legal proceedings or regulatory actions, indirect consequences arising from unproven allegations or appealable regulatory findings may have adverse consequences to us.\nWe may settle certain matters due to uncertainty in potential outcome, for strategic reasons, as a part of a resolution of other matters, or in order to avoid potentially worse consequences in inherently uncertain judicial or administrative processes. The terms of any such settlement could have a material adverse effect on our business, financial condition, operations, and cash flows, and result in the imposition of significant restrictions on us and our ability to operate. Additionally, although inconsistent with its usual practices, ED has broad discretion to impose significant limitations on us and our business operations arising from acts it determines are in violation of their regulations. As a result, foreseeable and unforeseeable consequences of prior and prospective adjudicated or settled legal proceedings and regulatory matters could have a material adverse effect on our business, financial condition, results of operations and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nWithin Title IV regulations, pending or future lawsuits, investigations, program reviews, and other events could each trigger, automatically or in some cases at ED\u2019s discretion, the posting of letters of credit or other securities.\nED regulations could require Adtalem to post multiple and substantial letters of credit or other securities in connection with, among other things, certain pending and future claims, investigations, and program reviews, regardless of the merits of our actions or available defenses, or, potentially, the severity of any findings or facts stipulated. The aggregate amount of these letters of credit or other required security could materially and adversely limit our borrowing capacity under our credit agreement and our ability to make capital expenditures and other investments aimed at growing and diversifying our operations, sustain and fund our operations, and make dividend payments to shareholders. Adtalem\u2019s credit agreement allows Adtalem to post up to $400.0 million in letters of credit. In the event Adtalem is required to post letters of credit in excess of the $400.0 million limit, Adtalem would be required to seek an amendment to its credit agreement or seek an alternative means of providing security required by ED. Adtalem may not be able to obtain the excess letters of credit or security or may only be able to obtain such excess letters of credit or security at significant cost. \nWe are subject to risks relating to regulatory matters. If we fail to comply with the extensive regulatory requirements for our operations, we could face fines and penalties, including loss of access to federal and state student financial aid for our students, loss of ability to enroll students in a state, and significant civil liability.\nAs a provider of higher education, we are subject to extensive regulation. These regulatory requirements cover virtually all phases and aspects of our U.S. postsecondary operations, including educational program offerings, facilities, civil rights, safety, public health, privacy, instructional and administrative staff, administrative procedures, marketing and recruiting, financial operations, payment of refunds to students who withdraw, acquisitions or openings of new schools or programs, addition of new educational programs, and changes in our corporate structure and ownership.\nIn particular, in the U.S., the HEA subjects schools that participate in the various federal student financial aid programs under Title IV, which includes Chamberlain, Walden, AUC, RUSM, and RUSVM, to significant regulatory scrutiny. Adtalem\u2019s Title IV Institutions collectively receive 72% of their revenue from Title IV programs. As a result, the suspension, limitation, or termination of the eligibility of any of our institutions to participate in Title IV programs could have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nTo participate in Title IV programs, an institution must receive and maintain authorization by the appropriate state education agencies, be accredited by an accrediting commission recognized by ED, and be certified by ED as an eligible institution, which ultimately is accomplished through the execution of a PPA.\nOur institutions that participate in Title IV programs each do so pursuant to a PPA that, among other things, includes commitments to abide by all applicable laws and regulations, such as Incentive Compensation and Substantial Misrepresentation. Alleged violations of such laws or regulations may form the basis of civil actions for violation of state and/or federal false claims statutes predicated on violations of a PPA, including pursuant to lawsuits brought by private \n27\n\n\nTable of Contents\nplaintiffs on behalf of governments (qui tam actions), that have the potential to generate very significant damages linked to our receipt of Title IV funding from the government over a period of several years.\nGovernment budgetary pressures and changes to laws governing financial aid programs could reduce our student enrollment or delay our receipt of tuition payments.\nOur Title IV Institutions collectively receive 72% of their revenue from Title IV programs. As a result, any reductions in funds available to our students or any delays in payments to us under Title IV programs could have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nAction by the U.S. Congress to revise the laws governing the federal student financial aid programs or reduce funding for those programs could reduce Adtalem\u2019s student enrollment and/or increase its costs of operation.\u00a0Political and budgetary concerns significantly affect Title IV programs. The U.S. Congress enacted the HEA to be reauthorized on a periodic basis, which most recently occurred in August 2008.\u00a0The 2008 reauthorization of the HEA made significant changes to the requirements governing Title IV programs, including changes that, among other things:\n\u25cf\nRegulated non-federal, private education loans;\n\u25cf\nRegulated the relationship between institutions and lenders that make education loans;\n\u25cf\nRevised the calculation of the student default rate attributed to an institution and the threshold rate at which sanctions will be imposed against an institution (as discussed above);\n\u25cf\nAdjusted the types of revenue that an institution is deemed to have derived from Title IV programs and the sanctions imposed on an institution that derives too much revenue from Title IV programs;\n\u25cf\nIncreased the types and amount of information that an institution must disclose to current and prospective students and the public; and\n\u25cf\nIncreased the types of policies and practices that an institution must adopt and follow.\nIn the 118\nth\n Congress, a comprehensive HEA reauthorization bill has not been introduced. However, standalone bills impacting Title IV federal financial aid programs have been introduced in both chambers of Congress. Some of these bills could be included in a larger legislative package, which could include the HEA. When the HEA is reauthorized, existing programs and participation requirements are subject to change. Additionally, funding for student financial assistance programs may be impacted during appropriations and budget actions.\nThe U.S. Congress can change the laws affecting Title IV programs in annual federal appropriations bills and other laws it enacts between the HEA reauthorizations.\u00a0At this time, Adtalem cannot predict any or all of the changes that the U.S. Congress may ultimately make.\u00a0Since a significant percentage of Adtalem\u2019s revenue is tied to Title IV programs, any action by the U.S. Congress that significantly reduces Title IV program funding or the ability of Adtalem\u2019s degree-granting institutions or students to participate in Title IV programs could have a material adverse effect on Adtalem\u2019s business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate. Certain provisions in proposed legislation, if enacted, or implementation of existing or future law by a current or future administration, could have a material adverse effect on our business, including but not limited to legislation that limits the enrollment of U.S. citizens in foreign medical schools and legislation that could require institutions to share in the risk of defaulted federal student loans, and legislation that limits the percentage of revenue derived from federal funds.\nAdditionally, a shutdown of government agencies, such as ED, responsible for administering student financial aid programs under Title IV could lead to delays in student eligibility determinations and delays in origination and disbursement of government-funded student loans to our students.\n \nOur ability to comply with some ED regulations is affected by economic forces affecting our students and graduates that are not entirely within our control.\nOur ability to comply with several ED regulations is not entirely within our control. In particular, our ability to participate in federal Title IV programs is dependent on the ability of our past students to avoid default on student loans, obtain employment, and pay for a portion of their education with private funds. These factors are heavily influenced by \n28\n\n\nTable of Contents\nbroader economic drivers, including the personal or family wealth of our students, the overall employment outlook for their area of study, and the availability of private financing sources. An economic downturn could impact these factors, which could have a material adverse effect on our business, financial condition, results of operation, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nED rules prohibiting \u201csubstantial misrepresentation\u201d are very broad. As a result, we face increased exposure to litigation arising from student and prospective student complaints and enforcement actions by ED that could restrict or eliminate our eligibility to participate in Title IV programs.\nED regulations in effect for federal Stafford loans prohibit any \u201csubstantial misrepresentation\u201d by our Title IV Institutions, employees, and agents regarding the nature of the institution\u2019s educational programs, its financial charges, or the employability of its graduates. These regulations may, among other things, subject us to sanctions for statements containing errors made to non-students, including any member of the public, impose liability on us for the conduct of others and expose us to liability even when no actual harm occurs. A \u201csubstantial misrepresentation\u201d is any misrepresentation on which the person to whom it was made could reasonably be expected to rely, or has reasonably relied, to that person\u2019s detriment. It is possible that despite our efforts to prevent misrepresentations, our employees or service providers may make statements that could be construed as substantial misrepresentations. As a result, we may face complaints from students and prospective students over statements made by us and our agents in advertising and marketing, during the enrollment, admissions and financial aid process, and throughout attendance at any of our Title IV Institutions, which would expose us to increased risk of enforcement action and applicable sanctions or other penalties, including potential Defense to Repayment liabilities, and increased risk of private\u00a0qui tam\u00a0actions under the Federal False Claims Act. If ED determines that an institution has engaged in substantial misrepresentation, ED may (1) fine the institution; (2) discharge students\u2019 debt and hold the institution liable for the discharged debt under the HEA and the Defense to Repayment regulations; and/or (3) suspend or terminate an institution\u2019s participation in Title IV programs. Alternatively, ED may impose certain other limitations on the institution\u2019s participation in Title IV programs, which could include the denial of applications for approval of new programs or locations, a requirement to post a substantial letter of credit, or the imposition of one of ED\u2019s heightened cash monitoring processes. Any of the foregoing actions could have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nRegulations governing the eligibility of our U.S. degree-granting institutions to participate in Title IV programs preclude us from compensating any employee or third-party involved in student recruitment, admissions, or the awarding of financial aid based on their success in those areas. These regulations could limit our ability to attract and retain highly-qualified employees, to sustain and grow our business, or to develop or acquire businesses that would not otherwise be subject to such regulations.\nAn educational institution participating in Title\u00a0IV programs may not pay any commission, bonus, or other incentive payments to any person involved in student recruitment or awarding of Title\u00a0IV program funds, if such payments are based directly or indirectly in any part on success in enrolling students or obtaining student financial aid. We endeavor to ensure our compliance with these regulations and have numerous controls and procedures in place to do so but cannot be sure that our regulators will not determine that the compensation that we have paid our employees do not violate these regulations. Our limited ability to compensate our employees based on their performance of their job responsibilities could make it more difficult to attract and retain highly-qualified employees. These regulations may also impair our ability to sustain and grow our business, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.\nA failure to demonstrate financial responsibility or administrative capability may result in the loss of eligibility to participate in Title\u00a0IV programs.\nAll of our Title IV Institutions are subject to meeting financial and administrative standards. These standards are assessed through annual compliance audits, periodic renewal of institutional PPAs, periodic program reviews, and ad hoc events which may lead ED to evaluate an institution\u2019s financial responsibility or administrative capability. The administrative capability criteria require, among other things, that our institutions (1) have an adequate number of qualified personnel to administer Title IV programs, (2) have adequate procedures for disbursing and safeguarding Title IV funds and for maintaining records, (3) submit all required reports and consolidated financial statements in a timely manner, and \n29\n\n\nTable of Contents\n(4) not have significant problems that affect the institution\u2019s ability to administer Title IV programs. If ED determines, in its judgment, that one of our Title IV Institutions has failed to demonstrate either financial responsibility or administrative capability, we could be subject to additional conditions to participating, including, among other things, a requirement to post a letter of credit, suspension or termination of our eligibility to participate in Title IV programs, or repayment of funds received under Title IV programs, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate. ED has considerable discretion under the regulations to impose the foregoing sanctions and, in some cases, such sanctions could be imposed without advance notice or any prior right of review or appeal. Adtalem expects its consolidated fiscal year 2022 composite score to fall below 1.5 at its next financial responsibility test. If Adtalem becomes unable to meet requisite financial responsibility standards within the regulations, management believes it will be able to otherwise demonstrate its ability to continue to provide educational services; however, our institutions could still be subject to heightened cash monitoring and/or be required to post a letter of credit to continue to participate in federal and state financial assistance programs. ED has proposed changes to the financial responsibility and administrative capability rules. The earliest any amended rules will be effective is July 1, 2024.\nIf ED does not recertify any one of our institutions to continue participating in Title IV programs, students at that institution would lose their access to Title IV program funds. Alternatively, ED could recertify our institutions but require our institutions to accept significant limitations as a condition of their continued participation in Title IV programs.\nED certification to participate in Title IV programs lasts a maximum of six years, and institutions are thus required to seek recertification from ED on a regular basis in order to continue their participation in Title IV programs. An institution must also apply for recertification by ED if it undergoes a change in control, as defined by ED regulations.\nEach of our Title IV Institutions operates under a PPA. There can be no assurance that ED will recertify an institution after its PPA expires or that ED will not limit the period of recertification to participate in Title IV programs to less than six years, place the institution on provisional certification, or impose conditions or other restrictions on the institution as a condition of granting our application for recertification. If ED does not renew or withdraws the certification to participate in Title IV programs for one or more of our institutions at any time, students at such institution would no longer be able to receive Title IV program funds. Alternatively, ED could (1) renew the certifications for an institution, but restrict or delay receipt of Title IV funds, limit the number of students to whom an institution could disburse such funds, or place other restrictions on that institution, or (2) delay recertification after an institution\u2019s PPA expires, in which case the institution\u2019s certification would continue on a month-to-month basis, any of which could have a material adverse effect on the businesses, financial condition, results of operations, and cash flows of the institution or Adtalem as a whole and could result in the imposition of significant restrictions on the ability of the institution or Adtalem as a whole to operate.\nChamberlain was most recently recertified and issued an unrestricted PPA in September 2020, with an expiration date of March 31, 2024. Walden was issued a Temporary Provisional PPA (\u201cTPPPA\u201d) in connection with their acquisition by Adtalem on September 17, 2021. During the fourth quarter of fiscal year 2020 and the first quarter of fiscal year 2021, ED provisionally recertified AUC, RUSM, and RUSVM\u2019s Title IV PPAs with expiration dates of December 31, 2022, March 31, 2023, and June 30, 2023, respectively. The lengthy PPA recertification process is such that ED allows unhampered continued access to Title IV funding after PPA expiration, so long as materially complete applications are submitted at least 90 days in advance of expiration. Complete applications for PPA recertification have been timely submitted to ED. The provisional nature of the agreements for AUC, RUSM, and RUSVM stemmed from increased and/or repeated Title IV compliance audit findings. Walden\u2019s TPPPA included financial requirements, which were in place prior to acquisition, such as a letter of credit, heightened cash monitoring, and additional reporting. No similar requirements were imposed on AUC, RUSM, or RUSVM. While corrective actions have been taken to resolve past compliance matters and eliminate the incidence of repetition, if AUC, RUSM, or RUSVM fail to maintain administrative capability as defined by ED while under provisional status or otherwise fail to comply with ED requirements, the institution(s) could lose eligibility to participate in Title IV programs or have that eligibility adversely conditioned, which could have a material adverse effect on the businesses, financial condition, results of operations, and cash flows. ED has proposed changes to the certification rules. The earliest any amended rules will be effective is July 1, 2024.\n30\n\n\nTable of Contents\nIf we fail to maintain our institutional accreditation or if our institutional accrediting body loses recognition by ED, we would lose our ability to participate in Title\u00a0IV programs.\nThe loss of institutional accreditation by any of our Title IV Institutions would leave the affected institution ineligible to participate in Title\u00a0IV programs and would have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate. In addition, an adverse action by any of our institutional accreditors other than loss of accreditation, such as issuance of a warning, could have a material adverse effect on our business. Increased scrutiny of accreditors by the Secretary of Education in connection with ED\u2019s recognition process may result in increased scrutiny of institutions by accreditors or have other consequences.\nIf regulators do not approve, or delay their approval, of transactions involving a material change of ownership or change of control of Adtalem, the eligibility of our institutions to participate in Title IV programs, our institutions\u2019 accreditations and our institutions\u2019 state licenses may be impaired in a manner that materially and adversely affects our business.\nAny material change of ownership or change of control of Adtalem, depending on the type of change, may have significant regulatory consequences for each of our Title IV Institutions. Such a change of ownership or control could require recertification by ED, the reevaluation of accreditation by each institution\u2019s accreditors, reauthorization by each institutions\u2019 state licensing agencies, and/or providing financial protections. If Adtalem experiences a material change of ownership or change of control, then our Title IV Institutions may cease to be eligible to participate in Title IV programs until recertified by ED. The continuing participation of each of our Title IV Institutions in Title IV programs is critical to our business. Any disruption in an institution\u2019s eligibility to participate in Title IV programs would materially and adversely impact our business, financial condition, results of operations, and cash flow.\nIn addition, each Title IV Institution is required to report any material change in stock ownership to its principal institutional accrediting body and would generally be required to obtain approval prior to undergoing any transaction that affects, or may affect, its corporate control or governance. In the event of any such change, each of our institution\u2019s accreditors may undertake an evaluation of the effect of the change on the continuing operations of our institution for purposes of determining if continued accreditation is appropriate, which evaluation may include a comprehensive review. If our accreditors determine that the change is such that prior approval was required, but was not obtained, many of our accreditors\u2019 policies require the accreditor to consider withdrawal of accreditation. If certain accreditation is suspended or withdrawn with respect to any of our Title IV Institutions, they would not be eligible to participate in Title IV programs until the accreditation is reinstated or is obtained from another appropriate accrediting body. There is no assurance that reinstatement of accreditation could be obtained on a timely basis, if at all, and accreditation from a different qualified accrediting authority, if available, would require a significant amount of time. Any material disruption in accreditation would materially and adversely impact our business, financial condition, results of operations, and cash flow.\nIn addition, some states in which our Title IV Institutions are licensed require approval (in some cases, advance approval) of changes in ownership or control in order to remain authorized to operate in those states, and participation in grant programs in some states may be interrupted or otherwise affected by a change in ownership or control.\nAs of June 30, 2023, a substantial portion of our outstanding capital stock is owned by a small group of institutional shareholders. We cannot prevent a material change of ownership or change of control that could arise from a transfer of voting stock by any combination of those shareholders.\nA bankruptcy filing by us or by any of our Title IV Institutions, or a closure of one of our Title IV Institutions, would lead to an immediate loss of eligibility to participate in Title IV programs.\nIn the event of a bankruptcy filing by Adtalem, all of our Title IV Institutions would lose their eligibility to participate in Title IV programs, pursuant to statutory provisions of the HEA, notwithstanding the automatic stay provisions of federal bankruptcy law, which would make any reorganization difficult to implement. Similarly, in the event of a bankruptcy filing by any of Adtalem\u2019s subsidiaries that own a Title IV Institution, such institution would lose its eligibility to participate in Title IV programs. In the event of any bankruptcy affecting one or more of our Title IV Institutions, ED \n31\n\n\nTable of Contents\ncould hold our other Title IV Institutions jointly liable for any Title IV program liabilities, whether asserted or unasserted at the time of such bankruptcy, of the institution whose Title IV program eligibility was terminated.\nFurther, in the event that an institution closes and fails to pay liabilities or other amounts owed to ED, ED can attribute the liabilities of that institution to other institutions under common ownership. If any one of our Title IV Institutions were to close or have unpaid ED liabilities, ED could seek to have those liabilities repaid by one of our other Title IV Institutions.\nExcessive student loan defaults could result in the loss of eligibility to participate in Title\u00a0IV programs.\nOur Title IV Institutions may lose their eligibility to participate in Title IV programs if their student loan default rates are greater than standards set by ED. An educational institution may lose its eligibility to participate in some or all Title IV programs, if, for three consecutive federal fiscal years, 30% or more of its students who were required to begin repaying their student loans in the relevant federal fiscal year default on their payment by the end of the next two federal fiscal years. In addition, an institution may lose its eligibility to participate in some or all Title IV programs if its default rate for a federal fiscal year was greater than 40%. If any of our Title IV Institutions lose eligibility to participate in Title IV programs because of high student loan default rates, it would have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate. The latest three-year default rates are for the federal fiscal year 2019 cohort entering repayment. Default rates for the fiscal year 2019 cohort for Chamberlain, Walden, AUC, RUSM, and RUSVM are 0.5%, 1.1%, 0.2%, 0.2%, and 0.2%, respectively.\nOur Title IV Institutions could lose their eligibility to participate in federal student financial aid programs if the percentage of their revenue derived from those programs were too high.\nOur Title IV Institutions may lose eligibility to participate in Title IV programs if, on a cash basis, the percentage of the institution\u2019s revenue derived from Title IV programs for two consecutive fiscal years is greater than 90% (the \u201c90/10 Rule\u201d). Further, if an institution exceeds the 90% threshold for any single fiscal year, ED could place that institution on provisional certification status for the institution\u2019s following two fiscal years. In October 2022, ED published new 90/10 rules effective for fiscal years beginning on or after January 1, 2023. The most significant change is the inclusion of all federal funds in the numerator, not just Title IV funds. If any of our Title IV Institutions lose eligibility to participate in Title IV programs because they are unable to comply with ED\u2019s 90/10 Rule, it could have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nOur failure to comply with ED\u2019s credit hour rule could result in sanctions and other liability.\nIn 2009 and 2010, ED\u2019s Office of Inspector General criticized three accreditors, including the Higher Learning Commission (\u201cHLC\u201d), which is the accreditor for Chamberlain and Walden, for deficiency in their oversight of institutions\u2019 credit hour allocations. In June 2010, the House Education and Labor Committee held a hearing concerning accrediting agencies\u2019 standards for assessing institutions\u2019 credit hour policies. The 2010 Program Integrity Regulations defined the term \u201ccredit hour\u201d for the first time and required accrediting agencies to review the reliability and accuracy of an institution\u2019s credit hour assignments. If an accreditor does not comply with this requirement, its recognition by ED could be jeopardized. If an accreditor identifies systematic or significant noncompliance in one or more of an institution\u2019s programs, the accreditor must notify the Secretary of Education. If ED determines that an institution is out of compliance with the credit hour definition, ED could impose liabilities or other sanctions, which could have a material adverse effect on our business, financial conditions, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nIf we fail to maintain any of our state authorizations, we would lose our ability to operate in that state and to participate in Title\u00a0IV programs in that state.\nOur Title IV Institutions must be authorized to operate by the appropriate postsecondary regulatory authority in each state in which the institution is located. Campuses of our Title IV Institutions are authorized to operate and grant degrees, diplomas, or certificates by the applicable education agency of the state in which each such campus is located. Many states are currently reevaluating and revising their authorization regulations, especially as applied to distance education. The loss \n32\n\n\nTable of Contents\nof state authorization would, among other things, render the affected institution ineligible to participate in Title\u00a0IV programs, at least at those state campus locations, and otherwise limit that school\u2019s ability to operate in that state. Loss of authorization in one or more states could increase the likelihood of additional scrutiny and potential loss of operating and/or degree-granting authority in other states in which we operate, which would further impact our business. If these pressures and uncertainty continue in the future, or if one or more of our institutions are unable to offer programs in one or more states, it could have a material adverse impact on our enrollment, revenue, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nOur ability to place our medical schools\u2019 students in hospitals in the U.S. may be limited by efforts of certain state government regulatory bodies, which may limit the growth potential of our medical schools, put our medical schools at a competitive disadvantage to other medical schools, or force our medical schools to substantially reduce their class sizes.\nAUC and RUSM enter into affiliation agreements with hospitals across the U.S. to place their third and fourth year students in clinical programs at such hospitals. Certain states with regulatory programs that require state approval of clinical education programs have in recent years precluded, limited, or imposed onerous requirements on Adtalem\u2019s entry into affiliation agreements with hospitals in their states. If these or other states continue to limit access to affiliation arrangements, our medical schools may be at a competitive disadvantage to other medical schools, and our medical schools may be required to substantially restrict their enrollment due to limited clinical opportunities for enrolled students. The impact on enrollment, and the potential for enrollment growth, of such restrictions on our medical schools\u2019 clinical placements could have a material adverse effect on our business, financial conditions, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nBudget constraints in states that provide state financial aid to our students could reduce the amount of such financial aid that is available to our students, which could reduce our enrollment and adversely affect our 90/10 Rule percentage\n.\nSome states are experiencing budget deficits and constraints. Some of these states have reduced or eliminated various student financial assistance programs or established minimum performance measures as a condition of participation, and additional states may do so in the future. If our students who receive this type of assistance cannot secure alternate sources of funding, they may be forced to withdraw, reduce the rate at which they seek to complete their education, or replace the source with more expensive forms of funding, such as private loans. Other students who would otherwise have been eligible for state financial assistance may not be able to enroll without such aid. This reduced funding could decrease our enrollment and adversely affect our business, financial condition, results of operations, and cash flows.\nIn addition, the reduction or elimination of these non-Title IV sources of student funding may adversely affect our 90/10 Rule percentage.\nWe could be subject to sanctions if we fail to calculate accurately and make timely payment of refunds of Title\u00a0IV program funds for students who withdraw before completing their educational program.\nThe HEA and ED regulations require us to calculate refunds of unearned Title\u00a0IV program funds disbursed to students who withdraw from their educational program. If refunds are not properly calculated or timely paid, we may be required to post a letter of credit with ED or be subject to sanctions or other adverse actions by ED, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.\nA failure of our vendors to comply with applicable regulations in the servicing of our students and institutions could subject us to fines or restrictions on or loss of our ability to participate in Title IV programs.\nWe contract with unaffiliated entities for student software systems and services related to the administration of portions of our Title IV and financing programs. Because each of our institutions may be jointly and severally liable for the actions of third-party servicers and vendors, failure of such servicers to comply with applicable regulations could have a material adverse effect on our institutions, including fines and the loss of eligibility to participate in Title\u00a0IV programs, which could have a material adverse effect on our enrollment, revenue, and results of operations and cash flows and result in the imposition of significant restrictions on us and our ability to operate. If any of our third-party servicers discontinues providing such services to us, we may not be able to replace such third-party servicer in a timely, cost-efficient, or effective \n33\n\n\nTable of Contents\nmanner, or at all, and we could lose our ability to comply with collection, lending, and Title IV requirements, which could have a material adverse effect on our enrollment, revenue, and results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nWe provide financing programs to assist some of our students in affording our educational offerings. These programs are subject to various federal and state rules and regulations. Failure to comply with these regulations could subject us to fines, penalties, obligations to discharge loans, and other injunctive requirements.\nIf we, or one of the companies that service our credit programs, do not comply with laws applicable to the financing programs that assist our students in affording our educational offerings, including Truth in Lending and Fair Debt Collections Practices laws and the Unfair, Deceptive or Abusive Acts or Practices provisions of Title X of the Dodd-Frank Act, we could be subject to fines, penalties, obligations to discharge the debts, and other injunctive requirements, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate. Additionally, an adverse allegation, finding or outcome in any of these matters could also materially and adversely affect our ability to maintain, obtain or renew licenses, approvals or accreditation and maintain eligibility to participate in Title IV programs or serve as a basis for ED to discharge certain Title IV student loans and seek recovery for some or all of its resulting losses from us, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.\nRelease of confidential information could subject us to civil penalties or cause us to lose our eligibility to participate in Title IV programs.\nAs an educational institution participating in federal and state student assistance programs and collecting financial receipts from enrollees or their sponsors, we collect and retain certain confidential information. Such information is subject to federal and state privacy and security rules, including the Family Education Right to Privacy Act, the Health Insurance Portability and Accountability Act, and the Fair and Accurate Credit Transactions Act. Release or failure to secure confidential information or other noncompliance with these rules could subject us to fines, loss of our capacity to conduct electronic commerce, and loss of eligibility to participate in Title IV programs, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.\nWe could be subject to sanctions if we fail to accurately and timely report sponsored students\u2019 tuition, fees, and enrollment to the sponsoring agency.\nA significant portion of our enrollment is sponsored through various federal and state supported agencies and programs, including the U.S. Department of Defense, the U.S. Department of Labor, and the U.S. Department of Veterans Affairs. We are required to periodically report tuition, fees, and enrollment to the sponsoring agencies. As a recipient of funds, we are subject to periodic reviews and audits. Inaccurate or untimely reporting could result in suspension or termination of our eligibility to participate in these federal and state programs and have a material adverse impact on enrollment and revenue, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.\nOur enrollment may be adversely affected by presentations of data that are not representative of actual educational costs for our prospective students.\nED and other public policy organizations are concerned with the affordability of higher education and have developed various tools and resources to help students find low-cost educational alternatives. These resources primarily rely on and present data for first-time, full-time residential students, which is not representative of most of our prospective students. These presentations may influence some prospective students to exclude our institutions from their consideration, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.\n34\n\n\nTable of Contents\nRisks Related to Adtalem\u2019s Business\nOutbreaks of communicable infections or diseases, or other public health pandemics in the locations in which we, our students, faculty, and employees live, work, and attend classes, could substantially harm our business.\nDisease outbreaks and other public health conditions in the locations in which we, our students, faculty, and employees live, work, and attend classes could have a significant negative impact on our revenue, profitability, and business. If our business experiences prolonged occurrences of adverse public health conditions and the reinstatement of stay-at-home orders, we believe it could have a material adverse effect on our business, financial condition, results of operations, and cash flows. We will continue to evaluate, and if appropriate, adopt other measures in the future required for the ongoing safety of our students and employees. If our business results and financial condition were materially and adversely impacted, then assets such as accounts receivable, property and equipment, operating lease assets, intangible assets and goodwill could be impaired, requiring a possible write-off. As of June 30, 2023, intangible assets from business combinations totaled $812.3 million and goodwill totaled $961.3 million.\nNatural disasters or other extraordinary events or political disruptions may cause us to close some of our schools\n.\nWe may experience business interruptions resulting from natural disasters, inclement weather, transit disruptions, political disruptions, or other events in one or more of the geographic areas in which we operate, particularly in the West Coast and Gulf States of the U.S., and the Caribbean. These events could cause us to close schools, temporarily or permanently, and could affect student recruiting opportunities in those locations, causing enrollment and revenue to decline, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.\nStudent enrollment at our schools is affected by legislative, regulatory, and economic factors that may change in ways we cannot predict. These factors outside our control limit our ability to assess our future enrollment effectively.\nOur future revenue and growth depend on a number of factors, including many of the regulatory risks discussed above and business risks discussed below. Despite ongoing efforts to provide more scholarships to prospective students, and to increase quality and build our reputation, negative perceptions of the value of a college degree, increased reluctance to take on debt, and the resulting lower student consumer confidence may continue to impact enrollment in the future. In addition, technological innovations in the delivery of low-cost education alternatives and increased competition could negatively affect enrollment.\nWe are subject to risks relating to enrollment of students. If we are not able to continue to successfully recruit and retain our students, our revenue may decline.\nOur undergraduate and graduate educational programs are concentrated in selected areas of medical and healthcare. If applicant career interests or employer needs shift away from these fields, and we do not anticipate or adequately respond to that trend, future enrollment and revenue may decline and the rates at which our graduates obtain jobs involving their fields of study could decline.\nIf our graduates are unable to find appropriate employment opportunities or obtain professional licensure or certification, we may not be able to recruit new students.\nIf employment opportunities for our graduates in fields related to their educational programs decline or they are unable to obtain professional licenses or certifications in their chosen fields, future enrollment and revenue may decline as potential applicants choose to enroll at other educational institutions or providers.\nWe face heightened competition in the postsecondary education market from both public and private educational institutions.\nPostsecondary education in our existing and new market areas is highly competitive and is becoming increasingly so. We compete with traditional public and private two-year and four-year colleges, other proprietary schools, and alternatives to higher education. Some of our competitors, both public and private, have greater financial and nonfinancial resources than us. Some of our competitors, both public and private, are able to offer programs similar to ours at a lower tuition level \n35\n\n\nTable of Contents\nfor a variety of reasons, including the availability of direct and indirect government subsidies, government and foundation grants, large endowments, tax-deductible contributions, and other financial resources not available to proprietary institutions, or by providing fewer student services or larger class sizes. An increasing number of traditional colleges and community colleges are offering distance learning and other online education programs, including programs that are geared towards the needs of working adults. This trend has been accelerated by private companies that provide and/or manage online learning platforms for traditional colleges and community colleges. As the proportion of traditional colleges providing alternative learning modalities increases, we will face increasing competition for students from traditional colleges, including colleges with well-established reputations for excellence. As the online and distance learning segment of the postsecondary education market matures, we believe that the intensity of the competition we face will continue to increase. This intense competition could make it more challenging for us to enroll students who are likely to succeed in our educational programs, which could adversely affect our new student enrollment levels and student persistence and put downward pressure on our tuition rates, any of which could materially and adversely affect our business, financial condition, results of operations, and cash flows.\nThe personal information that we collect may be vulnerable to breach, theft, or loss that could adversely affect our reputation and operations.\nPossession and use of personal information in our operations subjects us to risks and costs that could harm our business. We collect, use, and retain large amounts of personal information regarding our students and their families, including social security numbers, tax return information, personal and family financial data, and credit card numbers. We also collect and maintain personal information of our employees and contractors in the ordinary course of our business. Some of this personal information is held and managed by certain of our vendors. Confidential information also may become available to third parties inadvertently when we integrate or convert computer networks into our network following an acquisition or in connection with system upgrades from time to time.\nDue to the sensitive nature of the information contained on our networks, such as students\u2019 financial information and grades, our networks may be targeted by hackers. For example, in December 2020 it was widely reported that SolarWinds, an information technology company, was the subject of a cyberattack that created security vulnerabilities for thousands of its clients. We identified a single server in our environment with SolarWinds software installed. It is important to note that this single server was used only for IP address management and was not configured in a manner that could allow for system compromise. Out of an abundance of caution, we promptly took steps to deactivate the server after applying all vendor recommended patches and hotfixes. We also scanned the environment to validate that there were no indicators of compromise related to the software. While we believe there were no compromises to our operations as a result of this attack, other similar attacks could have a significant negative impact on our systems and operations. Anyone who circumvents security measures could misappropriate proprietary or confidential information or cause interruptions or malfunctions in our operations. Although we use security and business controls to limit access and use of personal information, a third-party may be able to circumvent those security and business controls, which could result in a breach of privacy. In addition, errors in the storage, use, or transmission of personal information could result in a breach of privacy. Possession and use of personal information in our operations also subjects us to legislative and regulatory burdens that could require notification of data breaches and restrict our use of personal information. We cannot assure that a breach, loss, or theft of personal information will not occur. A breach, theft, or loss of personal information regarding our students and their families, customers, employees, or contractors that is held by us or our vendors could have a material adverse effect on our reputation and results of operations and result in liability under state and federal privacy statutes and legal actions by federal or state authorities and private litigants, any of which could have a material adverse effect on our business and result in the imposition of significant restrictions on us and our ability to operate.\nSystem disruptions and vulnerability from security risks to our computer network or information systems could severely impact our ability to serve our existing students and attract new students.\nThe performance and reliability of our computer networks and system applications, especially online educational platforms and student operational and financial aid packaging applications, are critical to our reputation and ability to attract and retain students. System errors, disruptions or failures, including those arising from unauthorized access, computer hackers, computer viruses, denial of service attacks, and other security threats, could adversely impact our delivery of educational content to our students or result in delays and/or errors in processing student financial aid and related disbursements. Such events could have a material adverse effect on the reputation of our institutions, our financial \n36\n\n\nTable of Contents\ncondition, results of operations, and cash flows. We may be required to expend significant resources to protect against system errors, failures or disruptions, or the threat of security breaches, or to repair or otherwise mitigate problems caused by any actual errors, disruptions, failures, or breaches.\u00a0We cannot ensure that these efforts will protect our computer networks, or fully mitigate the resulting impact of interruptions or malfunctions in our operations, despite our regular monitoring of our technology infrastructure security and business continuity plans.\nA breach of our information technology systems could subject us to liability, reputational damage or interrupt the operation of our business.\nWe rely upon our information technology systems and infrastructure for operating our business. We could experience theft of sensitive date or confidential information or reputational damage from malware or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party providers. Similarly, data privacy breaches by those who access our systems may pose a risk that sensitive data, including intellectual property, trade secrets or personal information belonging to us, our employees, students, or business partners, may be exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect and respond to. There can be no assurance that our mitigation efforts to protect our data and information technology systems will prevent breaches in our systems (or that of our third-party providers) that could adversely affect our operations and business and result in financial and reputational harm to us, theft of trade secrets and other proprietary information, legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties.\nGovernment regulations relating to the internet could increase our cost of doing business and affect our ability to grow.\nThe use of the internet and other online services has led to and may lead to the adoption of new laws and regulations in the U.S. or foreign countries and to new interpretations of existing laws and regulations. These new laws, regulations, and interpretations may relate to issues such as online privacy, copyrights, trademarks and service marks, sales taxes, value-added taxes, withholding taxes, cost of internet access, and services, allocation, and apportionment of income amongst various state, local, and foreign jurisdictions, fair business practices, and the requirement that online education institutions qualify to do business as foreign corporations or be licensed in one or more jurisdictions where they have no physical location or other presence. New laws, regulations, or interpretations related to doing business over the internet could increase our costs and materially and adversely affect our enrollment, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.\nOur ability to open new campuses, offer new programs, and add capacity is dependent on regulatory approvals and requires financial and human resources.\nAs part of our strategy, we intend to open new campuses, offer new educational programs, and add capacity to certain existing locations. Such actions require us to obtain appropriate federal, state, and accrediting agency approvals. In addition, adding new locations, programs, and capacity may require significant financial investments and human resource capabilities. The failure to obtain appropriate approvals or to properly allocate financial and human resources could adversely impact our future growth.\nWe may not be able to attract, retain, and develop key employees necessary for our operations and the successful execution of our strategic plans\n.\nWe may be unable to attract, retain, and develop key employees with appropriate educational qualifications and experience. Regulatory and other legal actions and the claims contained in these actions may have diminished our reputation, and these actions and the resulting negative publicity may have decreased interest by potential employees. In addition, we may be unable to effectively plan and prepare for changes in key employees. Such matters may cause us to incur higher wage expense and/or provide less student support and customer service, which could adversely affect enrollment, revenue, and expense. A significant amount of our compensation for key employees is tied to our financial performance. We may require new employees in order to execute some of our strategic plans. Uncertainty regarding our future financial performance may limit our ability to attract new employees with competitive compensation or increase our cost of recruiting and retaining such new employees.\n37\n\n\nTable of Contents\nWe may not be able to successfully identify, pursue, or integrate acquisitions.\nAs part of our strategy, we are actively considering acquisition opportunities primarily in the U.S.\u00a0We have acquired and expect to acquire additional education institutions or education related businesses that complement our strategic direction. Any acquisition involves significant risks and uncertainties, including, but not limited to:\n\u00b7\nInability to successfully integrate the acquired operations and personnel into our business and maintain uniform standards, controls, policies, and procedures;\n\u00b7\nFailure to secure applicable regulatory approvals;\n\u00b7\nAssumption of known and unknown liabilities;\n\u00b7\nDiversion of significant attention of our senior management from day-to-day operations;\n\u00b7\nIssues not discovered in our due diligence process, including compliance issues, commitments, and/or contingencies; and\n\u00b7\nFinancial commitments, investments in foreign countries, and compliance with debt covenants and ED financial responsibility scores.\nExpansion into new international markets will subject us to risks inherent in international operations.\nTo the extent that we expand internationally, we will face risks that are inherent in international operations including, but not limited to:\n\u00b7\nCompliance with foreign laws and regulations;\n\u00b7\nManagement of internal operations;\n\u00b7\nForeign currency exchange rate fluctuations;\n\u00b7\nAbility to protect intellectual property;\n\u00b7\nMonetary policy risks, such as inflation, hyperinflation, and deflation;\n\u00b7\nPrice controls or restrictions on exchange of foreign currencies;\n\u00b7\nPolitical and economic instability in the countries in which we operate;\n\u00b7\nPotential unionization of employees under local labor laws;\n\u00b7\nMultiple and possibly overlapping and conflicting tax laws;\n\u00b7\nInability to cost effectively repatriate cash balances; and\n\u00b7\nCompliance with U.S. laws and regulations such as the Foreign Corrupt Practices Act.\nProposed changes in, or lapses of, U.S. tax laws regarding earnings from international operations could adversely affect our financial results.\nOur effective tax rate could be subject to volatility or be adversely impacted by changes to federal tax laws governing the taxation of foreign earnings of U.S. based companies. For example, recent changes to U.S. tax laws significantly impacted how U.S. multinational corporations are taxed on foreign earnings. Numerous countries are evaluating their existing tax laws, due in part to recommendations made by the Organization for Economic Co-operation and Development\u2019s (\u201cOECD\u2019s\u201d) Base Erosion and Profit Shifting (\u201cBEPS\u201d) project, including the imposition of a global minimum tax. A significant portion of the additional provisions for income taxes we have made due to the enactment of the Tax Cuts and Jobs Act of 2017 (the \u201cTax Act\u201d) is payable by us over a period of up to eight years. As a result, our cash flows from operating activities will be adversely impacted until the additional tax provisions are paid in full.\u00a0In addition, Adtalem has benefitted from the ability to enter into international intercompany arrangements without incurring U.S. taxation due to a law, which expires in fiscal year 2026, deferring U.S. taxation of \u201cforeign personal holding company income\u201d such as foreign income from dividends, interest, rents, and royalties. If this law is not extended, or a similar law adopted, our consolidated tax provision would be impacted beginning in our fiscal year 2027, and we may not be able to allocate international capital optimally without realizing U.S. income taxes, which would increase our effective income tax rate and adversely impact our earnings and cash flows.\n38\n\n\nTable of Contents\nChanges in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results.\nOur future effective tax rates could be subject to volatility or adversely affected by: earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated earnings in countries where we have higher statutory rates; changes in the valuation of our deferred tax assets and liabilities; expiration of or lapses in various tax law provisions; tax treatment of stock-based compensation; costs related to intercompany or other restructurings; or other changes in tax rates, laws, regulations, accounting principles, or interpretations thereof. In addition, we are subject to examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we have accrued tax and related interest for potential adjustments to tax liabilities for prior years, there can be no assurance that\u00a0the outcomes from these continuous examinations will not have a material effect, either positive or negative, on our business, financial condition, and results of operations.\nOur goodwill and intangible assets potentially could be impaired if our business results and financial condition were materially and adversely impacted by risks and uncertainties.\nAdtalem\u2019s market capitalization can be affected by, among other things, changes in industry or market conditions, changes in results of operations, and changes in forecasts or market expectations related to future results. If our market capitalization were to remain below its carrying value for a sustained period of time or if such a decline becomes indicative that the fair values of our reporting units have declined below their carrying values, an impairment test may result in a non-cash impairment charge. As of June 30, 2023, intangible assets from business combinations totaled $812.3 million and goodwill totaled $961.3 million. Together, these assets equaled 63% of total assets as of such date. If our business results and financial condition were materially and adversely impacted, then such intangible assets and goodwill could be impaired, requiring a possible write-off of up to $812.3\n \nmillion of intangible assets and up to $961.3\n \nmillion of goodwill.\nWe cannot guarantee that our share repurchase program will be utilized to the full value approved or that it will enhance long-term stockholder value. Repurchases we consummate could increase the volatility of the price of our common stock and could have a negative impact on our available cash balance.\nOur Board authorized a share repurchase program pursuant to which we may repurchase up to $300.0 million of our common stock through February 25, 2025. As of June 30, 2023, $172.7 million of authorized share repurchases were remaining under this share repurchase program. The manner, timing and amount of any share repurchases may fluctuate and will be determined by us based on a variety of factors, including the market price of our common stock, our priorities for the use of cash to support our business operations and plans, general business and market conditions, tax laws, and alternative investment opportunities. The share repurchase program authorization does not obligate us to acquire any specific number or dollar value of shares. Further, our share repurchases could have an impact on our share trading prices, increase the volatility of the price of our common stock, or reduce our available cash balance such that we will be required to seek financing to support our operations. Our share repurchase program may be modified, suspended or terminated at any time, which may result in a decrease in the trading prices of our common stock. Even if our share repurchase program is fully implemented, it may not enhance long-term stockholder value.\nWe and our subsidiaries may not be able to generate sufficient cash to service all of our indebtedness and may not be able to refinance our debt obligations.\nOur ability to make scheduled payments on or to refinance our debt obligations depends on our and our subsidiaries\u2019 financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business, competitive, legislative, regulatory, and other factors \nbeyond our control. As a result, we may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness. In addition, because we conduct a significant portion of our operations through our subsidiaries, repayment of our indebtedness is also dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us by dividend, debt repayment, or otherwise. Our subsidiaries are distinct legal entities and other than the guarantors on our indebtedness, they do not have any obligation to pay amounts due on the Notes or to make funds available for that purpose or for other obligations. Pursuant to applicable state limited liability company laws and other laws and regulations, our non-guarantor subsidiaries may not be able to, or may not be permitted to, make distributions to us in order \n39\n\n\nTable of Contents\nto enable us to make payments in respect of the Notes \n(as defined in Note 14 \u201cDebt\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d) and our Term Loan B (as defined in Note 14 \u201cDebt\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d)\n. In the event that we do not receive distributions from our non-guarantor subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.\nIn addition, there can be no assurance that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our Revolver (as defined in Note 14 \u201cDebt\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d) in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.\nOur ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.\nIf we cannot make scheduled payments on our indebtedness, we will be in default, and holders of the Notes could declare all outstanding principal and interest to be due and payable, the lenders under the credit facilities could terminate their commitments to loan money, our secured lenders (including the lenders under the credit facilities and the holders of the Notes) could foreclose against the assets securing their loans and the Notes and we could be forced into bankruptcy or liquidation. \nRisks Related to Shareholder Activism\nWe may face risks associated with shareholder activism.\nPublicly traded companies are subject to campaigns by shareholders advocating corporate actions related to matters such as corporate governance, operational practices, and strategic direction. We have previously been subject to shareholder activity and demands and may be subject to further shareholder activity and demands in the future. Such activities could interfere with our ability to execute our business plans, be costly and time-consuming, disrupt our operations, and divert the attention of management, any of which could have an adverse effect on our business or stock price.",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nIn this Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (\u201cMD&A\u201d), Adtalem Global Education Inc., together with its subsidiaries, is collectively referred to as \u201cAdtalem,\u201d \u201cwe,\u201d \u201cour,\u201d \u201cus,\u201d or similar references.\nDiscussions within this MD&A may contain forward-looking statements. See the \u201cForward-Looking Statements\u201d section preceding Part I of this Annual Report on Form 10-K for details about the uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements.\nThroughout this MD&A, we sometimes use information derived from the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d and the notes thereto but not presented in accordance with U.S. generally \n46\n\n\nTable of Contents\naccepted accounting principles (\u201cGAAP\u201d). Certain of these items are considered \u201cnon-GAAP financial measures\u201d under the Securities and Exchange Commission (\u201cSEC\u201d) rules. See the \u201cNon-GAAP Financial Measures and Reconciliations\u201d section for the reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures.\nCertain items presented in tables may not sum due to rounding. Percentages presented are calculated from the underlying numbers in thousands. Discussions throughout this MD&A are based on continuing operations unless otherwise noted. The MD&A should be read in conjunction with the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d and the notes thereto.\nSegments\nWe present three reportable segments as follows:\nChamberlain\n\u00a0\u2013 Offers degree and non-degree programs in the nursing and health professions postsecondary education industry. This segment includes the operations of Chamberlain University (\u201cChamberlain\u201d).\nWalden\n\u00a0\u2013 \nOffers more than 100 online certificate, bachelor\u2019s, master\u2019s, and doctoral degrees, including those in nursing, education, counseling, business, psychology, public health, social work and human services, public administration and public policy, and criminal justice. This segment includes the operations of Walden University (\u201cWalden\u201d), which was acquired by Adtalem on August 12, 2021. See Note 3 \u201cAcquisitions\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information on the acquisition.\nMedical and Veterinary\n \u2013 Offers degree and non-degree programs in the medical and veterinary postsecondary education industry. This segment includes the operations of the American University of the Caribbean School of Medicine (\u201cAUC\u201d), Ross University School of Medicine (\u201cRUSM\u201d), and Ross University School of Veterinary Medicine (\u201cRUSVM\u201d), which are collectively referred to as the \u201cmedical and veterinary schools.\u201d\n\u201cHome Office and Other\u201d includes activities not allocated to a reportable segment. Financial and descriptive information about Adtalem\u2019s reportable segments is presented in Note 22 \u201cSegment Information\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data.\u201d\nBeginning in the second quarter of fiscal year 2022, Adtalem eliminated its Financial Services segment \nwhen the Association of Certified Anti-Money Laundering Specialists (\u201cACAMS\u201d), Becker Professional Education (\u201cBecker\u201d), OnCourse Learning (\u201cOCL\u201d), and EduPristine were classified as discontinued operations and assets held for sale. In accordance with GAAP, we have classified the ACAMS, Becker, OCL, and EduPristine entities as \u201cHeld for Sale\u201d and \u201cDiscontinued Operations\u201d in all periods presented as applicable. As a result, all financial results, disclosures, and discussions of continuing operations in this Annual Report on Form 10-K exclude ACAMS, Becker, OCL, and EduPristine operations, unless otherwise noted. On March 10, 2022, we completed the sale of ACAMS, Becker, and OCL and on June 17, 2022, we completed the sale of EduPristine. In addition, we continue to incur costs associated with ongoing litigation and settlements related to the DeVry University divestiture, which was completed during fiscal year 2019, and those costs are classified as expense within discontinued operations. See Note 4 \u201cDiscontinued Operations and Assets Held for Sale\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional discontinued operations information.\nCertain expenses previously allocated to ACAMS, Becker, OCL, and EduPristine within our former Financial Services segment during fiscal year 2021 and the first quarter of fiscal year 2022 have been reclassified to Home Office and Other based on discontinued operations reporting guidance regarding allocation of corporate overhead. Beginning in the second quarter of fiscal year 2022, these costs are being allocated to the Chamberlain, Walden, and Medical and Veterinary segments.\nRevision to Previously Issued Financial Statements\nDuring the third quarter of fiscal year 2023, Adtalem identified an error in its revenue recognition related to certain scholarship programs within its Medical and Veterinary segment. Certain scholarships and discounts offered within that segment provide students a discount on future tuition that constitute a material right under Accounting Standards \n47\n\n\nTable of Contents\nCodification (\u201cASC\u201d) 606 \u201cRevenue from Contracts with Customers\u201d that should be accounted for as a separate performance obligation within a contract. Adtalem assessed the materiality of this error individually and in the aggregate with other previously identified errors to prior periods\u2019 Consolidated Financial Statements in accordance with SEC Staff Accounting Bulletin (\u201cSAB\u201d) No. 99 \u201cMateriality\u201d and SAB 108 \u201cConsidering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements\u201d codified in ASC 250 \u201cAccounting Changes and Error Corrections.\u201d Adtalem concluded that the errors were not material to prior periods and therefore, amendments of previously filed reports are not required. However, Adtalem determined it was appropriate to revise its previously issued financial statements. Treating the discount on future tuition as a material right results in the deferral of revenue for a portion of tuition to future periods. In accordance with ASC 250, Adtalem corrected prior periods presented herein by revising the financial statement line item amounts previously disclosed in SEC filings in order to achieve comparability in the Consolidated Financial Statements. In connection with this revision, Adtalem also corrected other immaterial errors in the prior periods, including certain errors that had previously been adjusted for as out of period corrections in the period identified. See Note 2 \u201cSummary of Significant Accounting Policies\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information.\nWalden University Acquisition\nOn August 12, 2021, Adtalem completed the acquisition of all the issued and outstanding equity interest in Walden e-Learning, LLC, a Delaware limited liability company (\u201ce-Learning\u201d), and its subsidiary, Walden University, LLC, a Florida limited liability company, from Laureate Education, Inc. (\u201cLaureate\u201d or \u201cSeller\u201d) in exchange for a purchase price of $1.5 billion in cash (the \u201cAcquisition\u201d). See the \u201cLiquidity and Capital Resources\u201d section of this MD&A for a discussion on the financing used to fund the Acquisition.\nFiscal Year 2023 Highlights\nFinancial and operational highlights for fiscal year 2023 include:\n\u25cf\nAdtalem revenue increased $69.0 million, or 5.0%, to $1,450.9 million in fiscal year 2023 compared to the prior year. Excluding the timing of the Walden acquisition in the prior year, Adtalem revenue grew $4.8 million, or 0.3%, in fiscal year 2023 compared to the prior year driven by increased revenue at Chamberlain and Medical and Veterinary partially offset by a revenue decline at Walden.\n\u25cf\nNet income of $93.4 million ($2.05 diluted earnings per share) decreased $217.6 million ($4.38 diluted earnings per share) in fiscal year 2023 compared to net income of $311.0 million in the prior year. This decrease was primarily due to the gain on disposal of the Financial Services segment in the prior year, partially offset by decreased interest expense and business acquisition and integration expense in the current year compared to the prior year, and a gain on sale of assets in the current year. Adjusted net income of $192.2 million ($4.21 diluted adjusted earnings per share) increased $40.2 million ($1.10 diluted adjusted earnings per share), or 26.4%, in fiscal year 2023 compared to the prior year. This increase was due to the timing of the Walden acquisition in the prior year, increased adjusted operating income at Chamberlain, and decreased interest expense in fiscal year 2023 compared to the prior year.\n\u25cf\nFor fiscal year 2023, average total student enrollment at Chamberlain decreased 0.6% compared to the prior year\n. For the May 2023 session, total student enrollment at Chamberlain increased 1.2% compared to the same session last year.\n\u25cf\nFor fiscal year 2023, average total student enrollment at Walden decreased 7.5% compared to the prior year\n. As of June 30, 2023, total student enrollment at Walden decreased 4.8% compared to June 30, 2022.\n\u25cf\nFor fiscal year 2023, average total student enrollment at the medical and veterinary schools decreased 1.0% compared to the prior year\n. For the May 2023 semester, total student enrollment at the medical and veterinary schools decreased 8.2% compared to the same semester last year.\n\u25cf\nOn September 22, 2022 and November 22, 2022, we made prepayments of $100.0 million and $50.0 million, respectively, on our Term Loan B debt.\n48\n\n\nTable of Contents\n\u25cf\nOn \nMarch 14, 2022, we entered into an accelerated share repurchase (\u201cASR\u201d) agreement to repurchase $150.0 million of common stock. We received an initial delivery of 4,709,576 shares of common stock. \nThe ASR agreement ended on October 14, 2022. Based on the volume-weighted average price of Adtalem\u2019s common stock during the term of the ASR agreement, Adtalem owed the counter party 332,212 shares of common stock. We elected to settle the contract in cash instead of delivering shares by making a cash payment of $13.2 million on November 2, 2022.\n\u25cf\nAdtalem repurchased a total of 3,207,036 shares of Adtalem\u2019s common stock under its share repurchase program at an average cost of $39.68 per share during fiscal year 2023. The timing and amount of any future repurchases will be determined based on an evaluation of market conditions and other factors.\nOverview of the Impact of COVID-19\nOn March 11, 2020, the novel coronavirus (\u201cCOVID-19\u201d) outbreak was declared a pandemic by the World Health Organization. COVID-19 has had tragic consequences across the globe and altered business and consumer activity across many industries. Management initiated several changes to the operations of our institutions and administrative functions in order to protect the health of our students and employees and to mitigate the financial effects of COVID-19 and its resultant economic slowdown.\nManagement believes that enrollments were negatively impacted at Chamberlain and Walden, and to a lesser extent at Medical and Veterinary, by disruptions in the nursing and healthcare markets caused by COVID-19. The amount of revenue, operating income, and earnings per share losses in fiscal year 2023 and 2022 driven by this disruption are not quantifiable. While the COVID-19 public health emergency has ended, management believes that the stress caused by COVID-19 on healthcare professionals still affects decisions on pursuing healthcare professions and furthering education and may negatively affect enrollment in our healthcare programs. In fiscal year 2022, we experienced higher variable expenses associated with bringing students back to campus and providing a safe environment in the context of COVID-19 as in-person instruction returned at Chamberlain and the medical and veterinary schools.\nAlthough COVID-19 has had a negative effect on the operating results of all five reporting units that contain goodwill and indefinite-lived intangible assets as of June 30, 2023, none of the effects are considered significant enough to create an impairment triggering event during fiscal year 2023. In addition, our annual impairment assessment performed as of May 31, 2023 did not identify any impairments.\n49\n\n\nTable of Contents\nResults of Operations\nThe following table presents selected Consolidated Statements of Income data as a percentage of revenue:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\n\u00a0\nRevenue\n\u200b\n 100.0\n%\n 100.0\n%\n 100.0\n%\nCost of educational services\n\u200b\n 44.7\n%\n 47.7\n%\n 50.9\n%\nStudent services and administrative expense\n\u200b\n 40.4\n%\n 41.0\n%\n 32.5\n%\nRestructuring expense\n\u200b\n 1.3\n%\n 1.9\n%\n 0.8\n%\nBusiness acquisition and integration expense\n\u200b\n 2.9\n%\n 3.8\n%\n 3.5\n%\nGain on sale of assets\n\u200b\n (0.9)\n%\n 0.0\n%\n 0.0\n%\nTotal operating cost and expense\n\u200b\n 88.4\n%\n 94.4\n%\n 87.7\n%\nOperating income\n\u200b\n 11.6\n%\n 5.6\n%\n 12.3\n%\nInterest expense\n\u200b\n (4.3)\n%\n (9.4)\n%\n (4.6)\n%\nOther income, net\n\u200b\n 0.5\n%\n 0.1\n%\n 0.7\n%\nIncome (loss) from continuing operations before income taxes\n\u200b\n 7.7\n%\n (3.7)\n%\n 8.4\n%\n(Provision for) benefit from income taxes\n\u200b\n (0.7)\n%\n 1.1\n%\n (1.4)\n%\nIncome (loss) from continuing operations\n\u200b\n 7.0\n%\n (2.6)\n%\n 7.1\n%\n(Loss) income from discontinued operations, net of tax\n\u200b\n (0.6)\n%\n 25.1\n%\n 0.7\n%\nNet income\n\u200b\n 6.4\n%\n 22.5\n%\n 7.7\n%\nNet loss attributable to redeemable noncontrolling interest from discontinued operations\n\u200b\n 0.0\n%\n 0.0\n%\n 0.0\n%\nNet income attributable to Adtalem\n\u200b\n 6.4\n%\n 22.5\n%\n 7.8\n%\nFiscal Year Ended June 30, 2023 vs. Fiscal Year Ended June 30, 2022\nRevenue\nThe following table presents revenue by segment detailing the changes from the prior year (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a02023\n\u00a0\n\u200b\n\u200b\nChamberlain\n\u00a0\nWalden\n\u00a0\nMedical and\nVeterinary\n\u00a0\nConsolidated\n\u00a0\nFiscal year 2022\n\u200b\n$\n 557,536\n\u200b\n$\n 485,393\n\u200b\n$\n 338,913\n\u200b\n$\n 1,381,842\n\u200b\nOrganic growth (decline)\n\u200b\n\u200b\n 13,498\n\u200b\n\u200b\n (15,818)\n\u200b\n\u200b\n 7,154\n\u200b\n\u200b\n 4,834\n\u200b\nEffect of acquisitions\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 64,150\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 64,150\n\u200b\nFiscal year 2023\n\u200b\n$\n 571,034\n\u200b\n$\n 533,725\n\u200b\n$\n 346,067\n\u200b\n$\n 1,450,826\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal year 2023 % change:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOrganic growth (decline)\n\u200b\n\u200b\n 2.4\n%\n\u200b\n (3.3)\n%\n\u200b\n 2.1\n%\n\u200b\n 0.3\n%\nEffect of acquisitions\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 13.2\n%\n\u200b\n \u2014\n\u200b\n\u200b\n 4.6\n%\nFiscal year 2023 % change\n\u200b\n\u200b\n 2.4\n%\n\u200b\n 10.0\n%\n\u200b\n 2.1\n%\n\u200b\n 5.0\n%\n50\n\n\nTable of Contents\nChamberlain\nChamberlain Student Enrollment:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year 2023\n\u200b\nSession\n\u200b\nJuly 2022\n\u200b\nSept. 2022\n\u200b\nNov. 2022\n\u200b\nJan. 2023\n\u200b\nMar. 2023\n\u200b\nMay 2023\n\u200b\nTotal students\n\u200b\n 31,371\n\u200b\n 33,153\n\u200b\n 33,390\n\u200b\n 34,760\n\u200b\n 34,847\n\u200b\n 33,284\n\u200b\n% change from prior year\n\u200b\n (4.1)\n%\n (4.0)\n%\n (0.8)\n%\n 1.8\n%\n 2.0\n%\n 1.2\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year 2022\n\u200b\nSession\n\u200b\nJuly 2021\n\u200b\nSept. 2021\n\u200b\nNov. 2021\n\u200b\nJan. 2022\n\u200b\nMar. 2022\n\u200b\nMay 2022\n\u00a0\nTotal students\n\u200b\n 32,729\n\u200b\n 34,539\n\u200b\n 33,648\n\u200b\n 34,141\n\u200b\n 34,158\n\u200b\n 32,891\n\u200b\n% change from prior year\n\u200b\n 1.6\n%\n (2.8)\n%\n (2.1)\n%\n (4.5)\n%\n (4.3)\n%\n (5.8)\n%\nChamberlain revenue increased 2.4%, or $13.5 million, to $571.0 million in fiscal year 2023 compared to the prior year, driven by an increase in fee revenue along with lower scholarships and discounts. Enrollment has begun to recover in several graduate and doctoral programs and the undergraduate Bachelor of Science-Nursing (\u201cBSN\u201d) programs. These improvements have been partially offset by a decrease in total student enrollment in the Registered Nurse to Bachelor of Science in Nursing (\u201cRN-to-BSN\u201d) online degree program. Management believes this decrease and the slow recovery in enrollment may partially be driven by prolonged stress on healthcare professionals. While the COVID-19 public health emergency has ended, management believes that the stress caused by COVID-19 on healthcare professionals still affects decisions on pursuing healthcare professions and furthering education and may have negatively affected enrollment in our healthcare programs in fiscal year 2023. Chamberlain\u2019s revenue and our ability to provide educational services are not materially exposed to the economic impact from the volatile supply chain disruptions impacting the current global macroeconomic environment.\nChamberlain currently operates 23 campuses in 15 states, including Chamberlain\u2019s newest campus in Irwindale, California, which began instruction in May 2021.\nTuition Rates:\nTuition for the BSN onsite and online degree program ranges from $675 to $753 per credit hour. Tuition for the RN-to-BSN online degree program is $590 per credit hour. Tuition for the online Master of Science in Nursing (\u201cMSN\u201d) degree program is $675 per credit hour. Tuition for the online Family Nurse Practitioner (\u201cFNP\u201d) degree program is $690 per credit hour. Tuition for the online Doctor of Nursing Practice (\u201cDNP\u201d) degree program is $800 per credit hour. Tuition for the online Master of Public Health (\u201cMPH\u201d) degree program is $550 per credit hour. Tuition for the online Master of Social Work (\u201cMSW\u201d) degree program is $695 per credit hour. Tuition for the onsite Master of Physician Assistant Studies (\u201cMPAS\u201d) is $8,000 per session. Some of these tuition rates increased by 3% to 4% from the prior year. These tuition rates do not include the cost of course fees, books, supplies, transportation, clinical fees, living expenses, or other fees as listed in the Chamberlain academic catalog.\nWalden\nWalden Student Enrollment:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year 2023\n\u200b\n\u200b\n\u200b\nSeptember 30,\n\u200b\nDecember 31,\n\u200b\nMarch 31,\n\u200b\nJune 30,\n\u200b\nPeriod\n\u200b\n2022\n\u200b\n2022\n\u200b\n2023\n\u200b\n2023\n\u200b\nTotal students\n\u200b\n 40,772\n\u200b\n 37,956\n\u200b\n 39,427\n\u200b\n 37,582\n\u200b\n% change from prior year\n\u200b\n (9.2)\n%\n (7.8)\n%\n (7.9)\n%\n (4.8)\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year 2022\n\u200b\n\u200b\n\u200b\nSeptember 30,\n\u200b\nDecember 31,\n\u200b\nMarch 31,\n\u200b\nJune 30,\n\u200b\nPeriod\n\u200b\n2021\n\u200b\n2021\n\u200b\n2022\n\u200b\n2022\n\u200b\nTotal students\n\u200b\n 44,886\n\u200b\n 41,158\n\u200b\n 42,788\n\u200b\n 39,470\n\u200b\n51\n\n\nTable of Contents\nWalden total student enrollment represents those students attending instructional sessions as of the dates identified above. Walden revenue increased 10.0%, or $48.3 million, to $533.7 million in fiscal year 2023 compared to the prior year. Excluding the timing of the Walden acquisition in the prior year, Walden revenue decreased 3.3%, or $15.8 million. In fiscal year 2022, $8.6 million was excluded from revenue due to an adjustment required for purchase accounting to record Walden\u2019s deferred revenue at fair value. Fiscal year 2023 did not require a similar adjustment. Excluding the timing of the Walden acquisition in the prior year and the $8.6 million deferred revenue adjustment, revenue decreased 4.9%, or $24.4 million in fiscal year 2023 compared to the prior year. Management believes that the decrease in total enrollment compared to the prior year, which is resulting in the lower revenue, may be driven by prolonged stress on healthcare professionals. While the COVID-19 public health emergency has ended, management believes that the stress caused by COVID-19 on healthcare professionals still affects decisions on pursuing healthcare professions and furthering education and may have negatively affected enrollment in our healthcare programs in fiscal year 2023. Walden\u2019s revenue and our ability to provide educational services are not materially exposed to the economic impact from the volatile supply chain disruptions impacting the current global macroeconomic environment.\nTuition Rates:\nOn a per credit hour basis, tuition for Walden programs range from $130 per credit hour to $1,060 per credit hour, with the wide range due to the nature of the programs. General education courses are charged at $333 per credit hour. Other programs such as those with a subscription-based learning modality or those billed on a subscription period or term basis range from $1,500 to $7,180 per term. Students are charged a technology fee that ranges from $50 to $230 per term as well as a clinical fee of $150 per course for specific programs. Some programs require students to attend residencies, skills labs, and pre-practicum labs, which are charged at a range of $1,000 to $2,550 per event. In most cases, these tuition rates, event charges, and fees represent increases of approximately 3.0% to 6.6% from the prior year. These tuition rates, event charges, and fees do not include the cost of books or personal technology, supplies, transportation, or living expenses.\nMedical and Veterinary Schools\nMedical and Veterinary Schools Student Enrollment:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year 2023\n\u200b\nSemester\n\u200b\nSept. 2022\n\u200b\nJan. 2023\n\u200b\nMay 2023\n\u200b\nTotal students\n\u200b\n 5,634\n\u200b\n 5,312\n\u200b\n 4,869\n\u200b\n% change from prior year\n\u200b\n 3.4\n%\n 1.6\n%\n (8.2)\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year 2022\n\u200b\nSemester\n\u200b\nSept. 2021\n\u200b\nJan. 2022\n\u200b\nMay 2022\n\u00a0\nTotal students\n\u200b\n 5,449\n\u200b\n 5,228\n\u200b\n 5,304\n\u200b\n% change from prior year\n\u200b\n (6.9)\n%\n (1.2)\n%\n 3.5\n%\nMedical and Veterinary revenue increased 2.1%, or $7.2 million, to $346.1 million in fiscal year 2023 compared to the prior year, driven by tuition rate increases at all three institutions in this segment, partially offset by an average total student enrollment decline of 1.0% compared to the prior year and the higher use of scholarships to attract and retain students at AUC and RUSM. Medical and Veterinary\u2019s revenue and our ability to provide educational services are not materially exposed to the economic impact from the volatile supply chain disruptions impacting the current global macroeconomic environment.\nManagement is executing its plan to differentiate the medical and veterinary schools from the competition, with a core goal of increasing international students, increasing affiliations with historically black colleges and universities (\u201cHBCU\u201d) and Hispanic-serving institutions (\u201cHSI\u201d), expanding AUC\u2019s medical education program based in the U.K. in partnership with the University of Central Lancashire (\u201cUCLAN\u201d), and improving the effectiveness of marketing and enrollment investments.\n52\n\n\nTable of Contents\nTuition Rates:\n\u25cf\nEffective for semesters beginning in September 2022, for students enrolled prior to May 2022, tuition rates for the beginning basic sciences and final clinical rotation portions of AUC\u2019s medical program are $24,990 and $27,955, respectively, per semester. These tuition rates represent a 5.0% increase from the prior academic year. Effective for semesters beginning in September 2022, for students first enrolled in May 2022 and after, tuition rates for the beginning basic sciences and final clinical rotation portions of AUC\u2019s medical program are $20,202 and $25,116, respectively, per semester. In addition, students first enrolled in May 2022, and after, pay administrative fees of $5,086 and $3,427 for the basic sciences and final clinical rotation portions of the program, respectively, per semester.\n\u25cf\nEffective for semesters beginning in September 2022, for students who first enrolled prior to May 2022, tuition rates for the beginning basic sciences and final clinical rotation portions of RUSM\u2019s medical program are $25,988 and $28,676, respectively, per semester. These tuition rates represent a 5.0% increase from the prior academic year. Effective for semesters beginning in September 2022, for students first enrolled in May 2022 and after, tuition rates for the beginning basic sciences and final clinical rotation portions of RUSM\u2019s medical program are $21,966 and $25,893, respectively, per semester. In addition, students first enrolled in May 2022, and after, pay administrative fees ranging from $5,552 to $6,287 for the basic sciences portion of the program and $3,228 for the final clinical rotation portion of the program, per semester.\n\u25cf\nFor students who entered the RUSVM program in September 2018 or later, the tuition rate for the pre-clinical (Semesters 1-7) and clinical curriculum (Semesters 8-10) is $22,683 per semester effective September 2022.\n \nFor students who entered RUSVM before September 2018, tuition rates for the pre-clinical and clinical curriculum are $21,069 and $26,449, respectively, per semester effective September 2022. All of these tuition rates represent a 5.0% increase from the prior academic year.\nThe respective tuition rates for AUC, RUSM, and RUSVM do not include the cost of transportation, living expenses, or health insurance.\nCost of Educational Services\nThe largest component of cost of educational services is the cost of faculty and staff who support educational operations. This expense category also includes the costs of facilities, adjunct faculty, supplies, housing, bookstore, other educational materials, student education-related support activities, and the provision for bad debts. We have not experienced significant inflationary pressures on wages or other costs of delivering our educational services; however, should inflation persist in the overall economy, cost increases could affect our results of operations in the future. The following table presents cost of educational services by segment detailing the changes from the prior year (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a02023\n\u00a0\n\u200b\n\u00a0\nChamberlain\n\u00a0\nWalden\n\u00a0\nMedical and\nVeterinary\n\u200b\nConsolidated\n\u200b\nFiscal year 2022\n\u00a0\n$\n 254,768\n\u200b\n$\n 202,680\n\u00a0\n$\n 202,328\n\u00a0\n$\n 659,776\n\u200b\nCost decrease\n\u00a0\n\u00a0\n (6,041)\n\u200b\n\u00a0\n (26,066)\n\u200b\n\u00a0\n (2,194)\n\u00a0\n\u00a0\n (34,301)\n\u200b\nEffect of acquisitions\n\u00a0\n\u00a0\n \u2014\n\u200b\n\u00a0\n 23,011\n\u00a0\n\u00a0\n \u2014\n\u00a0\n\u00a0\n 23,011\n\u200b\nFiscal year 2023\n\u00a0\n$\n 248,727\n\u200b\n$\n 199,625\n\u00a0\n$\n 200,134\n\u00a0\n$\n 648,486\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal year 2023 % change:\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCost decrease\n\u00a0\n\u200b\n (2.4)\n%\n\u00a0\n (12.9)\n%\n\u200b\n (1.1)\n%\n\u200b\n (5.2)\n%\nEffect of acquisitions\n\u00a0\n\u200b\n \u2014\n\u200b\n\u00a0\n 11.4\n%\n\u200b\n \u2014\n\u200b\n\u200b\n 3.5\n%\nFiscal year 2023 % change\n\u00a0\n\u200b\n (2.4)\n%\n\u00a0\n (1.5)\n%\n\u200b\n (1.1)\n%\n\u200b\n (1.7)\n%\nCost of educational services decreased 1.7%, or $11.3 million, to $648.5 million in fiscal year 2023 compared to the prior year. Excluding the timing of the Walden acquisition in the prior year, cost of educational services decreased 5.2%, or $34.3 million, in fiscal year 2023 compared to the prior year. This cost decrease was primarily driven by cost reduction efforts across all institutions and the effect of workforce reductions which occurred in the prior year.\n53\n\n\nTable of Contents\nAs a percentage of revenue, cost of educational services\n was 44.7% in \nfiscal year 2023 compared \nto 47.7% in \nthe prior year. The decrease in the percentage was primarily the result of cost reduction efforts and the influence of Walden\u2019s higher gross margins, which impacted the full fiscal year 2023 compared to only a portion of fiscal year 2022. Walden\u2019s fully online operating model results in lower comparable cost of educational services.\nStudent Services and Administrative Expense\nThe student services and administrative expense category includes expenses related to student admissions, marketing and advertising, general and administrative, and amortization expense of finite-lived intangible assets related to business acquisitions. We have not experienced significant inflationary pressures on wages or other costs of providing services to our students and educational institutions; however, should inflation persist in the overall economy, cost increases could affect our results of operations in the future. The following table presents student services and administrative expense by segment detailing the changes from the prior year (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a02023\n\u00a0\n\u200b\n\u00a0\nChamberlain\n\u00a0\nWalden\n\u00a0\nMedical and\nVeterinary\n\u00a0\nHome Office\nand Other\n\u200b\nConsolidated\n\u200b\nFiscal year 2022\n\u200b\n$\n 175,516\n\u200b\n$\n 283,967\n\u200b\n$\n 67,436\n\u200b\n$\n 39,575\n\u200b\n$\n 566,494\n\u200b\nCost increase (decrease)\n\u200b\n\u00a0\n 11,289\n\u200b\n\u00a0\n 9,890\n\u200b\n\u00a0\n 11,162\n\u200b\n\u00a0\n (7,748)\n\u200b\n\u00a0\n 24,593\n\u200b\nEffect of acquisitions\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 27,152\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 27,152\n\u200b\nIntangible amortization expense\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (36,035)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (36,035)\n\u200b\nLitigation reserve\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 10,000\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 10,000\n\u200b\nCEO transition costs\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (6,195)\n\u200b\n\u200b\n (6,195)\n\u200b\nFiscal year 2023\n\u200b\n$\n 186,805\n\u200b\n$\n 294,974\n\u200b\n$\n 78,598\n\u200b\n$\n 25,632\n\u200b\n$\n 586,009\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal year 2023 % change:\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCost increase\n\u200b\n\u200b\n 6.4\n%\n\u00a0\n 3.5\n%\n\u200b\n 16.6\n%\n\u00a0\nNM\n\u200b\n\u200b\n 4.3\n%\nEffect of acquisitions\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 9.6\n%\n\u00a0\n \u2014\n\u200b\n\u00a0\nNM\n\u200b\n\u00a0\n 4.8\n%\nEffect of intangible amortization expense\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (12.7)\n%\n\u00a0\n \u2014\n\u200b\n\u00a0\nNM\n\u200b\n\u00a0\n (6.4)\n%\nEffect of litigation reserve\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 3.5\n%\n\u00a0\n \u2014\n\u200b\n\u00a0\nNM\n\u200b\n\u00a0\n 1.8\n%\nEffect of CEO transition costs\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\nNM\n\u200b\n\u00a0\n (1.1)\n%\nFiscal year 2023 % change\n\u200b\n\u00a0\n 6.4\n%\n\u00a0\n 3.9\n%\n\u00a0\n 16.6\n%\n\u00a0\nNM\n\u200b\n\u00a0\n 3.4\n%\nStudent services and administrative expense increased 3.4%, or $19.5 million, to $586.0 million in fiscal year 2023 compared to the prior year. Excluding the timing of the Walden acquisition in the prior year, intangible amortization expense, litigation reserve, and CEO transition costs, student services and administrative expense increased 4.3%, or $24.6 million, in fiscal year 2023 compared to the prior year. This cost increase was primarily driven by an increase in marketing expense, partially offset by cost reduction at home office.\nAs a percentage of revenue, student services and administrative expense was 40.4% in fiscal year 2023 compared to 41.0% in the prior year. The decrease in the percentage was primarily the result of a decrease in intangible amortization expense in fiscal year 2023 and a decrease in CEO transition costs incurred in fiscal year 2022, partially offset by the litigation reserve in fiscal year 2023.\nRestructuring Expense\nRestructuring expense in fiscal year 2023 was $18.8 million compared to $25.6 million in the prior year. The decrease in restructuring expense in fiscal year 2023 compared to the prior year was primarily driven by a reduction in severance charges related to workforce reductions. See Note 6 \u201cRestructuring Charges\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information on restructuring charges.\nWe continue to incur restructuring charges or reversals related to exited leased space from previous restructuring activities.\n54\n\n\nTable of Contents\nBusiness Acquisition and Integration Expense\nBusiness acquisition and integration expense in fiscal year 2023 was $42.7 million compared to $53.2 million in the prior year. These are transaction costs associated with acquiring Walden and costs associated with integrating Walden into Adtalem. In addition, during fiscal year 2023, we initiated transformation initiatives to accelerate growth and organizational agility. Certain costs relating to this transformation are included in business acquisition and integration costs in the Consolidated Statements of Income. We expect to incur additional integration costs in fiscal year 2024.\nGain on Sale of Assets\nOn July 31, 2019, Adtalem sold its Chicago, Illinois, campus facility to DePaul College Prep Foundation (\u201cDePaul College Prep\u201d) for $52.0 million. Adtalem received $5.2 million of cash at the time of closing and held a mortgage, secured by the property, from DePaul College Prep for $46.8 million. The mortgage was due on July 31, 2024 as a balloon payment and bore interest at a rate of 4% per annum, payable monthly. DePaul College Prep had an option to make prepayments. Due to Adtalem\u2019s involvement with financing the sale, the transaction did not qualify as a sale for accounting purposes at the time of closing. Adtalem continued to maintain the assets associated with the sale on the Consolidated Balance Sheets. We recorded a note receivable of $40.3 million and a financing payable of $45.5 million at the time of the sale, which were classified as other assets, net and other liabilities, respectively, on the Consolidated Balance Sheets. On February 23, 2023, DePaul College Prep paid the mortgage in full. Upon receiving full repayment of the mortgage, Adtalem no longer is involved in the financing of the sale and therefore derecognized the note receivable, the financing payable, and the assets associated with the campus facility, which resulted in recognizing a gain on sale of assets of $13.3 million in fiscal year 2023. This gain was recorded at Adtalem\u2019s home office, which is classified as \u201cHome Office and Other\u201d in Note 22 \u201cSegment Information\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data.\u201d\nOperating Income\nThe following table presents operating income by segment detailing the changes from the prior year (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a02023\n\u200b\n\u200b\nChamberlain\n\u00a0\nWalden\n\u00a0\nMedical and\nVeterinary\n\u00a0\nHome Office\nand Other\n\u200b\nConsolidated\nFiscal year 2022\n\u200b\n$\n 124,414\n\u200b\n$\n (5,306)\n\u200b\n$\n 59,357\n\u200b\n$\n (101,719)\n\u200b\n$\n 76,746\nOrganic change\n\u200b\n\u200b\n 8,251\n\u200b\n\u200b\n (8,206)\n\u200b\n\u200b\n (1,812)\n\u200b\n\u200b\n 7,747\n\u200b\n\u200b\n 5,980\nEffect of acquisitions\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 13,988\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 13,988\nDeferred revenue adjustment change\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 8,561\nCEO transition costs change\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n 6,195\nRestructuring expense change\n\u200b\n\u200b\n 2,020\n\u200b\n\u200b\n 808\n\u200b\n\u200b\n 2,104\n\u200b\n\u200b\n 1,879\n\u200b\n\u200b\n 6,811\nBusiness acquisition and integration expense change\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 10,537\n\u200b\n\u200b\n 10,537\nIntangible amortization expense change\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 36,035\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 36,035\nLitigation reserve change\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (10,000)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (10,000)\nGain on sale of assets change\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 13,317\n\u200b\n\u200b\n 13,317\nFiscal year 2023\n\u200b\n$\n 134,685\n\u200b\n$\n 35,880\n\u200b\n$\n 59,649\n\u200b\n$\n (62,044)\n\u200b\n$\n 168,170\n55\n\n\nTable of Contents\nThe following table presents a reconciliation of operating income (GAAP) to adjusted operating income (non-GAAP) by segment (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nIncrease/(Decrease)\n\u200b\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n$\n\u200b\n%\n\u200b\nChamberlain:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (GAAP)\n\u200b\n$\n 134,685\n\u200b\n$\n 124,414\n\u200b\n$\n 10,271\n\u200b\n 8.3\n%\nRestructuring expense\n\u200b\n\u200b\n 818\n\u200b\n\u200b\n 2,838\n\u200b\n\u200b\n (2,020)\n\u200b\n\u200b\n\u200b\nAdjusted operating income (non-GAAP)\n\u200b\n$\n 135,503\n\u200b\n$\n 127,252\n\u200b\n$\n 8,251\n\u200b\n 6.5\n%\nOperating margin (GAAP)\n\u200b\n\u200b\n 23.6\n%\n\u200b\n 22.3\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating margin (non-GAAP)\n\u200b\n\u200b\n 23.7\n%\n\u200b\n 22.8\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWalden:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (loss) (GAAP)\n\u200b\n$\n 35,880\n\u200b\n$\n (5,306)\n\u200b\n$\n 41,186\n\u200b\nNM\n\u200b\nDeferred revenue adjustment\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n (8,561)\n\u200b\n\u200b\n\u200b\nRestructuring expense\n\u200b\n\u200b\n 3,245\n\u200b\n\u200b\n 4,053\n\u200b\n\u200b\n (808)\n\u200b\n\u200b\n\u200b\nIntangible amortization expense\n\u200b\n\u200b\n 61,239\n\u200b\n\u200b\n 97,274\n\u200b\n\u200b\n (36,035)\n\u200b\n\u200b\n\u200b\nLitigation reserve\n\u200b\n\u200b\n 10,000\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 10,000\n\u200b\n\u200b\n\u200b\nAdjusted operating income (non-GAAP)\n\u200b\n$\n 110,364\n\u200b\n$\n 104,582\n\u200b\n$\n 5,782\n\u200b\n 5.5\n%\nOperating margin (GAAP)\n\u200b\n\u200b\n 6.7\n%\n\u200b\n (1.1)\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating margin (non-GAAP)\n\u200b\n\u200b\n 20.7\n%\n\u200b\n 21.5\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMedical and Veterinary:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (GAAP)\n\u200b\n$\n 59,649\n\u200b\n$\n 59,357\n\u200b\n$\n 292\n\u200b\n 0.5\n%\nRestructuring expense\n\u200b\n\u200b\n 7,687\n\u200b\n\u200b\n 9,791\n\u200b\n\u200b\n (2,104)\n\u200b\n\u200b\n\u200b\nAdjusted operating income (non-GAAP)\n\u200b\n$\n 67,336\n\u200b\n$\n 69,148\n\u200b\n$\n (1,812)\n\u200b\n (2.6)\n%\nOperating margin (GAAP)\n\u200b\n\u200b\n 17.2\n%\n\u200b\n 17.5\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating margin (non-GAAP)\n\u200b\n\u200b\n 19.5\n%\n\u200b\n 20.4\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nHome Office and Other:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating loss (GAAP)\n\u200b\n$\n (62,044)\n\u200b\n$\n (101,719)\n\u200b\n$\n 39,675\n\u200b\n 39.0\n%\nCEO transition costs\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n (6,195)\n\u200b\n\u200b\n\u200b\nRestructuring expense\n\u200b\n\u200b\n 7,067\n\u200b\n\u200b\n 8,946\n\u200b\n\u200b\n (1,879)\n\u200b\n\u200b\n\u200b\nBusiness acquisition and integration expense\n\u200b\n\u200b\n 42,661\n\u200b\n\u200b\n 53,198\n\u200b\n\u200b\n (10,537)\n\u200b\n\u200b\n\u200b\nGain on sale of assets\n\u200b\n\u200b\n (13,317)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (13,317)\n\u200b\n\u200b\n\u200b\nAdjusted operating loss (non-GAAP)\n\u200b\n$\n (25,633)\n\u200b\n$\n (33,380)\n\u200b\n$\n 7,747\n\u200b\n 23.2\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdtalem Global Education:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (GAAP)\n\u200b\n$\n 168,170\n\u200b\n$\n 76,746\n\u200b\n$\n 91,424\n\u200b\n 119.1\n%\nDeferred revenue adjustment\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n (8,561)\n\u200b\n\u200b\n\u200b\nCEO transition costs\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n (6,195)\n\u200b\n\u200b\n\u200b\nRestructuring expense\n\u200b\n\u200b\n 18,817\n\u200b\n\u200b\n 25,628\n\u200b\n\u200b\n (6,811)\n\u200b\n\u200b\n\u200b\nBusiness acquisition and integration expense\n\u200b\n\u200b\n 42,661\n\u200b\n\u200b\n 53,198\n\u200b\n\u200b\n (10,537)\n\u200b\n\u200b\n\u200b\nIntangible amortization expense\n\u200b\n\u200b\n 61,239\n\u200b\n\u200b\n 97,274\n\u200b\n\u200b\n (36,035)\n\u200b\n\u200b\n\u200b\nLitigation reserve\n\u200b\n\u200b\n 10,000\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 10,000\n\u200b\n\u200b\n\u200b\nGain on sale of assets\n\u200b\n\u200b\n (13,317)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (13,317)\n\u200b\n\u200b\n\u200b\nAdjusted operating income (non-GAAP)\n\u200b\n$\n 287,570\n\u200b\n$\n 267,602\n\u200b\n$\n 19,968\n\u200b\n 7.5\n%\nOperating margin (GAAP)\n\u200b\n\u200b\n 11.6\n%\n\u200b\n 5.6\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating margin (non-GAAP)\n\u200b\n\u200b\n 19.8\n%\n\u200b\n 19.4\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nConsolidated operating income increased 119.1%, or $91.4 million, to $168.2 million in fiscal year 2023 compared to the prior year. The primary drivers of the operating income increase in fiscal year 2023 were revenue increases at Chamberlain and Medical and Veterinary, cost reduction efforts across all institutions, the timing of the Walden acquisition in the prior year, decreased CEO transition costs, decreased business acquisition and integration expense, decreased intangible amortization expense, and the gain on sale of assets, partially offset by increased marketing expense. The decrease in amortization expense is driven by the decrease in amortization relating to the student relationships intangible asset. This intangible asset is amortized based on the estimated retention of the students and considers the revenue and cash flow associated with these existing students, which are concentrated at the beginning of the asset\u2019s useful life.\nConsolidated adjusted operating income increased 7.5%, or $20.0 million, to $287.6 million in fiscal year 2023 compared to the prior year. The primary drivers of the adjusted operating income increase were revenue increases at \n56\n\n\nTable of Contents\nChamberlain and Medical and Veterinary, cost reduction efforts across all institutions, and the timing of the Walden acquisition in the prior year, partially offset by increased marketing expense.\nChamberlain\nChamberlain operating income increased 8.3%, or $10.3 million, to $134.7 million in fiscal year 2023 compared to the prior year. Segment adjusted operating income increased 6.5%, or $8.3 million, to $135.5 million in fiscal year 2023 compared to the prior year. The primary driver of the increase in adjusted operating income in fiscal year 2023 was the result of increased revenue and labor cost reductions.\nWalden\nWalden operating income was $35.9 million in fiscal year 2023 compared to operating loss of $5.3 million in the prior year that was impacted by intangible amortization expense and the deferred revenue purchase accounting adjustments. Segment adjusted operating income increased 5.5%, or $5.8 million, to $110.4 million in fiscal year 2023 compared to the prior year. The primary driver of the increase in adjusted operating income in fiscal year 2023 was the timing of the Walden acquisition in the prior year.\nMedical and Veterinary\nMedical and Veterinary operating income increased 0.5%, or $0.3 million, to $59.6 million in fiscal year 2023 compared to the prior year. Segment adjusted operating income decreased 2.6%, or $1.8 million, to $67.3 million in fiscal year 2023 compared to the prior year. The primary driver of the decrease in adjusted operating income in fiscal year 2023 was the result of increased marketing expense.\nInterest Expense\nInterest expense in fiscal year 2023 was $63.1 million compared to $129.3 million in the prior year. The decrease in interest expense was primarily the result of decreased borrowings in fiscal year 2023 compared to the prior year due to prepayments of debt and a result of the prior year incurring charges due to the write-off of issuance costs on the Prior Credit Facility and unused bridge fee (as defined and discussed in Note 14 \u201cDebt\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d). This decrease in interest expense was partially offset by rising interest rates on outstanding Term Loan B debt. The interest rate for borrowings under the Term Loan B debt was 9.19% and 5.60% as of June 30, 2023 and 2022, respectively.\nOther Income, Net\nOther income, net in fiscal year 2023 was $7.0 million compared to $1.1 million in the prior year. The increase in other income, net was primarily the result of an increase in interest income, partially offset by a $5.0 million investment impairment of an equity investment.\n(Provision for) Benefit from Income Taxes\nOur effective income tax rate (\u201cETR\u201d) from continuing operations can differ from the 21% U.S. federal statutory rate due to several factors, including tax on global intangible low-taxed income (\u201cGILTI\u201d), limitation of tax benefits on certain executive compensation, the rate of tax applied by state and local jurisdictions, the rate of tax applied to earnings outside the U.S., tax incentives, tax credits related to research and development expenditures, changes in valuation allowance, liabilities for uncertain tax positions, and tax benefits on stock-based compensation awards.\nOur income tax provision from continuing operations was $10.3 million in fiscal year 2023 and our income tax benefit from continuing operations was $15.5 million in fiscal year 2022. In addition, in fiscal year 2023, we recorded a net tax benefit of $6.4 million for the release of a valuation allowance on certain deferred tax assets based on our reassessment of the amount of state net operating loss carryforwards that are more likely than not to be realized. The net benefit is comprised of the release of a valuation allowance of $9.3 million offset by a reduction in state net operating loss carryforwards of $2.3 million and a revaluation of deferred tax assets due to a tax rate change of $0.6 million. Fiscal year \n57\n\n\nTable of Contents\n2023 resulted in an income tax provision compared to an income tax benefit in the prior year primarily due to the impacts recognized in the prior year related to the Walden acquisition.\nThe Tax Cuts and Jobs Act of 2017 (the \u201cTax Act\u201d) requires taxpayers to capitalize and subsequently amortize research and experimental (\u201cR&E\u201d) expenditures that fall within the scope of Internal Revenue Code Section 174 for tax years starting after December 31, 2021. This rule became effective for Adtalem during fiscal year 2023 and resulted in the deferred tax asset for capitalization of R&E costs of $8.1 million, based on interpretation of the law as currently enacted. Adtalem will capitalize and amortize these costs for tax purposes over 5 years for R&E performed in the U.S. and over 15 years for R&E performed outside of the U.S.\nDiscontinued Operations\nBeginning in the second quarter of fiscal year 2022, ACAMS, Becker, OCL, and EduPristine operations were classified as discontinued operations. In addition, we continue to incur costs associated with ongoing litigation and settlements related to the DeVry University divestiture, which was completed during fiscal year 2019, and are classified as expense within discontinued operations.\nNet loss from discontinued operations in the year ended June 30, 2023 was $8.4 million. This loss consisted of the following: (i) loss of $8.5 million driven by ongoing litigation costs and settlements related to the DeVry University divestiture, partially offset by income from the DeVry University earn-out; (ii) a loss on the sale of ACAMS, Becker, and OCL of $3.6 million for working capital adjustments to the initial sales price and a tax return to provision adjustment; and (iii) a benefit from income taxes of $3.6 million associated with the items listed above.\nNet income from discontinued operations in the year ended June 30, 2022 was $346.9 million. This income consisted of the following: (i) loss of $1.0 million driven by ongoing litigation costs and settlements related to the DeVry University divestiture, partially offset by the operating results related to ACAMS, Becker, OCL, and EduPristine, and income from the DeVry University earn-out; (ii) a gain on the sale of ACAMS, Becker, OCL, and EduPristine of $473.5 million; and (iii) a provision for income taxes of $125.6 million associated with the items listed above.\nFiscal Year Ended June 30, 2022 vs. Fiscal Year Ended June 30, 2021\nRevenue\nThe following table presents revenue by segment detailing the changes from the prior year (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June 30, 2022\n\u00a0\n\u200b\n\u200b\nChamberlain\n\u00a0\nWalden\n\u00a0\nMedical and\nVeterinary\n\u00a0\nConsolidated\n\u00a0\nFiscal year 2021\n\u200b\n$\n 563,814\n\u200b\n$\n \u2014\n\u200b\n$\n 335,434\n\u200b\n$\n 899,248\n\u200b\nOrganic (decline) growth\n\u200b\n\u200b\n (6,278)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 3,479\n\u200b\n\u200b\n (2,799)\n\u200b\nEffect of acquisitions\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 485,393\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 485,393\n\u200b\nFiscal year 2022\n\u200b\n$\n 557,536\n\u200b\n$\n 485,393\n\u200b\n$\n 338,913\n\u200b\n$\n 1,381,842\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal year 2022 % change:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOrganic growth (decline)\n\u200b\n\u200b\n (1.1)\n%\n\u200b\nNM\n\u200b\n\u200b\n 1.0\n%\n\u200b\n (0.3)\n%\nEffect of acquisitions\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\nNM\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 54.0\n%\nFiscal year 2022 % change\n\u200b\n\u200b\n (1.1)\n%\n\u200b\nNM\n\u200b\n\u200b\n 1.0\n%\n\u200b\n 53.7\n%\n58\n\n\nTable of Contents\nChamberlain\nChamberlain Student Enrollment:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year 2022\n\u200b\nSession\n\u200b\nJuly 2021\n\u200b\nSept. 2021\n\u200b\nNov. 2021\n\u200b\nJan. 2022\n\u200b\nMar. 2022\n\u200b\nMay 2022\n\u00a0\nTotal students\n\u200b\n 32,729\n\u200b\n 34,539\n\u200b\n 33,648\n\u200b\n 34,141\n\u200b\n 34,158\n\u200b\n 32,891\n\u200b\n% change from prior year\n\u200b\n 1.6\n%\n (2.8)\n%\n (2.1)\n%\n (4.5)\n%\n (4.3)\n%\n (5.8)\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year 2021\n\u200b\nSession\n\u200b\nJuly 2020\n\u200b\nSept. 2020\n\u200b\nNov. 2020\n\u200b\nJan. 2021\n\u200b\nMar. 2021\n\u200b\nMay 2021\n\u00a0\nTotal students\n\u200b\n 32,198\n\u200b\n 35,525\n\u200b\n 34,387\n\u200b\n 35,750\n\u200b\n 35,702\n\u200b\n 34,930\n\u200b\n% change from prior year\n\u200b\n 12.2\n%\n 11.9\n%\n 10.2\n%\n 5.6\n%\n 5.8\n%\n 4.6\n%\nChamberlain revenue decreased 1.1%, or $6.3 million, to $557.5 million in fiscal year 2022 compared to fiscal year 2021, driven by declining total enrollments in the September 2021 through May 2022 sessions compared to the same sessions from fiscal year 2021. Management believes that a decrease in total student enrollment in several programs, with the most pronounced being in the RN-to-BSN online degree program, may have been partially by driven by prolonged COVID-19 disruptions in the healthcare industry.\nTuition Rates (2022):\nTuition for the BSN onsite and online degree program ranged from $675 to $699 per credit hour. Tuition for the RN-to-BSN online degree program was $590 per credit hour. Tuition for the online MSN degree program was $650 per credit hour. Tuition for the online FNP degree program was $665 per credit hour. Tuition for the online DNP degree program was $775 per credit hour. Tuition for the online MPH degree program was $550 per credit hour. Tuition for the online MSW degree program was $695 per credit hour. All of these tuition rates were unchanged from fiscal year 2021, except for the BSN rates which were $675 to $730 per credit hour in fiscal year 2021. These tuition rates do not include the cost of course fees, books, supplies, transportation, clinical fees, living expenses, or other fees as listed in the Chamberlain academic catalog.\nWalden\nWalden Student Enrollment:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year 2022\n\u200b\n\u200b\n\u200b\nSeptember 30,\n\u200b\nDecember 31,\n\u200b\nMarch 31,\n\u200b\nJune 30,\n\u200b\nPeriod\n\u200b\n2021\n\u200b\n2021\n\u200b\n2022\n\u200b\n2022\n\u200b\nTotal students\n\u200b\n 44,886\n\u200b\n 41,158\n\u200b\n 42,788\n\u200b\n 39,470\n\u200b\nWalden total student enrollment represents those students attending instructional sessions as of the dates identified above. Walden revenue was $485.4 million in fiscal year 2022, which includes the deferred revenue purchase accounting adjustment of $8.6 million. There was no comparable revenue in fiscal year 2021 as Adtalem acquired Walden on August 12, 2021. Management believes that the decrease in total enrollment during fiscal year 2022 may have been partially driven by prolonged COVID-19 disruptions in the healthcare industry and the negative publicity surrounding the now concluded U.S. Department of Justice inquiry into potential false representations and false advertising to students. This inquiry ultimately concluded favorably, with no findings of misconduct by Walden. In addition, the uncertainty from potential students around the change in control and the Walden acquisition may have negatively affected enrollment.\nTuition Rates (2022):\nOn a per credit hour basis, tuition for Walden programs ranged from $123 per credit hour to $1,020 per credit hour, with the wide range due to the nature of the programs. General education courses were charged at $333 per credit hour. Other programs such as those with a subscription-based learning modality or those billed on a subscription period or term basis ranged from $1,500 to $6,970 per term. Students were charged a technology fee that ranged from $50 to $220 per \n59\n\n\nTable of Contents\nterm as well as a clinical fee of $150 per course for specific programs. Some programs require students to attend residencies, skills labs, and pre-practicum labs, which were charged at a range of $938 to $2,475 per event. These tuition rates, event charges, and fees do not include the cost of books or personal technology, supplies, transportation, or living expenses.\nMedical and Veterinary Schools\nMedical and Veterinary Schools Student Enrollment:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year 2022\n\u200b\nSemester\n\u200b\nSept. 2021\n\u200b\nJan. 2022\n\u200b\nMay 2022\n\u00a0\nTotal students\n\u200b\n 5,449\n\u200b\n 5,228\n\u200b\n 5,304\n\u200b\n% change from prior year\n\u200b\n (6.9)\n%\n (1.2)\n%\n 3.5\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year 2021\n\u200b\nSemester\n\u200b\nSept. 2020\n\u200b\nJan. 2021\n\u200b\nMay 2021\n\u00a0\nTotal students\n\u200b\n 5,850\n\u200b\n 5,292\n\u200b\n 5,126\n\u200b\n% change from prior year\n\u200b\n 4.3\n%\n (6.2)\n%\n (1.2)\n%\nMedical and Veterinary revenue increased 1.0%, or $3.5 million, to $338.9 million in fiscal year 2022 compared to fiscal year 2021, driven by increased clinical revenue and housing revenue at RUSM, partially offset by lower enrollment.\nIn the September 2021 semester, total student enrollment increased at AUC but declined at RUSM and RUSVM. In the January 2022 and May 2022 semesters, total student enrollment increased at AUC and RUSM but declined at RUSVM. Previous declines in total student enrollment at RUSM were partially driven by the inability to offer clinical experiences to all students caused by an increase in students waiting to pass their USMLE Step 1 exam. If a student has not yet started in a clinical program, is not eligible to be enrolled in a clinical program, or not participating in other educational experiences, they are not included in the enrollment count for that semester. In the January 2022 and May 2022 semesters, this clinical backlog continued to decrease. Management believes increased competition for students and hesitancy on participating in on campus instruction were drivers of lower total student enrollment in the basic science programs at RUSM and RUSVM.\nTuition Rates (2022):\n\u25cf\nEffective for semesters beginning in September 2021, tuition rates for the beginning basic sciences and final clinical rotation portions of AUC\u2019s medical program were $23,800 and $26,625, respectively, per semester. These tuition rates represented a 2.4% increase from the prior academic year.\n\u25cf\nEffective for semesters beginning in September 2021, tuition rates for the beginning basic sciences and final clinical rotation portions of RUSM\u2019s medical program were $24,750 and $27,310, respectively,\u00a0per semester. These tuition rates represented a 2.4% increase from the prior academic year.\n\u25cf\nFor students who entered the RUSVM program in September 2018 or later, the tuition rate for the pre-clinical (Semesters 1-7) and clinical curriculum (Semesters 8-10) was $21,603 per semester effective September 2021. For students who entered RUSVM before September 2018, tuition rates for the pre-clinical and clinical curriculum were $20,066 and $25,190, respectively, per semester effective September 2021. All of these tuition rates represented a 3.5% increase from the prior academic year.\nThe respective tuition rates for AUC, RUSM, and RUSVM do not include the cost of transportation, living expenses, or health insurance.\nCost of Educational Services\nThe largest component of cost of educational services is the cost of faculty and staff who support educational operations. This expense category also includes the costs of facilities, adjunct faculty, supplies, housing, bookstore, other educational materials, student education-related support activities, and the provision for bad debts. We have not yet experienced significant inflationary pressures on wages or other costs of delivering our educational services; however, should inflation \n60\n\n\nTable of Contents\npersist in the overall economy, cost increases could affect our results of operations in the future. The following table presents cost of educational services by segment detailing the changes from the prior year (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June 30, 2022\n\u00a0\n\u200b\n\u00a0\nChamberlain\n\u00a0\nWalden\n\u00a0\nMedical and\nVeterinary\n\u200b\nHome Office\nand Other\n\u200b\nConsolidated\n\u200b\nFiscal year 2021\n\u00a0\n$\n 252,422\n\u200b\n$\n \u2014\n\u00a0\n$\n 203,363\n\u00a0\n$\n 2,120\n\u00a0\n$\n 457,905\n\u200b\nCost increase (decrease)\n\u00a0\n\u00a0\n 2,346\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (1,035)\n\u00a0\n\u00a0\n (2,120)\n\u00a0\n\u00a0\n (809)\n\u200b\nEffect of acquisitions\n\u00a0\n\u00a0\n \u2014\n\u200b\n\u00a0\n 202,680\n\u00a0\n\u00a0\n \u2014\n\u00a0\n\u00a0\n \u2014\n\u00a0\n\u00a0\n 202,680\n\u200b\nFiscal year 2022\n\u00a0\n$\n 254,768\n\u200b\n$\n 202,680\n\u00a0\n$\n 202,328\n\u00a0\n$\n \u2014\n\u00a0\n$\n 659,776\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal year 2022 % change:\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCost increase (decrease)\n\u00a0\n\u200b\n 0.9\n%\n\u00a0\nNM\n\u200b\n\u200b\n (0.5)\n%\n\u200b\nNM\n\u200b\n\u200b\n (0.2)\n%\nEffect of acquisitions\n\u00a0\n\u200b\n \u2014\n\u200b\n\u00a0\nNM\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\nNM\n\u200b\n\u200b\n 44.3\n%\nFiscal year 2022 % change\n\u00a0\n\u200b\n 0.9\n%\n\u00a0\nNM\n\u200b\n\u200b\n (0.5)\n%\n\u200b\nNM\n\u200b\n\u200b\n 44.1\n%\nCost of educational services increased 44.1%, or $201.9 million, to $659.8 million in fiscal year 2022 compared to fiscal year 2021. Excluding the effect of the Walden acquisition, cost of educational services decreased 0.2%, or $0.8 million, in fiscal year 2022 compared to fiscal year 2021. Decreased costs excluding Walden in fiscal year 2022 were primarily driven by cost reduction efforts across all institutions, partially offset by return to campus cost increases at Chamberlain.\nAs a percentage of revenue, cost of educational services\n was 47.7% in \nfiscal year 2022 compared \nto 50.9% in fiscal year 2021\n. The decrease in the percentage was primarily the result of the influence of Walden\u2019s higher gross margins. Walden\u2019s fully online operating model results in lower comparable cost of educational services.\nStudent Services and Administrative Expense\nThe student services and administrative expense category includes expenses related to student admissions, marketing and advertising, general and administrative, and amortization expense of finite-lived intangible assets related to business acquisitions. We have not yet experienced significant inflationary pressures on wages or other costs of providing services to our students and educational institutions; however, should inflation persist in the overall economy, cost increases could affect our results of operations in the future. The following table presents student services and administrative expense by segment detailing the changes from the prior year (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June 30, 2022\n\u00a0\n\u200b\n\u00a0\nChamberlain\n\u00a0\nWalden\n\u00a0\nMedical and\nVeterinary\n\u00a0\nHome Office\nand Other\n\u200b\nConsolidated\n\u200b\nFiscal year 2021\n\u200b\n$\n 182,540\n\u200b\n$\n \u2014\n\u200b\n$\n 71,874\n\u200b\n$\n 38,068\n\u200b\n$\n 292,482\n\u200b\nCost decrease\n\u200b\n\u00a0\n (7,024)\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (4,438)\n\u200b\n\u00a0\n (4,688)\n\u200b\n\u00a0\n (16,150)\n\u200b\nEffect of acquisitions\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 186,693\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 186,693\n\u200b\nIntangible amortization expense\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 97,274\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 97,274\n\u200b\nCEO transition costs\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n 6,195\n\u200b\nFiscal year 2022\n\u200b\n$\n 175,516\n\u200b\n$\n 283,967\n\u200b\n$\n 67,436\n\u200b\n$\n 39,575\n\u200b\n$\n 566,494\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal year 2022 % change:\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCost decrease\n\u200b\n\u200b\n (3.8)\n%\n\u00a0\nNM\n\u200b\n\u200b\n (6.2)\n%\n\u00a0\nNM\n\u200b\n\u200b\n (5.5)\n%\nEffect of acquisitions\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\nNM\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\nNM\n\u200b\n\u00a0\n 63.8\n%\nEffect of intangible amortization expense\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\nNM\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\nNM\n\u200b\n\u00a0\n 33.3\n%\nEffect of CEO transition costs\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\nNM\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\nNM\n\u200b\n\u00a0\n 2.1\n%\nFiscal year 2022 % change\n\u200b\n\u00a0\n (3.8)\n%\n\u00a0\nNM\n\u200b\n\u00a0\n (6.2)\n%\n\u00a0\nNM\n\u200b\n\u00a0\n 93.7\n%\nStudent services and administrative expense increased 93.7%, or $274.0 million, to $566.5 million in fiscal year 2022 compared to fiscal year 2021. Excluding the effect of the Walden acquisition and CEO transition costs, student services and administrative expense decreased 5.5%, or $16.2 million, in fiscal year 2022 compared to fiscal year 2021. Decreased \n61\n\n\nTable of Contents\ncosts excluding Walden in fiscal year 2022 were primarily driven by cost reduction efforts across all institutions and home office.\nAs a percentage of revenue, student services and administrative expense was 41.0% in fiscal year 2022 compared to 32.5% in fiscal year 2021. The increase in the percentage was primarily the result of an increase in Chamberlain and Medical and Veterinary marketing expense, intangible amortization expense, and CEO transition costs.\nRestructuring Expense\nRestructuring expense in fiscal year 2022 was $25.6\n \nmillion compared to $6.9 million in fiscal year 2021. The increased restructure expense in fiscal year 2022 was primarily driven by workforce reductions and contract terminations related to synergy actions with regard to the Walden acquisition and Medical and Veterinary and Adtalem\u2019s home office real estate consolidations. See Note 6 \u201cRestructuring Charges\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information on restructuring charges.\nBusiness Acquisition and Integration Expense\nBusiness acquisition and integration expense in fiscal year 2022 was $53.2 million compared to $31.6 million in fiscal year 2021. These were transaction costs associated with acquiring Walden and costs associated with integrating Walden into Adtalem.\nOperating Income\nThe following table presents operating income by segment detailing the changes from the prior year (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June 30, 2022\n\u200b\n\u200b\nChamberlain\n\u00a0\nWalden\n\u00a0\nMedical and\nVeterinary\n\u00a0\nHome Office\nand Other\n\u200b\nConsolidated\nFiscal year 2021\n\u200b\n$\n 128,851\n\u200b\n$\n \u2014\n\u200b\n$\n 60,199\n\u200b\n$\n (78,651)\n\u200b\n$\n 110,399\nOrganic change\n\u200b\n\u200b\n (1,599)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 8,949\n\u200b\n\u200b\n 6,809\n\u200b\n\u200b\n 14,159\nEffect of acquisitions\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 104,582\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 104,582\nDeferred revenue adjustment change\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (8,561)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (8,561)\nCEO transition costs change\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (6,195)\n\u200b\n\u200b\n (6,195)\nRestructuring expense change\n\u200b\n\u200b\n (2,838)\n\u200b\n\u200b\n (4,053)\n\u200b\n\u200b\n (9,791)\n\u200b\n\u200b\n (2,077)\n\u200b\n\u200b\n (18,759)\nBusiness acquisition and integration expense change\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (21,605)\n\u200b\n\u200b\n (21,605)\nIntangible amortization expense change\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (97,274)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (97,274)\nFiscal year 2022\n\u200b\n$\n 124,414\n\u200b\n$\n (5,306)\n\u200b\n$\n 59,357\n\u200b\n$\n (101,719)\n\u200b\n$\n 76,746\n62\n\n\nTable of Contents\nThe following table presents a reconciliation of operating income (GAAP) to operating income excluding special items (non-GAAP) by segment (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nIncrease/(Decrease)\n\u200b\n\u200b\n\u200b\n2022\n\u200b\n2021\n\u200b\n$\n\u200b\n%\n\u200b\nChamberlain:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (GAAP)\n\u200b\n$\n 124,414\n\u200b\n$\n 128,851\n\u200b\n$\n (4,437)\n\u200b\n (3.4)\n%\nRestructuring expense\n\u200b\n\u200b\n 2,838\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 2,838\n\u200b\n\u200b\n\u200b\nOperating income excluding special items (non-GAAP)\n\u200b\n$\n 127,252\n\u200b\n$\n 128,851\n\u200b\n$\n (1,599)\n\u200b\n (1.2)\n%\nOperating margin (GAAP)\n\u200b\n\u200b\n 22.3\n%\n\u200b\n 22.9\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating margin (non-GAAP)\n\u200b\n\u200b\n 22.8\n%\n\u200b\n 22.9\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWalden:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (loss) (GAAP)\n\u200b\n$\n (5,306)\n\u200b\n$\n \u2014\n\u200b\n$\n (5,306)\n\u200b\nNM\n\u200b\nDeferred revenue adjustment\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n\u200b\nRestructuring expense\n\u200b\n\u200b\n 4,053\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 4,053\n\u200b\n\u200b\n\u200b\nIntangible amortization expense\n\u200b\n\u200b\n 97,274\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 97,274\n\u200b\n\u200b\n\u200b\nAdjusted operating income (non-GAAP)\n\u200b\n$\n 104,582\n\u200b\n$\n \u2014\n\u200b\n$\n 104,582\n\u200b\nNM\n\u200b\nOperating margin (GAAP)\n\u200b\n\u200b\n (1.1)\n%\n\u200b\nN/A\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating margin (non-GAAP)\n\u200b\n\u200b\n 21.5\n%\n\u200b\nN/A\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMedical and Veterinary:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (GAAP)\n\u200b\n$\n 59,357\n\u200b\n$\n 60,199\n\u200b\n$\n (842)\n\u200b\n (1.4)\n%\nRestructuring expense\n\u200b\n\u200b\n 9,791\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 9,791\n\u200b\n\u200b\n\u200b\nOperating income excluding special items (non-GAAP)\n\u200b\n$\n 69,148\n\u200b\n$\n 60,199\n\u200b\n$\n 8,949\n\u200b\n 14.9\n%\nOperating margin (GAAP)\n\u200b\n\u200b\n 17.5\n%\n\u200b\n 17.9\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating margin (non-GAAP)\n\u200b\n\u200b\n 20.4\n%\n\u200b\n 17.9\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nHome Office and Other:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating loss (GAAP)\n\u200b\n$\n (101,719)\n\u200b\n$\n (78,651)\n\u200b\n$\n (23,068)\n\u200b\n (29.3)\n%\nCEO transition costs\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n\u200b\nRestructuring expense\n\u200b\n\u200b\n 8,946\n\u200b\n\u200b\n 6,869\n\u200b\n\u200b\n 2,077\n\u200b\n\u200b\n\u200b\nBusiness acquisition and integration expense\n\u200b\n\u200b\n 53,198\n\u200b\n\u200b\n 31,593\n\u200b\n\u200b\n 21,605\n\u200b\n\u200b\n\u200b\nOperating loss excluding special items (non-GAAP)\n\u200b\n$\n (33,380)\n\u200b\n$\n (40,189)\n\u200b\n$\n 6,809\n\u200b\n 16.9\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdtalem Global Education:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (GAAP)\n\u200b\n$\n 76,746\n\u200b\n$\n 110,399\n\u200b\n$\n (33,653)\n\u200b\n (30.5)\n%\nDeferred revenue adjustment\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n\u200b\nCEO transition costs\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n\u200b\nRestructuring expense\n\u200b\n\u200b\n 25,628\n\u200b\n\u200b\n 6,869\n\u200b\n\u200b\n 18,759\n\u200b\n\u200b\n\u200b\nBusiness acquisition and integration expense\n\u200b\n\u200b\n 53,198\n\u200b\n\u200b\n 31,593\n\u200b\n\u200b\n 21,605\n\u200b\n\u200b\n\u200b\nIntangible amortization expense\n\u200b\n\u200b\n 97,274\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 97,274\n\u200b\n\u200b\n\u200b\nOperating income excluding special items (non-GAAP)\n\u200b\n$\n 267,602\n\u200b\n$\n 148,861\n\u200b\n$\n 118,741\n\u200b\n 79.8\n%\nOperating margin (GAAP)\n\u200b\n\u200b\n 5.6\n%\n\u200b\n 12.3\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating margin (non-GAAP)\n\u200b\n\u200b\n 19.4\n%\n\u200b\n 16.6\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal consolidated operating income decreased 30.5%, or $33.7 million, to $76.7 million in fiscal year 2022 compared to fiscal year 2021. Excluding the effect of the Walden acquisition, total consolidated operating income decreased $28.3 million in fiscal year 2022 compared to fiscal year 2021. The primary drivers of the operating income decrease in fiscal year 2022 were decreased revenue at Chamberlain, increased costs at Chamberlain and Medical and Veterinary for return to campus, increased marketing expense at Chamberlain and Medical and Veterinary, CEO transition costs, increased restructuring costs, and increased business acquisition and integration costs.\nConsolidated operating income excluding special items increased 79.8%, or $118.7 million, in fiscal year 2022 compared to fiscal year 2021. The primary driver of the operating income excluding special items increase was the addition of operating income excluding special items from Walden.\nChamberlain\nChamberlain operating income decreased 3.4%, or $4.4 million, to $124.4 million in fiscal year 2022 compared to fiscal year 2021. Segment operating income excluding special items decreased 1.2%, or $1.6 million, to $127.3 million in fiscal \n63\n\n\nTable of Contents\nyear 2022 compared to fiscal year 2021. Cost reduction efforts and a decrease in employee benefit costs were offset with a decrease in revenue, increased costs for return to campus, and increased marketing expense.\nWalden\nWalden operating loss was $5.3 million in fiscal year 2022, which was impacted by intangible amortization expense and the deferred revenue purchase accounting adjustments. Segment operating income excluding special items was $104.6 million in fiscal year 2022. There was no comparable operating income in fiscal year 2021 as Adtalem acquired Walden on August 12, 2021.\nMedical and Veterinary\nMedical and Veterinary operating income decreased 1.4%, or $0.8 million, to $59.4 million in fiscal year 2022 compared to fiscal year 2021. Segment operating income excluding special items increased 14.9%, or $8.9 million, to $69.1 million in fiscal year 2022 compared to fiscal year 2021. The primary drivers of the increase in operating income excluding special items were cost reduction efforts and decreased employee benefit costs.\nInterest Expense\nInterest expense in fiscal year 2022 was $129.3 million compared to $41.4 million in fiscal year 2021. The increase in interest expense was primarily the result of increased borrowings (as discussed in Note 14 \u201cDebt\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d) to finance the Walden acquisition and fiscal year 2022 incurring charges due to the write-offs of issuance costs on the Prior Credit Facility and unused bridge fee (as defined and discussed in Note 14 \u201cDebt\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d).\nOther Income, Net\nOther income, net in fiscal year 2022 was $1.1 million compared to $6.7 million in fiscal year 2021. The decrease in other income, net was primarily the result of an investment loss incurred on the rabbi trust investments in fiscal year 2022 compared to an investment gain in fiscal year 2021. See Note 7 \u201cOther Income, Net\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information on these investment gains and losses.\nBenefit from (Provision for) Income Taxes\nOur income tax benefit from continuing operations was $15.5 million in fiscal year 2022 and our income tax expense from continuing operations was $12.3 million in fiscal year 2021. The fiscal year 2022 income tax benefit was the result of the loss incurred in fiscal year 2022. \nThe effective tax rate included a tax benefit of $1.7 million from a loss for certain uncollectible subsidiary receivables as well as a benefit of $1.2 million to adjust deferred state tax balances for the acquisition of Walden and the sale of ACAMS, Becker, and OCL, offset by $3.0 million for limitations on deductions for executive compensation.\nDiscontinued Operations\nBeginning in the second quarter of fiscal year 2022, ACAMS, Becker, OCL, and EduPristine operations were classified as discontinued operations. In addition, we continue to incur costs associated with ongoing litigation and settlements related to the DeVry University divestiture, which was completed during fiscal year 2019, and are classified as expense within discontinued operations.\nNet income from discontinued operations for the year ended June 30, 2022 was $347.0 million. This income consisted of the following: (i) loss of $1.0 million driven by the operating results and divestiture costs related to ACAMS, Becker, OCL, and EduPristine, and ongoing litigation costs and settlements to the DeVry University divestiture; (ii) a gain on the sale of ACAMS, Becker, OCL, and EduPristine of $473.5 million; and (iii) a provision for income taxes of $125.6 million associated with the items listed above.\n64\n\n\nTable of Contents\nNet income from discontinued operations for the year ended June 30, 2021 was $6.1 million. This income consisted of the following: (i) income of $9.3 million driven by the operating results of ACAMS, Becker, OCL, and EduPristine and ongoing litigation costs and settlements related to the DeVry University divestiture and (ii) a provision for income taxes of $3.2 million associated with the items listed above.\nRegulatory Environment\nLike other higher education companies, Adtalem is highly dependent upon the timely receipt of federal financial aid funds. All financial aid and assistance programs are subject to political and governmental budgetary considerations. In the U.S., the Higher Education Act (\u201cHEA\u201d) guides the federal government\u2019s support of postsecondary education. If there are changes to financial aid programs that restrict student eligibility or reduce funding levels, Adtalem\u2019s financial condition and cash flows could be materially and adversely affected. See Item 1A. \u201cRisk Factors\u201d for a discussion of student financial aid related risks.\nIn addition, government-funded financial assistance programs are governed by extensive and complex regulations in the U.S. Like any other educational institution, Adtalem\u2019s administration of these programs is periodically reviewed by various regulatory agencies and is subject to audit or investigation by other governmental authorities. Any violation could be the basis for penalties or other disciplinary action, including initiation of a suspension, limitation, or termination proceeding. \nIf the U.S. Department of Education (\u201cED\u201d) determines that we have failed to demonstrate either financial responsibility or administrative capability in any pending program review, or otherwise determines that an institution has violated the terms of its Program Participation Agreement (\u201cPPA\u201d), we could be subject to sanctions including: fines, penalties, reimbursement for discharged loan obligations, a requirement to post a letter of credit, and/or suspension or termination of our eligibility to participate in the Title IV programs.\nChamberlain was most recently recertified and issued an unrestricted PPA in September 2020, with an expiration date of March 31, 2024. Walden was issued a Temporary Provisional PPA (\u201cTPPPA\u201d) on September 17, 2021 in connection with their acquisition by Adtalem. During the fourth quarter of fiscal year 2020 and the first quarter of fiscal year 2021, ED provisionally recertified AUC, RUSM, and RUSVM\u2019s Title IV PPAs with expiration dates of December 31, 2022, March 31, 2023, and June 30, 2023, respectively. The lengthy PPA recertification process is such that ED allows unhampered continued access to Title IV funding after PPA expiration, so long as materially complete applications are submitted at least 90 days in advance of expiration. Complete applications for PPA recertification have been timely submitted to ED. The provisional nature of the existing agreements for AUC, RUSM, and RUSVM stemmed from increased and/or repeated Title IV compliance audit findings. Walden\u2019s TPPPA included financial requirements, which were in place prior to acquisition, such as a letter of credit, heightened cash monitoring, and additional reporting. No similar requirements were imposed on AUC, RUSM, or RUSVM. While corrective actions have been taken to resolve past compliance matters and eliminate the incidence of repetition, if AUC, RUSM, or RUSVM fail to maintain administrative capability as defined by ED while under provisional status or otherwise fail to comply with ED requirements, the institution(s) could lose eligibility to participate in Title IV programs or have that eligibility adversely conditioned, which could have a material adverse effect on the businesses, financial condition, results of operations, and cash flows. ED may alternatively issue new PPAs for continued Title IV participation.\nWalden must apply periodically to ED for continued certification to participate in Title IV programs. Such recertification generally is required every six years, but may be required earlier, including when an institution undergoes a change in control. ED may place an institution on provisional certification status if it finds that the institution does not fully satisfy all of the eligibility and certification standards and in certain other circumstances, such as when an institution is certified for the first time or undergoes a change in control. During the period of provisional certification, the institution must comply with any additional conditions included in the institution\u2019s PPA. In addition, ED may more closely review an institution that is provisionally certified if it applies for recertification or approval to open a new location, add an educational program, acquire another institution, or make any other significant change. Students attending provisionally certified institutions remain eligible to receive Title IV program funds. If ED determines that a provisionally certified institution is unable to meet its responsibilities under its PPA, it may seek to revoke the institution\u2019s certification to participate in Title IV programs without advance notice or opportunity for the institution to challenge the action. Walden is currently on a TPPPA which is required for participation in Title IV programs on a month-to-month basis. Walden\u2019s \n65\n\n\nTable of Contents\nprovisional certification prior to acquisition was due to Walden\u2019s prior parent company (Laureate Education Inc.) failing composite score under ED\u2019s financial responsibility standards and ED\u2019s approval of Laureate\u2019s initial public offering in February 2017, which it viewed as a change in control. As a result of Adtalem\u2019s acquisition of Walden, the provisional nature of Walden\u2019s PPA remains in effect on a month-to-month basis while ED reviews the change in ownership application relating to the acquisition of Walden by Adtalem. Walden also is subject to a letter of credit and is subject to additional cash management requirements with respect to its disbursements of Title IV funds, as well as a restriction on changes to its educational programs, including a prohibition on the addition of new programs or locations that had not been approved by ED prior to the change in ownership during the period in which Walden participates under provisional certification (either as a result of the change in ownership or because of the continuation of the financial responsibility letter of credit). Adtalem had a surety-backed letter of credit outstanding of $84.0 million as of June 30, 2023 in favor of the ED on behalf of Walden, which allows Walden to participate in Title IV programs. On January 18, 2023, we received a letter from ED, requesting Adtalem to provide a letter of credit in the amount of $76.2 million related to ED\u2019s review of the Same Day Balance Sheet, which is the consolidated Adtalem balance sheet as of August 12, 2021, the date of the Walden acquisition. On February 21, 2023, Adtalem provided the $76.2 million letter of credit to ED.\nAn ED regulation known as the \u201c90/10 Rule\u201d affects only proprietary postsecondary institutions, such as Chamberlain, Walden, AUC, RUSM, and RUSVM. Under this regulation, an institution that derives more than 90% of its revenue on a cash basis from Title IV student financial assistance programs in two consecutive fiscal years loses eligibility to participate in these programs for at least two fiscal years. The American Rescue Plan Act of 2021 (the \u201cRescue Act\u201d) enacted on March 11, 2021 amended the 90/10 rule to require that a proprietary institution derive no more than 90% of its revenue from federal education assistance funds, including but not limited to previously excluded U.S. Department of Veterans Affairs and military tuition assistance benefits. This change was subject to negotiated rulemaking, which ended in March 2022. The amended rule applies to institutional fiscal years beginning on or after January 1, 2023. The following table details the percentage of revenue on a cash basis from federal financial assistance programs as calculated under the current regulations (excluding the U.S. Department of Veterans Affairs and military tuition assistance benefits) for each of Adtalem\u2019s Title IV-eligible institutions for fiscal years 2022 and 2021. Final data for fiscal year 2023 is not yet available. As institution\u2019s 90/10 compliance must be calculated using the financial results of an entire fiscal year, we are including Walden\u2019s amounts for the full fiscal year 2022 in the table below, including the portion of the year not under Adtalem\u2019s ownership.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFiscal Year\n\u00a0\n\u200b\n\u200b\n2022\n\u200b\n2021\n\u00a0\nChamberlain University\n\u00a0\n 65\n%\n 66\n%\nWalden University\n\u200b\n 73\n%\nn/a\n\u200b\nAmerican University of the Caribbean School of Medicine\n\u00a0\n 81\n%\n 80\n%\nRoss University School of Medicine\n\u00a0\n 85\n%\n 85\n%\nRoss University School of Veterinary Medicine\n\u00a0\n 81\n%\n 82\n%\nConsolidated\n\u00a0\n 72\n%\n 73\n%\nAn ED defined financial responsibility test is required for continued participation by an institution in Title IV aid programs. For Adtalem\u2019s institutions, this test is calculated at the consolidated Adtalem level. Applying various financial elements from the fiscal year audited financial statements, the test is based upon a composite score of three ratios: an equity ratio that measures the institution\u2019s capital resources; a primary reserve ratio that measures an institution\u2019s ability to fund its operations from current resources; and a net income ratio that measures an institution\u2019s ability to operate profitably. A minimum score of 1.5 is necessary to meet ED\u2019s financial standards. Institutions with scores of less than 1.5 but greater than or equal to 1.0 are considered financially responsible but require additional oversight. These institutions are subject to heightened cash monitoring and other participation requirements. An institution with a score of less than 1.0 is considered not financially responsible. However, an institution with a score of less than 1.0 may continue to participate in the Title IV programs under provisional certification. In addition, this lower score typically requires that the institution be subject to heightened cash monitoring requirements and post a letter of credit (equal to a minimum of 10% of the Title IV aid it received in the institution's most recent fiscal year).\nFor the past several years, Adtalem\u2019s composite score has exceeded the required minimum of 1.5. As a result of the acquisition of Walden, Adtalem expects ED will conclude its consolidated composite score will fall below 1.5. As a result, ED may impose certain additional conditions for continued access to federal funding including heightened cash monitoring \n66\n\n\nTable of Contents\nand/or an additional letter of credit. Management does not believe such conditions, if any, will have a material adverse effect on Adtalem\u2019s operations.\nED also has proposed rules to amend the financial responsibility regulations. We anticipate any rules will be effective on July 1, 2024.\nLiquidity and Capital Resources\nAdtalem\u2019s primary source of liquidity is the cash received from payments for student tuition, fees, books, and other educational materials. These payments include funds originating as financial aid from various federal and state loan and grant programs, student and family educational loans, employer educational reimbursements, scholarships, and student and family financial resources. Adtalem continues to provide financing options for its students, including Adtalem\u2019s credit extension programs.\nThe pattern of cash receipts during the year is seasonal. Adtalem\u2019s cash collections on accounts receivable peak at the start of each institution\u2019s term. Accounts receivable reach their lowest level at the end of each institution\u2019s term.\nAdtalem\u2019s consolidated cash and cash equivalents balance of $273.7 million and $347.0 million as of June 30, 2023 and 2022, respectively, included cash and cash equivalents held at Adtalem\u2019s international operations of $7.2 million and $34.2 million as of June 30, 2023 and 2022, respectively, which is available to Adtalem for general corpora\nte purposes.\nUnder the terms of Adtalem institutions\u2019 participation in financial aid programs, certain cash received from state governments and ED is maintained in restricted bank accounts. Adtalem receives these funds either after the financial aid authorization and disbursement process for the benefit of the student is completed, or just prior to that authorization. Once the authorization and disbursement process for a particular student is completed, the funds may be transferred to unrestricted accounts and become available for Adtalem to use in operations. This process generally occurs during the academic term for which such funds have been authorized. Cash in the amount of $1.4\u00a0million and $1.0 million was held in these restricted bank accounts as of June 30, 2023 and 2022, respectively.\nCash Flow Summary\nOperating Activities\nThe following table provides a summary of cash flows from operating activities (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\nIncome (loss) from continuing operations\n\u200b\n$\n 101,752\n\u200b\n$\n (35,955)\nNon-cash items\n\u200b\n\u00a0\n 196,924\n\u200b\n\u00a0\n 283,158\nChanges in assets and liabilities\n\u200b\n\u00a0\n (92,992)\n\u200b\n\u00a0\n (83,201)\nNet cash provided by operating activities-continuing operations\n\u200b\n$\n 205,684\n\u200b\n$\n 164,002\nNet cash provided by operating activities from continuing operations in fiscal year 2023 was $205.7 million compared to $164.0 million in the prior year. The increase was driven by a decrease in interest payments and improvements in our operating results. The decrease of $86.2 million in non-cash items between fiscal year 2023 and 2022 was principally driven by a decrease in amortization of intangible assets, a decrease in amortization and write-off of debt discount and issuance costs, and an increase in gain on sale of assets. The decrease of $9.8 million in cash generated from changes in assets and liabilities was primarily due to timing differences in accounts receivable, prepaid assets, prepaid income taxes, accounts payable, accrued payroll and benefits, accrued liabilities, accrued interest, and deferred revenue.\nInvesting Activities\nCapital expenditures in fiscal year 2023 were $37.0\u00a0million compared to $31.1\u00a0million in the prior year. The capital expenditures in fiscal year 2023 primarily consisted of spending for Chamberlain\u2019s new campus development and improvements and Adtalem\u2019s home office, including information technology investments. Capital spending for fiscal year 2024 will support continued investment for new campus development at Chamberlain, maintenance at the medical and \n67\n\n\nTable of Contents\nveterinary schools, and information technology. Management anticipates fiscal year 2024 capital spending to be in the $50 to $60 million range. The source of funds for this capital spending will be from operations or the Credit Facility (as defined and discussed in Note 14 \u201cDebt\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d).\nDuring fiscal year 2023 and 2022, we received proceeds from the sale of marketable securities held in a Rabbi Trust of $7.6 million and $3.4 million, respectively, and made additional investments in marketable securities held by this trust of $1.5 million and $3.6 million, respectively. The reinvestments in proceeds declined in fiscal year 2023 as funds were used to payout participant balances under the nonqualified deferred compensation plan.\nOn July 31, 2019, Adtalem sold its Chicago, Illinois, campus facility to DePaul College Prep for $52.0 million. Adtalem received $5.2 million of cash at the time of closing and held a mortgage loan, secured by the property, from DePaul College Prep for $46.8 million. The mortgage loan was due on July 31, 2024 as a balloon payment and bore interest at a rate of 4% per annum, payable monthly. The buyer had an option to make prepayments. On February 23, 2023, DePaul College Prep paid the mortgage loan in full. The $46.8 million received during fiscal year 2023 is classified as an investing activity in the Consolidated Statements of Cash Flows.\nOn August 12, 2021, Adtalem completed the acquisition of 100% of the equity interest of Walden for $1,488.1 million, net of cash and restricted cash of $83.4 million.\nDuring fiscal year 2022, we received the loan repayment of $10.0 million on the DeVry University promissory note, dated as of December 11, 2018.\nOn March 10, 2022, Adtalem completed the sale of ACAMS, Becker, and OCL to Wendel Group and Colibri Group (\u201cPurchaser\u201d), pursuant to the Equity Purchase Agreement (\u201cPurchase Agreement\u201d) dated January 24, 2022. Adtalem received $962.7 million, net of cash of $21.5 million, in sale proceeds.\nOn June 17, 2022, Adtalem completed the sale of EduPristine for de minimis consideration, which resulted in a transfer of $1.9 million in cash to EduPristine.\nDuring fiscal year 2023, we paid $3.2 million for a working capital adjustment to the initial sales price for ACAMS, Becker, and OCL.\nFinancing Activities\nThe following table provides a summary of cash flows from financing activities (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\nRepurchases of common stock for treasury\n\u200b\n$\n (123,133)\n\u200b\n$\n (120,000)\nPayment on equity forward contract\n\u200b\n\u200b\n (13,162)\n\u200b\n\u200b\n (30,000)\nNet repayments of long-term debt\n\u200b\n\u200b\n (150,861)\n\u200b\n\u200b\n (229,713)\nPayment of debt discount and issuance costs\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (49,553)\nPayment for purchase of redeemable noncontrolling interest of subsidiary\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (1,790)\nOther\n\u200b\n\u00a0\n (1,359)\n\u200b\n\u00a0\n 6,580\nNet cash used in financing activities\n\u200b\n$\n (288,515)\n\u200b\n$\n (424,476)\nOn \nNovember 8, 2018, we announced that the Board authorized Adtalem\u2019s eleventh share repurchase program, which allowed Adtalem to repurchase up to $300.0 million of its common stock through December 31, 2021. The eleventh share repurchase program commenced in January 2019 and was completed in January 2021. On February 4, 2020, we announced that the Board authorized Adtalem\u2019s twelfth share repurchase program, which allowed Adtalem to repurchase up to $300.0 million of its common stock through December 31, 2021. The twelfth share repurchase program commenced in January 2021 and expired on December 31, 2021. On March 1, 2022, we announced that the Board authorized Adtalem\u2019s thirteenth share repurchase program, which allows Adtalem to repurchase up to $300.0 million of its common stock through February 25, 2025, and we repurchased shares under that program during fiscal year 2023. As of June 30, 2023, $172.7 million of authorized share repurchases were remaining under the current share repurchase program. The timing and amount of any \n68\n\n\nTable of Contents\nfuture repurchases will be determined based on an evaluation of market conditions and other factors. \nSee Note 16 \u201cShare Repurchases\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information on our share repurchase programs.\nOn March 14, 2022, we entered into an ASR agreement to repurchase $150.0 million of common stock. We received an initial delivery of 4,709,576\n \nshares of common stock representing approximately 80% of the total shares expected to be delivered at the time of executing the ASR based on the per share price on the day prior to the execution date. The final number of shares to be repurchased was based on the volume-weighted average price of Adtalem\u2019s common stock during the term of the ASR agreement, less a discount and subject to adjustments pursuant to the terms of the ASR agreement. The ASR agreement ended on October 14, 2022. Based on the volume-weighted average price of Adtalem\u2019s common stock during the term of the ASR agreement, Adtalem owed the counter party 332,212 shares of common stock. We elected to settle the contract in cash instead of delivering shares by making a cash payment of $13.2 million on November 2, 2022.\nOn March 24, 2020, we executed a pay-fixed, receive-variable interest rate swap agreement (the \u201cSwap\u201d) with a multinational financial institution to mitigate risks associated with the variable interest rate on our Prior Term Loan B (as defined in Note 14 \u201cDebt\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d) debt. We paid interest at a fixed rate of 0.946% and received variable interest of one-month LIBOR (subject to a minimum of 0.00%), on a notional amount equal to the amount outstanding under the Prior Term Loan B. The effective date of the Swap was March 31, 2020 and settlements with the counterparty occurred on a monthly basis. The Swap was set to terminate on February 28, 2025. On July 29, 2021, prior to refinancing our Prior Credit Agreement (as discussed below), we settled and terminated the Swap for $4.5 million, which resulted in a charge to interest expense for this amount in fiscal year 2022. During the operating term of the Swap, the annual interest rate on the amount of the Prior Term Loan B was fixed at 3.946% (including the impact of the 3% interest rate margin on LIBOR loans) for the applicable interest rate period. The Swap was designated as a cash flow hedge and as such, changes in its fair value were recognized in accumulated other comprehensive loss on the Consolidated Balance Sheets and were reclassified into the Consolidated Statements of Income within interest expense in the periods in which the hedged transactions affected earnings.\nAs discussed in the previous section of this MD&A titled \u201cWalden University Acquisition,\u201d on August 12, 2021, Adtalem acquired all of the issued and outstanding equity interest in Walden, in exchange for a purchase price of $1.5 billion in cash. On March 1, 2021, we issued $800.0 million aggregate principal amount of 5.50% Senior Secured Notes due 2028 (the \u201cNotes\u201d), which mature on March 1, 2028. On August 12, 2021, Adtalem replaced the Prior Credit Facility and Prior Credit Agreement (as defined in Note 14 \u201cDebt\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d) by entering into its new credit agreement (the \u201cCredit Agreement\u201d) that provides for (1) a $850.0 million senior secured term loan (\u201cTerm Loan B\u201d) with a maturity date of August 12, 2028 and (2) a $400.0 million senior secured revolving loan facility (\u201cRevolver\u201d) with a maturity date of August 12, 2026. We refer to the Term Loan B and Revolver collectively as the \u201cCredit Facility.\u201d The proceeds of the Notes and the Term Loan B were used, among other things, to finance the Acquisition, refinance Adtalem\u2019s Prior Credit Agreement, and pay fees and expenses related to the Acquisition. The Revolver will be used to finance ongoing working capital and for general corporate purposes. During fiscal year 2022, we made a prepayment of $396.7 million on the Term Loan B. With that prepayment, we are no longer required to make quarterly installment payments. On April 11, 2022, we repaid $373.3 million of Notes at a price equal to 100% of the principal amount of the Notes. During June 2022, we repurchased on the open market an additional $20.8 million of Notes at a price equal to approximately 90% of the principal amount of the Notes, resulting in a gain on extinguishment of $2.1 million recorded within interest expense in the Consolidated Statements of Income for the year ended June 30, 2022. In July 2022, we repurchased an additional $0.9 million of Notes, on September 22, 2022, we made a prepayment of $100.0 million on the Term Loan B, and on November 22, 2022, we made a prepayment of $50.0 million on the Term Loan B. As of June 30, 2023, the amount of debt outstanding under the Notes and Credit Facility was $708.3 million. See Note 14 \u201cDebt\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information on the Notes and our Credit Agreement.\nIn the event of unexpected market conditions or negative economic changes, including those caused by COVID-19, that could negatively affect Adtalem\u2019s earnings and/or operating cash flow, Adtalem maintains a $400.0 million revolving credit facility with availability of $323.8 million as of June 30, 2023. While COVID-19 may continue to have an effect on operations and, as a result, liquidity, we believe the current balances of cash, cash generated from operations, and our Credit Facility will be sufficient to fund both Adtalem\u2019s current domestic and international operations and growth plans for the foreseeable future.\n69\n\n\nTable of Contents\nMaterial Cash Requirements\nLong-Term Debt \n\u2013 We have outstanding $405.0 million of Notes and $303.3 million of Term Loan B, which requires interest payments. With the prepayment noted above, we are no longer required to make quarterly principal installment payments on the Term Loan B. In addition, we maintain a $400.0 million revolving credit facility with availability of $323.8 million as of June 30, 2023. Adtalem has a letter of credit outstanding under this revolving credit facility of $76.2 million as of June 30, 2023, in favor of ED on behalf of Walden, which allows Walden to participate in Title IV programs. \nSee Note 14 \u201cDebt\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information on our Notes and Credit Agreement.\nAdtalem had a surety-backed letter of credit outstanding of $84.0 million as of June 30, 2023, in favor of ED on behalf of Walden, which allows Walden to participate in Title IV programs.\nMany states require private-sector postsecondary education institutions to post surety bonds for licensure. In the U.S., Adtalem has posted $31.9\u00a0million of surety bonds with regulatory authorities on behalf of Chamberlain, Walden, AUC, RUSM, and RUSVM.\nOperating Lease Obligations \n\u2013 We have operating lease obligations for the minimum payments required under various lease agreements which are recorded on the Consolidated Balance Sheets. In addition, we sublease certain space to third parties, which partially offsets the lease obligations at these facilities. See Note 12 \u201cLeases\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information on our lease agreements.\nContingencies\nFor information regarding legal proceedings, including developments in legal proceedings, see Note 21 \u201cCommitments and Contingencies\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data.\u201d\nCritical Accounting Estimates\nWe describe our significant accounting policies in the Notes to Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data.\u201d The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Critical accounting estimates discussed below are those that we believe involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Management has discussed our critical accounting estimates with the Audit and Finance Committee of the Board. Although management believes its assumptions and estimates are reasonable, actual results could differ from those estimates. \nAlthough our current estimates contemplate current conditions, including, but not limited to, the impact of (i) the COVID-19 pandemic, (ii) rising interest rates, and (iii) labor and material cost increases and shortages, and how we anticipate them to change in the future, as appropriate, it is reasonably possible that actual conditions could differ from what was anticipated in those estimates, which could materially affect our results of operations and financial condition.\nCredit Losses\nThe allowance for credit losses represents an estimate of the lifetime expected credit losses inherent in our accounts receivable balances as of each balance sheet date. In evaluating the collectability of all our accounts receivable balances, we utilize historical events, current conditions, and reasonable and supportable forecasts about the future. The estimate of our credit losses involves a significant level of uncertainty as it requires significant judgment to estimate the amount we will collect in the future on our account receivable balances. \nSee Note 10 \u201cAccounts Receivable and Credit Losses\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information on our credit losses.\n70\n\n\nTable of Contents\nImpairment of Long-Lived Assets\nLong-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying value is no longer recoverable based upon the undiscounted future cash flows of the asset or asset group, the amount of the impairment is the difference between the carrying amount and the fair value of the asset or asset group. Events that may trigger an impairment analysis could include a decision by management to exit a market or a line of business or to consolidate operating locations.\nGoodwill and Intangible Assets\nGoodwill and indefinite-lived intangible assets are not amortized, but are tested for impairment annually and when an event occurs or circumstances change such that it is more likely than not that an impairment may exist. Our annual testing date is May 31.\nWe have the option to assess goodwill for impairment by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is determined that the reporting unit fair value is more likely than not less than its carrying value, or if we do not elect the option to perform an initial qualitative assessment, we perform a quantitative assessment of the reporting unit\u2019s fair value. If the carrying value of a reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized equal to the difference between the carrying value of the reporting unit and its fair value, not to exceed the carrying value of goodwill. We also have the option to perform a qualitative assessment to test indefinite-lived intangible assets for impairment by determining whether it is more likely than not that the indefinite-lived intangible assets are impaired. If it is determined that the indefinite-lived intangible asset is more likely than not impaired, or if we do not elect the option to perform an initial qualitative assessment, we perform a quantitative assessment of the indefinite-lived intangible assets. If the carrying value of the indefinite-lived intangible assets exceeds its fair value, an impairment loss is recognized to the extent the carrying value exceeds fair value.\nFor intangible assets with finite lives, we evaluate for potential impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying value is no longer recoverable based upon the undiscounted future cash flows of the asset or asset group, the amount of the impairment is the difference between the carrying amount and the fair value of the asset or asset group. Intangible assets with finite lives are amortized over their expected economic lives, ranging from 3 to 5 years.\nAll intangible assets and certain goodwill are being amortized for tax reporting purposes over statutory lives.\nDetermining the fair value of a reporting unit or an intangible asset involves the use of significant estimates and assumptions. Significant assumptions used in the determination of reporting unit fair value measurements generally include forecasted cash flows, discount rates, terminal growth rates and earnings multiples. The discounted cash flow models used to determine the fair value of our Walden reporting unit during 2023 reflected our most recent cash flow projections, a discount rate of 12.5% and terminal growth rates of 3%. Each of these inputs can significantly affect the fair values of our reporting units. Based on this quantitative assessment, it was determined that the fair value of the Walden reporting unit exceeded its carrying value by approximately 15% and therefore no goodwill impairment was identified.\nSignificant judgments and assumptions were used in determining the fair value of intangible assets. The with and without method of the income approach and the relief from royalty model used in the determination of the fair values of our Walden Title IV eligibility and trade name intangible assets, respectively, during 2023 reflected our most recent revenue projections, a discount rate of 12.5%, a royalty rate of 2.25% and terminal growth rates of 3%. Each of these factors and assumptions can significantly affect the value of the intangible asset. Based on these quantitative assessments, it was determined that the fair values of these indefinite-lived intangible assets in the Walden reporting unit exceeded their carrying values by approximately 10% and no impairment was identified.\nManagement bases its fair value estimates on assumptions it believes to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates. If economic conditions deteriorate, interest rates continue to rise, or operating performance of our reporting units do not meet expectations such that we revise our long-term forecasts, we may recognize impairments of goodwill and other intangible assets in future periods. See Note \n71\n\n\nTable of Contents\n13 \u201cGoodwill and Intangible Assets\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information on our goodwill and intangible assets impairment analysis.\nIncome Taxes\nAdtalem accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Adtalem also recognizes future tax benefits associated with tax loss and credit carryforwards as deferred tax assets. Adtalem\u2019s deferred tax assets are reduced by a valuation allowance, when in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Adtalem measures deferred tax assets and liabilities using enacted tax rates in effect for the year in which Adtalem expects to recover or settle the temporary differences. The effect of a change in tax rates on deferred taxes is recognized in the period that the change is enacted. Adtalem reduces its net tax assets for the estimated additional tax and interest that may result from tax authorities disputing uncertain tax positions Adtalem has taken.\nContingencies\nAdtalem is subject to contingencies, such as\n various claims and legal actions that arise in the normal conduct of its business. We record an accrual for those matters where management believes a loss is probable and can be reasonably estimated. For those matters for which we have not recorded an accrual, their possible impact on Adtalem\u2019s business, financial condition, or results of operations, cannot be predicted at this time. A significant amount of judgment and the use of estimates are required to quantify our ultimate exposure in these matters. The valuation of liabilities for these contingencies is reviewed on a quarterly basis to ensure that we have accrued the proper level of expense. While we believe that the amount accrued to-date is adequate, future changes in circumstances could impact these determinations. \nSee Note 21 \u201cCommitments and Contingencies\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data\u201d for additional information on our loss contingencies.\nRecent Accounting Pronouncements\nFor a discussion of recent accounting pronouncements, see Note 2 \u201cSummary of Significant Accounting Policies\u201d to the Consolidated Financial Statements in Item 8. \u201cFinancial Statements and Supplementary Data.\u201d\nNon-GAAP Financial Measures and Reconciliations\nWe believe that certain non-GAAP financial measures provide investors with useful supplemental information regarding the underlying business trends and performance of Adtalem\u2019s ongoing operations as seen through the eyes of management and are useful for period-over-period comparisons. We use these supplemental non-GAAP financial measures internally in our assessment of performance and budgeting process. However, these non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The following are non-GAAP financial measures used in this Annual Report on Form 10-K:\nAdjusted net income (most comparable GAAP measure: net income attributable to Adtalem)\n\u00a0\u2013 Measure of Adtalem\u2019s net income attributable to Adtalem adjusted for deferred revenue adjustment, CEO transition costs, restructuring expense, business acquisition and integration expense, intangible amortization expense, gain on sale of assets, pre-acquisition interest expense, write-off of debt discount and issuance costs, gain on extinguishment of debt, litigation reserve, investment impairment, net tax benefit related to a valuation allowance release, and net loss (income) from discontinued operations attributable to Adtalem.\nAdjusted earnings per share (most comparable GAAP measure: earnings per share)\n\u00a0\u2013 Measure of Adtalem\u2019s diluted earnings per share adjusted for deferred revenue adjustment, CEO transition costs, restructuring expense, business acquisition and integration expense, intangible amortization expense, gain on sale of assets, pre-acquisition interest expense, write-off of debt discount and issuance costs, gain on extinguishment of debt, litigation reserve, investment impairment, net tax benefit related to a valuation allowance release, and net loss (income) from discontinued operations attributable to Adtalem.\n72\n\n\nTable of Contents\nAdjusted operating income (most comparable GAAP measure: operating income)\n\u00a0\u2013 Measure of Adtalem\u2019s operating income adjusted for deferred revenue adjustment, CEO transition costs, restructuring expense, business acquisition and integration expense, intangible amortization expense, litigation reserve, and gain on sale of assets. This measure is applied on a consolidated and segment basis, depending on the context of the discussion.\nAdjusted EBITDA (most comparable GAAP measure: net income attributable to Adtalem)\n \u2013 Measure of Adtalem\u2019s net income attributable to Adtalem adjusted for net loss (income) from discontinued operations attributable to Adtalem, interest expense, other income, net, provision for (benefit from) income taxes, depreciation and amortization, stock-based compensation, deferred revenue adjustment, CEO transition costs, restructuring expense, business acquisition and integration expense, litigation reserve, and gain on sale of assets. This measure is applied on a consolidated and segment basis, depending on the context of the discussion. Income taxes, interest expense, and other income, net is not recorded at the reportable segments, and therefore, the segment adjusted EBITDA reconciliations begin with operating income (loss).\nA description of special items in our non-GAAP financial measures described above are as follows:\n\u25cf\nDeferred revenue adjustment related to a revenue purchase accounting adjustment to record Walden\u2019s deferred revenue at fair value.\n\u25cf\nCEO transition costs related to acceleration of stock-based compensation expense.\n\u25cf\nRestructuring expense primarily related to plans to achieve synergies with the Walden acquisition and real estate consolidations at Walden, Medical and Veterinary, and Adtalem\u2019s home office. We do not include normal, recurring, cash operating expenses in our restructuring expense.\n\u25cf\nBusiness acquisition and integration expense include expenses related to the Walden acquisition and certain costs related to growth transformation initiatives. We do not include normal, recurring, cash operating expenses in our business acquisition and integration expense.\n\u25cf\nIntangible amortization expense on acquired intangible assets.\n\u25cf\nGain on sale of Adtalem\u2019s Chicago, Illinois, campus facility.\n\u25cf\nPre-acquisition interest expense related to financing arrangements in connection with the Walden acquisition, write-off of debt discount and issuance costs and gain on extinguishment of debt related to prepayments of debt, reserves related to significant litigation, and impairment of an equity investment.\n\u25cf\nNet tax benefit related to a valuation allowance release.\n\u25cf\nNet loss (income) from discontinued operations attributable to Adtalem includes the operations of ACAMS, Becker, OCL, and EduPristine, including the after-tax gain on the sale of these businesses, in addition to costs related to DeVry University.\nThe following tables provide a reconciliation from the most directly comparable GAAP measure to these non-GAAP financial measures. The operating income reconciliation is included in the results of operations section within this MD&A.\n73\n\n\nTable of Contents\nNet income attributable to Adtalem reconciliation to adjusted net income (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\nNet income attributable to Adtalem (GAAP)\n\u200b\n$\n 93,358\n\u200b\n$\n 310,991\n\u200b\n$\n 70,027\nDeferred revenue adjustment\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n \u2014\nCEO transition costs\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n \u2014\nRestructuring expense\n\u200b\n\u200b\n 18,817\n\u200b\n\u200b\n 25,628\n\u200b\n\u200b\n 6,869\nBusiness acquisition and integration expense\n\u200b\n\u200b\n 42,661\n\u200b\n\u200b\n 53,198\n\u200b\n\u200b\n 31,593\nIntangible amortization expense\n\u200b\n\u200b\n 61,239\n\u200b\n\u200b\n 97,274\n\u200b\n\u200b\n \u2014\nGain on sale of assets\n\u200b\n\u200b\n (13,317)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\nPre-acquisition interest expense, write-off of debt discount and issuance costs, gain on extinguishment of debt, litigation reserve, and investment impairment\n\u200b\n\u200b\n 19,226\n\u200b\n\u200b\n 48,804\n\u200b\n\u200b\n 26,746\nNet tax benefit related to a valuation allowance release\n\u200b\n\u200b\n (6,184)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\nIncome tax impact on non-GAAP adjustments (1)\n\u200b\n\u200b\n (31,997)\n\u200b\n\u200b\n (51,683)\n\u200b\n\u200b\n (16,297)\nNet loss (income) from discontinued operations attributable to Adtalem\n\u200b\n\u200b\n 8,394\n\u200b\n\u200b\n (346,946)\n\u200b\n\u200b\n (6,579)\nAdjusted net income (non-GAAP)\n\u200b\n$\n 192,197\n\u200b\n$\n 152,022\n\u200b\n$\n 112,359\n(1)\nRepresents the income tax impact of non-GAAP continuing operations adjustments that is recognized in our GAAP financial statements.\nEarnings per share reconciliation to adjusted earnings per share (shares in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\nEarnings per share, diluted (GAAP)\n\u200b\n$\n 2.05\n\u200b\n$\n 6.43\n\u200b\n$\n 1.36\nEffect on diluted earnings per share:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nDeferred revenue adjustment\n\u200b\n\u200b\n -\n\u200b\n\u200b\n 0.18\n\u200b\n\u200b\n -\nCEO transition costs\n\u200b\n\u200b\n -\n\u200b\n\u200b\n 0.13\n\u200b\n\u200b\n -\nRestructuring expense\n\u200b\n\u200b\n 0.41\n\u200b\n\u200b\n 0.53\n\u200b\n\u200b\n 0.13\nBusiness acquisition and integration expense\n\u200b\n\u200b\n 0.94\n\u200b\n\u200b\n 1.09\n\u200b\n\u200b\n 0.61\nIntangible amortization expense\n\u200b\n\u200b\n 1.34\n\u200b\n\u200b\n 1.99\n\u200b\n\u200b\n -\nGain on sale of assets\n\u200b\n\u200b\n (0.29)\n\u200b\n\u200b\n -\n\u200b\n\u200b\n -\nPre-acquisition interest expense, write-off of debt discount and issuance costs, gain on extinguishment of debt, litigation reserve, and investment impairment\n\u200b\n\u200b\n 0.42\n\u200b\n\u200b\n 1.00\n\u200b\n\u200b\n 0.52\nNet tax benefit related to a valuation allowance release\n\u200b\n\u200b\n (0.14)\n\u200b\n\u200b\n -\n\u200b\n\u200b\n -\nIncome tax impact on non-GAAP adjustments (1)\n\u200b\n\u200b\n (0.70)\n\u200b\n\u200b\n (1.06)\n\u200b\n\u200b\n (0.32)\nNet loss (income) from discontinued operations attributable to Adtalem\n\u200b\n\u200b\n 0.18\n\u200b\n\u200b\n (7.17)\n\u200b\n\u200b\n (0.13)\nAdjusted earnings per share, diluted (non-GAAP)\n\u200b\n$\n 4.21\n\u200b\n$\n 3.11\n\u200b\n$\n 2.18\nDiluted shares used in non-GAAP EPS calculation\n\u200b\n\u200b\n 45,600\n\u200b\n\u200b\n 48,804\n\u200b\n\u200b\n 51,645\n(1)\nRepresents the income tax impact of non-GAAP continuing operations adjustments that is recognized in our GAAP financial statements.\n74\n\n\nTable of Contents\nReconciliation to adjusted EBITDA (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nIncrease/(Decrease)\n\u200b\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n$\n\u200b\n%\n\u200b\nChamberlain:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (GAAP)\n\u200b\n$\n 134,685\n\u200b\n$\n 124,414\n\u200b\n$\n 10,271\n\u200b\n 8.3\n%\nRestructuring expense\n\u200b\n\u200b\n 818\n\u200b\n\u200b\n 2,838\n\u200b\n\u200b\n (2,020)\n\u200b\n\u200b\n\u200b\nDepreciation\n\u200b\n\u200b\n 17,264\n\u200b\n\u200b\n 18,547\n\u200b\n\u200b\n (1,283)\n\u200b\n\u200b\n\u200b\nStock-based compensation\n\u200b\n\u200b\n 4,719\n\u200b\n\u200b\n 6,707\n\u200b\n\u200b\n (1,988)\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA (non-GAAP)\n\u200b\n$\n 157,486\n\u200b\n$\n 152,506\n\u200b\n$\n 4,980\n\u200b\n 3.3\n%\nAdjusted EBITDA margin (non-GAAP)\n\u200b\n\u200b\n 27.6\n%\n\u200b\n 27.4\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWalden:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (loss) (GAAP)\n\u200b\n$\n 35,880\n\u200b\n$\n (5,306)\n\u200b\n$\n 41,186\n\u200b\nNM\n\u200b\nDeferred revenue adjustment\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n (8,561)\n\u200b\n\u200b\n\u200b\nRestructuring expense\n\u200b\n\u200b\n 3,245\n\u200b\n\u200b\n 4,053\n\u200b\n\u200b\n (808)\n\u200b\n\u200b\n\u200b\nIntangible amortization expense\n\u200b\n\u200b\n 61,239\n\u200b\n\u200b\n 97,274\n\u200b\n\u200b\n (36,035)\n\u200b\n\u200b\n\u200b\nLitigation reserve\n\u200b\n\u200b\n 10,000\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 10,000\n\u200b\n\u200b\n\u200b\nDepreciation\n\u200b\n\u200b\n 9,492\n\u200b\n\u200b\n 9,255\n\u200b\n\u200b\n 237\n\u200b\n\u200b\n\u200b\nStock-based compensation\n\u200b\n\u200b\n 3,861\n\u200b\n\u200b\n 3,029\n\u200b\n\u200b\n 832\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA (non-GAAP)\n\u200b\n$\n 123,717\n\u200b\n$\n 116,866\n\u200b\n$\n 6,851\n\u200b\n 5.9\n%\nAdjusted EBITDA margin (non-GAAP)\n\u200b\n\u200b\n 23.2\n%\n\u200b\n 24.1\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMedical and Veterinary:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (GAAP)\n\u200b\n$\n 59,649\n\u200b\n$\n 59,357\n\u200b\n$\n 292\n\u200b\n 0.5\n%\nRestructuring expense\n\u200b\n\u200b\n 7,687\n\u200b\n\u200b\n 9,791\n\u200b\n\u200b\n (2,104)\n\u200b\n\u200b\n\u200b\nDepreciation\n\u200b\n\u200b\n 12,475\n\u200b\n\u200b\n 13,890\n\u200b\n\u200b\n (1,415)\n\u200b\n\u200b\n\u200b\nStock-based compensation\n\u200b\n\u200b\n 3,003\n\u200b\n\u200b\n 3,896\n\u200b\n\u200b\n (893)\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA (non-GAAP)\n\u200b\n$\n 82,814\n\u200b\n$\n 86,934\n\u200b\n$\n (4,120)\n\u200b\n (4.7)\n%\nAdjusted EBITDA margin (non-GAAP)\n\u200b\n\u200b\n 23.9\n%\n\u200b\n 25.7\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nHome Office and Other:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating loss (GAAP)\n\u200b\n$\n (62,044)\n\u200b\n$\n (101,719)\n\u200b\n$\n 39,675\n\u200b\n 39.0\n%\nCEO transition costs\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n (6,195)\n\u200b\n\u200b\n\u200b\nRestructuring expense\n\u200b\n\u200b\n 7,067\n\u200b\n\u200b\n 8,946\n\u200b\n\u200b\n (1,879)\n\u200b\n\u200b\n\u200b\nBusiness acquisition and integration expense\n\u200b\n\u200b\n 42,661\n\u200b\n\u200b\n 53,198\n\u200b\n\u200b\n (10,537)\n\u200b\n\u200b\n\u200b\nGain on sale of assets\n\u200b\n\u200b\n (13,317)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (13,317)\n\u200b\n\u200b\n\u200b\nDepreciation\n\u200b\n\u200b\n 2,344\n\u200b\n\u200b\n 2,882\n\u200b\n\u200b\n (538)\n\u200b\n\u200b\n\u200b\nStock-based compensation\n\u200b\n\u200b\n 2,716\n\u200b\n\u200b\n 2,784\n\u200b\n\u200b\n (68)\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA (non-GAAP)\n\u200b\n$\n (20,573)\n\u200b\n$\n (27,714)\n\u200b\n$\n 7,141\n\u200b\n 25.8\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdtalem Global Education:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNet income attributable to Adtalem (GAAP)\n\u200b\n$\n 93,358\n\u200b\n$\n 310,991\n\u200b\n$\n (217,633)\n\u200b\n (70.0)\n%\nNet loss (income) from discontinued operations attributable to Adtalem\n\u200b\n\u200b\n 8,394\n\u200b\n\u200b\n (346,946)\n\u200b\n\u200b\n 355,340\n\u200b\n\u200b\n\u200b\nInterest expense\n\u200b\n\u200b\n 63,100\n\u200b\n\u200b\n 129,348\n\u200b\n\u200b\n (66,248)\n\u200b\n\u200b\n\u200b\nOther income, net\n\u200b\n\u200b\n (6,965)\n\u200b\n\u200b\n (1,108)\n\u200b\n\u200b\n (5,857)\n\u200b\n\u200b\n\u200b\nProvision for (benefit from) income taxes\n\u200b\n\u200b\n 10,283\n\u200b\n\u200b\n (15,539)\n\u200b\n\u200b\n 25,822\n\u200b\n\u200b\n\u200b\nOperating income (GAAP)\n\u200b\n\u200b\n 168,170\n\u200b\n\u200b\n 76,746\n\u200b\n\u200b\n 91,424\n\u200b\n\u200b\n\u200b\nDepreciation and amortization\n\u200b\n\u200b\n 102,814\n\u200b\n\u200b\n 141,848\n\u200b\n\u200b\n (39,034)\n\u200b\n\u200b\n\u200b\nStock-based compensation\n\u200b\n\u200b\n 14,299\n\u200b\n\u200b\n 16,416\n\u200b\n\u200b\n (2,117)\n\u200b\n\u200b\n\u200b\nDeferred revenue adjustment\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n (8,561)\n\u200b\n\u200b\n\u200b\nCEO transition costs\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n (6,195)\n\u200b\n\u200b\n\u200b\nRestructuring expense\n\u200b\n\u200b\n 18,817\n\u200b\n\u200b\n 25,628\n\u200b\n\u200b\n (6,811)\n\u200b\n\u200b\n\u200b\nBusiness acquisition and integration expense\n\u200b\n\u200b\n 42,661\n\u200b\n\u200b\n 53,198\n\u200b\n\u200b\n (10,537)\n\u200b\n\u200b\n\u200b\nLitigation reserve\n\u200b\n\u200b\n 10,000\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 10,000\n\u200b\n\u200b\n\u200b\nGain on sale of assets\n\u200b\n\u200b\n (13,317)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (13,317)\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA (non-GAAP)\n\u200b\n$\n 343,444\n\u200b\n$\n 328,592\n\u200b\n$\n 14,852\n\u200b\n 4.5\n%\nAdjusted EBITDA margin (non-GAAP)\n\u200b\n\u200b\n 23.7\n%\n\u200b\n 23.8\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n75\n\n\nTable of Contents\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nIncrease/(Decrease)\n\u200b\n\u200b\n\u200b\n2022\n\u200b\n2021\n\u200b\n$\n\u200b\n%\n\u200b\nChamberlain:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (GAAP)\n\u200b\n$\n 124,414\n\u200b\n$\n 128,851\n\u200b\n$\n (4,437)\n\u200b\n (3.4)\n%\nRestructuring expense\n\u200b\n\u200b\n 2,838\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 2,838\n\u200b\n\u200b\n\u200b\nDepreciation\n\u200b\n\u200b\n 18,547\n\u200b\n\u200b\n 16,123\n\u200b\n\u200b\n 2,424\n\u200b\n\u200b\n\u200b\nStock-based compensation\n\u200b\n\u200b\n 6,707\n\u200b\n\u200b\n 5,181\n\u200b\n\u200b\n 1,526\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA (non-GAAP)\n\u200b\n$\n 152,506\n\u200b\n$\n 150,155\n\u200b\n$\n 2,351\n\u200b\n 1.6\n%\nAdjusted EBITDA margin (non-GAAP)\n\u200b\n\u200b\n 27.4\n%\n\u200b\n 26.6\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWalden:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating loss (GAAP)\n\u200b\n$\n (5,306)\n\u200b\n$\n \u2014\n\u200b\n$\n (5,306)\n\u200b\nNM\n\u200b\nDeferred revenue adjustment\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n\u200b\nRestructuring expense\n\u200b\n\u200b\n 4,053\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 4,053\n\u200b\n\u200b\n\u200b\nIntangible amortization expense\n\u200b\n\u200b\n 97,274\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 97,274\n\u200b\n\u200b\n\u200b\nDepreciation\n\u200b\n\u200b\n 9,255\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 9,255\n\u200b\n\u200b\n\u200b\nStock-based compensation\n\u200b\n\u200b\n 3,029\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 3,029\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA (non-GAAP)\n\u200b\n$\n 116,866\n\u200b\n$\n \u2014\n\u200b\n$\n 116,866\n\u200b\nNM\n\u200b\nAdjusted EBITDA margin (non-GAAP)\n\u200b\n\u200b\n 24.1\n%\n\u200b\nN/A\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMedical and Veterinary:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating income (GAAP)\n\u200b\n$\n 59,357\n\u200b\n$\n 60,199\n\u200b\n$\n (842)\n\u200b\n (1.4)\n%\nRestructuring expense\n\u200b\n\u200b\n 9,791\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 9,791\n\u200b\n\u200b\n\u200b\nDepreciation\n\u200b\n\u200b\n 13,890\n\u200b\n\u200b\n 14,431\n\u200b\n\u200b\n (541)\n\u200b\n\u200b\n\u200b\nStock-based compensation\n\u200b\n\u200b\n 3,896\n\u200b\n\u200b\n 3,321\n\u200b\n\u200b\n 575\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA (non-GAAP)\n\u200b\n$\n 86,934\n\u200b\n$\n 77,951\n\u200b\n$\n 8,983\n\u200b\n 11.5\n%\nAdjusted EBITDA margin (non-GAAP)\n\u200b\n\u200b\n 25.7\n%\n\u200b\n 23.2\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nHome Office and Other:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating loss (GAAP)\n\u200b\n$\n (101,719)\n\u200b\n$\n (78,651)\n\u200b\n$\n (23,068)\n\u200b\n (29.3)\n%\nCEO transition costs\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n\u200b\nRestructuring expense\n\u200b\n\u200b\n 8,946\n\u200b\n\u200b\n 6,869\n\u200b\n\u200b\n 2,077\n\u200b\n\u200b\n\u200b\nBusiness acquisition and integration expense\n\u200b\n\u200b\n 53,198\n\u200b\n\u200b\n 31,593\n\u200b\n\u200b\n 21,605\n\u200b\n\u200b\n\u200b\nDepreciation\n\u200b\n\u200b\n 2,882\n\u200b\n\u200b\n 3,334\n\u200b\n\u200b\n (452)\n\u200b\n\u200b\n\u200b\nStock-based compensation\n\u200b\n\u200b\n 2,784\n\u200b\n\u200b\n 4,322\n\u200b\n\u200b\n (1,538)\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA (non-GAAP)\n\u200b\n$\n (27,714)\n\u200b\n$\n (32,533)\n\u200b\n$\n 4,819\n\u200b\n 14.8\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdtalem Global Education:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNet income attributable to Adtalem (GAAP)\n\u200b\n$\n 310,991\n\u200b\n$\n 70,027\n\u200b\n$\n 240,964\n\u200b\n 344.1\n%\nNet income from discontinued operations attributable to Adtalem\n\u200b\n\u200b\n (346,946)\n\u200b\n\u200b\n (6,579)\n\u200b\n\u200b\n (340,367)\n\u200b\n\u200b\n\u200b\nInterest expense\n\u200b\n\u200b\n 129,348\n\u200b\n\u200b\n 41,365\n\u200b\n\u200b\n 87,983\n\u200b\n\u200b\n\u200b\nOther income, net\n\u200b\n\u200b\n (1,108)\n\u200b\n\u200b\n (6,732)\n\u200b\n\u200b\n 5,624\n\u200b\n\u200b\n\u200b\n(Benefit from) provision for income taxes\n\u200b\n\u200b\n (15,539)\n\u200b\n\u200b\n 12,318\n\u200b\n\u200b\n (27,857)\n\u200b\n\u200b\n\u200b\nOperating income (GAAP)\n\u200b\n\u200b\n 76,746\n\u200b\n\u200b\n 110,399\n\u200b\n\u200b\n (33,653)\n\u200b\n\u200b\n\u200b\nDepreciation and amortization\n\u200b\n\u200b\n 141,848\n\u200b\n\u200b\n 33,888\n\u200b\n\u200b\n 107,960\n\u200b\n\u200b\n\u200b\nStock-based compensation\n\u200b\n\u200b\n 16,416\n\u200b\n\u200b\n 12,824\n\u200b\n\u200b\n 3,592\n\u200b\n\u200b\n\u200b\nDeferred revenue adjustment\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 8,561\n\u200b\n\u200b\n\u200b\nCEO transition costs\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,195\n\u200b\n\u200b\n\u200b\nRestructuring expense\n\u200b\n\u200b\n 25,628\n\u200b\n\u200b\n 6,869\n\u200b\n\u200b\n 18,759\n\u200b\n\u200b\n\u200b\nBusiness acquisition and integration expense\n\u200b\n\u200b\n 53,198\n\u200b\n\u200b\n 31,593\n\u200b\n\u200b\n 21,605\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA (non-GAAP)\n\u200b\n$\n 328,592\n\u200b\n$\n 195,573\n\u200b\n$\n 133,019\n\u200b\n 68.0\n%\nAdjusted EBITDA margin (non-GAAP)\n\u200b\n\u200b\n 23.8\n%\n\u200b\n 21.7\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk\nAdtalem is not dependent upon the price levels, nor affected by fluctuations in pricing, of any particular commodity or group of commodities. However, more than 50% of Adtalem\u2019s costs are in the form of wages and benefits. Changes in employment market conditions or escalations in employee benefit costs could cause Adtalem to experience cost increases at levels beyond what it has historically experienced. We have not yet experienced significant inflationary pressures on wages or other costs of delivering our educational services; however, should inflation persist in the overall economy, cost increases could affect our results of operations in the future.\n76\n\n\nTable of Contents\nThe financial position and results of operations of AUC, RUSM, and RUSVM Caribbean operations are measured using the U.S.\u00a0dollar as the functional currency. Substantially all of their financial transactions are denominated in the U.S.\u00a0dollar.\nAs of June 30, 2023, the interest rate on Adtalem\u2019s Term Loan B was based upon LIBOR for eurocurrency rate loans or an alternative base rate for periods typically ranging from one to three months. On June 27, 2023, Adtalem entered into Amendment No. 1 to Credit Agreement, identifying the Secured Overnight Financing Rate (\u201cSOFR\u201d) as the replacement benchmark rate for eurocurrency rate loans within the Credit Agreement. Beginning with the next interest rate reset in July 2023, the base rate will change to SOFR. As of June 30, 2023, Adtalem had $303.3 million in outstanding borrowings under the Term Loan B with an interest rate of 9.19%. Based upon borrowings of $303.3 million, a 100 basis point increase in short-term interest rates would result in $3.0\u00a0million of additional annual interest expense.\nAdtalem\u2019s cash is held in accounts at various large, financially secure depository institutions. Although the amount on deposit at a given institution typically will exceed amounts subject to guarantee, Adtalem has not experienced any deposit losses to date, nor does management expect to incur such losses in the future.",
+  "cik": "730464",
+  "cusip6": "251893",
+  "cusip": ["251893103"],
+  "names": ["Adtalem Global Education Inc."],
+  "source": "https://www.sec.gov/Archives/edgar/data/730464/000155837023014509/0001558370-23-014509-index.htm"
+}
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new file mode 100644
index 0000000000..8faef55175
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+++ b/GraphRAG/standalone/data/all/form10k/0001558370-23-015003.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1. \u00a0\nBUSINESS\nCompany Overview\nWe are an education services company providing virtual and blended learning. Our technology-based products and services enable our clients to attract, enroll, educate, track progress, and support students. These products and services, spanning curriculum, systems, instruction, and support services are designed to help learners of all ages reach their full potential through inspired teaching and personalized learning. Our clients are primarily public and private schools, school districts, and charter boards. Additionally, we offer solutions to employers, government agencies and consumers. \u00a0\nWe offer a wide range of individual products and services, as well as customized solutions, such as our most comprehensive school-as-a-service offering which supports our clients in operating full-time virtual or blended schools. \u00a0More than three million students have attended schools powered by Stride curriculum and services since our inception.\nOur solutions address two growing markets: General Education and Career Learning. \u00a0\nGeneral Education\n\u00a0\u00a0\u00a0\u00a0\nCareer Learning\n\u00a0\n\u25cf\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0School-as-a-service\n\u200b\n\u25cf\n\u00a0\u00a0\u00a0\u00a0Stride Career Prep school-as-a-service\n\u200b\n\u25cf\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Stride Private Schools\n\u200b\n\u25cf\n\u00a0\u00a0\u00a0\u00a0Learning Solutions Career Learning software and services sales\n\u200b\n\u25cf\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Learning Solutions software and services sales\n\u200b\n\u25cf\n\u00a0\u00a0\u00a0\u00a0Adult Learning\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nProducts and services for the General Education market are predominantly focused on core subjects, including math, English, science and history, for kindergarten through twelfth grade students to help build a common foundation of knowledge. These programs provide an alternative to traditional \u201cbrick-and-mortar\u201d school options and address a range of student needs including, safety concerns, increased academic support, scheduling flexibility, physical/health restrictions or advanced learning. Products and services are sold as a comprehensive school-as-a-service offering or \u00e0 la carte.\n4\n\n\nTable of Contents\n\u200b\nCareer Learning products and services are focused on developing skills to enter and succeed in careers in high-growth, in-demand industries\u2014including information technology, healthcare and general business. Through our Career Learning programs, we offer middle and high school students content pathways that include job-ready skills and work experiences and, for high school students, that can lead toward an industry certification and/or college credits. Like General Education products and services, the products and services for the Career Learning market are sold as a comprehensive school-as-a-service offering or \u00e0 la carte. Through our Adult Learning brands, we also offer in-person and remote immersive programs and self-paced, structured online Career Learning programs to adult learners in software engineering, healthcare, and medical fields, as well as providing staffing and talent development services to employers. These programs are offered directly to consumers, as well as to employers and government agencies.\n\u200b\nFor both the General Education and Career Learning markets, the majority of revenue is derived from our comprehensive school-as-a-service offering which includes an integrated package of curriculum, technology systems, instruction, and support services that we administer on behalf of our customers. The average duration of the agreements for our school-as-a-service offering is greater than five years, and most provide for automatic renewals absent a customer notification of non-renewal. During any fiscal year, we may enter into new agreements, receive non-automatic renewal notices, negotiate replacement agreements, terminate such agreements or receive notices of termination, or customers may transition a school to a different offering. \u00a0\n\u200b\nOur History\nWe were founded in 2000 to utilize advances in technology to provide children with access to a high quality education regardless of their geographic location or socioeconomic background. Given the geographic flexibility of technology based education, we believed we could help address the growing concerns regarding the regionalized disparity in the quality and breadth of available curriculum and instruction, both in the United States and abroad. The convergence of these factors and rapid advances in Internet networks created the opportunity to make a significant impact by deploying online learning software and systems on a flexible, online platform.\nIn September 2001, we introduced our kindergarten through 2nd grade offering in Pennsylvania and Colorado, serving approximately 900 students in the two states combined. We subsequently added new grades and new schools in additional states. We also launched blended public schools that combine face to face time in the classroom with online instruction and opened an online private school to reach students worldwide. For the 2022-2023 school year, we provided our school-as-a-service offering to 87 schools in 31 states and the District of Columbia in the General Education market, and 52 schools or programs in 27 states and the District of Columbia in the Career Learning market. \u00a0We also serve schools in 48 states and the District of Columbia through our Learning Solutions sales channel.\nIn 2020, we acquired three adult learning companies, Galvanize, Tech Elevator, and MedCerts to enter into and expand the Company\u2019s offerings. These Adult Learning brands deliver a mix of in-person and remote training in software engineering and allied healthcare to consumers and enterprises\n. \u00a0\nOur Market\nThe U.S. market for K-12 education is large and virtual and blended learning has gained broader awareness and acceptance following the COVID-19 pandemic. For example:\n\u25cf\nAccording to a May 2023 report of the National Education Policy Center (\u201cNEPC\u201d) entitled \u201cVirtual Schools in the U.S. 2023,\u201d in 2021-22, 1,093 full-time virtual schools enrolled 566,344 students, and 332 blended schools enrolled 106,219 students. \nThe NEPC report further states thirty-five\n states had full-time virtual schools. \n\u25cf\nA January 2023 survey by the National School Choice Awareness Foundation, found that 53.7% of parents had considered, searched for, or chosen a new or different school or learning environment for their school-aged child within the past year. Of those who were considering switching, 20.8% of parents visited, inquired about, or researched full-time online school\n.\n\u25cf\nIn 2022, the National Home Education Research Institute estimated that there were approximately 3.1\u00a0million home-educated students in the United States during School Year 2021-2022. Prior to the COVID-19 \n5\n\n\nTable of Contents\npandemic, the number of students was 2.5 million, and estimates showed home-educated student enrollments growing by 2% per year since 2016\n.\n\u25cf\nSeptember 2022 data from the Bureau of Labor Statistics estimates that demand for occupations that require nondegree postsecondary education will grow 6.7% by 2031, a faster rate than overall employment\n.\u00a0\nDemand for Education Alternatives: The Market Opportunity \nAs evidenced by the rapid evolution of education technology and varying educational options being offered to learners of all ages, no single learning model has been found that works equally well for every student. Learners today utilize technology in all aspects of their lives, and we expect this reality to extend to their education. Our business has been built on the premise that every learner, regardless of geographic location or socioeconomic background, is entitled to a high-quality education that is individualized and adaptable based on the student\u2019s unique needs. We also believe all learners can benefit from more engaging technology-enriched educational content.\n\u200b\nWe anticipate that full time online public schools will meet the needs of a small percentage of the overall United States K-12 student population, but that segment will still represent a large and growing opportunity for us in absolute terms. Across our educational programs, learners come from a broad range of social, economic and academic backgrounds. Examples of students for whom our full-time virtual or blended solutions may fit include, but are not limited to, families with: (i) students seeking to learn in a way that better accommodates their individual needs; (ii) safety, social and health concerns about their local school, including students who are being bullied or are subjected to discrimination; (iii) students with disabilities who are seeking alternatives to traditional classrooms; (iv) students for whom the local public school is not meeting their needs; (v) students who seek or need greater flexibility than other alternatives, such as student athletes and performers who are not able to attend regularly scheduled classes; (vi) college bound students who want to bolster their college readiness and application appeal by taking additional Advanced Placement (\u201cAP\u201d), honors and/or elective courses; (vii) students seeking career and technical skills; (viii) high school dropouts who have decided to reenroll in school to earn a diploma; and (ix) students of military families who desire high-quality, consistent education as they relocate to new locations. Our individualized learning approach allows students to optimize their educational experience and, therefore, their chances of achieving their goals.\n\u200b\nAlthough the COVID-19 pandemic changed the awareness and acceptance of virtual and blended learning, we continue to expect most students in the United States will be educated in traditional school buildings and classrooms. However, we believe that certain student segments will benefit from the availability to choose an online public education (including blended learning models), and that states and districts will seek to incorporate virtual and blended solutions into their school-based programs. Our school-as-a-service offering offers a full service, integrated program, and a complete solution for districts and schools that desire a comprehensive option. For public school customers who need less than a full-service offering, our Learning Solutions sales channel provides online curriculum and services on a solution oriented, customized basis. We continue to invest significant resources, organically and through licensing or acquisitions, in developing product offerings that afford us the flexibility to serve different types of customers with varying value propositions and price points that are adaptable to an institution\u2019s and individuals\u2019 capabilities and needs. These investments are intended to expand our current assets into markets that have appeal to today\u2019s education consumers. \u00a0Moreover, we have pursued, and will continue to pursue, selected markets outside the United States where we believe our products and services can address local foreign market needs.\n\u200b\nWe believe the growth in careers requiring non-degree post-secondary awards will drive more adult learners to seek training solutions that lead to credentials or certifications. It is anticipated that these learners will seek lower cost, more accessible training solutions that prepare them for the workforce in less time than traditional post-secondary degree programs. Our adult learning solutions provide these types of learners with content, instruction, and career placement services to help them achieve their career goals. \u00a0Additionally, according to the Society for Human Resource Management, recruiting and hiring remains one of the top challenges for companies. To address this challenge, companies are beginning to cover the cost of training for entry-level positions as well as increasing budgets for upskilling and reskilling of their existing workforce. Stride\u2019s adult learning solutions address these employer needs by providing training and job placement and recruitment services. We anticipate that this market will continue to grow as more employers recognize the benefits of retaining existing talent rather than sourcing new talent.\n\u200b\n6\n\n\nTable of Contents\nOur Lines of Revenue\nGeneral Education\nProducts and services for the General Education market are predominantly focused on core subjects, including math, English, science and history, for kindergarten through twelfth grade students to help build a common foundation of knowledge. These programs provide an alternative to traditional school options and address a range of student needs including, safety concerns, increased academic support, scheduling flexibility, physical/health restrictions or advanced learning. Products and services are sold as a comprehensive school-as-a-service offering or \u00e0 la carte\n.\nCareer Learning\nCareer Learning products and services are focused on developing skills to enter and succeed in careers in high-growth, in-demand industries\u2014including information technology, healthcare and general business. \u00a0We provide middle and high school students with Career Learning programs that complement their core general education coursework in math, English, science and history. Stride offers multiple career pathways supported by a diverse catalog of Career Learning courses. The middle school program exposes students to a variety of career options and introduces career skill development. In high school, students may engage in industry content pathway courses, project-based learning in virtual teams, and career development services. High school students have the opportunity to progress toward certifications, connect with industry professionals, earn college credits while in high school, and participate in job shadowing and/or work-based learning experiences that facilitate success in today\u2019s digital, tech-enabled economy. \u00a0A student enrolled in a school that offers Stride\u2019s General Education program may elect to take Career Learning courses, but that student and the associated revenue is reported as a General Education enrollment and General Education revenue. A student and the associated revenue is counted as a Career Learning enrollment or Career Learning revenue only if the student is enrolled in a Career Learning program or school.\nLike General Education products and services, the products and services for the Career Learning market are sold as a comprehensive school-as-a-service offering or \u00e0 la carte. We also offer focused post-secondary career learning programs to adult learners, through our Galvanize, Tech Elevator, and MedCerts brands. These include skills training for the software engineering, healthcare, and medical fields, as well as staffing and talent development services to employers. These programs are offered directly to consumers, as well as to employers and government agencies.\nOur Sales Channels\nVirtual and Blended Schools \nThe Virtual and Blended Public Schools we serve offer an integrated package of systems, services, products, and professional expertise that we administer to support a virtual or blended public school. Customers of these programs can obtain the administrative support, information technology, academic support services, online curriculum, learning system platforms and instructional services under the terms of a negotiated service and product agreement. We provide our school-as-a-service offerings to virtual and blended public charter schools and school districts. These contracts are negotiated with, and approved by, the governing authorities of the customer. The duration of these service and product agreements are typically greater than five years, and most provide for automatic renewals absent a customer notification of non-renewal. During any fiscal year, the Company may enter into new agreements, receive non-automatic renewal notices, negotiate replacement agreements, terminate such agreements or receive notice of termination, or customers may transition a school to a different offering. The governing boards may also establish school policies and other terms and conditions over the course of a contract, such as enrollment parameters. The authorizers who issue the charters to our school-as-a-service customers can renew, revoke, or modify those charters as well.\nThe majority of our revenue is derived from these school-as-a-service agreements with the governing authorities of the public schools we serve. In addition to providing a comprehensive course catalog, related books and physical materials, a learning management system for online learning, and, in certain cases, student computers, we also offer these schools a variety of administrative support, technology and academic support services. Full time virtual and blended school students access online lessons over the internet and utilize offline learning materials we provide. Students receive assignments, complete lessons, take assessments, and are instructed by teachers with whom they interact via email, telephonically, in synchronous virtual classroom environments, and sometimes face to face. In either case, for parents who believe their child is not thriving in their current school or for students and families who require time or location flexibility \n7\n\n\nTable of Contents\nin their schooling, virtual and blended public schools can provide a compelling choice. Students attending many of these schools are also provided the opportunity to participate in a wide variety of school activities, including field trips, service-learning opportunities, honor societies, and clubs. In addition to school level activities, we sponsor a wide variety of extracurricular activities on a national basis, such as clubs, contests and college and career planning sessions.\nIn addition to our full time virtual programs, we offer a variety of support services and sell our products to blended schools, which are schools that combine online and face to face instruction for students in a variety of ways with varying amounts of time spent by students in a physical learning center. In contrast to a typical brick and mortar public school, blended schools can provide a greater selection of available courses, increased opportunities for self-paced, individualized instruction and greater scheduling flexibility. \u00a0These blended programs bring students and teachers physically together more often than a purely online program. In some blended schools we support, students attend a learning center on a part time basis, where they receive face to face instruction, in addition to their online virtual curriculum and instruction.\nLearning Solutions\nOur Learning Solutions sales channel distributes our software and services to schools and school districts across the U.S. \u00a0Over the past few years, both as a result of the COVID-19 pandemic and continuing trends toward digital solutions, public schools and school districts have been increasingly adopting online solutions to augment teaching practices, launch new learning models, cost effectively expand course offerings, provide schedule flexibility, improve student engagement, increase graduation rates, replace textbooks, and retain students. State education funds traditionally allocated for textbook and print materials have also been authorized for the purchase of digital content, including online courses, and in some cases mandated access to online courses. Additionally, districts are seeking support for implementations that blend virtual and in-person instruction.\nTo address the growing need for digital solutions and the emerging need for comprehensive virtual solutions, our Learning Solutions team provides curriculum and technology solutions, packaged in a portfolio of flexible learning and delivery models mapped to specific student and/or district needs. This portfolio approach provides a continuum of delivery models, from full time programs to individual course sales and supplemental options that can be used in traditional classrooms to differentiate instruction. Our Learning Solutions team strives to partner with public schools and school districts, primarily in the U.S., to provide more options and better tools to empower teachers to improve student achievement through personalized learning in traditional, blended and online learning environments and to provide comprehensive support for teachers and administrators to deliver effective virtual and blended instructions. \nPrivate Programs\n \nWe also operate tuition-based private schools that meet a range of student needs from individual course credit recovery to college preparatory programs. These programs address students and families in the states in which we do not offer a free public option, as well as students looking for additional flexibility. Additionally, many families can use education savings accounts, tax credits and vouchers to attend these schools for low or no cost. We also pursue international opportunities where we believe there is significant demand for quality online education. Our international students are typically from expatriate families who wish to study in English and foreign students who desire a U.S. high school diploma. In addition, we have entered into agreements that enable us to distribute our products and services to our international and domestic school partners who use our courses to provide broad elective offerings and dual diploma programs.\nConsumer Sales\nWe also offer individual online courses and supplemental educational products directly to families. These purchasers desire to educate their children as homeschoolers, outside of the traditional school system or to supplement their child\u2019s existing public or private school education without the aid of an online teacher. Customers of our consumer products have the option of purchasing a complete curriculum, individual courses, or a variety of other supplemental products, covering various subjects depending on their child\u2019s needs. Typical applications include summer school course work, home-schooling, enrichment, and educational supplements.\nAdult Learning\nWe offer adult learning training programs through Galvanize, Tech Elevator, and MedCerts, which provide programs that address the skills gap facing companies in the information technology and healthcare sectors. We offer in-\n8\n\n\nTable of Contents\nperson and remote immersive full-time software engineering programs designed for adult learners looking to advance their technology careers by providing such learners with skills and real-world experiences. \u00a0MedCerts provides self-paced, fully online structured training programs that lead to certifications in the healthcare field. These brands also work directly with enterprises to create customized, tailored education plans to help companies train, upskill, and reskill their employees.\nOur Business Strategy\nWe are committed to maximizing every learner\u2019s potential by personalizing their educational experience, delivering a quality education to schools and students, and supporting our customers in their quest to improve academic outcomes and prepare them for college and future careers. In furtherance of those objectives, we plan to continue investing in our curriculum and learning systems. These investments include initiatives to create and deploy a next generation curriculum and learning platform, improve the effectiveness of our school workforce, develop new instructional approaches to increase student and parental engagement, and improve our systems and security architecture. This strategy consists of the following key elements:\nAffect Better Student Outcomes.\n We are committed to improving student outcomes for every student in the schools we serve. To achieve this goal we: (i)\u00a0invest in training and professional development for teachers and school leaders, which may include a competency-based Master\u2019s Graduate Degree in Online Teaching K-12 though our partnership with Southern New Hampshire University; (ii)\u00a0develop programs and initiatives designed to improve the learning experience, such as our interactive media projects, virtual science labs and AP test prep; (iii)\u00a0enhance our curriculum to make it more engaging, adaptive and available to all students anywhere; and (iv)\u00a0update our content as state standards and state assessments change. We also will focus our marketing and enrollment efforts on helping students and families understand the unique demands and challenges of the online learning environment. We believe better understanding by parents and students will better prepare students for the work and improve their chance at academic\u00a0success.\nImprove Student Retention in Our School-as-a-Service Offerings.\n To ensure the best outcomes for students, we have partnered with the school boards we serve to make a concerted effort to enroll and retain students who are truly engaged and ready to learn. Research shows that students who remain in the same school setting longer generally perform better academically, and retention is especially challenging with virtual and blended schools because families have the option of enrolling their children in a brick-and-mortar school or another virtual or blended school. Once students are enrolled, we offer programs to provide early intervention and focused engagement and retention strategies, which strive to help students stay on track, improve engagement and, ultimately, give students a better chance at academic success.\nGrow Career Learning Enrollments and Expand Career Training Market.\n To grow Stride\u2019s Career Learning business and enrollments we are expanding the Stride Career Prep brand, and pursuing industry partnerships. We believe this approach will be more advanced than traditional vocational training and broader than enrollment in a series of career technical education (\u201cCTE\u201d) courses. \u00a0We seek to expand our addressable market by offering career readiness training beyond our traditional K-12 market and into adult education and corporate training.\nIntroduce New and Improved Products and Services.\n We intend to continue to expand our product line and offerings, both internally and through licensing or strategic acquisitions of products that expand our current portfolio. This includes pursuing development and licensing of curriculum and platforms that are accessible from tablet and mobile devices and leveraging adaptive learning technologies and solutions. We will also invest in our current products and assets to make them more accessible to larger markets by improving the user experience and content.\nIncrease Enrollments at Existing Virtual and Blended Public Schools\n. Some state regulations, school governing authorities and/or districts limit or cap student enrollment or enrollment growth. At the direction of our school board and school district customers, we seek to provide an opportunity for more students to attend these schools, and support their efforts to work with legislators, state departments of education, educators and parents to increase or remove student enrollment caps.\nExpand Virtual and Blended Public School Presence into Additional States and Cities.\n As laws change and opportunities arise, we work with states, school districts, regional education organizations, and charter schools to authorize and establish new virtual and blended public schools and to contract with them to provide our curriculum, online learning platform, support services, and other related offerings. Traditional school districts are becoming a greater percentage of our customer base.\n9\n\n\nTable of Contents\nGrow Our Learning Solutions Sales Channel.\n Our broad Learning Solutions course catalog ranges from pre-K to 12th\u00a0grade, instructional services, supplemental solutions, and teacher development and is the key driver for Learning Solutions growth. We work to continue the market adoption of these solutions and services as school districts partner with us to address a variety of academic needs and to facilitate personalized learning in traditional, blended and online learning environments. \nAdd Enrollments in Our Private Schools.\n We currently operate online private schools that we believe appeal to a broad range of students and families. We look to drive increased enrollments in these schools by increasing awareness, through targeted marketing programs, and by partnerships with traditional brick and mortar private schools.\nDevelop Additional Channels through which to Deliver Our Learning Systems.\n We plan to evaluate other delivery channels on a routine basis and to pursue opportunities where we believe there is likely to be significant demand for our offering, such as direct classroom instruction, blended classroom models, career technical education, supplemental educational products, adult learning, and individual products packaged and sold directly to consumers. We have made strategic investments in other companies to supplement our Learning Solutions go-to-market approach with a focus on advising school districts on their digital classroom transformation efforts. \u00a0\nPursue Strategic Partnerships and Acquisitions.\n We may pursue selective acquisitions that complement our existing educational offerings and business capabilities, and that are natural extensions of our core competencies. We may also pursue acquisitions that extend our offerings and business capabilities. We believe we can be a valued-added partner or contribute our expertise in curriculum development and educational services to serve more students. In 2018, we partnered with Southern New Hampshire University to invest in the development of degree-granting programs for online teaching.\nProducts and Services\nWe continue to invest in curriculum and technology to educate students more effectively and efficiently. Much of our investment has been in the development of improved functionality of our curriculum and systems. Areas of focus include: (i) integration and user experience\u2014making sure that all of our systems and solutions are easy for teachers, administrators, students, and parents to use; (ii) mobile enabled products; (iii) portability\u2014making sure that our platforms integrate with and onto third-party platforms; (iv) features which personalize learning for all students we serve; (v) courses that are flexible enough to provide assistance to struggling students; (vi) reading and oral fluency scoring; (vii) alignment with state standards; (viii) built-in tutoring and support functionality; and (ix) a virtual learning platform which supports the scheduling and delivery of instruction, tracking of attendance, recording of instructional sessions, and allows student group work. \nWe provide various products and services to customers on an individual basis as well as customized solutions, including our comprehensive school-as-a-service offering which supports our customers in operating full-time virtual or blended schools. We continue to expand upon our personalized learning model, improve the user experience of our products, and develop tools and partnerships to more effectively engage and serve students, teachers, administrators, and adult learners.\u00a0\nCurriculum and Content\nOur customers can select from hundreds of high-quality, engaging, online coursework and content, as well as many state-customized versions of those courses, electives, and instructional supports. We have built core courses with the guidance and recommendations of leading educational organizations at the national and state levels. State standards continue to evolve, and we invest in our curriculum to meet these changing requirements. Additionally, through our Galvanize, Tech Elevator and MedCerts brands, we have high-quality, engaging, online coursework and content in information technology and healthcare.\nSystems\nWe have established a secure and reliable technology platform, which integrates proprietary and third-party systems to provide a high-quality educational environment and gives us the capability to grow our customer programs and enrollment. Our end-to-end platform includes content management, learning management, student information, data reporting and analytics, and various support systems that allow customers to provide a high-quality, and personalized \n10\n\n\nTable of Contents\neducational experience for students. \u00a0\u00c0 la carte offerings can provide curriculum and content hosting on customers\u2019 learning management systems, or integrate with customers\u2019 student information systems. \nInstructional Services\nWe offer a broad range of instructional services that include customer support for instructional teams, including recruitment of state certified teachers, training in research-based online instruction methods and systems, oversight and evaluation services, and ongoing professional development. Stride also provides training options to support teachers and parents to meet students\u2019 learning needs. Our range of training options are designed to enhance skills needed to teach using an online learning platform, and include hands-on training, on-demand courses, and support materials.\nSupport Services \nWe offer a broad range of support services, including marketing and enrollment (e.g., supporting prospective students through the admission process), assessment management, administrative support (e.g., budget proposals, financial reporting, and student data reporting), and technology and materials support (e.g., providing student computers, offline learning kits, internet access and technology support services). \nAcademic Performance\n \u00a0\nOur fundamental goal for every child who enrolls in a school that has purchased our school-as-a-service offering, is to improve their academic performance. With the implementation of the federal Every Student Succeeds Act (\u201cESSA\u201d) beginning with the 2017-18 school year, each of the states in which we support virtual and blended public schools has been given the authority to develop a school accountability plan within the confines of a broad federal ESSA framework based on their own conception of the best means to advance college and career readiness. The ESSA requires states to utilize four academic-related indicators in their accountability plans to measure school and student performance: \u00a0academic achievement, student growth in reading and math, graduation rate, and progress in achieving English language proficiency. The states were given discretion on the weight to give to each indicator and how to apply them. Most of the state ESSA plans submitted in 2017 to the U.S. Department of Education use some form of summative rating method to describe school performance, such as conferring an A-F grade or using a ranking system having a 1-10 scale. A significant new element of this education law is a requirement for states to adopt at least one non-academic indicator in their state\u2019s accountability system to measure \u201cschool quality or student success,\u201d often called the \u201cfifth\u201d indicator. Unlike No Child Left Behind where the only measure of school performance was an Annual Yearly Progress report, there are a wide range of non-academic options enumerated in the ESSA that the states can adopt to advance their own \u201cschool quality or student success\u201d accountability objectives. The states may include measures of student engagement, educator engagement, student access to and completion of advanced coursework, post-secondary readiness, school climate and safety, and any other indicator a state may choose for this purpose. For example, a post-secondary readiness accountability indicator can include student participation in and completion of a CTE program of study, or access to dual credit programs. Similarly, a student engagement indicator may focus on teacher observations or ratings that demonstrate improvements in this area.\n\u200b\nWe share the view taken by many states that assessing a student by his or her learning growth is a more accurate indicator of school and student performance than attaining a static proficiency score. This approach is now reflected in the ESSA as well. All of our school-as-a-service offerings administer state or nationally recognized assessments to measure student achievement and growth during the school year, to prepare students for state assessments and to guide instruction. To ensure all schools are utilizing best practices learned from other successful school clients and from other high performing schools across the country, we have developed an academic framework that addresses teacher preparation, delivery of instruction, and student assessment. Effective instruction is informed by and evaluated based on student level data. As part of the academic framework, schools implement plans to collect student level data throughout the year through the use of norm-referenced growth measures at least three times per year, along with strategically placed formative interims, benchmarks, and summative assessments.\nIn addition to the complexities involved in measuring academic performance of students, we believe that the virtual and blended public schools we serve face unique challenges impacting academic success not necessarily encountered to the same extent by traditional brick and mortar schools. These challenges include students who enter behind grade level or under credited, high student mobility, lack of control over the student learning environment and higher than average percentages of students eligible for free or reduced price lunch in many states. With rare exceptions, the data shows that students identified as eligible for free lunch had lower percentages at or above proficiency levels than students \n11\n\n\nTable of Contents\neligible for reduced price lunch, and both groups usually underperformed students identified as not eligible for subsidized meals. In addition, for decades, educational research has shown that persistence\u2014remaining and proceeding at pace in the same school setting\u2014can benefit academic performance, while mobility\u2014moving from one school setting to another\u2014can have a destabilizing influence, causing students to struggle and lapse in academic performance. \u00a0\nWhile measuring academic performance is necessary, taking meaningful steps to improve academic performance and student outcomes is an integral part of our mission. Accordingly, we continually strive to achieve that objective by undertaking new initiatives and improving existing programs that support students and families. To monitor student learning progress during the school year, we use multiple equivalent assessments at the lesson, unit and semester level. This is intended to ensure that our measurement is reliable and valid. We provide more synchronous sessions for at-risk students based on data driven instruction that provides for targeted teacher intervention to assist students with lesson challenges.\nCompetition\nAs a general matter, we face varying degrees of competition from a variety of education companies because the scope of our offerings and the customers we serve encompass many separate and distinct segments of the education business. We compete primarily with companies that provide online curriculum and school support services to K-12 virtual and blended public schools and school districts, including those with a career orientation. These companies include Pearson PLC (Connections Academy), Lincoln Learning Solutions, StrongMind, Pansophic Learning, Inspire Charter Schools, and Charter Schools USA, and state administered online programs, among others. We also face competition from digital and print curriculum developers. The digital curriculum providers include Curriculum Associates, Imagine Learning LLC, Edmentum Inc., Dreambox Learning, Inc., and traditional textbook publishers such as Houghton Mifflin Harcourt and McGraw Hill. Other competing digital curriculum providers, including Khan Academy, Duolingo, IXL Learning, Inc. and Renaissance Learning, Inc., offer a different pricing model which provides curriculum at a lower cost (sometimes free) but may charge for additional products or services. We also compete with institutions such as The Laurel Springs School (Spring Education Group) and Penn Foster Inc. for online private pay school students. Additionally, our Adult Learning offerings compete with other in-person and remote immersive programs and self-paced online training programs. These include General Assembly (a subsidiary of Adecco), Bloom Institute of Technology, Carrus, Inc., and Education to Go (a subsidiary of Cengage Learning), among others.\nWe believe that the primary factors on which we compete are:\n\u25cf\nextensive experience in, and understanding of, virtual education delivery;\n\u25cf\ncomprehensive suite of academic programs;\n\u25cf\ncustomer satisfaction;\n\u25cf\nquality of integrated curriculum and materials with an online delivery platform;\n\u25cf\nqualifications, experience and training teachers for online instruction;\n\u25cf\ncomprehensiveness of school management and student support services;\n\u25cf\nintegrated K-12 solutions, with components designed and built to work together;\n\u25cf\nability to leverage our assets across our business; and\n\u25cf\nsophisticated government affairs knowledge and experience in virtual and blended school regulatory environments.\n\u200b\nBroadly speaking, we participate in the market for digital education and adult training. In states where we enter into multi-year service and product agreements with virtual and blended public schools, we believe that we generally serve less than 1% of the public school students in that state. The customers for Learning Solutions sales are schools and school districts seeking individual courses to supplement their course catalogs or school districts seeking to offer an online education program to serve the needs of a small subset of their overall student population. Defining a more precise relevant market upon which to base a share estimate would not be meaningful due to significant limitations on the comparability of data among jurisdictions. For example, some providers to K-12 virtual public schools serve only high school students; others serve elementary and middle school students, and some serve both. There are also providers of online virtual K-12 education that operate solely within individual states or geographic regions rather than globally as we do. Furthermore, some school districts offer their own virtual programs with which we compete. Parents in search of an alternative to their local public school have a number of alternatives beyond virtual and blended public schools, including private schools, public charter schools and home schooling. In our private schools, we compete for students seeking an English-based K-12 \n12\n\n\nTable of Contents\neducation worldwide. In addition, our integrated learning systems consist of components that face competition from many different types of education companies, such as traditional textbook publishers, test and assessment firms and private education management companies. These learning systems are designed to operate domestically and internationally, and thus, the geographic market for many of our products and services is global and indeterminate in size. \u00a0Finally, our Adult Learning brands compete with post-secondary providers, both public and private, as well as other certificate and credential providers. \u00a0They also compete with upskilling and reskilling training programs developed in-house by employers. \u00a0\nKey Functional Areas\nPublic Affairs, School Development, Student Recruitment and Marketing\nWe seek to increase public awareness of the educational and fiscal benefits of our online learning options through full-time virtual and blended instructional models, as well as supplementary course options. We receive numerous inquiries from school districts, legislators, public charter school boards, community leaders, state departments of education, educators and parents who express the desire to have a choice in public school options. Our public affairs and school development teams work together with these interested parties to identify and pursue opportunities to expand the use of our products and services in new and existing jurisdictions.\nOur student recruitment and marketing team is focused on promoting the K-12 online education category and generating enrollments for the Company\u2019s virtual and blended school customers within that category. This is achieved by creating awareness among families with K-12 students through integrated marketing campaigns that include offline and digital media, as well as web assets. These campaigns are continuously optimized using data analytics and market research. The marketing team also assists in enhancing the onboarding experience of new students to online schooling. Additionally, our marketing team is working to ensure awareness of our adult learning options, delivered through our Galvanize, Tech Elevator, and MedCerts brands.\nOperations\nOver our more than 20 years of operation, we believe that we have gained significant experience in the sourcing, assembly and delivery of school supplies and materials. We have developed strong relationships with partners allowing us to source goods at favorable price, quality and service levels. Our fulfillment partner stores our inventory, assembles our learning kits and ships the kits to students. We have invested in systems, including our Order Management System, to automatically translate the curriculum selected by each enrolled student into a personalized order to fulfill the corresponding learning kits to ship to each student. As a result, we believe we have an end-to-end warehousing and fulfillment operation that will cost-effectively scale as the business grows in scope and complexity.\nFor many of our virtual and blended public school customers, we attempt to reclaim any materials that could be cost-effectively re-utilized in the next school year. These items, once returned to our fulfillment centers, are refurbished and included in future learning kits. This reclamation process allows us to maintain lower materials costs. Our fulfillment activities are highly seasonal, and are centered on the start of school in August or September. To ensure that students in virtual and blended public schools have access to our systems, we often provide students with a computer, where applicable or required and all necessary support. We source computers and ship them to students when they enroll and reclaim the computers upon termination of their enrollment or withdrawal from the school in which they are enrolled.\nTechnology \nStride\u2019s online learning systems, along with our back-office support systems, run on cloud infrastructure from Amazon Web Services (AWS) and Microsoft Azure. \nArchitecture. \nStride\u2019s key systems leverage a technology architecture that allows us to develop iterative solutions to meet both present and future market needs. \nAvailability and Redundancy. \nStride\u2019s systems run on world-class cloud infrastructure from AWS and Azure that operate in multiple availability zones.\nCybersecurity. \nA business-centric information security program has also been adopted that is tailored to adjust to an ever-changing IT compliance and information security threat landscape. Our cybersecurity measures and policies are \n13\n\n\nTable of Contents\naligned with cybersecurity guidance from the National Institute of Standards & Technologies (NIST) across our cloud ecosystems.\nPhysical Infrastructure. \nStride has completed the migration of our entire application portfolio to Amazon Web Services (AWS) and Microsoft Azure. We leverage various technologies to monitor our application and infrastructure ecosystem on a 7 X 24 X 365 basis.\nOther Information\nIntellectual Property\nWe continue to invest in our intellectual property through internal development and by acquisitions as we aim to offer more courses for new grades and expand into adjacent education markets, both in the United States and overseas. Through acquisitions, we have also obtained curriculum, patents and trademarks that expand our portfolio of educational products and services. We continue to add features and tools to our proprietary learning platform and support systems to assist teachers and students and improve educational outcomes, such as adaptive learning technologies. These intellectual property assets are critical to our success and we avail ourselves of the full protections provided under the patent, copyright, trademark and trade secrets laws. We also routinely utilize confidentiality and licensing agreements with our employees, the virtual and blended public schools, traditional schools, school districts and private schools that we serve, individual consumers, contractors and other businesses and persons with which we have commercial relationships.\nOur patent portfolio includes five U.S.-issued patents and one foreign-issued patents directed towards various aspects of our educational products and offerings. Three of the U.S.-issued patents encompass our system and methods of virtual schooling and online foreign language instruction. The other two U.S.-issued patents and the foreign-issued patent encompass our system and method for producing, delivering and managing educational material.\nWe own copyrights related to the lessons contained in the courses that comprise our proprietary curriculum. We also have obtained federal, state and foreign registrations for numerous trademarks that are related to our offerings, and we have applied to the U.S. Patent and Trademark Office to register certain new trademarks.\nWe grant licenses to individuals to use our software and access our online learning systems. Similarly, schools are granted licenses to utilize our online learning systems and other systems. These licenses are intended to protect our ownership and the confidentiality of the embedded information and technology contained in our software and systems. We also own many of the trademarks and service marks that we use as part of the student recruitment and branding services we provide to schools. Those marks are licensed to the schools for use during the term of the products and services agreements.\nOur employees, contractors and other parties with access to our confidential information sign agreements that prohibit the unauthorized use or disclosure of our proprietary rights, information and technology.\nHuman Capital Resources\nAs of June 30, 2023, we had approximately 7,800 employees, including approximately 4,400 teachers. Substantially all of these employees are located in the United States. In addition, there are approximately 3,400 teachers \u00a0who are employed by virtual or blended public schools that we manage under contracts with those schools but are not direct employees of Stride. None of our employees are represented by a labor union or covered by a collective bargaining agreement; however, certain schools we serve employ unionized teachers. We believe that our employee relations are good.\nOur success depends in large part on continued employment of senior management and key personnel who can effectively operate our business, which is necessary in the highly regulated public education sector involving a publicly traded for profit company. We believe a critical component to our success depends on the ability to attract, develop and retain key personnel. \nWe select and hire based upon our values of making an impact on the lives of our students. In addition to annual goals, and individual job duties, we consider demonstration of our core values\u2014passion, accountability, courage, trust, and inclusiveness\u2014an important factor in performance appraisals.\n14\n\n\nTable of Contents\nWe support professional development opportunities that reflect our desire to \u2018hire from within\u2019 and to enhance employees\u2019 skillsets in ways that improve their effectiveness and sense of fulfillment. We offer our employees many different professional development opportunities through job related training and a number of benefit programs, including a Tuition Assistance Benefit, discount tuition options with several participating colleges and universities, and discounted options to access K-12 curriculum.\nAt our Company, we uphold a workplace culture that celebrates diversity and embraces inclusion. We are proud of our diverse workforce and recognize the value diversity brings to our team. \n\u25cf\n50% of our Board is comprised of minorities and 30% are women.\n\u25cf\n65% of our executive leadership team is comprised of minorities and women.\n\u25cf\n81% of our full-time employees are women.\n\u25cf\nFor direct education-related roles, largely the K-12 teacher population, employee demographics mirror national averages for these positions.\nWe continue to recognize opportunities to improve our gender equity and minority representation. Various efforts are underway to create a more diverse workforce that supports our learner community, including robust professional, managerial, and leadership development programs. In addition, we offer customized training for teams, as well as training that focuses on diversity and inclusion topics, including unconscious bias training for all employees.\nCorporate Information\nOur website address is www.stridelearning.com.\nAvailable Information\nWe make available, free of charge through the Investors section of our website (www.stridelearning.com), our annual reports on Form 10 K, quarterly reports on Form 10 Q, current reports on Form 8 K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d), promptly after they are electronically filed with the Securities and Exchange Commission (the \u201cSEC\u201d). These filings are also available on the SEC\u2019s website at www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our earnings conference calls are web cast live via the Investors section of our website. Information contained on our website is expressly not incorporated by reference into this Annual Report. \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \n\u200b\nRegulation\nWe and the virtual and blended public schools that we serve are subject to regulation by and laws of each of the states in which we operate. The state laws and regulations that impact our business are primarily those that authorize or restrict our ability to operate these schools, the applicable funding mechanisms for the schools and the increasing number of states with their own, unique privacy laws. To the extent these schools receive federal funds, such as through a grant program or financial support dedicated for the education of low income families, these schools also become subject to additional federal regulation.\nState Laws Authorizing or Restricting Virtual and Blended Public Schools.\n The authority to operate a virtual or blended public school is dependent on the laws and regulations of each state. Laws and regulations vary significantly from one state to the next and are constantly evolving. In states that have implemented specific legislation to support virtual and blended public schools, the schools are able to operate under these statutes. Other states provide for virtual and blended public schools under existing public charter school legislation or provide that school districts and/or state education agencies may authorize them. Some states do not currently have legislation that provides for virtual and blended public schools or have requirements that effectively prohibit such schools and, as a result, may require new legislation before virtual and blended public schools can open in the state. \n15\n\n\nTable of Contents\nObtaining new legislation in the remaining states where we do not have virtual and blended public schools can be a protracted and uncertain process. When determining whether to pursue expansion into new states in which the laws are ambiguous, we research the relevant legislation and policy climate and then make an assessment of the perceived likelihood of success before deciding to commit resources. \nState Laws and Regulations Applicable to Virtual and Blended Public Schools.\n A virtual or blended public school that fails to comply with the state laws and regulations applicable to it may be required to repay these funds and could become ineligible for receipt of future state funds. To be eligible for state funding, some states require that virtual and blended public schools be organized as not-for-profit charters exempt from taxation under Section\u00a0501(c)(3) of the Internal Revenue Code of 1986, as amended. The schools must then be organized exclusively for charitable educational purposes, and not for the benefit of private, for-profit management companies. The board or governing authority of the not-for-profit virtual or blended public school must retain ultimate accountability and control for the school\u2019s operations to retain its tax-exempt status. It may not delegate its responsibility and accountability for the school\u2019s operations. Our service agreements with these virtual and blended public schools are, therefore, structured to ensure the full independence of the not-for-profit board and preserve its arms-length ability to exercise its fiduciary obligations to operate a virtual or blended public school.\nLaws and regulations affect many aspects of operating a virtual or blended public school. They can dictate the content and sequence of the curriculum, the methods for counting student enrollments for funding purposes, graduation requirements, use of approved textbooks, the length of the school year and the school day, the accessibility of curriculum and technology to students with disabilities, teacher to student ratios, specific credentialing of teachers and administrators, the assessment of student performance and any accountability requirements. In addition, a virtual or blended public school may be obligated to comply with states\u2019 requirements to offer programs for specific populations, such as students at risk of dropping out of school, advanced and talented students, non-English speaking students, pre-kindergarten students and students with disabilities. Tutoring services and the use of technology may also be regulated. Other state laws and regulations may affect the school\u2019s compulsory attendance requirements, treatment of absences and make-up work, and access by parents to student records and teaching and testing materials.\nIn addition to federal laws protecting the privacy of student education records, a growing number of states are enacting laws to protect the privacy of student data and to guard against its misuse. As a general matter, these laws are designed to prevent third-party vendors to schools from using student data for non-educational purposes and ensuring the security of personally identifiable information. In addition, virtual or blended public schools may have to comply with state requirements that school campuses report various types of data as performance indicators of the success of the program.\nStates have laws and regulations concerning the certification, training, experience and continued professional development of teachers and staff with which a virtual or blended public school may be required to comply. There are also numerous laws pertaining to employee salaries and benefits, statewide teacher retirement systems, workers\u2019 compensation, unemployment benefits and matters related to employment agreements and procedures for termination of school employees. State labor laws applicable to public-sector employees and their rights to organize may also apply to virtual charter schools, such as teachers they employ. A virtual or blended public school must also comply with requirements for performing criminal background checks on school staff, reporting criminal activity by school staff and reporting suspected child abuse. \u00a0An increasing number of states are also enacting more general laws about personal information that apply regardless of whether the individual is a student.\nAs with any public school, virtual and blended public schools must comply with state laws and regulations applicable to governmental entities, such as open meetings or sunshine laws, which may require the board of trustees of a virtual or blended public school to provide advance public notice of and hold its meetings open to the public unless an exception in the law allows an executive session. Failure to comply with these requirements may lead to personal civil and/or criminal penalties for board members or officers or the invalidation of actions taken during meetings that were not properly noticed and open to the public. Virtual and blended public schools must also comply with public information or open records laws, which require them to make school records available for public inspection, review and copying unless a specific exemption in the law applies. Additionally, laws pertaining to records privacy and retention and to standards for maintenance of records apply to virtual and blended public schools.\nOther types of regulation applicable to virtual and blended public schools include restrictions on the use of public funds, the types of investments made with public funds, accounting and financial management, and marketing practices.\n16\n\n\nTable of Contents\nThere remains uncertainty about the extent to which virtual and blended public schools we serve may be required to comply with state laws and regulations applicable to traditional public schools because the concept of virtual and blended public schools is still evolving, especially as technology advances. Although we receive state funds indirectly, according to the terms of each service agreement with the local public school entity, our receipt of state funds subjects us to extensive state regulation and scrutiny. States routinely conduct audits of these schools, to verify enrollment, attendance, information technology security, fiscal accountability, special education services and other regulatory issues. While we may believe that a virtual public school or blended school we serve is compliant with state law, an agency\u2019s different interpretation of law in a particular state, or the application of facts to such law, could result in findings of non-compliance, potentially affecting future funding or repayment of past funding.\nRegulations Restricting Virtual and Blended Public School Growth and Funding.\n As a public schooling alternative, some state and regulatory authorities have elected to proceed cautiously with virtual and blended public schools. Statutes or regulations that hinder our ability to serve certain jurisdictions include: restrictions on student eligibility, such as mandating attendance at a traditional public school prior to enrolling in a virtual or blended public school; caps on the total number of students in a virtual or blended public school; restrictions on grade levels served; geographic limitations on enrollments; fixing the percentage of per pupil funding that must be paid to teachers; state-specific curriculum requirements; limits on the number of charters that can be granted in a state; and requirements to obtain approval from a student\u2019s resident school district.\nFunding regulations for virtual public schools and blended schools can take a variety of forms. These regulations include: (i)\u00a0attendance\u2014some state daily attendance rules were designed for traditional classroom procedures, and applying them to track daily attendance and truancy in an online setting can cause disputes to arise over interpretation and funding; (ii)\u00a0enrollment eligibility\u2014some states place restrictions on the students seeking to enroll in virtual and blended public schools, resulting in lower aggregate funding levels; (iii)\u00a0teacher contact time\u2014some states have regulations that specify minimum levels of teacher-student face-to-face time; and (iv) completion of course work. These regulations can create logistical challenges for statewide virtual and blended public schools, reduce funding and eliminate some of the economic, academic and technological advantages of virtual learning.\nFederal and State Grants.\n We have worked with some entities to secure public and grant funding that flows to virtual and blended public schools that we serve. These grants are awarded to the local or state education agency or to the not-for-profit entity that holds the charter of the virtual or blended public school on a competitive basis in some instances and on an entitlement basis in other instances. Grants awarded to public schools and programs\u2014whether by a federal or state agency or nongovernmental organization\u2014often include reporting requirements, procedures and obligations.\nFederal Laws Applicable to Virtual Public Schools and Blended Schools\nFive primary federal laws are directly applicable to the day-to-day provision of educational services we provide to virtual and blended public schools:\nEvery Student Succeeds Act (\u201cESSA\u201d). \nUnder the ESSA, the states have the discretion to develop and design their own accountability systems within a broad federal framework. In addition, states have been given the authority to adopt different types of annual accountability plans for school performance, including proficiency and growth standards for all students and subgroups. The ESSA makes clear that the U.S. Department of Education has a limited role to impose federal mandates, direction or control over the authority given to the states. \u00a0Notwithstanding these federal limitations, states are still required under ESSA to test students in reading or language arts and math annually in grades 3-8 and once in grades 10-12, and in science once in each of the following grade spans: 3-5, 6-9 and 10-12. All states have plans approved by the U.S. Department of Education to demonstrate compliance with ESSA.\nIndividuals with Disabilities Education Act (\u201cIDEA\u201d).\n \u00a0The IDEA is implemented through regulations governing every aspect of the special education of a child with one or more specific disabilities that fit within any of the disability categories listed in the Act. The IDEA created a responsibility on the part of a school to identify students who may qualify under the IDEA and to perform periodic assessments to determine the students\u2019 needs for services. A student who qualifies for services under the IDEA must have in place an individual education plan, which must be updated at least annually, created by a team consisting of school personnel, the student, and the parent. This plan must be implemented in a setting where the child with a disability is educated with non-disabled peers to the maximum extent appropriate. IDEA provides the student and parents with numerous due process rights relating to the student\u2019s program and education, including the right to seek mediation of disputes and make complaints to the state education agency. The schools we manage are \n17\n\n\nTable of Contents\nresponsible for ensuring the requirements of IDEA are met. The virtual public schools and blended schools are required to comply with certain requirements in IDEA concerning teacher certification and training. We, the virtual public school or the blended school could be required to provide additional staff, related services, supplemental aids and services or a private school option at our own cost to comply with the requirement to provide a free appropriate public education to each child covered under the IDEA. If we fail to meet this requirement, we, the virtual public school or blended school could lose federal funding and could be liable for compensatory educational services, reimbursement to the parent for educational service the parent provided and payment of the parent\u2019s attorney\u2019s fees.\nThe Rehabilitation Act of 1973 and the Americans with Disabilities Act.\n \u00a0A virtual public school or blended school receiving federal funds is subject to Section\u00a0504 of the Rehabilitation Act of 1973 (\u201cSection\u00a0504\u201d) insofar as the regulations implementing the Act govern the education of students with disabilities as well as personnel and parents. Section\u00a0504 prohibits discrimination against a person on the basis of disability in any program receiving federal financial assistance if the person is otherwise qualified to participate in or receive benefit from the program. Students with disabilities not specifically listed in the IDEA may be entitled to specialized instruction or related services pursuant to Section\u00a0504 if their disability substantially limits a major life activity. Beginning in 2011, the Office of Civil Rights of the United States Department of Education interpreted both Section\u00a0504 and Title II of the Americans with Disabilities Act to apply to elementary and secondary schools and to require that students with disabilities be afforded substantially equivalent ease of use as students without disabilities. As applied to online public schools, such \u201cweb accessibility\u201d requires technical capabilities similar to those applied to procurements of information technology by the federal government under Section\u00a0508 of the Rehabilitation Act of 1973 (\u201cSection\u00a0508\u201d) or standards adopted by the world-wide web consortium, such as Web Content Accessibility Guidelines (\u201cWCAG\u201d) Level A and Level AA. If a school fails to comply with the requirements and the procedural safeguards of Section\u00a0504, it may lose federal funds even though these funds flow indirectly to the school through a local board. In the case of bad faith or intentional wrongdoing, some courts have awarded monetary damages to prevailing parties in Section\u00a0504 lawsuits. Because there is no federal rule setting a uniform technical standard for determining web accessibility under Section 508 and Title II of the ADA, online service providers have no uniform standard of compliance. \u00a0Some states have adopted the standards promulgated under Section 508 while others require WCAG Level A and/or Level AA or their own unique standards.\nFamily Educational Rights and Privacy Act (\u201cFERPA\u201d).\n Virtual public schools and blended schools are also subject to the FERPA which protects the privacy of a student\u2019s educational records and generally prohibits a school from disclosing a student\u2019s records to a third party without the parent\u2019s prior consent. The law also gives parents certain procedural rights with respect to their minor children\u2019s education records. A school\u2019s failure to comply with this law may result in termination of its eligibility to receive federal education funds. Schools that contract with vendors that violate FERPA may be prohibited from contracting with the vendor for five years.\nCommunications Decency Act.\n The Communications Decency Act of 1996 (\u201cCDA\u201d) provides protection for online service providers against legal action being taken against them because of certain actions of others. For example, the CDA states that no provider or user of an interactive computer service shall be treated as the publisher or speaker of any data given by another provider of information content. Further, Section\u00a0230 of the CDA grants interactive online services of all types, broad immunity from tort liability so long as the information at issue is provided or posted by a third party. As part of our technology services offering, we provide an online school platform on which teachers and students \u00a0may communicate. We also conduct live classroom sessions using Internet-based collaboration software and we may offer certain online community platforms for students and parents. While the CDA affords us with some protection from liability associated with the interactive online services we offer, there are exceptions to the CDA that could result in successful actions against us that give rise to financial liability.\nOther Federal Laws.\n Other federal laws also apply to virtual managed schools, in some cases depending on the demographics associated with a school. For example, Title VI of the Civil Rights Act of 1964 has been deemed to apply to ELL Students, as further defined in the joint guidance issued by the U.S. Departments of Justice and Education in January 2015. Title IX of the Education Amendments of 1972 also applies, which prohibits discrimination on the basis of gender in education programs, activities\u00a0and employment, applies to all schools that receive federal funds. There are also other federal laws and regulations that affect other aspects of our business such as the Children\u2019s Online Privacy Protection Act (\u201cCOPPA\u201d), which imposes certain parental notice and other requirements on us that are directed to children under 13 years of age who access the web-based schools we manage. In addition, the Children\u2019s Internet Protection Act requires that school districts that receive certain types of federal funding must ensure that they have technology which blocks or filters certain material from being accessed through the Internet. We have developed procedures by which computers that we ship to students meet this requirement. Many other federal and state laws, such as deceptive trade practices laws, the \n18\n\n\nTable of Contents\nLanham Act and others apply to us, just as they do to other businesses. If we fail to comply with these and other federal laws, we could be determined ineligible to receive funds from federal programs or face penalties.\n\u200b\nLaws and Regulations Applicable to Consumer Education Products offered by Galvanize, Tech Elevator and MedCerts\nState Laws Authorizing or Restricting Private Post-Secondary Schools.\n The authority to operate a private post-secondary school is dependent on the laws and regulations of each state. Laws and regulations vary significantly from one state to the next and are constantly evolving, with regulatory authority vesting under various state agencies. Galvanize, Tech Elevator and MedCerts each currently operate in a multi-jurisdictional regulatory environment, maintaining licenses in several states. In states that have implemented specific legislation to license and oversee private post-secondary schools, Galvanize, Tech Elevator and MedCerts are able to operate under these statutes. State laws and regulations affect many aspects of operating a private post-secondary school, including, but not limited to, requiring the content and sequence of the curriculum, the methodology for counting student enrollments and reporting outcomes, graduation requirements, the duration of the approved program, the accessibility of curriculum and technology to students with disabilities, specific credentialing of teachers and administrators, the assessment of student performance, accountability requirements, and compliance with student record collection and retention requirements.\nOther types of state regulations applicable to private post-secondary schools include, but are not limited to, restrictions on the use of scholarships and tuition discounts, student payment policies and the collection of and use of student fees, accounting and financial management, and limitations on marketing and advertising practices. \u00a0States also have laws and regulations concerning the certification, training, experience and continued professional development of teachers and staff with which private post-secondary schools may be required to comply. Additionally, state unfair competition and consumer protection laws and regulations apply to Galvanize, Tech Elevator and MedCerts in their dealings with the public, which include limitations on advertising and disclosures, and the structure of financing methods for consumer customers. Lastly, additional regulations and student outcome reporting requirements may affect Galvanize, Tech Elevator and MedCerts should they seek funding related to the Workforce Innovation and Opportunity Act in any given state. \u00a0\nFederal Laws Applicable \nEach of Galvanize, Tech Elevator and MedCerts does not qualify or receive Title IV funding under the Higher Education Act but is eligible for federal funding through its veteran's education and workforce programs. \u00a0As such, each is required to comply with the anti-discrimination provisions of Title VI of the Civil Rights Act of 1964, Title IX of the Education Amendments of 1972, as amended, Section 504 of the Rehabilitation Act of 1973, the Age Discrimination Act of 1975, and all Federal regulations adopted to carry out such laws. If we fail to comply with these federal laws, we could be determined ineligible to receive funds from federal programs or face penalties.\n \n\u200b\n19\n\n\nTable of Contents",
+  "item1a": ">ITEM 1A. \u00a0\nRISK FACTORS\nRisk Factors Summary\nThe following summary description sets forth an overview of the material risks we are exposed to in the normal course of our business activities. The summary does not purport to be complete and is qualified in its entirety by reference to the full risk factor discussion immediately following this summary description. Our business, results of operations and financial conditions, as well as your investment in our common stock, could be materially and adversely affected by any of the following material risks:\n\u25cf\nThe majority of our revenues come from our school-as-a-service offering and depends on per pupil funding amounts and payment formulas remaining near levels existing at the time we execute service agreements with the schools we serve;\n\u25cf\nAny failure to comply with applicable laws or regulations, the enactment of new laws or regulations, poor academic performance or misconduct by us or operators of other virtual public schools;\n\u25cf\nOpponents of public charter schools could prevail in challenging the establishment and expansion of such schools through the judicial process;\n\u25cf\nDisputes over our inability to invoice and receive payments for our services due to ambiguous enabling legislation and interpretive discrepancies by regulatory authorities;\n\u25cf\nAny failure to renew an authorizing charter for a virtual or blended public school;\n\u25cf\nActual or alleged misconduct by current or former directors, officers, key employees or officials;\n\u25cf\nChanges in the objectives or priorities of the independent governing bodies of the schools we serve;\n\u25cf\nAny nonpayment or nonperformance by our customers, including due to actions taken by the independent governing authorities of our customers;\n\u25cf\nAny failure to renew a contract for a school-as-a-service offering, which is subject to periodic renewal;\n\u25cf\nAny failure to enroll or re-enroll a significant number of students by the schools we serve;\n\u25cf\nThe enrollment data we present may not fully capture trends in our business performance;\n\u25cf\nOur marketing efforts may not be effective and changes in our marketing efforts and enrollment activities could lead to declines in enrollment;\n\u25cf\nThe student demographics of the schools we serve can lead to higher costs;\n\u25cf\nThe ability to meet state accountability testing standards and achieve parent and student satisfaction; \n\u25cf\nCompliance with curriculum standards and assessments for individual state determinations under the ESSA;\n\u25cf\nRisks due to mergers, acquisitions and joint ventures;\n\u25cf\nNegative impacts caused by the actions of activist stockholders;\n\u25cf\nMarket demand for online options in public schooling may decrease or not continue, or additional states may not authorize or adequately fund virtual or blended public schools;\n\u25cf\nIncreasing competition in the education industry sectors that we serve;\n20\n\n\nTable of Contents\n\u25cf\nThe continuous evolution of regulatory frameworks on the accessibility of technology and curriculum;\n\u25cf\nDifferences between our quarterly estimates and the actual funds received and expenses incurred by the schools we serve;\n\u25cf\nSeasonal fluctuations in our business;\n\u25cf\nOur ability to create new products, expand distribution channels and pilot innovative educational programs;\n\u25cf\nOur ability to recruit, train and retain quality certified teachers;\n\u25cf\nHigher operating expenses and loss of management flexibility due to collective bargaining agreements;\n\u25cf\nOur reliance on third-party service providers to host some of our solutions;\n\u25cf\nAny problems with our Company-wide ERP and other systems;\n\u25cf\nOur ability to maintain and enhance our product and service brands;\n\u25cf\nOur ability to protect our valuable intellectual property rights, or lawsuits against us alleging the infringement of intellectual property rights of others;\n\u25cf\nAny legal liability from the actions of third parties;\n\u25cf\nAny failure to maintain and support customer facing services, systems, and platforms;\n\u25cf\nAny failure to prevent or mitigate a cybersecurity incident affecting our systems, or any significant interruption in the operation of our data centers;\n\u25cf\nOur reliance on the Internet to enroll students and to deliver our products and services;\n\u25cf\nFailure to comply with data privacy regulations;\n\u25cf\nAny failure by the single vendor we use to manage, receive, assemble and ship our learning kits and printed educational materials;\n\u25cf\nAny significant interruption in the operation of AWS or Azure could cause a loss of data and disrupt our ability to manage our technological infrastructure;\n\u25cf\nScale and capacity limits on some of our technology, transaction processing systems and network hardware and software;\n\u25cf\nOur ability to keep pace with changes in our industry and advancements in technology; \n\u25cf\nOur ability to attract and retain key executives and skilled employees; \n\u25cf\nOur ability to obtain additional capital in the future on acceptable terms; and\n\u25cf\nThe possibility that a material misstatement of our annual or interim financial statements, resulting from a material weakness in our internal control over financial reporting, would not be prevented or detected on a timely basis.\n\u200b\n21\n\n\nTable of Contents\nRisks Related to Government Funding and Regulation of Public Education\nThe majority of our revenues come from our comprehensive school-as-a-service offering in both the General Education and Career Learning markets and depends on per pupil funding amounts and payment formulas remaining near the levels existing at the time we execute service agreements with the schools we serve. If those funding levels or formulas are materially reduced or modified due to economic conditions or political opposition, or new restrictions are adopted or payments delayed, our business, financial condition, results of operations and cash flows could be adversely affected.\nThe public schools we contract with are financed with government funding from federal, state and local taxpayers. Our business is primarily dependent upon those funds with a majority of our revenue coming from our comprehensive school-as-a-service offerings in both the General Education and Career Learning markets. Budget appropriations for education at all levels of government are determined through a legislative process that may be affected by negative views of for-profit education companies, recessionary conditions in the economy at large, or significant declines in public school funding. The results of federal and state elections can also result in shifts in education policy and the amount of funding available for various education programs. \u00a0\nThe political process and potential variability in general economic conditions, including due to possible pandemics, rising inflation and geo-political instability, create a number of risks that could have an adverse effect on our business including the following:\n\u200b\n\u25cf\nLegislative proposals can and have resulted in budget or program cuts for public education, including the virtual and blended public schools and school districts we serve, and therefore have reduced and could potentially limit or eliminate the products and services those schools purchase from us, causing our revenues to decline. From time to time, proposals are introduced in state legislatures that single out virtual and blended public schools for disparate treatment.\n\u25cf\nEconomic conditions, including current and future business disruptions and debt and equity market volatility caused by changing interest rates, rising inflation, the government closures of various banks and liquidity concerns at other financial institutions, geo-political instability, possible pandemics and the potential for local and/or global economic recession, could reduce state education funding for all public schools or cause a delay in the payment of government funding to schools and school districts or a delay in payments to us for our products or services, the effects of which could be disproportionate for the schools we serve. Our annual revenue growth is impacted by changes in federal, state and district per pupil funding levels. For example, due to the budgetary problems arising from the 2008 recession, many states reduced per pupil funding for public education affecting many of the public schools we serve, including even abrupt midyear cuts in certain states, which in some cases were retroactively applied to the start of the school year as a result of formulaic adjustments. In addition, as we enter into service and product agreements with multiple schools in a single state, the aggregate impact of funding reductions applicable to those schools could be material. For example, we have agreements with 13 schools in California and while each school is independent with its own governing authority and no single school in California accounts for more than 10% of our revenue, regulatory actions that affect the level or timing of payments for all similarly situated schools in that state could adversely affect our financial condition. The specific level of federal, state and local funding for the coming years is not yet known for specific states and, when taken as a whole, it is reasonable to believe that a number of the public schools we serve could experience lower per pupil enrollment funding, while others may increase funding, as economic conditions or political conditions change.\n\u25cf\nAs a public company, we are required to file periodic financial and other disclosure reports with the SEC. This information may be referenced in the legislative process, including budgetary considerations, related to the funding of alternative public school options, including virtual public schools and blended schools. The disclosure of this information by a for-profit education company, regardless of parent satisfaction and student performance, may nonetheless be used by opponents of virtual and blended public schools to propose funding reductions or restrictions.\n\u25cf\nFrom time to time, government funding to schools and school districts is not provided when due, which sometimes causes the affected schools to delay payments to us for our products and services. These payment delays have occurred in the past and can deprive us of significant working capital until the matter is resolved, which could hinder our ability to implement our growth strategies and conduct our business. For example, in \n22\n\n\nTable of Contents\nfiscal year 2016, the Commonwealth of Pennsylvania was unable to approve a budget, including funding for public school education, and thus the Agora Cyber Charter School received no funds and could not make timely contractual payments to the Company for our products and services, even though we continued to incur the costs to keep the school operating.\nFailure to comply with regulatory requirements, poor academic performance, or misconduct by us or operators of other virtual public schools could tarnish the reputation of all the school operators in our industry, which could have a negative impact on our business or lead to punitive legislation.\nAs a non-traditional form of public education, online public school operators will be subject to scrutiny, perhaps even greater than that applied to traditional brick and mortar public schools or public charter schools. Not all virtual public schools will have successful academic programs or operate efficiently, and new entrants may not perform well either. Such underperformance could create the impression that virtual schooling is not an effective way to educate students, whether or not our learning systems achieve satisfactory performance. Consistently poor academic performance, or the perception of poor performance, could also lead to closure of an online public school or termination of an approved provider status in some jurisdictions, or to passage of legislation empowering the state to restructure or close low-performing schools. For example, a 2016 Nevada law expanded a charter authorizer\u2019s ability to terminate a charter based upon academic performance or to reconstitute a school\u2019s governing board, and a 2013 Tennessee law included academic performance criteria applicable only to virtual schools. \nBeyond academic performance issues, some virtual school operators, including us, have been subject to governmental investigations alleging, among other things, false attendance reporting, the misuse of public funds or failures in regulatory compliance. These allegations have attracted significant adverse media coverage and have prompted legislative hearings and regulatory responses. \u00a0Investigations have focused on specific companies and individuals, or even entire industries, such as the industry-wide investigation of for-profit virtual schools initiated by the Attorney General of California in 2015. The precise impact of these governmental investigations on our current and future business is difficult to discern, in part because of the number of states in which we operate and the range of purported malfeasance or performance issues involved. If these situations, or any additional alleged misconduct, cause all virtual public schools to be viewed by the public and/or policymakers unfavorably, we may find it difficult to expand into new states or renew our contracts with our clients.\nOpponents of public charter schools, including virtual and blended, have sought to challenge the establishment and expansion of such schools through the judicial process. If these interests prevail, it could damage our ability to sustain or grow our current business or expand in certain jurisdictions.\nWe have been, and will likely continue to be, subject to public policy lawsuits by those who do not share our belief in the value of this form of public education or the involvement of for-profit education management companies. Whether we are a named party to these lawsuits, legal claims have involved challenges to the constitutionality of authorizing statutes, methods of instructional delivery, funding provisions and the respective roles of parents and teachers that can potentially affect us. For example, the Louisiana Association of Educators, an affiliate of a national teachers union, sought to terminate funding on state constitutional grounds to certain types of charter schools through the judicial process (including to a public school we serve), and while the teachers union was initially successful, the Louisiana Supreme Court reversed that decision in March 2018. \nSee Iberville Parish School Board v. Louisiana State Board of Elementary and Secondary Education\n.\nShould we fail to comply with the laws and regulations applicable to our business, such failures could result in a loss of public funding and an obligation to repay funds previously received, which could adversely affect our business, financial condition and results of operations.\nOnce authorized by law, virtual and blended public schools are generally subject to extensive regulation, as are the school districts we serve. These regulations cover specific program standards and financial requirements including, but not limited to: (i)\u00a0student eligibility standards; (ii)\u00a0numeric and geographic limitations or caps on enrollments; (iii)\u00a0state-specific curriculum requirements and standards; (iv)\u00a0restrictions on open-enrollment policies by and among districts; (v)\u00a0prescribed teacher-to-student ratios and teacher funding allocations from per pupil funding; (vi)\u00a0teacher certification and reporting requirements; and (vii) virtual school attendance reporting. State and federal funding authorities conduct regular program and financial audits of the public schools we serve to ensure compliance with applicable regulations. If a final determination of non-compliance is made, funds may be withheld, which could impair that school\u2019s \n23\n\n\nTable of Contents\nability to pay us for services in a timely manner, or the school could be required to repay funds received during the period of non-compliance. Additionally, the indemnity provisions in our standard service agreements, with virtual and blended public schools and school districts, may require us to return any contested funds on behalf of the school.\nAs an emerging form of public education with unique attributes, enabling legislation for online public schools is often ambiguous and subject to discrepancies in interpretation by regulatory authorities, which may lead to disputes over our ability to invoice and receive payments for services rendered.\nStatutory language providing for virtual and blended public schools is sometimes interpreted by regulatory authorities in ways that may vary from year to year making compliance subject to uncertainty. More issues normally arise during our first few school years of doing business in a state because such state\u2019s enabling legislation often does not address specific issues, such as what constitutes proper documentation for enrollment eligibility or attendance reporting in a virtual or blended school. From time to time there are changes to the regulators\u2019 approaches to determining the eligibility of students for funding purposes. Another issue may be differing interpretations on what constitutes a student\u2019s substantial completion of a semester in a public school or daily attendance requirements. These regulatory uncertainties may lead to disputes over our ability to invoice and receive payments for services rendered, or to disputes with auditors of public schools, which could adversely affect our business, financial condition and results of operations. For example, in October 2017, the California Department of Education commenced an audit covering, among other things, the average daily attendance records and associated funding provided to the California Virtual Academies (\u201cCAVAs\u201d), dependent on the proper method of counting the time-value and daily engagement of students enrolled in independent study programs provided by non-classroom based charter schools and the regulations applicable to such programs and schools. \nThe operation of virtual and blended public charter schools depends on the maintenance of the authorizing charter and compliance with applicable laws. If these charters are not renewed, our contracts with these schools would be terminated.\nIn many cases, virtual and blended public schools operate under a charter that is granted by a state or local authorizer to the charter holder, such as a community group or an established not-for-profit corporation, which typically is required by state law to qualify for student funding. In fiscal year 2023, a majority of our revenue was derived from our comprehensive school-as-a-service offerings in both the General Education and Career Learning markets, the majority of which were virtual and blended public schools operating under a charter. The service and products agreements for these schools are with the charter holder or the charter board. Non-profit public charter schools qualifying for exemption from federal taxation under Internal Revenue Code Section\u00a0501(c)(3) as charitable organizations must also operate on an arms-length basis in accordance with Internal Revenue Service rules and policies to maintain that status and their funding eligibility. In addition, many state public charter school statutes require periodic reauthorization. If a virtual or blended public school we support fails to maintain its tax-exempt status and funding eligibility, fails to renew its charter, or if its charter is revoked for non-performance or other reasons that may be due to actions of the independent charter board completely outside of our control, our contract with that school would be terminated. For example, in fiscal year 2018, the Buckeye Community Hope Foundation terminated the charter of Insight School of Ohio. \nActual or alleged misconduct by current or former directors, officers, key employees or officials could make it more difficult for us to enter into new contracts or renew existing contracts.\nIf we or any of our current or former directors, officers, key employees, or officials are accused or found to be guilty of serious crimes or civil violations, including the mismanagement or improper accounting of public funds, or violations of the federal securities laws, the schools we serve could be barred or discouraged from entering into or renewing service agreements with us. As a result, our business and revenues would be adversely affected.\nNew laws or regulations not currently applicable to for-profit education companies in the K-12 sector could be enacted and negatively impact our operations and financial results.\nAs the provision of online K-12 public education matures, policy or business practice issues may arise that could lead to the enactment of new laws or regulations similar to, or in addition to, laws or regulations applicable to other education industry sectors. For example, for-profit education companies that own and operate post-secondary colleges and programs depend in significant part on student loans provided by the federal government to cover tuition expenses and income sharing agreements, and federal laws prohibit incentive compensation for success in securing enrollments or financial aid to any person engaged in student recruiting or admission activities. In contrast, while students in virtual or \n24\n\n\nTable of Contents\nblended public K-12 schools are entitled to a public education with no federal or state loans necessary for tuition, laws could be enacted that make for-profit management companies serving such schools subject to similar recruitment or other restrictions. In keeping with good business practices, we do not award or permit incentive compensation to be paid to our public school program enrollment staff or contractors based on the number of students enrolled. New laws that specifically target for-profit education companies or education management organizations from operating public charter schools could also adversely affect our business, financial condition and results of operation. \nRisks Related to Our Business and Our Industry\nThe schools we contract with and serve are governed by independent governing bodies that may shift their priorities or change objectives in ways that are adverse to us and to the students who attend the school programs we administer, or they may react negatively to acquisitions or other transactions.\nWe contract with and provide a majority of our products and services to virtual and blended public schools governed by independent boards or similar governing bodies. While we typically share a common objective at the outset of our business relationship, over time our interests could diverge resulting in changes adverse to our business or the students enrolled in those schools. The governing boards of the schools we serve in which we hire the Principal or Head of School (\u201cHoS\u201d) may seek to employ their own HoS as a condition for contract renewal. This decision may potentially reduce the value of the programs they purchase from us by structurally separating the HoS from regular involvement with our virtual school management experts, employee-based professional development programs, and internal understanding of the proprietary curriculum and innovations we develop to improve academic performance. As these independent boards shift their priorities or change objectives, reduce or modify the scope of services and products we provide, or terminate their relationships with us, our ability to generate revenues consistently over time or to improve academic outcomes would be adversely affected.\nOur contracts for a school-as-a-service offering are subject to periodic renewal, and each year, some of these agreements are set to expire. If we are unable to renew several such contracts or if a single significant contract expires during a given year, our business, financial condition, results of operations and cash flow could be adversely affected.\nIn fiscal year 2023, we had contracts for our school-as-a-service offerings for 87 schools in 31 states and the District of Columbia. A portion of these contracts are scheduled to expire in any given year and may not be renewed or may be renewed on terms much less favorable to us. Most of these contracts include auto renewal provisions having significant advance notice deadlines. \u00a0The advance notice provisions are intended to allow sufficient time to engage in renewal negotiations before and during the final year of these contracts. A renewed contract could involve a restructuring of our services and management arrangements that could lower our revenue or even change how revenue and expenses are recognized. When the customer prefers the existing contract terms to be extended, it can elect to disregard the advance notice provision and have the contract automatically renew. If we are unable to renew contracts or if contract renewals have significantly less favorable terms or unbundle previously provided services, our business, financial condition, results of operations and cash flow could be adversely affected.\nIf the schools we serve fail to enroll or re-enroll a sufficient number of students, or we fail to enroll a significant number of students in the Career Learning programs for adult learners, our business, financial condition and results of operations will be adversely affected.\nA majority of our revenues are a direct function of how many students are enrolled in our school-as-a-service offerings, the number of school districts and students who subscribe to such district programs, and the enrollments in our international and private schools.\nBecause families have alternative choices both within and outside the public school system for educating their children, it is typical during each school year that some students withdraw from schools using our online education services and switch to their traditional local public schools, other charter school alternatives or private schools. While many of our school-as-a-service offerings also accept new student enrollment throughout the year where permitted, generally our average student enrollment declines as the school year progresses such that we serve on average fewer students at the end of any given school year than at the beginning of the year. If our school-as-a-service offerings experience higher withdrawal rates during the year and/or enroll fewer new students as the year progresses than we have experienced in the past, our revenues, results of operations and financial condition would be adversely affected.\n25\n\n\nTable of Contents\nSimilarly, at the start of each new school year, students who had remained enrolled through the end of the previous year may have graduated from the terminal grade in a school or have left our school-as-a-service offerings for any number of reasons. To the extent our school-as-a-service offerings do not retain previously enrolled students from the prior year, they must attract new students at the start of the year to sustain their average student enrollment year over year, as well as to grow their enrollment each year, based upon enrollment objectives determined by the governing authority of those schools. If the schools we serve in the aggregate are able only to sustain prior year enrollment levels, our revenues may not grow from the prior year, absent improved revenue capture or the addition of new schools. More fundamentally, if average student enrollment at the schools we serve declines from one year to the next, our revenues, results of operations and financial condition will be adversely affected.\nWe also contract with virtual public schools and school districts to provide marketing and enrollment services, and we provide similar services directly to our international and private schools. However, many of these customers are responsible for their own marketing and enrollment activities. Efforts on our part to sustain or increase enrollments in the face of higher student withdrawals or fewer returning students at the start of a school year may lead to higher costs for us, and may adversely affect our operating margin. If we or the virtual public schools and school districts are unsuccessful in marketing plans or enrollment processes for the schools, the average student enrollment at the schools may not grow or could even decline, and adversely affect our revenues, results of operations and financial condition.\nWe also derive revenues from our Galvanize, Tech Elevator and MedCerts offerings to adult learners. The vast majority of the enrollments in these programs are for shorter periods of time, and re-enrollments are not typical due to the nature of these offerings. Thus, we must continually attract and enroll new adult learners in order to maintain our revenues at current levels or grow our revenues. \u00a0Efforts on our part to sustain or increase enrollments in the face of lower enrollments compared to prior periods may lead to higher costs for us, and may adversely affect our operating margin. If we are unsuccessful in marketing plans or enrollment processes for these programs for adult learners, the average enrollment in our Galvanize, Tech Elevator or MedCerts offerings may not grow or could even decline, which could adversely affect our revenues, results of operations and financial condition.\nThe enrollment data we present is subject to certain limitations and may not fully capture trends in the performance of our business.\nWe periodically disclose enrollment data for students in our General Education and Career Learning lines of revenue. However, this data may not fully capture trends in the performance of our business for a number of reasons, including:\n\u25cf\nEnrollments for General Education and Career Learning only include those students in full service public or private programs where Stride provides a combination of curriculum, technology, instructional and support services inclusive of administrative support; \n\u25cf\nThis data includes enrollments for which Stride receives no public funding or revenue;\n\u25cf\nNo enrollments are included in Career Learning for Galvanize, Tech Elevator or MedCerts; and\n\u25cf\nOver time a student may move from being counted as a General Education enrollment to being counted as a Career Learning enrollment, or vice versa, depending on the educational choices made by each student, which choices in certain cases may be impacted by counseling from Stride employees, and this may result in enrollment growth in one line of revenue being offset by a corresponding decrease in enrollments for the other line of revenue. \u00a0 \u00a0 \u00a0 \u00a0\nAccordingly, changes in enrollment data may not entirely correspond with changes in the financial performance of our business, and if the mix of enrollments changes, our revenues will be impacted to the extent the average revenues per enrollments are significantly different.\nBecause the independent governing authorities of our customers may shift priorities or incur new obligations which have financial consequences, we may be exposed to the risk of loss resulting from the nonpayment or nonperformance by our customers and our financial condition, results of operations and cash flows could suffer.\u00a0\nThe independent boards or similar governing bodies may shift their priorities or incur new obligations, which may have financial consequences on our customers. If our customers were to cause or be subjected to situations that lead \n26\n\n\nTable of Contents\nto a weakened financial condition, dispute our invoices, withhold payments, or file for bankruptcy, we could experience difficulty and prolonged delays in collecting receivables, if at all. Any nonpayment or nonperformance by our customers could adversely affect our business, financial condition, results of operations and cash flows.\u00a0For example, in fiscal year 2017, as the Agora Cyber Charter School continued to operate as a self-managed charter school, it delayed its payments to us and our accounts receivable from the school have grown significantly, resulting in a revised payment schedule agreement, which accompanied a contract extension.\nAs we continue to refine our marketing efforts, and support the enrollment activities for our school-as-a-service offerings and adult learning programs, changes in our marketing efforts and enrollment activities could lead to a decline in overall enrollment at the schools we serve or at the adult learning programs we offer.\nAs parents evaluate school choices for their children, we are segmenting our marketing efforts to better attract students who are most likely to benefit from and succeed in virtual education programs and who are likely to remain enrolled with a virtual school over several years. Our research leads us to believe that students with parents who are active and regularly engaged in their education are more likely to be successful in a virtual school. In some cases, the governing authorities of these schools may request different enrollment policies or criteria. Our marketing efforts, therefore, may not be wholly successful, and could lead to an overall decline in enrollment for our school-as-a-service, thus adversely affecting our revenue, results of operations and financial condition.\nAdditionally, for our Galvanize, Tech Elevator and MedCerts offerings to adult learners, we are focusing our marketing and enrollment efforts to identify and attract adult learners in the \nsoftware engineering, healthcare and medical fields, as well as providing staffing and talent development services \nto employers and government agencies. However, our marketing efforts may not be successful. As a result, our overall enrollment in these adult learning programs may decline, and our revenue, results of operations and financial condition may be adversely affected.\nThe student demographics of the schools we serve can lead to higher costs and affect our ability to sustain or grow our operating income.\nThe schools we serve are publicly funded and are generally obligated to accept all students meeting state or district criteria for enrollment. Because an online education environment may offer a better educational opportunity for students falling behind grade level, our school-as-a-service offerings have experienced in recent years a higher academically at-risk student population, requiring supplemental student and family support services and closer one-on-one involvement by teachers and school personnel, leading to higher costs to us in providing full management and curriculum services to the schools. We consider students academically at-risk if they were not proficient on the previous year\u2019s state assessment, are credit-deficient, have previously dropped out, have failed courses, or score lower than average on diagnostic norm-referenced assessments. Some states have additional or different indicators to determine students who are at risk. These factors are used by the state to identify at-risk students in several states and have been found through research to impact future student performance. The schools we serve also enroll a significant percentage of special needs students with learning and/or physical disabilities, which also adds to the total costs incurred by the schools.\nEducation of high school students is generally more costly than K-8 as more teachers with subject matter expertise (e.g.,\u00a0chemistry, calculus) must be hired to support an expansive curriculum, electives, and counseling services. As the relative percentage of high school students increases as part of the total average enrollment in our school-as-a-service offerings, our costs are likely to increase.\nAs our cost structure evolves due to the demographics, educational profile and mix of the students enrolled in our school-as-a-service offerings, our profit margins may decline, and we may have increasing difficulty in sustaining or growing our operating income commensurate with our revenues.\nIf student performance falls, state accountability standards are not achieved, teachers or administrators tamper with state test scoring or graduation standards, or parent and student satisfaction declines, a significant number of students may not remain enrolled in a virtual or blended public school that we serve, charters may not be renewed or enrollment caps could be put in place, or enrollment practices could be limited, and our business, financial condition and results of operations will be adversely affected.\nThe success of our business depends in part on the choice of a family to have their child begin or continue his or her education in a virtual or blended public school that we serve. This decision is based on many factors, including student \n27\n\n\nTable of Contents\nperformance and parent and student satisfaction. Students may perform significantly below state averages or the virtual or blended public school may fail to meet state accountability standards. Like many traditional brick and mortar public schools, not all of the public schools we serve meet the requirements of their applicable accountability frameworks, as large numbers of new enrollments from students underperforming in traditional schools can decrease overall results or the underperformance of any one subgroup can lead to the entire school failing to meet accountability expectations and potentially lead to the school\u2019s closure. For example, in Tennessee, the Commissioner of Education has statutory authority to close a virtual school if an accountability trigger is met. In addition, although serving academically at-risk students is an important aspect of our obligation to educate any child regardless of circumstance, the performance of these students can adversely affect a school\u2019s standing under applicable accountability standards. We expect that, as our enrollments increase and the portion of students that have not used our learning systems for multiple years increases, the average performance of all students using our learning systems may decrease, even if the individual performance of other students improves over time. This effect may also be exacerbated if students enrolled in schools that we provide services to or acquire are predominately below state proficiency standards or experience low graduation rates. For example, at-risk students who attended the Electronic Classroom of Tomorrow (ECOT) schools in Ohio, which were closed in mid-school year 2017-18 by state regulators, and who then transferred to other public schools, including the Ohio Virtual Academy supported by us, could negatively impact a receiving school\u2019s overall academic performance ratings absent a different accountability measure applicable to such students or waiver of such standards. Moreover, under ESSA, state authorities may change their accountability frameworks in ways that negatively impact the schools we serve.\nStudents in the school-as-a-service offerings we serve are required to complete standardized state testing, and the frequency and the results of this testing may have an impact on school enrollment. The significant increase of testing undertaken at the state level has led some parents to opt out of state assessments, a parental right which is now codified in the ESSA, thereby resulting in an incomplete and potentially inaccurate assessment of school and student performance. To avoid the consequences of failing to meet applicable required proficiency, growth or accountability standards, teachers or school administrators may engage in improperly altering student test scores or graduation standards, especially if teacher performance and compensation are evaluated on these results. Finally, parent and student satisfaction may decline as not all parents and students are able to devote the substantial time and effort necessary to complete our curriculum. A student\u2019s satisfaction may also suffer if his or her relationship with the virtual or blended public school teacher does not meet expectations. If student performance or satisfaction declines, students may decide not to remain enrolled in a virtual or blended public school that we serve and our business, financial condition and results of operations could be adversely affected.\nCompliance with curriculum standards and assessments for individual state determinations under the ESSA may create ongoing challenges to ensure that our curriculum products align with state requirements, which could possibly cause academic performance to decline and dissatisfaction by our school customers which could limit our growth and profitability. \nUnder the ESSA, states will set their own curriculum standards in reading, math and science, and the federal government is prohibited from mandating or incentivizing states to adopt any set of particular standards, such as Common Core. States were also given the authority under the ESSA to craft their own assessment programs to measure the proficiency of their students for college and career readiness, and may also choose to offer already available nationally recognized assessments at the high school level, such as the SAT or ACT tests. As implementation proceeds at the state level, and use of the assessments previously developed by the Partnership for Assessment of Readiness for College and Careers and Smarter Balanced Assessment Consortium consortia continues to erode, a multitude of different standards and assessments may emerge and result in temporary misalignments of our curriculum offerings with state standards, cause academic performance to decline, create a need for additional teacher training and product investments, all of which could adversely affect our relationship with public school contracting with us for a school-as-a-service offering and school district customers, financial condition, contract renewals and reputation.\nMergers, acquisitions and joint ventures present many risks, and we may not realize the financial and strategic goals that formed the basis for the transaction.\nWhen strategic opportunities arise to expand our business, we may acquire or invest in other companies using cash, stock, debt, asset contributions or any combination thereof, such as the acquisitions of Galvanize in January 2020, Tech Elevator in November 2020 and MedCerts in November 2020. We may face risks in connection with these or other future transactions, including the possibility that we may not realize the anticipated cost and revenue synergies on a timely basis, or at all, or further the strategic purpose of any acquisition if our forecasts do not materialize. The pursuit of \n28\n\n\nTable of Contents\nacquisitions and their integrations may divert the resources that could otherwise be used to support and grow our existing lines of business. The combination of two or more independent enterprises is a complex, costly and time-consuming process. \u00a0Acquisitions may create multiple and overlapping product lines that are offered, priced and supported differently, which could cause customer confusion and delays in service. We may have difficulties coordinating sales and marketing efforts to effectively position the combined company\u2019s capabilities. Customers may decline to renew their contracts, or the contracts of acquired businesses might not allow us to recognize revenues on the same basis. These transactions and their integrations may also divert our management\u2019s attention, and our ongoing business may be disrupted by acquisition, transition or integration activities. In addition, we may have difficulty separating, transitioning and integrating an acquired company\u2019s systems, including but not limited to, financial accounting systems, information technology systems, transaction processing systems, internal controls and standards, and procedures and policies, and the associated costs in doing so may be higher than we anticipate.\nThere may also be other adverse effects on our business, operating results or financial condition associated with the expansion of our business through acquisitions. We may fail to identify or assess the magnitude of certain liabilities, shortcomings or other circumstances prior to acquiring a company or technology, which could result in unexpected operating expenses, unexpected accounting treatment, unexpected increases in taxes due or a loss of anticipated tax benefits. The acquired companies may not be able to achieve the levels of revenue, earnings or operating efficiency that we expect. Our use of cash to pay for acquisitions may limit other potential uses of our cash, including investment in other areas of our business, stock repurchases, dividend payments and retirement of outstanding indebtedness. If we issue a significant amount of equity for future acquisitions, existing stockholders may be diluted and earnings per share may decrease. We may pay more than the acquired company or assets are ultimately worth and we may have underestimated our costs in continuing the support and development of an acquired company\u2019s offerings. Our operating results may be adversely impacted by liabilities resulting from a stock or asset acquisition, which may be costly, disruptive to our business, or lead to litigation.\nWe may be unable to obtain required approvals from governmental authorities on a timely basis, if at all, which could, among other things, delay or prevent us from completing a transaction, otherwise restrict our ability to realize the expected financial or strategic goals of an acquisition or have other adverse effects on our current business and operations. We may face contingencies related to intellectual property, financial disclosures, and accounting practices or internal controls. Finally, we may not be able to retain key executives of an acquired company.\nTo execute our business plans, we depend upon the experience and industry knowledge of our officers and other key employees, including those who joined us as part of the Galvanize, Tech Elevator, and MedCerts acquisitions. The combined company\u2019s success will depend, in part, upon our ability to retain key management personnel and other key employees, some of which may experience uncertainty about their future roles with the combined company as a result of the acquisition. This may have a material adverse effect on our ability to attract and retain key personnel.\nThe occurrence of any of these risks could have a material adverse effect on our business, results of operations, financial condition or cash flows, particularly in the case of a larger acquisition or several concurrent acquisitions.\nOur business could be negatively affected as a result of actions by activist stockholders, and such activism could impact the trading value of our securities and harm our business, financial condition and results of operations.\nResponding to actions by activist stockholders can be costly and time consuming, disrupting our operations and diverting the attention of management and our employees. If activist stockholders were to emerge, their activities could interfere with our ability to execute our strategic plan and divert resources from our business. In addition, a proxy contest for the election of directors at our annual meeting would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention of management and our Board of Directors. Any perceived uncertainties as to our future direction also could affect the market price and volatility of our securities, cause key executives to leave the Company, adversely affect the relationships we have with our school board customers, and harm existing and new business prospects.\n29\n\n\nTable of Contents\nIf market demand for online options in public schooling does not increase or continue or if additional states do not authorize or adequately fund virtual or blended public schools, our business, financial condition and results of operations could be adversely affected.\nWhile historically we grew by opening new virtual public schools in new states, in recent years the pace of state expansion has declined while opening more schools in existing states has increased. In fiscal year 2023, we served 87 virtual public schools and blended schools in 31 states and the District of Columbia. Without adding additional states, our school-as-a-service revenues may become increasingly dependent on serving more virtual schools in existing states. We may also not be able to fill available enrollment slots as forecasted. If the market demand for virtual and blended public schools does not increase or declines, if the remaining states are hesitant to authorize virtual or blended public schools, if enrollment caps are not removed or raised, or if the funding of such schools is inadequate, our opportunities for growth and our ability to sustain our revenues, results of operations and financial condition would be adversely affected. \nIncreasing competition in the education industry sectors that we serve could lead to pricing pressures, reduced operating margins, loss of market share, departure of key employees and increased capital expenditures.\nAs a general matter, we face varying degrees of competition from a variety of education providers because our learning systems integrate all the elements of the education development and delivery process, including curriculum development, textbook publishing, teacher training and support, lesson planning, testing and assessment, job placement and industry-certified content, and school performance and compliance management. In both our General Education and Career Learning markets, we compete with companies that provide online curriculum and support services. We also compete with public school districts and state departments of education that offer K-12 online programs of their own or in partnership with other online curriculum vendors. As we pursue our post-secondary Career Learning strategic initiatives through our Galvanize, Tech Elevator and MedCerts subsidiaries, we will be competing with corporate training businesses and some employers that offer education as an employee benefit. We anticipate intensifying competition both from existing competitors and new entrants. Our competitors may adopt superior curriculum content, technology and learning platforms, school support or marketing approaches, and may have different pricing and service packages that may have greater appeal than our offerings. In addition, some of our school-as-a-service offerings could seek to transition to a self-managed school by inviting competitive alternatives to portions of the products and services now provided entirely by us under our integrated fully managed service agreements. If we are unable to successfully compete for new business, win and renew contracts, including fully managed public school contracts, or students fail to realize sufficient gains in academic performance, our revenues, opportunities for growth and operating margins may decline. Price competition from our current and future competitors could also result in reduced revenues, reduced margins or the failure of our product and service offerings to achieve or maintain more widespread market acceptance.\nWe may also face competition from publishers of traditional educational materials that are substantially larger than we are and have significantly greater financial, technical and marketing resources, and may enter the field through acquisitions and mergers. Many of these traditional publishers, or new market entrants, have developed their own online curriculum products and teaching materials that compete directly with our post-secondary Career Learning products. As a result, they may be able to devote more resources and move quickly to develop products and services that are superior to our platform and technologies. We may not have the resources necessary to acquire or compete with technologies being developed by our competitors, which may render our online delivery format less competitive or obsolete. These new and well-funded entrants may also seek to attract our key executives as employees based on their acquired expertise in virtual education where such specialized skills are not widely available.\nOur future success will depend in large part on our ability to maintain a competitive position with our curriculum and our technology, as well as our ability to increase capital expenditures to sustain the competitive position of our product and retain our talent base. We cannot assure that we will have the financial resources, technical expertise, marketing, distribution or support capabilities to compete effectively.\nRegulatory frameworks on the accessibility of technology and curriculum are continually evolving due to legislative and administrative developments and the rapid evolution of technology, which could result in increased product development costs and compliance risks.\nOur online curriculum is made available to students through websites, computers and other display devices connected to the Internet. The website platforms and online curriculum include a combination of software applications that include graphics, pictures, videos, animations, sounds and interactive content that may present challenges to \n30\n\n\nTable of Contents\nindividuals with disabilities. A number of states and federal authorities have considered or are considering how web-based information should be made accessible to persons with such disabilities. To the extent they enact or interpret laws and regulations to require greater accessibility than we currently provide, we may have to modify our offerings to satisfy those requirements. Because there is no federal rule setting a uniform technical standard for determining web accessibility under Section 508 and Title II of the ADA, online service providers have no uniform \u00a0standard of compliance. Some states have adopted the standards promulgated under Section 508 while others require WCAG Level A and/or Level AA or their own unique standards. In addition, Section 504 of the Rehabilitation Act of 1973 is designed to ensure that students with disabilities have an equal opportunity to access each school\u2019s website and online learning environment. To the extent that we enter into federal government contracts, different standards of compliance could be imposed on us under Section\u00a0508 of the Rehabilitation Act, or by states who apply these federal standards under Section 508 or other standards to education providers, which standards may be changed from time to time. \u00a0Beyond the significant product development costs associated with these evolving regulations, a failure to meet such requirements could also result in loss or termination of material contracts, inability to secure new contracts, or in potential legal liability.\nOur revenues from our school-as-a-service offerings are based in part on our estimate of the total funds each school will receive in a particular school year and our estimate of the full year expenses to be incurred by each school. As a result, differences between our quarterly estimates and the actual funds received and expenses incurred could have an adverse impact on our results of operations and cash flows.\nWe recognize revenues ratably from certain of our fees charged to school-as-a-service offerings over the course of our fiscal year. To determine the pro rata amount of revenues to recognize in a fiscal quarter, we estimate the total expected funds each school will receive in a particular school year. Additionally, we take responsibility for any operating deficits incurred at most of the school-as-a-service offerings we serve. Because this may impair our ability to collect the full amount invoiced in a period and therefore collection cannot reasonably be assured, we reduce revenues by the estimated pro rata amount of the school\u2019s net operating loss. We review our estimates of total funds and operating expenses periodically, and we revise as necessary, by adjusting our year-to-date earned revenues to be proportional to the expected revenues to be earned during the fiscal year. Actual school funding received and school operating expenses incurred may vary from our estimates or revisions and could adversely impact our revenues, results of operations and cash flows.\nOur business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter-to-quarter and adversely impact our working capital and liquidity throughout the year.\nOur operating results normally fluctuate as a result of seasonal variations in our business, principally due to the number of months in a fiscal quarter that our school customers are fully operational and serving students. In the typical academic year, our first and fourth fiscal quarters have fewer than three full months of operations, whereas our second and third fiscal quarters will have three complete months of operations. Instructional costs and services increase in the first fiscal quarter, primarily due to the costs incurred to ship learning kits at the beginning of the school year. These instructional costs may increase significantly quarter-to-quarter as school operating expenses increase. The majority of our selling and marketing expenses are incurred in the first and fourth fiscal quarters, as our primary enrollment season is April through September.\nWe expect quarterly fluctuations in our operating results to continue. These fluctuations could result in volatility and adversely affect our cash flow. As our business grows, these seasonal fluctuations may become more pronounced. As a result, we believe that sequential quarterly comparisons of our financial results may not provide an accurate assessment of our financial position.\n31\n\n\nTable of Contents\nRisks Related to Our Operations\nWe plan to continue to create new products, expand distribution channels and pilot innovative educational programs to enhance academic performance. If we are unable to effectively manage these initiatives or they fail to gain acceptance, our business, financial condition, results of operations and cash flows would be adversely affected.\nAs we create and acquire new products, expand our existing customer base and pilot new educational programs, we expect to face challenges distinct from those we currently encounter, including:\n\u25cf\nour continual efforts to innovate and pilot new programs to enhance student learning and to foster college and career opportunities, such as our Stride Career Prep schools which offer pathways for Career Learning, may not receive sufficient market acceptance to be economically viable;\n\u25cf\nthe ongoing transition of our curriculum from Flash to HTML, and our use of third-party educational platforms that we do not control, could create issues with customer satisfaction, early withdrawals and declines in re-registrations, and potentially harm our reputation; \n\u25cf\nthe acquisition or opening of additional school-as-a-service offering in states where we already have a contract with other schools can potentially complicate the school selection process for prospective parents, and present marketing differentiation challenges depending on the facts and circumstances in that state;\n\u25cf\nour development of public blended schools has raised different operational challenges than those we face with full-time virtual schools. Blended schools require us to lease facilities for classrooms, staff classrooms with teachers, sometimes provide meals and kitchen facilities, adhere to local safety and fire codes, purchase additional insurance and fulfill many other responsibilities;\n\u25cf\noperating in international markets may require us to conduct our business differently than we do in the United States or in existing countries. Additionally, we may have difficulty training and retaining qualified teachers or generating sufficient demand for our products and services in international markets. International opportunities will also present us with different legal, operational, tax and currency challenges;\n\u25cf\nthe use of our curriculum in classrooms will produce challenges with respect to adapting our curriculum for effective use in a traditional classroom setting;\n\u25cf\nour creation of curricula and instruction protocols for courses taught through our Galvanize, Tech Elevator and MedCerts subsidiaries requires us to rely upon specialized instructors and curriculum developers;\n\u25cf\nour online private school business is dependent on a tuition-based financial model and may not be able to enroll a sufficient number of students over time to achieve long-run profitability or deliver a high level of customer satisfaction; and\n\u25cf\nour participation in summer foreign language instruction camps through MIL could generate new legal liabilities and financial consequences associated with our responsibility for students housed on leased college campuses on a 24-hour basis over the duration of the camp.\nOur failure to manage these business expansion programs, or any new business expansion program or new distribution channel we pursue, may have an adverse effect on our business, financial condition, results of operations and cash flows.\nHigh-quality teachers are critical to the success of our learning systems. If we are not able to continue to recruit, train and retain quality certified teachers, our curriculum might not be effectively delivered to students, compromising their academic performance and our reputation. As a result, our brand, business and operating results may be adversely affected.\nHigh-quality teachers are critical to maintaining the value of our learning systems and assisting students with their daily lessons. In addition, teachers in the public schools we manage or who provide instruction in connection with \n32\n\n\nTable of Contents\nthe online programs we offer to school districts, must be state certified (with limited exceptions or temporary waiver provisions in various states), and we must implement effective internal controls in each jurisdiction to ensure valid teacher certifications, as well as the proper matching of certifications with student grade levels and subjects to be taught. Teachers must also possess strong interpersonal communications skills to be able to effectively instruct students in a virtual school setting, and the technical skills to use our technology-based learning systems. There is a limited pool of teachers with these specialized attributes and the public schools and school districts we serve must provide competitive benefits packages to attract and retain such qualified teachers.\nThe teachers in many public schools we serve are not our employees and the ultimate authority relating to those teachers resides with an independent not-for-profit governing body, which oversees the schools. However, under many of our service and product agreements with virtual and blended public schools, we have responsibility to recruit, train and manage these teachers. The teacher recruitment and student assignment procedures and processes for our school-as-a-service offerings must also comply with individual state certification and reporting requirements. We must also provide continuous training to virtual and blended public school teachers so they can stay abreast of changes in student needs, academic standards and other key trends necessary to teach online effectively, including measures of effectiveness. We may not be able to recruit, train and retain enough qualified teachers to keep pace with school demand while maintaining consistent teaching quality in the various public schools we serve. Shortages of qualified teachers, failures to ensure proper teacher certifications and course assignments in each state, or decreases in the quality of our instruction, whether actual or perceived, could have an adverse effect on our business.\nSchool teachers are subject to union organizing campaigns, and if the teachers employed by us or at the public schools we serve join a union, collective bargaining agreements negotiated with union representatives could result in higher operating expenses and the loss of management flexibility and innovation for which charter schools were created.\nIf the teachers at any one of the public schools we serve were to unionize, as is the case in California, the employer would become subject to a collective bargaining agreement with union representatives. A collective bargaining agreement could impact teacher salaries, benefits, work rules, teacher tenure and provide for restrictions on the teaching work-day and the time devoted to online instruction delivery or communications with students, and place limitations on the flexibility to reassign or remove teachers for inadequate performance. This could result in higher school-related expenses and could impede the sustainability of, or growth in, enrollment at the school due to the loss of management flexibility and innovation. The outcome could result in higher costs to us in providing educational support and curriculum services to the school, which may adversely affect our operating margins, overall revenues and academic performance results. \nWe rely on third-party service providers to host some of our solutions and any interruptions or delays in services from these third parties could impair the delivery of our products and harm our business.\nWe currently outsource some of our hosting services to third parties. We do not control the operation of any third-party facilities. These facilities are vulnerable to damage or interruption from natural disasters, fires, power loss, telecommunications failures and similar events. They are also subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. The occurrence of any of these disasters or other unanticipated problems could result in lengthy interruptions in our service. Furthermore, the availability of our proprietary and third-party LMSs could be interrupted by a number of additional factors, including our customers\u2019 inability to access the Internet, the failure of our network or software systems due to human or other error, security breaches or the ability of the infrastructure to handle spikes in customer usage. Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rates and our ability to attract new customers. Our business will also be harmed if our customers and potential customers believe our service is unreliable.\nWe operate a complex Company-wide enterprise resource planning (\u201cERP\u201d) system, and if it were to experience significant operating problems, it could adversely affect our business and results of operations.\nWe operate a complex Company-wide, Oracle-hosted, integrated ERP system to handle various business, operating and financial processes, which handles a variety of important functions, such as order entry, invoicing, accounts receivable, accounts payable, financial consolidation and internal and external financial and management reporting matters. If the ERP system experiences significant problems, it could result in operational issues including delayed billing and accounting errors and other operational issues which could adversely affect our business and results of operations. System delays or malfunctioning could also disrupt our ability to timely and accurately process and report results of our \n33\n\n\nTable of Contents\noperations, financial position and cash flows, which could impact our ability to timely complete important business processes.\nThe continued development of our product and service brands is important to our business. If we are not able to maintain and enhance these brands, our business and operating results may suffer.\nEnhancing brand awareness is critical to attracting and retaining students, and for serving additional virtual and blended public schools, school districts and online private schools, and we intend to spend significant resources to accomplish that objective. These efforts include sales and marketing directed to targeted locations as well as the national marketplace, discrete student populations, the educational community at large, key policy groups, image-makers and the media. As we continue to seek to increase enrollments and extend our geographic reach and product and service offerings, maintaining quality and consistency across all our services and products may become more difficult to achieve, and any significant and well-publicized failure to maintain this quality and consistency will have a detrimental effect on our brands. We cannot provide assurances that our new sales and marketing efforts will be successful in further promoting our brands in a competitive and cost-effective manner. If we are unable to further enhance our brand recognition and increase awareness of our products and services, or if we incur excessive sales and marketing expenses, our business and results of operations could be adversely affected.\nOur intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.\nOur patents, trademarks, trade secrets, copyrights, domain names and other intellectual property rights are important assets. For example, we have been granted three U.S. patents related to our provision of virtual schooling, including the system components for creating and administering assessment tests and our lesson progress tracker, and two U.S. patents related to foreign language instruction. Additionally, we are the copyright owner of courses in our proprietary curriculum.\nVarious events outside of our control pose a threat to our intellectual property rights. For instance, effective intellectual property protection may not be available in every country in which our products and services are distributed or made available through the Internet. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. If we fail to protect adequately our intellectual property through patents, trademarks and copyrights, license agreements, employment agreements, confidentiality agreements, nondisclosure agreements or similar agreements, our intellectual property rights may be misappropriated by others, invalidated or challenged, and our competitors could duplicate our technology or may otherwise limit any competitive technology advantage we may have. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time consuming. Any unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results.\nIt is possible that we may not be able to sufficiently protect our innovations. In addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important. Further, there is always the possibility that the scope of the protection gained will be insufficient or that an issued patent be deemed invalid or unenforceable.\nWe also seek to maintain certain intellectual property as trade secrets. This secrecy could be compromised by outside parties, whether through breach of our network security or otherwise, or by our employees or former employees, intentionally or accidentally, which would cause us to lose the competitive advantage resulting from these trade secrets. Third parties may acquire domain names that are substantially similar to our domain names leading to a decrease in the value of our domain names and trademarks and other proprietary rights.\nLawsuits against us alleging infringement of the intellectual property rights of others and such actions would be costly to defend, could require us to pay damages or royalty payments and could limit our ability or increase our costs to use certain technologies in the future.\nCompanies in the Internet, software, technology, education, curriculum and media industries own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. Regardless of the merits, intellectual property claims are time-consuming and expensive to litigate or settle. For example, a non-practicing entity sued us alleging that our proprietary learning \n34\n\n\nTable of Contents\nsystems infringed three of its patents although its lawsuit was ultimately dismissed on the merits in 2014. In addition, to the extent claims against us are successful, we may have to pay substantial monetary damages or discontinue certain products, services or practices that are found to be in violation of another party\u2019s rights. We may also have to seek a license and make royalty payments to continue offering our products and services or following such practices, which may significantly increase our operating expenses.\nWe may be subject to legal liability resulting from the actions of third parties, including independent contractors, business partners, or teachers, which could cause us to incur substantial costs and damage our reputation.\nWe may be subject, directly or indirectly, to legal claims associated with the actions of or filed by our independent contractors, business partners, or teachers. In the event of accidents or injuries or other harm to students, we could face claims alleging that we were negligent, provided inadequate supervision or were otherwise liable for their injuries and our insurance may not cover the expenses of litigation or settlement amounts. Additionally, we could face claims alleging that our independent curriculum contractors or teachers infringed the intellectual property rights of third parties. A liability claim against us or any of our independent contractors, business partners, or teachers could adversely affect our reputation, enrollment and revenues. Even if unsuccessful, such a claim could create unfavorable publicity, cause us to incur substantial expenses and divert the time and attention of management.\nWe operate in markets that are dependent on Information Technology (IT) systems and technological change. Failure to maintain and support customer facing services, systems, and platforms, including addressing quality issues and execution on time of new products and enhancements, could negatively impact our revenues and reputation.\nWe use complex IT systems and products to support our business activities, including customer-facing systems, back-office processing and infrastructure. We face several technological risks associated with online product service delivery, information technology security (including virus and cyber-attacks, ransomware, as well as software related bugs, misconfigurations or other vulnerabilities),\u00a0e-commerce and\u00a0enterprise resource planning system implementation and upgrades. From time to time we have experienced verifiable attacks on our system by unauthorized parties, and our plans and procedures to reduce such risks may not be successful. Thus, our business could be adversely affected if our systems and infrastructure experience a significant failure or interruption in the event of future attacks on our system by unauthorized parties.\n\u200b\nThe failure to prevent a cybersecurity incident affecting our systems could result in the disruption of our services and the disclosure or misappropriation of sensitive information, which could harm our reputation, decrease demand for our services and products, expose us to liability, penalties, and remedial costs, or otherwise adversely affect our financial performance.\nIn order to provide our services and solutions, we depend on various hardware, software, infrastructure, online sites and connected networks (hereinafter, \"IT Systems\"), including those of third parties. \u00a0In addition, as part of our business, we collect, use, process, transmit, host and store information, including personal data related to employees, customers, students, and parents, as well as proprietary business data and other sensitive information (collectively, \"Confidential Information\"). The confidentiality, integrity and availability of our IT Systems and Confidential Information is at risk of being compromised, whether through malicious activity (including social engineering) by internal or external actors, or through human or technological errors that result from negligence or software \u201cbugs\u201d or other vulnerabilities. \u00a0Although we dedicate personnel and resources toward protecting against cybersecurity risks and threats, our efforts may fail to prevent a security incident.\nFor example, on December 1, 2020, we announced a security incident involving a ransomware attack. The incident resulted in the attacker accessing certain parts of our corporate back-office systems, including some student and employee information on those systems. We do not believe the incident has had a material impact on our business, operations or financial results. \u00a0We worked with our cyber insurance provider to make a payment to the ransomware attacker, as a proactive and preventive step to prevent the information obtained by the attacker from being released on the Internet or otherwise disclosed, although there is always a risk that the threat actor will not adhere to negotiated terms. Any remediation measures that we have taken or that we may undertake in the future in response to this security incident may be insufficient to prevent future attacks.\n35\n\n\nTable of Contents\nCyberattacks are expected to accelerate on a global basis in both frequency and magnitude, and threat actors are increasingly sophisticated in using techniques that circumvent controls, evade detection, and remove forensic evidence, which means that we and critical third parties may be unable to anticipate, contain, investigate or recover from future attacks or incidents in a timely or effective manner. \u00a0In addition, remote and hybrid working arrangements that started during the COVID-19 pandemic may continue in the future, which presents additional opportunities for threat actors to engage in social engineering (for example, phishing) and to exploit vulnerabilities present in many non-corporate networks.\nAny security incident that results in Confidential Information, including personal information, being stolen, accessed, used or modified without authorization, or that otherwise disrupts or negatively impacts our operations or IT Systems, could harm our reputation, lead to customer attrition, and expose us to regulatory investigations, enforcement actions or litigation, including class actions. We may also be required to expend significant capital and other resources in response to a security incident, including notification under data privacy laws and regulations, and incur expenses related to investigating and containing the incident, restoring lost or corrupted data, and remediating our IT Systems. \u00a0Monetary damages, regulatory fines or penalties and other costs or losses, as well as injunctive remedies that require changes to our business model or practices, could be significant and may exceed insurance policy limits or may not be covered by our insurance at all. \u00a0In addition, a security incident could require that we expend substantial additional resources related to the security of our IT Systems, diverting resources from other projects and disrupting our businesses.\nWe rely on the Internet to enroll students and to deliver our products and services and to market ourselves and schools that contract with us, all of which exposes us to a growing number of legal risks and increasing regulation.\nWe collect information regarding students during the online enrollment process and a significant amount of our curriculum content is delivered over the Internet. As a result, specific federal, state and other jurisdictional laws that could have an impact on our business include the following:\n\u25cf\nthe COPPA, as implemented by regulations of the Federal Trade Commission (revised July 2013), imposes restrictions on the ability of online companies to collect and use personal information from children under the age of 13;\n\u25cf\nthe FERPA, which imposes parental or student consent requirements for specified disclosures of student information to third parties, and emerging state student data privacy laws;\n\u25cf\nthe CDA, which provides website operators immunity from most claims arising from the publication of third-party content;\n\u25cf\nnumerous state cyberbullying laws which require schools to adopt policies on harassment through the Internet or other electronic communications;\n\u25cf\nrapidly emerging state student data privacy laws which require schools to adopt privacy policies and/or require certain contractual commitments from education technology providers are applicable to virtual schools and can significantly vary from one state to another;\n\u25cf\nfederal and state laws that govern schools\u2019 obligations to ELL students and students with disabilities; and\n\u25cf\nthe European Union General Data Protection Regulation (\u201cGDPR\u201d) which may apply to certain aspects of our private schools.\nIn addition, the laws applicable to the Internet are still developing. These laws impact pricing, advertising, taxation, consumer protection, quality of products and services, and are in a state of change. New or amended laws may also be enacted, which could increase the costs of regulatory compliance for us or force us to change our business practices. As a result, we may be exposed to substantial liability, including significant expenses necessary to comply with such laws and regulations and indemnification of schools we operate for liabilities resulting from a school\u2019s failure to comply with such laws and regulations.\n36\n\n\nTable of Contents\nFailure to comply with data privacy regulations could result in reputational damage to our brands and adversely affect our business, financial condition and results of operations\n.\nAny perceived or actual unauthorized access, disclosure of personally identifiable information, whether through breach of our network or a vendor\u2019s network by an unauthorized party, employee theft, misuse or error or otherwise, could harm our reputation, impair our ability to attract and retain our customers, or subject us to claims or litigation arising from damages suffered by individuals. Failure to adequately protect personally identifiable information could potentially lead to penalties, significant remediation costs, reputational damage, the cancellation of existing contracts and difficulty in competing for future business. In addition, we could incur significant costs in complying with relevant laws and regulations regarding the unauthorized disclosure of personal information, which may be affected by any changes to data privacy legislation at both the federal and state levels. Because we serve students residing in foreign countries, we may be subject to privacy laws of other countries and regions, such as the GDPR. In addition to the possibility of penalties, remediation costs and reputational damage, the cost of compliance with foreign laws may outweigh revenue from those countries to such an extent that we may discontinue or restrict our offerings to certain countries.\nWe utilize a single logistics vendor for the management, receiving, assembly and shipping of all of our learning kits and printed educational materials. In addition, we utilize the same vendor at a second location for the reclamation and redeployment of our student computers. This partnership depends upon execution on the part of us and the vendor. Any material failure to execute properly for any reason, including damage or disruption to any of the vendor\u2019s facilities would have an adverse effect on our business, financial condition and results of operations. \nSubstantially all of the inventory for our learning kits and printed materials is located in one warehouse facility, which is operated by a third-party logistics vendor that handles receipt, assembly and shipping of all physical learning materials. If this logistics vendor were to fail to meet its obligations to deliver learning materials to students in a timely manner, or if a material number of such shipments are incomplete or contain assembly errors, our business and results of operations could be adversely affected. In addition, we provide computers for a substantial number of our students. Execution or merger integration failures which interfere with the reclamation or redeployment of computers may result in additional costs. Furthermore, a natural disaster, fire, power interruption, work stoppage or other unanticipated catastrophic event, especially during the period from April through June when we are awaiting receipt of most of the curriculum materials for the school year and have not yet shipped such materials to students, could significantly disrupt our ability to deliver our products and operate our business. If any of our material inventory items were to experience any significant damage, we would be unable to meet our contractual obligations and our business would suffer.\nAny significant interruption in the operation of AWS or Azure could cause a loss of data and disrupt our ability to manage our technological infrastructure. \nWe have migrated the applications that form the basis of our products to Amazon Web Services (AWS) and Microsoft Azure. \u00a0Amazon and Microsoft are global leaders in the cloud services industry and provide world class data centers and capabilities. However, our reliance on these vendors exposes us to risks outside of our control.\nAdditionally, we do not control the operation of these cloud facilities and must rely on AWS and Azure to provide the physical security, facilities management and communications infrastructure services related to our cloud environment. \u00a0If AWS or Azure encounter financial difficulty, such as bankruptcy or other events beyond our control, that causes it to fail to secure adequately and maintain its hosting facilities or provide the required data communications capacity, students of the schools we serve may experience interruptions in our service or the loss or theft of important customer data. \nScale and capacity limits on some of our technology, transaction processing systems and network hardware and software may be difficult to project and we may not be able to expand and upgrade our systems in a timely manner to meet significant unexpected increased demand.\nAs the number of schools we serve increases and our student base grows, the traffic on our transaction processing systems and network hardware and software will rise. In our capacity planning processes, we may be unable to accurately project the rate of increase in the use of our transaction processing systems and network hardware and software. In addition, we may not be able to expand and upgrade our systems and network hardware and software capabilities to accommodate significant unexpected increased or peak use. If we are unable to appropriately upgrade our systems and network hardware and software in a timely manner, our operations and processes may be temporarily disrupted.\n37\n\n\nTable of Contents\nOur efforts to expand capacity may not produce the operational and financial results for which those investments were intended.\nAs we have grown to serve more schools, students and families in an increasing number of states and countries, we have invested in infrastructure systems and technology to keep pace such as new communication systems, enterprise hardware and software systems. In the absence of compatible business processes, adequate employee training, integration with other dependent systems, and sufficient staffing, this expanded capacity alone may not result in improved performance or outcomes.\nWe may be unable to keep pace with changes in our industry and advancements in technology as our business and market strategy evolves.\nAs changes in our industry occur or macroeconomic conditions fluctuate, including due to changing interest rates, rising inflation, the government closures of various banks and liquidity concerns at other financial institutions, geopolitical instability, artificial intelligence and machine learning, pandemics and the potential for local and/or global economic recession, we may need to adjust our business strategies or find it necessary to restructure our operations or businesses, which could lead to changes in our cost structure, the need to write down the value of assets, or impact our profitability. We also make investments in existing or new businesses, including investments in technology and expansion of our business lines. These investments may have short-term returns that are negative or less than expected and the ultimate business prospects of the business may be uncertain.\nAs our business and market strategy evolves, we also will need to respond to technological advances and emerging industry standards in a cost-effective and timely manner in order to remain competitive, such as the ubiquitous use of tablets for public school applications, artificial intelligence and machine learning, adaptive learning technologies, and web accessibility standards. The need to respond to technological changes may require us to make substantial, unanticipated expenditures. There can be no assurance that we will be able to respond successfully to technological change.\nWe may be unable to attract and retain key executives and skilled employees, and because our employees are located throughout the United States, we may incur additional compliance and litigation costs that could adversely impact our business, financial condition and our results of operations.\nOur success depends in large part on continued employment of senior management and key personnel who can effectively operate our business, which is necessary in the highly regulated public education sector involving a publicly traded for-profit company. This complexity requires us to attract and retain experienced executive management and employees with specialized skills and knowledge across many disciplines. If any of these employees leave us and we fail to effectively manage a transition to new personnel, or if we fail to attract and retain qualified and experienced professionals on acceptable terms, our business, financial condition and results of operations could be adversely affected.\nOur success also depends on our having highly trained financial, technical, recruiting, sales and marketing personnel. We will need to continue to hire additional personnel as our business grows. A shortage in the number of people with these skills or our failure to attract them to our Company could impede our ability to increase revenues from our existing products and services, ensure full compliance with federal and state regulations, launch new product offerings, and would have an adverse effect on our business and financial results.\nWe are subject to the Fair Labor Standards Act and other state and federal employment laws. These laws govern such matters as minimum wage, overtime, leave, and other working conditions that can increase our labor costs or subject us to liabilities to our employees. In addition, many state and local jurisdictions are adopting their own laws, such as paid sick leave, to address conditions of employment not covered by federal law and/or to provide additional rights and benefits to employees. These developments and disparate laws could increase our costs of doing business, lead to litigation, or have a material adverse effect on our business, financial condition and results of operations.\nWe may need additional capital in the future, but there is no assurance that funds will be available on acceptable terms.\nWe may need to raise additional funds in order to achieve growth or fund other business initiatives. This financing may not be available in sufficient amounts or on terms acceptable to us and may be dilutive to existing stockholders. Additionally, any securities issued to raise funds may have rights, preferences or privileges senior to those of existing stockholders. If adequate funds are not available or are not available on acceptable terms, our ability to expand, develop \n38\n\n\nTable of Contents\nor enhance services or products, or respond to competitive pressures will be limited. In addition, economic conditions, including current and future business disruptions and debt and equity market volatility caused by changing interest rates, rising inflation, the government closures of various banks and liquidity concerns at other financial institutions, geopolitical instability, possible pandemics and the potential for local and/or global economic recession may impact our ability to raise funds on acceptable terms. \n\u200b\nMoreover, the Company maintains the majority of its cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at certain of these institutions exceed insured limits. \u00a0Market conditions can impact the viability of these institutions. \u00a0In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. \u00a0Any inability to access or delay in accessing these funds could adversely affect our business, financial condition and results of operations.\n\u200b\nWe have identified a material weakness in our internal control over financial reporting, which could result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.\nIn connection with the audit of our consolidated financial statements as of and for the year ended June 30, 2023, we have concluded that there is a material weakness relating to our internal control over financial reporting, as described in Part II, Item 9A, \u201cControls and Procedures.\u201d A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company\u2019s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Solely as a result of this material weakness, management has concluded that our internal control over financial reporting and disclosure controls and procedures were not effective as of June 30, 2023.\nAs described in Part II, Item 9A, \u201cControls and Procedures,\u201d we have begun, and are currently in the process of, remediating the material weakness. However, the measures we have taken and expect to take to improve our internal controls may not be sufficient to address the issue, and we may need to take additional measures to ensure that our internal controls are effective or to ensure that the identified material weakness will not result in a material misstatement of our annual or interim consolidated financial statements.\nIf we fail to establish and maintain adequate internal control over financial reporting, including any failure to implement remediation measures and enhancements for internal controls, or if we experience difficulties in their implementation, our business, financial condition and results of operations could be adversely affected. Further, any material weakness or unsuccessful remediation could affect investor confidence in the accuracy and completeness of our financial statements. In addition, perceptions of us among customers, lenders, investors, securities analysts and others could also be adversely affected.\nWe can give no assurances that the measures we have taken to date, or any future measures we may take, will remediate the material weaknesses identified or that any additional material weaknesses will not arise in the future.\n\u200b\n\u200b",
+  "item7": ">ITEM 7. \u00a0\nMANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF\n OPERATIONS\nThis Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (\u201cMD&A\u201d) contains certain forward-looking statements within the meaning of Section\u00a021E of the Exchange Act. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions, and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in \u201cRisk Factors\u201d in Part\u00a0I, Item\u00a01A, of this Annual Report. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.\nThis MD&A is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. As used in this MD&A, the words, \u201cwe,\u201d \u201cour\u201d and \u201cus\u201d refer to Stride,\u00a0Inc. and its consolidated subsidiaries. This MD&A should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report. The following overview provides a summary of the sections included in our MD&A:\n\u25cf\nExecutive Summary\n\u2014a general description of our business and key highlights of the year ended June\u00a030,\u00a02023.\n\u25cf\nKey Aspects and Trends of Our Operations\n\u2014a discussion of items and trends that may impact our business in the upcoming year.\n\u25cf\nCritical Accounting Estimates\n\u2014a discussion of critical accounting estimates requiring judgments and the application of critical accounting policies.\n\u25cf\nResults of Operations\n\u2014an analysis of our results of operations in our consolidated financial statements.\n\u25cf\nLiquidity and Capital Resources\n\u2014an analysis of cash flows, sources and uses of cash, commitments and contingencies, seasonality in the results of our operations, and quantitative and qualitative disclosures about market risk.\nExecutive Summary\nWe are an education services company providing virtual and blended learning. Our technology-based products and services enable our clients to attract, enroll, educate, track progress, and support students. These products and services, spanning curriculum, systems, instruction, and support services are designed to help learners of all ages reach their full potential through inspired teaching and personalized learning. Our clients are primarily public and private schools, school districts, and charter boards. Additionally, we offer solutions to employers, government agencies and consumers. \u00a0\nWe offer a wide range of individual products and services, as well as customized solutions, such as our most comprehensive school-as-a-service offering which supports our clients in operating full-time virtual or blended schools. \u00a0More than three million students have attended schools powered by Stride curriculum and services since our inception.\n\u200b\nOur solutions address two growing markets: General Education and Career Learning. \nGeneral Education\n\u00a0\u00a0\u00a0\u00a0\nCareer Learning\n\u00a0\n\u25cf\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0School-as-a-service\n\u200b\n\u25cf\n\u00a0\u00a0\u00a0\u00a0Stride Career Prep school-as-a-service\n\u200b\n\u25cf\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Stride Private Schools\n\u200b\n\u25cf\n\u00a0\u00a0\u00a0\u00a0Learning Solutions Career Learning software and services sales\n\u200b\n\u25cf\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Learning Solutions software and services sales\n\u200b\n\u25cf\n\u00a0\u00a0\u00a0\u00a0Adult Learning\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n \n\u200b\n43\n\n\nTable of Contents\nProducts and services for the General Education market are predominantly focused on core subjects, including math, English, science and history, for kindergarten through twelfth grade students to help build a common foundation of knowledge. These programs provide an alternative to traditional school options and address a range of student needs including, safety concerns, increased academic support, scheduling flexibility, physical/health restrictions or advanced learning. Products and services are sold as a comprehensive school-as-a-service offering or \u00e0 la carte.\n\u200b\nCareer Learning products and services are focused on developing skills to enter and succeed in careers in high-growth, in-demand industries\u2014including information technology, healthcare and general business. We\n provide middle and high school students with Career Learning programs that complement their core general education coursework in math, English, science and history. Stride offers multiple career pathways supported by a diverse catalog of Career Learning courses. The middle school program exposes students to a variety of career options and introduces career skill development. In high school, students may engage in industry content pathway courses, project-based learning in virtual teams, and career development services. High school students also have the opportunity to progress toward certifications, connect with industry professionals, earn college credits while in high school, and participate in job shadowing and/or work-based learning experiences that facilitate success in today\u2019s digital, tech-enabled economy. A student enrolled in a school that offers Stride\u2019s General Education program may elect to take Career Learning courses, but that student and the associated revenue is reported as a General Education enrollment and General Education revenue. A student and the associated revenue is counted as a Career Learning enrollment or Career Learning revenue only if the student is enrolled in a Career Learning program or school.\n Like General Education products and services, the products and services for the Career Learning market are sold as a comprehensive school-as-a-service offering or \u00e0 la carte. \u00a0We also offer focused post-secondary career learning programs to adult learners, through Galvanize, Inc. (\u201cGalvanize\u201d), Tech Elevator, Inc. (\u201cTech Elevator\u201d), and MedCerts, LLC (\u201cMedCerts\u201d).\u00a0These include skills training in the \nsoftware engineering, healthcare, and medical fields, as well as providing staffing and talent development services to employers\n. These programs are offered directly to consumers, as well as to employers and government agencies.\n\u200b\nFor both the General Education and Career Learning markets, the majority of revenue is derived from our comprehensive school-as-a-service offering which includes an integrated package of curriculum, technology systems, instruction, and support services that we administer on behalf of our customers. The average duration of the agreements for our school-as-a-service offering is greater than five years, and most provide for automatic renewals absent a customer notification of non-renewal. During any fiscal year, we may enter into new agreements, receive non-automatic renewal notices, negotiate replacement agreements, terminate such agreements or receive notices of termination, or customers may transition a school to a different offering. For the 2022-2023 school year, we provided our school-as-a-service offering for 87 schools in 31 states and the District of Columbia in the General Education market, and 52 schools or programs in 27 states and the District of Columbia in the Career Learning market.\n\u200b\nWe generate a significant portion of our revenues from the sale of curriculum, administration support and technology services to virtual and blended public schools. The amount of revenue generated from these contracts is impacted largely by the number of enrollments, the mix of enrollments across grades and states, state or district per student funding levels and attendance requirement, among other items. The average duration of the agreements for our school-as-a-service offering is greater than five years, and most provide for automatic renewals absent a customer notification within a negotiated time frame.\n\u200b\nThe two key financial metrics that we use to assess financial performance are revenues and operating income. During the year ended June\u00a030,\u00a02023, revenues increased to $1,837.4 million from $1,686.7 million in the prior year, an increase of 8.9%. Over the same period, operating income increased to $165.5 million from $156.6 million in the prior year, an increase of 5.7%. Increases in operating income were driven by revenue growth and increases in gross margin. Additionally, we use the non-financial metric of total enrollments to assess performance, as enrollment is a key driver of our revenues. Total enrollments for the year ended June\u00a030,\u00a02023 were 178.2 thousand, a decrease of 6.9 thousand, or 3.7%, over the prior year. Our revenues are subject to annual school district financial audits, which incorporate enrollment counts, funding and other routine financial audit considerations. The results from these audits and other routine changes in funding estimates are incorporated into the Company\u2019s monthly funding estimates for the current and prior periods. Historically, aggregate funding estimates differed from actual reimbursements by less than 2% of annual revenue, which may vary from year to year.\n\u200b\nEnvironmental, Social and Governance\n\u200b\nAs overseers of risk and stewards of long-term enterprise value, Stride\u2019s Board of Directors plays a vital role in \n44\n\n\nTable of Contents\nassessing our organization\u2019s environmental and social impacts. \u00a0They are also responsible for understanding the potential impact and related risks of environmental, social and governance (\u201cESG\u201d) issues on the organization\u2019s operating model. Our Board and management are committed to identifying those ESG issues most likely to impact business operations and growth. We craft policies that are appropriate for our industry and that are of concern to our employees, investors, customers and other key stakeholders. Our Board ensures that the Company\u2019s leaders have ample opportunity to leverage ESG for the long-term good of the organization, its stakeholders, and society. Each Committee of the Board monitors ESG efforts in their respective areas, with the Nominating and Governance Committee coordinating across all Committees.\n\u200b\nSince our inception more than 20 years ago, we have removed barriers that impact academic equity. We provide high-quality education for anyone\u2014particularly those in underserved communities\u2014as a means to foster economic empowerment and address societal inequities from kindergarten all the way through college and career readiness. We reinforced our commitment in this area by launching several initiatives including initially offering scholarships to advance education and career opportunities for students in underserved communities, expanding career pathways in socially responsible law enforcement and increasing employment of teachers in underserved communities at Stride-powered schools. \u00a0We developed interactive, modular courses focused on racial equity and social justice that are being made available for free to every public school.\n\u200b\nAmong the many ESG issues we support within the Company, we endeavor to promote diversity and inclusion across every aspect of the organization. We sponsor employee resource groups to provide support for female, minority, differently abled, LGBTQ+, and veteran employees and support employee volunteer efforts. \u00a0Our commitment is evident in the make-up of our leadership team. \u00a0We have more minorities in executive management and more women in executive management than the representative population. Importantly, our Board of Directors is also diverse with female, Hispanic, and black or African American members.\n\u200b\nOur commitment to ESG initiatives is an endeavor both the Board and management undertake for the general betterment of those both inside and outside of our Company.\n\u200b\nThe nature of our business supports environmental sustainability. \u00a0Most of our employees work from home and most students at Stride-powered schools attend virtual classes, even prior to the COVID-19 crisis, reducing the carbon output from commuting in cars or buses. Our online curriculum reduces the need for paper. \u00a0Our meetings are most often held virtually using digital first presentations rather than paper.\n\u200b\nKey Aspects and Trends of Our Operations\nRevenues\u2014Overview\nWe generate a significant portion of our revenues from the sale of curriculum, administration support and technology services to virtual and blended public schools. We anticipate that these revenues will continue to represent the majority of our total revenues over the next several years. However, we also expect revenues in other aspects of our business to continue to increase as we execute on our growth strategy. Our growth strategy includes increasing revenues in other distribution channels, expanding our adult learning training programs, adding enrollments in our private schools, and expanding our learning solutions sales channel. Combined revenues from these other sectors were significantly smaller than those from the virtual and blended public schools we served in the year ended June\u00a030,\u00a02023. Our success in executing our strategies will impact future growth. We have several sales channels from which we generate revenues that are discussed in more detail below.\nFactors affecting our revenues include:\n(i)\nthe number of enrollments;\n(ii)\nthe mix of enrollments across grades and states;\n(iii)\nadministrative services and curriculum sales provided to the schools and school districts;\n(iv)\nstate or district per student funding levels and attendance requirements;\n(v)\nprices for our products and services;\n45\n\n\nTable of Contents\n(vi)\ngrowth in our adult learning programs; and\n(vii)\nrevenues from new initiatives, mergers and acquisitions.\n\u200b\nVirtual and Blended Schools \nThe virtual and blended schools we serve offer an integrated package of systems, services, products, and professional expertise that we administer to support a virtual or blended public school. Customers of these programs can obtain the administrative support, information technology, academic support services, online curriculum, learning system platforms and instructional services under the terms of a negotiated service and product agreement. We provide our school-as-a-service offerings to virtual and blended public charter schools and school districts.\nWe define an enrollment as any student enrolled in a full service virtual or blended public school where we provide a combination of curriculum, technology, instructional and support services inclusive of administrative support. Generally, students will take four to six courses, except for some kindergarten students who may participate in half-day programs. We count each half-day kindergarten student as an enrollment. School sessions generally begin in August or September and end in May or June. To ensure that all schools are reflected in our measure of enrollments, we consider the number of students on September 30\nth\n to be our opening enrollment level, and the number of students enrolled on the last day of May to be our ending enrollment level. For each period, average enrollments represent the average of the month-end enrollment levels for each school month in the period. We continually evaluate our enrollment levels by state, by school and by grade. We track new student enrollments and withdrawals throughout the year.\nWe believe that our revenue growth from enrollments depends upon the following:\n\u25cf\nthe number of states and school districts in which we operate;\n\u25cf\nthe mix of students served;\n\u25cf\nthe restrictive terms of local laws or regulations, including enrollment caps;\n\u25cf\nthe appeal of our curriculum and instructional model to students and families;\n\u25cf\nthe specific school or school district requirements including credit recovery or special needs;\n\u25cf\nthe effectiveness of our program in delivering favorable academic outcomes;\n\u25cf\nthe quality of the teachers working in the schools we serve;\n\u25cf\nthe effectiveness of our marketing and recruiting programs to attract new enrollments; and\n\u25cf\nretention of students through successive grade levels.\nWe continually evaluate our trends in revenues by monitoring the number of student enrollments in total, by state, by school and by grade, assessing the impact of changes in school funding levels, school mix (distribution of enrollments by school), changes in state funding rates and higher utilization in federal and state restricted funding per student, and the pricing of our curriculum and educational services. \nEnrollments in virtual and blended schools on average generate substantially more revenues than enrollments served through our other sales channels where we provide limited or no administrative services. \nLearning Solutions\nOur Learning Solutions sales channel distributes our software and services to schools and school districts across the U.S. \u00a0Over the past few years, public schools and school districts have been increasingly adopting online solutions to augment teaching practices, launch new learning models, cost-effectively expand course offerings, provide schedule flexibility, improve student engagement, increase graduation rates, replace textbooks, and retain students. State education funds traditionally allocated for textbook and print materials have also been authorized for the purchase of digital content, including online courses, and in some cases mandated access to online courses. Additionally, districts are seeking support for implementations that blend virtual and in-person instruction.\n46\n\n\nTable of Contents\nTo address the growing need for digital solutions and the emerging need for comprehensive virtual solutions, our Learning Solutions team provides curriculum and technology solutions, packaged in a portfolio of flexible learning and delivery models mapped to specific student and/or district needs. This portfolio approach provides a continuum of delivery models, from full-time programs to individual course sales and supplemental options that can be used in traditional classrooms to differentiate instruction. Our Learning Solutions team strives to partner with public schools and school districts, primarily in the U.S., to provide more options and better tools to empower teachers to improve student achievement through personalized learning in traditional, blended and online learning environments and to provide comprehensive support for teachers and administrators to deliver effective virtual and blended instructions.\nSales opportunities are driven by a number of factors in a diverse customer population, which determine the deliverable and price. These factors include:\n\u25cf\nType of Customer\n\u2014A customer can be a public school district, private school, charter school, early childhood learning center or corporate partner.\n\u25cf\nCurriculum Needs\n\u2014We sell our curriculum solutions based on the scope of the customer need, and a solution is generally purchased as end-user access to a complete catalog, individual course or supplemental content title.\n\u25cf\nLicense Options\n\u2014Depending on the scope of the solution, a license can be purchased for individual course enrollments, annual seat, school or district-wide site licenses or a perpetual license (a prepaid lifetime license). We may charge incrementally if we are hosting the solution.\n\u25cf\nHosting\n\u2014Customers may host curricula themselves or license our hosted solution. We are able to track all students for customers who use our hosted solution. However, more often in large-scale, district-wide implementations, a customer may choose to host the curriculum, and in that case, we have no visibility of individual student usage for counting enrollments.\n\u25cf\nServices Menu\n\u2014Instructional services may be provided and priced per-enrollment or bundled in the overall price of the solution. Additional services, including professional development, title maintenance and support may also be provided and are priced based on the scope of services.\nPrivate Schools\nPrivate schools are schools where tuition is paid directly by the family of the student. We receive no public funds for students in our private schools. We operate accredited private online schools at differing price points and service levels. We define an enrollment as any student enrolled in one of these schools where we provide a combination of curriculum, technology, instructional and support services inclusive of administrative support. Our revenues are derived from tuition receipts that are a function of course enrollments and program price. In some circumstances, a third-party school may elect to enroll one of its students in a Stride private school course as a supplement to the student\u2019s regular on-campus instruction. In such cases, the third-party school may pay the Stride private school tuition. We have entered into agreements that enable us to distribute our products and services to our international and domestic school partners who use our courses to provide electives offerings and dual diploma programs.\nWe believe our revenue growth depends primarily on the recruitment of students into our programs through effective marketing and word-of-mouth referral based on the quality of our service. In addition, through high service quality, we seek to retain existing students and increase the total number of courses each student takes with us. In some cases, students return each summer and take only one course. In other cases, students choose a Stride private school as their principal form of education and may stay for many years. The flexibility of our programs, the quality of our curriculum and teaching, and the student community features lead to customer satisfaction and therefore, retention.\nConsumer Sales\nWe also sell individual K-8 online courses and supplemental educational products directly to families. These purchasers desire to educate their children as homeschoolers, outside of the traditional school system or to supplement their child\u2019s existing public or private school education without the aid of an online teacher. Customers of our consumer products have the option of purchasing a complete grade-level curriculum for grades K-8, individual courses, or a variety of other supplemental products, covering various subjects depending on their child\u2019s needs. Typical applications include summer school course work, home-schooling and educational supplements.\n47\n\n\nTable of Contents\nSimilar to our private schools, we believe our revenue growth depends primarily on the recruitment of students into our programs through effective marketing and word-of-mouth referral based on the quality of our service.\nAdult Learning\nWe offer adult learning training programs through Galvanize, Tech Elevator, and MedCerts, which provide programs that address the skills gap facing companies in the information technology and healthcare sectors. We offer in-person and remote immersive full-time software engineering programs designed for adult learners looking to advance their technology careers by providing such learners with skills and real-world experiences. These programs are offered in software engineering. MedCerts provides self-paced, fully online structured training programs that lead to certifications in the healthcare field. In many cases, Galvanize, Tech Elevator, and MedCerts work directly with a company to create a customized, tailored education plan to help the company reach its goals and train its employees according to such plan. \nWe believe that revenue growth in our adult learning brands depends on our ability to identify and attract prospective learners through various marketing channels.\u00a0 Continued growth in these brands will also require that we demonstrate success in placing these learners in jobs following their completion of the program. \n\u200b\nInstructional Costs and Services Expenses\nInstructional costs and services expenses include expenses directly attributable to the educational products and services we provide. The public schools we administer are the primary drivers of these costs, including teacher and administrator salaries and benefits and expenses of related support services. We also employ teachers and administrators for instruction and oversight in Learning Solutions and Private Schools. Instructional costs also include fulfillment costs of student textbooks and materials, depreciation and reclamation costs of computers provided for student use, the cost of any third-party online courses and the amortization of capitalized curriculum and related systems. Our instructional costs are variable and are based directly on our number of schools and enrollments.\nOur high school offering requires increased instructional costs as a percentage of revenues compared to our kindergarten to 8th\u00a0grade offering. This is due to the following: (i)\u00a0generally lower student-to-teacher ratios; (ii)\u00a0higher compensation costs for some teaching positions requiring subject-matter expertise; (iii)\u00a0ancillary costs for required student support services, including college placement, SAT preparation and guidance counseling; (iv)\u00a0use of third-party courses to augment our proprietary curriculum; and (v)\u00a0use of a third-party learning management system to service high school students. Over time, we may partially offset these factors by obtaining productivity gains in our high school instructional model, replacing third-party high school courses with proprietary content, replacing our third-party learning management system with another third-party system, leveraging our school infrastructure and obtaining purchasing economies of scale.\nWe have deployed and are continuing to develop new delivery models, including blended schools, where students receive limited face-to-face instruction in a learning center to complement their online instruction, and other programs that utilize brick and mortar facilities. The maintenance, management and operations of these facilities necessitate additional costs, which are generally not required to operate typical virtual public schools. We are pursuing expansion into new states for both virtual public and other specialized charter schools. If we are successful, we will incur start-up costs and other expenses associated with the initial launch of a school, including the funding of building leases and leasehold improvements.\nSelling, General and Administrative Expenses\nSelling, general, and administrative expenses include the salaries and benefits of employees engaged in business development, public affairs, sales and marketing, and administrative functions, and transaction and due diligence expenses related to mergers and acquisitions. \u00a0\nAlso included are product development expenses which include research and development costs and overhead costs associated with the management of both our curriculum development and internal systems development teams. In addition, product development expenses include the amortization of internal systems. We measure and track our product development expenditures on a per course or project basis to measure and assess our development efficiency. In addition, we monitor employee utilization rates to evaluate our workforce efficiency. We plan to continue to invest in additional curriculum development and related software in the future. We capitalize selected costs incurred to develop our curriculum, \n48\n\n\nTable of Contents\nbeginning with application development, through production and testing into capitalized curriculum development costs. We capitalize certain costs incurred to develop internal systems into capitalized software development costs.\nCritical Accounting Estimates\nThe discussion of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S.\u00a0GAAP. In the preparation of our consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements. Our critical accounting policies have been discussed with the Audit Committee of our Board of Directors. We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:\nRevenue Recognition\nRevenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services using the following steps:\n\u200b\n\u25cf\nidentify the contract, or contracts, with a customer;\n\u25cf\nidentify the performance obligations in the contract;\n\u25cf\ndetermine the transaction price;\n\u25cf\nallocate the transaction price to the performance obligations in the contract; and\n\u25cf\nrecognize revenue when, or as, the Company satisfies a performance obligation.\n\u200b\nRevenues related to the products and services that we provide to students in kindergarten through twelfth grade or adult learners are considered to be General Education or Career Learning based on the school or adult program in which the student is enrolled. General Education products and services are focused on core subjects, including math, English, science and history, for kindergarten through twelfth grade students to help build a common foundation of knowledge. Career Learning products and services are focused on developing skills to enter and succeed in careers in high-growth, in-demand industries\u2014including information technology, healthcare and general business, for students in middle school through high school and adult learners.\n\u200b\nThe majority of our contracts are with the following types of customers:\n\u200b\n\u25cf\na virtual or blended school whereby the amount of revenue is primarily determined by funding the school receives;\n\u25cf\na school or individual who licenses certain curriculum on a subscription or course-by-course basis; or\n\u25cf\nan enterprise who contracts with the Company to provide job training.\n\u200b\nFunding-based Contracts\n\u200b\nWe provide an integrated package of systems, services, products, and professional expertise that is administered together to support a virtual or blended public school. Contractual agreements generally span multiple years with performance obligations being isolated to annual periods which generally coincide with our fiscal year. Customers of these programs can obtain administrative support, information technology, academic support services, online curriculum, learning systems platforms and instructional services under the terms of a negotiated service agreement. The schools receive funding on a per student basis from the state in which the public school or school district is located. Shipments of materials for schools that occur in the fourth fiscal quarter and for the upcoming school year are recorded in deferred revenue.\n\u200b\n\u200b\n\u200b\n49\n\n\nTable of Contents\nWe generate revenues under contracts with virtual and blended public schools and include the following components, where required:\n\u200b\n\u25cf\nproviding each of a school\u2019s students with access to our online school and lessons;\n\u25cf\noffline learning kits, which include books and materials to supplement the online lessons; \n\u25cf\nthe use of a personal computer and associated reclamation services;\n\u25cf\ninternet access and technology support services; \n\u25cf\ninstruction by a state-certified teacher; and\n\u25cf\nmanagement and technology services necessary to support a virtual or blended school. In certain contracts, revenues are determined directly by per enrollment funding.\n\u200b\nTo determine the pro rata amount of revenue to recognize in a fiscal quarter, we estimate the total expected funds each school will receive in a particular school year. Total funds for a school are primarily a function of the number of students enrolled in the school and established per enrollment funding levels, which are generally published on an annual basis by the state or school district. We review its estimates of funding periodically, and updates as necessary, by adjusting its year-to-date earned revenues to be proportional to the total expected revenues to be earned during the fiscal year. Actual school funding may vary from these estimates and the impact of these differences could impact our results of operations. Since the end of the school year coincides with the end of our fiscal year, annual revenues are generally based on actual school funding and actual costs incurred (including costs for our services to the schools plus other costs the schools may incur). Our schools\u2019 reported results are subject to annual school district financial audits, which incorporate enrollment counts, funding and other routine financial audit considerations. The results of these audits are incorporated into the Company\u2019s monthly funding estimates for the current and prior periods. For the years ended June 30, 2022, 2021 and 2020, the Company\u2019s aggregate funding estimates differed from actual reimbursements impacting total reported revenue by approximately 1.6%, 1.4%, and (0.1)%, respectively.\nEach state and/or school district has variations in the school funding formulas and methodologies that it uses to estimate funding for revenue recognition at its respective schools. As the Company estimates funding for each school, it takes into account the state definition for count dates on which reported enrollment numbers will be used for per pupil funding. The parameters the Company considers in estimating funding for revenue recognition purposes include school district count definitions, withdrawal rates, new registrations, average daily attendance, special needs enrollment, academic progress, historical completion, student location, funding caps and other state specified categorical program funding. \n\u200b\nUnder the contracts where we provide products and services to schools, we are responsible for substantially all of the expenses incurred by the school and have generally agreed to absorb any operating losses of the schools in a given school year. These school operating losses represent the excess of costs incurred over revenues earned by the virtual or blended public school (the school\u2019s expected funding), as reflected in its respective financial statements, including our charges to the schools. To the extent a school does not receive sufficient funding for each student enrolled in the school, the school would still incur costs associated with serving the unfunded enrollment. If losses due to unfunded enrollments result in a net operating loss for the year that loss is reflected as a reduction in the revenues and net receivables that we collect from the school. A school net operating loss in one year does not necessarily mean we anticipate losing money on the entire contract with the school. However, a school\u2019s net operating loss may reduce our ability to collect its management fees in full and recognized revenues are constrained to reflect the expected cash collections from such schools. We record the school\u2019s estimated net operating loss against revenues based upon the percentage of actual revenues in the period to total estimated revenues for the fiscal year. Actual school net operating losses may vary from these estimates or revisions, and the impact of these differences could have a material impact on results of operations.\n\u200b\nSubscription-based Contracts\n\u200b\nWe provide certain online curriculum and services to schools and school districts under subscription agreements. Revenues from the licensing of curriculum under subscription arrangements are recognized on a ratable basis over the subscription period. Revenues from professional consulting, training and support services are deferred and recognized ratably over the service period.\n\u200b\nIn addition, we contract with individual customers who have access for one to two years to company-provided online curriculum and generally prepay for services to be received. Adult learners enroll in courses that provide specialized training in a specific industry. Each of these contracts are considered to be one performance obligation. We recognize these revenues pro rata over the maximum term of the customer contract based on the defined contract price.\n50\n\n\nTable of Contents\n\u200b\nEnterprise Contracts\n\u200b\nWe provide job training over a specified contract period to enterprises. Each of these contracts are considered to be one performance obligation. We recognize these revenues based on the number of students trained during the term of the contract based on the defined contract price.\n\u200b\nIncome Taxes\nAccounting for income taxes prescribes the use of the asset and liability method to compute the differences between the tax bases of assets and liabilities and the related financial amounts, using currently enacted tax laws. If necessary, a valuation allowance is established, based on the weight of available evidence, to reduce deferred tax assets to the amount that is more likely than not to be realized. Realization of the deferred tax assets, net of deferred tax liabilities, is principally dependent upon achievement of sufficient future taxable income. We exercise significant judgment in determining our provisions for income taxes, our deferred tax assets and liabilities and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred tax assets.\nAlthough we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgments that could become subject to examination by tax authorities in the ordinary course of business. We periodically assess the likelihood of adverse outcomes resulting from these examinations to determine the impact on our deferred taxes and income tax liabilities and the adequacy of our provision for income taxes. Changes in income tax legislation, statutory income tax rates or future taxable income levels, among other things, could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.\nWe have a valuation allowance on net deferred tax assets of $6.8 million and $6.7 million as of June 30, 2023 and 2022, respectively, for the amount that will likely not be realized.\nResults of Operations\nLines of Revenue\n\u200b\nWe operate in one operating and reportable business segment as a technology-based education company providing proprietary and third-party curriculum, software systems and educational services designed to facilitate individualized learning. The Chief Operating Decision Maker evaluates profitability based on consolidated results. We have two lines of revenue: (i) General Education and (ii) Career Learning. \nEnrollment Data\nThe following table sets forth total enrollment data for students in our General Education and Career Learning lines of revenue. \u00a0Enrollments for General Education and Career Learning only include those students in full service public or private programs where Stride provides a combination of curriculum, technology, instructional and support services inclusive of administrative support. No enrollments are included in Career Learning for Galvanize, Tech Elevator or MedCerts. This data includes enrollments for which Stride receives no public funding or revenue.\nIf the mix of enrollments changes, our revenues will be impacted to the extent the average revenue per enrollment is significantly different. We do not award or permit incentive compensation to be paid to our public school program enrollment staff or contractors based on the number of students enrolled.\n51\n\n\nTable of Contents\nThe following represents our current enrollment for each of the periods indicated:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n2023 / 2022\n\u200b\n2022 / 2021\n\u200b\n\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n2023\n\u00a0\u00a0\u00a0\n\u00a0\n2022\n\u00a0\u00a0\u00a0\n\u00a0\n2021\n\u00a0\u00a0\u00a0\n\u00a0\nChange\n\u00a0\u00a0\u00a0\n\u00a0\nChange\u00a0%\n\u00a0\u00a0\u00a0\n\u00a0\nChange\n\u00a0\u00a0\u00a0\n\u00a0\nChange\u00a0%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(In\u00a0thousands,\u00a0except\u00a0percentages)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nGeneral Education (1)\n\u200b\n\u200b\n\u200b\n\u200b\n 112.3\n\u200b\n\u200b\n 143.2\n\u200b\n\u200b\n 156.7\n\u200b\n\u200b\n (30.9)\n\u200b\n(21.6%)\n\u200b\n\u200b\n (13.5)\n\u200b\n(8.6%)\nCareer Learning (1) (2)\n\u200b\n\u200b\n\u200b\n\u200b\n 65.9\n\u200b\n\u200b\n 41.9\n\u200b\n\u200b\n 29.6\n\u200b\n\u200b\n 24.0\n\u200b\n57.3%\n\u200b\n\u200b\n 12.3\n\u200b\n41.6%\nTotal Enrollment\n\u200b\n\u200b\n\u200b\n\u200b\n 178.2\n\u200b\n\u200b\n 185.1\n\u200b\n\u200b\n 186.3\n\u200b\n\u200b\n (6.9)\n\u200b\n(3.7%)\n\u200b\n\u200b\n (1.2)\n\u200b\n(0.6%)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(1)\nEnrollments reported for the first quarter are equal to the official count date number, which was September 30, 2022 for the first quarter of fiscal year 2023 and September 30, 2021 for the first quarter of fiscal year 2022.\n(2)\nNo enrollments are included in Career Learning for Galvanize, Tech Elevator or MedCerts.\nRevenue Data\nRevenues are captured by market based on the underlying customer contractual agreements. Where customers purchase products and services for both General Education and Career Learning markets, we allocate revenues based on the program for which each student is enrolled. All kindergarten through fifth grade students are considered General Education students. Periodically, a middle school or high school student enrollment may change line of revenue classification.\n\u200b\nThe following represents our current revenues for each of the periods indicated:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\nChange 2023 / 2022\n\u200b\nChange 2022 / 2021\n\u200b\n\u00a0\u00a0\n\u00a0\u00a0\n\u200b\n2023\n\u00a0\u00a0\u00a0\n\u00a0\n2022\n\u00a0\u00a0\u00a0\n\u00a0\n2021\n\u00a0\u00a0\u00a0\n\u00a0\n$\n\u00a0\u00a0\u00a0\n\u00a0\n%\n\u00a0\u00a0\u00a0\n\u00a0\n$\n\u00a0\u00a0\u00a0\n\u00a0\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(In\u00a0thousands,\u00a0except\u00a0percentages)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nGeneral Education\n\u200b\n\u200b\n\u200b\n$\n 1,131,391\n\u200b\n$\n 1,273,783\n\u200b\n$\n 1,280,199\n\u200b\n$\n (142,392)\n\u200b\n(11.2%)\n\u200b\n$\n (6,416)\n\u200b\n(0.5%)\nCareer Learning\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMiddle - High School\n\u200b\n\u200b\n\u200b\n\u200b\n 586,770\n\u200b\n\u200b\n 321,416\n\u200b\n\u200b\n 200,774\n\u200b\n\u200b\n 265,354\n\u200b\n82.6%\n\u200b\n\u200b\n 120,642\n\u200b\n60.1%\nAdult\n\u200b\n\u200b\n\u200b\n\u200b\n 119,197\n\u200b\n\u200b\n 91,467\n\u200b\n\u200b\n 55,787\n\u200b\n\u200b\n 27,730\n\u200b\n30.3%\n\u200b\n\u200b\n 35,680\n\u200b\n64.0%\nTotal Career Learning\n\u200b\n\u200b\n\u200b\n\u200b\n 705,967\n\u200b\n\u200b\n 412,883\n\u200b\n\u200b\n 256,561\n\u200b\n\u200b\n 293,084\n\u200b\n71.0%\n\u200b\n\u200b\n 156,322\n\u200b\n60.9%\nTotal Revenues\n\u200b\n\u200b\n\u200b\n$\n 1,837,358\n\u200b\n$\n 1,686,666\n\u200b\n$\n 1,536,760\n\u200b\n$\n 150,692\n\u200b\n8.9%\n\u200b\n$\n 149,906\n\u200b\n9.8%\n\u200b\nProducts and Services \nStride has invested over $600 million in the last twenty years to develop curriculum, systems, instructional practices and support services that enable us to support hundreds of thousands of students. The following describes the various products and services that we provide to customers. \u00a0Products and services are provided on an individual basis as well as customized solutions, such as our most comprehensive school-as-a-service offering which supports our clients in operating full-time virtual or blended schools. Stride is continuously innovating to remain at the forefront of effective educational techniques to meet students\u2019 needs. It continues to expand upon its personalized learning model, improve the user experience of its products, and develop tools and partnerships to more effectively engage and serve students, teachers, and administrators.\u00a0\nCurriculum and Content\n \u2013 Stride has one of the largest digital research-based curriculum portfolios for the K-12 online education industry that includes some of the best in class content available in the market. Our customers can select from hundreds of high-quality, engaging, online coursework and content, as well as many state customized versions of those courses, electives, and instructional supports. Since our inception, we have built core courses on a foundation of rigorous standards, following the guidance and recommendations of leading educational organizations at the national and state levels. State standards are continually evolving, and we continually invest in our curriculum to meet these changing requirements. Through our subsidiaries Galvanize, Tech Elevator and MedCerts, we have added high-quality, engaging, \n52\n\n\nTable of Contents\nonline coursework and content in software engineering, healthcare, and medical fields.\nSystems\n \u2013 We have established a secure and reliable technology platform, which integrates proprietary and third-party systems, to provide a high-quality educational environment and gives us the capability to grow our customer programs and enrollment. Our end-to-end platform includes single-sign on capability for our content management, learning management, student information, data reporting and analytics, and various support systems that allow customers to provide a high-quality and personalized educational experience for students. A la carte offerings can provide curriculum and content hosting on customers\u2019 learning management systems, or integration with customers\u2019 student information systems.\nInstructional Services\n \u2013 We offer a broad range of instructional services that includes customer support for instructional teams, including recruitment of state certified teachers, training in research-based online instruction methods and Stride systems, oversight and evaluation services, and ongoing professional development. \u00a0Stride also provides training options to support teachers and parents to meet students\u2019 learning needs. Stride\u2019s range of training options are designed to enhance skills needed to teach using an online learning platform, and include hands-on training, on-demand courses, and support materials.\nSupport Services\n \u2013 We offer a broad range of support services, including marketing and enrollment, supporting prospective students through the admission process, assessment management, administrative support (e.g., budget proposals, financial reporting, and student data reporting), and technology and materials support (e.g., provisioning of student computers, offline learning kits, internet access and technology support services).\nFinancial Information\nThe following table sets forth statements of operations data and the amounts as a percentage of revenues for each of the periods indicated:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n \n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n \n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(In\u00a0thousands,\u00a0except\u00a0percentages)\n\u200b\nRevenues \n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n$\n 1,837,358\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n 100.0\n%\n\u00a0\u00a0\n$\n 1,686,666\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n 100.0\n%\u00a0\u00a0\n$\n 1,536,760\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n 100.0\n%\nInstructional costs and services \n\u200b\n\u200b\n\u200b\n\u200b\n 1,190,288\n\u200b\n\u200b\n 64.8\n\u200b\n\u200b\n 1,090,191\n\u200b\n\u200b\n 64.6\n\u200b\n\u200b\n 1,001,860\n\u200b\n\u200b\n 65.2\n\u200b\nGross margin\n\u200b\n\u200b\n\u200b\n\u200b\n 647,070\n\u200b\n\u200b\n 35.2\n\u200b\n\u200b\n 596,475\n\u200b\n\u200b\n 35.4\n\u200b\n\u200b\n 534,900\n\u200b\n\u200b\n 34.8\n\u200b\nSelling, general, and administrative expenses \n\u200b\n\u200b\n\u200b\n\u200b\n 481,571\n\u200b\n\u200b\n 26.2\n\u200b\n\u200b\n 439,847\n\u200b\n\u200b\n 26.1\n\u200b\n\u200b\n 424,444\n\u200b\n\u200b\n 27.6\n\u200b\nIncome from operations \n\u200b\n\u200b\n\u200b\n\u200b\n 165,499\n\u200b\n\u200b\n 9.0\n\u200b\n\u200b\n 156,628\n\u200b\n\u200b\n 9.3\n\u200b\n\u200b\n 110,456\n\u200b\n\u200b\n 7.2\n\u200b\nInterest expense, net\n\u200b\n\u200b\n\u200b\n\u200b\n (8,404)\n\u200b\n\u200b\n (0.5)\n\u200b\n\u200b\n (8,277)\n\u200b\n\u200b\n (0.5)\n\u200b\n\u200b\n (17,979)\n\u200b\n\u200b\n (1.2)\n\u200b\nOther income (expense), net\n\u200b\n\u200b\n\u200b\n\u200b\n 15,452\n\u200b\n\u200b\n 0.8\n\u200b\n\u200b\n (1,277)\n\u200b\n\u200b\n (0.1)\n\u200b\n\u200b\n 2,829\n\u200b\n\u200b\n 0.2\n\u200b\nIncome before income taxes and income (loss) from equity method investments\n\u200b\n\u200b\n\u200b\n\u200b\n 172,547\n\u200b\n\u200b\n 9.4\n\u200b\n\u200b\n 147,074\n\u200b\n\u200b\n 8.7\n\u200b\n\u200b\n 95,306\n\u200b\n\u200b\n 6.2\n\u200b\nIncome tax expense\n\u200b\n\u200b\n\u200b\n\u200b\n (45,346)\n\u200b\n\u200b\n (2.5)\n\u200b\n\u200b\n (40,088)\n\u200b\n\u200b\n (2.4)\n\u200b\n\u200b\n (24,539)\n\u200b\n\u200b\n (1.6)\n\u200b\nIncome (loss) from equity method investments\n\u200b\n\u200b\n\u200b\n\u200b\n (334)\n\u200b\n\u200b\n (0.0)\n\u200b\n\u200b\n 144\n\u200b\n\u200b\n 0.0\n\u200b\n\u200b\n 684\n\u200b\n\u200b\n 0.0\n\u200b\nNet income attributable to common stockholders\n\u200b\n\u200b\n\u200b\n$\n 126,867\n\u200b\n\u200b\n 6.9\n%\u00a0\u00a0\n$\n 107,130\n\u200b\n\u200b\n 6.4\n%\u00a0\u00a0\n$\n 71,451\n\u200b\n\u200b\n 4.6\n%\n\u200b\nComparison of the Years Ended June\u00a030,\u00a02023 and 2022\n\u200b\nRevenues.\n\u00a0\u00a0Our revenues for the year ended June\u00a030,\u00a02023 were $1,837.4 million, representing an increase of $150.7\u00a0million, or 8.9%, from $1,686.7 million for the year ended June\u00a030,\u00a02022. General Education revenues decreased $142.4 million, or 11.2%, year over year. The decrease in General Education revenues was primarily due to the 21.6% decrease in enrollments, and changes to school mix (distribution of enrollments by school).\n \nCareer Learning revenues increased $293.1 million, or 71.0%, primarily due to a 57.3% increase in enrollments and school mix.\n\u200b\nInstructional costs and services expenses.\n\u00a0\u00a0Instructional costs and services expenses for the year ended \n53\n\n\nTable of Contents\nJune\u00a030,\u00a02023 were $1,190.3 million, representing an increase of $100.1 million, or 9.2%, from $1,090.2 million for the year ended June\u00a030,\u00a02022. This increase in expense was due to hiring of personnel in growth states and salary increases. Instructional costs and services expenses were 64.8% of revenues during the year ended June\u00a030,\u00a02023, an increase from 64.6% for the year ended June\u00a030,\u00a02022.\n\u200b\nSelling, general, and administrative expenses.\n\u00a0\u00a0Selling, general and administrative expenses for the year ended June\u00a030,\u00a02023 were $481.6 million, representing an increase of $41.8 million, or 9.5% from $439.8 million for the year ended June\u00a030,\u00a02022. The increase was primarily due to an increase of $31.3 million in personnel and related benefit costs and $17.4 million in professional services and marketing expenses, partially offset by a decrease of $6.5 million in bad debt expense and $1.5 million in net operating lease expense. Selling, general, and administrative expenses were 26.2% of revenues during the year ended June\u00a030,\u00a02023, an increase from 26.1% for the year ended June\u00a030,\u00a02022.\n\u200b\nInterest income (expense), net.\n\u00a0\u00a0Net interest expense for the year ended June\u00a030,\u00a02023 was $8.4 million as compared to $8.3 million in the year ended June\u00a030,\u00a02022. The increase in net interest expense was primarily due to an increase in interest expense related to our finance leases.\n\u200b\nOther income (expense), net. \u00a0\nOther income, net for the year ended June 30, 2023 was $15.5 million as compared to other expense, net of $1.3 million in the year ended June 30, 2022. The increase in other income, net was primarily due to the increase in our investments in marketable securities and the returns on those investments year over year.\n\u200b\nIncome tax expense.\n \u00a0Income tax expense was $45.3 million for the year ended June\u00a030,\u00a02023, or 26.3% of income before taxes, as compared to $40.1 million, or 27.2% of income before taxes for the year ended June\u00a030,\u00a02022. The decrease in the effective income tax rate for the year ended June\u00a030,\u00a02023, as compared to the effective tax rate for the year ended June\u00a030,\u00a02022, was primarily due to the decrease in the amount of non-deductible compensation, which was partially offset by the decrease in excess tax benefit of stock-based compensation.\n\u200b\nComparison of the Years Ended June\u00a030,\u00a02022 and 2021\nRevenues.\n Our revenues for the year ended June\u00a030,\u00a02022 were $1,686.7\u00a0million, representing an increase of $149.9\u00a0million, or 9.8%, from $1,536.8\u00a0million for the year ended June\u00a030,\u00a02021. General Education revenues decreased $6.4\u00a0million, or 0.5%, year over year. The decrease in General Education revenues was primarily due to the 8.6% decrease in enrollments, and changes to school mix (distribution of enrollments by school). Career Learning revenues increased $156.3\u00a0million, or 60.9%, primarily due to a 41.6% increase in enrollments, school mix, as well as from the acquisitions of MedCerts and Tech Elevator.\nInstructional costs and services expenses.\n Instructional costs and services expenses for the year ended June\u00a030,\u00a02022 were $1,090.2\u00a0million, representing an increase of $88.3\u00a0million, or 8.8%, from $1,001.9\u00a0million for the year ended June\u00a030,\u00a02021. This increase in expense was due to hiring of personnel in growth states and salary increases. Instructional costs and services expenses were 64.6% of revenues during the year ended June\u00a030,\u00a02022, a decrease from 65.2% for the year ended June\u00a030,\u00a02021. \nSelling, general, and administrative expenses.\n Selling, general, and administrative expenses for the year ended June\u00a030,\u00a02022 were $439.8\u00a0million, representing an increase of $15.4\u00a0million, or 3.6%, from $424.4\u00a0million for the year ended June\u00a030,\u00a02021. The increase was primarily due to an increase of $9.1 million in bad debt expense resulting primarily from reserves related to our investment in Tallo, Inc., $8.7 million in licensing fees, and $8.0 million in professional services and marketing expenses, partially offset by a $7.8 million decrease in personnel and related benefit costs, including stock-based compensation. Selling, general, and administrative expenses were 26.1% of revenues during the year ended June\u00a030,\u00a02022, a decrease from 27.6% for the year ended June\u00a030,\u00a02021. \n\u200b\nInterest income (expense), net\n. Net interest expense for the year ended June 30, 2022 was $8.3 million as compared to $18.0 million in the year ended June 30, 2021. The decrease in net interest expense was primarily due to the adoption of ASU 2020-06 in fiscal year 2022 which resulted in the elimination of interest expense related to the debt discount of the Convertible Senior Notes.\n\u200b\nIncome tax expense.\n Income tax expense was $40.1 million for the year ended June\u00a030,\u00a02022, or 27.2% of income before taxes, as compared to $24.5\u00a0million, or 25.6% of income before taxes for the year ended June\u00a030,\u00a02021. The increase in the effective income tax rate for the year ended June 30, 2022, as compared to the effective tax rate for the year ended \n54\n\n\nTable of Contents\nJune 30, 2021, was primarily due to the increase in the amount of non-deductible compensation, which was partially offset by the increase in excess tax benefit of stock-based compensation.\nDiscussion of Seasonality of Financial Condition\nCertain accounts in our balance sheet are subject to seasonal fluctuations. As our enrollments and revenues grow, we expect these seasonal trends to be amplified. The bulk of our materials are shipped to students prior to the beginning of the school year, usually in July or August. In order to prepare for the upcoming school year, we generally build up inventories during the fourth quarter of our fiscal year. Therefore, inventories tend to be at the highest levels at the end of our fiscal year. In the first quarter of our fiscal year, inventories tend to decline significantly as materials are shipped to students. In our fourth quarter, inventory purchases and the extent to which we utilize early payment discounts will impact the level of accounts payable.\nAccounts receivable balances tend to be at the highest levels in the first quarter of our fiscal year as we begin billing for all enrolled students and our billing arrangements include upfront fees for many of the elements of our offering. These upfront fees result in seasonal fluctuations to our deferred revenue balances. We routinely monitor state legislative activity and regulatory proceedings that might impact the funding received by the schools we serve and to the extent possible, factor potential outcomes into our business planning decisions.\nThe deferred revenue related to our direct-to-consumer business results from advance payments for twelve month subscriptions to our online school. These advance payments are amortized over the life of the subscription and tend to be highest at the end of the fourth quarter and first quarter, when the majority of subscriptions are sold.\nLiquidity and Capital Resources\nAs of June\u00a030,\u00a02023, we had net working capital, or current assets minus current liabilities, of $756.1 million. Our working capital includes cash and cash equivalents of $410.8 million and accounts receivable of $463.7 million. Our working capital provides a significant source of liquidity for our normal operating needs. Our accounts receivable balance fluctuates throughout the fiscal year based on the timing of customer billings and collections and tends to be highest in our first fiscal quarter as we begin billing for students. In addition, our cash and accounts receivable were significantly in excess of our accounts payable and short-term accrued liabilities at June\u00a030,\u00a02023.\n\u200b\nDuring the first quarter of fiscal year 2021, we issued $420.0 million aggregate principal amount of 1.125% Convertible Senior Notes due 2027 (\u201cNotes\u201d). The Notes are governed by an indenture (the \u201cIndenture\u201d) between us and U.S. Bank National Association, as trustee. The net proceeds from the offering of the Notes were approximately $408.6\u00a0million after deducting the underwriting fees and other expenses paid by the Company. The Notes bear interest at a rate of 1.125% per annum, payable semi-annually in arrears on March 1\nst\n and September 1\nst\n of each year, beginning on March 1, 2021. The Notes will mature on September 1, 2027. In connection with the Notes, we entered into privately negotiated capped call transactions (the \u201cCapped Call Transactions\u201d) with certain counterparties. The Capped Call Transactions are expected to cover the aggregate number of shares of the Company\u2019s common stock that initially underlie the Notes, and are expected to reduce potential dilution to the Company\u2019s common stock upon any conversion of Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes. The upper strike price of the Capped Call Transactions is $86.174 per share. The cost of the Capped Call Transactions was $60.4 million and was recorded within additional paid-in capital.\nBefore June 1, 2027, noteholders will have the right to convert their Notes only upon the occurrence of certain events. After June 1, 2027, noteholders may convert their Notes at any time at their election until two days prior to the maturity date. We will settle conversions by paying cash up to the outstanding principal amount, and at our election, will settle the conversion spread by paying or delivering cash or shares of our common stock, or a combination of cash and shares of our common stock. The initial conversion rate is 18.9109 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $52.88 per share of common stock. The Notes will be redeemable at our option at any time after September 6, 2024 at a cash redemption price equal to the principal amount of the Notes, plus accrued and unpaid interest, subject to certain stock price hurdles as discussed in the Indenture.\n\u200b\nOn January 27, 2020, we entered into a $100.0 million senior secured revolving credit facility (\u201cCredit Facility\u201d) to be used for general corporate operating purposes with PNC Capital Markets LLC. The Credit Facility has a five-year term and incorporates customary financial and other covenants, including, but not limited to, a maximum leverage ratio \n55\n\n\nTable of Contents\nand a minimum interest coverage ratio. The majority of our borrowings under the Credit Facility were at LIBOR plus an additional rate ranging from 0.875% - 1.50% based on our leverage ratio as defined in the agreement. The Credit Facility is secured by our assets. The Credit Facility agreement allows for an amendment to establish a new benchmark interest rate when LIBOR is discontinued during the five-year term. As of June\u00a030,\u00a02023, we were in compliance with the financial covenants. As part of the proceeds received from the Notes, we repaid our $100.0 million outstanding balance and as of June\u00a030,\u00a02023, we had no amounts outstanding on the Credit Facility. The Credit Facility also includes a $200.0 million accordion feature. \n\u200b\nWe are a lessee under finance lease obligations for student computers and peripherals under loan agreements with Banc of America Leasing & Capital, LLC (\u201cBALC\u201d) and CSI Leasing, Inc. (\u201cCSI Leasing\u201d). As of June\u00a030,\u00a02023 and 2022, the finance lease liability was $56.9 million and $66.3 million, respectively, with lease interest rates ranging from 2.10% to 6.57%. \n\u200b\nWe entered into an agreement with BALC in April 2020 for $25.0 million (increased to $41.0 million in July 2020) to provide financing for our leases through March 2021 at varying rates. We entered into additional agreements during fiscal year 2021 to provide financing of $54.0 million for our student computers and peripherals leases through October 2022 at varying rates. Individual leases with BALC include 36-month payment terms, fixed rates ranging from 2.10% to 6.57%, and a $1 purchase option at the end of each lease term. We pledged the assets financed to secure the outstanding leases.\n\u200b\nWe entered into an agreement with CSI Leasing in August 2022 to provide financing for our leases. Individual leases under the agreement with CSI Leasing include 36-month payments terms, but do not include a stated interest rate. We use our incremental borrowing rate as the implied interest rate and the total lease payments to calculate our lease liability. \n\u200b\nOur cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to interest on our Notes, office facility leases, capital equipment leases and other operating leases. We expect to make future payments on existing leases from cash generated from operations. We believe that the combination of funds to be generated from operations, borrowing on our Credit Facility and net working capital on hand will be adequate to finance our ongoing operations on a short-term (the next 12 months) and long-term (beyond the next 12 months) basis. In addition, we continue to explore acquisitions, strategic investments and joint ventures related to our business that we may acquire using cash, stock, debt, contribution of assets or a combination thereof.\n\u200b\nOperating Activities\nNet cash provided by operating activities for the year ended June\u00a030,\u00a02023 was $203.2 million compared to $206.9 million for the year ended June\u00a030,\u00a02022. The $3.7 million decrease in cash provided by operations between periods was primarily due to a decrease in working capital of $2.6 million. \n\u200b\nNet cash provided by operating activities for the year ended June 30, 2022 was $206.9 million compared to $134.2 million for the year ended June 30, 2021. The $72.7 million increase in cash provided by operations between periods was primarily due to an increase in net income and a lower increase in accounts receivable, partially offset by a decrease in accrued compensation and benefits and deferred revenue and other liabilities.\nNet cash provided by operating activities for the year ended June\u00a030,\u00a02021 was $134.2 million compared to $80.4 million for the year ended June\u00a030,\u00a02020. The $53.8 million increase in cash provided by operations between periods was primarily due to an increase in net income including non-cash adjustments partially offset by a decrease in working capital of $56.8 million. The decrease in other assets and liabilities was primarily due to increases in accounts receivable, and inventory, prepaid expenses and other assets; partially offset by an increase in accounts payable and accrued compensation and benefits. The increase in accounts receivable was related to the increase in revenue with schools with payment terms that extend beyond our fiscal year, while the increase in accrued compensation and benefits was related to an increase in our corporate bonus and accrued salaries.\nInvesting Activities\nNet cash used in investing activities for the years ended June\u00a030,\u00a02023, 2022 and 2021 was $118.2\u00a0million, $110.8\u00a0million and $165.4\u00a0million, respectively.\n56\n\n\nTable of Contents\nNet cash used in investing activities for the year ended June\u00a030,\u00a02023 increased $7.4 million from the year ended June\u00a030,\u00a02022. The increase was primarily due to higher net purchases of marketable securities of $4.2 million and an increase in capital expenditures year over year of $1.1 million.\n\u200b\nNet cash used in investing activities for the year ended June 30, 2022 decreased $54.6 million from the year ended June 30, 2021. The decrease was primarily due to the acquisitions of MedCerts and Tech Elevator for $71.1 million in fiscal year 2021, partially offset by an increase in capital expenditures year over year of $15.3 million.\nNet cash used in investing activities for the year ended June 30, 2021 decreased $52.0 million from the year ended June 30, 2020. The decrease was primarily due to the acquisition of Galvanize during the year ended June 30, 2020 being more than the acquisitions of MedCerts and Tech Elevator during the year ended June 30, 2021 and purchases of marketable securities of $40.5 million. \nFinancing Activities\nNet cash used in financing activities for the years ended June\u00a030,\u00a02023 and 2022 was $63.5 million and $93.3 million, respectively. Net cash provided by financing activities for the year ended June 30, 2021, was $204.6 million.\nNet cash used in financing activities for the year ended June 30, 2023 decreased $29.8 million from the year ended June 30, 2022. The decrease was primarily due to a decrease in the repurchase of restricted stock for income tax withholding of $24.4 million and $22.9 million in deferred purchase consideration payments in fiscal year 2022, partially offset by a payment of contingent consideration of $7.0 million and an increase in the repayment of finance lease obligations incurred for the acquisition of student computers of $10.0 million.\nNet cash used in financing activities for the year ended June 30, 2022 decreased $297.9 million from the year ended June 30, 2021. The decrease was primarily due to the net proceeds from the issuance of our Notes of $408.6 million, partially offset by capped call purchases related to the Notes of $60.4 million, the repayment on our Credit Facility of $100.0 million in fiscal year 2021; $22.9 million in deferred purchase consideration payments related to MedCerts and Tech Elevator in fiscal year 2022; and an increase in the repurchase of restricted stock for income tax withholding of $37.9 million.\nNet cash provided by financing activities for the year ended June 30, 2021 increased $139.0 million from the year ended June 30, 2020. The increase was primarily due to the net proceeds from the issuance of our Notes of $408.6 million, partially offset by capped call purchases related to the Notes of $60.4 million and the repayment of our Credit Facility of $100.0 million. The net increase was partially offset by the net proceeds from our Credit Facility during the year ended June 30, 2020.\nRecent Accounting Pronouncements\nFor information regarding, \u201cRecent Accounting Pronouncements,\u201d please refer to Note 3, \u201cSummary of Significant Accounting Policies,\u201d contained within our consolidated financial statements in Part II, Item 8, of this Annual Report on Form 10-K.\n\u200b",
+  "item7a": ">ITEM 7A. \u00a0\nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nInflation Risk\nCurrent inflation has resulted in higher personnel costs, marketing expenses and supply chain expenses. There can be no assurance that future inflation will not have an adverse or material impact on our operating results and financial condition.\n\u200b\nInterest Rate Risk\nAt June\u00a030,\u00a02023 and 2022, we had cash and cash equivalents totaling $410.8 million and $389.4 million, respectively. Our excess cash has been invested in money market funds, government securities, corporate debt securities and similar investments. At June\u00a030,\u00a02023, a 1% gross increase in interest rates for our variable-interest instruments would result in a $4.1 million annualized increase in interest income. Additionally, the fair value of our investment portfolio is \n57\n\n\nTable of Contents\nsubject to changes in market interest rates.\n\u200b\nOur short-term debt obligations under our Credit Facility are subject to interest rate exposure. At June\u00a030,\u00a02023, we had no outstanding balance on our Credit Facility.\n\u200b\nForeign Currency Exchange Risk\nWe currently operate in several foreign countries, but we do not transact a material amount of business in a foreign currency. If we enter into any material transactions in a foreign currency or establish or acquire any subsidiaries that measure and record their financial condition and results of operations in a foreign currency, we will be exposed to currency transaction risk and/or currency translation risk. Exchange rates between U.S. dollars and many foreign currencies have fluctuated significantly over the last few years and may continue to do so in the future. Accordingly, we may decide in the future to undertake hedging strategies to minimize the effect of currency fluctuations on our financial condition and results of operations.\n\u200b\n58\n\n\nTable of Contents",
+  "cik": "1157408",
+  "cusip6": "86333M",
+  "cusip": ["86333M108", "86333M958", "86333M908"],
+  "names": ["STRIDE INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1157408/000155837023015003/0001558370-23-015003-index.htm"
+}
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+  "item1": ">ITEM\u00a01. BUSINESS\nOVERVIEW\nBio-Techne and its subsidiaries, collectively doing business as Bio-Techne Corporation (Bio-Techne, we, our, us or the Company), develop, manufacture and sell life science reagents, instruments and services for the research,\u00a0diagnostics and bioprocessing\u00a0markets worldwide. With our broad product portfolio and application expertise, we sell integral components of scientific investigations into biological processes and molecular diagnostics, revealing the nature, diagnosis, etiology and progression of specific diseases. Our products aid in drug discovery efforts and provide the means for accurate clinical tests and diagnoses.\nWe manage the business in two operating segments\u00a0\u2013 our Protein Sciences segment and our Diagnostics and Genomics segment. Our Protein Sciences segment is a leading developer and manufacturer of high-quality biological reagents used in all aspects of life science research, diagnostics and cell and gene therapy. This segment also includes proteomic analytical tools, both manual and automated, that offer researchers and pharmaceutical manufacturers efficient and streamlined options for automated western blot and multiplexed ELISA workflow. Our Diagnostics and Genomics segment develops and manufactures diagnostic products, including controls, calibrators, and diagnostic assays for the regulated diagnostics market, exosome-based\u00a0molecular diagnostic\u00a0assays, advanced tissue-based in-situ hybridization assays for spatial genomic and tissue biopsy analysis, and genetic and oncology kits for research and clinical applications.\nWe are a Minnesota corporation with our global headquarters in Minneapolis, Minnesota. We were founded in 1976 as Research and Diagnostic Systems,\u00a0Inc. We became a publicly traded company in 1985 through a merger with Techne Corporation, now Bio-Techne Corporation. Our common stock is listed on the NASDAQ under the symbol \u201cTECH.\u201d We operate globally, with offices in many locations throughout North America, Europe and Asia. Today, our product lines include hundreds of thousands of diverse products, most of which we manufacture ourselves in multiple locations in North America, as well as a location each in the U.K. and China.\nOur historical focus was on providing high quality proteins, antibodies and immunoassays to the life science research market and hematology controls to the diagnostics market. Since 2013, we have been implementing a disciplined strategy to accelerate growth in part by acquiring businesses and product portfolios that leveraged and diversified our existing product lines, filled portfolio gaps with differentiated high growth businesses, and expanded our geographic scope.\u00a0From fiscal\u00a0years 2013 through 2023\u00a0we have acquired, agreed to acquire, or made investments in nineteen companies that have expanded the product offerings and geographic footprint of both operating\u00a0segments, including the acquisition of Namocell, Inc. at the beginning of fiscal year 2023, and entering into an agreement to acquire Lunaphore SA. at the end of the year. We also completed a 19.9% investment in Wilson Wolf Corporation (\u201cWilson Wolf\u201d) this year, and will acquire the remaining ownership in Wilson Wolf by the end of calendar year 2027, if not earlier due to its achievement of revenue or earnings before interest, taxes, depreciation, and amortization (\u201cEBITDA\u201d) targets. \u00a0Recognizing the importance of an integrated, global approach to meeting our mission and accomplishing our strategies, we have maintained many of the brands of the companies we have acquired, but unified under a single global brand\u00a0-- Bio-Techne.\nWe are committed to providing the life sciences community with innovative, high-quality scientific tools that allow our customers to make extraordinary discoveries and treat and diagnose diseases. We intend to build on Bio-Techne\u2019s past accomplishments, high product quality reputation and sound financial position by executing strategies that position us to serve as the standard for biological content in the research market, and to leverage that leadership position to enter the diagnostics and other adjacent markets. Our strategies, which have been consistent for at least the last several years, include:\nContinued innovation in core products. \nThrough collaborations with key opinion leaders, participation in scientific discussions and societies, and leveraging our internal talent we expect to be able to convert our continued significant investment in our research and development activities to be first-to-market with quality products that are at the leading edge of life science researchers\u2019 needs.\n6\n\n\nTable of Contents\nMarket and geographic expansion. \nWe will continue to expand our sales staff and distribution channels globally in order to increase our global presence and make it easier for customers to transact with us. We will also leverage our existing portfolio to expand our product offerings into novel research fields and further into diagnostics and therapeutics markets.\nCulture development and talent recruitment and retention. \nAs we continue to grow both organically and through acquisition, we are intentionally fostering an \u201cEPIC\u201d culture based on the ideals of Empowerment, Passion, Innovation and Collaboration. We strive to recruit, train and retain the most talented staff, who share these EPIC ideals to effectively implement our global strategies.\nTargeted acquisitions and investments. \nWe will continue to leverage our strong balance sheet to gain access to new and differentiated technologies and products that improve our competitiveness in the current market, meet customers\u2019 expanding workflow needs and allow us to enter adjacent markets.\nPROTEIN SCIENCES SEGMENT\nProtein Sciences Segment Products and Markets\nThe Protein Sciences segment is the larger of our two segments, representing about 74% of our net sales in fiscal 2023. It is comprised of two divisions with complementary product offerings serving many of the same customers\u00a0\u2013 the Reagent Solutions division and the Analytical Solutions division.\nThe Reagent Solutions division consists of specialized proteins, such as cytokines and growth factors, antibodies, small molecules, tissue culture sera and cell selection technologies traditionally used by researchers to further their life science experimental activities and by companies developing next generation diagnostics and therapeutics, including companies developing cell- and gene-based therapeutics. We believe we are the world leader in providing high quality proteins, both for research use and under current Good Manufacturing Practices, or cGMP. Key product brands include R&D Systems, Tocris Biosciences and Novus Biologicals.\u00a0Our combined chemical and biological reagents portfolio provides high quality tools that customers can use in solving complex biological pathways and glean knowledge that may lead to a more complete understanding of biological processes, and, ultimately, to the development of novel therapeutic strategies to address different pathologies. In recent years, we have made several acquisitions and investments that have expanded our product offerings for the cell and gene therapy market. \u00a0These include a significant investment in state-of-the art facilities for production of both proteins and small molecules in large quantities manufactured in accordance with cGMP, as well as a 19.9% investment in \u2013 and eventual acquisition of \u2013 Wilson Wolf, which is a leading provider of cell culture devices for cell therapy. \u00a0Through a collaborative marketing venture with Wilson Wolf and another company, we have leveraged the products we have or are developing\u00a0to provide a more complete offering for the cell and gene therapy market.\nThe Analytical Solutions division includes manual and automated protein analysis instruments and immunoassays that are used in quantifying proteins in a variety of biological fluids. Products in this division include traditional manual plate-based immunoassays, fully automated multiplex immunoassays on various instrument platforms, and automated western blotting and isoelectric focusing analysis of complex protein samples. Key product brands include R&D Systems and ProteinSimple. A number of our products have been demonstrated to have the potential to serve as predictive biomarkers and therapeutic targets for a variety of human diseases and conditions including cancer, autoimmunity, diabetes, hypertension, obesity, inflammation, neurological disorders, and kidney failure. Immunoassays can also be useful in clinical diagnostics. In fact, we have received Food and Drug Administration (FDA) marketing clearance for a few of our immunoassays for use as \nin vitro\n diagnostic devices.\u00a0In addition, in the first quarter of fiscal 2023, we closed on the acquisition of Namocell, Inc., leading provider of simple single cell sorting and dispensing platforms that are gentle to cells and therefore preserve cell viability and integrity.\nProtein Sciences Segment Customers and Distribution Methods\nOur customers for this segment include researchers in academia and industry (chiefly pharmaceutical and biotech companies as well as contract research organizations). This segment also sells to diagnostic/companion diagnostic and therapeutic customers, especially customers engaged in the development of cell- and gene-based therapies.\u00a0Our biologics line of products in the Analytical Solutions division is used chiefly by production and quality control departments at \n7\n\n\nTable of Contents\nbiotech and pharmaceutical companies. We sell our products directly to customers who are primarily located in North America, Europe and China, as well as through a distribution agreement with Thermo Fisher Scientific. We also sell through third party distributors in China, Japan, certain eastern European countries and the rest of the world. Our sales are widely distributed, and no single end-user customer accounted for more than 10% of the Protein Sciences segment\u2019s net sales during fiscal 2023, 2022, or 2021.\nDIAGNOSTICS AND GENOMICS SEGMENT\nThe Diagnostics and Genomics segment, representing about 26% of our net revenues in fiscal 2023, includes three divisions and is focused primarily on the diagnostics market and includes spatial biology, liquid biopsy, molecular diagnostics kits and products, and diagnostics reagents.\nDiagnostics and Genomics Segment Products\nThe Spatial Biology division products sold under the Advanced Cell Diagnostics, or ACD, brand, are novel \nin-situ\n hybridization (ISH) assays for transcriptome, DNA copy, and structural variation analysis within intact cells, providing highly sensitive and specific spatial information at single cell resolution. Since these products preserve spatial context, they are particularly useful for complex tissue profiling. \nThe Molecular Diagnostics division markets and sells products and services under the Exosome Diagnostics and Asuragen brands. \u00a0The Exosome Diagnostics brand is based on exosome-based liquid biopsy techniques that analyze genes or their transcripts. \u00a0It includes the ExoDx Prostate test, which is a urine-based assay for early detection of high-grade prostate cancer used as an aid in deciding the need for biopsy and offered by Exosome Diagnostics as a lab-developed test, as well as the ExoTRU kidney transplant rejection test, which we have licensed exclusively to Thermo Fisher Scientific. We also sell products for genetic carrier screening, oncology diagnostics, molecular controls,\u00a0and research under the Asuragen brand. \nThe Diagnostic Reagents division consists of regulated products traditionally used as calibrators and controls in the clinical setting. Also included are instrument and process control products for hematology, blood chemistry, blood gases, coagulation controls and reagents used in various diagnostic applications. We often manufacture these reagents on a custom basis, tailored to a customer\u2019s specific diagnostic assay technology. We supply these reagents in various formats including liquid, frozen, or in\u00a0lyophilized form. Most of these products are sold on an Original Equipment Manufacturer (OEM) basis to instrument manufacturers, with most products being\u00a0FDA-cleared.\nDiagnostics and Genomics Segment Customers and Distribution Methods\nThe customers for the Spatial Biology division include researchers in academia as well as\u00a0investigators in\u00a0pharmaceutical and biotech companies. We sell our products directly to those customers who are primarily located in North America, Europe, and China, and through distributors elsewhere. In addition to being useful research tools, our DNA and RNA \nin situ \nhybridization (ISH) assays have diagnostics applications as well, and several are cleared or currently under review by the FDA in partnership with diagnostics instrument manufacturers and pharmaceutical companies. \nIn the United States, we offer the ExosomeDx Prostate test to physicians using our lab-developed non-invasive urine-based assay for prostate cancer detection. Our diagnostic laboratory is certified under and regulated by the State of Massachusetts pursuant to the Clinical Laboratory Improvement Amendments, or CLIA. We reach our customers through physicians prescribing such tests for their patients. This test is also available in Europe as a CE-marked product. The Asuragen-branded products are sold primarily to laboratories for use in lab-developed tests or in kit form as regulated diagnostic tests.\nThe majority of Diagnostic Reagents Division\u2019s sales are through\u00a0OEM agreements, but we sell some of our diagnostic reagent products directly to customers and, in Europe and Asia, also through distributors. \nNo customer accounted for\u00a010% or more of the reporting segment\u2019s\u00a0consolidated net sales during fiscal\u00a0years 2023, 2022 or 2021.\n8\n\n\nTable of Contents\nMANUFACTURING AND MATERIALS\nOur manufacturing operations use a wide variety of raw materials and components, including electronic components, chemicals and biological materials. No single supplier is material, although for some components that require particular specifications or regulatory or other qualifications there may be a single supplier or a limited number of suppliers that can readily provide such components. We utilize a number of techniques to address potential disruption in and other risks relating to our supply chain, which in certain cases includes the use of safety stock, alternative materials, and qualification of multiple supply sources.\nThe majority of our products are shipped within one day of receipt of the customers\u2019 orders, other than our instruments and related cartridges, which are typically shipped within one to two weeks of receipt of an order. There was no significant backlog of orders for our products as of the date of this Annual Report on Form\u00a010-K or as of a comparable date for fiscal 2023. For additional discussion of risks relating to supply chain and manufacturing, refer to \u201cItem\u00a01A. Risk Factors.\u201d\nCOMPETITION\nAlthough our segments both generally operate in highly competitive markets, it is difficult to determine our competitive position, either in the aggregate or by segment, since none of our competitors offer all of the same product and service lines or serve all of the same markets as the Company, or any of its segments, does. Because of the range of the products and services we sell, we encounter a wide variety of competitors, including a number of large, global companies or divisions of such companies with substantial capabilities and resources, as well a number of smaller, niche competitors with specialized product offerings. We have seen increased competition in a number of our markets as a result of the entry of new companies into certain markets, the entry of competitors based in low-cost manufacturing locations, and increasing consolidation in particular markets. The number of competitors varies by product line. Key competitive factors vary among the Company\u2019s businesses, but include the specific factors noted above with respect to each particular business and typically also include price, quality and safety, performance, delivery speed, application expertise, service and support, technology and innovation, distribution network, breadth of product, service and software offerings, and brand name recognition. We believe our competitive position is strong due to the unique aspects of many of our products and our product quality. \u00a0For a discussion of risks related to competition, refer to \u201cItem\u00a01A. Risk Factors.\u201d\nSEASONALITY OF BUSINESS\nBio-Techne believes there is some seasonality as a result of vacation and academic schedules of its worldwide customer base, particularly for the Protein Sciences segment. \u00a0\nThere is also some seasonality for the ExosomeDx Prostate test, as patients tend to avoid scheduling medical appointments during the summer and other holidays. \u00a0 A majority of Diagnostics Reagents division products are manufactured in large bulk lots and sold on a schedule set by the customer. Consequently, sales for that division can be unpredictable, and not necessarily based on seasonality. As a result, we can experience material and sometimes unpredictable fluctuations in our revenue from the Diagnostics and Genomics segment.\nGOVERNMENT CONTRACTS\nAlthough the Company transacts business with various government entities, no government contract is of such magnitude that renegotiation of profits or termination of the contract at the election of the government entity would have a material adverse effect on the Company\u2019s financial results. As a party to these contracts, Bio-Techne does have to comply with certain regulations that apply to companies doing business with governments. For a discussion of risks related to government contracting requirements, see \u201cItem 1A. Risk Factors.\u201d \nNEW PRODUCTS AND RESEARCH AND DEVELOPMENT\nWe believe that our future success depends, to a large extent, on our ability to keep pace with changing technologies and market needs. \u00a0Bio-Techne is engaged in continuous\u00a0research and development in all of our major product lines. \u00a0We also carry out research to develop new products that build upon and expand the technologies we acquire through our acquisition strategy. \u00a0In fiscal 2023, we introduced over 1,600 new products. \u00a0While this is an area of focus for the Company, there is \n9\n\n\nTable of Contents\nno assurance that any of the products in the research and development phases can be successfully completed or, if completed, can be successfully introduced into the marketplace. \nHUMAN CAPITAL\n \nThrough its subsidiaries, Bio-Techne employed approximately 3,050 full-time and part-time employees as of June 30, 2023, of whom approximately 2,400 were employed in the United States and approximately 650 outside the United States. None of the United States employees are unionized. Outside the United States, the Company has government-mandated collective bargaining arrangements or work councils in certain countries.\nBio-Techne is committed to attracting, developing, engaging, and retaining the best people possible from around the world to sustain and grow our leadership position in life sciences tools and diagnostics. We strive to create an employee experience that allows each to achieve their life\u2019s best work. This is demonstrated by leading with our EPIC values of Empowerment, Passion, Innovation and Collaboration. We continuously build on our people-first culture, led by uncompromising integrity, hosting a place of belonging, granting access to innovation and respecting human rights around the globe.   \nOur talent management strategy spans multiple key dimensions, including the following:\nCulture and Governance\nOur four EPIC values of Empowerment, Passion, Innovation and Collaboration are the backbone for the way we approach the leadership and direction of our work force. Employees are empowered to realize their potential. Our culture supports and encourages a collaborative approach to working with each other and with our customers. We encourage innovation to continually improve our products, services and processes, and our passions for science and the missions of our customers are our guiding lights.\nOur EPIC values are embedded in our culture and practices. For example, our performance management system and annual review processes incorporate our EPIC values. Each employee is measured against the behaviors and attributes that support those values. To further amplify our desired behaviors, we have an annual employee recognition program in which we ask for nominations and recognize winning individuals and teams across our business who have best demonstrated our EPIC values.\nBio-Techne\u2019s Board of Directors reviews management succession planning at least annually, and its Compensation Committee reviews the Company\u2019s talent management strategy periodically in connection with significant initiatives and acquisitions, as well as part of its oversight of our executive and equity compensation programs. At the management level, our Chief Human Resources Officer, who reports directly to our President and CEO, is responsible for the development and execution of the Company\u2019s talent management strategy.\nEngagement and Belonging\nOur engagement strategy focuses on developing the best workplace and best people leaders to meet our employees\u2019 needs. We believe that strong employee engagement helps enable higher retention and better business performance. We assess our engagement performance through regular consultation with our managers. \u00a0We also engage more formally via an annual engagement survey that assesses our employees\u2019 overall experience. In 2023, 62% of our global workforce participated, and 77% of those who responded provided favorable feedback. \u00a0While these responses were quite positive, our management used the responses to inform and shape our future employee-focused initiatives. These initiatives in the past have resulted in changes in programs and policies, including expansion of our management and leadership development programs, addition of a parental leave program, expansion of our incentive programs to include annual cash bonuses to all employees, introduction of flexible working, addition of an internal communications function, leadership engagement focused on transparency and stronger feedback follow-up, \u00a0and expansion of the breadth and resources of our Employee Resource Groups (ERGs). \u00a0In fiscal year 2023, we empowered work/life integration through hybrid work models wherever feasible, continued to cultivate belonging and inclusion through deepened investment of resources to our ERGs, and paved the path for career growth through the personalized development and implementation of individual action plans. \n10\n\n\nTable of Contents\nWe believe a diverse workforce and culture of belonging is central to drive innovation, fuel growth and help ensure our technologies and products effectively serve a global customer base. The Company\u2019s executive-sponsored Belonging initiative is focused on providing a welcoming working environment for all employees, continued education, broadening our candidate pools, and implementing and sustaining programs. One of the centerpieces of our talent development strategy is our ERGs, coordinated under the guidance of our executive-sponsored Employee Resource Group Council; they offer mentorship, support and engagement to help our employees, including those from underrepresented groups, succeed and thrive. As of June 30, 2023, we had 10 ERGs operating globally. \nAs of June 30, 2023, 49% of our total employee population was female, and 45% of our managerial employees were female. In the United States, 38% of our total employee population identified as nonwhite and 26% of our managerial employees identified as nonwhite. \u00a0\nRecruitment and Retention \nBio-Techne believes that sustaining its profitable growth will require a continued focus on recruiting and retaining top, diverse talent. We engage in a variety of recruiting strategies intended to locate and identify qualified candidates and create a talent pipeline.  The Company offers competitive pay and benefits, from flexible work to financial planning resources to an employee stock purchase plan.  Last year, we bolstered our recruitment and retention efforts by expanding eligibility to receive stock options deeper into the organization. In FY23, we further expanded these efforts by expanding our Long-Term Incentive program strategy to include a combination of stock options and restricted stock units, instead of exclusively stock options. Bio-Techne continues to offer a referral bonus with the understanding that this is one of our most successful sourcing methods. \nIn addition to pay and benefits, Bio-Techne believes that the ability to retain employees requires an environment where they can work productively and where there are opportunities to grow and advance. The Company therefore seeks to cultivate a culture of empowerment and collaboration, where employees can observe the impact of their efforts, and where they see opportunities both laterally and vertically. We believe that our focus and investment in recruitment and retention contributed to our inclusion on the Forbes list in fiscal 2022 as one of America\u2019s Best Midsize Employers as well as one of the Best Employers for Diversity.  \nThe last fiscal year continued to see considerable employee mobility across all industries, including the biotechnology industry, but we nonetheless significantly reduced our attrition rate to maintain durable stability across our enterprise.  We believe that Bio-Techne\u2019s sustained efforts on recruitment and retention will fortify our resilience and ability to remain productive in the face of increased employee mobility and economic challenges.\nTalent Development and Learning and Development\nBio-Techne invests in people development in the belief that growing and promoting employees from within the Company creates a more sustainable organization. High potential employees are identified through our annual talent review strategy, as well as through leadership development programs designed to cultivate future leaders. \u00a0Employees identified as high potential are elevated to the attention of senior management for consideration for additional development, growth opportunities, and career advancement.\nOur global Learning and Development program delivers a wide range of initiatives including a validated suite of compliance training, and soft, technical, business, interpersonal and career skills. Bio-Techne also encourages and supports employees who wish to supplement their growth through external training and education. \u00a0As a company that regularly acquires other businesses, we believe it is important for employees to be trained in the skills and mindsets that enable them to respond positively to change. This initiative allows individuals to deal with change easily and reduces the need to run large scale change management programs.\nWell-Being and Safety\nThe Company is committed to protecting the physical health and psychological well-being of our employees by providing a safe work environment. We actively monitor and adjust our crisis management plan and response protocol to protect our employees. Bio-Techne trains all employees on foundational safety principles and requires more rigorous safety and hazard awareness training where appropriate based on function, role, or team. At Bio-Techne, all employees are empowered and \n11\n\n\nTable of Contents\nencouraged to maintain and create a safe workplace. In addition, we provide internal and external resources to provide for the psychological and emotional security of employees, including employee resource programs, mental health benefit coverage, and flexible work for many roles. \u00a0\nAs fiscal year 2023 finally saw the end of the COVID-19 pandemic, the Company carefully managed all employees\u2019 return to their worksites, permitting hybrid work schedules wherever feasible, and prioritizing a safe workplace.\nCommunity\nThe Company believes in giving back and in supporting the local communities in which we live and work. The Company and its employees donate financially and by giving their time and energy. Most sites or departments engage in local charitable causes and activities. In some of our sites, employees are encouraged to give through regular payroll deductions and through the annual campaign week where employee contributions are matched by the Company. Some charitable causes are identified and promoted by our ERGs. \u00a0In addition, United States employees receive a paid day off to participate in local opportunities to give back to the community as part of our volunteer time off benefit.\nINTELLECTUAL PROPERTY\nOur success depends in part upon our ability to protect our core technologies and intellectual property. To accomplish this, we rely on a combination of intellectual property rights, including patents, trade secrets and trademarks, as well as customary contractual protections in our terms and conditions and other sales-related documentation.\nAs of June\u00a030, 2023, we had rights to approximately 490 granted patents and approximately 290 pending patent applications. Products in the Analytical Solutions and the Spatial Biology divisions are protected primarily through pending patent applications and issued patents. In addition, certain of our products are covered by licenses from third parties to supplement our own patent portfolio. Patent protection, if granted, generally has a life of 20\u00a0years from the date of the patent application or patent grant. We cannot provide assurance that any of our pending patent applications will result in the grant of a patent, whether the examination process will require us to narrow our claims, and whether our claims will provide adequate coverage of our competitors\u2019 products or services.\nIn addition to pursuing patents on our products, we also preserve much of our innovation as trade secrets, particularly in the Reagent Solutions division of our Protein Sciences segment. Where appropriate, we use trademarks or registered trademarks in connection with our products. \u00a0We have taken steps to protect our intellectual property and proprietary technology, in part\u00a0by entering into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, corporate partners and, when needed, our advisors. See the description of risks associated with the Company\u2019s intellectual property in \u201cItem\u00a01A. Risk Factors.\u201d\nWe can give no assurance that Bio-Techne\u2019s products do not infringe upon patents or proprietary rights owned or claimed by others. Bio-Techne has not conducted a patent infringement study for each of its products. Where we have been contacted by patent holders with certain intellectual property rights, Bio-Techne typically has entered into licensing agreements with patent holders under which it has the exclusive and/or non-exclusive right to use patented technology as well as the right to manufacture and sell certain patented products to the research and/or diagnostics markets.\nAll trademarks, trade names, product names, graphics, and logos of Bio-Techne contained herein are trademarks and registered trademarks of Bio-Techne or its subsidiaries, as applicable, in the United States and/or other countries. \u00a0Solely for convenience, we may refer to trademarks in this Annual Report on Form 10-K without the \u2122 or \u00ae symbols. \u00a0Such references are not intended to indicate that we will not assert our full rights to our trademarks. \u00a0\nLAWS AND REGULATIONS\nOur operations, and some of the products we offer, are subject to a number of complex laws and regulations governing the production, marketing, handling, transportation, and distribution of our products and services. The following sections describe certain significant regulations pertinent to the Company. These are not the only laws and regulations applicable to the Company\u2019s business. For a description of risks related to laws and regulations to which we are subject, refer to \u201cItem\u00a01A. Risk Factors.\u201d\n12\n\n\nTable of Contents\nMedical Device Regulations\nA number of our products are classified as medical devices and are subject to restrictions under domestic and foreign laws, rules, regulations, self-regulatory codes and orders, including but not limited to\u00a0the U.S. Food, Drug and Cosmetic Act (the \u201cFDCA\u201d). The FDCA requires these products, when sold in the United States, to be safe and effective for their intended uses and to comply with the regulations administered by the U.S. Food and Drug Administration (\u201cFDA\u201d). The FDA regulates the design, development, testing, manufacture, advertising, labeling, packaging, marketing, distribution, import and export and record keeping for such products. Many medical device products are also regulated by comparable agencies in non-U.S. countries in which they are produced or sold.\nAny medical devices we manufacture and distribute are subject to pervasive and continuing regulation by the FDA and certain state and non-U.S. agencies. As a medical device manufacturer, our manufacturing facilities are subject to inspection on a routine basis by the FDA. We are required to adhere to the Current Good Manufacturing Practices (\u201ccGMP\u201d) requirements, as set forth in the Quality Systems Regulation (\u201cQSR\u201d), which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all phases of the design and manufacturing process.\nWe must also comply with post-market surveillance regulations, including medical device reporting (\u201cMDR\u201d), requirements which require that we review and report to the FDA any incident in which our products may have caused or contributed to a death or serious injury. We must also report any incident in which our product has malfunctioned if that malfunction would likely cause or contribute to a death or serious injury it if were to recur.\nLabeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. Medical devices approved or cleared by the FDA may not be promoted for unapproved or uncleared uses, otherwise known as \u201coff-label\u201d promotion. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.\nIn the European Union (\u201cEU\u201d), our products are subject to the medical device laws of the various member states, which are currently based on a Directive of the European Commission. Additionally, the EU has adopted the In Vitro Diagnostic Regulation (the \u201cEU IVDR\u201d), which imposes stricter requirements for the marketing and sale of in vitro diagnostic medical devices, including in the area of clinical evaluation requirements, quality systems and post-market surveillance. Manufacturers\u00a0of in vitro diagnostics medical devices that have been marketed and sold under the prior regulatory regime now have to comply with some of the new EU IVDR requirements, while the effective date of other requirements have been delayed. Complying with\u00a0EU IVDR may require material modifications to our quality management systems, additional resources in certain functions, updates to technical files and additional clinical data in some cases, among other changes.\nOne of our products under our Exosome Diagnostics brand is offered as a test by a certified laboratory under CLIA. Our Asuragen business also maintains a CLIA certification. Consequently, we must comply with state licensing regulations applicable to laboratories regulated under CLIA, governing laboratory practices and procedures.\nOther Healthcare Laws\nSeveral of the products sold in our Diagnostics and Genomics segment are subject to various health care related laws regulating fraud and abuse, research and development, pricing and sales and marketing practices, and the privacy and security of health information, including, among others:\n\u25cf\nU.S. federal regulations regarding quality and cost by the U.S. Department of Health and Human Services (\u201cHHS\u201d), including the Centers for Medicare & Medicaid Services (\u201cCMS\u201d), as well as comparable state and non-U.S. agencies responsible for reimbursement and regulation of healthcare goods and services, including laws and regulations related to kickbacks, false claims, self-referrals and healthcare fraud.\n\u200b\n\u25cf\nU.S. Federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration (including any kickback or bribe), directly or indirectly, in exchange for \n13\n\n\nTable of Contents\nor to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made in whole or in part under a federal health care program, such as Medicare or Medicaid.\n\u200b\n\u25cf\nComparable laws and regulations similar to, and in some cases more stringent than, the U.S. federal regulations discussed above and below, including the UK Bribery Act and similar anti-bribery laws.\n\u200b\n\u25cf\nThe Health Insurance Portability and Accountability Act of 1996 (\u201cHIPAA\u201d), which prohibits knowingly and willfully (1) executing, or attempting to execute, a scheme to defraud any health care benefit program, including private payors, or (2) falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. In addition, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, also restricts the use and disclosure of patient identifiable health information, mandates the adoption of standards relating to the privacy and security of patient identifiable health information and requires the reporting of certain security breaches with respect to such information.\n\u200b\n\u25cf\nThe False Claims Act, which imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program, knowingly makes, uses or causes to be made or used, a false record or statement material to a false or fraudulent claim, or knowingly makes a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government.\n\u200b\n\u25cf\nThe Open Payments Act requires manufacturers of medical devices covered under Medicare to, in certain circumstances, record payments and other transfers of value to a broad range of healthcare providers and teaching hospitals and to report this data as well as ownership and investment interests held by the physicians described above and their immediate family members to HHS for subsequent public disclosure, as well as similar reporting requirements in some states and in other countries.\n\u200b\nFor a discussion of risks related to regulation by the FDA and comparable agencies of other countries, and the other regulatory regimes referenced above, please refer to section entitled \u201cItem\u00a01A. Risk Factors.\u201d\nData Privacy and Security Laws\nAs a global organization, we are subject to data privacy and security laws, regulations, and customer-imposed controls in numerous jurisdictions as a result of having access to and processing confidential, personal and/or sensitive data in the course of our business. In addition to the U.S. HIPAA privacy and security rules\u00a0mentioned above, which impact some parts of our business, individual states also regulate data breach and security requirements, and multiple governmental bodies assert authority over aspects of the protection of personal\u00a0 privacy. In particular, a broad privacy law in California, the California Consumer Privacy Act (\u201cCCPA\u201d), came into effect in January\u00a02020. The CCPA has some of the same features as the GDPR (discussed below) and has already prompted several other states to follow with similar laws. The EU General Data Protection Regulation that became effective in May\u00a02018 (\u201cGDPR\u201d) has imposed significantly stricter requirements in how we collect, transmit, process, and retain personal data, including, among other things, in certain circumstances a requirement for almost immediate notice of data breaches to supervisory authorities and prompt notice to data subjects with significant fines for non-compliance. Several other countries in which we do business have passed, and other countries are considering passing, laws that require personal data relating to their citizens to be maintained on local servers and impose additional data transfer restrictions. For a discussion of risks related to improper disclosure of private information particularly as a result of cyber security incidents, please refer to section entitled \u201cItem\u00a01A. Risk Factors.\u201d\nEnvironmental Health and Safety Laws\nWe are also subject to various environmental health and safety laws and regulations both within and outside the U.S. Like other companies in our industry, our manufacturing and research activities involve the use and transportation of substances regulated under environmental health and safety laws including those relating to the transportation of hazardous materials.\nOther Laws and Regulations Governing Our Sales, Marketing and Shipping Activities\nWe are subject to the U.S. Foreign Corrupt Practices Act and various other similar anti-corruption and anti-bribery acts, which are particularly relevant to our operations in countries where the customers are government entities or are controlled \n14\n\n\nTable of Contents\nby government officials. Both directly and indirectly through our distributors, we must comply with such laws when interacting with those entities.\nAs Bio-Techne\u2019s businesses also include export and import activities, we are subject to pertinent laws enforced by the U.S.\u00a0Departments of Commerce, State and Treasury. Other nations\u2019 governments have implemented similar export/import control and economic sanction regulations, which may affect the Company\u2019s operations or transactions subject to their jurisdictions.\nIn addition, under U.S. laws and regulations, U.S. companies and their subsidiaries and affiliates outside the United States are prohibited from participating or agreeing to participate in unsanctioned foreign boycotts in connection with certain business activities, including the sale, purchase, transfer, shipping or financing of goods or services within the United States or between the United States and countries outside of the United States. If we, or certain third parties through which we sell or provide goods or services, violate anti-boycott laws and regulations, we may be subject to civil or criminal enforcement action and varying degrees of liability.\nWe are subject to laws and regulations governing government contracts, and failure to address these laws and regulations or comply with government contracts could harm our business by a reduction in revenue associated with these customers. We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government. We are also subject to investigation for compliance with the regulations governing government contracts. A failure to comply with these regulations could result in suspension of these contracts, criminal, civil and administrative penalties or debarment.\nFor a discussion of risks related to the above-referenced regulations, particularly with respect to our international operations, please refer to section entitled \u201cItem\u00a01A. Risk Factors.\u201d\nINVESTOR INFORMATION\nWe are subject to the information requirements of the Securities Exchange Act of 1934 (the Exchange Act). Therefore, we file periodic reports, proxy statements, and other information with the Securities and Exchange Commission (SEC). The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically.\nFinancial and other information about us is available on our web site (https://investors.bio-techne.com/). We make available on our web site copies of our Annual Report on Form\u00a010-K, Quarterly Reports on Form\u00a010-Q, Current Reports on Form\u00a08-K, and amendments to those reports filed or furnished pursuant to Section\u00a013 or 15(d)\u00a0of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.\nEXECUTIVE OFFICERS OF THE REGISTRANT\nCurrently, the names, ages, positions and periods of service of each executive officer of the Company are as follows:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nName\n\u00a0\u00a0\u00a0\u00a0\nAge\n\u00a0\u00a0\u00a0\u00a0\nPosition\n\u00a0\u00a0\u00a0\u00a0\nOfficer\u00a0Since\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCharles Kummeth\n\u00a0\n63\n\u00a0\nPresident, Chief Executive Officer and Director\n\u00a0\n2013\nJames Hippel\n\u00a0\n52\n\u00a0\nExecutive Vice President and Chief Financial Officer\n\u00a0\n2014\nKim Kelderman\n\u00a0\n56\n\u00a0\nPresident, Diagnostics and Genomics\n\u00a0\n2018\nWilliam Geist \n\u00a0\n53\n\u00a0\nPresident, Protein Sciences\n\u00a0\n2022\nShane Bohnen\n\u00a0\n48\n\u00a0\nSenior Vice President, General Counsel & Corp. Secretary\n\u00a0\n2023\n\u200b\nSet forth below is information regarding the business experience of each executive officer. There are no family relationships among any of the officers named, nor is there any arrangement or understanding pursuant to which any person was selected as an officer.\nCharles Kummeth has been President and Chief Executive Officer of the Company since April\u00a01, 2013. Prior to joining the Company, he served as an executive at Thermo Fisher Scientific and in various roles at 3M Corporation.\nJames Hippel has been Chief Financial Officer of the Company since April\u00a01, 2014. Prior to joining the Company, Mr.\u00a0Hippel served as Senior Vice President and Chief Financial Officer for Mirion Technologies,\u00a0Inc and as Vice \n15\n\n\nTable of Contents\nPresident, Finance at Thermo Fisher Scientific, and in financial roles at Honeywell International. \u00a0 Mr.\u00a0Hippel started his career with KPMG\u00a0LLP.\nKim Kelderman joined Bio-Techne on April\u00a030, 2018 as President, Diagnostics and Genomics. Prior to Bio-Techne, Mr.\u00a0Kelderman was an executive at Thermo Fisher Scientific and a Senior Segment Leader at Becton Dickinson.\nWilliam Geist has been\u00a0President of the Protein Sciences segment\u00a0since January 3, 2022. Prior to Bio-Techne, \nMr. Geist most recently served as Chief Operating Officer for Quanterix, and before that in senior management roles at Thermo Fisher Scientific and QuantaBiosciences, a QIAGEN company.\n\u200b\nShane Bohnen was promoted to General Counsel and Corporate Secretary on March 3, 2023, and has been an attorney on the Company\u2019s legal team since July 2019. \u00a0Prior to joining Bio-Techne, Mr. Bohnen spent 10 years in private practice as a life sciences litigator, followed by seven years as in-house corporate counsel with an expansive breadth of responsibility and global scope.\n\u200b\n16\n\n\nTable of Contents\n ITEM\u00a01A. RISK FACTORS\nSet forth below are risks and uncertainties we believe are material to our investors. You should refer to the explanation of the qualifications and limitations on forward-looking statements in the section titled \nInformation Relating to Forward-Looking Statements\n at the beginning of this Annual Report on Form\u00a010-K.\nEconomic and Industry Risks\nConditions in the global economy, the particular markets we serve and the financial markets, whether brought about by material global crises or other factors, may adversely affect our business and financial results.\nOur business is sensitive to global economic conditions. Slower economic growth in the domestic or international markets, inflation, recession, volatility in the credit and currency markets, high levels of unemployment or underemployment, labor availability constraints, changes or anticipation of potential changes in government trade, fiscal, tax or monetary policies, government budget dynamics (particularly in the healthcare and scientific research areas), and other challenges \u00a0in the global economy have in the past adversely affected, and may in the future adversely affect, the Company and its distributors, customers, and suppliers. \u00a0In the past three years, COVID-19 has had, and may continue to have, an adverse impact on the global economy, including as a result of impacts associated with protective health measures that we, other businesses and governments are taking or might have to take again in the future to manage the pandemic \u00a0For example, as the world has grappled with the COVID-19 pandemic, some governments, including the People\u2019s Republic of China, imposed strict \u00a0\u201cstay-at-home\u201d orders to manage the pandemic, which has significantly impacted the economy in that country and our business there. While these restrictions have now lifted, if they were to be imposed again in China or elsewhere, our business could be materially impacted. \nWithout limiting the foregoing, we have experienced and/or may in the future experience:\n\u25cf\nadverse impacts on customer orders and purchases and unpredictable reductions in demand for many of our products;\n\u200b\n\u25cf\nconstraints on the movement of our products through the supply chain, which can disrupt our ability to produce or deliver our products;\n\u200b\n\u25cf\nadverse impacts on our collections of accounts receivable, including delays in collections and increases in uncollectible receivables, as well as the risk of excess or obsolete inventory;\n\u200b\n\u25cf\nprice increases in our raw materials and capital equipment, as well as increasing price competition in our markets;\n\u200b\n\u25cf\nadverse impacts on our workforce and/or key employees;\n\u200b\n\u25cf\nincreased risk that counterparties to our contractual arrangements will become insolvent or otherwise unable to fulfill their contractual obligations which, in addition to increasing the risks identified above, could result in preference actions against us; and\n\u200b\n\u25cf\nadverse impact to the sizes and growth rates of the markets we serve.\n\u200b\nIf growth in the global economy or in any of the markets we serve slows for a significant period, if there is significant deterioration in the global economy or such markets or if improvements in the global economy do not benefit the markets we serve, our business and financial results can be adversely affected.\nInternational political, compliance and business factors, including the military conflict in Ukraine and the United Kingdom\n\u2019\ns withdrawal from the European Union, can negatively impact our operations and financial results.\nWe engage in business globally, with approximately 43% of our sales revenue in fiscal 2023\u00a0coming from outside the U.S. Changes, potential changes or uncertainties in social, political, regulatory, and economic conditions or laws and policies \n17\n\n\nTable of Contents\ngoverning foreign trade, manufacturing,\u00a0and development and investment in the territories and countries where we or our customers operate, or governing the health care system, can adversely affect our business and financial results. For example, Congress and the U.S. administration have sought to impose changes to healthcare in the United States, including government negotiation/regulation of drug prices paid by government programs. \u00a0Such impacts could negatively impact certain markets we serve, resulting in an adverse impact on our sales revenue. \nPolitical and military conflicts may disrupt our business or negatively impact global economic or business conditions. \u00a0For example, Russia\u2019s military invasion of Ukraine, and the response by the US and European countries to that invasion, have caused severe political, humanitarian and economic crises, not only in Europe but globally. Restrictions on trade, particularly involving certain foods and energy supplies, have increased prices, led to widespread inflation and otherwise aggravated the economic challenges resulting from the COVID-19 pandemic. \u00a0While we have not historically had significant business in either Russia or Ukraine, the broader impact of the conflict could negatively impact our operations and financial results. \u00a0\nOne of our strategies is to expand geographically, particularly in China, India and in developing countries, both through distribution and through direct operations. This subjects us to a number of risks, including international economic, political, and labor conditions; currency fluctuations; tax laws (including U.S. taxes on foreign subsidiaries); increased financial accounting and reporting burdens and complexities; unexpected changes in, or impositions of, legislative or regulatory requirements; failure of laws to protect intellectual property rights adequately; inadequate local infrastructure and difficulties in managing and staffing international operations; delays resulting from difficulty in obtaining export licenses for certain technology; tariffs, quotas and other trade barriers and restrictions; transportation delays; operating in locations with a higher incidence of corruption and fraudulent business practices; and other factors beyond our control, including terrorism, war, natural disasters, climate change and diseases. \u00a0In addition, geopolitical tensions with these countries could exacerbate these risks. \u00a0\nThe application of laws and regulations impacting global transactions is often unclear and may at times conflict. Compliance with these laws and regulations may involve significant costs or require changes in our business practices that result in reduced revenue and profitability. Non-compliance could also result in fines, damages, criminal sanctions,\u00a0prohibited business conduct, and damage to our reputation. We incur additional legal compliance costs associated with our global operations and could become subject to legal penalties in foreign countries\u00a0if we do\u00a0not comply with local laws and regulations, which may be substantially different from those in the U.S.\nWe continue to expand our operations in countries with developing economies, where it may be common to engage in business practices that are prohibited by U.S. regulations applicable to the Company, such as the Foreign Corrupt Practices Act. Although we implement policies and procedures designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors, and agents, as well as those companies to which we outsource certain aspects of our business operations, including those based in foreign countries where practices which violate such U.S. laws may be customary, will comply with our internal policies. Any such non-compliance, even if prohibited by our internal policies, could have an adverse effect on our business and result in significant fines or penalties.\nThe healthcare and life sciences industries that we serve face constant pressures and changes in an effort to reduce healthcare costs or increase their predictability, all of which may adversely affect our business and financial results.\nOur Protein Sciences segment products are sold primarily to research scientists at pharmaceutical and biotechnology companies and at university and government research institutions. In addition to the impacts described above relating to COVID-19, research and development spending by our customers and the availability of government research funding can fluctuate due to changes in available resources, mergers of pharmaceutical and biotechnology companies, spending priorities, general economic conditions and institutional and governmental budgetary policies. \n18\n\n\nTable of Contents\nOur Diagnostics and Genomics segment products are intended primarily for the medical diagnostics market, which relies largely on government healthcare-related policies and funding. Changes in government reimbursement for certain diagnostic tests or reductions in overall healthcare spending could negatively impact us directly or our customers and, correspondingly, our sales to them. For example, our Exosome Diagnostics business develops and sells novel exosome-based diagnostic tests. While we received public payer coverage for certain uses, we are currently seeking expanded coverage from public payors as well as coverage decisions regarding reimbursement from additional\u00a0private payers. However, the process and timeline for obtaining coverage decisions is uncertain and difficult to predict. Further, reimbursement reductions due to changes in policy regarding coverage of tests or other requirements for payment (such as prior authorization, diagnosis code and other claims edits, or a physician or qualified practitioner\u2019s signature on test requisitions) may be implemented from time to time. Additionally, the U.S. government\u2019s plans to manage prescription drug prices, as well as its recently announced intention to regulate lab developed tests, may impact the customers and industries we serve by increasing the cost of commercializing and/or limiting the profitability of commercialized products. All of these payor actions and changes may have a material adverse effect on revenue and earnings associated with our diagnostics products.\nAcquisition and Investment Risks\nOur inability to complete acquisitions at our historical rate and at appropriate prices, and to make appropriate investments that support our long-term strategy, could negatively impact our growth rate and stock price\n.\nOne of our key strategies is growth through acquisition of other businesses and assets. Our ability to grow revenues, earnings and cash flow at or above our historic rates depends in part upon our ability to identify and successfully acquire and integrate businesses at appropriate prices and realize anticipated synergies, and to make appropriate investments that support our long-term strategy. We may not be able to consummate acquisitions at rates similar to the past, which could adversely impact our growth rate and our stock price. Promising acquisitions and investments are difficult to identify and complete for a number of reasons, including high valuations, competition among prospective buyers or investors, the availability of affordable funding in the capital markets and the need to satisfy applicable closing conditions and obtain applicable antitrust and other regulatory approvals on acceptable terms.\u00a0Changes in accounting or regulatory requirements or instability in the credit markets could also adversely impact our ability to consummate acquisitions and investments.\nOur acquisition of businesses, investments, joint ventures and other strategic relationships, if not properly implemented or integrated, could negatively impact our business and financial results.\nAs part of our business strategy, we acquire businesses, make investments and enter into joint ventures and other strategic relationships in the ordinary course of business, and we also from time to time complete more significant transactions. \u00a0At the beginning of this fiscal year, we completed the acquisition of Namocell, a single cell sorting and dispensing platform company. Bio-Techne also obtained a 19.9% ownership stake in Wilson Wolf and will acquire the remaining ownership no later than the end of calendar year 2027. We have also continued participating in our collaborative marketing venture, ScaleReady LLC, with Wilson Wolf and another partner, and which addresses the needs of the rapidly expanding cell and gene therapy market. \u00a0While we believe these business ventures will advance our business strategies and support our growth plans, we may not be successful in managing or integrating them into our company. Acquisitions, investments, joint ventures and strategic relationships involve a number of additional financial, accounting, managerial, operational, legal, compliance and other risks and challenges, including but not limited to the following, any of which could adversely affect our business and our financial results:\n\u25cf\nbusinesses, technologies, services and products that we acquire or invest in sometimes under-perform relative to our expectations and the price that we paid, fail to perform in accordance with our anticipated timetable or fail to achieve and/or sustain profitability;\n\u200b\n\u25cf\nwe from time to time incur or assume debt in connection with our acquisitions and investments, which can result in increased borrowing costs and interest expense and diminish our future access to the capital markets;\n\u200b\n\u25cf\nacquisitions, investments, joint ventures or strategic relationships can cause our financial results to differ from our own or the investment community\u2019s expectations in any given period, or over the long-term;\n\u200b\n19\n\n\nTable of Contents\n\u25cf\nacquisitions, investments, joint ventures or strategic relationships can create demands on our management, operational resources and financial and internal control systems that we may be unable to effectively address;\n\u200b\n\u25cf\nwe can experience difficulty in integrating cultures, personnel, operations and financial and other controls and systems and retaining key employees and customers;\n\u200b\n\u25cf\nwe may be unable to achieve cost savings or other synergies anticipated in connection with an acquisition, investment, joint venture or strategic relationship;\n\u200b\n\u25cf\nwe have assumed and may assume unknown liabilities, known contingent liabilities that become realized, known liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting from the acquired company\u2019s or investee\u2019s activities and the realization of any of these liabilities or deficiencies can increase our expenses, adversely affect our financial position or cause us to fail to meet our public financial reporting obligations;\n\u200b\n\u25cf\nin connection with acquisitions and joint ventures, we often enter into post-closing financial arrangements such as purchase price adjustments, earn-out obligations and indemnification obligations, which can have unpredictable financial results; and\n\u200b\n\u25cf\ninvesting in or making loans to early-stage companies often entails a high degree of risk, and we may not always achieve the strategic, technological, financial or commercial benefits we anticipate; we may lose our investment or fail to recoup our loan; or our investment may be illiquid for a greater-than-expected period of time.\n\u200b\nWe may be required to record a significant charge to earnings if our goodwill and other amortizable intangible assets or other investments become impaired, which could negatively impact our financial results or stock price.\nWe are required under generally accepted accounting principles to test goodwill for impairment at least annually and to review our goodwill, amortizable intangible assets, and other assets acquired through merger and acquisition activity for impairment when events or changes in circumstance indicate the carrying value may not be recoverable. Factors that could lead to impairment of goodwill, amortizable intangible assets, and other assets acquired via acquisitions include significant adverse changes in the business climate and actual or projected operating results (affecting our company as a whole or affecting any particular segment) and declines in the financial condition of our business. We may be required in the future to record additional charges to earnings if our goodwill, amortizable intangible assets or other investments become impaired. Any such charge would adversely impact our financial results.\nIn addition, the Company\u2019s expansion strategies include collaborations and investments in joint ventures and companies developing new products related to the Company\u2019s business. These strategies carry risks that objectives will not be achieved and future earnings will be adversely affected. \nStrategic and Operational Risks\nOur success will be dependent on recruiting and retaining highly qualified and diverse personnel and creating and maintaining a culture that successfully integrates the employees joining through acquisitions.\nRecruiting and retaining qualified scientific, production, sales and marketing, and management personnel representing diverse backgrounds, experiences and skill sets are critical to our success. The market for highly skilled workers and leaders in our businesses, particularly in the areas of science and technology, is extremely competitive. \u00a0While retention improved in fiscal 2023, a number of our businesses and departments continued to face recruitment and retention challenges, and faced labor availability constraints and inflationary costs. Our growth by acquisition also creates challenges in retaining employees. As we integrate past and future acquisitions and evolve our corporate culture to incorporate new workforces, some employees may not find such integration or cultural changes appealing. Finally, as the geographies in which we operate recover from the recent pandemic and we return employees who had been working from home back to our sites, we may not be able to retain people who prefer continuing to work from home full time. The failure to attract and retain such personnel could adversely affect our business.\n20\n\n\nTable of Contents\nOur growth depends in part on the timely development and commercialization of new and enhanced products and services that meet our customers\n\u2019\n needs. Our growth can also be negatively impacted if our customers do not grow as anticipated.\nWe generally sell our products and services in industries that are characterized by rapid technological change, frequent new product introductions and new market entrants and competitors. If we do not develop innovative new and enhanced products and services on a timely basis, our offerings will become obsolete over time and our business and financial results will suffer. Our success will depend on several factors, including our ability to:\n\u25cf\ncorrectly identify and/or predict customer needs and preferences;\n\u200b\n\u25cf\nallocate our research funding to products with higher growth prospects;\n\u200b\n\u25cf\nanticipate and respond to our competitors\u2019 development of new products and technological innovations;\n\u200b\n\u25cf\ndifferentiate our offerings from our competitors\u2019 offerings and avoid our products from becoming commodities;\n\u200b\n\u25cf\ninnovate and develop new technologies and applications, and acquire or obtain rights to third-party technologies that may have valuable applications in the markets we serve;\n\u200b\n\u25cf\nobtain adequate intellectual property rights with respect to key technologies;\n\u200b\n\u25cf\nsuccessfully commercialize new technologies in a timely manner, price them competitively and cost-effectively manufacture and deliver sufficient volumes of new products of appropriate quality on time;\n\u200b\n\u25cf\nobtain necessary regulatory approvals of appropriate scope (including with respect to certain diagnostic medical device products by demonstrating satisfactory clinical results where applicable, as well as achieving third-party reimbursement); and\n\u200b\n\u25cf\nstimulate customer demand for and convince customers to adopt new technologies.\n\u200b\nIf we fail to accurately predict future customer needs and preferences or fail to produce viable technologies, we may invest heavily in research and development of products that do not lead to significant revenue, which would adversely affect our business and financial results. Even when we successfully innovate and develop new and enhanced products, we often incur substantial costs in doing so, and our profitability may suffer.\nWe face intense competition, and if we are unable to compete effectively, we may experience decreased demand and decreased market share or need to reduce prices to remain competitive.\nWe face intense competition across most of our product lines. Competitors include companies ranging from start-up companies, which may be able to more quickly respond to customers\u2019 needs, to large multinational companies, which may have greater financial, marketing, operational, and research and development resources than us. In addition, consolidation trends in the pharmaceutical, biotechnology and diagnostics industries have served to create fewer customer accounts and to concentrate purchasing decisions for some customers, resulting in increased pricing pressure on us. Moreover, customers may believe that consolidated businesses are better able to compete as sole source vendors, and therefore prefer to purchase from such businesses. The entry into the market by manufacturers in countries in Asia and other low-cost manufacturing locations is also creating increased pricing and competitive pressures, particularly in developing markets. In order to compete effectively, we must retain longstanding relationships with major customers and continue to grow our business by establishing relationships with new customers, continually developing new products and services to maintain and expand our brand recognition and leadership position in various product and service categories and penetrating new markets, including high-growth markets. Our ability to compete can also be impacted by changing customer preferences and requirements (for example increased demand for more environmentally-friendly products and supplier practices). Our failure to compete effectively and/or pricing pressures resulting from competition may adversely impact our business and financial results, and our expansion into new markets may result in greater-than-expected risks, liabilities and expenses.\n21\n\n\nTable of Contents\nA significant disruption in, or breach of security of, our information technology systems or data, or violation of data privacy laws, could result in damage to our reputation, data integrity and/or subject us to costs, fines, or lawsuits under data privacy or other laws or contractual requirements.\nThe integrity and protection of our own data, and that of our customers and employees, is critical to our business. We rely on information technology systems, some of which are provided and/or managed by third parties, to process, transmit and store electronic information (including sensitive data such as confidential business information and personally identifiable data relating to employees, customers, other business partners and patients), and to manage or support a variety of critical business processes and activities (such as receiving and fulfilling orders, billing, collecting and making payments, shipping products, providing services and support to customers and fulfilling contractual obligations). These systems, products and services (including those we acquire through business acquisitions) can be damaged, disrupted or shut down due to attacks by computer hackers, computer viruses, ransomware, human error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events, and in any such circumstances our system redundancy and other disaster recovery planning may be ineffective or inadequate. Attacks can also target hardware, software and information installed, stored or transmitted in our products after such products have been purchased and incorporated into third-party products, facilities or infrastructure. Security breaches of systems provided or enabled by us, regardless of whether the breach is attributable to a vulnerability in our products or services, or security breaches of third party systems we rely on to process, store or transmit electronic information, can result in the misappropriation, destruction or unauthorized disclosure of confidential information or personal data belonging to us or to our employees, partners, customers, patients or suppliers. These attacks, breaches, misappropriations and other disruptions and damage can interrupt our operations or the operations of our customers and partners, delay production and shipments, result in theft of our and our customers\u2019 intellectual property and trade secrets, result in disclosure of personally identifiable information, damage customer, patient, business partner and employee relationships and our reputation and result in defective products or services, legal claims and proceedings, liability and penalties under privacy laws and increased costs for security and remediation, in each case resulting in an adverse effect on our business and financial results.\nIn addition, our information technology systems require an ongoing commitment of significant resources to maintain and enhance existing systems and develop or integrate new systems to keep pace with continuing changes in information processing technology, evolving legal and regulatory standards, evolving customer expectations, changes in the techniques used to obtain unauthorized access to data and information systems, and the information technology needs associated with our changing products and services. There can be no assurance that we will be able to successfully maintain, enhance and upgrade our systems as necessary to effectively address these requirements.\nIf we are unable to maintain reliable information technology systems or appropriate controls with respect to global data privacy and security requirements and prevent data breaches, we may suffer regulatory consequences in addition to business consequences. As a global organization, we are subject to data privacy and security laws, regulations, and customer-imposed controls in numerous jurisdictions as a result of having access to and processing confidential, personal and/or sensitive data in the course of our business. For example, in the United States, a small number of our businesses are subject to HIPAA. Entities that violate HIPAA due to a breach of unsecured patient health information, or that arise from a complaint about privacy practices or an audit by the HHS, may be subject to significant civil, criminal and administrative fines and penalties and/or additional reporting and oversight obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance. Individual states regulate data breach and security requirements, and multiple governmental bodies assert authority over aspects of the protection of personal privacy. Most notably, in the last several\u00a0years, some states, including California, Virginia, Utah, Colorado and Connecticut, have passed broad privacy legislation that could result in more material impacts as implementing regulations are issued. European laws require us to have an approved legal mechanism to transfer personal data out of Europe. Failure to comply with the requirements of GDPR and the applicable national data protection laws of the EU member states may result in fines of up to \u20ac20 million or up to 4% of the total worldwide annual turnover of the preceding financial\u00a0year, whichever is higher, and other administrative penalties. Several other countries such as China and Russia have passed, and other countries are considering passing, laws that require personal data relating to their citizens to be maintained on local servers and impose additional data transfer restrictions. Government enforcement actions can be costly and interrupt the regular operation of our business, and data breaches or violations of data privacy laws can result in fines, reputational damage and civil lawsuits, any of which may adversely affect our business, reputation and financial results.\n22\n\n\nTable of Contents\nIf we suffer loss to our supply chains, distribution systems or information technology systems due to catastrophe or other events, our operations could be seriously harmed.\nOur supply chains, distribution systems and information technology systems may be subject to catastrophic loss due to fire, flood, earthquake, hurricane, power shortage or outage, public health crisis (including epidemics and pandemics) and the reaction thereto, war, terrorism, riot or other man-made or natural disasters, such as the COVID-19 pandemic. If any of these supply chains or systems were to experience a catastrophic loss, it could disrupt our operations, delay production and shipments, result in defective products or services, diminish demand, damage customer relationships and our reputation and result in legal exposure and significant repair or replacement expenses. The third-party insurance coverage that we maintain varies from time to time in both type and amount depending on cost, availability and our decisions regarding risk retention, and may be unavailable or insufficient to protect us against such losses.\nThe manufacture of many of our products is a complex process, and if we directly or indirectly encounter problems manufacturing products, our business and financial results could suffer.\nThe manufacture of many of our products is a complex process, due in part to strict regulatory requirements for some of our products. Problems can arise during manufacturing for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with reliable sourcing of raw materials or components, natural disasters and environmental factors, and if not discovered before the product is released to market can result in recalls and product liability exposure. Because of the quality requirements of some of our customers as well as stringent regulations of the FDA and similar agencies regarding the manufacture of certain of our products, alternative manufacturing or sourcing is not always available on a timely basis to replace such production capacity. Any of these manufacturing problems could result in significant adverse impacts to our business and financial results.\nIf we cannot adjust our manufacturing capacity or the purchases required for our manufacturing activities to reflect changes in market conditions or customer demand, our business and financial results may suffer. In addition, our reliance upon sole or limited sources of supply for certain materials, components and services can cause production interruptions, delays and inefficiencies.\nWe purchase materials, components and equipment from third parties for use in many of our manufacturing operations. Our profitability could be adversely impacted if we are unable to adjust our purchases to reflect changes in customer demand and market fluctuations, including those caused by seasonality or cyclicality. During a market upturn, suppliers from time to time extend lead times, limit supplies or increase prices. If we cannot purchase sufficient products at competitive prices and quality and on a timely enough basis to meet increasing demand, we may not be able to satisfy market demand, product shipments may be delayed, our costs may increase, or we may breach our contractual commitments and incur liabilities. Conversely, in order to secure supplies for the production of products, we sometimes enter into noncancelable purchase commitments with vendors, which can impact our ability to adjust our inventory to reflect declining market demands. If demand for our products is less than we expect, we may experience additional excess and obsolete inventories and be forced to incur additional charges and our business and financial results may suffer.\nIn addition, some of our businesses purchase certain requirements from sole or limited source suppliers for reasons of quality assurance, regulatory requirements, cost effectiveness, availability or uniqueness of design. If these or other suppliers encounter financial, operating or other difficulties or if our relationship with them changes, we might not be able to quickly establish or qualify replacement sources of supply. The supply chains for our businesses can also be disrupted by supplier capacity constraints, bankruptcy or exiting of the business for other reasons, decreased availability of key raw materials or commodities and external events such as natural disasters, pandemic health issues, war, terrorist actions, governmental actions (such as trade protectionism) and legislative or regulatory changes. Any of these factors can result in production interruptions, delays, extended lead times and inefficiencies. Because we cannot always immediately adapt our production capacity and related cost structures to changing market conditions, at times our manufacturing capacity exceeds or falls short of our production requirements. Any or all of these problems can result in the loss of customers, provide an opportunity for competing products to gain market acceptance and otherwise adversely affect our business and financial results.\n23\n\n\nTable of Contents\nThe Company relies heavily on internal manufacturing and related operations to produce, package and distribute its products which, if disrupted, could materially impair our business operations. Our business could be adversely affected by disruptions at our sites.\nThe Company\u2019s internal quality control, packaging and distribution operations support the majority of the Company\u2019s sales. Since certain Company products must comply with FDA regulations and because in all instances, the Company creates value for its customers through the development of high-quality products, any significant decline in quality or disruption of operations for any reason\u00a0could adversely affect sales and customer relationships, and therefore adversely affect the business. While we have taken certain steps to manage these operational risks, the Company\u2019s future sales growth and earnings may be adversely affected by perceived disruption risks or actual disruptions.\nWe rely upon our manufacturing operations to produce many of the products we sell and our warehouse facilities to store products, pending sale. Any significant disruption of those operations for any reason, such as strikes or other labor unrest, power interruptions, fire, hurricanes or other events beyond our control could adversely affect our sales and customer relationships and therefore adversely affect our business. We have significant operations in California, near major earthquake faults, which make us susceptible to earthquake risk. Although most of our raw materials are available from a number of potential suppliers, our operations also depend upon our ability to obtain raw materials at reasonable prices. If we are unable to obtain the materials we need at a reasonable price, we may not be able to produce certain of our products or we may not be able to produce certain of these products at a marketable price, which could have an adverse effect on our results of operations.\nClimate change, or legal or regulatory measures to address climate change, may negatively affect us.\nClimate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present risks to our operations. \u00a0For example, we have significant operations in California, where serious drought has made water less available and more costly and has increased the risk of wildfires. Changes in climate patterns leading to extreme heat waves or unusual cold weather at some of our locations can lead to increased energy usage and costs, or otherwise adversely impact our facilities and operations and disrupt our supply chains and distribution systems. Concern over climate change can also result in new or additional legal or regulatory requirements designed to reduce greenhouse gas emissions or mitigate the effects of climate change on the environment. \u00a0Any such new or additional legal or regulatory requirements may increase the costs associated with, or disrupt, sourcing, manufacturing and distribution of our products, which may adversely affect our business and financial results. In addition, any failure to adequately address stakeholder expectations with respect to environmental, social and governance (\u201cESG\u201d) matters may result in the loss of business, adverse reputational impacts, diluted market valuations and challenges in attracting and retaining customers and talented employees. In addition, our adoption of certain standards or mandated compliance to certain requirements could necessitate additional investments that could impact our profitability. \u00a0 \nDefects, unanticipated use of, or inadequate disclosure with respect to our products, or allegations thereof, can adversely affect our business and financial results.\nCertain of our products and services are sold for use in diagnostics. For those products and services in particular, manufacturing or design defects in, unanticipated use of, safety or quality issues (or the perception of such issues) with respect to, \u201coff label\u201d use of, or inadequate disclosure of risks relating to the use of products and services that we make or sell (including items that we source from third-parties) can lead to personal injury, death, and/or property damage and adversely affect our business and financial results. These events can lead to recalls or safety alerts, result in the removal of a product or service from the market and result in product liability or similar claims being brought against us. Recalls, removals and product liability and similar claims (regardless of their validity or ultimate outcome) result in significant costs, as well as negative publicity and damage to our reputation that could reduce demand for our products and services. Our business can also be affected by studies of the utilization, safety and efficacy of medical device products and components that are conducted by industry participants, government agencies and others. Any of the above can result in the discontinuation of marketing of such products in one or more countries and give rise to claims for damages from persons who believe they have been injured as a result of product issues, including claims by individuals or groups seeking to represent a class.\n24\n\n\nTable of Contents\nBecause we rely heavily on third-party package-delivery services, a significant disruption in these services or significant increases in prices may disrupt our ability to ship products, increase our costs and lower our profitability.\nMost of our reagent products need to be stored and shipped at certain cold temperatures. Consequently, we ship a significant portion of our products to our customers by express mail or air delivery\u00a0through package delivery companies, such as FedEx in the U.S. and DHL in Europe. If one or more of these third-party package-delivery providers were to experience a major work stoppage, preventing our products from being delivered in a timely fashion or causing us to incur additional shipping costs we could not pass on to our customers, our costs could increase and our relationships with certain of our customers could be adversely affected. In addition, if one or more of these third-party package-delivery providers were to increase prices, and we were not able to find comparable alternatives or make adjustments in our delivery network, our profitability could be adversely affected.\nIntellectual Property Risks\nWe are dependent on maintaining our intellectual property rights. If we are unable to adequately protect our intellectual property, or if third parties infringe our intellectual property rights, we may suffer competitive injury or expend significant resources enforcing our rights.\nMany of the markets we serve are technology-driven, and as a result intellectual property rights play a significant role in product development and differentiation. We own numerous patents, trademarks, copyrights, trade secrets and other intellectual property and licenses to intellectual property owned by others, which in aggregate are important to our business. The intellectual property rights that we obtain, however, are not always sufficiently broad and do not always provide us a significant competitive advantage, and patents may not be issued for pending or future patent applications owned by or licensed to us. In addition, the steps that we and our licensors have taken to maintain and protect our intellectual property do not always prevent it from being challenged, invalidated, circumvented, designed around or becoming subject to compulsory licensing. In some circumstances, enforcement is not available to us because an infringer has a dominant intellectual property position or for other business reasons. We also rely on nondisclosure and noncompetition agreements with employees, consultants and other parties to protect, in part, trade secrets and other proprietary rights. There can be no assurance that these agreements adequately protect our trade secrets and other proprietary rights and will not be breached, that we will have adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary information or that third parties will not otherwise gain access to our trade secrets or other proprietary rights.\nThese risks are particularly pronounced in countries in which we do business that do not have levels of protection of corporate proprietary information, intellectual property, technology and other assets comparable to the United States.\u00a0We operate globally, with manufacturing operations in China and the UK, and approximately 43% of our revenue in fiscal 2023 was from outside the United States. \u00a0The laws, regulations and enforcement mechanisms in other countries may in some cases be less protective of our intellectual property rights. Our failure to obtain or maintain intellectual property rights that convey competitive advantage, adequately protect our intellectual property or detect or prevent circumvention or unauthorized use of such property and the cost of enforcing our intellectual property rights can adversely impact our business and financial results.\nWe may be involved in disputes to determine the scope, coverage and validity of others\u2019 proprietary rights, or to defend against third-party claims of intellectual property infringement, any of which could be time-intensive and costly and may adversely impact our business.\nOur success depends in part on our ability to operate without infringing the proprietary rights of others, and to obtain licenses where necessary or appropriate. We have obtained and continue to negotiate licenses to produce a number of products claimed to be owned by others. Since we have not conducted a patent infringement study for each of our products, it is possible that some of our products may unintentionally infringe patents of third parties.\nWe have been and may in the future be sued by third parties alleging that we are infringing their intellectual property rights. These lawsuits are expensive, take significant time, and divert management\u2019s focus from other business concerns. If we are found to be infringing the intellectual property of others, we could be required to cease certain activities, alter \n25\n\n\nTable of Contents\nour products or processes or pay licensing fees. This could cause unexpected costs and delays which may have a material adverse effect on us. If we are unable to obtain a required license on acceptable terms, or unable to design around any third party patent, we may be unable to sell some of our products and services, which could result in reduced revenue. In addition, if we do not prevail, a court may find damages or award other remedies in favor of the opposing party in any of these suits, which may adversely affect our earnings.\nFinancial and Tax Risks\nWe have entered into and drawn on a revolving credit facility, and we may incur additional debt in the future. The burden of this additional debt could adversely affect us, make us more vulnerable to adverse economic or industry conditions, and prevent us from funding our expansion strategy.\nWe currently have a Credit Agreement that provides for a revolving credit facility of $1 billion, which can\u00a0be increased by an additional $400 million subject to certain conditions. Borrowings under the Credit Agreement bear interest at a variable rate. As of August\u00a018, 2023, the Company had drawn $490 million under the Credit Agreement.\n \n\u200b\nThe terms of the Credit Agreement and the burden of the indebtedness incurred thereunder could have negative consequences for us, such as:\n\u25cf\nlimiting our ability to obtain additional financing to fund our working capital, capital expenditures, debt service requirements, expansion strategy, or other needs;\n\u200b\n\u25cf\nincreasing our vulnerability to, and reducing our flexibility in planning for, adverse changes in economic, industry and competitive conditions; and\n\u200b\n\u25cf\nincreasing our vulnerability to increases in interest rates.\n\u200b\nThe Credit Agreement also contains negative covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things, sell, lease or transfer any properties or assets, with certain exceptions; and enter into certain merger, consolidation or other reorganization transactions, with certain exceptions.\nA breach of any of these covenants could result in an event of default under our credit facility. Upon the occurrence of an event of default, the lender could elect to declare all amounts outstanding under such facility to be immediately due and payable and terminate all commitments to extend further credit. In addition, the Company would be subject to additional restrictions if an event of default exists under the Credit Agreement, such as a prohibition on the payment of cash dividends.\nOur business and financial results can be adversely affected by foreign currency exchange rates, changes in our tax rates and tax liabilities and assessments (including as a result of changes in tax laws).\nInternational markets contribute a substantial portion of our revenues, and we intend to continue expanding our presence in these regions. The exposure to fluctuations in currency exchange rates takes on different forms. International revenues and costs are subject to the risk that fluctuations in exchange rates could adversely affect our reported revenues and profitability when translated into U.S. dollars for financial reporting purposes. These fluctuations could also adversely affect the demand for products and services provided by us. As a multinational corporation, our businesses occasionally invoice third-party customers in currencies other than the one in which they primarily do business (the \"functional currency\"). Movements in the invoiced currency relative to the functional currency could adversely impact our cash flows and our results of operations. As our international sales grow, exposure to fluctuations in currency exchange rates could have a larger effect on our financial results. In fiscal 2023, currency translation had an\u00a0unfavorable effect of $21\u00a0million on revenues due to the\u00a0strengthening of the U.S. dollar relative to other currencies in which the company sells products and services.\nAs a global company, we are subject to taxation in numerous countries, states and other jurisdictions. In particular, we are affected by the impact of changes to tax laws or related authoritative interpretations in the United States, including tax reform under the Tax Cuts and Jobs Act which became effective in late 2017, which included broad and complex changes \n26\n\n\nTable of Contents\nto the United States tax code. Interpretations, assumptions and guidance regarding the\u00a0Tax Act that have been issued subsequently have had a material impact on our effective tax rate, and we anticipate that there may be additional changes to the U.S. tax code under a new Administration.\nIn preparing our financial results, we record the amount of tax that is payable in each of the countries, states and other jurisdictions in which we operate. Our future effective tax rate, however, may be lower or higher than experienced in the past due to numerous factors, including a change in the mix of our profitability from country to country, changes in accounting for income taxes and recently enacted and future changes in tax laws in jurisdictions in which we operate. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations, which could have an adverse effect on our business, results of operations and cash flows.\nDividends on our common stock could be reduced or eliminated in the future.\nFor many\u00a0years, our Board has declared quarterly dividends. In the future, our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.\nLegal, Regulatory, Compliance and Reputational Risks\nOur business is subject to extensive regulation; failure to comply with these regulations could adversely affect our business and financial results.\nAs referenced in more detail above, we and our customers must comply with a wide array of federal, state,\u00a0local and international regulations, in such areas as medical device, healthcare, import and export, anticorruption, and privacy. We develop, configure and market our products to meet customer needs created by those regulations. Any significant change in regulations could reduce demand for our products or increase our expenses. For example, many of our instruments are marketed to the pharmaceutical industry for use in discovering and developing drugs and diagnostic products. Changes in the U.S. FDA\u2019s regulation of drug or medical device products, such as managing the price of certain prescription drugs or potentially increasing regulatory scrutiny of lab developed tests, could have an adverse effect on the demand for these products.\nWe have agreements relating to the sale of our products to government entities in the U.S. and elsewhere and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government (less than 3% of our fiscal 2023 sales were made to the U.S. federal government). The laws governing government contracts differ from the laws governing private contracts and government contracts may contain pricing terms and conditions that are not applicable to private contracts. We are also subject to investigation for compliance with the regulations governing government contracts. A failure to comply with these regulations could result in suspension of these contracts, criminal, civil and administrative penalties or debarment.\nWe are subject to various local, state, federal, foreign and transnational laws and regulations, which include the operating and security standards of the U.S. FDA, the U.S. Drug Enforcement Agency (the DEA), the U.S. Department of Health and Human Services (the DHHS), and other comparable agencies and, in the future, any changes to such laws and regulations could adversely affect us. In particular, we are subject to laws and regulations concerning current good manufacturing practices. Our subsidiaries may be required to register for permits and/or licenses with, and may be required to comply with the laws and regulations of, the DEA, the FDA, the DHHS, foreign agencies and/or comparable state agencies as well as certain accrediting bodies depending upon the type of operations and location of product distribution, manufacturing and sale. The manufacture, distribution and marketing of many of our products and services, including medical devices and pharma services, are subject to extensive ongoing regulation by the FDA, the DEA, and other equivalent local, state, federal and non-U.S. regulatory authorities. In addition, we are subject to inspections by these regulatory authorities. For example, the EU has adopted the In Vitro Diagnostic Regulation (the \u201cEU IVDR\u201d), which imposes stricter requirements for the marketing and sale of in vitro diagnostic medical devices, including in the area of clinical evaluation requirements, quality systems and post-market surveillance. Manufacturers\u00a0of in vitro diagnostics medical devices that have been marketed and sold under the prior regulatory regime now have to comply with some of the new EU IVDR requirements, while the effective date of other requirements have been delayed. \u00a0 \u00a0Complying with\u00a0EU IVDR, the regulation applicable to the Company,\u00a0may require material modifications to our quality management systems, additional resources in certain functions, updates to technical files and additional clinical data in some cases, among other \n27\n\n\nTable of Contents\nchanges.\u00a0Failure by us or by our customers to comply with the requirements of the EU IVDR, or other requirements imposed by these or similar regulatory authorities, including without limitation, remediating any inspectional observations to the satisfaction of these regulatory authorities, could result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution, restrictions on our operations, civil or criminal sanctions, or withdrawal of existing or denial of pending approvals, including those relating to products or facilities. In addition, such a failure could expose us to contractual or product liability claims, contractual claims from our customers, including claims for reimbursement for lost or damaged active pharmaceutical ingredients, as well as ongoing remediation and increased compliance costs, any or all of which could be significant. We are the sole manufacturer of a number of products for many of our customers and a negative regulatory event could impact our customers\u2019 ability to provide products to their customers.\nWe are also subject to a variety of federal, state, local and international laws and regulations that govern, among other things, the importation and exportation of products, the handling, transportation and manufacture of substances that could be classified as hazardous, and our business practices in the U.S. and abroad such as anti-competition laws. Any noncompliance by us with applicable laws and regulations or the failure to maintain, renew or obtain necessary permits and licenses could result in criminal, civil and administrative penalties and could have an adverse effect on our results of operations.\nSignificant developments or changes in U.S. laws or policies, including changes in U.S. trade policies and tariffs and the reaction of other countries thereto, can have an adverse effect on our business and financial results.\nSignificant developments or changes in U.S. laws and policies (including as a result of changes in party control of Congress or decisions from the U.S. Supreme Court), such as laws and policies governing foreign trade, manufacturing, and development and investment in the territories and countries where we or our customers operate, or governing the health care system and drug prices, can adversely affect our business and financial results. For example, the previous U.S. administration increased tariffs on certain goods imported into the United States and trade tensions between the United States and China escalated, with each country imposing significant, additional tariffs on a wide range of goods imported from the other country. That trade tension has not diminished under the current U.S. administration. The U.S. and China could impose other types of restrictions such as limitations on government procurement or technology export restrictions, which could affect our access to markets. These factors have adversely affected, and in the future could further adversely affect, our business and financial results.\nOur business and financial results can be impaired by improper conduct by any of our employees, agents or business partners.\nWe cannot provide assurance that our internal controls and compliance systems, including our Code of Ethics and Business Conduct, protect us from unauthorized acts committed by employees, agents or business partners of ours (or of businesses we acquire or partner with) that violate U.S. and/or non-U.S. laws, including the laws governing payments to government officials, bribery, fraud, kickbacks and false claims, pricing, sales and marketing practices, conflicts of interest, competition, employment practices and workplace behavior, export and import compliance, economic and trade sanctions, money laundering and data privacy. In particular, the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business, and we operate in many parts of the world that have experienced governmental corruption to some degree. Any such improper actions or allegations of such acts could damage our reputation and subject us to civil or criminal investigations in the United States and in other jurisdictions and related shareholder lawsuits, could lead to substantial civil and criminal, monetary and non-monetary penalties and could cause us to incur significant legal and investigatory fees. In addition, the government may seek to hold us liable for violations committed by companies in which we invest or that we acquire. We also rely on our suppliers to adhere to our supplier code of conduct, and material violations of such code of conduct could occur that could have a material effect on our business and financial results.\n28\n\n\nTable of Contents\nCertain of our businesses are subject to extensive regulation by the U.S. FDA and by comparable agencies of other countries, as well as laws regulating fraud and abuse in the healthcare industry and the privacy and security of health information. Failure to comply with those regulations could adversely affect our business and financial results.\nCertain of our products are medical devices, diagnostics tests and other products that are subject to regulation by the U.S. FDA or state CLIA regulations, by other federal and state governmental agencies, by comparable agencies of other countries and regions and by regulations governing hazardous materials and drugs-of abuse (or the manufacture and sale of products containing any such materials). The global regulatory environment has become increasingly stringent and unpredictable. Several countries that did not have regulatory requirements for medical devices have established such requirements in recent\u00a0years, and other countries have expanded, or plan to expand, their existing regulations, including implementation of IVDR regulations in Europe. Failure to meet these requirements adversely impacts our business and financial results in the applicable geographies.\nGovernment authorities may conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law. Failure to obtain required regulatory clearances before marketing our products (or before implementing modifications to or promoting additional indications or uses of our products), other violations of laws or regulations, failure to remediate inspectional observations to the satisfaction of these regulatory authorities, real or perceived efficacy or safety concerns or trends of adverse events with respect to our products (even after obtaining clearance for distribution) and unfavorable or inconsistent clinical data from existing or future clinical trials can lead to FDA Form\u00a0483 Inspectional Observations, warning letters, notices to customers, declining sales, loss of customers, loss of market share, remediation and increased compliance costs, recalls, seizures of adulterated or misbranded products, fines, expenses, injunctions, civil penalties, criminal penalties, consent decrees, administrative detentions, refusals to permit importations, partial or total shutdown of production facilities or the implementation of operating restrictions, narrowing of permitted uses for a product, refusal of the government to grant 510(k)\u00a0clearance, suspension or withdrawal of approvals, pre-market notification rescissions and other adverse effects. Further, defending against any such actions can be costly and time-consuming and may require significant personnel resources. Therefore, even if we are successful in defending against any such actions brought against us, our business may be impaired. Ensuring that our internal operations and business arrangements with third parties comply with applicable laws and regulations also involves substantial costs.\nMore specifically, as a healthcare provider, the Company\u2019s Exosome Diagnostics\u2019 ExoDx Prostate\u00a0business is subject to extensive regulation at the federal, state, and local levels in the U.S. and other countries where it operates. The Company\u2019s failure to meet governmental requirements under these regulations, including those relating to billing practices and financial relationships with physicians, hospitals, and health systems, could lead to civil and criminal penalties, exclusion from participation in Medicare and Medicaid, and possibly prohibitions or restrictions on the use of its laboratories. While the Company believes that it is in material compliance with all statutory and regulatory requirements, there is a risk that government authorities might take a contrary position. Such occurrences, regardless of their outcome, could damage the Company\u2019s reputation and adversely affect important business relationships it has with third parties.\nFailure to comply with privacy and security laws and regulations could result in fines, penalties and damage to the Company\n\u2019\ns reputation and have a material adverse effect upon the Company\n\u2019\ns business, a risk that has been elevated with recent acquisitions that use protected health information and utilize healthcare providers for laboratory resting services.\nIf the Company does not comply with existing or new laws and regulations related to protecting the privacy and security of personal or health information, it could be subject to monetary fines, civil penalties or criminal sanctions. In the U.S., the Health Insurance Portability and Accountability Act of 1996 (HIPAA) privacy and security regulations, including the expanded requirements under U.S. Health Information Technology for Economic and Clinical Health Act (HITECH), establish comprehensive standards with respect to the use and disclosure of protected health information (PHI) by covered entities, in addition to setting standards to protect the confidentiality, integrity and security of PHI. HIPAA restricts the Company\u2019s ability to use or disclose PHI, without patient authorization, for purposes other than payment, treatment or healthcare operations (as defined by HIPAA), except for disclosures for various public policy purposes and other permitted purposes outlined in the privacy regulations. If the laboratory operations for the Company\u2019s\u00a0business use or disclose PHI improperly under these privacy regulations, they may incur significant fines and other penalties for wrongful use or disclosure of PHI in violation of the privacy and security regulations, including potential civil and criminal fines and penalties.\n\u200b\n29\n\n\nTable of Contents",
+  "item1a": ">Item\u00a01A.\nRisk Factors\n17\n\u00a0\n\u00a0\n\u00a0\nItem\u00a01B.\nUnresolved Staff Comments\n30\n\u00a0\n\u00a0\n\u00a0\nItem\u00a02.\nProperties\n30\n\u00a0\n\u00a0\n\u00a0\nItem\u00a03.\nLegal Proceedings\n30\n\u00a0\n\u00a0\n\u00a0\nItem\u00a04.\nMine Safety Disclosures\n31\n\u00a0\n\u00a0\n\u00a0\nPART\u00a0II\n\u00a0\n\u00a0\n\u00a0\nItem\u00a05.\nMarket for Registrant\u2019s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities\n31\n\u00a0\n\u00a0\n\u00a0\nItem\u00a06.\nSelected Financial Data\n33\n\u00a0\n\u00a0\n\u00a0\nItem\u00a07.\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n33\n\u00a0\n\u00a0\n\u00a0\nItem\u00a07A.\nQuantitative and Qualitative Disclosures about Market Risk\n46\n\u00a0\n\u00a0\n\u00a0\nItem\u00a08.\nFinancial Statements and Supplementary Data\n47\n\u00a0\n\u00a0\n\u00a0\nItem\u00a09.\nChanges in and Disagreements with Accountants on Accounting and Financial Disclosure\n85\n\u00a0\n\u00a0\n\u00a0\nItem\u00a09A.\nControls and Procedures\n85\n\u00a0\n\u00a0\n\u00a0\nItem\u00a09B.\nOther Information\n86\n\u00a0\n\u00a0\n\u00a0\nPART\u00a0III\n\u00a0\n\u00a0\n\u00a0\nItem\u00a010.\nDirectors, Executive Officers\n87\n\u00a0\n\u00a0\n\u00a0\nItem\u00a011.\nExecutive Compensation\n87\n\u00a0\n\u00a0\n\u00a0\nItem\u00a012.\nSecurity Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters\n87\n\u00a0\n\u00a0\n\u00a0\nItem\u00a013.\nCertain Relationships and Related Transactions, and Director Independence\n87\n\u00a0\n\u00a0\n\u00a0\nItem\u00a014.\nPrincipal Accounting Fees and Services\n87\n\u00a0\n\u00a0\n\u00a0\nPART\u00a0IV\n\u00a0\nItem\u00a015.\nExhibits, Financial Statement Schedules\n88\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nSIGNATURES\n92\n\u200b\n\u200b\n2\n\n\nTable of Contents\nIn this Annual Report, the terms \u201cBio-Techne\u201d or the \u201cCompany\u201d refer to Bio-Techne Corporation, Bio-Techne Corporation and its consolidated subsidiaries, or the consolidated subsidiaries of Bio-Techne Corporation, as the context requires.\nFORWARD-LOOKING INFORMATION AND CAUTIONARY STATEMENTS\nCertain statements included or incorporated by reference in this Annual Report, in other documents we file with or furnish to the Securities and Exchange Commission (\u201cSEC\u201d), in our press releases, webcasts, conference calls, materials delivered to shareholders and other communications, are \u201cforward-looking statements\u201d within the meaning of the U.S. federal securities laws. All statements other than historical factual information are forward-looking statements, including without limitation statements regarding: projections of revenue, expenses, profit, profit margins, pricing, tax rates, tax provisions, cash flows, our liquidity position or other projected financial measures; management\u2019s plans and strategies for future operations, including statements relating to anticipated operating performance, cost reductions, new product and service developments, competitive strengths or market position, acquisitions and the integration thereof, strategic opportunities, dividends and executive compensation; growth, declines and other trends in markets we sell into; new or modified laws, regulations and accounting pronouncements; future regulatory approvals and the timing and conditionality thereof; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; future foreign currency exchange rates and fluctuations in those rates; the potential or anticipated direct or indirect impact of COVID-19 on our business, results of operations and/or financial condition; general economic and capital markets conditions; the anticipated timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that Bio-Techne intends or believes will or may occur in the future. Terminology such as \u201cbelieve,\u201d \u201canticipate,\u201d \u201cshould,\u201d \u201ccould,\u201d \u201cintend,\u201d \u201cwill,\u201d \u201cplan,\u201d \u201cexpect,\u201d \u201cestimate,\u201d \u201cproject,\u201d \u201ctarget,\u201d \u201cmay,\u201d \u201cpossible,\u201d \u201cpotential,\u201d \u201cforecast\u201d and \u201cpositioned\u201d and similar references to future periods are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words. Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including but not limited to the risks and uncertainties set forth below and under \u201cItem\u00a01A. Risk Factors\u201d in this Annual Report.\nForward-looking statements are not guaranties of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Forward-looking statements speak only as of the date of the report, document, press release, webcast, call, materials or other communication in which they are made. Except to the extent required by applicable law, we do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.\nInvestment in our securities involves risk and uncertainty and you should carefully consider all information in this Annual Report on Form\u00a010-K prior to making an investment decision regarding our securities. Below is a summary of material risks and uncertainties we face, which are discussed more fully in \u201cItem\u00a01A. Risk Factors\u201d:\nEconomic and Industry\n\u25cf\nConditions in the global economy, the particular markets we serve and the financial markets, whether brought about by material global crises or other factors, may adversely affect our business and financial results.\n\u200b\n\u25cf\nInternational political, compliance and business factors, including the military conflict in Ukraine and the United Kingdom\u2019s withdrawal from the European Union, can negatively impact our operations and financial results.\n\u200b\n\u25cf\nThe healthcare and life sciences industries that we serve face constant pressures and changes in an effort to reduce healthcare costs or increase their predictability, all of which may adversely affect our business and financial results.\n\u200b\n3\n\n\nTable of Contents\nAcquisition and Investment Risks\n\u25cf\nOur inability to complete acquisitions at our historical rate and at appropriate prices, and to make appropriate investments that support our long-term strategy, could negatively impact our growth rate and stock price.\n\u200b\n\u25cf\nOur acquisition of businesses, investments, joint ventures and other strategic relationships, if not properly implemented or integrated, could negatively impact our business and financial results.\n\u200b\n\u25cf\nWe may be required to record a significant charge to earnings if our goodwill and other amortizable intangible assets or other investments become impaired, which could negatively impact our financial results or stock price.\n\u200b\nStrategic and Operational Risks\n\u25cf\nOur success will be dependent on recruiting and retaining highly qualified and diverse personnel and creating and maintaining a culture that successfully integrates the employees joining through acquisitions.\n\u200b\n\u25cf\nOur growth depends in part on the timely development and commercialization of new and enhanced products and services that meet our customers\u2019 needs. Our growth can also be negatively impacted if our customers do not grow as anticipated.\n\u200b\n\u25cf\nWe face intense competition, and if we are unable to compete effectively, we may experience decreased demand and decreased market share or need to reduce prices to remain competitive.\n\u200b\n\u25cf\nA significant disruption in, or breach of security of, our information technology systems or data, or violation of data privacy laws, could result in damage to our reputation, data integrity, and/or subject us to costs, fines, or lawsuits under data privacy or other laws or contractual requirements.\n\u200b\n\u25cf\nIf we suffer a loss to our supply chains, distribution systems or information technology systems due to catastrophe or other events, our operations could be seriously harmed.\n\u200b\n\u25cf\nThe manufacture of many of our products is a complex process, and if we directly or indirectly encounter problems manufacturing products, our business and financial results could suffer.\n\u200b\n\u25cf\nIf we cannot adjust our manufacturing capacity or the purchases required for our manufacturing activities to reflect changes in market conditions or customer demand, our business and financial results may suffer. In addition, our reliance upon sole or limited sources of supply for certain materials, components and services can cause production interruptions, delays and inefficiencies.\n\u200b\n\u25cf\nThe Company relies heavily on internal manufacturing and related operations to produce, package and distribute its products which, if disrupted, could materially impair our business operations. Our business could be adversely affected by disruptions at our sites.\n\u200b\n\u25cf\nClimate change, or legal or regulatory measures to address climate change, may negatively affect us.\n\u25cf\nDefects, unanticipated use of or inadequate disclosure with respect to our products, or allegations thereof, can adversely affect our business and financial results.\n\u200b\n\u25cf\nBecause we rely heavily on third-party package-delivery services, a significant disruption in these services or significant increases in prices may disrupt our ability to ship products, increase our costs and lower our profitability.\n\u200b\n4\n\n\nTable of Contents\nIntellectual Property Risks\n\u25cf\nWe are dependent on maintaining our intellectual property rights. If we are unable to adequately protect our intellectual property, or if third parties infringe our intellectual property rights, we may suffer competitive injury or expend significant resources enforcing our rights.\n\u200b\n\u25cf\nWe may be involved in disputes to determine the scope, coverage and validity of others\u2019 proprietary rights, or to defend against third-party claims of intellectual property infringement, any of which could be time-intensive and costly and may adversely impact our business.\n\u200b\nFinancial and Tax Risks\n\u25cf\nWe have entered into and drawn on a revolving credit facility, and we may incur additional debt in the future. The burden of this additional debt could adversely affect us, make us more vulnerable to adverse economic or industry conditions, and prevent us from funding our expansion strategy.\n\u200b\n\u25cf\nOur business and financial results can be adversely affected by foreign currency exchange rates, changes in our tax rates, and tax liabilities and assessments (including as a result of changes in tax laws).\n\u200b\n\u25cf\nDividends on our common stock could be reduced or eliminated in the future.\n\u200b\nLegal, Regulatory, Compliance and Reputational Risks\n\u25cf\nOur business is subject to extensive regulation; failure to comply with these regulations could adversely affect our business and financial results.\n\u200b\n\u25cf\nSignificant developments or changes in U.S. laws or policies, including changes in U.S. trade policies and tariffs and the reaction of other countries thereto, can have an adverse effect on our business and financial results.\n\u200b\n\u25cf\nOur business and financial results can be impaired by improper conduct of any of our employees, agents, or business partners.\n\u200b\n\u25cf\nCertain of our businesses are subject to extensive regulation by the U.S. FDA and by comparable agencies of other countries, as well as laws regulating fraud and abuse in the healthcare industry and the privacy and security of health information. Failure to comply with those regulations could adversely affect our business and financial results.\n\u200b\n\u25cf\nFailure to comply with privacy and security laws and regulations could result in fines, penalties and damage to the Company\u2019s reputation and have a material adverse effect upon the Company\u2019s business, a risk that has been elevated with recent acquisitions that use protected health information and utilize healthcare providers for laboratory testing services.\n\u200b\n5\n\n\nTable of Contents\nPART\u00a0I",
+  "item7": ">ITEM\u00a07. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL\nCONDITION AND RESULTS OF OPERATIONS\nThe following management discussion and analysis (\u201cMD&A\u201d) provides information that we believe is useful in understanding our operating results, cash flows and financial condition. We provide quantitative information about the material sales drivers including the effect of acquisitions and changes in foreign currency at the corporate and segment level. We also provide quantitative information about discrete tax items and other significant factors we believe are useful for understanding our results. The MD&A should be read in conjunction with the consolidated financial information and related notes included in this Form\u00a010-K. This discussion contains various \u201cNon-GAAP Financial Measures\u201d and also contains various \u201cForward-Looking Statements\u201d within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the statements entitled \u201cNon-GAAP Financial Measures\u201d located at the end of this MD&A and \u201cForward-Looking Information and Cautionary Statements\u201d and \u201cRisk Factors\u201d within Items 1 and 1A of this Form\u00a010-K.\nOVERVIEW\nBio-Techne\u00a0develops, manufactures and sells life science reagents, instruments and services for the research and clinical diagnostic markets worldwide. With our deep product portfolio and application expertise, we sell integral components of scientific investigations into biological processes and molecular diagnostics, revealing the nature, diagnosis, etiology and progression of specific diseases. Our products aid in drug discovery efforts and provide the means for accurate clinical tests and diagnoses.\nWe manage the business in two operating segments \u2013 our Protein Sciences segment and our Diagnostics and Genomics segment. Our Protein Sciences segment is a leading developer and manufacturer of high-quality biological reagents used in all aspects of life science research, diagnostics and cell and gene therapy. This segment also includes proteomic analytical tools, both manual and automated, that offer researchers and pharmaceutical manufacturers efficient and streamlined options for automated western blot and multiplexed ELISA workflow. Our Diagnostics and Genomics segment develops and manufactures diagnostic products, including controls, calibrators, and diagnostic assays for the regulated diagnostics market, exosome-based molecular diagnostic assays, advanced tissue-based in-situ hybridization assays for spatial genomic and tissue biopsy analysis, and genetic and oncology kits for research and clinical applications.\nRECENT ACQUISITIONS\nA key component of the Company's strategy is to augment internal growth at existing businesses with complementary acquisitions. As disclosed in Note 4, the Company completed the acquisition of Namocell, Inc for $101.2 million, net of cash acquired, plus contingent consideration of up to $25 million upon the achievement of future milestones. We also purchased a 19.9% investment in Wilson Wolf and, as disclosed in Note 1, will acquire the remaining shares in Wilson Wolf by the end of calendar year 2027, or earlier depending on the achievement of certain future milestones. As further disclosed in Note 14, the Company closed on the acquisition of Lunaphore Technologies SA on July 7, 2023. \u00a0 \u00a0\nOVERALL RESULTS\nOperational Update\nFor fiscal 2023, consolidated net sales\u00a0increased 3% as compared to fiscal 2022.\u00a0Organic growth was 5%, with foreign currency translation having an unfavorable impact of 2% and acquisitions having an immaterial impact. Organic revenue growth was primarily driven by consumable growth in both our Diagnostics and Genomics and Protein Sciences segments\n.\n\u200b\nConsolidated earnings, including non-controlling interest, increased 8% compared to fiscal 2022. The increase in earnings was driven by a gain on the sale of our ChemoCentryx investment and a gain on the sale of our investment in Changzhou Eminence Biotechnology Co., Ltd. (Eminence). After adjusting for acquisition related costs, intangibles amortization,\u00a0stock-based compensation, restructuring costs, gain on investments, and impact from partially-owned consolidated subsidiaries, adjusted net earnings attributable to Bio-Techne decreased 1% in fiscal 2023\u00a0as compared to \n33\n\n\nTable of Contents\nfiscal 2022. Adjusted net earnings attributable to Bio-Techne was primarily impacted by foreign currency exchange and strategic growth investments including the Namocell acquisition. \nFor fiscal 2022, consolidated net sales\u00a0increased 19% as compared to fiscal 2021.\u00a0Organic growth was 17%, with acquisitions having a favorable impact of 3% and foreign currency translation having an unfavorable impact of 1%. Organic revenue growth was broad based and driven by overall execution of the Company's long-term growth strategy.\n\u00a0\nConsolidated earnings, including non-controlling interest, increased 88% in fiscal 2022 compared to fiscal 2021. The increase in earnings was driven by non-operating mark-to-market gain of $16 million on our ChemoCentryx investment in fiscal year 2022, compared to a loss on the investment of $67.9 million in the prior fiscal year. Additionally, fiscal year 2022 had adjustments of $20.4 million of benefit related to contingent considerations as compared to a charge of $5.3 million in the prior fiscal year. After adjusting for acquisition related costs, intangibles amortization, stock-based compensation, restructuring costs, the gain on investment, and impact from partially-owned consolidated subsidiaries, adjusted net earnings increased 18% in fiscal 2022 as compared to fiscal 2021. Adjusted earnings growth was primarily driven by sales growth. \n\u200b\nBusiness Strategy Update\n\u200b\nEnvironmental\n\u200b\nThe Company\u2019s key business strategies for long-term growth and profitability continue to be geographic expansion, core product innovation, acquisitions and talent retention and development. As a Company, we are integrating consideration of greenhouse gas emissions and other environmental variables into our key business strategies. The Company also strives to innovate and improve all aspects of Bio-Techne\u2019s operations, including reducing the environmental impacts of our manufacturing operations. As described in our Corporate Sustainability Report, among other initiatives, the Company is currently focused on establishing a baseline for emissions to develop appropriate emission reduction targets, as well as reducing our environmental footprint through changes in packaging and shipping materials.\n\u200b\nIn response to the COVID-19 pandemic, the Company took additional steps to monitor and strengthen our supply chain to maintain an uninterrupted supply of our critical products and services. The Company has maintained these procedures while incorporating additional considerations regarding potential adverse weather events associated with climate change.\n\u200b\nThe financial impact of potential environmental regulations pertaining to carbon emissions or the integration of climate change impacts into our core business strategies are not expected to materially alter the Company\u2019s near-term financial results. Additionally, the Company has established a cross-functional internal council and working group to monitor and report on its sustainability efforts, including those related to measuring and mitigating greenhouse gas emissions.\n\u200b\nDigital\n\u200b\nIn driving our key business strategies, the Company utilizes digital networks and systems for data transmission, transaction processing, and storing of electronic information. As disclosed in \u201cItem 1A. Risk Factors\u201d, increased cybersecurity attack activity poses a risk for our business. In response to this risk, the Company actively completes system patching and required maintenance, performs internal and third-party employee training, monitors network and system activity, and completes data backups for our systems. However, even with the Company\u2019s procedures performed, our digital networks and systems are still potentially vulnerable to cyberattacks.\n\u200b\nThe financial impact of our cybersecurity initiatives and activities are ongoing and not expected to have a material impact on our financial results. However, the impact on our business operations and financial results from a material cyber breach would be unknown and dependent on the nature of the breach.\n\u200b\n34\n\n\nTable of Contents\nRESULTS OF OPERATIONS\nNet Sales\nConsolidated organic net sales exclude the impact of companies acquired during the first 12\u00a0months post-acquisition and the effect of the change from the prior\u00a0year in exchange rates used to convert sales in foreign currencies (primarily the euro, British pound sterling, and Chinese yuan) into U.S. dollars.\n\u200b\nConsolidated net sales growth was as follows:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nYear Ended June\u00a030,\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOrganic sales growth\n\u00a0\n5\n%\u00a0\u00a0\n17\n%\u00a0\u00a0\n22\n%\nAcquisitions sales growth\n\u00a0\n0\n%\u00a0\u00a0\n3\n%\u00a0\u00a0\n1\n%\nImpact of foreign currency fluctuations\n\u00a0\n (2)\n%\u00a0\u00a0\n (1)\n%\u00a0\u00a0\n 3\n%\nConsolidated net sales growth\n\u00a0\n3\n%\u00a0\u00a0\n19\n%\u00a0\u00a0\n26\n%\n\u200b\nConsolidated net sales by\u00a0segment were as follows (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nYear Ended June\u00a030,\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\nProtein Sciences\n\u200b\n$\n 845,747\n\u200b\n$\n 832,311\n\u200b\n$\n 704,564\nDiagnostics and Genomics\n\u200b\n\u00a0\n 292,602\n\u200b\n\u00a0\n 274,843\n\u200b\n\u00a0\n 227,744\nIntersegment\n\u200b\n\u00a0\n (1,647)\n\u200b\n\u00a0\n (1,555)\n\u200b\n\u00a0\n (1,276)\nConsolidated net sales\n\u200b\n$\n 1,136,702\n\u200b\n$\n 1,105,599\n\u200b\n$\n 931,032\n\u200b\nIn fiscal 2023, Protein Sciences segment net sales increased 2% compared to fiscal 2022. Organic growth for the segment was 4% for the fiscal year, with currency translation having an unfavorable impact of 2% and acquisitions having an immaterial impact on revenue growth. Segment growth was driven by growth in consumable revenue to BioPharma (especially those developing cell and gene therapies) and Academic customers within the Americas and Europe.\nIn fiscal 2023, Diagnostics and\u00a0Genomics segment net sales increased 6% compared to fiscal 2022. Organic growth for the segment was 8% with currency translation having an unfavorable impact of 2%. Segment growth was driven by growth in consumable revenue from our Spatial Biology platform and an increase in service revenue related to our ExoDx Prostate test.\nIn fiscal 2022, Protein Sciences segment net sales increased 18% compared to fiscal 2021. Organic growth for the segment was 19% for the fiscal year, with currency translation having an unfavorable 1% impact on revenue. \n\u200b\nOverall segment growth was driven by strong BioPharma demand resulting in broad-based growth across our proteomic research reagents and analytical tools\n\u00a0\nIn fiscal 2022, Diagnostics and Genomics segment net sales increased 21% compared to fiscal 2021. Organic growth for the segment was 10% with acquisitions contributing 11% and currency translation having an immaterial impact on revenue growth. \n\u200b\nSegment growth was driven by the full year impact of the Asuragen acquisition and organic growth. Organic growth was driven by an exclusive agreement entered into for development, finalization and commercialization of our ExoTRU kidney transplant rejection test, and continued strength in our diagnostic reagent product lines.\u00a0\u00a0\u00a0\n\u200b\n35\n\n\nTable of Contents\nGross Margins\nConsolidated gross margins were 67.7%, 68.4%, and 68.0% in fiscal 2023, 2022, and 2021. Consolidated gross margins were impacted by revenue.\u00a0Excluding the impact of acquired inventory sold,\u00a0amortization of intangibles, stock compensation expense, and the impact of partially-owned consolidated subsidiaries, adjusted gross margins were 71.7%, 72.5%, and 72.3%\u00a0in fiscal 2023, 2022, and 2021,\u00a0respectively. Fiscal 2023 consolidated gross margin was unfavorably impacted by foreign currency exchange and strategic growth investments including the Namocell acquisition when compared to the prior period. Consolidated gross margins for fiscal 2022 and fiscal 2021 were impacted as a result of volume leverage and product mix, partially offset by additional investments made in the business to support future growth.\nA reconciliation of the reported consolidated gross margin\u00a0percentages, adjusted for acquired inventory sold and intangible amortization included in cost of sales, is as follows:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nConsolidated gross margin percentage\n\u00a0\n 67.7\n%\u00a0\u00a0\n 68.4\n%\u00a0\u00a0\n 68.0\n%\nIdentified adjustments:\n\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nCosts recognized upon sale of acquired inventory\n\u00a0\n0.0\n%\u00a0\u00a0\n 0.1\n%\u00a0\u00a0\n 0.2\n%\nAmortization of intangibles\n\u00a0\n 4.0\n%\u00a0\u00a0\n 3.7\n%\u00a0\u00a0\n 3.8\n%\nStock compensation expense - COGS\n\u200b\n 0.1\n%\u00a0\u00a0\n 0.1\n%\u00a0\u00a0\n 0.2\n%\nImpact of partially-owned consolidated subsidiaries\n(1)\n\u00a0\n (0.1)\n%\n 0.2\n%\n 0.1\n%\nNon-GAAP adjusted gross margin percentage\n\u00a0\n 71.7\n%\u00a0\u00a0\n 72.5\n%\u00a0\u00a0\n 72.3\n%\n\u200b\n(1)\nAdjusted gross margin percentages for fiscal 2021 have been updated for comparability to fiscal 2022 and fiscal 2023 for the inclusion of the impact of partially-owned consolidated subsidiaries on the Company\u2019s adjusted gross margin percentage.\n\u200b\nFluctuations in adjusted gross margins, as a\u00a0percentage of net sales, have primarily resulted from changes in foreign currency exchange rates and changes in product mix. We expect that, in the future, gross margins will continue to be impacted by the mix of our portfolio growing at different rates as well as future acquisitions.\nManagement uses adjusted operating results to monitor and evaluate performance of the Company\u2019s two segments.\u00a0Segment gross margins, as a\u00a0percentage of net sales, were as follows:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nYear Ended June\u00a030,\u00a0\n\u00a0\n\u200b\n\u200b\n2023\n\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\n2021\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nProtein Sciences\n\u00a0\n 75.3\n%\u00a0\u00a0\n 75.5\n%\u00a0\u00a0\n 76.0\n%\nDiagnostics and Genomics\n\u00a0\n 61.2\n%\u00a0\u00a0\n 63.1\n%\u00a0\u00a0\n 60.5\n%\n\u200b\nThe change in the Protein Sciences segment\u2019s gross margin\u00a0percentage for fiscal 2023\u00a0as compared to fiscal 2022\u00a0and 2021\u00a0was primarily attributable to\u00a0mix of product sales within\u00a0the segment.\nThe change in the Diagnostics and Genomics segment\u2019s gross margin is related to fiscal 2022 revenue related to the ExoTru kidney transplant rejection agreement that did not occur in fiscal 2023 nor fiscal 2021. Fiscal 2023 compared to fiscal 2022 was also impacted by strategic investments to drive future growth that was partially offset by volume leverage. \nSelling, General and Administrative Expenses\nSelling, general and administrative expenses increased $5.6\u00a0million (2%) in fiscal 2023\u00a0when compared to fiscal 2022. Selling, general, and administrative expenses increased primarily due to strategic investments made in the business to support future growth including the Namocell acquisition. \n36\n\n\nTable of Contents\nSelling, general and administrative expenses increased $47.8 million (15%) in fiscal 2022 when compared to fiscal 2021. Selling, general, and administrative expenses increased primarily due to the full year impact of fiscal 2021\u2019s Asuragen acquisition and strategic investments made in the business to support future growth. \nConsolidated selling, general and administrative expenses were composed of the following (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nProtein Sciences\n\u200b\n$\n 203,834\n\u200b\n$\n 195,328\n\u200b\n$\n 159,489\nDiagnostics and Genomics\n\u200b\n\u00a0\n 101,805\n\u200b\n\u00a0\n 93,578\n\u200b\n\u00a0\n 75,160\nTotal segment expenses\n\u200b\n\u00a0\n 305,639\n\u200b\n\u00a0\n 288,906\n\u200b\n\u00a0\n 234,649\nAmortization of intangibles\n\u200b\n\u00a0\n 32,076\n\u200b\n\u00a0\n 32,492\n\u200b\n\u00a0\n 27,788\nAcquisition related expenses\n\u200b\n\u00a0\n (9,965)\n\u200b\n\u00a0\n (19,082)\n\u200b\n\u00a0\n 7,097\nEminence Impairment\n(1)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 18,715\n\u200b\n\u200b\n \u2014\nRestructuring costs\n\u200b\n\u00a0\n 3,829\n\u200b\n\u00a0\n 1,640\n\u200b\n\u00a0\n 142\nStock-based compensation\n\u200b\n\u00a0\n 40,269\n\u200b\n\u00a0\n 45,085\n\u200b\n\u00a0\n 50,200\nCorporate selling, general and administrative expenses\n\u200b\n\u00a0\n 6,530\n\u200b\n\u00a0\n 5,010\n\u200b\n\u00a0\n 5,075\nTotal selling, general and administrative expenses\n\u200b\n$\n 378,378\n\u200b\n$\n 372,766\n\u200b\n$\n 324,951\n(1)\nRefer to the Goodwill Impairment section within the Critical Accounting Policies for further details on the Eminence impairment. \n\u200b\nResearch and Development Expenses\nResearch and development expenses increased $5.4 million (6%) and $16.5\u00a0million (23%) in fiscal 2023 and 2022, respectively, as compared to prior\u00a0year periods. The increase in research and development expenses in fiscal 2023\u00a0as compared to 2022 was primarily attributable to strategic growth investments including the Namocell acquisition. The increase in research and development expenses in fiscal 2022\u00a0as compared to fiscal 2021\u00a0was primarily attributable to strategic growth investments and the Asuragen acquisition in the fourth quarter of fiscal 2021.\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nProtein Sciences\n\u200b\n$\n 58,251\n\u200b\n$\n 56,370\n\u200b\n$\n 46,361\nDiagnostics and Genomics\n\u200b\n\u00a0\n 34,242\n\u200b\n\u00a0\n 30,770\n\u200b\n\u00a0\n 24,242\nTotal segment expenses\n\u200b\n\u00a0\n 92,493\n\u200b\n\u00a0\n 87,140\n\u200b\n\u00a0\n 70,603\nUnallocated corporate expenses\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\nTotal research and development expenses\n\u200b\n$\n 92,493\n\u200b\n$\n 87,140\n\u200b\n$\n 70,603\n\u200b\nNet Interest Income / (Expense)\nNet interest income/(expense) for fiscal 2023, 2022, and 2021\u00a0was ($7.8) million,\u00a0$(10.5) million, and $(13.5) million,\u00a0respectively. Net interest expense in fiscal 2023 decreased when compared to fiscal 2022\u00a0due to a favorable rate on a forward starting interest rate swap as disclosed in Note 5 that went into effect in fiscal year 2023.\u00a0\nNet interest expense in fiscal 2022 decreased when compared to fiscal 2021 due to a reduction in our average long-term debt, which coincided with a reduction in the notional amount on our previous interest rate swap as disclosed in Note 5. \n37\n\n\nTable of Contents\nOther Non-Operating Income / (Expense), Net\nOther non-operating expense, net, consists of foreign currency transaction gains and losses, rental income, building expenses related to rental property and the Company\u2019s\u00a0gains and losses on\u00a0investments\u00a0as follows (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nForeign currency gains (losses)\n\u200b\n$\n 676\n\u200b\n$\n 699\n\u200b\n$\n (6,650)\nRental income\n\u200b\n\u00a0\n 426\n\u200b\n\u00a0\n 599\n\u200b\n\u00a0\n 1,036\nReal estate taxes, depreciation and utilities\n\u200b\n\u00a0\n (1,810)\n\u200b\n\u00a0\n (2,035)\n\u200b\n\u00a0\n (1,845)\nGain (loss) on investment\n\u200b\n\u00a0\n 49,328\n\u200b\n\u00a0\n 15,186\n\u200b\n\u00a0\n (68,047)\nGain (loss) on equity method investment\n\u200b\n\u200b\n (1,143)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\nMiscellaneous (expense) income\n\u200b\n\u00a0\n 43\n\u200b\n\u00a0\n 862\n\u200b\n\u00a0\n (136)\nOther non-operating income (expense), net\n\u200b\n$\n 47,520\n\u200b\n$\n 15,311\n\u200b\n$\n (75,642)\n\u200b\nDuring fiscal 2023, the Company recognized gains of $37.2\u00a0million related to the sale of\u00a0our\u00a0ChemoCentryx,\u00a0Inc. (CCXI) investment, $11.7 million related to the sale of our Eminence investment, and a gain of $0.4 million related to the change in fair value of our exchange traded bond funds. Additionally, the Company recognized losses of $1.1 million related to our equity method investment in Wilson Wolf. \nDuring fiscal 2022, the Company recognized gains of $16.1\u00a0million related to changes in fair value\u00a0associated with\u00a0changes in the stock price of\u00a0our\u00a0CCXI investment. Additionally, the Company recognized losses of $1.1 million related to changes in fair value associated with changes in the stock price of our exchange traded investment grade bond funds. On August 4, 2022, the Company sold all of its shares in CCXI.\nDuring fiscal 2021, the Company recognized losses of $67.9\u00a0million related to changes in fair value\u00a0associated with\u00a0changes in the stock price of\u00a0our\u00a0CCXI investment.\nIncome Taxes\nIncome taxes for fiscal 2023,\u00a02022, and 2021 were at effective rates of 15.7%, 12.7%, and 5.8%,\u00a0respectively, of consolidated earnings before income taxes. The change in the effective tax rate for fiscal 2023 compared to fiscal 2022 was driven by share-based compensation as the number of stock option exercises decreased compared to the prior year comparative period due to the decline in the stock price. The Company had share-based compensation excess tax benefits of $12.3 million in fiscal 2023. The Company\u2019s discrete tax benefits in fiscal 2022\u00a0primarily related to share-based compensation excess tax benefits of $29.3 million. The Company\u2019s discrete tax benefits in fiscal 2021 primarily related to share-based compensation excess tax benefits of $28.1\u00a0million.\u00a0\n\u200b\n38\n\n\nTable of Contents\nNet Earnings\nNon-GAAP adjusted consolidated net earnings and earnings per share are as follows (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNet earnings before taxes - GAAP\n\u200b\n\u200b\n$\n 338,659\n\u200b\n$\n 301,386\n\u200b\n$\n 148,175\n\u200b\nIdentified adjustments attributable to Bio-Techne:\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\nCosts recognized upon sale of acquired inventory\n\u200b\n\u200b\n\u00a0\n 400\n\u200b\n\u00a0\n 1,596\n\u200b\n\u00a0\n 1,565\n\u200b\nAmortization of intangibles\n\u200b\n\u200b\n\u00a0\n 76,413\n\u200b\n\u00a0\n 73,054\n\u200b\n\u00a0\n 64,239\n\u200b\nAmortization of Wilson Wolf intangible assets and acquired inventory \n\u200b\n\u200b\n\u200b\n 2,805\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\nAcquisition related expenses and other\n\u200b\n\u200b\n\u00a0\n (9,147)\n\u200b\n\u00a0\n (18,694)\n\u200b\n\u00a0\n 7,489\n\u200b\nEminence impairment\n\u200b\n\u200b\n\u200b\n \u2014\n\u200b\n\u00a0\n 18,715\n\u200b\n\u200b\n \u2014\n\u200b\nGain on sale of partially-owned consolidated subsidiaries\n\u200b\n\u200b\n\u200b\n (11,682)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\nStock based compensation, inclusive of employer taxes\n\u200b\n\u200b\n\u00a0\n 41,217\n\u200b\n\u00a0\n 46,401\n\u200b\n\u00a0\n 51,846\n\u200b\nRestructuring costs\n\u200b\n\u200b\n\u00a0\n 3,829\n\u200b\n\u00a0\n 1,640\n\u200b\n\u00a0\n 142\n\u200b\nInvestment (gain) loss and other non-operating\n\u200b\n\u200b\n\u00a0\n (37,646)\n\u200b\n\u00a0\n (16,171)\n\u200b\n\u00a0\n 68,391\n\u200b\nImpact of partially-owned subsidiaries\n(1)\n\u200b\n\u200b\n\u00a0\n (420)\n\u200b\n\u00a0\n 2,675\n\u200b\n\u00a0\n 1,390\n\u200b\nNet earnings before taxes - Adjusted\n\u200b\n\u200b\n$\n 404,428\n\u200b\n$\n 410,602\n\u200b\n$\n 343,237\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNon-GAAP tax rate\n\u200b\n\u200b\n\u00a0\n 20.5\n%\u00a0\u00a0\n\u00a0\n 21.2\n%\u00a0\u00a0\n\u00a0\n 20.2\n%\nNon-GAAP tax expense\n\u200b\n\u200b\n$\n 82,948\n\u200b\n$\n 87,090\n\u200b\n$\n 69,478\n\u200b\nNon-GAAP adjusted net earnings attributable to Bio-Techne\n(1)\n\u200b\n\u200b\n$\n 321,480\n\u200b\n$\n 323,512\n\u200b\n$\n 273,759\n\u200b\nEarnings per share - diluted - Adjusted\n(2)\n\u200b\n\u200b\n$\n 1.99\n\u200b\n$\n 1.97\n\u200b\n$\n 1.69\n\u200b\n\u200b\n(1) \nAdjusted consolidated net earnings and earnings per share for fiscal 2021 have been updated for comparability to fiscal 2023 and 2022 for the inclusion of the \nimpact \nof partially-owned consolidated subsidiaries on the Company\u2019s adjusted consolidated net earnings and earnings per share.\n(2) \nPrior period share and per share amounts have been retroactively adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in November 2022. Refer to Note 1 for details.\n\u200b\nDepending on the nature of discrete tax items, our reported tax rate may not be consistent on a period to period basis. The Company independently calculates a non-GAAP adjusted tax rate considering the impact of discrete items and jurisdictional mix of the identified non-GAAP adjustments. The following table summarizes the reported GAAP tax rate and the effective Non-GAAP adjusted tax rate for the periods ended June\u00a030, 2023, 2022, and 2021.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nGAAP effective tax rate\n 15.7\n%\u00a0\u00a0\n 12.7\n%\u00a0\u00a0\n 5.8\n%\nDiscrete items\n 3.4\n\u00a0\n 11.3\n\u00a0\n 19.0\n\u200b\nImpact of non-taxable net gain\n 0.7\n\u200b\n \u2014\n\u200b\n \u2014\n\u200b\nLong-term GAAP tax rate\n 19.8\n%\u00a0\u00a0\n 24.0\n%\u00a0\u00a0\n 24.8\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nRate impact items\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nStock based compensation\n (1.4)\n\u200b\n (1.9)\n\u200b\n (5.7)\n\u200b\nOther\n 2.1\n\u00a0\n (0.9)\n\u00a0\n 1.1\n\u200b\nTotal rate impact items\n 0.7\n%\u00a0\u00a0\n (2.8)\n%\u00a0\u00a0\n (4.6)\n%\nNon-GAAP adjusted tax rate\n 20.5\n%\u00a0\u00a0\n 21.2\n%\u00a0\u00a0\n 20.2\n%\n\u200b\n39\n\n\nTable of Contents\nRefer to Note\u00a012 for additional discussion relating to the change in discrete tax items between fiscal 2023 and fiscal 2022.\nLIQUIDITY AND CAPITAL RESOURCES\nCash, cash equivalents and available-for-sale investments at June\u00a030, 2023\u00a0were $204.3\u00a0million compared to $247.0\u00a0million at June\u00a030, 2022. Included in the available-for-sale-investments was the fair value of the Company\u2019s investment in exchange traded investment grade bond funds, which was $23.7 million as of June 30, 2023 and $23.9 million as of June 30, 2022. During the first fiscal quarter, the Company sold its remaining shares of its investment in CCXI. As of June 30, 2022, the fair value of the Company\u2019s investment in CCXI was $36.0 million. Also included in the June 30, 2022 balance were $14.5 million of certificates of deposit that were sold and not repurchased during fiscal year 2023.\nAt June\u00a030, 2023, approximately 39% of the Company\u2019s cash and equivalent account balances of $68.5\u00a0million were located in the U.S., with the remainder located in primarily in Canada, China, the U.K. and other European countries.\nAt June\u00a030, 2023, all of the Company\u2019s available-for-sale investment account balances of $23.7\u00a0million were located in Canada.\nAt June 30, 2023, we had $350 million in borrowings under the revolving credit facility, resulting in $650 million of unutilized availability under our revolving credit facility. \nThe Company has either paid U.S. taxes on its undistributed foreign earnings or intends to indefinitely reinvest the undistributed earnings in the foreign operations or expects the earnings will be remitted in a tax neutral transaction. Management of the Company expects to be able to meet its cash and working capital requirements for operations, facility expansion, capital additions, and cash dividends for the foreseeable future, and at least the next 12\u00a0months, through currently available funds, including funds available through our\u00a0line-of-credit\u00a0and cash generated from operations.\nFuture acquisition strategies may or may not require additional borrowings under the line-of-credit facility or other outside sources of funding.\nCash Flows From Operating Activities\nThe Company generated cash from operations of $254.4\u00a0million, $325.3 million, and $352.2 million\u00a0in fiscal 2023, 2022, and 2021 respectively. The decrease in cash generated from operating activities in fiscal 2023\u00a0as compared to fiscal 2022\u00a0was mainly a result of changes in net earnings and changes in the timing of cash payments on certain operating assets and liabilities. The decrease in cash generated from operating activities in fiscal 2022\u00a0as compared to fiscal 2021\u00a0was mainly a result of changes in the timing of cash payments on certain operating assets and liabilities, largely offset by an increase in year over year net earnings. \nCash Flows From Investing Activities\nWe continue to make investments in our business, including capital expenditures. During fiscal year 2023, the Company acquired Namocell, Inc for $101.2 million, net of cash acquired. There were no acquisitions fiscal year 2022. The Company acquired Eminence and Asuragen during fiscal\u00a0year 2021 for a total of approximately $225.4\u00a0million, net of cash acquired. \nDuring the first fiscal quarter of 2023, the Company sold its remaining shares in Eminence, its partially-owned consolidated subsidiary, for $17.8 million. There were no sales of businesses in the comparative prior year period. \nIn the first fiscal quarter of 2023, the Company sold its remaining shares in its investment in CCXI for $73.2 million. There were no comparable activities in the comparative prior year period.\nThe Company\u2019s net proceeds (outflow) from the purchase, sale and maturity of available-for-sale investments in fiscal 2023, 2022, and 2021 were $14.7 million,\u00a0$(26.9) million, and $26.7 million, respectively. During fiscal year 2023, the Company\u2019s proceeds in available-for-sale investments relates to the sale of excess cash in certificates of deposit that matured. As of June 30, 2023, there were no outstanding certificates of deposit. The outflow of cash in fiscal year 2022\u00a0compared to fiscal year 2023 and fiscal year 2021 was driven by the purchase of the exchange traded investment \n40\n\n\nTable of Contents\ngrade bond funds in fiscal year 2022, which have a cost basis of $25.0 million, that did not reoccur in the comparative periods. The proceeds in fiscal 2021\u00a0related to the sale of excess cash in certificates of deposit. The Company\u2019s investment policy is to place excess cash in certificates of deposit\u00a0with the objective of obtaining the highest possible return while minimizing risk and keeping the funds accessible.\nCapital additions in fiscal\u00a0year 2023, 2022, and 2021 were $38.2\u00a0million, $44.9 million, and $44.3 million. Fiscal 2023 capital expenditures related to investments in new buildings, machinery, and IT equipment. Fiscal 2023 capital expenditures related to investments in new buildings, machinery, and IT equipment .\u00a0Capital additions planned for fiscal 2024\u00a0are approximately $65 million and are expected to be financed through currently available cash and cash generated from operations. Increase in expected additions in fiscal 2024 is related to increasing capacity to meet expected sales growth across the Company.\nDuring the year ended June 30, 2022, the Company paid $25 million to enter into a two-part forward contract which requires the Company to purchase the full equity interest in Wilson Wolf if certain annual revenue or EBITDA thresholds are met. During fiscal year 2023, Wilson Wolf met the EBITDA target and the Company paid an additional $232 million to acquire 19.9% of Wilson Wolf. \u00a0The second option payment of approximately $1 billion plus potential contingent consideration is forecasted to occur between fiscal 2026 and fiscal 2028. There were no comparable activities in the comparative prior year period.\nCash Flows From Financing Activities\nIn fiscal 2023, 2022, and 2021, the Company paid cash dividends of $50.3\u00a0million, $50.2\u00a0million, $49.6 million, respectively. The Board of Directors periodically considers the payment of cash dividends.\nThe Company received $29.8\u00a0million, $77.2 million, $65.1 million, for the exercise of options for 1,578,000, 2,450,000, and 2,509,000 shares\u00a0of common stock in fiscal 2023, 2022 and 2021, respectively.\nDuring fiscal 2023, 2022, and 2021, the Company repurchased $19.6 million, $161.0 million, and $43.2 million, respectively, in share repurchases included as a cash outflow within Financing Activities.\nDuring fiscal 2023, 2022, and 2021, the Company drew $619.7 million, $90.0 million, and $256.0 million, respectively,\u00a0under its revolving line-of-credit facility. Repayments of $525.7 million, $175.5 million, and $271.5 million were made on its line-of-credit in fiscal 2023, 2022, and 2021, respectively.\nThere were no payments during fiscal 2023 for contingent consideration. During fiscal 2022, the Company made $4.0 million in cash payments towards the Quad contingent consideration liability. Of the $4.0 million in total payments, $0.7 million is classified as financing on the statement of cash flows. The remaining $3.3 million is recorded as operating on the statement of cash flows as it represents the consideration liability that exceeds the amount of the contingent consideration liability recognized at the acquisition date. During fiscal 2021, there were no payments related to contingent consideration classified as financing activities. The Company made $0.3 million in contingent consideration payments, which were classified within operating activities\nDuring fiscal 2023, 2022 and\u00a02021,\u00a0the Company paid $28.9 million, $23.5 million and\u00a0$19.3 million, respectively, for taxes remitted on behalf of participants in net share settlement transactions and restricted stock units. This is included as a cash outflow within the other financing activities line of the consolidated statements of cash flows.\nThe increase in other financing activity during fiscal 2023 compared to fiscal 2022 is primarily related to fees for the amended Credit Agreement that occurred in the first fiscal quarter.\nCRITICAL ACCOUNTING POLICIES\nManagement\u2019s discussion and analysis of the Company\u2019s financial condition and results of operations are based upon the Company\u2019s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates. \n41\n\n\nTable of Contents\nManagement bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.\nThe Company has identified the policies outlined below as critical to its business operations and an understanding of results of operations. The listing is not intended to be a comprehensive list of all accounting policies; investors should also refer to Note\u00a01 to the Consolidated Financial Statements included in Item\u00a08 of this Annual Report on Form\u00a010-K.\nBusiness Combinations\nWe allocate the purchase price of acquired businesses to the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition. The calculations used to determine the fair value of the long-lived assets acquired, primarily intangible assets, can be complex and require significant judgment. We weigh many factors when completing these estimates including, but not limited to, the nature of the acquired company\u2019s business; its competitive position, strengths, and challenges; its historical financial position and performance; estimated customer retention rates; discount rates; and future plans for the combined entity. We may also engage independent valuation specialists, when necessary, to assist in the fair value calculations for significant acquired long-lived assets.\nThe fair value of acquired technology is generally the primary asset identified and therefore\u00a0estimated using the multi-period excess earnings method. The multi-period excess earnings method\u00a0model estimates revenues and cash flows derived from the primary\u00a0asset and then deducts portions of the cash flow that can be attributed to supporting assets, such as Trade\u00a0Names and in-process research and development, that contributed to the generation of the cash flows. The resulting cash flow, which is attributable solely to the primary asset acquired, is then discounted at a rate of return commensurate with the risk of the asset to calculate a present value. The Trade Name is generally calculated\u00a0using the relief from royalty method, which calculates the cost savings associated with owning rather than licensing the technology. Assumed royalty rates are applied to the projected revenues for the remaining useful life of the technology to estimate the royalty savings. In-process research and development assets are valued using the multi-period excess earnings method when the cash flows from the in-process research and development assets are separately identifiable from the primary asset.\u00a0In circumstances that Customer Relationship assets are identified that are not the primary asset, they are valued using the distributor model income approach, which isolates revenues and cash flow associated with the sales and distribution function of the entity and attributable to customer-related assets, which are then discounted at a\u00a0rate of return commensurate with the risk of the asset to calculate a present value.\nWe estimate the fair value of liabilities for contingent consideration by discounting to present value the probability weighted contingent payments expected to be made. For potential payments related to financial performance based milestones,\u00a0projected revenue and/or EBITDA amounts, volatility and discount rates assumptions are included in the estimated amounts.\u00a0For potential payments related to product development milestones,\u00a0the fair value is based on the probability of achievement of such milestones.\u00a0The excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill. Goodwill is not amortized, but is subject to impairment testing on at least an annual basis.\nWe are also required to estimate the useful lives of the acquired intangible assets, which determines the amount of acquisition-related amortization expense we will record in future periods. Each reporting period, we evaluate the remaining useful lives of our amortizable intangibles to determine whether events or circumstances warrant a revision to the remaining period of amortization.\nWhile we use our best estimates and assumptions, our fair value estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one\u00a0year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Any adjustments required after the measurement period are recorded in the consolidated statements of earnings.\nThe judgments required in determining the estimated fair values and expected useful lives assigned to each class of assets and liabilities acquired can significantly affect net income. For example, different classes of assets will have useful lives that differ. Consequently, to the extent a longer-lived asset is ascribed greater value than a shorter-lived asset, net income \n42\n\n\nTable of Contents\nin a given period may be higher. Additionally, assigning a lower value to amortizable intangibles would result in a higher amount assigned to goodwill. As goodwill is not amortized, this would benefit net income in a given period, although goodwill is subject to annual impairment analysis.\nImpairment of Goodwill\nGoodwill\nGoodwill was $872.7 million as of June\u00a030, 2023, which represented 33% of total assets. Goodwill is tested for impairment on an annual basis in the fourth quarter of each\u00a0year, or more frequently if events occur or circumstances change that could indicate a possible impairment.\nTo analyze goodwill for impairment, we must assign our goodwill to individual reporting units. Identification of reporting units includes an analysis of the components that comprise each of our operating segments, which considers, among other things, the manner in which we operate our business and the availability of discrete financial information. Components of an operating segment are aggregated to form one reporting unit if the components have similar economic characteristics. We periodically review our reporting units to ensure that they continue to reflect the manner in which we operate our business.\nThe Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation for goodwill is an assessment of factors including reporting unit specific operating results as well as industry and market conditions, overall financial performance, and other relevant events and factors to determine whether it is more likely than not that the fair values of a reporting unit is less than its carrying amount, including goodwill. The Company may elect to bypass the qualitative assessment for its reporting units and perform a quantitative test. \nThe quantitative impairment test requires us to estimate the fair value of our reporting units based on the income approach. The income approach is a valuation technique under which we estimate future cash flows using the reporting unit\u2019s financial forecast from the perspective of an unrelated market participant. Using historical trending and internal forecasting techniques, we project revenue and apply our fixed and variable cost experience rate to the projected revenue to arrive at the future cash flows. A terminal value is then applied to the projected cash flow stream. Future estimated cash flows are discounted to their present value to calculate the estimated fair value. The discount rate used is the value-weighted average of our estimated cost of capital derived using both known and estimated customary market metrics. In determining the estimated fair value of a reporting unit, we are required to estimate a number of factors, including projected operating results, terminal growth rates, economic conditions, anticipated future cash flows, the discount rate and the allocation of shared or corporate items. \nFor fiscal 2023, we elected to perform a qualitative analysis for all five reporting units. The Company determined, after performing the qualitative analysis, there was no evidence that it is more likely than not that the fair value was less than the carrying amounts, therefore, it was not necessary to perform a quantitative impairment test in fiscal 2023. The Company did not identify any triggering events after our annual goodwill impairment analysis through June 30, 2023, the date of our consolidated balance sheet, that would require an additional goodwill impairment assessment to be performed.\nIn the first quarter of fiscal 2022, the Company combined the management of the Exosome Diagnostics and Asuragen reporting units, both of which are included in the Diagnostics and Genomics operating segment. In conjunction with the combination of the reporting units, a qualitative goodwill impairment assessment was performed. The qualitative assessment identified no indicators of impairment.\nIn the second quarter of fiscal 2022 Eminence notified the Company of its need for additional capital to execute its growth plan. The Company first attempted to find outside equity financing support for the Eminence investment but was unable to do so. The Company then reviewed the additional financing needs required to successfully ramp Eminence\u2019s business, which ultimately did not meet the Company\u2019s return on capital requirements. Therefore, the Company did not provide additional funding to Eminence. As a result of not obtaining additional financing, Eminence notified the Company of its plans to cease operations and liquidate its business.\nGiven the upcoming liquidation process to dispose of the Eminence assets, the Company identified a triggering event and performed impairment testing during the second quarter of fiscal 2022. The impairment testing resulted in a full \n43\n\n\nTable of Contents\nimpairment of the Eminence goodwill and intangible assets, which resulted in charges of $8.3 million and $8.6 million, respectively, for the year ended June 30, 2022. The Company also recognized inventory and fixed asset impairment charges of $0.9 million and $0.9 million, respectively. The Company recorded the impairment charges within the General and Administrative line in the Consolidated Income Statement. The impairment charges recorded within Net Earnings Attributable to Bio-Techne were reduced by approximately $8 million recorded within Net Earnings Attributable to Noncontrolling Interests. The remaining net tangible assets of Eminence included in our Consolidated Balance Sheet as of June 30 2022, were $4.3 million and primarily consisted of fixed assets and related deposits of $3.1 million, inventory of $0.6 million, receivables of $0.4 million, and other current assets of $0.1 million. The Company also had $4.5 million related to current liabilities. The Company held a financial interest of approximately 57.4% in those tangible assets in the liquidation process. As described in Note 1, in the fourth quarter of fiscal 2022, Eminence was able to secure cash deposits on future orders to provide funding for their operations. This delay in liquidation allowed time for securing of additional investor financing which coincided with the sale of the Company's equity shares of Eminence in the first quarter of fiscal 2023. \u00a0\nIn our fiscal 2022 annual goodwill impairment analysis, we elected to perform a quantitative assessment for all five of our reporting units. The result of our quantitative assessment indicated that all of the reporting units had a substantial amount of headroom as of April 1, 2022. The Company did not identify any triggering events after our annual goodwill impairment through June 30, 2022, the date of our consolidated balance sheet, that would require an additional goodwill impairment assessment to be performed.\nIn fiscal 2021, because our 2021 quantitative analyses included all of our reporting units, the summation of our reporting units\u2019 fair values, as indicated by our discounted cash flow calculations, were compared to our consolidated fair value, as indicated by our market capitalization, to evaluate the reasonableness of our calculations. This impairment assessment is sensitive to changes in forecasted cash flows, as well as our selected discount rate. Changes in the reporting unit\u2019s results, forecast assumptions and estimates could materially affect the estimation of the fair value of the reporting units. The quantitative assessment completed as of April 1, 2021 indicated that all of the reporting units had a substantial amount of headroom. Accordingly, the Company determined there was no indication of impairment of goodwill in our annual goodwill impairment analysis. Further, no triggering events were identified in the year ended June 30, 2021 that would require an additional goodwill impairment assessment beyond our required annual goodwill impairment assessment.\nNEW ACCOUNTING PRONOUNCEMENTS\nInformation regarding the accounting policies adopted during fiscal 2023\u00a0and those not yet adopted can be found under caption \u201cNote\u00a01: Description of Business and Summary of Significant Accounting Policies\u201d of the Notes\u00a0to the Consolidated Financial Statements appear in Item\u00a08 of this report.\nSUBSEQUENT EVENTS\nOn July 7, 2023, the Company completed the acquisition of Lunaphore Technologies SA for approximately $165 million, net of cash acquired.\n \nNON-GAAP FINANCIAL MEASURES\nThis Annual Report on Form\u00a010-K, including \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in Item\u00a07, contains financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S. (GAAP). These non-GAAP measures include:\n\u25cf\nOrganic growth\n\u25cf\nAdjusted gross margin\n\u25cf\nAdjusted operating margin\n\u25cf\nAdjusted net earnings\n\u25cf\nAdjusted effective tax rate\n\u200b\nWe provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally to evaluate our performance and in making financial and operational decisions, including with respect to \n44\n\n\nTable of Contents\nincentive compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparison of results.\nOur non-GAAP financial measure of organic growth represents revenue growth excluding revenue from acquisitions within the preceding 12\u00a0months, the impact of foreign currency, as well as the impact of partially-owned consolidated subsidiaries. Excluding these measures provides more useful period-to-period comparison of revenue results as it excludes the impact of foreign currency exchange rates, which can vary significantly from period to period, and revenue from acquisitions that would not be included in the comparable prior period. Revenue from partially-owned subsidiaries consolidated in our financial statements are also excluded from our organic revenue calculation, as those revenues are not fully attributable to the Company. Revenue from partially-owned subsidiaries was $2.0 million for the year ended June 30, 2023.\nOur non-GAAP financial measures for adjusted gross margin, adjusted operating margin, and adjusted net earnings, in total and on a per share basis, exclude stock-based compensation, the costs recognized upon the sale of acquired inventory, amortization of acquisition intangibles, acquisition related expenses inclusive of the changes in fair value of contingent consideration, and other non-recurring items including non-recurring costs, goodwill and long-lived asset impairments, and gains. Stock-based compensation is excluded from non-GAAP adjusted net earnings because of the nature of this charge, specifically the varying available valuation methodologies, subjection assumptions, variety of award types, and unpredictability of amount and timing of employer related tax obligations. The Company excludes amortization of purchased intangible assets, purchase accounting adjustments, including costs recognized upon the sale of acquired inventory and acquisition-related expenses inclusive of the changes in fair value contingent consideration, and other non-recurring items including gains or losses on legal settlements, goodwill and long-lived asset impairment charges, and one-time assessments from this measure because they occur as a result of specific events, and are not reflective of our internal investments, the costs of developing, producing, supporting and selling our products, and the other ongoing costs to support our operating structure. Additionally, these amounts can vary significantly from period to period based on current activity. The Company also excludes revenue and expense attributable to partially-owned consolidated subsidiaries in the calculation of our non-GAAP financial measures as the revenues and expenses are not fully attributable to the Company.\nThe Company\u2019s non-GAAP adjusted operating margin and adjusted net earnings, in total and on a per share basis, also excludes stock-based compensation expense, which is inclusive of the employer portion of payroll taxes on those stock awards, restructuring, gain and losses from investments, as they are not part of our day-to-day operating decisions (excluding our equity method investment in Wilson Wolf as it is certain to be acquired in the future), and certain adjustments to income tax expense. Additionally, gains and losses from investments that are either isolated or cannot be expected to occur again with any predictability are excluded. \u00a0Costs related to restructuring activities, including reducing overhead and consolidating facilities, are excluded because we believe they are not indicative of our normal operating costs. The Company independently calculates a non-GAAP adjusted tax rate to be applied to the identified non-GAAP adjustments considering the impact of discrete items on these adjustments and the jurisdictional mix of the adjustments. In addition, the tax impact of other discrete and non-recurring charges which impact our reported GAAP tax rate are adjusted from net earnings. We believe these tax items can significantly affect the period-over-period assessment of operating results and not necessarily reflect costs and/or income associated with historical trends and future results.\nThe Company periodically reassesses the components of our non-GAAP adjustments for changes in how we evaluate our performance, changes in how we make financial and operational decisions, and considers the use of these measures by our competitors and peers to ensure the adjustments are still relevant and meaningful.\nReaders are encouraged to review the reconciliations of the adjusted financial measures used in management\u2019s discussion and analysis of the financial condition of the Company\u00a0to their most directly comparable GAAP financial measures\u00a0provided within the Company\u2019s\u00a0consolidated financial statements.\n\u200b\n45\n\n\nTable of Contents",
+  "item7a": ">ITEM\u00a07A. QUANTITATIVE AND QUALITATIVE DISCLOSURES\nABOUT MARKET RISK\nThe Company operates internationally, and thus is subject to potentially adverse movements in foreign currency exchange rates. Approximately 37% of the Company\u2019s consolidated net sales in fiscal 2023\u00a0were made in foreign currencies, including\u00a013% in euro, 5% in British pound sterling, 6% in Chinese yuan, 3% in Canadian dollars, and the remaining 10% in other currencies. The Company is exposed to market risk primarily from foreign exchange rate fluctuations of the euro, British pound sterling, Chinese yuan and Canadian dollar as compared to the U.S. dollar as the financial position and operating results of the Company\u2019s foreign operations are translated into U.S. dollars for consolidation.\nMonth-end exchange rates between the euro, British pound sterling, Chinese yuan, Canadian dollar and the U.S. dollar, which have not been weighted for actual sales volume in the applicable\u00a0months in the periods, were as follows:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear Ended June\u00a030,\u00a0\n\u200b\n\u200b\n2023\n\u200b\n2022\n\u200b\n2021\nEuro\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\nHigh\n\u200b\n$\n 1.10\n\u200b\n$\n 1.19\n\u200b\n$\n 1.23\nLow\n\u200b\n\u00a0\n 0.98\n\u200b\n\u00a0\n 1.05\n\u200b\n\u00a0\n 1.16\nAverage\n\u200b\n\u00a0\n 1.05\n\u200b\n\u00a0\n 1.12\n\u200b\n\u00a0\n 1.20\nBritish pound sterling\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\nHigh\n\u200b\n$\n 1.27\n\u200b\n$\n 1.39\n\u200b\n$\n 1.42\nLow\n\u200b\n\u00a0\n 1.11\n\u200b\n\u00a0\n 1.21\n\u200b\n\u00a0\n 1.29\nAverage\n\u200b\n\u00a0\n 1.21\n\u200b\n\u00a0\n 1.32\n\u200b\n\u00a0\n 1.35\nChinese yuan\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\nHigh\n\u200b\n$\n 0.15\n\u200b\n$\n 0.16\n\u200b\n$\n 0.16\nLow\n\u200b\n\u00a0\n 0.14\n\u200b\n\u00a0\n 0.15\n\u200b\n\u00a0\n 0.14\nAverage\n\u200b\n\u00a0\n 0.14\n\u200b\n\u00a0\n 0.15\n\u200b\n\u00a0\n 0.15\nCanadian dollar\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\nHigh\n\u200b\n$\n 0.78\n\u200b\n$\n 0.81\n\u200b\n$\n 0.83\nLow\n\u200b\n\u00a0\n 0.73\n\u200b\n\u00a0\n 0.78\n\u200b\n\u00a0\n 0.75\nAverage\n\u200b\n\u00a0\n 0.74\n\u200b\n\u00a0\n 0.79\n\u200b\n\u00a0\n 0.78\n\u200b\nThe Company\u2019s exposure to foreign exchange rate fluctuations also arises from trade receivables and intercompany payables denominated in one currency in the financial statements, but receivable or payable in another currency.\nThe Company does not enter into foreign currency forward contracts to reduce its exposure to foreign currency rate changes on forecasted intercompany sales transactions or on intercompany foreign currency denominated balance sheet positions. Foreign currency transaction gains and losses are included in \"Other non-operating expense, net\" in the Consolidated Statement of Earnings and Comprehensive Income. The effect of translating net assets of foreign subsidiaries into U.S. dollars are recorded on the Consolidated Balance Sheet as part of \"Accumulated other comprehensive income (loss).\"\nThe effects of a hypothetical simultaneous 10% appreciation in the U.S. dollar from June\u00a030, 2023\u00a0levels against the euro, British pound sterling, Chinese yuan and Canadian dollar are as follows (in thousands):\n\u200b\n\u200b\n\u200b\n\u200b\nDecrease in translation of earnings of foreign subsidiaries\n\u00a0\u00a0\u00a0\u00a0\n$\n 10,101\nDecrease in translation of net assets of foreign subsidiaries\n\u200b\n\u00a0\n 90,354\nAdditional transaction losses\n\u200b\n\u00a0\n 4,593\n\u200b\n\u200b\n\u200b\n46\n\n\nTable of Contents",
+  "cik": "842023",
+  "cusip6": "09073M",
+  "cusip": ["09073M104", "09073M954", "09073m104", "09073M904"],
+  "names": ["BIO-TECHNE CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/842023/000155837023015226/0001558370-23-015226-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item\u00a01.\u00a0\u00a0\u00a0Business\nOverview\nPhibro Animal Health Corporation is a leading global diversified animal health and mineral nutrition company. We strive to be a trusted partner with livestock producers, farmers, veterinarians and consumers who raise and care for farm and companion animals by providing solutions to help them maintain and enhance the health of their animals. We market approximately 770 product lines in over 80 countries to approximately 4,000 customers. We develop, manufacture and market a broad range of products for food and companion animals including poultry, swine, beef and dairy cattle, aquaculture and dogs. Our products help prevent, control and treat diseases and support nutrition to help improve animal health and well-being. We sell animal health and mineral nutrition products either directly to integrated poultry, swine and cattle producers or through animal feed manufacturers, wholesalers, distributors and veterinarians.\nOur products include:\n\u25cf\nAnimal health products such as antibacterials, anticoccidials, nutritional specialty products, and vaccines and vaccine adjuvants that help improve the animal\u2019s health and therefore improve performance, food safety and animal welfare. Our Animal Health segment also includes antibacterials and other processing aids used in the ethanol fermentation industry.\n\u25cf\nMineral nutrition products that fortify the animal\u2019s diet and help maintain optimal health.\nWe have focused our efforts in regions where the majority of livestock production is consolidated in large commercial farms. We believe we are well positioned to grow our sales with our established network of sales, marketing and distribution professionals in markets in North America, Latin America, Asia Pacific, Europe and Africa.\nWe are investing resources to further develop products for the companion animal sector. Our business is currently concentrated in the livestock sector.\nIn addition to animal health and mineral nutrition products, we manufacture and market specific ingredients for use in the personal care, industrial chemical and chemical catalyst industries. We sell performance products directly to customers in the aforementioned industries.\nOur Class\u00a0A common stock trades on the Nasdaq Stock Market (\u201cNasdaq\u201d) under the trading symbol \u201cPAHC.\u201d Our Class\u00a0B common stock is not listed or traded on any stock exchange. We are a Delaware corporation.\nUnless otherwise indicated or the context requires otherwise, references in this report to \u201cwe,\u201d \u201cour,\u201d \u201cus,\u201d the \u201cCompany,\u201d \u201cPhibro,\u201d \u201cPAHC\u201d and similar expressions refer to Phibro Animal Health Corporation and its subsidiaries.\nFor discussion regarding the impact of the ongoing armed conflict between Russia and Ukraine on our financial results, see Part\u00a0II, Item\u00a07, Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\nBusiness Segments\nWe manage our business in three segments\u2009\u2014\u2009Animal Health, Mineral Nutrition, and Performance Products\u2009\u2014\u2009each with its own dedicated management and sales team, for enhanced focus and accountability. Net sales by segments, species and regions were:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nSegments\n\u200b\nChange\n\u200b\nPercentage\u00a0of\u00a0total\n\u00a0\nFor the Year Ended June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023\u00a0/\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n2022\u00a0/\u00a02021\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n($ in\u00a0millions)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAnimal Health\n\u00a0\u00a0\u00a0\u00a0\n$\n 660\n\u00a0\u00a0\u00a0\u00a0\n$\n 607\n\u00a0\u00a0\u00a0\u00a0\n$\n 546\n\u00a0\u00a0\u00a0\u00a0\n$\n 53\n\u00a0\u00a0\u00a0\u00a0\n 9\n%\u00a0\u00a0\n$\n 61\n\u00a0\u00a0\u00a0\u00a0\n 11\n%\u00a0\u00a0\n 67\n%\u00a0\u00a0\n 64\n%\u00a0\u00a0\n 65\n%\nMineral Nutrition\n\u200b\n\u00a0\n 243\n\u200b\n\u00a0\n 260\n\u200b\n\u00a0\n 221\n\u200b\n\u00a0\n (17)\n\u00a0\n (6)\n%\u00a0\u00a0\n\u00a0\n 39\n\u00a0\n 18\n%\u00a0\u00a0\n 25\n%\u00a0\u00a0\n 28\n%\u00a0\u00a0\n 26\n%\nPerformance Products\n\u200b\n\u00a0\n 75\n\u200b\n\u00a0\n 76\n\u200b\n\u00a0\n 67\n\u200b\n\u00a0\n (0)\n\u00a0\n (0)\n%\u00a0\u00a0\n\u00a0\n 9\n\u00a0\n 13\n%\u00a0\u00a0\n 8\n%\u00a0\u00a0\n 8\n%\u00a0\u00a0\n 8\n%\nTotal\n\u200b\n$\n 978\n\u200b\n$\n 942\n\u200b\n$\n 833\n\u200b\n$\n 36\n\u00a0\n 4\n%\u00a0\u00a0\n$\n 109\n\u00a0\n 13\n%\u00a0\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n6\n\n\nTable of Contents\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nSpecies \n\u200b\nChange\n\u200b\nPercentage\u00a0of\u00a0total\n\u00a0\nFor the Year Ended June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023\u00a0/\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n2022\u00a0/\u00a02021\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n($ in\u00a0millions)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nPoultry\n\u00a0\u00a0\u00a0\u00a0\n$\n 331\n\u00a0\u00a0\u00a0\u00a0\n$\n 319\n\u00a0\u00a0\u00a0\u00a0\n$\n 297\n\u00a0\u00a0\u00a0\u00a0\n$\n 12\n\u00a0\u00a0\u00a0\u00a0\n 4\n%\u00a0\u00a0\n$\n 22\n\u00a0\u00a0\u00a0\u00a0\n 7\n%\u00a0\u00a0\n 34\n%\u00a0\u00a0\n 34\n%\u00a0\u00a0\n 36\n%\nDairy\n\u200b\n\u200b\n 190\n\u200b\n\u200b\n 186\n\u200b\n\u200b\n 169\n\u200b\n\u200b\n 4\n\u200b\n 2\n%\n\u200b\n 17\n\u200b\n 10\n%\u00a0\u00a0\n 19\n%\u00a0\u00a0\n 20\n%\u00a0\u00a0\n 20\n%\nCattle\n\u200b\n\u200b\n 128\n\u200b\n\u200b\n 127\n\u200b\n\u200b\n 106\n\u200b\n\u200b\n 1\n\u200b\n 1\n%\n\u200b\n 21\n\u200b\n 20\n%\u00a0\u00a0\n 13\n%\u00a0\u00a0\n 13\n%\u00a0\u00a0\n 13\n%\nSwine\n\u200b\n\u00a0\n 89\n\u200b\n\u00a0\n 80\n\u200b\n\u00a0\n 79\n\u200b\n\u00a0\n 9\n\u00a0\n 11\n%\u00a0\u00a0\n\u00a0\n 1\n\u00a0\n 1\n%\u00a0\u00a0\n 9\n%\u00a0\u00a0\n 8\n%\u00a0\u00a0\n 9\n%\nOther \n(1)\n\u200b\n\u00a0\n 240\n\u200b\n\u00a0\n 230\n\u200b\n\u00a0\n 182\n\u200b\n\u00a0\n 10\n\u00a0\n 4\n%\u00a0\u00a0\n\u00a0\n 48\n\u00a0\n 26\n%\u00a0\u00a0\n 25\n%\u00a0\u00a0\n 24\n%\u00a0\u00a0\n 22\n%\nTotal\n\u200b\n$\n 978\n\u200b\n$\n 942\n\u200b\n$\n 833\n\u200b\n$\n 36\n\u00a0\n 4\n%\u00a0\u00a0\n$\n 109\n\u00a0\n 13\n%\u00a0\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nRegions \n(2)\n\u200b\nChange\n\u200b\nPercentage\u00a0of\u00a0total\n\u00a0\nFor the Year Ended June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023\u00a0/\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n2022\u00a0/\u00a02021\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n($ in\u00a0millions)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nUnited States\n\u00a0\u00a0\u00a0\u00a0\n$\n 579\n\u00a0\u00a0\u00a0\u00a0\n$\n 562\n\u00a0\u00a0\u00a0\u00a0\n$\n 495\n\u00a0\u00a0\u00a0\u00a0\n$\n 17\n\u00a0\u00a0\u00a0\u00a0\n 3\n%\u00a0\u00a0\n$\n 67\n\u00a0\u00a0\u00a0\u00a0\n 13\n%\u00a0\u00a0\n 59\n%\u00a0\u00a0\n 60\n%\u00a0\u00a0\n 59\n%\nLatin America and Canada\n\u200b\n\u200b\n 220\n\u200b\n\u200b\n 191\n\u200b\n\u200b\n 166\n\u200b\n\u200b\n 29\n\u200b\n 15\n%\u00a0\u00a0\n\u200b\n 25\n\u200b\n 15\n%\u00a0\u00a0\n 22\n%\u00a0\u00a0\n 20\n%\u00a0\u00a0\n 20\n%\nEurope, Middle East and Africa\n\u200b\n\u200b\n 118\n\u200b\n\u200b\n 122\n\u200b\n\u200b\n 114\n\u200b\n\u200b\n (5)\n\u200b\n (4)\n%\u00a0\u00a0\n\u200b\n 8\n\u200b\n 7\n%\u00a0\u00a0\n 12\n%\u00a0\u00a0\n 13\n%\u00a0\u00a0\n 14\n%\nAsia Pacific\n\u200b\n\u00a0\n 61\n\u200b\n\u00a0\n 67\n\u200b\n\u00a0\n 58\n\u200b\n\u00a0\n (5)\n\u00a0\n (8)\n%\u00a0\u00a0\n\u00a0\n 9\n\u00a0\n 15\n%\u00a0\u00a0\n 6\n%\u00a0\u00a0\n 7\n%\u00a0\u00a0\n 7\n%\nTotal\n\u200b\n$\n 978\n\u200b\n$\n 942\n\u200b\n$\n 833\n\u200b\n$\n 36\n\u00a0\n 4\n%\u00a0\u00a0\n$\n 109\n\u00a0\n 13\n%\u00a0\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n(1)\nOther includes sales related to: Performance Products customers; the ethanol industry; aquaculture and other animal species; adjuvants for animal vaccine manufacturers; and Mineral Nutrition other customers.\n(2)\nNet sales by region are based on country of destination.\nCertain amounts and\u00a0percentages may reflect rounding adjustments.\nAdjusted EBITDA by segment was:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA\n(1)\n\u200b\nChange\n\u200b\nPercentage of total\n(2)\n\u00a0\nFor the Year Ended June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023\u00a0/\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n2022\u00a0/\u00a02021\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n($ in millions)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAnimal Health\n\u00a0\u00a0\u00a0\u00a0\n$\n 136\n\u00a0\u00a0\u00a0\u00a0\n$\n 124\n\u00a0\u00a0\u00a0\u00a0\n$\n 124\n\u00a0\u00a0\u00a0\u00a0\n$\n 12\n\u00a0\u00a0\u00a0\u00a0\n 10\n%\u00a0\u00a0\n$\n 0\n\u00a0\u00a0\u00a0\u00a0\n 0\n%\u00a0\u00a0\n 84\n%\u00a0\u00a0\n 79\n%\u00a0\u00a0\n 82\n%\nMineral Nutrition\n\u200b\n\u200b\n 17\n\u200b\n\u200b\n 24\n\u200b\n\u200b\n 17\n\u200b\n\u200b\n (7)\n\u200b\n (28)\n%\u00a0\u00a0\n\u200b\n 7\n\u200b\n 40\n%\u00a0\u00a0\n 11\n%\u00a0\u00a0\n 15\n%\u00a0\u00a0\n 11\n%\nPerformance Products\n\u200b\n\u200b\n 9\n\u200b\n\u200b\n 9\n\u200b\n\u200b\n 9\n\u200b\n\u200b\n 1\n\u200b\n 7\n%\u00a0\u00a0\n\u200b\n (1)\n\u200b\n (8)\n%\u00a0\u00a0\n 6\n%\u00a0\u00a0\n 6\n%\u00a0\u00a0\n 6\n%\nCorporate\n\u200b\n\u00a0\n (50)\n\u200b\n\u00a0\n (46)\n\u200b\n\u00a0\n (43)\n\u200b\n\u00a0\n (4)\n\u00a0\n 10\n%\u00a0\u00a0\n\u00a0\n (3)\n\u00a0\n 7\n%\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTotal\n\u200b\n$\n 113\n\u200b\n$\n 111\n\u200b\n$\n 108\n\u200b\n$\n 2\n\u00a0\n 2\n%\u00a0\u00a0\n$\n 3\n\u00a0\n 3\n%\u00a0\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n(1)\nSee \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2014\u2009General description of non-GAAP financial measures\u201d for description of Adjusted EBITDA.\n(2)\nBefore unallocated corporate costs.\nCertain amounts and\u00a0percentages may reflect rounding adjustments.\nNet identifiable assets by segment were:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNet Identifiable Assets \n\u200b\nChange\n\u200b\nPercentage\u00a0of\u00a0total\n\u00a0\nAs of June\u00a030\n\u00a0\n\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023\u00a0/\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n2022\u00a0/\u00a02021\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n($ in millions)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAnimal Health\n\u00a0\u00a0\u00a0\u00a0\n$\n 699\n\u00a0\u00a0\u00a0\u00a0\n$\n 655\n\u00a0\u00a0\u00a0\u00a0\n$\n 595\n\u00a0\u00a0\u00a0\u00a0\n$\n 44\n\u00a0\u00a0\u00a0\u00a0\n 7\n%\u00a0\u00a0\n$\n 60\n\u00a0\u00a0\u00a0\u00a0\n 10\n%\u00a0\u00a0\n 72\n%\u00a0\u00a0\n 70\n%\u00a0\u00a0\n 71\n%\nMineral Nutrition\n\u200b\n\u200b\n 76\n\u200b\n\u200b\n 87\n\u200b\n\u200b\n 68\n\u200b\n\u200b\n (12)\n\u200b\n (13)\n%\u00a0\u00a0\n\u200b\n 19\n\u200b\n 29\n%\u00a0\u00a0\n 8\n%\u00a0\u00a0\n 9\n%\u00a0\u00a0\n 8\n%\nPerformance Products\n\u200b\n\u200b\n 50\n\u200b\n\u200b\n 39\n\u200b\n\u200b\n 37\n\u200b\n\u200b\n 10\n\u200b\n 26\n%\u00a0\u00a0\n\u200b\n 3\n\u200b\n 7\n%\u00a0\u00a0\n 5\n%\u00a0\u00a0\n 4\n%\u00a0\u00a0\n 4\n%\nCorporate\n\u200b\n\u00a0\n 147\n\u200b\n\u00a0\n 150\n\u200b\n\u00a0\n 141\n\u200b\n\u00a0\n (3)\n\u00a0\n (2)\n%\u00a0\u00a0\n\u00a0\n 9\n\u00a0\n 6\n%\u00a0\u00a0\n 15\n%\u00a0\u00a0\n 16\n%\u00a0\u00a0\n 17\n%\nTotal\n\u200b\n$\n 971\n\u200b\n$\n 932\n\u200b\n$\n 841\n\u200b\n$\n 40\n\u00a0\n 4\n%\u00a0\u00a0\n$\n 91\n\u00a0\n 11\n%\u00a0\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n7\n\n\nTable of Contents\nCorporate assets include cash and cash equivalents, short-term investments, debt issuance costs, income tax related assets and certain other assets.\nCertain amounts and\u00a0percentages may reflect rounding adjustments.\nAnimal Health\nOur Animal Health business develops, manufactures and markets about 270 product lines, including:\n\u25cf\nantibacterials, which inhibit the growth of pathogenic bacteria that cause infections in animals; anticoccidials, which inhibit the growth of coccidia (parasites) that damage the intestinal tract of animals; and related products (MFAs and other);\n\u25cf\nnutritional specialty products, which support nutrition to help improve health and performance (nutritional specialties); and\n\u25cf\nvaccines, which induce an increase in antibody levels against a specific virus or bacterium, thus preventing disease due to infection with wild strains of that virus or bacterium (vaccines).\nOur animal health products help our customers prevent, control and treat diseases and support nutrition to help improve health and well-being, enabling our customers to more efficiently produce high-quality, wholesome and affordable animal protein products for human consumption. We develop, manufacture and market a broad range of animal health products for food animals including poultry, swine, beef and dairy cattle and aquaculture. We provide technical and product support directly to our customers to ensure the optimal use of our products. The animal health industry and demand for many of our animal health products in a particular region are affected by changing disease pressures and by weather conditions, as usage of our products follows varying weather patterns and seasons. As a result, we may experience regional and seasonal fluctuations in our animal health segment.\nWe continue to build our companion animal business and pipeline. Our Rejensa\n\u00ae\n joint supplement for dogs continues to gain customer acceptance. Our companion animal development pipeline includes an early-stage atopic dermatitis compound, a novel Lyme vaccine delivery system product, a potential treatment for mitral heart valve disease in dogs, a pain product and two early-stage oral care compounds. \nAnimal Health net sales by product group and regions were:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nProduct Groups\n\u200b\nChange\n\u200b\nPercentage\u00a0of\u00a0total\n\u00a0\nFor the Year Ended June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023\u00a0/\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n2022\u00a0/\u00a02021\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n($ in millions)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMFAs and other\n\u00a0\u00a0\u00a0\u00a0\n$\n 387\n\u00a0\u00a0\u00a0\u00a0\n$\n 362\n\u00a0\u00a0\u00a0\u00a0\n$\n 330\n\u00a0\u00a0\u00a0\u00a0\n$\n 26\n\u00a0\u00a0\u00a0\u00a0\n 7\n%\u00a0\u00a0\n$\n 32\n\u00a0\u00a0\u00a0\u00a0\n 10\n%\u00a0\u00a0\n 59\n%\u00a0\u00a0\n 60\n%\u00a0\u00a0\n 60\n%\nNutritional specialties\n\u200b\n\u00a0\n 173\n\u200b\n\u00a0\n 157\n\u200b\n\u00a0\n 143\n\u200b\n\u00a0\n 15\n\u00a0\n 10\n%\u00a0\u00a0\n\u00a0\n 14\n\u00a0\n 10\n%\u00a0\u00a0\n 26\n%\u00a0\u00a0\n 26\n%\u00a0\u00a0\n 26\n%\nVaccines\n\u200b\n\u00a0\n 100\n\u200b\n\u00a0\n 88\n\u200b\n\u00a0\n 73\n\u200b\n\u00a0\n 12\n\u00a0\n 13\n%\u00a0\u00a0\n\u00a0\n 15\n\u00a0\n 21\n%\u00a0\u00a0\n 15\n%\u00a0\u00a0\n 15\n%\u00a0\u00a0\n 13\n%\nAnimal Health\n\u200b\n$\n 660\n\u200b\n$\n 607\n\u200b\n$\n 546\n\u200b\n$\n 53\n\u00a0\n 9\n%\u00a0\u00a0\n$\n 61\n\u00a0\n 11\n%\u00a0\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nRegions\n(1)\n\u200b\nChange\n\u200b\nPercentage\u00a0of\u00a0total\n\u00a0\nFor the Year Ended June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023\u00a0/\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n2022\u00a0/\u00a02021\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n($ in millions)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nUnited States\n\u00a0\u00a0\u00a0\u00a0\n$\n 277\n\u00a0\u00a0\u00a0\u00a0\n$\n 248\n\u00a0\u00a0\u00a0\u00a0\n$\n 227\n\u00a0\u00a0\u00a0\u00a0\n$\n 29\n\u00a0\u00a0\u00a0\u00a0\n 12\n%\u00a0\u00a0\n$\n 21\n\u00a0\u00a0\u00a0\u00a0\n 9\n%\u00a0\u00a0\n 42\n%\u00a0\u00a0\n 41\n%\u00a0\u00a0\n 42\n%\nLatin America and Canada\n\u200b\n\u200b\n 207\n\u200b\n\u200b\n 175\n\u200b\n\u200b\n 151\n\u200b\n\u200b\n 32\n\u200b\n 18\n%\n\u200b\n 24\n\u200b\n 16\n%\u00a0\u00a0\n 31\n%\u00a0\u00a0\n 29\n%\u00a0\u00a0\n 28\n%\nEurope, Middle East and Africa\n\u200b\n\u200b\n 116\n\u200b\n\u200b\n 120\n\u200b\n\u200b\n 110\n\u200b\n\u200b\n (4)\n\u200b\n (3)\n%\n\u200b\n 10\n\u200b\n 9\n%\u00a0\u00a0\n 18\n%\u00a0\u00a0\n 20\n%\u00a0\u00a0\n 20\n%\nAsia Pacific\n\u200b\n\u00a0\n 60\n\u200b\n\u00a0\n 64\n\u200b\n\u00a0\n 58\n\u200b\n\u00a0\n (4)\n\u00a0\n (6)\n%\u00a0\u00a0\n\u00a0\n 6\n\u00a0\n 10\n%\u00a0\u00a0\n 9\n%\u00a0\u00a0\n 11\n%\u00a0\u00a0\n 11\n%\nTotal\n\u200b\n$\n 660\n\u200b\n$\n 607\n\u200b\n$\n 546\n\u200b\n$\n 53\n\u00a0\n 9\n%\u00a0\u00a0\n$\n 61\n\u00a0\n 11\n%\u00a0\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n(1)\nNet sales by region are based on country of destination.\nCertain amounts and\u00a0percentages may reflect rounding adjustments.\n8\n\n\nTable of Contents\nMFAs and Other\nOur MFAs and other products primarily consist of concentrated medicated products administered through animal feeds, commonly referred to as Medicated Feed Additives (\u201cMFAs\u201d). Our MFAs and other products primarily consist of the production and sale of antibacterials (including Stafac\u00ae, Terramycin\u00ae, Neo-Terramycin\u00ae and Mecadox\u00ae) and anticoccidials (including Nicarb\u00ae, Aviax\u00ae, Aviax Plus\u00ae, Coxistac\u2122 and amprolium). Antibacterials inhibit the growth of pathogenic bacteria that cause infections in animals, while anticoccidials inhibit growth of coccidia (parasites) that damage the intestinal tract of animals. The \u201cMFAs and other products\u201d product group also includes antibacterial products and other processing aids used in the ethanol fermentation industry.\nApproximately 44% of our MFAs and other sales in the fiscal year 2023 were to the poultry industry, with sales to swine, beef and dairy cattle and other customers accounting for the remainder. We market our MFAs and other products in all regions where we do business.\nNutritional Specialties\nNutritional specialty products enhance nutrition to help improve health and performance in areas such as immune system function and digestive health. Many of our proprietary nutritional specialty products have been developed through applied research in cooperation with private research companies or by leading universities with whom we collaborate and then further develop through commercial trials with customers. Our nutritional specialty products include the OmniGen\n\u00ae\n family of products, patented nutritional specialty products that have been shown in several studies to help maintain a cow\u2019s healthy immune system; Animate\n\u00ae\n, an anionic nutritional specialty product that helps optimize the health and performance of the transition dairy cow; Magni-Phi\n\u00ae\n, a proprietary nutritional specialty product that has been shown to help improve intestinal health and immune response in poultry; Provia Prime\nTM\n/MicroLife\n\u00ae\n Prime, a four-strain direct-fed microbial product for optimization of gut health, which leads to better pathogen control and improved performance in poultry; and, Cellerate Yeast Solutions\n\u00ae\n, a line of proprietary yeast culture products that are used to help improve digestive health, which may lead to improved animal health and performance.\nWe are also a developer, manufacturer and marketer of microbial products and bioproducts for a variety of applications serving animal health and nutrition, environmental, industrial and agricultural customers. We market our nutritional specialty products in all regions in which we operate.\nVaccines\nOur vaccine products are primarily focused on preventing diseases in poultry, swine, beef and dairy cattle and aquaculture. We market our vaccine products to protect animals from either viral or bacterial disease challenges in all regions in which we operate.\nWe have developed and market approximately 345 licensed vaccine presentations for the prevention of diseases in poultry, including vaccines to protect against Infectious Bursal Disease, Infectious Bronchitis, Newcastle Disease, Reovirus, Salmonella and Coryza.\nWe develop, manufacture and market autogenous vaccines against animal diseases for swine, poultry and beef and dairy cattle in the United States and Brazil. Our autogenous bacterial and viral vaccines enable us to produce custom vaccines for veterinarians that contain antigens specific to each farm, allowing Phibro to provide comprehensive and customized health management solutions to our customers. Our autogenous vaccine products include the Tailor-Made\n\u00ae\n and Phi-Shield\n\u00ae\n lines of vaccines and the MJPRRS\n\u00ae \nvaccine. We also develop, manufacture and market adjuvants to animal vaccine manufacturers globally.\nWe have developed TAbic\n\u00ae\n, an innovative and proprietary delivery platform for vaccines. TAbic is a patented technology for formulation and delivery of vaccine antigens in effervescent tablets, packaged in sealed aluminum blister packages. The technology replaces the glass bottles that are in common use today, and offers significant sustainability advantages including reduced storage requirements, customer handling and disposal. Several of our vaccine products are available in the patented TAbic format.\nWe also focus on innovation to produce new antigens or new presentations of antigens, and have developed new vaccines and related technologies, such as:\n9\n\n\nTable of Contents\n\u25cf\nMB-1\n\u00ae\n, a live attenuated vaccine for Infectious Bursal disease, developed from the M.B. strain, adapted for in-ovo or subcutaneous injection at the hatchery;\n\u25cf\nTAbic\n\u00ae\n IB VAR206, a live attenuated virus vaccine for Infectious Bronchitis developed from a unique genotype 2 variant strain;\n\u25cf\nThe inactivated subunit Infectious Bursal Disease Virus;\n\u25cf\nSalmin Plus\n\u00ae\n, the first multi-variant inactivated vaccine containing Salmonella Enteritis, Salmonella Typhimurium and Salmonella Infantis;\n\u25cf\nEASE\n\u00ae\n (Enhanced Antigen Surface Expression), a new bacterial growth procedure to improve the performance of our vaccines; and\n\u25cf\npHi-Tech\n\u00ae\n, a portable electronic vaccination device and software that ensures proper delivery of vaccines and provides health management information.\nWe continue to invest in a vaccine production facility in Sligo, Ireland to manufacture poultry vaccines, with our first commercial sale of product from this facility having occurred in fiscal year 2022, and longer-term expectations to add swine and cattle vaccines production at this facility. Installation of additional machinery and equipment is planned while we continue to submit necessary registrations on a country-by-country basis in order to obtain regulatory approvals needed to sell these products to a broader geographic market.\n\u200b\nWe recently completed construction of and received regulatory approval for a new vaccine production facility in Guarulhos, Brazil to manufacture and market autogenous vaccines that combat disease in swine, poultry and aquaculture.\n\u200b\nMineral Nutrition\nOur Mineral Nutrition business manufactures and markets approximately 420 formulations and concentrations of trace minerals such as zinc, manganese, copper, iron and other compounds, with a focus on customers in North America. Our customers use these products to fortify the daily feed requirements of their animals\u2019 diets and maintain an optimal balance of trace elements in each animal. We manufacture and market a broad range of mineral nutrition products for food animals including poultry, swine and beef and dairy cattle. Volume growth in the mineral nutrition sector is primarily driven by livestock production and customer inventory levels, while pricing is largely based on costs of the underlying commodity metals. Demand for our mineral nutrition products can vary due to changes in customer buying patterns, seasonal variability and weather conditions in a particular region, which may cause animal feed consumption to fluctuate. \nPerformance Products\nOur Performance Products business manufactures and markets specialty ingredients for use in the personal care, industrial chemical and chemical catalyst industries, predominantly in the United States.\nOur Products\nAnimal Health\nMFAs and Other\nOur MFAs and other products primarily consist of the production and sale of antibacterials (Stafac, Terramycin, Neo-Terramycin and Mecadox) and anticoccidials (Nicarb, Aviax, Aviax Plus, Coxistac and amprolium). We sell our MFAs and other products in all regions where we do business.\n10\n\n\nTable of Contents\nAntibacterials and Anticoccidials\nWe manufacture and market a broad range of antibacterials and other medicated products to the global livestock industry. These products provide therapeutic benefits for the animals while helping to control pathogens that have a negative impact on animal health and productivity. The table below presents our core MFA products:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMarket\u00a0Entry\u00a0of\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\nProduct \n\u200b\nActive\u00a0Ingredient\u00a0\n\u00a0\nActive\u00a0Ingredient\u00a0\n\u200b\nDescription\u00a0\nTerramycin\n\u00ae\n \n\u00a0\noxytetracycline\n\u00a0\n1951\n\u00a0\nAntibacterial with multiple applications for a wide number of species\nNicarb\n\u00ae\n \n\u00a0\nnicarbazin\n\u00a0\n1954\n\u00a0\nAnticoccidial for poultry\nAmprolium \n\u00a0\namprolium\n\u00a0\n1960\n\u00a0\nAnticoccidial for poultry and cattle\nBloat Guard\n\u00ae \n\u00a0\npoloxalene\n\u00a0\n1967\n\u00a0\nAnti-bloat treatment for cattle\nBanminth\n\u00ae \n\u00a0\npyrantel tartrate\n\u00a0\n1972\n\u00a0\nAnthelmintic for livestock\nMecadox\n\u00ae \n\u00a0\ncarbadox\n\u00a0\n1972\n\u00a0\nAntibacterial for enteric pathogens in swine including Salmonellosis and dysentery\nStafac\n\u00ae\n/Eskalin\n\u00ae\n/V-Max\n\u00ae\n \n\u00a0\nvirginiamycin\n\u00a0\n1975\n\u00a0\nAntibacterial used to prevent and control diseases in poultry, swine and cattle\nCoxistac\u00ae /Posistac\u00ae \n\u00a0\nsalinomycin\n\u00a0\n1979\n\u00a0\nAnticoccidial for poultry, cattle and swine\nRumatel\n\u00ae \n\u00a0\nmorantel tartrate\n\u00a0\n1981\n\u00a0\nAnthelmintic for livestock\nCerditac\n\u00ae\n/Cerdimix\n\u00ae\n \n\u00a0\noxibendazole\n\u00a0\n1982\n\u00a0\nAnthelmintic for livestock\nAviax\n\u00ae\n \n\u00a0\nsemduramicin\n\u00a0\n1995\n\u00a0\nAnticoccidial for poultry\nNeo-Terramycin\n\u00ae\n\u00a0\noxytetracycline + neomycin\n\u00a0\n1999\n\u00a0\nCombination of two antibacterials with multiple applications for a wide number of species\nAviax Plus\n\u00ae\n/Avi-Carb\n\u00ae \n\u00a0\nsemduramicin + nicarbazin\n\u00a0\n2010\n\u00a0\nAnticoccidial for poultry\n\u200b\nAntibacterials are biological or chemical products used in the animal health industry to treat or to prevent bacterial diseases, thereby promoting animal health, resulting in more efficient livestock production. Several factors contribute to limit the efficiency, weight gain and feed conversions of livestock production, including stress, poor nutrition, environmental and management challenges and disease. Antibacterials help prevent, control and treat disease in livestock, which can also lead to improved overall health of the animals, improved rate of weight gain and more efficient feed conversion. Our antibacterial products include:\n\u25cf\nVirginiamycin\n.\u00a0\u00a0\u00a0Virginiamycin is an antibacterial marketed under the brand names Stafac\n\u00ae\n to poultry, swine and cattle producers, Eskalin\n\u00ae\n to dairy cows and beef cattle producers and V-Max\n\u00ae\n for beef cattle producers. Virginiamycin is used primarily to prevent necrotic enteritis in chickens, treat and control Swine Dysentery and aid in the prevention or reduce the incidence of rumen acidosis and liver abscesses in cattle. Our experience in the development and production of virginiamycin has enabled us to develop significant intellectual property through trade secret know-how, which has helped protect against competition from generics. We are the sole worldwide manufacturer and marketer of virginiamycin.\n\u25cf\nCarbadox\n.\u00a0\u00a0\u00a0We market carbadox under the brand name Mecadox\n\u00ae\n for use in swine feeds to control swine Salmonellosis and Swine Dysentery and, as a result, improve animal health and production efficiencies. Mecadox is sold primarily in the United States to feed companies and large integrated swine producers.\n\u25cf\nOxytetracycline and Neomycin\n.\u00a0\u00a0\u00a0Terramycin\n\u00ae\n utilizes the active ingredient oxytetracycline and Neo-Terramycin\n\u00ae\n combines the active ingredients neomycin and oxytetracycline to prevent, control and treat a wide range of diseases in chickens, turkeys, cattle, swine and aquaculture. We sell Terramycin and Neo-Terramycin products primarily to livestock and aquaculture producers, feed companies and distributors.\n\u200b\nAnticoccidials are produced through fermentation or chemical synthesis and are primarily used to prevent and control the disease coccidiosis in poultry and cattle, thereby promoting intestinal health, resulting in healthier animals. Coccidiosis is a disease of the digestive tract that has considerable health consequences to livestock and, as a result, is of \n11\n\n\nTable of Contents\ngreat concern to livestock producers. We sell our anticoccidials primarily to integrated poultry producers and feed companies and to international animal health companies. Our anticoccidial products include:\n\u200b\n\u25cf\nNicarbazin\n.\u00a0\u00a0\u00a0We produce and market nicarbazin, a broad-spectrum anticoccidial used for coccidiosis prevention in poultry. We market nicarbazin under the trademarks Nicarb\n\u00ae\n and Nicarmix\n\u00ae\n and as an active pharmaceutical ingredient.\n\u25cf\nAmprolium\n.\u00a0\u00a0\u00a0We produce and market amprolium primarily as an active pharmaceutical ingredient.\n\u25cf\nSalinomycin and Semduramicin\n.\u00a0\u00a0\u00a0We produce and market Coxistac\n\u00ae\n, Aviax\n\u00ae\n/Aviax Plus\n\u00ae\n/Avi-Carb\n\u00ae\n and Posistac\n\u00ae\n, which are in a class of compounds known as ionophores, to combat coccidiosis in poultry and increase feed efficiency in swine.\nAnthelmintics are used to treat infestations of parasitic intestinal worms. Our anthelmintic products include Rumatel\n\u00ae\n and Banminth\n\u00ae\n, which are both marketed to control major internal nematode parasites in beef and dairy cattle and swine.\nBloat Guard\n\u00ae\n is an anti-bloat treatment used in cattle to control bloat in animals grazing on legume or wheat-pasture.\nOther \nincludes products used in the ethanol fermentation industry, including antimicrobials, yeasts, process cleaning, corn oil recovery and other processing aids.\nNutritional Specialties\nOur primary nutritional specialty products have been identified, developed and commercialized by our staff of nutritionists and veterinarians working with private research companies, leading universities and customers with whom we collaborate. For those of our nutritional specialty products that are not proprietary or exclusive to us, we typically maintain unique supply agreements or exclusive distributor status with the product developers giving us preferential access to trademarks, territories and research data.\nOur nutritional specialty products include:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMarket\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\nProduct \n\u00a0\nEntry\u00a0\n\u200b\nDescription\u00a0\nAB20\n\u00ae\n \n\u00a0\n1989\n\u00a0\nNatural flow agent that improves overall feed quality\nAnimate\n\u00ae\n \n\u00a0\n1999\n\u00a0\nMaintains proper blood calcium levels in dairy cows during critical transition period\nOmniGen\n\u00ae\n \n\u00a0\n2004\n\u00a0\nOptimize immune function in dairy cows and improve productivity\nMagni-Phi\n\u00ae\n \n\u00a0\n2015\n\u00a0\nProprietary blend that helps to improve intestinal health and immune response which may lead to improved absorption and utilization of nutrients for poultry\nCellerate Yeast Solutions\n\u00ae\n \n\u00a0\n2017\n\u00a0\nProprietary yeast culture products for all classes of livestock to help improve digestive health\nProvia Prime\u2122/MicroLife\n\u00ae\n Prime\n\u00a0\n2019\n\u00a0\n4-way combination direct-fed microbial for optimization of gut health, which leads to better pathogen control in poultry\n\u200b\nAB20\n\u00ae\n is a natural flow agent that, when added to feed, improves the overall feed quality. The product is one of the most thoroughly researched in the flow agent product category.\nAnimate\n\u00ae\n is a patented anionic mineral supplement that helps optimize the health and performance of the transition dairy cow and improves profitability for dairy producers.\nOmniGen\n\u00ae\n is a proprietary nutritional specialty product line designed to help maintain a cow\u2019s healthy immune system, improve their natural response to potential environmental stressors and health challenges, and improve productivity.\n12\n\n\nTable of Contents\nMagni-Phi\n\u00ae\n is a proprietary blend of saponins, triterpenoids and polyphenols (classes of phytogenic feed additives or natural botanicals) that helps improve intestinal health and immune response which may lead to improved absorption and utilization of nutrients for poultry.\nCellerate Yeast Solutions\n\u00ae\n is a line of proprietary yeast culture and yeast culture blends with yeast fractions and/or live cell yeast used in all classes of livestock and companion animals for improved digestive health. Improved digestive health may lead to improved animal health and performance.\nProvia Prime\u2122 and MicroLife\n\u00ae\n Prime represent a proprietary combination of four strains of bacillus-based direct-fed microbials that have been shown to promote beneficial gut bacteria, which can help promote health, immunity and productivity in poultry, which leads to lower pathogen challenges in commercial poultry production. Phibro continues to work in the development of new bacillus-based products, which are being developed for multiple animal species.\nWe market nutritional specialty products to livestock producers with the support of key influencers, such as animal nutritionists and veterinarians.\nVaccines\nWe develop, manufacture and market fully licensed and autogenous vaccines for poultry, swine, beef and dairy cattle and aquaculture globally. We also develop, manufacture and market vaccination devices. We produce vaccines that protect animals from either viral or bacterial disease challenges. Our vaccine products include:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nMarket\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u200b\nProduct \n\u00a0\nEntry\u00a0\n\u200b\nDescription\u00a0\nV.H.\nTM\n \n\u00a0\n1974\n\u00a0\nLive vaccine for the prevention of Newcastle Disease in poultry\nTailor-Made\n\u00ae\n Vaccines \n\u00a0\n1982\n\u00a0\nAutogenous vaccines against either bacterial or viral diseases in poultry, swine and beef and dairy cattle in the U.S.\nMVP adjuvants\n\u00ae\n \n\u00a0\n1982\n\u00a0\nComponents of veterinary vaccines that enhance the immune response to a vaccine\nTAbic\n\u00ae\n M.B. \n\u00a0\n2004\n\u00a0\nLive vaccine for the prevention of Infectious Bursal Disease in poultry\nMJPRRS\n\u00ae\n \n\u00a0\n2007\n\u00a0\nAutogenous vaccine for the prevention of porcine reproductive and respiratory syndrome (\u201cPRRS\u201d) in swine\nTAbic\n\u00ae\n IB VAR \n\u00a0\n2009\n\u00a0\nLive vaccine for the prevention of Infectious Bronchitis variant 1 strain 233A in poultry\nTAbic\n\u00ae\n IB VAR206 \n\u00a0\n2010\n\u00a0\nLive vaccine for the prevention of Infectious Bronchitis variant 206 in poultry\nMB-1\n\u00ae\n \n\u00a0\n2017\n\u00a0\nLive vaccine for the prevention of Infections Bursal Disease in the hatchery in poultry\npHi-Tech\n\u00ae\n \n\u00a0\n2019\n\u00a0\nPortable electronic vaccination device and software that ensures proper delivery of vaccines and provides health management information\nPhivax\n\u00ae\n SLE\n\u200b\n2019\n\u200b\nA live attenuated Salmonella Enteritidis vaccine for the control of Salmonella infection in poultry\nPhi-Shield\n\u00ae\n Vaccines\n\u200b\n2023\n\u200b\nAutogenous vaccines against either bacterial or viral diseases in poultry, swine and aquaculture in Brazil\n\u200b\nThe V.H. strain of Newcastle Disease vaccine is a pathogenic strain and is effective when applied by aerosol, coarse spray, drinking water or eye-drops. It has been used successfully under various management and climate conditions in many breeds of poultry.\nTailor-Made\n\u00ae\n vaccines are autogenous vaccines against either bacterial or viral diseases which contain antigens specific to each farm. We manufacture and sell these vaccines to U.S. veterinarians for use primarily in swine, poultry and beef and dairy cattle.\nMVP adjuvants\n\u00ae\n are integral components used in veterinary vaccines which enhance the immune response to a vaccine. Our adjuvants include Emulsigen\n\u00ae\n, Emulsigen\n\u00ae\n D, Emulsigen\n\u00ae\n P, Carbigen\n\u00ae\n and Polygen\n\u00ae\n.\n13\n\n\nTable of Contents\nThe M.B. strain of Gumboro vaccine is an intermediate virulence live vaccine strain used for the prevention of Infectious Bursal Disease in poultry. The intermediate strain was developed to provide protection against the new field epidemic virus, which is more virulent than those previously encountered.\nMJPRRS\n\u00ae\n, an autogenous vaccine for swine, is administered to pregnant sows to protect their offspring from PRRS. This vaccine includes multiple PRRS isolates representing different virus strains of PRRS.\nTAbic\n\u00ae\n IB VAR and TAbic\n\u00ae\n IB VAR206 vaccines are intermediate virulence live vaccine strains used for the prevention of infectious bronchitis in poultry. Both vaccines have become significant tools in the increasing fight against infectious bronchitis in regions throughout the world.\nMB-1\n\u00ae\n is a live attenuated vaccine for Infectious Bursal disease in poultry, developed from the M.B. strain, adapted for in-ovo or subcutaneous injection in the hatchery.\npHi-Tech\n\u00ae\n is a portable electronic vaccination device and software that ensures proper delivery of vaccines and provides health management information.\nPhivax\n\u00ae\n SLE is a vaccine used as an aid in the reduction of Salmonella Enteritidis colonization in layers and breeder broiler chickens.\nPhi-Shield\n\u00ae \nvaccines are autogenous vaccines against either bacterial or viral diseases which contain antigens specific to each farm. We manufacture and sell these vaccines to Brazilian producers for use primarily in swine, poultry and aquaculture. \nWe focus on innovation to produce new antigens or new presentations of antigens, and have developed new vaccines, such as the inactivated subunit Infectious Bursal Disease Virus and Egg Drop Syndrome vaccines, being sold as monovalent vaccines or in combinations with other antigens.\nMineral Nutrition\nOur mineral nutrition products principally include inorganic and organic compounds of copper, zinc, cobalt, iron, selenium, manganese, magnesium and iodine.\nOur mineral nutrition products also include GemStone\n\u00ae\n, our exclusive line of chelated organic trace minerals, including zinc, manganese, copper and iron glycine chelates. Our formulas feature high metal content to ensure greater mineral presence and preserve critical ration space. Each product is also highly chelated for superior bioavailability to maximize mineral absorption and minimize environmental impact. These organic trace minerals are available in a highly concentrated, easy-flowing granule.\nOur mineral nutrition products also include the Vistore\n\u00ae\n portfolio of products, our chloride mineral option of value-driven trace mineral offerings. Our formulas feature high metal content to ensure optimal mineral presence and preserve critical ration space. High bioavailability also promotes maximized absorption for enhanced results and minimized waste.\nOur major mineral nutrition customers are U.S. regional and national feed companies, distributors, co-ops, pre-mixers, integrated swine, beef and poultry producers and pet food manufacturers. The majority of our customers have nutrition staffs who determine their specific formulas for custom trace mineral premixes. Trace mineral costs and our selling prices fluctuate with commodity markets, and therefore, these products are price sensitive. Their sale requires a focused effort on cost and inventory management, quality control, customer service, pricing and logistics execution to be profitable.\nPerformance Products\nOur Performance Products business manufactures and markets specialty ingredients for use in the personal care, industrial chemical and chemical catalyst industries. We operate the business through our PhibroChem (a division of PAHC), Ferro Metal and Chemical Corporation Limited and Phibro-Tech, Inc. (\u201cPhibro-Tech\u201d) business\u00a0units.\n14\n\n\nTable of Contents\nSales and Marketing\nOur sales organization includes sales, marketing and technical support employees. In markets where we do not have a direct commercial presence, we generally contract with distributors that provide logistics and sales and marketing support for our products. Together, our Animal Health and Mineral Nutrition businesses have a sales, marketing and technical support organization of more than 400 employees and approximately 195 distributors who market our portfolio of approximately 690 product lines to livestock producers, veterinarians, nutritionists, animal feed companies and distributors in over 80 countries.\nIn markets where we have a direct commercial presence, we sell our animal health and mineral nutrition products through our local sales offices, either directly to integrated poultry, swine and beef and dairy cattle producers or through commercial animal feed manufacturers, wholesalers and distributors. Our sales representatives visit our customers, including livestock producers, veterinarians, nutritionists, animal feed companies and distributors, to inform, promote and sell our products and services. In direct service markets, our technical operations specialists provide scientific consulting focused on disease management and herd management, and training and education on diverse topics, including responsible product use.\nWe sell our Performance Products through our local sales offices to the personal care, industrial chemical and chemical catalyst industries. We market these products predominately in the United States.\nCustomers\nWe have approximately 4,000 customers, of which approximately 3,800 customers are served by our Animal Health and Mineral Nutrition businesses. We consider a diverse set of livestock producers, including poultry and swine operations and beef and dairy cattle farmers, to be the primary customers of our livestock products. We sell our animal health and mineral nutrition products directly to livestock and aquaculture producers and to distributors that typically re-sell the products to livestock producers. We sell our companion animal product using a distributor calling on veterinary clinics.  We do not consider the business to be dependent on a single customer or a few customers, and we believe the loss of any one customer would not have a material adverse effect on our results.\nWe typically sell pursuant to purchase orders from customers and generally do not enter into long-term delivery contracts.\nProduct Registrations, Patents and Trademarks\nWe own certain product registrations, patents, trade names and trademarks, and use know-how, trade secrets, formulae and manufacturing techniques, which assist in maintaining the competitive positions of certain of our products. We believe that technology is an important component of our competitive position, and it provides us with low-cost positions enabling us to produce high quality products. Patents protect some of our technology, but a significant portion of our competitive advantage is based on know-how built up over many\u00a0years of commercial operation, which is protected as trade secrets. We own, or have exclusive rights to use under license, approximately 282 patents or pending applications in more than 30 countries but we believe that no single patent is of material importance to our business and, accordingly, that the expiration or termination thereof would not materially affect our business.\nWe market our animal health products under hundreds of governmental product registrations approving many of our products with respect to animal drug safety and efficacy. The use of many of our medicated products is regulated by authorities that are specific to each country, e.g., the FDA in the United States, Health Canada in Canada and European Food Safety Authority (\u201cEFSA\u201d) and the European Medicines Agency (\u201cEMA\u201d) in Europe. Medicated product registrations and requirements are country- and product-specific for each country in which they are sold. We continuously monitor, maintain and update the appropriate registration files pertaining to such regulations and approvals. In certain countries where we work with a third-party distributor, local regulatory requirements may require registration in the name of such distributor. As of June\u00a030,\u00a02023, we had approximately 1,055 Animal Health product registrations globally, including approximately 390 MFA registrations, 345 vaccine registrations (including autogenous vaccines) and 320 registrations for nutritional specialty products. Our MFA global registrations included approximately 90 registrations for virginiamycin.\nAdditionally, many of our vaccine products are based on proprietary master seeds, proprietary adjuvant formulations or patented virus grouping technology. We actively seek to protect our proprietary information, including our trade \n15\n\n\nTable of Contents\nsecrets and proprietary know-how, by seeking to require our employees, consultants, advisors and partners to enter into confidentiality agreements and other arrangements upon the commencement of their employment or engagement.\nWe seek to file and maintain trademark registrations around the world based on commercial activities in most regions where we have, or desire to have, a business presence for a particular product or service. We currently maintain, or have rights to use under license, approximately 3,700 trademark registrations or pending applications globally, identifying goods and services related to our business.\nOur technology, brands and other intellectual property are important elements of our business. We rely on patent, trademark, copyright and trade secret laws, as well as non-disclosure agreements, to protect our intellectual property rights. Our policy is to vigorously protect, enforce and defend our rights to our intellectual property, as appropriate.\nCompliance with Government Regulation\nMany of our animal health and mineral nutrition products require licensing by a governmental agency before marketing. To maintain compliance with these regulatory requirements, we have established processes, systems and dedicated resources with end-to-end involvement from product concept to launch and maintenance in the market. Our regulatory function seeks to engage in dialogue with various global agencies regarding their policies that relate to animal health products. For products that are currently subject to formal licensing by government agencies, our business relies on the ongoing approval and/or periodic re-approval of those licenses. Failure to maintain and, where applicable, renew those licenses for any reason including, but not limited to, changing regulations, more stringent technical, legal or regulatory requirements, or failure of the company or its agents to make timely, complete or accurate submissions, could result in suspension or loss of the company\u2019s rights to market its products in one or more countries.\nUnited States\nIn the United States, governmental oversight of animal nutrition and health products is conducted primarily by the FDA and/or the United States Department of Agriculture (\u201cUSDA\u201d). The United States Environmental Protection Agency (the \u201cEPA\u201d) has jurisdiction over certain products applied topically to animals or to premises to control external parasites and shares regulatory jurisdiction of ethanol manufactured in biofuel manufacturing facilities with the FDA.\nThe FDA regulates foods intended for human consumption and, through the Center for Veterinary Medicine (\u201cCVM\u201d), regulates the manufacture and distribution of animal drugs marketed in the U.S. including those administered to animals from which human foods are derived. All manufacturers of animal health pharmaceuticals marketed in the United States, must show their products to be safe, effective and produced by a consistent method of manufacture as defined under the Federal Food, Drug, and Cosmetic Act. To protect the food and drug supply, the FDA develops technical standards for human and animal drug safety, effectiveness, labeling and Good Manufacturing Practice. The CVM evaluates data necessary to support approvals of veterinary drugs. Drug sponsors are required to file reports of certain product quality defects and adverse events in accordance with agency requirements.\nFDA approval of Type A/B/C Medicated Feed Articles and drugs is based on satisfactory demonstration of safety, efficacy, manufacturing quality standards and appropriate labeling. Efficacy requirements are based on the desired label claim and encompass all species for which label indication is desired. Safety requirements include target animal safety and, in the case of food animals, human food safety (\u201cHFS\u201d). HFS reviews include drug residue levels and the safety of those residue levels. In addition to the safety and efficacy requirements for animal drugs used in food-producing animals, environmental safety must be demonstrated. Depending on the compound, the environmental studies may be quite extensive and expensive. In many instances, the regulatory hurdles for a drug that will be used in food-producing animals are at least as stringent as, if not more so than, those required for a drug used in humans. In addition, certain safety requirements relating to antimicrobial resistance must be met for antimicrobial products.\nThe CVM Office of New Animal Drug Evaluation is responsible for reviewing information submitted by drug sponsors who wish to obtain approval to manufacture and sell animal drugs. A new animal drug is deemed unsafe unless there is an approved New Animal Drug Application (\u201cNADA\u201d). Virtually all animal drugs are \u201cnew animal drugs\u201d within the meaning of the Federal Food, Drug, and Cosmetic Act. An approved Abbreviated New Animal Drug Application (\u201cANADA\u201d) is a generic equivalent of an NADA previously approved by the FDA. Both are regulated by the FDA. The drug development process for human therapeutics is generally more involved than that for animal drugs. However, because human food safety and environmental safety are issues for food-producing animals, the animal drug approval process for food-producing animals typically takes longer than for companion animals.\n16\n\n\nTable of Contents\nThe FDA may deny an NADA or ANADA if applicable regulatory criteria are not satisfied, require additional testing or information, or require post-marketing testing and surveillance to monitor the safety or efficacy of a product. There can be no assurances that FDA approval of any NADA or ANADA will be granted on a timely basis, or at all. Moreover, if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which it may be marketed. Finally, product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. Among the conditions for NADA or ANADA approval is the requirement that the prospective manufacturer\u2019s quality control and manufacturing procedures conform to FDA\u2019s current Good Manufacturing Practice (\u201ccGMP\u201d) regulations. A manufacturing facility is periodically inspected by the FDA for determination of compliance with cGMP after an initial pre-approval inspection. Certain subsequent manufacturing changes must be approved by the FDA prior to implementation. In complying with standards set forth in these regulations, manufacturers must continue to expend time, monies and effort in the area of production and quality control to ensure compliance. The process of seeking FDA approvals can be costly, time consuming and subject to unanticipated and significant delays. There can be no assurance that such approvals will be granted on a timely basis, or at all. Any delay in obtaining or any failure to obtain FDA or foreign government approvals, or the suspension or revocation of such approvals, would adversely affect our ability to introduce and market our products and to generate revenue.\nThe issue of the potential for increased bacterial resistance to certain antibiotics used in certain food-producing animals is the subject of discussions on a worldwide basis and, in certain instances, has led to government restrictions on the use of antibiotics in these food-producing animals. The sale of antibiotics is a material portion of our business. Legislative bills are introduced in the United States Congress from time to time that, if adopted, could have an adverse effect on our business. One of these initiatives is a proposed bill called the Preservation of Antibiotics for Medical Treatment Act, which has been introduced in almost every Congress since the mid 2000\u2019s. To date, such bills have not had sufficient support to become law. Should statutory, regulatory or other developments result in restrictions on the sale of our products, it could have a material adverse impact on our financial position, results of operations and cash flows.\nThe USDA regulates the U.S. veterinary vaccines through the Center for Veterinary Biologics (\u201cCVB\u201d), which implements the Virus-Serum-Toxin Act to assure that pure, safe, potent and effective veterinary biologics are available for diagnosis, prevention and treatment of animal diseases. The CVB monitors and inspects vaccine products and the manufacturing facilities.\nThe EPA has established and monitors the Renewable Fuel Standard program, for which some of our biofuel manufacturing facilities must comply. Compliance includes generating and tracking renewable identification numbers documentation over transfer, blending and exporting, and quarterly reporting.\nVirginiamycin.\n In November\u00a02004, the CVM released a draft for comment of its risk assessment of streptogramin resistance for treatment of certain infections in humans attributable to the use of streptogramins in animals (the \u201crisk assessment\u201d). The risk assessment was initiated after approval of a human drug called Synercid\n\u00ae\n \n(quinupristin/dalfopristin) for treating vancomycin-resistant Enterococcus faecium (\u201cVREf\u201d), which led to increased attention regarding the use of streptogramins in animals. Synercid and virginiamycin (the active ingredient in our Stafac product) are both members of the streptogramin class of antimicrobial drugs. The risk assessment was unable to produce any firm conclusions as to whether, and, if so, how much, the use of virginiamycin in food animals contributes to the occurrence of streptogramin-resistant infections in humans via a foodborne pathway.\nIn classifying streptogramins in 2003 as a \u201cmedically important antimicrobial\u201d (\u201cMIA\u201d) on the CVM\u2019s Guidance for Industry (\u201cGFI\u201d) 152 list, a guidance document for evaluating the microbial safety of antimicrobial new animal drugs on food for human consumption, the FDA\u2019s stated concern was the potential impact on use of Synercid for treating VREf in humans. In 2010, the U.S. label for Synercid was changed and the VREf indication was removed. The FDA determined that data submitted by the sponsor of Synercid failed to verify clinical benefit of the product for the treatment of VREf infections in humans. We requested that the FDA remove the streptogramin class of antimicrobials from GFI 152 to reflect that they are not \u201cmedically important\u201d for human therapy, however, the FDA declined our request. The FDA has recently issued a draft of GFI 152 and the streptogram class of antimicrobials was still included as medically important. Phibro submitted comments again to the open docket recommending that streptogramins be listed as not medically important, particularly in light of the recent withdrawal of Synercid from the U.S. market by the sponsor. There is no certainty surrounding the outcome of the current review of the GFI 152 list and actions that may be taken by the FDA.\n17\n\n\nTable of Contents\nMIAs.\n Effective January\u00a02017, the CVM\u2019s revised Veterinary Feed Directive (\u201cVFD\u201d) regulations, which included changes to the control and use of antimicrobial products for use in animal feed, require that affected antimicrobial products may only be used if authorized by a veterinarian in accordance with the regulations. Prior to implementation of the revised VFD regulations, many approved antimicrobial products could be obtained and used without formal veterinary authorization.\nIn January\u00a02017, the FDA and industry, including us, completed the process of label changes for MIA products to remove production claims and to limit the use of MIAs to those uses that are considered necessary for assuring animal health, namely for the prevention, control and/or treatment of disease, and that MIA use in food-producing animals should include veterinary oversight or consultation. The label changes were the result of recommendations from the CVM, as described in GFI 213 (\u201cNew Animal Drugs and New Animal Drug Combination Products Administered in or on Medicated Feed or Drinking Water of Food-Producing Animals: Recommendations for Drug Sponsors for Voluntarily Aligning Product Use Conditions with GFI 209\u201d) and GFI 209 (\u201cThe Judicious Use of Medically Important Antimicrobial Drugs in Food-Producing Animals\u201d).\nCarbadox.\n In April 2016, the FDA began initial steps to withdraw approval of carbadox (the active ingredient in our Mecadox product) via a regulatory process known as a Notice of Opportunity for Hearing (\u201cNOOH\u201d), due to concerns that certain residues from the product may persist in animal tissues for longer than previously determined. Carbadox has been approved and sold in the United States for 50 years and is a widely used treatment for controlling bacterial diseases in swine, including Salmonella and swine dysentery. In the years following, Phibro has continued an ongoing process of responding collaboratively and transparently to the FDA\u2019s Center for Veterinary Medicine (\u201cCVM\u201d) inquiries and has provided extensive and meticulous research and data that confirmed the safety of carbadox. In July 2020, the FDA announced it would not proceed to a hearing on the scientific concerns raised in the 2016 NOOH, consistent with the normal regulatory procedure, but instead announced that it was withdrawing the 2016 NOOH and issuing a proposed order to review the regulatory method for carbadox. Phibro reiterated the safety of carbadox and the appropriateness of the regulatory method and offered to work with the CVM to generate additional data to support the existing regulatory method or select a suitable alternative regulatory method. \nIn March 2022, the FDA held a Part 15 virtual public hearing seeking data and information related to the safety of carbadox in which Phibro participated and again detailed the extensive research and data that confirm the safety of carbadox. In the event the FDA continues to assert that carbadox should be removed from the market, we will argue that we are entitled to and expect to have a full evidentiary hearing on the merits before an administrative law judge. Should we be unable to successfully defend the safety of the product, the loss of carbadox sales will have an adverse effect on our financial condition and results of operations. Sales of Mecadox (carbadox) for the year ended June\u00a030,\u00a02023 were approximately $20 million. As of the date of this Annual Report on Form 10-K, Mecadox continues to be available for use by swine producers.\nManufacturing.\n The FDA routinely carries out audits related to cGMP standards for manufacturing facilities that make veterinary drug products and active pharmaceutical ingredients approved for sale in the U.S. The FDA inspectors may make observations during these inspections, which may require corrective action in order for the manufacturing facility to remain in compliance with cGMP standards. Failure to take such corrective actions could result in the manufacturing facility being ineligible to receive future FDA approvals. In very serious cases of noncompliance with cGMP standards, the FDA may issue a warning letter which could result in products produced in such manufacturing facilities to be ineligible for sale in the U.S. Although it is our objective to remain in full conformance with U.S. cGMP standards, we have in the past received adverse observations and may in the future receive adverse observations or warning letters. Failure to comply with cGMP standards could have a material impact on our business and financial results.\nEuropean Union\nEuropean Union (\u201cE.U.\u201d) legislation requires that veterinary medicinal products must have a marketing authorization before they are placed on the market in the European Union. A veterinary medicinal product must meet certain quality, safety, efficacy and environmental criteria to receive a marketing authorization. The European Medicines Agency (and its main veterinary scientific committee, the Committee for Medicinal Products for Veterinary Use) and the national authorities in the various E.U. Member States, are responsible for administering this regime.\n18\n\n\nTable of Contents\nA separate E.U. regime applies to feed additives. It provides for a re-registration process for existing additives and this process is ongoing. For certain types of additives, the authorizations are not generic in nature (so that they can be relied upon by any operator) but are limited to the company that obtained the marketing authorization. They are known as Brand Specific Approvals (\u201cBSA\u201d). The system is similar to the U.S. system, where regulatory approval is for the formulated product or \u201cbrand.\u201d\nThe EFSA is responsible for the E.U. risk assessment regarding food and feed safety. Operating under the European Commission, in close collaboration with national authorities and in open consultation with its stakeholders, the EFSA provides independent scientific advice and communication on existing and emerging risks. The EFSA may issue advice regarding the process of adopting or revising European legislation on food or feed safety, deciding whether to approve regulated substances such as pesticides and food additives, or developing new regulatory frameworks and policies, for instance, in the field of nutrition. The EFSA aims to provide appropriate, consistent, accurate and timely communications on food safety issues to all stakeholders and the public at large, based on the Authority\u2019s risk assessments and scientific expertise. The containment of antimicrobial resistance is one of the key areas of concern for the EFSA, EMA, the European Commission and its Directorates, the European Parliament and European Member State Governments.\nA number of manufacturers, including us, submitted dossiers in order to re-register various anticoccidials for the purpose of obtaining regulatory approval from the European Commission. The BSA for our nicarbazin product was published in October 2010. Our reauthorization submission was made on time and is pending. We sell nicarbazin under our own BSA and as an active ingredient for another marketer\u2019s product that has obtained a BSA and is sold in the European Union. Similarly, a BSA for our semduramicin product, Aviax, was published in 2006 and our reauthorization submission was made on time and is pending. We have submitted a dossier for reauthorization in accordance with the requirements of the EFSA and responded to requests for additional information from the EFSA by submitting additional data for each product. The current BSAs remain valid while the EFSA reviews the additional data we have submitted. There can be no guarantee that these submissions will be reviewed favorably or in a timely manner. Failure to gain reauthorization in a timely manner could have an adverse financial impact on our business.\nThe Delegating and Implementing Acts under E.U. Regulation\u00a02019/6 includes provisions that could require animals or animal origin products imported into the E.U. from other countries to be produced under the same conditions as are required in the E.U. This may preclude the use of veterinary products not approved in the E.U. or require animal health products to be used in the manner approved in the E.U. If such restrictions are implemented, they could result in a reduction or elimination of the use of our products, especially our antibacterial products, in countries that export animals or animal origin products to the E.U. and other countries that align their regulations with E.U. regulations.\nBrazil\nThe Ministry of Agriculture, Livestock Production and Supply (\u201cMAPA\u201d) is the regulatory body in Brazil responsible for the regulation and control of pharmaceuticals, biologicals and medicinal feed additives for animal use. MAPA\u2019s regulatory activities are conducted through the Secretary of Agricultural Defense and its Livestock Products Inspection Department. These activities include the inspection and licensing of both manufacturing and commercial establishments for veterinary products, as well as the submission, review and approval of pharmaceuticals, biologicals and medicinal feed additives.\nOther Countries\nWe are subject to regulatory requirements governing investigation, clinical trials and marketing approval for animal drugs in many other countries in which our products are sold. The regulatory approval process includes similar risks to those associated with the FDA and European Commission approvals set forth above.\nGlobal Policy and Guidance\nCountry-specific regulatory laws have provisions that include requirements for certain labeling, safety, efficacy and manufacturers\u2019 quality procedures (to assure the consistency of the products), as well as company records and reports. With the exception of Australia, Canada, Japan and New Zealand, most other countries\u2019 regulatory agencies will generally refer to the FDA, USDA, European Union and other international animal health entities, including the World \n19\n\n\nTable of Contents\nOrganization for Animal Health, Codex Alimentarius Commission, the recognized international standard-setting body for food (\u201cCodex\u201d), before establishing their own standards and regulations for veterinary pharmaceuticals and vaccines.\nThe Joint FAO/WHO Expert Committee on Food Additives is an international expert scientific committee that is administered jointly by the Food and Agriculture Organization of the United Nations and the World Health Organization. It provides risk assessments and safety evaluations of residues of veterinary drugs in animal products as well as exposure and residue definition and maximum residue limit proposals for veterinary drugs in traded food commodities. These internationally published references may also be used by national authorities when setting domestic standards. We work with the national authorities to establish acceptable safe levels of residual product in food-producing animals after treatment. This in turn enables the calculation of appropriate withdrawal times for our products prior to an animal entering the food chain.\nIn July\u00a02014, the Codex adopted risk management advice language for a number of compounds including carbadox. The advice language states \u201cauthorities should prevent residues of carbadox in food. This can be accomplished by not using carbadox in food producing animals.\u201d The advice language is to provide advice only and is not binding on individual national authorities, and almost all national authorities already have long-established regulatory standards for carbadox, including prohibiting the use of carbadox in swine production within their territory, prohibiting the importation of pork from swine that are fed carbadox, or permitting the importation of pork from swine that are fed carbadox provided there is no detection of carbadox residues in the meat. The advice language may be considered by national authorities in making future risk management determinations. To the extent additional national authorities elect to follow the advice and prohibit the use of carbadox in food-producing animals and/or the importation of pork from swine that are fed carbadox, such decisions could have an adverse effect on our sales of carbadox in those countries or in countries that produce meat for export to those countries.\nAdvertising and Promotion Review\nPromotion of animal health products is controlled by regulations in many countries. These rules generally restrict advertising and promotion to those approved claims and uses that have been reviewed and endorsed by the applicable agency. We conduct a review of promotion material for compliance with the local and regional requirements in the markets where we sell animal health products.\nFood Safety Inspection Service/Generally Recognized As Safe\nThe FDA is authorized to determine the safety of substances (including \u201cgenerally recognized as safe\u201d or \u201cGRAS\u201d substances, and food and feed additives), as well as prescribing safe conditions of use. The FDA, which has the responsibility for determining the safety of substances, together with the Food Safety and Inspection Service, the food safety branch within the USDA, maintain the authority in the United States to determine that new substances and new uses of previously approved substances are suitable for use in meat, milk and poultry products.\nCompetition\nWe are engaged in highly competitive industries and, with respect to all our major products, face competition from a substantial and continually evolving number of global and regional competitors. Some competitors have greater financial, R&D, manufacturing and other resources than we have. Our competitive position is based principally on our product registrations, customer service and support, breadth of product line, product quality, manufacturing technology, facility locations and product prices. We face competition in every market in which we participate. Many of our products face competition from products that may be used as an alternative or substitute.\nThere has been, and there may continue to be, consolidation in the animal health market, which could strengthen our competitors. Our competitors can be expected to continue to improve the design and performance of their products and to introduce new products with competitive price and performance characteristics. There can be no assurance that we will have sufficient resources to maintain our current competitive position, however, we believe the following strengths create sustainable competitive advantages that will enable us to continue our growth as a leader in our industry.\n20\n\n\nTable of Contents\nProducts Aligned with Need for Increased Protein Production\nIncreased scarcity of natural resources is increasing the need for efficient production of food animals such as poultry, swine and cattle. Our animal health products, including our MFAs, vaccines and nutritional specialty products, help prevent and manage disease outbreaks and enhance nutrition to help support natural defenses against diseases. These products are often critical to our customers\u2019 efficient production of healthy animals. Our leading MFAs product franchise, Stafac/V-Max/Eskalin, is approved in over 30 countries for use in poultry, swine and beef and dairy cattle and is regarded as one of the leading MFA products for production animals. Our nicarbazin and amprolium MFAs are globally recognized anticoccidials. Our nutritional specialty product offerings such as OmniGen-AF and Animate are used increasingly in the global dairy industry, and Magni-Phi and Provia Prime/MicroLife Prime are rapidly becoming important products for poultry producers. Our vaccine products are effective against critical diseases in poultry, swine and beef and dairy cattle.\nGlobal Presence with Existing Infrastructure in Key High-Growth Markets\nWe have an established direct presence in many important emerging markets, and we believe we are a leader in many of the emerging markets in which we operate. Our existing operations and established sales, marketing and distribution network in over 80 countries provide us with opportunities to take advantage of global growth opportunities. Outside of the United States, our global footprint reaches to key high growth regions (countries where the livestock production growth rate is expected to be higher than the average growth rate) including Brazil and other countries in South America, China, India and Southeast Asia, Mexico, Turkey, Australia, Canada, Poland and other Eastern European countries and South Africa and other countries in Africa. Our operations in countries outside of the United States contributed approximately 58% of our Animal Health segment revenues for the year ended June\u00a030,\u00a02023.\nLeading Positions in High Growth Sub-sectors of the Animal Health Market\nWe are a global leader in the development, manufacture and commercialization of MFAs and nutritional specialty products for the animal health market. We believe we are well positioned in the fastest growing food animal species segments of the animal health market with significant presence in poultry and swine. We believe our sales of MFA products were third largest in the animal health market.\nDiversified and Complementary Product Portfolio with Strong Brand Name Recognition\nWe market products across the three largest livestock species (poultry, swine, and beef and dairy cattle) and aquaculture and in the major product categories (MFAs, vaccines and nutritional specialty products). We believe our diversity of species and product categories enhances our sales mix and lowers our sales concentration risk. The complementary nature of our Animal Health and Mineral Nutrition portfolio provides us with unique cross-selling opportunities that can be used to gain access to new customers or deepen our relationships with existing customers. We believe we have strong brand name recognition for the Phibro name and for many of our animal health and mineral nutrition products, and we believe Phibro vaccines are recognized as an industry standard in efficacy against highly virulent disease challenges. Our diverse portfolio of products also allows us to address the distinct growing conditions of livestock in different regions.\nExperienced Sales Force and Technical Support Staff with Strong, Consultative Customer Relationships\nWithin our Animal Health and Mineral Nutrition segments, utilizing both our sales, marketing and technical support organization of approximately 400 employees and a broad distribution network, we market our portfolio of more than 690 product lines to livestock producers and veterinarians in over 80 countries. We interact with customers at both their corporate and operating level, which we believe allows us to develop an in-depth understanding of their needs. Our technical support and research personnel are also important contributors to our overall sales effort. We have a total of approximately 120 technical, field service and quality control/quality assurance personnel throughout the world. These professionals interface directly with our key customers to provide practical solutions to derive optimum benefits from our products.\n21\n\n\nTable of Contents\nExperienced, Committed Employees and Management Team\nWe have a diverse and highly skilled team of animal health professionals, including technical and field service personnel located in key countries throughout the world. These individuals have extensive field experience and are vital to helping us maintain and grow our business. Many of our field team have more than 20\u00a0years of experience in the animal health industry and many have been with us for more than 10\u00a0years.\nWe have a strong management team with a proven track record of success at both the corporate and operating levels. The executive management team has diverse backgrounds and on average more than 30 years of experience the animal health or related industry.\nHuman Capital\nAs of June\u00a030,\u00a02023, we had 1,920 employees in 52 locations spanning 33 countries. Certain of our Brazilian employees are covered by multi-employer regional industry-specific unions. Certain of our Israeli employees are covered by site-specific collective bargaining agreements. Certain employees globally are covered by individual employment agreements. \nWe strive to nurture a strong culture that empowers team members and provides opportunities for growth and development. The Denison Organization Culture survey was administered to all employees globally in 2021 and 2017, with at least a 75 percent response rate each time. Phibro employee engagement and commitment scores remained consistent at 82 percent favorable for engagement and 76 percent favorable for commitment. We are intently focused on maintaining these results across the organization.\nAt Phibro we view the strength of our team as a critical component of our success. The following principles, which guide our decisions and actions, provide an overview of how we approach management of human capital resources.\nOur Most Valuable Asset \u2013 The Company and its Employees\nWe recognize that our employees provide the competitive edge needed to compete successfully in world markets.  We adhere to human resources policies and practices that meet the needs of the business and the individual, so that we can attract and retain the highest caliber employees. Talent development is a strategic priority at Phibro, and we offer opportunities for growth at all levels of the company. Our goal is to ensure we have the right colleagues with the right skills in the right roles and with the appropriate support to build leadership capabilities and drive organizational results. As business priorities evolve and we seek to innovate, we work to nurture and develop current talent to best serve future needs. We take a programmatic and focused approach to developing our people. \nAchievement of business objectives and the fulfillment of individual career aspirations are reinforced by our competitive compensation and benefit programs, comprehensive training and development programs, health and safety programs that promote and safeguard employees\u2019 well-being, and work environments that are conducive to the successful application of skills and knowledge. In addition to traditional professional development, we offer a robust, cloud-based online training curriculum from one of the leading providers of development material for learning-focused organizations. \nEmployee safety is paramount. We have implemented our Road to Zero initiative, which utilizes teaming concepts to elevate employee involvement in project-based improvement activities. Participation drives a strong culture of safety and quality. Road to Zero provides a formal system for engagement, shared responsibility, leadership opportunities, meaningful contributions and accountability. We have and will continue to take the necessary daily precautions as recommended by local government authorities to keep our employees safe.\nStrength Through Diversity, Equity & Inclusion (DEI)\nWe create a positive and supportive work environment for our employees. Our approach enables opportunity for inclusion and encourages diverse perspectives and thinking to maximize the achievement of innovative and successful outcomes. We aim to protect employees from being discriminated against because of gender, sexual orientation, age, marital status, race, religion, political beliefs, ethnic background, country of origin, language or non-job-related disabilities, and we follow these same principles when recruiting new talent to our organization. We offered training \n22\n\n\nTable of Contents\ncourses to our employees during fiscal year 2023 covering Diversity, Equity & Inclusion as well as Sensitivity and Unconscious Bias. \nRespecting Employees  \nPhibro employees are our greatest strength and most valuable asset. When we equip team members to apply their skills, talent and passions to contribute and make a positive impact, everyone succeeds. When we thrive as individuals and teams, the Company thrives. We promote from within wherever possible, safeguard the confidentiality of employee records and keep employees informed of issues affecting them.\nCultivating One Leader at a Time \nOur proprietary Leadership Model is a framework that guides how our people plan and act to advance company priorities. We strive for each executive/manager/employee to be consistently challenged to:\n\u25cf\nSee what needs to be done (strategy, vision, growth);\n\u25cf\nGet it done (execution); and\n\u25cf\nGet it done the right way (how you do it).\nRecognizing that leadership may be exhibited differently by an individual contributor versus a first-line manager versus an upper-level manager, all Phibro employees are consistently expected to demonstrate leadership behaviors.\nManufacturing\nThe Animal Health business segment manufactures many products internally and supplements that production with contract manufacturing organizations (\u201cCMOs\u201d) as necessary.\nWe manufacture active pharmaceutical ingredients for certain of our antibacterial and anticoccidial products in Guarulhos, Brazil and Braganca Paulista, Brazil. We manufacture active pharmaceutical ingredients for certain of our anticoccidial and antimicrobial products in Neot Hovav, Israel. We produce vaccines in Beit Shemesh, Israel, Sligo, Ireland, Omaha, Nebraska, and Guarulhos, Brazil. We produce adjuvants in Omaha, Nebraska. We produce pharmaceuticals, disinfectants and other animal health products in Petach Tikva, Israel. We produce certain of our nutritional specialty products in Quincy and Chillicothe, Illinois and Sarasota, Florida. We produce certain of our mineral nutrition products in Quincy, Illinois and Omaha, Nebraska.\nWe supplement internal manufacturing and production capabilities with CMOs. We purchase certain active pharmaceutical ingredients for other medicated products from CMOs in China, India and other locations. We then formulate the final dosage form in our facilities and in contract facilities located in Argentina, Australia, Brazil, Canada, China, Israel, Malaysia, Mexico, South Africa and the United States.\nWe purchase certain raw materials necessary for the commercial production of our products from a variety of third-party suppliers. Such raw materials are generally available from multiple sources, are purchased worldwide and are normally available in quantities adequate to meet the needs of the Company\u2019s business.\nWe believe that our existing facilities, as supplemented by CMOs, are adequate for our current requirements and for our operations in the foreseeable future.\nResearch and Development\nMost of our manufacturing facilities have chemists and technicians on staff involved in product development, quality assurance, quality control and providing technical services to customers. Research, development and technical service efforts are conducted by our veterinarians (DVMs) and nutritionists at various facilities.\nWe operate Animal Health R&D and product testing at several of our domestic and international facilities. We also engage various independent contract research organizations to undertake research and development activities.\n23\n\n\nTable of Contents\nThese facilities provide R&D services relating to: fermentation development and micro-biological strain improvement; vaccine development; chemical synthesis and formulation development; nutritional specialty product development; and ethanol-related products.\nEnvironmental, Health and Safety\nOur operations and properties are subject to Environmental Laws (as defined below) and regulations. We have incurred, and will continue to incur, expenses to attain and maintain compliance with Environmental Laws. While we believe that our operations are currently in material compliance with Environmental Laws, we have, from time to time, received notices of violation from governmental authorities, and have been involved in civil or criminal action for such violations. Additionally, at various sites, our subsidiaries are engaged in continuing investigation, remediation and/or monitoring to address contamination associated with historical operations. We maintain accruals for costs and liabilities associated with Environmental Laws, which we currently believe are adequate. In many instances, it is difficult to predict the ultimate costs under Environmental Laws and the time period during which such costs are likely to be incurred.\nGovernmental authorities have the power to enforce compliance with their regulations. Violators of Environmental Laws may be subject to civil, criminal and administrative penalties, injunctions or both. Failure to comply with Environmental Laws may result in the temporary or permanent suspension of operations and/or permits, limitations on production, or increased operating costs. In addition, private plaintiffs may initiate lawsuits for personal injury, property damage, diminution in property value or other relief as a result of our operations. Environmental Laws, and the interpretation or enforcement thereof, are subject to change and may become more stringent in the future, potentially resulting in substantial future costs or capital or operating expenses. We devote considerable resources to complying with Environmental Laws and managing environmental liabilities. We have developed programs to identify requirements under and maintain compliance with Environmental Laws; however, we cannot predict with certainty the impact of increased and more stringent regulation on our operations, future capital expenditure requirements, or the cost of compliance. Based upon our experience to date, we believe that the future cost of compliance with existing Environmental Laws, and liabilities for known environmental claims pursuant to such Environmental Laws, will not have a material adverse effect on our financial position, results of operations, cash flows or liquidity.\nEnvironmental, Health and Safety Regulations\nThe following summarizes the principal Environmental Laws affecting our business.\nWaste Management.\n\u00a0\u00a0\u00a0Our operations are subject to statutes and regulations addressing the contamination by, and management of, hazardous substances and solid and hazardous wastes. In the United States, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (\u201cCERCLA\u201d), also known as the \u201cSuperfund\u201d law, and comparable state laws, generally impose strict joint and several liability for costs of investigation and remediation and related liabilities, on defined classes of\u2009 \u201cpotentially responsible parties\u201d (\u201cPRPs\u201d). PRPs can be required to bear all of such costs regardless of fault, the legality of the original disposal or ownership of the disposal site. We have been, and may become, subject to liability under CERCLA for cleanup costs or investigation or clean up obligations or related third-party claims in connection with releases of hazardous substances at or from our current or former sites or offsite waste disposal facilities used by us, including those caused by predecessors or relating to divested properties or operations.\nWe must also comply with the Resource Conservation and Recovery Act of 1976, as amended (\u201cRCRA\u201d), and comparable state laws regulating the treatment, storage, disposal, remediation and transportation of solid and hazardous wastes. These laws impose management requirements on generators and transporters of such wastes and on the owners and operators of treatment, storage and disposal facilities. As current or historic recyclers of chemical waste, certain of our subsidiaries have been, and are likely to be, the focus of extensive compliance reviews by environmental regulatory authorities under RCRA. Our subsidiary Phibro-Tech currently has a RCRA operating permit for its Santa Fe Springs, California facility, for which a renewal application is under review and a draft permit has been issued for public review and comment. Phibro-Tech initially submitted an application for renewal of its permit for the Santa Fe Springs facility in 1996. We are unable to predict when the State of California will make a final permitting decision. Until the State of California issues its final decision on the renewal application, the facility is continuing to operate under the exiting permit. Phibro-Tech has updated its permit application on several occasions, and Department of Toxic Substances Control has approved a number of permit modifications to the existing permit. In addition, because we or our \n24\n\n\nTable of Contents\nsubsidiaries have closed several facilities that had been the subject of RCRA permits, we or our subsidiaries have been and will be required to investigate and remediate certain environmental contamination conditions at these closed plant sites within the requirements of RCRA corrective action programs.\nFederal Water Pollution Control Act, as amended.\n\u00a0\u00a0\u00a0We must comply with regulations related to the discharge of pollutants to the waters of the United States without governmental authorization, including those pursuant to the Federal Water Pollution Control Act.\nChemical Product Registration Requirements.\n\u00a0\u00a0\u00a0We must comply with regulations related to the testing, manufacturing, labeling, registration and safety analysis of our products in order to distribute many of our products, including, for example, in the United States, the federal Toxic Substances Control Act and Federal Insecticide, Fungicide and Rodenticide Act, and in the European Union, the Regulation on Registration, Evaluation, Authorization and Restriction of Chemical Substances (\u201cREACH\u201d).\nAir Emissions.\n\u00a0\u00a0\u00a0Our operations are subject to the U.S. Clean Air Act (the \u201cCAA\u201d) and comparable U.S. state and foreign statutes and regulations, which regulate emissions of various air pollutants and contaminants. Certain of the CAA\u2019s regulatory programs are the subject of ongoing review and/or are subject to ongoing litigation, such as the rules establishing new Maximum Achievable Control Technology for industrial boilers; significant expenditures may be required to meet current and emerging air quality standards. Regulatory agencies can also impose administrative, civil and criminal penalties for non-compliance with air permits or other air quality regulations. States may choose to set more stringent air emissions rules than those in the CAA. State, national and international authorities have also issued requirements focusing on greenhouse gas reductions. In the United States, the EPA has promulgated federal greenhouse gas regulations under the CAA affecting certain sources. In addition, a number of state, local and regional greenhouse gas initiatives are also being developed or are already in place. In Israel and Brazil, implementation of the Kyoto Protocol requirements regarding greenhouse gas emission reductions consists of energy efficiency regulations, carbon dioxide emissions allowances trading and renewable energy requirements.\nCapital Expenditures\nWe have incurred and expect to continue to incur costs to maintain compliance with environmental, health and safety laws and regulations. Our capital expenditures relating to environmental, health and safety regulations were $2.4 million for the fiscal year ended June\u00a030,\u00a02023. See \u201cBusiness\u2009\u2014\u2009Environmental, Health and Safety Regulations\u201d for further descriptions. Our environmental capital expenditure plans cover, among other things, the currently expected costs associated with known permit requirements relating to facility improvements.\nContamination and Hazardous Substance Risks\nInvestigation, Remediation and Monitoring Activities\n.\u00a0\u00a0\u00a0Certain of PAHC\u2019s subsidiaries that are currently or were historically engaged in recycling and other activities involving hazardous materials have been required to perform site investigations at their active, closed and former facilities and neighboring properties. Contamination of soil, groundwater and other environmental media has been identified or is suspected at several of these locations, including Santa Fe Springs, California; Powder Springs, Georgia; Union, Illinois; Sewaren, New Jersey; Sumter, South Carolina; and Joliet, Illinois, and regulatory authorities have required, and will continue to require, further investigation, corrective action and monitoring over future\u00a0years. These subsidiaries also have been, and in the future may be, required to undertake additional capital improvements as part of these actions. In addition, RCRA and other applicable statutes and regulations require these subsidiaries to develop closure and post-closure plans for their facilities and in the event of a facility closure, obtain a permit that sets forth a closure plan for investigation, remediation and monitoring and requires post-closure monitoring and maintenance for up to 30\u00a0years. We believe we are in material compliance with these requirements and maintain adequate reserves to complete remediation and monitoring obligations at these locations.\nIn connection with past acquisitions and divestitures, we have undertaken certain indemnification obligations that require us, or may in the future require us, to conduct or finance environmental cleanups at sites we no longer own or operate. Under the terms of the sale of the former facility in Joliet, Illinois, Phibro-Tech remains responsible for any required investigation and remediation of the site attributable to conditions at the site at the time of the February\u00a02011 sale date, and we believe we have sufficient reserves to cover the cost of the remediation.\nParticipating Responsible Parties (\u201cPRPs\u201d) at Omega Chemical Superfund Site.\n\u00a0\u00a0\u00a0The EPA is investigating and planning for the remediation of offsite contaminated groundwater that has migrated from the Omega Chemical \n25\n\n\nTable of Contents\nCorporation Superfund Site (\u201cOmega Chemical Site\u201d), which is upgradient of Phibro-Tech\u2019s Santa Fe Springs, California facility. The EPA has entered into a settlement agreement with a group of companies that sent chemicals to the Omega Chemical Site for processing and recycling (\u201cOPOG\u201d) to remediate the contaminated groundwater that has migrated from the Omega Chemical Site in accordance with a general remedy selected by EPA. The EPA has named Phibro-Tech and certain other subsidiaries of PAHC as PRPs due to groundwater contamination from Phibro-Tech\u2019s Santa Fe Springs facility that has allegedly commingled with contaminated groundwater from the Omega Chemical Site. In September\u00a02012, the EPA notified approximately 140 PRPs, including Phibro-Tech and the other subsidiaries, that they have been identified as potentially responsible for remedial action for the groundwater plume affected by the Omega Chemical Site and for EPA oversight and response costs. Phibro-Tech contends that any groundwater contamination at its site is localized and due to historical operations that pre-date Phibro-Tech and/or contaminated groundwater that has migrated from upgradient properties. In addition, a successor to a prior owner of the Phibro-Tech site has asserted that PAHC and Phibro-Tech are obligated to provide indemnification for its potential liability and defense costs relating to the groundwater plume affected by the Omega Chemical Site. PAHC and Phibro-Tech have vigorously contested this position and have asserted that the successor to the prior owner is required to indemnify Phibro-Tech for its potential liability and defense costs. Furthermore, several members of OPOG filed a complaint under CERCLA and RCRA in the United States District Court for the Central District of California against many of the PRPs allegedly associated with the groundwater plume affected by the Omega Chemical Site (including Phibro-Tech) for contribution toward past and future costs associated with the investigation and remediation of the groundwater plume affected by the Omega Chemical Site, and the United States Department of Justice, on behalf of the EPA, sent Phibro-Tech and certain other PRPs a pre-litigation notice letter in August 2022 regarding potential CERCLA Sec. 107 cost recovery claims seeking unrecovered past costs related to the groundwater plume affected by the Omega Chemical Site, along with a declaration allocating liability for future costs. \nIn February 2023, the plaintiffs in the OPOG lawsuit, and certain defendants in the OPOG lawsuit, including Phibro-Tech, signed a definitive settlement agreement that provides for a \u201ccash-out\u201d settlement, with contribution protection, for Phibro-Tech and its affiliates (as well as certain other defendants) releasing Phibro-Tech and its affiliates from liability for contamination of the groundwater plume affected by the Omega Chemical Site (with certain exceptions), including past and future EPA response costs that were the subject of the August 2022 pre-litigation letter sent by the DOJ on behalf of the EPA. As part of the settlement, Phibro-Tech also resolved all claims for indemnification and contribution between Phibro-Tech and the successor to the prior owner of the Phibro-Tech site. The definitive settlement agreement contemplates cash payments by Phibro-Tech and one of its affiliates over a period ending in February 2024. The definitive settlement agreement is subject to formal approval by the EPA, the DOJ and the district court. During the year ended June 30, 2023, we recognized expenses for the definitive settlement agreement and other related costs, which are included in our consolidated statement of operations as selling, general and administrative expenses.\nPotential Claims.\n\u00a0\u00a0\u00a0In addition to cleanup obligations, we could also be held liable for all consequences arising out of human exposure to hazardous substances or other environmental damage, which liability may not be covered by insurance.\nEnvironmental Accruals and Financial Assurance.\n\u00a0\u00a0\u00a0We have established environmental accruals to cover known remediation and monitoring costs at certain of our current and former facilities. Our accruals for environmental liabilities are recorded by calculating our best estimate of probable and reasonably estimable future costs using current information that is available at the time of the accrual. Our accruals for environmental liabilities totaled $8.5 million and $4.3 million as of June\u00a030,\u00a02023 and 2022, respectively.\nIn certain instances, regulatory authorities have required us to provide financial assurance for estimated costs of remediation, corrective action, monitoring and closure and post-closure plans. Our subsidiaries, in most instances, have chosen to provide the required financial assurance by means of surety bonds or letters of credit issued pursuant to our revolving credit facility. As of June\u00a030, 2023, surety bonds and letters of credit provided $12.9\u00a0million of financial assurance.\nWorkplace Health and Safety\nWe are committed to manufacturing safe products and achieving a safe workplace. Our Environmental Health and Safety (\u201cEHS\u201d) Global Director, along with regional and site-based EHS professionals, manage environmental, health and safety matters throughout the Company. The site managers are responsible for implementing the established EHS \n26\n\n\nTable of Contents\ncontrols. To protect employees, we have established health and safety policies, programs and processes at all our manufacturing sites. An external EHS audit is performed at each of our sites as needed based on the conditions at the respective sites.\nWhere You Can Find More Information\nWe are subject to the information and periodic and current reporting requirements of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d) and, in accordance therewith, will file periodic and current reports, proxy statements and other information with the Securities and Exchange Commission (\u201cSEC\u201d). Such periodic and current reports, proxy statements and other information will be available to the public on the SEC\u2019s website at www.sec.gov and through our website at www.pahc.com. None of the information accessible on or through our website is incorporated into this Annual Report on Form 10-K.",
+  "item1a": ">Item 1A.\u00a0\u00a0\u00a0\nRisk Factors\n \nRisk Factors Summary\nFor a summary of risk factors, see our \u201cForward-Looking Statements and Risk Factors Summary\u201d on page 3.\nRisk Factors\nYou should carefully consider all of the information set forth in this Annual Report on Form 10-K, including the following risk factors, before deciding to invest in our Class\u00a0A common stock. If any of the following risks occurs, our business, financial condition, results of operation or cash flows could be materially adversely affected. In any such case, the trading price of our Class\u00a0A common stock could decline, and you could lose all or part of your investment. The risks below are not the only ones the Company faces. Additional risks not currently known to the Company or that the Company presently deems immaterial may also impair its business operations. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. The Company\u2019s results could materially differ from those anticipated in these forward-looking statements as a result of certain factors, including the risks it faces described below and elsewhere. See also \u201cForward-Looking Statements and Risk Factors Summary.\u201d\nRisk Factors Relating to Our Business\nOutbreaks of animal diseases could significantly reduce demand for our products.\nSales of our food animal products could be materially adversely affected by the outbreak of disease carried by food animals, which could lead to the widespread death or precautionary destruction of food animals as well as the reduced consumption and demand for animal protein. The demand for our products could be significantly affected by outbreaks of animal diseases, and such occurrences may have a material adverse impact on the sale of our products and our financial condition and results of operations. The outbreaks of disease are beyond our control and could significantly affect demand for our products and consumer perceptions of certain meat products. An outbreak of disease could result in governmental restrictions on the import and export of chicken, pork, beef or other products to or from our customers. This could also create adverse publicity that may have a material adverse effect on our ability to sell our products successfully and on our financial condition and results of operations. In addition, outbreaks of disease carried by animals may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products, either due to heightened export restrictions or import prohibitions, which may reduce demand for our products due to reduced herd or flock sizes.\nIn recent years, outbreaks of African Swine Fever, primarily in China, have reduced animal populations and have reduced consumer demand for pork in the affected markets. In the past decade, there has been substantial publicity regarding H1N1, known as North American (or Swine) Influenza and, H5N1, known as Highly Pathogenic Avian Influenza, in both the human population and among birds. According to the WHO, in 2022, 67 countries in five continents reported H5N1 high pathogenicity avian influenza outbreaks in poultry and wild birds to the World Organization for Animal Health, with more than 131 million domestic poultry lost due to death or culling in affected farms and villages. There have also been concerns relating to E. coli in beef and Salmonella in poultry and other food poisoning micro-organisms in meats and other foods. Consumers may associate human health fears with animal diseases, food, food production or food animals whether or not it is scientifically valid, which may have an adverse impact on the \n27\n\n\nTable of Contents\ndemand for animal protein. Occurrences of this type could significantly affect demand for animal protein, which in turn could affect the demand for our products in a manner that has a significant adverse effect on our financial condition and results of operations. Also, the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force us to incur substantial expenses in procuring raw materials or products elsewhere.\nOutbreaks of an exotic or highly contagious disease in a country where we produce our products may result in other countries halting importation of our products for fear that our product may be contaminated with the exotic organism.\nPerceived adverse effects on human health linked to the consumption of food derived from animals that utilize our products could cause a decline in the sales of those products.\nOur business depends heavily on a healthy and growing livestock industry. Some in the public perceive risks to human health related to the consumption of food derived from animals that utilize certain of our products, including certain of our MFA products. In particular, there is increased focus in the United States, the E.U., China and other countries on the use of antimicrobials in the livestock industry. In the United States, this focus is primarily on the use of medically important antimicrobials, which include classes that are prescribed in animal and human health and are listed in the Appendix of the FDA-CVM Guidance for Industry (GFI) 152. As defined by the FDA, medically important antimicrobials (\u201cMIAs\u201d) include classes that are prescribed in animal and human health and are listed in the Appendix of GFI 152. Our products that contain virginiamycin, oxytetracycline or neomycin are classified by the FDA as medically important antimicrobials and are included in the GFI 152 list. The FDA announced its intention to further review the GFI 152 list and to review labeling directions of products on the GFI 152 list, which may lead to increased restrictions on the use of these products. In addition to the United States, the World Health Organization (WHO), the E.U., Australia and Canada have promulgated rating lists for antimicrobials that are used in veterinary medicine and that include certain of our products. The classification of our products as MIAs or similar listings may lead to a decline in the demand for and production of food products derived from animals that utilize our products and, in turn, demand for our products. Rules or regulations adopted by any territory that restrict the use of our products, especially our antibacterial products, which require animals or animal origin products imported into that territory to be produced under the same conditions as are required within the territory could result in a reduction or elimination of the use of our products in countries that export animals or animal origin products to such territories. Livestock producers may experience decreased demand for their products or reputational harm as a result of evolving consumer views of nutrition and health-related concerns, animal rights and other concerns. Any reputational harm to the livestock industry may also extend to companies in related industries, including us. In addition, campaigns by interest groups, activists and others with respect to perceived risks associated with the use of our products in animals, including position statements by livestock producers and their customers based on non-use of certain medicated products in livestock production, whether or not scientifically supported, could affect public perceptions and reduce the use of our products. Those adverse consumer views related to the use of one or more of our products in animals could have a material adverse effect on our financial condition and results of operations.\nRestrictions on the use of antibacterials in food-producing animals may become more prevalent.\nThe issue of the potential transfer of antibacterial resistance from bacteria from food-producing animals to human bacterial pathogens, and the causality and impact of that transfer, are the subject of global scientific and regulatory discussion. Antibacterials refer to molecules that can be used to treat or prevent bacterial infections and are a sub-categorization of the products that make up our medicated feed additives portfolios. In some countries, this issue has led to government restrictions on the use of specific antibacterials in some food-producing animals, regardless of the route of administration (in feed, water, intra-mammary, topical, injectable or other route of administration). These restrictions include prohibitions on use of antibacterials for non-therapeutic uses, preventative use, duration of use and requiring veterinary oversight to use products. These restrictions are more prevalent in countries where animal protein is plentiful and governments are willing to take action even when there is scientific uncertainty.\nEffective January\u00a01, 2017, we voluntarily removed non-therapeutic claims from several of our antibacterial products sold in the United States, in order to align with the FDA\u2019s GFI 209 and GFI 213. The FDA objective, as described in GFI 209 and GFI 213, was to eliminate the production (non-therapeutic) uses of medically important antimicrobials administered in feed or water to food producing animals while providing for the continued use of medically important antimicrobials in food-producing animals for treatment, control and prevention of disease (\u201ctherapeutic\u201d use) under the \n28\n\n\nTable of Contents\nsupervision of a veterinarian. The FDA indicated that it took this action to help preserve the efficacy of medically important antimicrobials to treat infections in humans.\nOur global sales of antibacterials, anticoccidials and other products, including our Mecadox product, were $387 million, $362 million and $330 million for the years ended June\u00a030,\u00a02023, 2022 and 2021, respectively. We cannot predict whether concerns regarding the use of antibacterials will result in additional restrictions, expanded regulations or consumer preferences to discontinue or reduce use of antibacterials in food-producing animals, which could materially adversely affect our operating results and financial condition. \nIf the FDA withdraws approval of our Mecadox (carbadox) product, the loss of sales of such product could have a material adverse effect on our business, financial condition and results of operations.\nOur Mecadox (carbadox) product has been approved for use in food animals in the United States for over 50 years. Certain regulatory bodies have raised concerns about the possible presence of certain residues of our carbadox product in meat from animals that consume the product. The product was banned for use in the European Union in 1998 and has been banned in several other countries outside the United States. \nIn April 2016, the FDA began initial steps to withdraw approval of carbadox via a regulatory process known as a Notice of Opportunity for Hearing (\u201cNOOH\u201d), due to concerns that certain residues from the product may persist in animal tissues for longer than previously determined. In the years following, Phibro has continued an ongoing process of responding collaboratively and transparently to the FDA\u2019s Center for Veterinary Medicine (\u201cCVM\u201d) inquiries and has provided extensive and meticulous research and data that confirmed the safety of carbadox. In July 2020, the FDA announced it would not proceed to a hearing on the scientific concerns raised in the 2016 NOOH, consistent with the normal regulatory procedure, but instead announced that it was withdrawing the 2016 NOOH and issuing a proposed order to review the regulatory method for carbadox. Phibro reiterated the safety of carbadox and the appropriateness of the regulatory method and offered to work with the CVM to generate additional data to support the existing regulatory method or select a suitable alternative regulatory method. \nIn the event the FDA continues to assert that carbadox should be removed from the market, we will argue that we are entitled to and expect to have a full evidentiary hearing on the merits before an administrative law judge. Should we be unable to successfully defend the safety of the product, the loss of carbadox sales will have an adverse effect on our financial condition and results of operations. Sales of Mecadox (carbadox) for the year ended June\u00a030,\u00a02023, were approximately $20 million.\nSee also \u201c\u2009\u2014\u2009We are subject to product registration and authorization regulations in many of the jurisdictions in which we operate and/or distribute our products, including the United States and member states of the European Union\u201d; \u201cBusiness\u2009\u2014Compliance with Government Regulation\u2009\u2014\u2009United States \u2014 Carbadox\u201d; and \u201cBusiness \u2014 Compliance with Government Regulation \u2014 Global Policy and Guidance.\u201d\nA material portion of our sales are generated by antibacterials and other related products.\nOur medicated products business is comprised of a relatively small number of compounds and accounted for approximately 40% of net sales for each of the years ended June\u00a030,\u00a02023 and 2022. The significant loss of antibacterial or other related product sales for any reason, including product bans or restrictions, public perception, competition or any of the other risks related to such products as described in this Annual Report on Form 10-K, could have a material adverse effect on our business.\nOur business may be negatively affected by weather conditions and the availability of natural resources.\nThe animal health industry and demand for many of our animal health products in a particular region are affected by changing disease pressures and by weather conditions, as usage of our products follows varying weather patterns and weather-related pressures from pests and diseases. As a result, we may experience regional and seasonal fluctuations in our results of operations.\nIn addition, livestock producers depend on the availability of natural resources, including abundant rainfall to sustain large supplies of drinking water, grasslands and grain production. Their animals\u2019 health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or \n29\n\n\nTable of Contents\nfloods, droughts or other weather conditions. In the event of adverse weather conditions or a shortage of fresh water, livestock producers may purchase less of our products.\nAdverse weather conditions, including excessive cold or heat, natural disasters, floods, droughts and other events, could negatively impact our livestock customers by impairing the health or growth of their animals or the production or availability of feed. Such events can also interfere with our customers\u2019 operations due to power outages, fuel shortages, damage to their farms or facilities or disruption of transportation channels. In addition, droughts can lead to reduced availability of grazing pastures, forcing cattle producers to cull their herds. Fewer heads of cattle could result in reduced demand for our products. Further heat waves may cause stress in animals and lead to increased vulnerability to disease, reduced fertility rates and reduced milk production. Adverse weather conditions and natural disasters may also have a material impact on the aquaculture business. Changes in water temperatures could affect the timing of reproduction and growth of various fish species, as well as trigger the outbreak of certain water borne diseases. \nAdverse weather events and natural disasters may also interfere with and negatively impact operations at our manufacturing sites, research and development facilities and offices, which could have a material adverse effect on our financial condition and results of operations, especially if the impact of an event or disaster is frequent or prolonged.  \nA pandemic, epidemic, or outbreak of an infectious disease in humans, such as COVID-19, may materially and adversely affect our business and our financial results.\nOur business is exposed to risks associated with public health crises, including epidemics and pandemics such as the novel coronavirus and its variants (COVID-19). The COVID-19 pandemic adversely affected workforces, customers, suppliers, consumer sentiment, economies and financial markets and led to an economic downturn in many countries in which we operate. Disruptions due to a resurgence of COVID-19 or other similar health epidemics could negatively impact our manufacturing facilities, and our logistics and supply chain operations, as well as those of our customers, third-party manufacturers, suppliers and end users of our products who raise animals or who process meat, milk, eggs and seafood for human consumption and may result in a period of economic and business disruption and could have a material adverse impact on our business and financial results.\nThe COVID-19 pandemic and similar outbreaks could lead to decreased demand for protein, which may lead to end users of our products reducing their herd or flock sizes. In addition, demand for protein could be reduced because consumers may associate human health fears related to COVID-19 of other outbreaks with animal diseases, food, food production or food animals, whether it is scientifically valid. Reductions in demand for animal protein resulting from these factors could in turn affect the demand for our products in a manner that has a significant adverse effect on our financial condition and results of operations.\nThe impact of a pandemic or similar public health crises is uncertain and subject to change and could also exacerbate the other risks discussed in this \u201cRisk Factors\u201d section. We cannot predict with certainty the full scope and severity of any potential disruptions to our business, operating results, cash flows and/or financial condition, but we expect that the resulting adverse impact on our business and financial results could be material.\nClimate change could have a material adverse impact on our operations and our customers\u2019 businesses.\nOur operations, and the activities of our customers, could be disrupted by climate change. The physical impact of climate change may prompt shifts in regulations or consumer preferences which in turn could have negative consequences for our and our customers\u2019 businesses. Climate change may negatively impact our customers\u2019 operations, particularly those in the livestock industry, through climate-related impacts such as increased air and water temperatures, rising water levels and increased incidence of disease in livestock. Potential physical risks from climate change may include altered distribution and intensity of rainfall, prolonged droughts or flooding, increased frequency of wildfires and other natural disasters, rising sea levels and a rising heat index, any of which could cause negative impacts to our and our customers\u2019 businesses. If such events affect our customers\u2019 businesses, they may purchase fewer of our products, and our revenues may be negatively impacted. Climate driven changes could have a material adverse effect on our financial condition and results of operations. \nThere has been a broad range of proposed and promulgated state, national and international regulations aimed at reducing the effects of climate change. Such regulations could result in additional costs to maintain compliance and \n30\n\n\nTable of Contents\nadditional income or other taxes. Climate change regulations continue to evolve, and it is not possible to accurately estimate potential future compliance costs.\nThe testing, manufacturing and marketing of certain of our products are subject to extensive regulation by numerous government authorities in the United States and other countries, including, but not limited to, the FDA.\nAmong other requirements, FDA approval of antibacterials and other medicated products, including the manufacturing processes and facilities used to produce such products, is required before such products may be marketed in the United States. Further, cross-clearance approvals are generally required for such products to be used in combination in animal feed. Similarly, marketing approval by a foreign governmental authority is typically required before such products may be marketed in a particular foreign country. In addition to approval of the product and its labeling, regulatory authorities typically require approval and periodic inspection of the manufacturing facilities. In order to obtain FDA approval of a new animal health product, we must, among other things, demonstrate to the satisfaction of the FDA that the product is safe and effective for its intended uses and that we are capable of manufacturing the product with procedures that conform to FDA\u2019s current cGMP regulations, which must be followed at all times.\nAudits related to cGMP standards are typically carried out by the FDA on a two-year cycle. We are routinely subject to these inspections and respond to the FDA to address any concerns they may make in their inspectional observations (Form 483). Although it is our objective to remain in full conformance with U.S. cGMP standards, there can be no assurance that future inspections will not raise adverse inspectional observations. Failure to comply with cGMP standards could have a material impact on our business and financial results.\nThe process of seeking FDA approvals can be costly, time-consuming, and subject to unanticipated and significant delays. There can be no assurance that such approvals will be granted to us on a timely basis, or at all. Any delay in obtaining or any failure to obtain FDA or foreign government approvals or the suspension or revocation of such approvals would adversely affect our ability to introduce and market medicated feed additive products and to generate product revenue. For more information on FDA and foreign government approvals and cGMP issues, see \u201cBusiness\u2009\u2014\u2009Compliance with Government Regulation.\u201d\nWe may experience declines in the sales volume and prices of our products as the result of the continuing trend toward consolidation of certain customer and distributor groups as well as the emergence of large buying groups.\nWe make a majority of our sales to integrated poultry, swine and beef and dairy cattle operations and to a number of regional and national feed companies, distributors, co-ops and blenders. Food animal producers, particularly, swine and poultry producers, and our distributors have seen recent consolidation in their industries. Significant consolidation of our customers and distributors may result in these groups gaining additional purchasing leverage and consequently increasing the product pricing pressures facing our business. Additionally, the emergence of large buying groups potentially could enable such groups to attempt to extract price discounts on our products. Moreover, if, as a result of increased leverage, customers require us to reduce our pricing such that our gross margins are diminished, we could decide not to sell our products to a particular customer, which could result in a decrease in our revenues. Consolidation among our customer base may also lead to reduced demand for our products and replacement of our products by the combined entity with those of our competitors. The result of these developments could have a material adverse effect on our business, financial condition and results of operations.\nOur business is subject to risk based on customer exposure to rising costs and reduced customer income.\nLivestock producers may experience increased feed, fuel, transportation and other key costs or may experience decreased animal protein prices or sales, inflationary pressures as a result of interest rate increases or otherwise and including as a result of the uncertainties and potential economic downturn relating to a resurgence of the COVID-19 pandemic or relating to the ongoing armed conflict between Russia and Ukraine. International sanctions, trade disputes and tariffs could reduce demand for our customers\u2019 products. These trends could cause deterioration in the financial condition of our livestock producer customers, potentially inhibiting their ability to purchase our products or pay us for products delivered. Our livestock producer customers may offset rising costs by reducing spending on our products, including by switching to lower-cost alternatives to our products.\n31\n\n\nTable of Contents\nGeneric products may be viewed as more cost-effective than certain of our products.\nWe face competition from products produced by other companies, including generic alternatives to certain of our products. We depend primarily on trade secrets to provide us with competitive advantages for many of our products. The protection afforded is limited by the availability of new competitive products or generic versions of existing products that can successfully compete with our products. As a result, we may face competition from new competitive products or lower-priced generic alternatives to many of our products. Generic competitors are becoming more aggressive in terms of pricing, and generic products are an increasing\u00a0percentage of overall animal health sales in certain regions. If animal health customers increase their use of new or existing generic products, our financial condition and results of operations could be materially adversely affected.\nAdvances in veterinary medical practices and animal health technologies could negatively affect the market for our products.\nThe market for our products could be impacted negatively by the introduction and/or broad market acceptance of newly developed or alternative products that address the diseases and conditions for which we sell products, including \u201cgreen\u201d or \u201cholistic\u201d health products or specially bred disease-resistant animals. In addition, technological breakthroughs by others may obviate our technology and reduce or eliminate the market for our products. Introduction or acceptance of such products or technologies could materially adversely affect our business, financial condition and results of operations.\nThe misuse or extra-label use of our products may harm our reputation or result in financial or other damages.\nOur products have been approved for use under specific circumstances for, among other things, the prevention, control and/or treatment of certain diseases and conditions in specific species, in some cases subject to certain dosage levels or minimum withdrawal periods prior to the slaughter date. There may be increased risk of product liability if livestock producers or others attempt any extra-label use of our products, including the use of our products in species for which they have not been approved, or at dosage levels or periods prior to withdrawal that have not been approved. If we are deemed by a governmental or regulatory agency to have engaged in the promotion of any of our products for extra-label use, such agency could request that we modify our training or promotional materials and practices and we could be subject to significant fines and penalties. The imposition of such fines and penalties could also affect our reputation and position within the industry. Even if we were not responsible for having promoted the extra-label use, concerns could arise about the safety of the resulting meat in the human food supply. Any of these events could materially adversely affect our financial condition and results of operations.\nThe public perception of the safety, quality and efficacy of certain of our animal health products may harm our reputation.\nThe public perception of the safety, quality and efficacy of certain of our animal health products, whether or not these concerns are scientifically or clinically supported, may lead to product recalls, withdrawals, suspensions or declining sales as well as product liability and other claims.\nRegulatory actions based on these types of safety, quality or efficacy concerns could impact all, or a significant portion of a product\u2019s sales and could, depending on the circumstances, materially adversely affect our results of operations.\nIn addition, we depend on positive perceptions of the safety, quality and efficacy of our products, and animal health products generally, by our customers, veterinarians and end-users, and such concerns may harm our reputation. In some countries, these perceptions may be exacerbated by the existence of counterfeit versions of our products, which, depending on the legal and law enforcement recourse available in the jurisdiction where the counterfeiting occurs, may be difficult to police or stop. These concerns and the related harm to our reputation could materially adversely affect our financial condition and results of operations, regardless of whether such reports are accurate.\n32\n\n\nTable of Contents\nWe are dependent on suppliers having current regulatory approvals, and the failure of those suppliers to maintain these approvals or other challenges in replacing any of those suppliers could affect our supply of materials or affect the distribution or sale of our products.\nSuppliers and third-party contract manufacturers for our animal health and mineral nutrition products or the active pharmaceutical ingredients or other materials we use in our products, like us, are subject to extensive regulatory compliance. If any one of these third parties discontinues its supply to us because of changes in the regulatory environment to which such third parties are subject, significant regulatory violations or for any other reason, or an adverse event occurs at one of their facilities, the interruption in the supply of these materials could decrease sales of our affected products. In this event, we may seek to enter into agreements with third parties to purchase active ingredients, raw materials or products or to lease or purchase new manufacturing facilities. We may be unable to find a third party willing or able to provide the necessary products or facilities suitable for manufacturing pharmaceuticals on terms acceptable to us or the cost of those pharmaceuticals may be prohibitive. If we have to obtain substitute materials or products, additional regulatory approvals will likely be required, as approvals are typically specific to a single product produced by a specified manufacturer in a specified facility and there can be no assurances that such regulatory approvals will be obtained. As such, the use of new facilities also requires regulatory approvals. While we take measures where economically feasible and available to secure back-up suppliers, the continued receipt of active ingredients or products from a sole source supplier could create challenges if a sole source was interrupted. We may not be able to provide adequate and timely product to eliminate any threat of interruption of supply of our products to customers and these problems may materially adversely impact our business.\nThe raw materials used by us and our third-party contract manufacturers in the manufacture of our products can be subject to price fluctuations and their availability can be limited.\nWhile the selling prices of our products tend to increase or decrease over time with the cost of raw materials, such changes may not occur simultaneously or to the same degree. The costs of certain of our significant raw materials are subject to considerable volatility, and we generally do not engage in activities to hedge the costs of our raw materials and our third-party contract manufacturers may demand price increases related to increases in the costs of raw materials. In addition, we may be subject to new or increased tariffs on imported raw materials with limited ability to pass those increased costs through to our customers. Although no single raw material accounted for more than 5% of our cost of goods sold for the year ended June\u00a030,\u00a02023, volatility in raw material costs can result in significant fluctuations in our costs of goods sold of the affected products. The costs of raw materials used by our Mineral Nutrition business are particularly subject to fluctuations in global commodities markets and cost changes in the underlying commodities markets typically lead directly to a corresponding change in our revenues. Although we attempt to adjust the prices of our products to reflect significant changes in raw material costs, we may not be able to pass any increases in raw material costs through to our customers in the form of price increases. Significant increases in the costs of raw materials, if not offset by product price increases, could have a material adverse effect on our financial condition and results of operations. The supply of certain of our raw materials is dependent on third party suppliers. There is no guarantee that supply shortages or disruptions of such raw materials will not occur and the likelihood of such supply shortages and disruptions has been, and may continue to be, increased due to global supply chain disruptions, including those caused by the COVID-19 pandemic and the ongoing conflict between Russia and Ukraine. In addition, if any one of these third parties discontinues its supply to us, or an adverse event occurs at one of their facilities, the interruption in the supply of these materials could decrease sales of our affected products. In the event that we cannot procure necessary major raw materials from other suppliers, the occurrence of any of these may have an adverse impact on our business.\nOur revenues are dependent on the continued operation of our various manufacturing facilities.\nAlthough presently all our manufacturing facilities are considered to be in good condition, the operation of our manufacturing facilities involves many risks which could cause product interruptions, including the breakdown, failure or substandard performance of equipment, construction delays, mislabeling, shortages of materials, labor problems, power outages, political and social instability, the improper installation or operation of equipment, natural disasters, terrorist activities, armed conflicts, the outbreak of any highly contagious diseases, such as COVID-19 in humans or African Swine Fever in swine, near our production sites and the need to comply with environmental and other directives of governmental agencies. In addition, regulatory authorities such as the FDA typically require approval and periodic inspection of the manufacturing facilities to confirm compliance with applicable regulatory requirements, and those requirements may be enforced by various means, including seizures and injunctions. Certain of our product lines are \n33\n\n\nTable of Contents\nmanufactured at a single facility, and certain of our product lines are manufactured at a single facility with limited capacity at a second facility, and production would not be easily transferable to another site. The occurrence of material operational problems, including but not limited to the above events, may adversely affect our financial condition and results of operations.\nOur manufacturing network may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes. The unpredictability of a product\u2019s regulatory or commercial success or failure, the lead time necessary to construct highly technical and complex manufacturing sites and shifting customer demand (including as a result of market conditions or entry of branded or generic competition) increase the potential for capacity imbalances. In addition, construction of manufacturing sites is expensive, and our ability to recover costs will depend on the market acceptance and success of the products produced at the new sites, which is uncertain.\nWe could be subject to changes in our tax rates, the adoption of new U.S. or foreign tax legislation or exposure to additional tax liabilities.\nWe are subject to income taxes in the U.S. and numerous foreign jurisdictions. Changes in the relevant tax laws, regulations and interpretations could adversely affect our future effective tax rates. Modifications to key elements of the U.S. or international tax framework could have a material adverse effect on our consolidated financial statements.\nOur consolidated effective tax rate is subject to potential risks that various taxing authorities may challenge the pricing of our cross-border arrangements and subject us to additional tax, adversely affecting our expected consolidated effective tax rate and our tax liability. If our effective tax rates were to increase, particularly in the U.S. or other material foreign jurisdictions, our business, financial condition and results of operations could be materially adversely affected. In addition, our tax returns and other tax filings and positions are subject to review by the Internal Revenue Service (the \u201cIRS\u201d) and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations or the effects on our consolidated financial statements.\nA significant portion of our operations are conducted in foreign jurisdictions and are subject to the economic, political, legal and business environments of the countries in which we do business.\nOur international operations could be limited or disrupted by any of the following:\n\u25cf\nvolatility in the international financial markets;\n\u25cf\ncompliance with governmental controls;\n\u25cf\ndifficulties enforcing contractual and intellectual property rights;\n\u25cf\ncompliance with a wide variety of laws and regulations, such as the U.S. Foreign Corrupt Practices Act (\u201cFCPA\u201d) and similar non-U.S. laws and regulations;\n\u25cf\ncompliance with foreign labor laws;\n\u25cf\ncompliance with Environmental Laws;\n\u25cf\nburdens to comply with multiple and potentially conflicting foreign laws and regulations, including those relating to EHS requirements;\n\u25cf\nchanges in laws, regulations, government controls or enforcement practices with respect to our business and the businesses of our customers;\n\u25cf\npolitical and social instability, including crime, civil disturbance, terrorist activities, outbreaks of disease and pandemics and armed conflicts, such as the ongoing conflict between Russia and Ukraine;\n\u25cf\ntrade restrictions, export controls and sanctions laws and restrictions on direct investments by foreign entities, including restrictions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury;\n\u25cf\ngovernment limitations on foreign ownership;\n34\n\n\nTable of Contents\n\u25cf\ngovernment takeover or nationalization of businesses;\n\u25cf\nchanges in tax laws and tariffs;\n\u25cf\nchanges in the economic, business, competitive and regulatory environment, including changes in the value of foreign currencies relative to the U.S. dollar or high inflation;\n\u25cf\nimposition of anti-dumping and countervailing duties or other trade-related sanctions;\n\u25cf\ncosts and difficulties and compliance risks in staffing, managing and monitoring international operations;\n\u25cf\ncorruption risk inherent in business arrangements and regulatory contacts with foreign government entities;\n\u25cf\nlonger payment cycles and increased exposure to counterparty risk; and\n\u25cf\nadditional limitations on transferring personal information between countries or other restrictions on the processing of personal information.\nThe multinational nature of our business subjects us to potential risks that various taxing authorities may challenge the pricing of our cross-border arrangements and subject us to additional tax, adversely impacting our effective tax rate and our tax liability.\nIn addition, international transactions may involve increased financial and legal risks due to differing legal systems and customs, as well as restrictions and sanctions that may be imposed on one or more persons and/or jurisdictions in which we operate, including those arising from the ongoing armed conflict between Russia and Ukraine. Compliance with these requirements may prohibit the import or export of certain products and technologies or may require us to obtain a license before importing or exporting certain products or technology. A failure to comply with any of these laws, regulations or requirements could result in civil or criminal legal proceedings, monetary or non-monetary penalties, or both, disruptions to our business, limitations on our ability to import and export products and services, and damage to our reputation. In addition, variations in the pricing of our products in different jurisdictions may result in the unauthorized importation of our products between jurisdictions. While the impact of these factors is difficult to predict, any of them could materially adversely affect our financial condition and results of operations. Changes in any of these laws, regulations or requirements, or the political environment in a particular country, may affect our ability to engage in business transactions in certain markets, including investment, procurement and repatriation of earnings.\nWe are subject to product registration and authorization regulations in many of the jurisdictions in which we operate and/or distribute our products, including the United States and member states of the European Union.\nWe are subject to regulations related to testing, manufacturing, labeling, registration and safety analysis in order to lawfully distribute many of our products, including for example, in the United States, the Federal Toxic Substances Control Act and the Federal Insecticide, Fungicide, and Rodenticide Act, and in the European Union, the Regulation on REACH. We are also subject to similar requirements in many of the other jurisdictions in which we operate and/or distribute our products. In some cases, such registrations are subject to periodic review by relevant authorities. Such regulations may lead to governmental restrictions or cancellations of, or refusal to issue, certain registrations or authorizations, or cause us or our customers to make product substitutions in the future. Such regulations may also lead to increased third party scrutiny and personal injury or product liability claims. Compliance with these regulations can be difficult, costly and time consuming and liabilities or costs relating to such regulations could have a material adverse effect on our business, financial condition and results of operations.\nWe have significant assets located outside the United States and a significant portion of our sales and earnings is attributable to operations conducted abroad that may be adversely affected by foreign currency exchange rate fluctuations and other inherent risks.\nAs of June\u00a030,\u00a02023, we had manufacturing and direct sales operations in 25 countries and sold our products in over 80 countries. Our operations outside the United States accounted for 58% and 56% of our consolidated assets as of June\u00a030,\u00a02023 and 2022, respectively, and 41% and 40% of our consolidated net sales for the\u00a0years ended June\u00a030,\u00a02023 and 2022, respectively. Our foreign operations are subject to currency exchange fluctuations and restrictions, political instability in some countries, and uncertainty of, and governmental control over, commercial rights.\n35\n\n\nTable of Contents\nChanges in the relative values of currencies take place from time to time and could in the future adversely affect our results of operations as well as our ability to meet interest and principal obligations on our indebtedness. To the extent that the U.S. dollar fluctuates relative to the applicable foreign currency, our results are favorably or unfavorably affected. We may from time to time manage this exposure by entering into foreign currency contracts. Such contracts generally are entered into with respect to anticipated costs denominated in foreign currencies for which timing of the payment can be reasonably estimated. No assurances can be given that such hedging activities will not result in, or will be successful in preventing, losses that could have an adverse effect on our financial condition or results of operations. There are times when we do not hedge against foreign currency fluctuations and therefore are subject to the risks associated with fluctuations in currency exchange rates.\nIn addition, international manufacturing, sales and raw materials sourcing are subject to other inherent risks, including possible nationalization or expropriation, labor unrest, political instability, price and exchange controls, limitation on foreign participation in local enterprises, health-care regulation, export duties and quotas, domestic and international customs and tariffs, compliance with export controls and sanctions laws, the Foreign Corrupt Practices Act and other laws and regulations governing international trade, unexpected changes in regulatory environments, difficulty in obtaining distribution and support, and potentially adverse tax consequences. Although such risks have not had a material adverse effect on us in the past, these factors could have a material adverse impact on our ability to increase or maintain our international sales or on our results of operations in the future.\nWe have manufacturing facilities located in Israel and a portion of our net sales and earnings is attributable to products produced and operations conducted in Israel.\nOur Israeli manufacturing facilities and local operations accounted for 27% and 28% of our consolidated assets, as of June\u00a030,\u00a02023 and 2022, and 19% and 19% of our consolidated net sales for the\u00a0years ended June\u00a030,\u00a02023 and 2022, respectively. We maintain manufacturing facilities in Israel, which manufacture:\n\u25cf\nanticoccidials and antimicrobials, most of which are exported;\n\u25cf\nvaccines, a substantial portion of which are exported; and\n\u25cf\nanimal health pharmaceuticals, nutritional specialty products and trace minerals for the domestic animal industry.\nA substantial portion of this production is exported from Israel to major world markets. Accordingly, our Israeli operations are dependent on foreign markets and the ability to reach those markets. Hostilities between Israel and its neighbors may hinder Israel\u2019s international trade. This, in turn, could have a material adverse effect on our business, financial condition and results of operations.\nCertain countries, companies and organizations continue to participate in a boycott of Israeli firms and other companies doing business in Israel or with Israeli companies. We do not believe that the boycott has had a material adverse effect on us, but we cannot provide assurance that restrictive laws, policies or practices directed toward Israel or Israeli businesses will not have an adverse impact on our operations or expansion of our business. Our business, financial condition and results of operations in Israel may be adversely affected by factors outside of our control, such as currency fluctuations, energy shortages and other political, social and economic developments in or affecting Israel, including as a result of the impact of the COVID-19 pandemic in Israel.\nWe have manufacturing facilities located in Brazil and a portion of our sales and earnings is attributable to products produced and operations conducted in Brazil.\nOur Brazilian manufacturing facilities and local operations accounted for 14% and 12% of our consolidated assets, as of June\u00a030,\u00a02023 and 2022, respectively, and 16% and 15% of our consolidated net sales for the\u00a0years ended June\u00a030,\u00a02023 and 2022, respectively. We maintain manufacturing facilities in Brazil, which manufacture virginiamycin, semduramicin, salinomycin and nicarbazin. Our Brazilian facilities also produce Stafac, Aviax, Aviax Plus, Coxistac, Nicarb, Kamoran\n\u00ae\n, and Terramycin granular formulations. A substantial portion of the production is exported from Brazil to major world markets. Accordingly, our Brazilian operations are dependent on foreign markets and the ability to reach those markets.\n36\n\n\nTable of Contents\nOur business, financial condition and results of operations in Brazil may be adversely affected by factors outside of our control, such as currency fluctuations, energy shortages and other political, social and economic developments in or affecting Brazil, including as a result of the impact of the COVID-19 pandemic in Brazil.\nCertain of our employees are covered by collective bargaining or other labor agreements.\nAs of June\u00a030,\u00a02023, approximately 290 of our Israeli employees and 460 of our Brazilian employees were covered by collective bargaining agreements. We believe we have satisfactory relations with our employees. There can be no assurance that we will not experience a work stoppage or strike at our manufacturing facilities. A prolonged work stoppage or strike at any of our manufacturing facilities could have a material adverse effect on our business, financial condition and results of operations.\nThe loss of key personnel may disrupt our business and adversely affect our financial results.\nOur operations and future success are dependent on the continued efforts of our senior executive officers and other key personnel. Although we have entered into employment agreements with certain executives, we may not be able to retain all of our senior executive officers and key employees. These senior executive officers and other key employees may be hired by our competitors, some of which have considerably more financial resources than we do. The loss of the services of any of our senior executive officers or other key personnel, or the inability to hire and retain qualified employees, could have a material adverse effect on our business, financial condition and results of operations.\nOur R&D relies on evaluations in animals, which may become subject to bans or additional regulations.\nAs a company that produces animal health medicines and vaccines, evaluation of our existing and new products in animals is required in order to be able to register our products. Animal testing in certain industries has been the subject of controversy and adverse publicity. Some organizations and individuals have attempted to ban animal testing or encourage the adoption of additional regulations applicable to animal testing. To the extent that the activities of such organizations and individuals are successful, our R&D, and by extension our financial condition and results of operations, could be materially adversely affected. In addition, negative publicity about us or our industry could harm our reputation.\nOur operations, properties and subsidiaries are subject to a wide variety of complex and stringent federal, state, local and foreign environmental laws and regulations.\nWe are subject to environmental, health and safety laws and regulations, including those governing pollution; protection of the environment; the use, management and release of hazardous materials, substances and wastes; air emissions; greenhouse gas emissions; water use, supply and discharges; the investigation and remediation of contamination; the manufacture, distribution and sale of regulated materials, including pesticides; the importing, exporting and transportation of products; and the health and safety of our employees and the public (collectively, \u201cEnvironmental Laws\u201d). See \u201cBusiness\u2009\u2014\u2009Environmental, Health and Safety.\u201d\nPursuant to Environmental Laws, certain of our subsidiaries are required to obtain and maintain numerous governmental permits, licenses, registrations, authorizations and approvals, including \u201cRCRA Part\u00a0B\u201d hazardous waste permits, to conduct various aspects of their operations (collectively \u201cEnvironmental Permits\u201d), any of which may be subject to suspension, revocation, modification, termination or denial under certain circumstances or which may not be renewed upon their expiration for various reasons, including noncompliance. See \u201cBusiness\u2009\u2014\u2009Environmental, Health and Safety.\u201d These Environmental Permits can be difficult, costly and time consuming to obtain and may contain conditions that limit our operations. Additionally, any failure to obtain and maintain such Environmental Permits could restrict or otherwise prohibit certain aspects of our operations, which could have a material adverse effect on our business, financial condition and results of operations.\nWe have expended, and may be required to expend in the future, substantial funds for compliance with Environmental Laws. As recyclers of hazardous metal-containing chemical wastes, certain of our subsidiaries have been, and are likely to be, the focus of extensive compliance reviews by environmental regulatory authorities under Environmental Laws, including those relating to the generation, transportation, treatment, storage and disposal of solid and hazardous wastes under the RCRA. In the past, some of our subsidiaries have paid fines and entered into consent orders to address alleged environmental violations. See \u201cBusiness\u2009\u2014\u2009Environmental, Health and Safety.\u201d We cannot \n37\n\n\nTable of Contents\nassure you that our operations or activities or those of certain of our subsidiaries, including with respect to compliance with Environmental Laws, will not result in civil or criminal enforcement actions or private actions, regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, installation of pollution control equipment or remedial measures or costs, revocation of required Environmental Permits, or fines, penalties or damages, which could have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot predict the extent to which Environmental Laws, and the interpretation or enforcement thereof, may change or become more stringent in the future, each of which may affect the market for our products or give rise to additional capital expenditures, compliance costs or liabilities that could be material.\nOur operations or products may impact the environment or cause or contribute to contamination or exposure to hazardous substances.\nGiven the nature of our current and former operations, particularly at our chemical manufacturing sites, we have incurred, are currently incurring and may in the future incur liabilities under CERCLA, or under other federal, state, local and foreign Environmental Laws related to releases of or contamination by hazardous substances, with respect to our current or former sites, adjacent or nearby third-party sites, or offsite disposal locations. See \u201cBusiness\u2009\u2014\u2009Environmental, Health and Safety.\u201d Certain Environmental Laws, including CERCLA, can impose strict, joint, several and retroactive liability for the cost of investigation and cleanup of contaminated sites on owners and operators of such sites, as well as on persons who dispose of or arrange for disposal of hazardous substances at such sites. Accordingly, we could incur liability, whether as a result of government enforcement or private claims, for known or unknown liabilities at, or caused by migration from or hazardous waste transported from, any of our current or former facilities or properties, including those owned or operated by predecessors or third parties. See \u201cBusiness\u00a0\u2014 Environmental, Health and Safety.\u201d Such liability could have a material adverse effect on our business, financial condition and results of operations.\nThe nature of our current and former operations also exposes us to the risk of claims under Environmental Laws. We could be subject to claims by environmental regulatory authorities, individuals and other third parties seeking damages for alleged personal injury, property damage and damages to natural resources resulting from hazardous substance contamination or human exposure caused by our operations, facilities or products, and there can be no assurance that material costs and liabilities will not be incurred in connection with any such claims. Our insurance may not be sufficient to cover any of these exposures, product, injury or damage claims.\nFurthermore, regulatory agencies are showing increasing concern over the impact of animal health products and livestock operations on the environment. This increased regulatory scrutiny may necessitate that additional time and resources be spent to address these concerns for both new and existing products and could affect product sales and materially adversely affect our business, financial condition or results of operations.\nWe cannot assure you that our liabilities arising from past or future releases of, or exposure to, hazardous substances will not materially adversely affect our business, financial condition or results of operations.\nWe have been and \nmay continue to be subject to claims of injury from direct exposure to certain of our products that constitute or contain hazardous substances and from indirect exposure when such substances are incorporated into other companies\u2019 products\n.\nBecause certain of our products constitute or contain hazardous substances, and because the production of certain chemicals involves the use, handling, processing, storage and transportation of hazardous substances, from time to time we are subject to claims of injury from direct exposure to such substances and from indirect exposure when such substances are incorporated into other companies\u2019 products. There can be no assurance that as a result of past or future operations, there will not be additional claims of injury by employees or members of the public due to exposure, or alleged exposure, to such substances. We are also party to a number of claims and lawsuits arising out of the normal course of business, including product liability claims and allegations of violations of governmental regulations, and face present and future claims with respect to workplace exposure, workers\u2019 compensation and other matters. In most cases, such claims are covered by insurance and, where applicable, workers\u2019 compensation insurance, subject to policy limits and exclusions; however, our insurance coverage, to the extent available, may not be adequate to protect us from all liabilities that we might incur in connection with the manufacture, sale and use of our products. Insurance is expensive and, in the future, may not be available on acceptable terms, if at all. A successful claim or series of claims brought against us in excess of our insurance coverage could have a materially adverse effect on our business, financial condition \n38\n\n\nTable of Contents\nand results of operations. In addition, any claims, even if not ultimately successful, could adversely affect the marketplace\u2019s acceptance of our products.\nWe are subject to risks from litigation that may materially impact our operations.\nWe face an inherent business risk of exposure to various types of claims and lawsuits. We are involved in various legal proceedings that arise in the ordinary course of our business. Although it is not possible to predict with certainty the outcome of every pending claim or lawsuit or the range of probable loss, we believe these pending lawsuits and claims will not individually or in the aggregate have a material adverse impact on our results of operations. However, we could, in the future, be subject to various lawsuits, including intellectual property, product liability, personal injury, product warranty, environmental or antitrust claims, among others, and incur judgments or enter into settlements of lawsuits and claims that could have a material adverse effect on our results of operations in any particular period.\nWe are subject to risks that may not be covered by our insurance policies.\nIn addition to pollution and other environmental risks, we are subject to risks inherent in the animal health, mineral nutrition and performance products industries, such as explosions, fires, spills or releases. Any significant interruption of operations at our principal facilities could have a material adverse effect on us. We maintain general liability insurance, pollution legal liability insurance and property and business interruption insurance with coverage limits that we believe are adequate. Because of the nature of industry hazards, it is possible that liabilities for pollution and other damages arising from a major occurrence may not be covered by our insurance policies or could exceed insurance coverages or policy limits or that such insurance may not be available at reasonable rates in the future. Any such liabilities, which could arise due to injury or loss of life, severe damage to and destruction of property and equipment, pollution or other environmental damage or suspension of operations, could have a material adverse effect on our business.\nAdverse U.S. and international economic and market conditions may adversely affect our product sales and business.\nCurrent U.S. and international economic and market conditions are uncertain. The COVID-19 pandemic adversely affected international economic conditions and financial markets and led to economic downturns in many countries in which we operate. Our revenues and operating results may be affected by uncertain or changing economic and market conditions, including as a result of a resurgence of COVID-19 pandemic or other similar public health crises, and other challenges faced in the credit markets and financial services industry. \nEconomic, business, political and financial disruptions from the ongoing armed conflict between Russia and Ukraine and the imposition of sanctions and business disruptions as well as inflation, could also have a material adverse effect on our operating results, financial condition, and liquidity. Certain of our customers and suppliers could be affected directly by an economic downturn and could face credit issues or cash flow problems that could give rise to payment delays, increased credit risk, bankruptcies and other financial hardships that could decrease the demand for our products or hinder our ability to collect amounts due from customers. Customers may seek lower price alternatives to our products if they are negatively impacted by poor economic conditions. Furthermore, our exposure to credit and collectability risk and cybersecurity risk is higher in certain international markets and as a result of the crisis resulting from the ongoing armed conflict between Russia and Ukraine, our ability to mitigate such risks may be limited. While we have procedures to monitor and limit exposure to credit and collectability risk and we have defensive measures in place to prevent and mitigate cyberattacks, there can be no assurance that such procedures and measures will effectively limit such risks and avoid losses. \nIf domestic and global economic and market conditions remain uncertain or persist or deteriorate further, we may experience material impacts on our business, financial condition and results of operations. Adverse economic conditions impacting our customers, including, among others, increased taxation, higher unemployment, lower customer confidence in the economy, higher customer debt levels, lower availability of customer credit, higher interest rates and hardships relating to declines in the stock markets, could cause purchases of meat products to decline, resulting in a decrease in purchases of our products, which could adversely affect our financial condition and results of operation. Adverse economic and market conditions could also negatively impact our business by negatively affecting the parties with whom we do business, including among others, our customers, our manufacturers and our suppliers.\n39\n\n\nTable of Contents\nWe may not be able to realize the expected benefits of our investments in emerging markets.\nWe have been taking steps to take advantage of the rise in global demand for animal protein in emerging markets, including by expanding our manufacturing presence, sales, marketing and distribution in these markets. Failure to continue to maintain and expand our business in emerging markets could also materially adversely affect our operating results and financial condition.\nSome countries within emerging markets may be especially vulnerable to periods of local, regional or global economic, political or social instability or crisis. For example, our sales in certain emerging markets have suffered from extended periods of disruption due to natural disasters. Furthermore, we have also experienced lower than expected sales in certain emerging markets due to local, regional and global restrictions on banking and commercial activities in those countries. For all these and other reasons, sales within emerging markets carry significant risks.\nModification of foreign trade policy may harm our food animal product customers.\nChanges in laws, agreements and policies governing foreign trade in the territories and countries where our customers do business could negatively impact such customers\u2019 businesses and adversely affect our results of operations. A number of our customers, particularly U.S.-based food animal producers have benefited from free trade agreements, including, in the past, the North American Free Trade Agreement (\u201cNAFTA\u201d). The U.S., Canada and Mexico reached an agreement to replace NAFTA with the United States-Mexico-Canada Agreement. Any other changes to international trade agreements or policies could harm our customers, and as a result, negatively impact our financial condition and results of operations. Additionally, in response to new U.S. tariffs affecting foreign imports, some foreign governments, including China, have instituted or are considering instituting tariffs on certain U.S. goods. While the scope and duration of these and any future tariffs remain uncertain, tariffs imposed by the U.S. or foreign governments on our customers\u2019 products, or on our products or the active pharmaceutical ingredients or other components thereof, could negatively impact our financial condition and results of operations.\nOur product approval, R&D, acquisition and licensing efforts may fail to generate new products and product lifecycle developments.\nOur future success depends on both our existing product portfolio, including our ability to obtain cross-clearances enabling the use of our medicated products in conjunction with other products, approval for use of our products with new species, approval for new claims for our products, approval of our products in new markets and our pipeline of new products, including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition. The majority of our R&D programs focus on product lifecycle development, which is defined as R&D programs that leverage existing animal health products by adding new species or claims, achieving approvals in new markets or creating new combinations and reformulations. We commit substantial effort, funds and other resources to expanding our product approvals and R&D, both through our own dedicated resources and through collaborations with third parties.\nWe may be unable to determine with accuracy when or whether any of our expanded product approvals for our existing product portfolio or any of our products now under development will be approved or launched, or we may be unable to obtain expanded product approvals or develop, license or otherwise acquire product candidates or products. In addition, we cannot predict whether any products, once launched, will be commercially successful or will achieve sales and revenues that are consistent with our expectations. The animal health industry is subject to regional and local trends and regulations and, as a result, products that are successful in some of our markets may not achieve similar success when introduced into new markets. Furthermore, the timing and cost of our R&D may increase, and our R&D may become less predictable. For example, changes in regulations applicable to our industry may make it more time-consuming and/or costly to research, test and develop products.\nProducts in the animal health industry are sometimes derived from molecules and compounds discovered or developed as part of human health research. We may enter into collaboration or licensing arrangements with third parties to provide us with access to compounds and other technology for purposes of our business. Such agreements are typically complex and require time to negotiate and implement. If we enter into these arrangements, we may not be able to maintain these relationships or establish new ones in the future on acceptable terms or at all. In addition, any collaboration that we enter into may not be successful, and the success may depend on the efforts and actions of our \n40\n\n\nTable of Contents\ncollaborators, which we may not be able to control. If we are unable to access human health-generated molecules and compounds to conduct R&D on cost-effective terms, our ability to develop new products could be limited.\nThe actual or purported intellectual property rights of third parties may negatively affect our business.\nA third party may sue us, our distributors or licensors, or otherwise make a claim, alleging infringement or other violation of the third-party\u2019s patents, trademarks, trade dress, copyrights, trade secrets, domain names or other intellectual property rights. If we do not prevail in this type of litigation, we may be required to:\n\u25cf\npay monetary damages;\n\u25cf\nobtain a license in order to continue manufacturing or marketing the affected products, which may not be available on commercially reasonable terms, or at all; or\n\u25cf\nstop activities, including any commercial activities, relating to the affected products, which could include a recall of the affected products and/or a cessation of sales in the future.\nThe costs of defending an intellectual property claim could be substantial and could materially adversely affect our operating results and financial condition, even if we successfully defend such claims. We may also incur costs in connection with an obligation to indemnify a distributor, licensor or other third party. Moreover, even if we believe that we do not infringe a validly existing third-party patent, we may choose to license such patent, which would result in associated costs and obligations. \nThe intellectual property positions of animal health medicines and vaccines businesses frequently involve complex legal and factual questions, and an issued patent does not guarantee us the right to practice the patented technology or develop, manufacture or commercialize the patented product. We cannot be certain that a competitor or other third party does not have or will not obtain rights to intellectual property that may prevent us from manufacturing, developing or marketing certain of our products, regardless of whether we believe such intellectual property rights are valid and enforceable or we believe we would be otherwise able to develop a more commercially successful product, which may harm our financial condition and results of operations.\nIf our intellectual property rights are challenged or circumvented, competitors may be able to take advantage of our R&D efforts. We are also dependent upon trade secrets, which in some cases may be difficult to protect.\nOur long-term success largely depends on our ability to market technologically competitive products. We rely and expect to continue to rely on a combination of intellectual property, including patent, trademark, trade dress, copyright, trade secret and domain name protection laws, as well as confidentiality and license agreements with our employees and others, to protect our intellectual property and proprietary rights. If we fail to obtain and maintain adequate intellectual property protection, we may not be able to prevent third parties from using our proprietary technologies or from marketing products that are very similar or identical to ours. Our currently pending or future patent applications may not result in issued patents, or be approved on a timely basis, or at all. Similarly, any term extensions that we seek may not be approved on a timely basis, if at all. In addition, our issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products or provide us with any competitive advantage, including exclusivity in a particular product area. The scope of our patent claims also may vary between countries, as individual countries have their own patent laws. For example, some countries only permit the issuance of patents covering a novel chemical compound itself, and its first use, and thus further methods of use for the same compound, may not be patentable. We may be subject to challenges by third parties regarding our intellectual property, including claims regarding validity, enforceability, scope and effective term. The validity, enforceability, scope and effective term of patents can be highly uncertain and often involve complex legal and factual questions and proceedings. Our ability to enforce our patents also depends on the laws of individual countries and each country\u2019s practice with respect to enforcement of intellectual property rights. In addition, if we are unable to maintain our existing license agreements or other agreements pursuant to which third parties grant us rights to intellectual property, including because such agreements expire or are terminated, our financial condition and results of operations could be materially adversely affected.\nPatent law changes in the United States and other countries may also weaken our ability to enforce our patent rights or make such enforcement financially unattractive. Any such changes could result in increased costs to protect our intellectual property or limit our ability to obtain and maintain patent protection for our products in these jurisdictions. \n41\n\n\nTable of Contents\nAdditionally, certain foreign governments have indicated that compulsory licenses to patents may be granted in the case of national emergencies, which could diminish or eliminate sales and profits from those regions and materially adversely affect our operating results and financial condition.\nLikewise, in the United States and other countries, we currently hold issued trademark registrations and have trademark applications pending, any of which may be the subject of a governmental or third-party objection, which could prevent the maintenance or issuance of the same and thus create the potential need to rebrand or relabel a product. As our products mature, our reliance on our trademarks to differentiate us from our competitors increases and as a result, if we are unable to prevent third parties from adopting, registering or using trademarks and trade dress that infringe, dilute or otherwise violate our trademark rights, our business could be materially adversely affected.\nOur competitive position is also dependent upon unpatented trade secrets, which in some cases may be difficult to protect. Others may independently develop substantially equivalent proprietary information and techniques or may otherwise gain access to our trade secrets and trade secrets may be disclosed or we may not be able to protect our rights to unpatented trade secrets.\nMany of our vaccine products and other products are based on or incorporate proprietary information, including proprietary master seeds and proprietary or patented adjuvant formulations. We actively seek to protect our proprietary information, including our trade secrets and proprietary know-how, by requiring our employees, consultants, other advisors and other third parties to execute confidentiality agreements upon the commencement of their employment, engagement or other relationship. Despite these efforts and precautions, we may be unable to prevent a third party from copying or otherwise obtaining and using our trade secrets or our other intellectual property without authorization and legal remedies may not adequately compensate us for the damages caused by such unauthorized use. Further, others may independently and lawfully develop substantially similar or identical products that circumvent our intellectual property by means of alternative designs or processes or otherwise.\nThe misappropriation and infringement of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States, may occur even when we take steps to prevent it. In the future, we may be party to patent lawsuits and other intellectual property rights claims that are expensive and time consuming, and if resolved adversely, could have a significant impact on our business and financial condition. In the future, we may not be able to enforce intellectual property that relates to our products for various reasons, including licensor restrictions and other restrictions imposed by third parties, and the costs of doing so may outweigh the value of doing so, and this could have a material adverse impact on our business and financial condition.\nWe are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws or trade control laws, as well as other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect our business, financial condition and results of operations\n.\nOur operations are subject to anti-corruption laws, including the FCPA and other anti-corruption laws that apply in countries where we do business. The FCPA, UK Bribery Act and other laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations, and we participate in relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.\nWe are also subject to other laws and regulations governing our international operations, including regulations administered by the U.S. Department of Commerce\u2019s Bureau of Industry and Security, the U.S. Department of Treasury\u2019s Office of Foreign Asset Control and various non-U.S. government entities, including applicable export control regulations, economic sanctions on countries and persons, customs requirements, currency exchange regulations and transfer pricing regulations (collectively, the \u201cTrade Control laws\u201d).\nThere is no assurance that we will be completely effective in ensuring our compliance with all applicable anticorruption laws, including the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance with the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil \n42\n\n\nTable of Contents\npenalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the FCPA other anti-corruption laws or Trade Control laws by U.S. or foreign authorities could also have an adverse impact on our reputation, business, financial condition and results of operations.\nIncreased regulation or decreased governmental financial support for the raising, processing or consumption of food animals could reduce demand for our animal health products.\nCompanies in the animal health industry are subject to extensive and increasingly stringent regulations. If livestock producers are adversely affected by new regulations or changes to existing regulations, they may reduce herd sizes or become less profitable and, as a result, they may reduce their use of our products, which may materially adversely affect our operating results and financial condition. Furthermore, adverse regulations related, directly or indirectly, to the use of one or more of our products may injure livestock producers\u2019 market position. More stringent regulation of the livestock industry or our products could have a material adverse effect on our operating results and financial condition. Also, many industrial producers, including livestock producers, benefit from governmental subsidies, and if such subsidies were to be reduced or eliminated, these companies may become less profitable and, as a result, may reduce their use of our products.\nIncreased or decreased inventory levels at our channel distributors can lead to fluctuations in our revenues and variations in payment terms extended to our distributors can impact our cash flows.\n       In addition to selling our products directly to customers, we also sell to distributors who, in turn, sell our products to third parties. Inventory levels at our distributors may increase or decrease as a result of various factors, including end customer demand, new customer contracts, the influence of competition, political and socio-economic climate, contractual obligations related to minimum inventory levels, changing perceptions, including those of alternative products, our ability to renew distribution contracts with expected terms, our ability to implement commercial strategies, regulatory restrictions, armed conflicts, unexpected customer behavior, proactive measures taken by us in response to shifting market dynamics and procedures and environmental factors beyond our control, including weather conditions or an outbreak of infectious disease such as COVID-19 or diseases carried by farm animals such as African Swine fever. These increases and decreases can lead to variations in our quarterly and annual revenues.\n       In addition, we have policies that govern the payment terms that we extend to our customers. From time to time, our distributors have requested exceptions to the payment term policies that we extend to them for various reasons, including consolidation amongst our distributors, changes in the buying patterns of end customers, as well as the perception of our distributors regarding the need to maintain certain inventory levels to avoid supply disruptions. Extensions of anticipated customer payment terms can impact our cash flows, liquidity and results of operations.       \nWe have substantial debt \nand interest payment requirements that may restrict our future operations and impair our ability to meet our obligations under our indebtedness. Restrictions imposed by our outstanding indebtedness, including the restrictions contained in our 2021 Credit Facilities, may limit our ability to operate our business and to finance our future operations or capital\n needs or to engage in other business activities.\nAs of June\u00a030,\u00a02023, we had outstanding indebtedness (reflecting the principal amounts) of $273.8 million under our 2021 Term A loan (as defined below), $50.0 million under our 2023 Incremental Term loan (as defined below), $141.0\u00a0million of outstanding borrowings under our revolving credit facility, $11.7 million under our 2022 Term Loan (as defined below) and $2.5\u00a0million of outstanding letters of credit. Subject to restrictions in our 2021 Credit Facilities (as defined below), we may incur significant additional indebtedness. If we and our subsidiaries incur significant additional indebtedness, the related risks that we face could intensify.\nOur substantial debt may have important consequences. For instance, it could:\n\u25cf\nmake it more difficult for us to satisfy our financial obligations, including those relating to the 2021 Credit Facilities;\n43\n\n\nTable of Contents\n\u25cf\nrequire us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which will reduce funds available for other business purposes, including capital expenditures and acquisitions;\n\u25cf\nincrease our vulnerability to general adverse economic and industry conditions;\n\u25cf\nlimit our flexibility in planning for or reacting to changes in our business and the industry in which we operate;\n\u25cf\nplace us at a competitive disadvantage compared with some of our competitors that may have less debt and better access to capital resources; and\n\u25cf\nlimit our ability to obtain additional financing required to fund working capital and capital expenditures and for other general corporate purposes.\nOur ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on economic, financial, competitive and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow, and future financings may not be available to provide sufficient net proceeds, to meet these obligations or to successfully execute our business strategy.\nThe terms of the 2021 Credit Facilities contain certain covenants that limit our ability and that of our subsidiaries to create liens, merge or consolidate, dispose of assets, incur indebtedness and guarantees, repurchase or redeem capital stock and indebtedness, make certain investments or acquisitions, enter into certain transactions with affiliates or change the nature of our business. As a result of these covenants and restrictions, we will be limited in how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We may not be able to maintain compliance with the covenants in any of our debt instruments in the future and, if we fail to do so, we may not be able to obtain waivers from the lenders and/or amend the covenants.\nWe may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.\nOur ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control, including the impact of the COVID-19 pandemic and the ongoing armed conflict between Russia and Ukraine, and the related economic downturn in the debt markets. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness.\nIf our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, or to dispose of material assets or operations, alter our dividend policy, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The instruments that govern our indebtedness may restrict our ability to dispose of assets and may restrict the use of proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due.\nIn addition, we conduct our operations through our subsidiaries. Accordingly, repayment of our indebtedness will depend on the generation of cash flow by our subsidiaries, including our international subsidiaries, and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries may not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity, and under certain circumstances, legal, tax and contractual restrictions may limit our ability to obtain cash from our subsidiaries or may subject any transfer of cash from our subsidiaries to substantial tax liabilities. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.\n44\n\n\nTable of Contents\nOur inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, may materially adversely affect our operating results, financial condition and liquidity and our ability to satisfy our obligations under our indebtedness or pay dividends on our common stock.\nWe are subject to change of control provisions.\nWe are a party to certain contractual arrangements that are subject to change of control provisions. In this context, \u201cchange of control\u201d is generally defined as including (a)\u00a0any person or group, other than Mr.\u00a0Jack\u00a0C. Bendheim and his family and affiliates (the current holders of approximately 90.9% of the combined voting power of all classes of our outstanding common stock), becoming the beneficial owner of more than 50% of the total voting power of our stock, and (b)\u00a0a change in any twelve month period in the majority of the members of the Board that is not approved by Mr.\u00a0Bendheim and/or his family and affiliates or by the majority of directors in office at the start of such period.\nMr.\u00a0Bendheim and his family and affiliates may choose to dispose of part or all of their stakes in us and/or may cease to exercise the current level of control they have over the appointment and removal of members of our Board. Any such changes may trigger a \u201cchange of control\u201d event that could result in us being forced to repay the 2021 Credit Facilities (which includes our 2023 Incremental Term Loan) or lead to the termination of a significant contract to which we are a party. If any such event occurs, this may negatively affect our financial condition and operating results. In addition, we may not have sufficient funds to finance repayment of any of such indebtedness upon any such \u201cchange in control.\u201d\nWe depend on sophisticated information technology and infrastructure.\nWe rely on various information systems to manage our operations, and we increasingly depend on third parties and applications on virtualized, or \u201ccloud,\u201d infrastructure to operate and support our information technology systems. These third parties include large established vendors as well as small, privately owned companies. Failure by these providers to adequately service our operations or a change in control or insolvency of these providers could have an adverse effect on our business, which in turn may materially adversely affect our business, financial condition or results of operations.\nWe may be required to write down goodwill or identifiable intangible assets.\nUnder generally accepted accounting principles in the United States (\u201cGAAP\u201d), if we determine goodwill or identifiable intangible assets are impaired, we will be required to write down these assets and record a non-cash impairment charge. As of June\u00a030,\u00a02023, we had goodwill of\u2009$53.3\u00a0million and identifiable intangible assets, less accumulated amortization, of $55.0\u00a0million. Identifiable intangible assets consist primarily of developed technology rights and patents and customer relationships.\nDetermining whether an impairment exists and the amount of the potential impairment involves quantitative data and qualitative criteria that are based on estimates and assumptions requiring significant management judgment. Future events or new information may change management\u2019s valuation of goodwill or an intangible asset in a short amount of time. The timing and amount of impairment charges recorded in our consolidated statements of operations and write-downs recorded in our consolidated balance sheets could vary if management\u2019s conclusions change. Any impairment of goodwill or identifiable intangible assets could have a material adverse effect on our financial condition and results of operations.\nWe may be unable to adequately protect our customers\u2019 privacy or we may fail to comply with privacy laws.\nThe protection of customer, employee and company data is critical and the regulatory environment surrounding information security, storage, use, processing, disclosure and privacy is demanding, with the frequent imposition of new and changing requirements. In addition, our customers expect that we will adequately protect their personal information. Any actual or perceived significant breakdown, intrusion, interruption, cyber-attack or corruption of customer, employee or company data or our failure to comply with federal, state, local and foreign privacy laws could damage our reputation and result in lost sales, fines and lawsuits. Despite our considerable efforts and technology to secure our computer network, security could be compromised, confidential information could be misappropriated or system disruptions could occur. Any actual or perceived access, disclosure or other loss of information or any significant breakdown, intrusion, interruption, cyber-attack or corruption of customer, employee or company data or our failure to comply with federal, state, local and foreign privacy laws or contractual obligations with customers, vendors, payment processors and other \n45\n\n\nTable of Contents\nthird parties, could result in legal claims or proceedings, liability under laws or contracts that protect the privacy of personal information, regulatory penalties, disruption of our operations and damage to our reputation, all of which could materially adversely affect our business, revenue and competitive position.\nWe may be subject to information technology system failures, network disruptions and breaches in data security.\nWe are increasingly dependent upon information technology systems and infrastructure to conduct critical operations and generally operate our business, which includes using information technology systems to process, transmit and store electronic information in our day-to-day operations, including customer, employee and company data. The COVID-19 pandemic and related quarantines, shelter-in-place and \u201csocial distancing\u201d requirements, travel restrictions and other similar government orders, have resulted in a substantial portion of our employees working remotely and have increased our dependence on tools that facilitate employees working from home and gaining remote access to our information technology systems. As a result, any disruption to our information technology systems, our industrial machinery, software used in our manufacturing facilities, firmware or software embedded in our equipment or machinery, including from cyber incidents, could have a material adverse effect on our business. The increased use of these tools could also make our information technology systems more vulnerable to breaches of data security and cybersecurity attacks. The size and complexity of our computer systems make them potentially vulnerable to breakdown, malicious intrusion and random attack. We also store certain information with third parties. Our information systems and those of our third-party vendors are subjected to computer viruses or other malicious codes, unauthorized access attempts, and cyber, phishing or ransomware attacks and also are vulnerable to an increasing threat of continually evolving cybersecurity risks and external hazards. Disruption, degradation, or manipulation of these systems and infrastructure through intentional or accidental means could impact key business processes. Cyber-attacks against the Company\u2019s systems and infrastructure could result in exposure of confidential information, the modification of critical data and/or the failure of critical operations. Likewise, improper or inadvertent employee behavior, including data privacy breaches by employees and others with permitted access to our systems may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. Any such breach could compromise our networks, and the information stored therein could be accessed, publicly disclosed, lost or stolen. Such attacks could result in our intellectual property and other confidential information being lost or stolen, disruption of our operations and other negative consequences, such as increased costs for security measures or remediation costs, and diversion of management attention. Although the aggregate impact on the Company\u2019s operations and financial condition has not been material to date, the Company has been the target of events of this nature and expects them to continue as cyber-attacks are becoming more sophisticated and frequent, and the techniques used in such attacks change rapidly. The Company monitors its data, information technology and personnel usage of Company systems to reduce these risks and continues to do so on an ongoing basis for any current or potential threats. \nIf any of our operational technologies, software or hardware or other control systems are compromised, fail or have other significant shortcomings, it could disrupt our business, require us to incur substantial additional expenses or result in potential liability or reputational damage. While we have invested in protection of data and information technology, there can be no assurance that our efforts will prevent such breakdowns, cybersecurity attacks or breaches in our systems that could cause reputational damage, business disruption and legal and regulatory costs; could result in third-party claims; could result in compromise or misappropriation of our intellectual property, trade secrets and sensitive information; and could otherwise adversely affect our business and financial results. \nImplementing new business lines or offering new products and services may subject us to additional risks.\n       From time to time, we may implement new business lines or offer new products and services within existing lines of business. There may be substantial risks and uncertainties associated with these efforts. We may invest significant time and resources in developing, marketing, or acquiring new lines of business and/or offering new products and services. Initial timetables for the introduction and development or acquisition of new lines of business and/or the offering of new products or services may not be achieved, and price and profitability targets may prove to be unachievable. Our lack of experience or knowledge, as well as external factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the success of an acquisition or the implementation of a new line of business or a new product or service. New business lines or new products and services within existing lines of business could affect the sales and profitability of existing lines of business or products and services. Failure to successfully manage these risks in the implementation or acquisition of new lines of business or the offering of new products or services could have a material adverse effect on our reputation, business, results of operations, and financial condition.\n46\n\n\nTable of Contents\n\u200b\nRisks Related to Ownership of Our Class\u00a0A Common Stock\nOur multiple class structure and the concentration of our voting power with certain of our stockholders will limit your ability to influence corporate matters, and conflicts of interest between certain of our stockholders and us or other investors could arise in the future\n.\nAs of August\u00a025, 2023, BFI Co., LLC (\u201cBFI\u201d) beneficially owns 59,480 shares of our Class\u00a0A common stock and 20,166,034 shares of our Class\u00a0B common stock, which together represent approximately 90.9% of the combined voting power of all classes of our outstanding common stock. As of August\u00a025, 2023, our other stockholders collectively own interests representing approximately 9.1% of the combined voting power of all classes of our outstanding common stock. Because of our multiple class structure and the concentration of voting power with BFI, BFI will continue to be able to control all matters submitted to our stockholders for approval for so long as BFI holds common stock representing greater than 50% of the combined voting power of all classes of our outstanding common stock. BFI will therefore have significant influence over management and affairs and control the approval of all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of the Company or its assets, for the foreseeable future.\nWe are classified as a \u201ccontrolled company\u201d and, as a result, we qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements\n.\nBFI controls a majority of the combined voting power of all classes of our outstanding common stock. As a result, we are a \u201ccontrolled company\u201d within the meaning of the Nasdaq corporate governance standards. Under Nasdaq rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a \u201ccontrolled company\u201d and may elect not to comply with certain corporate governance requirements, including:\n\u25cf\nthe requirement that a majority of the Board consists of independent directors;\n\u25cf\nthe requirement that we have a nominating and corporate governance committee and that it is composed entirely of independent directors; and\n\u25cf\nthe requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.\nWe utilize and intend to continue to utilize these exemptions. As a result, while we currently have a majority of independent directors:\n\u25cf\nwe may not have a majority of independent directors in the future;\n\u25cf\nwe will not have a nominating and corporate governance committee; and\n\u25cf\nwe will not be required to have an annual performance evaluation of the compensation committee.\nAccordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.\nOur stock price may be volatile or may decline regardless of our operating performance.\nThe market price of our Class\u00a0A common stock may fluctuate significantly in response to a number of factors, many of which we cannot control, including those described under \u201c\u2014 Risk Factors Relating to Our Business\u201d and the following:\n\u25cf\nchanges in financial estimates by any securities analysts who follow our Class\u00a0A common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our Class\u00a0A common stock;\n\u25cf\ndowngrades by any securities analysts who follow our Class\u00a0A common stock;\n\u25cf\nfuture sales of our Class\u00a0A common stock by our officers, directors and significant stockholders;\n47\n\n\nTable of Contents\n\u25cf\nmarket conditions or trends in our industry or the economy as a whole and, in particular, in the animal health industry;\n\u25cf\ninvestors\u2019 perceptions of our prospects;\n\u25cf\nannouncements by us or our competitors of significant contracts, acquisitions, joint ventures or capital commitments; and\n\u25cf\nchanges in key personnel.\nIn addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. The COVID-19 pandemic and the ongoing armed conflict between Russia and Ukraine has contributed to significant volatility in stock and financial markets in the United States and globally. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs, and our resources and the attention of management could be diverted from our business.\nOur majority stockholder has the ability to control significant corporate activities and our majority stockholder\u2019s interests may not coincide with yours.\nAs of August\u00a025, 2023, approximately 90.9% of the combined voting power of all classes of our outstanding common stock is held by BFI. As a result of its ownership, so long as it holds a majority of the combined voting power of all classes of our outstanding common stock, BFI will have the ability to control the outcome of matters submitted to a vote of stockholders and, through our Board of Directors, the ability to control decision-making with respect to our business direction and policies. Matters over which BFI, directly or indirectly, exercises control include:\n\u25cf\nthe election of our Board of Directors and the appointment and removal of our officers;\n\u25cf\nmergers and other business combination transactions, including proposed transactions that would result in our stockholders receiving a premium price for their shares;\n\u25cf\nother acquisitions or dispositions of businesses or assets;\n\u25cf\nincurrence of indebtedness and the issuance of equity securities;\n\u25cf\nrepurchase of stock and payment of dividends; and\n\u25cf\nthe issuance of shares to management under our equity incentive plans.\nEven if BFI\u2019s ownership of our shares falls below a majority of the combined voting power of all classes of our outstanding common stock, it may continue to be able to influence or effectively control our decisions.\nFuture sales of our Class\u00a0A common stock, or the perception in the public markets that these sales may occur, may depress our stock price.\nSales of substantial amounts of our Class\u00a0A common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our Class\u00a0A common stock and could impair our ability to raise capital through the sale of additional shares. In addition, subject to certain restrictions on converting Class\u00a0B common stock into Class\u00a0A common stock, all of our outstanding shares of Class\u00a0B common stock may be converted into Class\u00a0A common stock and sold in the public market by existing stockholders. As of August\u00a025, 2023, we had 20,337,574 shares of Class\u00a0A common stock and 20,166,034 shares of Class\u00a0B common stock outstanding.\nBFI, which holds all of our outstanding Class\u00a0B common stock, has the right to require us to register the sales of their shares under the Securities Act under the terms of an agreement between us and the holders of these securities. In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our Class\u00a0A common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our Class\u00a0A common stock.\n48\n\n\nTable of Contents\nAnti-takeover provisions in our charter documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.\nOur certificate of incorporation and bylaws contain provisions that may make the acquisition of the Company more difficult without the approval of our Board of Directors. These provisions:\n\u25cf\nauthorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of Class\u00a0A common stock;\n\u25cf\nprohibit, at any time after BFI and its affiliates cease to hold at least 50% of the combined voting power of all classes of our outstanding common stock, stockholder action by written consent, without the express prior consent of the Board of Directors;\n\u25cf\nprovide that the Board of Directors is expressly authorized to make, alter or repeal our amended and restated bylaws;\n\u25cf\nestablish advance notice requirements for nominations for elections to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and\n\u25cf\nestablish a classified Board of Directors, as a result of which our Board of Directors will be divided into three classes, with each class serving for staggered three-year terms, which prevents stockholders from electing an entirely new Board of Directors at an annual meeting; and require, at any time after BFI and its affiliates cease to hold at least 50% of the combined voting power of all classes of our outstanding common stock, the approval of holders of at least three quarters of the combined voting power of all classes of our outstanding common stock for stockholders to amend the amended and restated bylaws or amended and restated certificate of incorporation.\nThese anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of the Company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.\nOur certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders\u2019 ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees\n.\nOur certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i)\u00a0any derivative action or proceeding brought on our behalf, (ii)\u00a0any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii)\u00a0any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our by-laws or (iv)\u00a0any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our certificate of incorporation described above. This choice of forum provision may limit a stockholder\u2019s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition and results of operations.\nProvisions of our certificate of incorporation could have the effect of preventing us from having the benefit of certain business opportunities that we would otherwise be entitled to pursue.\nOur certificate of incorporation provides that BFI and its affiliates are not required to offer corporate opportunities of which they become aware to us and could, therefore, offer such opportunities instead to other companies including affiliates of BFI. In the event that BFI obtains business opportunities from which we might otherwise benefit but chooses not to present such opportunities to us, these provisions of our certificate of incorporation could have the effect of \n49\n\n\nTable of Contents\npreventing us from pursuing transactions or relationships that would otherwise be in the best interests of our stockholders.\nWe may not pay cash dividends in the future and, as a result, you may not receive any return on investment unless you are able to sell your Class\u00a0A common stock for a price greater than your initial investment.\nWe have a paid a quarterly dividend since September\u00a02014 on our Class\u00a0A and Class\u00a0B common stock and our Board of Directors has declared a cash dividend of\u2009$0.12 per share on our Class\u00a0A common stock and Class\u00a0B common stock that is payable September 27, 2023. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, contractual restrictions and our ability to obtain funds from our subsidiaries to meet our obligations. Our 2021 Credit Facilities permit us to pay distributions to stockholders out of available cash subject to certain annual limitations and so long as no default or event of default under the 2021 Credit Facilities shall have occurred and be continuing at the time such distribution is declared. Realization of a gain on your investment will depend on the appreciation of the price of our Class\u00a0A common stock.\nGeneral Risk Factors\nWe face competition in each of our markets from a number of large and small companies, some of which have greater financial, R&D, production and other resources than we have. \nMany of our products face competition from alternative or substitute products. We are engaged in highly competitive industries and, with respect to all of our major products, face competition from a substantial number of global and regional competitors. Several new start-up companies also compete in the animal health industry. We believe many of our competitors are conducting R&D activities in areas served by our products and in areas in which we are developing products. Some competitors have greater financial, R&D, production and other resources than we have. Some of our principal competitors include Boehringer Ingelheim International GmbH, Ceva Sant\u00e9 Animale, Elanco Animal Health Incorporated, Huvepharma Inc., Merck & Co., Inc. (Merck Animal Health and MSD Animal Health), Southeastern Minerals, Inc. and Zoetis Inc. To the extent these companies or new entrants offer comparable animal health, mineral nutrition or performance products at lower prices, our business could be adversely affected. New entrants could substantially reduce our market share or render our products obsolete. Furthermore, many of our competitors have relationships with key distributors and, because of their size, have the ability to offer attractive pricing incentives, which may negatively impact or hinder our relationships with these distributors. \nIn certain countries, because of our size and product mix, we may not be able to capitalize on changes in competition and pricing as fully as our competitors. In recent years, there have been new generic medicated products introduced to the livestock industry, particularly in the United States. \nThere has been and likely will continue to be consolidation in the animal health market, which could strengthen our competitors. Our competitors can be expected to continue to improve the formulation and performance of their products and to introduce new products with competitive price and performance characteristics. There can be no assurance that we will have sufficient resources to maintain our current competitive position or market share. We also face competitive pressures arising from, among other things, more favorable safety and efficacy product profiles, limited demand growth or a significant number of additional competitive products being introduced into a particular market, price reductions by competitors, the ability of competitors to capitalize on their economies of scale and the ability of competitors to produce or otherwise procure animal health products at lower costs than us. To the extent that any of our competitors are more successful with respect to any key competitive factor, or we are forced to reduce, or are unable to raise, the price of any of our products in order to remain competitive, our business, financial condition and results of operations could be materially adversely affected. \nFailure to comply with requirements to design, implement and maintain effective internal controls could have a material adverse effect on our business and stock price. \nAs a public company, we have significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail \n50\n\n\nTable of Contents\nto meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our operating results. In addition, we are required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting and a statement that our auditors have issued an attestation report on the effectiveness of our internal controls. Testing and maintaining internal controls may divert our management\u2019s attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not issue an unqualified opinion. We cannot provide any assurance we will not identify material weaknesses in the future. If we suffer deficiencies or material weaknesses in our internal controls, we may be unable to report financial information in a timely and accurate manner and it could result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis, which could cause investors to lose confidence in our financial reporting, negatively affect the trading price of our common stock and could cause a default under the agreements governing our indebtedness. If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified opinion, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our stock. \nAs a public company, we are subject to financial and other reporting and corporate governance requirements that may be difficult for us to satisfy and may divert management\u2019s attention from our business. \nAs a public company, we are required to file annual and quarterly reports and other information pursuant to the Exchange Act with the SEC. We are required to ensure that we have the ability to prepare consolidated financial statements that comply with SEC reporting requirements on a timely basis. We are also subject to other reporting and corporate governance requirements, including the applicable stock exchange listing standards and certain provisions of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder, which impose significant compliance obligations upon us. \nAs a public company, we are required to commit significant resources and management time and attention to these requirements, which cause us to incur significant costs and which may place a strain on our systems and resources. As a result, our management\u2019s attention might be diverted from other business concerns. Compliance with these requirements place significant demands on our legal, accounting and finance staff and on our accounting, financial and information systems and increase our legal and accounting compliance costs as well as our compensation expense as we have been or may be required to hire additional accounting, tax, finance and legal staff with the requisite technical knowledge. \nWe may not be able to expand through acquisitions or successfully integrate the products, services and personnel of acquired businesses. \nFrom time to time, we may make selective acquisitions to expand our range of products and services and to expand the geographic scope of our business. However, we may be unable to identify suitable targets, and competition for acquisitions may make it difficult for us to consummate acquisitions on acceptable terms or at all. We may not be able to locate any complementary products that meet our requirements or that are available to us on acceptable terms or we may not have sufficient capital resources to consummate a proposed acquisition. In addition, assuming we identify suitable products or partners, the process of effectively entering into these arrangements involves risks that our management\u2019s attention may be diverted from other business concerns. Further, if we succeed in identifying and consummating appropriate acquisitions on acceptable terms, we may not be able to successfully integrate the products, services and personnel of any acquired businesses on a basis consistent with our current business practice. In particular, we may face greater than expected costs, time and effort involved in completing and integrating acquisitions and potential disruption of our ongoing business. Furthermore, we may realize fewer, if any, synergies than envisaged. Our ability to manage acquired businesses may also be limited if we enter into joint ventures or do not acquire full ownership or a controlling stake in the acquired business. In addition, continued growth through acquisitions may significantly strain our existing management and operational resources. As a result, we may need to recruit additional personnel, particularly at the level below senior management, and we may not be able to recruit qualified management and other key personnel to manage our growth. Moreover, certain transactions could adversely impact earnings as we incur development and other expenses related to the transactions and we could incur debt to complete these transactions. Debt instruments could contain \n51\n\n\nTable of Contents\ncontractual commitments and covenants that could adversely affect our cash flow and our ability to operate our business, financial condition and results of operations. \nWe may not successfully implement our business strategies or achieve expected gross margin improvements. \nWe are pursuing and may continue to pursue strategic initiatives that management considers critical to our long-term success, including, but not limited to, increasing sales in emerging markets, base revenue growth through new product development and value-added product lifecycle development; improving operational efficiency through manufacturing efficiency improvement and other programs; and expanding our complementary products and services. There are significant risks involved with the execution of these types of initiatives, including significant business, economic and competitive uncertainties, many of which are outside of our control. Accordingly, we cannot predict whether we will succeed in implementing these strategic initiatives. It could take several years to realize the anticipated benefits from these initiatives, if any benefits are achieved at all. We may be unable to achieve expected gross margin improvements on our products or technologies. Additionally, our business strategy may change from time to time, which could delay our ability to implement initiatives that we believe are important to our business.\n\u200b",
+  "item7": ">Item\u00a07.Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nIntroduction\nOur management\u2019s discussion and analysis of financial condition and results of operations (\u201cMD&A\u201d) is provided to assist readers in understanding our performance, as reflected in the results of our operations, our financial condition and our cash flows. The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. This MD&A should be read in conjunction with our consolidated financial statements and related notes thereto included under the section entitled \u201cFinancial Statements and Supplementary Data.\u201d Our future results could differ materially from our historical performance as a result of various factors such as those discussed in \u201cRisk Factors\u201d and \u201cForward-Looking Statements and Risk Factors Summary.\u201d\nOverview of our business\nPhibro Animal Health Corporation is a leading global diversified animal health and mineral nutrition company. We develop, manufacture and market a broad range of products for food and companion animals including poultry, swine, beef and dairy cattle, aquaculture and dogs. Our products help prevent, control and treat diseases, and support nutrition to help improve animal health and well-being. In addition to animal health and mineral nutrition products, we manufacture and market specific ingredients for use in the personal care, industrial chemical and chemical catalyst industries. We market approximately 770 product lines in over 80 countries to approximately 4,000 customers.\n55\n\n\nTable of Contents\nFactors affecting our performance\nArmed conflict between Russia and Ukraine\nIn response to the armed conflict between Russia and Ukraine that began in February 2022, we and our employees have provided support to Ukraine in the form of monetary donations, free products and humanitarian services. Our limited intent for the Russian market is to continue to provide medicines and vaccines, and related regulatory and technical support, to help existing customers combat disease challenges in the production of food animals on their farms. We have no production or direct distribution operations and no planned investments in Russia.\nSince the conflict began, the United States and other North Atlantic Treaty Organization (\u201cNATO\u201d) member states, as well as non-member states, announced targeted economic sanctions on Russia, including certain Russian citizens and enterprises. The continuation or escalation of the conflict may trigger additional economic and other sanctions, as well as broader military conflict. The potential impacts of any resulting bans, sanctions, boycotts or broader military conflicts on our business are uncertain. The potential impacts could include supply chain and logistics disruptions, macroeconomic impacts resulting from the exclusion of Russian financial institutions from the global banking system, volatility in foreign exchange rates and interest rates, inflationary pressures on raw materials and energy as well as heightened cybersecurity threats. Our annual sales to Russia and Ukraine represent approximately 1% of consolidated net sales.\nWe cannot know if the conflict could escalate and result in broader economic and security concerns that could adversely affect our business, financial condition, or results of operations. \nIndustry growth\nWe believe global population growth, the growth of the global middle class and the productivity improvements needed due to limitations of arable land and water supplies have supported and will continue to support growth of the animal health industry.\nRegulatory developments\nOur business depends heavily on a healthy and growing livestock industry. Some in the public perceive risks to human health related to the consumption of food derived from animals that utilize certain of our products, including certain of our MFA products. In particular, there is increased focus, in the United States and other countries, on the use of medically important antimicrobials. As defined by the FDA, medically important antimicrobials (\u201cMIAs\u201d) include classes that are prescribed in animal and human health and are listed in the Appendix of the FDA-CVM Guidance for Industry (GFI) 152. Our products that contain virginiamycin, oxytetracycline or neomycin are classified by the FDA as medically important antimicrobials. In addition to the United States, the World Health Organization (WHO), the E.U., Australia and Canada have promulgated rating lists for antimicrobials that are used in veterinary medicine and that include certain of our products.\nThe classification of our products as MIAs or similar listings may lead to a decline in the demand for and production of food products derived from animals that utilize our products and, in turn, demand for our products. Livestock producers may experience decreased demand for their products or reputational harm as a result of evolving consumer views of nutrition and health-related concerns, animal rights and other concerns. Any reputational harm to the livestock industry may also extend to companies in related industries, including us. In addition, campaigns by interest groups, activists and others with respect to perceived risks associated with the use of our products in animals, including position statements by livestock producers and their customers based on non-use of certain medicated products in livestock production, whether or not scientifically-supported, could affect public perceptions and reduce the use of our products. Those adverse consumer views related to the use of one or more of our products in animals could have a material adverse effect on our financial condition and results of operations.\nIn April 2016, the FDA began initial steps to withdraw approval of carbadox (the active ingredient in our Mecadox product) via a regulatory process known as a NOOH, due to concerns that certain residues from the product may persist in animal tissues for longer than previously determined. In the years following, Phibro has continued an ongoing process of responding collaboratively and transparently to the CVM inquiries and has provided extensive and meticulous research and data that confirmed the safety of carbadox. In July 2020, the FDA announced it would not proceed to a hearing on the scientific concerns raised in the 2016 NOOH, consistent with the normal regulatory procedure, but instead announced that it was withdrawing the 2016 NOOH and issuing a proposed order to review the regulatory method for carbadox. Phibro reiterated the safety of carbadox and the appropriateness of the regulatory method and offered to work \n56\n\n\nTable of Contents\nwith the CVM to generate additional data to support the existing regulatory method or select a suitable alternative regulatory method. \nIn March 2022, the FDA held a Part 15 virtual public hearing seeking data and information related to the safety of carbadox in which Phibro participated and again detailed the extensive research and data that confirm the safety of carbadox. In the event the FDA continues to assert that carbadox should be removed from the market, we will argue that we are entitled to and expect to have a full evidentiary hearing on the merits before an administrative law judge. Should we be unable to successfully defend the safety of the product, the loss of carbadox sales will have an adverse effect on our financial condition and results of operations. Sales of Mecadox (carbadox) for the year ended June\u00a030,\u00a02023, were approximately $20 million. As of the date of this Annual Report on Form 10-K, Mecadox continues to be available for use by swine producers.\nSee also \u201cBusiness\u2009\u2014\u2009\n \nCompliance with Government Regulation \u2009\u2014\u2009United States \u2014\u2009Carbadox\u201d; and \u201cBusiness \u2014 Compliance with Government Regulation \u2014 Global Policy and Guidance.\u201d\nOur global sales of antibacterials, anticoccidials and other products were $387 million, $361 million and $330 million for the years ended June\u00a030,\u00a02023, 2022 and 2021, respectively.\nCompetition\nThe animal health industry is highly competitive. We believe many of our competitors are conducting R&D activities in areas served by our products and in areas in which we are developing products. Our competitors include specialty animal health businesses and the animal health businesses of large pharmaceutical companies. In addition to competition from established participants, there could be new entrants to the animal health medicines and vaccines industry in the future. Principal methods of competition vary depending on the region, species, product category or individual products, including reliability, reputation, quality, price, service and promotion to veterinary professionals and livestock producers. \nForeign exchange\nWe conduct operations in many areas of the world, involving transactions denominated in a variety of currencies. For the year ended June\u00a030,\u00a02023, we generated approximately 40% of our revenues from operations outside the United States. Although a portion of our revenues are denominated in various currencies, the selling prices of the majority of our sales outside the United States are referenced in U.S. dollars, and as a result, our revenues have not been significantly affected by currency movements. We are subject to currency risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. We manufacture some of our major products in Brazil and Israel and production costs are largely denominated in local currencies, while the selling prices of the products are largely set in U.S. dollars. As such, we are exposed to changes in cost of goods sold resulting from currency movements and may not be able to adjust our selling prices to offset such movements. In addition, we incur selling and administrative expenses in various currencies and are exposed to changes in such expenses resulting from currency movements. For the year ended June\u00a030,\u00a02023, our expenses were not significantly affected by currency movements. Because our financial statements are reported in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations.\nClimate\nAdverse weather events and natural disasters may interfere with and negatively impact operations at our manufacturing sites, research and development facilities and offices, which could have a material adverse effect on our financial condition and results of operations, especially if the impact of an event or disaster is frequent or prolonged.\nOur operations, and the activities of our customers, could be disrupted by climate change. The physical changes caused by climate change may prompt changes in regulations or consumer preferences which in turn could have negative consequences for our and our customers\u2019 businesses. Climate change may negatively impact our customers\u2019 operations, particularly those in the livestock industry, through climate-related impacts such as increased air and water temperatures, rising water levels and increased incidence of disease in livestock. Potential physical risks from climate change may include altered distribution and intensity of rainfall, prolonged droughts or flooding, increased frequency of wildfires and other natural disasters, rising sea levels and a rising heat index, any of which could cause negative impacts to our and our customers\u2019 businesses. If such events affect our customers\u2019 businesses, they may purchase fewer of our products, and \n57\n\n\nTable of Contents\nour revenues may be negatively impacted. Climate driven changes could have a material adverse effect on our financial condition and results of operations. \nThere has been a broad range of proposed and promulgated state, national and international regulations aimed at reducing the effects of climate change. Such regulations could result in additional costs to maintain compliance and additional income or other taxes. Climate change regulations continue to evolve, and it is not possible to accurately estimate potential future compliance costs.\nProduct development initiatives\nOur future success depends on our existing product portfolio, including additional approvals for new claims for our products, for use of our products in new markets, for use of our products with new species and for cross-clearances enabling the use of our medicated products in conjunction with other products. Our future success also depends on our pipeline of new products, including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition. The majority of our R&D programs focus on product lifecycle development, which is defined as R&D programs that leverage existing animal health products by adding new species or claims, achieving approvals in new markets or creating new combinations and reformulations. We commit substantial effort, funds and other resources to expanding our product approvals and R&D, both through our own dedicated resources and through collaborations with third parties. We also commit significant resources to development of new vaccine technologies.\nOur current strategic initiatives include several projects. We are working to develop a vaccine for African Swine Fever, a virulent disease that is highly lethal in swine. We have also developed pHi-Tech, a portable electronic vaccination device and software that ensures proper delivery of vaccines and provides health management information. We continue to invest in a vaccine production facility in Sligo, Ireland to manufacture poultry vaccines, with our first commercial sale of product realized in 2022, and longer-term expectations to add swine and cattle vaccines. We are developing microbial products and bioproducts for a variety of applications serving animal health and nutrition, environmental, industrial and agricultural customers. We began operations at a new vaccine production facility in Guarulhos, Brazil that manufactures and markets autogenous vaccines against animal diseases for swine, poultry and aquaculture. We continue to build our companion animal business and pipeline. Our Rejensa joint supplement for dogs continues to gain customer acceptance. Our companion animal development pipeline includes an early-stage atopic dermatitis compound, a novel Lyme vaccine delivery system product, a potential treatment for mitral heart valve disease in dogs, a pain product and two early-stage oral care compounds.\n58\n\n\nTable of Contents\nAnalysis of the consolidated statements of operations\nSummary Results of Operations\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nChange\n\u00a0\nFor\u00a0the\u00a0Year\u00a0Ended\u00a0June\u00a030\n\u200b\n2023\n\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\n2023\u00a0/\u00a02022\n\u00a0\u00a0\u00a0\n2022/\u00a02021\n\u200b\n\u200b\n\u200b\n(in thousands, except per share amounts and percentages)\nNet sales\n\u200b\n$\n 977,889\n\u00a0\u00a0\u00a0\u00a0\n$\n 942,261\n\u00a0\u00a0\u00a0\u00a0\n$\n 833,350\n\u00a0\u00a0\u00a0\u00a0\n$\n 35,628\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n 4\n%\u00a0\u00a0\n$\n 108,911\n\u00a0\u00a0\u00a0\u00a0\n 13\n%\nGross profit\n\u200b\n\u00a0\n 298,237\n\u200b\n\u00a0\n 285,400\n\u200b\n\u00a0\n 271,377\n\u200b\n\u00a0\n 12,837\n\u00a0\n\u200b\n 4\n%\u00a0\u00a0\n\u00a0\n 14,023\n\u00a0\n 5\n%\nSelling, general and administrative expenses\n\u200b\n\u00a0\n 226,390\n\u200b\n\u00a0\n 206,414\n\u200b\n\u00a0\n 196,509\n\u200b\n\u00a0\n 19,976\n\u00a0\n\u200b\n 10\n%\u00a0\u00a0\n\u00a0\n 9,905\n\u00a0\n 5\n%\nOperating income\n\u200b\n\u00a0\n 71,847\n\u200b\n\u00a0\n 78,986\n\u200b\n\u00a0\n 74,868\n\u200b\n\u00a0\n (7,139)\n\u00a0\n\u200b\n (9)\n%\u00a0\u00a0\n\u00a0\n 4,118\n\u00a0\n 6\n%\nInterest expense, net\n\u200b\n\u00a0\n 15,321\n\u200b\n\u00a0\n 11,875\n\u200b\n\u00a0\n 12,880\n\u200b\n\u00a0\n 3,446\n\u00a0\n\u200b\n 29\n%\u00a0\u00a0\n\u00a0\n (1,005)\n\u00a0\n (8)\n%\nForeign currency (gains) losses, net\n\u200b\n\u00a0\n 2,455\n\u200b\n\u00a0\n (5,216)\n\u200b\n\u00a0\n (4,480)\n\u200b\n\u00a0\n 7,671\n\u00a0\n\u200b\n\u200b\n*\n\u00a0\n (736)\n\u00a0\n\u200b\n*\nIncome before income taxes\n\u200b\n\u00a0\n 54,071\n\u200b\n\u00a0\n 72,327\n\u200b\n\u00a0\n 66,468\n\u200b\n\u00a0\n (18,256)\n\u00a0\n\u200b\n (25)\n%\u00a0\u00a0\n\u00a0\n 5,859\n\u00a0\n 9\n%\nProvision for income taxes\n\u200b\n\u00a0\n 21,465\n\u200b\n\u00a0\n 23,152\n\u200b\n\u00a0\n 12,083\n\u200b\n\u00a0\n (1,687)\n\u00a0\n\u200b\n (7)\n%\u00a0\u00a0\n\u00a0\n 11,069\n\u00a0\n 92\n%\nNet income\n\u200b\n$\n 32,606\n\u200b\n$\n 49,175\n\u200b\n$\n 54,385\n\u200b\n$\n (16,569)\n\u00a0\n\u200b\n (34)\n%\u00a0\u00a0\n$\n (5,210)\n\u00a0\n (10)\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nNet income per share\n\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nBasic\n\u200b\n$\n 0.81\n\u200b\n$\n 1.21\n\u200b\n$\n 1.34\n\u200b\n$\n (0.40)\n\u200b\n\u200b\n\u200b\n\u200b\n$\n (0.13)\n\u00a0\n\u00a0\u00a0\n\u200b\nDiluted\n\u200b\n$\n 0.81\n\u200b\n$\n 1.21\n\u200b\n$\n 1.34\n\u200b\n$\n (0.40)\n\u200b\n\u200b\n\u200b\n\u200b\n$\n (0.13)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWeighted average number of shares outstanding\n\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nBasic\n\u00a0\n\u00a0\n 40,504\n\u200b\n\u00a0\n 40,504\n\u200b\n\u00a0\n 40,473\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nDiluted\n\u200b\n\u200b\n 40,504\n\u200b\n\u200b\n 40,504\n\u200b\n\u200b\n 40,504\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nRatio to net sales\n\u00a0\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nGross profit\n\u00a0\n\u00a0\n 30.5\n%\u00a0\u00a0\n\u00a0\n 30.3\n%\u00a0\u00a0\n\u00a0\n 32.6\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nSelling, general and administrative expenses\n\u00a0\n\u00a0\n 23.2\n%\u00a0\u00a0\n\u00a0\n 21.9\n%\u00a0\u00a0\n\u00a0\n 23.6\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nOperating income\n\u00a0\n\u00a0\n 7.3\n%\u00a0\u00a0\n\u00a0\n 8.4\n%\u00a0\u00a0\n\u00a0\n 9.0\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nIncome before income taxes\n\u00a0\n\u00a0\n 5.5\n%\u00a0\u00a0\n\u00a0\n 7.7\n%\u00a0\u00a0\n\u00a0\n 8.0\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nNet income\n\u00a0\n\u00a0\n 3.3\n%\u00a0\u00a0\n\u00a0\n 5.2\n%\u00a0\u00a0\n\u00a0\n 6.5\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nEffective tax rate\n\u00a0\n\u00a0\n 39.7\n%\u00a0\u00a0\n\u00a0\n 32.0\n%\u00a0\u00a0\n\u00a0\n 18.2\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nCertain amounts and\u00a0percentages may reflect rounding adjustments.\n*\nCalculation not meaningful\nChanges in net sales from period to period primarily result from changes in volumes and average selling prices. Although a portion of our net sales is denominated in various currencies, the selling prices of the majority of our sales outside the United States are referenced in U.S. dollars, and as a result, currency movements have not significantly affected our revenues.\nOur effective income tax rate has varied from period to period and from the federal statutory rate, due to the mix of taxable profits in various jurisdictions; changes in tax rates from period to period, including changes in income tax legislation in the United States and various international jurisdictions; and the effects of changes in uncertain tax positions and valuation allowances. Our future effective income tax rate will vary due to the relative amounts of taxable income in various jurisdictions, future changes in tax rates and legislation and other factors. We intend to continue to reinvest indefinitely the undistributed earnings of our foreign subsidiaries where we could be subject to applicable non-U.S. income and withholding taxes if amounts are repatriated to the U.S. See \u201cNotes to Consolidated Financial Statements\u2009\u2014\u2009Income Taxes\u201d for additional information.\n59\n\n\nTable of Contents\nNet sales, Adjusted EBITDA and reconciliation of GAAP net income to Adjusted EBITDA\nWe report Net sales and Adjusted EBITDA by segment to understand the operating performance of each segment. This enables us to monitor changes in net sales, costs and other actionable operating metrics at the segment level. See \u201c\u2014 General description of non-GAAP financial measures\u201d for descriptions of EBITDA and Adjusted EBITDA.\nSegment net sales and Adjusted EBITDA:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nChange\n\u00a0\nFor\u00a0the\u00a0Year\u00a0Ended\u00a0June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023\u00a0/\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n2022\u00a0/\u00a02021\n\u00a0\nNet sales\n\u200b\n(in\u00a0thousands, except percentages)\n\u00a0\nMFAs and other\n\u200b\n$\n 387,349\n\u200b\n$\n 361,538\n\u200b\n$\n 330,017\n\u200b\n$\n 25,811\n\u00a0\n 7\n%\u00a0\u00a0\n$\n 31,521\n\u00a0\n 10\n%\nNutritional specialties\n\u200b\n\u00a0\n 172,504\n\u200b\n\u00a0\n 157,196\n\u200b\n\u00a0\n 142,760\n\u200b\n\u00a0\n 15,308\n\u00a0\n 10\n%\u00a0\u00a0\n\u00a0\n 14,436\n\u00a0\n 10\n%\nVaccines\n\u200b\n\u00a0\n 99,998\n\u200b\n\u00a0\n 88,321\n\u200b\n\u00a0\n 72,939\n\u200b\n\u00a0\n 11,677\n\u00a0\n 13\n%\u00a0\u00a0\n\u00a0\n 15,382\n\u00a0\n 21\n%\nAnimal Health\n\u200b\n\u00a0\n 659,851\n\u200b\n\u00a0\n 607,055\n\u200b\n\u00a0\n 545,716\n\u200b\n\u00a0\n 52,796\n\u00a0\n 9\n%\u00a0\u00a0\n\u00a0\n 61,339\n\u00a0\n 11\n%\nMineral Nutrition\n\u200b\n\u00a0\n 242,656\n\u200b\n\u00a0\n 259,512\n\u200b\n\u00a0\n 220,560\n\u200b\n\u00a0\n (16,856)\n\u00a0\n (6)\n%\u00a0\u00a0\n\u00a0\n 38,952\n\u00a0\n 18\n%\nPerformance Products\n\u200b\n\u00a0\n 75,382\n\u200b\n\u00a0\n 75,694\n\u200b\n\u00a0\n 67,074\n\u200b\n\u00a0\n (312)\n\u00a0\n (0)\n%\u00a0\u00a0\n\u00a0\n 8,620\n\u00a0\n 13\n%\nTotal\n\u200b\n$\n 977,889\n\u200b\n$\n 942,261\n\u200b\n$\n 833,350\n\u200b\n$\n 35,628\n\u00a0\n 4\n%\u00a0\u00a0\n$\n 108,911\n\u00a0\n 13\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nAnimal Health\n\u200b\n$\n 136,139\n\u200b\n$\n 124,106\n\u200b\n$\n 123,953\n\u200b\n$\n 12,033\n\u00a0\n 10\n%\u00a0\u00a0\n$\n 153\n\u00a0\n 0\n%\nMineral Nutrition\n\u200b\n\u00a0\n 17,417\n\u200b\n\u00a0\n 24,038\n\u200b\n\u00a0\n 17,116\n\u200b\n\u00a0\n (6,621)\n\u00a0\n (28)\n%\u00a0\u00a0\n\u00a0\n 6,922\n\u00a0\n 40\n%\nPerformance Products\n\u200b\n\u00a0\n 9,346\n\u200b\n\u00a0\n 8,706\n\u200b\n\u00a0\n 9,437\n\u200b\n\u00a0\n 640\n\u00a0\n 7\n%\u00a0\u00a0\n\u00a0\n (731)\n\u00a0\n (8)\n%\nCorporate\n\u200b\n\u00a0\n (50,149)\n\u200b\n\u00a0\n (45,767)\n\u200b\n\u00a0\n (42,624)\n\u200b\n\u00a0\n (4,382)\n\u00a0\n 10\n%\u00a0\u00a0\n\u00a0\n (3,143)\n\u00a0\n 7\n%\nTotal\n\u200b\n$\n 112,753\n\u200b\n$\n 111,083\n\u200b\n$\n 107,882\n\u200b\n$\n 1,670\n\u00a0\n 2\n%\u00a0\u00a0\n$\n 3,201\n\u00a0\n 3\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA as a percentage of segment net sales\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nAnimal Health\n\u200b\n\u00a0\n 20.6\n%\u00a0\u00a0\n\u00a0\n 20.4\n%\u00a0\u00a0\n\u00a0\n 22.7\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nMineral Nutrition\n\u200b\n\u00a0\n 7.2\n%\u00a0\u00a0\n\u00a0\n 9.3\n%\u00a0\u00a0\n\u00a0\n 7.8\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nPerformance Products\n\u200b\n\u00a0\n 12.4\n%\u00a0\u00a0\n\u00a0\n 11.5\n%\u00a0\u00a0\n\u00a0\n 14.1\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nCorporate\n(1)\n\u200b\n\u00a0\n (5.1)\n%\u00a0\u00a0\n\u00a0\n (4.9)\n%\u00a0\u00a0\n\u00a0\n (5.1)\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\nTotal\n(1)\n\u200b\n\u00a0\n 11.5\n%\u00a0\u00a0\n\u00a0\n 11.8\n%\u00a0\u00a0\n\u00a0\n 12.9\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n(1)\nReflects ratio to total net sales.\nCertain amounts and\u00a0percentages may reflect rounding adjustments.\n*\nCalculation not meaningful\n60\n\n\nTable of Contents\nA reconciliation of net income, as reported under GAAP, to Adjusted EBITDA:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nChange\n\u00a0\nFor\u00a0the\u00a0Year\u00a0Ended\u00a0June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023/\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n2022/\u00a02021\n\u00a0\n\u200b\n\u200b\n(in\u00a0thousands, except percentages)\n\u00a0\nNet income\n\u200b\n$\n 32,606\n\u200b\n$\n 49,175\n\u200b\n$\n 54,385\n\u200b\n$\n (16,569)\n\u00a0\n (34)\n%\n$\n (5,210)\n\u00a0\n (10)\n%\nInterest expense, net\n\u200b\n\u00a0\n 15,321\n\u200b\n\u00a0\n 11,875\n\u200b\n\u00a0\n 12,880\n\u200b\n\u00a0\n 3,446\n\u00a0\n 29\n%\u00a0\u00a0\n\u00a0\n (1,005)\n\u00a0\n (8)\n%\nProvision for income taxes\n\u200b\n\u00a0\n 21,465\n\u200b\n\u00a0\n 23,152\n\u200b\n\u00a0\n 12,083\n\u200b\n\u00a0\n (1,687)\n\u00a0\n (7)\n%\u00a0\u00a0\n\u00a0\n 11,069\n\u00a0\n 92\n%\nDepreciation and amortization\n\u200b\n\u00a0\n 34,012\n\u200b\n\u00a0\n 32,705\n\u200b\n\u00a0\n 31,885\n\u200b\n\u00a0\n 1,307\n\u00a0\n 4\n%\u00a0\u00a0\n\u00a0\n 820\n\u00a0\n 3\n%\nEBITDA\n\u200b\n\u00a0\n 103,404\n\u200b\n\u00a0\n 116,907\n\u200b\n\u00a0\n 111,233\n\u200b\n\u00a0\n (13,503)\n\u00a0\n (12)\n%\u00a0\u00a0\n\u00a0\n 5,674\n\u00a0\n 5\n%\nEnvironmental remediation costs\n\u200b\n\u200b\n 6,894\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,894\n\u00a0\n*\n\u200b\n\u200b\n \u2014\n\u00a0\n*\n\u200b\nGain on sale of investment\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (1,203)\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 1,203\n\u00a0\n*\n\u200b\n\u00a0\n (1,203)\n\u00a0\n*\n\u200b\nAcquisition-related cost of goods sold\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 316\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (316)\n\u00a0\n*\n\u200b\n\u00a0\n 316\n\u00a0\n*\n\u200b\nAcquisition-related transaction costs\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 279\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (279)\n\u00a0\n*\n\u200b\n\u00a0\n 279\n\u00a0\n*\n\u200b\nStock-based compensation\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 1,129\n\u200b\n\u00a0\n \u2014\n\u00a0\n*\n\u200b\n\u00a0\n (1,129)\n\u00a0\n*\n\u200b\nForeign currency (gains) losses, net\n\u200b\n\u00a0\n 2,455\n\u200b\n\u00a0\n (5,216)\n\u200b\n\u00a0\n (4,480)\n\u200b\n\u00a0\n 7,671\n\u00a0\n*\n\u200b\n\u00a0\n (736)\n\u00a0\n*\n\u200b\nAdjusted EBITDA\n\u200b\n$\n 112,753\n\u200b\n$\n 111,083\n\u200b\n$\n 107,882\n\u200b\n$\n 1,670\n\u00a0\n 2\n%\u00a0\u00a0\n$\n 3,201\n\u00a0\n 3\n%\n\u200b\nCertain amounts and\u00a0percentages may reflect rounding adjustments.\n*\nCalculation not meaningful\nAdjusted net income\nWe report adjusted net income to portray the results of our operations prior to considering certain income statement elements. See \u201c\u2014General description of non-GAAP financial measures\u201d for more information.\n61\n\n\nTable of Contents\nA reconciliation of net income, as reported under GAAP, to adjusted net income:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nChange\n\u00a0\nFor\u00a0the\u00a0Year\u00a0Ended\u00a0June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u200b\n2023 / 2022\n\u00a0\n2022 / 2021\n\u200b\n\u200b\n\u200b\n\u200b\n(in thousands, except per share amounts and percentages)\n\u200b\nReconciliation of GAAP Net Income to Adjusted Net Income\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\n\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\nNet income\n\u200b\n$\n 32,606\n\u200b\n$\n 49,175\n\u200b\n$\n 54,385\n\u200b\n$\n (16,569)\n\u00a0\n (34)\n%\u00a0\u00a0\n$\n (5,210)\n\u200b\n (10)\n%\nAcquisition-related intangible amortization\n(1)\n\u200b\n\u00a0\n 6,651\n\u200b\n\u00a0\n 5,943\n\u200b\n\u00a0\n 6,029\n\u200b\n\u00a0\n 708\n\u00a0\n 12\n%\n\u00a0\n (86)\n\u200b\n (1)\n%\nAcquisition-related intangible amortization\n(2)\n\u200b\n\u00a0\n 3,045\n\u200b\n\u00a0\n 2,981\n\u200b\n\u00a0\n 2,686\n\u200b\n\u00a0\n 64\n\u00a0\n 2\n%\n\u00a0\n 295\n\u200b\n 11\n%\nAcquisition-related cost of goods sold\n(1)\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 316\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (316)\n\u00a0\n*\n\u200b\n\u00a0\n 316\n\u200b\n*\n\u200b\nAcquisition-related transaction costs\n(2)\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 279\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (279)\n\u00a0\n*\n\u200b\n\u00a0\n 279\n\u200b\n*\n\u200b\nEnvironmental remediation costs\n(2)\n\u200b\n\u200b\n 6,894\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,894\n\u200b\n*\n\u200b\n\u200b\n \u2014\n\u200b\n*\n\u200b\nGain on sale of investment\n(2)\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (1,203)\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 1,203\n\u00a0\n*\n\u200b\n\u00a0\n (1,203)\n\u200b\n*\n\u200b\nStock-based compensation\n(2)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 1,129\n\u200b\n\u200b\n \u2014\n\u200b\n*\n\u200b\n\u200b\n (1,129)\n\u200b\n*\n\u200b\nRefinancing expense\n(3)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 1,020\n\u200b\n\u200b\n \u2014\n\u200b\n*\n\u200b\n\u200b\n (1,020)\n\u200b\n*\n\u200b\nForeign currency (gains) losses, net\n(4)\n\u200b\n\u00a0\n 2,455\n\u200b\n\u00a0\n (5,216)\n\u200b\n\u00a0\n (4,480)\n\u200b\n\u00a0\n 7,671\n\u00a0\n*\n\u200b\n\u00a0\n (736)\n\u200b\n*\n\u200b\nAdjustments to income taxes\n(5)\n\u200b\n\u00a0\n (2,688)\n\u200b\n\u00a0\n 879\n\u200b\n\u00a0\n (9,425)\n\u200b\n\u00a0\n (3,567)\n\u00a0\n*\n\u200b\n\u00a0\n 10,304\n\u200b\n*\n\u200b\nAdjusted net income\n\u200b\n$\n 48,963\n\u200b\n$\n 53,154\n\u200b\n$\n 51,344\n\u200b\n$\n (4,191)\n\u00a0\n (8)\n%\n$\n 1,810\n\u200b\n 4\n%\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nStatement of Operations Line Items - adjusted\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdjusted cost of goods sold\n(1)\n\u200b\n$\n 673,001\n\u200b\n$\n 650,602\n\u200b\n$\n 555,944\n\u200b\n$\n 22,399\n\u00a0\n 3\n%\n$\n 94,658\n\u200b\n 17\n%\nAdjusted gross profit\n\u200b\n\u00a0\n 304,888\n\u200b\n\u00a0\n 291,659\n\u200b\n\u00a0\n 277,406\n\u200b\n\u00a0\n 13,229\n\u200b\n 5\n%\n\u00a0\n 14,253\n\u200b\n 5\n%\nAdjusted selling, general and administrative\n(2)\n\u200b\n\u00a0\n 216,451\n\u200b\n\u00a0\n 204,356\n\u200b\n\u00a0\n 192,694\n\u200b\n\u00a0\n 12,095\n\u00a0\n 6\n%\n\u00a0\n 11,662\n\u200b\n 6\n%\nAdjusted interest expense, net\n(3)\n\u200b\n\u00a0\n 15,321\n\u200b\n\u00a0\n 11,875\n\u200b\n\u00a0\n 11,860\n\u200b\n\u00a0\n 3,446\n\u00a0\n 29\n%\n\u00a0\n 15\n\u200b\n 0\n%\nAdjusted income before income taxes\n\u200b\n\u00a0\n 73,116\n\u200b\n\u00a0\n 75,428\n\u200b\n\u00a0\n 72,852\n\u200b\n\u00a0\n (2,312)\n\u00a0\n (3)\n%\n\u00a0\n 2,576\n\u200b\n 4\n%\nAdjusted provision for income taxes\n(5)\n\u200b\n\u00a0\n 24,153\n\u200b\n\u00a0\n 22,274\n\u200b\n\u00a0\n 21,508\n\u200b\n\u00a0\n 1,879\n\u00a0\n 8\n%\n\u00a0\n 766\n\u200b\n 4\n%\nAdjusted net income\n\u200b\n$\n 48,963\n\u200b\n$\n 53,154\n\u200b\n$\n 51,344\n\u200b\n$\n (4,191)\n\u00a0\n (8)\n%\n$\n 1,810\n\u200b\n 4\n%\n\u200b\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\nAdjusted net income per share\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\ndiluted\n\u200b\n$\n 1.21\n\u200b\n$\n 1.31\n\u200b\n$\n 1.27\n\u200b\n$\n (0.10)\n\u00a0\n (8)\n%\n$\n 0.04\n\u200b\n 4\n%\n\u200b\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nWeighted average common shares outstanding\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\ndiluted\n\u200b\n\u00a0\n 40,504\n\u200b\n\u00a0\n 40,504\n\u200b\n\u200b\n 40,504\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nRatio to net sales\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u00a0\n \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdjusted gross profit\n\u200b\n\u00a0\n31.2\n%\u00a0\u00a0\n\u00a0\n31.0\n%\u00a0\u00a0\n\u200b\n33.3\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdjusted selling, general and administrative\n\u200b\n\u00a0\n22.1\n%\u00a0\u00a0\n\u00a0\n21.7\n%\u00a0\u00a0\n\u200b\n23.1\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdjusted income before income taxes\n\u200b\n\u00a0\n7.5\n%\u00a0\u00a0\n\u00a0\n8.0\n%\u00a0\u00a0\n\u200b\n8.7\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdjusted net income\n\u200b\n\u00a0\n5.0\n%\u00a0\u00a0\n\u00a0\n5.6\n%\u00a0\u00a0\n\u200b\n6.2\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdjusted effective tax rate\n\u200b\n\u00a0\n33.0\n%\u00a0\u00a0\n\u00a0\n 29.5\n%\u00a0\u00a0\n\u200b\n 29.5\n%\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u00a0\n\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n62\n\n\nTable of Contents\nAmounts and percentages may reflect rounding adjustments\n*\nCalculation not meaningful\n(1)\nAdjusted cost of goods sold excludes acquisition-related intangible amortization and acquisition-related cost of goods sold\n(2) \n     Adjusted selling, general and administrative excludes acquisition-related intangible amortization, environmental remediation costs, gain on sale of investment, and acquisition-related transaction costs\n(3) \n     Adjusted interest expense, net excludes financing expense\n(4)\nForeign currency (gains) losses, net are excluded from adjusted net income\n(5)\nAdjusted provision for income taxes excludes the income tax effect of pre-tax income adjustments and certain income tax items\n\u200b\n63\n\n\nTable of Contents\nComparison of the\u00a0years ended June\u00a030,\u00a02023 and 2022\nNet sales\nNet sales of $977.9 million for the year ended June\u00a030,\u00a02023, increased $35.6 million, or 4%, as compared to the year ended June\u00a030,\u00a02022. Animal Health sales increased $52.8 million. Mineral Nutrition and Performance Products sales decreased by $16.9 million and $0.3 million, respectively.\nAnimal Health\nNet sales of $659.9 million for the year ended June\u00a030,\u00a02023, increased $52.8 million, or 9%. Net sales of MFAs and other increased $25.8 million, or 7%, due to increased demand for our MFAs, particularly in the U.S. and Latin America regions, and for processing aids used in the ethanol fermentation industry. Net sales of nutritional specialty products grew $15.3 million, or 10%, due to strong demand in dairy products and increased sales of Rejensa\n\u00ae\n, our companion animal product. Net sales of vaccines increased $11.7 million, or 13%, with an increase in domestic and international demand, along with new product launches in Latin America.\nMineral Nutrition \nNet sales of $242.7 million for the year ended June\u00a030,\u00a02023, decreased $16.9 million, or 6%, primarily driven by a decrease in demand for trace minerals, partially offset by higher average selling prices. The increase in average selling prices is correlated to the movement of the underlying raw material costs.\nPerformance Products \nNet sales of $75.4 million for the year ended June\u00a030,\u00a02023, decreased $0.3 million, or less than 1%, as a result of decreased demand for both personal care product ingredients and copper-related products, partially offset by higher average selling prices for these products. \nGross profit \nGross profit of\u2009$298.2 million for the year ended June\u00a030,\u00a02023, increased $12.8 million, or 4%, as compared to the year ended June\u00a030,\u00a02022. Gross margin increased 20 basis points to 30.5% of net sales for the year ended June\u00a030,\u00a02023, as compared to 30.3% for the year ended June\u00a030,\u00a02022. The year ended June 30, 2022, included $0.3 million of acquisition-related cost of goods sold.\nAnimal Health gross profit increased $17.6 million due to higher product demand, partially offset by higher raw material and logistics costs. Mineral Nutrition gross profit decreased $6.9 million, driven by lower sales volume and an increase in raw material costs. Performance Products gross profit increased $1.7 million, due primarily to more favorable product mix.\nSelling, general and administrative expenses \nSG&A expenses of\u2009$226.4 million for the year ended June\u00a030,\u00a02023, increased $20.0 million, or 10%, as compared to the year ended June\u00a030,\u00a02022. SG&A for the year ended June 30, 2023, included $6.9 million of environmental remediation costs mostly related to the definitive settlement agreement related to the Omega Chemical Site. SG&A for the year ended June 30, 2022, included a $1.2 million gain on sale of investment and $0.3 million of acquisition-related transaction costs. Excluding these items, SG&A increased $12.2 million, or 6%. \nAnimal Health SG&A increased $6.6 million, primarily due to an increase in employee-related costs, and an increase in selling costs for our companion animal product. Mineral Nutrition SG&A decreased $0.2 million. Performance Products SG&A increased $1.2 million, mainly due to an increase in employee-related costs. Corporate expenses increased $4.7 million due to an increase in employee-related costs and strategic investments. \nIn July 2023, we entered into an annuity purchase agreement to irrevocably transfer a portion of the pension benefit obligation to a third-party insurance company. The annuity purchase price was $26.4 million and was approximately equal to the benefit obligation transferred. The annuity purchase was funded from pension assets. During the three months ending September 30, 2023, we will recognize the cost of a partial settlement of the pension plan to record an expense of approximately $10.4 million, resulting from the recognition of net pension losses currently included in Accumulated other comprehensive income and a benefit for income taxes of approximately $2.7 million.\n64\n\n\nTable of Contents\nInterest expense, net \n Interest expense, net of\u2009$15.3 million for the year ended June\u00a030,\u00a02023, increased by $3.4 million as compared to the year ended June\u00a030,\u00a02022. Interest expense increased as a result of increased debt outstanding and higher floating interest rates on portions of debt outstanding, partially offset by increased interest income and a lower average fixed rate from our interest rate swap agreements.\nForeign currency (gains) losses, net \nForeign currency losses, net for the year ended June\u00a030,\u00a02023, were\u2009$2.5 million, as compared to net gains of $5.2 million for the year ended June\u00a030,\u00a02022. Current period losses were driven by fluctuations in certain currencies related to the U.S. dollar.\nProvision for income taxes\nThe provision for income taxes was $21.5 million and $23.2 million for the years ended June\u00a030,\u00a02023 and 2022, respectively. The effective income tax rate was 39.7% and 32.0% for the years ended June\u00a030,\u00a02023 and 2022, respectively. Our effective income tax rate has varied from period to period from a federal statutory rate perspective due to the mix of income in the various jurisdictions where we have operations, changes in tax rates from period to period and the effects of certain other items. The provision for income taxes for the year ended June 30, 2023, included a net cost of $1.5 million for certain one-time items including (i) Global Intangible Low-Tax Income (\u201cGILTI\u201d) income taxes that were modified by IRS guidance issued subsequent to June 30, 2023, (ii) the net cost of withholding taxes related to dividends received from an international affiliate and (iii) the net benefit related to certain unrecognized tax benefits from adjustments to and the lapse of statute of limitations of prior years. The provision for income taxes for the year ended June 30, 2022, included a net cost of $0.8 million for certain items including (i) a benefit from the reversal of uncertain tax positions related to settlements and the lapse of statute of limitations of prior years, (ii) an expense related to increases to reserves for uncertain tax positions due to the complex nature of tax law in various jurisdictions and related interpretations of tax law, (iii) a benefit from the release of a valuation allowance, and (iv) an expense related to a detailed analysis of various other items. The effective income tax rate without these items would have been 36.9% and 30.9% for the years ended June 30, 2023 and 2022, respectively.\n  We record the GILTI-related aspects of comprehensive U.S. income tax legislation as a period expense. The provision for income taxes for the years ended June 30, 2023 and 2022, included $1.8 million and $0.2 million of federal tax expense from the effects of GILTI, respectively. Our effective income tax rate included 3.3% and 0.3% related to GILTI income tax expense in the years ended June 30, 2023 and 2022, respectively. GILTI expense increased due to final foreign tax credit regulations that were effective for our fiscal year 2023.\n     In July 2023, the IRS provided guidance to taxpayers in determining whether a foreign tax is eligible for a U.S. foreign tax credit for tax years 2022 and 2023.  As a result of this new guidance, the Company has concluded that we will record a tax benefit of approximately $1.2\u00a0million related to the year ended June 30, 2023 in the three months ending September 30, 2023.\nNet income\nNet income of\u2009$32.6 million for the year ended June\u00a030,\u00a02023, decreased $16.6 million, as compared to net income of\u2009$49.2 million for the year ended June\u00a030,\u00a02022. Operating income decreased $7.1 million driven by higher SG&A, partially offset by higher gross profit. The increase in gross profit was driven by higher product demand in Animal Health and Performance Product, partially offset by higher raw material costs and production costs. SG&A expenses increased by $20.0 million due to environmental remediation costs, higher employee-related costs and strategic investments. Interest expense, net increased $3.4 million, and the change in foreign currency (gains) losses, net resulted in a $7.7 million reduction in income before income taxes for the year ended June 30, 2023. Income tax expense decreased $1.7 million.\nAdjusted EBITDA \n Adjusted EBITDA of\u2009$112.8 million for the year ended June\u00a030,\u00a02023, increased $1.7 million, or 2%, as compared to the year ended June\u00a030,\u00a02022. Animal Health Adjusted EBITDA increased $12.0 million, driven by higher sales and increased gross profit, partially offset by an increase in SG&A. Mineral Nutrition Adjusted EBITDA decreased $6.6 \n65\n\n\nTable of Contents\nmillion, driven by lower sales volume and higher raw material costs. Performance Products Adjusted EBITDA increased by $0.6 million due to higher gross profit, partially offset by an increase in SG&A. Corporate expenses increased $4.4 million due to increased employee-related costs and strategic investments.  \nAdjusted provision for income taxes\nThe adjusted effective income tax rates for the year ended June 30, 2023 and 2022, were 33.0% and 29.5%, respectively. The increase in our adjusted effective income tax rate was driven by an unfavorable shift in the geographical mix of earnings. \nThe adjusted provision for income taxes for the years ended June 30, 2023 and 2022, included $0.6 million and $0.2 million from the adjusted effects of GILTI, respectively. Our effective income tax rate included 0.8% and 0.3% related to adjusted GILTI income tax expense.\nAdjusted net income\nAdjusted net income of $49.0 million for the year ended June 30, 2023, decreased $4.2 million, or 8%, as compared to the prior year. The decrease was driven by higher SG&A, higher interest expense, net and a higher provision for income taxes, partially offset by higher gross profit. The increase in gross profit resulted from higher sales, partially offset by higher raw material and production costs. SG&A expenses increased due to higher employee-related costs and a planned increase in strategic investments.\nAdjusted diluted EPS\nAdjusted diluted EPS was $1.21 for the year ended June 30, 2023, a decrease of $0.10, or 8%, as compared to $1.31 in the prior year.\nComparison of the\u00a0years ended June\u00a030,\u00a02022 and 2021\nFor a comparison of our results of operations for the years ended June\u00a030,\u00a02022 and 2021, and an analysis of our financial condition, liquidity and capital resources for the year ended June\u00a030,\u00a02022, see \u201cPart II. Item 7.\u00a0Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d\u00a0of our Annual Report on Form 10-K for the fiscal year ended June\u00a030,\u00a02022, filed with the SEC on August 24, 2022.\nAnalysis of financial condition, liquidity and capital resources\nNet increase (decrease) in cash and cash equivalents was:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nChange\nFor\u00a0the\u00a0Year\u00a0Ended\u00a0June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023/\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n2022/\u00a02021\n\u200b\n\u200b\n(in\u00a0thousands)\nCash (used) provided by:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating activities\n\u200b\n$\n 13,310\n\u200b\n$\n 31,649\n\u200b\n$\n 48,306\n\u200b\n$\n (18,339)\n\u200b\n$\n (16,657)\nInvesting activities\n\u200b\n\u00a0\n (74,018)\n\u200b\n\u00a0\n (22,582)\n\u200b\n\u00a0\n (18,580)\n\u200b\n\u00a0\n (51,436)\n\u200b\n\u00a0\n (4,002)\nFinancing activities\n\u200b\n\u00a0\n 26,987\n\u200b\n\u00a0\n 16,343\n\u200b\n\u00a0\n (16,995)\n\u200b\n\u00a0\n 10,644\n\u200b\n\u00a0\n 33,338\nEffect of exchange-rate changes on cash and cash equivalents\n\u200b\n\u00a0\n 754\n\u200b\n\u00a0\n (1,374)\n\u200b\n\u00a0\n 1,138\n\u200b\n\u00a0\n 2,128\n\u200b\n\u00a0\n (2,512)\nNet (decrease) increase in cash and cash equivalents\n\u200b\n$\n (32,967)\n\u200b\n$\n 24,036\n\u200b\n$\n 13,869\n\u200b\n$\n (57,003)\n\u200b\n$\n 10,167\n\u200b\n66\n\n\nTable of Contents\nNet cash provided by operating activities was comprised of:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nChange\nFor\u00a0the\u00a0Year\u00a0Ended\u00a0June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023\u00a0/\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n2022\u00a0/\u00a02021\n\u200b\n\u200b\n(in\u00a0thousands)\nEBITDA\n\u200b\n$\n 103,404\n\u200b\n$\n 116,907\n\u200b\n$\n 111,233\n\u200b\n$\n (13,503)\n\u200b\n$\n 5,674\nAdjustments:\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n   Environmental remediation costs\n\u200b\n\u200b\n 6,894\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n 6,894\n\u200b\n\u200b\n \u2014\nGain on sale of investment\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (1,203)\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 1,203\n\u200b\n\u00a0\n (1,203)\nAcquisition-related cost of goods sold\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 316\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (316)\n\u200b\n\u00a0\n 316\nAcquisition-related transaction costs\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 279\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (279)\n\u200b\n\u00a0\n 279\nStock-based compensation\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u200b\n 1,129\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n (1,129)\nForeign currency (gains) losses, net\n\u200b\n\u00a0\n 2,455\n\u200b\n\u00a0\n (5,216)\n\u200b\n\u00a0\n (4,480)\n\u200b\n\u00a0\n 7,671\n\u200b\n\u00a0\n (736)\nInterest paid, net\n\u200b\n\u00a0\n (14,575)\n\u200b\n\u00a0\n (11,159)\n\u200b\n\u00a0\n (10,808)\n\u200b\n\u00a0\n (3,416)\n\u200b\n\u00a0\n (351)\nIncome taxes paid\n\u200b\n\u00a0\n (20,410)\n\u200b\n\u00a0\n (17,854)\n\u200b\n\u00a0\n (19,395)\n\u200b\n\u00a0\n (2,556)\n\u200b\n\u00a0\n 1,541\nChanges in operating assets and liabilities and other items\n\u200b\n\u00a0\n (64,458)\n\u200b\n\u00a0\n (50,421)\n\u200b\n\u00a0\n (29,373)\n\u200b\n\u00a0\n (14,037)\n\u200b\n\u00a0\n (21,048)\nNet cash provided by operating activities\n\u200b\n$\n 13,310\n\u200b\n$\n 31,649\n\u200b\n$\n 48,306\n\u200b\n$\n (18,339)\n\u200b\n$\n (16,657)\n\u200b\nCertain amounts may reflect rounding adjustments.\nOperating activities\nOperating activities provided $13.3 million of net cash for the year ended June\u00a030,\u00a02023. Net cash provided by operating activities was driven by business performance, resulting in cash provided by net income and non-cash items, including depreciation and amortization, of $54.4 million, offset by cash used in the ordinary course of business for changes in operating assets and liabilities of $41.1 million. Cash provided by accounts receivable was $5.3 million as a result of a favorable reduction in days sales outstanding. Cash used for inventory was $11.2 million due to increased raw material and production costs, product mix, lower than anticipated demand in our Mineral Nutrition products and a projected increase in future demand of other products in our portfolio. Other current assets used $7.4 million due to the timing of insurance payments. Accounts payable used $22.8 million due to timing of purchases and payments. Accrued expenses and other liabilities used $5.7 million, primarily due to changes in employee-related and lease liabilities.\nOperating activities provided $31.6 million of net cash for the year ended June\u00a030,\u00a02022. Net cash provided by operating activities was driven by strong business performance, resulting in cash provided by net income and non-cash items, including depreciation and amortization, of $76.3 million, offset by cash used in the ordinary course of business for changes in operating assets and liabilities of $44.6 million. Changes in operating assets and liabilities included $23.6 million of cash used to fund a build of accounts receivable correlated with strong growth in net sales, particularly in the fourth quarter, $47.0 million of cash used to replenish inventory levels during a period when inflation was driving higher costs of material and labor, offset by $26.4 million of cash provided by accounts payable related to the timing of payments to suppliers, with the remaining $0.4 million of cash used to fund changes in other current assets, other assets, and accrued expenses and other liabilities.\nInvesting activities \nInvesting activities used $74.0 million of net cash for the year ended June\u00a030,\u00a02023. Capital expenditures were $51.8 million, related primarily to continued investments in expanded production capacity and productivity improvements, and the $15.0 million purchase of additional land and building at an operating facility. Net purchases and maturities of short-term investments were $23.0 million. Other investing activities provided $0.8 million of cash.\nInvesting activities used $22.6 million of net cash for the year ended June\u00a030,\u00a02022. Capital expenditures were $37.0 million as we continued to invest in expanding production capacity and productivity improvements. Net proceeds from maturities of short-term investments were $26.0 million. We used $13.5 million for the acquisition of a business in Brazil, which develops, manufacturers and markets processing aids used in the ethanol industry. Other investing activities provided $2.0 million of cash. \n67\n\n\nTable of Contents\nFinancing activities\nFinancing activities provided $27.0 million of net cash for the year ended June\u00a030,\u00a02023. Proceeds from the 2023 Incremental Term Loan and 2022 Term Loan provided $62.0 million, with debt issuance costs of $1.5 million. We paid $15.3 million in scheduled debt maturities. Net payments on our revolving credit facility under which we could borrow up to $310,000, subject to the terms of the agreement (the \u201c2021 Revolver\u201d) reduced the outstanding balance by $4.0 million. Proceeds from insurance premium financing, net of cash payments, provided cash of $5.2 million. We paid $19.4 million in dividends to holders of our Class A common stock and Class B common stock. \nFinancing activities used $16.3 million of net cash for the year ended June\u00a030,\u00a02022. Net borrowings on our 2021 Revolver provided $50.0 million. We paid $19.4 million in dividends to holders of our Class A and Class B common stock. We paid $9.4 million in scheduled debt maturities. We paid $4.8 million for acquisition-related contingent consideration.\nLiquidity and capital resources\nWe believe our cash on hand, our operating cash flows and our financing arrangements, including the availability of borrowings under the 2021 Revolver and foreign credit lines, will be sufficient to support our ongoing cash needs. We have considered the current and potential future effects of the macroeconomic market conditions in the financial markets. At this time, we expect adequate liquidity for at least the next twelve\u00a0months. However, we can provide no assurance that our liquidity and capital resources will be adequate for future funding requirements. We believe we will be able to comply with the terms of the covenants under the 2021 Credit Facilities and foreign credit lines based on our operating plan. In the event of adverse operating results and/or violation of covenants under the facilities, there can be no assurance we would be able to obtain waivers or amendments. Other risks to our meeting future funding requirements include global economic conditions and macroeconomic, business and financial disruptions that could arise, including those caused by COVID-19 or similar outbreaks and the ongoing conflict between Russia and Ukraine. There can be no assurance that a challenging economic environment or an economic downturn would not affect our liquidity or our ability to obtain future financing or fund operations or investment opportunities. In addition, our debt covenants may restrict our ability to invest. Certain relevant measures of our liquidity and capital resources follow:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nChange\nAs of June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023\u00a0/\u00a02022\n\u00a0\u00a0\u00a0\u00a0\n2022\u00a0/\u00a02021\n\u200b\n\u200b\n(in thousands, except ratios)\nCash and cash equivalents and short-term investments\n\u200b\n$\n 81,281\n\u200b\n$\n 91,248\n\u200b\n$\n 93,212\n\u200b\n$\n (9,967)\n\u200b\n$\n (1,964)\nWorking capital\n\u200b\n\u00a0\n 350,737\n\u200b\n\u00a0\n 299,152\n\u200b\n\u00a0\n 250,956\n\u200b\n\u00a0\n 51,585\n\u200b\n\u00a0\n 48,196\nRatio of current assets to current liabilities\n\u200b\n\u00a0\n3.28:1\n\u200b\n\u00a0\n2.70:1\n\u200b\n\u00a0\n2.62:1\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\nWe define working capital as total current assets (excluding cash and cash equivalents and short-term investments) less total current liabilities (excluding current portion of long-term debt). We calculate the ratio of current assets to current liabilities based on this definition.\nAt June\u00a030,\u00a02023, we had $141.0 million in outstanding borrowings under the 2021 Revolver. We had outstanding letters of credit and other commitments of\u2009$2.5 million, leaving $166.5 million available for borrowings and letters of credit, subject to restriction in our 2021 Credit Facilities.\nWe currently intend to pay quarterly dividends on our Class A and Class B common stock, subject to approval from the Board of Directors. Our Board of Directors has declared a cash dividend of\u2009$0.12 per share on Class A common stock and Class B common stock, payable on September 27, 2023. Our future ability to pay dividends will depend upon our results of operations, financial condition, capital requirements, our ability to obtain funds from our subsidiaries and other factors that our Board of Directors deems relevant. Additionally, the terms of our current and any future agreements governing our indebtedness could limit our ability to pay dividends or make other distributions.\nWe do not expect to contribute to the domestic pension plan during 2024.\nAt June\u00a030,\u00a02023, our cash and cash equivalents and short-term investments included $79.0 million held by our international subsidiaries. There are no restrictions on cash distributions to PAHC from our international subsidiaries.\n68\n\n\nTable of Contents\nContractual obligations \nOur contractual obligations include maturities under the 2021 Credit Facilities and the 2022 Term Loan, including future interest accruals, operating lease commitments, and certain purchase obligations. See \u201cNotes to Consolidated Financial Statements \u2013 Debt, Leases, and Commitment and Contingencies.\u201d  \nAnalysis of the consolidated balance sheets\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nChange\nAs of June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023 / 2022\n\u00a0\u00a0\u00a0\u00a0\n2022 / 2021\n\u200b\n\u200b\n(in\u00a0thousands)\nAccounts receivable\u2009-\u2009trade\n\u200b\n$\n 163,479\n\u200b\n$\n 166,537\n\u200b\n$\n 146,852\n\u200b\n$\n (3,058)\n\u200b\n$\n 19,685\nDSO\n\u200b\n\u00a0\n 58\n\u200b\n\u00a0\n 59\n\u200b\n\u00a0\n 60\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\nPayment terms outside the U.S. are typically longer than in the United States. We regularly monitor our accounts receivable for collectability, particularly in countries where economic conditions remain uncertain. We believe that our reserve for credit losses is appropriate. Our assessment is based on such factors as past due history, historical and expected collection patterns, the financial condition of our customers, the robust nature of our credit and collection practices and the economic environment. We calculate DSO based on a 360-day year and compare accounts receivable with sales for the quarter ending at the balance sheet date.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nChange\nAs of June\u00a030\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n2021\n\u00a0\u00a0\u00a0\u00a0\n2023 / 2022\n\u00a0\u00a0\u00a0\u00a0\n2022 / 2021\n\u200b\n\u200b\n(in\u00a0thousands)\nInventories\n\u200b\n$\n 277,570\n\u200b\n$\n 259,158\n\u200b\n$\n 216,312\n\u200b\n$\n 18,412\n\u200b\n$\n 42,846\n\u200b\nInventory increased by $18.4 million in 2023, due to increased raw material and production costs, product mix, lower demand for our Mineral Nutrition products and a projected increase in future demand of other products in our portfolio.\nOff-balance sheet arrangements\nWe currently do not use off-balance sheet arrangements for the purpose of credit enhancement, hedging transactions, investment or other financial purposes.\nIn the ordinary course of business, we may indemnify our counterparties against certain liabilities that may arise. These indemnifications typically pertain to environmental matters. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications generally are subject to certain restrictions and limitations.\n69\n\n\nTable of Contents\nSelected Quarterly Financial Data (Unaudited)\nTo facilitate quarterly comparisons, the following unaudited information presents the quarterly results of operations, including segment data, for the\u00a0years ended June\u00a030,\u00a02023 and 2022. This quarterly financial data was prepared on the same basis as, and should be read in conjunction with, the audited consolidated financial statements and related notes included herein.\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nQuarters\n\u200b\nYear\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nSeptember\u00a030,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nDecember\u00a031,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nJune\u00a030,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nJune\u00a030,\u00a0\nFor the Periods Ended\n\u200b\n2022\n\u200b\n2022\n\u200b\n2023\n\u200b\n2023\n\u200b\n2023\n\u200b\n\u200b\n(in\u00a0thousands)\nNet sales\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\nMFAs and other\n\u200b\n$\n 92,790\n\u200b\n$\n 97,179\n\u200b\n$\n 93,217\n\u200b\n$\n 104,163\n\u200b\n$\n 387,349\nNutritional Specialties\n\u200b\n\u00a0\n 39,054\n\u200b\n\u00a0\n 43,856\n\u200b\n\u00a0\n 45,016\n\u200b\n\u00a0\n 44,578\n\u200b\n\u00a0\n 172,504\nVaccines\n\u200b\n\u00a0\n 23,015\n\u200b\n\u00a0\n 22,768\n\u200b\n\u00a0\n 26,201\n\u200b\n\u00a0\n 28,014\n\u200b\n\u00a0\n 99,998\nAnimal Health\n\u200b\n$\n 154,859\n\u200b\n$\n 163,803\n\u200b\n$\n 164,434\n\u200b\n$\n 176,755\n\u200b\n$\n 659,851\nMineral Nutrition\n\u200b\n\u00a0\n 59,646\n\u200b\n\u200b\n 61,644\n\u200b\n\u200b\n 62,922\n\u200b\n\u00a0\n 58,444\n\u200b\n\u00a0\n 242,656\nPerformance Products\n\u200b\n\u00a0\n 18,016\n\u200b\n\u200b\n 19,199\n\u200b\n\u200b\n 18,317\n\u200b\n\u00a0\n 19,850\n\u200b\n\u00a0\n 75,382\nTotal net sales\n\u200b\n\u00a0\n 232,521\n\u200b\n\u00a0\n 244,646\n\u200b\n\u00a0\n 245,673\n\u200b\n\u00a0\n 255,049\n\u200b\n\u00a0\n 977,889\nCost of goods sold\n\u200b\n\u00a0\n 163,875\n\u200b\n\u200b\n 167,261\n\u200b\n\u200b\n 170,133\n\u200b\n\u00a0\n 178,383\n\u200b\n\u00a0\n 679,652\nGross profit\n\u200b\n\u00a0\n 68,646\n\u200b\n\u00a0\n 77,385\n\u200b\n\u00a0\n 75,540\n\u200b\n\u00a0\n 76,666\n\u200b\n\u00a0\n 298,237\nSelling, general and administrative expenses\n\u200b\n\u200b\n 54,962\n\u200b\n\u200b\n 61,541\n\u200b\n\u200b\n 56,987\n\u200b\n\u200b\n 52,900\n\u200b\n\u200b\n 226,390\nOperating income\n\u200b\n\u200b\n 13,684\n\u200b\n\u200b\n 15,844\n\u200b\n\u200b\n 18,553\n\u200b\n\u200b\n 23,766\n\u200b\n\u200b\n 71,847\nInterest expense, net\n\u200b\n\u00a0\n 3,067\n\u200b\n\u200b\n 3,884\n\u200b\n\u200b\n 3,871\n\u200b\n\u00a0\n 4,499\n\u200b\n\u00a0\n 15,321\nForeign currency (gains) losses, net\n\u200b\n\u00a0\n 5,200\n\u200b\n\u200b\n (149)\n\u200b\n\u200b\n (422)\n\u200b\n\u00a0\n (2,174)\n\u200b\n\u00a0\n 2,455\nIncome before income taxes\n\u200b\n\u00a0\n 5,417\n\u200b\n\u00a0\n 12,109\n\u200b\n\u00a0\n 15,104\n\u200b\n\u00a0\n 21,441\n\u200b\n\u00a0\n 54,071\nProvision for income taxes\n\u200b\n\u00a0\n 1,561\n\u200b\n\u200b\n 4,899\n\u200b\n\u200b\n 5,062\n\u200b\n\u00a0\n 9,943\n\u200b\n\u00a0\n 21,465\nNet income\n\u200b\n$\n 3,856\n\u200b\n$\n 7,210\n\u200b\n$\n 10,042\n\u200b\n$\n 11,498\n\u200b\n$\n 32,606\nNet income per share\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\nbasic\n\u200b\n$\n 0.10\n\u200b\n$\n 0.18\n\u200b\n$\n 0.25\n\u200b\n$\n 0.28\n\u200b\n$\n 0.81\ndiluted\n\u200b\n$\n 0.10\n\u200b\n$\n 0.18\n\u200b\n$\n 0.25\n\u200b\n$\n 0.28\n\u200b\n$\n 0.81\nAdjusted EBITDA\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\nAnimal Health\n\u200b\n$\n 26,964\n\u200b\n$\n 37,059\n\u200b\n$\n 34,217\n\u200b\n$\n 37,899\n\u200b\n$\n 136,139\nMineral Nutrition\n\u200b\n\u00a0\n 5,297\n\u200b\n\u00a0\n 4,399\n\u200b\n\u00a0\n 3,859\n\u200b\n\u00a0\n 3,862\n\u200b\n\u00a0\n 17,417\nPerformance Products\n\u200b\n\u00a0\n 2,364\n\u200b\n\u00a0\n 2,292\n\u200b\n\u00a0\n 2,413\n\u200b\n\u00a0\n 2,277\n\u200b\n\u00a0\n 9,346\nCorporate\n\u200b\n\u00a0\n (12,491)\n\u200b\n\u00a0\n (12,838)\n\u200b\n\u00a0\n (13,122)\n\u200b\n\u00a0\n (11,698)\n\u200b\n\u00a0\n (50,149)\nAdjusted EBITDA\n\u200b\n$\n 22,134\n\u200b\n$\n 30,912\n\u200b\n$\n 27,367\n\u200b\n$\n 32,340\n\u200b\n$\n 112,753\nReconciliation of net income to Adjusted EBITDA\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\nNet income\n\u200b\n$\n 3,856\n\u200b\n$\n 7,210\n\u200b\n$\n 10,042\n\u200b\n$\n 11,498\n\u200b\n$\n 32,606\nInterest expense, net\n\u200b\n\u00a0\n 3,067\n\u200b\n\u00a0\n 3,884\n\u200b\n\u00a0\n 3,871\n\u200b\n\u00a0\n 4,499\n\u200b\n\u00a0\n 15,321\nProvision for income taxes\n\u200b\n\u00a0\n 1,561\n\u200b\n\u00a0\n 4,899\n\u200b\n\u00a0\n 5,062\n\u200b\n\u00a0\n 9,943\n\u200b\n\u00a0\n 21,465\nDepreciation and amortization\n\u200b\n\u00a0\n 8,450\n\u200b\n\u200b\n 8,499\n\u200b\n\u200b\n 8,489\n\u200b\n\u00a0\n 8,574\n\u200b\n\u00a0\n 34,012\nEBITDA\n\u200b\n\u200b\n 16,934\n\u200b\n\u00a0\n 24,492\n\u200b\n\u00a0\n 27,464\n\u200b\n\u00a0\n 34,514\n\u200b\n\u00a0\n 103,404\nEnvironmental remediation costs\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 6,569\n\u200b\n\u00a0\n 325\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 6,894\nForeign currency (gains) losses, net\n\u200b\n\u00a0\n 5,200\n\u200b\n\u00a0\n (149)\n\u200b\n\u00a0\n (422)\n\u200b\n\u00a0\n (2,174)\n\u200b\n\u00a0\n 2,455\nAdjusted EBITDA\n\u200b\n$\n 22,134\n\u200b\n$\n 30,912\n\u200b\n$\n 27,367\n\u200b\n$\n 32,340\n\u200b\n$\n 112,753\n\u200b\n70\n\n\nTable of Contents\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nQuarters\n\u200b\nYear\n\u200b\n\u00a0\u00a0\u00a0\u00a0\nSeptember\u00a030,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nDecember\u00a031,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nMarch\u00a031,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nJune\u00a030,\u00a0\n\u00a0\u00a0\u00a0\u00a0\nJune\u00a030,\u00a0\nFor the Periods Ended\n\u200b\n2021\n\u200b\n2021\n\u200b\n2022\n\u200b\n2022\n\u200b\n2022\n\u200b\n\u200b\n(in\u00a0thousands)\nNet sales\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\n\u00a0\n\u200b\n\u00a0\u00a0\nMFAs and other\n\u200b\n$\n 83,758\n\u200b\n$\n 91,724\n\u200b\n$\n 84,330\n\u200b\n$\n 101,726\n\u200b\n$\n 361,538\nNutritional Specialties\n\u200b\n\u00a0\n 35,997\n\u200b\n\u00a0\n 37,330\n\u200b\n\u00a0\n 41,394\n\u200b\n\u00a0\n 42,475\n\u200b\n\u00a0\n 157,196\nVaccines\n\u200b\n\u00a0\n 21,249\n\u200b\n\u00a0\n 21,873\n\u200b\n\u00a0\n 22,865\n\u200b\n\u00a0\n 22,334\n\u200b\n\u00a0\n 88,321\nAnimal Health\n\u200b\n$\n 141,004\n\u200b\n$\n 150,927\n\u200b\n$\n 148,589\n\u200b\n$\n 166,535\n\u200b\n$\n 607,055\nMineral Nutrition\n\u200b\n\u00a0\n 54,432\n\u200b\n\u00a0\n 66,655\n\u200b\n\u00a0\n 69,033\n\u200b\n\u00a0\n 69,392\n\u200b\n\u00a0\n 259,512\nPerformance Products\n\u200b\n\u00a0\n 19,229\n\u200b\n\u00a0\n 15,130\n\u200b\n\u00a0\n 21,997\n\u200b\n\u00a0\n 19,338\n\u200b\n\u00a0\n 75,694\nTotal net sales\n\u200b\n\u00a0\n 214,665\n\u200b\n\u00a0\n 232,712\n\u200b\n\u00a0\n 239,619\n\u200b\n\u00a0\n 255,265\n\u200b\n\u00a0\n 942,261\nCost of goods sold\n\u200b\n\u00a0\n 149,987\n\u200b\n\u00a0\n 162,040\n\u200b\n\u00a0\n 167,993\n\u200b\n\u00a0\n 176,841\n\u200b\n\u00a0\n 656,861\nGross profit\n\u200b\n\u00a0\n 64,678\n\u200b\n\u00a0\n 70,672\n\u200b\n\u00a0\n 71,626\n\u200b\n\u00a0\n 78,424\n\u200b\n\u00a0\n 285,400\nSelling, general and administrative expenses\n\u200b\n\u200b\n 50,066\n\u200b\n\u200b\n 48,378\n\u200b\n\u200b\n 52,432\n\u200b\n\u200b\n 55,538\n\u200b\n\u200b\n 206,414\nOperating income\n\u200b\n\u200b\n 14,612\n\u200b\n\u200b\n 22,294\n\u200b\n\u200b\n 19,194\n\u200b\n\u200b\n 22,886\n\u200b\n\u200b\n 78,986\nInterest expense, net\n\u200b\n\u00a0\n 2,889\n\u200b\n\u00a0\n 2,953\n\u200b\n\u00a0\n 2,925\n\u200b\n\u00a0\n 3,108\n\u200b\n\u00a0\n 11,875\nForeign currency (gains) losses, net\n\u200b\n\u00a0\n 2,128\n\u200b\n\u00a0\n (4,189)\n\u200b\n\u00a0\n (10,564)\n\u200b\n\u00a0\n 7,409\n\u200b\n\u00a0\n (5,216)\nIncome before income taxes\n\u200b\n\u00a0\n 9,595\n\u200b\n\u00a0\n 23,530\n\u200b\n\u00a0\n 26,833\n\u200b\n\u00a0\n 12,369\n\u200b\n\u00a0\n 72,327\nProvision (benefit) for income taxes\n\u200b\n\u00a0\n 3,061\n\u200b\n\u00a0\n 6,065\n\u200b\n\u00a0\n 9,144\n\u200b\n\u00a0\n 4,882\n\u200b\n\u00a0\n 23,152\nNet income\n\u200b\n$\n 6,534\n\u200b\n$\n 17,465\n\u200b\n$\n 17,689\n\u200b\n$\n 7,487\n\u200b\n$\n 49,175\nNet income per share\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\nbasic\n\u200b\n$\n 0.16\n\u200b\n$\n 0.43\n\u200b\n$\n 0.44\n\u200b\n$\n 0.18\n\u200b\n$\n 1.21\ndiluted\n\u200b\n$\n 0.16\n\u200b\n$\n 0.43\n\u200b\n$\n 0.44\n\u200b\n$\n 0.18\n\u200b\n$\n 1.21\nAdjusted EBITDA\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\nAnimal Health\n\u200b\n$\n 27,637\n\u200b\n$\n 33,696\n\u200b\n$\n 29,232\n\u200b\n$\n 33,541\n\u200b\n$\n 124,106\nMineral Nutrition\n\u200b\n\u00a0\n 4,533\n\u200b\n\u00a0\n 5,525\n\u200b\n\u00a0\n 7,303\n\u200b\n\u00a0\n 6,677\n\u200b\n\u00a0\n 24,038\nPerformance Products\n\u200b\n\u00a0\n 2,138\n\u200b\n\u00a0\n 1,324\n\u200b\n\u00a0\n 2,865\n\u200b\n\u00a0\n 2,379\n\u200b\n\u00a0\n 8,706\nCorporate\n\u200b\n\u00a0\n (11,842)\n\u200b\n\u00a0\n (11,453)\n\u200b\n\u00a0\n (11,404)\n\u200b\n\u00a0\n (11,068)\n\u200b\n\u00a0\n (45,767)\nAdjusted EBITDA\n\u200b\n$\n 22,466\n\u200b\n$\n 29,092\n\u200b\n$\n 27,996\n\u200b\n$\n 31,529\n\u200b\n$\n 111,083\nReconciliation of net income to Adjusted EBITDA\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\n\u200b\n\u00a0\n\u00a0\u00a0\nNet income\n\u200b\n$\n 6,534\n\u200b\n$\n 17,465\n\u200b\n$\n 17,689\n\u200b\n$\n 7,487\n\u200b\n$\n 49,175\nInterest expense, net\n\u200b\n\u00a0\n 2,889\n\u200b\n\u00a0\n 2,953\n\u200b\n\u00a0\n 2,925\n\u200b\n\u00a0\n 3,108\n\u200b\n\u00a0\n 11,875\nProvision (benefit) for income taxes\n\u200b\n\u00a0\n 3,061\n\u200b\n\u00a0\n 6,065\n\u200b\n\u00a0\n 9,144\n\u200b\n\u00a0\n 4,882\n\u200b\n\u00a0\n 23,152\nDepreciation and amortization\n\u200b\n\u00a0\n 7,854\n\u200b\n\u00a0\n 8,001\n\u200b\n\u00a0\n 8,445\n\u200b\n\u00a0\n 8,405\n\u200b\n\u00a0\n 32,705\nEBITDA\n\u200b\n\u200b\n 20,338\n\u200b\n\u00a0\n 34,484\n\u200b\n\u00a0\n 38,203\n\u200b\n\u00a0\n 23,882\n\u200b\n\u00a0\n 116,907\nAcquisition-related cost of goods sold\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 78\n\u200b\n\u00a0\n 238\n\u200b\n\u00a0\n 316\nAcquisition-related transaction costs\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 279\n\u200b\n\u00a0\n \u2014\n\u200b\n\u00a0\n 279\nGain on sale of investment\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (1,203)\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n (1,203)\nForeign currency (gains) losses, net\n\u200b\n\u200b\n 2,128\n\u200b\n\u00a0\n (4,189)\n\u200b\n\u00a0\n (10,564)\n\u200b\n\u00a0\n 7,409\n\u200b\n\u200b\n (5,216)\nAdjusted EBITDA\n\u200b\n$\n 22,466\n\u200b\n$\n 29,092\n\u200b\n$\n 27,996\n\u200b\n$\n 31,529\n\u200b\n$\n 111,083\n\u200b\nGeneral description of non-GAAP financial measures\nAdjusted EBITDA\nAdjusted EBITDA is an alternative view of performance used by management as our primary operating measure, and we believe that investors\u2019 understanding of our performance is enhanced by disclosing this performance measure. We report Adjusted EBITDA to reflect the results of our operations prior to considering certain income statement elements. We have defined EBITDA as net income (loss) plus (i) interest expense, net, (ii) provision for income taxes or less benefit for income taxes, and (iii) depreciation and amortization. We calculate Adjusted EBITDA as EBITDA plus (a) (income) loss from, and disposal of, discontinued operations, (b) other expense or less other income, as separately reported on our consolidated statements of operations, including foreign currency (gains) losses, net and (c) certain items that we consider to be unusual, non-operational or non-recurring. The Adjusted EBITDA measure is not, and should not be viewed as, a substitute for GAAP reported net income.\n71\n\n\nTable of Contents\nThe Adjusted EBITDA measure is an important internal measurement for us. We measure our overall performance on this basis in conjunction with other performance metrics. The following are examples of how our Adjusted EBITDA measure is utilized:\n\u25cf\nsenior management receives a monthly analysis of our operating results that is prepared on an Adjusted EBITDA basis;\n\u25cf\nour annual budgets are prepared on an Adjusted EBITDA basis; and\n\u25cf\nother goal setting and performance measurements are prepared on an Adjusted EBITDA basis.\nDespite the importance of this measure to management in goal setting and performance measurement, Adjusted EBITDA is a non-GAAP financial measure that has no standardized meaning prescribed by GAAP and, therefore, has limits in its usefulness to investors. Because of its non-standardized definition, Adjusted EBITDA, unlike GAAP net income, may not be comparable to the calculation of similar measures of other companies. Adjusted EBITDA is presented to permit investors to more fully understand how management assesses performance.\nWe also recognize that, as an internal measure of performance, the Adjusted EBITDA measure has limitations, and we do not restrict our performance management process solely to this metric. A limitation of the Adjusted EBITDA measure is that it provides a view of our operations without including all events during a period, such as the depreciation of property, plant and equipment or amortization of acquired intangibles, and does not provide a comparable view of our performance to other companies.\nAdjusted net income and adjusted diluted earnings per share\nAdjusted net income and adjusted diluted earnings per share represent alternative views of performance and we believe investors\u2019 understanding of our performance is enhanced by disclosing these performance measures. We report adjusted net income and adjusted diluted earnings per share to portray the results of our operations prior to considering certain income statement elements. We have defined adjusted net income as net income plus (i) other expense or less other income, as separately reported on our consolidated statements of operations, including foreign currency gains and losses and loss on extinguishment of debt, (ii) amortization of acquired intangibles and other acquisition-related costs, such as accrued compensation and accrued interest, (iii) stock-based compensation, (iv) certain items that we consider to be unusual or non-recurring and (v) income tax effect of pre-tax income adjustments and certain income tax items. Adjusted diluted earnings per share is calculated using the adjusted net income divided by the adjusted diluted number of shares. Adjusted provision for income taxes has been provided to help calculate adjusted net income and adjusted diluted earnings per share. The adjusted net income and adjusted diluted earnings per share measures are not, and should not be viewed as, a substitute for GAAP reported net income. \nAdjusted net income and adjusted diluted earnings per share are non-GAAP financial measure that have no standardized meaning prescribed by GAAP and, therefore, have limits in their usefulness to investors. Because of its non-standardized definition, adjusted net income and adjusted diluted earnings per share, unlike GAAP net income, may not be comparable to the calculation of similar measures of other companies. Adjusted net income and adjusted diluted earnings per share are presented to permit investors to more fully understand how management assesses performance.\nCertain significant items\nAdjusted EBITDA, adjusted net income and adjusted diluted earnings per share are calculated prior to considering certain items. We evaluate such items on an individual basis. Such evaluation considers both the quantitative and the qualitative aspect of their unusual or non-operational nature. Unusual, in this context, may represent items that are not part of our ongoing business; items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis.\nWe consider acquisition-related activities and business restructuring costs related to productivity and cost saving initiatives, including employee separation costs, to be unusual items that we do not expect to occur as part of our normal business on a regular basis. We consider foreign currency gains and losses to be non-operational because they arise principally from intercompany transactions and are largely non-cash in nature.\n72\n\n\nTable of Contents\nNew accounting standards\nFor discussion of new accounting standards, see \u201cNotes to Consolidated Financial Statements \u2014 Summary of Significant Accounting Policies and New Accounting Standards.\u201d\nCritical accounting policies\nCritical accounting policies are those that require application of management\u2019s most difficult, subjective and/or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Not all accounting policies require management to make difficult, subjective or complex judgments or estimates. In presenting our consolidated financial statements in accordance with GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results that differ from our estimates and assumptions could have an unfavorable effect on our financial position and results of operations.\nThe following is a summary of accounting policies that we consider critical to the consolidated financial statements.\nRevenue Recognition\nWe recognize revenue from product sales when control of the products has transferred to the customer, typically when title and risk of loss transfer to the customer. Certain of our businesses have terms where control of the underlying product transfers to the customer on shipment, while others have terms where control transfers to the customer on delivery.\nRevenue reflects the total consideration to which we expect to be entitled, in exchange for delivery of products or services, net of variable consideration. Variable consideration includes customer programs and incentive offerings, including pricing arrangements, rebates and other volume-based incentives. We record reductions to revenue for estimated variable consideration at the time we record the sale. Our estimates for variable consideration reflect the amount by which we expect variable consideration to affect the revenue recognized. Such estimates are based on contractual terms and historical experience, and are adjusted to reflect future expectations as new information becomes available. Historically, we have not had significant adjustments to our estimates of customer incentives. Sales returns and product recalls have been insignificant and infrequent due to the nature of the products we sell.\nNet sales include shipping and handling fees billed to customers. The associated costs are considered fulfillment activities, not additional promised services to the customer, and are included in costs of goods sold when the related revenue is recognized in the consolidated statements of operations. Net sales exclude value-added and other taxes based on sales.\nBusiness Combinations\nOur consolidated financial statements reflect the operations of an acquired business beginning as of the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values at the date of acquisition; goodwill is recorded for any excess of the purchase price over the fair values of the net assets acquired. Significant judgment may be required to determine the fair values of certain tangible and intangible assets and in assigning their respective useful lives. Significant judgment also may be required to determine the fair values of contingent consideration, if any. We typically utilize third-party valuation specialists to assist us in determining fair values of significant tangible and intangible assets and contingent consideration. The fair values are based on available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain. We typically use an income method to measure the fair value of intangible assets, based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect consideration of other marketplace participants, and include the amount and timing of future cash flows, specifically the expected revenue growth rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances could affect the accuracy or validity of the estimates and assumptions. Determining the useful life of an intangible asset also requires judgment. Our estimates of the useful lives of intangible assets primarily are based on a number of factors including the competitive environment, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the products are sold. Intangible assets are amortized over their estimated lives. \n73\n\n\nTable of Contents\nIntangible assets associated with acquired in-process research and development activities (\u201cIPR&D\u201d) are not amortized until a product is available for sale and regulatory approval is obtained.\nLong-Lived Assets and Goodwill\nWe periodically review our long-lived and amortizable intangible assets for impairment and assess whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. Such circumstances may include a significant decrease in the market price of an asset, a significant adverse change in the manner in which the asset is being used or in its physical condition or a history of operating or cash flow losses associated with the use of an asset. We recognize an impairment loss when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss is the excess of the asset\u2019s carrying value over its fair value. In addition, we periodically reassess the estimated remaining useful lives of our long-lived and amortizable intangible assets. Changes to estimated useful lives would affect the amount of depreciation and amortization recorded in the consolidated statements of operations.\nGoodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in a business combination. We assess goodwill for impairment annually during the fourth quarter, or more frequently if impairment indicators exist. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. We may elect to assess our goodwill for impairment using a qualitative or a quantitative approach, to determine whether it is more likely than not that the fair value of goodwill is greater than its carrying value. During the three months ended June 30, 2023, we tested goodwill using a quantitative approach and determined goodwill was not impaired. We have not recorded any goodwill impairment charges in the periods included in the consolidated financial statements.\nWe evaluate our investments in equity method investees for impairment if circumstances indicate that the fair value of the investment may be impaired. The assets underlying a $2.8\u00a0million equity investment are currently idle; we have concluded the investment is not impaired, based on expected future operating cash flows and/or disposal value.\nIncome Taxes\nThe provision for income taxes includes U.S. federal, state and foreign income taxes and foreign withholding taxes. Our annual effective income tax rate is determined based on our income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Tax law requires certain items be included in the tax return at different times than the items are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences give rise to deferred tax assets and liabilities. Deferred tax assets generally represent the tax effect of items that can be used as a tax deduction or credit in future\u00a0years for which we have already recorded the tax benefit in our income statement. Deferred tax liabilities generally represent the tax effect of items recorded as tax expense in our income statement for which payment has been deferred, the tax effect of expenditures for which a deduction has already been taken in our tax return but has not yet been recognized in our income statement or the tax effect of assets recorded at fair value in business combinations for which there was no corresponding tax basis adjustment.\nThe recognition and measurement of a tax position is based on management\u2019s best judgment given the facts, circumstances and information available at the reporting date. Inherent in determining our annual effective income tax rate are judgments regarding business plans, planning opportunities and expectations about future outcomes. Realization of certain deferred tax assets, including research and development costs capitalized for income tax purposes and net operating loss carryforwards, is dependent upon generating sufficient future taxable income in the appropriate jurisdiction prior to the expiration of the amortization or carryforward periods. We establish valuation allowances for deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit.\nWe may take tax positions that management believes are supportable, but are potentially subject to successful challenge by the applicable taxing authority in the jurisdictions where we operate. We evaluate our tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. We review \n74\n\n\nTable of Contents\nthese tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly.\nWe account for income tax contingencies using a benefit recognition model. If our initial assessment does not result in the recognition of a tax benefit, we regularly monitor our position and subsequently recognize the tax benefit if: (i)\u00a0there are changes in tax law or there is new information that sufficiently raise the likelihood of prevailing on the technical merits of the position to \u201cmore likely than not\u201d; (ii)\u00a0the statute of limitations expires; or (iii)\u00a0there is a completion of an audit resulting in a favorable settlement of that tax year with the appropriate agency. We regularly re-evaluate our tax positions based on the results of audits of federal, state and foreign income tax filings, statute of limitations expirations, and changes in tax law or receipt of new information that would either increase or decrease the technical merits of a position relative to the \u201cmore-likely-than-not\u201d standard.\nOur assessments concerning uncertain tax positions are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.\nBecause there are a number of estimates and assumptions inherent in calculating the various components of our income tax provision, certain future events such as changes in tax legislation, geographic mix of earnings, completion of tax audits or earnings repatriation plans could have an impact on those estimates and our effective income tax rate.\nWe consider undistributed earnings of foreign subsidiaries to be indefinitely reinvested in our international operations. The undistributed earnings of foreign subsidiaries were subject to the U.S. one-time mandatory toll charge and are eligible to be repatriated to the U.S. without additional U.S. tax under the Tax Act. Should our plans change and we decide to repatriate some or all of the remaining cash held by our international subsidiaries, the amounts repatriated could be subject to applicable non-U.S. income and withholding taxes in international jurisdictions.\nFor more information regarding our significant accounting policies, estimates and assumptions, see \u201cNotes to Consolidated Financial Statements\u2009\u2014\u2009Summary of Significant Accounting Policies and New Accounting Standards.\u201d\nContingencies\nLegal matters\nWe are subject to numerous contingencies arising in the ordinary course of business, such as product liability and other product-related litigation, commercial litigation, environmental claims and proceedings and government investigations. Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which could be substantial. We believe that we have strong defenses in these types of matters, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations or cash flows in the period in which the amounts are paid and/or accrued.\nWe have accrued for losses that are both probable and reasonably estimable. Substantially all of these contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies heavily on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.\nEnvironmental\nOur operations and properties are subject to Environmental Laws and regulations. As such, the nature of our current and former operations exposes us to the risk of claims with respect to such matters, including fines, penalties and remediation obligations that may be imposed by regulatory authorities. Under certain circumstances, we might be required to curtail operations until a particular problem is remedied. Known costs and expenses under Environmental \n75\n\n\nTable of Contents\nLaws incidental to ongoing operations, including the cost of litigation proceedings relating to environmental matters, are generally included within operating results. Potential costs and expenses may also be incurred in connection with the repair or upgrade of facilities to meet existing or new requirements under Environmental Laws or to investigate or remediate potential or actual contamination and from time to time we establish reserves for such contemplated investigation and remediation costs. In many instances, the ultimate costs under Environmental Laws and the time period during which such costs are likely to be incurred are difficult to predict.\nWhile we believe that our operations are currently in material compliance with Environmental Laws, we have, from time to time, received notices of violation from governmental authorities, and have been involved in civil or criminal action for such violations. Additionally, at various sites, our subsidiaries are engaged in continuing investigation, remediation and/or monitoring efforts to address contamination associated with historic operations of the sites. We devote considerable resources to complying with Environmental Laws and managing environmental liabilities. We have developed programs to identify requirements under, and maintain compliance with Environmental Laws; however, we cannot predict with certainty the impact of increased and more stringent regulation on our operations, future capital expenditure requirements, or the cost of compliance.\nThe nature of our current and former operations exposes us to the risk of claims with respect to environmental matters and we cannot assure we will not incur material costs and liabilities in connection with such claims. Based upon our experience to date, we believe that the future cost of compliance with existing Environmental Laws, and liabilities for known environmental claims pursuant to such Environmental Laws, will not have a material adverse effect on our financial position, results of operations, cash flows or liquidity.\nFor additional details, see \u201cNotes to Consolidated Financial Statements\u2009\u2014\u2009Commitments and Contingencies.\u201d\nFor additional details, see \u201cBusiness\u2009\u2014\u2009Environmental, Health and Safety.\u201d\n\u200b",
+  "item7a": ">Item\u00a07A.\u00a0\u00a0\u00a0Quantitative and Qualitative Disclosures about Market Risk\nForeign exchange risk\nPortions of our net sales and costs are exposed to changes in foreign exchanges rates. Our products are sold in more than 80 countries and, as a result, our revenues are influenced by changes in foreign exchange rates. Because we operate in multiple foreign currencies, changes in those currencies relative to the U.S. dollar could affect our revenue and expenses, and consequently, net income. Exchange rate fluctuations may also have an effect beyond our reported financial results and directly affect operations. These fluctuations may affect the ability to buy and sell our goods and services in markets affected by significant exchange rate variances. \nOur primary foreign currency exposures are to the Brazilian and Israeli currencies. From time to time, we manage foreign exchange risk through the use of foreign currency derivative contracts. We use these contracts to mitigate the potential earnings effects from exposure to foreign currencies.\nWe analyzed our foreign currency derivative contracts at June\u00a030,\u00a02023 to determine their sensitivity to exchange rate changes. The analysis indicates that if the U.S. dollar were to appreciate or depreciate by 10%, the fair value of these contracts would decrease or increase by $0.2\u00a0million. For additional details, see \u201cNotes to Consolidated Financial Statements\u2009\u2014\u2009Derivatives.\u201d\nInterest rate risk\nWe have effectively converted $300 million of our outstanding debt to fixed interest rates through June 2025, through the use of an interest rate swap agreement. Our debt is subject to floating interest rates to the extent not effectively converted to fixed interest rate debt. Our 2021 Credit Facilities carry floating interest rates based on the Secured Overnight Financing Rate (\u201cSOFR\u201d) (previously the London Interbank Offered Rate (\u201cLIBOR\u201d)) or the Prime Rate. Therefore, our profitability and cash flows are exposed to interest rate fluctuations. Our interest rates also include variable applicable rates in addition to the SOFR portion of our interest obligation. The applicable rates vary from 1.50% to 2.75%, based on the First Lien Net Leverage Ratio, as defined in the 2021 Credit Facilities.\nIn March 2020, and amended in November 2022, we entered into an interest rate swap agreement that effectively converted the floating SOFR portion of our interest obligation to a fixed rate of 0.61% on a $300 million principal amount. We designated the interest rate swap as a highly effective cash flow hedge. \n76\n\n\nTable of Contents\nBased on our outstanding debt balances and the applicable rate in effect as of June\u00a030,\u00a02023, and considering the interest rate swap agreement, a 100-basis point increase in SOFR would increase annual interest expense and decrease cash flows by $1.8 million. For additional details, see \u201cNotes to Consolidated Financial Statements\u2009\u2014\u2009Debt\u201d and \u201cNotes to Consolidated Financial Statements\u2009\u2014\u2009Derivatives.\u201d\n\u200b\n77\n\n\nTable of Contents",
+  "cik": "1069899",
+  "cusip6": "71742Q",
+  "cusip": ["71742Q106"],
+  "names": ["PHIBRO ANIMAL HEALTH CORP A"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1069899/000155837023015357/0001558370-23-015357-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\n\u00a0\nBusiness \u2013\n\u00a0\nSeasonality\n, seasonal fluctuations\n\u00a0\nimpact shell\n\u00a0\negg prices. Therefore,\n\u00a0\ncomparisons \nof\n\u00a0\nour\n\u00a0\nsales\n\u00a0\nand\n\u00a0\noperating\n\u00a0\nresults\n\u00a0\nbetween\n\u00a0\ndifferent\n\u00a0\nquarters\n\u00a0\nwithin\n\u00a0\na\n\u00a0\nsingle\n\u00a0\nfiscal\n\u00a0\nyear\n\u00a0\nare\n\u00a0\nnot\n\u00a0\nnecessarily\n\u00a0\nmeaningful \ncomparisons. \nA decline in consumer demand for shell eggs can negatively impact our business. \nWe believe the\n\u00a0\nincrease in meals prepared at home due\n\u00a0\nto concerns and restrictions during the initial outbreak\n\u00a0\nof the COVID-19 \npandemic,\n\u00a0\nhigh-protein\n\u00a0\ndiet\n\u00a0\ntrends,\n\u00a0\nindustry\n\u00a0\nadvertising\n\u00a0\ncampaigns\n\u00a0\nand\n\u00a0\nthe\n\u00a0\nimproved\n\u00a0\nnutritional\n\u00a0\nreputation\n\u00a0\nof\n\u00a0\neggs\n\u00a0\nhave\n\u00a0\nall \ncontributed\n\u00a0\nat one\n\u00a0\ntime or\n\u00a0\nanother\n\u00a0\nto increased\n\u00a0\nshell egg\n\u00a0\ndemand. However,\n\u00a0\nit is\n\u00a0\npossible that\n\u00a0\nthe demand\n\u00a0\nfor shell\n\u00a0\neggs will \ndecline in the future. Adverse publicity relating to health or safety\n\u00a0\nconcerns and changes in the perception of the nutritional\n\u00a0\nvalue \nof shell eggs, changes in consumer\n\u00a0\nviews regarding consumption of animal-based products, as\n\u00a0\nwell as movement away from high \nprotein diets, could\n\u00a0\nadversely affect\n\u00a0\ndemand for shell\n\u00a0\neggs, which would\n\u00a0\nhave a material\n\u00a0\nadverse effect\n\u00a0\non our future\n\u00a0\nresults of \noperations and financial condition. \n\n\n\n\n\n\n13 \nFeed costs are volatile and increases in these costs can\n\u00a0\nadversely impact our results of operations. \nFeed costs are the largest element of our shell\n\u00a0\negg (farm) production cost, ranging from 55%\n\u00a0\nto 63% of total farm production cost \nin the last five fiscal years.\n\u00a0\nAlthough feed ingredients, primarily corn and soybean\n\u00a0\nmeal, are available from a\n\u00a0\nnumber of sources, we do not\n\u00a0\nhave control over \nthe prices\n\u00a0\nof the\n\u00a0\ningredients we\n\u00a0\npurchase, which\n\u00a0\nare affected\n\u00a0\nby weather,\n\u00a0\nvarious global\n\u00a0\nand U.S.\n\u00a0\nsupply and\n\u00a0\ndemand factors, \ntransportation\n\u00a0\nand storage\n\u00a0\ncosts, speculators,\n\u00a0\nand\n\u00a0\nagricultural, energy\n\u00a0\nand trade\n\u00a0\npolicies in\n\u00a0\nthe U.S.\n\u00a0\nand\n\u00a0\ninternationally.\n\u00a0\nMore \nrecently,\n\u00a0\nthe Russia-Ukraine\n\u00a0\nWar\n\u00a0\nhas had\n\u00a0\na negative\n\u00a0\nimpact on\n\u00a0\nthe worldwide\n\u00a0\nsupply of grain,\n\u00a0\nincluding corn,\n\u00a0\nputting upward \npressure on\n\u00a0\nprices. We\n\u00a0\nsaw increasing\n\u00a0\nprices for\n\u00a0\ncorn and\n\u00a0\nsoybean meal\n\u00a0\nfor fiscal\n\u00a0\nyears 2022\n\u00a0\nand 2023\n\u00a0\nas a\n\u00a0\nresult of\n\u00a0\nweather-\nrelated shortfalls\n\u00a0\nin production\n\u00a0\nand yields, ongoing\n\u00a0\nsupply chain disruptions\n\u00a0\nand the Russia-Ukraine\n\u00a0\nWar\n\u00a0\nand its impact\n\u00a0\non the \nexport markets.\n\u00a0\nOur costs for\n\u00a0\ncorn and\n\u00a0\nsoybean meal are\n\u00a0\nalso affected\n\u00a0\nby local basis\n\u00a0\nprices. Factors that\n\u00a0\ncan affect\n\u00a0\nbasis levels \ninclude transportation\n\u00a0\nand storage costs. We\n\u00a0\nsaw basis levels\n\u00a0\nincrease in our\n\u00a0\nareas of operation\n\u00a0\nduring fiscal 2023\n\u00a0\nas a result of \nhigher transportation and storage costs, resulting in higher farm production\n\u00a0\ncosts during the year. \nIncreases in feed\n\u00a0\ncosts unaccompanied by increases\n\u00a0\nin the selling price\n\u00a0\nof eggs can have\n\u00a0\na material adverse effect\n\u00a0\non the results \nof our operations and cash flow. Alternatively, low feed costs can encourage industry overproduction, possibly resulting in lower \negg prices and lower revenue.\n\u00a0\nAgricultural risks, including outbreaks of avian\n\u00a0\ndisease, could harm our business.\n\u00a0\nOur shell egg\n\u00a0\nproduction activities are\n\u00a0\nsubject to a variety\n\u00a0\nof agricultural risks.\n\u00a0\nUnusual or extreme\n\u00a0\nweather conditions, disease \nand pests can materially and adversely affect the quality and quantity of shell eggs\n\u00a0\nwe produce and distribute. Outbreaks of avian \ninfluenza among poultry occur\n\u00a0\nperiodically worldwide and have occurred\n\u00a0\nsporadically in the U.S. Most recently,\n\u00a0\nan outbreak of \nHPAI,\n\u00a0\nwhich was first detected\n\u00a0\nin February 2022,\n\u00a0\nhas impacted the\n\u00a0\nindustry.\n\u00a0\nPrior to 2022, there\n\u00a0\nwas another significant\n\u00a0\nHPAI \noutbreak in the U.S. impacting poultry during 2015. There have been no positive tests for HPAI\n\u00a0\nat any Cal-Maine Foods\u2019 owned \nor contracted facility as\n\u00a0\nof July 25,\n\u00a0\n2023. The Company maintains\n\u00a0\ncontrols and procedures designed\n\u00a0\nto reduce the\n\u00a0\nrisk of exposing \nour flocks to harmful\n\u00a0\ndiseases; however, despite these efforts, outbreaks of avian\n\u00a0\ndisease can and do\n\u00a0\nstill occur and may\n\u00a0\nadversely \nimpact the\n\u00a0\nhealth of\n\u00a0\nour flocks.\n\u00a0\nAn outbreak\n\u00a0\nof avian\n\u00a0\ndisease could\n\u00a0\nhave a\n\u00a0\nmaterial adverse\n\u00a0\nimpact on\n\u00a0\nour financial\n\u00a0\nresults by \nincreasing\n\u00a0\ngovernment\n\u00a0\nrestrictions\n\u00a0\non\n\u00a0\nthe\n\u00a0\nsale\n\u00a0\nand\n\u00a0\ndistribution\n\u00a0\nof\n\u00a0\nour\n\u00a0\nproducts\n\u00a0\nand\n\u00a0\nrequiring\n\u00a0\nus\n\u00a0\nto\n\u00a0\neuthanize\n\u00a0\nthe\n\u00a0\naffected \nlayers. Negative publicity from an outbreak within our\n\u00a0\nindustry can negatively impact customer perception, even if\n\u00a0\nthe outbreak \ndoes\n\u00a0\nnot\n\u00a0\ndirectly\n\u00a0\nimpact\n\u00a0\nour flocks.\n\u00a0\nIf\n\u00a0\na\n\u00a0\nsubstantial portion\n\u00a0\nof\n\u00a0\nour\n\u00a0\nlayers\n\u00a0\nor production\n\u00a0\nfacilities are\n\u00a0\naffected\n\u00a0\nby\n\u00a0\nany\n\u00a0\nof these \nfactors in any given quarter or year, our business, financial condition, and results of operations could be materially and adversely \naffected. \nShell\n\u00a0\neggs\n\u00a0\nand\n\u00a0\nshell\n\u00a0\negg\n\u00a0\nproducts\n\u00a0\nare\n\u00a0\nsusceptible\n\u00a0\nto\n\u00a0\nmicrobial\n\u00a0\ncontamination,\n\u00a0\nand\n\u00a0\nwe\n\u00a0\nmay\n\u00a0\nbe\n\u00a0\nrequired\n\u00a0\nto,\n\u00a0\nor we\n\u00a0\nmay \nvoluntarily, recall\n\u00a0\ncontaminated products. \nShell eggs\n\u00a0\nand shell\n\u00a0\negg products\n\u00a0\nare vulnerable\n\u00a0\nto contamination\n\u00a0\nby pathogens\n\u00a0\nsuch as\n\u00a0\nSalmonella. The\n\u00a0\nCompany maintains \npolicies and procedures designed to comply with the complex rules and regulations governing egg production, such as The Final \nEgg\n\u00a0\nRule\n\u00a0\nissued\n\u00a0\nby\n\u00a0\nthe\n\u00a0\nFDA\n\u00a0\n\u201cPrevention\n\u00a0\nof\n\u00a0\nSalmonella\n\u00a0\nEnteritidis\n\u00a0\nin\n\u00a0\nShell\n\u00a0\nEggs\n\u00a0\nDuring\n\u00a0\nProduction,\n\u00a0\nStorage,\n\u00a0\nand \nTransportation,\u201d and\n\u00a0\nthe FDA\u2019s\n\u00a0\nFood Safety Modernization Act. Shipment\n\u00a0\nof contaminated products, even\n\u00a0\nif inadvertent, could \nresult in a\n\u00a0\nviolation of law and\n\u00a0\nlead to increased\n\u00a0\nrisk of exposure\n\u00a0\nto product liability\n\u00a0\nclaims, product recalls\n\u00a0\nand scrutiny by federal \nand\n\u00a0\nstate\n\u00a0\nregulatory\n\u00a0\nagencies.\n\u00a0\nWe\n\u00a0\nhave\n\u00a0\nlittle,\n\u00a0\nif\n\u00a0\nany,\n\u00a0\ncontrol\n\u00a0\nover\n\u00a0\nproper\n\u00a0\nhandling\n\u00a0\nonce\n\u00a0\nthe\n\u00a0\nproduct\n\u00a0\nhas\n\u00a0\nbeen\n\u00a0\nshipped\n\u00a0\nor \ndelivered. In\n\u00a0\naddition,\n\u00a0\nproducts\n\u00a0\npurchased\n\u00a0\nfrom\n\u00a0\nother\n\u00a0\nproducers\n\u00a0\ncould\n\u00a0\ncontain\n\u00a0\ncontaminants\n\u00a0\nthat\n\u00a0\nmight\n\u00a0\nbe\n\u00a0\ninadvertently \nredistributed by us. As such, we might decide or be required\n\u00a0\nto recall a product if we, our customers\n\u00a0\nor regulators believe it poses \na potential\n\u00a0\nhealth risk.\n\u00a0\nAny product\n\u00a0\nrecall could\n\u00a0\nresult in\n\u00a0\na loss\n\u00a0\nof consumer\n\u00a0\nconfidence in\n\u00a0\nour products,\n\u00a0\nadversely affect\n\u00a0\nour \nreputation\n\u00a0\nwith existing\n\u00a0\nand potential\n\u00a0\ncustomers and\n\u00a0\nhave a\n\u00a0\nmaterial adverse\n\u00a0\neffect\n\u00a0\non our\n\u00a0\nbusiness, results\n\u00a0\nof operations\n\u00a0\nand \nfinancial condition. We\n\u00a0\ncurrently maintain insurance\n\u00a0\nwith respect to certain of\n\u00a0\nthese risks, including product\n\u00a0\nliability insurance, \nbusiness interruption insurance and general liability\n\u00a0\ninsurance, but in many cases such insurance is expensive,\n\u00a0\ndifficult to obtain \nand no assurance can\n\u00a0\nbe given that such insurance\n\u00a0\ncan be maintained in\n\u00a0\nthe future on acceptable\n\u00a0\nterms, or in sufficient\n\u00a0\namounts \nto protect us against losses due to any such events, or at all. \nOur profitability\n\u00a0\nmay be adversely\n\u00a0\nimpacted by\n\u00a0\nincreases in other\n\u00a0\ninput costs such\n\u00a0\nas packaging materials\n\u00a0\nand delivery \nexpenses, including as a result of inflation.\nIn addition to feed ingredient costs, other significant input costs include costs of packaging materials and delivery expenses. Our \ncosts of packing materials increased\n\u00a0\nduring fiscal 2023 and 2022\n\u00a0\ndue to rising inflation and labor\n\u00a0\ncosts, and during 2022 also as \na\n\u00a0\nresult\n\u00a0\nof\n\u00a0\nsupply\n\u00a0\nchain\n\u00a0\nconstraints\n\u00a0\ninitially\n\u00a0\ncaused\n\u00a0\nby\n\u00a0\nthe\n\u00a0\npandemic,\n\u00a0\nand\n\u00a0\nthese\n\u00a0\ncosts\n\u00a0\nmay\n\u00a0\ncontinue\n\u00a0\nto\n\u00a0\nincrease.\n\u00a0\nWe\n\u00a0\nalso \n\n\n\n\n\n\n\n\n\u00a0\n\n\n14 \nexperienced increases in delivery expenses during fiscal 2023 and 2022 due to increases in fuel and labor costs for both our fleet \nand contract\n\u00a0\ntrucking, and\n\u00a0\nthese costs\n\u00a0\nmay continue\n\u00a0\nto increase.\n\u00a0\nIncreases in\n\u00a0\nthese costs\n\u00a0\nare largely\n\u00a0\noutside of\n\u00a0\nour control\n\u00a0\nand \nhave an adverse effect on our profitability and cash flow. \nBUSINESS AND OPERATIONAL\n\u00a0\nRISK FACTORS \nGlobal\n\u00a0\nor\n\u00a0\nregional\n\u00a0\nhealth\n\u00a0\ncrises including\n\u00a0\npandemics\n\u00a0\nor\n\u00a0\nepidemics\n\u00a0\ncould\n\u00a0\nhave\n\u00a0\nan\n\u00a0\nadverse impact\n\u00a0\non\n\u00a0\nour\n\u00a0\nbusiness and \noperations. \nThe\n\u00a0\neffects\n\u00a0\nof\n\u00a0\nglobal\n\u00a0\nor\n\u00a0\nregional\n\u00a0\npandemics\n\u00a0\nor\n\u00a0\nepidemics\n\u00a0\ncan\n\u00a0\nsignificantly\n\u00a0\nimpact\n\u00a0\nour\n\u00a0\noperations.\n\u00a0\nAlthough\n\u00a0\ndemand\n\u00a0\nfor\n\u00a0\nour \nproducts could\n\u00a0\nincrease as\n\u00a0\na result\n\u00a0\nof restrictions\n\u00a0\nsuch as\n\u00a0\ntravel bans\n\u00a0\nand restrictions,\n\u00a0\nquarantines, shelter-in-place\n\u00a0\norders, and \nbusiness and government shutdowns,\n\u00a0\nwhich can prompt more\n\u00a0\nconsumers to eat at home,\n\u00a0\nthese restrictions could also significantly \nincrease our cost of doing business\n\u00a0\ndue to labor shortages, supply-chain disruptions, increased costs and decreased availability of \npackaging supplies, and increased\n\u00a0\nmedical and other costs.\n\u00a0\nWe experienced these impacts as a\n\u00a0\nresult of the COVID-19\n\u00a0\npandemic, \nprimarily during our fiscal\n\u00a0\nyears 2020 and 2021.\n\u00a0\nThe pandemic recovery also\n\u00a0\ncontributed to increasing inflation\n\u00a0\nand interest rates, \nwhich persist and\n\u00a0\nmay continue\n\u00a0\nto persist. The\n\u00a0\nimpacts of health\n\u00a0\ncrises are difficult\n\u00a0\nto predict and\n\u00a0\ndepend on numerous\n\u00a0\nfactors \nincluding\n\u00a0\nthe\n\u00a0\nseverity,\n\u00a0\nlength and\n\u00a0\ngeographic\n\u00a0\nscope\n\u00a0\nof\n\u00a0\nthe outbreak,\n\u00a0\nresurgences\n\u00a0\nof\n\u00a0\nthe disease\n\u00a0\nand\n\u00a0\nvariants,\n\u00a0\navailability\n\u00a0\nand \nacceptance of vaccines, and\n\u00a0\ngovernmental, business and individuals\u2019\n\u00a0\nresponses.\n\u00a0\nA resurgence of\n\u00a0\nCOVID-19 and/or variants, or \nany future major public health crisis, would disrupt our\n\u00a0\nbusiness and could have a material adverse effect on\n\u00a0\nour financial results. \nOur acquisition growth strategy subjects us to various risks. \nAs discussed in \nPart I. Item\n\u00a0\nI. Business \u2013\n\u00a0\nGrowth Strategy\n, we plan\n\u00a0\nto pursue a\n\u00a0\ngrowth strategy that includes\n\u00a0\nselective acquisitions \nof other\n\u00a0\ncompanies engaged\n\u00a0\nin the\n\u00a0\nproduction and\n\u00a0\nsale of\n\u00a0\nshell eggs,\n\u00a0\nwith a\n\u00a0\npriority on\n\u00a0\nthose that\n\u00a0\nwill facilitate\n\u00a0\nour ability\n\u00a0\nto \nexpand our cage-free shell egg production capabilities in key locations and markets. We may over-estimate or under-estimate the \ndemand\n\u00a0\nfor\n\u00a0\ncage-free\n\u00a0\neggs,\n\u00a0\nwhich\n\u00a0\ncould\n\u00a0\ncause\n\u00a0\nour\n\u00a0\nacquisition\n\u00a0\nstrategy\n\u00a0\nto\n\u00a0\nbe\n\u00a0\nless-than-optimal\n\u00a0\nfor\n\u00a0\nour\n\u00a0\nfuture\n\u00a0\ngrowth\n\u00a0\nand \nprofitability.\n\u00a0\nThe\n\u00a0\nnumber\n\u00a0\nof existing\n\u00a0\ncompanies\n\u00a0\nwith\n\u00a0\ncage-free\n\u00a0\ncapacity\n\u00a0\nthat\n\u00a0\nwe\n\u00a0\nmay\n\u00a0\nbe\n\u00a0\nable\n\u00a0\nto\n\u00a0\npurchase\n\u00a0\nis\n\u00a0\nlimited,\n\u00a0\nas\n\u00a0\nmost \nproduction of shell\n\u00a0\neggs by other companies\n\u00a0\nin our markets currently\n\u00a0\ndoes not meet customer\n\u00a0\ndemands or legal requirements\n\u00a0\nto \nbe designated\n\u00a0\nas cage-free.\n\u00a0\nConversely,\n\u00a0\nif we\n\u00a0\nacquire cage-free\n\u00a0\nproduction capacity,\n\u00a0\nwhich is\n\u00a0\nmore expensive\n\u00a0\nto purchase\n\u00a0\nand \noperate, and customer\n\u00a0\ndemands or legal\n\u00a0\nrequirements for cage-free\n\u00a0\neggs were to change,\n\u00a0\nthe resulting lack\n\u00a0\nof demand for\n\u00a0\ncage-\nfree eggs may result in higher costs and lower profitability. \nAcquisitions require capital resources and can divert management\u2019s attention from our existing business. Acquisitions also entail \nan inherent risk that we\n\u00a0\ncould become subject to contingent or\n\u00a0\nother liabilities, including liabilities arising from\n\u00a0\nevents or conduct \nprior to\n\u00a0\nour acquisition\n\u00a0\nof a\n\u00a0\nbusiness that\n\u00a0\nwere unknown\n\u00a0\nto us\n\u00a0\nat the\n\u00a0\ntime of\n\u00a0\nacquisition. We\n\u00a0\ncould incur\n\u00a0\nsignificantly greater \nexpenditures in integrating an acquired business than we anticipated at the\n\u00a0\ntime of its purchase. \nWe cannot assure\n\u00a0\nyou that we: \n\u25cf\nwill identify suitable acquisition candidates; \n\u25cf\ncan consummate acquisitions on acceptable terms; \n\u25cf\ncan successfully integrate an acquired business into our operations; or \n\u25cf\ncan successfully manage the operations of an acquired business. \nNo\n\u00a0\nassurance\n\u00a0\ncan\n\u00a0\nbe\n\u00a0\ngiven\n\u00a0\nthat\n\u00a0\ncompanies\n\u00a0\nwe\n\u00a0\nacquire\n\u00a0\nin\n\u00a0\nthe\n\u00a0\nfuture\n\u00a0\nwill\n\u00a0\ncontribute\n\u00a0\npositively\n\u00a0\nto\n\u00a0\nour\n\u00a0\nresults\n\u00a0\nof\n\u00a0\noperations\n\u00a0\nor \nfinancial condition.\n\u00a0\nIn addition,\n\u00a0\nfederal antitrust\n\u00a0\nlaws require\n\u00a0\nregulatory approval\n\u00a0\nof acquisitions\n\u00a0\nthat exceed\n\u00a0\ncertain threshold \nlevels of significance, and we cannot guarantee that such approvals would\n\u00a0\nbe obtained. \nThe consideration\n\u00a0\nwe pay in\n\u00a0\nconnection with any\n\u00a0\nacquisition affects\n\u00a0\nour financial results.\n\u00a0\nIf we pay\n\u00a0\ncash, we could\n\u00a0\nbe required \nto\n\u00a0\nuse\n\u00a0\na\n\u00a0\nportion\n\u00a0\nof\n\u00a0\nour\n\u00a0\navailable\n\u00a0\ncash\n\u00a0\nor\n\u00a0\ncredit\n\u00a0\nfacility\n\u00a0\nto\n\u00a0\nconsummate\n\u00a0\nthe\n\u00a0\nacquisition.\n\u00a0\nTo\n\u00a0\nthe\n\u00a0\nextent\n\u00a0\nwe\n\u00a0\nissue\n\u00a0\nshares\n\u00a0\nof\n\u00a0\nour \nCommon Stock, existing stockholders may\n\u00a0\nbe diluted. In addition,\n\u00a0\nacquisitions may result in\n\u00a0\nadditional debt. Our ability to\n\u00a0\naccess \nany additional\n\u00a0\ncapital that\n\u00a0\nmay be\n\u00a0\nneeded for\n\u00a0\nan acquisition\n\u00a0\nmay be\n\u00a0\nadversely impacted\n\u00a0\nby higher\n\u00a0\ninterest rates\n\u00a0\nand economic \nuncertainty. \nOur largest customers have accounted for a significant portion of our net sales volume. Accordingly, our business may be \nadversely affected by the loss of, or reduced purchases by,\n\u00a0\none or more of our large customers. \nOur customers, such as supermarkets, warehouse clubs\n\u00a0\nand food distributors, have continued to consolidate and consolidation\n\u00a0\nis \nexpected to continue. These consolidations have\n\u00a0\nproduced larger customers and potential customers with\n\u00a0\nincreased buying power \nwho are more\n\u00a0\ncapable of operating\n\u00a0\nwith reduced inventories,\n\u00a0\nopposing price increases,\n\u00a0\nand demanding lower\n\u00a0\npricing, increased \n\n\n\n\n\n\n\n\n\u00a0\n\n\n15 \npromotional programs and specifically tailored products. Because of these trends,\n\u00a0\nour volume growth could slow or we\n\u00a0\nmay need \nto lower prices or increase promotional spending for our products, any of\n\u00a0\nwhich could adversely affect our financial results.\n\u00a0\nOur top\n\u00a0\nthree customers\n\u00a0\naccounted for\n\u00a0\nan aggregate of\n\u00a0\n50.1%, 45.9%\n\u00a0\nand 48.6% of\n\u00a0\nnet sales dollars\n\u00a0\nfor fiscal 202\n\u00a0\n3, 2022,\n\u00a0\nand \n2021, respectively.\n\u00a0\nOur largest\n\u00a0\ncustomer,\n\u00a0\nWalmart\n\u00a0\nInc. (including\n\u00a0\nSam's Club),\n\u00a0\naccounted for\n\u00a0\n34.2%, 29.5%\n\u00a0\nand 29.8%\n\u00a0\nof net \nsales dollars\n\u00a0\nfor fiscal\n\u00a0\n2023, 2022,\n\u00a0\nand 2021,\n\u00a0\nrespectively. Although\n\u00a0\nwe have\n\u00a0\nestablished long-term\n\u00a0\nrelationships with\n\u00a0\nmost of \nour customers\n\u00a0\nwho continue\n\u00a0\nto purchase\n\u00a0\nfrom us\n\u00a0\nbased on\n\u00a0\nour ability\n\u00a0\nto service\n\u00a0\ntheir needs,\n\u00a0\nthey are\n\u00a0\ngenerally free\n\u00a0\nto acquire \nshell eggs\n\u00a0\nfrom other\n\u00a0\nsources. If, for\n\u00a0\nany reason, one\n\u00a0\nor more\n\u00a0\nof our\n\u00a0\nlarge customers\n\u00a0\nwere to\n\u00a0\npurchase significantly\n\u00a0\nless of\n\u00a0\nour \nshell eggs\n\u00a0\nin the\n\u00a0\nfuture or\n\u00a0\nterminate their\n\u00a0\npurchases from\n\u00a0\nus, and\n\u00a0\nwe were\n\u00a0\nnot able\n\u00a0\nto sell\n\u00a0\nour shell\n\u00a0\neggs to\n\u00a0\nnew customers\n\u00a0\nat \ncomparable levels, it would have a material adverse effect\n\u00a0\non our business, financial condition, and results of operations. \nOur business is highly competitive. \nThe\n\u00a0\nproduction\n\u00a0\nand\n\u00a0\nsale\n\u00a0\nof\n\u00a0\nfresh\n\u00a0\nshell\n\u00a0\neggs,\n\u00a0\nwhich\n\u00a0\naccounted\n\u00a0\nfor\n\u00a0\nvirtually\n\u00a0\nall\n\u00a0\nof\n\u00a0\nour\n\u00a0\nnet\n\u00a0\nsales\n\u00a0\nin\n\u00a0\nrecent\n\u00a0\nyears,\n\u00a0\nis\n\u00a0\nintensely \ncompetitive. We\n\u00a0\ncompete with\n\u00a0\na large\n\u00a0\nnumber of\n\u00a0\ncompetitors that\n\u00a0\nmay prove\n\u00a0\nto be\n\u00a0\nmore successful\n\u00a0\nthan we\n\u00a0\nare in\n\u00a0\nproducing, \nmarketing and\n\u00a0\nselling shell\n\u00a0\neggs. We\n\u00a0\ncannot provide\n\u00a0\nassurance that\n\u00a0\nwe will\n\u00a0\nbe able\n\u00a0\nto compete\n\u00a0\nsuccessfully with\n\u00a0\nany or\n\u00a0\nall of \nthese companies.\n\u00a0\nIncreased competition could result in price reductions,\n\u00a0\ngreater cyclicality, reduced\n\u00a0\nmargins and loss of market \nshare, which would negatively affect our business, results of operations,\n\u00a0\nand financial condition. \nWe\n\u00a0\nare\n\u00a0\ndependent\n\u00a0\non\n\u00a0\nour\n\u00a0\nmanagement\n\u00a0\nteam,\n\u00a0\nand\n\u00a0\nthe\n\u00a0\nloss\n\u00a0\nof\n\u00a0\nany\n\u00a0\nkey\n\u00a0\nmember\n\u00a0\nof\n\u00a0\nthis\n\u00a0\nteam\n\u00a0\nmay\n\u00a0\nadversely\n\u00a0\naffect\n\u00a0\nthe \nimplementation of our business plan in a timely manner. \nOur success\n\u00a0\ndepends largely\n\u00a0\nupon the\n\u00a0\ncontinued service\n\u00a0\nof our\n\u00a0\nsenior management\n\u00a0\nteam. The\n\u00a0\nloss or interruption\n\u00a0\nof service\n\u00a0\nof \none or more\n\u00a0\nof our key\n\u00a0\nexecutive officers\n\u00a0\ncould adversely\n\u00a0\naffect our\n\u00a0\nability to manage\n\u00a0\nour operations effectively\n\u00a0\nand/or pursue \nour growth strategy.\n\u00a0\nWe\n\u00a0\nhave not entered\n\u00a0\ninto any employment\n\u00a0\nor non-compete\n\u00a0\nagreements with any\n\u00a0\nof our executive\n\u00a0\nofficers. \nCompetition could cause us to lose talented employees, and unplanned turnover could deplete institutional\n\u00a0\nknowledge and result \nin increased costs due to increased competition for employees.\n\u00a0\nOur\n\u00a0\nbusiness\n\u00a0\nis\n\u00a0\ndependent\n\u00a0\non\n\u00a0\nour\n\u00a0\ninformation\n\u00a0\ntechnology\n\u00a0\nsystems\n\u00a0\nand\n\u00a0\nsoftware,\n\u00a0\nand\n\u00a0\nfailure\n\u00a0\nto\n\u00a0\nprotect\n\u00a0\nagainst\n\u00a0\nor \neffectively respond to\n\u00a0\ncyber-attacks, security\n\u00a0\nbreaches, or other\n\u00a0\nincidents involving those systems,\n\u00a0\ncould adversely affect \nday-to-day operations and decision making processes and\n\u00a0\nhave an adverse effect on our performance and reputation. \nThe efficient operation of our business depends on our\n\u00a0\ninformation technology systems, which we rely on to effectively manage \nour business data, communications, logistics, accounting, regulatory\n\u00a0\nand other business processes. If we do not allocate and \neffectively manage the resources necessary to build\n\u00a0\nand sustain an appropriate technology environment, our business, \nreputation, or financial results could be negatively impacted. In\n\u00a0\naddition, our information technology systems may be \nvulnerable to damage or interruption from circumstances beyond our control,\n\u00a0\nincluding systems failures, natural disasters, \nterrorist attacks, viruses, ransomware, security breaches or cyber\n\u00a0\nincidents. Cyber-attacks are becoming more sophisticated and \nare increasing in the number of attempts and frequency by groups and individuals\n\u00a0\nwith a wide range of motives. We\n\u00a0\nhave \nexperienced and expect to continue to experience attempted cyber-attacks\n\u00a0\nof our information technology systems or networks.\n\u00a0\nA security breach\n\u00a0\nof\n\u00a0\nsensitive\n\u00a0\ninformation\n\u00a0\ncould\n\u00a0\nresult\n\u00a0\nin\n\u00a0\ndamage\n\u00a0\nto\n\u00a0\nour\n\u00a0\nreputation\n\u00a0\nand\n\u00a0\nour\n\u00a0\nrelations\n\u00a0\nwith\n\u00a0\nour\n\u00a0\ncustomers\n\u00a0\nor \nemployees. Any such damage or interruption could have a material adverse\n\u00a0\neffect on our business.\n\u00a0\nTechnology\n\u00a0\nand business and regulatory requirements continue to change rapidly.\n\u00a0\nFailure to update or replace legacy systems to \naddress\n\u00a0\nthese\n\u00a0\nchanges\n\u00a0\ncould\n\u00a0\nresult\n\u00a0\nin\n\u00a0\nincreased\n\u00a0\ncosts,\n\u00a0\nincluding\n\u00a0\nremediation\n\u00a0\ncosts,\n\u00a0\nsystem\n\u00a0\ndowntime,\n\u00a0\nthird\n\u00a0\nparty\n\u00a0\nlitigation, \nregulatory actions or cyber security vulnerabilities which could have\n\u00a0\na material adverse effect on our business. \nLabor shortages or increases in labor costs could adversely\n\u00a0\nimpact our business and results of operations. \nLabor is a primary component of our farm production costs. Our success is dependent\n\u00a0\nupon recruiting, motivating, and retaining \nstaff to operate our farms. Approximately 76% of our employees are paid at hourly rates, often in entry-level positions. While all \nour employees are paid at\n\u00a0\nrates above the federal minimum wage\n\u00a0\nrequirements, any significant increase\n\u00a0\nin local, state or federal \nminimum wage requirements could\n\u00a0\nincrease our labor\n\u00a0\ncosts. In addition,\n\u00a0\nany regulatory changes\n\u00a0\nrequiring us to\n\u00a0\nprovide additional \nemployee\n\u00a0\nbenefits\n\u00a0\nor\n\u00a0\nmandating\n\u00a0\nincreases\n\u00a0\nin\n\u00a0\nother\n\u00a0\nemployee-related\n\u00a0\ncosts,\n\u00a0\nsuch\n\u00a0\nas\n\u00a0\nunemployment\n\u00a0\ninsurance\n\u00a0\nor\n\u00a0\nworkers \ncompensation, would increase our\n\u00a0\ncosts. A shortage\n\u00a0\nin the labor\n\u00a0\npool, which may be\n\u00a0\ncaused by competition from\n\u00a0\nother employers, \nthe remote\n\u00a0\nlocations of\n\u00a0\nmany of\n\u00a0\nour farms,\n\u00a0\ndecreased\n\u00a0\nlabor participation\n\u00a0\nrates or\n\u00a0\nchanges in\n\u00a0\ngovernment-provided\n\u00a0\nsupport or \nimmigration laws, particularly in times of lower unemployment,\n\u00a0\ncould adversely affect our business and results of operations. \nA \nshortage of labor\n\u00a0\navailable to\n\u00a0\nus could\n\u00a0\ncause our\n\u00a0\nfarms to\n\u00a0\noperate with\n\u00a0\nreduced staff, which\n\u00a0\ncould negatively impact\n\u00a0\nour production \ncapacity and efficiencies.\n\u00a0\nIn fiscal 2021 and 2022, our labor costs increased primarily due to the pandemic\n\u00a0\nand its effects, which \n\n\n\n\n\n\n\n\n16 \ncaused us to\n\u00a0\nincrease wages in\n\u00a0\nresponse to labor shortages.\n\u00a0\nIn fiscal 2023,\n\u00a0\nlabor wages continued to\n\u00a0\nrise due to\n\u00a0\nincreasing inflation \nand low unemployment.\n\u00a0\nAccordingly, any significant labor shortages or increases\n\u00a0\nin our labor costs\n\u00a0\ncould have a material\n\u00a0\nadverse \neffect on our results of operations. \nWe are controlled by the family of our late founder, Fred\n\u00a0\nR. Adams, Jr., and Adolphus B. Baker,\n\u00a0\nChairman of our Board \nof Directors,\n\u00a0\ncontrols the vote of 100% of our outstanding Class A Common Stock.\nFred R. Adams,\n\u00a0\nJr., our\n\u00a0\nFounder and Chairman Emeritus\n\u00a0\ndied on March 29,\n\u00a0\n2020. Mr.\n\u00a0\nAdams\u2019 son-in-law,\n\u00a0\nAdolphus B. Baker, \nChairman\n\u00a0\nof\n\u00a0\nour\n\u00a0\nboard\n\u00a0\nof\n\u00a0\ndirectors,\n\u00a0\nMr.\n\u00a0\nBaker\u2019s\n\u00a0\nspouse\n\u00a0\nand\n\u00a0\nher\n\u00a0\nthree\n\u00a0\nsisters\n\u00a0\n(Mr.\n\u00a0\nAdams\u2019\n\u00a0\nfour\n\u00a0\ndaughters)\n\u00a0\n(collectively,\n\u00a0\nthe \n\u201cFamily\u201d)\n\u00a0\nbeneficially\n\u00a0\nown,\n\u00a0\ndirectly\n\u00a0\nor\n\u00a0\nindirectly\n\u00a0\nthrough\n\u00a0\nrelated\n\u00a0\nentities,\n\u00a0\n100%\n\u00a0\nof\n\u00a0\nour\n\u00a0\noutstanding\n\u00a0\nClass\n\u00a0\nA\n\u00a0\nCommon\n\u00a0\nStock \n(which has\n\u00a0\n10 votes\n\u00a0\nper share),\n\u00a0\ncontrolling approximately\n\u00a0\n52.1% of\n\u00a0\nour total\n\u00a0\nvoting power.\n\u00a0\nSuch persons\n\u00a0\nalso have\n\u00a0\nadditional \nvoting power\n\u00a0\ndue to\n\u00a0\nbeneficial ownership\n\u00a0\nof our\n\u00a0\nCommon Stock\n\u00a0\n(which has\n\u00a0\none vote\n\u00a0\nper share),\n\u00a0\ndirectly or\n\u00a0\nindirectly through \nrelated entities, resulting in family voting control of approximately 53.8% of our total voting power.\n\u00a0\nMr. Baker controls the vote \nof 100% of our outstanding Class A Common Stock. \nWe understand that the Family\n\u00a0\nintends\n\u00a0\nto retain ownership\n\u00a0\nof a\n\u00a0\nsufficient amount of our\n\u00a0\nCommon Stock and\n\u00a0\nour Class A\n\u00a0\nCommon \nStock to assure continued ownership of more than 50% of the voting power of\n\u00a0\nour outstanding shares of capital stock. As a result \nof\n\u00a0\nthis ownership,\n\u00a0\nthe\n\u00a0\nFamily has\n\u00a0\nthe\n\u00a0\nability\n\u00a0\nto exert\n\u00a0\nsubstantial\n\u00a0\ninfluence\n\u00a0\nover\n\u00a0\nmatters requiring\n\u00a0\naction\n\u00a0\nby our\n\u00a0\nstockholders, \nincluding\n\u00a0\namendments\n\u00a0\nto our\n\u00a0\ncertificate\n\u00a0\nof incorporation\n\u00a0\nand by-laws,\n\u00a0\nthe election\n\u00a0\nand removal\n\u00a0\nof directors,\n\u00a0\nand any\n\u00a0\nmerger, \nconsolidation,\n\u00a0\nor\n\u00a0\nsale of\n\u00a0\nall or\n\u00a0\nsubstantially\n\u00a0\nall of\n\u00a0\nour\n\u00a0\nassets,\n\u00a0\nor\n\u00a0\nother\n\u00a0\ncorporate\n\u00a0\ntransactions.\n\u00a0\nDelaware\n\u00a0\nlaw\n\u00a0\nprovides\n\u00a0\nthat\n\u00a0\nthe \nholders of a majority of the voting power of shares entitled to vote must approve certain fundamental corporate transactions such \nas a merger,\n\u00a0\nconsolidation and sale of\n\u00a0\nall or substantially all\n\u00a0\nof a corporation\u2019s\n\u00a0\nassets; accordingly,\n\u00a0\nsuch a transaction involving \nus\n\u00a0\nand\n\u00a0\nrequiring\n\u00a0\nstockholder\n\u00a0\napproval\n\u00a0\ncannot\n\u00a0\nbe\n\u00a0\neffected\n\u00a0\nwithout\n\u00a0\nthe\n\u00a0\napproval\n\u00a0\nof\n\u00a0\nthe\n\u00a0\nFamily.\n\u00a0\nSuch\n\u00a0\nownership\n\u00a0\nwill\n\u00a0\nmake\n\u00a0\nan \nunsolicited acquisition of our Company more difficult and discourage\n\u00a0\ncertain types of transactions involving a change of control \nof our Company, including\n\u00a0\ntransactions in which the holders of our Common Stock might otherwise receive a premium for their \nshares over then current market prices.\n\u00a0\nThe Family\u2019s controlling\n\u00a0\nownership of our capital stock may adversely\n\u00a0\naffect the market \nprice of our Common Stock. \nThe\n\u00a0\nprice\n\u00a0\nof\n\u00a0\nour\n\u00a0\nCommon\n\u00a0\nStock\n\u00a0\nmay\n\u00a0\nbe\n\u00a0\naffected\n\u00a0\nby\n\u00a0\nthe\n\u00a0\navailability\n\u00a0\nof\n\u00a0\nshares\n\u00a0\nfor\n\u00a0\nsale\n\u00a0\nin\n\u00a0\nthe\n\u00a0\nmarket,\n\u00a0\nand\n\u00a0\nyou\n\u00a0\nmay \nexperience significant dilution as a result of future issuances\n\u00a0\nof our securities, which could materially and adversely\n\u00a0\naffect \nthe market price of our Common Stock.\nThe sale or availability for sale of substantial amounts of our Common Stock could adversely impact its price.\n\u00a0\nThe Family holds \napproximately 1.4 million shares of Common Stock (the \u201cSubject Shares\u201d) that are subject to an Agreement Regarding Common \nStock\n\u00a0\n(the\n\u00a0\n\u201cAgreement\u201d)\n\u00a0\nfiled\n\u00a0\nas\n\u00a0\nan\n\u00a0\nexhibit\n\u00a0\nto\n\u00a0\nthis\n\u00a0\nreport.\n\u00a0\nThe\n\u00a0\nSubject\n\u00a0\nShares\n\u00a0\nremain\n\u00a0\nsubject\n\u00a0\nto\n\u00a0\npotential\n\u00a0\nsale\n\u00a0\nunder\n\u00a0\nthe \nAgreement. The Agreement\n\u00a0\ngenerally provides that\n\u00a0\nif a holder\n\u00a0\nof Subject Shares\n\u00a0\nintends to sell any\n\u00a0\nof the Subject\n\u00a0\nShares, such \nparty must give the\n\u00a0\nCompany a right of first\n\u00a0\nrefusal to purchase all or\n\u00a0\nany of such shares.\n\u00a0\nThe price payable by\n\u00a0\nthe Company to \npurchase shares\n\u00a0\npursuant to\n\u00a0\nthe exercise\n\u00a0\nof the\n\u00a0\nright of\n\u00a0\nfirst refusal\n\u00a0\nwill reflect\n\u00a0\na 6%\n\u00a0\ndiscount to\n\u00a0\nthe then-current\n\u00a0\nmarket price \nbased\n\u00a0\non\n\u00a0\nthe\n\u00a0\n20\n\u00a0\nbusiness-day\n\u00a0\nvolume-weighted\n\u00a0\naverage\n\u00a0\nprice.\n\u00a0\nIf\n\u00a0\nthe\n\u00a0\nCompany\n\u00a0\ndoes\n\u00a0\nnot exercise\n\u00a0\nits right\n\u00a0\nof\n\u00a0\nfirst\n\u00a0\nrefusal\n\u00a0\nand \npurchase the shares offered, such party will, subject to the approval of a special committee of independent\n\u00a0\ndirectors of the Board \nof Directors, be\n\u00a0\npermitted to sell\n\u00a0\nthe shares not\n\u00a0\npurchased by the\n\u00a0\nCompany pursuant to\n\u00a0\na Company registration\n\u00a0\nstatement, Rule \n144 under the Securities Act of 1933, or another manner of sale agreed to by the Company. Although\n\u00a0\npursuant to the Agreement \nthe Company\n\u00a0\nwill have a\n\u00a0\nright of first\n\u00a0\nrefusal to purchase\n\u00a0\nall or any\n\u00a0\nof those shares,\n\u00a0\nthe Company\n\u00a0\nmay elect not\n\u00a0\nto exercise its \nrights\n\u00a0\nof\n\u00a0\nfirst\n\u00a0\nrefusal,\n\u00a0\nand\n\u00a0\nif so\n\u00a0\nsuch\n\u00a0\nshares\n\u00a0\nwould\n\u00a0\nbe\n\u00a0\neligible for\n\u00a0\nsale pursuant\n\u00a0\nto\n\u00a0\nthe registration\n\u00a0\nrights\n\u00a0\nin\n\u00a0\nthe\n\u00a0\nAgreement\n\u00a0\nor \npursuant\n\u00a0\nto\n\u00a0\nRule\n\u00a0\n144\n\u00a0\nunder\n\u00a0\nthe Securities\n\u00a0\nAct\n\u00a0\nof\n\u00a0\n1933.\n\u00a0\nSales, or\n\u00a0\nthe\n\u00a0\navailability\n\u00a0\nfor\n\u00a0\nsale, of\n\u00a0\na\n\u00a0\nlarge\n\u00a0\nnumber\n\u00a0\nof\n\u00a0\nshares of\n\u00a0\nour \nCommon Stock could result in a decline in the market price of our\n\u00a0\nCommon Stock. \nIn addition,\n\u00a0\nour articles\n\u00a0\nof incorporation\n\u00a0\nauthorize us\n\u00a0\nto issue\n\u00a0\n120,000,000 shares\n\u00a0\nof our\n\u00a0\nCommon Stock.\n\u00a0\nAs of\n\u00a0\nJune 3,\n\u00a0\n2023, \nthere were\n\u00a0\n44,184,048 shares\n\u00a0\nof our\n\u00a0\nCommon Stock\n\u00a0\noutstanding. Accordingly,\n\u00a0\na substantial\n\u00a0\nnumber of\n\u00a0\nshares of\n\u00a0\nour Common \nStock\n\u00a0\nare\n\u00a0\noutstanding\n\u00a0\nand\n\u00a0\nare,\n\u00a0\nor\n\u00a0\ncould\n\u00a0\nbecome,\n\u00a0\navailable\n\u00a0\nfor\n\u00a0\nsale\n\u00a0\nin\n\u00a0\nthe\n\u00a0\nmarket.\n\u00a0\nIn\n\u00a0\naddition,\n\u00a0\nwe\n\u00a0\nmay\n\u00a0\nbe\n\u00a0\nobligated\n\u00a0\nto\n\u00a0\nissue \nadditional shares of our Common Stock in connection with employee benefit\n\u00a0\nplans (including equity incentive plans). \nIn the\n\u00a0\nfuture, we\n\u00a0\nmay decide\n\u00a0\nto raise\n\u00a0\ncapital through\n\u00a0\nofferings of\n\u00a0\nour Common\n\u00a0\nStock, additional\n\u00a0\nsecurities convertible\n\u00a0\ninto or \nexchangeable for\n\u00a0\nCommon Stock, or\n\u00a0\nrights to acquire\n\u00a0\nthese securities or\n\u00a0\nour Common Stock.\n\u00a0\nThe issuance of\n\u00a0\nadditional shares \nof our Common Stock or additional securities convertible into or exchangeable for our Common Stock could result in dilution of \nexisting stockholders\u2019 equity interests in\n\u00a0\nus. Issuances of substantial amounts of\n\u00a0\nour Common Stock, or the perception\n\u00a0\nthat such \nissuances could\n\u00a0\noccur,\n\u00a0\nmay adversely\n\u00a0\naffect prevailing\n\u00a0\nmarket prices\n\u00a0\nfor our\n\u00a0\nCommon Stock,\n\u00a0\nand we\n\u00a0\ncannot predict\n\u00a0\nthe effect \nthis dilution may have on the price of our Common Stock. \n\n\n\n\n\n\n\n\n17 \nLEGAL AND REGULATORY\n\u00a0\nRISK FACTORS \nPressure from animal rights groups regarding the treatment of animals may subject us to additional costs to conform our \npractices\n\u00a0\nto\n\u00a0\ncomply\n\u00a0\nwith\n\u00a0\ndeveloping\n\u00a0\nstandards\n\u00a0\nor\n\u00a0\nsubject\n\u00a0\nus\n\u00a0\nto\n\u00a0\nmarketing\n\u00a0\ncosts\n\u00a0\nto\n\u00a0\ndefend\n\u00a0\nchallenges\n\u00a0\nto\n\u00a0\nour\n\u00a0\ncurrent \npractices and protect\n\u00a0\nour image with\n\u00a0\nour customers. In\n\u00a0\nparticular,\n\u00a0\nchanges in customer\n\u00a0\npreferences and\n\u00a0\nnew legislation \nhave accelerated an increase in demand for cage-free eggs, which increases uncertainty\n\u00a0\nin our business and increases our \ncosts. \nWe and many of our customers face pressure from animal rights groups, such as\n\u00a0\nPeople for the Ethical Treatment of Animals and \nthe Humane\n\u00a0\nSociety of\n\u00a0\nthe United States,\n\u00a0\nto require\n\u00a0\ncompanies that supply\n\u00a0\nfood products\n\u00a0\nto operate\n\u00a0\ntheir business in\n\u00a0\na manner \nthat\n\u00a0\ntreats\n\u00a0\nanimals\n\u00a0\nin\n\u00a0\nconformity\n\u00a0\nwith\n\u00a0\ncertain\n\u00a0\nstandards\n\u00a0\ndeveloped\n\u00a0\nor\n\u00a0\napproved\n\u00a0\nby\n\u00a0\nthese\n\u00a0\ngroups.\n\u00a0\nIn\n\u00a0\ngeneral,\n\u00a0\nwe\n\u00a0\nmay\n\u00a0\nincur \nadditional costs to conform our practices to address\n\u00a0\nthese standards or to defend our existing\n\u00a0\npractices and protect our image with \nour customers.\n\u00a0\nThe standards promoted\n\u00a0\nby these groups\n\u00a0\nchange over time,\n\u00a0\nbut typically\n\u00a0\nrequire minimum\n\u00a0\ncage space\n\u00a0\nfor hens, \namong other requirements, and some\n\u00a0\nof these groups have led successful\n\u00a0\nlegislative efforts to ban\n\u00a0\nany form of caged housing\n\u00a0\nin \nvarious states.\n\u00a0\nAs\n\u00a0\ndiscussed\n\u00a0\nin \nPart\n\u00a0\nI.\n\u00a0\nItem\n\u00a0\n1.\n\u00a0\nBusiness\n\u00a0\n-\n\u00a0\nGovernment\n\u00a0\nRegulation\n,\n\u00a0\nten\n\u00a0\nstates\n\u00a0\nhave\n\u00a0\npassed\n\u00a0\nminimum\n\u00a0\nspace\n\u00a0\nand/or\n\u00a0\ncage-free \nrequirements\n\u00a0\nfor\n\u00a0\nhens,\n\u00a0\nand\n\u00a0\nother\n\u00a0\nstates are\n\u00a0\nconsidering\n\u00a0\nsuch requirements.\n\u00a0\nIn\n\u00a0\naddition,\n\u00a0\nin recent\n\u00a0\nyears,\n\u00a0\nmany\n\u00a0\nlarge\n\u00a0\nrestaurant \nchains,\n\u00a0\nfoodservice\n\u00a0\ncompanies\n\u00a0\nand\n\u00a0\ngrocery\n\u00a0\nchains,\n\u00a0\nincluding\n\u00a0\nour\n\u00a0\nlargest\n\u00a0\ncustomers,\n\u00a0\nannounced\n\u00a0\ngoals\n\u00a0\nto\n\u00a0\ntransition\n\u00a0\nto\n\u00a0\nan \nexclusively cage-free\n\u00a0\negg supply\n\u00a0\nchain by specified\n\u00a0\nfuture dates.\n\u00a0\nA significant\n\u00a0\nnumber of\n\u00a0\nour customers\n\u00a0\npreviously announced \ngoals to offer cage-free eggs exclusively on or before 2026, in most cases subject to available supply, affordability and consumer \ndemand,\n\u00a0\namong other contingencies.\n\u00a0\nSome of these customers have recently changed those goals to offer 70% cage-free eggs by \nthe end of 2030. While we\n\u00a0\nanticipate that our retail and foodservice customers will\n\u00a0\ncontinue to transition to selling cage-free eggs \ngiven public\n\u00a0\ncommitments,\n\u00a0\nthere is\n\u00a0\nno assurance\n\u00a0\nthat this\n\u00a0\ntransition\n\u00a0\nwill take\n\u00a0\nplace or\n\u00a0\ntake place\n\u00a0\naccording to\n\u00a0\nthe timeline\n\u00a0\nof \ncurrent cage-free\n\u00a0\ncommitments. For\n\u00a0\nexample, customers\n\u00a0\nmay accelerate\n\u00a0\ntheir transition\n\u00a0\nto stocking\n\u00a0\ncage-free eggs,\n\u00a0\nwhich may \nchallenge our\n\u00a0\nability to\n\u00a0\nmeet the\n\u00a0\ncage-free\n\u00a0\nvolume needs\n\u00a0\nof those\n\u00a0\ncustomers and\n\u00a0\nresult in\n\u00a0\na loss\n\u00a0\nof shell\n\u00a0\negg\n\u00a0\nsales. Similarly, \ncustomers who\n\u00a0\ncommit to\n\u00a0\nstock greater\n\u00a0\nproportional quantities\n\u00a0\nof cage-free\n\u00a0\neggs are\n\u00a0\nunder no\n\u00a0\nobligation to\n\u00a0\ncontinue to\n\u00a0\ndo so, \nwhich may\n\u00a0\nresult in an\n\u00a0\noversupply of\n\u00a0\ncage-free eggs and\n\u00a0\nresult in lower\n\u00a0\nspecialty egg\n\u00a0\nprices, which could\n\u00a0\nreduce the return\n\u00a0\non \nour capital investment in cage-free production. \nChanging our infrastructure and operating procedures to conform to consumer preferences, customer demands and\n\u00a0\nnew laws has \nresulted and\n\u00a0\nwill continue\n\u00a0\nto result\n\u00a0\nin additional\n\u00a0\ncosts, including\n\u00a0\ncapital and\n\u00a0\noperating cost\n\u00a0\nincreases. The\n\u00a0\nUSDA reported\n\u00a0\nthat \nthe estimated\n\u00a0\nU.S. cage-free\n\u00a0\nflock was\n\u00a0\n121.6 million hens as\n\u00a0\nof June\n\u00a0\n30, 2023,\n\u00a0\nwhich is approximately\n\u00a0\n38.3% of\n\u00a0\nthe total U.S. \ntable\n\u00a0\negg\n\u00a0\nlayer\n\u00a0\nhen\n\u00a0\npopulation.\n\u00a0\nAccording\n\u00a0\nto\n\u00a0\nthe\n\u00a0\nUSDA\n\u00a0\nAgricultural\n\u00a0\nMarketing\n\u00a0\nService,\n\u00a0\nas of\n\u00a0\nMay\n\u00a0\n2023\n\u00a0\napproximately\n\u00a0\n221 \nmillion hens,\n\u00a0\nor about\n\u00a0\n70.5% of\n\u00a0\nthe U.S.\n\u00a0\nnon-organic\n\u00a0\nlaying flock\n\u00a0\nwould have\n\u00a0\nto be\n\u00a0\nin cage-free\n\u00a0\nproduction by\n\u00a0\n2026 to\n\u00a0\nmeet \nprojected demand\n\u00a0\nfrom the\n\u00a0\nretailers, foodservice\n\u00a0\nproviders and\n\u00a0\nfood\n\u00a0\nmanufacturers that\n\u00a0\nhave made\n\u00a0\ngoals to\n\u00a0\ntransition to\n\u00a0\ncage-\nfree eggs.\n\u00a0\nIn response\n\u00a0\nto our\n\u00a0\ncustomers\u2019 announced\n\u00a0\ngoals and\n\u00a0\nincreased legal\n\u00a0\nrequirements for\n\u00a0\ncage-free eggs,\n\u00a0\nwe have\n\u00a0\nincreased capital \nexpenditures\n\u00a0\nto\n\u00a0\nincrease\n\u00a0\nour\n\u00a0\ncage-free\n\u00a0\nproduction\n\u00a0\ncapacity.\n\u00a0\nWe\n\u00a0\nare\n\u00a0\nalso\n\u00a0\nenhancing\n\u00a0\nour\n\u00a0\nfocus\n\u00a0\non\n\u00a0\ncage-free\n\u00a0\ncapacity\n\u00a0\nwhen \nconsidering\n\u00a0\nacquisition opportunities.\n\u00a0\nOur customers\n\u00a0\ntypically do\n\u00a0\nnot commit\n\u00a0\nto long-term\n\u00a0\npurchases of\n\u00a0\nspecific quantities\n\u00a0\nor \ntype of eggs\n\u00a0\nwith us, and\n\u00a0\nas a result,\n\u00a0\nwe cannot predict\n\u00a0\nwith any certainty\n\u00a0\nwhich types of\n\u00a0\neggs they will\n\u00a0\nrequire us to\n\u00a0\nsupply in \nfuture\n\u00a0\nperiods.\n\u00a0\nThe\n\u00a0\nproduction\n\u00a0\nof\n\u00a0\ncage-free\n\u00a0\neggs\n\u00a0\nis\n\u00a0\nmore\n\u00a0\ncostly\n\u00a0\nthan\n\u00a0\nthe\n\u00a0\nproduction\n\u00a0\nof\n\u00a0\nconventional\n\u00a0\neggs,\n\u00a0\nand\n\u00a0\nthese\n\u00a0\nhigher \nproduction costs contribute\n\u00a0\nto the prices\n\u00a0\nof cage-free eggs,\n\u00a0\nwhich historically have\n\u00a0\ntypically been higher\n\u00a0\nthan conventional egg \nprices. Many consumers prefer to buy less expensive conventional shell eggs. These consumer preferences may in turn influence \nour customers\u2019 future needs for\n\u00a0\ncage-free and conventional eggs.\n\u00a0\nDue to these uncertainties,\n\u00a0\nwe may over-estimate future demand \nfor cage-free\n\u00a0\neggs, which\n\u00a0\ncould increase\n\u00a0\nour costs\n\u00a0\nunnecessarily,\n\u00a0\nor we\n\u00a0\nmay under-estimate\n\u00a0\nfuture demand\n\u00a0\nfor cage-free\n\u00a0\neggs, \nwhich could\n\u00a0\nharm us\n\u00a0\ncompetitively.\n\u00a0\nIf our\n\u00a0\ncompetitors obtain\n\u00a0\nnon-cancelable\n\u00a0\nlong-term contracts\n\u00a0\nto provide\n\u00a0\ncage-free eggs\n\u00a0\nto \nour existing or potential customers,\n\u00a0\nthen there may be decreased demand\n\u00a0\nfor our cage-free eggs due\n\u00a0\nto these lost potential sales. \nIf we and our\n\u00a0\ncompetitors increase cage-free egg production\n\u00a0\nand there is no\n\u00a0\ncommensurate increase in demand for\n\u00a0\ncage-free eggs, \nthis overproduction\n\u00a0\ncould lead to\n\u00a0\nan oversupply of\n\u00a0\ncage-free eggs, reducing\n\u00a0\nthe sales price\n\u00a0\nfor specialty eggs\n\u00a0\nand our return\n\u00a0\non \ncapital investments in cage-free production. \nFailure\n\u00a0\nto\n\u00a0\ncomply\n\u00a0\nwith\n\u00a0\napplicable\n\u00a0\ngovernmental\n\u00a0\nregulations,\n\u00a0\nincluding\n\u00a0\nenvironmental\n\u00a0\nregulations,\n\u00a0\ncould\n\u00a0\nharm\n\u00a0\nour \noperating results,\n\u00a0\nfinancial condition,\n\u00a0\nand reputation.\n\u00a0\nFurther,\n\u00a0\nwe may\n\u00a0\nincur significant\n\u00a0\ncosts to\n\u00a0\ncomply with\n\u00a0\nany such \nregulations. \nWe are subject to federal, state and local\n\u00a0\nregulations relating to grading, quality\n\u00a0\ncontrol, labeling, sanitary control, waste\n\u00a0\ndisposal, \nand other\n\u00a0\nareas of\n\u00a0\nour business.\n\u00a0\nAs a\n\u00a0\nfully-integrated\n\u00a0\nshell egg\n\u00a0\nproducer,\n\u00a0\nour shell\n\u00a0\negg facilities\n\u00a0\nare subject\n\u00a0\nto regulation\n\u00a0\nand \ninspection by the USDA, OSHA, EPA\n\u00a0\nand FDA, as well as state and local health and agricultural agencies, among others. All of \n\n\n\n\n\n\n\n\n\u00a0\n\n\n18 \nour shell egg production and\n\u00a0\nfeed mill facilities are subject\n\u00a0\nto FDA, EPA and OSHA regulation and inspections. In addition, rules \nare often proposed\n\u00a0\nthat, if adopted as proposed, could increase our costs.\n\u00a0\nOur operations and facilities are subject to various federal, state and local environmental, health, and safety laws and regulations \ngoverning,\n\u00a0\namong\n\u00a0\nother\n\u00a0\nthings,\n\u00a0\nthe\n\u00a0\ngeneration,\n\u00a0\nstorage,\n\u00a0\nhandling,\n\u00a0\nuse,\n\u00a0\ntransportation,\n\u00a0\ndisposal,\n\u00a0\nand\n\u00a0\nremediation\n\u00a0\nof\n\u00a0\nhazardous \nmaterials. Under these laws and\n\u00a0\nregulations, we are required to obtain permits\n\u00a0\nfrom governmental authorities, including, but\n\u00a0\nnot \nlimited to wastewater discharge permits and manure\n\u00a0\nand litter land applications. \nIf we\n\u00a0\nfail to\n\u00a0\ncomply with\n\u00a0\napplicable laws\n\u00a0\nor regulations,\n\u00a0\nor fail\n\u00a0\nto obtain\n\u00a0\nnecessary permits,\n\u00a0\nwe could\n\u00a0\nbe subject\n\u00a0\nto significant \nfines and penalties or other sanctions, our reputation could be harmed, and our operating results and financial condition could be \nmaterially\n\u00a0\nadversely\n\u00a0\naffected.\n\u00a0\nIn\n\u00a0\naddition,\n\u00a0\nbecause\n\u00a0\nthese\n\u00a0\nlaws and\n\u00a0\nregulations\n\u00a0\nare\n\u00a0\nbecoming\n\u00a0\nincreasingly\n\u00a0\nmore\n\u00a0\nstringent,\n\u00a0\nit is \npossible that we will be required to incur significant costs for compliance\n\u00a0\nwith such laws and regulations in the future. \nClimate change and legal or regulatory responses\n\u00a0\nmay have an adverse impact on our business and results of\n\u00a0\noperations.\n\u00a0\nExtreme\n\u00a0\nweather\n\u00a0\nevents,\n\u00a0\nsuch\n\u00a0\nas derechos,\n\u00a0\nwildfires,\n\u00a0\ndrought,\n\u00a0\ntornadoes,\n\u00a0\nhurricanes,\n\u00a0\nstorms,\n\u00a0\nfloods\n\u00a0\nor\n\u00a0\nother\n\u00a0\nnatural\n\u00a0\ndisasters \ncould materially and adversely affect our operating\n\u00a0\nresults and financial condition. In fact, derechos, fires, floods,\n\u00a0\ntornadoes and \nhurricanes have affected our facilities or the facilities of other egg producers in the past. Increased global temperatures\n\u00a0\nand more \nfrequent occurrences\n\u00a0\nof extreme\n\u00a0\nweather events,\n\u00a0\nwhich may\n\u00a0\nbe exacerbated\n\u00a0\nby climate\n\u00a0\nchange, may\n\u00a0\ncause crop\n\u00a0\nand livestock \nareas to\n\u00a0\nbecome unsuitable,\n\u00a0\nincluding due\n\u00a0\nto water\n\u00a0\nscarcity or\n\u00a0\nhigh or\n\u00a0\nunpredictable\n\u00a0\ntemperatures,\n\u00a0\nwhich may\n\u00a0\nresult in\n\u00a0\nmuch \ngreater stress on food systems and more pronounced food\n\u00a0\ninsecurity globally. Lower\n\u00a0\nglobal crop production, including corn and \nsoybean meal,\n\u00a0\nwhich are\n\u00a0\nthe primary\n\u00a0\nfeed ingredients\n\u00a0\nthat support\n\u00a0\nthe health of\n\u00a0\nour animals,\n\u00a0\nmay result\n\u00a0\nin significantly\n\u00a0\nhigher \nprices for these commodity inputs, impact our ability to source the commodities we use to feed our flocks, and negatively impact \nour ability\n\u00a0\nto maintain\n\u00a0\nor grow our\n\u00a0\noperations. Climate\n\u00a0\nchange may\n\u00a0\nincreasingly expose\n\u00a0\nworkers and\n\u00a0\nanimals to\n\u00a0\nhigh heat\n\u00a0\nand \nhumidity stressors that adversely impact poultry production. Increased\n\u00a0\ngreenhouse gas emissions may also negatively impact air \nquality, soil quality\n\u00a0\nand water quality,\n\u00a0\nwhich may hamper our ability to support our operations,\n\u00a0\nparticularly in higher water- and \nsoil-stressed regions.\n\u00a0\nIncreasing\n\u00a0\nfrequency of\n\u00a0\nsevere weather\n\u00a0\nevents, whether\n\u00a0\ntied to\n\u00a0\nclimate change\n\u00a0\nor any\n\u00a0\nother cause,\n\u00a0\nmay negatively\n\u00a0\nimpact our \nability to raise\n\u00a0\npoultry and\n\u00a0\nproduce eggs profitably\n\u00a0\nor to\n\u00a0\noperate our transportation\n\u00a0\nand logistics\n\u00a0\nsupply chains. Regulatory\n\u00a0\ncontrols \nand\n\u00a0\nmarket\n\u00a0\npricing may\n\u00a0\ncontinue\n\u00a0\nto drive\n\u00a0\nthe costs\n\u00a0\nof fossil\n\u00a0\n-based\n\u00a0\nfuels higher,\n\u00a0\nwhich\n\u00a0\ncould negatively\n\u00a0\nimpact\n\u00a0\nour ability\n\u00a0\nto \nsource commodities\n\u00a0\nnecessary to\n\u00a0\noperate our\n\u00a0\nfarms or\n\u00a0\nplants and\n\u00a0\nour current\n\u00a0\nfleet of\n\u00a0\nvehicles. These\n\u00a0\nchanges may\n\u00a0\ncause us\n\u00a0\nto \nchange, significantly, our day-to-day\n\u00a0\nbusiness operations and our strategy. Climate change and extreme weather events may also \nimpact demand for our products\n\u00a0\ngiven evolution of consumer food preferences.\n\u00a0\nEven if we take\n\u00a0\nmeasures to position our business \nin anticipation\n\u00a0\nof such\n\u00a0\nchanges, future\n\u00a0\ncompliance\n\u00a0\nwith legal\n\u00a0\nor regulatory\n\u00a0\nrequirements may\n\u00a0\nrequire significant\n\u00a0\nmanagement \ntime, oversight and enterprise expense. We\n\u00a0\nmay also incur significant expense tied to regulatory fines if laws and regulations are \ninterpreted and applied\n\u00a0\nin a manner that\n\u00a0\nis inconsistent with our\n\u00a0\nbusiness practices. We\n\u00a0\ncan make no\n\u00a0\nassurances that our efforts \nto prepare\n\u00a0\nfor these\n\u00a0\nadverse events\n\u00a0\nwill be\n\u00a0\nin line\n\u00a0\nwith future\n\u00a0\nmarket and\n\u00a0\nregulatory expectations\n\u00a0\nand our\n\u00a0\naccess to\n\u00a0\ncapital to \nsupport our business may also be adversely impacted. \nCurrent and future litigation could expose us to significant\n\u00a0\nliabilities and adversely affect our business reputation. \nWe and certain of our subsidiaries are involved in various legal proceedings.\n\u00a0\nLitigation is inherently unpredictable, and although \nwe\n\u00a0\nbelieve\n\u00a0\nwe\n\u00a0\nhave\n\u00a0\nmeaningful\n\u00a0\ndefenses\n\u00a0\nin\n\u00a0\nthese\n\u00a0\nmatters,\n\u00a0\nwe\n\u00a0\nmay\n\u00a0\nincur\n\u00a0\nliabilities\n\u00a0\ndue\n\u00a0\nto\n\u00a0\nadverse\n\u00a0\njudgments\n\u00a0\nor\n\u00a0\nenter\n\u00a0\ninto \nsettlements of claims that\n\u00a0\ncould have a material\n\u00a0\nadverse effect on our\n\u00a0\nresults of operations, cash\n\u00a0\nflow and financial condition.\n\u00a0\nFor \na\n\u00a0\ndiscussion\n\u00a0\nof\n\u00a0\nour\n\u00a0\nongoing\n\u00a0\nlegal\n\u00a0\nproceedings\n\u00a0\nsee \nPart\n\u00a0\nI.\n\u00a0\nItem\n\u00a0\n3.\n\u00a0\nLegal\n\u00a0\nProceedings\n\u00a0\nbelow\n\u00a0\nand\n\u00a0\nPart\n\u00a0\nII.\n\u00a0\nItem\n\u00a0\n8.\n\u00a0\nNotes\n\u00a0\nto\n\u00a0\nthe \nConsolidated Financial\n\u00a0\nStatements, \nNote\n\u00a0\n16 \u2013 Commitments\n\u00a0\nand Contingencies\n.\n\u00a0\nSuch lawsuits are\n\u00a0\nexpensive to\n\u00a0\ndefend, divert \nmanagement\u2019s\n\u00a0\nattention, and\n\u00a0\nmay\n\u00a0\nresult in\n\u00a0\nsignificant\n\u00a0\nadverse judgments\n\u00a0\nor settlements. Legal\n\u00a0\nproceedings\n\u00a0\nmay expose\n\u00a0\nus to \nnegative publicity,\n\u00a0\nwhich could adversely affect our business reputation and customer preference\n\u00a0\nfor our products and brands. \nFINANCIAL AND ECONOMIC RISK FACTORS \nWeak\n\u00a0\nor unstable\n\u00a0\neconomic\n\u00a0\nconditions, including\n\u00a0\ncontinued\n\u00a0\nhigher inflation\n\u00a0\nand rising\n\u00a0\ninterest\n\u00a0\nrates,\n\u00a0\ncould negatively \nimpact our business. \nWeak\n\u00a0\nor unstable\n\u00a0\neconomic conditions,\n\u00a0\nincluding continued\n\u00a0\nhigher inflation\n\u00a0\nand rising\n\u00a0\ninterest rates,\n\u00a0\nmay adversely\n\u00a0\naffect our \nbusiness by: \n\u25cf\nLimiting our access to capital markets or increasing the cost of capital we may\n\u00a0\nneed to grow our business;\n\u00a0\n\u25cf\nChanging consumer spending and habits and demand for eggs, particularly\n\u00a0\nhigher-priced eggs; \n\n\n\n\n\n\n\n\n\u00a0\n\n\n19 \n\u25cf\nRestricting the supply of energy sources or increasing our cost to procure\n\u00a0\nenergy; or \n\u25cf\nReducing the availability of feed\n\u00a0\ningredients, packaging material, and other raw\n\u00a0\nmaterials, or increasing the cost\n\u00a0\nof these \nitems. \nDeterioration of economic conditions could also negatively\n\u00a0\nimpact: \n\u25cf\nThe financial condition of our suppliers, which may make it more\n\u00a0\ndifficult for them to supply raw materials; \n\u25cf\nThe financial condition of our customers, which may decrease demand for\n\u00a0\neggs or increase our bad debt expense; or \n\u25cf\nThe financial condition of our insurers, which could increase our cost to obtain insurance, and/or make it difficult for or \ninsurers to meet their obligations in the event we experience a loss due to an\n\u00a0\ninsured peril. \nAccording\n\u00a0\nto\n\u00a0\nthe\n\u00a0\nU.S.\n\u00a0\nBureau\n\u00a0\nof\n\u00a0\nLabor\n\u00a0\nStatistics,\n\u00a0\nfrom\n\u00a0\nMay\n\u00a0\n2021\n\u00a0\nto\n\u00a0\nMay\n\u00a0\n2022,\n\u00a0\nthe\n\u00a0\nConsumer\n\u00a0\nPrice Index for\n\u00a0\nAll\n\u00a0\nUrban \nConsumers (\u201cCPI-U\u201d) increased\n\u00a0\n8.5 percent, the largest\n\u00a0\n12-month increase since\n\u00a0\nthe period ending December\n\u00a0\n1981. The CPI-U \nincreased 4.1% from May 2022 to May 2023. Inflationary costs have increased our input costs, and if\n\u00a0\nwe are unable to pass these \ncosts through to the customer it could have an adverse effect on\n\u00a0\nour business. \nWe\n\u00a0\nhold\n\u00a0\nsignificant\n\u00a0\ncash balances\n\u00a0\nin deposit\n\u00a0\naccounts with\n\u00a0\ndeposits in\n\u00a0\nexcess of\n\u00a0\nthe amounts\n\u00a0\ninsured by\n\u00a0\nthe Federal\n\u00a0\nDeposit \nInsurance Corporation (\u201cFDIC\u201d). In\n\u00a0\nthe event of\n\u00a0\na bank failure\n\u00a0\nat an institution\n\u00a0\nwhere we maintain\n\u00a0\ndeposits in excess\n\u00a0\nof the FDIC-\ninsured amount, we may lose such excess deposits. \nThe\n\u00a0\nloss\n\u00a0\nof\n\u00a0\nany\n\u00a0\nregistered\n\u00a0\ntrademark\n\u00a0\nor\n\u00a0\nother\n\u00a0\nintellectual\n\u00a0\nproperty\n\u00a0\ncould\n\u00a0\nenable\n\u00a0\nother\n\u00a0\ncompanies\n\u00a0\nto\n\u00a0\ncompete\n\u00a0\nmore \neffectively with us. \nWe\n\u00a0\nutilize intellectual\n\u00a0\nproperty in\n\u00a0\nour business. For\n\u00a0\nexample, we\n\u00a0\nown the\n\u00a0\ntrademarks \nFarmhouse Eggs\u00ae\n, \n4Grain\u00ae, Sunups\u00ae\n, \nand \nSunny Meadow\u00ae\n. We\n\u00a0\nproduce and market \nEgg-Land\u2019s\n\u00a0\nBest\u00ae\n\u00a0\nand \nLand O\u2019 Lakes\n\u00ae under license\n\u00a0\nagreements with EB. We \nhave invested a significant amount of\n\u00a0\nmoney in establishing and promoting\n\u00a0\nour trademarked brands. The loss or\n\u00a0\nexpiration of any \nintellectual property could\n\u00a0\nenable our competitors\n\u00a0\nto compete more\n\u00a0\neffectively with us\n\u00a0\nby allowing them\n\u00a0\nto make and\n\u00a0\nsell products \nsubstantially\n\u00a0\nsimilar\n\u00a0\nto\n\u00a0\nthose\n\u00a0\nwe\n\u00a0\noffer.\n\u00a0\nThis\n\u00a0\ncould\n\u00a0\nnegatively\n\u00a0\nimpact\n\u00a0\nour\n\u00a0\nability\n\u00a0\nto\n\u00a0\nproduce\n\u00a0\nand\n\u00a0\nsell\n\u00a0\nthose\n\u00a0\nproducts,\n\u00a0\nthereby \nadversely affecting our operations. \nImpairment in the carrying value\n\u00a0\nof goodwill or other assets\n\u00a0\ncould negatively affect our results of\n\u00a0\noperations or net worth. \nGoodwill\n\u00a0\nrepresents\n\u00a0\nthe\n\u00a0\nexcess\n\u00a0\nof\n\u00a0\nthe\n\u00a0\ncost\n\u00a0\nof\n\u00a0\nbusiness\n\u00a0\nacquisitions\n\u00a0\nover\n\u00a0\nthe\n\u00a0\nfair\n\u00a0\nvalue\n\u00a0\nof\n\u00a0\nthe\n\u00a0\nidentifiable\n\u00a0\nnet\n\u00a0\nassets \nacquired. Goodwill\n\u00a0\nis\n\u00a0\nreviewed\n\u00a0\nat\n\u00a0\nleast\n\u00a0\nannually\n\u00a0\nfor\n\u00a0\nimpairment\n\u00a0\nby\n\u00a0\nassessing\n\u00a0\nqualitative\n\u00a0\nfactors\n\u00a0\nto\n\u00a0\ndetermine\n\u00a0\nwhether\n\u00a0\nthe \nexistence of events or circumstances\n\u00a0\nleads to a determination that\n\u00a0\nit is more likely than not\n\u00a0\nthat the fair value of\n\u00a0\na reporting unit \nis less\n\u00a0\nthan its\n\u00a0\ncarrying\n\u00a0\namount. As of\n\u00a0\nJune 3,\n\u00a0\n2023, we\n\u00a0\nhad $44.0 million\n\u00a0\nof goodwill. While\n\u00a0\nwe believe\n\u00a0\nthe current\n\u00a0\ncarrying \nvalue of this goodwill is not impaired, future goodwill impairment charges could adversely affect our results of operations in any \nparticular period and our net worth. \nEvents beyond our control such as extreme\n\u00a0\nweather and natural disasters could negatively impact our business.\n\u00a0\nFire,\n\u00a0\nbioterrorism,\n\u00a0\npandemics,\n\u00a0\nextreme\n\u00a0\nweather\n\u00a0\nor natural\n\u00a0\ndisasters, including\n\u00a0\ndroughts,\n\u00a0\nfloods,\n\u00a0\nexcessive\n\u00a0\ncold\n\u00a0\nor\n\u00a0\nheat, water \nrights restrictions, hurricanes or other storms, could impair the health or growth of our flocks, decrease production or availability \nof feed ingredients, or interfere\n\u00a0\nwith our operations due to\n\u00a0\npower outages, fuel shortages, discharges from\n\u00a0\novertopped or breached \nwastewater treatment lagoons, damage to our production and processing facilities, labor shortages or disruption of transportation \nchannels, among other things. Any of these factors could have a material adverse\n\u00a0\neffect on our financial results. ",
+  "item1a": ">ITEM 1A.\n\u00a0\nRISK FACTORS \nOur\n\u00a0\nbusiness\n\u00a0\nand\n\u00a0\nresults\n\u00a0\nof\n\u00a0\noperations\n\u00a0\nare\n\u00a0\nsubject\n\u00a0\nto\n\u00a0\nnumerous\n\u00a0\nrisks\n\u00a0\nand\n\u00a0\nuncertainties,\n\u00a0\nmany\n\u00a0\nof\n\u00a0\nwhich\n\u00a0\nare\n\u00a0\nbeyond\n\u00a0\nour \ncontrol. The following is a description of the known factors that may materially affect\n\u00a0\nour business, financial condition or results \nof operations. They\n\u00a0\nshould be considered\n\u00a0\ncarefully,\n\u00a0\nin addition\n\u00a0\nto the information\n\u00a0\nset forth\n\u00a0\nelsewhere in\n\u00a0\nthis Annual\n\u00a0\nReport on \nForm\n\u00a0\n10-K,\n\u00a0\nincluding\n\u00a0\nunder\n\u00a0\nPart\n\u00a0\nII.\n\u00a0",
+  "item7": ">Item 7.\n\u00a0\nManagement\u2019s\n\u00a0\nDiscussion\n\u00a0\nand\n\u00a0\nAnalysis\n\u00a0\nof\n\u00a0\nFinancial\n\u00a0\nCondition\n\u00a0\nand\n\u00a0\nResults\n\u00a0\nof \nOperations,\n\u00a0\nin\n\u00a0\nmaking\n\u00a0\nany\n\u00a0\ninvestment\n\u00a0\ndecisions\n\u00a0\nwith\n\u00a0\nrespect\n\u00a0\nto\n\u00a0\nour\n\u00a0\nsecurities. Additional\n\u00a0\nrisks\n\u00a0\nor\n\u00a0\nuncertainties\n\u00a0\nthat\n\u00a0\nare\n\u00a0\nnot \ncurrently known\n\u00a0\nto us,\n\u00a0\nor that we\n\u00a0\nare aware\n\u00a0\nof but\n\u00a0\ncurrently deem\n\u00a0\nto be\n\u00a0\nimmaterial or\n\u00a0\nthat could\n\u00a0\napply to\n\u00a0\nany company\n\u00a0\ncould \nalso materially adversely affect our business, financial condition or results\n\u00a0\nof operations. \nINDUSTRY RISK FACTORS \nMarket prices\n\u00a0\nof wholesale\n\u00a0\nshell eggs\n\u00a0\nare volatile,\n\u00a0\nand decreases\n\u00a0\nin these\n\u00a0\nprices can\n\u00a0\nadversely impact\n\u00a0\nour revenues\n\u00a0\nand \nprofits. \nOur operating results are significantly\n\u00a0\naffected by wholesale shell egg\n\u00a0\nmarket prices, which fluctuate widely and\n\u00a0\nare outside our \ncontrol. As\n\u00a0\na result,\n\u00a0\nour prior\n\u00a0\nperformance\n\u00a0\nshould not\n\u00a0\nbe presumed\n\u00a0\nto be\n\u00a0\nan accurate\n\u00a0\nindication of\n\u00a0\nfuture performance.\n\u00a0\nUnder \ncertain circumstances, small increases\n\u00a0\nin production, or small\n\u00a0\ndecreases in demand, within\n\u00a0\nthe industry might\n\u00a0\nhave a large adverse \neffect on shell egg prices. Low shell egg prices adversely affect\n\u00a0\nour revenues and profits. \nMarket prices for\n\u00a0\nwholesale shell eggs\n\u00a0\nhave been volatile\n\u00a0\nand cyclical. Shell\n\u00a0\negg prices have\n\u00a0\nrisen in the\n\u00a0\npast during periods\n\u00a0\nof \nhigh demand such as the initial outbreak of\n\u00a0\nthe COVID-19 pandemic and periods when high protein\n\u00a0\ndiets are popular. Shell egg \nprices\n\u00a0\nhave\n\u00a0\nalso\n\u00a0\nrisen\n\u00a0\nduring\n\u00a0\nperiods\n\u00a0\nof\n\u00a0\nconstrained\n\u00a0\nsupply,\n\u00a0\nsuch\n\u00a0\nas\n\u00a0\nthe\n\u00a0\nlatest\n\u00a0\nhighly\n\u00a0\npathogenic\n\u00a0\navian\n\u00a0\ninfluenza\n\u00a0\n(\u201cHPAI\u201d) \noutbreak\n\u00a0\nthat was\n\u00a0\nfirst detected\n\u00a0\nin domestic\n\u00a0\ncommercial flocks\n\u00a0\nin February\n\u00a0\n2022. During\n\u00a0\ntimes when\n\u00a0\nprices are\n\u00a0\nhigh, the\n\u00a0\negg \nindustry\n\u00a0\nhas\n\u00a0\ntypically\n\u00a0\ngeared\n\u00a0\nup\n\u00a0\nto\n\u00a0\nproduce\n\u00a0\nmore\n\u00a0\neggs,\n\u00a0\nprimarily\n\u00a0\nby\n\u00a0\nincreasing\n\u00a0\nthe\n\u00a0\nnumber\n\u00a0\nof\n\u00a0\nlayers,\n\u00a0\nwhich\n\u00a0\nhistorically\n\u00a0\nhas \nultimately resulted in an oversupply of eggs, leading to a period of lower prices.\n\u00a0\nAs discussed\n\u00a0\nabove in \nPart I.\n\u00a0",
+  "item7a": ">ITEM 7A.\n\u00a0\nQUANTITATIVE\n\u00a0\nAND QUALITATIVE\n\u00a0\nDISCLOSURES ABOUT MARKET RISKS \nCOMMODITY PRICE RISK \nOur primary exposure to market risk arises from changes\n\u00a0\nin the prices of conventional eggs,\n\u00a0\nwhich are subject to significant price \nfluctuations that are largely\n\u00a0\nbeyond our control. We\n\u00a0\nare focused on growing our\n\u00a0\nspecialty shell egg business because\n\u00a0\nthe selling \nprices\n\u00a0\nof\n\u00a0\nspecialty\n\u00a0\nshell\n\u00a0\neggs are\n\u00a0\ngenerally\n\u00a0\nnot\n\u00a0\nas\n\u00a0\nvolatile\n\u00a0\nas conventional\n\u00a0\nshell\n\u00a0\negg\n\u00a0\nprices. Our\n\u00a0\nexposure\n\u00a0\nto\n\u00a0\nmarket\n\u00a0\nrisk\n\u00a0\nalso \nincludes changes in\n\u00a0\nthe prices of corn\n\u00a0\nand soybean meal,\n\u00a0\nwhich are commodities\n\u00a0\nsubject to significant\n\u00a0\nprice fluctuations due\n\u00a0\nto \nmarket conditions\n\u00a0\nthat are\n\u00a0\nlargely beyond\n\u00a0\nour control.\n\u00a0\nTo\n\u00a0\nensure continued\n\u00a0\navailability of\n\u00a0\nfeed ingredients,\n\u00a0\nwe may\n\u00a0\nenter into \ncontracts for future\n\u00a0\npurchases of corn\n\u00a0\nand soybean meal,\n\u00a0\nand as part of\n\u00a0\nthese contracts, we\n\u00a0\nmay lock-in\n\u00a0\nthe basis portion\n\u00a0\nof our \ngrain purchases several months in\n\u00a0\nadvance and commit to purchase\n\u00a0\norganic ingredients to help\n\u00a0\nassure supply.\n\u00a0\nOrdinarily, we\n\u00a0\ndo \nnot enter\n\u00a0\nlong-term contracts\n\u00a0\nbeyond a\n\u00a0\nyear to\n\u00a0\npurchase corn\n\u00a0\nand soybean\n\u00a0\nmeal or\n\u00a0\nhedge against\n\u00a0\nincreases in\n\u00a0\nthe price\n\u00a0\nof corn \nand soybean meal.\n\u00a0\nThe following table\n\u00a0\noutlines the impact\n\u00a0\nof price changes\n\u00a0\nfor corn and\n\u00a0\nsoybean meal on\n\u00a0\nfeed costs per dozen \nas feed ingredient pricing varies: \nChange in price per bushel of corn \n$ \n(0.84) \n$ \n(0.56) \n$ \n(0.28) \n$ \n0.00 \n$ \n0.28 \n$ \n0.56 \n$ \n0.84 \nChange \n\u00a0\nin price \nper ton \nsoybean \nmeal \n$ \n(76.50) \n0.616 \n0.626 \n0.636 \n0.646 \n0.656 \n0.666 \n0.676 \n$ \n(51.00) \n0.626 \n0.636 \n0.646 \n0.656 \n0.666 \n0.676 \n0.686 \n$ \n(25.50) \n0.636 \n0.646 \n0.656 \n0.666 \n0.676 \n0.686 \n0.696 \n$ \n0.00 \n0.646 \n0.656 \n0.666 \n0.676 \n(a) \n0.686 \n0.696 \n0.706 \n$ \n25.50 \n0.656 \n0.666 \n0.676 \n0.686 \n0.696 \n0.706 \n0.716 \n$ \n51.00 \n0.666 \n0.676 \n0.686 \n0.696 \n0.706 \n0.716 \n0.726 \n$ \n76.50 \n0.676 \n0.686 \n0.696 \n0.706 \n0.716 \n0.726 \n0.736 \n(a)\nBased on 2023\n\u00a0\nactual costs, table flexes feed cost inputs to show $0.01 impacts to per dozen egg feed production\n\u00a0\ncosts. \nINTEREST RATE\n\u00a0\nRISK \nWe\n\u00a0\nhave\n\u00a0\na\n\u00a0\n$250 million\n\u00a0\nCredit\n\u00a0\nFacility,\n\u00a0\nborrowings\n\u00a0\nunder\n\u00a0\nwhich\n\u00a0\nwould\n\u00a0\nbear\n\u00a0\ninterest\n\u00a0\nat\n\u00a0\nvariable\n\u00a0\nrates.\n\u00a0\nNo\n\u00a0\namounts\n\u00a0\nwere \noutstanding under that facility during fiscal 2023 or fiscal 2022. Under our current policies, we do not use interest rate derivative \ninstruments to manage our exposure to interest rate changes. \nFIXED INCOME SECURITIES RISK \nAt June 3,\n\u00a0\n2023,\n\u00a0\nthe effective maturity\n\u00a0\nof our cash equivalents\n\u00a0\nand investment securities\n\u00a0\navailable for sale\n\u00a0\nwas 4.8 months, and \nthe composite credit rating of\n\u00a0\nthe holdings are AA- /\n\u00a0\nAa3 / AA- (S&P\n\u00a0\n/ Moody\u2019s / Fitch). Generally speaking, rising\n\u00a0\ninterest rates, \nas have\n\u00a0\nbeen\n\u00a0\nexperienced\n\u00a0\nin recent\n\u00a0\nperiods,\n\u00a0\ndecrease\n\u00a0\nthe value\n\u00a0\nof fixed\n\u00a0\nincome\n\u00a0\nsecurities\n\u00a0\nportfolios.\n\u00a0\nAs of\n\u00a0\nJune 3,\n\u00a0\n2023,\n\u00a0\nthe \nestimated fair value\n\u00a0\nof our\n\u00a0\nfixed income securities\n\u00a0\nportfolio was approximately\n\u00a0\n$355 million\n\u00a0\nand reflected\n\u00a0\nunrealized losses\n\u00a0\nof \napproximately\n\u00a0\n$2.4\n\u00a0\nmillion.\n\u00a0\nFor\n\u00a0\nadditional\n\u00a0\ninformation\n\u00a0\nsee \nNote\n\u00a0\n1\n\u00a0\n\u2013\n\u00a0\nSummary\n\u00a0\nof\n\u00a0\nSignificant\n\u00a0\nAccounting\n\u00a0\nPolicies\n\u00a0\nunder\n\u00a0\nthe \nheading\n\u00a0\n\u201cInvestment\n\u00a0\nSecurities\u201d\n\u00a0\nand \nNote\n\u00a0\n3\n\u00a0\n\u2013\n\u00a0\nInvestment\n\u00a0\nSecurities\n\u00a0\nin\n\u00a0\nPart\n\u00a0\nII.\n\u00a0\nItem\n\u00a0\n8.\n\u00a0\nNotes\n\u00a0\nto\n\u00a0\nthe\n\u00a0\nConsolidated\n\u00a0\nFinancial \nStatements. \nCONCENTRATION\n\u00a0\nOF CREDIT RISK \nOur financial instruments exposed to concentrations of credit risk consist primarily of trade receivables. Concentrations of credit \nrisk with\n\u00a0\nrespect to\n\u00a0\nreceivables are\n\u00a0\nlimited due\n\u00a0\nto our\n\u00a0\nlarge number\n\u00a0\nof customers\n\u00a0\nand their\n\u00a0\ndispersion across\n\u00a0\ngeographic areas, \nexcept that\n\u00a0\nat June 3,\n\u00a0\n2023 and\n\u00a0\nMay 28,\n\u00a0\n2022, 30.1%\n\u00a0\nand 27.9%,\n\u00a0\nrespectively,\n\u00a0\nof our net\n\u00a0\naccounts receivable\n\u00a0\nbalance was due \nfrom\n\u00a0\nWalmart\n\u00a0\nInc.\n\u00a0\n(including\n\u00a0\nSam\u2019s\n\u00a0\nClub).\n\u00a0\nNo\n\u00a0\nother\n\u00a0\nsingle\n\u00a0\ncustomer\n\u00a0\nor\n\u00a0\ncustomer\n\u00a0\ngroup\n\u00a0\nrepresented\n\u00a0\n10%\n\u00a0\nor\n\u00a0\ngreater\n\u00a0\nof\n\u00a0\nnet \naccounts receivable at June 3, 2023 and May 28, 2022. \n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n35 ",
+  "cik": "16160",
+  "cusip6": "128030",
+  "cusip": ["128030952", "128030902", "128030202"],
+  "names": ["CAL MAINE FOODS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/16160/000156276223000287/0001562762-23-000287-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM\u00a01. BUSINESS\nOVERVIEW\nThe Company\nNews Corporation (the \u201cCompany,\u201d \u201cNews Corp,\u201d \u201cwe,\u201d \u201cus,\u201d or \u201cour\u201d) is a global diversified media and information services company focused on creating and distributing authoritative and engaging content and other products and services to consumers and businesses throughout the world.\u00a0The Company comprises businesses across a range of media, including digital real estate services, subscription video services in Australia, news and information services and book publishing, that are distributed under some of the world\u2019s most recognizable and respected brands, including \nThe Wall Street Journal\n, \nBarron\u2019s\n, Dow Jones, \nThe Australian\n, \nHerald Sun\n, \nThe Sun\n, \nThe Times,\n HarperCollins Publishers, Foxtel, FOX SPORTS Australia, realestate.com.au, Realtor.com\n\u00ae\n, talkSPORT, OPIS and many others.\nThe Company\u2019s commitment to premium content makes its properties a premier destination for news, information, sports, entertainment and real estate. The Company distributes its content and other products and services to consumers and customers across an array of digital platforms including websites, mobile apps, smart TVs, social media, e-book devices and streaming audio platforms, as well as traditional platforms such as print, television and radio. The Company\u2019s focus on quality and product innovation has enabled it to capitalize on the shift to digital consumption to deliver its content and other products and services in a more engaging, timely and personalized manner and create opportunities for more effective monetization, including new licensing and partnership arrangements and digital offerings that leverage the Company\u2019s existing content rights. The Company is pursuing multiple strategies to further exploit these opportunities, including leveraging global audience scale and valuable data and sharing technologies and practices across geographies and businesses.\nThe Company\u2019s diversified revenue base includes recurring subscriptions, circulation sales, advertising sales, sales of real estate listing products, licensing fees and other consumer product sales. Headquartered in New York, the Company operates primarily in the United States, Australia and the U.K., with its content and other products and services distributed and consumed worldwide. The Company\u2019s operations are organized into six reporting segments: (i) Digital Real Estate Services; (ii) Subscription Video Services; (iii) Dow Jones; (iv) Book Publishing; (v) News Media; and (vi) Other, which includes the Company\u2019s general corporate overhead expenses, strategy costs and costs related to the U.K. Newspaper Matters (as defined in Note 16\u2014Commitments and Contingencies in the accompanying Consolidated Financial Statements).\nThe Company maintains a 52-53 week fiscal year ending on the Sunday nearest to June\u00a030 in each year. Fiscal 2023, fiscal 2022 and fiscal 2021 included 52, 53 and 52 weeks, respectively. Unless otherwise noted, all references to the fiscal periods ended June\u00a030, 2023, June\u00a030, 2022 and June\u00a030, 2021 relate to the fiscal periods ended July 2, 2023, July 3, 2022 and June 27, 2021, respectively.\u00a0For convenience purposes, the Company continues to date its financial statements as of June\u00a030.\nCorporate Information\nNews Corporation is a Delaware corporation originally organized on December 11, 2012 in connection with its separation from Twenty-First Century Fox, Inc., which was completed on June 28, 2013. Unless otherwise indicated, references in this Annual Report on Form 10-K for the fiscal year ended June\u00a030, 2023 (the \u201cAnnual Report\u201d) to the \u201cCompany,\u201d \u201cNews Corp,\u201d \u201cwe,\u201d \u201cus,\u201d or \u201cour\u201d means News Corporation and its subsidiaries. The Company\u2019s principal executive offices are located at 1211 Avenue of the Americas, New York, New York 10036, and its telephone number is (212) 416-3400. The Company\u2019s Class A and Class B Common Stock are listed on The Nasdaq Global Select Market under the trading symbols \u201cNWSA\u201d and \u201cNWS,\u201d respectively, and CHESS Depositary Interests representing the Company\u2019s Class A and Class B Common Stock are listed on the Australian Securities Exchange (\u201cASX\u201d) under the trading symbols \u201cNWSLV\u201d and \u201cNWS,\u201d respectively. More information regarding the Company is available on its website at \nwww.newscorp.com\n, including the Company\u2019s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d), which are available, free of charge, as soon as reasonably practicable after the material is electronically filed with or furnished to the Securities and Exchange Commission (\u201cSEC\u201d). The information on the Company\u2019s website is not, and shall not be deemed to be, a part of this Annual Report or incorporated into any other filings it makes with the SEC.\nSpecial Note Regarding Forward-Looking Statements\nThis document and any documents incorporated by reference into this Annual Report, including \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations,\u201d contain statements that constitute \u201cforward-looking \n1\nTable of Contents\nstatements\u201d within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act of 1933, as amended. All statements that are not statements of historical fact are forward-looking statements. The words \u201cexpect,\u201d \u201cwill,\u201d \u201cestimate,\u201d \u201canticipate,\u201d \u201cpredict,\u201d \u201cbelieve,\u201d \u201cshould\u201d and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this document and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, trends affecting the Company\u2019s business, financial condition or results of operations, the Company\u2019s strategy and strategic initiatives, including potential acquisitions, investments and dispositions, the Company\u2019s cost savings initiatives, including announced headcount reductions, and the outcome of contingencies such as litigation and investigations. Readers are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties. More information regarding these risks and uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading \u201cItem 1A. Risk Factors\u201d in this Annual Report. The Company does not ordinarily make projections of its future operating results and undertakes no obligation (and expressly disclaims any obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Readers should carefully review this document and the other documents filed by the Company with the SEC. This section should be read together with the Consolidated Financial Statements of News Corporation (the \u201cFinancial Statements\u201d) and related notes set forth elsewhere in this Annual Report.\nBUSINESS OVERVIEW\nThe Company\u2019s six reporting segments are described below. \nFor the fiscal year ended June 30, 2023\nRevenues\nSegment\nEBITDA\n(in millions)\nDigital Real Estate Services\n$\n1,539\u00a0\n$\n457\u00a0\nSubscription Video Services\n1,942\u00a0\n347\u00a0\nDow Jones\n2,153\u00a0\n494\u00a0\nBook Publishing\n1,979\u00a0\n167\u00a0\nNews Media\n2,266\u00a0\n156\u00a0\nOther\n\u2014\u00a0\n(201)\nDigital Real Estate Services \nThe Company\u2019s Digital Real Estate Services segment consists of its 61.4% interest in REA Group, a publicly-traded company listed on ASX (ASX: REA), and its 80% interest in Move. The remaining 20% interest in Move is held by REA Group. \nREA Group \nREA Group is a market-leading digital media business specializing in property, with operations focused on property and property-related advertising and services, as well as financial services. \nProperty and Property-Related Advertising and Services\nREA Group advertises property and property-related services on its websites and mobile apps across Australia. REA Group\u2019s Australian operations include leading residential, commercial and share property websites realestate.com.au, realcommercial.com.au and Flatmates.com.au, as well as property research site Property.com.au. Additionally, REA Group operates media display and data services businesses, serving the display media market and markets adjacent to property, respectively. For the year ended June 30, 2023, average monthly visits to realestate.com.au were 120.6 million. Launches of the realestate.com.au app decreased 4% to 57 million average monthly launches in fiscal 2023 as compared to the prior year, with consumers spending over four times longer on the app than any other property app in Australia according to Nielsen Digital Content Ratings. Realcommercial.com.au remains Australia\u2019s leading commercial property site across website and app. In fiscal 2023, the realcommercial.com.au app was launched 18.8 times more than the nearest competitor, and consumers spent 20.4 times longer on the realcommercial.com.au app based on Nielsen Digital Content Ratings data.\n2\nTable of Contents\nRealestate.com.au and realcommercial.com.au derive the majority of their revenue from their core property advertising listing products and monthly advertising subscriptions from real estate agents and property developers. Realestate.com.au and realcommercial.com.au offer a product hierarchy which enables real estate agents and property developers to upgrade listing advertisements to increase their prominence on the site, as well as a variety of targeted products, including media display advertising products. Flatmates.com.au derives the majority of its revenue from advertising listing products and membership fees. The media business offers unique advertising opportunities on REA Group\u2019s websites to property developers and other relevant markets, including utilities and telecommunications, insurance, finance, automotive and retail. REA Group also provides residential property data services to the financial sector through its PropTrack data services business, primarily on a monthly subscription basis. \nREA Group\u2019s international operations consist of digital property assets in Asia, including a 77.9% interest in REA India, a leading digital real estate services provider in India that owns and operates PropTiger.com and Housing.com (News Corp holds a 22.0% interest in REA India), and a 17.3% interest in PropertyGuru Group Ltd., a leading digital property technology company operating marketplaces in Southeast Asia and listed on the New York Stock Exchange. REA Group\u2019s other assets include a 20% interest in Move, as referenced above. REA Group\u2019s international businesses derive the majority of their revenue from their property advertising listing products and monthly advertising subscriptions from real estate agents and property developers.\nFinancial Services \nREA Group\u2019s financial services business encompasses a digital property search and financing experience and mortgage broking services under its Mortgage Choice brand. REA Group has continued to execute on its financial services strategy by growing its nationwide broker network and developing innovative products and partnerships, including launching \u201cMortgage Choice Freedom,\u201d a suite of white label mortgages, with digital lender Athena Home Loans, as well as a digital loan application with UBank (a division of National Australia Bank Limited). The financial services business generates revenue primarily through commissions from lenders.\nMove \nMove is a leading provider of digital real estate services in the U.S. Move primarily operates Realtor.com\n\u00ae\n, a premier real estate information, advertising and services platform, under a perpetual agreement and trademark license with the National Association of Realtors\n\u00ae\n (\u201cNAR\u201d). Through Realtor.com\n\u00ae\n, consumers have access to approximately 145 million properties across the U.S., including an extensive collection of homes, properties and apartments listed and displayed for sale or for rent and a large database of \u201coff-market\u201d properties. Realtor.com\n\u00ae\n and its related mobile apps display nearly 100% of all Multiple Listing Services (\u201cMLS\u201d)-listed, for-sale and rental properties in the U.S., which are primarily sourced directly from relationships with MLSs across the country. Realtor.com\n\u00ae \nalso sources new construction and rental listing content from a variety of sources, including directly from homebuilders and landlords, as well as from listing aggregators. Approximately 95% of its for-sale listings are updated at least every 10 minutes, on average, with the remaining listings updated daily. Realtor.com\n\u00ae\n\u2019s content attracts a large and highly engaged consumer audience. Based on internal data, Realtor.com\n\u00ae\n and its mobile sites had approximately 74 million average monthly unique users during the quarter ended June 30, 2023. See \u201cPart I. Business\u2014Explanatory Note Regarding Certain Metrics.\u201d\nRealtor.com\n\u00ae \ngenerates the majority of its revenues through the sale of listing advertisement and lead generation products, including Connections\nSM\n Plus, Market VIP\nSM\n, Advantage\nSM\n Pro and Sales Builder\nSM\n, as well as its real estate referral-based services ReadyConnect Concierge\nSM\n \nand UpNest. Listing advertisement and lead generation products allow real estate agents, brokers and homebuilders to enhance, prioritize and connect with consumers on for-sale property listings within the Realtor.com\n\u00ae\n website and mobile apps. Listing advertisement and lead generation products are typically sold on a subscription basis. The real estate referral-based business model, as well as the Market VIP\nSM\n lead generation product, leverage Move\u2019s proprietary technology and platform to connect real estate professionals and other service providers, such as lenders and insurance companies, to pre-vetted consumers who have submitted inquiries via the Realtor.com\n\u00ae\n \nwebsite and mobile apps, as well as other online sources. The real estate referral-based services that connect real estate agents and brokers with these consumers typically generate fees upon completion of the associated real estate transaction, while the referral-based services that give other service providers, including lenders and insurance companies, access to the same highly qualified consumers are generally provided on a subscription basis. Realtor.com\n\u00ae\n also derives revenue from sales of non-listing advertisement, or Media, products to real estate, finance, insurance, home improvement and other professionals that enable those professionals to connect with Realtor.com\n\u00ae\n\u2019s highly engaged and valuable consumer audience. Media products include sponsorships, display advertisements, text links, directories and other advertising and lead generation services. Non-listing advertisement pricing models include cost per thousand, cost per click, cost per unique user and subscription-based sponsorships of specific content areas or targeted geographies. \n3\nTable of Contents\nIn addition to Realtor.com\n\u00ae\n, Move also offers online tools and services to do-it-yourself landlords and tenants, including Avail, a platform that improves the renting experience for do-it-yourself landlords and tenants with online tools, educational content and world-class support. Avail employs a variety of pricing models, including subscription fees, as well as fixed- or variable-pricing models. \nThe Company\u2019s digital real estate services businesses operate in highly competitive markets that are evolving rapidly in response to new technologies, business models, product and service offerings and changing consumer and customer preferences. The success of these businesses depends on their ability to provide products and services that are useful for consumers, real estate, mortgage and other related services professionals, homebuilders and landlords and attractive to their advertisers, the breadth, depth and accuracy of information they provide and brand awareness and reputation. These businesses compete primarily with companies that provide real-estate focused technology, products and services in their respective geographic markets, including other real estate and property websites in Australia, the United States and Asia. \nSubscription Video Services \nThe Company\u2019s Subscription Video Services segment provides sports, entertainment and news services to pay-TV and streaming subscribers and other commercial licensees, primarily via satellite and internet distribution. This segment consists of (i) the Company\u2019s 65% interest in NXE Australia Pty Limited, which, together with its subsidiaries, is referred to herein as the \u201cFoxtel Group\u201d (the remaining 35% interest in the Foxtel Group is held by Telstra Corporation Limited), and (ii) Australian News Channel (\u201cANC\u201d). \nThe Foxtel Group \nThe Foxtel Group is the largest Australian-based subscription television provider, with a suite of offerings targeting a wide range of consumers. These include (i) its Foxtel premium pay-TV aggregation and Foxtel Now streaming services, which deliver approximately 200 channels\n1\n, including a number of owned and operated channels, covering sports, general entertainment, movies, documentaries, music, children\u2019s programming and news, and (ii) its sports and entertainment streaming services, Kayo Sports and \nBINGE\n. Through both its owned and operated and licensed channels on Foxtel, as well as Foxtel Now and Kayo Sports, the Foxtel Group broadcasts and streams approximately 30,000 hours of live sports programming each year, encompassing both live national and international licensed sports events such as National Rugby League, Australian Football League, Cricket Australia and various motorsports programming. Live sports programming also includes other featured original and licensed premium sports content tailored to the Australian market such as events from ESPN. Entertainment content provided by the Foxtel Group through the Foxtel, Foxtel Now and \nBINGE\n services includes television programming from Warner Bros. Discovery, FOX, NBCUniversal, Paramount Global and BBC Studios, as well as Foxtel-produced original dramas and lifestyle shows. \nThe Foxtel Group\u2019s content is available through channels and on-demand and is currently distributed to broadcast subscribers using Optus\u2019s satellite platform, internet delivery via Foxtel\u2019s set-top boxes, including the iQ4 and iQ5 (satellite and internet only), and cable networks accessed through Telstra. The Foxtel Group intends to migrate all broadcast subscribers to satellite or internet delivery by October 2023. Broadcast subscribers can also access Foxtel\u2019s content using Foxtel GO, a companion service app on mobile devices. In addition, the Foxtel Group offers video content via the internet through its streaming services, including Kayo Sports, \nBINGE \nand Foxtel Now, which are available on a number of devices. The Foxtel Group also offers a bundled broadband product, which consists of Foxtel\u2019s broadcast pay-TV service, sold together with an unlimited broadband service (predominantly on the National Broadband Network), and an option for customers to add home phone services. In addition to its subscription television services, the Foxtel Group operates FOX SPORTS Australia, the leading producer of live sports programming in Australia, foxsports.com.au, a leading general sports news website in Australia, and Watch NRL and Watch AFL, subscription services that provide live streaming and on-demand replays of National Rugby League and Australian Football League matches internationally.\nThe Foxtel Group generates revenue primarily through subscription revenue from its pay-TV and streaming services as well as advertising revenue, including through its new advertising product within \nBINGE\n. The Foxtel Group\u2019s business generally is not highly seasonal, though subscribers and results can fluctuate due to the timing and mix of its local and international sports programming. See Item 7. \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d for information regarding certain key performance indicators for the Foxtel Group.\n1\n \nChannel count includes standard definition channels, high definition versions of those channels, audio channels and 4K Ultra HD channels.\n4\nTable of Contents\nThe Foxtel Group competes primarily with a variety of other video content providers, such as traditional Free To Air (\u201cFTA\u201d) TV operators in Australia, including the three major commercial FTA networks and two major government-funded FTA broadcasters, and content providers that deliver video programming over the internet to televisions, computers, and mobile and other devices. These providers include Internet Protocol television, or IPTV, subscription video-on-demand, or SVOD, and broadcast video-on-demand, or BVOD, services; streaming services offered through digital media providers; as well as programmers and distributors that provide content, including smaller, lower-cost or free programming packages, directly to consumers over the internet. The Company believes that the Foxtel Group\u2019s premium service and exclusive content, wide array of products and services, set-top box features that enable subscribers to record, rewind, discover and watch content, its integration of third-party apps and its investment in On Demand capability and programming enable it to offer subscribers a compelling alternative to its competitors. Its streaming services, including Kayo Sports, \nBINGE\n and\n \nFoxtel Now, provide a diversified portfolio of subscription television services that allow the Foxtel Group to provide services targeted at a wide range of Australian consumers.\nAustralian News Channel \nANC operates nine channels and has carriage rights for two additional channels in Australia featuring the latest in news, politics, sports, entertainment, public affairs, business and weather. ANC is licensed by Sky International AG to use Sky trademarks and domain names in connection with its operation and distribution of channels and services. ANC\u2019s channels consist of Fox Sports News, Sky News Live, Sky News Weather, Sky News Extra, Sky News Extra 1, Sky News Extra 2, Sky News Extra 3, Sky News New Zealand and Sky News Regional. ANC channels are distributed throughout Australia and New Zealand and available on Foxtel and Sky Network Television NZ. Sky News Regional is available on the regional FTA WIN and Southern Cross Austereo networks in Australia. ANC also owns and operates the international Australia Channel IPTV service and offers content across a variety of digital media platforms, including web, mobile and third party providers. ANC primarily generates revenue through monthly affiliate fees received from pay-TV providers and advertising. \nANC competes primarily with other news providers in Australia and New Zealand via its subscription television channels, third party content arrangements and free domain website. Its Australia Channel IPTV service also competes against subscription-based streaming news providers in regions outside of Australia and New Zealand.\n \nDow Jones\nThe Company\u2019s Dow Jones segment is a global provider of news and business information, which distributes its content and data through a variety of owned and off-platform media channels including newspapers, newswires, websites, mobile apps, newsletters, magazines, proprietary databases, live journalism, video and podcasts. This segment consists of the Dow Jones business, whose products target individual consumers and enterprise customers and include \nThe Wall Street Journal\n, \nBarron\u2019s\n, MarketWatch, \nInvestor\u2019s Business Daily\n, Dow Jones Risk & Compliance, OPIS, Factiva and Dow Jones Newswires. The Dow Jones segment\u2019s revenue is diversified across business-to-consumer and business-to-business subscriptions, circulation, advertising, including custom content and sponsorships, licensing fees for its print and digital products and participation fees for its live journalism events. Advertising revenues at the Dow Jones segment are subject to seasonality, with revenues typically highest in the Company\u2019s second fiscal quarter due to the end-of-year holiday season.\nConsumer Products\nThrough its premier brands and authoritative journalism, the Dow Jones segment\u2019s products targeting individual consumers provide insights, research and understanding that enable consumers to stay informed and make educated financial decisions. As consumer preferences for content consumption evolve, the Dow Jones segment continues to capitalize on a variety of digital distribution platforms, technologies and business models for these products, including distribution of content through licensing arrangements with third party subscription and non-subscription platform providers such as Apple News and Google, which is referred to as off-platform distribution. With a focus on the financial markets, investing and other professional services, many of these products offer advertisers an attractive consumer demographic. Products targeting consumers include the following:\n\u2022\nThe Wall Street Journal (WSJ)\n. WSJ, Dow Jones\u2019s flagship consumer product, is available in print, online and across multiple mobile devices. WSJ covers national and international news and provides analysis, commentary, reviews and opinions on a wide range of topics, including business developments and trends, economics, financial markets, investing, science and technology, lifestyle, culture, consumer products and sports. WSJ\u2019s print products are printed at plants located around the U.S., including both owned and third-party facilities. WSJ\u2019s digital products offer both free content and premium, subscription-only content and are comprised of WSJ.com, WSJ mobile products, including a responsive design website and mobile apps (WSJ Mobile), and live and on-demand video through WSJ.com and other platforms such as YouTube, internet-connected television and set-top boxes (WSJ \n5\nTable of Contents\nVideo), as well as podcasts. For the year ended June 30, 2023, WSJ Mobile (including WSJ.com accessed via mobile devices, as well as apps, and excluding off-platform distribution) accounted for approximately 68% of visits to WSJ\u2019s digital news and information products according to Adobe Analytics.\n\u2022\nBarron\u2019s Group\n. The\n \nBarron\u2019s Group focuses on Dow Jones consumer brands outside of The Wall Street Journal franchise, including \nBarron\u2019s\n and MarketWatch, among other properties.\nBarron\u2019s\n. \nBarron\u2019s\n, which is available to subscribers in print, online and on multiple mobile devices, delivers news, analysis, investigative reporting, company profiles and insightful statistics for investors and others interested in the investment world.\nMarketWatch\n.\n MarketWatch is an investing and financial news website targeting active investors. It also provides real-time commentary and investment tools and data. Products include mobile apps and a responsive design website, and revenue is generated through the sale of advertising, as well as its premium digital subscription service.\n\u2022\nInvestor\u2019s Business Daily (IBD)\n. IBD provides investing content, analytical products and educational resources to subscribers in print and online, as well as through mobile apps and video. IBD\u2019s services include the Investors.com website, the MarketSmith and LeaderBoard market research and analysis tools and a weekly print publication.\n\u2022\nThe Wall Street Journal Digital Network (WSJDN)\n. WSJDN offers advertisers the opportunity to reach Dow Jones\u2019s audience across a number of brands, including WSJ, Barron\u2019s and MarketWatch. WSJDN does not include IBD.\n\u2022\nLive Journalism\n. The Dow Jones segment offers a number of in-person and virtual conferences and events each year. These live journalism events offer advertisers and sponsors the opportunity to reach a select group of influential leaders from industry, finance, government and policy. Many of these programs also earn revenue from participation fees charged to attendees.\nThe following table provides information regarding average daily subscriptions (excluding off-platform distribution) during the three months ended June 30, 2023 for certain Dow Jones segment consumer products and for all consumer subscription products:\n(in 000\u2019s)\nThe Wall Street Journal\n(1)\nBarron\u2019s Group\n(1)(2)\nTotal Consumer\n(1)(3)\nDigital-only subscriptions\n(4)(5)\n3,406\u00a0\n1,018\u00a0\n4,510\u00a0\nPrint subscriptions\n(4)(5)\n560\u00a0\n150\u00a0\n732\u00a0\nTotal subscriptions\n(4)\n3,966\u00a0\n1,168\u00a0\n5,242\u00a0\n________________________\n(1)\nBased on internal data for the period from April 3, 2023 to July 2, 2023, with independent verification procedures performed by PricewaterhouseCoopers LLP UK.\n(2)\nBarron\u2019s Group consists of \nBarron\u2019s\n, MarketWatch, \nFinancial News \nand \nPrivate Equity News.\n \n(3)\nTotal Consumer consists of \nThe Wall Street Journal\n, Barron\u2019s Group\n \nand \nInvestor\u2019s Business Daily\n.\n(4)\nSubscriptions include individual consumer subscriptions, as well as subscriptions purchased by companies, schools, businesses and associations for use by their respective employees, students, customers or members. Subscriptions exclude single-copy sales and copies purchased by hotels, airlines and other businesses for limited distribution or access to customers.\n(5)\nFor some publications, including \nThe Wall Street Journal\n and \nBarron\u2019s\n, the Dow Jones segment sells bundled print and digital products. For bundles that provide access to both print and digital products every day of the week, only one unit is reported each day and is designated as a print subscription. For bundled products that provide access to the print product only on specified days and full digital access, one print subscription is reported for each day that a print copy is served and one digital subscription is reported for each remaining day of the week.\nThe following table provides information regarding the digital platforms (excluding off-platform distribution) for certain Dow Jones segment consumer products:\nFY2023 Average\nMonthly Visits\n(1)\nFY2023 Average\nMonthly Page Views\n(2)\nFY2023\u00a0Average\nMonthly\u00a0Unique\u00a0Users\n(3)\nWSJ\n133 million\n473 million\n51 million\nMarketWatch\n82 million\n196 million\n38 million\nTotal Consumer\n(4)\n240 million\n723 million\n105 million\n________________________\n(1)\nIncludes visits via websites and mobile apps based on Adobe Analytics for the 12 months ended June 30, 2023.\n6\nTable of Contents\n(2)\nIncludes page views via websites and mobile apps based on Adobe Analytics for the 12 months ended June 30, 2023.\n(3)\nIncludes aggregate unique users accessing websites and mobile apps based on Adobe Analytics for the 12 months ended June 30, 2023. See \u201cPart I. Business\u2014Explanatory Note Regarding Certain Metrics\u201d for more information regarding the calculation of unique users.\n(4)\nTotal Consumer consists of WSJDN and IBD.\nProfessional Information Products\nThe Dow Jones segment\u2019s professional information products, which target enterprise customers, combine news and information with technology and tools that inform decisions and aid awareness, research, understanding and compliance. These products consist of its Dow Jones Risk & Compliance, OPIS, Factiva and Dow Jones Newswires products. Specific products include the following:\n\u00a0\n\u2022\nDow Jones Risk\u00a0& Compliance\n. Dow Jones Risk & Compliance products provide data solutions for customers focused on anti-bribery and corruption, anti-money laundering, counter terrorism financing, monitoring embargo and sanction lists and other compliance requirements. Dow Jones\u2019s solutions allow customers to filter their business transactions and third parties against its data to identify regulatory, corporate and reputational risk, and request follow-up reports to conduct further due diligence. Products include online risk data and negative news searching tools such as RiskCenter Financial Crime Search and RiskCenter Financial Crime Screening and Monitoring for bulk screening and RiskCenter Trade Compliance for trade finance-related checks on dual-use goods. Dow Jones also provides an online solution for supplier risk assessment, RiskCenter Third Party, which provides customers with automated risk and compliance checks via questionnaires and embedded scoring. Feed services include PEPs (politically exposed persons), Sanctions, Adverse Media and other Specialist Lists. In addition, Dow Jones produces customized Due Diligence Reports to assist its customers with regulatory compliance.\n\u2022\nOil Price Information Service (OPIS)\n. OPIS \nprovides pricing data, news, analysis, software and events relating to energy commodities, including crude oil, refined products, petrochemicals, natural gas liquids, coal, metals, renewables, Renewable Identification Numbers and carbon credits.\n \nOPIS also provides pricing data, insights, analysis and forecasting for key base chemicals through its Chemical Market Analytics business.\n\u2022\nFactiva\n. Factiva is a leading provider of global business content, built on an archive of important original and licensed publishing sources. Factiva offers content from approximately 33,000 global news and information sources from over 200 countries and territories and in 32 languages. This combination of business news and information, plus sophisticated tools, helps professionals find, monitor, interpret and share essential information. As of June 30, 2023, there were approximately 1.0 million activated Factiva users, including both institutional and individual accounts.\n\u2022\nDow Jones Newswires\n. Dow Jones Newswires distributes real-time business news, information, analysis, commentary and statistical data to financial professionals and investors worldwide. It publishes, on average, over 15,000 news items each day, which are distributed via Dow Jones\u2019s market data platform partners, including Bloomberg and FactSet, as well as trading platforms and websites reaching hundreds of thousands of financial professionals. This content also reaches millions of individual investors via customer portals and the intranets of brokerage and trading firms, as well as digital media publishers. Dow Jones Newswires is also used as an input for algorithms supporting automated trading.\n \nThe Dow Jones segment\u2019s businesses compete with a wide range of media and information businesses, including print publications, digital media and information services.\nThe Dow Jones segment\u2019s consumer products, including its newspapers, magazines, digital publications, podcasts and video, compete for consumers, audience and advertising with other local and national newspapers, web and app-based media, news aggregators, customized news feeds, search engines, blogs, magazines, investment tools, social media sources, podcasts and event producers, as well as other media such as television, radio stations and outdoor displays. Competition for subscriptions and circulation is based on news and editorial content, data and analytics content in research tools, subscription pricing, cover price and, from time to time, various promotions. Competition for advertising is based upon advertisers\u2019 judgments as to the most effective media for their advertising budgets, which is in turn based upon various factors, including circulation volume, readership levels, audience demographics, advertising rates, advertising effectiveness and brand strength and reputation. As a result of rapidly changing and evolving technologies (including recent developments in artificial intelligence (AI), particularly generative AI), distribution platforms and business models, and corresponding changes in consumer behavior, the consumer-focused businesses within the Dow Jones segment continue to face increasing competition for both circulation and advertising revenue, including from a variety of alternative news and information sources, as well as programmatic advertising buying channels and \n7\nTable of Contents\noff-platform distribution of its products. Shifts in consumer behavior require the Company to continually innovate and improve upon its own products, services and platforms in order to remain competitive. The Company believes that these changes will continue to pose opportunities and challenges, and that it is well positioned to leverage its global reach, brand recognition and proprietary technology to take advantage of the opportunities presented by these changes.\nThe Dow Jones segment\u2019s professional information products that target enterprise customers compete with various information service providers, compliance data providers, global financial newswires and energy and commodities pricing and data providers, including Reuters News, RELX (including LexisNexis and ICIS), Refinitiv, S&P Global, DTN and Argus Media, as well as many other providers of news, information and compliance data.\nBook Publishing \nThe Company\u2019s Book Publishing segment consists of HarperCollins, the second largest consumer book publisher in the world based on global revenue, with operations in 17 countries. HarperCollins publishes and distributes consumer books globally through print, digital and audio formats. Its digital formats include e-books and downloadable audio books for a variety of mobile devices. HarperCollins owns more than 120 branded imprints, including Harper, William Morrow, Mariner, HarperCollins Children\u2019s Books, Avon, Harlequin and Christian publishers Zondervan and Thomas Nelson.\nHarperCollins publishes works by well-known authors such as Harper Lee, George Orwell, Agatha Christie and Zora Neale Hurston, as well as global author brands including J.R.R. Tolkien, C.S. Lewis, Daniel Silva, Karin Slaughter and Dr. Martin Luther King, Jr. It is also home to many beloved children\u2019s books and authors, including\n Goodnight Moon\n, \nCurious George\n, \nLittle Blue Truck\n, \nPete the Cat\n and David Walliams. In addition, HarperCollins has a significant Christian publishing business, which includes the NIV Bible, \nJesus Calling\n and author Max Lucado. HarperCollins\u2019 print and digital global catalog includes more than 250,000 publications in different formats, in 16 languages, and it licenses rights for its authors\u2019 works to be published in more than 50 languages around the world. HarperCollins publishes fiction and nonfiction, with a focus on general, children\u2019s and religious content. Additionally, in the U.K., HarperCollins publishes titles for the equivalent of the K-12 educational market. \nAs of June 30, 2023, HarperCollins offered approximately 150,000 publications in digital formats, and nearly all of HarperCollins\u2019 new titles, as well as the majority of its entire catalog, are available as e-books. Digital sales, comprising revenues generated through the sale of e-books as well as downloadable audio books, represented approximately 22% of global consumer revenues for the fiscal year ended June 30, 2023. \nDuring fiscal 2023, HarperCollins U.S. had 171 titles on the \nNew York Times\n print and digital bestseller lists, with 28 titles hitting number one, including \nAmari and The Great Game \nby B.B. Alston,\n Babel \nby R.F. Kuang,\n Battle for The American Mind\n by Pete Hegseth with David Goodwin,\n Blade Breaker\n by Victoria Aveyard\n, Faith Still Moves Mountains\n by Farris Faulkner,\n Finding Me \nby Viola Davis,\n Little Blue Truck Makes a Friend \nby Alice Schertle,\n Magnolia Table, Vol 3\n by Joanna Gaines,\n Never Never \nby Colleen Hoover and Tarryn Fisher,\n Nic Blake and The Remarkables\n by Angie Thomas,\n Portrait of an Unknown Woman\n by Daniel Silva,\n Saved \nby Benjamin Hall,\n The Courage to Be Free \nby Ron DeSantis,\n The First to Die at The End \nby Adam Silvera,\n The One and Only Ivan \nby Katherine Applegate and\n The Sour Grape \nby Jory John and Pete Oswald.\nHarperCollins derives its revenue from the sale of print and digital books to a customer base that includes global technology companies, traditional brick and mortar booksellers, wholesale clubs and discount stores, including Amazon, Apple, Barnes & Noble and Tesco. Revenues at the Book Publishing segment are significantly affected by the timing of releases and the number of HarperCollins\u2019 books in the marketplace, and are typically highest during the Company\u2019s second fiscal quarter due to increased demand during the end-of-year holiday season in its main operating geographies. \nThe book publishing business operates in a highly competitive market that is quickly changing and continues to see technological innovations. HarperCollins competes with other large publishers, such as Penguin Random House, Simon & Schuster and Hachette Livre, as well as with numerous smaller publishers, for the rights to works by well-known authors and public personalities; competition could also come from new entrants as barriers to entry in book publishing are low. In addition, HarperCollins competes for consumers with other media formats and sources such as movies, television programming, magazines and mobile content. The Company believes HarperCollins is well positioned in the evolving book publishing market with significant size and brand recognition across multiple categories and geographies. \nNews Media\nThe Company\u2019s News Media segment consists primarily of News Corp Australia, News UK and the \nNew York Post\n. This segment also includes Wireless Group, operator of talkSPORT, the leading sports radio network in the U.K., and Virgin Radio, TalkTV in \n8\nTable of Contents\nthe U.K., which is available on multiple platforms including linear television and streaming, and Storyful, a social media content agency that enables the Company to source real-time video content through social media platforms. The News Media segment generates revenue primarily through circulation and subscription sales of its print and digital products and sales of print and digital advertising. Advertising revenues at the News Media segment are subject to seasonality, with revenues typically highest in the Company\u2019s second fiscal quarter due to the end-of-year holiday season in its main operating geographies.\nNews Corp Australia\nNews Corp Australia is one of the leading news and information providers in Australia by readership, with both digital and print mastheads covering a national, regional and suburban footprint. Its digital mastheads are among the leading digital news properties in Australia based on monthly unique audience data and had approximately 943,000 aggregate digital closing subscribers as of June 30, 2023. In addition, its Monday to Friday, Saturday and Sunday, weekly and bi-weekly newspapers were read by 4.6 million Australians on average every week during the year ended March 31, 2023.\nNews Corp Australia\u2019s news portfolio includes \nThe Australian\n and \nThe Weekend Australian\n (National), \nThe Daily Telegraph\n and \nThe Sunday Telegraph\n (Sydney), \nHerald Sun\n and \nSunday Herald Sun\n (Melbourne), \nThe Courier Mail\n and \nThe Sunday Mail\n (Brisbane) and \nThe Advertiser\n and \nSunday Mail\n (Adelaide), as well as paid digital platforms for each. In addition, News Corp Australia owns leading regional publications in Geelong, Cairns, Townsville, Gold Coast and Darwin and a small number of community mastheads.\nThe following table provides information regarding key properties within News Corp Australia\u2019s portfolio:\nTotal Paid Subscribers for\nCombined Masthead\n(Print and Digital)\n(1)\nTotal Monthly Audience\nfor Combined Masthead\n(Print and Digital)\n(2)\nThe Australian\n318,417\u00a0\n4.2 million\nThe Daily Telegraph\n152,457\u00a0\n4.0 million\nHerald Sun\n150,887\u00a0\n4.2 million\nThe Courier Mail\n140,532\u00a0\n2.9 million\nThe Advertiser\n103,353\u00a0\n1.7 million\n________________________\n(1)\nAs of June\u00a030, 2023, based on internal sources.\n(2)\nBased on Roy Morgan Single Source Australia; Apr 2022 \u2013 Mar 2023; P14+ average monthly print readership data for the year ended March 31, 2023.\nNews Corp Australia\u2019s broad portfolio of digital properties also includes news.com.au, one of the leading general interest sites in Australia that provides breaking news, finance, entertainment, lifestyle, technology and sports news and delivers an average monthly unique audience of approximately 12.9 million based on Ipsos iris monthly total audience ratings for the six months ended June 30, 2023\n2\n. In addition, News Corp Australia owns other premier digital properties such as taste.com.au, a leading food and recipe site, and kidspot.com.au, a leading parenting website, as well as various other digital media assets. As of June 30, 2023, News Corp Australia\u2019s other assets included a 13.3% interest in ARN Media Limited, which operates a portfolio of Australian radio media assets, and a 28.1% interest in Hipages Group Holdings Ltd, which operates a leading on-demand home improvement services marketplace.\nNews UK\nNews UK publishes \nThe Sun\n, \nThe Sun on Sunday\n, \nThe Times\n and \nThe Sunday Times,\n which are leading newspapers in the U.K. that together accounted for approximately one-third of all national newspaper sales as of June 30, 2023. \nThe Sun\n is the most read news brand in the U.K., and \nThe Times\n and \nThe Sunday\n \nTimes\n are the most read national newspapers in the U.K. quality market. News UK also distributes content through its digital platforms, including its websites, thesun.co.uk, the-sun.com, thetimes.co.uk and thesundaytimes.co.uk, as well as mobile apps. Together, across print and digital, these brands reach approximately 74% of adult news readers in the U.K., or approximately 35 million people, based on PAMCo data for the year ended December 31, 2022. In addition to revenue from advertising, circulation and subscription sales for its print and digital products, News UK generates revenue by providing third party printing services through its world-class printing facilities in England and Scotland and is one of \n2\n \nFull year data unavailable due to source change from Nielsen to Ipsos iris. Ipsos iris is the new digital audience measurement source that has been endorsed by the Interactive Advertising Bureau, Australia\u2019s board and measurement council for digital advertising\n.\n9\nTable of Contents\nthe largest contract printers in the U.K. In addition, News UK has assembled a portfolio of complementary ancillary product offerings, including betting and gaming products. The following table provides information regarding News UK\u2019s news portfolio:\nPrint Average Issue Readership\n(1)\nPaid Subscribers\n(2)\nMonthly Global Unique\nUsers\n(4)\nThe Sun (Mon \u2013 Sat)\n2,104,000\nN/A\n159 million\nThe Sun on Sunday\n2,109,000\nN/A\nThe Times (Mon \u2013 Sat)\n922,000\n120,000 (print)\n(3)\n565,000 (digital)\nN/A\nThe Sunday Times\n1,477,000\n109,000 (print)\n(3)\n565,000 (digital)\nN/A\n________________________\n(1)\nBased on Publishers Audience Measurement Company (\u201cPAMCo\u201d) data for the 12 months ended December 31, 2022.\n(2)\nAs of June 30, 2023, based on internal sources and including subscribers to the \nTimes Literary Supplement \n(\u201cTLS\u201d). Total subscribers across \nThe Times\n and \nThe Sunday Times\n, including TLS, as of June 30, 2023 was 694,000, including 565,000 closing digital subscribers. Total figures are de-duplicated for subscribers who receive a print product every day of the week.\n(3)\nIn addition to their print and digital-only products, \nThe Times\n and \nThe Sunday Times\n sell print and digital products bundled into one subscription. For bundled products that provide access to both print and digital products every day of the week, only one subscriber is reported as of June 30, 2023 and is designated as a print subscriber. For bundled products that provide access to the print product only on specified days and full digital access, a fraction equal to the number of days that a print copy is served relative to the total days in the week is reported as a print subscriber as of June 30, 2023 and a fraction equal to the number of remaining days of the week, when only a digital copy is served, relative to the total days in the week is reported as a digital subscriber.\n(4)\nIncludes aggregate unique users accessing thesun.co.uk, the-sun.com and other associated websites and mobile apps based on Meta Pixel data for the month ended June 30, 2023. See \u201cPart I. Business\u2014Explanatory Note Regarding Certain Metrics.\u201d In fiscal 2023,\u00a0News UK transitioned from Google Analytics to Meta Pixel, which provides\u00a0more timely data and enhanced functionality.\nNew York Post\nNYP Holdings is the publisher of the \nNew York Post\n (the \u201c\nPost\n\u201d), NYPost.com, PageSix.com, Decider.com and related mobile apps and social media channels. The \nPost\n is the oldest continuously published daily newspaper in the U.S., with a focus on coverage of the New York metropolitan area. The \nPost\n provides a variety of general interest content ranging from breaking news to business analysis, and is known in particular for its comprehensive sports coverage, famous headlines and its iconic Page Six section, an authority on celebrity news. The print version of the \nPost\n is primarily distributed in New York, as well as throughout the Northeast, Florida and California. For the three months ended June 30, 2023, average weekday circulation based on internal sources, including mobile app digital editions, was 525,034. In addition, the Post Digital Network, which includes NYPost.com, PageSix.com and Decider.com, averaged approximately 154.3 million unique users per month during the quarter ended June 30, 2023 according to Google Analytics. See \u201cPart I. Business\u2014Explanatory Note Regarding Certain Metrics\u201d for information regarding the calculation of unique users.\nThe News Media segment\u2019s newspapers, magazines, digital publications, radio stations, television station and podcasts generally face competition from similar sources, and compete on similar bases, as the consumer products within the Dow Jones segment, particularly in their respective operating geographies. See \u201cItem 1. Business \u2013 Business Overview \u2013 Dow Jones\u201d above for further information.\nOther\nThe Other segment includes the Company\u2019s general corporate overhead expenses, strategy costs and costs related to the U.K. Newspaper Matters.\n10\nTable of Contents\nGovernmental Regulation\nGeneral\nVarious aspects of the Company\u2019s activities are subject to regulation in numerous jurisdictions around the world. The introduction of new laws and regulations in countries where the Company\u2019s products and services are produced or distributed, and changes in existing laws and regulations in those countries or the enforcement thereof, could have a negative impact on the Company\u2019s interests.\nAustralian Media Regulation\nThe Company\u2019s subscription television interests are subject to Australia\u2019s regulatory framework for the broadcasting industry, including the Broadcasting Services Act 1992 (Cth) (the \u201cBroadcasting Services Act\u201d) and associated Codes. The key regulatory body for the Australian broadcasting industry is the Australian Communications and Media Authority.\nKey regulatory issues for subscription television providers include: (a) anti-siphoning restrictions\u2014currently under the \u2018anti-siphoning\u2019 provisions of the Broadcasting Services Act, subscription broadcast television providers are restricted from acquiring rights to televise certain listed events (for example, the Olympic Games and certain Australian Football League and cricket matches) unless a national or commercial television broadcaster whose television broadcasting services cover more than 50% of the Australian population has acquired the right to televise the event or such rights have not been acquired 26 weeks before the start of the relevant event and an FTA broadcaster has had a reasonable opportunity to acquire the rights to that event; and (b) content requirements\u2014the Company must comply with certain content requirements, including restrictions on the inclusion of gambling advertising during live sporting events. \nFoxtel is also subject to various consumer protection regimes under the Telecommunications Act 1997 (Cth), the Telecommunications Act 1999 (Cth) and associated Codes, which apply to Foxtel\u2019s provision of broadband and voice services to retail customers.\nThe Company\u2019s Australian operating businesses are subject to other parts of the Broadcasting Services Act that may impact the Company\u2019s ownership structure and operations and restrict its ability to take advantage of acquisition or investment opportunities.\nBenchmark Regulation\nIn connection with the OPIS business, the Company has established its own benchmark administrator, OPIS Benchmark Administration B.V. (the \u201cAdministrator\u201d), organized in the Netherlands and authorized under the EU Benchmarks Regulation (EU) 2016/1011 (the \u201cEU BMR\u201d) by the Netherlands Authority for Financial Markets (the \u201cAFM\u201d). The Administrator oversees compliance with principles, policies and procedures governing conflicts of interest, complaints handling, input data, benchmark methodologies and other matters for any price assessments and benchmarks under its administration. The Administrator has published on its website policies and other materials governing such administration, including a benchmark statement as well as policies and procedures concerning methodologies, complaints, corrections and material changes.\nThe Administrator currently oversees two OPIS price assessments, which are not presently used as a reference for trading on an EU exchange and consequently are not benchmarks within the meaning of the EU BMR and not subject to supervision by the AFM. The OPIS business plans to have one or more benchmarks that will be used as a reference for trading on an EU exchange in the future, and such benchmarks would become subject to supervision by the AFM. The OPIS business has also aligned its oil and commodities price reporting, including the two price assessments currently administered by the Administrator, with the International Organisation of Securities Commission\u2019s (\u201cIOSCO\u2019s\u201d) Principles for Oil Reporting Agencies, which are intended to enhance the reliability of oil and commodity price assessments that are referenced in derivative contracts subject to regulation by IOSCO members.\nData Privacy and Security Regulation\nThe Company\u2019s business activities are subject to laws and regulations governing the collection, use, sharing, protection and retention of personal data, which continue to evolve and have implications for how such data is managed. For example, in the U.S., the Federal Trade Commission continues to expand its application of general consumer protection laws to commercial data practices, including to the use of personal and profiling data from online users to deliver targeted internet advertisements. More state and local governments are also expanding, enacting or proposing data privacy laws that govern the collection and use of personal data of their residents and establish or increase penalties and in some cases, afford private rights of action to individuals \n11\nTable of Contents\nfor failure to comply, and most states have enacted legislation requiring businesses to provide notice to state agencies and to individuals whose personal information has been accessed or disclosed as a result of a data breach. For example, the California Consumer Privacy Act, as amended by the California Privacy Rights Act (\u201cCPRA\u201d), establishes certain transparency rules, puts greater restrictions on how the Company can collect, use and share personal information of California residents and provides California residents with certain rights regarding their personal information. The CPRA provides for civil penalties for violations, as well as a private right of action for data breaches. Similar legislation in many states impose transparency and other obligations with respect to personal data of their respective residents and provide residents with similar rights, with the exception of a private right of action. Additionally, certain of the Company\u2019s websites, mobile apps and other online business activities are also subject to laws and regulations governing the online privacy of children, including the Children\u2019s Online Privacy Protection Act of 1998, which prohibits the collection of personal information online from children under age 13 without prior parental consent, and the California Age Appropriate Design Code (which goes into effect on July 1, 2024), which prescribes rules relating to the design of online services likely to be accessed by children under age 18 (\u201cCAADC\u201d).\nSimilar laws and regulations have been implemented in many of the other jurisdictions in which the Company operates, including the European Union, the U.K. and Australia. For example, the European Union adopted the General Data Protection Regulation (\u201cGDPR\u201d), which provides a uniform set of rules for personal data processing throughout the European Union, and the U.K. \nadopted the Data Protection Act of 2018 (the \u201cUK DPA\u201d) as well as the UK General Data Protection Regulation (\u201cUK GDPR\u201d)\n. The GDPR, UK DPA and UK GDPR expand the regulation of the collection, processing, use, sharing and security of personal data, contain stringent conditions for consent from data subjects, strengthen the rights of individuals, including the right to have personal data deleted upon request, continue to restrict the trans-border flow of such data, require companies to conduct privacy impact assessments to evaluate data processing operations that are likely to result in a high risk to the rights and freedoms of individuals, require mandatory data breach reporting and notification, significantly increase maximum penalties for non-compliance (up to 20 million Euros or 17 million pounds, as applicable, or 4% of an entity\u2019s worldwide annual turnover in the preceding financial year, whichever is higher) and increase the enforcement powers of the data protection authorities. The European Union also plans to replace its existing e-Privacy Directive with a new e-Privacy Regulation that will complement the GDPR and amend certain rules, including with respect to cookies and other similar technologies that the Company utilizes to obtain information from visitors to the Company\u2019s various digital offerings. Reform of the U.K. data protection framework is currently under discussion as the Data Protection and Digital Information (No. 2) Bill progresses through the U.K. legislative process. The Bill in its current form would also make certain amendments to the U.K.\u2019s regulations implementing the European Union\u2019s e-Privacy Directive. In addition, the U.K. has adopted the UK Age Appropriate Design Code, which is similar to the CAADC discussed above.\nThe Company and some of its service providers rely on certain mechanisms, such as Standard Contractual Clauses, to address the European and U.K. data protection requirements for transfers of data that continue to evolve and are often subject to uncertainty and legal challenges. In June 2021, the European Commission adopted two new sets of European Union Standard Contractual Clauses, which regulate the relationship between controller and processor in accordance with the GDPR and international data transfers to a third country in the absence of an adequacy decision under the GDPR. The European Data Protection Board also adopted recommendations on measures that supplement data transfer tools to ensure compliance with the level of personal data protection required in Europe, including requirements for data exporters to assess the risks related to the transfer of personal data outside the European Economic Area and to implement, if necessary, additional contractual, organizational and technical measures such as encryption and pseudonymization. For data transfers subject to the UK GDPR, the International Data Transfer Agreement and the International Data Transfer Addendum to the European Union Standard Contractual Clauses have also been adopted. With respect to data transfers to the U.S., the European Commission has recently adopted the adequacy decision for the EU-US Data Privacy Framework and a corresponding decision from the U.K. is also expected. Such evolving requirements could cause the Company to incur additional costs, require it to change business practices or affect the manner in which it provides its services.\nIn Australia, data privacy laws impose additional requirements on organizations that handle personal data by, among other things, requiring the disclosure of cross-border data transfers, placing restrictions on direct marketing practices and imposing mandatory data breach reporting, and additional data privacy and security requirements and industry standards are under consideration.\nIndustry participants in the U.S., Europe and Australia have taken steps to increase compliance with relevant industry-level standards and practices, including the implementation of self-regulatory regimes for online behavioral advertising that impose obligations on participating companies, such as the Company, to give consumers a better understanding of advertisements that are customized based on their online behavior.\nThe interpretation and application of data privacy and security laws are often uncertain and evolving in the United States and internationally. Moreover, data privacy and security laws vary between local, state, federal and international jurisdictions and may \n12\nTable of Contents\npotentially conflict from jurisdiction to jurisdiction. The Company continues to monitor pending legislation and regulatory initiatives to ascertain relevance, analyze impact and develop strategic direction surrounding regulatory trends and developments, including any changes required in the Company\u2019s data privacy and security compliance programs.\nU.K. Press Regulation\nAs a result of the implementation of recommendations of the Leveson inquiry into the U.K. press, a Press Recognition Panel responsible for approving, overseeing and monitoring a new press regulatory body or bodies was established. Once approved by the Press Recognition Panel, the new press regulatory body or bodies would be responsible for overseeing participating publishers. In addition to the Press Recognition Panel, certain legislation provides that publishers who are not members of an approved regulator may be liable for exemplary damages in certain cases where such damages are not currently awarded and, if Section 40 of the Crime and Courts Act 2013 is commenced, the payment of costs for both parties in libel actions in certain circumstances.\nPress regulator IMPRESS was recognized as an approved regulator by the Press Recognition Panel on October 25, 2016. However, publications representing the majority of the industry in the U.K., including News UK, entered into binding contracts to form an alternative regulator, the Independent Press Standards Organisation, or IPSO, in September 2014. IPSO currently has no plans to apply for recognition from the Press Recognition Panel. IPSO has an independent chairman and a 12-member board, the majority of which are independent. IPSO oversees the Editors\u2019 Code of Practice, requires members to implement appropriate internal governance processes and requires self-reporting of any failures, provides a complaints handling service, has the ability to require publications to print corrections and has the power to investigate serious or systemic breaches of the Editors\u2019 Code of Practice and levy fines of up to \u00a31 million. The burdens IPSO imposes on its print media members, including the Company\u2019s newspaper publishing businesses in the U.K., may result in competitive disadvantages versus other forms of media and may increase the costs of regulatory compliance.\nU.K. Radio and Television Broadcasting Regulation\nThe Company\u2019s radio stations in the U.K. and Ireland and TalkTV are subject to regulation by the Office of Communications (Ofcom), the regulatory body for broadcasting in the U.K. In accordance with Ofcom\u2019s regulations, the Company is required, among other things, to obtain and maintain licenses to operate these radio stations and TalkTV. Although the Company expects its licenses will, where relevant, be renewed in the ordinary course upon their expiration, there can be no assurance that this will be the case. Non-compliance by the Company with the requirements associated with such licenses or other applicable laws and regulations, including of Ofcom, could result in fines, additional license conditions, license revocation or other adverse regulatory actions.\nIntellectual Property\nThe Company\u2019s intellectual property assets include: copyrights in newspapers, books, video programming and other content and technologies; trademarks in names and logos; trade names; domain names; and licenses of intellectual property rights. These licenses include: (1) the sports programming rights licenses for the National Rugby League, Australian Football League, Cricket Australia, V8 Supercars, Formula One and other broadcasting rights described in Note 16 to the Financial Statements; (2) licenses from various third parties of patents and other technology for the set-top boxes and related operating and conditional access systems used in the Company\u2019s subscription television business; (3) the trademark license for the Realtor.com\n\u00ae\n website address, as well as the REALTOR\n\u00ae\n trademark (the \u201cNAR License\u201d); and (4) the trademark licenses for the use of FOX formative trademarks used in the Company\u2019s pay-TV business in Australia (the \u201cFox Licenses\u201d). In addition, its intellectual property assets include patents or patent applications for inventions related to its products, business methods and/or services, none of which are material to its financial condition or results of operations. The Company derives value and revenue from its intellectual property assets through, among other things, print and digital newspaper and magazine subscriptions and sales, subscriptions to its pay-TV services and distribution and/or licensing of its television programming to other television services, the sale, distribution and/or licensing of print and digital books, the sale of subscriptions to its content and information services and the operation of websites and other digital properties.\nThe Company devotes significant resources to protecting its intellectual property assets in the U.S., the U.K., Australia and other foreign territories. To protect these assets, the Company relies upon a combination of copyright, trademark, unfair competition, patent, trade secret and other laws and contract provisions. However, there can be no assurance of the degree to which these measures will be successful in any given case. Unauthorized use, including in the digital environment and as a result of recent advances in AI, particularly generative AI, presents a threat to revenues from products and services based on intellectual property. Policing unauthorized use of the Company\u2019s products, services and content and related intellectual property is often difficult and \n13\nTable of Contents\nthe steps taken may not in every case prevent the infringement by unauthorized third parties of the Company\u2019s intellectual property. For example, the Company seeks to limit the threat of piracy by, among other means, preventing unauthorized access to its content through the use of programming content encryption, signal encryption and other security access devices and digital rights management software, as well as by obtaining site blocking orders against pirate streaming and torrent sites and a variety of other actions. The Company also seeks to limit unauthorized use of its intellectual property by pursuing legal sanctions for infringement, promoting appropriate legislative initiatives and international treaties and enhancing public awareness of the meaning and value of intellectual property and intellectual property laws. However, effective intellectual property protection may be either unavailable or limited in certain foreign territories. Therefore, the Company also engages in efforts to strengthen and update intellectual property protection around the world, including efforts to ensure the effective enforcement of intellectual property laws and remedies for infringement.\nThird parties may challenge the validity or scope of the Company\u2019s intellectual property from time to time, and such challenges could result in the limitation or loss of intellectual property rights. Irrespective of their validity, such claims may result in substantial costs and diversion of resources that could have an adverse effect on the Company\u2019s operations.\nRaw Materials\nAs a major publisher of newspapers, magazines and books, the Company utilizes substantial quantities of various types of paper. In order to obtain the best available prices, substantially all of the Company\u2019s paper purchasing is done on a regional, volume purchase basis, and draws upon major paper manufacturing countries around the world. The Company believes that under present market conditions, its sources of paper supply used in its publishing activities are adequate, although prices increased significantly in fiscal 2023. While the Company anticipates these increases will moderate, it expects prices to remain elevated.\nHuman Capital\nNews Corp\u2019s workforce is critical to the creation and delivery of its premium and trusted content and a key contributor to the success of the company. The Company\u2019s ability to attract, retain and engage talented employees with the skills and capabilities needed by its businesses is an essential component of its long-term business strategy to become more global and more digital, and the capabilities of the Company\u2019s workforce have continued to evolve along with its business and strategy. Key focus areas of the Company\u2019s human capital management strategy are described below, and additional information can be found in its Environmental, Social and Governance (\u201cESG\u201d) Report, available on the Company\u2019s website (which is not incorporated by reference herein). The Compensation Committee of the Board of Directors is responsible for assisting the Board in reviewing and assessing the Company\u2019s risks, opportunities, strategies and policies related to human capital management, including with respect to matters such as diversity, equity and inclusion, health, safety and security, workforce engagement and culture, and talent development and retention.\nAs of June 30, 2023, the Company had approximately 25,000 employees, of whom approximately 8,600 were located in the U.S., 5,400 were located in the U.K. and 7,800 were located in Australia. Of the Company\u2019s employees, approximately 4,000 were represented by various employee unions. The contracts with such unions will expire during various times over the next several years. The Company believes its current relationships with employees are generally good.\nCulture and Values\nThe delivery of quality news, information and entertainment to customers is a passionate, principled and purposeful enterprise. The Company believes people around the globe turn to News Corp because they trust its dedication to those values and to conducting business with integrity. The Company is always mindful that one of its greatest assets is its reputation, and ethical conduct is part of the vision, strategy and fabric of the Company. The Company has established a Compliance Steering Committee that oversees the Company\u2019s global compliance-related policies, protocols and guidance and reports directly to the Board of Directors through the Audit Committee. Performance on ethics and compliance and other ESG objectives is evaluated in determining whether any reduction to the payout of incentive compensation for executive officers is warranted. In addition, all employees are required to regularly complete training on, and affirm compliance with, News Corp\u2019s Standards of Business Conduct, which set forth the Company\u2019s policy to act respectfully in the workplace, do business ethically and comply with all applicable laws and regulations, and are designed to promote a culture of compliance and legal and ethical awareness throughout the Company. The Standards of Business Conduct are reviewed regularly and approved by the Board of Directors, and are complemented by business-unit and topic-specific policies and trainings, including with respect to workplace conduct, conflicts of interest, anti-corruption and anti-bribery and insider trading. \n14\nTable of Contents\nDiversity, Equity and Inclusion\nThe Company recognizes that the unique experiences and perspectives of its employees across its businesses are critical to creating brands and products that reflect a diversity of viewpoints and engage and inspire customers around the world. The Company seeks to foster an environment where all employees feel valued, included and empowered to bring great ideas to the table. To achieve this and provide equal employment opportunities across its businesses, the Company is committed to cultivating diversity and equity and broadening opportunities for inclusion across its businesses. As of December 31, 2022, women represented 48% of News Corp\u2019s global workforce, 37% of its senior executives\n3\n and 38% of its Board of Directors, and the Nominating and Corporate Governance Committee has a policy to include women and minorities in the candidate pool as part of the search process for each new Director. The Company\u2019s business units have implemented diversity, equity and inclusion programs and practices tailored to their respective industries and geographies. The Company\u2019s efforts to promote diversity, equity and inclusion include, among other things, its (1) talent attraction programs and practices to provide equal employment opportunities for all applicants and employees, such as implementing strategies to build diverse candidate pools and pipelines and promoting equitable recruitment and hiring practices, (2) employee development and training and (3) efforts to build a culture of inclusion, such as through mentoring and inclusivity programs. Through fiscal 2023, the Nominating and Corporate Governance Committee assessed the Company\u2019s progress towards its diversity, equity and inclusion objectives annually and reported on its review to the Board of Directors. The Compensation Committee will assume these responsibilities beginning in fiscal 2024.\nHealth, Safety, Security and Wellbeing\n \nThe health, safety, security and wellbeing of the Company\u2019s employees is a top priority of the Company\u2019s human capital management strategy. The Company\u2019s programs and policies are benchmarked against industry best practices and are designed to be dynamic and account for the changing risks and circumstances facing its employees. Employee wellbeing initiatives engage and support employees with targeted programs for mental and physical health. The Company\u2019s health and safety management systems are designed to ensure compliance with local and international environmental, health and safety standards and regulatory requirements. Its physical security infrastructure addresses risks related to the workplace, employee travel, business operations, corporate events and the unique requirements of the newsroom and news-gathering operations, including through its Global Security Operations Center, which supports key international assignments and incident management. For example, the Company provides safety and security support and around-the-clock monitoring for its staff and partners in Ukraine, enabling the continuation of critical reporting from that region. The Company was able to quickly mobilize resources, including engaging legal counsel, to support a \nWall Street Journal\n reporter detained by Russian authorities earlier this year while on assignment in the country. \nCompensation and Benefits\nNews Corp\u2019s compensation and benefits programs, which vary based on business unit and geographic location, are focused on attracting, retaining and motivating the top talent necessary to achieve its mission in ways that reflect its diverse global workforce\u2019s needs and priorities. In addition to competitive salaries, the Company and its businesses have established short- and long-term incentive programs designed to motivate and reward performance against key business objectives and facilitate retention. News Corp also provides a range of retirement benefits based on competitive regional benchmarks and other comprehensive benefit options to meet the needs of its employees, including healthcare benefits, tax-advantaged savings vehicles, financial education, life and disability insurance, paid time off, flexible working arrangements, generous parental leave policies and other caregiving support, family planning and fertility services and a company match for charitable donations. All of the Company\u2019s business units continually monitor pay practices, work towards advancing pay equity and are committed in their efforts to maintain rigorous benchmarking standards to identify pay gaps and proactively address imbalances.\nTraining, Development and Engagement\nNews Corp invests in training and development programs designed to enable its employees to develop the skills and leadership abilities necessary to execute on the Company\u2019s strategy and engage and retain top talent. News Corp employees have access to a range of training opportunities. The Company provides compelling on-the-job learning experiences for its people, encouraging employees to test new ideas and expand their capabilities. It also offers workshops, webinars and classes on a variety of topics, job-specific training and other continuing education resources. The Company further supports and develops its employees through career planning resources and programs and internal mobility opportunities that build and strengthen employee versatility and leadership skills. In addition, the Company and its businesses have implemented programs to support regular performance reviews for employees to highlight their strengths and identify the skills and growth necessary to advance their careers. These programs \n3\n \nComprising the Company\u2019s Executive Chair, Chief Executive, headquarters leadership team and chief executive officers of its primary operating companies, and executives directly reporting to each of the foregoing.\n15\nTable of Contents\nhelp the Company cultivate and invest in the next generation of leadership and represent an important component in the development of its talent pipeline. The Company\u2019s businesses also periodically conduct employee engagement surveys or focus groups to better understand the experience, concerns and sentiments of employees.\nExplanatory Note Regarding Certain Metrics\nUnique Users\nFor purposes of this Annual Report, the Company counts unique users the first time an individual accesses a product\u2019s website using a browser during a calendar month and the first time an individual accesses a product\u2019s mobile app using a mobile device during a calendar month. If the user accesses more than one of a product\u2019s desktop websites, mobile websites and/or mobile apps, the first access to each such website or app is counted as a separate unique user. In addition, users accessing a product\u2019s websites through different browsers, users who clear their browser cache at any time and users who access a product\u2019s websites and apps through different devices are also counted as separate unique users. For a group of products such as WSJDN, a user accessing different products within the group is counted as a separate unique user for each product accessed.\nTotal Digital Revenues\nFor purposes of this Annual Report, the Company defines total digital revenues as the sum of consolidated Digital Real Estate Services segment revenues, digital advertising revenues, digital circulation and subscription revenues (which do not include Foxtel linear broadcast cable revenues), revenues from digital book sales and other miscellaneous digital revenue streams.\nBroadcast Subscribers\nBroadcast subscribers consist of residential subscribers and commercial subscribers, which are calculated as described below.\nResidential Subscribers\nTotal number of residential subscribers represents total residential subscribers to the Company\u2019s broadcast pay-TV services, including subscribers obtained through third-party distribution relationships.\nCommercial Subscribers\nCommercial subscribers for the Company\u2019s pay-TV business are calculated as residential equivalent business units, which are derived by dividing total recurring revenue from these subscribers by an estimated average Broadcast ARPU which is held constant through the year. Total number of commercial subscribers represents total commercial subscribers to the Company\u2019s broadcast pay-TV services, including subscribers obtained through third-party distribution relationships.\nBroadcast ARPU\nThe Company calculates Broadcast ARPU for its pay-TV business by dividing broadcast package revenues for the period, net of customer credits, promotions and other discounts, by average residential subscribers for the period and dividing by the number of months in the period. Average residential subscribers, or \u201cAverage Broadcast Subscribers,\u201d for a given period is calculated by first adding the beginning and ending residential subscribers for each month in the period and dividing by two and then adding each of those monthly average subscriber numbers and dividing by the number of months in the period.\nBroadcast Subscriber Churn\nThe Company calculates Broadcast Subscriber Churn for its pay-TV business by dividing the total number of disconnected residential subscribers for the period, net of reconnects and transfers, by the Average Broadcast Subscribers for the period, calculated as described above. This amount is then divided by the number of days in the period and multiplied by 365 days to present churn on an annual basis.\nPaid Subscribers\nA paid subscriber to the Company\u2019s streaming services is one for which the Company recognized subscription revenue. A subscriber ceases to be a paid subscriber as of their effective cancellation date or as a result of a failed payment method. Paid subscribers excludes customers receiving service for no charge under certain new subscriber promotions.\n16\nTable of Contents",
+  "item1a": ">ITEM\u00a01A. RISK FACTORS\nYou should carefully consider the following risks and other information in this Annual Report on Form 10-K in evaluating the Company and its common stock. Any of the following risks, or other risks or uncertainties not presently known or currently deemed immaterial, could materially and adversely affect the Company\u2019s business, results of operations or financial condition, and could, in turn, impact the trading price of the Company\u2019s common stock. \nRisks Relating to the Company\u2019s Businesses and Operations\nThe Company Operates in a Highly Competitive Business Environment, and its Success Depends on its Ability to Compete Effectively, Including by Responding to Evolving Technologies and Changes in Consumer and Customer Behavior. \nThe Company faces significant competition from other providers of news, information, entertainment and real estate-related products and services. See \u201cBusiness Overview\u201d for more information regarding competition within each of the Company\u2019s segments. This competition continues to intensify as a result of changes in technologies, platforms and business models and corresponding changes in consumer and customer behavior. For example, new content distribution platforms and media channels have increased the choices available to consumers for content consumption and adversely impacted, and may continue to adversely impact, demand and pricing for the Company\u2019s newspapers, pay-TV services and other products and services. Consumption of the Company\u2019s content on third-party delivery platforms reduces its control over how its content is discovered, displayed and monetized and may affect its ability to attract, retain and monetize consumers directly and compete effectively. While the Company has multi-year agreements with several large platforms pursuant to which the Company licenses its content for use on such platforms in exchange for significant payments, there is no guarantee that these content license agreements will be renewed on terms favorable to the Company or at all. These trends and developments have adversely affected, and may continue to adversely affect, both the Company\u2019s circulation and subscription and advertising revenue and may increase subscriber acquisition, retention and other costs.\nTechnological developments have also increased competition in other ways. For example, digital video content has become more prevalent and attractive for many consumers via direct-to-consumer offerings, as internet streaming capabilities have enabled the disaggregation of content delivery from the ownership of network infrastructure. Other digital platforms and technologies, such as user-generated content platforms and self-publishing tools, combined, in some cases, with widespread availability of sophisticated search engines and public sources of free or relatively inexpensive information and solutions, have also reduced the effort and expense of locating, gathering and disseminating data and producing and distributing certain types of content on a wide scale, allowing digital content providers, customers, suppliers and other third parties to compete with the Company, often at a lower cost, and potentially diminishing the perceived value of the Company\u2019s offerings. Recent developments in AI, such as generative AI, may accelerate or exacerbate these effects. Additional digital distribution channels, such as online retailers and digital marketplaces, some of which have significant scale and leverage, have also presented, and continue to present, challenges to the Company\u2019s business models, particularly its traditional book publishing model, and any failure to adapt to or manage changes made by these channels could adversely affect sales volume, pricing and/or costs. \nIn order to compete effectively, the Company must differentiate its brands and their associated products and services, respond to new technologies, distribution channels and platforms, develop new products and services and consistently anticipate and respond to changes in consumer and customer needs and preferences, which in turn, depends on many factors both within and beyond its control. The Company relies on brand awareness, reputation and acceptance of its high-quality differentiated content and other products and services, the breadth, depth and accuracy of information provided by its digital real estate services and professional information businesses, as well as its wide array of digital offerings, in order to retain and grow its audiences, consumers and subscribers. However, consumer preferences change frequently and are difficult to predict, and when faced with a multitude of choices, consumers may place greater value on the convenience and price of content and other products and services than they do on their source, quality or reliability. For example, generative AI that has been trained on the Company\u2019s content or is able to produce output that contains, is similar to or is based on the Company\u2019s content without attribution or compensation, may reduce traffic to the Company\u2019s digital properties, decrease subscriptions to its products and services and adversely affect its results of operations. Online traffic and product and service purchases are also driven by visibility on search engines, social media, digital marketplaces, mobile app stores and other platforms. The Company has limited control over changes made by these platforms affecting the visibility of its content and other products and services, which occur frequently. Any failure to successfully manage and adapt to such changes could impede the Company\u2019s ability to compete effectively by decreasing visits to, and advertiser interest in, its digital offerings, increasing costs if free traffic is replaced with paid traffic and lowering product sales and subscriptions.\n17\nTable of Contents\nThe Company expects to continue to pursue new strategic initiatives and develop new and enhanced products and services in order to remain competitive, such as additional streaming features and options, including its recently launched ad-supported \nBINGE\n product, new content aggregation offerings, innovative digital news products and experiences and the continued expansion into new business models and various adjacencies at its digital real estate services businesses. The Company may also develop additional products and services that responsibly incorporate AI solutions to enhance insights and value for customers and consumers and respond to industry trends. The Company has incurred, and expects to continue to incur, significant costs in order to implement these strategies and develop these new and improved products and services, including costs relating to the initiatives referenced above, as well as other costs to acquire, develop, adopt, upgrade and exploit new and existing technologies and attract and retain employees with the necessary knowledge and skills. There can be no assurance any strategic initiatives, products and services will be successful in the manner or time period or at the cost the Company expects or that it will realize the anticipated benefits it expects.\nSome of the Company\u2019s current and potential competitors have greater resources, fewer regulatory burdens, better competitive positions in certain areas, greater operating capabilities, greater access to sources of content, data, technology (including AI) or other services or strategic relationships and/or easier access to financing, which may allow them to respond more effectively to changes in technology, consumer and customer needs and preferences and market conditions. Continued consolidation or strategic alliances in certain industries in which the Company operates or otherwise affecting the Company\u2019s businesses may increase these advantages, including through greater scale, financial leverage and/or access to content, data, technology (including AI) and other offerings. If the Company is unable to compete successfully, its business, results of operations and financial condition could be adversely affected.\nWeak Domestic and Global Economic Conditions, Volatility and Disruption in the Financial and Other Markets and Other Events Outside the Company\u2019s Control May Adversely Affect the Company\u2019s Business.\nThe U.S. and global economies and markets have recently experienced, and are expected to undergo in the future, periods of weakness, uncertainty and volatility due to, among other things, continued inflationary pressures, changes in monetary policy, increased interest rates, recessionary concerns,\n \nsupply chain disruptions, volatile foreign currency exchange rates, geopolitical tensions and conflicts (including the war in Ukraine) and political and social unrest. These conditions continued to increase the Company\u2019s costs in fiscal 2023 and reduced demand for certain of its products and services. Higher home prices and interest rates, in particular, caused further declines in real estate lead and transaction volumes and adjacent businesses at its Digital Real Estate Services segment and inflation and recessionary concerns adversely impacted both corporate and consumer discretionary spending, resulting in lower advertising and book sales. Higher interest rates also contributed to recent bank failures which have strained the credit and capital markets. These and other similar conditions have in the past also resulted in, and could in the future lead to, among other things, a tightening of, and in some cases more limited access to, the credit and capital markets, lower levels of liquidity, increases in the rates of default and bankruptcy, lower consumer net worth and a decline in the real estate and energy and commodities markets. Such weakness and uncertainty and associated market disruptions have often led to broader, prolonged economic downturns that have historically resulted in lower advertising expenditures, lower demand for the Company\u2019s products and services, unfavorable changes in the mix of products and services purchased, pricing pressures, higher borrowing costs and decreased ability of third parties to satisfy their obligations to the Company and have adversely affected the Company\u2019s business, results of operations, financial condition and liquidity. Any continued or recurring economic weakness is likely to have a similar impact on the Company\u2019s business, reduce revenues across its segments and otherwise negatively impact its performance. The Company is particularly exposed to (1) certain Australian business risks because it holds a substantial amount of Australian assets and generated approximately 39% of its fiscal 2023 revenues from Australia and (2) to a lesser extent, business risks relating to the U.K., where it generated approximately 12% of its fiscal 2023 revenues.\nThe Company may also be impacted by other events outside its control, including pandemics and other health crises, natural disasters, severe weather events (which may occur with increasing frequency and intensity), hostilities, political or social unrest, terrorism or other similar events. For example, the COVID-19 pandemic caused postponements and cancellations of sports events that negatively impacted Foxtel revenues and a decline in print newspaper and advertising sales. Future widespread health crises or other uncontrollable events may similarly have an adverse effect on the Company\u2019s business, results of operations and financial condition.\nA Decline in Customer Advertising Expenditures Could Cause the Company\u2019s Revenues and Operating Results to Decline Significantly.\nThe Company derives substantial revenues from the sale of advertising, and its ability to generate advertising revenue is dependent on a number of factors, including: (1) demand for the Company\u2019s products and services, (2) audience fragmentation, \n18\nTable of Contents\n(3) digital advertising trends, (4) its ability to offer advertising products and formats sought by advertisers, (5) general economic and business conditions, (6) demographics of the customer base, (7) advertising rates, (8) advertising effectiveness and (9) maintaining its brand strength and reputation. \nDemand for the Company\u2019s products and services is evaluated based on a variety of metrics, such as the number of users and visits and user engagement for the Company\u2019s digital offerings, circulation for its newspapers and ratings for its cable channels, which are used by advertisers to determine the amount of advertising to purchase from the Company and advertising rates. Any difficulty or failure in accurately measuring demand, particularly for newer offerings or across multiple platforms, may lead to under-measurement and, in turn, lower advertising pricing and spending.\n \nThe popularity of digital media among consumers as a source of news, entertainment, information and other content, and the ability of digital advertising to deliver targeted, measurable impressions promptly, has driven a corresponding shift in advertising from traditional channels to digital platforms and adversely impacted the Company\u2019s print advertising revenues. Large digital platforms in particular, such as Facebook, Google and Amazon, which have extensive audience reach, data and targeting capabilities and strengths in certain in-demand advertising formats, command a large share of the digital advertising market. New devices and technologies, as well as higher consumer engagement with other forms of digital media platforms such as online and mobile social networking, have also increased the number of media choices and formats available to audiences, resulting in audience fragmentation and increased competition for advertising. The range of advertising choices across digital products and platforms and the large inventory of available digital advertising space have historically resulted in significantly lower rates for digital advertising (particularly mobile advertising) than for print advertising. Consequently, despite continued growth in the Company\u2019s digital advertising revenues, such revenues may not be able to offset declines in print advertising revenue.\nThe digital advertising market also continues to undergo changes that may further impact digital advertising revenues. Programmatic buying channels that allow advertisers to buy audiences at scale play a significant role in the advertising marketplace and have caused and may continue to cause further downward pricing pressure \nand the loss of a direct relationship with marketers\n. Third-party delivery platforms may also lead to loss of distribution and monetization control, loss of a direct relationship with consumers and adversely affect the Company\u2019s ability to understand its audience and/or collect and apply data for targeted advertising. The Company\u2019s digital advertising operations also rely on a small number of significant technologies such as Google\u2019s Ad Manager which, if interrupted or meaningfully changed, or if the providers leverage their power to alter the economic structure, could adversely impact advertising revenues and/or operating costs. In addition, evolving standards for the delivery of digital advertising, the development and implementation of technology, regulations, policies and practices and changing consumer expectations that adversely affect the Company\u2019s ability to deliver, target or measure the effectiveness of its advertising, including the phase-out of support for third party cookies and mobile identifiers, as well as opt-in requirements and new privacy regulations, may also negatively impact digital advertising revenues. As the digital advertising market continues to evolve, the Company\u2019s ability to compete successfully for advertising budgets will depend on, among other things, its ability to drive scale, engage and grow digital audiences, collect and leverage better user data, develop and grow in-demand digital advertising products and formats such as branded and other custom content and video and mobile advertising, and demonstrate the value of its advertising and the effectiveness of the Company\u2019s platforms to its advertising customers, including through more targeted, data-driven offerings. \nThe Company\u2019s print and digital advertising revenue is also affected generally by overall national and local economic and business conditions, which tend to be cyclical, as well as election and other news cycles. During fiscal 2023, factors such as inflation, including higher labor costs, higher interest rates, recessionary fears, supply chain disruptions and geopolitical tensions and conflicts (including the war in Ukraine) contributed to greater economic uncertainty, reduced spending by advertisers and lower advertising revenues at certain of the Company\u2019s businesses. Other events outside the Company\u2019s control, including natural disasters, extreme weather, pandemics (including the COVID-19 pandemic) and other widespread health crises, political and social unrest or acts of terrorism, have had, and may in the future have, a similar impact. In addition, certain sectors of the economy account for a significant portion of the Company\u2019s advertising revenues, including retail, technology and finance. The technology and, to a lesser extent, finance sectors were particularly affected by economic and market conditions in fiscal 2023, which led to lower advertising spending and revenues in those categories. The retail sector is also sensitive to weakness in economic conditions and consumer spending, as well as increased online competition. Future declines in the economic prospects of these and other advertisers or the economy in general could alter current or prospective advertisers\u2019 spending priorities or result in consolidation or closures across various industries, which may further reduce the Company\u2019s overall advertising revenue. \nWhile the Company has adopted a number of strategies and initiatives to address these challenges, there can be no guarantee that its efforts will be successful. If the Company is unable to demonstrate the continuing value of its various platforms and high-quality content and brands or offer advertisers unique multi-platform advertising programs, its business, results of operations and financial condition could be adversely affected.\n19\nTable of Contents\nThe Inability to Obtain and Retain Sports, Entertainment and Other Programming Rights and Content Could Adversely Affect the Revenue of Certain of the Company\u2019s Operating Businesses, and Costs Could Also Increase Upon Renewal. \nCompetition for popular programming licensed from third parties is intense, and the success of certain of the Company\u2019s operating businesses, including its subscription television business, depends on, among other things, their ability to obtain and retain rights and access to desirable programming and certain related elements thereof, such as music rights, that enable them to deliver content to subscribers and audiences in the manner in which they wish to consume it and at competitive prices. The Company\u2019s subscription television business has experienced higher programming costs due to, among other things, (1) increases imposed by sports, entertainment and other programmers when offering new programming or upon the expiration of existing contracts; (2) incremental investment requirements for new services; and (3) increased ability for other digital media companies, including streaming services, to obtain rights to popular or exclusive content. Certain of the Company\u2019s operating businesses, including its subscription television business, are party to contracts for a substantial amount of sports, entertainment and other programming rights with various third parties, including professional sports leagues and teams, television and motion picture producers and other content providers. These contracts have varying durations and renewal terms, and as they expire, renewals on favorable terms may be difficult to obtain. In the course of renegotiating these and other agreements as they expire, the financial and other terms, such as exclusivity and the scope of rights, under these contracts may change unfavorably as a result of various reasons beyond the Company\u2019s control such as changes in the Company\u2019s ability to secure these rights. In order to retain or extend such rights, the Company may be required to increase its offer to amounts that substantially exceed the existing contract costs, and third parties may outbid the Company for those rights and/or for any new programming offerings. In addition, as other content providers develop their own competing services, they may be unwilling to provide the Company with access to certain content. For example, in connection with the launch of Disney+, Disney removed its Disney-branded movie channel and kids channels, as well as certain non-branded content, from Foxtel. Consolidation among content providers may result in additional content becoming unavailable to the Company and/or increase the scale and leverage of those providers. Content may also become unavailable due to factors impacting the ability of the Company\u2019s content providers to produce and distribute programming, such as prolonged work stoppages, pandemics and other health crises or other events. The loss of rights, any adverse changes to existing rights, including loss of exclusivity or broader digital rights, or the unavailability of content for any other reason, may adversely affect the Company\u2019s ability to differentiate its services and the breadth or quality of the Company\u2019s content offerings, including the extent of the sports coverage and entertainment programming offered by the Company, and lead to customer or audience dissatisfaction or loss, which could, in turn, adversely affect its revenues. In addition, the Company\u2019s business, results of operations and financial condition could be adversely affected if upon renewal, escalations in programming rights costs are unmatched by increases in subscriber and carriage fees and advertising rates. The long-term nature of some of the Company\u2019s content commitments may also limit its flexibility in planning for, or reacting to changes in, business and economic conditions and the market segments in which it operates.\nThe Company Has Made and May Continue to Make Strategic Acquisitions, Investments and Divestitures That Introduce Significant Risks and Uncertainties. \nIn order to position its business to take advantage of growth opportunities, the Company has made and may continue to make strategic acquisitions and investments that involve significant risks and uncertainties. These risks and uncertainties include, among others: (1) the difficulty in integrating newly acquired businesses, operations and systems, such as financial reporting, internal controls, compliance and information technology (including cybersecurity and data protection controls), in an efficient and effective manner, (2) the challenges in achieving strategic objectives, cost savings and other anticipated benefits, (3) the potential loss of key employees, customers and suppliers, (4) with respect to investments, risks associated with the inability to control the operations of the business, (5) the risk of diverting the attention of the Company\u2019s senior management from the Company\u2019s operations, (6) in the case of foreign acquisitions and investments, the impact of specific economic, tax, currency, political, legal and regulatory risks associated with the relevant countries, (7) expenses and liabilities, both known and unknown, associated with the acquired businesses or investments, (8) in some cases, increased regulation and (9) in some cases, lower liquidity as a result of the use of cash or incurrence of debt to fund such acquisition or investment. If any acquired business or investment fails to operate as anticipated or an acquired business cannot be successfully integrated with the Company\u2019s existing businesses, the Company\u2019s business, results of operations, financial condition, brands and reputation could be adversely affected, and the Company may be required to record non-cash impairment charges for the write-down of certain acquired assets and investments. The Company\u2019s ability to continue to make acquisitions depends on the availability of suitable candidates at acceptable prices and whether restrictions are imposed by governmental bodies or regulations, and competition for certain types of acquisitions is significant.\nThe Company has also divested and may in the future divest certain assets or businesses that no longer fit with its strategic direction or growth targets or for other business reasons. Divestitures involve significant risks and uncertainties that could adversely affect the Company\u2019s business, results of operations and financial condition. These include, among others, the inability \n20\nTable of Contents\nto find potential buyers on favorable terms, disruption to its business and/or diversion of management attention from other business concerns, loss of key employees, renegotiation or termination of key business relationships, difficulties in separating the operations of the divested business, retention of certain liabilities related to the divested business and indemnification or other post-closing claims. \nThe Company\u2019s Businesses Depend on a Single or Limited Number of Suppliers for Certain Key Products and Services,\n \nand Any Reduction or Interruption in the Supply of These Products and Services or a Significant Increase in Price Could Have an Adverse Effect on the Company\u2019s Business, Results of Operations and Financial Condition. \nThe Company\u2019s businesses depend on a single or limited number of third party suppliers for certain key products and services. For example, in its pay-TV business, the Company depends on Optus to provide all of its satellite transponder capacity, Akamai and Amazon Web Services (AWS) for content delivery networks (CDN) and hosting services and CommScope to supply its set-top boxes, and the Company\u2019s reliance on these suppliers has increased as it migrates broadcast subscribers to satellite or internet delivery. If the Company\u2019s relationship with key suppliers deteriorates or any of these suppliers breaches or terminates its agreement with the Company or otherwise fails to perform its obligations in a timely manner, experiences operating or financial difficulties, is unable to meet demand due to component shortages and other supply chain issues, labor shortages, insufficient capacity or otherwise, significantly increases the amount the Company pays for necessary products or services or ceases production or provision of any necessary product or service, the Company\u2019s business, results of operations and financial condition may be adversely affected.\nIn addition, Telstra is currently the exclusive provider of wholesale fixed voice and broadband services for the Company\u2019s pay-TV business and the largest reseller of its satellite products. Any disruption in the supply of those services or a decline in Telstra\u2019s business could result in disruptions to the supply of, and/or reduce the number of subscribers for, the Company\u2019s products and services, which could, in turn, adversely affect its business, results of operations and financial condition.\nWhile the Company will seek alternative sources for these products and services where possible and/or permissible under applicable agreements, it may not be able to develop these alternative sources quickly and cost-effectively or at all, which could impair its ability to timely deliver its products and services or operate its business.\nAny Significant Increase in the Cost to Print and Distribute the Company\u2019s Books and Newspapers or Disruption in the Company\u2019s Supply Chain or Printing and Distribution Channels may Adversely Affect the Company\u2019s Business, Results of Operations and Financial Condition. \nPrinting and distribution costs, including the cost of paper, are a significant expense for the Company\u2019s book and newspaper publishing units. The price of paper has historically been volatile, and the Company experienced significant increases in paper prices in fiscal 2023 due to various factors, including continued increases in supplier operating expenses, inflationary pressures and other factors. While the Company anticipates these increases will moderate, it expects prices to remain elevated. The Company also relies on third-party suppliers for deliveries of paper and on third-party printing and distribution partners to print and distribute its books and newspapers. During fiscal 2023, inflationary pressures, labor shortages, higher transportation costs and delays and other supply chain issues continued to increase the cost to print and distribute the Company\u2019s books and newspapers, particularly manufacturing and freight costs at its book publishing business. These and other factors such as financial pressures, industry trends or economics (including the \nclosure or conversion of newsprint mills)\n, labor unrest, changes in laws and regulations, natural disasters, extreme weather (which may occur with increasing frequency and intensity), pandemics and other widespread health crises or other circumstances affecting the Company\u2019s paper and other third-party suppliers and print and distribution partners could continue to increase the Company\u2019s printing and distribution costs and could lead to disruptions, reduced operations or consolidations within the Company\u2019s printing and distribution supply chains and/or of third-party print sites and/or distribution routes. The Company may not be able to develop alternative providers quickly and cost-effectively, which could disrupt printing and distribution operations or increase the cost of printing and distributing the Company\u2019s books and newspapers. Any significant increase in these costs, undersupply or significant disruptions in the supply chain or the Company\u2019s printing and distribution channels could have an adverse effect on the Company\u2019s business, results of operations and financial condition.\nThe Company\u2019s Reputation, Credibility and Brands are Key Assets and Competitive Advantages and its Business and Results of Operations may be Affected by How the Company is Perceived. \nThe Company\u2019s products and services are distributed under some of the world\u2019s most recognizable and respected brands, including \nThe Wall Street Journal \nand premier news brands in Australia and the U.K., Dow Jones, HarperCollins Publishers, \n21\nTable of Contents\nFoxtel, realestate.com.au, Realtor.com\n\u00ae\n, OPIS and many others, and the Company believes its success depends on its continued ability to maintain and enhance these brands. The Company\u2019s brands, credibility and reputation could be damaged by incidents that erode consumer and customer trust or a perception that the Company\u2019s products and services, including its journalism, programming, real estate information, benchmark and pricing services and other data and information, are low quality, unreliable or fail to maintain independence and integrity. Significant negative claims or publicity regarding the Company\u2019s products and services, operations, customer service, management, employees, advertisers and other business partners, business decisions, social responsibility and culture may damage its brands or reputation, even if such claims are untrue. The Company\u2019s brands and reputation may also be impacted by, or associated with, its public commitments to various corporate ESG initiatives, its progress towards achieving these goals, as well as positions the Company, its businesses or its publications take or do not take on social issues. Changes in methodologies for reporting ESG data, improvements in third-party data, changes in the Company\u2019s operations or other circumstances, the evolution of the Company\u2019s processes for reporting ESG data and disparate and evolving standards for identifying, measuring, and reporting ESG metrics, including disclosures that may be required by the SEC, European and other regulators, could result in revisions to the Company\u2019s current goals, reported progress in achieving such goals or ability to achieve such goals in the future. The Company\u2019s disclosures on these matters and any updates or revisions to prior disclosures, any changes to or failure to achieve its commitments or any unpopular positions could harm the Company\u2019s brands and reputation. To the extent the Company\u2019s brands, reputation and credibility are damaged, the Company\u2019s ability to attract and retain consumers, customers, advertisers and employees, as well as the Company\u2019s sales, business opportunities and profitability, could be adversely affected, which could in turn have an adverse impact on its business and results of operations.\nThe Company\u2019s International Operations Expose it to Additional Risks that Could Adversely Affect its Business, Operating Results and Financial Condition. \nIn its fiscal year ended June 30, 2023, approximately 62% of the Company\u2019s revenues were derived outside the U.S., and the Company is focused on expanding its international operations. There are risks inherent in doing business internationally and other risks may be heightened, including (1) issues related to staffing and managing international operations, including maintaining the health and safety of its personnel around the world; (2) economic uncertainties and volatility in local markets, including as a result of inflationary pressures or a general economic slowdown or recession, and political or social instability; (3) the impact of catastrophic events in relevant jurisdictions such as natural disasters, extreme weather (which may occur with increasing frequency and intensity), pandemics (including COVID-19) and other widespread health crises, acts of terrorism or war (including the war in Ukraine); (4) compliance with international laws, regulations and policies and potential adverse changes thereto, including foreign tax regimes, foreign ownership restrictions, restrictions on repatriation of funds and foreign currency exchange, data privacy requirements such as the GDPR, foreign intellectual property laws and local labor and employment laws and regulations; (5) compliance with the Foreign Corrupt Practices Act, the U.K. Bribery Act and other anti-corruption laws and regulations, export controls and economic sanctions; and (6) regulatory or governmental action against the Company\u2019s products, services and personnel such as censorship or other restrictions on access, detention or expulsion of journalists or other employees and other retaliatory actions, including as a result of geopolitical tensions and conflicts. Events or developments related to these and other risks associated with the Company\u2019s international operations could result in reputational harm and have an adverse impact on the Company\u2019s business, results of operations, financial condition and prospects. Challenges associated with operating globally may increase as the Company continues to expand into geographic areas that it believes represent the highest growth opportunities. \nThe Company is Party to Agreements with Third Parties Relating to Certain of its Businesses That Contain Operational and Management Restrictions and/or Other Rights That, Depending on the Circumstances, May Not be in the Best Interest of the Company. \nThe Company is party to agreements with third parties relating to certain of its businesses that restrict the Company\u2019s ability to take specified actions and contain other rights that, depending on the circumstances, may not be in the best interest of the Company. For example, the Company and Telstra are parties to a Shareholders\u2019 Agreement with respect to Foxtel containing certain minority protections for Telstra, including standard governance provisions, as well as transfer and exit rights. The Shareholders\u2019 Agreement provides Telstra with the right to appoint two directors to the Board of Foxtel, as well as Board and shareholder-level veto rights over certain non-ordinary course and/or material corporate actions that may prevent Foxtel from taking actions that are in the interests of the Company. The Shareholders\u2019 Agreement also provides for (1) certain transfer restrictions, which could adversely affect the Company\u2019s ability to effect such transfers and/or the prices at which those transfers may occur, and (2) exit arrangements, which could, in certain circumstances, force the Company to sell its interest, subject to rights of first and, in some cases, last refusals. \n22\nTable of Contents\nIn addition, Move, the Company\u2019s digital real estate services business in the U.S., operates the Realtor.com\n\u00ae\n website under an agreement with NAR that is perpetual in duration. However, NAR may terminate the operating agreement for certain contractually-specified reasons upon expiration of any applicable cure periods. If the operating agreement with NAR is terminated, the NAR License would also terminate, and Move would be required to transfer a copy of the software that operates the Realtor.com\n\u00ae\n website to NAR and provide NAR with copies of its agreements with advertisers and data content providers. NAR would then be able to operate a Realtor.com\n\u00ae\n website, either by itself or with another third party. \nDamage, Failure or Destruction of Satellites and Transmitter Facilities that the Company\u2019s Pay-TV Business Depends Upon to Distribute its Programming Could Adversely Affect the Company\u2019s Business, Results of Operations and Financial Condition. \nThe Company\u2019s pay-TV business uses satellite systems to transmit its programming to its subscribers and/or authorized sublicensees. The Company\u2019s distribution facilities include uplinks, communications satellites and downlinks, and the Company also uses studio and transmitter facilities. Transmissions may be disrupted or degraded as a result of natural disasters, extreme weather (which may occur with increasing frequency and intensity), power outages, terrorist attacks, cyberattacks or other similar events, that damage or destroy on-ground uplinks or downlinks or studio and transmitter facilities, or as a result of damage to a satellite. Satellites are subject to significant operational and environmental risks while in orbit, including anomalies resulting from various factors such as manufacturing defects and problems with power or control systems, as well as environmental hazards such as meteoroid events, electrostatic storms and collisions with space debris. These events may result in the loss of one or more transponders on a satellite or the entire satellite and/or reduce the useful life of the satellite, which could, in turn, lead to a disruption or loss of video services to the Company\u2019s customers. The Company does not carry commercial insurance for business disruptions or losses resulting from the foregoing events as it believes the cost of insurance premiums is uneconomical relative to the risk. Instead, the Company seeks to mitigate this risk through the maintenance of backup satellite capacity and other contingency plans. However, these steps may not be sufficient, and if the Company is unable to secure alternate distribution, studio and/or transmission facilities in a timely manner, any such disruption or loss could have an adverse effect on the Company\u2019s business, results of operations and financial condition. \nAttracting, Retaining and Motivating Highly Qualified People is Difficult and Costly, and the Failure to Do So Could Harm the Company\u2019s Business.\nThe Company\u2019s businesses depend upon the continued efforts, abilities and expertise of its corporate and divisional executive teams and other highly qualified employees who possess substantial business, technical and operational knowledge. The market for highly skilled people, including for technology-related, product development, data science, marketing and sales roles, is very competitive, and the Company cannot ensure that it will be successful in retaining and motivating these employees or hiring and training suitable additions or replacements without significant costs or delays, particularly as it continues to focus on its digital products and services. These risks have been, and may in the future be, exacerbated by labor constraints and inflationary pressures on employee wages and benefits. Evolving workplace and workforce dynamics, including the increased availability of flexible, hybrid and work-from-home arrangements, may also make it more difficult to hire, retain and motivate qualified employees if the Company\u2019s needs are not aligned with worker demands or as a result of workplace culture challenges due to remote work. \nReductions in force that the Company has conducted from time to time in order to optimize its organizational structure and reduce costs, including the headcount reduction announced in February 2023, \nmay further adversely impact the Company\u2019s ability to attract, retain and motivate employees, and there can be no assurance that the expected benefits of these actions will be realized, including the anticipated cost savings\n. \nThe loss of key employees, the failure to attract, retain and motivate other highly qualified people or higher costs associated with these efforts, could harm the Company\u2019s business, including the ability to execute its business strategy, and negatively impact its results of operations. \nThe Company is Subject to Payment Processing Risk Which Could Lead to Adverse Effects on the Company\u2019s Business and Results of Operations. \nThe Company\u2019s customers pay for its products and services using a variety of different payment methods, including credit and debit cards, prepaid cards, direct debit, online wallets and through direct carrier and partner billing. The Company relies on internal and third party systems to process payment. Acceptance and processing of these payment methods are subject to certain rules and regulations and require payment of interchange and other fees. To the extent there are increases in payment processing fees, material changes in the payment ecosystem, delays in receiving payments from payment processors, any failures to comply with, or changes to, rules or regulations concerning payments, loss of payment or billing partners and/or disruptions or failures in, or fraudulent use of or access to, payment processing systems or payment products, the Company\u2019s results of operations could be adversely impacted and it could suffer reputational harm. Furthermore, if the Company is unable to maintain its fraud and chargeback rates at acceptable levels, card networks may impose fines and its card approval rate may be impacted. The \n23\nTable of Contents\ntermination of the Company\u2019s ability to process payments on any major payment method would adversely affect its business and results of operations. \nLabor Disputes May Have an Adverse Effect on the Company\u2019s Business. \nIn some of the Company\u2019s businesses, it engages the services of employees who are subject to collective bargaining agreements. The Company has experienced, and may in the future experience, labor unrest, including strikes or work slowdowns, in connection with the negotiation of collective bargaining agreements. Such actions, as well as higher costs in connection with these collective bargaining agreements or a significant labor dispute, could cause delays in production or other business interruptions or reduce profit margins and have an adverse effect on the Company\u2019s business and reputation, and these risks may be exacerbated by labor constraints and inflationary pressures on employee wages and benefits.\nRisks Related to Information Technology, Cybersecurity and Data Protection\nA Breach, Failure, Misuse of or other Incident Involving the Company\u2019s or its Third Party Providers\u2019 Network and Information Systems or Other Technologies Could Cause a Disruption of Services or Loss, Corruption, Improper Access to or Disclosure of Personal Data, Business Information or Other Confidential Information, Resulting in Increased Costs, Loss of Revenue, Reputational Damage or Other Harm to the Company\u2019s Business.\n \nNetwork and information systems and other technologies, including those related to the Company\u2019s CDNs and network management, are important to its business activities and contain the Company\u2019s proprietary, confidential and sensitive business information, including personal data of its customers and personnel. The Company also relies on third party providers for certain software, technology and \u201ccloud-based\u201d systems and services, including AWS, that support a variety of critical business operations. Events affecting the Company\u2019s systems or other technologies, or those of third parties upon which the Company\u2019s business relies, such as computer compromises, cyber threats and attacks, computer viruses or other destructive or disruptive software, process breakdowns, ransomware and denial of service attacks, malicious social engineering or other malicious activities by individuals (including employees) or state-sponsored or other groups, or any combination of the foregoing, as well as power, telecommunications and internet outages, equipment failure, fire, natural disasters, extreme weather (which may occur with increasing frequency and intensity), terrorist activities, war, human or technological error or malfeasance that may affect such systems, could result in disruption of the Company\u2019s services and business and/or loss, corruption, improper access to or disclosure of personal data, business information, including intellectual property, or other confidential information. Unauthorized parties may also fraudulently induce the Company\u2019s employees or other agents to disclose sensitive or confidential information in order to gain access to the Company\u2019s systems, facilities or data, or those of third parties with whom the Company does business. In addition, any \u201cbugs,\u201d errors or other defects in, or the improper implementation of, hardware or software applications the Company develops or procures from third parties could unexpectedly disrupt the Company\u2019s network and information systems or other technologies or compromise information security. System redundancy may be ineffective or inadequate, and the Company\u2019s disaster recovery and business continuity planning may not be sufficient to address all potential cyber events or other disruptions.\nIn recent years, there has been a significant rise in the number of cyberattacks on companies\u2019 network and information systems, and such attacks are becoming increasingly more sophisticated, targeted and difficult to detect and prevent against. Factors such as (1) geopolitical tensions or conflicts, including Russia\u2019s invasion of Ukraine, (2) greater levels of remote access to Company systems by employees and (3) access to Company networks, products and services by Company personnel, customers and other third parties using personal devices and apps or tools available on such devices, including AI tools, that are outside the Company\u2019s control may further heighten cybersecurity risks, including the risk of cybersecurity attacks and the unintended or unauthorized disclosure of personal data, business information or other confidential information. Acquisitions or other transactions could also expose the Company to cybersecurity risks and vulnerabilities, as the Company\u2019s systems could be negatively affected by vulnerabilities present in acquired or integrated entities\u2019 systems and technologies. Consequently, the risks associated with cyberattacks continue to increase, particularly as the Company\u2019s digital businesses expand. The Company has experienced, and expects to continue to be subject to, cybersecurity threats and activity,\n none of which have been material to the Company to date, individually or in the aggregate\n. However, there is no assurance that cybersecurity threats or activity will not have a material adverse effect in the future. Countermeasures that the Company and its vendors have developed and implemented to protect personal data, business information, including intellectual property, and other confidential information, to prevent or mitigate system disruption, data loss or corruption, and to prevent or detect security breaches may not be successful in preventing or mitigating these events, particularly given that techniques used to access, disable or degrade service, or sabotage systems have continued to become more sophisticated and change frequently. Additionally, it may be difficult to detect and defend against certain threats and vulnerabilities that can persist over extended periods of time. Any events affecting the Company\u2019s network and information systems or other technologies could require the Company to expend significant resources to remedy such event. \n24\nTable of Contents\nMoreover, the development and maintenance of these measures is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. While the Company maintains cyber risk insurance, this insurance may not be sufficient to cover all losses from any breaches of the Company\u2019s systems and does not extend to reputational damage or costs incurred to improve or strengthen systems against future threats or activity. Cyber risk insurance has also become more difficult and expensive to obtain, and the Company cannot be certain that its current level of insurance or the breadth of its terms and conditions will continue to be available on economically reasonable terms.\nA significant failure, compromise, breach or interruption of the Company\u2019s systems or other technologies, or those of third parties upon which its business relies, could result in a disruption of its operations, including degradation or disruption of service, equipment and data damage, customer, audience or advertiser dissatisfaction, damage to its reputation or brands, regulatory investigations and enforcement actions, lawsuits, fines, penalties and other payments, remediation costs, a loss of or inability to attract new customers, audience, advertisers or business partners or loss of revenues and other financial losses. If any such failure, compromise, breach, interruption or similar event results in improper access to or disclosure of information maintained in the Company\u2019s information systems and networks or those of its vendors, including financial, personal and credit card data, as well as confidential and proprietary information relating to personnel, customers, vendors and the Company\u2019s business, including its intellectual property, the Company could also be subject to liability under relevant contractual obligations and laws and regulations protecting personal data and privacy, as well as private individual or class action lawsuits or regulatory enforcement actions. The Company may also be required to notify certain governmental agencies and/or regulators (including the appropriate EU supervisory authority) about any actual or perceived data security breach, as well as the individuals who are affected by any such breach, within strict time periods and at significant cost. In addition, media or other reports of actual or perceived security vulnerabilities in the Company\u2019s systems or those of third parties upon which its business relies, even if nothing has actually been attempted or occurred, could also adversely impact the Company\u2019s brand and reputation and materially affect its business, results of operations and financial condition.\nFailure to Comply with Complex and Evolving Laws and Regulations, Industry Standards and Contractual Obligations Regarding Privacy, Data Use and Data Protection Could Have an Adverse Effect on the Company\u2019s Business, Financial Condition and Results of Operations.\nThe Company\u2019s business activities are subject to various and increasing laws and regulations in the United States and internationally governing the collection, use, sharing, protection and retention of personal data, which have implications for how such data is managed. Examples of such laws include the European Union\u2019s GDPR and the UK DPA and UK GDPR, each of which expands the regulation of personal data processing throughout the European Union and the U.K., respectively, and significantly increases maximum penalties for non-compliance, as well as a number of U.S. state data privacy laws, which establish certain transparency rules, put greater restrictions on the collection, use and sharing of personal information of their respective state residents and provide such residents with certain rights regarding their personal information. See \u201cGovernmental Regulation\u2014Data Privacy and Security Regulation\u201d for more information. These laws and regulations are increasingly complex and continue to evolve, and substantial uncertainty surrounds their scope and application. Moreover, data privacy and security laws may potentially conflict from jurisdiction to jurisdiction. Complying with these laws and regulations could be costly and resource-intensive, require the Company to change its business practices, or limit or restrict aspects of the Company\u2019s business in a manner adverse to its business operations, including by inhibiting or preventing the collection of information that enables it to target and measure the effectiveness of advertising. The Company\u2019s failure to comply, even if inadvertent or in good faith, or as a result of a compromise, breach or interruption of the Company\u2019s systems by a third party, could result in exposure to enforcement by U.S. federal, state or local or foreign governments or private parties, notification and remediation costs, loss of customers, as well as significant negative publicity and reputational damage. The Company may also be subject to liability under relevant contractual obligations and may be required to expend significant resources to defend, remedy or address any claims. \nRisks Related to Financial Results and Position\nThe Indebtedness of the Company and Certain of its Subsidiaries may Affect their Ability to Operate their Businesses, and may have a Material Adverse Effect on the Company\u2019s Financial Condition and Results of Operations. The Company and its Subsidiaries may be able to Incur Substantially More Debt, which Could Further Exacerbate the Risks Described Herein. \nAs of June 30, 2023, News Corp had $2.8 billion of total outstanding indebtedness (excluding related party debt), including $636\u00a0million and $211\u00a0million, respectively, of indebtedness held by its non-wholly owned subsidiaries, Foxtel and REA Group (collectively with News Corp, the \u201cDebtors\u201d). The indebtedness of the Debtors and the terms of their financing arrangements could: (1) limit their ability to obtain additional financing in the future; (2) make it more difficult for them to satisfy their obligations under the terms of their financing arrangements, including the provisions of any relevant debt instruments, credit \n25\nTable of Contents\nagreements, indentures and similar or associated documents (collectively, the \u201cDebt Documents\u201d); (3) limit their ability to refinance their indebtedness on terms acceptable to them or at all; (4) limit their flexibility to plan for and adjust to changing business and market conditions in the industries in which they operate and increase their vulnerability to general adverse economic and industry conditions; (5) require them to dedicate a substantial portion of their cash flow to make interest and principal payments on their debt, thereby limiting the availability of their cash flow to fund future investments, capital expenditures, working capital, business activities, acquisitions and other general corporate requirements; (6) subject them to higher levels of indebtedness than their competitors, which may cause a competitive disadvantage and may reduce their flexibility in responding to increased competition; and (7) in the case of the Company\u2019s fixed rate indebtedness, which includes prepayment penalties, diminish the Company\u2019s ability to benefit from any future decrease in interest rates.\nThe ability of the Debtors to satisfy their debt service obligations (including any repurchase obligations upon a change in control) and to fund other cash needs will depend on the Debtors\u2019 future performance and other factors such as changes in interest rates (which have been increasing) affecting the Debtors\u2019 variable rate indebtedness. Although the Company hedges a portion of this interest rate exposure, there can be no assurance that it will be able to continue to do so at a reasonable cost or at all, or that there will not be a default by any of the counterparties. If the Debtors do not generate enough cash to pay their debt service obligations and fund their other cash requirements, they may be required to restructure or refinance all or part of their existing debt, sell assets, borrow more money or raise additional equity, any or all of which may not be available on reasonable terms or at all. The Company and its subsidiaries, including the Debtors, may also be able to incur substantial additional indebtedness in the future, which could exacerbate the effects described above and elsewhere in this \u201cItem 1A. Risk Factors.\u201d \nIn addition, the Debtors\u2019 outstanding Debt Documents contain financial and operating covenants that may limit their operational and financial flexibility. These covenants include compliance with, or maintenance of, certain financial tests and ratios and may, depending on the applicable Debtor and subject to certain exceptions, restrict or prohibit such Debtor and/or its subsidiaries from, among other things, incurring or guaranteeing debt, undertaking certain transactions (including certain investments and acquisitions), disposing of certain properties or assets (including subsidiary stock), merging or consolidating with any other person, making financial accommodation available, entering into certain other financing arrangements, creating or permitting certain liens, engaging in transactions with affiliates, making repayments of certain other loans, undergoing fundamental business changes and/or paying dividends or making other restricted payments and investments. Various risks, uncertainties and events beyond the Debtors\u2019 control could affect their ability to comply with these restrictions and covenants. In the event any of these covenants are breached and such breach results in a default under any Debt Documents, the lenders or noteholders, as applicable, may accelerate the maturity of the indebtedness under the applicable Debt Documents, which could result in a cross-default under other outstanding Debt Documents and could have a material adverse impact on the Company\u2019s business, results of operations and financial condition. \nFluctuations in Foreign Currency Exchange Rates Could Have an Adverse Effect on the Company\u2019s Results of Operations. \nThe Company is primarily exposed to foreign currency exchange rate risk with respect to its consolidated debt that is denominated in a currency other than the functional currency of the operations whose cash flows support the ability to repay or refinance such debt. As of June 30, 2023, the Foxtel operating subsidiaries, whose functional currency is Australian dollars, had approximately $149 million aggregate principal amount of outstanding indebtedness denominated in U.S. dollars. The Company\u2019s policy is to evaluate hedging against the risk of foreign currency exchange rate movements with respect to this exposure to reduce volatility and enhance predictability where commercially reasonable. However, there can be no assurance that it will be able to continue to do so at a reasonable cost or at all, or that there will not be a default by any of the counterparties to those arrangements.\nIn addition, the Company is exposed to foreign currency translation risk because it has significant operations in a number of foreign jurisdictions and certain of its operations are conducted in currencies other than the Company\u2019s reporting currency, primarily the Australian dollar and the British pound sterling. Since the Company\u2019s financial statements are denominated in U.S. dollars, changes in foreign currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, a currency translation impact on the Company\u2019s earnings when the results of those operations that are reported in foreign currencies are translated into U.S. dollars for inclusion in the Company\u2019s consolidated financial statements, which could, in turn, have an adverse effect on its reported results of operations in a given period or in specific markets.\nThe Company Could Suffer Losses Due to Asset Impairment and Restructuring Charges. \nAs a result of changes in the Company\u2019s industry and market conditions, the Company has recognized, and may in the future recognize, impairment charges for write-downs of goodwill, intangible assets, investments and other long-lived assets, as well as restructuring charges relating to the reorganization of its businesses, which negatively impact the Company\u2019s results of operations \n26\nTable of Contents\nand, in the case of cash restructuring charges, its financial condition. See Notes 5, 6, 7 and 8 to the Financial Statements for more information. For instance, any significant shortfall, now or in the future, in advertising revenue or subscribers, the expected popularity of the content for which the Company has acquired rights and/or consumer acceptance of its products could lead to a downward revision in the fair value of certain reporting units. Any downward revisions in the fair value of a reporting unit, indefinite-lived intangible assets, investments or other long-lived assets could result in impairments for which non-cash charges would be required, and any such charge could be material to the Company\u2019s reported results of operations. \nFor example, in fiscal 2023, the Company recognized non-cash impairment charges of \n$106 million\n, primarily related to write-downs of REA Group\u2019s investment in PropertyGuru and certain tradenames and licenses. \nThe Company may also incur restructuring charges if it is required to realign its resources in response to significant shortfalls in revenue or other adverse trends. During fiscal 2023, the Company incurred cash restructuring charges of approximately $80 million in connection with the\n headcount reduction announced in February 2023\n in response to macroeconomic challenges facing many of its businesses. Any impairments and restructuring charges may also negatively impact the Company\u2019s taxes, including its ability to realize its deferred tax assets and deduct certain interest costs.\n \nThe Company Could Be Subject to Significant Additional Tax Liabilities, which Could Adversely Affect its Operating Results and Financial Condition. \nThe Company is subject to taxation in U.S. federal, state and local jurisdictions and various non-U.S. jurisdictions, including Australia and the U.K. The Company\u2019s effective tax rate is impacted by the tax laws, regulations, practices and interpretations in the jurisdictions in which it operates and may fluctuate significantly from period to period depending on, among other things, the geographic mix of the Company\u2019s profits and losses, changes in tax laws and regulations or their application and interpretation, the outcome of tax audits and changes in valuation allowances associated with the Company\u2019s deferred tax assets. Changes to enacted tax laws could have an adverse impact on the Company\u2019s future tax rate and increase its tax provision. For example, the recently enacted Inflation Reduction Act (IRA) imposed, among other things, a 15% minimum tax on corporations with over $1 billion of financial statement income and a 1% excise tax on corporate stock repurchases. The Company is not expected to be subject to the corporate minimum tax and it will be subject to the 1% excise tax on stock repurchases, which is not expected to have a material impact on the Company\u2019s results of operations. The Company may be required to record additional valuation allowances if, among other things, changes in tax laws or adverse economic conditions negatively impact the Company\u2019s ability to realize its deferred tax assets. Evaluating and estimating the Company\u2019s tax provision, current and deferred tax assets and liabilities and other tax accruals requires significant management judgment, and there are often transactions for which the ultimate tax determination is uncertain. \nThe Company\u2019s tax returns are routinely audited by various tax authorities. Tax authorities may not agree with the treatment of items reported in the Company\u2019s tax returns or positions taken by the Company, and as a result, tax-related settlements or litigation may occur, resulting in additional income tax liabilities against the Company. Although the Company believes it has appropriately accrued for the expected outcome of tax reviews and examinations and any related litigation, the final outcomes of these matters could differ materially from the amounts recorded in the Financial Statements. As a result, the Company may be required to recognize additional charges in its Statements of Operations and pay significant additional amounts with respect to current or prior periods, or its taxes in the future could increase, which could adversely affect its operating results and financial condition. \nThe Organization for Economic Cooperation and Development (OECD) continues to develop detailed rules to assist in the implementation of landmark reforms to the international tax system, as agreed in October 2021 by 136 members of the OECD/G20 Inclusive Framework. These rules are intended to address the tax challenges arising from globalization and the digitalization of the economy, including by (i) requiring multinational enterprises whose revenues exceed 20 billion Euros and have a profit-to-revenue ratio of more than 10% to allocate profits and pay taxes to market jurisdictions and (ii) establishing a minimum 15% tax rate for multinational enterprises. In December 2022, EU member states agreed to adopt the OECD\u2019s minimum tax rules, which are expected to begin going into effect in tax years beginning on January 1, 2024 or later. Several other countries, including the UK, are also considering changes to their tax law to implement the OECD\u2019s minimum tax proposal. The application of the rules continues to evolve, and its outcome may alter aspects of how the Company\u2019s tax obligations are determined in countries in which it does business. While several jurisdictions have rolled back their digital services taxes, certain jurisdictions still have separately enacted new digital services taxes. Those taxes have had limited impact on the Company\u2019s overall tax obligations, but the Company continues to monitor them.\n27\nTable of Contents\nRisks Related to Legal and Regulatory Matters\n \nThe Company\u2019s Business Could Be Adversely Impacted by Changes in Law, Governmental Policy and Regulation. \nVarious aspects of the Company\u2019s activities are subject to regulation in numerous jurisdictions around the world, and the introduction of new laws and regulations in countries where the Company\u2019s products and services are produced or distributed, and changes in existing laws and regulations in those countries or the enforcement thereof, have increased its compliance risk and could have a negative impact on its interests. The Company\u2019s Australian operating businesses may be adversely affected by changes in government policy, regulation or legislation, or the application or enforcement thereof, applying to companies in the Australian media industry or to Australian companies in general. See \u201cGovernmental Regulation\u2014Australian Media Regulation\u201d for more information. Benchmarks provided by the Company\u2019s OPIS business may be subject to regulatory frameworks in the EU and other jurisdictions. See \u201cGovernmental Regulation\u2014Benchmark Regulation\u201d for more information. The Company\u2019s newspaper publishing businesses in the U.K. are subject to greater regulation and oversight as a result of the implementation of recommendations of the Leveson inquiry into the U.K. press, and the Company\u2019s radio stations in the U.K. and Ireland and TalkTV are subject to governmental regulation by Ofcom. See \u201cGovernmental Regulation\u2014U.K. Press Regulation\u201d and \u201c\u2014U.K. Radio and Television Broadcasting Regulation,\u201d respectively, for more information. In addition, increased focus on ESG issues among governmental bodies and various stakeholders has resulted, and may continue to result, in the adoption of new laws and regulations, reporting requirements and policies in the U.S. and internationally, including more specific, target-driven frameworks and prescriptive reporting of ESG metrics, practices and targets. Laws and regulations may vary between local, state, federal and international jurisdictions and may sometimes conflict, and the enforcement of those laws and regulations may be inconsistent and unpredictable. Many of these laws and regulations, particularly those relating to ESG matters, are complex, technical and evolving rapidly. The Company may incur substantial costs or be required to change its business practices, implement new reporting processes and devote substantial management attention in order to comply with applicable laws and regulations and could incur substantial penalties or other liabilities and reputational damage in the event of any failure to comply.\nAdverse Results from Litigation or Other Proceedings Could Impact the Company\u2019s Business Practices and Operating Results. \nFrom time to time, the Company is party to litigation, as well as to regulatory and other proceedings with governmental authorities and administrative agencies, including with respect to antitrust, tax, data privacy and security, intellectual property, employment and other matters. See Note 16 to the Financial Statements for a discussion of certain matters. The outcome of these matters and other litigation and proceedings is subject to significant uncertainty, and it is possible that an adverse resolution of one or more such proceedings could result in reputational harm and/or significant monetary damages, injunctive relief or settlement costs that could adversely affect the Company\u2019s results of operations or financial condition as well as the Company\u2019s ability to conduct its business as it is presently being conducted. In addition, regardless of merit or outcome, such proceedings can have an adverse impact on the Company as a result of legal costs, diversion of management and other personnel and other factors. While the Company maintains insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as caps on amounts recoverable. Even if the Company believes a claim is covered by insurance, insurers may dispute its entitlement to recovery for a variety of potential reasons, which may affect the timing and, if they prevail, the amount of the Company\u2019s recovery.\nRisks Related to Intellectual Property\nUnauthorized Use of the Company\u2019s Content, including Digital Piracy and Signal Theft, may Decrease Revenue and Adversely Affect the Company\u2019s Business and Profitability. \nThe Company\u2019s success depends in part on its ability to maintain, enforce and monetize the intellectual property rights in its original and acquired content, and unauthorized use of its brands, programming, digital journalism and other content, books and other intellectual property affects the value of its content. Developments in technology, including the wide availability of higher internet bandwidth and reduced storage costs, increase the threat of unauthorized use such as content piracy by making it easier to stream, duplicate and widely distribute pirated material, including from less-regulated countries into the Company\u2019s primary markets. The Company seeks to limit the threat of content piracy by, among other means, preventing unauthorized access to its content through the use of programming content encryption, signal encryption and other security access devices and digital rights management software, as well as by obtaining site blocking orders against pirate streaming and torrent sites and a variety of other actions. However, piracy is difficult to monitor and prevent and these efforts may be costly and are not always successful, particularly as infringers continue to develop tools that undermine security features and enable them to disguise their identities online. Recent advances and continued rapid development in AI may also lead to unauthorized exploitation of the Company\u2019s \n28\nTable of Contents\njournalism and other content, both in the training of new models as well as output produced by generative AI tools. The proliferation of unauthorized use of the Company\u2019s content undermines lawful distribution channels and reduces the revenue that the Company could receive from the legitimate sale and distribution of its content. Protection of the Company\u2019s intellectual property rights is dependent on the scope and duration of its rights as defined by applicable laws in the U.S. and abroad, and if those laws are drafted or interpreted in ways that limit the extent or duration of the Company\u2019s rights, or if existing laws are changed or not effectively enforced, the Company\u2019s ability to generate revenue from its intellectual property may decrease, or the cost of obtaining and maintaining rights may increase. In addition, the failure of legal and technological protections to evolve as technological tools become more sophisticated could make it more difficult for the Company to adequately protect its intellectual property, which could, in turn, negatively impact its value and further increase the Company\u2019s enforcement costs. \nFailure by the Company to Protect Certain Intellectual Property and Brands, or Infringement Claims by Third Parties, Could Adversely Impact the Company\u2019s Business, Results of Operation and Financial Condition. \nThe Company\u2019s businesses rely on a combination of trademarks, trade names, copyrights, patents, domain names, trade secrets and other proprietary rights, as well as licenses, confidentiality agreements and other contractual arrangements, to establish, obtain and protect the intellectual property and brand names used in their businesses. The Company believes its proprietary trademarks, trade names, copyrights, patents, domain names, trade secrets and other intellectual property rights are important to its continued success and its competitive position. However, the Company cannot ensure that these intellectual property rights or those of its licensors (including licenses relating to sports programming rights, set-top box technology and related systems, the NAR License and the Fox Licenses) and suppliers will be enforced or upheld if challenged or that these rights will protect the Company against infringement claims by third parties, and effective intellectual property protection may not be available in every country or region in which the Company operates or where its products and services are available. Efforts to protect and enforce the Company\u2019s intellectual property rights may be costly, and any failure by the Company or its licensors and suppliers to effectively protect and enforce its or their intellectual property or brands, or any infringement claims by third parties, could adversely impact the Company\u2019s business, results of operations or financial condition. Claims of intellectual property infringement could require the Company to enter into royalty or licensing agreements on unfavorable terms (if such agreements are available at all), require the Company to spend substantial sums to defend against or settle such claims or to satisfy any judgment rendered against it, or cease any further use of the applicable intellectual property, which could in turn require the Company to change its business practices or offerings and limit its ability to compete effectively. Even if the Company believes any such challenges or claims are without merit, they can be time-consuming and costly to defend and divert management\u2019s attention and resources away from its business. In addition, the Company may be contractually required to indemnify other parties against liabilities arising out of any third party infringement claims.\nRisks Related to the Company\u2019s Common Stock\nThe Market Price of the Company\u2019s Stock May Fluctuate Significantly. \nThe Company cannot predict the prices at which its common stock may trade. The market price of the Company\u2019s common stock may fluctuate significantly, depending upon many factors, some of which may be beyond its control, including: (1) the Company\u2019s quarterly or annual earnings, or those of other companies in its industry; (2) actual or anticipated fluctuations in the Company\u2019s operating results; (3) success or failure of the Company\u2019s business strategy; (4) the Company\u2019s ability to obtain financing as needed; (5) changes in accounting standards, policies, guidance, interpretations or principles; (6) changes in laws and regulations affecting the Company\u2019s business; (7) announcements by the Company or its competitors of significant new business developments or the addition or loss of significant customers; (8) announcements by the Company or its competitors of significant acquisitions or dispositions; (9) changes in earnings estimates by securities analysts or the Company\u2019s ability to meet its earnings guidance, if any; (10) the operating and stock price performance of other comparable companies; (11) investor perception of the Company and the industries in which it operates; (12) results from material litigation or governmental investigations; (13) changes in capital gains taxes and taxes on dividends affecting stockholders; (14) overall market fluctuations, general economic conditions, such as inflationary pressures or a general economic slowdown or recession, and other external factors, including pandemics, war (such as the war in Ukraine) and terrorism; and (15) changes in the amounts and frequency of dividends or share repurchases, if any. \n29\nTable of Contents\nCertain of the Company\u2019s Directors and Officers May Have Actual or Potential Conflicts of Interest Because of Their Equity Ownership in Fox Corporation (\u201cFOX\u201d) and/or Because They Also Serve as Officers and/or on the Board of Directors of FOX, Which May Result in the Diversion of Certain Corporate Opportunities to FOX. \nCertain of the Company\u2019s directors and executive officers own shares of FOX\u2019s common stock, and the individual holdings may be significant for some of these individuals compared to their total assets. In addition, certain of the Company\u2019s officers and directors also serve as officers and/or as directors of FOX, including K. Rupert Murdoch, who serves as the Company\u2019s Executive Chair and Chair of FOX, and Lachlan K. Murdoch, who serves as the Company\u2019s Co-Chair and Executive Chair and Chief Executive Officer of FOX. This ownership or service to both companies may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for the Company and FOX. For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between the Company and FOX regarding the terms of the agreements governing the indemnification of certain matters. In addition to any other arrangements that the Company and FOX may agree to implement, the Company and FOX agreed that officers and directors who serve at both companies will recuse themselves from decisions where conflicts arise due to their positions at both companies. \nThe Company\u2019s Amended and Restated By-laws acknowledge that the Company\u2019s directors and officers, as well as certain of its stockholders, including K. Rupert Murdoch, certain members of his family and certain family trusts (so long as such persons continue to own, in the aggregate, 10% or more of the voting stock of each of the Company and FOX), each of which is referred to as a covered stockholder, are or may become stockholders, directors, officers, employees or agents of FOX and certain of its affiliates. The Company\u2019s Amended and Restated By-laws further provide that any such overlapping person will not be liable to the Company, or to any of its stockholders, for breach of any fiduciary duty that would otherwise exist because such individual directs a corporate opportunity (other than certain types of restricted business opportunities set forth in the Company\u2019s Amended and Restated By-laws) to FOX instead of the Company. This could result in an overlapping person submitting any corporate opportunities other than restricted business opportunities to FOX instead of the Company. \nCertain Provisions of the Company\u2019s Restated Certificate of Incorporation and Amended and Restated By-laws and the Ownership of the Company\u2019s Common Stock by the Murdoch Family Trust May Discourage Takeovers, and the Concentration of Ownership Will Affect the Voting Results of Matters Submitted for Stockholder Approval. \nThe Company\u2019s Restated Certificate of Incorporation and Amended and Restated By-laws contain certain anti-takeover provisions that may make more difficult or expensive a tender offer, change in control, or takeover attempt that is opposed by the Company\u2019s Board of Directors or certain stockholders holding a significant percentage of the voting power of the Company\u2019s outstanding voting stock. In particular, the Company\u2019s Restated Certificate of Incorporation and Amended and Restated By-laws provide for, among other things: \n\u2022\na dual class common equity capital structure; \n\u2022\na prohibition on stockholders taking any action by written consent without a meeting; \n\u2022\nspecial stockholders\u2019 meeting to be called only by the Board of Directors, the Chair or a Vice or Deputy Chair of the Board of Directors, or, after first requesting that the Board of Directors fix a record date for such meeting, the holders of not less than 20% of the voting power of the Company\u2019s outstanding voting stock; \n\u2022\nthe requirement that stockholders give the Company advance notice to nominate candidates for election to the Board of Directors or to make stockholder proposals at a stockholders\u2019 meeting;\n\u2022\nthe requirement of an affirmative vote of at least 65% of the voting power of the Company\u2019s outstanding voting stock to amend or repeal its by-laws; \n\u2022\nvacancies on the Board of Directors to be filled only by a majority vote of directors then in office; \n\u2022\ncertain restrictions on the transfer of the Company\u2019s shares; and \n\u2022\nthe Board of Directors to issue, without stockholder approval, Preferred Stock and Series Common Stock with such terms as the Board of Directors may determine. \n30\nTable of Contents\nThese provisions could discourage potential acquisition proposals and could delay or prevent a change in control of the Company, even in the case where a majority of the stockholders may consider such proposals, if effective, desirable. \nIn addition, as a result of his ability to appoint certain members of the board of directors of the corporate trustee of the Murdoch Family Trust (MFT), which beneficially owns less than one percent of the Company\u2019s outstanding Class A Common Stock and approximately 39.9% of the Company\u2019s Class B Common Stock as of June 30, 2023, K. Rupert Murdoch may be deemed to be a beneficial owner of the shares beneficially owned by the MFT. K. Rupert Murdoch, however, disclaims any beneficial ownership of these shares. Also, K. Rupert Murdoch beneficially owns or may be deemed to beneficially own an additional less than one percent of the Company\u2019s Class B Common Stock as of June 30, 2023. Thus, K. Rupert Murdoch may be deemed to beneficially own in the aggregate less than one percent of the Company\u2019s Class A Common Stock and approximately 40.4% of the Company\u2019s Class B Common Stock as of June 30, 2023. This concentration of voting power could discourage third parties from making proposals involving an acquisition of the Company. Additionally, the ownership concentration of Class B Common Stock by the MFT increases the likelihood that proposals submitted for stockholder approval that are supported by the MFT will be adopted and proposals that the MFT does not support will not be adopted, whether or not such proposals to stockholders are also supported by the other holders of Class B Common Stock.\nThe Company\u2019s Board of Directors has approved a $1 billion stock repurchase program for the Company\u2019s Class A and Class B Common Stock, which could increase the percentage of Class B Common Stock held by the MFT. The Company has entered into a stockholders agreement with the MFT pursuant to which the Company and the MFT have agreed not to take actions that would result in the MFT and Murdoch family members together owning more than 44% of the outstanding voting power of the shares of Class B Common Stock or would increase the MFT\u2019s voting power by more than 1.75% in any rolling 12-month period. The MFT would forfeit votes to the extent necessary to ensure that the MFT and the Murdoch family collectively do not exceed 44% of the outstanding voting power of the shares of Class B Common Stock, except where a Murdoch family member votes their own shares differently from the MFT on any matter.",
+  "item7": ">ITEM\u00a07.\u00a0\u00a0\u00a0\u00a0MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThis discussion and analysis contains statements that constitute \u201cforward-looking statements\u201d within the meaning of Section\u00a021E of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d), and Section\u00a027A of the Securities Act of 1933, as amended. All statements that are not statements of historical fact are forward-looking statements. The words \u201cexpect,\u201d \u201cwill,\u201d \u201cestimate,\u201d \u201canticipate,\u201d \u201cpredict,\u201d \u201cbelieve,\u201d \u201cshould\u201d and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this discussion and analysis and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, trends affecting the Company\u2019s business, financial condition or results of operations, the Company\u2019s strategy and strategic initiatives, including potential acquisitions, investments and dispositions, the Company\u2019s cost savings initiatives, including announced headcount reductions, and the outcome of contingencies such as litigation and investigations. Readers are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties. More information regarding these risks and uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading \u201cRisk Factors\u201d in Item\u00a01A of this Annual Report on Form 10-K (the \u201cAnnual Report\u201d). The Company does not ordinarily make projections of its future operating results and undertakes no obligation (and expressly disclaims any obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Readers should carefully review this document and the other documents filed by the Company with the Securities and Exchange Commission (the \u201cSEC\u201d). This section should be read together with the Consolidated Financial Statements of News Corporation and related notes set forth elsewhere in this Annual Report.\nThe following discussion and analysis omits discussion of fiscal 2021. Please see \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in the Company\u2019s Annual Report on Form 10-K for the fiscal year ended June\u00a030, 2022 for a discussion of fiscal 2021.\nINTRODUCTION\nNews Corporation (together with its subsidiaries, \u201cNews Corporation,\u201d \u201cNews Corp,\u201d the \u201cCompany,\u201d \u201cwe,\u201d or \u201cus\u201d) is a global diversified media and information services company comprised of businesses across a range of media, including: digital real estate services, subscription video services in Australia, news and information services and book publishing. \nThe consolidated financial statements are referred to herein as the \u201cConsolidated Financial Statements.\u201d The consolidated statements of operations are referred to herein as the \u201cStatements of Operations.\u201d The consolidated balance sheets are referred to herein as the \u201cBalance Sheets.\u201d The consolidated statements of cash flows are referred to herein as the \u201cStatements of Cash Flows.\u201d The Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (\u201cGAAP\u201d).\nManagement\u2019s discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the Company\u2019s financial condition, changes in financial condition and results of operations. This discussion is organized as follows:\n\u2022\nOverview of the Company\u2019s Businesses\n\u2014This section provides a general description of the Company\u2019s businesses, as well as developments that occurred during the two fiscal years ended June\u00a030, 2023 and through the date of this filing that the Company believes are important in understanding its results of operations and financial condition or to disclose known trends.\n\u2022\nResults of Operations\n\u2014This section provides an analysis of the Company\u2019s results of operations for the two fiscal years ended June\u00a030, 2023. This analysis is presented on both a consolidated basis and a segment basis. Supplemental revenue information is also included for reporting units within certain segments and is presented on a gross basis, before eliminations in consolidation. In addition, a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed. The Company maintains a 52-53 week fiscal year ending on the Sunday closest to June\u00a030 in each year. Fiscal 2023 and 2022 included 52 and 53 weeks, respectively. As a result, the Company has referenced the impact of the 53rd week, where applicable, when providing analysis of the results of operations.\n\u2022\nLiquidity and Capital Resources\n\u2014This section provides an analysis of the Company\u2019s cash flows for the two fiscal years ended June\u00a030, 2023, as well as a discussion of the Company\u2019s financial arrangements and outstanding commitments, both firm and contingent, that existed as of June\u00a030, 2023.\n\u2022\nCritical Accounting Policies and Estimates\n\u2014This section discusses accounting policies considered important to the Company\u2019s financial condition and results of operations, and which require significant judgment and estimates on \n34\nTable \no\nf \nContents\nthe part of management in application. In addition, Note 2 to the Consolidated Financial Statements summarizes the Company\u2019s significant accounting policies, including the critical accounting policies discussed in this section.\nOVERVIEW OF THE COMPANY\u2019S BUSINESSES\nThe Company manages and reports its businesses in the following six segments:\n\u2022\nDigital Real Estate Services\n\u2014The Digital Real Estate Services segment consists of the Company\u2019s 61.4% interest in REA Group and 80% interest in Move. The remaining 20% interest in Move is held by REA Group. REA Group is a market-leading digital media business specializing in property and is listed on the Australian Securities Exchange (\u201cASX\u201d) (ASX: REA). REA Group advertises property and property-related services on its websites and mobile apps, including Australia\u2019s leading residential, commercial and share property websites, realestate.com.au, realcommercial.com.au and Flatmates.com.au, property.com.au and property portals in India. In addition, REA Group provides property-related data to the financial sector and financial services through a digital property search and financing experience and a mortgage broking offering.\nMove is a leading provider of digital real estate services in the U.S. and primarily operates Realtor.com\n\u00ae\n, a premier real estate information, advertising and services platform. Move offers real estate advertising solutions to agents and brokers, including its Connections\nSM\n Plus, Market VIP\nSM\n and Advantage\nSM\n Pro products as well as its referral-based services, ReadyConnect Concierge\nSM \nand UpNest. Move also offers online tools and services to do-it-yourself landlords and tenants.\n\u2022\nSubscription Video Services\n\u2014The Company\u2019s Subscription Video Services segment provides sports, entertainment and news services to pay-TV and streaming subscribers and other commercial licensees, primarily via satellite and internet distribution, and consists of (i)\u00a0the Company\u2019s 65% interest in the Foxtel Group (with the remaining 35% interest held by Telstra, an\u00a0ASX-listed\u00a0telecommunications company) and (ii)\u00a0Australian News Channel\u00a0(\u201cANC\u201d). The Foxtel Group is the largest Australian-based subscription television provider. Its Foxtel pay-TV service provides approximately 200 live channels and video on demand covering sports, general entertainment, movies, documentaries, music, children\u2019s programming and news. Foxtel and the Group\u2019s Kayo Sports streaming service offer the leading sports programming content in Australia, with broadcast rights to live sporting events including: National Rugby League, Australian Football League, Cricket Australia and various motorsports programming. The Foxtel Group\u2019s other streaming services include \nBINGE\n, its entertainment streaming service, and Foxtel Now, a streaming service that provides access across Foxtel\u2019s live and on-demand content.\nANC operates the SKY NEWS network, Australia\u2019s 24-hour multi-channel, multi-platform news service. ANC channels are distributed throughout Australia and New Zealand and available on Foxtel and Sky Network Television NZ. ANC also owns and operates the international Australia Channel IPTV service and offers content across a variety of digital media platforms, including web, mobile and third party providers.\n\u2022\nDow Jones\n\u2014The Dow Jones segment consists of Dow Jones, a global provider of news and business information whose products target individual consumers and enterprise customers and are distributed through a variety of media channels including newspapers, newswires, websites, mobile apps, newsletters, magazines, proprietary databases, live journalism, video and podcasts. Dow Jones\u2019s consumer products include premier brands such as \nThe Wall Street Journal\n, \nBarron\u2019s\n, MarketWatch and \nInvestor\u2019s Business Daily. \nDow Jones\u2019s professional information products, which target enterprise customers, include Dow Jones Risk & Compliance, a leading provider of data solutions to help customers identify and manage regulatory, corporate and reputational risk with tools focused on financial crime, sanctions, trade and other compliance requirements, OPIS, a leading provider of \npricing data, news, insights, analysis and other information for energy commodities and key base chemicals,\n Factiva, a leading provider of global business content, and Dow Jones Newswires, which distributes real-time business news, information and analysis to financial professionals and investors.\n\u2022\nBook Publishing\n\u2014The Book Publishing segment consists of HarperCollins, the second largest consumer book publisher in the world, with operations in 17 countries and particular strengths in general fiction, nonfiction, children\u2019s and religious publishing. HarperCollins owns more than 120 branded publishing imprints, including Harper, William Morrow, Mariner, HarperCollins Children\u2019s Books, Avon, Harlequin and Christian publishers Zondervan and Thomas Nelson, and publishes works by well-known authors such as Harper Lee, George Orwell, Agatha Christie and Zora Neale Hurston, as well as global author brands including J.R.R. Tolkien, C.S. Lewis, Daniel Silva, Karin Slaughter and Dr. Martin Luther King, Jr. It is also home to many beloved children\u2019s books and authors and a significant Christian publishing business.\n\u2022\nNews Media\n\u2014The News Media segment consists primarily of News Corp Australia, News UK and the\n New York Post \nand includes \nThe Australian, The Daily Telegraph, Herald Sun, The Courier Mail\n,\n The Advertiser \nand the \n35\nTable \no\nf \nContents\nnews.com.au website in Australia, \nThe Times, The Sunday Times, The Sun,\n \nThe Sun on Sunday\n and thesun.co.uk in the U.K. and the-sun.com in the U.S. This segment also includes Wireless Group, operator of talkSPORT, the leading sports radio network in the U.K., TalkTV in the U.K. and Storyful, a social media content agency.\n\u2022\nOther\n\u2014The Other segment consists primarily of general corporate overhead expenses, strategy costs and costs related to the U.K. Newspaper Matters (as defined in Note 16\u2014Commitments and Contingencies to the Consolidated Financial Statements).\nDigital Real Estate Services\nThe Digital Real Estate Services segment generates revenue through property and property-related advertising and services, including: the sale of real estate listing and lead generation products and referral-based services to agents, brokers, developers, homebuilders and landlords; real estate-related and property rental-related services; display advertising on residential real estate and commercial property sites; and residential property data services to the financial sector. The Digital Real Estate Services segment also generates revenue through commissions from referrals generated through its digital property search and financing offering and mortgage broking services. Significant expenses associated with these sites and services include development costs, advertising and promotional expenses, hosting and support services, salaries, broker commissions, employee benefits and other routine overhead expenses. The Digital Real Estate Services segment\u2019s results are highly sensitive to conditions in the real estate market, as well as macroeconomic factors such as interest rates and inflation, which are expected to continue to adversely impact real estate lead and transaction volumes and adjacent businesses in the near term.\nConsumers overwhelmingly turn to the internet and mobile devices for real estate information and services. The Digital Real Estate Services segment\u2019s success depends on its continued innovation to provide products and services that are useful for consumers and real estate, mortgage and financial services professionals, homebuilders and landlords and attractive to its advertisers. The Digital Real Estate Services segment operates in a highly competitive digital environment with other operators of real estate and property websites and mobile apps.\nSubscription Video Services\nThe Company\u2019s Subscription Video Services segment consists of (i)\u00a0its 65% interest in the Foxtel Group and (ii)\u00a0ANC. The Foxtel Group is the largest Australian-based subscription television provider, with a suite of offerings including its Foxtel pay-TV and Kayo Sports, \nBINGE\n and Foxtel Now streaming services. The Foxtel Group generates revenue primarily through subscription revenue as well as advertising revenue.\nThe Foxtel Group competes for audiences primarily with a variety of other video content providers, such as traditional Free-To-Air (\u201cFTA\u201d) TV operators in Australia, including the three major commercial FTA networks and two major government-funded FTA broadcasters, and content providers that deliver video programming over the internet. These providers include, Internet Protocol television, or IPTV, subscription video-on-demand and broadcast video-on-demand providers; streaming services offered through digital media providers; as well as programmers and distributors that provide content directly to consumers over the internet.\nANC operates the SKY NEWS network, Australia\u2019s 24-hour multi-channel, multi-platform news service, and also owns and operates the Australia Channel IPTV service for international markets. Revenue is primarily derived from monthly affiliate fees received from pay-TV providers and advertising.\nThe most significant operating expenses of the Subscription Video Services segment are the acquisition and production expenses related to programming, the expenses related to operating the technical facilities of the broadcast operations, expenses related to satellite, data and cable-related transmission costs and studio and engineering expense. The expenses associated with licensing certain sports programming rights are recognized during the applicable season or event, which can cause results at the Subscription Video Services segment to fluctuate based on the timing and mix of the Foxtel Group\u2019s local and international sports programming. Sports programming rights costs associated with a dedicated channel are amortized over 12 months. Other expenses include subscriber acquisition costs such as sales costs and marketing and promotional expenses related to improving the market visibility and awareness of the channels and their programming. Additional expenses include salaries, employee benefits, technology, rent and other routine overhead expenses.\nDow Jones\nThe Dow Jones segment\u2019s products target individual consumers and enterprise customers. Revenue from the Dow Jones segment\u2019s consumer business is derived primarily from circulation, which includes subscription and single-copy sales of its digital and print consumer products, the sale of digital and print advertising, licensing fees for its print and digital consumer content and \n36\nTable \no\nf \nContents\nparticipation fees for its live journalism events. Circulation revenues are dependent on the content of the Dow Jones segment\u2019s consumer products, prices of its and/or competitors\u2019 products, as well as promotional activities and news cycles. Advertising revenue is dependent on a number of factors, including demand for the Dow Jones segment\u2019s consumer products, general economic and business conditions, demographics of the customer base, advertising rates and effectiveness and brand strength and reputation. Certain sectors of the economy account for a significant portion of Dow Jones\u2019s advertising revenues, including technology and finance, which were particularly affected by economic and market conditions in fiscal 2023. Advertising revenues are also subject to seasonality, with revenues typically highest in the Company's second fiscal quarter due to the end-of-year holiday season. In addition, the consumer print business faces challenges from alternative media formats and shifting consumer preferences, which have adversely affected, and are expected to continue to adversely affect, both print circulation and advertising revenues. Advertising, in particular, has been impacted by the shift in advertising spending from print to digital. The increasing range of advertising choices and formats has resulted in audience fragmentation and increased competition. Technologies, regulations, policies and practices have also been and will continue to be developed and implemented that make it more difficult to target and measure the effectiveness of digital advertising, which may impact digital advertising rates or revenues. As a multi-platform news provider, the Dow Jones segment seeks to maximize revenues from a variety of media formats and platforms, including leveraging its content through licensing arrangements with third-party distribution platforms, developing new advertising models and growing its live journalism events business, and continues to invest in its digital and other products, which represent an increasingly larger share of revenues at its consumer business. Mobile devices, their related apps and other technologies, provide continued opportunities for the Dow Jones segment to make its content available to a new audience of readers, introduce new or different pricing schemes and develop its products to continue to attract advertisers and/or affect the relationship between content providers and consumers.\nOperating expenses for the consumer business include costs related to paper, production, distribution, third party printing, editorial and commissions. Selling, general and administrative expenses include promotional expenses, salaries, employee benefits, rent and other routine overhead. The costs associated with printing and distributing newspapers, including paper prices and delivery costs, are key operating expenses whose fluctuations can have a material effect on the results of the Dow Jones segment\u2019s consumer business. The consumer business is affected by the cyclical changes in the price of paper and other factors that may affect paper prices, including, among other things, inflation, supply chain disruptions, industry trends or economics and tariffs or other restrictions on non-U.S. paper suppliers. In addition, the Dow Jones segment relies on third parties for much of the printing and distribution of its print products. The shift from print to digital and changing labor markets present challenges to the financial and operational stability of these third parties which could, in turn, impact the availability, or increase the cost, of third-party printing and distribution services for the Company's newspapers. \nThe Dow Jones segment\u2019s consumer products compete for consumers, audience and advertising with other local and national newspapers, web and app-based media, news aggregators, customized news feeds, search engines, blogs, magazines, investment tools, social media sources, podcasts and event producers, as well as other media such as television, radio stations and outdoor displays. As a result of rapidly changing and evolving technologies (including recent developments in artificial intelligence (AI), particularly generative AI), distribution platforms and business models, and corresponding changes in consumer behavior, the consumer business continues to face increasing competition for both circulation and advertising revenue, including from a variety of alternative news and information sources, as well as programmatic advertising buying channels and off-platform distribution of its products.\nThe Dow Jones segment\u2019s professional information business, which targets enterprise customers, derives revenue primarily from subscriptions to its professional information products. The professional information business serves enterprise customers with products that combine news and information with technology and tools that inform decisions and aid awareness, research, understanding and compliance. The success of the professional information business depends on its ability to provide products, services, applications and functionalities that meet the needs of its enterprise customers, who operate in information-intensive and oftentimes highly regulated industries such as finance and insurance. The professional information business must also anticipate and respond to industry trends and regulatory and technological changes.\nSignificant expenses for the professional information business include development costs, sales and marketing expenses, hosting and support services, royalties, salaries, consulting and professional fees, sales commissions, employee benefits and other routine overhead expenses.\nThe Dow Jones segment\u2019s professional information products compete with various information service providers, compliance data providers, global financial newswires and energy and commodities pricing and data providers, including Reuters News, RELX (including LexisNexis and ICIS), Refinitiv, S&P Global, DTN and Argus Media, as well as many other providers of news, information and compliance data.\n37\nTable \no\nf \nContents\nBook Publishing\nThe Book Publishing segment derives revenues from the sale of general fiction, nonfiction, children\u2019s and religious books in the U.S. and internationally. The revenues and operating results of the Book Publishing segment are significantly affected by the timing of releases and the number of its books in the marketplace. The book publishing marketplace is subject to increased periods of demand during the end-of-year holiday season in its main operating geographies. This marketplace is highly competitive and continues to change due to technological developments, including additional digital platforms, such as e-books and downloadable audiobooks, and distribution channels and other factors. Each book is a separate and distinct product and its financial success depends upon many factors, including public acceptance.\nMajor new title releases represent a significant portion of the Book Publishing segment\u2019s sales throughout the fiscal year. Print-based consumer books are generally sold on a fully returnable basis, resulting in the return of unsold books. In the domestic and international markets, the Book Publishing segment is subject to global trends and local economic conditions, including supply chain challenges and inflationary and inventory pressures during fiscal 2023, which are expected to moderate in fiscal 2024. Operating expenses for the Book Publishing segment include costs related to paper, printing, freight, authors\u2019 royalties, editorial, promotional, art and design expenses. Selling, general and administrative expenses include salaries, employee benefits, rent and other routine overhead costs.\nNews Media\nRevenue at the News Media segment is derived primarily from circulation and subscriptions, the sale of advertising, as well as licensing. Circulation and subscription revenues can be greatly affected by changes in the prices of the Company\u2019s and/or competitors\u2019 products, as well as by promotional activities and news cycles. Adverse changes in general market conditions for advertising have affected, and may continue to affect, revenues. Advertising revenues at the News Media segment are also subject to seasonality, with revenues typically being highest in the Company\u2019s second fiscal quarter due to the end-of-year holiday season in its main operating geographies.\nOperating expenses include costs related to paper, production, distribution, third party printing, editorial, commissions, technology and radio sports rights. Selling, general and administrative expenses include promotional expenses, salaries, employee benefits, rent and other routine overhead. The cost of paper is a key operating expense whose fluctuations can have a material effect on the results of the segment. The News Media segment continues to be exposed to risks associated with paper used for printing. Paper is a basic commodity and its price is sensitive to the balance of supply and demand. The News Media segment\u2019s expenses are affected by the cyclical changes in the price of paper and other factors that may affect paper prices, including, among other things, inflation, supply chain disruptions, industry trends or economics (including the closure or conversion of newsprint mills) and tariffs. The News Media segment experienced significant paper price increases in fiscal 2023. While the Company anticipates these increases will moderate, it expects prices to remain elevated.\nThe News Media segment\u2019s products compete for readership, audience and advertising with local and national competitors and also compete with other media alternatives in their respective markets. Competition for circulation and subscriptions is based on the content of the products provided, pricing and, from time to time, various promotions. The success of these products also depends upon advertisers\u2019 judgments as to the most effective use of their advertising budgets. Competition for advertising is based upon the reach of the products, advertising rates and advertiser results. Such judgments are based on factors such as cost, availability of alternative media, distribution and quality of consumer demographics. As a result of rapidly changing and evolving technologies (including recent developments in AI, particularly generative AI), distribution platforms and business models, and corresponding changes in consumer behavior, the News Media segment continues to face increasing competition for both circulation and advertising revenue.\nThe News Media segment\u2019s print business faces challenges from alternative media formats and shifting consumer preferences. The News Media segment is also exposed to the impact of the shift in advertising spending from print to digital. These alternative media formats could impact the segment\u2019s overall performance, positively or negatively. In addition, technologies, regulations, policies and practices have been and will continue to be developed and implemented that make it more difficult to target and measure the effectiveness of digital advertising, which may impact digital advertising rates or revenues.\nAs multi-platform news providers, the businesses within the News Media segment seek to maximize revenues from a variety of media formats and platforms, including leveraging their content through licensing arrangements with third-party distribution platforms and developing new advertising models, and continue to invest in their digital products. Mobile devices, their related apps and other technologies, provide continued opportunities for the businesses within the News Media segment to make their content available to a new audience of readers, introduce new or different pricing schemes and develop their products to continue to attract advertisers and/or affect the relationship between content providers and consumers.\n38\nTable \no\nf \nContents\nOther\nThe Other segment primarily consists of general corporate overhead expenses, strategy costs and costs related to the U.K. Newspaper Matters.\nOther Business Developments\nFiscal 2023\nExploration of Potential Combination with FOX Corporation (\u201cFOX\u201d)\nIn October 2022, the Company announced that its Board of Directors (the \u201cBoard of Directors\u201d), following the receipt of letters from K. Rupert Murdoch and the Murdoch Family Trust, had formed a special committee of independent and disinterested members of the Board of Directors (the \u201cSpecial Committee\u201d) to begin exploring a potential combination with FOX (the \u201cPotential Transaction\u201d). In January 2023, the Board of Directors received a letter from Mr. Murdoch withdrawing the proposal to explore the Potential Transaction. As a result of the letter, the Special Committee has been dissolved.\nPotential Disposition of Move\nIn January 2023, the Company announced that it was engaged in discussions with CoStar Group, Inc. (\u201cCoStar\u201d) regarding a potential sale of its subsidiary, Move. In February 2023, the Company confirmed that it is no longer engaged in these discussions with CoStar.\nRussian and Ukrainian conflict\nThe Company takes extensive steps to ensure the safety of its journalists and other personnel in Ukraine and Russia. Despite these measures, a reporter for \nThe Wall Street Journal\n was detained by Russian authorities in March 2023 while on assignment in the country. The Company has engaged legal counsel for the reporter and is working to secure his release. The Company will continue to closely monitor the situation in the region. While the Company has extremely limited business operations in, or direct exposure to, Russia or Ukraine and the conflict has not had a material impact on its business, financial condition, or results of operations to date, the Company prioritizes the health, safety, security and well-being of its employees and will continue to support affected employees in the region. In addition to impacts on its personnel, the conflict has broadened inflationary pressures and a further escalation or expansion of its scope or the related economic disruption could impact the Company's supply chain, further exacerbate inflation and other macroeconomic trends and have an adverse effect on its results of operations.\nAnnounced Headcount Reduction\nIn response to the macroeconomic challenges facing many of the Company\u2019s businesses, the Company continues to implement cost savings initiatives, including an expected 5% headcount reduction, or around 1,250 positions, this calendar year. Decisions regarding the elimination of positions are ongoing and assessed based on the needs of the respective businesses. The Company notified the majority of affected employees and recognized the associated cash restructuring charges of approximately $80 million in the second half of fiscal 2023. While it is still evaluating the estimated cost savings from these actions, the Company currently expects this to generate annualized gross cost savings of at least $160 million once completed, the majority of which will be reflected in fiscal 2024. See Note 5\u2014Restructuring Programs in the accompanying Consolidated Financial Statements.\nFiscal 2022\nREA Group sale of Malaysia and Thailand businesses\nIn August 2021, REA Group acquired an 18% interest (16.6% on a diluted basis) in PropertyGuru Pte. Ltd., now PropertyGuru Group Ltd. (\u201cPropertyGuru\u201d), a leading digital property technology company operating marketplaces in Southeast Asia, in exchange for all shares of REA Group\u2019s entities in Malaysia and Thailand. The transaction was completed after REA Group entered into an agreement to sell its 27% interest in its existing venture with 99.co. The transaction creates a leading digital real estate services company in Southeast Asia, new opportunities for collaboration and access to a deeper pool of expertise, technology and investment in the region. REA Group received one seat on the board of directors of PropertyGuru as part of the transaction. \n39\nTable \no\nf \nContents\nIn March 2022, PropertyGuru completed its merger with Bridgetown 2 Holdings Limited. As a result of the merger and subsequent investments made in connection with the transaction, REA Group\u2019s ownership interest in PropertyGuru was 17.5% and a gain of approximately $15 million was recorded in Other, net.\nShare Repurchase Program\nIn September 2021, the Company announced a stock repurchase program authorizing the Company to purchase up to $1\u00a0billion in the aggregate of its outstanding Class A Common Stock and Class B Common Stock (the \u201cRepurchase Program\u201d). The manner, timing, number and share price of any repurchases will be determined by the Company at its discretion and will depend upon such factors as the market price of the stock, general market conditions, applicable securities laws, alternative investment opportunities and other factors. The Repurchase Program has no time limit and may be modified, suspended or discontinued at any time. See Note 12\u2014Stockholders' Equity in the accompanying Consolidated Financial Statements.\n2022 Senior Notes Offering\nIn February 2022, the Company issued $500 million of senior notes due 2032 (the \u201c2022 Senior Notes\u201d). The 2022 Senior Notes bear interest at a fixed rate of 5.125% per annum, payable in cash semi-annually on February 15 and August 15 of each year, commencing on August 15, 2022. The notes will mature on February 15, 2032. The Company used the net proceeds from the offering for general corporate purposes, including to fund the acquisitions of OPIS and CMA. See Note 9\u2014Borrowings in the accompanying Consolidated Financial Statements.\nAcquisition of OPIS\nIn February 2022, the Company acquired the Oil Price Information Service business and related assets (\u201cOPIS\u201d) from S&P Global Inc. (\u201cS&P\u201d) and IHS Markit Ltd. for $1.15\u00a0billion in cash, subject to customary purchase price adjustments. OPIS is a global industry standard for benchmark and reference pricing and news and analytics for the oil, natural gas liquids and biofuels industries. The business also provides pricing and news and analytics for the coal, mining and metals end markets and insights and analytics in renewables and carbon pricing. The acquisition enables Dow Jones to become a leading provider of energy and renewables information and furthers its goal of building the leading global business news and information platform for professionals. OPIS is a subsidiary of Dow Jones, and its results are included in the Dow Jones segment.\nTerm Loan A and Revolving Credit Facilities\nOn March 29, 2022, the Company terminated its existing unsecured $750\u00a0million revolving credit facility and entered into a new credit agreement (the \u201c2022 Credit Agreement\u201d) that provides for $1,250\u00a0million of unsecured credit facilities comprised of a $500\u00a0million unsecured term loan A credit facility (the \u201cTerm A Facility\u201d and the loans under the Term A Facility are collectively referred to as \u201cTerm A Loans\u201d) and a $750\u00a0million unsecured revolving credit facility (the \u201cRevolving Facility\u201d and, together with the Term A Facility, the \u201cFacilities\u201d) that can be used for general corporate purposes. See Note 9\u2014Borrowings in the accompanying Consolidated Financial Statements.\nThe Company entered into an interest rate swap derivative to fix the floating rate interest component of its Term A Loans at 2.083%. See Note 11\u2014Financial Instruments and Fair Value Measurements in the accompanying Consolidated Financial Statements.\nThe Company borrowed the full amount of the Term A Facility on March 31, 2022 and had not borrowed any funds under the Revolving Facility as of June\u00a030, 2023.\nAcquisition of Base Chemicals\nIn June 2022, the Company acquired the Base Chemicals (rebranded Chemical Market Analytics, \u201cCMA\u201d) business from S&P for $295\u00a0million in cash, subject to customary purchase price adjustments. CMA provides pricing data, insights, analysis and forecasting for key base chemicals through its leading Market Advisory and World Analysis services. The acquisition enables Dow Jones to become a leading provider of base chemicals information and furthers its goal of building the leading global \n40\nTable \no\nf \nContents\nbusiness news and information platform for professionals. CMA is operated by Dow Jones, and its results are included in the Dow Jones segment.\nAcquisition of UpNest\nIn June 2022, the Company acquired UpNest, Inc. (\u201cUpNest\u201d) for closing cash consideration of approximately $45 million, subject to customary purchase price adjustments, and up to $15\u00a0million in future cash consideration based upon the achievement of certain performance objectives over the next two years. UpNest is a real estate agent marketplace that matches home sellers and buyers with top local agents who compete for their business. The UpNest acquisition helps Realtor.com\n\u00ae\n further expand its services and support for home sellers and listing agents and brokers. UpNest is a subsidiary of Move, and its results are included within the Digital Real Estate Services segment.\nSee Note 4\u2014Acquisitions, Disposals and Other Transactions in the accompanying Consolidated Financial Statements for further discussion of the acquisitions and dispositions discussed above.\nResults of Operations\u2014Fiscal 2023 versus Fiscal 2022\nThe following table sets forth the Company\u2019s operating results for fiscal 2023 as compared to fiscal 2022.\nFor the fiscal years ended June 30,\n2023\n2022\nChange\n%\u00a0Change\n(in millions, except %)\nBetter/(Worse)\nRevenues:\nCirculation and subscription\n$\n4,447\u00a0\n$\n4,425\u00a0\n$\n22\u00a0\n\u2014\u00a0\n%\nAdvertising\n1,687\u00a0\n1,821\u00a0\n(134)\n(7)\n%\nConsumer\n1,899\u00a0\n2,106\u00a0\n(207)\n(10)\n%\nReal estate\n1,189\u00a0\n1,347\u00a0\n(158)\n(12)\n%\nOther\n657\u00a0\n686\u00a0\n(29)\n(4)\n%\nTotal Revenues\n9,879\u00a0\n10,385\u00a0\n(506)\n(5)\n%\nOperating expenses\n(5,124)\n(5,124)\n\u2014\u00a0\n\u2014\u00a0\n%\nSelling, general and administrative\n(3,335)\n(3,592)\n257\u00a0\n7\u00a0\n%\nDepreciation and amortization\n(714)\n(688)\n(26)\n(4)\n%\nImpairment and restructuring charges\n(150)\n(109)\n(41)\n(38)\n%\nEquity losses of affiliates\n(127)\n(13)\n(114)\n**\nInterest expense, net\n(100)\n(99)\n(1)\n(1)\n%\nOther, net\n1\u00a0\n52\u00a0\n(51)\n(98)\n%\nIncome before income tax expense\n330\n\u00a0\n812\n\u00a0\n(482)\n(59)\n%\nIncome tax expense\n(143)\n(52)\n(91)\n**\nNet income\n187\u00a0\n760\u00a0\n(573)\n(75)\n%\nLess: Net income attributable to noncontrolling interests\n(38)\n(137)\n99\u00a0\n72\u00a0\n%\nNet income attributable to News Corporation stockholders\n$\n149\n\u00a0\n$\n623\n\u00a0\n$\n(474)\n(76)\n%\n________________________\n**\u00a0\u00a0\u00a0\u00a0not meaningful\nRevenues\n\u2014Revenues decreased $506 million, or 5%, for the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022. The decrease, which includes the approximately $110 million \nimpact of the absence of the 53rd week in fiscal 2023, was\n driven in part by lower revenues at the Book Publishing segment primarily due to lower print and digital book sales, mainly in the U.S. market, driven by lower consumer demand industry-wide, weak frontlist performance, Amazon\u2019s reset of its inventory levels and rightsizing of its warehouse footprint and the negative impact of foreign currency fluctuations. The decrease was also driven by lower revenues at the Digital Real Estate Services segment primarily due to lower real estate revenues at Move, the negative impact of foreign currency fluctuations and lower financial services revenue at REA Group and at the News Media and Subscription Video Services segments due to the negative impact of foreign currency fluctuations. These decreases were partially offset by higher revenues at the Dow Jones segment primarily due to the acquisitions of OPIS and CMA. Digital revenues accounted for approximately 50% of total revenues for the fiscal year ended June\u00a030, 2023.\n41\nTable \no\nf \nContents\nThe impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a revenue decrease of $494 million, or 5%, for the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022. The Company calculates the impact of foreign currency fluctuations for businesses reporting in currencies other than the U.S. dollar by multiplying the results for each quarter in the current period by the difference between the average exchange rate for that quarter and the average exchange rate in effect during the corresponding quarter of the prior year and totaling the impact for all quarters in the current period.\nOperating expenses\n\u2014Operating expenses were flat for the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022. Operating expenses at the Dow Jones segment increased due to the impact from recent acquisitions. The increase was offset by lower operating expenses at the Book Publishing segment driven by the positive impact of foreign currency fluctuations, as the impact of lower sales volumes offset higher manufacturing, freight and distribution costs, and at the News Media segment due to the positive impact of foreign currency fluctuations, as the $60 million impact of higher pricing on newsprint costs and higher costs for TalkTV and other digital investments, primarily at News Corp Australia, were partially offset by cost savings initiatives. Operating expenses at the Subscription Video Services segment were also lower due to the positive impact of foreign currency fluctuations, largely offset by higher sports and entertainment programming costs. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in an Operating expense decrease of $242 million, or 5%, for the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022.\nSelling, general and administrative\n\u2014Selling, general and administrative decreased $257 million, or 7%, for the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022. \nThe decrease in Selling, general and administrative for the fiscal year ended June\u00a030, 2023\n was primarily driven by lower expenses at the Digital Real Estate Services segment mainly due to the positive impact of foreign currency fluctuations, lower broker commissions at REA Group\u2019s financial services business and lower discretionary spending and employee costs at Move and at the News Media segment due to the positive impact of foreign currency fluctuations and cost savings initiatives, partially offset by higher employee and marketing costs. Selling, general and administrative also decreased at the Subscription Video Services segment primarily due to the positive impact of foreign currency fluctuations and lower marketing costs and at the Book Publishing segment primarily due to lower employee costs and the positive impact of foreign currency fluctuations. Selling, general and administrative declined at the Other segment primarily due to the absence of one-time legal settlement costs, partially offset by $10 million of one-time costs related to the professional fees incurred by the Special Committee and the Company in connection with evaluating the proposal from the Murdoch Family Trust, as well as fees related to the potential sale of Move. Selling, general and administrative at the Dow Jones segment benefited from the absence of $25 million of OPIS and CMA-related transaction costs incurred in fiscal 2022 and the positive impact of foreign currency fluctuations, offset by higher employee costs due to recent acquisitions. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a Selling, general and administrative decrease of $172 million, or 5%, for the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022.\nDepreciation and amortization\n\u2014Depreciation and amortization expense increased $26 million, or 4%, for the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022, primarily driven by higher amortization expense resulting from the Company\u2019s recent acquisitions\n. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a depreciation and amortization expense decrease of \n$35 million\n, or 5%, for the fiscal year \nended June\u00a030, 2023 as compared to fiscal 2022\n.\nImpairment and restructuring charges\n\u2014During the fiscal years ended June\u00a030, 2023 and 2022, the Company recorded restructuring charges of $125 million and $94 million, respectively.\nDuring the fiscal year ended June 30, 2023, the Company recognized non-cash impairment charges of $25 million related to the impairment of certain indefinite-lived intangible assets during the Company\u2019s annual impairment assessment.\nDuring the fiscal year ended June 30, 2022, the Company recognized non-cash impairment charges of $15 million related to the write-down of fixed assets associated with the shutdown and sale of certain U.S. printing facilities at the Dow Jones segment.\nSee Note 5\u2014Restructuring Programs, Note 7\u2014Property, Plant and Equipment and Note 8\u2014Goodwill and Other Intangible Assets in the accompanying Consolidated Financial Statements.\nEquity losses of affiliates\n\u2014Equity losses of affiliates increased by $114 million for the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022, primarily due to a non-cash write-down of REA Group\u2019s investment in PropertyGuru of approximately $81\u00a0million and losses from an investment in an Australian sports wagering venture. See Note 6\u2014Investments in the accompanying Consolidated Financial Statements.\nInterest expense, net\n\u2014Interest expense, net for the fiscal year ended June\u00a030, 2023 increased $1 million, or 1%, as compared to fiscal 2022. See Note 9\u2014Borrowings in the accompanying Consolidated Financial Statements. \n42\nTable \no\nf \nContents\nOther, net\n\u2014Other, net decreased $51 million, or 98%, for the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022. The decrease was primarily due to the absence of REA Group\u2019s gain on disposition of its entities in Malaysia and Thailand recognized in fiscal 2022. See Note 21\u2014Additional Financial Information in the accompanying Consolidated Financial Statements.\nIncome tax expense\n\u2014The Company\u2019s income tax expense and effective tax rate for the fiscal year ended June\u00a030, 2023 were $143 million and 43%, respectively, as compared to an income tax expense and effective tax rate of $52 million and 6%, respectively, for fiscal 2022.\nFor the fiscal year ended June\u00a030, 2023, the Company recorded income tax expense of $143 million on pre-tax income of $330 million, resulting in an effective tax rate that was higher than the U.S. statutory tax rate. The tax rate was impacted by foreign operations which are subject to higher tax rates, impairments and valuation allowances recorded against tax benefits in certain businesses.\nFor the fiscal year ended June\u00a030, 2022, the Company recorded income tax expense of $52 million on pre-tax income of $812 million, resulting in an effective tax rate that was lower than the U.S. statutory tax rate. The tax rate was impacted by foreign operations which are subject to higher tax rates, offset by the reversal of valuation allowances, including $149 million related to certain foreign deferred tax assets that are more likely than not to be realized, the lower tax impact related to the sale of REA Group\u2019s Malaysia and Thailand businesses and the remeasurement of deferred taxes in the U.K. \nManagement assesses available evidence to determine whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. Based on management\u2019s assessment of available evidence, it has been determined that it is more likely than not that deferred tax assets in certain foreign jurisdictions may not be realized and therefore, a valuation allowance has been established against those tax assets. See Note 19\u2014Income Taxes in the accompanying Consolidated Financial Statements.\nNet income\n\u2014Net income was $187\u00a0million for the fiscal year ended June\u00a030, 2023, as compared to $760\u00a0million for the fiscal year ended June 30, 2022, a decrease of $573\u00a0million, or 75%, primarily driven by lower Total Segment EBITDA, higher losses from equity affiliates, higher tax expense, lower Other, net and higher impairment and restructuring charges.\nNet income attributable to noncontrolling interests\n\u2014Net income attributable to noncontrolling interests was $38\u00a0million for the fiscal year ended June\u00a030, 2023, as compared to $137\u00a0million for the fiscal year ended June\u00a030, 2022, a decrease of $99\u00a0million, or 72%, primarily driven by the write-down of REA Group\u2019s investment in PropertyGuru in the fiscal year ended June\u00a030, 2023 and the impact of the absence of REA Group\u2019s gain on disposition of its entities in Malaysia and Thailand recognized in fiscal 2022.\nSegment Analysis\nSegment EBITDA is defined as revenues less operating expenses and selling, general and administrative expenses. Segment EBITDA does not include: depreciation and amortization, impairment and restructuring charges, equity losses of affiliates, interest (expense) income, net, other, net and income tax (expense) benefit. Segment EBITDA may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what items should be included in the calculation of Segment EBITDA.\nSegment EBITDA is the primary measure used by the Company\u2019s chief operating decision maker to evaluate the performance of, and allocate resources within, the Company\u2019s businesses. Segment EBITDA provides management, investors and equity analysts with a measure to analyze the operating performance of each of the Company\u2019s business segments and its enterprise value against historical data and competitors\u2019 data, although historical results may not be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences).\nTotal Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow and other measures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and impairment and restructuring charges, which are significant components in assessing the Company\u2019s financial performance. The Company believes that the presentation of Total Segment EBITDA provides useful information regarding the Company\u2019s operations and other factors that affect the Company\u2019s reported results. Specifically, the Company believes that by excluding certain one-time or non-cash items such as impairment and restructuring charges and depreciation and amortization, as well as potential distortions between periods caused by factors such as financing and capital structures and changes in tax positions or regimes, the Company provides users of its consolidated financial statements with insight into both its core operations as well as the factors that affect reported results between periods but which the Company believes are not representative of its core business. As a result, users of the Company\u2019s consolidated financial statements are better able to evaluate changes in the core operating results of the Company across different periods. \n43\nTable \no\nf \nContents\nThe following table reconciles Net income to Total Segment EBITDA for the fiscal years ended June\u00a030, 2023 and 2022:\nFor the fiscal years ended\nJune\u00a030,\n2023\n2022\n(in millions)\nNet income\n$\n187\u00a0\n$\n760\u00a0\nAdd:\nIncome tax expense\n143\u00a0\n52\u00a0\nOther, net\n(1)\n(52)\nInterest expense, net\n100\u00a0\n99\u00a0\nEquity losses of affiliates\n127\u00a0\n13\u00a0\nImpairment and restructuring charges\n150\u00a0\n109\u00a0\nDepreciation and amortization\n714\u00a0\n688\u00a0\nTotal Segment EBITDA\n$\n1,420\n\u00a0\n$\n1,669\n\u00a0\nThe following table sets forth the Company\u2019s Revenues and Segment EBITDA by reportable segment for the fiscal years ended June\u00a030, 2023 and 2022:\nFor the fiscal years ended June 30,\n2023\n2022\n(in millions)\nRevenues\nSegment\nEBITDA\nRevenues\nSegment\nEBITDA\nDigital Real Estate Services\n$\n1,539\u00a0\n$\n457\u00a0\n$\n1,741\u00a0\n$\n574\u00a0\nSubscription Video Services\n1,942\u00a0\n347\u00a0\n2,026\u00a0\n360\u00a0\nDow Jones\n2,153\u00a0\n494\u00a0\n2,004\u00a0\n433\u00a0\nBook Publishing\n1,979\u00a0\n167\u00a0\n2,191\u00a0\n306\u00a0\nNews Media\n2,266\u00a0\n156\u00a0\n2,423\u00a0\n217\u00a0\nOther\n\u2014\u00a0\n(201)\n\u2014\u00a0\n(221)\nTotal\n$\n9,879\n\u00a0\n$\n1,420\n\u00a0\n$\n10,385\n\u00a0\n$\n1,669\n\u00a0\nDigital Real Estate Services\n (15% and 17% of the Company\u2019s consolidated revenues in fiscal 2023 and 2022, respectively)\nFor the fiscal years ended June 30,\n2023\n2022\nChange\n% Change\n(in millions, except\u00a0%)\nBetter/(Worse)\nRevenues:\nCirculation and subscription\n$\n12\u00a0\n$\n13\u00a0\n$\n(1)\n(8)\n%\nAdvertising\n140\u00a0\n135\u00a0\n5\u00a0\n4\u00a0\n%\nReal estate\n1,189\u00a0\n1,347\u00a0\n(158)\n(12)\n%\nOther\n198\u00a0\n246\u00a0\n(48)\n(20)\n%\nTotal Revenues\n1,539\n\u00a0\n1,741\n\u00a0\n(202)\n(12)\n%\nOperating expenses\n(201)\n(208)\n7\u00a0\n3\u00a0\n%\nSelling, general and administrative\n(881)\n(959)\n78\u00a0\n8\u00a0\n%\nSegment EBITDA\n$\n457\n\u00a0\n$\n574\n\u00a0\n$\n(117)\n(20)\n%\nFor the fiscal year ended June\u00a030, 2023, revenues at the Digital Real Estate Services segment decreased $202 million, or 12%, as compared to fiscal 2022, including an approximately $14 million impact from the absence of the 53rd week in fiscal 2023. Revenues at Move decreased $110 million\n, or\n 15%, to $602 million for the fiscal year ended June\u00a030, 2023 from $712 million in fiscal 2022\n, primarily driven by the continued impact of the macroeconomic environment on the housing market, including higher interest rates, and the impact of the absence of the 53rd week in fiscal 2023, partially offset by the $10 million increase in advertising revenues. The market downturn resulted in lower lead volumes, which decreased 29%, and lower transaction volumes. \nRevenues from the referral model, which includes the ReadyConnect Concierge\u2120 product, and the traditional lead generation product decreased due to these factors, partially offset by improved lead optimization. The referral model generated \n44\nTable \no\nf \nContents\napproximately 26% of total Move revenues in fiscal 2023 as compared to approximately 31% in fiscal 2022. At REA Group, revenues decreased $92 million, or 9%, to $937 million for the fiscal year ended June\u00a030, 2023 from $1,029 million in fiscal 2022 primarily driven by the $74 million negative impact of foreign currency fluctuations. The impact of lower national listings on Australian residential revenues and lower financial services revenue driven by lower settlements and the $15 million adverse impact from a valuation adjustment related to expected future trail commissions were partially offset by price increases, increased depth penetration for Australian residential products due to the contribution of Premiere Plus, increased depth penetration for commercial products and higher revenues at REA India. \nFor the fiscal year ended \nJune\u00a030, 2023\n, Segment EBITDA at the Digital Real Estate Services segment decreased \n$117 million\n, or \n20%\n, as compared to fiscal \n2022, primarily due to the lower revenues discussed above, the $34 million, or 6%, negative impact of foreign currency fluctuations and higher costs at REA India, partially offset by lower broker commissions at REA Group due to the valuation adjustment related to expected future trail commissions and lower settlements and lower discretionary and employee costs at Move.\nSubscription Video Services\n (20% of the Company\u2019s consolidated revenues in both fiscal 2023 and 2022)\n\u00a0\nFor the fiscal years ended June 30,\n2023\n2022\nChange\n%\u00a0Change\n(in millions, except %)\nBetter/(Worse)\nRevenues:\nCirculation and subscription\n$\n1,671\u00a0\n$\n1,753\u00a0\n$\n(82)\n(5)\n%\nAdvertising\n227\u00a0\n232\u00a0\n(5)\n(2)\n%\nOther\n44\u00a0\n41\u00a0\n3\u00a0\n7\u00a0\n%\nTotal Revenues\n1,942\n\u00a0\n2,026\n\u00a0\n(84)\n(4)\n%\nOperating expenses\n(1,264)\n(1,281)\n17\u00a0\n1\u00a0\n%\nSelling, general and administrative\n(331)\n(385)\n54\u00a0\n14\u00a0\n%\nSegment EBITDA\n$\n347\n\u00a0\n$\n360\n\u00a0\n$\n(13)\n(4)\n%\nFor the fiscal year ended June\u00a030, 2023, revenues at the Subscription Video Services segment decreased $84 million, or 4%, as compared to fiscal 2022 due to the negative impact of foreign currency fluctuations. The $114 million increase in streaming revenues, primarily due to increased volume and pricing at Kayo and \nBINGE\n, the $26 million increase in commercial subscription revenues due to the absence of COVID-19 related restrictions imposed in fiscal 2022 and improvements in underlying advertising trends\n \nmore than offset lower residential subscription revenues resulting from fewer residential broadcast subscribers. Foxtel Group streaming subscription revenues represented approximately 27% of total circulation and subscription revenues for the fiscal year ended June\u00a030, 2023, as compared to 20% in fiscal 2022. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a revenue decrease\u00a0of\u00a0$157 million, or 8%,\u00a0for the fiscal year ended\u00a0June\u00a030, 2023,\u00a0as compared to\u00a0fiscal 2022.\nFor the fiscal year ended June\u00a030, 2023, Segment EBITDA decreased $13 million, or 4%, as compared to fiscal 2022 due to the $29 million, or 8%, negative impact of foreign currency fluctuations. Higher sports programming rights and production costs due to contractual increases and enhanced digital rights and higher entertainment programming rights costs due to the availability of content were more than offset by the revenue drivers discussed above, as well as lower transmission and marketing costs.\nThe following tables provide information regarding certain key performance indicators for the Foxtel Group, the primary reporting unit within the Subscription Video Services segment, as of and for the fiscal years ended June\u00a030, 2023 and 2022. Management believes these metrics provide useful information to allow investors to understand trends in consumer behavior and acceptance of the various services offered by the Foxtel Group. Management utilizes these metrics to track and forecast subscription revenue trends across the business\u2019s various linear and streaming products. See \u201cPart I. Business\u201d for further detail regarding these performance indicators including definitions and methods of calculation.\n45\nTable \no\nf \nContents\nAs of June 30,\n2023\n2022\n(in 000s)\nBroadcast Subscribers\nResidential\n(a)\n1,341\u00a0\n1,481\u00a0\nCommercial\n(b)\n233\u00a0\n242\u00a0\nStreaming Subscribers (Total (Paid))\n(c)\nKayo\n1,411 (1,401 paid)\n1,312 (1,293 paid)\nBINGE\n1,541 (1,487 paid)\n1,263 (1,192 paid)\nFoxtel Now\n177 (170 paid)\n201 (194 paid)\nTotal Subscribers (Total (Paid))\n(d)\n4,723 (4,650 paid)\n4,529 (4,413 paid)\nFor the fiscal years ended June 30,\n2023\n2022\nBroadcast ARPU\n(e)\nA$84 (US$56)\nA$82 (US$59)\nBroadcast Subscriber Churn\n(f)\n12.7%\n13.8%\n________________________\n(a)\nSubscribing households throughout Australia as of June\u00a030, 2023 and 2022.\n(b)\nCommercial subscribers throughout Australia as of June\u00a030, 2023 and 2022. \n(c)\nTotal and Paid subscribers for the applicable streaming service as of June\u00a030, 2023 and 2022. Paid subscribers excludes customers receiving service for no charge under certain new subscriber promotions.\n(d)\nTotal subscribers consists of Foxtel Group\u2019s broadcast and streaming services listed above and its news aggregation streaming service.\n(e)\nAverage monthly broadcast residential subscription revenue per user (Broadcast ARPU) for the fiscal years ended June\u00a030, 2023 and 2022.\n(f)\nBroadcast residential subscriber churn rate (Broadcast Subscriber Churn) for the fiscal years ended June\u00a030, 2023 and 2022.\nDow Jones \n(22% and 19% of the Company\u2019s consolidated revenues in fiscal 2023 and 2022, respectively)\nFor the fiscal years ended June 30,\n2023\n2022\nChange\n% Change\n(in millions, except %)\nBetter/(Worse)\nRevenues:\nCirculation and subscription\n$\n1,689\u00a0\n$\n1,516\u00a0\n$\n173\u00a0\n11\u00a0\n%\nAdvertising\n413\u00a0\n449\u00a0\n(36)\n(8)\n%\nOther\n51\u00a0\n39\u00a0\n12\u00a0\n31\u00a0\n%\nTotal Revenues\n2,153\n\u00a0\n2,004\n\u00a0\n149\n\u00a0\n7\n\u00a0\n%\nOperating expenses\n(934)\n(845)\n(89)\n(11)\n%\nSelling, general and administrative\n(725)\n(726)\n1\u00a0\n\u2014\u00a0\n%\nSegment EBITDA\n$\n494\n\u00a0\n$\n433\n\u00a0\n$\n61\n\u00a0\n14\n\u00a0\n%\nFor the fiscal year ended June\u00a030, 2023, revenues at the Dow Jones segment increased $149 million, or 7%, as compared to fiscal 2022, primarily due to the $97 million and $68 million impacts from the acquisitions of OPIS and CMA in the third and fourth quarters of fiscal 2022, respectively, partially offset by \nthe approximately $40 million impact of the absence of the 53rd week in fiscal 2023 and\n the decrease in advertising revenues. Digital revenues at the Dow Jones segment represented 78% of total revenues for the fiscal year ended June\u00a030, 2023, as compared to 75% in fiscal 2022. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a revenue decrease of $18 million, or 1%, for the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022.\n46\nTable \no\nf \nContents\nCirculation and subscription revenues\nFor the fiscal years ended June 30,\n2023\n2022\nChange\n% Change\n(in millions, except %)\nBetter/(Worse)\nCirculation and subscription revenues:\nCirculation and other\n$\n929\u00a0\n$\n937\u00a0\n$\n(8)\n(1)\n%\nProfessional information business\n760\u00a0\n579\u00a0\n181\u00a0\n31\u00a0\n%\nTotal circulation and subscription revenues\n$\n1,689\n\u00a0\n$\n1,516\n\u00a0\n$\n173\n\u00a0\n11\n\u00a0\n%\nCirculation and subscription revenues increased $173 million, or 11%, during the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022. Revenues at the professional information business increased $181 million, or 31%, primarily driven by the acquisitions of OPIS and CMA and the $25 million increase in Risk & Compliance revenues. Circulation and other revenues decreased $8 million, or 1%, driven by the impact of the absence of the 53rd week in fiscal 2023, as growth in digital-only subscriptions, primarily at \nThe Wall Street Journal, \nmore than offset print circulation declines\n. \nDuring the fourth quarter of fiscal 2023, average daily digital-only subscriptions at \nThe Wall Street Journal\n increased 10% to 3.4\u00a0million as compared to fiscal 2022, and digital revenues represented 69% of circulation revenue for the fiscal year ended June\u00a030, 2023, as compared to 67% in fiscal 2022. The impact of the \nabsence of the 53rd week in fiscal 2023\n resulted in a circulation and subscription revenue decrease of approximately $31 million.\nThe following table summarizes average daily consumer subscriptions during the three months ended June\u00a030, 2023 and 2022 for select publications and for all consumer subscription products.\n(a)\nFor the three months ended June 30\n(b)\n,\n2023\n2022\nChange\n% Change\n(in thousands, except %)\nBetter/(Worse)\nThe Wall Street Journal\nDigital-only subscriptions\n(c)\n3,406\u00a0\n3,095\u00a0\n311\u00a0\n10\u00a0\n%\nTotal subscriptions\n3,966\u00a0\n3,749\u00a0\n217\u00a0\n6\u00a0\n%\nBarron\u2019s\n \nGroup\n(d)\nDigital-only subscriptions\n(c)\n1,018\u00a0\n848\u00a0\n170\u00a0\n20\u00a0\n%\nTotal subscriptions\n1,168\u00a0\n1,038\u00a0\n130\u00a0\n13\u00a0\n%\nTotal Consumer\n(e)\nDigital-only subscriptions\n(c)\n4,510\u00a0\n4,029\u00a0\n481\u00a0\n12\u00a0\n%\nTotal subscriptions\n5,242\u00a0\n4,898\u00a0\n344\u00a0\n7\u00a0\n%\n________________________\n(a)\nBased on internal data for the periods from April 3, 2023 to July 2, 2023 and March 28, 2022 to July 3, 2022, respectively, with independent verification procedures performed by PricewaterhouseCoopers LLP UK.\n(b)\nSubscriptions include individual consumer subscriptions, as well as subscriptions purchased by companies, schools, businesses and associations for use by their respective employees, students, customers or members. Subscriptions exclude single-copy sales and copies purchased by hotels, airlines and other businesses for limited distribution or access to customers.\n(c)\nFor some publications, including \nThe Wall Street Journal\n and \nBarron\u2019s\n, Dow Jones sells bundled print and digital products. For bundles that provide access to both print and digital products every day of the week, only one unit is reported each day and is designated as a print subscription. For bundled products that provide access to the print product only on specified days and full digital access, one print subscription is reported for each day that a print copy is served and one digital subscription is reported for each remaining day of the week.\n(d)\nBarron\u2019s Group consists of \nBarron\u2019s\n, MarketWatch, \nFinancial News \nand \nPrivate Equity News.\n(e)\nTotal Consumer consists of \nThe Wall Street Journal\n, Barron\u2019s Group\n \nand \nInvestor\u2019s Business Daily\n.\nAdvertising revenues\nAdvertising revenues decreased $36 million, or 8%, during the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022. Print and digital advertising revenues decreased by $22\u00a0million and $14\u00a0million, respectively, primarily due to lower advertising spend within the technology and finance sectors. Digital advertising revenues represented 61% of advertising revenue for the fiscal year \n47\nTable \no\nf \nContents\nended June\u00a030, 2023, as compared to 59% in fiscal 2022. The impact of the absence of the 53rd week in fiscal 2023 resulted in an advertising revenue decrease of approximately $9 million.\nSegment EBITDA\nFor the fiscal year ended June\u00a030, 2023, Segment EBITDA at the Dow Jones segment increased $61 million, or 14%, as compared to fiscal 2022, including the $33 million and $26 million contributions from the acquisitions of OPIS and CMA, respectively, primarily due to the increase in revenues discussed above and the absence of $25 million of OPIS and CMA-related transaction costs incurred in fiscal 2022, partially offset by $84 million of higher employee costs primarily due to recent acquisitions.\nBook Publishing\n (20% and 21% of the Company\u2019s consolidated revenues in fiscal 2023 and 2022, respectively)\n\u00a0\nFor the fiscal years ended June 30,\n2023\n2022\nChange\n% Change\n(in millions, except %)\nBetter/(Worse)\nRevenues:\nConsumer\n$\n1,899\u00a0\n$\n2,106\u00a0\n$\n(207)\n(10)\n%\nOther\n80\u00a0\n85\u00a0\n(5)\n(6)\n%\nTotal Revenues\n1,979\n\u00a0\n2,191\n\u00a0\n(212)\n(10)\n%\nOperating expenses\n(1,469)\n(1,512)\n43\u00a0\n3\u00a0\n%\nSelling, general and administrative\n(343)\n(373)\n30\u00a0\n8\u00a0\n%\nSegment EBITDA\n$\n167\n\u00a0\n$\n306\n\u00a0\n$\n(139)\n(45)\n%\nFor the fiscal year ended June\u00a030, 2023, revenues at the Book Publishing segment decreased $212\u00a0million, or 10%, as compared to fiscal 2022, driven by lower print and digital book sales, mainly in the U.S. market, driven by lower consumer demand industry-wide, weak frontlist performance, Amazon\u2019s reset of its inventory levels and rightsizing of its warehouse footprint, which negatively impacted print book sales, the negative impact of foreign currency fluctuations and \nthe approximately $20 million impact of the absence of the 53rd week in fiscal 2023\n. Digital sales decreased by 5% as compared to fiscal 2022 primarily due to lower e-book sales. Digital sales represented approximately 22% of consumer revenues, as compared to 21% in fiscal 2022, and backlist sales represented approximately 60% of total revenues during the fiscal year ended June\u00a030, 2023. \nThe impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a revenue decrease of \n$58\u00a0million\n, or \n3%\n, for the fiscal year ended \nJune\u00a030, 2023\n as compared to fiscal \n2022\n.\nFor the fiscal year ended June\u00a030, 2023, Segment EBITDA at the Book Publishing segment decreased $139\u00a0million, or 45%, as compared to fiscal 2022, primarily due to the lower revenues discussed above and higher manufacturing, freight and distribution costs related to ongoing supply chain challenges and inventory and inflationary pressures, partially offset by lower costs due to lower sales volumes and lower employee costs. These supply chain challenges and inventory and inflationary pressures are expected to continue to impact the business in the near term, but are expected to moderate in fiscal 2024. To mitigate these pressures, the Company has implemented price increases, begun to reduce headcount and continues to evaluate its cost base.\nNews Media\n (23% of the Company\u2019s consolidated revenues in both fiscal 2023 and 2022)\nFor the fiscal years ended June 30,\n2023\n2022\nChange\n% Change\n(in millions, except %)\nBetter/(Worse)\nRevenues:\nCirculation and subscription\n$\n1,075\u00a0\n$\n1,143\u00a0\n$\n(68)\n(6)\n%\nAdvertising\n907\u00a0\n1,005\u00a0\n(98)\n(10)\n%\nOther\n284\u00a0\n275\u00a0\n9\u00a0\n3\u00a0\n%\nTotal Revenues\n2,266\n\u00a0\n2,423\n\u00a0\n(157)\n(6)\n%\nOperating expenses\n(1,256)\n(1,278)\n22\u00a0\n2\u00a0\n%\nSelling, general and administrative\n(854)\n(928)\n74\u00a0\n8\u00a0\n%\nSegment EBITDA\n$\n156\n\u00a0\n$\n217\n\u00a0\n$\n(61)\n(28)\n%\nFor the fiscal year ended June\u00a030, 2023, revenues at the News Media segment decreased $157\u00a0million, or 6%, as compared to fiscal 2022. Advertising revenues decreased $98\u00a0million as compared to fiscal 2022, primarily driven by the $70\u00a0million negative \n48\nTable \no\nf \nContents\nimpact of foreign currency fluctuations. Lower print advertising revenues at News UK, the impact \nof the absence of the 53rd week in fiscal 2023 and lower\n digital and print advertising revenues at News Corp Australia were partially offset by digital advertising revenue growth at News UK. Circulation and subscription revenues decreased $68\u00a0million as compared to fiscal 2022, driven by the $93\u00a0million negative impact of foreign currency fluctuations, as cover price increases, digital subscriber growth across key mastheads and higher content licensing revenues were partially offset by print volume declines and the impact \nof the absence of the 53rd week in fiscal 2023\n. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a revenue decrease of $187\u00a0million, or 7%, for the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022\n. \nThe impact of the absence of the 53rd week in fiscal 2023 resulted in a revenue decrease of approximately $36 million.\nFor the fiscal year ended June\u00a030, 2023, Segment EBITDA at the News Media segment decreased $61\u00a0million, or 28%, as compared to fiscal 2022, including the $13\u00a0million, or 6%, negative impact of foreign currency fluctuations, primarily due to the lower revenues described above, the $60 million impact of higher pricing on newsprint costs and approximately $50 million of increased costs associated with TalkTV and other digital investments, mainly at News Corp Australia, partially offset by cost savings initiatives.\nNews Corp Australia\nRevenues were $998 million for the fiscal year ended June\u00a030, 2023, a decrease of $90\u00a0million, or 8%, as compared to fiscal 2022 revenues of $1,088\u00a0million. Advertising revenues decreased $54\u00a0million mainly due to the $32 million negative impact of foreign currency fluctuations, lower digital and print advertising revenues and the impact of the absence of the 53rd week in fiscal 2023. Circulation and subscription revenues decreased $34\u00a0million due to the $34\u00a0million negative impact of foreign currency fluctuations, as \nprint volume declines and the \nimpact of the absence of the 53rd week in fiscal 2023\n were offset by cover price increases, digital subscriber growth and higher content licensing revenues\n. The impact of the absence of the 53rd week in fiscal 2023 resulted in a revenue decrease of approximately $15 million. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a revenue decrease of $77\u00a0million, or 7%, for the fiscal year ended June 30, 2023 as compared to fiscal 2022.\nNews UK\nRevenues were $933 million for the fiscal year ended June\u00a030, 2023, a decrease of $74\u00a0million, or 7%, as compared to fiscal 2022 revenues of $1,007\u00a0million. Circulation and subscription revenues decreased $41\u00a0million due to the $58 million negative impact of foreign currency fluctuations. Higher revenues from cover price increases and digital subscriber growth were partially offset by print volume declines and \nthe \nimpact of the absence of the 53rd week in fiscal 2023. Advertising revenues decreased $25\u00a0million due to the $25\u00a0million negative impact of foreign currency fluctuations, as lower print advertising revenues and \nthe \nimpact of the absence of the 53rd week in fiscal 2023 were offset by higher digital advertising revenues, mainly at \nThe Sun. \nThe impact of the absence of the 53rd week in fiscal 2023 resulted in a revenue decrease of approximately $18 million. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a revenue decrease of $94 million, or 9%, for the fiscal year ended June 30, 2023 as compared to fiscal 2022.\nLIQUIDITY AND CAPITAL RESOURCES\nCurrent Financial Condition\nThe Company\u2019s principal source of liquidity is internally generated funds and cash and cash equivalents on hand. As of June\u00a030, 2023, the Company\u2019s cash and cash equivalents were $1,833\u00a0million. The Company also has available borrowing capacity under the Revolving Facility and certain other facilities, as described below, and expects to have access to the worldwide credit and capital markets, subject to market conditions, in order to issue additional debt if needed or desired. The Company currently expects these elements of liquidity will enable it to meet its liquidity needs for at least the next 12 months, including repayment of indebtedness. Although the Company believes that its cash on hand and future cash from operations, together with its access to the credit and capital markets, will provide adequate resources to fund its operating and financing needs for at least the next 12 months, its access to, and the availability of, financing on acceptable terms in the future will be affected by many factors, including: (i) the financial and operational performance of the Company and/or its operating subsidiaries, as applicable; (ii) the Company\u2019s credit ratings and/or the credit rating of its operating subsidiaries, as applicable; (iii) the provisions of any relevant debt instruments, credit agreements, indentures and similar or associated documents; (iv) the liquidity of the overall credit and capital markets; and (v) the state of the economy. There can be no assurances that the Company will continue to have access to the credit and capital markets on acceptable terms.\nAs of June\u00a030, 2023, the Company\u2019s consolidated assets included $902\u00a0million in cash and cash equivalents that were held by its foreign subsidiaries. Of this amount, $173\u00a0million is cash not readily accessible by the Company as it is held by REA Group, a \n49\nTable \no\nf \nContents\nmajority owned but separately listed public company. REA Group must declare a dividend in order for the Company to have access to its share of REA Group\u2019s cash balance. Prior to the enactment of the Tax Cuts and Jobs Act (\u201cTax Act\u201d), the Company\u2019s undistributed foreign earnings were considered permanently reinvested and as such, United States federal and state income taxes were not previously recorded on these earnings. As a result of the Tax Act, substantially all of the Company\u2019s earnings in foreign subsidiaries generated prior to the enactment of the Tax Act were deemed to have been repatriated and taxed accordingly. As of June\u00a030, 2023, the Company has approximately $800\u00a0million of undistributed foreign earnings that it intends to reinvest permanently. It is not practicable to estimate the amount of tax that might be payable if these earnings were repatriated. The Company may repatriate future earnings of certain foreign subsidiaries in which case the Company may be required to accrue and pay additional taxes, including any applicable foreign withholding taxes and income taxes.\nThe principal uses of cash that affect the Company\u2019s liquidity position include the following: operational expenditures including employee costs, paper purchases and programming costs; capital expenditures; income tax payments; investments in associated entities; acquisitions; the repurchase of shares; dividends; and the repayment of debt and related interest. In addition to the acquisitions and dispositions disclosed elsewhere, the Company has evaluated, and expects to continue to evaluate, possible future acquisitions and dispositions of certain businesses. Such transactions may be material and may involve cash, the issuance of the Company\u2019s securities or the assumption of indebtedness.\nIssuer Purchases of Equity Securities\nThe Board of Directors has authorized a Repurchase Program to purchase up to $1 billion in the aggregate of the Company\u2019s outstanding Class A Common Stock and Class B Common Stock. The manner, timing, number and share price of any repurchases will be determined by the Company at its discretion and will depend upon such factors as the market price of the stock, general market conditions, applicable securities laws, alternative investment opportunities and other factors. The Repurchase Program has no time limit and may be modified, suspended or discontinued at any time. As of June\u00a030, 2023, the remaining authorized amount under the Repurchase Program was approximately $577\u00a0million.\nStock repurchases under the Repurchase Program commenced on November 9, 2021. During the fiscal year ended June\u00a030, 2023, the Company repurchased and subsequently retired 9.5\u00a0million shares of Class\u00a0A Common Stock for approximately $159\u00a0million and 4.7\u00a0million shares of Class B Common Stock for approximately $81\u00a0million. During the fiscal year ended June\u00a030, 2022, the Company repurchased and subsequently retired 5.8\u00a0million shares of Class\u00a0A Common Stock for approximately $122\u00a0million and 2.9\u00a0million shares of Class B Common Stock for approximately $61\u00a0million.\nDividends\nThe following table summarizes the dividends declared and paid per share on both the Company\u2019s Class\u00a0A Common Stock and Class\u00a0B Common Stock:\nFor the fiscal years ended\nJune 30,\n2023\n2022\nCash dividends paid per share\n$\n0.20\u00a0\n$\n0.20\u00a0\nThe timing, declaration, amount and payment of future dividends to stockholders, if any, is within the discretion of the Board of Directors. The Board of Directors\u2019 decisions regarding the payment of future dividends will depend on many factors, including the Company\u2019s financial condition, earnings, capital requirements and debt facility covenants, other contractual restrictions, as well as legal requirements, regulatory constraints, industry practice, market volatility and other factors that the Board of Directors deems relevant.\nSources and Uses of Cash\u2014Fiscal 2023 versus Fiscal 2022\nNet cash provided by operating activities for the fiscal years ended June\u00a030, 2023 and 2022 was as follows (in millions):\nFor the fiscal years ended June 30,\n2023\n2022\nNet cash provided by operating activities\n$\n1,092\u00a0\n$\n1,354\u00a0\nNet cash provided by operating activities decreased by $262 million for the fiscal year ended June\u00a030, 2023 as compared to fiscal 2022. The decrease was primarily due to lower Total Segment EBITDA.\n50\nTable \no\nf \nContents\nNet cash used in investing activities for the fiscal years ended June\u00a030, 2023 and 2022 was as follows (in millions):\nFor the fiscal years ended June 30,\n2023\n2022\nNet cash used in investing activities\n$\n(574)\n$\n(2,076)\nNet cash used in investing activities was $574 million for the fiscal year ended June\u00a030, 2023 as compared to net cash used in investing activities of $2,076 million for fiscal 2022. \nDuring the fiscal year ended June\u00a030, 2023, the Company used $499 million of cash for capital expenditures, of which $152 million related to the Foxtel Group, and $120 million for investments and acquisitions. During the fiscal year ended June\u00a030, 2022, the Company used $1,613 million of cash for acquisitions and investments, of which $1,146 million and $288 million related to the acquisitions of OPIS and CMA in February and June 2022, respectively. The Company also used $499 million of cash for capital expenditures, of which $189 million related to the Foxtel Group.\nNet cash (used in) provided by financing activities for the fiscal years ended June\u00a030, 2023 and 2022 was as follows (in millions):\nFor the fiscal years ended June 30,\n2023\n2022\nNet cash (used in) provided by financing activities\n$\n(501)\n$\n404\u00a0\nThe Company had net cash used in financing activities of $501 million for the fiscal year ended June\u00a030, 2023 as compared to net cash provided by financing activities of $404 million for fiscal 2022. \nDuring the fiscal year ended June\u00a030, 2023, the Company had $589 million of borrowing repayments, primarily related to the Foxtel Group\u2019s 2019 Credit Facility and U.S. private placement senior unsecured notes that matured in July 2022, $243 million of repurchases of outstanding Class A and Class B Common Stock under the Repurchase Program and dividend payments of $174 million to News Corporation stockholders and REA Group minority stockholders. The net cash used in financing activities was partially offset by new borrowings related to the Foxtel Group of $514 million. \nDuring the fiscal year ended June\u00a030, 2022, the Company issued $500\u00a0million of 2022 Senior Notes and incurred $500\u00a0million of Term A Loans and had new borrowings for REA Group and the Foxtel Group of $690 million. The net cash provided by financing activities was partially offset by $838 million of borrowing repayments, primarily related to the Foxtel Group\u2019s 2019 Credit Facility and REA Group\u2019s refinancing of its bridge facility, $179 million of repurchases of outstanding Class A and Class B Common Stock under the Repurchase Program and dividend payments of $175 million to News Corporation stockholders and REA Group minority stockholders. See Note 9\u2014Borrowings in the accompanying Consolidated Financial Statements.\nReconciliation of Free Cash Flow and Free Cash Flow Available to News Corporation\nFree cash flow and free cash flow available to News Corporation are non-GAAP financial measures. Free cash flow is defined as net cash provided by operating activities, less capital expenditures, and free cash flow available to News Corporation is defined as free cash flow, less REA Group free cash flow, plus cash dividends received from REA Group. Free cash flow and free cash flow available to News Corporation should be considered in addition to, not as a substitute for, cash flows from operations and other measures of financial performance reported in accordance with GAAP. Free cash flow and free cash flow available to News Corporation may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what items should be included in the calculation of free cash flow.\nThe Company believes free cash flow provides useful information to management and investors about the Company\u2019s liquidity and cash flow trends. The Company believes free cash flow available to News Corporation, which adjusts free cash flow to exclude REA Group\u2019s free cash flow and include dividends received from REA Group, provides management and investors with a measure of the amount of cash flow that is readily available to the Company, as REA Group is a separately listed public company in Australia and must declare a dividend in order for the Company to have access to its share of REA Group\u2019s cash balance. The Company believes free cash flow available to News Corporation provides a more conservative view of the Company\u2019s free cash flow because this presentation includes only that amount of cash the Company actually receives from REA Group, which has generally been lower than the Company\u2019s unadjusted free cash flow.\nA limitation of both free cash flow and free cash flow available to News Corporation is that they do not represent the total increase or decrease in the cash balance for the period. Management compensates for the limitation of free cash flow and free cash flow available to News Corporation by also relying on the net change in cash and cash equivalents as presented in the Statements of Cash Flows prepared in accordance with GAAP which incorporate all cash movements during the period.\n51\nTable \no\nf \nContents\nThe following table presents a reconciliation of net cash provided by operating activities to free cash flow and free cash flow available to News Corporation:\nFor the fiscal years ended\nJune 30,\n2023\n2022\n(in millions)\nNet cash provided by operating activities\n$\n1,092\u00a0\n$\n1,354\u00a0\nLess: Capital expenditures\n(499)\n(499)\nFree cash flow \n593\u00a0\n855\u00a0\nLess: REA Group free cash flow\n(234)\n(279)\nPlus: Cash dividends received from REA Group\n91\u00a0\n87\u00a0\nFree cash flow available to News Corporation\n$\n450\u00a0\n$\n663\u00a0\nFree cash flow\n in the fiscal year ended June\u00a030, 2023 was $593 million compared to $855 million in the prior year. Free cash flow available to News Corporation in the fiscal year ended June\u00a030, 2023 was $450 million compared to $663 million in the prior year. Free cash flow and free cash flow available to News Corporation decreased primarily due to lower cash provided by operating activities, as discussed above.\nBorrowings\nAs of June\u00a030, 2023, the Company, certain subsidiaries of NXE Australia Pty Limited (the \u201cFoxtel Group\u201d and together with such subsidiaries, the \u201cFoxtel Debt Group\u201d) and REA Group and certain of its subsidiaries (REA Group and certain of its subsidiaries, the \u201cREA Debt Group\u201d) had total borrowings of $3 billion, including the current portion. Both the Foxtel Group and REA Group are consolidated but non wholly-owned subsidiaries of News Corp, and their indebtedness is only guaranteed by members of the Foxtel Debt Group and REA Debt Group, respectively, and is non-recourse to News Corp.\nNews Corporation Borrowings\nAs of June\u00a030, 2023, the Company had (i) borrowings of $1,978 million, consisting of its outstanding 2021 Senior Notes, 2022 Senior Notes and Term A Loans and (ii) $750 million of undrawn commitments available under the Revolving Facility. \nFoxtel Group Borrowings\nAs of June\u00a030, 2023, the Foxtel Debt Group had (i) borrowings of approximately $736\u00a0million, including the full drawdown of its 2019 Term Loan Facility, amounts outstanding under the 2019 Credit Facility and 2017 Working Capital Facility, its outstanding U.S. private placement senior unsecured notes and amounts outstanding under the Telstra Facility (described below), and (ii) total undrawn commitments of A$161 million available under the 2017 Working Capital Facility and 2019 Credit Facility.\nIn July 2022, the Foxtel Group repaid its U.S. private placement senior unsecured notes that matured in July 2022 using capacity under the 2019 Credit Facility.\nOn August 14, 2023, the Foxtel Group entered into an agreement (the \u201c2023 Foxtel Credit Agreement\u201d) for a new A$1.2 billion syndicated credit facility (the \u201c2023 Credit Facility\u201d), which will be used to refinance its A$610 million 2019 Credit Facility, A$250 million Term Loan Facility and tranche 3 of its 2012 U.S. private placement. The 2023 Credit Facility consists of three\n sub-facilities: (i) an A$817.5 million three year revolving credit facility (the \u201c2023 Credit Facility \u2014 tranche 1\u201d), (ii) a US$48.7 million four year term loan facility (the \u201c2023 Credit Facility \u2014 tranche 2\u201d) and (iii) an A$311 million four year term loan facility (the \u201c2023 Credit Facility \u2014 tranche 3\u201d). In addition, the Foxtel Group amended its 2017 Working Capital Facility to extend the maturity to August 2026 and modify the pricing.\nDepending on the Foxtel Group\u2019s net leverage ratio, (i) borrowings under the 2023 Credit Facility \u2014 tranche 1 and 2017 Working Capital Facility bear interest at a rate of the Australian BBSY plus a margin of between 2.35% and 3.60%; (ii) borrowings under the 2023 Credit Facility \u2014 tranche 2 bear interest at a rate based on a Term SOFR formula, as set forth in the 2023 Foxtel Credit Agreement, plus a margin of between 2.50% and 3.75%; and (iii) borrowings under the 2023 Credit Facility \u2014 tranche 3 bear interest at a rate of the Australian BBSY plus a margin of between 2.50% and 3.75%. All tranches carry a commitment fee of 45% of the applicable margin on any undrawn balance during the relevant availability period. \nTranches 2 and 3 of the 2023 Credit Facility amortize on a proportionate basis in an aggregate annual amount equal to A$35 million in each of the first two years following closing and A$40 million in each of the two years thereafter. The refinancing is expected to close in the first quarter of fiscal 2024, subject to customary closing conditions.\n52\nTable \no\nf \nContents\nThe 2023 Foxtel Credit Agreement contains customary affirmative and negative covenants and events of default, with customary exceptions, that are generally consistent with those governing the Foxtel Debt Group\u2019s external borrowings as of June 30, 2023, including financial covenants requiring maintenance of the same net debt to Earnings Before Interest, Tax, Depreciation and Amortization (\u201cEBITDA\u201d) and net interest coverage ratios.\nIn addition to third-party indebtedness, the Foxtel Debt Group has related party indebtedness, including A$700 million of outstanding principal of shareholder loans and A$200 million of available shareholder facilities from the Company. The shareholder loans bear interest at a variable rate of the Australian BBSY plus an applicable margin ranging from 6.30% to 7.75% and mature in December 2027. The shareholder revolving credit facility bears interest at a variable rate of the Australian BBSY plus an applicable margin ranging from 2.00% to 3.75%, depending on the Foxtel Debt Group\u2019s net leverage ratio, and matures in July 2024. In connection with the refinancing, the shareholder revolving credit facility will be terminated, and beginning September 30, 2023, amounts outstanding under the shareholder loans are permitted to be repaid if (i) no actual or potential event of default exists both before and immediately after repayment and (ii) the net debt to EBITDA ratio of the Foxtel Debt Group was on the most recent covenant calculation date, and would be immediately after the cash repayment, less than or equal to 2.25 to 1.0. Additionally, the Foxtel Debt Group has an A$170 million subordinated shareholder loan facility with Telstra which can be used to finance cable transmission costs due to Telstra. The Telstra Facility bears interest at a variable rate of the Australian BBSY plus an applicable margin of 7.75% and matures in December 2027. The Company excludes the utilization of the Telstra Facility from the Statements of Cash Flows because it is non-cash.\nREA Group Borrowings\nAs of June\u00a030, 2023, REA Group had (i) borrowings of approximately $211\u00a0million, consisting of amounts outstanding under its 2022 Credit Facility, and (ii) A$281 million of undrawn commitments available under its 2022 Credit Facility. \nAll of the Company\u2019s borrowings contain customary representations, covenants and events of default. The Company was in compliance with all such covenants at\u00a0June\u00a030, 2023.\nSee Note 9\u2014Borrowings in the accompanying Consolidated Financial Statements for further details regarding the Company\u2019s outstanding debt, including additional information about interest rates, amortization (if any), maturities and covenants related to such debt arrangements.\nCommitments\nThe Company has commitments under certain firm contractual arrangements (\u201cfirm commitments\u201d) to make future payments. These firm commitments secure the current and future rights to various assets and services to be used in the normal course of operations.\nThe following table summarizes the Company\u2019s material firm commitments as of June\u00a030, 2023:\nAs of June 30, 2023\nPayments Due by Period\nTotal\nLess than 1\nyear\n1-3 years\n3-5 years\nMore than\n5\u00a0years\n(in millions)\nPurchase obligations\n(a)\n$\n1,584\u00a0\n$\n562\u00a0\n$\n620\u00a0\n$\n355\u00a0\n$\n47\u00a0\nSports programming rights\n(b)\n3,732\u00a0\n501\u00a0\n1,073\u00a0\n950\u00a0\n1,208\u00a0\nProgramming costs\n(c)\n1,444\u00a0\n430\u00a0\n528\u00a0\n359\u00a0\n127\u00a0\nOperating leases\n(d)\nTransmission costs\n(e)\n132\u00a0\n24\u00a0\n32\u00a0\n30\u00a0\n46\u00a0\nLand and buildings\n1,606\u00a0\n136\u00a0\n257\u00a0\n199\u00a0\n1,014\u00a0\nPlant and machinery\n8\u00a0\n4\u00a0\n4\u00a0\n\u2014\u00a0\n\u2014\u00a0\nFinance leases\nTransmission costs\n(e)\n43\u00a0\n28\u00a0\n15\u00a0\n\u2014\u00a0\n\u2014\u00a0\nBorrowings\n(f)\n2,945\u00a0\n333\u00a0\n562\u00a0\n550\u00a0\n1,500\u00a0\nInterest payments on borrowings\n(g)\n613\u00a0\n120\u00a0\n189\u00a0\n163\u00a0\n141\u00a0\nTotal commitments and contractual obligations\n$\n12,107\u00a0\n$\n2,138\u00a0\n$\n3,280\u00a0\n$\n2,606\u00a0\n$\n4,083\u00a0\n________________________\n53\nTable \no\nf \nContents\n(a)\nThe Company has commitments under purchase obligations related to minimum subscriber guarantees for license fees, printing contracts, capital projects, marketing agreements, production services and other legally binding commitments.\n(b)\nThe Company has sports programming rights commitments with the National Rugby League, Australian Football League and Cricket Australia, as well as certain other broadcast rights, which are payable through fiscal 2032. \n(c)\nThe Company has programming rights commitments with various suppliers for programming content.\n(d)\nThe Company leases office facilities, warehouse facilities, printing plants, satellite services and equipment. These leases, which are classified as operating leases, are expected to be paid at certain dates through fiscal 2048. Amounts reflected represent only the Company\u2019s lease obligations for which it has firm commitments. \n(e)\nThe Company has contractual commitments for satellite transmission services. The Company\u2019s satellite transponder services arrangements extend through fiscal 2032 and are accounted for as operating or finance leases, based on the underlying terms of those arrangements.\n(f)\nSee Note 9\u2014Borrowings in the accompanying Consolidated Financial Statements.\n(g)\nReflects the Company\u2019s expected future interest payments based on borrowings outstanding and interest rates applicable at June\u00a030, 2023. Such rates are subject to change in future periods. See Note 9\u2014Borrowings in the accompanying Consolidated Financial Statements.\nThe Company has certain contracts to purchase newsprint, ink and plates that require the Company to purchase a percentage of its total requirements for production. Since the quantities purchased annually under these contracts are not fixed and are based on the Company\u2019s total requirements, the amount of the related payments for these purchases is excluded from the table above.\nThe table also excludes the Company\u2019s pension obligations, other postretirement benefits (\u201cOPEB\u201d) obligations and the liabilities for unrecognized tax benefits for uncertain tax positions as the Company is unable to reasonably predict the ultimate amount and timing of the commitments. The Company made contributions of $14 million and $29 million to its pension plans in fiscal 2023 and fiscal 2022, respectively. Future plan contributions are dependent upon actual plan asset returns, interest rates and statutory requirements. The Company anticipates that it will make required contributions of approximately $23\u00a0million in fiscal 2024, assuming that actual plan asset returns are consistent with the Company\u2019s returns in fiscal 2023 and those expected beyond, and that interest rates remain constant. The Company will continue to make voluntary contributions as necessary to improve the funded status of the plans. Payments due to participants under the Company\u2019s pension plans are primarily paid out of underlying trusts. Payments due under the Company\u2019s OPEB plans are not required to be funded in advance, but are paid as medical costs are incurred by covered retiree populations, and are principally dependent upon the future cost of retiree medical benefits under the Company\u2019s OPEB plans. The Company expects its OPEB payments to approximate $7\u00a0million in fiscal 2024. See Note 17\u2014Retirement Benefit Obligations and Note 18\u2014Other Postretirement Benefits in the accompanying Consolidated Financial Statements.\nOther significant ongoing expenses or cash requirements for each of the Company\u2019s segments are discussed above in \u201cOverview of the Company\u2019s Businesses.\u201d The Company generally expects to fund these short and long-term cash requirements with internally-generated funds and cash and cash equivalents on hand.\nContingencies\nThe Company routinely is involved in various legal proceedings, claims and governmental inspections or investigations, including those discussed in Note 16\u2014Commitments and Contingencies in the accompanying Consolidated Financial Statements. The outcome of these matters and claims is subject to significant uncertainty, and the Company often cannot predict what the eventual outcome of pending matters will be or the timing of the ultimate resolution of these matters. Fees, expenses, fines, penalties, judgments or settlement costs which might be incurred by the Company in connection with the various proceedings could adversely affect its results of operations and financial condition.\nThe Company establishes an accrued liability for legal claims when it determines that a loss is both probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. Legal fees associated with litigation and similar proceedings are expensed as incurred. The Company recognizes gain contingencies when the gain becomes realized or realizable. See Note 16\u2014Commitments and Contingencies in the accompanying Consolidated Financial Statements.\nThe Company\u2019s tax returns are subject to on-going review and examination by various tax authorities. Tax authorities may not agree with the treatment of items reported in the Company\u2019s tax returns, and therefore the outcome of tax reviews and examinations can be unpredictable. The Company believes it has appropriately accrued for the expected outcome of uncertain tax \n54\nTable \no\nf \nContents\nmatters and believes such liabilities represent a reasonable provision for taxes ultimately expected to be paid. However, these liabilities may need to be adjusted as new information becomes known and as tax examinations continue to progress, or as settlements or litigations occur.\nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\nAn accounting policy is considered to be critical if it is important to the Company\u2019s financial condition and results of operations and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by management of the Company. See Note 2\u2014Summary of Significant Accounting Policies in the accompanying Consolidated Financial Statements.\nGoodwill and Indefinite-lived Intangible Assets\nThe Company tests goodwill and indefinite-lived intangible assets for impairment on an annual basis in the fourth quarter and at other times if a significant event or change in circumstances indicates that it is more likely than not that the fair value of these assets has been reduced below their carrying value. The Company uses its judgment in assessing whether assets may have become impaired between annual impairment assessments. Indicators such as unexpected adverse economic factors, unanticipated technological changes or competitive activities, loss of key personnel and acts by governments and courts, may signal that an asset has become impaired.\nUnder ASC 350, in assessing goodwill for impairment, the Company has the option to first perform a qualitative assessment to determine whether events or circumstances exist that lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company is not required to perform any additional tests in assessing goodwill for impairment. However, if the Company concludes otherwise or elects not to perform the qualitative assessment, then it is required to perform a quantitative analysis to determine the fair value of the reporting unit, and compare the calculated fair value of a reporting unit with its carrying amount, including goodwill. The Company determines the fair value of a reporting unit primarily by using both a discounted cash flow analysis and market-based valuation approach.\nDetermining fair value requires the exercise of significant judgments, including judgments about appropriate discount rates, long-term growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows. During the fourth quarter of fiscal 2023, as part of the Company\u2019s long-range planning process, the Company completed its annual goodwill and indefinite-lived intangible asset impairment test.\nThe performance of the Company\u2019s annual impairment analysis resulted in $25 million of impairments to indefinite-lived intangible assets and no write-downs of goodwill in fiscal 2023. Significant unobservable inputs utilized in the income approach valuation method were discount rates (ranging from 8.5% to 18.0%), long-term growth rates (ranging from 1.0% to 3.5%) and royalty rates (ranging from 0.25% to 7.0%). Significant unobservable inputs utilized in the market approach valuation method were EBITDA multiples from guideline public companies operating in similar industries and control premiums (ranging from 5.0% to 10.0%). Significant increases (decreases) in royalty rates, growth rates, control premiums and multiples, assuming no change in discount rates, would result in a significantly higher (lower) fair value measurement. Significant decreases (increases) in discount rates, assuming no changes in royalty rates, growth rates, control premiums and multiples, would result in a significantly higher (lower) fair value measurement. See Note 8\u2014Goodwill and Other Intangible Assets in the accompanying Consolidated Financial Statements for further details regarding changes in these inputs and assumptions compared to prior fiscal years.\nAs of June\u00a030, 2023, there were no reporting units with goodwill at-risk for future impairment. The Company will continue to monitor its goodwill for possible future impairment.\nProgramming Costs\nCosts incurred in acquiring programming rights are accounted for in accordance with ASC 920, \u201cEntertainment\u2014Broadcasters.\u201d Programming rights and the related liabilities are recorded at the gross amount of the liabilities when the license period has begun, the cost of the program is determinable and the program is accepted and available for airing. Programming costs are amortized based on the expected pattern of consumption over the license period or expected useful life of each program, which requires significant judgment.\u00a0The pattern of consumption is based primarily on consumer viewership information as well as other factors. If initial airings are expected to generate higher viewership, an accelerated method of amortization is used.\u00a0The Company monitors its programming amortization policy on an ongoing basis and any impact arising from changes to the policy would be \n55\nTable \no\nf \nContents\nrecognized prospectively. The Company regularly reviews its programming assets to ensure they continue to reflect fair value. Changes in circumstances may result in a write-down of the asset to fair value. The Company has single and multi-year contracts for broadcast rights of sporting events. The costs of sports contracts are primarily charged to expense over the respective season as events are aired. For sports contracts with dedicated channels, the Company amortizes the sports programming rights costs over 12 months.\nIncome Taxes\nThe Company is subject to income taxes in the U.S. and various foreign jurisdictions in which it operates and records its tax provision for the anticipated tax consequences in its reported results of operations. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining the Company\u2019s tax expense and in evaluating its tax positions including evaluating uncertainties as promulgated under ASC 740, \u201cIncome Taxes.\u201d\nThe Company\u2019s annual tax rate is based primarily on its geographic income and statutory tax rates in the various jurisdictions in which it operates. Significant management judgment is required in determining the Company\u2019s provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against the Company\u2019s net deferred tax assets, if any. In assessing the likelihood of realization of deferred tax assets, management considers estimates of the amount and character of future taxable income. The Company\u2019s actual effective tax rate and income tax expense could vary from estimated amounts due to the future impacts of various items, including changes in income tax laws, tax planning and the Company\u2019s forecasted financial condition and results of operations in future periods. Although the Company believes its current estimates are reasonable, actual results could differ from these estimates.\nThe Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the Consolidated Financial Statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant management judgment is required to determine whether the recognition threshold has been met and, if so, the appropriate amount of unrecognized tax benefits to be recorded in the Consolidated Financial Statements. Management re-evaluates tax positions each period in which new information about recognition or measurement becomes available. The Company\u2019s policy is to recognize, when applicable, interest and penalties on unrecognized income tax benefits as part of Income tax (expense) benefit.\nSee Note 19\u2014Income Taxes in the accompanying Consolidated Financial Statements for further details regarding these estimates and assumptions and changes compared to prior fiscal years.\nRetirement Benefit Obligations\nThe Company\u2019s employees participate in various defined benefit pension and postretirement plans sponsored by the Company and its subsidiaries. See Note 17\u2014Retirement Benefit Obligations in the accompanying Consolidated Financial Statements.\nThe Company records amounts relating to its pension and other postretirement benefit plans based on calculations specified by GAAP. The measurement and recognition of the Company\u2019s pension and other postretirement benefit plans require the use of significant management judgments, including discount rates, expected return on plan assets, mortality and other actuarial assumptions. Net periodic benefit costs (income) are calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations, an expected rate of return on plan assets and mortality rates. Current market conditions, including changes in investment returns and interest rates, were considered in making these assumptions. In developing the expected long-term rate of return, the pension portfolio\u2019s past average rate of returns and future return expectations of the various asset classes were considered. The weighted average expected long-term rate of return of 5.6% for fiscal 2024 is based on a weighted average target asset allocation assumption of 16% equities, 74% fixed-income securities and 10% cash and other investments.\nThe Company recorded $13\u00a0million and nil in net periodic benefit costs (income) in the Statements of Operations for the fiscal years ended June\u00a030, 2023 and 2022, respectively. The Company utilizes the full yield-curve approach to estimate the service and interest cost components of net periodic benefit costs (income) for its pension and other postretirement benefit plans.\nAlthough the discount rate used for each plan will be established and applied individually, a weighted average discount rate of 5.4% will be used in calculating the fiscal 2024 net periodic benefit costs (income). The discount rate reflects the market rate for high-quality fixed-income investments on the Company\u2019s annual measurement date of June\u00a030 and is subject to change each fiscal \n56\nTable \no\nf \nContents\nyear. The discount rate assumptions used to account for pension and other postretirement benefit plans reflect the rates at which the benefit obligations could be effectively settled. The rate was determined by matching the Company\u2019s expected benefit payments for the plans to a hypothetical yield curve developed using a portfolio of several hundred high-quality non-callable corporate bonds. The weighted average discount rate is volatile from year to year because it is determined based upon the prevailing rates in the U.S., the U.K., Australia and other foreign countries as of the measurement date. \nThe key assumptions used in developing the Company\u2019s fiscal 2023 and 2022 net periodic benefit costs (income) for its plans consist of the following:\n2023\n2022\n(in millions, except %)\nWeighted average assumptions used to determine net periodic benefit costs (income):\nDiscount rate for PBO\n4.1%\n2.1%\nDiscount rate for Service Cost\n4.8%\n1.8%\nDiscount rate for Interest on PBO\n4.0%\n1.7%\nAssets:\nExpected rate of return\n4.3%\n3.7%\nExpected return\n$43\n$51\nActual return\n$(92)\n$(215)\nLoss\n$(135)\n$(266)\nOne year actual return\n(8.7)%\n(15.6)%\nFive year actual return\n(1.7)%\n0.8%\nThe Company will use a weighted average long-term rate of return of 5.6% for fiscal 2024 based principally on a combination of current asset mix and an expectation of future long term investment returns. The accumulated net pre-tax losses on the Company\u2019s pension plans as of June\u00a030, 2023 were approximately $467 million which increased from approximately $458 million for the Company\u2019s pension plans as of June\u00a030, 2022. This net increase of $9 million was primarily due to losses on plan assets, which were largely offset by actuarial gains due to higher discount rates. Lower discount rates increase present values of benefit obligations and increase the Company\u2019s deferred losses and also increase subsequent-year benefit costs. Higher discount rates decrease the present values of benefit obligations and reduce the Company\u2019s accumulated net loss and decrease subsequent-year benefit costs. These deferred losses are being systematically recognized in future net periodic benefit costs (income) in accordance with ASC 715, \u201cCompensation\u2014Retirement Benefits.\u201d Unrecognized losses for the primary plans in excess of 10% of the greater of the market-related value of plan assets or the plan\u2019s projected benefit obligation are recognized over the average life expectancy for plan participants for the primary plans.\nThe Company made contributions of $14 million and $29 million to its pension plans in fiscal 2023 and 2022, respectively. Future plan contributions are dependent upon actual plan asset returns, statutory requirements and interest rate movements. Assuming that actual plan asset returns are consistent with the Company\u2019s expected returns in fiscal 2023 and beyond, and that interest rates remain constant, the Company anticipates that it will make required pension contributions of approximately $23\u00a0million in fiscal 2024. The Company will continue to make voluntary contributions as necessary to improve the funded status of the plans. See Note 17\u2014Retirement Benefit Obligations and Note 18\u2014Other Postretirement Benefits in the accompanying Consolidated Financial Statements.\nChanges in net periodic benefit costs may occur in the future due to changes in the Company\u2019s expected rate of return on plan assets and discount rate resulting from economic events. The following table highlights the sensitivity of the Company\u2019s pension obligations and expense to changes in these assumptions, assuming all other assumptions remain constant:\nChanges in Assumption\nImpact on Annual\nPension Expense\nImpact on Projected\nBenefit Obligation\n0.25 percentage point decrease in discount rate\n\u2014\nIncrease $23 million\n0.25 percentage point increase in discount rate\n\u2014\nDecrease $22 million\n0.25 percentage point decrease in expected rate of return on assets\nIncrease $2 million\n\u2014\n0.25 percentage point increase in expected rate of return on assets\nDecrease $2 million\n\u2014\n57\nTable \no\nf \nContents",
+  "item7a": ">ITEM\u00a07A.\u00a0\u00a0\u00a0\u00a0QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nThe Company has exposure to different types of market risk including changes in foreign currency exchange rates, interest rates, stock prices and credit.\nWhen deemed appropriate, the Company uses derivative financial instruments such as cross-currency interest rate swaps, interest rate swaps and foreign exchange contracts to hedge certain risk exposures. The primary market risks managed by the Company through the use of derivative instruments include:\n\u2022\nforeign currency exchange rate risk: arising primarily through Foxtel Debt Group borrowings denominated in U.S. dollars, payments for customer premise equipment and certain programming rights; and\n\u2022\ninterest rate risk: arising from fixed and floating rate Foxtel Debt Group and News Corporation borrowings. The Company neither holds nor issues financial instruments for trading purposes.\nThe following sections provide quantitative information on the Company\u2019s exposure to foreign currency exchange rate risk, interest rate risk and other relevant market risks. The Company makes use of sensitivity analyses that are inherently limited in estimating actual losses in fair value that can occur from changes in market conditions.\nForeign Currency Exchange Rate Risk\nThe Company conducts operations in three principal currencies: the U.S. dollar; the Australian dollar; and the British pound sterling. These currencies operate primarily as the functional currency for the Company\u2019s U.S., Australian and U.K. operations, respectively. Cash is managed centrally within each of the three regions with net earnings generally reinvested locally and working capital requirements met from existing liquid funds. To the extent such funds are not sufficient to meet working capital requirements, funding in the appropriate local currencies is made available from intercompany capital. The Company does not hedge its investments in the net assets of its Australian and U.K. operations.\nBecause of fluctuations in exchange rates, the Company is subject to currency translation risk on the results of its operations. Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities\u2019 statements of earnings and balance sheets from their functional currency to the Company\u2019s reporting currency (the U.S. dollar) for consolidation purposes. The Company does not hedge translation risk because it generally generates positive cash flows from its international operations that are typically reinvested locally. Exchange rates with the most significant impact to translation include the Australian dollar and British pound sterling. As exchange rates fluctuate, translation of its Statements of Operations into U.S. dollars affects the comparability of revenues and expenses between years.\nThe table below details the percentage of revenues and expenses by the three principal currencies for the fiscal years ended June\u00a030, 2023 and 2022:\nU.S.\nDollars\nAustralian\nDollars\nBritish Pound\nSterling\nFiscal year ended June 30, 2023\nRevenues\n41\u00a0\n%\n41\u00a0\n%\n14\u00a0\n%\nOperating and Selling, general and administrative expenses\n42\u00a0\n%\n37\u00a0\n%\n16\u00a0\n%\nFiscal year ended June 30, 2022\nRevenues\n40\u00a0\n%\n41\u00a0\n%\n15\u00a0\n%\nOperating and Selling, general and administrative expenses\n41\u00a0\n%\n38\u00a0\n%\n16\u00a0\n%\nBased on the fiscal year ended June\u00a030, 2023, a one cent change in each of the U.S. dollar/Australian dollar and the U.S. dollar/British pound sterling exchange rates would have impacted revenues by approximately $60 million and $12 million, respectively, for each currency on an annual basis, and would have impacted Total Segment EBITDA by approximately $13 million and nil, respectively, on an annual basis.\nDerivatives and Hedging\nAs of June\u00a030, 2023, the Foxtel Group operating subsidiaries, whose functional currency is Australian dollars, had approximately $149 million aggregate principal amount of outstanding indebtedness denominated in U.S. dollars. The remaining borrowings are denominated in Australian dollars. The Foxtel Group utilizes cross-currency interest rate swaps to hedge a portion of the exchange rate risk related to interest and principal payments on its U.S. dollar denominated debt. A portion of the swaps are designated as \n58\nTable \no\nf \nContents\nfair value hedges, while the remaining swaps are accounted for as cash flow derivatives under ASC 815. As of June\u00a030, 2023, the total notional value of these cross-currency interest rate swaps was $150 million with approximately $120 million accounted for as cash flow derivatives and $30 million designated as fair value hedges. The Foxtel Group also has a portfolio of foreign exchange contracts to hedge a portion of the exchange rate risk related to U.S. dollar payments for customer premise equipment and certain programming rights. The notional value of these foreign exchange contracts was $83 million as of June\u00a030, 2023. Refer to Note 11\u2014Financial Instruments and Fair Value Measurements for further detail.\nSome of the derivative instruments in place may create volatility during the fiscal year as they are marked-to-market according to accounting rules which may result in revaluation gains or losses in different periods from when the currency impacts on the underlying transactions are realized.\nThe table below provides further details of the sensitivity of the Company\u2019s derivative financial instruments which are subject to foreign exchange rate risk and interest rate risk as of June\u00a030, 2023 (in millions):\nNotional\nValue\nFair Value\nSensitivity\nfrom\nAdverse\n10%\nChange\u00a0in\nForeign\nExchange\nRates\nSensitivity\nfrom\nAdverse\n10%\nChange\u00a0in\nInterest\nRates\nForeign currency derivatives\nUS$\n83\u00a0\nUS$\n2\u00a0\nUS$\n(9)\nn/a\nCross-currency interest rate swaps\nUS$\n150\u00a0\nUS$\n43\u00a0\nUS$\n(16)\nUS$\n(1)\nInterest rate derivatives\nA$\n250\u00a0\nUS$\n6\u00a0\nn/a\nUS$\n(1)\nInterest rate derivatives\nUS$\n497\u00a0\nUS$\n35\u00a0\nn/a\nUS$\n(1)\nAny resulting changes in the fair value of the derivative financial instruments may be partially offset by changes in the fair value of certain balance sheet positions (primarily U.S. dollar denominated liabilities) impacted by the change in the foreign exchange rates. The ability to reduce the impact of currency fluctuations on earnings depends on the magnitude of the derivatives compared to the balance sheet positions during each reporting cycle.\nInterest Rate Risk\nThe Company\u2019s current financing arrangements and facilities include $1,797\u00a0million of outstanding fixed-rate debt and $1,128\u00a0million of outstanding variable-rate bank facilities, before adjustments for unamortized discount and debt issuance costs (See Note 9\u2014Borrowings in the accompanying Consolidated Financial Statements). Fixed and variable-rate debts are impacted differently by changes in interest rates. A change in the market interest rate or yield of fixed-rate debt will only impact the fair market value of such debt, while a change in the market interest rate of variable-rate debt will impact interest expense, as well as the amount of cash required to service such debt. News Corporation has entered into an interest rate swap cash flow hedge to fix the floating rate interest component of its Term A Loans and the Foxtel Group has utilized certain derivative instruments to swap U.S. dollar denominated fixed rate interest payments for Australian dollar denominated variable rate payments. As discussed above, the Foxtel Group utilizes cross-currency interest rate swaps to hedge a portion of the interest rate risk related to interest and principal payments on its U.S. dollar denominated debt. The Foxtel Group has also utilized certain derivative instruments to swap Australian dollar denominated variable interest rate payments for Australian dollar denominated fixed rate payments. As of June\u00a030, 2023, the notional amount of interest rate swap contracts outstanding was approximately A$250 million and $497\u00a0million for Foxtel Group and News Corporation borrowings, respectively. Refer to the table above for further details of the sensitivity of the Company\u2019s financial instruments which are subject to interest rate risk. Refer to Note 11\u2014Financial Instruments and Fair Value Measurements for further detail.\nStock Prices\nThe Company has common stock investments in publicly traded companies that are subject to market price volatility. These investments had an aggregate fair value of approximately $105 million as of June\u00a030, 2023. A hypothetical decrease in the market price of these investments of 10% would result in a decrease in income of approximately $11\u00a0million before tax.\n59\nTable \no\nf \nContents\nCredit Risk\nCash and cash equivalents are maintained with multiple financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and, therefore, bear minimal credit risk.\nThe Company\u2019s receivables did not represent significant concentrations of credit risk as of June\u00a030, 2023 or June\u00a030, 2022 due to the wide variety of customers, markets and geographic areas to which the Company\u2019s products and services are sold.\nThe Company monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its financial instruments. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. As of June\u00a030, 2023, the Company did not anticipate nonperformance by any of the counterparties.\n60\nTable \no\nf \nContents",
+  "cik": "1564708",
+  "cusip6": "65249B",
+  "cusip": ["65249B109", "65249B208", "65249b109"],
+  "names": ["NEWS CORP   CLASS B", "News Corp.", "NEWS CORP NEW"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1564708/000156470823000368/0001564708-23-000368-index.htm"
+}
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+{
+  "item1": ">Item 1. Business\nThe following discussion should be read in conjunction with our consolidated financial statements and accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion includes certain forward-looking statements. For a discussion of important factors which could cause actual results to differ materially from the results referred to in the historical information and the forward-looking statements presented herein, see \u201cItem 1A. Risk Factors\u201d and \u201cCautionary Note Regarding Forward-Looking Statements\u201d contained in this Annual Report.\nOur Company\nPremier, Inc. (\u201cPremier\u201d, the \u201cCompany\u201d, \u201cwe\u201d, \u201cus\u201d or \u201cour\u201d), a publicly held, for-profit corporation, incorporated in Delaware on May 14, 2013, is a leading technology-driven healthcare improvement company, uniting an alliance of United States (\u201cU.S.\u201d) hospitals, health systems and other providers and organizations to transform healthcare. We partner with hospitals, health systems, physicians, employers, product suppliers, service providers and other healthcare providers and organizations with the common goal of improving and innovating in the clinical, financial and operational areas of their businesses to meet the demands of a rapidly evolving healthcare industry, and we continue to expand our capabilities to more fully address and coordinate care improvement and standardization in the employer, payer and life sciences markets. With integrated data and analytics, collaboratives, supply chain services, consulting and other services, Premier enables healthcare providers to deliver better care and outcomes at a lower cost. We believe that we play a critical role in the rapidly evolving healthcare industry, collaborating with members and other customers to co-develop long-term innovative solutions that reinvent and improve the way care is delivered to patients and paid for nationwide. We deliver value through a comprehensive technology-enabled platform that offers critical supply chain services, clinical, financial, operational and value-based care software as a service (\u201cSaaS\u201d) as well as clinical and enterprise analytics licenses, consulting services, performance improvement collaborative programs, third-party administrator services, access to our centers of excellence program, cost containment and wrap network and digital invoicing and payables automation processes which provide financial support services to healthcare suppliers and providers. Additionally, we provide some of the various products and services noted above to non-healthcare businesses, including through our direct sourcing activities as well as continued access to our group purchasing organization (\u201cGPO\u201d) programs for non-healthcare members whose contracts were sold to OMNIA Partners, LLC (\u201cOMNIA\u201d) (refer below to \nSale of Non-Healthcare GPO Member Contracts)\n.\nAs a healthcare alliance, our mission, products and services, and long-term strategy have been developed in partnership with hospitals, health systems, physicians and other healthcare providers and organizations. We believe that this partnership-driven business model creates a relationship between our members and us that is characterized by aligned incentives and mutually beneficial collaboration. This relationship affords us access to critical de-identified proprietary data and encourages member participation in the development and introduction of new products and services. Our interaction with our members provides us additional insights into the latest challenges confronting the healthcare industry and innovative best practices that we can share broadly across the healthcare industry, including throughout our membership. This model has enabled us to develop size and scale, data and analytics assets, expertise and customer engagement required to accelerate innovation, provide differentiated solutions and facilitate growth.\nWe seek to address challenges facing healthcare providers through our comprehensive suite of solutions that we believe:\n\u2022\nimprove the efficiency and effectiveness of the healthcare supply chain;\n\u2022\ndeliver improvement in cost, quality and safety;\n\u2022\ninnovate and enable success in emerging healthcare delivery and payment models to manage the health of populations;\n\u2022\nutilize data and analytics to drive increased connectivity as well as clinical, financial and operational improvement; and\n\u2022\nthrough employers, payers and life sciences, expand the capabilities within these markets to improve healthcare.\nOur business model and solutions are designed to provide our members and other customers access to scale efficiencies, spread the cost of their development, provide actionable intelligence derived from anonymized data in our enterprise data warehouse, mitigate the risk of innovation and disseminate best practices to help our members and other customers succeed in their transformation to higher quality and more cost-effective healthcare.\nWe deliver our integrated platform of solutions that address the areas of clinical intelligence, margin improvement and value-based care through two business segments: Supply Chain Services and Performance Services. The Supply Chain Services segment includes our GPO program, supply chain co-management, purchased services and direct sourcing activities. The Performance Services segment consists of three sub-brands: \nPINC AI\nTM\n, our technology and services platform with offerings \n6\nthat help optimize performance in three main areas \u2013 clinical intelligence, margin improvement and value-based care \u2013 using advanced analytics to identify improvement opportunities, consulting and managed services for clinical and operational design, and workflow solutions to hardwire sustainable change in the provider, life sciences and payer markets; \nContigo Health\n\u00ae\n,\n our direct-to-employer business which provides third-party administrator services and management of health-benefit programs that enable payviders and employers to contract directly with healthcare providers as well as partners with healthcare providers to provide employers access to a specialized care network through Contigo Health\u2019s centers of excellence program and cost containment and wrap network; and \nRemitra\n\u00ae\n,\n our digital invoicing and payables automation business which provides financial support services to healthcare suppliers and providers.\nFiscal 2023 Developments\nSales and Acquisitions\nAcquisition of TRPN Direct Pay, Inc. and Devon Health, Inc. Assets\nOn October 13, 2022, we acquired, through our consolidated subsidiary, Contigo Health, LLC (\u201cContigo Health\u201d), certain assets and assumed certain liabilities of TRPN Direct Pay, Inc. and Devon Health, Inc. (collectively, \u201cTRPN\u201d) for an adjusted purchase price of $177.5 million. The assets acquired and liabilities assumed relate to certain businesses of TRPN focused on improving access to quality healthcare and reducing the cost of medical claims through pre-negotiated discounts with network providers, including acute care hospitals, surgery centers, physicians and other continuum of care providers in the United States. Contigo Health also agreed to license proprietary cost containment technology of TRPN. TRPN has been integrated under Contigo Health and is reported as part of the Performance Services segment. See Note 3 - Business Acquisitions to the accompanying consolidated financial statements for further information.\nSale of Non-Healthcare GPO Member Contracts\nOn June 14, 2023, we announced that we entered into an equity purchase agreement with OMNIA Partners, LLC (\u201cOMNIA\u201d) to sell the contracts pursuant to which substantially all of our non-healthcare GPO members participate in our GPO program, for an estimated purchase price of approximately $800.0 million, subject to certain adjustments. For a period of at least 10 years following the closing, the non-healthcare GPO members will continue to be able to make purchases through our group purchasing contracts. The sale of the non-healthcare GPO contracts closed on July 25, 2023. See Note 20 - Subsequent Events to the accompanying consolidated financial statements for further information.\nImpact of Inflation\nThe U.S. economy is experiencing the highest rates of inflation since the 1980s. We have continued to limit the impact of inflation on our members and believe that we maintain significantly lower inflation impacts across our diverse product portfolio than national levels. However, in certain areas of our business, there is still some level of risk and uncertainty for our members and other customers as labor costs, raw material costs and availability, rising interest rates and inflation continue to pressure supplier pricing as well as apply significant pressure on our margin.\nWe continue to evaluate the contributing factors, specifically logistics, raw materials and labor, that have led to adjustments to selling prices. We have begun to see logistics costs normalize to pre-pandemic levels as well as some reductions in the costs of specific raw materials; however, the cost of labor remains high. We are continuously working to manage these price increases as market conditions change. The impact of inflation to our aggregated product portfolio is partially mitigated by contract term price protection for a large portion of our portfolio, as well as negotiated price reductions in certain product categories such as pharmaceuticals. See \u201cRisk Factors \u2014 Risks Related to Our Business Operations\u201d below.\nFurthermore, as the Federal Reserve seeks to curb rising inflation, market interest rates have steadily risen, and may continue to rise, increasing the cost of borrowing under our Credit Facility (as defined in Note 9 - Debt and Notes Payable to the accompanying consolidated financial statements) as well as impacting our results of operations, financial condition and cash flows.\nGeopolitical Tensions\nGeopolitical tensions, such as the ongoing military conflict between Russia and Ukraine and tensions between the U.S. and China, continue to affect the global economy and financial markets, as well as exacerbate ongoing economic challenges, including issues such as rising inflation, energy costs and global supply-chain disruption. \nWe continue to monitor the impacts of the geopolitical tensions on macroeconomic conditions and prepare for any implications they may have on member demand, our suppliers\u2019 ability to deliver products, cybersecurity risks and our liquidity and access to capital. See \u201cRisk Factors \u2014 Risks Related to Our Business Operations\u201d below.\n7\nCOVID-19 Pandemic or Other Pandemics, Epidemics or Public Health Emergencies\nThe outbreak of the novel coronavirus (\u201cCOVID-19\u201d) and the resulting global pandemic impacted our sales, operations and supply chains, our members and other customers and workforce and suppliers. While both the U.S. and the World Health Organization declared an end to the COVID-19 pandemic as a public health emergency in May 2023, the risks associated with the resurgence of COVID-19 or another pandemic remains and the resulting impact on our business, results of operations, financial conditions and cash flows as well as the U.S. and global economies is uncertain and cannot be predicted at this time.\nRefer to \u201cItem 1A. Risk Factors\u201d for significant risks we have faced and may continue to face as a result of the COVID-19 pandemic or other pandemics, epidemics or public health emergencies.\nIndustry Overview\nAccording to data from the Centers for Medicare\u00a0& Medicaid Services (\u201cCMS\u201d), healthcare expenditures are a large component of the U.S. economy and are expected to grow by an average of 5.4% per year for the period 2022-2031, reaching 19.6% of gross domestic product, or GDP, by 2031. According to data from the 2021 American Hospital Association\u2019s Annual Survey, published in the 2023 edition of the AHA Hospital Statistics\u2122, there were more than 5,100 U.S. community hospitals with approximately 788,000 staffed beds in the United States. Of these acute care facilities, approximately 3,600 were part of either multi-hospital or diversified single hospital systems, meaning they were owned, leased, sponsored or contract managed by a central organization. Based upon 2022 reporting from the United States Department of Labor and healthcare industry sources, in addition to U.S. hospitals, there were approximately 851,000 facilities and providers across the continuum of care in the United States. These facilities include primary/ambulatory care and post-acute care providers. \nHealthcare Supply Chain Services Industry\nAccording to CMS data, total spending on hospital services in the United States is projected to be $1.5 trillion, or approximately 31% of total healthcare expenditures, in calendar year 2023. Expenses associated with the hospital supply chain, such as supplies as well as operational and capital expenditures, typically represent a material portion of a hospital\u2019s budget. With continued reimbursement rate pressure across government and managed care payers, a transitioning payment model from fee-for-service to value-based payment, and national health expenditures representing a material portion of the economy, healthcare providers are examining all sources of cost savings, with supply chain spending a key area of focus. We believe opportunities to drive cost out of the healthcare supply chain include improved pricing for medical supplies, pharmaceuticals, purchased services, facilities expenditures, food service supplies, and information technology, as well as appropriate resource utilization, mitigating pharmaceuticals and medical device shortages and increased operational efficiency.\nFrom origination at the supplier to final consumption by the provider or patient, healthcare products pass through an extensive supply chain incorporating manufacturers, wholesalers, distributors, GPOs, pharmacy benefit managers, and retail, long-term care and integrated pharmacies, among others. In response to the national focus on health spending and managing healthcare costs, supply chain participants are seeking more convenient and cost-efficient ways to deliver products to patients and providers. We believe that improvements to the healthcare supply chain to bring it on par with other industries that have more sophisticated supply chain management can drive out material inefficiencies and cost.\nHealthcare Performance Services Industry\nState and federal budget pressures stemming from increased deficit spending and employer and consumer demands for lower costs, and the need for improved quality and outcomes have generated greater focus among healthcare providers on cost management, quality and safety, and value-based care. As a result, over the past two decades, the Department of Health and Human Services (\u201cHHS\u201d) has pushed to move from fee-for-service to alternative payment models (\u201cAPMs\u201d). APMs, such as capitated and bundled payment arrangements with accountable care organizations (\u201cACOs\u201d) and other providers, make healthcare providers more accountable for cost and quality goals. This movement was advanced further with the bipartisan enactment of the Medicare Access and CHIP Reauthorization Act, which created incentives for physicians to move to APMs and was recently extended by Congress in December 2022. This movement will continue given the strong bipartisan support for these models. Over the long-term, health systems will need to continually monitor performance and manage costs, while demonstrating high levels of quality and implementing new care delivery models.\nWe expect information technology to continue to play a key enabling role in workflow efficiency and cost reduction, performance improvement and care delivery transformation across the healthcare industry in both acute and continuum of care settings. In particular, the trends toward value-based payment models and healthcare require more sophisticated business intelligence, expanded data sets and technology solutions. To achieve higher-quality outcomes and control total cost of care, providers exhibit a strong and continuing need for more comprehensive data and analytic capabilities to help them understand their current and future performance, identify opportunities for improvement and manage value-based care risk. Similarly, our \n8\nconsulting services business is growing in the areas of business model strategy and redesign, process and margin improvement, labor productivity, non-labor cost management, clinical integration and change management.\nOur Membership\nOur current membership base includes many of the country\u2019s most progressive and forward-thinking healthcare organizations. The participation of these organizations in our membership provides us additional insights into the latest challenges confronting the industry we serve and innovative best practices that we can share broadly throughout our membership. We continually seek to add new members that are at the forefront of innovation in the healthcare industry. At June\u00a030, 2023, our members included more than 4,350 U.S. hospitals and health systems and approximately 300,000 other providers and organizations. Over 450 individuals, representing approximately 150 of our U.S.\u00a0hospital members, sit on 29 of our strategic and sourcing committees, and as part of these committees, use their industry expertise to advise on ways to improve the development, quality and value of our products and services. In addition, at June\u00a030, 2023, four senior executives from our U.S. hospital member systems served on our Board of Directors providing valuable and unique insights into the challenges faced by hospitals and hospital systems and the innovations necessary to address these challenges. No individual member or member systems accounted for more than 10% of our net revenue for the fiscal years ended June\u00a030, 2023 and 2022. Total GPO purchasing volume by all members participating in our GPO was more than $83 billion and $82 billion for the calendar years 2022 and 2021, respectively.\nThe following table sets forth certain information with respect to retention rates for members participating in our GPO in the Supply Chain Services segment and renewal rates for our SaaS informatics products subscriptions and licenses in the Performance Services segment for the fiscal years shown:\nYear Ended June 30,\n2023\n2022\n2021\n3 Year Average\nGPO retention rate \n(a)(b)\n98%\n97%\n94%\n96%\nSaaS institutional renewal rate \n(c)\n94%\n96%\n96%\n95%\n_________________________________\n(a)\nThe GPO retention rate is calculated based upon the aggregate purchasing volume among all members participating in our\u00a0GPO for such fiscal year less the annualized\u00a0GPO purchasing volume for departed members for such fiscal year, divided by the aggregate purchasing volume among all members participating in our\u00a0GPO for such fiscal year.\n(b)\nFiscal 2021 GPO retention rate decreased primarily as a result of amendments to GPO participation agreements, effective July 1, 2020, and the August 2020 Restructuring.\n(c)\nThe SaaS institutional renewal rate is calculated based upon the total number of members that have SaaS or license revenue in a given period that also have revenue in the corresponding prior year period divided by the total number of members that have SaaS or license revenue in the same period of the prior year.\nOur Business Segments\nWe deliver our integrated platform of solutions that address the areas of clinical intelligence, margin improvement and value-based care and manage our business through two business segments: Supply Chain Services and Performance Services. Refer to Note 18 - Segments to the accompanying consolidated financial statements for further information. We have no significant foreign operations or revenues.\nSupply Chain Services\nOur Supply Chain Services segment assists our members and other customers in managing their non-labor expense and capital spend through a combination of products, services and technologies, including one of the largest national healthcare GPO programs in the United States serving acute and continuum of care sites, and providing supply chain co-management, purchased services, direct sourcing and supply chain resiliency activities. Membership in our GPO also provides access to certain supply chain-related SaaS informatics products and the opportunity to participate in our ASCENDrive\nTM\n and SURPASS\n\u00ae\n performance groups. Our Supply Chain Services segment consists of the following products and solutions:\nGroup Purchasing.\n \u00a0\u00a0 Our portfolio of over 3,300 contracts with over 1,400 suppliers provides our members with access to a wide range of products and services, including medical and surgical products, pharmaceuticals, laboratory supplies, capital equipment, information technology, facilities and construction, food and nutritional products and purchased services (such as clinical engineering and workforce solutions). We use our members\u2019 aggregate purchasing power to negotiate pricing discounts, improved quality and resiliency of products and improved contract terms with suppliers. Contracted suppliers pay us administrative fees based on the net negotiated price and purchase volume of goods and services sold to our members under the contracts we have negotiated. We also partner with other organizations, including regional GPOs, to extend our network base to their members.\n9\nOur contract portfolio is designed to offer our members a flexible solution comprised of multi-sourced supplier contracts, as well as pre-commitment and/or single-sourced contracts that offer higher discounts. Our multi-sourced contracts offer pricing tiers based on purchasing volume and/or commitment and multiple suppliers for many products and services. Our pre-commitment contracts require that a certain amount of our members commit in advance to a specified amount or percentage of purchasing volume before we enter into a contract with a particular supplier. Our single-source contracts are entered into with a specified supplier, and through this exclusive relationship, allow us to contract for products that meet our members\u2019 specifications. In the case of pre-commitment contracts, we provide the particular supplier with a list of members that have pre-committed to a specified amount or percentage of purchasing volume and the supplier directly handles the tracking and monitoring of fulfillment of such purchasing volume. In the case of single and multi-sourced contracts, we negotiate and execute the contracts with suppliers on behalf of our members and make such contracts available to our members to access. The utilization of such single and multi-sourced contracts is determined by each particular member with assistance from our field force. Since there are no specific fulfillment requirements needed in our single and multi-source contracts in order to obtain certain pricing levels, each particular member and supplier agree on the appropriate pricing tier based on expected purchasing volume with tracking and ongoing validation of such purchasing volume provided by the supplier. The flexibility provided by our expansive contract portfolio allows us to effectively address the varying needs of our members and the significant number of factors that influence and dictate these needs, including overall size, service mix, and the degree of integration between hospitals in a healthcare system.\nWe continually innovate our GPO programs and supply chain platforms while targeting multiple markets, including acute and continuum of care site settings. In addition to our core base of more than 4,350 acute care healthcare providers, Premier\u2019s continuum of care program, one of the largest in the United States, which covers over 80 classes of trade, had approximately 300,000 active members as of June\u00a030, 2023, which represents an increase of approximately 50,000 members, or 20%, over fiscal year 2022. A number of these members in Premier\u2019s continuum of care program are affiliated, owned, leased or managed by our members. \nPremier\u2019s continuum of care program includes direct members, group affiliates and healthcare provider offices affiliated, owned, leased or managed by health systems. Key classes of trade include long-term care pharmacies, skilled nursing and assisted living facilities, home infusion providers, home health providers and surgery centers. Premier continuum of care members have access to most of our GPO supplier contracts, including, but not limited to, pharmaceuticals, medical and surgical supplies, facilities, food and nutritional products and other purchased services. \nPremier\u2019s continuum of care program provides business operations and technology to ensure members and other customers, including former non-healthcare members, are connected to agreements and receiving proper contracted pricing. \nSupply Chain Co-Management\n.    We manage and co-manage the supply chain operations for contracted members to drive down costs through processes, including value analysis, product standardization and strategic resource allocation and improved operational efficiency. \nPurchased Services Contracts.   \nOur\n \npurchased services contracts business, which is separate from the purchased services under our national contract portfolio, includes Conductiv, Inc. (\u201cConductiv\u201d) and Conductiv Contracts, LLC (\u201cConductiv Contracts\u201d). Conductiv is a SaaS provider of technology solutions and expert services that enable hospitals and other organizations to analyze, benchmark and source purchased service contracts independent of any existing GPO affiliation. Combined with our purchased services spend data and our performance improvement technology suite, we are able to be a single source provider for healthcare margin improvement. Conductiv Contracts is a regionally focused group purchasing organization independent of any existing GPO affiliation that exclusively focuses on purchased services contracting.\nDirect Sourcing.\n \u00a0\u00a0 Our direct sourcing business, SVS, LLC d/b/a S2S Global (\u201cS2S Global\u201d), helps our members and other customers access a diverse product portfolio and helps provide transparency to manufacturing costs and competitive pricing. Through S2S Global, we facilitate the development of product specifications with our members and other customers, source or contract manufacture the products to member specifications and sell products directly to our members, other customers or distributors. By engaging with our members and other customers at the beginning of the sourcing process to define product specifications and then sourcing, or contract manufacturing, products to meet the exact needs of our members, we eliminate the need for unnecessary product features and specifications that may typically be included by suppliers and result in higher prices for our members without providing incremental value. Therefore, our direct sourcing activities benefit our members and other customers by providing them with an expanding portfolio of medical products through more efficient means, and with greater cost transparency, than if such products were purchased from other third-party suppliers. We market our direct sourcing activities to our members primarily under the PREMIERPRO\n\u00ae \nbrand.\nSupply Chain Resiliency Program\n.    In partnership with our members, we have created a program designed to promote domestic and geographically diverse manufacturing and ensure a robust and resilient supply chain for essential medical products. The program is intended to provide a means to invest in or partner with businesses that can supply shortage \n10\nproducts, co-fund the development of affordable products that address specific market needs and create strategic sourcing contracts to ensure continuous supply for our members and customers. We believe this program is most successful when we are able to partner with our members through investments or long-term purchasing commitments on these initiatives. \nOur Supply Chain Resiliency Program includes, but is not limited to, the following:\nPRAM Holdings, LLC\n. We formed PRAM Holdings, LLC (\u201cPRAM\u201d) in 2020 in partnership with member health systems to invest in Prestige Ameritech Ltd. (\u201cPrestige\u201d), a domestic manufacturer of masks, sterile intravenous solutions and other personal protective equipment (\u201cPPE\u201d), whereby our members obtain a direct domestic source to critical PPE. \nDePre Holdings, LLC\n. We formed DePre Holdings, LLC (\u201cDPH\u201d) in 2021 in partnership with member health systems to invest in DePre, LLC (\u201cDePre\u201d), a joint venture between DPH and DeRoyal Industries Inc., a global medical manufacturer, whereby our members obtain a direct source dedicated to the domestic production of isolation gowns. \nExPre Holdings, LLC\n. We formed ExPre Holdings, LLC (\u201cExPre\u201d) in 2022 in partnership with member health systems to invest in Exela Holdings, Inc. (\u201cExela\u201d), a domestic manufacturer of proprietary and generic sterile injectable products, whereby our members obtain a direct source to certain critical pharmaceutical products. \nPremco, LLC.\n We formed Premco, LLC (\u201cPremco\u201d) in 2023 in partnership with member health systems to invest in Princo, LLC (\u201cPrinco\u201d), a joint venture between Premco, Vario Labs LLC and Caretrust LLC, whereby our members obtain a direct source dedicated to the domestic production of incontinence pads.\nSaaS Informatics Products.\n \u00a0  Members of our GPO have access to certain SaaS informatics products related to the supply chain and have the ability to purchase additional elements that are discussed in more detail below under \u201cOur Business Segments - Performance Services\u201d. \nPerformance Groups.     \nOur Performance Groups are highly committed purchasing programs, which enable members to benefit from coordinated purchasing decisions and maintain standardization across their facilities. Our Performance Groups include the ASCENDrive and the SURPASS\n \nPerformance Groups.\nASCENDrive Performance Group.    \nOur ASCENDrive Performance Group (\u201cASCENDrive\u201d) has developed a process to aggregate purchasing data for our members, enabling such members to benefit from committed group purchases within the Performance Group. Through ASCENDrive, members receive group purchasing programs, tiers and prices specifically negotiated for them and knowledge sharing with other member participants. As of June\u00a030, 2023, approximately 1,700 U.S. hospital members, which represent over 131,000 hospital beds, participated in ASCENDrive. These hospital member participants have identified over $910.0 million in additional savings as compared to their U.S. hospital peers not participating in ASCENDrive since its inception in 2009. For calendar year 2022, these member participants had approximately $17.4 billion in annual supply chain purchasing spend.\nSURPASS\n \nPerformance Group.    \nOur SURPASS Performance Group (\u201cSURPASS\u201d) builds upon and complements ASCENDrive and drives even greater savings for members at a correspondingly higher level of commitment.\u00a0SURPASS brings together our most committed members that are able to coordinate purchasing decisions, review utilization and achieve and maintain standardization across their facilities. SURPASS utilizes our PACER (Partnership for the Advancement of Comparative Effectiveness Review) methodology, which brings together clinically led cohorts to make evidence-based decisions about physician and clinician preference items with the goal of materially reducing the total cost of care. As of June\u00a030, 2023, a group of 33 members representing approximately 530 acute care sites and 11,000 continuum of care sites participate in SURPASS. These hospital member participants have identified over $273.0 million in additional savings via their efforts in more than 160 categories since its inception in 2018. SURPASS has another 49 potential categories slated for the coming year as well as select initiatives related to utilization and standardization. For calendar year 2022, these member participants had approximately $13.0 billion in annual supply chain purchasing spend.\nPerformance Services\nOur Performance Services segment consists of three sub-brands: PINC AI, Contigo Health\n \nand Remitra. Each sub-brand serves different markets but are all united in our vision to optimize provider performance and accelerate industry innovation for better, smarter healthcare. Our PINC AI platform enables us to better reflect our current product offerings and strategy to expand and responsibly incorporate artificial intelligence (\u201cAI\u201d) across our portfolio of solutions. This platform further enables connectivity and scale between providers, the pharmaceutical, biotech, and medical device industry and payers, including large employers, to help lower the cost and improve the quality of care. We believe that we house one of the largest clinical, operational and financial datasets in the United States which enables actionable insight and real-world evidence needed to accelerate healthcare \n11\nimprovements. We currently incorporate AI into several use cases, including prior authorization between payers and providers; clinical intelligence through the decision support process; and automating the invoicing and payables process. Our AI use cases are focused on helping key healthcare stakeholders improve the quality, efficiency and value of healthcare delivery. Using our data and scale, we seek to expand our AI capabilities, grow our overall portfolio of solutions and provide our members and customers with technologically advanced products so they can provide better, smarter healthcare.\nPINC AI:\nWith a broad provider network, advanced analytics, and the incorporation and desired expansion of AI-powered technology backed by our large dataset, we believe PINC AI has the ability to accelerate ingenuity in healthcare.\nPINC AI helps optimize performance in three main areas \u2013 clinical intelligence, margin improvement and value-based care \u2013 using advanced analytics to identify improvement opportunities, consulting services for clinical and operational design and workflow solutions to hardwire sustainable change.\nClinical intelligence solutions help drive greater clinical effectiveness and efficiency across the care continuum by:\n\u2022\nSurfacing analytics and peer benchmarking on hard-to-find, high-value quality improvement areas, helping providers improve care delivery;\n\u2022\nDelivering real-time clinical surveillance to help providers drive faster, more informed decisions regarding patient safety, including ongoing infection prevention (like COVID-19), antimicrobial stewardship, and reduction of hospital acquired conditions;\n\u2022\nUsing AI-enabled clinical decision support integrated into the provider workflow to support evidence-based decisions by providers at the point of care, and improve prior authorization automation;\n\u2022\nOperating the QUEST Collaborative, which works to develop quality, safety and cost metrics with a consistency and standardization. We believe participation in the QUEST Collaborative better prepares providers to deal with evolving and uncertain healthcare reform requirements and differentiate on care delivery in their markets; and\n\u2022\nProviding life sciences services through PINC AI Applied Science for the development of research, real-world evidence and clinical trials innovation for medical device, diagnostic and pharmaceutical companies.\nMargin improvement solutions\n \nhelp lower total costs and improve provider operating margins by:\n\u2022\nSurfacing analytics and peer benchmarking on hard-to-find, supply savings and workforce management opportunities that lower costs without impacting quality;\n\u2022\nOptimizing workforce management with integrated financial reporting and budgeting across the continuum of care;\n\u2022\nProviding savings through an enterprise resource planning solution built specifically for healthcare;\n\u2022\nDeploying consulting services to deliver clinically integrated, margin improvement transformation throughout a health system; and\n\u2022\nProviding management services to insurance programs \nt\no assist U.S. hospital and healthcare system members with liability and benefits insurance services, along with risk management services to improve their quality, patient safety and financial performance while lowering costs.\nValue-based care solutions help health systems implement effective models of care to succeed in new, value-based payment arrangements by:\n\u2022\nSurfacing analytics and peer benchmarking to help identify hard-to-find, population-based improvement opportunities necessary to take financial risk and succeed in value-based care;\n\u2022\nOptimizing and managing the physician enterprise to rationalize medical group investment via revenue enhancement, cost reduction strategies and implementation of sustainable evidence-based practices; and\n\u2022\nParticipating in the Population Health Management, Bundled Payment and Physician Enterprise Collaboratives, for the opportunity to share value-based care and payment developmental strategies, programs and best practices.\nThe data yielded through PINC AI is de-identified and aggregated in what we believe to be the nation\u2019s leading comprehensive database, representing over 20 years of data from more than 1,000 hospitals spanning multiple therapeutic areas. A research team including clinicians, epidemiologists, health economists, health services researchers, statisticians and other subject matter experts leverage the dataset to deliver real world evidence, in partnership with Life Science \n12\ninnovators. Studies, test methods, strategies and tools created can promote the adoption and integration of evidence-based practices to help improve outcomes and the quality and effectiveness of care.\nContigo Health:\nContigo Health creates new ways for clinicians, health systems and employers to work together supporting a common goal for all stakeholders to help increase access to high-quality care, enhance employee engagement, control costs and get employees back to work and life faster. Contigo Health delivers comprehensive services for optimizing employee health benefits, including:\n\u2022\nContigo Health Sync Health Plan TPA empowers self-funded employers with a flexible approach to employee benefits to help improve access to quality care, achieve cost savings and improve health plan member satisfaction;\n\u2022\nContigo Health Centers of Excellence 360 delivers access to high-quality care by bringing together specialty medical and behavioral health programs for a bundled cost through a network of healthcare facilities, surgeons, physicians and leading-edge virtual providers; and\n\u2022\nContigo Health ConfigureNet Out-of-Network Wrap delivers an out-of-network wrap product to improve access to healthcare and reduce the cost of medical claims through pre-negotiated discounts with its network of 900,000 providers across the U.S. and Puerto Rico.\nRemitra:\nRemitra provides health systems and suppliers cost management solutions with our procure-to-pay technology designed to support greater efficiencies in the procurement process through automated purchasing and payment solutions. \n\u2022\nRemitra\u2019s Procure-to-Pay platform powers supplier and provider networks and uses optical character recognition to automate invoicing and payables. Remitra seeks to streamline financial processes, reduce errors and fraud, unlock cost and labor efficiencies and become a leading digital invoicing and payables platform for all of healthcare, agnostic of ERP, GPO or treasury partner. \n\u2022\nRemitra\u2019s Cash Flow Optimizer platform offers a financial solution for suppliers and providers including a reduction in days sales outstanding, improving on-time payments, improved working capital and a potential reduction over time of allowance of credit losses associated with bad debt.\n\u2022\nRemitra\u2019s Managed Account Payable services offers a financial solution for acute and continuum of care members and other customers including an extension in days payable outstanding, improving on-time payments for suppliers and improving working capital for the customer.\nBoth Remitra\u2019s Cash Flow Optimizer platform and Managed Account Payable services offer financial solutions by leveraging Remitra\u2019s Procure-to-Pay platform and providing opportunities for financial improvements for suppliers, members and other customers.\nThe Performance Services sub-brands support Premier\u2019s long-term strategy to diversify revenue into adjacent markets, which we define as non-traditional markets penetrated by Premier\u2019s businesses and brands. This includes PINC AI Clinical Decision Support serving providers and payers; PINC AI Applied Sciences serving biotech, pharmaceutical and medical device companies; Contigo Health that serves self-insured employers, including payviders; and Remitra that serves healthcare suppliers and providers.\nPricing and Contracts\nSupply Chain Services\nGPO Programs:\nOur GPO primarily generates revenue through administrative fees received from contracted suppliers for a percentage of the net negotiated purchase price of goods and services, including purchased services activities, sold to members under negotiated supplier contracts. Pursuant to the terms of GPO participation agreements entered into by the members, our members currently receive revenue share based upon purchasing by such member\u2019s owned, leased, managed and affiliated facilities through our GPO supplier contracts.\nThe majority of our current GPO participation agreements with our members have terms that commenced in July 2020 and primarily range from five to seven years. Generally, our GPO participation agreements may not be terminated without penalty except for cause or in the event of a change of control of the GPO member. The GPO member can terminate the GPO participation agreement at the end of the then-current term by notifying Premier of the member\u2019s decision not to \n13\nrenew. Our GPO participation agreements generally provide for liquidated damages in the event of a termination not otherwise permitted under the agreement. Due to competitive market conditions, we have experienced, and expect to continue to experience requests to provide existing and prospective members increases in revenue share on incremental and/or overall purchasing volume.\nOur GPO also generates revenue from suppliers through the members that participate in our performance groups.\nSupply Co-Management:\nIn our supply chain co-management activities, we earn revenue in the form of a service fee for services performed under the supply chain management contracts. Service fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed.\nPurchased Services:\nIn our purchased services activities, we generate revenue through administrative fees, as described above, subscription fees and term licenses. Subscription fees, which we generate through our SaaS-based products, are generally billed on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation. Revenue on licensing is recognized upon delivery of the software code and revenue from hosting and maintenance is recognized ratably over the life of the contract.\nDirect Sourcing:\nIn our direct sourcing activities, we earn revenue from product sales, including sales from aggregated purchases of certain products. Products are sold to our members and other customers through direct shipment and distributor and wholesale channels. Products are also sold to regional medical-surgical distributors and other non-healthcare industries (\ni.e.,\n foodservice). We have contracts with our members and other customers that buy products through our direct shipment option, which usually do not provide a guaranteed purchase or volume commitment requirement. \nPerformance Services\nPerformance Services revenue consists of revenue generated through our three sub-brands: PINC AI, Contigo Health and Remitra. The main sources of revenue under PINC AI are (i) subscription agreements to our SaaS-based clinical intelligence, margin improvement and value-based care products, (ii) licensing revenue, (iii)\u00a0professional fees for consulting services and (iv)\u00a0other miscellaneous revenue including PINC AI data licenses, annual subscriptions to our performance improvement collaboratives, insurance services management fees and commissions from endorsed commercial insurance programs. Contigo Health\u2019s main sources of revenue are third-party administrator fees, fees from the centers of excellence program and cost containment and wrap network fees. Remitra\u2019s main source of revenue is fees from healthcare suppliers and providers. \nPINC AI:\nSaaS-based clinical analytics products subscriptions include the right to access our proprietary hosted technology on a SaaS basis, training and member support to deliver improvements in cost management, margin improvement, quality and safety, value-based care and provider analytics. Pricing varies by application and size of the healthcare system. Clinical analytics products subscriptions are generally three- to five-year agreements with automatic renewal clauses and annual price escalators that typically do not allow for early termination. These agreements do not allow for physical possession of the software. Subscription fees are typically billed on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation. Implementation involves the completion of data preparation services that are unique to each member's data set in order to access and transfer member data into our hosted SaaS-based clinical analytics products. Implementation is generally 60 to 240\u00a0days following contract execution before the SaaS-based clinical analytics products can be fully utilized by the member.\nEnterprise analytics licenses include term licenses that range from three to ten years and offer clinical analytics products, improvements in cost management, quality and safety, value-based care and provider analytics. Pricing varies by application and size of healthcare system. Revenue on licensing is recognized upon delivery of the software code and revenue from hosting and maintenance is recognized ratably over the life of the contract.\nProfessional fees for consulting services are sold under contracts, the terms of which vary based on the nature of the engagement. These services typically include general consulting, report-based consulting, managed services and cost savings initiatives. Fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed or when deliverables are provided. In situations where the contracts have significant contract performance guarantees or member acceptance provisions, revenue recognition occurs when the fees are fixed and \n14\ndeterminable and all contingencies, including any refund rights, have been satisfied. Fees are based either on the savings that are delivered or a fixed fee.\nOther miscellaneous revenue generated through PINC AI includes:\n\u2022\nRevenue from PINC AI data licenses which provide customers data from the PINC AI healthcare database. The revenue from the data deliverables is recognized upon delivery of the data;\n\u2022\nRevenue from performance improvement collaboratives that support our offerings in cost management, quality and safety and value-based care and is recognized over the service period as the services are provided, which is generally one to three years; and\n\u2022\nRevenue through insurance services management fees are recognized in the period in which such services are provided. Commissions from endorsed commercial insurance programs are earned by acting as an intermediary in the placement of effective insurance policies. Under this arrangement, revenue is recognized at a point in time on the effective date of the associated policies when control of the policy transfers to the customer and is constrained for estimated early terminations.\nContigo Health:\nContigo Health\u2019s main sources of revenue consists of third-party administrator fees, fees from the centers of excellence program and cost containment and wrap network fees. \n\u2022\nRevenue from third-party administrator fees consist of integrated fees for the processing of self-insured healthcare plan claims and is recognized in the period in which the services have been provided. \n\u2022\nRevenue from the centers of excellence program consist of administrative fees for access to a specialized care network of proven healthcare providers and is recognized in the period in which the services have been provided. \n\u2022\nRevenue from  cost containment and wrap network fees consist of fees associated with the repricing of insurance claims and is estimated and recognized in the period in which the services have been provided.\nRemitra:\nThe main source of revenue for Remitra primarily consists of fees from healthcare suppliers and providers. For fixed fee contracts, revenue is recognized in the period in which the services have been provided. For variable rate contracts, revenue is recognized as customers are invoiced. Additional revenue consists of fees from check replacement services which consist of monthly rebates from bank partners. \nRevenue Concentration\nOur customers consist of members and other healthcare and non-healthcare businesses. Our top five customers generated revenue of approximately 15% and 21% of our consolidated net revenues for the years ended June\u00a030, 2023 and 2022, respectively. No customer accounted for more than 10% of our net revenue during each of the years ended June\u00a030, 2023 and 2022.\nIntellectual Property\nWe offer our members a range of products to which we have appropriate intellectual property rights, including online services, best practices content, databases, electronic tools, web-based applications, performance metrics, business methodologies, proprietary algorithms, software products and consulting services deliverables. We own and control a variety of trade secrets, confidential information, trademarks, trade names, copyrights, domain names and other intellectual property rights that, in the aggregate, are of material importance to our business.\nWe protect our intellectual property by relying on federal, state and common law rights, as well as contractual arrangements. We are licensed to use certain technology and other intellectual property rights owned and controlled by others, and, similarly, other companies are licensed to use certain technology and other intellectual property rights owned and controlled by us.\nResearch and Development\nOur research and development (\u201cR&D\u201d) expenditures primarily consist of our strategic investment in internally-developed software to develop new and enhance existing SaaS- and license-based products offerings and new product development in the areas of cost management, quality and safety and value-based care. From time to time, we may experience fluctuations in our research and development expenditures, including capitalized software development costs, across reportable periods due to the \n15\ntiming of our software development life cycles, with new product features and functionality, new technologies and upgrades to our service offerings.\nInformation Technology and Cybersecurity Risk Management\nWe rely on digital technology to conduct our business operations and engage with our members and business partners. The technology we, our members, and business partners use grows more complex over time as do threats to our business operations from cyber intrusions,\u00a0denial of service attacks, manipulation and other cyber misconduct. Through a risk management approach that continually assesses and improves our Information Technology (IT) and cybersecurity threat deterrence capabilities, our Information Security and Risk Management groups have formed a functional collaboration to provide leadership and oversight when managing IT and cybersecurity risks. \nThrough a combination of Security, Governance, Risk and Compliance (GRC) resources, we (i) proactively monitor IT controls to better ensure compliance with legal and regulatory requirements, (ii) assess adherence by third parties we partner with to ensure that the appropriate risk management standards are met, (iii) ensure essential business functions remain available during a business disruption, and\u00a0(iv) continually develop and update response plans to address potential IT or cyber incidents should they occur. Our GRC resources are designed to prioritize IT and cybersecurity risks areas, identify solutions that minimize such risks, pursue optimal outcomes and maintain compliance with contractual obligations. We also maintain an operational security function that has a real time 24x7x365 response capability that triages potential incidents and triggers impact mitigation protocols. These capabilities allow us to apply best practices and reduce exposure in the case of a security incident. For more information regarding the risks associated with these matters, see \u201cItem 1A. Risk Factors-We could suffer a loss of revenue and increased costs, exposure to material legal liability, reputational harm, and other serious negative consequences if we sustain cyber-attacks or other data security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information about us or our members or other third parties.\u201d\nCompetition\nThe markets for our products and services in both our Supply Chain Services segment and Performance Services segment are fragmented, highly competitive and characterized by rapidly evolving technology and product standards, user needs and the frequent introduction of new products and services. We have experienced and expect to continue to experience intense competition from a number of companies. \nOur Supply Chain Services segment\u2019s competitors primarily compete with our group purchasing, direct sourcing and supply chain co-management activities. Our group purchasing business competes with other large GPOs such as HealthTrust Purchasing Group (a subsidiary of HCA Holdings, Inc.), Managed Health Care Associates, Inc. and Vizient, Inc. In addition, we compete against certain healthcare provider-owned GPOs and on-line retailers in this segment. Our direct sourcing business competes primarily with private label offerings and programs, product manufacturers, and distributors, such as Cardinal Health, Inc., McKesson Corporation, Medline Industries, Inc. and Owens & Minor, Inc. Our supply chain co-management business competes with organizations that provide supply chain outsourcing or embedded resources and supply chain transformation services, such as The Resource Group and CPS Solutions, LLC.\nOur Performance Services segment\u2019s competitors compete with our three sub-brands: PINC AI, Contigo Health and Remitra. The primary competitors of PINC AI range from smaller niche companies to large, well-financed and technologically sophisticated entities. Our primary competitors for PINC AI include (i) information technology providers such as Veradigm, Inc. (f/k/a Allscripts Healthcare Solutions, Inc.), Epic Systems Corporation, Health Catalyst, Inc., IBM Corporation, Infor, Inc. and Oracle Corporation, and (ii) consulting and outsourcing firms such as Deloitte & Touche LLP, Evolent Health, Inc., Healthagen, LLC (a subsidiary of Aetna, Inc.), Huron Consulting, Inc., Guidehouse Consulting, Inc., Optum, Inc. (a subsidiary of UnitedHealth Group, Inc.) and Vizient, Inc. The primary competitors for Contigo Health include AmeriBen, Meritan Health, UMR, WebTPA and Benefit and Risk Management Services for our third-party administrative services product; Carrum Health, Transcarent, Edison Healthcare, AccessHope and MSK Direct for our Centers of Excellence product; and First Health, MultiPlan, Zelis and other wrap network providers and major carriers (such as Aetna, United and Cigna) for our ConfigureNet product. The primary competitors for Remitra include Global Healthcare Exchange, LLC for our digital invoicing product, Coupa Software Inc. and Taulia for our digital payables product, and tier one treasury banks (e.g., JPMorgan Chase and Co., Wells Fargo, Bank of America, etc.) as well as niche factoring companies for our financing solutions product. \nWith respect to our products and services across both segments, we compete on the basis of several factors, including price, breadth, depth and quality of product and service offerings, ability to deliver clinical, financial and operational performance improvements through the use of products and services, quality and reliability of services, ease of use and convenience, brand recognition and the ability to integrate services with existing technology.\n16\nGovernment Regulation\nGeneral\nThe healthcare industry is highly regulated by federal and state authorities and is subject to changing legal, political, economic and regulatory influences. Factors such as changes in reimbursement policies for healthcare expenses, consolidation in the healthcare industry and general economic conditions affect the purchasing practices, operations and the financial health of healthcare organizations. In particular, changes in laws and regulations affecting the healthcare industry, such as increased regulation of the purchase and sale of medical products, or restrictions on permissible discounts and other financial arrangements, could require us to make unplanned and costly modifications to our products and services, and may result in delays or cancellations of orders or a reduction of funds and demand for our products and services.\nWe are subject to numerous risks arising from governmental oversight and regulation. You should carefully review the following discussion and the risks discussed under \u201cItem 1A. Risk Factors\u201d for a more detailed discussion.\nAffordable Care Act \nThe passage of the Patient Protection and Affordable Care Act (\u201cACA\u201d) in 2010 aimed to expand access to affordable health insurance, control healthcare spending and improve healthcare quality. The law included provisions to tie Medicare provider reimbursement to healthcare quality and incentives, mandatory compliance programs, enhanced transparency disclosure requirements, increased funding and initiatives to address fraud and abuse and incentives to state Medicaid programs to promote community-based care as an alternative to institutional long-term care services. In addition, the law created an innovation center to test and scale new APMs and ACOs. These programs are creating fundamental changes in the delivery of healthcare. \nSince its passage, the ACA has been subject to continued scrutiny and threats to repeal it in parts or in whole. The current Biden administration is supportive of the ACA and there are no imminent threats to it. However, any future changes may ultimately impact the provisions of the ACA or other laws or regulations that either currently affect, or may in the future affect, our business. We believe it is important to note that most of the controversy related to the ACA relates to coverage expansion and not the issues related to quality improvement and cost reduction which are core to our business.\nU.S. Food and Drug Administration Regulation\nThe U.S. Food and Drug Administration (\u201cFDA\u201d) extensively regulates, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of pharmaceuticals and medical devices. To the extent that functionality or intended use in one or more of our current or future software products causes the software to be regulated as a medical device under existing or future FDA laws or regulations, we could be required to register our product(s) with the FDA and undergo the regulatory approval process, which may include being required to conduct clinical trials. There is risk that the product may not be approved by the FDA or that we may not be able to market the product during the approval process. In addition, registering a product with the FDA can be a costly and timely endeavor creating additional regulatory scrutiny and risk for Premier, as well as additional compliance requirements with all associated FDA laws, regulations and guidance.\nCivil and Criminal Fraud, Waste and Abuse Laws\nWe are subject to federal and state laws and regulations designed to protect patients, governmental healthcare programs and private health plans from fraudulent and abusive activities. These laws include anti-kickback restrictions and laws prohibiting the submission of false or fraudulent claims. These laws are complex and broadly worded, and their application to our specific products, services and relationships may not be clear and may be applied to our business in ways that we do not anticipate. Federal and state regulatory and law enforcement authorities have over time increased enforcement activities with respect to Medicare and Medicaid fraud, waste and abuse regulations and other reimbursement laws and rules. These laws and regulations include:\nAnti-Kickback Laws.    \nThe federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation or receipt of remuneration, directly or indirectly, in return for the referral of patients or arranging for the referral of patients, or in return for the recommendation, arrangement, purchase, lease or order of items or services that are covered, in whole or in part, by a federal healthcare program such as Medicare or Medicaid. The definition of \"remuneration\" has been broadly interpreted to include anything of value such as gifts, discounts, rebates, waiver of payments or providing anything at less than its fair market value. Many states have adopted similar prohibitions against kickbacks and other practices that are intended to influence the purchase, lease or ordering of healthcare items and services regardless of whether the item or service is covered under a governmental health program or private health plan. Certain statutory and regulatory safe harbors exist that protect specified business arrangements from prosecution under the Anti-Kickback Statute if all elements of an applicable safe harbor are met, \n17\nhowever these safe harbors are narrow and often difficult to comply with. Congress has appropriated an increasing amount of funds in recent years to support enforcement activities aimed at reducing healthcare fraud and abuse.\nThe U.S. Department of Health and Human Services, or HHS, created certain safe harbor regulations which, if fully complied with, assure parties to a particular arrangement covered by a safe harbor that they will not be prosecuted under the Anti-Kickback Statute. We structure our group purchasing services, pricing discount arrangements with suppliers, and revenue share arrangements with applicable members to meet the terms of the safe harbor for GPOs set forth at 42 C.F.R. \u00a7\u00a01001.952(j) and the discount safe harbor set forth at 42 C.F.R. \u00a7\u00a01001.952(h). Although full compliance with the provisions of a safe harbor ensures against prosecution under the Anti-Kickback Statute, failure of a transaction or arrangement to fit within a safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the Anti-Kickback Statute will be pursued. From time to time, HHS, through its Office of Inspector General, makes formal and informal inquiries, conducts investigations and audits the business practices of GPOs, including our GPO, the result of which could be new rules, regulations or in some cases, a formal enforcement action. \nTo help ensure regulatory compliance with HHS rules and regulations, our members that report their costs to Medicare are required under the terms of the Premier Group Purchasing Policy to appropriately reflect all elements of value received in connection with our initial public offering (\u201cIPO\u201d), including under the various agreements entered into in connection therewith, on their cost reports. We are required to furnish applicable reports to such members setting forth the amount of such value, to assist their compliance with such cost reporting requirements. There can be no assurance that the HHS Office of Inspector General or the U.S. Department of Justice, or DOJ, will concur that these actions satisfy their applicable rules and regulations. \nFalse Claims Act.    \nOur business is also subject to numerous federal and state laws that forbid the submission or \u201ccausing the submission\u201d of false or fraudulent information or the failure to disclose information in connection with the submission and payment of claims for reimbursement to Medicare, Medicaid or other governmental healthcare programs or private health plans. In particular, the False Claims Act, or FCA, prohibits a person from knowingly presenting or causing to be presented a false or fraudulent claim for payment or approval by an officer, employee or agent of the United States. In addition, the FCA prohibits a person from knowingly making, using, or causing to be made or used a false record or statement material to such a claim. Violations of the FCA may result in treble damages, material monetary penalties, and other collateral consequences including, potentially, exclusion from participation in federally funded healthcare programs. A claim that includes items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA.\nPrivacy and Security Laws.    \nThe Health Insurance Portability and Accountability Act of 1996, or HIPAA, contains substantial restrictions and requirements with respect to the use and disclosure of certain individually identifiable health information, referred to as \u201cprotected health information.\u201d The HIPAA Privacy Rule prohibits a covered entity or a business associate (essentially, a third party engaged to assist a covered entity with enumerated operational and/or compliance functions) from using or disclosing protected health information unless the use or disclosure is validly authorized by the individual or is specifically required or permitted under the HIPAA Privacy Rule and only if certain complex requirements are met. In addition to following these complex requirements, covered entities and business associates must also meet additional compliance obligations set forth in the HIPAA Privacy Rule. The HIPAA Security Rule establishes administrative, organizational, physical and technical safeguards to protect the confidentiality, integrity and availability of electronic protected health information maintained or transmitted by covered entities and business associates. The HIPAA Security Rule requirements are intended to mandate that covered entities and business associates regularly re-assess the adequacy of their safeguards in light of changing and evolving security risks. Finally, the HIPAA Breach Notification Rule requires that covered entities and business associates, under certain circumstances, notify patients/beneficiaries, media outlets and HHS when there has been an improper use or disclosure of protected health information.\nOur self-funded health benefit plan and our healthcare provider members (provided that these members engage in HIPAA-defined standard electronic transactions with health plans, which will be all or the vast majority) are directly regulated by HIPAA as \u201ccovered entities.\u201d Additionally, because most of our U.S. hospital members disclose protected health information to us so that we may use that information to provide certain data analytics, benchmarking, consulting or other operational and compliance services to these members, we are a \u201cbusiness associate\u201d of those members. In these cases, in order to provide members with services that involve the use or disclosure of protected health information, HIPAA requires us to enter into \u201cbusiness associate agreements\u201d with our covered entity members. Such agreements must, among other things, provide adequate written assurances:\n(i)\nas to how we will use and disclose the protected health information within certain allowable parameters established by HIPAA,\n(ii)\nthat we will implement reasonable and appropriate administrative, organizational, physical and technical safeguards to protect such information from impermissible use or disclosure,\n18\n(iii)\nthat we will enter into similar agreements with our agents and subcontractors that have access to the information,\n(iv)\nthat we will report breaches of unsecured protected health information, security incidents and other inappropriate uses or disclosures of the information, and\n(v)\nthat we will assist the covered entity with certain of its duties under HIPAA.\nWith the enactment of the Health Information Technology for Economic and Clinical Health, or HITECH Act, the privacy and security requirements of HIPAA were modified and expanded. The HITECH Act applies certain of the HIPAA privacy and security requirements directly to business associates of covered entities. Prior to this change, business associates had contractual obligations to covered entities but were not subject to direct enforcement by the federal government. In 2013, HHS released final rules implementing the HITECH Act changes to HIPAA. These amendments expanded the protection of protected health information by, among other things, imposing additional requirements on business associates, further restricting the disclosure of protected health information in certain cases where the covered entity or business associate is remunerated in return for making the transaction, and modifying the HIPAA Breach Notification Rule, which has been in effect since September 2009, to create a rebuttable presumption that an improper use or disclosure of protected health information under certain circumstances requires notice to affected patients/beneficiaries, media outlets and HHS.\nTransaction Requirements.    \nHIPAA also mandates format, data content and provider identifier standards that must be used in certain electronic transactions, such as claims, payment advice and eligibility inquiries. Although our systems are fully capable of transmitting transactions that comply with these requirements, some payers and healthcare clearinghouses with which we conduct business may interpret HIPAA transaction requirements differently than we do or may require us to use legacy formats or include legacy identifiers as they make the transition to full compliance. In cases where payers or healthcare clearinghouses require conformity with their interpretations or require us to accommodate legacy transactions or identifiers as a condition of successful transactions, we attempt to comply with their requirements, but may be subject to enforcement actions as a result. In 2009, CMS published a final rule adopting updated standard code sets for diagnoses and procedures known as ICD-10 code sets and changing the formats to be used for electronic transactions subject to the ICD-10 code sets, known as Version 5010. All healthcare providers are required to comply with Version 5010 and use the ICD-10 code sets.\nOther Federal and State Laws.    \nIn addition to our obligations under HIPAA there are other federal laws that impose specific privacy and security obligations, above and beyond HIPAA, for certain types of health information and impose additional sanctions and penalties. These rules are not preempted by HIPAA. Most states have enacted patient and/or beneficiary confidentiality laws that protect against the disclosure of confidential medical information, and many states have adopted or are considering adopting further legislation in this area, including privacy safeguards, security standards, data security breach notification requirements, and special rules for so-called \u201csensitive\u201d health information, such as mental health, genetic testing results, or Human Immunodeficiency Virus, or HIV, status. These state laws, if more stringent than HIPAA requirements, are not preempted by the federal requirements, and we are required to comply with them as well.\nWe are unable to predict what changes to HIPAA or other federal or state laws or regulations might be made in the future or how those changes could affect our business or the associated costs of compliance. \nAntitrust Laws\nThe Sherman Antitrust Act and related federal and state antitrust laws are complex laws that prohibit contracts in restraint of trade or other activities that are designed to or that have the effect of reducing competition in the market. The federal antitrust laws promote fair competition in business and are intended to create a level playing field so that both small and large companies are able to compete in the market. In their 1996 Statements of Antitrust Enforcement Policy in Health Care, or the Healthcare Statements, the DOJ and the Federal Trade Commission, or FTC, set forth guidelines specifically designed to help GPOs gauge whether a particular purchasing arrangement may raise antitrust concerns and established an antitrust safety zone for joint purchasing arrangements among healthcare providers. \nEarlier in 2023, the DOJ and FTC withdrew the Healthcare Statements, stating that they were outdated and overly permissive and indicating that the agencies would provide future guidance through case-by-case enforcement. In the absence of current guidance, we have continued to attempt to structure our contracts and pricing arrangements in accordance with the Healthcare Statements and believe that our GPO supplier contracts and pricing discount arrangements should not be found to violate the antitrust laws. No assurance can be given that enforcement authorities will agree with this assessment. In addition, private parties also may bring suit for alleged violations under the U.S. antitrust laws. From time to time, the group purchasing industry comes under review by Congress and other governmental bodies with respect to antitrust laws, the scope of which includes, among other things, the relationships between GPOs and their members, distributors, manufacturers and other suppliers, as well as the services performed and payments received in connection with GPO programs.\n19\nCongress, the DOJ, the FTC, the U.S. Senate or another state or federal entity could at any time open a new investigation of the group purchasing industry, or develop new rules, regulations or laws governing the industry, that could adversely impact our ability to negotiate pricing arrangements with suppliers, increase reporting and documentation requirements, or otherwise require us to modify our arrangements in a manner that adversely impacts our business. We may also face private or government lawsuits alleging violations arising from the concerns articulated by these governmental factors or alleging violations based solely on concerns of individual private parties.\nHealth IT Certification Program\nIn 2009, Congress included in the American Recovery and Reinvestment Act a program to incentivize the adoption of health information technology by hospitals and ambulatory providers who participate in the Medicare and Medicaid programs. Congress further modified the incentive program for ambulatory providers under the Medicare Access and CHIP Reauthorization Act of 2015 (\u201cMACRA\u201d). Any developer of health information technology seeking to offer a product to assist hospitals or ambulatory healthcare providers to meet the requirements of these programs must obtain certification under the applicable certification criteria established by the Office of the National Coordinator for Health Information Technology (\u201cONC\u201d). There are two types of certification for health information developers seeking to participate in the certification program: 1) certification to all the certification criteria required to meet the definition of a \u201c2015 Edition Base EHR\u201d; or 2) certification as a Health IT Module, meeting specific certification criteria. Meeting the certification criteria as a \u201c2015 Edition Base EHR\u201d allows a developer of health information technology to offer a product that has all the capabilities needed for a hospital or an ambulatory provider to meet the requirements of the health IT incentive programs. A Health IT Module provides a specific set of capabilities. Hospitals or ambulatory providers seeking to avoid potential payment reductions must either implement a 2015 Base EHR using a single product, or multiple Health IT Modules that together have all of the capabilities of a 2015 Base EHR.\nWe currently have two products that are certified as Health IT Modules. To retain our certification, we must: 1) meet applicable conditions of certification and maintenance of certification requirements established by ONC; 2) pass testing conducted by an ONC-Authorized Testing Laboratory pursuant to test procedures developed by ONC; and 3) obtain certification from an ONC-Authorized Certification Body. ONC\u2019s conditions of certification and maintenance of certification requirements include communication restrictions that largely prevent us from limiting our customer's ability to communicate about the usability, interoperability, security or user experiences relating to our Health IT Modules. These regulations require us to review and modify current contract terms or inform customers that offending contract terms we previously entered into are no longer effective. We are also required to develop and execute a real-world testing plan, which would require us to demonstrate to our ONC-Authorized Certification Body that our Health IT Modules operate as designed when implemented in the field. Failure to properly implement these requirements could result in our two products losing their status as Health IT Modules, which could jeopardize the utility of the products for our customers. We work closely with our selected ONC-Authorized Testing Laboratory and ONC-Authorized Certification Body to meet these and other requirements of Health IT Certification Program. We are unable to predict what changes to the certification program might be made in the future or how those changes could affect our business or the associated costs of compliance. \nERISA and Other Laws Impacting Employer Group Health Plans\nMany of the clients we serve sponsor employer group health plans, which are subject to the Employee Retirement Income Security Act of 1974, as amended (\u201cERISA\u201d), the Internal Revenue Code, the ACA, Medicare Secondary Payer statute, HIPAA privacy, state insurance laws in some cases, and other laws and regulations governing group health plans. While compliance for these laws and regulations governing group health plans is the responsibility of the employer that sponsors the health plan, in some cases, the employer may delegate certain health plan functions to a vendor, such as us. We protect ourselves from liability for these client health plans by virtue of contractual provisions insulating us from exposure and responsibility for the employer-plan sponsor's legal obligations. \nGovernmental Audits\nBecause we act as a GPO for healthcare providers that participate in governmental programs, our group purchasing services have in the past and may again in the future be subject to periodic surveys and audits by governmental entities or contractors for compliance with Medicare and Medicaid standards and requirements. We will continue to respond to these government reviews and audits but cannot predict what the outcome of any future audits may be or whether the results of any audits could materially or negatively impact our business, our financial condition or results of operations.\nCorporate Compliance Department\nWe execute and maintain a compliance and ethics program that is designed to assist us and our employees in conducting operations and activities ethically with the highest level of integrity and in compliance with applicable laws and regulations and, \n20\nif violations occur, to promote early detection and prompt resolution. These objectives are achieved through education, monitoring, disciplinary action and other remedial measures we believe to be appropriate. We provide all of our employees with education that has been developed to communicate our standards of conduct, compliance policies and procedures as well as policies for monitoring, reporting and responding to compliance issues. We also provide all of our employees with a third-party toll-free number and Internet website address in order to report any compliance or privacy concerns. In addition, our Chief Ethics & Compliance Officer individually, and along with the Audit and Compliance Committee of the Board of Directors, helps oversee compliance and ethics matters across our business operations. \nHuman Capital Management\nOur employees are our most critical assets. The success and growth of our business depends on our ability to attract, reward, retain, and develop diverse, talented, and high-performing employees at all levels of our organization, while sustaining an environment of anti-discrimination that ensures equal access to opportunities. To succeed in an ever-changing and competitive labor market, we have developed human capital management strategies, objectives and measures that drive recruitment and retention, support business performance, advance innovation, foster employee development and support our Mission \u2014 to improve the health of our communities, our Vision \u2014 to lead the transformation to high quality, cost effective healthcare, and our Values \u2014 integrity, passion for performance, innovation and a focus on people.\n21\nOur Mission, Vision and Values, together with our human capital strategies, objectives and measures, form a framework advanced through the following programs and initiatives:\nSupport Employees\u2019 Financial, Health, and Social Well-Being\n\u2022\nCompetitive, reasonable, and equitable compensation programs designed to align pay and performance and attract and retain employees who are passionate about our mission and exemplify our values.\n\u2022\nAnnual and long-term incentives designed to drive business and individual achievement.\n\u2022\nComprehensive, competitive, and innovative health and welfare and retirement benefits to support our employees\u2019 physical, mental and financial health.\n\u2022\nEmployee Stock Purchase Plan and equity compensation to provide financial value, align employees\u2019 interests with those of our shareholders and drive talent retention.\n\u2022\nInnovative programs to support all aspects of employee well-being, including physical, emotional, financial and social health.\n\u2022\nGenerous and flexible time off programs.\n\u2022\nSocial Responsibility Programs including paid Annual Volunteer Afternoon, volunteering hours and matching gifts to encourage and support giving back to the communities in which we serve.\n\u2022\nFlexible work environments - including remote and hybrid work options where possible - and enabled technology to enhance employee experience and connectedness in both virtual and in-person settings.\nRecognize Employees\u2019 Performance and Contributions\n\u2022\nPremier Individual and Team Values Awards to recognize employees who best exemplify Premier\u2019s core values.\n\u2022\nSusan D. DeVore President\u2019s Award to recognize the significant career accomplishments of select employees.\n\u2022\nShirley T. Wang Wellness Warrior Award to recognize employees\u2019 commitment to and passion for well-being.\n\u2022\nValues in Action online portal to encourage employees in real time to publicly recognize and reward their peers for performance, innovation, focus on people and integrity.\nPromote a Diverse, Equitable and Inclusive Workplace\n\u2022\nCouncil on Diversity, Equity, Inclusion and Belonging.\n\u2022\nNetwork of executive-sponsored, employee-led Employee Resource Groups (\u201cERGs\u201d) designed to build community and foster belonging and advancement of business strategy and employee experience through sharing of diverse thought and perspective. Groups include W.O.M.E.N., Military Veterans, Black Professionals, LGBTQ+, Asian American and Pacific Islander, Latin, Disabled Employees and Generations and their Allies groups. We also have a Field Services DEI Council ERG comprised of employees dedicated to supporting our members.\n\u2022\nRegular and ongoing review of compensation equity.\n\u2022\nMentoring and networking programs.\n\u2022\nRecruiting outreach to drive diverse representation within our communities.\n\u2022\nContinuous listening strategies including semi-annual People First employee engagement survey to seek feedback on a variety of topics to continuously improve our human resources programs, practices and employee experience.\nCreate Opportunities to Grow and Develop\n\u2022\nComprehensive technology-enabled learning and development programs to foster connections, leadership competency and team and individual development.\n\u2022\nLeadership and Management development programs.\n\u2022\nPerformance Management program including a formal, quarterly employee performance feedback cadence to drive high performance and reward excellence.\n\u2022\nEnterprise talent planning and career pathing.\n\u2022\nTuition reimbursement program to support continuing education.\nCompany Recognition\n\u2022\nWorld\u2019s Most Ethical Company by the Ethisphere Institute for the 16th consecutive year.\n\u2022\n2020 Golden Peacock Award for Global Excellence in Corporate Governance.\n\u2022\nInducted into Healthiest Employers Hall of Fame in 2023.\n\u2022\n2023 Healthiest Employers of Charlotte by Charlotte Business Journal (1st place). 8th consecutive year in top 3.\n\u2022\n2022 Healthiest 100 Workplaces in America (23rd place).\n\u2022\n2022 Cigna Well-Being Award (Gold Level).\n\u2022\nLinkedIn\u2019s 2021 Top Companies in Charlotte.\n\u2022\n2021 Prism International Diversity Impact Award for Top 25 National ERGs\n22\nEmployees\nAs of June\u00a030, 2023, we employed approximately 2,800 people, all in the United States. We also engage contractors and consultants. Additionally, we regularly track and report internally on key talent metrics including workforce demographics, talent pipeline, diversity data and the engagement of our employees. None of our employees are working under a collective bargaining arrangement. \nWe conduct sales through our embedded field force, our dedicated national sales team, our Premier consultants, and other various sales teams, collectively comprised of approximately 600 employees as of June\u00a030, 2023.\nOur field force works closely with our U.S. hospital members and other members to target new opportunities by developing strategic and operational plans to drive cost management and quality and safety improvement initiatives. As of June\u00a030, 2023, our field force was deployed to seven geographic regions and several strategic/affinity members across the United States. This field force works at our member sites to identify and recommend best practices for both supply chain and clinical integration cost savings opportunities. The regionally deployed field force is augmented by a national team of subject matter specialists who focus on key areas such as lab, surgery, cardiology, orthopedics, imaging, pharmacy, information technology and construction. Our field force also assists our members in growing and supporting their continuum of care facilities.\nOur national sales team provides national sales coverage for establishing initial member relationships and works with our field force to increase sales to existing members. Our regional sales teams are aligned with the seven regions in our field force model.\nOur Premier consulting team identifies and targets consulting engagements and wrap-around services for our major SaaS-based clinical analytics products and our GPO to enhance the member value from these programs.\nAvailable Information\nWe file or furnish, as applicable, annual, quarterly and current reports, proxy statements and other information with the SEC. You may access these reports and other information without charge at a website maintained by the SEC. The address of this site is \nhttps://www.sec.gov. \nIn addition, our website address is \nwww.premierinc.com. \nWe make available through our website the documents identified above, free of charge, promptly after we electronically file such material with, or furnish it to, the SEC. \nWe also provide information about our company through: Twitter (https://twitter.com/premierha), Facebook (https://www.facebook.com/premierhealthcarealliance), LinkedIn (https://www.linkedin.com/company/6766), YouTube (https://www.youtube.com/user/premieralliance), and Instagram (https://instagram.com/premierha).\nExcept as specifically indicated otherwise, the information available on our website, the SEC\u2019s website and the social media outlets identified above, is not and shall not be deemed a part of this Annual Report.\n23",
+  "item1a": ">Item 1A. Risk Factors\nOur business, operations, and financial position are subject to various risks. Before making an investment in our Class\u00a0A common stock or other securities we may have outstanding from time to time, you should carefully consider the following risks, as well as the other information contained in this Annual Report. Any of the risks described below could materially harm our business, financial condition, results of operations and prospects, and as a result, the value of an investment in our Class\u00a0A common stock or other securities we may have outstanding from time to time could decline, and you may lose part or all of such investment value. This section does not describe all risks that are or may become applicable to us, our industry or our business, and it is intended only as a summary of certain material risk factors. Some statements in this Annual Report, including certain statements in the following risk factors, constitute forward-looking statements. See the section titled \u201cCautionary Note Regarding Forward-Looking Statements\u201d for a discussion of such statements and their limitations. More detailed information concerning other risks or uncertainties we face, as well as the risk factors described below, is contained in other sections of this Annual Report.\nRisk Factors Summary\nThe following is a summary of the risk factors that could adversely affect our Company and the value of an investment in our Company\u2019s securities.\nRisks Related to our Business Operations\n\u2022\nWe face risks related to competition and consolidation in the healthcare industry.\n\u2022\nWe may experience delays recognizing or increasing revenue if the sales cycle or implementation period takes longer than expected.\n\u2022\nWe face risks to our business if members of our group purchasing organization (\u201cGPO\u201d) programs reduce activity levels, terminate or elect not to renew their contracts on substantially similar terms or at all.\n\u2022\nWe rely on administrative fees that we receive from GPO suppliers.\n\u2022\nWe face increased pressure to increase the percentage of administrative fees we share with our GPO members as well as to provide enhanced value through savings guarantees and other arrangements, including as a result of very aggressive competition from other GPOs, which is likely to result in increases in revenue share obligations, some of which may be material, particularly as our current GPO participation agreements approach renewal or if a member undergoes a change of control that triggers a termination right, or as new members join our GPO program.\n\u2022\nWe face risks of the markets for our software as a service (\u201cSaaS\u201d) or licensed-based analytics products and services may develop more slowly than we expect, or we may convert more SaaS-based products to license-based analytics products, which could adversely affect our revenue, growth rates and our ability to maintain or increase our profitability.\n\u2022\nOur members are highly dependent on payments from third-party payers, such as Medicare and Medicaid, the denial or reduction of which could adversely affect demand for our products and services.\n\u2022\nOur growth may be affected by our ability to offer new and innovative products and services as well as our ability to maintain third-party provider and strategic alliances or enter into new alliances.\n\u2022\nWe face risks and expenses related to future acquisition opportunities and integration of acquisitions, as well as risks associated with non-controlling investments in other businesses or joint ventures.\n\u2022\nOur evaluation of potential strategic alternatives to enhance value for stockholders may not be successful and have negative impacts on our business and stock price.\n\u2022\nWe rely on Internet infrastructure, bandwidth providers, data center providers and other third parties and face risks related to data loss or corruption and cyber-attacks or other data security breaches.\n\u2022\nWe depend on our ability to use, disclose, de-identify or license data and to integrate third-party technologies.\n\u2022\nWe face risks related to our use of \u201copen source\u201d software.\n\u2022\nWe face risks associated with our reliance on contract manufacturing facilities located in various parts of the world.\n\u2022\nWe may face inventory risk for (i) the personal protective equipment or other products we may purchase at elevated prices during a supply shortage, and (ii) items we purchase in bulk or pursuant to fixed price purchase commitments if we cannot sell such inventory at or above our cost.\n\u2022\nWe depend on our ability to attract, hire, integrate and retain key personnel.\n\u2022\nWe have risks to our business operations due to continuing uncertain economic conditions, including but not limited to inflation and the risk of a global recession, which could impair our ability to forecast and may harm our business, operating results, including our revenue growth and profitability, financial condition and cash flows.\n24\n\u2022\nWe may continue to face financial and operational uncertainty due to pandemics, epidemics or public health emergencies, such as the COVID-19 pandemic, and associated supply chain disruptions.\n\u2022\nWe may face financial and operational uncertainty due to global economic and political instability and conflicts.\n\u2022\nWe may be adversely affected by global climate change or by regulatory responses to such change.\nRisks Related to Healthcare and Employee Benefit Regulation\n\u2022\nWe are subject to changes and uncertainty in the legal, political, economic and regulatory environment affecting healthcare organizations.\n\u2022\nWe must comply with complex international, federal and state laws and regulations governing financial relationships among healthcare providers and the submission of false or fraudulent healthcare claims, antitrust and employee benefit laws and regulations and privacy, security and breach notification laws.\n\u2022\nWe may be subject to regulation for certain of our software products regarding health information technology, artificial intelligence and medical devices.\nLegal and Tax-Related Risks\n\u2022\nWe are subject to litigation from time to time, including the pending stockholder derivative action against certain of our current and former officers and directors.\n\u2022\nWe must adequately protect our intellectual property, and we face potential claims against our use of the intellectual property of third parties.\n\u2022\nWe face tax risks, including potential sales and use, franchise and income tax liability in certain jurisdictions, future changes in tax laws and potential material tax disputes.\nRisks Related to our Corporate Structure\n\u2022\nWe are obligated to make payments under our Unit Exchange and Tax Receivable Acceleration Agreements, and we may not realize all of the expected tax benefits corresponding to the termination of our prior Tax Receivable Agreement.\n\u2022\nProvisions in our certificate of incorporation and bylaws and provisions of Delaware law may impede or prevent strategic transactions, including a takeover of the company.\nRisks Related to our Capital Structure, Liquidity and Class A Common Stock\n\u2022\nWe face risks related to our current and future indebtedness, including our existing long-term credit facility.\n\u2022\nWe experience fluctuation in our quarterly cash flows, revenues and results of operations.\n\u2022\nWe are required to maintain an effective system of internal controls over financial reporting and remediate any material weaknesses and significant deficiencies identified.\n\u2022\nWe face risks related to our Class A common stock, including potentially dilutive issuances and uncertainty regarding future dividend payments and stock repurchases. \nFor a more complete discussion of the material risks facing our business, see below.\nRisks Related to Our Business Operations\nWe face intense competition, which could limit our ability to maintain or expand market share within our industry and harm our business and operating results.\nThe market for products and services in each of our operating segments is fragmented, intensely competitive and characterized by rapidly evolving technology and product standards, dynamic user needs and the frequent introduction of new products and services. We face intense competition from a number of companies, including the companies listed under \u201cItem 1 - Business - Competition.\u201d\nThe primary competitors for our Supply Chain Services segment compete with our group purchasing, direct sourcing and supply chain co-management activities. Our group purchasing business competes with other large GPOs, including in certain cases GPOs owned by healthcare providers and on-line retailers. Our direct sourcing business competes primarily with private label offerings and programs, product manufacturers and distributors. Our supply chain co-management business competes with organizations that provide supply chain outsourcing or embedded resources and supply chain transformations services.\n25\nThe competitors in our Performance Services segment compete with our three sub-brands: PINC AI, Contigo Health and Remitra. The primary competitors of PINC AI range from smaller niche companies to large, well-financed and technologically sophisticated entities, and include\u00a0information technology providers and consulting and outsourcing firms. The primary competitors for Contigo Health are smaller niche and larger well-financed healthcare and insurance companies and providers of wrap network services. The primary competitors for Remitra are smaller niche and larger technology companies and financial institutions. \nWith respect to our products and services in both segments, we compete based on several factors, including breadth, depth and quality of our product and service offerings, ability to deliver clinical, financial and operational performance improvement through the use of our products and services, quality and reliability of services, ease of use and convenience, brand recognition and the ability to integrate services with existing technology. Some of our competitors have larger scale, benefit from greater name recognition, and have substantially greater financial, technical and marketing resources. Other of our competitors have proprietary technology that differentiates their product and service offerings from our offerings. As a result of these competitive advantages, our competitors and potential competitors may be able to respond more quickly to market forces, undertake more extensive marketing campaigns for their brands, products and services and make more attractive offers to our current members and customers and potential new members and customers.\nWe also compete based on price in our Supply Chain Services and Performance Services businesses. We may be subject to pricing pressures as a result of, among other things, competition within the industry, consolidation of healthcare industry participants, practices of managed care organizations, changes in laws and regulations applicable to our business operations, government action affecting reimbursement, financial stress experienced by our members and customers, and increased revenue share obligations to members. In our Supply Chain Services segment, competitive pressure is likely to result in increases in revenue share obligations, some of which may be material, particularly as our current GPO participation agreements approach renewal or if a member undergoes a change of control that triggers a termination right, or as new GPO members join our GPO programs. Material increases in revenue share obligations to existing or new GPO members could adversely impact our business, financial condition and results of operations. In this competitive environment, we may not be able to retain our current GPO members or expand our member base at historical terms, favorable terms or at all, and the failure to do so may adversely impact our business, financial condition and results of operations. Furthermore, if pricing of our other products and services experiences material downward pressure, our business will be less profitable, and our results of operations will be materially, adversely affected. \nFurthermore, our Performance Services business also competes on features and functionality of the solutions we offer through our PINC AI, Contigo Health and Remitra brands. \nMoreover, we expect that competition will continue to increase as a result of consolidation in both the healthcare information technology and healthcare services industries. If one or more of our competitors or potential competitors were to merge or partner with another of our competitors, or if new competitors were to enter the healthcare space, the change in the competitive landscape could also adversely affect our ability to compete effectively and could materially harm our business, financial condition, and results of operations.\nConsolidation in the healthcare industry could have a material adverse effect on our business, financial condition and results of operations.\nMany healthcare industry participants are consolidating to create larger and more integrated healthcare delivery systems with greater market power. We expect legal, regulatory and economic conditions to lead to additional consolidation in the healthcare industry in the future. As consolidation accelerates, the economies of scale of our members\u2019 organizations may grow. If a member experiences sizable growth following consolidation, it may determine that it no longer needs to rely on us and may reduce its demand for our products and services. Some of these large and growing healthcare systems and continuum of care providers may choose to contract directly with suppliers for certain supply categories, and some suppliers may seek to contract directly with the healthcare providers rather than with GPOs such as ours. In connection with any consolidation, our members may move their business to another GPO, particularly when the acquiring hospital or health system is a member of a competing GPO or where the post-acquisition management of our member is aligned with a competing GPO. In addition, as healthcare providers consolidate to create larger and more integrated healthcare delivery systems with greater market power, these providers may try to use their market power to negotiate materially increased revenue share obligations and fee reductions for our products and services across both of our business segments. Finally, consolidation may also result in the acquisition or future development by our members of products and services that compete with our products and services. Any of these potential results of consolidation could have a material adverse effect on our business, financial condition, and results of operations.\n26\nWe may experience material delays in recognizing revenue or increasing revenue, or be required to reverse prior revenue recognition, if the sales cycle or implementation period with potential new members takes longer than anticipated or our related project estimates are not accurate.\nA key element of our strategy is to market the various products and services in our Supply Chain Services and Performance Services segments directly to healthcare providers and to increase the number of our products and services utilized by existing members. The evaluation and purchasing process is often lengthy and involves material technical evaluation and commitment of personnel by these organizations. Further, the evaluation process depends on a number of factors, many of which we may not be able to control, including potential new members\u2019 internal approval processes, budgetary constraints for technology spending, member concerns about implementing new procurement methods and strategies and other timing effects. In addition, the contract or software implementation process for new products or services can take six months or more and, accordingly, delay our ability to recognize revenue from the sale of such products or services. If we experience an extended or delayed implementation cycle in connection with the sale of additional products and services to existing or new members, it could have a material adverse effect on our business, financial condition and results of operations. In addition, we are required to use estimates to determine revenue recognition for performance-based consulting engagements. These estimates are based on a number of inputs from management regarding project timing, milestone and goal achievement and expected completion dates, each of which may change during the course of the engagement and could result in either delayed revenue recognition or revenue reversals resulting in out of period revenue adjustments, which could have a material adverse effect on our results of operations. In addition, changes in accounting standards that impact revenue recognition as well as conversion of SaaS-based products to licensed-based products, as discussed in the below risk factor \u201cThe markets for our SaaS- or licensed-based products and services may develop more slowly than we expect, or we may convert more SaaS-based products to license-based products, which could adversely affect our revenue, growth rates and our ability to maintain or increase our profitability\u201d could adversely impact our ability to recognize revenue consistent with our historical practices and could have a material adverse effect on our business, financial condition and results of operations.\nIf members of our GPO programs reduce activity levels or terminate or elect not to renew their contracts, our revenue and results of operations may decrease materially.\nWe have GPO participation agreements with all of our GPO members. Our GPO participation agreements may generally be terminated for cause or in the event of a change of control of the GPO member. In addition, the GPO member can terminate the GPO participation agreement at the end of the then-current term by notifying us of the member\u2019s decision not to renew. Although we renewed most of our then existing GPO participation agreements primarily for terms of five to seven years at the beginning of fiscal 2021, there can be no assurance that our GPO members will extend or renew their GPO participation agreements on the same or similar economic terms at the end of the term of the agreement, or at all, or that the GPO members will not terminate their GPO participation agreements for cause or due to a change of control of the GPO member. Failure of our GPO members to maintain, extend or renew their GPO participation agreements on the same or similar economic terms, or at all, may have a material adverse impact on our business, financial condition and results of operations.\nOur success in retaining member participation in our GPO programs depends upon our reputation, strong relationships with GPO members and our ability to deliver consistent, reliable and high-quality products and services, and a failure in any of these areas may result in the loss of GPO members. Some of our GPO competitors offer higher revenue share arrangements compared to our average arrangements. Our ability to retain and expand participation in our GPO programs depends upon our ability to provide overall value to GPO members, including competitive revenue share arrangements, in an economically competitive environment. In addition, GPO members may seek to modify or elect not to renew their contracts due to factors that are beyond our control and are unrelated to our performance, including a change of control of the GPO member, changes in their strategies, competitive analysis or business plans, changes in their supply chain personnel or management, or economic conditions in general. When contracts are reduced by modification or not renewed for any reason, we lose the anticipated future revenue associated with such contracts and, consequently, our revenue and results of operations may decrease materially.\nHistorically, we have enjoyed a strong strategic alignment with our GPO members, in many cases as a result of such GPO members being significant equity owners of both us and Premier LP. As a result of the August 2020 Restructuring, our former member-owners\u2019 equity holdings in Premier LP were canceled and converted into shares of our Class A common stock which is publicly traded on the NASDAQ Global Select Market (\u201cNASDAQ\u201d) under the ticker symbol \u201cPINC.\u201d Furthermore, former member-owners who received shares of our Class A common stock as part of the August 2020 Restructuring are free to sell those shares at any time. Any material reduction in our member-owners\u2019 equity holdings in us could result in reduced alignment between us and such member-owners, which may make it more difficult to retain these GPO members or to ensure that they extend or renew their GPO participation agreements on the same or similar economic terms, or at all, the failure of which may have a material adverse impact on our business, financial condition and results of operations.\n27\nWe rely on the administrative fees we receive from our GPO suppliers, and the failure to maintain contracts with these GPO suppliers could have a generally negative effect on our relationships with our members and could adversely affect our business, financial condition and results of operations.\nHistorically, we have derived a substantial amount of our revenue from the administrative fees that we receive from our GPO suppliers. We maintain contractual relationships with these suppliers which provide products and services to our members at reduced costs and which pay us administrative fees based on the dollars spent by our members for such products and services. Our contracts with these GPO suppliers generally may be terminated upon 90\u00a0days\u2019 notice. A termination of any relationship or agreement with a GPO supplier would result in the loss of administrative fees pursuant to our arrangement with that supplier, which could adversely affect our business, financial condition and results of operations. In addition, if we lose a relationship with a GPO supplier we may not be able to negotiate similar arrangements for our members with other suppliers on the same terms and conditions or at all, which could damage our reputation with our members and adversely impact our ability to maintain our member agreements or expand our membership base and could have a material adverse effect on our business, financial condition and results of operations.\nIn addition, CMS, which administers the Medicare and federal aspects of state Medicaid programs, has issued complex rules requiring pharmaceutical manufacturers to calculate and report drug pricing for multiple purposes, including the limiting of reimbursement for certain drugs. These rules generally exclude from the pricing calculation administrative fees paid by pharmaceutical manufacturers to GPOs to the extent that such fees meet CMS\u2019s \u201cbona fide service fee\u201d definition. There can be no assurance that CMS will continue to allow exclusion of GPO administrative fees from the pricing calculation, which could negatively affect the willingness of pharmaceutical manufacturers to pay administrative fees to us, which could have a material adverse effect on our member retention, business, financial condition and results of operations.\nWe derive a material portion of our revenues from our largest members and certain other customers and the sudden loss of one or more of these members or customers could materially and adversely affect our business, financial condition and results of operations.\nOur top five customers generated revenue of approximately 15% and 21% of our consolidated net revenues for the fiscal years ended June\u00a030, 2023 and 2022. The sudden loss of any material customer or a number of smaller customers that are participants in our group purchasing programs, or utilize any of our programs or services, or a material change in revenue share or other economic terms we have with such customers could materially and adversely affect our business, financial condition and results of operations. \nThe markets for our SaaS- or licensed-based products and services may develop more slowly than we expect, or we may convert more SaaS-based products to license-based products, which could adversely affect our revenue, growth rates and our ability to maintain or increase our profitability.\nAs SaaS licensing deals have become a more material aspect of our business, our success will depend on the willingness of existing and potential new customers to increase their use of our SaaS- or licensed-based products and services as well as our ability to sell license-based products to existing and potential new customers at rates sufficient to offset the loss of SaaS-based product sales. Fluctuating member demand and timing for SaaS- or license-based products that materially alter our mix of SaaS- and licensed-based product sales and conversion of SaaS-based products to license-based products can result in volatility of revenue and lower growth rates in any given year which could materially adversely affect our business, financial condition and results of operations. Furthermore, many companies have invested substantial resources to integrate established enterprise software into their businesses and therefore may be reluctant or unwilling to switch to our products and services and some companies may have concerns regarding the risks associated with the security and reliability of the technology delivery model associated with these services. If companies do not perceive the benefits of our products and services, then the market for these products and services may not expand as much or develop as quickly as we expect, which would materially adversely affect our business, financial condition and results of operations.\nOur members and other customers are highly dependent on payments from third-party healthcare payers, including Medicare, Medicaid and other government-sponsored programs, and reductions or changes in third-party reimbursement could adversely affect these members and other customers and consequently our business.\nOur members and other customers derive a substantial portion of their revenue from third-party private and governmental payers, including Medicare, Medicaid and other government sponsored programs. Our sales and profitability depend, in part, on the extent to which coverage of and reimbursement for our products and services our members and other customers purchase or otherwise obtain through us is available to our members and other customers from governmental health programs, private health insurers, managed care plans and other third-party payers. These third-party payers are increasingly using their enhanced bargaining power to secure discounted reimbursement rates and may impose other requirements that adversely impact our members and other customers\u2019 ability to obtain adequate reimbursement for our products and services. If third-party payers do \n28\nnot approve our products and services for reimbursement or fail to reimburse for them adequately, our members and other customers may suffer adverse financial consequences which, in turn, may reduce the demand for and ability to purchase our products or services. \nIn addition, government actions or changes in laws or regulations could limit government spending generally for the Medicare and Medicaid programs, limit payments to healthcare providers and increase emphasis on financially accountable payment programs such as accountable care organizations, bundled payments and capitated primary care that could have a material adverse impact on our members and other customers and, in turn, on our business, financial condition and results of operations.\nIf we are unable to maintain our relationships with third-party providers or maintain or enter into new strategic alliances, we may be unable to grow our current base business.\nOur business strategy includes entering into and maintaining strategic alliances and affiliations with leading service providers. These companies may pursue relationships with our competitors, develop or acquire products and services that compete with our products and services, experience financial difficulties, be acquired by one of our competitors or other third party or exit the healthcare industry, any of which may adversely affect our relationship with them. In addition, in many cases, these companies may terminate their relationships with us for any reason with limited or no notice. If existing relationships with third-party providers or strategic alliances are adversely impacted or are terminated or we are unable to enter into relationships with leading healthcare service providers and other GPOs, we may be unable to maintain or increase our industry presence or effectively execute our business strategy.\nIf we are not able to timely offer new and innovative products and services, we may not remain competitive and our revenue and results of operations may suffer.\nOur success depends on providing products and services within our Supply Chain Services and Performance Services segments that healthcare providers use to improve clinical, financial and operational performance. Information technology providers and other competitors are incorporating enhanced analytical tools and functionality and otherwise developing products and services that may become viewed as more efficient or appealing to our members. If we cannot adapt to rapidly evolving industry standards, technology, member and other customers\u2019 needs, including changing regulations and provider reimbursement policies, we may be unable to anticipate changes in our current and potential new members\u2019 and other customers\u2019 requirements that could make our existing technology, products or service offerings obsolete. We must continue to invest material resources in software development or acquisitions in order to enhance our existing products and services, maintain or improve our product category rankings and introduce new high-quality products and services that members and potential new members and customers will want. If our enhanced existing or new products and services are not responsive to the needs of our members or potential new members and customers, are not appropriately timed with market opportunity or are not effectively brought to market, we may lose existing members and be unable to obtain new members and customers, which could have a material adverse effect on our business, financial condition or results of operations.\nOur acquisition activities could result in operating difficulties, dilution, unrecoverable costs and other negative consequences, any of which may adversely impact our financial condition and results of operations.\nOur business strategy includes growth through acquisitions of additional businesses and assets. Future acquisitions may not be completed on preferred terms and acquired assets or businesses may not be successfully integrated into our operations or provide anticipated financial or operational benefits. Any acquisitions we complete will involve risks commonly encountered in acquisitions of businesses or assets. Such risks include, among other things:\n\u2022\nfailing to integrate the operations and personnel of the acquired businesses in an efficient, timely manner;\n\u2022\nfailure of a selling party to produce all material information during the pre-acquisition due diligence process, or to meet their obligations under post-acquisition agreements; \n\u2022\npotential liabilities of or claims against an acquired company or its assets, some of which may not become known until after the acquisition;\n\u2022\nan acquired company\u2019s lack of compliance with applicable laws and governmental rules and regulations, and the related costs and expenses necessary to bring such company into compliance;\n\u2022\nan acquired company\u2019s general information technology controls or their legacy third-party providers may not be sufficient to prevent unauthorized access or transactions, cyber-attacks or other data security breaches;\n\u2022\nmanaging the potential disruption to our ongoing business;\n\u2022\ndistracting management focus from our existing core businesses;\n\u2022\nencountering difficulties in identifying and acquiring products, technologies, or businesses that will help us execute our business strategy;\n29\n\u2022\nentering new markets in which we have little to no experience;\n\u2022\nimpairing relationships with employees, members, and strategic partners;\n\u2022\nfailing to implement or remediate controls, procedures and policies appropriate for a public company at acquired companies lacking such financial, disclosure or other controls, procedures and policies, potentially resulting in a material weakness in our internal controls over financial reporting;\n\u2022\nunanticipated changes in market or industry practices that adversely impact our strategic and financial expectations of an acquired company, assets or business and require us to write-off or dispose of such acquired company, assets, or business;\n\u2022\nthe amortization of purchased intangible assets;\n\u2022\nincurring expenses associated with an impairment of all or a portion of goodwill and other intangible assets due to the failure of certain acquisitions to realize expected benefits; and\n\u2022\ndiluting the share value and voting power of existing stockholders.\nIn addition, anticipated benefits of our previous and future acquisitions may not materialize. Future acquisitions or dispositions of under-performing businesses could result in the incurrence of debt, material exit costs, contingent liabilities or amortization expenses, impairments or write-offs of goodwill and other intangible assets, any of which could harm our business, financial condition and results of operations. In addition, expenses associated with potential acquisitions, including, among others, due diligence costs, legal, accounting, technology and financial advisory fees, travel and internal resources utilization, can be material. These expenses may be incurred regardless of whether any potential acquisition is completed. In instances where acquisitions are not ultimately completed, these expenses typically cannot be recovered or offset by the anticipated financial benefits of a successful acquisition. As we pursue our business strategy and evaluate opportunities, these expenses may adversely impact our results of operations and earnings per share.\nOur business and growth strategies also include non-controlling investments in other businesses and joint ventures. In the event the companies or joint ventures we invest in do not perform as well as expected, we could experience the loss of some or all of the value of our investment, which loss could adversely impact our financial condition and results of operations.\nAlthough we conduct accounting, financial, legal and business due diligence prior to making investments, we cannot guarantee that we will discover all material issues that may affect a particular target business, or that factors outside the control of the target business and outside of our control will not later arise. Occasionally, current and future investments are, and will be, made on a non-controlling basis, in which case we have limited ability to influence the financial or business operations of the companies in which we invest. To the extent we invest in a financially underperforming or unstable company or an entity in its development stage that does not successfully mature, we may lose the value of our investment. We have in the past and may in the future be required to write down or write off our investment or recognize impairment or other charges that could adversely impact our financial condition or results of operations and our stock price. Even though these charges may be non-cash items and not have a material impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us and our business strategy and our Class A common stock.\nWe cannot assure you that our evaluation of potential strategic alternatives to enhance value for stockholders will be successful; and there may be negative impacts on our business and stock price as a result of the process of exploring strategic alternatives.\nIn May 2023, we announced that our Board of Directors is evaluating potential strategic alternatives to enhance value for stockholders. The Board of Directors has established an independent Special Committee composed of independent directors to evaluate any alternatives that may involve actual or potential conflicts of interest and have engaged financial and legal advisors to assist in the process. The strategic process is ongoing. Our Board of Directors has not set a timetable for the strategic process, and as of June 30, 2023, the only decision made relating to any strategic alternatives is the definitive agreement we entered into with OMNIA Partners, LLC, a leading non-healthcare GPO, in June 2023, under which we sold substantially all of our non-healthcare GPO member contracts for an estimated purchase price of approximately $800.0 million subject to certain adjustments. There can be no assurance that the strategic review process by our Board of Directors will result in any further transactions or any other strategic change or outcome, or as to the timing of any of the foregoing. Whether the process will result in any additional transactions, our ability to complete any transaction, and if our Board of Directors decides to pursue one or more transactions, will depend on numerous factors, some of which are beyond our control, including the interest of potential acquirers or strategic partners in a potential transaction, the value potential acquirers or strategic partners attribute to our businesses and their respective prospects, market conditions, interest rates and industry trends. Our stock price may be adversely affected if the evaluation does not result in additional transactions or if one or more transactions are consummated on terms that investors view as unfavorable to us. Even if one or more additional transactions are completed, there can be no assurance that any such transactions will be successful or have a positive effect on stockholder value. Our Board of Directors may also determine that no additional transaction is in the best interest of our stockholders.\n30\nIn addition, our financial results and operations could be adversely affected by the strategic process and by the uncertainty regarding its outcome. The attention of management and our Board of Directors could be diverted from our core business operations, and we have diverted capital and other resources to the process that otherwise could have been used in our business operations, and we will continue to do so until the process is completed. We could incur substantial expenses associated with identifying and evaluating potential strategic alternatives, including those related to employee retention payments, equity compensation, severance pay and legal, accounting and financial advisor fees. In addition, the process could lead us to lose or fail to attract, retain and motivate key employees, and to lose or fail to attract customers or business partners, and could expose us to litigation. The public announcement of a strategic alternative may also yield a negative impact on operating results if prospective or existing service providers are reluctant to commit to new or renewal contracts or if existing customers decide to move their business to a competitor. We do not intend to disclose developments or provide updates on the progress or status of the strategic process until our Board of Directors deems further disclosure is appropriate or required. Accordingly, speculation regarding any developments related to the review of strategic alternatives and perceived uncertainties related to the future of the Company could cause our stock price to fluctuate significantly.\nWe rely on Internet infrastructure, bandwidth providers, data center providers and other third parties and our own systems for providing services to our users, and any failure or interruption in the services provided by these third parties or our own systems, including from a cyber or other catastrophic event, could expose us to litigation and negatively impact our relationships with users, adversely affecting our brand, our business and our financial performance.\nOur ability to deliver our products is dependent on the development and maintenance of the infrastructure of the Internet and other telecommunications services by third parties. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security for providing reliable Internet access and services and reliable telephone, Wi-Fi, facsimile and pager systems. We have experienced and expect that we will experience in the future interruptions and delays in these services and availability from time to time. We rely on internal systems as well as third-party suppliers, including bandwidth and telecommunications equipment providers, to provide our services. We have also migrated our data center operations to third-party data-hosting facilities. We do not maintain redundant systems or facilities for some of these services. In the event of a material cyber-attack or catastrophic event with respect to one or more of these providers, systems or facilities, we may experience an extended period of system unavailability, which could negatively impact our relationship with users. To operate without interruption, both we and our service providers must guard against:\n\u2022\ndamage from fire, power loss, and other natural disasters;\n\u2022\ncommunications failures;\n\u2022\nsoftware and hardware errors, failures, and crashes;\n\u2022\ncyber-attacks, viruses, worms, malware, ransomware and other malicious software programs;\n\u2022\nsecurity breaches and computer viruses and similar disruptive problems; and\n\u2022\nother potential interruptions.\nAny disruption in the network access, telecommunications or co-location services provided by our third-party providers or any failure of or by these third-party providers or our own systems to handle current or higher volume of use could materially harm our business. We exercise limited control over these third-party suppliers, which increases our vulnerability to problems with services they provide. Any errors, failures, interruptions or delays experienced in connection with these third-party technologies and information services or our own systems could negatively impact our relationships with users and adversely affect our business and financial performance and could expose us to third-party liabilities, some of which may not be adequately insured.\nData loss or corruption due to failures or errors in our systems and service disruptions at our data centers may adversely affect our reputation and relationships with existing members, which could have a negative impact on our business, financial condition and results of operations.\nBecause of the large amount of data that we collect and manage, it is possible that hardware failures or errors in our systems could result in data loss or corruption or cause the information that we collect to be incomplete or contain inaccuracies that our members regard as material. Complex software such as ours may contain errors or failures that are not detected until after the software is introduced or updates and new versions are released. Despite testing by us, from time to time we have discovered defects or errors in our software, and such defects or errors may be discovered in the future. Any defects or errors could expose us to risk of liability to members and the government and could cause delays in the introduction of new products and services, result in increased costs and diversion of development resources, require design modifications, decrease market acceptance or member satisfaction with our products and services or cause harm to our reputation.\nFurthermore, our members might use our software together with products from other companies. As a result, when problems occur, it might be difficult to identify the source of the problem. Even when our software does not cause these problems, the \n31\nexistence of these errors might cause us to incur material costs, divert the attention of our technical personnel from our product development efforts, impact our reputation and lead to material member relations problems.\nMoreover, our data centers and service provider locations store and transmit critical member data that is essential to our business. While these locations are chosen for their stability, failover capabilities and system controls, we do not directly control the continued or uninterrupted availability of every location. We have migrated our data center operations to third-party data-hosting facilities. Data center facilities are vulnerable to damage or interruption from natural disasters, fires, power loss, telecommunications failures, acts of terrorism, acts of war, and similar events. They are also subject to break-ins, sabotage, intentional acts of vandalism, cyber-attacks and similar misconduct. Despite precautions taken at these facilities, the occurrence of a natural disaster or an act of terrorism, could result in a decision to close the facilities without adequate notice or other unanticipated problems, which could cause lengthy interruptions in our service. These service interruption events could impair our ability to deliver services or deliverables or cause us to fail to achieve service levels required in agreements with our members, which could negatively affect our ability to retain existing members and attract new members.\nIf our cyber and other security measures are breached or fail and unauthorized access to a member\u2019s data is obtained, or our members fail to obtain proper permission for the use and disclosure of information, our services may be perceived as not being secure, members may curtail or stop using our services and we may incur material liabilities.\nOur services involve the web-based storage and transmission of members\u2019 proprietary information, personal information of employees and protected health information of patients. From time to time, we may detect vulnerabilities in our systems, which, even if not resulting in a security breach, may reduce member confidence and require substantial resources to address. If our security measures are breached or fail as a result of third-party action, employee error, malfeasance, insufficiency, defective design or otherwise, someone may be able to obtain unauthorized access to member or patient data. As a result, our reputation could be damaged, our business may suffer, and we could face damages for contract breach, penalties and fines for violation of applicable laws or regulations and material costs for notification to affected individuals, remediation and efforts to prevent future occurrences.\nIn addition to our cyber and other security measures, we rely upon third-party providers and our members as users of our system for key activities to promote security of the system and the data within it. On occasion, our providers security systems have been breached and our members have failed to perform these activities. Failure of third-party providers or members to perform these activities may result in claims against us that could expose us to material expense and harm our reputation. In addition, our members may authorize or enable third parties to access their data or the data of their patients on our systems. Because we do not control such access, we cannot ensure the complete propriety of that access or integrity or security of such data in our systems. In addition, although our development infrastructure is based in the U.S., we outsource development work for a portion of our products and services to persons outside the U.S., particularly India. We cannot guarantee that the cyber and other security measures and regulatory environment of our foreign partners are as robust as in the U.S. Any breach of our security by our members or foreign partners could have a material adverse effect on our business, financial condition and results of operations.\nAdditionally, we require our members to provide necessary notices and to obtain necessary permissions and waivers for use and disclosure of the information that we receive. If our members do not obtain necessary permissions and waivers, then our use and disclosure of information that we receive from them or on their behalf may be limited or prohibited by state, federal, or international privacy laws or other laws. Any such failure to obtain proper permissions and waivers could impair our functions, processes and databases that reflect, contain or are based upon such data and may prevent use of such data. Moreover, we may be subject to claims or liability for use or disclosure of information by reason of our lack of a valid notice, permission or waiver. These claims or liabilities could subject us to unexpected costs and adversely affect our business, financial condition and results of operations.\nWe could suffer a loss of revenue and increased costs, exposure to material liability, reputational harm, and other serious negative consequences if we are subject to cyber-attacks or other data security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information about us or our members or other third parties.\nWe manage and store proprietary information and sensitive or confidential data relating to our operations. We may be subject to cyber-attacks on and breaches of the information technology systems we use for these purposes. Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions, or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, malware, ransomware and other malicious software programs that attack our systems or products or otherwise exploit security vulnerabilities of our systems or products. In addition, hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including \u201cbugs\u201d and other problems that could unexpectedly interfere with the operation of our systems.\n32\nWe expend material capital to protect against the threat of security breaches, including cyber-attacks, viruses, worms, malware, ransomware and other malicious software programs. Substantial additional expenditures may be required before or after a cyber-attack or breach to mitigate in advance or to alleviate any problems caused by cyber-attacks and breaches, including unauthorized access to or theft of personal or patient data and protected health information stored in our information systems and the introduction of computer viruses, worms, malware, ransomware and other malicious software programs to our systems. Our remediation efforts may not be successful and could result in interruptions, delays or cessation of service and loss of existing or potential members. \nWhile we provide our domestic and foreign employees and contractors training and regular reminders on important measures they can take to prevent breaches, we often identify attempts to gain unauthorized access to our systems. Given the rapidly evolving nature and proliferation of cyber threats, there can be no guarantee our training and network security measures or other controls will detect, prevent or remediate security or data breaches in a timely manner or otherwise prevent unauthorized access to, damage to, or interruption of our systems and operations. For example, it has been widely reported that many well-organized international interests, in certain cases with the backing of sovereign governments, are targeting the theft of patient information through the use of advanced persistent threats. In recent years, a number of hospitals have reported being the victim of ransomware attacks in which they lost access to their systems, including clinical systems, during the course of the attacks. We are likely to face attempted attacks in the future. Accordingly, we may be vulnerable to losses associated with the improper functioning, security breach or unavailability of our information systems as well as any systems used in acquired operations. \nBreaches of our security measures and the unapproved use or disclosure of proprietary information or sensitive or confidential data about us or our members or other third parties could expose us, our members or other affected third parties to a risk of loss or misuse of this information, result in litigation, governmental inquiry and potential liability for us, damage our brand and reputation or otherwise harm our business. Furthermore, we are exposed to additional risks because we rely in certain capacities on third-party data management providers whose possible security problems and security vulnerabilities are beyond our control.\nWe may experience cyber-security and other breach incidents that remain undetected for an extended period. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched, we may be unable to anticipate these techniques or to implement adequate preventative measures to stop or mitigate any potential damage in a timely manner. Given the increasing cyber security threats in the healthcare industry, there can be no guarantee we will not experience business interruptions; data loss, ransom, misappropriation or corruption; theft or misuse of proprietary or patient information; or litigation and investigation related to any of those, any of which could have a material adverse effect on our financial position and results of operations and harm our business reputation. Although we do maintain commercially reasonable insurance policies for cyber-attacks, there can be no guarantee that insurance would be sufficient to cover our losses, nor can it be guaranteed that insurance coverage would be available for every specific incident in accordance with the terms and conditions of the applicable policy coverage.\nAny restrictions on our use of, or ability to license, data, or our failure to license data and integrate third-party technologies, could have a material adverse effect on our business, financial condition and results of operations.\nWe depend upon licenses from third parties, most of which are non-exclusive, for some of the technology and data used in our applications, and for some of the technology platforms upon which these applications are built and operate. We also obtain a portion of the data that we use from government entities and public records and from our members for specific member engagements. We cannot assure that our licenses for information will allow us to use that information for all potential or contemplated applications and products. In addition, if our members revoke their consent for us to maintain, use, de-identify and share their data, our data assets could be degraded.\nIn the future, data providers could withdraw their data from us or restrict our usage due to competitive reasons or because of new legislation or judicial interpretations restricting use of the data currently used in our products and services. In addition, data providers could fail to adhere to our quality control standards in the future, causing us to incur additional expense to appropriately utilize the data. If a substantial number of data providers were to withdraw or restrict their data, or if they fail to adhere to our quality control standards, and if we are unable to identify and contract with suitable alternative data suppliers and integrate these data sources into our service offerings, our ability to provide products and services to our members would be materially and adversely impacted, resulting in a material adverse effect on our business, financial condition and results of operations.\nWe also integrate into our proprietary applications and use third-party software to maintain and enhance, among other things, content generation and delivery, and to support our technology infrastructure. Some of this software is proprietary and some is open source. Our use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration of new technology into our solutions, the diversion of our resources from development of our own proprietary technology and our inability to generate revenue from licensed technology sufficient to offset associated acquisition and maintenance costs. These technologies may not be available to us in the future on commercially reasonable terms or at all \n33\nand could be difficult to replace once integrated into our own proprietary applications. Our inability to obtain, maintain or comply with any of these licenses could delay development until equivalent technology can be identified, licensed and integrated, which would harm our business, financial condition and results of operations.\nMost of our third-party licenses are non-exclusive and our competitors may obtain the right to access any of the technology covered by these licenses to compete directly with us. Our use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration of new technology into our solutions, the diversion of our resources from development of our own proprietary technology and our inability to generate revenue from licensed technology sufficient to offset associated acquisition and maintenance costs. In addition, if our data suppliers choose to discontinue support of the licensed technology in the future, we might not be able to modify or adapt our own solutions.\nOur use of \u201copen source\u201d software could adversely affect our ability to sell our products and subject us to possible litigation.\nThe products or technologies acquired, licensed or developed by us may incorporate so-called \u201copen source\u201d software, and we may incorporate open source software into other products in the future. There is little or no legal precedent governing the interpretation of many of the terms of certain of these licenses, and therefore the potential impact of these terms on our business is unknown and may result in unanticipated obligations or litigation regarding our products and technologies. For example, we may be subjected to certain conditions, including requirements that we offer our products that use particular open source software at no cost to the user, that we make available the source code for modifications or derivative works we create based upon, incorporating or using the open source software, and/or that we license such modifications or derivative works under the terms of the particular open source license. In addition, if we combine our proprietary software with open source software in a certain manner, under some open source licenses we could be required to release the source code of our proprietary software, which could substantially help our competitors develop products that are similar to or better than ours. If an author or other party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur material legal costs defending ourselves against such allegations and could be subject to material damages.\nOur direct sourcing activities depend on contract manufacturing facilities located in various parts of the world, and any physical, financial, regulatory, environmental, labor or operational disruption or product quality issues could result in a reduction in sales volumes, the incurrence of substantial expenditures and the loss of product availability.\nAs part of our direct sourcing activities, we contract with manufacturing facilities in various parts of the world, including facilities in Bangladesh, Cambodia, China, India, Malaysia, Sri Lanka, Taiwan, Thailand and Vietnam as well as domestically within the U.S. Operations at and securing products from these manufacturing facilities could be curtailed or partially or completely shut down as the result of a number of circumstances, most of which are outside of our control, such as but not limited to unscheduled maintenance, power conservation/shortages, an earthquake, hurricane, flood, tsunami or other natural disaster, material labor strikes or work stoppages, government implementation of export limitations or freezes, port or other shipping delays, political unrest or pandemics. We are also subject to some of these risks with manufacturers we contract with in the U.S. Any material curtailment of production at these facilities, or production issue resulting in a substandard product, could result in litigation or governmental inquiry or materially reduced revenues and cash flows in our direct sourcing activities. In addition, our business practices in international markets are subject to the requirements of the U.S. Foreign Corrupt Practices Act of 1977, as amended, any violation of which could subject us to material fines, criminal sanctions and other penalties. We expect all of our contracted manufacturing facilities to comply with all applicable laws, including labor, safety and environmental laws, and to otherwise meet our standards of conduct. Our ability to find manufacturing facilities that uphold these standards is a challenge, especially with respect to facilities located outside the U.S. We also are subject to the risk that one or more of these manufacturing facilities will engage in business practices in violation of our standards or applicable laws, which could damage our reputation and adversely impact our business and results of operations.\nWhile we continue to promote domestic and geographically diverse manufacturing as part of our supply chain resiliency program, a material portion of the manufacturing for our direct sourcing activities is still conducted in China. As a result, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China as well as trade disputes between China and the U.S. and the potential imposition of bilateral tariffs. In addition, China has imposed export restrictions and new regulatory requirements on PPE and other medical equipment needed by our member hospitals. The imposition of tariffs or export restrictions on products imported by us from China could require us to (i) increase prices to our members or (ii) locate suitable alternative manufacturing capacity or relocate our operations from China to other countries. In the event we are unable to increase our prices or find alternative manufacturing capacity or relocate to an alternative base of operation outside of China on favorable terms, we would likely experience higher manufacturing costs and lower gross margins, which could have an adverse effect on our business and results of operations. The Chinese economy differs from the economies of most developed countries in many respects, including the degree of government involvement, the level of development, the growth rate, the control of foreign exchange, access to financing and the allocation of resources. \n34\nAdditionally, the facilities in Malaysia with which we contract are particularly susceptible to labor shortages, labor disputes and interruptions, rising labor costs as a result of minimum wage laws, scheduling and overtime requirements and forced or child labor.\nValidation of our direct sourcing suppliers around the world can be challenging and our vetting process may not eliminate all associated risks, particularly since the information shared is largely dependent on the supplier level of transparency. If one or more of the manufacturing facilities we contract with engage in business practices in violation of our standards or applicable laws, we could experience damage to our reputation and suffer an adverse impact on our business, results of operations and reputation.\nWe may have inventory risk for product inventory we purchase at elevated market prices and items we purchase in bulk or pursuant to fixed price purchase commitments if we are unable to sell such inventory at or above our cost. As a result, we may experience a material adverse effect on our business, financial condition and results of operations.\nFrom time to time, we purchase items as part of bulk purchases to resell to our members. We may have inventory risk for product inventory we purchase at elevated market prices, and items we purchase in bulk or pursuant to fixed price purchase commitments if we are unable to sell such inventory at or above our cost. If we are unable to sell the products for more than our inventory cost, we could experience a material adverse effect on our business, financial condition and results of operations. In addition, as we strive to create a healthier global supply chain with more diversification in the country of origin, including a focus on supporting PPE and medical product manufacturing in the U.S. with our domestic sourcing initiatives, we may source more of our products from U.S.-based or near shore manufacturers, which may come at a higher acquisition cost than sourcing from Asia or other lower cost countries. If our GPO members are unwilling to pay higher prices for products made in the U.S., or if they choose to buy lower cost products manufactured in lower cost countries, now or in the future, this may impact our customer growth and results of operations if we have to lower prices to compete or sell our higher-cost inventory. \nIf we lose key personnel or if we are unable to attract, hire, integrate and retain key personnel, our business would be harmed.\nOur future success depends in part on our ability to attract, hire, integrate and retain key personnel, including our executive officers and other highly skilled technical, managerial, editorial, sales, marketing and customer service professionals. Competition for such personnel is intense and the labor market has tightened considerably in the last several years. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Furthermore, in May 2023, we announced that we are evaluating potential strategic alternatives which has the potential to discourage current personnel as well as prospective employees from being a part of our Company. We cannot be certain of our ability to identify, hire and retain adequately qualified personnel, if we lose key personnel unexpectedly. In addition, to the extent we lose an executive officer or senior manager, we may incur increased expenses in connection with the hiring, promotion or replacement of these individuals and the transition of leadership and critical knowledge. Failure to identify, hire and retain necessary key personnel could have a material adverse effect on our business, financial condition and results of operations.\nContinued uncertain economic conditions, including inflation and the risk of a global recession could impair our ability to forecast and may harm our business, operating results, including our revenue growth and profitability, financial condition and cash flows.\nContinued global economic uncertainty, political conditions and fiscal challenges in the U.S. and abroad, such as inflation and potential economic recession, have, among other things, limited our ability to forecast future demand for our products and services, contributed to increased periodic volatility in customer demand, impacted availability of supplies and could constrain future access to capital for our suppliers, customers and partners. The impacts of these circumstances are global and pervasive, and the timing and nature of any ultimate resolution of these matters remain highly uncertain. Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased trade sanctions, tariffs or other barriers to global trade, changes to fiscal and monetary policy and higher interest rates, could materially adversely impact the demand for our products and our operating results. Starting in fiscal 2022 and continuing in fiscal 2023, we have experienced inflationary pressure and other constraints in our supply chain. Consequently, these concerns have challenged our business and we expect them to continue to challenge our business for the foreseeable future, which could cause harm to our operating results. Such conditions may result in the failure to meet our forecasted financial expectations and to achieve historical levels of revenue growth.\n35\nOur financial condition and results of operations for fiscal year 2023 and beyond may continue to be materially and adversely affected by pandemics, epidemics or public health emergencies, such as the coronavirus (\u201cCOVID-19\u201d) pandemic\n.\nWhile both the U.S. and the World Health Organization declared an end to the COVID-19 pandemic as a public health emergency in May 2023 and the health consequences for the U.S. population have been significantly mitigated by the availability of vaccines and therapeutics to treat COVID-19 infections, pandemics or public health emergencies have in the past and may continue in the future to have adverse economic impacts both domestically and internationally, including the potential for new and extended government imposed lock-downs, border restrictions and transportation and other bottlenecks.\nAs a result of pandemics, epidemics or public health emergencies, our financial condition and results of operations may be adversely affected and we may face material risks due to a number of factors, including, but not limited to:\n\u2022\nLabor shortages in the healthcare workforce and corresponding increases in labor costs.\n\u2022\nChanges in the demand for our products and services may create demand uncertainty from both material increases and decreases in demand and pricing for our products and services.\n\u2022\nLimited access to our members\u2019 facilities as well as travel restrictions limit their ability to participate in face-to-face events, such as committee meetings and conferences, and limits our ability to foster relationships and effectively deliver existing or sell new products and services to our members.\n\u2022\nDisruption to the global supply chain, particularly in China, may impact products purchased by our members through our GPO or products contract manufactured through our direct sourcing business. Failure of our suppliers, contract manufacturers, distributors, contractors and other business partners to meet their obligations to our members, other customers or to us, or material disruptions in their ability to do so due to their own financial or operational difficulties, may adversely impact our operations.\n\u2022\nWe may continue to receive requests for contract modifications, payment waivers and deferrals, payment reductions or amended payment terms from our contract counterparties. We may continue to receive requests to delay service or payment on performance service contracts and we may continue to receive requests from our suppliers for increases to their contracted prices.\n\u2022\nA general decline in the overall economic and capital markets which could increase our cost of capital and adversely affect our ability to access the capital markets in the future.\nThe ultimate impact of pandemics, epidemics and public health emergencies on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of any pandemic and the related length of its impact on the U.S. and global economies and their healthcare systems, which are uncertain and cannot be predicted at this time. The impact of pandemics, epidemics or public health emergencies may also exacerbate many of the other risks described in this \u201cRisk Factors\u201d section. Despite our efforts to manage these impacts, their ultimate impact depends on factors beyond our knowledge or control, including the duration and severity of any outbreaks and actions taken to contain its spread and mitigate its public health effects. The foregoing and other continued disruptions in our business as a result of\u00a0pandemics, epidemics or public health emergencies could result in a material adverse effect on our business, results of operations, financial condition, cash flows, prospects and the trading prices of our securities in the future.\nWe are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability, such as the ongoing military conflict between Russia and Ukraine and tensions between the U.S. and China. Our business, financial condition and results of operations may be materially and adversely affected by any negative impact on the global economy and capital markets resulting from geopolitical tensions.\nU.S. and global markets have continued to experience volatility and disruption as the result of geopolitical tensions, including the ongoing military conflict between Russia and Ukraine and tensions between the U.S. and China. These geopolitical tensions have, and may continue to, lead to market disruptions, including significant volatility in commodity prices, energy, credit and capital markets, as well as supply chain interruptions. In addition, further escalation could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional capital and negatively impact our business, financial condition and results of operations.\nWe may be adversely affected by global climate change or by regulatory responses to such change.\nClimate changes, such as severe weather conditions, rising sea temperatures and rising sea levels, among others, and their long-term effects present potential negative effects to our business operations, financial condition and results of operations by decreasing availability of products, increasing compliance and operational costs and creating volatility and disruption to the global supply chain.\n36\nIn addition, federal, state and local governments could issue new or modify existing legislation and regulations related to greenhouse gas emissions and climate change and these government actions could impact us and our members, other customers and suppliers.\nRisks Related to Healthcare and Employee Benefit Regulation\nThe healthcare industry is highly regulated. Any material changes in the political, economic or regulatory environment that affect the GPO business or the purchasing practices and operations of healthcare organizations, or that lead to consolidation in the healthcare industry, could reduce the funds available to providers to purchase our products and services or otherwise require us to modify our services.\nOur business, financial condition and results of operations depend upon conditions affecting the healthcare industry generally and hospitals and health systems particularly, as well as our ability to increase the number of programs and services that we sell to our members and other customers. The life sciences and healthcare industry is highly regulated by federal and state authorities and is subject to changing political, economic and regulatory influences. Factors such as changes in reimbursement policies for healthcare expenses, consolidation in the healthcare industry, regulation, litigation and general economic conditions affect the purchasing practices, operations and the financial health of healthcare organizations. In particular, changes in regulations affecting the healthcare industry, such as increased regulation of the purchase and sale of medical products, tariffs, new quality measurement and payment models, data privacy and security, government price controls, modification or elimination of applicable regulatory safe harbors, regulation of third-party administrators or restrictions on permissible discounts and other financial arrangements, could require us to make unplanned modifications of our products and services, result in delays or cancellations of orders or reduce funds and demand for our products and services.\nThe Patient Protection and Affordable Care Act (\u201cACA\u201d), designed to expand access to affordable health insurance, control healthcare spending and improve healthcare quality, set the industry moving in a clear direction on access to health insurance, payment, quality and cost management. In addition, many states have adopted or are considering changes in healthcare laws or policies in part due to state budgetary shortfalls.\nAlthough there appears to be greater certainty and a continuation of the policies and directions set forth in the ACA with the 2021 U.S. Supreme Court decision upholding the ACA, healthcare will continue to be a highly contentious area. This environment is creating risks for healthcare providers and our business that could cause a material adverse effect on our business and financial performance. \nIf we fail to comply with complex federal and state laws and regulations governing financial relationships among healthcare providers and submission of false or fraudulent claims to government healthcare programs, we may be subject to civil and criminal penalties or loss of eligibility to participate in government healthcare programs.\nAnti-Kickback Regulations\nWe are subject to federal and state laws and regulations designed to protect patients, government healthcare programs and private health plans from fraudulent and abusive activities. These laws include anti-kickback restrictions and laws prohibiting the submission of false or fraudulent claims. These laws are complex, and their application to our specific products, services and relationships may not be clear and may be applied to our business in ways that we do not anticipate. Federal and state regulatory and law enforcement authorities have over time increased enforcement activities with respect to Medicare and Medicaid fraud, waste and abuse regulations and other reimbursement laws and rules. From time to time, we and others in the healthcare industry have received inquiries or requests to produce documents in connection with such activities. We could be required to expend material time and resources to comply with these requests, and the attention of our management team could be diverted to these efforts. Furthermore, if we are found to be in violation of any federal or state fraud, waste and abuse laws, we could be subject to civil and criminal penalties and we could be excluded from participating in federal and state healthcare programs such as Medicare and Medicaid. The occurrence of any of these events could materially harm our business, financial performance and financial condition.\nProvisions in Title XI of the Social Security Act, commonly referred to as the federal Anti-Kickback Statute, prohibit the knowing and willful offer, payment, solicitation or receipt of remuneration, directly or indirectly, in return for the referral of patients or arranging for the referral of patients, or in return for the recommendation, arrangement, purchase, lease or order of items or services that are covered, in whole or in part, by a federal healthcare program such as Medicare or Medicaid. The definition of \u201cremuneration\u201d has been broadly interpreted to include anything of value such as gifts, discounts, rebates, waiver of payments or providing anything at less than its fair market value. Many states have adopted similar prohibitions against kickbacks and other practices that are intended to influence the purchase, lease or ordering of healthcare items and services regardless of whether the item or service is covered under a governmental health program or private health plan. Although certain statutory and regulatory safe harbors exist, these safe harbors are narrow and often difficult to comply with. Congress \n37\nhas appropriated an increasing amount of funds in recent years to support enforcement activities aimed at reducing healthcare fraud, waste and abuse. We cannot assure you that our arrangements will be protected by such safe harbors or that such increased enforcement activities will not directly or indirectly have an adverse effect on our business, financial condition or results of operations. Any determination by a state or federal agency that any of our activities violate any of these laws could subject us to civil or criminal penalties, could require us to change or terminate some portions of our operations or business or could disqualify us from providing services to healthcare providers doing business with government programs and, thus, could have a material adverse effect on our business, financial condition and results of operations.\nCMS has provided specific guidance on the proper treatment on Medicare cost reports of revenue distributions received from GPOs, including us. To assist our members that report their costs to Medicare to comply with these guidelines, such members are required under the terms of the Premier Group Purchasing Policy to appropriately reflect all elements of value received in connection with our IPO, including under agreements entered into in connection therewith, on their cost reports. We furnish applicable reports to such members setting forth the amount of such value, to assist their compliance with such cost reporting requirements. Any determination by a state or federal agency that the provision of such elements of value violate any of these laws could subject us to civil or criminal penalties, could require us to change or terminate some portions of our operations or business, or could disqualify us from providing services to healthcare providers doing business with government programs, and, thus could have a material adverse effect on our business, financial condition and results of operations.\nThere is no safe harbor to the Anti-Kickback Statute that is applicable in its entirety across all of the agreements with our members, and no assurance can be given that the HHS Office of Inspector General or other regulators or enforcement authorities will agree with our assessment. Any determination by a state or federal agency that the terms, agreements and related communications with members, or our relationships with our members violates the Anti-Kickback Statute or any other federal or state laws could subject us to civil or criminal penalties, could require us to change or terminate some portions of our operations or business and could disqualify us from providing services to healthcare providers doing business with government programs and, thus, result in a material adverse effect on our business, financial condition and results of operations.\nFalse Claims Regulations\nOur business is also subject to numerous federal and state laws that forbid the submission or \u201ccausing the submission\u201d of false or fraudulent information or the failure to disclose information in connection with the submission and payment of claims for reimbursement to Medicare, Medicaid, other federal healthcare programs or private health plans. In particular, the False Claims Act, or FCA, prohibits a person from knowingly presenting or causing to be presented a false or fraudulent claim for payment or approval by an officer, employee or agent of the U.S. In addition, the FCA prohibits a person from knowingly making, using, or causing to be made or used a false record or statement material to such a claim. Violations of the FCA may result in treble damages, material monetary penalties and other collateral consequences, potentially including exclusion from participation in federally funded healthcare programs. The minimum and maximum per claim monetary damages for FCA violations occurring on or after November 2, 2015 and assessed after January 30, 2023 are from $13,508 to $27,018 per claim, respectively, and will be periodically readjusted for inflation. If enforcement authorities find that we have violated the FCA, it could have a material adverse effect on our business, financial condition and results of operations. Pursuant to the ACA, a claim that includes items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA.\nThese laws and regulations may change rapidly and it is frequently unclear how they apply to our business. Errors created by our products or consulting services that relate to entry, formatting, preparation or transmission of claim or cost report information by our members may be determined or alleged to be in violation of these laws and regulations. Any failure of our businesses or our products or services to comply with these laws and regulations, or the assertion that any of our relationships with suppliers or members violated the Anti-Kickback Statute and therefore caused the submission of false or fraudulent claims, could (i)\u00a0result in substantial civil or criminal liability, (ii)\u00a0adversely affect demand for our services, (iii)\u00a0invalidate all or portions of some of our member contracts, (iv)\u00a0require us to change or terminate some portions of our business, (v)\u00a0require us to refund portions of our services fees, (vi)\u00a0cause us to be disqualified from serving members doing business with government payers, and (vii)\u00a0have a material adverse effect on our business, financial condition and results of operations.\nERISA Regulatory Compliance \nAs a threshold matter, the obligation for compliance with the Employee Retirement Income Security Act of 1974, as amended, (\u201cERISA\u201d), the Internal Revenue Code (the \u201cCode\u201d), the ACA, the Heath Insurance Portability and Accountability Act (together with its amendments related to the Health Information Technology for Economic and Clinical Health Act, \u201cHIPAA\u201d), the Mental Health Parity and Addiction Equity Act, the Newborns\u2019 and Mothers\u2019 Health Protection Act, the Women\u2019s Health and Cancer Rights Act, the Consolidated Omnibus Budget Reconciliation Act (\u201cCOBRA\u201d), the Genetic Information Nondiscrimination Act of 2008, and other laws governing self-funded group health plans (collectively \u201cEmployee Benefit Laws\u201d) generally rests with our clients as plan sponsors to whom we provide third-party administrative (\u201cTPA\u201d) services. That is, employers/clients that sponsor group health plans generally bear the obligation of complying with Employee Benefit Laws, \n38\nrather than entities, like us, that provide TPA services related to the group health plans.\u00a0In certain cases, however, TPAs to ERISA plans can become \u201cco-fiduciaries\u201d with their clients and, therefore, can be liable for ERISA compliance in a limited capacity.\u00a0We could become a co-fiduciary either by (1) entering a contractual obligation to be an ERISA fiduciary or (2) by acting as an ERISA fiduciary based on functions performed. Under ERISA, fiduciary status flows from actions, and TPAs who exercise certain functions, including any discretionary authority or discretionary responsibility over plan administration or exercise any authority or control with respect to management or disposition of plan assets are generally \u201cfunctional fiduciaries\u201d with respect to (and limited to) the functions performed by the TPA that trigger fiduciary status.\nWe undertake no express liability under ERISA for our clients\u2019 ERISA-governed plans in our template contracts.\u00a0However, deviations from this standard language contained in final contracts could subject us to liability for breaches of fiduciary duty under ERISA (and related claims, such as ERISA prohibited transactions).\nIf current or future antitrust laws and regulations are interpreted or enforced in a manner adverse to us or our business, we may be subject to enforcement actions, penalties and other material limitations on our business.\nWe are subject to federal and state laws and regulations designed to protect competition which, if enforced in a manner adverse to us or our business, could have a material adverse effect on our business, financial condition and results of operations. Over the last decade or so, the group purchasing industry has been the subject of multiple reviews and inquiries by the U.S. Senate and its members with respect to antitrust laws. Additionally, the U.S. General Accounting Office, or GAO, has published several reports examining GPO pricing, contracting practices, activities and fees. We and several other operators of GPOs have responded to GAO inquiries in connection with the development of such reports. No assurance can be given regarding any further inquiries or actions arising or resulting from these examinations and reports, or any related impact on our business, financial condition or results of operations.\nCongress, the DOJ, the Federal Trade Commission, or FTC, the U.S. Senate or another state or federal entity could at any time open a new investigation of the group purchasing industry, or develop new rules, regulations or laws governing the industry, that could adversely impact our ability to negotiate pricing arrangements with suppliers, increase reporting and documentation requirements, or otherwise require us to modify our arrangements in a manner that adversely impacts our business, financial condition and results of operations. We may also face private or government lawsuits alleging violations arising from the concerns articulated by these governmental factors or alleging violations based solely on concerns of individual private parties.\nIf we are found to be in violation of the antitrust laws, we could be subject to significant civil and criminal penalties or damages. The occurrence of any of these events could materially harm our business, financial condition and results of operations.\nComplex international, federal and state privacy laws, as well as security and breach notification laws, may increase the costs of operation and expose us to civil and criminal government sanctions and third-party civil litigation.\nWe must comply with extensive federal and state requirements regarding the use, retention, security and re-disclosure of patient/beneficiary healthcare information. The Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, which we refer to collectively as \u201cHIPAA\u201d, contain substantial restrictions and complex requirements with respect to the use and disclosure of \u201cProtected Health Information\u201d as defined by HIPAA. The HIPAA Privacy Rule prohibits a covered entity or a business associate from using or disclosing Protected Health Information unless the use or disclosure is validly authorized by the individual or is specifically required or permitted under the HIPAA Privacy Rule and only if certain complex requirements are met. The HIPAA Security Rule establishes administrative, organizational, physical and technical safeguards to protect the privacy, integrity and availability of electronic Protected Health Information maintained or transmitted by covered entities and business associates. The HIPAA Breach Notification Rule requires that covered entities and business associates, under certain circumstances, notify patients/beneficiaries and HHS when there has been an improper use or disclosure of Protected Health Information.\nOur self-funded health benefit plan, the Premier, Inc. Health & Welfare Plan, our healthcare provider members, Performance Services customers, and health plan clients are directly regulated by HIPAA as \u201ccovered entities.\u201d Most of our hospital members/customers and health plan clients disclose Protected Health Information to us so that we may provide payment and operations services. Accordingly, we are a \u201cbusiness associate\u201d of those covered entities and are required to protect such Protected Health Information under HIPAA.\nAny failure or perceived failure of our products or services to meet HIPAA standards and related regulatory requirements could expose us to certain notification, penalty and/or enforcement risks, damage our reputation, adversely affects demand for our products and services and/or force us to expend material capital, research and development and/or other resources to modify our products or services to ensure compliance with HIPAA.\n39\nIn addition to our obligations under HIPAA, there are other federal and state laws that include specific privacy and security obligations, above and beyond HIPAA, for certain types of health information and/or personally identifiable information and may expose us to additional sanctions and penalties. All 50 states, the District of Columbia, Guam, Puerto Rico and the Virgin Islands have enacted various types of legislation requiring the protection of personally identifiable information and/or notice to individuals of security breaches of their identifiable information. Organizations must review each state\u2019s definitions, mandates and notification requirements and timelines to appropriately prepare and notify affected individuals and government agencies, including the attorney general in many states, in compliance with such state laws. Further, most states have enacted patient and/or beneficiary confidentiality laws that protect against the disclosure of confidential medical information, and many states have adopted or are considering adopting further legislation in this area, including privacy safeguards, security standards and special rules for so-called \u201csensitive\u201d health information, such as mental health, genetic testing results, HIV status and biometric data. These state laws, if more stringent than HIPAA requirements, are not preempted by the federal requirements, and we are required to comply with them as well. The federal government also regulates the confidentiality of substance use disorder treatment records. These regulations, promulgated under 42 C.F.R. Part 2, apply to federally supported substance use disorder treatment programs and lawful holders of substance use disorder treatment records that originated from such programs. For some aspects of our business, we may be considered a lawful holder of treatment records protected under 42 C.F.R. Part 2 and therefore have responsibilities to protect substance use disorder treatment records in ways that go beyond the HIPAA requirements.\nStates continue to pass personal information privacy laws protecting its resident consumers\u2019 data and affording individual rights, such as access, deletion and prevention of certain types of uses of their personally identifiable information. These laws vary state-by-state and organizations must review each state\u2019s definitions and requirements to ensure compliance. Currently, various states, including California, Colorado, Connecticut, Indiana, Iowa, Montana, Tennessee, Texas, Utah and Virginia have passed general data privacy laws, while other states consider similar bills. While most data accessed or used by Premier is governed by HIPAA and is therefore exempt from many of the state general privacy laws, various areas of Premier (such as marketing and human resources) may access or use data that may fall under one or more state general privacy laws.\nWe are unable to predict what changes to HIPAA or other federal or state laws or regulations might be made in the future or how those changes could affect the demand for our products and services, our business or the associated costs of compliance. \nFailure to comply with any of the international, federal and state standards regarding individuals\u2019 data rights privacy, identity theft prevention and detection and data security may subject us to penalties, including civil monetary penalties and, in some circumstances, criminal penalties. In addition, such failure may materially injure our reputation and adversely affect our ability to retain and attract new members or customers and, accordingly, adversely affect our financial performance.\nNew requirements related to the interoperability of health information technology promulgated by the Office of the National Coordinator for Health Information Technology and enforced by the HHS Office of Inspector General could increase the costs of operation and expose us to civil government sanctions.\nOn May 1, 2020, the Office of the National Coordinator (\u201cONC\u201d) for Health Information Technology promulgated final regulations under the authority of the 21\nst\n Century Cures Act (\u201cONC Rules\u201d) to impose new conditions to obtaining and maintaining certification of certified health information technology and prohibit certain actors - developers of certified health information technology, health information networks, health information exchanges and healthcare providers - from engaging in activities that are likely to interfere with the access, exchange or use of electronic health information (information blocking). The final regulations further defined exceptions for activities that are permissible, even though they may have the effect of interfering with the access, exchange or use of electronic health information. The information subject to the information blocking restrictions is limited to electronic individually identifiable health information to the extent that it would be included in a designated record set. Until October 6, 2022, the information subject to the information blocking restrictions is further limited to the data elements represented in the U.S. Core Data for Interoperability standard. \nUnder the ONC Rules, we are considered a \u201chealth IT developer\u201d because of the government certifications we hold in our TheraDoc and eCQM solutions. As such, we have evaluated and assessed the applicability of the ONC Rules to our TheraDoc and eCQM solutions, and we have determined that the ONC Rules currently do not apply to the data we hold on TheraDoc and eCQM solutions because the data is not part of any designated record set. Further, our customers contractually agree that the data that we maintain and process on behalf of our customers does not qualify as a designated record set. We will continue to assess our products and services to discern whether or not they fall under the purview of the ONC Rules. On June 27, 2023, the HHS Office of Inspector General posted a final rule to incorporate its new civil monetary penalty authority for activities that constitute information blocking. Once effective, the HHS Office of Inspector General may impose information blocking penalties against developers of certified health information technology, health information networks or health information exchanges of up to $1 million per violation. The HHS Office of Inspector General\u2019s civil monetary penalty authority for information blocking will begin 60 days after the final rule is published in the Federal Register. Any application of ONC Rules \n40\nor similar regulations to our business could adversely affect our financial results by increasing our operating costs, slowing our time to market for our solutions, and making it uneconomical to offer some products. \nIf we become subject to regulation by the Food and Drug Administration because the functionality in one or more of our software applications causes the software to be regulated as a medical device, our financial results may be adversely impacted due to increased operating costs or delayed commercialization of regulated software products.\nThe Food and Drug Administration (\u201cFDA\u201d) has the authority to regulate products that meet the definition of a medical device under the Federal Food, Drug, and Cosmetic Act. To the extent that functionality or intended use in one or more of our current or future software products causes the software to be regulated as a medical device under existing or future FDA laws or regulations, including the 21\nst\n Century Cures Act, which addresses, among other issues, the patient safety concerns generated by cybersecurity risks to medical devices and the interoperability between medical devices, we could be required to:\n\u2022\nregister our company and list our FDA-regulated products with the FDA;\n\u2022\nobtain pre-market clearance from the FDA based on demonstration of substantial equivalence to a legally marketed device before marketing our regulated products or obtain FDA approval by demonstrating the safety and effectiveness of the regulated products prior to marketing; \n\u2022\nsubmit to inspections by the FDA; and\n\u2022\ncomply with various FDA regulations, including the agency\u2019s quality system regulation, compliant handling and medical device reporting regulations, requirements for medical device modifications, increased rigor of the secure development life cycle in the development of medical devices and the interoperability of medical devices and electronic health records, requirements for clinical investigations, corrections and removal reporting regulations, and post-market surveillance regulations.\nThe FDA can impose extensive requirements governing pre- and post-market activities, such as clinical investigations involving the use of a regulated product, as well as conditions relating to clearance or approval, labeling and manufacturing of a regulated product. In addition, the FDA can impose extensive requirements governing development controls and quality assurance processes. Any application of FDA regulations to our business could adversely affect our financial results by increasing our operating costs, slowing our time to market for regulated software products, subjecting us to additional government oversight and regulatory inspections and making it uneconomical to offer some software products.\nLegal and Tax-Related Risks\nWe are subject to litigation from time to time, which could have a material adverse effect on our business, financial condition and results of operations.\nWe participate in businesses and activities that are subject to substantial litigation. We are from time to time involved in litigation, which may include claims relating to contractual disputes, product liability, torts or personal injury, employment, antitrust, intellectual property or other commercial or regulatory matters. Additionally, if current or future government regulations are interpreted or enforced in a manner adverse to us or our business, specifically those with respect to antitrust or healthcare laws, we may be subject to enforcement actions, penalties, damages and other material limitations on our business. \nFurthermore, as a public company, we may become subject to stockholder inspection demands under Delaware law, and derivative or other similar litigation that can be expensive, divert human and financial capital to less productive uses, and benefit a limited number of stockholders rather than stockholders at large. The August 2020 Restructuring resulted in (i) the announcement of several investigations by private law firms of possible securities law violations; (ii) stockholder inspection demands seeking to investigate possible breaches of fiduciary duties; and (iii) the filing of a stockholder derivative complaint on March 4, 2022, captioned \nCity of Warren General Employees\u2019 Retirement System v. Michael Alkire, et al\n., Case No. 2022-0207-JTL. The complaint, purportedly brought on behalf of Premier, was filed in the Delaware Court of Chancery against our current and former Chief Executive Officers and current and certain former directors. We are named as a nominal defendant in the complaint. The lawsuit alleges that the named officers and directors breached their fiduciary duties and committed corporate waste by approving agreements between Premier and certain of the former LPs that provided for accelerated payments as consideration for the early termination of the tax receivable agreement (\u201cTRA\u201d) with such LPs. (See \u201cItem 3. Legal Proceedings\u201d).\n \nThe complaint asserts that the aggregate early termination payment amounts of $473.5 million exceeded the alleged value of the tax assets underlying the TRA by approximately $225.0 million. The complaint seeks unspecified damages, costs and expenses, including attorney fees, and declaratory and other equitable relief. Since the lawsuit is purportedly brought on behalf of Premier, and we are only a nominal defendant, the alleged damages were allegedly suffered by us. The City of Warren General Employees\u2019 Retirement System case, or any other matters referenced above that result in formal litigation, may have an adverse impact on our financial condition, reputation, results of operations or stock price.\n41\nFrom time to time, we have been named as a defendant in class action antitrust lawsuits brought by suppliers or purchasers of medical products. Typically, these lawsuits have alleged the existence of a conspiracy among manufacturers of competing products, distributors and/or operators of GPOs, including us, to deny the plaintiff access to a market for certain products, to raise the prices for products and/or to limit the plaintiff\u2019s choice of products to buy. No assurance can be given that we will not be subjected to similar actions in the future or that any such existing or future matters will be resolved in a manner satisfactory to us or which will not harm our business, financial condition or results of operations.\nWe may become subject to additional litigation or governmental investigations in the future. These claims may result in material defense costs or may compel us to pay material fines, judgments or settlements, which, if uninsured, could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, certain litigation matters could adversely impact our commercial reputation, which is critical for attracting and retaining customers, suppliers and member participation in our GPO programs. Further, stockholder and other litigation may result in adverse investor perception of our company, negatively impact our stock price and increase our cost of capital.\nFailure to protect our intellectual property and claims against our use of the intellectual property of third parties could cause us to incur unanticipated expense and prevent us from providing our products and services, which could adversely affect our business, financial condition and results of operations.\nOur success depends in part upon our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of intellectual property rights, including trade secrets, copyrights and trademarks, as well as customary contractual and confidentiality protections and internal policies applicable to employees, contractors, members and business partners. These protections may not be adequate, however, and we cannot assure you that they will prevent misappropriation of our intellectual property. In addition, parties that gain access to our intellectual property might fail to comply with the terms of our agreements and policies and we may not be able to enforce our rights adequately against these parties. The disclosure to, or independent development by, a competitor of any trade secret, know-how or other technology not protected by a patent could materially and adversely affect any competitive advantage we may have over such competitor. The process of enforcing our intellectual property rights through legal proceedings would likely be burdensome and expensive and our ultimate success cannot be assured. Our failure to adequately protect our intellectual property and proprietary rights could adversely affect our business, financial condition and results of operations.\nIn addition, we could be subject to claims of intellectual property infringement, misappropriation or other intellectual property violations as our applications\u2019 functionalities overlap with competitive products, and third parties may claim that we do not own or have rights to use all intellectual property used in the conduct of our business or acquired by us. We could incur substantial costs and diversion of management resources defending any such claims. Furthermore, a party making a claim against us could secure a judgment awarding substantial damages as well as injunctive or other equitable relief that could effectively block our ability to provide products or services. Such claims also might require indemnification of our members at material expense. \nA number of our contracts with our members contain indemnity provisions whereby we indemnify them against certain losses that may arise from third-party claims that are brought in connection with the use of our products.\nOur exposure to risks associated with the protection and use of intellectual property may be increased as a result of acquisitions, as we have limited visibility into the development process of acquired entities or businesses with respect to their technology or the care taken by acquired entities or businesses to safeguard against infringement risks. In addition, third parties may make infringement and similar or related claims after we have acquired technology that had not been asserted prior to our acquisition thereof.\nIf we are required to collect sales and use taxes on the products and services we sell in certain jurisdictions or online, we may be subject to tax liability for past sales, future sales may decrease and our financial condition may be materially and adversely affected.\nSales tax is currently not imposed on the administrative fees we collect in connection with our GPO programs. If sales tax were imposed in the future on such fees, the profitability of our GPO programs may be materially and adversely affected.\nRules and regulations applicable to sales and use tax vary materially by tax jurisdiction. In addition, the applicability of these rules given the nature of our products and services is subject to change.\nWe may lose sales or incur material costs should various tax jurisdictions be successful in imposing sales and use taxes on a broader range of products and services than those currently so taxed, including products and services sold online. A successful assertion by one or more taxing authorities that we should collect sales or other taxes on the sale of our solutions could result in substantial tax liabilities for past and future sales, decrease our ability to compete and otherwise harm our business.\n42\nIf one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our products and services, including products and services sold online, we may be liable for past taxes in addition to taxes going forward. Liability for past taxes may also include very substantial interest and penalty charges. If we are required to collect and pay back taxes (and the associated interest and penalties) and if our members fail or refuse to reimburse us for all or a portion of these amounts, we will have incurred unplanned costs that may be substantial. Moreover, imposition of such taxes on our services going forward will effectively increase the cost of such services to our members and may adversely affect our ability to retain existing members or to gain new members in the areas in which such taxes are imposed.\nChanges in tax laws could materially impact our effective tax rate, income tax expense, anticipated tax benefits, deferred tax assets, cash flows and profitability.\nContinued economic and political conditions in the U.S. could result in changes in U.S. tax laws beyond those enacted in connection with the TCJA on December 22, 2017 and the Coronavirus Aid, Relief, and Economic Security Act (\u201cCARES\u201d) on March 27, 2020. Further changes to U.S. tax laws could impact how U.S. corporations are taxed. Although we cannot predict whether or in what form such changes will pass, if enacted into law, they could have a material impact on our effective tax rate, income tax expense, ability to fully realize anticipated tax benefits that correspond to our fixed payment obligations associated with the acceleration of our TRA, deferred tax assets, results of operations, cash flows and profitability.\nA loss of a major tax dispute could result in a higher tax rate on our earnings, which could result in a material adverse effect on our financial condition and results of operations.\nIncome tax returns that we file are subject to review and examination. We recognize the benefit of income tax positions we believe are more likely than not to be sustained upon challenge by a tax authority. If any tax authority successfully challenges our positions or if we lose a material tax dispute, our effective tax rate on our earnings could increase substantially and result in a material adverse effect on our financial condition. \nRisks Related to Our Corporate Structure\nPayments required under the Unit Exchange and Tax Receivable Acceleration Agreements will reduce the amount of overall cash flow that would otherwise be available to us. In addition, we may not be able to realize all or a portion of the expected tax benefits that correspond to our fixed payment obligations associated with the acceleration of our TRA.\nWe entered into Unit Exchange and Tax Receivable Acceleration Agreements, effective as of July 1, 2020 (the \u201cUnit Exchange Agreements\u201d), with a substantial majority of our member-owners. Pursuant to the terms of the Unit Exchange Agreements, we elected to terminate the TRA upon payment to the member-owners of the discounted present value of the tax benefit payments otherwise owed to them over a 15-year period under the TRA. As a result of the acceleration and termination of the TRA, we are obligated to pay our member-owners approximately $472.6 million in aggregate. Of that amount, an aggregate of $201.2 million remains payable in equal quarterly installments through the quarter ending June\u00a030, 2025. Due to the payments required under the Unit Exchange Agreements, our overall cash flow and discretionary funds will be reduced, which may limit our ability to execute our business strategies or deploy capital for preferred use. In addition, if we do not have available capital on hand or access to adequate funds to make these required payments, our financial condition would be materially adversely impacted.\nThe payments required upon termination of the TRA are based upon the present value of all forecasted future payments that would have otherwise been made under the TRA. These payments are fixed obligations of ours and could ultimately exceed the actual tax benefits that we realize. Additionally, if our actual taxable income were insufficient or there were adverse changes in applicable law or regulations, we may be unable to realize all or a portion of these expected benefits and our cash flows and stockholders\u2019 equity could be negatively affected.\nOur certificate of incorporation and bylaws and provisions of Delaware law may discourage or prevent strategic transactions, including a takeover of our company, even if such a transaction would be beneficial to our stockholders.\nProvisions contained in our certificate of incorporation and bylaws and provisions of the Delaware General Corporation Law, or DGCL, could delay or prevent a third party from entering into a strategic transaction with us, even if such a transaction would benefit our stockholders. For example, our certificate of incorporation and bylaws:\n\u2022\ndivide our Board of Directors into three classes with staggered three-year terms, which may delay or prevent a change of our management or a change in control;\n\u2022\nauthorize our Board of Directors to issue \u201cblank check\u201d preferred stock in order to increase the aggregate number of outstanding shares of capital stock and thereby make a takeover more difficult and expensive;\n43\n\u2022\ndo not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;\n\u2022\ndo not permit stockholders to take action by written consent;\n\u2022\nprovide that special meetings of the stockholders may be called only by or at the direction of the Board of Directors, the chair of our Board or the chief executive officer;\n\u2022\nrequire advance notice to be given by stockholders of any stockholder proposals or director nominees;\n\u2022\nrequire a super-majority vote of the stockholders to amend our certificate of incorporation; and\n\u2022\nallow our Board of Directors to make, alter or repeal our bylaws but only allow stockholders to amend our bylaws upon the approval of 66\n2\n/\n3\n% or more of the voting power of all of the outstanding shares of our capital stock entitled to vote.\nIn addition, we are subject to the provisions of Section\u00a0203 of the DGCL which limits, subject to certain exceptions, the right of a corporation to engage in a business combination with a holder of 15% or more of the corporation\u2019s outstanding voting securities or certain affiliated persons.\nThese restrictions could limit stockholder value by impeding the sale of our company and discouraging potential takeover attempts that might otherwise be financially beneficial to our stockholders.\nRisks Related to Our Capital Structure, Liquidity and Class\u00a0A Common Stock\nWe may need to obtain additional financing which may not be available or may be on unfavorable terms and result in dilution to, or a diminution of the rights of, our stockholders and cause a decrease in the price of our Class A common stock.\nWe may need to raise additional funds in order to, among other things:\n\u2022\nfinance unanticipated working capital requirements;\n\u2022\ndevelop or enhance our technological infrastructure and our existing products and services;\n\u2022\nfund strategic relationships;\n\u2022\ncomply with new laws, regulations, rules or judicial orders;\n\u2022\nrespond to competitive pressures; and/or\n\u2022\nacquire complementary businesses, assets, technologies, products or services.\nAdditional financing may not be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our expansion strategy, take advantage of unanticipated opportunities, develop or enhance technology or services or otherwise respond to competitive pressures would be materially limited. If we raise additional funds by issuing equity or convertible debt securities, our then-existing stockholders may be diluted and holders of these newly issued securities may have rights, preferences or privileges senior to those of our then-existing stockholders. The issuance of these securities may cause a material decrease in the trading price of our Class A common stock or the value of your investment in us.\nIf we cannot refinance or replace our existing credit facility at or before maturity, it could have a material adverse effect on our ability to fund our ongoing cash requirements. Current or future indebtedness could adversely affect our business and our liquidity position.\nWe have a five-year $1 billion unsecured revolving credit facility (the \u201cCredit Facility\u201d), with a maturity date of December\u00a012, 2027. As of June\u00a030, 2023, we had $215.0 million outstanding under the Credit Facility and any outstanding indebtedness would be payable on or before that date. If we are not able to refinance or replace our Credit Facility at or before maturity or do so on acceptable terms, it would have a material adverse effect on our ability to fund our ongoing working capital requirements, business strategies, acquisitions and related business investments, future cash dividend payments, if any, or repurchases of Class A common stock under any then existing or future stock repurchase programs, if any.\nOur indebtedness may increase from time to time in the future for various reasons, including fluctuations in operating results, capital expenditures and potential acquisitions. Any indebtedness we incur and restrictive covenants contained in the agreements related thereto could:\n\u2022\nmake it difficult for us to satisfy our obligations, including making interest payments on our other debt obligations;\n\u2022\nlimit our ability to obtain additional financing to operate our business;\n44\n\u2022\nrequire us to dedicate a substantial portion of our cash flow to payments on our debt, reducing our ability to use our cash flow to fund capital expenditures and working capital and other general operational requirements;\n\u2022\nlimit our flexibility to execute our business strategy and plan for and react to changes in our business and the healthcare industry;\n\u2022\nplace us at a competitive disadvantage relative to some of our competitors that have less debt than us;\n\u2022\nlimit our ability to pursue acquisitions; and\n\u2022\nincrease our vulnerability to general adverse economic and industry conditions, including changes in interest rates or a downturn in our business or the economy.\nThe occurrence of any one of these events could cause us to incur increased borrowing costs and thus have a material adverse effect on our cost of capital, business, financial condition and results of operations or cause a material decrease in our liquidity and impair our ability to pay amounts due on our indebtedness.\nOur Credit Facility contains, among other things, restrictive covenants that will limit our and our subsidiaries\u2019 ability to finance future operations or capital needs or to engage in other business activities. The Credit Facility restricts, among other things, our ability and the ability of our subsidiaries to incur additional indebtedness or issue guarantees, create liens on our assets, make distributions on or redeem equity interests, make investments, transfer or sell properties or other assets, and engage in mergers, consolidations or acquisitions. Furthermore, the Credit Facility includes cross-default provisions and requires us to meet specified financial ratios and tests. In addition, any debt securities we may issue or indebtedness we incur in the future may have similar or more restrictive financial or operational covenants that may limit our ability to execute our business strategies or operate our Company.\nOur quarterly revenues and results of operations have fluctuated in the past and may continue to fluctuate in the future which could adversely affect the value of our Class A common stock, our revenues and our liquidity.\nFluctuations in our quarterly results of operations may be due to a number of factors, some of which are not within our control, including:\n\u2022\nour ability to offer new and innovative products and services;\n\u2022\nregulatory changes, including changes in healthcare laws;\n\u2022\nunforeseen legal expenses, including litigation and settlement costs;\n\u2022\nthe purchasing and budgeting cycles of our members;\n\u2022\nthe lengthy sales cycles for our products and services, which may cause material delays in generating revenues or an inability to generate revenues;\n\u2022\npricing pressures with respect to our future sales;\n\u2022\nthe timing and success of new product and service offerings by us or by our competitors;\n\u2022\nthe timing of enterprise analytics license agreements;\n\u2022\nmember decisions regarding renewal or termination of their contracts, especially those involving our larger member relationships;\n\u2022\nthe amount and timing of costs related to the maintenance and expansion of our business, operations and infrastructure;\n\u2022\nthe amount and timing of costs related to the development, adaptation, acquisition, or integration of acquired technologies or businesses;\n\u2022\nthe financial condition of our current and potential new members; \n\u2022\ngeneral economic and market conditions and economic conditions specific to the healthcare industry; and\n\u2022\nthe impact of potential pandemics, epidemics or public health emergencies, including the COVID-19 pandemic and any variants, on the economy and healthcare industry.\nOur quarterly results of operations may vary materially in the future and period-to-period comparisons of our results of operations may not be meaningful. You should not rely on the results of one quarter as an indication of future performance. If our quarterly results of operations fall below the expectations of securities analysts or investors, the price of the Class\u00a0A common stock could decline substantially. In addition, any adverse impacts on the Class\u00a0A common stock may harm the overall reputation of our organization, cause us to lose members and impact our ability to raise additional capital in the future.\n45\nIf we fail to maintain an effective system of integrated internal controls, we may not be able to report our financial results accurately, we may determine that our prior financial statements are not reliable, or we may be required to expend material financial and personnel resources to remediate any weaknesses, any of which could have a material adverse effect on our business, financial condition and results of operations.\nEnsuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be evaluated frequently. Section\u00a0404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls and attestations of the effectiveness of internal controls by independent auditors. Maintaining effective internal controls has been and will continue to be costly and may divert management\u2019s attention.\nWe have identified material weaknesses in our internal controls over financial reporting in the past. Our future evaluation of our internal controls over financial reporting may identify additional material weaknesses that may cause us to (i) be unable to report our financial information on a timely basis or (ii) determine that our previously issued financial statements should no longer be relied upon because of a material error in such financial statements, and thereby result in adverse regulatory consequences, including sanctions by the SEC, violations of NASDAQ listing rules or stockholder litigation. In the event that we identify a material weakness in our internal control over financial reporting, we may need to amend previously reported financial statements and will be required to implement a remediation plan to address the identified weakness, which will likely result in our expending material financial and personnel resources to remediate the identified weakness. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. The occurrence of any of these events could materially adversely affect our business, financial condition and results of operations and could also lead to a decline in the price of our Class\u00a0A common stock.\nThere can be no assurance we will pay dividends on our Class A common stock at current levels or at all, and failure to pay any such dividends could have a material adverse impact on our stock price and your investment in Premier.\nSince September 2020, we have paid quarterly cash dividends on our Class A common stock. The continued payment of dividends and the rate of any such dividends will be at the discretion of our Board of Directors after taking into account various factors, including our business, operating results and financial condition, current and anticipated capital requirements and cash needs, plans for expansion and any legal or contractual limitations on our ability to pay dividends. If we cease paying dividends, we could experience a material adverse impact on our stock price and your investment may materially decline, and as a result, capital appreciation in the price of our Class\u00a0A common stock, if any, may be your only source of gain on an investment in our Class\u00a0A common stock.\nOur future issuance of common stock, preferred stock, limited partnership units or debt securities could have a dilutive effect on our common stockholders and adversely affect the market value of our Class\u00a0A common stock.\nIn the future, we could issue a material number of shares of Class\u00a0A common stock, which could dilute our existing stockholders materially and have a material adverse effect on the market price for the shares of our Class\u00a0A common stock. Furthermore, the future issuance of shares of preferred stock with voting rights may adversely affect the voting power of our common stockholders, either by diluting the voting power of our common stock if the preferred stock votes together with the common stock as a single class or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote even if the action were approved by the holders of our common stock. The future issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our Class\u00a0A common stock by making an investment in the Class\u00a0A common stock less attractive. In addition to potential equity issuances described above, we also may issue debt securities that would rank senior to shares of our Class A common stock.\nUpon our liquidation, holders of our preferred shares, if any, and debt securities and instruments will receive a distribution of our available assets before holders of shares of our Class\u00a0A common stock. We are not required to offer any such additional debt or equity securities to existing stockholders on a preemptive basis. Therefore, additional issuances of our Class\u00a0A common stock, directly or through convertible or exchangeable securities, warrants or options, will dilute the holders of shares of our existing Class\u00a0A common stock and such issuances, or the anticipation of such issuances, may reduce the market price of shares of our Class\u00a0A common stock. Any preferred shares, if issued, would likely have a preference on distribution payments, periodically or upon liquidation, which could limit our ability to make distributions to holders of shares of our Class\u00a0A common stock. Because our decision to issue debt or equity securities or otherwise incur debt in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future capital raising efforts.\n46",
+  "item7": ">Item\u00a07. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThe following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Annual Report. This discussion is designed to provide the reader with information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our \n49\nconsolidated financial statements. In addition, the following discussion includes certain forward-looking statements. For a discussion of important factors, including the continuing development of our business and other factors which could cause actual results to differ materially from the results referred to in the forward-looking statements, see \u201cItem 1A. Risk Factors\u201d and \u201cCautionary Note Regarding Forward-Looking Statements\u201d contained in this Annual Report.\nBusiness Overview\nOur Business\nPremier, Inc. (\u201cPremier\u201d, the \u201cCompany\u201d, \u201cwe\u201d, or \u201cour\u201d) is a leading technology-driven healthcare improvement company, uniting an alliance of U.S. hospitals, health systems and other providers and organizations to transform healthcare. We partner with hospitals, health systems, physicians, employers, product suppliers, service providers, payers and other healthcare providers and organizations with the common goal of improving and innovating in the clinical, financial and operational areas of their businesses to meet the demands of a rapidly evolving healthcare industry. We deliver value through a comprehensive technology-enabled platform that offers critical supply chain services, clinical, financial, operational and value-based care software-as-a-service (\u201cSaaS\u201d) as well as clinical and enterprise analytics licenses, consulting services, performance improvement collaborative programs, third-party administrator services, access to our centers of excellence program, cost containment and wrap network and digital invoicing and payment automation processes for healthcare suppliers and providers. We also continue to expand our capabilities to more fully address and coordinate care improvement and standardization in the employer, payer and life sciences markets. We also provide some of the various products and services noted above to non-healthcare businesses.\nWe generated net revenue, net income and Adjusted EBITDA (a financial measure not determined in accordance with generally accepted accounting principles (\u201cNon-GAAP\u201d)) for the periods presented as follows (in thousands):\nYear Ended June 30,\n2023\n2022\nNet revenue\n$\n1,336,095\u00a0\n$\n1,432,901\u00a0\nNet income\n174,887\u00a0\n268,318\u00a0\nNon-GAAP Adjusted EBITDA\n499,783\u00a0\n498,682\u00a0\nSee \u201cOur Use of Non-GAAP Financial Measures\u201d and \u201cResults of Operations\u201d below for a discussion of our use of Non-GAAP Adjusted EBITDA and a reconciliation of net income to Non-GAAP Adjusted EBITDA.\nOur Business Segments\nOur business model and solutions are designed to provide our members and other customers access to scale efficiencies, spread the cost of their development, provide actionable intelligence derived from anonymized data in our enterprise data warehouse, mitigate the risk of innovation and disseminate best practices to help our members and other customers succeed in their transformation to higher quality and more cost-effective healthcare. We deliver our integrated platform of solutions that address the areas of clinical intelligence, margin improvement and value-based care through two business segments: Supply Chain Services and Performance Services.\nSegment net revenue was as follows (in thousands):\nYear Ended June 30,\n% of Net Revenue\nNet revenue:\n2023\n2022\nChange\n2023\n2022\nSupply Chain Services\n$\n899,955\u00a0\n$\n1,031,946\u00a0\n$\n(131,991)\n(13)\n%\n67\u00a0\n%\n72\u00a0\n%\nPerformance Services\n436,177\u00a0\n400,983\u00a0\n35,194\u00a0\n9\u00a0\n%\n33\u00a0\n%\n28\u00a0\n%\nSegment net revenue\n$\n1,336,132\n\u00a0\n$\n1,432,929\n\u00a0\n$\n(96,797)\n(7)\n%\n100\n\u00a0\n%\n100\n\u00a0\n%\nOur Supply Chain Services segment includes one of the largest national healthcare group purchasing organization (\u201cGPO\u201d) programs in the United States, serving acute and continuum of care sites and providing supply chain co-management, purchased services and direct sourcing activities.\nOur Performance Services segment consists of three sub-brands: \nPINC AI\nTM\n, \nour technology and services platform with offerings that help optimize performance in three main areas \u2013 clinical intelligence, margin improvement and value-based care \u2013 using advanced analytics to identify improvement opportunities, consulting and managed services for clinical and operational design, and workflow solutions to hardwire sustainable change in the provider, life sciences and payer markets; \nContigo Health\n\u00ae\n, our direct-to-employer business which provides third-party administrator services and management of health-benefit \n50\nprograms that enable healthcare providers that are also payers (e.g. payviders) and employers to contract directly with healthcare providers as well as partner with the healthcare providers to provide employers access to a specialized care network through Contigo Health\u2019s centers of excellence program and cost containment and wrap network; and \nRemitra\n\u00ae\n, our digital invoicing and payables automation business which provides financial support services to healthcare suppliers and providers. Each sub-brand serves different markets but are all united in our vision to optimize provider performance and accelerate industry innovation for better, smarter healthcare. For additional information, please see \u201c\nPerformance Services\n\u201d above.\nSales and Acquisitions\nAcquisition of TRPN Direct Pay, Inc. and Devon Health, Inc. Assets\nOn October 13, 2022, we acquired, through our consolidated subsidiary, Contigo Health, LLC (\u201cContigo Health\u201d), certain assets and assumed certain liabilities of TRPN Direct Pay, Inc. and Devon Health, Inc. (collectively, \u201cTRPN\u201d) for an adjusted purchase price of $177.5 million. The assets acquired and liabilities assumed relate to businesses of TRPN focused on improving access to quality healthcare and reducing the cost of medical claims through pre-negotiated discounts with network providers, including acute care hospitals, surgery centers, physicians and other continuum of care providers in the U.S. Contigo Health also agreed to license proprietary cost containment technology of TRPN. TRPN is being integrated under Contigo Health and is reported as part of the Performance Services segment. See Note 3 - Business Acquisitions to the accompanying consolidated financial statements for further information.\nSale of Non-Healthcare GPO Member Contracts\nOn June 14, 2023, we announced that we entered into an equity purchase agreement with OMNIA Partners, LLC (\u201cOMNIA\u201d) to sell the contracts pursuant to which substantially all of our non-healthcare GPO members participate in our GPO program, for an estimated purchase price of approximately $800.0 million, subject to certain adjustments. For a period of at least 10 years following the closing, the non-healthcare GPO members will continue to be able to make purchases through our group purchasing contracts. The sale of the non-healthcare GPO member contracts closed on July 25, 2023. See Note 20 - Subsequent Events to the accompanying consolidated financial statements for further information.\nMarket and Industry Trends and Outlook\nWe expect that certain trends and economic or industrywide factors will continue to affect our business, in both the short- and long-term. We have based our expectations described below on assumptions made by us and on information currently available to us. To the extent our underlying assumptions about, or interpretation of, available information prove to be incorrect, our actual results may vary materially from our expected results. See \u201cCautionary Note Regarding Forward-Looking Statements\u201d and \u201cRisk Factors.\u201d\nTrends in the U.S. healthcare market as well as the broader U.S. and global economy affect our revenues and costs in the Supply Chain Services and Performance Services segments. The trends we see affecting our current business include the impact of inflation on the broader economy, the significant increase to input costs in healthcare, including the rising cost of labor, and the impact of the implementation of current or future healthcare legislation. Implementation of healthcare legislation could be disruptive for Premier and our customers, impacting revenue, reporting requirements, payment reforms, shift in care to the alternate site market and increased data availability and transparency. To meet the demands of this environment, there will be increased focus on scale and cost containment and healthcare providers will need to measure and report on and bear financial risk for outcomes. Over the long-term, we believe these trends will result in increased demand for our Supply Chain Services and Performance Services solutions in the areas of cost management, quality and safety, and value-based care; however, there are uncertainties and risks that may affect the actual impact of these anticipated trends, expected demand for our services or related assumptions on our business. See \u201cCautionary Note Regarding Forward-Looking Statements\u201d for more information.\nImpact of Inflation\nThe U.S. economy is experiencing the highest rates of inflation since the 1980s. We have continued to limit the impact of inflation on our members and believe that we maintain significantly lower inflation impacts across our diverse product portfolio than national levels. However, in certain areas of our business, there is still some level of risk and uncertainty for our members and other customers as labor costs, raw material costs and availability, rising interest rates and inflation continue to pressure supplier pricing as well as apply significant pressure on our margin.\nWe continue to evaluate the contributing factors, specifically logistics, raw materials and labor, that have led to adjustments to selling prices. We have begun to see logistics costs normalize to pre-pandemic levels as well as some reductions in the costs of specific raw materials; however, the cost of labor remains high. We are continuously working to manage these price increases as market conditions change. The impact of inflation to our aggregated product portfolio is partially mitigated by contract term \n51\nprice protection for a large portion of our portfolio, as well as negotiated price reductions in certain product categories such as pharmaceuticals. See \u201cRisk Factors\u201d.\nFurthermore, as the Federal Reserve seeks to curb rising inflation, market interest rates have steadily risen, and may continue to rise, increasing the cost of borrowing under our Credit Facility (as defined in Note 9 - Debt and Notes Payable to the accompanying consolidated financial statements) as well as impacting our results of operations, financial condition and cash flows.\nGeopolitical Tensions\nGeopolitical tensions, such as the ongoing military conflict between Russia and Ukraine and tensions between the U.S. and China, continue to affect the global economy and financial markets, as well as exacerbate ongoing economic challenges, including issues such as rising inflation, energy costs and global supply-chain disruption.\nWe continue to monitor the impacts of geopolitical tensions on macroeconomic conditions and prepare for any implications they may have on member demand, our suppliers\u2019 ability to deliver products, cybersecurity risks and our liquidity and access to capital. See \u201cRisk Factors\u201d.\nCOVID-19 Pandemic or Other Pandemics, Epidemics or Public Health Emergencies\nIn addition to the trends in the U.S. healthcare market discussed above, the outbreak of the novel coronavirus (\u201cCOVID-19\u201d) and the resulting global pandemic impacted our sales, operations and supply chains, our members and other customers, and workforce and suppliers. As a result of pandemics, epidemics or public health emergencies, we may face material risks including, but not limited to:\n\u2022\nLabor shortages in the healthcare workforce and corresponding increases in labor costs.\n\u2022\nChanges in the demand for our products and services may create demand uncertainty from both material increases and decreases in demand and pricing for our products and services.\n\u2022\nLimited access to our members\u2019 facilities as well as travel restrictions limit their ability to participate in face-to-face events, such as committee meetings and conferences, and limits our ability to foster relationships and effectively deliver existing or sell new products and services to our members.\n\u2022\nDisruption to the global supply chain, particularly in China, may impact products purchased by our members through our GPO or products contract manufactured through our direct sourcing business. Failure of our suppliers, contract manufacturers, distributors, contractors and other business partners to meet their obligations to our members, other customers or to us, or material disruptions in their ability to do so due to their own financial or operational difficulties, may adversely impact our operations.\n\u2022\nWe may continue to receive requests for contract modifications, payment waivers and deferrals, payment reductions or amended payment terms from our contract counterparties. We may continue to receive requests to delay service or payment on performance service contracts and we may continue to receive requests from our suppliers for increases to their contracted prices.\n\u2022\nA general decline in the overall economic and capital markets which could increase our cost of capital and adversely affect our ability to access the capital markets in the future.\nWhile both the U.S. and the World Health Organization declared an end to the COVID-19 pandemic as a public health emergency in May 2023, the risks associated with the resurgence of COVID-19 or another pandemic remains and the resulting impact on our business, results of operations, financial conditions and cash flows as well as the U.S. and global economies is uncertain and cannot be predicted at this time. The impact of the COVID-19 pandemic or another pandemic, epidemic or public health emergency may also exacerbate many of the other risks described in the \u201cItem 1A. Risk Factors\u201d section. Despite our efforts to manage these impacts, their ultimate impact depends on factors beyond our knowledge or control, including the duration and severity of any outbreak and actions taken to contain its spread and mitigate its public health effects. The foregoing and other continued disruptions in our business as a result of the COVID-19 pandemic, variants thereof, recurrences or similar pandemics could result in a material adverse effect on our business, results of operations, financial condition, cash flows, prospects and the trading prices of our securities in the near-term and through fiscal 2023 and beyond.\n52\nCritical Accounting Policies and Estimates\nBelow is a discussion of our critical accounting policies and estimates. These and other significant accounting policies are set forth under Note 2 - Significant Accounting Policies to the accompanying consolidated financial statements for more information.\nBusiness Combinations\nWe account for acquisitions of a business using the acquisition method. All the assets acquired, liabilities assumed, contractual contingencies and contingent consideration are generally recognized at their fair value on the acquisition date. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Acquisition-related costs are recorded as expenses in the Consolidated Statements of Income and Comprehensive Income.\nSeveral valuation methods may be used to determine the fair value of assets acquired and liabilities assumed. For intangible assets, we typically use the income method. This method starts with a forecast of all of the expected future net cash flows for each asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows and the assessment of the asset's life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory or economic barriers to entry. Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives.\nGoodwill\nGoodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. We perform our annual goodwill impairment testing on the first day of the last fiscal quarter of our fiscal year unless impairment indicators are present, which could require an interim impairment test.\nUnder accounting rules, we may elect to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. This qualitative assessment requires an evaluation of any excess of fair value over the carrying value for a reporting unit and significant judgment regarding potential changes in valuation inputs, including a review of our most recent long-range projections, analysis of operating results versus the prior year, changes in market values, changes in discount rates and changes in terminal growth rate assumptions. If it is determined that an impairment is more likely than not to exist, then we are required to perform a quantitative assessment to determine whether or not goodwill is impaired and to measure the amount of goodwill impairment, if any.\nA goodwill impairment charge is recognized for the amount by which the reporting unit\u2019s carrying amount exceeds its fair value. We determine the fair value of a reporting unit using a discounted cash flow analysis as well as market-based approaches. Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. The cash flows employed in the discounted cash flow analyses are based on the most recent budget and long-term forecast. The discount rates used in the discounted cash flow analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units. The market comparable approach estimates fair value using market multiples of various financial measures compared to a set of comparable public companies and recent comparable transactions.\nOur most recent annual impairment testing as of April 1, 2023 consisted of a quantitative assessment and resulted in $56.7\u00a0million in impairment losses within our Contigo Health and Direct Sourcing reporting units. Refer to Note 8 - Goodwill and Intangible Assets to the accompanying consolidated financial statements for further information on the impairment losses recognized in fiscal 2023.\nRevenue Recognition\nWe account for a contract with a customer when the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection.\nRevenue is recognized when, or as, control of a promised product or service transfers to a customer, in an amount that reflects the consideration to which we expect to be entitled in exchange for transferring those products or services. If the consideration promised in a contract includes a variable amount, we estimate the amount to which we expect to be entitled using either the expected value or most likely amount method. Our contracts may include terms that could cause variability in the transaction price, including, for example, revenue share, rebates, discounts, and variable fees based on performance.\n53\nWe only include estimated amounts of consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates require management to make complex, difficult or subjective judgments, and to make estimates about the effect of matters inherently uncertain. As such, we may not be able to reliably estimate variable fees based on performance in certain long-term arrangements due to uncertainties that are not expected to be resolved for a long period of time or when our experience with similar types of contracts is limited. Estimates of variable consideration and the determination of whether to include estimated amounts of consideration in the transaction price are based on information (historical, current and forecasted) that is reasonably available to us, taking into consideration the type of customer, the type of transaction and the specific facts and circumstances of each arrangement. Additionally, management performs periodic analyses to verify the accuracy of estimates for variable consideration.\nAlthough we believe that our approach in developing estimates and reliance on certain judgments and underlying inputs is reasonable, actual results could differ which may result in exposure of increases or decreases in revenue that could be material.\nPerformance Obligations\nA performance obligation is a promise to transfer a distinct good or service to a customer. A contract\u2019s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Contracts may have a single performance obligation as the promise to transfer individual goods or services is not separately identifiable from other promises, and therefore, not distinct, while other contracts may have multiple performance obligations, most commonly due to the contract covering multiple deliverable arrangements (licensing fees, subscription fees, professional fees for consulting services, etc.).\nNet Administrative Fees Revenue\nNet administrative fees revenue is a single performance obligation earned through a series of distinct daily services and includes maintaining a network of members to participate in the group purchasing program and providing suppliers efficiency in contracting and access to our members. Revenue is generated through administrative fees received from suppliers and is included in service revenue in the accompanying Consolidated Statements of Income and Comprehensive Income.\nThrough our GPO programs, we aggregate member purchasing power to negotiate pricing discounts and improve contract terms with suppliers. Contracted suppliers pay us administrative fees which generally represent 1% to 3% of the purchase price of goods and services sold to members under the contracts we have negotiated. Administrative fees are variable consideration and are recognized as earned based upon estimated purchases by our members utilizing analytics based on historical member spend and updates for current trends and expectations. Administrative fees are estimated due to the difference in timing of when a member purchases on a supplier contract and when we receive the purchasing information. Member and supplier contracts substantiate persuasive evidence of an arrangement. We do not take title to the underlying equipment or products purchased by members through our GPO supplier contracts. Administrative fee revenue receivable is included in contract assets in the accompanying Consolidated Balance Sheets.\nGenerally, we pay a revenue share to members equal to a percentage of gross administrative fees, which is estimated according to the members\u2019 contractual agreements with us using a portfolio approach based on historical revenue fee share percentages and adjusted for current or anticipated trends. Revenue share is recognized as a reduction to gross administrative fees revenue to arrive at a net administrative fees revenue, and the corresponding revenue share liability is included in revenue share obligations in the accompanying Consolidated Balance Sheets.\nProducts Revenue\nDirect sourcing generates revenue primarily through products sold to our members, other customers or distributors. Revenue is recognized once control of products has been transferred to the customer and is recorded net of discounts and rebates offered to customers. Discounts and rebates are estimated based on contractual terms and historical trends.\nSoftware Licenses, Other Services and Support Revenue\nWe generate software licenses, other services and support revenue through Performance Services and Supply Chain Services.\nWithin Performance Services, which provides technology with wrap-around service offerings, revenue is generated through our three sub-brands: PINC AI, Contigo Health and Remitra. The main sources of revenue under PINC AI consists of subscriptions to our SaaS-based clinical intelligence, margin improvement and value-based care products, licensing revenue, professional fees for consulting services and other miscellaneous revenue including PINC AI data licenses, annual subscriptions to our performance improvement collaboratives, insurance services management fees and commissions from endorsed commercial insurance programs. Contigo Health\u2019s main sources of revenue are third-party administrator fees, fees from the centers of \n54\nexcellence program and cost containment and wrap network fees. Remitra\u2019s main source of revenue is fees from healthcare suppliers and providers.\nPINC AI\nSaaS-based Products Subscriptions.   \nSaaS-based clinical analytics subscriptions include the right to access our proprietary hosted technology on a SaaS basis, training and member support to deliver improvements in cost management, margin improvement, quality and safety, value-based care and provider analytics. SaaS arrangements create a single performance obligation for each subscription within the contract in which the nature of the obligation is a stand-ready obligation, and each day of service meets the criteria for over time recognition. Pricing varies by application and size of healthcare system. Clinical analytics products subscriptions are generally three- to five-year agreements with automatic renewal clauses and annual price escalators that typically do not allow for early termination. These agreements do not allow for physical possession of the software. Subscription fees are typically billed on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation. Implementation involves the completion of data preparation services that are unique to each member\u2019s data set in order to access and transfer member data into our hosted SaaS-based clinical analytics products. Implementation is generally 60 to 240 days\u00a0following contract execution before the SaaS-based clinical analytics products can be fully utilized by the member.\nSoftware Licenses.   \nEnterprise analytics licenses include term licenses that range from three to ten years and offer clinical analytics products, improvements in cost management, quality and safety, value-based care and provider analytics. Pricing varies by application and size of healthcare system. Revenue on licensing is recognized upon delivery of the software code, and revenue from hosting and maintenance is recognized ratably over the life of the contract.\nConsulting Services.   \nProfessional fees for consulting services are sold under contracts, the terms of which vary based on the nature of the engagement. These services typically include general consulting, report-based consulting and cost savings initiatives. Promised services under such consulting engagements are typically not considered distinct and are regularly combined and accounted for as one performance obligation. Fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed or when deliverables are provided. In situations where the contracts have significant contract performance guarantees, the performance guarantees are estimated and accounted for as a form of variable consideration when determining the transaction price. In the event that guaranteed savings levels are not achieved, we may have to perform additional services at no additional charge in order to achieve the guaranteed savings or pay the difference between the savings that were guaranteed and the actual achieved savings. Occasionally, our entitlement to consideration is predicated on the occurrence of an event such as the delivery of a report for which client acceptance is required. However, except for event-driven point-in-time transactions, the majority of services provided within this service line are delivered over time due to the continuous benefit provided to our customers.\nConsulting arrangements can require significant estimates for the transaction price and estimated number of hours within an engagement. These estimates are based on the expected value which is derived from outcomes from historical contracts that are similar in nature and forecasted amounts based on anticipated savings for the new agreements. The transaction price is generally constrained until the target transaction price becomes more certain.\nOther Miscellaneous Revenue.\n\u2022\nRevenue from PINC AI data licenses which provide customers data from the PINC AI healthcare database. The revenue from the data deliverables is recognized upon delivery of the data.\n\u2022\nRevenue from performance improvement collaboratives that support our offerings in cost management, quality and safety, and value-based care and is recognized over the service period as the services are provided, which is generally one to three years. Performance improvement collaboratives revenue is considered one performance obligation and is generated by providing customers access to online communities whereby data is housed and available for analytics and benchmarking.\n\u2022\nInsurance services management fees are recognized in the period in which such services are provided. Commissions from insurance carriers for sponsored insurance programs are earned by acting as an intermediary in the placement of effective insurance policies. Under this arrangement, revenue is recognized at a point in time on the effective date of the associated policies when control of the policy transfers to the customer and is constrained for estimated early terminations.\nContigo Health\nContigo Health revenue consists of third-party administrator fees, fees from the centers of excellence program and cost containment and wrap network fees. Third-party administrator fees consist of integrated fees for the processing of self-insured healthcare plan claims. Revenue is recognized in the period in which the services have been provided. Fees from \n55\nthe centers of excellence program consist of administrative fees for access to a specialized care network of proven healthcare providers. Revenue is recognized in the period in which the services have been provided. Cost containment and wrap network fees consist of fees associated with the repricing of insurance claims. Revenue is estimated and recognized in the period in which the services have been provided.\nRemitra\nRevenue for Remitra\n \nprimarily consists of fees from healthcare suppliers and providers as well as members and other customers. For fixed fee contracts, revenue is recognized in the period in which the services have been provided. For variable rate contracts, revenue is recognized as customers are invoiced. Additional revenue consists of fees from check replacement services which consist of monthly rebates from bank partners.\nWithin Supply Chain Services, revenue is generated through the GPO, supply chain co-management and SaaS-based purchased services activities.\nGPO.\n\u00a0\u00a0\u00a0\u00a0The GPO generates revenue from suppliers through the members that participate in our performance groups.\nSupply Chain Co-Management.   \nSupply chain co-management activities generate revenue in the form of a service fee for services performed under the supply chain management contracts. Service fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed.\nPurchased Services.   \nPurchased services generate revenue through subscription fees for SaaS-based products and term licenses. Subscription fees are generally billed on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation. Revenue on licensing is recognized upon delivery of the software code and revenue from hosting and maintenance is recognized ratably over the life of the contract.\nMultiple Deliverable Arrangements\nWe enter into agreements where the individual deliverables discussed above, such as SaaS subscriptions and consulting services, are bundled into a single service arrangement. These agreements are generally provided over a time period ranging from approximately three months to five years after the applicable contract execution date. Revenue, including both fixed and variable consideration, is allocated to the individual performance obligations within the arrangement based on the stand-alone selling price when it is sold separately in a stand-alone arrangement.\nSoftware Development Costs\nCosts associated with internally-developed computer software that are incurred prior to reaching technological feasibility are considered research and development and expensed as incurred. These costs consist of employee-related compensation and benefit expenses and third-party consulting fees of technology professionals, net of capitalized labor. During the development stage and once the project has reached technological feasibility, direct consulting costs and payroll and payroll-related costs for employees that are directly associated with each project are capitalized. Capitalized software costs are included in property and equipment, net in the accompanying Consolidated Balance Sheets. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the related software applications of up to five years and amortization is included in cost of revenue or selling, general and administrative expenses in the accompanying Consolidated Statements of Income and Comprehensive Income, based on the software\u2019s end use. Replacements and major improvements are capitalized, while maintenance and repairs are expensed as incurred. Some of the more significant estimates and assumptions inherent in this process involve determining the stages of the software development project, the direct costs to capitalize and the estimated useful life of the capitalized software.\nIncome Taxes\nWe account for income taxes under the asset and liability approach. Deferred tax assets or liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates as well as net operating losses and credit carryforwards, which will be in effect when these differences reverse. We provide a valuation allowance against net deferred tax assets when, based upon the available evidence, it is more likely than not that the deferred tax assets will not be realized.\nWe prepare and file tax returns based on interpretations of tax laws and regulations. Our tax returns are subject to examination by various taxing authorities in the normal course of business. Such examinations may result in future tax, interest and penalty assessments by these taxing authorities.\n56\nIn determining our tax expense for financial reporting purposes, we establish a reserve when there are transactions, calculations, and tax filing positions for which the tax determination is uncertain, and it is more likely than not that such positions would not be sustained upon examinations.\nWe adjust tax reserve estimates periodically based on the changes in facts and circumstances, such as ongoing examinations by, and settlements with, varying taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated tax expense of any given year includes adjustments to prior year income tax reserve and related estimated interest charges that are considered appropriate. Our policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of income tax expense.\nNew Accounting Standards\nNew accounting standards that we have recently adopted as well as those that have been recently issued but not yet adopted by us, if any, are included in Note 2 - Significant Accounting Policies to the accompanying consolidated financial statements, which is incorporated herein by reference.\nKey Components of Our Results of Operations\nNet Revenue\nNet revenue consists of net administrative fees revenue, software licenses, other services and support revenue and products revenue.\nSupply Chain Services\nSupply Chain Services revenue is comprised of:\n\u2022\nnet administrative fees revenue which consists of gross administrative fees received from suppliers, reduced by the amount of revenue share paid to members;\n\u2022\nsoftware licenses, other services and support revenue which consist of supply chain co-management and purchased services revenue; and\n\u2022\nproducts revenue which consists of inventory sales.\nThe success of our Supply Chain Services revenue streams is influenced by our ability to negotiate favorable contracts with suppliers and members, the number of members that utilize our GPO supplier contracts and the volume of their purchases, the impact of changes in the defined allowable reimbursement amounts determined by Medicare, Medicaid and other managed care plans and the number of members and other customers that purchase products through our direct sourcing activities and the impact of competitive pricing. Refer to \u201c\nImpact of Inflation\n\u201d within \u201cLiquidity and Capital Resources\u201d section of Item 7 - Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations for discussion of inflation and its impact on our Supply Chain Services\u2019 businesses.\nPerformance Services\nPerformance Services revenue is comprised of the following software licenses, other services and support revenue:\n\u2022\nhealthcare information technology license and SaaS-based clinical intelligence, margin improvement and value-based care products subscriptions, license fees, professional fees for consulting services, PINC AI data licenses, performance improvement collaborative and other service subscriptions and insurance services management fees and commissions from endorsed commercial insurance programs under our PINC AI technology and services platform;\n\u2022\nthird-party administrator fees, fees from the centers of excellence program and cost containment and wrap network fees for Contigo Health; and\n\u2022\nfees from healthcare suppliers and providers for Remitra.\nOur Performance Services growth will depend upon the expansion of PINC AI, Contigo Health and Remitra to new and existing members and other customers, renewal of existing subscriptions to our SaaS and licensed software products, our ability to shift some recurring subscription-based agreements to enterprise analytics licenses at a sufficient rate to offset the loss of recurring SaaS-based revenue.\n57\nCost of Revenue\nCost of revenue consists of cost of services and software licenses revenue and cost of products revenue.\nCost of services and software licenses revenue includes expenses related to employees, consisting of compensation and benefits, and outside consultants who directly provide services related to revenue-generating activities, including consulting services to members and other customers, third-party administrator services and implementation services related to our SaaS and licensed software products along with associated amortization of certain capitalized contract costs. Amortization of contract costs represent amounts that have been capitalized and reflect the incremental costs of obtaining and fulfilling a contract including costs related to implementing SaaS informatics tools. Cost of services and software licenses revenue also includes expenses related to hosting services, related data center capacity costs, third-party product license expenses and amortization of the cost of internally-developed software applications.\nCost of products revenue consists of logistics costs for direct sourced medical products. Refer to \u201c\nImpact of Inflation\n\u201d within \u201cLiquidity and Capital Resources\u201d section of Item 7 - Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations for discussion of inflation and its impact on our Supply Chain Services\u2019 businesses.\nOperating Expenses\nOperating expenses includes selling, general and administrative (\u201cSG&A\u201d) expenses, research and development expenses and amortization of purchased intangible assets.\nSG&A expenses are directly associated with selling and administrative functions and support of revenue-generating activities including expenses to support and maintain our software-related products and services. SG&A expenses primarily consist of compensation- and benefits-related costs; travel-related expenses; business development expenses, including costs for business acquisition opportunities; non-recurring strategic initiative and financial restructuring-related expenses; indirect costs such as insurance, professional fees and other general overhead expenses; and amortization of certain contract costs. Amortization of contract costs represent amounts, including sales commissions, that have been capitalized and reflect the incremental costs of obtaining and fulfilling a contract.\nResearch and development expenses consist of employee-related compensation and benefit expenses and third-party consulting fees of technology professionals, net of capitalized labor, incurred to develop our software-related products and services prior to reaching technological feasibility.\nAmortization of purchased intangible assets includes the amortization of all identified intangible assets.\nOther Income, Net\nOther income, net, includes equity in net income of unconsolidated affiliates that is generated from our equity method investments. Our equity method investments primarily consist of our interests in Exela Holdings, Inc. (\u201cExela\u201d) and Prestige Ameritech Ltd. (\u201cPrestige\u201d). As of March 3, 2023, our investment in FFF Enterprises, Inc. (\u201cFFF\u201d) was no longer accounted for under the equity method of accounting as a result of the March 3, 2023 amendment. Prior to the March 3, 2023 amendment, our investment in FFF was accounted for as an equity method investment and a pro rata portion of the equity in net income was included in other income, net (see Note 4 - Investments to the accompanying consolidated financial statements for further information). Other income, net, also includes, but is not limited to, the fiscal year 2022 gain recognized due to the termination of the FFF Put Right and derecognition of the associated liability (see Note 5 - Fair Value Measurements to the accompanying consolidated financial statements for further information), interest income and expense, realized and unrealized gains or losses on deferred compensation plan assets, gains or losses on the disposal of assets, and any impairment on our assets or held-to-maturity investments.\nIncome Tax Expense\nSee Note 15 - Income Taxes to the accompanying consolidated financial statements for discussion of income tax expense.\nNet Income Attributable to Non-Controlling Interest\nWe recognize net income attributable to non-controlling interest for non-Premier ownership in our consolidated subsidiaries which hold interest in our equity method investments (see Note 4 - Investments to the accompanying consolidated financial statements for further information). At June\u00a030, 2023, we recognized net income attributable to non-controlling interests held by member health systems or their affiliates in the consolidated subsidiaries holding the equity method investments, including but not limited to the 74% and 85% interest held in PRAM Holdings, LLC (\u201cPRAM\u201d) and ExPre Holdings, LLC (\u201cExPre\u201d), respectively. In partnership with member health systems or their affiliates, these investments are part of our long-term supply \n58\nchain resiliency program to promote domestic and geographically diverse manufacturing and to help ensure a robust and resilient supply chain for essential medical products.\nAs of June\u00a030, 2023, we owned 93% of the equity interest in Contigo Health and recognized net income attributable to non-controlling interest for the 7% of equity held by certain customers of Contigo Health.\nOur Use of Non-GAAP Financial Measures\nThe other key business metrics we consider are EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings per Share and Free Cash Flow, which are all Non-GAAP financial measures.\nWe define EBITDA as net income before income or loss from discontinued operations, net of tax, interest and investment income or expense, net, income tax expense, depreciation and amortization and amortization of purchased intangible assets. We define Adjusted EBITDA as EBITDA before merger and acquisition-related expenses and non-recurring, non-cash or non-operating items and including equity in net income of unconsolidated affiliates. For all Non-GAAP financial measures, we consider non-recurring items to be income or expenses and other items that have not been earned or incurred within the prior two years and are not expected to recur within the next two years. Such items include certain strategic initiative and financial restructuring-related expenses. Non-operating items include gains or losses on the disposal of assets and interest and investment income or expense.\nWe define Segment Adjusted EBITDA as the segment\u2019s net revenue less cost of revenue and operating expenses directly attributable to the segment excluding depreciation and amortization, amortization of purchased intangible assets, merger and acquisition-related expenses, and non-recurring or non-cash items, and including equity in net income of unconsolidated affiliates. Operating expenses directly attributable to the segment include expenses associated with sales and marketing, general and administrative, and product development activities specific to the operation of each segment. General and administrative corporate expenses that are not specific to a particular segment are not included in the calculation of Segment Adjusted EBITDA. Segment Adjusted EBITDA also excludes any income and expense that has been classified as discontinued operations.\nWe define Adjusted Net Income as net income attributable to Premier (i) excluding income or loss from discontinued operations, net, (ii) excluding income tax expense, (iii) excluding the impact of adjustment of redeemable limited partners\u2019 capital to redemption amount, (iv) excluding the effect of non-recurring or non-cash items, including certain strategic initiative and financial restructuring-related expenses, (v) assuming, for periods prior to our August 2020 Restructuring, the exchange of all the Class B common units for shares of Class A common stock, which results in the elimination of non-controlling interest in Premier LP and (vi) reflecting an adjustment for income tax expense on Non-GAAP net income before income taxes at our estimated annual effective income tax rate, adjusted for unusual or infrequent items. We define Adjusted Earnings per Share as Adjusted Net Income divided by diluted weighted average shares (see Note 12 - Earnings Per Share to the accompanying consolidated financial statements for further information).\nWe define Free Cash Flow as net cash provided by operating activities from continuing operations less (i) early termination payments to certain former limited partners that elected to execute a Unit Exchange and Tax Receivable Acceleration Agreement (\u201cUnit Exchange Agreement\u201d) in connection with our August 2020 Restructuring and (ii) purchases of property and equipment. Free Cash Flow does not represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayments.\nAdjusted EBITDA and Free Cash Flow are supplemental financial measures used by us and by external users of our financial statements and are considered to be indicators of the operational strength and performance of our business. Adjusted EBITDA and Free Cash Flow measures allow us to assess our performance without regard to financing methods and capital structure and without the impact of other matters that we do not consider indicative of the operating performance of our business. More specifically, Segment Adjusted EBITDA is the primary earnings measure we use to evaluate the performance of our business segments.\nWe use Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per Share to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with GAAP, provides a more complete understanding of factors and trends affecting our business. We believe Adjusted EBITDA and Segment Adjusted EBITDA assist our Board of Directors, management and investors in comparing our operating performance on a consistent basis from period to period because they remove the impact of earnings elements attributable to our asset base (primarily depreciation and amortization), certain items outside the control of our management team, e.g. taxes, other non-cash items (such as impairment of intangible assets, purchase accounting adjustments and stock-based compensation), non-recurring items (such as strategic initiative and financial restructuring-related expenses) and income and expense that has been classified as discontinued operations from our operating results. We believe \n59\nAdjusted Net Income and Adjusted Earnings per Share assist our Board of Directors, management and investors in comparing our net income and earnings per share on a consistent basis from period to period because these measures remove non-cash (such as impairment of intangible assets, purchase accounting adjustments and stock-based compensation) and non-recurring items (such as strategic initiative and financial restructuring-related expenses), and eliminate the variability of non-controlling interest that primarily resulted from member owner exchanges of Class B common units for shares of Class A common stock. We believe Free Cash Flow is an important measure because it represents the cash that we generate after payment of tax distributions to limited partners, payments to certain former limited partners that elected to execute a Unit Exchange Agreement and capital investment to maintain existing products and services and ongoing business operations, as well as development of new and upgraded products and services to support future growth. Our Free Cash Flow allows us to enhance stockholder value through acquisitions, partnerships, joint ventures, investments in related businesses and debt reduction.\nDespite the importance of these Non-GAAP financial measures in analyzing our business, determining compliance with certain financial covenants in our Credit Facility, measuring and determining incentive compensation and evaluating our operating performance relative to our competitors, EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings per Share and Free Cash Flow are not measurements of financial performance under GAAP, may have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net income, net cash provided by operating activities, or any other measure of our performance derived in accordance with GAAP.\nSome of the limitations of the EBITDA, Adjusted EBITDA and Segment Adjusted EBITDA measures include that they do not reflect: our capital expenditures or our future requirements for capital expenditures or contractual commitments; changes in, or cash requirements for, our working capital needs; the interest expense or the cash requirements to service interest or principal payments under our Credit Facility; income tax payments we are required to make; and any cash requirements for replacements of assets being depreciated or amortized. In addition, EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA and Free Cash Flow are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flows from operating activities.\nSome of the limitations of the Adjusted Net Income and Adjusted Earnings per Share measures are that they do not reflect income tax expense or income tax payments we are required to make. In addition, Adjusted Net Income and Adjusted Earnings per Share are not measures of profitability under GAAP.\nWe also urge you to review the reconciliation of these Non-GAAP financial measures included elsewhere in this Annual Report. To properly and prudently evaluate our business, we encourage you to review the consolidated financial statements and related notes included elsewhere in this Annual Report and to not rely on any single financial measure to evaluate our business. In addition, because the EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings per Share and Free Cash Flow measures are susceptible to varying calculations, such Non-GAAP financial measures may differ from, and may therefore not be comparable to, similarly titled measures used by other companies.\nNon-recurring and non-cash items excluded in our calculation of Adjusted EBITDA, Segment Adjusted EBITDA and Adjusted Net Income consist of stock-based compensation, acquisition- and disposition-related expenses, strategic initiative and financial restructuring-related expenses, gain or loss on FFF Put and Call Rights, income and expense that has been classified as discontinued operations and other reconciling items. More information about certain of the more significant items follows below.\nIncome tax expense on adjusted income\nAdjusted Net Income, a Non-GAAP financial measure as defined below in \u201cOur Use of Non-GAAP Financial Measures\u201d, is calculated net of taxes based on our estimated annual effective tax rate for federal and state income tax, adjusted for unusual or infrequent items, as we are a consolidated group for tax purposes with all of our subsidiaries\u2019 activities included. The tax rate used to compute the Adjusted Net Income was 26% for both the years ended June 30, 2023 and 2022.\nAs a result of the Subsidiary Reorganization, one of our consolidated subsidiaries is expected to have sufficient income to utilize its net operating loss and research and development credit carryforwards. During the first quarter of fiscal 2022, we assessed the future realization of our deferred tax assets as a result of our plan to complete the Subsidiary Reorganization by the end of the second quarter of fiscal year 2022. On December 1, 2021, we completed the Subsidiary Reorganization. We reassessed the valuation allowance release as of June 30, 2022. In fiscal year 2022, we released $32.3 million of deferred tax valuation allowance primarily related to finite-lived net operating losses and research and development credit carryforwards. As a result of the Subsidiary Reorganization, we have offset ordinary income of $3.1 million during fiscal year 2022. The remaining $29.2 million of valuation allowance related to finite-lived net operating losses and research and development credit carryforwards is expected to be released and utilized in future periods.\n60\nStock-based compensation\nIn addition to non-cash employee stock-based compensation expense, this item includes non-cash stock purchase plan expense of $0.6 million for both the years ended June\u00a030, 2023 and 2022 (see Note 13 - Stock-Based Compensation to the accompanying consolidated financial statements for further information).\nAcquisition- and disposition-related expenses\nAcquisition-related expenses include legal, accounting and other expenses related to acquisition activities, one-time integration expenses and gains and losses on the change in fair value of earn-out liabilities. Disposition-related expenses include severance and retention benefits and financial advisor fees and legal fees related to disposition activities.\nStrategic initiative and financial restructuring-related expenses\nStrategic initiative and financial restructuring-related expenses include legal, accounting and other expenses related to strategic initiative and financial restructuring-related activities.\nGain or loss on FFF Put and Call Rights\nSee Note 5 - Fair Value Measurements to the accompanying consolidated financial statements for further information.\nImpairment of assets\nImpairment of assets relates to impairment of long-lived assets.\nOther reconciling items\nOther reconciling items includes, but is not limited to, gains and losses on disposals of long-lived assets and imputed interest on notes payable to former limited partners.\n61\nResults of Operations for the Years Ended June 30, 2023 and 2022\nThe following table presents our results of operations for the fiscal years presented (in thousands, except per share data):\nYear Ended June 30,\n2023\n2022\nAmount\n% of Net Revenue\nAmount\n% of Net Revenue\nNet revenue:\nNet administrative fees\n$\n611,035\u00a0\n46\u00a0\n%\n$\n601,128\u00a0\n42\u00a0\n%\nSoftware licenses, other services and support\n480,401\u00a0\n36\u00a0\n%\n438,267\u00a0\n31\u00a0\n%\nServices and software licenses\n1,091,436\u00a0\n82\u00a0\n%\n1,039,395\u00a0\n73\u00a0\n%\nProducts\n244,659\u00a0\n18\u00a0\n%\n393,506\u00a0\n27\u00a0\n%\nNet revenue\n1,336,095\n\u00a0\n100\n\u00a0\n%\n1,432,901\n\u00a0\n100\n\u00a0\n%\nCost of revenue:\nServices and software licenses\n218,087\u00a0\n16\u00a0\n%\n183,984\u00a0\n13\u00a0\n%\nProducts\n221,719\u00a0\n17\u00a0\n%\n363,878\u00a0\n25\u00a0\n%\nCost of revenue\n439,806\n\u00a0\n33\n\u00a0\n%\n547,862\n\u00a0\n38\n\u00a0\n%\nGross profit\n896,289\u00a0\n67\u00a0\n%\n885,039\u00a0\n62\u00a0\n%\nOperating expenses\n654,196\n\u00a0\n49\n\u00a0\n%\n624,966\n\u00a0\n44\n\u00a0\n%\nOperating income\n242,093\n\u00a0\n18\n\u00a0\n%\n260,073\n\u00a0\n18\n\u00a0\n%\nOther income, net\n7,905\u00a0\n1\u00a0\n%\n66,827\u00a0\n5\u00a0\n%\nIncome before income taxes\n249,998\u00a0\n19\u00a0\n%\n326,900\u00a0\n23\u00a0\n%\nIncome tax expense\n75,111\u00a0\n6\u00a0\n%\n58,582\u00a0\n4\u00a0\n%\nNet income\n174,887\n\u00a0\n13\n\u00a0\n%\n268,318\n\u00a0\n19\n\u00a0\n%\nNet loss (income) attributable to non-controlling interest\n139\u00a0\n\u2014\u00a0\n%\n(2,451)\n\u2014\u00a0\n%\nNet income attributable to stockholders\n$\n175,026\n\u00a0\n13\n\u00a0\n%\n$\n265,867\n\u00a0\n19\n\u00a0\n%\nEarnings per share attributable to stockholders:\nBasic\n$\n1.47\u00a0\n$\n2.21\u00a0\nDiluted\n$\n1.46\u00a0\n$\n2.19\u00a0\nFor the following Non-GAAP financial measures and reconciliations of our performance derived in accordance with GAAP to the Non-GAAP financial measures, refer to \u201cOur Use of Non-GAAP Financial Measures\u201d for further information regarding items excluded in our calculation of Adjusted EBITDA, Segment Adjusted EBITDA, Non-GAAP Adjusted Net Income and Non-GAAP Adjusted Earnings Per Share.\nThe following table provides certain Non-GAAP financial measures for the fiscal years presented (in thousands, except per share data).\nYear Ended June 30,\n2023\n2022\nCertain Non-GAAP Financial Data:\nAmount\n% of Net Revenue\nAmount\n% of Net Revenue\nAdjusted EBITDA\n$\n499,783\u00a0\n37%\n$\n498,682\u00a0\n35%\nNon-GAAP Adjusted Net Income\n299,330\u00a0\n22%\n302,738\u00a0\n21%\nNon-GAAP Adjusted Earnings Per Share\n2.50\u00a0\nnm\n2.49\u00a0\nnm\n62\nThe following table provides the reconciliation of net income to Adjusted EBITDA and the reconciliation of income before income taxes to Segment Adjusted EBITDA (in thousands):\nYear Ended June 30,\n2023\n2022\nNet income\n$\n174,887\n\u00a0\n$\n268,318\n\u00a0\nInterest expense, net\n14,470\u00a0\n11,142\u00a0\nIncome tax expense\n75,111\u00a0\n58,582\u00a0\nDepreciation and amortization\n85,691\u00a0\n85,171\u00a0\nAmortization of purchased intangible assets\n48,102\u00a0\n43,936\u00a0\nEBITDA\n398,261\n\u00a0\n467,149\n\u00a0\nStock-based compensation\n14,355\u00a0\n46,809\u00a0\nAcquisition- and disposition-related expenses\n17,151\u00a0\n11,453\u00a0\nStrategic initiative and financial restructuring-related expenses\n13,831\u00a0\n18,005\u00a0\nImpairment of assets\n56,718\u00a0\n18,829\u00a0\nGain on FFF Put and Call Rights\n\u2014\u00a0\n(64,110)\nOther reconciling items, net \n(a)\n(533)\n547\u00a0\nAdjusted EBITDA\n$\n499,783\n\u00a0\n$\n498,682\n\u00a0\nIncome before income taxes\n$\n249,998\n\u00a0\n$\n326,900\n\u00a0\nEquity in net income of unconsolidated affiliates\n(16,068)\n(23,505)\nInterest expense, net\n14,470\u00a0\n11,142\u00a0\nGain on FFF Put and Call Rights\n\u2014\u00a0\n(64,110)\nOther (income) expense, net\n(6,307)\n9,646\u00a0\nOperating income\n242,093\n\u00a0\n260,073\n\u00a0\nDepreciation and amortization\n85,691\u00a0\n85,171\u00a0\nAmortization of purchased intangible assets\n48,102\u00a0\n43,936\u00a0\nStock-based compensation\n14,355\u00a0\n46,809\u00a0\nAcquisition- and disposition-related expenses\n17,151\u00a0\n11,453\u00a0\nStrategic initiative and financial restructuring-related expenses\n13,831\u00a0\n18,005\u00a0\nEquity in net income of unconsolidated affiliates\n16,068\u00a0\n23,505\u00a0\nDeferred compensation plan expense (income)\n5,422\u00a0\n(9,401)\nImpairment of assets\n56,718\u00a0\n18,829\u00a0\nOther reconciling items, net \n(b)\n352\u00a0\n302\u00a0\nAdjusted EBITDA\n$\n499,783\n\u00a0\n$\n498,682\n\u00a0\nSegment Adjusted EBITDA:\nSupply Chain Services\n$\n499,431\u00a0\n$\n500,854\u00a0\nPerformance Services\n123,859\u00a0\n126,938\u00a0\nCorporate\n(123,507)\n(129,110)\nAdjusted EBITDA\n$\n499,783\n\u00a0\n$\n498,682\n\u00a0\n_________________________________\n(a)\nOther reconciling items, net is primarily attributable to dividend income for the year ended June 30, 2023.\nOther reconciling items, net is primarily attributable to loss on disposal of long-lived assets for the year ended June 30, 2022.\n(b)\nOther reconciling items, net is attributable to other miscellaneous expenses.\n63\nThe following table provides the reconciliation of net income attributable to stockholders to Non-GAAP Adjusted Net Income and the reconciliation of the numerator and denominator for earnings per share attributable to stockholders to Non-GAAP Adjusted Earnings per Share for the years presented (in thousands).\nYear Ended June 30,\n2023\n2022\nNet income attributable to stockholders\n$\n175,026\n\u00a0\n$\n265,867\n\u00a0\nNet (loss) income attributable to non-controlling interest\n(139)\n2,451\u00a0\nIncome tax expense\n75,111\u00a0\n58,582\u00a0\nAmortization of purchased intangible assets\n48,102\u00a0\n43,936\u00a0\nStock-based compensation\n14,355\u00a0\n46,809\u00a0\nAcquisition- and disposition-related expenses\n17,151\u00a0\n11,453\u00a0\nStrategic initiative and financial restructuring-related expenses\n13,831\u00a0\n18,005\u00a0\nImpairment of assets\n56,718\u00a0\n18,829\u00a0\nGain on FFF Put and Call Rights\n\u2014\u00a0\n(64,110)\nOther reconciling items, net \n(a)\n4,345\u00a0\n7,284\u00a0\nNon-GAAP adjusted income before income taxes\n404,500\n\u00a0\n409,106\n\u00a0\nIncome tax expense on adjusted income before income taxes \n(b)\n105,170\u00a0\n106,368\u00a0\nNon-GAAP Adjusted Net Income\n$\n299,330\n\u00a0\n$\n302,738\n\u00a0\nReconciliation of denominator for earnings per share attributable to stockholders to Non-GAAP Adjusted Earnings per Share\nWeighted average:\nBasic weighted average shares outstanding\n118,767\u00a0\n120,220\u00a0\nDilutive securities\n1,122\u00a0\n1,448\u00a0\nWeighted average shares outstanding - diluted\n119,889\n\u00a0\n121,668\n\u00a0\n_________________________________\n(a)\nOther reconciling items, net is primarily attributable to loss on disposal of long-lived assets and imputed interest on notes payable to former limited partners.\n(b)\nReflects income tax expense at an estimated effective income tax rate of 26% of non-GAAP adjusted net income before income taxes for both the years ended June 30, 2023 and 2022.\n64\nThe following table provides the reconciliation of basic earnings per share attributable to stockholders to Non-GAAP Adjusted Earnings per Share for the periods presented:\nYear Ended June 30,\n2023\n2022\nBasic earnings per share attributable to stockholders\n$\n1.47\n\u00a0\n$\n2.21\n\u00a0\nNet (loss) income attributable to non-controlling interest\n\u2014\u00a0\n0.02\u00a0\nIncome tax expense\n0.63\u00a0\n0.49\u00a0\nAmortization of purchased intangible assets\n0.41\u00a0\n0.37\u00a0\nStock-based compensation\n0.12\u00a0\n0.39\u00a0\nAcquisition- and disposition-related expenses\n0.14\u00a0\n0.10\u00a0\nStrategic initiative and financial restructuring-related expenses\n0.12\u00a0\n0.15\u00a0\nImpairment of assets\n0.48\u00a0\n0.16\u00a0\nGain on FFF Put and Call Rights\n\u2014\u00a0\n(0.53)\nOther reconciling items, net \n(a)\n0.04\u00a0\n0.06\u00a0\nImpact of corporation taxes\n (b)\n(0.89)\n(0.88)\nImpact of dilutive shares\n(0.02)\n(0.05)\nNon-GAAP Adjusted Earnings Per Share\n$\n2.50\n\u00a0\n$\n2.49\n\u00a0\n_________________________________\n(a)\nOther reconciling items, net is primarily attributable to loss on disposal of long-lived assets and imputed interest on notes payable to former limited partners.\n(b)\nReflects income tax expense at an estimated effective income tax rate of 26% of non-GAAP adjusted net income before income taxes for both the years ended June\u00a030, 2023 and 2022.\nConsolidated Results - Comparison of the Years Ended June\u00a030, 2023 to 2022\nThe variances in the material factors contributing to the changes in the consolidated results are discussed further in \u201cSegment Results\u201d below.\nNet Revenue\nNet revenue decreased by $96.8 million, or 7%, during the year ended June 30, 2023 compared to the year ended June 30, 2022 primarily due to a decrease of $148.8 million in products revenue. This decrease was partially offset by increases of $42.1 million in software licenses, other services and support revenue and $9.9 million in net administrative fees revenue.\nCost of Revenue\nCost of revenue decreased by $108.1 million, or 20%, during the year ended June 30, 2023 compared to the year ended June 30, 2022 primarily due to a decrease of $142.2 million in cost of products revenue partially offset by an increase of $34.1 million in cost of services and software licenses revenue.\nOperating Expenses\nOperating expenses increased by $29.2 million, or 5%, during the year ended June 30, 2023 compared to the year ended June 30, 2022 primarily due to increases of $24.7 million in SG&A expenses and $4.2 million in amortization of intangible assets.\nOther Income, Net\nOther income, net decreased by $58.9 million during the year ended June 30, 2023 compared to the year ended June 30, 2022. The decrease was primarily due to:\n\u2022\nprior year gain of $64.1 million on the FFF Put Right as a result of the termination and corresponding derecognition of the FFF Put Right liability in fiscal year 2022 (see Note 5 - Fair Value Measurements to the accompanying consolidated financial statements for further information)\n\u2022\ndecrease of $7.4 million in equity in net income of unconsolidated affiliates primarily due to lower current year performance from our equity method investments. In addition, as of March 3, 2023, FFF is no longer being accounted for under the equity method of accounting (see Note 4 - Investments to the accompanying consolidated financial statements for further information)\n65\n\u2022\nincrease of $3.3 million in interest expense in the current year due to higher interest rates and outstanding loan balances. \nThese decreases were partially offset by a change in deferred compensation plan expense as a result of market changes.\nIncome Tax Expense\nWe recorded an income tax expense of $75.1 million for the year ended June 30, 2023 compared to income tax expense of $58.6 million for the year ended June 30, 2022. The income tax expense resulted in effective tax rates of 30% and 18% for the years ended June\u00a030, 2023 and 2022, respectively. The change in the effective tax rate is primarily attributable to the prior year\u2019s one-time deferred tax benefit associated with the remeasurement of the deferred tax asset and valuation allowance release as a result of the 2021 Subsidiary Reorganization (see Note 15 - Income Taxes to the accompanying consolidated financial statements for further information).\nNet Loss (Income) Attributable to Non-Controlling Interest\nNet loss (income) attributable to non-controlling interest decreased by $2.6 million during the year ended June 30, 2023 compared to the year ended June 30, 2022, primarily due to a decrease in the portion of net income attributable to non-controlling interests in our consolidated subsidiaries.\nAdjusted EBITDA\nAdjusted EBITDA, a Non-GAAP financial measure as defined in \u201cOur Use of Non-GAAP Financial Measures\u201d, increased by $1.1 million, or less than 1%, during the year ended June 30, 2023 compared to the year ended June 30, 2022 driven by an increase of $5.6 million in Corporate Adjusted EBITDA partially offset by decreases of $3.0 million and $1.5 million in Performance Services and Supply Chain Services Adjusted EBITDA, respectively.\n66\nSegment Results\nSupply Chain Services\nThe following table presents our results of operations and Adjusted EBITDA, a Non-GAAP financial measure, in the Supply Chain Services segment for the fiscal years presented (in thousands):\nYear Ended June 30,\n2023\n2022\nChange\nNet revenue:\nNet administrative fees\n$\n611,035\u00a0\n$\n601,128\u00a0\n$\n9,907\u00a0\n2\u00a0\n%\nSoftware licenses, other services and support\n44,261\u00a0\n37,312\u00a0\n6,949\u00a0\n19\u00a0\n%\nServices and software licenses\n655,296\u00a0\n638,440\u00a0\n16,856\u00a0\n3\u00a0\n%\nProducts\n244,659\u00a0\n393,506\u00a0\n(148,847)\n(38)\n%\nNet revenue\n899,955\n\u00a0\n1,031,946\n\u00a0\n(131,991)\n(13)\n%\nCost of revenue:\nServices and software licenses\n17,989\u00a0\n14,869\u00a0\n3,120\u00a0\n21\u00a0\n%\nProducts\n221,719\u00a0\n363,878\u00a0\n(142,159)\n(39)\n%\nCost of revenue\n239,708\n\u00a0\n378,747\n\u00a0\n(139,039)\n(37)\n%\nGross profit\n660,247\u00a0\n653,199\u00a0\n7,048\u00a0\n1\u00a0\n%\nOperating expenses:\nSelling, general and administrative\n208,113\u00a0\n212,436\u00a0\n(4,323)\n(2)\n%\nResearch and development\n390\u00a0\n397\u00a0\n(7)\n(2)\n%\nAmortization of intangibles\n31,900\u00a0\n32,428\u00a0\n(528)\n(2)\n%\nOperating expenses\n240,403\n\u00a0\n245,261\n\u00a0\n(4,858)\n(2)\n%\nOperating income\n419,844\n\u00a0\n407,938\n\u00a0\n11,906\n\u00a0\n3\n\u00a0\n%\nDepreciation and amortization\n22,525\u00a0\n22,996\u00a0\nAmortization of purchased intangible assets\n31,900\u00a0\n32,428\u00a0\nAcquisition- and disposition-related expenses\n6,849\u00a0\n1,915\u00a0\nEquity in net income of unconsolidated affiliates\n15,765\u00a0\n22,869\u00a0\nImpairment of assets\n2,296\u00a0\n12,695\u00a0\nOther reconciling items, net\n252\u00a0\n13\u00a0\nSegment Adjusted EBITDA\n$\n499,431\n\u00a0\n$\n500,854\n\u00a0\n$\n(1,423)\n\u2014\n\u00a0\n%\nNet Revenue\nSupply Chain Services segment revenue decreased by $132.0 million, or 13%, during the year ended June 30, 2023 compared to the year ended June 30, 2022 driven by a decrease of $148.8 million in products revenue, which was partially offset by increases of $9.9 million and $6.9 million in net administrative fees and software licenses, other services and support revenue, respectively.\nNet Administrative Fees Revenue\nNet administrative fees revenue increased $9.9 million, or 2%, during the year ended June 30, 2023 compared to the year ended June 30, 2022, driven by increased utilization of our contracts by existing members, the addition of new members to our contract portfolio and fees paid by certain departed members. These increases in net administrative fees revenue were partially offset by an increase in revenue share paid to members and the departure of members from accessing our supplier GPO contract portfolio.\nProducts Revenue\nProducts revenue decreased by $148.8 million, or 38%, during the year ended June 30, 2023 compared to the year ended June 30, 2022 primarily a result of lower demand and pricing for commodity products and other previously high-demand supplies due to members\u2019 and other customers\u2019 elevated inventory levels and continued utilization of excess inventory purchased during the COVID-19 pandemic.\n67\nSoftware Licenses, Other Services and Support Revenue\nSoftware licenses, other services and support revenue increased by $6.9 million, or 19%, during the year ended June 30, 2023 compared to the year ended June 30, 2022, primarily due to an increase in purchased services revenue driven by growth in service fees associated with our committed purchasing programs as well as licensing revenue generated during the year.\nCost of Revenue\nSupply Chain Services segment cost of revenue decreased by $139.0 million, or 37%, during the year ended June 30, 2023 compared to the year ended June 30, 2022, primarily attributable to the decrease in cost of products revenue of $142.2 million in relation to the decrease in products revenue due to the prior year increase in demand, fluctuations in product costs, lower logistics costs and lower inventory reserves in the current year. The decreases in costs of products revenue were partially offset by an increase of $3.1 million in cost of services and software licenses revenue primarily due to an increase in personnel costs and consulting services expenses associated with the aforementioned increase in purchased services revenue.\nOperating Expenses\nOperating expenses decreased by $4.9 million, or 2%, during the year ended June 30, 2023 compared to the year ended June 30, 2022. The decrease was primarily due to a decrease in SG&A expenses of $4.3 million as a result of the cost-savings plan enacted during the current year as well as a decrease in impairment of long-lived assets (see Note 7 - Supplemental Balance Sheet Information to the accompanying consolidated financial statements for further information) partially offset by an increase in acquisition- and disposition-related expenses related to the sale of our non-healthcare GPO member contracts.\nSegment Adjusted EBITDA\nSegment Adjusted EBITDA in the Supply Chain Services segment decreased by $1.4 million, during the year ended June 30, 2023 compared to the year ended June 30, 2022, due to lower demand and pricing of our products revenue as a result of members\u2019 and other customers\u2019 elevated inventory levels and a decrease in equity earnings from our investments in unconsolidated affiliates. These decreases were partially offset by the aforementioned increases in net administrative fees revenue and software licenses, other services and support revenue as well as lower logistics costs and inventory reserves in our direct sourcing business.\n68\nPerformance Services\nThe following table presents our results of operations and Adjusted EBITDA in the Performance Services segment for the fiscal years presented (in thousands):\nYear Ended June 30,\n2023\n2022\nChange\nNet revenue:\nSoftware licenses, other services and support\nSaaS-based products subscriptions\n$\n187,618\u00a0\n$\n193,586\u00a0\n$\n(5,968)\n(3)\n%\nConsulting services\n80,292\u00a0\n64,087\u00a0\n16,205\u00a0\n25\u00a0\n%\nSoftware licenses\n72,376\u00a0\n65,621\u00a0\n6,755\u00a0\n10\u00a0\n%\nOther\n95,891\u00a0\n77,689\u00a0\n18,202\u00a0\n23\u00a0\n%\nNet revenue\n436,177\n\u00a0\n400,983\n\u00a0\n35,194\n\u00a0\n9\n\u00a0\n%\nCost of revenue:\nServices and software licenses\n200,098\u00a0\n169,116\u00a0\n30,982\u00a0\n18\u00a0\n%\nCost of revenue\n200,098\n\u00a0\n169,116\n\u00a0\n30,982\n\u00a0\n18\n\u00a0\n%\nGross profit\n236,079\u00a0\n231,867\u00a0\n4,212\u00a0\n2\u00a0\n%\nOperating expenses:\nSelling, general and administrative\n228,001\u00a0\n170,677\u00a0\n57,324\u00a0\n34\u00a0\n%\nResearch and development\n4,150\u00a0\n3,754\u00a0\n396\u00a0\n11\u00a0\n%\nAmortization of intangibles\n16,202\u00a0\n11,508\u00a0\n4,694\u00a0\n41\u00a0\n%\nOperating expenses\n248,353\n\u00a0\n185,939\n\u00a0\n62,414\n\u00a0\n34\n\u00a0\n%\nOperating (loss) income\n(12,274)\n45,928\n\u00a0\n(58,202)\n(127)%\nDepreciation and amortization\n54,804\u00a0\n53,166\u00a0\nAmortization of purchased intangible assets\n16,202\u00a0\n11,508\u00a0\nAcquisition- and disposition-related expenses \n10,302\u00a0\n9,538\u00a0\nEquity in net income of unconsolidated affiliates\n303\u00a0\n636\u00a0\nImpairment of assets\n54,422\u00a0\n6,134\u00a0\nOther reconciling items, net\n100\u00a0\n28\u00a0\nSegment Adjusted EBITDA\n$\n123,859\n\u00a0\n$\n126,938\n\u00a0\n$\n(3,079)\n(2)\n%\nNet Revenue\nNet revenue in our Performance Services segment increased by $35.2 million, or 9%, during the year ended June 30, 2023 compared to the year ended June 30, 2022. The increase was primarily attributable to growth of $18.2 million in other net revenue driven by incremental revenue from the TRPN acquisition and growth in Contigo Health, growth of $16.2 million in consulting services under our PINC AI platform and growth of $6.8 million in software licenses driven by an increased number of enterprise analytics license agreements entered into during the current year. These increases in net revenue were partially offset by a decrease in SaaS-based products subscriptions revenue primarily due to the conversion of SaaS-based products to licensed-based products.\nCost of Revenue\nCost of services and software licenses revenue in our Performance Services segment increased by $31.0 million, or 18%, during the year ended June 30, 2023 compared to the year ended June 30, 2022, primarily due to increased consulting services as well higher personnel costs associated with increased headcount to support revenue growth in our PINC AI platform and Contigo Health business, including incremental expenses associated with the TRPN acquisition.\nOperating Expenses\nPerformance Services segment operating expenses increased by $62.4 million, or 34%, during the year ended June 30, 2023 compared to the year ended June 30, 2022. The increase was primarily due to goodwill impairment of $54.4 million related to Contigo Health (see Note 8 - Goodwill and Intangible Assets to the accompanying consolidated financial statements for further information), higher personnel costs associated with increased headcount and employee travel and meeting expenses as a result of the easing of pandemic-related travel restrictions during the current year. These increases were partially offset by the impact \n69\nof the cost-savings plan enacted during the current year. In addition, operating expense increased by $4.7 million as a result of higher amortization of purchased intangible assets primarily attributable to the TRPN acquisition (see Note 8 - Goodwill and Intangible Assets to the accompanying consolidated financial statements).\nSegment Adjusted EBITDA\nSegment Adjusted EBITDA in the Performance Services segment decreased by $3.1 million, or 2%, during the year ended June 30, 2023 compared to the year ended June 30, 2022, primarily due to the aforementioned increases in cost of revenue and operating expenses partially offset by the aforementioned increase in net revenue.\nCorporate\nThe following table summarizes corporate expenses and Adjusted EBITDA for the fiscal years presented (in thousands):\nYear Ended June 30,\n2023\n2022\nChange\nOperating expenses:\nSelling, general and administrative\n$\n165,477\u00a0\n$\n193,794\u00a0\n$\n(28,317)\n(15)\n%\nOperating expenses\n165,477\n\u00a0\n193,794\n\u00a0\n(28,317)\n(15)\n%\nOperating loss\n(165,477)\n(193,794)\n28,317\n\u00a0\n(15)\n%\nDepreciation and amortization\n8,362\u00a0\n9,009\u00a0\nStock-based compensation\n14,355\u00a0\n46,809\u00a0\nStrategic initiative and financial restructuring-related expenses\n13,831\u00a0\n18,005\u00a0\nDeferred compensation plan expense (income)\n5,422\u00a0\n(9,401)\nOther reconciling items, net\n\u2014\u00a0\n262\u00a0\nAdjusted EBITDA\n$\n(123,507)\n$\n(129,110)\n$\n5,603\n\u00a0\n(4)\n%\nOperating Expenses\nCorporate operating expenses decreased by $28.3 million, or 15%, during the year ended June 30, 2023 compared to the year ended June 30, 2022 primarily due to a decrease in stock-based compensation expense as a result of lower achievement of performance share awards, lower professional fees related to strategic initiative and financial restructuring-related activities and a decrease in performance-related compensation expense. In addition, there was a net decrease in operating expenses as a result of the cost-savings plan enacted during the current year. These decreases were partially offset by deferred compensation plan income in the current year compared to deferred compensation expense in the prior year due to market changes.\nAdjusted EBITDA\nAdjusted EBITDA increased by $5.6 million, or 4%, during the year ended June 30, 2023 compared to the year ended June 30, 2022 primarily due to a decrease in performance-related compensation and a net decrease in expenses as a result of the cost-savings plan enacted during the current year.\nResults of Operations for the Years Ended June 30, 2022 and 2021\nA discussion of changes in our results of operations from fiscal year 2021 to fiscal year 2022 has been omitted from this Annual Report but may be found in \u201cItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC on August 16, 2022, which is available free of charge on the SEC\u2019s website at www.sec.gov and our website at http://investors.premierinc.com.\nOff-Balance Sheet Arrangements\nAs of June\u00a030, 2023, we did not have any off-balance sheet arrangements.\nLiquidity and Capital Resources\nOur principal source of cash has been primarily cash provided by operating activities. From time to time we have used, and expect to use in the future, borrowings under our Credit Facility (as defined in Note 9 - Debt and Notes Payable to the accompanying consolidated financial statements for more information) as a source of liquidity to fund acquisitions and related business investments as well as general corporate activities. Our primary cash requirements include operating expenses, working capital fluctuations, revenue share obligations, tax payments, capital expenditures, dividend payments on our Class A \n70\ncommon stock, if and when declared, repurchases of Class A common stock pursuant to stock repurchase programs in place from time to time, acquisitions and related business investments, and general corporate activities. Our capital expenditures typically consist of internally-developed software costs, software purchases and computer hardware purchases.\nAs of June\u00a030, 2023 and 2022, we had cash and cash equivalents of $89.8 million and $86.1 million, respectively. \nCredit Facility\nAs of June\u00a030, 2023 and 2022, there was $215.0 million and $150.0 million, respectively, of outstanding borrowings under our Credit Facility. During the year ended June 30, 2023, we borrowed $285.0 million and repaid $135.0 million of borrowings under the Prior Loan Agreement (as defined in Note 9 - Debt and Notes Payable to the accompanying consolidated financial statements) which were used to partially fund the TRPN acquisition (see Note 3 - Business Acquisitions to the accompanying consolidated financial statements for more information). During the year ended June 30, 2023, we borrowed $185.0 million and repaid $270.0 million under the Credit Facility which was used for general corporate purposes. All outstanding borrowings under the Credit Facility as of June 30, 2023 were repaid in July and August 2023.\nWe expect cash generated from operations and borrowings under our Credit Facility to provide us with adequate liquidity to fund our anticipated working capital requirements, revenue share obligations, tax payments, capital expenditures, notes payable, including notes payable to former LPs, dividend payments on our Class A common stock, if and when declared, repurchases of Class A common stock pursuant to stock repurchase programs in place from time to time and to fund business acquisitions. Our capital requirements depend on numerous factors, including funding requirements for our product and service development and commercialization efforts, our information technology requirements and the amount of cash generated by our operations. We believe that we have adequate capital resources at our disposal to fund currently anticipated capital expenditures, business growth and expansion, and current and projected debt service requirements. However, strategic growth initiatives will likely require the use of one or a combination of various forms of capital resources including available cash on hand, cash generated from operations, borrowings under our Credit Facility and other long-term debt and, potentially, proceeds from the issuance of additional equity or debt securities.\nCash Dividends\nOn August\u00a010, 2023, our Board of Directors declared a cash dividend of $0.21 per share, payable on September\u00a015, 2023 to stockholders of record on September\u00a01, 2023.\nSale of Non-Healthcare GPO Member Contracts\nOn June 14, 2023, we announced that we entered into an equity purchase agreement with OMNIA to sell the contracts pursuant to which substantially all of our non-healthcare GPO members participate in our GPO program for an estimated purchase price of approximately $800.0 million subject to certain adjustments, including a true-up adjustment to the purchase price to be paid within approximately eight months following such closing date. On July 25, 2023, the transaction closed and Premier subsequently received $689.2\u00a0million in cash consideration which includes $151.0\u00a0million in escrow. See Note 20 - Subsequent Events to the accompanying consolidated financial statements for further information.\nDiscussion of Cash Flows for the Years Ended June 30, 2023 and 2022\nA summary of net cash flows follows (in thousands):\nYear Ended June 30,\n2023\n2022\nNet cash provided by (used in):\nOperating activities\n$\n444,543\u00a0\n$\n444,234\u00a0\nInvesting activities\n(273,622)\n(139,440)\nFinancing activities\n(167,266)\n(347,789)\nEffect of exchange rate changes on cash flows\n(5)\n(3)\nNet increase (decrease) in cash and cash equivalents\n$\n3,650\n\u00a0\n$\n(42,998)\nNet cash provided by operating activities was flat for the year ended June 30, 2023 compared to the year ended June 30, 2022.\nNet cash used in investing activities increased by $134.2 million for the year ended June 30, 2023 compared to the year ended June 30, 2022. The increase in cash used in investing activities was primarily due to the TRPN acquisition in the current year offset by the cash outlay in the prior year for investments in Exela and Qventus, Inc. The increase was partially offset by a net decrease in purchases of property and equipment and other investing activities.\n71\nNet cash used in financing activities decreased by $180.5 million for the year ended June 30, 2023 compared to the year ended June 30, 2022. The decrease in net cash used in financing activities was primarily driven by the prior year cash outflow of $250.1 million for the repurchase of Class A common stock under the fiscal 2022 stock repurchase program. The prior year cash outflow was partially offset by lower cash inflows in the current year due to a decrease of $31.7 million in proceeds from the issuance of Class A common stock in connection with the exercise of outstanding stock options, a decrease of $23.2 million in other financing activities primarily driven by proceeds from member health systems that acquired membership interests in ExPre in the prior year and a decrease of $10.0 million in net borrowings under our Credit Facility as well as higher cash outflow of $3.8 million in cash dividends paid.\nDiscussion of Non-GAAP Free Cash Flow for the Years Ended June 30, 2023 and 2022\nWe define Non-GAAP Free Cash Flow as net cash provided by operating activities from continuing operations less (i) early termination payments to certain former limited partners that elected to execute a Unit Exchange Agreement in connection with our August 2020 Restructuring and (ii) purchases of property and equipment. Non-GAAP Free Cash Flow does not represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayments under our Credit Facility. A summary of Non-GAAP Free Cash Flow and reconciliation to net cash provided by operating activities for the periods presented follows (in thousands):\nYear Ended June 30,\n2023\n2022\nNet cash provided by operating activities \n$\n444,543\u00a0\n$\n444,234\u00a0\nPurchases of property and equipment\n(82,302)\n(87,440)\nEarly termination payments to certain former limited partners that elected to execute a Unit Exchange Agreement \n(a)\n(97,806)\n(95,948)\nNon-GAAP Free Cash Flow\n$\n264,435\n\u00a0\n$\n260,846\n\u00a0\n_________________________________\n(a)\u00a0\u00a0\u00a0\u00a0Early termination payments to certain former limited partners that elected to execute a Unit Exchange Agreement in connection with our August 2020 Restructuring are presented in our Consolidated Statements of Cash Flows under \u201cPayments made on notes payable\u201d. During the year ended June 30, 2023, we paid $102.7 million to members including imputed interest of $4.9 million which is included in net cash provided by operating activities. During the year ended June 30, 2022, we paid $102.7 million to members including imputed interest of $6.7 million which is included in net cash provided by operating activities. See Note 9 - Debt and Notes Payable to the accompanying consolidated financial statements for further information.\nNon-GAAP Free Cash Flow increased by $3.6 million for the year ended June 30, 2023 compared to the year ended June 30, 2022 primarily due to the decrease in purchases of property and equipment.\nSee \u201cOur Use of Non-GAAP Financial Measures\u201d above for additional information regarding our use of Non-GAAP Free Cash Flow.\nContractual Obligations\nThe following table presents our contractual obligations as of June\u00a030, 2023 (in thousands):\nPayments Due by Period\nContractual Obligations\nTotal\nLess Than 1 Year\n1-3 Years\n3-5 Years\nGreater Than 5 Years\nNotes payable to former limited partners \n(a)\n$\n205,370\u00a0\n$\n102,685\u00a0\n$\n102,685\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\nOther notes payable \n(b)\n2,280\u00a0\n1,546\u00a0\n734\u00a0\n\u2014\u00a0\n\u2014\u00a0\nOperating lease obligations\n (c)\n35,099\u00a0\n12,381\u00a0\n21,394\u00a0\n1,324\u00a0\n\u2014\u00a0\nDeferred consideration \n(d)\n60,000\u00a0\n30,000\u00a0\n30,000\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTotal contractual obligations\n$\n302,749\n\u00a0\n$\n146,612\n\u00a0\n$\n154,813\n\u00a0\n$\n1,324\n\u00a0\n$\n\u2014\n\u00a0\n_________________________________\n(a)\nNotes payable to former limited partners represent the amount of the expected payment to be made to each former limited partner pursuant to the early termination provisions of the TRA (each such amount an \u201cEarly Termination Payment\u201d). See Note 9 - Debt and Notes Payable to the accompanying consolidated financial statements for more information.\n(b)\nOther notes payable are non-interest bearing and generally have stated maturities of three to five years from the date of issuance. See Note 9 - Debt and Notes Payable to the accompanying consolidated financial statements for more information.\n(c)\nFuture contractual obligations for leases represent future minimum payments under noncancelable operating leases primarily for office space. See Note 17 - Commitments and Contingencies to the accompanying consolidated financial statements for more information.\n(d)\nDeferred consideration to be paid pursuant to the purchase agreement for the acquisition of substantially all of the assets and certain liabilities of Acurity, Inc. and Nexera, Inc. in fiscal year 2020.\n72\nCredit Facility\nOutstanding borrowings under the Credit Facility (as defined in Note 9 - Debt and Notes Payable to the accompanying consolidated financial statements for more information) bear interest on a variable rate structure with borrowings bearing interest at either the secured overnight financing rate (\u201cSOFR\u201d) plus an adjustment of 0.100% plus an applicable margin ranging from 1.250% to 1.750% or the prime lending rate plus an applicable margin ranging from 0.250% to 0.750%. We pay a commitment fee ranging from 0.125% to 0.225% for unused capacity under the Credit Facility. At June\u00a030, 2023, the interest rate on outstanding borrowings under the Credit Facility was 6.470% and the commitment fee was 0.125%.\nThe Credit Facility contains customary representations and warranties as well as customary affirmative and negative covenants. We were in compliance with all such covenants at June\u00a030, 2023. The Credit Facility also contains customary events of default, including a cross-default of any indebtedness or guarantees in excess of $75.0 million. If any event of default occurs and is continuing, the administrative agent under the Credit Facility may, with the consent, or shall, at the request of a majority of the lenders under the Credit Facility, terminate the commitments and declare all of the amounts owed under the Credit Facility to be immediately due and payable.\nProceeds from borrowings under the Credit Facility may generally be used to finance ongoing working capital requirements, including permitted acquisitions, repurchases of Class A common stock pursuant to stock repurchase programs, in place from time to time, dividend payments, if and when declared, and other general corporate activities. At June\u00a030, 2023, we had outstanding borrowings of\u00a0$215.0 million\u00a0under the Credit Facility with\u00a0$785.0 million of available borrowing capacity after reductions for outstanding borrowings and outstanding letters of credit. All outstanding borrowings under the Credit Facility as of June 30, 2023 were repaid in July and August 2023.\nThe above summary does not purport to be complete, and is subject to, and qualified in its entirety by reference to, the complete text of the Credit Facility, as amended and restated, which is filed as Exhibit 10.1 in our quarterly report for the period ended December 31, 2022. See also Note 9 - Debt and Notes Payable to the accompanying consolidated financial statements.\nCash Dividends\nIn each of September\u00a015, 2022, December\u00a015, 2022, March\u00a015, 2023 and June\u00a015, 2023, we paid a cash dividend of $0.21 per share on outstanding shares of Class A common stock. On August\u00a010, 2023, our Board of Directors declared a cash dividend of $0.21 per share, payable on September\u00a015, 2023 to stockholders of record on September\u00a01, 2023.\nWe currently expect quarterly dividends to continue to be paid on or about December 15, March 15, June 15 and September 15, respectively. However, the actual declaration of any future cash dividends, and the setting of record and payment dates as well as the per share amounts, will be at the discretion of our Board of Directors each quarter after consideration of various factors, including our results of operations, financial condition and capital requirements, earnings, general business conditions, restrictions imposed by our current Credit Facility and any future financing arrangements, legal restrictions on the payment of dividends and other factors our Board of Directors deems relevant.\nFiscal 2023 Developments\nImpact of Inflation\nThe U.S. economy is experiencing the highest rates of inflation since the 1980s. We have continued to limit the impact of inflation on our members and believe that we maintain significantly lower inflation impacts across our diverse product portfolio than national levels. However, in certain areas of our business, there is still some level of risk and uncertainty for our members and other customers as labor costs, raw material costs and availability, rising interest rates and inflation continue to pressure supplier pricing as well as apply significant pressure on our margin.\nWe continue to evaluate the contributing factors, specifically logistics, raw materials and labor, that have led to adjustments to selling prices. We have begun to see logistics costs normalize to pre-pandemic levels as well as some reductions in the costs of specific raw materials; however, the cost of labor remains high. We are continuously working to manage these price increases as market conditions change. The impact of inflation to our aggregated product portfolio is partially mitigated by contract term price protection for a large portion of our portfolio, as well as negotiated price reductions in certain product categories such as pharmaceuticals. See \u201cRisk Factors \u2014 Risks Related to Our Business Operations\u201d below.\nFurthermore, as the Federal Reserve seeks to curb rising inflation, market interest rates have steadily risen, and may continue to rise, increasing the cost of borrowing under our Credit Facility (as defined in Note 9 - Debt and Notes Payable to the accompanying consolidated financial statements) as well as impacting our results of operations, financial condition and cash flows.\n73\nGeopolitical Tensions\nGeopolitical tensions, such as the ongoing military conflict between Russia and Ukraine and tensions between the U.S. and China, continue to affect the global economy and financial markets, as well as exacerbate ongoing economic challenges, including issues such as rising inflation, energy costs and global supply-chain disruption. \nWe continue to monitor the impacts of the geopolitical tensions on macroeconomic conditions and prepare for any implications they may have on member demand, our suppliers\u2019 ability to deliver products, cybersecurity risks and our liquidity and access to capital. See \u201cRisk Factors \u2014 Risks Related to Our Business Operations\u201d.\nCOVID-19 Pandemic or Other Pandemics, Epidemics or Public Health Emergencies\nThe outbreak of the novel coronavirus (\u201cCOVID-19\u201d) and the resulting global pandemic impacted our sales, operations and supply chains, our members and other customers and workforce and suppliers. While both the U.S. and the World Health Organization declared an end to the COVID-19 pandemic as a public health emergency in May 2023, the risks associated with a resurgence of COVID-19 or another pandemic remains and the resulting impact on our business, results of operations, financial conditions and cash flows as well as the U.S. and global economies is uncertain and cannot be predicted at this time. \nRefer to \u201cItem 1A. Risk Factors\u201d for significant risks we have faced and may continue to face as a result of the COVID-19 pandemic or other pandemics, epidemics or public health emergencies. ",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk\nInterest Rate Risk\nOur exposure to market risk related primarily to the increase or decrease in the amount of any interest expense we must pay with respect to outstanding debt instruments. At June\u00a030, 2023, we had $215.0 million outstanding borrowings under our Credit Facility. At June\u00a030, 2023, a one-percent increase or decrease in the interest rate charged on outstanding borrowings under the Credit Facility would increase or decrease interest expense over the next twelve months by $2.2 million.\nWe invest our excess cash in a portfolio of individual cash equivalents. We do not hold any material derivative financial instruments. We do not expect changes in interest rates to have a material impact on our results of operations or financial position. We plan to mitigate default, market and investment risks of our invested funds by investing in low-risk securities.\nForeign Currency Risk\nSubstantially all of our financial transactions are conducted in U.S. dollars. We do not have significant foreign operations and, accordingly, do not believe we have market risk associated with foreign currencies.\n74",
+  "cik": "1577916",
+  "cusip6": "74051N",
+  "cusip": ["74051n102", "74051N102"],
+  "names": ["Premier Inc.", "PREMIER INC CLASS A"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1577916/000157791623000014/0001577916-23-000014-index.htm"
+}
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+{
+  "item1": ">Item 1. Business\nUnless otherwise expressly indicated or the context otherwise requires, in this Annual Report on Form 10-K: \n\u2022\nwe use the terms \u201cMalibu Boats,\u201d the \u201cCompany,\u201d \u201cwe,\u201d \u201cus,\u201d \u201cour\u201d or similar references to refer (1) prior to the consummation of our initial public offering, or \"IPO\" on February 5, 2014, to Malibu Boats Holdings, LLC, or the LLC, and its consolidated subsidiaries and (2) after our IPO, to Malibu Boats, Inc. and its consolidated subsidiaries; \n\u2022\nwe refer to the owners of membership interests in the LLC immediately prior to the consummation of the IPO, collectively, as our \u201cpre-IPO owners\u201d; \n\u2022\nwe refer to owners of membership interests in the LLC (the \"LLC Units\"), collectively, as our \u201cLLC members\u201d; \n\u2022\nreferences to \u201cfiscal year\u201d refer to the fiscal year of Malibu Boats, which ends on June 30 of each year; \n\u2022\nwe refer to our Malibu branded boats as \"Malibu\", our Axis Wake Research branded boats as \"Axis\", our Pursuit branded boats as \"Pursuit\", our Maverick, Cobia, Pathfinder and Hewes branded boats as \"Maverick Boat Group\", and our Cobalt branded boats as \"Cobalt\";\n\u2022\nwe use the term \u201crecreational powerboat industry\u201d to refer to our industry group, which includes performance sport boats, sterndrive and outboard boats;\n\u2022\nwe use the term \u201cperformance sport boat category\u201d to refer to the industry category, consisting primarily of fiberglass boats equipped with inboard propulsion and ranging from 19 feet to 26 feet in length, which we believe most closely corresponds to (1) the inboard ski/wakeboard category, as defined and tracked by the National Marine Manufacturers Association, or NMMA, and (2) the inboard ski boat category, as defined and tracked by Statistical Surveys, Inc., or SSI; \n\u2022\nwe use the terms \u201csterndrive\u201d and \u201coutboard\u201d to refer to the industry category, consisting primarily of sterndrive and outboard boats ranging from 20 feet to 40 feet, which most closely corresponds to the sterndrive and outboard categories, as defined and tracked by NMMA, and the sterndrive and outboard propulsion categories, as defined and tracked by SSI; in some instances, we provide market information based on specific boat lengths or boat types within the sterndrive or outboard categories to reflect our performance in those specific markets in which we offer products; and\n\u2022\nreferences to certain market and industry data presented in this Form 10-K are determined as follows: (1) U.S. boat sales and unit volume for the overall powerboat industry and any powerboat category during any calendar year are based on retail boat market data from the NMMA; (2) U.S. market share and unit volume for the overall powerboat industry and any powerboat category during any fiscal year ended June 30 or any calendar year ended December 31 are based on comparable same-state retail boat registration data from SSI, as reported by the 50 states for which data was available as of the date of this Form 10-K; and (3) market share among U.S. manufacturers of exports to international markets of boats in any powerboat category for any period is based on data from the Port Import Export Reporting Service, available through March 31, 2023, and excludes such data for Australia and New Zealand. \nThis Annual Report on Form 10-K includes our trademarks, such as \u201c Monsoon,\u201d \u201cSurf Gate,\u201d \u201cWakesetter,\u201d \u201cSurf Band,\u201d and \u201cSwim Step,\u201d which are protected under applicable intellectual property laws and are the property of Malibu Boats, Inc. This Form 10-K also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this Form 10-K may appear without the \n\u00ae\n or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names. \nOur Company\nWe are a leading designer, manufacturer and marketer of a diverse range of recreational powerboats, including performance sport boats, sterndrive and outboard boats under eight brands\u2014Malibu, Axis, Pursuit, Maverick, Cobia, Pathfinder, Hewes and Cobalt. We have the #1 market share position in the United States in the performance sport boat category through our Malibu and Axis brands and the #1 market share position in the United States in the 24\u2019\u201429\u2019 segment of the sterndrive category through our Cobalt brand, and we are among the leading market share positions in the fiberglass outboard fishing boat market with our Pursuit and Maverick Boat Group brands. Our product portfolio of premium brands are used for a broad range of recreational boating activities including, among others, water sports such as water skiing, \n1\nTable of Contents\nwakeboarding and wake surfing, as well as general recreational boating and fishing. Our passion for consistent innovation, which has led to propriety technology such as Surf Gate, has allowed us to expand the market for our products by introducing consumers to new and exciting recreational activities. We design products that appeal to an expanding range of recreational boaters and water sports enthusiasts whose passion for boating and water sports is a key aspect of their lifestyle and provide consumers with a better customer-inspired experience. With performance, quality, value and multi-purpose features, our product portfolio has us well positioned to broaden our addressable market and achieve our goal of increasing our market share in the expanding recreational boating industry.\nOur flagship Malibu boats are designed for consumers seeking a premium performance sport boat experience and offer our latest innovations in performance, comfort and convenience. Our Axis boats appeal to consumers who desire a more affordable performance sport boat product but still demand high performance, functional simplicity and the option to upgrade key features. Our Pursuit boats expand our product offerings into the saltwater outboard fishing market and include center console, dual console and offshore models.\n Our Maverick Boat Group family of boats, including Maverick, Cobia, Pathfinder and Hewes, are highly complementary to Pursuit and its saltwater outboard offerings with a focus in length segments under 30 feet. \nOur Cobalt boats consist of mid to\u00a0large-sized\u00a0luxury cruisers and bowriders that we believe offer the ultimate experience in comfort, performance and quality.\nOur boats are constructed of fiberglass, available in a range of sizes, hull designs and propulsion systems (i.e., inboard, sterndrive and outboard). We employ experienced product development and engineering teams that enable us to offer a range of models across each of our brands while consistently introducing innovative features in our product offerings. Our engineering teams closely collaborate with our manufacturing personnel in order to improve product quality and process efficiencies. The results of this collaboration are reflected in our receipt of numerous industry awards.\nWe sell our boats through a dealer network that we believe is the strongest in the recreational powerboat industry. As of June 30, 2023, our distribution channel consisted of over 400 dealer locations globally. Our dealer base is an important part of our consumers\u2019 experience, our marketing efforts and our brands. We devote significant time and resources to find, develop and improve the performance of our dealers and believe our dealer network gives us a distinct competitive advantage. \nMarket and Competitive Position\nThe recreational powerboat industry, including the performance sport boat, sterndrive and outboard categories, is highly competitive for consumers and dealers. Competition affects our ability to succeed in the markets we currently serve and new markets that we may enter in the future. We compete with several large manufacturers that may have greater financial, marketing and other resources than we do. We compete with large manufacturers who are represented by dealers in the markets in which we now operate and into which we plan to expand. We also compete with a wide variety of small, independent manufacturers. Competition in our industry is based primarily on brand name, price and product performance.\nDuring calendar year 2022, retail sales of new recreational powerboats in the United States totaled $16.0 billion. Of the recreational powerboat categories defined and tracked by the NMMA, we serve three of the top four categories consisting of outboard, sterndrive and performance sport boat representing an addressable market of nearly $13.2 billion in retail sales through our Malibu, Axis,  Pursuit, Maverick Boat Group brands and Cobalt brands. The following table illustrates the size of our addressable market in units and retail sales for calendar year 2022:\nRecreational Powerboat Category\nUnit Sales\nRetail Sales\n(Dollars in millions)\nOutboard\n160,850\u00a0\n$\n10,419\u00a0\nPerformance sport boat\n12,200\u00a0\n$\n1,893\u00a0\nSterndrive\n6,900\u00a0\n$\n887\u00a0\nJet boat\n8,000\u00a0\n$\n495\u00a0\nCruisers\n1,600\u00a0\n$\n2,283\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0Total addressable market\n189,550\u00a0\n$\n15,977\u00a0\nWe maintain a leading market share position in a number of recreational boating categories with our various brands.  According to SSI, in 2022 we held the number one market share position in the United States for performance sport boats with our Malibu and Axis brands, the number one market share position in the United States for the 24\u2019\u201429\u2019 segment of the sterndrive boat category through our Cobalt brand, and we are among the leading market share positions in the outboard fiberglass fishing market that our Pursuit and Maverick Boat Group brands serve, in each case based on unit volume. We have grown our U.S. market share in the performance sports boat category from 24.5% in 2010 to 28.8% in 2022 and we have \n2\nTable of Contents\nexpanded our market share in the 24\u2019-29\u2019 segment of the sterndrive boat category from 14.2% in 2010 to 35.9% in 2022. Our Pursuit brand has gained share within its market since our acquisition of Pursuit and we are positioned to gain a broader share of the overall outboard fiberglass fishing market with our Maverick Boat Group brands. \nOur Products and Brands\nWe design, manufacture and sell recreational powerboats, including performance sport boats, sterndrive and outboard boats across eight brands: Malibu, Axis, Pursuit, Maverick, Cobia, Pathfinder, Hewes, and Cobalt. We believe that we deliver superior performance for general recreational purposes with a significant focus on water sports, including wakeboarding, water skiing and wake surfing as well as general recreational boating and fishing. In addition, we also offer various accessories and aftermarket parts. The following table provides an overview of our product offerings by brand as of June\u00a030, 2023: \nReportable Segment\nBrand\nNumber\u00a0of\nModels\nLengths\nRetail\u00a0Price\nRange\n(In\u00a0thousands)\nDescription\nMalibu\nMalibu\n11\n20'-26'\n$80-$300\nMalibu targets consumers seeking a premium boating experience with our latest innovations in performance, comfort and convenience. Across our three product lines, we offer a variety of products to customers from our Response Series tailored for high-performance water ski to highly customizable options in our Wakesetter series to our ultra premium models in the M Series.\nAxis\n6\n20\u2019-25\u2019\n$80-$175\nAxis was formed to target a younger demographic by providing a more affordably priced, high quality, entry-level boat with high performance, functional simplicity and the option to upgrade key features such as Surf Gate. \nSaltwater Fishing\nPursuit\n18\n24'-46'\n$130-$1,400\nPursuit is a premium brand of saltwater outboard fishing boats available in three product lines including our sports center consoles, dual consoles and our offshore series to provide customers with options for ideal fishing as well as casual cruising and luxury entertainment. \nCobia\n11\n21'-34'\n$60-$500\nCobia models consist of center console and dual console vessels that are designed to promote ease of boating and fishing for all levels of anglers and boaters.\nPathfinder\n8\n22'-27'\n$60-$250\nPathfinder provides the most versatile inshore fishing boat. The product of bay boats provides for dedicated anglers to fish and do so with comfort, safety and proven technology.\nMaverick and Hewes\n6\n16'-21'\n$45-$125\nMaverick and Hewes have been designed to tailor to shallow inshore flats anglers. These boats, with vacuum infused (VARIS) construction and enhanced performance, provide a legacy of dependability, unmatched ride, and exceptional craftsmanship.\nCobalt\nCobalt\n18\n22\u2019-36\u2019\n$75-$625\nCobalt is a premium luxury sterndrive and outboard boat manufacturer available in five product lines. Our products tailor sterndrive from entry level to premium with options to expand some models with the patented Surf Gate, as well as our outboard series for increased saltwater use.\nInnovative \nFeatures\n \nIn addition to the standard features included on all of our boats, we offer consumers a full selection of innovative optional features designed to enhance performance, functionality and the overall boating experience. We believe our innovative features drive our high average selling prices. Among our most successful and most innovative has been Surf Gate. Introduced in July 2012 and initially patented in September 2013, Surf Gate is available as an optional feature on all Malibu, Axis and certain Cobalt models. Surf Gate has revolutionized the increasingly popular sport of wake surfing. Prior to Surf Gate, boaters needed to empty ballast tanks on one side of the boat and shift passengers around to lean the boat to create a larger, more pronounced surf-quality wake. By employing precisely engineered and electronically controlled panels, Surf Gate alleviates this time-consuming and cumbersome process, allowing boaters to easily surf behind an evenly weighted boat without the need to wait for ballast changes. We have also developed our patented Surf Band technology that allows the rider to remotely control the surf wave, shape, size and side.\n Some of our other notable innovations include Power Wedge III, G5 and the power actuated G10+ Tower, Electronic Dashboard Controls, Flip Down Swim Step, Tower Mister, Splash and Stow and Cobalt's TruWave Technology. Pursuit also has introduced the industry first Electric Sliding Entertainment Center and sliding second row center console seating. Maverick Boat Group has introduced first of its kind \"Hybrid\" and \"Open\" Bay Boat designs in recent years. \n3\nTable of Contents\nWe won the Boating Industry Magazine's \"Top Product\" award for the Pursuit S 358 Sport in 2022. Malibu Trailers took the coveted NMMA Innovation Award at the Miami International Boat Show in 2022. The Malibu Wakesetter 23 LSV has won Wakeworld \u201cReaders Choice\u201d Wakeboard and Wakesurf Boat of the Year three years running in 2022, 2021 and 2020.\nWe also offer an array of less technological, but nonetheless value-added boat features such as gelcoat upgrades, upholstery upgrades, engine drivetrain enhancements (such as silent exhaust tips, propeller upgrades and closed cooling engine configuration), sound system upgrades, bimini tops, boat covers and trailers which further increase the level of customization afforded to consumers. \nOur Dealer Network \nWe rely on independent dealers to sell our products. We establish performance criteria that our dealers must meet as part of their dealer agreements to ensure our dealer network remains the strongest in the industry. As a member of our network, dealers may qualify for floor plan financing programs, rebates, seasonal discounts and other allowances. We believe our dealer network is the most extensive in the market.  \nNorth America \nAs of June 30, 2023, our dealer network consisted of over 300 dealer locations servicing the performance sport boat, sterndrive, and outboard markets strategically located throughout the U.S. and Canada. Approximately 50% of our dealer locations have been with us, or with Pursuit, Maverick Boat Group or Cobalt, prior to our acquisition of them, for over ten years. Our top ten dealers represented 41.1%, 39.9% and 38.7%, of our net sales for fiscal year 2023, 2022 and 2021, respectively. The top ten dealers for each of the Malibu, Saltwater Fishing and Cobalt segments represented approximately 53.3%, 56.8% and 53.1%, respectively, of net sales in fiscal year 2023. The top ten dealers for each segment are not the same across all segments. Sales to our dealers under common control of OneWater Marine, Inc. represented approximately 17.2%\n, 16.8% and 16.3%\n of consolidated net sales in fiscal years 2023, 2022 and 2021, respectively, including approximately 6.5%, 29.5% and 20.7% of consolidated sales in fiscal year 2023 for Malibu, Saltwater Fishing and Cobalt, respectively. \nSales to our dealers under common control of Tommy's Boats represented approximately 10.7%, 9.4% and 7.3% of our consolidated net sales in the fiscal years ended June 30, \n2023\n, \n2022\n and \n2021\n respectively, \nincluding approximately 23.3%, 0.0% and 0.9% of consolidated sales in fiscal year 2023 for Malibu, Saltwater Fishing and Cobalt, respectively.\nWe consistently review our distribution network to identify opportunities to expand our geographic footprint and improve our coverage of the market. We believe that our diverse product offering and strong market position in each region of the United States helped us capitalize on growth opportunities as our industry recovered from the economic downturn. We have the ability to opportunistically add new dealers and new dealer locations to previously underserved markets and use data and performance metrics to monitor dealer performance. We believe our outstanding dealer network allows us to distribute our products more efficiently than our competitors.\nInternational\nWe have an extensive international distribution network for our Malibu, Axis, Pursuit, Maverick Boat Group and Cobalt brands. As of June\u00a030, 2023, our dealer network consisted of over 100 dealer locations throughout Europe, Asia, Middle East, South America, South Africa, and Australia/New Zealand. \nDealer Management \nOur relationships with our dealers are governed by dealer agreements. Each dealer agreement has a finite term lasting between one and three years. Our dealer agreements also are typically terminable without cause by the dealer with 60 days\u2019 prior notice and by us for a dealer failing to meet performance criteria. We may also generally terminate these agreements immediately for cause upon certain events. Pursuant to our dealer agreements, the dealers typically agree to, among other things: \n\u2022\nrepresent our products at specified boat shows; \n\u2022\nmarket our products only to retail end users in a specific geographic territory; \n\u2022\npromote and demonstrate our products to consumers; \n\u2022\nplace a specified minimum number of orders of our products during the term of the agreement in exchange for rebate or discount eligibility that varies according to the level of volume they commit to purchase; \n\u2022\nprovide us with regular updates regarding the number and type of our products in their inventory; \n4\nTable of Contents\n\u2022\nmaintain a service department to service our products, and perform all appropriate warranty service and repairs; and \n\u2022\nindemnify us for certain claims. \nOur dealer network, including all additions, renewals, non-renewals or terminations, is managed by our sales personnel. Our sales teams operate using a semi-annual dealer review process involving our senior management team. Each individual dealer is reviewed semi-annually with a broad assessment across multiple key elements, including the dealer\u2019s geographic region, market share and customer service ratings, to identify underperforming dealers for remediation and to manage the transition process when non-renewal or termination is a necessary step. \nWe have developed a system of financial incentives for our dealers based on customer satisfaction and achievement of best practices. Our brands employ dealer incentive programs that have been refined through decades of experience at each brand and may, from time to time, include the following elements:\n\u2022\nRebates\n. Our domestic dealers agree to volume commitments that are used to determine applicable rebates. The structure of the dealer incentive depends on the brand represented. If a dealer meets its volume commitments as well as other terms of the dealer performance program, the dealer is entitled to the specified amounts subject to full compliance with our programs. Failure to meet the commitment volume or other terms of the program may result in partial or complete forfeiture of the dealer\u2019s rebate.  \n\u2022\nFree flooring\n. Our dealers that take delivery of current model year boats in the offseason, typically July through April, are entitled to have us pay the interest to floor the boat until the earlier of (1)\u00a0the retail sale of the unit or (2)\u00a0a date near the end of the current model year. This program is an additional incentive to encourage dealers to order in the offseason and helps us balance our seasonal production. \nOur dealer incentive programs are structured to promote more evenly distributed ordering throughout the fiscal year, which allows us to achieve better level-loading of our production and thereby generate plant operating efficiencies. In addition, these programs may offer further rewards for dealers who are exclusive to our brands. \nFloor Plan Financing\nOur North American dealers often purchase boats through floor plan financing programs with third-party floor plan financing providers. During fiscal year 2023, approximatel\ny \n75% of our North American shipments were made pursuant to floor plan financing programs which our dealers participate in. These programs allow dealers across our brands to establish lines of credit with third-party lenders to purchase inventory. Under these programs, a dealer draws on the floor plan facility upon the purchase of our boats and the lender pays the invoice price of the boats. As is typical in our industry, we have entered into repurchase agreements with certain floor plan financing providers to our dealers. Under the terms of these arrangements, in the event a lender repossesses a boat from a dealer that has defaulted on its floor financing arrangement and is able to deliver the repossessed boat to us, we are obligated to repurchase the boat from the lender. Our obligation to repurchase such repossessed products for the unpaid balance of our original invoice price for the boat is subject to reduction or limitation based on the age and condition of the boat at the time of repurchase, and in certain cases by an aggregate cap on repurchase obligations associated with a particular floor financing program.\nOur exposure under repurchase agreements with third-party lenders is mitigated by our ability to reposition inventory with a ne\nw dealer in the event that a repurchase event occurs. The primary cost to us of a repurchase event is any margin loss on the resale of a repurchased unit. Historically, we have been able to resell repurchased boats at an amount that exceeds our cost. In addition, the historical margin loss on the resale of repurchased units has often been below 10% of the repurchased amount. For fiscal years 2023, 2022 and 2021, we did not repurchase any boats under our repurchase agreements.\nMarketing and Sales\nWe believe that providing a high level of service to our dealers and end consumers is essential to maintaining our reputation. Our sales personnel receive training on the latest Malibu, Axis, Pursuit, Maverick Boat Group and Cobalt products and technologies, as well as training on our competitors\u2019 products and technologies, and attend trade shows to increase their market knowledge. This training is then passed along to our dealers to ensure a consistent marketing message and leverage our marketing expenditures. Malibu, Axis, Pursuit, Maverick Boat Group and Cobalt enjoy strong brand awareness, as evidenced by our substantial market share in their respective categories. \nOur marketing strategy focuses on building brand awareness and loyalty in the inboard towboat market with Malibu and Axis brands and the outboard and sterndrive markets with Pursuit, Maverick Boat Group and Cobalt brands. Activating the marketing strategy involves creating custom content to be utilized in outbound marketing campaigns and social media to engage \n5\nTable of Contents\nowners and prospects. In addition to retail websites developed for each of those brands and their unique consumers, the brands also manage all other aspects of marketing including traditional print advertising and trade shows. \nProduct Development and Engineering\nWe are strategically and financially committed to innovation, as reflected in our dedicated product development and engineering teams located in Tennessee, Kansas, California, and Florida and evidenced by our track record of new product introduction. As of June\u00a030, 2023, our product development and engineering team consisted of nearly 60 professionals. These individuals bring to our product development efforts significant expertise across core disciplines, including boat design, trailer design, computer-aided design, electrical engineering and mechanical engineering. They are responsible for execution of all facets of our new product strategy, including designing new and refreshed boat models and new features, engineering these designs for manufacturing and integrating new features into our boats. In addition, our Chief Executive Officer and Chief Operating Officer are actively involved in the product development process and integration into manufacturing.\nOur product development strategy consists of a two-pronged approach. First, we seek to introduce new boat models to target unaddressed or underserved segments of the recreational powerboat industry, while also updating and refreshing our existing boat models regularly. Second, we seek to develop and integrate innovative new or enhanced optional feature offerings into our boats. We intend to release new products and features multiple times during a year, which we believe enhances our reputation as a leading innovator in boat manufacturing and provides us with a competitive advantage.\nWe take a disciplined approach to the management of our product development strategy. We use a formalized phase gate process, overseen by a dedicated project manager, to develop, evaluate and implement new product ideas for both boat models and innovative features. Application of the phase gate process requires management to establish an overall timeline that is sub-divided into milestones, or \u201cgates,\u201d for product development. Setting milestones at certain intervals in the product development process ensures that each phase of development occurs in an organized manner and enables management to become aware of and address any issues in a timely fashion, which facilitates on-time, on-target release of new products with expected return on investment. Extensive testing and coordination with our manufacturing group are important elements of our product development process, which we believe enable us to minimize the risk associated with the release of new products. Our phase gate process also facilitates our introduction of new boat models and features throughout the year, which we believe provides us with a competitive advantage in the marketplace. Finally, in addition to our process for managing new product introductions in a given fiscal year, we also engage in longer-term product life cycle and product portfolio planning.\nManufacturing\nWe have eight manufacturing facilities located in five U.S. states and Australia. We produce performance sport boats through our Malibu and Axis brands at our Tennessee and Australia manufacturing facilities; we produce sterndrive and outboard boats through our Cobalt brand at our Kansas manufacturing facility; and we produce saltwater outboard boats under our Pursuit and Maverick Boat Group brands, as well as tooling parts, in Fort Pierce, Florida. We completed expansion projects at one of our Florida facilities (Maverick Boat Group) in fiscal year 2022 and at our other Florida facility (Pursuit Tooling) in fiscal year 2023. We also recently purchased a 260,000 square foot manufacturing facility near our Tennessee campus that we expect to fully finish constructing in fiscal year 2024. For our Malibu and Axis brands, we manufacture towers, tower accessories and stainless steel and aluminum billet at our California facility and engines and trailers at our Tennessee facility. For our Malibu, Axis and Cobalt brands, we produce wiring harnesses at our Alabama facility.\nOur boats are built through a continuous flow manufacturing process that encompasses fabrication, assembly, quality management and testing. Each boat is produced on an established cycle depending on model that includes the fabrication of the hull and deck through gelcoat application and fiberglass lamination, grinding and hole cutting, installation of components, rigging, finishing, detailing and on-the-water testing. Production of cruisers occurs on a dedicated line that allows for the increased time needed to add the additional content required for production of larger boats. \nWe have vertically integrated key components of our manufacturing process, including the manufacturing of our own engines, boat trailers, towers and tower accessories, machined and billet parts, soft grip flooring, and most recently, wiring harnesses. We began including our engines, branded as Malibu Monsoon engines, in our Malibu and Axis boats for model year 2019, and in fiscal year 2024 we plan to begin offering Monsoon sterndrive engines to our Cobalt dealers and customers. We believe our engine marinization initiative will reduce our reliance on our previous engine suppliers for our Malibu, Axis and Cobalt brands while reducing the risk that a change in cost or production from any engine supplier for such brands could adversely affect our business. Our trailers are produced in a continuous flow manufacturing process involving cutting and bending of the main frame from raw top grade carbon steel, painting using our state-of-the-art system and installation of components. Our tower-related manufacturing in California uses multiple computer-controlled machines to cut all of the aluminum parts required for tower assembly. We are the only performance sport boat company that manufactures towers in-house. In fiscal year 2022, we acquired a facility to begin manufacturing our own wiring harnesses. As a result of this \n6\nTable of Contents\nacquisition, we reduced the risk of production delays due to delays in receipt of wiring harnesses from third-party suppliers. Vertical integration of key components of our boats also gives us the ability to increase incremental margin per boat sold by reducing our cost base and improving the efficiency of our manufacturing process. Additionally, it allows us to have greater control over design, consumer customization options, construction quality, and our supply chain. We continually review our manufacturing process to identify opportunities for additional vertical integration investments across our portfolio of premium brands. We procure other components, such as electronic controls, from third-party vendors and install them on the boat.\nSuppliers\nWe purchase a wide variety of raw materials from our supplier base, including resins, fiberglass, hydrocarbon feedstocks and steel, as well as product parts and components, such as engines and electronic controls, through a purchase order process. The most significant component used in manufacturing our boats, based on cost, are engines. Through our vertical integration initiative to marinize our own engines, we entered into an engine supply agreement with General Motors LLC (\u201cGeneral Motors\u201d) in November 2016 for the supply of engine blocks to use in our Malibu and Axis brand boats which began in our model year 2019 and continued through model year 2023. In April 2023, we signed a new supply agreement with General Motors that will continue through model year 2026. We adopted this strategy to more directly control product path (design, innovation, calibration and integration) of our largest dollar procured part, to differentiate our product from our competitors, and to increase our ability to respond to ongoing changes in the marketplace.\nPursuant to our engine supply agreement with General Motors, General Motors will deliver engines to us as we submit purchase orders. No minimum amount of engines is required to be ordered by us. The engine supply agreement will expire at the end of production of model year 2026, unless terminated earlier by either party as permitted under the terms of the agreement, including by General Motors due to market conditions with at least eighteen (18) months\u2019 advanced written notice.\nWe had joint marketing agreements with Yamaha Motor Corporation, U.S.A., or Yamaha, that required us to supply a significant percentage of our Pursuit, Cobalt and Maverick Boat Group branded boats that are pre-rigged for outboard motors with Yamaha outboard motors in exchange for certain incentives. Those agreements expired on June 30, 2023. We are currently in discussions with Yamaha and expect to extend our agreement with Yamaha to supply outboard motors to a significant percentage of our Pursuit, Cobalt and Maverick Boat Group branded boats that are pre-rigged for outboard motors. Yamaha has continued to supply outboard motors to us since our prior agreements expired. \nWe experienced supply chain disruptions during fiscal year 2022 that we believe were driven by numerous factors, including labor shortages, ongoing domestic logistical constraints, West Coast port challenges and rising prices for our suppliers, in part due to inflationary pressures that continued into fiscal year 2023 and that we expect to continue into fiscal year 2024. With the exception of inflationary pressures, we believe that the systemic supply chain disruptions that we have experienced over the past several years have been largely rectified.\nInsurance and Product Warranties\nWe carry various insurance policies, including policies to cover general products liability, workers\u2019 compensation and other casualty and property risks, to protect against certain risks of loss consistent with the exposures associated with the nature and scope of our operations. Our policies are generally based on our safety record as well as market trends in the insurance industry and are subject to certain deductibles, limits and policy terms and conditions.\nOur Malibu and Axis brand boats have a limited warranty for a period up to five years. Our Cobalt brand boats have (1) a structural warranty of up to ten years which covers the hull, deck joints, bulkheads, floor, transom, stringers, and motor mount, and (2) a five year bow-to-stern warranty on all components manufactured or purchased (excluding hull and deck structural components), including canvas and upholstery. Gelcoat is covered up to three years for Cobalt and one year for Malibu and Axis. Pursuit brand boats have a (1) limited warranty for a period of up to five years on structural components such as the hull, deck and defects in the gelcoat surface of the hull bottom, and (2) a bow-to-stern warranty of two years (excluding hull and deck structural components). Maverick, Pathfinder and Hewes brand boats have (1) a limited warranty for a period of up to five years on structural components such as the hull, deck and defects in the gelcoat surface of the hull bottom and (2) a bow-to-stern warranty of one year (excluding hull and deck structural components). Cobia brand boats have (1) a limited warranty for a period of up to ten years on structural components such as the hull, deck and defects in the gelcoat surface of the hull bottom and (2) a bow-to-stern warranty of three years (excluding hull and deck structural components). For each boat brand, there are certain materials, components or parts of the boat that are not covered by our warranty and certain components or parts that are separately warranted by the manufacturer or supplier (such as the engine). Our Malibu Monsoon engines that we manufacture for Malibu and Axis models have a limited warranty of up to five years or five-hundred hours.\n7\nTable of Contents\nStrategic Acquisitions\nOne of our growth strategies is to drive growth in our business through targeted acquisitions that add value while considering our existing brands and product portfolio. We acquired Maverick Boat Group in December 2020, Pursuit in October 2018 and Cobalt in July 2017. The primary objectives of our acquisitions are to expand our presence in new or adjacent categories, to expand into other product lines that may benefit from our operating strengths, and to increase the size of our addressable market. When we identify potential acquisitions, we attempt to target companies with a leading market share, strong cash flows, and an experienced management team and workforce that provide a fit with our existing operations. After completing an acquisition, we focus on integrating the company with our existing business to provide additional value to the combined entity through cost savings and revenue synergies, such as the optimization of manufacturing operations, improved processes around product development, enhancement of our existing dealer distribution network, accelerated innovation, administrative cost savings, shared procurement, vertical integration and cross-selling opportunities.\nIntellectual Property \nWe rely on a combination of patent, trademark and copyright protection, trade secret laws, confidentiality procedures and contractual provisions to protect our rights in our brand, products and proprietary technology. This is an important part of our business and we intend to continue protecting our intellectual property. By law, our patent rights have limited lives and expire periodically. Our boat patent rights relate to boat design, features and components that we feel are important to our competitive position in our business. Some of our well-known patents include our Surf Gate and Swim Step for our Malibu and Cobalt segments and Power Wedge for our Malibu segment.  \nOur trademarks which are registered in the U.S. and various countries around the world, generally may endure in perpetuity on a country-by-country basis, provided that we comply with all statutory maintenance requirements, including continued use of each trademark in each such country. Some of our well-known trademarks include: (i) for our Malibu segment, Malibu, Axis, Monsoon, Power Wedge, Surf Band, Surf Gate, and Wakesetter; (ii) for our Saltwater Fishing Segment, Pursuit, Cobia, Maverick, and Redfisher; and (iii) for our Cobalt segment, Cobalt and Splash & Stow.\nSeasonality\nOur dealers experience seasonality in their business. Retail demand for boats is seasonal, with a significant majority of sales occurring during peak boating season, which coincides with our first and fourth fiscal quarters. In order to minimize the impact of this seasonality on our business, we manage our manufacturing processes and structure dealer incentives to tie our annual volume rebates program to consistent ordering patterns, encouraging dealers to purchase our products throughout the year. In this regard, we may offer free flooring incentives to dealers from the beginning of our model year through April 30 of each year. Further, in the event that a dealer does not consistently order units throughout the year, such dealer\u2019s rebate is materially reduced. We may offer off-season retail promotions to our dealers in seasonally slow months, during and ahead of boat shows, to encourage retail demand.\nSafety and Regulatory Matters \nOur operations and products are subject to extensive environmental and health and safety regulation under various federal, commonwealth, state, and local statutes, ordinances, rules and regulations in the United States and Australia where we manufacture our boats, and in other foreign jurisdictions where we sell our products. We believe we are in material compliance with those requirements. However, we cannot be certain that costs and expenses required for us to comply with such requirements in the future, including for any new or modified regulatory requirements, or to address newly discovered environmental conditions, will not have a material adverse effect on our business, financial condition, operating results, or cash flow. The regulatory programs to which we are subject include the following:\nHazardous Materials and Waste\nCertain materials used in our manufacturing, including the resins used in production of our boats, are toxic, flammable, corrosive, or reactive and are classified as hazardous materials by the national, state and local governments in those jurisdictions where we manufacture our products. The handling, storage, release, treatment, and recycling or disposal of these substances and wastes from our operations are regulated in the United States by the United States Environmental Protection Agency (\u201cEPA\u201d), and state and local environmental agencies. In the United States, handling, storage, release, treatment, and recycling or disposal of hazardous materials is regulated under Subtitle C of the Resource Conservation and Recovery Act (\u201cRCRA\u201d). The EPA works with state regulatory agencies to implement a compliance monitoring program with the goal of evaluating compliance with companies\u2019 RCRA obligation. Our manufacturing facilities can be subject to on-site compliance evaluation inspections (CEIs) or targeted enforcement actions. The handling, storage, release, treatment and recycling or disposal of these substances and wastes from our operations are regulated in Australia by the Australian Department of Climate Change, Energy, the Environment and Water, the New South Wales Environmental Protection Authority and other state and \n8\nTable of Contents\nlocal authorities. Failure by us to properly handle, store, release, treat, recycle or dispose of our hazardous materials and wastes could result in liability for us, including fines, penalties, or obligations to investigate and remediate any contamination originating from our operations or facilities. We are not aware of any material contamination at our current or former facilities for which we could be liable under environmental laws or regulations, and we currently are not undertaking any remediation or investigation activities in connection with any contamination. Future spills or accidents or the discovery of currently unknown conditions or non-compliance could, however, give rise to investigation and remediation obligations or related liabilities.\nAir Quality\nIn the United States, the federal Clean Air Act (\u201cCAA\u201d) and corresponding state and local laws and rules regulate emissions of air pollutants. Because our manufacturing operations involve molding and coating of fiberglass materials, which involves the emission of certain volatile organic compounds, hazardous air pollutants, and particulate matter, we are required to maintain and comply with a CAA operating permit requirements under Title V of the CAA (\u201cPart 70 Permits\u201d) for our Tennessee, Kansas and Florida facilities and local air permits for our California facilities. Our air permits generally require us to monitor our emissions and periodically certify that our emissions are within specified limits. To date, we have not had material difficulty complying with those limits.\nThe EPA and the California Air Resources Board (\u201cCARB\u201d) have, under the CAA, adopted regulations stipulating that many marine propulsion engines and watercraft meet certain air emission standards. Some of these standards require fitting a catalytic converter to the engine. These regulations also require, among other things, that engine manufacturers provide a warranty that their engines meet EPA and CARB emission standards. The engines used in our products are subject to these regulations. CARB has adopted an evaporative emissions regulation that applies to all spark-ignition marine watercraft with permanently installed fuel tanks sold in California (the Spark-Ignition Marine Watercraft Program). This regulation requires subject boat manufacturers to use specific CARB-certified components for the fuel systems in their boats, or to certify the boat meets a related performance standard. While we believe that our boats meet all applicable emission standards, the USEPA and CARB emissions regulations have increased the cost to manufacture our products.\nOSHA \nIn the United States, the Occupational Safety and Health Administration (\u201cOSHA\u201d) standards address workplace safety generally, and limit the amount of emissions to which an employee may be exposed without the need for respiratory protection or upgraded plant ventilation. Our facilities are regularly inspected by OSHA and by state and local inspection agencies and departments. Our California facilities are also subject to California indoor air quality regulations, overseen by California\u2019s Division of Occupational Safety and Health. We believe that our facilities comply in all material aspects with these regulations. Although capital expenditures related to compliance with environmental and safety laws are expected to increase, we do not currently anticipate any material expenditure will be required to continue to comply with existing OSHA environmental or safety regulations in connection with our existing manufacturing facilities.\nAt our New South Wales, Australia (\u201cNSW\u201d) facility, employee health and safety is regulated by SafeWork NSW, which also has requirements that limit the amount of certain emissions to which an employee may be exposed without the need for respiratory protection or upgraded plant ventilation. In addition, SafeWork NSW provides licensing and registration for potentially dangerous work, investigates workplace incidents, and enforces work health and safety laws in NSW. Our NSW facilities can be routinely inspected by SafeWork NSW. We believe that our facilities comply in all material aspects with these requirements.\nBoat Design and Manufacturing Standards\nIn the United States, the U.S. Coast Guard promulgates regulations related to the minimum construction and safety requirements for recreational boats. In addition, boats manufactured for sale in the European Community must be certified to meet the requirements of the applicable laws and standards, including Directive 2013/53/EU on recreational craft and personal watercraft. These certifications specify standards for the design and construction of powerboats. We believe that all of our boats meet these standards. In addition, safety of recreational boats in the United States is subject to federal regulation under the Boat Safety Act of 1971, which requires boat manufacturers to recall products for replacement of parts or components that have demonstrated defects affecting safety. We have instituted recalls for defective component parts produced by certain of our third-party suppliers, including recalls on third party supplied steering columns during fiscal year 2023 and fuel pumps during fiscal year 2019. None of our recalls have had a material adverse impact on us.\n9\nTable of Contents\nHuman Capital Management \nEmployee Profile\nAs of June 30, 2023, we had approximately 3,095 employees worldwide.\n None of our team members are party to a collective bargaining agreement. We believe in working diligently to establish ourselves as an employer of choice.  \nTalent Retention and Development\nWe recognize employees are the heart of our organization and support them by offering a range of competitive pay, recognition and benefit programs. We provide market-competitive pay and benefits to encourage performance that creates sustainable and long-term employment. Additionally, we have numerous initiatives to support employee development, including annual performance evaluations and supervisor training programs, along with training programs for new employees (and those who are internally promoted) to learn new skills in boat production, such as gel coat application and fiberglass repair. We believe in internal promotion where possible and are committed to developing our current team members to become the next generation of leaders throughout the organization. Approximately 84% of our production leaders are internal promotions. We provide tuition assistance programs and take advantage of leadership development where possible. We partner with several colleges and universities to hire students from across the country in our Engineering Internship Program and many come to work for us after attaining their degree.\nEmployee Well-Being\nSafety is a core value of our organization and we are committed to fostering a culture where safety is a number one priority. The success of our business depends, in part, upon the prevention of accidents, the reduction and/or prevention of occupational injuries and illnesses, and compliance with established safety and health policies and requirements. Dependent upon job tasks, some personnel will be required to have OSHA training and/or documentation to satisfy job requirements. Workplace safety is a fundamental organization-wide value, and we are committed to running an efficient program. We remain focused on building a safer workplace for our employees and will continue to work toward an injury-free workplace through the implementation of training and other safety initiatives.\nCulture and Values\nOur mission statement is a formal summary of our core purpose and focus and clearly communicates who we are. Our mission is to create the ultimate on-the-water lifestyle. Our core values are the guiding principles that dictate how we make decisions and interact with each other daily. We are committed to our core values of Safety, Integrity, People, Quality, Innovation, Customer Focus, and Continuous Improvement. We design products that appeal to an expanding range of recreational boaters, fisherman and water sports enthusiasts whose passion for boating is a key component of their active lifestyle. With our many awards and honors, we cultivate a culture of excellence and premier boat building.\nWe conducted our first annual engagement survey of all employees in 2023 as an opportunity to gather feedback from employees on their experience and overall satisfaction to identify areas for organizational improvement. Outside of formal surveys, we allow employees to continuously share any comments, questions or concerns with our leadership team, which are addressed as needed by our executive team.\nDiversity and Inclusion\nWe are committed to maintaining an employee-first culture. We are dedicated to protecting the well-being of our employees and creating a culture that promotes inclusivity, acceptance, equality and diversity. Our employees bring a blend of diverse backgrounds, and we promote an inclusive workforce and the opportunity for career growth for all employees. We seek to hire the best-qualified individuals and do not discriminate on the basis of race, creed, color, religion, national origin, citizenship status, age, disability, marital status, sexual orientation, gender, gender identity and similar classification. We continually evaluate our internal processes and programs to further build on our diverse, equitable and inclusive culture. We value our team and are committed to treating all employees with dignity and respect.\nCommunity Involvement\nWe continually strive to make an impact on our local communities and serve them with gratitude. Each year, we partner with community organizations where our facilities are located and support local schools. In Tennessee, we partner with Toys for Tots and Angel Tree each holiday season. Our corporate sponsorship with the local Kiwanis Club has allowed us to give back to children with disabilities while also helping students prepare for the upcoming school year. We partner with the local \n10\nTable of Contents\nFamily Resources center each year to assist local students with cold-weather clothing fund and participate in additional local school initiatives to promote manufacturing trade jobs. In Kansas, we support our community through recreational leagues as well as donations to local libraries, events and school fundraisers, among other initiatives. In Florida, we give back to our local communities through the Treasure Coast Food Bank, Pet Food Drive for the Humane Society, Ready to Work Boot Camp, and the Everglades Foundation, Recreational Fishing Alliance and Coastal Conservation Association. Additionally, we are proud participants in and sponsors of the Making Strides Against Breast Cancer walk every year. We are proud of our partnerships with these outstanding organizations, and of the funds raised by our employees for children and families in the communities within which we operate.\nOrganizational Structure\nMalibu Boats, Inc. was incorporated as a Delaware corporation on November 1, 2013 in anticipation of our IPO to serve as a holding company that owns only an interest in Malibu Boats Holdings, LLC. Immediately after the completion of our IPO and the recapitalization we completed in connection with our IPO, Malibu Boats, Inc. held approximately 49.3% of the economic interest in the LLC, which has since increased to approximately 97.8% of the economic interest in the LLC as of June\u00a030, 2023. \nThe certificate of incorporation of Malibu Boats, Inc. authorizes two classes of common stock, Class A Common Stock and Class B Common Stock.  Holders of our Class A Common Stock and our Class B Common Stock have voting power over Malibu Boats, Inc., the sole managing member of the LLC, at a level that is consistent with their overall equity ownership of our business.  In connection with our IPO and the recapitalization we completed in connection with our IPO, Malibu Boats, Inc. issued to each pre-IPO owner, for nominal consideration, one share of Class B Common Stock of Malibu Boats, Inc., each of which provides its owner with no economic rights but entitles the holder to one vote on matters presented to stockholders of Malibu Boats, Inc. for each LLC Unit held by such holder.  Pursuant to our certificate of incorporation and bylaws, each share of Class A Common Stock entitles the holder to one vote with respect to each matter presented to our stockholders on which the holders of Class A Common Stock are entitled to vote. Each holder of Class B Common Stock is entitled to the number of votes equal to the total number of LLC units held by such holder multiplied by the exchange rate specified in the exchange agreement with respect to each matter presented to our stockholders on which the holders of Class B Common Stock are entitled to vote. Accordingly, the holders of LLC Units collectively have a number of votes that is equal to the aggregate number of LLC Units that they hold.  As the LLC members sell LLC Units to us or subsequently exchange LLC Units for shares of Class A Common Stock of Malibu Boats, Inc. pursuant to the exchange agreement described below, the voting power afforded to them by their shares of Class B Common Stock is automatically and correspondingly reduced. Subject to any rights that may be applicable to any then outstanding preferred stock, our Class A and Class B Common Stock vote as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise provided in our certificate of incorporation or bylaws or required by applicable law. In addition, subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our Class A Common Stock are entitled to share equally, identically and ratably in any dividends or distributions (including in the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs) that our board of directors may determine to issue from time to time, while holders of our Class B Common Stock do not have any right to receive dividends or other distributions. \nAs noted above, Malibu Boats, Inc. is a holding company with a controlling equity interest in the LLC. Malibu Boats, Inc., as sole managing member of the LLC, operates and controls all of the business and affairs and consolidates the financial results of the LLC. The limited liability company agreement of the LLC provides that it may be amended, supplemented, waived or modified by the written consent of Malibu Boats, Inc., as managing member of the LLC, in its sole discretion without the approval of any other holder of LLC Units, except that no amendment may materially and adversely affect the rights of a holder of LLC Units, other than on a pro rata basis with other holders of LLC Units, without the consent of such holder (unless more than one holder is so affected, then the consent of a majority of such affected holders is required).  Pursuant to the limited liability company agreement of the LLC, Malibu Boats, Inc. has the right to determine when distributions (other than tax distributions) will be made to the members of the LLC and the amount of any such distributions. If Malibu Boats, Inc. authorizes a distribution, such distribution will be made to the members of the LLC (including Malibu Boats, Inc.) pro rata in accordance with the percentages of their respective LLC Units.\n11\nTable of Contents\nThe diagram below depicts our current organizational structure, as of June\u00a030, 2023:\nOur organizational structure allows the LLC members to retain their equity ownership in the LLC, an entity that is classified as a partnership for U.S. federal income tax purposes, in the form of LLC Units. Holders of Class A Common Stock, by contrast, hold their equity ownership in Malibu Boats, Inc., a Delaware corporation that is a domestic corporation for U.S. federal income tax purposes, in the form of shares of Class A Common Stock. The holders of LLC Units, including Malibu Boats, Inc., will incur U.S. federal, state and local income taxes on their proportionate share of any taxable income of the LLC. Net profits and net losses of the LLC will generally be allocated to the LLC\u2019s members (including Malibu Boats, Inc.) pro rata in accordance with the percentages of their respective limited liability company interests. The limited liability company agreement provides for cash distributions to the holders of LLC Units if Malibu Boats, Inc. determines that the taxable income of the LLC will give rise to taxable income for its members. In accordance with the limited liability company agreement, we intend to cause the LLC to make cash distributions to the holders of LLC Units for purposes of funding their tax obligations in respect of the income of the LLC that is allocated to them. Generally, these tax distributions will be computed based on our estimate of the taxable income of the LLC allocable to such holder of LLC Units multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident in Los Angeles, California (taking into account the nondeductibility of certain expenses and the character of our income). For purposes of determining the taxable income of the LLC, such determination will be made by generally disregarding any adjustment to the taxable income of any member of the LLC that arises under the tax basis adjustment rules of the Internal Revenue Code of 1986, as amended, or the Code and is attributable to the acquisition by such member of an interest in the LLC in a sale or exchange transaction. \nExchanges and Other Transactions with Holders of LLC Units\nIn connection with our IPO and the recapitalization we completed in connection with our IPO, we entered into an exchange agreement with the pre-IPO owners of the LLC under which (subject to the terms of the exchange agreement) each pre-IPO owner (or its permitted transferee) has the right to exchange its LLC Units for shares of our Class A Common Stock on a one-\n12\nTable of Contents\nfor-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications, or, at our option, except in the event of a change in control, for a cash payment equal to the market value of the Class A Common Stock. The exchange agreement provides, however, that such exchanges must be for a minimum of the lesser of 1,000 LLC Units, all of the LLC Units held by the holder, or such amount as we determine to be acceptable. The exchange agreement also provides that an LLC member will not have the right to exchange LLC Units if Malibu Boats, Inc. determines that such exchange would be prohibited by law or regulation or would violate other agreements with Malibu Boats, Inc. to which the LLC member may be subject or any of our written policies related to unlawful or insider trading. The exchange agreement also provides that Malibu Boats, Inc. may impose additional restrictions on exchanges that it determines to be necessary or advisable so that the LLC is not treated as a \u201cpublicly traded partnership\u201d for U.S. federal income tax purposes. In addition, pursuant to the limited liability company agreement of the LLC, Malibu Boats, Inc., as managing member of the LLC, has the right to require all members of the LLC to exchange their LLC Units for Class A Common Stock in accordance with the terms of the exchange agreement, subject to the consent of the holders of a majority of outstanding LLC Units other than those held by Malibu Boats, Inc.\nAs a result of exchanges of LLC Units into Class A Common Stock and purchases by Malibu Boats, Inc. of LLC Units from holders of LLC Units, Malibu Boats, Inc. will become entitled to a proportionate share of the existing tax basis of the assets of the LLC at the time of such exchanges or purchases. In addition, such exchanges and purchases of LLC Units are expected to result in increases in the tax basis of the assets of the LLC that otherwise would not have been available. These increases in tax basis may reduce the amount of tax that Malibu Boats, Inc. would otherwise be required to pay in the future. These increases in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets. We have entered into a tax receivable agreement with the pre-IPO owners (or their permitted assignees) that provides for the payment by Malibu Boats, Inc. to the pre-IPO owners (or their permitted assignees) of 85% of the amount of the benefits, if any, that Malibu Boats, Inc. is deemed to realize as a result of (1) increases in tax basis and (2) certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. These payment obligations are obligations of Malibu Boats, Inc. and not of the LLC. \nAvailable Information\nOur Annual Report on Form\u00a010-K, Quarterly Reports on Form\u00a010-Q, Current Reports on Form\u00a08-K and amendments to reports filed or furnished pursuant to Sections\u00a013(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act are available on our web site at www.malibuboats.com, free of charge, as soon as reasonably practicable after the electronic filing of these reports with, or furnishing of these reports to, the Securities and Exchange Commission, or the SEC. In addition, the SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.\n13\nTable of Contents",
+  "item1a": ">Item 1A.\n Risk Factors\nThe following describes the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.\nRisks Related to our Business and Operations \nWe may not be able to execute our manufacturing strategy successfully, which could cause the profitability of our products to suffer.\nOur manufacturing strategy is designed to improve product quality and increase productivity, while reducing costs and increasing flexibility to respond to ongoing changes in the marketplace. To implement this strategy, we must be successful in our continuous improvement efforts, which depend on the involvement of management, production employees and suppliers. Any inability to achieve our objectives under our manufacturing strategy could adversely impact the profitability of our products and our ability to deliver desirable products to our consumers.\nWe have a large fixed cost base that will affect our profitability if our sales decrease.\nThe fixed cost levels of operating a recreational powerboat manufacturer can put pressure on profit margins when sales and production decline. Our profitability depends, in part, on our ability to spread fixed costs over a sufficiently large number of products sold and shipped, and if we make a decision to reduce our rate of production, gross or net margins could be negatively affected. Consequently, decreased demand or the need to reduce production can lower our ability to absorb fixed costs and materially impact our financial condition or results of operations.\nOur financial results may be adversely affected by our third-party suppliers\n\u2019\n increased costs or inability to meet required production levels due to changing demand or global supply chain disruptions.\nWe rely on a global supply chain of third parties to supply raw materials used in our manufacturing process, including resins, fiberglass, and vinyl, as well as parts and components. The prices for these raw materials, parts, and components fluctuate depending on market conditions and, in some instances, commodity prices or trade policies, including tariffs. Substantial increases in the prices of raw materials, parts, and components would increase our operating costs, and could reduce our profitability if we are unable to recoup the increased costs through higher product prices or improved operating efficiencies. Our profitability in recent years has been, and in the future may be, affected by significant fluctuations in the prices of the raw materials and commodities that we use in our products and in the cost of freight and shipping of source materials, commodities, and other component parts necessary to assemble our products. \nOur ability to maintain production is dependent upon our suppliers delivering sufficient amounts of components, raw materials and parts on time to manufacture our products and meet our production schedules. Supply chain disruptions could occur for any number of factors, including facility closures due to labor disruptions, weather events, cyber intrusions, the occurrence of a contagious disease or illness, such as COVID-19, contractual or other disputes, unfavorable economic or industry conditions, political instability, delivery delays, performance problems, or financial difficulties of suppliers. These events could disrupt our suppliers\u2019 operations and lead to uncertainty in our supply chain or cause supply disruptions for us, which could, in turn, disrupt our operations. For example, we have experienced supply chain disruptions beginning in fiscal year 2020 related to numerous factors, including COVID-19, severe weather events, labor shortages, ongoing domestic logistical constraints, West Coast port challenges and rising prices for our suppliers, in part due to inflationary pressures.\nIn some instances, we purchase components, raw materials and parts that are ultimately derived from a single source or geographic area or a limited number of suppliers and we may therefore be at an increased risk for supply disruptions. It may be difficult to find a replacement supplier for a limited or sole source raw material, part, or component without significant delay or on commercially reasonable terms, and as a result, an exclusive supplier of a key component could potentially exert significant bargaining power over price, quality, warranty claims, or other terms. Some components used in our manufacturing processes, including engines, boat windshields, certain electrical components and gel coats are available from a sole supplier or a limited number of suppliers. We currently purchase engines from General Motors LLC, or General Motors, that we then prepare for marine use for certain Malibu, Axis and Cobalt boats, and we purchase outboard engines from Yamaha Motor Corporation, U.S.A., or Yamaha, for a significant percentage of our Cobalt, Pursuit and Maverick Boats Group branded boats that are pre-rigged for outboard motors. We had agreements with Yamaha for the supply of outboard motors that expired on June 30, 2023.  We are in discussions with Yamaha to extend those agreements and Yamaha has continued to supply outboard motors to us since those agreements expired. If we are required to replace either General Motors or Yamaha as an engine supplier for any reason, it could cause a decrease in boats available for sale or an increase in our cost of sales, either of which could adversely \n14\nTable of Contents\naffect our business, financial condition and results of operations. In fiscal year 2020 we experienced interruption to our engine supply as a result of the United Auto Workers\u2019 strike against General Motors. During the UAW strike, General Motors suspended delivery of engine blocks to us and we incurred $2.6 million in costs by entering into purchase agreements with two suppliers for additional engines to supplement our inventory of engine blocks for Malibu and Axis boats.  \nTermination or interruption of informal supply arrangements could have a material adverse effect on our business or results of operations.\nHistorically, we have not entered into long-term agreements with suppliers of our raw materials and components other than for our engines and outboard motors. Instead, we have informal supply arrangements with many of our suppliers of components, raw materials and parts. In the event of a termination of the supply arrangement, there can be no assurance that alternate supply arrangements will be made on satisfactory terms. If we need to enter into supply arrangements on unsatisfactory terms, or if there are any delays to our supply arrangements, it could adversely affect our business and operating results.\nOur ability to meet our manufacturing workforce\u2019s needs is crucial to our results of operations and future sales and profitability.\nWe rely on the existence of an available hourly workforce to manufacture our boats. We cannot assure you that we will be  able to attract and retain qualified employees to meet current or future manufacturing needs at a reasonable cost, or at all. For instance, even when there are high unemployment rates in the regions where we have manufacturing facilities, we have had difficulty retaining skilled employees and could experience such difficulties in the future. Although none of our employees are currently covered by collective bargaining agreements, we cannot assure you that our employees will not elect to be represented by labor unions in the future. Additionally, competition for qualified employees could require us to pay higher wages to attract a sufficient number of employees. Significant increases in manufacturing workforce costs could materially adversely affect our business, financial condition or results of operations.\nThe nature of our business exposes us to workers' compensation claims and other workplace liabilities.\nCertain materials that we use require our employees to handle potentially hazardous or toxic substances. While our employees who handle these and other potentially hazardous or toxic materials receive specialized training and wear protective clothing, there is still a risk that they, or others, may be exposed to these substances. Exposure to these substances could result in significant injury to our employees and damage to our property or the property of others, including natural resource damage. Our personnel are also at risk for other workplace-related injuries. We have in the past been, and may in the future be, subject to fines, penalties, and other liabilities in connection with any such injury or damage. While we have implemented safety precautions at our facilities to mitigate contagious diseases, such as a pandemic, we may also be subject to possible lawsuits or regulatory actions or suffer from reputational risk if we experience spread in our workplace. We may be unable to maintain insurance for these potential liabilities on acceptable terms or such insurance may not provide adequate protection against potential liabilities.\nWe have grown our business through acquisitions; however we may not be successful in completing future acquisitions or integrating future acquisitions in a way that fully realizes their expected benefits to our business.\nA key part of our growth strategy, as shown by our acquisition of Maverick Boat Group in 2020, Pursuit in 2018, Cobalt in 2017 and our Australian licensee in 2014, has been to acquire other companies that expand our consumer base, enter new product categories or obtain other competitive advantages. We expect to continue to acquire companies as an element of our growth strategy; however, we may not be able to identify future acquisition candidates or strategic partners as part of our growth strategy that are suitable to our business, or we may not be able to obtain financing on satisfactory terms to complete such acquisitions.\nAcquisitions include a number of risks, including our ability to project and evaluate market demand, realize potential synergies and cost savings, and make accurate accounting estimates, as well as diversion of management attention. Uncertainties exist in assessing the value, risks, profitability, and liabilities associated with certain companies or assets, negotiating acceptable terms, obtaining financing on acceptable terms, and receiving any necessary regulatory approvals. As we continue to grow, in part, through acquisitions, our success depends on our ability to anticipate and effectively manage these risks. Our failure to successfully do so could have a material adverse effect on our financial condition and results of operations.\nFurther, our inability to successfully integrate future acquisitions within the intended time frames or at all could impede us from realizing all of the benefits of those acquisitions and could severely weaken our business operations. The integration process with any acquisition may disrupt our business and, if implemented ineffectively, may preclude realization of the full benefits expected by us and could harm our results of operations. In addition, the overall integration of the combining \n15\nTable of Contents\ncompanies may result in unanticipated problems, expenses, liabilities and competitive responses and may cause our stock price to decline. Even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of the acquisition, including the synergies, cost savings or growth opportunities that we expect.\nOur growth strategy may require us to secure significant additional capital, the amount of which will depend upon the size, timing, and structure of future acquisitions or vertical integrations and our working capital and general corporate needs. \nOur growth strategy includes the possible acquisition of other businesses, such as our acquisitions of Cobalt, Pursuit and Maverick Boat Group, and the potential integration of new product lines or related products to our boats, such as our initiatives to integrate the production of engines and trailers for our Malibu and Axis models, our Monsoon engines into some of our Cobalt models and our new Tooling Design Center. These actions may require us to secure significant additional capital through the borrowing of money or the issuance of equity. Any borrowings made to finance future strategic initiatives could make us more vulnerable to a downturn in our operating results, a downturn in economic conditions, or increases in interest rates on borrowings that are subject to interest rate fluctuations. If our cash flow from operations is insufficient to meet our debt service requirements, we could then be required to sell additional equity securities, refinance our obligations or dispose of assets in order to meet our debt service requirements. Adequate financing may not be available if and when we need it or may not be available on terms acceptable to us. The failure to obtain sufficient financing on favorable terms and conditions could have a material adverse effect on our growth prospects.\nFurther, we could choose to finance acquisitions or other strategic initiatives, in whole or in part through the issuance of our Class A Common Stock or securities convertible into or exercisable for our Class A Common Stock. If we do so, existing stockholders will experience dilution in the voting power of their Class A Common Stock and earnings per share could be negatively impacted. The extent to which we will be able and willing to use our Class A Common Stock for acquisitions and other strategic initiatives will depend on the market value of our Class A Common Stock and the willingness of potential third parties to accept our Class A Common Stock as full or partial consideration. Our inability to use our Class A Common Stock as consideration, to generate cash from operations, or to obtain additional funding through debt or equity financings in order to pursue our strategic initiatives could materially limit our growth.\nOur reliance upon patents, trademark laws and contractual provisions to protect our proprietary rights may not be sufficient to protect our intellectual property from others who may sell similar products and may lead to costly litigation. We have in the past, and may be in the future, party to lawsuits and other intellectual property rights claims that are expensive and time-consuming.\nWe hold patents and trademarks relating to various aspects of our products and believe that proprietary technical know- how is important to our business. Proprietary rights relating to our products are protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or trademarks or are maintained in confidence as trade secrets. We cannot be certain that we will be issued any patents from any pending or future patent applications owned by or licensed to us or that the claims allowed under any issued patents will be sufficiently broad to protect our technology. In the absence of enforceable patent or trademark protection, we may be vulnerable to competitors who attempt to copy our products, gain access to our trade secrets and know-how or diminish our brand through unauthorized use of our trademarks, all of which could adversely affect our business. Accordingly, we may need to engage in future litigation to enforce intellectual property rights, to protect trade secrets or to determine the validity and scope of proprietary rights of others.\nWe also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how, or other proprietary information in the event of any unauthorized use, misappropriation, or disclosure of such trade secrets, know-how, or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, we could be materially adversely affected.\nIn addition, others may initiate litigation or other proceedings to challenge the validity of our patents, or allege that we infringe their patents, or they may use their resources to design comparable products that do not infringe our patents. We may incur substantial costs if our competitors initiate litigation to challenge the validity of our patents, or allege that we infringe their patents, or if we initiate any proceedings to protect our proprietary rights. If the outcome of any litigation challenging our patents is unfavorable to us, our business, financial condition and results of operations could be adversely affected.\nWe are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to \n16\nTable of Contents\nregulatory investigations or actions; litigation (including class claims) and mass arbitration demands; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; and other adverse business consequences.\nIn the ordinary course of business, we process personal data and other sensitive information. Our data processing activities subject us to numerous data privacy and security obligations, which arise out of various laws, regulations, guidance, industry standards, representations made in privacy and security policies, marketing materials and other statements, contractual requirements, and other obligations relating to data privacy and security. In the United States, federal, state, and local governments have enacted numerous data privacy and security laws that are quickly changing, becoming increasingly stringent, and creating regulatory uncertainty, including data breach notification laws, personal data privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping laws). For example, the California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act of 2020 (collectively, \u201cCCPA\u201d), applies to personal information of consumers, business representatives, and employees who are California residents, and requires businesses to provide specific disclosures in privacy notices and honor requests of such individuals to exercise certain privacy rights. The CCPA provides for administrative fines of up to $7,500 per violation and allows private litigants affected by certain data breaches to recover significant statutory damages. Other states have also passed comprehensive privacy laws, and similar laws are being considered in several other jurisdictions. Outside the United States, an increasing number of laws, regulations, and industry standards may govern data privacy and security. For example, under European Union\u2019s General Data Protection Regulation (\u201cEU GDPR\u201d), companies may face temporary or definitive bans on data processing and other corrective actions; fines of up to 20 million Euros under the EU GDPR or 4% of annual global revenue, whichever is greater.\nWe may at times fail (or be perceived to have failed) in our efforts to comply with our data privacy and security obligations. Moreover, despite our efforts, our personnel or third parties on whom we rely may fail to comply with such obligations, which could negatively impact our business operations and we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims) and mass arbitration demands; additional reporting requirements and/or oversight; bans on processing personal data; and orders to destroy or not use personal data. In particular, plaintiffs have become increasingly more active in bringing privacy-related claims against companies, including class claims and mass arbitration demands. Some of these claims allow for the recovery of statutory damages on a per violation basis, and, if viable, carry the potential for monumental statutory damages, depending on the volume of data and the number of violations. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to our business model or operations.\nOur business operations could be negatively impacted by an outage or breach of our information technology systems or operational technology systems (or those of the third parties upon which we rely), our sensitive data, or a cybersecurity event.\nWe manage our business operations through a variety of information technology (IT) and operational technology systems (\u201cIT Systems\u201d). We depend on these systems for commercial transactions, customer interactions, manufacturing, branding, employee tracking, processing sensitive data and other applications. New system implementations, across the enterprise also pose risks including without limitation those in connection with future or past business transactions, to our IT systems, including risks of outages or disruptions, which could affect our suppliers, commercial operations, and customers. We continue to upgrade, streamline, and integrate these systems but, like those of other companies, our systems and data, and those of the third parties we rely on, are susceptible to outages due to natural disasters, power loss, computer viruses, and worms, malware, personnel misconduct or error, ransomware attacks, supply-chain attacks, security breaches, hardware or software vulnerabilities, disruptions, and similar events. In particular, severe ransomware attacks are becoming increasingly prevalent and can lead to significant interruptions in our operations (including without limitation, our manufacturing, marketing and financial operations), loss of sensitive data, revenue and income loss, reputational harm and loss of customers, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. We exchange information with many trading partners across all aspects of our commercial operations through our IT systems. A breakdown, outage, malicious intrusion, breach, random attack, or other disruption of communications could result in erroneous or fraudulent transactions, disclosure of confidential or other sensitive information, loss of reputation and confidence, and may also result in legal claims or proceedings, penalties, and remediation costs. We have experienced cyber-attacks, but to our knowledge, we have not experienced any material disruptions or breaches of our information technology systems or connected products. While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. We take steps to detect and remediate vulnerabilities, but we may not be able to detect and remediate all vulnerabilities because the threats and techniques used to exploit the vulnerability change frequently and are often sophisticated in nature. Therefore, such vulnerabilities could be exploited but may not be detected until after a security incident \n17\nTable of Contents\nhas occurred. These vulnerabilities pose material risks to our business. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities.\nThreats of system-related events and security breaches are prevalent and continue to rise, are increasingly difficult to detect, and come from a variety of sources, including traditional computer \u201chackers,\u201d threat actors, \u201chacktivists,\u201d organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. If our security measures are breached or fail, unauthorized persons may be able to obtain access to or acquire personal or other confidential data, or we may need to temporarily suspend production or operations in order to restore security. Depending on the nature of the information compromised, we may also have obligations to notify consumers and/or employees about the incident, and we may need to provide some form of remedy, such as a subscription to a credit monitoring service, for the individuals affected by the incident. This could negatively affect our relationships with customers or trading partners, lead to potential claims against us, and damage our image and reputation. Moreover, the amount and scope of insurance we maintain against losses resulting from any such events or security breaches may not be sufficient to cover our losses or otherwise adequately compensate us for any disruptions to our businesses that may result, and the occurrence of any such events or security breaches could have a material adverse effect on our business and results of operations. Additionally, our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations\nWe have started the design and implementation of a new enterprise resource planning (ERP) system and if we are not able to successfully develop and manage that implementation, it could adversely affect our business or results of operations.\nWe have begun the process of designing and implementing a new ERP system. This project will require significant capital and human resources, the re-engineering of many processes of our business, and the attention of our management and other personnel who would otherwise be focused on other aspects of our business. The implementation may be more expensive and take longer to fully implement than we originally plan, resulting in increased capital investment, higher fees and expenses of third parties, delayed deployment scheduling, and more on-going maintenance expense once implemented, and, as such, it will be difficult for us to estimate the ultimate costs and schedules. If for any reason portions of the implementation are not successful, we could be required to expense rather than capitalize related amounts.\nOur operations and sales in international markets require significant management attention, expose us to difficulties presented by international economic, political, legal and business factors, and may not be successful or produce desired levels of sales and profitability.\nWe currently sell our products throughout the world and we manufacture boats internationally in Australia. Several factors, including weakened international economic conditions and the strength of the U.S. dollar, could adversely affect our international growth. Expansion in our existing international operations and entry into new international markets require significant management attention. Some of the countries in which we market and our distributors sell our products are, to some degree, subject to political, economic or social instability. Our international operations expose us and our representatives, agents and distributors to risks inherent in operating in foreign jurisdictions. \nDoing business on a worldwide basis also requires us to comply with the laws and regulations of various foreign jurisdictions. These laws and regulations place restrictions on our operations, trade practices, partners and investment decisions. In particular, our operations are subject to U.S. and foreign anti-corruption and trade control laws and regulations, such as the FCPA, export controls and economic sanctions programs, including those administered by the U.S. Treasury Department\u2019s Office of Foreign Assets Control, or the OFAC. As a result of doing business in foreign countries and with foreign partners, we are exposed to a heightened risk of violating anti-corruption and trade control laws and sanctions regulations.\nCatastrophic events, including natural or environmental disasters, pandemics, such as the COVID-19 pandemic or other disruptions at our facilities could adversely affect our business, financial condition and results of operations.\nWe rely on the continuous operation of our facilities in Tennessee, Florida, Kansas, California, Alabama, and Australia. Any natural or environmental disaster, pandemic or other serious disruption to our facilities due to fire, flood, earthquake, acts of terrorism, civil insurrection or social unrest or any other unforeseen circumstances could adversely affect our business, financial condition and results of operations. For example, as a result of the COVID-19 pandemic, we experienced a temporary shutdown of our facilities, which negatively impacted our net sales and production levels and created supply chain disruptions, which led to lower inventory levels at our dealers for a period of time. If there is a disruption in our business it could result in a reduction of production and cause delays in our ability to meet consumer demand or receive supplies from our vendors. We cannot assure you that we will not have to suspend our operations again, whether voluntarily or as a result of federal, state or local mandates, and such closures could extend for a longer term than the prior shutdown of our facilities relating to COVID-19. \n18\nTable of Contents\nChanges in climate could also adversely affect our operations by limiting or increasing the costs associated with equipment or fuel supplies. In addition, adverse weather conditions, such as increased frequency and/or severity of storms, or floods could impair our ability to operate by damaging our facilities and equipment or restricting product delivery to customers. The occurrence of any disruption at our facilities, even for a short period of time, may have an adverse effect on our productivity and profitability, during and after the period of the disruption. These disruptions may also cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage. Although we maintain property, casualty and business interruption insurance of the types and in the amounts that we believe are customary for the industry, we are not fully insured against all potential natural disasters or other disruptions to our facilities.\nIncreases in income tax rates or changes in income tax laws or enforcement could have a material adverse impact on our financial results.\nChanges in domestic and international tax legislation could expose us to additional tax liability and could impact the amount of our tax receivable agreement liability. For example, in August 2022, the U.S. Congress passed the Inflation Reduction Act of 2022. The key tax provisions applicable to us include a 1% excise tax on stock repurchases effective January 1, 2023. We currently do not expect these changes to have a material impact on our financial position; however, we will continue to evaluate the impact as further information becomes available. Although we monitor changes in tax laws and work to mitigate the impact of proposed changes, such changes may negatively impact our financial results. Expected changes in current tax law beyond fiscal 2023 could impact our financial results in a material way. In addition, any increase in individual income tax rates would negatively affect our potential consumers\u2019 discretionary income and could decrease the demand for our products.\nWe depend on key personnel and we may not be able to retain them or to attract, assimilate, and retain highly qualified employees in the future.\nOur future success will depend in significant part upon the continued service of our senior management and our continuing ability to attract, assimilate, and retain highly qualified and skilled managerial, product development, manufacturing, and marketing and other personnel. The loss of services of any members of our senior management or key personnel or the inability to hire or retain qualified personnel in the future could adversely affect our business, financial condition, and results of operations. For instance, we are currently conducting a search process to identify and appoint a new permanent Chief Financial Officer. If we are unable to attract and retain a qualified candidate to become our Chief Financial Officer, it could have an adverse impact on our business, including impacting our ability to meet financial and operation goals and implementing our strategic plans.\nRisks Related to Our Markets and the Recreational Powerboat Industry\nWeak general economic conditions, particularly in the United States, can negatively impact our industry, demand for our products, and our business and results of operations.\nDemand for new recreational powerboats can be negatively influenced by weak economic conditions, low consumer confidence and high unemployment, especially in the United States, and by increased market volatility worldwide. In times of economic uncertainty and contraction, consumers tend to have less discretionary income and defer or avoid expenditures for discretionary items, such as boats. Sales of our products are highly sensitive to personal discretionary spending levels, and our success depends on general economic conditions and overall consumer confidence and personal income levels, especially in the United States and in the specific regional markets where we sell our products. Any deterioration in general economic conditions that diminishes consumer confidence or discretionary income is likely to reduce our sales and adversely affect our business, financial condition and results of operations. \nIn addition, fiscal and monetary policy could have a material adverse impact on worldwide economic conditions, the financial markets, and availability of credit and, consequently, may negatively affect our industry, businesses, and overall financial condition. Consumers often finance purchases of our boats, and as interest rates rise, the cost of financing the purchase also increases. If credit conditions worsen, and adversely affect the ability of consumers to finance potential purchases at acceptable terms and interest rates, it could result in a decrease in sales or delay improvement in sales of our products.\nIf we are unable to continue to enhance existing products and develop and market new or enhanced products that respond to customer needs and preferences, we may experience a decrease in demand for our products and our business could suffer.\nMarket acceptance of our products depends on our technological innovation and our ability to implement technology in our boats. Our failure to introduce new technologies and product offerings that our markets desire could adversely affect our business, financial condition and results of operations. Also, we believe we have been able to achieve higher margins in part as \n19\nTable of Contents\na result of the introduction of new features or enhancements to our existing boat models. If we fail to introduce new features or those we introduce fail to gain market acceptance, our margins may suffer.\nIn addition, some of our direct competitors and indirect competitors may have significantly more resources to develop and patent new technologies. It is possible that our competitors will develop and patent equivalent or superior technologies and other products that compete with ours. We cannot be certain that our products or technologies have not infringed or will not infringe on the proprietary rights of others, including our competitors. They may assert these patents against us and we may be required to license these patents on unfavorable terms or cease using the technology covered by these patents, either of which would harm our competitive position and may materially adversely affect our business.\nOur continued success is dependent on the positive perception of our brands, which, if impaired, could adversely affect our sales. \nWe believe that our brands are significant contributors to the success of our business and that maintaining and enhancing our brands are important to expanding our consumer and dealer base. The value of our brands is based in large part on perceptions and opinions, and broad access to social media makes it easy for anyone to provide public feedback that can influence perceptions of our company. It may be difficult to control negative publicity, regardless of whether it is accurate. Negative incidents, such as quality and safety concerns, product recalls, severe incidents or injuries related to our products or actions, or statements or actions of our employees or dealers or the athletes associated with our products, could lead to tangible adverse effects on our business, including lost sales or employee retention and recruiting difficulties. Also, public concerns about the environmental impact of our products could result in diminished public perception of our brands. If the popularity of the sports and activities for which we design, manufacture and sell our boats were to decrease as a result of these risks or any negative publicity, sales of our products could decrease, which could have an adverse effect on our net revenue, profitability and operating results.\nOur sales may be adversely impacted by increased consumer preference for used boats or the supply of new boats by competitors in excess of demand.\nIn the past, we have observed a shift in consumer demand toward purchasing more used boats during economic downturns, primarily because prices for used boats are typically lower than retail prices for new boats. If consumer demand shifts toward purchasing more used boats, it could have the effect of reducing demand among retail purchasers for our new boats. Also, while we have taken steps designed to balance production volumes for our boats with demand, our competitors could choose to reduce the price of their products, which could have the effect of reducing demand for our new boats. Reduced demand for new boats could lead to reduced sales by us, which could adversely affect our business, results of operations or financial condition.\nAn increase in energy and fuel costs may adversely affect our business, financial condition and results of operations.\nHigher energy costs result in increases in operating expenses at our manufacturing facility and in the expense of shipping products to our dealers. In addition, increases in energy costs may adversely affect the pricing and availability of petroleum based raw materials, such as resins and foams, that are used in our products. Higher fuel prices may also have an adverse effect on demand for our boats, as they increase the cost of boat ownership and possibly affect product use.\nRetail demand for our boats is seasonal and unfavorable weather conditions just before and during spring and summer can have a negative effect on our revenues.\nAdverse weather conditions in any year in any particular geographic region may adversely affect sales in that region, especially during the peak boating season. Sales of our products are generally stronger just before and during spring and summer, which represent the peak boating months in most of our markets, and favorable weather during these months generally has a positive effect on consumer demand. Conversely, unseasonably cool weather, excessive rainfall, reduced rainfall levels, or drought conditions during these periods may close area boating locations or render boating dangerous or inconvenient, thereby generally reducing consumer demand for our products. Our annual results would be materially and adversely affected if our net sales were to fall below expected seasonal levels during these periods. We may also experience more pronounced seasonal fluctuation in net sales in the future as we continue to expand our businesses. Additionally, to the extent that unfavorable weather conditions are exacerbated by global climate change or otherwise, our sales may be affected to a greater degree than we have previously experienced. There can be no assurance that weather conditions will not have a material effect on the sales of any of our products.\nOur industry is characterized by intense competition, which affects our sales and profits. \nThe recreational powerboat industry, and in particular the performance sport boat category, is highly competitive for consumers and dealers. Competition affects our ability to succeed in the markets we currently serve, including the saltwater \n20\nTable of Contents\noutboard fishing boat market that we recently entered with our acquisitions of Pursuit and Maverick Boat Group, and new markets that we may enter in the future. Competition is based primarily on brand name, price, product selection and product performance. We compete with several large manufacturers that may have greater financial, marketing and other resources than we do and who are represented by dealers in the markets in which we now operate and into which we plan to expand. We also compete with a variety of small, independent manufacturers. We cannot assure you that we will not face greater competition from existing large or small manufacturers or that we will be able to compete successfully with new competitors. Our failure to compete effectively with our current and future competitors would adversely affect our business, financial condition and results of operations.\nWe compete with a variety of other activities for consumers\u2019 scarce leisure time.\nOur boats are used for recreational and sport purposes, and demand for our boats may be adversely affected by competition from other activities that occupy consumers\u2019 leisure time and by changes in consumer life style, usage pattern or taste. Similarly, an overall decrease in consumer leisure time may reduce consumers\u2019 willingness to purchase and enjoy our products.\nChanges in currency exchange rates can adversely affect our results.\nA portion of our sales are denominated in a currency other than the U.S. dollar. Consequently, a strong U.S. dollar may adversely affect reported revenues and, with the recent strengthening of the U.S. dollar, we have experienced a corresponding negative impact on our financial results with respect to our foreign operations. We also maintain a portion of our manufacturing operations in Australia which partially mitigates the impact of a strengthening U.S. dollar in that country. A portion of our selling, general and administrative costs are transacted in Australian dollars as a result. We also sell U.S. manufactured products into certain international markets in U.S. dollars, including the sale of products into Canada, Europe and Latin America. Demand for our products in these markets may also be adversely affected by a strengthening U.S. dollar. We do not currently use hedging or other derivative instruments to mitigate our foreign currency risks.\nInflation could adversely affect our financial results.\nThe market prices of certain materials and components used in manufacturing our products, especially resins that are made with hydrocarbon, feedstocks, copper, aluminum and stainless steel, can be volatile. While, historically, inflation has not had a material effect on our results of operations, significant increases in inflation, particularly those related to wages and increases in the cost of raw materials, recently have had, and may continue to have, an adverse impact on our business, financial condition, and results of operations.\nIn addition, new boat buyers often finance their purchases. Inflation typically results in higher interest rates that could translate into an increased cost of boat ownership. Should inflation and increased interest rates occur, prospective consumers may choose to forego or delay their purchases or buy a less expensive boat in the event credit is not available to finance their boat purchases.\nRisks Related to our Dealers \nWe depend on our network of independent dealers, face increasing competition for dealers and have little control over their activities.\nSubstantially all of our sales are derived from our network of independent dealers. Our top ten dealers represented 41.1%, 39.9% and 38.7% of our net sales for fiscal year 2023, 2022 and 2021, respectively. Sales to our dealers under common control of OneWater Marine, Inc. represented approximately 17.2%\n, 16.8% and 16.3%\n of consolidated net sales in fiscal years 2023, 2022 and 2021, respectively. \nSales to our dealers under common control of Tommy's Boats represented approximately 10.7%, 9.4% and 7.3% of our consolidated net sales in the fiscal years ended June 30, \n2023\n, \n2022\n and \n2021\n respectively. \nThe loss of a significant number of these dealers could have a material adverse effect on our financial condition and results of operations. We have agreements with the dealers in our network that typically provide for one-year terms, although some agreements have a term of up to three years. \nThe number of dealers supporting our products and the quality of their marketing and servicing efforts are essential to our ability to generate sales. Competition for dealers among recreational powerboat manufacturers continues to increase based on the quality, price, value and availability of the manufacturers\u2019 products, the manufacturers\u2019 attention to customer service and the marketing support that the manufacturer provides to the dealers. We face competition from other manufacturers in attracting and retaining independent boat dealers. In addition, independent dealers in the recreational powerboat industry have experienced significant consolidation in recent years, which could result in the loss of one or more of our dealers in the future if the surviving entity in any such consolidation purchases similar products from a competitor. A significant deterioration in the \n21\nTable of Contents\nnumber or effectiveness of our dealers could have a material adverse effect on our business, financial condition and results of operations.\nOur success depends, in part, upon the financial health of our dealers and their continued access to financing.\nBecause we sell nearly all of our products through dealers, the financial health of our dealers is critical to our success. Our business, financial condition and results of operations may be adversely affected if the financial health of the dealers that sell our products suffers. Their financial health may suffer for a variety of reasons, including a downturn in general economic conditions, rising interest rates, higher rents, increased labor costs and taxes, compliance with regulations and personal financial issues.\nOur dealers also require adequate liquidity to finance their operations, including purchases of our boats. Dealers are subject to numerous risks and uncertainties that could unfavorably affect their liquidity positions, including, among other things, continued access to adequate financing sources on a timely basis on reasonable terms. These sources of financing are vital to our ability to sell products through our distribution network. Access to floor plan financing generally facilitates our dealers\u2019 ability to purchase boats from us, and their financed purchases reduce our working capital requirements. If floor plan financing were not available to our dealers, our sales and our working capital levels would be adversely affected. \nWe may be required to repurchase inventory of certain dealers.\nMany of our dealers have floor plan financing arrangements with third-party finance companies that enable the dealers to purchase our products. In connection with these agreements, we may have an obligation to repurchase our products from a finance company under certain circumstances, and we may not have any control over the timing or amount of any repurchase obligation nor have access to capital on terms acceptable to us to satisfy any repurchase obligation. This obligation is triggered if a dealer defaults on its debt obligations to a finance company, the finance company repossesses the boat and the boat is returned to us. Our obligation to repurchase a repossessed boat for the unpaid balance of our original invoice price for the boat is subject to reduction or limitation based on the age and condition of the boat at the time of repurchase, and in certain cases by an aggregate cap on repurchase obligations associated with a particular floor plan financing program. If boats are returned to us, it would have an adverse impact on our net sales and could result in downward pressure on pricing of our boats. Since fiscal year 2020, we have repurchased a total of two units from lenders to former dealers and those units were subsequently resold above their cost and at a minimal margin loss. \nOne or more dealers may default on the terms of a credit line in the future. In addition, applicable laws regulating dealer relations may also require us to repurchase our products from our dealers under certain circumstances, and we may not have any control over the timing or amount of any repurchase obligation nor have access to capital on terms acceptable to us to satisfy any repurchase obligation. If we are required to repurchase a significant number of units under any repurchase agreement or under applicable dealer laws, our business, operating results and financial condition could be adversely affected.\nRisks Related to our Regulatory, Accounting, Legal and Tax Environment\nThe manufacture and sale of boats exposes us to product liability risks and a significant adverse determination in any material claim against us could adversely affect our operating results or financial condition.\nThe manufacture and sale of our boats expose us to significant risks associated with product liability, economic loss, and other claims. If our products are found to be defective or used incorrectly by our customers, bodily injury, property damage or other injury, including death, may result and this could give rise to additional product liability or economic loss claims against us and adversely affect our brand image or reputation. For instance, we recently settled certain product liability matters for $100.0 million after a jury found that our subsidiary, Malibu Boats, LLC, and another entity that was the manufacturer of the boat at issue, Malibu Boats West, Inc., negligently failed to warn of a hazard posed by the boat and that such failure was a proximate cause of the death of a passenger in the boat. Malibu Boats West, Inc. is not, and has never been, a subsidiary of ours but was a separate legal entity whose assets were purchased by Malibu Boats, LLC in 2006. See Note 17 of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.\nAs noted, we maintain product and general liability insurance policies, including excess insurance coverage for product liability claims. However, we are not fully insured against all potential claims and we may experience legal claims in excess of our insurance coverage or claims that are not covered by insurance, either of which could adversely affect our business, financial condition and results of operations. Any losses that we may suffer from any such claims, including any unanticipated adverse determination of a material product liability claim or other material claim (particularly an uninsured matter), could materially and adversely affect our financial condition, and the effect that any such liability may have upon the reputation and marketability of our products may have a negative impact on our business and operating results.\n22\nTable of Contents\nSignificant product repair and/or replacement costs due to product warranty claims or product recalls could have a material adverse impact on our results of operations.\nWe provide limited warranties for our boats. Although we employ quality control procedures, sometimes a product is distributed that needs repair or replacement. Our standard warranties require us, through our dealer network, to repair or replace defective products during such warranty periods. In addition, if any of our products are, or are alleged to be, defective, we may be required to participate in a recall of that product if the defect or alleged defect relates to safety. For example, in fiscal year 2019 we announced a recall on fuel pumps supplied to us by a third-party vendor and used in certain Malibu and Axis boats. While this recall did not have a material impact on our business, the repair and replacement costs we could incur in connection with a recall could materially and adversely affect our business and could cause consumers to question the safety or reliability of our products. \nChanges to U.S. trade policy, tariffs, and import/export regulations may have a material adverse effect on our business, financial condition, and results of operations. \nChanges in laws and policies governing foreign trade could adversely affect our business and trigger retaliatory actions by affected countries. There is significant uncertainty with respect to future trade regulations, including the imposition by the U.S. of tariffs and penalties on products manufactured outside the U.S., and existing international trade agreements, as shown by Brexit in Europe. The institution of global trade tariffs, trade sanctions, new or onerous trade restrictions, embargoes and other stringent government controls have the potential to adversely impact the U.S. economy, our industry, our suppliers, and global demand for our products and, as a result, could have a material adverse effect on our business, financial condition, and results of operations. \nWe must comply with environmental laws and regulations as a boat manufacturer that could increase the costs of our products and reduce consumer demand.\nAs with boat construction in general, our manufacturing processes involve the use, handling, storage and contracting for recycling or disposal of hazardous substances and wastes. The failure to manage or dispose of such hazardous substances and wastes properly could expose us to material liability or fines, including liability for personal injury or property damage due to exposure to hazardous substances, damages to natural resources, or for the investigation and remediation of environmental conditions. Under certain environmental laws, we may be liable for remediation of contamination at sites where our hazardous wastes have been disposed or at our current or former facilities, regardless of whether such facilities are owned or leased or whether we caused the condition of contamination. We have not been notified of and are otherwise currently not aware of any contamination at our current or former facilities, or at any other location, for which we could have any material liability under environmental laws or regulations, and we currently are not undertaking any remediation or investigation activities in connection with any contamination. Also, the components in our boats may become subject to more stringent environmental regulations. For example, boat engines and other emission producing components may become subject to more stringent emissions standards, which could increase the cost of our engines, components and products, which, in turn, may reduce consumer demand for our products.\nOur customers use our boats for recreational water and fishing activities. Environmental regulations, permitting and zoning requirements and other commercial policies and practices that limit access to water, including availability of slip locations and/or the ability to transfer boats among different waterways, access to fisheries, or the ability to fish in some areas could negatively affect demand for our boats. Future licensing requirements, including any licenses imposed on recreational boating, may also deter potential customers, thereby reducing our sales. Furthermore, regulations allowing the sale of fuel containing higher levels of ethanol for automobiles, which is not appropriate or intended for use in marine engines, may nonetheless result in increased warranty, service costs, customer dissatisfaction with products, and other claims against us if boaters mistakenly use this fuel in marine engines, causing damage to and the degradation of components in their marine engines. \nIn addition to environmental regulations, we must also comply with product safety, workforce and other laws and regulations that may increase our costs and could result in harm to our reputation if we fail to comply with such regulations.\nWe are subject to federal, state, local, and foreign laws and regulations, including product safety, workforce, and other regulations. For instance, we are subject to laws governing our relationships with employees, including, but not limited to, employment obligations such as employee wage, hour, and benefits issues. The Occupational Safety and Health Administration (OSHA) also imposes standards of conduct for and regulates workplace safety, including physical safety and limits on the amount of emissions to which an employee may be exposed without the need for respiratory protection or upgraded plant ventilation. Our facilities are also regularly inspected by OSHA and by state and local inspection agencies and departments. \nAny of these laws, rules, or regulations may cause us to incur significant expenses to achieve or maintain compliance, require us to modify our products, or modify our approach to our workforce, adversely affecting the price of or demand for \n23\nTable of Contents\nsome of our products, and ultimately affect the way we conduct our operations. Failure to comply with any of these laws, rules, or regulations could result in harm to our reputation and/or could lead to fines and other penalties, including restrictions on the importation of our products into, and the sale of our products in, one or more jurisdictions until compliance is achieved. In addition, legal requirements are constantly evolving, and changes in laws, regulations or policies, or changes in interpretations of the foregoing, could result in compliance shortfalls, require additional product development investment, increase consumer pricing, and increase our costs or create liabilities where none exists today.\nRisks Related to our Capital Structure\nThe only material asset of Malibu Boats, Inc. is our interest in the LLC, and therefore Malibu Boats, Inc. is dependent upon distributions from the LLC for any cash obligations of Malibu Boats, Inc.\nMalibu Boats, Inc. is a holding company and has no material assets other than its ownership of LLC Units in the LLC. Malibu Boats, Inc. has no independent means of generating revenue. We intend to cause the LLC to make distributions to its unit holders in an amount sufficient to cover all applicable taxes at assumed tax rates and payments under the tax receivable agreement. To the extent that Malibu Boats, Inc. need funds, and the LLC is restricted from making such distributions under applicable law or regulation or under the terms of its financing arrangements, or is otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition. For example, our credit agreement generally prohibits the LLC, Malibu Boats, LLC, Malibu Australian Acquisition Corp., Cobalt Boats, LLC, PB Holdco, LLC, MBG Holdco, Inc. and Maverick Boat Group, Inc. from paying dividends or making distributions to Malibu Boats, Inc. However, our credit agreement permits (i) distributions to members of the LLC, including Malibu Boats, Inc., based on the member\u2019s allocated taxable income, (ii) distributions to fund payments that are required under the our tax receivable agreement, (iii) purchases of stock or stock options of the LLC from former officers, directors or employees of loan parties under the credit agreement or payments pursuant to stock option and other benefit plans up to $5.0 million in any fiscal year, and (iv) repurchases of the outstanding stock and LLC units of Malibu Boats, Inc.. In addition, the LLC may make dividends and distributions, subject to compliance with other financial covenants.\nThe credit agreement governing our revolving credit facility contains restrictive covenants which may limit our operating flexibility and may impair our ability to access sufficient capital to operate our business.\nWe rely on our revolving credit facility to provide us with adequate liquidity to operate our business. The credit agreement governing our revolving credit facility contains restrictive covenants regarding indebtedness, liens, fundamental changes, investments, share repurchases, dividends and distributions, disposition of assets, transactions with affiliates, negative pledges, hedging transactions, certain prepayments of indebtedness, accounting changes and governmental regulation. The credit agreement also requires compliance with financial covenants consisting of a minimum ratio of EBITDA to interest expense and a maximum ratio of total debt to EBITDA. \nWe have the option to request that lenders increase the amount available under the revolving credit facility by, or obtain incremental term loans of, up to $200.0 million, subject to the terms of the credit agreement and only if existing or new lenders choose to provide additional term or revolving commitments. \nAny incremental revolving commitments or term loan facility established under the credit agreement will also be subject to these same covenants and restrictions.\nThese covenants may affect our ability to operate and finance our business as we deem appropriate. Violation of these covenants could constitute an event of default under the credit agreement governing our revolving credit facility. If there were an event of default under the credit agreement, our lenders could reduce or terminate our access to amounts under our credit facilities or declare all of the indebtedness outstanding under our revolving credit facility immediately due and payable. We may not have sufficient funds available, or we may not have access to sufficient capital from other sources, to continue funding our operations or to repay any accelerated debt. Even if we could obtain additional financing, the terms of the financing may not be favorable to us. In addition, substantially all of our assets are subject to liens securing our revolving credit facility. If amounts outstanding under the revolving credit facility were accelerated, our lenders could foreclose on these liens and we could lose substantially all of our assets. Any event of default under the credit agreement governing our revolving credit facility could have a material adverse effect on our business, financial condition and results of operations. \nOur variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.\n \nBorrowings under our revolving credit facility are at variable rates of interest and expose us to interest rate risk. During the past year, interest rates have been increasing, which results in increased debt service obligations under our revolving credit facility even if our amount borrowed remains the same. Borrowings under our revolving credit facility bear interest at a variable rate equal to either, at our option, (i) the highest of the prime rate, the Federal Funds Rate plus 0.5%, or one-month Term SOFR plus 1% (the \u201cBase Rate\u201d) or (ii) SOFR, in each case plus an applicable margin ranging from 1.25% to 2.00% with respect to \n24\nTable of Contents\nSOFR borrowings and 0.25% to 1.00% with respect to Base Rate borrowings. The applicable margin will be based upon the consolidated leverage ratio of the LLC and its subsidiaries.\nAs of August 24, 2023, we had $65.0\u00a0million outstanding under our revolving credit facility. If the rate used to calculate interest on our outstanding floating rate debt under our revolving credit facility Credit Agreement were to increase by 1.0%, we would expect to incur additional interest expense on such indebtedness as of August\u00a024, 2023 of approximately $0.7 million on an annualized basis.\nWe will be required to pay the pre-IPO owners (or any permitted assignee) for certain tax benefits pursuant to our tax receivable agreement with them, and the amounts we may pay could be significant.\nWe entered into a tax receivable agreement with the pre-IPO owners (or their permitted assignees) that provides for the payment by us to the pre-IPO owners (or any permitted assignee) of 85% of the tax benefits, if any, that we are deemed to realize as a result of (1) the increases in tax basis resulting from our purchases or exchanges of LLC Units and (2) certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. These payment obligations are the obligations of Malibu Boats, Inc. and not of the LLC. For purposes of the agreement, the benefit deemed realized by Malibu Boats, Inc. will be computed by comparing its actual income tax liability (calculated with certain assumptions) to the amount of such taxes that it would have been required to pay had there been no increase to the tax basis of the assets of the LLC as a result of the purchases or exchanges, and had we not entered into the tax receivable agreement.\nEstimating the amount of payments that may be made under the tax receivable agreement is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. The actual increase in tax basis, as well as the amount and timing of any payments under the agreement, will vary depending upon a number of factors, including:\n\u2022\nthe timing of purchases or exchanges - for instance, the increase in any tax deductions will vary depending on the fair value, which may fluctuate over time, of the depreciable or amortizable assets of the LLC at the time of each purchase or exchange;\n\u2022\nthe price of shares of our Class A Common Stock at the time of the purchase or exchange - the increase in any tax deductions, as well as the tax basis increase in other assets, of the LLC is directly related to the price of shares of our Class A Common Stock at the time of the purchase or exchange;\n\u2022\nthe extent to which such purchases or exchanges are taxable - if an exchange or purchase is not taxable for any reason, increased deductions will not be available; and\n\u2022\nthe amount and timing of our income - Malibu Boats, Inc. will be required to pay 85% of the deemed benefits as and when deemed realized. If we do not have taxable income, we generally will not be required (absent a change of control or other circumstances requiring an early termination payment) to make payments under the tax receivable agreement for that taxable year because no benefit will have been realized. However, any tax benefits that do not result in realized benefits in a given tax year will likely generate tax attributes that may be utilized to generate benefits in previous or future tax years. The utilization of such tax attributes will result in payments under the tax receivable agreement.\nWe expect that the payments that Malibu Boats, Inc. may make under the tax receivable agreement may be substantial. Assuming no material changes in the relevant tax law, and that we earn sufficient taxable income to realize all tax benefits that are subject to the agreement, we expect that future payments under the tax receivable agreement relating to the purchases by Malibu Boats, Inc. of LLC Units will be approximately $43.5 million over the next sixteen (16) years. Future payments to pre-IPO owners (or their permitted assignees) in respect of subsequent exchanges or purchases would be in addition to these amounts and are expected to be substantial. The foregoing numbers are estimates and the actual payments could differ materially. It is possible that future transactions or events, such as changes in tax legislation, could increase or decrease the actual tax benefits realized and the corresponding tax receivable agreement payments. \nFurther, there may be a material negative effect on our liquidity if distributions to Malibu Boats, Inc. by the LLC are not sufficient to permit Malibu Boats, Inc. to make payments under the tax receivable agreement after it has paid taxes. For example, Malibu Boats, Inc. may have an obligation to make tax receivable agreement payments for a certain amount while receiving distributions from the LLC in a lesser amount, which would negatively affect our liquidity. The payments under the tax receivable agreement are not conditioned upon the pre-IPO owners\u2019 (or any permitted assignees\u2019) continued ownership of us.\nMalibu Boats, Inc. is required to make a good faith effort to ensure that it has sufficient cash available to make any required payments under the tax receivable agreement. The limited liability company agreement of the LLC requires the LLC to make \n25\nTable of Contents\n\u201ctax distributions\u201d which, in the ordinary course, will be sufficient to pay the actual tax liability of Malibu Boats, Inc. and to fund required payments under the tax receivable agreement. \nIf for any reason the LLC is not able to make a tax distribution in an amount that is sufficient to make any required payment under the tax receivable agreement or we otherwise lack sufficient funds, interest would accrue on any unpaid amounts at LIBOR, plus 500 basis points until they are paid. Recent actions taken by the Chief Executive of the U.K. Financial Conduct Authority (the \u201cFCA\u201d), which regulates LIBOR, discontinued U.S. LIBOR after June 30, 2023. Our tax receivable agreement does not provide for an alternative reference rate to LIBOR. Therefore, pursuant to \nthe Adjustable Interest Rate (LIBOR) Act (the \u201c\nLIBOR Act\n\u201d), 12 U.S.C. \u00a7\u00a7 5801-5807, and the regulations promulgated to carry out the LIBOR Act, 12 C.F.R. Part 253, on July 1, 2023 we believe LIBOR with respect to the tax receivables agreement was automatically replaced by operation of law with the SOFR plus a spread adjustment. \nWe do not currently anticipate failing to pay any amounts owed under our tax receivable agreement.\nIn certain cases, payments under the tax receivable agreement to the pre-IPO owners (or any permitted assignees) of LLC Units may be accelerated or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement.\nThe tax receivable agreement provides that, in the event that we exercise our right to early termination of the tax receivable agreement, or in the event of a change in control or a material breach by us of our obligations under the tax receivable agreement, the tax receivable agreement will terminate, and Malibu Boats, Inc. will be required to make a lump-sum payment equal to the present value of all forecasted future payments that would have otherwise been made under the tax receivable agreement, which lump-sum payment would be based on certain assumptions, including those relating to our future taxable income. The change in control payment and termination payments to the pre-IPO owners (or any permitted assignees) could be substantial and could exceed the actual tax benefits that Malibu Boats, Inc. receives as a result of acquiring the LLC Units because the amounts of such payments would be calculated assuming that we would have been able to use the potential tax benefits each year for the remainder of the amortization periods applicable to the basis increases, and that tax rates applicable to us would be the same as they were in the year of the termination. In these situations, our obligations under the tax receivable agreement could have a substantial negative impact on our liquidity. There can be no assurance that we will be able to finance our obligations under the tax receivable agreement.\nPayments under the tax receivable agreement will be based on the tax reporting positions that we determine. Although we are not aware of any issue that would cause the Internal Revenue Service, or the IRS, to challenge a tax basis increase, Malibu Boats, Inc. will not be reimbursed for any payments previously made under the tax receivable agreement. As a result, in certain circumstances, payments could be made under the tax receivable agreement in excess of the benefits that Malibu Boats, Inc. actually realizes in respect of (1) the increases in tax basis resulting from our purchases or exchanges of LLC Units and (2) certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.\nRisks Related to our Common Stock \nOur stock price may be volatile and stockholders may be unable to sell shares at or above the price at which they purchased them.\nOur closing stock price ranged from $46.96 per share to $70.49 per share during fiscal year 2023. The market price of our Class A Common Stock could be subject to wide fluctuations in response to the risk factors listed in this section and others beyond our control. Further, stock markets may experience extreme price and volume fluctuations that can affect the market prices of equity securities. These fluctuations can be unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, could harm the market price of our Class A Common Stock.\nFuture sales of our Class A Common Stock in the public market could cause our share price to fall; furthermore, you may be diluted by future issuances of Class A Common Stock in connection with our incentive plans, acquisitions or otherwise.\nSales of a substantial number of shares of our Class A Common Stock in the public market, in particular sales by our directors, officers or other affiliates, or the perception that these sales might occur, could depress the market price of our Class A Common Stock and could impair our ability to raise capital through the sale of additional equity securities. Furthermore, any Class A Common Stock that we issue in connection with our Long-Term Incentive Plan or other equity incentive plans that we may adopt in the future, our acquisitions or otherwise would dilute the percentage ownership of holders of our Class A Common Stock.\n26\nTable of Contents\nOur governing documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.\nOur certificate of incorporation and bylaws contain certain provisions that could delay or prevent a change in control. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include, without limitation:\n\u2022\na classified board structure;\n\u2022\na requirement that stockholders must provide advance notice to propose nominations or have other business considered at a meeting of stockholders;\n\u2022\nsupermajority stockholder approval to amend our bylaws or certain provisions in our certificate of incorporation; and\n\u2022\nauthorization of blank check preferred stock.\nIn addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding Class A Common Stock, from engaging in certain business combinations without the approval of substantially all of our stockholders for a certain period of time.\nThese and other provisions in our certificate of incorporation, bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our Class A Common Stock in the future and result in the market price being lower than it would be without these provisions.\n27\nTable of Contents",
+  "item7": ">Item 7. \n \nManagement's Discussion and Analysis of Financial Condition and Results of Operations\nOverview\n33\nOutlook\n34\nFactors Affecting Our Results of Operations\n35\nComponents of Results of Operations\n37\nResults of Operations\n38\nGAAP Reconciliation of Non-GAAP Financial Measures\n43\nLiquidity and Capital Resources\n47\nCritical Accounting Policies\n50\nNew Accounting Pronouncements\n51\nOverview\nWe are a leading designer, manufacturer and marketer of a diverse range of recreational powerboats, including performance sport boats, sterndrive and outboard boats. Our product portfolio of premium brands are used for a broad range of recreational boating activities including, among others, water sports, general recreational boating and fishing. Our passion for consistent innovation, which has led to propriety technology such as Surf Gate, has allowed us to expand the market for our products by introducing consumers to new and exciting recreational activities. We design products that appeal to an expanding range of recreational boaters and water sports enthusiasts whose passion for boating and water sports is a key component of their active lifestyle and provide consumers with a better customer-inspired experience. With performance, quality, value and multi-purpose features, our product portfolio has us well positioned to broaden our addressable market and achieve our goal of increasing our market share in the expanding recreational boating industry.\nWe currently sell our boats under eight brands as shown in the table below, and we report our results of operations under three reportable segments, Malibu, Saltwater Fishing and Cobalt. We revised our segment reporting effective December 31, 2020 to account for our acquisition of Maverick Boat Group and to conform to changes in our internal management reporting based on our boat manufacturing operations. Prior to December 31, 2020, we had three reportable segments, Malibu, Pursuit and Cobalt. All segment information in the accompanying consolidated financial statements has been revised to conform to our current reporting segments for comparison purposes. Additional segment information is contained in Note 19 - Segment Reporting, in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.\n% of Total Revenues\nFiscal Year Ended June 30, \nSegment\nBrands\n2023\n2022\n2021\nMalibu\nMalibu\n45.8%\n50.0%\n52.2%\nAxis\nSaltwater Fishing\nPursuit\n32.4%\n28.1%\n26.2%\nMaverick\nCobia\nPathfinder\nHewes\nCobalt\nCobalt\n21.8%\n21.9%\n21.6%\nOur Malibu segment participates in the manufacturing, distribution, marketing and sale throughout the world of Malibu and Axis performance sports boats. Our flagship Malibu boats offer our latest innovations in performance, comfort and convenience, and are designed for consumers seeking a premium performance sport boat experience. We are the market leader in the United States in the performance sport boat category through our Malibu and Axis boat brands. Our Axis boats appeal to consumers who desire a more affordable performance sport boat product but still demand high performance, functional simplicity and the option to upgrade key features. Retail prices of our Malibu and Axis boats typically range from $80,000 to $300,000.\n33\nTable of Contents\nOur Saltwater Fishing segment participates in the manufacturing, distribution, marketing and sale throughout the world of Pursuit boats and the Maverick Boat Group family of boats (Maverick, Cobia, Pathfinder and Hewes). Our Pursuit boats expand our product offerings into the saltwater outboard fishing market and include center console, dual console and offshore models. In December 2020, we acquired Maverick Boat Group and added Maverick, Cobia, Pathfinder and Hewes to our brands. Our Maverick Boat Group family of boats are highly complementary to Pursuit, expanding our saltwater outboard offerings with a strong focus in length segments under 30 feet. We are among the market leaders in the fiberglass outboard fishing boat category with the brands in our Saltwater Fishing segment. Retail prices for our Saltwater Fishing boats typically range from $45,000 to $1,400,000.\nOur Cobalt segment participates in the manufacturing, distribution, marketing and sale throughout the world of Cobalt boats. Our Cobalt boats consist of mid to large-sized luxury cruisers and bowriders that we believe offer the ultimate experience in comfort, performance and quality. We are the market leader in the United States in the 20\u2019 - 40\u2019 segment of the sterndrive boat category through our Cobalt brand. Retail prices for our Cobalt boats typically range from $75,000 to $625,000.\nWe sell our boats through a dealer network that we believe is the strongest in the recreational powerboat category. As of June 30, 2023, our worldwide distribution channel consisted of over 400 dealer locations globally. Our dealer base is an important part of our consumers\u2019 experience, our marketing efforts and our brands. We devote significant time and resources to find, develop and improve the performance of our dealers and believe our dealer network gives us a distinct competitive advantage. \nWe achieved fiscal year 2023 net sales, net income and adjusted EBITDA of $1,388.4 million, $107.9 million and $284.0 million, respectively, compared to $1,214.9 million, $163.4 million and $246.5 million, respectively, for fiscal year 2022. For the definition of adjusted EBITDA and a reconciliation to net income, see \u201cGAAP Reconciliation of Non-GAAP Financial Measures.\u201d\nOutlook\nDuring the COVID-19 pandemic, domestic retail demand for recreational powerboats increased to the highest levels seen by the industry in decades as consumers turned to boating as a form of outdoor, socially-distanced, recreation. Retail registration activity in the recreational powerboat market, however, began declining meaningfully in the second half of calendar year 2021 as a result of limited available inventory due to the strong sales activity during the pandemic and supply chain disruptions that began impacting production levels. During calendar year 2022, retail registration activity continued to decline at a lower year-over-year rate than the second half of calendar year 2021. The declines in retail registration activity in the recreational powerboat market during calendar year 2022 were also impacted by the increased retail demand in calendar year 2021, resulting in an abnormally high comparative period.\nWe and our dealers have experienced similar impacts in retail demand, supply chain disruption and resulting low inventory levels as the industry. The combination of strong retail market activity in calendar years 2020 and 2021 along with supply chain disruptions in calendar year 2021 that continued through calendar year 2022 depleted inventory levels at our dealers in calendar year 2022 below pre-COVID levels. Some of the operational challenges and supply chain disruptions we experienced included labor shortages, domestic logistical constraints, West Coast port challenges and rising prices for our suppliers, in part due to inflationary pressures. These operational challenges and supply chain constraints delayed our ability to add to depleted inventory levels throughout fiscal year 2022. While retail activity at our dealers was strong during much of fiscal year 2022, it may have been higher but for a lack of inventory.\nCurrent inventory levels at our Malibu and Cobalt dealers have returned to pre-pandemic levels and at our Saltwater Fishing dealers are continuing to normalize to pre-pandemic levels. While retail activity at our dealers trended lower during fiscal year 2023, given low inventory levels at the beginning of the fiscal year, we continued to experience strong wholesale demand throughout the first three quarters of fiscal year 2023. As channel inventory becomes more normalized, we believe wholesale demand will become more directly dependent on the underlying retail activity for our products. As a result, we believe our wholesale demand in the upcoming quarters will largely be driven by the retail activity for our products into the first half of fiscal year 2024.\nWe aim to increase our market share across the boating categories in which we compete through new product development, improved distribution, new models, and innovative features. Our industry, however, is highly competitive, and our competitors have become more aggressive in their product introductions, expanded their distribution capabilities, and launched surf systems competitive with our patented Surf Gate system. Further, our ability to maintain inventory levels at our dealers will be important to sustain and grow our market share across our brands. We believe our new product pipeline, strong dealer network and ability to increase production will allow us to maintain, and potentially expand, our leading market position in performance sports boats. We also believe that our track record of expanding our market share with our Malibu and Axis brands is directly transferable to our Cobalt, Pursuit and Maverick Boat Group brands. \n34\nTable of Contents\nAs discussed above, our financial results and operations have been, and could continue to be, impacted by events outside of our control, including COVID-19 and supply chain disruptions that we believe were driven by numerous factors, such as labor shortages, ongoing domestic logistical constraints, West Coast port challenges and rising prices for our suppliers, in part due to inflationary pressures. Numerous other variables also have the potential to impact our volumes, both positively and negatively. For instance, elevated interest rates, which we are currently experiencing, could reduce retail consumer appetite for our product or reduce the appetite or availability for credit for our dealers and retail consumers.\nFactors Affecting Our Results of Operations\nWe believe that our results of operations and our growth prospects are affected by a number of factors, which we discuss below. \nEconomic Environment and Consumer Demand \nOur product sales are impacted by general economic conditions, which affect the demand for our products, the demand for optional features, the availability of credit for our dealers and retail consumers, and overall consumer confidence. Consumer spending, especially purchases of discretionary items, tends to decline during recessionary periods and tends to increase\n during expansionary periods. \nWhile there is still some uncertainty surrounding current macroeconomic conditions, and rising prices to our suppliers, in part due to inflationary pressures, we believe we are well positioned strategically in the recreational powerboat market with brands that are market leaders in their segments.\nInflation has impacted the prices of our materials and our labor costs, which has had a negative impact on our gross margin and our operations. In particular, the market prices of certain materials and components used in manufacturing our products, especially resins that are made with hydrocarbon, feedstocks, copper, aluminum and stainless steel, are increasing. To combat this, we implemented a surcharge across all brands effective December 1, 2021. These surcharges could have negatively impacted retail demand, but we do not believe they impacted our wholesale shipments in fiscal year 2022. Further, new boat buyers often finance their purchases. Efforts to stop or limit inflation are resulting in higher interest rates that translate into an increased cost of boat ownership. We have seen increased interest rates for our customers throughout calendar year 2022 and the first half of calendar year 2023. Should inflation and increased interest rates continue at elevated rates, we may experience less retail demand because prospective consumers may choose to forgo or delay their purchases or buy a less expensive or used boat. We intend to minimize the effect of inflation through selective price increases, cost reductions and improved productivity.\nNew Product Development and Innovation \nOur long-term revenue prospects are based in part on our ability to develop new products and technological enhancements that meet the demands of existing and new consumers. Developing and introducing new boat models and features that deliver improved performance and convenience are essential to leveraging the value of our brands. By introducing new boat models, we are able to appeal to a new and broader range of consumers and focus on underserved or adjacent segments of the broader powerboat category. To keep product fresh and at the forefront of technological innovation in the boating industry, we aim to introduce a number of new boat models per year. We also believe we are able to capture additional value from the sale of each boat through the introduction of new features, which results in increased average selling prices and improved margins. We allocate most of our product development costs to new model and feature designs, usually with a specific consumer base and market in mind. We use industry data to analyze our markets and evaluate revenue potential from each major project we undertake. Our product development cycle, or the time from initial concept to volume production, can be up to two years. As a result, our development costs, which may be significant, may not be offset by corresponding new sales during the same periods. Once new designs and technologies become available to our consumers, we typically realize revenue from these products from one year up to 15 years. We may not, however, realize our revenue expectations from each innovation. We believe our close communication with our consumers, dealers and sponsored athletes regarding their future product desires enhances the efficiency of our product development expenditures. \nProduct Mix \nLeveraging our robust product offering and features to enhance our sales growth and gross margins. Our product mix, as it relates to our brands, types of boats and features, not only makes our offerings attractive to consumers but also helps drive higher sales and margins. Historically, we have been able to realize higher sales and margins when we sell larger boats compared to our smaller boats, our premium brands compared to our entry-level brands and our boats that are fully-equipped with optional features. We intend to continue to develop new features and models and maintain an attractive product mix that optimizes sales growth and margins.\n35\nTable of Contents\nAbility to Manage Manufacturing Costs, Sales Cycles and Inventory Levels\nOur results of operations are affected by our ability to manage our manufacturing costs effectively and to respond to changing sales cycles. Our product costs vary based on the costs of supplies and raw materials, as well as labor costs. We have implemented various initiatives to reduce our cost base and improve the efficiency of our manufacturing process. We are continuously monitoring and reviewing our manufacturing processes to identify improvements and create additional efficiencies. \nOur ability to maintain production is dependent upon our suppliers delivering sufficient amounts of components, raw materials and parts to manufacture our products and on time to meet our production schedules. Historically, we have not entered into long-term agreements with suppliers of our raw materials and components other than for our engines and outboard motors. Any number of factors, including labor disruptions, weather events, the occurrence of a contagious disease or illness, contractual or other disputes, unfavorable economic or industry conditions, delivery delays or other performance problems or financial difficulties or solvency problems, could disrupt our suppliers\u2019 operations and lead to uncertainty in our supply chain or cause supply disruptions for us, which could, in turn, disrupt our operations. We have experienced supply chain disruptions since fiscal year 2020 related to numerous factors, including COVID-19, severe weather events, labor shortages, ongoing domestic logistical constraints, West Coast port challenges and rising prices for our suppliers, in part due to inflationary pressures. If we were to further experience supply disruptions or they intensify, we may not be able to develop alternate sourcing quickly or at all. Any material disruption of our production schedule caused by an unexpected shortage of components, raw materials or parts could cause us not to be able to meet customer demand, to alter production schedules or suspend production entirely, which could cause a loss of revenues, which could materially and adversely affect our results of operations.\nWe completed the build-out of our new Tooling Design Center at our Pursuit facility in Florida in March 2023. The Tooling Design Center is a vertical integration initiative that will first focus on the tooling needs for our Pursuit boats, with the goal to build the majority of tooling across all of our brands at this site. This vertical integration initiative is part of a multi-year plan to bring our product tooling in-house, which has the potential to help us better control capital expenditures, improve tooling quality, and increase volumes. \nOn July 25, 2023, we completed the purchase of a 260,000 square-foot facility in Lenoir City, Tennessee. This new facility provides for the opportunity to expand production of boats and provides additional opportunities for vertical integration initiatives.\nDealer Network, Dealer Financing and Incentives \nWe rely on our dealer network to distribute and sell our products. We believe we have developed the strongest distribution network in the performance sport boat category. To improve and expand our network and compete effectively for dealers, we regularly monitor and assess the performance of our dealers and evaluate dealer locations and geographic coverage in order to identify potential market opportunities. Our acquisitions of Cobalt, Pursuit and Maverick Boat Group has allowed us to expand into each of their strong dealer networks as well. We intend to continue to add dealers in new territories in the United States as well as internationally, which we believe will result in increased unit sales. \nOur dealers are exposed to seasonal variations in consumer demand for boats. We address anticipated demand for our products and manage our manufacturing in order to mitigate seasonal variations. We also use our dealer incentive programs to encourage dealers to order in the off-season by providing floor plan financing relief, which typically permits dealers to take delivery of current model year boats between July 1 and April 30 on an interest-free basis for a specified period. We also offer our dealers other incentives, including rebates, seasonal discounts and other allowances. We facilitate floor plan financing programs for many of our dealers by entering into repurchase agreements with certain third-party lenders, which enable our dealers, under certain circumstances, to establish lines of credit with the third-party lenders to purchase inventory. Under these floor plan financing programs, a dealer draws on the floor plan facility upon the purchase of our boats and the lender pays the invoice price of the boats.\n We will continue to review and refine our dealer incentive offerings and monitor any exposures arising under these arrangements.\nVertical Integration\nWe have vertically integrated a number of key components of our manufacturing process, including the manufacturing of our Monsoon engines, boat trailers, towers and tower accessories, machined and billet parts, soft grip flooring, wiring harnesses and most recently, certain tooling for our Pursuit brand. We began producing our own engines, branded as Malibu Monsoon engines, in our Malibu and Axis boats for model year 2019. Starting in fiscal year 2024, we plan to begin offering Monsoon sterndrive engines to our Cobalt dealers and customers. As we move into the second half of fiscal year 2024, we plan to continue the roll out of our Monsoon engines into Cobalt\u2019s surf boats. We believe our vertical integration initiatives will reduce our reliance on third-party suppliers while reducing the risk that a change in cost or production from any third-party supplier \n36\nTable of Contents\ncould adversely affect our business. In fiscal year 2022, we acquired a facility to begin manufacturing our own wiring harnesses. As a result of this acquisition, we reduced the risk of production delays due to delays in receipt of wiring harnesses from third-party suppliers. In March 2023, we launched our new Tooling Design Center located on our Pursuit campus. The Tooling Design Center has potential to help us better control capital expenditures, improve tooling quality, and increase volumes.\nVertical integration of key components of our boats gives us the ability to increase incremental margin per boat sold by reducing our cost base and improving the efficiency of our manufacturing process. Additionally, it allows us to have greater control over design, consumer customization options, construction quality, and our supply chain. We continually review our manufacturing process to identify opportunities for additional vertical integration investments across our portfolio of premium brands.\nComponents of Results of Operations\nNet Sales\nWe generate revenue from the sale of boats to our dealers. The substantial majority of our net sales are derived from the sale of boats, including optional features included at the time of the initial wholesale purchase of the boat. Net sales consists of the following:\n\u2022\nGross sales from:\n\u2022\nBoat and trailer sales\n\u2014consists of sales of boats and trailers to our dealer network. Nearly all of our boat sales include optional feature upgrades purchased by the consumer, which increase the average selling price of our boats; and\n\u2022\nParts and other sales\n\u2014consists of sales of replacement and aftermarket boat parts and accessories to our dealer network; and consists of royalty income earned from license agreements with various boat manufacturers, including Nautique, Chaparral, Mastercraft, and Tige related to the use of our intellectual property.\n\u2022\nNet sales are net of:\n\u2022\nSales returns\n\u2014consists primarily of contractual repurchases of boats either repossessed by the floor plan financing provider from the dealer or returned by the dealer under our warranty program; and\n\u2022\nRebates and free flooring  \n\u2014consists of incentives, rebates and free flooring, we provide to our dealers based on sales of eligible products. For our Malibu and Cobalt segments, if a domestic dealer meets its monthly or quarterly commitment volume, as well as other terms of the dealer performance program, the dealer is entitled to a specified rebate. For our Saltwater Fishing segment, if a dealer meets its quarterly or annual retail volume goals, the dealer is entitled to a specific rebate applied to their wholesale volume purchased. For Malibu, Cobalt and select Saltwater Fishing models, our dealers that take delivery of current model year boats in the offseason, typically July through April in the U.S., are also entitled to have us pay the interest to floor the boat until the earlier of (1) the sale of the unit or (2) a date near the end of the current model year, which incentive we refer to as \u201cfree flooring.\u201d From time to time, we may extend the flooring program to eligible models beyond the offseason period. For more information, see \"Item 1. Business - Dealer Management.\"\n\u00a0\nCost of Sales\nOur cost of sales includes all of the costs to manufacture our products, including raw materials, components, supplies, direct labor and factory overhead. For components and accessories manufactured by third-party vendors, such costs represent the amounts invoiced by the vendors. Shipping costs and depreciation expense related to manufacturing equipment and facilities are also included in cost of sales. Warranty costs associated with the repair or replacement of our boats under warranty are also included in cost of sales.\nOperating Expenses\nOur operating expenses include selling and marketing, general and administrative costs and amortization costs. Each of these items includes personnel and related expenses, supplies, non-manufacturing overhead, third-party professional fees and various other operating expenses. Further, selling and marketing expenditures include the cost of advertising and various promotional sales incentive programs. General and administrative expenses include, among other things, salaries, benefits and other personnel related expenses for employees engaged in product development, engineering, finance, information technology, human resources and executive management. Other costs include outside legal and accounting fees, investor relations, risk \n37\nTable of Contents\nmanagement (insurance) and other administrative costs. General and administrative expenses also include product development expenses associated with our vertical integration initiative and acquisition or integration related expenses. Amortization expenses are associated with the amortization of intangibles.\nOther Expense (Income), Net\nOther expense (income), net consists of interest expense and other income or expense, net. Interest expense consists of interest charged under our outstanding debt and amortization of deferred financing costs on our credit facilities. \nOther income or expense includes ad\njustments to our tax receivable agreement liability and sublease income. \n Income Taxes\nMalibu Boats, Inc. is subject to U.S. federal and state income tax in multiple jurisdictions with respect to our allocable share of any net taxable income of the LLC. The LLC is a pass-through entity for federal purposes but incurs income tax in certain state jurisdictions. Maverick Boat Group is separately subject to U.S. federal and state income tax with respect to its net taxable income.\nNet Income Attributable to Non-controlling Interest \nAs of each of June\u00a030, 2023 and 2022, we had a 97.8% and 97.2%, respectively, controlling economic interest and 100% voting interest in the LLC and, therefore, we consolidate the LLC's operating results for financial statement purposes. Net income attributable to non-controlling interest represents the portion of net income attributable to the non-controlling LLC members. \nResults of Operations\nThe table below sets forth our consolidated results of operations, expressed in thousands (except unit volume and net sales per unit) and as a percentage of net sales, for the periods presented. Our consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods. Certain totals for the table below will not sum to exactly 100% due to rounding.\n38\nTable of Contents\nFiscal Year Ended June 30,\n2023\n2022\n2021\n$\n% Revenue\n$\n% Revenue\n$\n% Revenue\nNet sales\n1,388,365\u00a0\n100.0\u00a0\n%\n1,214,877\u00a0\n100.0\u00a0\n%\n926,515\u00a0\n100.0\u00a0\n%\nCost of sales\n1,037,070\u00a0\n74.7\u00a0\n%\n904,826\u00a0\n74.5\u00a0\n%\n690,030\u00a0\n74.5\u00a0\n%\nGross profit\n351,295\u00a0\n25.3\u00a0\n%\n310,051\u00a0\n25.5\u00a0\n%\n236,485\u00a0\n25.4\u00a0\n%\nOperating expenses:\nSelling and marketing\n24,009\u00a0\n1.7\u00a0\n%\n22,900\u00a0\n1.9\u00a0\n%\n17,540\u00a0\n1.9\u00a0\n%\nGeneral and administrative\n175,694\u00a0\n12.7\u00a0\n%\n66,371\u00a0\n5.4\u00a0\n%\n61,915\u00a0\n6.6\u00a0\n%\nAmortization\n6,808\u00a0\n0.5\u00a0\n%\n6,957\u00a0\n0.6\u00a0\n%\n7,255\u00a0\n0.8\u00a0\n%\nOperating income\n144,784\u00a0\n10.4\u00a0\n%\n213,823\u00a0\n17.6\u00a0\n%\n149,775\u00a0\n16.2\u00a0\n%\nOther expense (income), net:\nOther expense (income), net\n331\u00a0\n\u2014\u00a0\n%\n983\u00a0\n0.1\u00a0\n%\n(1,015)\n(0.1)\n%\nInterest expense\n2,962\u00a0\n0.2\u00a0\n%\n2,875\u00a0\n0.2\u00a0\n%\n2,529\u00a0\n0.3\u00a0\n%\nOther expense (income), net\n3,293\u00a0\n0.2\u00a0\n%\n3,858\u00a0\n0.3\u00a0\n%\n1,514\u00a0\n0.2\u00a0\n%\nIncome before provision for income taxes\n141,491\u00a0\n10.2\u00a0\n%\n209,965\u00a0\n17.3\u00a0\n%\n148,261\u00a0\n16.0\u00a0\n%\nProvision for income taxes\n33,581\u00a0\n2.4\u00a0\n%\n46,535\u00a0\n3.8\u00a0\n%\n33,979\u00a0\n3.7\u00a0\n%\nNet income\n107,910\u00a0\n7.8\u00a0\n%\n163,430\u00a0\n13.5\u00a0\n%\n114,282\u00a0\n12.3\u00a0\n%\nNet income attributable to non-controlling interest\n3,397\u00a0\n0.3\u00a0\n%\n5,798\u00a0\n0.5\u00a0\n%\n4,441\u00a0\n0.5\u00a0\n%\nNet income attributable to Malibu Boats, Inc.\n104,513\u00a0\n7.5\u00a0\n%\n157,632\u00a0\n13.0\u00a0\n%\n109,841\u00a0\n11.8\u00a0\n%\nFiscal Year Ended June 30,\n2023\n2022\n2021\nUnit Volumes\n% Total\nUnit Volumes\n% Total\nUnit Volumes\n% Total\nVolume by Segment\nMalibu\n5,127\u00a0\n52.0\u00a0\n%\n5,173\u00a0\n55.9\u00a0\n%\n4,841\u00a0\n59.1\u00a0\n%\nSaltwater Fishing \n1\n2,585\u00a0\n26.2\u00a0\n%\n2,035\u00a0\n22.0\u00a0\n%\n1,428\u00a0\n17.5\u00a0\n%\nCobalt\n2,151\u00a0\n21.8\u00a0\n%\n2,047\u00a0\n22.1\u00a0\n%\n1,916\u00a0\n23.4\u00a0\n%\nTotal Units\n9,863\u00a0\n9,255\u00a0\n8,185\u00a0\nNet sales per unit\n$\n140,765\u00a0\n$\n131,267\u00a0\n$\n113,197\u00a0\n(1) We acquired all of the outstanding stock of Maverick Boat Group on December 31, 2020.\nComparison of the Fiscal Year Ended June\u00a030, 2023 to the Fiscal Year Ended June\u00a030, 2022\nNet Sales\nNet sales for fiscal year 2023 increased $173.5 million, or 14.3%, to $1,388.4 million, compared to fiscal year 2022. The increase in net sales was driven primarily by increased unit volumes in our Saltwater Fishing and Cobalt segments, a favorable model mix across all segments and inflation-driven year-over-year price increases across all segments, partially offset by lower unit volumes in the Malibu segment and increased dealer flooring program costs across all segments resulting from higher interest rates and increased inventory levels. Unit volume for fiscal year 2023 increased 608 units, or 6.6%, to 9,863 units compared to fiscal year 2022. Our unit volume increased primarily due to strong wholesale restocking demand across our Cobalt and Saltwater Fishing segments, partially offset by reduced wholesale restocking demand at our Malibu segment.\nNet sales attributable to our Malibu segment increased\u00a0$28.7 million, or\u00a04.7%, to\u00a0$636.2 million\u00a0for fiscal year 2023 compared to fiscal year 2022. Unit volumes attributable to our Malibu segment decreased\u00a046\u00a0units for fiscal year 2023 compared to fiscal year 2022. The increase in net sales was driven by inflation-driven year-over-year price increases and a favorable model mix, partially offset by lower unit volumes and increased dealer flooring program costs.\n39\nTable of Contents\nNet sales attributable to our Saltwater Fishing segment increased $107.2 million, or 31.4%, to $449.2 million for fiscal year 2023 compared to fiscal year 2022. Unit volumes increased 550 units for fiscal year 2023 compared to fiscal year 2022. The increase in net sales was driven by increased volume, inflation-driven year-over-year price increases and a favorable model mix, partially offset by increased dealer flooring program costs.\nNet sales attributable to our Cobalt segment increased $37.6 million, or 14.2%, to $303.0 million for fiscal year 2023 compared to fiscal year 2022. Unit volumes attributable to Cobalt increased 104 units for fiscal year 2023 compared to fiscal year 2022. The increase in net sales was driven by increased volume, inflation-driven year-over-year price increases and a favorable model mix, partially offset by increased dealer flooring program costs.\nOverall consolidated net sales per unit increased\u00a07.2%\u00a0to\u00a0$140,765\u00a0per unit for fiscal year 2023 compared to fiscal year 2022. Net sales per unit for our Malibu segment increased\u00a05.7%\u00a0to $124,097\u00a0per unit for fiscal year 2023 compared to fiscal year 2022, driven by inflation-driven year-over-year price increases and a favorable model mix, partially offset by increased dealer flooring program costs. Net sales per unit for our Saltwater Fishing segment increased 3.4% to $173,755 per unit for fiscal year 2023 compared to fiscal year 2022, driven by inflation-driven year-over-year price increases, partially offset by increased dealer flooring program costs and a unfavorable model mix. Net sales per unit for our Cobalt segment increased 8.6% to $140,847 per unit for fiscal year 2023 compared to fiscal year 2022, driven by inflation-driven year-over-year price increases and a favorable model mix, partially offset by increased dealer flooring program costs.\nCost of Sales\nCost of sales for fiscal year 2023 increased $132.2 million, or 14.6%, to $1,037.1 million compared to fiscal year 2022. The increase in cost of sales was primarily driven by a 6.6% increase in volumes and increased prices due to inflationary pressures that have impacted prices on parts and components. In the Malibu segment, higher per unit material and labor costs contributed $19.1 million to the increase in cost of sales and were driven by increased prices due to inflationary pressures. In the Saltwater Fishing segment, higher per unit material and labor costs contributed $2.2 million to the increase in cost of sales and were driven by increased prices due to inflationary pressures and an increased mix of larger models that corresponded with higher net sales per unit. In the Cobalt segment, higher per unit material and labor costs contributed $19.7 million to the increase in cost of sales and were driven by increased prices due to inflationary pressures and an increased mix of larger models that corresponded with higher net sales per unit.\nGross Profit\nGross profit for fiscal year 2023 increased $41.2 million, or 13.3%, compared to fiscal year 2022. The increase in gross profit was driven primarily by higher sales revenue partially offset by the increased cost of sales for the reasons noted above. Gross margin for fiscal year 2023 decreased 0.2% from 25.5% to 25.3% driven primarily by an increased mix of the Saltwater Fishing segment and increased dealer flooring program costs and partially offset by better year-over-year performance in our Saltwater Fishing segment. \nOperating Expenses\nSelling and marketing expense for fiscal year 2023 increased $1.1 million, or 4.8% to $24.0 million compared to fiscal year 2022. The increase was driven primarily by increased promotional events. As a percentage of sales, selling and marketing expense decreased 0.2% to 1.7% for\u00a0fiscal year 2023 compared to 1.9% for fiscal year 2022. General and administrative expense for fiscal year 2023 increased $109.3 million, or 164.7%, to $175.7 million compared to fiscal year 2022. The increase in general and administrative expenses was driven primarily by the settlement of product liability cases for $100.0 million in June 2023. See Note 17 of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information. The remaining increase in general and administrative expenses was driven by an increase in compensation and personnel-related expenses, an increase in legal and professional fees and an increase in travel related expenses. As a percentage of sales, general and administrative expenses increased 7.3% to 12.7% for fiscal year 2023 compared to 5.4% for fiscal year 2022. Amortization expense for fiscal year 2023 decreased $0.1 million, or 2.1%, to $6.8 million compared to fiscal year 2022 due to a decrease of amortization expense related to fully amortized intangibles.\nOther Expense (Income), Net\nOther expense, net for fiscal year 2023 decreased by $0.6 million, or 14.6% to $3.3 million as compared to fiscal year 2022. \nIn fiscal year \n2023, \nwe increased our tax receivable agreement liability by $0.2 million that resulted in a corresponding amount being recognized as other expense during the same period, compared to fiscal year 2022 when we increased our tax receivable agreement liability by $1.0 million. Our interest expense increased by $0.1 million during fiscal year 2023 compared to fiscal year 2022 due to higher average interest rates on outstanding debt, offset by lower average outstanding debt.\n40\nTable of Contents\nProvision for Income Taxes\nOur provision for income taxes for fiscal year 2023 decreased $13.0 million, or 27.8% to $33.6 million compared to fiscal year 2022. This decrease was primarily driven by lower pre-tax earnings. For fiscal year 2023, our effective tax rate of 23.7% differed from the statutory federal income tax rate of 21% primarily due to the impact of U.S. state taxes. This increase in the effective tax rate was partially offset by the benefit of the research and development tax credit as well as the impact of non-controlling interests in the LLC. For fiscal year 2022, our effective tax rate of 22.2% differed from the statutory federal income tax rate of 21% primarily due to the impact of U.S. state taxes. This increase in the effective tax rate was partially offset by a windfall benefit generated by certain stock-based compensation, as well as the benefits of the research and development tax credit, and the impact of non-controlling interests in the LLC.\nNon-controlling interest\nNon-controlling interest represents the ownership interests of the members of the LLC other than us and the amount recorded as non-controlling interest in our consolidated statements of operations and comprehensive income is computed by multiplying pre-tax income for the applicable fiscal year by the percentage ownership in the LLC not directly attributable to us.\u00a0For fiscal years 2023 and 2022, the weighted average non-controlling interest attributable to ownership interests in the LLC not directly attributable to us was 2.6% and 2.8%, respectively.\nComparison of the Fiscal Year Ended June\u00a030, 2022 to the Fiscal Year Ended June\u00a030, 2021 \nNet Sales\nNet sales for fiscal year 2022 increased $288.4 million, or 31.1%, to $1,214.9 million, compared to fiscal year 2021. The increase in net sales was driven primarily by increased unit volumes across all three segments, year-over-year price increases and a favorable model mix. We recognized an increase in net sales and volumes across all three segments during fiscal year 2022. Unit volume for fiscal year 2022 increased 1,070 units, or 13.1%, to 9,255 units compared to fiscal year 2021.\nNet sales attributable to our Malibu segment increased $124.0 million, or 25.6%, to $607.6 million for fiscal year 2022 compared to fiscal year 2021. Unit volumes attributable to our Malibu segment increased 332 units for fiscal year 2022 compared to fiscal year 2021. The increase in net sales was driven by year-over-year price increases, a favorable model mix and increased volume resulting from strong demand for our Malibu and Axis model boats.\nNet sales from our Saltwater Fishing segment increased $99.0 million, or 40.8%, to $341.9 million for fiscal year 2022 compared to fiscal year 2021. Unit volumes increased 607 units for fiscal year 2022 compared to fiscal year 2021. The increase in net sales was driven primarily by the acquisition of Maverick Boat Group on December 31, 2020, year-over-year price increases and a favorable model mix. The increase in unit volumes resulted primarily from our addition of the Maverick Boat Group.\nNet sales from our Cobalt segment increased $65.4 million, or 32.7%, to $265.4 million for fiscal year 2022 compared to fiscal year 2021. Unit volumes attributable to Cobalt increased 131 units for fiscal year 2022 compared to fiscal year 2021. The increase in net sales was driven primarily by a favorable model mix, year-over-year price increases and increased volume. We experienced increased volume at Cobalt as a result of our prior year investments in the Cobalt facilities to optimize efficiency and expand capacity.\nOur overall net sales per unit increased 16.0% to $131,267 per unit for fiscal year 2022 compared to fiscal year 2021. Net sales per unit for our Malibu segment increased 17.6% to $117,445 per unit for fiscal year 2022 compared to fiscal year 2021, primarily driven by year-over-year price increases and a favorable model mix. Net sales per unit for our Saltwater Fishing segment decreased 1.2% to $168,025 per unit for fiscal year 2022 compared to fiscal year 2021, primarily driven by mix of models due mostly to the inclusion of lower priced models from our acquisition of Maverick Boat Group on December 31, 2020. Net sales per unit for our Cobalt segment increased 24.2% to $129,655 per unit for fiscal year 2022 compared to fiscal year 2021, driven primarily by a favorable model mix and year-over-year price increases.\nCost of Sales\nCost of sales for fiscal year 2022 increased $214.8 million, or 31.1%, to $904.8 million compared to fiscal year 2021. The increase in cost of sales was driven by higher costs related to higher net sales in all our segments and increased prices due to supply chain disruptions and inflationary pressures that have impacted prices on parts and components. In the Malibu segment, higher per unit material and labor costs contributed $66.7 million to the increase in cost of sales and were driven by an increased mix of larger products that corresponded with higher net sales per unit. Within our Saltwater Fishing segment, higher per unit material and labor costs contributed $87.3 million to the increase in cost of sales and were driven by the acquisition of Maverick Boat Group on December 31, 2020 and an increased mix of larger products that corresponded with higher net sales \n41\nTable of Contents\nper unit. In the Cobalt segment, higher per unit material and labor costs contributed $44.8 million to the increase in cost of sales and were driven by an increased mix of larger products that corresponded with higher net sales per unit.\nGross Profit\nGross profit for fiscal year 2022 increased $73.6 million, or 31.1%, compared to fiscal year 2021. The increase in gross profit was driven primarily by higher sales revenue with a more favorable product mix and the contribution of Maverick Boat Group partially offset by the increased cost of sales for the reasons noted above. Gross margin remained flat at 25.5% in fiscal year 2022.\nOperating Expenses\nSelling and marketing expense for fiscal year 2022 increased $5.4 million, or 30.6% to $22.9 million compared to fiscal year 2021. The increase was driven primarily by incremental selling and marketing expenses from the acquisition of Maverick Boat Group, increased compensation and personnel-related expenses, increased travel and promotional events that resumed in fiscal year 2022 after being suspended for COVID-19 during the early portion of fiscal year 2021. As a percentage of sales, selling and marketing expense remained flat at 1.9% for fiscal year 2022. General and administrative expense for fiscal year 2022 increased $4.5 million, or 7.2%, to $66.4 million compared to fiscal year 2021. The increase in general and administrative expenses was driven primarily by an increase in compensation and personnel-related expenses, travel related expenses, information technology infrastructure expenses, incremental general and administrative expenses due to the acquisition of Maverick Boat Group, facility maintenance expenses and insurance expenses partially offset by lower professional fees and a decrease in acquisition expenses related to the acquisition of Maverick Boat Group on December 31, 2020. As a percentage of sales, general and administrative expenses decreased 120 basis points to 5.4% for fiscal year 2022 compared to 6.6% for fiscal year 2021. Amortization expense for fiscal year 2022 decreased $0.3 million, or 4.1%, to $7.0 million compared to fiscal year 2021, due to a decrease of amortization expense related to fully amortized intangibles.\nOther Expense (Income), Net\nOther expense, net for fiscal year 2022 increased by $2.3 million, or 154.8% to $3.9 million as compared to fiscal year 2021. In fiscal year 2022, we increased our tax receivable agreement liability by $1.0 million that resulted in a corresponding amount being recognized as other expense during the same period, compared to fiscal year 2021, when we reduced our tax receivable agreement liability by $0.1 million that resulted in a corresponding amount being recognized as other income during fiscal year 2021. Our interest expense increased by $0.3 million during fiscal year 2022 compared to fiscal year 2021 due to higher average interest rates on outstanding debt.\nProvision for Income Taxes\nOur provision for income taxes for fiscal year 2022 increased $12.6 million, or 37.0% to $46.5 million compared to fiscal year 2021. This increase was primarily driven by higher pre-tax earnings and increased U.S. state taxes. For fiscal year 2022, our effective tax rate of 22.2% differed from the statutory federal income tax rate of 21% primarily due to the impact of U.S. state taxes. This increase in the effective tax rate was partially offset by a windfall benefit generated by certain stock-based compensation, as well as the benefits of the research and development tax credit, and the impact of non-controlling interests in the LLC. For fiscal year 2021, our effective tax rate of 22.9% differed from the statutory federal income tax rate of 21% primarily due to the impact of U.S. state taxes, and partially offset by the impact of non-controlling interests in the LLC.\nNon-controlling interest\nNon-controlling interest represents the ownership interests of the members of the LLC other than us and the amount recorded as non-controlling interest in our consolidated statements of operations and comprehensive income is computed by multiplying pre-tax income for the applicable fiscal year by the percentage ownership in the LLC not directly attributable to us. For fiscal years 2022 and 2021, the weighted average non-controlling interest attributable to ownership interests in the LLC not directly attributable to us was 2.8% and 3.1%, respectively.\n42\nTable of Contents\nGAAP Reconciliation of Non-GAAP Financial Measures\nAdjusted EBITDA\nAdjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures that are used by management as well as by investors, commercial bankers, industry analysts and other users of our financial statements.\nWe define adjusted EBITDA as net income before interest expense, income taxes, depreciation, amortization and non-cash, non-recurring or non-operating expenses, including settlement of litigation claims, certain professional fees, acquisition and integration-related expenses, non- cash compensation expense and adjustments to our tax receivable agreement liability. We define adjusted EBITDA margin as adjusted EBITDA divided by net sales. Adjusted EBITDA and adjusted EBITDA margin are not measures of net income as determined by GAAP. Management believes adjusted EBITDA and adjusted EBITDA margin allow investors to evaluate the Company\u2019s operating performance and compare our results of operations from period to period on a consistent basis by excluding items that management does not believe are indicative of our core operating performance. Management uses adjusted EBITDA to assist in highlighting trends in our operating results without regard to our financing methods, capital structure and non-recurring or non-operating expenses.\nWe exclude the items listed above from net income in arriving at adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, the methods by which assets were acquired and other factors. Adjusted EBITDA has limitations as an analytical tool and should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of our liquidity. Certain items excluded from adjusted EBITDA are significant components in understanding and assessing a company\u2019s financial performance, such as a company\u2019s cost of capital and tax structure, as well as the historical costs of depreciable assets. Our presentation of adjusted EBITDA and adjusted EBITDA margin should not be construed as an inference that our results will be unaffected by unusual or non-recurring items. Our computations of adjusted EBITDA and adjusted EBITDA margin may not be comparable to other similarly titled measures of other companies.\nThe following table sets forth a reconciliation of net income as determined in accordance with GAAP to adjusted EBITDA and presentation of net income margin and adjusted EBITDA margin for the periods indicated (dollars in thousands):\nFiscal Year Ended June 30,\n2023\n2022\n2021\nNet income\n$\n107,910\u00a0\n$\n163,430\u00a0\n$\n114,282\u00a0\nProvision for income taxes\n33,581\u00a0\n46,535\u00a0\n33,979\u00a0\nInterest expense\n2,962\u00a0\n2,875\u00a0\n2,529\u00a0\nDepreciation\n21,912\u00a0\n19,365\u00a0\n15,636\u00a0\nAmortization\n6,808\u00a0\n6,957\u00a0\n7,255\u00a0\nLitigation settlement \n1\n100,000\u00a0\n\u2014\u00a0\n\u2014\u00a0\nProfessional fees \n2\n4,781\u00a0\n\u2014\u00a0\n5,817\u00a0\nAcquisition and integration related expenses \n3\n\u2014\u00a0\n\u2014\u00a0\n5,112\u00a0\nStock-based compensation expense \n4\n5,894\u00a0\n6,342\u00a0\n5,581\u00a0\nAdjustment to tax receivable agreement liability \n5\n188\u00a0\n1,025\u00a0\n(88)\nAdjusted EBITDA\n$\n284,036\u00a0\n$\n246,529\u00a0\n$\n190,103\u00a0\nNet Sales\n$\n1,388,365\u00a0\n$\n1,214,877\u00a0\n$\n926,515\u00a0\nNet Income Margin \n6\n7.8\u00a0\n%\n13.5\u00a0\n%\n12.3\u00a0\n%\nAdjusted EBITDA Margin \n6\n20.5\u00a0\n%\n20.3\u00a0\n%\n20.5\u00a0\n%\n43\nTable of Contents\n(1)\nRepresents settlement of product liability cases in June 2023 for $100.0 million. For more information, refer to Note 17 of our consolidated financial statements included elsewhere in this Annual Report.\n(2)\nFor fiscal year 2023, represents legal and advisory fees related to product liability cases that were settled for $100.0 million in June 2023. For fiscal year 2021, represents legal and advisory fees related to our litigation with Skier's Choice, Inc. For more information, refer to Note 17 of our consolidated financial statements included elsewhere in this Annual Report.\n(3)\nFor fiscal year ended 2021, represents legal and advisory fees incurred in connection with our acquisition of Maverick Boat Group on December 31, 2020. Integration related expenses for fiscal year 2021 include post-acquisition adjustments to cost of goods sold of $0.9 million for the fair value step up of inventory acquired from Maverick Boat Group, which was sold during the third quarter of fiscal year 2021.\n(4)\nRepresents equity-based incentives awarded to certain of our employees under the Malibu Boats, Inc. Long-Term Incentive Plan and profit interests issued under the previously existing limited liability company agreement of the LLC. For more information, refer to Note 15 of our consolidated financial statements included elsewhere in this Annual Report.\n(5)\nFor fiscal year 2023, we recognized other expense from an adjustment in our tax receivable agreement liability mainly derived by future benefits from Tennessee net operating losses at Malibu Boats, Inc. For fiscal year 2022, we recognized other expense from an adjustment in our tax receivable agreement liability due to an increase in the state tax rate used in computing our future tax obligations and in turn, an increase in the future benefit we expect to pay under our tax receivable agreement with pre-IPO owners. For fiscal year 2021, we recognized other income from an adjustment in our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax obligations and in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners. For more information, refer to Note 12 of our consolidated financial statements included elsewhere in this Annual Report.\n(6)\nWe calculate net income margin as net income divided by net sales and we define adjusted EBITDA margin as adjusted EBITDA divided by net sales.\nAdjusted Fully Distributed Net Income\nWe define Adjusted Fully Distributed Net Income as net income attributable to Malibu Boats, Inc. (i) excluding income tax expense, (ii) excluding the effect of non-recurring or non-cash items, (iii) assuming the exchange of all LLC units into shares of Class A Common Stock, which results in the elimination of non-controlling interest in the LLC, and (iv) reflecting an adjustment for income tax expense on fully distributed net income before income taxes at our estimated effective income tax rate. Adjusted Fully Distributed Net Income is a non-GAAP financial measure because it represents net income attributable to Malibu Boats, Inc., before non-recurring or non-cash items and the effects of non-controlling interests in the LLC.\nWe use Adjusted Fully Distributed Net Income to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with GAAP, provides a more complete understanding of factors and trends affecting our business than GAAP measures alone. \nWe believe Adjusted Fully Distributed Net Income assists our board of directors, management and investors in comparing our net income on a consistent basis from period to period because it removes non-cash or non-recurring items, and eliminates the variability of non-controlling interest as a result of member owner exchanges of LLC Units into shares of Class A Common Stock.\nIn addition, because Adjusted Fully Distributed Net Income is susceptible to varying calculations, the Adjusted Fully Distributed Net Income measures, as presented in this Annual Report, may differ from and may, therefore, not be comparable to similarly titled measures used by other companies.\nThe following table shows the reconciliation of the numerator and denominator for net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock for the periods presented (in thousands except share and per share data): \n44\nTable of Contents\nFiscal Year Ended June 30,\n2023\n2022\n2021\nReconciliation of numerator for net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock:\nNet income attributable to Malibu Boats, Inc.\n$\n104,513\u00a0\n$\n157,632\u00a0\n$\n109,841\u00a0\nProvision for income taxes\n33,581\u00a0\n46,535\u00a0\n33,979\u00a0\nLitigation settlement \n1\n100,000\u00a0\n\u2014\u00a0\n\u2014\u00a0\nProfessional fees \n2\n4,781\u00a0\n\u2014\u00a0\n5,817\u00a0\nAcquisition and integration related expenses \n3\n6,654\u00a0\n6,653\u00a0\n10,558\u00a0\nStock-based compensation expense \n4\n5,894\u00a0\n6,342\u00a0\n5,581\u00a0\nAdjustment to tax receivable agreement liability \n5\n188\u00a0\n1,025\u00a0\n(88)\nNet income attributable to non-controlling interest \n6\n3,397\u00a0\n5,798\u00a0\n4,441\u00a0\nFully distributed net income before income taxes\n259,008\u00a0\n223,985\u00a0\n170,129\u00a0\nIncome tax expense on fully distributed income before income taxes \n7\n62,939\u00a0\n53,308\u00a0\n40,150\u00a0\nAdjusted Fully Distributed Net Income\n$\n196,069\u00a0\n$\n170,677\u00a0\n$\n129,979\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n2021\nReconciliation of denominator for net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock:\nWeighted average shares outstanding of Class A Common Stock used for basic net income per share:\n20,501,844\u00a0\n20,749,237\u00a0\n20,752,652\u00a0\nAdjustments to weighted average shares of Class A Common Stock:\nWeighted-average LLC units held by non-controlling unit holders \n8\n543,909\u00a0\n600,919\u00a0\n665,217\u00a0\nWeighted-average unvested restricted stock awards issued to management \n9\n272,116\u00a0\n252,135\u00a0\n212,579\u00a0\nAdjusted weighted average shares of Class A Common Stock outstanding used in computing Adjusted Fully Distributed Net Income per Share of Class A Common Stock:\n21,317,869\u00a0\n21,602,291\u00a0\n21,630,448\u00a0\nThe following table shows the reconciliation of net income available to Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock for the periods presented:\n45\nTable of Contents\nFiscal Year Ended June 30,\n2023\n2022\n2021\nNet income available to Class A Common Stock per share\n$\n5.10\u00a0\n$\n7.60\u00a0\n$\n5.29\u00a0\nImpact of adjustments:\nProvision for income taxes\n1.64\u00a0\n2.24\u00a0\n1.64\u00a0\nLitigation settlement \n1\n4.88\u00a0\n\u2014\u00a0\n\u2014\u00a0\nProfessional fees \n2\n0.23\u00a0\n\u2014\u00a0\n0.28\u00a0\nAcquisition and integration related expenses \n3\n0.32\u00a0\n0.32\u00a0\n0.51\u00a0\nStock-based compensation expense \n4\n0.29\u00a0\n0.31\u00a0\n0.27\u00a0\nAdjustment to tax receivable agreement liability \n5\n0.01\u00a0\n0.05\u00a0\n\u2014\u00a0\nNet income attributable to non-controlling interest \n6\n0.17\u00a0\n0.28\u00a0\n0.21\u00a0\nFully distributed net income per share before income taxes\n12.64\u00a0\n10.80\u00a0\n8.20\u00a0\nImpact of income tax expense on fully distributed income before income taxes \n8\n(3.07)\n(2.57)\n(1.93)\nImpact of increased share count \n10\n(0.38)\n(0.32)\n(0.26)\nAdjusted Fully Distributed Net Income per Share of Class A Common Stock\n$\n9.19\u00a0\n$\n7.91\u00a0\n$\n6.01\u00a0\n(1)\nRepresents settlement of product liability cases in June 2023 for $100.0 million. For more information, refer to Note 17 of our consolidated financial statements included elsewhere in this Annual Report.\n(2)\nFor fiscal year 2023, represents legal and advisory fees related to our product liability cases that were settled in June 2023 for $100.0 million. For fiscal year 2021, represents legal and advisory fees related to our litigation with Skier's Choice, Inc. For more information, refer to Note 17 of our consolidated financial statements included elsewhere in this Annual Report.\n(3)\nFor fiscal years 2023 and 2022, represents amortization of intangibles acquired in connection with the acquisition of Maverick Boat Group, Pursuit and Cobalt. For fiscal year 2021, represents legal and advisory fees incurred in connection with the acquisition of Maverick Boat Group and amortization of intangibles acquired in connection with the acquisition of Maverick Boat Group, Pursuit and Cobalt. Integration related expenses for fiscal year 2021 include post-acquisition adjustments to cost of goods sold of $0.9 million for the fair value step up of inventory acquired from Maverick Boat Group, which was sold during the third quarter of fiscal 2021.\n(4)\nRepresents equity-based incentives awarded to certain of our employees under the Malibu Boats, Inc. Long-Term Incentive Plan and profit interests issued under the previously existing limited liability company agreement of the LLC. For more information, refer to Note 15 of our consolidated financial statements included elsewhere in this Annual Report.\n(5)\nFor fiscal year 2023, we recognized other expense from an adjustment in our tax receivable agreement liability mainly derived by future benefits from Tennessee net operating losses at Malibu Boats, Inc.. For fiscal year 2022, we recognized other expense from an adjustment in our tax receivable agreement liability due to an increase in the state tax rate used in computing our future tax obligations and in turn, an increase in the future benefit we expect to pay under our tax receivable agreement with pre-IPO owners. For fiscal year 2021, we recognized other income from an adjustment in our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax obligations and in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement with pre-IPO owners. For more information, refer to Note 12 of our consolidated financial statements included elsewhere in this Annual Report.\n(6)\nReflects the elimination of the non-controlling interest in the LLC as if all LLC members had fully exchanged their LLC Units for shares of Class A Common Stock. \n(7)\nReflects income tax expense at an estimated normalized annual effective income tax rate of 24.3% of income before taxes for fiscal year 2023, 23.8% of income before taxes for fiscal year 2022 and 23.6% of income before taxes for fiscal year 2021, in each case assuming the conversion of all LLC Units into shares of Class A Common Stock. The estimated normalized annual effective income tax rate for fiscal years 2023, 2022 and 2021 is based on the federal statutory rate plus a blended state rate adjusted for the research and development tax credit, the foreign derived intangible income deduction, and foreign income taxes attributable to our Australian subsidiary.\n(8)\nRepresents the weighted average shares outstanding of LLC Units held by non-controlling interests assuming they were exchanged into Class A Common Stock on a one-for-one basis.\n(9)\nRepresents the weighted average unvested restricted stock awards included in outstanding shares during the applicable period that were convertible into Class A Common Stock and granted to members of management.\n(10)\nReflects impact of increased share counts assuming the exchange of all weighted average shares outstanding of LLC Units into shares of Class A Common Stock and the conversion of all weighted average unvested restricted stock awards included in outstanding shares granted to members of management.\n46\nTable of Contents\nLiquidity and Capital Resources\nOverview and Primary Sources of Cash\nOur primary uses of cash have been for funding working capital and capital investments, repayments under our debt arrangements, acquisitions, cash distributions to members of the LLC, cash payments under our tax receivable agreement and stock repurchases under our stock repurchase program. \nFor both the short-term and the long-term, our sources of cash to meet these needs have primarily been operating cash flows, borrowings under our revolving credit facility and short and long-term debt financings from banks and financial institutions. We believe that our cash on hand, cash generated by operating activities and funds available under our revolving credit facility will be sufficient to finance our operating activities for at least the next twelve months and beyond.\nMaterial Cash Requirements \nCapital Expenditures.\n For fiscal year 2023, we incurred approximately $54.8 million in capital expenditures related to the completion of our Tooling Design Center as well as new models, capacity enhancements and vertical integration initiatives. We expect capital expenditures between $70.0 million and $80.0 million for fiscal year 2024 primarily for the outfitting of our Roane County property and investments in new models, capacity enhancements and vertical integration initiatives. Other investment opportunities, such as potential strategic acquisitions, may require additional funding.\nRoane County Property Purchase and Related Improvements\n. On March 28, 2023, we entered into a Purchase and Sale Agreement (the \u201cPurchase Agreement\u201d) to purchase certain real property, improvements and other assets from the seller for a cash purchase price of approximately $33.3 million. As of June\u00a030, 2023, we had deposited approximately $7.8 million in escrow pursuant to the Purchase Agreement. On July 25, 2023, the transaction closed and we paid the $25.5 million balance of the purchase price. We expect to incur additional capital expenditures of approximately $15.0 million to make changes to the facility to meet our operational needs.\nSettlement of Batchelder Matters. \nOn June 30, 2023, Malibu Boats, Inc. and Boats LLC entered into a Confidential General Release and Settlement Agreement (the \u201cSettlement Agreement\u201d) with the Batchelder I Plaintiffs and the Batchelder II Plaintiffs in settlement of each of the Batchelder Matters. Pursuant to the Settlement Agreement, among other things, Malibu Boats, Inc. or Boats LLC, as the case may be, paid (or caused to be paid) to the Batchelder Plaintiffs and their agents a total of $100.0 million, of which (a) $40.0 million was paid to the Batchelder Plaintiffs and their agents promptly following the execution of the Settlement Agreement and (b) $60.0 million was placed in an escrow account and held by the Escrow Agent pursuant to the terms of an Escrow Agreement. All conditions for releasing the $60.0 million placed in the escrow account have now been satisfied. We expect that all amounts paid under the Settlement Agreement should be tax deductible for federal and state income tax purposes. \nWe maintain liability insurance applicable to the Batchelder Matters with coverage up to $26.0 million. As of August\u00a024, 2023, we had received approximately $21.0 million in insurance coverage proceeds, subject in certain cases to reservation of rights by the insurance carriers. We contend that the insurance carriers are responsible for the entirety of the $100.0 million settlement amount and related expenses, and therefore the insurers\u2019 payments to date are well below what they should have tendered to Boats LLC. Accordingly, on July 3, 2023, Boats LLC filed a complaint against Federal Insurance Company and Starr Indemnity & Liability Company alleging that the insurers unreasonably failed to comply with their obligations by refusing, negligently and in bad faith, to settle covered claims within their available policy limits prior to trial. We intend to vigorously pursue our claims against our insurers to recover the full $100.0 million settlement amount and expenses (less any monies already tendered without reservation by the carriers). However, we cannot predict the outcome of such litigation.\nPrincipal and Interest Payments. \nOn July 8, 2022, we entered into a Third Amended and Restated Credit Agreement (the \u201cCredit Agreement\u201d). The Credit Agreement provides us with a revolving credit facility in an aggregate principal amount of up to $350.0 million. As of June\u00a030, 2023, we had no outstanding balance under our revolving credit facility and $1.6 million in outstanding letters of credit, with $348.4 million available for borrowing. On July 7, 2023, in connection with the settlement of the Batchelder Matters, we borrowed $75.0 million under the revolving credit facility, with $273.4 million remaining available for borrowing. The revolving credit facility matures on July 8, 2027. Assuming no additional repayments or borrowings on our revolving credit facility with an outstanding balance of $65.0\u00a0million after August\u00a024, 2023, our interest payments would be approximately $4.4 million within the next 12 months based on the interest rate at August\u00a024, 2023 of 6.70%. See below under \u201cRevolving Credit Facility\u201d for additional information regarding our revolving credit facility, including the interest rate applicable to any borrowing under such facility.\nTax Receivable Agreement. \nWe entered into a tax receivable agreement with our pre-IPO owners at the time of our initial public offering. Under the tax receivables agreement, we pay the pre-IPO owners (or any permitted assignees) 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize, or in some \n47\nTable of Contents\ncircumstances are deemed to realize, as a result of an expected increase in our share of tax basis in LLC\u2019s tangible and intangible assets, including increases attributable to payments made under the tax receivable agreement. These obligations will not be paid if we do not realize cash tax savings. We estimate that approximately $4.1 million will be due under the tax receivable agreement within the next 12 months. In accordance with the tax receivable agreement, the next payment is anticipated to occur approximately 75 days after filing the federal tax return which is due on April 15, 2024.\nOperating Lease Obligations.\n Lease commitments consist principally of leases for our manufacturing facilities. For fiscal year 2024, our expected operating lease payments will be $2.6 million and our total committed lease payments are $11.0 million as of June\u00a030, 2023. Additional information regarding our operating leases is available in Note 11, Leases, of the Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.\nPurchase Obligations.\n In the ordinary course of business, we enter into purchase orders from a variety of suppliers, primarily for raw materials, in order to manage our various operating needs. The orders are expected to be purchased throughout fiscal year 2024. We or the vendor can generally terminate the purchase orders at any time. These purchase orders do not contain any termination payments or other penalties if cancelled. As of June\u00a030, 2023, we had purchase orders in the amount of $97.1 million due within the next 12 months.\nStock Repurchase Program\n.\n \n During the fiscal year ended June\u00a030, 2023, we repurchased 143,759 shares of Class A Common Stock for $7.9\u00a0million in cash including related fees and expenses under our prior repurchase program which expired on November 8, 2022. On November 3, 2022, our Board of Directors authorized a stock repurchase program to allow for the repurchase of up to $100.0 million of our Class A Common Stock and the LLC's LLC Units (the \u201c2022 Repurchase Program\u201d) for the period from November 8, 2022 to November 8, 2023. As of June\u00a030, 2023, $100.0\u00a0million was available to repurchase shares of Class A Common Stock and LLC Units under the 2022 Repurchase Program. We may repurchase shares of our common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. We have no obligation to repurchase any shares of our common stock under the share repurchase program. We intend to fund repurchases under the 2022 Repurchase Program from cash on hand.\nOur future capital requirements beyond the next 12 months will depend on many factors, including the general economic environment in which we operate and our ability to generate cash flow from operations, which are more uncertain as a result of inflation, increasing interest rates and fluctuating fuel prices. Our liquidity needs during this uncertain time will depend on multiple factors, including our ability to continue operations and production of boats, the performance of our dealers and suppliers, the impact of the general economy on our dealers, suppliers and retail customers, the availability of sufficient amounts of financing, and our operating performance.\nThe following table summarizes the cash flows from operating, investing and financing activities (dollars in thousands):\n\u00a0\n\u00a0\nFiscal Year Ended June 30,\n\u00a0\n2023\n2022\n2021\nTotal cash provided by (used in):\nOperating activities\n$\n184,733\u00a0\n$\n164,846\u00a0\n$\n131,314\u00a0\nInvesting activities\n(54,638)\n(61,621)\n(181,095)\nFinancing activities\n(134,574)\n(60,380)\n57,346\u00a0\nImpact of currency exchange rates on cash balances\n(328)\n(580)\n127\u00a0\n(Decrease) increase in cash\n$\n(4,807)\n$\n42,265\u00a0\n$\n7,692\u00a0\nCash Flows From Operating Activities\nNet cash provided by operating activities was $184.7 million for fiscal year 2023, compared to $164.8 million for the same period in 2022, an increase of $19.9 million. The increase in cash provided by operating activities primarily resulted from a net increase in operating assets and liabilities of $94.8 million related to the timing of collections of accounts receivables, payments for accruals and payables, and purchases of inventory, and partially offset by a decrease of $74.9 million in net income (after consideration of non-cash items included in net income, primarily related to depreciation, amortization, deferred tax assets and non-cash compensation). Net cash provided by operating activities was $164.8 million for fiscal year 2022, compared to $131.3 million for the same period in 2021, an increase of $33.5 million. The increase in cash provided by operating activities primarily resulted from an increase of $51.7 million in net income (after consideration of non-cash items included in net income, primarily related to depreciation, amortization, deferred tax assets and non-cash compensation) and a net decrease in \n48\nTable of Contents\noperating assets and liabilities of $18.2 million related to the timing of collections of accounts receivables, payments for accruals and payables, and purchases of inventory.\nCash Flows From Investing Activities\nNet cash used in investing activities was $54.6 million for fiscal year 2023 compared to $61.6 million for the same period in 2022, a decrease of cash used in investing activities of $7.0 million. The decrease in cash used in investing activities was primarily related to the acquisition of certain assets of AmTech, LLC and BTR, LLC in fiscal year 2022 for $6.6 million. Net cash used in investing activities was $61.6 million for fiscal year 2022 compared to $181.1 million for the same period in 2021, a decrease of cash used in investing activities of $119.5 million. The decrease in cash used in investing activities was primarily related to the acquisition of Maverick Boat Group on December 31, 2020, partially offset by an increase in capital expenditures and capital outlays related to our expansion activities at our Maverick facility in fiscal year 2022 compared to the capital expenditures in fiscal year 2021.\nCash Flows From Financing Activities\nNet cash used in financing activities was\u00a0$134.6 million\u00a0for fiscal year 2023 compared to net cash used in financing activities of $60.4 million\u00a0for fiscal year 2022, a change of\u00a0$74.2 million. During fiscal year, 2023, we repaid $23.1 million on our term loans, repaid $97.0 million, net of borrowings under our revolving credit facility and repurchased $7.9 million of our Class A Common Stock under our prior stock repurchase program. We also paid $3.1 million on taxes for shares withheld upon the vesting of restricted stock awards, paid $3.4 million in distributions to LLC Unit holders and paid $1.4 million in deferred financing costs. During fiscal year 2023, we received proceeds of $1.3 million from the exercise of stock options. \nNet cash used in financing activities was $60.4 million for fiscal year 2022 compared to net cash provided by financing activities of $57.3 million for fiscal year 2021, a change of $117.7 million. During fiscal year, 2022, we received proceeds of $72.0 million from additional borrowings under our revolving credit facility to fully repay the $72.0 million of outstanding term loans that matured on July 1, 2022. Also during fiscal year 2022, we repaid $20.0 million of borrowings under our revolving credit facility, we repaid a total of $76.3 million on our term loans, repurchased $34.6 million of our Class A Common Stock under our previously announced stock repurchase program, paid $2.1 million on taxes for shares withheld upon the vesting of restricted stock awards, paid $2.7 million in distributions to LLC unit holders and received $3.3 million in proceeds from the exercise of stock options. During fiscal year, 2021, we received proceeds of $25.0 million from a new incremental term loan and $65.0 million from additional borrowings under our revolving credit facility to fund the acquisition of Maverick Boat Group. During fiscal year 2021, we also repaid $28.8 million of borrowings under our revolving credit facility, we repaid $0.6 million on our term loan, paid $1.2 million on taxes for shares withheld upon the vesting of restricted stock awards, paid $0.6 million in deferred financing costs, paid $1.8 million in distributions to LLC unit holders and received $0.3 million in proceeds from the exercise of stock options.\nRevolving Credit Facility\nWe have a revolving credit facility in an aggregate principal amount of up to $350.0 million with a maturity date of July 8, 2027. As of June\u00a030, 2023, we had no outstanding balance under our revolving credit facility and $1.6 million in outstanding letters of credit, with $348.4 million available for borrowing. On July 7, 2023, we borrowed $75.0 million under the revolving credit facility, with $273.4 million remaining available for borrowing. We have the option to request that lenders increase the amount available under the revolving credit facility by, or obtain incremental term loans of, up to $200.0 million, subject to the terms of the Credit Agreement and only if existing or new lenders choose to provide additional term or revolving commitments.\nOur indirect subsidiary, Malibu Boats, LLC is the borrower under the Credit Agreement and its obligations are guaranteed by the LLC and, subject to certain exceptions, the present and future domestic subsidiaries of Malibu Boats, LLC, and all such obligations are secured by substantially all of the assets of the LLC, Malibu Boats, LLC and such subsidiary guarantors. Malibu Boats, Inc. is not a party to the Credit Agreement.\nAll borrowings under the Credit Agreement bear interest at a rate equal to either, at our option, (i) the highest of the prime rate, the Federal Funds Rate plus 0.5%, or one-month Term SOFR plus 1% (the \u201cBase Rate\u201d) or (ii) SOFR, in each case plus an applicable margin ranging from 1.25% to 2.00% with respect to SOFR borrowings and 0.25% to 1.00% with respect to Base Rate borrowings. The applicable margin will be based upon the consolidated leverage ratio of the LLC and its subsidiaries. We are required to pay a commitment fee for the unused portion of the revolving credit facility, which will range from 0.15% to 0.30% per annum, depending on the LLC\u2019s and its subsidiaries\u2019 consolidated leverage ratio.\nThe Credit Agreement contains certain customary representations and warranties, and notice requirements for the occurrence of specific events such as the occurrence of any event of default or pending or threatened litigation. The Credit Agreement also requires compliance with certain customary financial covenants consisting of a minimum ratio of EBITDA to \n49\nTable of Contents\ninterest expense and a maximum ratio of total debt to EBITDA. The Credit Agreement contains restrictive covenants regarding indebtedness, liens, fundamental changes, investments, share repurchases, dividends and distributions, disposition of assets, transactions with affiliates, negative pledges, hedging transactions, certain prepayments of indebtedness, accounting changes and governmental regulation.\nThe Credit Agreement also contains customary events of default. If an event of default has occurred and continues beyond any applicable cure period, the administrative agent may (i) accelerate all outstanding obligations under the Credit Agreement or (ii) terminate the commitments, amongst other remedies. Additionally, the lenders are not obligated to fund any new borrowing under the Credit Agreement while an event of default is continuing.\nRepurchase Commitments \nOur dealers have arrangements with certain finance companies to provide secured floor plan financing for the purchase of our boats. These arrangements indirectly provide liquidity to us by financing dealer purchases of our products, thereby minimizing the use of our working capital in the form of accounts receivable. A majority of our sales are financed under similar arrangements, pursuant to which we receive payment within a few days of shipment of the product. We have agreed to repurchase products repossessed by the finance companies if a dealer defaults on its debt obligations to a finance company and the boat is returned to us, subject to certain limitations. Our financial exposure under these agreements is limited to the difference between the amounts unpaid by the dealer with respect to the repossessed product plus costs of repossession and the amount received on the resale of the repossessed product. For fiscal years 2023, 2022 and 2021, we did not repurchase any boats under our repurchase agreements, respectively. An adverse change in retail sales could require us to repurchase repossessed units upon an event of default by any of our dealers, subject to the annual limitation. Refer to Note 17 to the audited consolidated financial statements included elsewhere in this Annual Report for further information on repurchase commitments.\nCritical Accounting Policies and Critical Accounting Estimates\nOur discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and cash flows, and related disclosure of contingent assets and liabilities. Our estimates include those related to business combinations, revenue recognition, income taxes, tax receivable agreement liability, and warranty claims. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.\nWe believe that of our significant accounting policies, which are described in the notes to our audited consolidated financial statements appearing elsewhere in this Annual Report, the accounting policies listed below involve a greater degree of judgment and complexity. Accordingly, we believe these are the most critical to understand and evaluate fully our financial condition and results of operations.\nBusiness Combinations\nWe account for business acquisitions under ASC 805, \nBusiness Combinations\n. The total purchase consideration for an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities assumed at the acquisition date. Costs that are directly attributable to the acquisition are expensed as incurred. Identifiable assets (including intangible assets) and liabilities assumed in an acquisition are measured initially at their fair values at the acquisition date. We recognize goodwill if the fair value of the total purchase consideration and any noncontrolling interests is in excess of the net fair value of the identifiable assets acquired and the liabilities assumed. We include the results of operations of the acquired business in the consolidated financial statements beginning on the acquisition date. We recognized goodwill of $49.2 million as a result of our acquisition of Maverick Boat Group in December 2020 and goodwill of $0.3 million as a result of our acquisition of AmTech, LLC in February 2022. We had goodwill outstanding of $100.6 million as of June\u00a030, 2023. \nWhen determining such fair values, we make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include but are not limited to projected future cash flows, dealer attrition and discount rates. 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 and changes could be significant. Furthermore, our estimates might change as additional information becomes available.\n50\nTable of Contents\nRevenue Recognition\nRevenue is recognized as performance obligations under the terms of contracts with customers are satisfied; this occurs when control of promised goods (boats, parts, or other) is transferred to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. We generally manufacture products based on specific orders from dealers and often ship completed products only after receiving credit approval from financial institutions. The amount of consideration we receive and revenue we recognize varies with changes in marketing incentives and rebates we offer to our dealers and their customers.\nDealers generally have no rights to return unsold boats. From time to time, however, we may accept returns in limited circumstances and at our discretion under our warranty policy, which generally limits returns to instances of manufacturing defects. We may be obligated, in the event of default by a dealer, to accept returns of unsold boats under our repurchase commitment to floor financing providers, who are able to obtain such boats through foreclosure. We accrue returns when a repurchase and return, due to the default of one of our dealers, is determined to be probable and the return is reasonably estimable. Historically, product returns resulting from repurchases made under the floorplan financing program have not been material and the returned boats have been subsequently resold above their cost. Our financial exposure is limited to the difference between the amount paid to the finance companies and the amount received on the resale of the repossessed product. Refer to Note 9 and Note 17 related to our product warranty and repurchase commitment obligations, respectively.\nRevenue from boat part sales is recorded as the product is shipped from our location, which is free on board shipping point. Revenue associated with sales of materials, parts, boats or engine products sold under our exclusive manufacturing and distribution agreement with our Australian subsidiary are eliminated in consolidation. Revenue associated with sales to the independent representative responsible for international sales is recognized in accordance with free on board shipping point terms, the point at which the risks of ownership and loss pass to the representative. A fixed percentage discount is earned by the independent representative at the time of shipment to the representative as a reduction in the price of the boat and is recorded in our consolidated statements of operations and comprehensive income as a reduction in sales.\nWe earn royalties on boats shipped with our proprietary wake surfing technology under licensing agreements with various marine manufacturers. Royalty income is recognized when products are used or sold with our patented technology by these other boat manufacturers and industry suppliers. The usage of our technology satisfies the performance obligation in the contract.\nProduct Warranties\nOur standard warranties require us or our dealers to repair or replace defective products during the warranty period at no cost to the consumer. We estimate warranty costs we expect to incur and record a liability for such costs at the time the product revenue is recognized. We utilize historical claims trends and analytical tools to develop the estimate of our warranty obligation on a per boat basis, by brand and warranty year. Factors that affect our warranty liability include the number of units sold, historical and anticipated rates of warranty claims and cost per claim. We assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary. Beginning with model year 2016, we increased the term of our limited warranty for Malibu brand boats from three years to five years and for Axis brand boats from two years to five years. Beginning in model year 2018, we increased the term of our bow-to-stern warranty for Cobalt brand boats from three years to five years. Accordingly, we have less historical claims experience for warranty year five, and as such, these estimates give rise to a higher level of estimation uncertainty. Future warranty claims may differ from our estimate of the warranty liability, which could lead to changes in the Company\u2019s warranty liability in future periods. A hypothetical change of a 10% increase or decrease to our estimate of the warranty liability as of June\u00a030, 2023 would have affected net income for the fiscal year ended June\u00a030, 2023 by approximately $4.2 million. Refer to Note 9 to the audited consolidated financial statements included elsewhere in this Annual Report for further information on warranties.\nNew Accounting Pronouncements\n\u00a0\u00a0\u00a0\u00a0\nSee \"Part II, Item 8. Financial Statements and Supplementary Data\u2014Note 1\u2014Organization, Basis of Presentation, and Summary of Significant Accounting Policies\u2014New Accounting Pronouncements.\u201d\n51\nTable of Contents",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk\nMarket risk represents the risk of loss that may impact our financial condition through adverse changes in financial market prices and rates and inflation. Changes in these factors could cause fluctuations in our results of operations and cash flows. In the ordinary course of business, we are primarily exposed to foreign exchange rate and interest rate risks. We manage our exposure to these market risks through regular operating and financing activities. In the past, we have also attempted to reduce our market risks through hedging instruments such as interest rate swaps.\nForeign Exchange Rate Risk\nWe have operations both within the United States and Australia, and we are exposed to market risks in the ordinary course of our business. These risks primarily include foreign exchange rate and inflation risks. Our Australian operations purchase key components from our U.S. operations, as well as other U.S. based suppliers, and pay for these purchases in U.S. dollars. Fluctuations in the foreign exchange rate of the U.S. dollar against the Australian dollar resulted in immaterial gains in foreign currency translation in the fiscal year ended June\u00a030, 2023. We had a loss of $0.1 million in foreign currency translation for fiscal year 2022 and a gain of $0.2 million in foreign currency translation for fiscal year 2021. We are also subject to risks relating to changes in the general economic conditions in the countries where we conduct business. To reduce certain of these risks to our Australian operations, we monitor, on a regular basis, the financial condition and position of the subsidiary. We do not use derivative instruments to mitigate the impact of our foreign exchange rate risk exposures. \nAdditionally, the assets and liabilities of our Australian subsidiary are translated at the foreign exchange rate in effect at the balance sheet date. Translation gains and losses are reflected as a component of accumulated other comprehensive loss in the stockholders\u2019 equity section of the accompanying consolidated balance sheets. Revenues and expenses of our foreign subsidiary are translated at the average foreign exchange rate in effect for each month of the year. Certain assets and liabilities related to intercompany positions reported on our consolidated balance sheets that are denominated in a currency other than the functional currency are translated at the foreign exchange rates at the balance sheet date and the associated gains and losses are included in net income.\nInterest Rate Risk\nWe are subject to interest rate risk in connection with borrowings under our revolving credit facility, which bear interest at variable rates. At June\u00a030, 2023, we had no outstanding debt under our revolving credit facility. As of June\u00a030, 2023, the undrawn borrowing amount under our revolving credit facility was $348.4\u00a0million. \nAt August\u00a024, 2023, the interest rate on our revolving credit facility was 6.70% under the terms of the Credit Agreement. Based on a sensitivity analysis at August\u00a024, 2023, a 100 basis point increase in interest rates would increase our annual interest expense by approximately $0.7 million. \nIf interest rates continue to increase, as they did throughout fiscal year 2023, we will be obligated to make higher interest payments to our lenders.\n52",
+  "cik": "1590976",
+  "cusip6": "56117J",
+  "cusip": ["56117J100", "56117J900", "56117j100"],
+  "names": ["MALIBU BOATS INC CLASS A", "MALIBU BOATS INC", "MALIBU BOATS INC   A"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1590976/000159097623000069/0001590976-23-000069-index.htm"
+}
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+{
+  "item1": ">Item 1. Business.\nOverview\nWe are a leading cloud-based provider of human capital management, or HCM, and payroll software solutions that deliver a comprehensive platform for the modern workforce. \nOur HCM and payroll platform offers an intuitive, easy-to-use product suite that helps businesses attract and retain talent, build culture and connection with their employees, and streamline and automate HR and payroll processes. \nExcluding clients acquired through acquisitions, as of June\u00a030, 2023, we provided our software-as-a-service, or SaaS, solutions to approximately 36,200 clients across the U.S., which on average had over 140 employees. \nEffective management of human capital is a core function in all organizations and requires a significant commitment of resources. \nOrganizations are faced with an ever-changing employment landscape, including numerous federal, state and local regulations across multiple jurisdictions, the complexity of increasingly geographically dispersed employees, and managing hybrid workplaces. At the same time, employees\u2019 expectations are rising, and organizations need to prioritize communication, connection, and collaboration among their employees to differentiate how they attract and retain talent and build a culture of loyalty.\n Many companies also are operating without the infrastructure, expertise or personnel to implement or support large and complex systems in today\u2019s dynamic environment. Existing solutions offered by third-party payroll service providers can have limited capabilities and configurability while other enterprise-focused software vendors can be prohibitively expensive and time-consuming to implement and manage. We believe that modern organizations are better served by SaaS solutions designed to meet their unique needs, delivering fast time to value, and providing their employees with the most engaging experience available. \n1\nTable of Contents\nOur HCM and payroll software solutions provide the following key benefits to our clients:\n\u2022\nSingle Platform with Flexible Data\n - \nThe foundation of our platform is a single employee system of record that supports the complete employee lifecycle: Recruiting & Onboarding, Benefits, Time & Labor, Payroll, HR,  Learning, and Performance & Compensation. Our platform centralizes payroll and HCM data, minimizing inconsistent and incomplete information that can be produced when using multiple databases. \n\u2022\nEmployee Experience\n \u2013We embed employee-focused features throughout the platform that help employees feel connected to their work whether they are hybrid, remote, on-the-go, or do not have corporate email addresses. Our platform provides tools to communicate, connect to organizations and peers, and focus on career development and growth, which drives engagement and adoption of self-service processes \u2013 and drives HR automation and digital transformation. \n\u2022\nInsights, Recommendations & AI\n \u2013 Our clients have access to their data for reporting and compliance needs, but we also provide actionable insights powered by AI based on best practices across our client base. Clients can use interactive dashboards to interpret data, get prescriptive recommendations tailored to improving efficiency and building a healthier workforce and use AI-assisted tools to automate day-to-day tasks.\n\u2022\nLeading Customer Service\n - We supplement our comprehensive software solutions with an integrated implementation and client service organization, all of which are designed to meet the needs of our clients and prospects. \n\u2022\nSeamless Integration with Extensive Ecosystem of Partners\n. Our software solutions offer our clients automated data integration with hundreds of third-party partner systems in our Integration Marketplace, such as 401(k), benefits and insurance provider systems. This integration reduces the complexity and risk of error of manual data transfers and saves time for our clients and their employees. We integrate data with these related systems through a secure connection, which significantly decreases the risk of unauthorized third-party access and other security breaches.\nWe market and sell our products through our direct sales force. We generate sales leads through a variety of focused marketing initiatives and from our extensive referral network of 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants. We derive revenue from a client based on the solutions purchased by the client, the number of client employees and the amount, type and timing of services provided with respect to those \n2\nTable of Contents\nclient employees. Our annual revenue retention rate was greater than 92% in each of the fiscal years 2021, 2022 and 2023. Our total revenues increased from $635.6 million in fiscal 2021 to $852.7 million in fiscal 2022, representing a 34% year-over-year increase, and to $1,174.6 million in fiscal 2023, representing a 38% year-over-year increase. Our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results.\nOur Strategy\nWe intend to strengthen and extend our position as a leading provider of cloud-based HCM and payroll software solutions. Key elements of our strategy include the following:\n\u2022\nExtend Technological Leadership\n. We believe that our organically developed cloud-based software solutions, combined with our unified database architecture, enhances the experience and usability of our products, providing what we believe to be a competitive advantage over alternative solutions. Our modern, intuitive user interface utilizes features found in many popular consumer application experiences, enabling users to use our solutions with limited training. We plan to continue our technology innovation, as we have done with our mobile applications, social features and analytics capabilities.\n\u2022\nGrow Our Client Base\n. We believe that our current client base represents only a small portion of the organizations that could benefit from our solutions. Our clients typically have between 10 to 5,000 employees. While we provide our HCM and payroll software solutions to approximately 36,200 clients across the U.S. (excluding clients acquired through acquisitions) as of June\u00a030, 2023, there are over 1.3 million businesses with 10 to 5,000 employees in the U.S., employing approximately 73 million people, according to the U.S. Census Bureau in 2020. \nWe estimate that if clients were to buy our entire suite of existing solutions at list prices, they would spend \napproximately $500 per employee annually. We believe our realized target addressable market is approximately $18.6 billion as client\ns, on average, purchase 50% or more of our suite of solutions. As we continue to expand our product offerings, we believe that we have an opportunity to increase the amount clients spend on HCM solutions per employee and to expand our addressable market. As we expand our client base and number of employees, we will also grow our sales organization. \n\u2022\nExpand Our Product Offerings\n. We believe a significant part of our leadership position is the result of our investment and innovation in our product offerings. We plan to continue to invest in product development efforts that will allow us to offer a broader selection of products to new and existing clients. \n\u2022\nFurther Develop Our Referral Network\n. We have developed a strong network of referral participants, such as 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants that recommend our solutions and provide referrals. We believe that our platform\u2019s automated data integration with hundreds of related third-party partner systems is valuable to our referral participants, as they are able to access payroll and HR data through a single system which decreases complexity and cost and complements their own product offerings. We plan to increase integration with third-party providers and expand our referral network to grow our client base and lower our client acquisition costs.\nOur Products\nOur \nHCM and payroll software solutions \ndeliver a unified platform for the modern workplace. \nWe offer an intuitive, easy-to-use product suite that helps businesses attract and retain talent, build culture and connection with their employees and streamline and automate HR and payroll processes.\n Our product suite includes the following categories:\nPayroll\nPayroll and Tax Service\ns\n \u2013 Our Payroll and Tax Services solution is designed to simplify payroll, automate processes and manage complex compliance requirements within one system. Our payroll solution leverages data from our Time & Labor and Human Resource solutions to accurately calculate wages, deductions and withholdings, without the need for manual reentry. Clients work with our experts to configure general ledger integrations, accruals and complex reports to enable data-driven decision making. Our integration capabilities also automatically transfer 401(k) information, retirement plans and benefit files to third-party providers. Through our \n3\nTable of Contents\nTax Services solutions, we accurately prepare and file the necessary tax withholdings and filing documents for local, state and federal jurisdictions.\nGlobal Payroll \u2013 \nOur cloud-based global payroll solution enables U.S.-based companies to manage payroll for employees outside the U.S. in line with complex local and country-specific requirements across many countries. It also provides consolidated reporting capabilities to efficiently manage a global employee base with real-time access to payroll data.\nExpense Management\n \u2013 Our Expense Management solution enables mobile app capture of receipts and imports transactions from credit cards, reducing manual entry errors and minimizing employee and approver paperwork, while also eliminating spreadsheets, calculators and manual approvals through automated workflows that route approved expenses for payroll reimbursement.\nOn Demand Payment\n \u2013 On Demand Payment provides employees with visibility into their earned wages in between pay cycles based on their hours worked and offers financial flexibility to employees through access to a portion of their earned wages before their scheduled payday without impacting the client\u2019s standard payroll process.\nGarnishments \n\u2013 Our Garnishments solution provides the calculation, setup and maintenance of historical deduction records and performs calculation validation against state and federal legislation to mitigate compliance risk and prevent costly penalties and errors.\nHuman Resources \nHuman Resources \n\u2013 Human Resources solutions streamline processes using modern, mobile-enabled tools that help save time by automating administrative tasks and providing data-driven reporting. Clients can track headcount and status for positions, manage position and manager changes, manage compliance tracking and reporting and employee data and documents in one central location.\nEmployee Self-Service\n \u2013 Our Employee Self-Service module provides employees with access to their information 24/7, which allows them to view checks, request time off, clock in and out, update personal data and collaborate with teammates. Employees can also enroll in benefits, view coverage, access Learning Management System training or view course completion status on-the-go via our mobile app. \nWorkflows & Documents \u2013 Workflows & Documents serves as a central location to securely store personal employee files such as offer letters and performance reviews to help clients stay compliant and organized by replacing manual processes and paper files. HR professionals can search electronic documents and easily upload, store and download documents while managing access with our role-based permission settings.\nHR Compliance Dashboard\n \u2013 With our HR Compliance Dashboard, clients save time and money by staying up to date with new laws and regulations related to topics such as employment verification, Equal Employment Opportunity and compensation.\nHR Edge\n \u2013 HR Edge supports human resource leaders\u2019 navigation through complex compliance requirements, social issues and HR policies. Clients can also access a comprehensive library of detailed articles, guides and other resources to make informed decisions on compliance topics such as healthcare reform, wages and hours regulations, employee leave, state laws, discrimination and more.\nTime & Labor\nTime and Attendance\n \u2013 Our Time and Attendance solution accurately tracks time and attendance data, eliminating the need for manual tracking of accruals and reducing administrative tasks. Employees can request and manage time off, edit timecards and manage schedule changes. A customizable supervisor dashboard provides at-a-glance visibility to missed punches, pending time off requests, attendance exceptions and more.\nScheduling\n \u2013 Clients can automate schedule tracking by creating and adjusting work schedules as needed, including leveraging templates and building policies based on duration, time between shifts and availability \n4\nTable of Contents\nwithout having to manually correct payroll data. Managers and employees can easily manage their schedules from our mobile app to ensure the appropriate shift coverage.\nTime Collection\n \u2013 Our wide variety of time collection devices include kiosks, state-of-the-art time clocks, and mobile and web applications to meet unique needs of different companies while enabling employees to clock in wherever business is conducted. Advanced features include specifying geographic parameters for mobile punch-in, requiring employees to punch in with a photo, answering attestation prompts and other health and safety checks. \nTalent\nRecruiting\n \u2013 Recruiting helps clients find the right candidates by offering intuitive tools to streamline talent acquisition processes from application creation to candidate acceptance. By modernizing the experience, clients can conveniently reach candidates wherever they are, including through embedded text messaging, and instantly track conversations in our platform. HR professionals can customize job applications and reach more candidates by automatically posting to online job portals. To promote an inclusive culture, clients can activate masking of certain candidate details to promote recruiting without bias, while still collecting all essential details, including diversity information. Additionally, our solution provides clients with the ability to auto-fill and simplify background checks, maintain and track personal and confidential data, and have real-time access to candidate information to enable timely staffing decisions. Recruiters can communicate with modern candidates in the ways they expect, including email and text messaging from right within our platform.\nOnboarding\n \u2013 Onboarding enables new employees to complete all pre-hire tasks through digital data collection to gather important personal and confidential information and documentation right through our platform. Clients can streamline processes such as handbook acknowledgment, tax withholding forms, I-9 document verification, E-Verify and many others. Additionally, new hires feel an instant connection to their team and employer with welcome notes from leaders, introductory videos, company culture information and company policies. \nLearning \n\u2013 Our Learning tools allow clients to easily assign courses tailored to training their employees on new skills, policies, products, and other topics with a variety of course delivery methods including on-demand and webinars, all of which are available via our mobile app. Our clients can create a variety of content for their employees including via a Sharable Content Object Reference Model (SCORM), embedded video and various document types. The client\u2019s custom content is supplemented by a library of standard trainings provided by Paylocity to help in areas like anti-harassment, new hire, workplace safety, diversity in recruiting and many more. Clients can also empower their employees to create trainings so that internal subject matter experts can share their expertise with colleagues. LMS also offers numerous diversity, equity, inclusion and accessibility courses, modules, and instructional kits to help ensure employees are educated to support a diverse workforce.\n \nPerformance\n \u2013 Our Performance tools enable transparent, two-way communication, allowing teams to have ongoing performance conversations. With the ability to manage employee review cycles at the center of the performance management solution, employees can also manage goals and track their career development. Our tools help facilitate ongoing, goals-driven conversations using Journals, giving employees a record of their tasks, goals and accomplishments. Additionally, our clients can prepare succession planning assessments across their employee population by using our 9-box tool that provides context to employees\u2019 performance and the ability to visualize the distribution of their workforce.\nCompensation \n\u2013 Our Compensation tools help clients ensure alignment between organizational goals, budgets and participant eligibility in an efficient process that reduces manual effort and paper-based budgeting activities. Our customized dashboards provide visibility to individual performance and compensation history at custom permission levels and the full value of an employee\u2019s compensation and benefits. Clients can create employee-facing Total Rewards Statements in bulk to demonstrate the full compensation an employee receives\u2014including not just pay, but also benefits, time off, and more.\nBenefits\nBenefit Enrollment & Updates \n \u2013 Clients can plan and administer competitive benefits packages in one place while offering a smooth, mobile-friendly enrollment and management experience for employees with our tool. Benefit administrators can add enrollment rules, manage benefit offerings for different employee groups, customize user \n5\nTable of Contents\nplan limits, and view plan documentation, among other features. Employees can manage their own elections in Employee Self Service or via the mobile app, access open enrollment, account balances and more. \nClients can also use embedded experiences like notifications and training to help employees easily stay apprised of important dates and understand the benefit options available to them. \nThird-Party Administrative (TPA) Solutions\n \u2013 Our TPA solutions are designed to modernize the administration of HSA, FSA, Health Reimbursement Arrangement (HRA), Transportation Management Account (TMA) and Premium Only Plan (POP) benefits by providing users with a single, unified access point for payroll, HR, and benefits administration. Our TPA solutions include mobile and web access, allowing users to view transaction details and account balances while having the ability to submit claims from our integrated employee portal. These solutions also ease the administration of COBRA coverage and retiree billing.\nEmployee Experiences\nCommunity\n \u2013 \nCommunity is an integrated part of our platform that streamlines communication and fosters a culture of engagement not possible with broadcast emails, antiquated intranets or break room bulletin boards. It empowers clients to engage all employees\u2014even those that are remote, on-the-go or do not have corporate email, which is more critical than ever in the new hybrid world of work. With Community, clients can optimize \u201cbroadcast\u201d communications with a company feed that streamlines announcements into a single location. Announcements can be managed, sent and tracked with an intuitive dashboard. Clients can support their employees at scale with Ask an Expert groups where employees can pose questions to designated group experts who manage questions from a dashboard.\n Community also offers premium capabilities such as one-to-one and one-to many chat functionality to improve real-time communication; the ability to upload, create, edit, and share files; the automatic creation of team groups for supervisors and direct reports; updated user profiles allowing employees to list interests, team members, education, skills or hobbies and enhanced directory and search capability to easily find, follow and engage with co-workers. \nVideo\n \u2013 Video provides clients the ability to record, upload and embed videos across our HCM platform to increase collaboration, morale, engagement and productivity. Clients can embed videos seamlessly into tasks that are critical to their business such as leadership announcements, job postings, onboarding, performance journals, surveys and more. \nSurveys\n \u2013 Our Surveys tool help clients gather valuable employee feedback to encourage ongoing and transparent conversations while staying in touch with their workforce.\nRecognition & Rewards \u2013 Recognition & Rewards promotes positive interactions by allowing employees to recognize and celebrate colleagues\u2019 achievements. It also gives employees the ability to post accolades on their profiles and share with co-workers. \nInsights & Recommendations\nModern Workforce Index\n \u2013 \nLeveraging data from more than \n36,200\n clients, our patent-pending Modern Workforce Index (MWI) puts sophisticated AI into an HR intelligence dashboard that gives clients insight into employee sentiment, performance metrics, and engagement. With MWI, clients can identify gaps and get smart, actionable recommendations on how to improve their organization\u2019s health by increasing employee productivity and reducing turnover.\n \nData Insights\n \u2013 With our Data Insights solution, our clients can evaluate the health of their organizations with actionable insights in areas such as headcount, turnover, labor costs and composition of their employee \n6\nTable of Contents\npopulations so they can customize, fund and deploy strategies to support diverse employees and identify needs of underrepresented groups.\nReporting\n \u2013 Clients can build and customize reports within our platform. We also offer hundreds of standard reports that clients can use as is or adjust to suit their needs. New reports are added regularly in response to regulatory changes, compliance updates and client feedback.\nClient Support Teams\nWe supplement our comprehensive software platform with an integrated implementation and client service organization with deep subject matter expertise. Our core operation consists of various specialists, including implementation teams, account managers, payroll processing and tax service teams. Delivering a positive experience and a high level of support is an essential element of our ability to sell our solutions and retain clients.\nImplementation and Training Services\nOur clients are typically either migrating to our platform from a competitive solution or are adopting their first online HCM and payroll solution. These organizations often have limited internal resources and rely on us to implement their HCM and payroll solutions. We typically implement our product suite within one to eight weeks, depending on the size and complexity of each client. Each client is guided through the implementation process by our knowledgeable consultants for all implementation matters. We believe our ability to rapidly implement our solutions is principally due to the combination of our emphasis on engagement with the client, our standardized methodology, our cloud-based architecture and our highly configurable, easy-to-use products.\nWe offer clients the opportunity to utilize on-demand or in-class training designed to provide clients with general knowledge on our solutions. We also host an annual client conference for clients to learn about new products and features and allow clients to provide feedback and learn best practices.\nClient Service\nOur client service model is designed to serve and support the needs of our clients and to build loyalty by developing strong relationships with clients. We strive to achieve high revenue retention, in part, by delivering high-quality service. Our revenue retention was greater than 92% in each of fiscal 2021, 2022 and 2023. Each client is assigned an account management team that serves as the central point of contact for any questions or support needs. We believe this approach enhances client service by providing clients with knowledgeable resources who understand the client\u2019s business, respond quickly, and are accountable for the overall client experience. Account managers are supplemented by teams with deep technical and subject matter expertise who help to expediently and effectively address client needs. We also proactively solicit client feedback through ongoing surveys from which we receive actionable feedback that we use to enhance our client service processes. We have also built an online knowledge repository for clients that provides industry content and Paylocity product and service information.\nTax and Regulatory Services\nOur software contains a rules engine designed to make accurate federal, state, and local tax calculations that is continually updated to support all pertinent legislative changes across U.S. jurisdictions with the support of our tax compliance professionals. Our tax service teams provide a variety of solutions to clients including processing payroll tax deposits, preparing and filing quarterly and annual employment tax returns and amendments and resolving client employment tax notices. Our tax filing and compliance departments perform multiple audits to ensure that clients remit timely and accurate tax payments. In addition, a series of audit routines are run to ensure that quarterly tax filings are accurate and submitted on a timely basis. \nClients\nExcluding clients acquired through acquisitions, as of June\u00a030, 2023, we provided our HCM and payroll software solutions to approximately 36,200 clients, across the U.S. The rate at which we add clients is variable period-to-period and is also seasonal as many clients switch solutions during the first calendar quarter of the year. Clients include for-profit and non-profit organizations across industries including business services, financial services, healthcare, manufacturing, \n7\nTable of Contents\nrestaurants, retail, technology and others. For each of the three years ended June\u00a030, 2021, 2022 and 2023, no client accounted for more than 1% of our revenues.\nSales and Marketing\nWe market and sell our products and services through our direct sales force. Our direct sales force includes sales representatives who have defined geographic territories throughout the U.S. We seek to hire experienced sales representatives wherever they are located and believe we have room to grow the number of sales representatives in each of our territories.\nThe sales cycle begins with a sales lead generated by the sales representative, through our third-party referral network, a client referral, our telemarketing team, our external website, marketing lead generation strategies or other territory-based activities. We support our sales force with a marketing program that includes seminars and webinars, email marketing, social media marketing, broker events and web marketing. \nReferral Network\nAs a core element of our business strategy, we have developed a referral network of third-party service providers, including 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants, that recommend our solutions and provide referrals. Our referral network has become an increasingly important component of our sales process, and in fiscal 2023, more than 25% of our new client revenue originated by referrals from participants in our referral network.\nWe believe participants in our referral network refer potential clients to us because of the strength of our products and services, the value we provide our referral partners through our broker portal, the fact that we do not provide services that compete with our referral networks, and because we offer third parties the ability to integrate their systems with our platform. Unlike other HCM and payroll solution providers who also provide retirement plans, health insurance and other products and services competitive with the offerings of the participants in our referral network, we focus only on our core business of providing HCM and payroll solutions. In some cases, we have formalized relationships in which we are a recommended vendor of these participants. In other cases, the relationships are informal. We typically do not compensate these participants for referrals.\nPartner Ecosystem\nWe have developed a partner ecosystem of third-party systems, such as 401(k), benefits and insurance provider systems, with whom we provide automated data integration for their clients. These third-party providers require certain financial, payroll and other employee demographic information from their clients to efficiently provide their respective services. After securing authorization from the client, we exchange data with these providers. In turn, these third-party providers supply data to us, which allows us to deliver comprehensive HR and benefit management services to our clients. We believe our partnerships with these third parties are an important part of their service offerings. We have also developed our solutions to integrate with a variety of other systems used by our clients, such as accounting, point of sale, banking, expense management, recruiting, background screening and skills assessment solutions. \nPaylocity\u2019s automated data integration reduces the complexity and risk of error of manual data transfers and saves clients and employees time. Direct and automated data transmission improves the accuracy of data and facilitates data collection in partners\u2019 systems. Having automated data integration with a HCM and payroll provider differentiates partners\u2019 product offerings, strengthening their competitive positioning in their own markets.\nTechnology\nWe offer our solutions on a cloud-based platform that leverages a unified architecture and a common code base that we organically developed. Clients do not need to install our software in their data centers and can access our solutions through any mobile device or web browser with Internet access.\n\u2022\nMulti-Tenant Architecture. \nOur software solutions were designed with a multi-tenant architecture. This architecture gives us an advantage over many disparate traditional systems, which are less flexible and require longer and more costly development and upgrade cycles.\n8\nTable of Contents\n\u2022\nMobile Focused. \nWe employ mobile-centric principles in our solution design and development. We believe that the increasing mobility of employees heightens the importance of access to our solutions through mobile devices, including smart phones and tablets. Our mobile experience provides our clients and their employees with access to our solutions through virtually any device having Internet access. We bring the flexibility of a secure, cloud-based solution to users without the need to access a traditional desktop or laptop computer.\n\u2022\nSecurity. \nWe maintain comprehensive security programs designed to ensure the security and integrity of client and employee data, protect against security threats or data breaches and prevent unauthorized access. We regulate and limit all access to servers and networks at our data centers. Our systems are monitored for irregular or suspicious activity, and we have dedicated internal staff perform security assessments for each release. Our systems undergo regular penetration testing and source code reviews by an independent third-party security firm.\nWe use multiple cloud hosting and third-party data center providers to host our solutions, including data centers in Franklin Park, Illinois and Kenosha, Wisconsin (for backup and disaster recovery). We supply the hardware infrastructure and are responsible for the ongoing maintenance of our equipment at all data center locations.\nCompetition\nThe market for HCM and payroll solutions is both fragmented and highly competitive. Our competitors vary for each of our solutions and primarily include payroll and HR service and software providers, such as Automatic Data Processing, Inc., Ceridian HCM Holding Inc., Paychex, Inc., Paycom Software, Inc., Paycor, Inc., Ultimate Kronos Group and other local and regional providers.\nWe believe the principal competitive factors on which we compete in our market include the following:\n\u2022\nSolutions built to connect with today\u2019s modern workforce;\n\u2022\nComprehensive HCM and payroll product suite on a single platform;\n\u2022\nBreadth and depth of product functionality;\n\u2022\nConfigurability and ease of use of our solutions;\n\u2022\nModern, mobile, intuitive and consumer-oriented user experience;\n\u2022\nBenefits of a cloud-based technology platform;\n\u2022\nAbility to innovate and respond to client needs rapidly;\n\u2022\nDomain expertise in HCM and payroll;\n\u2022\nQuality of implementation and client service;\n\u2022\nEase of implementation;\n\u2022\nReal-time web-based payroll processing; and\n\u2022\nAccess to a wide variety of complementary third-party service providers.\nWe believe that we compete favorably on these factors and our ability to remain competitive will largely depend on the success of our continued investment in sales and marketing, research and development and implementation and client services.\n9\nTable of Contents\nResearch and Development\nWe invest heavily in research and development to continuously introduce new modules, technologies, features and functionality. We are organized in small product-centric teams that utilize an agile development methodology. We focus our efforts on developing new modules and core technologies and on further enhancing the usability, functionality, reliability, performance and flexibility of existing modules.\nResearch and development costs, including research and development costs that were capitalized, were $108.5 million, $145.1 million and $219.6 million for the years ended June\u00a030, 2021, 2022 and 2023, respectively. \nIntellectual Property\nOur success is dependent, in part, on our ability to protect our proprietary technology and other intellectual property rights. We rely on a combination of trade secrets, copyrights and trademarks, as well as contractual protections to establish and protect our intellectual property rights. We require our employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements and control access to software, documentation and other proprietary information. Although we rely on laws respecting intellectual property rights, including trade secret, copyright and trademark laws, as well as contractual protections to establish and protect our intellectual property rights, we believe that factors such as the technological and creative skills of our personnel, creation of new modules, features and functionality and frequent enhancements to our modules are the most essential means to establishing and maintaining our technology leadership position.\nGovernmental Regulation\nAs a provider of HCM and payroll solutions, our systems contain a significant amount of sensitive data related to clients, employees of our clients, business partners and our employees. Data privacy is a significant issue for organizations globally, including those in the United States. The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain so for the foreseeable future. Many national, state and local government bodies have adopted or are considering adopting laws and regulations related to the collection, use and disclosure of personal information. In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996 (\u201cHIPAA\u201d), state breach notification laws, and state privacy laws, such as the California Consumer Privacy Act of 2018 (\u201cCCPA\u201d), as amended by the California Privacy Rights Act of 2020 (\u201cCPRA\u201d) and the Illinois Biometric Information Privacy Act (\u201cBIPA\u201d). Further, because some of our clients have international operations and employees, the European Union General Data Protection Regulation (\u201cGDPR\u201d) and other foreign data privacy laws may impact our processing of certain client and employee information.\nIn addition, many of our solutions are designed to assist clients with their compliance with certain U.S. federal, state and local laws and regulations that apply to them. As such, our products and services may become subject to increasing and/or changing regulatory requirements, including changes in tax, benefit and other laws, and as these requirements proliferate, we may be required to change or adapt our products and services to comply. Changing regulatory requirements might reduce or eliminate the need for some of our products and services, block us from developing new products and services or have an adverse effect on the functionality and acceptance of our solution. This might in turn impose additional costs upon us to comply, modify or further develop our products and services. It might also make introduction of new products and services more costly or more time-consuming than we currently anticipate or prevent introduction of such new products and services. For example, the adoption of new money transmitter or money services business statutes in jurisdictions or changes in regulators\u2019 interpretation of existing state and federal money transmitter or money services business statutes or regulations, could subject us to registration or licensing or limit business activities until we are appropriately licensed. \nOur ability to comply with and address the continuously evolving requirements and regulations applicable to our business depends on a variety of factors, including the functionality and design of our solutions and the manner in which our clients and their employees utilize them. We have implemented operating policies and procedures to protect the accuracy, privacy and security of our clients\u2019 and their employees\u2019 information and voluntarily undergo certain periodic audits and examinations and maintain certain certifications to demonstrate our commitment to regulatory compliance.\nThe foregoing description does not include an exhaustive list of the laws and regulations governing or impacting our business. See the discussion contained in the \u201cRisk Factors\u201d section in Part I, Item 1A of this Annual Report on Form \n10\nTable of Contents\n10-K for information regarding changes in laws and regulations that could have a materially adverse effect on our business, operating results or financial condition.\nHuman Capital\nAs a leading provider of cloud-based HCM and payroll software solutions, we are committed to delivering the most modern suite of solutions that drive employee engagement and a more connected culture for both our clients and our employees. Our Co-CEOs, together with our senior executive team and Board of Directors, drive our human capital strategy including key initiatives related to our employees and company culture. \nFor additional information regarding our human capital initiatives, we encourage investors and other users of this Annual Report on Form 10-K to visit our Corporate Social Responsibility website at https://www.paylocity.com/who-we-are/about-us/corporate-responsibility/. The information contained on this website is not incorporated by reference into this Annual Report on Form 10-K.\nAs of June\u00a030, 2023, our workforce consisted of approximately 6,100 employees, substantially all of whom were employed on a full-time basis in the United States.\nCulture & Engagement\nAt Paylocity, we strive to be an organization where every employee has a voice, feels welcomed and is empowered to do their best work. Our core values drive our culture \u2013 we believe in earning it every day, that growth fuels opportunity, thinking next generation, living the reputation, and being unbeatable together. Our core values serve as the foundation from which we create an engaging culture for our employees, how we train and develop our teams and how we identify the right talent for our organization. Our approach to drive a strong culture and employee engagement has been validated externally as Paylocity has been named Forbes 2023 Best Employers for Diversity, Forbes 2023 Best Employers for Women, Forbes 2022 America\u2019s Best Mid-Size Employers and was also Great Place To Work certified on multiple occasions.\nWe support a number of employee resource groups (\u201cERGs\u201d) including PCTY Equality, which focuses on fostering a positive work environment and providing support for employees and allies of the LGBTQIA+ community, our PCTY OneWorld group, which fosters an inclusive work environment and provides support for our employees of diverse ethnic backgrounds, PCTY Sheroes, which supports and celebrates women, PCTY Sustainability, whereby our employees support initiatives to operate our business and facilities to conserve energy, water and raw materials, and our PCTY Mental Health, which promotes a psychologically safe and healthy workplace where employees bring their whole selves to work and their mental well-being is supported. Each of these groups is organized to give employees the chance to build community and connections, voice their ideas and perspectives, personally develop and grow, and shape our culture to make a difference at work and in our local communities. \nDiversity, Equity, Inclusion and Accessibility\nDedication to diversity, equity, inclusion and accessibility (\u201cDEIA\u201d) is foundational to our culture. Led by our Chief Diversity Officer and Diversity Leadership Council, we remain committed to increasing the representation of minority groups within our organization, including in leadership roles, and we directly focus on these goals within our talent acquisition and employee development efforts. Our focus includes attracting diverse candidates to our organization while also investing in professional development and mentorship programs focused on underrepresented employee groups. \n11\nTable of Contents\nAs of June\u00a030, 2023, approximately 51% of our employees identified as female and approximately 43% of director roles and above were held by a female. For our U.S. employees, approximately 34% of our employees were made up of underrepresented minorities and approximately 27% of our director roles and above were held by underrepresented minorities as of June 30, 2023. The following table provides the ethnicity breakdown of our U.S. employees as of June\u00a030, 2023.\nEthnicity\nU.S. Employees\nAmerican Indian or Alaskan Native\n0.4%\nAsian & Indian\n6.7%\nBlack Or African American\n10.0%\nHispanic & Latinx\n12.1%\nMultiracial\n4.4%\nNative Hawaiian or Pacific Islander\n0.3%\nWhite\n62.0%\nUndisclosed*\n4.1%\nOverall\n100.0%\n* Individuals preferred to not disclose an ethnicity\nTo support our DEIA efforts, we offer a curriculum of learning and training content known as \u201cBRIDGE\u201d (Belonging, Respect, Inclusion, Diversity, Generosity, and Equity), that delivers training content related to topics such as unconscious bias, inclusive leadership and building diverse teams. The BRIDGE training program features self-paced courses, leadership roundtables, and knowledge briefs. Our curriculum is designed with the needs of both our employees and clients in mind, with content widely available via our Learning tools. \nWe also strive to cultivate the most inclusive workplace culture possible. Our employee self-identification functionality allows employees to self-identify in areas such as disability, race, ethnicity, gender, gender identity, veteran status, sexual orientation, and personal pronouns. This data provides an accurate view of our diverse workforce so we can better customize, fund, and initiate specialized programming, accommodations and strategies. \nLearning & Development\nWe are committed to creating industry leading talent development and leadership programs that support the professional growth of our employees. In 2023, we were named a BEST Awards organization by the Association for Talent Development for the third consecutive year. We now offer professional development courses to all employees including topics like preparing for an interview, building a career path as well as leadership topics like delegation and leading a hybrid team. We also provide our operations team with an immersive scenario-based training program and our salesforce with an intensive learning experience on our go-to-market sales strategy and process. Through our internally developed Learning tool with Video, we enable employees to share knowledge through self-recorded sessions, which complements our library consisting of hundreds of internal courses. We continue to invest in our employees by providing development opportunities through our Leader of Others program, which is designed to help prepare new leaders to guide their team to high performance. This leadership program, combined with our strong culture, increasingly results in our employees stepping into larger roles within the organization.\nTalent Acquisition & Compensation\nWe focus diligently on attracting a diverse pool of talented candidates that can help us achieve our short and long-term goals as an organization. Our philosophy of \u201ctalent anywhere\u201d focuses on identifying the right individuals for our business, regardless of where they are located geographically. For Paylocity, the right talent is someone who embodies our values, has an innate curiosity to learn and grow with our business, and has a diverse perspective on how best to accomplish our goals. We have embraced flexible working arrangements which we believe are essential to enable our employees to work in the environment that best suits their needs.\n12\nTable of Contents\nOur compensation approach is centered around a philosophy that allows us to compete for and retain the right talent to grow our organization, while being consistent and equitable. Our total rewards program includes competitive pay, a restricted stock program that covers more than half of our employee base, an employee stock purchase program, the ability to receive a portion of earned wages before the end of the payroll cycle through our On-Demand Payment product, market competitive retirement benefits, paid time off and many other benefits. We partner with best-in-class organizations to ensure that we utilize the most current data to serve as a foundation of our compensation strategy.\nWe are also committed to supporting the health and well-being of our employees and offer a multitude of resources to assist in these efforts. In addition to traditional benefit offerings, we provide all employees with innovative perks and benefits, such as flexible work schedules, paid parental leave, adoption assistance, employer-paid short term disability, health advocacy services, paid time off to volunteer, tuition reimbursement, the ability to consolidate and refinance federal and private student loans, interest free employee loans and many others. We are also very proud to offer a benefits package that is certified by the World Professional Association for Transgender Health.\nPCTY Gives\nGiving back to our local communities takes many forms at Paylocity. Through PCTY Gives, we mobilize our technology, people and resources across the country through in-kind donations, our Elevate Your Passions (\u201cEYP\u201d) Grant Program, Volunteers in Action paid time-off, signature program funding, corporate sponsored volunteerism and many other initiatives. To support our employees and their communities, each quarter we donate to qualified 501 (c)(3) charities nominated by our employees through the EYP program. In addition to local charities, Paylocity partners with national organizations such as Big Brothers Big Sisters of America, American Red Cross, National Alliance on Mental Illness and Feeding America. To support the children of Paylocity employees, the Peter J. McGrail Scholarship program, named after our late CFO, provides higher education tuition assistance for selected participants.\nAvailable Information\nOur Internet address is www.paylocity.com and our investor relations website is located at http://investors.paylocity.com. We make available free of charge on our investor relations website under the heading \u201cFinancials\u201d our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with (or furnished to) the SEC. Information contained on our websites is not incorporated by reference into this Annual Report on Form 10-K. In addition, the SEC maintains an Internet site, www.sec.gov, that includes filings of and information about issuers that file electronically with the SEC.",
+  "item1a": ">Item 1A. Risk Factors.\nOur business, growth prospects, financial condition or operating results could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that are currently considered immaterial. The trading price of our common stock could decline due to any of the risks and uncertainties described below, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. \nRisks Related to our Business and Industry\nOur quarterly operating results have fluctuated in the past and may continue to fluctuate due to a variety of factors, many of which are outside of our control.\nOur number of new clients typically increases more during our third fiscal quarter ending March 31 than during the rest of our fiscal year, primarily because many new clients prefer to start using our human capital management, or HCM, and payroll solutions at the beginning of a calendar year. Client funds and year-end activities are also traditionally higher during our third fiscal quarter. As a result, our total revenue and expenses have historically grown disproportionately during our third fiscal quarter as compared to other quarters. Due to this seasonality in our business, quarter-to-quarter comparisons of our operations are not necessarily meaningful and such comparisons should not be relied upon as indications of future performance. Additionally, fluctuation in quarterly results may negatively impact the price of our common stock.\n13\nTable of Contents\nIn addition to other risk factors listed within this \u201cRisk Factors\u201d section of this Annual Report on Form 10-K, some other important factors that may cause fluctuations in our quarterly operating results include the following:\n\u2022\nThe extent to which our products achieve or maintain market acceptance;\n\u2022\nOur ability to introduce new products and enhancements and updates to our existing products on a timely basis;\n\u2022\nCompetitive pressures and the introduction of enhanced products and services from competitors;\n\u2022\nChanges in client budgets and procurement policies;\n\u2022\nThe amount and timing of our investment in research and development activities and whether such investments are capitalized or expensed as incurred;\n\u2022\nThe number of our clients\u2019 employees;\n\u2022\nTiming of recognition of revenues and expenses;\n\u2022\nClient renewal rates;\n\u2022\nSeasonality in our business;\n\u2022\nTechnical difficulties with our products or interruptions in our services;\n\u2022\nOur ability to hire and retain qualified personnel;\n\u2022\nA repeal of or changes to the laws and regulations related to the products and services which we offer;\n\u2022\nChanges in accounting principles;\n\u2022\nBusiness disruptions caused by public health issues such as the coronavirus disease (\u201cCOVID-19\u201d) pandemic; \n\u2022\nMacroeconomic factors, including changes in interest rates and inflationary pressures; and\n\u2022\nUnforeseen legal expenses, including litigation and settlement costs.\nIn addition, a significant portion of our operating expenses are related to compensation and other items which are relatively fixed in the short-term, and we plan expenditures based in part on our expectations regarding future needs and opportunities. Accordingly, changes in our business or revenue shortfalls could decrease our gross and operating margins and could negatively impact our operating results from period to period. \nIf we do not continue to innovate and deliver high-quality, technologically advanced products and services, we will not remain competitive and our revenue and operating results could suffer.\nThe market for our solutions is characterized by rapid technological advancements, including but not limited to artificial intelligence (\u201cAI\u201d) and machine learning, changes in client requirements, frequent new product introductions and enhancements and changing industry standards. The life cycles of our products are difficult to estimate. Rapid technological changes and the introduction of new products and enhancements by new or existing competitors, or development of entirely new technologies to replace existing offerings could limit the demand for our existing or future solutions and undermine our current market position. New technologies that involve AI or machine learning or that are created using AI or machine learning may emerge that are able to deliver HCM solutions at lower prices, more efficiently or more conveniently than our solutions, which could adversely impact our ability to compete. Additionally, if new technologies used in our products fail to operate as expected, our business may be negatively impacted.\nOur success depends in substantial part on our continuing ability to provide products and services that organizations will find superior to our competitors\u2019 offerings and will continue to use. We intend to continue to invest \n14\nTable of Contents\nsignificant resources in research and development to enhance our existing products and services and introduce new high-quality products that clients will want. If we are unable to predict user preferences or industry changes, or if we are unable to modify our products and services on a timely basis or to effectively bring new products to market, our revenue and operating results may suffer.\nFailure to manage our growth effectively could increase our expenses, decrease our revenue, and prevent us from implementing our business strategy and sustaining our revenue growth rates.\nWe have experienced rapid revenue and client base growth and intend to pursue continued growth as part of our business strategy. However, the growth in our number of clients puts significant demands on our business, requires increased capital expenditures and increases our operating expenses. To manage this growth effectively, we must attract, train, and retain a significant number of qualified sales, implementation, client service, software development, information technology and management personnel. We also must maintain and enhance our technology infrastructure and our financial and accounting systems and controls. We must also expand and develop our network of third-party service providers, including 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants, which represent a significant source of referrals of potential clients for our products and implementation services. Failure to effectively manage our growth could adversely impact our business and results of operations. We could also suffer operational mistakes, a loss of business opportunities and employee losses. If our management is unable to effectively manage our growth, our expenses might increase more than expected, our revenue could decline or might grow more slowly than expected, and we might be unable to implement our business strategy.\nThe markets in which we participate are highly competitive, and if we do not compete effectively, our operating results could be adversely affected.\nThe market for HCM and payroll solutions is fragmented, highly competitive and rapidly changing. Our competitors vary for each of our solutions and primarily include payroll and HR service and software providers, such as Automatic Data Processing, Inc., Ceridian HCM Holding Inc., Paychex, Inc., Paycom Software, Inc., Paycor, Inc., Ultimate Kronos Group and other local and regional providers.\nSeveral of our competitors are larger and have greater name recognition, longer operating histories and significantly greater resources than we do. Many of these competitors are able to devote greater resources to the development, promotion and sale of their products and services. Furthermore, our current or potential competitors may be acquired by third parties with greater available resources and the ability to initiate or withstand substantial price competition, which may include price concessions, delayed payment terms, or other terms and conditions that are more enticing to potential clients. As a result, our competitors may be able to develop products and services better received by our markets or may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, regulations, or client requirements.\nIn addition, current and potential competitors have established, and might in the future establish, partner or form other cooperative relationships with vendors of complementary products, technologies or services to enable them to offer new products and services, to compete more effectively or to increase the availability of their products in the marketplace. New competitors or relationships might emerge that have greater market share, a larger client base, more widely adopted proprietary technologies, greater marketing expertise, greater financial resources, and larger sales forces than we have, which could put us at a competitive disadvantage. In light of these factors, current or potential clients might accept competitive offerings in lieu of purchasing our offerings. We expect competition to continue for these reasons, and such competition could negatively impact our sales, profitability or market share.\nIf we fail to manage our technical operations infrastructure, including operation of our data centers, our existing clients may experience service outages and our new clients may experience delays in the deployment of our modules.\nWe have experienced significant growth in the number of users, transactions and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our data centers and other operations infrastructure to meet the needs of our clients. We also seek to maintain excess capacity to support new client deployments and the expansion of existing client deployments. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters and the evolution of our modules. We have in the past and may in the future experience website disruptions, outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in client usage and denial of service issues. In some instances, we may not be \n15\nTable of Contents\nable to identify the cause or causes of these performance problems within an acceptable period of time. If we do not accurately predict our infrastructure requirements, our existing clients may experience service outages that may subject us to financial penalties, financial liabilities and client losses and adversely affect our reputation.\nIn addition, our ability to deliver our cloud-based modules depends on the development and maintenance of Internet infrastructure by third parties. This includes maintenance of a reliable network backbone with the necessary speed, data capacity, bandwidth capacity, and security. We may experience future interruptions and delays in services and availability from time to time. Any interruption may affect the availability, accuracy, or timeliness in our services and could damage our reputation, cause our clients to terminate their use of our software, require us to indemnify our clients against certain losses due to our own errors and prevent us from gaining additional business from current or future clients. In the event of a catastrophic event with respect to one or more of our systems, we may experience an extended period of system unavailability, which could negatively impact our relationship with clients. \nTo operate without interruption, both we and our clients must guard against:\n\u2022\nDamage from fire, power loss, natural disasters, pandemics and other force majeure events outside our control;\n\u2022\nCommunications failures;\n\u2022\nSoftware and hardware errors, failures and crashes;\n\u2022\nSecurity breaches, computer viruses, hacking, worms, malware, ransomware, denial-of-service attacks and similar disruptive problems; and\n\u2022\nOther potential interruptions.\nWe use multiple cloud hosting and third-party data center providers to host our solutions, including data centers in Franklin Park, Illinois and Kenosha, Wisconsin (for backup and disaster recovery). We also may decide to employ additional offsite data centers in the future to accommodate growth. Problems faced by our data center locations (such as a hardware or other supply chain disruption), with the telecommunications network providers with whom we or they contract, or with the systems by which our telecommunications providers allocate capacity among their clients, including us, could adversely affect the availability and processing of our solutions and related services and the experience of our clients. In addition, our data center providers may be unable to keep up with our growing needs for capacity, may implement changes in service levels, may not renew these agreements on commercially reasonable terms, or may be acquired. We may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur costs and experience service interruption in doing so. Interruptions in our services might reduce our revenues, subject us to potential liability or other expenses and adversely affect our reputation.\nWe typically pay client employees and may pay taxing authorities amounts due for a payroll period before a client\u2019s electronic funds transfers are finally settled to our account. If client payments are rejected by banking institutions or otherwise fail to clear into our accounts, we may require additional sources of short-term liquidity and our operating results could be adversely affected.\nOur payroll processing business involves the movement of significant funds from the account of a client to employees and relevant taxing authorities. Though we debit a client\u2019s account prior to any disbursement on its behalf, due to Automated Clearing House, or ACH, banking regulations, funds previously credited could be reversed under certain circumstances and timeframes after our payment of amounts due to employees and taxing and other regulatory authorities. There is therefore a risk that the employer\u2019s funds will be insufficient to cover the amounts we have already paid on its behalf. While such shortage and accompanying financial exposure has only occurred in very limited instances in the past, should clients default on their payment obligations in the future, we might be required to advance funds to cover such obligations. Depending on the magnitude of such an event, we may be required to seek additional sources of short-term liquidity, which may not be available on reasonable terms, if at all, and our operating results and our liquidity could be adversely affected and our banking relationships could be harmed. \n16\nTable of Contents\nOur business could be negatively impacted by disruptions in the operations of third-party service providers. \nWe depend on relationships with certain third-party service providers to operate our business. We rely on third-party couriers such as the United Parcel Service, or UPS, to ship printed checks to our clients, and any disruptions in their operations that impact their ability to successfully perform their tasks may negatively impact our business. We also engage international business partners to perform certain services in countries where we currently do not have operations in and as a result may subjects us to regulatory, economic and political risks that are different from those in the United States.\nWe currently have agreements with various major U.S. banks to execute ACH and wire transfers to support our client payroll, benefit and tax services. If one or more of the banks fails to process ACH transfers on a timely basis, or at all, then our relationship with our clients could be harmed and we could be subject to claims by a client with respect to the failed transfers. In addition, these banks have no obligation to renew their agreements with us on commercially reasonable terms, if at all. If a material number of these banks terminate their relationships with us or restrict the dollar amounts of funds that they will process on behalf of our clients, their doing so may impede our ability to process funds and could have an adverse impact on our business. We have contingency plans in place in case of any failures of banks to process transfers that may impact our operations. However, a failure of one of our banking partners or a systemic shutdown of the banking industry could result in the loss of client funds or prevent us from accessing and processing funds on our clients\u2019 behalf, which could have an adverse impact on our business and liquidity. \nIn addition, we utilize certain third-party software in some of our products. Although we believe that there are alternatives for the functionality provided by the third party software, any significant interruption in the availability of such third-party software, or defects and errors in the third-party software, could have an adverse impact on our business unless and until we can replace the functionality provided by these products at a similar cost. \nWe depend on our senior management team and other key employees, and the loss of these persons or an inability to attract and retain highly skilled employees, including product development, sales, implementation, client service and other technical persons, could adversely affect our business.\nOur success depends largely upon the continued services of our key executive officers. We also rely on our leadership team in the areas of product development, sales, implementation, client service, and general and administrative functions. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. While we have employment agreements with our executive officers, these employment agreements do not require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The loss of one or more of our executive officers or key employees could have an adverse effect on our business.\nWe believe that to grow our business and be successful, we must continue to develop products that are technologically advanced, are highly integrable with third-party services, provide significant mobility capabilities and have pleasing and intuitive user experiences. To do so, we must attract and retain highly qualified personnel, particularly employees with high levels of experience in designing and developing software. We must also identify, recruit and train qualified sales, client service and implementation personnel in the use of our software. The amount of time it takes for our sales representatives, client service and implementation personnel to be fully trained and to become productive varies widely. Competition for skilled employees across the United States and globally is intense. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed. We follow a practice of hiring the best available candidates wherever located, but as we grow our business, the productivity of our product development and direct sales force may be adversely affected. In addition, if we hire employees from competitors or other companies, their former employers may attempt to assert that these employees have breached their legal obligations, resulting in a diversion of our time and resources.\nOur software might not operate properly, which could damage our reputation, give rise to claims against us, or divert application of our resources from other purposes, any of which could harm our business and operating results.\nOur HCM and payroll software is complex and may contain or develop undetected defects or errors, particularly when first introduced or as new versions are released. Despite extensive testing, from time to time, we have discovered defects or errors in our products. In addition, because changes in employer and legal requirements and practices relating to benefits, filing of tax returns and other regulatory reports are frequent, we may discover defects and errors in our software and service processes in the normal course of business compared against these requirements and practices. Defects and \n17\nTable of Contents\nerrors could also cause the information that we collect to be incomplete or contain inaccuracies that our clients, their employees and taxing and other regulatory authorities regard as significant. \nDefects and errors and any failure by us to identify and address them could result in delays in product introductions and updates, loss of revenue or market share, liability to clients or others, failure to achieve market acceptance or expansion, diversion of development and other resources, injury to our reputation, and increased service and maintenance costs. The costs incurred in correcting any defects or errors or in responding to resulting claims or liability might be substantial and could adversely affect our operating results. Our clients might assert claims against us in the future alleging that they suffered damages due to a defect, error, or other failure of our product or service processes. A product liability claim and errors or omissions claim could subject us to significant legal defense costs and adverse publicity regardless of the merits or eventual outcome of such a claim.\nOur agreements with our clients typically contain provisions intended to limit our exposure to such claims, but such provisions may not be effective in limiting our exposure. Contractual limitations we use may not be enforceable and may not provide us with adequate protection against product liability claims in certain jurisdictions. A successful claim for product or service liability brought against us could result in substantial cost to us and divert management\u2019s attention from our operations. We also maintain insurance, but our insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our policy may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management\u2019s attention.\nWe may acquire other companies or technologies, which could divert our management\u2019s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.\nWe have acquired and may in the future seek to acquire or invest in other businesses or technologies. The pursuit of potential acquisitions or investments may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.\nWe may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. Factors that may negatively impact our operating results, business and financial position, without limitation include the following:\n\u2022\nInability to integrate or benefit from acquired technologies, operations, or services in a profitable manner;\n\u2022\nUnanticipated costs or liabilities associated with the acquisition;\n\u2022\nDifficulty converting the clients of the acquired business onto our modules and contract terms, including disparities in the revenues, licensing, support or professional services model of the acquired company;\n\u2022\nDiversion of management\u2019s attention from other business concerns;\n\u2022\nAdverse effects to our existing business relationships with business partners and clients as a result of the acquisition;\n\u2022\nThe potential loss of key employees;\n\u2022\nUse of resources that are needed in other parts of our business;\n\u2022\nUse of substantial portions of our available cash to consummate the acquisition; and\n\u2022\nDilutive issuances of equity securities or the incurrence of debt.\nIn addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.\n18\nTable of Contents\nRisks Related to Cybersecurity and Intellectual Property Rights\nIf our security measures are breached or unauthorized access to client data or funds is otherwise obtained, our solutions may be perceived as not being secure, clients may reduce the use of or stop using our solutions and we may incur significant liabilities.\nOur solutions involve the storage and transmission of our clients\u2019 and their employees\u2019 proprietary and confidential information. This information includes bank account numbers, tax return information, social security numbers, benefit information, retirement account information, payroll information, system passwords, and in the case of our benefit administration solution, BeneFLEX, health information protected by the Health Insurance Portability and Accountability Act of 1996, as amended, or the Health Insurance Portability and Accountability Act of 1996 (\u201cHIPAA\u201d). In addition, we collect and maintain personal information on our own employees in the ordinary course of our business. Finally, our business involves the storage and transmission of funds from the accounts of our clients to their employees, taxing and regulatory authorities and others. As a result, unauthorized access or security breaches of our systems, the systems of our clients or use of confidential information we obtain during the normal course of our business could result in the unauthorized disclosure of confidential information, identity and financial theft, litigation, indemnity obligations and other significant liabilities. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are employed, we may be unable to anticipate these techniques or to implement adequate preventative measures in advance. As cyber threats continue to evolve, we are focused on ensuring that our operating environments safeguard and protect personal and business information. We may be required to invest significant additional resources to comply with evolving cybersecurity regulations and to modify and enhance our information security and controls, and to investigate and remediate any security vulnerabilities. We have security measures and controls in place to protect confidential information, prevent data loss, theft and other security breaches, including penetration tests of our systems by independent third parties. However, if our security measures are breached, our business could be substantially harmed, and we could incur significant liabilities. The costs of investigating, mitigating, and reporting such a breach to affected individuals (if required) can be substantial. In addition, if a high-profile security breach occurs with respect to an industry peer, our clients and potential clients may generally lose trust in the security of HCM and payroll modules. Any such breach or unauthorized access could negatively affect our ability to attract new clients, cause existing clients to terminate their agreements with us, result in reputational damage and subject us to lawsuits, regulatory fines or other actions or liabilities which could materially and adversely affect our business and operating results.\nThere can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim related to a breach or unauthorized access. We also cannot be sure that our existing general liability insurance coverage and coverage for errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition and results of operations.\nAny failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.\nOur success is dependent, in part, upon protecting our proprietary technology. Our proprietary technologies are not covered by any patent or patent application. Instead, we rely on a combination of copyrights, trademarks, service marks, trade secret laws, and contractual restrictions to establish and protect our proprietary rights in our products and services. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our products may be unenforceable under the laws of certain jurisdictions and foreign countries.\nWe enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to and distribution of our products and proprietary information. The confidentiality agreements on which we rely to protect certain technologies may be breached and may not be adequate to protect our proprietary technologies. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our solutions. \n19\nTable of Contents\nIn order to protect our intellectual property rights, we may be required to spend significant resources, including cybersecurity resources, to monitor and protect these rights. Our intellectual property could be wrongfully acquired as a result of a cyberattack or other wrongful conduct by employees or third parties. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management\u2019s attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our solutions, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our solutions, or damage our reputation. In addition, we may be required to license additional technology from third parties to develop and market new solutions, and we cannot assure you that we could license that technology on commercially reasonable terms, or at all. Although we do not expect that our inability to license this technology in the future would have a material adverse effect on our business or operating results, our inability to license this technology could adversely affect our ability to compete.\nWe may be sued by third parties for alleged infringement of their proprietary rights.\nThere is considerable patent and other intellectual property development activity in our industry. Our success depends, in part, upon our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry. From time to time, third parties may claim that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. In the future, others may claim that our modules and underlying technology infringe or violate their intellectual property rights. However, we may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. In connection with any such claim or litigation, we may also be obligated to indemnify our clients or business partners or pay substantial settlement costs, including royalty payments, and to obtain licenses, modify applications, or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.\nThe use of open source software in our products and solutions may expose us to additional risks and harm our intellectual property rights.\nSome of our products and solutions use or incorporate software that is subject to one or more open source licenses. Open source software is typically freely accessible, usable and modifiable. Certain open source software licenses require a user who intends to distribute the open source software as a component of the user\u2019s software to disclose publicly part or all of the source code to the user\u2019s software. In addition, certain open source software licenses require the user of such software to make any derivative works of the open source code available to others on potentially unfavorable terms or at no cost.\nThe terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts. Accordingly, there is a risk that those licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our solutions. In that event, we could be required to seek licenses from third parties in order to continue offering our products or solutions, to re-develop our products or solutions, to discontinue sales of our products or solutions, or to release our proprietary software code under the terms of an open source license, any of which could harm our business. Further, given the nature of open source software, it may be more likely that third parties might assert copyright and other intellectual property infringement claims against us based on our use of these open source software programs.\nWhile we monitor the use of all open source software in our products, solutions, processes and technology and try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product or solution when we do not wish to do so, it is possible that such use may have inadvertently occurred in deploying our proprietary solutions. In addition, if a third-party software provider has incorporated certain types of open source software into software we license from such third party for our products and solutions without our knowledge, we could, under certain circumstances, be required to disclose the source code to our products and solutions. This could harm our intellectual property position and our business, results of operations and financial condition.\n20\nTable of Contents\nRisks Related to Legal and Regulatory Matters\nChanges in regulatory laws or requirements applicable to our software and services could impose increased costs on us, delay or prevent our introduction of new products and services and impair the function or value of our existing products and services.\nOur products and services may become subject to increasing and/or changing regulatory requirements, including changes in tax, benefit, wage and hour, employment laws and other international and domestic laws, and as these requirements proliferate, we may be required to change or adapt our products and services to comply. Changing regulatory requirements might reduce or eliminate the need for some of our products and services, block us from developing new products and services or have an adverse effect on the functionality and acceptance of our solution. This might in turn impose additional costs upon us to comply, modify or further develop our products and services. It might also make introduction of new products and services more costly or more time-consuming than we currently anticipate or prevent introduction of such new products and services. For example, the adoption of new money transmitter or money services business statutes in jurisdictions or changes in regulators\u2019 interpretation of existing state and federal money transmitter or money services business statutes or regulations, could subject us to registration or licensing or limit business activities until we are appropriately licensed. These occurrences could also impact how we conduct some aspects of our business or invest client funds, which could adversely impact interest income from investing client funds. Should any state or federal regulators determine that we have operated as an unlicensed money services business or money transmitter, we could be subject to civil and criminal fines, penalties, costs, legal fees, reputational damage or other negative consequences. Any of these regulatory implementations or changes could have an adverse effect on our business, operating results or financial condition.\nSome of our products incorporate new technologies such as artificial intelligence and machine learning. The ability to provide products powered by new and evolving technologies must be approached in a principled manner to navigate the complexities associated with the current or future regulatory requirements as well as social and ethical considerations. Additionally, failure by others in our industry, or actions taken by our clients, employees, or other end users (including misuse of these technologies) could negatively affect the adoption of our solutions and restrict our ability to continue to leverage novel technologies in innovative ways and subject us to reputational harm, regulatory action, or legal liability, which may harm our financial condition and operating results. \nFailure to comply with privacy laws and regulations may have a material adverse effect on reputation, financial condition, and/or operations.\nOur processing of personal information for our employees and on behalf of our clients is subject to federal, state and international privacy laws. These laws, which are not uniform, generally regulate the collection, storage, transfer, and other processing of personal information; require notice to individuals of privacy practices before or at the point of collection; give individuals certain rights with respect to their personal information, including access, deletion and correction; regulate the use or disclosure of personal information for secondary purposes such as marketing; and require notification to affected individuals, clients, and/or regulators in the event of a data breach. \nHIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, applies to our benefit administration solution, BeneFLEX. The European Union General Data Protection Regulation (\"GDPR\"), and state consumer privacy laws like the California Consumer Protection Act (\"CCPA\"), as amended by the California Privacy Rights Act of 2020 (\"CPRA\"), are among the most comprehensive privacy laws and apply to multiple areas of our business. Other countries and U.S. states are increasingly adopting similarly comprehensive laws that impose new data privacy protection requirements and restrictions on covered organizations. Notably, these laws can impose significant penalties and fines on organizations for non-compliance, such as 4% of worldwide revenue for the preceding year under the GDPR. \nThe worldwide regulatory focus on privacy has intensified during the past several years, in part triggered by the GDPR, and has led to the rapid evolution of legal requirements related to the handling of personal information in ways that require our business to adapt to support our clients\u2019 compliance. As this focus continues, the potential risks related to handling personal information by our business will only increase. To add to the complexity of the existing privacy landscape, many areas of existing privacy laws are subject to interpretation, which imposes an added risk that adverse interpretations of these laws by advocacy groups and governments in countries where our clients operate could impose significant obligations on our business or prevent us from offering certain services in jurisdictions where we currently operate. \n21\nTable of Contents\nEnforcement actions and investigations by regulatory authorities related to security incidents and privacy violations continue to increase. Future enforcement actions or investigations could impact us through increased costs or restrictions on our businesses. A finding of noncompliance could result in significant regulatory penalties, legal liability and burdensome governmental oversight. Additionally, security events and concerns about privacy abuses by other companies are changing consumer and social expectations for enhanced privacy. As a result, a perception of noncompliance could damage our reputation with our current and potential clients, employees and stockholders.\nAdverse tax laws or regulations could be enacted, or existing laws could be applied to us or our clients, which could increase the costs of our services and adversely impact our business.\nThe application of federal, state, and local tax laws to services provided electronically often involve complex issues and significant judgment. New or changes to existing income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the Internet. These enactments could adversely affect our business, results of operations and financial condition due to the inherent cost increase.\nMoreover, each state has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that change over time. We review these rules and regulations periodically and, when we believe we are subject to sales and use taxes in a particular state, we may voluntarily engage state tax authorities to determine how to comply with that state\u2019s rules and regulations. We cannot, however, assure you that we will not be subject to sales and use taxes or related penalties for past sales in states where we currently believe no such taxes are required. If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our services, we might be liable for past taxes and the associated interest and penalty charges, in addition to taxes going forward, which will adversely affect our business, sales activity, results of operations and financial condition. \nAny future litigation against us could be costly and time-consuming to defend.\nWe may become subject, from time to time, to legal proceedings and claims that arise in the ordinary course of business such as claims brought by our clients in connection with commercial disputes, employment claims made by our current or former employees, or lawsuits related to breaches of personal information. Litigation might result in substantial costs and may divert management\u2019s attention and resources, which might seriously harm our business, overall financial condition, and operating results. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby harming our operating results and leading analysts or potential investors to lower their expectations of our performance, which could reduce the trading price of our stock.\nRisks Related to Financial Matters\nCertain of our debt agreements contain covenants that may constrain the operation of our business, and our failure to comply with these covenants could have a material adverse effect on our financial condition\n. \nThe revolving credit agreement that we amended in August 2022 contains restrictive covenants including restrictions regarding the incurrence of liens and indebtedness, substantial changes in the general nature of our business and our subsidiaries (taken as a whole), certain merger transactions, certain sales of assets and other matters, all subject to certain exceptions. Failure to comply with these covenants could have a negative impact on our business and financial condition.\nCorporate investments and client funds that we hold are subject to market, interest rate, credit and liquidity risks. The loss of these funds could have an adverse impact on our business.\nWe invest portions of excess cash and cash equivalents and funds held for our clients in liquid, investment-grade marketable securities such as corporate bonds, commercial paper, asset-backed securities, U.S. treasury securities, money market securities, and other cash equivalents. We follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to liquidity and credit risks. Nevertheless, our corporate investments and client fund assets are subject to general market, interest rate, credit, and liquidity risks. These risks may be exacerbated, individually or in unison, during periods of unusual financial market volatility. Any loss of or inability to access our corporate investments or client funds could have adverse impacts on our business, results of operations, financial condition and liquidity.\n22\nTable of Contents\nIn addition, funds held for clients are deposited in consolidated accounts on behalf of our clients, and as a result, the aggregate amounts in the accounts exceed the applicable federal deposit insurance limits. We believe that since such funds are deposited in trust on behalf of our clients, the Federal Deposit Insurance Corporation, or the FDIC, would treat those funds as if they had been deposited by each of the clients themselves and insure each client\u2019s funds up to the applicable deposit insurance limits. If the FDIC were to take the position that it is not obligated to provide deposit insurance for our clients\u2019 funds or if the reimbursement of these funds were delayed, our business and our clients could be materially harmed.\nOur reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.\nGenerally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the Securities and Exchange Commission, or SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, including increased volatility, and could affect the reporting of transactions completed before the announcement of a change. \nRisks Related to Ownership of Our Common Stock\nInsiders have substantial control over us, which may limit our stockholders\u2019 ability to influence corporate matters and delay or prevent a third party from acquiring control over us.\nAs of July\u00a028, 2023, our directors, executive officers and holders of more than 5% of our common stock, together with their respective affiliates, beneficially owned, in the aggregate, approximately 22.7% of our outstanding common stock. This significant concentration of ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. In addition, these stockholders will be able to exercise influence over all matters requiring stockholder approval, including the election of directors and approval of corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership could limit the ability of our other stockholders to influence corporate matters and may have the effect of delaying or preventing a change in control, including a merger, consolidation, or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change in control would benefit our other stockholders.\nOur stock price may be subject to wide fluctuations.\nThe market price of our common stock has experienced, and may continue to experience, wide fluctuations and increased volatility. Factors that may impact our performance and market price include those discussed elsewhere in this \u201cRisk Factors\u201d section of this Annual Report on Form 10-K and others such as:\n\u2022\nOur operating performance and the operating performance of similar companies;\n\u2022\nAnnouncements by us or our competitors of acquisitions, business plans or commercial relationships;\n\u2022\nAny major change in our board of directors or senior management;\n\u2022\nPublication of research reports or news stories about us, our competitors, or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts;\n\u2022\nThe public\u2019s reaction to our press releases, our other public announcements and our filings with the SEC;\n\u2022\nSales of our common stock by our directors, executive officers and affiliates;\n\u2022\nAdverse market reaction to any indebtedness we may incur or securities we may issue in the future;\n\u2022\nShort sales, hedging and other derivative transactions in our common stock;\n\u2022\nThreatened or actual litigation;\n23\nTable of Contents\n\u2022\nPublic health issues such as the COVID-19 pandemic; and\n\u2022\nOther events or factors, including changes in general conditions in the United States and global economies or financial markets (including acts of God, war, incidents of terrorism, inflationary pressures or other destabilizing events and the resulting responses to them).\nIn addition, the stock market in general and the market for software or technology-related companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company\u2019s securities. This litigation, if instituted against us, could result in substantial costs, divert our management\u2019s attention and resources, and harm our business, operating results, and financial condition.\nWe do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.\nWe have not declared or paid dividends on our common stock in the past three fiscal years and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings to fund our growth and other corporate initiatives. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future, and the success of an investment in shares of our common stock will depend upon future appreciation in its value, if any. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders purchased their shares.\nFuture issuances of shares of our common stock could depress the market price of our common stock.\nOur second amended and restated certificate of incorporation authorizes the issuance of up to 155,000,000 shares of common stock and 5,000,000 shares of preferred stock with such rights, preferences, privileges and restrictions as determined by the board of directors. We may issue all or any portion of the capital stock which has been authorized but not issued subject to applicable rules and regulations, which, may not require any action or approval by our stockholders. Also, in the future, we may issue additional securities in connection with investments and acquisitions. The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding stock. Due to these factors, issuances of a substantial number of shares of our common stock into the public market could occur at any time which could dilute the ownership proportion of current stockholders. \nAnti-takeover provisions in our charter documents and Delaware law could discourage, delay, or prevent a change in control of our company and may affect the trading price of our common stock.\nWe are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law, which apply to us, may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the stockholder becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our second amended and restated certificate of incorporation and second amended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our amended and restated certificate of incorporation and bylaws:\n\u2022\nAuthorize the issuance of \u201cblank check\u201d convertible preferred stock that could be issued by our board of directors to thwart a takeover attempt;\n\u2022\nProvide that vacancies on the board of directors, including newly-created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders;\n\u2022\nPrevent stockholders from calling special meetings; and\n\u2022\nProhibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders.\n24\nTable of Contents\nOur bylaws provide that the state and federal courts located within the state of Delaware are the sole and exclusive forums for certain legal actions involving the company or our directors, officers and employees.\nOur second amended and restated bylaws designate the state and federal courts located within the state of Delaware as the sole and exclusive forums for claims arising derivatively, pursuant to the Delaware General Corporation Law or governed by the internal affairs doctrine. The choice of forum provision is expressly authorized by the Delaware General Corporation Law, which was amended so that companies would not have to litigate internal claims in more than one jurisdiction. If a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or unenforceable, we may incur additional costs associated with resolving such extra-forum claims, which could adversely affect our business and financial condition. This bylaws provision, therefore, may dissuade or discourage claimants from initiating lawsuits or claims against us or our directors and officers in forums other than Delaware.\nGeneral Risk Factors\nAdverse economic and market conditions could affect our business, results of operations and financial condition.\nOur business depends on the overall demand for HCM and payroll software and services, and on the economic health of our current and prospective clients. As a result, we are subject to risks arising from adverse changes in economic and market conditions such as lower employment levels, increasing interest rates, inflation, volatility in capital markets, and instability of the banking environment, among other factors. During a slowdown in the economy, clients may reduce their number of employees and delay or reduce their spending on payroll and other HCM solutions or renegotiate their contracts with us. This could result in reductions in our revenues and sales of our products, longer sales cycles, increased price competition and clients\u2019 purchasing fewer solutions than they have in the past. Any of these events would likely harm our business, results of operations, financial condition and cash flows from operations.\nIf we are unable to maintain effective internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.\nAs a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and provide a management report on the internal controls over financial reporting. In addition, the Sarbanes-Oxley Act requires that our management report on the internal controls over financial reporting be attested to by our independent registered public accounting firm. If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. Compliance with these public company requirements has made some activities more time-consuming, costly and complicated. If we identify material weaknesses in our internal controls over financial reporting, if we are unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.",
+  "item7": ">Item 7. \u00a0\u00a0\u00a0\u00a0Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\nThe statements included herein that are not based solely on historical facts are \u201cforward looking statements.\u201d Such forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Our actual results could differ materially from those anticipated by us in these forward-looking statements as a result of various factors, including those discussed below and under Part I, Item 1A. \u201cRisk Factors.\u201d\nThe following discussion of our financial condition and results of operations covers fiscal 2023 and 2022 items and year-over-year comparisons between fiscal 2023 and 2022. Discussion of fiscal 2021 items and year-over-year comparisons between fiscal 2022 and 2021 that are not included in this Form 10-K can be found in \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in Part II, Item 7 of our \nAnnual Report on Form 10-K for the fiscal year ended June 30, 202\n2\n that was filed with the SEC on August \n5\n, 202\n2\n.\n \nOverview\nWe are a leading cloud-based provider of human capital management, or HCM, and payroll software solutions that deliver a comprehensive platform for the modern workforce. Our HCM and payroll platform offers an intuitive, easy-to-use product suite that helps businesses attract and retain talent, build culture and connection with their employees, and streamline and automate HR and payroll processes.\n28\nTable of Contents\nEffective management of human capital is a core function in all organizations and requires a significant commitment of resources. Our cloud-based software solutions, combined with our unified database architecture, are highly flexible and configurable and feature a modern, intuitive user experience. Our platform offers automated data integration with hundreds of third-party partner systems, such as 401(k), benefits and insurance provider systems. We plan to continue to invest in research and development efforts that will allow us to offer a broader selection of products to new and existing clients focused on experiences that solve our clients\u2019 challenges.\nWe believe there is a significant opportunity to grow our business by increasing our number of clients, and we intend to invest in our business to achieve this purpose. We market and sell our solutions through our direct sales force. We have increased our sales and marketing expenses as we have added sales representatives and related sales and marketing personnel. We intend to continue to grow our sales and marketing organization across new and existing geographic territories. In addition to growing our number of clients, we intend to grow our revenue over the long term by increasing the number of solutions that clients purchase from us. To do so, we must continue to enhance and grow the number of solutions we offer to advance our platform.\nWe also believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients. We supplement our comprehensive software solutions with an integrated implementation and client service organization, all of which are designed to meet the needs of our clients and sales prospects. We expect to continue to invest in and grow our implementation and client service organization as our client base grows.\nWe will continue to invest across our entire organization as we continue to grow our business over the long term. These investments include increasing the number of personnel across all functional areas, along with improving our solutions and infrastructure to support our growth. The timing and amount of these investments vary based on the rate at which we add new clients and personnel and scale our application development and other activities. Many of these investments will occur in advance of experiencing any direct benefit from them, which will make it difficult to determine if we are effectively allocating our resources. We expect these investments to increase our costs on an absolute basis, but as we grow our number of clients and our related revenues, we anticipate that we will gain economies of scale and increased operating leverage. As a result, we expect our gross and operating margins will improve over the long term.\nPaylocity Holding Corporation is a Delaware corporation, which was formed in November 2013. Our business operations are conducted by our wholly owned subsidiaries.\nKey Metrics\nWe regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.\nRevenue Growth\nOur recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations. This visibility enables us to better manage and invest in our business. Total revenues increased from $635.6 million in fiscal 2021 to $852.7 million in fiscal 2022, representing a 34% year-over-year increase. Total revenues increased from $852.7 million in fiscal 2022 to $1,174.6 million in fiscal 2023, representing a 38% year-over-year increase. During fiscal 2023, total revenue growth was driven by the strong performance by our sales team, continued annual revenue retention in excess of 92%, increases in client workforce levels and growth in interest income on funds held for clients attributable to rising interest rates and higher average daily balances for funds held for clients due to the addition of new clients and increases in client workforce levels as compared to the prior fiscal year. Our revenue growth in future periods may be impacted by fluctuations in client employee counts, potential increases in client losses, a changing interest rate environment, uncertainties around market and economic conditions including inflation risk, among other factors.\n29\nTable of Contents\nClient Count Growth\nWe believe there is a significant opportunity to grow our business by increasing our number of clients. Excluding clients acquired through acquisitions, we have increased the number of clients using our HCM and payroll software solutions from approximately 28,750 as of June\u00a030, 2021 to approximately 36,200 as of June\u00a030, 2023, representing a compound annual growth rate of approximately 12%. The table below sets forth the total number of clients using our HCM and payroll software solutions for the periods indicated, excluding clients acquired through acquisitions, rounded to the nearest fifty.\nJune 30,\n2021\n2022\n2023\nClient Count\n28,750\u00a0\n33,300\u00a0\n36,200\u00a0\nThe rate at which we add clients is highly variable period-to-period and highly seasonal as many clients switch solutions during the first calendar quarter of each year. Although many clients have multiple divisions, segments or locations, we only count such clients once for these purposes.\nAnnual Revenue Retention Rate\nOur annual revenue retention rate has been in excess of 92% during each of the past three fiscal years. We calculate our annual revenue retention rate as our total revenue for the preceding 12 months, less the annualized value of revenue lost during the preceding 12 months, divided by our total revenue for the preceding 12 months. We calculate the annualized value of revenue lost by summing the recurring fees paid by lost clients over the previous twelve months prior to their termination if they have been a client for a minimum of twelve months. For those lost clients who became clients within the last twelve months, we sum the recurring fees for the period that they have been a client and then annualize the amount. We exclude interest income on funds held for clients from the revenue retention calculation. We believe that our annual revenue retention rate is an important metric to measure overall client satisfaction and the general quality of our product and service offerings.\nAdjusted Gross Profit and Adjusted EBITDA\nWe use Adjusted Gross Profit and Adjusted EBITDA to evaluate our operating results. We prepare Adjusted Gross Profit and Adjusted EBITDA to eliminate the impact of items we do not consider indicative of our ongoing operating performance. However, Adjusted Gross Profit and Adjusted EBITDA are not measurements of financial performance under generally accepted accounting principles in the United States, or GAAP, and these metrics may not be comparable to similarly titled measures of other companies.\nWe define Adjusted Gross Profit as gross profit before amortization of capitalized internal-use software costs and certain acquired intangibles and stock-based compensation expense and employer payroll taxes related to stock releases and option exercises. We define Adjusted EBITDA as net income before interest expense, income tax expense (benefit), depreciation and amortization expense, stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, and other items as defined below.\nWe disclose Adjusted Gross Profit and Adjusted EBITDA, which are non-GAAP measures, because we believe these metrics assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. We believe these metrics are commonly used in the financial community to aid in comparisons of similar companies, and we present them to enhance investors\u2019 understanding of our operating performance and cash flows.\nAdjusted Gross Profit and Adjusted EBITDA have limitations as analytical tools. Some of these limitations include the following:\n\u2022\nAdjusted EBITDA does not reflect our ongoing or future requirements for capital expenditures;\n\u2022\nAdjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;\n\u2022\nAdjusted EBITDA does not reflect our income tax expense or the cash requirement to pay our taxes;\n30\nTable of Contents\n\u2022\nAlthough depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and\n\u2022\nOther companies in our industry may calculate Adjusted Gross Profit and Adjusted EBITDA differently than we do, limiting their usefulness as a comparative measure.\nAdditionally, stock-based compensation will continue to be an element of our overall compensation strategy, although we exclude it from Adjusted Gross Profit and Adjusted EBITDA as an expense when evaluating our ongoing operating performance for a particular period.\nBecause of these limitations, you should not consider Adjusted Gross Profit as an alternative to gross profit or Adjusted EBITDA as an alternative to net income or net cash provided by operating activities, in each case as determined in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results, and we use Adjusted Gross Profit and Adjusted EBITDA only as supplemental information.\nDirectly comparable GAAP measures to Adjusted Gross Profit and Adjusted EBITDA are gross profit and net income, respectively. We reconcile Adjusted Gross Profit and Adjusted EBITDA as follows:\nYear Ended June 30,\n2021\n2022\n2023\n(in thousands)\nReconciliation from Gross Profit to Adjusted Gross Profit\nGross profit\n$\n416,329\n$\n565,649\n$\n807,559\nAmortization of capitalized internal-use software costs\n23,227\n25,267\n31,440\nAmortization of certain acquired intangibles\n\u2014\n1,853\n7,414\nStock-based compensation expense and employer payroll taxes related to stock releases and option exercises\n8,348\n12,610\n18,446\nOther items (1)\n\u2014\n121\n19\nAdjusted Gross Profit\n$\n447,904\n$\n605,500\n$\n864,878\nYear Ended June 30,\n2021\n2022\n2023\n(in thousands)\nReconciliation from Net income to Adjusted EBITDA\nNet income\n$\n70,819\n$\n90,777\n$\n140,822\nInterest expense\n1,002\n498\n752\nIncome tax expense (benefit)\n(13,715)\n(7,180)\n17,792\u00a0\nDepreciation and amortization expense\n42,972\n50,218\n60,866\nEBITDA\n101,078\n134,313\n220,232\nStock-based compensation expense and employer payroll taxes related to stock releases and option exercises\n67,059\n101,109\n154,505\nOther items (2)\n1,891\n2,378\n446\nAdjusted EBITDA\n$\n170,028\n$\n237,800\n$\n375,183\n(1)\u00a0\u00a0\u00a0\u00a0Represents acquisition-related costs.\n(2)\u00a0\u00a0\u00a0\u00a0Represents acquisition and other nonrecurring transaction-related costs and lease exit activity. \n31\nTable of Contents\nBasis of Presentation\nRevenues\nRecurring and Other Revenue\nWe derive the majority of our revenues from recurring fees attributable to our cloud-based HCM and payroll software solutions. Recurring fees for each client generally include a base fee in addition to a fee based on the number of client employees and the number of products a client uses. We also charge fees attributable to our preparation of W-2 documents and annual required filings on behalf of our clients. We charge implementation fees for professional services provided to implement our HCM and payroll solutions. Implementations of our payroll solutions typically require one to eight weeks, depending on the size and complexity of each client, at which point the new client\u2019s payroll is first processed using our solution. We implement additional HCM products as requested by clients and leverage the data within our payroll solution to accelerate our implementation processes. Our average client size has continued to be over 140 employees. \nWhile the majority of our agreements with clients are generally cancellable by the client on 60 days\u2019 notice or less, we also have entered into term agreements, which are generally two years in length. Our agreements do not include general rights of return and do not provide clients with the right to take possession of the software supporting the services being provided. We recognize recurring fees in the period in which services are provided and the related performance obligations have been satisfied. We defer implementation fees related to our proprietary products over a period generally up to 24 months. Recurring and other revenue accounted for approximately 99%, 99% and 93% of our total revenues during the years ended June 30, 2021, 2022 and 2023, respectively.\nInterest Income on Funds Held for Clients\nWe earn interest income on funds held for clients. We collect funds for employee payroll payments and related taxes in advance of remittance to employees and taxing authorities. Prior to remittance to employees and taxing authorities, we earn interest on these funds through demand deposit accounts with financial institutions with which we have automated clearing house, or ACH, arrangements. We also earn interest by investing a portion of funds held for clients in highly liquid, investment-grade marketable securities.\nCost of Revenues\nCost of revenues includes costs to provide our payroll and other HCM solutions which primarily consists of employee-related expenses, including wages, stock-based compensation, bonuses and benefits, relating to the provision of ongoing client support and implementation activities, payroll tax filing, distribution of printed checks and other materials as well as delivery costs, computing costs, amortization of certain acquired intangibles and bank fees associated with client fund transfers. Costs related to recurring support are generally expensed as incurred. Implementation costs related to our proprietary products are capitalized and amortized over a period of 7 years. Our cost of revenues is expected to increase in absolute dollars for the foreseeable future as we increase our client base. However, we expect to realize cost efficiencies over the long term as our business scales, resulting in improved operating leverage and increased margins. \nWe also capitalize a portion of our internal-use software costs, which are then primarily amortized as Cost of revenues. We amortized $23.2 million, $25.3 million and $31.4 million of capitalized internal-use software costs in fiscal 2021, 2022 and 2023, respectively. \nOperating Expenses\nSales and Marketing\nSales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff, including wages, commissions, stock-based compensation, bonuses, benefits, marketing expenses and other related costs. Our sales personnel earn commissions and bonuses for attainment of certain performance criteria based upon new sales throughout the fiscal year. We capitalize certain selling and commission costs related to new contracts or purchases of additional services by our existing clients and amortize them over a period of 7 years. \n32\nTable of Contents\nWe will seek to grow our number of clients for the foreseeable future and therefore our sales and marketing expense is expected to continue to increase in absolute dollars as we grow our sales organization and expand our marketing activities.\nResearch and Development\nResearch and development expenses consist primarily of employee-related expenses for our research and development and product management staff, including wages, stock-based compensation, bonuses and benefits. Additional expenses include costs related to the development, maintenance, quality assurance and testing of new technologies and ongoing refinement of our existing solutions. Research and development expenses, other than internal-use software costs qualifying for capitalization, are expensed as incurred.\nWe capitalize a portion of our development costs related to internal-use software. The timing of our capitalized development projects may affect the amount of development costs expensed in any given period. The table below sets forth the amounts of capitalized and expensed research and development expenses for each of fiscal 2021, 2022 and 2023.\nYear Ended June 30,\n2021\n2022\n2023\n(in thousands)\nCapitalized portion of research and development\n$\n31,744\u00a0\n$\n42,234\u00a0\n$\n55,582\u00a0\nExpensed portion of research and development\n76,707\u00a0\n102,908\u00a0\n163,994\u00a0\nTotal research and development\n$\n108,451\u00a0\n$\n145,142\u00a0\n$\n219,576\u00a0\nWe expect to grow our research and development efforts as we continue to broaden our product offerings and extend our technological leadership by investing in the development of new technologies and introducing them to new and existing clients. We expect research and development expenses to continue to increase in absolute dollars but to vary as a percentage of total revenue on a period-to-period basis.\nGeneral and Administrative\nGeneral and administrative expenses consist primarily of employee-related costs, including wages, stock-based compensation, bonuses and benefits for our finance and accounting, legal, information systems, human resources and other administrative departments. Additional expenses include consulting and professional fees, occupancy costs, insurance and other corporate expenses. We expect our general and administrative expenses to continue to increase in absolute dollars as our company continues to grow.\nOther Income (Expense)\nOther income (expense) generally consists of interest income related to interest earned on our cash and cash equivalents and, if any, corporate investments, net of losses on disposals of property and equipment and interest expense related to our revolving credit facility.\n33\nTable of Contents\nResults of Operations\nThe following table sets forth our statements of operations data for each of the periods indicated.\nYear Ended June 30,\n2021\n2022\n2023\n(in thousands)\nConsolidated Statements of Operations Data:\nRevenues:\nRecurring and other revenue\n$\n631,725\n$\n847,694\n$\n1,098,036\nInterest income on funds held for clients\n3,902\n4,957\n76,562\nTotal revenues\n635,627\n852,651\n1,174,598\nCost of revenues\n219,298\n287,002\n367,039\nGross profit\n416,329\n565,649\n807,559\nOperating expenses:\nSales and marketing\n161,808\n214,455\n296,716\nResearch and development\n76,707\n102,908\n163,994\nGeneral and administrative\n119,771\n163,692\n191,823\nTotal operating expenses\n358,286\n481,055\n652,533\nOperating income\n58,043\n84,594\n155,026\nOther income (expense)\n(939)\n(997)\n3,588\u00a0\nIncome before income taxes\n57,104\n83,597\n158,614\nIncome tax expense (benefit)\n(13,715)\n(7,180)\n17,792\u00a0\nNet income\n$\n70,819\n$\n90,777\n$\n140,822\nThe following table sets forth our statements of operations data as a percentage of total revenue for each of the periods indicated.\nYear Ended June 30,\n2021\n2022\n2023\nConsolidated Statements of Operations Data:\nRevenues:\nRecurring and other revenue\n99%\n99%\n93%\nInterest income on funds held for clients\n1%\n1%\n7%\nTotal revenues\n100%\n100%\n100%\nCost of revenues\n35%\n34%\n31%\nGross profit\n65%\n66%\n69%\nOperating expenses:\nSales and marketing\n25%\n25%\n25%\nResearch and development\n12%\n12%\n14%\nGeneral and administrative\n19%\n19%\n16%\nTotal operating expenses\n56%\n56%\n55%\nOperating income\n9%\n10%\n14%\nOther income (expense)\n0%\n0%\n0%\nIncome before income taxes\n9%\n10%\n14%\nIncome tax expense (benefit)\n(2)%\n(1)%\n2\u00a0\n%\nNet income\n11%\n11%\n12%\n34\nTable of Contents\nComparison of Fiscal Years Ended June 30, 2021, 2022 and 2023\nRevenues\n($ in thousands)\nYear Ended June 30,\nChange from 2021 to 2022\nChange from 2022 to 2023\n2021\n2022\n2023\n$\n%\n$\n%\nRecurring and other revenue\n$\n631,725\n$\n847,694\n$\n1,098,036\n$\n215,969\n34%\n$\n250,342\n30%\nPercentage of total revenues\n99\u00a0\n%\n99\u00a0\n%\n93\u00a0\n%\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nInterest income on funds held for clients\n$\n3,902\n$\n4,957\n$\n76,562\n$\n1,055\n27%\n$\n71,605\n1,445%\nPercentage of total revenues\n1\u00a0\n%\n1\u00a0\n%\n7\u00a0\n%\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nRecurring and Other Revenue\nRecurring and other revenue for the year ended June\u00a030, 2023 increased by $250.3 million, or 30%, to $1,098.0 million from $847.7 million for the year ended June\u00a030, 2022. Recurring and other revenue increased primarily as a result of incremental revenues from new and existing clients due to the strong performance by our sales team, continued annual revenue retention in excess of 92% and also increases in client workforce levels as compared to the prior fiscal year. Excluding clients acquired through acquisitions, the number of clients using our HCM and payroll software solutions at June\u00a030, 2023 increased by 9% to approximately 36,200 from approximately 33,300 at June\u00a030, 2022.\nInterest Income on Funds Held for Clients\nInterest income on funds held for clients for the year ended June\u00a030, 2023 increased by $71.6 million, or 1,445%, to $76.6 million from $5.0 million for the year ended June\u00a030, 2022. Interest income on funds held for clients increased primarily due to higher interest rates and higher average daily balances for funds held due to the addition of new clients to our client base and also increases in client workforce levels as compared to the prior fiscal year. \nCost of Revenues\n($ in thousands)\nYear Ended June 30,\nChange from 2021 to 2022\nChange from 2022 to 2023\n2021\n2022\n2023\n$\n%\n$\n%\nCost of revenues\n$\n219,298\n$\n287,002\n$\n367,039\n$\n67,704\n31%\n$\n80,037\n28%\nPercentage of total revenues\n35%\n34%\n31%\nGross profit margin\n65%\n66%\n69%\nCost of revenues for the year ended June\u00a030, 2023 increased by $80.0 million, or 28%, to $367.0 million from $287.0 million for the year ended June\u00a030, 2022. Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $44.6 million in additional employee-related costs resulting from additional personnel necessary to provide services to new and existing clients, $18.3 million in delivery and other processing-related fees and $5.5 million of additional stock-based compensation costs associated with our equity incentive plan. Gross profit margin increased from 66% for the year ended June\u00a030, 2022 to 69% for the year ended June\u00a030, 2023, which was primarily driven by total revenue growth and improved operating leverage. \n35\nTable of Contents\nOperating Expenses\n($ in thousands)\nSales and Marketing\nYear Ended June 30,\nChange from 2021 to 2022\nChange from 2022 to 2023\n2021\n2022\n2023\n$\n%\n$\n%\nSales and marketing\n$\n161,808\n$\n214,455\n$\n296,716\n$\n52,647\n33%\n$\n82,261\n38%\nPercentage of total revenues\n25%\n25%\n25%\nSales and marketing expenses for the year ended June\u00a030, 2023 increased by $82.3 million, or 38%, to $296.7 million from $214.5 million for the year ended June\u00a030, 2022. The increase in sales and marketing expense was primarily due to $53.9 million of additional employee-related costs, including those incurred to expand our sales team. The increase was also driven by $15.1 million of additional stock-based compensation costs associated with our equity incentive plan and $8.1 million in additional marketing lead generation costs.\nResearch and Development\nYear Ended June 30,\nChange from 2021 to 2022\nChange from 2022 to 2023\n2021\n2022\n2023\n$\n%\n$\n%\nResearch and development\n$\n76,707\n$\n102,908\n$\n163,994\n$\n26,201\n34%\n$\n61,086\n59%\nPercentage of total revenues\n12%\n12%\n14%\nResearch and development expenses for the year ended June\u00a030, 2023 increased by $61.1 million, or 59%, to $164.0 million from $102.9 million for the year ended June\u00a030, 2022. The increase in research and development expenses was primarily due to $47.4 million of additional employee-related costs related to additional development personnel and $17.8 million of additional stock-based compensation costs associated with our equity incentive plan, partially offset by $9.1 million in higher period-over-period capitalized internal-use software costs.\nGeneral and Administrative\nYear Ended June 30,\nChange from 2021 to 2022\nChange from 2022 to 2023\n2021\n2022\n2023\n$\n%\n$\n%\nGeneral and administrative\n$\n119,771\n$\n163,692\n$\n191,823\n$\n43,921\n37%\n$\n28,131\n17%\nPercentage of total revenues\n19%\n19%\n16%\nGeneral and administrative expenses for the year ended June\u00a030, 2023 increased by $28.1 million, or 17%, to $191.8 million from $163.7 million for the year ended June\u00a030, 2022. The increase in general and administrative expenses was primarily due to $12.8 million of additional stock-based compensation costs associated with our equity incentive plan and $12.3 million in additional employee-related costs.\nOther Income (Expense)\nOther income (expense) for the year ended June\u00a030, 2023 increased by $4.6 million as compared to the year ended June\u00a030, 2022. The change in other income (expense) was primarily due to higher interest income earned on our cash and cash equivalents as a result of higher interest rates.\nIncome Tax Expense (Benefit)\nOur effective tax rates were (8.6)% and 11.2% for the years ended June\u00a030, 2022 and 2023, respectively. Our effective tax rates for the years ended June\u00a030, 2022 and 2023 were lower than the federal statutory rate of 21% primarily due to benefits from stock-based compensation and research and development tax credits generated. \n36\nTable of Contents\nSee Note 14 of the Notes to Consolidated Financial Statements included in Part II, Item 8: \u201cFinancial Statements and Supplementary Data\u201d of this Annual Report on Form 10-K for further details on the components of income tax and a reconciliation of the U.S. federal statutory rate to the effective tax rate.\nCritical Accounting Policies and Significant Judgments and Estimates\nIn preparing our financial statements and accounting for the underlying transactions and balances in accordance with GAAP, we apply various accounting policies that require our management to make estimates, judgments and assumptions that affect the amounts reported in our financial statements. We consider the policies discussed below critical to understanding our financial statements, as their application places the most significant demands on management\u2019s judgment. Management bases its estimates, judgments and assumptions on historical experience, current economic and industry conditions and on various other factors deemed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Because the use of estimates is an integral part of the financial reporting process, actual results could differ, and such differences could be material.\nRevenue Recognition\nWe apply Accounting Standards Codification (\u201cASC\u201d) 606, Revenue from Contracts with Customers (\u201cTopic 606\u201d), whereby we recognize revenue when we transfer control of goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled to for those goods or services. \nWe derive our revenue from contracts with clients predominantly from recurring and non-recurring service fees. Recurring fees are derived from payroll and HR related services including time and attendance, HR and talent management and benefits enrollment and administration services. Payroll services are delivered on a weekly, biweekly, semi-monthly, or monthly basis depending upon the payroll frequency of the client and on an annual basis if a client selects W-2 preparation and processing services. HR related services are typically delivered on a monthly basis. \nThe majority of our recurring fees are satisfied over time as services are provided. The performance obligations related to payroll services are satisfied upon the processing of a client\u2019s payroll with the fee charged and collected based on a per employee per payroll frequency fee. The performance obligations related to time and attendance services and HR related services are satisfied over time each month with the fee charged and collected based on a per employee per month fee. For subscription-based fees which can include payroll, time and attendance and HR related services, we recognize the applicable recurring fees over time each month with the fee charged and collected based on a per employee per month fee. We believe that the total fees charged to our clients is indicative of the standalone selling price as these fees are within the range of prices typically charged for our services to our clients. Even though our subscription-based services include multiple performance obligations, we do not believe it is meaningful to determine the standalone selling price for each service separately since these services are delivered and related revenue recognized within the same period. \nWe have certain optional performance obligations that are satisfied at a point in time including the sales of time clocks and W-2 preparation services. \nNon-recurring service fees consist mainly of nonrefundable implementation fees, which involve setting up the client in, and loading data into, our cloud-based modules. These implementation activities are considered set-up activities. We have determined that the nonrefundable upfront fees provide certain clients with a material right to renew the contract. Implementation fees are deferred and amortized generally over a period up to 24 months. \nCapitalized Internal-Use Software Costs\nWe apply ASC 350-40, Intangibles\u2014Goodwill and Other\u2014Internal-Use Software, to the accounting for costs of internal-use software. Software development costs are capitalized when module development begins, it is probable that the project will be completed, and the software will be used as intended. Costs associated with preliminary project stage activities, training, maintenance and all other post implementation stage activities are expensed as incurred. We also capitalize certain costs related to specific upgrades and enhancements when it is probable the expenditures will result in significant additional functionality. The capitalization policy provides for the capitalization of certain payroll costs for employees who are directly associated with developing internal-use software as well as certain external direct costs. Capitalized employee costs are limited to the time directly spent on such projects.\n37\nTable of Contents\nInternal-use software is amortized on a straight-line basis, generally over a two- to three-year period while certain projects that support our main processing activities are amortized over ten years. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There was no impairment to capitalized internal-use software during the years ended June\u00a030, 2021, 2022 or 2023. We capitalized $31.7 million, $42.2 million and $55.6 million of internal-use software costs for the years ended June\u00a030, 2021, 2022 and 2023, respectively, including stock-based compensation costs of $2.6 million, $7.1 million and $11.9 million for the years ended June\u00a030, 2021, 2022 and 2023, respectively. We amortized $23.2 million, $25.3 million and $31.4 million of capitalized internal-use software costs for the years ended June\u00a030, 2021, 2022 and 2023, respectively. \nBusiness Combinations\nWe include the results of businesses acquired in our consolidated financial statements from the date of acquisition. We allocate the purchase price consideration associated with our acquisitions to the fair values of assets acquired and liabilities assumed at their respective acquisition dates, with the excess recorded to goodwill. The purchase price allocations require us to make significant judgments and estimates in determining such fair values, particularly related to intangible assets. Such estimates used in valuation methodologies can include, but are not limited to, forecasted revenue growth rates and cost projections,\n \nexpected time and costs to rebuild developed technology, and discount rates. These estimates are inherently uncertain and may be refined over the measurement period. Adjustments to the fair values of assets acquired and liabilities assumed may be recorded during the measurement period, which may be up to one year from the acquisition date, with the corresponding offset to goodwill. \nLiquidity and Capital Resources\nOur primary liquidity needs are related to the funding of general business requirements, including working capital requirements, research and development, and capital expenditures. As of June\u00a030, 2023, our principal sources of liquidity were $288.8 million of cash and cash equivalents. In July 2019, we entered into a five-year revolving credit agreement, which we amended in August 2022. The amended credit agreement provides for a $550.0 million revolving credit facility which may be increased up to $825.0 million. No amounts were drawn on the revolving credit facility as of June\u00a030, 2023. In the fourth quarter of fiscal 2020, we borrowed $100.0 million under the original credit facility, which we repaid in the third quarter of fiscal 2021. In the third quarter of fiscal 2022, we borrowed $50.0 million in connection with our acquisition of Cloudsnap, Inc., which we repaid within the same quarter. Refer to Note 12 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: \u201cFinancial Statements and Supplementary Data\u201d for additional details on the credit agreement and borrowing activity. \nWe may invest portions of our excess cash and cash equivalents in highly liquid, investment-grade marketable securities. These investments may consist of commercial paper, corporate debt issuances, asset-backed debt securities, certificates of deposit, U.S. treasury securities, U.S. government agency securities and other securities with credit quality ratings of A-1 or higher. As of June\u00a030, 2023, we did not have any corporate investments classified as available-for-sale securities.\nIn order to grow our business, we intend to increase our personnel and related expenses and to make significant investments in our platform, data centers and general infrastructure. The timing and amount of these investments will vary based on our financial condition, the rate at which we add new clients and new personnel and the scale of our module development, data centers and other activities. Many of these investments will occur in advance of experiencing any direct benefit from them, which could negatively impact our liquidity and cash flows during any particular period and may make it difficult to determine if we are effectively allocating our resources. However, we expect to fund our operations, capital expenditures, acquisitions and other investments principally with cash flows from operations, and to the extent that our liquidity needs exceed our cash from operations, we would look to our cash on hand or utilize the borrowing capacity under our credit facility to satisfy those needs. \nFunds held for clients and client fund obligations will vary substantially from period to period as a result of the timing of payroll and tax obligations due. Our payroll processing activities involve the movement of significant funds from accounts of employers to employees and relevant taxing authorities. Though we debit a client\u2019s account prior to any disbursement on its behalf, there is a delay between our payment of amounts due to employees and taxing and other regulatory authorities and when the incoming funds from the client to cover these amounts payable actually clear into our operating accounts. We currently have agreements with various major U.S. banks to execute ACH and wire transfers to \n38\nTable of Contents\nsupport our client payroll and tax services. We believe we have sufficient capacity under these ACH arrangements to handle all transaction volumes for the foreseeable future. We primarily collect fees for our services via ACH transactions at the same time we debit the client\u2019s account for payroll and tax obligations and thus are able to reduce collectability and accounts receivable risks.\nWe believe our current cash and cash equivalents, future cash flow from operations, and access to our credit facility will be sufficient to meet our ongoing working capital, capital expenditure and other liquidity requirements for at least the next 12 months, and thereafter, for the foreseeable future. \nCash Flows\nThe following table sets forth data regarding cash flows for the periods indicated:\nYear Ended June 30,\n2021\n2022\n2023\nNet cash provided by operating activities\n$\n124,850\u00a0\n$\n155,053\u00a0\n$\n282,723\u00a0\nCash flows from investing activities:\nPurchases of available-for-sale securities and other\n\u2014\u00a0\n(433,962)\n(598,895)\nProceeds from sales and maturities of available-for-sale securities\n101,467\u00a0\n116,848\u00a0\n446,751\u00a0\nCapitalized internal-use software costs\n(28,594)\n(34,515)\n(45,004)\nPurchases of property and equipment\n(9,461)\n(18,069)\n(21,910)\nAcquisitions of businesses, net of cash acquired\n(14,992)\n(107,576)\n\u2014\u00a0\nOther investing activities\n\u2014\u00a0\n(2,500)\n(1,104)\nNet cash provided by (used in) investing activities\n48,420\u00a0\n(479,774)\n(220,162)\nCash flows from financing activities:\nNet change in client fund obligations\n432,373\u00a0\n2,228,038\u00a0\n(1,362,421)\nBorrowings under credit facility\n\u2014\u00a0\n50,000\u00a0\n\u2014\u00a0\nRepayment of credit facility\n(100,000)\n(50,000)\n\u2014\u00a0\nProceeds from exercise of stock options\n146\u00a0\n\u2014\u00a0\n\u2014\u00a0\nProceeds from employee stock purchase plan\n12,214\u00a0\n14,103\u00a0\n16,916\u00a0\nTaxes paid related to net share settlement of equity awards\n(64,191)\n(69,761)\n(88,312)\nPayment of debt issuance costs\n(64)\n(87)\n(885)\nNet cash provided by (used in) financing activities\n280,478\u00a0\n2,172,293\u00a0\n(1,434,702)\nNet change in cash, cash equivalents and funds held for clients' cash and cash equivalents\n$\n453,748\u00a0\n$\n1,847,572\u00a0\n$\n(1,372,141)\nOperating Activities\nNet cash provided by operating activities was $124.9 million, $155.1 million and $282.7 million for the years ended June\u00a030, 2021, 2022 and 2023, respectively. \nThe change in net cash provided by operating activities from fiscal 2022 to fiscal 2023 was primarily due to improved operating results after adjusting for non-cash items including stock-based compensation expense, depreciation and amortization expense and deferred income tax expense (benefit), partially offset by net changes in operating assets and liabilities during the year ended June\u00a030, 2023 as compared to the year ended June\u00a030, 2022.\n39\nTable of Contents\nInvesting Activities\nNet cash provided by (used in) investing activities was $48.4 million, $(479.8) million and $(220.2) million, for the years ended June\u00a030, 2021, 2022 and 2023, respectively. Net cash provided by (used in) investing activities is significantly impacted by the timing of purchases and sales and maturities of investments as we may invest a portion of our excess cash and cash equivalents and funds held for clients in highly liquid, investment-grade marketable securities. The amount of funds held for clients invested will vary based on timing of client funds collected and payments due to client employees and taxing and other regulatory authorities. \nThe change in net cash provided by (used in) investing activities from fiscal 2022 to fiscal 2023 was primarily due to an increase in proceeds from sales and maturities of available-for-sale securities of $329.9 million and a decrease of $107.6 million in amounts paid for acquisitions, net of cash acquired, partially offset by $164.9 in additional purchases of available-for-sale securities during the year ended June\u00a030, 2023 as compared to the year ended June\u00a030, 2022. \nFinancing Activities\nNet cash provided by (used in) financing activities was $280.5 million, $2,172.3 million and $(1,434.7) million for the years ended June\u00a030, 2021, 2022 and 2023, respectively. The change in net cash provided by (used in) financing activities was primarily the decrease in client fund obligations of $3,590.5 million due to the timing of client funds collected and related remittance of those funds to client employees and taxing authorities during the year ended June\u00a030, 2023 as compared to the year ended June\u00a030, 2022.\nCapital Expenditures\nWe expect to continue to invest in capital spending as we continue to grow our business and expand and enhance our operating facilities, data centers and technical infrastructure. Future capital requirements will depend on many factors, including our rate of sales growth. In the event that our sales growth or other factors do not meet our expectations, we may eliminate or curtail capital projects in order to mitigate the impact on our use of cash. Capital expenditures were $9.5 million, $18.1 million and $21.9 million for the years ended June\u00a030, 2021, 2022 and 2023, respectively, exclusive of capitalized internal-use software costs of $28.6 million, $34.5 million, and $45.0 million for the same periods, respectively. \nContractual Obligations\nOur principal commitments consist of $81.3 million in operating lease obligations, of which $10.1 million is due in the next twelve months. Refer to Note 13 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: \u201cFinancial Statements and Supplementary Data\u201d for additional details on our lease activity. We also have $59.0 million in purchase obligations, of which $32.2 million is due in the next twelve months.\nNew Accounting Pronouncements\nRefer to Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: \u201cFinancial Statements and Supplementary Data\u201d for a discussion of recently issued accounting standards.",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures about Market Risk.\nSubstantially all of our operations take place in the United States and are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and certain other exposures as well as risks relating to changes in the general economic conditions in the United States. We have not used, nor do we intend to use, derivatives to mitigate the impact of interest rate or other exposure or for trading or speculative purposes.\nInterest Rate Risk\nAs of June\u00a030, 2023, we had cash and cash equivalents of $288.8 million and funds held for clients of $2,621.4 million. We deposit our cash and cash equivalents and significant portions of our funds held for clients in demand deposit accounts with various financial institutions. We may invest portions of our excess cash and cash equivalents and funds held for clients in marketable securities including money market funds, commercial paper, corporate debt issuances, asset-backed debt securities, certificates of deposit, U.S. treasury securities, U.S. government agency securities and other securities. Our investment policy is focused on generating higher yields from these investments while preserving liquidity \n40\nTable of Contents\nand capital. However, as a result of our investing activities, we are exposed to changes in interest rates that may materially affect our financial statements. \n41\nTable of Contents\nIn a falling rate environment, a decline in interest rates would decrease our interest income earned on both cash and cash equivalents and funds held for clients. An increase in the overall interest rate environment may cause the market value of our investments in fixed rate available-for-sale securities to decline. If we are forced to sell some or all of these securities at lower market values, we may incur investment losses. However, because we classify all marketable securities as available-for-sale, no gains or losses are recognized due to changes in interest rates until such securities are sold or decreases in fair value are deemed due to expected credit losses. We have not recorded credit impairment losses on our portfolio to date.\n Based upon a sensitivity model that measures market value changes caused by interest rate fluctuations, an immediate 100-basis point increase in interest rates would have resulted in a decrease in the market value of our available-for-sale securities by $5.0 million as of June\u00a030, 2023. An immediate 100-basis point decrease in interest rates would have resulted in an increase in the market value of our available-for-sale securities by $5.0 million as of June\u00a030, 2023. Fluctuations in the value of our available-for-sale securities caused by changes in interest rates are recorded in other comprehensive income and are only realized if we sell the underlying securities.\nAdditionally, as described in \nNote 12 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: \u201cFinancial Statements and Supplementary Data\u201d\n, we entered into a first amendment to our credit agreement that provides for a revolving credit facility (\u201ccredit facility\u201d) in the aggregate amount of \n$550.0\n million, which may be increased up to \n$825.0\n million. Borrowings under the credit facility generally bear interest at a rate based upon the Term Secured Overnight Financing Rate (\u201cSOFR\u201d) plus the SOFR Adjustment or an adjusted base rate plus an applicable margin based on our then-applicable net total leverage ratio. As of \nJune\u00a030, 2023\n, there were no amounts drawn on the credit facility. To the extent that we draw additional amounts under the credit facility, we may be exposed to increased market risk from changes in the underlying index rates, which affects our interest expense.\nInflation Risk\nWe do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.",
+  "cik": "1591698",
+  "cusip6": "70438V",
+  "cusip": ["70438V906", "70438V956", "70438V106", "70438v106"],
+  "names": ["PAYLOCITY HLDG CORP COM", "PAYLOCITY HLDG CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1591698/000159169823000115/0001591698-23-000115-index.htm"
+}
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index 0000000000..28e5c7043a
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+++ b/GraphRAG/standalone/data/all/form10k/0001596993-23-000033.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1. \u2003BUSINESS \n\u200b\nUnless otherwise indicated, references to \"Dorian,\" the \"Company,\" \"we,\" \"our,\" \"us,\" or similar terms refer to Dorian LPG Ltd. and its subsidiaries. We use the term \"VLGC\" to refer to very large gas carriers. We use the term \"LPG\" to refer to liquefied petroleum gas and we use the term \"cbm\" to refer to cubic meters in describing the carrying capacity of our vessels. Unless otherwise indicated, all references to \"U.S. dollars,\" \"USD,\" and \"$\" in this report are to the lawful currency of the United States of America and references to \"Norwegian Krone\" and \"NOK\" are to the lawful currency of Norway. \n\u200b\nOverview \n\u200b\nDorian was incorporated on July 1, 2013 under the laws of the Republic of the Marshall Islands, is headquartered in the United States and is engaged in the transportation of LPG. Specifically, Dorian and its subsidiaries are focused on owning and operating VLGCs in the LPG shipping industry. Our founding executives have managed vessels in the LPG shipping market since 2002. Our fleet currently consists of twenty-five VLGCs, including one dual-fuel 84,000 cbm ECO-design VLGC, or our Dual-fuel ECO VLGC; nineteen fuel-efficient 84,000 cbm ECO-design VLGCs, or our ECO VLGCs; one 82,000 cbm modern VLGC; two time chartered dual fuel Panamax size VLGCs; and two time chartered-in ECO VLGCs. The twenty-five VLGCs in our fleet, including the four time chartered-in vessels, as of May 25, 2023, have an aggregate carrying capacity of approximately 2.1 million cbm and an average age of 7.2 years. Currently, thirteen of our ECO VLGCs, including one of our time chartered-in ECO-VLGCs, are fitted with exhaust gas cleaning systems (commonly referred to as \u201cscrubbers\u201d) to reduce sulfur emissions. An additional three of our technically-managed VLGCs had contractual commitments to be equipped with scrubbers as of March 31, 2023. Installation of scrubbers on two of the vessels is expected to be completed during our fiscal year 2024 and one during our fiscal year 2025. We provide in-house commercial and technical management services for all of our vessels, including our vessels deployed in the Helios Pool, which may also receive commercial management services from Phoenix (defined below). Excluding our time chartered-in vessels, we provide in-house technical management services for all of our vessels, including our vessels deployed in the Helios Pool.\n\u200b\nOn April 1, 2015, we and Phoenix Tankers Pte. Ltd., or Phoenix, a wholly-owned subsidiary of Mitsui OSK Lines Ltd., an unaffiliated third party, began operation of Helios LPG Pool LLC, or the Helios Pool, a joint venture owned 50% by us and 50% by Phoenix. We believe that the operation of certain of our VLGCs in this pool allows us to achieve better market coverage and utilization. Vessels entered into the Helios Pool are commercially managed jointly by Dorian LPG (UK) Ltd., our wholly-owned subsidiary, and Phoenix. The members of the Helios Pool share in the net pool revenues generated by the entire group of vessels participating in the pool, weighted according to certain technical vessel characteristics, and net pool revenues are distributed as variable rate time charter hire to each participant. The vessels entered into the Helios Pool may operate either in the spot market, pursuant to contracts of affreightment, or COAs, or on time charters of two years' duration or less. \nWe and Phoenix have agreed that the Helios Pool will have a right of first refusal to undertake any time charter with an original duration greater than two years. As of May 25, 2023, the Helios Pool operated twenty-seven VLGCs, including twenty-three vessels from our fleet and four Phoenix vessels.\n\u200b\n1\n\n\nTable of Contents\nOur Fleet\n\u200b\nThe following table sets forth certain information regarding our fleet as of May 25, 2023: \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nScrubber\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCapacity\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nECO\n\u200b\n Equipped \n\u200b\n\u200b\n\u200b\nCharter\n\u00a0\n\u200b\n\u200b\n(Cbm)\n\u200b\nShipyard\n\u200b\nYear\u00a0Built\n\u200b\nVessel\n(1)\n\u200b\nor Dual-Fuel\n\u200b\nEmployment\n\u200b\nExpiration\n(2)\n\u00a0\nDorian VLGCs\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCaptain John NP\n\u00a0\n 82,000\n\u00a0\nHyundai\n\u00a0\n2007\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nComet\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2014\n\u00a0\nX\n\u00a0\nS\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nCorsair\n(3)\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2014\n\u00a0\nX\n\u00a0\nS\n\u00a0\nTime Charter\n(6)\n\u00a0\nQ4 2024\n\u200b\nCorvette\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\nS\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nCougar\n(3)\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\n\u2014\n\u00a0\nPool-TCO\n(5)\n\u00a0\nQ1 2025\n\u200b\nConcorde\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\nS\n\u00a0\nTime Charter\n(7)\n\u00a0\nQ1 2024\n\u200b\nCobra\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\n\u2014\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nContinental\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\n\u2014\n\u00a0\nPool-TCO\n(5)\n\u00a0\nQ4 2023\n\u200b\nConstitution\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\nS\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nCommodore\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\n\u2014\n\u00a0\nPool-TCO\n(5)\n\u00a0\nQ1 2024\n\u200b\nCresques\n(3)\n\u00a0\n 84,000\n\u00a0\nDaewoo\n\u00a0\n2015\n\u00a0\nX\n\u00a0\nS\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nConstellation\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\nS\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nCheyenne\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\nS\n\u00a0\nPool-TCO\n(5)\n\u00a0\nQ4 2023\n\u200b\nClermont\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\nS\n\u00a0\nPool-TCO\n(5)\n\u00a0\nQ4 2023\n\u200b\nCratis\n(3)\n\u00a0\n 84,000\n\u00a0\nDaewoo\n\u00a0\n2015\n\u00a0\nX\n\u00a0\nS\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nChaparral\n(3)\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\n\u2014\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nCopernicus\n(3)\n\u00a0\n 84,000\n\u00a0\nDaewoo\n\u00a0\n2015\n\u00a0\nX\n\u00a0\nS\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nCommander\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\nS\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nChallenger\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2015\n\u00a0\nX\n\u00a0\n\u2014\n\u00a0\nPool-TCO\n(5)\n\u200b\nQ2 2023\n\u200b\nCaravelle\n(3)\n\u00a0\n 84,000\n\u00a0\nHyundai\n\u00a0\n2016\n\u00a0\nX\n\u00a0\n\u2014\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nCaptain Markos\n(3)\n\u00a0\n 84,000\n\u00a0\nKawasaki\n\u00a0\n2023\n\u00a0\nX\n\u00a0\nDF\n\u00a0\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nTotal\n\u00a0\n 1,762,000\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTime chartered-in VLGCs\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nFuture Diamond\n(8)\n\u200b\n 80,876\n\u200b\nHyundai\n\u200b\n2020\n\u200b\nX\n\u200b\nS\n\u200b\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nAstomos Venus\n(9)\n\u200b\n 77,367\n\u200b\nMitsubishi\n\u200b\n2016\n\u200b\nX\n\u200b\n\u2014\n\u200b\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nHLS Citrine\n(10)\n\u200b\n 86,090\n\u200b\nHyundai\n\u200b\n2023\n\u200b\nX\n\u200b\nDF\n\u200b\nPool\n(4)\n\u00a0\n\u2014\n\u200b\nHLS Diamond\n(11)\n\u200b\n 86,090\n\u200b\nHyundai\n\u200b\n2023\n\u200b\nX\n\u200b\nDF\n\u200b\nPool\n(4)\n\u00a0\n\u2014\n\u200b\n(1)\nRepresents vessels with very low revolutions per minute, long-stroke, electronically controlled engines, larger propellers, advanced hull design, and low friction paint.\n\u200b\n(2)\nRepresents calendar year quarters. \n\u200b\n(3)\nOperated pursuant to a bareboat chartering agreement. See Note 9 to our consolidated financial statements.\n\u200b\n(4)\n\u201cPool\u201d indicates that the vessel operates in the Helios Pool on a voyage charter with a third party and we receive a portion of the pool profits calculated according to a formula based on the vessel\u2019s pro rata performance in the pool.\n\u200b\n(5)\n\u201cPool-TCO\u201d indicates that the vessel is operated in the Helios Pool on a time charter out to a third party and we receive a portion of the pool profits calculated according to a formula based on the vessel\u2019s pro rata performance in the pool. \n\u200b\n(6)\nCurrently \non a time charter with an oil major that began in November 2019\n. \n\u200b\n(7)\nCurrently on time charter with a major oil company that began in March 2019.\n\u200b\n(8)\nCurrently time chartered-in to our fleet with an expiration during the first calendar quarter of 2025.\n\u200b\n(9)\nCurrently time chartered-in to our fleet with an expiration during the third calendar quarter of 2023.\n\u200b\n(10)\nCurrently time chartered-in to our fleet with an expiration during the first calendar quarter of 2030 and has Panamax beam and purchase options beginning in year seven.\n\u200b\n(11)\nCurrently time chartered-in to our fleet with an expiration during the first calendar quarter of 2030 and has Panamax beam and purchase options beginning in year seven.\n\u200b\n2\n\n\nTable of Contents\nThe LPG Shipping Industry\n\u200b\nInternational seaborne LPG transportation services are generally provided by two types of operators: LPG distributors and traders and independent shipowners. Traditionally the main trading route in our industry has been the transport of LPG from the Arabian Gulf to Asia. With the emergence of the United States as a major LPG export hub, the United States Gulf to Asia and United States to Europe have become important trade routes. Vessels are generally operated under time charters, bareboat charters, spot charters, or COAs. LPG distributors and traders use their fleets not only to transport their own LPG, but also to transport LPG for third-party charterers in direct competition with independent owners and operators in the tanker charter market. We operate in markets that are highly competitive and based primarily on supply and demand of available vessels. Generally, we compete for charters based upon charter rate, customer relationships, operating expertise, professional reputation and vessel specifications (size, age and condition). We also believe that our in-house technical and commercial management allows us to provide superior customer service and reliability that enhances our relationships with our charterers. Our industry is subject to strict environmental regulation, including the treatment of ballast water and greenhouse gas emissions regulations, and we believe our modern, ECO-class fleet and our high level of crew training and vessel maintenance make us a preferred provider of VLGC tonnage. For more information with respect to the aforementioned environmental regulations, please see \u201cItem 1. Business\u2014Environmental and Other Regulation in the Shipping Industry.\u201d\nOur Customers\n\u200b\nOur customers, either directly or through the Helios Pool, include or have included global energy companies such as Exxon Mobil Corp., Chevron Corp., China International United Petroleum & Chemicals Co., Ltd., Royal Dutch Shell plc, Equinor ASA, Total S.A., and Sunoco LP, commodity traders such as Glencore plc, Itochu Corporation, Bayegan Group, and the Vitol Group and importers such as E1 Corp., Indian Oil Corporation, SK Gas Co. Ltd., and Astomos Energy Corporation, or subsidiaries of the foregoing. See \u201cItem 7. Management Discussion and Analysis\u2014Overview\u201d for a discussion of our customers that accounted for more than 10% of our total revenues and \u201cItem 1A. Risk Factors\u2014We expect to be dependent on a limited number of customers for a material part of our revenues, and failure of such customers to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.\u201d For the years ended March\u00a031,\u00a02023, 2022 and 2021 approximately 94%, 90% and 93% of our revenues, respectively, were generated through the Helios Pool as net pool revenues\u2014related party. See \u201cItem 1A. Risk Factors\u2014We and the Helios Pool operate exclusively in the VLGC segment of the LPG shipping industry. Due to the general lack of industry diversification, adverse developments in the LPG shipping industry may adversely affect our business, financial condition and operating results.\u201d\n\u200b\nWe intend to continue to pursue a balanced chartering strategy by employing our vessels on a mix of multi-year time charters, some of which may include a profit-sharing component, shorter-term time charters, spot market voyages and COAs. Two of our vessels are currently on fixed time charters outside of the Helios Pool with an average remaining term of 1.1 years as of May 25, 2023, and six of our VLGCs are on Pool-TCO within the Helios Pool. See \u201cOur Fleet\u201d above for more information.\n\u200b\nFurther, each of our vessels serves the same type of customer, has similar operations and maintenance requirements, and operates in the same regulatory environment. Based on this, we have determined that we operate in one reportable segment, the international transportation of LPG. Furthermore, when we charter a vessel to a charterer, the charterer is free to trade the vessel worldwide (subject to applicable laws and sanctions regimes) and, as a result, the disclosure of geographic information is impracticable.\n\u200b\nCompetition\n\u200b\nLPG carrier capacity is primarily a function of the size of the existing world fleet, the number of newbuildings being delivered and the scrapping of older vessels. According to industry sources, in the VLGC sector in which we operate as of May 22, 2023, there were 372 vessels with an aggregate carrying capacity of 18.0 million cbm in the world fleet and 74 vessels with 6.6 million cbm of capacity on order for delivery by the end of 2027.\n\u200b\n3\n\n\nTable of Contents\nOur largest competitors for VLGC shipping services include BW LPG Ltd., or BWLPG; Avance Gas Holding Ltd., or Avance; Petredec Pte. Ltd., or Petredec; and KSS Line Limited. According to industry sources, there were approximately 104 owners in the worldwide VLGC fleet as of May 22, 2023, with the top ten owners possessing 41% of the total fleet on a vessel count basis. Competition for the transportation of LPG depends on the price, vessel position, size, age, condition and acceptability of the vessel to the charterer. We believe we own and operate one of the youngest and the second largest fleet in the VLGC size segment, which, in our view, enhances our position relative to that of our competitors. Our twenty-one VLGCs (excluding the four-time chartered-in vessels) have an average age of 8.0 years compared to the global VLGC fleet\u2019s average age of 10.8 years. Refer to \u201cItem 1A. Risk Factors\u2014We face substantial competition in trying to expand relationships with existing customers and obtain new customers.\u201d\n\u200b\nSeasonality\n\u200b\nLiquefied gases are primarily used for industrial and domestic heating, as chemical and refinery feedstock, as transportation fuel and in agriculture. The LPG shipping market historically has been stronger in the spring and summer months in anticipation of increased consumption of propane and butane for heating during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and the supply of certain commodities. Demand for our vessels therefore may be stronger in our quarters ending June 30 and September 30 and relatively weaker during our quarters ending December 31 and March 31, although 12-month time charter rates tend to smooth out these short-term fluctuations and recent LPG shipping market activity has not yielded the typical seasonal results. The increase in pertochemical industry buying has contributed to less marked seasonality than in the past, but there can no guarantee that this trend will continue. To the extent any of our time charters expire during the typically weaker fiscal quarters ending December 31 and March 31, it may not be possible to re-charter our vessels at similar rates. As a result, we may have to accept lower rates or experience off-hire time for our vessels, which may adversely impact our business, financial condition and operating results.\n\u200b\nHuman Capital\n\u200b\nAs of March\u00a031,\u00a02023, we employed 82 shore-based persons in our offices in the United States, Greece, and Denmark, and had approximately 511 seafaring staff serving on our technically-managed vessels. Seafarers are sourced from seafarer recruitment and placement service agencies and are employed with short-term employment contracts.\n\u200b\nWe recognize that the success of our Company is dependent upon the talents and dedication of our staff, and we are committed to investing in their success. We focus on attracting, developing and retaining a team of highly talented and motivated individuals. We conduct periodic assessments of our pay and benefit practices to help ensure that staff members are compensated fairly and competitively. The Company provides competitive compensation and benefits. In addition to salaries for our shore-based employees, our compensation programs typically include annual bonuses, stock-based compensation awards, company-sponsored retirement savings plans with employer matching opportunities, healthcare and insurance benefits, flexible spending accounts, life insurance, paid time off, family leave, and employee assistance programs.\n\u200b\nThe health and safety of our staff is of paramount importance to us. Following the onset of the COVID-19 pandemic in early 2020, we responded by prioritizing the safety and well-being of our staff through the implementation of strict COVID-19 safety checks and medical support to mitigate the related health risks on our vessels. For the Company\u2019s shoreside offices and operations, we implemented various health and safety measures intended to address COVID-19 and other public health concerns. In spite of the end of the COVID-19 public health crisis, we continue to maintain be vigilant of the health of our seafarers and have resources in place to respond to any outbreaks of COVID 19.\n\u200b\nWe support meaningful learning and development opportunities. We have formal and informal training programs available and offer reimbursement for qualified advanced education programs, workshops, conferences, forums and certifications, and other classes.\n\u200b\nIn February 2022, Russia invaded Ukraine. We employ Ukrainian and Russian seafarers and, as stated above in our discussion about COVID-19, the health and safety of our staff and seafarers is of paramount importance to us. During \n4\n\n\nTable of Contents\nthe conflict we began providing our Ukrainian and Russian seafarers, if they choose, with safe accommodation outside of Ukraine and Russia for both them and their families. \n\u200b\nWe attempt to honor the dignity of each person by fostering a culture of inclusion. We do this by embracing diverse voices and experiences, supporting programs and resources that build an authentic and respectful workplace, and providing fair and equitable opportunities for each person to contribute meaningfully. We believe our workforce needs to be diverse, which, in turn, enables us to innovate, collaborate and better deliver to our customers. Additionally, we have joined the All Aboard Alliance and, together with other industry leaders, we are committed to have a sustainable, progressive, and innovative maritime industry that we can all be proud of with increased diversity, equity, and inclusion throughout organizations across the sector both at sea and onshore.\n\u200b\nClassification, Inspection and Maintenance \n\u200b\nEvery large commercial seagoing vessel must be \u201cclassed\u201d by a classification society. A classification society certifies that a vessel is \u201cin class,\u201d signifying that the vessel has been built and maintained in accordance with the rules of the classification society and the vessel\u2019s country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.\n\u200b\nFor maintenance of the class certificate, regular and special surveys of hull, machinery, including the electrical plant and any special equipment classed, are required to be performed by the classification society, to ensure continuing compliance. The classification societies provide guidelines applicable to LPG vessels relating to extended intervals for drydocking. Every vessel is required to be drydocked every 30 to 36 months for inspection of the underwater parts of the vessel. However, for vessels not exceeding 15 years that have means to facilitate underwater inspection in lieu of drydocking, the drydocking can be skipped and be conducted concurrently with the special survey. Certain cargo vessels that meet the system requirements set by classification societies may qualify for extended drydocking, which extends the 5-year period to 7.5 years, by replacing certain dry-dockings with in-water surveys. If any defects are found, the classification surveyor will issue a \"recommendation\" which must be rectified by the shipowner within prescribed time limits. The classification society also undertakes on request of the flag state other surveys and checks that are required by the regulations and requirements of that flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our loan agreements and financing arrangements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations.\n\u200b\nMost insurance underwriters make it a condition for insurance coverage and lending that a vessel be certified as \u201cin class\u201d by a classification society, which is a member of the International Association of Classification Societies, or the IACS. In December 2013, the IACS adopted harmonized Common Structure Rules, or \u201cthe Rules,\u201d that align with International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels, or the IMO, goal standards and apply to oil tankers and bulk carriers contracted for construction on or after July 1, 2015. The Rules attempt to create a level of consistency between IACS Societies. Our VLGCs are currently classed with either Lloyd\u2019s Register, the American Bureau of Shipping, or ABS, or Det Norske Veritas, all members of the IACS. All of the vessels in our fleet have been awarded International Safety Management, or ISM, certification and are currently \u201cin class.\u201d\n\u200b\nWe also carry out inspections of the ships, including with a view towards compliance under the Ship Inspection Report Programme (\u201cSIRE\u201d) and United States Coast Guard (\u201cUSCG\u201d) requirements, as applicable, on a regular basis; both at sea and while the vessels are in port. The results of these inspections are documented in a report containing recommendations for improvements to the overall condition of the vessel, maintenance, safety and crew welfare. Based in part on these evaluations, we create and implement a program of continual maintenance and improvement for our vessels and their systems.\n\u200b\n5\n\n\nTable of Contents\nSafety, Management of Ship Operations and Administration\n\u200b\nSafety is our top operational priority. Our vessels are operated in a manner intended to protect the safety and health of the crew, the general public and the environment. We actively manage the risks inherent in our business and are committed to preventing incidents that threaten safety, such as groundings, fires and collisions. We are also committed to reducing emissions and waste generation. We have established key performance indicators to facilitate regular monitoring of our operational performance. We set targets on an annual basis to drive continuous improvement, and we review performance indicators every three months to determine if remedial action is necessary to reach our targets. Our shore staff performs a full range of technical, commercial and business development services for us. This staff also provides administrative support to our operations in finance, accounting and human resources.\n\u200b\nRisk of Loss and Insurance\n\u200b\nThe operation of any vessel, including LPG carriers, has inherent risks. These risks include mechanical failure, personal injury, crew negligence, human error, collision, property loss, vessel or cargo loss or damage, cyber-attacks, and business interruption due to political circumstances in foreign countries, hostilities or piracy. In addition, there is always an inherent possibility of marine disaster, including explosions, spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA 90, which imposes virtually unlimited liability upon shipowners, operators and bareboat charterers of any vessel trading in the exclusive economic zone of the United States for certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the United States market. Having said that, we believe that our present insurance coverage is adequate to protect us against the accident-related risks involved in the conduct of our business and that we maintain appropriate levels of environmental damage and pollution insurance coverage consistent with standard industry practice. Additionally, we maintain other insurance policies we believe are customary and are in amounts we believe to be adequate to protect us against material loss. The policies principally provide coverage for general liability, directors and officers, workers\u2019 compensation, and insurance against the consequences of a cyber-attack. However, not all risks can be insured against, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at acceptable rates.\n\u200b\nThe types of insurances we have purchased can be categorized as follows: \n\u200b\n\u25cf\nDamage to or loss of the ships themselves;\n\u25cf\nLiability to cargo owners for damage to or loss of cargo, for injury to or death of crew or third-parties, for collision with other ships or objects, for pollution damage, for fines and other liabilities;\n\u25cf\nCompensation for loss of income in periods when ships undergo repairs due to damage;\n\u25cf\nCompensation for legal expenses in defending against contract claims or in collecting money due;\n\u25cf\nCompensation for damage to IT equipment ashore and onboard the ships in the case of a cyber-attack and of loss suffered from resulting business interruption; and\n\u25cf\nNon-marine coverage, e.g. directors\u2019 and officers\u2019 insurance. \n\u200b\nWe have procured insurances on all our vessels against marine and war risks, both of which include the risks of damage to our vessels, salvage or towing costs, and actual or constructive total loss. The insured value of the ships is fixed and will adequately compensate for repair to a damaged ship or replacement of a lost ship. However, our insurance policies contain deductible amounts for which we are responsible. \u00a0\n\u200b\nTo supplement these insurances, we have also obtained loss of hire insurance to protect against loss of income in the event one of our vessels cannot be employed due to damage that is covered under the terms of our hull and machinery insurance (marine and war risks). Under our loss of hire policies, our insurers will pay us an agreed daily amount for the time that the vessel is out of service as a result of damage, for a maximum of 180 days following a 7 days deductible period.\n\u200b\nWe have procured protection and indemnity insurance (\u201cP&I\u201d), which covers legal liabilities to third-parties in connection with operating our ships, and is provided by mutual protection and indemnity associations, or P&I clubs. This insurance includes third-party liability and other expenses related to the injury or death of crew members, passengers and \n6\n\n\nTable of Contents\nother third parties, loss or damage to cargo, claims arising from collisions with other vessels or from contact with jetties or wharves and other damage to other third-party property, including pollution arising from oil or other substances, and other related costs, including wreck removal. Subject to the capping discussed below, our coverage, except for pollution, is unlimited.\n\u200b\nOur current P&I coverage for pollution liability is $1.0 billion per vessel per incident. The thirteen P&I clubs that comprise the International Group of Protection and Indemnity Clubs, or the International Group, insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. We are a member of four P&I clubs: The Standard Club Ireland DAC, The United Kingdom Mutual Steamship Assurance Association Limited, Assuranceforeningen Gard and The London Steam\u2011Ship Owners' Mutual Insurance Association Limited. All four P&I clubs are members of the International Group of P&I Clubs. As a member of these P&I clubs, we are \u2013 in addition to the annual premiums (called \u201cadvanced calls\u201d) - subject to potential additional premiums (called \u201csupplemental calls\u201d), based on each club\u2019s over-all claims record, as well as \u2013 due to the mutual reinsurance arrangement between the clubs - the claims record of the other members of the P&I clubs comprising the International Group. However, the International Group of P&I Clubs has reinsured part of the risk of additional premium calls to limit additional exposure. \n\u200b\nWe believe that our present insurance coverage is adequate, but not all risks can be insured, and there is the possibility that any specific claim may not be paid, or that we will not always be able to obtain adequate insurance coverage at reasonable rates. If the damages from a catastrophic spill exceeded our insurance coverage, the effect on our business would be severe and could possibly result in our insolvency.\n\u200b\nOur Environmental, Social and Governance Efforts\n\u200b\nAs one of the leaders in the international transportation of LPG, we are committed to delivering cleaner-burning energy in a safe, reliable and environmentally efficient manner. LPG is a clean, efficient and readily available source of energy, with positive benefits to the environment relative to other fuels. While extending the economic and social benefits of delivering LPG to consumers across the globe, we recognize that the shipping industry is heavily dependent on the burning of fossil fuels, contributing to the warming of the world\u2019s climate system. In providing our services, we are committed to reducing our carbon footprint and greenhouse gas emissions. We welcome and support efforts to increase transparency and to promote investors\u2019 understanding of how we and our industry peers are addressing the climate change-related risks and opportunities. We have disclosed certain ESG-related information on our website, including our first ESG Report, aligned with the Sustainability Accounting Standards Board (SASB) Marine Transportation standard, additionally taking into account recommendations provided by the Taskforce on Climate-Related Financial Disclosures (TCFD). The report includes information on how we monitor, manage and perform on material ESG issues in the face of increasing expectations and regulations. Our ESG Report may be found on our website at www.dorianlpg.com. The information on our website is not incorporated by reference into this annual report on Form 10-K (\u201cAnnual Report\u201d).\n\u200b\nDorian\u2019s ESG strategies, risks and initiatives are overseen by our board of directors (the \u201cBoard of Directors\u201d), which includes independent members and experts in shipping and compliance matters. Our Nominating and Corporate Governance Committee monitors progress of ESG efforts and together with management ensures integrity of reporting. The Company\u2019s executive leadership team, led by our Chief Executive Officer, President and Chairman of the Board of Directors, Mr. John C. Hadjipateras, formulates ESG strategies and drives initiatives, while the members of our management set targets, assesses risks, develops policies and procedures and executes the ESG efforts. Some of the ESG initiatives that we have undertaken include:\n\u200b\n\u25cf\noperating newer, more technologically advanced ECO vessels, with very low revolutions per minute, long-stroke, electronically controlled engines, larger propellers, advanced hull design, and low friction paint, resulting in enhanced the energy efficiency and reduced greenhouse gas emissions on a ton-mile basis, including the vessels in our existing fleet, our newbuilding dual-fuel VLGC delivered from Kawasaki Heavy Industries in March 2023, and our two time chartered in Dual Fuel VLGCs that entered our fleet in February and March 2023;\n\u200b\n\u25cf\nfitting vessels with scrubbers to reduce sulfur emissions to, among other things, comply with the IMO\u2019s new fuel regulations which went into effect in January 2020;\n\u200b\n7\n\n\nTable of Contents\n\u25cf\njoining the Getting to Zero Coalition, a global alliance of more than 140 companies committed to the decarbonization of deep-sea shipping in line with the IMO greenhouse gas emissions reduction strategy; \n\u200b\n\u25cf\ncreating teams and a formal reporting structure for the evaluation and potential implementation of new energy saving technologies such as batteries, hull friction reducing technologies, and a range of other applications;\n\u200b\n\u25cf\nimplementing and utilizing internal and third-party data collection and analysis software, which allows data to be gathered from our vessels for use in performance optimization, with the aim of reducing our fuel consumption, and carbon dioxide and greenhouse gas emissions;\n\u200b\n\u25cf\nincluding a sustainability-linked pricing mechanism in our 2022 Debt Facility (as defined below) and providing relevant carbon emissions data for the vessels in our fleet that are owned or technically managed pursuant to a bareboat charter to our lenders in connection with the Poseidon Principles, which establish a framework for assessing and disclosing the climate alignment of ship finance portfolios with the IMO\u2019s target to reduce shipping's total annual greenhouse gas emissions by at least 50% by 2050;\n\u200b\n\u25cf\nbecoming a signatory to the Neptune Declaration on Seafarer Wellbeing and Crew Change, in a worldwide call to action to end the unprecedented crew change crisis caused by COVID-19;\n\u200b\n\u25cf\nestablishing risk management and internal control policies and systems to manage risk and ensure compliance with all applicable international and local laws; and\n\u200b\n\u25cf\nestablishing compliance programs to meet or exceed, when possible and appropriate, all applicable rules and regulations governing the maritime industry, including the items described in the \u201cEnvironmental and Other Regulation in the Shipping Industry\u201d section below.\n\u200b\nEnvironmental and Other Regulation in the Shipping Industry \n\u200b\nGeneral \n\u200b\nGovernment regulations and laws significantly affect the ownership and operation of our fleet. We are subject to international conventions and treaties, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered relating to safety and health and environmental protection including the storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials, and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements entails significant expense, including vessel modifications and implementation of certain operating procedures. \n\u200b\nA variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable national authorities such as the USCG, harbor master or equivalent), classification societies, flag state administrations (countries of registry) and charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of the operation of one or more of our vessels.\n\u200b\nIncreasing environmental concerns have created a demand for vessels that conform to stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations frequently change and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that causes \n8\n\n\nTable of Contents\nsignificant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.\n\u200b\nInternational Maritime Organization\nThe International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels (the \u201cIMO\u201d), has adopted the International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as \u201cMARPOL,\u201d the International Convention for the Safety of Life at Sea of 1974 (\u201cSOLAS Convention\u201d), and the International Convention on Load Lines of 1966 (the \u201cLL Convention\u201d). MARPOL establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. MARPOL is applicable to LPG carriers as well as other vessels, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried in bulk in liquid or in packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997; new emissions standards, titled IMO-2020, took effect on January 1, 2020.\nVessels that transport gas, including LPG carriers, are also subject to regulation under the International Code for the Construction and Equipment of Ships Carrying Liquefied Gases in Bulk, or the \u201cIGC Code,\u201d published by the IMO. The IGC Code provides a standard for the safe carriage of LPG and certain other liquid gases by prescribing the design and construction standards of vessels involved in such carriage. The completely revised and updated IGC Code entered into force in 2016, and the amendments were developed following a comprehensive five-year review and are intended to take into account the latest advances in science and technology. Compliance with the IGC Code must be evidenced by a Certificate of Fitness for the Carriage of Liquefied Gases in Bulk. Non-compliance with the IGC Code or other applicable IMO regulations may subject a shipowner or a bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. We believe that each of our vessels is in compliance with the IGC Code.\n\u200b\nOur LPG vessels may also become subject to the 2010 HNS Convention, if it is entered into force. The Convention creates a regime of liability and compensation for damage from hazardous and noxious substances (\u201cHNS\u201d), including liquefied gases. The 2010 HNS Convention establishes that the polluter pays by ensuring that the shipping and HNS industries provide compensation for those who have suffered loss or damage resulting from an HNS incident. The following types of damage will be covered by the 2010 HNS Convention: loss of life or personal injury on board or outside the ship carrying the HNS; loss of or damage to property outside the ship; economic losses resulting from contamination, e.g. in the fishing, mariculture and tourism sectors; costs of preventive measures, e.g. clean-up operations at sea and onshore; and costs of reasonable measures of reinstatement of the environment. Shipowners will be held strictly liable up to a maximum limit of liability for the cost of an HNS incident and are required to have insurance that is State certified. The 2010 HNS Convention sets up a two-tier system of compensation composed of compulsory insurance taken out by shipowners and an HNS Fund which comes into play when the insurance is insufficient to satisfy a claim or does not cover the incident. Under the 2010 HNS Convention, if damage is caused by bulk HNS, claims for compensation will first be sought from the shipowner up to a maximum of 100 million Special Drawing Rights (\u201cSDR\u201d). If the damage is caused by packaged HNS or by both bulk and packaged HNS, the maximum liability is 115 million SDR. Once the limit is reached, compensation will be paid from the HNS Fund up to a maximum of 250 million SDR. The 2010 HNS Convention will enter into force 18 months after the date on which it is ratified by at least twelve States, four of which must each have a merchant have a merchant shipping fleet of no less than 2 million units of gross tonnage, and having received during the preceding calendar year a total quantity of at least 40 million tons of cargo that would be contributing to the general account. To date, six states (South Africa, Canada, Denmark, Estonia, Norway and Turkey) have ratified and consented to be bound by the 2010 HNS Convention. Although the 2010 HNS Convention has not been ratified by a sufficient number of countries to enter into force, we cannot estimate the costs that may be needed to comply with any such requirements that may be adopted with any certainty at this time.\n\u200b\nIn June 2015 the IMO formally adopted the International Code of Safety for Ships using Gases or Low flashpoint Fuels, or the \u201cIGF Code,\u201d which is designed to minimize the risks involved with ships using low flashpoint fuels. The IGF \n9\n\n\nTable of Contents\nCode will be mandatory under SOLAS through the adopted amendments. The IGF Code and the amendments to SOLAS became effective January 1, 2017. In June 2022, the IGF Code was amended to address cofferdams for fire protection, safe fuel distribution outside machinery spaces, fire protection between spaces with fuel with fuel containment systems, and fixed fire-extinguishing systems in LNG fuel preparation spaces. These amendments will enter into force on January 1, 2024.\n\u200b\nAir Emissions\n\u200b\nIn September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits \u201cdeliberate emissions\u201d of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions, as explained below. Emissions of \u201cvolatile organic compounds\u201d from certain vessels, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls, or \u201cPCBs\u201d) are also prohibited. We believe that all our vessels are currently compliant in all material respects with these regulations.\n \nThe Marine Environment Protection Committee, or \u201cMEPC,\u201d adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone depleting substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships. On October 27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions limit (reduced from 3.50%) starting from January 1, 2020 (the \u201cIMO 2020 Cap\u201d). This limitation can be met by using low-sulfur compliant fuel oil, alternative fuels or certain scrubbers. Ships are now required to obtain bunker delivery notes and International Air Pollution Prevention (\u201cIAPP\u201d) Certificates from their flag states that specify sulfur content. Additionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulfur on ships were adopted and took effect March 1, 2020, with the exception of vessels fitted with scrubbers which can carry fuel of higher sulfur content. These regulations subject ocean-going vessels to stringent emissions controls and may cause us to incur substantial costs.\nSulfur content standards are even stricter within certain \u201cEmission Control Areas,\u201d or (\u201cECAs\u201d). As of January 1, 2015, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 0.1% m/m. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea area, North Sea area, North American area and United States Caribbean area. Ocean-going vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs. Other areas in China are subject to local regulations that impose stricter emission controls. In December 2021, the member states of the Convention for the Protection of the Mediterranean Sea Against Pollution agreed to support the designation of a new ECA in the Mediterranean.\n \nOn December 15, 2022, MEPC 79 adopted the designation of a new ECA in the Mediterranean, with an effective date of May 1, 2025. If other ECAs are approved by the IMO, or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental Protection Agency (\u201cEPA\u201d) or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.\nAmended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx standards apply to ships that operate in the North American and U.S. Caribbean Sea ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or after January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for ships built on or after January 1, 2021. The EPA promulgated equivalent (and in some senses stricter) emissions standards in 2010. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.\n10\n\n\nTable of Contents\nAs determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI became effective as of March 1, 2018 and requires ships above 5,000 gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection having commenced on January 1, 2019. The IMO intends to use such data as the first step in its roadmap (through 2023) for developing its strategy to reduce greenhouse gas emissions from ships, as discussed further below.\nAs of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and implement Ship Energy Efficiency Management Plans (\u201cSEEMP\u201d), and new ships must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index (\u201cEEDI\u201d). Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014. MEPC 75 adopted amendments to MARPOL Annex VI which brings forward the effective date of the EEDI\u2019s \u201cphase 3\u201d requirements from January 1, 2025 to April 1, 2022 for several ship types, including gas carriers, general cargo ships, and LNG carriers.\nAdditionally, MEPC 75 introduced draft amendments to Annex VI which impose new regulations to reduce greenhouse gas emissions from ships. These amendments introduce requirements to assess and measure the energy efficiency of all ships and set the required attainment values, with the goal of reducing the carbon intensity of international shipping. The requirements include (1) a technical requirement to reduce carbon intensity based on a new Energy Efficiency Existing Ship Index (\u201cEEXI\u201d), and (2) operational carbon intensity reduction requirements, based on a new operational carbon intensity indicator (\u201cCII\u201d). The attained EEXI is required to be calculated for ships of 400 gross tonnage and above, in accordance with different values set for ship types and categories. With respect to the CII, the draft amendments would require ships of 5,000 gross tonnage to document and verify their actual annual operational CII achieved against a determined required annual operational CII. Additionally, MEPC 75 proposed draft amendments requiring that, on or before January 1, 2023, all ships above 400 gross tonnage must have an approved SEEMP on board. For ships above 5,000 gross tonnage, the SEEMP would need to include certain mandatory content. The draft amendments introduced at MEPC 75 were adopted at the MEPC 76 session on June 2021 and have entered into force in November 2022, with the requirements for EEXI and CII certification coming into effect from January 1, 2023. MEPC 77 adopted a non-binding resolution which urges Member States and ship operators to voluntarily use distillate or other cleaner alternative fuels or methods of propulsion that are safe for ships and could contribute to the reduction of Black Carbon emissions from ships when operating in or near the Arctic. MEPC 79 adopted amendments to MARPOL Annex VI, Appendix IX to include the attained and required CII values, the CII rating and attained EEXI for existing ships in the required information to be submitted to the IMO Ship Fuel Oil Consumption Database. The amendments will enter into force on May 1, 2024.\nWe may incur significant costs to comply with these revised standards, including the need to modify our vessels or engines to consume alternative fuels. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems or engine power limitation (EPL) systems to reduce fuel use and carbon emissions, each of which could adversely affect our business, results of operations, cash flows and financial condition. \nSafety Management System Requirements\nThe SOLAS Convention was amended to address the safe manning of vessels and emergency training drills. The Convention of Limitation of Liability for Maritime Claims (the \u201cLLMC\u201d) sets limitations of liability for a loss of life or personal injury claim or a property claim against ship owners. We believe that our vessels are in substantial compliance with SOLAS and LLMC standards.\nUnder Chapter IX of the SOLAS Convention, or the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (the \u201cISM Code\u201d), our operations are also subject to environmental standards and requirements. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that we and our technical management team have developed \n11\n\n\nTable of Contents\nfor compliance with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. \nThe ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel\u2019s management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. We have obtained applicable documents of compliance for our offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. The documents of compliance and safety management certificates are renewed as required.\nAmendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code (\u201cIMDG Code\u201d). Effective January 1, 2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the International Atomic Energy Agency, (2) new marking, packing and classification requirements for dangerous goods and (3) new mandatory training requirements. Amendments which took effect on January 1, 2020 also reflect the latest material from the UN Recommendations on the Transport of Dangerous Goods, including (1) new provisions regarding IMO type 9 tank, (2) new abbreviations for segregation groups, and (3) special provisions for carriage of lithium batteries and of vehicles powered by flammable liquid or gas. Additional amendments, which came into force on June 1, 2022, include (1) addition of a definition of dosage rate, (2) additions to the list of high consequence dangerous goods, (3) new provisions for medical/clinical waste, (4) addition of various ISO standards for gas cylinders, (5) a new handling code, and (6) changes to stowage and segregation provisions.\nThe IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (\u201cSTCW\u201d). As of February 2017, all seafarers are required to meet the STCW standards and be in possession of a valid STCW certificate. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.\nFurthermore, recent action by the IMO\u2019s Maritime Safety Committee and United States agencies indicates that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats By IMO resolution, administrations are encouraged to ensure that cyber-risk management systems are incorporated by ship-owners and managers by their first annual Document of Compliance audit after January 1, 2021. In February 2021, the U.S. Coast Guard published guidance on addressing cyber risks in a vessel\u2019s safety management system. This might cause companies to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. The impact of future regulations is hard to predict at this time.\nIn June 2022, SOLAS also set out new amendments that will take effect January 1, 2024, which include new requirements for: (1) the design for safe mooring operations, (2) the Global Maritime Distress and Safety System (\u201cGMDSS\u201d), (3) watertight integrity, (4) watertight doors on cargo ships, (5) fault-isolation of fire detection systems, (6) life-saving appliances, and (7) safety of ships using LNG as fuel. These new requirements may impact the cost of our operations.\n\u200b\nPollution Control and Liability Requirements\nThe IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to such conventions. For example, the IMO adopted an International Convention for the Control and Management of Ships\u2019 Ballast Water and Sediments (the \u201cBWM Convention\u201d) in 2004. The BWM Convention entered into force on September 8, 2017. The BWM Convention requires ships to manage their ballast water to remove, render harmless, or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. The BWM Convention\u2019s implementing regulations call for a phased introduction of \n12\n\n\nTable of Contents\nmandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all ships to carry a ballast water record book and an international ballast water management certificate.\nOn December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that the dates are triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date \u201cexisting vessels\u201d and allows for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention (\u201cIOPP\u201d) renewal survey following entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM Convention\u2019s implementation dates was also discussed and amendments were introduced to extend the date existing vessels are subject to certain ballast water standards. Those changes were adopted at MEPC 72. Ships over 400 gross tons generally must comply with a \u201cD-1 standard,\u201d requiring the exchange of ballast water only in open seas and away from coastal waters. The \u201cD-2 standard\u201d specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D-2 standard on or after September 8, 2019. For most ships, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ballast water management systems, which include systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or physical characteristics of the ballast water, must be approved in accordance with IMO Guidelines (Regulation D-3). As of October 13, 2019, MEPC 72\u2019s amendments to the BWM Convention took effect, making the Code for Approval of Ballast Water Management Systems, which governs assessment of ballast water management systems, mandatory rather than permissive, and formalized an implementation schedule for the D-2 standard. Under these amendments, all ships must meet the D-2 standard by September 8, 2024. Costs of compliance with these regulations may be substantial. Additionally, in November 2020, MEPC 75 adopted amendments to the BWM Convention which would require a commissioning test of the ballast water management system for the initial survey or when performing an additional survey for retrofits. This analysis will not apply to ships that already have an installed BWM system certified under the BWM Convention. These amendments have entered into force on June 1, 2022. In December 2022, MEPC 79 agreed that it should be permitted to use ballast tanks for temporary storage of treated sewage and grey water. MEPC 79 also established that ships are expected to return to D-2 compliance after experiencing challenging uptake water and bypassing a BWM system should only be used as a last resort. Guidance will be developed at MEPC 80 (in July 2023) to set out appropriate actions and uniform procedures to ensure compliance with the BWM Convention.\nOnce mid-ocean exchange ballast water treatment requirements become mandatory under the BWM Convention, the cost of compliance could increase for ocean carriers and may have a material effect on our operations. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The U.S., for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements. \nThe IMO adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984 and 1992, and amended in 2000 (\u201cthe CLC\u201d). Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel\u2019s registered owner may be strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability expressed using the International Monetary Fund currency unit, the Special Drawing Rights. The limits on liability have since been amended so that the compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner\u2019s actual fault and under the 1992 Protocol where the spill is caused by the shipowner\u2019s intentional or reckless act or omission where the shipowner knew pollution damage would probably result. The CLC requires ships over 2,000 tons covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner\u2019s liability for a single incident. We have P&I for environmental incidents. P&I Clubs in the International Group issue the required Bunkers Convention \u201cBlue Cards\u201d to enable signatory states to issue certificates. All of our vessels are in possession of a CLC State issued certificate attesting that the required insurance coverage is in force.\n13\n\n\nTable of Contents\nThe Protocol Relating to Intervention on the High Seas in Cases of Pollution by Substances other than Oil 1973 (the \u201cIntervention Protocol\u201d) applies if there is a casualty involving a ship carrying LNG or LPG. The Intervention Protocol grants coastal states the right to intervene to prevent, mitigate or eliminate the danger of \u2018substances other than oil\u2019, including LNG and LPG, after consulting with other states affected and independent IMO-approved experts. The cost of such measures can usually be recovered by the governmental authority against the shipowner under national law.\nShips are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such as the United States where the Bunker Convention has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.\n\u200b\nAnti-Fouling Requirements\nIn 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or the \u201cAnti-fouling Convention.\u201d The Anti-fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of over 400 gross tons engaged in international voyages will also be required to undergo an initial survey before the vessel is put into service or before an International Anti-fouling System Certificate, or the \u201cIAFS Certificate,\u201d is issued for the first time; and subsequent surveys when the anti-fouling systems are altered or replaced. Vessels of 24 meters in length or more but less than 400 gross tonnage engaged in international voyages will have to carry a Declaration on Anti-fouling Systems signed by the owner or authorized agent.\n\u200b\nIn November 2020, MEPC 75 approved draft amendments to the Anti-fouling Convention to prohibit anti-fouling systems containing cybutryne, which would apply to ships from January 1, 2023, or, for ships already bearing such an anti-fouling system, at the next scheduled renewal of the system after that date, but no later than 60 months following the last application to the ship of such a system. In addition, the IAFS Certificate has been updated to address compliance options for anti-fouling systems to address cybutryne. Ships which are affected by this ban on cybutryne must receive an updated IAFS Certificate no later than two years after the entry into force of these amendments. Ships which are not affected (i.e. with anti-fouling systems which do not contain cybutryne) must receive an updated IAFS Certificate at the next Anti-fouling application to the vessel. These amendments were formally adopted at MEPC 76 in June 2021.\n\u200b\nWe have obtained Anti-fouling System Certificates for all of our VLGCs that are subject to the Anti-fouling Convention.\nCompliance Enforcement\nNoncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The USCG and European Union authorities have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be prohibited from trading in U.S. and European Union ports, respectively. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that such certificates will be maintained in the future. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.\nHazardous Substances\nIn 1996, the International Convention on Liability and Compensation for Damages in Connection with the Carriage of Hazardous and Noxious Substances by Sea, or HNS, was adopted and subsequently amended by the 2010 Protocol, or the 2010 HNS Convention. Our LPG vessels may also become subject to the HNS Convention if it is entered into force. The Convention creates a regime of liability and compensation for damage from hazardous and noxious substances, including liquefied gases. The 2010 HNS Convention sets up a two-tier system of compensation composed of compulsory insurance taken out by shipowners and an HNS Fund which comes into play when the insurance is insufficient to satisfy a claim or does not cover the incident. Under the 2010 HNS Convention, if damage is caused by bulk HNS, \n14\n\n\nTable of Contents\nclaims for compensation will first be sought from the shipowner up to a maximum of 100 million SDR. If the damage is caused by packaged HNS or by both bulk and packaged HNS, the maximum liability is 115 million SDR. Once the limit is reached, compensation will be paid from the HNS Fund up to a maximum of 250 million SDR. The 2010 HNS Convention has not been ratified by a sufficient number of countries to enter into force, and we cannot estimate the costs that may be needed to comply with any such requirements that may be adopted with any certainty at this time.\nIn 2012, MEPC adopted a resolution amending the International Code for the Construction of Equipment of Ships Carrying Dangerous Chemicals in Bulk, or the IBC Code. The provisions of the IBC Code are mandatory under MARPOL and the SOLAS Convention. These amendments, which entered into force in June 2014 and took effect on January 1, 2021, pertain to revised international certificates of fitness for the carriage of dangerous chemicals in bulk and identifying new products that fall under the IBC Code. In May 2014, additional amendments to the IBC Code were adopted that became effective in January 2016. These amendments pertain to the installation of stability instruments and cargo tank purging. Our ECO VLGCs and Dual-fuel ECO VLGC are equipped with stability instruments and cargo tank purging. We may need to make certain minor financial expenditures to comply with these amendments for our modern 82,000 cbm VLGC. \nUnited States Regulations\nThe U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act\nThe U.S. Oil Pollution Act of 1990 (\u201cOPA\u201d) established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all \u201cowners and operators\u201d whose vessels trade or operate within the U.S., its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S.\u2019s territorial sea and its 200 nautical mile exclusive economic zone around the U.S. The U.S. has also enacted the Comprehensive Environmental Response, Compensation and Liability Act (\u201cCERCLA\u201d), which applies to the discharge of hazardous substances other than oil, except in limited circumstances, whether on land or at sea. OPA and CERCLA both define \u201cowner and operator\u201d in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Both OPA and CERCLA impact our operations.\nUnder OPA, vessel owners and operators are \u201cresponsible parties\u201d and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels, including bunkers (fuel). OPA defines these other damages broadly to include:\n(i)\ninjury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;\n\u200b\n(ii)\ninjury to, or economic losses resulting from, the destruction of real and personal property;\n\u200b\n(iii)\nloss of subsistence use of natural resources that are injured, destroyed or lost;\n\u200b\n(iv)\nnet loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;\n\u200b\n(v)\nlost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and\n\u200b\n(vi)\nnet cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.\nOPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective November 12, 2019, the USCG adjusted the limits of OPA liability for a tank vessel, other than a single-hull tank vessel, over 3,000 gross tons liability to the greater of $2,300 per gross ton or $19,943,400 (subject to periodic adjustment for \n15\n\n\nTable of Contents\ninflation). On December 23, 2022, the USCG issued a final rule to adjust the limitation of liability under the OPA. Effective March 23, 2023, the new adjusted limits of OPA liability for a tank vessel, other than a single-hull tank vessel, over 3,000 gross tons liability to the greater of $2,500 per gross ton or $21,521,300) (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship) or a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident as required by law where the responsible party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.\nCERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damages for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing the same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refuses to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.\nOPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. OPA and CERCLA both require owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We comply and plan to comply going forward with the USCG\u2019s financial responsibility regulations by providing applicable certificates of financial responsibility.\nThe 2010 \nDeepwater Horizon\n oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including higher liability caps under OPA, new regulations regarding offshore oil and gas drilling and a pilot inspection program for offshore facilities. However, several of these initiatives and regulations have been or may be revised. For example, the U.S. Bureau of Safety and Environmental Enforcement\u2019s (\u201cBSEE\u201d) revised Production Safety Systems Rule (\u201cPSSR\u201d), effective December 27, 2018, modified and relaxed certain environmental and safety protections under the 2016 PSSR. Additionally, the BSEE amended the Well Control Rule, effective July 15, 2019, which rolled back certain reforms regarding the safety of drilling operations, and former U.S. President Trump had proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling. In January 2021, current U.S. President Biden signed an executive order temporarily blocking new leases for oil and gas drilling in federal waters. However, attorney generals from 13 states filed suit in March 2021 to lift the executive order, and in June 2021, a federal judge in Louisiana granted a preliminary injunction against the Biden administration, stating that the power to pause offshore oil and gas leases \u201clies solely with Congress.\u201d In August 2022, a federal judge in Louisiana sided with Texas Attorney General Ken Paxton, along with the other 12 plaintiff states, by issuing a permanent injunction against the Biden Administration\u2019s moratorium on oil and gas leasing on federal public lands and offshore waters. With these rapid changes, compliance with any new requirements of OPA and future legislation or regulations applicable to the operation of our vessels could impact the cost of our operations and adversely affect our business.\nOPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA and some states have enacted legislation providing for unlimited liability for oil spills. Many U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law. Moreover, some states have enacted legislation providing for unlimited liability for discharge of \n16\n\n\nTable of Contents\npollutants within their waters, although in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining vessel owners\u2019 responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where our vessels call.\nWe currently maintain pollution liability coverage insurance in the amount of $1.0 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage, it could have an adverse effect on our business and results of operation.\nOther United States Environmental Initiatives\nThe U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) (\u201cCAA\u201d) requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. The CAA also requires states to draft State Implementation Plans, or \u201cSIPs\u201d, designed to attain national health-based air quality standards in each state. Although state-specific, SIPs may include regulations concerning emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. Our vessels operating in such regulated port areas with restricted cargoes are equipped with vapor recovery systems that satisfy these existing requirements.\nThe U.S. Clean Water Act (\u201cCWA\u201d) prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. In 2015, the EPA expanded the definition of \u201cwaters of the United States\u201d (\u201cWOTUS\u201d), thereby expanding federal authority under the CWA. Following litigation on the revised WOTUS rule, in December 2018, the EPA and Department of the Army proposed a revised, limited definition of WOTUS. In 2019 and 2020, the agencies repealed the prior WOTUS rule and promulgated the Navigable Waters Protection Rule (\u201cNWPR\u201d), which significantly reduced the scope and oversight of EPA and the Department of the Army in traditionally non-navigable waterways. On August 30, 2021, a federal district court in Arizona vacated the NWPR and directed the agencies to replace the rule. On December 7, 2021, the EPA and Department of the Army proposed a rule that would reinstate the pre-2015 definition. On December 30, 2022, the EPA and the Department of Army announced the final WOTUS rule that largely reinstated the pre-2015 definition.\nThe EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial costs, and/or otherwise restrict our vessels from entering U.S. Waters. The EPA will regulate these ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters pursuant to the Vessel Incidental Discharge Act (\u201cVIDA\u201d), which was signed into law on December 4, 2018 and replaced the 2013 Vessel General Permit (\u201cVGP\u201d) program (which authorizes discharges incidental to operations of commercial vessels and contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in U.S. waters, stringent requirements for scrubbers, and requirements for the use of environmentally acceptable lubricants) and current Coast Guard ballast water management regulations adopted under the U.S. National Invasive Species Act (\u201cNISA\u201d), such as mid-ocean ballast exchange programs and installation of approved USCG technology for all vessels equipped with ballast water tanks bound for U.S. ports or entering U.S. waters. VIDA establishes a new framework for the regulation of vessel incidental discharges under Clean Water Act (CWA), requires the EPA to develop performance standards for those discharges within two years of enactment, and requires the U.S. Coast Guard to develop implementation, compliance and enforcement regulations within two years of EPA\u2019s promulgation of standards. Under VIDA, all provisions of the 2013 VGP and USCG regulations regarding ballast water treatment remain in force and effect until the EPA and U.S. Coast Guard regulations are finalized. Non-military, non-recreational vessels greater than 79 feet in length must continue to comply with the requirements of the VGP, including submission of a Notice of Intent (\u201cNOI\u201d) or retention of a PARI form and submission of annual reports. We have submitted NOIs for our vessels where required. Compliance with the EPA, U.S. Coast Guard and state regulations could require the installation of ballast water treatment equipment on our vessels or the implementation of other port facility disposal procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.\n17\n\n\nTable of Contents\nEuropean Union Regulations\nIn October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 (amending EU Directive 2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually, which may cause us to incur additional expenses.\nThe European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age, and flag as well as the number of times the ship has been detained. The European Union also adopted and extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the European Union with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply. Furthermore, the EU has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of marine fuels. In addition, the EU imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in the Baltic, the North Sea and the English Channel (the so called \u201cSOx-Emission Control Area\u201d). As of January 2020, EU member states must also ensure that ships in all EU waters, except the SOx-Emission Control Area, use fuels with a 0.5% maximum sulfur content. \nOn September 15, 2020, the European Parliament voted to include greenhouse gas emissions from the maritime sector in the European Union\u2019s carbon market, the EU Emissions Trading System (\u201cEU ETS\u201d). The Environment Council adopted a general approach on the proposal in June 2022. On December 18, 2022, the Environmental Council and \u00a0European Parliament agreed to include maritime shipping emissions within the scope of the EU ETS on a gradual introduction of obligations for shipping companies to surrender allowances: 40% for verified emissions from 2024, 70% for 2025 and 100% for 2026. Most large vessels will be included in the scope of the EU ETS from the start. Big offshore vessels of 5,000 gross tonnage and above will be included in the 'MRV' on the monitoring, reporting and verification of CO2 emissions from maritime transport regulation from 2025 and in the EU ETS from 2027. General cargo vessels and off-shore vessels between 400-5,000 gross tonnage will be included in the MRV regulation from 2025 and their inclusion in EU ETS will be reviewed in 2026.\nInternational Labour Organization\nThe International Labour Organization (the \u201cILO\u201d) is a specialized agency of the UN that has adopted the Maritime Labor Convention 2006 (\u201cMLC 2006\u201d). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships that are 500 gross tonnage or over and are either engaged in international voyages or flying the flag of a member and operating from a port, or between ports, in another country. We believe that all our vessels are in substantial compliance with and are certified to meet MLC 2006.\nGreenhouse Gas Regulation\nCurrently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020. International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas \n18\n\n\nTable of Contents\nemissions. The 2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016 and does not directly limit greenhouse gas emissions from ships. The U.S. initially entered into the agreement, but on June 1, 2017, former U.S. President Trump announced that the United States intends to withdraw from the Paris Agreement, and the withdrawal became effective on November 4, 2020. On January 20, 2021, U.S. President Biden signed an executive order to rejoin the Paris Agreement, which the U.S. officially rejoined on February 19, 2021. On April 22, 2021, U.S. President Biden also announced a new target for the U.S. to achieve a 50-52% reduction from 2005 levels in economy-wide net greenhouse pollution by 2030.\nAt MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from ships was approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships. The initial strategy identifies \u201clevels of ambition\u201d to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from ships through implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out entirely. The initial strategy notes that technological innovation, alternative fuels and/or energy sources for international shipping will be integral to achieve the overall ambition. These regulations could cause us to incur additional substantial expenses. At MEPC 77, the Member States agreed to initiate the revision of the Initial IMO Strategy on Reduction of GHG emissions from ships, recognizing the need to strengthen the ambition during the revision process. MEPC 79 revised the EEDI calculation guidelines to include a CO2 conversion factor for ethane, a reference to the updated ITCC guidelines, and a clarification that in case of a ship with multiple load line certificates, the maximum certified summer draft should be used when determining the deadweight. A final draft Revised IMO GHG Strategy would be considered by MEPC 80 (scheduled to meet in July 2023), with a view to adoption.\nThe EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20% of 1990 levels by 2020. The EU also committed to reduce its emissions by 20% under the Kyoto Protocol\u2019s second period from 2013 to 2020. Starting in January 2018, large ships over 5,000 gross tonnage calling at EU ports are required to collect and publish data on carbon dioxide emissions and other information. As previously discussed, regulations relating to the inclusion of greenhouse gas emissions from the maritime sector in the European Union\u2019s carbon market, EU ETS, are also forthcoming.\nIn the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted regulations to limit greenhouse gas emissions from certain mobile sources and proposed regulations to limit greenhouse gas emissions from large stationary sources. However, in March 2017, former U.S. President Trump signed an executive order to review and possibly eliminate the EPA\u2019s plan to cut greenhouse gas emissions, and in August 2019, the Administration announced plans to weaken regulations for methane emissions. On August 13, 2020, the EPA released rules rolling back standards to control methane and volatile organic compound emissions from new oil and gas facilities. However, U.S. President Biden directed the EPA to publish a proposed rule suspending, revising, or rescinding certain of these rules. On November 2, 2021, the EPA issued a proposed rule under the CAA designed to reduce methane emissions from oil and gas sources. The proposed rule would reduce 41 million tons of methane emissions between 2023 and 2035 and cut methane emissions in the oil and gas sector by approximately 74 percent compared to emissions from this sector in 2005. EPA also issued a supplemental proposed rule in November 2022 to include additional methane reduction measures following public input and anticipates issuing a final rule in 2023. If these new regulations are finalized, they could affect our operations.\nAny passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions of greenhouse gases could require us to make significant financial expenditures which we cannot predict with certainty at this time. As of March 31, 2023, thirteen of our ECO-VLGCs, including one of our chartered-in ECO-VLGCs, are equipped with scrubbers and we have contractual commitments related to scrubbers on an additional three VLGCs as of March 31, 2023. In addition to the added costs, the concern over climate change and \n19\n\n\nTable of Contents\nregulatory measures to reduce greenhouse gas emissions may reduce global demand for oil and oil products, which would have an adverse effect on our business, financial results and cash flows. \nEven in the absence of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level changes or certain weather events. In addition, there may be significant physical effects of climate change from greenhouse gas emissions that have the potential to negatively impact our customers, personnel, and physical assets any of which could adversely impact the demand for our services or our ability to recruit personnel.\nVessel Security Regulations\nSince the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security such as the U.S. Maritime Transportation Security Act of 2002 (\u201cMTSA\u201d). To implement certain portions of the MTSA, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and facilities, some of which are regulated by the EPA.\nSimilarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates compliance with the International Ship and Port Facility Security Code (\u201cthe ISPS Code\u201d). The ISPS Code is designed to enhance the security of ports and ships against terrorism. To trade internationally, a vessel must attain an International Ship Security Certificate (\u201cISSC\u201d) from a recognized security organization approved by the vessel\u2019s flag state. Ships operating without a valid certificate may be detained, expelled from, or refused entry at port until they obtain an ISSC. The various requirements, some of which are found in the SOLAS Convention, include, for example, on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship\u2019s identity, position, course, speed and navigational status; on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore; the development of vessel security plans; ship identification number to be permanently marked on a vessel\u2019s hull; a continuous synopsis record kept onboard showing a vessel's history including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and compliance with flag state security certification requirements\nThe USCG regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board a valid ISSC that attests to the vessel\u2019s compliance with the SOLAS Convention security requirements and the ISPS Code. Future security measures could have a significant financial impact on us. We intend to comply with the various security measures addressed by MTSA, the SOLAS Convention and the ISPS Code.\nThe cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off the coast of Somalia, including the Gulf of Aden and Arabian Sea area. In addition, certain state actors in the Arabian Gulf have recently seized ships for alleged violations of law, though the veracity of such claims has been doubted. Substantial loss of revenue and other costs may be incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured losses could significantly affect our business. Costs are incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP5 industry standard.\n\u200b\nWe seek to manage exposure to losses from the above-described environmental and vessel security laws through our development of appropriate risk management programs, including compliance programs, safety management systems and insurance programs, as applicable.\n20\n\n\nTable of Contents\nTaxation \n\u200b\nThe following is a discussion of the material Marshall Islands and United States federal income tax considerations relevant to a United States Holder and a Non-United States Holder, each as defined below, with respect to the common shares. This discussion does not purport to deal with the tax consequences of owning our common shares to all categories of investors, some of which, such as financial institutions, regulated investment companies, real estate investment trusts, tax exempt organizations, insurance companies, persons holding our common stock as part of a hedging, integrated, conversion or constructive sale transaction or a straddle, traders in securities that have elected the mark to market method of accounting for their securities, persons liable for alternative minimum tax, persons subject to the \u201cbase erosion and anti-avoidance\u201d tax, persons who are investors in partnerships or other pass through entities for United States federal income tax purposes or hold our common shares through an applicable partnership interest, dealers in securities or currencies, United States Holders whose functional currency is not the United States dollar, investor that are required to recognize income for U.S. federal income tax purposes no later than when such income is included on an \u201capplicable financial statement\u201d and investors that own, actually or under applicable constructive ownership rules, 10% or more of our shares of common stock, may be subject to special rules. This discussion deals only with holders who purchase and hold the common shares as a capital asset. You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under United States federal, state, local or non-United States law of the ownership of common shares.\n\u200b\nMarshall Islands Tax Considerations\n\u200b\nIn the opinion of Seward & Kissel LLP, the following are the material Marshall Islands tax consequences of our activities to us and of our common shares to our shareholders. We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by us to our shareholders.\n\u200b\nUnited States Federal Income Tax Considerations\n\u200b\nIn the opinion of Seward & Kissel LLP, the following are the material United States federal income tax consequences to us of our activities and to United States Holders and Non-United States Holders, each as defined below, of the common shares. The following discussion of United States federal income tax matters is based on the United States Internal Revenue Code of 1986 as in effect as of the date hereof, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly with retroactive effect. The discussion below is based, in part, on the description of our business as described in this report and assumes that we conduct our business as described herein. \n\u200b\nUnited States Federal Income Taxation of Operating Income: In General \n\u200b\nUnless we qualify for an exemption from United States federal income taxation under the rules of Section 883 of the Code, or Section 883, as discussed below, a foreign corporation such as the Company will be subject to United States federal income taxation on its \u201cshipping income\u201d that is treated as derived from sources within the United States, to which we refer as \u201cUnited States source shipping income.\u201d For United States federal income tax purposes, \"United States source shipping income\" includes 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States.\n\u200b\nShipping income attributable to transportation exclusively between non-United States ports will be considered to be 100% derived from sources entirely outside the United States. Shipping income derived from sources outside the United States will not be subject to any United States federal income tax.\n\u200b\nShipping income attributable to transportation exclusively between United States ports is considered to be 100% derived from United States sources. However, we are not permitted by United States law to engage in the transportation of cargoes that produces 100% United States source shipping income.\n\u200b\n21\n\n\nTable of Contents\nUnless we qualify for the exemption from tax under Section 883, our gross United States source shipping income would be subject to a 4% tax imposed without allowance for deductions as described below.\n\u200b\nExemption of Operating Income from United States Federal Income Taxation\n\u200b\nUnder Section 883 and the Treasury Regulations thereunder, a foreign corporation will be exempt from United States federal income taxation of its United States source shipping income if:\n\u200b\n1)\nit is organized in a \u201cqualified foreign country\u201d which is one that grants an \"equivalent exemption\" from tax to corporations organized in the United States in respect of each category of shipping income for which exemption is being claimed under Section 883; and\n\u200b\n2)\none of the following tests is met:\n\u200b\nA)\nmore than 50% of the value of its shares is beneficially owned, directly or indirectly, by \u201cqualified shareholders,\u201d which as defined includes individuals who are \u201cresidents\u201d of a qualified foreign country, to which we refer as the \u201c50% Ownership Test\u201d; or\n\u200b\nB)\nits shares are \u201cprimarily and regularly traded on an established securities market\u201d in a qualified foreign country or in the United States, to which we refer as the \u201cPublicly-Traded Test.\u201d\n\u200b\nThe Republic of the Marshall Islands, the jurisdiction where we and our ship\n-\nowning subsidiaries are incorporated, has been officially recognized by the United States Internal Revenue Service, or the IRS, as a qualified foreign country that grants the requisite \u201cequivalent exemption\u201d from tax in respect of each category of shipping income we earn and currently expect to earn in the future. Therefore, we will be exempt from United States federal income taxation with respect to our United States source shipping income if we satisfy either the 50% Ownership Test or the Publicly-Traded Test.\n\u200b\nWe believe that we satisfy the Publicly-Traded Test, a factual determination made on an annual basis, with respect to our taxable year ended March\u00a031,\u00a02023, and we expect to continue to do so for our subsequent taxable years, and we intend to take this position for United States federal income tax reporting purposes. We do not currently anticipate circumstances under which we would be able to satisfy the 50% Ownership Test.\n\u200b\nPublicly-Traded Test\n\u200b\nThe Treasury Regulations under Section 883 provide, in pertinent part, that shares of a foreign corporation will be considered to be \u201cprimarily traded\u201d on an established securities market in a country if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. The Company\u2019s common shares, which constitute its sole class of issued and outstanding stock is \u201cprimarily traded\u201d on the New York Stock Exchange, or the NYSE, an established securities market for these purposes.\n\u200b\nUnder the Treasury Regulations, our common shares will be considered to be \u201cregularly traded\u201d on an established securities market if one or more classes of our shares representing more than 50% of our outstanding stock, by both total combined voting power of all classes of stock entitled to vote and total value, are listed on such market, to which we refer as the \u201clisting threshold.\u201d Since all of our common shares are listed on the NYSE, we expect to satisfy the listing threshold.\n\u200b\nThe Treasury Regulations also require that with respect to each class of stock relied upon to meet the listing threshold, (i) such class of stock traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one-sixth of the days in a short taxable year, which we refer to as the \u201ctrading frequency test\u201d; and (ii) the aggregate number of shares of such class of stock traded on such market during the taxable year must be at least 10% of the average number of shares of such class of stock outstanding during such year or as appropriately adjusted in the case of a short taxable year, which we refer to as the \u201ctrading volume\u201d test. We anticipate that we will satisfy the trading frequency and trading volume tests. Even if this were not the case, the Treasury Regulations provide that the trading \n22\n\n\nTable of Contents\nfrequency and trading volume tests will be deemed satisfied if, as is expected to be the case with our common shares, such class of stock is traded on an established securities market in the United States and such shares are regularly quoted by dealers making a market in such shares.\n\u200b\nNotwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that a class of shares will not be considered to be \u201cregularly traded\u201d on an established securities market for any taxable year in which 50% or more of the vote and value of the outstanding shares of such class are owned on more than half the days during the taxable year by persons who each own 5% or more of the vote and value of such class of outstanding stock, to which we refer as the \"5% Override Rule.\"\n\u200b\nFor purposes of being able to determine the persons who actually or constructively own 5% or more of the vote and value of our common shares, or \u201c5% Shareholders,\u201d the Treasury Regulations permit us to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the Commission, as owning 5% or more of our common shares. The Treasury Regulations further provide that an investment company which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes.\n\u200b\nIn the event the 5% Override Rule is triggered, the Treasury Regulations provide that the 5% Override Rule will nevertheless not apply if we can establish that within the group of 5% Shareholders, qualified shareholders (as defined for purposes of Section 883) own sufficient number of shares to preclude non-qualified shareholders in such group from owning 50% or more of our common shares for more than half the number of days during the taxable year.\n\u200b\nWe believe that we\u00a0satisfy the Publicly-Traded Test and will not be subject to the 5% Override Rule for taxable year ended March\u00a031,\u00a02023 and we also expect to continue to do so for our subsequent taxable years. However, there are factual circumstances beyond our control that could cause us to lose the benefit of the Section 883 exemption. For example, we may no longer qualify for Section 883 exemption for a particular taxable year if 5% Shareholders were to own, in the aggregate, 50% or more of our outstanding common shares on more than half the days of the taxable year, unless we could establish that within the group of 5% Shareholders, qualified shareholders own sufficient number of our shares to preclude the non-qualified shareholders in such group from owning 50% or more of our common shares for more than half the number of days during the taxable year. Under the Treasury Regulations, we would have to satisfy certain substantiation requirements regarding the identity of our shareholders. These requirements are onerous and there is no assurance that we would be able to satisfy them. Given the factual nature of the issues involved, we can give no assurances in regards of our or our subsidiaries' qualification for the Section 883 exemption.\n\u200b\nTaxation in Absence of Section 883 Exemption\n\u200b\nIf the benefits of Section 883 are unavailable, our United States source shipping income would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, or the \u201c4% gross basis tax regime,\u201d to the extent that such income is not considered to be \u201ceffectively connected\u201d with the conduct of a United States trade or business, as described below. Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as being United States source shipping income, the maximum effective rate of United States federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime.\n\u200b\nTo the extent our United States source shipping income is considered to be \u201ceffectively connected\u201d with the conduct of a United States trade or business, as described below, any such \"effectively connected\" United States source shipping income, net of applicable deductions, would be subject to United States federal income tax, currently imposed at a rate of 21%. In addition, we would generally be subject to the 30% \"branch profits\" tax on earnings effectively connected with the conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of our United States trade or business.\n\u200b\nOur United States source shipping income would be considered \u201ceffectively connected\u201d with the conduct of a United States trade or business only if:\n\u200b\n\u25cf\nwe have, or are considered to have, a fixed place of business in the United States involved in the earning of United States source shipping income; and\n23\n\n\nTable of Contents\n\u200b\n\u25cf\nsubstantially all of our United States source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States.\n\u200b\nWe do not intend to have, or permit circumstances that would result in having, any vessel sailing to or from the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, it is anticipated that none of our United States source shipping income will be \u201ceffectively connected\u201d with the conduct of a United States trade or business.\n\u200b\nUnited States Taxation of Gain on Sale of Vessels\n\u200b\nRegardless of whether we qualify for exemption under Section 883, we will not be subject to United States federal income tax with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under United States federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.\n\u200b\nUnited States Federal Income Taxation of United States Holders\n\u200b\nAs used herein, the term \u201cUnited States Holder\u201d means a holder that for United States federal income tax purposes is a beneficial owner of common shares and is an individual United States citizen or resident, a United States corporation or other United States entity taxable as a corporation, an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust.\n\u200b\nIf a partnership holds the common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding the common shares, you are encouraged to consult your tax advisor.\n\u200b\nDistributions\n\u200b\nSubject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common shares to a United States Holder will generally constitute dividends to the extent of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of such earnings and profits will be treated first as a nontaxable return of capital to the extent of the United States Holder\u2019s tax basis in its common shares and thereafter as capital gain. Because we are not a United States corporation, United States Holders that are corporations will generally not be entitled to claim a dividends-received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common shares will generally be treated as foreign source dividend income and will generally constitute \u201cpassive category income\u201d for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes.\n\u200b\nDividends paid on our common shares to certain non\n-\ncorporate United States Holders will generally be treated as \u201cqualified dividend income\u201d that is taxable to such United States Holders at preferential tax rates provided that (1) the common shares are readily tradable on an established securities market in the United States (such as the NYSE, on which our common shares will be traded), (2) the shareholder has owned the common stock for more than 60 days in the 121-day period beginning 60 days before the date on which the common stock becomes ex-dividend, and (3) we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year.\n\u200b\nThere is no assurance that any dividends paid on our common shares will be eligible for these preferential rates in the hands of such non-corporate United States Holders, although, as described above, we expect such dividends to be so eligible provided an eligible non-corporate United States Holder meets all applicable requirements and we are not a \n24\n\n\nTable of Contents\npassive foreign passive investment company in the taxable year during which the dividend is paid or the immediately preceding taxable year. Any dividends paid by us which are not eligible for these preferential rates will be taxed as ordinary income to a non-corporate United States Holder.\n\u200b\nSpecial rules may apply to any \u201cextraordinary dividend\u201d\u2014generally, a dividend in an amount which is equal to or in excess of 10% of a shareholder\u2019s adjusted tax basis or dividends received within a one-year period that, in the aggregate, equal or exceed 20% of a shareholder's adjusted tax basis (or fair market value upon the shareholder's election) in a common share\u2014paid by us. If we pay an \u201cextraordinary dividend\u201d on our common shares that is treated as \u201cqualified dividend income,\u201d then any loss derived by certain non-corporate United States Holders from the sale or exchange of such common shares will be treated as long-term capital loss to the extent of such dividend.\n\u200b\nSale, Exchange or Other Disposition of Common Shares\n\u200b\nAssuming we do not constitute a passive foreign investment company for any taxable year, a United States Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares in an amount equal to the difference between the amount realized by the United States Holder from such sale, exchange or other disposition and the United States Holder\u2019s tax basis in such shares. Such gain or loss will be treated as long-term capital gain or loss if the United States Holder\u2019s holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as United States source income or loss, as applicable, for United States foreign tax credit purposes. Long-term capital gains of certain non-corporate United States Holders are currently eligible for reduced rates of taxation. A United States Holder\u2019s ability to deduct capital losses is subject to certain limitations.\n\u200b\nPassive Foreign Investment Company Status and Significant Tax Consequences\n\u200b\nSpecial United States federal income tax rules apply to a United States Holder that holds shares in a foreign corporation classified as a \u201cpassive foreign investment company,\u201d or a PFIC, for United States federal income tax purposes. In general, we will be treated as a PFIC with respect to a United States Holder if, for any taxable year in which such holder holds our common shares, either:\n\u200b\n\u25cf\nat least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or\n\u200b\n\u25cf\nat least 50% of the average value of our assets during such taxable year produce, or are held for the production of, passive income.\n\u200b\nFor purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our ship\n-\nowning subsidiaries in which we own at least 25% of the value of the subsidiary's stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute \"passive income\" unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business.\n\u200b\nWe believe that income we earn from the voyage charters, and also from time charters, for the reasons discussed below, will be treated as active income for PFIC purposes and as a result, we intend to take the position that we satisfy the 75% income test for our taxable year ended March\u00a031,\u00a02023.\n\u200b\nBased on our current and anticipated operations, we do not believe that we will be treated as a PFIC for our taxable year ended March\u00a031,\u00a02023 or subsequent taxable years, and we intend to take such position for our United States federal income tax reporting purposes. Our belief is based principally on the position that the gross income we derive from our voyage or time chartering activities should constitute services income, rather than rental income. Accordingly, such income should not constitute passive income, and the assets that we own and operate in connection with the production of such income, in particular, the vessels, should not constitute passive assets for purposes of determining whether we are a PFIC. There is substantial legal authority supporting this position consisting of case law and IRS pronouncements concerning the characterization of income derived from time charters as services income for other tax purposes. However, \n25\n\n\nTable of Contents\nthere is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future.\n\u200b\nAs discussed more fully below, for any taxable year in which we are, or were to be treated as, a PFIC, a United States Holder would be subject to different taxation rules depending on whether the United States Holder makes an election to treat us as a \"Qualified Electing Fund,\" which election we refer to as a \u201cQEF election.\u201d As an alternative to making a QEF election, a United States Holder should be able to make a \u201cmark-to-market\u201d election with respect to our common shares, as discussed below. A United States holder of shares in a PFIC will be required to file an annual information return containing information regarding the PFIC as required by applicable Treasury Regulations. We intend to promptly notify our shareholders if we determine we are a PFIC for any taxable year.\n\u200b\nTaxation of United States Holders Making a Timely QEF Election\n\u200b\nIf a United States Holder makes a timely QEF election, which United States Holder we refer to as an \u201cElecting Holder,\u201d the Electing Holder must report for United States federal income tax purposes its pro rata share of our ordinary earnings and net capital gain, if any, for each of our taxable years during which we are a PFIC that ends with or within the taxable year of the Electing Holder, regardless of whether distributions were received from us by the Electing Holder. No portion of any such inclusions of ordinary earnings will be treated as \u201cqualified dividend income.\u201d Net capital gain inclusions of certain non\n-\ncorporate United States Holders would be eligible for preferential capital gains tax rates. The Electing Holder's adjusted tax basis in the common shares will be increased to reflect any income included under the QEF election. Distributions of previously taxed income will not be subject to tax upon distribution but will decrease the Electing Holder's tax basis in the common shares. An Electing Holder would not, however, be entitled to a deduction for its pro rata share of any losses that we incur with respect to any taxable year. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common shares. A United States Holder would make a timely QEF election for our common shares by filing one copy of IRS Form 8621 with his United States federal income tax return for the first year in which he held such shares when we were a PFIC. If we take the position that we are not a PFIC for any taxable year, and it is later determined that we were a PFIC for such taxable year, it may be possible for a United States Holder to make a retroactive QEF election effective for such year. If we determine that we are a PFIC for any taxable year, we will provide each United States Holder with all necessary information required for the United States Holder to make the QEF election and to report its pro rata share of our ordinary earnings and net capital gain, if any, for each of our taxable years during which we are a PFIC that ends with or within the taxable year of the Electing Holder as described above.\n\u200b\nTaxation of United States Holders Making a \"Mark-to-Market\" Election\n\u200b\nAlternatively, for any taxable year in which we determine that we are a PFIC, and, assuming as we anticipate will be the case, our shares are treated as \"marketable stock,\" a United States Holder would be allowed to make a \u201cmark-to-market\u201d election with respect to our common shares, provided the United States Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the United States Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common shares at the end of the taxable year over such Holder's adjusted tax basis in the common shares. The United States Holder would also be permitted an ordinary loss in respect of the excess, if any, of the United States Holder\u2019s adjusted tax basis in the common shares over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A United States Holder's tax basis in his common shares would be adjusted to reflect any such income or loss amount recognized. In a year when we are a PFIC, any gain realized on the sale, exchange or other disposition of our common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the United States Holder.\n\u200b\n26\n\n\nTable of Contents\nTaxation of United States Holders Not Making a Timely QEF or Mark-to-Market Election\n\u200b\nFor any taxable year in which we determine that we are a PFIC, a United States Holder who does not make either a QEF election or a \u201cmark-to-market\u201d election for that year, whom we refer to as a \u201cNon\n-\nElecting Holder,\u201d would be subject to special rules with respect to (i) any excess distribution (i.e., the portion of any distributions received by the Non\n-\nElecting Holder on the common shares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder\u2019s holding period for the common shares), and (ii) any gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:\n\u200b\n\u25cf\nthe excess distribution or gain would be allocated ratably over the Non-Electing Holder\u2019s aggregate holding period for the common shares;\n\u200b\n\u25cf\nthe amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, would be taxed as ordinary income and would not be \u201cqualified dividend income\u201d; and\n\u200b\n\u25cf\nthe amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.\n\u200b\nUnited States Federal Income Taxation of \u201cNon-United States Holders\u201d\n\u200b\nAs used herein, the term \u201cNon-United States Holder\u201d means a holder that, for United States federal income tax purposes, is a beneficial owner of common shares (other than a partnership) that is not a United States Holder.\n\u200b\nIf a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common shares, you are encouraged to consult your tax advisor.\n\u200b\nDividends on Common Shares\n\u200b\nSubject to the discussion of backup withholding below, a Non-United States Holder generally will not be subject to United States federal income or withholding tax on dividends received from us with respect to our common shares, unless:\n\u200b\n\u25cf\nthe dividend income is effectively connected with the Non-United States Holder\u2019s conduct of a trade or business in the United States; or\n\u200b\n\u25cf\nthe Non-United States Holder is an individual who is present in the United States for 183 days or more during the taxable year of receipt of the dividend income and other conditions are met.\n\u200b\nSale, Exchange or Other Disposition of Common Shares\n\u200b\nSubject to the discussion of backup withholding below, a Non-United States Holder generally will not be subject to United States federal income or withholding tax on any gain realized upon the sale, exchange or other disposition of our common shares, unless:\n\u200b\n\u25cf\nthe gain is effectively connected with the Non-United States Holder\u2019s conduct of a trade or business in the United States; or\n\u200b\n\u25cf\nthe Non-United States Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.\n\u200b\n27\n\n\nTable of Contents\nIncome or Gains Effectively Connected with a United States Trade or Business\n\u200b\nIf the Non-United States Holder is engaged in a United States trade or business for United States federal income tax purposes, dividends on our common shares and gain from the sale, exchange or other disposition of our common shares, that are effectively connected with the conduct of that trade or business (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment), will generally be subject to regular United States federal income tax in the same manner as discussed in the previous section relating to the taxation of United States Holders. In addition, in the case of a corporate Non-United States Holder, its earnings and profits that are attributable to the effectively connected income, which are subject to certain adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable United States income tax treaty.\n\u200b\nBackup Withholding and Information Reporting\n\u200b\nIn general, dividend payments, or other taxable distributions, and the payment of the gross proceeds on a sale of our common shares, made within the United States to a non\n-\ncorporate United States Holder will be subject to information reporting. Such payments or distributions may also be subject to backup withholding if the non\n-\ncorporate United States Holder:\n\u200b\n\u25cf\nfails to provide an accurate taxpayer identification number;\n\u200b\n\u25cf\nis notified by the IRS that it has have failed to report all interest or dividends required to be shown on its federal income tax returns; or\n\u200b\n\u25cf\nin certain circumstances, fails to comply with applicable certification requirements.\n\u200b\nNon-United States Holders may be required to establish their exemption from information reporting and backup withholding with respect to dividends payments or other taxable distribution on our common shares by certifying their status on an appropriate IRS Form W-8. If a Non-United States Holder sells our common shares to or through a United States office of a broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless the Non-United States Holder certifies that it is a non-United States person, under penalties of perjury, or it otherwise establish an exemption. If a Non\n-\nUnited States Holder sells our common shares through a Non-United States office of a Non-United States broker and the sales proceeds are paid outside the United States, then information reporting and backup withholding generally will not apply to that payment. However, United States information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made outside the United States, if a Non-United States Holder sells our common shares through a Non-United States office of a broker that is a United States person or has some other contacts with the United States. Such information reporting requirements will not apply, however, if the broker has documentary evidence in its records that the Non-United States Holder is not a United States person and certain other conditions are met, or the Non-United States Holder otherwise establishes an exemption.\n\u200b\nBackup withholding is not an additional tax. Rather, a refund may generally be obtained of any amounts withheld under backup withholding rules that exceed the taxpayer's United States federal income tax liability by filing a timely refund claim with the IRS.\n\u200b\nIndividuals who are United States Holders (and to the extent specified in applicable Treasury regulations, Non-United States Holders and certain United States entities) who hold \u201cspecified foreign financial assets\u201d (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury Regulations). Specified foreign financial assets would include, among other assets, our common shares, unless the common shares are held in an account maintained with a United States financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event an individual United States Holder (and to the extent specified in applicable Treasury Regulations, a Non-United States Holder or a United States entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations \n28\n\n\nTable of Contents\non the assessment and collection of United States federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. United States Holders (including United States entities) and Non-United States Holders are encouraged consult their own tax advisors regarding their reporting obligations in respect of our common shares.\n\u200b\nAvailable Information\n\u200b\nOur website is located at www.dorianlpg.com. Information on our website does not constitute a part of this Annual Report. Our goal is to maintain our website as a portal through which investors can easily find or navigate to pertinent information about us, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and any other reports, after we file them with the Commission. The public may obtain a copy of our filings, free of charge, through our corporate internet website as soon as reasonably practicable after we have electronically filed such material with, or furnished it to, the Commission. Additionally, these materials, including this Annual Report and the accompanying exhibits are available from the Commission\u2019s website http://www.sec.gov.\n\u200b",
+  "item1a": ">ITEM 1A. \u2003RISK FACTORS\n \n\u200b\nThe following risks relate principally to us and our business and the industry in which we operate. Other risks relate principally to the securities markets and ownership of our common shares. Any of the risk factors described below could significantly and negatively affect our business, financial condition and results of operations and our ability to pay dividends, and lower the trading price of our common shares.\n\u200b\nSummary of Risk Factors\n\u200b\nThe following is a summary of the risk factors you should be aware of before making a decision to invest in our common stock. This summary does not address all the risks we face. Additional discussion of the risks summarized in this risk factor summary, and other risks we face, can be found below in this risk factor section and should be carefully considered, together with other information in this Annual Report and other filings with the Commission, before making an investment decision regarding our common stock.\n\u200b\nRisks Relating to Our Company\n\u200b\n\u2022\nWe, and the Helios Pool, operate exclusively in the VLGC segment of the LPG shipping industry. Due to the general lack of industry diversification, adverse developments in the VLGC segment of the LPG shipping industry may adversely affect our business, financial condition and operating results.\n\u2022\nSeasonal and other fluctuations in respect of spot market charter rates have had in the past and may have in the future a negative effect on our revenues, results of operations and cash flows.\n\u2022\nWe and/or our pool managers may not be able to successfully secure employment for our vessels or vessels in the Helios Pool, which could adversely affect our financial condition and results of operations.\n\u2022\nWe face substantial competition in trying to expand relationships with existing and new customers. \n\u2022\nWe, and the Helios Pool, are subject to risks with respect to counterparties which could cause us to suffer losses or negatively impact our results of operations and cash flows.\n\u2022\nWe expect to be dependent on a limited number of customers for a material part of our revenues.\n\u2022\nRestrictions on VLGC transits and increased toll charges at the Panama Canal may have an adverse effect on our results of operations.\n\u2022\nOur indebtedness and financial obligations may adversely affect our operational flexibility. \n\u2022\nOur existing and future debt and financing agreements contain and are expected to contain restrictive covenants that may limit our liquidity and corporate activities. \n\u2022\nWe may be adversely affected by developments and exposed to volatility in the SOFR market.\n\u2022\nWe have and may in the future selectively enter into derivative contracts, which can result in higher than market interest rates and charges against our income and could result in losses. \n\u2022\nBecause we generate all of our revenues in U.S. dollars but incur a portion of our expenses in other currencies, exchange rate fluctuations could adversely affect our results of operations.\n\u2022\nIf we fail to manage our growth properly or effectively time investments, we may incur significant expenses and \n29\n\n\nTable of Contents\nlosses and prevent the implementation of our business strategy.\n\u2022\nIf our fleet grows in size, we may need to update our operations and financial systems and recruit additional staff and crew.\n\u2022\nWe may be unable to attract and retain key personnel without incurring substantial expense.\n\u2022\nOur directors and officers may in the future hold direct or indirect interests in companies that compete with us.\n\u2022\nOur business and operations involve inherent operating risks, and our insurance and indemnities from our customers may not be adequate to cover potential losses from our operations.\n\u2022\nWe may be unable to procure adequate insurance coverage at commercially reasonable rates in the future and may be required to make additional premium payments.\n\u2022\nWe may incur increasing costs for the drydocking, maintenance or replacement of our vessels as they age, and, the risks associated with older vessels could adversely affect our ability to obtain profitable charters.\n\u2022\nIf we purchase secondhand vessels, we will be exposed to increased costs.\n\u2022\nCertain shareholders have a substantial ownership stake in us, and their interests could conflict with the interests of our other shareholders.\n\u2022\nUnited States tax authorities could treat us as a \u201cpassive foreign investment company.\u201d \n\u2022\nWe may have to pay tax on United States source shipping income, which would reduce our earnings.\n\u200b\nRisks Relating to Our Industry\n\u200b\n\u25cf\nThe cyclical nature of seaborne LPG transportation may lead to significant changes in charter rates, vessel utilization and vessel values, which may adversely affect our revenues, profitability and financial condition.\n\u25cf\nA shift in consumer demand from LPG towards other energy sources or changes to trade patterns may have a material adverse effect on our business.\n\u25cf\nThe market values of our vessels may fluctuate significantly. \n\u25cf\nIncreasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our ESG policies may impose additional costs on us or expose us to additional risks.\n\u25cf\nGeneral economic, political and regulatory conditions, as well as macroeconomic conditions, could materially adversely affect our business, financial position and results of operations, as well as our future prospects. \n\u25cf\nThe state of global financial markets and general economic conditions, as well as the perceived impact of emissions by our vessels on the climate may adversely impact our ability to obtain financing or refinancing. \n\u25cf\nOur operating results are subject to seasonal fluctuations, which could affect our operating results.\n\u25cf\nFuture technological innovation could reduce our charter hire income and the value of our vessels.\n\u25cf\nChanges in fuel, or bunker, prices may adversely affect profits.\n\u25cf\nWe are subject to regulations and liabilities, including environmental laws and restrictions, which could require significant expenditures and adversely affect our financial conditions and results of operations. \n\u25cf\nIf our vessels call on ports located in countries or territories that are subject to sanctions or embargoes, it could lead to monetary fines or penalties and/or adversely affect our reputation and the market for our common shares. \n\u25cf\nOur vessels are subject to periodic inspections.\n\u25cf\nMaritime claimants could arrest and governments could requisition our vessels.\n\u25cf\nThe operation of ocean-going vessels is inherently risky, and an incident resulting in significant loss or environmental consequences involving any of our vessels could harm our reputation and business.\n\u25cf\nWe may be subject to litigation that could have an adverse effect on our business and financial condition.\n\u25cf\nActs of piracy on ocean\n-\ngoing vessels could adversely affect our business.\n\u25cf\nOur operations outside the United States expose us to global risks, such as political instability, terrorism, war, international hostilities and global public health concerns, which may interfere with the operation of our vessels. \n\u25cf\nRussia\u2019s invasion of Ukraine and resulting sanctions by the United States, European Union and other countries have contributed to inflation, market disruptions and increased volatility in commodity prices. \n\u25cf\nOutbreaks of epidemic and pandemic diseases could adversely affect our business.\n\u25cf\nIf labor or other interruptions are not resolved in a timely manner, such interruptions could have a material adverse effect on our financial condition.\n\u25cf\nInformation technology failures and data security breaches, including as a result of cybersecurity attacks, could negatively impact our results of operations and financial condition and expose us to litigation.\n\u200b\n30\n\n\nTable of Contents\nRisks Relating to Our Common Shares\n\u200b\n\u25cf\nThe price of our common shares has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result, investors in our common shares could incur substantial losses.\n\u25cf\nAlthough we have initiated a stock repurchase program, we cannot assure you that we will continue to repurchase shares or that we will\u00a0repurchase shares at favorable prices.\n\u25cf\nWe may be unable to pay dividends in the future. \n\u25cf\nWe are a holding company and depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make dividend payments.\n\u25cf\nA future sale of shares by major shareholders may reduce the share price.\n\u25cf\nThe Republic of the Marshall Islands does not have a well\n-\ndeveloped body of corporate law.\n\u25cf\nIt may be difficult to enforce a United States judgment against us, our officers and our directors.\n\u25cf\nOur organizational documents contain anti-takeover provisions.\n\u200b\nRisks Relating to Our Company\n\u200b\nWe, and the Helios Pool, operate exclusively in the VLGC segment of the LPG shipping industry.\n \nDue to the general lack of industry diversification, adverse developments in the VLGC segment of the LPG shipping industry may adversely affect our business, financial condition and operating results.\n\u200b\nWe currently rely almost exclusively on the cash flow generated from the vessels in our fleet, all of which are VLGCs operating in the LPG shipping industry (including through the Helios Pool). Unlike some other shipping companies, which have vessels of varying sizes that can carry different cargoes, such as containers, dry bulk, crude oil and oil products, we focus and may continue to focus exclusively on VLGCs transporting LPG. Similarly, the Helios Pool also depends exclusively on the cash flow generated from VLGCs operating in the LPG shipping industry. General lack of industry diversification makes us vulnerable to adverse developments in the LPG shipping industry, which would have a significantly greater impact on our business, financial condition and operating results than such lack of diversification would if we or the Helios Pool owned and operated more diverse assets or engaged in more diverse lines of business.\n\u200b\nSeasonal and other fluctuations in respect of spot market charter rates have had in the past and may have in the future a negative effect on our revenues, results of operations and cash flows.\nAs of the date of this Annual Report, twenty-three vessels from our fleet, including our four time chartered-in vessels, operate in the Helios Pool, which employs vessels on short-term time charters, COAs, or in the spot market, the latter of which exposes us to fluctuations in spot market charter rates. We also employ two of our VLGCs on fixed time charters outside of the Helios Pool. As these fixed time charters expire, we may employ these vessels in the spot market.\nGenerally, VLGC spot market rates are highly seasonal, typically demonstrating strength in the second and third calendar quarters as suppliers build inventory for high consumption during the northern hemisphere winter. However, 12-month time charter rates tend to smooth out these short-term fluctuations and recent LPG shipping market activity has not yielded the expected seasonal results. The successful operation of our vessels in the competitive and highly volatile spot charter market depends on, among other things, obtaining profitable spot charters, which depends greatly on vessel supply and demand and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to retrieve cargo. \nThe spot charter market may fluctuate significantly based upon LPG and LPG vessel supply and demand. The successful operation of our vessels in the competitive spot charter market depends on, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling in ballast to pick up cargo. The spot market is very volatile and there have been and will be periods when spot charter rates decline below the operating cost of vessels. If future spot charter rates decline, we may be unable to operate our vessels trading in the spot market profitably, meet our obligations, including payments on indebtedness, or pay dividends in the future. Furthermore, as charter rates for spot charters are fixed for a single voyage which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases. If spot charter rates decline in the future, then we may not be able to profitably operate our vessels trading \n31\n\n\nTable of Contents\nin the spot market or participating in the Helios Pool; meet our obligations, including payments on indebtedness; or pay dividends.\n\u200b\nFurther, although our two fixed time charters outside of the Helios Pool generally provide reliable revenues, they also limit the portion of our fleet available for spot market voyages during an upswing in the market, when spot market voyages might be more profitable. Conversely, when the current charters for the two vessels in our fleet on fixed time charters outside of the Helios Pool expire (or if such charters are terminated early), we may not be able to re-charter these vessels at similar or higher rates, or at all. As a result, we may have to accept lower rates or experience off hire time for our vessels, which would adversely impact our revenues, results of operations and financial condition.\n\u200b\nWe and/or our pool managers may not be able to successfully secure employment for our vessels or vessels in the Helios Pool, which could adversely affect our financial condition and results of operations.\nAs of May 25, 2023, twenty-three of our vessels, including our four time chartered-in vessels, are operating within the Helios Pool, which employs vessels on short-term time charters, COAs, or in the spot market, and two of our vessels are on fixed time charters outside of the Helios Pool that expire between the first calendar quarter of 2024 and the fourth calendar quarter of 2024. We cannot assure you that we will be successful in finding employment for our vessels in the spot market, on time charters or otherwise, or that any employment will be at profitable rates. Moreover, as vessels entered into the Helios Pool are commercially managed by our wholly-owned subsidiary and Phoenix, we also cannot assure you that we or they will be successful in finding employment for the vessels in the Helios Pool or that any employment will be profitable. Any inability to locate suitable employment for our vessels or the vessels in the Helios Pool could affect our general financial condition, results of operation and cash flow as well as the availability of financing.\n\u200b\nWe face substantial competition in trying to expand relationships with existing customers and obtain new customers.\n\u200b\nThe process of obtaining new charter agreements is highly competitive and generally involves an intensive screening and competitive bidding process, which, in certain cases, extends for several months. Contracts in the time charter market are awarded based upon a variety of factors, including:\n\u200b\n\u25cf\nthe size, age, fuel efficiency, emissions levels, and condition of a vessel; \n\u200b\n\u25cf\nthe charter rates offered;\n\u200b\n\u25cf\nthe operator\u2019s industry relationships, experience and reputation for customer service, quality operations and safety;\n\u200b\n\u25cf\nthe quality, experience and technical capability of the crew;\n\u200b\n\u25cf\nthe experience of the crew with the operator and type of vessel;\n\u200b\n\u25cf\nthe operator\u2019s relationships with shipyards and the ability to get suitable berths;\n\u200b\n\u25cf\nthe operator\u2019s construction management experience, including the ability to obtain on-time delivery of new vessels according to customer specifications; and \n\u200b\n\u25cf\nthe operator's willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events.\n\u200b\nContracts in the spot market are awarded based upon a variety of factors as well, and include:\n\u200b\n\u25cf\nthe location of the vessel; and \n\u200b\n\u25cf\ncompetitiveness of the charter rate offered.\n\u200b\nOur vessels, and the vessels operating in the Helios Pool, operate in a highly competitive market and we expect substantial competition for providing transportation services from a number of companies (both LPG vessel owners and \n32\n\n\nTable of Contents\noperators). We anticipate that an increasing number of maritime transport companies, including many with strong reputations and extensive resources and experience, has entered or will enter the LPG shipping market. Our existing and potential competitors may have significantly greater financial resources than us. In addition, competitors with greater resources may have larger fleets, or could operate larger fleets through consolidations, acquisitions, newbuildings or pooling of their vessels with other companies, and, therefore, may be able to offer a more competitive service than us or the Helios Pool, including better charter rates. We expect competition from a number of experienced companies providing contracts for gas transportation services to potential LPG customers, including state-sponsored entities and major energy companies affiliated with the projects requiring shipping services. As a result, we (including the Helios Pool) may be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which would have a material adverse effect on our business, financial condition and operating results.\n\u200b\nWe and the Helios Pool are subject to risks with respect to counterparties, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.\n\u200b\nWe have entered into, and expect to enter into in the future, various contracts that are material to the operation of our business, including charter agreements, COAs, shipbuilding contracts, credit facilities and financing arrangements, including leasing arrangements, that subject us to counterparty risks. Similarly, the Helios Pool has entered into, and expects to enter into in the future, various contracts, including charters and COAs, that subject it to counterparty risks. The ability and willingness of our and the Helios Pool\u2019s counterparties to perform their obligations under any contract will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the maritime and LPG industries, the overall financial condition of the counterparty, charter rates for specific types of vessels, and various expenses. For example, a reduction of cash flow resulting from declines in world trade or the lack of availability of debt or equity financing may result in a significant reduction in the ability of our charterers or the Helios Pool\u2019s charterers to make required charter payments. In addition, in depressed market conditions, charterers and customers may no longer need a vessel that is then under charter or contract or may be able to obtain a comparable vessel at lower rates. As a result, charterers and customers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. Should a counterparty fail to honor its obligations under agreements with us or the Helios Pool, we could sustain significant losses and a significant reduction in the charter hire we earn from the Helios Pool, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and our ability to pay dividends to our shareholders in the amounts anticipated or at all.\n\u200b\nAlthough we assess the creditworthiness of our counterparties, a prolonged period of difficult industry conditions could lead to changes in a counterparty\u2019s liquidity and increase our exposure to credit risk and bad debts. In addition, we may offer extended payment terms to our customers in order to secure contracts, which may lead to more frequent collection issues and adversely affect our financial results and liquidity.\n\u200b\nWe expect to be dependent on a limited number of customers for a material part of our revenues, and failure of such customers to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.\n\u200b\nFor the year ended March\u00a031,\u00a02023, the Helios Pool accounted for 94% of our total revenues. No other individual charterer accounted for more than 10%. Within the Helios Pool, two charterers represented more than 10% of net pool revenues\u2014related party for the year ended March\u00a031,\u00a02023. We expect that a material portion of our revenues will continue to be derived from a limited number of customers. The ability of each of our customers to perform their obligations under a contract with us will depend on a number of factors that are beyond our control. Should the aforementioned customers fail to honor their obligations under agreements with us or the Helios Pool, we could sustain material losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows.\n \n\u200b\nRestrictions on VLGC transits and increased toll charges at the Panama Canal may have an adverse effect on our results of operations.\n\u200b\nIn June 2016, the expansion of the Panama Canal, or the Canal, was completed. The new locks allow the Canal to accommodate significantly larger vessels, including VLGCs, which we operate. Since the completion of the Canal, transit from the United States Gulf to Asia, an important trade route for our customers, has been shortened by \n33\n\n\nTable of Contents\napproximately 15 days compared to transiting via the Cape of Good Hope. According to industry sources, over 90% of the US-to-Asia LPG voyages had switched to the Canal by November 2016 and the majority of USA-to-Asia LPG voyages continue to utilize the Panama Canal as of the date of this Annual Report. With increased traffic, the toll has been increased over time. The Panama Canal Authorities decreed that the slots for transit by VLGCs could only be reserved up to 14 days in advance of a proposed transit. This change has resulted in longer wait times and resales of slots among VLGC operators at significantly higher rates than those charged by the Panama Canal Authority. These restrictions have added waiting time to transits, which is typically not paid for by charterers. In April 2022 the Panama Canal Authority proposed a comprehensive restructuring of its toll structure, which would increase rates charged on cargo, including the LPG that crosses the waterway, result in increased rates or additional waiting time for our VLGCs to cross the Canal. Such factors are not generally reflected in charter rates. This proposal was approved in July 2022 and began its phase-in period in January 2023, which will continue until January 2025. Our vessels and voyages could be impacted as phase-in continues, which could have an adverse effect on our results of operations and cash flows. Our latest two long-term time chartered-in Dual-fuel ECO VLGCs are Panamax vessels and can transit the old Panama Canal locks, which are not currently affected by the toll restructuring referenced above.\n \n\u200b\nOur indebtedness and financial obligations may adversely affect our operational flexibility and financial condition. \n\u200b\nAs of March\u00a031,\u00a02023, we had outstanding indebtedness of $663.6 million, of which $491.6 million is hedged or fixed. Amounts owed under our current credit facility and financing arrangements, and any future credit facilities or financing arrangements, will require us to dedicate a part of our cash flow from operations to paying interest and principal payments, as applicable. These payments will limit funds available for working capital, capital expenditures, acquisitions, dividends, stock repurchases and other purposes and may also limit our ability to undertake further equity or debt financing in the future. Our indebtedness and obligations under our financing arrangements also increase our vulnerability to general adverse economic and industry conditions, limits our flexibility in planning for and reacting to changes in the industry, and places us at a disadvantage to other, less leveraged, competitors.\nOur credit facility and several of our Japanese financing arrangements bear interest at variable rates and we anticipate that any future credit facilities will also bear interest at variable rates. Increases in prevailing rates could increase the amounts that we would have to pay to our lenders or financing counterparties, even though the outstanding principal amount remains the same, and our net income and available cash flows would decrease as a result. \nWe expect our earnings and cash flow to vary from year to year mainly due to the cyclical nature of the LPG shipping industry. If we do not generate or reserve enough cash flow from operations to satisfy our debt or financing obligations, we may have to undertake alternative financing plans, such as:\n\u200b\n\u25cf\nseeking to raise additional capital;\n\u25cf\nrefinancing or restructuring our debt or financing obligations;\n\u25cf\nselling our VLGCs; and/or\n\u25cf\nreducing or delaying capital investments.\n\u200b\nHowever, these alternative financing plans, if necessary, may not be sufficient to allow us to meet our debt or financing obligations. If we are unable to meet our debt or financing obligations and we default on our obligations under our debt agreement or financing arrangements, our lenders could elect to declare our outstanding borrowings and certain other amounts owed, together with accrued interest and fees, to be immediately due and payable and foreclose on the vessels securing that debt, and our counterparties may seek to repossess the vessels subject to our debt agreement or financing arrangements.\n\u200b\nOur existing and future debt and financing agreements contain and are expected to contain restrictive covenants that may limit our liquidity and corporate activities, which could have an adverse effect on our financial condition and results of operations. \n\u200b\nOur debt agreement and financing arrangements contain, and any future debt agreements or financing arrangements are expected to contain, customary covenants and event of default clauses, including cross-default provisions that may be triggered by a default under one of our other contracts or agreements and restrictive covenants and performance \n34\n\n\nTable of Contents\nrequirements, which may affect operational and financial flexibility. Such restrictions could affect, and in many respects limit or prohibit, among other things, our ability to pay dividends or repurchase stock, incur additional indebtedness, create liens, sell assets, or engage in mergers or acquisitions. These restrictions could limit our ability to plan for or react to market conditions or meet extraordinary capital needs or otherwise restrict corporate activities. There can be no assurance that such restrictions will not adversely affect our ability to finance our future operations or capital needs.\n\u200b\nOur agreements relating to the debt facility that we entered into in July 2022 with a group of banks and financial institutions(the \u201c2022 Debt Facility\u201d), which were secured by, among other things, ten of our VLGCs, require us to maintain specified financial ratios and satisfy financial covenants. \n\u200b\nOur agreements relating to the $83.4 million debt facility that we entered into in December 2021 with Banc of America Leasing & Capital, LLC, Pacific Western Bank, Raymond James Bank, a Florida chartered bank and City National Bank of Florida, as lenders (\u201cBALCAP Facility\u201d)\n, which are secured by, among other things, two of our VLGCs,\n require us to maintain specified financial ratios and satisfy financial covenants. \u00a0\n\u200b\nAs of March\u00a031,\u00a02023, we were in compliance with the financial and other covenants contained in the 2022 Debt Facility and the BALCAP Facility. As of May 25, 2023, approximately $225.0 million remains outstanding under the 2022 Debt Facility and approximately $73.5 million remains outstanding under the BALCAP Facility. \n\u200b\nThe 2022 Debt Facility conditions payments of dividends by us to our shareholders and by our subsidiaries to us on the absence of an event of default and such payments not creating an event of default. \n\u200b\nAs a result of the restrictions in our debt agreement and financing arrangements, or similar restrictions in our future debt agreements or financing arrangements, we may need to seek permission from our lenders or counterparties in order to engage in certain corporate actions. Our lenders\u2019 or counterparties\u2019 interests may be different from ours and we may not be able to obtain their permission when needed or at all. This may prevent us from taking actions that we believe are in our best interest, which may adversely impact our revenues, results of operations and financial condition. \n\u200b\nA failure by us to meet our payment and other obligations, including our financial and value to loan covenants, could lead to defaults under our current or future secured loan agreements. In addition, a default under one of our current or future credit facilities could result in the cross-acceleration of our other indebtedness. Our lenders could then accelerate our indebtedness and foreclose on our fleet.\n\u200b\nThe market values of our vessels may decrease, which could cause us to breach covenants in our loan agreements or record an impairment loss, or negatively impact our ability to enter into future financing arrangements, and as a result could have a material adverse effect on our business, financial condition and results of operations. \n\u200b\nThe 2022 Debt Facility and BALCAP Facility, which are secured by, among other things, liens on the vessels in our fleet contain various financial covenants, including requirements relating to our financial condition, financial performance and liquidity. For example, we are required to maintain a minimum ratio of the market value of the vessels securing a loan to the principal amount outstanding under such loan. The market value of LPG carriers is sensitive to, among other things, changes in the LPG carrier charter markets, with vessel values deteriorating when LPG carrier charter rates are anticipated to fall and improving when charter rates are anticipated to rise. LPG vessel values remain subject to significant fluctuations. A decline in the fair market values of our vessels could result in us not being in compliance with certain of these loan covenants. Furthermore, if the value of our vessels deteriorates and our estimated future cash flows decrease, we may have to record an impairment adjustment in our financial statements or we may be unable to enter into future financing arrangements acceptable to us or at all, which would adversely affect our financial results and further hinder our ability to raise capital.\n\u200b\nIf we are unable to comply with any of the restrictions and covenants in our 2022 Debt Facility and BALCAP Facility, financing arrangements, or in future debt financing agreements, and we are unable to obtain a waiver or amendment from our lenders or counterparties for such noncompliance, a default could occur under the terms of those agreements. Our ability to comply with these restrictions and covenants, including meeting financial ratios and tests, is dependent on our future performance and may be affected by events beyond our control. If a default occurs under these \n35\n\n\nTable of Contents\nagreements, lenders could terminate their commitments to lend or in some circumstances accelerate the outstanding loans and declare all amounts borrowed due and payable. Our vessels serve as security under our debt agreement. If our lenders were to foreclose with respect to their liens on our vessels in the event of a default, such foreclosure could impair our ability to continue our operations. In addition, our current debt agreement contains, and future debt agreements are expected to contain, cross-default provisions, meaning that if we are in default under certain of our current or future debt obligations, amounts outstanding under our current or other future debt agreements may also be in default, accelerated and become due and payable. If any of these events occur, we cannot guarantee that our assets will be sufficient to repay in full all of our outstanding indebtedness, and we may be unable to find alternative financing. Even if we could obtain alternative financing, that financing might not be on terms that are favorable or acceptable to us. In addition, if we find it necessary to sell our vessels at a time when vessel prices are low, we will recognize losses and a reduction in our earnings, which could affect our ability to raise additional capital necessary for us to comply with our debt agreement.\n \n\u200b\nWe may be adversely affected by developments in the SOFR market, changes in the methods by which SOFR is determined or the use of alternative reference rates.\nIn 2017, the U.K. Financial Conduct Authority announced that it intended to phase out LIBOR, and in 2021, it announced that all LIBOR fixings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of one-week and two-month U.S. Dollar settings, and immediately after June 30, 2023, in the case of the remaining U.S. Dollar settings. The Federal Reserve also has advised banks to cease entering into new contracts that use U.S. Dollar LIBOR as a reference rate. \nThe Alternative Refinance Rate Committee, a committee convened by the Federal Reserve that includes major market participants, has identified SOFR, an index calculated by short-term repurchase agreements, backed by U.S. Treasury securities, as its preferred alternative rate for LIBOR in the United States.\nAlthough SOFR appears to be the preferred replacement rate for U.S. Dollar LIBOR and has been adopted as the benchmark interest rate for our debt arrangements, it is unclear if other benchmarks may emerge. The consequences of these developments cannot be entirely predicted, and there can be no assurance that they will not result in financial market disruptions, significant increases in benchmark interest rates, substantially higher financing costs or a shortage of available debt financing, any of which could have an adverse effect on our business, financial position and results of operations, and our ability to pay dividends.\nWe have and we intend to selectively enter into derivative contracts, which can result in higher than market interest rates and charges against our income.\nWe have entered into and may selectively in the future enter into derivative contracts to hedge our overall exposure to interest rate risk related to our credit facility. Entering into swaps and derivatives transactions is inherently risky and presents various possibilities for incurring significant expenses. The derivatives strategies that we employ currently and, in the future, may not be successful or effective, and we could, as a result, incur substantial additional interest costs or losses.\n\u200b\nWe are exposed to volatility in the Secured Overnight Financing Rate (\u201cSOFR\u201d), which has only been published since April 2018\n. \nDue to the planned phase out of the London Interbank Offered Rate, or LIBOR, as a benchmark for floating rate loans entered into after 2021, all loans and financing agreements into which we have entered since the beginning of 2022 have been based on the one or three month Secured Overnight Financing Rate, or SOFR. However, since we entered into both the \nCresques \nand the \nCaptain Markos \nJapanese financing arrangements in 2021, we amended the applicable floating interest rate on both financings in accordance with guidance given by the Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants. The guidelines suggest adding a credit adjustment spread, or CAS, to the previously agreed floating rate margin based on the floating rate reset interval because SOFR is based on secured loans, while LIBOR was an unsecured rate. In accordance with these recommendations, the applicable margin on the \nCresques\n Japanese financing arrangement and the \nCaptain Markos \nJapanese financing arrangement, which are now both based on the one-month SOFR, have been increased by the CAS of 0.11448%.\n\u200b\n36\n\n\nTable of Contents\nThe amounts outstanding under our 2022 Facility and certain of our existing Japanese financing arrangements were originally advanced or were modified to be priced on the basis of a floating rate based on SOFR. Changes in SOFR could affect the amount of interest payable on our debt, and, in turn, could have an adverse effect on our earnings and cash flow. Until recent years, global interest rates, including SOFR, have been at relatively low levels, but they have risen recently and may continue to rise in the future. SOFR has only been published by the Federal Reserve since April 2018, and therefore there is limited history with which to assess how changes in SOFR rates may differ from other rates during different macroeconomic and monetary policy conditions. \u00a0\n \n\u200b\nWe have and may in the future selectively enter into derivative contracts, which can result in higher than market interest rates and charges against our income\n.\nOur financial condition could be materially adversely affected at any time that we have not entered into interest rate hedging arrangements to hedge our exposure to the interest rates applicable to our credit facilities and any other financing arrangements we may enter into in the future. We have entered into and may selectively in the future enter into derivative contracts to hedge our overall exposure to interest rate risk related to our credit facility. Entering into swaps and derivatives transactions is inherently risky and presents various possibilities for incurring significant expenses. Moreover, even if we have entered into interest rate swaps or other derivative instruments for purposes of managing our interest rate exposure, our hedging strategies may not be effective and we may incur substantial losses. As of May 25, 2023, $170.1 million of our total debt of $658.9 million, or 25.9%, is unhedged or unfixed and a significant change in SOFR could materially adversely affect our financial condition, although we note that a theoretical 20 basis point increase or decrease in SOFR would only result in a $0.4 million over the next 12 months. \n\u200b\nInvestments in forward freight derivative instruments could result in losses.\n\u00a0\nFrom time to time, we may take hedging or speculative positions in derivative instruments, including freight forward agreements, or FFAs. Upon settlement, if an FFA contracted charter rate is less than the average of the rates, as reported by an identified index, for the specified route and period, the seller of the FFA is required to pay the buyer an amount equal to the difference between the contracted rate and the settlement rate, multiplied by the number of days in the specified period. Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay the seller the settlement sum. If we do not correctly anticipate charter rate movements over the specified route and time period when we take positions in FFAs or other derivative instruments, we could suffer losses in the settling or termination of the FFA. This could adversely affect our results of operations and cash flows. As of March\u00a031,\u00a02023, we had no FFAs in our portfolio.\n\u200b\nBecause we generate all of our revenues in U.S. dollars but incur a portion of our expenses in other currencies, exchange rate fluctuations could adversely affect our results of operations.\n\u200b\nWe generate all of our revenues in U.S. dollars and the majority of our expenses are also in U.S. dollars. However, a portion of our overall expenses is incurred in other currencies, particularly Euro, Singapore Dollar, Danish Krone, Japanese Yen, British Pound Sterling, and Norwegian Krone. Changes in the value of the U.S. dollar relative to the other currencies, in particular the Euro, or the amount of expenses we incur in other currencies could cause fluctuations in our net income. See \u201cItem 7A. Quantitative and Qualitative Disclosures About Market Risk\u2014Foreign Currency Exchange Rate Risk.\u201d\n\u200b\nIf we fail to manage our growth properly, we may incur significant expenses and losses.\n\u200b\nAs and when market conditions permit, we may prudently grow our fleet. Acquisition opportunities may arise from time to time, and any such acquisition could be significant. Successfully consummating and integrating acquisitions will depend on:\n\u200b\n\u25cf\nlocating and acquiring suitable vessels at a suitable price;\n\u200b\n\u25cf\nidentifying and completing acquisitions or joint ventures;\n\u200b\n\u25cf\nintegrating any acquired vessels or businesses successfully with our existing operations;\n37\n\n\nTable of Contents\n\u200b\n\u25cf\nhiring, training and retaining qualified personnel and crew to manage and operate our growing business and fleet;\n\u200b\n\u25cf\nexpanding our customer base; and\n\u200b\n\u25cf\nobtaining required financing.\n\u200b\nCertain acquisition and investment opportunities may not result in the consummation of a transaction and the incurrence of certain advisory costs. Any acquisition could involve the payment by us of a substantial amount of cash, the incurrence of a substantial amount of debt or the issuance of a substantial amount of equity. In addition, we may not be able to obtain acceptable terms for the required financing for any such acquisition or investment that arises.\n\u200b\nGrowing a business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel, managing relationships with customers and suppliers and integrating newly acquired vessels into existing infrastructures. Moreover, acquiring any business is subject to risks related to incorrect assumptions regarding the future results of acquired operations or assets or expected cost reductions or other synergies expected to be realized as a result of acquiring operations or assets. \n\u200b\nAdditionally, the expansion of our fleet may impose significant additional responsibilities on our management and staff, including the management and staff of our in-house commercial and technical managers, and may necessitate that we increase the number of our personnel. Further, there is the risk that we may fail to successfully and timely integrate the operations or management of any acquired businesses or assets and the risk of diverting management's attention from existing operations or other priorities. If we fail to consummate and integrate our acquisitions in a timely and cost-effective manner, our financial condition, results of operations and ability to pay dividends, if any, to our shareholders could be adversely affected. Moreover, we cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our common shares.\n\u200b\nAn inability to effectively time investments in and divestments of vessels could prevent the implementation of our business strategy and negatively impact our results of operations and financial condition.\nOur strategy is to own and operate a fleet large enough to provide global coverage, but not larger than what the demand for our services can support over a longer period by both contracting newbuildings and through acquisitions and divestitures in the second-hand market. Our business is influenced by the timing of investments, including strategic and vessel acquisitions, time charter in arrangements and the contracting of newbuildings, and/or divestments of such investments or existing assets. If we are unable to identify the optimal timing of such investments or divestments in relation to the shipping value cycle due to capital restraints, or otherwise, this could have a material adverse effect on our competitive position, future performance, results of operations, cash flows and financial position.\nIf our fleet grows in size, we may need to update our operations and financial systems and recruit additional staff and crew; if we cannot adequately update these systems or recruit suitable employees, our business and results of operations may be adversely affected.\nAs and when market conditions permit, we intend to continue to prudently grow our fleet over the long term. We have and may continue to have to invest in upgrading our operating and financial systems. In addition, we may have to recruit additional well-qualified seafarers and shoreside administrative and management personnel. We may not be able to hire suitable employees to the extent we continue to expand our fleet. Our vessels require technically skilled staff with specialized training. If our crewing agents are unable to employ such technically skilled staff, they may not be able to adequately staff our vessels. If we are unable to operate our financial and operations systems effectively or we are unable to recruit suitable employees as we expand our fleet, our results of operation and our ability to expand our fleet may be adversely affected.\n\u200b\n\u200b\n38\n\n\nTable of Contents\nWe may be unable to attract and retain key management personnel and other employees in the shipping industry without incurring substantial expense, which may negatively affect the effectiveness of our management and our results of operations.\n\u200b\nThe successful development and performance of our business depends on our ability to attract and retain skilled professionals with appropriate experience and expertise. The loss of the services of any of our senior management or key personnel could have a material adverse effect on our business and operations.\n\u200b\nAdditionally, obtaining voyage and time charters with leading industry participants depends on a number of factors, including the ability to man vessels with suitably experienced, high-quality masters, officers and crew. In recent years, the limited supply of and increased demand for well-qualified crew has created upward pressure on crewing costs, which we generally bear under our time and spot charters. Increases in crew costs may adversely affect our profitability. In addition, if we cannot retain sufficient numbers of quality on-board seafaring personnel, our fleet utilization will decrease, which could have a material adverse effect on our business, results of operations, cash flows and financial condition.\n\u200b\nOur directors and officers may in the future hold direct or indirect interests in companies that compete with us.\n\u200b\nOur directors and officers have a history of involvement in the shipping industry and some of them currently, and some of them may in the future, directly or indirectly, hold investments in companies that compete with us. In that case, they may face conflicts between their own interests and their obligations to us.\n\u200b\nWe cannot provide assurance that our directors and officers will not be influenced by their interests in or affiliation with other shipping companies, or our competitors, and seek to cause us to take courses of action that might involve risks to our other shareholders or adversely affect us or our shareholders. However, we have written policies in place to address such situations if they arise.\n\u200b\nOur business and operations involve inherent operating risks, and our insurance and indemnities from our customers may not be adequate to cover potential losses from our operations.\nOur vessels are subject to a variety of operational risks caused by adverse weather conditions, mechanical failures, human error, war, terrorism, piracy, or other circumstances or events, including the recent conflict between Russia and Ukraine. While we endeavor to be adequately insured against all known risks related to the operation of our ships, there will always be a possibility that we may not have adequate insurance coverage for complete cover against a loss or a liability. The insurers may also not pay particular claims due to exclusions in the policy. Further, even if our insurance coverage is adequate, we may not be able to timely obtain a replacement vessel in the event of a loss. Also, there can be no assurance that insurance coverages will remain available at acceptable rates. Furthermore, such insurance coverage will contain deductibles, limitations and exclusions, which are standard in the shipping industry and may increase our costs or lower our revenue if applied in respect of any claim.\n\u200b\nWe may be unable to procure adequate insurance coverage at commercially reasonable rates in the future.\nWe may not be able to obtain adequate insurance coverage at acceptable rates in the future during adverse insurance market conditions. For example, more stringent environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution. A marine disaster could exceed our insurance coverage, which could harm our business, financial condition and operating results. Any uninsured or underinsured loss could harm our business and financial condition. In addition, our insurance may be voidable by the insurers as a result of certain of our actions, such as our vessels failing to maintain certification with applicable maritime self-regulatory organizations even when such failure is not caused intentionally or by negligence, but, for example, due to computer error or external manipulation.\nChanges in the insurance markets attributable to terrorist attacks may also make certain types of insurance more difficult for us to obtain. In addition, upon renewal or expiration of our current policies, the insurance that may be available to us may be significantly more expensive than our existing coverage.\n39\n\n\nTable of Contents\nBecause we obtain some of our insurance through protection and indemnity associations, we may be required to make additional premium payments.\nAlthough we believe we carry P&I cover consistent with industry standards, all risks may not be adequately insured against, and any particular claim may not be paid. Any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. Certain of our insurance coverage is maintained through mutual P&I clubs, and as a member of such associations we may be required to make additional payments, or calls, over and above budgeted premiums if total member claims exceed association reserves. These calls will be in amounts based on our claim records, as well as the claim records of other members of the P&I clubs through which we receive insurance coverage for tort liability, including pollution-related liability. Our payment of these calls could result in significant expense to us, which could have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.\n\u200b\nWe may incur increasing costs for the drydocking, maintenance or replacement of our vessels as they age, and, as our vessels age, the risks associated with older vessels could adversely affect our ability to obtain profitable charters.\n\u200b\nThe drydocking of our vessels requires significant capital expenditures and loss of revenue while our vessels are off-hire. Any significant increase in the number of days of off-hire due to such drydocking or in the costs of any repairs could have a material adverse effect on our business, results of operations, cash flows and financial condition. Although we do not anticipate that more than one vessel will be out of service at any given time, we may underestimate the time required to drydock our vessels, or unanticipated problems may arise.\n\u200b\nIn addition, although all of our vessels were built within the past fifteen years, we estimate that our vessels have a useful life of 25 years. In general, the costs of maintaining a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel-efficient than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.\n\u200b\nAs our vessels become older, we may have to replace such vessels upon the expiration of their useful lives. Unless we maintain reserves or are able to borrow or raise funds for vessel replacement, we will be unable to replace such older vessels. The inability to replace the vessels in our fleet upon the expiration of their useful lives could have a material adverse effect on our business, results of operations, cash flows and financial condition. Any reserves set aside for vessel replacement will not be available for the payment of dividends to shareholders.\n\u200b\nIf we purchase secondhand vessels, we may be exposed to increased costs which could adversely affect our earnings.\n\u200b\nWe may acquire secondhand vessels in the future, and while we inspect previously owned or secondhand vessels prior to purchase, that inspection does not provide us with the same knowledge about their condition and cost of any required (or anticipated) repairs that we would have had if these vessels had been built for and operated exclusively by us. A secondhand vessel may also have conditions or defects that we were not aware of when we bought the vessel and which may require us to incur costly repairs to the vessel. These repairs may require us to put a vessel into drydock, which would reduce our fleet utilization and increase our operating costs. The market prices of secondhand vessels also tend to fluctuate with changes in charter rates and the cost of newbuild vessels, and if we sell the vessels, the sales prices may not equal and could be less than their carrying values at that time. Therefore, our future operating results could be negatively affected if our secondhand vessels do not perform as we expect.\n\u200b\nCertain shareholders have a substantial ownership stake in us, and their interests could conflict with the interests of our other shareholders. \n\u200b\nAccording to information contained in public filings, John C. Hadjipateras, our Chief Executive Officer, President and Chairman of the Board of Directors; Blackrock, Inc.; and Dimensional Fund Advisors LP, as of May 25, 2023, own, or may be deemed to beneficially own, 13.7%, 13.4%, and 7.2%, respectively, of our total shares outstanding. John C. Hadjipateras, as our Chief Executive Officer, President and Chairman of the Board of Directors, has the ability to influence certain actions requiring shareholders' approval, including increasing or decreasing the authorized share capital, the election of directors, declaration of dividends, the appointment of management, and other policy decisions. While any \n40\n\n\nTable of Contents\nfuture transaction with significant shareholders could benefit us, their interests could at times conflict with the interests of our other shareholders. Conflicts of interest may also arise between us and our significant shareholders or their affiliates, which may result in the conclusion of transactions on terms not determined by market forces. Any such conflicts of interest could adversely affect our business, financial condition and results of operations, and the trading price of our common shares. Moreover, the concentration of ownership may delay, deter or prevent acts that would be favored by our other shareholders or deprive shareholders of an opportunity to receive a premium for their shares as part of a sale of our business. Similarly, this concentration of share ownership may adversely affect the trading price of our shares because investors may perceive disadvantages in owning shares in a company with concentrated ownership.\n\u200b\nUnited States tax authorities could treat us as a \u201cpassive foreign investment company,\u201d which could have adverse United States federal income tax consequences to United States holders. \n\u200b\nA foreign corporation will be treated as a PFIC for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of \u201cpassive income\u201d or (2) at least 50% of the average value of the corporation\u2019s assets produce or are held for the production of \u201cpassive income.\u201d For purposes of these tests, \u201cpassive income\u201d generally includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services generally does not constitute \u201cpassive income.\u201d United States shareholders of a PFIC are subject to an adverse United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.\n\u200b\nWhether we will be treated as a PFIC for our taxable year ended March\u00a031,\u00a02023 and subsequent taxable years will depend upon the nature and extent of our operations. In this regard, we intend to treat the gross income we derive from our voyage and time chartering activities as services income, rather than rental income. Accordingly, such income should not constitute passive income, and the assets that we own and operate in connection with the production of such income, in particular, our vessels, should not constitute passive assets for purposes of determining whether we are a PFIC. There is substantial legal authority supporting this position consisting of case law and the United States Internal Revenue Service, or the IRS, pronouncements concerning the characterization of income derived from time charters as services income for other tax purposes. However, there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future.\n\u200b\nFor any taxable year in which we are, or were to be treated as, a PFIC, United States shareholders would face adverse United States federal income tax consequences. Under the PFIC rules, unless a shareholder makes an election available under the Code (which election could itself have adverse consequences for such shareholders, as discussed below under \u201cItem 1. Business\u2014Taxation\u2014United States Federal Income Tax Considerations\u2014United States Federal Income Taxation of United States Holders\u201d), excess distributions and any gain from the disposition of such shareholder's common shares would be allocated ratably over the shareholder's holding period of the common shares and the amounts allocated to the taxable year of the excess distribution or sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed with respect to such tax. See \u201cItem 1. Taxation\u2014United States Federal Income Tax Considerations\u2014United States Federal Income Taxation of United States Holders\u201d for a more comprehensive discussion of the United States federal income tax consequences to United States shareholders if we are treated as a PFIC.\n\u200b\nWe may have to pay tax on United States source shipping income, which would reduce our earnings.\n\u200b\nUnder the Code, 50% of the gross shipping income of a corporation that owns or charters vessels, as we and our subsidiaries do, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4%, or an effective 2%, United States federal income tax without allowance for deduction, \n41\n\n\nTable of Contents\nunless that corporation qualifies for exemption from tax under Section 883 of the Code and the applicable Treasury Regulations promulgated thereunder.\n\u200b\nWe believe that we qualify, and we expect to qualify, for exemption under Section 883 for our taxable year ended March\u00a031,\u00a02023 and our subsequent taxable years and we intend to take this position for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United States source shipping income. For example, we would no longer qualify for exemption under Section 883 of the Code for a particular taxable year if certain \u201cnon-qualified\u201d shareholders with a 5% or greater interest in our common shares owned, in the aggregate, 50% or more of our outstanding common shares for more than half the days during the taxable year. Due to the factual nature of the issues involved, there can be no assurances that we or any of our subsidiaries will qualify for exemption under Section 883 of the Code.\n\u200b\nIf we or our subsidiaries were not entitled to exemption under Section 883 of the Code for any taxable year based on our failure to satisfy the publicly-traded test, we or our subsidiaries would be subject for such year to an effective 2% United States federal income tax on the gross shipping income we or our subsidiaries derive during the year that is attributable to the transport of cargoes to or from the United States. The imposition of this taxation would have a negative effect on our business and would decrease our earnings available for distribution to our shareholders.\n\u200b\nRisks Relating to Our Industry \n\u200b\nThe cyclical nature of seaborne LPG transportation may lead to significant changes in charter rates, vessel utilization and vessel values, which may adversely affect our revenues, profitability and financial condition.\n\u200b\nHistorically, the LPG shipping market has been cyclical with attendant volatility in profitability, charter rates and vessel values. The degree of charter rate volatility among different types of gas carriers has varied widely. Because many factors influencing the supply of, and demand for, vessel capacity are unpredictable, the timing, direction and degree of changes in the LPG shipping market are also not predictable. If charter rates decline, our earnings may decrease, particularly with respect to our vessels deployed in the spot market, including through the Helios Pool, but also with respect to our other vessels when their charters expire, as they may not be rechartered on favorable terms when compared to the terms of the expiring charters. Accordingly, a decline in charter rates could have an adverse effect on our revenues, profitability, liquidity, cash flow and financial position.\n\u200b\nFuture growth in the demand for LPG carriers and charter rates will depend on economic growth in the world economy and demand for LPG transportation that exceeds the capacity of the growing worldwide LPG carrier fleet. We believe that the future growth in demand for LPG carriers and the charter rate levels for LPG carriers will depend primarily upon the supply and demand for LPG, particularly in the economies of China, India, Japan, Southeast Asia, the Middle East and the United States and upon seasonal and regional changes in demand and changes to the capacity of the world fleet. The capacity of the world LPG shipping fleet appears likely to increase in the near term. Economic growth may be limited in the near term, and possibly for an extended period, as a result of global economic conditions, or otherwise, which could have an adverse effect on our business and results of operations.\n\u200b\nThe factors affecting the supply of and demand for LPG carriers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.\n\u200b\nThe factors that influence demand for our vessels include:\n\u200b\n\u25cf\nglobal or regional economic, political or geopolitical conditions, including armed conflicts, including the recent conflict between Russia and Ukraine, terrorist activities, embargoes, strikes, tariffs and \u201ctrade wars,\u201d particularly in LPG consuming regions;\n\u200b\n\u25cf\nchanges in global or general industrial activity specifically in the plastics and chemical industries;\n\u200b\n\u25cf\nchanges in the cost of oil and natural gas from which LPG is derived;\n42\n\n\nTable of Contents\n\u200b\n\u25cf\nchanges in the consumption of LPG or natural gas due to availability of new, alternative energy sources or changes in the price of LPG or natural gas relative to other energy sources or other factors making consumption of LPG or natural gas less attractive;\n\u200b\n\u25cf\nsupply of and demand for LPG;\n\u200b\n\u25cf\nthe development and location of production facilities for LPG;\n\u200b\n\u25cf\nregional imbalances in production and demand of LPG; \n\u200b\n\u25cf\nchanges in the production levels of crude oil and natural gas (including in particular production by OPEC, the United States and other key producers) and inventories;\n\u200b\n\u25cf\nthe distance LPG is to be moved by sea;\n\u200b\n\u25cf\nworldwide production of natural gas;\n\u200b\n\u25cf\navailability of competing LPG vessels;\n\u200b\n\u25cf\navailability of alternative transportation means, including pipelines for LPG, which are currently few in number, linking production areas and industrial and residential areas consuming LPG, or the conversion of existing non\n-\npetroleum gas pipelines to petroleum gas pipelines in those markets;\n\u200b\n\u25cf\nchanges in the price of crude oil and changes to the West Texas Intermediate and Brent Crude Oil pricing benchmarks, and changes in trade patterns;\n\u200b\n\u25cf\ndevelopment and exploitation of alternative fuels and non\n-\nconventional hydrocarbon production;\n\u200b\n\u25cf\ngovernmental regulations, including environmental or restrictions on offshore transportation of natural gas;\n\u200b\n\u25cf\nlocal and international political, economic and weather conditions; \n\u200b\n\u25cf\neconomic slowdowns caused by public health events;\n\u200b\n\u25cf\ndomestic and foreign tax policies; \n\u200b\n\u25cf\naccidents, severe weather, natural disasters and other similar incidents relating to the natural gas industry; and \n\u200b\n\u25cf\nsanctions (in particular sanctions on Iran, Russia and Venezuela, among others).\n\u200b\nThe factors that influence the supply of vessel capacity include:\n\u200b\n\u25cf\nthe number of newbuilding deliveries;\n\u200b\n\u25cf\nthe scrapping rate of older vessels;\n\u200b\n\u25cf\nLPG vessel prices\n, including financing costs and the price of steel, other raw materials and vessel equipment\n;\n\u200b\n\u25cf\nthe availability of shipyards to build LPG vessels when demand is high;\n\u200b\n\u25cf\nchanges in environmental and other regulations that may limit the useful lives of vessels;\n43\n\n\nTable of Contents\n\u200b\n\u25cf\ntechnological advances in LPG vessel design and capacity;\n and\n\u200b\n\u25cf\nthe number of vessels that are out of service.\n\u200b\nA significant decline in demand for the seaborne transport of LPG or a significant increase in the supply of LPG vessel capacity without a corresponding growth in LPG vessel demand could cause a significant decline in prevailing charter rates, which could materially adversely affect our financial condition and operating results and cash flow.\n\u200b\nProlonged low natural gas and LPG prices could negatively affect us in a number of ways, including the following:\n\u200b\n\u25cf\na reduction in exploration for or development of new natural gas reserves or projects, or the delay or cancellation of existing projects as energy companies lower their capital expenditures budgets, which may reduce our growth opportunities\u037e\n\u200b\n\u25cf\na decrease in the expected returns relating to investments in LPG projects\u037e\n\u200b\n\u25cf\nlow gas prices globally and/or weak differentials between prices in the Atlantic Basin and the Pacific Basin leading to reduced inter-basin trading of LPG and reduced demand for LPG shipping\u037e\n\u200b\n\u25cf\ndecreased demand for the types of vessels we own and operate, which may reduce charter rates and revenue available to us upon redeployment of our vessels following the expiration or termination of existing contracts or upon the initial chartering of vessels\u037e \n\u200b\n\u25cf\ncustomers potentially seeking to renegotiate or terminate existing vessel contracts, or failing to extend or renew contracts upon expiration\u037e\n\u200b\n\u25cf\nthe inability or refusal of customers to make charter payments to us due to financial constraints or otherwise, including limitations imposed by government sanctions \u037e or\n\u200b\n\u25cf\ndeclines in vessel values, which may result in losses to us upon vessel sales or impairment charges against our earnings and could impact our compliance with the covenants in our loan agreements.\n\u200b\nReduced demand for LPG or LPG fractionation, storage, or shipping, or any reduction or limitation in LPG production capacity, could have a material adverse effect on prevailing charter rates or the market value of our vessels, which could have a material adverse effect on our results of operations and financial condition.\n\u200b\nA shift in consumer demand from LPG towards other energy sources or changes to trade patterns may have a material adverse effect on our business.\nSubstantially all of our earnings are related to the LPG industry. In recent years, there has been a strong supply of natural gas and an increase in the construction of plants and projects involving natural gas, of which LPG is a byproduct. If the supply of natural gas decreases, we may see a concurrent reduction in LPG production and resulting lesser demand and lower charter rates for our vessels and the vessels in the Helios Pool, which could ultimately have a material adverse impact on our revenues, operations and future growth. Additionally, changes in environmental or other legislation establishing additional regulation or restrictions on LPG production and transportation, including the adoption of climate change legislation or regulations, or legislation in the United States placing additional regulation or restrictions on LPG production from shale gas could result in reduced demand for LPG shipping.\u00a0\nA shift in the consumer demand from LPG towards other energy resources such as wind energy, solar energy, or water energy will affect the demand for our LPG carriers. This could have a material adverse effect on our future performance, results of operations, cash flows and financial position.\n44\n\n\nTable of Contents\nSeaborne trading and distribution patterns are primarily influenced by the relative advantage of the various sources of production, locations of consumption, pricing differentials and seasonality. Changes to the trade patterns of LPG may have a significant negative or positive impact on the demand for our vessels. This could have a material adverse effect on our future performance, results of operations, cash flows and financial position.\n\u200b\nThe market values of our vessels may fluctuate significantly. When the market values of our vessels are low, we may incur a loss on sale of a vessel or record an impairment charge, which may adversely affect our earnings and possibly lead to defaults under our loan agreements or under future loan agreements we may enter into.\n\u200b\nVessel values are both cyclical and volatile, and may fluctuate due to a number of different factors, including general economic and market conditions affecting the shipping industry; sophistication and condition of the vessels; types and sizes of vessels; competition from other shipping companies; the availability of other modes of transportation; increases in the supply of vessel capacity; charter rates; the cost and delivery of newbuildings; governmental or other regulations; supply of and demand for LPG; prevailing freight rates; and the need to upgrade secondhand and previously owned vessels as a result of charterer requirements, technological advances in vessel design, equipment propulsion, overall vessel efficiency, or otherwise. In addition, as vessels grow older, they generally decline in value.\n\u200b\nDue to the cyclical nature of the market, if for any reason we sell any of our owned vessels at a time when prices are depressed and before we have recorded an impairment adjustment to our financial statements, the sale may be for less than the vessel's carrying value in our financial statements, resulting in a loss and reduction in earnings. Furthermore, if vessel values experience significant declines and our estimated future cash flows decrease, we may have to record an impairment adjustment in our financial statements, which could adversely affect our financial results. If the market value of our fleet declines, we may not be in compliance with certain provisions of our loan agreements and we may not be able to refinance our debt or obtain additional financing or pay dividends, if any. If we are unable to pledge additional collateral, our lenders could accelerate our debt and foreclose on our vessels.\n\u200b\nThe IMO 2020 regulations have and may continue to cause us to incur substantial costs and to procure low-sulfur fuel oil directly on the wholesale market for storage at sea and onward consumption on our vessels. \n\u200b\nEffective January 1, 2020, the IMO implemented a new regulation for a 0.50% global sulfur cap on emissions from vessels (the \u201cIMO 2020 Regulations\u201d). Under this new global cap, vessels must use marine fuels with a sulfur content of no more than 0.50% against the former regulations specifying a maximum of 3.50% sulfur in an effort to reduce the emission of sulfur oxide into the atmosphere.\n\u200b\nWe have and may continue to incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require, among others, the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.\n\u200b\nCurrently, twelve of our technically-managed vessels are equipped with scrubbers and, since January 1, 2020, we have transitioned to burning IMO compliant fuels for our non-scrubber equipped vessels. Since the implementation of the IMO 2020 Regulations, scrubber-equipped vessels have been permitted to consume high-sulfur fuels instead of low-sulfur fuels. A decrease in the difference in the costs between low-sulfur fuel and high-sulfur fuel or unavailability of high-sulfur fuel at ports on certain trading routes, may cause us to fail to recognize benefits of operating scrubbers. \n\u200b\nFuel is a significant expense in our shipping operations when vessels are under voyage charter and is an important factor in negotiating charter rates. Our operations and the performance of our vessels, and as a result our results of operations, face a host of challenges. These include concerns over higher costs, international compliance, and the availability of both high and low-sulfur fuels at key international bunkering hubs such as Singapore, Houston, Fujairah, or Rotterdam. In addition, we are taking seriously concerns which have recently arisen in Europe that certain blends of low-sulfur fuels can emit greater amounts of harmful black carbon than the high-sulfur fuels they are meant to replace. Costs of compliance with these and other related regulatory changes may be significant and may have a material adverse effect on our future performance, results of operations, cash flows and financial position. As a result, an increase in the price of fuel beyond our expectations may adversely affect our profitability. \n\u200b\n45\n\n\nTable of Contents\nWhile we carry insurance to protect us against certain risks of loss of or damage to the procured commodities, we may not be adequately insured to cover any losses from such operational risks, which could have a material adverse effect on us. Any significant uninsured or under-insured loss or liability could have a material adverse effect on our business, results of operations, cash flows and financial condition and our available cash.\n\u200b\nIncreasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our Environmental, Social and Governance (\u201cESG\u201d) policies may impose additional costs on us or expose us to additional risks .\nCompanies across all industries are facing increasing scrutiny relating to their ESG policies. Investor advocacy groups, certain institutional investors, investment funds, lenders and other market participants are increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. \n\u200b\nIn February 2021, the Acting Chair of the SEC issued a statement directing the Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings and in March 2021 the SEC announced the creation of a Climate and ESG Task Force in the Division of Enforcement (the \u201cTask Force\u201d). The Task Force\u2019s goal is to develop initiatives to proactively identify ESG-related misconduct consistent with increased investor reliance on climate and ESG-related disclosure and investment. To implement the Task Force\u2019s purpose, the SEC has taken several enforcement actions, with the first enforcement action taking place in May 2022, and promulgated new rules. On March 21, 2022, the SEC proposed that all public companies are to include extensive climate-related information in their SEC filings. On May 25, 2022, SEC proposed a second set of rules aiming to curb the practice of \"greenwashing\" (i.e., making unfounded claims about one's ESG efforts) and would add proposed amendments to rules and reporting forms that apply to registered investment companies and advisers, advisers exempt from registration, and business development companies. These proposed sets of rules are not effective as of the date of this annual report.\n\u200b\nThe increased focus and activism related to ESG and similar matters may hinder access to capital, as investors and lenders may decide to reallocate capital or to not commit capital as a result of their assessment of a company\u2019s ESG practices. Companies which do not adapt to or comply with investor, lender or other industry shareholder expectations and standards, which are evolving, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and the business, financial condition, and/or stock price of such a company could be materially and adversely affected. For more information with respect to our ESG efforts, please see Item 1. Business\u2014Our Environmental, Social and Governance Efforts.\n\u200b\nWe may face increasing pressures from investors, lenders and other market participants, who are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability. As a result, we may be required to implement more stringent ESG procedures or standards so that our existing and future investors and lenders remain invested in us and make further investments in us, especially given the highly focused and specific trade of LPG transportation in which we are engaged. Such ESG corporate transformation calls for an increased resource allocation to serve the necessary changes in that sector, increasing costs and capital expenditure. If we do not meet these standards, our business and/or our ability to access capital could be harmed. In connection with the 2022 Debt Facility, the margin applicable to certain new facilities (the \u201cNew Facilities\u201d) may be adjusted by up to ten (10) basis points (upwards or downwards) per annum for changes in the average efficiency ratio (\u201cAER\u201d) (which weighs carbon emissions for a voyage against the design deadweight of a vessel and the distance travelled on such voyage) for the vessels in our fleet that are owned or technically managed pursuant to a bareboat charter. \n\u200b\nAdditionally, certain investors and lenders may exclude fossil fuel transport companies, such as us, from their investing portfolios altogether due to environmental, social and governance factors. These limitations in both the debt and equity capital markets may affect our ability to grow as our plans for growth may include accessing the equity and debt capital markets. If those markets are unavailable, or if we are unable to access alternative means of financing on acceptable terms, or at all, we may be unable to implement our business strategy, which would have a material adverse effect on our financial condition and results of operations and impair our ability to service our indebtedness. Further, it is likely that we will incur additional costs and require additional resources to monitor, report and comply with wide-ranging ESG requirements. \n46\n\n\nTable of Contents\n\u200b\nFinally, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with fossil fuel-related assets could lead to increased negative investor sentiment toward us and our industry and to the diversion of investment to other, non-fossil fuel markets, which could have a negative impact on our access to and costs of capital. The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition. \n\u200b\nGeneral economic, political and regulatory conditions could materially adversely affect our business, financial position and results of operations, as well as our future prospects. \n\u200b\nThe global economy remains subject to downside risks, including substantial sovereign debt burdens in countries throughout the world, the United Kingdom\u2019s exit from the EU, or \u201cBrexit\u201d (as described more fully below), continuing turmoil and hostilities in the Middle East, Afghanistan and other geographic areas and the refugee crisis in Europe and the Middle East. There has historically been a strong link between the development of the world economy and demand for LPG shipping. Accordingly, an extended negative outlook for the world economy could reduce the overall demand for our services. More specifically, LPG is used as a feedstock in cyclical businesses, such as the manufacturing of plastics and in the petrochemical industry, which were adversely affected by the economic downturn and, accordingly, continued weakness and any further reduction in demand in those industries could adversely affect the LPG shipping industry. In particular, an adverse change in economic conditions affecting China, India, Japan or Southeast Asia generally could have a negative effect on the demand for LPG, thereby adversely affecting our business, financial position and results of operations, as well as our future prospects. Additionally, Brexit, or similar events in other jurisdictions, could impact global markets, including foreign exchange and securities markets; any resulting changes in currency exchange rates, tariffs, treaties and other regulatory matters could in turn adversely impact our business and operations.\n\u200b\nThe global economy faces a number of challenges, including the effects of volatile oil prices, trade tensions between the United States and China and between the United States and the European Union, continuing turmoil and hostilities in the Middle East, the Korean Peninsula, North Africa, Venezuela, and other geographic areas and countries, including the recent conflict between Russia and Ukraine, continuing threat of terrorist attacks around the world, continuing instability and conflicts and other recent occurrences in the Middle East and in other geographic areas and countries, continuing economic weakness in the European Union, or the E.U., and stabilizing growth in China, as well as public health concerns stemming from the COVID-19 outbreak. The demand for energy, including oil and gas may be negatively affected by global economic conditions.\n\u200b\nRussia\u2019s invasion of Ukraine has disrupted supply chains and caused instability in the global economy, and the United States and the European Union, among other countries, announced sanctions against the Russian government and its supporters. The United States Department of the Treasury\u2019s Office of Foreign Assets Control administers and enforces multiple authorities under which sanctions have been imposed on Russia, including: the Russian Harmful Foreign Activities sanctions program, established by the Russia-related national emergency declared in Executive Order (E.O.) 14024 and subsequently expanded and addressed through certain additional authorities, and the Ukraine-/Russia-related sanctions program, established with the Ukraine-related national emergency declared in E.O. 13660 and subsequently expanded and addressed through certain additional authorities. The United States has also issued several Executive Orders that prohibit certain transactions related to Russia. For example, on March 8, 2022, President Biden issued E.O. 14066, which prohibits the import into the United States of certain energy products of Russian Federation origin, including: crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products Additionally, among other restrictions, E.O. 14066 prohibits any investments in the Russian energy sector by U.S. persons. The nature and extent of the restricted transactions contained in E.O. 14066 was subsequently expanded by E.O. 14068, signed March 11, 2022 (prohibiting the importation of a wide range of products from Russia and imposing export sanctions on certain luxury goods) and E.O. 14071 (prohibiting all new investment in the Russian Federation by US persons and prohibiting the provision of certain services to any person located in the Russian Federation as determined by the Secretary of the Treasury), and the ongoing conflict could result in the imposition of further economic sanctions or new categories of export restrictions against persons in or connected to Russia.\n\u200b\n47\n\n\nTable of Contents\nOur ability to secure funding is dependent on well-functioning capital markets and on an appetite to provide funding to the shipping industry. If global economic conditions continue to worsen, or if capital markets related financing is rendered less accessible or made unavailable to the shipping industry or if lenders for any reason decide not to provide debt financing to us, we may, among other things not be able to secure additional financing to the extent required, on acceptable terms or at all. If additional financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due, or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.\n\u200b\nCredit markets in the United States and Europe have in the past experienced significant contraction, de-leveraging and reduced liquidity, and there is a risk that the U.S. federal government and state governments and European authorities continue to implement a broad variety of governmental action and/or new regulation of the financial markets. Global financial markets and economic conditions have been, and continue to be, disrupted and volatile. We face risks attendant to changes in economic environments, changes in interest rates, and instability in the banking and securities markets around the world, among other factors. Major market disruptions may adversely affect our business or impair our ability to borrow amounts under our credit facilities or any future financial arrangements. In the absence of available financing, we also may be unable to take advantage of business opportunities or respond to competitive pressures. \n\u200b\nWe face risks attendant to changes in economic environments, changes in interest rates, and instability in the banking and securities markets around the world, among other factors. We cannot predict how long the current market conditions will last. However, these recent and developing economic and governmental factors, may have negative effects on charter rates and vessel values, which could in turn have a material adverse effect on our results of operations and financial condition and may cause the price of our ordinary shares to decline.\n\u200b\nIn Europe, large sovereign debts and fiscal deficits, low growth prospects and high unemployment rates in a number of countries have contributed to the rise of Eurosceptic parties, which would like their countries to leave the European Union. The exit of the United Kingdom, or the U.K., from the European Union, or the EU, as described more fully below and potential new trade policies in the United States further increase the risk of additional trade protectionism.\n\u200b\nIn recent history, China has had one of the world's fastest growing economies in terms of gross domestic product, or GDP, which had a significant impact on shipping demand. Following the emergence of the COVID-19, China experienced reduced industrial activity with temporary closures of factories and other facilities, labor shortages and restrictions on travel as part of its \u201czero tolerance\u201d policy. In 2022, various regions in China experienced additional waves of COVID-19 outbreaks for which the government chose to reinstate lockdown measures. As a result, China\u2019s 2022 GDP growth target of around 5.5% was missed as the country\u2019s GDP grew by 3%. Towards the end of 2022, the Chinese government began its pivot from its restrictive COVID policies and during the first quarter of 2023 China abandoned its \u201czero tolerance\u201d policy and began to reopen. For 2023, the Chinese government has established a GDP growth target of around 5% while implementing various stimulus measures and pro-growth policies. However, the outlook for China and any impact on the global economy is uncertain, and our financial condition and results of operations, as well as our future prospects, could be impeded by an economic downturn in China.\n\u200b\nGovernments may also turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. In particular, leaders in the \u00a0United States have indicated the United States may seek to implement more protective trade measures. There is significant uncertainty about the future relationship between the United States, China, and other exporting countries, including with respect to trade policies, treaties, government regulations, and tariffs. Protectionist developments, or the perception that they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade. Moreover, increasing trade protectionism may cause an increase in (i) the cost of goods exported from regions globally, particularly from the Asia-Pacific region, (ii) the length of time required to transport commodities and (iii) the risks associated with exporting commodities. A decrease in the level of imports to and exports from China could adversely affect our business, operating results and financial condition.\n\u200b\nProspective investors should consider the potential impact, uncertainty and risk associated with the development in the wider global economy. Further economic downturn in any of these countries could have a material effect on our future performance, results of operations, cash flows and financial position.\n48\n\n\nTable of Contents\nOur business may be affected by macroeconomic conditions, including rising inflation, higher interest rates, market volatility, economic uncertainty, and global supply chain constraints.\n\u200b\nVarious macroeconomic factors, including rising inflation, higher interest rates, global supply chain constraints, and the effects of overall economic conditions and uncertainties such as those resulting from the current and future conditions in the global financial markets, could adversely affect our results of operations and financial condition. Significant increases in inflation and interest rates may negatively impact us by increasing our operating costs and our cost of borrowing. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the operation of our business and our ability to raise capital on favorable terms, or at all.\n\u200b\nThe state of global financial markets and general economic conditions, as well as the perceived impact of emissions\nby our vessels on the climate may adversely impact our ability to obtain financing or refinance our credit facility on acceptable terms, which may hinder or prevent us from operating or expanding our business.\n\u200b\nGlobal financial markets and economic conditions have been, and continue to be, volatile, which might adversely impact our ability to issue additional equity at prices that will not be dilutive to our existing shareholders or preclude us from issuing equity at all. Economic conditions may also adversely affect the market price of our common shares.\n\u200b\nAlso, as a result of concerns about the stability of financial markets generally, and the solvency of counterparties specifically, the availability and cost of obtaining money from the public and private equity and debt markets has become more difficult. Many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt, and reduced, and in some cases ceased, to provide funding to borrowers and other market participants, including equity and debt investors, and some have been unwilling to invest on attractive terms or even at all. Due to these factors, we cannot be certain that financing will be available if needed and to the extent required, or that we will be able to refinance our existing and future credit facilities, on acceptable terms or at all. If financing or refinancing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.\n\u200b\nIn 2019, a number of leading lenders to the shipping industry and other industry participants announced a global framework by which financial institutions can assess the climate alignment of their ship finance portfolios, called the Poseidon Principles, and additional lenders have subsequently announced their intention to adhere to such principles. If the ships in our fleet are deemed not to satisfy the emissions and other sustainability standards contemplated by the Poseidon Principles, the availability and cost of bank financing for such vessels may be adversely affected. \n\u200b\nOur operating results are subject to seasonal fluctuations, which could affect our operating results and the amount of available cash with which we can pay dividends or repurchase our common stock . \n\u200b\nLiquefied gases are primarily used for industrial and domestic heating, as a chemical and refinery feedstock, as a transportation fuel and in agriculture. The LPG shipping market historically has been stronger in the spring and summer months in anticipation of increased consumption of propane and butane for heating during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and the supply of certain commodities. Demand for our vessels therefore may be stronger in the quarters ending June 30 and September 30 and relatively weaker during the quarters ending December 31 and March 31, although 12-month time charter rates tend to smooth these short-term fluctuations and recent LPG shipping market activity has not yielded the expected seasonal results. The increase in petrochemical industry buying has contributed to less marked seasonality than in the past, but there can no guarantee that this trend will continue. To the extent any of our time charters expire during the typically weaker fiscal quarters ending December 31 and March 31, it may not be possible to re-charter our vessels at similar rates. As a result, we may have to accept lower rates or experience off-hire time for our vessels, which may adversely impact our business, financial condition and operating results.\n\u200b\n49\n\n\nTable of Contents\nFuture technological innovation could reduce our charter hire income and the value of our vessels.\n\u200b\nThe charter hire rates and the value and operational life of a vessel are determined by a number of factors including the vessel's efficiency, operational flexibility and physical life. Efficiency includes speed, fuel type and economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel's physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. We believe that our fleet is among the youngest and most eco\n-\nfriendly fleet of all our competitors. However, if new LPG carriers are built that are more efficient and environmentally friendly or more flexible or have longer physical lives than our vessels, competition from these more technologically advanced vessels could adversely affect the amount of charter hire payments we receive for our vessels and the resale value of our vessels could significantly decrease. Similarly, if the vessels of the other participants in the Helios Pool fleet become outdated, the amount of charter hire payments to the Helios Pool may be adversely affected. As a result of the foregoing, our results of operations and financial condition could be adversely affected. \n\u200b\nChanges in fuel, or bunker, prices may adversely affect profits.\n\u200b\nWhile we do not bear the cost of fuel, or bunkers, under time charters, including for our vessels employed on time charters through the Helios Pool, fuel is a significant expense in our shipping operations when vessels are off-hire or deployed under spot charters. The cost of fuel can also be an important factor considered by charterers in negotiating charter rates. Therefore, changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. \n\u200b\nFurthermore, fuel may become significantly more expensive in the future, which may reduce our profitability. In addition, the entry into force, on January 1, 2020, of the 0.5% global sulfur cap in marine fuels used by vessels that are not equipped with sulfur oxide (\u201cSOx\u201d) exhaust gas cleaning systems (\u201cscrubbers\u201d) under the International Convention for Prevention of Pollution from Ships (\u201cMARPOL\u201d) Annex VI may lead to changes in the production quantities and prices of different grades of marine fuel by refineries and introduces an additional element of uncertainty in fuel markets, which could result in additional costs and adversely affect our cash flows, earnings and results from operations.\n\u200b\nWe are subject to regulations and liabilities, including environmental laws, which could require significant expenditures and adversely affect our financial conditions and results of operations. \n\u200b\nOur business and the operation of our VLGCs are subject to complex laws and regulations and materially affected by government regulation, including environmental regulations in the form of international conventions and national, state and local laws and regulations in force in the jurisdictions in which our corporate offices are located, as well as in the country or countries in which the vessels operate, as well as in the respective country of their registration.\n\u200b\nThese regulations include, but are not limited to US-OPA 90, which establishes an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills and applies to any discharges of oil from a vessel, including discharges of fuel oil and lubricants, the CAA, the CWA, and requirements of the USCG and the EPA, and the MTSA, and regulations of the IMO, including MARPOL, the Bunker Convention, the IMO International Convention of Load Lines of 1966, as from time to time amended, and the SOLAS Convention. To comply with these and other regulations we may be required to incur additional costs to modify our vessels, meet new operating maintenance and inspection requirements, develop contingency plans for potential spills, and obtain insurance coverage. We are also required by various governmental and quasi-governmental agencies to obtain permits, licenses, certificates and financial assurances with respect to our corporate and ships\u2019 operations. These permits, licenses, certificates and financial assurances may be issued or renewed with terms that could materially and adversely affect our operations. Because these laws and regulations are often revised, we cannot predict the ultimate cost of complying with them or the impact they may have on the resale prices or useful lives of our vessels. However, a failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Additional laws and regulations may be adopted which could limit our ability to do business or increase the cost of our \n50\n\n\nTable of Contents\ndoing business and which could materially adversely affect our operations. For example, a future serious incident, such as the April 2010 Deepwater Horizon oil spill in the Gulf of Mexico, may result in new regulatory initiatives.\n \n\u200b\nThe operation of our vessels is affected by the requirements set forth in the ISM Code. The ISM Code requires ship owners and bareboat charterers to develop and maintain an extensive \u201cSafety Management System\u201d that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a ship owner or bareboat charterer to comply with the ISM Code may subject the owner or charterer to increased liability, may decrease available insurance coverage for the affected vessels, or may result in a denial of access to, or detention in, certain ports. Non-compliance with the ISM Code may result in breach of our loan covenants. Currently, each of the vessels in our fleet is ISM Code certified. Because these certifications are critical to our business, we place a high priority on maintaining them. Nonetheless, there is the possibility that such certifications may not be renewed.\n\u200b\nWe currently maintain, for each of our vessels, pollution liability insurance coverage in the amount of $1.0 billion per incident. In addition, we carry hull and machinery and protection and indemnity insurance to cover the risks of fire and explosion. Under certain circumstances, fire and explosion could result in a catastrophic loss. We believe that our present insurance coverage is adequate, but not all risks can be insured, and there is the possibility that any specific claim may not be paid, or that we will not always be able to obtain adequate insurance coverage at reasonable rates. If the damages from a catastrophic spill exceeded our insurance coverage, the effect on our business would be severe and could possibly result in our insolvency.\n\u200b\nRecent action by the IMO\u2019s Maritime Safety Committee and United States agencies indicates that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, by IMO resolution, administrations are encouraged to ensure that cyber-risk management systems are incorporated by ship-owners and managers by their first annual Document of Compliance audit after January 1, 2021. This might cause companies to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. However, the impact of such regulations is hard to predict at this time.\n\u200b\nThe IMO has imposed updated guidelines for ballast water management systems specifying the maximum amount of viable organisms allowed to be discharged from a vessel\u2019s ballast water. Depending on the date of the IOPP renewal survey, existing vessels constructed before September 8, 2017 must comply with the updated D-2 standard on or after September 8, 2019. For most vessels, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ships constructed on or after September 8, 2017 are to comply with the D-2 standards on or after September 8, 2017. All of our VLGCs are in compliance with the updated guidelines.\n\u200b\nFurthermore, United States regulations are currently changing. Although the 2013 Vessel General Permit VGP program and NISA are currently in effect to regulate ballast discharge, exchange and installation, the Vessel Incidental Discharge Act VIDA, which was signed into law on December 4, 2018, requires that the EPA develop national standards of performance for approximately 30 discharges, similar to those found in the VGP within two years. On October 26, 2020, the EPA published a Notice of Proposed Rulemaking for Vessel Incidental Discharge National Standards of Performance under VIDA. Within two years after the EPA publishes its final Vessel Incidental Discharge National Standards of Performance, the U.S. Coast Guard must develop corresponding implementation, compliance and enforcement regulations regarding ballast water. The new regulations could require the installation of new equipment, which may cause us to incur substantial costs.\n\u200b\nWe believe that regulation of the shipping industry will continue to become more stringent and compliance with such new regulations will be more expensive for us and our competitors. Substantial violations of applicable requirements or a catastrophic release from one of our vessels could have a material adverse impact on our financial condition and results of operations.\n\u200b\n51\n\n\nTable of Contents\nClimate change and greenhouse gas restrictions may adversely impact our operations and markets.\nDue to concern over the risk of climate change, a number of countries and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures may include, among others, adoption of cap and trade regimes, carbon taxes, increased efficiency standards, and incentives or mandates for renewable energy. Compliance with changes in laws, regulations and obligations relating to climate change could increase our costs related to operating and maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions, or administer and manage a greenhouse gas emissions program. Revenue generation and strategic growth opportunities could also be adversely affected by compliance with such changes. Additionally, increased regulation of greenhouse gas emissions may incentivize use of alternative energy sources. Unless and until such regulations are implemented and their effects are known, we cannot reasonably or reliably estimate their impact on our financial condition, results of operations and ability to compete. However, any long-term material adverse effect on the LPG industry may adversely affect our financial condition, results of operations and cash flows.\n\u200b\nWe operate globally, including in countries, states and regions where our businesses, and the activities of our consumer customers, could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to us and our customers, with the risks expected to increase over time. Climate risks can arise from physical risks (acute or chronic risks related to the physical effects of climate change) and transition risks (risks related to regulatory and legal, technological, market and reputational changes from a transition to a low-carbon economy). Physical risks could damage or destroy our or our customers\u2019 and clients\u2019 properties and other assets and disrupt our or their operations. For example, climate change may lead to more extreme weather events occurring more often which may result in physical damage and additional volatility within our business operations and potential counterparty exposures and other financial risks. Transition risks may result in changes in regulations or market preferences, which in turn could have negative impacts on our results of operation or the reputation of us and our customers. For example, carbon-intensive industries like LPG are exposed to climate risks, such as those risks related to the transition to a low-carbon economy, as well as low-carbon industries that may be subject to risks associated with new technologies. Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs.\n\u200b\nIf our vessels call on ports located in countries or territories that are subject to sanctions or embargoes imposed by the United States or other authorities, it could lead to monetary fines or penalties and/or adversely affect our reputation and the market for our common shares. \n\u200b\nNone of our vessels have called on ports located in countries or territories subject to country-wide or territory-wide sanctions and/or embargoes imposed by the U.S. government or other applicable governmental authorities (\u201cSanctioned Jurisdictions\u201d) in violation of applicable sanctions laws. Although we do not expect that our vessels will call on ports located in Sanctioned Jurisdictions and we endeavor to take precautions reasonably designed to mitigate such activities, including relevant trade exclusion clauses in our charter contracts forbidding the use of our vessels in trade that would be in violation economic sanctions, it is possible that on charterers\u2019 instructions, and without our consent, our vessels may call on ports located in such countries or territories in the future. If such activities result in a sanctions violation, we could be subject to monetary fines, penalties, or other sanctions, and our reputation and the market for our common shares could be adversely affected. \n\u200b\nThe laws and regulations imposed by the United States and other governmental jurisdictions vary in their application, and do not all apply to the same covered persons or proscribe the same activities. In addition, the sanctions and embargo laws and regulations of each jurisdiction may be amended to increase or reduce the restrictions they impose over time, and the lists of persons and entities designated under these laws and regulations are amended frequently. Moreover, most sanctions regimes provide that entities owned or controlled by the persons or entities designated in such lists are also subject to sanctions. The United States and EU both have enacted new sanctions programs in recent years. Additional countries or territories, as well as additional persons or entities within or affiliated with those countries or territories, have, and in the future will, become the target of sanctions. These require us to be diligent in ensuring our compliance with sanctions laws. Further, the United States has increased its focus on sanctions enforcement with respect to the shipping sector. Current or future counterparties of ours may be or become affiliated with persons or entities that \n52\n\n\nTable of Contents\nare now or may in the future be the subject of sanctions imposed by the United States Government, the European Union, and/or other international bodies. If we determine that such sanctions or embargoes require us to terminate existing or future contracts to which we or our subsidiaries are party or if we are found to be in violation of such applicable sanctions or embargoes, we could face monetary fines, we may suffer reputational harm and our results of operations may be adversely affected. \n\u200b\nAs a result of Russia\u2019s actions in Ukraine, the United States, EU and United Kingdom, together with numerous other countries, have imposed significant sanctions on persons and entities associated with Russia and Belarus, as well as comprehensive sanctions on certain areas within the Donbas region of Ukraine, and such sanctions apply to entities owned or controlled by such designated persons or entities. These sanctions adversely affect our ability to operate in the region and also restrict parties whose cargo we may carry. Sanctions against Russia have also placed significant prohibitions on the maritime transportation of seaborne Russian oil, the importation of certain Russian energy products and other goods, and new investments in the Russian Federation. These sanctions further limit the scope of permissible operations and cargo we may carry.\n\u200b\nBeginning in February of 2022, President Biden and several European leaders announced various economic sanctions against Russia in connection with Russia\u2019s invasion of Ukraine, which may adversely impact our business, given Russia\u2019s role as a major global exporter of crude oil and natural gas. Both the EU as well as the United States have implemented sanction programs, which includes prohibitions on the import of certain Russian energy products into the United States, including crude oil, petroleum, petroleum fuels, oils, liquefied natural gas and coal, as well as prohibitions on new investments in Russia, among other restrictions. Furthermore, the EU and the United States have also prohibited a variety of specified services related to the maritime transport of Russian Federation origin crude oil and petroleum products, including trading/commodities brokering, financing, shipping, insurance (including reinsurance and protection and indemnity), flagging, and customs brokering. These prohibitions took effect on December 5, 2022 with respect to the maritime transport of crude oil and took effect on February 5, 2023 with respect to the maritime transport of other petroleum products. An exception exists to permit such services when the price of the seaborne Russian oil does not exceed the relevant price cap; but implementation of this price exception relies on a recordkeeping and attestation process that allows each party in the supply chain of seaborne Russian oil to demonstrate or confirm that oil has been purchased at or below the price cap. Violations of the price cap policy or the risk that information, documentation, or attestations provided by parties in the supply chain are later determined to be false may pose additional risks adversely affecting our business.\n\u200b\nAlthough we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations in 2022, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in reputational damages, fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. \n\u200b\nOur vessels are subject to periodic inspections.\n\u200b\nThe hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and SOLAS. Most insurance underwriters make it a condition for insurance coverage and lending that a vessel be certified \u201cin class\u201d by a classification society which is a member of the International Association of Classification Societies, the IACS. The IACS has adopted harmonized Common Structural Rules, or \u201cthe Rules,\u201d which apply to oil tankers and bulk carriers contracted for construction on or after July 1, 2015. The Rules attempt to create a level of consistency between IACS Societies. Our technically-managed VLGCs are currently classed with either Lloyd's Register, ABS or Det Norske Veritas. \n\u200b\nA vessel must undergo annual surveys, intermediate surveys, drydockings, and special surveys. In lieu of a special survey, a vessel's machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Our vessels are on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel is also required to be drydocked every 30 to 36 months for inspection of the underwater parts of such vessel. However, for vessels not exceeding 15 years that have means to facilitate underwater \n53\n\n\nTable of Contents\ninspection in lieu of drydocking, the drydocking can be skipped and be conducted concurrently with the special survey. Certain cargo vessels that meet the system requirements set by classification societies may qualify for extended drydocking, which extends the 5-year period to 7.5 years, by replacing certain dry-dockings with in-water surveys.\n\u200b\nOur vessels also undergo inspections with a view towards compliance under the SIRE and USCG requirements, as applicable. If a vessel does not maintain its class and/or fails any annual survey, intermediate survey, dry-docking, or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable, which would cause us to be in violation of covenants in our loan agreements and insurance contracts or other financing arrangements. This would adversely impact our operations and revenues. \n\u200b\nMaritime claimants could arrest our vessels, which could interrupt our cash flow.\n\u200b\nCrew members, suppliers of goods and services to a vessel, shippers of cargo and others may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums of funds to have the arrest lifted.\n\u200b\nIn addition, in some jurisdictions, such as South Africa, under the \"sister ship\" theory of liability, a claimant may arrest both the vessel which is subject to the claimant's maritime lien and any \"associated\" vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert \"sister ship\" liability against one vessel in our fleet for claims relating to another of our ships or, possibly, another vessel managed by one of our shareholders holding more than 5% of our common shares or entities affiliated with them.\n\u200b\nGovernments could requisition our vessels during a period of war or emergency, resulting in loss of revenues.\n\u200b\nThe government of a vessel's registry could requisition for title or seize our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. A government could also requisition our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels could have a material adverse effect on our business, results of operations, cash flows and financial condition.\n\u200b\nThe operation of ocean-going vessels is inherently risky, and an incident resulting in significant loss or environmental consequences involving any of our vessels could harm our reputation and business.\n\u200b\nThe operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, mechanical failures, grounding, fire, explosions, collisions, human error, war, terrorism, piracy, cargo loss, latent defects, acts of God and other circumstances or events. Changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. Damage to the environment could also result from our operations, particularly through spillage of fuel, lubricants or other chemicals and substances used in operations, or extensive uncontrolled fires. These hazards may result in death or injury to persons, loss of revenues or property, environmental damage, higher insurance rates, damage to our customer relationships, market disruptions, delay or rerouting, any of which may also subject us to litigation. As a result, we could be exposed to substantial liabilities not recoverable under our insurances. Further, the involvement of our vessels in a serious accident could harm our reputation as a safe and reliable vessel operator and lead to a loss of business.\nIf our vessels suffer damage, they may need to be repaired at a drydocking facility and in certain instances such damage may result in lost revenues under and in certain cases the termination of the employment contract under which such vessel is operating. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover at all or in full. The loss of earnings while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a \n54\n\n\nTable of Contents\ndrydocking facility that is not conveniently located to our vessels' positions. The loss of earnings while these vessels are forced to wait for space or to travel or be towed to more distant drydocking facilities may adversely affect our business, financial condition, results of operations and cash flows.\n\u200b\nWe may be subject to litigation that could have an adverse effect on our business and financial condition.\n\u200b\nWe are currently not involved in any litigation matters that are expected to have a material adverse effect on our business or financial condition. Nevertheless, we anticipate that we could be involved in litigation matters from time to time in the future. The operating hazards inherent in our business expose us to litigation, including personal injury litigation, environmental litigation, contractual litigation with clients, intellectual property litigation, tax or securities litigation, and maritime lawsuits including the possible arrest of our vessels. We cannot predict with certainty the outcome or effect of any claim or other litigation matter. Any future litigation may have an adverse effect on our business, financial position, results of operations and our ability to pay dividends, because of potential negative outcomes, the costs associated with prosecuting or defending such lawsuits, and the diversion of management's attention to these matters. Additionally, our insurance may not be applicable or sufficient to cover the related costs in all cases or our insurers may not remain solvent.\n\u200b\nActs of piracy on ocean\n-\ngoing vessels could adversely affect our business.\n\u200b\nActs of piracy have historically affected ocean-going vessels. At present, most piracy and armed robbery incidents are recurrent in the Gulf of Aden region off the coast of Somalia, South China Sea, Sulu Sea and Celebes Sea and in particular the Gulf of Guinea region off Nigeria, which experienced increased incidents of piracy in 2019. Sea piracy incidents continue to occur. If these piracy attacks occur in regions in which our vessels are deployed and are characterized by insurers as \u201cwar risk\u201d zones or Joint War Committee \u201cwar and strikes\u201d listed areas, premiums payable for such coverage, for which we are responsible with respect to vessels employed on spot charters, but not vessels employed on bareboat or time charters, could increase significantly and such insurance coverage may be more difficult to obtain. In addition, costs to employ onboard security guards could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition and results of operations.\n\u200b\nOur operations outside the United States expose us to global risks, such as political instability, terrorism, war, international hostilities and public health concerns, which may interfere with the operation of our vessels and have a material adverse impact on our operating results, revenues and costs.\n\u200b\nWe are an international company and primarily conduct our operations outside the United States. Changing economic, political and governmental conditions in the countries where we are engaged in business or where our vessels are registered affect us. In the past, political conflicts have resulted in attacks on vessels or other petroleum-related infrastructures, mining of waterways and other efforts to disrupt shipping. Continuing conflicts, instability and other recent developments in the Middle East and elsewhere, may lead to additional acts of terrorism or armed conflict around the world, and our vessels may face higher risks of being attacked or detained, or shipping routes transited by our vessels, such as the Strait of Hormuz, may be otherwise disrupted. In addition, future hostilities or other political instability in regions where our vessels trade could affect our trade patterns and adversely affect our operations and performance, including the recent conflict between Russia and Ukraine. Recent developments in the Ukraine region and continuing conflicts in the Middle East may lead to additional armed conflicts around the world, which may contribute to further economic instability in the global financial markets and international commerce. Additionally, any escalations between the North Atlantic Treaty Organization countries and Russia could result in retaliation from Russia that could potentially affect the shipping industry. \n\u200b\nIn February of 2022, President Biden and several European leaders also announced various economic sanctions against Russia in connection with the aforementioned conflicts in the Ukraine region, which have continued to expand over the past year and may adversely impact our business, given Russia\u2019s role as a major global exporter of crude oil and natural gas. The Russian Foreign Harmful Activities Sanctions program includes prohibitions on the import of certain Russian energy products into the United States, including crude oil, petroleum, petroleum fuels, oils, liquefied natural gas \n55\n\n\nTable of Contents\nand coal, as well as prohibitions on all new investments in Russia by U.S. persons, among other restrictions. Furthermore, the United States has also prohibited a variety of specified services related to the maritime transport of Russian Federation origin crude oil and petroleum products, including trading/commodities brokering, financing, shipping, insurance (including reinsurance and protection and indemnity), flagging, and customs brokering. These prohibitions took effect on December 5, 2022 with respect to the maritime transport of crude oil and are scheduled to take effect on February 5, 2023 with respect to the maritime transport of other petroleum products. An exception exists to permit such services when the price of the seaborne Russian oil does not exceed the relevant price cap; but implementation of this price exception relies on a recordkeeping and attestation process that allows each party in the supply chain of seaborne Russian oil to demonstrate or confirm that oil has been purchased at or below the price cap. Violations of the price cap policy or the risk that information, documentation, or attestations provided by parties in the supply chain are later determined to be false may pose additional risks adversely affecting our business.\n\u200b\nFurther hostilities in or closure of major waterways in the Middle East, Black Sea, or South China Sea region could adversely affect the availability of and demand for crude oil and petroleum products, as well as LPG, and negatively affect our investment and our customers' investment decisions over an extended period of time. In addition, sanctions against oil exporting countries such as Iran, Russia, Sudan and Syria may also impact the availability of crude oil, petroleum products and LPG would increase the availability of applicable vessels thereby negatively impacting charter rates. \n\u200b\nTerrorist attacks, or the perception that LPG or natural gas facilities or oil refineries and LPG carriers are potential terrorist targets, could materially and adversely affect the continued supply of LPG. Concern that LPG and natural gas facilities may be targeted for attack by terrorists has contributed to a significant community and environmental resistance to the construction of a number of natural gas facilities, primarily in North America. If a terrorist incident involving a gas facility or gas carrier did occur, the incident may adversely affect necessary LPG facilities or natural gas facilities currently in operation. Furthermore, future terrorist attacks could result in increased volatility of the financial markets in the United States and globally and could result in an economic recession in the United States or the world.\n\u200b\nIn addition, public health threats, such as the coronavirus, influenza and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate could adversely impact our operations, and the operations of our customers.\n\u200b\nAny of these occurrences and related consequences could have a material adverse impact on our operating results, revenues and costs.\n\u200b\nRussia\u2019s invasion of Ukraine and resulting sanctions by the United States, European Union and other countries have contributed to inflation, market disruptions and increased volatility in commodity prices in the United States and a slowdown in global economic growth.\n\u200b\nOn February 24, 2022, Russian troops began a full-scale military invasion of Ukraine. In response to the attacks on Ukraine, sanctions and other penalties have been levied by the United States, European Union, and other countries and additional sanctions and penalties have been proposed. The invasion by Russia and resulting sanctions have had a broad range of adverse impacts on global business and financial markets some of which have had and may continue to have adverse impacts on our business. These include increased inflation, significant market disruptions and increased volatility in commodity prices such as oil and natural gas. Although the duration and extent of the ongoing military conflict is highly unpredictable, and the magnitude of the potential economic impact is currently unknown, Russian military actions and resulting sanctions could have a negative effect on our financial condition and operating results even though we do not conduct any business directly in Ukraine or Russia.\n\u200b\nOutbreaks of epidemic and pandemic diseases, such as COVID-19, and governmental responses thereto could adversely affect our business.\n\u200b\nOur operations are subject to risks related to pandemics, epidemics or other infectious disease outbreaks, including COVID-19, which was initially declared a pandemic by the World Health Organization (\u201cWHO\u201d) on March 11, 2020 and was declared no longer a global health emergency on May 5, 2023. Government efforts to combat the COVID-\n56\n\n\nTable of Contents\n19 pandemic, including the enactment or imposition of travel bans, quarantines and other emergency public health measures, have negatively affected economic conditions, supply chains, labor markets, demand for certain shipped goods both regionally and globally, and have also negatively impacted and may continue to impact our operations and the operations of our customers and suppliers. Although demand for shipping and transportation services continued to rebound during 2022 as restrictive public health measures were substantially curtailed or eliminated, we still experienced increases in crew wages and related costs, particularly in crew travel and medical costs and certain spares and stores and associated transport costs due to COVID-19. Further, although the WHO declared the pandemic was no longer a public health emergency on May 5, 2023, future developments regarding the COVID-19 pandemic or other public health emergencies, and their impact on the global economy the oil and natural gas transportation industry remain highly uncertain.\n\u200b\nThe extent to which our business, results of operations and financial condition may be negatively affected by COVID-19 or future pandemics, epidemics or other outbreaks of infectious diseases is highly uncertain and will depend on numerous evolving factors that we cannot predict, including, but not limited to (i) the duration and severity of the infectious disease outbreak; (ii) the imposition of restrictive measures to combat the outbreak and slow disease transmission; (iii) the introduction of financial support measures to reduce the impact of the outbreak on the economy; (iv) volatility in the demand for and price of oil and gas; (v) shortages or reductions in the supply of essential goods, services or labor; and (vi) fluctuations in general economic or financial conditions tied to the outbreak, such as a sharp increase in interest rates or reduction in the availability of credit. We cannot predict the effect that an outbreak of a new COVID-19 variant or strain, or any future infectious disease outbreak, pandemic or epidemic may have on our business, results of operations and financial condition, which could be material and adverse.\n\u200b\nOrganizations across industries, including ours, are rightly focusing on their employees\u2019 well-being, whilst making sure that their operations continue undisrupted and at the same time, adapting to the new ways of operating. As such employees are encouraged or even required to operate remotely which significantly increases the risk of cybersecurity attacks, although we take many precautions to mitigate such risks.\n\u200b\nIf labor or other interruptions are not resolved in a timely manner, such interruptions could have a material adverse effect on our financial condition.\n\u200b\nWe employ masters, officers and crews to man our vessels. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest or any other interruption arising from incidents of whistleblowing whether proven or not, could prevent or hinder our operations from being carried out as we expect and could have a material adverse effect on our business, financial condition, results of operations, and cash flows.\n\u200b\nInformation technology failures and data security breaches, including as a result of cybersecurity attacks, could negatively impact our results of operations and financial condition, subject us to increased operating costs, and expose us to litigation.\n\u200b\nWe rely on our computer systems and network infrastructure across our operations, including on our vessels. Despite our implementation of security and back-up measures, all of our technology systems are vulnerable to damage, disability or failures due to physical theft, fire, power loss, telecommunications failure, operational error, or other catastrophic events. Our technology systems are also subject to cybersecurity attacks including malware, other malicious software, phishing email attacks, attempts to gain unauthorized access to our data, the unauthorized release, corruption or loss of our data, loss or damage to our data delivery systems, and other electronic security breaches. In addition, as we continue to grow the volume of transactions in our businesses, our existing IT systems infrastructure, applications and related functionality may be unable to effectively support a larger scale operation, which can cause the information being processed to be unreliable and impact our decision-making or damage our reputation with customers.\n\u200b\nDespite our efforts to ensure the integrity of our systems and prevent future cybersecurity attacks, it is possible that our business, financial and other systems could be compromised, especially because such attacks can originate from a wide variety of sources including persons involved in organized crime or associated with external service providers. Those parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or use electronic means to induce the company to enter into fraudulent transactions. A successful cyber-attack could materially disrupt our operations, including the safety of our \n57\n\n\nTable of Contents\nvessel operations. Past and future occurrences of such attacks could damage our reputation and our ability to conduct our business, impact our credit and risk exposure decisions, cause us to lose customers or revenues, subject us to litigation and require us to incur significant expense to address and remediate or otherwise resolve these issues, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.\n\u200b\nFurther, data protection laws apply to us in certain countries in which we do business. Specifically, the EU General Data Protection Regulation, or GDPR, which was applicable beginning May 2018, increases penalties up to a maximum of 4% of global annual turnover for breach of the regulation. The GDPR requires mandatory breach notification, the standard for which is also followed outside the EU (particularly in Asia). Non-compliance with data protection laws could expose us to regulatory investigations, which could result in fines and penalties. In addition to imposing fines, regulators may also issue orders to stop processing personal data, which could disrupt operations. We could also be subject to litigation from persons or corporations allegedly affected by data protection violations. Violation of data protection laws is a criminal offence in some countries, and individuals can be imprisoned or fined. Any violation of these laws or harm to our reputation could have a material adverse effect on our earnings, cash flows and financial condition.\n\u200b\nMoreover, cyber-attacks against the Ukrainian government and other countries in the region have been reported in connection with the recent conflict between Russia and Ukraine. To the extent such attacks have collateral effects on global critical infrastructure or financial institutions, such developments could adversely affect our business, operating results and financial condition. At this time, it is difficult to assess the likelihood of such a threat and any potential impact at this time.\n\u200b\nA cyber-attack could materially disrupt our business.\n\u200b\nOur business operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration of information on our systems. Any such attack or other breach of our information technology systems could have a material adverse effect on our business, financial condition, results of operations and cash flows.\n\u200b\nRisks Relating to Our Common Shares\n\u200b\nThe price of our common shares has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result, investors in our common shares could incur substantial losses.\n\u200b\nOur stock price has fluctuated in the past, has recently been volatile and may be volatile in the future without any discernable announcements or developments by the company or third parties to substantiate the movement of our stock price. Our stock prices may experience rapid and substantial decreases or increases in the foreseeable future that are unrelated to our operating performance or prospects. In addition, the ongoing impact of COVID-19 has caused broad stock market and industry fluctuations. The stock market in general and the market for shipping companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience substantial losses on their investment in our common shares. The market price for our common shares may be influenced by many factors, including the following:\n\u200b\n\u25cf\ninvestor reaction to our business strategy;\n\u200b\n\u25cf\nour continued compliance with the listing standards of the NYSE;\n\u200b\n\u25cf\nregulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our industry;\n\u200b\n\u25cf\nvariations in our financial results or those of companies that are perceived to be similar to us;\n\u200b\n\u25cf\nour ability or inability to raise additional capital and the terms on which we raise it;\n\u200b\n58\n\n\nTable of Contents\n\u25cf\ndeclines in the market prices of stocks generally;\n\u200b\n\u25cf\ntrading volume of our common shares;\n\u200b\n\u25cf\nsales of our common shares by us or our stockholders;\n\u200b\n\u25cf\ngeneral economic, industry and market conditions; and\n\u200b\n\u25cf\nother events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics, such as the COVID-19 pandemic, adverse weather and climate conditions could disrupt our operations or result in political or economic instability.\n\u200b\nThese broad market and industry factors may seriously harm the market price of our common shares, regardless of our operating performance, and may be inconsistent with any improvements in actual or expected operating performance, financial condition or other indicators of value. Since the stock price of our common shares has fluctuated in the past, has been recently volatile and may be volatile in the future, investors in our common shares could incur substantial losses. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management\u2019s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects. There can be no guarantee that our stock price will remain at current prices.\n\u200b\nAdditionally, securities of certain companies have experienced significant and extreme volatility in stock price due to short sellers of shares of common shares, known as a \u201cshort squeeze\u201d. These short squeezes have caused extreme volatility in those companies and in the market and have led to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. Many investors who have purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment as the price per share has declined steadily as interest in those stocks have abated. While we have no reason to believe our shares would be the target of a short squeeze, there can be no assurance that we will not be in the future, and you may lose a significant portion or all of your investment if you purchase our shares at a rate that is significantly disconnected from our underlying value.\n\u200b\nAlthough we have initiated a stock repurchase program, we cannot assure you that we will continue to repurchase shares or that we will\u00a0repurchase shares at favorable prices.\n\u200b\nOn February 2, 2022, our Board of Directors authorized the repurchase of up to $100.0\u00a0million of our common shares (the \u201c2022 Common Share Repurchase Authority\u201d). Under the authorization, when in force, purchases may be made at our discretion in the form of open market repurchase programs, privately negotiated transactions, accelerated share repurchase programs or a combination of these methods. The actual amount and timing of share repurchases are subject to capital availability, our determination that share repurchases are in the best interest of our shareholders, and market conditions.\u00a0We are not obligated to make any common share repurchases. As of the date of this Annual Report, we have repurchased 0.1 million aggregate amount of our common shares under the 2022 Common Share Repurchase Authority at an average price of $15.00 per share.\n\u200b\nOur ability to repurchase shares will depend upon, among other factors, our cash balances and potential future capital requirements for strategic investments, our results of operations, our financial condition, and other factors beyond our control that we may deem relevant. A reduction in repurchases, or the completion of our stock repurchase program, could have a negative impact on our stock price. Additionally, price volatility of our common shares over a given period may cause the average price at which we repurchase our common shares to exceed the stock\u2019s market price at a given point in time. Conversely, repurchases of our common shares could also increase the volatility of the trading price of our common shares and will diminish our cash reserves. As such, we can provide no assurance that we will repurchase shares at favorable prices, if at all. See Note 11 to our consolidated financial statements included herein for a discussion of our common share repurchase authorities.\n \n59\n\n\nTable of Contents\nWe paid four irregular dividends in our fiscal year ended March 31, 2023 and have declared one irregular dividend to be paid in our fiscal year ending March 31, 2024, but we may be unable to pay dividends in the future. \n\u200b\nOn May 4, 2022, we announced that our Board of Directors declared an irregular cash dividend of $2.50 per share of our common stock to all shareholders of record as of the close of business on May 16, 2022, totaling $100.3 million. We paid $99.7 million on June 2, 2022 with the remaining $0.6 million deferred until certain shares of restricted stock vest.\n\u200b\nOn August 3, 2022, we announced that our Board of Directors declared an irregular cash dividend of $1.00 per share of the Company\u2019s common stock to all shareholders of record as of the close of business on August 15, 2022, totaling $40.3 million. We paid $40.1 million on September 2, 2022 and the remaining $0.2 million is deferred until certain shares of restricted stock vest.\n\u200b\nOn October 27, 2022, we announced that our Board of Directors declared an irregular cash dividend of $1.00\u00a0per share of the Company\u2019s common stock to all shareholders of record as of the close of business on November 7, 2022, totaling $40.4\u00a0million. We paid $40.1 million on December 6, 2022 and the remaining $0.3 million is deferred until certain shares of restricted stock vest.\n\u200b\nOn February 1, 2023, we announced that our Board of Directors declared an irregular cash dividend of $1.00 per share of the Company\u2019s common stock to all shareholders of record as of the close of business on February 15, 2023, totaling $40.4 million. We paid $40.1 million on February 28, 2023 and the remaining $0.3\u00a0million is deferred until certain shares of restricted stock vest.\n\u200b\nOn April 26, 2023, we announced that our Board of Directors has declared an irregular cash dividend of $1.00 per share of the Company\u2019s common stock to all shareholders of record as of the close of business on May 8, 2023, totaling $40.4 million. We paid $40.1 million on May 22, 2023 and the remaining $0.3\u00a0million is deferred until certain shares of restricted stock vest.\n\u200b\nThese were irregular dividends and may not be indicative of future dividend payments. In general, the terms of our credit facility do not permit us to pay dividends if there is, or the payment of the dividend would result in, an event of default or a breach of a loan covenant.\n\u200b\nWe will evaluate the potential level and timing of any future dividends as profits and cash flows allow. However, the timing and amount of any dividend payments will always be subject to the discretion of our board of directors and will depend on, among other things, earnings, capital expenditure commitments, market prospects, investment opportunities, the provisions of Marshall Islands law affecting the payment of distributions to shareholders, and the terms and restrictions of our \nexisting and future\n \ncredit facilities. The LPG shipping industry is highly volatile, and we cannot predict with certainty the amount of cash, if any, that will be available for distribution as dividends in any period. Also, there may be a high degree of variability from period to period in the amount of cash that is available for the payment of dividends.\n\u200b\nWe may incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends, including as a result of the risks described herein. Our growth strategy contemplates that we will primarily finance our acquisitions of additional vessels through debt financings or the net proceeds of future equity issuances on terms acceptable to us. If financing is not available to us on acceptable terms, our board of directors may determine to finance or refinance acquisitions with cash from operations, which would reduce the amount of any cash available for the payment of dividends.\n\u200b\nThe Republic of Marshall Islands laws also generally prohibit the payment of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend. We may not have sufficient surplus in the future to pay dividends and our subsidiaries may not have sufficient funds or surplus to make distributions to us. We can give no assurance that future dividends will be paid at any level or at all.\n\u200b\n60\n\n\nTable of Contents\nWe are a holding company and depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make dividend payments.\n\u200b\nWe are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. As a result, our ability to satisfy our financial obligations and to pay dividends, if any, to our shareholders depends on the ability of our subsidiaries to generate profits available for distribution to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third party, including a creditor, the terms of our financing arrangements or by the law of its jurisdiction of incorporation which regulates the payment of dividends. \n\u200b\nWe may issue additional shares in the future, which could cause the market price of our common shares to decline.\n\u200b\nWe may issue additional common shares in the future without shareholder approval, in a number of circumstances, including in connection with, among other things, future vessel acquisitions or repayment of outstanding indebtedness. Our issuance of additional shares would have the following effects: our existing shareholders' proportionate ownership interest in us will decrease; the amount of cash available for dividends payable per share may decrease; the relative voting strength of each previously outstanding share may be diminished; and the market price of our shares may decline.\n\u200b\nA future sale of shares by major shareholders may reduce the share price.\n\u200b\nAs of the date of this report and based on information contained in documents publicly filed by John C. Hadjipateras, he beneficially owns an aggregate of 5.5 million common shares, or approximately 13.7% of our outstanding common shares, and two other major shareholders own approximately 20.6% of our outstanding common shares. Sales or the possibility of sales of substantial amounts of our common shares by any of our major shareholders could adversely affect the market price of our common shares.\n\u200b\nWe are incorporated in the Republic of the Marshall Islands, which does not have a well\n-\ndeveloped body of corporate law.\n\u200b\nWe are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate or case law. As a result, shareholders may have fewer rights and protections under Marshall Islands law than under a typical jurisdiction in the United States. Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the law of the Republic of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain United States jurisdictions. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, we cannot predict whether Marshall Islands courts would reach the same conclusions as United States courts. Therefore, our public shareholders may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.\n\u200b\nIt may be difficult to enforce a United States judgment against us, our officers and our directors because we are a foreign corporation.\n\u200b\nWe are incorporated in the Republic of the Marshall Islands and most of our subsidiaries are organized in the Republic of the Marshall Islands. Substantially all of our assets and those of our subsidiaries are located outside the United States. As a result, our shareholders should not assume that courts in the countries in which we or our subsidiaries are incorporated or where our assets or the assets of our subsidiaries are located (1) would enforce judgments of United States courts obtained in actions against us or our subsidiaries based upon the civil liability provisions of applicable United States federal and state securities laws or (2) would enforce, in original actions, liabilities against us or our subsidiaries based upon these laws.\n\u200b\n61\n\n\nTable of Contents\nOur organizational documents contain anti\n-\ntakeover provisions.\n\u200b\nSeveral provisions of our articles of incorporation and our bylaws could make it difficult for our shareholders to change the composition of our board of directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that shareholders may consider favorable. These provisions include:\n\u200b\n\u25cf\nauthorizing our board of directors to issue \u201cblank check\u201d preferred shares without shareholder approval;\n\u200b\n\u25cf\nproviding for a classified board of directors with staggered, three-year terms;\n\u200b\n\u25cf\nauthorizing the removal of directors only for cause;\n\u200b\n\u25cf\nlimiting the persons who may call special meetings of shareholders;\n\u200b\n\u25cf\nestablishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by shareholders at shareholder meetings; and\n\u200b\n\u25cf\nrestricting business combinations with interested shareholders.\n \n\u200b\n\u200b",
+  "item7": ">ITEM 7. \u2003MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. \n\u200b\nYou should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included herein. Among other things, those financial statements include more detailed information regarding the basis of presentation for the following information. The financial statements have been prepared in accordance with U.S. GAAP and are presented in U.S. dollars unless otherwise indicated. The following discussion contains forward\u2011looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under \"Item 1A\u2014Risk Factors,\" \"Forward\n-\nLooking Statements\" and elsewhere in this report, our actual results may differ materially from those anticipated in these forward\u2011looking statements.\n\u200b\nOverview \n\u200b\nWe are a Marshall Islands corporation, headquartered in the United States, focused on owning and operating VLGCs. Our fleet currently consists of twenty-five VLGCs, including one dual-fuel ECO VLGC, nineteen ECO VLGCs, one modern VLGC, and four time chartered-in VLGCs. \n\u200b\nOur dual-fuel ECO VLGC was delivered to us in March 2023. Our nineteen ECO VLGCs, which incorporate fuel efficiency and emission-reducing technologies and certain custom features, were acquired by us for an aggregate purchase price of $1.4 billion and delivered to us between July 2014 and February 2016, seventeen of which were delivered \n65\n\n\nTable of Contents\nduring calendar year 2015 or later and twelve are scrubber-equipped. Two of our four time chartered-in VLGCs are dual-fuel Panamax design and one of the time chartered-in VLGCs is scrubber-equipped.\n\u200b\nOn April 1, 2015, Dorian and Phoenix began operations of the Helios Pool, which entered into pool participation agreements for the purpose of establishing and operating, as charterer, under a variable rate time charter to be entered into with owners or disponent owners of VLGCs, a commercial pool of VLGCs whereby revenues and expenses are shared. The vessels entered into the Helios Pool may operate either in the spot market, pursuant to COAs or on time charters of two years' duration or less. \nAs of May 25, 2023, \ntwenty-three\n of our twenty-five VLGCs,\n \nincluding the four time chartered-in vessels, were deployed in the Helios Pool.\n\u200b\nOur customers, either directly or through the Helios Pool, include or have included global energy companies such as Exxon Mobil Corp., Chevron Corp., China International United Petroleum & Chemicals Co., Ltd., Royal Dutch Shell plc, Equinor ASA, Total S.A., and Sunoco LP, commodity traders such as Glencore plc, Itochu Corporation, Bayegan Group, and the Vitol Group and importers such as E1 Corp., Indian Oil Corporation, SK Gas Co. Ltd., and Astomos Energy Corporation, or subsidiaries of the foregoing. For the year ended March\u00a031,\u00a02023, the Helios Pool accounted for 94% of our total revenues. No other individual charterer accounted for more than 10%. Within the Helios Pool, two charterers represented more than 10% of net pool revenues\u2014related party. For the year ended March 31, 2022, the Helios Pool accounted for 90% of our total revenues. No other individual charterer accounted for more than 10%. Within the Helios Pool, no charterers represented more than 10% of net pool revenues\u2014related party. For the year ended March 31, 2021, the Helios Pool accounted for 93% of our total revenues. No other individual charterer accounted for more than 10%. Within the Helios Pool, one charterer represented 16% of net pool revenues\u2014related party. See \u201cItem 1A. Risk Factors\u2014We operate exclusively in the LPG shipping industry. Due to the general lack of industry diversification, adverse developments in the LPG shipping industry may adversely affect our business, financial condition and operating results\u201d and \u201cItem 1A. Risk Factors\u2014We expect to be dependent on a limited number of customers for a material part of our revenues, and failure of such customers to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.\u201d\n\u200b\nWe continue to pursue a balanced chartering strategy by employing our vessels on a mix of multi-year time charters, some of which may include a profit-sharing component, shorter-term time charters, spot market voyages and COAs. Two of our vessels are currently on fixed time charters outside of the Helios Pool. See \u201cItem 1. Business\u2014Our Fleet\u201d above for more information.\n\u200b\nRecent Development \n\u200b\nOn April 26, 2023, we announced that our Board of Directors has declared an irregular cash dividend of $1.00 per share of the Company\u2019s common stock to all shareholders of record as of the close of business on May 8, 2023, totaling $40.4 million. We paid $40.1 million on May 22, 2023 and the remaining $0.3\u00a0million is deferred until certain shares of restricted stock vest.\n\u200b\nVessel Deployment\u2014Spot Voyages, Time Charters, COAs, and Pooling Arrangements\n\u200b\nWe seek to employ our vessels in a manner that maximizes fleet utilization and earnings upside through our chartering strategy in line with our goal of maximizing shareholder value and returning capital to shareholders when appropriate, taking into account fluctuations in freight rates in the market and our own views on the direction of those rates in the future. As of May 25, 2023, twenty-three of our twenty-five VLGCs, including the four time chartered-in vessels, were employed in the Helios Pool, which includes time charters with a term of less than two years.\n\u00a0\nA spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed upon freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses such as port and fuel costs. A time charter is generally a contract to charter a vessel for a fixed period of time at a set daily or monthly rate. Under time charters, the charterer pays voyage expenses such as port and fuel costs. Vessels operating on time charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the spot market during periods characterized by favorable market conditions. Vessels operating in the spot market generate revenues that are less predictable but may enable us to capture increased profit margins during periods of \n66\n\n\nTable of Contents\nimprovements in the freight market although we are exposed to the risk of a decline in the freight market and lower utilization. Pools generally consist of a number of vessels which may be owned by a number of different ship owners which operate as a single marketing entity in an effort to produce freight efficiencies. Pools typically employ experienced commercial charterers and operators who have close working relationships with customers and brokers while technical management is typically the responsibility of each ship owner. Under pool arrangements, vessels typically enter the pool under a time charter agreement whereby the cost of bunkers and port expenses are borne by the charterer (\ni.e.\n, the pool) and operating costs, including crews, maintenance and insurance are typically paid by the owner of the vessel. Pools, in return, typically negotiate charters with customers primarily in the spot market. Since the members of a pool typically share in the revenue generated by the entire group of vessels in the pool, and since pools operate primarily in the spot market, including the pool in which we participate, the revenue earned by vessels placed in spot market related pools is subject to the fluctuations of the spot market and the ability of the pool manager to effectively employ its fleet. We believe that vessel pools can provide cost-effective commercial management activities for a group of similar class vessels and potentially result in lower waiting times and higher earnings.\n\u200b\nContracts of Affreightment (\u201cCOAs\u201d) relate to the carriage of multiple cargoes over the same or several routes at pre-agreed terms, volumes and periods and enables the COA holder to nominate and lift cargoes, without controlling tonnage themselves or having their own vessel in position. COAs are usually based on voyage terms, where all of the vessel's operating, voyage and capital costs are borne by the ship owner.\n\u200b\nOn April 1, 2015, Dorian and Phoenix began operation of the Helios Pool, which is a pool of VLGC vessels. We believe that the operation of certain of our VLGCs in this pool allows us to achieve better market coverage and utilization. Vessels entered into the Helios Pool are commercially managed jointly by Dorian LPG (DK) ApS, our wholly-owned subsidiary, and Phoenix. The members of the Helios Pool share in the net pool revenues generated by the entire group of vessels in the pool, weighted according to certain technical vessel characteristics, and net pool revenues (see Note 2 to our consolidated financial statements included herein) are distributed as variable rate time charter hire to each participant. The vessels entered into the Helios Pool may operate either in the spot market, COAs, or on time charters of two years' duration or less. \nAs of May 25, 2023, the Helios Pool operated twenty-seven VLGCs, including twenty-three vessels from our fleet and four Phoenix vessels.\n \n\u200b\nFor further description of our business, please see \u201cItem 1. Business\u201d above.\n\u200b\nImportant Financial and Operational Terms and Concepts\n\u200b\nWe use a variety of financial and operational terms and concepts in the evaluation of our business and operations including the following:\n\u200b\nVessel Revenues.\n Our revenues are driven primarily by the number of vessels in our fleet, the number of days during which our vessels operate and the daily rates that our vessels earn under our charters, which, in turn, are affected by a number of factors, including levels of demand and supply in the LPG shipping industry; the age, condition and specifications of our vessels; the duration of our charters; the timing of when any profit-sharing arrangements are earned; the amount of time that we spend positioning our vessels; the availability of our vessels, which is related to the amount of time that our vessels spend in drydock undergoing repairs and the amount of time required to perform necessary maintenance or upgrade work; and other factors affecting rates for LPG vessels.\n\u200b\n67\n\n\nTable of Contents\nWe generate revenue by providing seaborne transportation services to customers pursuant to three types of contractual relationships: \n\u200b\nPooling Arrangements\n. As from April 1, 2015, we began operation of the Helios Pool. Net pool revenues\u2014related party for each vessel is determined in accordance with the profit-sharing terms specified within the pool agreement for the Helios Pool. In particular, the pool manager aggregates the revenues and voyage expenses of all of the pool participants and Helios Pool general and administrative expenses and distributes the net earnings to participants based on:\n\u200b\n\u25cf\npool points (vessel attributes such as cargo carrying capacity, fuel consumption, and speed are taken into consideration); and\n\u200b\n\u25cf\nnumber of days the vessel was on-hire in the Helios Pool in the period. \n\u200b\nFor the years ended March\u00a031,\u00a02023, 2022, and 2021, 94%, 90% and 93% of our revenue, respectively, was generated through the Helios Pool as net pool revenues\u2014related party. \n\u200b\nVoyage Charters.\n\u00a0 A voyage charter, or spot charter, is a contract for transportation of a specified cargo between two or more designated ports. This type of charter is priced at a current or \"spot\" market rate, typically on a price per ton of product carried. Under voyage charters, we are responsible for all of the voyage expenses in addition to providing the crewing and other vessel operating services. Revenues for voyage charters are more volatile as they are typically tied to prevailing market rates at the time of the voyage. Our gross revenue under voyage charters is generally higher than under comparable time charters so as to compensate us for bearing all voyage expenses. As a result, our revenue and voyage expenses may vary significantly depending on our mix of time charters and voyage charters. None of our revenue was generated pursuant to voyage charters from our VLGCs not in the Helios Pool for the years ended March\u00a031,\u00a02023, 2022, and 2021.\n\u200b\nTime Charters.\n\u00a0 A time charter is a contract under which a vessel is chartered for a defined period of time at a fixed daily or monthly rate. Under time charters, we are responsible for providing crewing and other vessel operating services, the cost of which is intended to be covered by the fixed rate, while the customer is responsible for substantially all of the voyage expenses, including bunker fuel consumption, port expenses and canal tolls. LPG is typically transported under a time charter arrangement, with terms ranging up to seven years. In addition, we may also have profit-sharing arrangements with some of our customers that provide for additional payments above a floor monthly rate (usually up to an agreed ceiling) based on the actual, average daily rate quoted by the Baltic Exchange for VLGCs on the benchmark Ras Tanura\u2011Chiba route over an agreed time period converted to a time charter equivalent (\u201cTCE\u201d) monthly rate. For the years ended March\u00a031,\u00a02023, 2022, and 2021, approximately 5.8%, 8.2% and 6.2%, respectively, of our revenue was generated pursuant to time charters from our VLGCs not in the Helios Pool. \n\u200b\nOther Revenues, net.\n\u00a0 Other revenues, net represent income from charterers, including the Helios Pool, relating to reimbursement of expenses such as costs for security guards and war risk insurance for voyages operating in high-risk areas. For the years ended March\u00a031,\u00a02023, 2022, and 2021, approximately 0.6%, 2.0% and 1.2%, respectively, of our revenue was generated pursuant to other revenues, net. \n\u200b\nOf these revenue streams, revenue generated from voyage charter agreements is further described in our revenue recognition policy as described in Note 2 to our consolidated financial statements. Revenue generated from pools and time charters is accounted for as revenue earned under recently adopted accounting guidance to update the requirements of financial accounting and reporting for lessees and lessors as described in Note 2 to our consolidated financial statements. \n\u200b\nCalendar Days.\n\u00a0 We define calendar days as the total number of days in a period during which each vessel in our fleet was owned or operated pursuant to a bareboat charter. Calendar days are an indicator of the size of the fleet over a period and affect both the amount of revenues and the amount of expenses that are recorded during that period.\n\u200b\n68\n\n\nTable of Contents\nTime Chartered-in Days.\n\u00a0 We define time chartered-in days as the aggregate number of days in a period during which we time chartered-in vessels from third parties. Time chartered-in days are an indicator of the size of the fleet over a period and affect both the amount of revenues and the amount of charter hire expenses that are recorded during that period.\n\u200b\nAvailable Days.\n\u00a0 We define available days as the sum of calendar days and time chartered-in days (collectively representing our commercially-managed vessels) less aggregate off hire days associated with major repairs and scheduled maintenance, which include drydockings, vessel upgrades or special or intermediate surveys. We use available days to measure the aggregate number of days in a period that our vessels should be capable of generating revenues.\n\u200b\nOperating Days.\n\u00a0 We define operating days as available days less the aggregate number of days that the commercially-managed vessels in our fleet are off\u2011hire for any reason other than major repairs and scheduled maintenance. We use operating days to measure the number of days in a period that our operating vessels are on hire.\n\u200b\nDrydocking.\n\u00a0 We must periodically drydock each of our vessels for any major repairs and maintenance and for inspection of the underwater parts of the vessel that cannot be performed while the vessels are operating and for any modifications to comply with industry certification or governmental requirements. The classification societies provide guidelines applicable to LPG vessels relating to extended intervals for drydocking. Generally, we are required to drydock a vessel under 15 years of age once every five years unless an extension of the drydocking to seven and one-half years is granted by the classification society and the vessel is not older than 20 years of age. We capitalize costs directly associated with the drydockings that extend the life of the vessel and amortize these costs on a straight-line basis over the period through the date the next survey is scheduled to become due under the \"Deferral\" method permitted under U.S. GAAP. Costs incurred during the drydocking period which relate to routine repairs and maintenance are expensed as incurred. The number of drydockings undertaken in a given period and the nature of the work performed determine the level of drydocking expenditures.\n\u200b\nFleet Utilization.\n\u00a0 We calculate fleet utilization by dividing the number of operating days during a period by the number of available days during that period. An increase in non\u2011scheduled off\u2011hire days, including waiting time, would reduce our operating days, and therefore, our fleet utilization. We use fleet utilization to measure our ability to efficiently find suitable employment for our vessels.\n\u200b\nTime Charter Equivalent Rate.\n\u00a0 TCE rate is a measure of the average daily revenue performance of a vessel. TCE rate is a shipping industry performance measure used primarily to compare period\u2011to\u2011period changes in a shipping company\u2019s performance despite changes in the mix of charter types (such as time charters, voyage charters) under which the vessels may be employed between the periods. Our method of calculating TCE rate is to divide revenue net of voyage expenses by operating days for the relevant time period.\n\u200b\nVoyage Expenses.\n\u00a0 Voyage expenses are all expenses unique to a particular voyage, including bunker fuel consumption, port expenses, canal fees, charter hire commissions, war risk insurance and security costs. Voyage expenses are typically paid by us under voyage charters and by the charterer under time charters, including our VLGCs chartered to the Helios Pool. Accordingly, we generally only incur voyage expenses for our own account when performing voyage charters or during repositioning voyages between time charters for which no cargo is available or travelling to or from drydocking. We generally bear all voyage expenses under voyage charters and, as such, voyage expenses are generally greater under voyage charters than time charters. As a result, our voyage expenses may vary significantly depending on our mix of time charters and voyage charters.\n\u200b\nCharter Hire Expenses.\n\u00a0 We time charter hire certain vessels from third-party owners or operators for a contracted period and rate in order to charter the vessels to our customers. Charter hire expenses include vessel operating lease expense incurred to charter-in these vessels.\n\u200b\nVessel Operating Expenses.\n\u00a0 Vessel operating expenses are expenses that are not unique to a specific voyage. Vessel operating expenses are paid by us under each of our charter types. Vessel operating expenses include crew wages and related costs, the costs for lubricants, insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel operating expenses will increase with the \n69\n\n\nTable of Contents\nexpansion of our fleet and are subject to change because of higher crew costs, higher insurance premiums, unexpected repair expenses and general inflation. Furthermore, we expect maintenance costs will increase as our vessels age and during periods of drydock. \n\u200b\nDaily Vessel Operating Expenses.\n\u00a0 Daily vessel operating expenses are calculated by dividing vessel operating expenses by calendar days for the relevant time period.\n\u200b\nDepreciation and Amortization.\n\u00a0 We depreciate our vessels on a straight\u2011line basis using an estimated useful life of 25 years from initial delivery from the shipyard and after considering estimated salvage values.\n\u200b\nWe amortize the cost of deferred drydocking expenditures on a straight\u2011line basis over the period through the date the next drydocking/special survey is scheduled to become due.\n\u200b\nGeneral and Administrative Expenses.\n\u00a0 General and administrative expenses principally consist of the costs incurred in the corporate administration of the vessel and non\u2011vessel owning subsidiaries. We have granted restricted stock awards to certain of our officers, directors, employees and non-employee consultants that vest over various periods (see Note 12 to our consolidated financial statements included herein). Granting of restricted stock results in an increase in expenses. Compensation expense for employees is measured at the grant date based on the estimated fair value of the awards and is recognized over the vesting period and for nonemployees is re-measured at the end of each reporting period based on the estimated fair value of the awards on that date and is recognized over the vesting period.\n\u200b\nCritical Accounting Estimates \n\u200b\nWe prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. For a description of our significant accounting policies, see Note 2 of our consolidated financial statements included herein.\n\u200b\nVessel Depreciation.\n\u00a0 The cost of our vessels less their estimated residual value is depreciated on a straight\u2011line basis over the vessels' estimated useful lives. We estimate the useful life of each of our vessels to be 25 years from the date the vessel was originally delivered from the shipyard. Based on the current market and the types of vessels we have in our fleet, the residual values of our vessels are based upon a value of approximately $400 per lightweight ton. An increase in the useful life of our vessels or in their residual value would have the effect of decreasing the annual depreciation charge and extending it into later periods. An increase in the useful life of a vessel may occur as a result of superior vessel maintenance performed, favorable ocean going and weather conditions the vessel is subjected to, superior quality of the shipbuilding or yard, or high freight market rates, which result in owners scrapping the vessels later due to the attractive cash flows. A decrease in the useful life of our vessels or in their residual value would have the effect of increasing the annual depreciation charge and possibly result in an impairment charge. A decrease in the useful life of a vessel may occur as a result of poor vessel maintenance performed, harsh ocean going and weather conditions the vessel is subjected to, or poor quality of the shipbuilding or yard. If regulations place limitations over the ability of a vessel to trade on a worldwide basis, we will adjust the vessel's useful life to end at the date such regulations preclude such vessel's further commercial use.\n\u200b\nImpairment of vessels. \nWe review our vessels for impairment when events or circumstances indicate the carrying amount of the asset may not be recoverable. In addition, we compare independent appraisals to our carrying value for indicators of impairment to our vessels. When such indicators are present, an asset is tested for recoverability by comparing the estimate of future undiscounted net operating cash flows expected to be generated by the use of the asset over its remaining useful life and its eventual disposition to its carrying amount. An impairment charge is recognized if the carrying value is in excess of the estimated future undiscounted net operating cash flows. The impairment loss is measured based \n70\n\n\nTable of Contents\non the excess of the carrying amount over the fair market value of the asset. The new lower cost basis would result in a lower annual depreciation than before the impairment.\n\u200b\nOur estimates of fair market value assume that our vessels are all in good and seaworthy condition without need for repair and if inspected would be certified in class without notations of any kind. Our estimates are based on information available from various industry sources, including:\n\u200b\n\u25cf\nreports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;\n\u200b\n\u25cf\nnews and industry reports of similar vessel sales;\n\u200b\n\u25cf\napproximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated;\n\u200b\n\u25cf\noffers that we may have received from potential purchasers of our vessels; and\n\u200b\n\u25cf\nvessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.\n\u200b\nAs we obtain information from various industry and other sources, our estimates of fair market value are inherently uncertain. In addition, vessel values are highly volatile; as such, our estimates may not be indicative of the current or future fair market value of our vessels or prices that we could achieve if we were to sell them.\n\u200b\nAs of March 31, 2023, 2022 and 2021, independent appraisals of the commercially and technically-managed VLGCs in our fleet had no indicators of impairment on any of our VLGCs in accordance with ASC 360 \nProperty, Plant, and Equipment\n. No impairment charges were recognized for the years ended March 31, 2023, 2022 and 2021.\n\u200b\nThe amount, if any, and timing of any impairment charges we may recognize in the future will depend upon the then current and expected future charter rates and vessel values, which may differ materially from those used in our estimates as of March 31, 2023, 2022 and 2021.\n71\n\n\nTable of Contents\nThe table set forth below indicates the carrying value of each commercially and technically-managed vessel in our fleet as of March\u00a031,\u00a02023 and 2022 at which times none of the vessels listed in the table below was being held for sale:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u00a0Date\u00a0of\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u00a0\n\u200b\n\u200b\nCapacity\n\u200b\nYear\u00a0\n\u200b\nAcquisition/\n\u200b\nPurchase\u00a0Price/\n\u200b\nCarrying\u00a0value\u00a0at\n\u200b\nCarrying\u00a0value\u00a0at\n\u00a0\nVessels\n\u200b\n\u00a0(Cbm)\n\u200b\nBuilt\n\u200b\nDelivery\n\u200b\nOriginal\u00a0Cost\n\u200b\nMarch\u00a031,\u00a02023\n(1)\n\u200b\nMarch\u00a031,\u00a02022\n(2)\n\u00a0\nCaptain John NP\n\u00a0\n 82,000\n\u00a0\n2007\n\u00a0\n7/29/2013\n\u200b\n\u00a0\n 64,955,636\n\u200b\n\u00a0\n 36,877,876\n\u200b\n\u00a0\n 40,322,640\n\u200b\nComet\n\u00a0\n 84,000\n\u00a0\n2014\n\u00a0\n7/25/2014\n\u200b\n\u00a0\n 75,276,432\n\u200b\n\u00a0\n 55,569,951\n\u200b\n\u00a0\n 58,662,563\n\u200b\nCorsair\n\u00a0\n 84,000\n\u00a0\n2014\n\u00a0\n9/26/2014\n\u200b\n\u00a0\n 80,906,292\n\u200b\n\u00a0\n 59,732,692\n\u200b\n\u00a0\n 63,099,862\n\u200b\nCorvette\n\u00a0\n 84,000\n\u00a0\n2015\n\u00a0\n1/2/2015\n\u200b\n\u00a0\n 84,262,500\n\u200b\n\u00a0\n 60,797,725\n\u200b\n\u00a0\n 64,056,780\n\u200b\nCougar\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n6/15/2015\n\u200b\n\u200b\n 80,427,640\n\u200b\n\u200b\n 58,141,111\n\u200b\n\u200b\n 61,232,767\n\u200b\nConcorde\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n6/24/2015\n\u200b\n\u200b\n 81,168,031\n\u200b\n\u200b\n 60,229,695\n\u200b\n\u200b\n 61,594,838\n\u200b\nCobra\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n6/26/2015\n\u200b\n\u200b\n 80,467,667\n\u200b\n\u200b\n 58,303,794\n\u200b\n\u200b\n 61,405,078\n\u200b\nContinental\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n7/23/2015\n\u200b\n\u200b\n 80,487,197\n\u200b\n\u200b\n 58,740,786\n\u200b\n\u200b\n 61,231,113\n\u200b\nConstitution\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n8/20/2015\n\u200b\n\u200b\n 80,517,226\n\u200b\n\u200b\n 61,749,813\n\u200b\n\u200b\n 65,002,816\n\u200b\nCommodore\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n8/28/2015\n\u200b\n\u200b\n 80,468,889\n\u200b\n\u200b\n 58,823,308\n\u200b\n\u200b\n 61,895,270\n\u200b\nCresques\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n9/1/2015\n\u200b\n\u200b\n 82,960,176\n\u200b\n\u200b\n 63,422,959\n\u200b\n\u200b\n 66,747,081\n\u200b\nConstellation\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n9/30/2015\n\u200b\n\u200b\n 78,649,026\n\u200b\n\u200b\n 60,476,385\n\u200b\n\u200b\n 63,516,945\n\u200b\nClermont\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n10/13/2015\n\u200b\n\u200b\n 80,530,199\n\u200b\n\u200b\n 62,632,616\n\u200b\n\u200b\n 65,936,680\n\u200b\nCheyenne\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n10/22/2015\n\u200b\n\u200b\n 80,503,271\n\u200b\n\u200b\n 61,958,761\n\u200b\n\u200b\n 65,128,970\n\u200b\nCratis\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n10/30/2015\n\u200b\n\u200b\n 83,186,333\n\u200b\n\u200b\n 63,978,931\n\u200b\n\u200b\n 67,288,784\n\u200b\nCommander\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n11/5/2015\n\u200b\n\u200b\n 78,056,729\n\u200b\n\u200b\n 61,150,118\n\u200b\n\u200b\n 64,364,497\n\u200b\nChaparral\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n11/20/2015\n\u200b\n\u200b\n 80,516,187\n\u200b\n\u200b\n 59,233,063\n\u200b\n\u200b\n 62,302,458\n\u200b\nCopernicus\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n11/25/2015\n\u200b\n\u200b\n 83,333,085\n\u200b\n\u200b\n 64,344,201\n\u200b\n\u200b\n 67,670,583\n\u200b\nChallenger\n\u200b\n 84,000\n\u200b\n2015\n\u200b\n12/11/2015\n\u200b\n\u200b\n 80,576,863\n\u200b\n\u200b\n 60,305,474\n\u200b\n\u200b\n 62,805,187\n\u200b\nCaravelle\n\u200b\n 84,000\n\u200b\n2016\n\u200b\n2/25/2016\n\u200b\n\u200b\n 81,119,450\n\u200b\n\u200b\n 60,996,102\n\u200b\n\u200b\n 63,635,778\n\u200b\nCaptain Markos\n\u200b\n 84,000\n\u200b\n2023\n\u200b\n3/31/2023\n\u200b\n\u200b\n 84,830,545\n\u200b\n\u200b\n 84,830,545\n\u200b\n\u200b\n \u2014\n\u200b\n\u200b\n\u00a0\n 1,762,000\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n$\n 1,683,199,374\n\u200b\n$\n 1,272,295,906\n\u200b\n$\n 1,247,900,690\n\u200b\n(1)\nCarrying value for purposes of evaluating our vessels for impairment includes the carrying value of the vessel and unamortized deferred charges related to drydocking of the vessel. Refer to our accounting policies in Note 2 to our consolidated financial statements for vessels carrying values and deferred drydocking costs. As of March 31, 2023, the carrying value and unamortized deferred charges related to drydocking of none of our vessels exceeded their estimated market value. On an aggregate fleet basis, the estimated market value of our vessels was higher than their carrying value and unamortized deferred charges related to drydocking as of March 31, 2023 by $270.2 million. There were no indications of impairment on any of our vessels and no impairment was recorded during the year ended March 31, 2023 as we believed that the carrying value of our vessels was fully recoverable.\n\u200b\n(2)\nCarrying value for purposes of evaluating our vessels for impairment includes the carrying value of the vessel and unamortized deferred charges related to drydocking of the vessel. Refer to our accounting policies in Note 2 to our consolidated financial statements for vessels carrying values and deferred drydocking costs. As of March 31, 2022, the carrying value and unamortized deferred charges related to drydocking of none of our vessels exceeded their estimated market value. On an aggregate fleet basis, the estimated market value of our vessels was higher than their carrying value and unamortized deferred charges related to drydocking as of March 31, 2022 by $85.1 million. There were no indications of impairment on any of our vessels and no impairment was recorded during the year ended March 31, 2022. \n\u200b\nDrydocking and special survey costs.\n\u00a0 We must periodically drydock each of our vessels to comply with industry standards, regulatory requirements and certifications. The classification societies provide guidelines applicable to LPG vessels relating to extended intervals for drydocking. Generally, we are required to drydock a vessel under 15 years of age once every five years unless an extension of the drydocking to seven and one-half years is granted by the classification society and the vessel is not older than 20 years of age.\n\u200b\nDrydocking costs are accounted under the deferral method whereby the actual costs incurred are deferred and are amortized on a straight\u2011line basis over the period through the date the next drydocking is scheduled to become due. Costs deferred include expenditures incurred relating to shipyard costs, hull preparation and painting, inspection of hull structure and mechanical components, steelworks, machinery works, and electrical works. Drydocking costs do not include vessel operating expenses such as replacement parts, crew expenses, provisions, luboil consumption, and insurance during the \n72\n\n\nTable of Contents\ndrydock period. Expenses related to regular maintenance and repairs of our vessels are expensed as incurred, even if such maintenance and repair occurs during the same time period as our drydocking.\n\u200b\nIf a drydocking is performed prior to the scheduled date, the remaining unamortized balances are immediately written off. Unamortized balances of vessels that are sold are written\u2011off and included in the calculation of the resulting gain or loss in the period of the vessel's sale. The nature of the work performed and the number of drydockings undertaken in a given period determine the level of drydocking expenditures.\n\u200b\nFair Value of Derivative Instruments.\n\u00a0 We use derivative financial instruments to manage interest rate risks. The fair value of our interest rate swap agreements is the estimated amount that we would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates and the current credit worthiness of both us and the swap counterparties. The estimated amount is the present value of estimated future cash flows, being equal to the difference between the benchmark interest rate and the fixed rate in the interest rate swap agreement, multiplied by the notional principal amount of the interest rate swap agreement at each interest reset date.\n\u200b\nThe fair value of our interest swap agreements at the end of each period is most significantly affected by the interest rate implied by the SOFR interest yield curve, including its relative steepness. Interest rates have experienced significant volatility in recent years in both the short and long term. While the fair value of our interest rate swap agreements is typically more sensitive to changes in short\u2011term rates, significant changes in the long\u2011term benchmark interest rates also materially impact our interest.\n\u200b\nThe fair value of our interest swap agreements is also affected by changes in our own and our counterparty specific credit risk included in the discount factor. Our estimate of our counterparty's credit risk is based on the credit default swap spread of the relevant counterparty which is publicly available. The process of determining our own credit worthiness requires significant judgment in determining which source of credit risk information most closely matches our risk profile, which includes consideration of the margin we would be able to secure for future financing. A 10% increase / decrease in our own or our counterparty credit risk would not have had a significant impact on the fair value of our interest rate swaps.\n\u200b\nThe SOFR interest rate yield curve and our specific credit risk are expected to vary over the life of the interest rate swap agreements. The larger the notional amount of the interest rate swap agreements outstanding and the longer the remaining duration of the interest rate swap agreements, the larger the impact of any variability in these factors will be on the fair value of our interest rate swaps. We economically hedge the interest rate exposure on a significant amount of our long\u2011term debt and for long durations. As such, we have experienced, and we expect to continue to experience, material variations in the period\u2011to\u2011period fair value of our derivative instruments.\n\u200b\nAlthough we measure the fair value of our derivative instruments utilizing the inputs and assumptions described above, if we were to terminate the interest rate swap agreements at the reporting date, the amount we would pay or receive to terminate the derivative instruments may differ from our estimate of fair value. If the estimated fair value differs from the actual termination amount, an adjustment to the carrying amount of the applicable derivative asset or liability would be recognized in earnings for the current period. Such adjustments have been and could be material in the future. \n\u200b\nResults of Operations For The Year Ended March\u00a031,\u00a02023 As Compared To The Year Ended March 31, 2022\n\u200b\nRevenues\n\u200b\nThe following table compares revenues for the years ended March\u00a031:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nIncrease /\n\u200b\nPercent\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n2023\n\u00a0\u00a0\u00a0\u00a0\n2022\n\u00a0\u00a0\u00a0\u00a0\n(Decrease)\n\u00a0\u00a0\u00a0\u00a0\nChange\n\u200b\nNet pool revenues\u2014related party\n\u00a0\n$\n 364,548,262\n\u00a0\n$\n 246,305,480\n\u00a0\n$\n 118,242,782\n\u200b\n 48.0\n%\nTime charter revenues\n\u200b\n\u00a0\n 22,709,620\n\u200b\n\u00a0\n 22,377,211\n\u200b\n\u00a0\n 332,409\n\u200b\n 1.5\n%\nOther revenues, net\n\u200b\n\u00a0\n 2,491,333\n\u200b\n\u00a0\n 5,538,757\n\u200b\n\u00a0\n (3,047,424)\n\u200b\n (55.0)\n%\nTotal\n\u00a0\n$\n 389,749,215\n\u00a0\n$\n 274,221,448\n\u00a0\n$\n 115,527,767\n\u200b\n 42.1\n%\n\u200b\nRevenues, which represent net pool revenues\u2014related party, time charters and other revenues, net, were $389.7 million for the year ended March\u00a031,\u00a02023, an increase of $115.5 million, or 42.1%, from $274.2 million for the year ended \n73\n\n\nTable of Contents\nMarch\u00a031,\u00a02022. The increase is primarily attributable to increased average TCE rates and a slight increase in fleet utilization. Average TCE rates of $50,462 for the year ended March\u00a031,\u00a02023 increased $15,793 from $34,669 for the year ended March\u00a031,\u00a02022, primarily due to higher spot rates partially offset by higher bunker prices. The Baltic Exchange Liquid Petroleum Gas Index, an index published daily by the Baltic Exchange for the spot market rate for the benchmark Ras Tanura-Chiba route (expressed as U.S. dollars per metric ton), averaged $87.009 during the year ended March 31, 2023 compared to an average of $52.689 for the year ended March 31, 2022. The average price of very low sulfur fuel oil (expressed as U.S. dollars per metric ton) from Singapore and Fujairah increased from $609 during the year ended March 31, 2022, to $773 during the year ended March\u00a031,\u00a02023.Our fleet utilization increased from 94.9% during the year ended March 31, 2022 to 95.0% during the year ended March 31, 2023. \u00a0 \u00a0\n\u200b\nCharter Hire Expenses\n\u200b\nCharter hire expenses for the vessels chartered in from third parties were $23.2 million for the year ended March\u00a031,\u00a02023 compared to $16.3 million for the year ended March\u00a031,\u00a02022. The increase of $6.9 million, or 42.6%, was mainly caused by an increase in time chartered-in days from 579 for the year ended March 31, 2022 to 791 for the year ended March 31, 2023 and an increase in average time charter in expense per day from $28,093 for the year ended March 31, 2022 to $29,323 per day for the year ended March 31, 2023.\n\u200b\nVessel Operating Expenses\n\u200b\nVessel operating expenses were $71.5 million during the year ended March\u00a031,\u00a02023, or $9,793 per vessel per calendar day, which is calculated by dividing vessel operating expenses by calendar days for the relevant time period for the vessels that were in our fleet. This was a decrease of $2.7 million, or 3.6%, from $74.2 million, or $9,538 per vessel per calendar day, for the year ended March\u00a031,\u00a02022. The decrease was due to a reduction of calendar days for our fleet from 7,780 during the year ended March\u00a031,\u00a02022 to 7,301 during the year ended March,\u00a031 2023, driven by the sales of\u00a0\nCaptain Markos NL\u00a0\nand\n\u00a0Captain Nicholas ML\n in 2022\n. \nAlso included in the $2.7 million decrease was a $1.3 million, or $160 per vessel per calendar day, decrease in operating expenses related to the drydocking of vessels including repairs and maintenance, spares and stores, coolant costs, and other drydocking related operating expenses.\n\u200b\nOn a per vessel per calendar day basis, vessel operating expenses increased modestly by $255 per vessel per calendar day, from $9,538 for the year ended March\u00a031,\u00a02022 to $9,793 per vessel per calendar day for the year ended March 31,\u00a02023. After adjusting for operating expenses related to the drydocking of vessels, vessel operating expenses increased $415 on a per vessel per calendar day basis. This increase was primarily the result of increases per vessel per calendar day of $138 related to repairs and maintenance, $117 related to lubricants and $160 for other vessel operating expenses.\n\u200b\nGeneral and Administrative Expenses\n\u200b\nGeneral and administrative expenses were $32.1 million for the year ended March\u00a031,\u00a02023, an increase of $1.9 million, or 6.2%, from $30.2 million for the year ended March\u00a031,\u00a02022. This increase was driven by (1) $0.9 million in financial support for the families of our Ukrainian and Russian seafarers affected by the events in Ukraine and (2) increases of $0.9 million and $1.5 million in stock-based compensation and other general and administrative expenses, respectively, partially offset by a reduction in employee-related expenses of $1.4 million primarily resulting from favorable changes in exchange rates.\n\u200b\nInterest and Finance Costs\n\u200b\nInterest and finance costs amounted to $37.8 million for the year ended March\u00a031,\u00a02023, an increase of $10.7 million from $27.1 million for the year ended March\u00a031,\u00a02022. The increase of $10.7 million during the year ended March 31, 2023 was driven by increases of $11.3 million in interest incurred on our long-term debt and $0.8 million in loan expenses.\u00a0This was partially offset by an increase of $1.1 million in capitalized interest and a decrease of $0.3 million in amortization of financing costs. The increase in interest on our long-term debt was driven by an increase in average interest rates due to rising SOFR on our floating-rate long-term debt, and an increase in average indebtedness, excluding deferred financing fees, from $609.0 million for the year ended March 31, 2022 to $649.0 million for the year ended \n74\n\n\nTable of Contents\nMarch\u00a031,\u00a02023. As of March\u00a031,\u00a02023, the outstanding balance of our long-term debt, excluding deferred financing fees, was $663.6 million. \n\u200b\nUnrealized Gain on Derivatives\n\u200b\nUnrealized gain on derivatives amounted to $2.8 million for the year ended March\u00a031,\u00a02023 compared to $11.1 million for the year ended March\u00a031,\u00a02022. The $8.3 million difference is primarily attributable to reductions in notional amounts and an unfavorable change in forward SOFR yield curves (forward LIBOR curves in the prior period).\n\u200b\nRealized Gain/(Loss) on Derivatives\n\u200b\nRealized gain on derivatives was $3.8 million for the year ended March\u00a031,\u00a02023, compared to a realized loss of $3.5 million for the year ended March\u00a031,\u00a02022. The favorable $7.3 million difference is due to an increase in floating SOFR resulting in the realized gain on our interest rate swaps.\n\u200b\nGain on Disposal of Vessels\n\u00a0\nThere was no gain on disposal of vessels for the year ended March 31, 2023. Gain on disposal of vessels amounted to $7.3 million for the year ended March 31, 2022 and was attributable to the sales of\u00a0\nCaptain Markos NL\n and \nCaptain Nicholas ML.\n\u200b\nResults of Operations For The Year Ended March 31, 2022 As Compared To The Year Ended March 31, 2021\n\u200b\nFor a discussion of the year ended March 31, 2022 compared to the year ended March 31, 2021, please refer to Part II, Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in our Annual Report on Form 10-K for the year ended March 31, 2022.\n\u200b\nOperating Statistics and Reconciliation of GAAP to non-GAAP Financial Measures\n\u200b\nTo supplement our financial statements presented in accordance with U.S.GAAP, we present certain operating statistics and non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP financial measures include Adjusted earnings before interest, taxes, depreciation and amortization (\u201cAdjusted EBITDA\u201d) and time charter equivalent rate. These non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for net income and revenues, which are the most directly comparable measures of performance prepared in accordance with U.S. GAAP. \u00a0\n\u200b\nWe use these non-GAAP financial measures in assessing the performance of our ongoing operations and in planning and forecasting future periods. These adjusted measures provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance. We believe that these adjusted measures, when considered together with the corresponding U.S. GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to assist investors and analysts in understanding our business results and assessing our prospects for future performance. \u00a0 \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear ended \n\u200b\nYear ended \n\u200b\nYear ended \n\u00a0\n(in U.S. dollars, except fleet data)\n\u200b\nMarch\u00a031,\u00a02023\n\u200b\nMarch\u00a031,\u00a02022\n\u200b\nMarch\u00a031,\u00a02021\n\u00a0\nFinancial Data\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAdjusted EBITDA\n\u200b\n$\n 271,386,648\n\u200b\n$\n 161,149,380\n\u200b\n$\n 188,555,935\n\u200b\nFleet Data\n(1)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nCalendar days\n\u200b\n\u00a0\n 7,301\n\u200b\n\u00a0\n 7,780\n\u200b\n\u00a0\n 8,030\n\u200b\nTime chartered-in days\n\u200b\n\u00a0\n 791\n\u200b\n\u00a0\n 579\n\u200b\n\u00a0\n 740\n\u200b\nAvailable days\n\u200b\n\u00a0\n 8,053\n\u200b\n\u00a0\n 8,201\n\u200b\n\u00a0\n 8,505\n\u200b\nOperating days\n\u200b\n\u00a0\n 7,652\n\u200b\n\u00a0\n 7,785\n\u200b\n\u00a0\n 7,891\n\u200b\nFleet utilization\n\u200b\n\u200b\n 95.0\n%\n\u200b\n 94.9\n%\n\u200b\n 92.8\n%\nAverage Daily Results\n(1)\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTime charter equivalent rate\n\u200b\n$\n 50,462\n\u200b\n$\n 34,669\n\u200b\n$\n 39,606\n\u200b\nDaily vessel operating expenses\n\u200b\n$\n 9,793\n\u200b\n$\n 9,538\n\u200b\n$\n 9,741\n\u200b\n75\n\n\nTable of Contents\n(1)\nRefer to \u201cImportant Financial and Operational Terms and Concepts\u201d above for definitions of calendar days, time chartered-in days, available days, operating days, fleet utilization, and daily vessel operating expenses.\n\u200b\nAdjusted EBITDA\n\u200b\nAdjusted EBITDA is an unaudited non-U.S. GAAP financial measure and represents net income before interest and finance costs, unrealized (gain)/loss on derivatives, realized (gain)/loss on interest rate swaps, stock-based compensation expense, impairment, and depreciation and amortization and is used as a supplemental financial measure by management to assess our financial and operating performance. We believe that adjusted EBITDA assists our management and investors by increasing the comparability of our performance from period to period. This increased comparability is achieved by excluding the potentially disparate effects between periods of derivatives, interest and finance costs, stock-based compensation expense, impairment, and depreciation and amortization expense, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income/(loss) between periods. We believe that including adjusted EBITDA as a financial and operating measure benefits investors in selecting between investing in us and other investment alternatives.\n\u200b\nAdjusted EBITDA has certain limitations in use and should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income. Adjusted EBITDA as presented below may not be computed consistently with similarly titled measures of other companies and, therefore, might not be comparable with other companies.\n\u200b\nThe following table sets forth a reconciliation of net income to Adjusted EBITDA (unaudited) for the periods presented:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear ended \n\u200b\nYear ended \n\u200b\nYear ended \n\u00a0\n(in U.S. dollars)\n\u00a0\nMarch\u00a031,\u00a02023\n\u200b\nMarch\u00a031,\u00a02022\n\u200b\nMarch\u00a031,\u00a02021\n\u00a0\nNet income\n\u200b\n$\n 172,443,930\n\u200b\n$\n 71,935,018\n\u200b\n$\n 92,564,653\n\u200b\nInterest and finance costs\n\u200b\n\u00a0\n 37,803,787\n\u200b\n\u00a0\n 27,067,395\n\u200b\n\u00a0\n 27,596,124\n\u200b\nUnrealized gain on derivatives\n\u200b\n\u00a0\n (2,766,065)\n\u200b\n\u00a0\n (11,067,870)\n\u200b\n\u00a0\n (7,202,880)\n\u200b\nRealized (gain)/loss on interest rate swaps\n\u200b\n\u200b\n (3,771,522)\n\u200b\n\u200b\n 3,450,443\n\u200b\n\u200b\n 3,779,363\n\u200b\nStock-based compensation expense\n\u200b\n\u00a0\n 4,280,387\n\u200b\n\u00a0\n 3,332,279\n\u200b\n\u00a0\n 3,356,199\n\u200b\nDepreciation and amortization\n\u200b\n\u200b\n 63,396,131\n\u200b\n\u200b\n 66,432,115\n\u200b\n\u200b\n 68,462,476\n\u200b\nAdjusted EBITDA\n\u200b\n$\n 271,386,648\n\u200b\n$\n 161,149,380\n\u200b\n$\n 188,555,935\n\u200b\n\u200b\nTime charter equivalent rate\nTime charter equivalent rate, or TCE rate, is a non-U.S. GAAP measure of the average daily revenue performance of a vessel. TCE rate is a shipping industry performance measure used primarily to compare period\u2011to\u2011period changes in a shipping company\u2019s performance despite changes in the mix of charter types (such as time charters, voyage charters) under which the vessels may be employed between the periods. Our method of calculating TCE rate is to divide revenue net of voyage expenses by operating days for the relevant time period, which may not be calculated the same by other companies.\n\u200b\n76\n\n\nTable of Contents\nThe following table sets forth a reconciliation of revenues to TCE rate (unaudited) for the periods presented:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n(in U.S. dollars, except operating days)\n\u200b\nYear ended \n\u200b\nYear ended \n\u200b\nYear ended \n\u200b\nNumerator:\n\u200b\nMarch\u00a031,\u00a02023\n\u200b\nMarch\u00a031,\u00a02022\n\u200b\nMarch\u00a031,\u00a02021\n\u200b\nRevenues\n\u200b\n$\n 389,749,215\n\u200b\n$\n 274,221,448\n\u200b\n$\n 315,938,812\n\u200b\nVoyage expenses\n\u200b\n\u200b\n (3,611,452)\n\u200b\n\u200b\n (4,324,712)\n\u200b\n\u200b\n (3,409,650)\n\u200b\nTime charter equivalent \n\u200b\n$\n 386,137,763\n\u200b\n$\n 269,896,736\n\u200b\n$\n 312,529,162\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nPool adjustment*\n\u200b\n\u200b\n (514,015)\n\u200b\n\u200b\n (2,978)\n\u200b\n\u200b\n 5,579,857\n\u200b\nTime charter equivalent excluding pool adjustment*\n\u200b\n$\n 385,623,748\n\u200b\n$\n 269,893,758\n\u200b\n$\n 318,109,019\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nDenominator:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating days\n\u200b\n\u200b\n 7,652\n\u200b\n\u200b\n 7,785\n\u200b\n\u200b\n 7,891\n\u200b\nTCE rate:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nTime charter equivalent rate\n\u200b\n$\n 50,462\n\u200b\n$\n 34,669\n\u200b\n$\n 39,606\n\u200b\nTCE rate excluding pool adjustment*\n\u200b\n$\n 50,395\n\u200b\n$\n 34,668\n\u200b\n$\n 40,313\n\u200b\n\u200b\n* Adjusted for the effects of reallocations of pool profits in accordance with the pool participation agreements as a result of the actual speed and consumption performance of the vessels operating in the Helios Pool exceeding the originally estimated speed and consumption levels.\n\u200b\nWe determine operating days for each vessel based on the underlying vessel employment, including our vessels in the Helios Pool, or the Company Methodology. If we were to calculate operating days for each vessel within the Helios Pool as a variable rate time charter, or the Alternate Methodology, our operating days and fleet utilization would be increased with a corresponding reduction of our TCE rate. Operating data using both methodologies is as follows: \n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u00a0\u00a0\u00a0\u00a0\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nYear ended \n\u200b\n\u200b\nYear ended \n\u200b\n\u200b\nYear ended \n\u200b\n\u200b\nCompany Methodology:\n\u200b\nMarch\u00a031,\u00a02023\n\u200b\n\u200b\nMarch\u00a031,\u00a02022\n\u200b\n\u200b\nMarch\u00a031,\u00a02021\n\u200b\n\u200b\nOperating Days\n\u200b\n\u200b\n 7,652\n\u200b\n\u200b\n\u200b\n 7,785\n\u200b\n\u200b\n\u200b\n 7,891\n\u200b\n\u200b\nFleet Utilization\n\u200b\n\u200b\n 95.0\n%\n\u200b\n\u200b\n 94.9\n%\n\u200b\n\u200b\n 92.8\n%\n\u200b\nTime charter equivalent rate\n\u200b\n$\n 50,462\n\u200b\n\u200b\n$\n 34,669\n\u200b\n\u200b\n$\n 39,606\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nAlternate Methodology:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nOperating Days\n\u200b\n\u200b\n 8,035\n\u200b\n\u200b\n\u200b\n 8,193\n\u200b\n\u200b\n\u200b\n 8,505\n\u200b\n\u200b\nFleet Utilization\n\u200b\n\u200b\n 99.8\n%\n\u200b\n\u200b\n 99.9\n%\n\u200b\n\u200b\n 100.0\n%\n\u200b\nTime charter equivalent rate\n\u200b\n$\n 48,057\n\u200b\n\u200b\n$\n 32,942\n\u200b\n\u200b\n$\n 36,747\n\u200b\n\u200b\n\u200b\nWe believe that Our Methodology using the underlying vessel employment provides more meaningful insight into market conditions and the performance of our vessels. \u00a0\n\u200b\nLiquidity and Capital Resources\n\u200b\nOur business is capital intensive, and our future success depends on our ability to maintain a high\u2011quality fleet. As of March\u00a031,\u00a02023, we had cash and cash equivalents of $148.8 million and non-current restricted cash of $0.1 million.\n\u200b\nOur primary sources of capital during the year ended March\u00a031,\u00a02023 were $224.1 million in cash generated from operations and $29.9 million in net proceeds from the refinancing of \nCougar. \nAs of March\u00a031,\u00a02023, the outstanding balance of our long-term debt, net of deferred financing fees of $6.2 million, was $657.4 million including $53.1 million of principal on our long-term debt scheduled to be repaid during the year ending March 31, 2023. \n\u200b\nOperating expenses, including expenses to maintain the quality of our vessels in order to comply with international shipping standards and environmental laws and regulations, the funding of working capital requirements, long-term debt repayments, financing costs, and commitments for drydocking and scrubbers as described in Note 18 to our consolidated financial statements represent our short\n-\nterm, medium\n-\nterm and long\n-\nterm liquidity needs as of March\u00a031,\u00a02023. We anticipate satisfying our liquidity needs for at least the next twelve months with cash on hand and cash from operations. We may also seek additional liquidity through alternative sources of debt financings and/or through equity financings by way of private or public offerings. However, if these sources are insufficient to satisfy our short-term liquidity needs, or to satisfy our future medium-term or long-term liquidity needs, we may need to seek alternative sources of financing and/or modifications of our existing credit facility and financing arrangements. There is no assurance that we \n77\n\n\nTable of Contents\nwill be able to obtain any such financing or modifications to our existing credit facility and financing arrangements on terms acceptable to us, or at all. \n\u200b\nOn February 2, 2022, our Board of Directors authorized the repurchase of up to $100.0 million of our common shares under the 2022 Common Share Repurchase Authority. Under this authorization, when in force, purchases were and may be made at our discretion in the form of open market repurchase programs, privately negotiated transactions, accelerated share repurchase programs or a combination of these methods. The actual amount and timing of share repurchases are subject to capital availability, our determination that share repurchases are in the best interest of our shareholders, and market conditions. As of March 31, 2023, our total purchases under the 2022 Common Share Repurchase Authority totaled 50,000 shares for an aggregate consideration of $0.7 million. We are not obligated to make any common share repurchases. See Note 10 to our consolidated financial statements included herein for a discussion of our 2022 Common Share Repurchase Authority.\n\u200b\nOn May 4, 2022, we announced that our Board of Directors declared an irregular cash dividend of $2.50\u00a0per share of our common stock to all shareholders of record as of the close of business on May 16, 2022, totaling $100.3\u00a0million. We paid $99.7\u00a0million on June 2, 2022, with the remaining $0.6\u00a0million deferred until certain shares of restricted stock vest.\n\u200b\nOn June 15, 2022, we paid $0.2\u00a0million of dividends that were deferred until the vesting of certain restricted stock.\n\u200b\nOn August 3, 2022, we announced that our Board of Directors declared an irregular cash dividend of $1.00\u00a0per share of the Company\u2019s common stock to all shareholders of record as of the close of business on August 15, 2022, totaling $40.3\u00a0million. We paid $40.1\u00a0million on September 2, 2022 and the remaining $0.2\u00a0million is deferred until certain shares of restricted stock vest.\n\u200b\nOn August 5, 2022, we paid $0.4\u00a0million of dividends that were deferred until the vesting of certain restricted stock.\n\u200b\nOn October 27, 2022, we announced that our Board of Directors declared an irregular cash dividend of $1.00\u00a0per share of the Company\u2019s common stock to all shareholders of record as of the close of business on November 7, 2022, totaling $40.4\u00a0million. We paid $40.1\u00a0million on December 6, 2022 and the remaining $0.3\u00a0million is deferred until certain shares of restricted stock vest.\n\u200b\nOn February 1, 2023, we announced that our Board of Directors declared an irregular cash dividend of $1.00 per share of the Company\u2019s common stock to all shareholders of record as of the close of business on February 15, 2023, totaling $40.4 million. We paid $40.1 million on February 28, 2023 and the remaining $0.3\u00a0million is deferred until certain shares of restricted stock vest.\n\u200b\nOn April 26, 2023, we announced that our Board of Directors has declared an irregular cash dividend of $1.00 per share of the Company\u2019s common stock to all shareholders of record as of the close of business on May 8, 2023, totaling $40.4 million. We paid $40.1 million on May 22, 2023 and the remaining $0.3\u00a0million is deferred until certain shares of restricted stock vest. \n\u200b\nThese were irregular dividends. All declarations of dividends are subject to the determination and discretion of the Company\u2019s Board of Directors based on its consideration of various factors, including the Company\u2019s results of operations, financial condition, level of indebtedness, anticipated capital requirements, contractual restrictions, restrictions in its debt agreements, restrictions under applicable law, its business prospects and other factors that the Company\u2019s Board of Directors may deem relevant. Our dividend policy will also impact our future liquidity position. Marshall Islands law generally prohibits the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent by the payment of such a dividend. \n\u200b\n78\n\n\nTable of Contents\nOn April 21, 2022, we prepaid $25.0 million of the 2015 AR Facility\u2019s then outstanding principal using cash on hand, consisting of $11.1 million of the commercial tranche, $11.1 million of the KEXIM direct tranche, and $2.8 million of the K-sure insured tranche (defined below). \n\u200b\nOn May 19, 2022, we received $29.9 million in net proceeds related to the refinancing of our 2015-built VLGC, \nCougar\n.\n\u200b\nOn July 21, 2022, we repurchased \nCorvette\n for $42.2\u00a0million in cash and the application of the deposit amount of $14.0\u00a0million. \nCorvette\n was subsequently refinanced under the 2022 Debt Facility.\n\u200b\nOn July 29, 2022, we entered into a $260.0 million debt financing facility with CACIB, ING, SEB, BNP, and DSF to refinance indebtedness under the 2015 AR Facility and the Concorde Japanese Financing (upon its repurchase in September 2022) and to releverage \nCorvette\n following the repurchase of that vessel from its owners on July 21, 2022. The 2022 Debt Facility consists of (i) a term loan facility in an aggregate principal amount of $240.0 million and (ii) a revolving credit facility in an aggregate principal amount of up to $20.0 million. The loan comprised two separate drawdowns with $216.0 million drawn on August 4, 2022 relating to nine of our VLGCs, and the remaining $24.0 million relating to \nConcorde\n drawn on September 6, 2022. The term loan is for a period of seven years with an interest rate of SOFR plus a margin currently at 2.15%. \n\u200b\nOn September 6, 2022, we repurchased \nConcorde\n for $41.2 million in cash and application of the deposit amount of $14.0 million. \nConcorde\n was refinanced under the 2022 Debt Facility.\n\u200b\nOn March 20, 2023, we voluntarily prepaid $15.0 million of debt outstanding under the Cresques Japanese Financing.\n\u200b\nOn March 31, 2023, we entered into a $56 million bareboat charter to finance a 2023-built Dual-fuel VLGC, \nCaptain Markos.\n This debt financing has a floating interest rate of one-month SOFR plus a credit adjustment spread of 0.1148% (reflecting the difference between unsecured LIBOR and SOFR) and a margin of 2.475%, monthly broker commission fees of 1.25% over the 13-year term on interest and principal payments made, broker commission fees of 1.0% payable on the remaining debt outstanding at the time of the repurchase of \nCaptain Markos\n, and a monthly fixed straight-line principal obligation of $0.210 million until February 29, 2028 and of $0.250 million from March 31, 2028 through the remainder of bareboat charter period with a balloon payment of $19.4 million. We have early buyout options beginning March 31, 2028.\n\u200b\nAs part of our growth strategy, we will continue to consider strategic opportunities, including the acquisition or charter-in of additional vessels. We may choose to pursue such opportunities through internal growth, joint ventures, business acquisitions, or other transactions. We expect to finance the purchase price of any future acquisitions either through internally generated funds, public or private debt financings, public or private issuances of additional equity securities or a combination of these forms of financing.\n\u200b\nCash Flows\n\u200b\nThe following table summarizes our cash and cash equivalents provided by/(used in) operating, financing and investing activities for the periods presented:\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\n\u200b\nMarch\u00a031,\u00a02023\n\u200b\nMarch\u00a031,\u00a02022\n\u200b\nMarch\u00a031,\u00a02021\nNet cash provided by operating activities\n\u200b\n$\n 224,059,836\n\u200b\n$\n 118,695,170\n\u200b\n$\n 170,595,696\nNet cash provided by/(used in) investing activities\n\u200b\n\u00a0\n (76,341,190)\n\u200b\n\u00a0\n 68,766,198\n\u200b\n\u00a0\n 1,021,090\nNet cash used in financing activities\n\u200b\n\u00a0\n (235,232,008)\n\u200b\n\u00a0\n (35,178,821)\n\u200b\n\u00a0\n (174,484,467)\nNet increase/(decrease) in cash, cash equivalents, and restricted cash\n\u200b\n$\n (87,963,264)\n\u200b\n$\n 152,109,715\n\u200b\n$\n (2,661,928)\n\u200b\nOperating Cash Flows.\n Net cash provided by operating activities for the year ended March\u00a031,\u00a02023 was $224.1 million compared with $118.7 million for the year ended March\u00a031,\u00a02022. The increase is primarily related to an increase in operating income.\n \nFor a discussion of the year ended March 31, 2022 compared to the year ended March 31, 2021, \n79\n\n\nTable of Contents\nplease refer to Part II, Item 7, \u201cManagement\u2019s Discussion and Analysis of Liquidity and Capital Resources\u201d in our Annual Report on Form 10-K for the year ended March 31, 2022.\n\u200b\nNet cash flow from operating activities depends upon our overall profitability, market rates for vessels employed on voyage charters, charter rates agreed to for time charters, the timing and amount of payments for drydocking expenditures and unscheduled repairs and maintenance, fluctuations in working capital balances and bunker costs.\n\u200b\nInvesting Cash Flows.\n Net cash used in investing activities was $76.3 million for the year ended March\u00a031,\u00a02023, compared with net cash provided by investing activities of $68.8 million for the year ended March\u00a031,\u00a02022. For the year ended March\u00a031,\u00a02023, net cash used in investing activities was comprised of $68.8 million in payments for vessels and vessel capital expenditures, and $11.3 million in purchases of U.S. treasury notes, partially offset by $3.7 million in proceeds from the sale of investment securities. For the year ended March 31, 2022, net cash provided by investing activities was comprised of $90.5 million in proceeds from disposal of VLGCs \nCaptain Markos NL \nand \nCaptain Nicholas ML\n, and $3.7 million in proceeds from the sale of investment securities, partially offset by $23.2 million in payments for vessels under construction and vessel capital expenditures and $2.3 million in purchases of investment securities. For a discussion of the year ended March 31, 2022 compared to the year ended March 31, 2021, please refer to Part II, Item 7, \u201cManagement\u2019s Discussion and Analysis of Liquidity and Capital Resources\u201d in our Annual Report on Form 10-K for the year ended March 31, 2022.\n\u200b\nFinancing Cash Flows.\n Net cash used in financing activities was $235.2 million for the year ended March\u00a031,\u00a02023, compared with net cash used in financing activities of $35.2 million for the year ended March\u00a031,\u00a02022. For the year ended March\u00a031,\u00a02023, net cash used in financing activities consisted of repayments of long-term debt of $352.5 million, dividends paid of $220.6 million, payments of financing costs of $6.5 million, and repurchases of common stock totaling of $1.7 million, partially offset by $346 million of proceeds from long-term debt borrowings. For the year ended March 31, 2022, net cash used in financing activities consisted of repayments of long-term debt of $230.3 million, dividends paid of $80.1 million, repurchase of common stock of $21.4 million, and payments of financing costs of $1.7 million, partially offset by $298.3 million of proceeds from long-term debt borrowings. For a discussion of the year ended March 31, 2022 compared to the year ended March 31, 2021, please refer to Part II, Item 7, \u201cManagement\u2019s Discussion and Analysis of Liquidity and Capital Resources\u201d in our Annual Report on Form 10-K for the year ended March 31, 2022.\n\u200b\nCapital Expenditures.\n LPG transportation is a capital\u2011intensive business, requiring significant investment to maintain an efficient fleet and to stay in regulatory compliance.\n\u200b\nWe are generally required to complete a special survey for a vessel once every five years. Drydocking of vessels occurs every five years unless an extension is granted by the classification society to seven and one-half years and the vessel is not older than 20 years of age. Intermediate surveys are performed every two and one-half years after the first special survey. Drydocking each vessel takes approximately 10 to 20 days. We spend significant amounts for scheduled drydocking (including the cost of classification society surveys) for each of our vessels. \n\u200b\nOn March 31, 2023, we took delivery of our newbuilding dual-fuel VLGC, \nCaptain Markos\n, from the shipyard of Kawasaki Heavy Industries. As our vessels age and our fleet expands, our drydocking expenses will increase. We estimate the current cash outlay for a VLGC special survey to be approximately $1.0 million per vessel (excluding any capital improvements, such as scrubbers and ballast water management systems, to the vessel that may be made during such drydockings and the cost of an intermediate survey to be between $100,000 and $200,000 per vessel. Ongoing costs for compliance with environmental regulations are primarily included as part of our drydocking and classification society survey costs. In order to comply with the International Maritime Organization mandated reductions in sulfur emissions that came into effect January 1, 2020, we have installed scrubbers on twelve of our vessels and have one chartered-in scrubber-equipped vessel, which allows us to burn heavy fuel oil. Our other non-dual fuel vessels currently consume compliant fuels on board (0.5% sulfur), which are readily available globally, but at a significantly higher cost. We have entered into contracts to purchase scrubbers on an additional three of our ECO VLGCs and we have contractual commitments for scrubber purchases of $3.5 million as of March 31, 2023. We also have one newbuilding dual-fuel VLGC and two chartered-in dual-fuel vessels that have the capability to burn LPG as fuel, which we believe provides an economic benefit over traditional fuel. Please see \"Item 1A. Risk Factors\u2014Risks Relating to Our Company\u2014We may incur \n80\n\n\nTable of Contents\nincreasing costs for the drydocking, maintenance or replacement of our vessels as they age, and, as our vessels age, the risks associated with older vessels could adversely affect our ability to obtain profitable charters.\u201d\n\u200b\nDescription of Our Debt Obligations\n\u200b\nSee Note 9 to our consolidated financial statements included herein for a description of our debt obligations.\n\u200b\nRecent Accounting Pronouncements\n\u200b\nRefer to Note 2 of our consolidated financial statements included herein.\n\u200b",
+  "item7a": ">ITEM 7A. \u2003QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.\n\u200b\nWe are exposed to various market risks, including changes in interest rates, foreign currency fluctuations, and inflation. \n\u200b\nInterest Rate Risk\n\u200b\nThe LPG shipping industry is capital intensive, requiring significant amounts of investment. Much of this investment is provided in the form of long-term debt. Our debt agreement currently contains interest rates that fluctuate with SOFR. We have entered into interest rate swap agreements to hedge a majority of our exposure to fluctuations of interest rate risk associated with our 2022 Debt Facility. We have hedged $183.5 million of amortizing principal as of March\u00a031,\u00a02023 and thus increasing interest rates could adversely impact our future earnings. For the 12 months following March\u00a031,\u00a02023, a hypothetical increase or decrease of 20 basis points in the underlying SOFR rates would result in an increase or decrease of our interest expense on our unhedged interest-bearing debt by $0.3 million assuming all other variables are held constant. See Notes 9 and 19 to our consolidated financial statements included herein for a description of our debt obligations and interest rate swaps, respectively.\n\u200b\nForeign Currency Exchange Rate Risk\n\u200b\nOur primary economic environment is the international LPG shipping market. This market utilizes the U.S. dollar as its functional currency. Consequently, our revenues are in U.S. dollars and the majority of our operating expenses are in U.S. dollars. However, we incur some of our expenses in other currencies, particularly Euro, Singapore Dollar, Danish Krone, Japanese Yen, British Pound Sterling, and Norwegian Krone. The amount and frequency of some of these expenses, such as vessel repairs, supplies and stores, may fluctuate from period to period. Depreciation in the value of the U.S. dollar relative to other currencies will increase the cost of us paying such expenses. For the year ended March\u00a031,\u00a02023, 25% of our expenses (excluding depreciation and amortization, interest and finance costs and gain/loss on derivatives), were in currencies other than the U.S. dollar, and as a result we expect the foreign exchange risk associated with these operating expenses to be immaterial. We do not have foreign exchange exposure in respect of our credit facility and interest rate swap agreements, as these are denominated in U.S. dollars. \n\u200b\nThe portion of our business conducted in other currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations.\n\u200b\nInflation \n\u200b\nCertain of our operating expenses, including crewing, insurance and drydocking costs, are subject to fluctuations caused by market forces. Crewing costs in particular have risen over the past number of years as a result of a shortage of trained crews. Please see \"Item 1A. Risk Factors\u2014We may be unable to attract and retain key management personnel and other employees in the shipping industry without incurring substantial expense as a result of rising crew costs, which may negatively affect the effectiveness of our management and our results of operations.\" A shortage of qualified officers makes it more difficult to crew our vessels and may increase our operating costs. If this shortage were to continue or worsen, it may impair our ability to operate and could have an adverse effect on our business, financial condition and operating results. Inflationary pressures on bunker (fuel and oil) costs could have a material effect on our future operations \n81\n\n\nTable of Contents\nif the number of vessels employed on voyage charters increases. In the case of any vessels that are time\n-\nchartered to third parties, it is the charterers who pay for the fuel. If our vessels are employed under voyage charters, freight rates are generally sensitive to the price of fuel. However, a sharp rise in bunker prices may have a temporary negative effect on our results since freight rates generally adjust only after prices settle at a higher level. Please see \"Item 1A. Risk Factors\u2014Changes in fuel, or bunker, prices may adversely affect profits.\u201d\n\u200b\nAlthough inflation has had a moderate impact on our vessel operating expenses, insurance and corporate overheads, management does not consider inflation to be a significant risk to direct costs in the current and foreseeable economic environment. LPG transportation is a specialized area and the number of vessels is increasing. There will therefore be an increased demand for qualified crew and this has and will continue to put inflationary pressure on crew costs. However, in a shipping downturn, costs subject to inflation can usually be controlled because shipping companies typically monitor costs to preserve liquidity and encourage suppliers and service providers to lower rates and prices in the event of a downturn.\n\u200b\nForward Freight Agreements\n\u200b\nFrom time to time, we may take hedging or speculative positions in derivative instruments, including FFAs. The usage of such derivatives can lead to fluctuations in our reported results from operations on a period-to-period basis. Generally, freight derivatives may be used to hedge our exposure to the spot market for a specified route and period of time. Upon settlement, if the contracted charter rate is less than the average of the rates reported on an identified index for the specified route and time period, the seller of the FFA is required to pay the buyer the settlement sum, being an amount equal to the difference between the contracted rate and the settlement rate, multiplied by the number of days of the specified period. Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay the seller the settlement sum. If we take positions in FFAs or other derivative instruments we could suffer losses in the settling or termination of these agreements. This could adversely affect our results of operations and cash flows. Historically, we entered into FFAs as an economic hedge to reduce the risk on vessels trading in the spot market and to take advantage of short-term fluctuations in market prices. We do not classify these freight derivatives as cash flow hedges for accounting purposes and therefore gains or losses are recognized in earnings. As of March 31, 2023, we had no outstanding FFA positions.\n\u200b",
+  "cik": "1596993",
+  "cusip6": "Y2106R",
+  "cusip": ["Y2106R110", "Y2106R900"],
+  "names": ["DORIAN LPG LTD"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1596993/000159699323000033/0001596993-23-000033-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\nBusiness\n3\nItem 1A.\nRisk Factors\n11\nItem 1B.\nUnresolved Staff Comments\n19\nItem 2.\nProperties\n19\nItem 3.\nLegal Proceedings\n20\nItem 4.\nMine Safety Disclosures\n20\nInformation about Our Executive Officers\n21\n\u00a0\nPART II\n\u00a0\nItem 5.\nMarket for Registrant\u2019s Common Equity, Related Share Owner Matters and Issuer Purchases of Equity Securities\n22\nItem 6.\n[Reserved]\n24\nItem 7.\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n24\nItem 7A.\nQuantitative and Qualitative Disclosures About Market Risk\n32\nItem 8.\nFinancial Statements and Supplementary Data\n33\nItem 9.\nChanges in and Disagreements With Accountants on Accounting and Financial Disclosure\n64\nItem 9A.\nControls and Procedures\n64\nItem 9B.\nOther Information\n64\nItem 9C.\nDisclosure Regarding Foreign Jurisdictions that Prevent Inspections\n64\n\u00a0\nPART III\n\u00a0\nItem 10.\nDirectors, Executive Officers and Corporate Governance\n65\nItem 11.\nExecutive Compensation\n65\nItem 12.\nSecurity Ownership of Certain Beneficial Owners and Management and Related Share Owner Matters\n65\nItem 13.\nCertain Relationships and Related Transactions, and Director Independence\n66\nItem 14.\nPrincipal Accounting Fees and Services\n66\n\u00a0\nPART IV\n\u00a0\u00a0\nItem 15.\nExhibits, Financial Statement Schedules\n67\nItem 16.\nForm 10-K Summary\n67\nSIGNATURES\n70\n2\n \nPART I\nItem 1 - \nBusiness\nGeneral\nAs used herein, the terms \u201cCompany,\u201d \u201cKimball Electronics,\u201d \u201cwe,\u201d \u201cus,\u201d or \u201cour\u201d refer to Kimball Electronics, Inc., the Registrant, and its subsidiaries. Reference to a year relates to a fiscal year, ended June 30 of the year indicated, rather than a calendar year unless the context indicates otherwise. Additionally, references to the first, second, third, and fourth quarters refer to those respective quarters of the fiscal year indicated.\nForward-Looking Statements\nThis document contains certain forward-looking statements. These are statements made by management, using their best business judgment based upon facts known at the time of the statements or reasonable estimates, about future results, plans, or future performance and business of the Company. Such statements involve risk and uncertainty, and their ultimate validity is affected by a number of factors, both specific and general. They should not be construed as a guarantee that such results or events will, in fact, occur or be realized as actual results may differ materially from those expressed in these forward-looking statements. The statements may be identified by the use of words such as \u201cbelieves,\u201d \u201canticipates,\u201d \u201cexpects,\u201d \u201cintends,\u201d \u201cplans,\u201d \u201cprojects,\u201d \u201cestimates,\u201d \u201cforecasts,\u201d \u201cseeks,\u201d \u201clikely,\u201d \u201cfuture,\u201d \u201cmay,\u201d \u201cmight,\u201d \u201cshould,\u201d \u201cwould,\u201d \u201ccould,\u201d \u201cwill,\u201d \u201cpotentially,\u201d \u201ccan,\u201d \u201cgoal,\u201d \u201cpredict,\u201d and similar expressions. It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historical results. We make no commitment to update these factors or to revise any forward-looking statements for events or circumstances occurring after the statement is issued, except as required by law. \nThe risk factors discussed in \nItem 1A - Risk Factors\n of this report could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. Any such risks could cause our results to differ materially from those expressed in forward-looking statements.\nAt any time when we make forward-looking statements, we desire to take advantage of the \u201csafe harbor\u201d which is afforded such statements under the Private Securities Litigation Reform Act of 1995 where factors could cause actual results to differ materially from forward-looking statements.  \nOverview\nKimball Electronics was founded in 1961 and incorporated in 1998. We deliver a package of value that begins with our core competency of producing durable electronics and extends to contract manufacturing services for non-electronic components, medical disposables, drug delivery solutions, precision molded plastics, and production automation, test, and inspection equipment. Our design and manufacturing expertise coupled with robust processes and procedures help us ensure that we deliver the highest levels of quality and reliability throughout the entire life cycle of our customers\u2019 products. We deliver award-winning service across our global footprint with an operations platform driven by highly integrated procedures, standardization, and teamwork. Our Customer Relationship Management (\u201cCRM\u201d) model is key to providing our customers convenient access to our global footprint and all of our services throughout the entire product life cycle. Because they operate in industries that demand rigorous engineering controls and that commonly require long product life cycles, our customers value our track record of quality, financial stability, social responsibility, and commitment to long-term relationships.\nFor over 35 years, we have manufactured safety-critical electronic assemblies for automotive customers, developing invaluable expertise that extends beyond the automotive industry to benefit our customers in the medical and industrial sectors as well. By harnessing our experience and expertise in design and process validation, traceability, process and control change, as well as lean manufacturing, we have achieved substantial growth and diversification. This has enabled us to create innovative and valuable solutions for customers across our three verticals. We have harmonized our quality systems to meet and exceed industry certifications and regulatory requirements. This allows us to leverage key supply chain advantages and streamline our operations, enabling cost-effective manufacturing of both electronic and non-electronic products within a single production facility for customers from all three end market verticals.\nMany of our customers are multinational companies operating across multiple global regions, and they maximize their supplier relationship by partnering with us for engineering, manufacturing, and supply chain support across multiple locations and regions. We commonly manufacture the same product for the same customer in multiple facilities. Coupled with our CRM model and our global systems, procedures, processes, and teamwork, our strategic approach to expanding our global footprint aligns with our customers\u2019 preferences in our three end market verticals. This positions us strongly to support their global growth initiatives.\n3\n \nOur customers benefit from consistent processes across all regions thanks to our global component sourcing, procurement, quoting, and customer pricing operations. Our central sourcing organization employs global procurement strategies that ensure consistent component availability and uniform pricing approach by leveraging the purchase volume of our entire organization. Our unified, global quoting model allows us to seamlessly respond to our customers\u2019 production needs anywhere across our global footprint.\nOur CRM model combines our facilities\u2019 manufacturing experts with our business development team members located in-region with our global customers. Cross-functional teams from multiple facilities collaborate in quality, operational excellence, quoting, and design engineering global support. Clear roles and responsibilities, combined with diverse skill sets, establish a robust conduit critical for execution of our customers\u2019 objectives and building strong customer relationships. Our robust customer scorecard process provides valuable feedback to all levels of our company, driving continuous improvement initiatives, strengthening our award-winning service, and fostering deep customer loyalty.\nOur corporate headquarters is located at 1205 Kimball Boulevard, Jasper, Indiana. We manufacture products for our customers at facilities located in the United States, China, Mexico, Poland, Romania, Thailand, and Vietnam. We also have operations in India and Japan.\nWe offer our services globally on a contract basis, and we manufacture products to our customers\u2019 specifications. Our services primarily include:\n\u2022\nProduction and testing of printed circuit board assemblies (PCBAs);\n\u2022\nFull box build manufacturing and assembly;\n\u2022\nFinal Assembly of medical electronic products;\n\u2022\nDesign services and support;\n\u2022\nSupply chain services and support; \n\u2022\nRapid prototyping and new product introduction support;\n\u2022\nProduct design and process validation and qualification;\n\u2022\nIndustrialization and automation of manufacturing processes;\n\u2022\nReliability testing (testing of products under a series of extreme environmental conditions);\n\u2022\nAftermarket services;\n\u2022\nProduction and assembly of medical devices, medical disposables including packaging, and other non-electronic products;\n\u2022\nDrug delivery devices and solutions with and without electronics;\n\u2022\nClass 7 and 8 clean room assembly, cold chain and product sterilization management;\n\u2022\nDesign engineering and production of precision molded plastics; \n\u2022\nDesign engineering and manufacturing of automation, test, and inspection equipment;\n\u2022\nSoftware design; and\n\u2022\nComplete product life cycle management.\nWe take pride in our attentive approach to understanding and adapting to our customers\u2019 ever-changing needs and preferences. We continuously seek opportunities to grow and diversify our business and the value we deliver to customers while enhancing our global presence.\nReporting Segment\nOperating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and assessing performance. Each of our business units qualifies as an operating segment with its results regularly reviewed by our chief operating decision maker, the Chief Executive Officer. Our operating segments meet the aggregation criteria under the accounting guidance for segment reporting. As of June\u00a030, 2023, all of our operating segments provided contract manufacturing services, including engineering and supply chain support, for the production of electronic assemblies and other products including medical devices, medical disposables, precision molded plastics, and automation, test, and inspection equipment primarily in automotive, medical, and industrial applications, to the specifications and designs of our customers. The nature of the products, the production process, the type of customers, and the methods used to distribute the products have similar characteristics across all our operating segments. Each of our operating segments serves customers in multiple markets, and many of our customers\u2019 programs are manufactured and serviced by multiple operating segments. We leverage global processes such as component procurement and customer pricing that provide commonality and consistency among the various regions in which we operate. All of our operating segments have similar long-term economic characteristics, and as such, have been aggregated into one reportable segment.\n4\n \nOur Business Strategy\nWe intend to achieve sustained, profitable growth in the markets we serve by supporting the global growth initiatives of our customers as a multifaceted manufacturing solutions company. Key elements of executing our strategy include:\n\u2022\nLeveraging Our Global Footprint \u2013 continue our strategy of utilizing our presence in key regions worldwide, primarily focused on expansions of existing facilities, as well as potential new geographic regions, as our customer demands dictate;\n\u2022\nExpanding Our Package of Value \u2013 enhance our core strengths and expand our package of value through contract manufacturing services in areas such as complex system assembly, specialized processes, and precision molded plastics with particular emphasis on Kimball medical solutions;\n\u2022\nExpanding Our Markets \u2013 explore opportunities that will broaden existing or establish new markets, capabilities, or technologies such as automation, test, and inspection equipment for industrial applications.\nWe expect to make investments that will strengthen or add new capabilities to our package of value as a multifaceted manufacturing solutions company, including through acquisitions. See \nItem 1A - Risk Factors\n for risks associated with acquisitions.\nOur Business Offerings\nWe offer electronics manufacturing services, including engineering and supply chain support, to customers in the automotive, medical, and industrial end market verticals. We further offer contract manufacturing services for non-electronic components, medical disposables, precision molded plastics, as well as production automation, test, and inspection equipment. Our services support the complete product life cycle of our customers\u2019 products, and our processes and capabilities cover a range of products from high volume-low mix to high mix-low volume. We bring innovative, complete design solutions to our customers. We offer Design for Excellence input to our customers as a part of our standard package of value, and we use sophisticated software tools to integrate the supply chain in a way that provides our customers with the flexibility their business requires. Our robust new product introduction process and our extensive manufacturing capabilities give us the ability to execute to the various quality and reliability expectations of our customers in each of our end market verticals. We are committed to protecting the planet by combating climate change, including contributing to a lower carbon future, in our operations, our value chains, and in the services we offer to our customers. Our strategies include actions to optimize our manufacturing facilities and processes for sustainability, increase clean energy in our purchased power mix, collaborate with our customers and supply chain to address upstream and downstream carbon emissions, invest in clean energy solutions for climate protection, and develop low carbon products, technologies and services.\nWe value our customers and their unique needs and expectations. Our customer focus and dedication to unparalleled excellence in engineering and manufacturing has resulted in proven success in the contract manufacturing industry. Personal relationships are important to us, and\u00a0we strive to build long-term global partnerships. Our commitment to support our customers is backed by our history and demonstrated performance for over the past 60 years.\nMarketing Channels\nManufacturing services, including engineering and supply chain support, are marketed by our business development team. We use a CRM model to provide our customers with convenient access to our global footprint and all of our services throughout the entire product life cycle.\nMajor Competitive Factors\nKey competitive factors in the markets we serve include quality and reliability, engineering design services, production flexibility, on-time delivery, customer lead time, test capability, competitive pricing, and global presence. Numerous contract manufacturing service providers compete globally for business from existing and potential customers. We also face competition from our customers\u2019 own capacity and capabilities to in-source production. The proliferation of electronic components in today\u2019s advanced products and the continuing trend of original equipment manufacturers in the electronics industry subcontracting the assembly process to companies with a core competency in this area drive growth in the EMS industry. The nature of the EMS industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently. New customers and program start-ups generally cause margin dilution early in the life of a program, which is often recovered as the program becomes established and matures. Our continuing success depends upon our ability to replace expiring customers/programs with new customers/programs.\n5\n \nWe, and the industry in general, have special conditions affecting working capital that are significant for understanding our business, including fluctuating inventory levels, which may increase in conjunction with the start-up of new programs and component availability. Additionally, the nature of the contract manufacturing business is such that customers may be required to make advance payments for certain inventory purchases and share in the risk of excess and obsolete inventory.\nOur Competitive Strengths\nWe derive our competitive strengths from our experience of producing safety critical electronic assemblies for automotive customers for over 35 years and leveraging this experience to create valuable and innovative solutions for customers in different industries. Our strengths include:\n\u2022\nCore competency of producing durable electronics;\n\u2022\nBody of knowledge as it relates to the design and manufacture of products that require high levels of quality control, reliability, and durability;\n\u2022\nHighly integrated, global footprint;\n\u2022\nCapability to provide our customers diversified contract manufacturing services for non-electronic components, medical disposables, precision molded plastics, and automation, test, and inspection equipment;\n\u2022\nCRM model and our customer scorecard process;\n\u2022\nAbility to provide our customers with valuable input regarding designs for improved manufacturability, reliability, and cost;\n\u2022\nQuality systems, industry certifications, and regulatory compliance;\n\u2022\nIntegrated supply chain solutions and competitive bid process resulting in competitive raw material pricing; and\n\u2022\nComplete product life cycle management.\nCompetitors\nThe EMS industry is very competitive as numerous manufacturers compete for business from existing and potential customers. Our competition includes EMS companies such as Benchmark Electronics, Inc., Flex Ltd., Jabil Inc., Plexus Corp., and Sanmina Corporation. We do not have a significant share of the EMS market and were ranked the 20th largest global EMS provider for calendar year 2022 by \nManufacturing Market Insider\n in the March 2023 edition published by New Venture Research.\nLocations\nAs of June\u00a030, 2023, we have twelve manufacturing facilities with two located in Indiana, two in China, two in Mexico, and one located in each of California, Florida, Poland, Romania, Thailand, and Vietnam. Our software design services are primarily performed at our location in India, and other support services are performed at our location in Japan. We continually assess our capacity needs and evaluate our operations to optimize our service levels for supporting our customers\u2019 needs around the globe, and we have recently expanded our facilities in Thailand, Mexico, and Poland. See \nItem 1A - Risk Factors\n for information regarding financial and operational risks related to our international operations. \nSeasonality\nConsolidated sales revenue is generally not affected by seasonality. \nCustomers \nWhile the total electronic assemblies market has broad applications, our customers are concentrated in the automotive, medical, and industrial end markets. Beginning in fiscal year 2023, the Company changed its presentation of revenue for the industrial and public safety end market verticals by combining them into the industrial end market vertical. Prior year periods have been recast to conform to the current year presentation.\n6\n \nSales by industry as a percent of net sales for each of the three years in the period ended June\u00a030, 2023 were as follows:\n\u00a0\nYear Ended June 30\n\u00a0\n2023\n2022\n2021\nAutomotive\n45%\n43%\n43%\nMedical\n27%\n29%\n30%\nIndustrial\n26%\n27%\n26%\nOther\n2%\n1%\n1%\nTotal\n100%\n100%\n100%\nIncluded in our sales were a significant amount to Nexteer Automotive, Philips, and ZF, which accounted for the following portions of net sales:\n\u00a0\nYear Ended June 30\n\u00a0\n2023\n2022\n2021\nNexteer Automotive\n15%\n17%\n17%\nPhilips\n14%\n15%\n15%\nZF\n12%\n*\n*\n* amount is less than 10% of total\nThe nature of the contract manufacturing business is such that start-up of new programs to replace expiring programs occurs frequently. Our agreements with customers are often not for a definitive term and are amended and extended, but generally continue for the relevant product\u2019s life cycle, which can be difficult to predict at the beginning of a program. Typically, our customer agreements do not commit the customer to purchase our services until a purchase order is provided, which are generally short term in nature. Our customers generally have the right to cancel a particular program subject to contractual provisions governing termination, the final product runs, excess or obsolete inventory, and end-of-life pricing, which reduces the additional costs that we incur when a manufacturing services agreement is terminated. \nRaw Materials\nRaw materials utilized in the manufacture of contract electronic products are generally readily available from both domestic and foreign sources, although from time to time the industry experiences shortages of certain components due to supply and demand forces, combined with rapid product life cycles of certain components. In addition, unforeseen events such as natural disasters and global events, like pandemics, can and have disrupted portions of the supply chain. We believe that maintaining close communication with suppliers helps minimize potential disruption in our supply chain. \nThe EMS industry continues to experience component shortages, component allocations, and shipping delays, particularly with semiconductors, which were especially challenging in the prior fiscal year. Component shortages or allocations could continue to increase component costs and potentially interrupt our operations and negatively impact our ability to meet commitments to customers. We take various actions to attempt to mitigate the risk and minimize the impact to our customers as well as the adverse effect component shortages, component allocations, or shipping delays could have on our results. Through contractual pricing arrangements and negotiations with our customers, we attempt to mitigate the adverse effect that cost increases could have on our results.\nRaw materials are normally acquired for specific customer orders and may or may not be interchangeable among products. Inherent risks associated with rapid technological changes within this contract industry are mitigated by procuring raw materials, for the most part, based on firm orders. In certain instances, such as when lead times dictate, we enter into contractual agreements for material in excess of the levels required to fulfill customer orders. In turn, material authorization agreements with customers cover a portion of the exposure for material which is purchased prior to having a firm order. We may also purchase additional inventory to support new product introductions, transfers of production between manufacturing facilities, and to mitigate the potential impact from component shortages. \n7\n \nIntellectual Property\nOur primary intellectual property is our proprietary manufacturing technology and processes that allow us to provide competitive contract manufacturing and design services to our customers. As such, this intellectual property is complex and normally contained within our facilities. To protect our trade secrets, our manufacturing technology and processes, and other proprietary rights, we rely primarily on a combination of intellectual property laws pertaining to trade secrets and copyrights; non-disclosure agreements with our customers, employees, and suppliers; and our internal security procedures and systems. We feel that relying on trade secret or copyright protections is a superior strategy because there is no disclosure of the information to outside parties, and protections do not expire after a length of time. We currently have or are pursuing a modest number of patents for some of our innovations and technologies in the United States and foreign countries. We also maintain trademark rights (including registrations) for \u201cKimball Electronics,\u201d \u201cGES\u201d and other wordmarks and trademarks that we use in our business in the United States and around the world. We have policies and procedures to identify and protect our own intellectual property and that of our customers and suppliers. \nCorporate Social Responsibility\nWe are committed to responsible, sustainable environmental, social, and governance philosophies and practices, which have been a part of our fabric since our founding in 1961. To showcase how our employees around the world share a strong sense of responsibility to protect the environment, sustain a safety focus at our facilities, and give back in meaningful ways to the communities where we live and work, we issued our latest annual Environmental, Social & Governance Report (\u201cESG Report\u201d) in March 2023. The ESG Report highlights the long-term environmental, social, and governance principles and practices designed to support the Company\u2019s commitment to sustaining lasting relationships and achieving global success with its stakeholders wherever Kimball Electronics\u2019 touch is felt throughout the world. The ESG Report reflects several long-standing Guiding Principles of the Company: our customer is our business; our people are the company; the environment is our home; we strive to help our communities be great places to live; profitability and financial resources give us the freedom to shape our future and achieve our vision. The ESG Report is posted on our website at https://www.kimballelectronics.com/esg. The Company\u2019s website and the information contained therein, or incorporated therein, are not intended to be incorporated into this Annual Report on Form 10-K.\nSocially Responsible Supply Chain\nWe are committed to the use of a socially responsible supply chain to reduce the risk of human rights violations and the use of conflict minerals (tin, tungsten, tantalum and gold, or \u201c3TG\u201d) from the Democratic Republic of Congo and certain adjoining countries. Our efforts include requiring our suppliers to undertake reasonable due diligence within their supply chain to ensure that the 3TG in the materials we source from them do not directly or indirectly contribute to significant adverse human rights impacts, as well as conducting due diligence before allowing a potential supplier to become one of our preferred suppliers. We request the return of reporting forms related to conflict minerals from our suppliers under the Responsible Minerals Initiative, or RMI, Conflict Minerals Survey. Further, we seek to remove any suppliers that continue to fail to meet our supplier and conflict minerals policies after being provided the opportunity to remedy non-compliance via implementation of a corrective action plan. We also conduct recurring, annual training for all employees and certain select contractors on export compliance, anti-corruption and anti-slavery, and insider trading. In addition, Kimball Electronics is a member of the RMI, which is evaluating the supply chain risks of conflict minerals and other minerals (e.g., cobalt, mica) and studying how to mitigate those risks.\nHuman Rights\nAs reflected in our Vision and Guiding Principles, Kimball Electronics is committed to the highest standards of conduct in its business dealings. We are a human-centered company that fully supports human rights. For us, human rights are more than just being compliant--they are about doing the right thing. Our Guiding Principles outline the critical role Kimball plays as a corporate citizen for our customers, our people, our partners, our environment, our Share Owners, and our communities. Our human rights beliefs are deeply rooted in our Guiding Principles and expressed in our Global Human Rights Policy, which is supported by annual review that explains some of the practical actions that we take each year to implement our Policy.\nKimball has been built upon the tradition of pride in craftsmanship, mutual trust, personal integrity, respect for dignity of the individual, a spirit of cooperation, and a sense of family and good humor. We seek to enhance this culture as we grow. We believe that no company should prosper while violating the basic human rights of others whether through unlawful slavery, servitude, forced or compulsory labor, or otherwise exploitative means. We believe in upholding principles of human rights, fair remuneration and economic inclusion, fair labor practices, worker safety, and observing fair labor practices within our organization and our supply chain.\n8\n \nDiversity, Equity, Inclusion, and Belonging\nWe value and work to promote a diverse, equitable and inclusive work environment. We are committed to holding ourselves accountable, taking action to continuously improve our policies and practices, and to uphold the principles that encompass diversity, equity, inclusion, and belonging as outlined in our Diversity, Equity, Inclusion, and Belonging (\u201cDEI&B\u201d) statement. Our strategy is to achieve excellence in customer service, employee relations, and business objectives through creativity, responsiveness, and innovation as a result of increased well-being, sense of belonging, and meaningful work for our employees. We actively promote DEI&B, and incorporate DEI&B into our culture, values, and strategies. We provide a report on the diversity of our employees to the Board of Directors annually.\nContributing to Our Communities\nOne of our Guiding Principles is to strive to help our communities be great places to live. We live this Guiding Principle and further the goals of our Human Rights Policy when we contribute and encourage our employees to contribute to our local communities. Below are examples of our contributions: \n\u2022\nIn 2022, we committed $100,000 to Southwestern Indiana Child Advocacy Center Coalition (\u201cSWICACC\u201d), a safe reporting center for abused or neglected children that serves seven counties in southwestern Indiana. We made our final installment of the commitment in fiscal year 2023.\n\u2022\nOn International Women\u2019s Day 2021, we donated $5,000 to Water To Thrive to build a freshwater well system for a village in Ethiopia because safe, fresh drinking water is a basic human right. This well was fully operational during fiscal year 2023.\n\u2022\nIn 2022, we donated $100,000 to refugee-related activities and aid causes, including Ukrainian refugees.\n\u2022\nKimball Electronics Gives, an employee-based giving circle, raised enough money to offer grants totaling $8,400 to seven worthy causes selected by our employees. To date, Kimball Electronics Gives has donated $41,500 to various worthy causes.\n\u2022\nIn 2022, we implemented our Creating Quality for Life Scholarship program, awarding 10 dependents of employees a total of $12,500. \n\u2022\nWe also initiated our Employee Relief Fund to help employees with undue financial stress placed on them and their families due to a catastrophic event or other unfortunate personal event creating financial hardship.\nEnvironment and Energy Matters\nOur operations are subject to various foreign, federal, state, and local laws and regulations with respect to environmental and ecological matters. We believe that we are in substantial compliance with present laws and regulations and that there are no material liabilities related to such items.\nWe are dedicated to excellence, leadership, and stewardship in protecting the environment and communities in which we have operations. We believe that continued compliance with foreign, federal, state, and local laws and regulations which have been enacted relating to the protection of the environment will not have a material effect on our capital expenditures, earnings, or competitive position. Management believes capital expenditures for environmental control equipment will not represent a material portion of total capital expenditures. \nOur operations require significant amounts of energy, including natural gas and electricity. Federal, foreign, and state regulations may control the allocation of fuels available to us, but to date we have experienced no interruption of production due to such regulations.\nKimball Electronics participates in the Carbon Disclosure Project (CDP) climate change and water security questionnaires to quantify our environmental practices, provide transparency on our progress, and assist in the reduction of our contributions to climate change. Additionally, we align our sustainability reporting with the Sustainability Accounting Standards Board (SASB) and the Task Force On Climate Related Financial Disclosures (TCFD) frameworks and also highlight our alignment with the UN Sustainable Development Goals and the UN Global Compact. We discuss our ESG goals and programs in detail in our annual ESG report. We publish this ESG report and our responses to the CDP climate change and water security questionnaires annually on our website at kimballelectronics.com/esg. We publish this information because our Guiding Principles remind us that the environment is our home and that we will be leaders in not only protecting but enhancing our world. The contents of the ESG reports and CDP questionnaire responses are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC.\nRefer to the discussion in \nItem 1A - Risk Factors\n for further details of the legal and regulatory initiatives related to environmental matters including climate change that could adversely affect our business, results of operations, and financial condition.\n9\n \nOur People are the Company:  Human Capital Management \nWe believe our people are the company. We believe in creating quality for life. We believe lasting relationships create our global success. We believe our people are the competitive edge for our service, quality, and value. Kimball Electronics has been built upon the tradition of pride in craftsmanship, mutual trust, personal integrity, respect for dignity of the individual, a spirit of cooperation, and a sense of family and good humor. We seek to enhance this culture as we grow. We believe in the inherent value of all individuals. \nTo raise awareness of our commitment to human rights and to foster compliance with our Global Human Rights Policy, we have incorporated it as an integral part of our Code of Conduct, train all of our employees worldwide on human rights issues, and require our suppliers, vendors, contractors, and partners to meet the same standards. To this end, through our Guiding Principles, we champion transparency and accountability for ourselves. \nBecause our people are the reason for our success, central to our long-term strategy is attracting, developing, and retaining the best talent globally and strengthening collaboration. We are committed to pay equity and apply the principle of equal pay for work of equal value in all regions where we operate. As of June\u00a030, 2023, Kimball Electronics employed approximately 7,900 people worldwide, with approximately 1,300 located in the United States and approximately 6,600 located in foreign countries. Three of our seven independent members of the Board of Directors are female, along with four of our eight executive management team members and over 50% of our global workforce. We continue to execute on our commitment to diversity, equity, inclusion, and belonging, and exhibit our commitment to gender, racial, and ethnic diversity by striving toward the corporate goals we outline in both our Global Human Rights Policy and Diversity, Equity, Inclusion, and Belonging statement, including by:\n\u2022\nIncreasing female representation globally at the executive and senior management levels;\n\u2022\nIncreasing racial and ethnic diversity at the executive and senior management levels so our leadership will reflect our organization and the communities in which we operate;\n\u2022\nHolding leadership accountable for diversity, equity, inclusion, and belonging outcomes.\nThe average tenure within our workforce is 6 years, and we work hard to mitigate turnover risk by consistently and formally surveying our workforce about how well we are living up to our \nPeople\n Guiding Principles by asking them to anonymously rate us on a scale from 1 (low) to 10 (high). We currently have a score of 8.29 across our enterprise. We believe this is evidence that we truly operate our business as our people are the company. We consistently have a participation rate in our Guiding Principles survey of approximately 90%. Upon completion of this survey every year, each local management team receives qualitative and quantitative feedback and are responsible for crafting improvement plans based on our people\u2019s inputs.\nOur U.S. operations are not subject to collective bargaining arrangements. Certain foreign operations are subject to collective bargaining arrangements, many mandated by government regulation or customs of the particular countries. We believe that our employee relations are good. \nFor additional information, see the Company\u2019s Proxy Statement to be filed for its annual meeting of Share Owners to be held November\u00a017, 2023 under the caption \u201cOur People are the Company: Human Capital Management.\u201d\nAvailable Information\nThe Company makes available free of charge through its website, https://investors.kimballelectronics.com, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (\u201cSEC\u201d). All reports the Company files with the SEC are also available via the SEC website, http://www.sec.gov. The Company\u2019s website and the information contained therein, or incorporated therein, are not intended to be incorporated into this Annual Report on Form 10-K. \n10\n \nItem 1A - \nRisk Factors\nThe following important risk factors, among others, could affect future results and events, causing results and events to differ materially from those expressed or implied in forward-looking statements made in this report and presented elsewhere by management from time to time. Such factors, among others, may have a material adverse effect on our business, financial condition, and results of operations and should be carefully considered. Additional risks and uncertainties that we do not currently know about, we currently believe are immaterial, or we have not predicted may also affect our business, financial condition, or results of operations. Because of these and other factors, past performance should not be considered an indication of future performance.\nBusiness and Operational Risks\nReduction of purchases by, or the loss of, one or more key customers could reduce revenues and profitability.\n \nLosses of key customers within specific industries or significant volume reductions from key customers are both risks. Our continuing success is dependent upon replacing expiring contract customers/programs with new customers/programs. See \u201cCustomers\u201d in \nItem 1 - Business\n for disclosure of the net sales as a percentage of consolidated net sales for each of our significant customers during fiscal years 2023, 2022, and 2021. Regardless of whether our agreements with our customers, including our significant customers, have a definite term, our customers typically do not commit to firm production schedules for more than one quarter. Our customers generally have the right to cancel a particular product, subject to contractual provisions governing the final product runs, excess or obsolete inventory, recovery of dedicated investments, and end-of-life pricing. As many of our costs and operating expenses are relatively fixed, a reduction in customer demand, particularly a reduction in demand for a product that represents a significant amount of revenue, can harm our gross profit margins and results of operations. \nSignificant declines in the level of purchases by key customers or the loss of a significant number of customers could have a material adverse effect on our business. In addition, the nature of the contract manufacturing industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently, and new customers and program start-ups generally cause margin dilution early in the life of a program. New customer relationships also present risk because we do not have an extensive product or customer relationship history.\nConsolidation among our customers exposes us to increased risks, including reduced revenue and dependence on a smaller number of customers. Consolidation in industries that utilize our services may occur as companies combine to achieve further economies of scale and other synergies, which could result in an increase in excess manufacturing capacity as companies seek to divest manufacturing operations or eliminate duplicative product lines. Excess manufacturing capacity may increase pricing and competitive pressures for our industry as a whole and for us in particular.\nWe can provide no assurance that we will be able to fully replace any lost sales from these risks, which could have an adverse effect on our financial position, results of operations, or cash flows. \nSupply chain disruptions could prevent us from purchasing sufficient materials, parts, and components necessary to meet customer demand at competitive prices, in a timely manner, or at all. \nWe depend on suppliers globally to provide timely delivery of materials, parts, and components for use in our products. From time to time, we have experienced shortages of some of the materials, parts and components that we use, particularly with semiconductors. These shortages can result from strong demand for those components or from problems experienced by suppliers, such as shortages of raw materials and shipping delays for such components with common carriers. These unanticipated component shortages have and will continue to result in curtailed production or delays in production, which prevent us from making scheduled shipments to customers.\nWe have also experienced, and may again experience in the future, such shortages due to the effects of and responses to the COVID-19 pandemic, including the emergence of variants for which vaccines may not be effective, and may be impacted by other events outside our control, including macroeconomic events, trade restrictions, political crises, social unrest, terrorism, and conflicts (including the Russian invasion of, and ongoing war in, Ukraine). We cannot reasonably predict the full extent to which these events may impact our supply chain, because any impacts will depend on future developments that are highly uncertain and continuously evolving, including new information that may emerge concerning COVID-19, further actions by governmental entities or others in response to the types of events described above, and how quickly and to what extent normal economic and operating conditions can resume.\n11\n \nSuppliers adjust their capacity as demand fluctuates, and component shortages and/or component allocations could occur in addition to longer lead times. Certain components we purchase are primarily manufactured in select regions of the world and issues in those regions could cause manufacturing delays. Maintaining strong relationships with key suppliers of components critical to the manufacturing process is essential. Component shortages may also increase our cost of goods sold because we may be required to pay higher prices for components in short supply and redesign or reconfigure products to accommodate substitute components. These and other price increases, including increased tariffs, could have an adverse impact on our profitability if we cannot offset such increases with other cost reductions or by price increases to customers. If suppliers fail to meet commitments to us in terms of price, delivery, or quality, or if the supply chain is unable to react timely to increases in demand, it could interrupt our operations and negatively impact our ability to meet commitments to customers.\nThe substantial investments required to start up and expand facilities and new customer programs may adversely affect our margins and profitability.\n \nWe continue to expand our global operations by increasing our product and service offerings and scaling our infrastructure at certain facilities to support our business. This expansion increases the complexity of our business and places significant strain on our management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions. We may not be able to manage these expansions effectively, which could damage our reputation, limit our growth, and negatively affect our operating results.\nStart-ups of new customer programs require the coordination of the design and manufacturing processes, as well as substantial investments in resources and equipment. The design and engineering required for certain new programs can take an extended period of time, and further time may be required to achieve customer acceptance. Accordingly, the launch of any particular program may be delayed, less successful than we originally anticipated, or not successful at all. Additionally, even after acceptance, most of our customers do not commit to long-term production schedules, and we are unable to forecast the level of customer orders with certainty over a given period of time. If our customers do not purchase anticipated levels of products, we may not recover our up-front investments, may not realize profits, and may not effectively utilize expanded fixed manufacturing capacities. All of these types of manufacturing inefficiencies could have an adverse impact on our financial position, operating margins, results of operations, or cash flows. \nOur international operations make us vulnerable to financial and operational risks associated with doing business in foreign countries.\n \nWe derive a substantial majority of our revenues from our operations outside the United States, primarily in China, India, Mexico, Poland, Romania, Thailand, and Vietnam. Our international operations are subject to a number of risks, which may include the following:\n\u2022\nglobal, regional, or local economic and political instability;\n\u2022\nwidespread health emergencies and foreign governments\u2019 measures taken in response to them;\n\u2022\nforeign currency fluctuations including currency controls and inflation, which may adversely affect our ability to do business in certain markets and reduce the U.S. dollar value of revenues, profits, or cash flows we generate in non-U.S. markets;\n\u2022\nwarfare, riots, terrorism, general strikes, or other forms of violence and/or geopolitical disruption;\n\u2022\ncompliance with laws and regulations, including the U.S. Foreign Corrupt Practices Act, applicable to operations outside of the U.S.;\n\u2022\nchanges in U.S. or foreign policies, regulatory requirements, and laws;\n\u2022\ntariffs and other trade barriers, including tariffs imposed by the United States as well as responsive tariffs imposed by China, the European Union, or Mexico;\n\u2022\npotentially adverse tax consequences, including changes in tax rates and the manner in which multinational companies are taxed in the United States and other countries; and\n\u2022\nforeign labor practices.\nThese risks could have an adverse effect on our financial position, results of operations, or cash flows. Certain foreign jurisdictions restrict the amount of cash that can be transferred to the United States or impose taxes and penalties on such transfers of cash. To the extent we have excess cash in foreign locations that could be used in, or is needed by, our operations in the United States, we may incur significant penalties and/or taxes to repatriate these funds.\nFor example, the Russian invasion of Ukraine and the ongoing war there has impacted the global economy as the United States, the UK, the EU, and other countries have imposed broad export controls and financial and economic sanctions against Russia (a large exporter of commodities), Belarus, and specific areas of Ukraine, and may continue to impose additional sanctions or \n12\n \nother measures. Russia may impose its own counteractive measures. Companies worldwide have interrupted or stopped production in Ukraine, Russia, and neighboring countries. We do not procure materials directly from Ukraine or Russia or have facilities there, but impacts like these, wherever they may occur, can further exacerbate the ongoing supply chain disruptions that are occurring across the globe, particularly in the automotive industry. Our European operations are located in Poland and Romania, and both of these countries are part of NATO, which is actively taking, and could take in the future, certain measures in response to Russia\u2019s invasion of Ukraine.\nThe extent of the war\u2019s effect on the global economy and the duration, scope, and impacts of the conflict are unknown and highly unpredictable, and the consequences from future actions such as increased sanctions and retaliatory measures taken by the United States, NATO, or other countries cannot be predicted but could have an adverse impact on our business operations, particularly our European operations.\nWe operate in a highly competitive industry and may not be able to compete successfully.\n \nNumerous manufacturers within the contract manufacturing industry compete globally for business from existing and potential customers. Some of our competitors have greater resources and more geographically diversified international operations than we do. We also face competition from the manufacturing operations of our customers, who are continually evaluating the merits of manufacturing products internally against the advantages of outsourcing to contract manufacturing service providers. In the past, some of our customers have decided to in-source a portion of their manufacturing from us in order to utilize their excess internal manufacturing capacity. The competition may further intensify as more companies enter the markets in which we operate, as existing competitors expand capacity, and as the industry consolidates.\nIn relation to customer pricing pressures, if we cannot achieve the proportionate reductions in costs, profit margins may suffer. The high level of competition in the industry impacts our ability to implement price increases or, in some cases, even maintain prices, which also could lower profit margins. In addition, as end markets dictate, we are continually assessing excess capacity and developing plans to better utilize manufacturing operations, including consolidating and shifting manufacturing capacity to lower cost venues as necessary.\nIf our engineering and manufacturing services do not meet our customers\u2019 quality standards, our sales, operating results, and reputation could suffer.\n \nWe make substantial investments of capital and operating expenses to implement comprehensive, company-wide quality systems, certifications, and controls in our operations in an effort to ensure sustained compliance with various product and quality system regulations and requirements, and to meet the needs of our customers. However, in the event we fail to adhere to these requirements, we become subject to costs associated with product defects, interruptions in production, and reputational harm. Our failure to comply with applicable quality system standards could, in turn, adversely affect our customers through failures to supply product to them. Quality or noncompliance failures could have an adverse effect on our reputation in addition to an adverse impact on our financial position, results of operations, or cash flows. While we maintain product liability and other insurance coverage that we believe to be generally in accordance with industry practices, our insurance coverage may not be adequate to protect us fully against substantial claims and costs that may arise from warranty and other liabilities related to product defects.\nOur business may be harmed due to failure to successfully implement information technology solutions or a lack of reasonable safeguards to maintain data security, including adherence to data privacy laws and physical security measures.\nThe operation of our business depends on effective information technology systems, including data management, analytics, and emerging machine learning and artificial intelligence platforms and applications. These systems are subject to the risk of security breach or cybersecurity threat, including misappropriation of assets or other sensitive information, such as confidential business information and personally identifiable data relating to employees, customers, and other business partners, or data corruption which could cause operational disruption. The unpredictability of AI, machine learning, and similar systems that automate certain operational tasks bring the potential for unintended consequences and unexpected disruptions in business operations, financial losses, and reputational damage. As we could be the target of cyber and other security threats, which are becoming increasingly sophisticated, we must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address, and mitigate the risk of unauthorized access, misuse, computer viruses, and other events that could have a security impact. Information systems require an ongoing commitment of significant resources to research new technologies and processes, maintain and enhance existing systems, and develop new systems in order to keep pace with changes in information processing technology and evolving industry standards as well as to protect against cyber risks and security breaches. While we provide employee awareness training around phishing, malware, and other cyber threats to help protect against these cyber and security risks, we cannot ensure the measures we take to protect our information technology systems will be sufficient. \n13\n \nImplementation delays, poor execution, or a breach of information technology systems could disrupt our operations, damage our reputation, or increase costs related to the mitigation of, response to, or litigation arising from any such issue. Similar risks exist with our third-party vendors. Any problems caused by these third parties, including those resulting from disruption in communications services, cyber attacks, or security breaches, have the potential to hinder our ability to conduct business. In addition, data privacy laws and regulations, such as the European Union General Data Protection Regulation (\u201cGDPR\u201d), the UK GDPR, ePrivacy Directive, the California Privacy Rights Act (\u201cCPRA\u201d), and similar legislation in jurisdictions in which we operate, pose increasingly complex compliance challenges and potentially elevate costs, and any failure to comply with these laws and regulations could result in significant penalties.\nWe depend on attracting and retaining executive officers, key employees, skilled personnel, and sufficient labor to efficiently operate our business.\nOur success depends to a large extent on our ability to attract and retain highly qualified and diverse executive officers, key employees, and skilled personnel, and to continue to implement our succession plans for managers and other key employees. These employees are not generally bound by employment or non-competition agreements, and we cannot assure you that we will retain them. The labor market for these employees is intensely competitive, and compensation and benefit costs continue to increase significantly in the current economic environment. In particular, the high demand for manufacturing labor in certain geographic areas in which we operate makes recruiting new production employees and retaining experienced production employees difficult.\nOur success also depends on keeping pace with technological advancements, including Industry 4.0, and adapting services to provide manufacturing capabilities which meet customers\u2019 changing needs. Therefore, we must retain our qualified engineering and technical personnel and successfully anticipate and respond to technological changes in a cost effective and timely manner. \nShortages of workers could adversely impact our ability to operate our business effectively and timely serve our customers\u2019 needs, which could adversely affect our relations with customers, result in reductions in orders from customers, or cause us to lose customers. Turnover in personnel could result in additional training and inefficiencies that could adversely impact our operating results. Our culture and guiding principles focus on continuous training, motivating, and development of employees, and we strive to attract, motivate, and retain qualified personnel. To aid in managing our growth and strengthening our pool of qualified personnel, we will need to internally develop, recruit, and retain diverse, qualified personnel. If we are not able to do so, our business and our ability to continue to grow could be harmed.\nRegulatory and Litigation Risks\nFailure to protect our intellectual property could undermine our competitive position.\n \nCompeting effectively depends, to a significant extent, on maintaining the proprietary nature of our intellectual property. We attempt to protect our intellectual property rights worldwide through a combination of keeping our proprietary information secret and utilizing trademark, copyright, and trade secret laws, as well as licensing agreements and third-party non-disclosure and assignment agreements. Because of the differences in foreign laws concerning proprietary rights, our intellectual property rights do not generally receive the same degree of protection in foreign countries as they do in the United States, and therefore, in some parts of the world, we have limited protections, if any, for our intellectual property. If we are unable to adequately protect our intellectual property embodied in our solutions, designs, processes, and products, the competitive advantages of our proprietary technology could be reduced or eliminated, which would harm our business and could have a material adverse effect on our results of operations and financial position.\nAnti-takeover provisions in our organizational documents and Indiana law could delay or prevent a change in control.\nCertain provisions of our Amended and Restated Articles of Incorporation and the Amended and Restated Bylaws may delay or prevent a merger or acquisition that a Share Owner may consider favorable. For example, the Amended and Restated Articles of Incorporation authorizes our Board of Directors to issue one or more series of preferred stock, prevents Share Owners from acting by written consent without unanimous consent, and requires a supermajority Share Owner approval for certain business combinations with related persons. These provisions may discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price. Indiana law also imposes some restrictions on potential acquirers.\nOur failure to maintain applicable registrations for our manufacturing facilities could negatively impact our ability to produce products for our customers. \nWe make substantial investments of capital and operating expenses to implement comprehensive, company-wide quality systems, certifications, and controls in our operations in an effort to ensure sustained compliance with various product and quality system regulations and requirements, and to meet the needs of our customers. However, in the event we fail to adhere to these requirements, we become subject to potential investigations and fines and penalties. Our failure to comply with applicable \n14\n \nregulations and quality system standards could, in turn, adversely affect our customers through failures to supply product to them or delays in their ability to obtain and maintain product approvals. As a medical device manufacturer, we also have additional compliance requirements. The U.S. Food and Drug Administration (\u201cFDA\u201d) extensively regulates all aspects of product and manufacturing quality for medical products under its current Good Manufacturing Practices (cGMP) regulations. Outside the U.S., our operations and our customers\u2019 products are subject to similar regulatory requirements, notably by the European Medicines Agency and the Safe Food and Drug Administration in China. For instance, we are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with the FDA\u2019s Quality System Regulation (\u201cQSR\u201d) requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures. Any determination by the FDA or other regulatory authorities of manufacturing or other deficiencies could adversely affect our business. Failure or noncompliance could have an adverse effect on our reputation in addition to an adverse impact on our financial position, results of operations, or cash flows.\nClimate change, and the legal and regulatory initiatives related to climate change, could subject us to extensive environmental regulation and significant potential environmental liabilities.\n \nThere is increasing concern that a gradual increase in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters or extreme weather conditions, such as hurricanes, earthquakes, droughts, wildfires, cyclones, or floods. Physical climate risks and the operation of facilities in areas subject to increased water stress could impair our production capabilities, disrupt the operations of our supply chain and infrastructure, and impact our customers and their demand for our services.\nThe past and present operation and ownership by Kimball Electronics of manufacturing plants and real property are subject to extensive and changing federal, state, local, and foreign environmental laws and regulations, including those relating to discharges in air, water, and land, the handling and disposal of solid and hazardous waste, the use of certain hazardous materials in the production of select products, and the remediation of contamination associated with releases of hazardous substances.\nIn addition, as regulators and investors increasingly focus on climate change and other sustainability issues, we are subject to new disclosure frameworks and regulations. For example, the European Parliament adopted the Corporate Sustainability Reporting Directive (CSRD) and the resulting adoption of EU sustainability reporting standards to be developed by the European Financial Reporting Advisory Group, with such standards to be tailored to EU policies building on and contributing to international standardization initiatives, will apply not only to local operations in the EU, but under certain circumstances, to entire global companies like Kimball Electronics that have EU operations. The CSRD will not apply to our operations in calendar year 2023, but we are assessing our obligations under the CSRD and we expect that compliance with the CSRD could require significant effort in future years. The SEC and the State of California have also proposed new climate change disclosure requirements, and compliance with such rules, if and when they are finalized, could also require significant effort.\nWe cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted, or what environmental conditions may be found to exist. Compliance with more stringent laws or regulations, or stricter interpretation of existing laws, may require additional expenditures, some of which could be material. In addition, any investigations or remedial efforts relating to environmental matters could involve material costs or otherwise result in material liabilities. \nThe long-term effects of climate change on the global economy and our industry in particular are unclear. Changes in climate where we, our customers, and our supply chain operate could have a long-term adverse impact on our business, results of operations, and financial condition. In addition, we have committed to cut our greenhouse gas emissions, water usage, electrical usage, and air emissions significantly by 2025 as part of our long-term sustainability strategy, and we may take additional voluntary steps to mitigate our impact on the environment. Climate transition risks related to shifts to a low-carbon economy and the associated costs of retrofitting or constructing facilities with green technology, in addition to investments in renewable energy and energy efficiency could involve material costs or otherwise impact our customers and their demand for our services.\nEnvironmental regulations or changes in the supply, demand, or available sources of energy, water, or other resources may affect the availability or cost of goods and services, including natural resources, necessary to run our business. The cost of energy is a critical component of freight expense and the cost of operating manufacturing facilities. Increases in the cost of energy in particular could reduce our profitability. Given the political significance and uncertainty around these issues, we cannot predict how climate change, and the legal and regulatory initiatives related to climate change, will affect our operations and financial condition.\n15\n \nCompliance with government legislation and regulations may significantly increase our operating costs in the United States and abroad. \nLegislation and regulations promulgated by the U.S. federal and foreign governments could significantly impact our profitability by burdening us with forced cost choices that either cannot be recovered by increased pricing or, if we increase our pricing, could negatively impact demand for our products. For example:\n\u2022\nChanges in policies by the U.S. or other governments could negatively affect our operating results due to changes in duties, tariffs or taxes, or limitations on currency or fund transfers, as well as government-imposed restrictions on producing certain products in, or shipping them to, specific countries. For example, our facility in Mexico operates under the Mexican Maquiladora (\u201cIMMEX\u201d) program. This program provides for reduced tariffs and eased import regulations. We could be adversely affected by changes in the IMMEX program or our failure to comply with its requirements. As another example, the U.S. government has imposed tariffs on certain products imported from China. China has imposed tariffs on certain U.S. products in retaliation. These tariffs could force our customers or us to consider various strategic options including, but not limited to, looking for different suppliers, shifting production to facilities in different geographic regions, absorbing the additional costs, or passing the cost on to customers. Ultimately, these tariffs could adversely affect the competitiveness of our domestic operations, which could lead to the reduction or exit of certain U.S. manufacturing capacity. Depending on the types of changes made, demand for our foreign manufacturing facilities could be reduced, or operating costs in our manufacturing facilities could be increased, which could negatively impact our financial performance. Moreover, any retaliatory actions by other countries where we operate could also negatively impact our financial performance.\n\u2022\nThe Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as \u201cconflict minerals,\u201d originating from the Democratic Republic of Congo (\u201cDRC\u201d) and adjoining countries. These rules could adversely affect the sourcing, supply, and pricing of materials used in our products, as the number of suppliers who provide conflict-free minerals may be limited. We may also suffer reputational harm if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to modify our products to avoid the use of such materials. We may also face challenges in satisfying customers who may require that our products be certified as containing conflict-free minerals or that we adopt more stringent guidelines like those fostered by the Responsible Materials Initiative (\u201cRMI\u201d).\n\u2022\nWe are subject to a variety of federal, state, local and foreign environmental, health and safety, product stewardship and producer responsibility laws and regulations, including those arising from global pandemics or relating to the use, generation, storage, discharge and disposal of hazardous chemicals used during our manufacturing process, those governing worker health and safety, those requiring design changes, supply chain investigation or conformity assessments, and those relating to the recycling or reuse of products we manufacture. These include EU regulations and directives, such as the Restrictions on Hazardous Substances (\u201cRoHS\u201d), the Waste Electrical and Electronic Equipment (\u201cWEEE\u201d) directives, and the Registration, Evaluation, Authorization, and Restriction of Chemicals (\u201cREACH\u201d) regulation, and similar regulations in China (the Management Methods for Controlling Pollution for Electronic Information Products or \u201cChina RoHS\u201d). In addition, new technical classifications of e-Waste being discussed in the Basel Convention technical working group could affect both our customers\u2019 abilities and obligations in electronics repair and refurbishment. If we fail to comply with any present or future regulations or timely obtain any needed permits, we could become subject to liabilities, and we could face fines or penalties, the suspension of production, or prohibitions on sales of products we manufacture. In addition, such regulations could restrict our ability to expand our facilities or could require us to acquire costly equipment, or to incur other significant expenses, including expenses associated with the recall of any non-compliant product or with changes in our operational, procurement and inventory management activities.\nESG issues, including those related to climate change and sustainability, may increase our costs and impose difficult and expensive compliance requirements.\nCustomers, consumers, investors, and other stakeholders, particularly in the EMS industry, are increasingly focusing on environmental issues, including climate change, water use, deforestation, waste, and other sustainability concerns. Along with our stakeholders and our broader industry, we have increased our focus on sustainability and measurement of our progress against ESG criteria, but we cannot guarantee that we will be able to achieve relevant criteria with our current focus. Our ability to successfully execute relevant initiatives and accurately report our progress presents numerous operational, financial, legal, reputational and other risks, many of which are outside our control, and all of which could have a material negative impact on our business. \n16\n \nNew disclosures, along with the evolving global ESG regulatory landscape, may present increased compliance costs and regulatory or enforcement risks, as well as increased competition from market participants who may adopt more robust ESG reporting and sustainable business practices. If our ESG initiatives fail to satisfy investors, current or potential customers, consumers, and our other stakeholders, our reputation, our ability to sell products and services to customers, our ability to attract or retain employees, and our attractiveness as an investment or business partner could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our goals, targets, and objectives, or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation.\nIn addition, our customers have adopted, and may continue to adopt, procurement policies that require us to comply with governance, social, and environmental responsibility provisions. Our customers have also adopted, and may continue to adopt, goals and policies that serve to increase their demand for goods or services that do not produce significant greenhouse gas emissions and are not related to carbon-based energy sources. Furthermore, an increasing number of investors have adopted, and may continue to adopt, ESG policies for their portfolio companies, and various voluntarily sustainability initiatives and organizations have promulgated different social and environmental responsibility and sustainability guidelines. These practices, policies, provisions, and initiatives are under active development, subject to change, can be unpredictable and conflicting, and may prove difficult and expensive for us to comply with and could negatively affect our reputation, business, or financial condition.\nFinancial Risks\nWe are exposed to the credit risk of our customers.\n \nThe instability of market conditions drives an elevated risk of potential bankruptcy of customers resulting in a greater risk of uncollectible outstanding accounts receivable. Accordingly, we intensely monitor our receivables and related credit risks. The realization of these risks could have a negative impact on our profitability.\nFailure to effectively manage working capital may adversely affect our cash flow from operations.\n \nWe closely monitor inventory and receivable efficiencies and continuously strive to improve these measures of working capital, but customer financial difficulties, cancellation or delay of customer orders, shifts in customer payment practices, transfers of production among our manufacturing facilities, additional inventory purchases to mitigate potential impact from component shortages, or manufacturing delays could adversely affect our cash flow from operations. \nWe could incur losses due to asset impairment.\n \nAs business conditions change, we must continually evaluate and work toward the optimum asset base. It is possible that certain assets such as, but not limited to, facilities, equipment, intangible assets, or goodwill could be impaired at some point in the future depending on changing business conditions. Such impairment could have an adverse impact on our financial position and results of operations.\nFluctuations in our effective tax rate could have a significant impact on our financial position, results of operations, or cash flows.\n \nOur effective tax rate is highly dependent upon the geographic mix of earnings across the jurisdictions where we operate. Changes in tax laws or tax rates in those jurisdictions could have a material impact on our operating results. Judgment is required in determining the worldwide provision for income taxes, other tax liabilities, interest, and penalties. We base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. Our tax position, however, is subject to review and possible challenge by taxing authorities and to possible changes in law (including adverse changes to the manner in which the United States and other countries tax multinational companies or interpret their tax laws). We cannot determine in advance the extent to which some jurisdictions may assess additional tax or interest and penalties on such additional taxes. In addition, our effective tax rate may be increased by changes in the valuation of deferred tax assets and liabilities, changes in our cash management strategies, changes in local tax rates, or countries adopting more aggressive interpretations of tax laws.\nSeveral countries where we operate provide tax incentives to attract and retain business. We have obtained incentives where available and practicable. Our taxes could increase if certain incentives were retracted, they were not renewed upon expiration, we no longer qualify for such programs, or tax rates applicable to us in such jurisdictions were otherwise increased. In addition, our growth may cause our effective tax rate to increase, depending on the jurisdictions in which we expand our business or acquire operations. Given the scope of our international operations and our international tax arrangements, changes in tax rates and the manner in which multinational companies are taxed in the United States and other countries could have a material impact on our financial results and competitiveness. \n17\n \nCertain of our subsidiaries provide financing, products, and services to, and may undertake certain significant transactions with, other subsidiaries in different jurisdictions. Moreover, several jurisdictions in which we operate have tax laws with detailed transfer pricing rules which require that all transactions with non-resident related parties be priced using arm\u2019s length pricing principles and that contemporaneous documentation must exist to support such pricing. Due to inconsistencies among jurisdictions in the application of the arm\u2019s length standard, our transfer pricing methods may be challenged and, if not upheld, could increase our income tax expense. In addition, the Organization for Economic Cooperation and Development continues to issue guidelines and proposals related to transfer pricing and profit shifting that may result in legislative changes that could reshape international tax rules in numerous countries and negatively impact our effective tax rate. \nWe are exposed to foreign currency risk.\nIn 2022, the relative value of the U.S. dollar reached its highest levels since 2000 and has appreciated sharply against many foreign currencies. Fluctuations in exchange rates could impact our operating results. Our risk management strategy includes the use of derivative financial instruments to hedge certain foreign currency exposures. Any hedging techniques we implement contain risks and may not be entirely effective. Exchange rate fluctuations could also make our products more expensive than competitors\u2019 products not subject to these fluctuations, which could adversely affect our revenues and profitability in international markets. \nA failure to comply with the financial covenants under our credit facilities could adversely impact us.\n \nOur primary credit facility requires us to comply with certain financial covenants. We believe the most significant covenants under our credit facilities are the ratio of consolidated total indebtedness minus unencumbered U.S. cash on hand in the United States in excess of $15 million to adjusted consolidated EBITDA, as defined in our primary credit facility, and the interest coverage ratio. More detail on these financial covenants is discussed in \nItem 7 - Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n. As of June\u00a030, 2023, we had $281.5\u00a0million in borrowings under our credit facilities and had total cash and cash equivalents of $43.0 million. In the future, a default on the financial covenants under our credit facilities could cause an increase in the borrowing rates or make it more difficult for us to secure future financing, which could adversely affect our financial condition. \nWe are exposed to inflation, interest rate, and other banking and capital market risks.\nHigh levels of inflation in the U.S. and other countries where we operate have and may continue to increase our costs and may impact pricing and customer demand, both of which may impact our revenues and earnings. We have exposure to interest rate risk on our borrowings under our credit facilities. The interest rates of these borrowings are based on a spread plus applicable base rate, including the Secured Overnight Financing Rate (\u201cSOFR\u201d), the Euro Interbank Offered Rate (\u201cEURIBOR\u201d), the prime rate of a reference bank, or the federal funds rate. An adverse change in the base rates upon which our interest rates are determined could have a material adverse effect on our financial position, results of operations, or cash flows. Rising interest rates have increased our costs of borrowing. Additionally, volatility in capital markets could present challenges to us if we need to raise funds in the equity market. This, in turn, may cause us to adopt strategies that may be less capital-intensive. Volatility in the credit markets, including due to the recent bank failures as well as the U.S. Federal Reserve Bank\u2019s actions and pace of interest rate increases to combat inflation in the U.S., may have an adverse effect on our ability to obtain debt financing.\nGeneral Risk Factors\nWe will face risks associated with the organic and inorganic growth of our business and we may neither be able to continue that growth nor have the necessary resources to dedicate to that growth.\nWe plan to expand our business to new customers, new commercial applications, and new commercial markets, including those where we may have limited operating experience, through organic growth and acquisitions. Accordingly, we may be subject to increased business, technology, and economic risks that could materially affect our business. In recent periods, we have increased our focus on organic growth and customer acquisition. In the future, we may increasingly focus on this organic growth, and we may identify inorganic growth opportunities through acquisitions and customer divestitures. Expanding in the verticals in which we are already operating will continue to require significant resources and there is no guarantee that such efforts will be successful or beneficial to us. Historically, sales to new customers have often led to additional sales to the same customers or similarly situated customers. As we expand into and within new and emerging markets for our services, we will likely face additional regulatory scrutiny, risks, and business challenges from our customers, governments, and other stakeholders in those markets. While this approach to growth within new and existing commercial markets and verticals has proven successful in the past, it is uncertain we will achieve the same penetration and organic growth or identify suitable inorganic growth opportunities in the future and our reputation, business, financial condition, and results of operations could be negatively impacted.\n18\n \nChanges in financial accounting standards or policies have affected, and in the future may affect, our reported financial condition or results of operations.\nWe prepare our financial statements in conformity with U.S. GAAP. These principles are subject to interpretation by the Financial Accounting Standards Board (\u201cFASB\u201d), the American Institute of Certified Public Accountants, the SEC, and various bodies formed to interpret and create appropriate accounting policies. A change in these policies can have a significant effect on our reported results and may affect our reporting of transactions that are completed before a change is announced. Changes to those rules or questions as to how we interpret or implement them may have a material adverse effect on our reported financial results or on the way we conduct business. See \nNote 1 - Business Description and Summary of Significant Accounting Policies\n of Notes to Consolidated Financial Statements for more information on the adoption of the new accounting guidance.\nLitigation or legal proceedings could expose us to significant liabilities and have a negative impact on our reputation.\nWe are or may become party to various claims and legal proceedings in the ordinary course of our business. These claims and legal proceedings may include lawsuits or claims relating to contracts, intellectual property, product recalls, product liability, employment matters, environmental matters, regulatory compliance, or other aspects of our business. Even when not merited, the defense of these claims and legal proceedings may divert our management\u2019s attention, and we may incur significant expenses in defending these claims and proceedings. In addition, we may be required to pay damage awards or settlements or become subject to injunctions or other equitable remedies, which could have a material adverse effect on our financial position, cash flows, or results of operations. The outcome of litigation is often difficult to predict, and the outcome of pending or future claims and legal proceedings may have a material adverse effect on our financial position, cash flows, or results of operations. We evaluate these claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves or disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from our current assessments and estimates. If actual outcomes or losses differ materially from our current assessments and estimates or additional claims or legal proceedings are initiated, we could be exposed to significant liabilities.\nNatural disasters, pandemics, or other catastrophic events may impact our production schedules and, in turn, negatively impact profitability.\n \nNatural disasters, pandemics, or other catastrophic events, including severe weather (including cyclones, hurricanes, and floods) as well as terrorist attacks, power interruptions, fires, and pandemics, could disrupt operations and likewise our ability to produce or deliver products. Our manufacturing operations require significant amounts of energy, including natural gas and oil, and governmental regulations may control the allocation of such fuels to Kimball Electronics. Employees are an integral part of our business, and events such as a pandemic could reduce the availability of employees reporting for work. In the event we experience a temporary or permanent interruption in our ability to produce or deliver product, revenues could be reduced, and business could be materially adversely affected. In addition, catastrophic events, or the threat thereof, can adversely affect U.S. and world economies, and could result in reduced demand for our customers\u2019 products and delayed or lost revenue for our services. Further, any disruption in our IT systems could adversely affect the ability to receive and process customer orders, manufacture products, and ship products on a timely basis, and could adversely affect relations with customers, potentially resulting in reduction in orders from customers or loss of customers. We maintain insurance to help protect us from costs relating to some of these matters, but it may not be sufficient or paid in a timely manner to us in the event of such an interruption.",
+  "item1a": ">Item 1A - Risk Factors\n. \n25\n \nPresentation of Results of Operations and Liquidity and Capital Resources\nA discussion regarding our financial condition and results of operations for fiscal year 2023 compared to fiscal year 2022 is presented below. A discussion regarding our financial condition and results of operations for fiscal year 2022 compared to fiscal year 2021 can be found under captions entitled \u201cResults of Operations - Fiscal Year 2022 Compared with Fiscal Year 2021\u201d and \u201cLiquidity and Capital Resources\u201d in the section entitled \u201cItem 7 - Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Annual Report on Form 10-K for the year ended June 30, 2022 filed with the SEC on August\u00a030, 2022, which is available free of charge through the SEC\u2019s website at http://www.sec.gov or the Company\u2019s website, http://investors.kimballelectronics.com. The Company\u2019s website and the information contained therein, or incorporated therein, are not intended to be incorporated into this Annual Report on Form 10-K. \nResults of Operations - Fiscal Year 2023 Compared with Fiscal Year 2022 \n\u00a0\nAt or For the Year Ended\n\u00a0\n\u00a0\nJune 30\n(Amounts in Millions, Except for Per Share Data)\n2023\nas a % of Net Sales\n2022\nas a % of Net Sales\n% Change\nNet Sales\n$\n1,823.4\u00a0\n$\n1,349.5\u00a0\n35\u00a0\n%\nGross Profit \n156.2\u00a0\n8.6\u00a0\n%\n104.6\u00a0\n7.8\u00a0\n%\n49\u00a0\n%\nSelling and Administrative Expenses\n68.7\u00a0\n3.8\u00a0\n%\n53.5\u00a0\n4.0\u00a0\n%\n28\u00a0\n%\nOther General Income\n(0.2)\n(1.4)\nOperating Income\n87.7\u00a0\n4.8\u00a0\n%\n52.5\u00a0\n3.9\u00a0\n%\n67\u00a0\n%\nOther Income (Expense)\n(13.0)\n(8.7)\nProvision for Income Taxes\n18.9\u00a0\n12.5\u00a0\n52\u00a0\n%\nNet Income\n$\n55.8\u00a0\n$\n31.3\u00a0\n79\u00a0\n%\nDiluted Earnings per Share\n$\n2.22\u00a0\n$\n1.24\u00a0\n79\u00a0\n%\nOpen Orders\n$\n798\u00a0\n$\n1,192\u00a0\n(33)\n%\nNet Sales by Vertical Market\nFor the Year Ended\n\u00a0\n\u00a0\nJune 30\n\u00a0\n(Amounts in Millions)\n2023\n2022\n% Change\nAutomotive\n$\n820.1\u00a0\n$\n582.2\u00a0\n41\u00a0\n%\nMedical\n494.0\u00a0\n391.7\u00a0\n26\u00a0\n%\nIndustrial\n474.6\u00a0\n358.2\u00a0\n33\u00a0\n%\nOther\n34.7\u00a0\n17.4\u00a0\n99\u00a0\n%\nTotal Net Sales\n$\n1,823.4\u00a0\n$\n1,349.5\u00a0\n35\u00a0\n%\nNet sales in fiscal year 2023 increased by 35% compared to net sales in fiscal year 2022, which included an unfavorable impact of 3% from foreign exchange fluctuations. By end market vertical, our market verticals fluctuated as follows:\n\u2022\nWe experienced record sales to customers in the automotive market during the current fiscal year largely due to the ramp-up of certain programs, new product launches, and improved component availability.\n\u2022\nSales to customers in the medical market also experienced record net sales, with a double-digit increase in sales when compared to the prior fiscal year. The increase is primarily due to overall increased demand, improved component availability, and launch and ramp-up of new programs. We expect fiscal year 2024 medical market sales to be unfavorably impacted by decreased sales with a large medical customer who is remediating a recall.  The cause of the recall is unrelated to the products we provided.\n\u2022\nBeginning in fiscal year 2023, the Company changed its presentation of revenue for the industrial and public safety end market verticals by combining them into the industrial end market vertical. Prior year periods have been recast to conform to the current year presentation. We also experienced record sales to customers in the industrial market during the current fiscal year, as a result of higher end market demand for climate control products which was supported by overall improved component availability, increased automation, test, and inspection equipment sales, and new product launches. \n26\n \nA significant amount of sales to Nexteer Automotive, Philips, and ZF accounted for the following portions of our net sales:\n\u00a0\u00a0\nYear Ended June 30\n\u00a0\n2023\n2022\nNexteer Automotive\n15%\n17%\nPhilips\n14%\n15%\nZF\n12%\n*\n* amount is less than 10% of total\nOpen orders were down 33% as of June\u00a030, 2023 compared to June\u00a030, 2022. The decrease in open orders from June 30, 2022 is driven by decreased order lead times and the overall improvement in component availability, which has increased our ability to fulfill customer orders. Open orders are the aggregate sales price of production pursuant to unfulfilled customer orders, which may be delayed or canceled by the customer subject to contractual termination provisions. The majority of open orders as of June\u00a030, 2023 are expected to be filled within the next twelve months. Open orders at a point in time may not be indicative of future sales trends due to the contract nature of our business and the variability of order lead times among our customers. \nGross profit as a percent of net sales improved in fiscal year 2023 when compared to fiscal year 2022 primarily due to the leverage gained on higher revenue and favorable product mix. Additionally, we experienced lost absorption in the first half of fiscal year 2022 as the prior fiscal year was impacted to a much greater degree than the current fiscal year by component shortages, and as we retained our workforce, our gross profit as a percent of net sales was negatively impacted. \nFor fiscal year 2023, selling and administrative expenses declined as a percent of net sales but increased in absolute dollars when compared to fiscal year 2022. The selling and administrative expense increase was driven by the increased factoring fees coupled with increased accounts receivable factoring activity, added resources to support our significant growth, wage inflation, and higher incentive-based compensation. \nOther General Income in fiscal years 2023 and 2022 consisted of $0.2 million and $1.4 million, respectively, resulting from payments received related to class action lawsuits in which Kimball Electronics was a class member. These lawsuits alleged that certain suppliers to the EMS industry conspired over a number of years to raise and fix the prices of electronic components, resulting in overcharges to purchasers of those components. \nOther Income (Expense) consisted of the following: \nOther Income (Expense)\nYear Ended\n\u00a0\nJune 30\n(Amounts in Thousands)\n2023\n2022\nInterest Income\n$\n153\u00a0\n$\n81\u00a0\nInterest Expense\n(16,263)\n(2,655)\nForeign Currency/Derivative Gain (Loss)\n2,769\u00a0\n(4,182)\nGain (Loss) on SERP Investments\n701\u00a0\n(1,563)\nOther\n(345)\n(499)\nOther Income (Expense), net\n$\n(12,985)\n$\n(8,818)\nInterest expense has increased in the year ended June 20, 2023 compared to the year ended June 30, 2022 due to higher interest rates and higher borrowings on credit facilities. The Foreign Currency/Derivative Gain (Loss) resulted from net foreign currency exchange rate movements during the periods. The gain in fiscal year 2023 and the loss in fiscal year 2022 were driven by the respective weakening and strengthening of the U.S. dollar versus foreign currencies that we have exposure to in our business. The revaluation of the fair value of the supplemental employee retirement plan (\u201cSERP\u201d) investments recorded in Other Income (Expense) is offset by the revaluation of the SERP liability recorded in Selling and Administrative Expenses, and thus there is no effect on net income. \n27\n \nOur income before income taxes and effective tax rate were comprised of the following U.S. and foreign components:\nYear Ended June 30, 2023\nYear Ended June 30, 2022\n(Amounts in Thousands)\nIncome (Loss) Before Taxes\nEffective Tax Rate\nIncome Before Taxes\nEffective Tax Rate\nUnited States\n$\n(6,269)\n(1.1)\n%\n$\n1,542\u00a0\n29.8\u00a0\n%\nForeign\n$\n81,013\n23.2\u00a0\n%\n$\n42,189\u00a0\n28.5\u00a0\n%\nTotal \n$\n74,744\n25.3\u00a0\n%\n$\n43,731\u00a0\n28.5\u00a0\n%\nThe consolidated effective tax rate for fiscal year 2023 was unfavorably impacted by the mix of taxable earnings within our various tax jurisdictions and foreign exchange rate movements. The domestic favorable tax rate was favorably impacted by our loss before taxes and the research and development tax credit.\nThe domestic effective tax rate and the consolidated effective tax rate for fiscal year 2022 were unfavorably impacted by the mix of taxable earnings within our various tax jurisdictions and foreign exchange rate movements.\nOur overall effective tax rate will fluctuate depending on the geographic distribution of our worldwide earnings. See \nNote 10 - Income Taxes\n of Notes to Consolidated Financial Statements for more information. \nWe recorded net income of $55.8 million in fiscal year 2023, or $2.22 per diluted share, an increase of 78.6% from fiscal year 2022 net income of $31.3 million, or $1.24 per diluted share. \nComparing the balance sheet as of June\u00a030, 2023 to June\u00a030, 2022, Receivables increased $85.3 million largely due to increased sales volumes. Our inventory balance increased $54.7 million primarily to support our newly expanded facilities. Property and equipment, net increased $60.8 million for expansions at our Mexico, Thailand, and Poland facilities and to support new business awards. Accounts payable increased $22.1 million primarily due to the increased inventory purchases. Borrowings under credit facilities increased $100.9 million primarily due to borrowings on the U.S. primary credit facility for working capital purposes and capital expenditures supporting our expansions. \nLiquidity and Capital Resources\nWorking capital at June\u00a030, 2023 was $454.3 million compared to working capital of $352.3 million at June\u00a030, 2022. The current ratio was 2.0 at June\u00a030, 2023 and 1.9 at June\u00a030, 2022, respectively. The debt-to-equity ratio was 0.5 and 0.4 at June\u00a030, 2023 and June\u00a030, 2022, respectively. Our short-term liquidity available, represented as cash and cash equivalents plus the unused amount of our credit facilities, some of which are uncommitted, totaled $149.1 million at June\u00a030, 2023 and $178.6 million at June\u00a030, 2022.\nCash Conversion Days (\u201cCCD\u201d) are calculated as the sum of Days Sales Outstanding (\u201cDSO\u201d) plus Contract Asset Days (\u201cCAD\u201d) plus Production Days Supply on Hand (\u201cPDSOH\u201d) less Accounts Payable Days (\u201cAPD\u201d) and less Advances from Customers Days (\u201cACD\u201d). CCD, or a similar metric, is used in our industry and by our management to measure the efficiency of managing working capital. The following table summarizes our CCD for the quarterly periods indicated. Beginning in the third quarter of fiscal year 2023, we included Advances from Customers Days in our CCD calculation as these are customer deposits related to inventory. Prior periods have been recast to conform to the current quarter presentation.\nThree Months Ended\nJune 30, 2023\nMarch 31, 2023\nDecember 31, 2022\nSeptember 30, 2022\nJune 30, 2022\nDSO\n56\n54\n56\n54\n53\nCAD\n14\n14\n14\n14\n16\nPDSOH\n97\n101\n108\n106\n100\nAPD\n65\n69\n72\n73\n76\nACD\n8\n8\n9\n7\n7\nCCD\n94\n92\n97\n94\n86\nWe define DSO as the average of monthly trade accounts and notes receivable divided by an average day\u2019s net sales, CAD as the average monthly contract assets divided by an average day\u2019s net sales, PDSOH as the average of monthly gross inventory divided by an average day\u2019s cost of sales, APD as the average of monthly accounts payable divided by an average day\u2019s cost of sales, and ACD as the total customer deposits divided by an average day\u2019s cost of sales. Over the past several quarters, we have supported our customers through strategic inventory builds to mitigate parts shortages, which adversely impacted our PDSOH and CCD metrics. We expect inventory levels and working capital to normalize as the parts shortages abate and our expansions continue to ramp up production.\n28\n \nCash Flows\nThe following table reflects the major categories of cash flows for the fiscal years ended June\u00a030, 2023 and 2022.\nYear Ended June 30\n(Amounts in Millions)\n2023\n2022\nNet cash used for operating activities\n$\n(13.8)\n$\n(83.2)\nNet cash used for investing activities\n$\n(90.5)\n$\n(74.8)\nNet cash provided by financing activities\n$\n99.2\u00a0\n$\n103.7\u00a0\nCash Flows from Operating Activities\nNet cash used for operating activities for the fiscal year ended June\u00a030, 2023 and the fiscal year ended June\u00a030, 2022 was driven by changes in operating assets and liabilities, partially offset by net income plus non-cash depreciation and amortization charges. Changes in operating assets and liabilities used $107.3 million of cash in the fiscal year ended June\u00a030, 2023 and $152.8 million of cash in the fiscal year ended June\u00a030, 2022, respectively.\nThe cash used of $107.3 million from changes in operating assets and liabilities in fiscal year 2023 was largely due to an increase in accounts receivable, which used cash of $82.4 million primarily resulting from increased sales volumes, and an increase in inventory, which used cash of $50.2 million, driven by investment to support our expansions. Partially offsetting cash used by inventory was an increase in accounts payable, which provided cash of $20.4 million largely resulting from increased inventory purchases, and an increase in advances from customers, which provided cash of $7.9 million. \nThe cash used of $152.8 million from changes in operating assets and liabilities in fiscal year 2022 was largely due to an increase in inventory, which used cash of $203.2 million primarily due to the component shortages as we continued to purchase material not impacted by the shortages so we can fulfill our customer orders once the impacted components are received, and an increase in accounts receivable, which used cash of $26.5 million primarily resulting from increased sales volumes. Partially offsetting cash used by inventory was an increase in accounts payable, which provided cash of $89.2 million largely resulting from increased inventory purchases, and an increase in advances from customers, which provided cash of $22.6 million. See \nNote 1 - Business Description and Summary of Significant Accounting Policies\n of Notes to Consolidated Financial Statements for information regarding reclassifications of advances from customers. \nCash Flows from Investing Activities \nNet cash used for investing activities during fiscal year 2023 includes $90.7 million cash used for capital investments. The capital investments were primarily for expansions at our Mexico, Thailand, and Poland facilities and to support new business awards. \nNet cash used for investing activities during fiscal year 2022 includes $74.7 million cash used for capital investments. The capital investments were primarily for expansions at our Thailand and Mexico facilities and to support new business awards. \nCash Flows from Financing Activities\nNet cash provided by financing activities for the fiscal year ended June\u00a030, 2023 resulted largely from net borrowings on our credit facilities of $100.7 million primarily for working capital purposes and capital investments supporting expansions.\nNet cash used for financing activities for the fiscal year ended June 30, 2022 resulted largely from net borrowings on our credit facilities of $114.9 million primarily for working capital purposes.\nCredit Facilities\nThe Company maintains a U.S. primary credit facility (the \u201cprimary credit facility\u201d) scheduled to mature on May\u00a04, 2027. The primary credit facility provides for $300 million in borrowings, with an option to increase the amount available for borrowing to $450 million at the Company\u2019s request, subject to the consent of each lender participating in such increase. The Company also maintains a 364-day multi-currency revolving credit facility (the \u201csecondary credit facility\u201d), which allows for borrowings up to $50 million and has a maturity date of February\u00a02, 2024. The proceeds of the loans on the primary credit facility and the secondary credit facility are to be used for working capital and general corporate purposes of the Company. We were in compliance with the financial covenants of the primary and secondary credit facilities during the fiscal year ended June\u00a030, 2023. \n29\n \nWe also maintain foreign credit facilities for working capital and general corporate purposes at specific foreign locations rather than utilizing funding from intercompany sources. These foreign credit facilities can be canceled at any time by either the bank or us and generally include renewal clauses. As of June\u00a030, 2023, we maintained foreign credit facilities at our Thailand operation, our EMS operation in China, our Netherlands subsidiary, our Poland operation, and our Vietnam operation.\nSee \nNote 7 - Credit Facilities\n of Notes to Consolidated Financial Statements for more information on our credit facilities, including the terms of the credit facilities such as interest, commitment fees, and debt covenants. \nFactoring Arrangements\nThe Company utilizes accounts receivable factoring arrangements with third-party financial institutions in order to extend terms for the customer without negatively impacting our cash flow. These arrangements in all cases do not contain recourse provisions which would obligate us in the event of our customers\u2019 failure to pay. Receivables are considered sold when they are transferred beyond the reach of Kimball Electronics and its creditors, the purchaser has the right to pledge or exchange the receivables, and we have surrendered control over the transferred receivables. During the fiscal years ended June\u00a030, 2023 and 2022, we sold, without recourse, $485.4 million and $303.4 million of accounts receivable, respectively. See \nNote 1 - Business Description and Summary of Significant Accounting Policies \nof Notes to Consolidated Financial Statements for more information regarding the factoring arrangements.\nFuture Liquidity\nWe believe our principal sources of liquidity from available funds on hand, cash generated from operations, and the availability of borrowing under our credit facilities, will be sufficient to meet our working capital and other operating needs for at least the next 12 months. The unused borrowings in USD equivalent under all of our credit facilities totaled $106.1 million at June\u00a030, 2023, including the $50 million secondary facility expiring in February 2024. Additionally, accounts receivable factoring arrangements could provide flexible access to cash as needed. While our primary and secondary credit facilities include a covenant that limits the amount of sold receivables outstanding at any time, currently and historically, we have been considerably below this limit.\nWe expect to continue to prudently invest in capital expenditures, including for capacity expansions and potential acquisitions, that would help us continue our growth as a multifaceted manufacturing solutions company. We recently completed our Thailand facility expansion in the third quarter of fiscal year 2022, our Mexico facility expansion in the first quarter of fiscal year 2023, and our Poland expansion in the fourth quarter of fiscal year 2023.\nAt June\u00a030, 2023, our capital expenditure commitments were approximately $13 million, consisting primarily of equipment for the Poland, Mexico, and Thailand facility expansions and capital related to new program wins. We anticipate our available liquidity will be sufficient to fund these capital expenditures. \nWe have purchase obligations that arise in the normal course of business for items such as raw materials, services, and software acquisitions/license commitments. In certain instances, such as when lead times dictate, we enter into contractual agreements for material in excess of the levels required to fulfill customer orders to help mitigate the potential impact related to component shortages, which require longer lead times. In turn, our material authorization agreements with customers cover a portion of the exposure for material which is purchased prior to having a firm order.\nAt June\u00a030, 2023, our foreign operations held cash totaling $41.4 million and the aggregate unremitted earnings of our foreign subsidiaries were approximately $420 million. Most of our accumulated unremitted foreign earnings have been invested in active non-U.S. business operations, and it is not anticipated such earnings will be remitted to the United States. Our intent is to permanently reinvest the remaining funds outside of the United States, and our current plans do not demonstrate a need to repatriate these funds to our U.S. operations. However, if such funds were repatriated, a portion of the funds remitted may be subject to applicable non-U.S. income and withholding taxes. \nThe Company has a Board-authorized stock repurchase plan (the \u201cPlan\u201d) to allow the repurchase of up to $100 million of common stock. Purchases may be made under various programs, including in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions, all in accordance with applicable securities laws and regulations.  The Plan has no expiration date but may be suspended or discontinued at any time. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements, and other corporate considerations, as determined by the Company\u2019s management team. The Company expects to finance the purchases with existing liquidity. The Company has repurchased $88.8 million of common stock under the Plan through June\u00a030, 2023.\n30\n \nOur ability to generate cash from operations to meet our liquidity obligations could be adversely affected in the future by factors such as general economic and market conditions, lack of availability of raw material components in the supply chain, a decline in demand for our services, loss of key contract customers, unsuccessful integration of acquisitions and new operations, global health emergencies such as the COVID-19 pandemic, and the related uncertainties around the financial impact, and other unforeseen circumstances. In particular, should demand for our customers\u2019 products and, in turn, our services decrease significantly over the next 12 months, the available cash provided by operations could be adversely impacted.\nFair Value\nDuring fiscal year 2023, no level 1 or level 2 financial instruments were affected by a lack of market liquidity. For level 1 financial assets, readily available market pricing was used to value the financial instruments. Our foreign currency derivative assets and liabilities, which were classified as level 2, were independently valued using observable market inputs such as forward interest rate yield curves, current spot rates, and time value calculations. To verify the reasonableness of the independently determined fair values, these derivative fair values were compared to fair values calculated by the counterparty banks. Our own credit risk and counterparty credit risk had an immaterial impact on the valuation of the foreign currency derivatives. See \nNote 12 - Fair Value\n of Notes to Consolidated Financial Statements for more information.\nOff-Balance Sheet Arrangements\nAs of June\u00a030, 2023, we do not have any material off-balance sheet arrangements. \nCritical Accounting Policies\nKimball Electronics\u2019 Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the Consolidated Financial Statements and related notes. Actual results could differ from these estimates and assumptions. Management uses its best judgment in the assumptions used to value these estimates, which are based on current facts and circumstances, prior experience, and other assumptions that are believed to be reasonable. Management believes the following critical accounting policies reflect the more significant judgments and estimates used in preparation of our Consolidated Financial Statements and are the policies that are most critical in the portrayal of our financial position and results of operations. Management has discussed these critical accounting policies and estimates with the Audit Committee of the Company\u2019s Board of Directors and with the Company\u2019s independent registered public accounting firm.\nRevenue recognition\n - Kimball Electronics recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services and products. The majority of our revenue is recognized over time as manufacturing services are performed where we manufacture a product with no alternative use and have an enforceable right to payment for performance completed to date. The remaining revenue is recognized when the customer obtains control of the manufactured product. We have elected to account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products. Accordingly, we record customer payments of shipping and handling costs as a component of net sales and classify such costs as a component of cost of sales. We recognize sales net of applicable sales or value add taxes. Based on estimated product returns and price concessions, a reserve for returns and allowances is recorded at the time revenue is recognized, resulting in a reduction of revenue. \nGoodwill and Other Intangible Assets - \nGoodwill, $12.0 million as of both June\u00a030, 2023 and 2022 represents the difference between the purchase price and the related underlying tangible and intangible net asset fair values resulting from business acquisitions. Annually, or if conditions indicate an earlier review is necessary, goodwill is tested at the reporting unit level. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is written down to its estimated fair value. No impairment charges were recorded in fiscal year 2023 or 2022 resulting from our annual impairment tests for all reporting units. \nOther Intangible Assets, $12.3 million and $14.7 million as of June\u00a030, 2023 and 2022, respectively, are reported on the Consolidated Balance Sheets and consist of capitalized software, customer relationships, technology, and trade name. Intangible assets are reviewed for impairment, and their remaining useful lives evaluated for revision, when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets. \nSee\u00a0\nNote 1 - Business Description and Summary of Significant Accounting Policies\n\u00a0of Notes to Consolidated Financial Statements for further discussion of the Company\u2019s goodwill and intangible asset accounting policies.\n31\n \nTaxes\n - Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future taxable income and available tax planning strategies that could be implemented to realize our deferred tax assets. If recovery is not likely, we provide a valuation allowance based on our best estimate of future taxable income in the various taxing jurisdictions and the amount of deferred taxes ultimately realizable. Future events could change management\u2019s assessment.\nWe operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. However, we believe we have made adequate provision for income and other taxes for all years that are subject to audit. As tax positions are effectively settled, the tax provision will be adjusted accordingly. The liability for uncertain income tax and other tax positions, including accrued interest and penalties on those positions, was $1.8 million at both June\u00a030, 2023 and June\u00a030, 2022.  \nNew Accounting Standards\nNew accounting standards which have been issued but not yet adopted are typically disclosed in \nNote 1 - Business Description and Summary of Significant Accounting Policies\n of Notes to Consolidated Financial Statements for information regarding New Accounting Standards.\u00a0Currently, there are no issued but not yet adopted accounting standards that are expected to have a material impact on the Company.",
+  "item7": ">Item 7 - \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nForward-Looking Statements\nCertain statements contained within this document are considered forward-looking under the Private Securities Litigation Reform Act of 1995. The statements may be identified by the use of words such as \u201cbelieves,\u201d \u201canticipates,\u201d \u201cexpects,\u201d \u201cintends,\u201d \u201cplans,\u201d \u201cprojects,\u201d \u201cestimates,\u201d \u201cforecasts,\u201d \u201cseeks,\u201d \u201clikely,\u201d \u201cfuture,\u201d \u201cmay,\u201d \u201cmight,\u201d \u201cshould,\u201d \u201cwould,\u201d \u201ccould,\u201d \u201cwill,\u201d \u201cpotentially,\u201d \u201ccan,\u201d \u201cgoal,\u201d \u201cpredict,\u201d and similar expressions. These forward-looking statements are subject to risks and uncertainties including, but not limited to, global economic conditions, geopolitical environment and conflicts such as the war in Ukraine, global health emergencies including the COVID-19 pandemic, availability or cost of raw materials and components, foreign exchange fluctuations, and our ability to convert new business opportunities into customers and revenue. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of Kimball Electronics are located within \nItem 1A - Risk Factors\n.\nBusiness Overview\nWe are a global, multifaceted manufacturing solutions provider. We provide electronics manufacturing services (\u201cEMS\u201d), including engineering and supply chain support, to customers in the automotive, medical, and industrial end markets. Our core competency is producing durable electronics, and we further offer contract manufacturing services for non-electronic components, medical devices, medical disposables, drug delivery devices and solutions, precision molded plastics, and production automation, test, and inspection equipment. Our manufacturing services, including engineering and supply chain support, utilize common production and support capabilities globally. We are well recognized by our customers and the industry for our excellent quality, reliability, and innovative service. CIRCUITS ASSEMBLY, a leading brand and technical publication for electronics manufacturers worldwide, has recognized us four times in the past five years for achieving the Highest Overall Customer Rating in their Service Excellence Awards, and we received awards in all categories in 2022. \nThe contract manufacturing services industry is very competitive. As a mid-sized player, we can expect to be challenged by the agility and flexibility of the smaller, regional players, and we can expect to be challenged by the scale and price competitiveness of the larger, global players. We enjoy a unique market position between these extremes which allows us to compete with the larger scale players for high-volume projects, but also maintain our competitive position in the generally lower volume durable electronics market space. We expect to continue to effectively operate in this market space; however, one significant challenge will be maintaining our profit margins while we continue our revenue growth. Pricing is competitive in the market as production efficiencies and material pricing advantages for most projects drive costs and prices down over the life of the projects. This characteristic of the contract electronics marketplace is expected to continue.\nThe Worldwide Manufacturing Services Market - 2023 Edition\n, a comprehensive study on the worldwide EMS market published by New Venture Research (\u201cNVR\u201d), provided worldwide forecast trends through 2027. NVR projects the worldwide assembly market for electronics products to grow at a compound annual growth rate (\u201cCAGR\u201d) of 4.3% over the next five years, with the EMS industry projected to grow at a CAGR of 5.5%.\nWe continue to monitor the current economic and industry conditions for uncertainties that may pose a threat to our future growth or cause disruption in business strategy, execution, and timing in the markets in which we compete. The EMS industry continues to experience component shortages, component allocations, and shipping delays, particularly with semiconductors, which were especially challenging in the prior fiscal year. Component shortages or allocations could continue to increase component costs and potentially interrupt our operations and negatively impact our ability to meet commitments to customers. We have taken various actions to mitigate the risk and minimize the impact to our customers as well as the adverse effect component shortages, component allocations, or shipping delays could have on our results; however, the duration or severity of the components shortages is unknown. \nSupply chain restraints have also resulted in an industry-wide inflation of components, labor, freight, and other operating costs. Through contractual pricing arrangements and negotiations with our customers, we have been able to mitigate a majority of these cost increases; however, our profitability has been impacted, and necessary extended lead times on inventory purchases has negatively impacted our working capital. The financial impact on our future results cannot be reasonably estimated but could be material.\n24\n \nWe experienced record sales in the current fiscal year as sales increased 35% from the prior fiscal year, with double-digit increases and annual records in all three of our end market verticals. Beginning in fiscal year 2023, we changed our presentation of revenue for the industrial and public safety end market verticals by combining them in the industrial end market vertical. Prior year periods have been recast to conform to the current year presentation. Sales in all three of our end market verticals have increased when compared to the prior fiscal year from the improved component availability and the launch and ramp-up of new programs.\nWe have a strong focus on cost control balanced with managing the future growth prospects of our business. We expect to make investments that will strengthen or add new capabilities to our package of value as a multifaceted manufacturing solutions company, including through our recently announced and completed capacity expansions. Managing working capital in conjunction with fluctuating demand levels is likewise key. In addition, a long-standing component of our profit-sharing incentive bonus plan is that it is linked to our financial performance which results in varying amounts of compensation expense as profits change.\nWe continue to maintain a strong balance sheet as of the end of fiscal year 2023, which included a current ratio of 2.0, a debt-to-equity ratio of 0.5, and Share Owners\u2019 equity of $524 million. Recently, we have invested to support our expansions and growth in Mexico, Thailand, and Poland. At the same time, we have supported our customers through strategic inventory purchases to mitigate part shortages. We expect our balance sheet to normalize as parts shortages abate and our expansions continue to ramp up production. Refer to the Future Liquidity section of Liquidity and Capital Resources below for further discussion of our liquidity.\nThe continuing success of our business is dependent upon our ability to replace expiring customers/programs with new customers/programs. We monitor our success in this area by tracking the number of customers and the percentage of our net sales generated from them by years of service as depicted in the table below. While variation in the size of program awards makes it difficult to directly correlate this data to our sales trends, we believe it does provide useful information regarding our customer loyalty and new business growth. \nYear End\nCustomer Service Years\n2023\n2022\n2021\nMore than 10 Years\n% of Net Sales\n77\u00a0\n%\n79\u00a0\n%\n81\u00a0\n%\n# of Customers\n31\u00a0\n34\u00a0\n33\u00a0\n5 to 10 Years\n% of Net Sales\n19\u00a0\n%\n17\u00a0\n%\n16\u00a0\n%\n# of Customers\n22\u00a0\n21\u00a0\n23\u00a0\nLess than 5 Years\n% of Net Sales\n4\u00a0\n%\n4\u00a0\n%\n3\u00a0\n%\n# of Customers\n12\u00a0\n11\u00a0\n16\u00a0\nTotal\n% of Net Sales\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\n# of Customers\n65\u00a0\n66\u00a0\n72\u00a0\nA detailed discussion of risk factors and uncertainties that could have an effect on our performance are located within ",
+  "item7a": ">Item 7A - \nQuantitative and Qualitative Disclosures About Market Risk\n \nForeign Exchange Rate Risk:\n  Kimball Electronics operates internationally and thus is subject to potentially adverse movements in foreign currency rate changes. Our principal foreign currency exposures include the Euro, Polish zloty, Romanian leu, Chinese renminbi, Thai baht, Vietnamese dong, and Mexican peso. Our risk management strategy includes the use of derivative financial instruments to hedge certain foreign currency exposures. Derivatives are used only to manage underlying exposures and are not used in a speculative manner. Further information on derivative financial instruments is provided in \nNote 13 - Derivative Instruments\n of Notes to Consolidated Financial Statements. We estimate that a hypothetical 10% adverse change in foreign currency exchange rates from levels at June\u00a030, 2023 relative to non-functional currency balances of monetary instruments, to the extent not hedged by derivative instruments, would not have a material impact on profitability in an annual period. Actual future gains and losses could have a material impact in an annual period depending on changes or differences in market rates and interrelationships, hedging instruments, timing, and other factors.\nInterest Rate Risk:  \nOur primary exposure to market risk for changes in interest rates relates to our primary credit facility, described further in \nNote 7 - Credit Facilities\n of Notes to Consolidated Financial Statements, as the interest rates paid for borrowings are determined at the time of borrowing based on market indices. Therefore, although we can elect to fix the interest rate at the time of borrowing, the facility does expose us to market risk for changes in interest rates. We estimate that a hypothetical 10% change in interest rates on borrowing levels at June\u00a030, 2023 would not have a material impact of profitability in an annual period. The interest rate on certain borrowings under our credit facilities, including our primary credit facility, are based on the Secured Overnight Financing Rate (\u201cSOFR\u201d).\n32\n ",
+  "cik": "1606757",
+  "cusip6": "49428J",
+  "cusip": ["49428j109", "49428J109"],
+  "names": ["Kimball Electronics", "KIMBALL ELECTRONICS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1606757/000160675723000033/0001606757-23-000033-index.htm"
+}
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+{
+  "item1": ">Item 1. Business\nMedtronic plc, headquartered in Dublin, Ireland, is the leading global healthcare technology company. Medtronic was founded in 1949 and today serves healthcare systems, physicians, clinicians, and patients in more than 150 countries worldwide. We remain committed to a mission written by our founder in 1960 that directs us \u201cto contribute to human welfare by the application of biomedical engineering in the research, design, manufacture, and sale of products to alleviate pain, restore health, and extend life.\u201d\nOur Mission \u2014 to alleviate pain, restore health, and extend life \u2014 empowers insight-driven care and better outcomes for our world. We remain committed to being recognized as a company of dedication, honesty, integrity, and service. Building on this strong foundation, we are embracing our role as a healthcare technology leader and evolving our business strategy in four key areas:\n\u2022\nLeveraging our pipeline to accelerate revenue growth: The combination of our good end markets, recent product launches and robust pipeline is expected to continue accelerating our growth over both the near-and long-term. We aim to bring inventive and disruptive technology to large healthcare opportunities which enables us to better meet patient needs. Patients around the world deserve access to our life-saving products, and we are driven to use our local presence and scale to increase the adoption of our products and services in markets around the globe.\n\u2022\nServing more patients by accelerating innovation driven growth and delivering shareholder value: We listen to our patients and customers to better understand the challenges they face. From the patient journey, to creating agile partnerships that produce novel solutions, to making it easier for our customers to deploy our therapies \u2014 everything we do is anchored in deep insight, and creates simpler, superior experiences.\n\u2022\nCreating and disrupting markets with our technology: We are confident in our ability to maximize new technology, artificial intelligence (AI), and data and analytics to tailor therapies in real-time, facilitating remote monitoring and care delivery that conveniently manages conditions, and creates new standards of care.\n\u2022\nEmpowering our operating units to be more nimble and more competitive: Our operating model, which was effective February 2021, simplified our organization to accelerate decision making, improve commercial execution, and more effectively leverage the scale of our company.\nWe have four operating and reportable segments that primarily develop, manufacture, distribute, and sell device-based medical therapies and services: the Cardiovascular Portfolio, the Medical Surgical Portfolio, the Neuroscience Portfolio, and the Diabetes Operating Unit. For more information regarding our segments, please see Note 19 to the consolidated financial statements in \"Item 8. Financial Statements and Supplementary Data\" in this Annual Report on Form 10-K.\n3\nTable of C\nontents\nCARDIOVASCULAR PORTFOLIO\nThe Cardiovascular Portfolio is made up of the Cardiac Rhythm & Heart Failure, Structural Heart & Aortic, and Coronary & Peripheral Vascular divisions. The primary medical specialists who use our Cardiovascular products include electrophysiologists, implanting cardiologists, heart failure specialists, cardiovascular, cardiothoracic, and vascular surgeons, and interventional cardiologists and radiologists. \nCardiac Rhythm & Heart Failure \nOur Cardiac Rhythm & Heart Failure division includes the following Operating Units: Cardiac Rhythm Management; Cardiac Ablation Solutions; and Cardiovascular Diagnostics and Services. The\n \ndivision develops, manufactures, and markets products for the diagnosis, treatment, and management of heart rhythm disorders and heart failure. Our products include implantable devices, leads and delivery systems, products for the treatment of atrial fibrillation (AF), products designed to reduce surgical site infections, and information systems for the management of patients with Cardiac Rhythm & Heart Failure devices. Principal products and services offered include:\n\u2022\nImplantable cardiac pacemakers including the Azure MRI SureScan, Adapta, Advisa MRI SureScan, and the Micra Transcatheter Pacing System. The Micra Transcatheter Pacing System, which is leadless and does not have a subcutaneous device pocket like a conventional pacemaker, includes the Micra VR and the Micra AV device families. Both of these pacemakers treat patients with atrioventricular block. \n\u2022\nImplantable cardioverter defibrillators (ICDs), including the Visia AF MRI SureScan, Evera MRI SureScan, Primo MRI, and the Cobalt and Crome portfolio of BlueSync-enabled ICDs, as well as defibrillator leads, including the Sprint Quattro Secure lead.\n\u2022\nImplantable cardiac resynchronization therapy devices (CRT-Ds and CRT-Ps) including the Claria/Amplia/Compia family of MRI Quad CRT-D SureScan systems and the Cobalt and Crome portfolio of BlueSync-enabled CRT-Ds, as well as the Percepta/Serena/Solara family of MRI Quad CRT-P SureScan systems. \n\u2022\nCardiac ablation products include a full suite of electrophysiology solutions to treat patients with arrhythmias, including paroxysmal and persistent AF. The portfolio includes the Arctic Front Advanced Cardiac Cryoablation System, the DiamondTemp Ablation system, a temperature controlled, irrigated radiofrequency ablation system, Sphere 9 catheter, the first of its kind with high density mapping capabilities combined with radio frequency and pulsed field energies to deliver ablation lesions, and Affera Mapping and Navigation System with Prism-1 software aimed at integrating clinical information to improve patient outcomes.\n\u2022\nInsertable cardiac monitoring systems, including the Reveal LINQ and LINQ II. These devices are for patients who experience transient symptoms such as dizziness, palpitation, syncope (fainting) and chest pain, which may indicate a cardiac arrhythmia that requires long-term monitoring or ongoing management. The LINQ II device offers improved device longevity, remote programming, unmatched accuracy and a streamlined workflow with AccuRhythm AI algorithms to reduce clinic workload and data burden. \n\u2022\nTYRX products, including the Cardiac and Neuro Absorbable Antibacterial Envelopes, which are designed to stabilize electronic implantable devices and help prevent infection associated with implantable pacemakers and defibrillators. \n\u2022\nRemote monitoring services and patient-centered software to enable efficient care coordination as well as services related to hospital operational efficiency. \n\u2022\nMedtronic stopped the distribution and sale of the HVAD System in June 2021. We continue a support program for patients with HVAD devices, and for caregivers and healthcare professionals who participate in their care.\n4\nTable of C\nontents\nStructural Heart & Aortic \nOur Structural Heart & Aortic division includes the following Operating Units: Structural Heart & Aortic and Cardiac Surgery. The division includes therapies to treat heart valve disorders and aortic disease. Our devices include products for the repair and replacement of heart valves, perfusion systems, positioning and stabilization systems for beating heart revascularization surgery, surgical ablation products, and comprehensive line of products and therapies to treat aortic disease, such as aneurysms, dissections, and transections. Principal products offered include:\n\u2022\nCoreValve family of aortic valves, including the Evolut PRO, Evolut PRO+, Evolut FX TAVR systems for transcatheter aortic valve replacement.\n\u2022\nSurgical valve replacement and repair products for damaged or diseased heart valves, including both tissue and mechanical valves; blood-handling products that form a circulatory support system to maintain and monitor blood circulation and coagulation status, oxygen supply, and body temperature during arrested heart surgery; and surgical ablation systems and positioning and stabilization technologies. \n\u2022\nEndovascular stent grafts and accessories, including the Endurant II Stent Graft System for the treatment of abdominal aortic aneurysms, the Valiant Captivia Thoracic Stent Graft System for thoracic endovascular aortic repair procedures, and the Heli-FX EndoAnchor System. \n\u2022\nTranscatheter Pulmonary Valves, including Harmony Transcatheter Pulmonary Valve (TPV) and Delivery Catheter System and Melody TPV/Ensemble II Delivery System. \nCoronary & Peripheral Vascular\nOur Coronary & Peripheral Vascular division includes the following Operating Units: Coronary & Renal Denervation and Peripheral Vascular Health. The division is comprised of a comprehensive line of products and therapies to treat coronary artery disease as well as peripheral vascular disease and venous disease. Our products include coronary stents and related delivery systems, including a broad line of balloon angioplasty catheters, guide catheters, guide wires, diagnostic catheters, and accessories, peripheral drug coated balloons, stent and angioplasty systems, carotid embolic protection systems for the treatment of vascular disease outside the heart, and products for superficial and deep venous disease. Principal products offered include:\n\u2022\nPercutaneous Coronary Intervention products including our Onyx Frontier and Resolute Onyx drug-eluting stents, Euphora balloons, and Launcher guide catheters. \n\u2022\nPercutaneous angioplasty balloons including the IN.PACT family of drug-coated balloons, vascular stents including the Abre venous stent, directional atherectomy products including the HawkOne directional atherectomy system, and other procedure support tools. \n\u2022\nProducts to treat superficial venous diseases in the lower extremities including the ClosureFast radiofrequency ablation system and the VenaSeal Closure System.\n5\nTable of C\nontents\nMEDICAL SURGICAL PORTFOLIO\nThe Medical Surgical Portfolio includes the Surgical and Respiratory, Gastrointestinal, & Renal divisions. Products and therapies of this group are used primarily by healthcare systems, physicians' offices, ambulatory care centers, and other alternate site healthcare providers. While less frequent, some products and therapies are also used in home settings.\nSurgical Innovations\nOur Surgical Innovations division includes the following Operating Units: Surgical Innovations and Surgical Robotics. The division develops, manufactures, and markets advanced and general surgical products, including advanced stapling devices, vessel sealing instruments, wound closure products, electrosurgery products, AI-powered surgical video and analytics platform, and robotic-assisted surgery products, hernia mechanical devices, mesh implants, gynecology products, lung health and visualization, and therapies to treat diseases and conditions that are typically, but not exclusively, addressed by surgeons. Principal products and services offered include:\n\u2022\nAdvanced stapling and energy products, including the Tri-Staple technology platform for endoscopic stapling, including the Endo GIA reloads and reinforced reloads with Tri-Staple Technology and the Endo GIA ultra universal stapler; the Signia Powered Stapling System; the LigaSure Exact Dissector and L-Hook Laparoscopic Sealer/Divider; and the Sonicision 7 curved jaw cordless ultrasonic dissection system.\n\u2022\nElectrosurgical hardware and instruments, including the Valleylab FT10 energy platform, the Valleylab LS10 generator, and the Force TriVerse electrosurgical pencils.\n\u2022\nRobotic and digital surgery technologies including, the Hugo robotic-assisted surgery (RAS) system designed for a broad range of soft-tissue procedures, and Touch Surgery Enterprise, the first-of-its-kind AI-powered surgical video management solution for the operating room.\n\u2022\nProducts designed for the treatment of hernias, including the AbsorbaTack absorbable mesh fixation device for hernia repair, the Symbotex composite mesh for surgical laparoscopic and open ventral hernia repair, and ProGrip Laparoscopic Self-Fixating Mesh, a self-gripping, biocompatible solution for inguinal hernias.\n\u2022\nSuture and wound closure products, including the V-Loc barbed sutures, the Polysorb braided absorbable sutures, and the Monosof absorbable monofilament nylon sutures.\nRespiratory, Gastrointestinal, & Renal\nOur Respiratory, Gastrointestinal, & Renal division includes the following Operating Units: Respiratory Interventions; Patient Monitoring; and Gastrointestinal. The division develops, manufactures, and markets products in the emerging fields of minimally invasive gastrointestinal and hepatologic diagnostics and therapies, patient monitoring, and respiratory interventions including airway management and ventilation therapies. Effective April 1, 2023, we have contributed our Renal Care Solutions (RCS) business as part of an agreement with DaVita to form a new, independent kidney care-focused medical device company (\u201cMozarc Medical\u201d). Principal products and services offered include:\n\u2022\nGastrointestinal and endoscopy products, including the GI Genius intelligent endoscopy module, the PillCam capsule endoscopy systems, the Bravo calibration-free reflux testing systems, the Endoflip Impedance Planimetry System, the Emprint ablation system with Thermosphere Technology, the ManoScan Bravo system, the Barrx platform through ablation with the Barrx 360 Express catheter, the Cool-tip radiofrequency ablation system, the HET Bipolar System, the Beacon delivery system, and the Nexpowder endoscopic hemostasis system.\n\u2022\nAirway, ventilation, and inhalation therapies products, including the Puritan Bennett 980 and 840 ventilators, the Newport e360 and HT70 ventilators, the TaperGuard Evac tube, Shiley Endotracheal Tubes, Shiley Tracheostomy Tubes, McGRATH MAC video laryngoscopes, and DAR Filters.\n6\nTable of C\nontents\n\u2022\nProducts focused on patient monitoring, including Nellcor pulse oximetry monitors and sensors, Microstream capnography monitors, Bispectral Index (BIS) brain monitoring technology, INVOS cerebral/somatic oximetry systems, Vital Sync remote monitoring, WarmTouch convective warming, and the RespArray patient monitor.\nNEUROSCIENCE PORTFOLIO\nThe Neuroscience Portfolio is made up of the Cranial & Spinal Technologies, Specialty Therapies, and Neuromodulation divisions. The primary medical specialists who use the products of this group include spinal surgeons, neurosurgeons, neurologists, pain management specialists, anesthesiologists, orthopedic surgeons, urologists, urogynecologists, interventional radiologists, and ear, nose, and throat specialists.\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nCranial & Spinal Technologies\nOur Cranial & Spinal Technologies division and Operating Unit develops, manufactures, and markets an integrated portfolio of devices and therapies for\u00a0surgical technologies designed to improve the precision and workflow of neuro procedures, and a comprehensive line of medical devices and implants used in the treatment of the spine and musculoskeletal system. The division also provides biologic solutions for the orthopedic markets and offers unique and highly differentiated imaging, navigation, power instruments, and robotic guidance systems used in spine and cranial procedures. Principal products and services offered include:\n\u2022\nNeurosurgery products, including platform technologies, implant therapies, and advanced energy products through the Aible spine technology ecosystem. This includes our StealthStation S8 Navigation System, Stealth Autoguide cranial robotic guidance platform, O-arm Imaging System, Mazor X robotic guidance systems used in robot-assisted spine procedures, UNiD Adaptive Spine Intelligence AI-driven technology, and our Midas Rex surgical drills, including our MR8 high-speed drill system.\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n \n\u2022\nProducts to treat a variety of conditions affecting the spine, including degenerative disc disease, spinal deformity, spinal tumors, fractures of the spine, and stenosis. These products include our CATALYFT PL expandable interbody spacers, CD Horizon ModuLeX spinal system, and T2 STRATOSPHERE Expandable Corpectomy System. These products can also include titanium interbody implants and surface technologies, such as our Adaptix interbody system and incorporated Titan Interbody Fusion Device with nanoLOCK technology.\n\u2022\nProducts that facilitate less invasive thoracolumbar surgeries, including the CD HORIZON SOLERA VOYAGER Percutaneous Fixation System and various retractor systems to access the spine through smaller incisions.\n\u2022\nProducts to treat conditions in the cervical region of the spine, including the ZEVO Anterior Cervical Plate System, the INFINITY OCT System, and PRESTIGE LP Cervical Artificial Discs.\n\u2022\nBiologic solutions products, including our INFUSE Bone Graft (InductOs in the European Union (E.U.)), which contains a recombinant human bone morphogenetic protein-2, rhBMP-2, for certain spinal, trauma, and oral maxillofacial applications.\n\u2022\nDemineralized bone matrix products, including MAGNIFUSE, GRAFTON/GRAFTON PLUS, and the MASTERGRAFT family of synthetic bone graft products \u2013 Matrix, Putty, Strip, and Granules.\nSpecialty Therapies\nOur Specialty Therapies division includes the following Operating Units: Neurovascular; Ear, Nose, and Throat (ENT); and Pelvic Health. The division develops, manufactures, and markets products and therapies to treat patients afflicted with acute ischemic and hemorrhagic stroke, diseases of ENT, and patients suffering from overactive bladder, (non-obstructive) urinary retention, and chronic fecal incontinence. Principal products and services offered include:\n\u2022\nNeurovascular products to treat diseases of the vasculature in and around the brain. This includes coils, neurovascular stent retrievers, and flow diversion products, as well as access and delivery products to support procedures. Products also include the Pipeline Flex Embolization Device with Shield Technology, endovascular treatments for large or giant wide-necked brain aneurysms, the portfolio of Solitaire revascularization devices for treatment of acute ischemic stroke, the Riptide Aspiration \n7\nTable of C\nontents\nSystem, the Onyx Liquid Embolic System, and a portfolio of associated access catheters including our React aspiration catheters also for the treatment of acute ischemic stroke. \n\u2022\nENT products, including the Straightshot M5 Microdebrider Handpiece, the Integrated Power Console (IPC) system, NIM Vital Nerve Monitoring Systems, Propel and Sinuva Sinus Implants from the acquisition of Intersect ENT, StealthStation ENT and StealthStation FlexENT Navigation Systems, as well as products for hearing restoration.\n\u2022\nPelvic health products, including our InterStim X and InterStim II recharge-free neurostimulators, InterStim Micro rechargeable neurostimulators, and SureScan MRI leads. Our NURO System delivers Percutaneous Tibial Neuromodulation therapy to treat overactive bladder and associated symptoms of urinary urgency, urinary frequency, and urge incontinence. \nNeuromodulation\nOur Neuromodulation division and Operating Unit develops, manufactures, and markets spinal cord stimulation and brain modulation systems, implantable drug infusion systems for chronic pain, as well as interventional products. Principal products and services offered include:\n\u2022\nSpinal cord stimulation products, including rechargeable and recharge-free devices and a large selection of leads used to treat chronic back and/or limb pain and chronic pain resulting from diabetic peripheral neuropathy. This includes the Intellis (rechargeable) and Vanta (recharge-free) Spinal Cord Stimulation Systems, with AdaptiveStim and SureScan MRI Technology, DTM (differential target multiplexed) proprietary waveform, the Evolve workflow algorithm, and Snapshot reporting. \n\u2022\nBrain modulation products, including those for the treatment of the disabling symptoms of Parkinson's disease, essential tremor, refractory epilepsy, severe, treatment-resistant obsessive-compulsive disorder (approved under a Humanitarian Device Exemption (HDE) in the U.S.), and chronic, intractable primary dystonia (approved under a HDE in the U.S.). Specifically, this includes our family of Activa neurostimulators, including Activa SC (single-channel primary cell battery), Activa PC (dual channel primary cell battery), and Activa RC (dual channel rechargeable battery), as well as Percept PC neurostimulator and SenSight directional lead system with the proprietary BrainSense technology. \n\u2022\nImplantable drug infusion systems, including our SynchroMed II Implantable Infusion System, that deliver small quantities of drug directly into the intrathecal space surrounding the spinal cord. \n\u2022\nInterventional products, including the Kyphon Balloon, the Kyphon V Premium, and Kyphon Assist systems and the OsteoCool RF Tumor ablation system.\n\u2022\nThe Accurian nerve ablation system, which conducts radio frequency ablation of nerve tissues. \nDIABETES OPERATING UNIT\nThe Diabetes Operating Unit develops, manufactures, and markets products and services for the management of Type 1 and Type 2 diabetes. The primary medical specialists who use and/or prescribe our Diabetes products are endocrinologists and primary care physicians. \nPrincipal products and services offered include:\n\u2022\nInsulin pumps and consumables, including the MiniMed 770G system and MiniMed 780G system, which are all powered by SmartGuard technology. The MiniMed 770G and 780G system provides smartphone and Bluetooth connectivity, continuously delivers background insulin, monitors sugar levels, and an expanded age indication to ages two and up. The MiniMed 780G further reduces patient burden by including automatic correction boluses, meal-time detection system, and an adjustable glucose target down to 100 mg/dl.\n\u2022\nContinuous glucose monitoring (CGM) systems and sensors, including the Guardian Connect smart CGM system, the Guardian Sensor 3, and the Guardian Sensor 4, are products worn by patients capturing glucose data to reveal patterns and potential problems, such as hyperglycemic and hypoglycemic episodes.\n8\nTable of C\nontents\n\u2022\nThe InPen smart insulin pen system combines a reusable Bluetooth-enabled insulin pen with an intuitive mobile app that helps users administer the appropriate insulin dose. The InPen application integrates with our CGM data to provide real-time CGM readings alongside insulin dose information.\nHUMAN CAPITAL \nMedtronic Workforce Overview\nMedtronic\u2019s employees deliver on our Mission every day. We empower insight-driven care, experiences that put people first, and better outcomes for our world. In everything we do, we are engineering the extraordinary. We strive to be the employer of choice for the best and brightest global talent, where employees can grow and develop fulfilling careers. We aspire to create a truly inclusive, diverse, and equitable workplace that fosters innovation and creativity, and where every employee feels a sense of belonging and well-being. Medtronic has 95,000+ full-time employees, of which forty-three percent are based in the U.S. or Puerto Rico. \nInclusion, Diversity & Equity\nWe believe that improving health for people from all walks of life depends on our ability to unleash the creative power of our diverse global employees. By breaking down barriers to Inclusion, Diversity and Equity (ID&E), we open doors for everyone, driving progress and prosperity around the world. We integrate ID&E principles throughout our Company to ensure every operating unit, team, and leader recognizes and celebrates the value of diverse experiences and backgrounds. As of the end of fiscal year 2023, 40 percent of our U.S. workforce is ethnically diverse; women comprise 51 percent of our global workforce; 43 percent of our manager and above employees are women; and 28 percent of our U.S. managers are ethnically diverse. Additionally, Medtronic employee resource groups (ERGs) are employee-led affinity groups that provide career development and networking opportunities for members and strengthen ties between employees of many different backgrounds, cultures, and interests. In fiscal year 2023, there were 13 ERGs and Diversity Networks across 300+ Network and ERG chapters in 70 countries with more than 35,000 members.\nPay Equity\nIn our most recent reported period available, in the United States, we have achieved 100% pay equity for gender for the third consecutive year and 100% pay equity for ethnically diverse employees. Globally we have achieved 99% pay equity for gender. We are actively working to close any remaining pay gaps by continuing to expand the annual pay equity analyses for each country we operate in. \nWorkforce Compensation\nOur compensation framework is designed to celebrate the value and contributions of our employees. We are committed to transparent communications on compensation. Our competitive approach to compensation reflects industry benchmarks and local market standards. Our programs include annual and long-term equity-based incentives that provide the means to share in the Company\u2019s success, based on business and individual performance. To attract the best leaders, we offer competitive benefits and cash and equity incentives. We reward high-performing employees with an ownership stake in the Company through restricted stock, and all employees have the opportunity to purchase stock at a significant discount.\nLearning & Development\nThe skills and dedication of our employees drive our business performance. Our comprehensive professional development programs empower our people to build rewarding careers and help us attract world-class talent from global and diverse populations. Our suite of professional development programs ensures that our employees, regardless of level, location, language or learning preferences, have access to opportunities to develop and grow. Our investment in employee development has contributed to more than 32 percent of our open roles being filled with internal employees.\nWe have shifted away from degree requirements to focus on skills-based certification for certain roles within Medtronic. Additionally, as members of the Multiple Pathways Initiative, we have used a skills-based approach to offering opportunities to expanded pools of external talent that have previously been held back due to lack of access to undergraduate education. Internally, employees can now participate through MAPS (Medtronic Advancement Pathways and Skill-building) in undergraduate courses from top-tier universities to enhance or obtain new skills, at no cost to the employee. Our change in approach has opened up opportunities for employees who have been otherwise restricted from career advancement due to degree requirements.\nEmployee Engagement and Culture\nThrough our Organizational Health Survey, we gain valuable insight into the Medtronic employee experience and identify where we can improve in key priority areas: 1) Employee Engagement, 2) Inclusion, 3) Innovation, 4) Ethics and 5) quality culture as part of our commitment to Put Patients First in our everyday decisions and actions. In our most recent survey ending in the fourth quarter of fiscal year 2023, more than 82 percent of our employees responded. Medtronic carefully reviews and implements actions based on employee feedback in order to partner and create an inclusive, innovative and supportive environment.\n9\nTable of C\nontents\nTo enable our transformation to be the global healthcare technology leader, we introduced a reinvigorated and revived culture. The Medtronic Mindset builds on our core values of integrity, quality, inclusion, and collaboration. It urges us to act boldly, compete to win, move with speed and decisiveness, foster belonging, and deliver results\u2026 the right way. Our renewed culture helps us meet the needs of our patients and customers, and ensures our Mission endures for many years to come.\nHealth & Safety\nAs a large, global employer, it is our responsibility to maintain a safe workplace and support the well-being of our employees. \nMedtronic has a comprehensive approach to providing robust support for our employees and their families in natural disasters, public health crises, civil unrest and war, bereavement, and other challenging events. Along with other programs, the Medtronic Employee Assistance Program and the Medtronic Employee Emergency Assistance Fund have historically supported employees and their families when faced with difficult times by providing a variety of services such as mental health, safety, and financial resources and support at no cost. These programs have proven invaluable in navigating our employees through unique challenges, including in fiscal year 2023. The Medtronic Employee Emergency Assistance Fund is supported by donations from employees and the Medtronic Foundation, and over the last five years has provided over $6 million in grants to employees experiencing unexpected events creating a financial hardship.\nFor more information on Human Capital Management at Medtronic, please refer to our 2022 Integrated Performance Report\n(1)\n as well as Medtronic\u2019s 2022 Global Inclusion, Diversity and Equity Report\n(1)\n available on our company website.\nCORPORATE SUSTAINABILITY GOALS\nWe see possibilities to further increase our positive impact in the world. We have identified three focus areas for our environmental, social, and governance (ESG) efforts to drive measurable impact on issues including: protecting our planet, accelerating access to healthcare technology, and advancing ID&E. In fiscal year 2022, we set new performance targets across the following areas: Patient Safety & Product Quality; Inclusion, Diversity & Equity; Climate Stewardship; Product Stewardship; and Access & Innovation. More information about our ESG focus areas, including progress we have made to date toward achieving them, is included in our Integrated Performance Report.\n(1)\n(1)\nThe contents of our Integrated Performance Report and our Global Inclusion, Diversity, and Equity Report are referenced for general information only and are not incorporated by reference in the Form 10-K.\nOTHER FACTORS IMPACTING OUR OPERATIONS\nPublic Health Crises\nThe global COVID-19 pandemic, together with the preventative and precautionary measures taken by businesses, communities, and governments, have impacted, and may continue to impact significant aspects of our Company and business, including future procedural volumes, supply constraints, healthcare staffing, and resulting impacts on demand for our products and therapies. If there are significant outbreaks of other contagious diseases or other global public health crises, we may face similar impacts. See \u201cItem 1A. Risk Factors\u201d in this Annual Report on Form 10-K.\nResearch and Development\nThe markets in which we participate are subject to rapid technological advances and innovations. Constant improvement of existing products and introduction of new products is necessary to maintain market leadership. Our research and development (R&D) efforts are directed toward maintaining or achieving technological leadership in the markets we serve to help ensure that patients using our devices and therapies receive the most advanced and effective treatment possible. We remain committed to developing technological enhancements and new indications for existing products, and less invasive and new technologies for new and emerging markets to address unmet patient needs. That commitment leads to our initiation and participation in hundreds of clinical trials each fiscal year as the demand for clinical and economic evidence remains high. Furthermore, our development activities are intended to help reduce patient care costs and the length of hospital stays in the future. We have not engaged in significant customer or government-sponsored research.\nOur R&D activities include improving existing products and therapies, expanding their indications and applications for use, developing new therapies and procedures, and entering into arrangements with third parties to fund the development of certain technologies. We continue to focus on optimizing innovation, improving our R&D productivity, driving growth in emerging markets, generating clinical evidence, and assessing our R&D programs based on their ability to address unmet clinical needs, produce better patient outcomes, and create new standards of care.\nIntellectual Property and Litigation\nWe rely on a combination of patents, trademarks, tradenames, copyrights, trade secrets, and agreements (non-disclosure and non-competition agreements) to protect our business and proprietary technology. In addition, we have entered into exclusive and non-exclusive licenses relating to a wide array of third-party technologies. In the aggregate, these intellectual property assets and licenses are of material \n10\nTable of C\nontents\nimportance to our business; however, we believe that no single intellectual property asset or license is material in relation to our business as a whole. \nWe operate in an industry characterized by extensive patent litigation. Patent litigation may result in significant damage awards and injunctions that could prevent the manufacture and sale of affected products or result in significant royalty payments in order to continue selling the products. At any given time, we are generally involved as both a plaintiff and a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time.\nSales and Distribution\nWe sell our medical devices and therapies through a combination of direct sales representatives and independent distributors globally. Additionally, a portion of the Company's revenue is generated from consignment inventory maintained at hospitals. Our medical supply products are used primarily in hospitals, surgical centers, and alternate care facilities, such as home care and long-term care facilities, and are marketed to materials managers, group purchasing organizations (GPOs) and integrated delivery networks (IDNs). We often negotiate with GPOs and IDNs, which enter into supply contracts for the benefit of their member facilities. Our four largest markets are the U.S., Western Europe, China, and Japan. Emerging markets are an area of increasing focus and opportunity, as we believe they remain under-penetrated.\nOur marketing and sales strategy is focused on rapid, cost-effective delivery of high-quality products to a diverse group of customers worldwide. To achieve this objective, our marketing and sales teams are organized around physician specialties. This focus enables us to develop highly knowledgeable and dedicated sales representatives who are able to foster strong relationships with physicians and other customers and enhance our ability to cross-sell complementary products. \nWe are not dependent on any single customer for more than 10 percent of our total net sales. \nCompetition, Industry, and Cost Containment\nWe compete in both the therapeutic and diagnostic medical markets in\n more\n than 150 countries throughout the world. These markets are characterized by rapid change resulting from technological advances, innovations and scientific discoveries. Our product lines face a mix of competitors ranging from large manufacturers with multiple business lines to small manufacturers offering a limited selection of products. In addition, we face competition from providers of other medical therapies, such as pharmaceutical companies.\nMajor shifts in industry market share have occurred in connection with product corrective actions, physician advisories, safety alerts, results of clinical trials to support superiority claims, and publications about our products, reflecting the importance of product quality, product efficacy and quality systems in the medical device industry. In the current environment of managed care, economically motivated customers, consolidation among healthcare providers, increased competition, declining reimbursement rates, and national and provincial tender pricing, competitively priced product offerings are essential to our business. In order to continue to compete effectively, we must continue to create or acquire advanced technology, incorporate this technology into proprietary products, obtain regulatory approvals in a timely manner, maintain high-quality manufacturing processes, and successfully market these products.\nGovernment and private sector initiatives to limit the growth of healthcare costs, including price regulation, competitive pricing, bidding and tender mechanics, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements, are continuing in many countries where we do business, including the U.S. These initiatives put increased emphasis on the delivery of more cost-effective medical devices and therapies. Government programs, including Medicare and Medicaid, private healthcare insurance and managed-care plans have attempted to control costs by limiting the amount of reimbursement they will pay for particular procedures or treatments, tying reimbursement to outcomes, shifting to population health management, and other mechanisms. Hospitals, which purchase our technology, are also seeking to reduce costs through a variety of mechanisms, including, for example, centralized purchasing, and in some cases, limiting the number of vendors that may participate in the purchasing program. Hospitals are also aligning interests with physicians through employment and other arrangements, such as gainsharing, where a hospital agrees with physicians to share any realized cost savings resulting from changes in practice patterns such as device standardization. This has created an increased level of price sensitivity among customers for our products.\nProduction and Availability of Raw Materials\nWe manufacture products at manufacturing facilities located in various countries throughout the world. We purchase many of the components and raw materials used in manufacturing our products from numerous suppliers in various countries. Certain components and raw materials are available only from a sole supplier. We work closely with our suppliers to help ensure continuity of supply while maintaining high quality and reliability. Generally, we have been able to obtain adequate supplies of such raw materials and components. However, due to the U.S. FDA\u2019s manufacturing requirements, we may not be able to quickly establish additional or replacement sources for certain components or materials if we experience a sudden or unexpected reduction or interruption in supply and are unable to develop alternative sources. \nFor additional information related to our manufacturing facilities refer to \u201cItem 2. Properties\u201d in this Annual Report on Form 10-K. \n11\nTable of C\nontents\nGovernment Regulation\nOur operations and products are subject to extensive regulation by numerous government agencies, including the U.S. FDA, European regulatory authorities such as the Medicines and Healthcare products Regulatory Agency in the United Kingdom, the Health Products Regulatory Authority in the Republic of Ireland and the Federal Institute for Drugs and Medical Devices in Germany, the China \nNational Medical Product Administration (NMPA)\n, and other government agencies inside and outside the U.S. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing, distribution and post-marketing surveillance of our products. Our business is also affected by patient and data privacy laws and government payer cost containment initiatives, as well as environmental health and safety laws and regulations.\nProduct Approval and Monitoring\nMany countries where we sell products are subjected to approval and other regulatory requirements regarding performance, safety, and quality of our products. Authorization to commercially distribute a new medical device in the U.S. is generally obtained in one of two primary ways. The first, known as pre-market notification or the 510(k) process, requires us to demonstrate that our medical device is substantially equivalent to a legally marketed medical device. The second, more rigorous process, known as pre-market approval, requires us to independently demonstrate that a medical device is safe and effective for its intended use. This process is generally much more time-consuming and expensive than the 510(k) process.\nIn the E.U., conformity with the marketing authorization requirements is represented by the CE Mark. To obtain a CE Mark, defined products must meet minimum standards of performance, safety, and quality (i.e., the essential requirements), and then, according to their classification, comply with one or more of a selection of conformity assessment routes. The competent authorities of the E.U. countries separately regulate the clinical research for medical devices and the market surveillance of products once they are placed on the market. The Medical Device Regulation was published by the E.U. in 2017, and it imposes significant additional pre-market and post-market requirements (EU MDR). The regulation provided an implementation period and became effective on May 26, 2021. The European Commission recently extended the implementation period to the end of 2027 for high-risk devices and to the end of 2028 for medium and low risk devices.\nThe global regulatory environment is increasingly stringent and unpredictable. While harmonization of global regulations has been pursued, requirements continue to differ among countries. We expect this global regulatory environment will continue to evolve, which could impact the cost, the time needed to approve, and ultimately, our ability to maintain existing approvals or obtain future approvals for our products. Regulations of the U.S. FDA and other regulatory agencies in and outside the U.S. impose extensive compliance and monitoring obligations on our business. These agencies review our design and manufacturing processes, labeling, record keeping, and manufacturers\u2019 required reports of adverse experiences and other information to identify potential problems with marketed products. We are also subject to periodic inspections for compliance with applicable quality system regulations, which govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging, and servicing of finished medical devices intended for human use. In addition, the U.S. FDA and other regulatory bodies, both in and outside the U.S. (including the Federal Trade Commission, the Office of the Inspector General of the Department of Health and Human Services, the U.S. Department of Justice, and various state Attorneys General), monitor the promotion and advertising of our products. Any adverse regulatory action, depending on its magnitude, may limit our ability to effectively market and sell our products, limit our ability to obtain future pre-market approvals or result in a substantial modification to our business practices and operations. For additional information, see \"Item 1A. Risk Factors\" \nWe are subject to extensive and complex laws and governmental regulations and any adverse regulatory action may materially adversely affect our financial condition and business operations.\nTrade Regulations\nThe movement of products, services, and investment across borders subjects us to extensive trade regulations. A variety of laws and regulations in the countries in which we transact business apply to the sale, shipment and provision of goods, services and technology across borders. These laws and regulations govern, among other things, our import, export and other business activities. We are also subject to the risk that these laws and regulations could change in a way that would expose us to additional costs, penalties or liabilities. Some governments also impose economic sanctions against certain countries, persons or entities. In addition to our need to comply with such regulations in connection with our direct activities, we also sell and provide goods, technology and services to agents, representatives and distributors who may export such items to customers and end-users. If we, or the third parties through which we do business, are not in compliance with applicable import, export control or economic sanctions laws and regulations, we may be subject to civil or criminal enforcement action, and varying degrees of liability. Such actions may disrupt or delay sales of our products or services or result in restrictions on our distribution and sales of products or services that may materially impact our business.\nAnti-Boycott Laws\nUnder U.S. laws and regulations, U.S. companies and their subsidiaries and affiliates outside the U.S. are prohibited from participating or agreeing to participate in unsanctioned foreign boycotts in connection with certain business activities, including the sale, purchase, transfer, shipping or financing of goods or services within the U.S. or between the U.S. and countries outside of the U.S. If we, or certain third \n12\nTable of C\nontents\nparties through which we sell or provide goods or services, violate anti-boycott laws and regulations, we may be subject to civil or criminal enforcement action and varying degrees of liability.\nData Privacy and Security Laws and Regulations\nAs a business with a significant global footprint, compliance with evolving regulations and standards in data privacy and cybersecurity has resulted, and may continue to result, in increased costs, new compliance challenges, and the threat of increased regulatory enforcement activity. Our business relies on the secure electronic transmission, storage and hosting of sensitive information, including personal information, protected health information, financial information, intellectual property and other sensitive information related to our customers and workforce.\nOur global operational footprint comes with the obligation for compliance and adherence to individual data security, confidentiality and breach notification laws at the State Level, Federal Level, and International Level. Examples of those laws include, in the U.S., the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended, the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), and various State privacy laws that have become effective recently. We are also subject to various other country-specific requirements around the world, such as the General Data Protection Regulation (GDPR) in the European Economic Area, the United Kingdom\u2019s version of the same, and China's Personal information Protection Law (PIPL). \nBecause the laws and regulations continue to expand, differ from jurisdiction to jurisdiction, and are subject to evolving (and at times inconsistent) governmental interpretation, compliance with these laws and regulations may require significant additional cost expenditures or changes in products or business that increase competition or reduce revenue. Noncompliance could result in the imposition of fines, penalties, or orders to stop noncompliant activities, or withdrawal of noncompliant products from a market.\nRegulations Governing Reimbursement\nThe delivery of our devices is subject to regulation by the U.S. Department of Health and Human Services (HHS) and comparable state and non-U.S. agencies responsible for reimbursement and regulation of healthcare items and services. U.S. laws and regulations are imposed primarily in connection with federally funded healthcare programs, such as the Medicare and Medicaid programs, as well as the government\u2019s interest in regulating the quality and cost of healthcare. Other governments also impose regulations in connection with their healthcare reimbursement programs and the delivery of healthcare items and services.\nU.S. federal healthcare laws apply when we or customers submit claims for items or services that are reimbursed under federally-funded healthcare programs, including laws related to kickbacks, false claims, self-referrals or other healthcare fraud. There are often similar state false claims, anti-kickback, and anti-self-referral and insurance laws that apply to state Medicaid and other healthcare programs and private third-party payers. In addition, as a manufacturer of U.S. FDA-approved devices reimbursable by federal healthcare programs, we are subject to the Physician Payments Sunshine Act, which requires us to annually report certain payments and other transfers of value we make to U.S.-licensed physicians or U.S. teaching hospitals. Any failure to comply with these laws and regulations could subject us or our officers and employees to criminal and civil financial penalties.\nImplementation of legislative or regulatory reforms to reimbursement systems, or adverse decisions relating to our products by administrators of these systems in coverage or reimbursement, could significantly reduce reimbursement or result in the denial of coverage, which could have an impact on the acceptance of and demand for our products and the prices that our customers are willing to pay for them. \nEnvironmental Health and Safety Laws\nWe are also subject to various environmental health and safety laws and regulations both within and outside the U.S. Like other companies in our industry, our manufacturing and other operations involve the use and transportation of substances regulated under environmental health and safety laws including those related to the transportation of hazardous materials.\nAvailable Information \nWe maintain a website at \nwww.medtronic.com\n. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act) are made available under the \u201cOur Company \u2013 Investors\u201d caption and \u201cFinancials \u2013 SEC Filings\u201d subcaption of our website as soon as reasonably practicable after we electronically file them with, or furnish them to, the Securities and Exchange Commission (SEC).\nInformation relating to our corporate governance, including our Principles of Corporate Governance, Code of Conduct (including our Code of Ethics for Senior Financial Officers and any related amendments or waivers), Code of Business Conduct and Ethics for Members of the Board of Directors, and information concerning our executive officers, directors and Board committees (including committee charters) is available through our website at \nwww.medtronic.com\n under the \u201cOur Company \u2013 Governance\u201d caption. Information relating to transactions in Medtronic securities by directors and officers is available through our website at \nwww.medtronic.com\n under the \u201cOur Company \u2013 Investors\u201d caption and the \u201cFinancials \u2013 SEC Filings\u201d subcaption.\n13\nTable of C\nontents\nOur website and the information contained on or connected to our website are not incorporated by reference into this Form 10-K.\nThe SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC. The public may obtain any documents that we file with the SEC at \nhttp://www.sec.gov\n. We file annual reports, quarterly reports, proxy statements, and other documents with the SEC under the Exchange Act.",
+  "item1a": ">Item 1A. Risk Factors\nInvesting in our securities involves a variety of risks and uncertainties, known and unknown, including, among others, those discussed below. Each of the following risks should be carefully considered, together with all the other information included in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes and in our other filings with the SEC. Furthermore, additional risks and uncertainty not presently known to us or that we currently believe to be immaterial may also adversely affect our business. Our business, results of operations, financial condition, and cash flow and prospects could be materially and adversely affected by any of these risks or uncertainties.\nBusiness and Operational Risks\nWe operate in a highly competitive industry and we may be unable to compete effectively.\nWe compete in both the therapeutic and diagnostic medical markets in more than 150 countries throughout the world. These markets are characterized by rapid change resulting from technological advances, innovations and scientific discoveries. In the product lines in which we compete, we face a range of competitors from large companies with multiple business lines to small, specialized manufacturers that offer a limited selection of niche products. Development by other companies of new or improved products, processes, technologies, or the introduction of reprocessed products or generic versions when our proprietary products lose their patent protection may make our existing or planned products less competitive. In addition, we face competition from providers of alternative medical therapies, such as pharmaceutical companies.\nWe believe our ability to compete depends upon many factors both within and beyond our control, including:\n\u2022\nproduct performance and reliability,\n\u2022\nproduct technology and innovation,\n\u2022\nproduct quality and safety,\n\u2022\nbreadth of product lines,\n\u2022\nproduct support services,\n\u2022\ncustomer support,\n\u2022\ncost-effectiveness and price,\n\u2022\nreimbursement approval from healthcare insurance providers, and\n\u2022\nchanges to the regulatory environment.\nCompetition may increase as additional companies enter our markets or modify their existing products to compete directly with ours. In addition, academic institutions, governmental agencies and other public and private research organizations also may conduct research, seek patent protection and establish collaborative arrangements for discovery, research, clinical development and marketing of products similar to ours. These companies and institutions compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring necessary product technologies. From time to time we have lost, and may in the future lose, market share in connection with product problems, physician advisories, safety alerts and publications about our products, which highlights the importance of product quality, product efficacy and quality systems to our business. In the current environment of managed care, consolidation among healthcare providers, increased competition, declining reimbursement rates, and national and provincial tender pricing, as recently experienced in China, competitively priced product offerings are essential to our success. Further, our continued growth and success depend on our ability to develop, acquire and market new and differentiated products, technologies and intellectual property, and as a result we also face competition for marketing, distribution, and collaborative development agreements, establishing relationships with academic and research institutions and licenses to intellectual property. In order to continue to compete effectively, we must continue to create, invest in or acquire advanced technology, incorporate this technology into our proprietary products, obtain regulatory approvals in a timely manner, and manufacture and successfully market our products. Given these factors, we cannot guarantee that we will be able to compete effectively or continue our level of success.\n14\nTable of C\nontents\nPublic health crises have had, and may continue to have, an adverse effect on certain aspects of our business, results of operations, financial condition, and cash flows. The nature and extent of future impacts are highly uncertain and unpredictable.\nOur global operations and interactions with healthcare systems, providers and patients around the world expose us to risks associated with public health crises, including epidemics and pandemics such as COVID-19. In particular, the preventative and precautionary measures that we and other businesses, communities, and governments have taken to mitigate the spread of the disease has led to restrictions on, and disruptions in, business and personal activities in certain countries and regions, including China, which comprises approximately seven percent of our total revenues. These restrictions have reduced customer demand for certain of our products. We expect medical procedure rates to continue to vary by therapy and country, and could be impacted by regional COVID-19 case volumes, healthcare system staffing shortages and supply chain issues that affect their ability to provide care, patients\u2019 ability or willingness to schedule deferrable procedures, travel restrictions, transportation limitations, quarantine restrictions, vaccine and booster immunization rates, and new COVID-19 variants.\nTogether with the preventative and precautionary measures being taken, as well as the corresponding need to adapt to new and improved methods of conducting business, such as increased remote monitoring, COVID-19 has had, and may continue to have, an adverse impact on certain aspects of our Company and business, including the demand for and supply of certain of our products, operations, supply chains and distribution systems, and our ability to generate cash flow. Some of our products are more sensitive to reductions in deferrable and emergent medical procedures, and certain medical procedures have been and may continue to be suspended or postponed. It is not possible to predict the timing of deferrable medical procedures and, to the extent individuals and hospital systems de-prioritize, delay or cancel these procedures, our business, results of operations, financial condition, and cash flows could continue to be negatively affected.\nReduction or interruption in supply or other manufacturing difficulties may adversely affect our manufacturing operations and related product sales.\nThe manufacture of our products requires the timely delivery of a sufficient amount of quality components and materials and is highly exacting and complex, due in part to strict regulatory requirements. We manufacture the majority of our products and procure important third-party services, such as sterilization services, at numerous facilities worldwide. We purchase many of the components, raw materials and services needed to manufacture these products from numerous suppliers in various countries. We seek to maintain continuity of supply by use of multiple options for sourcing where possible. We have generally been able to obtain adequate supplies of such raw materials, components and services, although global shortages of certain components such as semiconductors and resins have recently caused, and may in the future cause, disruptions to our product manufacturing supply chain. In addition, for reasons of quality assurance, cost effectiveness, or availability, certain components, raw materials and services needed to manufacture our products are obtained from a sole supplier. Although we work closely with our suppliers to try to ensure continuity of supply while maintaining high quality and reliability, the supply of these components, raw materials and services may be interrupted or insufficient. In addition, due to the stringent regulations and requirements of regulatory agencies, including the U.S. FDA, regarding the manufacture of our products, we may not be able to quickly establish additional or replacement sources. Additionally, many regulatory agencies are imposing regulatory requirements on safe use of chemicals and their potential impact on health and the environment which also may impact supply constraints. Furthermore, the prices of commodities and other materials used in our products, which are often volatile and outside of our control, could adversely impact our supply. We use resins, other petroleum-based materials and pulp as raw materials in some of our products, and the prices of oil and gas also significantly affect our costs for freight and utilities. A reduction or interruption in supply, and an inability to develop alternative sources for such supply, could adversely affect our ability to manufacture our products in a timely or cost-effective manner and could result in lost sales.\nOther disruptions in the manufacturing process or product sales and fulfillment systems for any reason, including infrastructure, information and equipment malfunction, failure to follow specific protocols and procedures, supplier or Company facility shut-downs, defective raw materials, labor shortages, natural disasters such as hurricanes, tornadoes, earthquakes, or wildfires, property damage or facility closures from riots or public protests, and other environmental factors and the impact of epidemics, pandemics, or other public health crises, and actions by businesses, communities and governments in response, could lead to launch delays, product shortages, unanticipated costs, lost revenues and damage to our reputation. For example, in the past we have experienced a global information technology systems interruption that affected our customer ordering, distribution, and manufacturing processes, and we have been adversely impacted by, and may continue to be adversely impacted by, the global COVID-19 pandemic and the responses of governments and of our partners, including suppliers, manufacturers, distributors and other businesses. Furthermore, any failure to identify and address manufacturing problems prior to the release of products to our customers could result in quality or safety issues.\nIn addition, many of our products require sterilization before sale and several of our key products are manufactured or sterilized at a particular facility, with limited alternate facilities. If an event occurs that results in damage to or closure of one or more of such facilities, such as the Illinois Environmental Protection Agency's decision to close a supplier's sterilization facility in February 2019, we may be unable to manufacture or sterilize the relevant products to the required quality specifications or at all. Because of the time required to approve and license a manufacturing or sterilization facility, a third-party may not be available on a timely basis to replace production capacity in the event manufacturing or sterilization capacity is lost.\n15\nTable of C\nontents\nOur research and development efforts rely upon investments and investment collaborations, and we cannot guarantee that any previous or future investments or investment collaborations will be successful.\nOur Mission is to provide a broad range of therapies to restore patients to fuller, healthier lives, which requires a wide variety of technologies, products and capabilities. The rapid pace of technological development in the medical industry and the specialized expertise required in different areas of medicine make it difficult for one company alone to develop a broad portfolio of technological solutions. In addition to internally generated growth through our research and development efforts, historically we have relied, and expect to continue to rely, upon investments and investment collaborations to provide us access to new technologies both in areas served by our existing businesses as well as in new areas.\nWe expect to make future investments where we believe that we can stimulate the development or acquisition of new technologies and products to further our strategic objectives and strengthen our existing businesses. Investments and investment collaborations in and with medical technology companies are inherently risky, and we cannot guarantee that any of our previous or future investments or investment collaborations will be successful or will not materially adversely affect our business, results of operations, financial condition and cash flows.\nThe continuing development of many of our products depends upon us maintaining strong relationships with healthcare professionals.\nIf we fail to maintain our working relationships with healthcare professionals, many of our products may not be developed and marketed in line with the needs and expectations of the professionals who use and support our products, which could cause a decline in our earnings and profitability. The research, development, marketing and sales of many of our new and improved products depends on our maintaining working relationships with healthcare professionals. We rely on these professionals to provide us with considerable knowledge and experience regarding the development, marketing and sale of our products. Physicians assist us as researchers, marketing and product consultants, inventors and public speakers. In addition, as a result of the COVID-19 pandemic, our access to these professionals has been limited at times, and travel restrictions, shutdowns and similar measures have impacted our ability to maintain these relationships, thereby affecting our ability to develop, market and sell new and improved products. If we are unable to maintain strong relationships with these professionals, the development and marketing of our products could suffer, which could have a material adverse effect on our business, results of operations, financial condition, and cash flows.\nWe have debt obligations that create risk.\nWe are required to use a portion of our operating cash flow to pay interest or principal on our outstanding indebtedness instead of for other corporate purposes, including funding future expansion of our business. We may also incur additional indebtedness in the future to supplement our existing liquidity and cash generated from operations to satisfy our needs for working capital and capital expenditures, to pursue growth initiatives, and to make returns of capital to shareholders. Over the course of the past fiscal year, interest rate increases in the U.S. and Europe, and recent disruptions in the financial services industry, caused periods of tightened credit availability and volatility in borrowing terms. At the time we may incur such additional indebtedness, or refinance or restructure existing indebtedness, we may be unable to obtain capital market financing with similar terms and currency denomination to our existing indebtedness, or at all, which could have a material adverse effect on our business and results of operations. At any time, the value of our debt outstanding will fluctuate based on several factors including foreign currency exchange rate and interest rate movements.\nFailure to integrate acquired businesses into our operations successfully, or challenges related to the Company's strategic initiatives, including divestitures, as well as liabilities or claims relating to such acquired businesses or divestitures, could adversely affect our business.\nAs part of our strategy to develop and identify new products and technologies and optimize our portfolio of products, we have made several significant acquisitions and divestitures in recent years, and may make additional acquisitions and divestitures in the future. Our integration of the operations of acquired businesses requires significant efforts, including the coordination of information technologies, research and development, sales and marketing, operations, manufacturing, and finance. These efforts result in additional expenses and involve significant amounts of management\u2019s time that cannot then be dedicated to other projects. Our failure to manage and coordinate the growth of acquired companies successfully could also have an adverse impact on our business. Further, acquired businesses may have liabilities, or be subject to claims, litigation or investigations that we did not anticipate or which exceed our estimates at the time of the acquisition. In addition, we cannot be certain that the businesses we acquire will become profitable or remain so. Factors that will affect the success of our acquisitions include:\n\u2022\nthe presence or absence of adequate internal controls and/or significant fraud in the financial systems of acquired companies,\n\u2022\nour ability or inability to integrate information technology systems of acquired companies in a secure and reliable manner,\n\u2022\nliabilities, claims, litigation, investigations, or other adverse developments relating to acquired businesses or the business practices of acquired companies, including investigations by governmental entities, potential FCPA or product liability claims or other unanticipated liabilities,\n16\nTable of C\nontents\n\u2022\nany decrease in customer loyalty and product orders caused by dissatisfaction with the combined companies\u2019 product lines and sales and marketing practices, including price increases,\n\u2022\nour ability to retain key employees, and\n\u2022\nthe ability to achieve synergies among acquired companies, such as increasing sales of the integrated company\u2019s products, achieving cost savings, and effectively combining technologies to develop new products.\nWe also could experience negative effects on our business, results of operations, financial condition, and cash flows from acquisition-related charges, amortization of intangible assets and asset impairment charges.\nIn addition, the potential exists that expected strategic benefits from any planned or completed divestiture by the Company may not be realized or may take longer to realize than expected, including but not limited to:\n\u2022\nThe Company\u2019s ability to consummate the planned separation of the combined Patient Monitoring and Respiratory Interventions businesses from the Medical Surgical Portfolio,\n\u2022\nThe Company\u2019s ability to realize the anticipated benefits from the recent contribution of half of the Company\u2019s RCS business to Mozarc Medical,\n\u2022\nThe Company\u2019s performance under various transaction service agreements that have or may be executed as part of a divestiture.\nLegal and Regulatory Risks\nWe are subject to extensive and complex laws and governmental regulations and any adverse regulatory action may materially adversely affect our financial condition and business operations.\nOur medical devices and technologies, as well as our business activities, are subject to a complex set of regulations and rigorous enforcement, including by the U.S. FDA, U.S. Department of Justice, Health and Human Services Office of the Inspector General, and numerous other federal, state, and non-U.S. governmental authorities. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our products. As a part of the regulatory process of obtaining marketing clearance for new products and new indications for existing products, we conduct and participate in numerous clinical trials with a variety of study designs, patient populations, and trial endpoints. Unfavorable clinical data from existing or future clinical trials may adversely impact our ability to obtain product approvals, our position in, and share of, the markets in which we participate, and our business, results of operations, financial condition, and cash flows. We cannot guarantee that we will be able to obtain or maintain marketing clearance for our new products or enhancements or modifications to existing products, and the failure to maintain approvals or obtain approval or clearance could have a material adverse effect on our business, results of operations, financial condition and cash flows. Even if we are able to obtain approval or clearance, it may:\n\u2022\ntake a significant amount of time,\n\u2022\nrequire the expenditure of substantial resources,\n\u2022\ninvolve stringent clinical and pre-clinical testing, as well as increased post-market surveillance,\n\u2022\ninvolve modifications, repairs or replacements of our products, and\n\u2022\nlimit the proposed uses of our products.\nBoth before and after a product is commercially released, we have ongoing responsibilities under the U.S. FDA and other applicable non-U.S. government agency regulations. For instance, many of our facilities and procedures and those of our suppliers are also subject to periodic inspections by the U.S. FDA to assess compliance with applicable regulations. The results of these inspections can include inspectional observations on the U.S. FDA\u2019s Form 483, warning letters, or other forms of enforcement. If the U.S. FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical products are ineffective or pose an unreasonable health risk, the U.S. FDA could detain or seize adulterated or misbranded medical products, order a recall, repair, replacement, or refund of such products, refuse to grant pending pre-market approval applications or require certificates of non-U.S. governments for exports, and/or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health, and in certain rare circumstances, ban medical devices. The U.S. FDA and other non-U.S. government agencies may also assess civil or criminal penalties against us, our officers or employees and impose operating restrictions on a company-wide basis. The U.S. FDA may also recommend prosecution to the U.S. Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our products and limit our ability to obtain future pre-market clearances or approvals, and could result in a substantial modification to our business practices and operations. Furthermore, we occasionally receive subpoenas or other requests for information from various governmental agencies around the world, and while these investigations typically relate primarily to financial arrangements with healthcare providers, regulatory compliance and product promotional practices, we cannot predict the timing, \n17\nTable of C\nontents\noutcome or impact of any such investigations. Any adverse outcome in one or more of these investigations could include the commencement of civil and/or criminal proceedings, substantial fines, penalties, and/or administrative remedies, including exclusion from government reimbursement programs and/or entry into Corporate Integrity Agreements (CIAs) with governmental agencies. In addition, resolution of any of these matters could involve the imposition of additional, costly compliance obligations. These potential consequences, as well as any adverse outcome from government investigations, could have a material adverse effect on our business, results of operations, financial condition, and cash flows.\nIn addition, the U.S. FDA has taken the position that device manufacturers are prohibited from promoting their products other than for the uses and indications set forth in the approved product labeling, and any failure to comply could subject us to significant civil or criminal exposure, administrative obligations and costs, and/or other potential penalties from, and/or agreements with, the federal government. \nGovernmental regulations in the U.S. and outside the U.S. are constantly changing and may become increasingly stringent. In the E.U, for example, the Medical Device Regulation which became effective in May 2021 includes significant additional pre-market and post-market requirements. Penalties for regulatory non-compliance could be severe, including fines and revocation or suspension of a company\u2019s business license, mandatory price reductions and criminal sanctions. The development and implementation of future laws and regulations may have a material adverse effect on us.\nOur failure to comply with laws and regulations relating to reimbursement of healthcare goods and services may subject us to penalties and adversely impact our reputation, business, results of operations, financial condition and cash flows.\nOur devices, products and therapies are purchased principally by hospitals or physicians that typically bill various third-party payers, such as governmental healthcare programs (e.g., Medicare, Medicaid and comparable non-U.S. programs), private insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of our customers to obtain appropriate reimbursement for products and services from third-party payers is critical because it affects which products customers purchase and the prices they are willing to pay. As a result, our devices, products and therapies are subject to regulation regarding quality and cost by HHS, including the Centers for Medicare & Medicaid Services (CMS), as well as comparable state and non-U.S. agencies responsible for reimbursement and regulation of health are goods and services, including laws and regulations related to fair competition, kickbacks, false claims, self-referrals and healthcare fraud. Many states have similar laws that apply to reimbursement by state Medicaid and other funded programs as well as in some cases to all payers. In certain circumstances, insurance companies attempt to bring a private cause of action against a manufacturer for causing false claims. In addition, as a manufacturer of U.S. FDA-approved devices reimbursable by federal healthcare programs, we are subject to the Physician Payments Sunshine Act, which requires us to annually report certain payments and other transfers of value we make to U.S.-licensed physicians or U.S. teaching hospitals. Any failure to comply with these laws and regulations could subject us or our officers and employees to criminal and civil financial penalties.\nWe are also subject to risks relating to changes in government and private medical reimbursement programs and policies, and changes in legal regulatory requirements in the U.S. and around the world. Implementation of further legislative or administrative reforms to these reimbursement systems, or adverse decisions relating to coverage of or reimbursement for our products by administrators of these systems, could have an impact on the acceptance of and demand for our products and the prices that our customers are willing to pay for them.\nWe are substantially dependent on patent and other proprietary rights and failing to protect such rights or to be successful in litigation related to our rights or the rights of others may result in our payment of significant monetary damages and/or royalty payments, negatively impacting our ability to sell current or future products.\nWe are substantially dependent on patent and other proprietary rights and rely on a combination of patents, trademarks, tradenames, copyrights, trade secrets, and agreements (such as employee, non-disclosure and non-competition agreements) to protect our business and proprietary intellectual property. We also operate in an industry characterized by extensive patent litigation. Patent litigation can result in significant damage awards and injunctions that could prevent our manufacture and sale of affected products or require us to pay significant royalties in order to continue to manufacture or sell affected products. At any given time, we are generally involved as both a plaintiff and a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time. While it is not possible to predict the outcome of patent litigation, it is possible that the results of such litigation could require us to pay significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future products, or that enforcement actions to protect our patent and proprietary rights against others could be unsuccessful, any of which could have a material adverse impact on our business, results of operations, financial condition, and cash flows. In addition, any public announcements related to litigation or administrative proceedings initiated or threatened against us could cause our stock price to decline.\nWhile we intend to defend against any threats to our intellectual property, our patents, trademarks, tradenames, copyrights, trade secrets or agreements (such as employee, non-disclosure and non-competition agreements) may not adequately protect our intellectual property. Further, pending patent applications may not result in patents being issued to us, patents issued to or licensed by us may be challenged or circumvented by competitors and such patents may be found invalid, unenforceable or too limited in scope to protect our technology or provide us with any competitive advantage. In addition, our patents will expire over time, our ability to protect novel business models is uncertain, and infringement may go undetected. Third parties could obtain patents that may require us to negotiate licenses to conduct our \n18\nTable of C\nontents\nbusiness, and such licenses may not be available on reasonable terms or at all. In addition, license agreements could be terminated. We also rely on non-disclosure and non-competition agreements with certain employees, consultants and other parties to protect, in part, trade secrets and other proprietary rights. We cannot be certain that these agreements will not be breached, that we will have adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary information, or that third parties will not otherwise gain access to our trade secrets or proprietary knowledge.\nIn addition, the laws of certain countries in which we market or manufacture some of our products do not protect our intellectual property rights to the same extent as the laws of the U.S., which could make it easier for competitors to capture market position. For example, business in China comprises approximately seven percent of our total revenues. This may increase our vulnerability to our technology being reverse engineered or our trade secrets being compromised. If we are unable to protect our intellectual property in China or other countries, it could have a material adverse effect on our business, results of operations, financial condition, and cash flows. Competitors also may harm our sales by designing products that substantially mirror the capabilities of our products or technology without infringing our intellectual property rights.\nQuality problems could lead to recalls or safety alerts, product liability claims, reputational harm, adverse verdicts or costly settlements, and could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nQuality is extremely important to us and our customers due to the impact on patients, and the serious and potentially costly consequences of adverse product performance. Our business exposes us to potential product liability risks that are inherent in the design, manufacture, and marketing of medical devices. In addition, many of our products are often used in intensive care settings with seriously ill patients and some of the medical devices we manufacture and sell are designed to be implanted in the human body for long periods of time or indefinitely. Component failures, manufacturing nonconformances, design issues, off-label use, or inadequate disclosure of product-related risks or product-related information with respect to our products, if they were to occur, could result in an unsafe condition or injury to, or death of, a patient. These problems could lead to recall of, or issuance of a safety alert relating to, our products, and could result in product liability claims and lawsuits, including class actions, which could ultimately result, in certain cases, in the removal from the body of such products and claims regarding costs associated therewith. Due to the strong name recognition of the Medtronic brand, a material adverse event involving one of our products could result in diminished market acceptance and demand for all products within that brand, and could harm our reputation and ability to market products in the future. Further, we may be exposed to additional potential product liability risks related to products designed, manufactured and/or marketed in response to the COVID-19 pandemic, and unpredictable or accelerated changes in demand for certain of our products in connection with COVID-19 and its related impacts could increase the risk of regulatory enforcement actions, product defects or related claims, as well as adversely impact our customer relationships and reputation.\nStrong product quality is critical to the success of our goods and services. If we fall short of these standards and our products are the subject of recalls or safety alerts, our reputation could be damaged, we could lose customers and our revenue and results of operations could decline. Our success also can depend on our ability to manufacture to exact specification precision-engineered components, subassemblies and finished devices from multiple materials. If our components fail to meet these standards or fail to adapt to evolving standards, our reputation, competitive advantage and market share could be harmed. In certain situations, we may undertake a voluntary recall of products or temporarily shut down production lines based on performance relative to our own internal safety and quality monitoring and testing data.\nAny of the foregoing problems, including future product liability claims or recalls, regardless of their ultimate outcome, could harm our reputation and have a material adverse effect on our business, results of operations, financial condition and cash flows.\nHealthcare policy changes may have a material adverse effect on us.\nThere have been and continue to be actions and proposals by several governments, regulators and third-party payers globally, including the U.S. federal and state governments, to control healthcare costs and, more generally, to reform healthcare systems. Certain of these actions and proposals, among other things, limit the prices we are able to charge for our products or the amounts of reimbursement available for our products, increase the importance of our ability to compete on cost, and could limit the acceptance and availability of our products. These actions and proposals could have a material adverse effect on our business, results of operations, financial condition and cash flows.\nWe rely on the proper function, security and availability of our information technology systems and data, as well as those of third parties throughout our global supply chain, to operate our business, and a breach, cyber-attack or other disruption to these systems or data could materially and adversely affect our business, results of operations, financial condition, cash flows, reputation or competitive position.\nWe are increasingly dependent on sophisticated information technology systems to operate our business. That technology includes systems that could be used to process, transmit and store sensitive data. Additionally, many of our products and services include integrated software and information technology that collects data regarding patients or connects to other internal systems. One of the most prevalent attacks on large organizations has been ransomware which can have a devastating impact on an organization\u2019s operations. Our ransomware readiness program has required and will continue to require investment and will not guarantee that we will be immune from an incident or be able to respond rapidly enough to prevent a negative impact on our business. Like all organizations, we routinely experience attempted interference with the integrity of, and interruptions in, our technology systems via events such as cyber-attacks, malicious intrusions, or other \n19\nTable of C\nontents\nbreakdowns. The consequences could mean data breaches, interference with the integrity of our products and data, compromise of intellectual property or other proprietary information, or other significant disruptions. Furthermore, we rely on third-party vendors to supply and/or support certain aspects of our information technology systems and resulting products. These third-party systems could also become vulnerable to cyber-attack, malicious intrusions, breakdowns, interference, or other significant disruptions, and may contain defects in design or manufacture or other problems that could result in system disruption or compromise the information security of our own systems. Medtronic is constantly monitoring geopolitical events or issues (i.e., U.S.-China tensions) which may increase cybersecurity risks on a global basis, and we take appropriate measures to counter any threats. Lastly, we continue to grow in part through new business acquisitions and, as a result, may face risks associated with defects and vulnerabilities in acquired businesses\u2019 systems, or difficulties or other breakdowns or disruptions in connection with the integration of the acquisitions into our information technology systems.\nOur worldwide operations mean that we are subject to laws and regulations, including data protection and cybersecurity laws and regulations, in many jurisdictions. The variety of U.S. and international privacy and cybersecurity laws and regulations impacting our operations are described in \u201cItem 1. Business\" \u2013 \nOther Factors Impacting Our Operations \n\u2013\n Data Privacy and Security Laws and Regulations\n. Any data security breaches, cyber-attacks, malicious intrusions or significant disruptions could result in actions by regulatory bodies and/or civil litigation, any of which could materially and adversely affect our business, results of operations, financial condition, cash flows, reputation, or competitive position.\nIn addition, our information technology systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems. This enables us to keep pace with continuing changes in information processing technology, evolving legal and regulatory standards, the increasing need to protect patient and customer information, changes in the techniques used to obtain unauthorized access to data and information systems, and the information technology needs associated with our changing products and services. There can be no assurance that our extensive efforts (including, but not limited to, consolidating, protecting, upgrading, and expanding our systems and capabilities, continuing to build security into the design of our products, and developing new systems to keep pace with continuing changes in information processing technology, including, but not limited to, generative artificial intelligence platforms) will be successful or that additional systems issues will not arise in the future. \nIf our information technology systems, products or services or sensitive data are compromised, there are many consequences that could result. Consequences include, but are not limited, to patients or employees being exposed to financial or medical identity theft or suffering a loss of product functionality, losing existing customers or have difficulty attracting new customers, experiencing difficulty preventing, detecting, and controlling fraud, being exposed to the loss or misuse of confidential information, having disputes with customers, physicians, and other healthcare professionals, suffering regulatory sanctions or penalties under federal laws, state laws, or the laws of other jurisdictions, experiencing increases in operating expenses or an impairment in our ability to conduct our operations, incurring expenses or losing revenues as a result of a data privacy breach, product failure, information technology outages or disruptions, or suffering other adverse consequences including lawsuits or other legal action and damage to our reputation.\nThe failure to comply with anti-corruption laws could materially adversely affect our business and result in civil and/or criminal sanctions.\nThe U.S. Foreign Corrupt Practices Act (FCPA), the Irish Criminal Justice (Corruption Offences) Act 2018, and similar anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business and to ensure adequate internal controls, books, and records. Because of the predominance of government-administered healthcare systems in many jurisdictions around the world, many of our customer relationships outside of the U.S. are with governmental entities and are therefore potentially subject to such laws. We also participate in public-private partnerships and other commercial and policy arrangements with governments around the globe.\nGlobal enforcement of anti-corruption laws has increased in recent years, including investigations and enforcement proceedings leading to assessment of significant fines and penalties against companies and individuals. Our international operations create a risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents, or distributors. We maintain various controls aligned with legal requirements to prevent and prohibit improper practices, including policies, programs, and training for our employees and third party intermediaries acting on our behalf. However, existing safeguards and any future improvements may not always be effective, and our employees, consultants, sales agents or distributors may engage in conduct for which we could be held responsible. In addition, regulators could seek to hold us liable for conduct committed by companies in which we invest or that we acquire. Any alleged or actual violations of these regulations may subject us to government scrutiny, criminal or civil sanctions and other liabilities, including exclusion from government contracting, and could disrupt our business, adversely affect our reputation and result in a material adverse effect on our business, results of operations, financial condition and cash flows.\nLaws and regulations governing international business operations could adversely impact our business.\nThe U.S. Department of the Treasury\u2019s Office of Foreign Assets Control (OFAC) and the U.S. Commerce Department\u2019s Bureau of Industry and Security (BIS) administer certain laws and regulations that restrict U.S. persons and, in some instances, non-U.S. persons, in conducting activities, transacting business with, or making investments in, certain countries, governments, entities and individuals subject to U.S. \n20\nTable of C\nontents\neconomic sanctions or export restrictions. Our international operations subject us to these laws and regulations, which are complex, restrict our business dealings with certain countries, governments, entities, and individuals, and are constantly changing. Further restrictions may be enacted, amended, enforced or interpreted in a manner that materially impacts our operations.\nFrom time to time, certain of our subsidiaries have limited business dealings in countries subject to comprehensive sanctions, including Iran, Syria, Cuba, and the region of Crimea, as well as Russia and Belarus. Certain of our subsidiaries sell medical devices, and may provide related services, to distributors and other purchasing bodies in such countries/region. These business dealings represent an insignificant amount of our consolidated revenues and income, but expose us to a heightened risk of violating applicable sanctions regulations. Violations of these regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment. We have established policies and procedures designed to assist with our compliance with such laws and regulations. However, there can be no assurance that our policies and procedures will prevent us from violating these regulations in every transaction in which we may engage, and such a violation could adversely affect our reputation, business, results of operations, financial condition, and cash flows.\nClimate change, or legal, regulatory or market measures to address climate change may materially adversely affect our financial condition and business operations.\nClimate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere presents risks to our current and future operations from natural disasters and extreme weather conditions, such as hurricanes, tornadoes, earthquakes, wildfires or flooding. Such extreme weather conditions and other conditions caused by or related to climate change could increase our operational costs, pose physical risks to our facilities and adversely impact our supply chain, including: manufacturing and distribution networks, the availability and cost of raw materials and components, energy supply, transportation, or other inputs necessary for the operation of our business. The impacts of climate change on global water resources may result in water scarcity, which could impact our ability to access sufficient quantities of water in certain locations and result in increased costs. Concerns over climate change could have an impact on customer demand for our products and result in new legal or regulatory requirements designed to mitigate the effects of climate change on the environment. Although it is difficult to predict and adequately prepare to meet the challenges to our business posed by climate change, if new laws or regulations are more stringent than current legal or regulatory requirements, we may experience increased compliance burdens and costs to meet the regulatory obligations as well as adverse impacts on raw material sourcing, manufacturing operations and the distribution of our products. \nWe are subject to environmental laws and regulations and the risk of environmental liabilities, violations and litigation.\nWe are subject to environmental, health, and safety laws, and regulations concerning, among other things, the generation, handling, transportation, and disposal of hazardous substances or wastes, the remediation of hazardous substances or materials at various sites, and emissions or discharges into the land, air or water. We are further subject to numerous laws and regulations concerning, among other things, chemical constituents in medical products and end-of-life disposal and take-back programs for medical devices. Our operations and those of certain third-party suppliers involve the use of substances subject to these laws and regulations, primarily those used in manufacturing and sterilization processes. If we or our suppliers violate these environmental laws and regulations, facilities could be shut down and violators could be fined, or otherwise sanctioned. New laws and regulations, violations of these laws or regulations, stricter enforcement of existing requirements, or the discovery of previously unknown contamination could require us to incur costs or could become the basis for new or increased liabilities that could be material.\nWe are subject to risks related to our environmental, social and governance (ESG) practices and initiatives.\nThere is an increased focus from our stakeholders, as well as regulatory authorities in the U.S., European Union (EU) and other global jurisdictions in which we operate, on ESG practices and disclosure. If we do not succeed, or are perceived to have fallen short, in any number of ESG matters, such as environmental stewardship, inclusion, diversity and equity (ID&E) initiatives, supply chain practices, good corporate governance, workplace conduct and support for local communities, or if we do not effectively respond to new or revised legal, regulatory or reporting requirements concerning climate change or other sustainability concerns, we may be subject to regulatory fines and penalties, our reputation or the reputation of our brands may suffer, we may be unable to attract and retain top talent, and our stock price may be negatively affected. In addition, enhanced ESG laws, regulations and expectations in the jurisdictions in which we do business may increase compliance burdens and costs for third parties throughout our global supply chain, which could cause disruption in the sourcing, manufacturing and distribution of our products and adversely affect our business, financial condition or results of operations.\nFurther, we have made several public disclosures of objectives and targets (targets) relating to product stewardship, ID&E, patient safety and product quality, access and innovation, and climate stewardship, including our ambition to be carbon neutral in our operations by 2030 and to achieve net zero emissions by 2045. Although we intend to achieve these targets, we may be required to expend significant resources to do so, which could increase our operational costs. In addition, there can be no assurance of the extent to which any of our targets will be achieved, or that any future investments we make to achieve such targets will meet investor, legal and/or any other regulatory expectations and requirements. If we are unable to meet our targets, we may face litigation and could incur regulatory fines and penalties or adverse \n21\nTable of C\nontents\npublicity and reaction from investors, advocacy groups or other stakeholders that may adversely impact our business, demand for our products and services, and/or our financial condition and results of operations. \nOur insurance program may not be adequate to cover future losses.\nWe have elected to self-insure most of our insurable risks across the Company, and we made this decision based on cost and availability factors in the insurance marketplace. We manage and maintain a portion of our self-insured program through a wholly-owned captive insurance company. We continue to maintain a directors and officers liability insurance policy with third-party insurers that provides coverage for the directors and officers of the Company. We continue to monitor the insurance marketplace to evaluate the value of obtaining insurance coverage for other categories of losses in the future. Although we believe, based on historical loss trends, that our self-insurance program accruals and our existing insurance coverage will be adequate to cover future losses, historical trends may not be indicative of future losses. The absence of third-party insurance coverage for other categories of losses increases our exposure to unanticipated claims and these losses could have a material adverse impact on our business, results of operations, financial condition and cash flows.\nChanges in tax laws or exposure to additional income tax liabilities could have a material impact on our business, results of operations, financial condition and cash flows.\nWe are subject to income taxes, as well as non-income based taxes, in the U.S., Ireland, and various other jurisdictions in which we operate. The tax laws in the U.S., Ireland and other countries in which we and our affiliates do business could change on a prospective or retroactive basis, and any such changes could have a material impact on our business, results of operations, financial condition, and cash flows.\nThe Organization for Economic Cooperation and Development (OECD) secured agreement from 142 countries to push forward with proposals to fundamentally rewrite International Tax rules which will likely impact the amount of tax multinationals such as Medtronic pay in the future. Certain countries have already enacted or are in the process of enacting legislation in line with guidance provided by the OECD. Ireland is subject to EU Directives and as a consequence has committed to enact legislation by December 31st 2023. As a result the first year Medtronic is expected to be impacted by these changes is fiscal year 2025.\nThe aggressive nature of the timeline set by the OECD may mean that all implications for business may not have been fully worked through or fully understood before rules are finalized. We continue to monitor the implications potentially resulting from this guidance. This action together with other legislative changes in many countries on the mandatory sharing of company information (financial and operational) with taxing authorities on a local and global basis under various information sharing initiatives, could lead to disagreements between jurisdictions associated with the proper allocation of profits between such jurisdictions.\nWe are subject to ongoing tax audits in the various jurisdictions in which we operate. Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcomes of these audits, and the actual outcomes of these audits could have a material impact on our business, results of operations, financial condition, and cash flows.\nWe have recorded reserves for potential payments of tax to various tax authorities related to uncertain tax positions. However, the calculation of such tax liabilities involves the application of complex tax laws, regulations and treaties (where applicable) in many jurisdictions. Therefore, any dispute with a tax authority may result in a payment that is significantly different from current estimates. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities generally would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our estimate of tax liabilities proves to be less than the amount for which it is ultimately liable, we would incur additional charges, and such charges could have a material adverse effect on our business, results of operations, financial condition, and cash flows.\nThe Medtronic, Inc. tax court proceeding outcome could have a material adverse impact on our financial condition.\nIn March 2009, the IRS issued its audit report for Medtronic Inc. for fiscal years 2005 and 2006. Medtronic, Inc. reached agreements with the IRS on some, but not all matters related to these fiscal years. The remaining unresolved issue for fiscal years 2005 and 2006 relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, which is one of our key manufacturing sites. The Tax Court issued its opinion on August 18, 2022, and it remains subject to appeal by either or both parties. At this time, the Company is evaluating whether to file an appeal. An adverse outcome in this matter could materially and adversely affect our business, results of operations, financial condition, and cash flows. See Note 18 to the consolidated financial statements in \"Item 8. Financial Statements and Supplementary Data\" in this Annual Report on Form 10-K. \nFuture potential changes to the U.S. tax laws could result in us being treated as a U.S. corporation for U.S. federal tax purposes, and the IRS may not agree with the conclusion that we should be treated as a foreign corporation for U.S. federal income tax purposes.\nBecause Medtronic plc is organized under the laws of Ireland, we would generally be classified as a foreign corporation under the general rule that a corporation is considered tax resident in the jurisdiction of its organization or incorporation for U.S. federal income tax purposes. Even so, the IRS may assert that we should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal income tax purposes pursuant to Section 7874 of the U.S. Internal Revenue Code of 1986, as amended (the Code). In addition, a retroactive change to \n22\nTable of C\nontents\nU.S. tax laws in this area could change this classification. If we were to be treated as a U.S. corporation for federal tax purposes, we could be subject to substantially greater U.S. tax liability than currently contemplated as a non-U.S. corporation.\nLegislative or other governmental action relating to the denial of U.S. federal or state governmental contracts to U.S. companies that redomicile abroad could adversely affect our business.\nVarious U.S. federal and state legislative proposals that would deny governmental contracts to U.S. companies that move their corporate location abroad may affect us. We are unable to predict the likelihood that, or final form in which, any such proposed legislation might become law, the nature of the regulations that may be promulgated under any future legislative enactments, or the effect such enactments and increased regulatory scrutiny may have on our business.\nRisks Relating to Our Jurisdiction of Incorporation\nWe are incorporated in Ireland, and Irish law differs from the laws in effect in the U.S. and may afford less protection to holders of our securities.\nOur shareholders may have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction of the United States. It may not be possible to enforce court judgments obtained in the U.S. against us in Ireland based on the civil liability provisions of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. We have been advised that the U.S. currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland.\nAs an Irish company, we are governed by the Irish Companies Act 2014, which differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the company and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of our securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in the U.S.\nAs an Irish public limited company, certain capital structure decisions require shareholder approval, which may limit Medtronic\u2019s flexibility to manage its capital structure.\nUnder Irish law, our authorized share capital can be increased by an ordinary resolution of our shareholders and the directors may issue new ordinary or preferred shares, without shareholder approval, once authorized to do so by our articles of association or by an ordinary resolution of our shareholders. Additionally, subject to specified exceptions, Irish law grants statutory preemption rights to existing shareholders where shares are being issued for cash consideration but allows shareholders to disapply such statutory preemption rights either in our articles of association or by way of special resolution. Such disapplication can either be generally applicable or be in respect of a particular allotment of shares. Accordingly, at our 2022 Annual General Meeting, our Shareholders authorized our Board of Directors to issue up to 33% of our issued ordinary shares and further authorized our Board of Directors to issue up to 10% of such shares for cash without first offering them to our existing shareholders (provided that with respect to 5% of such shares, such allotment is to be used for the purposes of a specified capital investment). Both of these authorizations will expire on June 8, 2024, unless renewed by shareholders for a further period. We anticipate seeking new authorizations at our 2023 Annual General Meeting and in subsequent years. We cannot provide any assurance that these authorizations will always be approved, which could limit our ability to issue equity and thereby adversely affect the holders of our securities.\nA transfer of our shares, other than ones effected by means of the transfer of book-entry interests in the Depository Trust Company, may be subject to Irish stamp duty.\nTransfers of our shares effected by means of the transfer of book entry interests in the Depository Trust Company (DTC) will not be subject to Irish stamp duty. However, if a shareholder holds our shares directly rather than beneficially through DTC, any transfer of shares could be subject to Irish stamp duty (currently at the rate of 1% of the higher of the price paid or the market value of the shares acquired). Payment of Irish stamp duty is generally a legal obligation of the transferee. The potential for stamp duty could adversely affect the price of shares.\nIn certain limited circumstances, dividends we pay may be subject to Irish dividend withholding tax and dividends received by Irish residents and certain other shareholders may be subject to Irish income tax.\nIn certain limited circumstances, dividend withholding tax (currently at a rate of 25%) may arise in respect of dividends paid on our shares. A number of exemptions from dividend withholding tax exist such that shareholders resident in the U.S. and other specified countries that have a tax treaty with Ireland may be entitled to exemptions from dividend withholding tax.\n23\nTable of C\nontents\nShareholders resident in the U.S. that hold their shares through DTC will not be subject to dividend withholding tax, provided the addresses of the beneficial owners of such shares in the records of the brokers holding such shares are recorded as being in the U.S. (and such brokers have further transmitted the relevant information to a qualifying intermediary appointed by us). However, other shareholders may be subject to dividend withholding tax, which could adversely affect the price of their shares.\nShareholders entitled to an exemption from Irish dividend withholding tax on dividends received from us will not be subject to Irish income tax in respect of those dividends unless they have some connection with Ireland other than their shareholding in our Company (for example, they are resident in Ireland). Shareholders who are not resident nor ordinarily resident in Ireland, but who receive dividends subject to Irish dividend withholding tax, will generally have no further liability to Irish income tax on those dividends.\nOur shares received by means of a gift or inheritance could be subject to Irish capital acquisitions tax.\nIrish capital acquisitions tax (CAT) could apply to a gift or inheritance of our shares irrespective of the place of residence, ordinary residence or domicile of the parties. This is because our shares will be regarded as property situated in Ireland. The person who receives the gift or inheritance has primary liability for CAT. Gifts and inheritances passing between spouses are exempt from CAT. Children currently have a tax-free threshold of \u20ac335,000 in respect of taxable gifts or inheritances received from their parents. Irish Revenue typically updates the amount of this tax-free threshold on an annual basis.\nEconomic and Industry Risks\nChanges in the prices of our goods and services and/or inflationary costs may have a material adverse effect on our business, results of operations, financial condition and cash flows.\nWe have experienced, and may continue to experience, decreasing prices for certain of our goods and services due to pricing pressure from managed care organizations and other third-party payers on our customers, increased market power of our customers as the medical device industry consolidates and increased competition among medical engineering and manufacturing services providers. We have also recently experienced, and may continue to experience, rising costs due to inflation. If the prices for our goods and services change or inflation continues to rise, we may be unable to sufficiently reduce our expenses or offset rising costs through increased prices to customers. As a result, our business, results of operations, financial condition and cash flows may be adversely affected.\nWe are subject to a variety of risks associated with global operations that could adversely affect our profitability and operating results.\nWe develop, manufacture, distribute and sell our products globally. We intend to continue to expand our operations and to pursue growth opportunities outside the U.S., especially in emerging markets. Operations in different countries including emerging markets could expose us to additional and greater risks and potential costs, including:\n\u2022\nfluctuations in currency exchange rates,\n\u2022\nhealthcare reform legislation,\n\u2022\nthe need to comply with different regulatory regimes worldwide that are subject to change and that could restrict our ability to manufacture and sell our products,\n\u2022\nlocal product preferences and product requirements,\n\u2022\nlonger-term receivables than are typical in the U.S.,\n\u2022\neconomic sanctions, export controls, trade protection measures, tariffs and other border taxes, and import or export licensing requirements,\n\u2022\nless intellectual property protection in some countries outside the U.S. than exists in the U.S.,\n\u2022\ndifferent labor regulations and workforce instability,\n\u2022\npolitical and economic instability, including as a result of wars and insurrections,\n\u2022\nthe expiration and non-renewal of foreign tax rulings and/or grants,\n\u2022\npotentially negative consequences from changes in or interpretations of tax laws, and\n\u2022\neconomic instability and inflation, recession or interest rate fluctuations.\nThe ongoing global economic competition and trade tensions between the U.S. and China present risk to Medtronic. Although we have been able to mitigate some of the impact on Medtronic from increased duties imposed by both sides (through petitioning both governments for tariff exclusions and other mitigations), the risk remains of additional tariffs and other kinds of restrictions. Tariff exclusions awarded to Medtronic by the U.S. Government require periodic renewal, and policies for granting exclusions could shift. The U.S. and China, which \n24\nTable of C\nontents\ncomprises approximately seven percent of our total revenues, could impose other types of restrictions such as limitations on government procurement or technology export restrictions, which could affect Medtronic\u2019s access to the markets. \nThe Russia-Ukraine conflict and resulting sanctions and export restrictions are creating barriers to doing business in Russia and Belarus and adversely impacting global supply chains. While we have no manufacturing, distribution or direct material suppliers in the region, we continue to closely monitor the potential raw material/sub-tier supplier impact in both Russia and Ukraine. Materials like palladium and neon, which are both dependent on Russia supply, are part of broader semiconductor shortages in industry. Additional sanctions, export restrictions, and potential countermeasures within Russia may lead to greater uncertainty and geopolitical shifts in Asia that could cause additional adverse impacts on global supply chains and our business, results of operations, financial condition, and cash flows.\nMore generally, several governments including the U.S. have raised the possibility of policies to induce \u201cre-shoring\u201d of supply chains, less reliance on imported supplies, and greater national production. Examples include potential \u201cBuy America\u201d requirements in the U.S. If such steps triggered retaliation in other markets restricting access to foreign products in purchases by their government-owned healthcare systems, the result could be a significant impact on Medtronic.\nOther significant changes or disruptions to international trade arrangements, such as termination or modifications of other existing trade agreements, may adversely affect our business, results of operations, financial condition and cash flows. In addition, a significant amount of our trade receivables are with national healthcare systems in many countries. Repayment of these receivables is dependent upon the political and financial stability of those countries. In light of these global economic fluctuations, we continue to monitor the creditworthiness of customers. Failure to receive payment of all or a significant portion of these receivables could adversely affect our business, results of operations, financial condition and cash flows.\nThe COVID-19 pandemic, and the responses of business and governments to the pandemic, have at times resulted in reduced availability of air transport, port closures, increased border controls or closures, increased transportation costs and increased security threats to our supply chain, and countries may continue to close borders, impose prolonged quarantines, and further restrict travel and other activities. Our business could be adversely impacted if we are unable to successfully manage these and other risks of global operations. \nFinally, changes in currency exchange rates may impact the reported value of our revenues, expenses, and cash flows. We cannot predict changes in currency exchange rates, the impact of exchange rate changes, nor the degree to which we will be able to manage the impact of currency exchange rate changes.\nInstability in the financial sector could adversely affect our revenues, results of operation, or financial condition. \nRecent disruptions in the financial services industry caused periods of tightened credit availability and volatility in borrowing terms. If these conditions were to recur or worsen, we may experience reduced demand for a number of our products. In addition, we could experience loss of sales and profits due to delayed payments or insolvency of healthcare professionals, hospitals and other customers, suppliers and vendors facing liquidity issues. As a result, our business and liquidity may be adversely impacted, and we may be compelled to take additional measures to preserve our cash flow.\nConsolidation in the healthcare industry could have an adverse effect on our revenues and results of operations.\nMany healthcare industry companies, including healthcare systems, distributors, manufacturers, providers, and insurers, are consolidating or have formed strategic alliances. As the healthcare industry consolidates, competition to provide goods and services to industry participants will become more intense. Further, this consolidation creates larger enterprises with greater negotiating power, which they can use to negotiate price concessions. If we must reduce our prices because of industry consolidation, or if we lose customers as a result of consolidation, our business, results of operations, financial condition, and cash flows could be adversely affected.\nHealthcare industry cost-containment measures could result in reduced sales of our medical devices and medical device components.\nMost of our customers, and the healthcare providers to whom our customers supply medical devices, rely on third-party payers, including government programs and private health insurance plans, to reimburse some or all of the cost of the procedures in which medical devices that incorporate components we manufacture or assemble are used. The continuing efforts of governmental authorities, insurance companies and other payers of healthcare costs to contain or reduce these costs could lead to patients being unable to obtain approval for payment from these third-party payers. If third-party payer payment approval cannot be obtained by patients, sales of finished medical devices that include our components may decline significantly and our customers may reduce or eliminate purchases of our components. The cost-containment measures that healthcare providers are instituting, both in the U.S. and outside of the U.S., could harm our ability to operate profitably. For example, managed care organizations have successfully negotiated volume discounts for pharmaceuticals, and GPOs and IDNs have also concentrated purchasing decisions for some customers, which has led to downward pricing pressure for medical device companies, including us.",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nUNDERSTANDING OUR FINANCIAL INFORMATION\nThe following discussion and analysis provides information management believes to be relevant to understanding the financial condition and results of operations of the Company. \nThe discussi\non focuses on our financial results for the fiscal year ended April\u00a028, 2023 (fiscal year 2023) and the fiscal year ended April\u00a029, 2022 (fiscal year 2022). A discussion on our results of operations for fiscal year 2022 as compared to the year ended April\u00a030, 2021 (fiscal year 2021) is included in Part II, Item 7. \"Mana\ngement's Discussion and Analysis of Financial Condition and Results of Operations\" of our Annual Report on Form 10-K for the year ended \nApril\u00a029, 2022\n, filed with the SEC on June \n23, 2022, and is i\nncorporated by reference into this Form 10-K\n. You should read this discussion and analysis along with our consolidated financial statements and related notes thereto at April\u00a028, 2023 and April\u00a029, 2022 and for fiscal years 2023, 2022, and 2021, which are presented within \"Item 8. Financial Statements and Supplementary Data\" in this Annual Report on Form 10-K. Amounts reported in millions within this annual report are computed based on the amounts in thousands, and therefore, the sum of the components may not equal the total amount reported in millions due to rounding. Additionally, certain columns and rows within tables may not sum due to rounding.\nFinancial Trends\nThroughout this Management\u2019s Discussion and Analysis, we present certain financial measures that facilitate management's review of the operational performance of the Company and as a basis for strategic planning; however, such financial measures are not presented in our financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S.) (U.S. GAAP). These financial measures are considered \"non-GAAP financial measures\" and are intended to supplement, and should not be considered as superior to, financial measures presented in accordance with U.S. GAAP. We believe that non-GAAP financial measures provide information useful to investors in understanding the Company's underlying operational performance and trends and may facilitate comparisons with the performance of other companies in the medical technologies industry.\nAs presented in the GAAP to Non-GAAP Reconciliations section below, our non-GAAP financial measures exclude the impact of amortization of intangible assets and certain charges or benefits that contribute to or reduce earnings and that may affect financial trends and include certain charges or benefits that result from transactions or events that we believe may or may not recur with similar materiality or impact to our operations in future periods (Non-GAAP Adjustments). \nIn the event there is a Non-GAAP Adjustment recognized in our operating results, the tax cost or benefit attributable to that item is separately calculated and reported. Because the effective rate can be significantly impacted by the Non-GAAP Adjustments that take place during the period, we often refer to our tax rate using both the effective rate and the non-GAAP nominal tax rate (Non-GAAP Nominal Tax Rate). The Non-GAAP Nominal Tax Rate is calculated as the income tax provision, adjusted for the impact of Non-GAAP Adjustments, as a percentage of income before income taxes, excluding Non-GAAP Adjustments.\nFree cash flow is a non-GAAP financial measure calculated by subtracting property, plant, and equipment additions from operating cash flows.\nRefer to the \u201cGAAP to Non-GAAP Reconciliations,\" \"Income Taxes,\" and \"Free Cash Flow\" sections for reconciliations of the non-GAAP financial measures to their most directly comparable financial measures prepared in accordance with U.S. GAAP.\n29\nTable of C\nontents\nEXECUTIVE LEVEL OVERVIEW\nThe following is a summary of revenue, diluted earnings per share, and cash flow for fiscal years 2023 and 2022:\nGAAP to Non-GAAP Reconciliations \nThe tables below present reconciliations of our Non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with U.S. GAAP for fiscal years 2023 and 2022. \n\u00a0\nFiscal year ended April 28, 2023\n(in millions, except per share data)\nIncome Before Income Taxes\nIncome Tax Provision (Benefit)\nNet Income Attributable to Medtronic\nDiluted EPS\nEffective Tax Rate\nGAAP\n$\n5,364\u00a0\n$\n1,580\u00a0\n$\n3,758\u00a0\n$\n2.82\u00a0\n29.5\u00a0\n%\nNon-GAAP Adjustments:\nAmortization of intangible assets\n1,698\u00a0\n255\u00a0\n1,443\u00a0\n1.08\u00a0\n15.0\u00a0\nRestructuring and associated costs\n (1)\n647\u00a0\n139\u00a0\n507\u00a0\n0.38\u00a0\n21.5\u00a0\nAcquisition-related items \n(2)\n110\u00a0\n21\u00a0\n89\u00a0\n0.07\u00a0\n19.1\u00a0\nDivestiture and separation-related items \n(3)\n235\u00a0\n8\u00a0\n227\u00a0\n0.17\u00a0\n3.4\u00a0\nCertain litigation charges, net \n(4)\n(30)\n(8)\n(23)\n(0.02)\n26.7\u00a0\n(Gain)/loss on minority investments \n(5)\n(33)\n2\u00a0\n(29)\n(0.02)\n(6.1)\nMedical device regulations \n(6)\n150\u00a0\n30\u00a0\n120\u00a0\n0.09\u00a0\n20.0\u00a0\nDebt redemption premium and other charges \n(7)\n53\u00a0\n11\u00a0\n42\u00a0\n0.03\u00a0\n20.8\u00a0\nCertain tax adjustments, net \n(8)\n\u2014\u00a0\n(910)\n910\u00a0\n0.68\u00a0\n\u2014\u00a0\nNon-GAAP\n$\n8,194\u00a0\n$\n1,128\u00a0\n$\n7,045\u00a0\n$\n5.29\u00a0\n13.8\u00a0\n%\n30\nTable of C\nontents\n\u00a0\nFiscal year ended April 29, 2022\n(in millions, except per share data)\nIncome Before Income Taxes\nIncome Tax Provision (Benefit)\nNet Income Attributable to Medtronic\nDiluted EPS\nEffective Tax Rate\nGAAP\n$\n5,517\u00a0\n$\n456\u00a0\n$\n5,039\u00a0\n$\n3.73\u00a0\n8.3\u00a0\n%\nNon-GAAP Adjustments:\nAmortization of intangible assets\n1,733\u00a0\n266\u00a0\n1,467\u00a0\n1.09\u00a0\n15.3\u00a0\nRestructuring and associated costs\n (1)\n335\u00a0\n54\u00a0\n281\u00a0\n0.21\u00a0\n16.1\u00a0\nAcquisition-related items \n(2)\n(43)\n5\u00a0\n(48)\n(0.04)\n(11.6)\nCertain litigation charges\n95\u00a0\n17\u00a0\n78\u00a0\n0.06\u00a0\n17.9\u00a0\n(Gain)/loss on minority investments \n(5)\n(12)\n\u2014\u00a0\n(9)\n(0.01)\n\u2014\u00a0\nMedical device regulations \n(6)\n102\u00a0\n16\u00a0\n86\u00a0\n0.06\u00a0\n15.7\u00a0\nMCS impairment / costs \n(9)\n881\u00a0\n220\u00a0\n661\u00a0\n0.49\u00a0\n25.0\u00a0\nCertain tax adjustments, net\n (10)\n\u2014\u00a0\n50\u00a0\n(50)\n(0.04)\n\u2014\u00a0\nNon-GAAP\n$\n8,609\u00a0\n$\n1,084\u00a0\n$\n7,505\u00a0\n$\n5.55\u00a0\n12.6\u00a0\n%\n(1)\nAssociated costs include costs incurred as a direct result of the restructuring program, such as salaries for employees supporting the program and consulting expenses. \n(2)\nThe charges primarily include business combination costs and changes in fair value of contingent consideration.\n(3)\nThe charges predominantly include non-cash pre-tax impairments, primarily related to goodwill, changes in the carrying value of the disposal group, and other associated costs, as a result of the April 1, 2023 sale of half of the Company's Renal Care Solutions (RCS) business; charges related to the impending separation of the Patient Monitoring and Respiratory Interventions businesses within our Medical Surgical Portfolio in the fourth quarter of fiscal year 2023; and charges related to an exit of a business which are primarily comprised of inventory write-downs.\n(4)\nCertain litigation includes $35 million income related to the one-time payment received as a result of the Intellectual Property Agreement entered into with Edwards Lifesciences on April 12, 2023.\n(5)\nWe exclude unrealized and realized gains and losses on our minority investments as we do not believe that these components of income or expense have a direct correlation to our ongoing or future business operations. \n(6)\nThe charges represent estimated incremental costs of complying with the new European Union medical device regulations for previously registered products and primarily include charges for contractors supporting the project and other direct third-party expenses. We consider these costs to be duplicative of previously incurred costs and /or one-time costs, which are limited to a specific period.\n(7)\nThe charges relate to the early redemption of approximately $2.3 billion of debt and were recorded within interest expense, net within the consolidated statements of income.\n(8)\nThe charge primarily relates to a $764 million reserve adjustment that was a direct result of the U.S. Tax Court opinion, issued on August 18, 2022, on the previously disclosed litigation regarding the allocation of income between Medtronic, Inc. and its wholly owned subsidiary operating in Puerto Rico. Additional charges relate to the reduction of deferred tax assets due to the disallowance of certain interest deductions and the change in the reporting currency for certain carryover attributes, and the amortization on previously established deferred tax assets from intercompany intellectual property transactions.\n(9)\nThe charges relate to the Company\u2019s June 2021 decision to stop the distribution and sale of the Medtronic HVAD System within the Mechanical Circulatory Support Operating Unit (MCS). The charges included $515 million of non-cash impairments, primarily related to $409\u00a0million of intangible asset impairments, as well as $366 million for commitments and obligations in connection with the decision, including patient support obligations, restructuring, and other associated costs. Medtronic is committed to serving the needs of patients currently implanted with the HVAD System.\n(10)\nThe net benefit primarily relates to the deferred tax impact associated with a step up in tax basis for Swiss Cantonal purposes and a change in tax rates on deferred taxes associated with intellectual property, which are partially offset by the amortization on previously established deferred tax assets from intercompany intellectual property transactions and a charge related to a change in the Company's permanent reinvestment assertion on certain historical earnings.\n31\nTable of C\nontents\nFree Cash Flow \nFree cash flow, a non-GAAP financial measure, is calculated by subtracting additions to property, plant, and equipment from net cash provided by operating activities. Management uses this non-GAAP financial measure, in addition to U.S. GAAP financial measures, to evaluate our operating results. Free cash flow should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with U.S. GAAP. Reconciliations between net cash provided by operating activities (the most comparable U.S. GAAP measure) and free cash flow are as follows:\nFiscal Year\n(in millions)\n2023\n2022\nNet cash provided by operating activities\n$\n6,039\u00a0\n$\n7,346\u00a0\nAdditions to property, plant, and equipment\n(1,459)\n(1,368)\nFree cash flow\n$\n4,580\u00a0\n$\n5,978\u00a0\nRefer to the Summary of Cash Flows section for drivers of the change in cash provided by operating activities.\n32\nTable of C\nontents\nNET SALES\nSegment and Division \nThe charts below illustrate the percent of net sales by segment for fiscal years 2023 and 2022:\nThe table below includes net sales by segment and division for fiscal years 2023 and 2022:\n\u00a0\n\u00a0Net Sales by Fiscal Year\nPercent Change\u00a0\n(in millions)\n2023\n2022\nCardiac Rhythm & Heart Failure\n$\n5,835\u00a0\n$\n5,908\u00a0\n(1)\n%\nStructural Heart & Aortic \n3,363\u00a0\n3,055\u00a0\n10\u00a0\nCoronary & Peripheral Vascular \n2,375\u00a0\n2,460\u00a0\n(3)\nCardiovascular \n11,573\u00a0\n11,423\u00a0\n1\u00a0\nSurgical Innovations\n5,663\u00a0\n6,060\u00a0\n(7)\nRespiratory, Gastrointestinal, & Renal\n2,770\u00a0\n3,081\u00a0\n(10)\nMedical Surgical \n8,433\u00a0\n9,141\u00a0\n(8)\nCranial & Spinal Technologies\n4,451\u00a0\n4,456\u00a0\n\u2014\u00a0\nSpecialty Therapies\n2,815\u00a0\n2,592\u00a0\n9\u00a0\nNeuromodulation\n1,693\u00a0\n1,735\u00a0\n(2)\nNeuroscience\n8,959\u00a0\n8,784\u00a0\n2\u00a0\nDiabetes \n2,262\u00a0\n2,338\u00a0\n(3)\nTotal\n$\n31,227\u00a0\n$\n31,686\u00a0\n(1)\n%\n33\nTable of C\nontents\nSegment and Market Geography\nThe charts below illustrate the percent of net sales by market geography for fiscal years 2023 and 2022:\nThe table below includes net sales by market geography for each of our segments for fiscal years 2023 and 2022:\nU.S.\n(1)\nNon-U.S. Developed Markets\n(2)\nEmerging Markets\n(3)\n(in millions)\nFiscal Year 2023\nFiscal Year 2022\n% Change\nFiscal Year 2023\nFiscal Year 2022\n% Change\nFiscal Year 2023\nFiscal Year 2022\n% Change\nCardiovascular\n$\n5,848\u00a0\n$\n5,545\u00a0\n5\u00a0\n%\n$\n3,564\u00a0\n$\n3,866\u00a0\n(8)\n%\n$\n2,161\u00a0\n$\n2,012\u00a0\n7\u00a0\n%\nMedical Surgical\n3,658\u00a0\n3,862\u00a0\n(5)\n3,080\u00a0\n3,373\u00a0\n(9)\n1,694\u00a0\n1,905\u00a0\n(11)\nNeuroscience\n6,018\u00a0\n5,753\u00a0\n5\u00a0\n1,658\u00a0\n1,801\u00a0\n(8)\n1,283\u00a0\n1,229\u00a0\n4\u00a0\nDiabetes\n849\u00a0\n974\u00a0\n(13)\n1,106\u00a0\n1,085\u00a0\n2\u00a0\n307\u00a0\n279\u00a0\n10\u00a0\nTotal\n$\n16,373\u00a0\n$\n16,135\u00a0\n1\u00a0\n%\n$\n9,408\u00a0\n$\n10,126\u00a0\n(7)\n%\n$\n5,446\u00a0\n$\n5,426\u00a0\n\u2014\u00a0\n%\n(1)\nU.S. includes the United States and U.S. territories.\n(2)\nNon-U.S. developed markets include Japan, Australia, New Zealand, Korea, Canada, and the countries within Western Europe.\n(3)\nEmerging markets include the countries of the Middle East, Africa, Latin America, Eastern Europe, and the countries of Asia that are not included in the non-U.S. developed markets, as defined above.\nThe decline in net sales for fiscal year 2023 was primarily driven by unfavorable currency impacts, impact of volume-based procurement tenders and COVID-19 resurgence in China, as well as supply chain challenges in certain businesses, particularly in the first quarter of fiscal year 2023. Currency had an unfavorable impact of $1.2\u00a0billion on non-U.S. developed markets and $262\u00a0million on emerging markets. The decline in net sales was partially offset by growth in certain product lines and businesses, including Micra, Transcatheter Aortic Valve replacements (TAVR), hemorrhagic and ischemic stroke, and ENT, in addition to the $265 million one-time payment received as a result of the Intellectual Property Agreement entered into with Edwards Lifesciences, as further discussed in the Cardiovascular net sales section below. \n34\nTable of C\nontents\nLooking ahead, a number of macro-economic and geopolitical factors could negatively impact our business, including without limitation: \n\u2022\nCompetitive product launches and pricing pressure, geographic macro-economic risks including fluctuations in currency exchange rates, general price inflation, rising interest rates, reimbursement challenges, impacts from changes in the mix of our product offerings, delays in product registration approvals, and replacement cycle challenges; \n\u2022\nNational and provincial/state tender decisions, including around pricing, for certain products, particularly in China;\n\u2022\nThe uncertain and uneven impact of COVID-19 on future procedural volumes, supply constraints including certain electronic components and semiconductors, healthcare staffing in certain regions, and resulting impacts on demand for our products and therapies; and\n\u2022\nThe sanctions and other measures being imposed in response to the Russia-Ukraine conflict are having, and could continue to have impacts on revenue and supply chain. The financial impact of the conflict in fiscal year 2023, including on accounts receivable and inventory reserves, was not material, and for fiscal year 2023, the business of the Company in these countries represented less than 1% of the Company's consolidated revenues and assets. Although the implications of this conflict are difficult to predict at this time, the ongoing conflict may increase pressure on the global economy and supply chains, resulting in increased future volatility risk for our business operations and performance.\nCardiovascular \nCardiovascular products include pacemakers, insertable cardiac monitors, cardiac resynchronization therapy devices, implantable cardioverter defibrillators (ICD), leads and delivery systems, electrophysiology catheters, products for the treatment of atrial fibrillation, information systems for the management of patients with Cardiac Rhythm & Heart Failure devices, products designed to reduce surgical site infections, coronary and peripheral stents and related delivery systems, balloons and related delivery systems, endovascular stent graft systems, heart valve replacement technologies, cardiac tissue ablation systems, and open heart and coronary bypass grafting surgical products. Cardiovascular also includes Care Management Services and Cath Lab Managed Services (CLMS) within the Cardiac Rhythm & Heart Failure division. Cardiovascular net sales for fiscal year 2023 were $11.6 billion, an increase of 1 percent as compared to fiscal year 2022. The net sales increase was primarily due to the strong performance of Micra, TAVR, and Diagnostics, partially offset by unfavorable currency impact of $569 million and supply chain challenges in certain businesses.\nThe charts below illustrate the percent of Cardiovascular net sales by division for fiscal years 2023 and 2022: \nCardiac Rhythm & Heart Failure (CRHF) net sales decreased 1 percent in fiscal year 2023 as compared to fiscal year 2022. The decrease was driven by Cardiac Ablation Solutions experiencing competitive pressures in Western Europe, as well as the pending volume-based procurement (VBP) tenders in China, offset by continued adoption of Micra AV, TYRX antibacterial envelopes, LINQ II implants, and growth from Arctic Front cryoblation catheters in the U.S. \n35\nTable of C\nontents\nStructural Heart & Aortic (SHA) net sales increased 10 percent in fiscal year 2023 as compared to fiscal year 2022. The increase was led by growth in transcatheter aortic valve replacement (TAVR), including the U.S. and Japan. Results include $265 million of revenue from a one-time payment received as a result of the Intellectual Property Agreement (agreement) entered into with Edwards Lifesciences (Edwards) on April 12, 2023. As part of this agreement, Edwards will also pay the Company royalty payments tied to future net sales of certain Edwards products. Net sales growth was negatively impacted by a field corrective action with the Harmony Transcatheter Pulmonary Valve and Delivery Catheter System.\nCoronary & Peripheral Vascular (CPV) net sales decreased 3 percent in fiscal year 2023 as compared to fiscal year 2022. The net sales declines were driven by market procedural volumes in Coronary remaining below pre-COVID levels in several major markets, headwinds related to U.S. hospital contrast shortages early in fiscal year 2023, and declines in Peripheral Vascular Health due to competitors re-entering the market and supply chain challenges. Net sales declines were partially offset by strong demand combined with improved product availability of the SpiderFX embolic protection device (EPD) and strong performance of our superficial venous product portfolio, including the VenaSeal system. \nIn addition to the macro-economic and geopolitical factors described in the Net Sales section, looking ahead, we expect Cardiovascular could be affected by the following:\n\u2022\nContinued growth of our Micra transcatheter pacing system. Our portfolio consists of Micra VR and Micra AV, which offer leadless pacing therapy to approximately 45 percent of pacemaker patients. We expect the launch of next generation Micra AV2/VR2 in the first quarter of fiscal year 2024 will continue to support adoption of leadless pacing, as it extends the capability of the Micra portfolio by adding significant battery longevity and programming simplicity.\n\u2022\nContinued acceptance and growth from the Azure XT and S SureScan pacing systems and the 3830 lead. Azure pacemakers feature Medtronic-exclusive BlueSync technology, which enables automatic, secure wireless remote monitoring with increased device longevity. The 3830 lead, previously labeled for His-bundle pacing, has now been expanded to include left bundle branch area pacing. \n\u2022\nGrowth of the Cobalt and Crome portfolio of ICDs and CRT-Ds. \n\u2022\nGrowth of the CRT-P quadripolar pacing system.\n\u2022\nContinued growth, adoption, and utilization of the TYRX Envelope for implantable devices. \n\u2022\nContinued acceptance and expansion of the LINQ II cardiac monitor. During the third quarter of fiscal year 2022, we launched two AccuRhythm AI algorithms on the LINQ II platform to significantly reduce false positive alerts for Atrial Fibrillation and pause episodes while retaining sensitivity for true positive detection and reduce clinic workload and burden. AccuRhythm AI launched in Europe during the first quarter of fiscal year 2023.\n\u2022\nContinued growth of Arctic Front cryoablation for treatment of atrial fibrillation.\n\u2022\nAcceptance and growth of the Affera Mapping/Navigation System and Sphere 9 mapping/ablation catheter. The system was launched under a limited market release in the fourth quarter of fiscal year 2023 in Western Europe. \n\u2022\nContinued acceptance and growth of the self-expanding CoreValve Evolut transcatheter aortic valve replacement platform. This includes Evolut PRO which provides enhanced hemodynamics, reliable delivery, enhanced durability, advanced sealing, and Evolut FX, a system designed to improve the overall procedural experience through enhancements in deliverability, implant visibility, and deployment stability.\n\u2022\nContinued expansion and training of field support to increase coverage in the U.S. centers performing TAVR procedures.\n\u2022\nContinued acceptance and growth of the Onyx Frontier DES platform. The platform launched in the U.S. in the first quarter of fiscal year 2023 and in select international countries in the second quarter of fiscal year 2023. Onyx Frontier is a drug-eluding stent (DES) that introduces an enhanced delivery system and is used for complex percutaneous coronary intervention (PCI).\n\u2022\nContinued acceptance of the VenaSeal Closure System in the U.S. The VenaSeal Closure System is a unique non-thermal solution to address superficial venous disease that provides improved patient comfort, reduces the recovery time, and eliminates the risk of thermal nerve injury.\n\u2022\nAcceptance and growth of IN.PACT 018 drug-coated balloon (DCB). The product was launched in the U.S. under limited market release in the first quarter of fiscal year 2023 with full market release in the third quarter of fiscal year 2023. IN.PACT 018 adds to the existing IN.PACT Admiral DCB portfolio and is used to treat femoropopliteal disease.\n36\nTable of C\nontents\n\u2022\nMarket and competitive pressure on sales of the Abre venous self-expanding stent system. Abre is designed for the unique challenges of venous disease. Now backed by 36 months of data, it offers easy deployment and delivers demonstrated endurance, to give patients freedom of movement.\n\u2022\nOur ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include, but are not limited to, the Symplicity Spyral Multi-Electrode Renal Denervation Catheter, Pulse Field Ablation, a novel energy source that is non-thermal, and Aurora Extravascular ICD.\nMedical Surgical\n \nMedical Surgical\u2019s products span the entire continuum of patient care from diagnosis to recovery, with a focus on diseases of the gastrointestinal tract, lungs, pelvic region, kidneys, obesity, and preventable complications. The products include those for advanced and general surgical products, surgical stapling devices, vessel sealing instruments, wound closure, electrosurgery products, hernia mechanical devices, mesh implants, advanced ablation, interventional lung, ventilators, airway products, renal care products, and sensors and monitors for pulse oximetry, capnography, level of consciousness and cerebral oximetry. Medical Surgical\u2019s net sales for fiscal year 2023 were $8.4 billion, a decrease of 8 percent as compared to fiscal year 2022. The net sales decrease was primarily driven by unfavorable currency impact of $454 million, provincial volume-based procurement (VBP) stapling tenders in China, and a decline in ventilator sales due to the high COVID-19 demand in the corresponding period in the prior fiscal year. Supply chain disruptions, particularly in Surgical Innovations, also contributed to the net sales decrease for fiscal year 2023. \nThe charts below illustrate the percent of Medical Surgical net sales by division for fiscal years 2023 and 2022:\nSurgical Innovations net sales for fiscal year 2023 decreased 7 percent as compared to fiscal year 2022. The net sales decline was led by Advanced Surgical instruments, driven by global supply chain challenges, including resins, semiconductors, and packaging trays, which impacted energy and stapling products, and provincial VBP stapling tenders and COVID-19 lockdowns in China. These declines were partially offset by growth in Advanced Energy in the fourth quarter of fiscal year 2023.\nRespiratory, Gastrointestinal, & Renal (RGR) net sales for fiscal year 2023 decreased 10 percent as compared to fiscal year 2022. RGR net sales declines were largely due to declines in ventilator demand when compared to the corresponding period in the prior fiscal year as demand dropped below pre-pandemic levels, as well as declines in RCS driven by product availability challenges in the first three quarters of fiscal year 2023, and only two months of sales in the fourth quarter of fiscal year 2023 as a result of the April 1, 2023 contribution of half of the Company's RCS business to form Mozarc Medical. These declines were partially offset by growth in Gastrointestinal driven by strength in sales of GI Genius.\n37\nTable of C\nontents\nIn addition to the macro-economic and geopolitical factors described in the Net Sales section, looking ahead we expect Medical Surgical could be affected by the following:\n\u2022\nThe pending separation of the combined Patient Monitoring and Respiratory Interventions businesses from the Medical Surgical Portfolio. The Company announced its intention to pursue a separation in October 2022 and expects to complete the separation 18 to 24 months from the announcement date.\n\u2022\nAcceptance and continued growth of Open-to-MIS (minimally invasive surgery) techniques and tools through our efforts to transition open surgery to MIS. Open-to-MIS initiative focuses on capturing the market opportunity that exists in transitioning open procedures to MIS, whether through traditional MIS, advanced instrumentation, or robotics. Through our approach, in parallel, we also expand our presence and optimize open surgery in current open surgery markets.\n\u2022\nContinued global acceptance and future growth of powered stapling and energy platform.\n\u2022\nOur ability to execute ongoing strategies addressing the competitive pressure of reprocessing vessel sealing disposables and growth of our surgical soft tissue robotics procedures in the U.S.\n\u2022\nOur ability to create markets and drive products and procedures into emerging markets with our high quality and cost-effective surgical products designed for customers in emerging markets. An example is our ValleyLab LS10 single channel vessel sealing generator, which is compatible with our line of LigaSure instruments and designed for simplified use and affordability.\n\u2022\nAcceptance of less invasive standards of care in gastrointestinal and hepatology products, including products that span the care continuum from diagnostics to therapeutics. Recently launched products include GI Genius and PillCam capsule endoscopy.\n\u2022\nExpanding the use of less invasive treatments and furthering our commitment to improving options for women with abnormal uterine bleeding. Our expanded and strengthened surgical offerings complement our global gynecology business.\n\u2022\nGlobal adoption of robotic-assisted surgery and installations of Hugo robotic assisted surgery (RAS) system for urologic, bariatric, gynecologic, and general surgery procedures. This includes continued integration and adoption of Touch Surgery Enterprise with the first artificial intelligence powered surgical videos and analytics platform to make it easier to train and discover new techniques within the robotics platform. The Hugo RAS system, which received CE Mark in October 2021, as well as secured additional regulatory approvals outside the U.S., is designed to help reduce unwanted variability, improve patient outcomes, and, by extension, lower per procedure cost.\n\u2022\nOur ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include, but are not limited to, our Hugo RAS system in the U.S., Signia power stapling devices, and our next-gen Ligasure and Sonicision vessel sealing devices.\nNeuroscience\nNeuroscience's products include various spinal implants, bone graft substitutes, biologic products, image-guided surgery and intra-operative imaging systems, robotic guidance systems used in the robot-assisted spine procedures, and systems that incorporate advanced energy surgical instruments. Neuroscience's products also focus on therapies to treat the diseases of the vasculature in and around the brain, including coils, neurovascular stents, and flow diversion products, as well as products to treat ear, nose, and throat (ENT), and the treatment of overactive bladder, urinary retention, fecal incontinence. Neuroscience also manufactures products related to implantable neurostimulation therapies and drug delivery systems for the treatment of chronic pain, movement disorders, and epilepsy. Neuroscience\u2019s net sales for fiscal year 2023 were $9.0 billion, an increase of 2 percent as compared to fiscal year 2022. The net sales increase was primarily due to growth in U.S. Core Spine, Neurovascular, ENT, and continued supply risk mitigation, partially offset by unfavorable currency impact of $281 million and supply chain challenges in certain businesses.\n38\nTable of C\nontents\nThe graphs below illustrate the percent of Neuroscience net sales by division for fiscal years 2023 and 2022:\nCranial & Spinal Technologies (CST) net sales for fiscal year 2023 were flat as compared to fiscal year 2022 as growth within U.S. Core Spine was offset by net sales declines in Biologics and unfavorable currency impact. The growth in U.S. Core Spine products was driven by the continued adoption of the Aible ecosystem of spine products. The net sales increase was also attributable to strong sales of StealthStation Navigation and Midas Rex powered surgical instruments. The decline in net sales in Biologics was due to supply chain challenges throughout the year.\nSpecialty Therapies (Specialty) net sales for fiscal year 2023 increased 9 percent as compared to fiscal year 2022. The increase was driven by growth in hemorrhagic and ischemic stroke, flow diversion and access delivery products. The net sales increase was also driven by benefits from the May 2022 acquisition of Intersect ENT.\nNeuromodulation (NM) net sales for fiscal year 2023 decreased 2 percent as compared to fiscal year 2022. The decline in net sales was largely due to declines of Brain Modulation replacement devices and supply chain challenges in Interventional, which has recently seen improvements in product availability. The decline was partially offset by growth within Pain Stim and to a lesser extent, Targeted Drug Delivery.\nIn addition to the macro-economic and geopolitical factors described in the Net Sales section, looking ahead we expect Neuroscience could be affected by the following:\n\u2022\nContinued adoption and growth of our integrated solutions through the Aible offering, which integrates spinal implants with enabling technologies (StealthStation, O-arm Imaging Systems, and Midas), Mazor robotics, and UNiD Adaptive Spine Intelligence AI-driven technology for surgical planning and personalized spinal implants.\n\u2022\nMarket acceptance and continued global adoption of innovative new spine products and procedural solutions within our CST operating unit, such as Catalyft PL, ModuLeX, CD Horizon Voyager System, and our Infinity OCT System, as well as continued growth from Titan spine titanium interbody implants with Nanolock technology.\n\u2022\nContinued growth of Pipeline Embolization Devices, endovascular treatments for large or giant wide-necked brain aneurysms. \n\u2022\nContinued acceptance and growth of the Solitaire X revascularization device for treatment of acute ischemic stroke and our React Catheter and Riptide aspiration system.\n\u2022\nStrengthening our position in the ENT market as a result of the May 2022 acquisition of Intersect ENT, a global ENT medical technology leader. The acquisition expands Neuroscience's portfolio of products used during ENT procedures and combined with the Company's navigation, powered instruments, and existing tissue health products, offers a broader suite of solutions to assist surgeons treating patients who suffer from chronic rhinosinusitis (CRS).\n39\nTable of C\nontents\n\u2022\nContinued acceptance and growth of our Pelvic Health and ENT therapies, including our InterStim therapy with InterStim X and InterStim II recharge-free neurostimulators and InterStim Micro rechargeable neurostimulator for patients suffering from overactive bladder, (non-obtrusive) urinary retention, and chronic fecal incontinence, and capital equipment sales of the Stealth Station ENT surgical navigation system and intraoperative NIM nerve monitoring system.\n\u2022\nMarket acceptance and growth from SCS therapy for treating chronic pain and Diabetic Peripheral Neuropathy (DPN) on the Intellis rechargeable neurostimulator and Vanta recharge-free neurostimulator. \n\u2022\nContinued acceptance and growth of our Percept family of DBS devices with proprietary BrainSense technology for objectifying and personalizing the treatment of Parkinson's Disease, epilepsy, and other movement disorders.\n\u2022\nOngoing obligations under the U.S. FDA consent decree entered in April 2015 relating to the SynchroMed drug infusion system and the Neuromodulation quality system. The U.S. FDA lifted its distribution requirements on our implantable drug pump in October 2017 and its warning letter in November 2017.\n\u2022\nOur ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, which include our closed-loop Percept devices with adaptive DBS (aDBS) and Inceptiv Neurostimulator, as well as our hemorrhagic stroke intravascular device, and our next-generation spine enabling technologies. \nDiabetes\nDiabetes' products include insulin pumps, continuous glucose monitoring (CGM) systems, consumables, and smart insulin pen systems. Diabetes' sales for fiscal year 2023 were $2.3 billion, a decrease of 3 percent as compared to fiscal year 2022. The decrease in net sales was primarily driven by unfavorable currency impact of $133 million and declines in the U.S. The net sales declines were partially offset by strong international growth primarily driven by the continued international expansion of the MiniMed 780G insulin pump system and integrated CGM. During April 2023, the U.S. FDA lifted the warning letter received in December 2021. \nIn addition to the macro-economic and geopolitical factors described in the Net Sales section, looking ahead we expect Diabetes could be affected by the following:\n\u2022\nContinued acceptance and growth for the MiniMed 780G insulin pump system, which is powered by SmartGuard technology and features the added benefits of meal detection technology that automatically adjusts and corrects sugar level levels every five minutes. The global adoption of sensor-augmented insulin pump systems has resulted in strong sensor attachment rates. The MiniMed 780G insulin pump system with the Guardian 4 Sensor was approved by the U.S. FDA in late April 2023.\n\u2022\nContinued acceptance and growth of the Guardian Connect CGM system, which displays glucose information directly to a smartphone to help ensure patients have access to their glucose levels seamlessly and discretely. The Guardian Connect CGM system is available on both Apple iOS and Android devices. \n\u2022\nMarket acceptance and growth of our InPen smart pen system, which allows users to have their Medtronic CGM readings in real-time alongside insulin dose information, all in one view. \n\u2022\nContinued pump, CGM, and consumable competition in an expanding global market. \n\u2022\nChanges in medical reimbursement policies and programs, along with additional payor coverage on insulin pumps.\n\u2022\nOur ability to successfully develop, obtain regulatory approval of and commercialize the products within our pipeline, including our next-generation sensor Simplera, which has been submitted to the U.S. FDA.\n40\nTable of C\nontents\nCOSTS AND EXPENSES\nThe following is a summary of cost of products sold, research and development, and selling, general, and administrative expenses as a percent of net sales:\nCost of Products Sold  \n Cost of products sold for fiscal year 2023 was $10.7 billion as compared to $10.1 billion for fiscal year 2022. The increase in cost of products sold as a percentage of net sales was primarily attributable to increased labor and direct material manufacturing costs, predominantly due to inflationary pressures and supply chain challenges, increased freight due to higher fuel costs and expedited shipments for backorders resulting from supply chain challenges, as well as increased inventory reserves. Fiscal year 2022 included $58 million of inventory write-downs associated with our June 2021 decision to stop the distribution and sale of Medtronic's HVAD System (MCS charges). Looking forward, our cost of products sold likely will be further negatively impacted by inflation and higher labor and direct material costs. We continue to focus on reducing our costs of production through supplier management, manufacturing improvements, and optimizing our manufacturing network.\nResearch and Development Expense   \nWe remain committed to deliver the best possible experiences for patients, physicians, and caregivers we serve; to create technologies that expand what\u2019s possible across the human body to transform lives; to turn data and insights into real action to serve patient needs, improving care; and to expand healthcare access and deliver positive outcomes. Research and development expense for fiscal years 2023 and 2022 was $2.7 billion. Fiscal year 2022 included $101\u00a0million of expense related to acquisitions of, and license payments for, technology not approved by regulators, primarily in our Diabetes segment.\nSelling, General, and Administrative Expense  \n Our goal is to continue to leverage selling, general, and administrative expense initiatives. Selling, general, and administrative expense primarily consists of salaries and wages, other administrative costs, such as professional fees and marketing expenses, certain acquisition, divestiture and separation-related costs, and restructuring expenses. Selling, general, and administrative expense for fiscal year 2023 was $10.4 billion as compared to $10.3 billion for fiscal year 2022. The increase in selling, general, and administrative expense as a percentage of net sales was primarily driven by employee travel, and to a lesser extent by lower net sales, partially offset by a reduction in professional services.\nThe following is a summary of other costs and expenses (income):\nFiscal Year\n(in millions)\n2023\n2022\nAmortization of intangible assets\n$\n1,698\u00a0\n$\n1,733\u00a0\nRestructuring charges, net\n375\u00a0\n60\u00a0\nCertain litigation charges, net\n(30)\n95\u00a0\nOther operating (income) expense, net\n(131)\n862\u00a0\nOther non-operating income, net\n(515)\n(318)\nInterest expense, net\n636\u00a0\n553\u00a0\n41\nTable of C\nontents\nAmortization of Intangible Assets   \nAmortization of intangible assets includes the amortization expense of our definite-lived intangible assets, consisting of purchased patents, trademarks, tradenames, customer relationships, purchased technology, and other intangible assets. \nRestructuring Charges, Net\nIn fiscal years 2023 and 2022, restructuring costs primarily related to Enterprise Excellence and Simplification restructuring programs, both of which were substantially completed as of the end of this fiscal year.\nIn the fourth quarter of fiscal year 2023, we incurred $0.3 billion of restructuring charges primarily related to employee termination benefits to support cost reduction initiatives. These charges were incremental to charges incurred under our Enterprise Excellence and Simplification programs noted above.\nFor all programs, employee-related costs primarily consist of termination benefits provided to employees who have been involuntarily terminated and voluntary early retirement benefits. Associated costs primarily include salaries and wages of employees that are fully-dedicated to restructuring programs and consulting fees.\nFor additional information about our restructuring programs, refer to Note 4 of the consolidated financial statements in \"Item 8. Financial Statements and Supplementary Data\" in this Annual Report on Form 10-K.\nCertain Litigation Charges, Net\n   We classify specified certain litigation charges and gains related to significant legal matters as \ncertain litigation charges, net\n in the consolidated statements of income. For additional information, refer to Note 18 of the consolidated financial statements in \u201cItem 8. Financial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K.\nOther Operating (Income) Expense, Net  \n Other operating (income) expense, net primarily includes royalty expense, currency remeasurement and derivative gains and losses, Puerto Rico excise taxes, changes in the fair value of contingent consideration, MCS charges, RCS charges, impairment charges, income from funded research and development arrangements, and commitments to the Medtronic Foundation and Medtronic LABS.\nThe change in other operating (income) expense, net was primarily driven by MCS charges recorded in fiscal year 2022. The MCS charges of $823\u00a0million primarily included $409\u00a0million of intangible asset impairments and $366\u00a0million for commitments and obligations, including customer support obligations, restructuring, and other associated costs. Additionally, the change was driven by the net currency impact of remeasurement expense and our hedging programs, which resulted in a net gain of $466\u00a0million combined for fiscal year 2023 as compared to a net gain of $70\u00a0million for fiscal year 2022. During fiscal year 2023, the Company also recorded non-cash pre-tax charges of $136\u00a0million, primarily related to impairments of goodwill and changes in the carrying value of the disposal group, as a result of the April 1, 2023 sale of half of the Company's RCS business. Additional information regarding the MCS and RCS charges is described in Note 4 and Note 3, respectively, of the consolidated financial statements in \"Item 8. Financial Statements and Supplementary Data\" in this Annual Report on Form 10-K.\nOther Non-Operating Income, Net\n   Other non-operating income, net includes the non-service component of net periodic pension and postretirement benefit cost, investment gains and losses, and interest income.\nThe increase in other non-operating income, net for fiscal year 2023 is primarily attributable to an increase in interest income driven by higher returns on investments and an increase in rates on our global liquidity structures. Interest income was $386\u00a0million and $186\u00a0million for fiscal year 2023 and 2022, respectively.\nInterest Expense, Net\n   Interest expense, net includes interest incurred on our outstanding borrowings, amortization of debt issuance costs and debt premiums or discounts, amortization of amounts excluded from the effectiveness assessment of certain net investment hedges, and charges recognized in connection with the early redemption of senior notes.\nThe increase in interest expense, net for fiscal year 2023 was primarily due to an increase in rates on our global liquidity structures, the issuance of four tranches of Euro-denominated Senior Notes with an aggregate principal of \u20ac3.5\u00a0billion in September 2022, and the $53\u00a0million charge incurred as a result of the early redemption of approximately $2.3\u00a0billion of senior notes during the first quarter of fiscal year 2023. The Company's commercial paper activity and the issuance of two tranches of USD-denominated Senior Notes with an aggregate principal of $2.0\u00a0billion in March 2023 also increased interest expense, net. Partially offsetting the increase for fiscal year 2023 was $107 million in after-tax unrealized gains representing amounts excluded from the effectiveness assessment of certain net investment hedges, and benefits from foreign exchange rates.\n42\nTable of C\nontents\nINCOME TAXES\n\u00a0\nFiscal Year\n(in millions)\n2023\n2022\nIncome tax provision\n$\n1,580\u00a0\n$\n456\u00a0\nIncome before income taxes\n5,364\u00a0\n5,517\u00a0\nEffective tax rate\n29.5\u00a0\n%\n8.3\u00a0\n%\nNon-GAAP income tax provision\n$\n1,128\u00a0\n$\n1,084\u00a0\nNon-GAAP income before income taxes\n8,194\u00a0\n8,609\u00a0\nNon-GAAP Nominal Tax Rate\n13.8\u00a0\n%\n12.6\u00a0\n%\nDifference between the effective tax rate and Non-GAAP Nominal Tax Rate\n(15.7)\n%\n4.3\u00a0\n%\nOn August 18, 2022, the U.S. Tax Court (Tax Court) issued its opinion on the previously disclosed litigation regarding the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for fiscal years 2005 and 2006 (Opinion). While the Opinion rejected the IRS\u2019s position and the Tax Court determined the methodology advanced by Medtronic was appropriate for purposes of determining the intercompany royalty rate between Puerto Rico and the U.S., it determined that the royalty rate should be higher, thereby increasing income allocated to the U.S. and consequently subject to U.S. tax. This case relates only to fiscal years 2005 and 2006. The Opinion remains subject to appeal by either or both parties. We have assumed the Tax Court findings will be applied for all years following fiscal year 2006. As a result, the Company recorded a $764 million net tax charge during the three months ended October 28, 2022 to recognize the estimated tax impact of the Tax Court Opinion.\nOur effective tax rate for fiscal year 2023 was 29.5 percent, as compared to 8.3 percent in fiscal year 2022. The increase in our effective tax rate primarily relates to the certain tax adjustments discussed below and year-over-year changes in operational results by jurisdiction.\nOur Non-GAAP Nominal Tax Rate for fiscal year 2023 was\n \n13.8 percent, as compared to\n \n12.6 percent in fiscal year 2022. The increase in our Non-GAAP Nominal Tax Rate primarily relates to year-over-year changes in operational results by jurisdiction.\nDuring fiscal year 2023, we recognized $110 million of operational tax benefits. The operational tax benefits included an $11 million cost from the impact of stock-based compensation, and a $121 million benefit associated with the resolution of certain income tax audits, finalization of certain tax returns, changes to uncertain tax position reserves, and changes to certain deferred income tax balances.\nDuring fiscal year 2022, we recognized\n \n$89 million of operational tax benefits. The operational tax benefits included a\n \n$46 million benefit from excess tax benefits associated with stock-based compensation, and a\n \n$43 million net benefit associated with the resolution of certain income tax audits, finalization of certain tax returns, changes to uncertain tax position reserves, and changes to certain deferred income tax balances.\nAn increase in our Non-GAAP Nominal Tax Rate of one percent would result in an additional income tax provision for fiscal years 2023 and 2022 of approximately\n \n$82 million and\n \n$86 million, respectively.\nCertain Tax Adjustments\nDuring fiscal year 2023, the net cost from certain tax adjustments of $910 million, recognized in \nincome tax provision\n in the consolidated statement of income, included the following:\n\u2022\nA net cost of $764 million associated with a reserve adjustment that was a direct result of the U.S. Tax Court opinion, issued on August 18, 2022, on the previously disclosed litigation regarding the allocation of income between Medtronic, Inc. and its wholly owned subsidiary operating in Puerto Rico.\n\u2022\nA cost of $55 million related to the disallowance of certain interest deductions. \n\u2022\nA cost of $30 million related to the change in reporting currency for certain carryover attributes.\n\u2022\nA cost of $28 million associated with the amortization of the previously established deferred tax assets from intercompany intellectual property transactions.\n\u2022\nA net cost of $33 million primarily associated with the sale of half of the Company\u2019s RCS business\nDuring fiscal year 2022, the net benefit from certain tax adjustments of\n \n$50 million, recognized in \nincome tax provision\n in the consolidated statement of income, included the following:\n43\nTable of C\nontents\n\u2022\nA benefit of $82 million associated with a step up in tax basis for Swiss Cantonal purposes.\n\u2022\nA benefit of $82 million related to a change in tax rates on intangible assets. \n\u2022\nA cost of $47 million associated with the amortization of the previously established deferred tax assets from intercompany intellectual property transactions. \n\u2022\nA cost of $41 million associated with a change in the Company\u2019s permanent reinvestment assertion on certain historical earnings.\n\u2022\nA net cost of $26 million primarily associated with an intercompany sale of assets.\nCertain tax adjustments will affect the comparability of our operating results between periods. Therefore, we consider these Non-GAAP Adjustments. Refer to the \"Executive Level Overview\" section of this Management's Discussion and Analysis for further discussion of these adjustments.\nSubsequent to year-end, on June 1, 2023 the Israeli Central-Lod District Court issued its decision in Medtronic Ventor Technologies Ltd v. Kfar Saba Assessing Office. The court determined that there was a deemed taxable transfer of intellectual property. At this time, the Company is evaluating the impact of the decision and whether or not it will appeal. The Company has currently estimated a potential income tax charge, including interest, of approximately $200 million.\nLIQUIDITY AND CAPITAL RESOURCES\nWe are currently in a strong financial position, and we believe our balance sheet and liquidity as of April\u00a028, 2023 provide us with flexibility, and our cash, cash equivalents, and current investments, along with our credit facility and related commercial paper programs will satisfy our foreseeable operating needs.\nOur liquidity and capital structure are evaluated regularly within the context of our annual operating and strategic planning processes. We consider the liquidity necessary to fund our operations, which includes working capital needs, investments in research and development, property, plant, and equipment, and other operating costs. We also consider capital allocation alternatives that balance returning value to shareholders through dividends and share repurchases, satisfying maturing debt, and acquiring businesses and technology.\nSummary of Cash Flows\nThe following is a summary of cash provided by (used in) operating, investing, and financing activities, the effect of exchange rate changes on cash and cash equivalents, and the net change in cash and cash equivalents:\n\u00a0\nFiscal Year\n(in millions)\n2023\n2022\nCash provided by (used in):\n\u00a0\n\u00a0\nOperating activities\n$\n6,039\u00a0\n$\n7,346\u00a0\nInvesting activities\n(3,493)\n(1,659)\nFinancing activities\n(4,960)\n(5,336)\nEffect of exchange rate changes on cash and cash equivalents\n243\u00a0\n(231)\nNet change in cash and cash equivalents\n$\n(2,171)\n$\n121\u00a0\nOperating Activities\n   The $1.3 billion decrease in net cash provided was primarily driven by a decrease in cash collected from customers, an increase in cash paid for income taxes and an increase in spend on inventory. The decrease in net cash provided was partially offset by timing of payments to vendors. The decrease in cash collected from customers was primarily related to timing of sales, slower collections and supply chain challenges, as compared to the prior fiscal year. The increase in cash paid for income taxes was due to estimated income tax payments including a cash deposit associated with the U.S. Tax Court Opinion, and the increase in spend for inventory was due to inflationary impacts to direct labor and material costs. For more information about the tax cash deposit paid, refer to Note 13 of the consolidated financial statements in \u201cItem 8. Financial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K.\nInvesting Activities   \nThe $1.8 billion increase in net cash used was primarily attributable to an increase in cash paid for acquisitions of $1.8 billion as compared to fiscal year 2022. For more information on the acquisitions, refer to Note 3 of the consolidated financial statements in \u201cItem 8. Financial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K.\nFinancing Activities   \nThe $376 million decrease in net cash used as compared to fiscal year 2022 was primarily driven by a decrease of $1.9 billion in share repurchases, offset by debt transactions. In the fourth quarter of fiscal year 2023, the Company issued two tranches of USD-denominated Senior Notes resulting in cash proceeds of approximately $2.0\u00a0billion, net of discounts and issuance costs. The Company used the net proceeds to repay in full the \u00a5297\u00a0billion Fiscal 2023 Loan Agreement discussed below for $2.3\u00a0billion of total consideration. In the second quarter of fiscal year 2023, the Company issued four tranches of Euro-denominated Senior Notes for approximately \n44\nTable of C\nontents\n$3.4\u00a0billion. The Company used a portion of the net proceeds to repay at maturity \u20ac750\u00a0million of Medtronic Luxco Senior Notes for $772\u00a0million of total consideration in December 2022 and \u20ac2.8\u00a0billion of Medtronic Luxco Senior Notes for $2.9\u00a0billion of total consideration in March 2023. In the first quarter of fiscal year 2023, the Company issued short-term borrowings of approximately $2.3\u00a0billion under the Fiscal 2023 Loan Agreement and used the proceeds to fund the early redemption of senior notes for total consideration of $2.3\u00a0billion. For more information on the issuance and redemption of senior notes and the Term Loan, refer to the Debt and Capital section. \nDebt and Capital\nOur capital structure consists of equity and interest-bearing debt. We primarily utilize unsecured senior debt obligations to meet our financing needs and, to a lesser extent, bank borrowings. From time to time, we may repurchase our outstanding debt obligations in the open market or through privately negotiated transactions. \nTotal debt at April\u00a028, 2023 was $24.4 billion, as compared to $24.1 billion at April\u00a029, 2022. The increase in total debt was driven by issuance of Euro-denominated and USD-denominated Senior Notes, and fluctuations in exchange rates, offset by repayment of Euro-denominated and USD-denominated Senior Notes.\nIn May 2022, we entered into a term loan agreement (Fiscal 2023 Loan Agreement) with Mizuho Bank, Ltd. for an aggregate principal amount of up to \u00a5300\u00a0billion with a term of 364 days. In May and June 2022, Medtronic Luxco borrowed an aggregate of \u00a5297\u00a0billion, or approximately $2.3\u00a0billion, of the term loan, under the Fiscal 2023 Loan Agreement. The Company used the net proceeds of the borrowings to fund the early redemption of $1.9\u00a0billion of Medtronic Inc. Senior Notes for $1.9\u00a0billion of total consideration, and $368\u00a0million of Medtronic Luxco Senior Notes for $376\u00a0million of total consideration. The Company recognized a total loss on debt extinguishment of $53\u00a0million within \ninterest expense, net\n in the consolidated statements of income during fiscal year 2023, which primarily included cash premiums and accelerated amortization of deferred financing costs and debt discounts and premiums. During the fourth quarter of fiscal year 2023, the Company repaid the term loan in full, including interest.\nIn September 2022, we issued four tranches of Euro-denominated Senior Notes with an aggregate principal of \u20ac3.5\u00a0billion, with maturities ranging from fiscal year 2026 to 2035, resulting in cash proceeds of approximately $3.4\u00a0billion, net of discounts and issuance costs. The Company used the net proceeds to repay at maturity \u20ac750\u00a0million of 0.000% Medtronic Luxco Senior Notes for $772\u00a0million\u00a0of total consideration in December 2022 and \u20ac1.5\u00a0billion of 0.375% Medtronic Luxco Senior Notes and \u20ac1.25\u00a0billion of 0.000% Medtronic Luxco Senior Notes for $2.9\u00a0billion of total consideration in March 2023.\nIn March 2023, Medtronic Luxco issued two tranches of USD-denominated Senior Notes with an aggregate principal of $2.0\u00a0billion, with maturities ranging from 2028 to 2033, resulting in cash proceeds of approximately $2.0\u00a0billion, net of discounts and issuance costs. The Company used the net proceeds supplemented by additional cash to repay the \u00a5297\u00a0billion Fiscal 2023 Loan Agreement discussed above for $2.3\u00a0billion of total consideration.\nWe repurchase our ordinary shares on occasion as part of our focus on returning value to our shareholders. In March 2019, the Company's Board of Directors authorized the repurchase of $6.0 billion of the Company's ordinary shares. There is no specific time period associated with these repurchase authorizations. During fiscal years 2023 and 2022, we repurchased a total of 6 million and 22 million shares, respectively, under these programs at an average price of $91.31 and $113.11, respectively. At April\u00a028, 2023, we had approximately $2.4 billion remaining under the share repurchase program authorized by our Board of Directors. \nFor more information on credit arrangements, see Note 6 of the consolidated financial statements in \u201cItem 8. Financial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K.\nLiquidity\nOur liquidity sources at April\u00a028, 2023 included $1.5 billion of cash and cash equivalents and $6.4 billion of current investments. Additionally, we maintain commercial paper programs and a Credit Facility.\nOur investments primarily include available-for-sale debt securities, including U.S. and non-U.S. government and agency securities, corporate debt securities, mortgage-backed securities, certificates of deposit, and other asset-backed securities. See Note 5 to the consolidated financial statements in \"Item 8. Financial Statements and Supplementary Data\" in this Annual Report on Form 10-K for additional information regarding fair value measurements. \nWe maintain multicurrency commercial paper programs for short-term financing, which allow us to issue unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $3.5 billion. At both April\u00a028, 2023 and April\u00a029, 2022, we had no commercial paper outstanding. The issuance of commercial paper reduces the amount of credit available under our existing line of credit, as explained below.\n45\nTable of C\nontents\nWe also have a $3.5 billion five-year syndicated credit facility (Credit Facility), which expires in December 2027. At each anniversary date of the Credit Facility, we can request a one-year extension of the maturity date. The Credit Facility provides backup funding for the commercial paper programs and may also be used for general corporate purposes. The Credit Facility provides us with the ability to increase our borrowing capacity by an additional $1.0 billion at any time during the term of the agreement. At April\u00a028, 2023 and April\u00a029, 2022, no amounts were outstanding under the Credit Facility.\nInterest rates on advances of our Credit Facility are determined by a pricing matrix based on our long-term debt ratings assigned by Standard & Poor's Ratings Services (S&P) and Moody's Investors Service (Moody\u2019s). Facility fees are payable on the Credit Facility and are determined in the same manner as the interest rates. We are in compliance with all covenants related to the Credit Facility.\nThe following table is a summary of our S&P and Moody's long-term debt ratings and short-term debt ratings:\nAgency Rating \n(1)\nApril 28, 2023\nApril 29, 2022\nStandard & Poor's Ratings Services\n\u00a0\u00a0\u00a0Long-term debt\nA\nA\n\u00a0\u00a0\u00a0Short-term debt\nA-1\nA-1\nMoody's Investors Service \n\u00a0\u00a0\u00a0Long-term debt\nA3\nA3\n\u00a0\u00a0\u00a0Short-term debt\nP-2\nP-2\n(1)\u00a0\u00a0\u00a0\u00a0Agency ratings are subject to change, and there may be no assurance that an agency will continue to provide ratings and/or maintain its current ratings. A security rating is not a recommendation to buy, sell or hold securities, and may be subject to revision or withdrawal at any time by the rating agency, and each rating should be evaluated independently of any other rating.\nS&P and Moody's long-term debt ratings and short-term debt ratings at April\u00a028, 2023 were unchanged as compared to the ratings at April\u00a029, 2022. We do not expect the S&P and Moody's ratings to have a significant impact on our liquidity or future flexibility to access additional liquidity given our balance sheet, Credit Facility, and related commercial paper programs.\n46\nTable of C\nontents\nContractual Obligations and Cash Requirements\n \nWe have future contractual obligations and other minimum commercial commitments that are entered into in the normal course of business, some of which are recorded in our consolidated balance sheet. We believe our off-balance sheet arrangements do not have a material current or anticipated future effect on our consolidated earnings, financial position, and/or cash flows. \nPresented below is a summary of our off-balance sheet contractual obligations and other minimum commercial commitments at April\u00a028, 2023, as well as long-term contractual obligations reflected in the balance sheet at April\u00a028, 2023.\n\u00a0\nMaturity by Fiscal Year\n(in millions)\nTotal\n2024\n2025\n2026\n2027\n2028\nThereafter\nContractual obligations related to off-balance sheet arrangements:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nCommitments to fund minority investments, milestone payments, and royalty obligations\n(1)\n$\n397\u00a0\n$\n155\u00a0\n$\n91\u00a0\n$\n93\u00a0\n$\n38\u00a0\n$\n18\u00a0\n$\n3\u00a0\nInterest payments\n(2)\n7,476\u00a0\n531\u00a0\n522\u00a0\n522\u00a0\n505\u00a0\n487\u00a0\n4,908\u00a0\nOther\n(3)\n2,022\u00a0\n688\u00a0\n396\u00a0\n300\u00a0\n278\u00a0\n239\u00a0\n122\u00a0\nContractual obligations reflected in the balance sheet\n(4)\n:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nDebt obligations\n(5)\n$\n24,553\u00a0\n$\n20\u00a0\n$\n7\u00a0\n$\n2,750\u00a0\n$\n1,652\u00a0\n$\n1,005\u00a0\n$\n19,119\u00a0\nOperating leases\n1,160\u00a0\n204\u00a0\n171\u00a0\n144\u00a0\n121\u00a0\n94\u00a0\n426\u00a0\nContingent consideration\n(6)\n206\u00a0\n28\u00a0\n49\u00a0\n73\u00a0\n56\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTax obligations\n(7)\n1,320\u00a0\n330\u00a0\n440\u00a0\n550\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(1)\nIncludes commitments related to the funding of minority investments, estimated milestone payments, and royalty obligations. While it is not certain if and/or when payments will be made, the maturity dates included in the table reflect our best estimates. \n(2)\nIncludes the contractual interest payments on our outstanding debt and excludes the impacts of debt premium and discount amortization. See Note 6 to the consolidated financial statements in \u201cItem 8. Financial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K for additional information on our debt agreements.\n(3)\nIncludes inventory purchase commitments, research and development, and other arrangements that are legally binding and specify minimum purchase quantities or spending amounts. These purchase commitments do not exceed our projected requirements and are in the normal course of business. Excludes open purchase orders with a remaining term of less than one year.\n(4)\nExcludes defined benefit plan obligations, guarantee obligations, uncertain tax positions, non-current tax liabilities, and litigation settlements for which we cannot make a reliable estimate of the period of cash settlement. For further information, see Notes 13, 15, and 18 to the consolidated financial statements in \u201cItem 8. Financial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K.\n(5)\nIncludes the current and non-current portion of our Senior Notes and bank borrowings. Excludes debt premium and discounts and commercial paper. See Note 6 to the consolidated financial statements in \u201cItem 8. Financial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K for additional information on our debt agreements.\n(6)\nIncludes the fair value of our current and non-current portions of contingent consideration. While it is not certain if and/or when payments will be made, the maturity dates included in this table reflect our best estimates. \n(7)\nRepresents the tax obligations associated with the transition tax that resulted from U.S. Tax Reform. The transition tax will be paid over an eight-year period and will not accrue interest. See Note 13 to the consolidated financial statements in \u201cItem 8. Financial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K for further information.\nIn the normal course of business, we periodically enter into agreements that require us to indemnify customers or suppliers for specific risks, such as claims for injury or property damage arising as a result of our products or the negligence of our personnel or claims alleging that our products infringe third-party patents or other intellectual property. Our maximum exposure under these indemnification provisions is unable to be estimated, and we have not accrued any liabilities within our consolidated financial statements or included any indemnification provisions in the table above. Historically, we have not experienced significant losses on these types of indemnification agreements. \nNote 18 to the consolidated financial statements in \"Item 8. Financial Statements and Supplementary Data\" in this Annual Report on Form 10-K provides information regarding amounts we have accrued related to legal matters. In accordance with U.S. GAAP, we record a liability in our consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. Actual settlements may be different than estimated and could have a material effect on our consolidated earnings, financial position, and/or cash flows.\nWe record tax liabilities in our consolidated financial statements for amounts that we expect to repatriate from subsidiaries (to the extent the repatriation would be subject to tax); however, no tax liabilities are recorded for amounts we consider to be permanently reinvested. We expect to have access to the majority of our cash flows in the future. In addition, we continue to evaluate our legal entity structure supporting our business operations, and to the extent such evaluation results in a change to our overall business structure, we may be required to accrue for additional tax obligations.\n47\nTable of C\nontents\nBeyond the contractual obligations and other minimum commercial commitments outlined above, we have recurring cash requirements arising from the normal operation of our business that include capital expenditures, research and developments costs, and other operational costs. \nWe believe our balance sheet and liquidity provide us with flexibility, and our cash, cash equivalents, current investments, Credit Facility and related commercial paper programs, as well as our ability to generate operating cash flows, will satisfy our current and future contractual obligations and cash requirements.\u00a0We regularly review our capital needs and consider various investing and financing alternatives to support our requirements.\nACQUISITIONS\nEOFlow Co. Ltd Acquisition\nSubsequent to fiscal year 2023, on May 25, 2023, the Company entered into a set of definitive agreements to acquire EOFlow Co. Ltd. (EOFlow), manufacturer of the EOPatch device \u2013  a tubeless, wearable and fully disposable insulin delivery device. The acquisition expands the Diabetes segment portfolio of products. To the extent that all the public shares participate in the tender offer, the total consideration for the acquisition of the shares in EOFlow would be KRW 971 billion, or $738 million, at exchange rates on May 25, 2023. The acquisition is expected to close in the second half of calendar year 2023 subject to the satisfaction of the minimum tender condition and certain customary closing conditions, including receipt of required regulatory clearances. \nAdditional information regarding acquisitions is included in Note 3 of the consolidated financial statements in \"Item 8. Financial Statements and Supplementary Data\" within this Annual Report on Form 10-K.\nCRITICAL ACCOUNTING ESTIMATES\nWe have used various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are disclosed in Note 1 to the consolidated financial statements in \"Item 8. Financial Statements and Supplementary Data\" in this Annual Report on Form 10-K. \nThe preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires us to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates reflect our best judgment about economic and market conditions and the potential effects on the valuation and/or carrying value of assets and liabilities based upon relevant information available. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. \nOur critical accounting estimates include the following:\nRevenue Recognition\n   The Company sells its products through direct sales representatives and independent distributors. Additionally, a portion of the Company's revenue is generated from consignment inventory maintained at hospitals and royalty and intellectual property arrangements. The Company recognizes revenue when control is transferred to the customer. For products sold through direct sales representatives and independent distributors, control is transferred upon shipment or upon delivery, based on the contract terms and legal requirements. For consignment inventory, control is transferred when the product is used or implanted. Payment terms vary depending on the country of sale, type of customer, and type of product.\nThe amount of revenue recognized reflects sales rebates and returns, which are estimated based on sales terms, historical experience, and trend analysis. In estimating rebates, the Company considers the lag time between the point of sale and the payment of the rebate claim, the stated rebate rates, and other relevant information. The Company records adjustments to rebates and returns reserves as increases or decreases of revenue. \nLitigation Contingencies\n   We are involved in a number of legal actions involving product liability, intellectual property and commercial disputes, shareholder related matters, environmental proceedings, tax disputes, and governmental proceedings and investigations. The outcomes of these legal actions are not completely within our control and may not be known for prolonged periods of time. In some actions, the enforcement agencies or private claimants seek damages, as well as other civil or criminal remedies (including injunctions barring the sale of products that are the subject of the proceeding), that could require significant expenditures or result in lost revenues or limit our ability to conduct business in the applicable jurisdictions. Estimating probable losses from our litigation and governmental proceedings is inherently difficult, particularly when the matters are in early procedural stages, with incomplete scientific facts or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve penalties, fines, or punitive damages; or could result in a change in business practice. The Company records a liability in the consolidated financial statements for loss contingencies when a loss is known or considered probable, and the amount may be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. Our significant legal proceedings \n48\nTable of C\nontents\nare discussed in Note 18 to the consolidated financial statements in \"Item 8. Financial Statements and Supplementary Data\" in this Annual Report on Form 10-K.\nIncome Tax Reserves  \n We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and that we may or may not prevail. Under U.S. GAAP, if we determine that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the benefit. We measure the benefit by determining the amount that is greater than 50 percent likely of being realized upon settlement. We presume that all tax positions will be examined by a taxing authority with full knowledge of all relevant information. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We regularly monitor our tax positions and tax liabilities. We reevaluate the technical merits of our tax positions and recognize an uncertain tax benefit, or derecognize a previously recorded tax benefit, when there is (i) a completion of a tax audit, (ii) effective settlement of an issue, (iii) a change in applicable tax law including a tax case or legislative guidance, or (iv) the expiration of the applicable statute of limitations. These reserves are subject to a high degree of estimation and management judgment. Although we believe that we have adequately reserved for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on our effective tax rate, consolidated earnings, financial position and/or cash flows.\nValuation of Intangible Assets and Goodwill   \nWhen we acquire a business, the assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. Goodwill is the excess of the purchase price over the estimated fair value of net assets of acquired businesses. Intangible assets primarily include patents, trademarks, tradenames, customer relationships, purchased technology, and in-process research and development. Determining the fair value of intangible assets acquired as part of a business combination requires us to make significant estimates. These estimates include the amount and timing of projected future cash flows of each project or technology, the discount rate used to discount those cash flows to present value, and the assessment of the asset\u2019s life cycle. The estimates could be impacted by legal, technical, regulatory, economic, and competitive risks.\nThe test for impairment of goodwill requires us to make several estimates related to projected future cash flows to determine the fair value of the goodwill reporting units. Our estimates associated with the goodwill impairment test are considered critical due to the amount of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value. We assess the impairment of goodwill at the reporting unit level annually as of the first day of the third quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired. \nWe also test definite-lived intangible assets for impairment when an event occurs or circumstances change that would indicate the carrying amount of the assets or asset group may be impaired. We assess the impairment of indefinite-lived intangible assets annually in the third quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired.\nOur tests for goodwill and intangible assets are based on future cash flows that require significant judgment with respect to future revenue and expense growth rates, appropriate discount rates, asset groupings, and other assumptions and estimates. We use estimates that are consistent with the highest and best use of the assets based on a market participant's view of the assets being evaluated. Actual results may differ from our estimates due to a number of factors including, among others, changes in competitive conditions, timing of regulatory approval, results of clinical trials, changes in worldwide economic conditions, and fluctuations in currency exchange rates. \nNEW ACCOUNTING PRONOUNCEMENTS\nInformation regarding new accounting pronouncements is included in Note 1 to the consolidated financial statements in \u201cItem 8. Financial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K.\n49\nTable of C\nontents\nSUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION \nMedtronic plc and Medtronic Global Holdings S.C.A. (Medtronic Luxco), a wholly-owned subsidiary guarantor, each have provided full and unconditional guarantees of the obligations of Medtronic, Inc., a wholly-owned subsidiary issuer, under the Senior Notes (Medtronic Senior Notes) and full and unconditional guarantees of the obligations of Covidien International Finance S.A. (CIFSA), a wholly-owned subsidiary issuer, under the Senior Notes (CIFSA Senior Notes). The guarantees of the CIFSA Senior Notes are in addition to the guarantees of the CIFSA Senior Notes by Covidien Ltd. and Covidien Group Holdings Ltd., both of which are wholly-owned subsidiary guarantors of the CIFSA Senior Notes. Medtronic plc and Medtronic, Inc. each have provided a full and unconditional guarantee of the obligations of Medtronic Luxco under the Senior Notes (Medtronic Luxco Senior Notes). The following is a summary of these guarantees:\nGuarantees of Medtronic Senior Notes\n\u2022\nParent Company Guarantor - Medtronic plc\n\u2022\nSubsidiary Issuer - Medtronic, Inc.\n\u2022\nSubsidiary Guarantor - Medtronic Luxco\nGuarantees of Medtronic Luxco Senior Notes\n\u2022\nParent Company Guarantor - Medtronic plc\n\u2022\nSubsidiary Issuer - Medtronic Luxco\n\u2022\nSubsidiary Guarantor - Medtronic, Inc.\nGuarantees of CIFSA Senior Notes\n\u2022\nParent Company Guarantor - Medtronic plc\n\u2022\nSubsidiary Issuer - CIFSA\n\u2022\nSubsidiary Guarantors - Medtronic Luxco, Covidien Ltd., and Covidien Group Holdings Ltd. (CIFSA Subsidiary Guarantors)\nThe following tables present summarized financial information for the fiscal year ended April\u00a028, 2023 for the obligor groups of Medtronic and Medtronic Luxco Senior Notes, and CIFSA Senior Notes. The obligor group consists of the parent company guarantor, subsidiary issuer, and subsidiary guarantors for the applicable senior notes. The summarized financial information is presented after elimination of (i) intercompany transactions and balances among the guarantors and issuers and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor or issuer.\nThe summarized results of operations information for the fiscal year ended April\u00a028, 2023 was as follows:\n(in millions)\nMedtronic & Medtronic Luxco Senior Notes \n(1)\nCIFSA Senior Notes\n (2)\nNet sales\n$\n2,847\u00a0\n$\n\u2014\u00a0\nOperating profit (loss)\n608\u00a0\n(407)\nLoss before income taxes\n(913)\n(1,868)\nNet loss attributable to Medtronic\n(1,705)\n(1,861)\nThe summarized balance sheet information for the fiscal year ended April\u00a028, 2023 was as follows:\n(in millions)\nMedtronic & Medtronic Luxco Senior Notes \n(1)\nCIFSA Senior Notes\n (2)\nTotal current assets\n(3)\n$\n23,198\u00a0\n$\n8,344\u00a0\nTotal noncurrent assets\n(4)\n5,897\u00a0\n3\u00a0\nTotal current liabilities\n(5)\n33,854\u00a0\n25,184\u00a0\nTotal noncurrent liabilities\n(6)\n59,624\u00a0\n66,449\u00a0\nNoncontrolling interests\n182\u00a0\n182\u00a0\n(1)\nThe Medtronic Senior Notes and Medtronic Luxco Senior Notes obligor group consists of the following entities: Medtronic plc, Medtronic Luxco, and Medtronic, Inc. Refer to the guarantee summary above for further details.\n(2)\nThe CIFSA Senior Notes obligor group consists of the following entities: Medtronic plc, Medtronic Luxco, CIFSA, and CIFSA Subsidiary Guarantors. Please refer to the guarantee summary above for further details.\n(3)\nIncludes receivables due from non-guarantor subsidiaries of $22.5\u00a0billion and $8.3\u00a0billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.\n(4)\nIncludes loans receivable due from non-guarantor subsidiaries of $20\u00a0million for Medtronic & Medtronic Luxco Senior Notes. No loans receivable due from non-guarantor subsidiaries for CIFSA Senior Notes.\n(5)\nIncludes payables due to non-guarantor subsidiaries of $31.8\u00a0billion and $25.0\u00a0billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.\n(6)\nIncludes loans payable due to non-guarantor subsidiaries of $33.1\u00a0billion and $46.7\u00a0billion for Medtronic & Medtronic Luxco Senior Notes, and CIFSA Senior Notes, respectively.\n50\nTable of C\nontents",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk\nCURRENCY EXCHANGE RATE RISK\nDue to the global nature of our operations, we are exposed to currency exchange rate changes, which may cause fluctuations in earnings and cash flows. Fluctuations in the currency exchange rates of currency exposures that are unhedged, such as in certain emerging markets, may result in future earnings and cash flow volatility. The gross notional amount of all currency exchange rate derivative instruments outstanding at April\u00a028, 2023 and April\u00a029, 2022 was $22.0\u00a0billion and $13.8 billion, respectively. At April\u00a028, 2023, these contracts were in a net unrealized gain position of $132 million. Additional information regarding our currency exchange rate derivative instruments is included in Note 7 to the consolidated financial statements in \u201cItem 8. Financial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K.\nA sensitivity analysis of changes in the fair value of all currency exchange rate derivative contracts at April\u00a028, 2023 and April\u00a029, 2022 indicates that, if the U.S. dollar uniformly strengthened/weakened by 10 percent against all currencies, it would have the following impact on the fair value of these contracts:\nIncrease (decrease)\n(in millions)\nApril 28, 2023\nApril 29, 2022\n10% appreciation in the U.S. dollar\n$\n1,548\u00a0\n$\n903\u00a0\n10% depreciation in the U.S. dollar\n(1,548)\n(903)\nAny gains and losses on the fair value of derivative contracts would generally be offset by gains and losses on the underlying transactions. These offsetting gains and losses are not reflected in the above analysis. \nINTEREST RATE RISK\nWe are subject to interest rate risk on our short-term investments and our borrowings. We manage interest rate risk in the aggregate, while focusing on our immediate and intermediate liquidity needs. Our debt portfolio at April\u00a028, 2023 was comprised of debt predominantly denominated in U.S. dollars and Euros, of which substantially all is fixed rate debt. We are also exposed to interest rate changes affecting our investments in interest rate sensitive instruments, which include our marketable debt securities.\nA sensitivity analysis of the impact on our interest rate-sensitive financial instruments of a hypothetical 10 basis point change in interest rates, as compared to interest rates at April\u00a028, 2023 and April\u00a029, 2022, would have the following impact on the fair value of these instruments:\nIncrease (decrease)\n(in millions)\nApril 28, 2023\nApril 29, 2022\n10 basis point increase in interest rates\n$\n63\u00a0\n$\n53\u00a0\n10 basis point decrease in interest rates\n(63)\n(53)\nFor a discussion of current market conditions and the impact on our financial condition and results of operations, see the \u201cLiquidity\u201d section of the Management's Discussion and Analysis in \"Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\" in this Annual Report on Form 10-K. For additional discussion of market risk, see Notes 5 and 7 to the consolidated financial statements in \u201cItem 8. Financial Statements and Supplementary Data\u201d in this Annual Report on Form 10-K.\n51\nTable of C\nontents",
+  "cik": "1613103",
+  "cusip6": "G5960L",
+  "cusip": ["g5960l103", "G5960L038", "G5960L103", "G5960l103", "G5960L953", "G5960L903"],
+  "names": ["Medtronic", "PLC", "Medtronic PLC", "MEDTRONIC PLC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1613103/000161310323000040/0001613103-23-000040-index.htm"
+}
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+{
+  "item1": ">Item\u00a01. Business\nCompany Overview and History\nGMS\u00a0Inc. (together with its consolidated subsidiaries, \u201cwe,\u201d \u201cour,\u201d \u201cus,\u201d \u201cGMS\u201d or the \u201cCompany\u201d), through its operating subsidiaries, operates a network of more than 300 distribution centers with extensive product offerings of wallboard, ceilings, steel framing and complementary construction products. We also operate more than 100 tool sales, rental and service centers. Through these operations, we provide a comprehensive selection of building products and solutions for our residential and commercial contractor customer base across the United States and Canada. Our unique operating model combines the benefits of a national platform and strategy with a local go-to-market focus, enabling us to generate significant economies of scale while maintaining high levels of customer service.\nSince our founding in 1971, we have grown our business from a single location to more than 400 branches and tool sales, rental and service centers across 47 U.S. states and six Canadian provinces through a combination of strategic acquisitions and organic growth, including the opening of new branches (\u201cgreenfields\u201d) and tool sales, rental and service centers. Underpinning that growth is our entrepreneurial culture, which both enables us to drive organic growth by delivering outstanding customer service and makes us an attractive acquirer for smaller distributors. \nDuring fiscal 2023, this growth included four acquisitions and the opening of six greenfield locations and eleven new Ames tool sales, rental and service centers. On June 1, 2022, we acquired certain assets of Construction Supply of Southwest Florida, Inc., a distributor of various stucco, building and waterproofing supplies serving markets in the southwest Florida area. On December 30, 2022, we acquired certain assets of Tanner Bolt and Nut, Inc., a distributor of various tools, fasteners, sealants, and related construction products to the broader New York City market. On April 3, 2023, we acquired certain assets of Blair Building Materials, Inc., a distributor of exterior, insulation, and waterproofing products to customers in the Greater Toronto Area. Also on April 3, 2023, we acquired Engler, Meier and Justus, Inc., a leading distributor of drywall, acoustical ceilings and related interior construction products to the greater Chicago market and exterior insulation finishing systems (\"EIFS\") related products in the Southeastern United States. \nAlso during fiscal 2023, we opened greenfield locations in Wildwood, Florida; Cleveland, Ohio; Greenville, North Carolina; Brooklyn, New York; Chester, Virginia; and Ottawa, Ontario.\nBusiness Strategy\nThe key elements of our business strategy are as follows:\n\u2022\nExpand Core Products\n. Our business strategy includes an emphasis on expanding our market share in our core products (wallboard, ceilings and steel framing) both organically and through acquisitions. \n\u2022\nGrow Complementary Products\n. We are focused on growing our complementary product lines, with a particular emphasis on achieving growth in tools and fasteners, insulation and EIFS and stucco, to better serve our customers, and to diversify and expand our product offerings while driving higher sales and margins.\n\u2022\nExpand our Platform\n. Our growth strategy includes the pursuit of both greenfield openings and strategic acquisitions to further broaden our geographic markets, enhance our service levels and expand our product offerings. \u00a0\u00a0\u00a0\u00a0\n\u25e6\nGreenfield openings\n. Our strategy for opening new branches is generally to further penetrate existing markets or adjacent markets to our operations. For adjacent markets, typically, we have pre-existing customer relationships in these markets but need a new location to fully capitalize on those relationships. \n\u25e6\nAcquisitions\n. We have a proven history of consummating complementary acquisitions in new and contiguous markets. Due to the large, highly fragmented nature of our markets and our reputation throughout the industry, we believe we will continue to have access to a robust acquisition pipeline to supplement our organic growth. We use a rigorous targeting process to identify acquisition candidates that we believe will fit our culture and business model and we have built an experienced team of professionals to manage the acquisition and integration processes. As a result of our scale, purchasing power and ability to improve \n3\nTable of Contents\noperations through implementing best practices, we believe we can continue to achieve substantial synergies and drive earnings accretion from our acquisition strategy. \n\u2022\nDrive Improved Productivity and Profitability\n. Our business strategy entails a focus on enhanced productivity and profitability across the organization, seeking to leverage our scale and employ both technology and other best practices to deliver further margin expansion and earnings growth. We also expect to continue to capture profitable market share in our existing footprint by delivering industry-leading customer service. \nProducts\nWe provide a comprehensive product offering of wallboard, ceilings, steel framing and complementary construction products. By carrying a full line of wallboard and ceilings along with steel framing and complementary products, we serve as a one-stop-shop for our customers. For information on net sales of our products, see Note\u00a016, \u201cSegments\u201d of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.\nWallboard\nWallboard is one of the most widely used building products for interior and exterior walls and ceilings in residential and commercial structures due to its low cost, ease of installation and superior performance in providing comfort, fire resistance, thermal insulation, sound insulation, mold and moisture resistance, impact resistance, aesthetics and design elements. Wallboard is sold in panels of various dimensions, suited to various applications. In commercial and institutional construction projects, architectural specifications and building codes provide requirements related to the thickness of the panels and, in some cases, other characteristics, including fire resistance. In addition, there are wallboard products that provide some additional value in use. These include lighter weight panels, panels with additional sound insulation, and panels coated to provide mold and moisture resistance. In addition to the interior wallboard products described above, exterior sheathing is a water-resistant wallboard product designed for attachment to exterior sidewall framing as an underlayment for various exterior siding materials.\nWhile highly visible and essential, wallboard typically comprises less than 5% of a new home\u2019s total cost. Given its low price point relative to other materials, we believe that there is currently no economical substitute for wallboard in either residential or commercial applications. Wallboard demand is driven by a balanced mix of both residential and commercial new construction as well as repair and remodeling (\u201cR&R\u201d) activity.\nCeilings\nOur ceilings product line consists of suspended mineral fiber, soft fiber and metal ceiling systems primarily used in offices, hotels, hospitals, retail facilities, schools and a variety of other commercial and institutional buildings. The principal components of our ceiling systems are typically square mineral fiber tiles and the metal grid that holds the tile in place, complemented by architectural specialty products in certain applications. Architectural specialty ceiling products, which are made from a variety of materials, are a growing component of our product offering given their specified, often customized nature and our ability to service customer requirements through a dedicated and experienced sales force focused on such products.\nOur ceilings product line is primarily sold into commercial and institutional applications. Because interior contractors frequently purchase ceilings and wallboard from the same distributor, the breadth of our offerings serves to increase sales of all of our product lines, which are often delivered together to the same worksite as part of a commercial package. In the ceilings market, brand is highly valued and often specified by the architect of a commercial building. Because of our strong market position, we have exclusive access to the leading ceilings brands in many of our local markets. In addition, because ceiling tile systems differ in size, shape, performance characteristics and aesthetic appeal between manufacturers, they often can only be replaced with the same brand for R&R projects. As a result, the leading brands\u2019 installed base of product generates built-in demand for replacement product over time, and we benefit from these recurring sales.\nSteel Framing\nOur steel framing product line consists of steel track, studs and the various other steel products used to frame the interior walls of a commercial or institutional building. Typically, the contractor who installs the steel framing also installs the wallboard, and the two products, along with ceilings, insulation and complementary products are sold together as part of a commercial package. Most of our steel framing products are sold for use in commercial buildings.\n4\nTable of Contents\nComplementary Products\nWe offer our customers complementary products, including tools and fasteners, insulation, EIFS and stucco, lumber and other wood products, ready-mix joint compound and safety products. We partner with leading vendors for many of these products and merchandise them in showrooms that are adjacent to many of our warehouses or free-standing, in the case of our Ames tool sales, rental and service centers. In addition, certain products are provided on a regional basis to address local preferences. We believe our customers value our product breadth and geographic reach, as well as our delivery capabilities and on-site expertise and consultation services. While pricing is important to our customers, availability, convenience and expertise are also important factors in their purchase decisions. These complementary products allow us to provide a full suite of products across our entire business, enhancing our margins and creating value for our customers. In recent years, through specific initiatives and strategic acquisitions, we have expanded our complementary product lines to further solidify our position as a one-stop-shop for the interior contractor and gain a greater share of their overall purchases. We are the leading provider of automatic taping and finishing (\"ATF\") tools and related products to the professional drywall finishing industry. ATF tools enable interior finishing contractors to finish drywall joints faster than less productive hand finishing methods.   \nDistribution\nWe distribute our core products and most complementary products through our distribution centers. We distribute ATF tools and related tools and products through our tool sales, rental and service centers and an independent network of wholesale dealers. We also distribute our products through e-commerce platforms. \nWe serve as a critical link between our suppliers and our fragmented customer base. Our sales, dispatch and delivery teams coordinate an often complicated, customized delivery plan to ensure that our delivery schedule matches the customer\u2019s job site schedule, that deliveries are made taking into account the specific challenges of a customer\u2019s job site, that no damage occurs to the customer\u2019s property and, most importantly, that proper safety procedures are followed at all times. Often this requires us to send an employee to a job site before the delivery to document the specific requirements and safety considerations of a particular location. Given the logistical intensity of this process and the premium contractors place on distributors delivering the right product, at the right time, in the right place, we can differentiate ourselves based on service. In addition to executing a logistics-intensive service, we facilitate purchasing relationships between suppliers and our customer base by transferring technical product knowledge, educating contractors on proper installation techniques for new products, ensuring local product availability and extending trade credit.\n \nAdditionally, based on certain unique product attributes and delivery requirements for some of our products, the distribution of these items requires a higher degree of logistics and service expertise than most other building products. For example, wallboard has a high weight-to-value ratio, is easily damaged, cannot be left outside and often must be delivered to a job site before or after normal business hours. As a value-added service, we often deliver our products directly to the specific room where they are installed. For example, we can place the amount and type of wallboard necessary for a fifth story room of a new building through the fifth story window using a specialized truck with an articulating boom loader. To do this effectively, we need to load the truck at the branch so that the amount and type of wallboard for each room of the building can be off-loaded by the articulating boom loader in the right sequence. In this way, the service we provide delivers significant value to our customers.\nOur Industry\nAs the construction market in North America evolved during the second half of the 20th\u00a0century, contractors began to specialize in specific trades within the construction process, and specialty distributors emerged to supply them. We, along with other specialty distributors, tailored our product offerings and service capabilities to meet the unique needs of these trades. Today, specialty distributors comprise the preferred distribution channel for wallboard, ceilings and steel framing in both the commercial and residential construction markets. In addition to focusing on their core products, specialty distributors also offer additional and ancillary products, which are complementary to their main products in an effort to provide their customers with a full suite of relevant products and to drive additional sales and margin opportunities. For us, these products include tools and fasteners, insulation, EIFS and stucco, lumber and other wood products, ready-mix joint compound, safety products and various other construction products.\nWe believe the success of the specialty distribution model in wallboard, ceilings and steel framing is driven by the strong value proposition we provide to our customers. Given the logistical complexity of the distribution services we provide to safely deliver and stock the right products to the appropriate locations, the expertise needed to execute safely and effectively, and the special equipment required, we believe specialty distributors with sufficient scale that are focused on wallboard, \n5\nTable of Contents\nceilings and steel framing are best suited to meet contractors\u2019 needs. The main drivers for our products are commercial new construction, commercial R&R, residential new construction and residential R&R.\nCommercial\nOur addressable commercial construction market is comprised of a variety of commercial and institutional sub-segments with varying demand drivers. Our commercial markets include offices, hotels, retail stores, warehouses and other commercial buildings, while our institutional markets include educational facilities, healthcare facilities, government buildings and other institutional facilities. The principal demand drivers across these markets typically include the overall economic outlook, the general business cycle, government spending, vacancy rates, employment trends, interest rates, availability of credit and demographic trends.\nWe believe commercial R&R spending has historically been more stable than new commercial construction activity. Commercial R&R spending is typically driven by several factors, including commercial real estate prices and rental rates, office and retail vacancy rates, government spending and interest rates. Commercial R&R spending is also driven by commercial lease expirations and renewals, as well as tenant turnover. Such events often result in repair, reconfiguration and/or upgrading of existing commercial space. Commercial R&R activity was severely impacted by the COVID-19 pandemic (\"COVID-19\") and has been slow to recover in certain of its sectors. However, we are starting to see some improvement, including stronger year-over-year commercial wallboard sales and volumes.\nResidential\nResidential new construction activity is driven by several factors, including demographics, the overall economic outlook, employment, income growth, availability of housing, home prices, availability of mortgage financing and related government regulations, interest rates and consumer confidence, among others.\nWe believe residential R&R activity is typically more stable than new residential construction activity. The primary drivers of residential R&R spending include changes in existing home prices, existing home sales, the average age of the housing stock, consumer confidence and interest rates.\nCustomers\nWe have a diversified portfolio of customers across the United States and Canada that includes professional contractors and homebuilders. Our customers vary in size, ranging from small contractors to large contractors and builders that operate on a national scale. We maintain local relationships with our contractors through our network of branches and our extensive salesforce. We also serve our large homebuilder customers through our local branches, but often coordinate the relationships on a national basis through our corporate facility. Our ability to serve multi-regional homebuilders across their footprints provides value to them and differentiates us from most of our competitors. \nSuppliers\nWe source the products we distribute from various suppliers and purchase components used in assembling ATF tools. Our leading market position, North American footprint and superior service capabilities have allowed us to develop strong relationships with our suppliers. We maintain strong, long-term relationships with the major North American wallboard, ceilings, steel and insulation manufacturers, as well as vendors of other complementary building products, where the supply base is widely fragmented. Because we account for a meaningful portion of their volumes and provide them with an extensive salesforce to market their products, we are viewed by our suppliers as a key channel partner and have exclusive relationships with these suppliers in certain markets. We believe this position often provides us with advantaged procurement. \nSales and Marketing\nOur sales and marketing strategy is to provide a comprehensive suite of high-quality products and superior services to contractors and builders reliably, safely, accurately and on-time. We have an experienced sales force who manages our customer relationships and grows our customer base. We have strategies to increase our customer base at both the corporate and local branch levels, which focus on building and growing strong relationships with our customers, whether they serve a small local market, or a national footprint. We believe that the experience and expertise of our sales force differentiates us from our competition, particularly in the commercial market, which requires a highly technical and specialized product knowledge and a sophisticated delivery plan. We also employ various marketing strategies to reach our customers in the most efficient and \n6\nTable of Contents\neffective manner. We market our products through our websites, social media, targeted advertisements and a range of industry trade shows. \nCompetition\nWe compete against other specialty distributors as well as big box retailers and lumberyards. Among specialty distributors, we compete against a few large distributors and many small, local, privately-owned distributors. Our largest competitors are Foundation Building Materials, L&W Supply\u00a0Co.\u00a0Inc (a subsidiary of ABC Supply Company), Home Depot and Lowe's. However, we believe smaller, regional or local competitors still comprise a significant proportion of the industry. The principal competitive factors in our business are pricing and availability of products and services; our delivery capabilities; technical product knowledge and expertise; advisory or other service capabilities; and availability of credit. Brand recognition with respect to our complementary products is also important.\nSeasonality\nGenerally, our sales volume is higher in the first and second quarters of our fiscal year due to favorable weather and longer daylight conditions during these periods. Seasonal variations in operating results may be impacted by inclement weather conditions, such as cold or wet weather, which can delay construction projects. We anticipate that we will continue to experience these seasonal fluctuations in the future.\nIntellectual Property\nWe own numerous intellectual property rights that we use in our business, including trademarks, tradenames, domains and patents. We maintain registered trademarks for the trade names and logos used by certain of our local branches, including Ames\u00ae stores and TapeTech\u00ae products. We also hold patents that relate to the design of our ATF tools. Generally, registered trademarks have a perpetual life, provided that they are renewed on a timely basis and continue to be used properly as trademarks. We intend to maintain these trademark registrations as long as they remain valuable to our business. While we do not believe our business is dependent on any one of our trademarks, we believe retention helps maintain customer loyalty. We vigorously protect all our intellectual property rights.\nEnvironmental, Social and Governance (ESG)\nEnvironmental\nAs a leading North American distributor of specialty building products, we recognize the importance of reducing the environmental impact of our business operations. We are committed to conducting business in a manner that aligns with our values, promotes environmental sustainability and seeks to protect the environment through compliance with applicable laws, rules, and regulations. In our operations, we are committed to achieving higher levels of efficiency and pursuing a policy of continuous improvement to reduce the environmental impact of our business operations. Our environmental responsibility policy applies to GMS and all of our subsidiaries, regardless of location. Furthermore, while we are not the manufacturer of any of the products in our portfolio, we feel we have a joint responsibility with our manufacturing and other partners throughout the supply chain network to work together to reduce the environmental impact of our supply chain. We have several ongoing environmental projects underway, including capturing our greenhouse gas emissions and analyzing potential projects to further reduce our environmental impacts.\nSocial - Human Capital\nEmployees\n. We had 7,007 and 6,719 active team members as of April\u00a030, 2023 and 2022, respectively. Approximately 6% of our workforce is unionized, consisting primarily of hourly workers at some of our distribution facilities. We believe that we have good relations with our employees. Additionally, we believe that the training provided through our employee development programs and our entrepreneurial, performance-based culture provides significant benefits to our employees.\nHealth, Safety and Wellness\n. Providing a safe work environment for our employees, contractors, and customers is a primary objective of GMS and our family of companies. Our goal is to incur zero accidents and to ensure that everyone goes home safely at the end of every day. To achieve our goal, we abide by all safety requirements and regulations, and we endeavor to eliminate unsafe conditions and minimize related risks by identifying and supporting safe work practices, promoting safety awareness, providing employee training and education, and furnishing protective equipment. Safety is a constant focus of our management team with regular reporting to, and oversight by, our Board of Directors. We work together to protect our \n7\nTable of Contents\nemployees, contractors, and customers by promoting a culture of shared responsibility with collaborative program development, best practices, and the open exchange of suggestions, ideas, and concerns.\nInclusion and Diversity\n. Every person is important to us and as such, we have a responsibility to foster a workplace that values contributions and perspectives from a variety of backgrounds, skills and experiences regardless of race, color, age, sex, national origin, religion, marital status, sexual orientation, gender identity, gender expression, disability, or veteran status. Our differences make us a stronger team and the diversity in our thoughts and ideas makes us better able to serve our customers and other stakeholders. Both our Board of Directors and Leadership Team are committed to fulfilling this responsibility and recognize our work here is never done.\nWe have a company-wide inclusion and diversity program designed to support an inclusive and diverse work environment and have formalized training and recruitment programs. We have a manager of inclusion and diversity who has managerial responsibility for our inclusion and diversity program with quarterly oversight by our Board of Directors through the Human Capital Management and Compensation Committee.\nCompensation and Benefits. \nWe are committed to providing our employees with a competitive compensation package that rewards performance and the achievement of desired business results. Our total compensation package includes, depending on the position, cash compensation (wages or base salary and incentive or bonus payments), company contributions toward additional benefits (such as health and disability plans), retirement plans with a company match and paid time off. We also offer the opportunity to become a stockholder through equity grants for management and our employee stock purchase plan. We analyze our compensation and benefits programs annually to ensure we remain competitive and make changes, as necessary.\nGovernance\nOur Board and management team are committed to strong corporate governance that reflects high standards of ethics and integrity. We believe that strong corporate governance helps to ensure that the Company is managed for the long-term benefits of our stockholders and helps build public trust. We regularly review and consider our corporate governance policies and practices in the context of current corporate governance trends, regulatory changes and recognized best practices, taking into consideration the perspectives of our stockholders. As a result of this continued evaluation, we have taken numerous actions to strengthen our corporate governance practices over the past several years, which include adding four independent directors, two female directors and two African American directors, declassifying our board of directors and eliminating certain supermajority voting requirements.\nAvailable Information\nWe are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, we file reports, proxy and information statements and other information with the Securities and Exchange Commission (\u201cSEC\u201d). Our Annual Report on Form\u00a010-K, Quarterly Reports on Form\u00a010-Q, Current Reports on Form\u00a08-K, and any amendments to these reports filed or furnished pursuant to Section\u00a013(a) or 15(d) of the Exchange Act are available through the investor relations section of our website at www.gms.com. Reports are available free of charge as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The information contained on our website is not incorporated by reference into this Annual Report on Form\u00a010-K.\nIn addition to our website, you may read and copy public reports we file with or furnish to the SEC at the SEC\u2019s Public Reference Room at 100\u00a0F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains our reports, proxy and information statements, and other information that we file electronically with the SEC at www.sec.gov.\n8\nTable of Contents",
+  "item1a": ">Item 1A. Risk Factors\nThe following risk factors may be important to understanding any statement in this Annual Report on Form\u00a010-K or elsewhere. Our business, financial condition and results of operations can be affected by several factors, whether currently known or unknown, including but not limited to those described below. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations and cash flows.\nRisks Relating to our Industry and Economic Conditions\nOur business is affected by general business, financial market and economic conditions, which could adversely affect our results of operations.\n\u00a0\nOur business and results of operations are dependent on the commercial and residential construction and R&R markets, which are significantly affected by general business, financial market and economic conditions in the United States and Canada. An economic downturn or recession in the global economy could have a material adverse impact on our business, financial condition, results of operations and cash flows. General business, financial markets and economic conditions that impact the level of activity in the commercial and residential construction and R&R markets include, among others, interest rate fluctuations, inflation, unemployment levels, tax rates and policy, capital spending, bankruptcies, volatility in both the debt and equity capital markets, liquidity of the global financial markets, credit and mortgage markets, consumer confidence and spending, global economic growth, local, state, provincial and federal government regulation, housing supply and affordability, the strength of regional and local economies in which we operate and the impact of public health emergencies. Furthermore, commercial and residential construction and R&R markets generally face significant contraction in an economic downturn or recession. \nOur sales are in part dependent upon the commercial new construction market and the commercial R&R market.\nDemand for commercial projects was severely impacted by COVID-19 and has been slow to recover in certain sectors. However, we are starting to see some improvement, including stronger year-over-year commercial wallboard sales and volumes. Construction to support medical, hospitality and governmental projects has started to rebound, particularly where commercial development has followed residential expansion. Larger office projects, both new and for R&R, however, remain tempered, particularly in more mature urban markets. We cannot predict the duration of the current market conditions, changes in the demand for commercial space, or the timing or strength of any future recovery or downturn of commercial construction activity in our markets. Further increased weakness in the commercial construction market and the commercial R&R market would likely have an adverse effect on our business, financial condition and operating results. Furthermore, uncertainty about current and future economic conditions will continue to pose a risk to our business that serves the commercial new construction and R&R markets, including demand for commercial office space, tighter credit, disruptions caused by the inability of commercial borrowers to repay their debt obligations, negative financial news, a recession and/or declines in income, which could have a continued material negative effect on the demand for our products and services.\nOur sales are also in part dependent upon the residential new construction market and home R&R activity.\nThe distribution of our products, particularly wallboard, to contractors serving the residential market represents a significant portion of our business. Though its cyclicality has historically been somewhat moderated by R&R activity, wallboard demand is highly correlated with housing starts. Housing starts and R&R activity, in turn, are dependent upon a number of factors, including housing demand, housing inventory levels, housing affordability, mortgage rates, building mix between single- and multi-family homes, foreclosure rates, geographical shifts in the population and other changes in demographics, the availability of land, local zoning and permitting processes, the availability of construction financing, and the health of the economy and mortgage markets, including related government regulations. Unfavorable changes in any of these factors beyond our control could adversely affect consumer spending, result in decreased demand for homes and adversely affect our business.\nWe also rely, in part, on home R&R activity. Although the market for residential R&R has improved in recent years, there is no guarantee that it will continue to improve. Higher interest rates, inflation, higher gas prices, consumer confidence, stock market volatility and performance, unemployment, and lower home prices may restrict consumer spending, particularly on discretionary items such as home improvement projects, and affect consumer confidence levels leading to reduced spending in the R&R end markets. Furthermore, consumer preferences and purchasing practices and the strategies of our customers may \n9\nTable of Contents\nadjust in a manner that could result in changes to the nature and prices of products demanded by the end consumer and our customers and could adversely affect our business, financial condition, results of operations and cash flows.\nOur industry and the markets in which we operate are highly fragmented and competitive, and increased competitive pressure may adversely affect our results of operations.\nWe primarily compete in the distribution markets of wallboard, ceilings and complementary construction products with smaller distributors, several national and multi-regional specialty distributors of building materials and big-box retailers.  Some of our competition are larger and may have greater financial resources than us.\nCompetition varies depending on product line, type of customer and geographic area. If our competitors have greater financial resources or offer a broader range of building products, they may be able to offer higher levels of service or a broader selection of inventory than we can. Furthermore, any of our competitors may (i)\u00a0foresee the course of market development more accurately than we do, (ii)\u00a0provide superior service and sell or distribute superior products, (iii)\u00a0have the ability or willingness to supply or deliver similar products and services at a lower cost, (iv)\u00a0develop stronger relationships with our customers and other consumers in the industry in which we operate, (v) develop stronger relationships with our vendors or other manufacturers in our industry; (vi)\u00a0adapt more quickly to evolving customer requirements than we do, (vii)\u00a0develop a superior network of distribution centers in our markets, (viii)\u00a0access financing on more favorable terms than we can obtain or (ix) bundle products we do not offer with other products that are competitive with the products we sell.\nThe consolidation of homebuilders may result in increased competition for their business. Certain product manufacturers that sell and distribute their products directly to homebuilders may increase the volume of such direct sales. Our suppliers may also elect to enter into exclusive supplier arrangements with other distributors. As a result, we may not be able to compete successfully with our competitors and our financial condition, results of operations and cash flows may be adversely affected.\nConsolidation in our industry may negatively impact our business.\nOur industry has experienced consolidation in recent years and may continue to experience consolidation, which could cause markets to become increasingly competitive as greater economies of scale are achieved by distributors that are able to efficiently expand their operations. There can be no assurance that we will be able to effectively take advantage of this trend toward consolidation which may make it more difficult for us to maintain operating margins and could also increase the competition for acquisition targets in our industry, resulting in higher acquisition costs and prices.\nRisks Relating to our Business\nWe are subject to significant fluctuations in prices and mix of the products we distribute, including as a result of inflationary and deflationary pressures, and we may not be able to pass on price increases to our customers and effectively manage inventories and margins.\nPrices for our products are driven by many factors, including general economic conditions, labor and freight costs, competition, demand for our products, international conflicts, government regulation and trade policies. Certain products we distribute have recently seen extreme price volatility, caused in large part by the contributory effects of COVID-19 and international conflicts. We may be subject to large and significant price increases, especially in periods of high inflation. Conversely, we may experience lower sales in a deflationary environment. We may not always be able to reflect increases in our costs in our own pricing, especially in times of extreme price volatility. Any inability to pass cost increases on to customers may adversely affect our business, financial condition and results of operations. In addition, if market prices for the products that we sell decline, we may realize lower revenues and margins from selling such products.\nLarge contractors and homebuilders in both the commercial and residential industries have historically been able to exert significant pressure on their outside suppliers and distributors to keep prices low in the highly fragmented building products supply and services industry. Continued consolidation in the commercial and residential industries and changes in builders\u2019 purchasing policies and payment practices could result in even further pricing pressure. Furthermore, if new construction and R&R activity significantly declines, we could face increased pricing pressure from our competitors as we compete for a reduced number of projects. Overall, these pricing pressures may adversely affect our operating results and cash flows. In addition, we may experience changes in our customer mix or in our product mix. If customers require more lower-margin products from us and fewer higher-margin products, our business, financial condition, results of operations and cash flows may suffer.\n10\nTable of Contents\nWe may be unsuccessful in making and integrating acquisitions and opening new branches.\nThe success of our long-term business strategy depends in part on increasing our sales and growing our market share through strategic acquisitions and opening new branches. If we fail to identify and acquire suitable acquisition targets on appropriate terms or fail to identify and open new branches that expand our market, our growth strategy may be materially and adversely affected. Further, if our operating results decline, we may be unable to obtain the capital required to effect new acquisitions or open new branches.\nIn addition, we may not be able to integrate the operations of future acquired businesses in an efficient and cost-effective manner or without significant disruption to our existing operations. Even if we successfully integrate the businesses, there can be no assurance that we will realize the anticipated benefits of an acquisition. Moreover, acquisitions involve significant risks and uncertainties, including uncertainties as to the future financial performance of the acquired business, difficulties integrating acquired personnel and corporate cultures into our business, the potential loss of key employees, customers or suppliers, difficulties in integrating different computer and accounting systems, exposure to unknown or unforeseen liabilities of acquired companies, difficulties implementing disclosure controls and procedures and internal control over financial reporting for the acquired businesses, and the diversion of management attention and resources from existing operations. We may also be required to incur additional debt or issue equity in order to consummate acquisitions in the future, which may increase our indebtedness or result in dilution to our stockholders. Our failure to integrate future acquired businesses effectively or to manage other consequences of our acquisitions, including increased indebtedness, could prevent us from remaining competitive and, ultimately, could adversely affect our financial condition, results of operations and cash flows.\nWe may not be able to expand into new geographic markets, expand core products or expand our complementary products, which may impact our ability to grow our business.\nWe intend to continue to pursue our business strategy to expand into new geographic markets and grow our complementary products for the foreseeable future. Our expansion into new geographic markets or the introduction of new product lines may present competitive, distribution and other challenges that differ from the challenges we currently face. In addition, we may be less familiar with the customers in these markets and may ultimately face different or additional risks, as well as increased or unexpected costs, compared to those we experience in our existing markets. Expansion into new geographic markets or product lines may also expose us to direct competition with companies with whom we have limited or no experience as competitors. To the extent we rely upon expanding into new geographic markets and growing our complementary products and do not meet, or are unprepared for, any new challenges posed by such expansion or growth, our future sales growth could be negatively impacted, our operating costs could increase, and our business and results of operations could be negatively affected.\nProduct shortages, loss of key suppliers or failure to develop relationships with qualified suppliers, and our dependence on third-party suppliers and manufacturers could affect our financial health.\nThe products we distribute are manufactured by several major suppliers. Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply from manufacturers and other suppliers. Historically the wallboard and steel products we distribute have been available from various sources and in sufficient quantities to meet our customer demand. However, certain wallboard and steel products are on long lead times from suppliers and as a result, our ability to obtain adequate supply of such wallboard and steel products may be adversely affected. Ceiling distribution arrangements are often exclusive to certain specified geographic areas. Any disruption or shortage in our sources of supply, particularly of the most commonly sold items, could result in a loss of revenue, reduced margins and damage to our relationships with customers. Supply shortages may occur as a result of, among other things, unanticipated increases in demand, shortage of raw materials, including the availability of synthetic gypsum, work stoppages, manufacturing challenges, natural disasters and pandemics, military conflicts, civil unrest, acts of terrorism, difficulties in production or delivery or failure to maintain satisfactory relationships with our key suppliers. The loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier arrangements, such as those whereby we are afforded exclusive distribution rights in certain geographic areas, could adversely impact our financial condition, results of operations and cash flows.\nOur ability to maintain relationships with qualified suppliers who can satisfy our high standards of quality and our need to be supplied with products in a timely and efficient manner is a significant challenge. In addition, our suppliers may elect to distribute some or all of their products directly to end-customers or they could expand competitive channels of distribution. This could also adversely impact our ability to obtain favorable pricing from suppliers and optimize margins and revenue with respect to our customers. \n11\nTable of Contents\nAlthough in some instances we have agreements with our suppliers, these agreements are generally terminable by either party on limited notice. If market conditions change or if suppliers change their strategies for distributing products, suppliers may stop offering us favorable terms.\nIncreases in operating costs or failure to achieve operating efficiencies could adversely affect our results of operations and cash flows.\nOur financial performance is affected by the level of our operating costs, which have recently been subject to increased inflationary pressures. To the extent such costs increase, we may be prevented, in whole or in part, from passing these cost increases through to our existing and prospective customers, which could have a material adverse impact on our business, financial position, results of operations and cash flows. In addition, our business strategy entails a heightened focus on enhanced productivity and profitability across the organization. If we do not recognize the anticipated benefits of our operating efficiency and cost reduction opportunities in a timely manner or they present greater than anticipated costs, our results of operations and cash flows could be adversely affected.\nThe loss of any of our significant customers, a reduction in the quantity of products they purchase or inability to pay could affect our financial health.\nOur ten largest customers generated approximately 7.1%, 8.1% and 9.0% of our net sales in the aggregate for fiscal 2023, 2022 and 2021, respectively. We cannot guarantee that we will maintain or improve our relationships with these customers, or successfully assume the customer relationships of any businesses that we acquire, or that we will continue to supply these customers at historical levels. We extend credit to numerous customers who are generally susceptible to the same economic business risks that we are. Unfavorable market conditions could result in financial failures of one or more of our significant customers. If our larger customers\u2019 financial positions were to become impaired, our ability to fully collect receivables from such customers could be impaired and negatively affect our financial condition, results of operations and cash flows.\nIn addition, our customers may: (i)\u00a0purchase some of the products that we currently sell and distribute directly from manufacturers; (ii)\u00a0elect to establish their own building products manufacturing and distribution facilities; or (iii)\u00a0favor doing business with manufacturing or distribution intermediaries in which they have an economic stake. Continued consolidation among professional homebuilders and\n \ncommercial builders could also result in a loss of some of our present customers to our competitors. The loss of one or more of our significant customers or deterioration in our existing relationships with any of our customers could adversely affect our financial condition, operating results and cash flows. Furthermore, our customers typically are not required to purchase any minimum amount of products from us. Should our customers purchase the products we distribute in significantly lower quantities than they have in the past or should the customers of any businesses that we acquire purchase products from us in significantly lower quantities than they had prior to our acquisition of the business, such decreased purchases could adversely affect our financial condition, results of operations and cash flows.\nWe occupy many of our facilities under long-term non-cancellable leases, and we may be unable to renew our leases at the end of their terms.\nMany of our facilities are located on leased premises subject to non-cancellable leases. Typically, our leases have options to renew for specified periods of time. We believe that our future leases will likely also be non-cancellable and have similar renewal options. If we close or stop fully utilizing a facility, we will most likely remain obligated to perform under the applicable lease, which would include, among other things, making the base rent payments, and paying insurance, taxes and other expenses on the leased property for the remainder of the lease term. Our inability to terminate a lease when we stop fully utilizing a facility or exit a geographic market can have a significant adverse impact on our financial condition, results of operations and cash flows. In addition, at the end of the lease term and any renewal period for a facility, we may be unable to renew the lease without substantial additional cost, if at all. If we are unable to renew our facility leases, we may close or relocate a facility, which could subject us to construction and other costs and risks, which in turn could have a material adverse effect on our business and operating results. Further, we may not be able to secure a replacement facility in a location that is as commercially viable, including access to rail service, as the lease we are unable to renew. Having to close a facility, even briefly to relocate, would reduce the sales that such facility would have contributed to our revenues. Additionally, a relocated facility may generate less revenue and profit, if any, than the facility it was established to replace.\n12\nTable of Contents\nWe may be unable to effectively manage our inventory and working capital as our sales volume changes or the prices of the products we distribute fluctuate, which could have a material adverse effect on our business, financial condition and results of operations.\nWe purchase products, including wallboard, ceilings, steel framing and complementary products, from manufacturers which are then sold and distributed to customers. We must maintain, and have adequate working capital to purchase, sufficient inventory to meet customer demand. Due to the lead times required by our suppliers, we order products in advance of expected sales. As a result, we are required to forecast our sales and purchase accordingly. In periods characterized by significant changes in economic growth and activity in the commercial and residential building and home R&R industries, it can be especially difficult to forecast our sales accurately. We must also manage our working capital to fund our inventory purchases. Significant increases in the market prices of certain building products, such as wallboard, ceilings and steel framing, can put negative pressure on our operating cash flows by requiring us to invest more in inventory. In the future, if we are unable to effectively manage our inventory and working capital as we attempt to expand our business, our cash flows may be negatively affected, which could have a material adverse effect on our business, financial condition and results of operations.\nAny significant fuel cost increases or shortages in the supply of fuel could disrupt our ability to distribute products to our customers, which could adversely affect our results of operations.\nWe currently use our fleet of owned and leased delivery vehicles to service customers in the regions in which we operate. As a result, we are inherently dependent upon fuel to operate our fleet and are impacted by changes in its price. The cost of fuel is largely unpredictable and has a significant impact on our results of operations. Fuel availability, as well as pricing, is also impacted by political, economic and market factors that are outside our control. Significant increases in the cost of fuel or disruptions in the supply of fuel could adversely affect our financial condition and results of operations.\nNatural or man-made disruptions to our facilities may adversely affect our business and operations.\nWe maintain facilities throughout the United States and Canada, as well as our corporate headquarters in Tucker, Georgia, which supports our facilities with various back-office functions. In the event any of our facilities are damaged or operations are disrupted from fire, earthquake, hurricanes, tornados and other weather-related events, an act of terrorism, civil or political unrest, pandemics, or any other cause, a significant portion of our inventory could be damaged and our ability to distribute products to customers could be materially impaired. In addition, general weather patterns affect our operations throughout the year, with adverse weather historically reducing construction activity in our third and fourth quarters. Adverse weather events, natural disasters or similar events, including as a result of climate change, could generally reduce or delay construction activity and our operations, which could adversely impact our financial condition, results of operations and cash flows. \nMoreover, we could incur significantly higher costs and experience longer lead times associated with distributing products to our customers during the time that it takes for us to reopen or replace a damaged facility. Disruptions to the transportation infrastructure systems in the United States and Canada, including those related to a terrorist attack, civil unrest and pandemics, may also affect our ability to keep our operations and services functioning properly. If any of these events were to occur, our financial condition, results of operations and cash flows could be materially adversely affected.\nOur Canadian operations could have a material adverse effect on us, including from currency rate fluctuations.\nWe operate in six provinces in Canada. We are subject to several risks specific to this country. We may also become subject to risks specific to other countries where we may operate our business. These risks include social, political and economic instability, unexpected changes in regulatory requirements, tariffs and other trade barriers, currency exchange fluctuations, acts of war or terrorism and import/export requirements. Our financial statements are reported in United States dollars with international transactions being translated into United States dollars.\nApproximately 12% of our net sales during the year ended April\u00a030, 2023 were derived from our operations in Canada. Our exposure to currency rate fluctuations could be material to the extent that currency rate changes are significant or that our international operations comprise a larger percentage of our consolidated results. In addition, such fluctuations may also affect the comparability of our results between financial periods. We do not currently hedge the net investments in our foreign operations. Any of these factors could have a material adverse effect on our business, financial condition and results of operations.\n13\nTable of Contents\nWe may be unable to continue to anticipate and address evolving consumer demands.\nOur success depends on meeting consumer needs and anticipating changes in consumer preferences with successful new products and product improvements. We aim to introduce products and new or improved production processes proactively to offset obsolescence and decreases in sales of existing products. While we devote significant focus to the selling and marketing of new products, we may not be successful in selecting the most accepted new products and our new products may not be commercially successful. In addition, it is possible that competitors may improve their products more rapidly or effectively, which could adversely affect our sales. Furthermore, market demand may decline because of consumer preferences trending away from our categories or trending down within our brands or product categories, which could adversely impact our financial condition, results of operations and cash flows.\nRisks Relating to Legal, Regulatory and Compliance\nWe are exposed to product liability, warranty, casualty, construction defect, contract, tort, personal injury, employment and other claims and legal proceedings related to our business, the products we distribute, the services we provide and services provided for us by third parties.\nIn the ordinary course of business, we are subject to various claims and litigation. Any such claims, whether with or without merit, could be time consuming and expensive to defend and could divert management\u2019s attention and resources. The building materials industry has been subject to personal injury and property damage claims arising from alleged exposure to raw materials contained in building products as well as claims for incidents of catastrophic loss, such as building fires. As a distributor of building materials, we face an inherent risk of exposure to product liability claims if the use of the products we have distributed in the past or may in the future distribute is alleged to have resulted in economic loss, personal injury or property damage or violated environmental, health or safety or other laws. Such product liability claims have included and may in the future include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Certain of our subsidiaries have been the subject of claims related to alleged exposure to asbestos-containing products they distributed prior to 1979, which have not materially impacted our financial condition or operating results. See \u201cItem\u00a03, Legal Proceedings.\u201d Such cases are continuing to be filed, and plaintiffs are attempting to expand such causes of action to include additional products, cause of exposure, and time periods beyond 1979. If such attempted expansion by plaintiffs is successful, our financial condition, operating results and cash flows could be adversely affected. \nWe are also from time to time subject to casualty, contract, tort and other claims relating to our business, the products we have distributed in the past or may in the future distribute, and the services we have provided in the past or may in the future provide, either directly or through third parties. If any such claim were adversely determined, our financial condition, operating results and cash flows could be adversely affected if we were unable to seek indemnification for such claims or were not adequately insured for such claims. We rely on manufacturers and other suppliers to provide us with the products we sell or distribute. Since we do not have direct control over the quality of products that are manufactured or supplied to us by third parties, we are particularly vulnerable to risks relating to the quality of such products. In addition, many of our employees, and our delivery and warehouse employees in particular, are subject to hazards associated with providing services on construction sites, at our distribution centers and while delivering our products. As a result, we have a heightened risk of potential claims arising from the conduct of our employees, builders and their subcontractors, and third-party installers for which we may be liable. We and they are subject to regulatory requirements and risks applicable to general contractors, which include management of licensing, permitting and quality of third-party installers. As they apply to our business, if we fail to manage these processes effectively or provide proper oversight of these services, we could suffer lost sales, fines and lawsuits, as well as damage to our reputation, which could adversely affect our business, results of operations and cash flows.\nInsurance costs continue to rise and retention amounts have been increasing. Furthermore, increased claims could cause the costs of our insurance to increase even further. Although we believe we currently maintain suitable and adequate insurance in excess of our self-insured amounts, there can be no assurance that we will be able to maintain such insurance on acceptable terms or that such insurance will provide adequate protection against potential liabilities, and the cost of any product liability, warranty, casualty, construction defect, contract, tort, employment or other litigation or other proceeding, even if resolved in our favor, could be substantial. Additionally, we do not carry insurance for all categories of risk that our business may encounter. Any significant uninsured liability may require us to pay substantial amounts. There can be no assurance that any current or future claims will not adversely affect our financial position, results of operations or cash flows. \n14\nTable of Contents\nFederal, state, provincial, local and other regulations could impose substantial costs and restrictions on our operations that would reduce our net income.\nWe are subject to various federal, state, provincial, local and other laws and regulations, including, among other things, environmental, health and safety laws and regulations, transportation regulations promulgated by the U.S. Department of Transportation, or the DOT, work safety regulations promulgated by the Occupational Safety and Health Administration, or OSHA, employment regulations promulgated by the U.S. Equal Employment Opportunity Commission, regulations of the U.S. Department of Labor, consumer protection laws regarding privacy, and state and local zoning restrictions, building codes and contractors\u2019 licensing regulations. More burdensome regulatory requirements in these or other areas may increase our general and administrative costs and adversely affect our financial condition, operating results and cash flows. Moreover, failure to comply with the regulatory requirements applicable to our business could expose us to litigation and substantial fines and penalties that could adversely affect our financial condition, results of operations and cash flows.\nIn addition, the commercial and residential construction industries are subject to various local, state and federal statutes, ordinances, codes, rules and regulations concerning zoning, building design and safety, construction, contractor licensing, energy conservation and similar matters, including regulations that impose restrictive zoning and density requirements on the residential new construction industry or that limit the number of homes or other buildings that can be built within the boundaries of a particular area. Regulatory restrictions may increase our operating expenses and limit the availability of suitable building lots for our customers, any of which could negatively affect our business, financial condition and results of operations.\nExpectations relating to environmental, social and governance considerations expose us to potential liabilities, increased costs, reputational harm and other adverse effects on our business.\nMany governments, regulators, investors, employees, customers and other stakeholders are increasingly focused on environmental, social and governance considerations relating to businesses, including climate change and greenhouse gas emissions, human capital and diversity, equity and inclusion. We make statements about our environmental, social and governance goals and initiatives through information provided on our website, press statements and other communications. Responding to these environmental, social and governance considerations and implementation of these goals and initiatives involves risks and uncertainties, including those described under \u201cForward-Looking Statements,\u201d requires investments and are impacted by factors that may be outside our control. In addition, some stakeholders may disagree with our goals and initiatives and the focus of stakeholders may change and evolve over time. Any failure, or perceived failure, by us to achieve our goals, further our initiatives, adhere to our public statements, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and materially adversely affect our business, reputation, results of operations, financial condition and stock price.\nRisks Relating to Our Liquidity and Capital Resources\nThe agreements that govern our indebtedness contain various financial covenants that could limit our ability to engage in activities that may be in our best long-term interests.\nThe agreements that govern our indebtedness include covenants that, among other things, may impose significant operating and financial restrictions, including restrictions on our ability to engage in activities that may be in our best long-term interests. These covenants may restrict our ability to:\n\u2022\nincur additional indebtedness;\u00a0\n\u2022\ncreate or maintain liens on property or assets;\u00a0\n\u2022\nmake investments, loans and advances;\u00a0\n\u2022\nsell certain assets or engage in acquisitions, mergers or consolidations;\u00a0\n\u2022\nredeem debt;\u00a0\n\u2022\npay dividends and repurchase our shares; and\u00a0\n\u2022\nenter into transactions with affiliates.\nIn addition, under the terms of our senior secured asset based revolving credit facility (the \u201cABL Facility\u201d), we may at times be required to comply with a specified fixed charge coverage ratio. Our ability to meet this ratio could be affected by events beyond our control, and we cannot assure that we will meet this ratio.\n15\nTable of Contents\nA breach of any of the covenants under any of our debt agreements may result in a default under such agreement. If any such default occurs, the administrative agent under the agreement would be entitled to take various actions, including the acceleration of amounts due under the agreement and all actions permitted to be taken by a secured creditor. This could have serious adverse consequences on our financial condition and could cause us to become insolvent.\nOur current indebtedness, degree of leverage and any future indebtedness we may incur, may adversely affect our cash flows, limit our operational and financing flexibility and negatively impact our business and our ability to make payments on our indebtedness and declare dividends and make other distributions.\nAs of April\u00a030, 2023, $499.5 million was outstanding under our senior secured first lien term loan facility (the \u201cTerm Loan Facility\u201d), $350.0 million was outstanding under our senior unsecured notes (\u201cSenior Notes\u201d) and $110.0 million was outstanding under our ABL Facility. In addition, we may incur substantial additional debt in the future. Our current indebtedness and other debt instruments we may enter in the future, may have significant consequences to our business and, as a result, may impact our stockholders, including:\n\u2022\nimpairing our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes;\n\u2022\nrequiring us to dedicate a significant portion of our cash flows from operations to pay interest on any outstanding indebtedness, which would reduce the funds available to us for operations and other purposes;\n\u2022\nlimiting our flexibility in planning for, or reacting to, changes in our business, the industries in which we operate;\u00a0\n\u2022\nmaking it more difficult for us to satisfy our obligations with respect to our indebtedness;\u00a0\n\u2022\nmaking us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;\u00a0\n\u2022\nplacing us at a competitive disadvantage compared to our competitors that are less leveraged and, therefore, more able to take advantage of opportunities that our leverage prevents us from exploiting;\u00a0\n\u2022\nimpairing our ability to refinance existing indebtedness or borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other purposes;\u00a0\n\u2022\nrestricting our ability to pay dividends, make other distributions and repurchase our shares; and\u00a0\n\u2022\nadversely affecting our credit ratings.\nAny of the above-listed factors could materially adversely affect our financial condition, liquidity or results of operations.\nFurthermore, we expect that we will depend primarily on cash generated by our operations to pay our expenses and any amounts due under our existing indebtedness and any future indebtedness we may incur. As a result, our ability to repay our indebtedness depends on the future performance of our business, which will be affected by financial, business, economic and other factors, many of which we cannot control. Our business may not generate sufficient cash flows from operations in the future and we may not achieve our currently anticipated growth in revenues and cash flows, either or both of which could result in our being unable to repay indebtedness or to fund other liquidity needs. If we do not have enough funds, we may be required to refinance all or part of our then existing indebtedness, sell assets or borrow additional funds, in each case on terms that may not be acceptable to us, if at all. In addition, the terms of existing or future debt agreements, including our existing ABL Facility, Term Loan Facility and Senior Notes, may restrict us from engaging in any of these alternatives. Our ability to recapitalize and incur additional debt in the future could also delay or prevent a change in control of our Company, make certain transactions more difficult to complete or impose additional financial or other covenants on us.\nDespite our current level of indebtedness, we may still be able to incur more debt.\nWe may be able to incur significant additional indebtedness in the future, including secured debt. Although the agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to several qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness, including obligations under operating lease arrangements. In addition, the ABL Facility provides a commitment of up to $950.0\u00a0million, subject to a borrowing base. As of April\u00a030, 2023, we had available borrowing capacity of $759.2 million under the ABL Facility. If new debt is added to our current debt levels, the related risks that we now face could intensify.\nAn increase in interest rates would increase the cost of servicing our debt and could reduce our profitability.\nOur Term Loan Facility and ABL Facility bear interest at variable rates. We have entered into interest rate swaps for a portion of our debt with the objective of minimizing the risks associated with our Term Loan Facility. However, increases in \n16\nTable of Contents\ninterest rates with respect to any amount of our debt not covered by the interest rate swaps could increase the cost of servicing our debt and could materially reduce our profitability and cash flows. Such increases may result from changes in regulatory standards or industry practices. Excluding the effect of the interest rate swaps, each 1% increase in interest rates on the Term Loan Facility would increase our annual interest expense by $5.0\u00a0million based on the balance outstanding under the Term Loan Facility as of April\u00a030, 2023. Assuming the ABL Facility was fully drawn up to the $950.0\u00a0million maximum commitment, each 1% increase in interest rates would result in a $9.5\u00a0million increase in annual interest expense on the ABL Facility.\nWe may have future capital needs that require us to incur additional debt and may be unable to obtain additional financing on acceptable terms, if at all.\nWe rely substantially on the liquidity provided by our existing ABL Facility and cash on hand to provide working capital and fund our operations. Our working capital and capital expenditure requirements may increase as our markets rebound and we execute our strategic growth plan. Economic and credit market conditions, increases in interest rates, the performance of the commercial and residential construction markets, and our financial performance, as well as other factors, may constrain our financing abilities. Our ability to secure additional financing, if available, and to satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our future operating performance, the availability of credit, economic conditions, and financial, business and other factors, many of which are beyond our control. The prolonged continuation or worsening of current housing market conditions and the macroeconomic factors that affect our industry could require us to seek additional capital and have a material adverse effect on our ability to secure such capital on favorable terms, if at all.\nWe may be unable to secure additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations under our outstanding indebtedness. If additional funds are raised through the issuance of additional equity or convertible debt securities, our stockholders may experience significant dilution. We may also incur additional indebtedness in the future, including secured debt, subject to the restrictions contained in the ABL Facility, the Term Loan Facility and Senior Notes. If new debt is added to our current debt levels, the related risks that we now face could intensify.\nGeneral Risk Factors\nThe effect of global pandemics, such as COVID-19, and other widespread public health crises, and the measures undertaken by governmental authorities to address any such crises, may adversely affect our business and results of operations.\nPublic health crises, pandemics and epidemics, such as COVID-19, have impacted our operations and financial performance. The spread of highly infectious or contagious diseases could cause quarantines, business shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions, and overall economic and financial market instability, all of which may impact general economic conditions or consumer confidence. Any of these developments could materially and adversely affect our business, financial condition and results of operations.\nFailure to attract and retain key employees while controlling costs could have a significant adverse effect on our business.\nOur success depends in part on our ability to attract, hire, train and retain qualified managerial, operational, sales and other personnel. We face significant competition for these types of employees in our industry and from other industries. We may be unsuccessful in attracting and retaining the personnel we require to conduct and expand our operations successfully. In addition, key personnel may leave us and compete against us. Our success also depends, to a significant extent, on the continued service of our senior management team. The loss of any member of our senior management team or other experienced senior employees could impair our ability to execute our business plan, cause us to lose customers and reduce our net sales, or lead to employee morale problems and/or the loss of other key employees. In any such event, our financial condition, results of operations and cash flows could be adversely affected.\nAs a result of labor shortages, particularly among drivers and material handlers, we may face higher operating expenses and may lose revenue opportunities if labor shortages prevent us from having the capacity to meet customer demand. We could be required to increase our use of temporary or contract labor. Using temporary or contract labor typically requires higher cost and may be less productive than full-time employees. In addition, a shortage of qualified drivers could require us to increase driver compensation, let trucks sit idle, utilize contract haulers, utilize less experienced drivers, or face difficulty meeting customer demands, all of which could adversely affect our business and results of operations.\n17\nTable of Contents\nCybersecurity breaches could harm our business.\nIn the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations. We have incurred costs and may incur significant additional costs to implement the security measures that we believe are appropriate to protect our IT systems. Our security measures are focused on the prevention, detection and remediation of damage from computer viruses, natural or man-made disasters, unauthorized access, cyber-attacks and other similar disruptions. Despite our security measures, our IT systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. To date, we do not believe we have experienced a material breach of our IT systems. Any attacks on our IT systems could result in our systems or data being breached or damaged by computer viruses or unauthorized physical or electronic access. Such a breach could result in not only business disruption, but also theft of our intellectual property or other competitive information or unauthorized access to controlled data and any personal information stored in our IT systems. To the extent that any data is lost or destroyed, or any confidential information is inappropriately disclosed or used, it could adversely affect our competitive position or customer relationships. In addition, any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, damage our reputation and cause a loss of confidence in our business, products and services, which could adversely affect our business, financial condition, results of operations and cash flows.\nA disruption of our IT systems could adversely impact our business and operations.\nWe rely on the accuracy, capacity and security of our IT systems, some of which are managed or hosted by third parties, and our ability to continually update these systems in response to the changing needs of our business. Our IT systems and those of our third-party service providers are vulnerable to damage or interruption from fires, earthquakes, hurricanes, tornados, floods and other natural disasters, terrorist attacks, power loss, capacity limitations, telecommunications failures, software and hardware defects or malfunctions, break-ins, sabotage and vandalism, human error and other disruptions that are beyond our control. We continue to invest capital to enhance, expand and increase the reliability of our network, but these capital expenditures may not achieve the results we expect. The occurrence of any disruption or system failure or other significant disruption to business continuity may result in a loss of business, increase expenses, damage our reputation or expose us to litigation and possible financial losses, any of which could adversely affect our business, results of operations and cash flows.\nTrade policies could make sourcing product from foreign countries more difficult or more costly.\nWe source some of our products from outside of the United States or Canada. Suppliers that we utilize may rely upon non-domestic products, and therefore, any significant changes to the United States or Canadian trade policies (and those of other countries in response) may cause a material adverse effect on our ability to procure products from suppliers that source from other countries or significantly increase the costs of obtaining such products, which could result in a material adverse effect on our results of operations.\nThe market price of our common stock may be highly volatile.\nThe trading price of our common stock has been and may continue to be subject to fluctuations in response to certain events and factors, such as quarterly variations in results of operations, changes in financial estimates, unstable economic conditions, changes in recommendations or reduced coverage by securities analysts, the operating and stock price performance of other companies that investors may deem comparable to us, news reports relating to trends in the markets in which we operate, general economic conditions or other factors described in this \u201cRisk Factors\u201d section of this Annual Report on Form\u00a010-K.\nIn addition, the stock market in general and the market prices for companies in our industry have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees, many of whom have been granted stock incentive awards.\n18\nTable of Contents",
+  "item7": ">Item\u00a07. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nOverview\nGMS\u00a0Inc. (together with its consolidated subsidiaries, \u201cwe,\u201d \u201cour,\u201d \u201cus,\u201d \u201cGMS\u201d or the \u201cCompany\u201d), through its wholly owned operating subsidiaries, operates a network of more than 300 distribution centers with extensive product offerings of wallboard, ceilings, steel framing and complementary construction products. We also operate more than 100 tool sales, rental and service centers. Through these operations, we provide a comprehensive selection of building products and solutions for our residential and commercial contractor customer base across the United States and Canada. Our unique operating model combines the benefits of a national platform and strategy with a local go-to-market focus, enabling us to generate significant economies of scale while maintaining high levels of customer service.\nFiscal 2023 Highlights\nKey highlights in our business during fiscal 2023 are described below:\n\u2022\nGenerated net sales of\u00a0$5,329.3 million, a\u00a015.0%\u00a0increase from the prior year primarily due to inflationary pricing along with strength in multi-family residential construction activity and an improving commercial landscape, each of which helped drive volume growth in wallboard and complementary products. We also benefited from acquisitions completed over the past year.\n\u2022\nGenerated net income of\u00a0$333.0 million, a 21.8% increase from the prior year, primarily due to the increase in net sales noted above, partially offset by increased selling, general and administrative expenses, and an increase in the provision for income taxes. Supply chain dynamics led to high levels of product price inflation, which has been the principal driver of both sales growth and incremental profitability. Net income as a percentage of sales was 6.2% and 5.9% during fiscal 2023 and 2022, respectively.\n\u2022\nGenerated Adjusted EBITDA (a non-GAAP measure, see \u201cNon-GAAP Financial Measures\u201d in this Item 7) of\u00a0$665.7 million, a 17.4% increase from the prior fiscal year, primarily due to the increase in net sales noted above. Adjusted EBITDA, as a percentage of net sales, increased to 12.5% as compared to 12.2% for the prior year primarily due to better operating leverage, as product price inflation on sales outpaced operating cost inflation.\n\u2022\nCompleted four acquisitions and opened six new branches (\u201cgreenfields\u201d), increasing the Company\u2019s geographic footprint and product offerings.\nRecent Developments\nAcquisitions\nOn June 1, 2022, we acquired certain assets of Construction Supply of Southwest Florida, Inc. (\u201cCSSWF\u201d). CSSWF is a distributor of various stucco, building and waterproofing supplies serving markets in the southwest Florida area. \nOn December 30, 2022, we acquired certain assets of Tanner Bolt and Nut, Inc. (\u201cTanner\u201d). Tanner is a distributor of various tools, fasteners, sealants and related construction products to the broader New York City market through its four distribution facilities. \nOn April 3, 2023, we acquired certain assets of Blair Building Materials, Inc. (\u201cBlair\u201d). Blair provides exteriors, insulation and waterproofing products to customers in the Greater Toronto Area. Blair operates from a single location in Maple, Ontario. Also on April 3, 2023, we acquired Engler, Meier and Justus, Inc. (\u201cEMJ\u201d). EMJ is a leading distributor of drywall, acoustical ceilings and related interior construction products to the greater Chicago market and EIFS related products in the Southeastern United States. EMJ operates from five locations\n.\nSubsequent to our fiscal year end on May 1, 2023, we acquired Jawl Lumber Corporation, which provides service to the Vancouver Island market in Canada under the Home Lumber and Building Supplies (\"Home Lumber\") brand name. Home Lumber is a leading supplier of lumber, engineered wood, doors, framing packages and siding as well as other key complementary building materials. Home Lumber operates from a single location in Victoria, Canada.\n23\nTable of Contents\nFor more information regarding our acquisitions, see Note\u00a02 of the Notes\u00a0to Consolidated Financial Statements included in this Annual Report on Form\u00a010-K.\nGreenfields\nDuring fiscal 2023, we opened greenfield locations in Wildwood, Florida; Cleveland, Ohio; Greenville, North Carolina; Brooklyn, New York; Chester, Virginia; and Ottawa, Ontario. We also opened eleven new Ames tool sales, rental and service centers.\nMarket Conditions and Outlook\nResidential\nWe experienced strong underlying demand for our residential products since mid-2020 as favorable demographics, low interest rates, low levels of new and existing homes for sale, a strong job market and a change in workplace habits and preferences resulting from COVID-19 helped drive new home purchases. We now see single-family construction demand has slowed in most regions of the country, except for the Southeast region which has been an outlier with modest year-over-year single-family growth, primarily as a result of rising interest rates and inflation, along with broader macroeconomic and geopolitical concerns. However, while multi-family starts have moderated from their exceptionally high levels during calendar year 2022, we expect strength in multi-family residential construction demand to continue through most of calendar 2023 as there remains a large backlog between starts and completions in that industry segment.\nMore broadly, while affordability issues have created some near-term uncertainty, the solid underlying demand fundamentals of the housing market, including favorable demographics and low levels of supply of new homes, are expected to provide support for that market in the longer term. In addition, we believe the Company continues to be well-positioned to adjust to meet demand in our end markets due to our broad mix of customers, including commercial, multi-family and single-family builders and contractors, product offerings and geographic scope. Moreover, given the limited inventory of existing homes and the structural need for residential housing, we are also encouraged by recent improvement in starts activity and builder sentiment as we look later into the year.  \nCommercial\nDemand for commercial projects was severely impacted by COVID-19 and has been slow to recover in certain of its sectors. However, we see some improvement, including stronger year-over-year commercial wallboard sales and volumes. Construction to support medical, hospitality and governmental projects has started to rebound, particularly where commercial development has followed residential expansion. Larger office projects, both new and for repair and remodeling (\u201cR&R\u201d), however, remain tempered, particularly in more mature urban markets. \nAs with residential contractors, both we and commercial contractors face inflationary pressures and availability constraints for fuel, labor, building products and other miscellaneous expenses.\n24\nTable of Contents\nFactors and Trends Affecting our Operating Results\nGeneral Economic Conditions\nOur business is sensitive to changes in general economic conditions, including, in particular, conditions in the U.S. and Canadian commercial construction and housing markets. The markets we serve are broadly categorized as commercial new construction, commercial R&R, residential new construction and residential R&R. Prior to the pandemic, we believed all four end markets were in an extended period of expansion following a deep and prolonged downturn. The impacts of COVID-19 caused significant disruption and uncertainty. While the economy has generally recovered from the impacts of COVID-19, commercial construction has been impacted by decreased demand for office space, tighter credit, and concerns regarding the market generally, and inflation, rising mortgage rates and home price appreciation have led to a more challenging macro-economic environment for residential construction. These developments have impacted the housing market, including the residential R&R and residential new construction end markets, and have contributed to a recent slowdown in the housing industry.\nCommercial New Construction\nOur addressable commercial construction market is composed of a variety of commercial and institutional sub-segments with varying demand drivers. Our commercial markets include offices, hotels, retail stores, warehouses and other commercial buildings, while our institutional markets include educational facilities, healthcare facilities, government buildings and other institutional facilities. The principal demand drivers across these markets include the overall economic outlook, the general business cycle, government spending, vacancy rates, employment trends, interest rates, availability of credit and demographic trends. Given the depth of the last recession and the negative impacts of COVID-19, activity in the commercial construction market remains below average historical levels. However, we are starting to see some improvement in markets outside of large office, especially in larger urban markets.\nCommercial R&R\nWe believe commercial R&R spending is typically more stable than new commercial construction activity. Commercial R&R spending is driven by several factors, including commercial real estate prices and rental rates, office and retail vacancy rates, government spending and interest rates. Commercial R&R spending is also driven by commercial lease expirations and renewals, as well as tenant turnover. Such events often result in repair, reconfiguration and/or upgrading of existing commercial space. As such, the commercial R&R market has historically been less volatile than commercial new construction. While there is very limited third-party data for commercial R&R spending, commercial R&R spending has been negatively impacted by COVID-19. However, we are starting to see some recovery in markets outside of large office, especially in larger urban markets.\nResidential New Construction\nResidential construction activity is driven by several factors, including the overall economic outlook, employment, income growth, home prices, availability of mortgage financing and related government regulations, interest rates and consumer confidence, among others. While housing starts have generally recovered in recent years, activity in the market remains below historical peaks. \nResidential R&R\nResidential R&R activity is typically more stable than new construction activity. Following a prolonged period of under-investment during the downturn from 2007 to 2011, residential R&R activity experienced above-average growth in more recent years. The primary drivers of residential R&R spending include changes in existing home prices, existing home sales, the average age of the housing stock, consumer confidence and interest rates.\n25\nTable of Contents\nPrice and Mix Changes\nPrices for certain of our products are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, market speculation, government regulations, tariffs and trade restrictions, and periodic delays in delivery.\u00a0Certain products we distribute have recently seen extreme price volatility, caused in large part by the contributory effects of COVID-19 and the international conflicts. Price inflation may impact demand for these products while price deflation may reduce our net sales and compress our margins. There is no assurance that we can successfully pass on price increases from our vendors to our customers. In addition, we may experience changes in our customer mix or in our product mix. Our operating results may be negatively impacted if customers require more lower-margin products from us and fewer higher-margin products.\nAcquisitions\nOur results of operations are impacted by acquisitions, as we complement our organic growth strategy with acquisitions. We completed four acquisitions during fiscal 2023, five acquisitions during fiscal 2022 and one acquisition during fiscal 2021. We believe that significant opportunities exist to expand our geographic footprint by executing additional strategic acquisitions and we consistently strive to maintain an extensive and active acquisition pipeline. We are often evaluating several acquisition opportunities at any given time. See Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information regarding our business acquisitions.\n26\nTable of Contents\nResults of Operations\nA discussion regarding our results of operations and financial condition for the year ended April\u00a030, 2023 compared to the year ended April\u00a030, 2022 is presented below. A discussion regarding our results of operations and financial condition for the year ended April\u00a030, 2022 compared to the year ended April\u00a030, 2021 can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended April\u00a030, 2022, filed with the Securities and Exchange Commission on June 22, 2022.\nThe following table summarizes key components of our results of operations:\nYear Ended April 30,\n2023\n2022\n2021\n(dollars in thousands)\nStatement of operations data:\nNet sales\n$\n5,329,252\n$\n4,634,875\n$\n3,298,823\nCost of sales (exclusive of depreciation and amortization shown separately below)\n3,603,307\n3,146,600\n2,236,120\nGross profit\n1,725,945\n1,488,275\n1,062,703\nOperating expenses:\nSelling, general and administrative expenses\n1,093,827\n950,125\n763,629\nDepreciation and amortization\n126,907\n119,232\n108,125\nTotal operating expenses\n1,220,734\n1,069,357\n871,754\nOperating income\n505,211\n418,918\n190,949\nOther (expense) income:\nInterest expense\n(65,843)\n(58,097)\n(53,786)\nGain on legal settlement\n\u2014\n\u2014\n1,382\nWrite-off of debt discount and deferred financing fees\n\u2014\n\u2014\n(4,606)\nOther income, net\n8,135\n3,998\n3,155\nTotal other expense, net\n(57,708)\n(54,099)\n(53,855)\nIncome before taxes\n447,503\n364,819\n137,094\nProvision for income taxes\n114,512\n91,377\n31,534\nNet income\n$\n332,991\n$\n273,442\n$\n105,560\nNon-GAAP measures:\nAdjusted EBITDA(1)\n$\n665,696\n$\n566,921\n$\n319,371\nAdjusted EBITDA margin(1)(2)\n12.5\u00a0\n%\n12.2\u00a0\n%\n9.7\u00a0\n%\n___________________________________\n(1)\nAdjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. See \u201cNon-GAAP Measures\u201d in this Item\u00a07 for how we define and calculate Adjusted EBITDA and Adjusted EBITDA margin, reconciliations thereof to net income and a discussion of why we believe these measures are useful.\n(2)\nAdjusted EBITDA margin is Adjusted EBITDA as a\u00a0percentage of net sales.\n27\nTable of Contents\nNet Sales\nYear Ended April 30,\nChange\n2023\n2022\nDollar\nPercent\n(dollars in thousands)\nWallboard\n$\n2,151,505\u00a0\n$\n1,710,851\u00a0\n$\n440,654\u00a0\n25.8\u00a0\n%\nComplementary products\n1,537,617\u00a0\n1,328,383\u00a0\n209,234\u00a0\n15.8\u00a0\n%\nSteel framing\n1,011,309\u00a0\n1,027,941\u00a0\n(16,632)\n(1.6)\n%\nCeilings\n628,821\u00a0\n567,700\u00a0\n61,121\u00a0\n10.8\u00a0\n%\nTotal net sales\n$\n5,329,252\u00a0\n$\n4,634,875\u00a0\n$\n694,377\u00a0\n15.0\u00a0\n%\nThe increase in net sales during our fiscal year ended April\u00a030, 2023 compared to the prior fiscal year was primarily due to inflationary pricing, strength in multi-family residential construction, volume growth in wallboard and complementary products, an improving commercial landscape and acquisitions over the past year.\u00a0The increase in net sales consisted of the following:\n\u2022\nan increase in wallboard sales, which are impacted by both commercial and residential construction activity, primarily due to an increase in price/product mix and higher volume;\n\u2022\nan increase in complementary products sales, which include tools and fasteners (including automatic taping and finishing (ATF) tools), insulation, joint treatment, lumber, External Insulation and Finishing Systems (\u201cEIFS\u201d) and various other specialty building products, primarily due to an increase in pricing in certain product categories, positive contributions from acquisitions and the execution of growth initiatives to increase product sales;\n\u2022\nan increase in ceilings sales, which are principally impacted by commercial construction activity, primarily due to an increase in price/product mix, partially offset by lower volumes in acoustical ceiling tiles and grid; and\n\u2022\npartially offset by a decrease in steel framing sales, which are principally impacted by commercial construction activity, primarily due to lower volume, partially offset by a slight increase in price/product mix.\nThe following table breaks out our net sales into organic, or base business, net sales and recently acquired net sales for the years ended April\u00a030, 2023 and 2022. When calculating organic sales growth, we exclude the net sales of acquired businesses until the first anniversary of the acquisition date. In addition, we exclude the impact of foreign currency translation in our calculation of organic net sales growth. \nYear Ended April 30,\nChange\n2023\n2022\nDollar\nPercent\n(dollars in thousands)\nNet sales\n$\n5,329,252\u00a0\n$\n4,634,875\u00a0\nRecently acquired net sales (1)\n(145,149)\n\u2014\u00a0\nImpact of foreign currency (2)\n38,894\u00a0\n\u2014\u00a0\nBase business net sales (3)\n$\n5,222,997\u00a0\n$\n4,634,875\u00a0\n$\n588,122\u00a0\n12.7\u00a0\n%\n___________________________________\n(1)\nRepresents net sales of branches acquired by us until the first anniversary of the acquisition date. For the year ended April\u00a030, 2023, this includes net sales from the following acquisitions: Westside Building Material (\"Westside\") acquired on July 1, 2021, Ames acquired on December 1, 2021, Kimco Supply Company acquired on December 1, 2021, CSSWF acquired on June 1, 2022, Tanner acquired on December 30, 2022, Blair acquired on April 3, 2023 and EMJ acquired on April 3, 2023.\n(2)\nRepresents the impact of foreign currency translation on net sales.\n(3)\nRepresents net sales of existing branches and branches that were opened by us during the period presented.\nThe increase in organic net sales was primarily driven by inflationary pricing, strength in multi-family residential construction, volume growth in wallboard and complementary products and an improving commercial landscape. \n28\nTable of Contents\nGross Profit and Gross Margin\nYear Ended April 30,\nChange\n2023\n2022\nDollar\nPercent\n(dollars in thousands)\nGross profit\n$\n1,725,945\u00a0\n$\n1,488,275\u00a0\n$\n237,670\u00a0\n16.0\u00a0\n%\nGross margin\n32.4\u00a0\n%\n32.1\u00a0\n%\nThe increase in gross profit during the year ended April\u00a030, 2023 compared to the prior year was primarily due to the successful pass-through of product inflation, strength in multi-family residential construction, improving commercial sales and incremental gross profit from acquisitions. Gross margin on net sales during the year ended April\u00a030, 2023 increased from the prior year primarily due to an increase in margins for complementary products and steel framing, as well as a shift in end market mix. \nSelling, General and Administrative Expenses\nYear Ended April 30,\nChange\n2023\n2022\nDollar\nPercent\n(dollars in thousands)\nSelling, general and administrative expenses\n$\n1,093,827\u00a0\n$\n950,125\u00a0\n$\n143,702\u00a0\n15.1\u00a0\n%\n% of net sales\n20.5\u00a0\n%\n20.5\u00a0\n%\nSelling, general and administrative expenses consist of warehouse, delivery and general and administrative expenses. The increase in selling, general and administrative expenses during the year ended April\u00a030, 2023 compared to the prior year was primarily due to increases in payroll and payroll-related costs, fuel costs, travel costs and facilities costs, which were driven by increased sales volume, inflationary pressures, a shift in demand toward end markets which have a higher cost to serve and incremental selling, general and administrative expenses from acquisitions. The successful pass through of inflationary product pricing helped offset these cost pressures, and as a result, selling, general and administrative expenses\u00a0as a percentage of our net sales was flat during the year ended April\u00a030, 2023 compared to the prior year. \nDepreciation and Amortization Expense\nYear Ended April 30,\nChange\n2023\n2022\nDollar\nPercent\n(dollars in thousands)\nDepreciation\n$\n61,177\u00a0\n$\n55,437\u00a0\n$\n5,740\u00a0\n10.4\u00a0\n%\nAmortization\n65,730\u00a0\n63,795\u00a0\n1,935\u00a0\n3.0\u00a0\n%\nDepreciation and amortization\n$\n126,907\u00a0\n$\n119,232\u00a0\n$\n7,675\u00a0\n6.4\u00a0\n%\nDepreciation and amortization includes depreciation of property and equipment and amortization of definite-lived intangible assets. The increase in depreciation expense during the year ended April\u00a030, 2023 compared to the prior year was primarily due to incremental expense resulting from property and equipment obtained in the acquisitions. The increase in amortization expense during the year ended April\u00a030, 2023 compared to the prior year was primarily due to incremental expense resulting from definite-lived intangible assets obtained in the acquisitions, partially offset by time-based progression of our use of the accelerated method of amortization for acquired customer relationships.\n29\nTable of Contents\nInterest Expense\nYear Ended April 30,\nChange\n2023\n2022\nDollar\nPercent\n(dollars in thousands)\nInterest expense\n$\n65,843\u00a0\n$\n58,097\u00a0\n$\n7,746\u00a0\n13.3\u00a0\n%\nInterest expense consists primarily of interest expense incurred on our debt and finance leases and amortization of deferred financing fees and debt discounts. The increase in interest expense during the year ended April\u00a030, 2023 compared to the prior year was primarily due to an increase in interest rates and an increase in average debt outstanding.\nProvision for Income Taxes\nYear Ended April 30,\nChange\n2023\n2022\nDollar\nPercent\n(dollars in thousands)\nProvision for income taxes\n$\n114,512\u00a0\n$\n91,377\u00a0\n$\n23,135\u00a0\n25.3\u00a0\n%\nEffective tax rate\n25.6\u00a0\n%\n25.0\u00a0\n%\nThe change in the effective income tax rate during the year ended April\u00a030, 2023 compared to the prior year was primarily due to the impact of actions taken during the year in anticipation of expected changes in Canadian tax regulations, as well as state and foreign taxes. For information regarding the significant differences between the U.S. federal statutory rate and our effective tax rate, see Note 10 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for the fiscal year ended April\u00a030, 2023.\nLiquidity and Capital Resources\nSummary\nWe depend on cash flow from operations, cash on hand and funds available under our asset based revolving credit facility (the \u201cABL Facility\u201d) to finance working capital needs, capital expenditures and acquisitions. We believe that these sources of funds will be adequate to fund debt service requirements and provide cash, as required, to support our growth strategies, ongoing operations, capital expenditures, lease obligations and working capital for at least the next twelve months and in the long term. We also believe we would be able to take measures to preserve liquidity should there be an economic downturn, recession or other disruption to our business in the future.\nOn December 22, 2022, we amended and restated our ABL Facility to, among other things, increase the commitments \nunder the facility by $405.0 million from $545.0 million to $950.0 million and extend the maturity to December 22, 2027. Under the terms of the amended and restated ABL Facility, we can borrow up to $200.0 million in Canadian dollars, and therefore, in connection with this amendment, we have terminated our Canadian revolving credit facility. In connection therewith, each of our Canadian subsidiaries joined (1) the ABL Facility as a borrower or guarantor (as applicable) and pledged substantially all of its assets to secure the obligations under the ABL Facility, (2) the Term Loan Facility as a guarantor thereunder and pledged substantially all of its assets to secure the obligations under the Term Loan Facility and (3) the Senior Notes as a guarantor thereunder. As of April\u00a030, 2023, we had available borrowing capacity of approximately $759.2 million under our ABL Facility. The ABL Facility is scheduled to mature on December 22, 2027. The ABL Facility contains a cross default provision with senior secured first lien term loan facility (the \u201cTerm Loan Facility\u201d). \nSubsequent to year end, on May 12, 2023, we amended our Term Loan Facility to provide refinancing term loans in the aggregate principal amount of $500.0\u00a0million, the net proceeds of which were used, together with cash on hand, to refinance our existing Term Loan Facility outstanding balance of $499.5\u00a0million and pay related fees. We also extended the maturity date by seven years from the date of the amendment to May 12, 2030 and modified certain thresholds, baskets and amounts referenced therein.\n30\nTable of Contents\nIn connection with the Term Loan Facility amendment, we entered into (a) new interest rate swap agreements for two years with a notional amount of $300.0 million to convert the variable interest rate on a portion of the term loans outstanding to a fixed 1-month SOFR interest rate of 3.899% and (b) a forward interest rate collar for years 2025 through 2029. The objective of such hedging instruments is to eliminate the variability of interest payment cash flows associated with the variable interest rates under the Term Loan Facility and otherwise hedge exposure to future interest rate moves. Our previous interest rates swap agreements terminated on February 28, 2023.\nFor more information regarding our ABL Facility, Term Loan Facility and other indebtedness, see Note 7 and Note 20 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for the fiscal year ended April\u00a030, 2023.\nWe regularly evaluate opportunities to optimize our capital structure, including through consideration of the issuance or incurrence of additional debt, to refinance existing debt and to fund ongoing cash needs such as general corporate purposes, growth initiatives, acquisitions and our stock repurchase program.\nCash Flows\nThe following table sets forth summarized cash flow data:\nYear Ended April 30,\n2023\n2022\n2021\n(in thousands)\nCash provided by operating activities\n$\n441,737\u00a0\n$\n179,611\u00a0\n$\n153,304\u00a0\nCash used in investing activities\n(111,470)\n(387,210)\n(63,587)\nCash (used in) provided by financing activities\n(265,609)\n143,278\u00a0\n(136,622)\nEffect of exchange rates on cash and cash equivalents\n(1,829)\n(775)\n3,008\u00a0\nIncrease (decrease) in cash and cash equivalents\n$\n62,829\u00a0\n$\n(65,096)\n$\n(43,897)\nOperating Activities\nThe increase in cash provided by operating activities during the year ended April\u00a030, 2023 compared to the prior year was primarily due to larger increases in inventory and accounts receivable\n \nin the prior year period related to ensuring product availability and managing price inflation amid an environment of tight and less reliable supply and a large increase in sales. We have experienced increases in our inventory and accounts receivable balances compared to historical levels due to product inflation. \nInvesting Activities\nThe decrease in cash used in investing activities during the year ended April\u00a030, 2023 compared to the prior year was primarily due to a $286.4 million decrease in cash used for acquisitions, partially offset by an $11.6 million increase in capital expenditures.\nCapital expenditures during the years ended April\u00a030, 2023, 2022 and 2021 primarily consisted of building and leasehold improvements, the purchase of vehicles and IT-related spending. Capital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. Historically, capital expenditures have remained at relatively low levels in comparison to the operating cash flows generated during the corresponding periods.\nFinancing Activities\nThe change in cash flows from financing activities\u00a0during the\u00a0year ended April\u00a030, 2023\u00a0compared to the prior year was primarily due to net repayments of $101.1 million under our revolving credit facilities during the year ended April\u00a030, 2023, compared to net borrowings of $211.3 million during the prior year. During the prior year, we used our revolving credit facilities to help fund the Westside and Ames acquisitions and for general working capital needs. In the current year, we repaid a portion of these borrowings. Also contributing to the change was a $75.3 million increase in repurchases of common stock during the year ended April\u00a030, 2023 and a $13.5 million holdback liability payment during the year ended April\u00a030, 2023 related to our Westside acquisition in accordance with the terms of the acquisition agreement. The holdback was for general representations and warranties of the sellers and was paid 15 months after the July 1, 2021 acquisition date.\n31\nTable of Contents\nContractual Obligations\nThe following table sets forth our contractual obligations and commitments as of April\u00a030, 2023:\nYear Ending April 30,\nTotal\n2024\n2025\n2026\n2027\n2028\nThereafter\n(in\u00a0thousands)\nLong-term debt(1)\n$\n968,032\u00a0\n$\n12,469\u00a0\n$\n6,105\u00a0\n$\n489,458\u00a0\n$\n\u2014\u00a0\n$\n110,000\u00a0\n$\n350,000\u00a0\nInterest on long-term debt(2)\n179,850\u00a0\n54,002\u00a0\n53,957\u00a0\n22,565\u00a0\n16,412\u00a0\n16,457\u00a0\n16,457\u00a0\nFinance leases(3)\n152,442\u00a0\n47,396\u00a0\n36,437\u00a0\n28,914\u00a0\n21,424\u00a0\n13,943\u00a0\n4,328\u00a0\nOperating leases(4)\n217,273\u00a0\n56,113\u00a0\n48,376\u00a0\n35,460\u00a0\n24,600\u00a0\n16,157\u00a0\n36,567\u00a0\nTotal\n$\n1,517,597\u00a0\n$\n169,980\u00a0\n$\n144,875\u00a0\n$\n576,397\u00a0\n$\n62,436\u00a0\n$\n156,557\u00a0\n$\n407,352\u00a0\n___________________________________\n(1)\nLong-term debt includes principal payments on outstanding debt obligations. Long-term debt excludes unamortized discounts and deferred financing fees. As of April\u00a030, 2023, we had $968.0 million aggregate amount of debt outstanding, consisting of $499.5 million of our Term Loan Facility due 2025, $350.0 million under our Senior Notes due 2029, $110.0 million under our ABL Facility and $8.5 million of installment notes due in monthly and annual installments through 2026. On May 12, 2023, we amended the Term Loan Facility to extend the maturity from 2025 to 2030.\n(2)\nInterest payments on long-term debt includes interest due on outstanding debt obligations and commitment and borrowing costs under our ABL Facility.\n(3)\nRepresents remaining payments under finance leases, including interest on finance lease obligations.\n(4)\nRepresents base rent payments under non-cancellable operating leases.\nWe may, from time to time, repurchase or otherwise retire or extend our debt and/or take other steps to reduce our debt or otherwise improve our financial position. These actions may include open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and/or opportunistic refinancing of debt. The amount of debt that may be repurchased or otherwise retired or refinanced, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations.\nWe lease certain office and warehouse facilities and equipment, some of which provide renewal options. Rent expense for operating leases, which may have escalating rents over the terms of the leases, is recorded on a straight-line basis over the minimum lease terms. Rent expense under operating leases approximated $76.8\u00a0million, $65.6\u00a0million, and $55.3\u00a0million for the fiscal years ended April\u00a030, 2023, 2022 and 2021, respectively. As existing leases expire, we anticipate such leases will be renewed or replaced with other leases that are substantially similar in terms, which are consistent with market rates at the time of renewal.\nDuring fiscal 2023, 2022 and 2021, we recorded $59.7 million, $41.7 million and $27.4 million for finance lease obligations for equipment and vehicles. We expect to continue to enter into finance lease obligations for equipment and vehicles in fiscal 2024.\n32\nTable of Contents\nShare Repurchase Program\nOn June 20, 2022, our Board of Directors approved an expanded share repurchase program under which we were authorized to repurchase up to $200.0 million of our outstanding common stock. This expanded program replaces our previous share repurchase authorization of $75.0 million. We may conduct repurchases under the share repurchase program through open market transactions, under trading plans in accordance with SEC Rule 10b5-1 and/or in privately negotiated transactions, in each case in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The timing and amount of any purchases of our common stock are subject to a variety of factors, including, but not limited to, our liquidity, credit availability, general business and market conditions, our debt covenants and the availability of alternative investment opportunities. The share repurchase program does not obligate us to acquire any amount of common stock, and it may be suspended or terminated at any time at our discretion. We repurchased 2.3 million shares of our common stock during the\u00a0fiscal year ended April\u00a030, 2023 for $110.6 million at an average cost per share of $48.74, of which $10.8 million was repurchased under the previous authorization and $99.8 million was repurchased under the new authorization.\u00a0The aggregate cost and average cost per share do not include the effect of the 1% excise tax on net share repurchases after January 1, 2023 enacted under the Inflation Reduction Act of 2022. We incurred $0.1 million of excise taxes during the fiscal year ended April\u00a030, 2023. As of April\u00a030, 2023,\u00a0we had\u00a0$100.2 million\u00a0of remaining purchase authorization under\u00a0our share repurchase program.\nDebt Covenants\nThe ABL Facility, Term Loan Facility and the indenture governing the Senior Notes contain a number of covenants that limit our ability and the ability of our restricted subsidiaries, as described in the respective credit agreement and the indenture, to incur more indebtedness; pay dividends, redeem or repurchase stock or make other distributions; make investments; create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; enter into certain transactions with our affiliates; and prepay or amend the terms of certain indebtedness. Such covenants are subject to several important exceptions and qualifications set forth in the ABL Facility, Term Loan Facility and the indenture governing the Senior Notes. We were in compliance with all such covenants as of April\u00a030, 2023.\nOff Balance Sheet Arrangements\nAs of April\u00a030, 2023, we did not have any relationships with unconsolidated entities or financial partnerships for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.\n33\nTable of Contents\nCritical Accounting Policies\nOur discussion and analysis of operating results and financial condition are based upon our audited financial statements included elsewhere in this Annual Report on Form\u00a010-K. The preparation of our financial statements, in accordance with Generally Accepted Accounting Principles (\u201cGAAP\u201d), requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, expenses and related disclosures of contingent assets and liabilities. We base our estimates on experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that materially affect our consolidated financial statements and involve difficult, subjective or complex judgments by management. Although these estimates are based on management\u2019s best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates.\nWe believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements and that the judgments and estimates are reasonable.\nBusiness Combinations\nDescription\n. We account for business combinations by recognizing the assets acquired and liabilities assumed at the acquisition date fair value. In valuing acquired assets and liabilities, fair value estimates use Level 3 inputs, including future expected cash flows and discount rates.\u00a0Goodwill is measured as the excess of consideration transferred over the fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions as a part of the acquisition accounting process to accurately value assets acquired and liabilities assumed at the acquisition date, the Company\u2019s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one\u00a0year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments arising from new facts and circumstances are recorded to the Consolidated Statements of Operations and Comprehensive Income.\nJudgments and Uncertainties\n. Accounting for business combinations requires our management to make significant estimates and assumptions about intangible assets, obligations assumed and pre-acquisition contingencies, including uncertain tax positions and tax-related valuation allowances and reserves. Critical inputs and assumptions in valuing certain of the intangible assets include, but are not limited to, future expected cash flows from customer relationships and developed technologies; the acquired company\u2019s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company\u2019s product portfolio; and discount rates.\nEffect if Actual Results Differ.\n \nAlthough we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are inherently uncertain. As a result, actual results may differ from estimates.\nGoodwill and Indefinite-Lived Intangible Assets\nDescription\n. We perform an impairment test of our goodwill and indefinite-lived intangible assets annually during the fourth quarter of our fiscal year (February 1) or when events and circumstances indicate goodwill or indefinite-lived intangible assets might be impaired. Impairment testing of goodwill is required at the reporting unit level. We may first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. The quantitative goodwill impairment test involves comparing the estimated fair value of our reporting units with the reporting unit's carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, a goodwill impairment loss is measured as the amount by which a reporting unit\u2019s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. We evaluate our reporting units on an annual basis or when events or circumstances indicate our reporting units might change. \nJudgments and Uncertainties\n. Application of the impairment tests requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units and determining the fair values of reporting units. We estimated the fair values of our reporting units based on weighting of the income and market approaches.\u00a0These models use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Significant estimates and assumptions inherent in the valuations include the amount and timing of future cash flows (including expected growth rates and profitability), the discount rate applied to the cash flows and the selection of guideline companies. The assumptions with the most significant impact on the fair value of our reporting units are those related to the discount rate, the terminal value, future operating cash flows and the growth rate.\nEffect if Actual Results Differ From Assumptions\n. As of April\u00a030, 2023, we had $700.8 million of goodwill and $84.4 million of indefinite-lived intangible assets. Of the total goodwill, $593.0 million was allocated to our eight geographic \n34\nTable of Contents\nreporting units (Central, Midwest, Northeast, Southern, Southeast, Southwest, Western and Canada) and $107.8 million was allocated to our Ames reporting unit. Our fiscal 2023 quantitative impairment test indicated the estimated fair value of our eight geographic reporting units substantially exceeded their carrying values. The estimated fair value of our Ames reporting unit exceeded its carrying value by approximately 4%. If a hypothetical increase of 200 basis points in the discount rate was applied, the carrying value of our Ames reporting unit would have exceeded the estimated fair value. Deterioration of future cash flows in the Ames reporting unit could result in future goodwill impairment. We continue to monitor events and circumstances which may affect the fair value of each reporting unit. There have been no significant events since our fiscal 2023 quantitative impairment test that would have triggered additional impairment testing.\nExamples of events or circumstances that could have a negative effect on the estimated fair value of the Ames reporting unit include (i) changes in industry or market conditions; (ii) changes in operating performance; (iii) a prolonged weakness in general economic conditions; (iv) changes in technology or customer demands that were not anticipated; (v) a sustained decrease in share price; (vi) volatility in the equity and debt markets which could result in a higher discount rate; and (vi) the inability to execute our growth strategy. Although management believes that the estimates used in the evaluation of goodwill are reasonable, if the assumptions used in the impairment analysis are not met or materially change, it could cause goodwill to be impaired.\nOur annual impairment test during the fourth quarters of fiscal 2022 and 2021 indicated the estimated fair values of our reporting units exceeded their carrying values and none of our reporting units were at risk of failing the goodwill impairment test. Our impairment tests for indefinite-lived intangible assets for fiscal 2023, 2022 and 2021 also indicated no impairment. \nIncome Taxes\nDescription\n. Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Inherent in the measurement of deferred balances are certain judgments and interpretations of existing tax law and published guidance as applicable to our operations.\nWe evaluate our deferred tax assets to determine if valuation allowances are required. In assessing the realizability of deferred tax assets, we consider both positive and negative evidence in determining whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The primary negative evidence considered includes the cumulative operating losses generated in prior periods. The primary positive evidence considered includes the reversal of deferred tax liabilities related to depreciation and amortization that would occur within the same jurisdiction and during the carry-forward period necessary to absorb the federal and state net operating losses and other deferred tax assets. The reversal of such liabilities would utilize the federal and state net operating losses and other deferred tax assets.\nWe record amounts for uncertain tax positions that management believes are supportable, but are potentially subject to successful challenge by the applicable taxing authority. Consequently, changes in our assumptions and judgments could materially affect amounts recognized related to income tax uncertainties and may affect our results of operations or financial position. We believe our assumptions for estimates continue to be reasonable, although actual results may have a positive or negative material impact on the balances of such tax positions. Historically, the variation of estimates to actual results is immaterial and material variation is not expected in the future.\nJudgments and Uncertainties\n. We consider the probability of future taxable income and our historical profitability, among other factors, in assessing the amount of the valuation allowance. Significant judgment is involved in this determination, including projections of future taxable income. Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions. Our effective income tax rate is also affected by changes in tax law, our level of earnings and the results of tax audits.\nEffect if Actual Results Differ From Assumptions\n. Although we believe that the judgments and estimates used are reasonable, changes in estimates and assumptions could materially affect the amount or timing of valuation allowances.\nNewly Issued Accounting Pronouncements\nSee Note 1 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for information regarding recently adopted and recently issued accounting pronouncements.\n35\nTable of Contents\nNon-GAAP Financial Measures\nAdjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures.\u00a0We report our financial results in accordance with GAAP. However, we present Adjusted EBITDA and Adjusted EBITDA margin, which are not recognized financial measures under GAAP, because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes Adjusted EBITDA and Adjusted EBITDA margin are helpful in highlighting trends in our operating results, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure and allocation, the tax jurisdictions in which companies operate and capital investments and acquisitions.\nIn addition, we utilize Adjusted EBITDA in certain calculations under our debt agreements. Our debt agreements permit us to make certain additional adjustments in calculating Consolidated EBITDA, such as projected net cost savings, which are not reflected in the Adjusted EBITDA data presented in this Annual Report on Form\u00a010-K. We may in the future reflect such permitted adjustments in our calculations of Adjusted EBITDA.\nWe believe that Adjusted EBITDA and Adjusted EBITDA margin are frequently used by analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA or Adjusted EBITDA margin measure when reporting their results. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.\nWe also include information concerning Adjusted EBITDA margin, which is calculated as Adjusted EBITDA divided by net sales. We present Adjusted EBITDA margin because it is used by management as a performance measure to judge the level of Adjusted EBITDA that is generated from net sales.\nAdjusted EBITDA and Adjusted EBITDA margin have their limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.\nThe following is a reconciliation of our net income to Adjusted EBITDA:\nYear Ended April\u00a030,\u00a0\n2023\n2022\n2021\n(in thousands)\nNet income\n$\n332,991\n$\n273,442\n$\n105,560\nInterest expense\n65,843\n58,097\n53,786\nWrite-off of debt discount and deferred financing fees\n\u2014\n\u2014\n4,606\nInterest income\n(1,287)\n(163)\n(86)\nProvision for income taxes\n114,512\n91,377\n31,534\nDepreciation expense\n61,177\n55,437\n50,480\nAmortization expense\n65,730\n63,795\n57,645\nStock appreciation expense(a)\n7,703\n4,403\n3,173\nRedeemable noncontrolling interests(b)\n1,178\n1,983\n1,288\nEquity-based compensation(c)\n13,217\n10,968\n8,442\nSeverance and other permitted costs(d)\n2,788\n1,132\n2,948\nTransaction costs (acquisitions and other)(e)\n1,961\n3,545\n1,068\nGain on disposal of assets(f)\n(1,413)\n(913)\n(1,011)\nEffects of fair value adjustments to inventory(g)\n1,123\n3,818\n788\nGain on legal settlement\n\u2014\n\u2014\n(1,382)\nDebt transaction costs(h)\n173\n\u2014\n532\nAdjusted EBITDA\n$\n665,696\n$\n566,921\n$\n319,371\nNet sales\n$\n5,329,252\n$\n4,634,875\n$\n3,298,823\nAdjusted EBITDA Margin\n12.5\u00a0\n%\n12.2\u00a0\n%\n9.7\u00a0\n%\n___________________________________\n36\nTable of Contents\n(a)\nRepresents changes in the fair value of stock appreciation rights.\n(b)\nRepresents changes in the fair values of noncontrolling interests.\n(c)\nRepresents non-cash equity-based compensation expense related to the issuance of share-based awards.\n(d)\nRepresents severance expenses and other costs permitted in the calculation of Adjusted EBITDA under the ABL Facility and the Term Loan Facility.\n(e)\nRepresents costs related to acquisitions paid to third parties.\n(f)\nIncludes gains and losses from the sale and disposal of assets.\n(g)\nRepresents the non-cash cost of sales impact of acquisition accounting adjustments to increase inventory to its estimated fair value.\n(h)\nRepresents\u00a0costs paid to third-party advisors related to debt refinancing activities.",
+  "item7a": ">Item\u00a07A. Quantitative and Qualitative Disclosures About Market Risk\nInterest Rate Risk\nWe are exposed to interest rate risk through fluctuations in interest rates on our debt obligations. A significant portion of our outstanding debt bears interest at variable rates. As a result, increases in interest rates could increase the cost of servicing our debt and could materially reduce our profitability and cash flows. We seek to manage exposure to adverse interest rate changes through our normal operating and financing activities, as well as through hedging activities, such as entering into interest rate derivative agreements. Excluding the impact of interest rate derivative agreements, each 1% increase in interest rates on the Term Loan Facility would increase our annual interest expense by approximately $5.0\u00a0million based on the aggregate principal amount outstanding under the Term Loan Facility as of April\u00a030, 2023. Assuming the ABL Facility was fully drawn, each 1% increase in interest rates would result in a $9.5\u00a0million increase in our annual interest expense on the ABL Facility. As of April\u00a030, 2023, $499.5 million aggregate principal amount was outstanding under the Term Loan Facility and $110.0 million was outstanding under the ABL Facility. \nForeign Currency Risk\nWe are exposed to foreign currency exchange rate fluctuations for our operations in Canada, which can adversely impact our net income and cash flows. Approximately 12% of our net sales during the year ended April\u00a030, 2023 were derived from sales to customers in Canada. These operations are primarily conducted in the local currency. This exposes us to risks associated with changes in foreign currency that can adversely affect reported net sales, net income and cash flows. We currently do not enter into financial instruments to manage this foreign currency translation risk.\nCommodity Price Risk\nWe are exposed to changes in prices of commodities used in our operations, primarily associated with energy, such as crude oil, and raw materials, such as steel. We generally manage the risk of changes in commodity prices that impact our costs by seeking to pass commodity-related inflation on to our customers. \n37\nTable of Contents",
+  "cik": "1600438",
+  "cusip6": "36251C",
+  "cusip": ["36251C903", "36251C103"],
+  "names": ["GMS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1600438/000162828023023126/0001628280-23-023126-index.htm"
+}
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+{
+  "item1": ">Item 1.\n Business\nCompany Overview\nKorn Ferry (referred to herein as the \u201cCompany\u201d or in the first-person notations \u201cwe,\u201d \u201cour,\u201d and \u201cus\u201d) is a leading global organizational consulting firm.\nKorn Ferry has evolved from our executive search-focused roots into a company with a more diverse service and digital and other solution offering that is designed to align with our clients\u2019 desire to synchronize their strategy, operations, and talent to drive superior performance. We believe we are the premier organizational consultancy uniquely positioned to leverage our extensive intellectual property to help companies bring talent and strategy together, helping them have the right people in the right places and providing them with the right rewards. We seek to bring their strategies to life by designing their organizational structure and helping them hire, motivate and retain the best people. And we help professionals navigate and advance their career.\nOur fiscal 2023 performance reflects the relevance of our strategy, the top-line synergies created by our end-to-end talent and leadership solutions, and the increasing reach and relevance of the Korn Ferry brand. Thanks to the passion and performance of our colleagues, we have concluded the year with strong results, in what was a very challenging macroeconomic environment.\nDuring fiscal 2023, we worked with almost 15,000 organizations. Our clients include the world\u2019s largest and most prestigious public and private companies, middle-market and emerging growth companies, and government and non-profit organizations. We have built strong client loyalty, with nearly 80% of our engagements in fiscal 2023 completed on behalf of clients for whom we had conducted engagements in the previous three fiscal years. We work with:\n\u2022\n96% of the S&P 100, and 85% of the S&P 500\n\u2022\n94% of the Euronext 100\n\u2022\n85% of the FTSE 100\n\u2022\n91% of the S&P Europe 350\n\u2022\n60% of the S&P Asia 50\n\u2022\n80% of the S&P Latin America 40\nIn addition, we work with:\n\u2022\n3 in every 4 best companies to work for (Fortune Magazine)\n\u2022\n1 in every 2 of the fastest growing companies in the world (Fortune Magazine) \n\u2022\n79% of the world\u2019s top performing companies (Drucker Institute)\n\u2022\n96% of the top 50 world's most admired companies (Fortune Magazine)\nWe also continued to make significant investments across the breadth of our business and in our people. This commitment includes strategic acquisitions and the innovation and development of our platforms, solutions and ways of working. A testament to Korn Ferry\u2019s forward-thinking approach is the acquisition of our third and fourth Interim hiring firms in the last 18 months. This strategic decision has not only boosted our standing, particularly in the Professional Search and Interim sectors, but we believe also enables us to capitalize on significant opportunities for growth while effectively responding to prevailing shifts in the workforce. These shifts include a heightened focus on agility and cost-management, a growing need for specialized expertise and on-demand skills, as well as the accommodation of evolving employee preferences and dynamics within the workforce. These investments are intended to expand our offerings to help us further differentiate ourselves in the marketplace and reflect our continued focus on high-demand areas emerging in this environment.\nA critical driver of our success has been the evolution and maturation of our go-to-market (\u201cGTM\u201d) activities. Our \"Marquee\" and \"Regional\" accounts lead these activities with approximately 340 accounts or 2% of our total clients, representing more than 35% of our total fee revenue. We continue to invest in Global Account Leaders (\u201cGALs\u201d), resulting in us exiting the year with more than 70 colleagues in this role. Leveraging our acquisition of the Miller Heiman Group, we use our own sales effectiveness methodologies and discipline in our Marquee and Regional account programs to drive rates of top-line growth in excess of the rest of our portfolio.\nWe continue to capitalize on the top-line synergies created by our end-to-end solutions that are designed to address the many aspects of an employee\u2019s engagement with their employer. This manifests itself in our ability to continue generating additional fee revenues based on referrals from one line of business to another, generating more than 25% of total fee revenues for fiscal 2023. In fact, by integrating the previously mentioned acquired companies into Korn Ferry, we were able to generate an incremental $50.0 million in fee revenues since November 1, 2021, (the date of acquisition of our first Interim business) through referrals between the acquired companies and our business prior the acquisitions.\nWith vision, innovation and focus as our guide, we believe we are now a company with a more durable business, with greater and expanding relevance, and with an increasingly sustainable level of business and profitability that is poised for further growth in the years to come. \n1\nFiscal 2023 Performance Highlights\nOur results reflect the dedication and hard work of our more than 10,600 talented colleagues. They focus on creating value for our stakeholders, our colleagues themselves, our clients, our shareholders, and the communities in which we operate. \nOur strategic growth reflects a more balanced and sustainable organization.\n\u2022\nOur performance was solid during what can be described as times of macroeconomic and geopolitical turbulence and uncertainty, generating $2,835.4 million in fee revenue, up 8.0% compared to fiscal 2022.\n\u2022\nNet Income Attributable to Korn Ferry was $209.5 million. Operating income and Adjusted EBITDA* were $316.3 million (margin of 11.2%) and $457.3 million (margin of 16.1%), respectively.\n\u2022\nDiluted Earnings Per Share was $3.95.\n\u2022\nDuring fiscal 2023, we continued with our balanced approach to capital allocation. For the full year, the Company invested $254.8 million in acquisitions and $61.0 million in capital expenditures primarily related to the Digital business and corporate infrastructure. We also spent $18.5 million on debt service costs, and returned $93.9 million and $33.0 million to shareholders in the form of share repurchases and dividends, respectively.\n*\nConsolidated Adjusted EBITDA and Consolidated Adjusted EBITDA margin are non-GAAP financial measure and have limitations as analytical tools. See Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of why management believes the presentation of non-GAAP financial measures provide meaningful supplemental information regarding Korn Ferry\u2019s performance.\nThe Korn Ferry Story\nOur Strategy\nOur systematic approach to solving business challenges has us uniquely positioned to build the services and solutions that people, teams and organizations need so that business strategy is implemented and performance follows. Our approach is focused on the following strategic priorities to increase our client and commercial impact:\n1.\nDrive a One Korn Ferry go-to-market strategy through our Marquee and Regional Accounts and integration across solutions and geographies.\n2.\nCreate the Top-of-Mind Brand in Organizational Consulting - Lead innovation through relevant market offerings and evolve our thought leadership around talent strategy.\n3.\nDeliver Client Excellence and Innovation and diversify our offerings into fully integrated, scalable and sustainable client engagements.\n4.\nAdvance Korn Ferry as a Premier Career Destination - Attract and retain top talent through continued investment in building a world-class organization through a capable, motivated, and agile workforce.\n5.\nPursue Transformational M&A Opportunities at the Intersection of Talent and Strategy.\nOur Core Capabilities\nWe continue to integrate, replicate and scale our solutions and to lead innovation in the digitally enabled new world of work. The depth and breadth of our offerings across the talent lifecycle\u2014from attraction to assessment to recruitment to development, management, and reward\u2014place us in a distinctive position. We offer end-to-end solutions\u2014a view into an organization\u2019s entire talent ecosystem\u2014to create positive client outcomes. Our five core capabilities include:\n\u2022\nOrganization Strategy:\n We map talent strategy to business strategy, designing operating models and organization structures that help companies put strategic plans into action.\n\u2022\nAssessment and Succession:\n Our assessment and succession solutions help pinpoint clear and actionable opportunities for growth. Leaders and employees are empowered to take action on their own development, while companies use strategic perspectives to build stronger plans and make smarter investments today and into the future.\n\u2022\nTalent Acquisition:\n From Executive Search, Professional Search & Interim and Recruitment Process Outsourcing (\"RPO\") covering single to multi-hire permanent positions and interim contractors, we help organizations attract and retain the right people across functions, levels and skills.\n\u2022\nLeadership and Professional Development:\n We help develop leaders along each stage of their career with a spectrum of intensive high-touch and scalable high-tech development experiences.\n2\n\u2022\nTotal Rewards:\n We help organizations pay their people fairly for doing the right things with rewards they value at a cost that the organization can afford.\nOur Integrated Solutions\nWe also offer integrated solutions that bring together expertise from across our core capabilities to navigate broader business challenges around leading through change, transforming for growth and keeping top talent.\nOur solutions are powered by the Korn Ferry Intelligence Cloud and are enabled by the combination of our rich and unique data and a suite of Digital Performance Management Tools that combine the expertise of Korn Ferry with the power of Open artificial intelligence (\"AI\"). Focused on business outcomes, the combination of Korn Ferry intellectual property (\"IP\") and advanced technology enables our experts to deliver actionable insights and personalized recommendations accurately and efficiently. These solutions include:\n\u2022\nWorkforce Transformation\n: We offer practical and pragmatic solutions to support organizations in re-shaping workforces for the future. These solutions are designed to enhance workforce productivity, agility, engagement, and alignment with the organization's strategic goals.\n\u2022\nCost Optimization\n: We work with leaders to manage cost drivers: organization, people and rewards. We help make client organizations fit for the future by putting in place strategies designed to enable our clients to achieve cost reductions while maintaining performance and growth.\n\u2022\nLeadership Development and Coaching at Scale\n: Businesses need to prepare for the future by creating a culture of learning that helps them quickly adapt to new trends and demands. Leveraging our Korn Ferry Advance platform, we combine our expertise in leadership development with technology to provide quality coaching and development at scale across organizations.\n\u2022\nM&A Solutions\n: We use a framework that helps organizations look beyond balance sheets and focus on people. From the assessment and selection of leaders to drive the go-forward strategy, to the future organization design and governance, we help shape the combined purpose, ensure you have the right people in the right roles and craft the integration and change management activities to maximize the investment. We also help buyers achieve leadership and cultural accretive acquisitions which drive superior financial results.\n\u2022\nEnvironmental, Social & Governance (\"ESG\") and Sustainability\n: We believe our people-focused approach to ESG practices contribute to long-term value creation. By aligning strategy, people and business operations in this area, we help companies build resilience, foster innovation, and improve their reputation, positioning them for sustainable growth and success in both turbulent and prosperous times.\n\u2022\nDiversity, Equity & Inclusion\n: We believe diverse and inclusive organizations drive better business performance, attract and retain high-caliber talent, foster innovation for competitive advantage, and enhance brand reputation. Our expertise in this area runs deep. We help clients comply and create more inclusive, equitable, and successful organizations reflective of today's diverse and interconnected world.\n\u2022\nSales Effectiveness powered by KF Sell\n: Today's selling environment is more complex than ever, with sales teams challenged to deliver value. Sellers need the right tools, training, and approach to be successful. Korn Ferry leverages the KF Sell platform and award-winning Miller-Heiman sales methodology to help organizations achieve their top-line growth objectives.\n\u2022\nCareer Mobility for Tech Talent powered by KF Career:\n We retain, engage and develop tech talent to create a competitive advantage for our clients' organizations. For example, using KF Career for Tech, clients can benchmark their teams, identify skill gaps, create career mobility for tech talent and deliver a progressive employee experience where the individuals, team and company move together in synergy.\nOur Businesses \nThe Company has recently acquired companies that have added critical mass to our existing Professional Search & Interim business. This provided the Chief Operating Decision Maker (\"CODM\") with the opportunity to reassess how he managed and allocated resources to the prior RPO & Professional Search segment. Therefore, beginning in fiscal 2023, the Company separated RPO & Professional Search into two segments to align with the CODM's strategy to make separate resource allocation decisions and assess performance separately between Professional Search & Interim and RPO.\nThe Company now has eight reportable segments that operate through the following five lines of business, supported by a corporate center. This structure allows us to bring our resources together to focus on our clients and partner with them to solve the challenges they face in their businesses.\n1.\nConsulting\n aligns organizational structure, culture, performance, development, and people to drive sustainable growth by addressing four fundamental organizational and talent needs: Organization Strategy, Assessment and Succession, Leadership and Professional Development, and Total Rewards. We enable this work with a comprehensive set of Digital Performance Management Tools, based on our best-in-class IP and \n3\ndata. The Consulting teams employ an integrated approach across our core capabilities and integrated solutions described above to help clients execute their strategy in a digitally enabled world. \nSummary of financial fiscal 2023 highlights:\n\u2022\nFee revenue was $677.0 million, an increase of 4.0% compared to fiscal 2022, representing 24% of total fee revenue.\n\u2022\nAdjusted EBITDA and Adjusted EBITDA margin were $108.5 million and 16.0%, respectively.\n\u2022\nThe number of consulting and execution staff at year-end was 1,853 with an increase in the average bill rate (fee revenue divided by the number of hours worked by consultants and execution staff) of $10 per hour or 3% compared to fiscal 2022.\nClient Base\n\u2014During fiscal 2023, the Consulting segment partnered with over 4,800 clients across the globe, and 28% of Consulting\u2019s fiscal 2023 fee revenue was referred from Korn Ferry\u2019s other lines of business. Our clients come from the private, public, and not-for-profit sectors across every major industry and represent diverse business challenges.\nCompetition\n\u2014The people and organizational consulting market is fragmented, with different companies offering our core solutions. Our competitors include consulting organizations affiliated with accounting, insurance, information systems, and strategy consulting firms such as McKinsey, Willis Towers Watson and Deloitte. We also compete with smaller boutique firms specializing in specific regional, industry, or functional leadership and human resources (\"HR\") consulting aspects.\n2.\nDigital\n develops technology-enabled Performance Management Tools that empower our clients. At the core of our offerings is the proprietary Korn Ferry Intelligence Cloud platform. With access to six billion data points and fortified by our established success methodology, this platform drives a range of Digital Performance Management Tools. Through these tools, our consultants can analyze business data, benchmark against industry best practices, and deliver personalized recommendations. Additionally, our clients and their employees can independently utilize these digital tools to identify, implement, and maintain performance enhancements at scale. Our Digital products include:\n\u2022\nKF Assess: Puts the right people, with the right skills in place to deliver.\n\u2022\nKF Architect: Streamlines the way jobs are designed, organized and evaluated.\n\u2022\nKF Listen: Provides insight to understand and improve the employee experience.\n\u2022\nKF Sell: Creates a consistent, repeatable sales strategy to maximize sales effectiveness.\n\u2022\nKF Pay: Compares and develops the best pay structures to motivate people to perform at their best.\n\u2022\nKF Career for Tech: Upskill, reskill, develop and deploy an optimized technology workforce. \nSummary of financial fiscal 2023 highlights:\n\u2022\nFee revenue was $354.7 million, an increase of 2.0% compared to fiscal 2022, representing 13% of total fee revenue.\n\u2022\nSubscription and License fee revenue was $119.7 million, an increase of 10% compared to fiscal 2022.\n\u2022\nAdjusted EBITDA and Adjusted EBITDA margin were $97.5 million and 27.5%, respectively.\nClient Base\n\u2014During fiscal 2023, the Digital segment partnered with over 8,300 clients across the globe, and 34% of Digital\u2019s fiscal 2023 fee revenue was referred from Korn Ferry\u2019s other lines of business, primarily Consulting. Our clients come from the private, public and not-for-profit sectors, across every major industry and represent diverse business challenges.\nCompetition\n\u2014Again, competition is fragmented in this sector. We compete with specialist suppliers, and boutique and large consulting companies in each solution area such as AON, Mercer, Willis Towers Watson, SHL, Fuel 50, SkillSoft, Criteria, Predictive Index, Prevue Hire and Textlio. One of our advantages is linking our data, IP and our technology platform across our solutions. This allows us to give organizations an end-to-end view of talent.\n3.\nExecutive Search\n helps organizations recruit board-level, chief executive, and other C-suite/senior executive and general management talent to deliver lasting impact. Our approach to placing talent brings together our research-based IP, proprietary assessments and behavioral interviewing with our practical experience to determine the ideal organizational fit. Salary benchmarking then helps us build appropriate frameworks for compensation and attraction. This business is managed and reported on a geographic basis and represents four of the Company\u2019s reportable segments (Executive Search North America, Executive Search Europe, the Middle East and Africa (\"EMEA\"), Executive Search Asia Pacific (\"APAC\") and Executive Search Latin America). \n4\nSummary of financial fiscal 2023 highlights:\n\u2022\nFee revenue was $875.8 million, a decrease of 6% compared to fiscal 2022, representing 31% of total fee revenue.\n\u2022\nAdjusted EBITDA and Adjusted EBITDA margin were $205.8 million and 23.5%, respectively.*\n\u2022\nIn fiscal 2023, we opened more than 6,300 new engagements with an average of 594 consultants. \n*Executive Search Adjusted EBITDA and Executive Search Adjusted EBITDA margin are non-GAAP financial measures and have limitations as analytical tools. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of why management believes the presentation of these non-GAAP financial measures provide meaningful supplemental information regarding Korn Ferry's performance.\nConsultants are organized in six broad industry groups and bring an in-depth understanding of the market conditions and strategic management issues clients face within their industries and geographies. In addition, we regularly look to expand our specialized expertise through internal development and strategic hiring in targeted growth areas.\nFunctional Expertise \n\u2014 We also have organized centers of functional expertise. This helps our teams comprehensively grasp the specific requirements and nuances involved in the role itself. These partners bring a deep understanding of the functional dynamics\u2013from strategy through to execution-enabling them to identify and place candidates who possess the necessary skills, knowledge, and experience to excel in the role.\nPercentage of Fiscal 2023 Assignments Opened by Functional Expertise\nBoard Level/CEO/CFO/Senior Executive and General Management\n78\u00a0\n%\nFinance and Control\n7\u00a0\n%\nInformation Systems\n4\u00a0\n%\nMarketing and Sales\n4\u00a0\n%\nManufacturing/Engineering/Research and Development/Technology\n4\u00a0\n%\nHuman Resources and Administration\n3\u00a0\n%\nClient Base\n\u2014Our more than 4,000 Executive Search engagement clients in fiscal 2023 include many of the world\u2019s largest and most prestigious public and private companies\n. \nCompetition\u2014\nOur Executive Search line of business competes with specialist global executive search firms, such as Egon Zehnder, Heidrick & Struggles International, Inc., Russell Reynolds Associates and Spencer Stuart. We also compete with smaller boutique firms specializing in regional, industry, or functional searches. We believe our brand name, differentiated business model, systematic approach to client service, innovative technology, unique IP, global network, prestigious clientele, strong specialty practices and high-caliber colleagues are recognized worldwide. We also believe our long-term incentive compensation arrangements and other executive benefits distinguish us from most of our competitors and are essential in attracting and retaining our top consultants.\n4.\nProfessional Search & Interim \ndelivers enterprise talent acquisition solutions for professional level middle and upper management. The Company helps clients source high-quality candidates at speed and scale globally, covering single-hire to multi-hire permanent placements and interim contractors (that are focused on senior executive, information technology (\"IT\"), Finance & Accounting and HR roles). During fiscal 2023, we acquired Infinity Consulting Solutions, a provider of IT interim talent. We also acquired Salo LLC, a provider of finance, accounting and HR interim talent.\nSummary of financial fiscal 2023 highlights:\n\u2022\nFee revenue was $503.4 million, an increase of 69% compared to fiscal 2022, representing 18% of total fee revenue.\n\u2022\nAverage bill rates increased by 26% to $115 per hour in the last quarter of fiscal 2023 from $91 per hour as of January 31, 2022, which was the quarter we acquired our first interim business. Average bill rates represent fee revenue from interim services divided by the number of hours worked by consultants providing those services.\n\u2022\nAdjusted EBITDA and Adjusted EBITDA margin were $110.9 million and 22.0%, respectively.\nClient Base\n\u2014During fiscal 2023, the Professional Search & Interim segment partnered with more than 4,000 clients across the globe, and 32% of Professional Search & Interim\u2019s fiscal 2023 fee revenue was referred from Korn Ferry\u2019s other lines of business.\n5\nCompetition\n\u2014We primarily compete for Professional Search & Interim business with regional contingency and large national retained recruitment firms such as Robert Half, Michael Page, Harvey Nash, Robert Walters and BTG. We believe our competitive advantage is distinct. We are strategic, collaborating with clients to hire best-fit candidates using our assessment IP, proprietary technology and professional recruiters. Our Talent Delivery Centers provide our teams with increased scalability, multilingual capabilities, global reach and functional specialization. We also work under the One Korn Ferry umbrella to help clients plan for their broader talent acquisition needs as part of their business strategy planning.\n5.\nRPO \noffers scalable recruitment outsourcing solutions leveraging customized technology and talent insights. The Company's scalable solutions, built on science and powered by best-in-class technology and consulting expertise, enable the Company to act as a strategic partner in clients\u2019 quest for superior recruitment outcomes and better candidate fit.\nSummary of financial fiscal 2023 highlights:\n\u2022\nFee revenue was $424.6 million, an increase of 8% compared to fiscal 2022, representing 15% of total fee revenue.\n\u2022\nAdjusted EBITDA and Adjusted EBITDA margin were $52.6 million and 12.4%, respectively.\nClient Base\n\u2014During fiscal 2023, the RPO segment partnered with more than 300 clients across the globe, and 54% of RPO fiscal 2023 fee revenue was referred from Korn Ferry\u2019s other lines of business.\nCompetition\n\u2014We primarily compete for RPO business with other global RPO providers such as Cielo, Alexander Mann Solutions, IBM, Allegis, Kelly Services and Randstad.\nFinally, our corporate center manages finance, legal, technology/IT, HR, marketing, and our research arm, the Korn Ferry Institute.\nWe help clients in four geographic markets: North America, Latin America, EMEA, and APAC. Our geographic markets bring together capabilities from across the organization\u2014infusing industry and functional expertise and skills\u2014to deliver value to our partners.\nWe operate in 108 offices in 53 countries, helping us deliver our solutions globally, wherever our clients do business. We continue our commitment to diversity and inclusion, hiring, promoting, and extending opportunities to women and underrepresented groups. As of April 30, 2023, 70% of our workforce in the U.S. is female or from an underrepresented group. Broken down further, 62% of our workforce in the U.S. is female, and 64% of our global workforce is female. Our global age demographic is 53% Millennials (ages 26-41) and 8% Gen Z/Centennials (ages 25 and below). As of April 30, 2023, we had 10,697 full-time employees:\nConsultants and execution staff\n1\nSupport staff\n2\nTotal employees\nConsulting\n1,853\n363\n2,216\nDigital\n347\n1,077\n1,424\nExecutive Search\n602\n1,218\n1,820\nProfessional Search & Interim\n498\n591\n1,089\nRPO\n180\n3,750\n3,930\nCorporate\n\u2014\n218\n218\nTotal\n3,480\n7,217\n10,697\n1\nConsultants and execution staff, primarily responsible for originating client services\n2\nSupport staff includes associates, researchers, administrative, and support staff\nBusiness Challenges We Solve\nOur judgment and expertise have been built from decades of experience and insight into the business challenges companies are grappling with across industries. We work to understand the relevant macro trends impacting society and the future of work. After the reopening that followed the global pandemic, it is evident that the world of work has permanently changed and with the emergence of technologies like artificial intelligence (\"AI\"), the evolution continues. We support our clients amid a time of enormous transition and change, with these specific business challenges: \n\u2022\nTransforming\n businesses while delivering robust performance. \n\u2022\nSolving\n leadership challenges arising from the new landscape of hybrid and remote working.\n\u2022\nDelivering\n for people, planet, and profit, and assisting with ESG and other corporate strategic initiatives.\n6\n\u2022\nFinding\n the right talent in a dynamic and dislocated labor market. \n\u2022\nEngaging\n and motivating employees so companies can retain and reward their talent.\n\u2022\nSupporting\n the work-scape transition from a place of work to collaboration spaces.\n\u2022\nBuilding\n work environments that are inclusive and free from bias.\n\u2022\nEngaging and Reward\n to retain top talent.\nOur Proprietary Data\nWe manage and leverage more than six billion data points, including: \n\u2022\nOver 98 million assessments.\n\u2022\nEngagement data on approximately 33 million employees.\nAnd we hold:\n\u2022\nRewards data on more than 30 million people covering some 30,000 organizations. \n\u2022\nMore than 10,000 individual success profiles covering over 30,000 job titles.\n\u2022\nOrganizational benchmark data on more than 12,000 entities.\n\u2022\nCulture surveys on approximately 600 entities and 7.2 million respondents.\n\u2022\nPay policy and practice data on more than 150 countries.\nInnovation & Intellectual Property \nKorn Ferry is dedicated to developing leading-edge services and leveraging innovation. We have made investments in technology, learning platforms, virtual coaching, individual learning journeys, data insights, and intellectual property that permeates all our solutions. With these investments, we are transforming how clients address their talent management needs. We have evolved from a mono-line business to a multi-faceted consultancy, giving our consultants more opportunities to engage with clients. The expansion of our business into larger markets offers higher growth potential and more durable and visible revenue streams.\nThe Korn Ferry Institute\nThe Korn Ferry Institute is our research and analytics arm. The Korn Ferry Institute develops robust research, innovative IP, and advanced analytics to enable Korn Ferry employees to partner with people and organizations to activate their potential and succeed. \nWe have built the Korn Ferry Institute on three core pillars:\n1.\nRobust Research and Thought Leadership to anticipate and innovate\n: We explore trends and define leadership and human and organizational performance for a fast-changing economy. Some project examples from fiscal 2023 include research around:\n\u2022\nPurpose\n\u2022\nESG\n\u2022\nNeuroscience\n\u2022\nGen Z\n2.\nDifferentiated IP development supported by leading-edge science and enablement\n: We develop and measure what is required for success at work in the new economy. Examples from fiscal 2023 include IP around: \n\u2022\nInclusive Language and Leadership\n\u2022\nLearning Agility\n\u2022\nCareer Mobility\n\u2022\nAssessments and Interactive Feedback \n3.\nClient Advanced Analytics and Data Management to generate insights:\n We integrate and build upon our datasets and external data using advanced modeling and AI. This allows us to produce predictive insights and deliver demonstrable client impact. During fiscal 2023, we supported the following:\n\u2022\nOn-demand Assessment Analytics\n7\n\u2022\nDemographics and Job Factors\n\u2022\nPsychometrics\nIn the fiscal year ahead, we intend to continue innovating to drive even greater business and societal impact to:\n\u2022\nProvide research and modeling on the future of work, our solution areas, and industries to support growth and help our science, research and IP remain innovative and relevant.\n\u2022\nInnovate and refine knowledge to strengthen IP, educate colleagues, expand analytics capabilities, and maximize impact across solutions and markets.\nGlobal Delivery Capability\nWe believe a key differentiator for us is our global delivery capability. This allows us to support the varied parts of our business to give clients value-added services and solutions across the globe. We believe we can bring the right people from anywhere in the world to our clients at the right time both in physical and virtual working environments, which is a capability that is particularly crucial as business needs and conditions continue to change rapidly.\nCompetition \nKorn Ferry operates in a rapidly changing global marketplace with a diverse range of organizations that offer services and solutions like those we offer. However, we believe no other company provides the same full range of services, uniquely positioning us for success in this highly fragmented, talent management landscape.  \nOur Market and Approach\nIndustry Recognition\nOur company culture and excellent work within the industry are widely recognized. Some highlights from fiscal 2023 include global industry awards and accolades in recognition of performance and achievements: \n\u2022\nNamed America's Number One Executive Recruiter Firm 2023, Forbes\n\u2022\nNamed among the top 20 on Training Industries\u2019 2023 Top Sales Training & Enablement Companies\n\u2022\nNamed in America's Best Management Consulting Firms list in 2023, Forbes\n\u2022\nLeader level Carbon Disclosure Project (\"CDP\") Rating for 2022 response to climate change questionnaire\n\u2022\nGold Medal for Sustainability rating from EcoVadis 2022\n\u2022\nGold HIRE Vets Medallion Award 2022, US Department of Labor\n\u2022\nRecognized by Seramount (formerly Working Mother Media) in the best Companies for Parents list 2022, in the Best Companies for Dads list 2022, and as a Top Company in the Executive Women list 2022\n\u2022\nTop Global RPO Provider, RPO Baker's Dozen List 2022, HRO Today\n\u2022\nRecognized as a Leader in Recruitment Process Outsourcing in Everest Group's PEAK Matrix Assessment 2022\nOur Go-To-Market Approach\nOur go-to-market strategy brings together Korn Ferry\u2019s core solutions to drive more integrated, scalable client relationships. Our goal is to drive topline synergies by increasing growth in the crossline of business referrals. This has been successful as during fiscal 2023, approximately 80% of revenue came from clients using multiple lines of our business, consistent with fiscal 2022.\nWe intend to continue evolving integrated solutions along industry lines to drive cross-geography and cross-solution referrals. Our Marquee and Regional Accounts program is a pillar of our growth strategy, which now comprises more than one-third of our revenue, yet only 2% of our clients. Its success has been realized by using our own IP and by following a disciplined approach to account planning and management with the addition of Global Account Leaders, resulting in more enduring relationships with clients. We believe building long-term client relationships of scale delivers less cyclical, more resilient revenue and new business through structured, programmatic account planning and strategic investments in account management talent. \nElevating our Brand\nCollaboration between sales, marketing, research and business teams has enabled wider recognition for Korn Ferry in the market and a deeper connection with our customers through our thought leadership and the sharing of timely, news-driven content designed to inspire and challenge conventional points of view around workplace topics.\n8\nThe provocation we put out into the world is to \nBe More Than\n. \nBe More Than\n is about identifying and unleashing potential. Bring the right opportunity, to the right person, at the right time and it will change \ntheir\n world. Get people focused, aligned, believing and working together and it can change \nthe\n world.\nThe principles behind \nBe More Than\n guide our thinking and behavior and represent our commitment to our clients and to each other. We help unleash potential in people to enable thriving, high-performing teams that collectively power sustainable growth and transform businesses.\nOur People\nCulture and Workforce\nOur culture has evolved tremendously over the years with a team spirit of working together across different offices, regions, and practices. We strive to foster a supportive, respectful culture where everyone feels valued for their contribution, can do their best work and exceed their potential. Our approach to talent acquisition, development, recognition, engagement and benefits are designed to support this approach. Our priority is to hire without bias and provide under-represented talent with equal opportunity across the firm. We work hard to build an environment of recognition by acknowledging others and appreciating their contributions and achievements. Our global talent promotion process recognizes colleagues for exceptional dedication and service to clients, embracing our firm's purpose and values, outstanding collaboration and stretching to meet expectations. We believe diversity drives innovation and connects us to our customers and communities. We are committed to building strong teams of people with diverse experiences, backgrounds, and perspectives.\nOur Beliefs and Behaviors\nOur culture starts with our values of \nInclusion, Honesty, Knowledge, and Performance\n. Our values set the standard for what we expect of all our people. They also reflect the experience we want our clients to have when they work with us. We seek to embrace people with different points of view. We actively help our colleagues grow and develop with mentoring and support. We strive to learn, grow, to be better today than we were yesterday, and always do our best for our clients, colleagues, and shareholders.\nAs a global corporation, our commitment is to act ethically, which begins with each of us. This thinking is embedded in our core values and guides how we work together and with others. We strongly believe in a radically human approach, striving for empathy, honesty and authenticity across our interactions. \nDeveloping and Rewarding Our People\nWe focus on making Korn Ferry a firm that energizes, develops, rewards and empowers people to pursue their passions and help our business succeed. Our global talent promotion process recognizes colleagues for exceptional dedication and service to clients. We run promotion cycles twice a year to allow us to appreciate the contribution of colleagues more frequently. In fiscal 2023, we promoted over 1,200 people in our five lines of business and Corporate.\nWe offer competitive benefits across the globe customized to each country we operate in based on market prevalence and cultural relevance. The Korn Ferry Cares benefits strategy focuses on keeping our colleagues and their families healthy \u2013 physically, emotionally, financially, and socially. Our progressive benefit offerings in the U.S. helped us earn top recognitions by Seramount (formerly Working Mother Media) as the best company for Parents 2022, Top Company for Dads 2022, Top Company for Female Professionals 2022, and as one of the Human Rights Campaign\u2019s Best Places to Work for LGBTQ Equality 2022.\nWe believe in teaching and mentoring to support our colleagues\u2019 career growth and success. These efforts have fostered stability and expertise in our workforce. Development happens broadly throughout the organization, from our formal mentoring program to direct training on our learning management platform, iAcademy. We also champion a range of career and leadership programs, such as our Mosaic program for diverse high-potentials, Leadership U for Korn Ferry, and Leadership U PLUS for Korn Ferry colleagues, an internal leadership development program. We use our Korn Ferry Advance platform, used externally by clients for career coaching and career development, as an internal development program platform.\nWe run a global colleague advisory council that offers feedback to senior leadership on the colleague experience within Korn Ferry. Also, our internal employee engagement program, the Korn Ferry Founder Awards, recognizes and celebrates exceptional performance. \nEmployee Well-being \nThe well-being of our employees is a focus. We run a series of initiatives to support employee well-being and instill an organizational culture of health, including an Employee Assistance program, mental health awareness campaigns, well-being webinars, flexible work schedules and parental support for distance learning. \nOur employee safety\nWe are committed to creating a place where people can be successful professionally and personally. In response to the pandemic, we developed and implemented new practices designed to prioritize the health and safety of our employees and clients. \n9\nAvailable Information\nWe file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (the \"SEC\"), according to the Securities Exchange Act of 1934, as amended (the \"Exchange Act\"). Our reports, proxy statements, and other documents filed electronically with the SEC are available at the website maintained by the SEC at \nhttps://www.sec.gov.\nWe also make available, free of charge on the Investor Relations portion of our website at http://ir.kornferry.com, those annual, quarterly, and current reports, and, if applicable, amendments to those reports, filed or furnished under Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC at www.sec.gov.\nOur Corporate Governance Guidelines, Code of Business Conduct and Ethics, and the charters of the Audit Committee, Compensation and Personnel Committee, and Nominating and Corporate Governance Committee of our Board of Directors are also posted on the Investor Relations portion of our website at \nhttp://ir.kornferry.com\n. Stockholders may request copies of these documents by writing to our Corporate Secretary at 1900 Avenue of the Stars, Suite 1500, Los Angeles, California 90067.\nIn addition, we make available on the Investor Relations portion of our website at http://ir.kornferry.com press releases and related earnings presentations and other essential information, which we encourage you to review.",
+  "item1a": ">Item 1A. \nRisk Factors\nThe discussion below describes the material factors, events, and uncertainties that make an investment in our securities risky, and these risk factors should be considered carefully together with all other information in this Annual Report, including the financial statements and notes thereto. It does not address all of the risks that we face, and additional risks not presently known to us or that we currently deem immaterial may also arise and impair our business operations. Our business, financial condition or results of operations could be materially adversely affected by the occurrence of any of these risks.\nRisks Related to Our Business\nOur inability to successfully recover should we experience a disaster or other business continuity problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.\nShould we experience a disaster or other business continuity problem, such as an earthquake, hurricane, terrorist attack, security breach, power loss, telecommunications failure or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our office facilities, and the proper functioning of our computer, telecommunication and other related systems and operations. In such an event, we could experience near-term operational challenges with regard to particular areas of our operations. In particular, our ability to recover from any disaster or other business continuity problem will depend on our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations. For example, much of our corporate staff are based in California, which has a high level of risk from wildfires and earthquakes. The impacts of climate change present notable risks, including damage to assets and technology caused by extreme weather events linked to climate change and may otherwise heighten or exacerbate the occurrence of such weather events. We could potentially lose client data or experience material adverse interruptions to our operations or delivery of services to our clients in a disaster. A disaster on a significant scale or affecting certain of our key operating areas within or across regions, or our inability to successfully recover should we experience a disaster, pandemic or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm, damaged client relationships or legal liability.\nWe are limited in our ability to recruit candidates from certain of our clients due to off-limit agreements with those clients and for client relation and marketing purposes. Such limitations could harm our business.\nEither by agreement with clients, or for client relations or marketing purposes, we are required to or elect to refrain from, for a specified period of time, recruiting candidates from a client when conducting searches on behalf of other clients. These off-limit agreements can cause us to lose search opportunities to our competition. The duration and scope of the off-limit agreement, including whether it covers all operations of the client and its affiliates or only certain divisions of a client, generally are subject to negotiation or internal policies and may depend on factors such as the scope, size and complexity of the client\u2019s business, the length of the client relationship and the frequency with which we have been engaged to perform executive and professional searches for the client. We cannot ensure that off-limit agreements will not impede our growth or our ability to attract and serve new clients, or otherwise harm our business.\nWe face significant competition. Competition in our industries could result in lost market share, reduced demand for our services, and/or require us to charge lower prices for our services, which could adversely affect our operating results and future growth.\nWe continue to face significant competition to each of our services and product offerings. The human resource consulting market has been traditionally fragmented and a number of large consulting firms, such as McKinsey, Willis Towers Watson and Deloitte have built businesses in human resource consulting to serve these needs. Our consulting business line has and \n10\ncontinues to face competition from human resource consulting businesses. Many of these competitors are significantly larger than Korn Ferry and have considerable resources at their disposal, allowing for potentially significant investment to grow their human resource consulting business. Digital products in the human resource market have been traditionally fragmented and a number of firms such as AON, Mercer, Willis Towers Watson, SHL, Fuel 50, SkillSoft, Criteria, Predictive Index, Prevue Hire and Textio offer competitive products. Competitors in the digital marketplace are a combination of large, well-capitalized firms and niche players who have received multiple rounds of private financing. Increased competition, whether as a result of professional and social networking website providers, traditional executive search firms, sole proprietors and in-house human resource professionals (as noted above) or larger consulting firms building human resources consulting businesses, may lead to pricing pressures that could negatively impact our business. For example, increased competition could require us to charge lower prices, and/or cause us to lose market share, each of which could reduce our fee revenue.\nOur executive search services face competition from both traditional and non-traditional competitors that provide job placement services, including other large global executive search firms, smaller specialty firms and web-based firms. We also face increased competition from sole proprietors and in-house human resource professionals whose ability to provide job placement services has been enhanced by professional profiles made available on the internet and enhanced social media-based search tools. The continued growth of the shared economy and related freelancing platform sites may also negatively impact demand for our services by allowing employers seeking services to connect with employees in real time and without any significant cost. Traditional executive search competitors include Egon Zehnder, Heidrick & Struggles International, Inc., Russell Reynolds Associates and Spencer Stuart. In each of our markets, one or more of our competitors may possess greater resources, greater name recognition, lower overhead or other costs and longer operating histories than we do, which may give them an advantage in obtaining future clients, capitalizing on new technology and attracting qualified professionals in these markets. Additionally, specialty firms can focus on regional or functional markets or on particular industries and executive search firms that have a smaller client base are subject to fewer off-limits arrangements. There are no extensive barriers to entry into the executive search industry and new recruiting firms continue to enter the market. \nWe believe the continuing development and increased availability of information technology will continue to attract new competitors, especially web-enabled professional and social networking website providers, and these providers may be facilitating a company\u2019s ability to insource their recruiting capabilities. Competitors in these fields include SmashFly, iCIMS, Yello, Indeed, Google for Jobs and Jobvite. As these providers continue to evolve, they may develop offerings similar to or more expansive than ours, thereby increasing competition for our services or more broadly causing disruption in the executive search industry. Further, as technology continues to develop and the shared economy continues to grow, we expect that the use of freelancing platform sites will become more prevalent. As a result, companies may turn to such sites for their talent needs, which could negatively impact demand for the services we offer.\nOur RPO services primarily compete for business with other RPO providers such as Cielo, Alexander Mann Solutions, IBM, Allegis, Kelly Services and Randstad while Professional Search & Interim services compete for mid-level professional search assignments with regional contingency recruitment firms and large national retained recruitment firms such as Robert Half, Michael Page, Harvey Nash, Robert Walters, TekSystems and BTG. In addition, some organizations have developed or may develop internal solutions to address talent acquisition that may be competitive with our solutions. This is a highly competitive and developing industry with numerous specialists. To compete successfully and achieve our growth targets for our talent acquisition business, we must continue to support and develop assessment and analytics solutions, maintain and grow our proprietary database, deliver demonstrable return on investment to clients, support our products and services globally, and continue to provide consulting and training to support our assessment products. Our failure to compete effectively could adversely affect our operating results and future growth.\nFailure to attract and retain qualified and experienced consultants could result in a loss of clients which in turn could cause a decline in our revenue and harm to our business. \nWe compete with other executive, professional search and interim and consulting firms for qualified and experienced consultants. These other firms may be able to offer greater bonuses, incentives or compensation and benefits or more attractive lifestyle choices, career paths, office cultures, or geographic locations than we do. Competition for these consultants typically increases during periods of wage inflation, labor constraints, and/or low unemployment, such as the environment experienced in calendar year 2022, and can result in material increases to our costs and stock usage under authorized employee stock plans, among other impacts.\nAttracting and retaining consultants in our industry is particularly important because, generally, a small number of consultants have primary responsibility for a client relationship. Because client responsibility is so concentrated, the loss of key consultants may lead to the loss of client relationships. In fiscal 2023, our top six consultants (Executive Search and Consulting) generated business equal to approximately 2% of our total fee revenues. Furthermore, our top ten consultants (Executive Search and Consulting) generated business equal to approximately 6% of our total fee revenues. This risk is heightened due to the general portability of a consultant\u2019s business: consultants have in the past, and will in the future, terminate their employment with our Company. Any decrease in the quality of our reputation, reduction in our compensation levels relative to our peers or modifications of our compensation program, whether as a result of insufficient revenue, a decline in the market price of our common stock or for any other reason, could impair our ability to retain existing consultants or attract additional qualified consultants with the requisite experience, skills and established client relationships. Our failure \n11\nto retain our most productive consultants, whether in Executive Search, Consulting, Digital, Professional Search & Interim or RPO, or maintain the quality of service to which our clients are accustomed, as well as the ability of a departing consultant to move business to his or her new employer, could result in a loss of clients, which could in turn cause our fee revenue to decline and our business to be harmed. We may also lose clients if the departing consultant has widespread name recognition or a reputation as a specialist in his or her line of business in a specific industry or management function. We could also lose additional consultants if they choose to join the departing consultant at another executive search or consulting firm. Failing to limit departing consultants from moving business or recruiting our consultants to a competitor could adversely affect our business, financial condition and results of operations. \nWe are working to advance culture change through the continued implementation of diversity, equity and inclusion (\"DE&I\") initiatives throughout our organization and the shift to a hybrid work environment. If we do not or are perceived not to  successfully implement these initiatives, our ability to recruit, attract and retain talent may be adversely impacted and shifts in perspective and expectations about social issues and priorities surrounding DE&I may occur at a faster pace than we are capable of managing effectively. If we are unable to identify, attract and retain sufficient talent in key positions, it may prevent us from achieving our strategic vision, disrupt our business, impact revenues, increase costs, damage employee morale and affect the quality and continuity of client service. In addition, risks associated with our recent reduction in headcount may be exacerbated if we are unable to retain qualified personnel.\nWe are highly dependent on the continued services of our small team of executives.\nWe are dependent upon the efforts and services of our relatively small executive team. The loss for any reason, including retirement of any one of our key executives, could have an adverse effect on our operations and our plans for executive succession may not sufficiently mitigate such losses. \nFailing to maintain our professional reputation and the goodwill associated with our brand name could seriously harm our business.\nWe depend on our overall reputation and brand name recognition to secure new engagements and to hire qualified professionals. Our success also depends on the individual reputations of our professionals. We obtain a majority of our new engagements from existing clients or from referrals by those clients. Any client who is dissatisfied with our services can adversely affect our ability to secure new engagements. If any factor, including poor performance or negative publicity, whether or not true, hurts our reputation, we may experience difficulties in competing successfully for both new engagements and qualified consultants, which could seriously harm our business.\nAs we develop new services, clients and practices, enter new lines of business, and focus more of our business on providing a full range of client solutions, the demands on our business and our operating and legal risks may increase.\nAs part of our corporate strategy, we are attempting to leverage our research and consulting services to sell a full range of services across the life cycle of a policy, program, project or initiative, and we are regularly searching for ways to provide new services to clients, such as our recent entry into the Interim business and strategic acquisitions. This strategy, even if effectively executed, may prove insufficient in light of changes in market conditions, workforce trends, technology, competitive pressures or other external factors. In addition, we plan to extend our services to new clients and into new lines of business and geographic locations. As we focus on developing new services, clients, practice areas and lines of business; open new offices; acquire or dispose of business; and engage in business in new geographic locations, our operations are exposed to additional as well as enhanced risks.\nIn particular, our growth efforts place substantial additional demands on our management and staff, as well as on our information, financial, administrative and operational systems. We may not be able to manage these demands successfully. Growth may require increased recruiting efforts, opening new offices, increased business development, selling, marketing and other actions that are expensive and entail increased risk. We may need to invest more in our people and systems, controls, compliance efforts, policies and procedures than we anticipate. Therefore, even if we do grow, the demands on our people and systems, controls, compliance efforts, policies and procedures may exceed the benefits of such growth, and our operating results may suffer, at least in the short-term, and perhaps in the long-term.\nEfforts involving a different focus and/or new services, clients, practice areas, lines of business, offices and geographic locations entail inherent risks associated with our inexperience and competition from mature participants in those areas. Our inexperience may result in costly decisions that could harm our profit and operating results. In particular, new or improved services often relate to the development, implementation and improvement of critical infrastructure or operating systems that our clients may view as \u201cmission critical,\u201d and if we fail to satisfy the needs of our clients in providing these services, our clients could incur significant costs and losses for which they could seek compensation from us. As our business continues to evolve and we provide a wider range of services, we will become increasingly dependent upon our employees, particularly those operating in business environments less familiar to us. Failure to identify, hire, train and retain talented employees who share our values could have a negative effect on our reputation and our business.\n12\nWe are subject to potential legal liability from clients, employees, candidates for employment, stockholders and others. Insurance coverage may not be available to cover all of our potential liability and available coverage may not be sufficient to cover all claims that we may incur.\nWe are exposed to potential claims with respect to the executive search process and our consulting services, among numerous other matters. For example, a client could assert a claim for matters such as breach of an off-limit agreement or recommending a candidate who subsequently proves to be unsuitable for the position filled. Further, the current employer of a candidate whom we placed could file a claim against us alleging interference with an employment contract; a candidate could assert an action against us for failure to maintain the confidentiality of the candidate\u2019s employment search; and a candidate or employee could assert an action against us for alleged discrimination, violations of labor and employment law or other matters. Also, in various countries, we are subject to data protection, employment and other laws impacting the processing of candidate information and other regulatory requirements that could give rise to liabilities/claims. Client dissatisfaction with the consulting services provided by our consultants may also lead to claims against us.\nAdditionally, as part of our consulting services, we often send a team of leadership consultants to our clients\u2019 workplaces. Such consultants generally have access to client information systems and confidential information. An inherent risk of such activity includes possible claims of misuse or misappropriation of client IP, confidential information, funds or other property, as well as harassment, criminal activity, torts, or other claims. Such claims may result in negative publicity, injunctive relief, criminal investigations and/or charges, payment by us of monetary damages or fines, or other material adverse effects on our business.\nFrom time to time, we may also be subject to legal actions or claims brought by our stockholders, including securities, derivative and class actions, for a variety of matters related to our operations, such as significant business transactions, cybersecurity incidents, volatility in our stock, and our responses to stockholder activism, among others. Such actions or claims and their resolution may result in defense costs, as well as settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance. The payment of any such costs, settlements, fines or judgments that are not insured could have a material adverse effect on our business. In addition, such matters may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and expose us to increased risks that would be uninsured.\nWe cannot ensure that our insurance will cover all claims or that insurance coverage will be available at economically acceptable rates. Our ability to obtain insurance, its coverage levels, deductibles and premiums, are all dependent on market factors, our loss history and insurers\u2019 perception of our overall risk profile. Our insurance may also require us to meet a deductible. Significant uninsured liabilities could have a material adverse effect on our business, financial condition and results of operations.\nWe are subject to numerous and varied government regulations across the jurisdictions in which we operate. \nOur business is subject to various federal, state, local, and foreign laws and regulations that are complex, change frequently and may become more stringent over time. Future legislation, regulatory changes or policy shifts under the current U.S. administration or other governments could impact our business. Our failure to comply with applicable laws and regulations could restrict our ability to provide certain services or result in the imposition of fines and penalties, substantial regulatory and compliance costs, litigation expense, adverse publicity, and loss of revenue. We incur, and expect to continue to incur, significant expenses in our attempt to comply with these laws, and our businesses are also subject to an increasing degree of compliance oversight by regulators and by our clients. In addition, our Digital services and increasing use of technology in our business expose us to data privacy and cybersecurity laws and regulations that vary and are evolving across jurisdictions. These and other laws and regulations, as well as laws and regulations in the various states or in other countries, could limit our ability to pursue business opportunities we might otherwise consider engaging in, impose additional costs or restrictions on us, result in significant loss of revenue, impact the value of assets we hold, or otherwise significantly adversely affect our business. Any failure by us to comply with applicable laws or regulations could also result in significant liability to us from private legal actions, or may result in the cessation of our operations or portions of our operations or impositions of fines and restrictions on our ability to carry on or expand our operations. Our operations could also be negatively affected by changes to laws and regulations and enhanced regulatory oversight of our clients and us. These changes may compel us to change our prices, may restrict our ability to implement price increases, and may limit the manner in which we conduct our business or otherwise may have a negative impact on our ability to generate revenues, earnings, and cash flows. If we are unable to adapt our products and services to conform to the new laws and regulations, or if these laws and regulations have a negative impact on our clients, we may experience client losses or increased operating costs, and our business and results of operations could be negatively affected.\nOur business and operations are impacted by developing laws and regulations, as well as evolving investor and customer expectations with regard to, corporate responsibility matters and reporting, which expose us to numerous risks. \nWe are subject to evolving local, state, federal and/or international laws, regulations, and expectations regarding corporate responsibility matters, including sustainability, the environment, climate change, human capital management, DE&I, procurement, philanthropy, data privacy and cybersecurity, human rights, business risks and opportunities, including shifts in market preferences for reporting, more sustainable or socially responsible products and services, and other actions. These \n13\nrequirements, expectations, and/or frameworks, which can include assessment and ratings published by third-party firms, are not synchronized and vary by stakeholder, industry, and geography; as a result, they may: increase the time and cost of our efforts to monitor and comply with those obligations; limit the extent, frequency, and modality with which our consultants travel; impact our business opportunities, supplier choices and reputation; and expose us to heightened scrutiny, liability, and risks that could negatively affect us. We report on our aspirations, targets, and initiatives related to corporate responsibility matters (both directly and in response to third-party inquiries). These efforts have also, and may in the future include, reporting intended to address certain third-party frameworks, such as the recommendations of the Sustainability Accounting Standards Board, the Task Force for Climate-Related Financial Disclosures and other standards or material assessments related to corporate responsibility matters. Our ability to achieve our corporate responsibility aspirations which may change or to meet these evolving expectations is not guaranteed and is subject to numerous risks, including the existence, cost, and availability of certain technology, methodologies, and processes, the acquisition and integration of new entities, and trends in demand. Failing to accurately report, progress on, or meet any such aspirations or expectations (including a perceived failure to do so) on a timely basis or at all could negatively affect our business, growth, results of operations, and reputation. Meeting or exceeding such aspirations or expectations also may not result in the benefits initially anticipated. \nWithin our own operations, we face additional costs: from rising energy costs, which make it more expensive to power our corporate offices; and efforts to mitigate or reduce our operations\u2019 impacts from or on the environment, such as a shift to cloud technology or a leasing preference for buildings that are LEED-certified. We have also developed and offer corporate responsibility services and products designed to address customer demand for human capital management, DE&I, and sustainability matters within their own organizations and workforce, the success of which depends on many factors and may not be fully realized.\nRisks Related to Our Profitability\nWe may not be able to align our cost structure with our revenue level, which in turn may require additional financing in the future that may not be available at all or may be available only on unfavorable terms. \nOur efforts to align our cost structure with the current realities of our markets may not be successful. When actual or projected fee revenues are negatively impacted by weakening customer demand, we have and may again find it necessary to take cost cutting measures so that we can minimize the impact on our profitability, such as the restructuring recently initiated in the second half of fiscal 2023. Failing to maintain a balance between our cost structure and our revenue could adversely affect our business, financial condition, and results of operations and lead to negative cash flows, which in turn might require us to obtain additional financing to meet our capital needs. If we are unable to secure such additional financing on favorable terms, or at all, our ability to fund our operations could be impaired, which could have a material adverse effect on our results of operations.\nOur financial results could suffer if we are unable to achieve or maintain adequate utilization and suitable billing rates for our consultants.\nOur profitability depends, to a large extent, on the utilization and billing rates of our professionals. Utilization of our professionals is affected by a number of factors, including: the number and size of client engagements; the timing of the commencement, completion and termination of engagements (for example, the commencement or termination of multiple RPO engagements could have a significant impact on our business, including significant fluctuations in our fee revenue, since these types of engagements are generally larger, in terms of both staffing and fee revenue generated, than our other engagements); our ability to transition our consultants efficiently from completed engagements to new engagements; the hiring of additional consultants because there is generally a transition period for new consultants that results in a temporary drop in our utilization rate; unanticipated changes in the scope of client engagements; our ability to forecast demand for our services and thereby maintain an appropriate level of consultants; and conditions affecting the industries in which we practice, as well as general economic conditions.\nThe billing rates of our consultants that we are able to charge are also affected by a number of factors, including: our clients\u2019 perception of our ability to add value through our services; the market demand for the services we provide, which may vary globally or within particular industries that we serve; an increase in the number of clients in the government sector in the industries we serve; the introduction of new services by us or our competitors; our competition and the pricing policies of our competitors; and current economic conditions.\nIf we are unable to achieve and maintain adequate overall utilization, as well as maintain or increase the billing rates for our consultants, our financial results could materially suffer. In addition, our consultants oftentimes perform services at the physical locations of our clients. Natural disasters, pandemics, disruptions to travel and transportation or problems with communications systems negatively impact our ability to perform services for, and interact with, our clients at their physical locations, which could have an adverse effect on our business and results of operations.\nThe profitability of our fixed-fee engagements with clients may not meet our expectations if we underestimate the cost of these engagements when pricing them.\nWhen making proposals for fixed-fee engagements, we estimate the costs and timing for completing the engagements and these estimates may not be accurate. Any increased or unexpected costs or unanticipated delays in connection with the performance of fixed-fee engagements, including delays caused by factors outside our control, could make these contracts \n14\nless profitable or unprofitable, which would have an adverse effect on our profit margin. Clients may also delay or cancel engagements, which could cause expected revenues to be realized at a later time or not at all. For the years ended 2023, 2022, and 2021, fixed-fee engagements represented 23%, 22%, and 26% of our revenues, respectively.\nInflationary pressure has and may continue to adversely impact our profitability.\nDemand for our services is affected by global economic conditions and the general level of economic activity in the geographic regions in which we operate. During periods of slowed economic activity, many companies hire fewer permanent employees, and our business, financial condition and results of operations may be adversely affected. If unfavorable changes in regional or global economic conditions occur, our business, financial condition and results of operations could suffer. Accelerated and pronounced economic pressures, such as the recent inflationary cost pressures and rise in interest rates, as well as geopolitical uncertainty, has and may continue to negatively impact our expense base by increasing our operating costs, including labor, borrowing, and other costs of doing business. Continued inflationary pressures may result in increases in operating costs that we may not be able to fully offset by raising prices for our services because if we do our clients may choose to reduce their business with us, which may reduce our operating margin.\nRisks Related to Accounting and Taxation\nForeign currency exchange rate risks affect our results of operations. \nA material portion of our revenue and expenses are generated by our operations in foreign countries, and we expect that our foreign operations will account for a material portion of our revenue and expenses in the future. Most of our international expenses and revenue are denominated in foreign currencies. As a result, our financial results are affected by changes in foreign currency exchange rates or weak economic conditions in foreign markets in which we have operations, among other factors. Fluctuations in the value of those currencies in relation to the U.S. dollar have caused and will continue to cause dollar-translated amounts to vary from one period to another. Such variations expose us to both adverse as well as beneficial movements in currency exchange rates. Given the volatility of exchange rates, we are not always able to manage effectively our currency translation or transaction risks, which has and may continue to adversely affect our financial condition and results of operations. \nWe have deferred tax assets that we may not be able to use under certain circumstances.\nIf we are unable to generate sufficient future taxable income in certain jurisdictions, or if there is a significant change in the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowances against our deferred tax assets. This would result in an increase in our effective tax rate, and an adverse effect on our future operating results. In addition, changes in statutory tax rates may also change our deferred tax assets or liability balances, with either a favorable or unfavorable impact on our effective tax rate. Our deferred tax assets may also be impacted by new legislation or regulation.\nRisks Related to Our Financing/Indebtedness\nOur level indebtedness could adversely affect our financial condition, our ability to operate our business, react to changes in the economy or our industry, prevent us from fulfilling our obligations under our indebtedness and could divert our cash flow from operations for debt payments.\nAs of April 30, 2023, we had approximately $400.0 million in total indebtedness outstanding, $645.4 million of availability under our $650.0 million five-year senior secured revolving credit facility (the \u201cRevolver\u201d) and $500 million of availability under our $500.0 million five-year senior secured delayed draw term loan facility that expired on June 24, 2023 (\u201cDelayed Draw Facility\u201d), both provided for under our Credit Agreement, as amended on June 24, 2022 (the \u201cAmended Credit Agreement\u201d) that we entered into with a syndicate of banks and Bank of America, National Association as administrative agent. Subject to the limits contained in the Amended Credit Agreement that govern our Revolver and the indenture governing our $400.0 million principal amount of the\n 4.625% Senior Unsecured Notes due 2027 (the \u201c\nNotes\u201d), we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisition, or for other purposes. If we do so, the risks related to our debt could increase.\nSpecifically, our level of debt could have important consequences to us, including the following: it may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt; our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions or other general corporate purposes may be impaired; requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, including the Notes, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures, future business opportunities and other purposes; we are more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry is more limited; our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our high level of debt and the restrictive covenants in the Amended Credit Agreement and the indenture governing our Notes; our ability to borrow additional funds or to refinance debt may be limited; and it may cause potential or existing customers to not contract with us due to concerns over our ability to meet our financial obligations, such as insuring against our professional liability risks, under such contracts.\nFurthermore, our debt under our Revolver bears interest at variable rates.\n15\nDespite our indebtedness levels, we and our subsidiaries may still incur substantially more debt, which could further exacerbate the risks associated with our substantial leverage.\nWe and our subsidiaries may incur substantial additional indebtedness in the future. The Amended Credit Agreement and the indenture governing our Notes contain restrictions on the incurrence of additional indebtedness, but these restrictions are subject to several qualifications and exceptions, and the indebtedness that may be incurred in compliance with these restrictions could be substantial. If we incur additional debt, the risks associated with our leverage, including those described above, would increase. Further, the restrictions in the indenture governing the Notes and the Amended Credit Agreement will not prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined in such debt instruments. As of April 30, 2023, we had $645.4 million of availability to incur additional secured indebtedness under our Revolver and $500 million of availability to incur additional secured indebtedness under our Delayed Draw Facility that expired on June 24, 2023.\nOur variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.\nInterest rates fluctuate. As a result, interest rates on the Revolver or other variable rate debt offerings could be higher or lower than current levels. When interest rates increase, our debt service obligations on our variable rate indebtedness, if any, would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.\nWe may be unable to service our indebtedness.\nOur ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors, all of which are beyond our control, including the availability of financing in the international banking and capital markets. Lower total revenue generally will reduce our cash flow. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt, to refinance our debt or to fund our other liquidity needs. \nIf we are unable to meet our debt service obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt, which could cause us to default on our debt obligations and impair our liquidity. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.\nMoreover, in the event of a default, the holders of our indebtedness, including the Notes, could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest, if any. The lenders under the Revolver could also elect to terminate their commitments thereunder, cease making further loans, and institute foreclosure proceedings against their collateral, and we could be forced into bankruptcy or liquidation. If we breach our covenants under the Revolver, we would be in default thereunder. The lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.\nThe agreements governing our debt impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.\nThe Amended Credit Agreement and the indenture governing the Notes impose significant operating and financial restrictions on us. These restrictions limit our ability and the ability of our subsidiaries to, among other things: incur or guarantee additional debt or issue capital stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; merge or consolidate; enter into agreements that restrict the ability of subsidiaries to make dividends, distributions or other payments to us or the guarantors; in the case of the indenture governing our Notes, designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell assets.\nWe and our subsidiaries are subject to covenants, representations and warranties in respect of the Revolver, including financial covenants as defined in the Amended Credit Agreement. See \u201cNote 11 \u2013Long-Term Debt\n\u201d\n of our notes to our consolidated financial statements included in this Annual Report on Form 10-K.\nAs a result of these restrictions, we are limited as to how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.\nOur failure to comply with the restrictive covenants described above and/or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.\n16\nA decline in our operating results or available cash could cause us to experience difficulties in complying with covenants contained in more than one agreement, which could result in our bankruptcy or liquidation.\nIf we sustain a decline in our operating results or available cash, we could experience difficulties in complying with the financial covenants contained in the Amended Credit Agreement. The failure to comply with such covenants could result in an event of default under the Revolver and by reason of cross-acceleration or cross-default provisions, other indebtedness may then become immediately due and payable. In addition, should an event of default occur, the lenders under our Revolver could elect to terminate their commitments thereunder, cease making loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the lenders under our Revolver to avoid being in default. If we breach our covenants under our Revolver and seek a waiver, we may not be able to obtain a waiver from the lenders thereunder. If this occurs, we would be in default under our Revolver, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.\nRisks Related to Technology, Cybersecurity and Intellectual Property\nTechnological advances may significantly disrupt the labor market and weaken demand for human capital at a rapid rate. \nOur success is directly dependent on our customers\u2019 demands for talent. As technology continues to evolve, more tasks currently performed by people have been and may continue to be replaced by automation, robotics, machine learning, artificial intelligence and other technological advances outside of our control. The human resource industry has been and continues to be impacted by significant technological changes, enabling companies to offer services competitive with ours. Many of those technological changes may (i) reduce demand for our services, (ii) enable the development of competitive products or services, or (iii) enable our current customers to reduce or bypass the use of our services, particularly in lower-skill job categories. Additionally, rapid changes in AI and generative AI which involves the use of advanced algorithms and machine learning techniques to create content, generate ideas, or simulate human-like behaviors and block chain-based technology are increasing the competitiveness landscape. We may not be successful in anticipating or responding to these changes and demand for our services could be further reduced by advanced technologies being deployed by our competitors. Technological developments such as these may materially affect the cost and use of technology by our clients and demand for our services, and if we do not sufficiently invest in new technology and industry developments, or if we do not make the right strategic investments to respond to these developments and successfully drive innovation, our services and solutions, our ability to generate demand for our services, attract and retain clients, and our ability to develop and achieve a competitive advantage and continue to grow could be negatively affected. If we are unable to keep pace with the industry changes this could result in an impairment of goodwill or other intangible assets and would have a negative impact on our profitability and operating results. In some cases, we depend on key vendors and partners to provide technology and other support. If these third parties fail to perform their obligations or cease to work with us, our ability to execute on our strategic initiatives could be adversely affected. \nWe have invested in specialized technology and other IP for which we may fail to fully recover our investment, or which may become obsolete.\nWe have invested in developing specialized technology and IP, including proprietary systems, processes and methodologies, such as Korn Ferry Advance and Talent Hub, that we believe provide us a competitive advantage in serving our current clients and winning new engagements. Many of our service and product offerings rely on specialized technology or IP that is subject to rapid change, and to the extent that this technology and IP is rendered obsolete and of no further use to us or our clients, our ability to continue offering these services, and grow our revenues, has been and may continue to be adversely affected. There is no assurance that we will be able to develop new, innovative or improved technology or IP or that our technology and IP will effectively compete with the IP developed by our competitors. If we are unable to develop new technology and IP or if our competitors develop better technology or IP, our revenues and results of operations could be adversely affected.\nWe rely heavily on our information systems, and if we lose that technology, or fail to further develop our technology, our business could be harmed.\nOur success depends in large part upon our ability to store, retrieve, process, manage and protect substantial amounts of information. Our information systems are subject to the risk of failure, obsolescence and inadequacy. To achieve our strategic objectives and to remain competitive, we must continue to develop and enhance our information systems. This may require the acquisition of equipment and software and the development of new proprietary software, either internally or through independent consultants. If we are unable to design, develop, implement and utilize, in a cost-effective manner, information systems that provide the capabilities necessary for us to compete effectively, or for any reason any interruption or loss of our information processing capabilities occurs, this could harm our business, results of operations and financial condition. We cannot be sure that our current insurance against the effects of a disaster regarding our information technology or our disaster recovery procedures will continue to be available at reasonable prices, cover all our losses or compensate us for the possible loss of clients occurring during any period that we are unable to provide business services.\n17\nWe are subject to risk as it relates to software that we license from third parties.\nWe license software from third parties, much of which is integral to our systems and our business. The licenses are generally terminable if we breach our obligations under the license agreements. If any of these relationships were terminated or if any of these parties were to cease doing business or cease to support the applications we currently utilize, we may be forced to spend significant time and money to replace the licensed software. However, we cannot assure you that the necessary replacements will be available on reasonable terms, if at all.\nWe are dependent on third parties for the execution of certain critical functions.\nWe do not maintain all of our technology infrastructure, and we have outsourced certain other critical applications or business processes to external providers, including cloud-based services. The failure or inability to perform on the part of one or more of these critical suppliers or partners have caused, and could in the future cause significant disruptions and increased costs. We are also dependent on security measures that some of our third-party vendors and customers are taking to protect their own systems and infrastructures. If our third-party vendors do not maintain adequate security measures, do not require their sub-contractors to maintain adequate security measures, do not perform as anticipated and in accordance with contractual requirements, or become targets of cyber-attacks, we may experience operational difficulties and increased costs, which could materially and adversely affect our business.\nCyber security vulnerabilities and incidents have and may again lead to the improper disclosure of information obtained from our clients, candidates and employees, which could result in liability and harm to our reputation. \nWe use information technology and other computer resources to carry out operational and marketing activities and to maintain our business records\n.\n \nWe rely on information technology systems to process, transmit, and store electronic information and to communicate among our locations around the world and with our clients, partners, and employees. The breadth and complexity of this infrastructure increases the risk of security incidents resulting in the unauthorized disclosure of sensitive or confidential information and other adverse consequences that could have a material adverse impact on our business and results of operations. Our reliance on trained professionals to configure and operate this infrastructure creates the potential for human error, leading to potential exposure of sensitive or confidential information.\nOur systems and networks and the vendors who provide us services are vulnerable to incidents, including physical and electronic break-ins, attacks by hackers, computer viruses, malware, worms, router disruption, sabotage or espionage, ransomware attacks, supply chain attacks, disruptions from unauthorized access and tampering (including through social engineering such as phishing attacks), employee error and misconduct, impersonation of authorized users and coordinated denial-of-service attacks. For example, in the past we have experienced cyber security incidents resulting from unauthorized access to our systems, which to date have not had a material impact on our business or results of operations; however, there is no assurance that such impacts will not be material in the future. We expect cybersecurity incidents to continue to occur in the future.\nThe continued occurrence of high-profile data breaches against various entities and organizations provides evidence of an external environment that is increasingly hostile to information security. This environment demands that we regularly improve our design and coordination of security controls across our business groups and geographies in order to protect information that we develop or that is obtained from our clients, candidates and employees. Despite these efforts, given the ongoing and increasingly sophisticated attempts to access the information of entities, our security controls over this information, our training of employees, and other practices we follow have not and may not prevent the improper disclosure of such information. Our efforts and the costs incurred to bolster our security against attacks cannot provide absolute assurance that future data breaches will not occur. We depend on our overall reputation and brand name recognition to secure new engagements. Perceptions that we do not adequately protect the privacy of information could inhibit attaining new engagements, qualified consultants and could potentially damage currently existing client relationships. \nData security, data privacy and data protection laws, such as the European Union General Data Protection Regulation (\u201cGDPR\u201d), and other evolving regulations and cross-border data transfer restrictions, may limit the use of our services, increase our costs and adversely affect our business. \nWe are subject to numerous U.S. and foreign jurisdiction laws and regulations designed to protect client, colleague, supplier and company data, such as the GDPR, which requires companies to meet stringent requirements regarding the handling of personal data, including its use, protection and transfer and the ability of persons whose data is stored to correct or delete such data about themselves. Complying with the enhanced obligations imposed by the GDPR has resulted and may continue to result in additional costs to our business and has required and may further require us to amend certain of our business practices. Failure to meet the GDPR requirements could result in significant penalties, including fines up to 4% of annual worldwide revenue. The GDPR also confers a private right of action on certain individuals and associations.\nLaws and regulations in this area are evolving and generally becoming more stringent. For example, the New York State Department of Financial Services has issued cybersecurity regulations that outline a variety of required security measures for protection of data. Some U.S. states, including California and Virginia, have also enacted cybersecurity laws requiring certain security measures of regulated entities that are broadly similar to GDPR requirements, such as the California Consumer Privacy Act, California Privacy Rights Act and Virginia Consumer Data Protection Act. New privacy laws in Colorado will take effect in calendar year 2023, and we expect that other states will continue to adopt legislation in this area. \n18\nAs these laws continue to evolve, we may be required to make changes to our services, solutions and/or products so as to enable the Company and/or our clients to meet the new legal requirements, including by taking on more onerous obligations in our contracts, limiting our storage, transfer and processing of data and, in some cases, limiting our service and/or solution offerings in certain locations. Changes in these laws, or the interpretation and application thereof, may also increase our potential exposure through significantly higher potential penalties for non-compliance. The costs of compliance with, and other burdens imposed by, such laws and regulations and client demand in this area may limit the use of, or demand for, our services, solutions and/or products, make it more difficult and costly to meet client expectations, or lead to significant fines, penalties or liabilities for noncompliance, any of which could adversely affect our business, financial condition, and results of operations.\nIn addition, due to the uncertainty and potentially conflicting interpretations of these laws, it is possible that such laws and regulations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with applicable laws or satisfactorily protect personal information could result in governmental enforcement actions, litigation, or negative publicity, any of which could inhibit sales of our services, solutions and/or products.\nFurther, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase. It is possible that future enactment of more restrictive laws, rules or regulations and/or future enforcement actions or investigations could have an adverse impact on us through increased costs or restrictions on our businesses and noncompliance could result in regulatory penalties and significant legal liability.\nSocial media platforms present risks and challenges that can cause damage to our brand and reputation.\nThe inappropriate and/or unauthorized use of social media platforms, including blogs, social media websites and other forms of Internet-based communications, which allow individuals access to a broad audience of consumers and other interested persons by our clients or employees could increase our costs, cause damage to our brand, lead to litigation or result in information leakage, including the improper collection and/or dissemination of personally identifiable information of candidates and clients. In addition, negative or inaccurate posts or comments about us on any social networking platforms could damage our reputation, brand image and goodwill.\nRisks Related to Acquisitions\nAcquisitions, or our inability to effect acquisitions, may have an adverse effect on our business.\nWe have completed several strategic acquisitions of businesses in the last several years, including our acquisition of The Lucas Group and Patina Solutions Group, Inc. in fiscal 2022 and Infinity Consulting Solutions and Salo LLC in fiscal 2023. Targeted acquisitions have been and continue to be part of our growth strategy, and we may in the future selectively acquire businesses that are complementary to our existing service offerings. However, we cannot be certain that we will be able to continue to identify appropriate acquisition candidates or acquire them on satisfactory terms. Our ability to consummate such acquisitions on satisfactory terms will depend on the extent to which acquisition opportunities become available; our success in bidding for the opportunities that do become available; negotiating terms that we believe are reasonable; and regulatory approval, if required.\nOur ability to make strategic acquisitions may also be conditioned on our ability to fund such acquisitions through the incurrence of debt or the issuance of equity. Our Amended Credit Agreement limits us from consummating acquisitions unless we are in pro forma compliance with our financial covenants, and certain other conditions are met. If we are required to incur substantial indebtedness in connection with an acquisition, and the results of the acquisition are not favorable, the increased indebtedness could decrease the value of our equity. In addition, if we need to issue additional equity to consummate an acquisition, doing so would cause dilution to existing stockholders.\nIf we are unable to make strategic acquisitions, or the acquisitions we do make are not on terms favorable to us or not effected in a timely manner, it may impede the growth of our business, which could adversely impact our profitability and our stock price.\nAs a result of our acquisitions, we have substantial amounts of goodwill and intangible assets, and changes in business conditions could cause these assets to become impaired, requiring write-downs that would adversely affect our operating results.\nAll of our acquisitions have been accounted for as purchases and involved purchase prices well in excess of tangible asset values, resulting in the creation of a significant amount of goodwill and other intangible assets. As of April 30, 2023, goodwill and purchased intangibles accounted for approximately 25% and 3%, respectively, of our total assets. We review goodwill and intangible assets annually (or more frequently, if impairment indicators arise) for impairment. Future events or changes in circumstances that result in an impairment of goodwill or other intangible assets would have a negative impact on our profitability and operating results.\n19\nAn impairment in the carrying value of goodwill and other intangible assets could negatively impact our consolidated results of operations and net worth.\nGoodwill is initially recorded as the excess of amounts paid over the fair value of net assets acquired. While goodwill is not amortized, it is reviewed for impairment at least annually or more frequently, if impairment indicators are present. In assessing the carrying value of goodwill, we make qualitative and quantitative assumptions and estimates about revenues, operating margins, growth rates and discount rates based on our business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management\u2019s judgment in applying these factors. Goodwill valuations have been calculated using an income approach based on the present value of future cash flows of each reporting unit and a market approach. We could be required to evaluate the carrying value of goodwill prior to the annual assessment if we experience unexpected, significant declines in operating results or sustained market capitalization declines. These types of events and the resulting analyses could result in goodwill impairment charges in the future and therefore impact the value of assets we hold, or otherwise significantly adversely affect our business, which could limit our financial flexibility and liquidity.\nRisks Related to Global Operations\nWe are a cyclical company whose performance is tied to local and global economic conditions.\nDemand for our services is affected by global economic conditions, including recessions, inflation, interest rates, tax rates and economic uncertainty, and the general level of economic activity in the geographic regions and industries in which we operate. When conditions in the global economy, including the credit markets, deteriorate, or economic activity slows, many companies hire fewer permanent employees and some companies, as a cost-saving measure, choose to rely on their own human resources departments rather than third-party search firms to find talent, and under these conditions, companies have cut back on human resource initiatives, all of which negatively affects our financial condition and results of operations. We also experience more competitive pricing pressure during periods of economic decline. If the geopolitical uncertainties result in a reduction in business confidence, when the national or global economy or credit market conditions in general deteriorate, the unemployment rate increases or any changes occur in U.S. trade policy (including any increases in tariffs that result in a trade war), such uncertainty or changes put negative pressure on demand for our services and our pricing, resulting in lower cash flows and a negative effect on our business, financial condition and results of operations. In addition, some of our clients experience reduced access to credit and lower revenues, resulting in their inability to meet their payment obligations to us.\nWe face risks associated with social and political instability, legal requirements and economic conditions in our international operations.\nWe operate in 53 countries and, during the year ended April 30, 2023, generated 45% of our fee revenue from operations outside of the U.S. We are exposed to the risk of changes in social, political, legal and economic conditions inherent in international operations. Examples of risks inherent in transacting business worldwide that we are exposed to include:\n\u25aa\nchanges in and compliance with applicable laws and regulatory requirements, including U.S. laws affecting the activities of U.S. companies abroad, including the Foreign Corrupt Practices Act of 1977 and sanctions programs administered by the U.S. Department of the Treasury Office of Foreign Assets Control, and similar foreign laws such as the U.K. Bribery Act, as well as the fact that many countries have legal systems, local laws and trade practices that are unsettled and evolving, and/or commercial laws that are vague and/or inconsistently applied;\n\u25aa\ndifficulties in staffing and managing global operations, which could impact our ability to maintain an effective system of internal control; \n\u25aa\ndifficulties in building and maintaining a competitive presence in existing and new markets; \n\u25aa\nsocial, economic and political instability, including the repercussions of the ongoing conflict between Russia and Ukraine and the cessation of our business in Russia; \n\u25aa\ndifferences in cultures and business practices; \n\u25aa\nstatutory equity requirements; \n\u25aa\ndifferences in accounting and reporting requirements; \n\u25aa\nrepatriation controls; \n\u25aa\ndifferences in labor and market conditions; \n\u25aa\npotential adverse tax consequences; \n\u25aa\nmultiple regulations concerning immigration, pay rates, benefits, vacation, statutory holiday pay, workers\u2019 compensation, union membership, termination pay, the termination of employment, and other employment laws; and\n20\n\u25aa\nthe introduction of greater uncertainty with respect to trade policies, tariffs, disputes or disruptions, the termination or suspension of treaties, boycotts and government regulation affecting trade between the U.S. and other countries.\nOne or more of these factors has and may in the future harm our business, financial condition or results of operations.\nRisks Related to Our Dividend Policy\nYou may not receive the level of dividends provided for in the dividend policy our Board of Directors has adopted or any dividends at all.\nWe are not obligated to pay dividends on our common stock. Despite our history of paying dividends, the declaration and payment of all future dividends to holders of our common stock are subject to the discretion of our Board of Directors, which may amend, revoke or suspend our dividend policy at any time and for any reason, including earnings, capital requirements, financial conditions and other factors our Board of Directors may deem relevant. The terms of our indebtedness may also restrict us from paying cash dividends on our common stock under certain circumstances. See below \u201c\u2014Our ability to pay dividends is restricted by agreements governing our debt, including our Amended Credit Agreement and indenture governing our Notes, and by Delaware law.\u201d\nOver time, our capital and other cash needs may change significantly from our current needs, which could affect whether we pay dividends and the level of any dividends we may pay in the future. If we were to use borrowings under our Revolver to fund our payment of dividends, we would have less cash and/or borrowing capacity available for future dividends and other purposes, which could negatively affect our financial condition, our results of operations, our liquidity and our ability to maintain and expand our business. Accordingly, you may not receive dividends in the intended amounts, or at all. Any reduction or elimination of dividends may negatively affect the market price of our common stock.\nOur ability to pay dividends is restricted by agreements governing our debt, including our Amended Credit Agreement and indenture governing our Notes, and by Delaware law.\nBoth our Amended Credit Agreement and the indenture governing our Notes restrict our ability to pay dividends. See \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u2014Liquidity and Capital Resources,\u201d where we describe the terms of our indebtedness, including provisions limiting our ability to declare and pay dividends. As a result of such restrictions, we may be limited in our ability to pay dividends unless we redeem our Notes and amend our Amended Credit Agreement or otherwise obtain a waiver from our lenders. In addition, as a result of general economic conditions, conditions in the lending markets, the results of our business or for any other reason, we may elect or be required to amend or refinance our Revolver, at or prior to maturity, or enter into additional agreements for indebtedness. Any such amendment, refinancing or additional agreement may contain covenants that could limit in a significant manner or entirely our ability to pay dividends to you. Additionally, under the Delaware General Corporation Law (\u201cDGCL\u201d), our Board of Directors may not authorize payment of a dividend unless it is either paid out of surplus, as calculated in accordance with the DGCL, or if we do not have a surplus, out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If, as a result of these restrictions, we are required to reduce or eliminate the payment of dividends, a decline in the market price or liquidity, or both, of our common stock could result. This may in turn result in losses by you.\nOur dividend policy may limit our ability to pursue growth opportunities.\nIf we pay dividends at the level currently anticipated under our dividend policy, we may not retain a sufficient amount of cash to finance growth opportunities, meet any large unanticipated liquidity requirements or fund our operations in the event of a significant business downturn. In addition, because a portion of cash available will be distributed to holders of our common stock under our dividend policy, our ability to pursue any material expansion of our business, including through acquisitions, increased capital spending or other increases of our expenditures, will depend more than it otherwise would on our ability to obtain third party financing. We cannot assure you that such financing will be available to us at all, or at an acceptable cost. If we are unable to take timely advantage of growth opportunities, our future financial condition and competitive position may be harmed, which in turn may adversely affect the market price of our common stock.\nRisks Related to Our Stockholders\nWe have provisions that make an acquisition of us more difficult and expensive.\nAnti-takeover provisions in our Certificate of Incorporation, our Bylaws and under Delaware law make it more difficult and expensive for us to be acquired in a transaction that is not approved by our Board of Directors. Some of the provisions in our Certificate of Incorporation and Bylaws include: limitations on stockholder actions; advance notification requirements for director nominations and actions to be taken at stockholder meetings; and the ability to issue one or more series of preferred stock by action of our Board of Directors.\nThese provisions could discourage an acquisition attempt or other transaction in which stockholders could receive a premium over the current market price for the common stock.\n21\nGeneral Risk Factors\nFailing to retain our executive officers and key personnel or integrate new members of our senior management who are critical to our business may prevent us from successfully managing our business in the future.\nOur future success depends upon the continued service of our executive officers and other key management personnel. Competition for qualified personnel is intense, and we may compete with other companies that have greater financial and other resources than we do. If we lose the services of one or more of our executives or key employees, or if one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, or if we are unable to integrate new members of our senior management who are critical to our business, we may not be able to successfully manage our business or achieve our business objectives.\nChanges in our accounting estimates and assumptions and other financial reporting standards could negatively affect our financial position and results of operations.\nWe prepare our consolidated financial statements in accordance with U.S. GAAP. These accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements. We are also required to make certain judgments that affect the reported amounts of revenues and expenses during each reporting period. We periodically evaluate our estimates and assumptions, including those relating to revenue recognition, restructuring, deferred compensation, goodwill and other intangible assets, contingent consideration, annual performance-related bonuses, allowance for doubtful accounts, share-based payments and deferred income taxes. Actual results could differ from the estimates we make based on historical experience and various assumptions believed to be reasonable based on specific circumstances, and changes in accounting standards could have an adverse impact on our future financial position and results of operations.\nUnfavorable tax laws, tax law changes and tax authority rulings may adversely affect results.\nWe are subject to income taxes in the U.S. and in various foreign jurisdictions. Domestic and international tax liabilities are subject to the allocation of income among various tax jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings among countries with differing statutory tax rates or changes in tax laws. The amount of our income taxes and other taxes are subject to audits by U.S. federal, state and local tax authorities and by non-U.S. authorities. If these audits result in assessments different from estimated amounts recorded, future financial results may include unfavorable tax adjustments.\nFuture changes in tax laws, treaties or regulations, and their interpretations or enforcement, may be unpredictable, particularly as taxing jurisdictions face an increasing number of political, budgetary and other fiscal challenges. Tax rates in the jurisdictions in which we operate may change as a result of macroeconomic and other factors outside of our control, making it increasingly difficult for multinational corporations like ourselves to operate with certainty about taxation in many jurisdictions.\nAs a result, we have been and may again be materially adversely affected by future changes in tax law or policy (or in their interpretation or enforcement) in the jurisdictions where we operate, including the U.S., which could have a material adverse effect on our business, cash flow, results of operations, financial condition, as well as our effective income tax rate.\nLimited protection of our IP could harm our business, and we face the risk that our services or products may infringe upon the IP rights of others.\nWe cannot guarantee that trade secrets, trademark and copyright law protections are adequate to deter misappropriation of our IP (which has become an important part of our business). Existing laws of some countries in which we provide services or products may offer only limited protection of our IP rights. Redressing infringements may consume significant management time and financial resources. Also, we cannot detect all unauthorized use of our IP and take the necessary steps to enforce our rights, which may have a material adverse impact on our business, financial condition or results of operations. We cannot be sure that our services and products, or the products of others that we offer to our clients, do not infringe on the IP rights of third parties, and we may have infringement claims asserted against us or our clients. These claims may harm our reputation, result in financial liability and prevent us from offering some services or products.\nWe may not be able to successfully integrate or realize the expected benefits from our acquisitions.\nOur future success depends in part on our ability to complete the integration of acquisition targets successfully into our operations. The process of integrating an acquired business subjects us to a number of risks, including:\n\u25aa\ndiversion of management attention;\n\u25aa\namortization of intangible assets, adversely affecting our reported results of operations;\n\u25aa\ninability to retain and/or integrate the management, key personnel and other employees of the acquired business;\n\u25aa\ninability to properly integrate businesses resulting in operating inefficiencies;\n22\n\u25aa\ninability to establish uniform standards, disclosure controls and procedures, internal control over financial reporting and other systems, procedures and policies in a timely manner;\n\u25aa\ninability to retain the acquired company\u2019s clients;\n\u25aa\nexposure to legal claims for activities of the acquired business prior to acquisition; and\n\u25aa\nincurrence of additional expenses in connection with the integration process.\nIf our acquisitions are not successfully integrated, our business, financial condition and results of operations, as well as our professional reputation, could be materially adversely affected.\nFurther, we cannot assure you that acquisitions will result in the financial, operational or other benefits that we anticipate. Some acquisitions may not be immediately accretive to earnings and some expansion may result in significant expenditures.\nBusinesses we acquire may have liabilities or adverse operating issues that could harm our operating results.\nBusinesses we acquire may have liabilities or adverse operating issues, or both, that we either fail to discover through due diligence or underestimate prior to the consummation of the acquisition. These liabilities and/or issues may include the acquired business\u2019 failure to comply with, or other violations of, applicable laws, rules or regulations or contractual or other obligations or liabilities. As the successor owner, we may be financially responsible for, and may suffer harm to our reputation or otherwise be adversely affected by, such liabilities and/or issues. An acquired business also may have problems with internal controls over financial reporting, which could in turn cause us to have significant deficiencies or material weaknesses in our own internal controls over financial reporting. These and any other costs, liabilities, issues, and/or disruptions associated with any past or future acquisitions, and the related integration, could harm our operating results.\nWe may be subject to the actions of activist stockholders, which could disrupt our business.\nWe value constructive input from investors and regularly engage in dialogue with our stockholders regarding strategy and performance. Activist stockholders who disagree with the composition of the Board of Directors, our strategy or the way the Company is managed may seek to effect change through various strategies and channels, such as through commencing a proxy contest, making public statements critical of our performance or business or engaging in other similar activities. Responding to stockholder activism can be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees from our strategic initiatives. Activist campaigns can create perceived uncertainties as to our future direction, strategy, or leadership and may result in the loss of potential business opportunities, harm our ability to attract new employees, investors, and customers, and cause our stock price to experience periods of volatility or stagnation.\nWe face various risks related to health epidemics, pandemics, and similar outbreaks that negatively impact our operations and financial performance and those of the clients we serve. The ultimate magnitude of any future pandemics or similar outbreaks depends on numerous factors, the full extent of which we may not be capable of predicting.\nOur business and financial results have been, and could be in the future, adversely affected by health epidemics, pandemics, and similar outbreaks. Pandemics can cause a global slowdown in economic activity, a decrease in demand for a broad variety of goods and services, disruptions in global supply chains, and significant volatility and disruption of financial markets. Because the severity, magnitude and duration of a pandemic and its economic consequences are uncertain and vary by region, its full impact on our operations and financial performance is uncertain and difficult to predict. Further, a pandemic\u2019s ultimate impact depends in part on many factors not within our control, including (1) restrictive governmental and business actions (including travel restrictions, vaccine mandates, testing requirements, and other workforce limitations), (2) economic stimulus, funding and relief programs and other governmental economic responses, (3) the effectiveness of governmental actions, (4) economic uncertainty in key global markets and financial market volatility, (5) levels of economic contraction or growth, (6) the impact of the pandemic on health and safety and (7) the availability and effectiveness of vaccines and booster shots.\nIn addition, pandemics can subject our operations and financial performance to a number of risks, including operational challenges, such as heightened attention to employee health and safety, workplace disruptions or shutdowns, cybersecurity risks, supplier disruptions or delays, and travel restrictions, as well as client-related risks, as clients may experience similar disruptions, fluctuations, and restrictions that may impact our ability to provide products and services to our clients (or for clients to pay for such products and services) and may reduce demand for our products and services.",
+  "item7": ">Item 7. \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations \nForward-Looking Statements\nThis Annual Report on Form 10-K may contain certain statements that we believe are, or may be considered to be, \u201cforward-looking\u201d statements, within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d). These forward-looking statements generally can be identified by use of statements that include phrases such as \u201cbelieve,\u201d \u201cexpect,\u201d \u201canticipate,\u201d \u201cintend,\u201d \u201cplan,\u201d \u201cforesee,\u201d \u201cmay,\u201d \u201cwill,\u201d \u201clikely,\u201d \u201cestimates,\u201d \u201cpotential,\u201d \u201ccontinue\u201d or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals, including the timing and anticipated impacts of our restructuring plans and business strategy, are also forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statement. The principal risk factors that could cause actual performance and future actions to differ materially from the forward-looking statements include, but are not limited to, those relating to global and local political and or economic developments in or affecting countries where we have operations, such as inflation, global slowdowns, or recessions, competition, geopolitical tensions, shifts in global trade patterns, changes in demand for our services as a result of automation, dependence on and costs of attracting and retaining qualified and experienced consultants, impact of inflationary pressures on our profitability, maintaining our relationships with customers and suppliers and retaining key employees, maintaining our brand name and professional reputation, potential legal liability and regulatory developments, portability of client relationships, consolidation of or within the industries we serve, changes and developments in governmental laws and regulations, evolving investor and customer expectations with regard to environmental, social and governance matters, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure, including as a result of recent workforce, real estate, and other restructuring initiatives, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities or events, changes to data security, data privacy, and data protection laws, dependence on third parties for the execution of critical functions, limited protection of our intellectual property (\u201cIP\u201d), our ability to enhance and develop new technology, our ability to successfully recover from a disaster or other business continuity problems, employment liability risk, an impairment in the carrying value of goodwill and other intangible assets, treaties, or regulations on our business and our Company, deferred tax assets that we may not be able to use, our ability to develop new products and services, changes in our accounting estimates and assumptions, the utilization and billing rates of our consultants, seasonality, the expansion of social media platforms, the ability to effect acquisitions and integrate acquired businesses, including Infinity Consulting Solutions (\"ICS\") and Salo LLC (\"Salo\"), resulting organizational changes, our indebtedness, the ultimate magnitude and duration of any future pandemics or similar outbreaks, and related restrictions and operational requirements that apply to our business and the businesses of our clients, and any related negative impacts on our business, employees, customers and our ability to provide services in affected regions, and the matters disclosed under the heading \u201cRisk Factors\u201d in the Company\u2019s Exchange Act reports, including Item 1A included in this Annual Report on Form 10-K. Readers are urged to consider these factors carefully in evaluating the forward-looking statements. The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date of this Annual Report on Form 10-K and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.\nThe following presentation of management\u2019s discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this Annual Report on Form 10-K. We also make available on the Investor Relations portion of our website earnings slides and other important information, which we encourage you to review. \nExecutive Summary\nKorn Ferry (referred to herein as the \u201cCompany\u201d or in the first-person notations \u201cwe,\u201d \u201cour,\u201d and \u201cus\u201d) is a global organizational consulting firm. We help clients synchronize strategy, operations and talent to drive superior business performance. We work with organizations to design their structures, roles and responsibilities. We help them hire the right people to bring their strategy to life. And we advise them on how to reward, develop and motivate their people.\nWe are pursuing a strategy to help Korn Ferry focus on clients and collaborate intensively across the organization. This approach is intended to build on the best of our past and give us a clear path to the future with focused initiatives to increase our client and commercial impact. Korn Ferry is transforming how clients address their talent management needs. We have evolved from a mono-line business to a multi-faceted consultancy business, giving our consultants more frequent and expanded opportunities to engage with clients.\nOur eight reportable segments operate through the following five lines of business:\n1.\nConsulting\n aligns organizational structure, culture, performance and people to drive sustainable growth by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership and Professional Development, and Total Rewards. We enable this work with a comprehensive set of Digital Performance Management Tools, based on some of our world\u2019s leading lP and data. The Consulting teams employ an integrated approach across core solutions, each one intended to strengthen our work and thinking in the next, to help clients execute their strategy in a digitally enabled world.\n28\n2.\nDigital\n develops technology-enabled Performance Management Tools that empower our clients. Our digital products give clients direct access to our proprietary data, client data and analytics to deliver clear insights with the training tools needed to align organizational structure with business strategy. \n3.\nExecutive Search\n helps organizations recruit board level, chief executive and other senior executive and general management talent to deliver lasting impact. Our approach to placing talent brings together research-based IP, proprietary assessments, and behavioral interviewing with our practical experience to determine the ideal organizational fit. Salary benchmarking then builds appropriate frameworks for compensation and retention. This business is managed and reported on a geographic basis and represents four of the Company\u2019s reportable segments (Executive Search North America, Executive Search Europe, the Middle East and Africa (\"EMEA\"), Executive Search Asia Pacific (\"APAC\"), and Executive Search Latin America).\n4.\nProfessional Search & Interim \ndelivers enterprise talent acquisition solutions for professional level middle and upper management. We help clients source high-quality candidates at speed and scale globally, covering single-hire to multi-hire permanent placements and interim contractors.\n5.\nRecruitment Process Outsourcing (\"RPO\") \noffers scalable recruitment outsourcing solutions leveraging customized technology and talent insights. Our scalable solutions, built on science and powered by best-in-class technology and consulting expertise, enable us to act as a strategic partner in clients\u2019 quest for superior recruitment outcomes and better candidate fit.\nProfessional Search & Interim and RPO were formerly referred to, and reported together, as Korn Ferry RPO & Professional Search (\u201cRPO & Professional Search\u201d). We have recently acquired companies that have added critical mass to our Professional Search and Interim operations. These acquisitions provided us the opportunity to reassess how we managed our RPO & Professional Search segment. Therefore, beginning in fiscal 2023, we separated RPO & Professional Search into two segments to align with the Company\u2019s strategy and the decisions of the Company\u2019s chief operating decision maker, who began to regularly make separate resource allocation decisions and assess performance separately between our Professional Search & Interim business and RPO business.\nHighlights of our performance in fiscal 2023 include:\n\u25aa\nApproximately 78% of the executive searches we performed in fiscal 2023 were for board level, chief executive and other senior executive and general management positions. Our more than 4,000 search engagement clients in fiscal 2023 included many of the world\u2019s largest and most prestigious public and private companies.\n\u25aa\nWe have built strong client loyalty, with nearly 80% of the assignments performed during fiscal 2023 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years.\n\u25aa\nApproximately 80% of our revenues were generated from clients that have utilized multiple lines of our business.\n\u25aa\nIn fiscal 2023, we acquired ICS, a provider of senior-level IT interim professional solutions with additional expertise in the areas of compliance and legal, accounting and finance, and human resources. We also recently acquired Salo, a leading provider of finance, accounting and human resources (\"HR\") interim talent.\nPerformance Highlights \nOn August 1, 2022, we completed the acquisition of ICS for $99.3 million, net of cash acquired. ICS is a highly regarded provider of senior-level IT interim professional solutions with additional expertise in the areas of compliance and legal, accounting and finance, and HR.\nOn February 1, 2023, we completed the acquisition of Salo for $155.4 million, net of cash acquired. Salo is a leading provider of finance, accounting and HR interim talent, with a strong focus on serving organizations in healthcare, among other industries.\nThe above acquisitions echo the commitment to scale our solutions, further increase the focus at the intersection of talent and strategy-wherever and however the needs of organizations evolve-and present real, tangible opportunity for us and our clients looking for the right talent, who are highly agile, with specialized skills and expertise, to help them drive superior performance, including on an interim basis. We believe the addition of these acquisitions to our broader talent acquisition portfolio\u2013spanning Executive Search, RPO, Professional Search and Interim services\u2013has accelerated our ability to capture additional shares of this significant market. All of the acquisitions in fiscal 2023 are included in the Professional Search & Interim segment.\nIn light of the Company\u2019s evolution to an organization that is selling larger integrated solutions in a world where there are shifts in global trade lanes and persistent inflationary pressures, on January 11, 2023, the Company initiated a plan (the \u201cPlan\u201d) intended to realign its workforce with its business needs and objectives, namely, to invest in areas of potential growth and implement reductions where there was excess capacity. The Plan resulted in the reduction of the Company's annualized cost base by approximately $45.0 million to $55.0 million (after taking into account new hires in connection with the rebalancing of the Company's workforce). The Plan consisted of severance and related employee benefits payments and lease termination costs. In fiscal 2023, the Company recorded $42.6\u00a0million in restructuring charges, net, and $5.5 million and $4.4 million in impairment of right-of-use asset and fixed assets, respectively, as a result of implementing the Plan.\n29\nThe Company evaluates performance and allocates resources based on the chief operating decision maker\u2019s review of (1) fee revenue and (2) adjusted earnings before interest, taxes, depreciation and amortization (\u201cAdjusted EBITDA\u201d). To the extent that such charges occur, Adjusted EBITDA excludes restructuring charges, integration/acquisition costs, certain separation costs and certain non-cash charges (goodwill, intangible asset and other impairments charges). For fiscal 2023, Adjusted EBITDA excluded $42.6\u00a0million of restructuring charges, net, $14.9 million of integration/acquisition costs, $5.5 million impairment of right-of-use assets and $4.4 million impairment of fixed assets. For fiscal 2022, Adjusted EBITDA excluded $7.9 million of integration/acquisition costs, $7.4 million impairment of right-of-use assets and $1.9 million impairment of fixed assets. For fiscal 2021, Adjusted EBITDA excluded $30.7 million of restructuring charges, net and $0.7 million of integration/acquisition costs.\nConsolidated and the subtotals of Executive Search Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and have limitations as analytical tools. They should not be viewed as a substitute for financial information determined in accordance with United States (\u201cU.S.\u201d) generally accepted accounting principles (\u201cGAAP\u201d) and should not be considered in isolation or as a substitute for analysis of the Company\u2019s results as reported under GAAP. In addition, they may not necessarily be comparable to non-GAAP performance measures that may be presented by other companies.\nManagement believes the presentation of these non-GAAP financial measures provides meaningful supplemental information regarding Korn Ferry\u2019s performance by excluding certain charges, items of income and other items that may not be indicative of Korn Ferry\u2019s ongoing operating results. The use of these non-GAAP financial measures facilitates comparisons to Korn Ferry\u2019s historical performance and the identification of operating trends that may otherwise be distorted by the factors discussed above. Korn Ferry includes these non-GAAP financial measures because management believes it is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry\u2019s ongoing operations and financial and operational decision-making. The accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in the accompanying consolidated financial statements, except that the above noted items are excluded to arrive at Adjusted EBITDA. Management further believes that Adjusted EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company.\nFee revenue was $2,835.4 million during fiscal 2023, an increase of $208.7 million, or 8%, compared to $2,626.7 million in fiscal 2022, with increases in fee revenue in all lines of business with the exception of Executive Search. Professional Search & Interim had the largest increase in fee revenue when compared to fiscal 2022. The acquisition of companies in the Professional Search & Interim segment was a significant factor in the year-over-year increase in fee revenue. Exchange rates unfavorably impacted fee revenue by $96.8 million, or 4%, during fiscal 2023 compared to fiscal 2022. Net income attributable to Korn Ferry decreased by $116.9 million during fiscal 2023 to $209.5\u00a0million from $326.4\u00a0million in fiscal\n \n2022. Adjusted EBITDA was $457.3 million, a decrease of $81.6 million during fiscal 2023, from Adjusted EBITDA of $538.9 million in fiscal 2022. During fiscal 2023, the Executive Search, Professional Search & Interim, Consulting, Digital, and RPO lines of business contributed Adjusted EBITDA of $205.8 million, $110.9 million, $108.5 million, $97.5 million and $52.6 million, respectively, offset by Corporate expenses net of other income of $118.0 million.\nOur cash, cash equivalents and marketable securities decreased by $143.2 million to $1,067.9 million at April\u00a030, 2023, compared to $1,211.1 million at April\u00a030, 2022. This decrease was mainly due to the acquisitions of ICS and Salo, retention payments, capital expenditures, stock repurchases and dividends paid to stockholders during fiscal 2023. As of April\u00a030, 2023, we held marketable securities to settle obligations under our Executive Capital Accumulation Plan (\u201cECAP\u201d) with a cost value of $187.0 million and a fair value of $187.8 million. Our vested obligations for which these assets were held in trust totaled $172.2 million as of April\u00a030, 2023 and our unvested obligations totaled $21.9 million.\nOur working capital decreased by $113.3 million to $662.4 million in fiscal 2023, as compared to $775.7 million at April 30, 2022. We believe that cash on hand and funds from operations and other forms of liquidity will be sufficient to meet our anticipated working capital, capital expenditures, general corporate requirements, repayment of our debt obligations and dividend payments under our dividend policy in the next 12 months. We had a total of $1,145.4 million available under the Credit Facilities (defined in Liquidity and Capital Resources) and a total of $645.3 million available under the previous credit facilities after $4.6 million and $4.7\u00a0million of standby letters of credit issued as of April\u00a030, 2023 and 2022, respectively. Of the amount available under the Credit Facilities, $500.0\u00a0million is under the Delayed Draw Facility that expired on June 24, 2023 and is no longer available as a source of liquidity. We had a total of $11.5 million and $10.0 million of standby letters of credits with other financial institutions as of April\u00a030, 2023 and 2022, respectively.\nCritical Accounting Policies\nThe following discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements. Preparation of our periodic filings requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates and assumptions and changes in the estimates are reported in current operations as new information is learned or upon the amounts becoming fixed and determinable. In preparing our consolidated financial statements and accounting for the underlying transactions and balances, we apply our accounting policies as disclosed in the notes to our \n30\nconsolidated financial statements. We consider the policies discussed below as critical to an understanding of our consolidated financial statements because their application places the most significant demands on management\u2019s judgment and estimates. Specific risks for these critical accounting policies are described in the following paragraphs. Senior management has discussed the development, selection and key assumptions of the critical accounting estimates with the Audit Committee of the Board of Directors.\nRevenue Recognition\n. Substantially all fee revenue is derived from talent and organizational consulting services and digital sales, stand-alone or as part of a solution, fees for professional services related to executive and professional recruitment performed on a retained basis, interim services and RPO, either\n \nstand-alone or as part of a solution.\nRevenue is recognized when control of the goods and services is transferred to the customer in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods and services. Revenue contracts with customers are evaluated based on the five-step model outlined in Accounting Standard Codification (\u201cASC\u201d) 606 (\"ASC 606\"), Revenue from Contracts with Customers: 1) identify the contract with a customer; 2) identify the performance obligation(s) in the contract; 3) determine the transaction price; 4) allocate the transaction price to the separate performance obligation(s); and 5) recognize revenue when (or as) each performance obligation is satisfied.\nConsulting fee revenue is primarily recognized as services are rendered, measured by total hours incurred as a percentage of total estimated hours at completion. It is possible that updated estimates for consulting engagements may vary from initial estimates with such updates being recognized in the period of determination. Depending on the timing of billings and services rendered, we accrue or defer revenue as appropriate.\nDigital revenue is generated from IP platforms enabling large-scale, technology-based talent programs for pay, talent development, engagement, and assessment and is consumed directly by an end user or indirectly through a consulting engagement. Revenue is recognized as services are delivered and we have a legally enforceable right to payment. Revenue also comes from the sale of our proprietary IP subscriptions, which are considered symbolic IP due to the dynamic nature of the content. As a result, revenue is recognized over the term of the contract. Functional IP licenses grant customers the right to use IP content via the delivery of a flat file. Because the IP content license has significant stand-alone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists. Revenue for tangible and digital products sold by the Company, such as books and digital files, is recognized when these products are shipped.\nFee revenue from executive and professional search activities is generally one-third of the estimated first-year cash compensation of the placed candidate, plus a percentage of the fee to cover indirect engagement-related expenses. In addition to the search retainer, an uptick fee is billed when the actual compensation awarded by the client for a placement is higher than the estimated compensation. In the aggregate, upticks have been a relatively consistent percentage of the original estimated fee; therefore, we estimate upticks using the expected value method based on historical data on a portfolio basis. In a standard search engagement, there is one performance obligation, which is the promise to undertake a search. We generally recognize such revenue over the course of a search and when we are legally entitled to payment as outlined in the billing terms of the contract. Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved, as this is when control is transferred to the customer. These assumptions determine the timing of revenue recognition for the reported period. In addition to talent acquisition for permanent placement roles, the Professional Search & Interim segment also offers recruitment services for interim roles. Interim roles are short term in duration, generally less than 12 months. Generally, each interim role is a separate performance obligation. We recognize fee revenue over the duration that the interim resources\u2019 services are provided which also aligns to the contracted invoicing plan and enforceable right to payment.\nRPO fee\n \nrevenue is generated through two distinct phases: 1) the implementation phase and 2) the post-implementation recruitment phase. The fees associated with the implementation phase are recognized over the period that the related implementation services are provided. The post-implementation recruitment phase represents end-to-end recruiting services to clients for which there are both fixed and variable fees, which are recognized over the period that the related recruiting services are performed.\nAnnual Performance-Related Bonuses\n. Each quarter, management makes its best estimate of its annual performance-related bonuses, which requires management to, among other things, project annual consultant productivity (as measured by engagement fees billed and collected by Executive Search and Professional Search consultants and revenue and other performance/profitability metrics for Consulting, Digital, Interim and RPO consultants), the level of engagements referred by a consultant in one line of business to a different line of business, our performance, including profitability, competitive forces and future economic conditions and their impact on our results. At the end of each fiscal year, annual performance-related bonuses take into account final individual consultant productivity (including referred work), Company/line of business results, including profitability, the achievement of strategic objectives, the results of individual performance appraisals and the current economic landscape. Accordingly, each quarter we reevaluate the assumptions used to estimate annual performance-related bonus liability and adjust the carrying amount of the liability recorded on the consolidated balance sheets and report any changes in the estimate in current operations. Because annual performance-based bonuses are communicated and paid only after we report our full fiscal year results, actual performance-based bonus payments may differ from the prior year\u2019s estimate. Such changes in the bonus estimate historically have been immaterial and are recorded in current operations in the period in which they are determined.\n31\nDeferred Compensation\n. Estimating deferred compensation requires assumptions regarding the timing and probability of payments of benefits to participants and the discount rate. Changes in these assumptions could significantly impact the liability and related cost on our consolidated balance sheets and statements of income, respectively. For certain deferred compensation plans, management engages an independent actuary to periodically review these assumptions in order to confirm that they reflect the population and economics of our deferred compensation plans in all material respects and to assist us in estimating our deferred compensation liability and the related cost. The actuarial assumptions we use may differ from actual results due to changing market conditions or changes in the participant population. These differences could have a significant impact on our deferred compensation liability and the related cost.\nCarrying Values\n. Valuations are required under GAAP to determine the carrying value of various assets. Our most significant assets for which management is required to prepare valuations are carrying value of receivables, goodwill, other intangible assets, share-based payments, leases and recoverability of deferred income taxes. Management must identify whether events have occurred that may impact the carrying value of these assets and make assumptions regarding future events, such as cash flows and profitability. Differences between the assumptions used to prepare these valuations and actual results could materially impact the carrying amount of these assets and our operating results.\nOf the assets mentioned above, goodwill is the largest asset requiring a valuation. Fair value of goodwill for purposes of the goodwill impairment test when performing the quantitative test is determined utilizing (1) a discounted cash flow analysis based on forecasted cash flows (including estimated underlying revenue and operating income growth rates) discounted using an estimated weighted-average cost of capital for market participants and (2) a market approach, utilizing observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent available). We also reconcile the results of these analyses to its market capitalization. If the carrying amount of a reporting unit exceeds its estimated fair value, goodwill is considered potentially impaired and further tests are performed to measure the amount of impairment loss, if any.\nWe perform an annual impairment test each year as of January 31, or more frequently if impairment indicators arise. The qualitative test performed as of January 31, 2023 did not indicate any impairment, and therefore there was no need to perform a quantitative test. While historical performance and current expectations have resulted in fair values of goodwill in excess of carrying values, if our assumptions are not realized, it is possible that in the future an impairment charge may need to be recorded. However, it is not possible at this time to determine if an impairment charge would result or if such a charge would be material. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be accurate predictions of the future. As of our testing date, there were no indicators of impairments that required us to perform a quantitative test and as a result, no impairment charge was recognized. There was no indication of potential impairment through April\u00a030, 2023 that would have required further testing. \nExamples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the reporting units may include such items as follows:\n\u25aa\nA prolonged downturn in the business environment in which the reporting units operate including a longer than anticipated public health crisis;\n\u25aa\nAn economic climate that significantly differs from our future profitability assumptions in timing or degree; \n\u25aa\nThe deterioration of the labor markets;\n\u25aa\nVolatility in equity and debt markets;\n\u25aa\nCompetition and disruption in our core business; and\n\u25aa\nTechnological advances such as artificial intelligence that impact labor markets and can diminish the value of our IP.\n32\nResults of Operations\nThe following table summarizes the results of our operations as a percentage of fee revenue:\n(Numbers may not total exactly due to rounding)\nYear Ended April 30,\n2023\n2022\n2021\nFee revenue\n100.0\u00a0\n%\n100.0\u00a0\n%\n100.0\u00a0\n%\nReimbursed out-of-pocket engagement expenses\n1.0\u00a0\n0.6\u00a0\n0.5\u00a0\nTotal revenue\n101.0\u00a0\n100.6\u00a0\n100.5\u00a0\nCompensation and benefits\n67.1\u00a0\n66.3\u00a0\n71.7\u00a0\nGeneral and administrative expenses\n9.5\u00a0\n9.0\u00a0\n10.6\u00a0\nReimbursed expenses\n1.0\u00a0\n0.6\u00a0\n0.5\u00a0\nCost of services\n8.4\u00a0\n4.4\u00a0\n4.0\u00a0\nDepreciation and amortization\n2.4\u00a0\n2.4\u00a0\n3.4\u00a0\nRestructuring charges, net\n1.5\u00a0\n\u2014\u00a0\n1.7\u00a0\nOperating income\n11.2\u00a0\n17.9\u00a0\n8.6\u00a0\nNet income\n7.5\u00a0\n%\n12.6\u00a0\n%\n6.4\u00a0\n%\nNet income attributable to Korn Ferry\n7.4\u00a0\n%\n12.4\u00a0\n%\n6.3\u00a0\n%\nThe operating results for fiscal 2022 and 2021 have been revised to conform to the new segment reporting.\nThe following tables summarize the results of our operations:\n(Numbers may not total exactly due to rounding) \nYear Ended April 30, \n2023\n2022\n2021\nDollars\n%\nDollars\n%\nDollars\n%\n(dollars in thousands) \nFee revenue\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nConsulting\n$\n677,001\u00a0\n23.9\u00a0\n%\n$\n650,204\u00a0\n24.8\u00a0\n%\n$\n515,844\u00a0\n28.5\u00a0\n%\nDigital\n354,651\u00a0\n12.5\u00a0\n349,025\u00a0\n13.3\u00a0\n287,306\u00a0\n15.9\u00a0\nExecutive Search:\nNorth America\n562,139\u00a0\n19.8\u00a0\n605,704\u00a0\n23.1\u00a0\n397,275\u00a0\n21.9\u00a0\nEMEA\n187,014\u00a0\n6.6\u00a0\n182,192\u00a0\n6.9\u00a0\n138,954\u00a0\n7.7\u00a0\nAsia Pacific\n95,598\u00a0\n3.4\u00a0\n118,596\u00a0\n4.5\u00a0\n83,306\u00a0\n4.6\u00a0\nLatin America\n31,047\u00a0\n1.1\u00a0\n29,069\u00a0\n1.1\u00a0\n17,500\u00a0\n1.0\u00a0\nTotal Executive Search\n875,798\u00a0\n30.9\u00a0\n935,561\u00a0\n35.6\u00a0\n637,035\u00a0\n35.2\u00a0\nProfessional Search & Interim\n503,395\u00a0\n17.7\u00a0\n297,096\u00a0\n11.3\u00a0\n130,831\u00a0\n7.2\u00a0\nRPO\n424,563\u00a0\n15.0\u00a0\n394,832\u00a0\n15.0\u00a0\n239,031\u00a0\n13.2\u00a0\nTotal fee revenue\n2,835,408\u00a0\n100.0\u00a0\n%\n2,626,718\u00a0\n100.0\u00a0\n%\n1,810,047\u00a0\n100.0\u00a0\n%\nReimbursed out-of-pocket engagement expense\n28,428\u00a0\n16,737\u00a0\n9,899\u00a0\nTotal revenue\n$\n2,863,836\u00a0\n$\n2,643,455\u00a0\n$\n1,819,946\u00a0\nIn the tables that follow, the Company presents a subtotal for Executive Search Adjusted EBITDA and a single percentage for Executive Search Adjusted EBITDA margin, which reflects the aggregate of all of the individual Executive Search Regions. These figures are non-GAAP financial measures and are presented as they are consistent with the Company\u2019s lines of business and are financial metrics used by the Company\u2019s investor base.\n33\nYear Ended April 30,\n2023\n2022\n2021\nConsolidated\n(in thousands)\nFee revenue\n$\n2,835,408\u00a0\n$\n2,626,718\u00a0\n$\n1,810,047\u00a0\nTotal revenue\n$\n2,863,836\u00a0\n$\n2,643,455\u00a0\n$\n1,819,946\u00a0\nNet income attributable to Korn Ferry\n$\n209,529\u00a0\n$\n326,360\u00a0\n$\n114,454\u00a0\nNet income attributable to noncontrolling interest\n3,525\u00a0\n4,485\u00a0\n1,108\u00a0\nOther (income) loss, net\n(5,261)\n11,880\u00a0\n(37,194)\nInterest expense, net\n25,864\u00a0\n25,293\u00a0\n29,278\u00a0\nIncome tax provision\n82,683\u00a0\n102,056\u00a0\n48,138\u00a0\nOperating income\n316,340\u00a0\n470,074\u00a0\n155,784\u00a0\nDepreciation and amortization\n68,335\u00a0\n63,521\u00a0\n61,845\u00a0\nOther income (loss), net\n5,261\u00a0\n(11,880)\n37,194\u00a0\nIntegration/acquisition costs\n14,922\u00a0\n7,906\u00a0\n737\u00a0\nImpairment of fixed assets\n4,375\u00a0\n1,915\u00a0\n\u2014\u00a0\nImpairment of right of use assets\n5,471\u00a0\n7,392\u00a0\n\u2014\u00a0\nRestructuring charges, net\n42,573\u00a0\n\u2014\u00a0\n30,732\u00a0\nAdjusted EBITDA\n$\n457,277\u00a0\n$\n538,928\u00a0\n$\n286,292\u00a0\nAdjusted EBITDA margin\n16.1\u00a0\n%\n20.5\u00a0\n%\n15.8\u00a0\n%\nYear Ended April 30, 2023\nFee revenue\nTotal revenue\nAdjusted EBITDA\nAdjusted EBITDA margin\n(dollars in thousands)\nConsulting\n$\n677,001\u00a0\n$\n686,979\u00a0\n$\n108,502\u00a0\n16.0\u00a0\n%\nDigital\n354,651\u00a0\n354,967\u00a0\n97,458\u00a0\n27.5\u00a0\n%\nExecutive Search:\nNorth America\n562,139\u00a0\n568,212\u00a0\n140,850\u00a0\n25.1\u00a0\n%\nEMEA\n187,014\u00a0\n188,114\u00a0\n31,380\u00a0\n16.8\u00a0\n%\nAsia Pacific\n95,598\u00a0\n95,956\u00a0\n24,222\u00a0\n25.3\u00a0\n%\nLatin America\n31,047\u00a0\n31,054\u00a0\n9,370\u00a0\n30.2\u00a0\n%\nTotal Executive Search\n875,798\u00a0\n883,336\u00a0\n205,822\u00a0\n23.5\u00a0\n%\nProfessional Search & Interim\n503,395\u00a0\n507,058\u00a0\n110,879\u00a0\n22.0\u00a0\n%\nRPO\n424,563\u00a0\n431,496\u00a0\n52,588\u00a0\n12.4\u00a0\n%\nCorporate\n\u2014\u00a0\n\u2014\u00a0\n(117,972)\nConsolidated\n$\n2,835,408\u00a0\n$\n2,863,836\u00a0\n$\n457,277\u00a0\n16.1\u00a0\n%\n34\nYear Ended April 30, 2022\nFee revenue\nTotal revenue\nAdjusted EBITDA\nAdjusted EBITDA margin\n(dollars in thousands)\nConsulting\n$\n650,204\u00a0\n$\n654,199\u00a0\n$\n116,108\u00a0\n17.9\u00a0\n%\nDigital\n349,025\u00a0\n349,437\u00a0\n110,050\u00a0\n31.5\u00a0\n%\nExecutive Search:\nNorth America\n605,704\u00a0\n609,258\u00a0\n181,615\u00a0\n30.0\u00a0\n%\nEMEA\n182,192\u00a0\n182,866\u00a0\n31,804\u00a0\n17.5\u00a0\n%\nAsia Pacific\n118,596\u00a0\n118,705\u00a0\n35,105\u00a0\n29.6\u00a0\n%\nLatin America\n29,069\u00a0\n29,079\u00a0\n9,089\u00a0\n31.3\u00a0\n%\nTotal Executive Search\n935,561\u00a0\n939,908\u00a0\n257,613\u00a0\n27.5\u00a0\n%\nProfessional Search & Interim\n297,096\u00a0\n297,974\u00a0\n106,015\u00a0\n35.7\u00a0\n%\nRPO\n394,832\u00a0\n401,937\u00a0\n59,126\u00a0\n15.0\u00a0\n%\nCorporate\n\u2014\u00a0\n\u2014\u00a0\n(109,984)\nConsolidated\n$\n2,626,718\u00a0\n$\n2,643,455\u00a0\n$\n538,928\u00a0\n20.5\u00a0\n%\nYear Ended April 30, 2021\nFee revenue\nTotal revenue\nAdjusted EBITDA\nAdjusted EBITDA margin\n(dollars in thousands)\nConsulting\n$\n515,844\u00a0\n$\n517,046\u00a0\n$\n81,522\u00a0\n15.8\u00a0\n%\nDigital\n287,306\u00a0\n287,780\u00a0\n86,095\u00a0\n30.0\u00a0\n%\nExecutive Search:\nNorth America\n397,275\u00a0\n399,104\u00a0\n98,099\u00a0\n24.7\u00a0\n%\nEMEA\n138,954\u00a0\n139,213\u00a0\n11,742\u00a0\n8.5\u00a0\n%\nAsia Pacific\n83,306\u00a0\n83,463\u00a0\n16,676\u00a0\n20.0\u00a0\n%\nLatin America\n17,500\u00a0\n17,500\u00a0\n1,289\u00a0\n7.4\u00a0\n%\nTotal Executive Search\n637,035\u00a0\n639,280\u00a0\n127,806\u00a0\n20.1\u00a0\n%\nProfessional Search & Interim\n130,831\u00a0\n131,080\u00a0\n36,934\u00a0\n28.2\u00a0\n%\nRPO\n239,031\u00a0\n244,760\u00a0\n32,477\u00a0\n13.6\u00a0\n%\nCorporate\n\u2014\u00a0\n\u2014\u00a0\n(78,542)\nConsolidated\n$\n1,810,047\u00a0\n$\n1,819,946\u00a0\n$\n286,292\u00a0\n15.8\u00a0\n%\nFiscal 2023 Compared to Fiscal 2022\nFee Revenue\nFee Revenue. \nFee revenue increased by $208.7 million, or 8.0%, to $2,835.4 million in fiscal 2023 compared to $2,626.7 million in fiscal 2022. Exchange rates unfavorably impacted fee revenue by $96.8 million, or 4%, in fiscal 2023 compared to fiscal 2022. Fee revenue increased in all lines of business except in Executive Search which saw a decline in fee revenue compared to fiscal 2022 primarily due to a decline in demand for our products and services caused by the slowdown in the global economy. The acquisitions of The Lucas Group, Patina Solutions Group (\"Patina\"), ICS and Salo (the \"Acquired Companies\") were a significant factor in the increase in fee revenue compared to fiscal 2022.\nConsulting. \nConsulting reported fee revenue of $677.0 million in fiscal 2023, an increase of $26.8 million, or 4%, compared to $650.2 million in fiscal 2022. The increase in fee revenue was mainly driven by an increase in demand for workforce transformation, organization design, and senior leadership development delivered through our Organization Strategy, Leadership Development, Total Rewards and Assessment & Succession solutions, as clients aligned their structures to new market opportunities and addressed compensation and retention issues. Exchange rates unfavorably impacted fee revenue by $27.8 million, or 4%, compared to fiscal 2022.\nDigital. \nDigital reported fee revenue of $354.7 million in fiscal 2023, an increase of $5.7 million, or 2%, compared to $349.0 million in fiscal 2022. The increase in fee revenue was primarily driven by increasing demand for Development offerings as companies invest in sales effectiveness tools and training content to build their commercial teams' capabilities to maximize \n35\nrevenue growth, as well as in analytics on Total Rewards trends used to aid in retention and staffing decisions. Exchange rates unfavorably impacted fee revenue by $18.8 million, or 5%, compared to fiscal 2022.\nExecutive Search North America\n. Executive Search North America reported fee revenue of $562.1 million in fiscal 2023, a decrease of $43.6 million, or 7%, compared to $605.7 million in fiscal 2022. Exchange rates unfavorably impacted fee revenue by $2.2 million in fiscal 2023 compared to fiscal 2022. North America\u2019s fee revenue decreased due to a 14% decrease in the number of engagements billed, partially offset by an 8% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2023 compared to fiscal 2022.\nExecutive Search EMEA.\n Executive Search EMEA reported fee revenue of $187.0 million in fiscal 2023, an increase of $4.8 million, or 3%, compared to $182.2 million in fiscal 2022. Exchange rates unfavorably impacted fee revenue by $15.6 million, or 9%, in fiscal 2023 compared to fiscal 2022. The increase in fee revenue was primarily due to a 10% increase in the weighted-average fees billed per engagement (calculated using local currency) and a 2% increase in the number of engagements billed in fiscal 2023 compared to fiscal 2022.\n \nThe performance in the United Arab Emirates, Switzerland, Denmark, Netherlands and Germany were the primary contributors to the increase in fee revenue in fiscal 2023 compared to fiscal 2022, partially offset by a decrease in fee revenue in France, Russia and Italy.\nExecutive Search Asia Pacific.\n Executive Search Asia Pacific reported fee revenue of $95.6 million in fiscal 2023, a decrease of $23.0 million, or 19%, compared to $118.6 million in fiscal 2022. Exchange rates unfavorably impacted fee revenue by $7.9 million, or 7%, in fiscal 2023 compared to fiscal 2022. The decrease in fee revenue was due to a 16% decrease in the number of engagements billed, partially offset by a 2% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2023 compared to fiscal 2022. The performance in China, Japan, Australia, India and Korea were the primary contributors to the decrease in fee revenue in fiscal 2023 compared to fiscal 2022, partially offset by an increase in fee revenue in Malaysia.\nExecutive Search Latin America.\n Executive Search Latin America reported fee revenue of $31.0 million in fiscal 2023, an increase of $1.9 million, or 7%, compared to $29.1 million in fiscal 2022. Exchange rates were relatively flat in fiscal 2023 compared to fiscal 2022. The increase in fee revenue was due to a 9% increase in the weighted-average fees billed per engagement (calculated using local currency), partially offset by a decrease of 2% in the number of engagements billed in fiscal 2023 compared to fiscal 2022. The performance in Mexico and Brazil were the primary contributors to the increase in fee revenue in fiscal 2023 compared to fiscal 2022, partially offset by a decrease in fee revenue in Colombia.\nProfessional Search & Interim. \nProfessional Search & Interim reported fee revenue of $503.4 million in fiscal 2023, an increase of $206.3 million, or 69%, compared to $297.1 million in fiscal 2022. Exchange rates unfavorably impacted fee revenue by $7.4 million, or 2%, in fiscal 2023 compared to fiscal 2022. The increase in fee revenue was driven by an increase in both interim and professional search fee revenue of $188.1 million and $18.2 million, respectively, which was primarily due to the acquisitions of the Acquired Companies.\nRPO. \nRPO reported fee revenue of $424.6 million in fiscal 2023, an increase of $29.8 million, or 8%, compared to $394.8 million in fiscal 2022. Exchange rates unfavorably impacted fee revenue by $17.1 million, or 4%, in fiscal 2023 compared to fiscal 2022. The increase in fee revenue was due to wider adoption of RPO services in the market in combination with our differentiated solutions.\nCompensation and Benefits\nCompensation and benefits expense increased by $159.7 million, or 9%, to $1,901.2 million in fiscal 2023 from $1,741.5 million in fiscal 2022. Exchange rates favorably impacted compensation and benefits by $53.6 million, or 3%, in fiscal 2023 compared to fiscal 2022. The increase in compensation and benefits expense was primarily due to increases in salaries and related payroll taxes of $147.7 million and employer insurance of $15.3 million. These increases were due to the increase in fee revenue overall which resulted in an increase in average headcount of 15% in fiscal 2023 compared to fiscal 2022, and wage inflation. Also contributing to higher compensation and benefits expense were increases in commission expense of $20.2 million due to higher fee revenue, $18.7 million more in deferred compensation expenses as a result of increases in the fair value of participants\u2019 accounts in fiscal 2023 compared to fiscal 2022 and higher integration/acquisition costs of $6.4 million. This increase was partially offset by decreases in performance-related bonus expense of $38.2 million and $8.9 million in amortization of long-term incentive awards. Compensation and benefits expense, as a percentage of fee revenue, increased to 67% in fiscal 2023 from 66% in fiscal 2022.\nConsulting compensation and benefits expense increased by $27.6 million, or 6%, to $478.5 million in fiscal 2023 from $450.9 million in fiscal 2022. Exchange rates favorably impacted compensation and benefits by $16.5 million, or 4%, in fiscal 2023 compared to fiscal 2022. The increase in compensation and benefits expense was primarily due to increases in salaries and related payroll taxes of $22.2 million and employer insurance of $2.5 million. These increases were due to the segment's revenue growth coupled which resulted in an increase in average headcount of 7% in fiscal 2023 compared to fiscal 2022, and wage inflation. Also contributing to higher compensation and benefits expense was an increase in deferred compensation expense of $2.6 million in fiscal 2023 compared to fiscal 2022. Consulting compensation and benefits expense, as a percentage of fee revenue, increased to 71% in fiscal 2023 from 69% in fiscal 2022.\nDigital compensation and benefits expense increased by $11.3 million, or 6%, to $189.1 million in fiscal 2023 from $177.8 million in fiscal 2022. Exchange rates favorably impacted compensation and benefits by $7.5 million, or 4%, in fiscal 2023 \n36\ncompared to fiscal 2022. The increase in compensation and benefits expense was primarily due to an increase in salaries and related payroll taxes of $13.8 million due to a 9% increase in average headcount in fiscal 2023 compared to fiscal 2022 and wage inflation. The increase was partially offset by a decrease in performance-related bonus expense of $3.0 million. Digital compensation and benefits expense, as a percentage of fee revenue, increased to 53% in fiscal 2023 from 51% in fiscal 2022.\nExecutive Search North America compensation and benefits expense increased by $9.0 million, or 2%, to $386.1 million in fiscal 2023 compared to $377.1 million in fiscal 2022. Exchange rates favorably impacted compensation and benefits by $1.0 million in fiscal 2023 compared to fiscal 2022. The increase in compensation and benefits expense was primarily due to higher salaries and related payroll taxes of $12.4 million and an increase in employer insurance of $1.6 million. These increases were due to an increase in average headcount of 10% in fiscal 2023 compared to fiscal 2022 and wage inflation. Also contributing to the increase in compensation and benefits expense was an increase in deferred compensation expense of $12.4 million due to an increase in the fair market value of participants' accounts in fiscal 2023 compared to fiscal 2022. The increase was partially offset by lower performance-related bonus expense of $12.4 million as a result of lower fee revenue and a decrease in the amortization of long-term incentive awards of $4.9 million. Executive Search North America compensation and benefits expense, as a percentage of fee revenue, increased to 69% in fiscal 2023 from 62% in fiscal 2022.\nExecutive Search EMEA compensation and benefits expense increased by $7.4 million, or 6%, to $140.5 million in fiscal 2023 compared to $133.1 million in fiscal 2022. Exchange rates favorably impacted compensation and benefits by $8.2 million, or 6%, in fiscal 2023 compared to fiscal 2022. The increase in compensation and benefits expense was primarily due to higher performance-related bonus expense of $4.5 million, salaries and related payroll taxes of $2.5 million and amortization of long-term incentive awards of $1.1 million in fiscal 2023 compared to fiscal 2022. These increases were due to the Executive search EMEA segment's revenue growth combined with an increase in average headcount of 11% in fiscal 2023 compared to fiscal 2022. Executive Search EMEA compensation and benefits expense, as a percentage of fee revenue, increased to 75% in fiscal 2023 from 73% in fiscal 2022.\nExecutive Search Asia Pacific compensation and benefits expense decreased by $10.4 million, or 14%, to $61.9 million in fiscal 2023 compared to $72.3 million in fiscal 2022. Exchange rates favorably impacted compensation and benefits by $4.3 million, or 6%, in fiscal 2023 compared to fiscal 2022. The decrease in compensation and benefits expense was primarily due to a decrease in performance-related bonus expense of $8.3 million in fiscal 2023 compared to fiscal 2022 due to lower segment fee revenue. Executive Search Asia Pacific compensation and benefits expense, as a percentage of fee revenue, increased to 65% in fiscal 2023 from 61% in fiscal 2022.\nExecutive Search Latin America compensation and benefits expense increased by $2.0 million, or 11%, to $20.4 million in fiscal 2023 compared to $18.4 million in fiscal 2022. Exchange rates unfavorably impacted compensation and benefits by $0.1 million, in fiscal 2023 compared to fiscal 2022. The increase in compensation and benefits expense was primarily due to an increase in salaries and related payroll taxes as a result of the segment\u2019s fee revenue growth with an increase in average headcount of 8% in fiscal 2023 compared to fiscal 2022. Executive Search Latin America compensation and benefits expense, as percentage of fee revenue, increased to 66% in fiscal 2023 from 63% in fiscal 2022.\nProfessional Search & Interim compensation and benefits expense increased by $74.5 million, or 50%, to $223.3 million in fiscal 2023 compared to $148.8 million in fiscal 2022. Exchange rates favorably impacted compensation and benefits by $2.9 million, or 2%, in fiscal 2023 compared to fiscal 2022. The increase in compensation and benefits expense was primarily due to higher salaries and related payroll taxes of $52.0 million, commission expense of $18.0 million, employee insurance of $3.9 million and integration/acquisition costs of $6.4 million due to the acquisitions of the Acquired Companies, which resulted in a 55% increase in the average headcount in fiscal 2023 compared to fiscal 2022. This increase was partially offset by a decrease of $8.0 million in performance-related bonus expense. Professional Search & Interim compensation and benefits expense, as a percentage of fee revenue, decreased to 44% in fiscal 2023 from 50% in fiscal 2022.\nRPO compensation and benefits expense increased by $35.8 million, or 12%, to $339.0 million in fiscal 2023 from $303.2 million in fiscal 2022. Exchange rates favorably impacted compensation and benefits by $13.1 million, or 4%, in fiscal 2023 compared to fiscal 2022. The increase in compensation and benefits expense was primarily due to higher salaries and related payroll taxes of $42.1 million and employer insurance of $6.1 million as a result of the segment's fee revenue growth combined with an increase in average headcount of 18% in fiscal 2023 compared to fiscal 2022. Also contributing to the higher compensation and benefits expense was the increase in severance expense of $3.2 million. This increase was partially offset by decreases in performance-related bonus expense of $12.6 million and in the use of outside contractors of $5.4 million. RPO compensation and benefits expense, as a percentage of fee revenue, increased to 80% in fiscal 2023 from 77% in fiscal 2022.\nCorporate compensation and benefits expense increased by $2.7 million, or 5%, to $62.4 million in fiscal 2023 from $59.7 million in fiscal 2022. The increase in compensation and benefits expense was primarily driven by higher salaries and related payroll taxes of $4.5 million due to an increase in average headcount of 13% in fiscal 2023 compared to fiscal 2022, and to a lesser extent to an increase in stock-based compensation expense of $2.3 million and the use of outside contractors of $1.3 million. Also contributing to the increase in compensation and benefits expense was an increase in deferred compensation expense of $1.1 million due to increases in the fair value of participants' accounts. The increase was \n37\npartially offset by an increase in the cash surrender value (\"CSV\") of company-owned life insurance (\"COLI\") of $4.8 million as a result of increased death benefits, and a decrease in the amortization of long-term incentive awards of $1.2 million in fiscal 2023 compared to fiscal 2022.\nGeneral and Administrative Expenses\nGeneral and administrative expenses increased by $31.2 million, or 13%, to $268.5 million in fiscal 2023 compared to $237.3 million in fiscal 2022. Exchange rates favorably impacted general and administrative expenses by $12.5 million, or 5%, in fiscal 2023 compared to fiscal 2022. The increase in general and administrative expenses was primarily due to higher marketing and business development expenses of $15.9 million and an increase in computer software licenses expense of $9.0 million, which contributed to the increase in fee revenue in fiscal 2023 compared to fiscal 2022, as well as an increase in legal and other professional fees of $6.7 million. General and administrative expenses, as a percentage of fee revenue, was 9% in both fiscal 2023 and fiscal 2022.\nConsulting general and administrative expenses increased by $6.4 million, or 12%, to $57.9 million in fiscal 2023 compared to $51.5 million in fiscal 2022. The increase in general and administrative expenses was primarily due to increases in impairment charges of $3.1 million associated with the reduction of the Company\u2019s real estate footprint and marketing and business development expenses of $2.1 million related to fee revenue growth. Also contributing to the increase in general and administrative expenses was an increase in foreign exchange losses of $2.0 million in fiscal 2023 compared to fiscal 2022. Consulting general and administrative expenses, as a percentage of fee revenue, increased to 9% in fiscal 2023 from 8% in fiscal 2022.\nDigital general and administrative expenses increased by $9.6 million, or 31%, to $40.6 million in fiscal 2023 compared to $31.0 million in fiscal 2022. The increase in general and administrative expenses was primarily due to higher computer software licenses expense of $3.2 million and an increase in marketing and business development expenses of $3.1 million. Also contributing to the increase in general and administrative expense was an increase in impairment charges of $1.7 million associated with the reduction of the Company's real estate footprint and an increase in foreign exchange losses of $1.5 million in fiscal 2023 compared to fiscal 2022. Digital general and administrative expenses, as a percentage of fee revenue, increased to 11% in fiscal 2023 from 9% in fiscal 2022.\nExecutive Search North America general and administrative expenses increased by $1.6 million, or 5%, to $32.4 million in fiscal 2023 from $30.8 million in fiscal 2022. The increase in general and administrative expenses was primarily due to an increase in marketing and business development expenses of $2.1 million, partially offset by foreign exchange gains of $0.2 million in fiscal 2023 compared to foreign exchange losses of $0.4 million in fiscal 2022. Executive Search North America general and administrative expenses, as a percentage of fee revenue, increased to 6% in fiscal 2023 from 5% in fiscal 2022.\nExecutive Search EMEA general and administrative expenses decreased by $3.3 million, or 18%, to $14.7 million in fiscal 2023 from $18.0 million in fiscal 2022. The decrease in general and administrative expenses was primarily due to a decrease in premise and office expense of $3.3 million due to impairment charges recorded in fiscal 2022 and as a result of the reduction of the Company's real estate footprint. Also contributing to the decrease is the impact of foreign currency with foreign currency gains of $0.3 million in fiscal 2023 compared to foreign exchange losses of $0.7 million in fiscal 2022. This decrease was partially offset by an increase in marketing and business development expense of $1.0 million related to fee revenue growth in fiscal 2023 compared to fiscal 2022. Executive Search EMEA general and administrative expenses, as a percentage of fee revenue, decreased to 8% in fiscal 2023 from 10% in fiscal 2022.\nExecutive Search Asia Pacific general and administrative expenses decreased by $1.3 million, or 12%, to $9.7 million in fiscal 2023 from $11.0 million in fiscal 2022. The decrease in general and administrative expenses was primarily due to decreases in bad debt expense of $0.7 million and premise and office expense of $0.6 million in fiscal 2023 compared to fiscal 2022. Executive Search Asia Pacific general and administrative expenses, as a percentage of fee revenue, increased to 10% in fiscal 2023 from 9% in fiscal 2022.\nExecutive Search Latin America general and administrative expenses increased by $0.5 million, or 56%, to $1.4 million in fiscal 2023 from $0.9 million in fiscal 2022. The increase in general and administrative expenses was primarily due to a gain recorded in fiscal 2022 due to the termination of a lease agreement in Mexico, thereby increasing premise and office expense by $1.7 million, partially offset by an increase in foreign exchange gains of $0.8 million in fiscal 2023 compared to fiscal 2022. Executive Search Latin America general and administrative expenses, as a percentage of fee revenue, increased to 4% in fiscal 2023 from 3% in fiscal 2022.\nProfessional Search & Interim general and administrative expenses increased by $10.1 million, or 50%, to $30.3 million in fiscal 2023 from $20.2 million in fiscal 2022. The increase in general and administrative expenses was primarily due to increases in bad debt expense of $5.4 million, marketing and business development expenses of $2.4 million, premise and office expense of $1.3 million and integration/acquisition costs of $0.8 million in fiscal 2023 compared to fiscal 2022. Professional Search & Interim general and administrative expenses, as a percentage of fee revenue, decreased to 6% in fiscal 2023 from 7% in fiscal 2022.\nRPO general and administrative expenses increased by $0.9 million, or 4%, to $21.3 million in fiscal 2023 from $20.4 million in fiscal 2022. The increase in general and administrative expenses was primarily due to increases in marketing and business development expenses of $1.0 million, legal and other professional fees of $0.4 million, as well as a foreign \n38\nexchange losses of $1.2 million in fiscal 2023 as opposed to foreign exchange gains of $0.8 million in fiscal 2022. This increase was partially offset by a lower bad debt expense of $2.5 million in fiscal 2023 compared to fiscal 2022. RPO general and administrative expenses, as a percentage of fee revenue, was 5% in both fiscal 2023 and fiscal 2022.\nCorporate general and administrative expenses increased by $6.6 million, or 12%, to $60.1 million in fiscal 2023 compared to $53.5 million in fiscal 2022. The increase in general and administrative expenses was primarily due to increases in legal and other professional fees of $3.9 million, marketing and business development expenses of $3.8 million, as well as premise and office expense of $2.7 million, partially offset by an increase in foreign exchange gains of $2.3 million in fiscal 2023 compared to fiscal 2022.\nCost of Services Expense\nCost of services expense consists of contractor and product costs related to the delivery of various services and products through Consulting, Digital, Professional Search & Interim and RPO. Cost of services expense was $238.5 million in fiscal 2023, an increase of $124.1 million, or 108%, compared to $114.4 million in fiscal 2022. Professional Search & Interim accounts for $122.9 million of the increase primarily due to the acquisitions of the Acquired Companies which, includes a significant amount of interim business as part of the services they perform which has higher cost of services expense compared to other services Korn Ferry provides. As the interim business becomes an increasing portion of our fee revenue, we expect cost of services expense to continue to increase in future periods. The rest of the increase was from the Consulting segment driven by the increase in fee revenue in the segment. Cost of services expense, as a percentage of fee revenue, increased to 8% in fiscal 2023 from 4% in fiscal 2022 due to the acquisition of the Acquired Companies.\nDepreciation and Amortization Expenses\nDepreciation and amortization expenses were $68.3 million in fiscal 2023, an increase of $4.8 million, or 8%, compared to $63.5 million in fiscal 2022. The increase was primarily due to the amortization of intangible assets due to the acquisition of the Acquired Companies.\nRestructuring Charges, Net\nIn fiscal 2023, we implemented the Plan to realign our workforce with our business needs and objectives. As a result, we recorded restructuring charges, net of $42.6\u00a0million during fiscal 2023. There were no restructuring charges, net in fiscal 2022. \nNet Income Attributable to Korn Ferry\nNet income attributable to Korn Ferry decreased by $116.9 million, to $209.5 million in fiscal 2023 compared to $326.4 million in fiscal 2022. The decrease in net income attributable to Korn Ferry was driven by increases in compensation and benefits expense, cost of services expense, general and administrative expenses, and restructuring charges, net in fiscal 2023 compared to fiscal 2022. This decrease was partially offset by an increase in fee revenue, lower income tax provision and an increase in other income (loss), net in fiscal 2023 compared to fiscal 2022. Net income attributable to Korn Ferry, as a percentage of fee revenue, was 7% and 12% in fiscal 2023 and 2022, respectively.\nAdjusted EBITDA\nAdjusted EBITDA a decrease of $81.6 million to $457.3 million in fiscal 2023 compared to $538.9 million in fiscal 2022. The decrease in Adjusted EBITDA was driven by increases in compensation and benefits expense (excluding integration/acquisition costs), cost of services expense, and general and administrative expenses (excluding integration/acquisition costs and impairment charges), partially offset by increases in fee revenue and other income (loss), net in fiscal 2023 compared to fiscal 2022. Adjusted EBITDA, as a percentage of fee revenue, was 16% in fiscal 2023 compared to 21% in fiscal 2022. Adjusted EBITDA margin decreased primarily due to a change in fee revenue mix, with a decrease in fee revenue in Executive Search and Permanent Placement, which have higher margins, and being replaced with fee revenue in Interim that has lower margins, but is more resilient to economic factors and in line with our strategy \nConsulting Adjusted EBITDA was $108.5 million in fiscal 2023, a decrease of $7.6 million, or 7%, compared to $116.1 million in fiscal 2022. The decrease in Adjusted EBITDA was driven by increases in compensation and benefits expense, general and administrative expenses (excluding impairment charges), and cost of services expense, partially offset by an increase in fee revenue in fiscal 2023 compared to fiscal 2022. Consulting Adjusted EBITDA, as a percentage of fee revenue, was 16% in fiscal 2023 compared to 18% in fiscal 2022.\nDigital Adjusted EBITDA was $97.5 million in fiscal 2023, a decrease of $12.6 million, or 11%, compared to $110.1 million in fiscal 2022. The decrease in Adjusted EBITDA was mainly driven by increases in compensation and benefits expense and general and administrative expenses (excluding impairment charges), partially offset by an increase in fee revenue in fiscal 2023 compared to fiscal 2022. Digital Adjusted EBITDA, as a percentage of fee revenue, was 27% in fiscal 2023 compared to 32% in fiscal 2022.\nExecutive Search North America Adjusted EBITDA decreased by $40.7 million, or 22%, to $140.9 million in fiscal 2023 compared to $181.6 million in fiscal 2022. The decrease in Adjusted EBITDA was primarily driven by lower fee revenue in the segment, coupled with increases in compensation and benefits expense and general and administrative expenses, \n39\npartially offset by an increase in other income (loss), net in fiscal 2023 compared to fiscal 2022. Executive Search North America Adjusted EBITDA, as a percentage of fee revenue, was 25% in fiscal 2023 compared to 30% in fiscal 2022.\nExecutive Search EMEA Adjusted EBITDA decreased by $0.4 million, or 1%, to $31.4 million in fiscal 2023 compared to $31.8 million in fiscal 2022. The decrease in Adjusted EBITDA was driven by an increase in compensation and benefits expense, partially offset by higher fee revenue in the segment and a decrease in general and administrative expenses (excluding impairment charges). Executive Search EMEA Adjusted EBITDA, as a percentage of fee revenue, was 17% in both fiscal 2023 and fiscal 2022.\nExecutive Search Asia Pacific Adjusted EBITDA decreased by $10.9 million, or 31%, to $24.2 million in fiscal 2023 compared to $35.1 million in fiscal 2022. The decrease in Adjusted EBITDA was primarily driven by lower fee revenue in the segment, partially offset by decreases in the compensation and benefits expense and general and administrative expenses in fiscal 2023 compared to fiscal 2022. Executive Search Asia Pacific Adjusted EBITDA, as a percentage of fee revenue, was 25% in fiscal 2023 compared to 30% in fiscal 2022.\nExecutive Search Latin America Adjusted EBITDA increased by $0.3 million, or 3%, to $9.4 million in fiscal 2023 compared to $9.1 million in fiscal 2022. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment and an increase in other income (loss), net, partially offset by an increase in compensation and benefits expense in fiscal 2023 compared to fiscal 2022. Executive Search Latin America Adjusted EBITDA, as a percentage of fee revenue, was 30% in fiscal 2023 compared to 31% in fiscal 2022.\nProfessional Search & Interim Adjusted EBITDA was $110.9 million in fiscal 2023, an increase of $4.9 million, or 5%, compared to $106.0 million in fiscal 2022. The increase in Adjusted EBITDA was mainly driven by higher fee revenue in the segment as a result of the acquisition of the Acquired Companies, partially offset by increases in cost of services expense, compensation and benefits expense (excluding integration/acquisition costs) and general and administrative expenses (excluding impairment charges and integration/acquisition costs) in fiscal 2023 compared to fiscal 2022. Professional Search & Interim Adjusted EBITDA, as a percentage of fee revenue, was 22% in fiscal 2023 compared to 36% in fiscal 2022.\nRPO Adjusted EBITDA was $52.6 million in fiscal 2023, a decrease of $6.5 million, or 11%, compared to $59.1 million in fiscal 2022. The decrease in Adjusted EBITDA was mainly driven by increases in compensation and benefits expense and general and administrative expenses (excluding impairment charges), partially offset by higher fee revenue in the segment in fiscal 2023 compared to fiscal 2022. RPO Adjusted EBITDA, as a percentage of fee revenue, was 12% in fiscal 2023 compared to 15% in fiscal 2022.\nOther Income (Loss), Net \nOther income, net was $5.3 million in fiscal 2023 compared to other loss, net of $11.9 million in fiscal 2022. The difference was primarily due to gains from the fair value of our marketable securities in fiscal 2023 compared to losses in fiscal 2022.\nInterest Expense, Net\nInterest expense, net primarily relates to our Notes issued in December 2019, borrowings under our COLI policies and interest cost related to our deferred compensation plans, which are partially offset by interest earned on cash and cash equivalent balances. Interest expense, net was $25.9 million in fiscal 2023 compared to $25.3 million in fiscal 2022.\nIncome Tax Provision\nThe provision for income tax was $82.7 million in fiscal 2023 compared to $102.1 million in fiscal 2022. This reflects a 28% effective tax rate for fiscal 2023 compared to a 24% effective tax rate for fiscal 2022. In addition to the impact of U.S. state income taxes and jurisdictional mix of earnings, which generally create variability in our effective tax rate over time, the higher effective tax rate in fiscal 2023 was affected by a tax expense recorded for withholding taxes that are not eligible for credit. The fiscal 2022 effective tax rate was lower due to a tax benefit recorded in connection with tax credits for eligible research and development expenditures incurred in fiscal 2022 and the four immediately preceding fiscal years.\nNet Income Attributable to Noncontrolling Interest\nNet income attributable to noncontrolling interest represents the portion of a subsidiary\u2019s net earnings that are attributable to shares of such subsidiary not held by Korn Ferry that are included in the consolidated results of income. Net income attributable to noncontrolling interest was $3.5\u00a0million and $4.5\u00a0million in fiscal 2023 and fiscal 2022, respectively.\nFiscal 2022 compared to Fiscal 2021\nDuring fiscal 2023, the Company changed the composition of its global segments. The Professional Search & Interim segment and RPO segment were previously included in the RPO & Professional Search segment. Segment data for fiscal 2022 and 2021 have been recast to reflect the division of the RPO & Professional Search segment into the Professional Search & Interim and RPO segments.\nFee Revenue\nFee Revenue. \nFee revenue increased by $816.7 million, or 45.1%, to $2,626.7 million in fiscal 2022 compared to $1,810.0 million in fiscal 2021. Exchange rates unfavorably impacted fee revenue by $2.8 million, in fiscal 2022 compared to fiscal 2021. The higher fee revenue was attributable to increases in all lines of business primarily due to an increase in new \n40\nbusiness driven by the increased relevance of the Company\u2019s solutions and the acquisition of The Lucas Group that closed on November 1 2021 and Patina that closed on April 1, 2022 (\"Acquired Companies in fiscal 2022\") in the Professional Search & Interim segment. Further, the coronavirus pandemic (\"COVID-19\") adversely impacted demand for the Company\u2019s services on a worldwide basis in fiscal 2021.\nConsulting. \nConsulting reported fee revenue of $650.2 million in fiscal 2022, an increase of $134.4 million, or 26%, compared to $515.8 million in fiscal 2021. The increase in fee revenue was partially driven by our Organizational Strategy work in organization and job redesign, people strategy and culture transformation. In addition, our diversity, equity & inclusion (\u201cDE&I\u201d) business remained strong in fiscal 2022 as we helped clients move the needle on their diversity efforts. Also, greater expectations for organizations to be a force for good in society more broadly has been increasing demand for our environmental and social governance (\u201cESG\u201d) and sustainability offerings. Leadership Development continues to focus on the importance of increasing employee engagement through coaching and structured leadership workshops. Assessment and Succession increased as clients rely on Korn Ferry\u2019s robust data, science and IP to fuel leadership and scaled workforce transformations. Finally, growth in Total Rewards was fueled by global compensation and retention challenges associated with labor market dislocation; merger & acquisition and IPO activity; and increased focus on executive pay and governance issues, all of which increased pressure to offer higher and more competitive compensation. Exchange rates unfavorably impacted fee revenue by $2.8 million, or 1%, compared to fiscal 2021.\nDigital. \nDigital reported fee revenue of $349.0 million in fiscal 2022, an increase of $61.7 million, or 21%, compared to $287.3 million in fiscal 2021. The increase in fee revenue was primarily due to Professional Development where we targeted new offerings and partnerships in fiscal 2022 to meet the growing need of companies focusing on sales effectiveness. We had double digit increases in fee revenue across our other solutions focusing on assessment, total rewards and organizational strategy as companies focused on retaining and rewarding key talent to reduce levels of attrition from dislocation in the labor markets. Exchange rates unfavorably impacted fee revenue by $1.8 million, or 1%, compared to fiscal 2021.\nExecutive Search North America\n. Executive Search North America reported fee revenue of $605.7 million in fiscal 2022, an increase of $208.4 million, or 52%, compared to $397.3 million in fiscal 2021. Exchange rates favorably impacted fee revenue by $1.3 million in fiscal 2022 compared to fiscal 2021. North America\u2019s fee revenue was higher due to a 35% increase in the number of engagements billed and a 12% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2022 compared to fiscal 2021.\nExecutive Search EMEA.\n Executive Search EMEA reported fee revenue of $182.2 million in fiscal 2022, an increase of $43.2 million, or 31%, compared to $139.0 million in fiscal 2021. Exchange rates unfavorably impacted fee revenue by $0.5 million in fiscal 2022 compared to fiscal 2021. The increase in fee revenue was due to a 15% increase in the number of engagements billed and a 14% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2022 compared to fiscal 2021.\n \nThe performance in the United Kingdom, France, the United Arab Emirates and Belgium were the primary contributors to the increase in fee revenue in fiscal 2022 compared to fiscal 2021, driving $31.0 million of increased revenue.\nExecutive Search Asia Pacific.\n Executive Search Asia Pacific reported fee revenue of $118.6 million in fiscal 2022, an increase of $35.3 million, or 42%, compared to $83.3 million in fiscal 2021. Exchange rates favorably impacted fee revenue by $0.6 million, or 1%, in fiscal 2022 compared to fiscal 2021. The increase in fee revenue was due to a 27% increase in the number of engagements billed and an 11% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2022 compared to fiscal 2021. The performance in Australia, India, China and Singapore were the primary contributors to the increase in fee revenue in fiscal 2022 compared to fiscal 2021, contributing $28.8 million of increased fee revenue.\nExecutive Search Latin America.\n Executive Search Latin America reported fee revenue of $29.1 million in fiscal 2022, an increase of $11.6 million, or 66%, compared to $17.5 million in fiscal 2021. Exchange rates favorably impacted fee revenue by $0.2 million, or 1%, in fiscal 2022 compared to fiscal 2021. The increase in fee revenue was due to a 34% increase in the number of engagements billed and a 22% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2022 compared to fiscal 2021. The performance in Mexico, Brazil and Chile were the primary contributors to the increase in fee revenue in fiscal 2022 compared to fiscal 2021, driving $9.4 million of increased revenue.\nProfessional Search & Interim\n. Professional Search & Interim reported fee revenue of $297.1 million in fiscal 2022, an increase of $166.3 million, or 127%, compared to $130.8 million in fiscal 2021. Exchange rates favorably impacted fee revenue by $0.3 million compared to fiscal 2021. The increase in Professional Search & Interim fee revenue was due to an 86% increase in engagements billed and a 21% increase in the weighted-average fees billed per engagement in fiscal 2022 compared to fiscal 2021. The increase in Professional Search fee revenue was also due to the acquisition of the Acquired Companies in fiscal 2022, which contributed $69.3 million and $4.1 million of fee revenue, respectively.\nRPO. \nRPO reported fee revenue of $394.8 million in fiscal 2022, an increase of $155.8 million, or 65%, compared to $239.0 million in fiscal 2021. Exchange rates unfavorably impacted fee revenue by $0.1 million compared to fiscal 2021. The increase in fee revenue was due to the wider adoption of RPO services in the market. \n41\nCompensation and Benefits\nCompensation and benefits expense increased $443.6 million, or 34% to $1,741.5 million in fiscal 2022 from $1,297.9 million in fiscal 2021. Exchange rates favorably impacted compensation and benefits by $0.3 million in fiscal 2022 compared to fiscal 2021. The increase in compensation and benefits expense was primarily due to increases in salaries and related payroll taxes of $230.4 million, performance-related bonus expense of $160.3 million, amortization of long-term incentive awards of $16.4 million, employer insurance of $13.8 million and the use of outside contractors of $9.3 million. These increases were due to the increase in fee revenue combined with increases in overall profitability and average headcount. Also contributing to higher compensation and benefits expense was an increase in commission expense of $28.5 million due to the Acquired Companies in fiscal 2022, partially offset by a decrease in deferred compensation expenses of $30.7 million as a result of decreases in the fair value of participants\u2019 accounts in fiscal 2022 compared to fiscal 2021. Compensation and benefits expense, as a percentage of fee revenue, decreased to 66% in fiscal 2022 from 72% in fiscal 2021.\nConsulting compensation and benefits expense increased by $90.5 million, or 25%, to $450.9 million in fiscal 2022 from $360.4 million in fiscal 2021. Exchange rates favorably impacted compensation and benefits by $1.2 million in fiscal 2022 compared to fiscal 2021. The increase in compensation and benefits expense was primarily due to increases in salaries and related payroll taxes of $48.9 million, performance-related bonus expense of $24.5 million, amortization of long-term incentive awards of $5.0 million and employer insurance of $2.7 million due to an increase in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. Consulting compensation and benefits expense, as a percentage of fee revenue, decreased to 69% in fiscal 2022 from 70% in fiscal 2021.\nDigital compensation and benefits expense increased by $31.1 million, or 21%, to $177.8 million in fiscal 2022 from $146.7 million in fiscal 2021. The impact of exchange rates was essentially flat in fiscal 2022 compared to fiscal 2021. The increase in compensation and benefits expense was primarily due to increases in performance-related bonus expense of $11.4 million, salaries and related payroll taxes of $7.9 million and commission expenses of $5.8 million in fiscal 2022 compared to fiscal 2021 as a result of an increase in fee revenue combined with increases in overall profitability and average headcount. Digital compensation and benefits expense, as a percentage of fee revenue, was 51% in both fiscal 2022 and fiscal 2021.\nExecutive Search North America compensation and benefits expense increased by $77.6 million, or 26%, to $377.1 million in fiscal 2022 compared to $299.5 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by $0.7 million in fiscal 2022 compared to fiscal 2021. The increase was primarily due to increases in performance-related bonus expense of $82.6 million and salaries and related payroll taxes of $24.6 million due to the increase in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. The increases in compensation and benefits expense was partially offset by a decrease in the amounts owed under certain deferred compensation and retirement plans of $35.4 million due to a decrease in the fair market value of the participants accounts in fiscal 2022 compared to fiscal 2021. Executive Search North America compensation and benefits expense, as a percentage of fee revenue, decreased to 62% in fiscal 2022 from 75% in fiscal 2021.\nExecutive Search EMEA compensation and benefits expense increased by $22.0 million, or 20%, to $133.1 million in fiscal 2022 compared to $111.1 million in fiscal 2021. Exchange rates favorably impacted compensation and benefits by $0.5 million in fiscal 2022 compared to fiscal 2021. The increase was primarily due to higher salaries and related payroll taxes of $12.6 million and performance-related bonus expense of $8.2 million in fiscal 2022 compared to fiscal 2021 due to the increase in fee revenue combined with an increase in overall profitability. Executive Search EMEA compensation and benefits expense, as a percentage of fee revenue, decreased to 73% in fiscal 2022 from 80% in fiscal 2021.\nExecutive Search Asia Pacific compensation and benefits expense increased by $14.0 million, or 24%, to $72.3 million in fiscal 2022 compared to $58.3 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by $0.4 million, or 1%, in fiscal 2022 compared to fiscal 2021. The increase was primarily due to increases in performance-related bonus expense of $10.2 million and salaries and related payroll taxes of $6.2 million in fiscal 2022 compared to fiscal 2021 due to an increase in fee revenue combined with an increase overall profitability. Executive Search Asia Pacific compensation and benefits expense, as a percentage of fee revenue, decreased to 61% in fiscal 2022 from 70% in fiscal 2021.\nExecutive Search Latin America compensation and benefits expense increased by $4.3 million, or 30%, to $18.4 million in fiscal 2022 compared to $14.1 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by $0.3 million, or 2%, in fiscal 2022 compared to fiscal 2021. The increase was primarily due to higher salaries and related payroll taxes of $2.0 million and performance-related bonus expense of $1.4 million in fiscal 2022 compared to fiscal 2021 due to an increase in fee revenue combined with an increase in overall profitability. Executive Search Latin America compensation and benefits expense, as a percentage of fee revenue, decreased to 63% in fiscal 2022 from 80% in fiscal 2021.\nProfessional Search & Interim compensation and benefits expense increased by $63.0 million, or 73%, to $148.8 million in fiscal 2022 from $85.8 million in fiscal 2021. The impact of exchange rates was essentially flat in fiscal 2022 compared to fiscal 2021. The increase was due to higher salaries and related payroll taxes of $23.0 million, performance-related bonus of $14.7 million, employer insurance of $2.7 million and the use of outside contractors of $0.8 million due to the increase in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. Also contributing to the increase in compensation and benefits was an increase in commission expenses of $22.7 million and \n42\nintegration and acquisition costs of $1.9 million driven by the acquisition of the Acquired Companies in fiscal 2022. Professional Search & Interim compensation and benefits expense, as a percentage of fee revenue, decreased to 50% in fiscal 2022 from 66% in fiscal 2021.\nRPO compensation and benefits expense increased by $124.3 million, or $69%, to $303.2 million in fiscal 2022 from $178.9 million in fiscal 2021. The impact of exchange rates was essentially flat in fiscal 2022 compared to fiscal 2021. The increase was primarily due to higher salaries and related payroll taxes of $99.1 million, employer insurance of $5.7 million and the use of outside contractors of $4.2 million due to increases in revenue and average headcount in fiscal 2022 compared to fiscal 2021. RPO compensation and benefits expense, as a percentage of fee revenue, increased to 77% in fiscal 2022 from 75% in fiscal 2021.\nCorporate compensation and benefits expense increased by $16.5 million, or 38%, to $59.7 million in fiscal 2022 from $43.2 million in fiscal 2021. The increase of $7.2 million was due to the changes in CSV of the COLI contracts due to lower death benefits recognized in fiscal 2022 compared to fiscal 2021. Also contributing to the increase was higher salaries and related payroll taxes of $6.0 million and performance-related bonus expense of $4.2 million due to an increase in consolidated fee revenue, combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021.\nGeneral and Administrative Expenses\n \nGeneral and administrative expenses increased $45.5 million, or 24%, to $237.3 million in fiscal 2022 compared to $191.8 million in fiscal 2021. Exchange rates favorably impacted general and administrative expenses by $0.9 million in fiscal 2022 compared to fiscal 2021. The increase in general and administrative expenses was primarily due to higher marketing and business development expenses of $14.0 million, which contributed to the increase in fee revenue and new business in fiscal 2022, as well as an increase in premise and office expense of $6.9 million, bad debt expense of $5.8 million and legal and other professional fees of $5.3 million. In addition, the Company recorded impairment charges associated with the reduction of the Company\u2019s real estate footprint of $9.3 million and integration and acquisition costs of $6.0 million incurred with the acquisition of the Acquired Companies in fiscal 2022. General and administrative expenses, as a percentage of fee revenue, decreased to 9% in fiscal 2022 from 11% in fiscal 2021.\nConsulting general and administrative expenses increased by $2.9 million, or 6%, to $51.5 million in fiscal 2022 compared to $48.6 million in fiscal 2021. The increase in general and administrative expenses was primarily due to impairment charges associated with the reduction of the Company\u2019s real estate footprint of $2.8 million in fiscal 2022. Consulting general and administrative expenses, as a percentage of fee revenue, decreased to 8% in fiscal 2022 from 9% in fiscal 2021.\nDigital general and administrative expenses increased by $1.9 million, or 7%, to $31.0 million in fiscal 2022 compared to $29.1 million in fiscal 2021. The increase in general and administrative expenses was primarily due to impairment charges associated with the reduction of the Company\u2019s real estate footprint of $1.5 million in fiscal 2022. Digital general and administrative expenses, as a percentage of fee revenue, decreased to 9% in fiscal 2022 from 10% in fiscal 2021.\nExecutive Search North America general and administrative expenses increased by $3.9 million, or 14%, to $30.8 million in fiscal 2022 from $26.9 million in fiscal 2021. The increase in general and administrative expenses was primarily due to increases in business development expenses of $2.4 million and bad debt expense of $0.7 million. Executive Search North America general and administrative expenses, as a percentage of fee revenue, was 5% in fiscal 2022 compared to 7% in fiscal 2021.\nExecutive Search EMEA general and administrative expenses increased by $2.0 million, or 13%, to $18.0 million in fiscal 2022 from $16.0 million in fiscal 2021. The increase in general and administrative expenses was primarily due to impairment charges associated with the reduction of the Company\u2019s real estate footprint of $1.1 million and the impact of foreign currency with foreign exchange losses of $0.7 million in fiscal 2022 compared to foreign currency gains of $0.3 million in fiscal 2021. Executive Search EMEA general and administrative expenses, as a percentage of fee revenue was 10% in fiscal 2022 compared to 12% in fiscal 2021.\nExecutive Search Asia Pacific general and administrative expenses increased by $2.4 million, or 28%, to $11.0 million in fiscal 2022 from $8.6 million in fiscal 2021. The increase in general and administrative expenses was primarily due to higher bad debt expense of $1.0 million in fiscal 2022 compared to fiscal 2021. Executive Search Asia Pacific general and administrative expenses, as a percentage of fee revenue, was 9% in fiscal 2022 compared to 10% in fiscal 2021.\nExecutive Search Latin America general and administrative expenses decreased by $1.3 million, or 59%, to $0.9 million in fiscal 2022 from $2.2 million in fiscal 2021. The decrease in general and administrative expenses was primarily due to lower premise and office expenses of $1.4 million in fiscal 2022 compared to fiscal 2021. Executive Search Latin America general and administrative expenses, as a percentage of fee revenue, was 3% in fiscal 2022 compared to 12% in fiscal 2021.\nProfessional Search & Interim general and administrative expenses increased by $12.2 million, or 153%, to $20.2 million in fiscal 2022 from $8.0 million in fiscal 2021. The increase in general and administrative expenses was primarily due to an increase in premise and office expense of $4.4 million, impairment charges associated with the reduction of the Company's real estate footprint of $2.3 million, higher bad debt expense of $2.1 million, and integration and acquisition costs of $1.8 million. Professional Search & Interim general and administrative expenses, as a percentage of revenue, was 7% in fiscal 2022 compared to 6% in fiscal 2021.\n43\nRPO general and administrative expenses increased by $3.6 million, or 21%, to $20.4 million in fiscal 2022 from $16.8 million in fiscal 2021. The increase was primarily due to higher bad debt expense of $1.6 million, and impairment charges associated with the reduction of the Company's real estate footprint of $1.6 million. RPO general administrative expenses, as a percentage of revenue, was 5% in fiscal 2022 compared to 7% in fiscal 2021.\nCorporate general and administrative expenses increased by $18.0 million, or 51%, to $53.5 million in fiscal 2022 compared to $35.5 million in fiscal 2021. The increase in general and administrative expenses was primarily due to higher marketing expense of $7.2 million, integration and acquisition costs of $4.2 million due to the acquisition of the Acquired Companies in fiscal 2022, legal and other professional fees of $3.8 million and an increase of $1.5 million in charitable contributions in fiscal 2022 compared to fiscal 2021.\nCost of Services Expense\nCost of services expense consists primarily of contractor and product costs related to the delivery of various services and products, primarily in Professional Search & Interim, Consulting, Digital and RPO. Cost of services expense was $114.4 million in fiscal 2022 compared to $72.0 million in fiscal 2021. The increase was due to an increase in fee revenue and the acquisition of the Acquired Companies in fiscal 2022. Cost of services expense, as a percentage of fee revenue, was 4% in both fiscal 2022 and fiscal 2021.\nDepreciation and Amortization Expenses\nDepreciation and amortization expenses were $63.5 million in fiscal 2022, an increase of $1.7 million, or 3%, compared to $61.8 million in fiscal 2021. The increase was primarily due to technology investments made in the current and prior year in software for our Digital business and the Acquired Companies in fiscal 2022 in the Professional Search & Interim segment.\nRestructuring Charges, Net\nThere were no restructuring charges, net during fiscal 2022. In April 2020, we implemented a restructuring plan in response to the uncertainty caused by COVID-19 that resulted in reductions in our workforce in the fourth quarter of fiscal 2020. We continued the implementation of this plan in fiscal 2021 and as a result recorded restructuring charges, net of $30.7 million of severance costs in fiscal 2021.\nNet Income Attributable to Korn Ferry\nNet income attributable to Korn Ferry increased by $211.9 million to $326.4 million in fiscal 2022 compared to $114.5 million in fiscal 2021. The increase in net income attributable to Korn Ferry was driven by the increase in fee revenue of $816.7 million, which was driven by the factors discussed above, and restructuring charges, net of $30.7 million incurred in fiscal 2021. This was partially offset by increases in compensation and benefits expense of $443.6 million, cost of services expense of $42.4 million associated with the higher levels of business demand, a higher income tax provision of $54.0 million and general and an increase in administrative expenses of $45.5 million. The rest of the change is due to other loss, net of $11.9 million in fiscal 2022 compared to other income, net of $37.2 million in fiscal 2021. Net income attributable to Korn Ferry, as a percentage of fee revenue, was 12% in fiscal 2022 as compared to 6% in fiscal 2021.\nAdjusted EBITDA\nAdjusted EBITDA increased by $252.6 million to $538.9 million in fiscal 2022 compared to $286.3 million in fiscal 2021. The increase in Adjusted EBITDA was driven by the increase in fee revenue, partially offset by increases in compensation and benefits expense (excluding integration/acquisition costs), cost of services expense, and general and administrative expenses (excluding integration/acquisition costs and impairment charges). Adjusted EBITDA, as a percentage of fee revenue, was 21% and 16% in fiscal 2022 and 2021.\nConsulting Adjusted EBITDA was $116.1 million in fiscal 2022, an increase of $34.6 million, or 42%, compared to $81.5 million in fiscal 2021. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment, as well as cost savings realized from work being conducted virtually. These changes were partially offset by increases in compensation and benefits expense and cost of services expense. Consulting Adjusted EBITDA, as a percentage of fee revenue, was 18% in fiscal 2022 compared to 16% in fiscal 2021.\nDigital Adjusted EBITDA was $110.1 million in fiscal 2022, an increase of $24.0 million, or 28%, compared to $86.1 million in fiscal 2021. The increase in Adjusted EBITDA was mainly driven by the increase in fee revenue in the segment, as well as cost savings realized from work being conducted virtually. These changes were partially offset by increases in compensation and benefits expense (excluding integration/acquisition costs) and cost of services expense in fiscal 2022 compared to fiscal 2021. Digital Adjusted EBITDA, as a percentage of fee revenue, was 32% in fiscal 2022 as compared to 30% in fiscal 2021.\nExecutive Search North America Adjusted EBITDA increased by $83.5 million, or 85%, to $181.6 million in fiscal 2022 compared to $98.1 million in fiscal 2021. The increase was driven by higher fee revenue in the segment, partially offset by an increase in compensation and benefits expense and general and administrative expenses. Executive Search North America Adjusted EBITDA, as a percentage of fee revenue, was 30% in fiscal 2022 compared to 25% in fiscal 2021.\nExecutive Search EMEA Adjusted EBITDA increased by $20.1 million, or 172%, to $31.8 million in fiscal 2022 compared to $11.7 million in fiscal 2021. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment, partially \n44\noffset by increases in compensation and benefits expense and general and administrative expenses (excluding impairment charges). Executive Search EMEA Adjusted EBITDA, as a percentage of fee revenue, was 17% in fiscal 2022 compared to 8% in fiscal 2021.\nExecutive Search Asia Pacific Adjusted EBITDA increased by $18.4 million, or 110%, to $35.1 million in fiscal 2022 compared to $16.7 million in fiscal 2021. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment, partially offset by increases in the compensation and benefits expense and general and administrative expenses. Executive Search Asia Pacific Adjusted EBITDA, as a percentage of fee revenue, was 30% in fiscal 2022 compared to 20% in fiscal 2021.\nExecutive Search Latin America Adjusted EBITDA increased by $7.8 million to $9.1 million in fiscal 2022 compared to $1.3 million in fiscal 2021. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment, partially offset by an increase in compensation and benefits expense. Executive Search Latin America Adjusted EBITDA, as a percentage of fee revenue, was 31% in fiscal 2022 compared to 7% in fiscal 2021.\nProfessional Search & Interim Adjusted EBITDA was $106.0 million in fiscal 2022, an increase of $69.1 million, or 187%, compared to $36.9 million in fiscal 2021. The increase in Adjusted EBITDA was mainly driven by higher fee revenue, partially offset by increases in compensation and benefits expense (excluding integration/acquisition costs), cost of services expense and general and administrative expenses (excluding impairment charges and integration and acquisition costs). Professional Search & Interim Adjusted EBITDA, as a percentage of fee revenue, was 36% in fiscal 2022 compared to 28% in fiscal 2021.\nRPO Adjusted EBITDA was $59.1 million in fiscal 2022, an increase of $26.6 million, or 82%, compared to $32.5 million in fiscal 2021. The increase in Adjusted EBITDA was mainly driven by higher fee revenue in the segment, partially offset by increases in compensation and benefits expense, cost of services expense and general and administrative expenses (excluding impairment charges). RPO Adjusted EBITDA, as a percentage of fee revenue, was 15% in fiscal 2022 compared to 14% in fiscal 2021.\nOther (Loss) Income, Net\nOther loss, net was $11.9 million in fiscal 2022 compared to other income, net of $37.2 million in fiscal 2021. The difference was primarily due to losses from the fair value of our marketable securities in fiscal 2022 compared to gains in fiscal 2021.\nInterest Expense, Net\nInterest expense, net primarily relates to our Notes issued in December 2019 and borrowings under our COLI policies, which are partially offset by interest earned on cash and cash equivalent balances. Interest expense, net was $25.3 million in fiscal 2022 compared to $29.3 million in fiscal 2021. Interest expense, net decreased due to interest income earned on the death benefits received from our COLI policies in fiscal 2022 and lower interest expense on borrowings under our COLI policies in fiscal 2022 compared to fiscal 2021 due to the lower amount of borrowings outstanding.\nIncome Tax Provision\nThe provision for income tax was $102.1 million in fiscal 2022 compared to $48.1 million in fiscal 2021. This reflects a 24% effective tax rate for fiscal 2022 compared to a 29% effective tax rate for fiscal 2021. In addition to the impact of U.S. state income taxes and jurisdictional mix of earnings, which generally create variability in our effective tax rate over time, the lower effective tax rate in fiscal 2022 was partially attributable to a tax benefit recorded in connection with tax credits claimed in the current year for eligible research and development expenditures. The fiscal 2021 effective tax rate was higher due to a tax expense recorded for withholding taxes on intercompany dividends that are not eligible for credit and a shortfall recorded in connection with stock-based awards that vested in fiscal 2021. The shortfall is the amount by which the Company\u2019s tax deduction for these awards, based on the fair market value of the awards on the date of vesting, is less than the expense recorded in the Company\u2019s financial statements over the awards\u2019 vesting period. Conversely, the Company recorded a tax benefit for a windfall in connection with stock-based awards that vested in fiscal 2022.\nNet Income Attributable to Noncontrolling Interest\n \nNet income attributable to noncontrolling interest represents the portion of a subsidiary\u2019s net earnings that are attributable to shares of such subsidiary not held by Korn Ferry that are included in the consolidated results of income. Net income attributable to noncontrolling interest was $4.5 million and $1.1 million in fiscal 2022 and fiscal 2021, respectively.\nLiquidity and Capital Resources\nThe Company and its Board of Directors endorse a balanced approach to capital allocation. The Company\u2019s long-term priority is to invest in growth initiatives, such as the hiring of consultants, the continued development of IP and derivative products and services and the investment in synergistic, accretive merger and acquisition transactions that are expected to earn a return that is superior to the Company's cost of capital. Next, the Company\u2019s capital allocation approach contemplates the return of a portion of excess capital to stockholders, in the form of a regular quarterly dividend, subject to the factors discussed below and in the \u201cRisk Factors\u201d section of this Annual Report on Form 10-K. Additionally, the Company considers share repurchases on an opportunistic basis and subject to the terms of our Amended Credit Agreement (defined below) and Notes, as well as using excess cash to repay the Notes.\n45\nOn February 1, 2023, we completed the acquisition of Salo for $155.4 million, net of cash acquired. Salo is a leading provider of finance, accounting and HR interim talent, with a strong focus on serving organizations in healthcare, among other industries.\nOn August 1, 2022, we completed the acquisition of ICS for $99.3 million, net of cash acquired.  ICS contributes interim professional placement offerings and expertise that are highly relevant for the new world of work where more workplaces are hybrid or virtual. ICS is a highly regarded provider of senior-level IT interim professional solutions with additional expertise in the areas of compliance and legal, accounting and finance, and HR.\nWe believe the above acquisitions echo the commitment to scale our solutions and further increase our focus at the intersection of talent and strategy-wherever and however the needs of organizations-evolve and present real, tangible opportunity for us and our clients looking for the right talent, who are highly agile, with specialized skills and expertise, to help them drive superior performance, including on an interim basis. The addition of these acquisitions to our broader talent acquisition portfolio\u2013spanning Executive Search, RPO, Professional Search and Interim services\u2013has accelerated our ability to capture additional shares of this significant market. Both acquisitions are included in the Professional Search & Interim segment.\nOn December 16, 2019, we completed a private placement of the Notes with a $400 million principal amount pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The Notes were issued with a $4.5 million discount and will mature December 15, 2027, with interest payable semi-annually in arrears on June 15 and December 15 of each year, that commenced on June 15, 2020. The Notes represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness. \nWe may redeem the Notes prior to maturity, subject to certain limitations and premiums defined in the indenture governing the Notes. The Notes are guaranteed by each of our existing and future wholly owned domestic subsidiaries to the extent such subsidiaries guarantee our obligations under the Credit Agreement (defined below). The indenture governing the Notes requires that, upon the occurrence of both a Change of Control and a Rating Decline (each as defined in the indenture), we shall make an offer to purchase all of the Notes at 101% of their principal amount, and accrued and unpaid interest. \nWe used the proceeds from the offering of the Notes to repay $276.9 million outstanding under our prior revolving credit facility and to pay expenses and fees in connection therewith. As of\n April\u00a030, 2023\n, the fair value of the Notes was $381.5 million, which is based on borrowing rates currently required of notes with similar terms, maturity and credit risk.\nOn June 24, 2022, we entered into an amendment (the \"Amendment\") to our December 16, 2019 Credit Agreement (the \"Credit Agreement\"; as amended by the Amendment, the \u201cAmended Credit Agreement\u201d) with the lenders party thereto and Bank of America, National Association as administrative agent, to, among other things (i) extend the existing maturity date of the revolving facility to June 24, 2027, (ii) provide for a new delayed draw term loan facility as described below, (iii) \nreplace the London interbank offered rate with Term SOFR, and (iv) replace the existing financial covenants with financial covenants described below.\n The Amended Credit Agreement provides for five-year senior secured credit facilities in an aggregate amount of $1,150 million comprised of a $650.0 million revolving credit facility (the \"Revolver\") and a $500 million delayed draw term loan facility with the delayed draw having an expiration date of June 23, 2023 (the \"Delayed Draw Facility\", and together with the Revolver, the \"Credit Facilities\"). The Amended Credit Agreement also provides that, under certain circumstances, the Company may incur term loans or increase the aggregate principal amount of revolving commitments by an aggregate amount of up to $250 million \nplus an unlimited amount subject to a consolidated secured net leverage ratio of 3.25 to 1.00. See Note 11 \n\u2014\nLong-Term Debt \nfor a further description of the Amended Credit Agreement. The Company has a total of $1,145.4 million available under the Credit Facilities and had a total of $645.3 million available under the previous credit facilities after $4.6 million and $4.7\u00a0million of standby letters of credit have been issued as of April\u00a030, 2023 and 2022, respectively. Of the amount available under the Credit Facilities, the $500.0 million Delayed Draw Facility expired on June 24, 2023 and is no longer available as a source of liquidity. The Company had a total of $11.5 million and $10.0 million of standby letters with other financial institutions as of April\u00a030, 2023 and 2022, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases.\nOn December 8, 2014, the Board of Directors adopted a dividend policy to distribute to our stockholders a regular quarterly cash dividend of $0.10 per share. Every quarter since the adoption of the dividend policy, the Company has declared a quarterly dividend. On June 21, 2021 and 2022, the Board of Directors increased the quarterly dividend to $0.12 per share and $0.15 per share, respectively. On June 26, 2023, the Board of Directors approved an increase of 20% in the quarterly dividend, which increased the quarterly dividend to $0.18 per share. The Amended Credit Agreement permits us to pay dividends to our stockholders and make share repurchases so long as there is no default under the Amended Credit Agreement, our total funded debt to adjusted EBITDA ratio (as set forth in the Amended Credit Agreement, the \u201cconsolidated net leverage ratio\u201d) is no greater than 5.00 to 1.00, and we are in pro forma compliance with our financial covenant. Furthermore, our Notes allow us to pay $25 million of dividends per fiscal year with no restrictions plus an unlimited amount of dividends so long as our consolidated total leverage ratio is not greater than 3.50 to 1.00, and there is no default under the indenture governing the Notes. The declaration and payment of future dividends under the quarterly dividend program will be at the discretion of the Board of Directors and will depend upon many factors, including our earnings, capital requirements, financial conditions, the terms of our indebtedness and other factors our Board of Directors may deem to be relevant. Our Board of Directors may, however, amend, revoke or suspend our dividend policy at any time and for any reason.\n46\nOn June 21, 2022, our Board of Directors approved an increase to the share repurchase program of approximately $300 million, which at the time brought our available capacity to repurchase shares in the open market or privately negotiated transactions to $318 million. The Company repurchased approximately $93.9\u00a0million and $98.8\u00a0million of the Company\u2019s stock during fiscal 2023 and fiscal 2022, respectively. As of April 30, 2023, $235.2 million remained available for common stock repurchases under our share repurchase program. Any decision to continue to execute our currently outstanding share repurchase program will depend on our earnings, capital requirements, financial condition and other factors considered relevant by our Board of Directors.\nOur primarily source of liquidity is the fee revenue generated from our operations, supplemented by our borrowing capacity under our Amended Credit Agreement. Our performance is subject to the general level of economic activity in the geographic regions and the industries we service. We believe, based on current economic conditions, that our cash on hand and funds from operations and the Amended Credit Agreement will be sufficient to meet anticipated working capital, capital expenditures, general corporate requirements, debt repayments, share repurchases and dividend payments under our dividend policy during the next 12 months. However, if the national or global economy, credit market conditions and/or labor markets were to deteriorate in the future, including as a result of ongoing macroeconomic uncertainty due to inflation and a potential recession, such changes have and could put further negative pressure on demand for our services and affect our operating cash flows. If these conditions were to persist over an extended period of time, we may incur negative cash flows and it might require us to access additional borrowings under the Amended Credit Agreement to meet our capital needs and/or discontinue our share repurchases and dividend policy.\nCash and cash equivalents and marketable securities were $1,067.9 million and $1,211.1 million as of April\u00a030, 2023 and 2022, respectively. Net of amounts held in trust for deferred compensation plans and accrued bonuses, cash and cash equivalents and marketable securities were $488.2 million and $605.4 million at April\u00a030, 2023 and 2022, respectively. As of April\u00a030, 2023 and 2022, we held $395.2 million and $416.7 million, respectively of cash and cash equivalents in foreign locations, net of amounts held in trust for deferred compensation plans and to pay accrued bonuses.\n \nCash and cash equivalents consist of cash and highly liquid investments purchased with original maturities of three months or less. Marketable securities consist of mutual funds and investments in commercial paper, corporate notes/bonds and U.S. Treasury and Agency securities. The primary objectives of our investment in mutual funds are to meet the obligations under certain of our deferred compensation plans, while the commercial paper, corporate notes/bonds and U.S. Treasury and Agency securities are available for general corporate purposes\n.\nAs of April\u00a030, 2023 and 2022, marketable securities of $223.9 million and $233.0 million, respectively, included equity securities of $187.8 million (net of gross unrealized gains of $9.5 million and gross unrealized losses of $8.7 million) and $168.7 million (net of gross unrealized gains of $10.7 million and gross unrealized losses of $6.1 million), respectively, and were held in trust for settlement of our obligations under certain deferred compensation plans, of which $176.1 million and $158.7 million, respectively, are classified as non-current. These marketable securities were held to satisfy vested obligations totaling $172.2 million and $160.8 million as of April\u00a030, 2023 and 2022, respectively. Unvested obligations under the deferred compensation plans totaled $21.9 million and $24.0 million as of April\u00a030, 2023 and 2022, respectively.\n \nThe net decrease in our working capital of $113.3\u00a0million as of April\u00a030, 2023 compared to April 30, 2022 is primarily attributable to decreases in cash and cash equivalents. Cash and cash equivalents decreased primarily due to the acquisitions of ICS and Salo, purchases of property and equipment, repurchases of common stock and dividends paid to shareholders during fiscal 2023. Cash provided by operating activities was $343.9 million in fiscal 2023, a decrease of $157.8 million, compared to $501.7 million in fiscal 2022.\nCash used in investing activities was $323.5 million in fiscal 2023 compared to $184.3 million in fiscal 2022. The increase in cash used in investing activities was primarily due to higher cash paid for acquisitions of $254.8 million in fiscal 2023 compared to $133.8 million in fiscal 2022, an increase in purchases of property and equipment of $21.0 million coupled with a decrease in proceeds received from sales of marketable securities of $26.6 million, partially offset by a decrease in purchases of marketable securities of $28.5 million in fiscal 2023 compared to fiscal 2022.\nCash used in financing activities was $152.2 million in fiscal 2023 compared to $137.4 million in fiscal 2022. The increase in cash used in financing activities was primarily due to increases in dividends paid to our shareholders of $6.2 million, dividends paid to non controlling interest of $3.3 million, payments made on life insurance policies of $2.6 million, as well as higher cash used to repurchase shares of common stock to satisfy tax withholding requirements upon the vesting of restricted stock of $22.2 million in fiscal 2023 compared to $18.5 million in fiscal 2022.\nOff-Balance Sheet Arrangements\nWe have no off-balance sheet arrangements and have not entered into any transactions involving unconsolidated, special purpose entities.\n47\nContractual Obligations\nContractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent liabilities for which we cannot reasonably predict future payment. The following table represents our contractual obligations as of April\u00a030, 2023:\nPayments Due in:\nNote \n(1)\nTotal\nLess Than\n1 Year\n1-3 Years\n3-5 Years\nMore Than\n5 Years\n(in thousands)\nOperating lease commitments\n15\n$\n182,666\u00a0\n$\n51,760\u00a0\n$\n83,598\u00a0\n$\n31,013\u00a0\n$\n16,295\u00a0\nFinance lease commitments\n15\n4,828\u00a0\n1,545\u00a0\n2,248\u00a0\n1,035\u00a0\n\u2014\u00a0\nAccrued restructuring charges\n13\n8,004\u00a0\n8,004\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nInterest payments on COLI loans \n(2)\n11\n31,698\u00a0\n4,507\u00a0\n9,011\u00a0\n8,440\u00a0\n9,740\u00a0\nLong-term debt\n11\n400,000\u00a0\n\u2014\u00a0\n\u2014\u00a0\n400,000\u00a0\n\u2014\u00a0\nEstimated interest on long-term debt \n(3)\n11\n92,500\u00a0\n18,500\u00a0\n37,000\u00a0\n37,000\u00a0\n\u2014\u00a0\nTotal\n\u00a0\n$\n719,696\u00a0\n$\n84,316\u00a0\n$\n131,857\u00a0\n$\n477,488\u00a0\n$\n26,035\u00a0\n_______________________________\n(1)\nSee the corresponding Note in the accompanying consolidated financial statements in Item 15.\n(2)\nAssumes COLI loans remain outstanding until receipt of death benefits on COLI policies and applies current interest rates on COLI loans ranging from 4.76% to 8.00% with total death benefits payable, net of loans under COLI contracts of $444.1 million at April\u00a030, 2023.\n(3)\nInterest on the Notes payable semi-annually in arrears on June 15 and December 15 of each year, commenced on June 15, 2020.\nIn addition to the contractual obligations above, we have liabilities related to certain employee benefit plans. These liabilities are recorded in our consolidated balance sheets. The obligations related to these employee benefit plans are described in Note 6\u2014\nDeferred Compensation and Retirement Plans\n, in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K.\nLastly, we have contingent commitments under certain employment agreements that are payable upon involuntary termination without cause, as described in Note 17\u2014\nCommitments and Contingencies\n, in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K.\nCash Surrender Value of Company Owned Life Insurance Policies, Net of Loans\nWe purchased COLI policies or contracts insuring the lives of certain employees eligible to participate in the deferred compensation and pension plans as a means of funding benefits under such plans. As of April\u00a030, 2023 and 2022, we held contracts with gross cash surrender value (\u201cCSV\u201d) of $275.1 million and $263.2 million, respectively. Total outstanding borrowings against the CSV of COLI contracts were $77.1\u00a0million and $79.8 million as of April\u00a030, 2023 and 2022, respectively. Such borrowings do not require annual principal repayments, bear interest primarily at variable rates and are secured by the CSV of COLI contracts. At April\u00a030, 2023 and 2022, the net cash value of these policies was $198.0 million and $183.3 million, respectively. Total death benefits payable, net of loans under COLI contracts, were $444.1 million and $449.3 million at April\u00a030, 2023 and 2022, respectively.\n \nOther than the factors discussed in this section, we are not aware of any other trends, demands or commitments that would materially affect liquidity or those that relate to our resources as of April\u00a030, 2023.\nAccounting Developments\nRecently Proposed Accounting Standards - Not Yet Adopted\nIn October 2021, the FASB issued an amendment in accounting for contract assets and contract liabilities from contracts with customers, which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification (\"ASC 606\"), \nRevenue from Contracts with Customers\n. The amendment of this standard becomes effective in fiscal years beginning after December 15, 2022. The amendment should be applied prospectively to business combinations that occur after the effective date. We will adopt this guidance in our fiscal year beginning May 1, 2023. We do not anticipate that this accounting guidance will have a material impact on the consolidated financial statements.",
+  "item7a": ">Item 7A. \nQuantitative and Qualitative Disclosures About Market Risk\nAs a result of our global operating activities, we are exposed to certain market risks, including foreign currency exchange fluctuations and fluctuations in interest rates. We manage our exposure to these risks in the normal course of our business as described below. \n48\nForeign Currency Risk\nSubstantially all our foreign subsidiaries\u2019 operations are measured in their local currencies. Assets and liabilities are translated into U.S. dollars at the rates of exchange in effect at the end of each reporting period and revenue and expenses are translated at daily rates of exchange during the reporting period. Resulting translation adjustments are reported as a component of accumulated other comprehensive loss, net on our consolidated balance sheets.\nTransactions denominated in a currency other than the reporting entity\u2019s functional currency may give rise to foreign currency gains or losses that impact our results of operations. Historically, we have not realized significant foreign currency gains or losses on such transactions. During fiscal 2023, 2022 and 2021, we recorded foreign currency losses of $2.0 million, $1.2 million and $2.7 million, respectively, in general and administrative expenses in the consolidated statements of income.\nOur exposure to foreign currency exchange rates is primarily driven by fluctuations involving the following currencies \u2014 U.S. Dollar, Canadian Dollar, Pound Sterling, Euro, Swiss Franc, Danish Krone, Polish Zloty, Singapore Dollar, and Mexican Peso. Based on balances exposed to fluctuation in exchange rates between these currencies as of April\u00a030, 2023, a 10% increase or decrease in the value of these currencies could result in a foreign exchange gain or loss of $10.2 million. We have a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures. These foreign currency forward contracts are neither used for trading purposes nor are they designated as hedging instruments pursuant to ASC 815, \nDerivatives and Hedging\n.\nInterest Rate Risk\nOur exposure to interest rate risk is limited to our Credit Facilities, borrowings against the CSV of COLI contracts and to a lesser extent, our fixed income debt securities. As of April\u00a030, 2023, there were no amounts outstanding under the Credit Facilities. At our option, loans issued under the Amended Credit Agreement bear interest at either Term Secured Overnight Financing Rate (\"SOFR\") or an alternate base rate, in each case plus the applicable interest rate margin. The interest rate applicable to loans outstanding under the Amended Credit Agreement may fluctuate between Term SOFR plus a SOFR adjustment of 0.10%, plus 1.125% per annum to 2.00% per annum, in the case of Term SOFR borrowings (or between the alternate base rate plus 0.125% per annum and the alternate base rate plus 1.00% per annum, in the alternative), based upon our total funded debt to adjusted EBITDA ratio (as set forth in the Amended Credit Agreement, the \u201cconsolidated net leverage ratio\u201d) at such time. In addition, we are required to pay the lenders a quarterly commitment fee ranging from 0.175% to 0.300% per annum on the average daily unused amount of the Revolver, based upon our consolidated net leverage ratio at such time, a ticking fee of 0.20% per annum on the actual daily unused portion of the Delayed Draw Facility during the availability period of the Delayed Draw Facility, and fees relating to the issuance of letters of credit. \nWe had $77.1 million and $79.8 million of borrowings against the CSV of COLI contracts as of April\u00a030, 2023 and 2022, respectively, bearing interest primarily at variable rates. We have sought to minimize the risk of fluctuations in these variable rates by the fact that we receive a corresponding adjustment to our borrowed funds crediting rate, which has the effect of increasing the CSV on our COLI contracts.",
+  "cik": "56679",
+  "cusip6": "500643",
+  "cusip": ["500643200"],
+  "names": ["KORN FERRY"],
+  "source": "https://www.sec.gov/Archives/edgar/data/56679/000162828023023772/0001628280-23-023772-index.htm"
+}
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+{
+  "item1": ">ITEM 1.   BUSINESS\nOverview\nIteris,\u00a0Inc. (referred to collectively in this report as \"Iteris\", the \"Company\", \"we\", \"our\", and \"us\") is a provider of smart mobility infrastructure solutions. Our cloud-enabled solutions help public transportation agencies, municipalities, commercial entities and other transportation infrastructure providers monitor, visualize, and optimize mobility infrastructure to make mobility safe, efficient and sustainable for everyone.\nAs a pioneer in intelligent transportation systems (\"ITS\") technology, our intellectual property, advanced detection sensors, mobility and traffic data, software-as-a-service (\"SaaS\") offerings, mobility consulting services, and cloud-enabled managed services represent a comprehensive range of smart mobility infrastructure management solutions that we distribute to customers throughout the United States (\"U.S.\") and internationally.\nWe believe our products, solutions and services increase vehicle and pedestrian safety and decrease congestion within our communities, while also reducing environmental impact, including vehicle carbon emissions.\nWe continue to make significant investments to leverage our existing technologies and further enhance our advanced detection sensors, mobility intelligence software, mobility data sets, mobility consulting services, and cloud-enabled managed services. As we are always mindful of capital allocation, we apply significant effort to evaluate and prioritize these investments. Likewise, we are always exploring strategic alternatives intended to optimize the value of our Company.\nIteris was incorporated in Delaware in 1987 and has operated in its current form since 2004. Our principal executive offices are located at 1250 S Capital of Texas Hwy, Bldg. 1, Suite 330, Austin TX 78746, and our telephone number at that location is (512)\u00a0716-0808. Our website address is www.iteris.com. The inclusion of our website address in this report does not include or incorporate by reference into this report any information on, or accessible through, our website. Our annual reports on Form\u00a010-K, quarterly reports on Form\u00a010-Q and current reports on Form\u00a08-K, together with amendments to these reports, are available on the \"Investor Relations\" section of our website, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (\"SEC\").\nRecent Developments\nCOVID-19 Update\nThe COVID-19 pandemic (the \"Pandemic\") materially adversely impacted global economic conditions. As COVID-19 has entered an endemic stage, COVID-19 may continue to have an unpredictable and unprecedented impact on the global economy, including possible additional supply chain disruptions, workplace dislocations, economic contraction, and negative pressure on customer budgets and customer sentiment.\nGiven the uncertainties surrounding the impacts of COVID-19 on the Company's future financial condition and results of operations, we have and may continue to identify and execute various actions to preserve our liquidity, manage cash flow and strengthen our financial flexibility. Such actions include, but are not limited to, reducing our discretionary spending, reducing capital expenditures, and implementing restructuring activities (see Note 3, \nRestructuring Activities\n, to the Financial Statements for more information). \nOur products require specialized parts which have become more difficult to source. In some cases, we have had to purchase such parts from third-party brokers at substantially higher prices. Additionally, to mitigate the impact of component shortages, we have increased inventory levels for parts in short supply. In the event demand does not materialize, we would need to hold excess inventory for several quarters. Alternatively, we may be unable to source sufficient components at any price, even from third-party brokers, to meet customer demand, resulting in high levels of backlog that we are unable to ship. The Company's tactics to mitigate the current global supply chain issues included re-designing certain circuit boards to accommodate computer chips that are more readily available in the market at more reasonable prices, and by accumulating inventory in the first two quarters of the fiscal year ended March\u00a031, 2023 (\"Fiscal 2023\"). We have placed non-cancellable inventory orders for certain products in advance of our normal lead times to secure normal and incremental future supply and capacity and may need to continue to do so in the future. \nDue to the supply chain environment, the Company increased inventory by approximately $2.9 million as part of the Company's supply chain strategy for Fiscal 2023. The cash flow used in operating activities of our continuing operations was approximately $4.5 million during the twelve months ended March\u00a031, 2023. Cash used during Fiscal 2023 was primarily due to two factors. First, the planned increase in inventory during the first half of Fiscal 2023 and the continued re-design of certain \n4\nTable\n of Contents\ncircuit boards as part of the Company\u2019s supply chain strategy to help assure the Company has enough product to satisfy customer demand. Second, the net operating loss as a result of higher inventory component costs related to the global supply chain constraints. The increase in inventory purchases and in particular components purchased in the secondary markets was curtailed in the second half of Fiscal 2023, and the Company currently does not expect to continue to accumulate inventory, in the same magnitude, in future periods. However, if the Company encounters additional supply chain constraints again in the future, it may need to further adjust its operations to have sufficient liquidity.\nOn March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (\"CARES Act\") was signed into law in the United States. The CARES Act provides relief to U.S. corporations through financial assistance programs and modifications to certain income tax provisions. The Company applied certain beneficial provisions of the CARES Act, including the payroll tax deferral and the alternative minimum tax acceleration. As of March\u00a031, 2023, the Company had repaid all amounts deferred under the CARES Act (see Note 5, \nIncome Taxes\n, to the Financial Statements for more information).\nCOVID-19 has had an impact on the Company\u2019s human capital. While our Santa Ana product and commercial operations facility remained open throughout the Pandemic, many of our employees worked remotely during the past three years. With the recent easing of COVID-19 related restrictions imposed by local and state authorities, a larger portion of our workforce has returned to our various facilities while others continue to work remotely. The Company\u2019s information technology infrastructure has proven sufficiently flexible to minimize disruptions in required duties and responsibilities. We believe we have the infrastructure to efficiently work remotely during COVID-19's current endemic stage and well into the future. \nThe Company assessed the impacts of COVID-19 on the estimates and assumptions used in preparing our financial statements. The estimates and assumptions used in our assessments were based on management\u2019s judgment and may be subject to change as new events occur and additional information is obtained. In particular, there is significant uncertainty about the duration and extent of the impact of COVID-19, which has entered an endemic stage, and its resulting impact on global economic conditions. If economic conditions caused by COVID-19 do not recover as currently estimated by management, the Company\u2019s financial condition, cash flows and results of operations may be materially impacted. The Company will continue to assess the effect of COVID-19 on its operations and the actions implemented to combat the virus throughout the world. As a result, our assessment of the impact of COVID-19 may change.\nAcquisition of the Assets of TrafficCast International, Inc.\nOn December 6, 2020, the Company entered into an Asset Purchase Agreement (the \u201cTrafficCast Purchase Agreement\u201d) with TrafficCast International, Inc. (\u201cTrafficCast\u201d), a privately held company headquartered in Madison, Wisconsin that provides travel information technology, applications and content to customers throughout North America in the media, mobile technology, automotive and public sectors. Under the TrafficCast Purchase Agreement, the Company agreed to purchase from TrafficCast substantially all of its assets, composed of its travel information technology, applications and content (the \u201cTrafficCast Business\u201d) and assume certain specified liabilities of the TrafficCast Business.\nOn May 6, 2022, approximately $0.9 million was paid to settle the balance of a security hold back agreed to as part of the acquisition, net of approximately $0.1 million of post-closing adjustments. As of March\u00a031, 2023, the achievement levels of the revenue targets with respect to the earnout were resolved and the balance remaining of approximately $0.6 million was accrued in accordance with the terms of the agreement. This item is included in accrued liabilities on the balance sheets.\nSimultaneous with closing the transaction, the parties entered into certain ancillary agreements that provided Iteris with ongoing access to mapping and monitoring services that the TrafficCast Business used to support its real-time and predictive travel data and associated content until termination of these agreements on December 6, 2022. \nRestructuring Activities\nTo help offset recent increases in supply chain costs, on May 12, 2022, the Board of Directors of Iteris, Inc. approved additional restructuring activities to better position the Company for increased profitability and growth. The Company incurred $0.7\u00a0million of employee separation costs in relation to these activities, which were included in restructuring charges on the statement of operations (see Note 3, \nRestructuring Activities\n, to the Financial Statements for more information).\nProducts and Services\nIteris provides comprehensive smart mobility infrastructure solutions for public-sector and private-sector customers primarily located in North America. These solutions include traveler information systems, transportation performance measurement software, traffic analytics software, transportation operations software, transportation-related data sets, advanced sensing devices, managed services, traffic engineering services, and mobility consulting services. \nSoftware Solutions\n5\nTable\n of Contents\nIteris offers our public-sector and private-sector customers a portfolio of industry-leading smart mobility infrastructure software solutions. These software solutions include ClearGuide, ClearRoute, commercial vehicle operations, TrafficCarma, VantageLive! and BlueARGUS as described below. \n\u2022\nClearGuide, which is provided on a software-as-a-service basis (\"SaaS\"), is a state-of-the-art mobility intelligence and transportation performance measures solution. It utilizes a wide range of data resources and analytical techniques to determine current and future traffic patterns to enable the effective performance analysis and management of traffic infrastructure resources at various levels \u2013 highway, arterial (i.e., corridor), or intersection. At times, we refer to intersection performance analytics as signal performance measurement (\"SPM\"). ClearGuide users can measure how a transportation network is performing and identify potential areas of improvement. These applications are also capable of providing users with predictive traffic analytics, and easy-to-use visualization and animation features based on historical traffic conditions.\n\u2022\nClearRoute delivers contextual, real-time, actionable mobility intelligence and traveler information services on a platform-as-a-service basis. ClearRoute provides multimodal, multilingual, traveler information via mobile apps, websites, email and text alerts, and Interactive Voice Response (\"IVR\"). The ClearRoute solution benefits from a powerful, flexible and streamlined infrastructure to help reduce congestion and improve safety and mobility for transportation networks across the country, and facilitates frictionless interoperability, flexible provisioning, and robust management of customer focused data.\n\u2022\nCommercial vehicle operations and vehicle safety compliance applications, which are provided on a SaaS basis include various applications branded as ClearFleet, CVIEWplus, CheckPoint, UCRLink, and Inspect. Collectively, these software applications support state-based commercial vehicles operations by storing and distributing intrastate and interstate commercial vehicle information for local, state, and federal agency roadside and enforcement operations. \n\u2022\nTrafficCarma, which is easily white labeled, is the first mobile application focused on the 120 million U.S. daily commuters and their journeys to and from work, train stations, airports, sporting events and other destinations. TrafficCarma provides advice on known route choices, not turn-by-turn navigation. It is personalized for peoples\u2019 daily commutes and the roads they drive most. Verified crowdsourced content is combined with road speed data, public agency reports, camera imaging and other metrics and delivers users information relevant to their commute and other personal routes. \n\u2022\nVantageLive! is a SaaS solution that allows users to collect, process and analyze advanced intersection data from our Vantage sensors, as well as to view and understand intersection activity.\n\u2022\nBlueARGUS is a SaaS solution that collects, analyzes, and visualizes various information related to travel times, speeds, and origin-destination from our BlueTOAD Spectra sensors and connected vehicle information from our BlueTOAD Spectra RSU sensors. \nMobility Data Sets\nClearData is the enhanced mobility data output of the Iteris ClearMobility Cloud, a suite of data integration and analytics engines that aggregates and validates both proprietary and diversely sourced data inputs, including incidents, construction and connected vehicle GPS probes. Following processing and quality assurance, ClearData reflects real-time road conditions and is delivered to public-sector and private-sector customers via subscription-based direct data feeds or application programming interfaces (\"APIs\"), or through ClearGuide, our mobility intelligence and transportation performance measures software solution. The complex, dynamic nature of roadway traffic cannot be explained by any single data source. ClearData resolves data conflicts through proprietary computerized algorithms and selective quality control from experienced traffic analysts.\nAdvanced Sensors\nIteris offers advanced intersection detection and other fixed traffic sensors that collectively comprise our two sensor families \u2013 Vantage and BlueTOAD. Increasingly, we bundle communications systems and traffic data collection applications (e.g., VantageLive! and BlueARGUS) with our sensor products.\nThe Vantage family of sensors uses advanced image processing technology, radar technology and other techniques to observe multi-modal traffic (e.g., vehicle, bicycle, and pedestrian), translate these observations into structured data, and apply \n6\nTable\n of Contents\nsophisticated, proprietary algorithms to this structured data to optimize traffic signal performance in real-time. Certain Vantage sensors apply machine learning techniques for enhanced object classification. In addition to detecting the presence of objects, our Vantage systems record vehicle count, speed and other traffic information used in traffic management systems. Thus, our Vantage systems give traffic managers the tools to mitigate roadway congestion by visualizing and analyzing traffic patterns, allowing them to modify traffic signal timing to improve traffic flow. Our various software components complement our Vantage detection systems by providing integrated platforms to manage and view detection assets remotely over a network connection, as well as mobile application for viewing anywhere. The Vantage family of sensors includes Vantage Apex, Vantage Fusion, Vantage Next, VantagePegasus, VantageRadius, Vantage Vector, Velocity, SmartCycle, SmartCycle Bike Indicator, SmartSpan, VersiCam, PedTrax, and P-Series products.\n\u2022\nVantage Fusion is a connected-vehicle (\"CV\") focused detection product that tracks and reports vehicles and pedestrians in and around intersections. This product helps the industry bridge the currently fledgling CV market to an eventually CV-dominant world by providing non-CV vehicle locations (and details) to the CV network. This product is developed in partnership with Continental AG, a global automotive parts manufacturer and leading CV equipment provider.   \n\u2022\nVantage Apex is the industry\u2019s first full 1080p high-definition (\"HD\") video and 4D/HD radar hybrid sensor with integrated artificial intelligence (AI) algorithms. Vantage Apex provides precise and detailed detection, tracking and classification of traffic.\n\u2022\nVantage Next uses a powerful processor that enables future functional growth while maintaining proven Iteris video detection performance and reliability. The architecture supports expanding ITS applications and easily integrates with existing technologies and is anticipated to integrate with future technologies.\n\u2022\nVantage Vector is a hybrid video and radar detection sensor with a wide range of capabilities, including stop bar and advanced zone detection, which enable advanced safety and adaptive control applications. \n\u2022\nSmartCycle capability, which can effectively differentiate between bicycles and other vehicles with a single video detection camera, is available with all of our Vantage systems. SmartCycle enables more efficient signalized intersections, improved traffic throughput and increased bicyclist safety. Agencies using bicycle timing benefit from bicycle-specific virtual detection zones that can be placed anywhere within the approaching traffic lanes, eliminating the need for separate bicycle-only detection systems.\n\u2022\nSmartCycle Bike Indicator, which leverages the SmartCycle bicycle detection algorithm, is a device that mounts onto traffic signals and illuminates when cyclists waiting at an intersection have been detected, allowing cyclists to avoid interacting with vehicle traffic to push pole-mounted buttons.\n\u2022\nPedTrax capability, which is also available with all of our Vantage systems, provides bi-directional pedestrian counting and speed tracking within the crosswalk to help improve signal timing efficiency, as well as providing an additional data stream to existing vehicle and bicycle counts.\n\u2022\nVersiCam, an integrated camera and processor video detection system, is a cost-efficient video detection system for smaller intersections that require only a few detection points.\nThe BlueTOAD product family combines unique MAC Address capture with the latest CV technologies. The combination of these two technologies provides customers with a market leading sensor along with a comprehensive data set that enables advanced analytics through our SaaS offerings. The BlueTOAD family of sensors includes BlueTOAD Spectra and BlueTOAD Spectra RSU, both of which we bundle with a Cloud-based software application branded as BlueARGUS.\n\u2022\nBlueTOAD Spectra is a complete system for identifying the travel times of vehicles using advanced Bluetooth re-identification techniques. This provides traffic flow information for vehicle travel as well as Origin-Destination information.\n\u2022\nBlueTOAD Spectra RSU is a full-featured connected vehicle and travel time information system. In addition to travel times and vehicle speeds it communicates vital safety and mobility information via both DSRC and C-V2X from infrastructure to vehicles and other users.\n7\nTable\n of Contents\nIn select territories, the Company also sells certain complementary original equipment manufacturer (\"OEM\") products for the traffic intersection market, which include, among other things, traffic signal controllers and traffic signal equipment cabinets.\nWe believe that future growth domestically and internationally for our Vantage family of products will be dependent, in part, on the continued replacement of adoption of traditional in-pavement loop technology with above-ground video and radar detection technologies to manage traffic.\nManaged Services\nIteris Managed Services include traffic management centers (\"TMC\") design, staffing, and operations services to public agencies, whether they need to create a new TMC or migrate an existing TMC network to a virtual environment. Iteris partners with agencies to augment their internal capability and provide the foundation and expertise required to successfully implement virtual TMCs to support goals such as capital or recurring cost savings, operation from any location, and staff security and flexibility.\nAdditionally, Iteris\u2019 cloud-enabled managed services combine SaaS, smart sensors and consulting expertise to proactively address the challenges of monitoring and maintaining intersections, arterial roads and highways along with their related in-field technology. These services include congestion and asset management areas of focus, combining innovative traffic optimization with hardware inventory and maintenance.  \nWith Iteris Managed Services, public transportation agencies, real estate developers, construction firms, and event operators are provided the opportunity to save time and money while better keeping road users safe and ensuring that traffic flows efficiently.\nTraffic Engineering and Mobility Consulting\nOur traffic engineering and mobility consulting services include planning, design, development and implementation of software and hardware-based ITS that integrate sensors, video surveillance, computers and advanced communications equipment to enable public agencies to monitor, control and direct traffic flow, assist in the quick dispatch of emergency crews, and distribute real-time information about traffic conditions. Our services also include planning, design, implementation, operation and management of surface transportation infrastructure systems. We perform analysis and study goods movement, provide travel demand forecasting and systems engineering, and identify mitigation measures to reduce traffic congestion. \nClearMobility Platform\nWith the company\u2019s introduction of the ClearMobility Platform, we aligned our entire portfolio of solutions under a common branding structure. We believe this alignment will drive internal synergies, increase our cross-sell rate, enhance sales productivity, and increase market awareness of our entire solutions portfolio. Additionally, we launched the ClearMobility Cloud that enables seamless interoperation among our solutions via a common mobility data management engine, API framework, and microservices ecosystem that provides standardized data ingestion, cleansing, and analytics, as well as authentication and policy-based security for each component of the ClearMobility Platform. ClearMobility Cloud is both horizontally scalable and third-party extensible.  \n Because we are now aligning, harmonizing, and optimizing our portfolio of individual solutions to a common platform, the Company\u2019s chief operating decision maker (\u201cCODM\u201d) evaluates financial and operational performance holistically. As such, beginning in the fiscal year ended March 31, 2022 (\"Fiscal 2022\") and throughout Fiscal 2023, we reported as a single operating segment.\nMarket Conditions\nCurrently, over 90% of our revenue is attributable to public-sector customers. Therefore, most of our revenue is dependent upon state and local government funding, and to a lesser extent federal governmental funding. In some cases, this funding is appropriated annually through the respective legislative process. In other cases, various dedicated funding mechanisms exist to support transportation infrastructure and related projects, including, but not limited to dedicated sales and gas tax measures, vehicle and permit fees, and other alternative dedicated funding sources. Additionally, some of our activities may be funded through bond measures. \n8\nTable\n of Contents\nWe believe that overall demand for our solutions will continue to be dependent at least in part on the federal and local government's use of funds, and as in the past, our business may be, at times, adversely affected by governmental budgetary issues. The Infrastructure Investment and Jobs Act (\"IIJA\") became effective on November 15, 2021. The IIJA will contribute $1.2 trillion to fund physical infrastructure and public works, adding $550 billion to existing levels of transportation-specific funding. With that funding pool, areas of direct relevance to Iteris include $110 billion for roads, bridges and major projects, $39 billion for public transit, and $11 billion for transportation safety. However, delays in the appropriation of annual funding and current debates related to the federal debt ceiling may cause some uncertainty regarding the availability of transportation funds in federal, state and local budgets.\nSales and Marketing\nWe market and sell our software, mobility data, managed services, traffic engineering, and mobility consulting services to government agencies pursuant to negotiated contracts that involve competitive bidding and specific qualification requirements. Most of our contracts are with federal, state and local municipal customers, and generally provide for cancellation or renegotiation at the option of the customer upon reasonable notice and fees paid for modification. We generally use selected members of our traffic engineering, mobility consulting, data science and product management teams on a regional basis to serve in sales and business development functions. Our traffic engineering and mobility consulting service contracts generally involve long lead times and require extensive specification development, evaluation and price negotiations.\nWe sell our Vantage and BlueTOAD product families along with their related software bundles through both direct and indirect sales channels. Where we sell direct, we use a combination of our own sales personnel and outside sales organizations to sell, oversee installations, and support our products. Our indirect sales channel comprises a network of independent distributors in the U.S. and select international locations, which sell integrated systems and related products to the traffic management market. Our independent distributors are trained in and primarily responsible for the sales, installation, set-up and support of our products. They maintain an inventory of demonstration traffic products from various manufacturers, who sell directly to government agencies and installation contractors. These distributors often have long-term arrangements with local government agencies in their respective territories for the supply of various products for the construction and renovation of traffic intersections, as they are generally well-known suppliers of various high-quality ITS products to the traffic management market. We periodically hold technical training classes for our distributors and end-users, and we maintain a full-time staff of customer support technicians throughout the U.S. to provide technical assistance when needed. When appropriate, we modify or make changes to our distributor network to accommodate the needs of the market and our customer base.\nWith the acquisition of the TrafficCast Business on December 7, 2020, we now sell traffic and mobility data and software through a direct sales model to commercial enterprises, such as media companies involved in providing real-time traffic data and traffic incident data to insurance companies, automotive OEMs and the traveling public. \nWe have historically had a diverse customer base. For Fiscal 2023 and Fiscal 2022, no individual customer represented greater than 10% of our total revenues. As of March\u00a031, 2023 and 2022, no individual customer accounted for more than 10% of our total trade accounts receivable.\nManufacturing and Materials\nWe use contract manufacturers to build subassemblies that are used in our products. Additionally, we procure certain components for our products from qualified suppliers, both in the U.S. and internationally, and generally use multi-sourcing strategies when technically and economically feasible to mitigate supply risk. These subassemblies and components are typically delivered to our Santa Ana, California facility where they go through final assembly and testing prior to shipment to our customers. Our key suppliers include Veris Manufacturing and MoboTrex,\u00a0Inc. Our assembly and test activities are conducted in approximately 12,000 square feet of space at our Santa Ana, California facility. Production volume at our subcontractors typically is based upon bi-annual forecasts that we generally adjust on a monthly basis to control inventory levels. Our production facility maintains a Quality Management System that is currently certified as conforming to all requirements of the International Organization for Standardization (\"ISO\")\u00a09001:2015 international standard.\nCustomer Support and Services\nWe provide warranty service and support for our products, as well as follow-up service and support for which we charge separately. Such service revenue was not a material portion of our total revenues for Fiscal 2023 and Fiscal 2022. We believe customer support is a key competitive factor for our Company.\nBacklog\n9\nTable\n of Contents\nOur total backlog of unfulfilled firm orders was approximately $114.2\u00a0million at March\u00a031, 2023. We typically expect to recognize revenue in the range of approximately two-thirds to three-quarters of our backlog as of the end of a fiscal year in the subsequent fiscal year. At March\u00a031, 2022, we had backlog of approximately $99.9\u00a0million. The 14% increase in backlog in the current fiscal year was generally attributable to overall strong demand for our products and services, as well as the timing of the receipt of some large contracts. \nBacklog is an operational measure representing future unearned revenue amounts believed to be firm and earned under existing agreements, but it does not represent the total contract award if a firm purchase order or task order has not yet been issued under the contract. Backlog is not included in deferred revenue on our balance sheets. Backlog does not include contract awards for which definitive contracts have not been executed. We believe backlog is a useful metric for investors, given its relevance to total orders.\nThe timing and realization of our backlog is subject to the inherent uncertainties of doing business with federal, state and local governments, particularly in view of budgetary constraints, cut-backs and other delays or reallocations of funding that these entities typically face. In addition, pursuant to the customary terms of our agreements with government contractors and other customers, our customers can generally cancel or reschedule orders with little or no penalties. Lead times for the release of purchase orders often can be affected by a variety of factors including the scheduling and forecasting practices of our individual customers, as well as availability of installation labor and ancillary parts related to installation which we do not manufacture or supply. These factors can affect the timing of the conversion of our backlog into revenues. For these reasons, among others, our backlog at a particular date may not be indicative of the timing of our future revenues.\nProduct Development\nOur product development activities are mostly conducted at our facilities in Santa Ana, California, and Madison, Wisconsin as well as using additional employee and partner resources across North America. Our research and development costs and expenses were approximately $8.3\u00a0million for Fiscal 2023 and $7.4\u00a0million for Fiscal 2022. We expect to continue to pursue various product development programs and incur research and development expenditures in future periods.\nWe believe our engineering and product development capabilities are a competitive strength. We strive to continuously develop new products, technologies, features and functionalities to meet the needs of our ever-changing markets, as well as to enhance, improve upon, and refine our existing product lines. We plan to continue to invest in the development of further enhancement and functionality of our ClearMobility Platform.\nCompetition\nGenerally, we face significant competition in each of our target markets. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations.\nThe markets in which we operate are highly fragmented and subject to evolving national and regional quality, operations and safety standards. Our competitors vary in number, scope and breadth of the products and services they offer. Our competitors providing managed services and consulting include a mix of local, regional and international engineering services firms. Our competitors in software products (e.g., performance measurement and management, advanced traveler information systems, and our commercial vehicle operations and vehicle safety compliance platforms) include university affiliated software organizations, venture backed software companies, as well as other multi-disciplinary hardware and software corporations.\nIn the market for our detection products, we compete with manufacturers and distributors of other above-ground video camera and radar detection systems and manufacturers and distributors of other non-intrusive detection devices (e.g., microwave, infrared, radar, ultrasonic and magnetic detectors), as well as manufacturers and installers of in-pavement inductive loop products, which have historically been, and currently continue to be, the predominant vehicle detection system in this market. Additionally, products such as BlueTOAD and VantagePegasus compete against various competitors in the travel-time and data communications markets, respectively.\nIn general, the markets for the products and services we offer are highly competitive and are characterized by rapidly changing technology and evolving standards. Many of our current and prospective competitors have longer operating histories, greater name recognition, access to larger customer bases, and significantly greater financial, technical, manufacturing, distribution and marketing resources than we do. As a result, they may be able to adapt more quickly to new or emerging standards or technologies, or to devote greater resources to the promotion and sale of their products. It is also possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share. We believe that our ability to compete effectively in our target markets will depend on a number of factors, including the success and timing of our \n10\nTable\n of Contents\nnew product development, the compatibility of our products with a broad range of computing systems, product quality and performance, reliability, functionality, price and service, and technical support. Our failure to provide services and develop and market products that compete successfully with those of other suppliers and consultants in our target markets could have a material adverse effect on our business, financial condition and results of operations.\nIntellectual Property and Proprietary Rights\nOur ability to compete effectively depends in part on our ability to develop and maintain the proprietary aspects of our technology. Our policy is to obtain appropriate proprietary rights of protection for any potentially significant new technology acquired or developed by us. We currently have a total of 31 issued U.S. patents, including: (i) 17 relating to our advanced sensor technologies, (ii) 8 relating to our engineering and consulting services technologies and (iii) 6 related to our purchase of the TrafficCast Business. We have a total of 2 pending patent applications in the U.S. We currently have 5 issued foreign patents and 2 foreign patent applications related to our purchase of the TrafficCast Business. The expiration dates of our patents range from 2026 to 2040. We intend to pursue additional patent protection to the extent we believe it would be beneficial and cost-effective.\nIn addition to patent laws, we rely on copyright and trade secret laws to protect our proprietary rights. We attempt to protect our trade secrets and other proprietary information through agreements with customers and suppliers, proprietary information agreements with our employees and consultants, and other similar measures. We do not have any material licenses or trademarks other than those relating to product names. We cannot be certain that we will be successful in protecting our proprietary rights. While we believe our patents, patent applications, software and other proprietary know-how have value, rapidly evolving technology makes our future success dependent largely upon our ability to successfully achieve continuing innovation.\nAs a provider of traffic engineering services, hardware products, software and other various solutions for the traffic industry, the Company is, and may in the future from time to time, be involved in litigation in the normal course of business related to our intellectual property rights and the intellectual property rights of others. While the Company cannot accurately predict the outcome of any such litigation, the Company is not a party to any litigation or other legal proceedings related to its intellectual property or the intellectual property of others, the outcome of which, in management\u2019s opinion, individually or in the aggregate, would have a material effect on the Company\u2019s results of operations, financial position or cash flows. An adverse outcome in such litigation or similar proceedings could subject us to significant liabilities to third parties, require disputed rights to be licensed from others or require us to cease marketing or using certain products, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, the cost of addressing any intellectual property litigation claim, both in legal fees and expenses, as well as from the diversion of management's resources, regardless of whether the claim is valid, could be significant and could have a material adverse effect on our business, financial condition and results of operations. \nEmployees\nAs of March\u00a031, 2023, we employed 450 full-time employees and 17 part-time employees, for a total of 467 employees.  None of our employees are represented by a labor union, and we have never experienced a work stoppage. We believe our relations with our employees are good.\nGovernment Regulation\nOur manufacturing operations are subject to various federal, state and local laws and regulations, including those restricting the discharge of materials into the environment. We are not involved in any pending or, to our knowledge, threatened governmental proceedings, which would require curtailment of our operations because of such laws and regulations. We continue to expend funds in connection with our compliance with applicable environmental regulations. These expenditures have not been significant in the past, and we do not expect any significant expenditure in the near future. Currently, compliance with foreign laws has not had a material impact on our business; however, as we expand internationally, foreign laws and regulations could have a material impact on our business in the future.",
+  "item1a": ">ITEM 1A.   RISK FACTORS\nOur business is subject to a number of risks, some of which are discussed below. Other risks are presented elsewhere in this report and in the information incorporated by reference into this report. You should consider the following risks carefully in addition to the other information contained in this report and our other filings with the SEC, including our subsequent quarterly reports on Form\u00a010-Q and current reports on Form 8-K, before deciding to buy, sell or hold our common stock. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not \n11\nTable\n of Contents\npresently known to us or that we currently deem immaterial may also affect our business operations. If any of these risks actually occurs, our business, financial condition, or results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment.\nRisk Related to Our Business\nBecause we depend on government contracts and subcontracts, we face additional risks related to contracting with federal, state and local governments, including budgetary issues and fixed price contracts, that could adversely impact our future revenues and profitability.\nA significant portion of our revenues is derived from contracts with governmental agencies, either as a general contractor, subcontractor or supplier. We anticipate that revenue from government contracts will continue to remain a significant portion of our revenues. Government business is, in general, subject to special risks and challenges, including:\n\u2022\ndelays in funding and uncertainty regarding the allocation of funds to state and local agencies from the U.S. federal government, and delays or reductions in other state and local funding dedicated for transportation and ITS projects;\n\u2022\nother government budgetary constraints, including reaching the current federal debt ceiling; cut-backs, delays or reallocation of government funding, including without limitation, changes in the administration and repeal of government purchasing programs;\n\u2022\nlong purchase cycles or approval processes;\n\u2022\ncompetitive bidding and qualification requirements, as well as our ability to replace large contracts once they have been completed;\n\u2022\nchanges in government policies and political agendas;\n\u2022\nmaintenance of relationships with key government entities from whom a substantial portion of our revenue is derived;\n\u2022\nmilestone deliverable requirements and liquidated damage and/or contract termination provisions for failure to meet contract milestone requirements;\n\u2022\nperformance bond requirements;\n\u2022\nadverse weather conditions or other natural or health disasters or developments, such as COVID-19, and evacuations and flooding due to hurricanes, can result in our inability to perform work in affected areas; and\n\u2022\ninternational relations and international conflicts such as the war in Ukraine, or other military operations that could cause the temporary or permanent diversion of government funding from transportation or other infrastructure projects.\nGovernmental budgets and plans are subject to change without warning. Certain risks of selling to governmental entities include dependence on appropriations and administrative allocation of funds, changes in governmental procurement legislation and regulations and other policies that may reflect political developments or agendas, significant changes in contract scheduling, intense competition for government business and termination of purchase decisions for the convenience of the governmental entity. Substantial delays in purchase decisions by governmental entities and rescheduling or cancellation in purchase decisions by governmental entities, and the current constraints on government budgets at the federal, state and local level, and the ongoing uncertainty as to the timing and accessibility to government funding could cause our revenues and income to drop substantially or to fluctuate significantly between fiscal periods.\nIn addition, a number of our government contracts are fixed price contracts. As a result, we may not be able to recover any cost overruns we may incur. These fixed price contracts require us to estimate the total project cost based on preliminary projections of the project's requirements. The financial viability of any given project depends in large part on our ability to estimate these costs accurately and complete the project on a timely basis. In the event our costs on these projects exceed the fixed contractual amount, we will be required to bear the excess costs. Such additional costs could adversely affect our financial condition and results of operations. Moreover, certain of our government contracts are subject to termination or renegotiation at the convenience of the government, which could result in a large decline in our revenues in any given period. Our inability to \n12\nTable\n of Contents\naddress any of the foregoing concerns or the loss or renegotiation of any material government contract could seriously harm our business, financial condition and results of operations.\nOur profitability could be adversely affected if we are not able to maintain adequate utilization of our engineering and consulting workforce.\nThe cost of providing our engineering and mobility consulting services, including the extent to which we utilize our workforce, affects our profitability. The rate at which we utilize our workforce is affected by a number of factors, including:\n\u2022\nour ability to transition employees from completed projects to new assignments and to hire and assimilate new employees;\n\u2022\nour ability to forecast demand for our services and thereby maintain an appropriate headcount in our various regions and related professional disciplines;\n\u2022\nthe timing of new contract awards, the commencement of work under an awarded contract or the completion of large contracts;\n\u2022\nthe availability of project funding or other project budget issues;\n\u2022\nour need to devote time and resources to training, business development, professional development and other non-chargeable activities; and\n\u2022\nour ability to match the skill sets of our employees to the needs of the marketplace.\nAn inability to properly and fully utilize our engineering and consulting workforce would reduce our profitability and could have an adverse effect on our results of operations.\nOur management information systems and databases have been and could in the future be disrupted by data protection breaches, system security failures, cyber threats or by the failure of, or lack of access to, our internal operations, such as our enterprise resource planning (\"ERP\") system, or services provided to our customers. These disruptions could negatively impact our sales, increase our expenses, significantly harm our reputation and/or adversely affect our stock price.\nExperienced users and computer programmers may be able to penetrate, or \"hack\", our network security and create system disruptions, cause shutdowns and compromise or misappropriate our confidential information or that of our employees and third parties. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our internal network, any of our systems, service offerings or otherwise exploit any security vulnerabilities of our network, systems or service offerings. In addition, sophisticated services, hardware and operating system software and applications that we procure from third parties may contain defects in design or manufacture, including \"bugs\" and other problems that could unexpectedly interfere with the operation of a system. We could incur expenses addressing problems created by cyber or other security problems, bugs, viruses, worms malicious software programs and security vulnerabilities, and our efforts to address these problems may not be successful. We must, and do, take precautions to secure customer information and prevent unauthorized access to our databases and systems containing confidential information. Any data security event, such as a breach, data loss or information security lapses, whether resulting in the compromise of personal information or the improper use or disclosure of confidential, sensitive or classified information, could result in interruptions, cessation of service(s), claims, remediation costs, regulatory sanctions against us, loss of current and future contracts, adverse effects to results of operations and financial condition, serious harm to our reputation and/or adverse effects to our stock price. We operate our ERP system and other key business systems on SaaS platforms, and we use these systems for reporting, planning, sales, audit, inventory control, loss prevention, purchase order management and business intelligence. Accordingly, we depend on these systems, and the third-party providers of these services, for a number of aspects of our operations. If these service providers or these systems fail, or if we are unable to continue to have access to these systems on commercially reasonable terms, or at all, operations could be severely disrupted until an equivalent system(s) could be identified, licensed or developed, and integrated into our operations. This disruption could have a material adverse effect on our business. We carry insurance, including cyber insurance, commensurate with our size and the nature of our operations, although there is no certainty that such insurance will in all cases be sufficient to fully reimburse us for all losses incurred in connection with the occurrence of any of these system security risks, data protection breaches, cyber-attacks or other events.\nIf unauthorized access is obtained to our customer's personal and/or proprietary data in connection with our web-based and mobile application solutions and services, we may suffer various negative impacts, including a loss of customer and \n13\nTable\n of Contents\nmarket confidence, loss of customer loyalty, and significant liability to our customers and to individuals or businesses whose information was being stored.\nProtecting data of our customers is critical to our business, and if there is unauthorized access, we may incur significant costs or liabilities. In addition, we are required to comply with government contracting requirements and make investments in our systems to protect that data. If we are unable to do so, our customers may lose confidence in us, which would harm our sales, and we may incur significant expenses or liabilities.\nAcquisitions of companies or technologies may require us to undertake significant capital infusions and could result in disruptions of our business and diversion of resources and management attention.\nWe completed the acquisition of TrafficCast in December 2020 and we plan to continue to explore acquiring additional complementary businesses, products, services, and technologies. Acquisitions may require significant capital infusions which could be in the form of debt, equity, or both, and, in general, acquisitions also involve a number of special risks, including:\n\u2022\npotential disruption of our ongoing business and the diversion of our resources and management's attention;\n\u2022\nthe failure to retain or integrate key acquired personnel;\n\u2022\nthe challenge of assimilating diverse business cultures, and the difficulties in integrating the operations, technologies and information system of the acquired companies;\n\u2022\nincreased costs to improve managerial, operational, financial and administrative systems and to eliminate duplicative services;\n\u2022\nthe incurrence of unforeseen obligations or liabilities;\n\u2022\npotential impairment of relationships with employees or customers as a result of changes in management; \n\u2022\nincreased interest expense or increased share or equity dilution; and\n\u2022\namortization of acquired intangible assets, as well as unanticipated accounting charges.\nOur competitors are also soliciting potential acquisition candidates, which could both increase the price of any acquisition targets and decrease the number of attractive companies available for acquisition. Acquisitions may also materially and adversely affect our operating results due to large write-offs, contingent liabilities, substantial depreciation, deferred compensation charges or intangible asset amortization, or other adverse tax or accounting consequences. We cannot assure you that we will be able to identify or consummate any additional acquisitions, successfully integrate any acquisitions or realize the benefits and opportunities anticipated from any acquisition.\nAcquisitions, investments and divestitures could result in operating difficulties, dilution, and other consequences that may adversely affect our business and results of operations.\nAcquisitions, investments and divestitures are important elements of our overall corporate strategy and use of capital, and these transactions could be material to our financial condition and results of operations. We expect to continue to evaluate and enter into discussions regarding potential strategic transactions. These strategic transactions could create unforeseen operating difficulties and expenditures. We face risks that include, among other things:\n\u2022\nthe strategic benefits and opportunities from any planned or completed acquisition or divestiture by the Company may not be realized or may take longer to realize than expected;\n\u2022\nstrategic benefits and opportunities related to past and ongoing restructuring actions may not be realized or may take longer to realize than expected;\n\u2022\nour ability to realize the expected financial benefits of an acquisition, divestiture or other strategic transaction may not be realized or may take longer to realize than expected;\n\u2022\ncost reductions may not occur as expected;\n\u2022\nmanagement time and focus may be diverted from operating our business to challenges related to acquisitions and other strategic transactions;\n14\nTable\n of Contents\n\u2022\ncultural challenges may arise associated with integrating employees from the acquired company into our organization, and retention of employees from the businesses we acquire; and\n\u2022\nwe may fail to successfully further develop the acquired business or technology.\nOur failure to address the risks and other issues in connection with our past or future acquisitions and other strategic transactions could cause us to not realize their anticipated benefits and opportunities, incur unanticipated liabilities, experience increased costs, and harm our business generally.\nWe participate in the software development market, which may be subject to various technical and commercial challenges.\nWe invest in software development and have in the past and may in the future experience development and technical challenges. Our business and results of operations could also be seriously harmed by any significant delays in our software development activities. Despite testing and quality control, we cannot be certain that errors will not be found in our software after its release. Any faults or errors in our existing products or in any new products may cause delays in product introduction and shipments, require design modifications, or harm customer relationships or our reputation, any of which could adversely affect our business and competitive position. In addition, software companies are subject to litigation concerning intellectual property disputes, which could be costly and distract our management. During the twelve months ended March 31, 2022, due to delays in the completion of a software development contract with a customer, the Company recorded an estimated loss on a contract of approximately $3.4\u00a0million. The terms of the contract have since been amended to a time and materials structure and no further additional contract losses are expected for this contract. No further subsequent loss on this contract was recorded through the year ended March\u00a031, 2023 based on our assessment. The estimates and assumptions used in these assessments were based upon management's judgment and may be subject to change as new events occur and additional information is obtained. If the future estimated costs to fulfill a contract exceed the expected consideration from the customer, the Company's financial condition, cash flows, and results of operations may be adversely and materially impacted.\nIf we do not keep pace with rapid technological changes and evolving industry standards, we will not be able to remain competitive, and the demand for our products will likely decline.\nOur markets are in general characterized by the following factors:\n\u2022\nrapid technological advances;\n\u2022\ndownward price pressures in our target markets as technologies mature;\n\u2022\nchanges in customer requirements;\n\u2022\nadditional qualification requirements related to new products or components;\n\u2022\nfrequent new product introductions and enhancements;\n\u2022\nobsolescence of certain parts and components from time to time that may require re-engineering of certain portions of our product or products;\n\u2022\ninventory issues related to transition to new or enhanced models; and\n\u2022\nevolving industry standards and changes in the regulatory environment.\nOur future success will depend upon our ability to anticipate and adapt to changes in technology and industry standards, and to effectively develop, introduce, market and gain broad acceptance of new products and product enhancements incorporating the latest technological advancements.\nIf we are unable to develop and introduce new products and product enhancements in a cost-effective and timely manner, or are unable to achieve market acceptance of our new products, our operating results could be adversely affected.\nWe believe our revenue growth and future operating results will depend on our ability to complete development of new products and product enhancements, introduce these products and product enhancements in a timely, cost-effective manner, achieve broad market acceptance of these products and product enhancements, and reduce our production costs. During the past few fiscal years we have introduced, and we expect we will continue to introduce, both new and enhanced products. We cannot guarantee the success of these products, and we may not be able to introduce any new products or any enhancements to our existing products on a timely basis, or at all. In addition, the introduction of any new products could adversely affect the sales of certain of our existing products.\n15\nTable\n of Contents\nWe believe that we must continue to make substantial investments to support ongoing research and development in order to develop new or enhanced products and software to remain competitive. We need to continue to prepare updates for existing products and develop and introduce new products that incorporate the latest technological advancements in outdoor image processing hardware, camera technologies, software and analysis in response to evolving customer requirements. In addition, we are continuing to migrate some of our products to a new platform. We cannot assure you that we will be able to adequately manage product transitions. Our business and results of operations could be adversely affected if we do not anticipate or respond adequately to technological developments or changing customer requirements or if we cannot adequately manage inventory requirements typically related to new product transitions and introductions. We cannot assure you that any such investments in research and development will lead to any corresponding increase in revenue.\nWe may need to raise additional capital in the future, which may not be available on terms acceptable to us, or at all.\nWe have historically experienced volatility in our earnings and cash flows from operations from year to year. Should the financial results of our business decline, we may need or choose to raise additional capital to fund our operations, to repay indebtedness, pursue acquisitions or expand our operations. Such additional capital may be raised through bank borrowings, or other debt or equity financings. We cannot assure you that any additional capital will be available on a timely basis, on acceptable terms, or at all, and such additional financing may result in further dilution to our stockholders.\nOur capital requirements will depend on many factors, including, but not limited to:\n\u2022\nmarket acceptance of our products and product enhancements, and the overall level of sales of our products;\n\u2022\nour ability to control costs and achieve profitability;\n\u2022\nthe supply of key components for our products;\n\u2022\nour ability to increase revenue and net income;\n\u2022\nincreased research and development expenses and sales and marketing expenses;\n\u2022\nour need to respond to technological advancements and our competitors' introductions of new products or technologies;\n\u2022\ncapital improvements to new and existing facilities and enhancements to our infrastructure and systems;\n\u2022\nany acquisitions of businesses, technologies, product lines, or possible strategic transactions or dispositions;\n\u2022\nour relationships with customers and suppliers;\n\u2022\ngovernment budgets, political agendas and other funding issues, including potential delays in government contract awards or commencement of work for a project;\n\u2022\nour ability to successfully secure credit arrangements with banks or other lenders and/or negotiate equity arrangements subject to the state of the financial markets in general; and\n\u2022\ngeneral economic conditions, including the effects of economic slowdowns and international conflicts.\nIf our capital requirements are materially different from those currently planned, we may need additional capital sooner than anticipated. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and such securities may have rights, preferences and privileges senior to our common stock. Additional equity or debt financing may not be available on favorable terms, on a timely basis, or at all. If adequate funds are not available or are not available on acceptable terms when needed, we may be unable to continue our operations as planned, develop or enhance our products, expand our sales and marketing programs, take advantage of future opportunities or respond to competitive pressures.\nThe markets in which we operate are highly competitive with many companies more established than we are.\nOur competitors tend to vary across the various product categories in which we participate.\nThe engineering and consulting market is highly fragmented and is subject to evolving national and regional quality and safety standards. Our competitors vary in size, number, scope and breadth of the products and services they offer, and include large multi-national engineering firms and smaller local or regional firms.\n16\nTable\n of Contents\nOur sensors line of business competes with existing, well-established companies and technologies, both domestically and abroad. Only a portion of the traffic intersection market has adopted advanced above-ground detection technologies, and our future success will depend in part upon gaining broader market acceptance for such technologies. Certain technological barriers to entry make it difficult for new competitors to enter the market with competing video or other technologies; however, we are aware of new market entrants from time to time. Increased competition could result in loss of market share, price reductions and reduced gross margins, any of which could seriously harm our business, financial condition and results of operations.\nMany of our competitors have greater name recognition and greater financial, technological, marketing and customer service resources than we do. This may allow our competitors to respond more quickly to new or emerging technologies and changes in customer requirements. It may also allow them to devote greater resources to the development, promotion, sale and support of their products and services than we can. Consolidations of end users, distributors and manufacturers in our target markets exacerbate this problem. As a result of the foregoing factors, we may not be able to compete effectively in our target markets and competitive pressures could adversely affect our business, financial condition and results of operations.\nOur failure to successfully secure new contracts and renew existing contracts could reduce our revenues and profitability.\nOur business depends on our ability to successfully bid on new contracts and renew existing contracts with private and public sector customers. We continually bid on new contracts and negotiate contract renewals on expiring contracts. Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which are affected by a number of factors, such as market conditions, financing arrangements and required governmental approvals. As a condition to contract award, customers typically require us to provide a surety bond or letter of credit to protect the client should we fail to perform under the terms of the contract. Government entities are also taking more time between contract award and approval to commence work under the contract, which delays our ability to recognize revenues under the contract. If negative market conditions materialize, or if we fail to secure adequate financing arrangements or the required governmental approval or fail to meet other required conditions, we may not be able to pursue, obtain or perform particular projects, which could reduce or eliminate our profitability.\nWe may be unable to attract and retain key personnel, including senior management, which could seriously harm our business.\nDue to the specialized nature of our business and the current tight labor market, we are highly dependent on the continued service of our executive officers and other key management, engineering and technical personnel. We believe that our success will depend on the continued employment of a highly qualified and experienced senior management team to retain existing business and generate new business. The loss of any of our officers, or any of our other executives or key members of management could adversely affect our business, financial condition, or results of operations (e.g.,\u00a0loss of customers or loss of new business opportunities). Our success will also depend in large part upon our ability to continue to attract, retain and motivate qualified engineering and other highly skilled technical personnel. Particularly in highly specialized areas, it has become more difficult to retain employees and meet all of our needs for employees in a timely manner, which may adversely affect our growth in the current fiscal year and in future years. This situation is exacerbated by pressure from agency customers to contain our costs, while salaries for employees are on the rise. Although we intend to continue to devote significant resources to recruit, train and retain qualified skilled personnel, we may not be able to attract and retain such employees, which could impair our ability to perform our contractual obligations, meet our customers' needs, win new business, and adversely affect our future results. Likewise, the future success of our consulting services will depend on our ability to hire additional qualified engineers, planners and technical personnel. Competition for qualified employees, particularly development engineers and software developers, is intense and has become more so over time. We may not be able to continue to attract and retain sufficient numbers of such highly skilled employees. Our inability to attract and retain additional key employees or the loss of one or more of our current key employees could adversely affect our business, financial condition and results of operations.\nCOVID-19 could continue to have an adverse effect on our business.\nCOVID-19 has affected and may continue to adversely impact our financial condition and results of operations. Although COVID-19 has entered an endemic stage, it may continue to have an unpredictable and unprecedented impact on the global economy including possible additional supply chain disruptions, workplace dislocations, economic contraction, and negative pressure on some customer budgets and customer sentiment. All of these factors have had or could result in future material negative impacts on our ability to ensure a consistent supply chain for manufacturing of our hardware products, and maintain the effectiveness and productivity of our operations.\nGiven the uncertainties surrounding the impacts of COVID-19 on the Company's future financial condition and results of operations, we have and may continue to identify and execute various actions to preserve our liquidity, manage cash flow and \n17\nTable\n of Contents\nstrengthen our financial flexibility. Such actions include, but are not limited to, reducing our discretionary spending, reducing capital expenditures, and implementing restructuring activities (see Note 3, \nRestructuring Activities\n, to the Financial Statements for more information). \nOur products require specialized parts which have become more difficult to source. In some cases, we have had to purchase such parts from third-party brokers at substantially higher prices. Additionally, to mitigate the impact of component shortages, we increased inventory levels for parts in short supply. In the event demand does not materialize, we would need to hold excess inventory for several quarters. Alternatively, we may be unable to source sufficient components at any price, even from third-party brokers, to meet customer demand, resulting in high levels of backlog that we are unable to ship. The Company\u2019s tactics to mitigate the current global supply chain issues included re-designing certain circuit boards to accommodate computer chips that are more readily available in the market at more reasonable prices, and by accumulating inventory in the first two quarters for the Fiscal 2023. We have placed non-cancellable inventory orders for certain products in advance of our normal lead times to secure normal and incremental future supply and capacity and may need to continue to do so in the future.  \nThe Company cannot predict the duration or direction of current trends or their sustained impact. As COVID-19 has entered an endemic stage, the Company will continue to assess the effects on its operations. While the spread of COVID-19 has slowed and certain challenges have been abated, uncertainty remains about the duration and extent of the impact of COVID-19 and its resulting impact on global economic conditions. If economic conditions caused by COVID-19 persists or do not recover as currently estimated by management, the Company\u2019s financial condition, cash flows and results of operations may be materially impacted.    \nIndustry consolidation may lead to increased competition and may harm our operating results.\nThere is a continuing trend toward industry consolidation in our markets. We expect this trend to continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations. For example, some of our current and potential competitors for transportation infrastructure solutions have made acquisitions, or announced new strategic alliances, designed to position them with the ability to provide end-to-end technology solutions for the transportation industry. Companies that are strategic alliance partners in some areas of our business may acquire or form alliances with our competitors, thereby reducing their business with us. We believe that industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for public transportation agencies, municipalities, and commercial entities. This could lead to more variability in our operating results and could have a material adverse effect on our business, operating results, and financial condition.\nThe ongoing war between Russia and Ukraine could adversely affect our business, financial condition and results of operations.\nOn February 24, 2022, Russian military forces launched a military attack on Ukraine and sustained conflict and disruption in the region is likely. Although the length, impact and outcome of the ongoing war in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in government agency budgets and funding preferences as well as increase in cyberattacks and cyber and corporate espionage. To date we have not experienced any material interruptions in our infrastructure, supplies, technology systems or networks needed to support our operations. We are actively monitoring the situation in Ukraine and assessing its impact on our business. The extent and duration of the war and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time. Any such disruptions may also magnify the impact of other risks described in this Annual Report on Form 10-K.\nThe availability of data we purchase and use in certain of our Mobility Data Sets may become more limited due to changes in strategy or financial health of data suppliers, and adversely affect performance of our products or the cost of data purchased.\nA recent announcement of Wejo Group Limited to appoint an administrator due to insolvency, and the change in strategy of Otonomo Technologies Ltd. after being acquired, both reduced the number of suppliers selling data to us for use in some of our Mobility Data sets. Although similar data can be purchased from other sources, future changes in data sources or availability could adversely affect the quality of our Mobility Data Sets and/or the cost to purchase data.\nLegal and Regulatory Risks\nWe may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position.\n18\nTable\n of Contents\nIf we are not able to adequately protect or enforce the proprietary aspects of our technology, competitors may be able to access our proprietary technology and our business, financial condition and results of operations may be seriously harmed. We currently attempt to protect our technology through a combination of patent, copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements and similar means. Despite our efforts, other parties may attempt to disclose, obtain or illegally use our technologies or systems. Our competitors may also be able to independently develop products that are substantially equivalent or superior to our products or design around our patents. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the U.S. As a result, we may not be able to protect our proprietary rights adequately in the U.S. or internationally.\nLitigation may be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation may also be necessary to defend against claims of infringement or invalidity by others. We have in the past, currently, and may in the future, be subject to litigation regarding our intellectual property rights and the intellectual property rights of others. An adverse outcome in litigation or any similar proceedings could subject us to significant liabilities to third parties, require us to license disputed rights from others or require us to cease marketing or using certain products, product features, or technologies. In addition, in the event of an adverse outcome in litigation or any similar proceedings we may find ourselves at a competitive disadvantage to others who need not incur the substantial expense, time, and effort required to market or use certain products, product features, or technologies. We may not be able to obtain any licenses on terms acceptable to us, or at all. We also may have to indemnify certain customers or strategic partners if it is determined that we have infringed upon or misappropriated another party's intellectual property. Our continued expansion into software development activities may subject us to increased possibility of litigation. Any of the foregoing could adversely affect our business, financial condition and results of operations. In addition, the cost of addressing any intellectual property litigation claim, including legal fees and expenses, and the diversion of management's attention and resources, regardless of whether the claim is valid, could be significant and could seriously harm our business, financial condition and results of operations.\nWe may continue to be subject to traffic-related litigation.\nThe traffic industry in general is subject to frequent litigation claims due to the nature of personal injuries that can result from traffic accidents. As a provider of traffic engineering services, products and solutions, we are, and could from time to time in the future continue to be, subject to litigation for traffic related accidents, even if our products or services did not cause the particular accident. While we generally carry insurance against these types of claims, some claims may not be covered by insurance or the damages resulting from such litigation could exceed our insurance coverage limits. In the event that we are required to pay significant damages as a result of one or more lawsuits that are not covered by insurance or exceed our coverage limits, it could materially harm our business, financial condition or cash flows. Even defending against unsuccessful claims could cause us to incur significant expenses and result in a diversion of management's attention.\nFinancial and Market Risks\nWe may not be able to consistently achieve profitability on a quarterly or annual basis in the future.\nWe had a GAAP net loss of approximately $14.9\u00a0million in Fiscal 2023, net loss of $7.1\u00a0million in Fiscal 2022, and we cannot assure you that we will be profitable in the future. Our ability to operate at a profit in future periods could be impacted by governmental budgetary constraints, government and political agendas, economic instability, supply chain constraints and other items that are not in our control. Furthermore, we rely on operating profits to fund investments in sales and marketing and research and development initiatives. We cannot assure you that our financial performance will sustain a sufficient level to completely support those investments. Most of our expenses are fixed in advance. As such, we generally are unable to reduce our expenses significantly in the short-term to compensate for any unexpected delay or decrease in anticipated revenues or increases in planned investments.\nIf we experience declining or flat revenues and we fail to manage such declines effectively, we may be unable to execute our business plan and may experience future weaknesses in our operating results.\nBased on our business objectives, and in order to achieve future growth, we will need to continue to add additional qualified personnel, and invest in additional research and development and sales and marketing activities, which could lead to increases in our expenses and future declines in our operating results. In addition, our past expansion has placed, and future expansion is expected to place, a significant strain on our managerial, administrative, operational, financial and other resources. If we are unable to manage these activities or any revenue declines successfully, our growth, our business, our financial condition and our results of operations could be adversely affected.\n19\nTable\n of Contents\nOur use of estimates in conjunction with the input method of measuring progress to completion of performance obligations for our engineering and consulting services revenues could result in a reduction or reversal of previously recorded revenues and profits.\nA portion of our engineering and consulting services revenues are measured and recognized over time using the input method of measuring progress to completion. Our use of this accounting method results in recognition of revenues and profits proportionally over the life of a contract, based generally on the proportion of costs incurred to date to total costs expected to be incurred for the entire project. The effects of revisions to estimated costs and resulting revenues recognized are recorded when the amounts are known or can be reasonably estimated based on updated information. Such revisions could occur in any period and their effects could be material. Although we have historically made reasonably reliable estimates of the progress towards completion of long-term engineering, program management, construction management or construction contracts, the uncertainties inherent in the estimating process make it possible for actual costs to vary materially from estimates which may result in reductions or reversals of previously recorded revenues and profits.\nIf our internal controls over financial reporting do not comply with the requirements of the Sarbanes-Oxley Act, our business and stock price could be adversely affected.\nSection\u00a0404 of the Sarbanes-Oxley Act of 2002 currently requires us to evaluate the effectiveness of our internal controls over financial reporting at the end of each fiscal year and to include a management report assessing the effectiveness of our internal controls over financial reporting in all annual reports. We are required to obtain our auditors' attestation pursuant to Section\u00a0404(b) of the Sarbanes-Oxley Act. Going forward, we may not be able to complete the work required for such attestation on a timely basis and, even if we timely complete such requirements, our independent registered public accounting firm may still conclude that our internal controls over financial reporting are not effective.\nA control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Iteris have been or will be detected. These inherent limitations include the realities that technology, decision-making and other processes can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls also can possibly be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. Over time, our controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. If we are not able to maintain effective internal controls over financial reporting, we may lose the confidence of investors and analysts and our stock price could decline.\nOur quarterly operating results fluctuate as a result of many factors. Therefore, we may fail to meet or exceed the expectations of securities analysts and investors, which could cause our stock price to decline.\nOur quarterly revenues and operating results have fluctuated and are likely to continue to vary from quarter to quarter due to a number of factors, many of which are not within our control. Factors that could affect our revenues and operating results include, among others, the following:\n\u2022\ndelays in government contracts and funding from time to time and budgetary constraints at the federal, state and local levels;\n\u2022\nour customers' or our ability to access stimulus funding, funding from the federal transportation bills or other government funding;\n\u2022\ndeclines in new home and commercial real estate construction and related road and other infrastructure construction;\n\u2022\nchanges in our pricing policies and the pricing policies of our suppliers and competitors, pricing concessions on volume sales, as well as increased price competition in general;\n\u2022\nthe long lead times associated with government contracts;\n20\nTable\n of Contents\n\u2022\nthe size, timing, rescheduling or cancellation of significant vendor and customer orders;\n\u2022\nour ability to control costs, including costs associated with strategic alternatives;\n\u2022\nthe mix of our products and services sold in a quarter, which has varied and is expected to continue to vary from time to time;\n\u2022\nour ability to develop, introduce, patent, market and gain market acceptance of new products, applications and product enhancements in a timely manner, or at all;\n\u2022\nmarket acceptance of the products incorporating our technologies and products;\n\u2022\nthe introduction of new products by competitors;\n\u2022\nthe availability and cost of components used in the manufacture of our products;\n\u2022\nour success in expanding and implementing our sales and marketing programs;\n\u2022\nthe effects of technological changes in our target markets;\n\u2022\nthe amount of our backlog at any given time;\n\u2022\ntiming of backlog fulfillment;\n\u2022\nthe nature of our government contracts;\n\u2022\ndecrease in revenues derived from key or significant customers;\n\u2022\ndeferrals of customer orders in anticipation of new products, applications or product enhancements;\n\u2022\ninterruptions or other significant disruption in our supply chain which may negatively impact our ability to ship products and/or the cost of our products;\n\u2022\nrisks and uncertainties associated with our international business;\n\u2022\nmarket condition changes such as industry consolidations that could slow down our ability to procure new business;\n\u2022\ngeneral economic and political conditions;\n\u2022\nour ability to raise additional capital;\n\u2022\npandemic and epidemic events, such as COVID-19, which may have a continuing impact on our future operating results;\n\u2022\ninternational conflicts and acts of terrorism; and\n\u2022\nother factors beyond our control, including but not limited to, natural disasters.\nDue to all of the factors listed above as well as other unforeseen factors, our future operating results could be below the expectations of securities analysts or investors. If that happens, the trading price of our common stock could decline. As a result of these quarterly variations, you should not rely on quarter-to-quarter comparisons of our operating results as an indication of our future performance.\n21\nTable\n of Contents\nSupply shortages or production gaps could materially and adversely impact our sales and financial results.\nWe have experienced, and may from time to time in the future continue to experience parts shortages, end of life events, sharp increases in component costs and unforeseen quality control issues by our suppliers that may impact our ability to meet demand for our products. COVID-19 has increased the occurrence of such shortages and increased costs for materials. We have historically used and continue to use single suppliers for certain significant components in our products; however, in light of the current supply chain shortage we have begun to use other suppliers to meet our demand, and we have had to reengineer products from time to time to address discontinued, obsolete or unavailable components. Our products are also included with other traffic intersection products that also could experience supply issues for their products, which in turn could result in delays in orders for our products. Should any such supply delay or disruption occur, or should a key supplier discontinue operations, our future sales and costs may be materially and adversely affected. Additionally, we rely heavily on select contract manufacturers to produce many of our products and do not have any long-term contracts to guarantee supply of such products. Although we believe our contract manufacturers have sufficient capacity to meet our production schedules for the foreseeable future and we believe we could find alternative contract manufacturing sources for many of our products, if necessary, we could experience a production gap should for any reason our contract manufacturers become unable to meet our production requirements and the cost of our products could increase, adversely affecting our margins. Further, foreign imports of components in our products subject the Company to risks of changes in, or the imposition of new, export/import requirements, tariffs, work stoppages, delays in shipment, product cost increases due to component shortages, public health issues, such as COVID-19, that could lead to temporary closures of facilities or shipping ports, and other economic uncertainties affecting trade between the U.S. and other countries where we source components for our products. Any such actions could increase the cost to us of such products and cause increases in the prices at which we sell such products, which could adversely affect the financial performance of our business. Similarly, these actions could result in cost increases or supply chain delays that impact third party products (e.g.,\u00a0steel poles) which could lead our customers to delay or cancel planned purchases of our products.\nOur international business operations may be threatened by many factors that are outside of our control.\nWhile we historically have had limited international sales, revenues and operational experience, we have been expanding our distribution capabilities for our products internationally, particularly in Europe and in South America. We plan to continue to expand our international efforts, but we cannot assure you that we will be successful in such efforts. International operations subject us to various inherent risks including, among others:\n\u2022\npolitical, social and economic instability, as well as international conflicts and acts of terrorism;\n\u2022\nbonding requirements for certain international projects;\n\u2022\nlonger accounts receivable payment cycles;\n\u2022\nimport and export license requirements and restrictions of the U.S., as well as requirements and restrictions in the other countries in which we operate;\n\u2022\ncurrency fluctuations and restrictions, and our ability to repatriate currency from certain foreign regions;\n\u2022\nunexpected changes in regulatory requirements, tariffs and other trade barriers or restrictions;\n\u2022\nrequired compliance with existing and new foreign regulatory requirements and laws, more restrictive labor laws and obligations, including but not limited to the U.S. Foreign Corrupt Practices Act;\n\u2022\ndifficulties in managing and staffing international operations;\n\u2022\npotentially adverse tax consequences; \n\u2022\nreduced protection for intellectual property rights in some countries; and\n\u2022\npandemic and epidemic events, such as COVID-19, and related government responses, including travel restrictions, quarantines and \"stay-at-home\" orders.\nSubstantially all of our international product sales are denominated in U.S. dollars. As a result, an increase in the relative value of the U.S. dollar could make our products more expensive and potentially less price competitive in international markets. We do not currently engage in any transactions as a hedge against risks of loss due to foreign currency fluctuations.\nAny of the factors mentioned above may adversely affect our future international revenues and, consequently, affect our business, financial condition and operating results. Additionally, as we pursue the expansion of our international business, \n22\nTable\n of Contents\ncertain fixed and other overhead costs could outpace our revenues, thus adversely affecting our results of operations. We may likewise face local competitors in certain international markets who are more established, have greater economies of scale and stronger customer relationships. Furthermore, as we increase our international sales, our total revenues may also be affected to a greater extent by seasonal fluctuations resulting from lower sales that typically occur during the summer months in Europe and certain other parts of the world.\nThe trading price of our common stock is highly volatile.\nThe trading price of our common stock has been subject to wide fluctuations in the past. From March\u00a031, 2020 through March\u00a031, 2023, our common stock has traded at prices as low as $2.40 per share and as high as $7.81 per share. The market price of our common stock could continue to fluctuate in the future in response to various factors, including, but not limited to:\n\u2022\nquarterly variations in operating results;\n\u2022\nour ability to control costs, improve cash flow and sustain profitability;\n\u2022\nstatements made by third parties or speculation regarding our strategic alternatives;\n\u2022\nour ability to raise additional capital;\n\u2022\nshortages announced by suppliers;\n\u2022\nannouncements of technological innovations or new products or applications by our competitors, customers or us;\n\u2022\ntransitions to new products or product enhancements;\n\u2022\nacquisitions of businesses, products or technologies, or other strategic transactions or dispositions;\n\u2022\nthe impact of any litigation or other legal proceedings;\n\u2022\nchanges in investor perceptions;\n\u2022\ngovernment funding, political agendas and other budgetary constraints;\n\u2022\nchanges in stock market analyst recommendations regarding our common stock, other comparable companies or our industry in general;\n\u2022\nchanges in earnings estimates or investment recommendations by securities analysts; and\n\u2022\ninternational conflicts, political unrest and acts of terrorism.\nThe stock market is currently experiencing and has from time-to-time experienced volatility, which has often affected and may continue to affect the market prices of equity securities of many technology and smaller companies. This volatility has often been unrelated to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of our common stock. In the past, companies that have experienced volatility in the market price of their securities have been the subject of securities class action litigation. If we were to become the subject of a class action lawsuit, it could result in substantial losses and divert management's attention and resources from other matters.\nProvisions of our charter documents may discourage a third party from acquiring us and may adversely affect the price of our common stock.\nProvisions of our certificate of incorporation could make it difficult for a third party to influence or acquire us, even though that might be beneficial to our stockholders. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. For example, under the terms of our certificate of incorporation, our Board of Directors is authorized to issue, without stockholder approval, up to 2,000,000 shares of preferred stock with voting, conversion and other rights and preferences superior to those of our common stock. In addition, our bylaws contain provisions governing the ability of stockholders to submit proposals or make nominations for directors. We may also adopt provisions and agreements from time to time that could make it harder for a potential acquirer.",
+  "item7": ">ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n25\nTable\n of Contents\nYou should read the following discussion and analysis in conjunction with our Financial Statements and related Notes thereto included in Part\u00a0II, Item\u00a08 of this report and the \"Risk Factors\" section in Part\u00a0I, Item\u00a01A, as well as the other cautionary statements and risks described elsewhere in this report before deciding to purchase, hold or sell our common stock.\nOverview\nGeneral\nWe are a provider of smart mobility infrastructure management solutions. Our cloud-enabled solutions help public transportation agencies, municipalities, commercial entities and other transportation infrastructure providers monitor, visualize, and optimize mobility infrastructure to make mobility safe, efficient, and sustainable for everyone.\nRecent Developments\nImpact of COVID-19 on Our Business\nThe Pandemic materially adversely impacted global economic conditions. As COVID-19 has entered an endemic stage, COVID-19 may continue to have an unpredictable and unprecedented impact, including possible additional supply chain disruption, workplace dislocation, economic contraction, and negative pressure on customer budgets and customer sentiment. \nGiven the uncertainties surrounding the impacts of COVID-19 on the Company's future financial condition and results of operations, we have and may continue to identify and execute various actions to preserve our liquidity, manage cash flow and strengthen our financial flexibility. Such actions include, but are not limited to, reducing our discretionary spending, reducing capital expenditures, and implementing restructuring activities (see Note 3, \nRestructuring Activities\n, to the Financial Statements for more information). \nOur products require specialized parts which have become more difficult to source. In some cases, we have had to purchase such parts from third-party brokers at substantially higher prices. Additionally, to mitigate the impact of component shortages, we increased inventory levels for parts in short supply. In the event demand does not materialize, we would need to hold excess inventory for several quarters. Alternatively, we may be unable to source sufficient components at any price, even from third-party brokers, to meet customer demand, resulting in high levels of backlog that we are unable to ship. The Company's tactics to mitigate the current global supply chain issues included re-designing certain circuit boards to accommodate computer chips that are more readily available in the market at more reasonable prices, and by accumulating inventory in the first two quarters of Fiscal 2023. We have placed non-cancellable inventory orders for certain products in advance of our normal lead times to secure normal and incremental future supply and capacity and may need to continue to do so in the future. \nDue to the supply chain environment, the Company increased inventory by approximately $2.9 million as part of the Company's supply chain strategy for Fiscal 2023. The cash flow used in operating activities of our continuing operations was approximately $4.5 million during the twelve months ended March 31, 2023. Cash used during Fiscal 2023 was primarily due to two factors. First, the planned increase in inventory during the first half of Fiscal 2023 and the continued re-design of certain circuit boards as part of the Company\u2019s supply chain strategy to help assure the Company has enough product to satisfy customer demand. Second, the net operating loss as a result of higher inventory component costs related to the global supply chain constraints. The increase in inventory purchases and in particular components purchased in the secondary markets was curtailed in the second half of Fiscal 2023, and the Company currently does not expect to continue to accumulate inventory, in the same magnitude, in future periods. However, if the Company encounters additional supply chain constraints again in the future, it may need to further adjust its operations to have sufficient liquidity.\nThe Company assessed the impacts of COVID-19 on the estimates and assumptions used in preparing our financial statements. The estimates and assumptions used in our assessments were based on management\u2019s judgment and may be subject to change as new events occur and additional information is obtained. In particular, there is significant uncertainty about the duration and extent of the impact of COVID-19, which has entered an endemic stage, and its resulting impact on global economic conditions. If economic conditions caused by COVID-19 do not recover as currently estimated by management, the Company\u2019s financial condition, cash flows and results of operations may be materially impacted. The Company will continue to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world. As a result, our assessment of the impact of COVID-19 may change.\nDespite the impact of COVID-19, we believe that the ITS (\"Intelligent Traffic Systems\") industry in the U.S. should continue to provide new opportunities for the Company although, in the near term, the pace of new opportunities emerging may be restrained and the start dates of awarded projects may be delayed. We believe that our expectations are valid and that our plans for the future continue to be based on reasonable assumptions.\nClimate Change\n26\nTable\n of Contents\nWe take climate change and the risks associated with climate change seriously. Increased frequency of severe and extreme weather events associated with climate change could adversely impact our facilities, interfere with intersection construction projects, and have a material impact on our financial condition, cash flows and results of operations. More extreme and volatile temperatures, increased storm intensity and flooding, and more volatile precipitation are among the weather events that are most likely to impact our business. We are unable to predict the timing or magnitude of these events.\n \nHowever, we perform ongoing assessments of physical risk, including physical climate risk, to our business and efforts to mitigate these physical risks continue to be implemented on an ongoing basis. \nAs a global leader in smart mobility infrastructure management, we are committed to a cleaner, healthier and more sustainable future. Our core business aims to reduce climate impact through our work with public and private-sector partners to improve the efficiency of mobility, which, among other things has the benefit of reducing vehicle carbon emissions. For example, by reducing vehicle delays and stops through traffic signal timing projects, improving the efficiency and fuel consumption of public transit via signal priority programs, reducing time spent roadside for heavy-emitting commercial freight vehicles during inspection, our industry-leading portfolio of smart mobility infrastructure management solutions is currently helping cities and states to reduce their carbon footprint. Additionally, we continue to enhance the design of our sensors to withstand increasingly extreme weather conditions.\nAcquisition of the Assets of TrafficCast International, Inc.\nOn December 6, 2020, the Company entered into the TrafficCast Purchase Agreement with TrafficCast, a privately held company headquartered in Madison, Wisconsin that provides travel information technology, applications and content to customers throughout North America in the media, mobile technology, automotive and public sectors. Under the TrafficCast Purchase Agreement, Iteris purchased from TrafficCast substantially all of the assets used in the conduct of the TrafficCast Business and assumed certain specified liabilities of the TrafficCast Business.\nOn May 6, 2022, approximately $0.9 million was paid to settle the balance of a security hold back agreed to as part of the acquisition, net of approximately $0.1 million of post-closing adjustments. As of March\u00a031, 2023, the achievement levels of the revenue targets with respect to the earnout were resolved and the balance remaining of approximately $0.6 million was accrued in accordance with the terms of the agreement. This item is included in accrued liabilities on the balance sheets.\nSimultaneous with closing the transaction, the parties entered into certain ancillary agreements that provided Iteris with ongoing access to mapping and monitoring services that the TrafficCast Business used to support its real-time and predictive travel data and associated content until termination of these agreements on December 6, 2022.\nNon-GAAP Financial Measures\nAdjusted income (loss) from continuing operations before taxes, depreciation, amortization, interest expense, stock-based compensation expense, restructuring charges, project loss reserves, acquisition earnout payments, and executive severance and transition costs (\u201cAdjusted EBITDA\u201d) was approximately $(6.6) million, and $4.5 million for the fiscal years ended March\u00a031, 2023 and 2022, respectively. Components of Adjusted EBITDA may be adjusted from time to time to reflect specific events and circumstances as they occur.\nWhen viewed with our financial results prepared in accordance with accounting principles generally accepted in the U.S. (\u201cGAAP\u201d) and accompanying reconciliations, we believe Adjusted EBITDA provides additional useful information to clarify and enhance the understanding of the factors and trends affecting our past performance and future prospects. We define these measures, explain how they are calculated and provide reconciliations of these measures to the most comparable GAAP measure in the table below. Adjusted EBITDA and the related financial ratios, as presented in this Annual Report on Form 10-K (\u201cForm 10-K\u201d), are supplemental measures of our performance that are not required by or presented in accordance with GAAP. They are not a measurement of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP, or as an alternative to net cash provided by operating activities as measures of our liquidity. The presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items.\nWe use Adjusted EBITDA non-GAAP operating performance measures internally as complementary financial measures to evaluate the performance and trends of our businesses. We present Adjusted EBITDA and the related financial ratios, as applicable, because we believe that measures such as these provide useful information with respect to our ability to meet our operating commitments.\n27\nTable\n of Contents\nAdjusted EBITDA and the related financial ratios have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:\n\u2022\nThey do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;\n\u2022\nThey do not reflect changes in, or cash requirements for, our working capital needs;\n\u2022\nAlthough depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;\n\u2022\nThey are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;\n\u2022\nThey do not reflect the impact on earnings of charges resulting from matters unrelated to our ongoing operations; and\n\u2022\nOther companies in our industry may calculate Adjusted EBITDA differently than we do, whereby limiting its usefulness as comparative measures.\nBecause of these limitations, Adjusted EBITDA and the related financial ratios should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information. See our audited financial statements contained in this Form 10-K. However, in spite of the above limitations, we believe that Adjusted EBITDA and the related financial ratios are useful to an investor in evaluating our results of operations because these measures:\n\u2022\nAre widely used by investors to measure a company\u2019s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;\n\u2022\nHelp investors to evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating performance; and\n\u2022\nAre used by our management team for various other purposes in presentations to our Board of Directors as a basis for strategic planning and forecasting.\nThe following financial items have been added back to or subtracted from our net income (loss) when calculating Adjusted EBITDA:\n\u2022\nIncome tax expense.\n This amount may be useful to investors because it represents the taxes that might be payable for the period and the change in deferred taxes during the period, and therefore could reduce cash flow available for use in our business.\n\u2022\nDepreciation expense. \nIteris excludes depreciation expense primarily because it is a non-cash expense. These amounts may be useful to investors because it generally represents the wear and tear on our property and equipment used in our operations.\n\u2022\nAmortization expense.\n Iteris incurs amortization of intangible assets in connection with acquisitions. Iteris also incurs amortization related to capitalized software development costs. Iteris excludes these items because it does not believe that these expenses are reflective of ongoing operating results in the period incurred. These amounts may be useful to investors because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights.\n\u2022\nInterest expense.\n Iteris excludes interest expense because it does not believe this item is reflective of ongoing business and operating results. This amount may be useful to investors for determining current cash flow. For Fiscal 2023, interest expense includes amortization of the remaining capitalized deferred financing costs due to the termination of the Credit Agreement (see Note 12, \nLong-Term Debt,\n to the Financial Statements for more information).\n\u2022\nStock-based compensation.\n These expenses consist primarily of expenses from employee and director equity based compensation plans. Iteris excludes stock-based compensation primarily because they are non-cash expenses and Iteris believes that it is useful to investors to understand the impact of stock-based compensation to its results of operations and current cash flow.\n\u2022\nRestructuring charges. \nThese expenses consist primarily of employee separation expenses, facility termination costs, and other expenses associated with Company restructuring activities. Iteris excludes these expenses as it does not believe that these expenses are reflective of ongoing operating results in the period incurred. These amounts may be useful to our investors in evaluating our core operating performance.\n28\nTable\n of Contents\n\u2022\nProject loss reserves.\n These expenses consist primarily of expenses incurred to complete a software development contract that will not be recoverable and largely related to previously incurred and capitalized costs for non-recurring engineering activity. Iteris excludes these expenses as it does not believe that these expenses are reflective of ongoing operating results in the period incurred. These amounts may be useful to our investors in evaluating our core operating performance.\n \n\u2022\nAcquisition earnout payments.\n These expenses are a result of the TrafficCast International, Inc. acquisition in December, 2020 and are the final earnout payments per the acquisition agreement. Iteris excluded these expenses as it does not believe that these expenses are reflective of ongoing operating results in the period incurred. These amounts may be useful to our investors in evaluating our core operating performance.\n\u2022\nExecutive severance and transition costs.\n Iteris excludes executive severance and transition costs because it does not believe that these expenses are reflective of ongoing operating results in the period incurred. These amounts may be useful to our investors in evaluating our core operating performance.\nReconciliations of net income (loss) from continuing operations to Adjusted EBITDA and the presentation of Adjusted EBITDA as a percentage of total revenues were as follows:\nYear Ended March 31,\n2023\n2022\n(In thousands)\nNet income (loss) from continuing operations\n$\n(14,855)\n$\n(6,900)\nIncome tax expense\n135\n174\nDepreciation expense\n615\n820\nAmortization expense\n3,179\n3,240\nInterest expense\n329\n\u2014\nStock-based compensation\n2,890\n3,401\nOther adjustments:\nRestructuring charges\n707\n\u2014\nProject loss reserves\n\u2014\n3,394\nAcquisition earnout payments\n376\n\u2014\nExecutive severance and transition costs\n\u2014\n340\nTotal adjustments\n8,231\n11,369\nAdjusted EBITDA\n$\n(6,624)\n$\n4,469\nPercentage of total revenues\n(4.2)\n%\n3.3\u00a0\n%\nCritical Accounting Policies and Estimates\n\"Management's Discussion and Analysis of Financial Condition and Results of Operations\" is based on our financial statements included herein, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period (see Note 1, \nDescription of Business and Summary of Significant Accounting Policies,\n to the Financial Statements for more information). In preparing our financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, we make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base our estimates, assumptions and judgments on historical experience and other factors that we believe are reasonable. We evaluate our estimates, assumptions and judgments on a regular basis and apply our accounting policies on a consistent basis. We believe that the estimates, assumptions and judgments involved in the accounting for revenue recognition, goodwill, and income taxes have the \n29\nTable\n of Contents\nmost potential impact on our financial statements. Historically, our estimates, assumptions and judgments relative to our critical accounting policies have not differed materially from actual results.\nThe following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.\nRevenue Recognition.    \nOur revenue arrangements are complex in nature and require significant judgement in determining the performance obligation structure. Each contract is unique in nature and therefore is assessed individually for appropriate accounting treatment. \nRevenues are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods or services. We generate all of our revenue from contracts with customers, ranging from multi-year agreements to purchase orders.\nProduct revenue related contracts with customers begin when we acknowledge a purchase order for a specific customer order of product to be delivered in the near term. These purchase orders are generally short-term in nature. Product revenue is recognized at a point in time upon shipment or upon customer receipt of the product, depending on shipping terms. The Company determined that this method best represents the transfer of goods as transfer of control typically occurs upon shipment or upon customer receipt of the product.\nService revenues sometimes consist of revenues derived from the use of the Company\u2019s service platforms and APIs on a subscription basis as well as from maintenance and support. We generate this revenue from fees monthly active user fees, SaaS fees, hosting and storage fees, and maintenance and support fees. In most cases, the subscription or transaction arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The Company applies a time-based measure of progress to the total transaction price, which results in ratable recognition over the term of the contract. The Company determined that this method best represents the transfer of services in these situations as the customer obtains equal benefit from the service throughout the service period.\nService revenues are also derived from engineering and consulting service contracts with governmental agencies. These contracts generally include performance obligations in which control is transferred over time. For fixed fee contracts, we recognize revenue over time using the proportion of actual costs incurred to the total costs expected to complete the contract performance obligation. The Company determined that this method best represents the transfer of services as the proportional cost incurred closely depicts the efforts or inputs completed towards the satisfaction of a fixed fee contract performance obligation. Other contracts can be based on a Time & Materials (\u201cT&M\u201d) and Cost Plus Fixed Fee (\u201cCPFF\u201d) structure, where such contracts are considered to involve variable consideration. However, contractual performance obligations with these fee types qualify for the \u201cRight to Invoice\u201d practical expedient. Under this practical expedient, the Company is allowed to recognize revenue, over time, in the amount to which the Company has a right to invoice. In addition, the Company is not required to estimate such variable consideration upon inception of the contract or reassess the estimate each reporting period. The Company determined that this method best represents the transfer of services as, upon billing, the Company has a right to consideration from a customer in an amount that directly corresponds with the value to the customer of the Company\u2019s performance completed to date.\nGoodwill. \n Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. We test goodwill for impairment in accordance with the provisions of ASC 350, Intangibles \u2013 Goodwill and Other, (\u201cASC 350\u201d). Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired. ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines that the fair value of a reporting unit is more likely than not, less than its carrying value, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform an impairment test. The impairment test involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than book value, then an impairment loss is recognized in an amount equal to the amount that the book value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.\nThe estimates of fair value of the reporting units are computed using either an income approach, a market approach, or a combination of both. Under the income approach, we utilize the discounted cash flow method to estimate the fair value of the reporting units. Significant assumptions inherent in estimating the fair values include the estimated future cash flows, growth \n30\nTable\n of Contents\nassumptions for future revenues (including future gross margin rates, expense rates, capital expenditures and other estimates), and a rate used to discount estimated future cash flow projections to their present value (or estimated fair value) based on estimated weighted average cost of capital (i.e., the selected discount rate). We select assumptions used in the financial forecasts by using historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management\u2019s plans. Under the market approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses (i.e., guideline companies). The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services.\nIncome Taxes\n. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the realizability of our deferred tax assets, we review all available positive and negative evidence, including reversal of deferred tax liabilities, potential carrybacks, projected future taxable income, tax planning strategies and recent financial performance. As the Company has sustained a cumulative pre-tax loss over the trailing three fiscal years, we considered it appropriate to maintain valuation allowances of $18.7\u00a0million and $14.9\u00a0million against our deferred tax assets at March\u00a031, 2023 and March\u00a031, 2022, respectively. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Due to the magnitude of the impact of supply chain issues occurring during Fiscal 2023 and the addition to cumulative pre-tax loss, we currently cannot estimate when sufficient positive evidence may become available to allow us to reach a conclusion that any portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to the level of profitability that we are able to actually achieve.\nRecent Accounting Pronouncements\nRefer to Note\u00a01, \nDescription of Business and Summary of Significant Accounting Policies,\n to the Financial Statements, included in Part\u00a0II, Item\u00a08 of this report for a discussion of recent accounting pronouncements.\nAnalysis of Fiscal 2023 and Fiscal 2022 Results of Operations\nTotal Revenues.    \nThe following table presents details of total revenues for Fiscal 2023 as compared to Fiscal 2022:\nYear Ended March 31,\n2023\n2022\n$ Increase\n% Change\n(In thousands, except percentage)\nProduct revenues\n$\n85,097\u00a0\n$\n68,729\u00a0\n$\n16,368\u00a0\n23.8\u00a0\n%\nService revenues\n70,955\u00a0\n64,843\u00a0\n6,112\u00a0\n9.4\u00a0\n%\nTotal revenues\n$\n156,052\u00a0\n$\n133,572\u00a0\n$\n22,480\u00a0\n16.8\u00a0\n%\nProduct revenues primarily consist of product sales, but also includes OEM products for the traffic signal markets, as well as third-party product sales for installation under certain construction-type contracts. Product revenues for Fiscal 2023 increased approximately 23.8% to $85.1\u00a0million, compared to $68.7\u00a0million in Fiscal 2022, primarily due to continued strong demand for our sensors. Our circuit board redesign efforts allowed us to ship more sensor units compared to the prior year period, despite supply chain shortages and constraints, particularly in the second half of Fiscal 2023.\nService revenues consist of software, managed services, systems integration, and consulting services revenues. In certain instances, the lack of third-party product availability can impact the timing of systems integration projects and associated revenue recognition.  Service revenues for Fiscal 2023 increased approximately 9.4% to $71.0\u00a0million, compared to $64.8\u00a0million in Fiscal 2022. This increase was primarily due to continued adoption of Iteris' ClearMobility Platform and increased software and managed services revenue. Total annual recurring revenue, which we define as revenues from software and managed services contracts, was approximately 25% of total revenue for Fiscal 2023 and approximately 25% of total revenue for Fiscal 2022.\nThe Company added approximately $170.3 million of new bookings, or potential revenue under binding agreements, during Fiscal 2023. The Company's total ending backlog increased approximately 14% to approximately $114.2 million as of March\u00a031, 2023, as compared to approximately $99.9 million as of March\u00a031, 2022. \nBacklog is an operational measure representing future unearned revenue amounts believed to be firm that are to be earned under our existing agreements, but it does not represent the total contract award if a firm purchase order or task order has not yet been issued under the contract, and are not included in deferred revenue on our balance sheets. Backlog includes new bookings but does not include announced orders for which definitive contracts have not been executed. We believe backlog is a useful metric for investors, given its relevance to total orders, but there can be no assurances we will recognize revenue from bookings or backlog timely or ever.\n31\nTable\n of Contents\nGross Profit.     \nThe following tables present details of our gross profit for Fiscal 2023 compared to Fiscal 2022:\nYear Ended March 31,\n2023\n2022\n$ Increase (decrease)\n% Change\n(In thousands, except percentage)\nProduct gross profit\n$\n22,084\u00a0\n$\n28,228\u00a0\n$\n(6,144)\n(21.8\u00a0\n%)\nService gross profit\n19,934\u00a0\n19,165\u00a0\n769\u00a0\n4.0\u00a0\n%\nTotal gross profit\n$\n42,018\u00a0\n$\n47,393\u00a0\n$\n(5,375)\n(11.3\u00a0\n%)\nProduct gross margin as a % of product revenues\n26.0\u00a0\n%\n41.1\u00a0\n%\nService gross margin as a % of service revenues\n28.1\u00a0\n%\n29.6\u00a0\n%\nTotal gross margin as a % of total revenues\n26.9\u00a0\n%\n35.5\u00a0\n%\nOur product gross margin as a percentage of product revenues for Fiscal 2023 decreased approximately 1,510 basis points compared to Fiscal 2022. The decline was primarily due to global supply chain constraints that prevented the Company from sourcing certain electronics components (most notably semiconductors) through traditional channels at normal prices and resulted in approximately $16.0 million higher cost for Fiscal 2023 than otherwise would have occurred. To maintain customer loyalty, increase market penetration, and build buffer stock to reduce future shipping disruptions, the Company sourced various components from electronics brokers (or aftermarket brokers) at significantly elevated prices. The Company saw supply chain improvement in the second half of Fiscal 2023, aided by the release of new circuit board designs containing components more readily available from traditional supplier channels at more reasonable prices. \nOur service gross margin as a percentage of service revenues for Fiscal 2023 decreased 150 basis points compared to Fiscal 2022 primarily due to a higher proportion of cost of revenue related to subcontractors and higher costs for data we purchased in the current year.\nOur total gross margin as a percentage of total revenues for Fiscal 2023 decreased 860 basis points compared to Fiscal 2022 primarily as a result of the aforementioned reasons.\nWe plan to continue to focus on securing new contracts and to extend and/or continue our existing relationships with both key public-sector and private-sector customers. While we believe our ability to obtain additional large contracts will contribute to overall revenue growth, the mix of subcontractor revenue and third-party product sales to our public-sector customers will likely affect the related total gross profit from period to period, as total revenues derived from subcontractors and third-party product sales generally have lower gross margins than revenues generated by our own products and professional services.\nGeneral and Administrative Expense\nGeneral and administrative expense for Fiscal 2023 decreased approximately 12% to $22.1\u00a0million, compared to $25.1\u00a0million in Fiscal 2022 due to restructuring activities and the Company's continued cost control measures.\nSales and Marketing Expense\nSales and marketing expense for Fiscal 2023 increased approximately 20% to $22.8\u00a0million, compared to $18.9\u00a0million in Fiscal 2022 primarily due to the planned addition of sales and sales support representatives to drive revenue growth, resulting in higher compensation and benefit costs. \nResearch and Development Expense\nResearch and development expense for Fiscal 2023 increased approximately 13% to $8.3 million, compared to $7.4\u00a0million in Fiscal 2022. The overall increase was primarily due to the continued investment in research and development activities largely focused on improving our existing software related offerings and the re-design of certain circuit boards as part of the Company's supply chain management program. \nWe plan to continue to invest in the development of further enhancements and new functionality of our Iteris ClearMobility Platform which includes among other things our software portfolio and our Vantage sensors.\nCertain development costs were capitalized into intangible assets in the Company's balance sheets in both the current and prior year periods; however, certain development costs did not meet the criteria for capitalization under GAAP and are included in research and development expense. Going forward, we expect to continue to invest in our software solutions. This continued \n32\nTable\n of Contents\ninvestment may result in increases in research and development costs, as well as additional capitalized software assets in future periods.\nImpairment of Goodwill\nBased on our goodwill impairment testing for Fiscal 2023, we believe the carrying value of our goodwill was not impaired, as the estimated fair values of our reporting units exceeded their carrying values. If factors such as our actual financial results, or the plans and estimates used in future goodwill impairment analyses, are lower than our current estimates used to assess impairment of our goodwill, we could incur goodwill impairment charges in the future.\nAmortization of Intangible Assets\nAmortization expense for intangible assets subject to amortization was approximately $3.2\u00a0million for both Fiscal 2023 and Fiscal 2022. Approximately $0.5 million and $0.6 million of the intangible asset amortization was recorded to cost of revenues, and approximately $2.6 million and $2.7 million was recorded to amortization expense for Fiscal 2023 and Fiscal 2022, respectively, in the statements of operations. \nInterest Income (Expense), Net\nNet interest expense was approximately $0.3 million and $0.0 million in Fiscal 2023 and Fiscal 2022, respectively. The increase in net interest expense in the current year was primarily due to amortization of capitalized deferred financing costs and commitment fees upon termination of our Credit Agreement with Capital One (see Note 12, \nLong-Term Debt,\n to the Financial Statements for more information).\nIncome Taxes\nThe following table presents our provision for income taxes for Fiscal 2023 and Fiscal 2022:\nYear Ended\nMarch 31,\n2023\n2022\n(In thousands,\nexcept percentage)\nProvision for income taxes\n$\n135\u00a0\n$\n174\u00a0\nEffective tax rate\n(0.9)\n%\n(2.5)\n%\nFor Fiscal 2023 and Fiscal 2022, the difference between the statutory and the effective tax rate was primarily attributable to the valuation allowance recorded against our deferred tax assets.\nIn assessing the realizability of our deferred tax assets, we review all available positive and negative evidence, including reversal of deferred tax liabilities, potential carrybacks, projected future taxable income, tax planning strategies and recent financial performance. As the Company has sustained a cumulative pre-tax loss over the trailing three fiscal years, we considered it appropriate to maintain valuation allowances of $18.7\u00a0million and $14.9\u00a0million against our deferred tax assets at March\u00a031, 2023 and 2022, respectively. We will continue to reassess the appropriateness of maintaining a valuation allowance.\nAs we update our estimates in future periods, adjustments to our deferred tax asset and valuation allowance may be necessary. We anticipate this will cause our future overall effective tax rate in any given period to fluctuate from prior effective tax rates and statutory tax rates. We utilize the liability method of accounting for income taxes. We record net deferred tax assets to the extent that we believe these assets will more likely than not be realized.\nAt March\u00a031, 2023, we had $23.5\u00a0million of federal net operating loss carryforwards that do not expire as a result of recent tax law changes. We also had $16.4\u00a0million of state net operating loss carryforwards that begin to expire in 2031. Although the impact cannot be precisely determined at this time, we believe that our net operating loss carryforwards will provide reductions in our future income tax payments, that would otherwise be higher using statutory tax rates.\nLiquidity and Capital Resources\nCash Flows\nWe have historically financed our operations with a combination of cash flows from operations and the sale of equity securities. We expect to continue to rely on cash flows from operations and our cash reserves to fund our operations, which we \n33\nTable\n of Contents\nbelieve to be sufficient to fund our operations for at least the next twelve months. However, we may need or choose to raise additional capital to fund potential future acquisitions and our future growth. We may raise such funds by selling equity or debt securities to the public or to selected investors or by borrowing money from financial institutions. If we raise additional funds by issuing equity or convertible debt securities, our existing stockholders may experience significant dilution, and any equity securities that may be issued may have rights senior to our existing stockholders. There is no assurance that we will be able to secure additional funding on a timely basis, on terms acceptable to us, or at all.\nAt March\u00a031, 2023, we had $24.8\u00a0million in working capital, excluding current liabilities of discontinued operations, which included $16.7\u00a0million in cash and cash equivalents. This compares to working capital of $35.2\u00a0million at March\u00a031, 2022, which included $23.8\u00a0million in cash and cash equivalents.\nThe following table summarizes our cash flows from continuing operations for Fiscal 2023 and Fiscal 2022:\nYear Ended\nMarch\u00a031,\n2023\n2022\n(In thousands)\nNet cash provided by (used in):\nOperating activities\n$\n(4,507)\n$\n(5,593)\nInvesting activities\n(1,874)\n999\u00a0\nFinancing activities\n(372)\n1,563\u00a0\nOperating Activities.    \nNet cash used by operating activities of our continuing operations for Fiscal 2023 was $4.5 million and primarily reflects our net loss from continuing operations of approximately $14.9 million, which included $8.9 million of non-cash items including lease expense, depreciation expenses, stock-based compensation, and amortization of intangible assets. Changes in the balances of operating assets and liabilities provided inflows of approximately $1.5 million in total, as the benefit of strong overall working capital management in relation to revenue growth was offset by higher cost of inventory due to supply chain disruption. Net cash used in operating activities due to discontinued operations was $0.3 million.\nNet cash used by operating activities of our continuing operations for Fiscal 2022 of $5.6 million was primarily the result of our net loss from continuing operations of approximately $6.9 million, which included $13.1 million of non-cash items including lease expense, depreciation expenses, stock-based compensation, and amortization of intangible assets, coupled with approximately $11.8 million of outflows from changes in working capital. Net cash used in operating activities due to discontinued operations was $0.1 million.\nInvesting Activities.  \n  Net cash used by investing activities of our continuing operations during Fiscal 2023 was primarily the result of approximately $0.5 million of property and equipment purchases, and approximately $1.3 million of capitalized software development costs, primarily in VantageLive! and ClearGuide, respectively. Net cash provided by investing activities from discontinued operations was $0.0 million.\nNet cash provided by investing activities of our continuing operations during Fiscal 2022 was primarily the result of approximately $3.1 million in proceeds from the sale and maturity of short-term investments which were partially offset by approximately $0.5 million of property and equipment purchases, and approximately $1.6 million of capitalized software development costs, primarily in VantageLive! and ClearGuide, respectively. Net cash provided by investing activities from discontinued operations was $1.5 million.\nFinancing Activities.    \nNet cash used by financing activities of our continuing operations during Fiscal 2023 was primarily the result of approximately $0.1\u00a0million and $0.5 million of cash proceeds from the exercise of stock options and purchases of Employee Stock Purchase Plan (\"ESPP\") shares, respectively which were offset by repurchases of common stock of approximately $0.9 million.\nNet cash provided by financing activities of our continuing operations during Fiscal 2022 was primarily the result of approximately $1.3 million and $0.4 million of cash proceeds from the exercise of stock options and purchases of ESPP shares, respectively.\nOff-Balance Sheet Arrangements\nWe do not have any other material off-balance sheet arrangements at March\u00a031, 2023.\nSeasonality\n34\nTable\n of Contents\nWe have historically experienced seasonality, particularly with respect to our products, which adversely affects such sales in our third and fourth fiscal quarters due to a reduction in intersection construction and repairs during the winter months due to inclement weather conditions, with the third fiscal quarter generally impacted the most by inclement weather. We have also experienced seasonality, which adversely impacts our third fiscal quarter due to the increased number of holidays, causing a reduction in available billable hours.",
+  "item7a": ">ITEM 7A.\u00a0\u00a0\u00a0\u00a0QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nThe Company is a smaller reporting company as defined in Rule\u00a012b-2 of the Exchange Act and is not required to provide the information required by this Item.\n35\nTable\n of Contents",
+  "cik": "350868",
+  "cusip6": "46564T",
+  "cusip": ["46564T107"],
+  "names": ["ITERIS INC NEW"],
+  "source": "https://www.sec.gov/Archives/edgar/data/350868/000162828023023849/0001628280-23-023849-index.htm"
+}
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+  "item1": ">Item 1. BUSINESS\nSpecial Cautionary Notice Regarding Forward-Looking Statements\nWe believe that it is important to communicate our future expectations to our shareholders and to the public. This report contains forward-looking statements, including, in particular, statements about our goals, plans, objectives, beliefs, expectations and prospects under the headings \u201cItem 1. Business\u201d and \u201cItem 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\u201d You can identify these statements by forward-looking words such as \u201canticipate,\u201d \u201cintend,\u201d \u201cplan,\u201d \u201ccontinue,\u201d \u201ccould,\u201d \u201cgrow,\u201d \u201cmay,\u201d \u201cpotential,\u201d \u201cpredict,\u201d \u201cstrive,\u201d \u201cwill,\u201d \u201cseek,\u201d \u201cestimate,\u201d \u201cbelieve,\u201d \u201cexpect,\u201d and similar expressions that convey uncertainty about future events or outcomes. Any forward-looking statements herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning future:\n\u2022\nresults of operations;\n\u2022\nliquidity, cash flow and capital expenditures;\n\u2022\ndemand for and pricing of our products and services;\n\u2022\nviability and effectiveness of strategic alliances;\n\u2022\nindustry and market conditions;\n\u2022\nacquisition activities and the effect of completed acquisitions; and\n\u2022\ngeneral economic conditions.\nAlthough we believe that the goals, plans, expectations and prospects reflected by our forward-looking statements are reasonable based on the information currently available to us, those statements are not guarantees of performance. There are a number of factors that could cause actual results or performance to differ materially from what is anticipated by statements made herein. These factors include, but are not limited to, continuing U.S. and global economic uncertainty and the timing and degree of business recovery; the irregular pattern of our revenue; dependence on particular market segments or clients; competitive pressures; market acceptance of our products and services; technological complexity; undetected software errors; potential product liability or warranty claims; risks associated with new product development; the challenges and risks associated with integration of acquired product lines, companies and services; uncertainty about the viability and effectiveness of strategic alliances; as well as a number of other risk factors that could affect our future performance. Factors that could cause or contribute to such differences include, but are not limited to, those we discuss under the section captioned \u201cRisk Factors\u201d in Item 1A. of this Form 10-K as well as the cautionary statements and other factors that we discuss in other sections of this Form 10-K.\nCompany Overview\nAmerican Software, Inc. (\u201cAmerican Software\u201d or the \u201cCompany\u201d) was incorporated in Georgia in 1970. The Company is headquartered in Atlanta, Georgia with U.S. offices in Chicago, Miami and international offices in the United Kingdom, India, Germany and New Zealand.\nWe provide our software and services through three major operating segments; (1) Supply Chain Management (\u201cSCM\u201d), (2) Information Technology Consulting (\u201cIT Consulting\u201d) and (3) Other. The SCM software business is our core market. We also offer technology staffing and consulting services through our wholly-owned subsidiary, The Proven Method, Inc., in the IT Consulting segment and we continue to provide limited services to our legacy enterprise resource planning (\u201cERP\u201d) clients included in the Other segment.\n2\nTable of Contents\n \nAmerican Software delivers an innovative technical platform that enables enterprises to accelerate their digital supply chain optimization from product concept to client availability via the Logility Digital Supply Chain Platform, a single platform spanning Product, Demand, Inventory, Network Optimization, Supply and Deploy aligned with Integrated Business Planning and Supply Chain Data Management. Our Logility Digital Supply Chain Platform leverages an innovative blend of artificial intelligence (AI) and advanced analytics fueled by supply chain master data, allowing for the automation of critical business processes through the application of artificial intelligence and machine learning algorithms to a variety of internal and external data streams.\nWe believe enterprises are facing unprecedented rates of change and disruption across their operations. Increasing consumer expectations for convenience and personalization, fast and free delivery and product freshness are forcing enterprises to adapt or be left behind. Given constraints arising from a shortage of skilled supply chain talent and a desire to keep costs at a minimum, we expect enterprises to embrace digital transformation initiatives to meet these challenges. Our software reduces the business cycle time required from product concept to client availability. Our platform allows our clients to create a digital model of their physical supply chain networks that improves the speed and agility of their operations by implementing automated planning processes. These processes regularly analyze business and market signals to better inform product design and development, increase forecast accuracy, optimize inventory across the supply chain source products sustainability, ethically and ensure high client satisfaction.\nOur platform is highly regarded by clients and industry analysts alike. We are named a leader in multiple IDC MarketScape reports including; the September 2022 report \nIDC MarketScape: Worldwide Holistic Supply Chain Planning 2022 Vendor Assessment\n; the September 2022 report \nIDC MarketScape: Worldwide Supply Chain Supply Planning 2022 Vendor Assessment\n; the September 2022 report \nIDC MarketScape\n: \nWorldwide Supply Chain Sales and Operations Planning 2022 Vendor Assessment\n; and\n \nthe September 2022 report \nIDC MarketScape\n: \nWorldwide Supply Chain Inventory Optimization 2022 Vendor Assessment\n.  We were also named as a Major Player in the September 2022\n IDC MarketScape\n: \nWorldwide Holistic Supply Planning 2022 Vendor Assessment.\nWe have been positioned in the Challenger quadrant in Gartner, Inc.\u2019s (\u201cGartner\u201d) May 2, 2023 report, \nMagic Quadrant for Supply Chain Planning Solutions \nand we are positioned in the Leadership quadrant in the Peer Insights for the Gartner Voice of the Customer.  We believe our platform is rated highly due to our flexible advanced analytics, underlying Software as a Service (\u201cSaaS\u201d) architecture, ease of integration with third-party systems, lower total cost of ownership relative to competitors and the broad scope of supply chain planning functions supported.\nWe serve approximately 805 clients located in approximately 80 countries, largely concentrated within key vertical markets including apparel and other soft goods, food and beverage, consumer packaged goods, consumer durable goods, wholesale distribution, specialty chemical and other process manufacturing. Our software and services are marketed and sold through a direct sales team as well as an indirect global value-added reseller (\u201cVAR\u201d) distribution network. Our software may be deployed in the cloud or with existing on-premise clients who may require additional components. We further support our clients with an array of consulting, implementation, operational and training services as well as technical support and hosting.\nWe derive revenue from four sources: subscriptions, software licenses, maintenance and services. We generally determine SaaS subscription and software license fees based on the breadth of functionality and number of users and/or divisions. Services and other revenues consist primarily of fees from software implementation, training, consulting services, hosting and managed services. We bill for consulting services primarily under time and materials arrangements and recognize revenue as we perform services. Subscription and maintenance agreements typically are for a three- to five-year term. We generally bill these fees annually in advance and then recognize the resulting revenue ratably over the term of the agreement. Deferred revenues \n3\nTable of Contents\n \nrepresent advance payments or fees for subscriptions, software licenses, services and maintenance billed in advance of the time we recognize the related revenue.\nMarket Opportunity\nToday\u2019s manufacturers, distributors and retailers must respond to rising consumer expectations to buy anywhere, deliver anywhere and return anywhere, even as global economic conditions and competitive pressures force businesses to reduce costs, decrease order cycle times and improve operating efficiencies. To meet these demands, we believe businesses must dramatically improve the performance of their supply chains, which can only be achieved through automation, artificial intelligence and advanced analytics. We leverage artificial intelligence and machine learning algorithms throughout our supply chain management software platform, enabling enterprises to accelerate the cycle time from product concept to client availability.\nSupply chain management refers to the process of managing the complex global network of relationships that organizations maintain with external trading partners (clients and suppliers) to design products, forecast demand, source supply, manufacture products, distribute and allocate inventory and deliver goods and services to the end client. Supply chain management involves the activities related to sourcing and supplying and merchandising products or services as well as the sales and marketing activities that influence the demand for goods and services, such as new product introductions, promotions, pricing and forecasting. Additional aspects of supply chain management include comprehensive sales and operations planning (\u201cS&OP\u201d) as well as product lifecycle management (\u201cPLM\u201d), product sourcing quality and vendor compliance, to ensure the right products are brought to market on time and in good condition. Companies that effectively communicate, collaborate and integrate with their trading partners across the multi-enterprise network or supply chain can realize significant competitive advantages in the form of lower costs, greater customer loyalty, reduced stock-outs, more efficient sourcing, reduced inventory levels, synchronized supply and demand and increased revenue.\nGartner\u2019s March 2023 report, \nForecast: Enterprise Application Software, Worldwide, 2021-2027, 1Q23 Update\n, predicts spending on Supply Chain Management software and services will exceed $21 billion in 2023 and reach $38 billion by 2027. This represents a compounded annual growth rate (\u201cCAGR\u201d) of 15% through 2027.  Within the Supply Chain Management software market, Gartner includes solutions for supply chain planning, supply chain execution and procurement. \nWe focus primarily on supply chain planning processes and certain procurement and sourcing functions, which we estimate account for approximately one-third of the Supply Chain Management software market as defined by Gartner. Our platform includes more than thirty components spanning eight key supply chain planning processes that clients may adopt independently or as a comprehensive solution platform. We believe our opportunity to cross-sell and up-sell existing clients is significant, given the potential for clients to adopt additional components over time. Within the sourcing function, organizations are increasing their focus on vendor compliance and sourcing linked with supply chain planning and other enterprise applications, in order to increase the efficient and effective fulfillment of customer orders in both the business-to-business and the business-to-consumer sectors. These multi-enterprise supply chains have heightened the need for robust supply chain master data management (\u201cMDM\u201d) to provide an accurate digital twin of the supply chain network, allowing enterprises to quickly plan strategically and accurately respond to dynamic market conditions to take advantage of business opportunities and mitigate risk.\nCompany Strategy\nOur goal is to deliver the fastest time to value for our clients to contribute to an agile, resilient and higher velocity sustainable supply chain. Our strategy includes the following key elements:\n4\nTable of Contents\n \nCreate Sustainable Supply Chains for Our Clients\n. By enabling our clients to shorten their supply chains, reduce energy consumption, reduce water usage, increase the use of recyclable material, enforce proper labor practices and track products through their entire lifecycle, we help them to achieve more sustainable operations and improve conditions in the world in which we live\n.\nExpand Strategic Relationships.\n We are increasingly working with industry-leading consultants and other software and services providers. Our strategic partnerships help us to grow more quickly and to more efficiently deliver our products and services. We intend to continue to develop strategic relationships with systems integrators and other providers to combine our software with their services and products and create joint marketing and co-development opportunities.\nAcquire or Invest in Complementary Businesses, Products and Technologies.\n We believe that selective acquisitions or investments may offer opportunities to broaden our product offering for our target markets. We will evaluate acquisitions or investments that will provide us with complementary products and technologies, expand our geographic presence and distribution channels, penetrate additional vertical markets with challenges and requirements similar to those we currently meet and further solidify our leadership position within the SCM market.\nProducts and Services\nWe provide a comprehensive, cloud-architected supply chain management platform that helps our clients manage eight critical planning processes, Product, Demand, Inventory, Supply, Network Optimization, Deploy, Integrated Business Planning and Supply Chain Data Management. Within each of these process areas, we offer one or more components that clients may leverage independently, in combination, or as a comprehensive solution platform, either in the cloud or on-premise. Our supply chain MDM platform and advanced analytics capabilities enable clients to derive new insights and automate planning processes that regularly analyze demand, production, supply and distribution signals to better inform product design and development, increase forecast accuracy, optimize inventory across the global supply chain and in-store and ensure high client satisfaction.\nWhile clients can use our software applications individually, we have designed them to be combined as integrated systems to meet specific client requirements. Clients may select virtually any combination of components to form an integrated solution for a particular business problem, from a single module to a multi-module, multiple-user solution incorporating our full range of products.\nOur platform, which may be deployed as a hosted SaaS solution or on-premise, encompasses the following processes and associated components:\nProduct\n: Streamlines moving product concepts to market, rationalizes complex product lines and drives smart assortment plans and allocation strategies. Includes merchandise and assortment planning, product lifecycle management and traceability.\nDemand\n: Improves prediction of true market demand, new product introductions and phase-outs, short life cycle products and promotions. Includes demand planning and optimization, demand sensing, pricing and promotion analysis, causal forecasting, life cycle planning and proportional profile planning.\nInventory\n: Minimizes cost and reduces risk while meeting customer service requirements with multi-echelon inventory optimization (MEIO). Includes inventory planning and optimization.\nSupply\n: Maximizes cost-effective throughput and satisfies market demand every day. Includes supply planning and optimization, manufacturing planning and optimization, vendor management, quality control and compliance and sourcing management.\nNetwork Optimization: \nBetter assess complex trade-offs while optimizing capacity and network flows for conflicting priorities.\n5\nTable of Contents\n \nDeploy\n: Positions supply to quickly meet demand requirements with smart allocation. Includes allocation and automated order promising. \nIntegrated Business Planning\n: Guides business resources to meet revenue, profitability and customer service goals. Includes annual planning, long-term planning and S&OP.\nSupply Chain Data Management\n: Gains access to tailored data integration, machine learning and advanced analytics without the headaches of custom development. Includes data management, machine learning and artificial intelligence and advanced analytics. \n \nAdditional Products and Services\nThrough our wholly-owned subsidiary, The Proven Method, Inc., we provide technology staffing and services to a diverse client base to solve business issues. These services include professional services, product management and project management outsourcing; staff augmentation for cloud, collaboration, network and security; social media and analytic marketing.\nWe also continue to provide software, support and services related to our legacy American Software ERP products, which include our \ne-Intelliprise solution \nand \ne-applications\n for various integrated business functions.\nClient Support and Maintenance\nWe provide our clients with ongoing product support services, which are included in subscription fees. For licenses, we enter into support or maintenance contracts with clients for an initial one- to three-year term, billed annually in advance, with renewal for additional periods thereafter. Under both subscription and license contracts, we provide telephone consulting, product updates and releases of new versions of products previously purchased by the client, as well as error reporting and correction services. We provide ongoing support and maintenance services on a seven-days-a-week, 24-hours-a-day basis through telephone, email and web-based support, using a call logging and tracking system for quality assurance.\nConsulting Services\nClients frequently require services beyond our standard support and maintenance. To meet those clients\u2019 needs, our professional services team provides specialized business and software implementation consulting, development and configuration, system-to-system interfacing and extensive training and certification. We offer these services for an additional fee, usually based upon time and materials utilized. We provide the following professional services to our clients:\nCloud Hosting and Managed Services.\n Our clients can deploy our software in a hosted or on-premise environment. Companies may choose and then adjust the deployment methodology and services that best suit their individual needs as their business changes and their IT strategies evolve. Managed Services leverage our resources to assist and augment the client\u2019s technical and operational needs on a day-to-day basis. We also have some clients for which we operate the software on a daily basis in support of their supply chain operations.\nImplementation and Training Services. \nWe offer our clients a professional and proven program that facilitates rapid implementation of our software products. Our consultants help clients define the nature of their project and proceed through the implementation process. We establish measurable financial and logistical performance indicators and then evaluate them for conformance during and after implementation. We offer training for all users and managers. Implementation of our products typically requires three to nine months, depending on factors such as the complexity of a client\u2019s existing systems, breadth of functionality and number of business units and users. \nWe also offer our clients post-delivery professional services consisting primarily of implementation and training services, for which we typically charge on a daily basis. Clients that invest in implementation services receive assistance in integrating \n6\nTable of Contents\n \nour software with existing enterprise software applications and databases. Additional services may include post-implementation reviews and benchmarks to further enhance the benefits to clients and training and user certification programs can help our clients gain even greater benefits from our robust planning platform.\n7\nTable of Contents\n \nClients\nWe deliver our software and services to clients in a variety of industries, including apparel and other soft goods, food and beverage, fast moving consumer goods, consumer durable goods and process and chemical manufacturing. A sample of companies  that we have served in the past two years is as follows:\nConsumer Goods\nFood & Beverage\nICL, Inc.\nJockey International\nBondi Sands Australia Pty Ltd\nBlack Rifle Coffee Company\nInterlock USA, Inc.\nJump Design Group, Inc.\nDometic Group AB \nCaribou Coffee Company\nJohnson Controls\nKontoor Brands, Inc\nGOJO Industries, Inc.\nDole Fresh Vegetables, Inc.\nJohnson Controls Hitachi AC Europe SAS\nLacoste\nHasbro, Inc\nGreat Lakes Cheese Company, Inc.\nLe Creuset Group AG\nLacrosse Footwear\nHerbalife International of America, Inc.\nGroupo Herdez\nLibbey Glass LLC\nNeatfreak\nL'Oreal USA, Inc\nHostess Brands\nLINDSAY CORPORATION\nPatagonia\nMGA Entertainment\nJ. R. Simplot Company\nMoen\nPVH Corp.\nOmega Pharma International NV \nJ.D. Irving, Limited\nMustad Netherlands B.V.\nRed Wing Shoe Company\nReynolds Consumer Products LLC\nJackson Family Wines\nOne World Technologies, Inc.\nRenfro\nRodan & Fields, LLC\nMazoon Dairy Company SAOC\nOtter Products, LLC\nRocky Brands, Inc.\nSunovion Pharmaceuticals, Inc.\nNiagara Bottling\nParker Hannifin Corporation\nSPANX\nVitalus Nutrition, Inc.\nReady Pac Foods, Inc.\nPattonair Ltd.\nStichd B.V.\nProcess & Chemical\nSauer Brands, Inc\nSandvik\nTown & Country Living\nAnsell Limited\nSazerac Company \nSavant Technologies LLC (GE Lighting)\nUrban Outfitters\nAvery Dennison Corporation\nSunny Delight Beverages Company\nThe Starco Group\nWorkwear Outfitters, LLC\nBERICAP Holding GMBH \nTaylor Fresh Foods\nThermo Fisher Scientific\nWholesale Distribution / Retail\nBerlin Packaging LLC\nThe J.M. Smucker Company\nThermos LLC\nArgosy Trading Company, Ltd\nBerry Global \nThe Spice Tailor Limited\nTimken\nBig Lots!\nBruni Glass S.p.A\nTillamook County Creamery Association\nWEG Equipamentos El\u00e9tricos S.A.\nBobs Discount Furniture\nCroda Europe Limited\nDurable Goods\nApparel\nChemPoint\nDetmold Packaging Pty Ltd.\nA.O. Smith\nAeropostale\nDealer Tire\nenVista, LLC\nApex Tools Group, LLC\nAriela & Associates International\nFastenal Company\nHollyFrontier Corporation\nAshley Furniture\nBernard Cap Co., Inc.\nHancocks Wine, Spirits and Beer\nHuhtamaki\nBio-Medical Devices International\nBroder Brothers\nHeidelberg Materials US, Inc.\nInsmed Incorporated\nCertainTeed\nC&A Mexico\nMayoreo Ferreteria y Acabados S.A\nIntertape Polymer Group\nClarios\nCanada Goose\nMom Enterprises, LLC\nKelly Moore Paint Company, Inc\nColumbus McKinnon Corporation\nConverse, Inc\nScrewfix\nORBIS Corporation\nCooper Lighting, LLC\nDelta Apparel\nThe Gem Group, Inc.\nPetrobras Distribuidora S.A.\nCQMS Razer Pty. Ltd.\nDestination XL\nThe Home Depot\nPlastic Packaging Technologies, LLC\nElectrical Home-Aids Pty Limited (Godfrey's)\nFinish Line\nTrelleborg Wheel Systems \nSonoco Products \nGlen Raven, Inc.\nFoot Locker, Inc.\nUS Autoforce\nUniversal Fiber Systems\nGlobal Resources International, Inc\nHunkemoller International BV\nWoolworths Group Ltd\nYazaki\nHusqvarna AB\nHunter Boot Ltd\n8\nTable of Contents\n \nNo client accounted for more than 10% of fiscal 2023 revenue. We typically experience a slight degree of seasonality, reflected in a slowing of services revenue during the winter holiday season, which occurs in the third quarter of our fiscal year. We are not reliant on government-sector clients.\nCompetition\nOur competitors are diverse and offer a variety of software and services targeted at various aspects of the supply chain, retail and general enterprise application markets. Our existing competitors include, but are not limited to:\n\u2022\nLarge ERP application software vendors such as SAP, Oracle and Infor, each of which offers sophisticated ERP software that currently, or may in the future, incorporate supply chain management, advanced planning and scheduling, warehouse management, transportation, collaboration or S&OP software components; \n\u2022\nVendors focusing on the supply chain application software market, including, but not limited to, Blue Yonder, o9 Solutions, Kinaxis and OM Partners; \n\u2022\nOther business application software vendors that may broaden their product offerings by internally developing, acquiring or partnering with independent developers of supply chain management software and \n\u2022\nInternal development efforts by corporate information technology departments. \nWe also expect to face additional competition as other established and emerging companies enter the market for advanced retail planning and supply chain management software and/or introduce new products and technologies. In addition, current and potential competitors have made and may continue to make strategic acquisitions or establish cooperative relationships among themselves or with third parties.\nThe principal competitive factors in the target markets in which we compete include product functionality and quality, domain expertise, integration technologies, product suite integration, breadth of products and related services such as client support, training and implementation. Other factors important to clients and prospects include:\n\u2022\ncustomer service and satisfaction; \n\u2022\nability to provide relevant client references; \n\u2022\ncompliance with industry-specific requirements and standards; \n\u2022\nflexibility to adapt to changing business requirements; \n\u2022\nability to generate business benefits; \n\u2022\nrapid payback and measurable return on investment; \n\u2022\nvendor financial stability and company and product reputation; and \n\u2022\ninitial price, cost to implement and long term total cost of ownership. \nWe believe that our principal competitive advantages are our comprehensive, end-to-end software platform, the ability of our software to quickly generate business benefits for our clients, our substantial investment in product development, our deep domain expertise, the ease of use of our software products, our client support and professional consulting services, our ability to deploy quickly and our ability to deliver rapid return on investment for our clients.\nSales and Marketing\nWe sell our products globally through direct and indirect sales channels. We conduct our principal sales and marketing activities from our corporate headquarters in Atlanta, Georgia and have North American sales and/or support offices in  Chicago and Miami. We manage sales and/or support outside of North America from our international offices in the United Kingdom, India, Germany and New Zealand.\n9\nTable of Contents\n \nIn addition to our direct sales force, we have developed a network of VARs who assist in selling our products globally. We will continue to utilize these and future relationships with software and service organizations to enhance our sales and marketing position. Currently located in North America, South America, Mexico, Europe, South Africa and the Asia/Pacific region, these independent distributors and resellers distribute our product lines domestically and in foreign countries. These vendors typically sell their own consulting and systems integration services in conjunction with contracts for our products. Our global distribution channel consists of 20 organizations with sales, implementation and support resources serving clients in approximately 80 countries.\nMarketing and communications contribute significantly to our growth and the demand for our products and services in the market. We made significant changes in the last year to modernize the marketing department and increase focus on digital promotion. We raise market awareness of our brands and engage with the prospective market through concentrated marketing and communications programs. We do this through a variety of marketing efforts, including public and media relations, direct marketing, advertising, events and industry influencers. We also collaborate and participate in a variety of global industry associations, such as those organized by the Association for Supply Chain Management, the Council of Supply Chain Management Professionals and the Institute of Business Forecasting.\nResearch and Development\nOur success depends in part upon our ability to continue to recognize and meet client needs, anticipate opportunities created by changing technology, adapt our products to the changing expectations of our client community and keep pace with emerging industry standards. As a part of our ongoing commitment to these goals, we continue to focus on the people, processes and technology that help to achieve them. We are committed to partnering with our clients in co-development efforts to ensure our products map well to market needs from day one. We are continually shortening release cycles to more rapidly respond to market opportunities. We leverage design thinking approaches to ensure that we understand not only the expressed needs of our clients, but also the lived realities of the people that use them to accomplish their supply chain goals each and every day.\nWe continue to leverage the opportunities presented by artificial intelligence, machine learning, advance analytics platforms, in-memory computing and alternative data management approaches as well as advancing research efforts in the application of blockchain and other technologies with promise in supply chain use cases. Our research and development efforts will continue to focus on deploying software within a complex global supply chain landscape. Our cloud-architected software designed for SaaS deployment with master data management built in will be increasingly important for our long-term growth. As of April 30, 2023, we employed 95 persons in product research, development and enhancement activities. We also engage contractors for research and development, bringing our total human capital resources dedicated to research and development to 151 persons.\nProprietary Rights\nOur success and ability to compete are dependent in part upon our proprietary technology. To protect this proprietary technology, we rely on a combination of copyright and trade secret laws, confidentiality obligations and other contractual provisions. However, we also believe that factors such as the knowledge, ability and experience of our personnel, new product developments, frequent product enhancements, reliable maintenance and timeliness and quality of support services are essential to establishing and maintaining a technology leadership position. The source code for our proprietary software is protected as a trade secret and as a copyrighted work. Generally, copyrights expire 95 years after the year of first publication. In addition, we \n10\nTable of Contents\n \nhave registered a number of trademarks in the U.S. and internationally and have applications pending for others. We enter into confidentiality or similar agreements with our employees, consultants and clients, control access to and distribution of our software, documentation and other proprietary information and deliver only object code (compiled source code) to our licensed clients. As is customary in the software industry, in order to protect our intellectual property rights, we do not sell or transfer title to our products to our clients.\nHuman Capital Resources\nAs of April 30, 2023, we had 394 full-time employees, including 95 in product research, development and enhancement, 42 in client support, 139 in professional services, 77 in marketing, sales and sales support and 41 in accounting, facilities and administration. Of these, 344 are based in the United States and 50 are based in our international locations.  Our operations are further supported by over 80 independent full-time contractors who fulfill critical needs around the globe. We have never had a work stoppage and no employees or contractors are represented under collective bargaining arrangements.\nCore Values\n. Our corporate culture is based on our core values: Passion, Accountability, Curiosity and Teamwork. Employee performance and Company fit are assessed in part based on these core values. We reinforce them in employee communications and celebrate extraordinary examples of these values with quarterly \u201cLiving the Core Values\u201d awards for employees nominated by colleagues and selected by the executive leadership team.\nDiversity. \nAmerican Software and its subsidiaries are enriched by the diverse, talented and highly skilled workforce that brings a variety of experiences and perspectives to address the needs of our team, clients and shareholders. We make better decisions and draw strength from this diversity and thus, are purposefully committed to providing an accessible workplace where members from every race, national origin, ethnicity, gender, sexual orientation, religion, age and personality profile feel included and valued. We will ensure that all qualified candidates receive full consideration and that for every open role we seek a diverse pool of candidates for consideration prior to selecting the most qualified individual to fill those open roles.\nTalent and Career Development\n. We support and encourage continuous learning, training and career development for all employees. In addition to our general new hire orientation, employees are trained on job-specific requirements, as well as topics such as cybersecurity, data privacy, anti-harassment and anti-bullying.\nEmployee career development is a key focus in the attraction, retention and management of our human capital resources. Our success planning process allows each employee to discuss career development goals with his or her manager and to provide feedback on broader company processes, to help both the employee and the Company become more successful. Success plans are tracked via the employee portal, which senior management monitors to ensure full participation. \nCommunity Engagement\n. We believe in the importance of giving back to the communities where we live and work. Our Community imPACT initiative has two major components. We organize Company-sponsored volunteer opportunities with selected organizations across our geographic locations that focus on combating food insecurity. We also encourage our employees to take action in their own communities by volunteering with charitable organizations of their choice and we support their efforts by providing up to 16 hours of paid time off each year for individual volunteering.\nCOVID-19 and Employee Safety\n. During and after the COVID-19 pandemic our primary focus has been the health and safety of our employees and their families. We have taken a flexible approach to help our employees manage their work and personal responsibilities. In addition, we have provided our employees with health and wellness resources, such as up-to-date COVID information and counseling resources.  As a result, we have been able to seamlessly transition to primarily a hybrid work environment without interruption.\nData Privacy\n11\nTable of Contents\n \nRegulatory and legislative activity in the areas of data protection and privacy continues to increase worldwide. We have established and continue to maintain policies to comply with applicable privacy and data protection laws. We also ensure that third parties processing data on our behalf are contractually obligated to follow or are otherwise compliant with such laws.\nWe are subject to certain privacy and data protection laws in other countries in which we operate, many of which are stricter than those in the United States. Some countries also have instituted laws requiring in-country data processing and/or storage of data. Most notably, in the European Union (\u201cEU\u201d) and United Kingdom (\u201cUK\u201d), the General Data Protection Regulation (\u201cGDPR\u201d) and comparable UK law create legal and compliance obligations for companies that process personal data of individuals in those regions, regardless of the geographical location of the company and impose significant fines for non-compliance. We process a limited amount of personal data (as defined under the GDPR) for our clients and act as a data controller with respect to the personal data of our employees and job applicants, some of whom are located outside the United States. Therefore, our privacy policies comply with the GDPR.\nIn the United States, the California Consumer Privacy Act (\u201cCCPA\u201d) requires us to offer certain specific data privacy rights to California residents. Other states have adopted or are considering similar requirements that may be more stringent and/or expansive than federal requirements. Our privacy policies are compliant with the CCPA and other existing state laws.\nData Security\nInformation Security Management.\n Our Software Security Program is managed by our Manager of Information Security, who reports to the VP of Information Systems. We conduct vendor and internal risk assessments at least annually. Our Security Incident Response Team, consisting of personnel from Legal, Human Resources, Marketing and IT across our business units, is responsible for implementing our Incident Response Policy and Procedure, which includes processes for detection, analysis, containment, eradication and recovery, as well as incident response preparation, such as a tabletop exercise.\nOur employees are regularly trained on appropriate security measures. We provide security awareness training for new hires and for all employees at least quarterly. We conduct user testing through \u201cphishing\u201d campaigns and require remedial training based on results. Our Manager of Information Security produces a monthly security awareness newsletter and periodic updates on recent malicious information security trends and scams.\nThe Service Organization Control (SOC) 2 Type II examination demonstrates that an independent accounting and auditing firm has reviewed and examined an organization\u2019s control objectives and activities and tested those controls to ensure that they are operating effectively. The Company obtains a SOC 2 Type II report annually based on an independent third-party audit. The third party examines the suitability of the design and operating effectiveness of the Company\u2019s controls to provide reasonable assurance that our service commitments and system requirements were achieved based on the applicable trust services criteria for security, availability, processing integrity and confidentiality.\nClient Data Security.\n We have web application firewalls and data encryption (both in transit and at rest) to ensure that our client data is adequately protected. Our software applications undergo manual code reviews, static code analysis to test for vulnerabilities and annual third-party penetration testing, with a formal change control process in place to correct any deficiencies. Our SaaS environments are safeguarded by vulnerability management software that detects operating systems and third-party application vulnerabilities; applies vulnerability patching on a monthly basis; and ensures emergency patching of critical vulnerabilities. Data security is monitored with fully-integrated Security Information and Event Management software and we provide 24/7 security monitoring and alerting for all SaaS client environments. Only approved users may access our SaaS environments and such access is further controlled through two-factor authentication and quarterly access reviews.\n12\nTable of Contents\n \nData in our cloud-based software is hosted in a Microsoft Azure environment. Microsoft provides numerous security measures, including geo-redundant storage (GRS) with cross-regional replication for storage of backup data and site recovery that replicates virtual machines in real-time to a different Azure region.\nBusiness Continuity and Disaster Recovery.\n \nWe have a documented Disaster Recovery Procedure and Business Continuity Plan. Key actions and responsibilities are handled by a designated Disaster Recovery Team and Emergency Management Team, respectively. The policies and procedures are reviewed, updated and approved by executive management annually and a Business Impact Analysis is performed as part of our Business Continuity Plan.\nSustainability in Data Operations\nHosting\n. Sustainability is a critical factor when we evaluate potential hosting partners. We continue to expand our relationship with Microsoft, including increases in our Azure footprint for hosting client SaaS environments as well as many internal operations. Microsoft has been carbon neutral since 2012 and is committed to being carbon negative by 2030, with the commitment by 2050 to remove all the carbon it has directly emitted since its founding in 1975. Our primary hosting partner, Microsoft Azure, has committed to focus on four key areas of environmental impact on local communities\u2014carbon, water, waste and ecosystems:\na.\n100% renewable energy by 2025\nb.\nWater positive by 2030 (replenish more water than consumed)\nc.\nZero-waste certification by 2030\nd.\nNet-zero deforestation for all new data centers.\nData Destruction & Sanitation Policy. \nThird parties perform secure destruction of media and we receive a certificate of secure destruction from such parties. Items for destruction or recycling are processed using an environmentally friendly waste-to-energy incineration process or e-Stewards\u00ae certified recycling process so that the information cannot be reconstructed.\nAvailable Information\nWe make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports available free of charge on or through our website, located at \nhttp://www.amsoftware.com\n, as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission (\u201cSEC\u201d). Reference to our website does not constitute incorporation by reference of the information contained on the site, which should not be considered part of this document.\n13\nTable of Contents\n ",
+  "item1a": ">ITEM\u00a01A.\u00a0\u00a0\u00a0\u00a0RISK FACTORS\nThe following summarizes risks and uncertainties that could materially adversely affect our business, financial condition, results of operations and stock price. You should read this summary together with the detailed description of each risk factor contained below.\nRISK FACTORS RELATED TO THE ECONOMY\na.\nDisruptions in the financial and credit markets, government policies regarding interest rates and inflation rates, international trade disputes, the effects of a pandemic or major public health concern such as COVID-19 pandemic, the invasion of Ukraine by Russia and other external influences in the U.S. global markets may reduce demand for our software and related services, which may negatively affect or revenue and operating results..\nb.\nThe effects of a pandemic or major public health concern such as the COVID-19 pandemic could materially affect how we and our clients will operate our businesses.\nc.\nThere may be an increase in client bankruptcies due to weak economic conditions.\nd.\nWe are subject to foreign exchange rate risk.\nRISK FACTORS RELATED TO COMPETITION\na.\nOur markets are very competitive and we may not be able to compete effectively.\nb.\nMany of our current and potential competitors have significantly greater resources than we do and therefore we may be at a disadvantage in competing with them.\nc.\nDue to competition, we may change our pricing practices, which could adversely affect operating margins or client ordering patterns.\nRISK FACTORS RELATED TO OUR OPERATIONS\na.\nOur growth is dependent upon the successful further development of our direct and indirect sales channels.\nb.\nOur growth depends upon our ability to develop and sustain relationships with complementary vendors to market and implement our software products and a failure to develop and sustain these relationships could have a material adverse effect on our operating performance and financial condition.\nc.\nWe are dependent upon the retail industry for a significant portion of our revenue.  If these clients were to discontinue the use of our service or delay their implementation, our total revenue would be adversely affected.\nd.\nWe derive a significant portion of our services revenue from a small number of clients.\ne.\nWe may derive a significant portion of our revenue from a limited number of large, non-recurring sales.\nf.\nOur lengthy sales cycle makes it difficult to predict quarterly revenue levels and operating results.\ng.\nServices revenue carries lower gross margins than do license or subscription revenue and an overall increase in services revenue as a percentage of total revenue could have an adverse impact on our business.\nh.\nFailure to maintain our margins and service rates for implementation services could have a material adverse effect on our operating performance and financial condition.\ni.\nWe are subject to risks related to renewal of maintenance contracts.\nj.\nWe are subject to risks related to accounting interpretations.\nk.\nOur past and future acquisitions may not be successful and we may have difficulty integrating acquisitions.\nl.\nUnanticipated changes in tax laws or regulations in the various tax jurisdictions we are subject to that are applied adversely to us or our paying clients could increase the costs of our products and services and harm our business.\nm.\nOur business may require additional capital\nn.\nBusiness disruptions could affect our operating results.\no.\nOur international operations and sales subject us to additional risks.\np.\nIt may become increasingly expensive to obtain and maintain liability insurance.\nq.\nGrowth in our operations could increase demands on our managerial and operational resources.\nr.\nChanges in regulations or disruptions of the Internet may negatively affect our business.\nRISK FACTORS RELATED TO OUR PRODUCTS\na.\nWe may not be successful in convincing clients to migrate to current or future releases of our products which may lead to reduced services and maintenance revenue and less future business from existing clients..\nb.\nWe may be unable to retain or attract clients if we do not develop new products and enhance our current products in response to technological changes and competing products.\nc.\nIf our products are not able to deliver quick, demonstrable value to our clients, our business could be seriously harmed.\nd.\nIf we do not maintain software performance across accepted platforms and operating environments, our license, subscription and services revenue could be adversely affected.\ne.\nOur software products and product development are complex, which makes it increasingly difficult to innovate, extend our product offerings and avoid costs related to correction of program errors.\nf.\nThe use of open source software in our products may expose us to additional risks and harm our intellectual property.\ng.\nIf the open source community expands into enterprise application and supply chain software, our revenue may decline.\nh.\nImplementation of our products can be complex, time-consuming and expensive, clients may be unable to implement our products successfully and we may become subject to warranty or product liability claims.\n14\nTable of Contents\n \ni.\nAn increase in sales of software products that require customization would result in revenue being recognized over the term of the contract for those products and could have a material adverse effect on our operating performance and financial condition..\nj.\nWe sometimes experience delays in product releases, which can adversely affect our business.\nk.\nWe may not receive significant revenue from our current research and development efforts for several years.\nl.\nWe have limited protection of our intellectual property and proprietary rights and may potentially infringe third-party intellectual property rights.\nm.\nWe may experience liability claims arising out of the sale of our software and provision of services.\nn.\nPrivacy and security concerns, including evolving government regulation in the area of data privacy, could adversely affect our business and operating results.\no.\nWe face risks associated with the security of our products which could reduce our revenue and earnings, increase our expenses and expose us to legal claims and regulatory actions..\np.\nWe depend on third-party technology which could result in increased costs or delays in the production and improvement of our products if it should become unavailable or if it contains defects.\nq.\nAny interruptions or delays in services from third parties or our inability to adequately plan for and manage service interruptions or infrastructure capacity requirements, could impair the delivery of our services and harm our business.\nr.\nAny failure to offer high-quality customer support for our cloud platform may adversely affect our relationships with our clients and harm our financial results.\nRISK FACTORS RELATED TO OUR PERSONNEL\na.\nWe are dependent upon key personnel and need to attract and retain highly qualified personnel.\nb.\nWe may need to restructure our sales force, which can be disruptive.\nc.\nOur technical personnel have unique access to client data and may abuse that privilege.\nRISK FACTORS RELATED TO OUR CORPORATE STRUCTURE AND GOVERNANCE\na.\nOur business is subject to changing regulation of corporate governance and public disclosure that has increased both our costs and the risk of non-compliance.\nb.\nOne shareholder beneficially owns a substantial portion of our stock and as a result, exerts substantial control over us.\nc.\nOur articles of incorporation and bylaws and Georgia law may inhibit a takeover of our company.\nd.\nWe are a \u201ccontrolled company\u201d within the meaning of NASDAQ rules and, as a result, qualify for and rely on, exemptions from certain corporate governance requirements.\nRISK FACTORS RELATED TO OUR STOCK PRICE\na.\nWe could experience fluctuations in quarterly operating results that could adversely affect our stock price.\nb.\nOur stock price is volatile and there is a risk of litigation.\nc.\nOur dividend policy is subject to change.\nd.\nThe price of our common stock may decline due to shares eligible for future sale or actual future sales of substantial amounts of our common stock.\nA variety of factors may affect our future results and the market price of our stock.\nWe have included certain forward-looking statements in Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-K. We may also make oral and written forward-looking statements from time to time, in reports filed with the SEC and otherwise. We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements based on circumstances or events which occur in the future, unless otherwise required by law. Actual results may differ materially from those projected in any such forward-looking statements due to a number of factors, including those set forth below and elsewhere in this Form 10-K.\nWe operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the potential impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those in any forward-looking statements. The following section lists some, but not all, of the risks and uncertainties that we believe may have a material adverse effect on our business, financial condition, cash flow or results of operations. In that case, the trading price of our securities could decline and you may lose all or part of your investment in our Company. This section should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto and Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-K.\nWe cannot predict every event and circumstance that may affect our business and therefore the risks and uncertainties discussed below may not be the only ones you should consider.\nThe risks and uncertainties discussed below are in addition to those that apply to most businesses generally. Furthermore, as we continue to operate our business, we may encounter risks of which we are not aware at this time. These additional risks may cause serious damage to our business in the future, the impact of which we cannot estimate at this time.\n15\nTable of Contents\n \nRISK FACTORS RELATED TO THE ECONOMY\nDisruptions in the financial and credit markets, government policies regarding interest rates and inflation rates, international trade disputes, the effects of a pandemic or major public health concern such as the COVID-19 pandemic, the invasion of Ukraine by Russia and other external influences in the U.S. and global markets may reduce demand for our software and related services, which may negatively affect our revenue and operating results.\nOur revenue and profitability depend on the overall demand for our software, professional services and maintenance services. Regional and global changes in the economy and financial markets, such as the severe global economic downturn in 2008, which was followed by a slow and relatively weak recovery and more recently, the timing, likelihood and amount of future increases in interest rates by the U.S. Federal Reserve, have resulted in companies generally reducing their spending for technology projects and therefore delaying or reconsidering potential purchases of our products and related services. A new economic recession, or adverse conditions in credit markets, lagging consumer confidence and spending, inflation, higher labor, healthcare and insurance costs, the fluctuating cost of fuel and commodities and their effects on the U.S. and global economies and markets are all examples of negative factors that have delayed or canceled certain potential client purchases. Furthermore, the uncertainty posed by the long-term effects of global and regional conflicts, terrorist activities, a global pandemic such as the  COVID-19 pandemic and other geopolitical and trade issues also may adversely affect the purchasing decisions of current or potential clients. For example, financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022. In response to the invasion, the United States, United Kingdom and European Union, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia (as well as possible future punitive measures that may be implemented), as well as the counter measures imposed by Russia, remains uncertain. Furthermore, weakness in European economies may adversely affect demand for our products and services, both directly and by affecting U.S. clients that rely heavily on European sales. There can be no assurance that government responses to these factors will sufficiently restore confidence, stabilize markets or increase liquidity and the availability of credit.\nWe are a technology company selling technology-based software with total pricing, including software and services, in many cases exceeding $500,000. Reductions in the capital budgets of our clients and prospective clients could have an adverse impact on our ability to sell our software. These economic, trade and public health and political conditions may reduce the willingness or ability of our clients and prospective clients to commit funds to purchase our products and services or renew existing post-contract support agreements, or their ability to pay for our products and services after purchase. Future declines in demand for our products or services, or a broadening or protracted extension of these conditions, would have a significant negative impact on our revenue and operating results.\nThe\n effects of a pandemic or major public health concern such as the COVID-19 pandemic could materially affect how we and our clients operate our businesses and the duration and extent to which this may impact our future results of operations and overall financial performance remain uncertain.\nIn December 2019, a novel coronavirus, COVID-19, was first reported. On March 11, 2020, the World Health Organization (WHO) characterized COVID-19 as a pandemic. The COVID-19 pandemic, which spread throughout the world and the related adverse public health developments, including orders to shelter-in-place, travel restrictions and mandated business closures, have adversely affected workforce, organizations, clients, economies and financial markets globally, leading to increased market volatility. It also has disrupted the normal operations of many businesses, including ours.\nMoreover, the conditions caused by a pandemic or major public health concern such as the COVID-19 pandemic may affect the rate of spending on our products and services and could adversely affect our clients\u2019 ability or willingness to purchase our offerings or the timing of our current or prospective clients\u2019 purchasing decisions; require pricing discounts or extended payment terms; or increase client attrition rates, all of which could adversely affect our future sales, operating results and overall financial performance.\nThe duration and extent of the impact of a pandemic or major public health concern such as the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus and any new variant, the extent and effectiveness of containment actions, the disruption caused by such actions, the efficacy of vaccines and rates of vaccination in various states and countries and the impact of these and other factors on our employees, clients, partners, vendors and the global economy. If we are not able to effectively respond to and manage the impact of such events, our business will be harmed.\nTo the extent that a pandemic or major public health concern such as the COVID-19 pandemic affects our business and financial results, it may also amplify many of the other risks described in this \u201cRisk Factors\u201d section.\nThere\n may be an increase in client bankruptcies due to weak economic conditions.\nWe have been in the past and may be in the future, affected by client bankruptcies that occur in periods subsequent to the software sale. During weak economic conditions, there is an increased risk that some of our clients will file a petition for bankruptcy. When our clients file a petition for bankruptcy, we may be required to forego collection of pre-petition amounts \n16\nTable of Contents\n \nowed and to repay amounts remitted to us during the 90-day preference period preceding the filing. Accounts receivable balances related to pre-petition amounts may in some of these instances be large, due to extended payment terms for software fees and significant billings for consulting and implementation services on large projects. The bankruptcy laws, as well as the specific circumstances of each bankruptcy, may severely limit our ability to collect pre-petition amounts and may force us to disgorge payments made during the 90-day preference period. We also face risk from international clients that file for bankruptcy protection in foreign jurisdictions, as the application of foreign bankruptcy laws may be more difficult to predict. Although we believe that we have sufficient reserves to cover anticipated client bankruptcies, there can be no assurance that such reserves will be adequate and if they are not adequate, our business, operating results and financial condition would be adversely affected. We anticipate that a global pandemic such as the COVID-19 pandemic could increase the likelihood of these risks.\n \nWe are subject to foreign exchange rate risk\n.\nOur international revenue and the majority of our international expenses, including the wages of some of our employees, are denominated primarily in currencies other than the U.S. dollar. Therefore, changes in the value of the U.S. dollar as compared to these other currencies may adversely affect our operating results. We do not hedge our exposure to currency fluctuations affecting future international revenue and expenses and other commitments. For the foregoing reasons, currency exchange rate fluctuations have caused and likely will continue to cause, variability in our foreign currency denominated revenue streams and our cost to settle foreign currency denominated liabilities.\nRISK FACTORS RELATED TO COMPETITION\nOur markets are very competitive and we may not be able to compete effectively.\nThe markets for our software are very competitive. The intensity of competition in our markets has significantly increased, in part as a result of the slow growth in investment in IT software. We expect this intense competition to increase in the future. Our current and potential competitors have made and may continue to make acquisitions of other competitors and may establish cooperative relationships among themselves or with third parties. Any significant consolidation among supply chain software providers could adversely affect our competitive position. Increased competition has resulted and, in the future, could result in price reductions, lower gross margins, longer sales cycles and loss of market share. Each of these developments could have a material adverse effect on our operating performance and financial condition.\nMany of our current and potential competitors have significantly greater resources than we do and therefore we may be at a disadvantage in competing with them.\nWe directly compete with other supply chain software vendors, including SAP SE, Oracle Corporation, Blue Yonder, o9 Solutions, Kinaxis, Inc. and others. Many of our current and potential competitors have significantly greater financial, marketing, technical and other competitive resources than we do, as well as greater name recognition and a larger installed base of clients. The software market has experienced significant consolidation, including numerous mergers and acquisitions. It is difficult to estimate what long-term effect these acquisitions will have on our competitive environment. We have encountered competitive situations where we suspect that large competitors, in order to encourage clients to purchase non-retail applications and gain retail market share, also have offered at no charge certain retail software applications that compete with our software. If competitors such as Oracle and SAP SE and other large private companies are willing to offer their retail and/ or other applications at no charge, this may result in a more difficult competitive environment for our products. In addition, we could face competition from large, multi-industry technology companies that historically have not offered an enterprise solution set to the retail supply chain market. We cannot guarantee that we will be able to compete successfully for clients against our current or future competitors, or that such competition will not have a material adverse effect on our business, operating results and financial condition.\nAlso, some prospective buyers are reluctant to purchase applications that could have a short lifespan, as an acquisition could result in the application\u2019s life being abruptly cut short. In addition, increased competition and consolidation in these markets is likely to result in price reductions, reduced operating margins and changes in market share, any one of which could adversely affect us. If clients or prospects want fewer software vendors, they may elect to purchase competing products from a larger vendor than us since those larger vendors offer a wider range of products. Furthermore, some of these larger vendors may be able to bundle their software with their database applications, which underlie a significant portion of our installed applications. When we compete with these larger vendors for new clients, we believe that these larger businesses often attempt to use their size as a competitive advantage against us.\nMany of our competitors have well-established relationships with our current and potential clients and have extensive knowledge of our industry. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in client requirements or devote greater resources to the development, promotion and sale of their products than we can. Some competitors have become more aggressive with their prices and payment terms and issuance of contractual implementation terms or guarantees. In addition, third parties may offer competing maintenance and implementation services to our clients and thereby reduce our opportunities to provide those services. We may be unable to continue to compete successfully with new and existing competitors without lowering prices or offering other favorable terms. Furthermore, potential clients may consider outsourcing options, including application service providers, data center outsourcing and service bureaus, as alternatives to our \n17\nTable of Contents\n \nsoftware products. Any of these factors could materially impair our ability to compete and have a material adverse effect on our operating performance and financial condition.\nWe also face competition from the corporate IT departments of current or potential clients capable of internally developing software and we compete with a variety of more specialized software and services vendors, including:\n\u2022\nInternet (on demand) software vendors;\n\u2022\nsingle-industry software vendors;\n\u2022\nenterprise resource optimization software vendors;\n\u2022\nhuman resource management software vendors;\n\u2022\nfinancial management software vendors;\n\u2022\nmerchandising software vendors;\n\u2022\nservices automation software vendors; and\n\u2022\noutsourced services providers.\nAs a result, the market for enterprise software applications has been and continues to be intensely competitive. We expect competition to persist and continue to intensify, which could negatively affect our operating results and market share.\nDue to competition, we may change our pricing practices, which could adversely affect operating margins or client ordering patterns.\nThe intensely competitive markets in which we compete can put pressure on us to reduce our prices. If our competitors offer deep discounts on certain products or services in an effort to recapture or gain market share or to sell other products or services, we may need to lower prices or offer other favorable terms in order to compete successfully. For these and other reasons, in the future we may choose to make changes to our pricing practices. For example, we may offer additional discounts to clients; increase (or decrease) the use of pricing that involves periodic fees based on the number of users of a product; or change maintenance pricing. Such changes could materially and adversely affect our margins and our revenue may be negatively affected if our competitors are able to recapture or gain market share.\nRISK FACTORS RELATED TO OUR OPERATIONS\nOur growth is dependent upon the successful further development of our direct and indirect sales channels.\nWe believe that our future growth will depend on developing and maintaining successful strategic relationships with systems integrators and other technology companies. We intend to continue to increase the proportion of clients served through these indirect channels, so we are currently investing and plan to continue to invest, significant resources to develop them. This investment could adversely affect our operating results if these efforts do not generate sufficient license, subscription and service revenue to offset our investment. Also, our inability to partner with other technology companies and qualified systems integrators could adversely affect our results of operations. Because lower unit prices are typically charged on sales made through indirect channels, increased indirect sales could reduce our average selling prices and result in lower gross margins. In addition, sales of our products through indirect channels will likely reduce our consulting service revenue, as third- party systems integrators generally provide these services. As indirect sales increase, our direct contact with our client base will decrease and we may have more difficulty accurately forecasting sales, evaluating client satisfaction and recognizing emerging client requirements. In addition, these systems integrators and third-party software providers may develop, acquire or market products competitive with our products. Marketing our products directly to clients and indirectly through systems integrators and other technology companies may result in distribution channel conflicts. Our direct sales efforts may compete with those of our indirect channels and, to the extent that different systems integrators target the same clients, systems integrators also may come into conflict with each other. Any channel conflicts that develop may have a material adverse effect on our relationships with systems integrators or harm our ability to attract new systems integrators.\nOur growth depends upon our ability to develop and sustain relationships with complementary vendors to market and implement our software products and a failure to develop and sustain these relationships could have a material adverse effect on our operating performance and financial condition.\nWe are developing, maintaining and enhancing significant working relationships with complementary vendors, such as software companies, consulting firms, resellers and others that we believe can play important roles in marketing our products and software. We are currently investing and intend to continue to invest, significant resources to develop and enhance these relationships, which could adversely affect our operating margins. We may be unable to develop relationships with organizations that will be able to market our products effectively. Our arrangements with these organizations are not exclusive and in many cases may be terminated by either party without cause. Many of the organizations with which we are developing or maintaining marketing relationships have commercial relationships with our competitors. There can be no assurance that any organization will continue its involvement with us. The loss of relationships with such organizations could materially and adversely affect our operating performance and financial condition.\n \nWe are dependent upon the retail industry for a significant portion of our revenue.\n18\nTable of Contents\n \nHistorically, we have derived a significant percentage of our revenue from the sale of software products and collaborative applications that address vertical market opportunities with manufacturers and wholesalers that supply retail clients. The success of our clients is directly linked to economic conditions in the retail industry, which in turn are subject to intense competitive pressures and are affected by overall economic conditions. In addition, we believe that the acquisition of certain of our software products involves a large capital expenditure, which is often accompanied by large-scale hardware purchases or other capital commitments. As a result, demand for our products and services could decline in the event of instability or potential downturns in our clients\u2019 industries.\nDue to current economic conditions, we expect the retail industry to remain relatively cautious in its level of investment in IT when compared to other industries. We are concerned about weak and uncertain economic conditions, consolidations and the disappointing results of retailers in certain markets, especially if such weak economic conditions persist for an extended period of time. Weak and uncertain economic conditions have negatively affected our revenue in the past and may do so in the future, including potential deterioration of our maintenance revenue base as clients look to reduce their costs, elongation of our selling cycles and reduction in the demand for our products. As a result, in the current economic environment it is difficult to predict exactly when specific sales will close. In addition, weak and uncertain economic conditions could impair our clients\u2019 ability to pay for our products or services. We also believe the retail business transformation from retail brick-and-mortar to technology-enabled omnichannel commerce models will be a multi-year trend and was accelerated by the COVID-19 pandemic. Consequently, we cannot predict when the transformation to new commerce models may moderate or end. Any of these factors could adversely affect our business, our quarterly or annual operating results and our financial condition.\nWe have observed that as the retail industry consolidates, it is experiencing increased competition in certain geographic regions that could negatively affect the industry and our clients\u2019 ability to pay for our products and services. Such consolidation has negatively impacted our revenue in the past and may continue to do so in the future, which may reduce the demand for our products and may adversely affect our business, operating results and financial condition.\n \nWe derive a significant portion of our services revenue from a small number of clients. If these clients were to discontinue the use of our services or delay their implementation, our total revenue would be adversely affected.\nWe derive a significant portion of our services revenue from a small number of clients. If these clients were to discontinue or delay their use of these services, or obtain these services from a competitor, our services revenue and total revenue would be adversely affected. Clients may delay or terminate implementation of our services due to budgetary constraints related to economic uncertainty, dissatisfaction with product quality, the difficulty of prioritizing numerous IT projects, changes in business strategy, personnel or priorities, or other reasons. Clients may be less likely to invest in additional software in the future or continue to pay for software maintenance. Our business relies to a large extent upon sales to existing clients and maintenance and services revenue are key elements of our revenue base, so any reduction in these sales or these maintenance and services payments could have a material adverse effect on our business, results of operations, cash flows and financial condition.\nWe may derive a significant portion of our revenue in any quarter from a limited number of large, non-recurring sales.\nFrom time to time, we expect to continue to experience large, individual client sales, which may cause significant variations in quarterly fees. We also believe that purchasing our products is relatively discretionary and generally involves a significant commitment of a client\u2019s capital resources. Therefore, a downturn in any client\u2019s business could result in order cancellations or requests for flexible payment terms that could have a significant adverse impact on our revenue and quarterly results. Moreover, continued uncertainty about general economic conditions could precipitate significant reductions in corporate spending for IT, which could result in delays or cancellations of orders for our products.\nOur lengthy sales cycle makes it difficult to predict quarterly revenue levels and operating results.\nBecause fees for our software products are substantial and the decision to purchase our products typically involves members of our clients\u2019 senior management, the sales process for our software is lengthy. Furthermore, our existing and prospective clients routinely require education regarding the use and benefits of our products, which may lead to delays in receiving clients\u2019 orders. Accordingly, the timing of our revenue is difficult to predict and the delay of an order could cause our quarterly revenue to fall substantially below our expectations and those of public market analysts and investors. Moreover, to the extent that we succeed in shifting client purchases away from individual software products and toward more costly integrated suites of software and services, our sales cycle may lengthen further, which could increase the likelihood of delays and cause the effect of a delay to become more pronounced. Delays in sales could cause significant shortfalls in our revenue and operating results for any particular period. Also, it is difficult for us to forecast the timing and recognition of revenue from sales of our products because our existing and prospective clients often take significant time evaluating our products before purchasing them. The period between initial client contact and a purchase by a client could be nine months or longer. During the evaluation period, prospective clients may decide not to purchase or may scale down proposed orders of our products for various reasons, including:\n\u2022\nreduced demand for enterprise software software;\n\u2022\nintroduction of products by our competitors;\n\u2022\nlower prices offered by our competitors;\n\u2022\nchanges in budgets and purchasing priorities;\n19\nTable of Contents\n \n\u2022\nincreased time to obtain purchasing approval; and\n\u2022\nreduced need to upgrade existing systems.\nServices revenue carries lower gross margins than do license or subscription revenue and an overall increase in services revenue as a percentage of total revenue could have an adverse impact on our business.\nBecause our service revenue has lower gross margins than do our license or subscription revenue, an increase in the percentage of total revenue represented by service revenue or a change in the mix between services that are provided by our employees versus services provided by third-party consultants could have a detrimental impact on our overall gross margins and could adversely affect operating results.\nFailure to maintain our margins and service rates for implementation services could have a material adverse effect on our operating performance and financial condition.\nA significant portion of our revenue is derived from implementation services. If we fail to scope our implementation projects correctly, our services margins may suffer. We bill for implementation services predominantly on an hourly or daily basis (time and materials) and sometimes under fixed price contracts and we generally recognize revenue from those services as we perform the work. If we are not able to maintain the current service rates for our time and materials implementation services and cannot make corresponding cost reductions, or if the percentage of fixed price contracts increases and we underestimate the costs of our fixed price contracts, our operating performance may suffer. The rates we charge for our implementation services depend on a number of factors, including:\n\u2022\nperceptions of our ability to add value through our implementation services;\n\u2022\ncomplexity of services performed;\n\u2022\ncompetition;\n\u2022\npricing policies of our competitors and of systems integrators;\n\u2022\nuse of globally sourced, lower-cost service delivery capabilities within our industry; and\n\u2022\neconomic, political and market conditions.\nWe are subject to risks related to renewal of maintenance contracts.\nUpon the purchase of a software license, our clients typically enter into a maintenance contract with a typical term of one to three years. If clients elect not to renew their maintenance contracts after this initial maintenance period and we do not offset the loss of those clients with new maintenance clients as a result of new license fees, our maintenance revenue and total revenue would be adversely affected.\n \nWe are subject to risks related to accounting interpretations. \nThere are several accounting standards and interpretations covering revenue recognition for the software industry. These standards address software revenue recognition matters primarily from a conceptual level and do not include specific implementation guidance. We believe that we currently comply with these standards.\nThe accounting profession and regulatory agencies continue to discuss various provisions of these pronouncements with the objective of providing additional guidance on their application and potential interpretations. These discussions and the issuance of new interpretations could lead to unanticipated changes in our current revenue accounting practices, which could change the timing of recognized revenue. They also could drive significant adjustments to our business practices, which could result in increased administrative costs, lengthened sales cycles and other changes that could adversely affect our reported revenue and results of operations. In addition, companies we acquire historically may have interpreted software revenue recognition rules differently than we do or may not have been subject to U.S. GAAP as a result of reporting in a foreign country. If we discover that companies we have acquired have interpreted and applied software revenue recognition rules differently than prescribed by U.S. GAAP, we could be required to devote significant management resources and incur the expense associated with an audit, restatement or other examination of the acquired companies\u2019 financial statements.\nOur past and future acquisitions may not be successful and we may have difficulty integrating acquisitions.\nWe continually evaluate potential acquisitions of complementary businesses, products and technologies. We have in the past acquired and invested and may continue to acquire or invest in, complementary companies, products and technologies and enter into joint ventures and strategic alliances with other companies. Acquisitions, joint ventures, strategic alliances and investments present many risks and we may not realize the financial and strategic goals that were contemplated at the time of any transaction. Risks commonly encountered in such transactions include:\n\u2022\nrisk that an acquired company or assets may not further our business strategy or that we paid more than the company or assets were worth;\n\u2022\ndifficulty of assimilating the operations and retaining and motivating personnel of an acquired company;\n\u2022\nrisk that we may not be able to integrate acquired technologies or products with our current products and technologies;\n20\nTable of Contents\n \n\u2022\npotential disruption of our ongoing business and the diversion of our management\u2019s attention from other business concerns;\n\u2022\ninability of management to maximize our financial and strategic position through the successful integration of an acquired company;\n\u2022\nadverse impact on our annual effective tax rate;\n\u2022\ndilution of existing equity holders caused by capital stock issuance to the shareholders of an acquired company or stock option grants to retain employees of an acquired company;\n\u2022\ndifficulty in maintaining controls, procedures and policies;\n\u2022\npotential adverse impact on our relationships with partner companies or third-party providers of technology or products;\n\u2022\nimpairment of relationships with employees and clients;\n\u2022\npotential assumption of liabilities of the acquired company;\n\u2022\nsignificant exit or impairment charges if products acquired in business combinations are unsuccessful; and\n\u2022\nissues with product quality, product architecture, legal contingencies, product development issues, or other significant issues that may not be detected through our due diligence process.\nAccounting rules require the use of the purchase method of accounting in all new business acquisitions. Many acquisition candidates have significant intangible assets, so an acquisition of these businesses would likely result in significant amounts of goodwill and other intangible assets. The purchase method of accounting for business combinations may require large write-offs of any in-process research and development costs related to companies being acquired, as well as ongoing amortization costs for other intangible assets. Goodwill and certain other intangible assets are not amortized to income, but are subject to impairment reviews at least annually. If the acquisitions do not perform as planned, future write-offs and charges to income arising from such impairment reviews could be significant. In addition, these acquisitions could involve acquisition- related charges, such as one-time acquired research and development charges. Such write-offs and ongoing amortization charges may have a significant negative impact on operating margins and net earnings in the quarter of the combination and for several subsequent years. We may not be successful in overcoming these risks or any other problems encountered in connection with such transactions.\nFully integrating an acquired company or business into our operations may take a significant amount of time. In addition, we may be able to conduct only limited due diligence on an acquired company\u2019s operations. Following an acquisition, we may be subject to liabilities arising from an acquired company\u2019s past or present operations, including liabilities related to data security, encryption and privacy of client data and these liabilities may not be covered by the warranty and indemnity provisions that we negotiate. We cannot assure you that we will be successful in overcoming these risks or any other problems encountered with acquisitions. To the extent we do not successfully avoid or overcome the risks or problems related to any acquisitions, our results of operations and financial condition could be adversely affected. Future acquisitions also could impact our financial position and capital needs and could cause substantial fluctuations in our quarterly and yearly results of operations.\nUnanticipated changes in tax laws or regulations in the various tax jurisdictions we are subject to that are applied adversely to us or our paying clients could increase the costs of our products and services and harm our business.\nWe are subject to income taxes in the United States and various jurisdictions outside of the United States. Significant judgment is often required in the determination of our worldwide provision for income taxes. Any changes, ambiguity or uncertainty in taxing jurisdictions' administrative interpretations, decisions, policies and positions could materially impact our income tax liabilities. We may also be subject to additional tax liabilities and penalties due to changes in non-income based taxes resulting from changes in federal, state or international tax laws; changes in taxing jurisdictions' administrative interpretations, decisions, policies and positions; results of tax examinations, settlements or judicial decisions; changes in accounting principles; changes to the business operations, including acquisitions; and the evaluation of new information that results in a change to a tax position taken in a prior period. Any resulting increase in our tax obligation or cash taxes paid could adversely affect our cash flows and financial results. Additionally, new income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time.  Those enactments could harm our domestic and international business operations, our business, results of operations and financial condition.\nFurther, tax regulations could be interpreted, changed, modified or applied adversely to us. These events could require us or our paying clients to pay additional tax amounts on a prospective or retroactive basis, as well as require us or our paying clients to pay fines and/or penalties and interest for past amounts deemed to be due. If we raise our prices to offset the costs of these changes, existing and potential future paying clients may elect not to purchase our products and services.\nIn addition, the United States and other governments adopt tax reform measures from time to time that impact future effective tax rates favorably or unfavorably. These tax reforms may be in the form of changes in tax rates, changes in the valuation of deferred tax assets or liabilities, or changes in tax laws or their interpretation. Such changes can have a material adverse impact on our financial results. In 2022, the United States enacted the Inflation Reduction Act (the \u201cAct\u201d), which includes a 1% excise tax on corporate stock repurchases. While we do not anticipate that changes in the tax laws or rates in that Act will have a material, direct impact on the Company, imposition of new excise taxes and minimum corporate tax rates such as these can have a material adverse impact on the Company in the future.\nAs a multinational organization, we may be subject to taxation in various jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. Countries, trading regions and local taxing jurisdictions have differing rules and regulations governing sales and use taxes and these rules and regulations are subject to varying \n21\nTable of Contents\n \ninterpretations that may change over time. We collect and remit U.S. sales and value-added tax (VAT) in several jurisdictions. However, it is possible that we could face sales tax or VAT audits and that our liability for these taxes could exceed our estimates as tax authorities could still assert that we are obligated to collect additional tax amounts from our paying clients and remit those taxes to those authorities. We could also be subject to audits in states and international jurisdictions for which we have not accrued tax liabilities. Further, one or more state or foreign authorities could seek to impose additional sales, use or other tax collection and record-keeping obligations on us or may determine that such taxes should have, but have not been, paid by us. Liability for past taxes may also include substantial interest and penalty charges. Any successful action by state, foreign or other authorities to compel us to collect and remit sales tax, use tax or other taxes, either retroactively, prospectively or both, could harm our business, results of operations and financial condition.\nOur business may require additional capital.\nWe may require additional capital to finance our growth or to fund acquisitions or investments in complementary businesses, technologies or product lines. Our capital requirements may be influenced by many factors, including:\n\u2022\ndemand for our products;\n\u2022\ntiming and extent of our investment in new technology;\n\u2022\ntiming and extent of our acquisition of other companies;\n\u2022\nlevel and timing of revenue;\n\u2022\nexpenses of sales, marketing and new product development;\n\u2022\ncost of facilities to accommodate a growing workforce;\n\u2022\nextent to which competitors are successful in developing new products and increasing their market shares; and\n\u2022\ncosts involved in maintaining and enforcing intellectual property rights.\nTo the extent that our resources are insufficient to fund our future activities, we may need to raise additional funds through public or private financing. However, additional funding, if needed, may not be available on terms attractive to us, or at all. Our inability to raise capital when needed could have a material adverse effect on our business, operating results and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of our Company by our current shareholders would be diluted.\nBusiness disruptions could affect our operating results.\nA significant portion of our research and development activities and certain other critical business operations is concentrated in a few geographic areas. We are a highly automated business and a disruption or failure of our systems could cause delays in completing sales and providing services. A natural disaster, major public health concern such as the COVID-19 pandemic, or other catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war, or terrorist attack that results in the destruction or disruption of any of our critical business or IT systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be materially and adversely affected.\nTo effectively mitigate this risk, we must continue to improve our operational, financial and management controls and our reporting systems and procedures by, among other things, improving our key processes and IT infrastructure to support our business needs and enhancing information and communication systems to ensure that our employees and offices around the world are well-connected and can effectively communicate with each other and our clients and employees can work remotely as appropriate.\nAlthough we maintain crisis management and disaster response plans, in the event of a natural disaster, public health crisis or other catastrophic event, or if we fail to implement the improvements described above, we may be unable to continue our operations and may experience system interruptions, reputational harm, delays in our product development, lengthy interruptions in service, breaches of data security and loss of critical data, all of which could have an adverse effect on our future operating results.\nOur international operations and sales subject us to additional risks.\nThe global reach of our business could cause us to be subject to unexpected, uncontrollable and rapidly changing events and circumstances outside the United States. As we grow our international operations, we may need to recruit and hire new consulting, product development, sales, marketing and support personnel in the countries in which we have or will establish offices or otherwise have a significant presence. Entry into new international markets typically requires the establishment of new marketing and distribution channels and may involve the development and subsequent support of localized versions of our software. International introductions of our products often require a significant investment in advance of anticipated future revenue. In addition, the opening of a new office typically results in initial recruiting and training expenses and reduced labor efficiencies. If we are less successful than we expect in a new market, we may not be able to realize an adequate return on our initial investment and our operating results could suffer. We cannot guarantee that the countries in which we operate will have a sufficient pool of qualified personnel from which to hire, that we will be successful at hiring, training or retaining such personnel or that we can expand or contract our international operations in a timely, cost-effective manner. If we have to downsize certain international operations, the costs to do so are typically much higher than downsizing costs in the United States. The following factors, among others, could have an adverse impact on our business and earnings:\n22\nTable of Contents\n \n\u2022\nfailure to properly comply with foreign laws and regulations applicable to our foreign activities including, without limitation, software localization requirements;\n\u2022\nfailure to properly comply with U.S. laws and regulations relating to the export of our products and services;\n\u2022\ncompliance with multiple and potentially conflicting regulations in Europe, Asia and North America, including export requirements, tariffs, import duties and other trade barriers, as well as health and safety requirements;\n\u2022\ndifficulties in managing foreign operations and appropriate levels of staffing;\n\u2022\nlonger collection cycles;\n\u2022\ntariffs and other trade barriers, including the economic burden and uncertainty placed on our clients by the imposition and threatened imposition of tariffs by the U.S., China and other countries;\n\u2022\nseasonal reductions in business activities, particularly throughout Europe;\n\u2022\nreduced protection for intellectual property rights in some countries;\n\u2022\nproper compliance with local tax laws which can be complex and may result in unintended adverse tax consequences;\n\u2022\nanti-American sentiment due to conflicts in the Middle East and elsewhere and U.S. policies that may be unpopular in certain countries;\n\u2022\nlocalized spread of infection resulting from a global pandemic such as COVID-19 pandemic, including any economic downturns and other adverse impacts;\n\u2022\npolitical instability, adverse economic conditions and the potential for war or other hostilities in many of these countries;\n\u2022\ndifficulties in enforcing agreements through foreign legal systems;\n\u2022\nfluctuations in exchange rates that may affect product demand and may adversely affect the profitability in U.S. dollars of products and services provided by us in foreign markets where payment for our products and services is made in the local currency, including any fluctuations caused by uncertainties related to the invasion of Ukraine by Russia;\n\u2022\nchanges in general economic, health and political conditions in countries where we operate;\n\u2022\npotential labor strikes, lockouts, work slowdowns and work stoppages; and\n\u2022\nrestrictions on downsizing operations in Europe and expenses and delays associated with any such activities.\nIt may become increasingly expensive to obtain and maintain liability insurance.\nOur products are often critical to the operations of our clients\u2019 businesses and provide benefits that may be difficult to quantify. If our products fail to function as required, we may be subject to claims for substantial damages. Courts may not enforce provisions in our contracts that would limit our liability or otherwise protect us from liability for damages. Although we maintain general liability insurance coverage, including coverage for errors or omissions and cybersecurity risks, this coverage may not continue to be available on reasonable terms or in sufficient amounts to cover claims against us. In addition, our insurers may disclaim coverage for future claims. If claims exceeding the available insurance coverage are successfully asserted against us, or our insurers impose premium increases, large deductibles or co-insurance requirements, our business and results of operations could be adversely affected.\nWe contract for insurance to cover a variety of potential risks and liabilities, including those relating to the unexpected failure of our products. In the current market, insurance coverage for all types of risk is becoming more restrictive and when insurance coverage is offered, the amount for which we are responsible is larger. In light of these circumstances, it may become more difficult to maintain insurance coverage at historical levels or, if such coverage is available, the cost to obtain or maintain it may increase substantially. Consequently, we may be forced to bear the burden of an increased portion of risks for which we have traditionally been covered by insurance, which could negatively impact our results of operations.\nGrowth in our operations could increase demands on our managerial and operational resources.\nIf the scope of our operating and financial systems and the geographic distribution of our operations and clients significantly expand, this may increase demands on our management and operations. Our officers and other key employees will need to implement and improve our operational, client support and financial control systems and effectively expand, train and manage our employee base. We also may be required to manage an increasing number of relationships with various clients and other third parties. We may not be able to manage future expansion successfully and our inability to do so could harm our business, operating results and financial condition.\nChanges in regulations or disruptions of the Internet may negatively affect our business.\n \nPrivacy concerns and laws, evolving regulation of the Internet and cloud computing, cross-border data transfer restrictions and other domestic or foreign regulations may limit the use and adoption of our products and adversely affect our business.  Interruptions in Internet access may adversely affect our business, operating results and financial condition by increasing our expenditures and causing client dissatisfaction. \nOur services depend on the ability of our registered users to access the Internet. Currently, this access is provided by companies that have significant market power in the broadband and Internet access marketplace, including incumbent telephone companies, cable companies, mobile communications companies and government-owned service providers. Laws or regulations that adversely affect the growth, popularity or use of the Internet, including changes to laws or regulations impacting Internet neutrality, could decrease the demand for our products, increase our operating costs, require us to alter the manner in which we conduct our business and/or otherwise adversely affect our business. \n23\nTable of Contents\n \nIn addition, the rapid and continual growth of traffic on the Internet has resulted at times in slow connection and download speeds of Internet users. Our business may be harmed if the Internet infrastructure cannot handle our clients\u2019 demands or if hosting capacity becomes insufficient. If our clients become frustrated with the speed at which they can utilize our products over the Internet, our clients may discontinue the use of our software and choose not to renew their contracts with us. Further, the performance of the Internet has also been adversely affected by viruses, worms, hacking, phishing attacks, denial of service attacks and other similar malicious programs, as well as other forms of damage to portions of its infrastructure, which have resulted in a variety of Internet outages, interruptions and other delays. These service interruptions could diminish the overall attractiveness of our products to existing and potential users and could cause demand for our products to suffer.\nRISK FACTORS RELATED TO OUR PRODUCTS\nWe may not be successful in convincing clients to migrate to current or future releases of our products, which may lead to reduced services and maintenance revenue and less future business from existing clients.\nOur clients may not be willing to incur the costs or invest the resources necessary to complete upgrades to current or future releases of our products. This may lead to a loss of services and maintenance revenue and future business from clients that continue to operate prior versions of our products or choose to no longer use our products.\nWe may be unable to retain or attract clients if we do not develop new products and enhance our current products in response to technological changes and competing products.\nOver time, we have been required to migrate our products and services from mainframe to client server to web- based environments. In addition, we have been required to adapt our products to emerging standards for operating systems, databases and other technologies. We will be unable to compete effectively if we fail to:\n\u2022\nmaintain and enhance our technological capabilities to correspond to these emerging environments and standards;\n\u2022\ndevelop and market products and services that meet changing client needs; or\n\u2022\nanticipate or respond to technological changes on a cost-effective and timely basis.\nA substantial portion of our research and development resources is devoted to product upgrades that address regulatory and support requirements, leaving fewer resources available for new products. New products require significant development investment. That investment is further constrained because of the added costs of developing new products that work with multiple operating systems or databases. We face uncertainty when we develop or acquire new products because there is no assurance that a sufficient market will develop for those products. If we do not attract sufficient client interest in those products, we will not realize a return on our investment and our operating results will be adversely affected.\nOur core products face competition from new or modified technologies that may render our existing technology less competitive or obsolete, reducing the demand for our products. As a result, we must continually redesign our products to incorporate these new technologies and adapt our software products to operate on and comply with evolving industry standards for, various hardware and software platforms. Maintaining and upgrading our products to operate on multiple hardware and database platforms reduces our resources for developing new products. Because of the increased costs of developing and supporting software products across multiple platforms, we may need to reduce the number of those platforms. In addition, conflicting new technologies present us with difficult choices about which new technologies to adopt. If we fail to anticipate the most popular platforms, fail to respond adequately to technological developments, or experience significant delays in product development or introduction, our business and operating results will be negatively impacted.\nIn addition, to the extent we determine that new technologies and equipment are required to remain competitive, the development, acquisition and implementation of such technologies may require us to make significant capital investments. We may not have sufficient capital for these purposes and investments in new technologies may not result in commercially viable products. The loss of revenue and increased costs from such changing technologies would adversely affect our business and operating results.\n \nIf our products are not able to deliver quick, demonstrable value to our clients, our business could be seriously harmed.\nEnterprises are requiring their application software vendors to provide faster returns on their technology investments. We must continue to improve our speed of implementation and the pace at which our products deliver value or our competitors may gain important strategic advantages over us. If we cannot successfully respond to these market demands, or if our competitors respond more successfully than we do, our business, results of operations and financial condition could be materially and adversely affected.\nIf we do not maintain software performance across accepted platforms and operating environments, our license, subscription and services revenue could be adversely affected.\nWe continuously evaluate new technologies and implement advanced technology into our products. However, if in our product development efforts we fail to accurately address, in a timely manner, evolving industry standards, new technology advancements or important third-party interfaces or product architectures, sales of our products and services will suffer. Market acceptance of new platforms and operating environments may require us to undergo the expense of developing and maintaining compatible product lines. We can license our software products for use with a variety of popular industry standard relational \n24\nTable of Contents\n \ndatabase management system platforms using different programming languages and underlying databases and architectures. There may be future or existing relational database platforms that achieve popularity in the marketplace that may or may not be architecturally compatible with our software product design. In addition, the effort and expense of developing, testing and maintaining software product lines will increase as more hardware platforms and operating systems achieve market acceptance within our target markets. Moreover, future or existing user interfaces may or may not be architecturally compatible with our software product design. If we do not achieve market acceptance of new user interfaces that we support, or adapt to popular new user interfaces that we do not support, our sales and revenue may be adversely affected. Developing and maintaining consistent software product performance characteristics across all of these combinations could place a significant strain on our resources and software product release schedules, which could adversely affect revenue and results of operations.\nOur software products and product development are complex, which makes it increasingly difficult to innovate, extend our product offerings and avoid costs related to correction of program errors.\nThe market for our software products is characterized by rapid technological change, evolving industry standards, changes in client requirements and frequent new product introductions and enhancements. For example, existing products can become obsolete and unmarketable when vendors introduce products utilizing new technologies or new industry standards emerge. As a result, it is difficult for us to estimate the life cycles of our software products. There can be no assurance that we will successfully identify new product opportunities or develop and bring new products to the market in a timely or cost- effective manner, or that products, capabilities or technologies developed by our competitors will not render our products obsolete. Our future success will depend in part upon our ability to:\n\u2022\ncontinue to enhance and expand our core applications;\n\u2022\ncontinue to sell our products;\n\u2022\ncontinue to successfully integrate third-party products;\n\u2022\nenter new markets and achieve market acceptance; and\n\u2022\ndevelop and introduce new products that keep pace with technological developments, satisfy increasingly sophisticated client requirements and achieve market acceptance.\nDespite our testing, our software programs, like software programs generally, may contain a number of undetected errors or \u201cbugs\u201d when we first introduce them or as new versions are released. We do not discover some errors until we have installed the product and our clients have used it. Errors may result in the delay or loss of revenue, diversion of software engineering resources, material non-monetary concessions, negative media attention, or increased service or warranty costs as a result of performance or warranty claims that could lead to client dissatisfaction, litigation, damage to our reputation and impaired demand for our products. Correcting bugs may result in increased costs and reduced acceptance of our software products in the marketplace. Further, such errors could subject us to claims from our clients for significant damages and we cannot assure you that courts would enforce the provisions in our client agreements that limit our liability for damages. The effort and expense of developing, testing and maintaining software product lines will increase with the increasing number of possible combinations of:\n\u2022\nvendor hardware platforms;\n\u2022\noperating systems and updated versions;\n\u2022\napplication software products and updated versions; and\n\u2022\ndatabase management system platforms and updated versions.\nDeveloping consistent software product performance characteristics across all of these combinations could place a significant strain on our development resources and software product release schedules.\nThe use of open source software in our products may expose us to additional risks and harm our intellectual property.\nSome of our products use or incorporate software that is subject to one or more open source licenses. Open source software is typically freely accessible, usable and modifiable. Certain open source software licenses require a user who intends to distribute the open source software as a component of the user\u2019s software to disclose publicly part or all of the source code to the user\u2019s software. In addition, certain open source software licenses require the user of such software to make any derivative works of the open source code available to others on unfavorable terms or at no cost. This can subject previously proprietary software to open source license terms.\nWhile we monitor the use of all open source software in our products, processes and technology and try to ensure that our open source software use does not require us to disclose the source code to the related product or solution, such use could inadvertently occur. Additionally, if a third-party software provider has incorporated certain types of open source software in software we license from such third party for our products and software, under certain circumstances we could be required to disclose the source code to our products and software. This could harm our intellectual property rights and have a material adverse effect on our business, results of operations, cash flow and financial condition.\nIf the open source community expands into enterprise application and supply chain software, our revenue may decline.\nThe open source community is comprised of many different formal and informal groups of software developers and individuals who have created a wide variety of software and have made that software available for use, distribution and modification, often free of charge. Open source software, such as the Linux operating system, has been gaining in popularity among business users. If developers contribute enterprise and supply chain application software to the open source community \n25\nTable of Contents\n \nand that software has competitive features and scale to support business users in our markets, we will need to change our product pricing and distribution strategy to compete successfully.\nImplementation of our products can be complex, time-consuming and expensive, clients may be unable to implement our products successfully and we may become subject to warranty or product liability claims.\nOur products must integrate with the existing computer systems and software programs of our clients. This can be complex, time-consuming and expensive and may cause delays in the deployment of our products. Our clients may be unable to implement our products successfully or otherwise achieve the benefits attributable to our products. Although we test each of our new products and releases and evaluate and test the products we obtain through acquisitions before introducing them to the market, there still may be significant errors in existing or future releases of our software products, with the possible result that we may be required to expend significant resources in order to correct such errors or otherwise satisfy client demands. In addition, defects in our products or difficulty integrating our products with our clients\u2019 systems could result in delayed or lost revenue, warranty or other claims against us by clients or third parties, adverse client reactions and negative publicity about us or our products and services, or reduced acceptance of our products and services in the marketplace, any of which could have a material adverse effect on our reputation, business, results of operations and financial condition.\nAn increase in sales of software products that require customization would result in revenue being recognized over the term of the contract for those products and could have a material adverse effect on our operating performance and financial condition.\nHistorically, we generally have been able to recognize software revenue upon delivery of our software and contract execution. Clients and prospects could ask for unique capabilities in addition to our core capabilities, which could cause us to recognize more of our software revenue on a contract accounting basis over the course of the delivery of the solution rather than upon delivery and contract execution. The period between the initial contract and the completion of the implementation of our products can be lengthy and is subject to a number of factors (over many of which we have little or no control) that may cause significant delays, including the size and complexity of the overall project. As a result, a shift toward a higher proportion of software contracts requiring contract accounting would have a material adverse effect on our operating performance and financial condition and cause our operating results to vary significantly from quarter to quarter.\nWe sometimes experience delays in product releases, which can adversely affect our business.\nHistorically, we have issued significant new releases of our software products periodically, with minor interim releases issued more frequently. Although we now issue software releases more frequently under our agile methodology, the complexities inherent in our software, major new product enhancements and new products often require long development and testing periods before they are released. On occasion, we have experienced delays in the scheduled release dates of new or enhanced products and we cannot provide any assurance that we will achieve future scheduled release dates. The delay of product releases or enhancements, or the failure of such products or enhancements to achieve market acceptance, could materially affect our business and reputation.\nWe may not receive significant revenue from our current research and development efforts for several years.\nDeveloping and localizing software is expensive and investment in product development may involve a long payback cycle. Our future plans include significant investments in software research and development and related product opportunities. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain or improve our competitive position. However, we do not expect to receive significant revenue from these investments for several years, if at all.\nWe have limited protection of our intellectual property and proprietary rights and may potentially infringe third-party intellectual property rights.\nWe consider certain aspects of our internal operations, software and documentation to be proprietary and rely on a combination of copyright, trademark and trade secret laws; confidentiality agreements with employees and third parties; protective contractual provisions (such as those contained in our agreements with consultants, vendors, partners and clients); and other measures to protect this information. Existing copyright laws afford only limited protection. We believe that the rapid pace of technological change in the computer software industry has made trade secret and copyright protection less significant than factors such as:\n\u2022\nknowledge, ability and experience of our employees;\n\u2022\nfrequent software product enhancements;\n\u2022\nclient education; and\n\u2022\ntimeliness and quality of support services.\nOur competitors may independently develop technologies that are substantially equivalent or superior to our technology. The laws of some countries in which our software products are or may be sold do not protect our software products and intellectual property rights to the same extent as do the laws of the United States.\n26\nTable of Contents\n \nWe generally enter into confidentiality or similar agreements with our employees, clients and vendors. These agreements control access to and distribution of our software, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may copy aspects of our products, obtain and use information that we regard as proprietary, or develop similar technology through reverse engineering or other means. Preventing or detecting unauthorized use of our products is difficult. There can be no assurance that the steps we take will prevent misappropriation of our technology or that such agreements will be enforceable. In addition, we may need to resort to litigation to enforce our intellectual property rights, protect our trade secrets, determine the validity and scope of others\u2019 proprietary rights, or defend against claims of infringement or invalidity. Such litigation could result in significant costs and the diversion of resources. This could materially and adversely affect our business, operating results and financial condition.\nThird parties may assert infringement claims against us. Although we do not believe that our products infringe on the proprietary rights of third parties, we cannot guarantee that third parties will not assert or prosecute infringement or invalidity claims against us. These claims could distract management, require us to enter into royalty arrangements and result in costly and time-consuming litigation, including damage awards. Such assertions or the defense of such claims may materially and adversely affect our business, operating results, or financial condition. In addition, such assertions could result in injunctions against us. Injunctions that prevent us from distributing our products would have a material adverse effect on our business, operating results and financial condition. If third parties assert such claims against us, we may seek to obtain a license to use such intellectual property rights. There can be no assurance that such a license would be available on commercially reasonable terms or at all. If a patent claim against us were successful and we could not obtain a license on acceptable terms or license a substitute technology or redesign to avoid infringement, we may be prevented from distributing our software or required to incur significant expense and delay in developing non-infringing software.\nWe may experience liability claims arising out of the sale of our software and provision of services.\nOur agreements normally contain provisions designed to limit our exposure to potential liability claims and generally exclude consequential and other forms of extraordinary damages. However, these provisions could be rendered ineffective, invalid or unenforceable by unfavorable judicial decisions or by federal, state, local or foreign laws or ordinances. For example, we may not be able to avoid or limit liability for disputes relating to product performance or the provision of services. If a claim against us were to be successful, we may be required to incur significant expense and pay substantial damages, including consequential or punitive damages, which could have a material adverse effect on our business, operating results and financial condition. Even if we prevail in contesting such a claim, the accompanying publicity could adversely affect the demand for our products and services.\nWe also rely on certain technology that we license from third parties, including software that is integrated with our internally developed software. Although these third parties generally indemnify us against claims that their technology infringes on the proprietary rights of others, such indemnification is not always available for all types of intellectual property. Often such third-party indemnitors are not well capitalized and may not be able to indemnify us in the event that their technology infringes on the proprietary rights of others. As a result, we may face substantial exposure if technology we license from a third party infringes on another party\u2019s proprietary rights. Defending such infringement claims, regardless of their validity, could result in significant costs and a diversion of resources.\nPrivacy and security concerns, including evolving government regulation in the area of data privacy, could adversely affect our business and operating results.\nGovernments in many jurisdictions have enacted or are considering enacting consumer data privacy legislation, including laws and regulations applying to the solicitation, collection, processing and use of consumer data. For example, in 2016, the European Union adopted a new law governing data practices and privacy called the General Data Protection Regulation (\u201cGDPR\u201d), which became effective in May 2018. The law establishes new requirements regarding the handling of personal data. Non-compliance with the GDPR may result in monetary penalties of up to 4% of worldwide revenue. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data could greatly increase our cost of providing our products and services or even prevent us from offering certain services in jurisdictions that we operate. In the U.S., California enacted the California Consumer Privacy Act of 2018 (\u201cCCPA\u201d), which took effect on January 1, 2020, and the California Privacy Rights Act (\u201cCPRA\u201d), which expands upon the CCPA was passed in November 2020 and took effect on January 1, 2023, with a \u201clookback\u201d period to January 1, 2022. This legislation broadly defines personal information, gives California residents expanded privacy rights and protections and provides for civil penalties for violations.\nAdditionally, public perception and standards related to the privacy of personal information can shift rapidly, in ways that may affect our reputation or influence regulators to enact regulations and laws that may limit our ability to provide certain products. Federal, state, or foreign laws and regulations, including laws and regulations regulating privacy, data security, or consumer protection, or other policies, public perception, standards, self-regulatory requirements or legal obligations, could reduce the demand for our software products if we fail to design or enhance our products to enable our clients to comply with the privacy and security measures dictated by these requirements. Moreover, we may be exposed to liability under existing or new data privacy legislation. Even technical violations of these laws can result in penalties that are assessed for each non- compliant transaction. If we or our clients were found to be subject to and in violation of any of these laws or other data privacy laws or regulations, our business could suffer and we and/or our clients would likely have to change our business practices.\n27\nTable of Contents\n \nWe face risks associated with the security of our products, which could reduce our revenue and earnings, increase our expenses and expose us to legal claims and regulatory actions.\nMaintaining the security of computers and computer networks is an issue of critical importance for our clients. Attempts by experienced computer programmers, or hackers, to penetrate client network security or the security of web sites to misappropriate confidential information have become an industry-wide phenomenon that affects computers and networks across all platforms. We have included security features in certain of our Internet browser-enabled products that are intended to protect the privacy and integrity of client data. In addition, some of our software applications use encryption technology to permit the secure exchange of valuable and confidential information. Despite these security features, our products may be vulnerable to break-ins and similar problems caused by hackers, which could jeopardize the security of information stored in and transmitted through the computer systems of our clients. Actual or perceived security vulnerabilities in our products (or the Internet in general) could lead some clients to seek to reduce or delay future purchases or to purchase competitors\u2019 products which are not Internet-based applications. Clients may also increase their spending to protect their computer networks from attack, which could delay adoption of new technologies. Any of these actions by clients and the cost of addressing such security problems may have a material adverse effect on our business.\nAlthough our agreements with our clients contain provisions designed to limit our exposure as a result of the situations listed above, such provisions may not be effective. Existing or future federal, state, local or foreign laws or ordinances or unfavorable judicial decisions could affect their enforceability. Additionally, defending such a data breach lawsuit brought by a client, regardless of its merits, could entail substantial expense and require the time and attention of key management.\n \nWe depend on third-party technology, which could result in increased costs or delays in the production and improvement of our products if it should become unavailable or if it contains defects.\nWe license critical third-party software that we incorporate into our own software products. We are likely to incorporate and include additional third-party software in our products and software as we expand our product offerings. The operation of our products would be impaired if errors occur in the third-party software that we utilize. It may be difficult for us to correct any defects in third-party software because the software is not within our control. Accordingly, our business could be adversely affected in the event of any errors in this software. There can be no assurance that third parties will continue to make their software available to us on acceptable terms, invest the appropriate levels of resources in their products and services to maintain and enhance the capabilities of their software, or even remain in business. Further, due to the limited number of vendors of certain types of third-party software, it may be difficult for us to replace such third-party software if a vendor terminates our license of the software or our ability to license the software to clients. If our relations with any of these third-party software providers are impaired and if we are unable to obtain or develop a replacement for the software, our business could be harmed. In addition, if the cost of licensing any of these third-party software products significantly increases, our gross margin levels could significantly decrease.\nAny interruptions or delays in services from third parties, or our inability to adequately plan for and manage service interruptions or infrastructure capacity requirements, could impair the delivery of our services and harm our business.\nWe currently serve our clients from third-party data center hosting facilities and cloud computing platform providers located in the United States and other countries. Any damage to or failure of our systems generally, including the systems of our third-party platform providers, could result in interruptions in our services. From time to time we have experienced interruptions in our services and such interruptions may occur in the future. As we increase our reliance on these third-party systems, the risk of service interruptions may increase. Interruptions in our services may cause clients to make warranty or other claims against us or terminate their agreements and adversely affect our ability to attract new clients, all of which would reduce our revenue. Our business also would be harmed if clients and potential clients believe our services are unreliable.\nThese data and cloud computing platforms may not continue to be available at reasonable prices, on commercially reasonable terms or at all. Any loss of the right to use any of these cloud computing platforms could significantly increase our expenses and otherwise result in delays in providing our services until equivalent technology either is developed by us or, if available, is identified, purchased or licensed and integrated into our services.\nIf we do not accurately plan for our infrastructure capacity requirements and we experience significant strain on our data center capacity, our clients could experience performance degradation or service outages that may subject us to financial liability, result in client losses and harm our business. As we add data centers and capacity and continue to move to a cloud computing platform, we may move or transfer our data and our clients\u2019 data. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery of our services, which may adversely impact our business.\nAny failure to offer high-quality customer support for our cloud platform may adversely affect our relationships with our clients and harm our financial results.\nOnce our software is implemented, our clients use our support organization to resolve technical issues relating to our software.  In addition, we also believe that our success in selling our software and services is highly dependent on our business reputation and on favorable recommendations from our existing clients. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality support, could harm our reputation, adversely affect our ability to \n28\nTable of Contents\n \nmaintain existing clients or sell our solutions to existing and prospective clients and harm our business, operating results and financial condition.\nWe may be unable to respond quickly enough to accommodate short-term increases in client demand for support services. Increased client demand for these services, without corresponding revenues, could also increase costs and adversely affect our operating results.\nRISK FACTORS RELATED TO OUR PERSONNEL\nWe are dependent upon key personnel and need to attract and retain highly qualified personnel.\nOur future operating results depend significantly upon the continued service of a relatively small number of key senior management and technical personnel, including our Chief Executive Officer and President, H. Allan Dow. None of our key personnel are bound by long-term employment agreements. We do not have in place \u201ckey person\u201d life insurance policies on any of our employees. If we fail to retain senior management or other key personnel, or fail to attract key personnel, our succession planning and operations could be materially and adversely affected and could jeopardize our ability to meet our business goals.\nOur future success also depends on our continuing ability to attract, train, retain and motivate other highly qualified managerial and technical personnel. Competition for these personnel is intense and at times we have experienced difficulty in recruiting and retaining qualified personnel, including sales and marketing representatives, qualified software engineers involved in ongoing product development and personnel who assist in the implementation of our products and provide other services. The market for such individuals is competitive. Given the critical roles of our sales, product development and consulting personnel, our inability to recruit successfully or any significant loss of key personnel would adversely affect us. The software industry is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. It may be particularly difficult to retain or compete for skilled personnel against larger, better-known software companies. We cannot guarantee that we will be able to retain our current personnel, attract and retain other highly qualified technical and managerial personnel in the future, or assimilate the employees from any acquired businesses. We will continue to adjust the size and composition of our workforce to match the relevant product and geographic demand cycles. If we are unable to attract and retain the necessary technical and managerial personnel, or assimilate the employees from any acquired businesses, our business, operating results and financial condition would be adversely affected.\nThe failure to attract, train, retain and effectively manage employees could negatively impact our development and sales efforts and cause a degradation of our customer service. In particular, the loss of sales personnel could lead to lost sales opportunities because it can take several months to hire and train replacement sales personnel. If our competitors increase their use of non-compete agreements, the pool of available sales and technical personnel may further shrink, even if the non-compete agreements ultimately prove to be unenforceable. We may grant large numbers of stock options to attract and retain personnel, which could be highly dilutive to our shareholders. The volatility or lack of positive performance of our stock price may adversely affect our ability to retain or attract employees. The loss of key management and technical personnel or the inability to attract and retain additional qualified personnel could have an adverse effect on us.\nWe may need to restructure our work force, which can be disruptive.\nPeriodically, we have restructured or made other adjustments to our work force in response to factors such as product changes, geographical coverage and other internal considerations. Change in the structures of the work force and management can cause us to terminate and then hire new personnel and/or result in temporary lack of focus and reduced productivity, which may affect revenue in one or more quarters. Future restructuring of our work force could occur and if so, we may again experience the adverse transition issues associated with such restructuring.\nOur technical personnel have unique access to client data and may abuse that privilege.\nIn order to properly render the services we provide, our technical personnel have the ability to access data on the systems run by our clients or hosted by us for our clients, including data about the operations of our clients and even about the customers of our clients. Although we have never had such an occurrence in the entire history of our Company, it is conceivable that such access could be abused in order to improperly utilize that data to the detriment of such clients.\nRISK FACTORS RELATED TO OUR CORPORATE STRUCTURE AND GOVERNANCE\nOur business is subject to changing regulation of corporate governance and public disclosure that has increased both our costs and the risk of non-compliance.\nBecause our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC and NASDAQ, have issued requirements and regulations and continue to develop additional regulations and requirements in response to laws enacted by Congress. Our efforts to comply with these regulations have resulted in and are likely to continue to result in, increased general \n29\nTable of Contents\n \nand administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.\nIn particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal control over financial reporting and our independent registered public accounting firm\u2019s audits of that assessment have required and continue to require, the commitment of significant financial and managerial resources. Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. Over time, we have made significant changes in and may consider making additional changes to, our internal controls, our disclosure controls and procedures and our corporate governance policies and procedures. Any system of controls, however well-designed and -operated, is based in part on certain assumptions and can provide only reasonable and not absolute, assurances that the objectives of the system are met. Any failure of our controls, policies and procedures could have a material adverse effect on our business, results of operations, cash flow and financial condition.\nIf in the future we are unable to assert that our internal control over financial reporting is effective as of the end of the then current fiscal year (or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting), we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a negative market reaction.\nOne shareholder beneficially owns a substantial portion of our stock and as a result exerts substantial control over us.\nAs of July 3, 2023, James C. Edenfield, Executive Chairman, Treasurer and a Director of the Company, beneficially owned 1,821,587 shares, or 100%, of our Class B common stock and 60,000 shares, or 0.18%, of our Class A common stock. If all of Mr. Edenfield\u2019s Class B shares were converted into Class A shares, Mr. Edenfield would beneficially own 1,881,587 Class A shares, which would represent approximately 5.51% of all outstanding Class A shares after giving effect to such conversion. As a result of Mr. Edenfield\u2019s ownership of Class B common stock, he has the right to elect a majority of our Board of Directors. Such control and concentration of ownership may discourage a potential acquirer from making a purchase offer that other shareholders might find favorable, which in turn could adversely affect the market price of our common stock.\nOur articles of incorporation and bylaws and Georgia law may inhibit a takeover of our company.\nOur basic corporate documents and Georgia law contain provisions that might enable our management to resist a takeover. These provisions might discourage, delay or prevent a change in the control or a change in our management. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors and take other corporate actions. The existence of these provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.\nWe are a \u201ccontrolled company\u201d within the meaning of NASDAQ rules and, as a result, qualify for and rely on, exemptions from certain corporate governance requirements.\nBecause Mr. Edenfield has the ability to elect more than half of the members of our Board of Directors, we are a \u201ccontrolled company\u201d within the meaning of the rules governing companies with stock quoted on the NASDAQ Global Select Market. Under these rules, a \u201ccontrolled company\u201d is a company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. As a controlled company, we are exempt from certain corporate governance requirements, including requirements that: (1) a majority of the board of directors consist of independent directors; (2) compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee that is composed entirely of independent directors; and (3) director nominees be selected or recommended for selection by a majority of the independent directors or by a nominating committee composed solely of independent directors. Accordingly, our procedures for approving significant corporate decisions are not subject to the same corporate governance requirements as non-controlled companies with stock quoted on the NASDAQ Global Select Market.\nRISK FACTORS RELATED TO OUR STOCK PRICE\nWe could experience fluctuations in quarterly operating results that could adversely affect our stock price.\nWe have difficulty predicting our actual quarterly operating results, which have varied widely in the past and which we expect to continue to vary significantly from quarter to quarter due to a number of factors, many of which are outside our control. We base our expense levels, operating costs and hiring plans on projections of future revenue and it is difficult for us to rapidly adjust when actual results do not match our projections. If our quarterly revenue or operating results fall below the expectations of investors or public market analysts, the price of our common stock could fall substantially. Revenue in any quarter depend on the combined sales activity of the Company and its subsidiaries and our ability to recognize revenue in that quarter in accordance with our revenue recognition policies. Our sales activity is difficult to forecast for a variety of reasons, including the following:\n\u2022\nwe complete a significant portion of our client agreements within the last few weeks of each quarter;\n30\nTable of Contents\n \n\u2022\nif an agreement includes cloud services that are performed over the term of the contract, this requires all revenue to be spread over the term of the contract;\n\u2022\nour sales cycle for products and services, including multiple levels of authorization required by some clients, is relatively long and variable because of the complex and mission-critical nature of our products;\n\u2022\nthe demand for our products and services can vary significantly;\n\u2022\nthe size of our transactions can vary significantly;\n\u2022\nthe possibility of adverse global political or public health conditions and economic downturns, both domestic and international, characterized by decreased product demand, price erosion, technological shifts, work slowdowns and layoffs, may substantially reduce client demand and contracting activity;\n\u2022\nclients may unexpectedly postpone or cancel anticipated system replacement or new system evaluation and implementation due to changes in their strategic priorities, project objectives, budgetary constraints, internal purchasing processes or company management;\n\u2022\nclient evaluation and purchasing processes vary from company to company and a client\u2019s internal approval and expenditure authorization process can be difficult and time-consuming, even after selection of a vendor; and\n\u2022\nthe number, timing and significance of software product enhancements and new software product announcements by us and by our competitors may affect purchase decisions.\nVariances or slowdowns in our contracting activity in prior quarters may affect current and future consulting, training and maintenance revenue, since these revenue typically follow license or subscription fee revenue. Our ability to maintain or increase services revenue primarily depends on our ability to increase the number and size of our client agreements. In addition, we base our budgeted operating costs and hiring plans primarily on our projections of future revenue. Because most of our expenses, including employee compensation and rent, are relatively fixed in the near term, if our actual revenue falls below projections in any particular quarter, our business, operating results and financial condition could be materially and adversely affected. In addition, our expense levels are based, in part, on our expectations regarding future revenue increases. As a result, any shortfall in revenue in relation to our expectations could cause significant changes in our operating results from quarter to quarter and could result in quarterly losses. As a result of these factors, we believe that period-to-period comparisons of our revenue and operating results are not necessarily meaningful. Therefore, predictions of our future performance should not be based solely on our historical quarterly revenue and operating results.\n \nOur stock price is volatile and there is a risk of litigation.\nThe trading price of our common stock has been in the past and in the future may be subject to wide fluctuations in response to factors such as the following:\n\u2022\ngeneral market conditions including an economic recession;\n\u2022\nrevenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment community;\n\u2022\nclient order deferrals resulting from the anticipation of new products, economic uncertainty, disappointing operating results by the client, management changes, corporate reorganizations or otherwise;\n\u2022\nreduced investor confidence in equity markets, due in part to corporate collapses in recent years;\n\u2022\nspeculation in the press or analyst community;\n\u2022\nwide fluctuations in stock prices, particularly in relation to the stock prices for other technology companies;\n\u2022\nannouncements of technological innovations by us or our competitors;\n\u2022\nnew products or the acquisition or loss of significant clients by us or our competitors;\n\u2022\ndevelopments with respect to our proprietary rights or those of our competitors;\n\u2022\nchanges in interest rates and inflation rates;\n\u2022\nchanges in investors\u2019 beliefs as to the appropriate price-earnings ratios for us and our competitors;\n\u2022\nchanges in recommendations or financial estimates by securities analysts who track our common stock or the stock of other software companies;\n\u2022\nchanges in management;\n\u2022\nsales of common stock by our controlling shareholder, directors and executive officers;\n\u2022\nrumors or dissemination of false or misleading information, particularly through the Internet  (e.g. social media) and other rapid-dissemination methods;\n\u2022\nconditions and trends in the software industry generally;\n\u2022\nthe announcement of acquisitions or other significant transactions by us or our competitors;\n\u2022\nadoption of new accounting standards affecting the software industry;\n\u2022\ndomestic or international terrorism, global or regional conflicts including the invasion of Ukraine by Russia, major public health concern including the COVID-19 pandemic and other significant external factors; and\n\u2022\nother factors described in these \u201cRisk Factors.\u201d\nFluctuations in the price of our common stock may expose us to the risk of securities class action lawsuits. Although no such lawsuits are currently pending against us and we are not aware that any such lawsuit is threatened to be filed in the future, there is no assurance that we will not be sued based on fluctuations in the price of our common stock. Defending against such lawsuits could result in substantial cost and divert management\u2019s attention and resources. In addition, any settlement or adverse determination of these lawsuits could subject us to significant liabilities.\nOur dividend policy is subject to change.\n31\nTable of Contents\n \nOn June 1, 2023, our Board of Directors declared a quarterly cash dividend of $0.11 per share of our Class A and Class B common stock. The cash dividend will be payable on August 25, 2023 to Class A and Class B shareholders of record at the close of business on August 11, 2023. We currently expect to declare and pay cash dividends at this level on a quarterly basis in the future. However, our dividend policy may be affected by, among other things, our views on business conditions, financial position, earnings, earnings outlook, capital spending plans and other factors that our Board of Directors considers relevant at that time. Our dividend policy has changed in the past and may change from time to time and we cannot provide assurance that we will continue to declare dividends in any particular amounts or at all. A change in our dividend policy could have a negative effect on the market price of our common stock.\nThe price of our common stock may decline due to shares eligible for future sale or actual future sales of substantial amounts of our common stock.\nSales of substantial amounts of our common stock in the public market, or the perception that such sales may occur, could cause the market price of our common stock to decline. As of July 3, 2023, if all of our outstanding Class B common shares were converted into Class A common shares, our current directors and executive officers of the Company as a group would beneficially own approximately 10.86% of all outstanding Class A common shares after giving effect to such conversion. Sales of substantial amounts of our common stock in the public market by these persons, or the perception that such sales may occur, could cause the market price of our common stock to decline and could impair our ability to raise capital through the sale of additional equity securities.\n32\nTable of Contents\n ",
+  "item7": ">ITEM\u00a07.\u00a0\u00a0\u00a0\u00a0MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThe following discussion and analysis should be read in conjunction with \u201cItem 8. Consolidated Financial Statements and Supplementary Data\u201d. This discussion contains forward-looking statements relating to our future financial performance, business strategy, financing plans and other future events that involve uncertainties and risks. You can identify these statements by forward-looking words such as \u201canticipate,\u201d \u201cintend,\u201d \u201cplan,\u201d \u201ccontinue,\u201d \u201ccould,\u201d \u201cgrow,\u201d \u201cmay,\u201d \u201cpotential,\u201d \u201cpredict,\u201d \u201cstrive,\u201d \u201cestimate,\u201d \u201cbelieve,\u201d \u201cexpect\u201d and similar expressions that convey uncertainty of future events or outcomes. Any forward-looking statements herein are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially from the results anticipated by these forward-looking statements as a result of many known and unknown factors that are beyond our ability to control or predict, including but not limited to those discussed above in \u201cRisk Factors\u201d and elsewhere in this report. See also \u201cSpecial Cautionary Notice Regarding Forward-Looking Statements\u201d at the beginning of \u201cItem 1. Business.\u201d\n43\nTable of Contents\n \nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\nWe have based the following discussions and analysis of financial condition and results of operations on our consolidated financial statements, which we have prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Note 1 to the Consolidated Financial Statements for the fiscal year ended April 30, 2023, describes the significant accounting policies that we have used in preparing our consolidated financial statements. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to revenue/collectability. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results could differ materially from these estimates under different assumptions or conditions.\nWe believe the critical accounting policies listed below affect significant judgments and estimates used in the preparation of the consolidated financial statements.\nRevenue Recognition.\n The most critical judgments required in applying ASC 606, \nRevenue Recognition from Customers\n and \nour revenue recognition policy relate to the determination of distinct performance obligations and the evaluation of the standalone selling price (\u201cSSP\u201d) for each performance obligation.\nSome of our contracts with clients contain multiple performance obligations. For these contracts, we account for the individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and entity-specific factors, including the value of our arrangements, length of term, customer demographics and the numbers and types of users within our arrangements.\nWhile changes in assumptions or judgments or changes to the elements of the arrangement could cause an increase or decrease in the amount of revenue that we report in a particular period, these changes have not historically been significant because our recurring revenue is primarily subscription and support revenue.\n44\nTable of Contents\n \nRESULTS OF OPERATIONS\nThe following table sets forth certain revenue and expense items as a percentage of total revenue for the three years ended April\u00a030, 2023, 2022 and 2021 and the percentage increases or decreases in those items for the years ended April\u00a030, 2023 and 2022:\n\u00a0\nPercentage of Total Revenue\nPct. Change in\nDollars\nPct. Change in\nDollars\n\u00a0\n2023\n2022\n2021\n2023 vs. 2022\n2022 vs. 2021\nRevenue:\nSubscription fees\n41\u00a0\n%\n33\u00a0\n%\n26\u00a0\n%\n20\u00a0\n%\n46\u00a0\n%\nLicense fees\n2\u00a0\n4\u00a0\n3\u00a0\n(49)\n80\u00a0\nProfessional services and other\n29\u00a0\n34\u00a0\n35\u00a0\n(17)\n10\u00a0\nMaintenance\n28\u00a0\n29\u00a0\n36\u00a0\n(6)\n(8)\nTotal revenue\n100\u00a0\n100\u00a0\n100\u00a0\n(3)\n14\u00a0\nCost of revenue:\nSubscription fees\n13\u00a0\n10\u00a0\n11\u00a0\n18\u00a0\n13\u00a0\nLicense fees\n1\u00a0\n1\u00a0\n2\u00a0\n(36)\n(43)\nProfessional services and other\n21\u00a0\n25\u00a0\n26\u00a0\n(13)\n4\u00a0\nMaintenance\n5\u00a0\n5\u00a0\n7\u00a0\n(8)\n(8)\nTotal cost of revenue\n40\u00a0\n41\u00a0\n46\u00a0\n(5)\n3\u00a0\nGross margin\n60\u00a0\n59\u00a0\n54\u00a0\n(2)\n24\u00a0\nResearch and development\n14\u00a0\n14\u00a0\n15\u00a0\n1\u00a0\n4\u00a0\nSales and marketing\n18\u00a0\n18\u00a0\n18\u00a0\n(3)\n13\u00a0\nGeneral and administrative\n19\u00a0\n17\u00a0\n17\u00a0\n8\u00a0\n15\u00a0\nAmortization of acquisition-related intangibles\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(50)\n\u2014\u00a0\nTotal operating expenses\n51\u00a0\n49\u00a0\n50\u00a0\n2\u00a0\n11\u00a0\nOperating income\n9\u00a0\n10\u00a0\n4\u00a0\n(20)\n202\u00a0\nOther income:\nInterest income\n2\u00a0\n\u2014\u00a0\n\u2014\u00a0\n450\u00a0\n(4)\nOther, net\n\u2014\u00a0\n\u2014\u00a0\n4\u00a0\n(36)\n(93)\nEarnings before income taxes\n11\u00a0\n10\u00a0\n8\u00a0\n(7)\n56\u00a0\n%\nIncome tax expense\n2\u00a0\n1\u00a0\n1\u00a0\n134\u00a0\n39\u00a0\nNet earnings\n9\u00a0\n%\n9\u00a0\n%\n7\u00a0\n%\n(18)\n%\n58\u00a0\n%\nEconomic Overview and Significant Trends in Our Business\nGlobal macro-economic trends, technology spending and supply chain management market growth are important barometers for our business.  In fiscal 2023, approximately 81% of our total revenue was generated in the United States, 10% was in the Europe, Middle East and Africa (\"EMEA\") and the remaining balance in Asia Pacific (\"APAC\"), Canada and Latin America. Gartner Inc. (\u201cGartner\u201d), an information technology research and advisory company, estimates that nearly 76% of every supply chain solutions dollar invested is spent in North America and Western Europe, consequently, the health of those economies have a meaningful impact on our financial results. \nIn April 2023, the International Monetary Fund (\u201cIMF\u201d) provided an update to the World Economic Outlook for the 2023 world economic growth forecast. The update noted that, \n\u201c\nTentative signs in early 2023 that the world economy could achieve a soft landing\u2014with inflation coming down and growth steady\u2014have receded amid stubbornly high inflation and recent financial sector turmoil. Although inflation has declined as central banks have raised interest rates and food and energy prices have come down, underlying price pressures are proving sticky, with labor markets tight in a number of economies. Side effects from the fast rise in policy rates are becoming apparent, as banking sector vulnerabilities have come into focus and fears of contagion have risen across the broader financial sector, including nonbank financial institutions. Policymakers have taken forceful actions to stabilize the banking system.\nIn parallel, the other major forces that shaped the world economy in 2022 seem set to continue into this year, but with changed intensities. Debt levels remain high, limiting the ability of fiscal policymakers to respond to new challenges. Commodity prices that rose sharply following Russia\u2019s invasion of Ukraine have moderated, but the war continues and geopolitical tensions are high. Infectious COVID-19 strains caused widespread outbreaks last year, but economies that were hit hard\u2014most notably \n45\nTable of Contents\n \nChina\u2014appear to be recovering, easing supply-chain disruptions. Despite the fillips from lower food and energy prices and improved supply-chain functioning, risks are firmly to the downside with the increased uncertainty from the recent financial sector turmoil. \nThe baseline forecast, which assumes that the recent financial sector stresses are contained, is for growth to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before rising slowly and settling at 3.0 percent five years out\u2013\u2013the lowest medium-term forecast in decades. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5 percent in 2023\u2013\u2013the weakest growth since the global downturn of 2001, barring the initial COVID-19 crisis in 2020 and during the global financial crisis in 2009\u2013\u2013with advanced economy growth falling below 1 percent. The anemic outlook reflects the tight policy stances needed to bring down inflation, the fallout from the recent deterioration in financial conditions, the ongoing war in Ukraine and growing geoeconomic fragmentation. Global headline inflation is set to fall from 8.7 percent in 2022 to 7.0 percent in 2023 on the back of lower commodity prices, but underlying (core) inflation is likely to decline more slowly. Inflation\u2019s return to target is unlikely before 2025 in most cases. Once inflation rates are back to targets, deeper structural drivers will likely reduce interest rates toward their pre-pandemic levels.\n\u201d\nFor fiscal 2024, we believe that the mission critical nature of our software, combined with a challenging global macro economic environment from increased global disruptions on companies\u2019 supply chains will require them to improve productivity and profitability by upgrading their technology systems, which may result in an improved selling environment. Although this improvement could slow or regress at any time, due in part to the effects of a possible recession and trade conflicts on global capital markets, we believe that our organizational and financial structure will enable us to take advantage of any sustained economic rebound. That said, the current business climate within the United States and geographic regions in which we operate may affect \nclient\ns\u2019 and prospects' decisions regarding timing of strategic capital expenditures by taking longer periods to evaluate discretionary software purchases.\nBusiness Opportunities and Risks\nWe currently view the following factors as the primary opportunities and risks associated with our business:\n\u00a0\n\u2022\nDependence on Capital Spending Patterns\n. There is risk associated with our dependence on the capital spending patterns of U.S. and international businesses, which in turn are functions of economic trends and conditions over which we have no control.\n\u2022\nAcquisition Opportunities\n. There are opportunities for selective acquisitions or investments to expand our sales distribution channels and/or broaden our product offering by providing additional software and services for our target markets.\n\u2022\nAcquisition Risks\n. There are risks associated with acquisitions of complementary companies, products and technologies, including the risks that we will not achieve the financial and strategic goals that we contemplate at the time of the transaction. More specifically, in any acquisition we will face risks and challenges associated with the uncertain value of the acquired business or assets, the difficulty of assimilating operations and personnel, integrating acquired technologies and products and maintaining the loyalty of the clients of the acquired business.\n\u2022\nCompetitive Technologies\n. There is a risk that our competitors may develop technologies that are substantially equivalent or superior to our technology.\n\u2022\nCompetition in General\n. There are risks inherent in the market for business application software and related services, which has been and continues to be intensely competitive; for example, some of our competitors may become more aggressive with their prices and/or payment terms, which may adversely affect our profit margins.\nFor more information, please see \u201cRisk Factors\u201d in Item\u00a01A. above.\nRecent Accounting Pronouncements\nFor information with respect to recent accounting pronouncements, if any, and the impact of these pronouncements on our consolidated financial statements, if any, see Note 1(n) of Notes to Consolidated Financial Statements included elsewhere in this Form 10-K.\nMarket Conditions by Operating Segment\nWe operate and manage our business in three segments based on software and services provided in three key product markets: (1)\u00a0SCM, which provides collaborative supply chain software and services to streamline and optimize the production, \n46\nTable of Contents\n \ndistribution and management of products between trading partners; (2)\u00a0IT Consulting, which consists of IT staffing and consulting services; and (3)\u00a0Other, which consists of (i)\u00a0American Software ERP, a provider of purchasing and materials management, client order processing, financial, human resources and manufacturing software and services and (ii)\u00a0unallocated corporate overhead expenses.\nOur SCM segment experienced a 2% increase in revenue during fiscal 2023 when compared to fiscal 2022, primarily due to a 20% increase in subscription fees partially offset by a 49% decrease in license fees, an 8% decrease in professional services and other revenue and a 6% decrease in maintenance revenue. \nOur IT Consulting segment experienced a 27% decrease in revenue in fiscal 2023 when compared to fiscal 2022, due primarily to fluctuations in IT staffing work at our largest client. As companies experienced a more difficult selling environment they cut back on IT services. Therefore, this trend has resulted in decreased business for this segment. Our largest consulting client comprised 21% of our IT Consulting revenue in fiscal 2023 and 31% in fiscal 2022. The loss of this client would negatively and materially affect our IT Consulting business. \nThe Other segment revenue decreased by 5% in fiscal 2023 when compared to fiscal 2022, primarily due to a 24% decrease in license fees, a 10% decrease in professional services and other revenue, while maintenance revenue remained flat. \nREVENUE\n\u00a0\nYears Ended April\u00a030,\n\u00a0\n2023\n2022\n2021\n% Change\n%\u00a0of\u00a0Total\u00a0Revenue\n\u00a0\n2023 vs. 2022\n2022 vs. 2021\n2023\n2022\n2021\n\u00a0\n(in\u00a0thousands)\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nSubscription fees\n$\n50,412\u00a0\n$\n42,066\u00a0\n$\n28,877\u00a0\n20\u00a0\n%\n46\u00a0\n%\n41\u00a0\n%\n33\u00a0\n%\n26\u00a0\n%\nLicense fees\n2,752\u00a0\n5,390\u00a0\n2,993\u00a0\n(49)\n%\n80\u00a0\n%\n2\u00a0\n%\n4\u00a0\n%\n3\u00a0\n%\nProfessional service and other\n35,938\u00a0\n43,476\u00a0\n39,616\u00a0\n(17)\n%\n10\u00a0\n%\n29\u00a0\n%\n34\u00a0\n%\n35\u00a0\n%\nMaintenance\n34,557\u00a0\n36,621\u00a0\n39,922\u00a0\n(6)\n%\n(8)\n%\n28\u00a0\n%\n29\u00a0\n%\n36\u00a0\n%\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total revenue\n$\n123,659\u00a0\n$\n127,553\u00a0\n$\n111,408\u00a0\n(3)\n%\n14\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\nFor the year ended April\u00a030, 2023, the 3% decrease in total revenue compared to fiscal 2022 was attributable primarily to a 49% decrease in license revenue, a 20% increase in subscription fees revenue and a 17% decrease in professional services and other revenue and a 6% decrease in maintenance revenue.\nDue to intensely competitive markets, we discount subscription and license fees from our published list price due to pricing pressure in our industry. Numerous factors contribute to the amount of the discounts provided, such as previous client purchases, the number of client sites utilizing the software, the number of modules purchased and the number of users, the type of platform deployment, as well as the overall size of the contract. While all these factors affect the discount amount of a particular contract, the overall percentage discount has not materially changed in the recent reported fiscal periods.\nThe change in our revenue from period to period is primarily due to the volume of products and related services sold in any period and the amounts of products or modules purchased with each sale.\nInternational revenue represented approximately 19% of total revenue for the year ended April\u00a030, 2023 and 16% of total revenue for the year ended April\u00a030, 2022. Our international revenue may fluctuate substantially from period to period primarily because we derive this revenue from a relatively small number of clients.\nSubscription Fees Revenue\n\u00a0\n47\nTable of Contents\n \n\u00a0\nYears Ended April\u00a030,\n\u00a0\n2023\n2022\n2021\n% Change\n\u00a0\n2023 vs. 2022\n2022 vs. 2021\n\u00a0\n(in\u00a0thousands)\n\u00a0\n\u00a0\nSupply Chain Management\n$\n50,412\u00a0\n$\n42,066\u00a0\n$\n28,877\u00a0\n20\u00a0\n%\n46\u00a0\n%\nTotal subscription fees revenue\n$\n50,412\u00a0\n$\n42,066\u00a0\n$\n28,877\u00a0\n20\u00a0\n%\n46\u00a0\n%\nFor the year ended April\u00a030, 2023, subscription fee revenue increased by 20% when compared to the same period in the prior year primarily due to an increase in Cloud Services bookings. This increase was attributable to an increase in the number of contracts, contracts with a higher Cloud Services Annual Contract Value (\"ACV\"), as well as an increase in the value of multi-year contracts (typically three to five years). This is evidence of our successful transition to the cloud subscription model.\nLicense Fees Revenue\n\u00a0\n\u00a0\nYears Ended April\u00a030,\n\u00a0\n2023\n2022\n2021\n% Change\n\u00a0\n2023 vs. 2022\n2022 vs. 2021\n\u00a0\n(in\u00a0thousands)\n\u00a0\n\u00a0\nSupply Chain Management\n$\n2,736\u00a0\n$\n5,369\u00a0\n$\n2,977\u00a0\n(49)\n%\n80\u00a0\n%\nOther\n16\u00a0\n21\u00a0\n16\u00a0\n(24)\n%\n31\u00a0\n%\nTotal license fees revenue\n$\n2,752\u00a0\n$\n5,390\u00a0\n$\n2,993\u00a0\n(49)\n%\n80\u00a0\n%\nFor the year ended April\u00a030, 2023, license fee revenue decreased by 49% when compared to the previous year. Our SCM segment experienced a 49% decrease in license fees primarily due to a decrease in the number of existing clients choosing to deploy our software on-premise this year.  Our Other business segment experienced a 24% decrease in license fees revenue for the year ended April\u00a030, 2023 when compared to the same period in the prior year due to the timing of selling into the installed client base. We anticipate that the majority of future license fee sales will be to existing on-premise clients for add-on expansion. The SCM segment constituted 99% and 100% of our total license fee revenue for the years ended April\u00a030, 2023 and 2022, respectively.\nThe direct sales channel provided approximately 58% of license fee revenue for the year ended April\u00a030, 2023, compared to approximately 96% in fiscal 2022. The decrease in direct license fees from fiscal 2022 to fiscal 2023 was largely due to an increase in International license fee deals to existing clients this year compared to last year.  \nFor the year ended April\u00a030, 2023, our margins after commissions on direct sales were approximately 91% and our margins after commissions on indirect sales were approximately 62%. For the year ended April\u00a030, 2022, our margins after commissions on direct sales were approximately 91% and our margins after commissions on indirect sales were approximately 66%. The margins after commissions for direct and indirect sales were relatively consistent at 91% and between 58% to 66%, respectively.\n \nThe indirect channel margins for the fiscal year ended April\u00a030, 2023 decreased when compared to the same periods in the prior year due to the mix of value-added reseller (\u201cVAR\u201d) commission rates. The commission percentage on our indirect sales varies based on whether the sale is domestic or international.\nProfessional Services and Other Revenue\n48\nTable of Contents\n \n\u00a0\nYears Ended April\u00a030,\n\u00a0\n2023\n2022\n2021\n% Change\n\u00a0\n2023 vs. 2022\n2022 vs. 2021\n\u00a0\n(in\u00a0thousands)\n\u00a0\n\u00a0\nSupply Chain Management\n$\n19,660\u00a0\n$\n21,475\u00a0\n$\n19,713\u00a0\n(8)\n%\n9\u00a0\n%\nIT Consulting\n15,407\u00a0\n21,032\u00a0\n19,036\u00a0\n(27)\n%\n10\u00a0\n%\nOther\n871\u00a0\n969\u00a0\n867\u00a0\n(10)\n%\n12\u00a0\n%\nTotal professional services and other revenue\n$\n35,938\u00a0\n$\n43,476\u00a0\n$\n39,616\u00a0\n(17)\n%\n10\u00a0\n%\nThe 17% decrease in total professional services and other revenue for the year ended April\u00a030, 2023 was due to a 10% decrease in our Other segment due to lower utilization from project implementation services and services activity, combined with a 27% decrease in our IT Consulting segment due to the timing of project work and a 8% decrease in our SCM segment professional services primarily due to a decrease in project implementation work resulting from lower subscription and license fee sales in fiscal 2023.\nIn our software segments, we have observed that there is a tendency for professional services and other revenue to lag changes in license revenue by one to three quarters, as new bookings in one quarter often involve implementation and consulting services in subsequent quarters, for which we recognize revenue only as we perform those services.\nMaintenance Revenue\n\u00a0\nYears Ended April\u00a030,\n\u00a0\n2023\n2022\n2021\n% Change\n\u00a0\n2023 vs. 2022\n2022 vs. 2021\n\u00a0\n(in\u00a0thousands)\n\u00a0\n\u00a0\nSupply Chain Management\n$\n33,319\u00a0\n$\n35,379\u00a0\n$\n38,701\u00a0\n(6)\n%\n(9)\n%\nOther\n1,237\u00a0\n1,242\u00a0\n1,221\u00a0\n\u2014\u00a0\n%\n2\u00a0\n%\nTotal maintenance revenue\n$\n34,556\u00a0\n$\n36,621\u00a0\n$\n39,922\u00a0\n(6)\n%\n(8)\n%\nThe 6% decrease in total maintenance revenue for the year ended April\u00a030, 2023 was due to a 6% decrease in maintenance revenue from our SCM segment due to normal client attrition and clients converting from on-premise support to our SaaS cloud platform.\nThe SCM segment\u2019s maintenance revenue constituted 96% of total maintenance revenue for the years ended April\u00a030, 2023 and 2022, respectively. Typically, our maintenance revenue has had a direct relationship to current and historic license fee revenue, since new licenses are the potential source of new maintenance clients.\nGROSS MARGIN\nThe following table provides both dollar amounts and percentage measures of gross margin:\u00a0\n\u00a0\nYears Ended April\u00a030,\n\u00a0\n2023\n2022\n2021\n\u00a0\n(in\u00a0thousands)\nGross margin on subscriptions fees\n$\n34,581\u00a0\n69\u00a0\n%\n$\n28,683\u00a0\n68\u00a0\n%\n$\n16,993\u00a0\n59\u00a0\n%\nGross margin on license fees\n2,047\u00a0\n74\u00a0\n%\n4,286\u00a0\n80\u00a0\n%\n1,072\u00a0\n36\u00a0\n%\nGross margin on professional services and other\n9,515\u00a0\n26\u00a0\n%\n13,170\u00a0\n30\u00a0\n%\n10,523\u00a0\n27\u00a0\n%\nGross margin on maintenance\n28,148\u00a0\n81\u00a0\n%\n29,656\u00a0\n81\u00a0\n%\n32,392\u00a0\n81\u00a0\n%\nTotal gross margin\n$\n74,291\u00a0\n60\u00a0\n%\n$\n75,795\u00a0\n59\u00a0\n%\n$\n60,980\u00a0\n54\u00a0\n%\n49\nTable of Contents\n \nThe total gross margin percentage for the year ended April\u00a030, 2023 increased to 60% when compared to the same period in the prior year due to increases in gross margin percentage for subscription fees margins, partially offset by a decrease in license fees and professional services and other gross margins, as gross margin on maintenance stayed flat. \nGross Margin on Subscription Fees\nFor the year ended April\u00a030, 2023, our gross margin percentage on subscription fees increased from 68% in fiscal 2022 to 69% primarily due to an increase in subscription revenue and lower capitalized software amortization expense.\nGross Margin on License Fees\nThe decrease in license fee gross margin percentage for the year ended April\u00a030, 2023 when compared to fiscal 2022 was primarily due to a decrease in license fee revenue.\nLicense fee gross margin percentage tends to be directly related to the level of license fee revenue due to the relatively fixed cost of capitalized software amortization expense, amortization of acquired software and the sales mix between our direct and indirect channels.\nGross Margin on Professional Services and Other\nFor the year ended April\u00a030, 2023, our gross margin percentage on professional services and other decreased from 30% in fiscal 2022 to 26%, primarily due to decreased gross margins in our SCM segment which decreased from 38% in fiscal 2022 to 31% in fiscal 2023 due to a decrease in revenue and lower billing utilization. Our IT Consulting segment professional services and other revenue gross margin decreased from 22% in fiscal 2022 to 20% in fiscal 2023 due to lower billing rates and a decrease in project utilization rates.  Our Other segment decreased from 43% in fiscal 2022 to 39% in fiscal 2023 due to the timing of project work. \nAs discussed above, our IT Consulting segment typically has lower margins when compared to the Other segments that have higher margin implementation service revenue. The IT Consulting segment was 43% and 48% of the Company\u2019s professional services and other revenue in fiscal 2023 and 2022, respectively. Our SCM segment was 55% and 49% of the Company\u2019s professional services and other revenue in fiscal 2023 and 2022, respectively. Our Other segment was 2% and 3% of the Company\u2019s professional services and other revenue in fiscal 2023 and 2022, respectively.\nGross Margin on Maintenance\nMaintenance gross margin remained flat at 81% in fiscal 2023 and fiscal 2022 due to maintenance revenue cost containment efforts. The primary cost component is maintenance staffing, which is relatively inelastic in the short term.\nEXPENSES\n\u00a0\n\u00a0\nYears Ended April\u00a030,\n\u00a0\n2023\n2022\n2021\n% of Revenue\n\u00a0\n2023\n2022\n2021\n\u00a0\n(in\u00a0thousands)\n\u00a0\n\u00a0\n\u00a0\nResearch and development\n$\n17,767\u00a0\n$\n17,600\u00a0\n$\n16,964\u00a0\n14\u00a0\n%\n14\u00a0\n%\n15\u00a0\n%\nSales and marketing\n22,184\u00a0\n22,867\u00a0\n20,304\u00a0\n18\u00a0\n%\n18\u00a0\n%\n18\u00a0\n%\nGeneral and administrative\n23,684\u00a0\n21,960\u00a0\n19,139\u00a0\n19\u00a0\n%\n17\u00a0\n%\n17\u00a0\n%\nAmortization of acquisition-related intangible assets\n106\u00a0\n212\u00a0\n212\u00a0\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\nOther income, net\n2,336\u00a0\n681\u00a0\n4,487\u00a0\n2\u00a0\n%\n\u2014\u00a0\n%\n4\u00a0\n%\nIncome tax expense\n2,465\u00a0\n1,055\u00a0\n759\u00a0\n2\u00a0\n%\n1\u00a0\n%\n1\u00a0\n%\nResearch and Development\nGross product research and development costs include all non-capitalized and capitalized software development costs.       \nA breakdown of the research and development costs is as follows (in thousands):\u00a0\n50\nTable of Contents\n \n\u00a0\nYears Ended April\u00a030,\n\u00a0\n2023\nPercent\nChange\n2022\nPercent\nChange\n2021\n\u00a0\nTotal capitalized computer software development costs\n$\n\u2014\u00a0\n\u2014\u00a0\n%\n$\n\u2014\u00a0\n(100)\n%\n$\n620\u00a0\nPercentage of gross product research and development costs\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n4\u00a0\n%\nTotal research and development expense\n17,767\u00a0\n1\u00a0\n%\n17,600\u00a0\n4\u00a0\n%\n16,964\u00a0\nPercentage of total revenue\n14\u00a0\n%\n14\u00a0\n%\n15\u00a0\n%\nTotal research and development expense and capitalized computer software development costs\n$\n17,767\u00a0\n1\u00a0\n%\n$\n17,600\u00a0\n\u2014\u00a0\n%\n$\n17,584\u00a0\nPercentage of total revenue\n14\u00a0\n%\n14\u00a0\n%\n16\u00a0\n%\nTotal amortization of capitalized computer software development costs*\n$\n1,195\u00a0\n(62)\n%\n$\n3,181\u00a0\n(25)\n%\n$\n4,215\u00a0\n______________\n*\u00a0\u00a0\u00a0\u00a0Included in cost of license fees and cost of subscription fees.\nFor the year ended April\u00a030, 2023, gross product research and development costs remained flat primarily due to cost containment related to third-party contractors compared to fiscal 2022. As a result, the Company\u2019s capitalization window is significantly shorter under the agile approach and ultimately results in the Company expensing software development costs as incurred. Amortization of capitalized software development decreased 62% in fiscal 2023 when compared to fiscal 2022 as some projects were fully amortized.\nSales and Marketing\nFor the year ended April\u00a030, 2023, the decrease in sales and marketing expenses compared to fiscal 2022 was due primarily to a decrease in variable compensation and marketing spend.\nGeneral and Administrative\nFor the year ended April\u00a030, 2023, general and administrative expenses increased when compared to fiscal 2022 primarily due to an increase in stock option expense and internal IT costs.\nThe total number of full-time personnel were 545, which includes 394 employees and 151 third-party contractors on April\u00a030, 2023, compared to 625 full-time personnel which include 418 employees and 207 third-party contractors on April\u00a030, 2022.\nAmortization of Acquisition-related Intangible Assets\nFor the year ended April\u00a030, 2023, we recorded $0.8 million in intangible amortization expense, of which $0.1 million is included in operating expense and $0.7 million is included in cost of subscription fees.\nFor the year ended April\u00a030, 2022, we recorded $0.2 million in intangible amortization expense, of which the entirety is recorded in general and administrative expenses.\nOperating Income/(Loss)\n\u00a0\nYears Ended April\u00a030,\n\u00a0\n2023\n2022\n2021\n% Change\n\u00a0\n2023 vs. 2022\n2022 vs. 2021\n\u00a0\n(in\u00a0thousands)\n\u00a0\n\u00a0\nSupply Chain Management\n$\n29,925\u00a0\n$\n29,164\u00a0\n$\n18,922\u00a0\n3\u00a0\n%\n54\u00a0\n%\nIT Consulting\n664\u00a0\n1,601\u00a0\n456\u00a0\n(59)\n%\n251\u00a0\n%\nOther*\n(20,039)\n(17,609)\n(15,017)\n14\u00a0\n%\n17\u00a0\n%\nTotal Operating Income\n$\n10,550\u00a0\n$\n13,156\u00a0\n$\n4,361\u00a0\n(20)\n%\n202\u00a0\n%\n______________\n\u00a0*\u00a0\u00a0\u00a0\u00a0Includes certain unallocated expenses.\n51\nTable of Contents\n \nOur SCM segment operating income increased by 3% in fiscal 2023 compared to fiscal 2022, primarily due to a 2% increase in revenue.\nOur IT Consulting segment operating income decreased 59% in fiscal 2023 compared to fiscal 2022, primarily due to a 27% decrease in revenue and a decrease in the billing rates from several new clients. \nThe increase in the Other segment operating loss in fiscal 2023 when compared to fiscal 2022 was due primarily to an increase in stock options and internal IT costs. \nOther Income\nOther income is comprised of net interest and dividend income, rental income net of related depreciation expenses, exchange rate gains and losses, realized and unrealized gains and losses from investments. Other income was approximately $2.3\u00a0million in the year ended April\u00a030, 2023 compared to $0.7\u00a0million in fiscal 2022. The increase was primarily due to dividend income of $1.2 million and interest income of $1.0 million in fiscal 2023, compared to dividend income of $0.4 million and interest income of $0 million for the same period last year.\nFor the years ended April\u00a030, 2023 and 2022, our investments generated an annualized yield of approximately 2.1% and 1.4%, respectively.\nIncome Taxes\nDuring the year ended April\u00a030, 2023, we recorded income tax expense of $2.5 million compared to $1.1 million in fiscal 2022. Our effective income tax rate takes into account the source of taxable income by state and available income tax credits. Our effective tax rate was 19.1% and 7.6% in fiscal 2023 and 2022, respectively. The effective tax rate for fiscal 2023 is higher compared to fiscal 2022 due to a decrease in the amount of excess tax benefits from stock option deductions.\nOperating Pattern\nWe experience an irregular pattern of quarterly and annual operating results, caused primarily by fluctuations in both the number and size of software contracts received and delivered from quarter to quarter and our ability to recognize revenue in that quarter and annually in accordance with our revenue recognition policies. We expect this pattern to continue.\nLIQUIDITY AND CAPITAL RESOURCES\nSources and Uses of Cash\nWe have historically funded and continue to fund, our operations and capital expenditures primarily with cash generated from operating activities. The changes in net cash that our operating activities provide generally reflect the changes in net earnings and non-cash operating items plus the effect of changes in operating assets and liabilities, such as investment trading securities, trade accounts receivable, trade accounts payable, accrued expenses and deferred revenue. We have no debt obligations or off-balance sheet financing arrangements and therefore, we used no cash for debt service purposes.\nThe following tables provide information about our cash flows and liquidity positions as of and for the fiscal years ended April\u00a030, 2023, 2022 and 2021. You should read these tables and the discussion that follows in conjunction with our consolidated statements of cash flows contained in Item\u00a08 of this report.\n\u00a0\nYears ended\nApril\u00a030,\n\u00a0\n2023\n2022\n2021\n\u00a0\n(in\u00a0thousands)\nNet cash (used in) provided by operating activities\n$\n(380)\n$\n29,020\u00a0\n$\n17,756\u00a0\nNet cash used in investing activities\n(10,422)\n(934)\n(1,298)\nNet cash used in financing activities\n(9,192)\n(6,054)\n(7,614)\nNet change in cash and cash equivalents\n$\n(19,994)\n$\n22,032\u00a0\n$\n8,844\u00a0\nThe decrease in cash provided by operating activities in fiscal 2023 compared to fiscal 2022 was due primarily to: (1) an increase in accounts receivable in fiscal 2023 compared to a decrease in fiscal 2022 due to timing of sales and billing, (2)\u00a0an increase in the purchases of trading securities due to timing, (3) a decrease in accounts payable and other liabilities during fiscal 2023, when compared to an increase in fiscal 2022, (4) a decrease in deferred revenue in fiscal 2023 when compared to fiscal 2022 primarily due to the timing of cloud and maintenance revenue recognition, (5) an increase in deferred income taxes in fiscal 2023 \n52\nTable of Contents\n \ncompared to fiscal 2022 due to timing, (6) a decrease in net earnings, (7) an increase in prepaid expenses and other assets in fiscal 2023 compared to the decrease in fiscal 2022 due to timing of purchases and (8) lower depreciation and amortization expense due to several capitalized software projects and intangible assets being fully amortized.\nThese factors were partially offset by: (1) higher stock-based compensation expense in fiscal 2023 due to an increase in the value of options granted, (2)\u00a0a decrease in unrealized gains on investments due to timing of sales of investments, (3) an increase in the net proceeds from sales and maturities of trading securities due to timing of sales and maturity dates and (4) a decrease on the gain on sale of fixed assets. \nThe increase in cash used in investing activities in fiscal 2023 compared to cash used in investing activities in fiscal 2022 was due to the purchase of Starboard and an increase in purchases of property and equipment. For more information about our acquisition of Starboard, please see the discussion in Note 5 to the Condensed Consolidation Financial Statements.\nThe increase in cash used in financing activities in fiscal 2023 when compared to fiscal 2022 was due primarily to a decrease in proceeds from the exercise of stock options and an increase in cash dividends paid on common stock in fiscal 2023 due to an increase in the number of shares outstanding.\nThe following table provides information regarding the changes in our total cash and investments position:\n\u00a0\nAs of April\u00a030,\n\u00a0\n2023\n2022\n\u00a0\n(in\u00a0thousands)\nCash and cash equivalents\n$\n90,696\u00a0\n$\n110,690\u00a0\nInvestments\n23,937\u00a0\n16,826\u00a0\nTotal cash and investments\n$\n114,633\u00a0\n$\n127,516\u00a0\nNet  (decrease) / increase in total cash and investments\n(12,883)\n22,852\u00a0\nAs of April\u00a030, 2023, we had $114.6\u00a0million in total cash and investments, with no outstanding debt and believe that our sources of liquidity and capital resources will be sufficient to satisfy our presently anticipated requirements for working capital, capital expenditures and other corporate needs during at least the next twelve months. However, at some future date we may need to seek additional sources of capital to meet our requirements. If such need arises, we may be required to raise additional funds through equity or debt financing. We currently do not have a bank line of credit. We can provide no assurance that bank lines of credit or other financing will be available on terms acceptable to us. If available, such financing may result in dilution to our shareholders or higher interest expense.\nDays Sales Outstanding (\"DSO\") in accounts receivable were 86\u00a0and 62 days as of April\u00a030, 2023 and April\u00a030, 2022, respectively. Our current ratio was 2.7 to\u00a01 for both April\u00a030, 2023 and April\u00a030, 2022. DSO can fluctuate significantly on a quarterly basis due to a number of factors including the percentage of total revenue that comes from software license sales (which typically have installment payment terms), seasonality, shifts in client buying patterns, the timing of client payments and annual SaaS and maintenance renewals, lengthened contractual payment terms in response to competitive pressures, the underlying mix of products and services and the geographic concentration of revenue.\nOn August\u00a019, 2002, our Board of Directors approved a resolution authorizing the repurchase of up to 2.0\u00a0million shares of our Class\u00a0A common stock. These repurchases have been and will be made through open market purchases at prevailing market prices. The timing of any repurchases will depend upon market conditions, the market price of our common stock and management\u2019s assessment of our liquidity and cash flow needs. For this repurchase plan, through April\u00a030, 2023, we have repurchased\u00a01,053,679\u00a0shares of common stock at a cost of approximately $6.2\u00a0million. Under all repurchase plans as of April\u00a030, 2023, we have repurchased\u00a04,588,632 shares of common stock at a cost of approximately $25.6\u00a0million.\nThis section generally discusses fiscal 2023 compared to fiscal 2022. Discussions of fiscal 2022 compared to fiscal 2021 not included herein can be found in Part II, \"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations\" of our Annual Report on Form 10-K for fiscal 2022, filed with the Securities and Exchange Commission on June 28, 2022.",
+  "item7a": ">ITEM\u00a07A.\u00a0\u00a0\u00a0\u00a0QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nForeign Currency\n.\u00a0For the fiscal years ended April\u00a030, 2023 and 2022, we generated 19% and 16%, respectively, of our revenue outside of the United States. We typically denominate our international sales in U.S. dollars, Euros or British pounds \n53\nTable of Contents\n \nsterling. Our consolidated financial statements are presented in U.S. dollars, which is also the functional currency for our foreign operations. Where transactions may be denominated in foreign currencies, we are subject to market risk with respect to fluctuations in the relative value of currencies. We recorded exchange rate gains of $0.2 million in fiscal 2023, compared to exchange rate  losses of approximately $0.5\u00a0million in fiscal 2022. We estimate that a 10% movement in foreign currency rates would have the effect of creating an exchange gain or loss of approximately $0.5\u00a0million for fiscal 2023.\nInterest Rates and Other Market Risks.\n We manage our interest rate risk by maintaining an investment portfolio of trading investments with high credit quality and relatively short average maturities. These instruments include, but are not limited to, money-market instruments, bank time deposits and taxable and tax-advantaged variable rate and fixed rate obligations of corporations, municipalities and national, state and local government agencies. These instruments are denominated in U.S. dollars. The fair market value of our cash equivalents and investments decreased 9% to approximately $105.3 million in fiscal 2023 from $115.3 million in the prior year.\nWe also hold cash balances in accounts with commercial banks in the United States and foreign countries. These cash balances represent operating balances only and are invested in short-term time deposits of the local bank. Such operating cash balances held at banks outside the United States are denominated in the local currency and are nominal.\nMany of our investments carry a degree of interest rate risk. When interest rates fall, our income from investments in variable-rate securities declines. When interest rates rise, the fair market value of our investments in fixed-rate securities declines. In addition, our investments in equity securities are subject to stock market volatility. Due in part to these factors, our future investment income may fall short of expectations or we may suffer losses in principal if forced to sell securities, which have seen a decline in market value due to changes in interest rates. We attempt to mitigate risk by holding fixed-rate securities to maturity, but if our liquidity needs force us to sell fixed-rate securities prior to maturity, we may experience a loss of principal. We believe that a 10% fluctuation in interest rates would not have a material effect on our financial condition or results of operations.\n54\nTable of Contents\n ",
+  "cik": "713425",
+  "cusip6": "029683",
+  "cusip": ["029683109"],
+  "names": ["AMERICAN SOFTWARE INC-CL A"],
+  "source": "https://www.sec.gov/Archives/edgar/data/713425/000162828023024860/0001628280-23-024860-index.htm"
+}
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+{
+  "item1": ">Item 1. \nBusiness\n\u00a0\nOverview\n\u00a0\nWe are a technology-enabled research organization engaged in creating transformative technology solutions to be utilized in drug discovery and development. Our research center operates in both regulatory and non-regulatory environments and consists of a comprehensive set of computational and experimental research platforms. Our pharmacology, biomarker, and data platforms are designed to facilitate drug discovery and development at lower costs and increased speeds. \nAt the core of our research platforms is our unique, proprietary bank of Patient Derived Xenograft (PDX) models. This preeminent bank of PDX models is deployed into advanced in vivo and ex vivo pharmacology platforms, providing an enhanced level of insight into therapeutic programs.\n \nWe currently have approximately 1,500 PDX Models in our TumorBank that we believe reflect the characteristics of patients who enroll in clinical trials (late stage, pretreated and metastatic). This characteristic of our TumorBank is an important differentiator to other established PDX banks. We implant and expand these tumors in mice, which allows for future studies and additional characterization of the tumor. Additional analytical and pharmacology experimental platforms are also available to augment the information gained from studies performed.\nThe PDX bank is highly characterized at the molecular, phenotypic and pharmacological levels, which provides a differentiated layer of data for our large oncology dataset (the \u201cDatacenter\u201d).\n \nThe Datacenter combines our proprietary dataset with other large publicly available datasets. This dataset currently includes approximately 3,500 molecular datasets (genomics, transcriptomics, proteomics, phosphor-proteomics), approximately 3,000 clinical drug responses, approximately 3,500 in vivo drug responses, and the accompanying clinical information on the patients from which they were derived (pre and post tumor sample acquisition of drug treatments and responses, age, gender, ethnicity, tumor stage, tumor grade, location of tumor biopsy, histology, etc.) derived from our TumorBank.\n \nOne unique feature of this proprietary dataset is the fact that it is derived from a living TumorBank. This allows us to continue characterizing the TumorBank over time, and increasing the depth of characterization of the accumulated data. The combination of the breadth and depth of the TumorBank, and associated characterization, drives the value of our Datacenter. The Datacenter also includes approximately 20,000 publicly available datasets including genomics, transcriptomics, proteomics, and functional genomics, and patient outcome. This Datacenter facilitates our computational approach to drug discovery and provides the foundation to our Software as a Service (\"SaaS\") offerings. Collectively, our computational and experimental research platforms enable a more rapid and precise approach to drug discovery and development.\n \nThrough our technology platforms, we have designed an ecosystem of business lines consisting of:\n\u2022\nThe sale of research services utilizing our innovative research platforms to biopharmaceutical companies\n\u2022\nThe sale of oncology research Software as a Service (\"SaaS\") tools to cancer research scientists\n\u2022\nThe discovery and development of novel oncology therapeutics\n2\nTranslational Oncology Solutions (TOS) Business\nResearch Services \nOur research services utilize our research center to assist pharmaceutical and biotechnology companies with their drug development process. We perform studies which we believe may predict the efficacy of experimental oncology drugs or approved drugs as stand-alone therapies or in combination with other drugs and can simulate the results of human clinical trials. These studies include in vivo studies that rely on implanting multiple tumors from our TumorBank in mice and testing the therapy of interest on these tumors. Studies may also include bioinformatics analysis that reveal the differences in the genetic signatures of the tumors that responded to a therapy as compared to the tumors that did not respond. Our studies can be used to determine which types of cancer, if any, may be inhibited by a drug. The studies can also be used to identify specific sub-populations, often characterized by particular genetic mutations that are differentially sensitive or resistant to a drug or drug combination. Additionally, we provide computational or experimental support to identify novel therapeutic targets, select appropriate patient populations for clinical evaluation, identify potential therapeutic combination strategies, and develop biomarker hypothesis of sensitivity or resistance. These studies include the use of our in vivo, ex vivo, analytical and computational platforms.\n \nIncreasing the breadth of the TumorBank is an important strategic effort of the Company.\n \nWe invest significant research and development resources to increase the number of PDX Models in our TumorBank and add unique and different sub-types of cancer that are not historically addressed. This effort also allows us to build highly valuable PDX models derived from patients with resistance to specific therapies or important molecular annotations. We also invest significant resources to increase the depth of characterization of the TumorBank. For each model, this characterization includes phenotypic analysis, molecular analyses, and pharmacologic analysis. This depth of characterization, in an individual tumor basis, is unique and not widely available.\n \nWe have performed studies for approximately 500 different pharmaceutical and biotechnology companies over the past ten years, have a high rate of repeat business, and contract with pharmaceutical and biotechnology companies across North America, Europe and Asia. Studies are performed in a preclinical non-regulatory environment, as well as a Good Clinical Regulatory Practice (GCLP) regulatory environment for clinical evaluation. Typical studies are in the $125,000 price range, with an increasing number of studies in the $250,000 to $500,000 range. Studies performed in a regulatory environment can be much larger than those performed within a non-regulatory environment. Revenue from this business has grown at an average annual growth rate of 23% since 2018 and represents the primary source of our current revenue stream.\nSoftware As A Service (SaaS) Business\nOur SaaS business, launched in fiscal year 2021, is centered around our proprietary software platform and data tool, Lumin Bioinformatics (\"Lumin\u201d), which contains comprehensive information derived from our research services and clinical studies and is sold to customers on an annual subscriptions basis. Our software development teams consist of bioinformatics scientists, mathematicians as well as software engineers. Lumin leverages Champions\u2019 large Datacenter coupled with analytics and artificial intelligence to provide a robust tool for computational cancer research. It is the combination of the Datacenter and the analytics that create the foundation for Lumin. Insights developed using Lumin can provide the basis for biomarker hypotheses, reveal potential mechanisms of therapeutic resistance, and guide the direction of additional preclinical evaluations.  See Note 4 to the consolidated financial statements for further discussion as to impairment of Lumin assets in fiscal 2023. \nDrug Discovery and Development Business\n Our nascent drug discovery and development business leverages the computational and experimental capabilities within our platforms. Our discovery strategy utilizes our Datacenter, coupled with artificial intelligence and other advanced computational analytics, to identify novel therapeutic targets.\n \nWe then employ the use of our proprietary experimental platforms to rapidly validate these targets for further drug development efforts. Our efforts center around three areas of focus:\n1.\nTargeted therapy with drug conjugates\n2.\nImmune oncology\n3.\nCell therapy\n3\nOur drug discovery and development business is dependent on a dedicated research and development team, made up of computational and experimental scientists.\n \nImportantly, the scientific teams within our Drug Discovery and Development teams are appropriately segregated from our other businesses.\nWe have a rich pipeline of targets at various stages of discovery and validation, with a select group that has progressed to therapeutic development.\n \nOur commercial strategy for the validated targets and therapeutics established from this business is wide-ranging and still being developed.\n \nIt will depend on many factors, and will be specific for each target or therapeutic area identified.\nWe regularly evaluate strategic options to create additional value from our drug discovery business, which may include, but are not limited to, potential spin-out transactions or capital raises.\nOur sales and marketing efforts are dependent on a dedicated sales force of approximately 31 professionals that sell our services directly to pharmaceutical and biotechnology companies. Our research services team is focused on identifying and selling studies to new customers as well as increasing our revenue from our existing customer base. We spend significant resources in informing our customers and reaching out to new contacts within companies that we currently serve. These efforts are aimed at moving our customers along the adoption curve for our research platforms, thereby increasing the number of studies and the average study size. Our success in these efforts is demonstrated by the growing number of customers who have increased their annual spend on our services over the years.\nFor the year ended  April\u00a030, 2023, revenues from our products and services totaled approximately $53.8 million, an increase of approximately 10% from the previous year.\nOur Current Strategy\nOur strategy is to use our various platform technologies to drive multiple synergistic revenue streams. We continue to build upon this with investments in research and development. Our enterprise strategy consists of the following:\n\u2022\nEstablish a global leadership position in oncology research\n\u2022\nA focus on bringing better drugs to patients faster\n\u2022\nLeading innovation in oncology research and development platforms\n\u2022\nCultivating a solid reputation for the quality of data acquisition and interpretation\n\u2022\nCollaborations across the global biopharma landscape\n\u2022\nProfitable growth across all business lines\nOur Growth and Expansion Strategy\nOur strategy is to continue to use our various platform technologies to drive multiple synergistic revenue streams. \nOur strategy for growth has multiple components: \u00a0\n\u2022\nGrowing our TumorBank: \nWe grow our TumorBank in two ways. First, leverage a medical affairs team that works with a well established clinical network to facilitate access to patients diagnosed with prioritized tumors subtypes.\n \nSecond, we maintain the ability to utilize our legacy Personalized Oncology Services business to establish novel PDX models from patients who use this service.\n \nThe PDX models are then deeply characterized at the phenotypic, molecular, and pharmacologic levels.\n \nThis data characterization is then added to our DataCenter. \n\u2022\nAdding new experimental technologies: \nThe fields of oncology research and drug development are evolving rapidly. To keep up with new approaches, we continuously add new technologies to platform. We are currently investing in developing additional proprietary pharmacology platforms aimed at enhancing the scientific output and driving innovation in the oncology research sector. We are also investing in the development of sophisticated analytical platforms which allow scientists to derive deeper insights when using our pharmacology platforms. Once these experimental technologies are established they are made available to our research and development and target discovery teams.\n\u2022\nComputational power:\n We have developed sophisticated and innovative computational approaches. We have also invested in the development of novel artificial intelligence, data structures, and analytics. Our goal is to leverage our unique Datacenter to establish elegant ways to better understand the molecular dynamics of cancer, and the development novel therapeutics.\n4\nCompetition\n\u00a0\nChampions currently competes in three different markets: \nResearch Services\n: Pharmaceutical companies rely on outsourcing preclinical studies to Clinical Research Organizations (\"CROs\").\n \nCompetition in this industry is intense and based significantly on scientific, technological, and market forces, which include the effectiveness of the technology and products and the ability to commercialize technological developments. The Company faces significant competition from other healthcare companies in the United States and abroad. The majority of these competitors are, and will be, substantially larger than the Company, and have substantially greater resources and operating histories. There can be no assurance that developments by other companies will not render our products or technologies obsolete or non-competitive or that we will be able to keep pace with the technological or product developments of our competitors.\n \nThese companies, as well as academic institutions, governmental agencies, and private research organizations also compete with us in recruiting and retaining highly qualified scientific, technical and professional personnel and consultants. \nSaaS: There are two important components of Lumin Bioinformatics:\n \nthe Datacenter and the Analytics. While we feel our Datacenter is unique, there are a large number of publicly available datasets that can be accessed free of charge for computational research. This publicly available data repertoire is constantly growing as academic labs publish results. We continue to find ways to differentiate our dataset, however there can be no assurance that developments by other companies or academic institutions in data curation will not render our Datacenter obsolete or non-competitive. The second component of Lumin Bioinformatics is the data analytics. While there are a minimal number of software solutions that offer the degree of analytics available within Lumin Bioinformatics, the know-how and workflows of these analytics are well established in bioinformatics labs across academia and the biopharmaceutical industry.\n \nAs a result, the barrier to entry for developing a SaaS tool leveraging these analytics is relatively low. \nDrug Discovery and Developmen\nt: \nOur Drug Discovery and Development business places us in a good position of also competing against the same customers of our Research Services and/or SaaS businesses: the global biopharmaceutical industry. The global oncology drug market is estimated to be as high as $188B in 2023.  Competition in this industry is strong and based significantly on scientific and technological forces, which rely solely on the effectiveness of therapeutics designed to treat cancer. The Company faces significant competition from other biopharmaceutical companies in the United States and abroad. The competitors have a wide range of strategic and operational approaches. Our business strategy is to work with differentiated therapeutic targets and research areas. However, given the intense degree of privacy from our competitors, we cannot guarantee that others within the industry are not also working on these targets. Further, some competitors will operate with no laboratory or experimental operations, while others will have varying degrees of laboratory space and experimental capabilities. There can be no assurance that developments by other companies will not render experimental platforms obsolete or non-competitive or that we will be able to keep pace with the technological or product developments of our competitors. These companies, as well as academic institutions, governmental agencies, and private research organizations also compete with us in recruiting and retaining highly qualified scientific, technical and professional personnel and consultants. \nResearch and Development\n\u00a0\nFor the years ended April 30, 2023 and 2022, we spent approximately $11.5 million and $9.4 million, respectively, to further develop our platforms. We continue to expand our TumorBank via the inclusion of tumor tissue and implanted models through research collaborations and relationships with hospitals and academic institutions. Our research and development efforts were focused on increasing our understanding of our TumorGraft models, their clinical predictability, improving growth and tumor take rates, and other biological and molecular characteristics of the models. We are investing in developing additional proprietary pharmacology platforms aimed at enhancing the scientific output and driving innovation in the oncology research sector.\nWe are also investing in the acquisition of sophisticated analytical platforms which allow scientists to derive deeper insights when using our pharmacology platforms. \n\u00a0\nGovernment Regulation\n\u00a0\nThe research, development, and marketing of\u00a0our products, the performance of our legacy POS testing services, and the operation of our facilities are generally subject to federal, state, local, or foreign legislation, including licensure of our laboratory located in Rockville, Maryland by the State of Maryland  and compliance with federal, state, local or foreign legislation applicable to the use of live animals in scientific testing, research and education.\n5\n\u00a0\nThe FDA has claimed regulatory authority over laboratory developed tests such as our legacy POS products, but has generally not exercised it. The FDA has announced regulatory and guidance initiatives that could increase federal regulation of our business. We are subject to federal and international regulations with regard to shipment of hazardous materials, including the Department of Transportation and the International Air Transit Authority. These regulations require interstate, intrastate, and foreign shipments comply with applicable labeling, documentation, and training requirements.\n\u00a0\nHuman Capital Resources\n\u00a0\nAs of July 15, 2023, we had 230 full-time employees, including 73 with doctoral or other advanced degrees. Of our workforce, 176 employees are engaged in research and development and laboratory operations, 31 employees are engaged in sales and marketing, and 23 employees are engaged in finance and administration.\u00a0\u00a0\nWe believe that our future success will depend, in part, on our ability to continue to attract, hire, and retain qualified personnel. We continue to seek additions to our science and technical staff, although the competition for such personnel in the pharmaceutical and biotechnology industries is intense. Attracting, developing, and retaining skilled and experienced employees in our industry is crucial to our ability to compete effectively. Our ability to recruit and retain such employees depends on a number of factors, including our corporate culture and work environment, our corporate philosophy, internal talent development and career opportunities, and compensation and benefits.  \nNone of our employees are represented by a labor union or covered by collective bargaining agreements.\u00a0\u00a0We have never experienced a work stoppage and believe our relationship with our employees is good.  \n\u00a0\nCompany History\n\u00a0\nWe were incorporated as a merger and acquisition company under the laws of the State of Delaware on June 4, 1985, under the name \u201cInternational Group, Inc.\u201d  In September 1985, the Company completed a public offering and shortly thereafter acquired the world-wide rights to the Champions sports theme restaurant concept and changed its name to \u201cChampions Sports, Inc.\u201d  In 1997, the Company sold its Champions service mark and concept to Marriott International, Inc. and until 2005, was a consultant to Marriott International, Inc. and operated one Champions Sports Bar Restaurant. In January 2007, the Company changed its business direction to focus on biotechnology and subsequently changed its name to Champions Biotechnology, Inc. On May 18, 2007, the Company acquired Biomerk, Inc., at which time we began focusing on our current line of business. In April 2011, the Company changed its name to Champions Oncology, Inc. to reflect the Company's new strategic focus on developing advanced technologies to personalize the development and use of oncology drugs.\n\u00a0\nAvailable Information\n\u00a0\nOur internet website address is \nwww.championsoncology.com\n.\u00a0\u00a0Information on our website is not part of this Annual Report. Through our website, we make available, free of charge, access to all reports filed with the United States Securities and Exchange Commission, or SEC, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, our Proxy Statements on Schedules 14A and amendments to those reports, as filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.\u00a0\u00a0Copies of any materials we file with, or furnish to, the SEC can also be obtained free of charge through the SEC\u2019s website at http://www.sec.gov.\n\u00a0",
+  "item1a": ">Item 1A. \nRisk Factors\n\u00a0\nYou should carefully consider the risks described below together with all of the other information included in this Annual Report.\u00a0\u00a0The risks and uncertainties described below are not the only ones we face.\u00a0\u00a0Additional risks not presently known, or those we currently consider insignificant, may also impair our business operations in the future.\n\u00a0\nWe historically incurred losses from operating activities, may require significant capital and may never achieve sustained profitability.\n\u00a0\nFor the years ended April 30, 2023 and 2022, the Company had a net loss of approximately $5.3 million and net income of $548,000, respectively.\u00a0\u00a0As of April\u00a030, 2023, the Company has an accumulated deficit of approximately $77.3 million,  negative working capital of $2.3 million, and a cash balance of $10.1 million.  The Company also had cash provided by operations of approximately $4.0 million for the twelve months ending April 30, 2023. We believe that our cash on hand, together with  expected cash flows from operations, are adequate to fund our operations through at least August 2024.\n6\nThe amount of our income or losses and liquidity requirements may vary significantly from year-to-year and quarter-to-quarter and will depend on, among other factors:\n\u00a0\n\u2022\nthe cost of continuing to build out our TumorGraft bank;\n\u2022\nthe cost and rate of progress toward growing our technology platforms;\n\u2022\nthe cost and rate of progress toward building our business units;\n\u2022\nthe cost of increasing our research and development;\n\u2022\nthe cost of renting our laboratory and animal testing facilities and payment for associated services;\n\u2022\nthe timing and cost of obtaining and maintaining any necessary regulatory approvals;\n\u2022\nthe cost of expanding and building out our infrastructure; and\n\u2022\nthe cost incurred in hiring and maintaining qualified personnel.\nCurrently, the Company derives revenue primarily from research services, while pursuing efforts to further develop its drug discovery business units. \u00a0\n\u00a0\nTo become sustainably profitable, we will need to generate revenues to offset our operating costs, including our research and development and general and administrative expenses. We may not achieve or sustain our revenue or profit objectives. If we incur losses in the future and/or we are unable to obtain sufficient capital either from operations or externals sources, ultimately, we may have to cease operations.\n\u00a0\nIn order to grow revenues, we must invest capital to implement our sales and marketing efforts and to successfully develop our technology platforms. Our sales and marketing efforts\u00a0may never generate significant increases in revenues or achieve profitability and it is possible that we will be required to raise additional capital to continue our operations. If we must devote a substantial amount of time to raising capital, it will delay our ability to achieve our business goals within the time frames that we now expect, which could increase the amount of capital we need. In addition, the amount of time expended by our management on fundraising distracts them from concentrating on our business affairs. If we require additional capital and are not successful in raising the needed capital, we may have to cease operations.\n\u00a0\nWe may incur greater costs than anticipated, which could result in sustained losses.\n\u00a0\nWe use reasonable efforts to assess and predict the expenses necessary to pursue our business strategies. However, implementing our business strategies may require more employees, capital equipment, supplies or other expenditure items than management has predicted.\u00a0Similarly, the cost of compensating additional management, employees and consultants or other operating costs may be more than we estimate, which could result in ongoing and sustained losses.\n\u00a0\nWe may not be able to implement our business strategies which could impair our ability to continue operations.\n\u00a0\nImplementation of our business strategies will depend in large part on our ability to (i)\u00a0attract and maintain a significant number of customers; (ii)\u00a0effectively provide acceptable services to our customers; (iii)\u00a0develop and license new products and technologies; (iv)\u00a0\u00a0maintain appropriate internal procedures, policies, and systems; (v)\u00a0hire, train, and retain skilled employees and management; (vi)\u00a0continue to operate despite increasing competition in our industry; and (vii) establish, develop and maintain our name recognition. Our inability to obtain or maintain any or all these factors could impair our ability to implement our business strategies successfully, which could have material adverse effects on our results of operations and financial condition.\n\u00a0\nOur laboratories are subject to regulation and licensure requirements, and the healthcare industry is highly regulated; we may face substantial penalties, and our business activities may be impacted, if we fail to comply.\n\u00a0\nOur research services are performed in laboratories that are subject to state regulation and licensure requirements. Such regulation and requirements are subject to change, and may result in additional costs or delays in providing our products to our customers. In addition, the healthcare industry in general is highly regulated in the United States at both the federal and state levels. We seek to conduct our business in compliance with all applicable laws, but many of the laws and regulations potentially applicable to us are vague or unclear. These laws and regulations may be interpreted or applied by an authority in a way that could require us to make changes in our business. We may not be able to obtain all regulatory approvals needed to operate our business or sell our products. If we fail to do so, we could be subject to civil and criminal penalties or fines or lose the authorizations necessary to operate our business, as well as incur additional liabilities from third parties. If any of these events happened, they could hurt our business and financial results.\n\u00a0\n7\nIf our laboratory facilities are damaged or destroyed, or we have a dispute with one of our landlords, our business would be negatively affected.\n\u00a0\nWe currently utilize several office suites where our laboratories are located within one facility in Rockville, Maryland.  If this facility was to be significantly damaged or destroyed, we could suffer a loss of our ongoing and future drug studies, as well as our TumorBank. In addition, we lease the laboratories from a third party. If we had a dispute with our landlord or otherwise could not utilize our space, it would take time to find and move to a new facility, which could negatively affect our results of operations.\n\u00a0\nAny health crisis impacting our colony of laboratory mice could have a negative impact on our business.\nOur research services operations depend on having a colony of live mice available. If this population experienced a health crisis, such as a virus or other pathogen, such crisis would affect the success of our existing and future business, as we would have to rebuild the population and repeat current studies.\n\u00a0\nWe have limited experience marketing and selling our products\u00a0and may need to rely on third parties to successfully market and sell our products and generate revenues.\n\u00a0\nCurrently, we rely on the internet, word of mouth, and a small sales force to market our services. We have to compete with other pharmaceutical, biotechnology and life science technology and service companies to recruit, hire, train, and retain marketing and sales personnel.  However, there can be no assurance that we will be able to develop in-house sales, and as a result, we may not be able to generate product revenue.\u00a0\n\u00a0\nWe will continue to be dependent upon key employees.\n\u00a0\nOur success, currently, is dependent upon the efforts of several full-time key employees, the loss of the services of one or more of which would have a material adverse effect on our business and financial condition. We intend to continue to develop our management team and attract and retain qualified personnel in all functional areas to expand and grow our business. This may be difficult in the healthcare industry where competition for skilled personnel is intense.\nBecause our industry is very competitive and many of our competitors have substantially greater capital resources and more experience in research and development, we may not succeed in selling or increasing sales of our products and technologies.\n\u00a0\nWe are engaged in a rapidly changing and highly competitive field. Potential competitors in the United States and abroad are numerous and include providers of clinical research services, most of which have substantially greater capital resources and more experience in research and development capabilities. Furthermore, new companies will likely enter our market from the United States and abroad, as scientific developments surrounding other pre-clinical and clinical services grow in the multibillion dollar oncology marketplace.\u00a0\u00a0Our competitors may succeed in selling their products to our pharmaceutical and biotech customers more effectively than we sell our products. \u00a0In addition, academic institutions, hospitals, governmental agencies, and other public and private research organizations also may conduct similar research, seek patent protection, and may develop and commercially introduce competing products or technologies on their own or through joint ventures. If one or more of our competitors succeeds in developing similar technologies and products that are more effective or successful than any of those that we currently sell or will develop, our results of operations will be significantly adversely affected.\nIf we are unable to protect our intellectual property, we may not be able to compete as effectively.\n\u00a0\nIt is important in the healthcare industry to obtain patent and trade secret protection for new technologies, products, and processes. Our success will depend, in part, upon our ability to obtain, enjoy, and enforce protection for any products we have, develop or acquire under United States and foreign patent laws and other intellectual property laws, preserve the confidentiality of our trade secrets, and operate without infringing the proprietary rights of third parties. Where appropriate, we will seek patent protection for certain aspects of our technology. However, while our TumorGraft Technology Platform is proprietary and requires significant know-how to both initiate and operate, it is not patented. It is, therefore, possible for competitors to develop other implantation procedures, or to discover the same procedures utilized by us, that could compete with us in our market.\n\u00a0\nIt also is unclear whether efforts to secure our trade secrets will provide useful protection. While we will use reasonable efforts to protect our trade secrets, our employees or consultants may unintentionally or willfully disclose our proprietary information to competitors resulting in a loss of protection. Enforcing a claim that someone else illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts \n8\noutside the United States are sometimes less willing to protect trade secrets. Finally, our competitors may independently develop equivalent knowledge, methods and know-how.\nIf we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.\nWe rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also seek to enter into confidentiality and invention assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Our trade secrets may also be obtained by third parties by other means, such as breaches of our physical or computer security systems. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.\nClaims by others that our products infringe their patents or other intellectual property rights could adversely affect our financial condition.\n\u00a0\nThe healthcare industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Patent applications are maintained in secrecy in the United States and also are maintained in secrecy outside the United States until the application is published. Accordingly, we can conduct only limited searches to determine whether our technology infringes the patents or patent applications of others. Any claims of patent infringement asserted by third parties would be time-consuming and could likely:\n\u2022\nresult in costly litigation;\n\u2022\ndivert the time and attention of our technical personnel and management;\n\u2022\nrequire us to develop non-infringing technology; or\n\u2022\nrequire us to enter into royalty or licensing agreements.\nResearch service studies are subject to cancellation based on changes in customer\u2019s development plans.\nOur revenue is primarily derived from studies performed for pharmaceutical and biotechnology companies to assist in the development of oncology drugs. There are many factors that could result in the change of our customers development plans for specific drugs, including without limitation to their research and development budgets and drug development strategies. These changes could lead to the cancellation or modification of on-going or planned studies. This would have a negative impact on the Company\u2019s revenue growth and profit margin.\nWe face competition in the life science market for computational software and for bioinformatics products.\n   The market for our computational software platform for the life science market is competitive. We currently face competition from other scientific software providers, larger technology and solutions companies, in-house development by our customers and academic and government institutions, and the open-source community. Some of our competitors and potential competitors have longer operating histories in certain segments of our industry than we do and could have greater financial, technical, marketing, research and development, and other resources.  We could also face competition from open-source software initiatives, in which developers provide software and intellectual property free over the Internet. In addition, some of our customers spend significant internal resources in order to develop their own software. There can be no assurance that our current or potential competitors will not develop products, services, or technologies that are comparable to, superior to, or render obsolete, the products, services, and technologies we offer. There can be no assurance that our competitors will not adapt more quickly than we do to technological advances and customer demands, thereby increasing such competitors' market share relative to ours. Any material decrease in demand for our technologies or services may have a material adverse effect on our business, financial condition, and results of operations.\n \nDrug development programs, particularly those in early stages of development, may never be commercialized.\n9\n    Our future success depends, in part, on our ability to select successful product candidates, complete preclinical development of these product candidates and advance them to and through clinical trials.\n \nEarly-stage product candidates in particular require significant investment in development, preclinical studies and clinical trials, regulatory clearances and substantial additional investment before they can be commercialized, if at all.\n \n    Our research and development programs may not lead to commercially viable products for several reasons, and are subject to the risks and uncertainties associated with drug development. For example, we may fail to identify promising product candidates, our product candidates may fail to be safe and effective in preclinical tests or clinical trials, or we may have inadequate financial or other resources to pursue discovery and development efforts for new product candidates. From time to time, we may establish and announce certain development goals for our product candidates and programs.  However, given the complex nature of the drug discovery and development process, it is difficult to predict accurately if and when we will achieve these goals.  If we are unsuccessful in advancing our research and development programs into clinical testing or in obtaining regulatory approval, our long-term business prospects will be harmed.\n   Impairment of goodwill or other long term assets may adversely impact future results of operations\n \n   We have intangible assets, including goodwill and capitalized software development costs, on our balance sheet. During 2023, we recorded an asset impairment charge related to software development costs of $807,000, reducing the net book value to zero.  If the future growth and operating results of our business are not as strong as anticipated and/or our market capitalization declines, this could impact the assumptions used in calculating the fair value of goodwill or recoverability of any future capitalized software development costs. To the extent any future impairment occurs, the carrying value of our assets will be written down to an implied fair value and an impairment charge will be made to our income from continuing operations. Such an impairment charge could materially and adversely affect our operating results. \nOur ability to use our net operating loss carry-forwards and certain other tax attributes may be limited.\nUnder Section 382 of the Internal Revenue Code of 1986, as amended, referred to as the Internal Revenue Code, if a corporation undergoes an \u201cownership change\u201d (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation\u2019s ability to use its pre-change net operating loss carry-forwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We believe that our 2016 public offering, taken together with our private placements and other transactions that have occurred since then, may have triggered an \u201cownership change\u201d limitation. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carry-forwards to offset U.S. federal taxable income may be subject to limitations, which potentially could result in increased future tax liability to us.\nWe have a limited market for our common stock, which makes our securities very speculative.\n \n   Trading activity in our common stock is and has been limited. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of our common stock. There can be no assurance that a more active market for our common stock will develop, or if one should develop, there is no assurance that it will be sustained. This could severely limit the liquidity of our common stock, and would likely have a material adverse effect on the market price of our common stock and on our ability to raise additional capital. Furthermore, like many stocks quoted on the Nasdaq Capital Market, trading in our common stock is thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance.\nInvestment in our common stock may be diluted if we issue additional shares in the future.\n\u00a0\nWe may issue additional shares of common stock, which will reduce shareholders\u2019 percentage ownership and may dilute per share value. Our certificate of incorporation authorizes the issuance of 200,000,000 shares of common stock. As of July 18, 2023, we had 13,544,228 shares of common stock issued and 13,459,539 outstanding. The future issuance of all or part of the remaining authorized common stock would result in substantial dilution in the percentage of the common stock held by existing shareholders. The issuance of common stock for future services, acquisitions, or other corporate actions may have the effect of diluting the value of the shares held by existing shareholders, and might have an adverse effect on any market for our common stock.\n\u00a0\u00a0\u00a0\u00a0\u00a0\n10\nTo the extent that we raise additional funds by issuing equity securities or convertible debt securities in the future, our stockholders may experience significant dilution. Sale of additional equity and/or convertible debt securities at prices below certain levels will trigger anti-dilution provisions with respect to certain securities we have previously sold. If additional funds are raised through a credit facility or the issuance of debt securities or preferred stock, lenders under the credit facility or holders of these debt securities or preferred stock would likely have rights that are senior to the rights of holders of our common stock, and any credit facility or additional securities could contain covenants that would restrict our operation.\n\u00a0\nPotential future sales or issuances of our common stock to raise capital, or the perception that such sales could occur, could cause dilution to our current stockholders and the price of our common stock to fall.\n\u00a0\nWe have historically supported our operations through the issuance of equity and may continue to do so in the future. Although we may not be successful in obtaining financing through equity sales on terms that are favorable to us, if at all, any such sales that do occur could result in substantial dilution to the interests of existing holders of our common stock. \nAdditionally, the sale of a substantial number of shares of our common stock or other equity securities to any new investors, or the anticipation of such sales, could cause the trading price of our common stock to fall.\nOur stock price is volatile and therefore investors may not be able to sell their common stock at or above the price they paid for it.\n\u00a0\nThe stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the price they paid for it. The market price for our common stock may be influenced by many factors, including:\n\u00a0\n\u2022\nregulatory developments in the United States and foreign countries;\n\u2022\nvariations in our financial results or those of companies that are perceived to be similar to us;\n\u2022\nchanges in the healthcare payment system overseas to the degree we receive revenue from such healthcare systems overseas;\n\u2022\nannouncements by us of significant acquisition, strategic partnerships, joint ventures or capital commitments;\n\u2022\nsales of significant shares of stock by large investors;\n\u2022\nintellectual property, product liability, or other litigation against us; and\n\u2022\nthe other key facts described in this \u201cRisk Factors\u201d section.\n\u00a0\nCertain provisions of our charter and bylaws and of our contractual agreements contain provisions that could delay and discourage takeover attempts and any attempts to replace our current management by stockholders.\n\u00a0\nCertain provisions of our certificate of incorporation and bylaws, and our contractual agreements could make it difficult for or prevent a third party from acquiring control of us or changing our board of directors and management. These provisions include:\n\u00a0\n\u2022\nrequirements that our stockholders comply with advance notice procedures in order to nominate candidates for election to our board of directors or to place stockholders\u2019 proposals on the agenda for consideration at meetings of stockholders; and\n\u2022\nin connection with private placements of our stock in 2011, 2013 and 2015, we covenanted that we would not merge or consolidate with another company unless either the transaction and the trading volume of our stock met certain thresholds and qualifications or we obtained the consent of certain of the investors who purchased our stock in those private placements.\nCertain\n \nprovisions of Delaware law make it more difficult for a third party to acquire us and make a takeover more difficult to complete, even if such a transaction were in the stockholders\u2019 interest.\nThe Delaware General Corporation Law contains provisions that may have the effect of making it more difficult or delaying attempts by others to obtain control of us, even when these attempts may be in the best interests of our stockholders. We also are subject to the anti-takeover provisions of the Delaware General Corporation Law, which prohibit us from engaging in a \u201cbusiness combination\u201d with an \u201cinterested stockholder\u201d unless the business combination is approved in a prescribed manner and prohibit the voting of shares held by persons acquiring certain numbers of shares without obtaining requisite approval. The statutes have the effect of making it more difficult to effect a change in control of a Delaware company.\nOur management and four significant stockholders collectively own a substantial majority of our common stock.\n11\n   Collectively, our officers, our directors and three significant stockholders own or exercise voting and investment control of approximately 71% of our outstanding common stock as of July 18, 2023. As a result, investors may be prevented from affecting matters involving our company, including:\n \n\u2022\nthe composition of our board of directors and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers;\n\u2022\nany determinations with respect to mergers or other business combinations;\n\u2022\nour acquisition or disposition of assets; and\n\u2022\nour corporate financing activities.\n \nFurthermore, this concentration of voting power could have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders. This significant concentration of share ownership may also adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in a company that is controlled by a small number of stockholders.\n \n  We have not paid any cash dividends in the past and have no plans to issue cash dividends in the future, which could cause the value of our common stock to have a lower value than other similar companies which do pay cash dividends.\n \nWe have not paid any cash dividends on our common stock to date and do not anticipate any cash dividends being paid to holders of our common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that any earnings will be retained to finance our future expansion. As we have no plans to issue cash dividends in the future, our common stock could be less desirable to other investors and as a result, the value of our common stock may decline, or fail to reach the valuations of other similarly situated companies who have historically paid cash dividends in the past.\nIf securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our common stock adversely, the price of our common stock and trading volume could decline.\n \nThe trading market for our common stock may be influenced by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst who may cover us was to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our common stock or trading volume to decline.\n  Our business operations could be disrupted if our information technology systems fail to perform adequately.\n    We rely on information technology networks and systems, including the Internet, to process, transmit, and store information, to manage and support a variety of business processes and activities, and to comply with regulatory, legal, and tax requirements. Our information technology systems, some of which are dependent on services provided by third parties, may be vulnerable to damage, interruption, or shutdown due to any number of causes outside of our control such as catastrophic events, natural disasters, fires, power outages, systems failures, telecommunications failures, employee error or malfeasance, security breaches, computer viruses or other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, hacking, and other cyberattacks. While we have experienced threats to our data and systems, to date, we are not aware that we have experienced a material breach. Cyberattacks are occurring more frequently, are constantly evolving in nature and are becoming more sophisticated. Additionally, continued geopolitical turmoil, including the Russia-Ukraine military conflict, has heightened the risk of cyberattacks. While we attempt to continuously monitor and mitigate against cyber risks, we may incur significant costs in protecting against or remediating cyberattacks or other cyber incidents.\nSophisticated cybersecurity threats pose a potential risk to the security and viability of our information technology systems, as well as the confidentiality, integrity, and availability of the data stored on those systems, including cloud-based platforms. In addition, new technology that could result in greater operational efficiency may further expose our computer systems to the risk of cyber-attacks. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure and associated automated and manual control processes, we could be subject to billing and collection errors, business disruptions, or damage resulting from security breaches. If any of our significant information technology systems suffer severe damage, disruption, or shutdown, and our business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition, and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results. In addition, there is a risk of business interruption, \n12\nviolation of data privacy laws and regulations, litigation, and reputational damage from leakage of confidential information. Any interruption of our information technology systems could have operational, reputational, legal, and financial impacts that may have a material adverse effect on our business.\n \n  A pandemic, epidemic, or outbreak of an infectious disease in the United States or elsewhere may adversely affect our business and we are unable to predict the potential impact.\n \nWe are subject to risks related to public health crises such as the global pandemic associated with COVID-19. The global spread of COVID-19 resulted in the World Health Organization declaring the outbreak a \u201cpandemic,\u201d or a worldwide spread of a new disease, in early 2020.  This virus eventually spread world wide to most\u00a0countries, and to all 50 states within the United States. In response, most countries around the world imposed quarantines and restrictions on travel and mass gatherings in an effort to contain the spread of the virus. Employers worldwide were also required to increase, as much as possible, the capacity and arrangement for employees to work remotely. More recently, many of the restrictions and travel bans have been eased or lifted completely as global society as a whole works to return to pre-pandemic business and personal practices.  Although, to date, these restrictions have not materially impacted our operations, the effect on our business, from the spread of COVID-19 and the actions implemented by the governments of the United States and elsewhere across the globe, may, once again, worsen over time and we are unable to predict the potential impact on our business.\n  \u00a0Any outbreak of contagious diseases, or other adverse public health developments, could have a material and adverse effect on our business operations. These could include disruptions or restrictions on our ability to travel, pursue partnerships and other business transactions, receive shipments of biologic materials, as well as be impacted by the temporary closure of the facilities of suppliers.   The spread of an infectious disease, like COVID-19, may also result in the inability of our suppliers to deliver supplies to us on a timely basis. In addition, health professionals may reduce staffing and reduce or postpone meetings with clients in response to the spread of an infectious disease. Though we have not yet experienced such events, if they would occur, they could result in a period of business disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations.  However, as of the date of this Annual Report on Form 10-K, we have not experienced a material adverse effect on our business nor the need for reduction in our work force; and, currently, we do not expect any material impact on our long-term activity. The extent to which any spread of disease, like that of the COVID-19 pandemic, impacts our business will depend on future developments which are highly uncertain and cannot be predicted, including, but not limited to, information which may emerge concerning the spreading and severity of the any infectious diseases, the actions to contain these, or treat their impact.\n  Deterioration in general economic conditions in the United States and globally, including the effect of prolonged periods of inflation on our customers and suppliers, could harm our business and results of operations.\n   Our business and results of operations could be adversely affected by changes in national or global economic conditions.  These conditions include but are not limited to inflation, rising interest rates, availability of capital markets, energy availability and costs (including fuel surcharges), the negative impacts caused by pandemics and public health crises (such as the COVID-19 pandemic), negative impacts resulting from the military conflict between Russia and the Ukraine, and the effects of governmental initiatives to manage economic conditions.  Impacts of such conditions could be passed on to our business in the form of a reduced customer base and/or potential for new bookings due to possible reductions in pharmaceutical and biotech industry-wide spend on research and development and/or economic pressure on our suppliers to pass on increased costs.",
+  "item7": ">Item 7. \nManagement\u2019s Discussion and Analysis of Financial Condition and\n \nResults of Operations\n\u00a0\nYou should read the following discussion and analysis together with our consolidated financial statements and the related notes included elsewhere in this Annual Report.\u00a0This discussion contains forward-looking statements that are based on our current expectations, estimates, and projections about our business and operations.\u00a0Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under Item 1A \u2013 \u201cRisk Factors\u201d and elsewhere in this Annual Report.\n\u00a0\nOverview and Recent Developments\n\u00a0\nWe are a technology-enabled research organization engaged in creating transformative technology solutions to be utilized in drug discovery and development. Our research center consists of a comprehensive set of computational and experimental research platforms. Our pharmacology, biomarker, and data platforms are designed to facilitate drug discovery and development at lower costs and increased speeds. We perform studies which we believe may predict the efficacy of experimental oncology drugs or approved drugs as stand-alone therapies or in combination with other drugs and can stimulate the results of human clinical trials. These studies include in vivo studies that rely on implanting multiple tumors from our TumorBank in mice and testing the therapy of interest on these tumors. Studies may also include bioinformatics analysis that reveal the differences in the genetic signatures of the tumors that responded to a therapy as compared to the tumors that did not respond. Additionally, we provide computational or experimental support to identify novel therapeutic targets, select appropriate patient populations for clinical evaluation, identify potential therapeutic combination strategies, and develop biomarker hypothesis of sensitivity or resistance. These studies include the use of our in vivo, ex vivo, analytical and computational platforms.  \nWe are engaged in the development and sale of advanced technology solutions and products to personalize the development and use of oncology drugs through our Translational Oncology Solutions (\"TOS\"). This technology ranges from computational-based discovery platforms, unique oncology software solutions, and innovative and proprietary experimental tools such as in vivo, ex vivo and biomarker platforms.\u00a0Utilizing our TumorGraft Technology Platform (\"The Platform\"), a comprehensive Bank of unique, well characterized models, we provide select services to pharmaceutical and biotechnology companies seeking personalized approaches to drug development. By performing studies to predict the efficacy of oncology drugs, our Platform \n15\nfacilitates drug discovery with lower costs and increased speed of drug development as well as increased adoption of existing drugs.\nWe also sell Lumin Bioinformatics (\"Lumin\"), an oncology data-driven software program which contains comprehensive information derived from our research services and clinical studies. Lumin leverages Champions\u2019 large Datacenter coupled with analytics and artificial intelligence to provide a robust tool for computational cancer research. It is the combination of the Datacenter and the analytics that create a unique foundation for Lumin. Insights developed using Lumin can provide the basis for biomarker hypotheses, reveal potential mechanisms of therapeutic resistance, and guide the direction of additional preclinical evaluations.  During fiscal 2023, we recorded an asset impairment related to Lumin software development costs of $807,000.\nOur drug discovery and development business leverages the computational and experimental capabilities within our platforms. Our discovery strategy utilizes our rich and unique Datacenter, coupled with artificial intelligence and other advanced computational analytics, to identify novel therapeutic targets. We then employ the use of our proprietary experimental platforms to rapidly validate these targets for further drug development efforts. \n   We have a pipeline of targets at various stages of discovery and validation, with a select group that has progressed to early stage therapeutic development. Our commercial strategy for the validated targets and therapeutics established from this business is wide-ranging and still being developed. It will depend on many factors, and will be specific for each target or therapeutic area identified. Any expenses associated with this part of our business are research and development and are expensed as incurred.\nWe regularly evaluate strategic options to create additional value from our drug discovery business, which may include, but are not limited to, potential spin-out transactions or capital raises.\nResults of Operations\n\u00a0\nThe following table summarizes our operating results for the periods presented below (dollars in thousands):\n\u00a0\nFor the Years Ended April 30,\n2023\n% of\nRevenue\n2022\n% of\nRevenue\n%\nChange\nOncology services revenue\n$\n53,870\u00a0\n100.0\u00a0\n%\n$\n49,109\u00a0\n100.0\u00a0\n%\n9.7\u00a0\n%\nCosts and operating expenses:\n\u00a0\n\u00a0\nCost of oncology services\n29,532\u00a0\n54.8\u00a0\n23,632\u00a0\n48.1\u00a0\n25.0\u00a0\nResearch and development\n11,545\u00a0\n21.4\u00a0\n9,374\u00a0\n19.1\u00a0\n23.2\u00a0\nSales and marketing\n7,002\u00a0\n13.0\u00a0\n6,379\u00a0\n13.0\u00a0\n9.8\u00a0\nGeneral and administrative\n10,240\u00a0\n19.0\u00a0\n9,117\u00a0\n18.6\u00a0\n12.3\u00a0\nAsset Impairment\n807\u00a0\n1.5\u00a0\n\u2014\u00a0\n\u2014\u00a0\n100.0\u00a0\nTotal costs and operating expenses\n59,126\u00a0\n109.7\u00a0\n48,502\u00a0\n98.8\u00a0\n21.9\u00a0\n(Loss) income from operations\n$\n(5,256)\n(9.7)\n%\n$\n607\u00a0\n1.2\u00a0\n%\n(965.9)\n%\n\u00a0\nOncology Services Revenue\n\u00a0\nOncology services revenue, which is primarily derived from research services, was $53.9 million and $49.1 million, for the years ended April\u00a030, 2023 and 2022, respectively, an increase of $4.8 million, or 9.7%. The increase in revenue was primarily due to the expansion of both our platform and product lines creating additional demand for our services, leading to larger pharmacology study sizes in both our in-vivo and ex-vivo platforms. \nCost of Oncology Services\n\u00a0\nCost of oncology services were $29.5 million and $23.6 million for the years ended April\u00a030, 2023 and 2022, respectively, an increase of $5.9 million or 25.0%. The increase in cost of oncology services was primarily from an increase in compensation \n16\nand supply expenses.\n \nGross margin was \n45%\n for the twelve months ended April\u00a030, 2023 compared to \n52%\n for the twelve months ended April 30, 2022. The decrease in gross margin was the result of increasing costs in compensation and supplies to support revenue growth that didn't materialize as expected. \n\u00a0Research and Development\n\u00a0\nResearch and development expense was $11.5 million and $9.4 million for the years ended April\u00a030, 2023 and 2022, respectively, an increase of $2.2 million or 23.2%. The increase was primarily due to the investments in new service capabilities and our drug discovery and development programs with the increase coming primarily from compensation, lab supply, and outsourced discovery expenses. \n\u00a0\nSales and Marketing\n\u00a0\nSales and marketing expense was $7.0 million and $6.4 million for the years ended April\u00a030, 2023 and 2022, respectively, an increase of $0.6 million or 9.8%.\n\u00a0\nThe increase was mainly due to compensation expense, driven by the continued expansion of our business development teams, and marketing initiatives, including increased conference attendance due to the easing of Covid restrictions.\nGeneral and Administrative\n\u00a0\nGeneral and administrative expense was $10.2 million and $9.1 million for the years ended April\u00a030, 2023 and 2022, respectively, an increase of $1.1 million, or 12.3%. General and administrative expenses were primarily comprised of compensation, insurance, professional fees, IT, and depreciation and amortization expenses. The general and administrative expenses increase was primarily due to increases in non-cash depreciation and amortization expenses. \nAsset Impairment \n  During the fourth quarter of fiscal 2023, we assessed the recoverability of the Lumin capitalized software development costs by comparing the forecasted future revenues from Lumin sales, based on management\u2019s best estimates and using appropriate assumptions and projections, to the carrying amount of the capitalized asset. Several factors were considered in this analysis, including, the decrease in Lumin revenue growth from the prior year, the deceleration of new Lumin bookings in the current year, and the strategic consideration for additional capital investment into the platform, sales team, and marketing campaigns to bolster awareness and growth.  As the carrying value was determined not to be recoverable from future revenues, an impairment loss was recognized for the year ending April 30, 2023 equal to the amount by which the carrying amount exceeded the future revenues, or, its net book value at that date of $807,000.  There were no impairment charges for the year ending April 30, 2022.\nOther Expense\n\u00a0\nOther expense, net was $11,000 and $24,000 for the years ended April\u00a030, 2023 and 2022, respectively and resulted primarily from foreign currency transaction net losses offset by interest income.\n\u00a0\n\u00a0\nLiquidity and Capital Resources\n\u00a0\nOur liquidity needs have typically arisen from the funding of our research and development programs and the launch of new products, working capital requirements, and other strategic initiatives. In the past, we have met these cash requirements through our cash on hand, working capital management, proceeds from certain private placements and public offerings of our securities and sales of products and services. For the years ended April\u00a030, 2023 and 2022, the Company had a net loss of approximately $5.3 million and net income of approximately $548,000, respectively.  As of April\u00a030, 2023, the Company had an accumulated deficit of approximately $77.3 million, negative working capital of $2.3 million and cash of $10.1 million. For the twelve months ended April 30, 2023, the Company realized cash flow from operations of approximately $4.0 million. Despite our negative working capital at this date, we believe that our cash on hand, together with expected cash flows from operations, are adequate to fund operations through at least August 2024. Should the Company be required to raise additional capital, there can be no assurance that management would be successful in raising such capital on terms acceptable to us, if at all.\nCash Flows\n\u00a0\nThe following discussion relates to the major components of our cash flows:\n\u00a0\n17\nCash Flows from Operating Activities\n\u00a0\nNet cash provided by operating activities was $4.0 million and $6.5 million for the years ended April\u00a030, 2023 and 2022, respectively. The decrease in cash provided by operations resulted primarily from the net loss realized in fiscal 2023. Cash generated from operations in 2023 was primarily due to changes in our working capital accounts in the ordinary course of business and an increase in deferred revenue.\nCash Flows from Investing Activities\n\u00a0\nNet cash used in investing activities was $2.9 million and $2.4 million for the years ended April\u00a030, 2023 and 2022, respectively. The cash used was for the investment in lab and computer equipment. \n\u00a0\nCash Flows from Financing Activities\n\u00a0\nNet cash provided by financing activities was $11,000 and $207,000 for the years ended April\u00a030, 2023 and 2022, respectively. Cash flows provided by financing activities was due to exercises of stock options and decreased from the prior year due to lower volume of exercises.  During fiscal 2023, cash provided by financing was offset by cash used to repurchase common stock per our stock buyback program. \n Critical Accounting Policies\n\u00a0\n  The following discussion of critical accounting policies identifies the accounting policies that require application of management\u2019s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. It is not intended to be a comprehensive list of all of our significant accounting policies, which are more fully described in Note\u00a02 of the notes to the consolidated financial statements included in this document. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management\u2019s judgment in their application. There are also areas in which the selection of an available alternative policy would not produce a materially different result.\n\u00a0\nGeneral\n\u00a0\nOur discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States or GAAP.\u00a0The preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities.\u00a0Significant estimates of the Company include, among other things, accounts receivable realization, revenue recognition, valuation allowance for deferred tax assets, recoverability of capitalized software development costs, and stock-based compensation and warrant assumptions. We base our estimates on historical experience, our observance of trends in particular areas and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources.\u00a0Actual amounts could differ significantly from amounts previously estimated.\n\u00a0\nRevenue Recognition\n\u00a0\nThe Company accounts for revenue under the Financial Accounting Standards Board's (FASB) Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers.  In accordance with ASC 606, revenue is now recognized when, or as, a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. \nA performance obligation is a promise (or a combination of promises) in a contract to transfer distinct goods or services to a customer and is the unit of accounting under ASC 606 for the purposes of revenue recognition. A contract's transaction price is allocated to each separate performance obligation based upon the standalone selling price and is recognized as revenue, when, or as, the performance obligation is satisfied. The majority of the Company's contracts have a single performance obligation because the promise to transfer individual services is not separately identifiable from other promises in the contracts, and therefore, is not distinct.\nThe majority of the Company's revenue arrangements are service contracts that are completed within a year or less. There are a few contracts that range in duration between 1 and 3 years. Substantially all of the Company's performance obligations, \n18\nand associated revenue, are transferred to the customer over time. Most of the Company's contracts can be terminated by the customer without cause. In the event of termination, the Company's contracts provide that the customer pay the Company for services rendered through the termination date. The Company generally receives compensation based on a predetermined invoicing schedule relating to specific milestones for that contract. In addition, in certain instances a customer contract may include forms of variable consideration such as performance incentives or other provisions that can increase or decrease the transaction price. This variable consideration is generally awarded upon achievement of certain performance metrics. For the purposes of revenue recognition, variable consideration is assessed on a contract-by-contract basis and the amount to be recorded is estimated based on the assessment of the Company's anticipated performance and consideration of all information that is reasonably available. Variable consideration is recognized as revenue if and when it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved in the future.\nAmendments to contracts are common. The Company evaluates each amendment which meets the criteria of a contract modification under ASC 606. Each modification is further evaluated to determine whether the contract modification should be accounted for as a separate contract or as a continuation of the original agreement. \n     The Company accounts for amendments as a separate contract when they meet the criteria under ASC 606-10-25-12.\nStock-Based Payments\n\u00a0\nWe typically recognize expense for stock-based payments based on the fair value of awards on the date of grant.\u00a0We use the Black-Scholes option pricing model to estimate fair value. The option pricing model requires us to estimate certain key assumptions such as expected life, volatility, risk free interest rates, and dividend yield to determine the fair value of stock-based awards.\u00a0These assumptions are based on historical information and management judgment.\u00a0We expense stock-based payments over the period that the awards are expected to vest. In the event of forfeitures, compensation expense is adjusted.\u00a0We report cash flows resulting from tax deductions in excess of the compensation cost recognized from those options (excess tax benefits) as financing cash flows when the cash tax benefit is received.\n\u00a0\nRecoverability of Capitalized Software Development Costs\nThe Company accounts for the cost of computer software obtained or developed for internal use as well as the software development and implementation costs associated with a hosting arrangement (\"internal-use software\") that is a service contract\nin accordance and with ASC 350, Intangibles - Goodwill and Other (\"ASC-350\"). We capitalize certain costs in the development of our internal-use software when the preliminary project stage is completed and the software has reached the point of technological feasibility. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose and available for sale.  Capitalized costs are recorded as an asset and then amortized using the straight-line method over an estimated useful economic life of three years.\nCapitalized software development costs are stated at gross cost less accumulated amortization. Recoverability of these capitalized costs is determined at each balance sheet date by comparing the forecasted future revenues from the related product, based on management\u2019s best estimates using appropriate assumptions and projections at the time, to the carrying amount of the capitalized software development costs. If the carrying value is determined not to be recoverable from future revenues, an impairment loss is recognized equal to the amount by which the carrying amount exceeds the future revenues.  During fiscal 2023, we recorded an asset impairment charge related to software development costs of $807,000. \nAccounting for Income Taxes\n\u00a0\nWe use the asset and liability method to account for income taxes.\u00a0Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets.\u00a0\u00a0In preparing the consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate.\u00a0\u00a0This process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, depreciation on property, plant and equipment, goodwill and losses for tax and accounting purposes.\u00a0\u00a0These differences result in deferred tax assets, which include tax loss carry-forwards, and liabilities, which are included within the consolidated balance sheet.\u00a0\u00a0We then assess the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established.\u00a0To the extent a valuation allowance is established or increased in a period, we include an expense within the tax provision of the consolidated statements of operations.\u00a0As of\u00a0April\u00a030, 2023\u00a0and\u00a02022, we have established a full valuation allowance for all deferred tax assets.\n\u00a0\n19\nAs of\u00a0April\u00a030, 2023 and\u00a02022, we recognized a liability for uncertain tax positions on the balance sheet relative to foreign operations in the amount of\u00a0$181,000. We do not anticipate any significant unrecognized tax benefits will be recorded during the next 12 months.\u00a0\u00a0Any interest or penalties related to unrecognized tax benefits is recognized in income tax expense. The Company has not accrued penalties or interest during the year ended\u00a0April\u00a030, 2023 as we believe the liability for uncertain tax positions accurately reflects penalties and/or interest as of this date.\nAccounting Pronouncements Being Evaluated\n\u00a0\u00a0\u00a0\u00a0In June 2016, the FASB issued ASU No. 2016-13, \"Financial Instruments - Credit Losses\". This update requires immediate recognition of management\u2019s estimates of current expected credit losses (\"CECL\").  Under the prior model, losses were recognized only as they were incurred.  The new model is applicable to all financial instruments that are not accounted for at fair value through net income.  The standard is effective May 1, 2023 for the Company. We are currently assessing the impact of this update on our consolidated financial statements but we do not expect the adoption of the pronouncement to have a material impact on our balance sheet or results of operations. \nOff-Balance Sheet Financing\n\u00a0\nWe have no off-balance sheet debt or similar obligations.\u00a0\u00a0We have no transactions or obligations with related parties that are not disclosed, consolidated into or reflected in our reported results of operations or financial position.\u00a0\u00a0We do not guarantee any third-party debt.\n\u00a0",
+  "item7a": ">Item 7A. \nQuantitative and Qualitative Disclosures About Market Risk\n\u00a0\nNot applicable.\n\u00a0",
+  "cik": "771856",
+  "cusip6": "15870P",
+  "cusip": ["15870P307"],
+  "names": ["CHAMPIONS ONCOLOGY INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/771856/000162828023025464/0001628280-23-025464-index.htm"
+}
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+{
+  "item1": ">Item 1.  \nBusiness.\nOVERVIEW\nAngioDynamics is a leading and transformative medical technology company focused on restoring healthy blood flow in the body's vascular system, expanding cancer treatment options and improving quality of life for patients.\nHISTORY\nAngioDynamics was founded in Queensbury, N.Y., U.S., in 1988 and began manufacturing and shipping product in the early 1990s.  The Company is headquartered in Latham, N.Y., with manufacturing primarily out of the Queensbury facility.  Initially dedicated to the research and development of products used in interventional radiology, the Company soon became well established as a producer of diagnostic catheters for non-coronary angiography and thrombolytic delivery systems.\nThe Company grew over the following years as a result of acquisitions of companies including RITA Medical Systems in January 2007, Oncobionic in May 2008, the assets of Diomed in June 2008, Vortex Medical, Inc. in October 2012, the assets of Microsulis Medical Limited in January 2013, and Clinical Devices in August 2013. These acquisitions added product lines \n2\nincluding ablation and NanoKnife systems, vascular access products, angiographic products and accessories, dialysis products, drainage products, thrombolytic products, embolization products and venous products.  In May 2012, the Company acquired Navilyst Medical's Fluid Management business, which the Company sold in May 2019 to Medline Industries, Inc. pursuant to an asset purchase agreement. \nIn August 2018, the Company acquired the BioSentry product line from Surgical Specialties, LLC.  In September 2018, the Company acquired RadiaDyne, which included endorectal and vaginal balloons.  On October 2, 2019, the Company acquired Eximo Medical, Ltd., a pre-commercial stage medical device company and its proprietary 355nm laser atherectomy technology (now called Auryon), which treats Peripheral Artery Disease.  On December 17, 2019, the Company acquired the C3 Wave tip location asset from Medical Components Inc.  On July 27, 2021, AngioDynamics acquired the Camaro Support Catheter asset from QX Medical, LLC.  \nAngioDynamics is publicly traded on the NASDAQ stock exchange under the symbol ANGO.\nPRODUCTS\nOur product offerings fall within two segments, Med Tech and Med Device.  All products discussed below have been cleared for sale in the United States by the Food and Drug Administration.  International regulatory clearances vary by product and jurisdiction.\nMed Tech\n \nAuryon \nThe Auryon Atherectomy System is one of our latest advancements in peripheral arterial disease.  The Auryon system is designed to deliver an optimized wavelength, pulse width, and amplitude to remove lesions while preserving vessel wall endothelium. Additionally, the Auryon system includes aspiration which enhances the safety of the procedure. Regardless of lesion type, the Auryon system provides safety and efficacy. The Auryon system is indicated for use in the treatment, including atherectomy, of infrainguinal stenoses and occlusions, including in-stent restenosis (ISR), and to aspirate thrombus adjacent to stenoses in native and stented infrainguinal arteries.\nThrombectomy\nOur Thrombus Management portfolio includes the AlphaVac Mechanical Thrombectomy System, AngioVac venous drainage cannula and circuit, as well as catheter directed thrombolytic devices, including the Uni-Fuse system, the Uni-Fuse+ system, the Pulse Spray system and SpeedLyser infusion catheters. AngioDynamics offers a range of options when treating thrombus and removing fresh, soft thrombi or emboli.\nAngioVac\nOur AngioVac venous drainage system includes a Venous Drainage Cannula and Extracorporeal Circuit. The cannula is indicated for use as a venous drainage cannula and for removal of fresh, soft thrombi or emboli during extracorporeal bypass. The AngioVac circuit is indicated for use in procedures requiring extracorporeal circulatory support for periods of up to six hours. AngioVac devices are for use with other manufacturers\u2019 off-the-shelf pump, filter and reinfusion cannula, to facilitate venous drainage as part of an extracorporeal bypass procedure. \nThe AngioVac venous drainage cannula is a 22 French flat coil-reinforced cannula designed with a proprietary self-expanding nitinol reinforced funnel shaped distal tip. The funnel shaped tip enhances venous drainage flow when the distal tip is exposed by retracting the sheath, helps prevent clogging of the cannula with commonly encountered undesirable intravascular material, and facilitates embolic removal of such extraneous material.\n3\nAlphaVac \nThe AlphaVac System is an emergent mechanical aspiration device that eliminates the need for perfusionist support.  AlphaVac is offered in both a 22 French flat coil-reinforced cannula and an 18 French braided reinforced cannula each designed with a proprietary self-expanding nitinol reinforced funnel shaped distal tip.  AlphaVac is indicated for the non-surgical removal of thrombi or emboli from vasculature as well as aspiration of contrast media and other fluids from the vasculature.  The cannula is intended for use in the venous system.  The handle is indicated as a vacuum source for the AlphaVac MMA system.\n \n \nThrombolytic Catheters\nThrombolytic catheters are used to deliver thrombolytic agents, which are drugs that dissolve blood clots in hemodialysis access grafts, arteries, veins and surgical bypass grafts. AngioDynamics\u2019 Uni-Fuse infusion catheter features pressure response outlets, a proprietary slit technology that provides a consistent, even distribution of fluid volume along the entire length of the infusion pattern, designed to provide an advantage over standard side-hole catheters.\nWe also offer the Pulse-Spray infusion system for high pressure, pulsed delivery of lytic agents designed to shorten treatment time, and the SpeedLyser infusion system built for dialysis grafts and fistulas.\nNanoKnife\nThe NanoKnife IRE Ablation System is an alternative to traditional thermal ablation that received 510(k) clearance from the Food and Drug Administration for the surgical ablation of soft tissue. The system utilizes low energy direct current electrical pulses to permanently open pores in target cell membranes.\u00a0These permanent pores or nano-scale defects in the cell membranes result in cell death.\u00a0The treated tissue is then removed by the body\u2019s natural processes in a matter of weeks, mimicking natural cell death.\u00a0Unlike other ablation technologies, the NanoKnife System does not achieve tissue ablation using thermal energy.\n \nThe NanoKnife System consists of two major components: a Low Energy Direct Current, or LEDC Generator and needle-like electrode probes.\u00a0Up to six (6)\u00a0electrode probes can be placed into or around the targeted soft tissue.\u00a0Once the probes are in place, the user enters the appropriate parameters for voltage, number of pulses, interval between pulses, and the pulse length into the generator user interface.\u00a0The generator then delivers a series of short electric pulses between each electrode probe. The energy delivery is hyperechoic and can be monitored under real-time ultrasound.\n4\nMed Device\nPeripheral Products (Core)\nWe offer a comprehensive portfolio for minimally invasive peripheral products.  Product categories include an extensive line of angiographic catheters and diagnostic and interventional guidewires, percutaneous drainage catheters and coaxial micro-introducer kits.\nAngiographic Products and Accessories\nAngiographic products and accessories are used during peripheral diagnostic and interventional procedures. These products permit physicians to reach targeted locations to deliver contrast media for visualization purposes and therapeutic agents and devices, such as percutaneous transluminal angioplasty (PTA) balloons. Angiographic products consist of angiographic catheters and guidewires.\nOur angiographic catheter line includes the following brands, all with radiopaque tips to assure excellent visibility under fluoroscopy:\n\u2022\nSoft-Vu flush catheters are available in flush and selective varieties.  Flush catheters are used in procedures where a high flow of contrast is required for \u201cbig picture\u201d diagnostics. Anomalies discovered through a flush angiogram may require further investigation into a vessel of interest. Soft-Vu selective catheters are used to gain access to smaller or more distal vessels and advance the catheter or wire into the diseased section.\n\u2022\nAccu-Vu sizing catheters feature radiopaque marker bands at the distal portion of the catheter to provide a highly accurate measurement of the patient\u2019s anatomy. This enables precise measurement for interventional devices such as stents.\n\u2022\nMariner catheters have a hydrophilic coating that, when combined with water, reduces friction. This makes insertion potentially easier and more comfortable for the patient, and can also be used for advancing through tortuous anatomy.\nAngioDynamics guidewires include Nit-Vu (featuring a kink-resistant NiTi alloy core facilitating smooth navigation through tortuous vasculature and accurate wire control) and Polytetrafluoroethylene (PTFE) Coated diagnostic guidewires (fixed core and movable core).\nAngioDynamics catheters and guidewires are available in more than 500 tip configurations and lengths.\nDrainage Products\nDrainage products percutaneously drain abscesses and other fluid pockets. An abscess is a tender inflamed mass that typically must be drained by a physician. AngioDynamics offers two brands of drainage catheters for multi-purpose/general, nephrostomy and biliary drainage: Total Abscession and Exodus. Each offer features and benefits depending on case presentation and physician preferences.\nMicro Access Kits\nOur Micro Access kits provide interventional physicians a smaller introducer system for minimally-invasive procedures. Our Micro Access product line provides physicians with the means to choose from the wide selection of configurations, including guidewire, needle and introducer options. Two lines are available in stiff/standard, 10cm or 15cm and echogenic for visibility under ultrasound guidance: Micro Introducer Kit and Ministick Max.\n5\nBioFlo\nAngioDynamics offers the BioFlo catheter, the only catheter on the market with Endexo Technology, a material more resistant to thrombus accumulation, in vitro (based on platelet count). Endexo Technology is a permanent and non-eluting polymer that is \u201cblended\u201d into the polyurethane from which the catheter is made. It is present throughout the catheter, including the extraluminal, intraluminal and cut catheter surface of the tip. Endexo Technology remains present for the life of the catheter.  The BioFlo catheter\u2019s long-term durability and efficacy is intended to provide clinicians a high degree of safety and confidence in providing better patient care and improved patient outcomes. BioFlo catheters are available across the Vascular Access family of products, including PICCs, midlines, ports and dialysis catheters.\n \n \nMidlines\nMidline catheters are inserted via the same veins used for PICC placement in the middle third of the upper arm; however, the midline catheter is advanced and placed so that the catheter tip is level or near the level of the axilla and distal to the shoulder.  Our Midline product is a BioFlo Midline Catheter which incorporates Endexo Technology and is an effective solution to preserving a patient\u2019s peripheral access.  It provides a cost-effective alternative to multiple IV site rotations for patients who need short-term venous access.\nPICCs\nA peripherally inserted central catheter, or PICC, is a long thin catheter that is inserted into a peripheral vein, typically in the upper arm, and advanced until the catheter tip terminates in a large vein in the chest near the heart to obtain intravenous access. PICCs can typically be used for prolonged periods of time and provide an alternative to central venous catheters. Our PICC product offerings include:\n\u2022\nBioFlo PICC\n: Our BioFlo PICC line is the only power injectable PICC available that incorporates Endexo Technology into the manufacturing and design of the catheter. Advanced features such as large lumen diameters allow the BioFlo PICC to deliver the power injection flow rates required for contrast-enhanced Computed Tomography (CT) scans compatible with up to 325 psi CT injections.\n\u2022\nXcela PICC\n: The Xcela PICC line is designed to provide a high degree of safety, ease and confidence in patient care. Advanced features such as large lumen diameters allow the Xcela PICC to deliver the power injection flow rates required for contrast-enhanced CTs compatible with up to 325 psi CT injections.\n\u2022\nPASV Valve Technology: \nThe PASV Valve Technology is available in both BioFlo and Xcela lines and is designed to automatically resist backflow and reduce blood reflux that could lead to catheter-related complications.\nC3 Wave PICC tip location system\nThe C3 Wave system is our innovative, wireless, app-based ECG system which eliminates the need for a confirmatory chest x-ray of PICC tip placement, allowing greater patient access to the Company\u2019s proprietary BioFlo PICCs. \nPorts \nPorts are implantable devices utilized for the central venous administration of a variety of medical therapies and for blood sampling and diagnostic purposes. Central venous access facilitates a more systemic delivery of treatment agents, while mitigating certain harsh side effects of certain treatment protocols and eliminating the need for repeated access to peripheral veins. Depending upon needle gauge size and the port size, a port can be utilized for up to approximately 2,000 accesses once implanted in the body. Our ports are used primarily in systemic or regional short- and long-term cancer treatment protocols that require frequent infusions of highly concentrated or toxic medications (such as chemotherapy agents, antibiotics or analgesics) and frequent blood samplings. Our port products and accessories include:\n\u2022\nBioFlo Port\n: Our BioFlo Port was the first port available featuring a catheter with Endexo Technology. Advanced features of the BioFlo Port include multiple profile and catheter options, a large septum area for ease of access and the ability to administer contrast through a CT injection for purposes of imaging.\n\u2022\nSmartPort, SmartPort+, SmartPort Plastic\n: The SmartPort power-injectable port with Vortex technology offers the ability for a clinician to access a vein for both the delivery of medications or fluids and for administering power-\n6\ninjected contrast to perform a CT scan. The ability to access a port for power-injected contrast studies eliminates the need for additional needle sticks in the patient\u2019s arm and wrist veins. Once implanted, repeated access to the bloodstream can be accomplished with greater ease and less discomfort. Our SmartPort port line is available in standard, mini and low-profiles to accommodate more patient anatomies.  The SmartPort+ port line combines Vortex technology with BioFlo catheters.  In addition to the three titanium port body sizes, there is a plastic port body.\n\u2022\nVortex:\n Our Vortex port technology line of ports features a clear-flow port technology that, we believe, revolutionized port design. With its rounded chamber, the Vortex port is designed to have no sludge-harboring corners or dead spaces. This product line consists of titanium, plastic and dual-lumen offerings.\n\u2022\nPASV Valve Technology: \nThe PASV Valve Technology is designed to automatically resist backflow and reduce blood reflux that could lead to catheter-related complications.\nDialysis Products\nWe market an extensive line of dialysis products that provide short and long-term vascular access for dialysis patients. Dialysis, or cleaning of the blood, is necessary in conditions such as acute renal failure, chronic renal failure and end-stage renal disease (ESRD). We currently offer a variety of dialysis catheters, including:\n\u2022\nBioFlo\n \nDuraMax\n: Our BioFlo DuraMax dialysis catheter is the only dialysis catheter with Endexo Technology. Advanced features of the BioFlo DuraMax dialysis catheter include large inner diameter lumens designed for long term patency, a proprietary guidewire lumen to facilitate catheter exchanges and Curved Tip Technology that allows the catheter to self-center in the Superior Vena Cava (SVC).\n\u2022\nDuraMax:\n The DuraMax catheter is a stepped-tip catheter designed to improve ease of use, dialysis efficiency and overall patient outcomes.\nIn addition, AngioDynamics also offers other renal therapies, including our DuraFlow Chronic Hemodialysis Catheter, Acute Dialysis Catheter, EVENMORE Chronic Hemodialysis Catheter, EMBOSAFE Valved Splitable Sheath Dilator and Perchik Button Suture Retention Device.\nVenous Insufficiency\nVenaCure EVLT laser system\n \nOur VenaCure EVLT system products are used in endovascular laser procedures to treat superficial venous disease (varicose veins). Superficial venous disease is a malfunction of one or more valves in the leg\u00a0veins whereby blood refluxes or does not return to the heart, thereby pooling in the legs and leading to symptoms such as pain, swelling and ulcerations. The VenaCure EVLT system uses laser energy to stop the reflux by ablating (collapsing and destroying) the affected vein. Blood is then re-routed to other healthy veins.\nThe procedure is minimally invasive and generally takes less than an hour, typically allowing the patient to quickly return to normal activities.  \nThe VenaCure EVLT system is sold as a system that includes diode laser hardware and procedure kits which include disposable laser fiber components, an access sheath, access wires and needles. Our VenaCure EVLT 1470 nanometer wavelength laser allows physicians to more efficiently heat the vein wall using lower power settings thereby reducing the risk of collateral\u00a0damage. The NeverTouch tip fiber eliminates laser tip contact with the vein wall, which in turn minimizes perforations of the vein wall that typically result in less pain and bruising as compared to traditional bare-tip fibers. The NeverTouch tip also maximizes ultrasonic visibility, making it easier for physicians to use. Procedure kits are available in a variety of lengths and configurations to accommodate varied patient anatomies.\nThe VenaCure EVLT system comes with a comprehensive physician training program and extensive marketing support.\n7\nMicrowave Ablation \nSolero Microwave Tissue Ablation (MTA) System\nThe Solero MTA System features the Solero Microwave (MW) Generator and the specially designed Solero MW Applicators. The solid state Solero MW Generator with a 2.45 GHz operating frequency can power up to 140W for optimized power delivery and fast ablations. The Solero MW Applicator\u2019s optimized ceramic tip diffuses MW energy nearly spherically, and its patented cooling channel with thermocouple provides real-time monitoring to help protect non-targeted tissue during the ablation. In addition, the Solero MTA System offers physicians scalability with a single applicator designed for multiple, predictable ablation volumes by varying time and wattage. Solero is a single applicator system able to complete up to a 5 cm ablation in six (6) minutes at maximum power.  \n \nThe Solero MTA System and Accessories are indicated for the ablation of soft tissue during open procedures. The Solero MTA System is not intended for cardiac use.\nRadiofrequency Ablation \nStarBurst Radiofrequency Ablation Devices\nRadiofrequency Ablation (RFA) products use radiofrequency energy to provide a minimally invasive approach to ablating solid cancerous or benign tumors. Our StarBurst Radiofrequency Ablation devices deliver radiofrequency energy to raise the temperature of cells above 45-50\u00b0C, causing cellular death. The physician inserts the disposable needle electrode device into the targeted body tissue, typically under ultrasound, CT or Magnetic Resonance Imaging (MRI) guidance. \nDuring the procedure, our system automatically adjusts the amount of energy delivered in order to maintain the temperature necessary to ablate the targeted tissue. For a typical 5 cm ablation using our StarBurst Xli-enhanced disposable device, the ablation process takes approximately ten (10) minutes. The RFA system consists of a radiofrequency generator and a family of disposable devices.\nIn addition to thermal ablation systems and the NanoKnife Ablation System, AngioDynamics also offers Habib 4X Surgical Resection devices that are used in minimally invasive laparoscopic surgery procedures in surgical specialties such as Hepato-Biliary, GI, Surgical Oncology, Transplant Surgery and Urology (Partial Nephrectomy Resections). It is clinically indicated to assist in coagulation of tissue during intraoperative and laparoscopic procedures.\nBioSentry Tract Sealant System\nThe BioSentry Tract Sealant System deploys a self-expanding hydrogel plug into the pleural space following a percutaneous lung biopsy, creating an airtight seal that closes the pleural puncture.  Depth markings\u00a0provide accurate and consistent placement based on CT-guided measurements, while the depth adjustment wheel\u00a0and\u00a0locking mechanisms\u00a0ensure proper plug deployment.  The hydrogel plug is made from a synthetic tissue-friendly polymer that fully reabsorbs into the body and the coaxial adapter mates with a coaxial needle to ensure a proper fit and delivery of the plug.  The BioSentry Tract Sealant System is indicated for sealing pleural punctures to significantly reduce the risk of pneumothoraxes (air leaks) associated with percutaneous, transthoracic needle lung biopsies and to provide accuracy in marking a biopsy location for visualization during surgical resection.  \nIsoLoc Endorectal Balloon\nThe IsoLoc Endorectal Balloon's unique, customer-driven design is the result of collaborations with Radiation Oncologists, Therapists and Physicists with one goal in mind, to create a new standard for endorectal balloons (ERB) in the oncology space.   \nThe design of the IsoLoc device not only addresses patient comfort, but also simplifies three challenging clinical scenarios that many physicians face when using radiation therapy for and/or in relation to the prostate.  First, its' gas-release tip removes rectal gas and reduces prostate motion for gaseous patients.  Secondly, the structure of the ERB aids in defining the anatomy for difficult planning scenarios with post-radical patients.  Lastly, the IsoLoc device repositions and lifts the bowel in patients that have a low-lying bowel.  \n8\nAlatus Vaginal Balloon Packing System\nThe Alatus device was developed with the patient's comfort in mind and to assist the physician to move healthy tissue away from the radiation treatment field.  Prior to the Alatus device, the clinician would push gauze into the vagina to move the bladder and bowel away from the radiation treatment field.  Inserting gauze into the vagina can be uncomfortable before treatment and unpleasant at the end of treatment as it tends to dry out before removing. \nRESEARCH & DEVELOPMENT \nOur growth depends in large part on the continuous introduction of new and innovative products, together with ongoing enhancements to our existing products. This happens through internal product development, technology licensing, strategic alliances and acquisitions.  Our research and development (R&D) teams work closely with our marketing teams, sales force and regulatory and compliance teams to incorporate customer feedback into our development and design process. We believe that we have a reputation among interventional physicians as a strong partner for developing high quality products because of our tradition of close physician collaboration, dedicated market focus, responsiveness and execution capabilities for product development and commercialization.  We recognize the importance of, and intend to continue to make investments in R&D.\nCOMPETITION\nWe encounter significant competition across our product lines and in each market in which our products are sold. These markets are characterized by rapid change resulting from technological advances, scientific discoveries and changing customer needs and expectations. We face competitors, ranging from large manufacturers with multiple business lines, to small manufacturers that offer a limited selection of products.\nOur primary device competitors include: Boston Scientific Corporation; Cook Medical; Medical Components, Inc. (MedComp); TeleFlex Medical; Becton Dickinson; Medtronic; Merit Medical; Terumo Medical Corporation; Johnson and Johnson; Philips Healthcare; Inari Medical; Varian Medical Systems and Total Vein Systems.\nWe believe our products compete primarily based on their quality, clinical outcomes, ease of use, reliability, physician familiarity and cost-effectiveness. In the current environment of managed care, which is characterized by economically motivated buyers, consolidation among health care providers, increased competition and declining reimbursement rates, we have been increasingly required to compete on the basis of price. We believe that our continued competitive success will depend upon our ability to develop or acquire scientifically advanced technology, apply our technology cost-effectively across product lines and markets, attract and retain skilled personnel, obtain patent or other protection for our products, obtain required regulatory and reimbursement approvals, manufacture and successfully market our products either directly or through third parties, and maintain sufficient inventory to meet customer demand.\nSALES AND MARKETING\nWe sell our broad line of quality devices in the United States primarily through a direct sales force and internationally through a combination of direct sales and distributor relationships.  We support our customers and sales organization with a marketing staff that includes product managers, customer service representatives and other marketing specialists.  We focus our sales and marketing efforts on interventional radiologists, interventional cardiologists, vascular surgeons, urologists, interventional and surgical oncologists and critical care nurses. \nMANUFACTURING\nWe manufacture certain proprietary components and products and then assemble, inspect, test and package our finished products. By designing and manufacturing many of our products from raw materials, and assembling and testing our subassemblies and products, we believe that we are able to maintain better quality control, ensure compliance with applicable regulatory standards and our internal specifications, and limit outside access to our proprietary technology. We have custom-designed proprietary manufacturing and processing equipment and have developed proprietary enhancements for existing production machinery.\nWe manufacture many of our products from two owned manufacturing properties, one in Queensbury, NY and one small facility in Glens Falls, NY, providing capabilities which include manufacturing, service, offices, engineering and research and we lease distribution warehouses.  The manufacturing facilities are registered with the FDA and have been certified to ISO 13485 standards. ISO 13485 is a quality system standard that satisfies European Union regulatory requirements, thus allowing us to market and sell our products in European Union countries. AngioDynamics is certified under the Medical Device Single Audit Program (\"MDSAP\") which allows a recognized auditing organization to conduct a single regulatory audit of a medical device manufacturer to satisfy the relevant requirements of the regulatory authorities participating in the program.  International partners that are participating in the MDSAP include:\n\u2022\nTherapeutic Goods Administration of Australia\n9\n\u2022\nBrazil\u2019s Ag\u00eancia Nacional de Vigil\u00e2ncia Sanit\u00e1ria\n\u2022\nHealth Canada\n\u2022\nJapan\u2019s Ministry of Health, Labour and Welfare, and the Japanese Pharmaceuticals and Medical Devices Agency\n\u2022\nU.S. Food and Drug Administration\nOur manufacturing facilities are subject to periodic inspections by regulatory authorities to ensure compliance with domestic and non-U.S. regulatory requirements. See \u201cGovernment Regulation\u201d section of this Item 1 for additional information. See Part I, Item 2 \"Properties\" in this Annual Report on Form 10-K for details on each manufacturing location.\nDuring the fourth quarter of fiscal year 2022, AngioDynamics entered into a supply agreement with Precision Concepts, Costa Rica S.A., a Costa Rica corporation, with its principal place of business in Alajuela, Costa Rica.  Precision Concepts is manufacturing, storing, and handling certain products for the Company and is registered with the FDA and certified to the ISO 13485 standard.  The Company also relies on third party manufacturers for the manufacturing of certain products.  \nBACKLOG\nWe have historically kept sufficient inventory on hand to ship product within 24-48 hours of order receipt to meet customer demand.  In fiscal year 2023, the Company's ability to manufacture products, the reliability of our supply chain, labor shortages, backlog and inflation (including the cost and availability of raw materials, direct labor and shipping) have impacted our business and resulted in a backlog of $2.7 million at the end of the fourth quarter.  We continue to focus on meeting the demand for our product and working towards standard inventory and backlog levels in fiscal year 2024.  See Part I, Item 1A \"Risk Factors\" in this Annual Report on Form 10-K.\n\u00a0\nINTELLECTUAL PROPERTY\nPatents, trademarks and other proprietary rights are very important to our business. We also rely upon trade secrets, manufacturing know-how, technological innovations and licensing opportunities to maintain and improve our competitive position. We regularly monitor and review third-party proprietary rights, including patents and patent applications, as available, to aid in the development of our intellectual property strategy, avoid infringement of third-party proprietary rights, and identify licensing opportunities.  The Company owns an extensive portfolio of patents and patent applications in the United States and in certain foreign countries. The portfolio also includes exclusive licenses to third party patents and applications.  Most of our products are sold under the AngioDynamics trade name or trademark. Additionally, products are sold under product trademarks and/or registered product trademarks owned by AngioDynamics, Inc., or an affiliate or subsidiary. Some products contain trademarks of companies other than AngioDynamics.\nSee Part I, Item\u00a03 \"Legal Proceedings\" and Note 17 to the consolidated financial statements in this Annual Report on Form 10-K for additional details on litigation regarding proprietary technology.\nLITIGATION\nWe operate in an industry characterized by extensive patent litigation. Patent litigation can result in significant damage awards and injunctions that could prevent the manufacture and sale of affected products, or result in significant royalty payments in order to continue selling those products. The medical device industry is also susceptible to significant product liability claims. These claims may be brought by individuals seeking relief on their own behalf or purporting to represent a class. In addition, product liability claims may be asserted against us in the future based on events we are not aware of at the present time. At any given time, we are involved in a number of product liability actions. For additional information, see both Part I, Item\u00a03 \"Legal Proceedings\" and Note 17 to the consolidated financial statements in this Annual Report on Form 10-K.\nGOVERNMENT REGULATION\nThe products we manufacture and market are subject to regulation by the United States Food and Drug Administration (FDA) under the Federal Food, Drug, and Cosmetic Act, or FDCA, and international regulations in our specific target markets.\nUnited States FDA Regulation\nBefore a new medical device can be introduced into the market, a manufacturer generally must obtain marketing clearance or approval from the FDA through either a 510(k) submission (a premarket notification) or a premarket approval application (PMA).\nThe 510(k) clearance procedure is available only if a manufacturer can establish that its device is \u201csubstantially equivalent\u201d in intended use and in safety and effectiveness to a \u201cpredicate device,\u201d which is (i) a device that has been cleared through the 510(k) clearance process;  (ii) a device that was legally marketed prior to May 28, 1976 (preamendments device); (iii) a device that was originally on the U.S. market as a Class III device (Premarket approval) and later downclassified to Class II or I; (iv) or a 510(k) exempt device.  After a device receives 510(k) clearance, any modification that could significantly affect \n10\nits safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance. The 510(k) clearance procedure including questions and responses may take up to 12 months. In some cases, supporting clinical data may be required. The FDA may determine that a new or modified device is not substantially equivalent to a predicate device or may require that additional information, including clinical data, be submitted before a determination is made, either of which could significantly delay the introduction of a new or modified device. If a device cannot demonstrate substantial equivalence, it may be subject to either a De Novo 510(k) submission or a PMA.\nThe PMA application procedure is more comprehensive than the 510(k) procedure and typically takes more time to complete. The PMA application must be supported by scientific evidence providing pre-clinical and clinical data relating to the safety and efficacy of the device and must include other information about the device and its components, design, manufacturing, and labeling. The FDA will approve a PMA application only if reasonable assurance that the device is safe and effective for its intended use can be provided. As part of the PMA application review, the FDA will inspect the manufacturer\u2019s facilities for compliance with its Quality System Regulation, or QSR. As part of the PMA approval the FDA may place restrictions on the device, such as requiring additional patient follow-up for an indefinite period of time. If the FDA\u2019s evaluation of the PMA application or the manufacturing facility is not favorable, the FDA may deny approval of the PMA application or issue a \u201cnot approvable\u201d letter. The FDA may also require additional clinical trials, which can delay the PMA approval process by several years. After the PMA is approved, if significant changes are made to a device, its manufacturing or labeling, a PMA supplement containing additional information must be filed for prior FDA approval.\nHistorically, our products have been introduced into the market using the 510(k) procedure.\nFDA submissions require extensive validations and testing which requires a significant amount of time and financial resources. Recent changes in both regulations and FDA perspectives have increased both time and testing requirements, which have caused and are expected to continue to cause significant delays and increased costs for clearances and approvals. The increased focus by the FDA on such issues as chemical identification of all colorants, non-acceptance of certain colorants (certain forms of carbon black) and other concerns, continue to cause challenges and delays. In addition, changes to existing products call into question previously approved devices and result in additional costs for testing and material analysis.\nThe devices manufactured by us are also subject to the QSR, which imposes elaborate testing, control, documentation and other quality assurance procedures on our manufacturing facilities. Every phase of production, including raw materials, components and subassembly, manufacturing, testing, quality control, labeling, tracing of customers after distribution and follow-up and reporting of complaint information is governed by the FDA\u2019s QSR. Device manufacturers are required to register their facilities and list their products with the FDA and certain state agencies. The FDA periodically inspects manufacturing facilities and, if there are alleged violations, the operator of a facility must correct them or satisfactorily demonstrate the absence of the violations or face regulatory action. Failure to maintain compliance with the QSR may result in the issuance of one or more Forms 483 or warning letters and could potentially result in a consent decree. Failure to maintain the QSR appropriately could result in the issuance of further warning letters. In addition, non-compliance with applicable FDA requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the FDA to grant marketing approvals, inability to obtain clearances or approvals for products, withdrawal of marketing approvals, a recommendation by the FDA to disallow us to enter into government contracts, and/or criminal prosecutions. The FDA also has the authority to request repair, replacement or refund of the cost of any device manufactured or distributed by us.\nOther U.S. Regulatory Bodies\nWe and our products are subject to a variety of federal, state and local laws in those jurisdictions where our products are, or will be, marketed.  We and our products are also subject to a variety of federal, state and local laws relating to matters such as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. In addition, we are subject to various federal and state laws governing our relationships with the physicians and others who purchase or make referrals for our products. For instance, federal law prohibits payments of any form that are intended to induce a referral for any item payable under Medicare, Medicaid or any other federal healthcare program. Many states have similar laws. There can be no assurance that we will not be required to incur significant costs to comply with such laws and regulations now or in the future, or that such laws or regulations will not have a material adverse effect upon our ability to do business.\nInternational Regulation\nInternationally, all of our current products are considered medical devices under applicable regulatory regimes, and we anticipate that this will be true for all of our future products. Sales of medical devices are subject to regulatory requirements in many countries. The regulatory review process may vary greatly from country to country.\nIn order to distribute and sell products into the European Union as well as a number of other countries including many Central European Free Trade Agreement participants, Scandinavian, and Middle Eastern countries, a CE Mark is required. New \n11\nproducts must be compliant with the Medical Device Regulation (\"MDR\") as of May 2021 and previously CE Marked products must become compliant when their certification expires, with a transition period ending December 2027 for higher classification devices, or December 2028 for lower classification devices. Products with an expiring certification must be in distribution before certification expiration dates to continue to be sold. Clinical evaluations of products under MDR requires more information than previously required. All devices must have current clinical literature that specifically addresses data-driven safety and performance criteria, and legacy devices often require additional biocompatibility, bench testing and redesign to address changes in standards over time. Additionally, there can be extended time frames under MDR for product certifications that can be 12-18 months or longer.  During that time period, significant design modifications cannot be made.  \nSimilar regulations are in place for Canada, Japan, China, Brazil and most other countries.  In some cases, we rely on our international distributors to obtain regulatory approvals, complete product registrations, comply with clinical trial requirements and complete those steps that are customarily taken in the applicable jurisdictions.\nInternational sales of medical devices manufactured in the United States that are not approved or cleared by the FDA for use in the United States, or are banned or deviate from lawful performance standards, are subject to FDA export requirements. Before exporting such products to a foreign country, we must first comply with the FDA\u2019s regulatory procedures for exporting unapproved devices.\nThe process of obtaining approval to distribute medical products is costly and time-consuming in virtually all the major markets where we sell medical devices. We cannot assure that any new medical devices we develop will be cleared, approved or certified in a timely or cost-effective manner or cleared, approved or certified at all. There can be no assurance that new laws or regulations regarding the release or sale of medical devices will not delay or prevent sale of our current or future products.\nTHIRD-PARTY REIMBURSEMENT AND ANTI-FRAUD AND CORRUPT PRACTICES REGULATION\nUnited States\nThe delivery of our devices is subject to regulation by the Department of Health and Human Services (HHS) and comparable state and non-U.S. agencies responsible for reimbursement and regulation of health care items and services. U.S. laws and regulations are imposed primarily in conjunction with the Medicare and Medicaid programs, as well as the government\u2019s interest in regulating the quality and cost of health care. Foreign governments also impose regulations in conjunction with their health care reimbursement programs and the delivery of health care items and services.\nU.S. federal health care laws apply when we or customers submit claims for items or services that are reimbursed under Medicare, Medicaid, or other federally-funded health care programs. The principal U.S. federal laws include: (1) the Anti-kickback Statute which prohibits offers to pay or receive remuneration of any kind for the purpose of inducing or rewarding referrals of items or services reimbursable by a federal health care program, subject to certain safe harbor exceptions; (2) the False Claims Act which prohibits the submission of false or otherwise improper claims for payment to a federally-funded health care program, including claims resulting from a violation of the Anti-kickback Statute; (3) the Stark law which prohibits physicians from referring Medicare or Medicaid patients to a provider that bills these programs for the provision of certain designated health services if the physician (or a member of the physician\u2019s immediate family) has a financial relationship with that provider; and (4) health care fraud statutes that prohibit false statements and improper claims to any third-party payer. There are often similar state false claims, anti-kickback, and anti-self-referral and insurance laws that apply to state-funded Medicaid and other health care programs and private third-party payers. In addition, the U.S. Foreign Corrupt Practices Act (FCPA) can be used to prosecute companies in the U.S. for arrangements with physicians or other parties outside the U.S. if the physician or party is a government official of another country and the arrangement violates the law of that country.\nInternational\nThe delivery of our devices in any market is subject to evolving regulation by the EU Medical Device Regulations, notified bodies and comparable nation-specific bodies responsible for reimbursement and regulation of health care items and services.  Our success in international markets will depend largely upon the availability of reimbursement from the national public health payers as well as private, third party payors, through which healthcare providers are paid in those markets. Reimbursement and healthcare payment systems vary significantly by country. The main types of healthcare payment systems are government sponsored healthcare and private insurance. Reimbursement approval must be obtained individually in each country in which our products are marketed. Outside the U.S., we maintain a healthcare economics team that works directly with providers, our distributors and health systems to obtain reimbursement approval in the countries in which they will use or sell our products. There can be no assurance that reimbursement approvals will be received.  See Part I. Item\u00a01A \"Risk Factors\" in this Annual Report on Form 10-K. \n12\nINSURANCE\nOur product liability insurance coverage is limited to a maximum of $10 million per product liability claim and an annual aggregate policy limit of $10 million, subject to a self-insured retention of $500,000 per occurrence and $2 million in the aggregate. The policy covers, subject to policy conditions and exclusions, claims of bodily injury and property damage from any product sold or manufactured by us.\nThere is no assurance that this level of coverage is adequate. We may not be able to sustain or maintain this level of coverage and cannot assure you that adequate insurance coverage will continue to be available on commercially reasonable terms, or at all. A successful product liability claim or other claim, with respect to uninsured or underinsured liabilities, could have a material adverse effect on our business.  See Part I. Item\u00a01A \"Risk Factors\" in this Annual Report on Form 10-K. \nENVIRONMENTAL, HEALTH AND SAFETY\nWe are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain hazardous and potentially hazardous substances used in connection with our operations. Our operations are also subject to laws and regulations related to occupational health and safety. We maintain safety, training and maintenance programs as part of our ongoing efforts to ensure compliance with applicable laws and regulations.  Although we believe that we have complied with environmental, health and safety laws and regulations in all material respects and, to date, have not been required to take any action to correct any noncompliance, there can be no assurance that we will not be required to incur significant costs to comply with environmental regulations in the future.\nEMPLOYEES\nAs of May\u00a031, 2023, we had approximately 815 full time employees.  None of our employees are represented by a labor union and we have never experienced a work stoppage.  In the highly competitive medical technology industry, we consider attracting, developing, engaging and retaining high performing talent in positions critical to our long-term growth strategy including but not limited to technical, operational, marketing, sales, research and development, and management.  Our ability to recruit and retain such talent depends on several factors, including culture, compensation and benefits, talent development, career opportunities, recognition and work environment.  Our goal is to create a diverse and inclusive culture that encourages an environment where employees feel welcomed, respected and valued.  We are an equal opportunity/affirmative action employer committed to making employment decisions without regard to race, religion, ethnicity or national origin, gender, sexual orientation, gender identity or expression, age, disability, protected veteran status or any other characteristics protected by law.  \nThe engagement of our workforce is crucial to delivering on our competitive strategy, and we place high importance on informed and engaged employees.  We communicate frequently and transparently with our employees through a variety of communication methods, including video and written communications, town hall meetings and our company intranet.  As a result of the COVID-19 pandemic, we also further strengthened our communication platforms.  Our employee communications during the pandemic have kept our employees informed on critical priorities, important actions being taken by management in response to the pandemic and continued efforts to protect employee health, safety and well-being.\nExecutive Officers of the Company\nThe following table sets forth certain information with respect to our executive officers.\nName\nAge\nPosition\nJames C. Clemmer\n59\nPresident and Chief Executive Officer\nStephen A. Trowbridge\n49\nExecutive Vice President and Chief Financial Officer\nChad T. Campbell\n52\nSenior Vice President and General Manager, Vascular Access and Oncology \nScott Centea\n45\nSenior Vice President and General Manager, Endovascular Therapies\nDavid D. Helsel\n59\nSenior Vice President, Global Operations and Research and Development\nLaura Piccinini\n53\nSenior Vice President and General Manager, International\nJames C. Clemmer\n became our President and Chief Executive Officer (CEO) in April 2016. Prior to joining AngioDynamics, Mr.\u00a0Clemmer served as President of the $1.8 billion medical supplies segment at Covidien plc. where he directed the strategic and day-to-day operations for global business divisions that collectively manufactured 23 different product categories. In addition, he managed global manufacturing, research and development, operational excellence, business development and all other functions associated with the medical supplies business. Prior to his role at Covidien, Mr. Clemmer served as Group President at Kendall Healthcare (which was acquired by Tyco International in 1994), where he managed the U.S. business across five divisions and built the strategic plan for the medical supplies segment before Covidien was spun off from Tyco. Mr. Clemmer began his career at Sage Products, Inc. Mr. Clemmer currently serves on the Board of Directors for \n13\nAngioDynamics and previously served on the Board of Directors for Lantheus Medical Imaging. Mr. Clemmer is a graduate of the Massachusetts College of Liberal Arts, where he served as interim president from August 2015 until March 2016.\nStephen A. Trowbridge\n was appointed Executive Vice President and Chief Financial Officer (CFO) in February 2020, having served as Interim Chief Financial Officer since October 2019. Prior to his appointment as CFO, he served as the Company\u2019s Senior Vice President and General Counsel. He joined AngioDynamics in June 2008 as Corporate Counsel.  In addition to serving as the Company\u2019s CFO and managing the finance functions, Mr. Trowbridge also managed the Legal function on an interim basis until January 30, 2021.  Prior to AngioDynamics, Mr. Trowbridge served as Corporate Counsel at Philips Healthcare and Intermagnetics General Corporation.  Mr. Trowbridge began his career with Cadwalader, Wickersham & Taft LLP in the firm\u2019s Mergers and Acquisitions and Securities Group. Mr. Trowbridge received a Bachelor of Science in Science and Technology Studies from Rensselaer Polytechnic Institute, a Juris Doctor from the University of Pennsylvania Law School, and a Master of Business Administration from Duke University\u2019s Fuqua School of Business.\nChad T. Campbell\n joined AngioDynamics in May 2016 as the Senior Vice President and General Manager for Vascular Access.  As of October 2021, Mr. Campbell assumed responsibility of the Oncology Global Business Unit in addition to his role of General Manager for Vascular Access. In his role, Mr. Campbell oversees research and development and global commercialization of the Global Business Unit\u2019s portfolio. Mr. Campbell joined AngioDynamics from Medtronic where he served as the Vice President of Marketing for the Patient Care and Safety business after serving as the Vice President of Marketing for the SharpSafety business at Covidien (Medtronic). During his tenure at Covidien, Mr. Campbell also held roles including Director of Marketing, Area Vice President of Sales, Region Manager, Product Manager and Account Manager. Mr. Campbell received a Bachelor of Arts from the University of Kentucky.\nScott Centea\n joined AngioDynamics in 2005 as a sales representative serving the Carolinas.  During his tenure, he has served in a variety of positions with increased responsibility including Vice President of Corporate Accounts where he was in charge of leading a team of individuals to execute Health System Purchasing Contracts.  From there Mr. Centea assumed the role of Vice President of Marketing for Endovascular Therapies, before being promoted into his most recent and current role as Senior Vice President/General Manager of Endovascular Therapies and Peripheral Artery Disease.  Mr. Centea currently holds board positions with the American Venous Forum (AVF) and the Capital District American Heart Association.  Mr. Centea holds a Bachelor of Arts in Communications from Newberry College. \nDavid D. Helsel \ncurrently serves as Senior Vice President of Global Operations and Research and Development and has been with AngioDynamics since December 2017.  Prior to joining AngioDynamics he was Senior Vice President, Global Supply Chain, at Hill-Rom Holdings for almost three years.  Before that, Mr. Helsel worked at Haemonetics for three years where he served as Executive Vice President for Global Manufacturing and also spent almost nineteen years in various positions with increasing responsibility at Covidien, including Vice President of Operations for the Surgical Solutions Division and Medical Supplies Division.  An expert in Lean and Six Sigma, Mr. Helsel also served as Global Director of Operational Excellence, supporting sixty-three manufacturing facilities.  Mr. Helsel holds a Bachelor of Science in Mechanical Engineering from LeTourneau University.\nLaura Piccinini\n joined AngioDynamics as Senior Vice President and General Manager for International in June 2021.  Ms. Piccinini brings more than 25 years of experience in leadership roles in the medical device industry, with an extensive background in the field of respiratory and surgical care.  From June 2020 to June 2021, she served as CEO and a member of the Board of Directors for Respiratory Motion, Inc.  Prior to that, from 2017 to 2020, she served as Global Head of Commercial Operations for the Implants business unit at Nobel Biocare Systems, then a Danaher subsidiary now part of Envista Holdings.  From 2015 to 2017, Ms. Piccinini served as President of EMEA at Covidien and prior to that at Stryker.  Ms. Piccinini is a graduate of the Parma University of Medicine, where she received a nursing degree with specializations in ICU, Anesthesia, and First Aid as a Helicopter Flight Coordinator.\nAVAILABLE INFORMATION\nOur corporate headquarters is located at 14 Plaza Drive, Latham, New\u00a0York 12110. Our phone number is (518)\u00a0795-1400. Our website is \nwww.angiodynamics.com\n. \nWe make available, free-of-charge through our website, our Annual Reports on Form\u00a010-K, quarterly reports on Form\u00a010-Q, current reports on Form\u00a08-K and amendments to those reports filed or furnished pursuant to Section\u00a013(a) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.  In addition, our website includes, among other things, charters of the various committees of our Board of Directors and our code of conduct and ethics applicable to all employees, officers and directors.  Within the time period required by the SEC, we will post on our website any amendment to the code of conduct and ethics and any waiver applicable to any executive officer, director or senior financial officer.  We use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.  Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.  We use these channels as well \n14\nas social media and blogs to communicate with the public about our company, our services and other issues.  It is possible that the information we post on social media and blogs could be deemed to be material information.  Therefore, we encourage investors, the media, and others interested in our Company to review the information we post on the social media channels and blogs listed on our website.  Any stockholder also may obtain copies of these documents, free of charge, by sending a request in writing to our Corporate headquarters, Attention: Saleem Cheeks. Information on our website or connected to our website is not incorporated by reference into this Annual Report on Form\u00a010-K.  \n15",
+  "item1a": ">Item 1A.  \nRisk Factors.\nIn addition to the other information contained in this Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission, the following risk factors should be considered carefully by investors in evaluating our business.  Our financial and operating results are subject to a number of risks and uncertainties, including those set forth below, many of which are not within our control. Our business, financial condition, results of operations and/or liquidity could be materially and adversely affected by any of these risks or by additional risks not presently known to us or that we currently deem immaterial.\nRISKS RELATED TO OUR BUSINESS AND INDUSTRY\n \nWe face intense competition in the medical device industry which continues to experience consolidation. We may be unable to compete effectively with respect to technological innovation and price which may have a material adverse effect on our revenues, financial condition, results of operations and/or liquidity.\nThe markets for our products are highly competitive and we expect competition to continue to intensify. The medical device industry is characterized by rapid technological change, frequent product introductions and evolving customer requirements.  Our customers consider many factors when choosing products, including technology, features and benefits, quality, reliability, ease of use, clinical or economic outcomes, availability, price and customer service. We face competition globally from a wide range of companies, many of whom have substantially greater financial, marketing and other resources than us.  We may not be able to compete effectively, and we may lose market share to our competitors.  Our primary device competitors include: Boston Scientific Corporation; Cook Medical; Medical Components, Inc. (MedComp); TeleFlex Medical; Becton Dickinson; Medtronic; Merit Medical; Terumo Medical Corporation; Johnson and Johnson; Philips Healthcare; Inari Medical; Varian Medical Systems and Total Vein Systems.\nOur competitors may succeed in adapting faster than us to changing customer needs or requirements, in developing and introducing technologies and products earlier, in obtaining patent protection (which could create barriers to market entry for us) or regulatory clearance earlier, or in commercializing new products or technologies more rapidly than us. Our competitors may also develop products and technologies that are superior to ours or that otherwise could render our products obsolete or noncompetitive.  The trend of increased consolidation in the medical technology industry has resulted in companies with greater scale and market power, intensifying competition and increasing pricing pressure. We may also face competition from providers of other medical therapies, such as pharmaceutical companies, that may offer non-surgical therapies for conditions that are currently, or in the future may be, treated using our products. If we are not able to compete effectively, our market share and revenue may decline.\nIn addition, the increasing purchasing power of health systems, group purchasing organizations (\u201cGPOs\u201d) and integrated health delivery networks (\u201cIDNs\u201d), together with increased competition and declining reimbursement rates, has resulted increasingly with the Company competing on the basis of price. Due to the highly competitive nature of the GPO and IDN contracting processes, we may not be able to obtain market prices for our products or obtain or maintain contract positions with major GPOs and IDNs, which could adversely impact our profitability.  Also, sales through a GPO or IDN can be significant to our business and our inability to retain contracts with our customers, or acquire additional contracts, could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.\nOur inability to continue to effectively develop, acquire and/or market new products and technologies could have a material adverse effect on our business, financial condition and/or results of operations.\nThe market for our devices is characterized by rapid technological change, new product introductions, technological improvements, changes in physician requirements and evolving industry standards. Product life cycles are relatively short because medical device manufacturers continually develop more effective and less expensive versions of existing devices in response to physician demand.  We engage in product development and improvement programs to maintain and improve our competitive position. Our products are technologically complex and these programs involve significant planning, market studies, investment in research and development, clinical trials and regulatory clearances or approvals and may require more time and expense than anticipated to bring such products to market. We may not, however, be successful in enhancing existing products, or developing new products or technologies that will achieve regulatory approval, be developed or manufactured in a cost-effective manner, obtain appropriate intellectual property protection or receive market acceptance. We also may be unable to recover all or a meaningful part of our investment in these products or technologies. Additionally, there can be no assurance that the size of the markets in which we compete will increase above existing levels or not decline, that we will be able to maintain, gain or regain market share or that we can compete effectively on the basis of price or that the number of procedures in which our products are used will increase above existing levels or not decline. \n16\nIn particular, the future prospects of many of our high growth products, such as the NanoKnife system, the AngioVac system, the AlphaVac system and the Auryon system, rely on continued market development and continued generation of clinical data pursuant to clinical trials conducted by us, our competitors or other third parties. If the results of these trials are not what we expect or fail to generate meaningful clinical data, it may adversely impact our ability to obtain product approvals.  If any of these products fail to achieve clinical acceptance or are perceived unfavorably by the market, it could severely limit our ability to drive revenue growth, which could have a material adverse effect on our business, financial condition, results of operations and/or liquidity. See Risk Factor titled \n\u201cOur business and prospects rely heavily upon our ability to successfully complete clinical trials, including, but not limited to, our NanoKnife DIRECT clinical study, our NanoKnife PRESERVE clinical study, AlphaVac APEX-AV clinical study and clinical studies for AngioVac.  We may choose to, or may be required to, suspend, repeat or terminate our clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.\u201d\nAs part of our business strategy, we expect to continue to engage in business development activities which includes selectively evaluating and pursuing the acquisition of complementary businesses, technologies and products. These activities may result in substantial investment of our time and financial resources and competition for targets may be significant.  We may not be able to identify appropriate acquisition candidates, consummate transactions, obtain agreements with favorable terms or obtain any necessary financing or regulatory approvals. Further, once a business is acquired, any inability to successfully integrate the business or achieve anticipated cost savings or operating synergies, decreases in customer loyalty or product orders, failure to retain and develop its workforce, failure to establish and maintain appropriate controls, higher or unanticipated expenses, or unknown or contingent liabilities could adversely affect our ability to realize the anticipated benefits of any acquisition. The evaluation and integration of an acquired business, whether or not successful, requires significant efforts which may result in additional expenses and divert the attention of our management and technical personnel from other projects. \nIf we proceed with one or more significant acquisitions in which the consideration consists of cash, a substantial portion of our available cash could be used to consummate the acquisitions. If we consummate one or more acquisitions in which the consideration consists of capital stock, our stockholders could suffer significant dilution of their interest in us. In addition, we could incur or assume significant amounts of indebtedness in connection with acquisitions. These transactions are inherently risky and may not enhance our financial position or results of operations or create value for our shareholders as they are based on projections and assumptions which are uncertain and subject to change and there can be no assurance that any past or future transaction will be successful. \nIf we fail to develop and successfully manufacture and launch new products, generate satisfactory clinical results, provide sufficient economic value, enhance existing products, or identify, acquire and integrate complementary businesses, technologies and products or if we experience a decrease in market size or market share or declines in average selling price or procedural volumes, or otherwise fail to compete effectively, we may not achieve our growth goals, which could have a material adverse effect on our business, financial condition and/or results of operations.\nIf we do not maintain our reputation with interventional physicians, interventional and surgical oncologists, and critical care nurses, our growth will be limited and our business could be harmed.\nPhysicians typically influence the medical device purchasing decisions of the hospitals and other healthcare institutions in which they practice. Consequently, our reputation with interventional physicians, interventional and surgical oncologists, and critical care nurses is crucial to our continued growth. We believe that we have built a positive reputation based on the quality of our products, our physician-driven product development efforts, our marketing and training efforts and our presence at medical society meetings. Any actual or perceived diminution in the quality of our products, or our failure or inability to maintain these other efforts, could damage our reputation with interventional physicians, interventional and surgical oncologists, and critical care nurses, and cause our growth to be limited and our business to be harmed, which could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.\nOur business and prospects rely heavily upon our ability to successfully complete clinical trials, including, but not limited to, our NanoKnife DIRECT clinical study, our NanoKnife PRESERVE clinical study, AlphaVac APEX-AV clinical study and clinical studies for AngioVac.\n \nWe may choose to, or may be required to, suspend, repeat or terminate our clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.\nClinical trials must be conducted in accordance with the applicable laws and regulations in the jurisdictions in which the clinical trials are conducted, including FDA\u2019s current Good Clinical Practices. The clinical trials are subject to oversight by the FDA, regulatory agencies in other jurisdictions, ethics committees and institutional review boards at the medical institutions where the clinical trials are conducted. Clinical trial protocols may require a large number of patients to be enrolled in the trials. Patient enrollment is a function of many factors, including the size of the patient population for the target indication, the \n17\nproximity of patients to clinical sites, the eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments. Clinical trials may be suspended by the FDA or by a regulatory agency in another jurisdiction at any time if the FDA or the regulatory agency finds deficiencies in the conduct of these trials or it is believed that these trials expose patients to unacceptable health risks.\nWe, the FDA or regulatory agencies in other jurisdictions might delay or terminate our clinical trials for various reasons, including insufficient patient enrollment, fatalities, unforeseen adverse side effects by enrolled patients or the development of new therapies that require us to revise or amend our clinical trial protocols. Patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive follow-up to assess safety and effectiveness, if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts or if they participate in contemporaneous clinical trials of competing products. \nIn addition, we rely on contract research organizations, or CROs, with respect to conducting our clinical trials.  We may experience significant cost overruns associated with, and we may encounter difficulties managing, these CROs.  Termination of our clinical trials or significant delays in completing our clinical trials could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.\nIf we are unable to convince customers that our products can improve the cost structure of their business, our revenue growth and profitability may be materially and adversely impacted.\nWorldwide initiatives to contain healthcare costs have led governments and the private sector to enact cost containment efforts as a means of managing the growth of health care utilization.  Common techniques include policies on price regulation, competitive pricing, bidding and tender mechanics, coverage and payment, comparative effectiveness of therapies, technology assessments, and managed-care arrangements.  These changes are causing the marketplace to put increased emphasis on the delivery of more cost-effective medical devices and therapies. Government programs, including Medicare and Medicaid, private health care insurance, and managed-care plans have attempted to control costs by limiting the amount of reimbursement they will pay for particular procedures or treatments, tying reimbursement to outcomes, shifting to population health management, and other mechanisms designed to constrain utilization and contain costs. Simultaneously, hospitals are redefining their role in health care delivery as many assume much more risk and control of the total cost of patient care.  To successfully make this transformation, health systems are consolidating, purchasing or partnering with physicians and post-acute care providers, while also narrowing networks thus allowing greater control over outcomes.  This has created an increasing level of price sensitivity among customers for our products and could have a material adverse effect on our business, financial condition, results of operations and/or liquidity. \nWe are dependent on single and limited source suppliers which subjects our business and results of operations to risks of supplier business interruptions.\nWe currently purchase significant amounts of several key products, raw materials and product components from single and limited source suppliers and anticipate that we will do so for future products as well. Any delays in delivery of or shortages in those or other products and components (like we experienced during our 2022 and 2023 fiscal year) could interrupt and delay manufacturing of our products, lead to backlogs and result in the cancellation of orders for our products. Any or all of these suppliers could discontinue the manufacture or supply of these products, raw materials and/or components at any time. \nDue to FDA and other business considerations, we may not be able to identify and integrate alternative sources of supply in a timely fashion or at all. Any transition to alternate suppliers may result in production delays and increased costs and may limit our ability to deliver products to our customers. Furthermore, if we are unable to identify alternative sources of supply, we would have to modify our products to use substitute components, which may cause delays in shipments, backlogs, increased prices for our products or increased design and manufacturing costs.\nIn addition, we purchase certain products as a distributor for the manufacturer of those products.  Any constraint or interruption in the supply of raw materials, other product components or finished products that we distribute could materially impact our ability to sell products, and have a material adverse effect on our business, financial condition, results of operations and/or liquidity.\nWe are heavily dependent on third-party distributors to generate a substantial portion of our international revenues and are at the risk of these distributors also selling for our competitors, failing to be financially viable and failing to effectively distribute our products in compliance with applicable laws.\nOutside of North America we rely heavily on third party distributors, either on a country-by-country basis or on a multi-country, regional basis, to market, sell and distribute our products where we do not have a direct sales and marketing presence (including, among others, China, Japan, Brazil, the Middle East and many European countries). As such, our revenue, if any, \n18\ndepends on the terms of such arrangements and the distributors\u2019 efforts. These efforts may turn out not to be sufficient and our third-party distributors may not effectively sell our products.  International distributors accounted for approximately 72% of international revenues for the fiscal year ended May\u00a031, 2023.  International sales grew 12% in fiscal year 2023 as we continued to develop and foster partnerships with distributors such as Healthcare 21, Cardiva and Mediplast.  If we are unable to maintain our relationships or establish direct sales capabilities on acceptable terms or at all, we may lose significant revenue or be unable to achieve our growth aspirations.  In certain circumstances, distributors may also sell competing products, or products for competing diagnostic modalities, and may have incentives to shift sales towards those competing products. As a result, we cannot assure you that our international distributors will increase or maintain our current levels of unit sales or increase or maintain our current unit pricing, which, in turn, could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.  In addition, there is a risk that our distributors will not be financially viable due to current economic and/or regulatory events in their respective countries or remit payments to us in a timely manner. If our distributors fail to comply with applicable laws or fail to effectively market and sell our products, our financial condition and results of operations could be materially and adversely impacted.\nFailure to secure adequate reimbursement for our products could materially impair our ability to grow revenue and drive profitability.\nOur products are used in medical procedures and purchased principally by hospitals or physicians which typically bill various third-party payors, such as governmental programs (e.g., Medicare, Medicaid and comparable foreign programs), private insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of our customers to obtain appropriate reimbursement for products and services from third-party payors is critical to the success of medical device companies because it affects which products customers purchase and the prices they are willing to pay. In general, a third-party payor only covers a medical product or procedure when the plan administrator is satisfied that the product or procedure improves health outcomes, including quality of life or functional ability, in a safe and cost-effective manner. Even if a device has received clearance or approval for marketing by the FDA, there is no assurance that third-party payors, including Medicare and managed care companies, will cover the cost of the device and related procedures.  Even if coverage is available, third-party payors may place restrictions on the circumstances where they provide coverage or may offer reimbursement that is not sufficient to cover the cost of our products.\nThird-party payors who cover the cost of medical products or equipment, in addition to allowing a general charge for the procedure, often maintain lists of exclusive suppliers or approved lists of products deemed to be cost-effective. If our products are not on approved lists of third-party payors, healthcare providers must determine if the additional cost and effort required in obtaining prior authorization, and the uncertainty of actually obtaining coverage, is justified by any perceived clinical benefits from using our products.\nFinally, the advent of contracted fixed rates per procedure has made it difficult to receive reimbursement for disposable products, even if the use of these products improves clinical outcomes. In addition, many third-party payors are moving to managed care systems in which providers contract to provide comprehensive healthcare for a fixed cost per person. Managed care providers often attempt to control the cost of healthcare by authorizing fewer elective surgical procedures. Under current prospective payment systems, such as the diagnosis related group system and the hospital out-patient prospective payment system, both of which are used by Medicare and in many managed care systems used by private third-party payors, the cost of our products will be incorporated into the overall cost of a procedure and not be separately reimbursed. \nIf hospitals and physicians cannot obtain adequate reimbursement for our products or the procedures in which they are used, this could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.\nReimbursement varies by country and can significantly impact the acceptance of new technology. Implementation of healthcare reforms in the United States and in other countries may limit, reduce or eliminate reimbursement for our products and adversely affect both our pricing flexibility and the demand for our products. Even when we develop a promising new product, we may find limited demand for the product unless reimbursement approval is obtained from private and governmental third-party payors. Changes in healthcare systems in the United States or elsewhere in a manner that significantly reduces reimbursement for procedures using our medical devices or denies coverage for these procedures, or adverse decisions relating to our products by administrators of these systems in coverage or reimbursement issues, would have an adverse impact on the acceptance of our products and the prices which our customers are willing to pay for them.\nIf a product liability claim is brought against us or our product liability insurance coverage is inadequate, our business could be harmed.\nThe design, manufacture and marketing of the types of medical devices we sell entail an inherent risk of product liability. Our products are used by physicians to treat seriously ill patients. We are periodically subject to product liability claims, and patients or customers may in the future bring claims against us in a number of circumstances and for a number of reasons, \n19\nincluding if our products were misused, if a component of our product fails, if our manufacture or design was flawed, if the product produced unsatisfactory results or if the instructions for use and operating manuals and disclosure of product related risks for our products were found to be inadequate. In addition, individuals or groups seeking to represent a class may file suit against us. The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify. Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate amounts, including not only actual damages, but also punitive damages. The magnitude of the potential losses relating to these lawsuits may remain unknown for substantial periods of time.\nWe carry a product liability policy with a limit of $10.0 million per product liability claim and an aggregate policy limit of $10.0 million, subject to a self-insured retention of $0.5 million per occurrence and $2.0 million in the aggregate. We believe, based on claims made against us in the past, our existing product liability insurance coverage is reasonably adequate to protect us from any liabilities we might incur. However, there is no assurance that this coverage will be sufficient to satisfy any claim made against us. In addition, we may not be able to continue to maintain adequate coverage at a reasonable cost and on reasonable terms, if at all. Any product liability claim brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing any coverage in the future. Additionally, if one or more product liability claims is brought against us for uninsured liabilities or is in excess of our insurance coverage, our financial condition, results of operations and/or liquidity could be negatively impacted. Further, such claims may require us to recall some of our products, which could result in significant costs to us.\nWe may be exposed to risks associated with product line divestitures as we may never realize the expected benefits and could cause operational disruptions with personnel, systems and infrastructure changes.\nOn June 8, 2023, the Company entered into an asset purchase agreement (the \"Asset Purchase Agreement\") with Merit Medical Systems, Inc. pursuant to which Merit acquired the dialysis product portfolio and BioSentry tract sealant system biopsy businesses for $100.0\u00a0million in cash.  The Company and Merit entered into various agreements to facilitate the transition to Merit, including a Transactions Services Agreement and Contract Manufacturing Agreement. \nThis divestiture along with potential future divestitures of certain product lines will allow us to transform ourselves into a high growth, highly profitable, medical technology company.  If we are unable to achieve our growth and profitability objectives due to competition, lack of acceptance of our products, failure to generate favorable clinical data or gain regulatory approvals, or other risks as described in this section, or due to other events, we will not be successful in transforming our business and may not see the appropriate market valuation.  The divestiture of product lines will impact revenue, earnings and cash flows, which over time we expect to replace by investing in higher margin revenue streams.  There is a risk that we will be unable to replace the revenue, earnings and cash flow that these product lines generated, or that the cost of such will be higher than expected. If we are unable to achieve our profit and growth objectives, such failure will be exacerbated by the loss of revenue, earnings and cash flow generated by our divested product lines and could materially impact our financial position and results of operations, resulting in a decline in our stock price.\nThe sale of product lines could require us to restructure significant personnel, systems and infrastructure.  In some instances, we may enter into short term transition service arrangements, under which the parties perform certain services for each other pending establishment of new processes and systems. Although these transitions are thoroughly planned, it is not unlikely in a transaction of this complexity that disruptions could occur.  If disruptions to our financial controls, IT, administrative support, manufacturing or regulatory processes occur, and if such disruptions prove to be more severe than our planning anticipated, this could have a material adverse effect on our business. \nInternational and national economic and industry conditions constantly change, and could materially and adversely affect our business, financial condition and results of operations.\nOur business, financial condition and results of operation are affected by many changing economic, industry and other conditions beyond our control.  Actual or potential changes in international, national, regional and local economic, business and financial conditions, including recession, high inflation and trade protection measures, creditworthiness of our customers, may negatively affect consumer preferences, perceptions, spending patterns or demographic trends, any of which could adversely affect our business, financial condition, results of operations and/or liquidity.\nWe are subject to macro-economic fluctuations in the U.S. and worldwide economy. Concerns about consumer and investor confidence, volatile corporate profits and reduced capital spending, international conflicts, terrorist and military activity, civil unrest and pandemic illness could reduce customer orders or cause customer order cancellations. In addition, political and social turmoil may put further pressure on economic conditions in the United States and abroad. The global economy has been periodically impacted by the effects of global economic downturns (such as those recently related to COVID-19). There can be no assurance that there will not be further such events or deterioration in the global economy. These economic conditions make it more difficult for us to accurately forecast and plan our future business activities.\n20\nVolatility in the cost of raw materials, components, freight and energy increases the costs of producing and distributing our products. New laws or regulations adopted in response to climate change could also increase energy and transportation costs, as well as the costs of certain raw materials and components. Increases in oil prices may increase our packaging and transportation costs. Recently, the costs of labor, raw materials, transportation, construction, services, and energy necessary for the production and distribution of our products have increased significantly. While we have implemented cost containment measures, selective price increases and taken other actions to offset these inflationary pressures in our supply chain, we may not be able to completely offset all the increases in our operational costs, any of which could adversely affect our business, financial condition, results of operations and/or liquidity.\nSales outside the U.S. accounted for approximately 17% of our net sales during our fiscal year ended May\u00a031, 2023.  We anticipate that sales from international operations will continue to represent a significant portion of our total sales, and we intend to continue our expansion into emerging and/or faster-growing markets outside the U.S.  Our sales and profitability from our international operations are subject to risks and uncertainties that could have a material adverse effect on our business, financial condition and/or results of operations, many of which we cannot predict, including:\n\u2022\nfluctuations in currency exchange rates which may, in some instances affect spending behavior and reduce cash flows and revenue outside the U.S.;\n\u2022\nhealthcare reform legislation;\n\u2022\nmultiple non-U.S. regulatory requirements that are subject to change and could restrict our ability to manufacture and sell our products;\n\u2022\nlocal product preferences and product requirements;\n\u2022\nlonger-term receivables than are typical in the U.S. and/or the ability to obtain payment;\n\u2022\ntrade protection measures and import or export licensing requirements;\n\u2022\nless intellectual property protection in some countries outside the U.S. than exists in the U.S.;\n\u2022\ndifferent labor regulations and workforce instability;\n\u2022\nthe potential payment of U.S. income taxes on earnings of certain foreign subsidiaries subject to U.S. taxation upon repatriation;\n\u2022\nthe expiration and non-renewal of foreign tax rulings;\n\u2022\npotential negative consequences from changes in or interpretation of tax laws, including changes in our effective tax rate or the applicable tax rate in one or more jurisdictions; and\n\u2022\neconomic instability and inflation, recession or interest rate fluctuations.\n Russia\u2019s invasion and military attacks on Ukraine have triggered significant sanctions from U.S. and European leaders. These events may escalate and have created increasingly volatile global economic conditions. Resulting changes in U.S. trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a \u201ctrade war.\u201d A trade war could result in increased costs for raw materials we use in our manufacturing and could result in Russia and other foreign governments imposing tariffs on products that we export outside the U.S. or otherwise limiting our ability to sell our products abroad. These increased costs could have a material adverse effect on our business, financial condition and results of operations. Furthermore, if the conflict between Russia and Ukraine continues for a long period of time, or if other countries, including the U.S., become further involved in the conflict, we could face material adverse effects on our business, financial condition, results of operations and/or liquidity.\nOur business could be harmed if we cannot hire or retain qualified personnel.\nOur business depends upon our ability to attract and retain highly qualified personnel, including managerial, sales, and technical personnel. We compete for key personnel with other companies, healthcare institutions, academic institutions, government entities and other organizations. We do not have written employment agreements with our executive officers, other than the CEO. Our ability to maintain and expand our business may be impaired if we are unable to retain our current key personnel or hire or retain other qualified personnel in the future, including personnel for our manufacturing facilities and field based sales employees.  If we are not able to hire and retain personnel in our manufacturing facilities, we may not meet our production demand.  We have experienced labor shortages in fiscal years 2022 and 2023 that significantly contributed to the backlog.  In addition, our sales force is highly talented and we face intense competition in our industry for sales personnel which could have an adverse effect on our business and revenue if there is significant turnover. \nIf we are unable to manage our growth profitably, our business, financial results and stock price could suffer.\nOur future financial results will depend in part on our ability to profitably manage our growth. Management will need to maintain existing customers and attract new customers, recruit, retain and effectively manage employees, as well as expand operations and integrate customer support and financial control systems. If integration-related expenses and capital expenditure \n21\nrequirements are greater than anticipated or if we are unable to manage our growth profitably, our financial results and the market price of our common stock may decline.\nIn recent years we have begun to implement operational excellence initiatives which include a number of restructuring, realignment and cost reduction initiatives.  We may not realize the benefits of these initiatives to the extent or on the timing we anticipated and the ongoing difficulties in implementing these measures may be greater than anticipated and/or offset by inflationary pressures, which could cause us to incur additional costs or result in business disruptions like the backlogs we have experienced in fiscal years 2022 and 2023. In addition, if these measures are not successful or sustainable, we may undertake additional realignment and cost reduction efforts, which could result in significant additional expenses and adversely impact our ability to achieve our other strategic goals and business plans.\nWe may fail to attract additional capital necessary to expand our business or may incur additional indebtedness which, together with our current indebtedness levels, could impose operating and financial restrictions on us as a result of debt service obligations which could significantly limit our ability to execute our business strategy or curtail our growth.\nWe may require additional capital to expand our business. If cash generated internally is insufficient to fund capital requirements, we may require additional debt or equity financing. In addition, we may require financing to fund any significant acquisitions we may seek to make. Disruptions in the capital markets and increases in the cost of capital have previously resulted, and could again result, in volatility, decreased liquidity, and widening of credit spreads, which could make needed financing either unavailable or available on terms unsatisfactory to us which could result in significant stockholder dilution.\nWe may incur additional indebtedness or draw additional amounts on our existing credit facilities in the future subject to limitations contained in the agreements governing our debt.  The interest rate on potential borrowings could be a floating rate which could expose us to the risk of increased interest expense in the future.  The terms of indebtedness could require us to comply with certain financial maintenance covenants. In addition, the terms of our existing indebtedness include, and any future indebtedness could include, covenants restricting or limiting our ability to take certain actions. These covenants could adversely affect our ability to obtain additional financing, to finance future operations, to pursue certain business opportunities or take certain corporate actions. The covenants could also restrict our flexibility in planning for changes in our business and the industry and could make us more vulnerable to economic downturns and adverse developments, could limit our flexibility in planning for, or reacting to, changes and opportunities in the markets in which we compete, could place us at a competitive disadvantage compared to our competitors that have less debt or could require us to dedicate a substantial portion of our cash flow to service our debt.\nOur ability to meet our cash requirements, including our debt service obligations, could be dependent upon our operating performance, which would be subject to general economic and competitive conditions and to financial, business and other factors affecting our operations, many of which could be beyond our control. We cannot provide assurance that our business operations would generate sufficient cash flows from operations to fund potential cash requirements and debt service obligations. If our operating results, cash flow or capital resources prove inadequate, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt and other obligations. If we incurred indebtedness and were unable to service our debt, we could be forced to reduce or delay planned expansions and capital expenditures, sell assets, restructure or refinance our debt or seek additional equity capital, and we could be unable to take any of these actions on satisfactory terms or in a timely manner. Further, any of these actions may not be sufficient to allow us to service our potential debt obligations or could have an adverse impact on our business. Our potential debt agreements could limit our ability to take certain of these actions. Our failure to generate sufficient operating cash flow to pay our potential debts or to successfully undertake any of these actions could have a material adverse effect on us.\nInflationary pressure and unfavorable economic conditions could negatively affect our operations and business.\nA significant deterioration in economic conditions, including economic slowdowns or recessions, increased unemployment levels, inflationary pressures or disruptions to credit and capital markets, could lead to decreased consumer confidence and spending and availability of credit.  For example, in 2022 and continuing into 2023, the United States and other certain foreign countries have experienced a rapid increase in inflation levels.  Such heightened inflationary levels may negatively impact demand for our products and increase our costs.  Additionally, we finance a portion of our portfolio with unhedged floating- rate debt from our Credit Agreement.  The rapid increase in inflation during fiscal year 2023 led to a rapid increase in market interest rates, which materially increased the interest rate on our floating rate debt.   In addition, if rates continue to increase, we may incur significant additional expense and adversely impact our ability to achieve our other strategic goals and business plans.    \nOur goodwill, intangible assets and fixed assets are subject to potential impairment; we have recorded significant goodwill impairment charges and may be required to record additional charges to future earnings if our goodwill or intangible assets become impaired.\n \n22\nA significant portion of our assets consists of goodwill, intangible assets and fixed assets, the carrying value of which may be reduced if we determine that those assets are impaired, including intangible assets from recent acquisitions.  During the fourth quarter of fiscal year 2021, the Company made the decision to abandon the OARtrac product technology and trademark.  This resulted in an impairment charge of $14.0\u00a0million.  The impairment charge is recorded in \"Acquisition, restructuring and other items, net\", on the Consolidated Statements of Operations (see Note 19, \"Acquisition, restructuring and other items, net\" set forth in the Notes in the consolidated financial statements included in this Annual Report on Form 10-K).\nMost of our intangible and fixed assets have finite useful lives and are amortized or depreciated over their useful lives on either a straight-line basis or over the expected period of benefit or as revenues are earned from the sales of the related products. The underlying assumptions regarding the estimated useful lives of these intangible assets are reviewed quarterly and more often if an event or circumstance occurs making it likely that the carrying value of the assets may not be recoverable and are adjusted through accelerated amortization if necessary.  Whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable, we test intangible assets for impairment based on estimates of future cash flows. Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets and/or goodwill may not be recoverable include a decline in stock price and market capitalization, slower growth rates in our industry or our own operations and/or other materially adverse events that have implications on the profitability of our business.  When testing for impairment of definite-lived intangible assets held for use, the Company groups assets at the lowest level for which cash flows are separately identifiable. The Company operates as a single asset group.  If an intangible asset is considered to be impaired, the amount of the impairment will equal the excess of the carrying value over the fair value of the asset.\nGoodwill and other intangible assets that have indefinite useful lives are not amortized, but rather, are tested for impairment annually or more frequently if impairment indicators arise.  Prior to the first quarter of fiscal year 2023, the Company managed its operations as one reporting unit.  At the beginning of the first quarter of fiscal year 2023, the Company began to manage its operations as two operating segments and two reporting units, namely Med Tech and Med Device (see Note 18 \"Segment and Geographic Information\" set forth in the Notes to our consolidated financial statements included in this Annual  Report on Form 10-K).  The annual goodwill impairment review performed in April 2023 and 2022 indicated no goodwill impairments.  As of May\u00a031, 2023, the Company concluded that the sale of the dialysis product portfolio and BioSentry tract sealant system biopsy businesses to Merit Medical Systems, Inc. was a triggering event for the Med Device report unit.  The Company utilized the income approach to determine the fair value of the remaining Med Device reporting unit.  Based on the results of this evaluation, the Company recorded a goodwill impairment charge of $14.5 million for the year ended May\u00a031, 2023 to write down the carrying value of the Med Device reporting unit to fair value.  If actual results differ from the assumptions and estimates used in the goodwill and intangible asset calculations, we could incur future impairment or amortization charges, which could negatively impact our financial condition and results of operations.\nWe may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability.\nIRC Section 382 and related provisions contain rules that limit for U.S. federal income tax purposes the ability of a Company that undergoes an \u201cownership change\u201d to utilize its net operating loss carryforwards and certain other tax attributes existing as of the date of such ownership change.  Our Federal net operating loss carryforwards as of May\u00a031, 2023 after considering IRC Section 382 limitations are $169.7 million.  The expiration of the Federal net operating loss carryforwards is as follows: $5.2 million between 2023 and 2024, $79.4 million between 2028 and 2037 and $85.1 million indefinitely.  Our state net operating loss carryforwards as of May\u00a031, 2023 after considering remaining IRC Section 382 limitations are $24.1 million which expire in various years from 2029 to 2042.  Future ownership changes within the meaning of IRC Section 382 may also subject our tax loss carryforwards to annual limitations which would restrict our ability to use them to offset our taxable income in periods following the ownership changes.  See Note 10, \"Income Taxes\" set forth in our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended May\u00a031, 2023 for a further discussion of our tax loss carryovers.\nA cyber-attack or other breach of our, our distributors, or our supply chain partners' information technology systems could have a material adverse effect on our business, financial condition and/or results of operations.\nWe rely on information technology systems to process, transmit, and store electronic information in our day-to-day operations. Similar to other large multi-national companies, the size and complexity of our information technology systems makes them vulnerable to cyber-attacks, malicious intrusions, breakdowns, destruction, losses of data privacy, or other significant disruptions. Our distributors and supply chain partners face similar risks.  Our information systems require an ongoing commitment of resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, the increasing need to protect patient and customer information, and changing customer patterns. In addition, third parties may attempt to gain \n23\naccess into our systems or products or those of our supply chain partners to obtain data relating to patients or our proprietary information. \nAny failure by us, our distributors, or our supply chain partners to maintain or protect information technology systems and data integrity, including from cyber-attacks, ransomware, intrusions or other breaches, could result in the unauthorized access to supply chain partners or vendors and personally identifiable information, theft of intellectual property, misappropriation of assets, or otherwise compromise confidential or proprietary information and disrupt operations of our Company, our distributors, or our supply chain partners. Any of these events, in turn, may cause us to lose existing customers, have difficulty preventing, detecting, and controlling fraud, have disputes with customers, our supply chain partners, physicians, and other health care professionals, be subject to legal claims and liability, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach or theft of intellectual property, or suffer other adverse consequences, any of which could have a material adverse effect on our business, financial condition and/or results of operations.\nAny disaster at our manufacturing facilities or those of our suppliers could disrupt our ability to manufacture our products for a substantial amount of time. \nWe conduct manufacturing and assembly at facilities in Queensbury, New York, Glens Falls, New York, and other third parties in Costa Rica, Israel, Latvia, China and other locations. It would be difficult, expensive and time-consuming to transfer resources from one facility to the other and/or replace or repair these facilities or manufacturing equipment if they were significantly affected by a disaster. Additionally, we might be forced to rely on third-party manufacturers or delay production of our products. Insurance for damage to our properties and the disruption of our business from disasters may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. If one of our principal suppliers were to experience a similar disaster, uninsured loss or under-insured loss, we might not be able to obtain adequate alternative sources of supplies or products. Any significant uninsured loss, prolonged or repeated disruption, or inability to operate experienced by us or any of our principal suppliers could cause significant harm to our business, financial condition, results of operations and/or liquidity.\nAnti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could cause our stock price to decline and prevent attempts by our stockholders to replace or remove our current management.\nOur amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that may enable our management to resist a change in control.  For example, our Board of Directors is classified so that not all members of our Board of Directors are elected at one time and our Board of Directors is authorized, without prior stockholder approval, to create and issue \u201cblank check\u201d preferred stock with rights senior to those of our common stock and stockholder action by written consent is prohibited. We are also subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These provisions may discourage, delay or prevent a change in the ownership of our Company or a change in our management. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. Any delay or prevention of a change of control transaction or changes in our Board of Directors could cause the market price of our common stock to decline. \nThe COVID-19 pandemic has negatively impacted our business and operations around the world and may continue to materially and adversely impact our business, operations and financial results.\nThe COVID-19 pandemic has created significant disruption and uncertainty in the global economy and has negatively impacted our business and results of operations and financial condition during fiscal years  2021, 2022 and 2023.  Although the impact of COVID-19 and the resulting measures decreased during 2023, they have the potential to continue to negatively impact our business, results of operations and financial condition in the future.  \nNumerous national, international, state and local jurisdictions have imposed, and others in the future may impose, a variety of government orders and restrictions for their residents to control the spread of COVID-19. Such orders or restrictions may cause significant alteration of our operations, work stoppages, slowdowns and delays, travel restrictions and event cancellations, among other effects, thereby significantly and negatively impacting our operations. Other disruptions or potential disruptions include: (i) restrictions on our personnel and personnel of business partners to travel and access customers for training and case support\u037e (ii) reductions in spending by our customers; (iii) delays in clearance, approvals or certifications by regulatory bodies\u037e (iv) diversion of or limitations on employee resources that would otherwise be focused on the operations of our business, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people\u037e (v) reductions in our sales team, including through layoffs, furloughs or other losses of sales representatives\u037e (vi) additional government requirements or other incremental mitigation efforts that may further impact our or our suppliers\u2019 \n24\ncapacity to manufacture our products; (vii) disruption of our research and development activities; and (viii) delays in ongoing studies and pre-clinical trials.\nIn addition, elective procedures that use our products significantly decreased in number during fiscal year 2021, as health care organizations around the world prioritized the treatment of patients with COVID-19 and reduced spending in other areas.  We experienced a similar impact to procedure volumes with the resurgence of COVID-19 in fiscal year 2022 which continued through fiscal year 2023.  For example in fiscal year 2021, U.S. governmental authorities had recommended, and in certain cases required, that elective, deferrable, specialty and other procedures and appointments, be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 so that limited resources and personnel could be focused on the treatment of infected patients. Many of these procedures that use our products were suspended or postponed at times during fiscal years 2021, 2022 and 2023.  Similarly, our clinical trials were impacted by COVID-19 as hospitals prioritized treating these patients.  It is unclear when or if other resurgences of COVID-19, or increased spread of its variants, may again cause a rise in infections and result in authorities and/or customers imposing restrictions that could adversely affect our business, financial condition, results of operations and/or liquidity.\n \nIn addition, most of the hospitals and clinics that purchase our products have instituted strict procedures at their facilities in an effort to prevent the spread of COVID-19, including restrictions on sales representatives entering these facilities. This has been, and currently remains, a major impediment to our sales efforts, as supporting existing customers and acquiring new customers is much more difficult in this environment. These restrictions have had an effect on our sales and, until they are lifted, our business, operations and financial results will continue to be adversely impacted.\nThese challenges and restrictions will likely continue for the duration of the pandemic, which is uncertain, and may even continue beyond the pandemic. Many areas have relaxed restrictions from time-to-time and have resumed business operations, but a resurgence in infections or mutations of the coronavirus that causes COVID-19 could cause authorities and/or our customers to reinstate such restrictions or impose additional restrictions. All of these factors also may cause or contribute to disruptions and delays in our logistics and supply chain. The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on future developments that are uncertain and cannot be predicted, including new information that may emerge concerning the severity and spread of the virus and the actions by government entities, our customers and other parties to contain the virus or treat its impact, among others. To the extent the COVID-19 pandemic adversely affects our business, operations and financial results, it may also have the effect of heightening other risks described herein, such as those relating to general economic conditions, demand for our products, relationships with suppliers and sales efforts.\nWe could be negatively impacted by Environmental, Social and Governance (ESG), climate change and other sustainability-related matters\n.\n Governments, investors, customers, employees and other stakeholders are increasingly focusing on corporate ESG practices and disclosures, including risks associated with climate change and expectations in this area are rapidly evolving.  Shifts in weather patterns caused by climate change are expected to increase the frequency and severity of adverse weather conditions such as hurricanes, tornadoes, earthquakes, wildfires, droughts, extreme temperatures or flooding, which could cause or contribute to reduced workforce availability, increased production and distribution costs and disruptions and delays in our logistics and supply chain/operations as well as the operations of our customers. The increasing attention to corporate ESG initiatives and ESG risks could result in reduced demand for products, reduced profits and increased investigations and litigation. If we are unable to satisfy any new criteria by which our ESG practices may be assessed, investors may conclude that our policies and/or actions with respect to ESG matters and risks are inadequate. If we fail or are perceived to have failed to accurately disclose our progress on such initiatives or goals, our reputation, business, financial condition and results of operations could be adversely impacted.\nRISKS RELATED TO THE REGULATORY ENVIRONMENT\nWe are subject to a comprehensive system of federal, state and international laws and regulations, and we could be the subject of investigations, enforcement actions or face lawsuits and monetary or equitable judgments.\nWe operate in many parts of the world, and our operations are affected by complex state, federal and international laws relating to healthcare, environmental protection, antitrust, anti-corruption, anti-bribery, fraud and abuse, export control, tax, employment and laws regarding privacy, personally identifiable information and protected health information, including, for example, the Food, Drug and Cosmetic Act (\u201cFDCA\u201d), various FDA and international regulations relating to, among other things, the development, quality assurance, manufacturing, importation, distribution, marketing and sale of, and billing for, our products, the federal Anti-Kickback Statute and Federal False Claims Act (Note 17), the U.S. Foreign Corrupt Practices Act (\u201cFCPA\u201d) and similar anti-bribery laws in international jurisdictions, including the UK Anti-Bribery Act, the federal Health Insurance Portability and Accountability Act of 1996 (\u201cHIPAA\u201d), General Data Protection Regulation (\u201cGDPR\u201d), domestic and \n25\nforeign data protection, data security and privacy laws, laws related to the collection, storage, use and disclosure of personal data and laws and regulations relating to sanctions and money laundering. \nThe failure to comply with these laws and regulatory standards, allegations of such non-compliance or the discovery of previously unknown problems with a product or manufacturer: (i) could result in FDA Form-483 notices and/or warning letters or the foreign equivalent, fines, delays or suspensions of regulatory clearances, investigations, detainment, seizures or recalls of products (with the attendant expenses), the banning of a particular device, an order to replace or refund the cost of any device previously manufactured or distributed, operating restrictions and/or civil or criminal prosecution, and/or penalties, as well as decreased sales as a result of negative publicity and product liability claims; (ii) could expose us to breach of contract claims, fines and penalties, costs for remediation and harm to our reputation; (iii) could result in criminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in healthcare programs such as Medicare and Medicaid and health programs outside the United States; and (iv) could otherwise disrupt our business and could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.\nThe healthcare industry is under continued scrutiny from state, federal and international governments, including with respect to industry practices in the area of sales and marketing. Certain states, including Massachusetts, have recently passed or are considering legislation restricting our interactions with health care providers and requiring disclosure of many payments to them. The federal government has recently introduced similar legislation, which may or may not preempt state laws. If our marketing, sales or other activities fail to comply with the FDA\u2019s or other comparable foreign regulatory agencies\u2019 regulations or guidelines, or other applicable laws, we may be subject to warnings from the FDA or investigations or enforcement actions from the FDA, Medicare, the Office of Inspector General of the U.S. Department of Health and Human Services or other government agencies or enforcement bodies. We anticipate that the government will continue to scrutinize our industry closely, and that additional regulation by governmental authorities may increase compliance costs, increase exposure to litigation and may have other adverse effects to our operations. The Company\u2019s failure to comply with any marketing or sales regulations or any other applicable regulatory requirements could adversely affect our business, results of operations, financial condition and/or liquidity. \nIn addition, lawsuits by or otherwise involving employees, customers, licensors, licensees, suppliers, vendors, business partners, distributors, shareholders or competitors with respect to how we conduct our business could be very costly and could substantially disrupt our business. The occurrence of an adverse monetary or equitable judgment or a large expenditure in connection with a settlement of any of these matters could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.\nIf we or some of our suppliers fail to comply with the FDA\u2019s Quality System Regulation, or QSR, and other applicable post-market requirements, our manufacturing operations could be disrupted, our product sales and profitability could suffer, and we may be subject to a wide variety of FDA enforcement actions.\nOur manufacturing processes and those of some of our suppliers must comply with the FDA\u2019s Quality System Regulation, or QSR, which governs the methods used in, and the facilities and controls used for, the design, testing, manufacture, control, quality assurance, installation, servicing, labeling, packaging, storage and shipping of medical devices, and with current medical device adverse event reporting regulations, and similar foreign rules and regulations. The FDA enforces the QSR through unannounced inspections. Despite our training and compliance programs, our internal control policies and procedures may not always protect us from negligent, reckless or criminal acts committed by our employees or agents. If we, or one of our suppliers, fail a QSR inspection, or if a corrective action plan adopted by us or one of our suppliers is not sufficient, the FDA may bring an enforcement action, and our operations could be disrupted and our manufacturing delayed. We are also subject to the FDA\u2019s general prohibition against promoting our products for unapproved or \u201coff-label\u201d uses, the FDA\u2019s adverse event reporting requirements and the FDA\u2019s reporting requirements for field correction or product removals. The FDA has recently placed increased emphasis on its scrutiny of compliance with the QSR and these other post-market requirements. In addition, most other countries require us and our suppliers to comply with manufacturing and quality assurance standards for medical devices that are similar to those in force in the United States before marketing and selling our products in those countries. If we, or our suppliers, should fail to do so, we would lose our ability to market and sell our products in those countries.\nIf we cannot obtain and maintain marketing clearance or approval from governmental agencies, we will not be able to sell our products.\nOur products are medical devices that are subject to extensive regulation in the United States and in the foreign countries in which they are sold. Unless an exemption applies, each medical device that we wish to market in the United States must receive either 510(k) clearance or Pre-Market Approval (\u201cPMA\u201d) from the FDA before the product can be sold. Either process can be lengthy and expensive. The FDA\u2019s 510(k) clearance procedure, also known as \u201cpremarket notification,\u201d is the process we have used for our current products. This process usually takes from four to twelve months from the date the premarket \n26\nnotification is submitted to the FDA, but may take significantly longer. Even after a device receives regulatory approval it remains subject to significant regulatory and quality requirements, such as manufacturing, recordkeeping, renewal, recertification or reporting and other post market approval requirements, which may include clinical, laboratory or other studies. \nProduct approvals by the FDA and other foreign regulators can be withdrawn due to failure to comply with regulatory standards or the occurrence of unforeseen problems following initial approval or may be re-classified to a higher regulatory classification, such as requiring a PMA for a previously cleared 510(k) device. The PMA process is much more costly, lengthy and uncertain. It generally takes from one to three years from the date the application is submitted to, and filed with the FDA, and may take even longer. In addition, any modification to an FDA-cleared medical device that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, requires a new FDA 510(k) clearance or, possibly, a PMA. \nRegulatory regimes in other countries similarly require approval or clearance prior to our marketing or selling products in those countries. We rely on our distributors to obtain regulatory clearances or approvals of our products outside of the United States. If we are unable to obtain additional clearances or approvals needed to market existing or new products in the United States or elsewhere or obtain these clearances or approvals in a timely fashion or at all, or if our existing clearances are revoked, our revenues and profitability may decline.\nIn general, we intend to obtain Medical Device Regulation (\"MDR\")  approvals for our principal products sold in the European Union (\"EU\") ahead of expiration dates; however for multiple reasons, including but not limited to changing business strategies, labor shortages and contract resources, administrative delays, increased costs of obtaining MDR certification, availability of necessary data and notified body capacity, certain products may not be fully compliant at the time of CE mark expiration. The additional time and resources required to obtain MDR certification has been a significant factor in, and will likely continue to influence, our decisions whether to discontinue sales and distribution of certain products in the EU.\nComplying with and obtaining regulatory approval in foreign countries, including our efforts to comply with the requirements of the MDR, have and will likely continue to lead to additional uncertainty, risk, expense and delay in commercializing products in certain foreign jurisdictions, which could have a material adverse effect on our business, financial condition and/or results of operations.\nOur products may be subject to product recalls, which may harm our reputation and divert managerial and financial resources.\nThe FDA and similar governmental authorities in other countries have the authority to order mandatory recall of our products or order their removal from the market if there are material deficiencies or defects in design, manufacture, installation, servicing or labeling of the product, or if the governmental entity finds that our products would cause serious adverse health consequences. A government mandated recall, voluntary recall or field action by us could occur as a result of component failures, manufacturing errors or design defects, including labeling defects. Any recall of our products may harm our reputation with customers and divert managerial, engineering and financial resources.  There is no assurance that we will not incur warranty or repair costs, be subject to liability claims for damages related to product defects, or experience manufacturing, shipping or other delays or interruptions as a result of these defects in the future. Our insurance policies may not provide sufficient protection should a claim be asserted.  A recall of any of our products could harm our reputation, divert managerial and financial resources and have a material adverse effect on our business, financial condition, results of operations and/or liquidity.\nWe may be subject to fines, penalties, injunctions or costly investigations if we are determined to be promoting the use of our products for unapproved or \u201coff-label\u201d uses.\nIf we are incorrect in our belief that our promotional materials and training methods regarding the use of our products are conducted in compliance with regulations of the FDA and other applicable regulations, and the FDA determines that our promotional materials or training constitutes promotion of an unapproved use, the FDA could request that we modify our training or promotional materials or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties.  It is also possible that other federal, state or foreign enforcement authorities might take action if they consider promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.  Any of these results could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.\nLaws and regulations governing the export of our products could adversely impact our business.  If the U.S. government imposes strict sanctions on Iran, our revenue could be impacted.\n27\nThe U.S. Department of the Treasury\u2019s Office of Foreign Assets Control (OFAC), and the Bureau of Industry and Security at the U.S. Department of Commerce (BIS), administer certain laws and regulations that restrict U.S. persons and, in some instances, non-U.S. persons, in conducting activities, transacting business with or making investments in certain countries, governments, entities and individuals subject to U.S. economic sanctions. \nDue to our international operations, we are subject to such laws and regulations, which are complex, restrict our business dealings with certain countries and individuals, and are constantly changing. Further restrictions may be enacted, amended, enforced or interpreted in a manner that materially impacts our operations.\nIn fiscal year 2023 we generated $1.2 million of revenue for sales to distributors doing business in Iran.  We continuously review our ability to sell products to distributors that conduct business in Iran in accordance with all applicable U.S. laws.  If laws, rules or regulations of the United States, with respect to doing business in or with parties that do business in Iran, change to restrict our ability to generate revenue in Iran, our revenue could decline, impacting our results of operations.\nFrom time to time, we have limited business dealings in countries subject to comprehensive sanctions.  These business dealings may expose us to a heightened risk of violating applicable sanctions regulations. Violations of these regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts, revocations or restrictions of licenses, and/or criminal fines and imprisonment. We have established policies and procedures designed to assist with our compliance with such laws and regulations. However, there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, and such a violation could adversely affect our reputation, business, financial condition, results of operations and cash flows.\nRISKS RELATED TO INTELLECTUAL PROPERTY\nIf we fail to adequately protect our intellectual property rights, we may not be able to generate revenues from new or existing products and our business may suffer.\nOur success depends in part on obtaining, maintaining and enforcing our patents, trademarks and other proprietary rights, and our ability to avoid infringing the proprietary rights of others. We rely upon patent, trade secret, copyright, know-how and trademark laws, as well as license agreements and contractual provisions, to establish our intellectual property rights and protect our products. However, no assurances can be made that any pending or future patent applications will result in the issuance of patents, that any current or future patents issued to, or licensed by us, will not be challenged or circumvented by our competitors, or that our patents will not be found invalid.\nPatent positions of medical device companies, including our Company, are uncertain and involve complex and evolving legal and factual questions. The coverage sought in a patent application can be denied or significantly reduced either before or after the patent is issued. Consequently, there can be no assurance that any of our pending patent applications will result in an issued patent. There is also no assurance that any existing or future patent will provide significant protection or commercial advantage, or whether any existing or future patent will be circumvented by a more basic patent, thus requiring us to obtain a license to produce and sell the product. \nAdditionally, we rely on trade secret protection for certain unpatented aspects of our proprietary technology. There can be no assurance that others will not independently develop or otherwise acquire substantially equivalent proprietary information or techniques, that others will not gain access to our proprietary technology or disclose such technology, or that we can meaningfully protect our trade secrets. We have a policy of requiring key employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting relationship with us. Our confidentiality agreements also require our employees to assign to us all rights to any inventions made or conceived during their employment with us. We also generally require our consultants to assign to us any inventions made during the course of their engagement by us. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for us in the event of unauthorized use, transfer or disclosure of confidential information or inventions. If we are not able to adequately protect our intellectual property, our market share, financial condition and results of operations may suffer.\nIf third parties claim that our products infringe their intellectual property rights, we may be forced to expend significant financial resources and management time defending against such actions and our financial condition and our results of operations could suffer.\nThird parties may claim that our products infringe their patents and other intellectual property rights. Identifying third-party patent rights can be particularly difficult because, in general, patent applications can be maintained in secrecy for at least 18 months after their earliest priority date, and publication of discoveries in the scientific or patent literature often lag behind actual discoveries. Some companies in the medical device industry have used intellectual property infringement litigation to \n28\ngain a competitive advantage. If a competitor were to challenge our patents, licenses or other intellectual property rights, or assert that our products infringe its patent or other intellectual property rights, we could incur substantial litigation costs, be forced to make expensive changes to our product design, pay royalties or other fees to license rights in order to continue manufacturing and selling our products, or pay substantial damages. Third-party infringement claims, regardless of their outcome, would not only consume our financial resources but also divert our management\u2019s time and effort. \nSuch claims could also cause our customers or potential customers to purchase competitors\u2019 products or defer or limit their purchase or use of our affected products until resolution of the claim. See Part I, Item 3 \"Legal Proceedings\" of this report for additional details on litigation regarding proprietary technology.  \nRISKS RELATED TO OUR STOCK PRICE\nOur future operating results are difficult to predict and may vary significantly from quarter to quarter, which may adversely affect the price of our common stock.\nThe ongoing introduction of new products and services that affect our overall product mix make the prediction of future operating results difficult. You should not rely on our past results as any indication of future operating results. The price of our common stock will likely fall in the event that our operating results do not meet the expectations of analysts and investors. Comparisons of our quarterly operating results are an unreliable indication of our future performance because they are likely to vary significantly based on many factors, including:\n\u2022\nthe level of sales of our products and services in our markets;\n\u2022\nour ability to introduce new products or services and enhancements in a timely manner;\n\u2022\nthe demand for and acceptance of our products and services;\n\u2022\nthe success of our competition and the introduction of alternative products or services;\n\u2022\nour ability to command favorable pricing for our products and services;\n\u2022\nthe growth of the market for our devices and services;\n\u2022\nthe expansion and rate of success of our direct sales force in the United States and internationally and our independent distributors internationally;\n\u2022\nactions relating to ongoing FDA compliance;\n\u2022\nour ability to integrate acquired assets or companies;\n\u2022\nthe effect of intellectual property disputes;\n\u2022\nthe size and timing of orders from independent distributors or customers;\n\u2022\nthe attraction and retention of key personnel, particularly in sales and marketing, regulatory, manufacturing and research and development;\n\u2022\nunanticipated delays or an inability to control costs;\n\u2022\ngeneral economic conditions, including inflationary pressure, as well as those specific to our customers and markets; and\n\u2022\nseasonal fluctuations in revenue due to the elective nature of some procedures.\nOur stock price may be volatile, which may cause the value of our stock to decline or subject us to a securities class action litigation.\nThe trading price of our common stock price may be volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, attributable to outside factors and/or unrelated to operating performance. Such factors may include comments by securities analysts or other third parties, including blogs, articles, message boards and social and other media coverage which may not be attributable to us and may not be reliable or accurate.\nThe NASDAQ Stock Market and medical devices companies in particular have experienced substantial price and volume volatility that is often seemingly unrelated to the operating performance of the companies. These broad market fluctuations may cause the trading price of our common stock to decline. In the past, securities class action litigation has often been brought against a company after a period of volatility in the market price of its common stock.\n29",
+  "item7": ">Item 7.  \nManagement\u2019s Discussion and Analysis of Financial Conditions and Results of Operations.\nThe following information should be read together with the audited consolidated financial statements and the notes thereto and other information included elsewhere in this annual report on Form 10-K.  This discussion may contain forward-looking statements related to future events and our future financial performance that are based on current expectation and are subject to risks and uncertainties.  Our actual results may differ materially from those anticipated in any forward-looking statements as a result of many factors, including those set forth in Part I, Item 1A, \"Risk Factors\" and \"Disclosure Regarding Forward-Looking Statements\" included in this Annual Report on Form 10-K. \nCompany and Market \nAngioDynamics is a leading and transformative medical technology company focused on restoring healthy blood flow in the body's vascular system, expanding cancer treatment options and improving quality of life for patients. We design, manufacture and sell a wide range of medical, surgical and diagnostic devices used by professional healthcare providers for vascular access, for the treatment of peripheral vascular disease and for use in oncology and surgical settings. Our devices are generally used in minimally invasive, image-guided procedures. Many of our products are intended to be used once and then discarded, or they may be temporarily implanted for short- or long-term use.\nOur business operations cross a variety of markets. Our financial performance is impacted by changing market dynamics, which have included an emergence of value-based purchasing by healthcare providers, consolidation of healthcare providers, the increased role of the consumer in health care decision-making and an aging population, among others. In addition, our growth is impacted by changes within our sector, such as the merging of competitors to gain scale and influence; changes in the regulatory environment for medical device; and fluctuations in the global economy. \nOur sales and profitability growth also depends, in part, on the introduction of new and innovative products, together with ongoing enhancements to our existing products. Expansions of our product offerings are created through internal and external product development, technology licensing and strategic alliances. We recognize the importance of, and intend to continue to make investments in research and development activities and selective business development opportunities to provide growth opportunities. \nWe sell our products in the United States primarily through a direct sales force, and outside the U.S. through a combination of direct sales and distributor relationships. Our end users include interventional radiologists, interventional cardiologists, vascular surgeons, urologists, interventional and surgical oncologists and critical care nurses.  We expect our businesses to grow in both sales and profitability by expanding geographically, penetrating new markets, introducing new products and increasing our presence internationally.\nThe COVID-19 global pandemic has impacted our business and may continue to pose future risks with the emergence of new variants.  Even with the public health actions that have been taken to reduce the spread of the virus, the market continues to experience disruptions with respect to consumer demand, hospital operating procedures and workflow, trends that may continue.  The Company's ability to manufacture products, the reliability of our supply chain, labor shortages, backlog and inflation (including the cost and availability of raw materials, direct labor and shipping) have impacted our business, trends that may continue.  Accordingly, management continues to evaluate the Company\u2019s liquidity position, communicate with and monitor the actions of our customers and suppliers, and review our near-term financial performance.  \nCommencing with the first quarter of fiscal year 2023, the Company began to manage its operations through two segments, Med Tech and Med Device to align with the transformation from a company with a broad portfolio of largely undifferentiated products to a more focused medical technology company.\nOn August 30, 2022, the Company repaid all amounts outstanding under its then existing credit agreement and entered into a new Credit Agreement that provides for a $75.0\u00a0million Revolving Facility and a $30.0\u00a0million Delayed Draw Term Loan.  As of May\u00a031, 2023, $25.0 million was drawn on the Revolving Facility and $25.0 million was drawn on the Delayed Draw Term Loan.  See Note 12 \"Long-Term Debt\" set forth in the Notes to the consolidated financial statements. \nDuring the fourth quarter of fiscal year 2023, the Company was in discussions with Merit Medical Systems, Inc. (\"Merit\") to sell the dialysis product portfolio and BioSentry tract sealant system biopsy businesses.  This qualified for held for sale accounting as of May\u00a031, 2023.  On June 8, 2023, the Company entered into an asset purchase agreement (the \"Asset Purchase Agreement\") with Merit Medical Systems, Inc. pursuant to which Merit acquired the dialysis product portfolio and BioSentry tract sealant system biopsy businesses for $100.0\u00a0million in cash subject to the terms and conditions of the Asset Purchase Agreement.  The Company and Merit entered into various agreements to facilitate the transition to Merit, including a Transactions Services Agreement and Contract Manufacturing Agreement.  The Company determined that the sale of the \n33\nbusinesses did not constitute a strategic shift that had a major effect on the Company\u2019s operations or financial results and as a result, this transaction will not be classified as discontinued operations.\nAs of May\u00a031, 2023, the Company concluded that the sale of the dialysis product portfolio and BioSentry tract sealant system biopsy businesses to Merit Medical Systems, Inc. was a triggering event for the Med Device reporting unit.  The Company utilized the income approach to determine the fair value of the remaining Med Device reporting unit.  Based on the results of this evaluation, the Company recorded a goodwill impairment charge of $14.5 million for the year ended May\u00a031, 2023 to write down the carrying value of the Med Device reporting unit to fair value. \nIn evaluating the operating performance of our business, management focuses on revenue, gross margin, operating income, earnings per share and cash flow from operations. A summary of these key financial metrics for the year ended May\u00a031, 2023 compared to the year ended May\u00a031, 2022 follows: \nYear ended May\u00a031, 2023:\n\u2022\nRevenue increased by 7.1% to $338.8 million \n\u2022\nMed Tech growth of 22.8% and Med Device growth of 1.9%\n\u2022\nGross profit decreased by 100 bps to 51.4% \n\u2022\nNet loss increased by $25.9 million to $52.4 million\n\u2022\nLoss per share increased by $0.65 to a loss of $1.33\n\u2022\nCash flow from operations increased by $7.3 million resulting in cash provided by operations of $0.1 million \nOur Med Tech business, comprised of Auryon, the Thrombectomy platform and NanoKnife grew 22.8% in fiscal year 2023.  The growth in Auryon, AlphaVac and NanoKnife disposables was partially offset by continued softness in AngioVac.  Our Med Device business grew 1.9% in fiscal year 2023 driven by growth in Core, Dialysis, Ports and Microwave products. \nStrategic Initiatives to Drive Growth\nThe Company is focused on its ongoing transformation from a company with a broad portfolio of largely undifferentiated products to a more focused medical technology company that delivers unique and innovative health care solutions.  The Company believes that this transformation will enable the Company to shift the portfolio from the mature, lower-growth markets where we have competed in the past by investing in technology and products that provide access to larger and faster growing markets.  As such, we believe the growth in the near to mid-term will continue to be driven by our high technology products including Auryon, Mechanical Thrombectomy (which includes AngioVac and AlphaVac) and NanoKnife.  \nThroughout the year, we introduced strategic moves designed to streamline our business, improve our overall business operations and position ourselves for growth. Those initiatives included:\n\u2022\nProduct development process.\n The Company continued its disciplined product development process which is intended to improve the Company\u2019s ability to bring new products to market.  This included:\n\u25e6\nPathway expansion for Auryon in arterial thrombectomy and full market release of the hyrodphilic coated catheters;\n\u25e6\nFDA clearance of the AlphaVac F18 thrombectomy system;\n\u25e6\nEnrollment of patients in the APEX IDE study for the use of AlphaVac F18 to treat pulmonary embolism; and\n\u25e6\nContinued enrollment of patients in the PRESERVE study for the use of NanoKnife in the prostate.\n\u2022\nValue Creation. \n To create value and drive future growth, the Company plans to practice dispassionate portfolio optimization and continue to focus on areas of compelling unmet needs including those that are patient-centric and evidenced-based.  In addition, the Company continues to pursue targeted global expansion opportunities.   \nCritical Accounting Policies and Use of Estimates\nOur significant accounting policies are summarized in Note 1 \"Basis of Presentation, Business Description and Summary of Significant Accounting Policies\" in the consolidated financial statements included in this Form 10-K. While all of these significant accounting policies affect the reporting of our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require us to use a greater degree of judgment and/or estimates. Actual results may differ from those estimates. \nRevenue Recognition\nUnder ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.  To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following \n34\nfive steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. \nThe Company contracts with its customers based on customer purchase orders, which in many cases are governed by master purchasing agreements.  The Company\u2019s contracts with customers are generally for product only, and do not include other performance obligations such as services or other material rights.  As part of its assessment of each contract, the Company evaluates certain factors including the customer\u2019s ability to pay (or credit risk).  For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations.\nTransaction prices of products are typically based on contracted rates.  Product revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer, net of any variable consideration described below.  \nIf a contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.  Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products underlying each performance obligation.  The Company has standard pricing for its products and determines standalone selling prices based on the price at which the performance obligation is sold separately.  \nRevenue is recognized when control of the product is transferred to the customer (i.e., when the Company\u2019s performance obligation is satisfied), which occurs at a point in time, and may be upon shipment from the Company\u2019s manufacturing site or delivery to the customer\u2019s named location, based on the contractual shipping terms of a contract.  In determining whether control has transferred, the Company considers if there is a present right to payment from the customer and when physical possession, legal title and risks and rewards of ownership have transferred to the customer.\nThe Company typically invoices customers upon satisfaction of identified performance obligations.  As the Company\u2019s standard payment terms are 30 to 90 days from invoicing, the Company does not provide any significant financing to its customers.  \nThe Company enters into agreements to place placement and evaluation units (\u201cunits\u201d) at customer sites, but the Company retains title to the units. For the duration of these agreements the customer has the right to use the unit at no upfront charge in connection with the customer\u2019s ongoing purchase of disposables. These types of agreements include an embedded operating lease for the right to use the units.  In these arrangements, revenue recognized for the sale of the disposables is not allocated between the disposal revenue and lease revenue due to the insignificant value of the units in relation to the total agreement value.\nSales, value add, and other taxes collected on behalf of third parties are excluded from revenue.\nRevenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established for discounts, returns, rebates and allowances that are offered within contracts between the Company and its customers.  These reserves are based on the amounts earned or to be claimed on the related sales and are classified as a contra asset. \nThe Company provides certain customers with rebates and allowances that are explicitly stated in the Company\u2019s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized.  The Company establishes reserves for such amounts, which is included in accrued expenses in the accompanying Consolidated Balance Sheets.  These rebates and allowances result from performance-based offers that are primarily based on attaining contractually specified sales volumes.  The Company is also required to pay administrative fees to group purchasing organizations. \nThe Company generally offers customers a limited right of return.  Product returns after 30 days must be pre-approved by the Company and customers may be subject to a 20% restocking charge.  To be accepted, a returned product must be unadulterated, undamaged and have at least twelve months remaining prior to its expiration date.  The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized.  The Company currently estimates product return liabilities using its historical product return information and considers other factors that it believes could significantly impact its expected returns, including product recalls.  During the year ended May\u00a031, 2023, such product returns were not material.  \nA receivable is generally recognized in the period the Company ships the product.  Payment terms on invoiced amounts are based on contractual terms with each customer and generally coincide with revenue recognition.  Accordingly, the Company does not have any contract assets associated with the future right to invoice its customers.  In some cases, if control of the product has not yet transferred to the customer or the timing of the payments made by the customer precedes the Company\u2019s \n35\nfulfillment of the performance obligation, the Company recognizes a contract liability that is included in deferred revenue in the accompanying Consolidated Balance Sheets.\nInventory\nInventories are stated at the lower of cost or net realizable value based on the first-in, first-out cost method and consist of raw materials, work in process and finished goods.  Appropriate consideration is given to deterioration, obsolescence, expiring and other factors in evaluating net realizable value.  When we evaluate inventory for excess quantities and obsolescence, we utilize historical product usage experience and expected demand for establishing our reserve estimates. Our actual product usage may vary from the historical experience and estimating demand is inherently difficult which may result in us recording excess and obsolete inventory amounts that do not match the required amounts.  An increase to inventory reserves results in a corresponding increase in cost of revenue. Inventories are written off against the reserve when they are physically disposed.\nAcquisitions and Contingent Consideration\nThe Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values.  The estimates used to value the net assets acquired are based in part on historical experience and information obtained from the management of the acquired company.  The Company generally values the identifiable intangible assets acquired using a discounted cash flow model.  The significant estimates used in valuing certain of the intangible assets include, but are not limited to: future expected cash flows of the asset, discount rates to determine the present value of the future cash flows, attrition rates of customers, royalty rates and expected technology life cycles.  The Company also estimates the useful lives of the intangible assets based on the expected period over which the Company anticipates generating economic benefit from the asset. \nThe Company\u2019s estimates of fair value are based on assumptions believed to be reasonable at that time.  If management made different estimates or judgments, material differences in the fair values of the net assets acquired may result.\nCertain of the Company\u2019s business combinations involve potential payment of future consideration that is contingent upon the achievement of certain product development milestones and/or contingent on the acquired business reaching certain performance milestones.  The Company records contingent consideration at fair value at the date of acquisition based on the consideration expected to be transferred, estimated as the probability weighted future cash flows, discounted back to present value. The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues (for revenue-based considerations).  Projected revenues are based on the Company\u2019s most recent internal operational budgets and long-range strategic plans.  The discount rate used is determined at the time of measurement in accordance with accepted valuation methodologies.  Changes in projected revenues, probabilities of payment, discount rates, and projected payment dates may result in adjustments to the fair value measurements.  Contingent consideration is remeasured each reporting period using Level 3 inputs, and the change in fair value, including accretion for the passage of time, is recognized as income or expense within operating expenses in the Consolidated Statements of Operations.  Contingent consideration payments made soon after the acquisition date are classified as investing activities in the Consolidated Statements of Cash Flows.  Contingent consideration payments not made soon after the acquisition date that are related to the acquisition date fair value are reported as financing activities in the Consolidated Statements of Cash Flows, and amounts paid in excess of the original acquisition date fair value are reported as operating activities in the Consolidated Statements of Cash Flows.\nGoodwill and Intangible Assets\nIntangible assets other than goodwill, indefinite lived intangible assets and in process research and development (\"IP R&D\") are amortized over their estimated useful lives, which range between two to eighteen years, on a straight-line basis over the expected period of benefit.  The Company periodically reviews the estimated useful lives of intangible assets and reviews such assets or asset groups for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Such conditions could include significant adverse changes in the business climate, current-period operating or cash flow losses, significant declines in forecasted operations, or a current expectation that an asset group will be disposed of before the end of its useful life.  When testing for impairment of definite-lived intangible assets held for use, the Company groups assets at the lowest level for which cash flows are separately identifiable.  Prior to the first quarter of fiscal year 2023, the Company managed its operations as one reporting unit.  At the beginning of the first quarter of fiscal year 2023, the Company began to manage its operations as two operating segments and two reporting units, namely Med Tech and Med Device (see Note 18 \"Segment and Geographic Information\" set forth in the Notes to our consolidated financial statements included in this Annual  Report on Form 10-K).  The Company operates as two reporting units and two asset groups.  If a triggering event is deemed to exist, the Company performs an undiscounted operating cash flow analysis to determine if an impairment exists.  If an intangible asset is considered to be impaired, the amount of the impairment will equal the excess of the carrying value over the fair value of the asset.  \n36\nGoodwill and other intangible assets that have indefinite useful lives are not amortized, but rather, are tested for impairment annually or more frequently if impairment indicators arise.  Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. Goodwill and intangible assets have been recorded at either incurred or allocated cost. Allocated costs were based on respective fair market values at the date of acquisition.\n  For goodwill, the impairment test requires a comparison of the estimated fair value of each reporting unit to which the goodwill is assigned to the carrying value of the assets and liabilities of those reporting units. The determination of reporting units also requires management judgment. The Company considers whether a reporting unit exists within a reportable segment based on the availability of discrete financial information. The Company operates as two operating segments with two reporting units and consequently evaluates goodwill for impairment based on an evaluation of the fair value of each reporting unit. If the carrying value of the reporting units exceed the fair value, the carrying value is reduced to its fair value through an adjustment to the goodwill balance, resulting in an impairment charge. \nAs detailed in Note 9, \"Goodwill and Intangible Assets\" set forth in the Notes to our consolidated financial statements included in this Annual Report on Form 10-K, the Company recorded a goodwill impairment loss of $14.5 million for the year ended May\u00a031, 2023 as the fair value of the Med Device reporting unit was less than its carrying value. \nThere were no adjustments to goodwill for the Med Tech reporting unit for the year ended May\u00a031, 2023 other than foreign currency translation adjustments. \nResults of Operations for the years ended May\u00a031, 2023 and 2022 \nFor the fiscal year ended May\u00a031, 2023, the Company reported a net loss of $52.4 million, or a loss of $1.33 per diluted share, on net sales of $338.8 million compared to a net loss of $26.5 million, or a loss of $0.68 per diluted share, on net sales of $316.2 million in fiscal year 2022. \nNet Sales\nNet sales\n - Net sales are derived from the sale of our products and related freight charges, less discounts, rebates and returns. \nYear ended May 31, \n(in thousands)\n2023\n2022\n$ Change\nNet Sales \n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Med Tech\n$\n96,687\u00a0\n$\n78,717\u00a0\n$\n17,970\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Med Device \n242,065\u00a0\n237,502\u00a0\n$\n4,563\u00a0\nTotal\n$\n338,752\u00a0\n$\n316,219\u00a0\n$\n22,533\u00a0\nNet Sales by Geography\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0United States\n$\n282,713\u00a0\n$\n265,963\u00a0\n$\n16,750\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0International\n56,039\u00a0\n50,256\u00a0\n$\n5,783\u00a0\nTotal\n$\n338,752\u00a0\n$\n316,219\u00a0\n$\n22,533\u00a0\nFor the year ended May\u00a031, 2023, net sales increased $22.5 million to $338.8 million compared to the year ended May\u00a031, 2022.  At May\u00a031, 2023, the Company had a backlog of $2.7 million compared to $8.4 million at the end of May\u00a031, 2022.  \nThe Med Tech business net sales increased $18.0 million for the year ended May\u00a031, 2023 compared to the prior year.  The change in sales from the prior year was primarily driven by:\n\u2022\nIncreased Auryon sales of $12.0 million; \n\u2022\nGrowth in the thrombectomy platform of $3.0 million, which was driven by growth in the mechanical thrombectomy platform in AlphaVac sales of $5.0 million, partially offset by softness in AngioVac; and  \n\u2022\nIncreased NanoKnife sales of $3.0 million, which was driven by NanoKnife disposable sales in the U.S. and internationally which increased $3.3 million due to increased case volume.  This increase was partially offset by decreased NanoKnife capital sales in the U.S.\nThe Med Device business net sales increased $4.6 million for the year ended May\u00a031, 2023 compared to the prior year.  The backlog, which primarily impacted sales of Core and Vascular Access products, was $2.7 million at May\u00a031, 2023 compared to $8.4 million at May\u00a031, 2022.  The change in sales from the prior year was primarily driven by:\n37\n\u2022\nIncreased sales of \nCore, Dialysis, Ports and Microwave sales of $5.4 million, $5.2 million, $1.4 million and $1.0 million, respectively.  These increases were partially offset by decreased \nVenous, PICCs, Midlines and other Oncology and Vascular Access sales \nof $3.6 million, $2.4 million, $0.8 million and $1.6 million, respectively.\nGross Profit\nYear ended May 31,\n(in thousands)\n2023\n2022\n$ Change\nMed Tech \n$\n61,966\u00a0\n$\n52,584\u00a0\n$\n9,382\u00a0\nGross profit % of sales\n64.1\u00a0\n%\n66.8\u00a0\n%\nMed Device\n$\n112,280\u00a0\n$\n113,148\u00a0\n$\n(868)\nGross profit % of sales\n46.4\u00a0\n%\n47.6\u00a0\n%\nTotal \n$\n174,246\u00a0\n$\n165,732\u00a0\n$\n8,514\u00a0\nGross profit % of sales\n51.4\u00a0\n%\n52.4\u00a0\n%\nGross profit\n - Gross profit consists of net sales less the cost of goods sold, which includes the costs of materials, products purchased from third parties and sold by us, manufacturing personnel, royalties, freight, business insurance, depreciation of property and equipment and other manufacturing overhead, exclusive of intangible amortization.  \nTotal Company gross profit increased by $8.5 million compared to the prior year.  The change from the prior year was primarily driven by:\u00a0\u00a0\u00a0\u00a0\n\u2022\nSales volume, which positively impacted gross profit by $13.2 million;\n\u2022\nProduction volume and other incentives which positively impacted gross profit by $11.3 million\n\u2022\nPrice and mix, which negatively impacted gross profit by $4.9 million; \n\u2022\nInflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $8.1 million; \n\u2022\nIncremental depreciation on placement units of $2.2 million; and\n\u2022\nA benefit of $0.8 million that was recorded as a result of the employee retention credit that the Company filed for under the provision of the CARES Act in the prior year.\nThe Med Tech segment gross profit increased by $9.4 million compared to the prior year.  The change from the prior year was primarily driven by:\u00a0\u00a0\u00a0\u00a0\n\u2022\nSales volume, which positively impacted gross profit by $13.9 million;\n\u2022\nProduction volume, manufacturing and other incentives which positively impacted gross profit by $2.1 million;\n\u2022\nPricing pressures and mix, which negatively impacted gross profit by $4.7 million;\n\u2022\nInflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $0.5 million; and\n\u2022\nIncremental depreciation on placement units of $1.3 million.\nThe Med Device segment gross profit decreased by $0.9 million compared to the prior year.  The change from the prior year was primarily driven by:\n\u00a0\u00a0\u00a0\u00a0\n\u2022\nSales volume, which positively impacted gross profit by $2.1 million;\n\u2022\nProduction volume, manufacturing and other incentives which positively impacted gross profit by $8.6 million;\n\u2022\nPricing pressures and mix, which negatively impacted gross profit by $3.7 million;\n\u2022\nInflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $7.6 million; and\n\u2022\nIncremental depreciation on placement units of $0.3 million.\n38\nOperating Expenses and Other Income (expense)\nYear ended May 31, \n(in thousands)\n2023\n2022\n$ Change\nResearch and development\n$\n29,883\u00a0\n$\n30,739\u00a0\n$\n(856)\n% of sales\n8.8\u00a0\n%\n9.7\u00a0\n%\nSelling and marketing\n$\n104,249\u00a0\n$\n95,301\u00a0\n$\n8,948\u00a0\n% of sales\n30.8\u00a0\n%\n30.1\u00a0\n%\nGeneral and administrative\n$\n40,003\u00a0\n$\n38,451\u00a0\n$\n1,552\u00a0\n% of sales\n11.8\u00a0\n%\n12.2\u00a0\n%\nResearch and development expense \n- Research and development (\u201cR&D\u201d) expense includes internal and external costs to develop new products, enhance existing products, validate new and enhanced products, manage clinical, regulatory and medical affairs.  \nR&D expense decreased $0.9 million compared to the prior year.  The change from the prior year was primarily driven by:\n\u2022\nThe timing of certain projects and clinical spend associated with the ongoing clinical trials, which decreased R&D expense by $1.1 million; \n\u2022\nCompensation and benefits expenses, which decreased $0.3 million; and\n\u2022\nA benefit of $0.5 million that was recorded as a result of the employee retention credit that the Company filed for under the provision of the CARES Act in the prior year.\nSales and marketing expense\n - Sales and marketing (\u201cS&M\u201d) expense consists primarily of salaries, commissions, travel and related business expenses, attendance at medical society meetings, product promotions and marketing activities. \nS&M expense increased by $8.9 million compared to the prior year.  The change from the prior year was primarily driven by:\n\u2022\nAdditional headcount from the build-out of the Auryon and mechanical thrombectomy sales and marketing teams, which increased compensation and benefits expense by $3.1 million;\n\u2022\nTravel, meeting, tradeshow and other selling expenses, which increased $3.7 million; \n\u2022\nOther fixed expenses (utilities, insurance, depreciation, etc.), which decreased $0.6 million; and \n\u2022\nA benefit of $2.8 million that was recorded as a result of the employee retention credit that the Company file for under the provision of the CARES Act in the prior year.\nGeneral and administrative expense\n - General and administrative (\u201cG&A\u201d) expense includes executive management, finance, information technology, human resources, business development, legal, and the administrative and professional costs associated with those activities.  \nG&A expense increased by $1.6 million compared to the prior year.  The change from the prior year was primarily driven by:\n\u2022\nCompensation and benefits expense, which decreased $0.5 million; and\n\u2022\nOther outside consultant spend for legal and IT which increased $1.9 million\n.\nYear ended May 31, \n(in thousands)\n2023\n2022\n$ Change\nAmortization of intangibles\n$\n18,790\u00a0\n$\n19,458\u00a0\n$\n(668)\nGoodwill impairment\n$\n14,549\u00a0\n$\n\u2014\u00a0\n$\n14,549\u00a0\nChange in fair value of contingent consideration\n$\n2,320\u00a0\n$\n1,212\u00a0\n$\n1,108\u00a0\nAcquisition, restructuring and other items, net\n$\n15,633\u00a0\n$\n9,042\u00a0\n$\n6,591\u00a0\nOther expense\n$\n(3,256)\n$\n(1,478)\n$\n(1,778)\nAmortization of intangibles\n - Represents the amount of amortization expense that was taken on intangible assets held by the Company.\n\u2022\nAmortization expense decreased $0.7 million compared to the prior year.  The decrease is due to assets that became fully amortized in fiscal year 2023. \n39\nGoodwill impairment\n - Represents the impairment charge taken on goodwill.\n\u2022\nThe Company recorded a non-cash goodwill impairment charge of $14.5 million for the year ended May\u00a031, 2023 as the fair value of the Med Device reporting unit was less than its carrying value.\nChange in fair value of contingent consideration\n - Represents changes in contingent consideration driven by changes to estimated future payments on earn-out liabilities created through acquisitions and amortization of present value discounts on long-term contingent consideration. \n\u2022\nThe change in the fair value for the year ended May\u00a031, 2023 is related to the Eximo contingent consideration and the increased probability of achieving the revenue milestones.  The first revenue milestone was achieved in May 2023 and will be paid in the first quarter of fiscal year 2024.  \nAcquisition, restructuring and other items, net\n - Acquisition, restructuring and other items, net represents costs associated with mergers and acquisitions, restructuring expenses, legal costs that are related to litigation that is not in the ordinary course of business, legal settlements and other one-time items.\nAcquisition, restructuring and other items, net increased by $6.6 million compared to the prior year.  The change from the prior year was primarily driven by:\n\u2022\nLegal expense, related to litigation that is outside of the normal course of business, which increased $2.4 million;\n\u2022\nMergers and acquisition expense related to legal fees, which increased $0.3 million;\n\u2022\nManufacturing relocation expense related to the move of certain manufacturing lines to Costa Rica, which increased $0.4 million;\n\u2022\nOther expenses (mainly severance associated with organizational changes), which decreased $0.1 million; and\n\u2022\nThe payment to the Israeli Innovation Authority of $3.5 million related to grant funds that were provided to Eximo to develop the Auryon laser prior to the acquisition in the second quarter of fiscal year 2020.  These grant funds were fully repaid in the first quarter of fiscal year 2023 to satisfy the obligation which was otherwise being paid as a royalty based on a percentage of sales.\nOther expense \n- Other expense includes interest expense, foreign currency impacts, bank fees, and amortization of deferred financing costs.\n\u2022\nThe change in other expe\nnse of $1.8 million \ncompared to the prior year, is primarily due to increased interest expense of $2.1 million and unrealized foreign currency fluctuations of $0.2 million.\nIncome Tax Benefit\nYear ended May 31, \n(in thousands)\n2023\n2022\nIncome tax benefit\n$\n(1,995)\n$\n(3,402)\nEffective tax rate\n3.7\u00a0\n%\n11.4\u00a0\n%\nOur effective tax rate was a benefit of 3.7% for fiscal year 2023 compared with an effective tax rate benefit of 11.4% for the prior year.  The current year and prior year effective tax rates differ from the U.S. statutory rate primarily due to the impact of the valuation allowance, foreign taxes, and other non-deductible permanent items (such as non-deductible meals and entertainment, Section 162(m) excess compensation), goodwill impairment and the impact of stock-based compensation.\nThe Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity. Evidence the Company considered included its history of net operating losses, which resulted in the Company recording a full valuation allowance for its deferred tax assets in fiscal year 2016, except the naked credit deferred tax liability. \nBased on the review of all available evidence, the Company determined that it has not yet attained a sustained level of profitability and the objectively verifiable negative evidence outweighed the positive evidence. Therefore, the Company has provided a valuation allowance on its federal and state net operating loss carryforwards, federal and state R&D credit carryforwards and other net deferred tax assets that have a limited life and are not supportable by the naked credit deferred tax liability sourced income as of May\u00a031, 2023. The Company will continue to assess the level of the valuation allowance required.  If sufficient positive evidence exists in future periods to support a release of some or all of the valuation allowance, such a release would likely have a material impact on the Company\u2019s results of operations.\n40\nLiquidity and Capital Resources\nWe regularly review our liquidity and anticipated capital requirements in light of the significant uncertainty created by the COVID-19 global pandemic.  We believe that our current cash on hand provides sufficient liquidity to meet our anticipated needs for capital for at least the next 12 months.  \nOur cash and cash equivalents totaled $44.6 million as of May\u00a031, 2023, compared with $28.8 million as of May\u00a031, 2022.  As of May\u00a031, 2023 and 2022, total debt outstanding related to the Credit Agreement was $50.0 million ($25.0 million on the Revolving Facility and $25.0 million on the Delayed Draw Term Loan) and $25.0 million, respectively.  The fair value of the contingent consideration liability as of May\u00a031, 2023 was $19.3 million. \nThe table below summarizes our cash flows for the years ended May\u00a031, 2023 and 2022:\nYear ended May 31, \n(in thousands)\n2023\n2022\nCash provided by (used in):\nOperating activities\n$\n78\u00a0\n$\n(7,194)\nInvesting activities\n(9,746)\n(19,307)\nFinancing activities\n25,420\u00a0\n7,683\u00a0\nEffect of exchange rate changes on cash and cash equivalents\n43\u00a0\n(518)\nNet change in cash and cash equivalents\n$\n15,795\u00a0\n$\n(19,336)\nDuring the years ended May\u00a031, 2023 and 2022, cash flows consisted of the following:\nCash provided by (used in) operating activities:\nYears ended May\u00a031, 2023 and 2022:\n\u2022\nNet loss of $52.4 million and $26.5 million, respectively, plus the non-cash items, primarily driven by depreciation and amortization, goodwill impairment and stock-based compensation, along with the changes in working capital below, contributed to cash provided by operations of $0.1 million for the year ended May\u00a031, 2023 and cash used in operations of $7.2 million for the year ended May\u00a031, 2022.\n\u2022\nFor the year ended May\u00a031, 2023, working capital was unfavorably impacted by increased accounts receivable and inventory on hand of $1.3 million and $8.2 million, respectively. This was partially offset by increased accounts payable and accrued liabilities of $2.1 million. \n\u2022\nFor the year ended May\u00a031, 2022, working capital was unfavorably impacted by increased accounts receivable, inventory on hand and prepaids of $17.2 million, $2.8 million and $5.0 million respectively. This was partially offset by increased accounts payable and accrued liabilities of $3.9 million. \nCash used in investing activities:\nYears ended May\u00a031, 2023 and 2022:\n\u2022\n$3.8 million and $4.3 million, respectively, of cash was used for fixed asset additions;\n\u2022\n$5.4 million and $11.4 million, respectively, of cash was used for Auryon placement and evaluation unit additions;\n\u2022\n$0.5 million of cash was used for the acquisition of an exclusive license in the first quarter of fiscal year 2023; and\n\u2022\n$3.6 million of cash was used for the QX Medical asset acquisition in the first quarter of fiscal year 2022.\nCash provided by financing activities:\nYears ended May\u00a031, 2023 and 2022:\n\u2022\n$70.0 million in proceeds on long-term debt less the repayment of $45.0 million associated with the new Credit Agreement in the first quarter of fiscal year 2023.  The $25.0 million draw on the Delayed Draw Term Loan associated with the new Credit Agreement is to fund the historical and planned fiscal year 2023 purchases of Auryon placement and evaluation units.  See Note 12 \"Long-Term Debt\" set forth in the Notes to the consolidated financial statements; \n\u2022\n$0.8 million of deferred financing costs associated with the new Credit Agreement; \n\u2022\n$5.0 million draw on the Revolving Facility in the first quarter of fiscal year 2022 for the QX Medical asset acquisition; and\n\u2022\n$1.2 million and $2.7 million, respectively, of proceeds from stock option and ESPP activity.\n41\n On August 30, 2022, the Company repaid all amounts outstanding under its then existing credit agreement and entered into a new Credit Agreement that provides for a $75.0 million Revolving Facility and a $30.0 million Delayed Draw Term Loan, and also includes an uncommitted expansion feature that allows the Company to increase the total revolving commitments and/or add new tranches of term loans in an aggregate amount not to exceed $75.0 million.  The Credit Agreement includes customary representations, warranties and covenants, and acceleration, indemnity and events of default provisions, including, among other things, two financial covenants. One financial covenant requires us to maintain a fixed charge coverage ratio of not less than 1.25 to 1.00. The other financial covenant requires us to maintain a total leverage ratio of not greater than 3.00 to 1.00. The total leverage ratio is based upon our trailing twelve months total adjusted EBITDA (as defined in the Credit Agreement). The amount that we can borrow under our Credit Agreement is directly based on our leverage ratio. The interest rate at May\u00a031, 2023 applicable to each was 6.73%. The Company was in compliance with the Credit Agreement covenants as of May\u00a031, 2023.\nIn the first quarter of fiscal year 2023 and in connection with the new Credit Agreement, the Company drew $25.0 million on the Revolving Facility. The Company also drew $25.0 million on the Delayed Draw Term Loan to fund the historical and planned fiscal year 2023 purchases of Auryon placement and evaluation units for total long-term debt outstanding of $50.0 million. In the first quarter of fiscal year 2022, the Company made a $5.0 million draw on the Revolving Facility in conjunction with the QX Medical asset acquisition. We believe that our current cash balance, together with cash generated from operations and access to our Revolving Facility, will provide sufficient liquidity to meet our anticipated needs for capital for at least the next 12 months. If we seek to make acquisitions of other businesses or technologies in the future for cash, we may require external financing.\nSubsequent to fiscal year 2023, on June 8, 2023, the Company entered into an asset purchase agreement (the \"Asset Purchase Agreement\") with Merit Medical Systems, Inc. (\"Merit\") pursuant to which Merit acquired the dialysis product portfolio and BioSentry tract sealant system biopsy businesses.  The Company and Merit entered into various agreements to facilitate the transition to Merit, including a Transactions Services Agreement and Contract Manufacturing Agreement.  The purchase price for the asset sale was $100.0 million in cash subject to the terms and conditions of the Asset Purchase Agreement.  In conjunction with the Asset Purchase Agreement, on June 8, 2023, AngioDynamics used a portion of the consideration received to repay all amounts owed under AngioDynamics\u2019 existing Credit Agreement, dated as of August 30, 2022, and as a result, the Credit Agreement was extinguished. \nOur contractual obligations as of May\u00a031, 2023 are set forth in the table below (in thousands).  We have no variable interest entities or other off-balance sheet obligations.\n\u00a0\nCash payments due by period as of May\u00a031, 2023\n(in thousands)\nTotal\nLess\u00a0than\nOne\u00a0Year\n1-3\u00a0Years\n3-5\u00a0Years\nAfter\u00a05\nYears\nContractual Obligations:\nLong term debt and interest\n$\n50,108\u00a0\n$\n50,108\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\nOperating leases \n(1)\n5,940\u00a0\n2,366\u00a0\n3,016\u00a0\n558\u00a0\n\u2014\u00a0\nPurchase obligations \n(2)\n3,166\u00a0\n3,166\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nAcquisition-related future obligations \n(3)\n20,000\u00a0\n15,000\u00a0\n5,000\u00a0\n\u2014\u00a0\n\u2014\u00a0\nRoyalties\n39,840\u00a0\n3,640\u00a0\n7,280\u00a0\n7,280\u00a0\n21,640\u00a0\n$\n119,054\u00a0\n$\n74,280\u00a0\n$\n15,296\u00a0\n$\n7,838\u00a0\n$\n21,640\u00a0\n(1) Operating leases include short-term leases that are not recorded on our Consolidated Balance Sheets under ASU No. 2016-02\n.\n(2) The inventory purchase obligations are not reflected on our Consolidated Balance Sheets under accounting principles generally accepted in the United States of America.\n(3) Acquisition-related future obligations include scheduled minimum payments and contingent payments based upon achievement of performance measures or milestones such as sales or profitability targets, the achievement of research and development objectives or the receipt of regulatory approvals.  The amount represents the undiscounted value of contingent liabilities recorded on the balance sheet.  Timing of payments are as contractually scheduled, or where contingent, the Company's best estimate of payment timing.\nResults of Operations for the years ended May\u00a031, 2022 and 2021 \nFor management discussion and analysis of our 2022 financial results and liquidity compared with 2021, see Part II, Item 7 \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" in our Annual Report on Form 10-K for the year ended May\u00a031, 2022 filed on July 22, 2022. \n42\nRecent Accounting Pronouncements\nRefer to Note 1 of the Notes to the consolidated financial statements for Recently Issued Accounting Pronouncements. \n43",
+  "item7a": ">Item 7A.  \nQuantitative and Qualitative Disclosures about Market Risk.\nFOREIGN CURRENCY EXCHANGE RATE RISK\nWe are exposed to market risk from changes in currency exchange rates, as well as interest rate fluctuations on our credit facility and investments that could impact our results of operations and financial position.\nWe transact sales in currencies other than the U.S. Dollar, particularly the Euro, British pound and Canadian dollar. Approximately 4.7% of our sales in fiscal year 2023 were denominated in foreign currencies. We do not have expenses denominated in foreign currencies at the level of our sales and as a result, our profitability is exposed to currency fluctuations.  When the U.S. Dollar strengthens, our sales and gross profit will be negatively impacted.  In addition, we have assets and liabilities denominated in non-functional currencies which are remeasured at each reporting period, with the offset to changes presented as a component of Other (Expense) Income.  Significant non-functional balances include accounts receivable due from some of our international customers.   \nINTEREST RATE RISK\nInterest on the Revolving Facility and  Delayed Draw Term Loan is based, at the Company's option, on a rate equal to (i) the Secured Overnight Financing Rate (\"SOFR\") plus 0.10% (subject to a floor of 0%), or (ii) if the Company elects to treat a borrowing as an ABR Borrowing, an alternate base rate based on SOFR, plus, in each case, an applicable margin of 1.25%, 1.50% or 1.75%, depending on the leverage ratio.  If any amounts are not paid when due, such overdue amounts will bear interest at an amount generally equal to 2.0% plus the existing loan rate.  The Credit Agreement also carries a commitment fee in the case of the Revolving Facility, and a ticking fee, in the case of the Delayed Draw Term Loans of 0.20% to 0.25% per annum on the unused portion.   As of May\u00a031, 2023, there was $25.0\u00a0million outstanding on the Delayed Draw Term Loan and $25.0\u00a0million outstanding on the Revolving Facility and the interest rate at May\u00a031, 2023 was 6.73%.\nCONCENTRATION OF CREDIT RISK\nFinancial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents, our Revolving Facility and trade accounts receivable.\nThe Company maintains cash and cash equivalents at various institutions and performs periodic evaluations of the relative credit standings of these financial institutions to ensure their credit worthiness.  In addition, the Credit Agreement is structured across three investment grade banks.  The Company has the ability to draw equally amongst the five banks which limits the concentration of credit risk of one institution.  \nConcentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers that purchase products from the Company.  No single customer represents more than 10% of total sales.  The Company monitors the creditworthiness of its customers.  As the Company\u2019s standard payment terms are 30 to 90 days from invoicing, the Company does not provide any significant financing to its customers.  Although the Company does not currently foresee a significant credit risk associated with the outstanding accounts receivable, repayment is dependent upon the financial stability of our customers.",
+  "cik": "1275187",
+  "cusip6": "03475V",
+  "cusip": ["03475V101"],
+  "names": ["ANGIODYNAMICS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1275187/000162828023027335/0001628280-23-027335-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1.\u00a0\u00a0\u00a0\u00a0BUSINESS\nBackground\nFox Corporation is a news, sports and entertainment company, which manages and reports its businesses in the following segments:\n\u2022\nCable Network Programming\n, which produces and licenses news and sports content distributed through traditional cable television systems, direct broadcast satellite operators and telecommunication companies (\u201ctraditional MVPDs\u201d), virtual multi-channel video programming distributors (\u201cvirtual MVPDs\u201d) and other digital platforms, primarily in the U.S.\n\u2022\nTelevision\n, which produces, acquires, markets and distributes programming through the FOX broadcast network, advertising supported video-on-demand (\u201cAVOD\u201d) service Tubi, 29 full power broadcast television stations, including 11 duopolies, and other digital platforms, primarily in the U.S. Eighteen of the broadcast television stations are affiliated with the FOX Network, 10 are affiliated with MyNetworkTV and one is an independent station. The segment also includes various production companies that produce content for the Company and third parties.\n\u2022\nOther, Corporate and Eliminations\n, which principally consists of the FOX Studio Lot, Credible Labs Inc. (\u201cCredible\u201d), corporate overhead costs and intracompany eliminations. The FOX Studio Lot, located in Los Angeles, California, provides television and film production services along with office space, studio operation services and includes all operations of the facility. Credible is a U.S. consumer finance marketplace.\nUnless otherwise indicated, references in this Annual Report on Form 10-K (this \u201cAnnual Report\u201d) for the fiscal year ended June 30, 2023 (\u201cfiscal 2023\u201d) to \u201cFOX,\u201d the \u201cCompany,\u201d \u201cwe,\u201d \u201cus\u201d or \u201cour\u201d mean Fox Corporation and its consolidated subsidiaries. We use the term \u201cMVPDs\u201d to refer collectively to traditional MVPDs and virtual MVPDs.\nFOX became a standalone publicly traded company on March\u00a019, 2019, when Twenty-First Century Fox, Inc. (\u201c21CF\u201d) spun off the Company to 21CF stockholders and FOX\u2019s Class A Common Stock and Class B Common Stock (collectively, the \u201cCommon Stock\u201d) began trading on The Nasdaq Global Select Market (the \u201cTransaction\u201d). The Walt Disney Company (\u201cDisney\u201d) acquired the remaining 21CF assets and 21CF became a wholly-owned subsidiary of Disney. The Company is party to a separation and distribution agreement and a tax matters agreement that govern certain aspects of the Company\u2019s relationship with 21CF and Disney following the Transaction. The core transition services agreements entered into in connection with the Transaction terminated in accordance with their terms in fiscal 2022.\nThe Company\u2019s fiscal year ends on June 30 of each year. The Company was incorporated in 2018 under the laws of the State of Delaware. The Company\u2019s principal executive offices are located at 1211 Avenue of the Americas, New York, New York 10036 and its telephone number is (212) 852-7000. The Company\u2019s website is \nwww.foxcorporation.com\n. The Company\u2019s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d), are available, free of charge, through the Company\u2019s website as soon as reasonably practicable after the material is electronically filed with or furnished to the U.S. Securities and Exchange Commission (the \u201cSEC\u201d). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We are providing our website address solely for the information of investors. We do not intend the address to be an active link or to otherwise incorporate the contents of the website, including any reports that are noted in this Annual Report as being posted on the website, into this Annual Report.\nCaution Concerning Forward-Looking Statements\nThis Annual Report contains \u201cforward-looking statements\u201d within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. All statements other than statements of historical or current fact are \u201cforward-looking statements\u201d for purposes of federal and state securities laws. Forward-looking statements may include, among others, the words \u201cmay,\u201d \u201cwill,\u201d \u201cshould,\u201d \u201clikely,\u201d \u201canticipates,\u201d \n1\n\u201cexpects,\u201d \u201cintends,\u201d \u201cplans,\u201d \u201cprojects,\u201d \u201cbelieves,\u201d \u201cestimates,\u201d \u201coutlook\u201d or any other similar words. Although the Company\u2019s management believes that the expectations reflected in any of the Company\u2019s forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any forward-looking statements. The Company\u2019s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties. Important factors that could cause the Company\u2019s actual results, performance and achievements to differ materially from those estimates or projections contained in the Company\u2019s forward-looking statements include, but are not limited to, government regulation, economic, strategic, political and social conditions. For more detailed information about these factors, see Item 1A, \u201cRisk Factors,\u201d and Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u2014Caution Concerning Forward-Looking Statements.\u201d\nForward-looking statements in this Annual Report speak only as of the date hereof. The Company does not undertake any obligation to update or release any revisions to any forward-looking statement made herein or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or to conform such statements to actual results or changes in our expectations, except as required by law.\nBusiness Overview\nFOX produces and delivers compelling news, sports and entertainment content through its iconic brands, including FOX News Media, FOX Sports, FOX Entertainment, FOX Television Stations and Tubi Media Group. The Company differentiates itself in a crowded media and entertainment marketplace through its simple structure, the leadership positions of its brands and premium programming that focus on live and \u201cappointment-based\u201d content, a significant presence in major markets, and broad distribution of its content across traditional and digital platforms.\nOur Competitive Strengths\nPremium brands that resonate deeply with viewers.\nUnder the FOX banner, we produce and distribute content through some of the world\u2019s leading and most valued brands. Our long track record of challenging the status quo emboldens us to continue making innovative decisions, disrupting norms and forming deeper relationships with audiences. FOX News Media is among the most influential and recognized news brands in the world. FOX Sports has earned a reputation for bold sports programming and, with its far-reaching presence in virtually every U.S. household, is a leading destination for live sports events and sports commentary. FOX Entertainment is renowned for its engaging primetime entertainment, including scripted dramas, leading unscripted programming and its longstanding Sunday animation block. Tubi, our leading AVOD service, attracts a young, diverse and highly engaged audience to its over 60,000 programming titles. These brands and others in our portfolio, such as our 29 owned and operated local television stations, including 18 broadcasting under the FOX brand, hold cultural significance with consumers and commercial importance for distributors and advertisers. The quality of our programming and the strength of our brands maximize the value of our content through a combination of affiliate fees and advertising sales.\nLeadership positions across strategically significant programming platforms.\nFOX enjoys a leadership position across our core news, sports and entertainment businesses. As linear television viewership declines across the industry, \"appointment-based\" programming that is the FOX hallmark remains resilient. For over 20 consecutive years, FOX News has been the top-rated national cable news channel in both Monday to Friday primetime and total day viewing, according to The Nielsen Company (\"Nielsen\"). FOX News also finished calendar year 2022 as the #1 cable network in Monday to Friday primetime and total day viewing among total viewers for the seventh consecutive year. A leader in marquee live sports broadcasts, FOX Sports programs the National Football League (\"NFL\") (including the #1 show on television, \nAmerica's Game of the Week\n), college football (including the Big Ten Conference), Major League Baseball's (\"MLB\") Regular Season, \nAll-Star Game\n and \nWorld Series\n, National Association of Stock Car Auto Racing (\u201cNASCAR\u201d) and other marquee cyclical events, including the \nSuper Bowl\n and the F\u00e9d\u00e9ration Internationale de Football Association (\"FIFA\") Men's and Women's \nWorld Cup\n. FOX Sports has secured a significant portion of its marquee rights under long-term contracts. FOX Entertainment has delivered the youngest and most diverse audience of the broadcast networks across all programming in primetime for over two decades. During the \n2\n2022-2023 broadcast season, FOX Entertainment featured the #1 entertainment telecast with \nNext Level Chef \nfollowing \nSuper Bowl LVII\n, the #1 broadcast drama \n9-1-1\n,\n \nthe #1 new unscripted series \nSpecial Forces: World\u2019s Toughest Test\n, the #1 new scripted drama in 2023 \nAccused\n, and three of the top 10 comedies on broadcast television with \nThe Simpsons\n, \nFamily Guy\n and \nBob\u2019s Burgers\n. FOX Television Stations covers 18 Nielsen-designated market areas (\"DMAs\"), including 14 of the 15 largest, and was the #1 or #2 rated news provider in the hours of 5 a.m. \n-\n 9 a.m. in the majority of the markets in which it operates. Under FOX\u2019s ownership, Tubi has become one of the most relevant and fastest growing AVOD services in the country in fiscal 2023, with over 50% growth in total view time (the total number of hours watched) compared to the prior fiscal year. Tubi is part of Tubi Media Group, a division formed in fiscal 2023 to house the Company\u2019s digital platform services. Taken together, we believe our leadership positions will continue to support meaningful affiliate fee revenue growth and sustained advertising revenue, while enabling us to nimbly respond to the opportunities and challenges traditional media companies are facing relating to rapidly evolving technologies and changes in consumer behavior.\nSignificant presence and relevance in major domestic markets.\nThe FOX portfolio combines the range of national cable and broadcast networks and digital distribution platforms with the power of tailored local television. FOX News and FOX Business are available in over 70 million U.S. households and FOX Sports and FOX Entertainment programming on the FOX Network is available in essentially all U.S. households. Additionally, our 29 owned and operated television stations cover 18 DMAs, including 14 of the 15 largest, and maintain duopolies in 11 DMAs, including New York, Los Angeles and Chicago, the three largest. These stations provide balanced content of national interest with programming of note to local communities, producing approximately 1,200 hours of local news coverage each week. Tubi\u2019s ubiquitous availability both online and through its app provides broad distribution of films, episodic television programming and live local and national news content. Tubi carries over 100 local station feeds (including feeds of our owned and operated stations), covering 75 DMAs and 22 of the top 25 markets. The breadth and depth of our footprint allows us to produce and distribute our content in a cost-effective manner and share best business practices and models across regions. It also enables us to engage audiences, develop deeper consumer relationships and create more compelling product offerings.\nAttractive financial profile, including multiple revenue streams, strong balance sheet and other assets.\nWe have achieved strong revenue growth and profitability in a complex industry environment over the past several years. Additionally, our strong balance sheet provides us with the financial flexibility to continue to invest across our businesses, allocate resources toward investments in growth initiatives, take advantage of strategic opportunities, including potential acquisitions across the range of media categories in which we operate, and return capital to our stockholders. We have maintained significant liquidity, ending fiscal 2023 with approximately $4.3 billion of cash and cash equivalents on our balance sheet while returning approximately $2.3 billion of capital to our stockholders through our stock repurchase program and cash dividends during fiscal 2023. We also benefit from a tax asset that resulted from the step-up in the tax basis of our assets following the Transaction, which is expected to provide an annual cash tax benefit for many years. Additionally, our asset portfolio includes the FOX Studio Lot in Los Angeles, California. The historic lot spans over 50 acres and close to 2 million square feet of space for administration and television and film production services available to industry clients, including 15 sound stages, two broadcast studios and other production facilities. We also own an equity stake in Flutter Entertainment plc (\u201cFlutter\u201d), an online sports betting and gaming company with operations in the U.S. and internationally, and we maintain a valuable option to acquire 18.6% of FanDuel Group, a majority-owned subsidiary of Flutter.\nGoals and Strategies\nMaintain leading positions in live news, live sports and quality entertainment.\nWe have long been a leader in news, sports and entertainment programming. We believe that building on our leading market positions is essential to our success. We are investing in our most attractive growth opportunities by allocating capital to our news, sports and entertainment properties, which we believe have distinct competitive advantages. For example, we have continued our investments in digital properties at FOX News Media, including investments in the FOX Nation subscription video-on-demand (\"SVOD\") service and the FOX Weather free advertising-supported streaming television (\u201cFAST\u201d) service. In addition, we continue to invest at FOX Sports, where fiscal 2023 highlights include a landmark rights extension with the Big Ten \n3\nConference, the return of the United States Football League (the \"USFL\") for a second season and the league\u2019s expansion into additional markets. Recognizing the industry-wide changes in viewership habits, FOX Entertainment is expanding its footprint across owned and unscripted content. FOX Entertainment is investing in more co-production arrangements and owns a stake in each new series that premiered on the FOX Network during the 2022-2023 broadcast season. In addition, our production companies such as MarVista Entertainment and the Studio Ramsay Global production venture with Gordon Ramsay produce content for FOX as well as third parties, which reduces our reliance on third-party content providers. We also continue to invest in content, technology and marketing at Tubi to attract new viewers and retain Tubi\u2019s existing audience. In fiscal 2023, Tubi expanded its content library through the premiere of over 100 new original titles and the launch of over 100 sports, entertainment and local news channels, for a total of nearly 250 sports, entertainment and local news channels on the platform. We believe continuing to provide compelling news, sports and entertainment programming across platforms will increase audience engagement and drive growth across our distribution, affiliate and advertising relationships.\nIncrease revenue growth through the continued delivery of high quality, premium and valuable content.\nWith a focused portfolio of assets, we create and produce high quality programming that delivers value for our viewers, our affiliates and our advertisers. We intend to continue to generate appropriate value for our content. Additionally, we expect our internal production capabilities and co-production arrangements will facilitate growth by enabling us to directly manage the economics and programming decisions of our broadcast network, stations group and Tubi. We also believe our unique ability to deliver \"appointment-based\" viewing and audiences at scale, along with innovative advertising platforms, delivers substantial value to our advertising customers, and the unique nature of our \"appointment-based\" content positions us to maintain and even grow audiences during a time of increasing consumer fragmentation.\nExpand our digital distribution offerings and direct engagement with consumers, increasing complementary sources of revenues.\nThe availability of our key networks on all major virtual MVPD services reflects the strength of our brands and the \"must-have\" nature of our content. We are also cultivating and growing direct interactions between FOX brands and consumers outside traditional linear television. For example, Tubi, which we acquired in fiscal 2020, provides us with a wholly-owned digital platform to access a wider digital audience and further the reach of our content. Tubi continues to experience significant growth in total view time across a library of over 60,000 titles, as well as key FOX entertainment, news and sports programming, and it streamed approximately 6.8 billion hours of content over the course of the fiscal year (a record for the platform) to a young, diverse and highly engaged audience advertisers are eager to reach. FOX News Media operates a number of digital businesses, including FOX News Digital, which attracts the highest multiplatform time spent in the news category, along with the FOX Nation SVOD service, which offers U.S. consumers a variety of on-demand content (including original programming), and FOX Weather, which offers local, regional and national weather reporting in addition to live programming. Additionally, FOX Television Stations operates a portfolio of digital businesses, including the FLX digital advertising platform and the LiveNOW from FOX, FOX Locals and FOX Soul FAST services, in addition to distributing its local news programming on Tubi and across a range of third-party platforms. \nSegments\nCable Network Programming\nThe Cable Network Programming segment produces and licenses news, business news and sports content for distribution through traditional and virtual MVPDs and other digital platforms, primarily in the U.S. The businesses in this segment include FOX News Media (which includes FOX News and FOX Business) and our primary cable sports programming networks FS1, FS2, the Big Ten Network and FOX Deportes.\n4\nThe following table lists the Company\u2019s significant cable networks and the number of subscribers as estimated by Nielsen:\nAs of June\u00a030,\n2023\n2022\n(in millions)\nFOX News Media Networks\nFOX News\n72\u00a0\n75\u00a0\nFOX Business\n70\u00a0\n72\u00a0\nFOX Sports Networks\nFS1\n72\u00a0\n74\u00a0\nFS2\n52\u00a0\n55\u00a0\nThe Big Ten Network\n48\u00a0\n50\u00a0\nFOX Deportes\n13\u00a0\n15\u00a0\nFOX News Media. \nFOX News Media includes the FOX News and FOX Business networks and their related properties. For over 20 consecutive years, FOX News has been the top-rated national cable news channel in both Monday to Friday primetime and total day viewing. FOX News also finished calendar year 2022 as the #1 cable news network in Monday to Friday total day viewing among the key Adults 25-54 demographic, as well as the #1 cable network in Monday to Friday primetime and total day viewing among total viewers for the seventh consecutive year. FOX Business is a business news national cable channel and was the #1 business network in business day and market hours among total viewers for each quarter during fiscal 2023. FOX News also produces a weekend political commentary show, \nFOX News Sunday\n, for broadcast on the FOX Television Stations and stations affiliated with the FOX Network throughout the U.S. FOX News, through its FOX News Edge service, licenses news feeds to affiliates to the FOX Network and other subscribers to use as part of local news broadcasts primarily throughout the U.S. FOX News also produces FOX News Audio, which licenses news updates, podcasts, and long-form programs to local radio stations and to mobile, Internet and satellite radio providers.\nFS1. \nFS1 is a multi-sport national network that features live events, including regular season and post-season MLB games, NASCAR, college football, college basketball, the FIFA Men\u2019s and Women\u2019s \nWorld Cup, \nMajor League Soccer (\u201cMLS\u201d), the USFL, the Union of European Football Associations (\u201cUEFA\u201d) European Championship, UEFA Nations League, Concacaf and CONMEBOL soccer and horse racing. In addition to live events, FS1 also features original programming from FOX Sports Films, studio programming such as \nNASCAR Race Hub\n and opinion shows such as\n Undisputed\n and \nThe Herd with Colin Cowherd\n.\nFS2\n. FS2 is a multi-sport national network that features live events, including NASCAR, collegiate sports, horse racing, rugby, world-class soccer and motor sports.\nFOX Sports Racing\n. FOX Sports Racing is a 24-hour video programming service consisting of motor sports programming, including NASCAR events and original programming, National Hot Rod Association (\u201cNHRA\u201d), motorcycle racing and horse racing. FOX Sports Racing is distributed to subscribers in Canada and the Caribbean.\nFOX Soccer Plus\n. FOX Soccer Plus is a premium video programming network that showcases exclusive live soccer and rugby competitions, including events from FIFA, UEFA, Concacaf, CONMEBOL, Super Rugby League, Australian Football League and the National Rugby League.\nFOX Deportes\n. FOX Deportes is a Spanish-language sports programming service distributed in the U.S. FOX Deportes features coverage of a variety of sports events, including premier soccer (such as matches from MLS, Liga MX and Liga de Guatemala), the NFL NFC Championship and the \nSuper Bowl,\n MLB (including regular season games, the \nNational League Championship Series\n in 2022 and the \nAll-Star\n and \nWorld Series\n games), NASCAR Cup Series, college football and WWE Smackdown. In addition to live events, FOX Deportes also features multi-sport news and highlight shows and daily studio programming. FOX Deportes is available to approximately 12.7 million cable and satellite households in the U.S., of which approximately 3.1 million are Hispanic.\n5\nThe Big Ten Network\n. The Big Ten Network is a 24-hour national video programming service dedicated to the collegiate Big Ten Conference and Big Ten athletics, academics and related programming. The Big Ten Network televises live collegiate events, including football games, regular-season and post-season men\u2019s and women\u2019s basketball games, and men\u2019s and women\u2019s Olympic events (including wrestling, volleyball and ice hockey), as well as a variety of studio shows and original programming. The Big Ten Network also owns and operates B1G+ (formerly branded BTN+), a subscription video streaming service that features live streams of non-televised sporting events, replays of televised and streamed events, and a large collection of classic games and original programming. The Company owns approximately 61% of the Big Ten Network.\nDigital Distribution. \nThe Company\u2019s cable network programming is also distributed through FOX-branded websites, apps, podcasts and social media accounts and licensed for distribution through MVPDs\u2019 websites and apps. The Company\u2019s websites and apps provide live and/or on-demand streaming of network-related programming primarily on an authenticated basis to allow video subscribers of the Company\u2019s participating distribution partners to view Company content via the Internet. These websites and apps include FOXNews.com, FOXBusiness.com, FOXWeather.com, FOXSports.com, FOXDeportes.com, theUSFL.com and OutKick.com and the FOX News, FOX Business, FOX Weather, FOX Sports and FOX Deportes mobile apps. FOX News Media also operates direct-to-consumer services FOX Nation, an SVOD service that offers U.S. consumers a variety of on-demand content (including original programming), and FOX Weather, a FAST service that offers local, regional and national weather reporting in addition to live programming. The Big Ten Network distributes programming through the B1G+ subscription video streaming service. The Company also distributes non-authenticated live-streaming and video-on-demand content, podcasts, as well as static visual content such as photography, artwork and graphical design across FOX-branded social media and third party video and audio platforms.\nOutkick Media.\n The Company owns Outkick Media, a digital media company focused on the intersection of sports, news and entertainment.\nUSFL. \nFOX Sports founded and launched the USFL in April 2022. The USFL is a professional spring football league with eight teams playing a 40-game regular season schedule in addition to two playoff games and a championship game. Under multi-year rights agreements, FOX Sports and NBC Sports are the domestic distribution partners of the USFL games.\nCable Network Programming Competition\nGeneral. \nCable network programming is a highly competitive business. Cable networks compete for content, distribution, viewers and advertisers with a variety of media, including broadcast television networks; cable television systems and networks; direct-to-consumer streaming and on-demand platforms and services; mobile, gaming and social media platforms; audio programming; and print and other media. Important competitive factors include the prices charged for programming, the quantity, quality and variety of programming offered, the accessibility of such programming, the ability to adapt to new technologies and distribution platforms, the quality of user experience and the effectiveness of marketing efforts.\nFOX News Media. \nFOX News' primary competition comes from the broadcast networks' national news divisions and cable networks CNN and MSNBC. FOX Business' primary competition comes from the cable networks CNBC and Bloomberg Television. FOX News and FOX Business also compete for viewers and advertisers within a broad spectrum of television networks, including other non-news cable networks, free-to-air broadcast television networks and direct-to-consumer streaming and on-demand platforms and services. FOX News and FOX Business also face competition online from CNN.com, NBCNews.com, NYTimes.com, CNBC.com, Bloomberg.com, Yahoo.com and The Wall Street Journal Online, among others.\nFOX Sports. \nA number of basic and pay television programming services, direct-to-consumer streaming services, and free-to-air stations and broadcast networks compete with FS1, FS2 and the Big Ten Network for sports programming rights, distribution, audiences and advertisers. On a national level, the primary competitors to FS1, FS2, and the Big Ten Network are ESPN, ESPN2, TNT, TBS, USA Network, CBS Sports Network, league-owned networks such as NFL Network, NHL Network, NBA TV and MLB Network, collegiate conference-specific networks such as the SEC Network, Pac-12 Network and ACC Network, and direct-to-consumer streaming services such as ESPN+, Peacock, Amazon Prime Video, Apple TV+, Paramount+, Max, FuboTV, and Roku. In regional markets, the Big Ten Network competes with regional sports networks, local broadcast television stations and other sports programming providers and distributors. \n6\nTelevision\nThe Television segment produces, acquires, markets and distributes programming through the FOX broadcast network, the Tubi AVOD service, broadcast television stations and other digital platforms, primarily in the U.S. The segment also includes various production companies that produce content for the Company and third parties.\nFOX Television Stations\nFOX Television Stations owns and operates 29 full power broadcast television stations, which deliver broadcast network content, local news and syndicated programming to viewers in 18 local markets. These include stations located in 14 of the top 15 largest DMAs and two stations (referred to as duopolies) in each of 11 DMAs, including the three largest DMAs (New York, Los Angeles and Chicago). In two of the duopoly markets, FOX Television Stations is internally channel sharing whereby both of its stations in the market operate using a single 6 MHz channel. Of the 29 full power broadcast television stations, 18 stations are affiliated with the FOX Network. These stations leverage viewer, distributor and advertiser demand for the FOX Network's national content. In addition, the FOX Network's strategy to deliver fewer hours of national content than other major broadcasters benefits stations affiliated with the FOX Network, which can utilize the flexibility in scheduling to offer expanded local news and other programming that viewers covet. Our 29 stations collectively produce approximately 1,200 hours of local news coverage every week. For a description of the programming offered to affiliates of the FOX Network, see \"\u2014The FOX Network.\" In addition, FOX Television Stations owns and operates 10 stations broadcasting programming from MyNetworkTV.\n \nFOX Television Stations also operates a portfolio of digital businesses. These include the FLX (or FOX Local Extension) digital advertising platform and digital distribution businesses, including the LiveNOW from FOX, FOX Locals and FOX Soul FAST services described below under the heading \"Digital Distribution.\"\n7\nThe following table lists certain information about each of the television stations owned and operated by FOX Television Stations. Unless otherwise noted, all stations are affiliates of the FOX Network.\nFOX Television Stations\nDMA/Rank\nStation\nDigital\nChannel RF\n(Virtual)\nType\nPercentage of U.S.\nTelevision Households\nin the DMA \n(a)\nNew York, NY\n1\nWNYW\n27(5)\nUHF\n6.2%\nWWOR-TV\n(b)(c)\n25(9)\nUHF\nLos Angeles, CA*\n2\nKTTV\n11(11)\nVHF\n4.7%\nKCOP-TV\n(b)\n13(13)\nVHF\nChicago, IL\n3\nWFLD\n24(32)\nUHF\n2.9%\nWPWR-TV\n(b)(d)\n31(50)\nUHF\nPhiladelphia, PA\n4\nWTXF-TV\n31(29)\nUHF\n2.5%\nDallas, TX*\n5\nKDFW\n35(4)\nUHF\n2.5%\nKDFI\n(b)\n27(27)\nUHF\nAtlanta, GA*\n6\nWAGA-TV\n27(5)\nUHF\n2.2%\nHouston, TX*\n7\nKRIV\n26(26)\nUHF\n2.2%\nKTXH\n(b)\n19(20)\nUHF\nWashington, DC*\n8\nWTTG\n36(5)\nUHF\n2.1%\nWDCA\n(b)(e)\n36(20)\nUHF\nSan Francisco, CA*\n10\nKTVU\n31(2)\nUHF\n2.1%\nKICU-TV\n(f)\n36(36)\nUHF\nPhoenix, AZ*\n11\nKSAZ-TV\n10(10)\nVHF\n1.7%\nKUTP\n(b)\n26(45)\nUHF\nSeattle-Tacoma, WA*\n12\nKCPQ\n13(13)\nVHF\n1.7%\nKZJO\n(b)\n36(22)\nUHF\nTampa, FL*\n13\nWTVT\n12(13)\nVHF\n1.7%\nDetroit, MI*\n14\nWJBK\n7(2)\nVHF\n1.6%\nMinneapolis, MN\n(g)\n15\nKMSP-TV\n9(9)\nVHF\n1.5%\nWFTC\n(b)\n29(29)\nUHF\nOrlando, FL*\n17\nWOFL\n22(35)\nUHF\n1.4%\nWRBW\n(b)\n28(65)\nUHF\nAustin, TX*\n35\nKTBC\n7(7)\nVHF\n0.8%\nMilwaukee, WI\n38\nWITI\n(h)\n31(6)\nUHF\n0.7%\nGainesville, FL\n159\nWOGX\n31(51)\nUHF\n0.1%\nTOTAL\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n38.6%\nSource: Nielsen, January 2023\n*\nDenotes a market where stations are also broadcasting in the ATSC 3.0 \"NextGenTV\" standard in partnership with broadcasters in the applicable DMA through channel sharing arrangements or, in the case of KCOP-TV, KTXH and WRBW, each of those stations has made the conversion to and is broadcasting in the ATSC 3.0 standard. By the Fall of 2023, each of KMSP-TV and WTXF-TV is expected to add an ATSC 3.0 stream.\n8\n(a)\nVHF television stations transmit on Channels 2 through 13 and UHF television stations on Channels 14 through 36. The Federal Communications Commission (the \"FCC\") applies a discount (the \u201cUHF Discount\"), which attributes only 50% of the television households in a local television market to the audience reach of a UHF television station for purposes of calculating whether that station\u2019s owner complies with the national station ownership cap imposed by FCC regulations and by statute; in making this calculation, only the station\u2019s RF Broadcast Channel is considered. In a duopoly market, both stations must be UHF for the discount to apply. In addition, the coverage of two commonly owned stations in the same market is counted only once. The percentages listed are rounded and do not take into account the UHF Discount. For more information regarding the FCC\u2019s national station ownership cap, see \u201cGovernment Regulation.\u201d\n(b)\nMyNetworkTV licensee station.\n(c)\nWWOR-TV hosts television station WRNN, New Rochelle, NY, licensed to WRNN License Company, LLC, an unrelated third party pursuant to a channel sharing agreement between FOX Television Stations and shared WRNN License Company, LLC. A portion of the spectrum formerly licensed to WWOR-TV is now shared with and licensed to WRNN.\n(d)\nWPWR-TV channel shares with WFLD.\n(e)\nWDCA channel shares with WTTG.\n(f)\nIndependent station.\n(g)\nThe Company also owns and operates full power station KFTC, Channel 26, Bemidji, MN as a satellite station of WFTC, Channel 29, Minneapolis, MN. Station KFTC is in addition to the 29 full power stations described in this section. \n(h)\nWITI hosts television station WVCY, Milwaukee, WI, licensed to VCY America, Inc., an unrelated third party pursuant to a channel sharing agreement between WITI Television, LLC, the predecessor in interest of FOX Television Stations, and VCY America, Inc. A portion of the spectrum family licensed to WITI is now shared with and licensed to WVCY.\nThe FOX Network\nThe FOX Network is a premier national television broadcast network, renowned for disrupting legacy broadcasters with powerful sports programming and appealing primetime entertainment. The FOX Network regularly delivers approximately 16 hours of weekly primetime programming to 209 local market affiliates, including 18 stations owned and operated by the Company, covering approximately 99.9% of all U.S. television households, according to Nielsen. The FOX Network primetime lineup is intended to appeal primarily to the 18 to 49 year old audience, the demographic group that advertisers seek to reach most often, with particular success in the 18 to 34 year old audience. The FOX Network has ranked among the top two networks in the 18 to 34 year old audience for the past 28 broadcast seasons. During the 2022-2023 broadcast season, the FOX Network ranked #1 in the 18 to 49 year old audience and #1 across key advertiser demographic groups, including the 18 to 34 year old audience (based on Nielsen\u2019s live+7 ratings). The FOX Network programming ranked #1 among all broadcast network primetime programming for the 2022-2023 broadcast season in the 18 to 49 year old audience (based on Nielsen\u2019s commercial+7 ratings). The median age of the FOX Network viewer is 60 years, as compared to 63 years for ABC Television Network (\u201cABC\u201d), 64 years for NBC and 66 years for CBS.\n\u2022\nFOX Sports.\n A significant component of FOX Network programming consists of sports programming, with the FOX Network providing to its affiliates during the 2022-2023 broadcast season live coverage of the NFL, including the premier NFC rights package and\n America's Game of the Week\n (the #1 show on television). The FOX Network also provides live coverage of MLB (including the post-season and the \nWorld Series\n), college football and basketball, the NASCAR Cup Series (including the \nDaytona 500\n), MLS, the USFL and weekly episodes of \nWWE Friday Night SmackDown\n. In certain years, FOX Sports broadcasts the \nSuper Bowl\n, the FIFA \nWorld Cup\n and the UEFA European Championship. FOX Sports entered into an expanded 11-year media rights agreement with the NFL in fiscal 2021 that extended FOX Sports' coverage of NFC games, created new and exclusive holiday games on the FOX Network, and expanded FOX's digital rights to enable future direct-to-consumer opportunities as well as NFL-related programming on Tubi. \n\u2022\nFOX Entertainment.\n FOX Entertainment delivers high-quality scripted, unscripted, animated and live event content. \nFOX Entertainment primetime programming during the 2022-2023 broadcast season \n9\nfeatured such scripted series as \n9-1-1\n, \n9-1-1: Lone Star\n,\n Accused\n,\n The Cleaning Lady\n, \nAlert: Missing Persons Unit\n, and the FOX Entertainment-owned comedy \nAnimal Control; \nanimated series, including\n The Simpsons\n,\n Bob's Burgers\n,\n Family Guy \nand\n The Great North\n; and unscripted series, such as \nNext Level Chef\n and \nGordon Ramsay\u2019s Food Stars\n from Studio Ramsay Global (FOX's co-owned \nproduction company with Gordon Ramsay)\n, The Masked Singer, I Can See Your Voice, LEGO Masters, Special Forces: World's Toughest Test\n, \nFarmer Wants a Wife\n and investigative report specials from FOX-owned TMZ. \nDuring the 2022-2023 broadcast season, FOX Entertainment featured the #1 entertainment telecast with \nNext Level Chef\n following \nSuper Bowl LVII\n, the #1 broadcast drama \n9-1-1\n,\n \nthe #1 new unscripted series \nSpecial Forces: World\u2019s Toughest Test\n, the #1 new scripted drama in 2023 \nAccused\n, and three of the top 10 comedies on broadcast television with \nThe Simpsons\n, \nFamily Guy\n and \nBob\u2019s Burgers\n.\nThe FOX Network obtains national sports programming through license agreements with professional or collegiate sports leagues or organizations, including long-term agreements with the NFL, MLB, college football and basketball conferences, NASCAR, FIFA, UEFA, Concacaf, CONMEBOL and WWE. Entertainment programming is obtained from major television studios, including 20\nth\n Television (formerly known as Twentieth Century Fox Television and which is owned by Disney), Sony Pictures Television and Warner Bros. Television, and independent television production companies pursuant to license agreements. The terms of these agreements generally provide the FOX Network with the right to acquire broadcast rights to a television series for a minimum of four seasons. Entertainment programming is also provided by the Company's in-house production companies. \nThe FOX Network provides programming to affiliates in accordance with affiliation agreements of varying durations, which grant to each affiliate the right to broadcast network television programming on the affiliated station. Such agreements typically run three or more years and have staggered expiration dates. These affiliation agreements require affiliates to the FOX Network to carry the FOX Network programming in all time periods in which the FOX Network programming is offered to those affiliates, subject to certain exceptions stated in the affiliation agreements.\nTubi\nTubi is a leading AVOD service that is available on multiple digital platforms in the United States and select international regions. The business is part of the Tubi Media Group division formed in fiscal 2023 to house the Company's digital platform services. Tubi offers a content library of over 60,000 titles from over 400 content partners, including every major Hollywood studio, and a growing number of new original titles. Tubi also features key FOX content, such as \nThe Masked Singer\n, \nNext Level Chef \nand \nDivorce Court\n, as well as sports programming and live local and national news content. In addition to its on-demand library, Tubi offers nearly 250 sports, entertainment and local news linear streaming channels. These include channels featuring FOX Entertainment's \nThe Masked Singer\n, TMZ and Studio Ramsay Global\u2019s Gordon Ramsay and feeds from over 100 local television stations (including FOX's owned and operated stations), covering 75 DMAs and 22 of the top 25 markets. As of June 2023, Tubi is available on 33 digital platforms, including connected television devices, and online at www.tubitv.com. In fiscal 2023, the service generated approximately 6.8 billion hours of total view time (the total number of hours watched).\nTubi enables the Company's advertising partners to access a substantial, incremental digital audience. As of May 2023, the median age of Tubi\u2019s audience is approximately 10 years younger than the median age of broadcast television viewers. Tubi\u2019s viewers are diverse and multicultural with a majority of its audience not subscribing to traditional or virtual MVPD services. \nEntertainment Programming Production\nThe Company also produces entertainment programming for its own traditional and digital entertainment platforms and for third parties. FOX\u2019s entertainment production companies include two companies acquired in fiscal 2022: MarVista Entertainment, a global entertainment studio that produces and distributes movies and other content for Tubi and third party networks and digital platforms, and TMZ, which produces daily syndicated magazine programs, broadcast and other television specials and other content for distribution on traditional and digital platforms, including FOX Television Stations, Tubi, FOX Nation and other digital properties. The Company has also formed a co-owned production company with Gordon Ramsay called Studio Ramsay Global \n10\nthat develops, produces and distributes culinary and lifestyle programming such as \nGordon Ramsay\u2019s Food Stars\n and \nNext Level Chef\n for FOX, \nKitchen Commando\n for Tubi and other programs for global markets. Fox Alternative Entertainment is a full-service production studio that develops and produces unscripted and alternative programming primarily for the FOX Network, including \nThe Masked Singer, I Can See Your Voice \nand\n Name That Tune\n.\n \nBento Box Entertainment, an animation production company, produces programming for cable and broadcast networks (including programming such as \nKrapopolis\n, \nBob's Burgers\n and \nThe Great North\n for the FOX Network\n)\n and digital platforms.\nDigital Distribution\nThe Company's Television segment also distributes programming through FOX-branded websites, apps, podcasts and social media accounts and licenses programming for distribution through MVPDs' websites and apps. The Company's websites and apps include FOX.com, FOXSports.com, TMZ.com, the FOX Sports app and the TMZ app and provide live and/or on-demand streaming of FOX Network shows and programming from broadcast stations affiliated with the FOX Network. Other digital properties offering Television segment programming and other content include Tubi and the TMZ FAST service. FOX Television Stations distributes content across websites and mobile apps associated with the stations, Tubi, a range of third-party platforms, and FOX Television Station\u2019s FAST services. These services include LiveNOW from FOX, which offers live news coverage; FOX Soul, a service dedicated to the African American viewer that features original and syndicated programming; and FOX Locals, a group of FAST services that offer live and recorded content from over 15 FOX-owned and operated local television stations. The Company's FAST services are distributed across multiple devices and platforms, including traditional and virtual MVPDs, Tubi, connected TV device platforms and other digital platforms. \nMyNetworkTV\nThe programming distribution service, Master Distribution Service, Inc. (branded as MyNetworkTV), distributes two hours per night, Monday through Friday, of off-network programming from syndicators to its over 180 licensee stations, including 10 stations owned and operated by the Company, and is available to approximately 94.9% of U.S. households as of June 30, 2023.\nCompetition\nThe network television broadcasting business is highly competitive. The FOX Network (with respect to both its sports and entertainment programming), MyNetworkTV and Tubi compete for audiences, programming and advertising revenue with a variety of competing media, including other broadcast television networks; cable television systems and networks; direct-to-consumer streaming and on-demand platforms and services; mobile, gaming and social media platforms; audio programming; and print and other media. In addition, the FOX Network and MyNetworkTV compete with other broadcast networks and programming distribution services to secure affiliations or station agreements with independently owned television stations in markets across the U.S. ABC, NBC and CBS each broadcast a significantly greater number of hours of programming than the FOX Network and, accordingly, may be able to designate or change time periods in which programming is to be broadcast with greater flexibility than the FOX Network. Technological developments are also continuing to affect competition within the broadcast television marketplace. Our entertainment programming production businesses compete with other content creators for creative talent, new content ideas, intellectual property and the distribution of their content.\nEach of the stations owned and operated by FOX Television Stations also competes for advertising revenues with other television stations, radio and cable systems in its respective market area, along with other advertising media, including direct-to-consumer streaming and on-demand platforms and services; mobile, gaming and social media platforms; newspapers, magazines, outdoor advertising and direct mail. All of the stations owned and operated by FOX Television Stations are located in highly competitive markets. Additional factors that affect the competitive position of each of the television stations include management experience, authorized power and assigned frequency of that station. Competition for sales of broadcast advertising time is based primarily on the anticipated and actually delivered size and demographic characteristics of audiences as determined by various rating services, price, the time of day when the advertising is to be broadcast, competition from the other broadcast networks, cable television systems, direct broadcast satellite television, services and digital media and general economic conditions. Competition for audiences is based primarily on \n11\nthe selection of programming, the acceptance of which is dependent on the reaction of the viewing public, which is often difficult to predict.\nOther, Corporate and Eliminations\nThe Other, Corporate and Eliminations segment consists primarily of the FOX Studio Lot, Credible, corporate overhead costs and intracompany eliminations.\nFOX Studio Lot\nFOX owns the FOX Studio Lot in Los Angeles, California. The historic lot is located on over 50 acres of land and has over 1.85 million square feet of space for both administration and production and post-production services available to service a wide array of industry clients, including 15 sound stages, two broadcast studios, theaters and screening rooms, editing rooms and other television and film production facilities. The FOX Studio Lot provides two primary revenue streams \u2014 the lease of a portion of the office space to Disney and other third parties and the operation of studio facilities for third party productions, which until 2026 will predominantly be Disney productions.\nCredible\nThe Company holds 66% of the equity in Credible, which operates consumer finance and insurance marketplaces in the U.S. Credible\u2019s offerings provide consumers personalized product and rate options for a range of financial products, including student loans, personal loans, mortgages and insurance policies from multiple consumer lending and insurance providers. Credible is part of the Tubi Media Group division.\nInvestments\nFlutter\nThe Company holds an equity interest in Flutter, an online sports betting and gaming company with operations in the U.S. and internationally. The Company owns approximately 4.3 million ordinary shares, which represents approximately 2.5% of Flutter as of June 30, 2023. In addition, subject to certain conditions and applicable gaming regulatory approvals, FOX Sports holds a 10-year call option expiring in December 2030 to acquire an 18.6% equity interest in Flutter's majority-owned subsidiary, FanDuel Group (\"FanDuel\"). The FanDuel option was the subject of arbitration proceedings, which concluded during fiscal 2023 and determined the price payable of $3.7 billion plus an annual escalator of 5%. As of June 30, 2023, the option price is approximately $4 billion. FOX has no obligation to commit capital towards this opportunity unless and until it exercises the option. In addition, Flutter cannot pursue an initial public offering for FanDuel without FOX's consent or approval from the arbitrator.\nGovernment Regulation\nThe Communications Act and FCC Regulation\nThe television broadcast industry in the U.S. is highly regulated by federal laws and regulations issued and administered by various agencies, including the FCC. The FCC regulates television broadcasting, and certain aspects of the operations of cable, satellite and other electronic media that compete with broadcasting, pursuant to the Communications Act of 1934, as amended (the \u201cCommunications Act\u201d). The introduction of new laws and regulations or changes in the enforcement or interpretation of existing laws and regulations could have a negative impact on the operations, prospects and financial performance of the Company.\nBroadcast Licenses.\n The Communications Act permits the operation of television broadcast stations only in accordance with a license issued by the FCC upon a finding that the grant of the license would serve the public interest, convenience and necessity. The Company, through its subsidiaries, holds broadcast licenses in connection with its ownership and operation of television stations. Under the Communications Act, television broadcast licenses may be granted for a maximum term of eight years. Generally, the FCC renews broadcast licenses upon finding that the television station has served the public interest, convenience and necessity; there have been no serious violations by the licensee of the Communications Act or FCC rules and regulations; and there have been no other violations by the licensee of the Communications Act or FCC rules and regulations \n12\nwhich, taken together, indicate a pattern of abuse. The current renewal cycle for FOX Television Stations' FCC applications for its full power broadcast licenses began in 2020 and all license renewal applications for the current cycle have been filed. One of the pending applications has been opposed by a third party.\nOwnership Regulations.\n Under the FCC\u2019s national television ownership rule, one party may own television stations with a collective national audience reach of not more than 39% of all U.S. television households, subject to the UHF discount. Under the UHF discount, a UHF television station is attributed with reaching only 50% of the television households in its market for purposes of calculating national audience reach. In December 2017, the FCC issued a Notice of Proposed Rulemaking pursuant to which it will consider modifying, retaining or eliminating the 39% national television audience reach limitation (including the UHF discount). If the FCC determines in the future to eliminate the UHF discount and the national television audience reach limitation is not eliminated or modified, the Company\u2019s ability to acquire television stations in additional markets may be negatively affected.\nThe Company is also subject to other communications laws and regulations relating to ownership. For example, FCC dual network rules prohibit any of the four major broadcast television networks \u2014 FOX, ABC, CBS, and NBC \u2014 from being under common ownership or control. In addition, under the Communications Act, no broadcast station licensees may be owned by a corporation if more than 25% of the corporation\u2019s stock is owned or voted by non-U.S. persons, their representatives, or by any other corporation organized under the laws of a foreign country. This ownership limit can be waived if the FCC finds it to be in the public interest. The FCC could review the Company\u2019s compliance with the foreign ownership regulations in connection with its consideration of FOX Television Stations\u2019 license renewal applications. The Company\u2019s amended and restated certificate of incorporation authorizes the Company\u2019s Board of Directors to take action to prevent, cure or mitigate the effect of stock ownership above the applicable foreign ownership threshold, including: refusing to permit any transfer of common stock to or ownership of common stock by a non-U.S. stockholder; voiding a transfer of common stock to a non-U.S. stockholder; suspending rights of stock ownership if held by a non-U.S. stockholder; or redeeming common stock held by a non-U.S. stockholder.\nCarriage and Content Regulations.\n FCC regulations require each television broadcaster to elect, at three-year intervals, either to require carriage of its signal by traditional MVPDs in the station\u2019s market or to negotiate the terms through which that broadcast station would permit transmission of its signal by the traditional MVPDs within its market, which we refer to as retransmission consent. FOX Television Stations have historically elected retransmission consent for all of their owned and operated stations, and the Company has been compensated as a result.\nFederal legislation limits the amount of commercial matter that may be broadcast during programming originally designed for children 12 years of age and younger to 10 \u00bd minutes per hour during the weekend and 12 minutes per hour during the week. In addition, FCC regulations generally require television stations to broadcast a minimum of three hours per week of programming, which, among other requirements, must serve, as a \"significant purpose,\" the educational and informational needs of children 16 years of age and under. Under FCC rules, one of the three hours per week may air on a television's station's multicast stream(s); the other two hours must air on the primary programming stream. A television station found not to have complied with the programming requirements or commercial limitations could face sanctions, including monetary fines and the possible non-renewal of its license.\nThe FCC continues to strictly enforce its regulations concerning indecency, sponsorship identification, political advertising, children's television, environmental concerns, emergency alerting and information, equal employment opportunity, technical operating matters and antenna tower maintenance. Federal law authorizes the FCC to impose fines of up to $479,945 per incident for violation of the prohibition against indecent and profane broadcasts, and the FCC may also impose fines or revoke licenses for serious or multiple violations of the indecency prohibition and/or its other regulations. Modifications to the Company\u2019s programming to reduce the risk of indecency violations could have an adverse effect on the competitive position of FOX Television Stations and the FOX Network. If indecency regulation is extended to Internet or cable and satellite programming, and such extension was found to be constitutional, some of the Company\u2019s other programming services could be subject to additional regulation that might adversely affect subscription and viewership levels. Because FCC complaints are confidential, there may be pending nonpublic complaints alleging non-compliance and it is not possible to predict the outcome of any such complaints.\n13\nIn addition, the Federal Trade Commission, or FTC, has increased its focus on unfair and deceptive advertising practices, particularly with respect to social media marketing. Both FCC and FTC rules and guidance require marketers to clearly and conspicuously disclose whenever there has been payment for a marketing message or when there is a material connection between an advertiser and a product endorser.\nFCC rules also require the closed captioning of almost all broadcast and cable programming. In addition, Federal law requires affiliates of the four largest broadcast networks in the 80 largest markets to carry a specified minimum number of hours of primetime or children\u2019s programming per calendar quarter with audio descriptions, i.e., a verbal description of key visual elements inserted into natural pauses in the audio and broadcast over a separate audio channel. The same statute requires programming that was captioned on television to retain captions when distributed via Internet Protocol apps or services.\nIn addition, FCC regulations govern various aspects of the agreements between networks and affiliated broadcast stations, including a mandate that television broadcast station licensees retain the right to reject or refuse network programming in certain circumstances or to substitute programming that the licensee reasonably believes to be of greater local or national importance.\nViolation of FCC regulations can result in substantial monetary forfeitures, periodic reporting conditions, short-term license renewals and, in egregious cases, denial of license renewal or revocation of license. Violation of FTC-imposed obligations can result in enforcement actions, litigation, consent decrees and, ultimately, substantial monetary fines.\nBroadcast Transmission Standard.\n In November 2017, the FCC adopted rules to permit television broadcasters to voluntarily broadcast using the \"Next Generation\" broadcast television transmission standard developed by the Advanced Television Systems Committee, Inc., also referred to as \"ATSC 3.0\" or \"NEXTGEN TV\". FOX Television Stations is actively building out ATSC 3.0 facilities and is participating in various ATSC 3.0 testing with other broadcasters, but it is too early to predict the impact of this technical standard on the Company's operations. In June 2020, the FCC adopted a Declaratory Ruling and Notice of Proposed Rulemaking declaring that local and national ownership restrictions do not apply to non-video services. In June 2022, the FCC issued a Third Notice of Proposed Rulemaking that raises a number of questions that could impact the adoption and roll-out of both video and non-video ATSC 3.0 services, as well as the broadcast requirements for the ATSC 1.0 standard.\nPrivacy and Information Regulation\nThe laws and regulations governing the collection, use, retention, and transfer of consumer information are complex and rapidly evolving, particularly as they relate to the Company's digital businesses. Federal and state laws and regulations affecting the Company's online services, websites, and other business activities include: the Children's Online Privacy Protection Act, which prohibits websites and online services from collecting personally identifiable information online from children under age 13 without prior parental consent; the Video Privacy Protection Act, which prohibits the knowing disclosure of information that identifies a person as having requested or obtained specific video materials from a \"video tape service provider;\" the Telephone Consumer Protection Act, which restricts certain marketing communications, such as text messages and calls, without explicit consent; the Gramm-Leach-Bliley Act, which regulates the collection, handling, disclosure, and use of certain personal information by companies that offer consumers financial products or services, imposes notice obligations, and provides certain individual rights regarding the use and disclosure of certain information; and the California Consumer Privacy Act (the \"CCPA\") (as amended by the California Consumer Privacy Rights Act (\"CPRA\")), which imposes broad obligations on the collection, use, handling and disclosure of personal information of California residents. For example, subject to certain exceptions, the CCPA provides individual rights for Californians, such as the right to access, delete, correct, and restrict the \"sale\" or \"sharing\" of personal information, including in connection with targeted advertising. Virginia, Colorado, Connecticut, and Utah have similar privacy laws that have or will become effective in 2023.\n \nA number of privacy and data security bills that address the collection, retention and use of personal information, breach notification requirements and cybersecurity that would impose additional obligations on businesses, including in connection with targeted advertising, are pending or have been adopted at the state and federal level.\n \nFor example, the CPRA, which generally became effective on January 1, 2023, creates a new \n14\nstate privacy protection agency, expands individual rights, and introduces new requirements for businesses, among other things. Several of these matters are subject to additional rulemaking. Other states have passed or introduced similar privacy legislation, including Virginia, Colorado, Utah, Connecticut, Iowa, Indiana, and Tennessee. In addition, the FTC and state attorneys general and other regulators have made privacy and data security an enforcement focus. The FTC also has initiated a rulemaking proceeding to explore rules concerning the collection, use, disclosure and security of personal information. Other federal and state laws and regulations that could impact our businesses also may be adopted, such as those relating to minors, tailored advertising and its measurement, and oversight of user-generated content.\nForeign jurisdictions also have implemented and continue to introduce new privacy and data security laws and regulations, which apply to certain of the Company\u2019s operations. It is possible that our current data protection policies and practices may be deemed inconsistent with new legal requirements or interpretations thereof and could result in the violation of these new laws and regulations. The EU General Data Protection Regulation, in particular, regulates the collection, use and security of personal data and restricts the trans-border flow of such data. Other countries, including the United Kingdom, Canada, Australia, China, and Mexico, also have enacted data protection legislation.\nThe Company monitors and considers these laws and regulations, particularly with respect to the design and operation of digital content services and legal and regulatory compliance programs. These laws and regulations and their interpretation are subject to change, and could result in increased compliance costs, claims, financial penalties for noncompliance, changes to business practices, including with respect to tailored advertising, or otherwise impact the Company\u2019s business. Violations of these laws and regulations could result in significant monetary fines and other penalties, private litigation, require us to expend significant resources to defend, remedy and/or address, and harm our reputation, even if we are not ultimately responsible for the violation.\nConsumer Finance Laws and Regulations\nCredible operates consumer finance and insurance marketplaces that market and provide services in heavily regulated industries across the United States. As a result, Credible is subject to a variety of federal and state laws and regulations. These include the laws and regulations governing the collection, use and transfer of consumer information described above and the following:\n\u2022\nthe Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, or \u201cRESPA,\u201d and similar state laws, and federal and state unfair and deceptive acts and practices, or \u201cUDAAP,\u201d laws and regulations, which place restrictions on the manner in which consumer loans and insurance products are marketed and originated and the amount and nature of fees that may be charged or paid to Credible by lenders, insurance carriers and real estate professionals for providing or obtaining consumer loan and insurance requests;\n\u2022\nthe Dodd-Frank Wall Street Reform and Consumer Protection Act, which, among other things, imposes requirements related to mortgage disclosures; and\n\u2022\nfederal and state licensing laws, such as the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, or \u201cSAFE Act,\u201d which establishes minimum standards for the licensing and regulation of mortgage loan originators, and state insurance licensing laws.\nIntellectual Property\nThe Company\u2019s intellectual property assets include copyrights in television programming and other publications, websites and technologies; trademarks, trade dress, service marks, logos, slogans, sound marks, design rights, symbols, characters, names, titles and trade names, domain names; patents or patent applications for inventions related to its products, business methods and/or services, trade secrets and know how; and licenses of intellectual property rights of various kinds. The Company derives value from these assets through the production, distribution and/or licensing of its television programming to domestic and international cable and satellite television services, video-on-demand services, operation of websites, and through the sale of products, such as collectible merchandise, apparel, books and publications, among others.\n15\nThe Company devotes significant resources to protecting its intellectual property, relying upon a combination of copyright, trademark, unfair competition, patent, trade secret and other laws and contract provisions. There can be no assurance of the degree to which these measures will be successful in any given case. Policing unauthorized use of the Company\u2019s products and services and related intellectual property is often difficult and the steps taken may not in every case prevent the infringement by unauthorized third parties of the Company\u2019s intellectual property. The Company seeks to limit that threat through a combination of approaches, including offering legitimate market alternatives, deploying digital rights management technologies, pursuing legal sanctions for infringement, promoting appropriate legislative initiatives and international treaties and enhancing public awareness of the meaning and value of intellectual property and intellectual property laws. Piracy, including in the digital environment, continues to present a threat to revenues from products and services based on intellectual property.\nThird parties may challenge the validity or scope of the Company\u2019s intellectual property from time to time, and such challenges could result in the limitation or loss of intellectual property rights. Even if not valid, such claims may result in substantial costs and diversion of resources that could have an adverse effect on the Company\u2019s operations.\nHuman Capital Resources\nOur workforce is the creative, strategic and operational engine of FOX's success, and we are committed to developing and supporting our employees. We aim to develop our human capital by recruiting a talented and diverse workforce, offering competitive compensation and benefits, fostering a healthy work-life balance, providing growth and development opportunities, protecting health and safety, fostering workplace civility and inclusion and encouraging our employees to have an impact in their communities. \nAs of June 30, 2023, we had approximately 10,400 full-time employees. In the ordinary course of our business and consistent with industry practice, we also employ freelance and temporary workers who provide important production and broadcast support services. The vast majority of our workforce is based in the United States, and a portion is unionized. We have posted on our corporate website our Employment Information Report (EEO-1), showing the race, ethnicity and gender of our U.S. \nemployees at https://www.foxcorporation.com/eeo-1-data.\nFOX\u2019s Corporate Social Responsibility Report, also posted on our website at \nwww.foxcorporation.com\n, provides a detailed review of our human capital programs and achievements. Our key human capital initiatives include:\nRecruitment and Diversity\nWe are committed to diversity from the very top of the Company. Our Board of Directors requires that minority and female candidates are presented for consideration with each Director vacancy. We believe that the more voices in the room and the more diverse the experiences of our colleagues, the better FOX\u2019s internal culture and external programming are. Our diversity enables us to be more reflective of the audiences we reach and enhances our ability to create news, sports, and entertainment programming that serves all viewers across the country.\nFOX lists job openings internally and externally because we believe this is one of the best tools to reach the widest and most diverse pool of candidates. We include the salary range in job postings to promote pay transparency and further pay equity. We also collaborate with professional organizations that offer FOX access to talent at recruiting events and conventions. These organizations include:\n\u2022\nAsian American Journalists Association (AAJA)\n\u2022\nNational Association of Black Journalists (NABJ)\n\u2022\nNational Association of Hispanic Journalists (NAHJ)\n\u2022\nNative American Journalists Association (NAJA)\n\u2022\nNLGJA: The Association of LGBTQ+ Journalists\n\u2022\nRadio Television Digital News Association (RTDNA)\n16\nWe also offer paid internships to build a diverse pipeline of early-career talent and emerging leaders. The FOX Internship Program offers students an exciting opportunity to gain practical experience, participating in real-world projects and seminars on the media industry, technology and professional development. This internship program, which runs for 8-10 weeks three times per year, welcomed over 475 students in calendar year 2022. We are proud that our internship program was listed on Vault's 2022 and 2023 \"100 Best Internships,\" and it was the 2023 Winner of the Interns 2 Pros Internship Program of the Year (for excellence in its 2022 program). We also partner with the Emma Bowen Foundation, the T. Howard Foundation, the International Television and Radio Society, Sports Biz Careers, NAB Emerson Coleman Fellowship, Pathway at UCLA Extension and the Entertainment Industry College Outreach Program to provide media internships for promising students.\nIn addition, FOX has developed and implemented a number of internal early career training programs designed to provide outstanding individuals with workforce skills and professional development opportunities. These programs build the pipeline of our next generation of leaders, many of whom are from underrepresented backgrounds. Examples include:\n\u2022\nFOX Ad Sales Training: Initiated in 2021, this rotational program aims to attract, develop, and retain early career talent. Through exposure to various functions within Ad Sales, the program develops professional skills of promising individuals recruited from outside FOX.\n\u2022\nFOX Alternative Entertainment (\u201cFAE\u201d) FASTRACK: This highly selective accelerated producers\u2019 initiative is designed to nurture producers with diverse backgrounds and life experiences, and create a pipeline for new, behind-the-camera talent on FAE series. Launched in 2020, the program places candidates as associate producers on production teams across various FAE-produced shows to provide valuable exposure to many facets of production.\n\u2022\nFOX News Media Digital Rotational Program: Launched in 2021, this program strives to identify high potential talent from diverse backgrounds with a passion for the FOX News Media brand. The goal is to find staff placement for the individuals who complete the one-year rotational program across three key departments for four months each and have proven themselves to be integral members of the FOX News Media Digital team.\n\u2022\nFOX News Multimedia Reporters Training Program: This program places talent from diverse backgrounds in multimedia reporter roles across the country, where they shoot, report, edit and produce their own high-end content across FOX News platforms. Through daily guidance and feedback from management, we challenge and enable the talent to continually hone their journalistic skills.\n\u2022\nFOX Sports Professional Development Program: This program prepares production team leaders with skills for the unique sports production environment, such as communication and influence in the control room under short deadlines.\n\u2022\nFOX Television Stations Sales Training Program: This program was created to develop and mentor the next generation of diverse and motivated sales professionals for FOX Television Stations. Trainees participate in both intensive classroom study of all aspects of the television station advertising sales business and shadowing of FOX Television Stations sales account executives.\n\u2022\nFOX Writers Incubator Initiative: This FOX Entertainment program, which welcomed its first class in March 2022, nurtures and trains talented writers with diverse voices, backgrounds and life experiences. Writers work intensively on their scripts with the support of established writers, executives, directors and producers across all genres (comedy, drama, animation, etc.).\nEmployee Compensation and Benefits\nWe are proud to invest in our people through competitive pay and comprehensive benefits designed to attract, motivate and retain our talent. Providing equal pay for equal work, without regard to race, gender or other protected characteristics, is an imperative at FOX. We link our more senior employees' pay to corporate performance through discretionary annual incentive compensation awards. Other employees may be eligible for equity awards or other long-term incentives depending on their business unit and level/role.\nFOX also provides generous benefits that support the health, wellness and financial stability of our employees and their families. Full-time employees are eligible for medical insurance through a choice of several \n17\nplans, in which employees also may enroll family members, including domestic partners and their children. Many employees benefit from the convenience of covered telemedicine visits as well as virtual primary care services. In addition, we provide vision and dental insurance, which includes coverage for adult orthodontic care. Our coverage is generous, with employee contributions and costs more favorable than national averages according to a 2022 Mercer LLC survey. Eligible employees may participate in flexible spending accounts, health savings accounts, and qualified transportation expense accounts. We also provide employees with a health advocate service, with experts who support employees and their eligible family members in navigating a wide range of health and insurance-related issues.\nFull-time employees are eligible to receive paid company holidays, floating holidays, vacation, sick and safe time, life insurance, accidental death and dismemberment insurance, business travel accident insurance, full salary replacement for up to 26 weeks of short-term disability, basic long-term disability insurance, charitable gift matching, cybersecurity and malware protection for personal devices and an employee assistance program that offers onsite counseling in our New York and Los Angeles worksites, as well as smoking cessation and weight management programs. The FOX 401(k) Savings Plan provides employees with a company contribution, and it offers a company match, Roth and post-tax contribution options and catch-up contributions. Freelance employees who work a minimum number of hours are also eligible for a medical, dental, and vision plan, as well as our FOX 401(k) Savings Plan and the health advocate service. Finally, FOX also offers employees group discounts in various voluntary benefits such as critical illness insurance, group universal life insurance, auto and home insurance, access to legal services, pet insurance, supplemental long-term disability insurance and student loan refinancing.\nWork-Life Balance and Workplace Flexibility\nWe believe offering our employees the tools necessary for a healthy work-life balance empowers them to thrive in our modern workforce. To that end, FOX allows eligible individuals the opportunity to work on a partially remote (i.e., \u201chybrid\u201d) or fully remote basis in appropriate circumstances. We support these working arrangements by deploying online collaboration tools, offering e-learning courses on effective remote work, providing reasonable office supplies and reimbursing business expenses. The Company also reimburses employees who work on a fully remote basis with a monthly stipend for business expenses (including mobile or other devices, Internet and electricity). Where appropriate, we provide technology and mobile communication devices, tailored to employee duties.\nOur parental leave policy allows eligible new parents to bond with their children for a substantial period with full pay, and our workplaces have lactation rooms for our new mothers. We provide onsite subsidized childcare to full-time employees at the Los Angeles FOX Child Care Center. In addition, we offer up to 40 days of backup child, adult, elder and return-to-work care. Starting in 2022, we added backup pet care and online academic help with homework and tutors for all ages. In addition, we have onsite fitness centers in our New York and Los Angeles worksites.\nLearning and Development\nFOX offers employees multiple learning and development programs, including tuition reimbursement, management and leadership development, online and on-demand e-learning, live webinars and assessment tools. Our annual MentorMatch program provides junior employees with the tools and resources to grow their careers through relationship-building and networking. We also identify key individuals for ongoing talent management, retention and succession planning. Within FOX News Media and FOX Television Stations, we deliver specialized training on the First Amendment, defamation, privacy, infringement and other newsgathering and reporting topics to educate employees on these principles and provide advice on best practices.\nHealth and Safety\nFOX is committed to protecting the health, safety and working environment of our employees, clients and neighbors. Our Environment, Health and Safety Program manages risks by implementing proactive, practical and feasible controls into daily work activities, as appropriate. Employees receive health and safety training orientations and have access to several workplace safety programs and resources. The program works to \n18\ncontinuously improve performance through preventive measures, as well as efforts to correct hazards or dangerous conditions and minimize the environmental impact of our activities. \nMoreover, FOX has a Global Security team that oversees the Company\u2019s security and emergency response efforts as well as emergency planning and preparedness. The team proactively monitors, reports and responds to potential and actual threats to people, physical assets, property, as well as productions and events, using a number of tools, including advanced technology, active training programs and risk assessment and management processes.\nWorkplace Civility and Inclusion\nTrust begins in the workplace every single day. We are committed to fostering a working environment of trust for our colleagues, in which people do their best work. Harassment, discrimination, retaliation and threats to health and safety all undermine our working environment of trust and make it harder for people to excel. Therefore, it is our policy to provide a safe work environment free from this or any other unlawful conduct.\nCreating and maintaining an environment free of discrimination and harassment begins at the highest leadership level of the Company and we have focused on embedding this commitment throughout our policies and practices. The FOX Standards of Business Conduct and the Preventing Harassment, Discrimination and Retaliation Policy, which are posted on our website, create our framework for addressing complaints and taking remedial measures as needed. These policies offer multiple complaint channels, including a third-party managed hotline that allows for anonymous reporting of concerns. In addition, all new hires must complete training on the Preventing Harassment, Discrimination and Retaliation Policy, as well as compliance and business ethics, and existing employees must complete the training periodically.\nFOX also has several employee-driven Employee Resource Groups (ERGs) formed around shared identity, interests or pursuits for the purpose of advancing careers, encouraging a more respectful workplace community and fostering a sense of belonging. They include:\n\u2022\nABLE \u2013 promotes an inclusive environment and culture for our colleagues with disabilities through advocacy and allyship\n\u2022\nACE (Asian Community Exchange) \u2013 serves Asian Americans at FOX by advancing our members, championing our stories and empowering our communities\n\u2022\nBLK+ \u2013 celebrates our Black colleagues and seeks to build community through programming and professional development while standing in solidarity with our allies\n\u2022\nHOLA (Hispanic Organization for Leadership and Advancement) \u2013 develops Hispanic leaders, enriches FOX\u2019s diverse culture and drives positive impact\n\u2022\nPRIDE \u2013 cultivates community among FOX\u2019s LGBTQ+ colleagues and allies, supports causes important to the LGBTQ+ community\n\u2022\nVETS \u2013 committed to the community of veterans, current service members, military supporters and military spouses employed at FOX by embracing our four core values \u2013 Community, Appreciation, Connection & Education\n\u2022\nWiT (Women in Tech) \u2013 attracts, advances and empowers women technologists and amplifies their impact at FOX\n\u2022\nWOMEN@FOX \u2013 creates the space for developing female leadership at all levels and fostering a culture where all women thrive\nMaintaining a work environment where employees can thrive, advance and feel included is one of our top priorities at FOX.\nAs a result of these and other efforts, many outside organizations have recognized FOX for our deep commitment to inclusion and diversity. For example:\n\u2022\nDiversityComm once again recognized FOX as a Top Employer and as a Top LGBTQ+ Friendly Company for 2023\n19\n\u2022\nFOX was appointed to the Military Friendly\u00ae Employer list again for 2023 and named a Military Friendly\u00ae Brand; FOX also was rated a 4-Star Employer by VETS Indexes\n\u2022\nFOX was named to Disability Equality Index's \"Best Places to Work for Disability Inclusion\" list for 2023, continuing year-over-year recognition as a top scoring employer\n\u2022\nBlack EOE Journal, HISPANIC Network Magazine, Professional WOMAN\u2019s Magazine and U.S. Veterans Magazine have all listed FOX as a 2023 top employer\nCommunity Impact\nFOX employees are deeply engaged in their communities. Nowhere is that more evident than through the commitment and involvement of our colleagues who volunteer their time, share their skills and contribute to worthy causes through our philanthropic program, FOX Forward. Through volunteer opportunities and service projects, FOX employees support community groups, veteran service organizations, local schools and families in need, and we encourage our colleagues to donate their time and resources to change-making organizations. Over the course of fiscal 2023, across all FOX businesses, our giving programs generated over $9 million in impact to multiple communities.\n \nDuring the fiscal year, FOX and its employees supported military veterans, first responders and their families by partnering with Purple Heart Homes, U.S.VETS to champion their Make Camo Your Cause campaign and in an effort to leave a positive imprint in the \nSuper Bowl LVII\n host city, we made a multi-year commitment to the Pat Tillman Veterans Center at Arizona State University to provide scholarship funding and mental health resources for student veterans. FOX continued to serve as an Annual Disaster Giving Program partner for the American Red Cross, while also making three additional donations of $1 million each to the Hurricane Ian and Southern and Midwest Tornadoes & Storms Relief Campaigns as well as ongoing humanitarian relief efforts in Ukraine. \nAs a part of our wider \"FOX For Students\" initiative, FOX became a Founding Partner of the Roybal Film and Television Production Magnet Fund. This investment provides historically underrepresented college- and career-ready students with the resources and experiences to pursue below-the-line careers in the film and television industry.\n \nFOX holiday giving programs raised over $525,000 in November and December of 2022 for non-profit organizations across the country, including Team Rubicon, Angel City Sports, Feeding America and Toys for Tots, providing meals, coats, and holiday gifts for those in need.\nAs part of the Company\u2019s commitment to give back to the communities in which its employees live and work, our FOX Giving program matches contributions made by regular full-time employees to eligible non-profit organizations, dollar for dollar, up to a total of $1,000 per fiscal year when submitted through the FOX Giving platform. We also track and reward employee volunteer hours with the opportunity to earn up to $1,000 per year that employees may direct to charities through the program. Over the course of the fiscal year, across all FOX businesses, contributions through FOX Giving exceeded $1 million. \nAdditionally, FOX provides invaluable in-kind support through public service announcements and editorial coverage for non-profit organizations such as Big Brothers, Big Sisters, The National Alliance on Mental Illness, Common Goal and the Elizabeth Dole Foundation, while also creating additional impact in our communities through efforts such as FOX Sports Supports\u2019 Gamechanger Fund, FOX Entertainment\u2019s #TVForAll, FOX Television Stations' Holiday Community Giving Campaigns and FOX News Media\u2019s support of the Police Athletic League NYC, Tunnel to Towers and Save Our Allies.\n20",
+  "item1a": ">ITEM 1A.\u00a0\u00a0\u00a0\u00a0RISK FACTORS\nProspective investors should consider carefully the risk factors set forth below before making an investment in the Company\u2019s securities.\nRisks Related to Macroeconomic Conditions, Our Business and Our Industry\nChanges in consumer behavior and evolving technologies and distribution platforms continue to challenge existing business models and may adversely affect the Company's business, financial condition or results of operations.\nThe ways in which consumers view content and technology and business models in our industry continue to rapidly evolve and new distribution platforms and increased competition from new entrants and emerging technologies have added to the complexity of maintaining predictable revenue streams. Technological advancements have driven changes in consumer behavior as consumers now have more control over when, where and how they consume content and have increased advertisers' options for reaching their target audiences. Consumer preferences have evolved towards SVOD and AVOD services and other direct-to-consumer offerings, and there has been a substantial increase in the availability of content with reduced advertising or without advertising at all. In addition, the increasing use of time-shifting and advertising-skipping technologies such as DVRs that enable viewers to fast-forward or circumvent advertisements impacts the attractiveness of the Company's programming to advertisers and may adversely affect our advertising revenues. \nChanges in consumer behavior and technology have also had an adverse impact on MVPDs that deliver the Company's broadcast and cable networks to consumers. Consumers are increasingly turning to lower-cost alternatives, including direct-to-consumer offerings, which has contributed to industry-wide declines in subscribers to MVPD services over the last several years. These declines are expected to continue and possibly accelerate in the future. If consumers increasingly favor alternative offerings over MVPD subscriptions, the Company may continue to experience a decline in viewership and ultimately demand for the programming on its networks, which could lead to lower affiliate fee and advertising revenues. Changing distribution models may also negatively impact the Company's ability to negotiate affiliation agreements on favorable terms, which could have an adverse effect on our business, financial condition or results of operations. Our affiliate fee and advertising revenues also may be adversely affected by consumers' use of antennas (and their integration with set-top boxes or other consumer devices) to access broadcast signals to avoid subscriptions. \nTo remain competitive in this evolving environment, the Company must effectively anticipate and adapt to new market changes. The Company continues to focus on investing in and expanding its digital distribution offerings and direct engagement with consumers, including through Tubi, FOX Nation, FOX Weather and other offerings. However, if the Company fails to protect and exploit the value of its content while responding to, and developing new technology and business models to take advantage of, technological developments and consumer preferences, it could have a significant adverse effect on the Company's business, financial condition or results of operations.\nDeclines in advertising expenditures could cause the Company\u2019s revenues and operating results to decline significantly in any given period or in specific markets.\nThe Company derives substantial revenues from the sale of advertising, and its ability to generate advertising revenues depends on a number of factors. The strength of the advertising market can fluctuate in response to the economic prospects of specific advertisers or industries, advertisers' spending priorities and the economy in general or the economy of an individual geographic market. In addition, pandemics (such as the COVID-19 pandemic) and other widespread health emergencies, natural and other disasters, acts of terrorism, wars, and political uncertainties and hostilities can also lead to a reduction in advertising expenditures as a result of economic uncertainty, disruptions in programming and services (in particular live event programming) or reduced advertising spots due to pre-emptions. For example, during the COVID-19 pandemic some of the Company's advertisers reduced their spending, which had a negative impact on the Company\u2019s advertising revenues, and similar events that adversely affect the Company's advertising revenues could occur again in the future. \n21\nMajor sports events, such as the NFL's\n Super Bowl\n and the FIFA\n World Cup\n and the state, congressional and presidential election cycles also may cause the Company's advertising revenues to vary substantially from year to year. Political advertising expenditures are impacted by the ability and willingness of candidates and political action campaigns to raise and spend funds on advertising and the competitive nature of the elections affecting viewers in markets featuring our programming.\nAdvertising expenditures may also be affected by changes in consumer behavior and evolving technologies and platforms. There is increasing competition for the leisure time of audiences and demand for the Company's programming as measured by ratings points is a key factor in determining the advertising rates as well as the affiliate rates the Company receives. In addition, as described above, newer technologies and platforms are increasing the number of media and entertainment choices available to audiences, changing the ways viewers enjoy content and enabling them to avoid advertisements. These changes could negatively affect the attractiveness of the Company's offerings to advertisers. The pricing and volume of advertising may also be affected by shifts in spending away from traditional media and toward digital and mobile offerings, which can deliver targeted advertising more promptly, or toward newer ways of purchasing advertising such as through automated purchasing, dynamic advertising insertion and third parties selling local advertising spots and advertising exchanges. These new methods may not be as beneficial to the Company as traditional advertising methods. The Company also generates advertising revenues through its Tubi AVOD service. The market for AVOD advertising campaigns is relatively new and evolving and if this market develops slower or differently than we expect, it could adversely affect our advertising revenues. Declines in advertising revenues may also be caused by regulatory intervention or other third-party action that impacts where and when advertising may be placed.\nAdvertising sales also largely depend on audience measurement and could be negatively affected if measurement methodologies do not accurately reflect actual viewership levels. Although Nielsen's statistical sampling method is the primary measurement methodology used for our linear television advertising sales, we measure and monetize our digital platforms based on a combination of internal and third-party data, including demographic composite estimates. A consistent, broadly accepted measure of multiplatform audiences across the industry remains to be developed. Although we expect multiplatform measurement innovation and standards to benefit us as the video advertising market continues to evolve, we are still partially dependent on third parties to provide these solutions.\nA decrease in advertising expenditures, reduced demand for the Company's programming or the inability to obtain market ratings that adequately measure demand for the Company's content on all platforms could lead to a reduction in pricing and advertising spending, which could have a material adverse effect on the Company's business, financial condition or results of operations.\nBecause the Company derives a significant portion of its revenues from a limited number of distributors, the failure to enter into or renew affiliation and carriage agreements on favorable terms, or at all, could have a material adverse effect on the Company\u2019s business, financial condition or results of operations.\nThe Company depends on affiliation and carriage arrangements that enable it to reach a large percentage of households through MVPDs and third party-owned television stations. The inability to enter into or renew MVPD arrangements on favorable terms, or at all, or the loss of carriage on MVPDs' basic programming tiers could reduce the distribution of the Company's owned and operated television stations and broadcast and cable networks, which could adversely affect the Company's revenues from affiliate fees and its ability to sell national and local advertising time. The loss of favorable MVPD packaging, positioning, pricing or other marketing opportunities could also negatively impact the Company's revenues from affiliate fees. These risks are exacerbated by consolidation among traditional MVPDs, their increased vertical integration into the cable or broadcast network business and their use of alternative technologies to offer their subscribers access to local broadcast network programming, which have provided traditional MVPDs with greater negotiating leverage. Competitive pressures faced by MVPDs, particularly in light of evolving consumer viewing patterns and distribution models, could adversely affect the terms of our contract renewals with MVPDs. In addition, if the Company and an MVPD reach an impasse in contract renewal negotiations, the Company's networks and owned and operated television stations could become unavailable to the MVPD's subscribers (i.e., \"go dark\"), which, depending on the length of time and the size of the MVPD, could have a negative impact on the Company's revenues from affiliate fees and advertising.\n22\nThe Company also depends on the maintenance of affiliation agreements and license agreements with third party-owned television stations to distribute the FOX Network and MyNetworkTV in markets where the Company does not own television stations. Consolidation among television station group owners could increase their negotiating leverage and reduce the number of available distribution partners. There can be no assurance that these affiliation and license agreements will be renewed in the future on terms favorable to the Company, or at all. The inability to enter into affiliation or licensing arrangements with third-party owned television stations on favorable terms could reduce distribution of the FOX Network and MyNetworkTV and the inability to enter into such affiliation or licensing arrangements for the FOX Network on favorable terms could adversely affect the Company's affiliate fee revenues and its ability to sell national advertising time.\nIn addition, the Company has arrangements through which it makes its content available for viewing through third-party online video platforms. If these arrangements are not renewed on favorable or commercially reasonable terms or at all, it could adversely affect the Company's revenues and results of operations.\nIf the number of subscribers to MVPD services continues to decline or such declines accelerate, the Company\u2019s affiliate fee and advertising revenues could be negatively affected.\nAs described above, changes in technology and consumer behavior have contributed to industry-wide declines in the number of subscribers to MVPD services, which have had a negative impact on the number of subscribers to the Company\u2019s networks. These industry-wide subscriber declines are expected to continue and possibly accelerate in the future. The majority of the Company\u2019s affiliation agreements with MVPDs are multi-year contracts that provide for payments to the Company that are based in part on the number of MVPD subscribers covered by the agreement. If declines in the number of MVPD subscribers are not fully offset by affiliate rate increases, the Company\u2019s affiliate fee revenues will be negatively affected. Because MVPD subscriber losses could also decrease the potential audience for the Company\u2019s networks, which is a critical factor affecting both the pricing and volume of advertising, future MVPD subscriber declines could also adversely impact the Company\u2019s advertising revenues.\nThe Company is exposed to risks associated with weak economic conditions and increased volatility and disruption in the financial markets.\nPrevailing economic conditions and the state of the financial markets affect various aspects of our business. In recent years, the U.S. economy has experienced a period of weakness and the financial markets have experienced significant volatility as a result of the COVID-19 pandemic, declining economic growth, diminished availability of credit, declines in consumer confidence, concerns regarding high inflation, uncertainty about economic stability and political and sociopolitical uncertainties and conflicts. Additional factors that have affected economic conditions and the financial markets include higher interest rates, global supply chain disruptions, unemployment rates, changes in consumer spending habits and potential changes in trade relationships between the U.S. and other countries. Weak economic conditions have had and may continue to have an adverse impact on the Company's business, financial condition and results of operations. For example, reduced advertising expenditures due to a weak economy can negatively impact our advertising revenues, as described above, and increasing inflation raises our labor and other costs required to operate our business. Increased volatility and weakness in the financial markets, the further tightening of credit markets or a decrease in our debt ratings assigned by ratings agencies could adversely affect our ability to cost-effectively refinance outstanding indebtedness or obtain new financing. \nThe Company also faces risks associated with the impact of weak economic conditions and disruption in the financial markets on third parties with which the Company does business, including advertisers, affiliates, suppliers, wholesale distributors, retailers, lenders, insurers, vendors, retailers, banks and others. For instance, the inability of the Company's counterparties to obtain capital on acceptable terms could impair their ability to perform under their agreements with the Company and lead to negative effects on the Company, including business disruptions, decreased revenues and increases in bad debt expenses.\nThere can be no assurance that further weakening of economic conditions or volatility or disruption in the financial markets will not occur. If they do, it could have a material adverse impact on the Company\u2019s business, financial condition or results of operations.\n23\nThe Company operates in a highly competitive industry.\nThe Company competes with other companies for high-quality content to reach large audiences and generate advertising revenue. The Company also competes for advertisers' expenditures and distribution on MVPDs and other third-party digital platforms. The Company's ability to attract viewers and advertisers and obtain favorable distribution depends in part on its ability to provide popular programming and adapt to new technologies and distribution platforms, which are increasing the number of content choices available to audiences. Consolidation among our competitors and other industry participants has increased, and may continue to do so, further intensifying competitive pressures. Our competitors include companies with interests in multiple media businesses that are often vertically integrated, as well as companies in adjacent sectors with significant financial, marketing and other resources, greater efficiencies of scale, fewer regulatory burdens and more competitive pricing. These competitors could also have preferential access to important technologies, such as those that use artificial intelligence or competitive information, including customer data. Our competitors may also enter into business combinations or partnerships that strengthen their competitive position. \nCompetition for audiences and/or advertising comes from a variety of sources, including broadcast television networks; cable television systems and networks; direct-to-consumer streaming and on-demand platforms and services; mobile, gaming and social media platforms; audio programming; and print and other media. Other television stations or cable networks may change their formats or programming, a new station or new network may adopt a format to compete directly with the Company's stations or networks, or stations or networks might engage in aggressive promotional campaigns. In addition, an increasing number of SVOD services with advertising-supported offerings may intensify competition for audiences and/or advertising. Increased competition in the acquisition of programming may also affect the scope of rights we are able to acquire and the cost of such rights, and the future value of the rights we acquire or retain cannot be predicted with certainty. \nThere can be no assurance that the Company will be able to compete successfully in the future against existing or potential competitors or that competition in the marketplace will not have a material adverse effect on its business, financial condition or results of operations.\nAcceptance of the Company's content by the public is difficult to predict, which could lead to fluctuations in or adverse impacts on revenues.\nProgramming distribution is a speculative business since the revenues derived from the distribution of content depend primarily on its acceptance by the public, which is difficult to predict. Low public acceptance of the Company's content will adversely affect the Company's results of operations. The commercial success of our programming also depends on the quality and acceptance of other competing programming, the growing number of alternative forms of entertainment and leisure activities, general economic conditions and their effects on consumer spending and other tangible and intangible factors, all of which can change and cannot be predicted with certainty. Moreover, we must often invest substantial amounts in programming and the acquisition of sports rights before we learn the extent to which the content will earn consumer acceptance and, as described below, competition for popular content, particularly sports and entertainment programming, is intense. A decline in the ratings or popularity of the Company's entertainment, news or sports programming or the Company's failure to obtain or retain rights to popular content could adversely affect the Company's advertising revenues in the near term and, over a longer period of time, its affiliate fee revenues.\nOur business depends on the popularity of special sports events and the continued popularity of the sports leagues and teams for which we have programming rights.\nOur sports business depends on the popularity and success of the sports franchises, leagues and teams for which we have acquired broadcast and cable network programming rights. If a sports league declines in popularity or fails to generate fan enthusiasm, this may negatively impact viewership and advertising and affiliate fee revenues received in connection with our sports programming. Our operating results may be impacted in part by special events, such as the NFL's\n Super Bowl\n, which is broadcast on the FOX Network on a rotating basis with other networks, the MLB's\n World Series\n and the FIFA\n World Cup\n, which occurs every four years (for each of women and men), and other regular and post-season sports events that air on our broadcast television and cable networks. Our advertising and affiliate fee revenues are subject to fluctuations based on the dates of sports events and their availability for viewing on our broadcast television and cable networks and the popularity of the competing teams. For example, any decrease in the number of post-season games played in a \n24\nsports league for which we have acquired broadcast programming rights, or the participation of a smaller-market sports franchise in post-season competition could result in lower advertising revenues for the Company. There can be no assurance that any sports league will continue to generate fan enthusiasm or provide the expected number of regular and post-season games for advertisers and customers, and the failure to do so could result in a material adverse effect on our business, financial condition or results of operations. In prior years, a significant number of live sports events were cancelled or postponed due to the COVID-19 pandemic, which adversely affected our revenues and results of operations. A shortfall in the expected popularity of the sports events for which the Company has acquired rights or in the volume of sports programming the Company expects to distribute could adversely affect the Company's advertising revenues in the near term and, over a longer period of time, its affiliate fee revenues.\nThe inability to renew programming rights, particularly sports programming rights, on sufficiently favorable terms, or at all, could cause the Company\u2019s advertising and affiliate fee revenues to decline significantly in any given period or in specific markets.\nWe enter into long-term contracts for both the acquisition and distribution of media programming and products, including contracts for the acquisition of programming rights for sports events and other content, and contracts for the distribution of our programming to content distributors. Programming rights agreements, retransmission consent agreements, carriage contracts and affiliation agreements have varying durations and renewal terms that are subject to negotiation with other parties, the outcome of which is unpredictable. The negotiation of programming rights agreements for popular licensed programming, and popular licensed sports programming in particular, is complicated by the intensity of competition for these rights. Moreover, the value of these agreements may be negatively affected by factors outside of our control, such as league agreements and decisions to alter the number, frequency and timing of regular and post-season games played during a season. We may be unable to renew existing, or enter into new, programming rights agreements on terms that are favorable to us and we may be outbid by third parties and therefore unable to obtain the rights at all. The loss of rights or renewal on less favorable terms could negatively impact the quality or quantity of our programming, in particular our sports programming, and could adversely affect our advertising and affiliate fee revenues. These revenues could also be negatively impacted if we do not obtain exclusive rights to the programming we distribute. Our results of operations and cash flows over the term of a sports programming agreement depend on a number of factors, including the strength of the advertising market, our audience size, the timing and amount of our rights payments and our ability to secure distribution from and impose surcharges or obtain carriage on MVPDs for the content. If escalations in programming rights costs (together with our production and distribution costs) are not offset by increases in advertising and affiliate fee revenues, our results of operations could be adversely affected.\nDamage to our brands, particularly the FOX brand, or our reputation could have a material adverse effect on our business, financial condition or results of operations.\nOur brands, particularly the FOX brand, are among our most valuable assets. We believe that our brand image, awareness and reputation strengthen our relationship with consumers and contribute significantly to the success of our business. Maintaining, enhancing and extending our brands may require us to make significant investments in marketing, programming or new products, services or events, and these investments may not be successful. We may introduce new programming that is not popular with our consumers and advertisers, which may negatively affect our brands. To the extent our content, in particular our live news and sports programming and primetime entertainment programming, is not compelling to consumers, our ability to maintain a positive reputation may be adversely impacted. The Company\u2019s brands, credibility and reputation could be damaged by incidents that erode consumer, advertiser or business partner trust or a perception that the Company\u2019s offerings, including its journalism, programming and other content, are low quality, unreliable or fail to attract and retain audiences. Litigation, governmental scrutiny and fines and significant negative claims or publicity regarding the Company or its operations, content, products, management, employees, practices, advertisers, business partners and culture, including individuals associated with content we create or license, may damage the Company's reputation and brands, even if meritless or untrue. Furthermore, to the extent our marketing, customer service and public relations efforts are not effective or result in negative consumer reaction, our ability to maintain a positive reputation may likewise be adversely impacted. If we are not successful in maintaining or enhancing the image or awareness of our brands, or if our reputation is harmed for any reason, it could have a material adverse effect on our business, financial condition or results of operations.\n25\nOur investments in new businesses, products, services and technologies through acquisitions and other strategic investments present many risks, and we may not realize the financial and strategic goals we had contemplated, which could adversely affect our business, financial condition or results of operations.\nWe have acquired and invested in, and expect to continue acquiring and investing in, new businesses, products, services and technologies that complement, enhance or expand our current businesses or otherwise offer us growth opportunities. Such acquisitions and strategic investments may involve significant risks and uncertainties, including insufficient revenues from an investment to offset any new liabilities assumed and expenses associated with the investment; a failure of the investment or acquired business to perform as expected, meet financial projections or achieve strategic goals; a failure to further develop an acquired business, product, service or technology; unidentified issues not discovered in our due diligence that could cause us to not realize anticipated benefits or to incur unanticipated liabilities; difficulties in integrating the operations, personnel, technologies and systems of acquired businesses; the potential loss of key employees or customers of acquired businesses; the diversion of management attention from current operations; and compliance with new regulatory regimes. Because acquisitions and investments are inherently risky and their anticipated benefits or value may not materialize, our acquisitions and investments may adversely affect our business, financial condition or results of operations.\nThe loss of key personnel, including talent, could disrupt the management or operations of the Company\u2019s business and adversely affect its revenues.\nThe Company's business depends on the continued efforts, abilities and expertise of its Chair K. Rupert Murdoch and Executive Chair and Chief Executive Officer Lachlan K. Murdoch, and other key employees and news, sports and entertainment personalities. Although we maintain long-term and emergency transition plans for key management personnel, we believe that our executive officers\u2019 unique combination of skills and experience would be difficult to replace and their loss could have a material adverse effect on the Company, including the impairment of its ability to successfully execute its business strategy. Additionally, the Company employs or independently contracts with several news, sports and entertainment personalities who are featured on programming the Company offers. News, sports and entertainment personalities sometimes have a significant impact on the ranking of a cable network or station and its ability to attract and retain an audience and sell advertising. There can be no assurance that our news, sports and entertainment personalities will remain with us or retain their current appeal, that the costs associated with retaining current talent and hiring new talent will be favorable or acceptable to us, or that new talent will be as successful as their predecessors. Any of the foregoing could adversely affect the Company's business, financial condition or results of operations.\nLabor disputes may disrupt our operations and adversely affect the Company\u2019s business, financial condition or results of operations.\nIn a variety of the Company's businesses, the Company and its partners engage the services of writers, directors, actors, musicians and other creative talent, production crew members, trade employees and others whose services are subject to collective bargaining agreements. Certain of these are industry-wide agreements, and the Company lacks practical influence with respect to the negotiation and terms of collective bargaining agreements. The writers guild (\u201cWGA\u201d), screen actors guild (\u201cSAG-AFTRA\u201d) and directors guild (\u201cDGA\u201d) collective bargaining agreements expired in 2023. The WGA members went on strike in May 2023 and the SAG-AFTRA members went on strike in July 2023. In June 2023, the DGA announced that it had reached a tentative agreement with the Association of Motion Picture and Television Producers, which negotiates with the guilds on behalf of content producers. When negotiations to renew collective bargaining agreements are not successful or become unproductive, strikes, work stoppages or lockouts have occurred, such as the WGA and SAG-AFTRA strikes in the Spring and Summer of 2023, and further strikes, work stoppages or lockouts could occur in the future. Such events have caused, and may continue to cause, delays in production and may lead to higher costs in connection with new collective bargaining agreements, which could reduce profit margins and could, over the long term, have an adverse effect on the Company's business, financial condition or results of operations. \nIn addition, our broadcast television and cable networks have programming rights agreements of varying scope and duration with various sports leagues to broadcast and produce sports events, including certain college football and basketball, NFL and MLB games. Any labor disputes that occur in any sports league for which we have the rights to broadcast live games or events may preclude us from airing or otherwise \n26\ndistributing scheduled games or events, resulting in decreased revenues, which could adversely affect our business, financial condition or results of operations.\nThe Company could suffer losses due to asset impairment charges for goodwill, intangible assets, programming and other assets and investments.\nThe Company performs an annual impairment assessment of its recorded goodwill and indefinite-lived intangible assets, including FCC licenses. The Company also continually evaluates whether current factors or indicators, such as the prevailing conditions in the capital markets, require the performance of an interim impairment assessment of those assets, as well as other investments and other long-lived assets. Any significant shortfall, now or in the future, in advertising revenue and/or the expected popularity of our programming could lead to a downward revision in the fair value of certain reporting units. A downward revision in the fair value of a reporting unit, indefinite-lived intangible assets, programming rights, investments or long-lived assets could result in a non-cash impairment charge. Any such charge could be material to the Company\u2019s reported net earnings.\nRisks Relating to Cybersecurity, Piracy, Privacy and Data Protection\nThe degradation, failure or misuse of the Company\u2019s network and information systems and other technology could cause a disruption of services or improper disclosure of personal data or other confidential information, resulting in increased costs, liabilities or loss of revenue.\nCloud services, content delivery and other networks, information systems and other technologies that we or our vendors or other partners use, including technology systems used in connection with the production and distribution of our content (the \u201cSystems\u201d), are critical to our business activities, and shutdowns or disruptions of, and cybersecurity attacks on, the Systems pose increasing risks. Disruptions to the Systems, such as computer hacking and phishing, theft, computer viruses, ransomware, worms or other destructive software, process breakdowns, denial of service attacks or other malicious activities, as well as power outages, natural or other disasters (including extreme weather), terrorist activities or human error, may affect the Systems and could result in disruption of our services, misappropriation, misuse, alteration, theft, loss, leakage, falsification, and accidental or premature release or improper disclosure of confidential or other information, including intellectual property and personal data (of third parties, employees and users of our streaming services and other digital properties) contained on the Systems. The techniques used to access, disable or degrade service or sabotage systems change frequently and continue to become more sophisticated and targeted, and the increasing use of artificial intelligence may intensify cybersecurity risks. While we and our vendors and partners continue to develop, implement and maintain security measures seeking to identify and mitigate cybersecurity risks, including unauthorized access to or misuse of the Systems, such efforts are costly, require ongoing monitoring and updating and may not be successful in preventing these events from occurring. In addition, the Company\u2019s recovery and business continuity plans may not be adequate to address any cybersecurity incidents that occur. The Company\u2019s high-profile sports and entertainment programming and its extensive news coverage of elections, sociopolitical events and public controversies subject us to heightened cybersecurity risks. Although no cybersecurity incident has been material to the Company\u2019s businesses to date, we expect to continue to be subject to cybersecurity threats and attacks and there can be no assurance that we will not experience a material incident. Any cybersecurity incidents could result in a disruption of our operations, customer or advertiser dissatisfaction, damage to our reputation or brands, regulatory investigations, claims, lawsuits or loss of customers or revenue, and the Company may also be subject to liability under relevant contractual obligations and laws and regulations protecting personal data and may be required to expend significant resources to defend, remedy and/or address any incidents. The Company may not have adequate insurance coverage to compensate it for any losses that may occur.\nTechnological developments may increase the threat of content piracy and signal theft and limit the Company\u2019s ability to protect its intellectual property rights.\nContent piracy and signal theft present a threat to the Company\u2019s revenues from products and services, including television shows, cable and other programming. The Company seeks to limit the threat of content piracy as well as cable and direct broadcast satellite programming signal theft; however, policing unauthorized use of the Company\u2019s products and services and related intellectual property is often difficult and the steps taken by the Company may not in every case prevent infringement. Although no content theft has been material to the Company\u2019s businesses to date, we expect to continue to be subject to content threats and there can be \n27\nno assurance that we will not experience a material incident. Developments in technology, including artificial intelligence, digital copying, file compression technology, growing penetration of high-bandwidth Internet connections, increased availability and speed of mobile data networks, and new devices and applications that enable unauthorized access to content, increase the threat of content piracy by making it easier to create, access, duplicate, widely distribute and store high-quality pirated material. In addition, developments in software or devices that circumvent encryption technology and the falling prices of devices incorporating such technologies increase the threat of unauthorized use and distribution of direct broadcast satellite programming signals and the proliferation of user-generated content sites and live and stored video streaming sites, which deliver unauthorized copies of copyrighted content, including those emanating from other countries in various languages, may adversely impact the Company\u2019s businesses. The proliferation of unauthorized distribution and use of the Company\u2019s content could have an adverse effect on the Company\u2019s businesses and profitability because it reduces the revenue that the Company could potentially receive from the legitimate sale and distribution of its products and services.\nThe Company takes a variety of actions to combat piracy and signal theft, both individually and, in some instances, together with industry associations, but the protection of the Company\u2019s intellectual property rights depends on the scope and duration of the Company\u2019s rights as defined by applicable laws in the U.S. and abroad and how those laws are construed. If those laws are interpreted in ways that limit the extent or duration of the Company\u2019s rights or if existing laws are changed, the Company\u2019s ability to generate revenue from intellectual property may decrease or the cost of obtaining and enforcing our rights may increase. A change in the laws of one jurisdiction may also have an impact on the Company\u2019s overall ability to protect its intellectual property rights across other jurisdictions. The Company\u2019s efforts to enforce its rights and protect its products, services and intellectual property may not be successful in preventing content piracy or signal theft. Further, while piracy and the proliferation of piracy-enabling technology tools continue to escalate, if any laws intended to combat piracy and protect intellectual property are repealed, weakened or not adequately enforced, or if the applicable legal systems fail to evolve and adapt to new technologies that facilitate piracy, we may be unable to effectively protect our rights and the value of our intellectual property may be negatively impacted, and our costs of enforcing our rights could increase\nThe Company is subject to complex laws, regulations, rules, industry standards, and contractual obligations related to privacy and personal data protection, which are evolving, inconsistent and potentially costly.\nWe are subject to U.S. federal and state laws and regulations, as well as those of other countries, relating to the collection, use, disclosure, and security of personal information. The number and complexity of these laws and regulations continues to increase. For example, California, Virginia, Utah, Colorado, Connecticut, and several other states have passed legislation imposing broad obligations on businesses\u2019 collection, use, handling and disclosure of personal information of their respective residents and imposing fines for noncompliance. The FTC also has initiated a rulemaking proceeding regarding potential rules concerning the collection, use, disclosure and security of personal information. In addition, the E.U., the U.K. and other countries have privacy and data security legislation, with significant penalties for violations, that apply to certain of the Company\u2019s operations. New privacy and data protection laws and regulations continue to be introduced and interpretations of existing privacy laws and regulations, some of which may be inconsistent with one another, continue to evolve. As a result, significant uncertainty exists as to their application and scope. Compliance with these laws and regulations may be costly and could require the Company to change its business practices, including in connection with data-driven targeted advertising. Although the Company expends significant resources to comply with privacy and data protection laws, we may be subject to regulatory or other legal action despite these efforts. Any such action could result in damage to our reputation or brands, loss of customers or revenue, and other negative impacts to our operations. The Company may also be subject to liability under relevant contractual obligations and may be required to expend significant resources to defend, remedy and/or address any claims. The Company may not have adequate insurance coverage to compensate it for any losses that may occur. For more information, see Item 1, \u201cGovernment Regulation \u2013 Privacy and Information Regulation.\u201d\n28\nRisks Relating to Legal and Regulatory Matters\nChanges in laws and regulations may have an adverse effect on the Company\u2019s business, financial condition or results of operations.\nThe Company is subject to a variety of laws and regulations in the jurisdictions in which its businesses operate. In general, the television broadcasting and traditional MVPD industries in the U.S. are highly regulated by federal laws and regulations issued and administered by various federal agencies, including the FCC. The FCC generally regulates, among other things, the ownership of media, broadcast and multichannel video programming and technical operations of broadcast licensees. For example, the Company is required to apply for and operate in compliance with licenses from the FCC to operate a television station, purchase a new television station, or sell an existing television station, with licenses generally subject to an eight-year renewable term. Our program services and online properties are subject to a variety of laws and regulations, including those relating to issues such as content regulation, user privacy and data protection, and consumer protection. Further, the United States Congress, the FCC, the FTC and state legislatures currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters, including technological changes and measures relating to network neutrality, privacy and data security, which could, directly or indirectly, affect the operations and ownership of the Company\u2019s media properties. From time to time, the FCC considers whether virtual MVPDs should be considered MVPDs (as defined by the FCC) and regulated as such, which could negatively impact the Company\u2019s distribution model. Any restrictions on political or other advertising may adversely affect the Company\u2019s advertising revenues. In addition, some policymakers maintain that traditional MVPDs should be required to offer a la carte programming to subscribers on a network-by-network basis or \u201cfamily friendly\u201d programming tiers. Unbundling packages of program services may increase both competition for carriage on distribution platforms and marketing expenses, which could adversely affect the business, financial condition or results of operations of the Company\u2019s cable networks. The threat of regulatory action or increased scrutiny that deters certain advertisers from advertising or reaching their intended audiences could adversely affect advertising revenue. Similarly, new laws or regulations or changes in interpretations of laws or regulations could require changes in the operations or ownership of our business. Furthermore, new laws, regulations and standards related to environmental (including climate), social and governance matters are likely to impose additional costs on us, expose us to new risks and subject us to increasing scrutiny. Any of the foregoing could have a material adverse effect on our business, financial condition or results of operations.\nThe Company may be subject to investigations or fines from governmental authorities, including under FCC rules and policies, or delays in our renewal and other applications with the FCC.\nFCC rules prohibit the broadcast of obscene material at any time and indecent or profane material on television or radio broadcast stations between the hours of 6 a.m. and 10 p.m. The FCC has indicated that, in addition to issuing fines to licensees, it would consider initiating license revocation proceedings for \u201cserious\u201d indecency violations. We air a significant amount of live news reporting and live sports coverage on our broadcast television stations and networks and a portion of our content is under the control of our on-air talent. The Company cannot predict whether information delivered by our stations and on-air talent could violate FCC rules related to indecency, which had been found to be unconstitutionally vague by the U.S. Supreme Court, especially given the spontaneity of live news and sports programming. Violation of the FCC\u2019s indecency rules could subject us to government investigation, penalties, license revocation, or renewal or qualification proceedings, which could have a material adverse effect on our business, financial condition or results of operations.\nThe Communications Act and FCC regulations limit the ability of non-U.S. citizens and certain other persons to invest in us.\nThe Company owns broadcast station licensees in connection with its ownership and operation of U.S. television stations. Under the Communications Act of 1934, as amended, which we refer to as the Communications Act, and the FCC rules, without the FCC\u2019s prior approval, no broadcast station licensee may be owned by a corporation if more than 25% of its stock is owned or voted by non-U.S. persons, their representatives, or by any other corporation organized under the laws of a foreign country. The Company\u2019s amended and restated certificate of incorporation authorizes the Board of Directors to take action to prevent, cure or mitigate the effect of stock ownership above the applicable foreign ownership threshold, including: refusing to permit any transfer of Common Stock to or ownership of Common Stock by a non-U.S. stockholder; \n29\nvoiding a transfer of Common Stock to a non-U.S. stockholder; suspending rights of stock ownership if held by a non-U.S. stockholder; or redeeming Common Stock held by a non-U.S. stockholder. We are currently in compliance with applicable U.S. law and continue to monitor our foreign ownership based on our assessment of the information reasonably available to us, but we are not able to predict whether we will need to take action pursuant to our amended and restated certificate of incorporation. The FCC could review the Company\u2019s compliance with applicable U.S. law in connection with its consideration of the Company\u2019s renewal applications for licenses to operate the broadcast stations the Company owns.\nThe failure or destruction of satellites or transmitter facilities the Company depends on to distribute its programming could materially adversely affect its businesses and results of operations, as could changes in FCC regulations governing the availability and use of satellite transmission spectrum.\nThe Company uses satellite systems to transmit its broadcast and cable networks to affiliates. The distribution facilities include uplinks, communications satellites and downlinks. Transmissions may be disrupted as a result of local disasters, including extreme weather, that impair on-ground uplinks or downlinks, or as a result of an impairment of a satellite. Currently, there are a limited number of communications satellites available for the transmission of programming. If a disruption occurs, failure to secure alternate distribution facilities in a timely manner could have a material adverse effect on the Company\u2019s business and results of operations. Each of the Company\u2019s television stations and cable networks uses studio and transmitter facilities that are subject to damage or destruction. Failure to restore such facilities in a timely manner could have a material adverse effect on the Company\u2019s businesses and results of operations. Further, changes in FCC regulations have reduced the availability and use of satellite transmission spectrum. In 2020, the FCC began reallocating and \u201cre-packing\u201d a band of satellite transmission spectrum known as the \u201cC-Band\u201d used by the television industry to transmit programming in order to free up spectrum for the next generation of commercial wireless broadband services. This has reduced the availability and use of satellite transmission spectrum for the television industry, and additional changes in FCC regulations could lead to further reductions. The decreased availability of satellite transmission spectrum could diminish the quality of and increase interference to our transmissions, which could significantly hinder the Company\u2019s ability to deliver its programming to broadcast affiliates and traditional MVPDs.\nThe Company could be subject to significant tax liabilities.\nWe are subject to taxation in U.S. federal, state and local, as well as certain international jurisdictions. Changes in tax laws, regulations, practices or the interpretations thereof (including changes in legislation currently being considered) could adversely affect the Company\u2019s results of operations or its tax assets. Judgment is required in evaluating and estimating our provision and accruals for taxes. In addition, transactions occur during the ordinary course of business or otherwise for which the ultimate tax determination is uncertain.\nTax returns are routinely audited, tax-related litigation or settlements may occur, and certain jurisdictions may assess income tax liabilities against us. The final outcomes of tax audits, investigations, and any related litigation could result in materially different tax recognition from our historical tax provisions and accruals. These outcomes could conflict with private letter rulings, opinions of counsel or other interpretations provided to the Company. If these matters are adversely resolved, we may be required to recognize additional charges to our tax provisions and pay significant additional amounts with respect to current or prior periods or our taxes in the future could increase, which could have a material adverse effect on our financial condition or results of operations.\nUnfavorable litigation or governmental investigation results could require us to pay significant amounts or lead to onerous operating procedures.\nWe are subject from time to time to lawsuits, including claims relating to competition, intellectual property rights, employment and labor matters, personal injury and property damage, free speech, customer privacy, regulatory requirements, and advertising, marketing and selling practices. See Note 14, \u201cCommitments and Contingencies,\u201d to the accompanying consolidated financial statements included in this Form 10-K for a discussion of certain of these matters. The Company has incurred significant expenses defending against the defamation and disparagement matters described in Note 14, including the payment of approximately $800 million to settle the Dominion matter and a related lawsuit in April 2023. \n30\nThe Company continues to believe the Smartmatic and other lawsuits alleging defamation or disparagement as well as related derivative lawsuits are without merit and intends to defend against them vigorously, including through any appeals.However, the outcome of these pending matters is subject to significant uncertainty, and it is possible that an adverse resolution of one or more of these pending matters could result in reputational harm and/or significant monetary damages, injunctive relief or settlement costs. There can be no assurance that the ultimate resolution of these pending matters will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.\nGreater constraints on the use of arbitration to resolve certain disputes could adversely affect our business. We also spend substantial resources complying with various regulatory and government standards, including any related investigations and litigation. We may incur additional significant expenses in the future defending against any lawsuit or government charge and may be required to pay amounts or otherwise change our operations in ways that could adversely impact our businesses, results of operations, financial condition or cash flows. In addition, regardless of merit or outcome, litigation and government investigations are time-consuming and costly to defend, divert management\u2019s attention and resources away from our business, may result in reputational harm and may impair our ability to conduct our business.\nRisks Relating to Our Ownership Structure\nCertain of the Company\u2019s directors and officers may have actual or potential conflicts of interest because of their equity ownership in News Corp or because they also serve as officers and/or on the board of directors of News Corp.\nIn June 2013, 21CF completed the separation of its businesses into two independent publicly traded companies by distributing to its shareholders shares of a new company called News Corporation (\u201cNews Corp\u201d). Certain of the Company\u2019s directors and executive officers own shares of common stock of News Corp, and the individual holdings may be significant for some of these individuals compared to their total assets. In addition, certain of the Company\u2019s officers and directors also serve as officers and/or as directors of News Corp, including our Chair, K. Rupert Murdoch, who serves as News Corp\u2019s Executive Chairman, and our Executive Chair and Chief Executive Officer, Lachlan K. Murdoch, who serves as News Corp\u2019s Co-Chairman. This ownership of or service to both companies may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for News Corp and the Company. In addition to any other arrangements that the Company and News Corp may agree to implement, the Company and News Corp have agreed that officers and directors who serve at both companies will recuse themselves from decisions where conflicts arise due to their positions at both companies.\nOur amended and restated by-laws acknowledge that our directors and officers, as well as certain of our stockholders, including K. Rupert Murdoch, certain members of his family and certain family trusts (so long as such persons continue to own, in the aggregate, 10% or more of the voting stock of each of News Corp and the Company), each of which we refer to as a covered stockholder, are or may become stockholders, directors, officers, employees or agents of News Corp and certain of its affiliates. Our amended and restated by-laws provide that any such overlapping person will not be liable to us, or to any of our stockholders, for breach of any fiduciary duty that would otherwise exist because such individual directs a corporate opportunity to News Corp instead of us. The provisions in our amended and restated by-laws could result in an overlapping person submitting any corporate opportunities to News Corp instead of us.\nCertain provisions of the Company\u2019s amended and restated certificate of incorporation, amended and restated by-laws, Delaware law and the ownership of the Company\u2019s Common Stock by the Murdoch Family Trust may discourage takeovers and the concentration of ownership will affect the voting results of matters submitted for stockholder approval.\nThe Company\u2019s amended and restated certificate of incorporation and amended and restated by-laws contain certain anti-takeover provisions that may make more difficult or expensive a tender offer, change in control, or takeover attempt that is opposed by the Company\u2019s Board of Directors or certain stockholders holding a significant percentage of the voting power of the Company\u2019s outstanding voting stock. In particular, the \n31\namended and restated certificate of incorporation and amended and restated by-laws provide for, among other things:\n\u2022\na dual class common equity capital structure, in which holders of FOX Class A Common Stock can vote only in very specific, limited circumstances;\n\u2022\na prohibition on stockholders taking any action by written consent without a meeting (unless there are three record holders or fewer);\n\u2022\nspecial stockholders\u2019 meeting to be called only by a majority of the Board of Directors, the Chair or vice or deputy chair, or upon the written request of holders of not less than 20% of the voting power of our outstanding voting stock;\n\u2022\nthe requirement that stockholders give the Company advance notice to nominate candidates for election to the Board of Directors or to make stockholder proposals at a stockholders\u2019 meeting;\n\u2022\nthe requirement of an affirmative vote of at least 65% of the voting power of the Company\u2019s outstanding voting stock to amend or repeal our amended and restated by-laws;\n\u2022\nrestrictions on the transfer of the Company\u2019s shares; and\n\u2022\nthe Board of Directors to issue, without stockholder approval, preferred stock and series common stock with such terms as the Board of Directors may determine.\nThese provisions could discourage potential acquisition proposals and could delay or prevent a change in control of the Company, even in the case where a majority of the stockholders may consider such proposals desirable.\nFurther, as a result of his ability to appoint certain members of the board of directors of the corporate trustee of the Murdoch Family Trust, which beneficially owns less than one percent of the outstanding FOX Class A Common Stock and 43.39% of FOX Class B Common Stock, K. Rupert Murdoch may be deemed to be a beneficial owner of the shares beneficially owned by the Murdoch Family Trust. K. Rupert Murdoch, however, disclaims any beneficial ownership of these shares. Also, K. Rupert Murdoch beneficially owns or may be deemed to beneficially own an additional less than one percent of FOX Class A Common Stock and less than one percent of FOX Class B Common Stock. Thus, K. Rupert Murdoch may be deemed to beneficially own in the aggregate less than one percent of FOX Class A Common Stock and 43.99% of FOX Class B Common Stock.\nThis concentration of voting power could discourage third parties from making proposals involving an acquisition of the Company. Additionally, the ownership concentration of FOX Class B Common Stock by the Murdoch Family Trust increases the likelihood that proposals submitted for stockholder approval that are supported by the Murdoch Family Trust will be adopted and proposals that the Murdoch Family Trust does not support will not be adopted, whether or not such proposals to stockholders are also supported by the other holders of FOX Class B Common Stock. \nThe Company\u2019s Board of Directors has approved a $7 billion stock repurchase program for the FOX Class A Common Stock and FOX Class B Common Stock, which has and in the future could increase the percentage of FOX Class B Common Stock held by the Murdoch Family Trust. The Company has entered into a stockholders agreement with the Murdoch Family Trust pursuant to which the Company and the Murdoch Family Trust have agreed not to take actions that would result in the Murdoch Family Trust and Murdoch family members together owning more than 44% of the outstanding voting power of the shares of FOX Class B Common Stock or would increase the Murdoch Family Trust\u2019s voting power by more than 1.75% in any rolling 12-month period. The Murdoch Family Trust would forfeit votes to the extent necessary to ensure that the Murdoch Family Trust and the Murdoch family collectively do not exceed 44% of the outstanding voting power of the Class B Common Stock, except where a Murdoch family member votes their own shares differently from the Murdoch Family Trust on any matter.\nRisks Related to the Company\u2019s Separation from 21CF\nThe indemnification arrangements the Company entered into with 21CF in connection with the Transaction may require the Company to divert cash to satisfy indemnification obligations to 21CF. The \n32\nindemnification from 21CF may not be sufficient to insure the Company against the full amount of liabilities that have been allocated to 21CF.\nPursuant to the agreements the Company and 21CF entered into in connection with the Transaction, 21CF will indemnify the Company for certain liabilities and the Company will indemnify 21CF for certain liabilities. Payments pursuant to these indemnities may be significant and could negatively impact our business. Third parties could also seek to hold the Company responsible for any of the liabilities of the businesses that were retained by 21CF in connection with the Transaction. 21CF has agreed to indemnify the Company for such liabilities, but such indemnity from 21CF may not be sufficient to protect the Company against the full amount of such liabilities, and 21CF may not be able to fully satisfy its indemnification obligations. Moreover, even if the Company ultimately succeeds in recovering from 21CF any amounts for which it is held liable, the Company may be temporarily required to bear these losses itself. These risks could negatively affect our business, financial condition, results of operations or cash flows.\nThe Company could be liable for income taxes owed by 21CF.\nEach member of the 21CF consolidated group, which, prior to the Transaction, included 21CF, the Company and 21CF\u2019s other subsidiaries, is jointly and severally liable for the U.S. federal income and, in certain jurisdictions, state tax liabilities of each other member of the consolidated group for periods prior to and including the Transaction. Consequently, the Company could be liable in the event any such liability is incurred, and not discharged, by any other member of what was previously the 21CF consolidated group. The tax matters agreement entered into in connection with the Transaction requires 21CF and/or Disney to indemnify the Company for any such liability. Disputes or assessments could arise during future audits by the taxing authorities in amounts that the Company cannot quantify.",
+  "item7": ">ITEM 7.\u00a0\u00a0\u00a0\u00a0MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nReaders should carefully review this document and the other documents filed by Fox Corporation (\u201cFOX\u201d or the \u201cCompany\u201d) with the Securities and Exchange Commission (the \u201cSEC\u201d). This section should be read together with the consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The consolidated financial statements are referred to as the \u201cFinancial Statements\u201d herein.\nINTRODUCTION\nThe Transaction\nFOX became a standalone publicly traded company on March 19, 2019, when Twenty-First Century Fox, Inc. (\u201c21CF\u201d) spun off the Company to 21CF stockholders and FOX's\n Class A Common Stock, par value $0.01 per share (the \u201cClass A Common Stock\u201d), and Class B Common Stock, par value $0.01 per share (the \u201cClass B Common Stock\u201d and, together with the Class A Common Stock, the \u201cCommon Stock\u201d) began trading independently on The Nasdaq Global Select Market (the \u201cTransaction\u201d). In connection with the Transaction, the Company entered into the Separation and Distribution Agreement, dated as of March 19, 2019 (the \u201cSeparation Agreement\u201d), with 21CF, which effected the internal restructuring (the \u201cSeparation\u201d) whereby The Walt Disney Company (\u201cDisney\u201d) acquired the remaining 21CF assets and 21CF became a wholly-owned subsidiary of Disney. The Separation and the Transaction were effected as part of a series of transactions contemplated by the Amen\nded and Restated Merger Agreement and Plan of Merger, dated as of June 20, 2018 (the \u201c21CF Disney Merger Agreement\u201d), by and among 21CF, Disney and certain subsidiaries of Disney.\nIn connection with the Separation, the Company entered into a tax matters agreement among the Company, Disney and 21CF which governs the parties\u2019 respective rights, responsibilities and obligations with respect to certain tax matters. Under this agreement, 21CF will generally indemnify the Company against any taxes required to be reported on a consolidated or separate tax return of 21CF and/or any of its subsidiaries, including any taxes resulting from the Separation and the Transaction, and the Company will generally indemnify 21CF against any taxes required to be reported on a separate tax return of the Company or any of its subsidiaries.\nPursuant to the 21CF Disney Merger Agreement, immediately prior to the Transaction, the Company paid 21CF a dividend (the \u201cDividend\u201d) for the estimated taxes associated with the Transaction. The final determination of the taxes included an estimated $5.8 billion in respect of the Separation and the Transaction for which the Company is responsible pursuant to the 21CF Disney Merger Agreement and an estimated $700 million prepayment in respect of divestitures (collectively, the \u201cTransaction Tax\u201d).\nAs a result of the Separation and the Transaction, which was a taxable transaction for which an estimated tax liability of $5.8 billion was included in the Transaction Tax paid by the Company, FOX obtained a tax basis in its assets equal to their respective fair market values. This resulted in estimated annual tax deductions of approximately $1.5 billion, which is expected to continue over the next several years due to the amortization of the additional tax basis. \nSuch estimates are subject to revisions, which could be material, based upon the occurrence of future events. \nThis amortization is estimated to reduce the Company\u2019s fiscal 2023 cash tax liability by approximately $360 million at the current combined federal and state applicable tax rate of approximately 24%.\nIncluded in the Transaction Tax was the Company\u2019s share of the estimated tax liabilities of $700 million related to the anticipated divestitures by Disney of certain assets, principally \nthe FOX Sports Regional Sports Networks\n (\u201cRSNs\u201d), which Disney sold during calendar year 2019 \n(\u201cDivestiture Tax\u201d)\n. During fiscal 2021, the Company and Disney reached an agreement to settle the majority of the Divestiture Tax and the Company received $462 million from Disney as reimbursement of the Company\u2019s prepayment based upon the sales price of the RSNs. This reimbursement was recorded in Other, net in the Statement of Operations (See Note 20\u2014Additional Financial Information to the accompanying Financial Statements under the heading \"Other, net\u201d). The balance of the Divestiture Tax is subject to adjustment in the future, but any such adjustment is not expected to have a material impact on the financial results of the Company.\n35\nBasis of Presentation\nThe Company\u2019s financial statements are presented on a consolidated basis.\nManagement\u2019s discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the Company\u2019s financial condition, changes in financial condition and results of operations. This discussion is organized as follows:\n\u2022\nOverview of the Company\u2019s Business\n\u2014This section provides a general description of the Company\u2019s businesses, as well as developments that occurred either during the fiscal year ended June 30, (\u201cfiscal\u201d) 2023 or early fiscal 2024 that the Company believes are important in understanding its results of operations and financial condition or to disclose known trends.\n\u2022\nResults of Operations\n\u2014This section provides an analysis of the Company\u2019s results of operations for fiscal 2023, 2022 and 2021. This analysis is presented on both a consolidated and a segment basis. In addition, a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed.\n\u2022\nLiquidity and Capital Resources\n\u2014This section provides an analysis of the Company\u2019s cash flows for fiscal 2023, 2022 and 2021, as well as a discussion of the Company\u2019s outstanding debt and commitments, both firm and contingent, that existed as of June\u00a030, 2023. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to fund the Company\u2019s future commitments and obligations, as well as a discussion of other financing arrangements.\n\u2022\nCritical Accounting Policies\n\u2014This section discusses accounting policies considered important to the Company\u2019s financial condition and results of operations, and which require significant judgment and estimates on the part of management in application. In addition, Note 2\u2014Summary of Significant Accounting Policies to the accompanying Financial Statements summarizes the Company\u2019s significant accounting policies, including the critical accounting policy discussion found in this section.\n\u2022\nCaution Concerning Forward-Looking Statements\n\u2014This section provides a description of the use of forward-looking information appearing in this Annual Report on Form 10-K, including in Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations. Such information is based on management\u2019s current expectations about future events which are subject to change and to inherent risks and uncertainties. Refer to Item 1A. \u201cRisk Factors\u201d in this Annual Report for a discussion of the risk factors applicable to the Company.\nOVERVIEW OF THE COMPANY\u2019S BUSINESS\nThe Company is a news, sports and entertainment company, which manages and reports its businesses in the following segments:\n\u2022\nCable Network Programming\n, which produces and licenses news and sports content distributed through traditional cable television systems, direct broadcast satellite operators and telecommunication companies (\u201ctraditional MVPDs\u201d), virtual multi-channel video programming distributors (\u201cvirtual MVPDs\u201d) and other digital platforms, primarily in the U.S.\n\u2022\nTelevision\n, which produces, acquires, markets and distributes programming through the FOX broadcast network, advertising-supported video-on-demand (\u201cAVOD\u201d) service Tubi, 29 full power broadcast television stations, including 11 duopolies, and other digital platforms, primarily in the U.S. Eighteen of the broadcast television stations are affiliated with the FOX Network, 10 are affiliated with MyNetworkTV and one is an independent station. The segment also includes various production companies that produce content for the Company and third parties.\n\u2022\nOther, Corporate and Eliminations\n, which principally consists of the FOX Studio Lot, Credible Labs Inc. (\u201cCredible\u201d), corporate overhead costs and intracompany eliminations. The FOX Studio Lot, located in Los Angeles, California, provides television and film production services along with office space, studio operation services and includes all operations of the facility. Credible is a U.S. consumer finance marketplace.\nWe use the term \"MVPDs\" to refer collectively to traditional MVPDs and virtual MVPDs.\n36\nThe Company\u2019s Cable Network Programming and Television segments derive the majority of their revenues from affiliate fees for the transmission of content and advertising sales. For fiscal 2023, the Company generated revenues of $14.9 billion, of which approximately 47% was generated from affiliate fees, approximately 44% was generated from advertising, and approximately 9% was generated from other operating activities.\nAffiliate fees primarily include (i) monthly subscriber-based license and retransmission consent fees paid by programming distributors that carry our cable networks and our owned and operated television stations and (ii) fees received from non-owned and operated television stations that are affiliated with the FOX Network. U.S. law governing retransmission consent provides a mechanism for the television stations owned by the Company to seek and obtain payment from MVPDs that carry the Company\u2019s broadcast signals.\nThe Company\u2019s revenues are impacted by rate changes, changes in the number of subscribers to the Company\u2019s content and changes in the expenditures by advertisers. In addition, advertising revenues are subject to seasonality and cyclicality as a result of the impact of state, congressional and presidential election cycles and special events that air on the Company\u2019s networks, including the National Football League\u2019s (\u201cNFL\u201d) \nSuper Bowl\n, which is broadcast on the FOX Network on a rotating basis with other networks, and the F\u00e9d\u00e9ration Internationale de Football Association (\u201cFIFA\u201d) \nWorld Cup\n, which occurs every four years (for each of women and men), and other regular and post-season sports events, including one NFL Divisional playoff game that is aired on a rotating annual basis with another network.\nThe cable network programming and television industries continue to evolve rapidly, with changes in technology leading to alternative methods for the delivery and storage of digital content. These technological advancements have driven changes in consumer behavior as consumers now have more control over when, where and how they consume content. Consumer preferences have evolved toward lower cost alternatives, including direct-to-consumer offerings. These changes in technologies and consumer behavior have contributed to declines in the number of subscribers to MVPD services, and these declines are expected to continue and possibly accelerate in the future.\nAt the same time, technological changes have increased advertisers\u2019 options for reaching their target audiences. There has been a substantial increase in the availability of content with reduced advertising or without advertising at all. As consumers switch to digital consumption of video content, there is still to be developed a consistent, broadly accepted measure of multiplatform audiences across the industry. Furthermore, the pricing and volume of advertising may be affected by shifts in spending from more traditional media and toward digital and mobile offerings, which can deliver targeted advertising more promptly, or toward newer ways of purchasing advertising. In addition, the market for AVOD advertising campaigns is relatively new and evolving.\nThe Company operates in a highly competitive industry and its performance is dependent, to a large extent, on the impact of changes in consumer behavior as a result of new technologies, the sale of advertising, the maintenance, renewal and terms of its carriage, affiliation and content agreements and programming rights, the popularity of its content, general economic conditions (including financial market conditions), the Company\u2019s ability to manage its businesses effectively, and its relative strength and leverage in the industry. For more information, see Item 1. \u201cBusiness\u201d and Item 1A. \u201cRisk Factors.\u201d\n37\nRESULTS OF OPERATIONS\nResults of Operations\u2014Fiscal 2023 versus Fiscal 2022\nThe following table sets forth the Company\u2019s operating results for fiscal 2023, as compared to fiscal 2022:\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2023\n2022\n$ Change\n% Change\n(in millions, except %)\n\u00a0\n\u00a0\nBetter/(Worse)\nRevenues\nAffiliate fee\n$\n7,051\u00a0\n$\n6,878\u00a0\n$\n173\u00a0\n3\u00a0\n%\nAdvertising\n6,606\u00a0\n5,900\u00a0\n706\u00a0\n12\u00a0\n%\nOther\n1,256\u00a0\n1,196\u00a0\n60\u00a0\n5\u00a0\n%\nTotal revenues\n14,913\u00a0\n13,974\u00a0\n939\u00a0\n7\u00a0\n%\nOperating expenses\n(9,689)\n(9,117)\n(572)\n(6)\n%\nSelling, general and administrative\n(2,049)\n(1,920)\n(129)\n(7)\n%\nDepreciation and amortization\n(411)\n(363)\n(48)\n(13)\n%\nImpairment and restructuring charges\n(111)\n\u2014\u00a0\n(111)\n**\nInterest expense, net\n(218)\n(371)\n153\u00a0\n41\u00a0\n%\nOther, net\n(699)\n(509)\n(190)\n(37)\n%\nIncome before income tax expense\n1,736\u00a0\n1,694\u00a0\n42\u00a0\n2\u00a0\n%\nIncome tax expense\n(483)\n(461)\n(22)\n(5)\n%\nNet income\n1,253\u00a0\n1,233\u00a0\n20\u00a0\n2\u00a0\n%\nLess: Net income attributable to noncontrolling interests\n(14)\n(28)\n14\u00a0\n50\u00a0\n%\nNet income attributable to Fox Corporation stockholders\n$\n1,239\u00a0\n$\n1,205\u00a0\n$\n34\u00a0\n3\u00a0\n%\n**\nnot meaningful\nOverview\n\u2014The Company\u2019s revenues increased 7% for fiscal 2023, as compared to fiscal 2022, due to higher affiliate fee, advertising and other revenues. The increase in affiliate fee revenue was primarily due to higher fees received from television stations that are affiliated with the FOX Network and higher average rates per subscriber, led by contractual rate increases on existing affiliate agreements and from affiliate agreement renewals, partially offset by a lower average number of subscribers across all networks. The increase in advertising revenue was primarily due to revenues resulting from the broadcasts of \nSuper Bowl LVII\n and the FIFA Men\u2019s \nWorld Cup\n, continued growth at Tubi, higher political advertising revenue at the FOX Television Stations principally due to the November 2022 U.S. midterm elections, and additional NFL post-season games. Partially offsetting this increase was the absence of NFL \nThursday Night Football\n (\u201c\nTNF\n\u201d) and lower ratings at the FOX Network in the current year. The increase in other revenues was primarily due to the full year impact of acquisitions of entertainment production companies in fiscal 2022 and higher FOX Nation subscription revenues.\nOperating expenses increased 6% for fiscal 2023, as compared to fiscal 2022, primarily due to higher sports programming rights amortization and production costs driven by the broadcasts of \nSuper Bowl LVII\n and the FIFA Men\u2019s \nWorld Cup\n and additional post-season NFL and Major League Baseball (\u201cMLB\u201d) content, as well as increased digital investment in Tubi and at FOX News Media. Partially offsetting this increase was the absence of \nTNF\n and lower entertainment marketing and production costs. Selling, general and administrative expenses increased 7% for fiscal 2023, as compared to fiscal 2022, primarily due to higher legal costs at FOX News Media and continued growth at Tubi.\nDepreciation and amortization\n\u2014Depreciation and amortization expense increased 13% for fiscal 2023, as compared to fiscal 2022, primarily due to an increase in broadcast production assets at FOX Sports, \n38\nincreased spending as a result of digital initiatives and the full year impact of the fiscal 2022 acquisitions of entertainment production companies.\nImpairment and restructuring charges\n\u2014See Note 4\u2014Restructuring Programs to the accompanying Financial Statements.\nInterest expense, net\n\u2014Interest expense, net decreased 41% for fiscal 2023, as compared to fiscal 2022, primarily due to higher interest income as a result of higher interest rates.\nOther, net\n\u2014See Note 20\u2014Additional Financial Information to the accompanying Financial Statements under the heading \u201cOther, net.\u201d\nIncome tax expense\n\u2014 The Company\u2019s tax provision and related effective tax rate of 28% for fiscal 2023 was higher than the statutory rate of 21% primarily due to state taxes, a valuation allowance recorded against net operating losses and tax credits and other permanent items. The Company\u2019s tax provision and related effective tax rate of 27% for fiscal 2022 was higher than the statutory rate of 21% primarily due to state taxes and a remeasurement of the Company\u2019s net deferred tax assets associated with changes in the mix of jurisdictional earnings.\nNet income\n\u2014Net income increased 2% for fiscal 2023, as compared to fiscal 2022, primarily due to a gain recognized on the change in fair value of the Company\u2019s investment in Flutter Entertainment plc and higher Segment EBITDA (as defined below), partially offset by legal settlement costs at FOX News Media (See Note 20\u2014Additional Financial Information to the accompanying Financial Statements under the heading \u201cOther, net\u201d) and restructuring charges (See Note 4\u2014Restructuring Programs to the accompanying Financial Statements).\nResults of Operations\u2014Fiscal 2022 versus Fiscal 2021\nThe following table sets forth the Company\u2019s operating results for fiscal 2022, as compared to fiscal 2021:\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2022\n2021\n$ Change\n% Change\n(in millions, except %)\n\u00a0\n\u00a0\nBetter/(Worse)\nRevenues\nAffiliate fee\n$\n6,878\u00a0\n$\n6,435\u00a0\n$\n443\u00a0\n7\u00a0\n%\nAdvertising\n5,900\u00a0\n5,431\u00a0\n469\u00a0\n9\u00a0\n%\nOther\n1,196\u00a0\n1,043\u00a0\n153\u00a0\n15\u00a0\n%\nTotal revenues\n13,974\u00a0\n12,909\u00a0\n1,065\u00a0\n8\u00a0\n%\nOperating expenses\n(9,117)\n(8,037)\n(1,080)\n(13)\n%\nSelling, general and administrative\n(1,920)\n(1,807)\n(113)\n(6)\n%\nDepreciation and amortization\n(363)\n(300)\n(63)\n(21)\n%\nImpairment and restructuring charges\n\u2014\u00a0\n(35)\n35\u00a0\n100\u00a0\n%\nInterest expense, net\n(371)\n(391)\n20\u00a0\n5\u00a0\n%\nOther, net\n(509)\n579\u00a0\n(1,088)\n**\nIncome before income tax expense\n1,694\u00a0\n2,918\u00a0\n(1,224)\n(42)\n%\nIncome tax expense\n(461)\n(717)\n256\u00a0\n36\u00a0\n%\nNet income\n1,233\u00a0\n2,201\u00a0\n(968)\n(44)\n%\nLess: Net income attributable to noncontrolling interests\n(28)\n(51)\n23\u00a0\n45\u00a0\n%\nNet income attributable to Fox Corporation stockholders\n$\n1,205\u00a0\n$\n2,150\u00a0\n$\n(945)\n(44)\n%\n**\nnot meaningful\n39\nOverview\n\u2014The Company\u2019s revenues increased 8% for fiscal 2022, as compared to fiscal 2021, due to higher affiliate fee, advertising and other revenues. The increase in affiliate fee revenue was primarily due to higher average rates per subscriber, led by contractual rate increases on existing affiliate agreements and from affiliate agreement renewals, partially offset by a lower average number of subscribers. Also impacting the increase was the absence of prior year affiliate fee credits as a result of the COVID-19 related under-delivery of college football games. The increase in advertising revenue was primarily due to higher pricing at FOX Sports and FOX News Media, growth at Tubi, and a higher number of live events at FOX Sports due to the impact of COVID-19 in fiscal 2021. Partially offsetting this increase was lower political advertising revenue due to the absence of the 2020 presidential and congressional elections. The increase in other revenues was primarily due to higher sports sublicensing revenues which were impacted by COVID-19 in fiscal 2021, the impact of acquisitions of entertainment production companies in fiscal 2022 (See Note 3\u2014Acquisitions, Disposals and Other Transactions to the accompanying Financial Statements) and higher FOX Nation subscription revenues, partially offset by the impact of the divestiture of the Company\u2019s sports marketing businesses in fiscal 2021.\nOperating expenses increased 13% for fiscal 2022, as compared to fiscal 2021, primarily due to higher sports programming rights amortization and production costs related to NFL, MLB and college football content, including a higher number of live events due to the impact of COVID-19 in fiscal 2021. Also impacting the increase was increased digital investment at Tubi and FOX News Media, costs associated with the launch of the United States Football League (\u201cUSFL\u201d) and higher entertainment programming rights amortization due to more hours of original scripted programming as compared to fiscal 2021 which was impacted by COVID-19. This increase was partially offset by the absence of events that were shifted into fiscal 2021 from fiscal 2020 as a result of COVID-19 rescheduling, including National Association of Stock Car Auto Racing (\u201cNASCAR\u201d) Cup Series races and additional MLB regular season games, and the impact of the divestiture of the Company\u2019s sports marketing businesses in fiscal 2021.\nSelling, general and administrative expenses increased 6% for fiscal 2022, as compared to fiscal 2021, primarily due to higher technology costs related to the Company\u2019s digital initiatives and higher marketing expenses at FOX News Media, partially offset by the impact of the divestiture of the Company\u2019s sports marketing businesses in fiscal 2021.\nDepreciation and amortization\n\u2014Depreciation and amortization expense increased 21% for fiscal 2022, as compared to fiscal 2021, primarily due to assets placed into service during the fourth quarter of fiscal 2021 for the Company\u2019s standalone broadcast technical facilities and the impact of acquisitions of entertainment production companies in fiscal 2022.\nImpairment and restructuring charges\n\u2014See Note 4\u2014Restructuring Programs to the accompanying Financial Statements.\nInterest expense, net\n\u2014Interest expense, net decreased 5% for fiscal 2022, as compared to fiscal 2021, primarily due to the repayment of $750 million of senior notes in January 2022.\nOther, net\n\u2014See Note 20\u2014Additional Financial Information to the accompanying Financial Statements under the heading \u201cOther, net.\u201d\nIncome tax expense\n\u2014The Company\u2019s tax provision and related effective tax rate of 27% for fiscal 2022 was higher than the statutory rate of 21% primarily due to state taxes and a remeasurement of the Company\u2019s net deferred tax assets associated with changes in the mix of jurisdictional earnings. The Company\u2019s tax provision and related effective tax rate of 25% for fiscal 2021 was higher than the statutory rate of 21% primarily due to state taxes, partially offset by a benefit from the reduction of uncertain tax positions for state tax audits.\nNet income\n\u2014Net income decreased 44% for fiscal 2022, as compared to fiscal 2021, primarily due to the change in fair value of the Company\u2019s investment in Flutter Entertainment plc and the absence of the reimbursement from Disney of $462 million related to the substantial settlement of the Company\u2019s prepayment of its share of the Divestiture Tax, which occurred during fiscal 2021 (See Note 20\u2014Additional Financial Information to the accompanying Financial Statements under the heading \u201cOther, net\u201d).\n40\nSegment Analysis\nThe Company\u2019s operating segments have been determined in accordance with the Company\u2019s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measure is segment operating income before depreciation and amortization, or Segment EBITDA. Due to the integrated nature of these operating segments, estimates and judgments are made in allocating certain assets, revenues and expenses.\nSegment EBITDA is defined as Revenues less Operating expenses and Selling, general and administrative expenses. Segment EBITDA does not include: Amortization of cable distribution investments, Depreciation and amortization, Impairment and restructuring charges, Interest expense, net, Other, net and Income tax expense. Management believes that Segment EBITDA is an appropriate measure for evaluating the operating performance of the Company\u2019s business segments because it is the primary measure used by the Company\u2019s chief operating decision maker to evaluate the performance of and allocate resources to the Company\u2019s businesses.\nFiscal 2023 versus Fiscal 2022\nThe following tables set forth the Company\u2019s Revenues and Segment EBITDA for fiscal 2023, as compared to fiscal 2022:\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2023\n2022\n$ Change\n% Change\n(in millions, except %)\n\u00a0\n\u00a0\nBetter/(Worse)\nRevenues\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nCable Network Programming\n$\n6,043\u00a0\n$\n6,097\u00a0\n$\n(54)\n(1)\n%\nTelevision\n8,710\u00a0\n7,685\u00a0\n1,025\u00a0\n13\u00a0\n%\nOther, Corporate and Eliminations\n160\u00a0\n192\u00a0\n(32)\n(17)\n%\nTotal revenues\n$\n14,913\u00a0\n$\n13,974\u00a0\n$\n939\u00a0\n7\u00a0\n%\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2023\n2022\n$ Change\n% Change\n(in millions, except %)\nBetter/(Worse)\nSegment EBITDA\n\u00a0\n\u00a0\nCable Network Programming\n$\n2,472\u00a0\n$\n2,934\u00a0\n$\n(462)\n(16)\n%\nTelevision\n1,009\u00a0\n347\u00a0\n662\u00a0\n**\nOther, Corporate and Eliminations\n(290)\n(326)\n36\u00a0\n11\u00a0\n%\nAdjusted EBITDA\n(a)\n$\n3,191\u00a0\n$\n2,955\u00a0\n$\n236\u00a0\n8\u00a0\n%\n**\nnot meaningful\n(a)\nFor a discussion of Adjusted EBITDA and a reconciliation of Net income to Adjusted EBITDA, see \u201cNon-GAAP Financial Measures\u201d below.\n41\nCable Network Programming \n(41% and 44% of the Company\u2019s revenues in fiscal 2023 and 2022, respectively)\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2023\n2022\n$ Change\n% Change\n(in millions, except %)\nBetter/(Worse)\nRevenues\nAffiliate fee\n$\n4,175\u00a0\n$\n4,205\u00a0\n$\n(30)\n(1)\n%\nAdvertising\n1,403\u00a0\n1,462\u00a0\n(59)\n(4)\n%\nOther\n465\u00a0\n430\u00a0\n35\u00a0\n8\u00a0\n%\nTotal revenues\n6,043\u00a0\n6,097\u00a0\n(54)\n(1)\n%\nOperating expenses\n(2,927)\n(2,595)\n(332)\n(13)\n%\nSelling, general and administrative\n(660)\n(586)\n(74)\n(13)\n%\nAmortization of cable distribution investments\n16\u00a0\n18\u00a0\n(2)\n(11)\n%\nSegment EBITDA\n$\n2,472\u00a0\n$\n2,934\u00a0\n$\n(462)\n(16)\n%\nRevenues at the Cable Network Programming segment decreased for fiscal 2023, as compared to fiscal 2022, due to lower affiliate fee and advertising revenues, partially offset by higher other revenues. The decrease in affiliate fee revenue was primarily due to a decrease in the average number of subscribers, partially offset by higher average rates per subscriber, led by contractual rate increases on existing affiliate agreements and from affiliate agreement renewals. The decrease in advertising revenue was primarily due to lower pricing in the direct response marketplace at FOX News Media, partially offset by the broadcast of the FIFA Men\u2019s\n World Cup \nat the national sports networks in the current year. The increase in other revenues was primarily due to higher FOX Nation subscription revenues and higher sports sublicensing revenues.\nCable Network Programming Segment EBITDA decreased for fiscal 2023, as compared to fiscal 2022, due to the revenue decreases noted above and higher expenses. Operating expenses increased primarily due to higher sports programming rights amortization led by the broadcast of the FIFA Men\u2019s \nWorld Cup\n, the renewed MLB contract and a higher volume of college football games at the national sports networks, and higher employee related costs and increased digital investment at FOX News Media. Selling, general and administrative expenses increased principally due to higher legal costs partially offset by lower marketing costs at FOX News Media and higher costs associated with the expansion of the USFL.\nTelevision \n(58% and 55% of the Company\u2019s revenues in fiscal 2023 and 2022, respectively)\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2023\n2022\n$ Change\n% Change\n(in millions, except %)\nBetter/(Worse)\nRevenues\nAdvertising\n$\n5,204\u00a0\n$\n4,440\u00a0\n$\n764\u00a0\n17\u00a0\n%\nAffiliate fee\n2,876\u00a0\n2,673\u00a0\n203\u00a0\n8\u00a0\n%\nOther\n630\u00a0\n572\u00a0\n58\u00a0\n10\u00a0\n%\nTotal revenues\n8,710\u00a0\n7,685\u00a0\n1,025\u00a0\n13\u00a0\n%\nOperating expenses\n(6,704)\n(6,431)\n(273)\n(4)\n%\nSelling, general and administrative\n(997)\n(907)\n(90)\n(10)\n%\nSegment EBITDA\n$\n1,009\u00a0\n$\n347\u00a0\n$\n662\u00a0\n**\n**\nnot meaningful \nRevenues at the Television segment increased for fiscal 2023, as compared to fiscal 2022, due to higher advertising, affiliate fee and other revenues. The increase in advertising revenue was primarily due to revenues resulting from the broadcasts of \nSuper Bowl LVII\n and the FIFA Men\u2019s \nWorld Cup\n, continued growth at Tubi, higher political advertising revenue at the FOX Television Stations principally due to the November 2022 U.S. \n42\nmidterm elections, and additional NFL post-season games. Partially offsetting this increase was the absence of \nTNF\n and lower ratings at the FOX Network in the current year. The increase in affiliate fee revenue was primarily due to higher fees received from television stations that are affiliated with the FOX Network and higher average rates per subscriber partially offset by a lower average number of subscribers at the Company\u2019s owned and operated television stations. The increase in other revenues was primarily due to the full year impact of acquisitions of entertainment production companies in fiscal 2022.\nTelevision Segment EBITDA increased for fiscal 2023, as compared to fiscal 2022, primarily due to the revenue increases noted above, partially offset by higher expenses. Operating expenses increased primarily due to higher sports programming rights amortization and production costs driven by the broadcast of \nSuper Bowl LVII\n, NFL and MLB content, led by a higher volume of post-season games, and the broadcast of the FIFA Men\u2019s \nWorld Cup\n, as well as increased digital investment in Tubi. Partially offsetting this increase was the absence of \nTNF\n and lower entertainment marketing and production costs. Selling, general and administrative expenses increased primarily due to continued growth at Tubi.\nOther, Corporate and Eliminations \n(1% of the Company\u2019s revenues for fiscal 2023 and 2022)\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2023\n2022\n$ Change\n% Change\n(in millions, except %)\nBetter/(Worse)\nRevenues\n$\n160\u00a0\n$\n192\u00a0\n$\n(32)\n(17)\n%\nOperating expenses\n(58)\n(91)\n33\u00a0\n36\u00a0\n%\nSelling, general and administrative\n(392)\n(427)\n35\u00a0\n8\u00a0\n%\nSegment EBITDA\n$\n(290)\n$\n(326)\n$\n36\u00a0\n11\u00a0\n%\nRevenues at the Other, Corporate and Eliminations segment for fiscal 2023 and 2022 include revenues generated by Credible and the operation of the FOX Studio lot for third parties. Operating expenses for fiscal 2023 and 2022 include advertising and promotional expenses at Credible. Selling, general and administrative expenses for fiscal 2023 and 2022 primarily relate to employee costs, professional fees and the costs of operating the FOX Studio lot.\nFiscal 2022 versus Fiscal 2021\nThe following tables set forth the Company\u2019s Revenues and Segment EBITDA for fiscal 2022, as compared to fiscal 2021:\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2022\n2021\n$ Change\n% Change\n(in millions, except %)\n\u00a0\n\u00a0\nBetter/(Worse)\nRevenues\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nCable Network Programming\n$\n6,097\u00a0\n$\n5,683\u00a0\n$\n414\u00a0\n7\u00a0\n%\nTelevision\n7,685\u00a0\n7,048\u00a0\n637\u00a0\n9\u00a0\n%\nOther, Corporate and Eliminations\n192\u00a0\n178\u00a0\n14\u00a0\n8\u00a0\n%\nTotal revenues\n$\n13,974\u00a0\n$\n12,909\u00a0\n$\n1,065\u00a0\n8\u00a0\n%\n43\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2022\n2021\n$ Change\n% Change\n(in millions, except %)\n\u00a0\n\u00a0\nBetter/(Worse)\nSegment EBITDA\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nCable Network Programming\n$\n2,934\u00a0\n$\n2,876\u00a0\n$\n58\u00a0\n2\u00a0\n%\nTelevision\n347\u00a0\n555\u00a0\n(208)\n(37)\n%\nOther, Corporate and Eliminations\n(326)\n(344)\n18\u00a0\n5\u00a0\n%\nAdjusted EBITDA\n(a)\n$\n2,955\u00a0\n$\n3,087\u00a0\n$\n(132)\n(4)\n%\n(a)\nFor a discussion of Adjusted EBITDA and a reconciliation of Net income to Adjusted EBITDA, see \u201cNon-GAAP Financial Measures\u201d below.\nCable Network Programming \n(44% of the Company\u2019s revenues in fiscal 2022 and 2021)\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2022\n2021\n$ Change\n% Change\n(in millions, except %)\nBetter/(Worse)\nRevenues\nAffiliate fee\n$\n4,205\u00a0\n$\n3,995\u00a0\n$\n210\u00a0\n5\u00a0\n%\nAdvertising\n1,462\u00a0\n1,337\u00a0\n125\u00a0\n9\u00a0\n%\nOther\n430\u00a0\n351\u00a0\n79\u00a0\n23\u00a0\n%\nTotal revenues\n6,097\u00a0\n5,683\u00a0\n414\u00a0\n7\u00a0\n%\nOperating expenses\n(2,595)\n(2,289)\n(306)\n(13)\n%\nSelling, general and administrative\n(586)\n(540)\n(46)\n(9)\n%\nAmortization of cable distribution investments\n18\u00a0\n22\u00a0\n(4)\n(18)\n%\nSegment EBITDA\n$\n2,934\u00a0\n$\n2,876\u00a0\n$\n58\u00a0\n2\u00a0\n%\nRevenues at the Cable Network Programming segment increased for fiscal 2022, as compared to fiscal 2021, due to higher affiliate fee, advertising and other revenues. The increase in affiliate fee revenue was primarily due to contractual rate increases on existing affiliate agreements and from affiliate agreement renewals, partially offset by a lower average number of subscribers. Also impacting the increase was the absence of fiscal 2021 affiliate fee credits as a result of the COVID-19 related under-delivery of college football games. The decrease in the average number of subscribers was due to a reduction in traditional MVPD subscribers, partially offset by an increase in virtual MVPD subscribers. The increase in advertising revenue was primarily due to higher pricing at FOX News Media and higher pricing and an increase in the number of live events at the national sports networks, primarily the result of additional MLB postseason games and the return of a full college football schedule that was shortened due to COVID-19 in fiscal 2021. This increase was partially offset by lower political advertising revenue due to the absence of the 2020 presidential elections. The increase in other revenues was primarily due to higher sports sublicensing revenues, which were impacted by COVID-19 in fiscal 2021, and higher FOX Nation subscription revenues, partially offset by the impact of the divestiture of the Company\u2019s sports marketing businesses in fiscal 2021.\nCable Network Programming Segment EBITDA increased for fiscal 2022, as compared to fiscal 2021, primarily due to the revenue increases noted above, partially offset by higher expenses. Operating expenses increased due to higher sports programming rights amortization and production costs primarily related to the return of a full college football and basketball season as a result of the impact of COVID-19 in fiscal 2021, increased investment in digital growth initiatives at FOX News Media and costs associated with the launch of USFL. This increase was partially offset by the absence of events that were shifted into fiscal 2021 from fiscal 2020 as a result of COVID-19 rescheduling, including NASCAR Cup Series races and additional MLB regular season games, and the impact of the divestiture of the Company\u2019s sports marketing businesses in fiscal 2021. Selling, general and administrative expenses increased principally due to higher marketing expenses at FOX News Media, partially offset by the impact of the divestiture of the Company\u2019s sports marketing businesses in fiscal 2021.\n44\nTelevision \n(55% of the Company\u2019s revenues in fiscal 2022 and 2021)\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2022\n2021\n$ Change\n% Change\n(in millions, except %)\n\u00a0\n\u00a0\nBetter/(Worse)\nRevenues\nAdvertising\n$\n4,440\u00a0\n$\n4,094\u00a0\n$\n346\u00a0\n8\u00a0\n%\nAffiliate fee\n2,673\u00a0\n2,440\u00a0\n233\u00a0\n10\u00a0\n%\nOther\n572\u00a0\n514\u00a0\n58\u00a0\n11\u00a0\n%\nTotal revenues\n7,685\u00a0\n7,048\u00a0\n637\u00a0\n9\u00a0\n%\nOperating expenses\n(6,431)\n(5,662)\n(769)\n(14)\n%\nSelling, general and administrative\n(907)\n(831)\n(76)\n(9)\n%\nSegment EBITDA\n$\n347\u00a0\n$\n555\u00a0\n$\n(208)\n(37)\n%\nRevenues at the Television segment increased for fiscal 2022, as compared to fiscal 2021, due to higher advertising, affiliate fee and other revenues. The increase in advertising revenue was primarily attributable to higher pricing as well as the return of a full schedule of college football in fiscal 2022 at FOX Sports and continued growth at Tubi, partially offset by lower political advertising revenue at the FOX Television Stations due to the absence of the 2020 presidential and congressional elections. The increase in affiliate fee revenue was primarily due to higher fees received from television stations that are affiliated with the FOX Network, and higher average rates per subscriber partially offset by a lower average number of subscribers at the Company\u2019s owned and operated television stations. The increase in other revenues was primarily due to the current year impact of acquisitions of entertainment production companies.\nTelevision Segment EBITDA decreased for fiscal 2022, as compared to fiscal 2021, as the revenue increases noted above were more than offset by higher expenses. Operating expenses increased primarily due to higher sports programming rights amortization and production costs related to NFL, MLB and college football content, including a higher number of college football games as compared to the COVID-19 impacted fiscal 2021, increased digital investment at Tubi and higher entertainment programming rights amortization due to more hours of original scripted programming as compared to fiscal 2021, which was impacted by COVID-19. Selling, general and administrative expenses increased primarily due to higher technology costs related to the Company\u2019s digital initiatives.\nOther, Corporate and Eliminations \n(1% of the Company\u2019s revenues for fiscal 2022 and 2021)\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2022\n2021\n$ Change\n% Change\n(in millions, except %)\nBetter/(Worse)\nRevenues\n$\n192\u00a0\n$\n178\u00a0\n$\n14\u00a0\n8\u00a0\n%\nOperating expenses\n(91)\n(86)\n(5)\n(6)\n%\nSelling, general and administrative\n(427)\n(436)\n9\u00a0\n2\u00a0\n%\nSegment EBITDA\n$\n(326)\n$\n(344)\n$\n18\u00a0\n5\u00a0\n%\nRevenues at the Other, Corporate and Eliminations segment for fiscal 2022 and 2021 include revenues generated by Credible and the operation of the FOX Studio lot for third parties. Operating expenses for fiscal 2022 and 2021 include advertising and promotional expenses at Credible and the costs of operating the FOX Studio lot. Selling, general and administrative expenses for fiscal 2022 and 2021 primarily relate to employee costs and professional fees and the costs of operating the FOX Studio lot.\nNon-GAAP Financial Measures\nAdjusted EBITDA is defined as Revenues less Operating expenses and Selling, general and administrative expenses. Adjusted EBITDA does not include: Amortization of cable distribution investments, Depreciation and amortization, Impairment and restructuring charges, Interest expense, net, Other, net and Income tax expense.\n45\nManagement believes that information about Adjusted EBITDA assists all users of the Company\u2019s Financial Statements by allowing them to evaluate changes in the operating results of the Company\u2019s portfolio of businesses separate from non-operational factors that affect Net income, thus providing insight into both operations and the other factors that affect reported results. Adjusted EBITDA provides management, investors and equity analysts a measure to analyze the operating performance of the Company\u2019s business and its enterprise value against historical data and competitors\u2019 data, although historical results, including Adjusted EBITDA, may not be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences).\nAdjusted EBITDA is considered a non-GAAP financial measure and should be considered in addition to, not as a substitute for, net income, cash flow and other measures of financial performance reported in accordance with U.S. generally accepted accounting principles (\u201cGAAP\u201d). In addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and impairment charges, which are significant components in assessing the Company\u2019s financial performance. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.\nFiscal 2023 versus Fiscal 2022\nThe following table reconciles Net income to Adjusted EBITDA for fiscal 2023, as compared to fiscal 2022:\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2023\n2022\n\u00a0\n(in millions) \nNet income\n$\n1,253\u00a0\n$\n1,233\u00a0\nAdd\nAmortization of cable distribution investments\n16\u00a0\n18\u00a0\nDepreciation and amortization\n411\u00a0\n363\u00a0\nImpairment and restructuring charges\n111\u00a0\n\u2014\u00a0\nInterest expense, net\n218\u00a0\n371\u00a0\nOther, net\n699\u00a0\n509\u00a0\nIncome tax expense\n483\u00a0\n461\u00a0\nAdjusted EBITDA\n$\n3,191\u00a0\n$\n2,955\u00a0\nThe following table sets forth the computation of Adjusted EBITDA for fiscal 2023, as compared to fiscal 2022:\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2023\n2022\n\u00a0\n(in millions) \nRevenues\n$\n14,913\u00a0\n$\n13,974\u00a0\nOperating expenses\n(9,689)\n(9,117)\nSelling, general and administrative\n(2,049)\n(1,920)\nAmortization of cable distribution investments\n16\u00a0\n18\u00a0\nAdjusted EBITDA\n$\n3,191\u00a0\n$\n2,955\u00a0\n46\nFiscal 2022 versus Fiscal 2021\nThe following table reconciles Net income to Adjusted EBITDA for fiscal 2022, as compared to fiscal 2021:\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2022\n2021\n\u00a0\n(in millions) \nNet income\n$\n1,233\u00a0\n$\n2,201\u00a0\nAdd\nAmortization of cable distribution investments\n18\u00a0\n22\u00a0\nDepreciation and amortization\n363\u00a0\n300\u00a0\nImpairment and restructuring charges\n\u2014\u00a0\n35\u00a0\nInterest expense, net\n371\u00a0\n391\u00a0\nOther, net\n509\u00a0\n(579)\nIncome tax expense\n461\u00a0\n717\u00a0\nAdjusted EBITDA\n$\n2,955\u00a0\n$\n3,087\u00a0\nThe following table sets forth the computation of Adjusted EBITDA for fiscal 2022, as compared to fiscal 2021:\n\u00a0\nFor the years ended June\u00a030,\n\u00a0\n2022\n2021\n\u00a0\n(in millions) \nRevenues\n$\n13,974\u00a0\n$\n12,909\u00a0\nOperating expenses\n(9,117)\n(8,037)\nSelling, general and administrative\n(1,920)\n(1,807)\nAmortization of cable distribution investments\n18\u00a0\n22\u00a0\nAdjusted EBITDA\n$\n2,955\u00a0\n$\n3,087\u00a0\nLIQUIDITY AND CAPITAL RESOURCES\nCurrent Financial Condition\nThe Company has approximately $4.3 billion of cash and cash equivalents as of June\u00a030, 2023 and an unused five-year $1.0 billion unsecured revolving credit facility (See Note 9\u2014Borrowings to the accompanying Financial Statements). The Company also has access to the worldwide capital markets, subject to market conditions. As of June\u00a030, 2023, the Company was in compliance with all of the covenants under its revolving credit facility, and it does not anticipate any noncompliance with such covenants.\nThe principal uses of cash that affect the Company\u2019s liquidity position include the following: the acquisition of rights and related payments for entertainment and sports programming; operational expenditures including production costs; marketing and promotional expenses; expenses related to broadcasting the Company\u2019s programming; employee and facility costs; capital expenditures; acquisitions; income taxes, interest and dividend payments; debt repayments; legal settlements; and stock repurchases.\nIn addition to the acquisitions and dispositions disclosed within Note 3\u2014Acquisitions, Disposals, and Other Transactions to the accompanying Financial Statements, the Company has evaluated, and expects to continue to evaluate, possible acquisitions and dispositions of certain businesses and assets. Such transactions may be material and may involve cash, the Company\u2019s securities or the assumption of additional indebtedness.\n47\nSources and Uses of Cash\u2014Fiscal 2023 vs. Fiscal 2022\nNet cash provided by operating activities for fiscal 2023 and 2022 was as follows (in millions):\nFor the years ended June\u00a030,\n2023\n2022\nNet cash provided by operating activities\n$\n1,800\u00a0\n$\n1,884\u00a0\nThe decrease in net cash provided by operating activities during fiscal 2023, as compared to fiscal 2022, was primarily due to legal settlement costs (See Note 14\u2014Commitments and Contingencies to the accompanying Financial Statements), partially offset by higher Adjusted EBITDA, lower sports rights payments primarily due to the absence of \nTNF \nand lower entertainment programming costs.\nNet cash used in investing activities for fiscal 2023 and 2022 was as follows (in millions):\nFor the years ended June\u00a030,\n2023\n2022\nNet cash used in investing activities\n$\n(438)\n$\n(513)\nThe decrease in net cash used in investing activities during fiscal 2023, as compared to fiscal 2022, was primarily due to the absence of acquisitions and dispositions, partially offset by an increase in capital expenditures and higher investments in equity securities.\nNet cash used in financing activities for fiscal 2023 and 2022 was as follows (in millions):\nFor the years ended June\u00a030,\n2023\n2022\nNet cash used in financing activities\n$\n(2,290)\n$\n(2,057)\nThe increase in net cash used in financing activities during fiscal \n2023, as compared to fiscal 2022,\n \nwas primarily due to activity under the stock repurchase program, including the $1 billion accelerated share repurchase agreement (See Note 11\u2014Stockholders\u2019 Equity to the accompanying Financial Statements under the heading \u201cStock Repurchase Program\u201d), partially offset by the absence of the $750 million repayment of senior notes that matured in January 2022.\nStock Repurchase Program\nSee Note 11\u2014Stockholders\u2019 Equity to the accompanying Financial Statements under the heading \u201cStock Repurchase Program.\u201d\nDividends\nDividends paid in fiscal \n2023\n totaled $0.50 per share of Class A Common Stock and Class B Common Stock. Subsequent to \nJune\u00a030, 2023\n, the Company increased its semi-annual dividend and declared a semi-annual dividend of $0.26 per share on both the Class A Common Stock and the Class B Common Stock. The dividend declared is payable on September 27, 2023 with a record date for determining dividend entitlements of August 30, 2023.\nBased on the number of shares outstanding as of \nJune\u00a030, 2023\n, and the new annual dividend rate stated above, the total aggregate cash dividends expected to be paid to stockholders in fiscal \n2024\n is approximately $260\u00a0million.\nSources and Uses of Cash\u2014Fiscal 2022 vs. Fiscal 2021\nNet cash provided by operating activities for fiscal 2022 and 2021 was as follows (in millions):\n \nFor the years ended June\u00a030,\n2022\n2021\nNet cash provided by operating activities\n$\n1,884\u00a0\n$\n2,639\u00a0\n48\nThe decrease in net cash provided by operating activities during fiscal 2022, as compared to fiscal 2021, was primarily due to higher sports payments and entertainment production spending as well as lower Adjusted EBITDA.\nNet cash used in investing activities for fiscal 2022 and 2021 was as follows (in millions):\nFor the years ended June\u00a030,\n2022\n2021\nNet cash used in investing activities\n$\n(513)\n$\n(528)\nThe decrease in net cash used in investing activities during fiscal 2022, as compared to fiscal 2021, was primarily due to lower capital expenditures in connection with establishing the Company\u2019s standalone broadcast technical facilities placed into service in fiscal 2021, partially offset by higher fiscal 2022 acquisitions (See Note 3\u2014Acquisitions, Disposals, and Other Transactions to the accompanying Financial Statements).\nNet cash used in financing activities for fiscal 2022 and 2021 was as follows (in millions):\nFor the years ended June\u00a030,\n2022\n2021\nNet cash used in financing activities\n$\n(2,057)\n$\n(870)\nThe increase in net cash used in financing activities during fiscal \n2022, as compared to fiscal 2021,\n was primarily due to the $750 million repayment of senior notes that matured in January 2022 and the absence of cash received from Disney in fiscal 2021, including the $462 million reimbursement related to the Divestiture Tax.\nDebt Instruments\nBorrowings include senior notes (See Note 9\u2014Borrowings to the accompanying Financial Statements). During fiscal 2022, cash used in the repayment of borrowings was $750 Million for the 3.666% senior notes which matured and were repaid in full in January 2022.\nRatings of the Senior Notes\nThe following table summarizes the Company\u2019s credit ratings as of June\u00a030, 2023:\nRating Agency\nSenior Debt\nOutlook\nMoody\u2019s\nBaa2\nStable\nStandard & Poor\u2019s\nBBB\nStable\nRevolving Credit Agreement\nIn June 2023, the Company entered into an unsecured $1.0 billion revolving credit facility\n with a maturity date of June 2028 (See Note 9\u2014Borrowings to the accompanying Financial Statements).\nCommitments and Contingencies\nThe Company has commitments under certain firm contractual arrangements (\u201cfirm commitments\u201d) to make future payments. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. For additional details on commitments and contingencies see Note 14\u2014Commitments and Contingencies to the accompanying Financial Statements under the headings \u201cLicensed Programming,\u201d \u201cOther commitments and contractual obligations\u201d and \u201cContingencies.\u201d\nPension and other postretirement benefits and uncertain tax benefits \nThe table in Note 14\u2014Commitments and Contingencies to the accompanying Financial Statements excludes the Company\u2019s pension and other postretirement benefits (\u201cOPEB\u201d) obligations and the gross unrecognized tax benefits for uncertain tax positions as the Company is unable to reasonably predict the ultimate amount and timing. The Company made contributions of $53 million and $59 million to its pension plans in fiscal 2023 and 2022, respectively. The majority of these contributions were voluntarily made to improve the funded status of the plans. Future plan contributions are dependent upon actual plan asset returns, interest \n49\nrates and statutory requirements. Assuming that actual plan asset returns are consistent with the Company\u2019s expected plan returns in fiscal 2024 and beyond and that interest rates remain constant, the Company would not be required to make any material contributions to its pension plans for the immediate future. Required pension plan contributions for the next fiscal year are not expected to be material but the Company may make voluntary contributions in future periods. Payments due to participants under the Company\u2019s pension plans are primarily paid out of underlying trusts. Payments due under the Company\u2019s OPEB plans are not required to be funded in advance, but are paid as medical costs are incurred by covered retiree populations, and are principally dependent upon the future cost of retiree medical benefits under the Company\u2019s OPEB plans. The Company does not expect its net OPEB payments to be material in fiscal 2024 (See Note 15\u2014Pension and Other Postretirement Benefits to the accompanying Financial Statements for further discussion of the Company\u2019s pension and OPEB plans).\nCRITICAL ACCOUNTING POLICIES\nAn accounting policy is considered to be critical if it is important to the Company\u2019s financial condition and results of operations and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by management of the Company and the related disclosures have been reviewed with the Audit Committee of the Company\u2019s Board of Directors. For the Company\u2019s summary of significant accounting policies, see Note 2\u2014Summary of Significant Accounting Policies to the accompanying Financial Statements.\nUse of Estimates\nSee Note 2\u2014Summary of Significant Accounting Policies to the accompanying Financial Statements under the heading \u201cUse of Estimates.\u201d\nRevenue Recognition\nRevenue is recognized when control of the promised goods or services is transferred to the Company\u2019s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company considers the terms of each arrangement to determine the appropriate accounting treatment.\nThe Company generates advertising revenue from sales of commercial time within the Company\u2019s network programming, and from sales of advertising on the Company\u2019s owned and operated television stations and various digital properties. Advertising revenue from customers, primarily advertising agencies, is recognized as the commercials are aired. Certain of the Company\u2019s advertising contracts have guarantees of a certain number of targeted audience views, referred to as impressions. Revenues for any audience deficiencies are deferred until the guaranteed number of impressions is met, by providing additional advertisements. Advertising contracts, which are generally short-term, are billed monthly for the spots aired during the month, with payments due shortly thereafter.\nThe Company generates affiliate fee revenue from agreements with MVPDs for cable network programming and for the broadcast of the Company\u2019s owned and operated television stations. In addition, the Company generates affiliate fee revenue from agreements with independently owned television stations that are affiliated with the FOX Network and receives retransmission consent fees from MVPDs for their signals. Affiliate fee revenue is recognized as we continuously make the network programming available to the customer over the term of the agreement. For contracts with affiliate fees based on the number of the affiliate\u2019s subscribers, revenues are recognized based on the contractual rate multiplied by the estimated number of subscribers each period. For contracts with fixed affiliate fees, revenues are recognized based on the relative standalone selling price of the network programming provided over the contract term, which generally reflects the invoiced amount. Affiliate contracts are generally multi-year contracts billed monthly with payments due shortly thereafter.\nThe Company classifies the amortization of cable distribution investments (capitalized fees paid to MVPDs to facilitate carriage of a cable network) against affiliate fee revenue. The Company amortizes the cable distribution investments on a straight-line basis over the contract period.\n50\nInventories\nLicensed and Owned Programming\nThe Company incurs costs to license programming rights and to produce owned programming. Licensed programming includes costs incurred by the Company for access to content owned by third parties. The Company has single and multi-year contracts for sports and non-sports programming. Licensed programming is recorded at the earlier of payment or when the license period has begun, the cost of the program is known or reasonably determinable and the program is accepted and available for airing. Advances paid for the right to broadcast sports events within one year and programming with an initial license period of one year or less are classified as current inventories, and license fees for programming with an initial license period of greater than one year are classified as non-current inventories. Licensed programming is predominantly amortized as the associated programs are made available. The costs of multi-year sports contracts are primarily amortized based on the ratio of each contract\u2019s current period attributable revenue to the estimated total remaining attributable revenue. Estimates can change and, accordingly, are reviewed periodically and amortization is adjusted as necessary. Such changes in the future could be material.\nOwned programming includes content internally developed and produced as well as co-produced content. Capitalized costs for owned programming are predominantly amortized using the individual-film-forecast-computation method, which is based on the ratio of current period revenue to estimated total future remaining revenue, and related costs to be incurred throughout the life of the respective program. Future remaining revenue includes imputed license fees for content used by FOX as well as revenue expected to be earned based on distribution strategy and historical performance of similar content. Changes to estimated future revenues may result in impairments or changes in amortization patterns. When production partners distribute owned programming on the Company\u2019s behalf, the net participation in profits is recorded as content license revenue. The Company may receive government incentives in connection with the production of owned programming. The Company records government incentives as a reduction of capitalized costs for owned programming when the monetization of the incentive is probable. Government incentives were not material in fiscal 2023, 2022 and 2021.\nInventories are evaluated for recoverability when an event or circumstance occurs that indicates that fair value may be less than unamortized costs. The Company will determine if there is an impairment by evaluating the fair value of the inventories, which are primarily supported by internal forecasts as compared to unamortized costs. Where an evaluation indicates unamortized costs, including advances on multi-year sports rights contracts, are not recoverable, amortization of rights is accelerated in an amount equal to the amount by which the unamortized costs exceed fair value. Owned programming is monetized and tested for impairment on an individual basis. Licensed programming is predominantly monetized as a group and tested for impairment on a channel, network, or daypart basis. The recoverability of certain sports rights is assessed on an aggregate basis. The Company recognized impairments of approximately $10 million, $50\u00a0million, and nil in fiscal 2023, 2022 and 2021, respectively, related to owned programming at the Cable Network Programming and Television segments, which were recorded in Operating expenses in the Consolidated Statements of Operations.\nGoodwill and Other Intangible Assets\nThe Company\u2019s intangible assets include goodwill, Federal Communications Commission (\u201cFCC\u201d) licenses, MVPD affiliate agreements and relationships, software, trademarks and other copyrighted products.\nThe Company accounts for its business combinations under the acquisition method of accounting. The total cost of acquisitions is allocated to the underlying net assets acquired, based on their respective estimated fair values at the date of acquisition. Goodwill is recorded as the difference between the consideration transferred to acquire entities and the estimated fair values assigned to their tangible and identifiable intangible net assets and is assigned to one or more reporting units for purposes of testing for impairment. Determining the fair value of assets acquired and liabilities assumed requires management\u2019s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Identifying reporting units and assigning goodwill to them requires judgment involving the aggregation of business units with similar economic characteristics and the identification of existing business units that benefit from the acquired goodwill. The judgments made in determining the estimated fair value assigned to each class of intangible assets acquired, their reporting unit, as well as their useful lives can significantly impact net income. The Company allocates goodwill to disposed businesses using the relative fair value method.\n51\nCarrying values of goodwill and intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company\u2019s impairment review is based on a discounted cash flow analysis and market-based valuation approach that requires significant management judgment. The Company uses its judgment in assessing whether assets may have become impaired between annual valuations. Indicators such as unexpected adverse economic factors, unanticipated technological changes or competitive activities, loss of key personnel and acts by governments and courts, may signal that an asset has become impaired and require the Company to perform an interim impairment test.\nThe Company uses direct valuation methods to value identifiable intangibles for acquisition accounting and impairment testing. The direct valuation method used for FCC licenses requires, among other inputs, the use of published industry data that are based on subjective judgments about future advertising revenues in the markets where the Company owns television stations. This method also involves the use of management\u2019s judgment in estimating an appropriate discount rate reflecting the risk of a market participant in the U.S. broadcast industry. The resulting fair values for FCC licenses are sensitive to these long-term assumptions and any variations to such assumptions could result in an impairment to existing carrying values in future periods and such impairment could be material.\nDuring fiscal 2023, the Company determined that the goodwill and indefinite-lived intangible assets included in the accompanying Consolidated Balance Sheet as of June\u00a030, 2023 were not impaired based on the Company\u2019s annual assessments. The Company determined that there are no reporting units at risk of impairment as of June\u00a030, 2023, and will continue to monitor its goodwill and indefinite-lived intangible assets for any possible future non-cash impairment charges.\nSee Note 2\u2014Summary of Significant Accounting Policies to the accompanying Financial Statements under the heading \u201cAnnual Impairment Review\u201d for further discussion.\nIncome Taxes\nThe Company is subject to income tax primarily in various domestic jurisdictions. The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining the Company\u2019s tax expense and in evaluating its tax positions, including evaluating uncertainties.\nThe Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In making this assessment, management analyzes future taxable income, reversing temporary differences and ongoing tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.\nEmployee Costs\nThe Company participates in and/or sponsors various pension, savings and postretirement benefit plans. Pension plans and postretirement benefit plans are closed to new participants with the exception of a small group covered by collective bargaining agreements. The measurement and recognition of costs of the Company\u2019s pension and OPEB plans require the use of significant management judgments, including discount rates, expected return on plan assets and other actuarial assumptions.\nFor financial reporting purposes, net periodic pension expense is calculated based upon a number of actuarial assumptions, including a discount rate, an expected rate of return on plan assets and mortality. The Company considers current market conditions, including changes in investment returns and interest rates, in making these assumptions. The expected long-term rate of return is determined using the current target asset allocation of 35% equity securities, 55% fixed income securities and 10% in other investments, and applying expected future returns for the various asset classes and correlations amongst the asset classes. A portion of the fixed income investments is allocated to cash to pay near-term benefits.\nThe discount rate reflects the market rate for high-quality fixed income investments on the Company\u2019s annual measurement date of June 30 and is subject to change each fiscal year. The discount rate assumptions \n52\nused to account for pension and other postretirement benefit plans reflect the rates at which the benefit obligations could be effectively settled. The rate was determined by matching the Company\u2019s expected benefit payments for the plans to a hypothetical yield curve developed using a portfolio of several hundred high-quality corporate bonds.\nThe key assumptions used in developing the Company\u2019s fiscal 2023, 2022 and 2021 net periodic pension expense for its plans consist of the following:\n\u00a0\n2023\n2022\n2021\n\u00a0\n(in millions, except %)\nDiscount rate for service cost\n4.8\u00a0\n%\n2.8\u00a0\n%\n2.9\u00a0\n%\nDiscount rate for interest cost\n4.5\u00a0\n%\n2.1\u00a0\n%\n2.2\u00a0\n%\nAssets\nExpected rate of return\n5.0\u00a0\n%\n5.1\u00a0\n%\n6.5\u00a0\n%\nActual return\n$\n53\u00a0\n$\n(152)\n$\n195\u00a0\nExpected return\n40\u00a0\n50\u00a0\n50\u00a0\nActuarial gain (loss)\n$\n13\u00a0\n$\n(202)\n$\n145\u00a0\nDiscount rates are volatile from year to year because they are determined based upon the prevailing rates as of the measurement date. The Company will utilize discount rates of 5.3% and 5.4% in calculating the fiscal 2024 service cost and interest cost, respectively, for its plans. The Company will use an expected long-term rate of return of 5.3% for fiscal 2024 based principally on the future return expectation of the plans\u2019 asset mix. Changes in assumptions and differences between assumptions and actual experience has resulted in accumulated pre-tax net losses on the Company\u2019s pension and postretirement benefit plans, which as of June\u00a030, 2023 were $195 million as compared to $292 million as of June\u00a030, 2022. These deferred losses are being systematically recognized in future net periodic pension expense. Unrecognized losses in excess of 10% of the greater of the market-related value of plan assets or the plans\u2019 projected benefit obligation (\u201cPBO\u201d) are recognized over the average future service of the plan participants or average future life of the plan participants.\nThe Company made contributions of $53 million, $59 million and $63 million to its pension plans in fiscal 2023, 2022 and 2021, respectively. The majority of these contributions were voluntarily made to improve the funding status of the plans. Future plan contributions are dependent upon actual plan asset returns, statutory requirements and interest rate movements. Assuming that actual plan returns are consistent with the Company\u2019s expected plan returns in fiscal 2024 and beyond and that interest rates remain constant, the Company would not be required to make any material statutory contributions to its pension plans for the immediate future. The Company will continue to make voluntary contributions as necessary to improve funded status.\nChanges in net periodic pension expense may occur in the future due to changes in the Company\u2019s expected rate of return on plan assets and discount rate resulting from economic events. The following table highlights the sensitivity of the Company\u2019s pension obligations and expense to changes in these assumptions, assuming all other assumptions remain constant:\nChanges in Assumption\nImpact on Annual\nPension Expense\nImpact on PBO\n0.25 percentage point decrease in discount rate\nIncrease $3 million\nIncrease $28 million\n0.25 percentage point increase in discount rate\nDecrease $2 million\nDecrease $27 million\n0.25 percentage point decrease in expected rate of return on assets\nIncrease $2 million\n\u2014\n0.25 percentage point increase in expected rate of return on assets\nDecrease $2 million\n\u2014\nFiscal 2024 net periodic pension expense for the Company\u2019s pension plans is expected to decrease to approximately $55 million primarily due to an increase in discount rates and asset gains during fiscal 2023.\n53\nLegal Matters\nThe Company establishes an accrued liability for legal claims and indemnification claims when the Company determines that a loss is both probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. Any fees, expenses, fines, penalties, judgments or settlements which might be incurred by the Company in connection with the various proceedings could affect the Company\u2019s results of operations and financial condition.\nCAUTION CONCERNING FORWARD-LOOKING STATEMENTS\nThis document contains \u201cforward-looking statements\u201d within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical or current fact are \u201cforward-looking statements\u201d for purposes of federal and state securities laws, including any statements regarding (i) future earnings, revenues or other measures of the Company\u2019s financial performance; (ii) the Company\u2019s plans, strategies and objectives for future operations; (iii) proposed new programming or other offerings; (iv) future economic conditions or performance; and (v) assumptions underlying any of the foregoing. Forward-looking statements may include, among others, the words \u201cmay,\u201d \u201cwill,\u201d \u201cshould,\u201d \u201clikely,\u201d \u201canticipates,\u201d \u201cexpects,\u201d \u201cintends,\u201d \u201cplans,\u201d \u201cprojects,\u201d \u201cbelieves,\u201d \u201cestimates,\u201d \u201coutlook\u201d or any other similar words.\nAlthough the Company\u2019s management believes that the expectations reflected in any of the Company\u2019s forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any forward-looking statements. The Company\u2019s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the SEC. Important factors that could cause the Company\u2019s actual results, performance and achievements to differ materially from those estimates or projections contained in the Company\u2019s forward-looking statements include, but are not limited to, government regulation, economic, strategic, political and social conditions and the following factors:\n\u2022\nevolving technologies and distribution platforms and changes in consumer behavior as consumers seek more control over when, where and how they consume content, and related impacts on advertisers and MVPDs;\n\u2022\ndeclines in advertising expenditures due to various factors such as the economic prospects of advertisers or the economy, major sports events and election cycles, evolving technologies and distribution platforms and related changes in consumer behavior and shifts in advertisers\u2019 expenditures, the evolving market for AVOD advertising campaigns, and audience measurement methodologies\u2019 ability to accurately reflect actual viewership levels;\n\u2022\nfurther declines in the number of subscribers to MVPD services;\n\u2022\nthe failure to enter into or renew on favorable terms, or at all, affiliation or carriage agreements or arrangements through which the Company makes its content available for viewing through online video platforms;\n\u2022\nthe highly competitive nature of the industry in which the Company\u2019s businesses operate;\n\u2022\nthe popularity of the Company\u2019s content, including special sports events; and the continued popularity of the sports franchises, leagues and teams for which the Company has acquired programming rights;\n\u2022\nthe Company\u2019s ability to renew programming rights, particularly sports programming rights, on sufficiently favorable terms, or at all;\n\u2022\ndamage to the Company\u2019s brands or reputation;\n\u2022\nthe inability to realize the anticipated benefits of the Company\u2019s strategic investments and acquisitions, and the effects of any combination or significant acquisition, disposition or other similar transaction involving the Company;\n\u2022\nthe loss of key personnel;\n54\n\u2022\nlabor disputes, including current disputes and labor disputes involving professional sports leagues whose games or events the Company has the right to broadcast;\n\u2022\nlower than expected valuations associated with the Company\u2019s reporting units, indefinite-lived intangible assets, investments or long-lived assets;\n\u2022\na degradation, failure or misuse of the Company\u2019s network and information systems and other technology relied on by the Company that causes a disruption of services or improper disclosure of personal data or other confidential information;\n\u2022\ncontent piracy and signal theft and the Company\u2019s ability to protect its intellectual property rights;\n\u2022\nthe failure to comply with laws, regulations, rules, industry standards or contractual obligations relating to privacy and personal data protection;\n\u2022\nchanges in tax, federal communications or other laws, regulations, practices or the interpretations thereof;\n\u2022\nthe impact of any investigations or fines from governmental authorities, including FCC rules and policies and FCC decisions regarding revocation, renewal or grant of station licenses, waivers and other matters;\n\u2022\nthe failure or destruction of satellites or transmitter facilities the Company depends on to distribute its programming;\n\u2022\nunfavorable litigation outcomes or investigation results that require the Company to pay significant amounts or lead to onerous operating procedures;\n\u2022\nchanges in GAAP or other applicable accounting standards and policies;\n\u2022\nthe Company\u2019s ability to secure additional capital on acceptable terms;\n\u2022\nthe impact of any payments the Company is required to make or liabilities it is required to assume under the Separation Agreement and the indemnification arrangements entered into in connection with the Separation and the Transaction;\n\u2022\nthe impact of COVID-19 and other widespread health emergencies or pandemics and measures to contain their spread; and\n\u2022\nthe other risks and uncertainties detailed in Item 1A. \u201cRisk Factors\u201d in this Annual Report.\nForward-looking statements in this Annual Report speak only as of the date hereof, and forward-looking statements in documents that are incorporated by reference hereto speak only as of the date of those documents. The Company does not undertake any obligation to update or release any revisions to any forward-looking statement made herein or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or to conform such statements to actual results or changes in our expectations, except as required by law.",
+  "item7a": ">ITEM 7A.\u00a0\u00a0\u00a0\u00a0QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nThe Company has exposure to two types of market risk: changes in interest rates and stock prices. The Company neither holds nor issues financial instruments for trading purposes.\nThe following sections provide quantitative and qualitative information on the Company\u2019s exposure to interest rate risk and stock price risk. The Company makes use of sensitivity analyses that are inherently limited in estimating actual losses in fair value that can occur from changes in market conditions.\nInterest Rates\nThe Company\u2019s current financing arrangements and facilities include $7.25\u00a0billion of outstanding fixed-rate debt, before adjustments for unamortized discount and debt issuance costs (See Note 9\u2014Borrowings to the accompanying Financial Statements). \nFixed and variable-rate debts are impacted differently by changes in interest rates. A change in the interest rate or yield of fixed-rate debt will only impact the fair market value of such debt, while a change in the \n55\ninterest rate of variable-rate debt will impact interest expense, as well as the amount of cash required to service such debt. As of June\u00a030, 2023, all the Company\u2019s financial instruments with exposure to interest rate risk were denominated in U.S. dollars and no variable-rate debt was outstanding. Information on financial instruments with exposure to interest rate risk is presented below:\n\u00a0\nAs of June\u00a030, \n\u00a0\n2023\n2022\n\u00a0\n(in millions) \nFair Value\n\u00a0\n\u00a0\nBorrowings: liability\n$\n6,895\u00a0\n$\n7,084\u00a0\nSensitivity Analysis\nPotential change in fair values resulting from a 10% adverse change in quoted interest rates\n$\n(267)\n$\n(270)\nStock Prices\nThe Company has common stock investments in publicly traded companies that are subject to market price volatility. Information on the Company\u2019s investments with exposure to stock price risk is presented below:\n\u00a0\nAs of June\u00a030, \n\u00a0\n2023\n2022\n\u00a0\n(in millions) \nFair Value\n\u00a0\n\u00a0\nTotal fair value of common stock investments\n$\n884\u00a0\n$\n435\u00a0\nSensitivity Analysis\n\u00a0\nPotential change in fair values resulting from a 10% adverse change in quoted market prices\n$\n(88)\n$\n(43)\nConcentrations of Credit Risk\nSee Note 2\u2014Summary of Significant Accounting Policies to the accompanying Financial Statements under the heading \u201cConcentrations of credit risk.\u201d\n56",
+  "cik": "1754301",
+  "cusip6": "35137L",
+  "cusip": ["35137L204", "35137L955", "35137L905", "35137l204", "35137l105", "35137L105"],
+  "names": ["FOX CORP   CLASS B", "Fox Corp", "Fox Corporation Class A", "FOX CORPORATION CL B", "FOX CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1754301/000162828023029065/0001628280-23-029065-index.htm"
+}
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+{
+  "item1": ">ITEM 1.\u00a0\u00a0\u00a0\u00a0BUSINESS\nGeneral\nOverview\nLumentum Holdings Inc. (\u201cwe,\u201d \u201cus,\u201d \u201cour\u201d, \u201cLumentum\u201d or the \u201cCompany\u201d) is an industry-leading provider of optical and photonic products addressing a range of end-market applications including Optical Communications (\u201cOpComms\u201d) and Commercial Lasers (\u201cLasers\u201d) for manufacturing, inspection and life-science applications. We seek to use our core optical and photonic technology, and our volume manufacturing capability, to expand into attractive emerging markets that benefit from advantages that optical or photonics-based solutions provide, including imaging and sensing for consumer electronics and diode light sources for a variety of consumer and industrial applications. The majority of our customers have historically been, and are currently, original equipment manufacturers (\u201cOEMs\u201d) that incorporate our products into their products, which then address end-market applications. For example, we sell fiber optic components that network equipment manufacturers (\u201cNEMs\u201d) assemble into communications networking systems, which they sell to communication service providers, hyperscale cloud operators, and enterprises with their own networks. Similarly, many of our Lasers products customers incorporate our products into tools they produce, which are used for manufacturing processes by their customers. For imaging and sensing, we sell diode lasers to manufacturers of consumer electronics products for mobile, personal computing, gaming, and other applications, including to the automotive industry, who then integrate our devices within their products, for eventual resale to consumers and also into other industrial applications.\n2\nTable of Contents\nWe believe the global markets in which Lumentum participates have fundamentally robust, long-term trends that will increase the need for our photonics products and technologies. We believe the world is becoming more reliant on ever-increasing amounts of data flowing through optical networks and data centers. Lumentum\u2019s products and technology enable the scaling of these optical networks and data centers to higher capacities. We expect that the accelerating shift to digital and virtual approaches to many aspects of work and life will continue into the future. Virtual meetings, video calls, and hybrid in-person and virtual environments for work and other aspects of life will continue to drive strong needs for bandwidth growth and present dynamic new challenges that our technology addresses. As manufacturers demand higher levels of precision, new materials, and factory and energy efficiency, suppliers of manufacturing tools globally are turning to laser-based approaches, including the types of lasers Lumentum supplies. Laser-based 3D sensing and LiDAR for security, industrial and automotive applications are rapidly developing markets. The technology enables computer vision applications that enhance security, safety, and new functionality in the electronic devices that people rely on every day. The use of LiDAR and in-cabin 3D sensing in automobile and delivery vehicles over time significantly adds to our long-term market opportunity. Frictionless and contactless biometric security and access control is of increasing focus globally given the world\u2019s experience with the COVID-19 pandemic. Additionally, we expect 3D-enabled machine vision solutions to expand significantly in industrial applications in the coming years.  \nWe operate in two reportable segments: OpComms and Lasers.\nWe have a global footprint that enables us to address global market opportunities for our products with employees engaged in research and development (\u201cR&D\u201d), administration, manufacturing, support and sales and marketing activities. We have manufacturing capabilities and facilities in North America, South America, Asia-Pacific and Europe. Our headquarters are located in San Jose, California, and we employed approximat\nely \n7,500\n full\n-time employees around the world as of July\u00a01, 2023.\nLumentum was incorporated in Delaware as a wholly owned subsidiary of JDS Uniphase Corporation (\u201cJDSU\u201d) on February 10, 2015. In August 2015, we were spun-off from JDSU and became an independent publicly traded company through the distribution of our common stock by JDSU to its stockholders. In 2015, JDSU was renamed Viavi Solutions Inc. (\u201cViavi\u201d). Our business traces its origins to Uniphase Corporation, which was formed in 1979 and became publicly traded in 1992. Uniphase was originally a supplier of commercial lasers, and later, a leading supplier of optical transmission products. In 1999, JDS Fitel Inc., a pioneer in products for fiber optic networking which was formed in 1981, merged with Uniphase to become JDSU, a global leader in optical networking. Subsequent acquisitions by JDSU broadened the depth and breadth of the OpComms and Lasers businesses, as well as the intellectual property, technology and product offerings, of what is now Lumentum. Notable amongst these acquisitions in the OpComms business were Agility Communications, Inc. in 2005 and Picolight, Inc. in 2007, which respectively brought widely tunable, long wavelength laser technology for metro and long-haul networking applications and short wavelength vertical-cavity surface-emitting lasers (\u201cVCSELs\u201d) for enterprise, datacenter networking, and 3D sensing applications. The fundamental laser component technologies, which we acquired through these acquisitions, form the basis of optical networks today, and we believe will continue to do so for the foreseeable future. These technologies will enable us to develop highly integrated products to satisfy our communications customers\u2019 ever-increasing needs for smaller, lower power and lower cost optical products. Notable acquisitions in the Lasers business were Lightwave Electronics Corporation in 2005 and Time-Bandwidth Products Inc. in 2014. Both of these Lasers acquisitions brought high power pulsed solid-state laser products and technology to our business, which address the micro machining laser market and expanded our addressable market. \nIn December 2018, we completed the acquisition of Oclaro, Inc. (\u201cOclaro\u201d), a provider of optical components and modules for the long-haul, metro and data center markets. Oclaro\u2019s products provide differentiated solutions for optical networks and high-speed interconnects driving the next wave of streaming video, cloud computing, application virtualization and other bandwidth-intensive and high-speed applications. This acquisition strengthened our product portfolio, by adding Oclaro\u2019s indium phosphide laser and photonic integrated circuit and coherent component and module capabilities which broadened our revenue mix and positions us strongly to meet the future needs of our customers. \nIn August 2022, we completed our merger with NeoPhotonics Corporation (\u201cNeoPhotonics\u201d). The addition of NeoPhotonics expands our opportunities in some of the fastest growing markets for optical components used in cloud and telecom network infrastructure. We expect the integrated company to be better positioned to serve the needs of a global customer base who are increasingly utilizing photonics to accelerate the shift to digital and virtual approaches to work and life, the proliferation of the internet of things (\u201cIoT\u201d), 5G, and next-generation mobile networks, and the transition to advanced cloud computing architectures.\nIn August 2022, we completed a transaction to acquire IPG Photonics\u2019 telecom transmission product lines  (\u201cIPG telecom transmission product lines\u201d) that develop and market products for use in telecommunications and datacenter infrastructure, including Digital Signal Processors (\u201cDSPs\u201d), application-specific integrated circuits (\u201cASICs\u201d) and optical transceivers. This acquisition has expanded our business in the OpComms segment.\n3\nTable of Contents\nIndustry Trends and Business Risks\nOur business is driven by end-market applications which benefit from the performance advantages of optical and photonics solutions.\nThe OpComms markets we serve are experiencing increasing needs for higher data transmission speeds, fiber optic network capacity and network agility. This is driven by rapid growth in both the number of higher bandwidth broadband applications such as high-definition video, online gaming, cloud computing, artificial intelligence and machine learning, and the number and scale of datacenters that require fiber optic links to enable the higher speeds and increased scale necessary to deliver high bandwidth video and other services. Our technology, which was originally developed for communications applications, is also finding use in other emerging market opportunities including 3D sensing applications that employ our laser technology in mobile devices, computers, augmented and virtual reality and other consumer electronics devices. Additionally, our products have been and are continuing to be designed into emerging automotive, industrial, security, safety and surveillance applications.\nIn the Lasers markets, customer demand is driven by the need to enable faster, higher precision volume manufacturing techniques with lower power consumption, more environmentally friendly, reduced manufacturing footprint and increased productivity. These capabilities are critical as industries develop products that are smaller and lighter, increasing productivity and yield and lowering their energy consumption. \nOur optical and laser solutions, developed in close collaboration with OEM partners and end users, are well-positioned to meet demand resulting from these trends. We do, however, expect to continue to encounter a number of industry and market risks and uncertainties. These risks and uncertainties may limit our visibility, and consequently, our ability to predict future revenue, profitability and general financial performance and could create quarter over quarter variability in our financial measures. For example, the demand environment coupled with changing export regulations with China have fluctuated significantly in recent years and has created volatility and uncertainty in our future demand.\nSupply Chain Constraints\nOur business and our customers\u2019 businesses have been negatively impacted by worldwide logistics and supply chain issues, including constraints on available cargo capabilities and limited availability of once broadly available supplies of both raw materials and finished components. COVID-19 also created dynamics in the semiconductor component supply chains that have led to shortages of the types of components we and our customers require in our products. Although the supply chain constraints have improved in the latter half of fiscal 2023, these shortages impacted our ability to meet demand and generate revenue from certain products in fiscal 2022 and fiscal 2023. If these shortages happen again in the future, they will impact our ability to supply our products to our customers and may reduce our revenue and profit margin. In addition, if our customers are unable to procure needed semiconductor components, this could reduce their demand for our products and reduce our revenue. The impact of semiconductor component shortages may continue in the near term with the exhaustion of supplier and customer buffer inventories and safety stocks. Due to the global supply chain constraints, we had to incur incremental supply and procurement costs in order to increase our ability to fulfill demands from our customers.\n \nIn addition, in response to component shortages, certain of our customers accumulated inventory that they are now managing down as supply conditions improve.  Accordingly, ordering patterns are difficult to predict and have declined from recent periods. For example, in the third quarter of fiscal 2023, a significant network equipment manufacturer informed us that due to their inventory management, it would not take the shipments we had originally projected for the quarter. These trends continued through the end of fiscal 2023 and we expect some level of inventory management by our customers will continue to impact our business during fiscal 2024.\nFor more information on risks associated with supply chain constraints and customer inventory, refer to Item 1A \u201cRisk Factors\u201d of this Annual Report.\nImpact of COVID-19 to Our Business\nWe continue to monitor the COVID-19 pandemic and actively assess potential implications to our business, supply chain, customer fulfillment sites, support operations and customer demand. We also continue to take appropriate measures to protect the health and safety of our employees and to create and maintain a safe working environment. While the effects of the COVID-19 pandemic have been lessening, if the adverse effects of COVID-19 or related responses of business or governments become more severe and prevalent or prolonged in the locations where we, our customers, suppliers or contract manufacturers conduct business, our business and results of operations could be materially and adversely affected in the future periods.\nFor more information on risks associated with the COVID-19 outbreak and regulatory actions, refer Item 1A \u201cRisk Factors\u201d of this Annual Report.\n4\nTable of Contents\nReportable Segments\nWe have two operating segments, OpComms and Lasers. The two operating segments were primarily determined based on how our Chief Operating Decision Maker (\u201cCODM\u201d) views and evaluates our operations. Operating results are regularly reviewed by our CODM to make decisions about resources to be allocated to the segments and to assess their performance. Other factors, including market separation and customer specific applications, go-to-market channels, products and manufacturing, are considered in determining the formation of these operating segments. We do not track our property, plant, and equipment by operating segments. For the geographic identification of these assets and for further information regarding our operating segments, refer to \u201cNote 18. Operating Segments and Geographic Information\u201d to the consolidated financial statements.\nOpComms\nMarkets\nOur OpComms products address the following markets: telecommunications (\u201cTelecom\u201d), data communications (\u201cDatacom\u201d) and consumer and industrial (\u201cConsumer and Industrial\u201d). \nOur OpComms products include a wide range of components, modules and subsystems to support customers including carrier networks for access (local), metro (intracity), long-haul (city-to-city and worldwide) and submarine (undersea) applications. Additionally, our products address enterprise, cloud, and data center applications, including storage-access networks (\u201cSANs\u201d), local-area networks (\u201cLANs\u201d) and wide-area networks (\u201cWANs\u201d), as well as artificial intelligence and machine learning (\u201cAI/ML\u201d). These products enable the transmission and transport of video, audio and data over high-capacity fiber-optic cables. We maintain leading positions in these fast-growing OpComms markets through our extensive product portfolio, including reconfigurable optical add/drop multiplexers (\u201cROADMs\u201d), coherent dense wavelength division multiplexing (\u201cDWDM\u201d) pluggable transceivers, and tunable small form-factor pluggable transceivers. We also sell laser chips for use in manufacturing of high-speed Datacom transceivers. \nIn the Consumer and Industrial market, our OpComms diode laser products include VCSELs and edge emitting lasers. In the Consumer end-market, our laser light sources are integrated into 3D sensing cameras which are used in applications in mobile devices, gaming, payment kiosks, computers, and other consumer electronics devices. Applications include biometric identification, computational photography, virtual and augmented reality, and natural user interfaces. Emerging applications for our lasers include automotive safety systems, LiDAR for advanced driver assistance systems in automobiles and autonomous vehicles, self-navigating robotics and drones in industrial applications, and 3D capture of objects coupled with 3D imaging or printing. In the industrial end-market, our diode lasers are used primarily as pump sources for pulsed and kilowatt class fiber lasers. \nCustomers \nDuring fiscal 2023, 2022, and 2021, net revenue generated from a single customer which represented 10% or more of our total net revenue of the applicable fiscal year is summarized in the table below:\nYears Ended\nJuly 1, 2023\nJuly 2, 2022\nJuly 3, 2021\nApple\n12.1\u00a0\n%\n28.7\u00a0\n%\n30.2\u00a0\n%\nCiena\n15.3\u00a0\n%\n12.6\u00a0\n%\n10.1\u00a0\n%\nHuawei\n*\n*\n10.8\u00a0\n%\nNokia\n10.5\u00a0\n%\n*\n*\n*Represents less than 10% of total net revenue.\n5\nTable of Contents\nTrends \nWe believe the optical communications market has started to expand beyond a small number of very large service providers and is transitioning to a variety of open and captive networks created for in-house use by large video services, search engines and companies offering a variety of cloud computing services. We believe that the trend towards an increase in demand for optical solutions, which increase network capacity, is in response to growing bandwidth demand driven by increased transmission of video, voice and data over optical communications networks. For example, artificial intelligence and machine learning workloads require additional bandwidth compared to traditional computing workloads. Additionally, service providers also seek to decrease the total cost of ownership of their networks. To remain competitive, network operators worldwide must offer broader suites of digital services at competitive prices. To do this, they are migrating to Internet-protocol (\u201cIP\u201d) networks and expanding long-haul, metro regional and metro access networks, which effectively deliver broadband services, while lowering capital and operating costs of dense-wavelength-division multiplexing networks.\nThe growing demand for capacity encourages the adoption of OpComms products across the Datacom and Telecom markets. Demand for capacity in the Datacom market is driven by the growing needs of LANs and WANs. Growth in Datacom is also driven by web and cloud services companies that are expanding data center infrastructure, increasing the need for network capacity within and between these data centers. \nDemand in the Telecom market is driven by new and existing bandwidth-intensive applications that can result in sudden and severe changes in demand almost anywhere on the network. Increasing agility in optical networks by employing ROADMs, wavelength selective switches, wavelength tunable transmission products and other agile optical products provides an effective way to respond to unpredictable bandwidth demands and to manage expenses. With more agile optical networks, a network operator can add capacity by using remote management applications rather than dispatching technicians to perform manual operations in the field. \nIn addition, the high-end routers, switches and cross-connect equipment that must handle legacy and internet-protocol traffic are becoming increasingly complex in order to meet higher bandwidth, scalability, speed and reliability needs. Products must provide higher levels of functionality and performance in compact designs that must also meet requirements for quality, reliability, and cost. \nWe believe increasing speeds at the edge of the network, including the significant increase in speed in 5G mobile networks, combined with increasing demand for high bandwidth applications and services, including streaming video, will result in increasing demand for additional capacity in datacenter interconnect, metro regional and long-haul networks. The dynamically reconfigurable nature of today\u2019s networks enables lower operating costs and other competitive advantages, allowing communications service providers to use and scale network capacity more flexibly, streamline service provisioning, accelerate rerouting around points of failure and modify network topology through simple point-and-click network management systems.\nOur optical products are well-positioned to meet these demands. Our innovations, particularly in the area of photonic integration, have resulted in products that have more functionality, are significantly smaller in size, require less power, and are more cost-effective than our historical products. Higher levels of integration have also led to development of our Super Transport Blade, which delivers all transport functions (wavelength switching, pre-amplification, post-amplification, optical supervisory channel and monitoring) in a single, integrated platform, essentially replacing three blades with one.\nOfferings\nIn addition to a full selection of active and passive components, we offer increasing levels of functionality and integration in modules, circuit packs and subsystems for transmission, amplification, wavelength management and more. \nIn the Telecom market, we provide transmission and transport solutions for optical networks that make up the backbone of the Telecom infrastructure, thereby enabling the internet, connections between cloud datacenters, and backhaul of data from wireless mobile networks. Transmission products, such as our tunable transponder, transceiver and transmitter modules, transmit and receive high-speed data signals at the ingress/egress points of networks. These products use dense wavelength division multiplexing (\u201cDWDM\u201d) technology to maximize the fiber transmission capacity while lowering the cost per bit to meet the needs of increasing internet and cloud demand. We also offer components including tunable lasers, receivers and modulators to address the higher end of these same network applications.\nOur transport products, such as ROADMs, amplifiers and optical channel monitors provide switching, routing and the conditioning of optical signals. We also make components for transport, including 980nm, multi-mode and Raman pumps for optical amplifiers, and passive components. Passive components include switches, attenuators, photodetectors, gain flattening filters, isolators, wavelength-division multiplexing (\u201cWDM\u201d) filters, arrayed waveguide gratings (\u201cAWGs\u201d), multiplex/de-multiplexers and integrated passive modules. \n6\nTable of Contents\nOur innovation led to the Super Transport Blade, which integrates all major optical transport functions into a single-slot blade. This all-in-one solution reduces the size, cost and power requirements of optical components, incorporates nano wavelength selective switch technology and enables greater chassis density and a smaller footprint.\nIn the Datacom market, optical transceivers are used to connect servers, switches, routers and other information technology infrastructure critical for today\u2019s internet applications, web services, video streaming, enterprise networks, artificial intelligence and machine learning and service provider solutions. The cloud data center market is one of the fastest growing markets in optical communications both in terms of network equipment investments and increasing volumes of higher speed optical transceivers. Additionally, the increased bandwidth needs of 5G wireless applications will drive growth in the volumes of high-speed optical transceivers. Historically, we have supplied optical transceivers, but we have shifted our strategy to supplying the underlying optical components, high-speed source lasers and receiver photo diodes used in optical transceivers to address these market segments.\nFor the 100G and higher data rates, we offer several source laser technologies to balance technical and commercial requirements. For high volume, short distance applications we developed our VCSELs, which are ideal for short reach applications because they enable low power, low-cost optical solutions that are highly scalable. For high-performance, longer distance applications we have our directly modulated laser (\u201cDML\u201d) and electro-absorption modulated laser (\u201cEML\u201d) chips supporting module applications with speeds from 10Gb/s through 800Gb/s. We also supply continuous wave (\u201cCW\u201d) lasers to customers utilizing silicon photonics to design and manufacture high speed datacom transceivers. Our individual lasers and compact laser arrays offer an innovative solution for the LANs, SANs, broadband internet, 5G Wireless and metro-area network as well as hyperscale datacenter applications.\nOur imaging and sensing technology enables real time depth information to any photo or video image. This represents a fundamental transition for image capture akin to the transition from monochrome to color and gives devices the ability to see the world around them in three dimensions. The immediate applications include full body imaging for gaming, 3D scanning for space mapping, computational photography and facial recognition for security. Emerging applications for this technology include various mobile device applications, autonomous vehicles, self-navigating robotics and drones in industrial applications and 3D capture of objects coupled with 3D printing. 3D sensing can be applied to any device with a camera. The technologies to achieve accurate and stable 3D sensing are converging to laser-based solutions. We are a leading supplier of the critical laser illumination sources for 3D sensing systems being used in applications for gaming, computing, mobile devices, and home entertainment.\nStrategy \nIn our OpComms segment, we are focused on technology leadership through innovation with our customers, cost leadership and functional integration. We endeavor to align the latest technologies with industry leading, scalable manufacturing and operations to drive the next phase of optical communications technologies and products for Telecom, Datacom, and Consumer and Industrial applications that are faster, more energy efficient, more agile and more reliable, making us a valuable business and technology partner for NEMs, network operators, consumer electronic companies, cloud service providers and data center operators.\nCompetition \nWe compete against various public and private companies providing optical communications components. Some of these competitors are also our customers.\nLasers\n \nMarkets\nOur Lasers products serve our customers in markets and applications such as sheet metal processing, general manufacturing, solar cell processing, biotechnology, graphics and imaging, remote sensing, and precision machining such as drilling in printed circuit boards, wafer singulation, glass cutting and solar cell scribing. \nOur Lasers products are used in a variety of OEM applications including diode-pumped solid-state, fiber, diode, direct-diode and gas lasers such as argon-ion and helium-neon lasers. Fiber lasers provide kW-class output powers combined with excellent beam quality and are used in sheet metal processing and metal welding applications. \nWe also provide high-powered and ultrafast lasers for the industrial and scientific markets. Manufacturers use high-power, ultrafast lasers to create micro parts for consumer electronics and to process semiconductor, LED, solar cells, and other types of chips. Use of ultrafast lasers for micromachining applications is being driven primarily by the increasing use of renewable energy, consumer electronics and connected devices globally. \n7\nTable of Contents\nOur portfolio of Lasers products includes components and subsystems used in a variety of OEM applications that range in output power from milliwatts to kilowatts and include ultraviolet, visible and infrared wavelengths. We support customer applications in the biotechnology, graphics and imaging, remote sensing, materials processing and other precision machining areas. \nCustomers \nDuring fiscal 2023, 2022, and 2021, we did not have any single customer attributable to our Lasers segment that generated net revenue of 10% or more of our total net revenue for the applicable fiscal year.\nTrends\nAs technology advances, industries such as consumer electronics manufacturing increasingly turn to lasers when they need more precision, higher productivity and energy efficient, or \u201cgreen,\u201d alternatives for problems that cannot be solved by mechanical, electronic or other means. For example, these industries are using lasers to develop products that are smaller and lighter to increase productivity and yield and to lower their energy consumption. Lasers have been used for years to help achieve the scale and precision needed in semiconductor processing. In biotech applications, lasers have been instrumental for advances (and new standard procedures) in cytology, hematology, genome sequencing and crime scene investigations, among others. We believe the long-term trends in these industries will likely lead to increased demand for lasers. \nSheet metal processing and metal welding applications are increasingly using kW-class fiber lasers instead of kW-class CO2 lasers. Fiber lasers generate higher productivity at lower cost in such applications because they exhibit lower power consumption, better quality and generally lower user maintenance costs.\nIn addition, demand continues for electronic products, as well as products and components in other industries, with greater functionality while becoming smaller, lighter and less expensive. Innovative next generation product designs require precise micromachining and materials processing, such as micro bending, soldering and welding. At the scale and processing speed needed, lasers are replacing mature mechanical tools such as drills for minute holes, or \u201cvias,\u201d in printed circuit boards and saws and scribes for singulation of silicon and other types of wafers, resulting in greater precision and productivity. As these trends continue, we believe that manufacturers and other industries will increase their reliance on lasers in order to maintain or increase their competitiveness. \nWe believe we are well-positioned with key OEM providers of laser solutions to these industries. We continue to develop our laser portfolio to offer smaller, more energy efficient and more cost-effective products designed specifically for the performance, integration, reliability and support needs of our OEM customers. \nOfferings \nOur broad range of Lasers products includes diode-pumped solid-state, fiber, diode, direct-diode and gas lasers such as argon-ion and helium-neon lasers. Diode-pumped solid-state and fiber lasers that provide excellent beam quality, low noise and exceptional reliability are used in biotechnology, graphics and imaging, remote sensing, materials processing and precision machining applications. Diode and direct-diode lasers address a wide variety of applications, including laser pumping, thermal exposure, illumination, ophthalmology, image recording, printing, plastic welding and selective soldering. Gas lasers such as argon-ion and helium-neon lasers provide a stable, low-cost and reliable solution over a wide range of operating conditions, making them well-suited for complex, high-resolution OEM applications such as flow cytometry, DNA sequencing, graphics and imaging and semiconductor inspection. \nStrategy \nIn our Lasers segment, we leverage our long-term relationships with OEM customers to drive commercial laser innovation. Using established manufacturing, engineering, lasers and photonics expertise, we deliver products that meet cost-of-ownership and reliability needs while delivering on volume production demands. \nCompetition\nWe compete against various public and private companies in the commercial laser markets we serve.\n8\nTable of Contents\nMergers and Acquisitions\nWe evaluate strategic opportunities regularly and, where appropriate, may acquire additional businesses, products, or technologies that are complementary to, or broaden the markets for our products. We believe we have strengthened our business model by expanding our addressable markets, customer base and expertise, diversifying our product portfolio and fortifying our core businesses through acquisitions as well as through organic initiatives. During fiscal 2023, we completed our merger with NeoPhotonics and the acquisition of IPG telecom transmission product lines.  Refer to \u201cNote 4. Business Combination\u201d to the consolidated financial statements for additional information.\nResearch and Development\nWe devote substantial resources to research and development (\u201cR&D\u201d) for the development of new and enhanced products to serve our markets. Once the design of a product is complete, our engineering efforts shift to enhancing both product performance and our ability to manufacture it in greater volume and at lower cost.\nIn our OpComms segment\n,\n we are maintaining our capability to provide products throughout the network, while focusing on several important sub-segments. We continue to maintain strong investments in Telecom components and modules such as ROADMs and tunable devices needed for long-haul and metro markets, as well as high performance DML, EML, CW, and VCSEL chips for Datacom transceivers. We are also responding to our customers\u2019 requests for higher levels of integration, including the integration of optics, electronics and software in our modules, subsystems and circuit packs. We are providing optical technology for 3D sensing systems that simplify the way that people interact with technology. These solutions are initially being used in consumer electronics, mobile device, automotive, and industrial applications.\nIn our Lasers segment, we continue to develop new product offerings in both solid-state and fiber lasers that take advantage of technologies and components we develop. These products are targeted at serving customers engaging in biotechnology, graphics and imaging, remote sensing, and materials processing and precision micromachining markets.\nManufacturing\nWe use a combination of contract manufacturers and our own manufacturing facilities. Our significant manufacturing facilities are located in the United States, Thailand, China, the United Kingdom, Slovenia, and Japan.\nIn fis\ncal 2023, \nwe expanded our manufacturing footprint with our merger with NeoPhotonics and acquisition of the IPG telecom transmission product lines. In light of these acquisitions, we have undertaken various initiatives to consolidate our manufacturing and operational sites. \nOur significant contract manufacturing partners are located primarily in Thailand, Taiwan and Malaysia. We rely on the capabilities of our contract manufacturers to plan and procure components and manage the inventory in these locations.\nSources and Availability of Raw Materials\nWe use various suppliers and contract manufacturers to supply parts and components for manufacturing and support of multiple product lines. Although our intention is to establish at least two sources of supply for materials whenever possible, for certain components we have sole or limited source supply arrangements. We may not be able to procure these components from alternate sources at acceptable prices and quality within a reasonable time, or at all, therefore, the risk of loss or interruption of such supply could impact our ability to deliver certain products on a timely basis. Risks associated with reliance on third parties for the timely and reliable delivery of raw materials are discussed in greater detail in Item 1A \u201cRisk Factors\u201d of this Annual Report.\nIntellectual Property\nIntellectual property rights that apply to our various products include patents, trade secrets and trademarks. We do not intend to broadly license our intellectual property rights unless we can obtain adequate consideration or enter into acceptable patent cross-license agreements. As of July\u00a01, 2023, we ow\nned approximately 1,000 U.S. patents and 1,100 foreign patents with expiration dates through 2043 and had approximately 660 patent applications pending throughout the world.\nSeasonality\nOur revenue may be influenced on a quarter-to-quarter basis by customer demand patterns and new product introductions. Some of our products may be incorporated into consumer electronic products, which are subject to seasonality and fluctuations in demand.\n9\nTable of Contents\nBacklog\nBacklog consists of purchase orders for products for which we have assigned shipment dates.\nAs of July\u00a01, 2023 and July\u00a02, 2022, our backlog was $389.9\u00a0million and $594.0 million, respectively. Due to possible changes in product delivery schedules and cancellation of product orders, and because our sales often reflect orders shipped in the same quarter in which they are received, our backlog at any particular date is not necessarily indicative of actual revenue or the level of orders for any succeeding period. A significant portion of our revenue arises from vendor-managed inventory (\u201cVMI\u201d) arrangements where the timing and volume of customer utilization is difficult to predict. Products that are shipped through VMI are not included in our reported backlog amounts above.\nHuman Capital Resources\nAs of July\u00a01, 2023, we employed approximately 7,500 full-time employees, including approximately 5,400 employees in manufacturing, 1,200 employees in R&D and 900 employees in SG&A. Of the 7,500 employees, approximately \n26% are represented by three national collective bargaining agreements with local chapters in Slovenia, Italy and Brazil and three labor unions in China. One of the collective bargaining agreements will be subject to renewal in December 2023.\n  We believe that our relations with both our union and non-union employees are solid.\nWe believe that the future performance of our Company relies upon the strength of our employees, and our ability to recruit, retain, develop and motivate the services of executive, engineering, sales and marketing, and support personnel is critical to our success. We strive to meet these objectives by offering competitive pay and benefits in a diverse, inclusive and safe workplace and by providing opportunities for our employees to grow and develop their careers. We believe that our employee relations are strong.\nCompetitive Pay and Benefits \nWe provide compensation and benefits packages that we believe are competitive within the applicable market. We use a combination of compensation and other programs (which vary by region and salary grade) to attract, motivate and retain our employees, including semi-annual performance bonuses, stock awards, an employee stock purchase plan, health savings and flexible spending accounts, paid time off, family leave, tuition assistance programs, health and wellness benefits and programs, and on-site fitness centers. We review our benefits packages annually, or more frequently as needed, to ensure we remain competitive with our peers and continue to attract and retain talent throughout our organization. \nEmployee Recruitment, Retention and Development\n \nWe are committed to recruiting, hiring, retaining, promoting and engaging a diverse workforce to best serve our global customers. We have established relationships with professional associations and industry groups to proactively attract talent, and we partner with universities for our internship program. We believe that our commitment to our internship program and university partnerships contributes to developing the next generation of talent and provides a pipeline of recent college graduates into our talent pool. \nDiversity, Inclusion & Belonging \nAs a global and multicultural company driven by innovation, Lumentum has been and continues to build a diverse and inclusive culture where differences are valued, and employees feel they belong. Lumentum\u2019s focus on diversity, inclusion, and belonging is felt across the entire organization.  We are committed to creating a diverse and welcoming workplace that includes employees with diverse backgrounds and experiences. Lumentum believes that employee and thought diversity delivers more innovation and ultimately better business results. \nAs part of our efforts to continue to ensure Lumentum\u2019s practices support a culture of diversity we are committed to ensuring pay equity as a standard global practice, increasing the representation of underrepresented populations, increasing the percentage of women in all leadership positions, and developing a pipeline of future leaders through our early career hire initiatives for new employees. Our work is driven by a Diversity, Inclusion, and Belonging Council comprised of global representation from all of our business units and functions.  Our diversity work is also enhanced by employee resource groups supporting women in North America, Switzerland, Slovenia, UK, Italy, and Japan, early career hires in North America and EMEA, Black, Asian American and Pacific Islander, LatinX in North America, LGBTQIA+, Persons with Disabilities, Working Parents, and our Veteran employees.\n10\nTable of Contents\nMaterial Government Regulations\nOur business activities are international and subject us to various federal, state, local and foreign laws in the countries in which we operate, and our products and services are subject to laws and regulations affecting the sale of our products.\nEnvironment \nOur R&D, manufacturing and distribution operations involve the use of hazardous substances and are regulated under international, federal, state and local laws governing health and safety and the environment. We apply strict standards for protection of the environment and occupational health and safety to sites inside and outside the United States, even if not subject to regulation imposed by foreign governments. We believe that our properties and operations at our facilities comply in all material respects with applicable environmental laws and occupational health and safety laws. However, the risk of environmental liabilities cannot be completely eliminated and there can be no assurance that the application of environmental and health and safety laws will not require us to incur significant expenditures. We are also regulated under a number of international, federal, state and local laws regarding recycling, product packaging and product content requirements. The environmental, product content/disposal and recycling laws are gradually becoming more stringent and may cause us to incur significant expenditures in the future.\nIn connection with our separation from JDSU and trading as an independent public company, we agreed to indemnify Viavi for any liability associated with contamination from past operations at all properties transferred to us from Viavi, to the extent the resulting issues primarily related to our business. We have not been presented with any claims to date.\nGlobal Trade \nAs our business operates in many global jurisdictions, the import and export of our products and services are subject to laws and regulations including international treaties, U.S. export controls and sanctions laws, customs regulations, and local trade rules around the world which vary widely across different countries and may change from time to time. Such laws, rules and regulations may delay the introduction of some of our products or impact our competitiveness through restricting our ability to do business in certain places or with certain entities and individuals, or by requiring us to comply with laws concerning transfer and disclosure of sensitive or controlled technology. For example, the U.S. and other governments have imposed restrictions on the import and export of, among other things, certain telecommunications products and components. The consequences of any failure to comply with domestic and foreign trade regulations could limit our ability to conduct business in certain areas or with certain customers. \nFor additional information concerning regulatory compliance and a discussion of the risks associated with governmental regulations that may materially impact us, refer to Item 1A \u201cRisk Factors\u201d of this Annual Report. \nInternational Operations\nDuring fiscal 2023, 2022 and 2021, net revenue from customers outside the United States based on the geographic region and country where our product is initially shipped, represented 86.3%\n, \n89.8% and 92.3% of net revenue, respectively. In certain circumstances customers may request shipment of our products to a contract manufacturer in one country, which may differ from the location of our end customers. Our net revenue is primarily denominated in U.S. dollars, including our net revenue from customers outside the United States based on customer shipment locations as presented above. Refer to \u201cNote 18. Operating Segments and Geographic Information\u201d to the consolidated financial statements. For information regarding risks associated with our international operations, refer to Item 1A \u201cRisk Factors\u201d of this Annual Report.\nAvailable Information\nOur website is located at www.lumentum.com, and our investor relations website is located at www.investor.lumentum.com. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as amended, are available free of charge on our investor relations website as soon as reasonably practicable after we file such material electronically with or furnish it to the Securities and Exchange Commission (the \u201cSEC\u201d). The SEC also maintains a website that contains our SEC filings at www.sec.gov.\nInvestors and others should note that we routinely use the Investors section of our website to announce material information to investors and the marketplace. While not all of the information that the Company posts on its corporate website is of a material nature, some information could be deemed to be material. Accordingly, the Company encourages investors, the media and others interested in the Company to review the information that it shares on www.lumentum.com. Information in, or that can be accessed through, our website is not incorporated into this Form 10-K.\n11",
+  "item1a": ">ITEM 1A. RISK FACTORS\nInvesting in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including the section titled \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and our consolidated financial statements and related notes, before making a decision to invest in our common stock. Our business, financial condition, results of operations or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.\nRisk Factor Summary\nOur business operations are subject to numerous risks, factors and uncertainties, including those outside of our control, which could cause our actual results to be harmed, including risks regarding the following:\nRisks Related to our Business\n\u2022\nunfavorable economic and market conditions;\n\u2022\nour reliance on a limited number of suppliers and customers;\n\u2022\nfailure of banking institutions and liquidity concerns at other financial institutions;\n\u2022\nour backlog may not be an accurate indicator of our level and timing of future revenue;\n\u2022\nour gross margins and operating margins may vary overtime;\n\u2022\nchallenges relating to supply chain constraints;\n\u2022\nchanges in technology and intense competition;\n\u2022\nour ability to sell to a significant customer, as well as tariffs and other trade restrictions between the U.S. and China;\n\u2022\nthe impact of the ongoing COVID-19 pandemic and responsive measures;\n\u2022\nour international operations structure;\n\u2022\nvolatility and maintenance of our real property portfolio;\n\u2022\nour ability to timely procure components needed to manufacture our products;\n\u2022\nour ability to manufacture our products;\n\u2022\nour leverage in negotiations with large customers;\n\u2022\ndefects in our products;\n\u2022\norder cancellations, reductions or delays in delivery schedules by our customers or distributors;\n\u2022\nchanges in laws and the adoption and interpretation of administrative rules and regulations, including U.S. and international customs and export regulations;\n\u2022\nour strategic transactions and implementation strategy for our acquisitions;\n\u2022\nchanges in spending levels, demand and customer requirements for our products;\n\u2022\nrestructuring and related charges;\n\u2022\nchanges in tax laws;\n\u2022\nfluctuations in foreign currency;\n\u2022\nour future capital requirements;\n\u2022\nactual or perceived security or privacy breaches or incidents, as well as defects, errors or vulnerabilities in our technology and that of third-party providers;\n12\n\u2022\nthe unpredictability of our results of operations;\n\u2022\nour ability to protect our product and proprietary rights;\n\u2022\nfactors relating to our intellectual property rights as well as the intellectual property rights of others; and\n\u2022\nlitigation risks, including intellectual property litigation;\n\u2022\nour reliance on licensed third-party technology; and\n\u2022\nour ability to maintain an effective system of disclosure controls and internal control over financial reporting\nRisks Related to Human Capital\n\u2022\nour ability to hire and retain key personnel; and\n\u2022\nthe effects of immigration policy on our ability to hire and retain employees\nRisks Related to Legal, Regulatory and Compliance\n\u2022\nour ability to obtain government authorization to export our products; and\n\u2022\nchanges in social and environmental responsibility regulations, policies and provisions, as well as customer and investor demands\nRisks Related to Our Common Stock\n\u2022\nthe volatility of the trading price of our common stock;\n\u2022\nour ability to service our current and future debt;\n\u2022\ndilution related to our convertible notes;\n\u2022\nour intention not to pay dividends for the foreseeable future;\n\u2022\nprovisions of Delaware law and our certificate of incorporation and bylaws that may make a merger, tender offer or proxy contest difficult; and\n\u2022\nexclusive forum provisions in our bylaws\n              Risks Related to Our Business\nOur operating results may be adversely affected by unfavorable changes in macroeconomics and market conditions and the uncertain geopolitical environment.\nCurrent and future conditions in the global economy have an inherent degree of uncertainty. As a result, it is difficult to estimate the level of growth or contraction of the global economy as a whole. It is even more difficult to estimate growth or contraction in various parts, sectors, and regions of the economy, including the markets in which we participate. All aspects of our forecasts depend on estimates of growth or contraction in the markets we serve. Our business and operating results depend significantly on general market and economic conditions. The current global macroeconomic environment is volatile and continues to be significantly and adversely impacted by uncertainty in the banking and financial services sector, global supply chain constraints, inflation, and a dynamic demand environment. Additionally, instability in the global credit markets, the impact of uncertainty regarding inflation, banking instability, capital expenditure reductions, unemployment, stock market volatility, the instability in the geopolitical environment in many parts of the world (including as a result of the on-going Russia-Ukraine war, and China-Taiwan relations), the current economic challenges in China, including global economic ramifications of Chinese economic difficulties, and other disruptions may continue to put pressure on global economic conditions.\n13\nAdverse changes to and uncertainty in the global economy has affected industries in which our customers operate and has resulted in decreases in the rate of demand, consumption or use of certain of our customers\u2019 products which, in turn, may result in decreased demand for our products, revenue fluctuations, increased price competition for our products, and increased the risk of excess and obsolete inventories as well as higher overhead costs as a percentage of revenue. Additionally, customers who had built up large inventories when supply chains were tight are now bringing down inventories as supply constraints are easing and in some cases these customers have delayed projected shipments. These losses or delays of orders have harmed our revenue and profitability and future losses or delays may further harm our results of operations. The impact of economic challenges on the global financial markets could further negatively impact our operations by affecting the solvency of our customers, the solvency of our key suppliers or the ability of our customers to obtain credit to finance purchases of our products. Further, supply chain disruptions have led and may continue to lead to increased costs and have harmed and may continue to harm our ability to meet customer demand, adversely affecting our revenue and profitability. If global economic and market conditions, or economic conditions in key markets, remain uncertain or deteriorate further, our prospects for growth may be negatively impacted, and we may experience material and adverse impacts on our business, operating results, and financial condition.\nWe depend on a limited number of suppliers for raw materials, packages and components, and any failure or delay by these suppliers in meeting our requirements could have an adverse effect on our business and results of operations.\nWe purchase raw materials, packages and components from a limited number of suppliers, who are often small and specialized. Additionally, some of our suppliers are our sole sources for certain materials, equipment and components. We depend on the timely and continued supply and quality of the materials, packages and components that our suppliers supply to us. We have not entered into long-term agreements with many of these suppliers. We do not have a guarantee of supply from these suppliers and as a result, there is no assurance that we would be able to secure the equipment or components that we require, in sufficient quantity, quality and on reasonable terms. Our business and results of operations have been, and could continue to be, adversely affected by this dependency. Alternative sources to mitigate the risk that the failure of any sole supplier will adversely affect our business are not feasible in all circumstances. If we were to lose any one of these or other critical sources, or there is as an industry-wide increase in demand for, or the discontinuation of, raw materials used in our products, it could be difficult for us, or we may be unable, to find an alternative supplier or raw material, in which case our operations could be adversely affected. Specific concerns we periodically encounter with our sole suppliers or limited number of suppliers include receipt of defective parts or contaminated materials, stoppages or delays of supply, insufficient resources to supply our requirements, substitution of more expensive or less reliable materials, increases in the price of supplies, and an inability to obtain reduced pricing from our suppliers in response to competitive pressures. Furthermore, the COVID-19 pandemic and related supply chain disruptions and labor market constraints have created heightened risk that sole suppliers or limited number of suppliers may be unable to meet their obligations to us. Difficulties in obtaining the materials, or services used in the conduct of our business or additional fees or higher prices to do so, have adversely affected our revenue and results of operations, and further challenges or decisions to seek alternate suppliers to secure supply in order to meet demand would increase our costs and reduce our profitability.\nOur financial results may be adversely affected due to changes in product demand impacted by recessions, inflation, increases in interest rates, stagflation and other economic conditions.\nCustomer demand for our products may be impacted by weak economic conditions, inflation, stagflation, recessionary or lower-growth environments, rising interest rates, equity market volatility or other negative economic factors in the U.S. or other countries. For example, under these conditions or expectation of such conditions, our customers may cancel orders, delay purchasing decisions or reduce their use of our services. In addition, these economic conditions could result in higher inventory levels and the possibility of resulting excess capacity charges from our contract manufacturers if we need to slow production to reduce inventory levels. Further, in the event of a recession or threat of a recession our contract manufacturers, suppliers and other third-party partners may suffer their own financial and economic challenges and as a result they may demand pricing accommodations, delay payment, or become insolvent, which could harm our ability to meet our customer demands or collect revenue or otherwise could harm our business. Similarly, disruptions in financial and/or credit markets may impact our ability to manage normal commercial relationships with our contract manufacturers, customers, suppliers and creditors and might cause us to not be able to continue to access preferred sources of liquidity when we would like, and our borrowing costs could increase. Thus, if the current economic conditions continue to deteriorate or experience a sustained period of weakness or slower growth, our business and financial results could be materially and adversely affected.\nAdditionally, we are also subject to risk from inflation and increasing market prices of certain components, supplies, and raw materials, which are incorporated into our products or used by our manufacturing partners or suppliers to manufacture our products. These components, supplies and commodities have from time to time become restricted, or general market factors and conditions have affected pricing of such components, supplies and raw materials (such as inflation or supply chain constraints), and future restrictions or market conditions impacting pricing may adversely affect our business and results of operations.\n14\nUnstable market and economic conditions and adverse developments with respect to financial institutions and associated liquidity risk may have serious adverse consequences on our business and financial condition.\nThe recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures could materially and adversely affect our liquidity, our business and financial condition. Even with our continued effort to mitigate counterparty risk by working with highly liquid, well capitalized counterparties, the failure of any bank in which we deposit our funds could reduce the amount of cash we have available for our operations or delay our ability to access such funds. Any such failure may increase the possibility of a sustained deterioration of financial market liquidity. The value of our investment portfolio could also be impacted if we hold debt instruments which were issued by any institutions that fail or become illiquid. Our ability to obtain raw materials for our supply chain and collections of cash from sales may be unduly impacted if any of our vendors or customers are affected by illiquidity events.\nOur backlog may not be an accurate indicator of our level and timing of future revenues. \nOur backlog may not be a reliable indicator of future operating results. For example, as a result of product order volume growth in prior periods and industry-wide supply challenges due to both constrained manufacturing capacity as well as shortages of component parts, our backlog grew and remained elevated in fiscal 2022 and 2023. As customer buying patterns normalize, order growth moderates, and supply chain conditions improve, we expect our backlog to reduce to a level generally in line with historical levels. Further, customer behaviors have been changing as a result of worldwide macroeconomic factors, which has reduced demand and may continue to reduce demand for certain of our products and services. If we are not able to respond to and manage the impact of these supply challenges and behavioral changes effectively, or if general macroeconomic conditions or conditions in the industries in which we operate deteriorate, our business, operating results, financial condition, and cash flows could be adversely affected.\nWe expect our gross margins and operating margins to vary over time. \nWe expect our product and gross margins are expected to vary, and margins may be adversely affected in the future by numerous factors, including, but not limited to, an increase or decrease in demand of our products, increased price competition in one or more of the markets in which we compete, modifications to our pricing strategy to gain or retain footprint in markets or with customers, currency fluctuations that impact our costs or the cost of our products to our customers, inflation, increases in material, labor, manufacturing, logistics, warranty costs, or inventory carrying costs, issues with manufacturing or component availability, issues relating to the distribution of our products, quality or efficiencies, increased costs due to changes in component pricing or charges incurred due to inaccurately forecasting product demand or underutilization of manufacturing capacity, warranty related issues, the impact of tariffs, or our introduction of new products and enhancements, or entry into new markets with different pricing and cost structures. We have seen, and may continue to see, our gross margins negatively impacted by increases in component costs, logistics costs, elevated inventory balances, and inflationary pressures, as well as pricing pressure. Failure to sustain or improve our gross margins reduces our profitability and may materially and adversely affect our business, financial condition and results of operations.\n15\nChallenges relating to current supply chain constraints, including semiconductor components, could adversely impact our business, results of operations and financial condition.\nDue to increased demand across a range of industries, our business and customers\u2019 businesses have experienced and could experience supply constraints due to both constrained manufacturing capacity, as well as component parts shortages. These supply constraints have adversely affected and could further affect availability, lead-times and cost of components, and could increase the likelihood of unexpected cancellations or delays of previously committed supply of key components. These challenges have resulted in extended lead-times to our customers and have had a negative impact on our ability to recognize associated revenue and have resulted in and may continue to result in an increase in accelerated ordering for certain of our products. As a result of accelerated ordering, our customers have had inventory backlog that they are now managing down, resulting in reduced ordering as compared to recent levels. Ordering patters may be difficult to predict and we have experienced and may continue to experience negative impacts to our revenue and profitability as well as our ability to achieve our forecasts.\nWe continue to work with our suppliers to ensure that we are able to continue manufacturing and distributing our products, and in the quantities requested by our customers; however, if we continue to experience disruption to our supply chain, it could impact our operations. For example, in the first half of fiscal year 2023, we incurred incremental supply and procurement costs in order to increase our ability to fulfill demands from our customers. Continued disruption in the supply of the raw materials, packaging or components used in the manufacture and delivery of our products could have a material adverse impact on our business, financial condition and results of operations. Limits on manufacturing availability or capacity or delays in production or delivery of components or raw materials could further delay or inhibit our ability to obtain supply of components and produce finished goods inventory. Although the impact of the COVID-19 pandemic is lessening, there can be no assurance that the supply chain impacts will not occur in the future. These supply chain constraints and their related challenges could result in shortages, increased material costs or use of cash, engineering design changes, and delays in new product introductions, each of which could adversely impact our business, results of operations and financial condition.\nChanging technology and intense competition require us to continuously innovate while controlling product costs, and our failure to do so may result in decreased revenues and profitability.\nThe markets in which we operate are dynamic and complex, and our success depends upon our ability to deliver both our current product offerings and new products and technologies on time and at acceptable prices to our customers. The markets for our products are characterized by rapid technological change, frequent new product introductions and enhancements, substantial capital investment, changes in customer requirements, continued price pressures and a constantly evolving industry. Historically, these pricing pressures have led to a continued decline of average selling prices across our business and we expect that these historical trends will continue. The development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation and the accurate prediction of technology and market trends. The introduction of new products also often requires significant investment to ramp up production capacity, the benefit of which may not be realized if we are not successful in the production of such products or if customer demand does not develop as expected. Ramping of production capacity also entails risks of delays which can limit our ability to realize the full benefit of new product introductions. We cannot assure you that we will be able to identify, develop, manufacture, market or support new or enhanced products successfully, if at all, or on a timely basis. We also cannot assure you that potential markets for our new products will materialize on the timelines we anticipate, or at all, or that our technology will meet our customers\u2019 specifications. Our future performance will depend on the successful development, introduction, deployment and market acceptance of new and enhanced features and products that meet our customers\u2019 current and future needs. Future demand for our products is uncertain and will primarily depend on continued technological development and the introduction of new or enhanced products. If this does not continue, sales of our products may decline which could adversely impact our business, results of operations and financial condition.\nThe market for optical communications products in particular has matured over time and these products have increasingly become subject to commoditization. Both legacy competitors as well as new entrants, predominantly Asia-based competitors, have intensified market competition in recent years leading to pricing pressure. To preserve our revenues and product margin structures, we remain reliant on an integrated customer and market approach that anticipates end customer needs as  requirements evolve. We also must continue to develop more advanced, differentiated products that command a premium with customers, while conversely continuing to focus on streamlining product costs for established legacy products. If we fail to continue to develop enhanced or new products that enable us to increase revenues while maintaining consistent margins, or over time are unable to adjust our cost structure to continue to competitively price more mature products, our financial condition and results of operations could be materially and adversely affected.\n16\nWe rely on a limited number of customers for a significant portion of our sales; and the majority of our customers do not have contractual purchase commitments.\nWe have consistently relied on a small number of customers for a significant portion of our sales, and in certain of our markets, such as imaging and sensing and commercial lasers, this customer concentration is particularly acute. We expect that this customer concentration will continue in the future, and we expect that our financial performance in certain business lines and growth prospects will continue to depend in part on a small number of customers. Many of our customers purchase products under purchase orders or under contracts that do not contain volume or long-term purchase commitments.\u00a0Therefore, these customers may alter their purchasing behavior with little or no notice to us for various reasons, including developing, or, in the case of our distributors, their customers developing, their own product solutions; choosing to purchase or distribute product from our competitors; incorrectly forecasting end market demand for their products; or experiencing a reduction in their market share in the markets for which they purchase our products. Additionally, increased inventory at our customers has impacted our revenue, as our customers have decided to lower their inventory levels and these impacts are expected to continue in the near term and in future periods. As a result, it is difficult to forecast our revenues and to determine the appropriate levels of inventory required to meet future demand. For example, we have from time-to-time experienced excess and obsolete charges due to customer transitions to the next generation of products. We may also experience increased inventory levels and increased carrying costs and risk of excess or obsolete inventory due to unanticipated reductions in purchases by our customers. In addition, customers provide us with their expected forecasts for our products several months in advance, but these customers may decrease, cancel or delay purchase orders already in place, including on short notice, or may experience financial difficulty which affects their ability to pay for products, particularly in light of the global macroeconomic uncertainty, and have done so from time to time, and the impact of any such actions may be intensified given our dependence on a limited number of large customers. We cannot accurately predict what or how many products our customers will need in the future. Anticipating demand is difficult because our customers face unpredictable demand for their own products and in recent periods have become increasingly focused on cash preservation and tighter inventory management.\n In addition, changes in the business requirements, vendor selection, project prioritization, financial prospects, capital resources, and expenditures, or purchasing behavior (including product mix purchased or timing of purchases) of our key customers, or any real or perceived quality issues related to the products that we sell to such customers, have led to decreased sales to such customers or delays or cancellations of planned purchases of our products or services, which has unfavorably impacted our revenues and operating results, and may continue to impact our business and results of operations. We may also experience pricing pressure with certain of our customers that may adversely affect our revenue and margins, or, if the ongoing relationship no longer benefits us, we may decide to suspend or terminate our relationship with such customers. There are also continuing trade tensions, including an uncertain regulatory environment, in the U.S. and countries in Asia, which have impacted and could continue to materially impact our sales to key customers in these regions. Further, we may be required to purchase raw materials, increase production capacity or make other changes to our business to accommodate certain large customers. If forecasted orders do not materialize, we may need to reduce investment in R&D activities, we may fail to optimize our manufacturing capacity and incur charges for such underutilization, we may incur liabilities with our suppliers for reimbursement of capital expenditures, or we may have excess inventory.\u00a0In addition, if we incur expenses in response to forecasted demand and do not have a corresponding increase in revenue, our profitability may suffer. Any of these factors could adversely affect our business, financial condition and results of operations.\nOur ability to sell our products to a significant customer has been restricted.\nIn August 2020, the Bureau of Industry and Security of the U.S. Department of Commerce (\u201cBIS\u201d) issued final rules that further restricted access by Huawei Technologies Co. Ltd. to items produced domestically and abroad from U.S. technology and software. The final rules prevent us from selling certain products to Huawei entities without a license issued subject to the Export Administration Regulations (\u201cEAR\u201d). Further, even if there are products unaffected by the rule or for which we are able to obtain an export license, Huawei may not be able to source products from other suppliers due to the final rules, which could impact Huawei\u2019s demand for our products.  We are dependent upon our ability to obtain export licenses, or exceptions to export license requirements, from U.S. and other foreign regulatory agencies.  There is no assurance that we will be issued these licenses or be granted exceptions, and failure to obtain such licenses or exceptions could limit our ability to sell our products into certain countries and negatively impact our business, financial condition and operating results.\nUnder the current regulatory regime, our business with Huawei has been and will continue to be more limited than it was in the past. For example, we have been unable to supply certain additional products and may be limited or unable to work with Huawei on future product developments while Huawei remains on the Entity List, which has negatively impacted our revenue from Huawei and may further negatively impact our financial condition and results of operations.  Huawei may seek to obtain similar or substitute products from our competitors that are not subject to these restrictions, or to develop similar or substitute products themselves. \n17\nWe cannot be certain what additional actions the U.S. government may take with respect to Huawei or other entities in China or other countries, including additional changes to the Entity List restrictions, export regulations, tariffs or other trade restrictions. We are unable to predict the duration of the restrictions enacted in May 2019 and thereafter, including the restrictions on Huawei\u2019s access to foreign-made chips made using U.S. technology which could have a long-term adverse effect on our business. The U.S. government has added other customers of ours to the Entity List, such as FiberHome Technologies Group in May 2020, and may continue to do so or otherwise restrict our ability to ship products which may harm our business, financial condition and results of operations. In 2021, BIS added other China-based technology companies into the Entity List, including seven supercomputing companies in April 2021 and twenty-three more entities located in China in July 2021, thereby further expanding the scope of companies subject to trade restrictions. BIS makes periodic updates to the Entity List, with some recent additions tied to super computing and artificial intelligence.\nWe also manufacture customized products for Huawei, and therefore may be unable to sell certain finished goods inventory to alternative customers or may be unable to utilize such manufacturing capabilities for products for alternative customers, which may result in further excess and obsolete inventory charges and/or underutilized capacity charges in future periods. In addition, we sell various non-customized products to Huawei in which Huawei represents a significant portion of the related products\u2019 demand.\u00a0 We have taken charges, and may have significant future charges, for common components which become excess as a result of the inability to sell to Huawei. Future charges related to trade restrictions could be caused by either additional regulatory restrictions enacted with respect to Huawei, or revisions to our estimates of the impact from already-enacted restrictions.\u00a0 Additional charges may also occur with respect to customized products that we manufacture for other customers in the event that such customers were to be added to the Entity List or otherwise if our ability to sell to such customers were restricted. We believe this trade uncertainty has caused and may in the future cause delays or cancellations, which could adversely affect our business, financial conditions and operating results.\nOur business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives has been affected, and may be materially and adversely affected by the effects of the COVID-19 pandemic and responsive actions thereto.\nThe COVID-19 pandemic and related countermeasures have, and may continue to have, an impact on the global economy and continues to cause macroeconomic uncertainty. Governmental authorities around the globe implemented, and may again in the future implement, numerous and evolving measures in response to the virus. We continue to monitor and evaluate the impact of the COVID-19 pandemic on our business operations on a regional, national, and global basis. We have reopened our facilities world-wide for office-based employees in a new office/hybrid model based on considerations regarding the health and safety of our employees and guidance of local and national governments. Although countries around the world largely reopened in 2022, there remains uncertainty and any future constraints, limitations or modifications imposed on our operations or business practices, or those of our suppliers, may limit our ability to meet customer demand, cause us to increase our safety stock of certain materials, reduce our productivity, slow or diminish our research and development activities, make our products less competitive, or cause our customers to seek alternative suppliers and delay customer qualification activities, any of which could harm our business, reduce our profitability or have a material and adverse effect on our financial condition and results of operations.\nWhile the impact of the COVID-19 pandemic is lessening, we cannot provide any assurance that we will be able to successfully identify, manage and mitigate the economic disruption impacts of any future widespread health crises, including as a result of any variants of COVID-19. The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals\u2019 actions that have been and continue to be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures particularly in China); the impact of the pandemic and actions taken in response on global and regional economies, travel, and economic activity; general economic uncertainty in key global markets and financial market volatility, including increasing levels of inflation in the United States; global economic conditions and levels of economic growth; and the ongoing pace of recovery as the COVID-19 pandemic subsides (including the availability and efficacy of treatments and vaccines and the impact of new variants on recovery). In addition, the global economic volatility has significantly impacted the foreign exchange markets, and the currencies of various countries in which we operate and in which we have significant volume of local-currency denominated expenses have seen significant volatility. While the effects of COVID-19 pandemic are lessening, the magnitude of the impact of COVID-19 on our business operations remains uncertain and difficult to predict, and the situation remains highly dynamic. We have experienced and will continue to experience in subsequent periods, disruptions to our business that will adversely impact our business, financial condition and results of operations.\n18\nIntense competition in our markets may lead to an accelerated reduction in our prices, revenues, margins and market share.\nThe end markets for optical products have experienced significant industry consolidation during the past few years. We expect this trend to continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations. As a result, the markets for optical subsystems, components and laser diodes are highly competitive and the intensity of such competition is increasing. Our current competitors include a number of domestic and international public and private companies, many of which may have substantially greater financial, technical, marketing and distribution resources and brand name recognition than we have.\n As we expand into new markets, we face competition not only from our existing competitors, but also from new competitors, including existing companies with strong technological and sales positions in those markets. \nWe may not be able to compete successfully against either current or future competitors, particularly, in light of increasing consolidation. Our competitors may continue to enter markets or gain or retain market share through introduction of new or improved products or with aggressive low pricing strategies that may impact the efficacy of our approach. These competitors may be able to devote greater resources than we can to the development, promotion, sale and support of their products. Additionally, the merger or consolidation of significant competitors, for example, II-VI\u2019s acquisition of Finisar in September of 2019 and its acquisition of Coherent in July, 2022, the acquisition of Acacia Communications by Cisco in March 2021, and the acquisition of OSRAM by AMS in December 2019, have resulted in competitors with greater resources, which may enable them to offer a different market approach, or a lower cost structure through economies of scale or other efficiencies that we may be unable to match and which may intensify competition in the various markets. Further, our competitors may seek to vertically integrate by buying suppliers that also supply products or components to us, which could enable them to further reduce prices, or could increase our costs. Our current or potential customers may also determine to develop and produce products for their own use which may be competitive to our products. Such vertical integration could reduce the market opportunity for our products. Increased competition could result in significant price erosion, reduced revenue, lower margins or loss of market share, any of which would significantly harm our business.\nWe are subject to risks arising from our international operations, which may adversely affect our business, financial condition, and results of operations.\nWe derive a majority of our revenue from our international operations, and we plan to continue expanding our business in international markets in the future. In addition, we have extensive international manufacturing capabilities through third-party contract manufacturers, as well as through our own international facilities, with employees engaged in R&D, administration, manufacturing, support and sales and marketing activities.\nAs a result of our international operations, in addition to similar risks we face in our U.S. operations, we are affected by economic, business, regulatory, social, and political conditions in foreign countries, including the following: \n\u2022\nadverse social, political and economic conditions, such as inflation, rising interest rates and risk of global or regional recession;\n\u2022\neffects of adverse changes in currency rates;\n\u2022\nimpacts related to business disruptions and restrictions related to COVID-19, including supply chain disruptions and labor shortages and differential impacts in different regions and geographies;\n\u2022\nchanges in general IT spending;\n\u2022\nless effective protection of intellectual property;\n\u2022\nthe imposition of government controls, inclusive of critical infrastructure protection;\n19\n\u2022\nchanges in or limitations imposed by trade protection laws or other regulatory orders or requirements in the United States or in other countries, including tariffs, sanctions, or other costs or requirements which may affect our ability to import or export our products from various countries or increase the cost to do so, including government action to restrict our ability to sell to foreign customers where sales of products may require export licenses (such as the U.S. Department of Commerce\u2019s addition of Huawei to the Entity List in May 2019, the addition of FiberHome in May 2020, amendment to the Foreign-Produced Direct Product Rule in August 2020 and the prohibition of export and sale of certain products to ZTE Corporation in early 2018)); the restrictions in China on the export of gallium and germanium; and increased tariffs on various products that have been proposed by the U.S. government and other non-U.S. governments;\n\u2022\nthe imposition of sanctions on customers in China may cause those customers to seek domestic alternatives to our products, including developing alternatives internally, and our customers demand for our products could be impacted by their inability to obtain other materials subject to sanctions.  For example, sanctions on sales to certain parties of U.S. semiconductors and semiconductor equipment has caused a delay in 5G deployment in China while the affected companies seek alternative solutions, which has reduced the demand for our products from some of our Chinese customers;\n\u2022\nvarying and potentially conflicting laws and regulations;\n\u2022\noverlapping, differing or more burdensome tax structure and laws;\n\u2022\nmarkets for 5G infrastructure not developing in the manner or in the time periods we anticipate, including as a result of unfavorable developments with evolving laws and regulations worldwide;\n\u2022\nwage inflation or a tightening of the labor market; \n\u2022\nthe impact of recessions and other economic conditions in economies outside the United States, including, for example, dips in the manufacturing Purchasing Managers Index as well as the Institute for Supply Management data in the Eurozone;\n\u2022\ntax and customs changes that adversely impact our global sourcing strategy, manufacturing practices, transfer-pricing, or competitiveness of our products for global sales;\n\u2022\nvolatility in oil prices and increased costs, or limited supply of other natural resources;\n\u2022\npolitical developments, geopolitical unrest or other conflicts in foreign nations, including Brexit, the war in Ukraine and political developments in Hong Kong and Taiwan and the potential impact such developments or further actions could have on our customers in the markets in which we operate; and\n\u2022\nthe impact of the following on service provider and government spending patterns as well as our contract and internal manufacturing: political considerations, changes in or delays in government budgeting processes, unfavorable changes in tax treaties or laws, unfavorable events that affect foreign currencies on an absolute or relative basis, natural disasters, epidemic disease, labor unrest, earnings expatriation restrictions, misappropriation of intellectual property, military actions, acts of terrorism, political and social unrest and difficulties in staffing and managing international operations\nAdditionally, our business is impacted by fluctuations in local economies and currencies. Global economic volatility has significantly impacted the foreign exchange markets, and the currencies of various countries in which we operate and have significant volume of local-currency denominated expenses have seen significant volatility. We expect such volatility to continue, which could negatively impact our results by making our non-U.S. operations more expensive when reported in U.S. dollars, primarily due to the costs of payroll.\nMoreover, local laws and customs in many countries differ significantly from or conflict with those in the United States or other countries in which we operate. In many foreign countries, particularly in those with developing economies, it is common for others to engage in business practices that are prohibited by our internal policies and procedures or U.S. regulations applicable to us. There can be no assurance that our employees, contractors, channel partners and agents will not take actions in violation of our policies and procedures, which are designed to ensure compliance with U.S. and foreign laws and policies. Violations of laws or key control policies by our employees, contractors, channel partners, or agents could result in termination of our relationships with customers and suppliers, financial reporting problems, fines and/or penalties for us, or prohibition on the importation or exportation of our products, and could have a material adverse effect on our business, financial condition and results of operations.\n20\nLike most other multinational companies, we are also highly dependent upon the ability to ship products to customers and to receive shipments from our suppliers. In the event of a disruption in the worldwide or regional shipping infrastructure, our access to supplies and our ability to deliver products to customers would correspondingly be negatively impacted. As a result of shipping disruptions, we have experienced among other things, increased costs to ship products and delays in receiving components and any disruption in the future would likely materially and adversely affect our operating results and financial condition.\nIn addition to the above risks related to our international operations, we also face risks related to health epidemics, such as the COVID-19 pandemic. An outbreak of a contagious disease, and other adverse public health developments, particularly in Asia, could have a material and adverse effect on our business operations.  The effects could include restrictions on our ability to travel to support our sites in Asia or our customers located there, disruptions in our ability to distribute products, and/or temporary closures of our facilities in Asia or the facilities of our suppliers or customers and their contract manufacturers. For additional information regarding the impact of COVID-19 on our business, refer to the risk factor above titled \u201cOur business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives may be materially and adversely affected by the effects of the COVID-19 pandemic and responsive actions thereto.\u201d\nIn the past, these and similar risks have disrupted our operations and the operations of our suppliers, customers and contract manufacturers and increased our costs, and we expect that they may do so in the future.  Any or all of these factors could have a material and adverse impact on our business, financial condition, and results of operations.\nWe are subject to the risks of owning real property. \nOur buildings subject us to the risks of owning real property, which include, but are not limited to: \n\u2022\nadverse changes in the value of these properties due to economic conditions, the movement by many companies to a hybrid work environment, interest rate changes, changes in the neighborhood in which the property is located, or other factors; \n\u2022\nthe possible need for structural improvements in order to comply with zoning, seismic and other legal or regulatory requirements; \n\u2022\nthe potential disruption of our business and operations arising from or connected with a relocation due to moving or to renovating the facility; \n\u2022\nincreased cash commitments for improvements to the buildings or the property, or both; \n\u2022\nincreased operating expenses for the buildings or the property, or both; and \n\u2022\nthe risk of financial loss in excess of amounts covered by insurance, or uninsured risks, such as the loss caused by damage to the buildings as a result of earthquakes, floods and/or other natural disasters.\nThe manufacturing of our products may be adversely affected if we are unable to manufacture certain products in our manufacturing facilities or if our contract manufacturers and suppliers fail to meet our production requirements.\nWe manufacture some of our finished good products as well as some of the components that we provide to our contract manufacturers in our China, Japan, Thailand, United Kingdom, and San Jose, California manufacturing facilities. For some of the components and finished good products, we are the sole manufacturer. Our manufacturing processes are highly complex, and issues are often difficult to detect and correct. From time to time we have experienced problems achieving acceptable yields in our manufacturing facilities, resulting in delays in the availability of our products and inability to meet customer demand. In addition, if we experience problems with our manufacturing facilities or are unable to continue operations at any of these sites, including as a result of social, geopolitical, environmental or health factors, damage caused by natural disasters, or other problems or events beyond our control, including pandemics or widespread health epidemics such as COVID-19, it would be costly and require a long period of time to move the manufacture of these components and finished good products to a different facility or contract manufacturer which could then result in interruptions in supply, and would likely materially impact our financial condition and results of operations.\n \nOur manufacturing is heavily concentrated in regions in Asia, and we would be severely impacted if there were further escalation of COVID-19 or related restrictions imposed by governments or private industry in that region.  For example, in the third quarter of fiscal 2022, we experienced a temporary factory closure in China as a result of an increase in the number of COVID-19 cases, as required by local government mandates.\n21\nWe also rely on several independent contract manufacturers to supply us with certain products. For many products, a particular contract manufacturer may be the sole source of the finished good products. We depend on these manufacturers to meet our production and capacity requirements and to provide quality products to our customers. There are a number of risks associated with our reliance on contract manufacturers including:\n\u2022\nreduced control over delivery schedules and planning;\n\u2022\navailability of manufacturing capability and capacity, particularly during periods of high demand;\n\u2022\nreliance on the quality assurance procedures of third parties; \n\u2022\nrisks associated with data security breaches or cyber-attacks targeting our contract manufacturers, including manufacturing disruptions or unauthorized access to information; and\n\u2022\npotential misappropriation of our intellectual property.\nAdditionally, if operations at these contract manufacturers are adversely impacted, such as by natural disasters, or restrictions due to COVID-19 disruptions or any resulting economic impact to their business, this would likely materially impact our financial condition and results of operations. Our ability to control the quality of products produced by contract manufacturers has and may in the future be impaired by pandemics or widespread health epidemics disruptions such as COVID-19, and quality issues might not be resolved in a timely manner. Additionally, if our contract manufacturers continue experiencing disruptions or discontinue operations, we may be required to identify and qualify alternative manufacturers, which is expensive and time consuming. If we are required to change or qualify a new contract manufacturer, this would likely cause business disruptions and adversely affect our results of operations and could harm our existing customer relationships.\nDespite rigorous testing for quality, both by us and the contract manufacturers to whom we sell products, we may receive and ship defective products. We may incur significant costs to correct defective products which could result in the loss of future sales and revenue, indemnification costs or costs to replace or repair the defective products, litigation and damage to our reputation and customer relations. Defective products may also cause diversion of management attention from our business and product development efforts.\nOur manufacturing operations and those of our contract manufacturers may be affected by natural disasters such as earthquakes, typhoons, tsunamis, fires and public health crises, including a global pandemic such as COVID-19, changes in legal requirements, labor strikes and other labor unrest and economic, political or other forces that are beyond our control.  For example, in the past one of our former contract manufacturers experienced a labor strike which threatened the contract manufacturer\u2019s ability to fulfill its product commitments to us and, in turn, our ability to fulfill our obligations to our customers.  We are heavily dependent on a small number of manufacturing sites. Our business and operations would be severely impacted by any significant business disruptions for which we may not receive adequate recovery from insurance. There is also an increased focus on corporate social and environmental responsibility in our industry. As a result, a number of our customers may adopt policies that include social and environmental responsibility provisions that their suppliers should comply with. These provisions may be difficult and expensive to comply with, given the complexity of our supply chain. We may be unable to cause our suppliers or contract manufacturers to comply with these provisions which may adversely affect our relationships with customers. \nIn addition, for a variety of reasons, including changes in circumstances at our contract manufacturers, restrictions or inability to operate, or regarding our own business strategies, we may choose or be required to transfer the manufacturing of certain products to other manufacturing sites, including to our own manufacturing facilities. As a result of such transfers, our contract manufacturers may prioritize other customers or otherwise be unable or unwilling to meet our demand. There also may be delays with the transfer of manufacturing equipment and successfully setting up that equipment at the transfer sites and training new operators. If such transfers are unsuccessful or take a longer period of time than expected, it could result in interruptions in supply and supply chain and would likely impact our financial condition and results of operations.\nSome of our purchase commitments with contract manufacturers are not cancellable which may impact our results of operations if customer forecasts driving these purchase commitments do not materialize and we are unable to sell the products to other customers. We may also incur charges if we do not utilize our allocated manufacturing capacity which would increase our costs and decrease our margins. Alternatively, our contract manufacturers may not be able to meet our demand which would inhibit our ability to meet our customers\u2019 demands and maintain or grow our revenues. Furthermore, it could be costly and require a long period of time to move products from one contract manufacturer to another which could result in interruptions in supply and adversely impact our financial condition and results of operations.\n22\nFurther, certain of our suppliers are located in China, which exposes us to risks associated with Chinese laws and regulations and U.S. laws, regulations and policies with respect to China, such as those related to import and export policies, tariffs, taxation and intellectual property. Chinese laws and regulations are subject to frequent change, and if our suppliers are unable to obtain or retain the requisite legal permits or otherwise to comply with Chinese legal requirements, we may be forced to obtain products from other manufacturers or to make other operational changes, including transferring our manufacturing to another manufacturer or to our own manufacturing facilities. In addition, many of our products are sourced from suppliers based outside of the United States, primarily in Asia. Uncertainty with respect to our suppliers\u2019 abilities due to COVID-19 impacts, tax and trade policies, tariffs and government regulations affecting trade between the United States and other countries has recently increased. Major developments in tax policy or trade relations, such as the imposition of tariffs on imported products, for example, tariffs on the import of certain products manufactured in China, could increase our product and product-related costs or require us to seek alternative suppliers, either of which could result in decreased sales or increased product and product-related costs. Any such developments could have a material impact on our ability to meet our customers\u2019 expectations and may materially impact our operating results and financial condition. \nIf our customers do not qualify our manufacturing lines or the manufacturing lines of our subcontractors for volume shipments, our operating results could suffer.\nCertain of our customers do not purchase products, other than limited numbers of evaluation units, prior to qualification of the manufacturing line for volume production. Our existing manufacturing lines, as well as each new manufacturing line, must pass through varying levels of qualification with certain of our customers. Some of our customers require that our manufacturing lines pass their specific qualification standards and that we, and any subcontractors that we may use, be registered under international quality standards. We may encounter quality control issues as a result of setting up new manufacturing lines in our facilities, relocating our manufacturing lines or introducing new products to fill production. We may be unable to obtain, or we may experience delays in obtaining, customer qualification of our manufacturing lines. If we introduce new contract manufacturing partners and move any production lines from existing internal or external facilities, the new production lines will likely need to be re-qualified with our customers. Any delays or failure to obtain qualifications would harm our reputation, operating results, and customer relationships.\n \nWe contract with a number of large OEM and end-user service providers and product companies that have considerable bargaining power, which may require us to agree to terms and conditions that could have an adverse effect on our business or ability to recognize revenues.\nLarge OEM and end-user service providers and product companies comprise a significant portion of our customer base. These customers generally have greater purchasing power than smaller entities and, accordingly, often request and receive more favorable terms from suppliers, including us.\u00a0As we seek to expand our sales to existing customers and acquire new customers, we may be required to agree to terms and conditions that are favorable to our customers and that may affect the timing of our ability to recognize revenue, increase our costs and have an adverse effect on our business, financial condition, and results of operations. Furthermore, large customers have increased buying power and ability to require onerous terms in our contracts with them, including pricing, warranties, and indemnification terms. If we are unable to satisfy the terms of these contracts,\u00a0it could result in liabilities of a material nature, including litigation, damages, additional costs, loss of market share and loss of reputation. Additionally, the terms these large customers require, such as most-favored nation or exclusivity provisions, may impact our ability to do business with other customers and generate revenues from such customers.\n23\nOur products may contain defects that could cause us to incur significant costs, divert our attention from product development efforts and result in loss of customers.\nOur products are complex, and defects and quality issues are found from time to time. Networking products in particular frequently contain undetected software or hardware defects when first introduced or as new versions are released. In addition, our products are often embedded in or deployed in conjunction with our customers\u2019 products which incorporate a variety of components produced by third parties, which may contain defects. As a result, when problems occur, it may be difficult to identify the source of the problem. These problems may cause us to incur significant damages or warranty and repair costs, divert the attention of our engineering personnel from our product development efforts and manufacturing resources, and cause significant customer relation problems or loss of customers, or risk exposure to product liability suits, all of which would harm our business. Additionally, changes in our or our suppliers' manufacturing processes or the inadvertent use of defective materials by us or our suppliers could result in a material and adverse effect on our ability to achieve acceptable manufacturing yields and product reliability. To the extent that we do not achieve and maintain our projected yields or product reliability, our business, operating results, financial condition and customer relationships would be adversely affected.\nAdverse changes in political, regulatory and economic policies, including the threat of increasing tariffs, particularly to goods traded between the United States and China, could materially and adversely affect our business and results of operations.\nRegulatory activity, such as tariffs, export controls, and economic sanctions laws have in the past and may continue to materially limit our ability to make sales to customers in China, which has in the past and may continue to harm our results of operations and financial condition. Since the beginning of 2018, there has been rhetoric, in some cases coupled with legislative or executive action, from several U.S. and foreign leaders regarding instituting tariffs against foreign imports of certain materials.  More specifically, since 2018, the United States and China applied or proposed to apply tariffs to certain of each other\u2019s exports, and we expect these actions to continue for the foreseeable future. Adverse regulatory activity, such as export controls, economic sanctions and the institution of trade tariffs both globally and between the United States and China specifically carries the risk of negatively impacting overall economic conditions, which could have negative repercussions on our industry and our business. Moreover, to the extent the governments of China, the United States or other countries seek to promote use of domestically produced products or to reduce the dependence upon or use of products from another (sometimes referred to as \u201cdecoupling\u201d), they may adopt or apply regulations or policies that have the effect of reducing business opportunities for us. Such actions may take the form of specific restrictions on particular customers, products, technology areas, or business combinations. For example, in the area of investments and mergers and acquisitions, the United States has recently announced new requirements for approval by the United States government of outbound investments; and the approval by China regulatory authorities is required for business combinations of companies that conduct business in China over specific thresholds, regardless of where those businesses are based. Restrictions may also be imposed based on whether the supplier is considered unreliable or a security risk. For example, the Chinese government adopted a law that would restrict purchases from suppliers deemed to be \u201cunreliable suppliers\u201d. In May 2023, the Cyberspace Administration of China banned the sale of Micron's products to certain entities in China and stated that such products pose significant security risks to China's critical information infrastructure supply chain and national security. Furthermore, imposition of tariffs or new or revised export, import or doing-business regulations, including trade sanctions, could cause a decrease in the demand for, or sales of our products to customers located in China or other customers selling to Chinese end users or increase the cost for our products, which would directly impact our business and results of operations.\nWe face a number of risks related to our strategic transactions.\nWe continuously monitor the marketplace for strategic opportunities, which includes expanding our product lines and markets through both internal product development and acquisitions. Consequently, we expect to continue to expand and diversify our operations with additional acquisitions and strategic transactions, such as our merger with NeoPhotonics  and the acquisition of IPG telecom transmission product lines in August 2022, as well as acquire complementary technologies, products, assets and businesses. We may be unable to identify or complete prospective acquisitions for many reasons, including competition from other potential acquirers, the effects of consolidation in our industries and potentially high valuations of acquisition candidates. Even if we do identify acquisitions or enter into agreements with respect to such acquisitions, we may not be able to complete the acquisition due to competition, regulatory requirements or restrictions or other reasons, as occurred with the termination of our merger agreement with Coherent in March 2021. In addition, applicable antitrust laws and other regulations may limit our ability to acquire targets or force us to divest an acquired business. If we are unable to identify suitable targets or complete acquisitions, our growth prospects may suffer, and we may not be able to realize sufficient scale and technological advantages to compete effectively in all markets.\nIn connection with acquisitions, risks to us and our business include:\n\u2022\ndiversion of management\u2019s attention from normal daily operations of the business; \u00a0\u00a0\u00a0\u00a0\n24\n\u2022\nfailure to achieve the anticipated transaction benefits or the projected financial results and operational synergies;\n\u2022\nunforeseen expenses, delays or conditions imposed upon the acquisition or transaction, including due to required regulatory approvals or consents, or fees that may be triggered upon a failure to consummate an acquisition or transaction for certain reasons;\n\u2022\nunanticipated changes in the combined business due to potential divestitures or other requirements imposed by antitrust regulators;\n\u2022\nunanticipated changes in the acquired business, including due to regulatory action or changes in the operating results or financial condition of the business;\n\u2022\nthe inability to retain and obtain required regulatory approvals, licenses and permits;\n\u2022\ndifficulties and costs in integrating the operations, technologies, products, IT and other systems, assets, facilities and personnel of the purchased businesses;\n\u2022\ndisruption due to the integration and rationalization of operations, products, technologies and personnel;\n\u2022\nloss of customers, suppliers or partners; and \n\u2022\nfailure to consummate an acquisition resulting in negative publicity and/or negative impression of us in the investment community that could impact on our stock price\nFurther, an acquisition or strategic transaction may not further our business strategy as we expected or we may overpay for, or otherwise not realized the expected return on, our investments. We have also faced litigation in connection with acquisitions, some of which continues following the consummation of the acquisition. Such litigation may be costly and diverts management time and attention.\nWe have in the past, and may in the future, divest or reduce our investment in certain businesses or product lines from time to time. For example, in the fiscal year 2019, we completed the divestiture of our Datacom module business in Japan, and in fiscal year 2020 we sold the assets associated with certain Lithium Niobate product lines manufactured by our San Donato, Italy site. Such divestitures involve risks, such as difficulty separating portions from our other businesses, distracting employees, incurring potential loss of revenue, negatively impacting margins, and potentially disrupting customer relationships. We may also incur significant costs associated with exit or disposal activities, related impairment charges, or both.\nIf we are unable to successfully manage any of these risks in relation to any future acquisitions or divestitures, our business, financial condition and results of operations could be adversely impacted.\nWe may be unable to successfully implement our acquisitions strategy or integrate acquired companies and personnel with existing operations.\nTo the extent we are successful in making acquisitions, such as our merger with NeoPhotonics and the acquisition of IPG telecom transmission product lines, we may be unsuccessful in implementing our acquisitions strategy, or integrating acquired companies, businesses or product lines and personnel with existing operations, or the integration may be more difficult or more costly than anticipated. Some of the challenges involved integrating businesses and acquisitions include:\n\u2022\ndifficulty preserving relationship with customers, suppliers or partners; \n\u2022\npotential difficulties in completing projects associated with in-process R&D;\n\u2022\nunanticipated liabilities or our exposure for known contingencies and liabilities may exceed our estimates;\n\u2022\ninsufficient net revenue or unexpected expenses that negatively impact our margins and profitability;\n\u2022\nunexpected losses of key employees of the acquired company, or inability to maintain our company culture;\n\u2022\nunexpected expenses for cost of litigation against us or our directors and officers, or against the acquired company;\n\u2022\npotential adverse effects on our ability to attract, recruit, retain, and motivate current and prospective employees;\n\u2022\nconforming the acquired company\u2019s standards, processes, procedures and controls with our operations, including integrating Enterprise Resource Planning (\u201cERP\u201d) systems and other key business applications;\n\u2022\ncoordinating new product and process development;\n25\n\u2022\nincreasing complexity from combining operations, including administrative functions, finance and human resources;\n\u2022\nincreasing the scope, geographic diversity and complexity of our operations;\n\u2022\ndifficulties in integrating operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries;\n\u2022\ndifficulties in integrating acquired technology;\n\u2022\ndifficulties in coordinating and integrating geographically separated personnel, organizations, systems and facilities;\n\u2022\ndifficulty managing customer transitions or entering into new markets;\n\u2022\ndifficulties in consolidating facilities and transferring processes and know-how; \n\u2022\ndiversion of management\u2019s attention from other business concerns;\n\u2022\ntemporary loss of productivity or operational efficiency;\n\u2022\ndilution of our current stockholders as a result of any issuance of equity securities as acquisition consideration; \n\u2022\nadverse tax or accounting impact;\n\u2022\nexpenditure of cash that would otherwise be available to operate our business; and\n\u2022\nindebtedness on terms that are unfavorable to us, limit our operational flexibility or that we are unable to repay\n In addition, following an acquisition, we may have difficulty forecasting the financial results of the combined company and the market price of our common stock could be adversely affected if the effect of any acquisitions on our consolidated financial results is dilutive or is below the market's or financial analysts' expectations, or if there are unanticipated changes in the business or financial performance of the target company or the combined company. Any failure to successfully integrate acquired businesses may disrupt our business and adversely impact our business, financial condition and results of operations.\nWe may not realize the expected benefits of our acquisitions or strategic transactions, or be able to retain those benefits even if realized.\nThe success of our acquisitions will depend in large part on our success in integrating the acquired operations, strategies, technologies, and personnel. We may fail to realize some or all of the anticipated benefits of an acquisition if the integration process takes longer than expected or is more costly than expected. If we fail to meet the challenges involved in successfully integrating any acquired operations or to otherwise realize any of the anticipated benefits of an acquisition, including any expected cost savings and synergies, our operations could be impaired. In addition, the overall integration of an acquired business can be a time-consuming and expensive process that, without proper planning and effective and timely implementation, could significantly disrupt our business.\nChanges in demand and customer requirements for our products may reduce manufacturing yields, which could negatively impact our profitability.\nManufacturing yields depend on a number of factors, including the volume of production due to customer demand and the nature and extent of changes in specifications required by customers for which we perform design-in work. Changes in manufacturing processes required as a result of changes in product specifications, changing customer needs, introduction of new product lines and changes in contract manufacturers may reduce manufacturing yields, resulting in low or negative margins on those products. Moreover, an increase in the rejection rate of products during the quality control process, before, during or after manufacturing, results in lower gross margins from lower yields and additional rework costs. Any reduction in our manufacturing yields will adversely affect our gross margins and could have a material impact on our operating results.\n26\nWe may not be able to realize tax savings from our international structure, which could materially and adversely affect our operating results. \nDuring fiscal 2023, the Company completed an international restructuring that included the intra-entity transfer of certain intellectual property and other assets used in the business among various subsidiaries.  This structure may be challenged by tax authorities, and if such challenges are successful, the tax consequence we expect to realize could be adversely impacted. If substantial modifications to our international structure or the way we operate our business are made, such as if future acquisitions or divestitures occur, if changes in domestic and international tax laws negatively impact the structure, if we do not operate our business consistent with the structure and applicable tax provisions, if we fail to achieve our revenue and profit goals, or if the international structure or our application of arm\u2019s-length principles to intercompany arrangements is successfully challenged by the U.S. or foreign tax authorities, our effective tax rate may increase, which could have a material adverse effect on our operating and financial results.\nChanges in tax laws could have a material adverse effect on our business, cash flow, results of operations or financial conditions.\nAs a multinational corporation, we are subject to income taxes as well as\u00a0non-income based taxes, in both the U.S. and various foreign jurisdictions. Significant uncertainties exist with respect to the amount of our tax liabilities, including those arising from potential changes in laws in the countries in which we do business and the possibility of adverse determinations with respect to the application of existing laws. Many judgments are required in determining our worldwide provision for income taxes and other tax liabilities, and we are under audit by various tax authorities, which often do not agree with positions taken by us on our tax returns. Any unfavorable resolution of these uncertainties may have a significant adverse impact on our tax rate.\nIncreasingly, countries around the world are actively considering or have enacted changes in relevant tax, accounting and other laws, regulations and interpretations. In August 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the \u201cIRA\u201d) and the CHIPS and Science Act of 2022. These laws introduce new tax provisions and provide for various incentives and tax credits. The IRA applies to tax years beginning after December 31, 2022 and introduces a 15% corporate alternative minimum tax and a 1% excise tax on certain stock repurchases made by publicly traded U.S. corporations. While we are not currently expecting a material impact to our provision for income taxes by the 15% corporate alternative minimum tax under the IRA, it could materially affect our financial results, including our earnings and cash flow, if we become subject to this tax in the future. \nMany countries, and organizations such as the Organization for Economic Cooperation and Development (the \u201cOECD\u201d) have proposed implementing changes to existing tax laws, including a proposed global minimum tax of 15%, also known as Pillar Two, which was agreed to by more than 140 member jurisdictions in 2021 and adopted by European Union member states on December 12, 2022 to go into effect in 2024. Other countries including the United Kingdom, Switzerland, Canada, Australia and South Korea are also actively considering changes to their tax laws to adopt certain parts of the OECD\u2019s proposals. Any of these developments or changes in federal, state, or international tax laws or tax rulings could adversely affect our effective tax rate and our operating results. There can be no assurance that our effective tax rates, tax payments, or incentives will not be adversely affected by these or other developments or changes in law.\nOther countries also continue to enact and consider enacting new laws, which could increase our tax obligations, cause us to change the way we do business or our operations or otherwise adversely affect us. The foregoing items could increase our future tax expense, could change our future intentions regarding reinvestment of foreign earnings, and could have a material adverse effect on our business, financial condition and results of operations.\nOur subsidiary in Thailand has been granted certain tax holidays by the Thailand government. As we do not currently meet the tax holiday requirements, income earned in Thailand is subject to the regular statutory income tax rate.\nWe are also subject to the continuous examination of our income tax and other returns by the Internal Revenue Service and other tax authorities globally, and we have a number of such reviews underway at any time. It is possible that tax authorities may disagree with certain positions we have taken, and an adverse outcome of such a review or audit could have a negative effect on our financial position and operating results. There can be no assurance that the outcomes from such examinations, or changes in tax law or regulation impacting our effective tax rates, will not have an adverse effect on our business, financial condition and results of operations.\n27\nOur operating results may be subject to volatility due to fluctuations in foreign currency.\nWe are exposed to foreign exchange risks with regard to our international operations which may affect our operating results. Since we conduct business in currencies other than U.S. dollars but report our financial results in U.S. dollars, we face exposure to fluctuations in currency exchange rates. Due to these fluctuations, operating results may differ materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany balances. Although we price our products primarily in U.S. dollars, a portion of our operating expenses are incurred in foreign currencies. For example, a portion of our expenses are denominated in the U.K. pound sterling, Chinese yuan and Thai baht. Fluctuations in the exchange rate between these currencies and other currencies in which we collect revenues and/or pay expenses could have a material effect on our future operating results. Recently, our exposure to foreign currencies has increased as our non-U.S. manufacturing footprint has expanded. We continue to look for opportunities to leverage the lower cost of non-U.S. manufacturing, including the United Kingdom, Thailand, and Japan.  While these geographies are lower cost than the U.S. and such concentration will in general lower our total cost to manufacture, this increase in concentration in non-U.S. manufacturing will also increase the volatility of our results. If the value of the U.S. dollar depreciates relative to certain other foreign currencies, it would increase our costs including the cost of local operating expenses and procurement of materials or services that we purchase in foreign currencies, as expressed in U.S. dollars. Conversely, if the U.S. dollar strengthens relative to other currencies, such strengthening could raise the relative cost of our products to non-U.S. customers, especially as compared to foreign competitors, and could reduce demand. Global economic volatility has had a significant impact on the exchange markets, which heightened this risk, and we expect the higher level of volatility in foreign exchange markets will likely continue.\nWe may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.\nWe intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including supporting the development and introduction of new products, addressing new markets, engaging in strategic transactions and partnerships, improving or expanding our operating infrastructure or acquiring complementary businesses and technologies. Investments, partnerships and acquisitions involve risks and uncertainties which could materially and adversely affect our operating and financial results. In March 2017, we issued and sold a total of $450 million in aggregate principal amount of 2024 Notes. In December 2019, we issued and sold a total of $1,050 million in aggregate principal amount of 2026 Notes. In March 2022, we issued and sold a total of $861\u00a0million aggregate principal amount of 2028 Notes. In June 2023, we issued and sold a total of $603.7\u00a0million aggregate principal amount of 2029 Notes. We may in the future engage in additional equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity, equity-linked or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, uncertainty in the macroeconomic environment, increasing interest rates and other factors have resulted in volatility in the capital markets and less favorable financing terms. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.\nIf we fail to effectively manage our growth or, alternatively, our spending during downturns, our business could be disrupted, which could harm our operating results.\nOver the last several years, we have rapidly increased in size. As a result, we have had to, and expect in the future to continue to need to, appropriately scale our business, internal systems and organization, and to continue to improve our operational, financial and management controls, reporting systems and procedures. Growth in sales, combined with the challenges of managing geographically dispersed operations, can place a significant strain on our management systems and resources, and our anticipated growth in future operations could continue to place such a strain. The failure to effectively manage our growth could disrupt our business and harm our operating results, and even if we are able to upgrade our systems and expand our staff, any such expansion will likely be expensive and complex. Our ability to successfully offer our products and implement our business plan in evolving markets requires an effective planning and management process. In economic downturns, we must effectively manage our spending and operations to ensure our competitive position during the downturn, as well as our future opportunities when the economy improves, remains intact. The failure to effectively manage our spending and operations could disrupt our business and harm our operating results.\n28\nAdditionally, in response to market conditions and changes in industry, we have from time to time strategically realigned our resources including workforce reductions and an international restructuring to reduce the cost of our operations, improve efficiencies, or realign our organization and staffing to better match our market opportunities and our technology development initiatives. We may take similar steps in the future. These changes could be disruptive to our business, including our research and development efforts, and may result in the recording of special charges, including workforce reduction or restructuring costs. Substantial expense or charges resulting from restructuring activities could adversely affect our results of operations and use of cash in those periods in which we undertake such actions.\nAny failure to manage our growth, our spending during downturns, or the alignment of our resources may harm our business and operating results.\nAny failure, disruption or security breach or incident of or impacting our information technology infrastructure or information management systems could have an adverse impact on our business and operations.\nOur business depends significantly on effective and efficient information management systems, and the reliability and security of our information technology infrastructure are essential to the operation, health and expansion of our business. For example, the information gathered and processed by our information management systems assists us in managing our supply chain, financial reporting, monitoring customer accounts, and protecting our proprietary and confidential business information, plans, trade secrets, and intellectual property, among other things. In addition, these systems may contain personal data or other confidential or otherwise protected information about our employees, our customers\u2019 employees, or other business partners. We must continue to expand and update this infrastructure in response to our changing requirements as well as evolving security standards and risks.\nIn some cases, we may rely upon third-party providers of hosting, support and other services to meet our information technology requirements. Any failure to manage, expand and update our information technology infrastructure, including our ERP system and other applications, any failure in the extension implementation or operation of this infrastructure, or any failure by our hosting and support partners or other third-party service providers in the performance of their services could materially harm our business. In addition, we have partnered with third parties to support our information technology systems and to help design, build, test, implement and maintain our information management systems. Our merger, acquisition and divestiture activity may also require transitions to or from, and the integration of, various information management systems within our overall enterprise architecture, including our ERP system and other applications. Those systems that we acquire or that are used by acquired entities or businesses may also pose security risks of which we are unaware or unable to mitigate, particularly during the transition of these systems.\nLike other companies, we are subject to ongoing attempts by malicious actors, including through hacking, malware, ransomware, denial-of-service attacks, social engineering, exploitation of internet-connected devices, and other attacks, to obtain unauthorized access to, or acquisition or other processing of confidential or other information or otherwise affect service reliability and threaten the confidentiality, integrity and availability of our systems and information stored or otherwise processed on our systems. Cyber threats have increased in recent years, in part due to increased remote work and frequent attacks, including in the form of phishing emails, malware attachments and malicious websites. Additionally, cybersecurity researchers have warned of increased risks of cyber-attacks, in connection with the war between Russia and Ukraine. While we work to safeguard our internal network systems and validate the security of our third-party service providers to mitigate these potential risks, including through information security policies and employee awareness and training, there is no assurance that such actions have been or will be sufficient to prevent cyber-attacks or security breaches or incidents. We have been in the past, and may be in the future, subject to social engineering and other cybersecurity attacks, and these attacks may become more prevalent with substantial portion of our workforce being distributed geographically, particularly given the increased remote access to our networks and systems as a result. Further, our third-party service providers may have been and may be in the future subject to such attacks or otherwise may suffer security breaches or incidents. In addition, actions by our employees, service providers, partners, contractors, or others, whether malicious or in error, could affect the security of our systems and information. Further, a breach or compromise of our information technology infrastructure or that of our third-party service providers could result in the misappropriation of intellectual property, business plans, trade secrets or other information. Additionally, while our security systems are designed to maintain the physical security of our facilities and information systems, accidental or willful security breaches or incidents or other unauthorized access by third parties to our facilities or our information systems could lead to unauthorized access to, or misappropriation, disclosure, or other processing of proprietary, confidential and other information. Moreover, new laws and regulations, such as the European Union\u2019s General Data Protection Regulation, the California Consumer Privacy Act and China\u2019s Personal Information Protection Law, add to the complexity of our compliance obligations and increases our compliance costs. Although we have established internal controls and procedures intended to comply with such laws and regulations, any actual or alleged failure to fully comply could result in significant penalties and other liabilities, harm to our reputation and market position, business and financial condition.\n29\nDespite our implementation of security measures, our systems and those of our third-party service providers are vulnerable to damage from these or other types of attacks, errors or acts of omissions. In addition, our systems may be impacted by natural disasters, terrorism or other similar disruptions. Any system failure, disruption, accident or security breach or incident affecting us or our third-party service providers could result in disruptions to our operations and loss or unavailability of, or unauthorized access or damage to, inappropriate access to, or use, disclosure or other processing of confidential information and other information maintained or otherwise processed by us on our behalf. Any actual or alleged disruption to, or security breach or incident affecting, our systems or those of our third-party partners could cause significant damage to our reputation, lead to theft or misappropriation of our intellectual property and trade secrets, result in claims, investigations, and other proceedings by or before regulators, and claims, demands and litigation, legal obligations or liability, affect our relationships with our customers, require us to bear significant remediation and other costs and ultimately harm our business, financial condition and operating results. In addition, we may be required to incur significant costs to protect against or mitigate damage caused by disruptions or security breaches or incidents. Our costs incurred in efforts to prevent, detect, alleviate or otherwise address cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and such efforts may not be successful. All of these costs, expenses, liability and other matters may not be covered adequately by insurance and may result in an increase in our costs for insurance or insurance not being available to us on economically feasible terms, or at all.\n \nInsurers may also deny us coverage as to any future claim. Any of these results could harm our financial condition, business and reputation.\nOur revenues, operating results, and cash flows may fluctuate from period to period due to a number of factors, which makes predicting financial results difficult.\nSpending on optical communication and laser products is subject to cyclical and uneven fluctuations, which could cause our financial results to fluctuate unpredictably. It can be difficult to predict the degree to which end-customer demand and the seasonality and uneven sales patterns of our OEM partners or other customers will affect our business in the future, particularly as we or they release new or enhanced products. We are also subject to changes in buying patterns among our OEM partners and other customers, including unpredictable changes in their desired inventory levels.  Further, if our revenue mix changes, it may also cause results to differ from historical seasonality. Accordingly, our quarterly and annual revenues, operating results, cash flows, and other financial and operating metrics have and may in the future vary significantly in the future. We attempt to identify changes in market conditions as soon as possible; however, the dynamics of the market in which we operate make prediction of and timely reaction to such events difficult. Due to these and other factors, the results of any prior periods should not be relied upon as an indication of future performance.\nIf we have insufficient proprietary rights or if we fail to protect our rights, our business would be materially harmed.\nWe seek to protect our products and product roadmaps in part by developing and/or securing proprietary rights relating to those products, including patents, trade secrets, know-how and continuing technological innovation. Protecting against the unauthorized use of our products, technology and other proprietary rights is difficult, time-consuming and expensive; therefore, the steps we take to protect our intellectual property may not adequately prevent misappropriation or ensure that others will not develop competitive technologies or products. Other companies may be investigating or developing technologies that are similar to our own. Additionally, there may be existing patents that we are unaware of, which could be pertinent to our business. It is not possible for us to know whether there are patent applications pending that our products might infringe upon since these applications are often not made publicly available until a patent is issued or published. It is possible that patents may not be issued from any of our pending applications or those we may file in the future and, if patents are issued, the claims allowed may not be sufficiently broad to deter or prohibit others from making, using or selling products that are similar to ours, or such patents could be invalidated or ruled unenforceable. We do not own patents in every country in which we sell or distribute our products, and thus others may be able to offer identical products in countries where we do not have intellectual property protections. In addition, the laws of some territories in which our products are or may be developed, manufactured or sold, including Europe, Asia-Pacific or Latin America, may not protect our products and intellectual property rights to the same extent as the laws of the United States. Any patents issued to us may be challenged, invalidated or circumvented. Additionally, we are currently a licensee for a number of third-party technologies including software and intellectual property rights from academic institutions, our competitors and others, and we are required to pay royalties to these licensors for the use thereof. In the future, if such licenses are unavailable or if we are unable to obtain such licenses on commercially reasonable terms, we may not be able to rely on such third-party technologies which could inhibit our development of new products, impede the sale of some of our current products, substantially increase the cost to provide these products to our customers, and could have a significant adverse impact on our operating results.\n30\nWe also seek to protect our important trademarks by endeavoring to register them in certain countries. We have not registered our trademarks in every country in which we sell or distribute our products, and thus others may be able to use the same or confusingly similar marks in countries where we do not have trademark registrations. We have adopted Lumentum as a house trademark and trade name for our company and are in the process of establishing rights in this name and brand. We have also adopted the Lumentum logo as a house trademark for our company and are in the process of establishing rights in this brand. Trademarks associated with the Lumentum brand have been registered in the United States or other jurisdictions, however, the efforts we take to maintain registration and protect trademarks, including the Lumentum brand, may not be sufficient or effective. Although we have registered marks associated with the Lumentum brand, third parties may seek to oppose or otherwise challenge these registrations. There is the possibility that, despite efforts, the scope of the protection obtained for our trademarks, including the Lumentum brand, will be insufficient or that a registration may be deemed invalid or unenforceable in one or more jurisdictions throughout the world.\nFurther, a breach of our information technology infrastructure could result in the misappropriation of intellectual property, business plans or trade secrets. Any failure of our systems or those of our third-party service providers could result in unauthorized access or acquisition of such proprietary information, and any actual or perceived security breach could cause significant damage to our reputation and adversely impact our relationships with our customers. \nOur products may be subject to claims that they infringe the intellectual property rights of others, the resolution of which may be time-consuming and expensive, as well as require a significant amount of resources to prosecute, defend, or make our products non-infringing.\nLawsuits and allegations of patent infringement and violation of other intellectual property rights occur regularly in our industry. We have in the past received, and anticipate that we will receive in the future, notices from third parties claiming that our products infringe upon their proprietary rights, with two distinct sources of such claims becoming increasingly prevalent. First, large technology companies, including some of our customers and competitors, are seeking to monetize their patent portfolios and have developed large internal organizations that may approach us with demands to enter into license agreements. Second, patent-holding companies that do not make or sell products (often referred to as \u201cpatent trolls\u201d) may claim that our products infringe upon their proprietary rights. We respond to these claims in the course of our business operations. The litigation or settlement of these matters, regardless of the merit of the claims, could result in significant expense and divert the efforts of our technical and management personnel, regardless of whether or not we are successful. If we are unsuccessful, we could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology that is the subject of the litigation. We may not be successful in such development, or such licenses may not be available on commercially reasonable terms, or at all. Without such a license, or if we are the subject of an exclusionary order, our ability to make our products could be limited and we could be enjoined from future sales of the infringing product or products, which could adversely affect our revenues and operating results. Additionally, we often indemnify our customers against claims of infringement related to our products and may incur significant expenses to defend against such claims. If we are unsuccessful defending against such claims, we may be required to indemnify our customers against any damages awarded.\nWe also face risks that third parties may assert trademark infringement claims against us in one or more jurisdictions throughout the world related to our Lumentum and Oclaro brands and/or other trademarks and our exposure to these risks may increase as a result of acquisitions. The litigation or settlement of these matters, regardless of the merit of the claims, could result in significant expense and divert the efforts of our technical and management personnel, regardless of whether or not we are successful. If we are unsuccessful, trademark infringement claims against us could result in significant monetary liability or prevent us from selling some or all of our products or services under the challenged trademark. In addition, resolution of claims may require us to alter our products, labels or packaging, license rights from third parties, or cease using the challenged trademark altogether, which could adversely affect our revenues and operating results.\nWe face certain litigation risks that could harm our business.\n31\nWe are now, and in the future, may become subject to various legal proceedings and claims that arise in or outside the ordinary course of business. The results of legal proceedings are difficult to predict. Moreover, many of the complaints filed against us may not specify the amount of damages that plaintiffs seek, and we therefore may be unable to estimate the possible range of damages that might be incurred should these lawsuits be resolved against us. While we may be unable to estimate the potential damages arising from such lawsuits, certain of them assert types of claims that, if resolved against us, could give rise to substantial damages or restrictions on or changes to our business. Thus, an unfavorable outcome or settlement of one or more of these lawsuits could have a material adverse effect on our financial condition, liquidity and results of operations. Even if these lawsuits are not resolved against us, the uncertainty and expense associated with unresolved lawsuits could seriously harm our business, financial condition and reputation. Litigation is generally costly, time-consuming and disruptive to normal business operations. The costs of defending these lawsuits have been significant in the past, will continue to be costly and may not be covered by our insurance policies. The defense of these lawsuits could also result in continued diversion of our management\u2019s time and attention away from business operations, which could harm our business. For additional discussion regarding litigation, refer to \u201cPart I, Item 3. Legal Proceedings,\u201d and \u201cNote 17. Commitments and Contingencies\u201d to the consolidated financial statements.\nOur products incorporate and rely upon licensed third-party technology, and if licenses of third-party technology do not continue to be available to us or are not available on terms acceptable to us, our revenues and ability to develop and introduce new products could be adversely affected.\nWe integrate licensed third-party technology into certain of our products. From time to time, we may be required to license additional technology from third parties to develop new products or product enhancements. Third-party licenses may not be available or continue to be available to us on commercially reasonable terms. The failure to comply with the terms of any license, including free open-source software, may result in our inability to continue to use such license. Our inability to maintain or re-license any third-party licenses required in our products or our inability to obtain third-party licenses necessary to develop new products and product enhancements, could potentially require us to develop substitute technology or obtain substitute technology of lower quality or performance standards or at a greater cost, any of which could delay or prevent product shipment and harm our business, financial condition, and results of operations.\nIf we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.\n As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and Nasdaq listing requirements. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, and to integrate our acquisitions into our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant time and operational resources, including accounting-related costs and significant management oversight.\nAny failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could cause us to delay reporting of our financial results, be subject to one or more investigations or enforcement actions by state or federal regulatory agencies, stockholder lawsuits or other adverse actions requiring us to incur defense costs, pay fines, settlements or judgments. Any such failures could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock and customer perception of our business may suffer. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NASDAQ stock market.\n32\nRisks Related to Human Capital\nOur ability to develop, market and sell products could be harmed if we are unable to retain or hire key personnel.\nOur future success depends upon our ability to recruit and retain the services of executive, engineering, manufacturing, sales and marketing, and support personnel. The supply of highly qualified individuals, in particular engineers in very specialized technical areas, or salespeople specializing in the service provider, enterprise and commercial laser markets, is limited and competition for such individuals is intense. Competition is particularly intense in certain jurisdictions where we have research and development centers, including Silicon Valley, and for engineering talent generally. Also, as a result of COVID-19, employees in our industries are increasingly able to work remotely, which has increased employee mobility and turnover, making it difficult for us to retain or hire employees. Further, to attract and retain top talent, we have offered, and we believe we will need to continue to offer, competitive compensation and benefits packages.  Job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment.  If the perceived value of our equity awards declines, it may adversely affect our ability to attract and retain highly qualified employees.  There can be no assurance that the programs, initiatives, rewards and recognition that are part of our people strategy will be successful in attracting and retaining the talent necessary to execute on our business plans. None of our officers or key employees is bound by an employment agreement for any specific term. The loss of the services of any of our key employees, the inability to attract or retain personnel in the future, particularly during the integration of acquisitions, or delays in hiring required personnel and the complexity and time involved in replacing or training new employees, could delay the development and introduction of new products, and negatively impact our ability to market, sell, or support our products. Similarly, the failure to properly manage the necessary knowledge transfer required for employee transitions could impact our ability to maintain industry and innovation leadership. The loss of members of our management team or other key personnel could be disruptive to our business and, were it necessary, it could be difficult to replace such individuals. If we are unable to attract and retain qualified personnel, we may be unable to manage our business effectively, and our business, financial condition and results of operations may be harmed.\nOur ability to hire and retain employees may be negatively impacted by changes in immigration laws, regulations and procedures.\nForeign nationals who are not U.S. citizens or permanent residents constitute an important part of our U.S. workforce, particularly in the areas of engineering and product development. Our ability to hire and retain these workers and their ability to remain and work in the United States are impacted by laws and regulations, as well as by procedures and enforcement practices of various government agencies and global events such as COVID-19 may interfere with our ability to hire or retain workers who require visas or entry permits. For example, numerous U.S. Embassies suspended or delayed the processing of new visa applications for a period of time during the pandemic due to COVID-19 related concerns impacting embassy operations and staffing. Additional changes in immigration laws, regulations or procedures, including those that have been and may be enacted in the future by the U.S. government and in the United Kingdom or the European Union in connection with Brexit or the war in Ukraine, may adversely affect our ability to hire or retain such workers, increase our operating expenses and negatively impact our ability to deliver our products and services.\n33\nRisks Related to Legal, Regulatory and Compliance\nOur sales may decline if we are unable to obtain government authorization to export certain of our products, and we may be subject to legal and regulatory consequences if we do not comply with applicable export control laws and regulations.\nExports of certain of our products are subject to export controls imposed by the U.S. government and administered by the U.S. Departments of State and Commerce. In certain instances, these regulations may require pre-shipment authorization from the administering department. For products subject to the EAR administered by the BIS, the requirement for a license is dependent on the type and end use of the product, the final destination, the identity of the end user and whether a license exception might apply. Virtually all exports of products subject to the International Traffic in Arms Regulations (\u201cITAR\u201d) administered by the Department of State\u2019s Directorate of Defense Trade Controls, require a license. Certain of our fiber optics products are subject to EAR and certain of our RF-over-fiber products, as well as certain products and technical data, are developed with government funding, and are currently subject to ITAR. Products and the associated technical data developed and manufactured in our foreign locations are subject to export controls of the applicable foreign nation. There is no assurance that we will be issued these licenses or be granted exceptions, and failure to obtain such licenses or exceptions could limit our ability to sell our products into certain countries and negatively impact our business, financial condition and/or operating results.\nThe requirement to obtain a license could put us at a competitive disadvantage by restricting our ability to sell products to customers in certain countries or by giving rise to delays or expenses related to obtaining a license. Given the current global political climate, obtaining export licenses can be difficult and time-consuming. Failure to obtain export licenses for these shipments could significantly reduce our revenue and materially adversely affect our business, financial condition, relationships with our customers and results of operations. Compliance with U.S. government regulations also subjects us to additional fees and costs. The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position.\nFurther, there is increased attention from the government and the media regarding potential threats to U.S. national security and foreign policy relating to certain foreign entities, particularly Chinese entities, and the imposition of enhanced restrictions or sanctions regarding the export of our products or on specific foreign entities that would restrict their ability to do business with U.S. companies may materially adversely affect our business. For example, on May 16, 2019, Huawei was added to the Entity List of the Bureau of Industry and Security of the U.S. Department of Commerce, additional regulatory restrictions were imposed in May and August 2020 and in October 2022 to the Foreign-Produced Direct Product Rule, which impose limitations on the supply of certain U.S. items and product support to Huawei, and FiberHome Technologies was added to the Entity List on May 22, 2020. These actions have resulted in escalating tensions between the U.S. and China and create the possibility that the Chinese government may take additional steps to retaliate against U.S. companies or industries. We cannot predict what additional actions the U.S. government may take with respect to Huawei beyond what is described above or to other of our customers, including modifications to or interpretations of Entity List restrictions, export restrictions, tariffs, or other trade limitations or barriers.\nOur association with customers that are or become subject to U.S. regulatory scrutiny or export restrictions could negatively impact our business. Governmental actions such as these could subject us to actual or perceived reputational harm among current or prospective investors, suppliers or customers, customers of our customers, other parties doing business with us, or the general public.\n \nAny such reputational harm could result in the loss of investors, suppliers or customers, which could harm our business, financial condition, operating results or prospects. Further, if we fail to comply with any of these export regulations, we could be subject to civil, criminal, monetary and non-monetary penalties and costly consent decrees, which would lead to disruptions to our business, restrictions on our ability to export products and technology, and adversely affect our business and results of operation.\nIn addition, certain of our significant customers and suppliers have products that are subject to U.S. export controls, and therefore these customers and suppliers may also be subject to legal and regulatory consequences if they do not comply with applicable export control laws and regulations. Such regulatory consequences could disrupt our ability to obtain components from our suppliers, or to sell our products to major customers, which could significantly increase our costs, reduce our revenue and materially adversely affect our business, financial condition and results of operations.\n34\nSocial and environmental responsibility regulations, policies and provisions, as well as customer and investor demands, may make our supply chain more complex and may adversely affect our relationships with customers and investors. \nThere is an increasing focus on environmental, social, and governance (\u201cESG\u201d) matters both in the United States and globally. A number of our customers have adopted, or may adopt, procurement policies that include social and environmental responsibility provisions or requirements that their suppliers should comply with, or they may seek to include such provisions or requirements in their procurement terms and conditions. An increasing number of investors are also requiring companies to disclose corporate social and environmental policies, practices and metrics. These legal and regulatory requirements, as well as investor expectations, on corporate environmental and social responsibility practices and disclosure, are subject to change, can be unpredictable, and may be difficult and expensive for us to comply with, given the complexity of our supply chain. If we are unable to comply with, or are unable to cause our suppliers or contract manufacturers to comply with such policies or provisions, or meet the requirements of our customers and investors, a customer may stop purchasing products from us or an investor may sell their shares, and may take legal action against us, which could harm our reputation, revenue and results of operations. We expect increased worldwide regulatory activity relating to climate change in the future. Future compliance with these laws and regulations, as well as meeting related customer and investor expectations, may adversely affect our business and results of operations.\nOur reputation and/or business could be negatively impacted by ESG matters and/or our reporting of such matters.\nWe communicate certain ESG-related initiatives, goals, and/or commitments regarding environmental matters, diversity, responsible sourcing and social investments, and other matters, in our annual Corporate Social Responsibility Report, on our website, in certain filings with the SEC, and elsewhere. These initiatives, goals, or commitments could be difficult to achieve and costly to implement. In addition, we could be criticized for the timing, scope or nature of these initiatives, goals, or commitments, for any revisions to them, or for our disclosures related to such matters, or for our policies and practices related to these matters. Our actual or perceived failure to achieve our ESG-related initiatives, goals, or commitments could negatively impact our reputation or otherwise materially harm our business.\nWe may be adversely affected by climate change regulations.\nIn many of the countries in which we operate, government bodies are increasingly enacting legislation and regulations in response to potential impacts of climate change. These laws and regulations may be mandatory. They have the potential to impact our operations directly or indirectly as a result of required compliance by our customers or supply chain. Inconsistency of regulations may also affect the costs of compliance with such laws and regulations. Assessments of the potential impact of future climate change legislation, regulation, and international treaties and accords are uncertain, given the wide scope of potential regulatory change in countries in which we operate.\nWe may incur increased capital expenditures resulting from required compliance with revised or new legislation or regulations, added costs to purchase raw materials, lower profits from sales of our products, increased insurance premiums and deductibles, changes in competitive position relative to industry peers, changes to profit or loss arising from increased or decreased demand for goods produced by us, or changes in costs of goods sold, which would have an adverse effect on our business, financial condition and results of operations.\nWe are subject to laws and regulations worldwide including with respect to environmental matters, securities laws, privacy and data protection, compliance with which could increase our expenses and harm our operating results.\nOur operations and our products are subject to various federal, state and foreign laws and regulations, including those governing pollution and protection of human health and the environment in the jurisdictions in which we operate or sell our products. These laws and regulations govern, among other things, wastewater discharges and the handling and disposal of hazardous materials in our products. Our failure to comply with current and future environmental or health or safety requirements could cause us to incur substantial costs, including significant capital expenditures, to comply with such environmental laws and regulations and to clean up contaminated properties that we own or operate. Such clean-up or compliance obligations could result in disruptions to our operations. Additionally, if we are found to be in violation of these laws, we could be subject to governmental fines or civil liability for damages resulting from such violations. These costs could have a material adverse impact on our financial condition or operating results.\n35\nFrom time-to-time new regulations are enacted, and it is difficult to anticipate how such regulations will be implemented and enforced. We continue to evaluate the necessary steps for compliance with regulations as they are enacted. These regulations include, for example, the Registration, Evaluation, Authorization and Restriction of Chemicals (\u201cREACH\u201d), the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment Directive (\u201cRoHS\u201d) and the Waste Electrical and Electronic Equipment Directive (\u201cWEEE\u201d) enacted in the European Union which regulate the use of certain hazardous substances in, and require the collection, reuse and recycling of waste from, certain products we manufacture. These regulations and similar legislation may require us to re-design our products to ensure compliance with the applicable standards, for example by requiring the use of different types of materials, which could have an adverse impact on the performance of our products, add greater testing lead-times for product introductions or other similar effects. We believe we comply with all such legislation where our products are sold, and we continuously monitor these laws and the regulations being adopted under them to determine our responsibilities.\nIn addition, pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC has promulgated rules requiring disclosure regarding the use of certain \u201cconflict minerals\u201d that are mined from the Democratic Republic of Congo and adjoining countries and procedures regarding a manufacturer\u2019s efforts to prevent the sourcing of such minerals. We may face challenges with government regulators and our customers and suppliers if we are unable to sufficiently make any required determination that the metals used in our products are conflict free. Complying with these disclosure requirements involves substantial diligence efforts to determine the source of any conflict minerals used in our products and may require third-party auditing of our diligence process. These efforts may demand internal resources that would otherwise be directed towards operations activities.\nSince our supply chain is complex, we may face reputational challenges if we are unable to sufficiently verify the origins of all minerals used in our products. Additionally, if we are unable to satisfy those customers who require that all of the components of our products are determined to be conflict free, they may choose a competitor\u2019s products which could materially impact our financial condition and operating results.\nWe are also subject to laws and regulations to our collection and other processing of personal data of our employees, customers and others. These laws and regulations are subject to frequent modifications and updates and require ongoing supervision. For example, the European Union adopted a General Data Protection Regulation (\u201cGDPR\u201d) that became effective in May 2018, and has established new, and in some cases more stringent, requirements for data protection in Europe, and which provides for substantial penalties for noncompliance. Brazil passed the General Data Protection Law that became effective in August 2020 to regulate processing of personal data of individuals, which also provides for substantial penalties for noncompliance. Additionally, California has the California Consumer Privacy Act (\u201cCCPA\u201d), which went into effect on January 1, 2020. In November 2020, California passed the California Privacy Rights Act (\u201cCPRA\u201d), which went into effect on January 1, 2023. The CPRA amends and augments the CCPA, including by expanding individuals\u2019 rights and the obligations of businesses that handle personal data. Similar legislation has been proposed or adopted in several other states. Aspects of the CCPA, CPRA and these other laws and regulations, as well as their enforcement, remain unclear. The U.S. federal government also is contemplating federal privacy legislation. The effects and impact of these or other laws and regulations relating to privacy and data protection are potentially significant and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in efforts to comply. Laws and regulations relating to privacy and data protection continue to evolve in various jurisdictions, with existing laws and regulations subject to new and differing interpretations and new laws and regulations being proposed and adopted. It is possible that our practices may be deemed not to comply with those privacy and data protection legal requirements that apply to us now or in the future.\nFurther, the United Kingdom has implemented legislation similar to the GDPR, including the UK Data Protection Act and legislation referred to as the UK GDPR, which provides for substantial penalties, similar to the GDPR. Aspects of United Kingdom data protection law remains unclear following the United Kingdom\u2019s exit from the European Union, including with respect to data transfers between the United Kingdom and other jurisdictions. We cannot fully predict how the Data Protection Act, the UK GDPR, and other United Kingdom data protection laws or regulations may develop in the medium to longer term nor the effects of divergent laws and guidance regarding data transfers. We may find it necessary to make further changes to our handling of personal data of residents of the European Economic Area, Switzerland and the United Kingdom, each of which may require us to incur significant costs and expenses.\n36\nOur failure or perceived failure to comply with any of the foregoing legal and regulatory requirements, or other actual or asserted obligations relating to privacy, data protection or information security could result in increased costs for our products, monetary penalties, damage to our reputation, government inquiries, investigations and other legal proceeds, legal claims, demands and litigation and other obligations and liabilities. Furthermore, the legal and regulatory requirements that are applicable to our business are subject to change from time to time, which increases our monitoring and compliance costs and the risk that we may fall out of compliance. Additionally, we may be required to ensure that our suppliers comply with applicable laws and regulations. If we or our suppliers fail to comply with such laws or regulations, we could face sanctions for such noncompliance, and our customers may refuse to purchase our products, which would have a material adverse effect on our business, financial condition and results of operations.\nRisks Related to Our Common Stock\nOur stock price may be volatile and may decline regardless of our operating performance.\nOur common stock is listed on the Nasdaq Global Select Market (\u201cNASDAQ\u201d) under the symbol \u201cLITE\u201d. The market price of our common stock has fluctuated and may fluctuate significantly due to a number of factors, some of which may be beyond our control and may often be unrelated or disproportionate to our operating performance. These include:\n\u2022\ngeneral economic and market conditions and other external factors;\n\u2022\nchanges in global economic conditions, including those resulting from trade tensions, rising inflation, and fluctuations in foreign currency exchange and interest rates;\n\u2022\nspeculation in the press or investment community about our strategic position;\n\u2022\nactual or anticipated fluctuations in our quarterly or annual operating results;\n\u2022\nchanges in earnings estimates by securities analysts or our ability to meet those estimates;\n\u2022\nthe operating and stock price performance of other comparable companies;\n\u2022\na shift in our investor base;\n\u2022\nthe financial performance of other companies in our industry, and of our customers;\n\u2022\ngeneral market, economic and political conditions, including market conditions in the semiconductor industry;\n\u2022\npandemics and similar major health concerns, including the COVID-19 pandemic;\n\u2022\nsuccess or failure of our business strategy;\n\u2022\ncredit market fluctuations which could negatively impact our ability to obtain financing as needed;\n\u2022\nchanges in governmental regulation including taxation and tariff policies;\n\u2022\nchanges in global political tensions that may affect business with our customers;\n\u2022\nannouncements by us, competitors, customers, or our contract manufacturers of significant acquisitions or dispositions, strategic alliances or overall movement toward industry consolidations among our customers and competitors;\n\u2022\ninvestor perception of us and our industry;\n\u2022\nchanges in recommendations by securities analysts;\n\u2022\nchanges in accounting standards, policies, guidance, interpretations or principles;\n\u2022\ndifferences, whether actual or perceived, between our corporate social responsibility and ESG practices and disclosure and investor expectations;\n\u2022\nlitigation or disputes in which we may become involved;\n\u2022\noverall market fluctuations; \n\u2022\nissuances of our shares upon conversion of some or all of the convertible notes;\n\u2022\nsales of our shares by our officers, directors, or significant stockholders; and\n37\n\u2022\nthe timing and amount of share repurchases, if any\nIn addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, results of operations, financial condition and cash flows.\nServicing our existing and future indebtedness, including the 2024 Notes, 2026 Notes, 2028 Notes and 2029 Notes (collectively referred to as \u201cthe convertible notes\u201d) may require a significant amount of cash, and we may not have sufficient cash flow or the ability to raise the funds necessary to satisfy our obligations under the convertible notes and our current and future indebtedness may limit our operating flexibility or otherwise affect our business.\nOur ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness under \nthe convertible notes\n, or to make cash payments in connection with any conversion of \nthe convertible notes\n or upon any fundamental change if holders of the applicable series of \nthe convertible notes\n require us to repurchase their \nconvertible notes\n for cash, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our indebtedness and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring indebtedness or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. In addition, our existing and future indebtedness could have important consequences to our stockholders and significant effects on our business. For example, it could:\n\u2022\nmake it more difficult for us to satisfy our debt obligations under \nthe convertible notes\n; \n\u2022\nincrease our vulnerability to general adverse economic and industry conditions;  \n\u2022\nrequire us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital and other general corporate purposes; \n\u2022\nlimit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; \n\u2022\nrestrict us from exploiting business opportunities; \n\u2022\nplace us at a competitive disadvantage compared to our competitors that have less indebtedness; and \n\u2022\nlimit our availability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general purposes\nTransactions relating to our convertible notes may dilute the ownership interest of existing stockholders, or may otherwise depress the price of our common stock.\nIf the convertible notes\n \nare converted by holders of such series, we have the ability under the applicable indenture to deliver cash, common stock, or any combination of cash or common stock, at our election upon conversion of the applicable series of the convertible notes.  If we elect to deliver common stock upon conversion of the convertible notes, it would dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, certain holders of the convertible notes may engage in short selling to hedge their position in the convertible notes. Anticipated future conversions of the convertible notes into shares of our common stock could depress the price of our common stock.\n38\nWe do not expect to pay dividends on our common stock.\nWe do not currently expect to pay dividends on our common stock. The payment of any dividends to our stockholders in the future, and the timing and amount thereof, if any, is within the discretion of our board of directors. Our board of directors\u2019 decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, potential debt service obligations or restrictive covenants, industry practice, legal requirements, regulatory constraints and other factors that our board of directors deems relevant.\nIn addition, because we are a holding company with no material direct operations, we are dependent on loans, dividends and other payments from our operating subsidiaries to generate the funds necessary to pay dividends on our common stock. However, our operating subsidiaries\u2019 ability to make such distributions will be subject to their operating results, cash requirements and financial condition and the applicable provisions of Delaware law that may limit the amount of funds available for distribution. Our ability to pay cash dividends may also be subject to covenants and financial ratios related to existing or future indebtedness, and other agreements with third parties.\nCertain\u00a0provisions\u00a0in\u00a0our\u00a0charter\u00a0and Delaware\u00a0corporate law\u00a0could\u00a0hinder\u00a0a\u00a0takeover\u00a0attempt.\nWe are subject to the provisions of Section\u00a0203 of the Delaware General Corporate Law which prohibits us, under some circumstances, from engaging in business combinations with some stockholders for a specified period of time without the approval of the holders of substantially all of our outstanding voting stock. Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, even if such events could be beneficial, in the short-term, to the interests of our stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions providing for the limitations of liability and indemnification of our directors and officers, allowing vacancies on our board of directors to be filled by the vote of a majority of the remaining directors, granting our board of directors the authority to establish additional series of preferred stock and to designate the rights, preferences and privileges of such shares (commonly known as \u201cblank check preferred\u201d) and providing that our stockholders can take action only at a duly called annual or special meeting of stockholders, which may only be called by the chairman of the board of directors, the chief executive officer or the board of directors. These provisions may also have the effect of deterring hostile takeovers or delaying changes in control or changes in our management.\nOur bylaws designate Delaware courts as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could discourage lawsuits against us or our directors and officers.\nOur bylaws provide that, unless we consent in writing to an alternative forum, the state or federal courts of Delaware are the sole and exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting breach of fiduciary duty, or other wrongdoing, by our directors, officers or other employees to us or our stockholders; any action asserting a claim against Lumentum pursuant to the Delaware General Corporation Law or our certificate of incorporation or bylaws; any action asserting a claim against Lumentum governed by the internal affairs doctrine; or any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws.\u00a0This exclusive forum provision may limit the ability of our stockholders to bring a claim in a different judicial forum that such stockholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us or our directors and officers.\nAlternatively, if a court outside of Delaware were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.",
+  "item7": ">ITEM 7.    MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nYou should read the following discussion in conjunction with the audited consolidated financial statements and the corresponding notes included elsewhere in this Annual Report. This Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Refer to \u201cRisk Factors\u201d and \u201cForward-Looking Statements\u201d for a discussion of the uncertainties, risks and assumptions associated with these statements.\nOverview\nWe are an industry-leading provider of optical and photonic products, defined by revenue and market share, addressing a range of end-market applications including Optical Communications (\u201cOpComms\u201d) and Commercial Lasers (\u201cLasers\u201d) for manufacturing, inspection and life-science applications. \nWe have two operating segments, OpComms and Lasers. The two operating segments were primarily determined based on how the Chief Operating Decision Maker (\u201cCODM\u201d) views and evaluates our operations. Operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the segments and to assess their performance. Other factors, including market separation and customer specific applications, go-to-market channels, products and manufacturing, are considered in determining the formation of these operating segments. \nOpComms\nOur OpComms products address the following markets: Telecom, Datacom and Consumer and Industrial.\nOur OpComms products include a wide range of components, modules and subsystems to support customers including carrier networks for access (local), metro (intracity), long-haul (city-to-city and worldwide) and submarine (undersea) applications. Additionally, our products address enterprise, cloud, and data center applications, including storage-access networks (\u201cSANs\u201d), local-area networks (\u201cLANs\u201d) and wide-area networks (\u201cWANs\u201d). These products enable the transmission and transport of video, audio and data over high-capacity fiber-optic cables. We maintain leading positions in these fast-growing OpComms markets through our extensive product portfolio, including reconfigurable optical add/drop multiplexers (\u201cROADMs\u201d), coherent dense wavelength division multiplexing (\u201cDWDM\u201d) pluggable transceivers, and tunable small form-factor pluggable transceivers. We also sell laser chips for use in manufacturing of high-speed Datacom transceivers. In the Consumer and Industrial market, our OpComms products include laser light sources, which are integrated into 3D sensing platforms being used in applications for mobile devices, gaming, computers, and other consumer electronics devices. New emerging applications include virtual and augmented reality, as well as automotive and industrial segments. Our products include vertical cavity surface emitting lasers (\u201cVCSELs\u201d) and edge emitting lasers which are used in 3D sensing depth imaging systems. These systems simplify the way people interact with technology by enabling the use of natural user interfaces. Systems are used for biometric identification, surveillance, and process efficiency, among numerous other application spaces. Emerging applications for this technology include various mobile device applications, autonomous vehicles, self-navigating robotics and drones in industrial applications and 3D capture of objects coupled with 3D printing. In addition, our industrial diode lasers are used primarily as pump sources for pulsed and kilowatt class fiber lasers. \nLasers\nOur Lasers products serve our customers in markets and applications such as sheet metal processing, general manufacturing, solar, biotechnology, graphics and imaging, remote sensing, and precision machining such as drilling in printed circuit boards, wafer singulation, glass cutting and solar cell scribing. \nOur Lasers products are used in a variety of OEM applications including diode-pumped solid-state, fiber, diode, direct-diode and gas lasers such as argon-ion and helium-neon lasers. Fiber lasers provide kW-class output powers combined with excellent beam quality and are used in sheet metal processing and metal welding applications. Diode-pumped solid-state lasers provide excellent beam quality, low noise and exceptional reliability and are used in biotechnology, graphics and imaging, remote sensing, materials processing and precision machining applications. Diode and direct-diode lasers address a wide variety of applications, including laser pumping, thermal exposure, illumination, ophthalmology, image recording, printing, plastic welding and selective soldering. Gas lasers such as argon-ion and helium-neon lasers provide a stable, low-cost and reliable solution over a wide range of operating conditions, making them well-suited for complex, high-resolution OEM applications such as flow cytometry, DNA sequencing, graphics and imaging and semiconductor inspection. \n43\nWe also provide high-powered and ultrafast lasers for the industrial and scientific markets. Manufacturers use high-power, ultrafast lasers to create micro parts for consumer electronics and to process semiconductor, LED, solar cells, and other types of chips. Use of ultrafast lasers for micromachining applications is being driven primarily by the increasing use of renewable energy, consumer electronics and connected devices globally. \nWe believe the global markets in which Lumentum participates have fundamentally robust, long-term trends that will increase the need for our photonics products and technologies. We believe the world is becoming more reliant on ever-increasing amounts of data flowing through optical networks and data centers. Lumentum\u2019s products and technology enable the scaling of these optical networks and data centers to higher capacities. We expect that the accelerating shift to digital and virtual approaches to many aspects of work and life will continue into the future. Virtual meetings, video calls, and hybrid in-person and virtual environments for work and other aspects of life will continue to drive strong needs for bandwidth growth and present dynamic new challenges that our technology addresses. As manufacturers demand higher levels of precision, new materials, and factory and energy efficiency, suppliers of manufacturing tools globally are turning to laser-based approaches, including the types of lasers Lumentum supplies. Laser-based 3D sensing and LiDAR for security, industrial and automotive applications are rapidly developing markets. The technology enables computer vision applications that enhance security, safety, and new functionality in the electronic devices that people rely on every day. The use of LiDAR and in-cabin 3D sensing in automobile and delivery vehicles over time significantly adds to our long-term market opportunity. Frictionless and contactless biometric security and access control is of increasing focus globally given the world\u2019s experience with the COVID-19 pandemic. Additionally, we expect 3D-enabled machine vision solutions to expand significantly in industrial applications in the coming years.  \nTo maintain and grow our market and technology leadership positions, we are continually investing in new and differentiated products and technologies and customer programs that address both nearer-term and longer-term growth opportunities, both organically and through acquisitions, as well as continually improving and optimizing our operations. Over many years, we have developed close relationships with market leading customers. We seek to use our core optical and photonic technology and our volume manufacturing capability to expand into attractive emerging markets that benefit from advantages that optical or photonics-based solutions provide.\n44\nMergers and Acquisitions\nNeoPhotonics Merger\nOn August 3, 2022 (the \u201cClosing date\u201d), we completed our merger with NeoPhotonics Corporation (\u201cNeoPhotonics\u201d). The addition of NeoPhotonics expands our opportunities in some of the fastest growing markets for optical components used in cloud and telecom network infrastructure. The integrated company is better positioned to serve the needs of a global customer base who are increasingly utilizing photonics to accelerate the shift to digital and virtual approaches to work and life, the proliferation of IoT, 5G, and next-generation mobile networks, and the transition to advanced cloud computing architectures.\nUnder the terms of the merger agreement, NeoPhotonics stockholders received $16.00 per share for each of the NeoPhotonics common stock they own at the Closing date. As a result, we paid $867.3 million of cash consideration to shareholders of NeoPhotonics on the Closing date. \nAs contemplated by the merger agreement, on January 14, 2022, Lumentum and NeoPhotonics entered into a credit agreement where Lumentum agreed to make term loans (\u201cloans\u201d) to NeoPhotonics in an aggregate principal amount not to exceed $50.0\u00a0million to help fund capital expenditures and increase working capital associated with NeoPhotonics\u2019 growth plans. During fiscal 2022, we funded a $30.0\u00a0million loan request to NeoPhotonics. On August 1, 2022, we funded an additional $20.0\u00a0million loan request to NeoPhotonics. The interest was payable monthly in arrears on the first day of each month. The loans would have matured on January 14, 2024, unless earlier repaid or accelerated. The $50.0\u00a0million loans in aggregate were not settled at the Closing date, and therefore, were included as part of the total purchase price consideration.\nWe paid $22.6\u00a0million cash consideration to shareholders of NeoPhotonics for the vested and accelerated NeoPhotonics equity awards, of which $13.6\u00a0million was allocated to the purchase price consideration. The remaining $9.0\u00a0million related to the payment of change-in-control provisions for certain executives, which were recognized as post-combination expenses due to the dual-trigger nature of the arrangements. Additionally, we issued replacement equity awards (the \u201cReplacement Awards\u201d) in settlement of certain NeoPhotonics equity awards that did not become vested at the Closing date, with the total  fair value of $40.2\u00a0million based on our closing stock price on the Closing date. The portion of Replacement Awards attributed to pre-merger service was recorded as part of the consideration transferred, which was $3.5\u00a0million.\nThe total transaction consideration of \n$934.4\u00a0million \nwas funded by the cash balances of the combined company. We also recorded\n $28.7\u00a0million of merger-related costs, representing professional and other direct acquisition costs. Of the $28.7\u00a0million of merger-related costs, $8.3\u00a0million was incurred in fiscal year 2022 and $20.4\u00a0million was incurred in fiscal year 2023, which was recorded as selling, general and administrative expense in the consolidated statements of op\nerations.\nAcquisition of IPG Photonics\u2019 Telecom Transmission Product Lines\nOn August 15, 2022, we completed a transaction to acquire IPG Photonics\u2019 telecom transmission product lines (\u201cIPG telecom transmission product lines\u201d) that develop and market products for use in telecommunications and datacenter infrastructure, including Digital Signal Processors (\u201cDSPs\u201d), ASICs and optical transceivers. This acquisition enables us to expand our business in the OpComms segment. The total purchase price of $55.9\u00a0million was paid in cash. Refer to \u201cNote 4. Business Combination\u201d to the consolidated financial statements for additional information.\nWe evaluate strategic opportunities regularly and, where appropriate, may acquire additional businesses, products, or technologies that are complementary to, or broaden the markets for our products. We believe we have strengthened our business model by expanding our addressable markets, customer base and expertise, diversifying our product portfolio and fortifying our core businesses from acquisitions as well as through organic initiatives.\nImpact of COVID-19 to Our Business\nWe continue to monitor the COVID-19 pandemic and actively assess potential implications to our business, supply chain, customer fulfillment sites, support operations and customer demand. We also continue to take appropriate measures to protect the health and safety of our employees and to create and maintain a safe working environment. While the effects of the COVID-19 pandemic have been lessening, if the adverse effects of COVID-19 or related responses of business or governments become more severe and prevalent or prolonged in the locations where we, our customers, suppliers or contract manufacturers conduct business, our business and results of operations could be materially and adversely affected in the future periods.\nFor more information on risks associated with the COVID-19 outbreak and regulatory actions, refer Item 1A \u201cRisk Factors\u201d of this Annual Report.\n45\nSupply Chain Constraints\nOur business and our customers\u2019 businesses have been negatively impacted by worldwide logistics and supply chain issues, including constraints on available cargo capabilities and limited availability of once broadly available supplies of both raw materials and finished components. COVID-19 also created dynamics in the semiconductor component supply chains that have led to shortages of the types of components we and our customers require in our products. Although the supply chain constraints have improved in the latter half of fiscal 2023, these shortages impacted our ability to meet demand and generate revenue from certain products in fiscal 2022 and fiscal 2023. If these shortages happen again in the future, they will impact our ability to supply our products to our customers and may reduce our revenue and profit margin. In addition, if our customers are unable to procure needed semiconductor components, this could reduce their demand for our products and reduce our revenue. The impact of semiconductor component shortages may continue in the near term with the exhaustion of supplier and customer buffer inventories and safety stocks. Due to the global supply chain constraints, we had to incur incremental supply and procurement costs in order to increase our ability to fulfill demands from our customers.\n \nIn addition, in response to component shortages, certain of our customers accumulated inventory that they are now managing down as supply conditions improve.  Accordingly, ordering patterns are difficult to predict and have declined from recent periods. For example, in the third quarter of fiscal 2023, a significant network equipment manufacturer informed us that due to their inventory management, it would not take the shipments we had originally projected for the quarter. These trends continued through the end of fiscal 2023 and we expect some level of inventory management by our customers will continue to impact our business during fiscal 2024.\nFor more information on risks associated with supply chain constraints and customer inventory, refer to Item 1A \u201cRisk Factors\u201d of this Annual Report.\nCritical Accounting Policies and Estimates\nOur consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (\u201cGAAP\u201d) as set forth in the Financial Accounting Standards Board\u2019s Accounting Standards Codification (\u201cASC\u201d). We also consider the various staff accounting bulletins and other applicable guidance issued by the United States Securities and Exchange Commission (\u201cSEC\u201d). GAAP, as set forth within the ASC, requires us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:\n\u2022\nInventory Valuation\n\u2022\nRevenue Recognition\n\u2022\nIncome Taxes\n\u2022\nBusiness Combinations\n\u2022\nGoodwill and Intangible Assets - Impairment Assessment\nInventory Valuation\nOur inventories are recorded at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of net realizable value. We assess the value of our inventories on a quarterly basis and write down those inventories which are obsolete or in excess of our forecasted demand to the lower of their cost or estimated net realizable value. \nOur estimates of forecasted demand are based upon our analysis and assumptions including, but not limited to, expected product lifecycles, product development plans and historical usage by product. Our product line management personnel play a key role in our excess review process by providing updated sales forecasts, managing product transitions and working with manufacturing to minimize excess inventory. If actual market conditions are less favorable than our forecasts, or actual demand from our customers is lower than our estimates, we may be required to record additional inventory write-downs. If actual market conditions are more favorable than anticipated, inventories previously written down may be sold, resulting in lower cost of sales and higher income from operations than expected in that period.  \nOur inventories are sensitive to technical obsolescence in the near term due to the use in industries characterized by the continuous introduction of new product lines, rapid technological advances, and product obsolescence. Based on certain assumptions and judgments made from the information available at that time, we determine the amount of allowance for \n46\npotential inventory obsolescence. If these estimates and related assumptions or the market changes, we may be required to record additional reserves. Historically, actual results have not varied materially from our estimates.\nRevenue Recognition\nPursuant to Topic 606, our revenues are recognized upon the application of the following steps: \n\u2022\nidentification of the contract, or contracts, with a customer; \n\u2022\nidentification of the performance obligations in the contract; \n\u2022\ndetermination of the transaction price; \n\u2022\nallocation of the transaction price to the performance obligations in the contract; and \n\u2022\nrecognition of revenues when, or as, the contractual performance obligations are satisfied.\nThe majority of our revenue comes from product sales, consisting of sales of Lasers and OpComms hardware products to our customers. Our revenue contracts generally include only one performance obligation. Revenues are recognized at a point in time when control of the promised goods or services are transferred to our customers upon shipment or delivery of goods or rendering of services, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We have entered into vendor managed inventory (\u201cVMI\u201d) programs with our customers. Under these arrangements, we receive purchase orders from our customers, and the inventory is shipped to the VMI location upon receipt of the purchase order. The customer then pulls the inventory from the VMI hub based on its production needs. Revenue under VMI programs is recognized when control transfers to the customer, which is generally once the customer pulls the inventory from the hub\n.\nRevenue from all sales types is recognized at the transaction price. The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer adjusted for estimated variable consideration, if any. We typically estimate the impact on the transaction price for discounts offered to the customers for early payments on receivables or net of accruals for estimated sales returns. These estimates are based on historical returns, analysis of credit memo data and other known factors. Actual returns could differ from these estimates.\u00a0We allocate the transaction price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input that depicts the price as if sold to a similar customer in similar circumstances.\nTaxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, which are collected by us from a customer and deposited with the relevant government authority, are excluded from revenue. \nOur revenue arrangements do not contain significant financing components as our standard payment terms are less than one year. \nIf a customer pays consideration, or we have a right to an amount of consideration that is unconditional before we transfer a good or service to the customer, those amounts are classified as deferred revenue or deposits received from customers which are included in other current liabilities or other long-term liabilities when the payment is made or it is due, whichever is earlier.\nTransaction Price Allocated to the Remaining Performance Obligations\nRemaining performance obligations represent the transaction price allocated to performances obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities and non-cancellable backlog. Non-cancellable backlog includes goods and services for which customer purchase orders have been accepted that are scheduled or in the process of being scheduled for shipment. A portion of our revenue arises from vendor managed inventory arrangements where the timing and volume of customer utilization is difficult to predict.\nWarranty\nHardware products regularly include warranties to the end customers such that the product continues to function according to published specifications. We typically offer a twelvemonth warranty for most of our products. However, in some instances depending upon the product, specific market, product line and geography in which we operate, and what is common in the industry, our warranties can vary and range from six months to five years. These standard warranties are assurance type warranties and do not offer any services in addition to the assurance that the product will continue working as specified. \n47\nTherefore, warranties are not considered separate performance obligations in the arrangement. Instead, the expected cost of warranty is accrued as expense in accordance with authoritative guidance.\nWe provide reserves for the estimated costs of product warranties that we record as cost of sales at the time revenue is recognized. We estimate the costs of our warranty obligations based on our historical experience of known product failure rates, use of materials to repair or replace defective products and service delivery costs incurred in correcting product failures. In addition, from time to time, specific warranty accruals may be made if discrete technical problems arise.\nShipping and Handling Costs\nWe record shipping and handling costs related to revenue transactions within cost of sales as a period cost.\nContract Costs\nWe recognize the incremental direct costs of obtaining a contract, which consist of sales commissions, when control over the products they relate to transfers to the customer. Applying the practical expedient, we recognize commissions as expense when incurred, as the amortization period of the commission asset we would have otherwise recognized is less than one year.\nContract Balances\nWe record accounts receivable when we have an unconditional right to consideration. Contract liabilities are recorded when cash payments are received or due in advance of performance. Contract liabilities consist of advance payments and deferred revenue, where we have unsatisfied performance obligations. Contract liabilities are classified as deferred revenue and customer deposits and are included in other current liabilities within our consolidated balance sheet. Payment terms vary by customer. The time between invoicing and when payment is due is not significant.\nThe following table reflects the changes in contract balances as of July\u00a01, 2023 (\nin millions, except percentages\n):\nContract balances\nBalance sheet location\nJuly 1, 2023\nJuly 2, 2022\nChange\nPercentage Change\nAccounts receivable, net \nAccounts receivable, net \n$\n246.1\u00a0\n$\n262.0\u00a0\n$\n(15.9)\n(6.1)\n%\nDeferred revenue and customer deposits\nOther current liabilities\n$\n2.1\u00a0\n$\n\u2014\u00a0\n$\n2.1\u00a0\n100.0\u00a0\n%\nDisaggregation of Revenue\nWe disaggregate revenue by geography and by product.  Refer to \u201cNote 19. Revenue Recognition\u201d to the consolidated financial statements for a presentation of disaggregated revenue. We do not present other levels of disaggregation, such as by type of products, customer, markets, contracts, duration of contracts, timing of transfer of control and sales channels, as this information is not used by our Chief Operating Decision Maker (\u201cCODM\u201d) to manage the business. \nIncome Taxes\nIn accordance with the authoritative guidance on accounting for income taxes, we recognize income taxes using an asset and liability approach. This approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The measurement of current and deferred taxes is based on provisions of the enacted tax law, and the effects of future changes in tax laws or rates are not anticipated. \nThe authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur based on an evaluation of both positive and negative evidence and the relative weight of the evidence. We consider future growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, historical earnings, taxable income in prior years, if carry-back is permitted under the law, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets valuation allowance would be charged to earnings in the period in which we make such a determination, or goodwill would be adjusted at our final determination of the valuation allowance related to an acquisition within the measurement period. If we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance as an adjustment to earnings at such time.\n48\nWe are subject to income tax audits by the respective tax authorities of the jurisdictions in which we operate. The determination of our income tax liabilities in each of these jurisdictions requires the interpretation and application of complex, and sometimes uncertain, tax laws and regulations. The authoritative guidance on accounting for income taxes prescribes both recognition and measurement criteria that must be met for the benefit of a tax position to be recognized in the financial statements. If a tax position taken, or expected to be taken, in a tax return does not meet such recognition or measurement criteria, an unrecognized tax benefit liability is recorded.  If we ultimately determine that an unrecognized tax benefit liability is no longer necessary, we reverse the liability and recognize a tax benefit in the period in which it is determined that the unrecognized tax benefit liability is no longer necessary. \nOur income tax provision is highly dependent upon the geographic distribution of our worldwide earnings or losses, tax laws and regulations in various jurisdictions, tax incentives, the availability of tax credits and loss carryforwards, and the effectiveness of our tax planning strategies. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, and the evolution of regulations and court rulings and tax audits. \nThe recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities requires that we make certain estimates and judgments. Changes to these estimates or a change in judgment may have a material impact on our tax provision in a future period. \nBusiness Combinations\nIn accordance with the guidance for business combinations, we determine whether a transaction or event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method. If the assets acquired are not a business, we account for the transaction or event as an asset acquisition. Under both methods, we recognize the identifiable assets acquired, the liabilities assumed, and noncontrolling interest, if any, in the acquired entity. We capitalize acquisition-related costs and fees associated with asset acquisitions and immediately expense acquisition-related costs and fees associated with business combinations.\nWe allocate the fair value of purchase consideration to assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. We make significant estimates and assumptions to determine assets acquired and liabilities assumed, in particular intangible assets and pre-acquisition contingencies, as applicable.\nCritical estimates in valuing intangible assets include, but are not limited to, discount rates and future expected cash flows from customer relationships, acquired developed technology and acquired in-process research and development assets. Our estimates of fair value are based upon assumptions using the best information available. These assumptions are inherently uncertain and unpredictable and, as a result, actual results may differ materially from these estimates. \nWe may identify certain pre-acquisition contingencies as of the acquisition date and may extend our review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether these contingencies should be included as a part of the fair value of assets acquired and liabilities assumed and, if so, the amounts to be included.\nCertain estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. Any change in facts and circumstances that existed as of the acquisition date and impacts to our preliminary estimates is recorded to goodwill if identified within the measurement period. Subsequent to the measurement period or our final determination of fair value of assets and liabilities, whichever is earlier, the adjustments will affect our earnings. Although we believe that the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.\nGoodwill and Intangible Assets - Impairment Assessment\nGoodwill represents the excess of the purchase price of an acquired business over the fair value of the identifiable assets acquired and liabilities assumed. We test goodwill impairment on an annual basis in the fiscal fourth quarter and at any other time when events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable.\n49\nWe have the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. The qualitative factors we assess include long-term prospects of our performance, share price trends and market capitalization, and Company specific events. Unanticipated events and circumstances may occur that affect the accuracy of our assumptions, estimates and judgments. For example, if the price of our common stock were to significantly decrease combined with other adverse changes in market conditions, thus indicating that the underlying fair value of our reporting units may have decreased, we may reassess the value of our goodwill in the period such circumstances were identified. \nIf we determine that, as a result of the qualitative assessment, it is more likely than not (i.e., greater than 50% likelihood) that the fair value of a reporting unit is less than its carrying amount, we perform the quantitative test by estimating the fair value of our reporting units. If the carrying value of a reporting unit exceeds its fair value, we record goodwill impairment loss equal to the excess of the carrying value of the reporting unit\u2019s goodwill over its fair value, not to exceed the carrying amount of goodwill. Performing a quantitative goodwill impairment test includes the determination of the fair value of a reporting unit and involves significant estimates and assumptions. These estimates and assumptions include, among others, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and the determination of appropriate market comparables.\nWe make judgments about the recoverability of purchased finite lived intangible assets whenever events or changes in circumstances indicate that impairment may exist. In such situations, we are required to evaluate whether the net book values of our finite lived intangible assets are recoverable. We determine whether finite lived intangible assets are recoverable based upon the forecasted future cash flows that are expected to be generated by the lowest level associated asset grouping. Assumptions and estimates about future values and remaining useful lives of our intangible assets are complex and subjective and include, among others, forecasted undiscounted cash flows to be generated by certain asset groupings. These assumptions and estimates can be affected by a variety of factors, including external factors such as industry and economic trends and internal factors such as changes in our business strategy and our internal forecasts.\nRecently Issued Accounting Pronouncements\nRefer to \u201cNote 2. Recently Issued Accounting Pronouncements\u201d to the consolidated financial statements. \n50\nResults of Operations\nThe results of operations for the periods presented are not necessarily indicative of results to be expected for future periods. The following table summarizes selected consolidated statements of operations items as a percentage of net revenue:\nYears Ended\nJuly 1, 2023\nJuly 2, 2022\nJuly 3, 2021\nSegment net revenue:\nOpComms\n88.2\u00a0\n%\n88.7\u00a0\n%\n93.0\u00a0\n%\nLasers\n11.8\u00a0\n11.3\u00a0\n7.0\u00a0\nNet revenue\n100.0\u00a0\n100.0\u00a0\n100.0\u00a0\nCost of sales\n63.0\u00a0\n50.3\u00a0\n51.5\u00a0\nAmortization of acquired developed intangibles\n4.8\u00a0\n3.7\u00a0\n3.5\u00a0\nGross profit\n32.2\u00a0\n46.0\u00a0\n44.9\u00a0\nOperating expenses:\nResearch and development\n17.4\u00a0\n12.9\u00a0\n12.3\u00a0\nSelling, general and administrative\n19.7\u00a0\n15.5\u00a0\n13.9\u00a0\nRestructuring and related charges\n1.6\u00a0\n(0.1)\n0.4\u00a0\nMerger termination fee and related costs, net\n\u2014\u00a0\n\u2014\u00a0\n(11.9)\nTotal operating expenses\n38.7\u00a0\n28.3\u00a0\n14.7\u00a0\nIncome (loss) from operations\n(6.5)\n17.7\u00a0\n30.2\u00a0\nInterest expense\n(2.0)\n(4.7)\n(3.8)\nOther income, net\n2.8\u00a0\n0.7\u00a0\n0.2\u00a0\nIncome (loss) before income taxes\n(5.7)\n13.7\u00a0\n26.6\u00a0\nIncome tax provision\n1.7\u00a0\n2.1\u00a0\n3.8\u00a0\nNet income (loss)\n(7.4)\n%\n11.6\u00a0\n%\n22.8\u00a0\n%\n51\nFinancial Data for Fiscal 2023, 2022, and 2021\nThe following table summarizes selected consolidated statements of operations items (\nin millions, except for percentages\n):\n2023\n2022\nChange\nPercentage Change\n2022\n2021\nChange\nPercentage Change\nSegment net revenue:\nOpComms\n$\n1,557.8\u00a0\n$\n1,518.5\u00a0\n$\n39.3\u00a0\n2.6\u00a0\n%\n$\n1,518.5\u00a0\n$\n1,620.7\u00a0\n$\n(102.2)\n(6.3)\n%\nLasers\n209.2\u00a0\n194.1\u00a0\n15.1\u00a0\n7.8\u00a0\n194.1\u00a0\n122.1\u00a0\n72.0\u00a0\n59.0\u00a0\nNet revenue\n$\n1,767.0\u00a0\n$\n1,712.6\u00a0\n$\n54.4\u00a0\n3.2\u00a0\n%\n$\n1,712.6\u00a0\n$\n1,742.8\u00a0\n$\n(30.2)\n(1.7)\n%\nGross profit\n$\n569.0\n$\n788.6\n$\n(219.6)\n(27.8)\n%\n$\n788.6\n$\n783.1\n$\n5.5\u00a0\n0.7\u00a0\n%\nGross margin\n32.2\u00a0\n%\n46.0\u00a0\n%\n46.0\u00a0\n%\n44.9\u00a0\n%\nResearch and development\n$\n307.8\u00a0\n$\n220.7\u00a0\n$\n87.1\n39.5\u00a0\n%\n$\n220.7\u00a0\n$\n214.5\n$\n6.2\u00a0\n2.9\u00a0\n%\nPercentage of net revenue\n17.4\u00a0\n%\n12.9\u00a0\n%\n12.9\u00a0\n%\n12.3\u00a0\n%\nSelling, general and administrative\n$\n348.8\n$\n265.7\n$\n83.1\u00a0\n31.3\u00a0\n%\n$\n265.7\n$\n241.4\n$\n24.3\u00a0\n10.1\u00a0\n%\nPercentage of net revenue\n19.7\u00a0\n%\n15.5\u00a0\n%\n15.5\u00a0\n%\n13.9\u00a0\n%\nRestructuring and related charges\n$\n28.1\n$\n(1.1)\n$\n29.2\u00a0\nN/A\n$\n(1.1)\n$\n7.7\n$\n(8.8)\n(114.3)\n%\nPercentage of net revenue\n1.6\u00a0\n%\n(0.1)\n%\n(0.1)\n%\n0.4\u00a0\n%\nMerger termination fee and related costs, net\n$\n\u2014\n$\n\u2014\n$\n\u2014\n\u2014\u00a0\n%\n$\n\u2014\n$\n(207.5)\n$\n207.5\u00a0\nN/A\nPercentage of net revenue\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n(11.9)\n%\nNet Revenue\nNet revenue increased by $54.4 million, or 3.2%, during fiscal 2023 as compared to fiscal 2022, due to a $39.3 million increase in OpComms revenue and a $15.1 million increase in Lasers revenue.\nWithin OpComms, Telecom and Datacom increased by $315.8\u00a0million primarily due to $340.4\u00a0million of revenue attributable to the NeoPhotonics acquisition. Additionally, the supply chain shortage in fiscal 2022 was partially relieved, allowing us to meet more customer demand during fiscal 2023. The increase was offset by $67.8\u00a0million decrease in Datacom due to reduction in demand associated with inventory management and build-up at our customers and slowing of cloud data center customer capital spending. Industrial and Consumer decreased by $276.5\u00a0million primarily due to higher market competition and reflects share normalization in the market. \nLasers net revenu\ne increased by $15.1 million, or 7.8%, \nduring fiscal 2023 as compared to fiscal 2022, \nprimarily due to a return in customer demand for our kilowatt class fiber lasers following a recovery in industrial production earlier in fiscal 2023.\nN\net revenue de\ncreased by $30.2 million, or 1.7%\n, during fiscal 2022 as compared to \nfiscal 2021 due to a \n$102.2\u00a0million decrease in OpComms revenue, partially offset by a $72.0\u00a0million increase in Lasers revenue.\nOpComms net revenue decreased by $102.2 million, or 6.3%, during \nfiscal 2022 as compared to \nfiscal 2021. Within OpComms, Telecom and Datacom decreased by $51.0\u00a0million primarily a result of continued material and component shortages for our Telecom products, which impacted our ability to meet demand. Industrial and Consumer decreased by $51.2\u00a0million primarily due to a decrease in average selling price for our chips as a result of a smaller chips design\n.\nLasers net revenue increased by $72.0 million, or 59.0%, during \nfiscal 2022 as compared to \nfiscal 2021, \nprimarily due to   a return in customer demand for our kilowatt class fiber lasers following the recent recovery in industrial production.\n52\nDuring our fiscal 2023, 2022 and 2021, net revenue generated from a single customer which represented 10% or greater of total net revenue is summarized as follows:\nYears Ended\nJuly 1, 2023\nJuly 2, 2022\nJuly 3, 2021\nApple\n12.1\u00a0\n%\n28.7\u00a0\n%\n30.2\u00a0\n%\nCiena\n15.3\u00a0\n%\n12.6\u00a0\n%\n10.1\u00a0\n%\nHuawei\n*\n*\n10.8\u00a0\n%\nNokia\n10.5\u00a0\n%\n*\n*\n*Represents less than 10% of total net revenue.\nRevenue by Region\nWe operate in three geographic regions: Americas, Asia-Pacific, and EMEA (Europe, Middle East, and Africa). Net revenue is assigned to the geographic region and country where our product is initially shipped to. For example, certain customers may request shipment of our product to a contract manufacturer in one country, which may differ from the location of their end customers. The following table presents net revenue by the three geographic regions we operate in and net revenue from countries that represented 10% or more of our total net revenue \n(in millions, except percentage data):\n\u00a0\nYears Ended\n\u00a0\nJuly 1, 2023\nJuly 2, 2022\nJuly 3, 2021\nNet revenue:\nAmericas:\nUnited States\n$\n241.3\u00a0\n13.7\u00a0\n%\n$\n173.9\u00a0\n10.2\u00a0\n%\n$\n133.4\u00a0\n7.7\u00a0\n%\nMexico\n180.0\u00a0\n10.2\u00a0\n160.9\u00a0\n9.4\u00a0\n134.8\u00a0\n7.7\u00a0\nOther Americas\n9.3\u00a0\n0.5\u00a0\n12.1\u00a0\n0.7\u00a0\n12.1\u00a0\n0.7\u00a0\nTotal Americas\n$\n430.6\u00a0\n24.4\u00a0\n%\n$\n346.9\u00a0\n20.3\u00a0\n%\n$\n280.3\u00a0\n16.1\u00a0\n%\nAsia-Pacific:\nThailand\n$\n269.0\u00a0\n15.2\u00a0\n%\n$\n102.3\u00a0\n5.9\u00a0\n%\n$\n116.8\u00a0\n6.7\u00a0\n%\nHong Kong\n246.7\u00a0\n14.0\u00a0\n458.2\u00a0\n26.7\u00a0\n546.3\u00a0\n31.3\u00a0\nSouth Korea\n170.2\u00a0\n9.6\u00a0\n265.2\u00a0\n15.5\u00a0\n240.0\u00a0\n13.8\u00a0\nJapan\n179.5\u00a0\n10.2\u00a0\n181.2\u00a0\n10.6\u00a0\n114.7\u00a0\n6.6\u00a0\nOther Asia-Pacific\n276.3\u00a0\n15.6\u00a0\n242.4\u00a0\n14.2\u00a0\n304.5\u00a0\n17.5\u00a0\nTotal Asia-Pacific\n$\n1,141.7\u00a0\n64.6\u00a0\n%\n$\n1,249.3\u00a0\n72.9\u00a0\n%\n$\n1,322.3\u00a0\n75.9\u00a0\n%\nEMEA\n$\n194.7\u00a0\n11.0\u00a0\n%\n$\n116.4\u00a0\n6.8\u00a0\n%\n$\n140.2\u00a0\n8.0\u00a0\n%\nTotal net revenue\n$\n1,767.0\u00a0\n$\n1,712.6\u00a0\n$\n1,742.8\u00a0\nDuring fiscal 2023, 2022 and 2021, net revenue from customers outside the United States, based on customer shipping location, represented\n \n86.3%\n, \n89.8% and 92.3% of net revenue, respectively.\nOur net revenue is primarily denominated in U.S. dollars, including our net revenue from customers outside the United States as presented above. We expect revenue from customers outside of the United States to continue to be an important part of our overall net revenue and a focus for net revenue growth opportunities. However, regulatory and enforcement actions by the United States and other governmental agencies, as well as changes in tax and trade policies and tariffs, have impacted and may continue to adversely impact net revenue from customers outside the United States.\n53\nGross Margin and Segment Gross Margin\nThe following table summarizes segment gross profit and gross margin for fiscal 2023, 2022 and 2021 (\nin millions, except for percentages\n):\nGross Profit\nGross Margin\nYears Ended\nYears Ended\n2023\n2022\n2021\n2023\n2022\n2021\nOpComms\n$\n665.5\u00a0\n$\n780.9\u00a0\n$\n830.2\u00a0\n42.7\u00a0\n%\n51.4\u00a0\n%\n51.2\u00a0\n%\nLasers\n98.0\u00a0\n102.1\u00a0\n57.3\u00a0\n46.8\u00a0\n%\n52.6\u00a0\n%\n46.9\u00a0\n%\nSegment total\n$\n763.5\u00a0\n$\n883.0\u00a0\n$\n887.5\u00a0\n43.2\u00a0\n%\n51.6\u00a0\n%\n50.9\u00a0\n%\nUnallocated corporate items:\nStock-based compensation\n(30.1)\n(20.8)\n(19.2)\nAmortization of acquired intangibles\n(84.4)\n(62.9)\n(61.7)\nAmortization of inventory fair value adjustments\n(17.8)\n\u2014\u00a0\n\u2014\u00a0\nInventory and fixed asset write down due to product line exits\n\u2014\u00a0\n(0.1)\n(0.4)\nIntegration related costs\n(12.1)\n\u2014\u00a0\n\u2014\u00a0\nIntangible asset write-off \n(1)\n(6.8)\n\u2014\u00a0\n\u2014\u00a0\nOther charges, net \n(2)\n(43.3)\n(10.6)\n(23.1)\nTotal\n$\n569.0\u00a0\n$\n788.6\u00a0\n$\n783.1\u00a0\n32.2\u00a0\n%\n46.0\u00a0\n%\n44.9\u00a0\n%\n(1)  \nDuring fiscal 2023, we recorded $6.8 million of write-off of developed technologies acquired from IPG, primarily \ndue to\n product discontinuation as well as changes in customer demand.\n(2) \nOther charges of unallocated corporate items during fiscal 2023 primarily relate to \n$32.5\u00a0million \nof incremental costs of sales related to components previously acquired from various brokers to satisfy customer demand and $2.7\u00a0million of excess and obsolete inventory charges driven by U.S. trade restrictions and the related decline in customer demand.\nOther charges of unallocated corporate items during fiscal 2022 primarily relate to $14.0\u00a0million of  incremental costs of sales related to components previously acquired from various brokers to satisfy customer demand, offset by a $5.9\u00a0million gain from selling equipment that was no longer needed after we transferred certain product lines to new production facilities in fiscal 2021.\nOther charges of unallocated corporate items during fiscal 2021 primarily relate to costs of transferring product lines to new production facilities, including Thailand, of $6.9\u00a0million, excess and obsolete inventory charges of $7.7\u00a0million driven by U.S. trade restrictions and the related decline in customer demand, and fixed asset write-off of $5.0\u00a0million associated with excess capacity related to our Fiber laser business.\nThe unallocated corporate items for the periods presented include the effects of amortization of acquired developed technologies and other intangibles, share-based compensation and certain other charges. We do not allocate these items to the gross margin for each segment because management does not include such information in measuring the performance of the operating segments. \nGross Margin\nGross margin in \nfiscal 2023 decreased to 32.2% from 46.0% in \nfiscal 2022, primarily driven by lower gross margin from our OpComms segment, as discussed further below. \nThe lower gross margin was also driven by an aggregate $21.5\u00a0million higher amortization of intangible assets due to the NeoPhotonics merger and the acquisition of IPG telecom transmission product lines, \n$18.5\u00a0million\n higher incremental cost of sales related to components previously acquired from various brokers to satisfy customer demand,  $17.8\u00a0million\n of amortization of acquired inventory step-up, and \n$17.4\u00a0million\n higher inventory excess and obsolete charges primarily due to company-wide integration efforts as a result of the NeoPhotonics merger and transitions to the next generation of products. Additionally, gross margin was negatively impacted by factory underutilization as a result of a drop in demand as customers actively work to reduce their elevated inventory levels.  \n54\nGross margin in fiscal 2022 increased to 46.0% from 44.9% in fiscal 2021, driven by higher gross margin from the Lasers segment due to the higher manufacturing levels and improved factory utilization as a result of return in customer demand for our kilowatt class fiber products following the recent recovery in industrial production. However, these improvements in gross margin were partially offset by $14.0\u00a0million of charges to acquire components from various brokers to satisfy customer demand.\nThe markets in which we sell products are consolidating, undergoing product, architectural and business model transitions, have high customer concentrations, are highly competitive, are price sensitive and/or are affected by customer seasonal and have variant buying patterns. We expect these factors to result in variability of our gross margin.\nDue to the global supply chain constraint, we incurred incremental supply and procurement costs in order to increase our ability to fulfill demands from our customers. As of July\u00a01, 2023, our inventory balance includes $6.1\u00a0million of incremental supply and procurement costs.\nSegment Gross Margin\nOpComms\nOpComms gross ma\nrgin in fiscal 2023 \ndecreased to\n \n42.7% as compared from 51.4% in fiscal 2022. The decrease was primarily due to a less profitable mix of products, including lower sales of higher margin imaging and sensing products, as well as higher sales of lower margin telecom products due to the merger with NeoPhotonics. \nAdditionally, OpComms gross margin was negatively impacted by factory underutilization as a result of a drop in demand as customers actively work to reduce their elevated inventory levels.  \nOpComms gross margin in fiscal 2022 remained relatively flat at 51.4% compared to 51.2% in fiscal 2021. \nLasers\nLasers gross margin in fiscal 2023 decreased to 46.8% from 52.6% in fiscal 2022. The decrease was primarily due to lower revenue from high margin solid-state lasers, as well as increased excess and obsolete charges due to transitions to the next generation of products.\n \nLasers gross margin in \nfiscal 2022\n increased to 52.6% from 46.9% in fiscal 2021. \nThe increase was primarily due to the higher manufacturing levels and improved factory utilization as a result of return in customer demand for our kilowatt class fiber products following the recent recovery in industrial production.\nResearch and Development (\u201cR&D\u201d)\nR&D expense increased by $87.1 million, or 39.5%, in fiscal 2023 as compared to fiscal 2022.  The increase in R&D expense is attributable to an increase in payroll and employee compensation related expenses due to additional headcount from the merger with NeoPhotonics and the acquisition of IPG telecom transmission product lines. In addition, we recognized a $12.9\u00a0million write-off of in-process research and development intangible assets associated with our NeoPhotonics acquisition for projects that we will no longer pursue. \nR&D expense increased by $6.2 million, or 2.9%, in fiscal 2022 as compared to fiscal 2021. \nThe increase in R&D expense was primarily driven by a $4.1\u00a0million increase in new product development activities in our factories, and a $2.6\u00a0million increase in share-based compensation.\nWe believe that continuing our investments in R&D is critical to attaining our strategic objectives. Despite signs of a weaker macroeconomic environment, we plan to continue to invest in R&D and new products that we believe will further differentiate us in the marketplace and we expect to continue to invest significant R&D in the future.\n55\nSelling, General and Administrative (\u201cSG&A\u201d)\nSG&A expense increased by $83.1 million, or 31.3%,\n in fiscal 2023 as compared to fiscal 2022. \nThe increase in SG&A expense was primarily driven by an increase in payroll and employee compensation related expenses due to additional headcount from the merger with NeoPhotonics and higher stock-based compensation. The increase was also attributable to incremental facility costs and $20.7\u00a0million of incremental amortization of intangibles due to the NeoPhotonics merger and the acquisition of IPG telecom transmission product lines. Additionally, in connection with the NeoPhotonics merger, certain equity awards for NeoPhotonics employees were accelerated. We recognized $11.9\u00a0million of stock-based compensation associated with the acceleration during the first quarter of fiscal year 2023. We also recognized $11.5\u00a0million of merger and acquisition related costs, primarily professional service fees and retention expenses related to the NeoPhotonics merger and the acquisition of IPG telecom transmission product lines. Furthermore, we recognized $7.8\u00a0million of expense with respect to the pending settlement of certain non-ordinary course litigation matters. For a description of our material pending legal proceedings, refer to \u201cNote 17. Commitments and Contingencies\u201d to the consolidated financial statements.\nSG&A expense increased by \n$24.3 million\n, or 10.1%, in \nfiscal 2022\n as compared to fiscal 2021. The increase in SG&A expense for fiscal 2022 was primarily due to a $13.9\u00a0million increase in outside services and professional fees related to the NeoPhotonics acquisition and increased investments in information technology and professional service fees for optimizing our international legal structure, as well as a $6.0\u00a0million increase in share-based compensation primarily due to increased employee headcount.\nFrom time to time, we incur expenses that are not part of our ordinary operations, such as mergers and acquisition-related and litigation expenses, which generally increase our SG&A expenses and potentially impact our profitability expectations in any particular period.\nRestructuring and Related Charges\nWe have initiated various strategic restructuring events primarily intended to reduce costs, consolidate our operations, rationalize the manufacturing of our products, align our business in response to market conditions, and as a result of our merger with NeoPhotonics.\nDuring \nfiscal 2023\n, we recorded restructuring and related charges of \n$28.1 million, which were primarily attributable to company-wide integration efforts as a result of the merger with NeoPhotonics, our cost reduction initiatives, as well as severance and employee-related benefits associated with NeoPhotonics\u2019 executive severance and retention agreements. These agreements provided for payments and benefits upon an involuntary termination of employment under certain circumstances. \nDuring \nfiscal 2022\n, we recorded a net reversal to our restructuring and related charges of $1.1\u00a0million, which was attributable to lower than anticipated employee severance charges primarily as a result of retaining and re-assigning certain employees.\nDuring\u00a0fiscal 2021, we recorded\u00a0$7.7 million in restructuring and related charges in our consolidated statements of operations. The charges were primarily attributable to severance charges associated with the decision to move certain manufacturing from San Jose, California, as well as other cost reduction measures taken across the Company impacting all regions.\nRefer to \u201cNote 12. Restructuring and Related Charges\u201d to the consolidated financial statements. \nMerger Termination Fee and Related Costs, Net\nOn January 18, 2021, we entered into a merger agreement with Coherent, under which we would acquire all outstanding shares of Coherent common stock. In March 2021, Coherent terminated the merger agreement and paid us a termination fee of $217.6\u00a0million in accordance with the merger agreement. For the year ended July 3, 2021, we recorded $217.6\u00a0million gain related to the receipt of a termination fee from Coherent in March 2021 as a result of the termination of the merger agreement. This gain was offset by\n $10.1\u00a0million of C\noherent acquisition related charges and the net balance of $207.5 million is presented as \u201cmerger termination fee and related costs, net\u201d in our consolidated statements of operations for the year ended July 3, 2021.\nInterest Expense\nOur interest expense is as follows for the years presented (\nin millions\n):\nYears Ended\nJuly 1, 2023\nJuly 2, 2022\nJuly 3, 2021\nInterest expense\n$\n35.5\u00a0\n$\n80.2\u00a0\n$\n66.7\u00a0\n56\nInterest expense is \ndriven by the amortization of the debt discount and issuance costs of our convertible notes.\nInterest expense in \nfiscal 2023\n decreased by $44.7\u00a0million, or 55.7%, from fiscal 2022, p\nrimarily due to the adoption of ASU 2020-06 in our first quarter of fiscal 2023, which requires us to record each of our 2026 Notes and 2028 Notes as a single liability, measured at amortized cost, eliminating the interest expense associated with the debt discount\n. \nInterest expense in fiscal 2022 increased by $13.5\u00a0million, or 20.2%, from fiscal 2021, as a result of issuing $861.0\u00a0million in aggregate principal amount of 2028 Notes in March 2022.\nOther Income, Net\nThe components of other income, net are as follows for the years presented (\nin millions\n):\nYears Ended\nJuly 1, 2023\nJuly 2, 2022\nJuly 3, 2021\nForeign exchange gains (losses), net\n$\n7.0\u00a0\n$\n6.1\u00a0\n$\n(4.4)\nInterest and investment income\n40.8\u00a0\n6.1\u00a0\n5.7\u00a0\nOther income (expense), net\n1.0\u00a0\n(0.2)\n1.5\u00a0\nOther income, net\n$\n48.8\u00a0\n$\n12.0\u00a0\n$\n2.8\u00a0\nOther income, net in \nfiscal 2023 \nincreased by \n$36.8 million from \nfiscal 2022\n due to an increase in interest and investment income of $34.7\u00a0million driven by an increase in interest rates on our fixed income securities and increase in net foreign exchange gain of $0.9\u00a0million as a result of the strengthening of the U.S. dollar relative to most foreign currencies. Additionally, c\noncurrent with the issuance of the 2029 Notes, we used $132.8\u00a0million of the net proceeds to repurchase $125.0\u00a0million aggregate principal amount of the 2024 Notes. We recognized a gain of $1.0\u00a0million related to the repurchase, which was recorded under other income, net in \nfiscal 2023.\nOther income, net in fiscal 2022 increased by $9.2\u00a0million from fiscal 2021 primarily due to $10.5\u00a0million more in foreign exchange gains as a result of a strengthening U.S. dollar relative to other foreign currencies, offset by $1.7\u00a0million decrease in other income.\n57\nProvision for Income Taxes\nYears Ended\n(in millions)\nJuly 1, 2023\nJuly 2, 2022\nJuly 3, 2021\nIncome tax provision\n$\n29.2\u00a0\n$\n36.2\u00a0\n$\n65.8\u00a0\nOur  provision for income taxes for  fiscal 2023 differs from the 21% U.S. statutory rate primarily due to the income tax expense from foreign income inclusions in the U.S.,\n \nearnings of our foreign subsidiaries being taxed at rates that differ from the U.S. statutory rate and non-deductible stock-based compensation.\n \nAdditionally, our provision for income taxes includes income tax benefits from various tax credits and change in valuation allowance as it is more-likely-than-not that certain deferred tax assets will be realizable in the future. During fiscal 2023, we also effectuated certain tax planning actions which reduced the amount of Base Erosion Anti-Abuse Tax (BEAT) for fiscal 2022.\nOur provision for income taxes for fiscal 2022 differs from the 21% U.S. statutory rate primarily due to the income tax benefit from earnings of our foreign subsidiaries being taxed at rates that differ from the U.S. statutory rate, offset by the tax expense from foreign income inclusions in the U.S. Additionally, our provision for income taxes includes income tax benefits from various tax credits, offset by an income tax expense from non-deductible stock-based compensation and change in valuation allowance as it is not more-likely-than-not that certain deferred tax assets will be realizable in the future.\nOur provision for income taxes for fiscal 2021 differs from the 21% U.S. statutory rate primarily due to the income tax benefit from earnings of our foreign subsidiaries being taxed at rates that differ from the U.S. statutory rate, which is offset by the tax expense from foreign income inclusions in the U.S. Additionally, our provision for income taxes includes income tax benefit from various tax credits and non-U.S. statutory rate changes enacted during the year, offset by an income tax expense from non-deductible stock-based compensation and change in valuation allowance as it is not more-likely-than-not that certain deferred tax assets will be realizable in the future.\nOur provision for incomes taxes may be affected by changes in the geographic mix of earnings, acquisitions, changes in the realizability of deferred tax assets, changes in contingent tax liabilities, the results of income tax audits, settlements with tax authorities, the expiration of statutes of limitations, the implementation of tax planning strategies, tax rulings, court decisions, and changes in tax laws and regulations. It is also possible that significant negative or positive evidence may become available that causes us to change our conclusion regarding whether a valuation allowance is needed on certain of our deferred tax assets, which would affect our income tax provision in the period of such change. For additional information, \nrefer to Item 1A \u201cRisk Factors\u201d of this Annual Report.\nDefined Benefit Plans\nThe Company sponsors defined benefit pension plans covering employees in Japan, Switzerland, and Thailand. Pension plan benefits are based primarily on participants\u2019 compensation and years of service credited as specified under the terms of each country\u2019s plan. Employees are entitled to a lump sum benefit upon retirement or upon certain instances of termination.  The funding policy is consistent with the local requirements of each country. As of July\u00a01, 2023, the defined benefit plans in Switzerland were partially funded, while defined benefit plans in Japan and Thailand were unfunded. As of July\u00a01, 2023, our projected benefit obligations, net, in Japan, Switzerland, and Thailand were $4.2\u00a0million,\u00a0$3.3\u00a0million and $3.9\u00a0million, respectively. They were recorded in our consolidated balance sheets as accrued payroll and related expenses for the current portion while other non-current liabilities for the non-current portion, and represent the total projected benefit obligation (\u201cPBO\u201d) less the fair value of plan assets.\nA key actuarial assumption in calculating the net periodic cost and the PBO is the discount rate. Changes in the discount rate impact the interest cost component of the net periodic benefit cost calculation and PBO due to the fact that the PBO is calculated on a net present value basis. Decreases in the discount rate will generally increase pre-tax cost, recognized expense and the PBO. Increases in the discount rate tend to have the opposite effect. We estimate a 100 basis point decrease or increase in the discount rate would cause a corresponding increase or decrease of $20.4\u00a0million or $14.7\u00a0million, respectively, in the PBO \nbased upon data as of July\u00a01, 2023.\nWe expect to contribut\ne \n$2.2\u00a0million to our defined benefit pension plans in fiscal 2024.\nFinancial Condition\n58\nLiquidity and Capital Resources\nAs of July\u00a01, 2023 and July\u00a02, 2022, our cash and cash equivalents of $859.0 million and $1,290.2 million, respectively, were largely held in the United States. As of July\u00a01, 2023 and July\u00a02, 2022, our short-term investments of $1,154.6 million and $1,258.8 million, respectively, were all held in the United States. Cash equivalents and short-term investments are primarily comprised of money market funds, treasuries, agencies, high quality investment grade fixed income securities, certificates of deposit, and commercial paper. Our investment policy and strategy is focused on the preservation of capital and supporting our liquidity requirements.\nThe total amount of cash outside the United States held by the non-U.S. entities as of July\u00a01, 2023 was $298.4 million, which was primarily held by entities incorporated in the United Kingdom, the British Virgin Islands, Japan, Hong Kong, China, Switzerland, the Cayman Islands, and Thailand. Although the cash currently held in the United States, as well as the cash generated in the United States from future operations, is expected to cover our normal operating requirements, a substantial amount of additional cash could be required for other purposes, such as capital expenditures to support our business and growth, including costs associated with increasing internal manufacturing capabilities, particularly in our Thailand facility, strategic transactions and partnerships, and future acquisitions. \nOur intent is to indefinitely reinvest funds held outside the United States and, except for the funds held in the Cayman Islands, the British Virgin Islands, and Hong Kong, as well as certain subsidiaries in China and Japan, our current plans do not demonstrate a need to repatriate them to fund our domestic operations. However, if in the future, we encounter a significant need for liquidity domestically or at a particular location that we cannot fulfill through borrowings, equity offerings, or other internal or external sources, or the cost to bring back the money is not significant from a tax perspective, we may determine that cash repatriations are necessary or desirable. Repatriation could result in additional material taxes. These factors may cause us to have an overall tax rate higher than other companies or higher than our tax rates in the past. Additionally, if conditions warrant, we may seek to obtain additional financing through debt or equity sources. To the extent we issue additional shares, it may create dilution to our existing stockholders. However, any such financing may not be available on terms favorable to us or may not be available at all.\nBeginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 requires taxpayers to capitalize research and development expenditures and amortize domestic expenditures over five years and foreign expenditures over fifteen years. This will delay deductibility of these expenses and potentially increase the amount of cash taxes we pay in the next several years.\nIndebtedness\nOn June 16, 2023, we issued\u00a0$603.7\u00a0million\u00a0in aggregate principal amount of 2029 Notes. The net proceeds from the issuance of the 2029 Notes was $599.4\u00a0million, after deducting $4.3\u00a0million of net issuance costs. In addition, we incurred $0.8\u00a0million of professional fees directly related to this transaction. Concurrent with the issuance of the 2029 Notes, we used $132.8\u00a0million of the net proceeds to repurchase $125.0\u00a0million aggregate principal amount of the 2024 Notes and $125.0\u00a0million of the net proceeds to repurchase \nour common stock in privately negotiated transactions. Refer to \u201cNote 10. Debt\u201d to the consolidated financial statements.\nAs of July\u00a01, 2023, the net carrying amount of our 2029 Notes of $598.6 (principal balance of \n$603.7\u00a0million\n maturing in 2029) is presented in non-current liabilities. \nIf the closing price of our stock exceeds $90.40  for 20 of the last 30 trading days in any future quarter, our 2029 Notes would become convertible at the option of the holders during the subsequent fiscal quarter and the debt would be reclassified to current liabilities in our consolidated balance sheets.\nAs of July\u00a01, 2023, the net carrying amount of our 2028 Notes of $855.5 million (principal balance of \n$861.0\u00a0million\n maturing in 2028) is presented in non-current liabilities. If the closing price of our stock exceeds $170.34 for 20 of the last 30 trading days in any future quarter, our 2028 Notes would also become convertible at the option of the holders and the debt component would be reclassified to current liabilities in our condensed consolidated balance sheet.\nAs of July\u00a01, 2023, the net carrying amount of our 2026 Notes of $1,045.9 million (principal balance of \n$1,050.0\n maturing in 2026) is presented in non-current liabilities. If the closing price of our stock exceeds \n$129.08\n for 20 of the last 30 trading days in any future quarter, our 2026 Notes would also become convertible at the option of the holders and the debt component would be reclassified to current liabilities in our condensed consolidated balance sheet.\nAs of \nJuly\u00a01, 2023\n, the net carrying amount of the debt component of our 2024 Notes of \n$311.6 million\n (principal balance of \n$323.1\u00a0million\n maturing in 2024) is presented in short-term liabilities as the debt will mature on March 15, 2024. \nDuring the year ended July\u00a01, 2023, we received conversion requests of less than \n$0.1\u00a0million\n principal amount of the 2024 Notes, which we settled with cash in accordance with the 2024 Indenture (as defined below). Since issuing the 2024 Notes, we have converted a total of approximately $1.9\u00a0million principal amount of the 2024 Notes.\n59\nRefer to \u201cNote 10. Debt\u201d to the consolidated financial statements for more information.\nShare Repurchases\nRepurchase Made in Connection with Convertible Note Offering\nIn fiscal 2023, concurrent with the issuance of the 2029 Notes, we repurchased 2.3\u00a0million shares of our common stock in privately negotiated transactions at an average price of $53.49 per share for an aggregate purchase price of \n$125.0\u00a0million\n. We recorded the aggregate purchase price as a reduction of retained earnings within our consolidated balance sheet.  These shares were retired immediately.\nIn fiscal 2022, concurrent with the issuance of the 2028 Notes, we repurchased 2.0\u00a0million shares of our common stock in privately negotiated transactions at an average price of $99.0 per share for an aggregate purchase price of approximately $200.0\u00a0million. We recorded the  aggregate purchase price as a reduction of retained earnings within our consolidated balance sheet and retired these shares immediately.\nShare Buyback Program\nOn May 7, 2021, our board of directors approved the 2021 share buyback program, which authorizes us to use up to $700.0\u00a0million to purchase our own shares of common stock.  On March 3, 2022, our board of directors approved an increase in our share buyback program, which authorizes us to use up to an aggregate amount of $1.0\u00a0billion (an increase from $700.0\u00a0million) to purchase our own shares of common stock through May 2024. \nOn April 5, 2023, our board of directors approved a further increase in our share buyback program to authorize us to use up to an aggregate amount of $1.2\u00a0billion (an increase from $1.0\u00a0billion) to purchase our own shares of common stock through May 2025.\nDuring fiscal 2023, we repurchased \n0.7\u00a0million\n shares of our common stock as part of the share buyback program at an average price of $65.03 per share for an aggregate purchase price of $40.5\u00a0million. \nDuring fiscal 2022, \nwe repurchased 4.0\u00a0million shares of our common stock as part of the share buyback program at an average price of $87.21 per share for an aggregate purchase price of $348.9\u00a0million\n. Since the appoval of the share buyback program by the board of directors, we have repurchased \n7.7\u00a0million\n shares in aggregate at an average price of \n$81.66\n per share for a total purchase price of \n$630.4\u00a0million\n. We recorded the \n$630.4\u00a0million\n aggregate purchase price as a reduction of retained earnings within our consolidated balance sheets. All repurchased shares were retired immediately. \nAs of July\u00a01, 2023, we have $569.6\u00a0million remaining under the share buyback program. \nThe price, timing, amount, and method of future repurchases will be determined based on the evaluation of market conditions and other factors, at prices determined to be in the best interests of the Company and our stockholders. The stock buyback program may be suspended or terminated at any time.\n60\nContractual Obligation\ns\nThe following table summarizes our contractual obligations as of July\u00a01, 2023, and the effect such obligations are expected to have on our liquidity and cash flow (\nin millions\n):\nPayments due\nTotal\nLess than 1 year\nMore than 1 year\nContractual Obligations\nAsset retirement obligations\n$\n8.2\u00a0\n$\n\u2014\u00a0\n$\n8.2\u00a0\nOperating lease liabilities, including imputed interest \n(1)\n67.8\u00a0\n16.1\u00a0\n51.7\u00a0\nPension plan contributions \n(2)\n2.2\u00a0\n2.2\u00a0\n\u2014\u00a0\nPurchase obligations \n(3)\n348.9\u00a0\n308.5\u00a0\n40.4\u00a0\nConvertible notes - principal \n(4)\n2,837.8\u00a0\n323.1\u00a0\n2,514.7\u00a0\nConvertible notes - interest \n(4)\n100.0\u00a0\n19.9\u00a0\n80.1\u00a0\nTotal\n$\n3,364.9\u00a0\n$\n669.8\u00a0\n$\n2,695.1\u00a0\n(1)\n The amounts of operating lease liabilities do not include any sublease income amounts nor do they include payments for short-term leases or variable lease payments. As of July\u00a01, 2023, we expect to receive sublease income of approximately\u00a0$1.8\u00a0million over the next year. Refer to \u201cNote 8. Leases\u201d to the consolidated financial statements.\n(2) \nThe amount of pension plan contributions represents planned contributions to our defined benefit plans. Although additional future contributions will be required, the amount and timing of these contributions will be affected by actuarial assumptions, the actual rate of returns on plan assets, the level of market interest rates, legislative changes, and the amount of voluntary contributions to the plan. Any contributions for the following fiscal year and later will depend on the value of the plan assets in the future and thus are uncertain. As such, we have not included any amounts beyond one year in the table above.  Refer to \u201cNote 16. Employee Retirement Plans\u201d to the consolidated financial statements.\n(3)\n Purchase obligations represent legally binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements. Refer to \u201cNote 17. Commitments and Contingencies\u201d to the consolidated financial statements.\n(4)\n The amounts related to convertible notes\u00a0include principal and interest on our 0.25% Convertible Senior Notes due in 2024 (the \u201c2024 Notes\u201d), principal and interest on our 0.50% Convertible Senior Notes due in 2026 (the \u201c2026 Notes\u201d), principal and interest on our 0.50% Convertible Notes due in 2028 (the \u201c2028 Notes\u201d), and principal and interest on our 1.50% Convertible Notes due in 2029 (the \u201c2029 Notes\u201d). The 2024 Notes have a maturity date of March 15, 2024, the 2026 Notes have a maturity date of December 15, 2026, the 2028 Notes have a maturity date of June 15, 2028, and the 2029 Notes have a maturity date of December 15, 2029. The principal balances of our convertible notes are reflected in the payment periods in the table above based on their respective contractual maturities assuming no conversions. Refer to \u201cNote 10. Debt\u201d to the consolidated financial statements. \nUnrecognized Tax Benefits\nAs of July\u00a01, 2023, our other non-current liabilities also include $64.4 million\n \nof unrecognized tax benefit for uncertain tax positions. We are unable to reliably estimate the timing of future payments related to uncertain tax positions.\n61\nLiquidity and Capital Resources Requirements\nWe believe that our cash and cash equivalents as of July\u00a01, 2023, and cash flows from our operating activities will be sufficient to meet our liquidity and capital spending requirements for at least the next 12\u00a0months. \nThere are a number of factors that could positively or negatively impact our liquidity position, including:\n\u2022\nglobal economic conditions which affect demand for our products and services and impact the financial stability of our suppliers and customers, including the impact of uncertainty in the banking and financial services industries as well as COVID-19;\n\u2022\nfluctuations in demand for our products as a result of changes in regulations, tariffs or other trade barriers, and trade relations in general;\n\u2022\nchanges in accounts receivable, inventory or other operating assets and liabilities, which affect our working capital;\n\u2022\nincrease in capital expenditures to support our business and growth, including increases in manufacturing capacity;\n\u2022\nthe tendency of customers to delay payments or to negotiate favorable payment terms to manage their own liquidity positions;\n\u2022\ntiming of payments to our suppliers;\n\u2022\nvolatility in fixed income and credit, which impact the liquidity and valuation of our investment portfolios;\n\u2022\ncost and availability of credit, which may impact available financing for us, our customers or others with whom we do business;\n\u2022\nvolatility in foreign exchange markets, which impacts our financial results;\n\u2022\npossible investments or acquisitions of complementary businesses, products or technologies, or other strategic transactions or partnerships;\n\u2022\nissuance of debt or equity securities, or other financing transactions, including bank debt;\n\u2022\npotential funding of pension liabilities either voluntarily or as required by law or regulation; \n\u2022\nother acquisitions or strategic transactions;\n\u2022\nthe settlement of any conversion or redemption of our convertible notes in cash; and\n\u2022\ncommon stock repurchases under the share buyback program.\nCash Flows\nFiscal 2023\nAs of July\u00a01, 2023, our consolidated balance of cash and cash equivalents decreased by $431.2 million, to $859.0 million from $1,290.2 million as of July\u00a02, 2022. The decrease in cash and cash equivalents was due to cash used in investing activities of $874.0 million, partially offset by cash provided by financing activities of $263.0 million and operating activities of $179.8 million during the year ended July\u00a01, 2023.\nCash provided by operating activities was $179.8 million during the year ended July 1, 2023, which reflects the net loss of $131.6 million and non-cash items of $448.0 million, partially offset by $136.6 million of changes in our operating assets and liabilities.\nCash used in investing activities of $874.0 million during the year ended July 1, 2023 was primarily attributable to the merger with NeoPhotonics and the acquisition of IPG telecom transmission product lines in the amount of $861.6 million, net of cash acquired and capital expenditures of $128.5 million, partially offset by net proceeds from sales or maturities of short-term investments of $115.7\u00a0million.\nCash provided by financing activities of $263.0 million during the year ended July 1, 2023, was primarily a result of proceeds from the issuance of the 2029 Notes, net of issuance costs of $599.4 million, partially offset by the repurchase of shares of our common stock of $175.6 million, repurchase of our 2024 Notes of $132.8 million and tax payments related to the net share settlement of restricted stock of $37.2 million.\n62\nFiscal 2022\nAs of July\u00a02, 2022,  our consolidated balance of cash and cash equivalents increased by $515.9\u00a0million, to $1,290.2\u00a0million from $774.3\u00a0million as of July 3, 2021. The increase in cash and cash equivalents was primarily due to cash provided by operating activities of $459.3\u00a0million and financing activities of $282.9\u00a0million, partially offset by cash used in investing activities of $226.3\u00a0million during the year ended July 2, 2022.\nCash provided by operating activities was $459.3\u00a0million during the year ended July 2, 2022, which reflects net income of $198.9\u00a0million and non-cash items of $351.0\u00a0million, partially offset by $90.6\u00a0million of changes in our operating assets and liabilities.\nCash used in investing activities of $226.3\u00a0million during the year ended July 2, 2022 was attributable to purchases of short-term investments, net of sales and maturities of $111.5\u00a0million, capital expenditures of $91.2\u00a0million, and a $30.0\u00a0million term loan provided to NeoPhotonics to support their on-going growth plans through the anticipated merger completion, partially offset by proceeds from the sales of property, plant and equipment of $6.4 million. The term loan to NeoPhotonics is described in \u201cNote 4. Business Combination\u201d to the consolidated financial statements.\nCash provided by financing activities of $282.9 million during the year ended July 2, 2022, was primarily a result of proceeds from the issuance of the 2028 Notes, net of issuance costs of $854.1 million and proceeds from employee stock plans of $13.5\u00a0million, partially offset by the repurchase of shares of our common stock of $543.9\u00a0million, tax payments related to the net share settlement of restricted stock of $39.0\u00a0million, and $1.8\u00a0million to settle conversion requests for the principal amount of the 2024 Notes.\nFiscal 2021\nAs of July\u00a03, 2021,  our consolidated balance of cash and cash equivalents increased by $476.3\u00a0million, to $774.3\u00a0million from $298.0\u00a0million as of June 27, 2020. The increase in cash and cash equivalents was primarily due to cash provided by operating activities of $738.7\u00a0million and investing activities of $1.0\u00a0million, offset by cash used in financing activities of $263.4\u00a0million during the year ended July 3, 2021.\nCash provided by operating activities was $738.7\u00a0million during the year ended July 3, 2021. Our net income was $397.3\u00a0million for the year ended July 3, 2021 and included the merger termination fee paid by Coherent, net of related costs of $207.5\u00a0million. Cash provided by operating activities was also generated from $339.9\u00a0million of non-cash items, offset by $1.5\u00a0million of changes in our operating assets and liabilities.\nCash provided by investing activities of $1.0\u00a0million during the year ended July 3, 2021 was primarily attributable to proceeds from maturities and sales of short-term investments, net of purchases of $71.2\u00a0million and proceeds from sales of product lines of $1.3\u00a0million and sales of property and equipment of $23.3\u00a0million. However, we had capital expenditures of $84.8\u00a0million and a payment for an asset acquisition of $10.0\u00a0million.\nCash used in financing activities of $263.4\u00a0million during the year ended July 3, 2021, was primarily resulted from the repurchase of shares of our common stock of $236.0\u00a0million and tax payments related to restricted stock of $39.7\u00a0million, offset by the proceeds from employee stock plans of $12.6\u00a0million.\n63",
+  "item7a": ">ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\nForeign Exchange Risk\nWe conduct our business and sell our products to customers primarily in Asia, Europe, and North America. Due to the impact of changes in foreign currency exchange rates between the U.S. Dollar and foreign currencies, we recorded foreign exchange gains of $7.0 million in fiscal 2023, foreign exchange gains of $6.1\u00a0million in fiscal 2022, and foreign exchange losses of $4.4\u00a0million in fiscal 2021, in the consolidated statements of operations.\nAlthough we sell primarily in the U.S. Dollar, we have foreign currency exchange risks related to our expenses denominated in currencies other than the U.S. Dollar, principally the Chinese Yuan, Canadian Dollar, Thai Baht, Japanese Yen, UK Pound, Swiss Franc, Euro and Brazilian Real. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. In the event our foreign currency denominated monetary assets and liabilities, sales or expenses increase, our operating results may be affected to a greater extent by fluctuations in the exchange rates of the currencies in which we do business as compared with the U.S. dollar.\nEquity Price Risk\nWe are exposed to equity price risk related to the conversion options embedded in our 2029 Notes, 2028 Notes, 2026 Notes and 2024 Notes. \nWe issued the 2029 Notes in June 2023, the 2028 Notes in March 2022, the 2026 Notes in December 2019 and the 2024 Notes in March 2017 with an aggregate principal amount of \n$603.7\u00a0million,\n \n$861.0\u00a0million\n, \n$1,050.0 million\n and $450.0 million, respectively. The 2029 Notes, 2028 Notes and 2026 Notes are carried at face value less issuance costs, while the 2024 Notes are carried at face value less amortized discount and issuance costs on the condensed consolidated balance sheet. The 2029 Notes, 2028 Notes, 2026 Notes and the 2024 Notes bear interest at a rate of 1.50%, 0.50%, 0.50% and 0.25% per year, respectively. Since the convertible notes bear interest at fixed rates, we have no financial statement risk associated with changes in market interest rates. However, the potential value of the shares to be distributed to the holders of our convertible notes changes when the market price of our stock fluctuates. The 2029 Notes, 2028 Notes and 2026 Notes will mature on December 15, 2029, \nJune\u00a015, 2028, \nDecember 15, 2026 respectively, unless earlier repurchased by us or converted pursuant to their terms, and have a conversion price of\n approximately $69.54 per share for the 2029 Notes, approximately $131.03 per share\n for the 2028 Notes and approximately \n$99.29\n per share for the 2026 Notes. The 2024 Notes will mature on March 15, 2024, unless earlier repurchased by us or converted pursuant to their terms, and have a conversion price of approximately  $60.62 per share. \nInterest Rate Fluctuation Risk\nAs of July\u00a01, 2023, we had cash, cash equivalents, and short-term investments of $2,013.6 million. Cash equivalents and short-term investments are primarily comprised of money market funds, treasuries, agencies, high quality investment grade fixed income securities, certificates of deposit, and commercial paper. Our investment policy and strategy is focused on the preservation of capital and supporting our liquidity requirements. We do not enter into investme\nnts for trading or speculative purposes. As of July\u00a01, 2023, the weighted-average life of our investment portfolio was approximately \nsix\n months.\nOur fixed-income portfolio is subject to fluctuations in interest rates, which could affect our results of operations. Based on our investment portfolio balance as of July\u00a01, 2023, a hypothetical increase or decrease in interest rates of 1% (100 basis points) would have resulted in a decrease or an increase in the fair value of our portfolio of approximately $8.2\u00a0million\n, and a hypothetical increase or decrease of 0.50% (50 basis points) would have resulted in a decrease or an increase in the fair value of our portfolio of approximately\n $4.1\u00a0million. \nBank Liquidity Risk\nAs of July\u00a01, 2023, we had approximately\u00a0$254.3 million\u00a0of unrestricted cash (excluding cash equivalents) in operating accounts that are held with domestic and international financial institutions. These cash balances could be lost or become inaccessible if the underlying financial institutions fail or if they are unable to meet the liquidity requirements of their depositors and if they are not supported by the national government of the country in which such financial institution is located. Notwithstanding, we have not incurred any losses to date and have had full access to our operating accounts. We believe any failures of domestic and international financial institutions could impact our ability to fund our operations in the short term. The value of our investment portfolio could also be impacted if we hold debt instruments which were issued by any institutions that fail or become illiquid.  Our ability to obtain raw materials for our supply chain and collections of cash from sales may be unduly impacted if any of our vendors or customers are affected by illiquidity events. \n64",
+  "cik": "1633978",
+  "cusip6": "55024U",
+  "cusip": ["55024U959", "55024U909", "55024U109", "55024UAB5", "55024u109"],
+  "names": ["None", "Lumentum Holdings Inc.", "LUMENTUM HLDGS INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1633978/000162828023030374/0001628280-23-030374-index.htm"
+}
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+++ b/GraphRAG/standalone/data/all/form10k/0001636519-23-000009.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item\u00a01. \nBusiness\nMadison Square Garden Sports Corp., is a Delaware corporation with our principal executive offices at Two Pennsylvania Plaza, New York, NY 10121. Unless the context otherwise requires, all references to \u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d \u201cMSG Sports\u201d or the \u201cCompany\u201d refer collectively to Madison Square Garden Sports Corp., a holding company, and its direct and indirect subsidiaries. We conduct substantially all of our business activities discussed in this Annual Report on Form\u00a010-K through MSG Sports, LLC and its direct and indirect subsidiaries. \nThe Company was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG Networks Inc. (\u201cMSG Networks\u201d). All of the outstanding common stock of the Company was distributed to MSG Networks shareholders (the \u201cMSGS Distribution\u201d) on September 30, 2015.\nOn April 17, 2020 (the \u201cSphere Distribution Date\u201d), the Company distributed all of the outstanding common stock of Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp. and referred to herein as \u201cSphere Entertainment\u201d) to its stockholders (the \u201cSphere Distribution\u201d). Prior to the MSGE Distribution (as defined below), Sphere Entertainment owned, directly or indirectly, the entertainment business previously owned and operated by the Company through its MSG Entertainment business segment and the sports booking business previously owned and operated by the Company through its MSG Sports business segment. \nOn July 9, 2021, MSG Networks merged with a subsidiary of Sphere Entertainment and became a wholly-owned subsidiary of Sphere Entertainment. Accordingly, agreements between the Company and MSG Networks are now effectively agreements with Sphere Entertainment on a consolidated basis.\nOn April 20, 2023 (the \u201cMSGE Distribution Date\u201d), Sphere Entertainment distributed approximately \n67\n% of the issued and outstanding shares of common stock of Madison Square Garden Entertainment Corp. (formerly MSGE Spinco, Inc. and referred to herein as \u201cMSG Entertainment\u201d) to its stockholders (the \u201cMSGE Distribution\u201d). All agreements between the Company and MSG Entertainment described herein were between the Company and Sphere Entertainment prior to the MSGE Distribution (except agreements entered into after the MSGE Distribution).\nUnless the context otherwise requires, all references to MSG Entertainment, Sphere Entertainment and MSG Networks refer to such entity, together with its direct and indirect subsidiaries. \nThe Company reports on a fiscal year basis ending on June 30th. In this Annual Report on Form 10-K, the years ended on June 30, 2023 and 2022 are referred to as \u201cfiscal year 2023\u201d and \u201cfiscal year 2022,\u201d respectively.\nOverview\nThe Company owns and operates a portfolio of assets featuring some of the most recognized teams in all of sports, including the New York Knickerbockers (\u201cKnicks\u201d) of the National Basketball Association (\u201cNBA\u201d) and the New York Rangers (\u201cRangers\u201d) of the National Hockey League (\u201cNHL\u201d). Both the Knicks and the Rangers play their home games in Madison Square Garden Arena (\u201cThe Garden\u201d), also known as The World\u2019s Most Famous Arena. The Company\u2019s other professional franchises include two development league teams \u2014 the Hartford Wolf Pack of the American Hockey League (\u201cAHL\u201d) and the Westchester Knicks of the NBA G League (\u201cNBAGL\u201d). Our professional sports franchises are collectively referred to herein as our \u201csports teams.\u201d In addition, the Company previously owned a controlling interest in Counter Logic Gaming (\u201cCLG\u201d), a North American esports organization.  In April 2023, the Company sold its controlling interest in CLG to Hard Carry Gaming Inc. (\u201cNRG\u201d), a professional gaming and entertainment company, in exchange for a noncontrolling equity interest in the combined NRG/CLG company. The Company also operates a professional sports team performance center \u2014 the Madison Square Garden Training Center in Greenburgh, NY. \nOur Strengths\n \n\u2022\nIconic sports franchises with renowned brands;\n\u2022\nEnduring and meaningful presence in the New York metropolitan area, the nation\u2019s largest media market;\n\u2022\nDeep connections with large and passionate fan bases that span a wide demographic mix;\n\u2022\nMulti-year sponsorship and suite agreements through a strategic partnership with MSG Entertainment;\n\u2022\nLong-term local media rights agreements with MSG Networks;\n\u2022\nNational media rights agreements through the NBA and NHL;\n\u2022\nLong-term arena license agreements with MSG Entertainment under which the Knicks and the Rangers play their home games at The Garden; \n1\nTable of Contents\n\u2022\nWorld-class organization with expertise in team operations, event presentation and ticketing; and\n\u2022\nSeasoned management team and committed ownership.\nOur Strategy\nOur strategy is to leverage the strength and popularity of our professional sports franchises and our unique position in the nation\u2019s largest media market to grow our business and increase the long-term value of our sports assets. Key components of our strategy include:\n\u2022\nDeveloping championship-caliber teams.\n Our core goal is to develop and maintain teams that consistently compete for championships. Competitive teams help support and drive revenue streams across the \nCompany during the regular season and, when our teams qualify for the postseason, the Company benefits from incremental home playoff games. The ownership and operation of NBA and NHL development teams \u2014 the Westchester Knicks and the Hartford Wolf Pack \u2014 as well as the operation of our state-of-the-art professional sports teams performance center, are part of our strategy to develop championship-caliber teams.\n\u2022\nEmploy a ticketing policy that gives the Company a direct relationship with our fanbases\n. Our large and loyal fan bases have placed us among the league leaders in ticket sales as our teams consistently play to at or near capacity crowds at The Garden. Tickets to our sports teams\u2019 home games are sold through membership plans (full season and partial plans); group sales; and single-game tickets, which are purchased on an individual basis (as opposed to third-party sales). We generally review and set the price of our tickets before the start of each team\u2019s season; however, we dynamically price our single-game tickets to better align with fan demand. \n\u2022\nMaximize the value of our exclusive live sports content. \nWith today\u2019s rapidly evolving media landscape, live sports telecasts have become increasingly valuable to distributors and advertisers. In October 2015, the Knicks and the Rangers entered into 20-year local media rights agreements with MSG Networks, creating a significant recurring and growing revenue stream for the Company. These agreements provide MSG Networks with exclusive local linear and digital rights to home and away games of the Knicks and the Rangers, as well as other team-related programming. MSG Networks makes this content available to our fans on its regional sports networks, MSG Network and MSG Sportsnet, and through its direct to consumer and authenticated streaming product, MSG+. In addition, the Company also receives a pro-rata share of fees related to the NBA\u2019s and NHL\u2019s national media rights agreements. The NHL\u2019s U.S. national media rights agreements with The Walt Disney Company and WarnerMedia, LLC will expire following the 2027-28 season. The NHL\u2019s agreement with Rogers Communications (Canada) expires following the 2025-26 season. The NBA\u2019s agreements with The Walt Disney Company and WarnerMedia, LLC expire after the 2024-25 regular season.\n\u2022\nUtilize our unique assets and an integrated approach to drive sponsorship and suite sales. \nThe Company possesses powerful and attractive assets that also benefit from being part of a broader sports, entertainment and media offering as a result of the Company\u2019s various agreements with \nMSG Entertainment\n. \nThese agreements enable us to partner with MSG Entertainment and Sphere Entertainment \non an integrated approach to marketing partnerships and corporate hospitality solutions to drive sponsorship, signage and suite sales. For example:\n\u25e6\nOur assets are highly sought after by companies that value the popularity of our sports franchises, the demographic makeup of our fans, and our unique position in the New York market. The attractiveness of our assets is further strengthened by the Sponsorship Sales and Service Representation Agreements and Arena License Agreements with \nMSG Entertainment,\n which create compelling, broad-based marketing platforms by combining our professional sports brands and \nMSG Entertainment\n\u2019s live entertainment assets and Sphere Entertainment\u2019s media assets. This integrated approach to marketing partnerships \u2014 which delivers unrivaled sports, entertainment and media exposure in the New York market \u2014 has already attracted world-class partners such as JPMorgan Chase, Anheuser-Busch, BetMGM, Caesars Sportsbook, Delta Air Lines, HUB International, Infosys, Kia, Benjamin Moore, Lexus, PepsiCo, Spectrum, Ticketmaster, MSC Cruises and Verizon, among others. \n\u25e6\nOur Arena License Agreements with MSG Entertainment enable MSG Entertainment to offer corporate hospitality solutions that bring together our live sporting events with MSG Entertainment\u2019s live entertainment offerings and provide for the sharing of revenues from such offerings. For example, The Garden offers a variety of suite and club products, including 21 Event Level suites, 58 Lexus Level suites, 18 Infosys Level suites, the Caesars Sportsbook Lounge, Suite Sixteen and the Loft Club. These suites and clubs \u2014 which provide exclusive private spaces, first-class amenities and some of the best seats in The Garden \u2014 are primarily licensed to corporate customers, with the majority being multi-year agreements, most of which have annual escalators. We believe the unique combination of our live sporting events and MSG Entertainment\u2019s live entertainment offerings, along with the continued importance of corporate hospitality to our guests, \n2\nTable of Contents\npositions us well to continue to grow this area of the business.\n\u2022\nContinue to invest in the fan experience. \nThe strong loyalty of our fans has been driven in part by our commitment to the fan experience, which we will continue to build on through our relationship with MSG Entertainment, owner and operator of The Garden. Working with MSG Entertainment, we offer first-class operations, innovative event presentation, premium food and beverage offerings, and unique and exclusive merchandise, as well as venue and team apps designed to create a seamless experience for our fans. Our goal is to deliver the best in-venue experience in the industry \u2014 whether our guests are first-time visitors, repeat customers, season ticket holders, suite holders or club members.\nOur Business\nOur Sports Franchises \nNew York Knicks\nAs an original franchise of the NBA, the Knicks have a rich history that includes eight trips to the NBA Finals and two NBA Championships, some of the greatest athletes to ever play the game and a large and passionate global fan base. As the Knicks head into the 2023-24 season, the team is coming off of a first round playoff series win and trip to the Eastern Conference Semifinals and has a number of draft picks over the next several years, which may be used to add new players or as trade assets.\nNew York Rangers\nThe Rangers hockey club is one of the NHL\u2019s \u201cOriginal Six\u201d franchises. Heading into its 97th season, the Rangers are a storied franchise and one of the league\u2019s marquee teams, with four Stanley Cup Championships and one of the most passionate, loyal and enthusiastic fan bases. The Rangers qualified for the Stanley Cup Playoffs for the second consecutive season in 2022-23 after winning 47 games in the regular season.\nWestchester Knicks\nThe Westchester Knicks serve as the exclusive NBA G League affiliate of the Knicks. The Westchester Knicks support the development and injury rehabilitation of Knicks players through varied assignments.\nHartford Wolf Pack\nThe Hartford Wolf Pack, a minor-league hockey team in the AHL, is the top affiliate team for the Rangers. The Rangers send draft picks, prospects and other players to the Hartford Wolf Pack to compete, gain valuable ice time and develop. The Rangers can call up players from Hartford to their own roster during the regular season when needed.\nKnicks Gaming\nKnicks Gaming, our esports franchise that competes in the NBA 2K League, was one of the inaugural teams when the league debuted in 2018. In August 2018, Knicks Gaming won the first-ever NBA 2K League Championship title after securing a playoff bid through its Ticket Tournament Championship victory.\nArena License Agreements \nMadison Square Garden, the World\u2019s Most Famous Arena, is the home for the Knicks and the Rangers pursuant to Arena License Agreements with MSG Entertainment. The Arena License Agreements provide revenue opportunities through the sharing of certain suites and clubs, sponsorship and signage, food and beverage, merchandise and sales arrangements with MSG Entertainment. The Arena License Agreements have a term of 35 years. See Note 7 to the consolidated financial statements included in Item\u00a08 of this Annual Report on Form\u00a010-K for more information.\nOur Professional Sports Teams Performance Center \nThe Company owns the state-of-the-art Madison Square Garden Training Center in Greenburgh, NY. The approximately 114,000 square-foot facility features two basketball courts and one NHL regulation-sized hockey rink, and is equipped with well-appointed private areas and office space and exercise and training rooms with dedicated equipment for each team as well as the latest technology and other first-class amenities.\nThe Role of the Leagues in Our Operations \nAs franchises in professional sports leagues, our teams are members of their respective leagues and, as such, are subject to certain rules, regulations and limitations on the control and management of their affairs. The respective league constitutions of our sports teams, under which each league is operated, together with the collective bargaining agreements (each, a \u201cCBA\u201d) that each of the NBA and NHL has signed with its players\u2019 association, contain numerous provisions that, as a practical matter, could impact the manner in which we operate our business. In addition, under the respective league constitutions of our sports teams, the commissioner of each league, either acting alone or with the consent of a majority (or, in some cases, a \n3\nTable of Contents\nsupermajority) of the other sports teams in the league, may be empowered in certain circumstances to take certain actions believed to be in the best interests of the league, whether or not such actions would benefit our sports teams and whether or not we consent or object to those actions.\nWhile the precise rights and obligations of member teams vary from league to league, the leagues have varying degrees of control exercisable under certain circumstances over the length and format of the playing season, including, for example, preseason and playoff schedules; the number of games in a playing season; the operating territories of the member teams; local, national and international media and other licensing rights; admission of new members and changes in ownership; franchise relocations; indebtedness affecting the franchises and their affiliates; and labor relations with the players\u2019 associations, including collective bargaining, free agency, and rules applicable to player transactions, luxury taxes and revenue sharing. See \u201cPart II \u2014 Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2014 Business Overview \u2014 Expenses.\u201d From time to time, we may disagree with or challenge actions the leagues take or the power and authority they assert, although the leagues\u2019 governing documents and our agreements with the leagues purport to limit the manner in which we may challenge decisions and actions by a league commissioner or the league itself.\nMedia Rights\nWe generally license the local media rights for our sports teams\u2019 home and away games. The Knicks and the Rangers are party to media rights agreements with MSG Networks covering the local telecast and radio rights for the Knicks and the Rangers. Each agreement has a remaining term of approximately 12 years.\nOur Community\nThe Company has a long history of leveraging the power of its brands to benefit communities across the tri-state area. \nThe Company\u2019s 2022 Corporate Social Responsibility Report can be found on our website under \u201cOur Community\u201d. As part of our company-wide philanthropic efforts, the Knicks and the Rangers both run large community-based youth sports programs \n\u2014\n Jr. Knicks and Jr. Rangers \n\u2014\n focused on eliminating barriers and creating more inclusive opportunities for all kids to enjoy basketball and hockey. Over 428,000 tri-state area youth participated in these programs in fiscal year 2023. The Company is also dedicated to affecting positive change through other social impact and cause-related initiatives including philanthropic food and other in-kind donations.\nGarden of Dreams Foundation\nThe centerpiece of the Company\u2019s philanthropy is the Garden of Dreams Foundation (\u201cGDF\u201d), a non-profit organization that assists young people in need. Since it was established in 2006, the Garden of Dreams Foundation has donated nearly $75 million in grants and other donations, impacting more than 425,000 young people and their families. GDF focuses on young people facing illness or financial challenges, as well as children of uniformed personnel who have been lost or injured while serving our communities. In partnership with the Company, MSG Entertainment and Sphere Entertainment, GDF provides young people in our communities with access to educational and skills opportunities, mentoring programs and memorable experiences that enhance their lives, help shape their futures and create lasting joy. Each year, as part of its Season of Giving, GDF partners with the Knicks, Rangers and MSG Entertainment\u2019s Radio City Rockettes on a wide range of charitable programs. GDF further supports its mission by providing a core group of non-profit partners with critical funding to support their long-term success.\nSupplier Diversity\n \nWe are committed to fostering an inclusive environment across all areas of our business. In partnership with MSG Entertainment and Sphere Entertainment, our Business and Supplier Diversity Program seeks to strengthen relationships with diverse suppliers of goods and services and provide opportunities to do business with each of the three companies.  See \u201cHuman Capital Resources \n\u2014\nDiversity and Inclusion.\u201d   \n4\nTable of Contents\nRegulation \nOur sports and entertainment businesses are subject to legislation governing the sale and resale of tickets and consumer protection statutes generally.\nIn addition, The Garden, like all public spaces, is subject to building and health codes and fire regulations imposed by the state and local governments. The Garden is subject to zoning and outdoor advertising regulations and requires a number of licenses in order to operate, including occupancy permits, exhibit licenses, food and beverage permits, liquor licenses and other authorizations and a zoning special permit granted by the New York City Planning Commission. See \u201cItem 1A. Risk Factors \u2014 \nEconomic and Business Relationship Risks\n \n\u2014 \nWe Do Not Own The Garden and Our Failure to Renew the Arena License Agreements or MSG Entertainment\u2019s Failure to Operate The Garden in Compliance with the Arena License Agreements or Extensive Governmental Regulations May Have a Material Negative Effect on Our Business and Results of Operations\n.\u201d \nThe professional sports leagues in which we operate, primarily the NBA and NHL, have the right under certain circumstances to regulate important aspects of our business, including, without limitation, our team-related online and mobile businesses. See \u201cItem 1A. Risk Factors \u2014 \nSports Business Risks \n\u2014 \nThe Actions of the NBA and NHL May Have a Material Negative Effect on Our Business and Results of Operations.\n\u201d\nOur business is also subject to certain regulations applicable to our Internet websites and mobile applications, including data privacy laws in various jurisdictions. These include, but are not limited to, the California Consumer Privacy Act (the \u201cCCPA\u201d) and the California Privacy Rights Act (the \u201cCPRA\u201d). These laws obligate us to comply with certain consumer and employee rights concerning data we may collect about these individuals. We maintain various websites and mobile applications that provide information and content regarding our business, offer merchandise and tickets for sale, make available sweepstakes and/or contests and offer hospitality services. The operation of these websites and applications is subject to a range of other federal, state and local laws, such as accessibility for persons with disabilities and consumer protection regulations. In addition, to the extent any of our websites seeks to collect information from children under 13 years of age or is intended primarily for children under 13 years of age, it is also subject to the Children\u2019s Online Privacy Protection Act, which places restrictions on websites\u2019 and online services\u2019 collection and use of personally identifiable information from children under 13 years of age without prior parental consent. Our business is also subject to a variety of laws and regulations, including working conditions, labor, immigration and employment laws and health, safety and sanitation requirements. See \u201cItem 1A. Risk Factors \u201c\u2014 Operational Risks \u2014 \nWe Are Subject to Governmental Regulation, Which Can Change, and Any Failure to Comply With These Regulations May Have a Material Negative Effect on Our Business and Results of Operations\n.\u201d \nCompetition\nOur business operates in a market in which numerous sports and entertainment opportunities are available. In addition to the NBA, NHL, AHL and NBAGL teams that we own and operate, the New York City metropolitan area is home to two Major League Baseball teams (the New York Yankees (the \u201cYankees\u201d) and the New York Mets (the \u201cMets\u201d)), two National Football League teams (the New York Giants (the \u201cGiants\u201d) and the New York Jets (the \u201cJets\u201d)), two additional NHL teams (the New York Islanders (the \u201cIslanders\u201d) and the New Jersey Devils (the \u201cDevils\u201d)), a second NBA team (the Brooklyn Nets (the \u201cNets\u201d)) and two Major League Soccer franchises (the New York Red Bulls and the New York City Football Club). In addition, there are a number of other amateur and professional teams that compete in other sports, including at the collegiate and minor league levels. New York is also home to many other non-sports related entertainment options.\nAs a result of the large number of options available, we face strong competition for the New York area sports fan base. We must compete with these other sporting events in varying respects and degrees, including on the basis of the quality of the teams we field, their success in the leagues in which they compete, our ability to provide an entertaining environment at our games and the prices we charge. In addition, for fans who prefer the unique experience of NHL hockey, we must compete with the Islanders and Devils as well as, in varying respects and degrees, with other NHL hockey teams and the NHL itself. Similarly, for those fans attracted to the equally unique experience of NBA basketball, we must compete with the Nets as well as, in varying respects and degrees, with other NBA teams and the NBA itself. In addition, we also compete to varying degrees with other productions and live entertainment events for advertising and sponsorship dollars. \nThe amount of revenue we earn is influenced by many factors, including the popularity and on-court or on-ice performance of our sports teams and general economic and health and safety conditions. In particular, when our sports teams have strong on-court and on-ice performance, we benefit from increased demand for tickets and premium hospitality, potentially greater food and merchandise sales from increased attendance and increased sponsorship opportunities. When our sports teams qualify for the playoffs, we also benefit from the attendance and in-game spending at the playoff games. The year-to-year impact of team performance is somewhat moderated by the fact that a significant portion of our revenue derives from media rights fees, suite rental fees and sponsorship and signage revenue, all of which are generally contracted on a multi-year basis. Nevertheless, the long-term performance of our business is tied to the success and popularity of our sports teams. In addition, due to the NBA and NHL playing seasons, revenues from our business are typically concentrated in the second and third quarters of each fiscal year. \n5\nTable of Contents\nSee \u201cItem\u00a01A. Risk Factors \u2014 Sports Business Risks \u2014 \nOur Business Faces Intense and Wide-Ranging Competition, Which May Have a Material Negative Effect on Our Business and Results of Operations\n\u201d and \u201c\u2014 \nOur Business Is Substantially Dependent on the Continued Popularity and/or Competitive Success of the Knicks and the Rangers, Which Cannot Be Assured\n.\u201d\nHuman Capital Resources\nAt MSG Sports, we believe the strength of our workforce is one of the significant contributors to our success. Our key human capital management objectives are to invest in and support our employees in order to attract, develop and retain a high performing and diverse workforce.\nDiversity and Inclusion (\u201cD&I\u201d)\nWe aim to create an employee experience that fosters the Company\u2019s culture of respect and inclusion. By welcoming the diverse perspectives and experiences of our employees, we all share in the creation of a more vibrant, unified, and engaging place to work. Together with MSG Entertainment and Sphere Entertainment, we have furthered these objectives under our expanded Talent Management, Diversity and Inclusion function, including:\nWorkforce: Embedding Diversity and Inclusion through Talent Actions \n\u2022\nCreated a common definition of \u201cpotential\u201d and an objective potential assessment to de-bias talent review conversations so employees have an opportunity to learn, grow, and thrive. Implemented quarterly performance and career conversations to facilitate regular conversations between managers and employees about goals, career growth and productivity. \n\u2022\nIntegrated D&I best practices into our performance management and learning and development strategies with the goal of driving more equitable outcomes.\n\u2022\nDeveloped an Emerging Talent List to expand our talent pool to better identify and develop high performing diverse talent for expanded roles and promotion opportunities.\nWorkplace: Building an Inclusive and Accessible Community \n\u2022\nRedoubled our efforts with the MSG Diversity & Inclusion Heritage Month enterprise calendar to acknowledge and celebrate culturally relevant days and months of recognition, anchored by our six employee resource groups (\u201cERGs\u201d): Asian Americans and Pacific Islanders (AAPI), Black, LatinX, PRIDE, Veterans, and Women. Increased combined ERG involvement from 622 members in fiscal year 2022 to 1120 members in fiscal year 2023 (an increase of 80.1%), which includes employees from the Company, MSG Entertainment and Sphere Entertainment.\n\u2022\nRevamped our Conscious Inclusion Awareness Experience, a training program, and created two required educational modules focused on unconscious bias and conscious inclusion within our learning management system. As of June 30, 2023, over 90% of employees across the Company, MSG Entertainment and Sphere Entertainment have completed both required trainings either through the e-modules or through live training sessions.\n\u2022\nBroadened our LGBTQ+ inclusivity strategy by launching new gender pronoun feature within the employee intranet platform, hosted live allyship and inclusivity trainings, and launched toolkit resources for employees to learn and develop. Together with the PRIDE ERG, marched in the 2022 and 2023 NYC Pride Parades. Hosted a community conversations series focused on \u201cFinding Your Voice as an LGBTQ+ Professional\u201d with a prominent LGBTQ+ elected official and employees of the Company, MSG Entertainment and Sphere Entertainment.\nCommunity: Bridging the Divide through Expansion to Diverse Stakeholders \n\u2022\nFocused on connecting with minority-owned businesses to increase the diversity of our vendors and suppliers by leveraging ERGs and our community, which creates revenue generating opportunities for diverse suppliers to promote their businesses and products. In fiscal year 2023, the Company and Sphere Entertainment hosted a multi-city holiday market event featuring twenty underrepresented businesses in New York City and Burbank.\n\u2022\nInvested in an external facing supplier diversity portal on our website, which launched in fiscal year 2023. The portal is intended to expand opportunities for the Company, MSG Entertainment and Sphere Entertainment to do business with diverse suppliers, including minority-, women-, LGBTQ+- and veteran-owned businesses. \n\u2022\nStrengthened our commitment to higher education institutions to increase campus recruitment pipelines. In partnership with the Knicks and our social impact team, we hosted the 2nd Annual Historically Black Colleges and Universities (\u201cHBCU\u201d) Night highlighting the important contributions of these institutions and awarded a $60,000 scholarship to a New York City high school student. Additionally, we welcomed two NBA HBCU Fellows in the Company\u2019s Business \n6\nTable of Contents\nOperations Department covering marketing strategy, ticketing revenue strategy, and basketball operations through the NBA\u2019s HBCU Fellows Program.\nTalent\nAs of June\u00a030, 2023, we had approximately 558 full-time union and non-union employees and 404 part-time union and non-union employees.\nWe aim to attract top talent through our brands, as well as through the many benefits we offer. We aim to retain our talent by emphasizing our competitive rewards; offering opportunities that support employees both personally and professionally; and our commitment to fostering career development in a positive corporate culture.\nOur performance management practice includes ongoing feedback and conversations between managers and team members, and talent reviews designed to identify potential future leaders and inform succession plans. We value continuous learning and development opportunities for our employees, which include: a career development tool; leadership development programs; a learning platform; and tuition assistance.\nOur benefit offerings are designed to meet the range of needs of our diverse workforce and include: domestic partner coverage; medical, dental and vision plan options; life insurance benefits for the employee and their dependents; a 401k plan with 100% employer match; an employee assistance program which also provides assistance with child and elder care resources; legal support; wellness programs and financial planning seminars. These resources are intended to support the physical, emotional and financial well-being of our employees.\nIn addition, approximately 11.3% of our employees were represented by unions as of June\u00a030, 2023, most of whom are our players. There are no union employees subject to CBAs that expired as of June\u00a030, 2023 and no union employees subject to CBAs that will expire by June 30, 2024.\nLabor relations in general and in the sports industry in particular can be volatile, though our current relationships with our unions taken as a whole are positive. The NBA players and the NHL players are covered by CBAs between the National Basketball Players Association (\u201cNBPA\u201d) and the NBA and between the NHL Players\u2019 Association (\u201cNHLPA\u201d) and the NHL, respectively. Both the NBA and the NHL have experienced labor difficulties in the past and may have labor issues in the future. On June\u00a030, 2011, the prior CBA between the NBA and NBPA expired and there was a work stoppage for approximately five months until a new CBA was entered into in December 2011. On April 26, 2023, the NBA and the NBPA announced that a new seven-year CBA had been ratified by the NBA Board of Governors and the NBA players. This current NBA CBA expires after the 2029-30 season, but each of the NBA and the NBPA has the right to terminate the CBA effective following the 2028-29 season. On September 15, 2012, the prior CBA between the NHL and NHLPA expired and there was a work stoppage for approximately four months until a new CBA was entered into in January 2013. The current NHL CBA expires after the 2025-26 season (with the possibility of a one-year extension in certain circumstances)\n.\n The NBA and NHL playoff games for the 2019-20 seasons experienced postponements due to player, team and/or league protests and decisions.\nSee \u201cItem\u00a01A. Risk Factors \u2014 Economic and Business Relationship Risks\n \n\u2014\n \nLabor Matters May Have a Material Negative Effect on Our Business and Results of Operations\n.\u201d\n7\nTable of Contents\nFinancial Information about Geographic Areas\nSubstantially all of the Company\u2019s revenues and assets are attributed to or located in the United States and are primarily concentrated in the New York City metropolitan area. \nAvailable Information\nOur telephone number is 212-465-4111, our website is http://www.msgsports.com and the investor relations section of our website is http://investor.msgsports.com. Through the investor relations section of our website, we make available, free of charge, the Company\u2019s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, as well as any amendments to those reports and other statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These materials become available as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the Securities and Exchange Commission (\u201cSEC\u201d). Copies of these filings are also available on the SEC\u2019s website (www.sec.gov). References to our website in this report are provided as a convenience and the information contained on, or available through, our website is not part of this or any other report we file with or furnish to the SEC.\nInvestor Relations can be contacted at Madison Square Garden Sports Corp., Two Penn Plaza, New York, New York 10121, Attn: Investor Relations, telephone: 212-631-5422, e-mail: investor@msgsports.com. We use our website (www.msgsports.com) and our LinkedIn account (https://www.linkedin.com/company/msg-sports/), as well as other social media channels, to disclose public information to investors, the media and others.\nOur officers may use similar social media channels to disclose public information. It is possible that certain information we or our officers post on our website and on social media could be deemed material, and we encourage investors, the media and others interested in MSG Sports to review the business and financial information we or our officers post on our website and on the social media channels identified above. The information on our website and those social media channels is not incorporated by reference into this Form 10-K.\n8\nTable of Contents",
+  "item1a": ">Item\u00a01A. \nRisk Factors\n \nSports Business Risks\nOur Business Faces Intense and Wide-Ranging Competition, Which May Have a Material Negative Effect on Our Business and Results of Operations. \nThe success of a sports business, like ours, is dependent upon the performance and/or popularity of its franchises. Our Knicks and Rangers and other sports franchises compete, in varying respects and degrees, with other live sporting events, and with sporting events delivered over television networks, radio, the Internet and online services, streaming devices and applications and other alternative sources. For example, our sports teams compete for attendance, viewership and advertising with a wide range of alternatives available in the New York City metropolitan area. During some or all of the basketball and hockey seasons, our sports teams face competition, in varying respects and degrees, from professional baseball (including the Yankees and the Mets), professional football (including the Giants and the Jets), professional soccer (including the New York Red Bulls and the New York City Football Club), collegiate sporting events, such as the Big East basketball tournament, other sporting events, including those held by MSG Entertainment, and each other. For fans who prefer the unique experience of NHL hockey, we must compete with two other NHL hockey teams located in the New York City metropolitan area (the Islanders and the Devils) as well as, in varying respects and degrees, with other NHL hockey teams and the NHL itself. Similarly, for those fans attracted to the equally unique experience of NBA basketball, we must compete with another NBA team located in the New York City metropolitan area (the Nets) as well as, in varying respects and degrees, with other NBA teams and the NBA itself.\nAs a result of the large number of options available, we face strong competition for the New York City metropolitan area sports fan base. We must compete with these other sports teams and sporting events, in varying respects and degrees, including on the basis of the quality of the teams we field, their success in the leagues in which they compete, our ability to provide an entertaining environment at our games, prices we charge for tickets and the viewing availability of our teams on multiple media alternatives. Given the nature of sports, there can be no assurance that we will be able to compete effectively, including with companies that may have greater resources than us, and as a consequence, our business and results of operations may be materially negatively affected.\nThe success of our business is largely dependent on our ability to attract strong attendance to our professional sports franchises\u2019 home games at The Garden. Our business also competes, in certain respects and to varying degrees, with other leisure-time activities and entertainment options in the New York City metropolitan area, such as television, motion pictures, concerts, music festivals and other live performances, restaurants and nightlife venues, the Internet, social media and social networking platforms and online and mobile services, including sites for online content distribution, video on demand and other alternative sources of entertainment.\nOur sports teams also compete with other teams in their leagues to attract players. For example, players who are free agents are generally permitted to sign with the team of their choice. These players may make their decision based upon a number of factors, including the compensation they are offered, the makeup and competitiveness of the team bidding for their services, geographic preferences and other non-economic factors. There can be no assurance that we will be able to retain players upon expiration of their contracts or sign and develop talented players to replace those who leave for other teams, retire or are injured, traded or released.  \nOur Business Is Substantially Dependent on the Continued Popularity and/or Competitive Success of the Knicks and the Rangers, Which Cannot Be Assured.\nOur financial results have historically been dependent on, and are expected to continue to depend in large part on, the Knicks and the Rangers remaining popular with our fan bases and, in varying degrees, on the teams achieving on-court and on-ice success, which can generate fan enthusiasm, resulting in sustained ticket, premium seating, suite, sponsorship, food and beverage and merchandise sales during the season. In addition, the popularity of our sports teams can impact television ratings, which could affect the long-term value of the media rights for the Knicks and/or the Rangers. Furthermore, success in the regular season may qualify one or both of our sports teams for participation in post-season playoffs, which provides us with additional revenue by increasing the number of games played by our sports teams and, more importantly, by generating increased excitement and interest in our sports teams, which can help drive a number of our revenue streams, including by improving attendance and sponsorships, in subsequent seasons. Our teams qualified for the post-seasons during their respective 2022-23 seasons. In addition, league, team and/or player actions or inactions, including protests, may impact the popularity of the Knicks, the Rangers or the leagues in which they play. There can be no assurance that any of our sports teams, including the Knicks and the Rangers, will maintain continued popularity or compete in post-season play in the future.\n9\nTable of Contents\nOur Basketball and Hockey Decisions, Especially Those Concerning Player Selection and Salaries, May Have a Material Negative Effect on Our Business and Results of Operations. \nCreating and maintaining our sports teams\u2019 popularity and/or on-court and on-ice competitiveness is key to the success of our business. Accordingly, efforts to improve our revenues and earnings from operations from period-to-period may be secondary to actions that management believes will generate long-term growth and asset value creation. The competitive positions of our sports teams depend primarily on our ability to develop, obtain and retain talented players, coaches and team executives, for whom we compete with other professional sports teams. Our efforts in this regard may include, among other things, trading for highly compensated players, signing draft picks, free agents or current players to new contracts, engaging in salary arbitration or contract renegotiation with existing players, terminating and waiving players and replacing coaches and team executives. Any of these actions could increase expenses for a particular period, subject to any salary cap restrictions contained in the respective leagues\u2019 CBAs. There can be no assurance that any actions taken by management to generate and increase our long-term growth and asset value creation will be successful.\nA significant factor in our ability to attract and retain talented players is player compensation. NBA and NHL player salaries have generally increased significantly and may continue to increase in the future. Although CBAs between the NBA and the NBPA and the NHL and the NHLPA generally cap league-wide player salaries at a prescribed percentage of league-wide revenues, we may pay our players different aggregate salaries and a different proportion of our revenues than other NBA or NHL franchises. In addition, both of the NBA and NHL CBAs include salary floors, which limit our ability to decrease costs below a certain amount. Future CBAs may increase the percentage of league-wide revenues to which NBA or NHL players are entitled or impose other conditions, which may further increase our costs. In addition, we have paid the NBA a luxury tax in the past and we may also be obligated to pay the NBA a luxury tax in future years, the calculation of which is determined by a formula based on the aggregate salaries paid to our Knicks players. See \u201cPart II \u2014 Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2014 Expenses \u2014 Player Salaries, Escrow System/Revenue Sharing and NBA Luxury Tax.\u201d\nWe have incurred, and may incur in the future, significant charges for costs associated with transactions relating to players on our sports teams for season-ending and career-ending injuries and for trades, waivers and contract terminations of players and other team personnel, including team executives. See \u201c\u2014 \nInjuries to, and Illness of, Players on Our Sports Teams Could Hinder Our Success\n.\u201d These transactions can result in significant charges as the Company recognizes the estimated ultimate costs of these events in the period in which they occur, although amounts due to these individuals may be paid over their remaining contract terms. These expenses add to the volatility of our results.\nThe Actions of the NBA and NHL May Have a Material Negative Effect on Our Business and Results of Operations. \nThe governing bodies of the NBA (including the NBAGL) and the NHL (including the AHL) have certain rights under certain circumstances to take actions that they deem to be in the best interests of their respective leagues, which may not necessarily be consistent with maximizing our results of operations and which could affect our sports teams in ways that are different than the impact on other sports teams. Decisions by the NBA or the NHL could have a material negative effect on our business and results of operations. For example, failure to follow rules and regulations of the NBA or NHL has in the past and may in the future result in loss of draft picks, fines or other actions by the leagues.\nFrom time to time, we may disagree with or challenge actions the leagues take or the power and authority they assert. The following discussion highlights examples of areas in which decisions of the NBA and the NHL could materially affect our business.\n\u2022\nThe NBA and the NHL may assert control over certain matters, under certain circumstances, that may affect our revenues such as the local, national and international rights to telecast the games of league members, including the Knicks and the Rangers, licensing of the rights to produce and sell merchandise bearing the logos and/or other intellectual property of our sports teams and the leagues, and the Internet and mobile-based activities of our sports teams. The NBA and NHL have each entered into agreements regarding the national and international telecasts of NBA and NHL games. We receive a share of the income the NBA and the NHL generate from these contracts, which expire from time to time. There can be no assurance that the NBA or the NHL will be able to renew or replace these contracts following their expiration on terms as favorable to us as those in the current agreements or that we will continue to receive the same level of revenues in the future. We receive significant revenues from MSG Networks for the right to telecast games of the Knicks and the Rangers. Changes to league rules, regulations and/or agreements, including changes to league schedules and national and international media rights, have in the past and could in the future impact the availability of games covered by our local media rights and negatively affect the rights fees we receive from MSG Networks and our business and results of operations. \n\u2022\nThe NBA and NHL impose certain rules that define, under certain circumstances, the territories in which our sports teams operate, including the markets in which our games may be telecast. The sports leagues have also asserted control \n10\nTable of Contents\nover other important decisions, such as the length and format of, and the number of games in, the playing season, preseason and playoff schedules, admission of new members, franchise relocations, labor relations with the players associations, collective bargaining, free agency, luxury taxes and revenue sharing. Changes to these rules could have a material negative effect on our business and results of operations. For example, we were subject to the leagues\u2019 decisions with respect to the 2019-20, 2020-21 and 2021-22 seasons as a result of the COVID-19 pandemic and player, team and/or league protests and actions. See \u201c\u2014 Economic and Business Relationship Risks \u2014\nLabor Matters May Have a Material Negative Effect on Our Business and Results of Operations\n.\u201d \n\u2022\nThe NBA imposes a luxury tax and escrow system with respect to player salaries and a revenue sharing plan, and the NHL imposes an escrow system with respect to player salaries and a revenue sharing plan. For fiscal year 2023, the Knicks and the Rangers recorded approximately $62.5 million in estimated revenue sharing expenses, net of escrow. The actual amounts for the 2022-23 season may vary significantly from the estimate based on actual operating results for the respective leagues and all teams for the season and other factors. For a discussion of the NBA luxury tax impacts, see \u201c\u2014 \nOur Basketball and Hockey Decisions, Especially Those Concerning Player Selection and Salaries, May Have a Material Negative Effect on Our Business and Results of Operations.\n\u201d\n\u2022\nThe NBA and the NHL impose certain restrictions on the ability of owners to undertake certain types of transactions in respect of teams, including a change in ownership and team relocation. The NBA and NHL have also imposed significant restrictions on amounts of financing and/or certain types of financings and the rights of those financing providers. See \u201cPart II \u2014 Management\u2019s Discussion and Analysis of Financial Condition and Results of Operation \u2014 Liquidity and Capital Resources \u2014 Financing Agreements and Stock Repurchases\u201d and Note 13 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. In certain instances, these restrictions could impair our ability to proceed with a transaction that is in the best interest of the Company and its stockholders if we were unable to obtain any required league approvals in a timely manner or at all.\n\u2022\nThe possibility of further NBA and/or NHL expansion could create increased competition for the Knicks and the Rangers, respectively. The most recent NHL expansion occurred in 2021 with the addition of the Seattle Kraken (following the addition of the Vegas Golden Knights in 2017) and the most recent NBA expansion occurred in 2004 with the addition of the Charlotte Bobcats (now Charlotte Hornets). Because revenue from national media rights agreements is divided equally among all NBA and NHL teams, any further expansion would dilute the revenue realized by the Knicks and/or the Rangers from such agreements. Expansion also increases competition for talented players among NBA and/or NHL teams. Any expansion in the New York City metropolitan area, in particular, could also draw fan, consumer and viewership interest away from the Knicks and/or the Rangers. \n\u2022\nEach league\u2019s governing body has imposed a number of rules, regulations, guidelines, bulletins, directives, policies and agreements upon its teams. Changes to these provisions may apply to our teams and their personnel, and/or the Company as a whole, regardless of whether we agree or disagree with such changes, have voted against such changes or have challenged them through other means. It is possible that any such changes could materially negatively affect our business and results of operations to the extent they are ultimately determined to bind our teams. The commissioners of each of the NBA and NHL assert significant authority to take certain actions on behalf of their respective leagues under certain circumstances. Decisions by the commissioners of the NBA and the NHL, including on the matters described above, may materially negatively affect our business and results of operations. The leagues\u2019 governing documents and our agreements with the leagues purport to limit the manner in which we may challenge decisions and actions by a league commissioner or the league itself. See \u201cEconomic and Business Relationship Risks \u2014 \nLabor Matters May Have a Material Negative Effect on Our Business and Results of Operations.\u201d\nInjuries to, and Illness of, Players on Our Sports Teams Could Hinder Our Success.\nTo the degree that our financial results are dependent on our sports teams\u2019 popularity and/or on-court and on-ice success, the likelihood of achieving such popularity or competitive success may be substantially impacted by serious and/or untimely injuries to or illness of key players. Even if we take health and safety precautions and comply with government protocols, our players may nevertheless contract serious illness, such as COVID-19 and, as a result, our ability to participate in games may be substantially impacted. Nearly all of our Knicks and Rangers players, including those with multi-year contracts, have partially or fully guaranteed contracts, meaning that in some cases (subject to the terms of the applicable player contract and CBA), a player or his estate may be entitled to receive his salary even if the player dies or is unable to play as a result of injury. These salaries represent significant financial commitments for our sports teams. We maintain insurance policies to mitigate some of the risk of paying certain player salaries in the event of a player\u2019s death or disability. In the event of injuries sustained resulting in lost services (as defined in the applicable insurance policies), generally the insurance policies provide for payment to us of a portion of the player\u2019s salary for the remaining term of the contract or until the player can resume play, in each case following a deductible number of missed games. Such insurance may not be available in every circumstance or on terms that are commercially feasible and such insurance may contain significant dollar limits and/or exclusions from coverage for pre-existing \n11\nTable of Contents\nmedical conditions. We may choose not to obtain (or may not be able to obtain) such insurance in some cases and we may change coverage levels (or be unable to change coverage levels) in the future.\nIn the absence of disability insurance, we have in the past and may in the future be obligated to pay all of an injured player\u2019s salary. In addition, player disability insurance policies do not cover any NBA luxury tax that we may be required to pay under the NBA CBA. For purposes of determining NBA luxury tax under the NBA CBA, salary payable to an injured player is included in team salary for at least one year and until other conditions are satisfied. Replacement of an injured player may result in an increase in our salary and NBA luxury tax expenses.\nOur Operations and Operating Results Were Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response, and a Resurgence of the Pandemic or Another Pandemic or Other Public Health Emergency Could Adversely Affect Our Business and Results of Operations.\nThe Company\u2019s operations and operating results were materially impacted by the COVID-19 pandemic and actions taken in response by governmental authorities and the NBA and NHL.  For example, in March 2020 the NBA and NHL suspended their 2019-20 seasons due to COVID-19, and as a result, virtually all of our business operations were suspended. In addition, the start of the 2020-21 NBA and NHL regular seasons were delayed, and the Knicks and the Rangers played 10 and 26 fewer games, respectively, than their traditional regular season schedules. The Company\u2019s operations and operating results were also impacted by government-mandated assembly restrictions during fiscal year 2021 and temporary declines in attendance due to ongoing reduced tourism levels as well as an increase in COVID-19 cases during certain months during fiscal year 2022.\nIt is unclear to what extent COVID-19, including variants thereof, or another pandemic or public health emergency, could result in renewed governmental and/or league restrictions on attendance or otherwise impact attendance of games at The Garden, demand for our sponsorship, tickets and other premium inventory or otherwise impact the Company\u2019s operations and operating results. If, due to a resurgence in COVID-19 or another pandemic or public health emergency, the NBA and the NHL do not play a minimum number of games required under the league-wide media rights agreements or the Knicks or the Rangers do not make available to MSG Networks the number of games during the season required under the local media rights agreements, the amounts of revenues we earn could be substantially reduced depending upon the number of games not played or not made available to MSG Networks and an event of default may occur under the Knicks and the Rangers credit agreements. \nOur business is also particularly sensitive to discretionary business and consumer spending. A pandemic such as COVID-19, or the fear of a new pandemic or public health emergency, has in the past and could in the future impede economic activity in impacted regions or globally over the long-term, leading to a decline in discretionary spending on sporting events and other leisure activities, including declines in domestic and international tourism, which could result in long-term effects on our business. To the extent a pandemic or other public health emergency adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this \u201cRisk Factors\u201d section, such as those relating to our liquidity, indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness.  See \u201c\u2014 Economic and Business Relationship Risks \u2014 \nCertain of Our Subsidiaries Have Incurred Substantial Indebtedness, and the Occurrence of an Event of Default Under Our Subsidiaries\u2019 Credit Facilities or Our Inability to Repay Such Indebtedness When Due Could Substantially Impair the Assets of Those Subsidiaries and Have a Negative Effect on Our Business\n\u201d and \u201c\u2014 Economic and Business Relationship Risks \u2014 \nWe Do Not Own The Garden and Our Failure to Renew the Arena License Agreements or MSG Entertainment\u2019s Failure to Operate The Garden in Compliance with the Arena License Agreements or Extensive Governmental Regulations May Have a Material Negative Effect on Our Business and Results of Operations\n.\u201d\n12\nTable of Contents\nEconomic and Business Relationship Risks\nOur Business Has Been Adversely Impacted and May, in the Future, Be Materially Adversely Impacted by an Economic Downturn, Recession, Financial Instability or Inflation.\nOur business depends upon the ability and willingness of consumers and businesses to purchase tickets (including season tickets) to our games, license suites at The Garden, spend on food and beverages and merchandise and drive continued advertising and sponsorship revenues, and these revenues are sensitive to general economic conditions and consumer buying patterns. \nConsumer and corporate spending has in the past declined and may in the future decline at any time for reasons beyond our control. The risks associated with our businesses may become more acute in periods of a slowing economy or recession, which may lead to reductions in, among other things, corporate sponsorship and advertising and decreases in attendance at live sports events, demand for suite licenses and food and beverage and merchandise sales, some of which we have experienced in the past and may experience in the future. In addition, inflation, which has significantly risen, has increased and may continue to increase operational costs, and continued increases in interest rates in response to concerns about inflation may have the effect of further increasing economic uncertainty and heightening these risks. As a result, instability and weakness of the U.S. and global economies, disruptions to financial markets, inflation, recession, high unemployment, reduced tourism and other geopolitical events, including any prolonged effects caused by the COVID-19 or other similar outbreak, and the resulting negative effects on consumers\u2019 and businesses\u2019 discretionary spending have in the past materially negatively affected, and may in the future materially negatively affect our business and results of operations.\nCertain of Our Subsidiaries Have Incurred Substantial Indebtedness, and the Occurrence of an Event of Default Under Our Subsidiaries\u2019 Credit Facilities or Our Inability to Repay Such Indebtedness When Due Could Substantially Impair the Assets of Those Subsidiaries and Have a Negative Effect on Our Business.\nOur subsidiaries have incurred substantial indebtedness. New York Knicks, LLC and New York Rangers, LLC, which own the assets of the Knicks and the Rangers franchises, respectively, have entered into revolving credit facilities. As of June 30, 2023, the outstanding balance under the 2021 Knicks Revolving Credit Facility (as defined below) was $235 million and the outstanding balance under the 2021 Rangers Revolving Credit Facility (as defined below) was $60 million. Both credit facilities expire in December 2026. New York Rangers, LLC also received a $30 million advance from the NHL, which is payable upon demand by the NHL. As of June 30, 2023, the outstanding balance of the advance was $30 million.\nOur ability to make payments on, or repay or refinance, such indebtedness, and to fund our operations, depends largely upon our future operating performance. Our future operating performance is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control. See \u201c\u2014 \nWe May Require Financing to Fund Our Ongoing Operations, the Availability of Which is Highly Uncertain\n.\u201d\nFurthermore, our interest expense could also increase if interest rates increase (including in connection with rising inflation) as our indebtedness bears interest at floating rates (or to the extent we have to refinance existing debt with higher cost debt), causing our interest expense to be substantial relative to our revenues and cash outflows.  \nThe 2021 Knicks Revolving Credit Facility includes covenants and events of default that may be implicated by a shortfall in the amount of national media rights revenue received by the Knicks. The 2021 Rangers Revolving Credit Facility includes covenants and events of default that may be implicated by a shortfall in the amount of national and local media rights revenue received by the Rangers. If, the NBA and/or NHL 2023-24 seasons are delayed, shortened, suspended or cancelled, the Knicks or the Rangers may be required, absent a cure or waiver, to repay certain amounts borrowed under the revolving credit facilities.  If we are unable to repay such amounts due to liquidity constraints, we may need to pursue other sources of financing, including through issuances of equity and/or asset sales.\nWe Have Incurred Substantial Operating Losses, Adjusted Operating Losses and Negative Cash Flow and There is No Assurance We Will Have Operating Income, Adjusted Operating Income or Positive Cash Flow in the Future.\nWe incurred an operating loss of approximately $78 million in fiscal year 2021. In addition, we have, in prior periods, incurred adjusted operating losses and negative cash flow and there is no assurance that we will have operating income, adjusted operating income or positive cash flow in the future. Significant operating losses may limit our ability to raise necessary financing, or to do so on favorable terms, as such losses will likely be considered by potential investors, lenders and the organizations that issue investment ratings on indebtedness. See \u201cPart II \u2014 Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2014 Factors Affecting Operating Results.\u201d\n \n13\nTable of Contents\nWe Do Not Own The Garden and Our Failure to Renew the Arena License Agreements or MSG Entertainment\u2019s Failure to Operate The Garden in Compliance with the Arena License Agreements or Extensive Governmental Regulations May Have a Material Negative Effect on Our Business and Results of Operations.\nThe Knicks and the Rangers play their home games at The Garden pursuant to the Arena License Agreements with MSG Entertainment, which owns and operates The Garden. Our Arena License Agreements for The Garden expire in 2055. If we are unable to renew the Arena License Agreements on economically attractive terms, our business could be materially negatively affected. The Arena License Agreements require that MSG Entertainment must operate The Garden in a first-class manner. If MSG Entertainment were to breach or become unable to satisfy this obligation under the Arena License Agreements, we could suffer operational difficulties and/or significant losses. See \u201c\u2014 \nWe Rely on Affiliated Entities\u2019 Performance, Including Performance of Financial Obligations, Under Various Agreements.\n\u201d\nIn addition, MSG Entertainment is subject to federal, state and local regulations relating to the operation of The Garden. For example, The Garden holds a liquor license to sell alcoholic beverages at concession stands in The Garden. Failure by MSG Entertainment to retain, or the suspension of, the liquor license could interrupt or terminate the ability to serve alcoholic beverages at The Garden and may have a negative effect on our business and our results of operations. \nThe Garden is subject to zoning and building regulations, including a zoning special permit. The original permit was granted by the New York City Planning Commission in 1963 and renewed in July 2013 for 10 years (while MSG Entertainment\u2019s current application for renewal of the zoning special permit remains pending, we and MSG Entertainment have been advised that MSG Entertainment can continue to use and operate The Garden as normal until the renewal review process concludes). Relevant rail agencies are considering proposals to redevelop Penn Station, which proposed redevelopment would impact The Garden, which sits atop Penn Station. Certain government officials and special interest groups have used and may continue to use the renewal process for the zoning special permit to pressure MSG Entertainment to contribute to the redevelopment of Penn Station, relocate The Garden or sell all or portions of The Garden complex. For example, in June 2023 the New York Metropolitan Transportation Authority, New Jersey Transit and Amtrak, which operate commuter rail services from Penn Station, issued a compatibility report asserting that The Garden imposes severe constraints on Penn Station that restrict efforts to make its desired improvements. There can be no assurance regarding the future renewal of the permit or the terms thereof, and the failure to obtain such renewal or to do so on favorable terms could have a material negative effect on our business.\nIn addition, The Garden is, and will in the future continue to be, subject to a variety of other laws and regulations, including environmental, working conditions, labor, immigration and employment laws, and health, safety and sanitation requirements. For example, governmental regulations adopted in the wake of the COVID-19 pandemic impacted the permitted occupancy of The Garden for games of the Knicks and the Rangers and the manner in which we use or maintain The Garden on game days during the 2019-20 and 2020-21 seasons, which impacted the revenue we derive from games and the expenses that we incur on game days.\nMSG Entertainment\u2019s failure to comply with governmental laws and regulations applicable to the operation of The Garden, or to maintain necessary permits or licenses, could have a material negative effect on our business and results of operations.\nA Change to or Withdrawal of a New York City Real Estate Tax Exemption May Have a Material Negative Effect on Our Business and Results of Operations.\nMany arenas, ballparks and stadiums nationally and in New York City have received significant public support, such as tax exempt financing, other tax benefits, direct subsidies and other contributions, including for public infrastructure critical to the facilities such as parking lots and transit improvements. The Madison Square Garden Complex benefits from a more limited real estate tax exemption pursuant to an agreement with the City of New York, subject to certain conditions, and legislation enacted by the State of New York in 1982. For fiscal year 2023, the tax exemption was $42.4 million. From time to time there have been calls to repeal or amend the tax exemption. For example, in January 2023, a number of elected representatives from New York issued a public letter and in July 2023, the New York City Independent Budget Office issued a public report, in each case noting the tax exemption status should be reexamined. Any repeal of the tax exemption status would require legislative action by the New York State legislature. \nUnder the Arena License Agreements with subsidiaries of MSG Entertainment, pursuant to which the Knicks and the Rangers play their home games at The Garden, the teams are responsible for 100% of any real estate or similar taxes applicable to The Garden. \nIf the tax exemption is repealed or a team is otherwise subject to the property tax due to no fault of that team, certain revenue allocations that we receive under the applicable Arena License Agreement would be increased as set forth in the applicable Arena License Agreement. Although the value of any such revenue increase could be material, it is not expected to offset the property tax that would be payable by the applicable team.\n14\nTable of Contents\nThere can be no assurance that the tax exemption will not be amended in a manner adverse to us or repealed in its entirety, either of which could have a material negative effect on our business and results of operations.\nWe May Require Financing to Fund Our Ongoing Operations, the Availability of Which is Highly Uncertain.\nWe may require financing to fund our ongoing operations or otherwise engage in transactions that depend on our ability to obtain financing. The public and private capital and credit markets can experience volatility and disruption. Such markets can exert extreme downward pressure on stock prices and upward pressure on the cost of new debt capital and can severely restrict credit availability for most issuers. For example, the global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions, including diminished liquidity and credit availability, rising interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.\nDepending upon conditions in the financial markets and/or the Company\u2019s financial performance, we may not be able to raise additional capital on favorable terms, or at all. In addition, as described above, the leagues in which our sports teams compete may have, under certain circumstances, approval rights over certain financing transactions, and in connection with those rights, could affect our ability to obtain such financing. \nLabor Matters May Have a Material Negative Effect on Our Business and Results of Operations.\nNBA players are covered by a CBA between the NBPA and the NBA. NHL players are covered by a CBA between the NHLPA and the NHL. Labor difficulties may include players\u2019 strikes or protests or management lockouts. Both the NBA and the NHL have experienced labor difficulties in the past and may have labor issues in the future. For example, the NHL has experienced lockouts in the past that resulted in a regular season being shortened and the cancellation of the entire season, with a more recent lockout during the 2012-13 NHL season, which resulted in a regular season that was shortened from 82 to 48 games. The current NHL CBA expires on September 15, 2026 (with the possibility of a one-year extension in certain circumstances). The NBA has also experienced lockouts in the past that resulted in regular seasons being shortened, with a most recent lockout during the 2011-12 season, which resulted in a regular season that was shortened from 82 games to 66 games. The current NBA CBA expires after the 2029-30 season, but each of the NBA and NBPA has the right to terminate the CBA effective following the 2028-29 season. Any labor disputes, such as players\u2019 strikes, protests or lockouts, with the unions with which we have CBAs have in the past had and could in the future have a material negative effect on our business and results of operations.\nMSG Entertainment provides certain services to us through various commercial agreements, including day-of-game services.  These services are provided by MSG Entertainment employees that are subject to CBAs.  Any labor disputes, such as strikes or lockouts, with the unions with which MSG Entertainment has CBAs could impact staffing on Knicks and Rangers game days. In addition, we and MSG Entertainment have in the past faced difficulty in maintaining staffing on Knicks and Rangers game days and have been operating in an increasingly competitive labor market. If we and/or MSG Entertainment are unable to attract and retain qualified people or to do so on reasonable terms, or if game day staffing is impacted due to a labor dispute, we could suffer operational difficulties and the fan experience at Knicks and Rangers games may be adversely impacted.  Competition for qualified employees has required higher wages, which has resulted in higher labor costs. If wages and labor costs increase further, this could have an adverse effect on our business and results of operations. See \u201c\u2014 \nWe Rely on Affiliated Entities\u2019 Performance, Including Performance of Financial Obligations, Under Various Agreements.\n\u201d\nWe Rely on Affiliated Entities\u2019 Performance, Including Performance of Financial Obligations, Under Various Agreements.\nWe have various agreements with MSG Entertainment, which include arena license agreements, sponsorship sales and service representation agreements, a team sponsorship allocation agreement, a group ticket sales agreement, and a single night rental commission agreement. These agreements provide for a number of ongoing commercial relationships, including our use of The Garden and the allocation of certain revenues and expenses from games played by our sports teams at The Garden. In addition, we also have a services agreement and sublease agreement. The services agreement provides certain business services to the Company, such as information technology, accounts payable, payroll, tax, certain legal functions, human resources, insurance and risk management, investor relations, corporate communications, benefit plan administration and reporting and internal audit functions. The services agreement and certain of the commercial arrangements are subject to potential termination by MSG Entertainment in the event MSG Entertainment and the Company are no longer affiliates.\nWe have various agreements with Sphere Entertainment, which include local media rights agreements with MSG Networks (a wholly owned subsidiary of Sphere Entertainment) which provide MSG Networks with exclusive local linear and digital rights to home and away games of the Knicks and the Rangers, as well as other team-related programming. These media rights agreements provide a significant recurring and growing revenue stream for the Company. In recent years, certain regional sports networks have experienced financial difficulties. For example, Diamond Sports Group, an unconsolidated subsidiary of Sinclair Broadcasting Group Inc., which licenses and distributes sports content in a number of regional markets, filed for protection under Chapter 11 of the bankruptcy code in March 2023. If MSG Networks were to experience financial difficulties, \n15\nTable of Contents\nMSG Networks may be unable or unwilling to fulfill its contractual obligations under the media rights agreements and regional broadcasting of Knicks and Rangers games may be interrupted, any of which could have a material negative effect on our business and results of operations. In addition, in connection with the Sphere Distribution, we agreed to provide Sphere Entertainment with indemnities with respect to liabilities arising out of our businesses and Sphere Entertainment agreed to provide us with indemnities with respect to liabilities arising out of the businesses we transferred to Sphere Entertainment. \nThe Company and its affiliated entities each rely on the other to perform its respective obligations under these agreements. If one of the affiliated entities were to breach, become unable to satisfy their material obligations under these agreements because of financial difficulties, ongoing labor market disruptions or otherwise, fail to satisfy their indemnification or other financial obligations, or these agreements otherwise terminate or expire and we do not enter into replacement agreements, we could suffer operational difficulties and/or significant losses.\nOur Business is Subject to Seasonal Fluctuations and our Operating Results and Cash Flow Can Vary Substantially from Period to Period.\nOur revenues and expenses have been seasonal and we expect they will continue to be seasonal. Due to the NBA and NHL playing seasons, revenues from our business are typically concentrated in the second and third quarters of each fiscal year. Disruptions due to COVID-19 have also impacted the seasonality of our business. \nFor example\n, as a result of the delayed start of the 2020-21 NBA and NHL regular seasons due to COVID-19, certain of our revenues and expenses were recognized during the third and fourth quarters of fiscal year 2021 that otherwise typically would have been recognized during the second and third quarters.\nAs a result, our operating results and cash flow reflect significant variation from period to period and will continue to do so in the future. Therefore, period-to-period comparisons of our operating results may not necessarily be meaningful and the operating results of one period are not indicative of our financial performance during a full fiscal year. \nWe May Pursue Acquisitions and Other Strategic Transactions to Complement or Expand Our Business that May Not Be Successful\n.\nWe may continue to explore opportunities to purchase or invest in other businesses or assets that we believe will complement, enhance or expand our current business or that might otherwise offer us growth opportunities. Any transactions that we are able to identify and complete may involve risks, including the commitment of significant capital, the incurrence of indebtedness, the payment of advances, the diversion of management\u2019s attention and resources, litigation or other claims in connection with acquisitions or against companies we invest in or acquire, our lack of control over certain joint venture companies and other minority investments, the inability to successfully integrate such business into our operations or even if successfully integrated, the risk of not achieving the intended results and the exposure to losses if the underlying transactions or ventures are not successful. \nOperational Risks\nOur Business Could Be Adversely Affected by Terrorist Activity or the Threat of Terrorist Activity and Other Developments That Discourage Congregation at Prominent Places of Public Assembly.\nThe success of our business is dependent upon the willingness and ability of patrons to attend our games. The Garden, like all prominent places of public assembly, could be the target of terrorist activities, including acts of domestic terrorism or other actions that discourage attendance. Any such activity or threatened activity at or near The Garden or other similar venues in other locations could result in reduced attendance at our games and, more generally, have a material negative effect on our business and results of operations. Similarly, a major epidemic or pandemic, or the threat of such an event, has in the past materially affected, and could in the future materially adversely affect attendance at our games or, depending on its severity, halt our operations entirely. See \u201c\u2014 Sports Business Risks \u2014 \nOur Operations and Operating Results Were Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response, and a Resurgence of the Pandemic or Another Pandemic or Other Public Health Emergency Could Adversely Affect Our Business and Results of Operations.\n\u201d Moreover, the costs of protecting against such incidents could reduce the profitability of our operations. In addition, such events or the threat of such events may harm our or our affiliates\u2019 ability to obtain or renew insurance coverage on favorable terms or at all.\n16\nTable of Contents\nWe Are Subject to Governmental Regulation, Which Can Change, and Any Failure to Comply With These Regulations May Have a Material Negative Effect on Our Business and Results of Operations.\nWe are subject to substantial governmental regulations affecting our business. These include, but are not limited to, data privacy and protection laws, regulations, policies and contractual obligations that apply to the collection, transmission, storage, processing and use of personal information or personal data, which among other things, impose certain requirements relating to the privacy and security of personal information. The variety of laws and regulations governing data privacy and protection, and the use of the internet as a commercial medium are rapidly evolving, extensive, and complex, and may include provisions and obligations that are inconsistent with one another or uncertain in their scope or application. \nThe data protection landscape is rapidly evolving in the United States. As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. For example, California has passed a comprehensive data privacy law, the CCPA, and a number of other states including Virginia, Colorado, Utah and Connecticut have also passed similar laws, and various additional states may do so in the near future. Additionally, the CPRA imposes additional data protection obligations on covered businesses, including additional consumer rights procedures and obligations, limitations on data uses, new audit requirements for higher risk data, and constraints on certain uses of sensitive data. The majority of the CPRA provisions went into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. Further, there are several legislative proposals in the United States, at both the federal and state level, that could impose new privacy and security obligations. We cannot yet determine the impact that these future laws and regulations may have on our business.\nIn addition, governmental authorities and private litigants continue to bring actions against companies for online collection, use, dissemination and security practices that are unfair or deceptive.\nOur business is, and may in the future be, subject to a variety of other laws and regulations, including working conditions, labor, immigration and employment laws; and health, safety and sanitation requirements. We are unable to predict the outcome or effects of any potential legislative or regulatory proposals on our businesses. Any changes to the legal and regulatory framework applicable to our businesses could have an adverse impact on our business and results of operations.\nOur failure to comply with applicable governmental laws and regulations, or to maintain necessary permits or licenses, could result in liability that could have a material negative effect on our business and results of operations.\nOur business was also materially impacted by government actions taken in response to the COVID-19 pandemic, and could be materially impacted by government actions in response to a pandemic or other public health emergency in the future. See \u201c\u2014 Sports Business Risks \u2014 \nOur Operations and Operating Results Were Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response, and a Resurgence of the Pandemic or Another Pandemic or Other Public Health Emergency Could Adversely Affect Our Business and Results of Operations.\n\u201d\nWeather or Other Conditions May Impact Our Games, Which May Have a Material Negative Effect on Our Business and Results of Operations.\nWeather or other conditions, including natural disasters and similar events, in the New York metropolitan area may affect patron attendance at Knicks or Rangers games as well as sales of food and beverages and merchandise, among other things. Weather conditions may also require us to cancel or postpone games. Any of these events may have a material negative effect on our business and results of operations.\nWe Face Continually Evolving Cybersecurity and Similar Risks, Which Could Result in Loss, Disclosure, Theft, Destruction or Misappropriation of, or Access to, Our Confidential Information and Cause Disruption to Our Business, Damage to Our Brands and Reputation, Legal Exposure and Financial Losses.\nWe collect and store, including by electronic means, certain personal, proprietary and other sensitive information, including payment card information, that is provided to us through purchases, registration on our websites or mobile applications, or otherwise in communication or interaction with us. These activities require the use of online services and centralized data storage, including through third-party service providers. Data maintained in electronic form is subject to the risk of security incidents, including breach, compromise, intrusion, tampering, theft, destruction, misappropriation or other malicious activity. Our ability to safeguard such personal and other sensitive information, including information regarding the Company and our customers, sponsors, partners and employees, independent contractors and vendors, is important to our business. We take these matters seriously and take significant steps to protect our stored information, including the implementation of systems and processes to thwart malicious activity. These protections are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. \nDespite our efforts, the risks of a security incident cannot be entirely eliminated and our information technology and other systems that maintain and transmit customer, sponsor, partner, Company, employee and other confidential and proprietary information may be compromised due to employee error or other circumstances such as malware or ransomware, viruses, \n17\nTable of Contents\nhacking and phishing attacks, denial-of-service attacks, business email compromises, or otherwise. Such compromise could affect the security of information on our network, or that of a third-party service provider, including MSG Entertainment to which we outsource information technology services, including technology relating to season ticket holders and purchases of individual game tickets, and certain payment processing. For example, in November 2016, a payment card issue that affected cards used at merchandise and food and beverage locations at several of the Company\u2019s pre-Sphere Distribution venues, including its New York venues and The Chicago Theatre, was identified and addressed with the assistance of security firms. The issue was promptly fixed and enhanced security measures were implemented. Additionally, outside parties may attempt to fraudulently induce employees, vendors or users to disclose sensitive, proprietary or confidential information in order to gain access to data and systems. As a result of any of these actions, such sensitive, proprietary and/or confidential information may be lost, disclosed, accessed or taken without consent. See \u201c\u2014 Economic and Business Relationship Risks\u2014 \nWe Rely on Affiliated Entities\u2019 Performance, Including Performance of Financial Obligations, Under Various Agreements.\n\u201d for a discussion of services MSG Entertainment performs on our behalf. The Company also continues to review and enhance our security measures in light of the constantly evolving techniques used to gain unauthorized access to networks, data, software and systems. The Company may be required to incur significant expenses in order to address any actual or potential security incidents that arise, and we may not have insurance coverage for all such expenses.\nIf we experience an actual or perceived security incident, our ability to conduct business may be interrupted or impaired, we may incur damage to our systems, we may lose profitable opportunities or the value of those opportunities may be diminished and we may lose revenue as a result of unlicensed use of our intellectual property. Unauthorized access to or security breaches of our systems could result in the loss of data, loss of business, severe reputational damage adversely affecting customer or investor confidence, diversion of management\u2019s attention, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations and significant costs for remediation that may include liability for stolen or lost assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach and other liabilities. In addition, in the event of a security incident, changes in legislation may increase the risk of potential litigation. For example, the CCPA, which provides a private right of action (in addition to statutory damages) for California residents whose sensitive personal information is breached as a result of a business\u2019 violation of its duty to reasonably secure such information, took effect on January 1, 2020 and was expanded by the CPRA which took effect in January 2023. A number of other states have passed similar laws and additional states may do so in the near future. Our insurance coverage may not be adequate to cover the costs of a data breach, indemnification obligations, or other liabilities.\nWe have obligations to notify relevant stakeholders of security breaches. Such mandatory disclosures are costly, could lead to negative publicity, may cause our customers to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources to respond to or alleviate problems caused by an actual or perceived security breach.\nThe Unavailability of Systems Upon Which We Rely May Have a Material Negative Effect on Our Business and Results of Operations.\nWe rely upon various internal and third-party software or systems in the operation of our business, including, with respect to ticket sales, credit card processing, email marketing, point of sale transactions, database, inventory, human resource management and financial systems. From time to time, certain of the arrangements for these systems may not be covered by long-term agreements. System interruption and the lack of integration and redundancy in the information systems and infrastructure, both of our own websites and other computer systems and of affiliate and third-party software, computer networks, apps and other communications systems service providers on which we rely may adversely affect our ability to operate websites, process and fulfill transactions, respond to customer inquiries and generally maintain cost-efficient operations. Such interruptions could occur by virtue of natural disaster, malicious actions, such as hacking or acts of terrorism or war, or human error. See also \u201c\u2014 Economic and Business Relationship Risks \u2014 \nWe Rely on Affiliated Entities\u2019 Performance, Including Performance of Financial Obligations, Under Various Agreements.\n\u201d for a discussion of services MSG Entertainment performs on our behalf.\nWhile we have backup systems and offsite data centers for certain aspects of our operations, disaster recovery planning by its nature cannot be for all eventualities. In addition, we may not have adequate insurance coverage to compensate for any or all losses from a major interruption. If any of these adverse events were to occur, it could adversely affect our business, financial condition and results of operations.\nWe May Become Subject to Infringement or Other Claims Relating to Our Content or Technology.\nFrom time to time, third parties have in the past and may in the future assert against us alleged intellectual property (e.g., copyright, trademark and patent) or other claims relating to our technologies or other material, some of which may be material to our business. Any such claims, regardless of their merit, could cause us to incur significant costs that could harm our results of operations. These claims may not be covered by insurance or could involve exposures that exceed the limits of any \n18\nTable of Contents\napplicable insurance policy. In addition, if we are unable to continue use of certain intellectual property rights, our business and results of operations could be materially negatively impacted.\nThere Is a Risk of Personal Injuries and Accidents at The Garden, Which Could Subject Us to Personal Injury or Other Claims; We are Subject to the Risk of Adverse Outcomes or Negative Publicity in Other Types of Litigation.\nThere are inherent risks associated with having customers attend our teams\u2019 games. As a result, personal injuries, accidents and other incidents have occurred and may occur from time to time, which could subject us to claims and liabilities.\nThese risks may not be covered by insurance or could involve exposures that exceed the limits of any applicable insurance policy. Incidents in connection with one of our games or an event hosted by MSG Entertainment at The Garden could also reduce attendance at our other games, and may have a negative impact on our revenue and results of operations. Under the Arena License Agreements, MSG Entertainment and the Company have reciprocal indemnity obligations to each other in connection with their respective acts or omissions in or about The Garden during the home games of the Knicks and the Rangers. We, the NBA, and the NHL maintain insurance policies that provide coverage for incidents in the ordinary course of business, but there can be no assurance that such indemnities or insurance will be adequate at all times and in all circumstances.\nFrom time to time, the Company, its subsidiaries and/or our affiliates are involved in various legal proceedings, including proceedings or lawsuits brought by governmental agencies, stockholders, customers, employees, other private parties and other stakeholders. The outcome of litigation is inherently unpredictable and, regardless of the merits of the claims, litigation may be expensive, time-consuming, disruptive to our operations and distracting to management. In addition, publicity from these matters could negatively impact our business or reputation, regardless of the accuracy of such publicity. As a result, we may incur liability from litigation (including in connection with settling such litigation) which could be material and for which we may not have available or adequate insurance coverage or be subject to other forms of non-monetary relief which may adversely affect the Company. The liabilities and any defense costs we incur in connection with any such litigation could have an adverse effect on our business and results of operations.\nCorporate Governance Risks\nWe Could Have Significant Tax Liability as a Result of the Sphere Distribution.\nWe have obtained an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the Sphere Distribution qualifies as a tax-free distribution under the Internal Revenue Code. The opinion is not binding on the Internal Revenue Service (the \u201cIRS\u201d) or the courts. The opinion relies on factual representations and reasonable assumptions, which if incorrect or inaccurate may jeopardize the ability to rely on such opinion.\nIf the Sphere Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, we would be subject to tax as if we had sold the Sphere Entertainment common stock in a taxable sale for its fair value. Sphere Entertainment stockholders would be subject to tax as if they had received a distribution equal to the fair value of Sphere Entertainment common stock that was distributed to them, which generally would be treated first as a taxable dividend to the extent of our earnings and profits, then as a non-taxable return of capital to the extent of each holder\u2019s tax basis in its Sphere Entertainment common stock, and thereafter as capital gain with respect to any remaining value. It is expected that the amount of any such taxes to MSG Sphere stockholders and us would be substantial.\nWe May Have a Significant Indemnity Obligation to Sphere Entertainment if the Sphere Distribution Is Treated as a Taxable Transaction.\nWe have entered into a Tax Disaffiliation Agreement with Sphere Entertainment which sets out each party\u2019s rights and obligations with respect to deficiencies and refunds, if any, of federal, state, local or foreign taxes for periods before and after the Sphere Distribution and related matters such as the filing of tax returns and the conduct of IRS and other audits. Pursuant to the Tax Disaffiliation Agreement, we are required to indemnify Sphere Entertainment for losses and taxes of Sphere Entertainment resulting from our breach of certain covenants and for certain taxable gain recognized by MSG Sphere, including as a result of certain acquisitions of our stock or assets. If we are required to indemnify Sphere Entertainment under the circumstances set forth in the Tax Disaffiliation Agreement, we may be subject to substantial liabilities, which could adversely affect our financial position.\nWe are Controlled by the Dolan Family. As a Result of Their Control, the Dolan Family Has the Ability to Prevent or Cause a Change in Control or Approve, Prevent or Influence Certain Actions by the Company.\nWe have two classes of common stock:\n\u2022\nClass\u00a0A Common Stock, par value $0.01 per share (\u201cClass A Common Stock\u201d), which is entitled to one vote per share and is entitled collectively to elect 25% of our Board of Directors; and\n19\nTable of Contents\n\u2022\nClass\u00a0B Common Stock, par value $0.01 per share (\u201cClass B Common Stock\u201d), which is entitled to ten votes per share and is entitled collectively to elect the remaining 75% of our Board of Directors.\nAs of July\u00a031, 2023, the Dolan family, including trusts for the benefit of members of the Dolan family (collectively, the \u201cDolan Family Group\u201d), collectively own all of our Class\u00a0B Common Stock, approximately 3.3% of our outstanding Class\u00a0A Common Stock and approximately 71.0% of the total voting power of all our outstanding common stock (in each case, inclusive of options exercisable and RSUs vesting within 60 days of July\u00a031, 2023). The members of the Dolan Family Group holding Class\u00a0B Common Stock have executed a stockholders agreement (the \u201cStockholders Agreement\u201d) that has the effect of causing the voting power of the holders of our Class\u00a0B Common Stock to be cast as a block with respect to all matters to be voted on by holders of Class\u00a0B Common Stock. Under the Stockholders Agreement, the shares of Class B Common Stock owned by members of the Dolan Family Group (representing all of the outstanding Class B Common Stock) are to be voted on all matters in accordance with the determination of the Dolan Family Committee, except that the decisions of the Dolan Family Committee are non-binding with respect to the Class\u00a0B Common Stock owned by certain Dolan family trusts that collectively own 40.5% of the outstanding Class\u00a0B Common Stock (\u201cExcluded Trust\u201d). The \u201cDolan Family Committee\u201d consists of Charles F. Dolan and his six children, James L. Dolan, Thomas C. Dolan, Patrick F. Dolan, Kathleen\u00a0M. Dolan, Marianne Dolan Weber and Deborah A. Dolan-Sweeney. The Dolan Family Committee generally acts by majority vote, except that approval of a going-private transaction must be approved by a two-thirds vote and approval of a change-in-control transaction must be approved by not less than all but one vote. The voting members of the Dolan Family Committee are James L. Dolan, Thomas C. Dolan, Kathleen M. Dolan, Marianne Dolan Weber and Deborah A. Dolan-Sweeney, with each member having one vote other than James L. Dolan, who has two votes. Because James L. Dolan has two votes, he has the ability to block Dolan Family Committee approval of any Company change in control transaction. Shares of Class B Common Stock owned by Excluded Trusts are to be voted on all matters in accordance with the determination of the Excluded Trusts holding a majority of the Class B Common Stock held by all Excluded Trusts, except in the case of a vote on a going-private transaction or a change in control transaction, in which case a vote of trusts holding two-thirds of the Class B Common Stock owned by Excluded Trusts is required.\nThe Dolan Family Group is able to prevent a change in control of the Company and no person interested in acquiring us would be able to do so without obtaining the consent of the Dolan Family Group. The Dolan Family Group, by virtue of their stock ownership, have the power to elect all of our directors subject to election by holders of Class\u00a0B Common Stock and are able collectively to control stockholder decisions on matters on which holders of all classes of our common stock vote together as a single class. These matters could include the amendment of some provisions of our certificate of incorporation and the approval of fundamental corporate transactions.\nIn addition, the affirmative vote or consent of the holders of at least 66\n\u00a02\n\u2044\n3\n% of the outstanding shares of the Class\u00a0B Common Stock, voting separately as a class, is required to approve:\n\u2022\nthe authorization or issuance of any additional shares of Class\u00a0B Common Stock;\u00a0and\n\u2022\nany amendment, alteration or repeal of any of the provisions of our certificate of incorporation that adversely affects the powers, preferences or rights of the Class\u00a0B Common Stock.\nAs a result, the Dolan Family Group also has the power to prevent such issuance or amendment.\nThe Dolan Family Group also controls MSG Entertainment, Sphere Entertainment and AMC Networks Inc. (\u201cAMC Networks\u201d). \nWe Have Elected to Be a \u201cControlled Company\u201d for NYSE Purposes Which Allows Us Not to Comply with Certain of the Corporate Governance Rules of NYSE.\nMembers of the Dolan Family Group have entered into a Stockholders Agreement relating, among other things, to the voting of their shares of our Class\u00a0B Common Stock. As a result, we are a \u201ccontrolled company\u201d under the corporate governance rules of NYSE. As a controlled company, we have the right to elect not to comply with the corporate governance rules of NYSE requiring: (i)\u00a0a majority of independent directors on our Board, (ii)\u00a0an independent corporate governance and nominating committee and (iii)\u00a0an independent compensation committee. Our Board of Directors has elected for the Company to be treated as a \u201ccontrolled company\u201d under NYSE corporate governance rules and not to comply with the NYSE requirement for a majority independent board of directors and for an independent corporate governance and nominating committee because of our status as a controlled company. Nevertheless, our Board of Directors has elected to comply with the NYSE requirement for an independent compensation committee.\nFuture Stock Sales, Including as a Result of the Exercise of Registration Rights by Certain of Our Stockholders, Could Adversely Affect the Trading Price of Our Class\u00a0A Common Stock.\nCertain parties have registration rights covering a portion of our shares. We have entered into registration rights agreements with Charles F. Dolan, members of his family, certain Dolan family interests, and the Dolan Family Foundation that provide \n20\nTable of Contents\nthem with \u201cdemand\u201d and \u201cpiggyback\u201d registration rights with respect to approximately 5.2 million shares of Class\u00a0A Common Stock, including shares issuable upon conversion of shares of Class\u00a0B Common Stock. Sales of a substantial number of shares of Class\u00a0A Common Stock, including sales pursuant to these registration rights, could adversely affect the market price of the Class\u00a0A Common Stock and could impair our future ability to raise capital through an offering of our equity securities. \nTransfers and Ownership of Our Common Stock Are Subject to Restrictions Under Rules of the NBA and NHL and Our Certificate of Incorporation Provides Us with Remedies Against Holders Who Do Not Comply with Those Restrictions.\nThe Company is the owner of professional sports franchises in the NBA and NHL. As a result, transfers and ownership of our common stock are subject to certain restrictions under the governing documents of the NBA and NHL as well as the Company\u2019s consent and other agreements with the NBA and NHL in connection with their approval of the MSGS Distribution and the Sphere Distribution. These restrictions are described under \u201cDescription of Capital Stock\u00a0\u2014 Class\u00a0A Common Stock and Class\u00a0B Common Stock\u00a0\u2014 Transfer Restrictions\u201d in Exhibit 4.5 to this annual report on Form 10-K. In order to protect the Company and its NBA and NHL franchises from sanctions that might be imposed by the NBA or NHL as a result of violations of these restrictions, our amended and restated certificate of incorporation provides that, if a transfer of shares of our common stock to a person or the ownership of shares of our common stock by a person requires approval or other action by a league and such approval or other action was not obtained or taken as required, the Company shall have the right by written notice to the holder to require the holder to dispose of the shares of common stock which triggered the need for such approval. If a holder fails to comply with such a notice, in addition to any other remedies that may be available, the Company may redeem the shares at 85% of the fair market value of those shares.\nWe Share Certain Directors, Officers and Employees with MSG Entertainment, Sphere Entertainment and/or AMC Networks, Which Means Those Officers and Directors Do Not Devote Their Full Time and Attention to Our Affairs and the Overlap May Give Rise to Conflicts.\nOur Executive Chairman, James L. Dolan, also serves as the Executive Chairman and Chief Executive Officer of MSG Entertainment and Sphere Entertainment and as Non-Executive Chairman of AMC Networks and our Executive Vice President, David Granville-Smith, also serves as the Executive Vice President of Sphere Entertainment and AMC Networks. Our President and Chief Operating Officer, David Hopkinson, also provides sponsorship-related services to MSG Entertainment, for which the Company is fully reimbursed. In addition, one of our directors, Charles F. Dolan, is the Chairman Emeritus of AMC Networks and a director of MSG Entertainment and Sphere Entertainment. Furthermore, nine members of our Board of Directors (including James L. Dolan and Charles F. Dolan) are also directors of MSG Entertainment, ten members of our Board of Directors (including James L. Dolan and Charles F. Dolan) are also directors of Sphere Entertainment and six members of our Board of Directors (including James L. Dolan and Charles F. Dolan) are also directors of AMC Networks. Our Vice Chairman, Gregg G. Seibert, also serves as the Vice Chairman of MSG Entertainment, Sphere Entertainment and AMC Networks. Further, our Senior Vice President, Associate General Counsel and Secretary, Mark C. Cresitello, also serves as Secretary of Sphere Entertainment. As a result, these individuals do not devote their full time and attention to the Company\u2019s affairs. The overlapping directors, officers and employees may have actual or apparent conflicts of interest with respect to matters involving or affecting each company. For example, the potential for a conflict of interest exists when we on the one hand, and MSG Entertainment, Sphere Entertainment and/or AMC Networks on the other hand, look at certain acquisitions and other corporate opportunities that may be suitable for more than one of the companies. Also, conflicts may arise if there are issues or disputes under the commercial arrangements that exist between MSG Entertainment, Sphere Entertainment or AMC Networks and us. In addition, certain of our directors, officers and employees hold MSG Entertainment, Sphere Entertainment and/or AMC Networks stock, stock options and/or restricted stock units. These ownership interests could create actual, apparent or potential conflicts of interest when these individuals are faced with decisions that could have different implications for the Company and MSG Entertainment, Sphere Entertainment or AMC Networks. See \u201cCertain Relationships and Potential Conflicts of Interest\u201d in our Current Report on Form 8-K filed with the SEC on April 15, 2023 for a discussion of certain procedures we instituted to help ameliorate such potential conflicts with MSG Entertainment, Sphere Entertainment and/or AMC Networks that may arise.\nOur Overlapping Directors and Executive Officers with MSG Entertainment, Sphere Entertainment and/or AMC Networks May Result in the Diversion of Corporate Opportunities to MSG Entertainment, Sphere Entertainment and/or AMC Networks and Other Conflicts and Provisions in Our Amended and Restated Certificate of Incorporation May Provide Us No Remedy in That Circumstance.\nThe Company acknowledges that directors and officers of the Company may also be serving as directors, officers, employees, consultants or agents of MSG Entertainment, Sphere Entertainment and/or AMC Networks and their respective subsidiaries and that the Company may engage in material business transactions with such entities. The Company\u2019s Board of Directors has adopted resolutions putting in place policies and arrangements whereby the Company has renounced its rights to certain business opportunities and no director or officer of the Company who is also serving as a director, officer, employee, consultant or agent of MSG Entertainment, Sphere Entertainment and/or AMC Networks and their subsidiaries will be liable to the \n21\nTable of Contents\nCompany or its stockholders for breach of any fiduciary duty that would otherwise occur by reason of the fact that any such individual directs a corporate opportunity (other than certain limited types of opportunities set forth in such policies) to MSG Entertainment, Sphere Entertainment and/or AMC Networks or any of their subsidiaries instead of the Company, or does not refer or communicate information regarding such corporate opportunities to the Company. ",
+  "item7": ">Item\u00a07. \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n \nThis Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (\u201cMD&A\u201d) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this MD&A, there are statements concerning the future operating and future financial performance of Madison Square Garden Sports Corp. and its direct and indirect subsidiaries (collectively, \u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d \u201cMSG Sports,\u201d or the \u201cCompany\u201d). Words such as \u201cexpects,\u201d \u201canticipates,\u201d \u201cbelieves,\u201d \u201cestimates,\u201d \u201cmay,\u201d \u201cwill,\u201d \u201cshould,\u201d \u201ccould,\u201d \u201cpotential,\u201d \u201ccontinue,\u201d \u201cintends,\u201d \u201cplans,\u201d and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to:\n\u2022\nthe level of our revenues, which depends in part on the popularity and competitiveness of our sports teams;\n\u2022\ncosts associated with player injuries, waivers or contract terminations of players and other team personnel;\n\u2022\nchanges in professional sports teams\u2019 compensation, including the impact of signing free agents and executing trades, subject to league salary caps and the impact of luxury tax;\n\u2022\ngeneral economic conditions, especially in the New York City metropolitan area;\n\u2022\nthe demand for sponsorship arrangements and for advertising;\n\u2022\ncompetition, for example, from other teams, and other sports and entertainment options;\n\u2022\nchanges in laws, National Basketball Association (\u201cNBA\u201d)or National Hockey League (\u201cNHL\u201d) rules, regulations, guidelines, bulletins, directives, policies and agreements, including the leagues\u2019 respective collective bargaining agreements (each, a \u201cCBA\u201d) with their players\u2019 associations, salary caps, escrow requirements, revenue sharing, NBA luxury tax thresholds and media rights, or other regulations under which we operate;\n\u2022\nthe performance by our affiliates of their obligations under various agreements with the Company, including the potential for financial difficulties that may impact MSG Networks Inc. (\u201cMSG Networks\u201d);\n\u2022\na resurgence of the COVID-19 pandemic or another pandemic or public health emergency, and our ability to effectively manage the impacts, including labor market disruptions; \n\u2022\nany NBA, NHL or other work stoppage;\n\u2022\nany economic, political or other actions, such as boycotts, protests, work stoppages or campaigns by labor organizations;\n\u2022\nseasonal fluctuations and other variation in our operating results and cash flow from period to period;\n\u2022\nthe level of our expenses, including our corporate expenses;\n\u2022\nbusiness, reputational and litigation risk if there is a security incident resulting in loss, disclosure or misappropriation of stored personal information or other breaches of our information security;\n\u2022\nactivities or other developments that discourage or may discourage congregation at prominent places of public assembly, including The Garden where the home games of the New York Knickerbockers (the \u201cKnicks\u201d) and the New York Rangers (the \u201cRangers\u201d) are played;\n\u2022\na default by our subsidiaries under their respective credit facilities;\n\u2022\nthe acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions;\n\u2022\nour ability to successfully integrate acquisitions or new businesses into our operations;\n\u2022\nthe operating and financial performance of our strategic acquisitions and investments, including those we may not control;\n\u2022\nthe impact of governmental regulations or laws, including changes in how those regulations and laws are interpreted and the continued benefit of certain tax exemptions (including for The Garden) and the ability for us and Madison Square Garden Entertainment Corp. (\u201cMSG Entertainment\u201d) to maintain necessary permits or licenses;\n\u2022\nthe impact of any government plans to redesign New York City\u2019s Pennsylvania Station;\n\u2022\nbusiness, economic, reputational and other risks associated with, and the outcome of, litigation and other proceedings; \n25\nTable of Contents\n\u2022\nfinancial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate; \n\u2022\ncertain restrictions on transfer and ownership of our common stock related to our ownership of professional sports franchises in the NBA and NHL;\n\u2022\nthe tax-free treatment of the Sphere Distribution (as defined below) and;\n\u2022\nthe factors described under \u201cPart I \u2014 Item\u00a01A. Risk Factors\u201d included in this Annual Report on Form 10-K.\nWe disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.\nAll dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted.\nSphere Distribution \nOn April 17, 2020 (the \u201cSphere Distribution Date\u201d), the Company distributed all of the outstanding common stock of Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp. and referred to herein as \u201cSphere Entertainment\u201d) to its stockholders (the \u201cSphere Distribution\u201d). Prior to the MSGE Distribution (as defined below), Sphere Entertainment owned, directly or indirectly, the entertainment business previously owned and operated by the Company through its MSG Entertainment business segment and the sports booking business previously owned and operated by the Company through its MSG Sports business segment. Subsequent to the Sphere Distribution, the Company no longer consolidates the financial results of Sphere Entertainment for purposes of its own financial reporting. \nAfter giving effect to the Sphere Distribution, the Company operates and reports financial information in one segment.\nOn April 20, 2023 (the \u201cMSGE Distribution Date\u201d), Sphere Entertainment distributed approximately 67% of the issued and outstanding shares of common stock of Madison Square Garden Entertainment Corp. (formerly MSGE Spinco, Inc. and referred to herein as \u201cMSG Entertainment\u201d) to its stockholders (the \u201cMSGE Distribution\u201d). All agreements between the Company and MSG Entertainment described herein were between the Company and Sphere Entertainment prior to the MSGE Distribution (except agreements entered into after the MSGE Distribution).\nUnless the context otherwise requires, all references to MSG Entertainment, Sphere Entertainment and MSG Networks refer to such entity, together with its direct and indirect subsidiaries.\nIntroduction \nMD&A is provided as a supplement to, and should be read in conjunction with, the audited consolidated financial statements and footnotes thereto included in Item\u00a08 of this Annual Report on Form 10-K to help provide an understanding of our financial condition, changes in financial condition and results of operations\n.\n \nOur MD&A is organized as follows:\nBusiness Overview.\n This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends.\nResults of Operations.\n This section provides an analysis of our results of operations for the years ended June\u00a030, 2023 and 2022. For the comparison of our results of operations for the years ended June\u00a030, 2022 and 2021, see \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in Part II, Item 7 of our 2022 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on August 18, 2022.\nLiquidity and Capital Resources.\n This section provides a discussion of our financial condition, as well as an analysis of our cash flows for the years ended June\u00a030, 2023 and 2022\n.\n The discussion of our financial condition and liquidity includes summaries of (i)\u00a0our primary sources of liquidity and (ii)\u00a0our contractual obligations and off balance sheet arrangements that existed at June\u00a030, 2023.\nSeasonality of Our Business.\n This section discusses the seasonal performance of the Company\n.\nRecently Issued Accounting Pronouncements and Critical Accounting Policies.\n This section includes a discussion of accounting policies considered to be important to our financial condition and results of operations and which require significant judgment and estimates on the part of management in their application\n.\n In addition, all of our significant accounting policies, including our critical accounting policies, are discussed in the notes to our consolidated financial statements included in Item\u00a08 of this Annual Report on Form 10-K.\n26\nTable of Contents\nBusiness Overview\n \nThe Company owns and operates a portfolio of assets featuring some of the most recognized teams in all of sports, including the Knicks of the NBA and the Rangers of the NHL. Both the Knicks and the Rangers play their home games at The Garden. The Company\u2019s other professional sports franchises include two development league teams \u2014 the Hartford Wolf Pack of the American Hockey League and the Westchester Knicks of the NBA G League. Our professional sports franchises are collectively referred to herein as \u201cour sports teams.\u201d  In addition, the Company previously owned a controlling interest in Counter Logic Gaming (\u201cCLG\u201d), a North American esports organization. In April 2023, the Company sold its controlling interest in CLG to Hard Carry Gaming Inc. (\u201cNRG\u201d), a professional gaming and entertainment company, in exchange for a noncontrolling equity interest in the combined NRG/CLG company. CLG and the sports teams are collectively referred to herein as the \u201cteams.\u201d The Company also operates a professional sports team performance center \u2014 the Madison Square Garden Training Center in Greenburgh, NY.\nRevenue Sources\nWe earn revenue from several primary sources: ticket sales and a portion of suite rental fees at The Garden, our share of distributions from NHL and NBA league-wide national and international television contracts and other league-wide revenue sources, venue signage and other sponsorships, food and beverage sales at The Garden and merchandising\n.\n We also earn substantial fees from MSG Networks for the local media rights to telecast the games of our sports teams\n.\n The amount of revenue we earn is influenced by many factors, including the popularity and on-court or on-ice performance of our sports teams and general economic and health and safety conditions. In particular, when our sports teams have strong on-court and on-ice performance, we benefit from increased demand for tickets and premium hospitality, potentially greater food and merchandise sales from increased attendance and increased sponsorship opportunities. When our sports teams qualify for the playoffs, we also benefit from the attendance and in-game spending at the playoff games. The year-to-year impact of team performance is somewhat moderated by the fact that a significant portion of our revenue derives from media rights fees, suite rental fees and sponsorship and signage revenue, all of which are generally contracted on a multi-year basis. Nevertheless, the long-term performance of our business is tied to the success and popularity of our sports teams. In addition, due to the NBA and NHL playing seasons, revenues from our business are typically concentrated in the second and third quarters of each fiscal year.\nTicket Sales and Facility and Ticketing Fees\nTicket sales have historically constituted our largest single source of revenue\n.\n Tickets to our sports teams\u2019 home games are sold through season tickets (full and partial plans), which are typically held by long-term season ticket members, through group sales, and through single-game tickets, which are purchased by fans either individually or in multi-game packages\n. \nWe generally review and set the price of our tickets before the start of each team\u2019s season. However, we dynamically price our individual tickets based on opponent, seat location, day of the week and other factors. We do not earn revenue from ticket sales for games played by our teams at their opponents\u2019 arenas.\nWe also earn revenues in the form of certain fees added to ticket prices, which currently include a facility fee the Company charges on tickets it sells to our sports teams\u2019 games, except for season tickets.\nMedia Rights\nWe earn revenue from the licensing of media rights for our sports teams\u2019 home and away games and also through the receipt of our share of fees paid for league-wide media rights, which are awarded under contracts negotiated and administered by each league.\nThe Company and MSG Networks are parties to media rights agreements covering the local telecast rights for the Knicks and the Rangers\n.\n \nNational and international telecast arrangements differ by league\n.\n Fees paid by telecasters under these arrangements are pooled by each league and then generally shared equally among all teams.\n27\nTable of Contents\nSuites and Clubs\nWe earn revenue through the sale of suite and premium club licenses at The Garden, which are generally sold by MSG Entertainment to corporate customers pursuant to multi-year licenses. Under standard licenses, the licensees pay an annual license fee, which varies depending on the location and type of the suite or club. The license fee includes, for each seat in the suite or club, tickets for our home games and other events at The Garden that are presented by MSG Entertainment for which tickets are sold to the general public, subject to certain exceptions. In addition, suite holders separately pay for food and beverage service in their suites at The Garden. Food and non-alcoholic beverage service is included in the annual license fee paid by club members.\nBecause suite and club licenses cover both our games and events that MSG Entertainment presents at The Garden, suite and club rental revenue is shared between us and MSG Entertainment under the Arena License Agreements (as defined below). Pursuant to the Arena Licenses Agreements, the Knicks and the Rangers are entitled to 35% and 32.5%, respectively, of the revenues received by MSG Entertainment in connection with suite and club licenses. \nSponsorships and Signage\nWe earn revenues through the sale of sponsorships and signage specific to the teams\n. \nSales of team specific signage generally involve the sale of advertising space within The Garden during our sports teams\u2019 home games and include the sale of signage on the ice and on the boards of the hockey rink during Rangers games, courtside during Knicks games, and/or on the various scoreboards and display panels at The Garden, as well as virtual signage during Knicks and Rangers broadcasts\n.\n We offer both television camera-visible and non-camera-visible signage space. We also earn a portion of revenues through MSG Entertainment\u2019s sale of venue indoor signage space and sponsorship rights at The Garden that are not specific to our teams pursuant to the Arena License Agreements.\nSponsorship rights generally require the use of the name, logos and other trademarks of a sponsor in the advertising and in promotions for The Garden in general or our teams specifically during our sports events\n. \nSponsorship arrangements may be exclusive within a particular sponsorship category or non-exclusive and generally permit a sponsor to use the name, logos and other trademarks of our teams and, in the case of sponsorship arrangements shared with MSG Entertainment, MSG Entertainment\u2019s venues and brands in connection with their own advertising and in promotions in The Garden or in the community.\nFood, Beverage and Merchandise Sales\nWe earn revenues from the sale of food and beverages during our sports teams\u2019 games at The Garden\n.\n In addition to concession-style sales of food and beverages, which represent the majority of food and beverage revenues, The Garden also provides higher-end dining at premium clubs as well as catering for suites. Pursuant to the Arena License Agreements, the Knicks and the Rangers receive 50% of net profits from the sales of food and beverages during their games at The Garden.\nWe also earn revenues from the sale of our sports teams\u2019 merchandise both through the in-venue and online sale of items bearing the logos or other marks of our teams and through our share of sports league distributions of royalties and other revenues from the sports leagues\u2019 licensing of team and sports league trademarks, which are generally shared equally among the teams in the sports leagues\n. \nPursuant to the Arena License Agreements, the Knicks and the Rangers pay MSG Entertainment a commission equal to 30% of revenues from the sales of their merchandise at The Garden. \nOther\nAmounts collected for ticket sales, suite licenses and clubs, sponsorships and venue signage in advance of an event are recorded as deferred revenue and are recognized as revenues when earned.\nExpenses \nThe most significant expenses are player and other team personnel salaries and charges for transactions relating to players for career-ending and season-ending injuries, trades, and waivers and contract termination costs of players and other team personnel, including team executives. We also incur costs for travel, player insurance, league operating assessments (including a 6% NBA assessment on regular season ticket sales), NBA and NHL revenue sharing and, when applicable, NBA luxury tax.\nIn addition, we are party to long term leases with MSG Entertainment that end June 30, 2055 that allow the Knicks and the Rangers to play their home games at The Garden (the \u201cArena License Agreements\u201d). The Arena License Agreements provide for fixed payments to be made from inception through June 30, 2055 in 12 equal installments during each year of the contractual term. The contracted license fee for the first full contract year ending June 30, 2021 was approximately $22,500 for the Knicks and approximately $16,700 for the Rangers, and then for each subsequent year, the license fees are 103% of the license fees for the immediately preceding contract year.\n28\nTable of Contents\nPlayer Salaries, Escrow System/Revenue Sharing and NBA Luxury Tax \nThe amount we pay an individual player is typically determined by negotiation between the player (typically represented by an agent) and us, and is generally influenced by the player\u2019s past performance, the amounts paid to players with comparable past performance by other sports teams, the NBA luxury tax and restrictions in the CBAs, including the salary floors and caps. The leagues\u2019 CBAs typically contain restrictions on when players may move between league clubs following expiration of their contracts and what rights their current and former clubs have.\nNBA CBA.\n On April 26, 2023, the NBA and the National Basketball Players Association (\u201cNBPA\u201d) announced that a new seven-year CBA had been ratified by the NBA Board of Governors and the NBA players. The new NBA CBA expires after the 2029-30 season, but each of the NBA and the NBPA has the right to terminate the CBA effective following the 2028-29 season. The new CBA includes certain changes to certain league rules and regulations, including revised luxury tax rates which will become effective with the 2025-26 season.\nThe NBA CBA contains a salary floor (i.e., a floor on each team\u2019s aggregate player salaries with a requirement that the team pay any deficiency to the players on its roster) and a \u201csoft\u201d salary cap (i.e., a cap on each team\u2019s aggregate player salaries but with certain exceptions that enable teams to pay players more, sometimes substantially more, than the cap).\nNBA Luxury Tax.\n Amounts in this paragraph are in thousands, except for luxury tax rates. The NBA CBA generally provides for a luxury tax that is applicable to all teams with aggregate player salaries exceeding a threshold that is set prior to each season based upon projected league-wide revenues (as defined under the NBA CBA). The luxury tax rates for teams with aggregate player salaries above such threshold start at $1.50 for each $1.00 of team salary above the threshold up to $5,000 and scale up to $3.25 for each $1.00 of team salary that is from $15,000 to $20,000 over the threshold, and an additional tax rate increment of $0.50 applies for each additional $5,000 (or part thereof) of team salary in excess of $20,000 over the threshold. In addition, for teams that are taxpayers in at least three of four previous seasons, the above tax rates are increased by $1.00 for each increment. Fifty percent of the aggregate luxury tax payments is a funding source for the revenue sharing plan (described below) and the remaining 50% of such payments is distributed in equal shares to non-taxpaying teams. For the 2022-23 and 2021-22 seasons, the Knicks were not a luxury tax payer and we recorded approximately $15,074 and $10,457, respectively, of luxury tax proceeds from tax-paying teams. Tax obligations for years beyond the 2022-23 season will be subject to contractual player payroll obligations and corresponding NBA luxury tax thresholds. The Company recognizes the estimated amount associated with luxury tax expense or the amount it expects to receive as a non-tax paying team, if applicable, on a straight-line basis over the NBA regular season as a component of direct operating expenses. The revised luxury tax rates will become effective with the 2025-26 season.\nNBA Escrow System/Revenue Sharing\n. The NBA CBA also provides that players collectively receive a designated percentage of league-wide revenues (net of certain direct expenses) as compensation (approximately 49% to 51%), and the teams retain the remainder. The percentage of league-wide revenues paid as compensation and retained by the teams does not apply evenly across all teams and, accordingly, the Company may pay its players a higher or lower percentage of the Knicks\u2019 revenues than other NBA teams. \nDuring the 2020-21 season a new \u201cTen-and-Spread\u201d escrow system was put in place. Under the Ten-and-Spread system, based upon league-wide revenues, aggregate player compensation will be reduced by up to 10% of each player\u2019s salary. If, for a particular season, compensation reductions in excess of 10% are needed, the excess will be divided by three and recouped via reductions to players\u2019 compensation over the same season, and the subsequent two seasons. The reduction of players\u2019 salary for any one season is capped at 20% and carried over to the subsequent season as additional compensation reductions. Each team is entitled to receive an equal one-thirtieth share of the compensation reductions up to 10% and the excess above 10% is allocated in proportion to each team\u2019s player payroll. This system was in place until the new CBA took effect on July 1, 2023.\nThe NBA also has a revenue sharing plan that generally requires the distribution of a pool of funds to teams with below-average net revenues (as defined in the plan), subject to reduction or elimination based on individual team market size and profitability. The plan is funded by a combination of disproportionate contributions from teams with above-average net revenues, subject to certain profit-based limits (each as defined in the plan); 50% of aggregate league-wide luxury tax proceeds (see above); and collective league sources, if necessary. Additional amounts may also be distributed on a discretionary basis, funded by assessments on playoff ticket revenues and through collective league sources and are recorded as revenues from league distributions.\nOur net provisions for revenue sharing, net of escrow, for the year ended June\u00a030, 2023 was approximately $21,458. The actual amounts for the 2022-23 season may vary significantly from the recorded provision based on actual operating results for the league and all NBA teams for the season and other factors.\nNHL CBA.\n The current NHL CBA expires after the 2025-26 season (with the possibility of a one-year extension in certain circumstances). The NHL CBA provides for a salary floor (i.e., a floor on each team\u2019s aggregate player salaries) and a \u201chard\u201d salary cap (i.e., teams may not exceed a stated maximum, which is adjusted each season based upon league-wide revenues).\n29\nTable of Contents\nNHL Escrow System/Revenue Sharing.\n The NHL CBA provides that each season the players receive as player compensation 50% of that season\u2019s league-wide revenues. Because the aggregate amount to be paid to the players is based upon league-wide revenues and not on a team-by-team basis, the Company may pay its players a higher or lower percentage of the Rangers\u2019 revenues than other NHL teams pay of their own revenues. In order to implement the escrow system, NHL teams withhold a portion of each player\u2019s salary and contribute the withheld amounts to an escrow account\n.\n If the league\u2019s aggregate player compensation for a season exceeds the designated percentage (50%)\u00a0of that season\u2019s league-wide revenues, the excess is retained by the league. Any such excess funds are distributed to all teams. In addition, the NHL CBA limits the amount of deductions to be withheld from player salaries each year. If annual escrow deductions from player salaries are insufficient to limit league-wide player salaries to 50% of that season\u2019s league-wide revenues, any shortfall will be carried forward to future seasons and remain due from the players to the league.\nThe NHL CBA also provides for a revenue sharing plan. The plan generally requires the distribution of a pool of funds approximating 6.055% of league-wide revenues to certain qualifying lower-revenue teams and is funded as follows: (a)\u00a050% from contributions by the top ten revenue earning teams (based on preseason and regular season revenues, net of arena costs) in accordance with a formula; (b)\u00a0then from payments by teams participating in the playoffs, with each team contributing 35% of its gate receipts for each home playoff game (although this provision was waived for the 2020-21 season); and (c)\u00a0the remainder from centrally-generated NHL sources\n. \nOur net provisions for revenue sharing, net of escrow, for the year ended June\u00a030, 2023 was approximately $41,075. The actual amounts for the 2022-23 season may vary significantly from the recorded provision based on actual operating results for the league and all NHL teams for the season and other factors.\nOther Team Operating Expenses\nOur teams also pay expenses associated with day-to-day operations, including for travel, equipment maintenance and player insurance. Direct variable day-of-event costs incurred at The Garden, such as the costs of front-of-house and back-of-house staff, including electricians, laborers, box office staff, ushers, security, and event production, are charged to the Company.\nIn addition, our team operating expenses include operating costs of the Company\u2019s training center in Greenburgh, NY. The operation of the Hartford Wolf Pack is reported as a net Rangers player development expense.\nAs members of the NBA and NHL, the Knicks and the Rangers, respectively, are also subject to league assessments. The governing bodies of each league determine the amount of each season\u2019s league assessments that are required from each member team. The NBA imposes on each team a 6% assessment on regular season ticket revenue.\nWe also incur costs associated with VIP amenities provided to certain ticket holders.\nOther Expenses\nOther expenses primarily include Selling, general and administrative (\u201cSG&A\u201d) expenses that consist of administrative costs, including compensation, professional fees, and costs related to the Company\u2019s services agreement with MSGE Entertainment, as well as sales and marketing costs, including fees related to the Company\u2019s sponsorship sales and service representation agreements with MSG Entertainment.\nFactors Affecting Operating Results \nGeneral\nOur operating results are largely dependent on the continued popularity and/or on-court or on-ice competitiveness of our Knicks and Rangers teams, which have a direct effect on ticket sales for the teams\u2019 home games and are each team\u2019s largest single source of revenue. As with other sports teams, the competitive positions of our sports teams depend primarily on our ability to develop, obtain and retain talented players, for which we compete with other professional sports teams. A significant factor in our ability to attract and retain talented players is player compensation. The Company\u2019s operating results reflect the impact of high costs for player salaries (including NBA luxury tax, if any) and salaries of non-player team personnel\n.\n In addition, we have incurred significant charges for costs associated with transactions relating to players on our sports teams for season-ending and career-ending injuries and for trades, waivers and contract terminations of players and other team personnel, including team executives\n. \nWaiver and termination costs reflect our efforts to improve the competitiveness of our sports teams\n.\n These transactions can result in significant charges as the Company recognizes the estimated ultimate costs of these events in the period in which they occur, although amounts due to these individuals are generally paid over their remaining contract terms\n.\n For example, the expense for these items was $4,412, and $737 for fiscal years 2023 and 2022, respectively\n.\n These expenses add to the volatility of our operating results\n.\n We expect to continue to pursue opportunities to improve the overall quality of our sports teams and our efforts may result in continued significant expenses and charges\n.\n Such expenses and charges may result in future operating losses although it is not possible to predict their timing or amount. Our performance has been, and may in the future be, impacted by work stoppages. See \u201cPart I \u2014 Item\u00a01A. Risk Factors \u2014 Economic and Business Relationship Risks \u2014\nLabor Matters May Have a Material Negative Effect on Our Business and Results of Operations\n.\u201d\n30\nTable of Contents\nIn addition to our future performance being dependent upon the continued popularity and/or on-court or on-ice competitiveness of our Knicks and Rangers teams, it is also dependent on general economic conditions, in particular those in the New York City metropolitan area, and the effect of these conditions on our customers. An economic downturn could adversely affect our business and results of operations as it may lead to lower demand for suite licenses and tickets to the games of our sports teams, which would also negatively affect merchandise and concession sales, as well as decrease levels of sponsorship and venue signage revenues. In addition, remote and/or hybrid in-office work arrangements in the New York City metropolitan area resulting from COVID-19 or another pandemic or public health emergency could result in reduced attendance at Knicks and Rangers games.\nImpact of COVID-19 on Our Business \nDuring fiscal years 2020 and 2021, COVID-19 disruptions materially impacted the Company\u2019s revenues and the Company recognized materially less revenues, or in some cases, no revenues, across a number of areas. \nIn fiscal year 2022, the Company\u2019s operations and operating results were also impacted by temporary declines in attendance due to ongoing reduced tourism levels as well as an increase in COVID-19 cases during certain months of the fiscal year. \nIt is unclear to what extent COVID-19, including variants thereof, or another pandemic or public health emergency, could result in renewed governmental and/or league restrictions on attendance or otherwise impact attendance of games at The Garden, demand for our sponsorship, tickets and other premium inventory or otherwise impact the Company\u2019s operations and operating results. Any such impacts could materially adversely impact our business and results of operations.\nSee \u201cItem 1A. Risk Factors \u2014 Sports Business Risks \u2014 \nOur Operations and Operating Results Were Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response, and a Resurgence of the Pandemic or Another Pandemic or Public Health Emergency Could Adversely Affect Our Business and Results of Operations.\u201d\n31\nTable of Contents\nResults of Operations\nComparison of the Year Ended June\u00a030, 2023 versus the Year Ended June\u00a030, 2022\nThe table below sets forth, for the periods presented, certain historical financial information.\n\u00a0 \nYears Ended June 30,\nChange\n2023\n2022\nAmount\nPercentage\nRevenues\n$\n887,447\u00a0\n$\n821,354\u00a0\n$\n66,093\u00a0\n8\u00a0\n%\nDirect operating expenses\n548,811\u00a0\n500,564\u00a0\n48,247\u00a0\n10\u00a0\n%\nSelling, general and administrative expenses\n249,885\u00a0\n229,668\u00a0\n20,217\u00a0\n9\u00a0\n%\nDepreciation and amortization \n3,577\u00a0\n5,042\u00a0\n(1,465)\n(29)\n%\nOperating income\n85,174\u00a0\n86,080\u00a0\n(906)\n(1)\n%\nOther income (expense):\nInterest expense, net\n(20,492)\n(11,422)\n(9,070)\n(79)\n%\nMiscellaneous income (expense), net\n25,239\u00a0\n(726)\n25,965\u00a0\nNM\nIncome before income taxes\n89,921\u00a0\n73,932\u00a0\n15,989\u00a0\n22\u00a0\n%\nIncome tax expense\n(44,293)\n(25,052)\n(19,241)\n(77)\n%\nNet income\n45,628\u00a0\n48,880\u00a0\n(3,252)\n(7)\n%\nLess: Net loss attributable to nonredeemable noncontrolling interests\n(2,165)\n(2,251)\n86\u00a0\n4\u00a0\n%\nNet income attributable to Madison Square Garden Sports Corp.\u2019s stockholders\n$\n47,793\u00a0\n$\n51,131\u00a0\n$\n(3,338)\n(7)\n%\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nNM \u2014 Percentage is not meaningful\nRevenues\nRevenues for the year ended June\u00a030, 2023 increased $66,093, or 8%, to $887,447 as compared to the prior year. The net increase is attributable to the following:\nIncrease in pre/regular season ticket-related revenues\n$\n33,335\u00a0\nIncrease in suite revenues\n15,237\u00a0\nIncrease in sponsorship and signage revenues\n9,545\u00a0\nIncrease in revenues from local media rights fees\n9,303\u00a0\nIncrease in pre/regular season food, beverage and merchandise sales\n6,086\u00a0\nDecrease in playoff related revenues\n(8,625)\nDecrease in revenues from league distributions\n(211)\nOther net increases\n1,423\u00a0\n$\n66,093\u00a0\nThe increase in pre/regular season ticket-related revenues was primarily due to higher average per-game revenue.\nThe increase in suite revenues was primarily due to higher net sales of suite products.\nThe increase in sponsorship and signage revenues was primarily due to higher net sales of existing sponsorship and signage inventory and sales of new sponsorship and signage inventory. \nThe increase in revenues from local media rights fees was primarily due to contractual rate increases.\nThe increase in pre/regular season food, beverage and merchandise sales was primarily due to higher average Knicks and Rangers per-game revenue and higher online sales of merchandise.\n32\nTable of Contents\nThe decrease in playoff related revenues was primarily due to the Rangers playing fewer home playoff games at The Garden as compared to the prior year. The Rangers played ten home playoff games at The Garden in the prior year as the team advanced to the Eastern Conference Finals, resulting in higher per-game revenue in the prior year, as compared to three home playoff games during the current year. This decrease was partially offset by the Knicks playing five home playoff games at The Garden in the current year as the team advanced to the second round of the playoffs as compared to not qualifying for the playoffs in the prior year. \nThe decrease in revenues from league distributions was primarily due to lower other league distributions, partially offset by increased national media rights fees in the current year. \nDirect operating expenses\nDirect operating expenses generally include:\n\u2022\ncompensation expense for our sports teams\u2019 players and certain other team personnel;\n\u2022\narena license fees recognized as operating lease costs associated with the Knicks and the Rangers playing home games at The Garden;\n\u2022\ncost of team personnel transactions for waivers/contract termination costs, trades, and season-ending player injuries (net of anticipated insurance recoveries) of players and other team personnel;\n\u2022\nNBA and NHL revenue sharing (net of escrow and excluding playoffs) and NBA luxury tax receipts; \n\u2022\nOther team operating expenses including variable day-of-event costs, operating costs of the Company\u2019s training center, and league assessments; and\n\u2022\nthe cost of merchandise sales.\nDirect operating expenses for the year ended June\u00a030, 2023 increased $48,247, or 10%, to $548,811 as compared to the prior year. The net increase is attributable to the following:\nIncrease in team personnel compensation\n$\n56,040\u00a0\nIncrease in other team operating expenses\n8,260\u00a0\nIncrease in pre/regular season expense associated with merchandise sales\n3,743\u00a0\nIncrease in net provisions for certain team personnel transactions\n2,085\u00a0\nDecrease in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax\n(21,340)\nDecrease in playoff related expenses\n(541)\n$\n48,247\u00a0\nThe increase in team personnel compensation was primarily due to the impact of roster changes for the Knicks and the Rangers.\nThe increase in other team operating expenses was primarily a result of higher average per-game expenses. Other team operating expenses primarily consists of league assessments and expenses associated with day-to-day operations, including variable day-of-event costs incurred at The Garden, team travel and player insurance.\nThe increase in pre/regular season expense associated with merchandise sales was primarily related to higher merchandise sales as a result of higher average Knicks and Rangers per-game revenue and higher online sales of merchandise.\n33\nTable of Contents\nNet provisions for certain team personnel transactions were as follows:\nYears Ended June 30,\nIncrease (Decrease)\n2023\n2022\nWaivers/contract terminations\n$\n3,269\u00a0\n$\n731\u00a0\n$\n2,538\u00a0\nPlayer trades\n1,143\u00a0\n(1,066)\n2,209\u00a0\nSeason-ending player injuries\n\u2014\u00a0\n2,662\u00a0\n(2,662)\nNet provisions for certain team personnel transactions\n$\n4,412\u00a0\n$\n2,327\u00a0\n$\n2,085\u00a0\nNet provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax were as follows:\nYears Ended June 30,\nDecrease\n2023\n2022\nNet provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax\n$\n36,503\u00a0\n$\n57,843\u00a0\n$\n(21,340)\nThe decrease in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax was primarily due to (i) lower provisions for league revenue sharing expense (net of escrow and excluding playoffs) of $12,642, (ii) higher recoveries of NBA luxury tax in the current year, and (iii) the net impact of adjustments to prior seasons\u2019 revenue sharing expense (net of escrow and excluding playoffs).\nThe Knicks were not a luxury tax payer for the 2021-22 or 2022-23 seasons and, therefore, received an equal share of the portion of luxury tax receipts that were distributed to non-tax paying teams.\nThe actual amounts for the 2022-23 seasons may vary significantly from the recorded provisions based on actual operating results for each league and all teams within each league for the season and other factors.\nSelling, general and administrative expenses\nSelling, general and administrative expenses primarily consist of (i) administrative costs, including compensation, professional fees and costs under the Company\u2019s services agreement with MSG Entertainment, (ii) fees related to the Company\u2019s sponsorship sales and service representation agreements, and (iii) sales and marketing costs. Selling, general and administrative expenses generally do not fluctuate in line with changes in the Company\u2019s revenues and direct operating expenses.\nSelling, general and administrative expenses for the year ended June\u00a030, 2023 increased $20,217, or 9%, to $249,885 as compared to the prior year primarily due to (i) higher employee compensation and related benefits of $10,195, including the net impact of executive management transition costs, (ii) an increase in sales and marketing costs of $5,205, (iii) an increase in professional fees of $2,133, and (iv) higher fees related to the Company\u2019s sponsorship sales and service representation agreements with MSG Entertainment of $1,451, partially offset by lower costs related to the Company\u2019s services agreement with MSG Entertainment of $2,324.\nDepreciation and amortization\nDepreciation and amortization for the year ended June\u00a030, 2023 decreased $1,465, or 29%, to $3,577 as compared to the prior year.\nOperating income\nFor the year ended June\u00a030, 2023, operating income decreased $906, or 1%, to $85,174 as compared to the prior year. The decrease in operating income was primarily due to higher direct operating expenses and selling, general and administrative expenses, partially offset by higher revenues and to a lesser extent, lower depreciation and amortization. \nInterest expense, net\nNet interest expense increased $9,070, or 79%, to $20,492 as compared to the prior year. The increase was primarily due to higher average interest rates in the current year causing increased interest expense under the Knicks and the Rangers revolving credit facilities. The increase was partially offset by (i) higher interest income due to increased interest rates in the current year, (ii) lower average borrowings under the Rangers revolving credit facility in the current year as compared to the prior year, and (iii) the acceleration of previously incurred financing costs that were recognized in the prior year as a result of the Company terminating the 2020 Knicks Holdings Revolving Credit Facility.\n34\nTable of Contents\nMiscellaneous income (expense), net\nMiscellaneous income (expense), improved $25,965 as compared to the prior year. The improvement was primarily due to the recognition of unrealized gains related to the Company\u2019s investments in Xtract One common stock and warrants in the current year.\nIncome taxes\n \nIncome tax expense for the year ended June\u00a030, 2023 of $44,293 differs from the income tax expense derived from applying the statutory federal rate of 21% to pretax income primarily due to state and local tax expense of $15,066, nondeductible officers\u2019 compensation of $5,238, a change in the estimated tax rate used to determine deferred taxes of $1,788, and nondeductible disability insurance premiums expense of $1,227.\nIncome tax expense for the year ended June\u00a030, 2022 of $25,052 differs from the income tax expense derived from applying the statutory federal rate of 21% to pretax income primarily due to state and local tax expense of $8,763 and nondeductible officers\u2019 compensation of $5,156, partially offset by a change in the estimated tax rate used to determine deferred taxes of $3,191 and return to provision adjustments of $2,476.\nSee Note 18 to the consolidated financial statements included in Item\u00a08 of this Annual Report on Form 10-K for further details on the components of income tax and a reconciliation of the statutory federal rate to the effective tax rate.\nAdjusted operating income\nThe Company has amended the definition of adjusted operating income so that the impact of the non-cash portion of operating lease costs related to the Company\u2019s Arena License Agreements with MSG Entertainment is no longer excluded in all periods presented.\nThe Company evaluates performance based on several factors, of which the key financial measure is operating income (loss) excluding (i) depreciation, amortization and impairments of property and equipment, goodwill and other intangible assets, (ii) share-based compensation expense or benefit, (iii) restructuring charges or credits, (iv) gains or losses on sales or dispositions of businesses, (v) the impact of purchase accounting adjustments related to business acquisitions, and (vi) gains and losses related to the remeasurement of liabilities under the Company\u2019s Executive Deferred Compensation Plan, which is referred to as adjusted operating income (loss), a non-GAAP measure.\nManagement believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company\u2019s business without regard to the settlement of an obligation that is not expected to be made in cash. In addition, management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the Company\u2019s Executive Deferred Compensation Plan provides investors with a clearer picture of the Company\u2019s operating performance given that, in accordance with generally accepted accounting principles (\u201cGAAP\u201d), gains and losses related to the remeasurement of liabilities under the Company\u2019s Executive Deferred Compensation Plan are recognized in Operating income (loss) whereas gains and losses related to the remeasurement of the assets under the Company\u2019s Executive Deferred Compensation Plan, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Miscellaneous income (expense), net, which is not reflected in Operating income (loss).\nThe Company believes adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of the Company. Adjusted operating income (loss) and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company\u2019s performance. The Company uses revenues and adjusted operating income (loss) measures as the most important indicators of its business performance and evaluates management\u2019s effectiveness with specific reference to these indicators.\nAdjusted operating income (loss) should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows provided by (used in) operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. Since adjusted operating income (loss) is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to adjusted operating income (loss).\n35\nTable of Contents\nThe following is a reconciliation of operating income to adjusted operating income: \n\u00a0\nYears Ended June 30,\n2023\n2022\nChange\nPercentage\nOperating income\n$\n85,174\u00a0\n$\n86,080\u00a0\n$\n(906)\n(1)\n%\nDepreciation and amortization\n3,577\u00a0\n5,042\u00a0\nShare-based compensation\n25,203\u00a0\n24,245\u00a0\nRemeasurement of deferred compensation plan liabilities\n1,091\u00a0\n(461)\nAdjusted operating income\n(a)\n$\n115,045\u00a0\n$\n114,906\u00a0\n$\n139\u00a0\nNM\n_________________\n(a)\nThe Company has amended the definition of adjusted operating income so that the impact of the non-cash portion of operating lease costs related to the Company\u2019s Arena License Agreements with MSG Entertainment is no longer excluded. Pursuant to GAAP, recognition of operating lease costs is recorded on a straight-line basis over the term of the agreement based upon the value of total future payments under the arrangement. As a result, operating lease costs is comprised of a contractual cash component plus or minus a non-cash component for each period presented. Adjusted operating income includes operating lease costs of (i) $41,524 and $40,314 of expense paid in cash for the years ended June\u00a030, 2023 and 2022, respectively, and (ii) a non-cash expense of $26,096 and $27,305, for the years ended June\u00a030, 2023 and 2022, respectively.\nFor the year ended June\u00a030, 2023, adjusted operating income increased $139 to $115,045 as compared to the prior year. The increase in adjusted operating income was primarily due to higher revenues, offset by higher direct operating expenses and selling, general and administrative expenses.\n36\nTable of Contents\nLiquidity and Capital Resources \nOverview\nOur primary sources of liquidity are cash and cash equivalents, cash flow from operations and available borrowing capacity under our credit facilities. See Note 13 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a discussion of the 2021 Knicks Credit Agreement, 2021 Rangers Credit Agreement, and 2021 Rangers NHL Advance Agreement (each as defined therein).\nOur principal uses of cash include the operation of our businesses, working capital-related items, the repayment of outstanding debt, repurchases of shares of the Company\u2019s Class A Common Stock, including $75,000 under the ASR (as defined below), dividends, if declared, and investments.\nAs of June 30, 2023, we had $40,398 in Cash and cash equivalents. In addition, as of\u00a0June 30, 2023, the Company\u2019s deferred revenue obligations were $147,561, net of billed, but not yet collected deferred revenue.\u00a0The current portion of this balance is primarily comprised of obligations in connection with tickets and suites. In addition, the Company\u2019s deferred revenue obligations included $24,833 from the NBA which the league provided to each team.\nWe regularly monitor and assess our ability to meet our net funding and investing requirements. The decisions of the Company as to the use of its available liquidity will be based upon the ongoing review of the funding needs of the business, management\u2019s view of a favorable allocation of cash resources, and the timing of cash flow generation. To the extent the Company desires to access alternative sources of funding through the capital and credit markets, restrictions imposed by the NBA and NHL and challenging U.S. and global economic and market conditions could adversely impact its ability to do so at that time.\nWe believe we have sufficient liquidity, including approximately $40,398 in Cash and cash equivalents as of June\u00a030, 2023, along with $230,000 of additional available borrowing capacity under existing credit facilities, to fund our operations and satisfy any obligations, for the foreseeable future. In addition, on July 10, 2023, the Company borrowed an additional $25,000 under the 2021 Knicks Revolving Credit Facility.\nFinancing Agreements and Stock Repurchases\nSee Note 13 and Note 16 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for discussions of the Company\u2019s debt obligations and various financing agreements, and the Company\u2019s stock repurchases, respectively.\nSpecial Dividend and Accelerated Share Repurchase \nOn October 6, 2022, the Company announced that its Board of Directors declared a one-time cash dividend of $7.00 per share (the \u201cSpecial Dividend\u201d), which was paid on October 31, 2022 to stockholders of record as of October 17, 2022. \nDuring the year ended \nJune\u00a030, 2023\n, the Company made payments of $170,923 related to the Special Dividend.\nOn October 6, 2022, the Company\u2019s Board of Directors authorized a $75,000 accelerated share repurchase (\u201cASR\u201d) program under the Company\u2019s existing share repurchase authorization. On October 28, 2022, the Company entered into a $75,000 ASR agreement with JPMorgan Chase\n Bank, National Association (\u201cJP Morgan\u201d). Pursuant to the ASR agreement, the Company made a payment of $75,000 to JP Morgan and JP Morgan delivered 388,777 initial shares of Class A Common Stock to the Company on November 1, 2022, representing 80% of the total shares expected to be repurchased under the ASR (determined based on the closing price of the Company\u2019s Class A Common Stock of $154.33 on October 28, 2022). The ASR was completed on January 31, 2023, with JP Morgan delivering 67,681 additional shares of Class A Common Stock to the Company upon final settlement. The average purchase price per share for shares of Class A Common Stock purchased by the Company pursuant to the ASR was $164.31.\n37\nTable of Contents\nCash Flow Discussion \nThe following table summarizes the Company\u2019s cash flow activities for the years ended June\u00a030, 2023 and 2022:\nYears Ended June 30,\n2023\n2022\nNet income\n$\n45,628\u00a0\n$\n48,880\u00a0\nAdjustments to reconcile net income to net cash provided by operating activities\n20,571\u00a0\n56,061\u00a0\nChanges in working capital assets and liabilities\n86,274\u00a0\n73,115\u00a0\nNet cash provided by operating activities\n$\n152,473\u00a0\n$\n178,056\u00a0\nNet cash used in investing activities\n(17,759)\n(2,932)\nNet cash used in financing activities\n(185,273)\n(156,142)\nNet (decrease) increase in cash, cash equivalents and restricted cash\n$\n(50,559)\n$\n18,982\u00a0\nOperating Activities\nNet cash provided by operating activities for the year ended June\u00a030, 2023 decreased by $25,583 to $152,473 as compared to the prior year. The decrease was primarily due to the decrease in net income adjusted for non-cash items, partially offset by the impact of changes in working capital assets and liabilities. The changes in working capital assets and liabilities were primarily driven by (i) lower Net related party receivables of $32,618, due to the timing of collections related to the Company\u2019s Arena License Agreements, (ii) increased accrued and other liabilities of $28,806, primarily due to the timing of payments and recognition for compensation and (iii) an increase in deferred revenue of $6,818 primarily due to higher collections of ticket sales. These changes are partially offset by (i) increased Accounts receivable, net of $20,981 primarily due to collections of league related receivables, including escrow and player compensation recoveries, luxury tax, and league distributions related to prior NBA and NHL seasons in the prior year, (ii) lower Net related party payables of $16,434 due to the timing of payments related to the Company\u2019s services agreement and employee matters agreements, (iii) lower Accounts payable of $11,028 due to the timing of payments and (iv) increased payments for Investments of $7,382 related to the Company\u2019s Executive Deferred Compensation Plan.\nInvesting Activities\nNet cash used in investing activities for the year ended June\u00a030, 2023 increased by $14,827 to $17,759 as compared to the prior year primarily due to higher purchases of investments in the current year and to a lesser extent, cash balances disposed of as part of the sale of CLG in the current year. \nFinancing Activities\nNet cash used in financing activities for the year ended June\u00a030, 2023 increased by $29,131 to $185,273 as compared to the prior year primarily due to the payment of the Special Dividend and the ASR in the current year, partially offset by additional net borrowings under the 2021 Knicks Revolving Credit Facility and the 2021 Rangers Revolving Credit Facility in the current year as compared to the prior year.\n38\nTable of Contents\nContractual Obligations and Off Balance Sheet Arrangements\nFuture cash payments required under contracts entered into by the Company in the normal course of business as of June\u00a030, 2023 are summarized in the following table:\n\u00a0\nPayments Due by Period\n\u00a0\nTotal\u00a0\u00a0\u00a0\u00a0\nYear\u00a0\u00a0\u00a0\u00a0\n1\nYears\u00a0\u00a0\u00a0\u00a0\n2-3\nYears\u00a0\u00a0\u00a0\u00a0\n4-5\nMore\u00a0Than\n5 Years\nOff balance sheet arrangements \n(a)\n$\n671,385\u00a0\n$\n200,561\u00a0\n$\n341,220\u00a0\n$\n97,690\u00a0\n$\n31,914\u00a0\nContractual obligations reflected on\u00a0the\u00a0balance sheet:\nShort-term debt \n(b)\n30,000\u00a0\n30,000\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\nLeases \n(c)\n2,306,023\u00a0\n51,577\u00a0\n103,836\u00a0\n108,435\u00a0\n2,042,175\u00a0\nLong-term debt \n(d)\n295,000\u00a0\n\u2014\u00a0\n\u2014\u00a0\n295,000\u00a0\n\u2014\u00a0\nContractual obligations  \n(e) \n126,341\u00a0\n104,683\u00a0\n9,135\u00a0\n4,984\u00a0\n7,539\u00a0\n2,757,364\u00a0\n186,260\u00a0\n112,971\u00a0\n408,419\u00a0\n2,049,714\u00a0\nTotal \n(f)\n$\n3,428,749\u00a0\n$\n386,821\u00a0\n$\n454,191\u00a0\n$\n506,109\u00a0\n$\n2,081,628\u00a0\n_________________\n(a)\nContractual obligations not reflected on the balance sheet consist principally of\u00a0the Company\u2019s obligations under employment agreements that the Company has with certain of its professional sports teams\u2019 personnel where services are to be performed in future periods and that are generally guaranteed regardless of employee injury or termination.\n(b)\nConsists of amounts under the 2021 Rangers NHL Advance Agreement. See Note 13 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details. \n(c)\nIncludes contractually obligated minimum license fees under the Arena License Agreement, which fees are characterized as lease payments for operating leases having an initial noncancelable term in excess of one year under GAAP. These commitments are presented exclusive of the imputed interest used to reflect the payment\u2019s present value. See Note 7 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for information on the contractual obligations related to future lease payments, which are reflected on the consolidated balance sheet as lease liabilities as of June\u00a030, 2023.\n(d)\nConsists of amounts drawn under the 2021 Knicks Revolving Credit Facility and 2021 Rangers Revolving Credit Facility. See Note 13 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details. \n(e)\nContractual obligations reflected on the balance sheet consist principally of the Company\u2019s obligations under employment agreements that the Company has with certain of its professional sports teams\u2019 personnel where services have been fully performed and that are being paid on a deferred basis.\n(f)\nPension obligations have been excluded from the table above as the timing of the future cash payments is uncertain. See\n \nNote 14 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information on the Company\u2019s pension obligations. \nSeasonality of Our Business\nThe Company\u2019s dependence on revenues from its NBA and NHL sports teams generally means that it earns a disproportionate share of its revenues in the second and third quarters of the Company\u2019s fiscal year, which is when the majority of the teams\u2019 games are played.\nRecently Issued Accounting Pronouncements and Critical Accounting Policies \nRecently Issued Accounting Pronouncements\nSee Note 2 to the consolidated financial statements included in Item\u00a08 of this Annual Report on Form 10-K for discussion of recently issued accounting pronouncements.\n39\nTable of Contents\nCritical Accounting Policies \nThe preparation of the Company\u2019s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Management believes its use of estimates in the consolidated financial statements to be reasonable. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:\nArrangements with Multiple Performance Obligations\nThe Company has contracts with customers, including multi-year sponsorship agreements, that contain multiple performance obligations. Payment terms for such arrangements can vary by contract, but payments are generally due in installments throughout the contractual term. The performance obligations included in each sponsorship agreement vary and may include various advertising benefits such as, but not limited to, signage, digital advertising, and event or property specific advertising, as well as non-advertising benefits such as suite licenses and event tickets. To the extent the Company\u2019s multi-year arrangements provide for performance obligations that are consistent over the multi-year contractual term, such performance obligations generally meet the definition of a series as provided for under the accounting guidance. If performance obligations meet the definition of a series, the contractual fees for all years during the contract term are aggregated and the related revenue is recognized proportionately as the underlying performance obligations are satisfied. \nThe timing of revenue recognition for each performance obligation is dependent upon the facts and circumstances surrounding the Company\u2019s satisfaction of its respective performance obligation. The Company allocates the transaction price for such arrangements to each performance obligation within the arrangement based on the estimated relative standalone selling price of the performance obligation. The Company\u2019s process for determining its estimated standalone selling prices involves management\u2019s judgment and considers multiple factors including company specific and market specific factors that may vary depending upon the unique facts and circumstances related to each performance obligation. Key factors considered by the Company in developing an estimated standalone selling price for its performance obligations include, but are not limited to, prices charged for similar performance obligations, the Company\u2019s ongoing pricing strategy and policies, and consideration of pricing of similar performance obligations sold in other arrangements with multiple performance obligations.\nThe Company may incur costs such as commissions to obtain its multi-year sponsorship agreements. The Company assesses such costs for capitalization on a contract by contract basis. To the extent costs are capitalized, the Company estimates the useful life of the related contract asset which may be the underlying contract term or the estimated customer life depending on the facts and circumstances surrounding the contract. The contract asset is amortized over the estimated useful life.  \nImpairment of Long-Lived and Indefinite-Lived Assets\nThe Company\u2019s long-lived and indefinite-lived assets accounted for approximately 27% of the Company\u2019s consolidated total assets as of June\u00a030, 2023 and consisted of the following:\nGoodwill\n$\n226,523\u00a0\nIndefinite-lived intangible assets\n103,644\u00a0\nProperty and equipment, net\n30,501\u00a0\n$\n360,668\u00a0\nIn assessing the recoverability of the Company\u2019s long-lived and indefinite-lived assets, the Company must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and also the magnitude of any such charge. Fair value estimates are made at a specific point in time, based on relevant information. These estimates are subjective in nature and involve significant uncertainties and judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. If these estimates or material related assumptions change in the future, the Company may be required to record impairment charges related to its long-lived and/or indefinite-lived assets.\nGoodwill\nGoodwill is tested annually for impairment as of August\u00a031\nst\n and at any time upon the occurrence of certain events or changes in circumstances. The Company performs its goodwill impairment test at the reporting unit level, which is the same as or one level below the operating segment level. The Company has one operating and reportable segment, and for the year ended June\u00a030, 2023, the Company had one reporting unit for goodwill impairment testing purposes.\nThe Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would not need to perform a quantitative impairment test for that reporting unit. If the \n40\nTable of Contents\nCompany cannot support such a conclusion or the Company does not elect to perform the qualitative assessment, the first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The estimates of the fair value of the Company\u2019s reporting units are primarily determined using discounted cash flows and comparable market transactions. These valuations are based on estimates and assumptions including projected future cash flows, discount rates, determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables. Significant judgments inherent in a discounted cash flow analysis include the selection of the appropriate discount rate, the estimate of the amount and timing of projected future cash flows and identification of appropriate continuing growth rate assumptions. The discount rates used in the analysis are intended to reflect the risk inherent in the projected future cash flows. The amount of an impairment loss is measured as the amount by which a reporting unit\u2019s carrying value exceeds its fair value determined in step one, not to exceed the carrying amount of goodwill. The second step of the goodwill impairment test compared the implied fair value of the reporting unit\u2019s goodwill with the carrying amount of that goodwill.\u00a0If the carrying amount of the reporting unit\u2019s goodwill exceeded the implied fair value of that goodwill, an impairment loss was recognized in an amount equal to that excess.\u00a0The implied fair value of goodwill was determined in the same manner as the amount of goodwill that would be recognized in a business combination.\u00a0\nThe Company elected to perform the qualitative assessment of impairment for the Company\u2019s reporting unit for the fiscal year 2023 impairment test. These assessments considered factors such as:\n\u2022\nmacroeconomic conditions;\n\u2022\nindustry and market considerations;\n\u2022\nmarket capitalization; \n\u2022\ncost factors;\n\u2022\noverall financial performance of the reporting unit;\n\u2022\nother relevant company-specific factors such as changes in management, strategy or customers; and\n\u2022\nrelevant reporting unit specific events such as changes in the carrying amount of net assets.\nThe Company performed its most recent annual impairment test of goodwill during the first quarter of fiscal year 2023, and there was no impairment of goodwill. Based on this impairment test, the Company concluded it was not more likely than not that the fair value of the reporting unit was less than its carrying amount.\nIdentifiable Indefinite-Lived Intangible Assets\nIdentifiable indefinite-lived intangible assets are tested annually for impairment as of August\u00a031\nst\n and at any time upon the occurrence of certain events or substantive changes in circumstances. The following table sets forth the amount of identifiable indefinite-lived intangible assets reported in the Company\u2019s consolidated balance sheet as of June\u00a030, 2023:\n\u00a0\nSports franchises\n$\n102,564\u00a0\nPhotographic related rights\n1,080\u00a0\n$\n103,644\u00a0\nThe Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. In the qualitative assessment, the Company must evaluate the totality of qualitative factors, including any recent fair value measurements, that impact whether an indefinite-lived intangible asset other than goodwill has a carrying amount that more likely than not exceeds its fair value. The Company must proceed to conducting a quantitative analysis, if the Company (i)\u00a0determines that such an impairment is more likely than not to exist, or (ii)\u00a0forgoes the qualitative assessment entirely. Under the quantitative assessment, the impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. For all periods presented, the Company elected to perform a qualitative assessment of impairment for the indefinite-lived intangible assets. These assessments considered the events and circumstances that could affect the significant inputs used to determine the fair value of the intangible asset. Examples of such events and circumstances include:\n\u2022\ncost factors;\n\u2022\nfinancial performance;\n\u2022\nlegal, regulatory, contractual, business or other factors;\n\u2022\nother relevant company-specific factors such as changes in management, strategy or customers;\n\u2022\nindustry and market considerations; and\n41\nTable of Contents\n\u2022\nmacroeconomic conditions.\nThe Company performed its most recent annual impairment test of identifiable indefinite-lived intangible assets during the first quarter of fiscal year 2023, and there were no impairments identified. Based on this impairment test, the Company concluded it was not more likely than not that the fair value of the indefinite-lived intangible assets was less than their carrying amount.\nLease Accounting\nThe Company\u2019s leases primarily consist of the lease of the Company\u2019s corporate offices under the Sublease Agreement with MSG Entertainment (the \u201cSublease Agreement\u201d) for our principal executive offices at Two Pennsylvania Plaza in New York, the lease of the CLG Performance Center until April 2023, and an aircraft lease entered into in June 2023. In, addition, the Company accounts for the rights of use of The Garden pursuant to the Arena License Agreements as leases under the Accounting Standards Codification Topic 842, Leases. The Company determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the lease term is assessed based on the date when the underlying asset is made available for the Company\u2019s use by the lessor. The Company\u2019s assessment of the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which the Company is reasonably certain not to exercise, as well as periods covered by renewal options which the Company is reasonably certain of exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the consolidated statements of operations over the lease term.  \nFor leases with a term exceeding 12 months, a lease liability is recorded on the Company\u2019s consolidated balance sheet at lease commencement reflecting the present value of the fixed minimum payment obligations over the lease term. A corresponding right of use (\u201cROU\u201d) asset equal to the initial lease liability is also recorded, adjusted for any prepaid rent and/or initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received.  \nThe Company includes fixed payment obligations related to non-lease components in the measurement of ROU assets and lease liabilities, as the Company has elected to account for lease and non-lease components together as a single lease component. ROU assets associated with finance leases, if any, are presented separate from operating leases ROU assets and are included within Property and equipment, net on the Company\u2019s consolidated balance sheet. For purposes of measuring the present value of the Company\u2019s fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in the underlying leasing arrangements are typically not readily determinable. The Company\u2019s incremental borrowing rate reflects the rate it would pay to borrow on a secured basis and incorporates the term and economic environment surrounding the associated lease.\nWe are party to a sublease agreement with MSG Entertainment (the \u201cSublease Agreement\u201d) for our principal executive offices at Two Pennsylvania Plaza in New York. The Sublease Agreement ROU assets and liabilities are recorded on the balance sheet at lease commencement based on the present value of minimum base rent and other fixed payments over the reasonably certain lease term. \nIn November 2021, Sphere Entertainment entered into a new lease for principal executive offices at Two Pennsylvania Plaza in New York, which was assigned to MSG Entertainment in connection with the MSGE Distribution  (the \u201cNew MSGE Lease Agreement\u201d). In accordance with the terms of the Sublease Agreement and the New MSGE Lease Agreement, the lease term of the Sublease Agreement was extended until October 31, 2024. The Company has accounted for this extension as a lease remeasurement and remeasured the right-of-use asset and operating lease liability utilizing the Company\u2019s incremental borrowing rate as of the date of remeasurement. \nIn accordance with the terms of the Sublease Agreement, the Company has committed to enter into a new sublease agreement with MSG Entertainment for a lease term equivalent to the New MSGE Lease Agreement term, which ends January 31, 2046. In addition, in connection with the New MSGE Lease Agreement, the Company has entered into a commitment whereby if the New MSGE Lease Agreement were terminated under certain circumstances, the Company would be required to enter into a new lease for executive offices in Two Pennsylvania Plaza directly with the landlord, with a consistent lease term through January 31, 2046. As the Company has not yet entered into a new sublease for or taken possession of the new executive office space at Two Pennsylvania Plaza, no additional right-of-use assets or operating lease liabilities have been recorded as of June\u00a030, 2023 related to the commitments discussed above. \nIn addition, we are party to long term leases with MSG Entertainment that end June 30, 2055 that allow the Knicks and the Rangers to play their home games at The Garden. The Arena License Agreements provide for fixed payments to be made from inception through June 30, 2055 in 12 equal installments during each year of the contractual term. The contracted license fee for the first full contract year ending June 30, 2021 was approximately $22,500 for the Knicks and approximately $16,700 for the Rangers, and then for each subsequent year, the license fees are 103% of the license fees for the immediately preceding contract year.\nAt the time of the Sphere Distribution, The Garden was not available for use due to the government-mandated suspension of events in response to COVID-19, and was only available at reduced capacity beginning in December 2020 through May 2021. As \n42\nTable of Contents\na result, the Company was not required to pay license fees under the Arena License Agreements until games resumed at The Garden, and the Company paid substantially reduced fees while attendance was limited. Effective July 1, 2021, the Company began paying license fees under the Arena License Agreements in their full contractual amounts.\nThe Knicks and the Rangers are entitled to use The Garden on home game days, which are usually nonconsecutive, for a pre-defined period of time before and after the game. In evaluating the Company\u2019s lease cost, the Company considered the timing of payments throughout the lease terms and the nonconsecutive periods of use, provided for within each license. While payments are made throughout the contract year in twelve equal installments under each arrangement, the periods of use only span each of the individual team event days. As such, the Company concluded that the related straight-line operating lease costs should be recorded by each team equally over each team\u2019s individual event days. \nAs part of Arena License Agreements, we recognized license fees which are characterized as operating lease liabilities and ROU assets. We measured the lease liabilities at the present value of the future lease payments as of April 17, 2020 and remeasured the lease liabilities during the period that The Garden was not available for use as discussed above. We use our incremental borrowing rates based on the remaining lease term to determine the present value of future lease payments. Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. \nOur incremental borrowing rate is calculated as the weighted average risk-free rate plus a spread to reflect our current unsecured credit rating. We subsequently measure the lease liability at the present value of the future lease payments as of the reporting date with a corresponding adjustment to the right-to-use asset. Absent a lease modification we will continue to utilize the April 17, 2020 incremental borrowing rate.\nIn June 2023, the Company entered into a lease agreement for an aircraft with a term through December 30, 2031. The lease ROU asset and liability were recorded in the Company\u2019s accompanying consolidated balance sheet as of June 30, 2023 based on the present value of minimum lease fixed payments over the lease term utilizing the Company\u2019s incremental borrowing rate as of the lease commencement date.\nEstimation of the incremental borrowing rate requires judgment by management and reflects an assessment of credit standing to derive an implied secured credit rating and corresponding yield curve. Changes in management\u2019s estimates of discount rate assumptions could result in a significant overstatement or understatement of ROU assets or lease liabilities, resulting in an adverse impact to MSG Sports\u2019 financial position. See Note 7 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information on our leases.",
+  "item7a": ">Item\u00a07A. \nQuantitative and Qualitative Disclosures About Market Risk\nWe have potential interest rate risk exposure related to outstanding borrowings incurred under our credit facilities. Changes in interest rates may increase interest expense payments with respect to any borrowings incurred under the credit facilities.\nBorrowings under our credit facilities incur interest, depending on our election, at a floating rate based upon SOFR plus a credit spread adjustment, the U.S. Federal Funds Rate or the U.S. Prime Rate, plus, in each case, a fixed spread. If appropriate, we may seek to reduce such exposure through the use of interest rate swaps or similar instruments. See Note 13 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information on our credit facilities. As of June\u00a030, 2023, we had a total of $295 million of borrowings outstanding under our credit facilities. The effect of a hypothetical 100 basis point increase in floating interest rates prevailing as of June\u00a030, 2023 and continuing for a full year would increase interest expense approximately $3.0 million.\n43\nTable of Contents",
+  "cik": "1636519",
+  "cusip6": "55825T",
+  "cusip": ["55825T953", "55825T103", "55825t103", "55825T903"],
+  "names": ["Madison Square Garden Sports Corp.", "MADISON SQUARE GRDN SPRT COR", "MADISON SQUARE GARDEN SPORTS C"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1636519/000163651923000009/0001636519-23-000009-index.htm"
+}
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+  "item1": ">Item 1. Business\nOverview\nPeloton is a leading global fitness company with a highly engaged community of over\n 6.5 million Members across the United States, United Kingdom, Canada, Germany and Australia. As a category innovator at the nexus of fitness, technology, and media, Peloton's first-of-its-kind subscription platform seamlessly combines innovative hardware, distinctive software, and exclusive content. Its world-renowned instructors coach and motivate Members to be the best version of themselves anytime, anywhere. Founded in 2012 and headquartered in New York City, Peloton continues to scale across the five markets in which it operates. We define a \u201cMember\u201d as any individual who has a Peloton account through a paid Connected Fitness Subscription or a paid Peloton App Membership, and completes one or more workouts in the trailing 12 month period.  We define a completed workout as either  completing at least 50% of an instructor-led class, scenic ride or run, or ten or more minutes of \u201cJust Ride\u201d, \u201cJust Run\u201d, or \u201cJust Row\u201d mode.\nWe define a \u201cConnected Fitness Subscription\u201d as a person, household, or commercial property, such as a hotel or residential building, who has either paid for a subscription to a Connected Fitness Product (a Connected Fitness Subscription with a successful credit card billing or with prepaid subscription credits or waivers) or requested a \u201cpause\u201d to their subscription for up to three months. \nOur Products\n \nPeloton provides Members with expert instruction and world class content to create impactful and entertaining workout experiences for anyone, anywhere, and at any stage in their fitness journey. At home, outdoors, traveling, or at the gym, Peloton offers an immersive and personalized experience. With tens-of-thousands of classes available across \n16\n fitness modalities, Members can access Peloton content via our hardware or via the Peloton App, on their phone, tablet, or TV, allowing them to workout when, where, and how they want.\nOur Connected Fitness Products include:\n\u2022\nPeloton Bike - \nThe original Peloton Bike combines fitness, technology, and media to connect riders to live and on-demand workouts led by Peloton instructors.\n\u2022\nPeloton Bike+ -\n \nThe Peloton Bike+ unlocks an even more dynamic workout experience with indoor cycling riders having the option of on-and-off-bike content as well as automatic resistance control with the Bike+ electronic braking system. Designed to keep riders motivated and effortlessly moving from cardio to strength, yoga, and more, the Peloton Bike+ unlocks an even more seamless and integrated total workout experience.\n\u2022\nPeloton Tread -\n \nThe Peloton Tread combines a cutting-edge treadmill design with Peloton\u2019s compelling running and strength training content. The Tread includes fundamental elements unique to Peloton, like dial control knobs and jump buttons.\n\u2022\nPeloton Tread+ -\n \nThe Peloton Tread+ features slat belt technology that offers the optimal comfort experience when running. The Tread+ offers a combination of cardio and strength content, all streamed via a 32\u201d touchscreen and a powerful sound bar, for a total body workout at home. On May 5, 2021, we issued a voluntary product recall on Tread+, which we conducted in collaboration with the U.S. Consumer Product Safety Commission (\"CPSC\"); currently, we are seeking to resume sales of the Tread+ in the United States in 2024. See Part I, Item 1A \"\nRisk Factors \u2014 Risks Related to Our Connected Fitness Products and Members.\n\u201d\n\u2022\nPeloton Guide -\n \nPeloton\u2019s first connected strength product, Peloton Guide, is an AI-powered personal trainer that connects to televisions. Peloton Guide features personalized strength training routines, rep tracking, time tracking, and progress tracking. It features exclusive strength programs and workouts only available on Peloton Guide.\n\u2022\nPeloton Row -\n \nPeloton Row combines the innovative software, premium hardware design, and exclusive Peloton content to deliver a unique low-impact, full-body cardio, and strength workout. Peloton Row employs proprietary form assistance and form guidance technology for rowers and also features personalized pace target technology.\nFinancing options are available for most Peloton products. In the United States and Canada, we also provide the opportunity via the Peloton Rental program to rent Peloton Bikes and access fitness content for one monthly fee.\nPeloton content is accessed via a Membership, and we have created a number of ways \u2013 including a free option \u2013 for consumers to engage with Peloton\u2019s fitness experience. Monthly membership options include:\n\u2022\nAll-Access Membership:\n \nIncludes App+ Membership and content exclusively for Peloton equipment.\n\u2022\nPeloton App Membership:\n Access to the Peloton App is available with an All Access or Guide Membership for Members who have Connected Fitness Products or through a standalone App Membership with multiple Membership tiers:\n\u25e6\nPeloton App+:\n Designed for the user who wants unlimited access to Peloton\u2019s entire library other than Lanebreak and Scenic classes. This tier includes all of App One\u2019s offerings and unlocks access to thousands of equipment-based \n5\ncardio classes to take on any indoor bike, treadmill, or rower. This tier also offers exclusive access to classes, featuring specialty content.\n\u25e6\nPeloton App One:\n Designed for the Member who wants unlimited access to thousands of classes across 9 of Peloton\u2019s \n16\n modalities, including Strength, Meditation, Outdoor Walking, Yoga, and more, as well as all the classes included in the free tier. App One Members can also take up to three, equipment-based cardio classes per month (Cycling/Tread/Row). New, on-demand, and live classes are offered almost daily, as well as access to Peloton\u2019s Challenges, Programs, and Collections.\n\u25e6\nPeloton App Free:\n Designed to supplement a user\u2019s current workout routine and to serve as a gateway to all Peloton has to offer a new user. The free tier provides more than 50 classes curated across 12 of Peloton\u2019s modalities, enabling the user to pair workouts to meet their individual interests, even as their goals change over time. This tier includes a rotating set of featured classes that are refreshed on an ongoing basis.\n\u2022\nGuide Membership:\n Includes App+ Membership and content exclusively for Guide.\nOur Integrated Fitness Platform\nTechnology\nOur content delivery and interactive software platform are critical to our Member experience. We invest substantial resources in research and development to enhance our platform, develop new products and features, and improve the speed, scalability, and security of our platform infrastructure. Our research and development organization consists of engineering, product, and design teams. We constantly improve our Connected Fitness Products, as well as the Peloton App, through frequent software updates, iteration of feature enhancements, and innovations such as Peloton Lanebreak, our first game-inspired fitness experience. Additionally, Peloton continues to invest in AI/ML and Computer Vision technology to power proprietary personalization and discovery models across all of our software platforms and unique fitness features like Guide Rep Counting.\nContent\nWe create engaging, original fitness and wellness content in an authentic, live environment that is immersive and motivating while also creating a sense of community. We have developed a diverse content library with tens-of-thousands of classes. Exclusively produced at our production studios in New York City and London, featuring our 57 instructors, across 16 fitness and wellness modalities including Strength, Yoga, Meditation, Cardio, Stretching, Cycling, Outdoor, Running, Walking, Tread Bootcamp, Bike Bootcamp, Boxing, Pilates, Barre, Rowing, and Row Bootcamp, our content breadth and depth is vast. We have Scenic Content that includes instructor-guided classes, as well as non-guided time and distance-based options, all shot in beautiful destinations. We also have a game-inspired workout experience with our Lanebreak feature, allowing Members to experience an animated workout as an alternative to instructor-led programming. Our Peloton Studios in New York City and London provide an in-person Peloton content experience. Regular studio member classes and events are held in these spaces combining a high-energy live production environment with fitness classes in seven active production studios.\nWe currently produce our content in three languages: English, German, and Spanish. As we expand into other non-English-speaking countries, we intend to produce classes in local languages from our existing studios and use subtitling for English-speaking users, continually expanding our content library while also being culturally relevant in the markets where we are serving Members. \nWe have developed a proprietary music platform that allows our instructors to integrate curated playlists into our programming in a way that we believe aligns with our Members\u2019 musical tastes. We work with music providers to ensure that our curated music is as diverse and dynamic as the Members we serve, delivering an exceptional workout experience created by instructors and music supervisors on our production team.\nPeloton has become noteworthy as a brand providing the opportunity for our Members to engage in a new way with the fitness modalities they love. We believe we have also taken a leading position in the fitness and wellness category by developing musical content partnership campaigns that feature some of the most recognizable global talent in the industry. This includes working with music providers on the development of our signature Artist Series which celebrate the legacy and catalog of some of the most prominent names in the music business. We also collaborate closely with artist teams to premiere new music exclusives available only on Peloton, and to arrange for guest appearances in our classes.\nSales and Marketing\nWe sell our products directly to customers through a multi-channel sales platform and via third parties. We also sell Peloton Bikes to business-to-business (\u201cB2B\u201d) customers and provide the opportunity for employers, insurers and other enterprise partners to offer their employees and members subsidized access to Peloton App subscriptions. Our sales associates use customer relationship management tools to deliver an elevated, personalized, and educational purchase experience, regardless of channel of capture and conversion.\n\u2022\nE-Commerce and Inside Sales:\n Our desktop and mobile websites provide an elevated brand experience where visitors can learn about our products and services and access product reviews. Our Inside Sales team engages with customers by phone, email, and online chat on our websites, and offers one-on-one sales consultations seven days a week.\n\u2022\nRetail Stores: \nOur stores allow customers to experience and try our products. We provide interactive product demonstrations and many of our stores have private areas where customers can take a \u201ctest class\u201d on our Bike, Bike+, Tread, and Row \n6\nproducts. We frequently host Peloton community events in our stores, which help deepen brand engagement and customer loyalty. \n\u2022\nThird Party Retailers: \nOur products are also available to purchase from a number of third party retailers, including Amazon, Dick\u2019s Sporting Goods, and John Lewis.\n\u2022\nPeloton for Business:\n Peloton For Business is a unified portfolio of B2B well-being solutions for enterprise clients, offered across seven key verticals: Hospitality, Corporate Wellness, Multi-Family Residential, Education, Healthcare, Gyms and Community Wellness. The full-service offering includes a range of equipment and content-based solutions, delivering on Peloton's commitment to empower anyone, anywhere, anytime.\nTo market our products, we use a combination of brand and product specific performance marketing to build brand awareness, generate sales of our Connected Fitness Products and drive App subscriptions. In addition, in May 2023, we relaunched the Peloton Brand, for anyone, anywhere, with a new brand identity and campaign and new content features. Following the brand relaunch, we continue to diversify and maximize our marketing channel mix.\nManufacturing and Logistics\nIn July 2022, we announced a shift from in-house manufacturing to utilizing third-party manufacturing partners for 100% of our products. The components used in our products are procured on our behalf using our designs by our contract manufacturers, according to our required design specifications and high standards, from a variety of suppliers. In order to account for technology evolution and market fluctuations, we regularly review our relationships with our existing contract manufacturers and the components suppliers that they contract with, while evaluating prospective new partnerships. We use a combination of leased and operated as well as contracted third-party logistics providers (\u201c3PLs\u201d) in our logistics and service network which includes middle mile and last mile operations centers in the United States, Canada, Germany, the United Kingdom, and Australia.\nIntellectual Property\nThe protection of our technology and intellectual property is an important aspect of our business. We rely upon a combination of patents, trademarks, trade secrets, copyrights, confidentiality procedures, contractual commitments, and other legal rights to establish and protect our intellectual property. We generally enter into confidentiality agreements and invention or work product assignment agreements with our employees and consultants to control access to, and clarify ownership of, our proprietary information.\nAs of June\u00a030, 2023, we held 170 U.S. issued patents and had 83 U.S. patent applications pending. We also held 393 issued patents in foreign jurisdictions and 146 patent applications pending in foreign jurisdictions. Our U.S. issued patents expire between September\u00a015, 2023 and October\u00a014, 2040 As of June\u00a030, 2023, we held 52 registered trademarks in the United States, including the Peloton mark and our \u201cP\u201d logo and also held 844 registered trademarks in foreign jurisdictions. We continually review our development efforts to assess the existence and patentability of new intellectual property. We intend to continue to file additional patent applications with respect to our technology.\nIntellectual property laws, procedures, and restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed, or misappropriated. Further, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States, and, therefore, in certain jurisdictions, we may be unable to protect our proprietary technology.\nCompetition\nWe believe that our first-mover advantage, leading market position, brand recognition, and integrated platform set us apart in the market for connected, technology-enabled fitness. We provide a superior value proposition and benefit from the clear endorsement of our Connected Fitness Subscription and mobile app solutions, giving us a competitive advantage versus traditional fitness and wellness products and services, and future potential entrants.\nWhile we believe we are changing the consumption patterns for fitness and growing the market, our main sources of competition include in-studio fitness classes, fitness clubs, at-home fitness equipment and content, and health and wellness apps.\nThe areas in which we compete include:\n\u2022\nConsumers and Engagement. \nWe compete for consumers to join our platform through Connected Fitness Subscriptions or Peloton App subscriptions, and we seek to engage and retain them through an integrated experience that combines content, hardware, software, service, and community.\n\u2022\nProduct and App Offering. \nWe compete with producers of fitness products, services and apps and work to ensure that our platform maintains the most innovative technology and user-friendly features.\n\u2022\nTalent. \nWe compete for talent in every vertical across our company including technology, media, fitness, design, supply chain, logistics, content, marketing, finance, strategy, legal, and retail. As our platform is highly dependent on technology, hardware, and software, we require a significant base of engineers to continue innovating.\nThe principal competitive factors that companies in our industry need to consider include, but are not limited to: total cost, supply chain efficiency across sourcing and procurement, manufacturing and logistics, enhanced products and services, original content, product \n7\nquality and safety, competitive pricing policies, vision for the market and product innovation, strength of sales and marketing strategies, technological advances, and brand awareness and reputation. We believe we compete favorably across all of these factors and we have developed a business model that is difficult to replicate.\nGovernment Regulation\nWe are subject to many varying laws and regulations in the United States, the United Kingdom, the European Union and throughout the world, including those related to privacy, data protection, content regulation, intellectual property, consumer protection, e-commerce, marketing, advertising, messaging, rights of publicity, health and safety, environmental, social, and governance factors, employment and labor, product quality and safety, accessibility, competition, customs and international trade, and taxation. These laws often require companies to implement specific information security controls to protect certain types of information, such as personal data, \u201cspecial categories of personal data\u201d or health data. These laws and regulations are constantly evolving and may be interpreted, applied, created, or amended in a manner that could harm our current or future business and operations. In addition, it is possible that certain governments may seek to block or limit our products and services or otherwise impose other restrictions that may affect the accessibility or usability of any or all of our products and services for an extended period of time or indefinitely.\nSeasonality\nHistorically, we have experienced higher Connected Fitness Products sales in the second and third quarters of the fiscal year compared to other quarters, due in large part to seasonal holiday demand, New Year\u2019s resolutions, and cold weather. We also have historically incurred higher sales and marketing expenses during these periods. For example, in fiscal year 2023, our second and third quarters combined represented 62% of Connected Fitness Products revenue and 55% of our Total revenue.\nHuman Capital \nOur Culture\nWe\u2019re fostering an environment that attracts extraordinary talent, helps every individual become their best self, and unlocks each person\u2019s greatest potential, shaped by the following fundamental values:\n\u2022\nPut Members First \n\u2022\nOperate with a Bias for Action\n\u2022\nEmpower Teams of Smart Creatives\n\u2022\nTogether We Go Far\n\u2022\nBe the Best Place to Work\nWe live these values through our approach to human capital management, summarized below.\nEmployees\nAs of June\u00a030, 2023, we employed 2,765 individuals in the United States across our New York City headquarters, retail stores, and field operations warehouses, with 2,678 being full-time employees. Internationally, we employed 819 individuals primarily across corporate, retail stores, and warehouse functions. We also hire additional seasonal employees, primarily in our showrooms, during the holiday season. \nCertain of our instructors are covered by collective bargaining agreements with the Screen Actors Guild-American Federation of Television and Radio Artists, or SAG-AFTRA. However, we are not signatories to any agreements with SAG-AFTRA. With the exception of SAG-AFTRA, none of our domestic employees are currently represented by a labor organization or a party to any collective bargaining agreements.\nDiversity, Equity, and Inclusion\nWe cultivate a culture of inclusion by creating physiologically, emotionally, physically, and psychologically safe spaces so all team members feel valued, heard, and secure.\nWe\u2019re proud that one of our core aspirations is to become an anti-racist organization, and in 2020, we created and committed to the Peloton Pledge, our multi-pronged, multi-faceted action plan to combat systemic racial inequities and amplify change both in our company and our community. We are pushing ourselves from the inside out and partnering with community-based organizations to deliver meaningful and measurable impact.\nThrough the Peloton Pledge we are investing across five pillars:\n\u2022\nPay Equity - We continue to offer competitive rates for our hourly workforce and equally competitive rates for equivalent roles in all markets. We\u2019re also committed to maintaining pay equity for our team and continue to conduct an annual global pay equity study;\n\u2022\nLearning and Development - We offer content that supports internal mobility, individual growth, and ongoing skills development, and training around diversity, equity, and inclusion (DEI) topics; \n\u2022\nCommunity Investments - We partner with leading action-oriented organizations addressing systemic racism through partnerships that drive real, sustainable transformation;\n8\n\u2022\nDemocratizing fitness - We continuously evaluate progress and apply learnings to do our part to democratize access to fitness and cultivate a diverse and inclusive Member community;\n\u2022\nLong-Term DEI Strategy - We invest in various programs to support long-term DEI, as further described below.\nThe Peloton Pledge has sharpened our focus on delivering value-add, business-wide DEI programming. In our ongoing push for shared learning, we continue to create psychologically safe spaces for our team members to learn and grow together. For example, we have introduced specific learning programs for managers, such as Activating Allyship, to support our ambition to be an anti-racist organization.  We continue to offer support, engagement, and development opportunities to our team members through our Employee Resource Groups (\u201cERGs\u201d) and Inclusion Forums, fostering a diverse and inclusive workplace and providing space to grow our team member ally population. \nThrough the delivery of our DEI strategy, we\u2019re increasing cross-business, multi-market collaboration that energizes our team members and leaders to innovate, leverage diversity of thought, and create responsive and culturally relevant programming to drive the system and behavioral changes required to be a truly, globally inclusive business. \nOur commitments to diversity, equity, and inclusion extend to our compensation practices to ensure our team members are paid fairly based on the work they perform. We annually partner with a third-party firm to review team members\u2019 pay. We aim to act on any pay gaps we find through this analysis to support our commitment to achieve true pay equity across Peloton and to ensure we\u2019re a globally inclusive business. Our pay equity study is in addition to any market-specific obligations we have to undertake pay gap analyses, such as our Gender Pay Gap Study in the United Kingdom.\nTeam Member Safety\nWe prioritize the health and welfare of our team members, our Members, and the impact our operations have on the environment. The core elements of our team member health and safety program include site risk analysis, incident management, documented processes and standards, environmental programs, training, and occupational health programs, and we are continually striving to improve these processes. Concerns about the health and safety of our team members, or the health and safety of individuals working on behalf of Peloton suppliers or business partners, are reportable through our Ethics Hotline or online Ethics Portal, which is maintained through an independent third-party platform and monitored by our Safety, Ethics, and Compliance Team.\nTraining, Development, and Engagement\nAt Peloton, we have a dedicated global Talent Development Team that develops and delivers company-wide learning experiences across all functions. These include, but are not limited to, programs focusing on Peloton\u2019s approach to leadership, coaching and team member connectivity, functional and role specific training, and internal hiring and mobility to support professional growth.\nWe are committed to cultivating an equitable and inclusive culture that enables people to thrive in the best career experiences of their lives by engaging with, and listening to, our team members. We maintain ongoing connection with our team members through our company intranet, \u201cPelonet,\u201d regular all-hands meetings and business performance reviews, team town halls, and company-wide engagement surveys during the year. \nOur Patent Incentive Program provides rewards and recognition to qualifying team members whose inventions are included in a patent application submitted by Peloton. \nCompetitive Compensation and Work/Life Harmony\nOur compensation program is structured around our overarching philosophy of rewarding demonstrable performance and aligning team members with our goals and strategy. Consistent with this approach, we provide market competitive compensation and benefits that will attract, motivate, reward, and retain a highly talented team. We take a comprehensive view of the tools and programs we use to attract, reward, and retain top talent. Our workforce is diverse \u2013 so our benefits must be, too. \nAt Peloton, we encourage our team members to foster kindness, support, empathy, respect, compassion, and a sense of community in all interactions every day. To help us reach our goal of maintaining healthy work/life harmony, we have instituted a number of supportive practices.\nCorporate Information\nOur website address is www.onepeloton.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this Annual Report on Form 10-K. Investors should not rely on any such information in deciding whether to purchase our Class A common stock.\nPeloton, the Peloton logo, Peloton Bike, Peloton Bike+, Peloton Tread, Peloton Tread+, Peloton Guide, Peloton Row, Peloton Gym, Peloton App, and other registered or common law trade names, trademarks, or service marks of Peloton appearing in this Annual Report on Form 10-K are the property of Peloton. This Annual Report on Form 10-K contains additional trade names, trademarks, and service marks of other companies that are the property of their respective owners. We do not intend our use or display of other companies\u2019 trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. Solely for convenience, our trademarks and tradenames referred to in this Annual Report on Form 10-K appear without the \n9\n\u00ae and \u2122 symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor, to these trademarks and tradenames.\nAvailable Information\nOur reports filed with or furnished to the Securities and Exchange Commission (\u201cSEC\u201d) pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available, free of charge, on our Investor Relations website at https://investor.onepeloton.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding us and other companies that file materials with the SEC electronically. We use our Investor Relations website (https://investor.onepeloton.com/investor-relations) as well as our Twitter feed (@onepeloton) and Press Newsroom (https://www.onepeloton.com/press) as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our Investor Relations website, Twitter feed and Press Newsroom in addition to following our press releases, SEC filings, and public conference calls and webcasts.\n10",
+  "item1a": ">Item 1A.   Risk Factors\nInvesting in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this Annual Report on Form 10-K, including the section titled \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations,\u201d and our consolidated financial statements and the accompanying notes and the information included elsewhere in this Annual Report on Form 10-K and our other public filings before deciding whether to invest in shares of our Class A common stock. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial may also become important factors that adversely affect our business. If any of the following risks occur, our business, financial condition, operating results, and future prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment. \nRisks Related to Our Business\nWe have incurred operating losses in the past, may incur operating losses in the future, and may not achieve or maintain profitability in the future.\nWe have incurred operating losses each year since our inception in 2012 and may continue to incur net losses in the future. We expect that our operating expenses may increase in the future as we optimize and grow our business, including via our sales and marketing efforts, continuing to invest in research and development, adding content and software features to our platform, expanding into new geographies, expanding the reach and use of the Peloton App, and developing new products and features. These efforts and additional expenses may be more costly than we expect, and we cannot guarantee that we will be able to increase our revenue to offset our operating expenses. Our revenue growth may slow down, or our revenue may decline for a number of other reasons, including reduced demand for our products and services, increased competition, a decrease in the growth or reduction in size of our overall market, or if we cannot capitalize on strategic opportunities. If our revenue does not grow at a greater rate than our operating expenses, we will not be able to achieve and maintain profitability.\nWe may be unable to attract and retain Subscribers, which could have an adverse effect on our business and rate of growth.\nOur continued business and revenue growth is dependent on our ability to continuously attract and retain Subscribers, and we cannot be sure that we will be successful in these efforts, or that Subscriber retention levels will not materially decline. There are a number of factors that could lead to a decline in Subscriber levels or that could prevent us from increasing our Subscriber levels, including:\n\u2022\nour failure to introduce new features, products, or services that Members find engaging or our introduction of new products or services, or changes to existing products and services that are not favorably received;\n\u2022\nharm to our brand and reputation;\n\u2022\npricing and perceived value of our offerings;\n\u2022\nour inability to deliver quality products and functionality, content, and services;\n\u2022\nactual or perceived safety concerns regarding our products;\n\u2022\nunsatisfactory experiences with the delivery, installation, or servicing of our Connected Fitness Products, including due to delivery costs or prolonged delivery timelines and limitations on in-home installation, return, and warranty servicing processes;\n\u2022\nour Members engaging with competitive products and services;\n\u2022\ntechnical or other problems preventing Members from accessing our content and services in a rapid and reliable manner or otherwise affecting the Member experience;\n\u2022\na decline in the public\u2019s interest in indoor cycling or running, or other fitness disciplines that we invest most heavily in;\n\u2022\ndeteriorating general economic conditions or a change in consumer spending preferences or buying trends;\n\u2022\nchanges in consumer preferences regarding home fitness, whether as a result of the COVID-19 pandemic or otherwise; and\n\u2022\ninterruptions in our ability to sell or deliver our Connected Fitness Products or to create content and services for our Members.\nAdditionally, any potential expansion into international markets can involve new challenges in attracting and retaining Subscribers that we may not successfully address. As a result of these factors, we cannot be sure that our Subscriber levels will be adequate to maintain or permit the expansion of our operations. A decline in Subscriber levels could have an adverse effect on our business, financial condition, and operating results.\nOur operating results have been, and could in the future be, adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory.\nTo ensure adequate inventory supply, we must forecast inventory needs and expenses and place orders sufficiently in advance with our suppliers and contract manufacturers, based on our estimates of future demand for particular products and services. Failure to accurately forecast our needs may result in manufacturing delays, increased costs, or an excess in inventory. Our ability to accurately forecast demand could be affected by many factors, including changes in consumer demand for our products and services, changes in demand for the products and services of our competitors, unanticipated changes in general market conditions, and the weakening of economic conditions or consumer confidence in future economic conditions. If we fail to accurately forecast consumer demand, we may experience excess inventory levels or a shortage of products available for sale.\nWe have in recent periods experienced, and may continue to experience, a decrease in consumer demand. Furthermore, inventory levels in excess of consumer demand have resulted, and may continue to result, in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would cause our gross margins to suffer and could impair the strength and premium nature of our brand. Further, lower than forecasted demand has resulted, and could continue to result in excess manufacturing capacity or reduced manufacturing efficiencies, which could result in lower margins. In periods when we experience a decrease in demand for our products and an increase in inventory, we may \n11\nbe unable to renegotiate our agreements with existing suppliers or partners on mutually acceptable terms and may be prevented from fully utilizing firm purchase commitments. Although in certain instances our agreements allow us the option to cancel, reschedule, and adjust our requirements based on our business needs, our loss contingencies may include liabilities for contracts that we cannot cancel, reschedule or adjust with suppliers or partners. In addition, we may deem it necessary or advisable to renegotiate agreements with our supply partners in order to scale our inventory with demand. Disputes with our supply partners regarding our agreements have, in certain instances, resulted, and may in the future result in, litigation, which could result in adverse judgments, settlements or other litigation-related costs as well as disruption to our supply chain and require management\u2019s attention. Further, we are required to evaluate goodwill impairment on an annual basis and between annual evaluations in certain circumstances, and future goodwill impairment evaluations may result in a charge to earnings. See \u201c\u2014 \nWe may not successfully execute or achieve the expected benefits of our restructuring initiatives and other cost-saving measures we may take in the future, and our efforts may result in further actions and/or additional asset impairment charges and adversely affect our business.\u201d\n \n \nWe may not successfully execute or achieve the expected benefits of our restructuring initiatives and other cost-saving measures we may take in the future, and our efforts may result in further actions and/or additional asset impairment charges and adversely affect our business.\nIn February 2022, we announced a restructuring plan to, among other things, reduce certain fixed costs in our business, and we continue to take actions intended to address the short-term health of our business as well as our long-term objectives based on our current estimates, assumptions and forecasts. These measures are subject to known and unknown risks and uncertainties, including whether we have targeted the appropriate areas for our cost-saving efforts and at the appropriate scale, and whether, if required in the future, we will be able to appropriately target any additional areas for our cost-saving efforts. As such, the actions we are taking under the restructuring plan and that we may decide to take in the future may not be successful in yielding our intended results and may not appropriately address either or both of the short-term and long-term strategy for our business. Implementation of the restructuring plan and any other cost-saving initiatives may be costly and disruptive to our business, the expected costs and charges may be greater than we have forecasted, and the estimated cost savings may be lower than we have forecasted. Additionally, certain aspects of the restructuring plan, such as severance costs in connection with reducing our headcount, could negatively impact our cash flows. In addition, our initiatives have resulted, and could in the future result in, personnel attrition beyond our planned reduction in headcount or reduced employee morale, which could in turn adversely impact productivity, including through a loss of continuity, loss of accumulated knowledge and/or inefficiency during transitional periods, or our ability to attract highly skilled employees. Unfavorable publicity about us or any of our strategic initiatives, including our restructuring plan, could result in reputation harm and could diminish confidence in, and the use of, our products and services. See \n\u201c\n\u2014 \nOur success depends on our ability to maintain the value and reputation of the Peloton brand.\n\u201d The restructuring plan has required, and may continue to require, a significant amount of management\u2019s and other employees\u2019 time and focus, which may divert attention from effectively operating and growing our business. See Part 1, Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2014Fourth Quarter Fiscal 2023 Update and Recent Developments\u2014\nRestructuring Plan\n.\u201d\nThe Company has evolved rapidly in recent years and continues to establish its operating experience at the appropriate scale. If we are unable to manage our longer-term growth, intervening changes and costs, or implement restructuring initiatives effectively, our brand, company culture, and financial performance may suffer.\nAs we evolve over time, our business can take different forms. During periods of growth, we have had to manage costs while making investments such as expanding our sales and marketing, focusing on innovative product and content development, upgrading our management information systems and other processes, and obtaining more space, and in future periods of growth, we expect to have to similarly manage our costs while investing in the expansion of our business. Growth and recent restructuring initiatives strain our existing resources, and we could experience ongoing operating difficulties in managing our business across numerous jurisdictions, including difficulties in hiring, training, managing and retaining a diffuse employee base. Failure to preserve our company culture could harm our future success, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives. Moreover, the integrated nature of aspects of our business, where we design our own Connected Fitness Products, develop our own software, produce original fitness and wellness programming, and sell some of our products through our own sales teams and e-commerce site, exposes us to risk and disruption at many points that are critical to successfully operating our business and may make it more difficult for us to scale our business over time. We have recently experienced lower demand for our Connected Fitness Products and services, which resulted in a shift in our strategic focus, including through the restructuring initiatives we announced in February 2022 and the additional ongoing actions we have taken to optimize our business. As we continue to develop our infrastructure, and particularly in light of the reductions in headcount that began as a part of our February 2022 restructuring initiatives, we may find it difficult to maintain valuable aspects of our culture. If we do not adapt to meet these evolving challenges, or if our management team does not effectively scale with our long-term growth while managing costs, we may experience erosion to our brand, the quality of our products and services may suffer, and our company culture may be harmed.\nWe have made changes to our targeted retail store strategy, including reducing the number of retail store locations. We have placed more of an emphasis on third-party retail distribution, including in connection with our reduction of our North American retail store presence announced in August 2022, as part of our restructuring plan. We may continue to close retail stores for strategic reasons or may wish to exit certain retail locations but be limited in timing and cost to exit under the lease terms. Moreover, certain occurrences outside of our control may result in the closure of our retail stores. Many of our retail stores are leased pursuant to multi-year leases, and our ability to sublease to a suitable subtenant, or negotiate favorable terms to exit a lease early or for a lease renewal option, may depend on factors that are not within our control. We may not be able to realize the cost savings and benefits initially anticipated as a result of the restructuring initiatives that we announced in February 2022 or the additional ongoing initiatives to optimize our business and the anticipated costs of these initiatives may be greater than expected. See \n\u201c\n\u2014\nWe may not successfully execute or achieve the expected benefits of our restructuring initiatives and other cost-saving measures we may take in the future, and our efforts may result in further actions and/or additional asset impairment charges and adversely affect our business\n\u201d and see Part 1, Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2014Fourth Quarter Fiscal 2023 Update and Recent Developments\u2014\nRestructuring Plan\n.\u201d\n12\nOur growth strategy has at times contemplated, and may in the future contemplate, increases in our advertising and other marketing spending, including relating to the May 2023 branding and App relaunch. We may also open additional production studios as we expand, which will require significant additional investment. The successful implementation of our growth strategy will require significant expenditures before any substantial associated revenue is generated and we cannot guarantee that these increased investments will result in corresponding and offsetting revenue growth. \nBecause we have a limited history of operating our business at its current scale, it is difficult to evaluate our current business and future prospects, including our ability to plan for and model future growth. Our limited operating experience at this scale, combined with the rapidly evolving nature of the market in which we sell our products and services, substantial uncertainty concerning how these markets may develop, and other economic factors beyond our control, reduces our ability to accurately forecast quarterly or annual revenue. Failure to manage our future growth and evolution of the company effectively could have an adverse effect on our business, financial condition, and operating results.\nIf we are unable to anticipate consumer preferences and successfully develop and offer new, innovative, and updated products and services in a timely manner, or effectively manage the introduction of new or enhanced products and services, our business may be adversely affected.\nOur success in maintaining and increasing our Subscriber base depends on our ability to identify and originate trends as well as to anticipate and react to changing consumer demands in a timely manner. Our products and services are subject to changing consumer preferences that cannot be predicted with certainty. If we are unable to introduce new or enhanced offerings in a timely manner or via the appropriate channels, or our new or enhanced offerings are not accepted by our Subscribers, our competitors may introduce similar or more desirable offerings and at speeds that are faster than us, which could negatively affect our growth. Moreover, our new offerings may not receive consumer acceptance as preferences could shift rapidly to different types of fitness and wellness offerings or away from these types of offerings altogether, and our future success depends in part on our ability to anticipate and respond to these changes. Failure to anticipate and respond in a timely manner to changing consumer preferences could lead to, among other things, lower subscription rates, lower sales, pricing pressure, lower gross margins, discounting of our products and services, and excess inventory levels.\nEven if we are successful in anticipating consumer preferences, our ability to adequately react to and address them will partially depend upon our continued ability to develop and introduce innovative, high-quality offerings to market in a way that adequately meets demand. For example, we have, and continue to look at ways to broaden our sales channels, including through distribution to third-party retailers, rethinking the value proposition of our Peloton App, and offering a rental program in select markets where Subscribers can rent Peloton Bikes and access fitness content for one monthly fee (Peloton Rental). Development of new or enhanced products and services may require significant time and financial investment, which could result in increased costs and a reduction in our profit margins. For example, we have historically incurred higher levels of sales and marketing expenses accompanying each product and service introduction, including relating to the May 2023 branding and App relaunch. Moreover, while we experienced a significant increase in our Subscriber base at the onset of the COVID-19 pandemic, the rate of the increase has since slowed down and, over the longer term, it remains uncertain how the post-COVID-19 pandemic environment will impact consumer demand for our products and services and consumer preferences generally. See \u201c\u2014 \nA resurgence of the COVID-19 pandemic could have an adverse effect on our business, and it remains uncertain how the post-COVID-19 pandemic environment and any resurgence of the COVID-19 pandemic will impact consumer demand for our products and services and consumer preferences generally\n.\u201d\nMoreover, we must successfully manage introductions of new or enhanced products and services, as such introductions could adversely impact the sales of our existing products and services. For instance, we may experience higher Subscriber churn as a result of our May 2023 App relaunch, which included the introduction of new membership tiers. Consumers may also choose to forgo purchasing existing products or services in advance of new or anticipated product and service launches, and we may experience higher returns from users of existing products. As we introduce new or enhanced products and services, we may face additional challenges managing a more complex supply chain and manufacturing process, including the time and cost associated with onboarding and overseeing additional suppliers, contract manufacturers, logistics providers, and third-party retailers. We may also face challenges managing the inventory of new or existing products, which could lead to excess inventory and discounting of such products. In addition, new or enhanced products or services may have varying selling prices and costs compared to legacy products and services, which could negatively impact our brand, gross margins and operating results.\nThe connected fitness market is relatively new and, if the general market and specific demand for our products and services does not continue to grow, grows more slowly than we expect, or fails to grow as much as we expect, our business, financial condition, and operating results may be adversely affected.\nThe connected fitness and wellness market is relatively new, rapidly growing over the last several years, and largely unproven, and it is uncertain whether it will sustain high levels of demand and achieve wide market acceptance. Our success depends substantially on the willingness of consumers to widely adopt our products and services. We have had to educate consumers about our products and services through significant investment and provide quality content that is superior to the content and experiences provided by our competitors. Additionally, the fitness and wellness market at large is heavily saturated, and the demand for and market acceptance of new products and services in the market is uncertain. It is difficult to predict the future growth rates, if any, and size of our market. We cannot assure you that our market will develop or be sustained at current levels, that the public\u2019s interest in connected fitness and wellness will continue, or that our products and services will be widely adopted. If our market does not develop, develops more slowly than expected, or becomes saturated with competitors, or if our products and services do not achieve or sustain market acceptance, our business, financial condition, and operating results could be adversely affected.\nOur past financial results may not be indicative of our future performance.\nAny historical revenue growth should not be considered indicative of our future performance. In particular, we have experienced periods of high revenue growth since we began selling our Bike, however, our revenue growth has slowed as our business matured and may not resume to prior levels. Additionally, we experienced a significant increase in our Subscriber base at the onset of the COVID-19 pandemic, which slowed down as consumers were able to resume activity outside the home, and, it remains uncertain how the impacts of the post-COVID-19 pandemic \n13\nenvironment and other market constraints, including macro- and micro-economic factors such as inflation, rising interest rates, foreign currency exchange rate fluctuations, and increased debt and equity market volatility, will impact consumer demand for our products and services over the long term. Estimates of future revenue growth are subject to many risks and uncertainties, and our future revenue may differ materially from our projections. We have encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly changing industries, including market acceptance of our products and services, attracting and retaining Subscribers, and increasing competition and expenses as we expand our business. We cannot be sure that we will be successful in addressing these and other challenges we may face in the future, and our business may be adversely affected if we do not manage these risks successfully. In addition, we may not achieve sufficient revenue to attain or maintain positive cash flows from operations or profitability in any given period, or at all.\nOur success depends on our ability to maintain the value and reputation of the Peloton brand.\nWe believe that our brand is important to attracting and retaining Members. Maintaining, protecting, and enhancing our brand depends on the success of a variety of factors, such as: our marketing efforts; our ability to provide consistent, high-quality products, services, features, content, and support, our ability to successfully secure, maintain, and enforce our rights to use the \u201cPeloton\u201d mark, our \u201cP\u201d logo, and other trademarks important to our brand; our ability to successfully respond to a negative event that impacts our brand; and our ability to meet shareholder and Member expectations. We believe that the importance of our brand will increase as competition further intensifies and brand promotion activities may require substantial expenditures. Our brand could be harmed if we fail to achieve these objectives or if our public image were to be tarnished by negative publicity. Unfavorable publicity about us, our strategic initiatives, such as our restructuring plan or our products, services, technology, customer service, content, personnel, and suppliers could diminish confidence in, and the use of, our products and services. For example, product recalls, including the May 2021 voluntary Tread+ recall and May 2023 voluntary original Bike seat post recall, each conducted in collaboration with the CPSC, involved reports of injuries associated with our products. As discussed further in \u201c\nRisks Related to Our Connected Fitness Products and Members\u201d\n and \u201c\nRisks Related to Laws, Regulation, and Legal Proceedings\n,\u201d the legal proceedings in which we have been named, the regulators\u2019 investigations, and any other claims or proceedings involving us or our products, actions we take to address these matters, and any further publicity regarding any of the foregoing could harm our brand. Such negative publicity could also have an adverse effect on the size, engagement and loyalty of our Member base and result in decreased revenue, which could have an adverse effect on our business, financial condition, and operating results. See \u201c\u2014 \nStockholder activism could disrupt our business, cause us to incur significant expenses, hinder execution of our business strategy, and impact our stock price.\n\u201d\nAny major disruption or failure of our information technology systems or websites, or our failure to successfully implement upgrades and new technology effectively, could adversely affect our business and operations.\nWe rely on the Internet, as well as digital infrastructure, computing networks and systems, hardware and software to support our internal and Member-facing operations (collectively, \"information technology systems\u201d or \u201csystems\u201d). Certain of our information technology systems are designed and maintained by us while others are designed, maintained and/or operated by third parties. These systems are critical for the efficient functioning of our business, including the manufacture and distribution of our Connected Fitness Products, online sales of our Connected Fitness Products, and the ability of our Members to access content on our platform. Our growth over the past several years has, in certain instances, strained these systems. As we grow, we continue to implement modifications and upgrades to our systems, and these activities subject us to inherent costs and risks associated with replacing and upgrading these systems, including, but not limited to, impairment of our ability to fulfill customer orders and other disruptions in our business operations. Further, our system implementations may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. If we fail to successfully implement modifications and upgrades or expand the functionality of our information technology systems, we could experience increased costs associated with diminished productivity and operating inefficiencies related to the flow of goods through our supply chain.\nIn addition, any unexpected technological interruptions to our systems or websites would disrupt our operations, including our ability to timely ship and track product orders, project inventory requirements, manage our supply chain, sell our Connected Fitness Products online, provide services to our Members, and otherwise adequately serve our Members. The operation of our direct-to-consumer e-commerce business through our website depends on our ability to maintain the efficient and uninterrupted operation of online order-taking and fulfillment operations. Any system interruptions or delays could prevent potential customers from purchasing our Connected Fitness Products.\nMoreover, the ability of our Members to access the content on our platform could be diminished by a number of factors, including Members\u2019 inability to access the internet, the failure of our network or software systems, cyber-attacks and security breaches, or variability in Member traffic for our platform. Platform failures would be most impactful if they occurred during peak platform use periods, which generally occur before and after standard work hours. During these peak periods, there are a significant number of Members concurrently accessing our platform and if we are unable to provide uninterrupted access, our Members\u2019 perception of our platform\u2019s reliability and enjoyment of our products and services may be damaged, our revenue could be reduced, our reputation could be harmed, and we may be required to issue credits or refunds, or risk losing Members.\nIn the event we experience significant disruptions, we may be unable to repair our systems in an efficient and timely manner, which could have a material adverse effect on our business, financial condition, and operating results.\nWe rely on a limited number of suppliers, contract manufacturers, and logistics partners for our Connected Fitness Products. A loss of any of these partners or an interruption or inability of these partners to satisfy our demand needs could negatively affect our business.\nWe are solely reliant on contract manufacturers for all of our manufacturing needs. In some cases, we rely on only a single supplier for some of our products and components. In the event of interruption from any of our contract manufacturers or suppliers, we may not be able to increase capacity from other sources or develop alternate or secondary sources without incurring material additional costs and delays, since we do not currently have qualified alternative or replacement contract manufacturers beyond these key partners. Furthermore, a large number of our contract manufacturers\u2019 primary facilities are located in Taiwan and China. Thus, our business could be adversely affected if one or more of our \n14\nsuppliers is impacted by escalating tensions, hostilities, or trade disputes in the region, a natural disaster, an epidemic such as the COVID-19 pandemic, or other interruption at a particular location. Such interruptions may be due to, among other things, temporary closures of the facilities of our contract manufacturers and other vendors in our supply chain; restrictions on or delays surrounding travel or the import/export of goods and services from certain ports that we use; and local quarantines or other public safety measures. Additionally, we may further increase our reliance on third-party suppliers, manufacturers and other logistics partners. For example, in August 2022, we announced that we are exiting our North American last mile locations and shifting our reliance entirely to third-party logistics providers. One of our primary last mile partners currently relies on a network of independent contractors to perform last mile services for us in many markets. If any of these independent contractors, or the last mile partner as a whole, do not perform their obligations or meet the expectations of us or our Members, our brand, reputation and business could suffer.  \nIf we experience a significant increase in demand for our Connected Fitness Products that cannot be satisfied adequately through our existing supply channels, if we need to replace an existing supplier, manufacturer or partner, or if we find we need to engage additional suppliers, manufacturers and partners to support our operations, we may be unable to supplement or replace them under our required timing, at a quality standard to our satisfaction, or on market terms that are acceptable to us, which may undermine our ability to deliver our products to Members in a timely manner and otherwise impact our Members\u2019 experience. For example, if we require additional manufacturing support, it may take a significant amount of time to identify a manufacturer that has the capability and resources to build our products to our specifications in sufficient volume. Similarly, in times of decreased demand, we may deem it necessary or advisable to renegotiate agreements with our supply partners in order to appropriately scale our inventory, which could impair our relationship with these counterparties if we are unable to arrive at mutually acceptable terms. See \n\u201c\n\u2014 \nOur operating results have been, and could in the future be, adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory\n.\u201d Identifying suitable suppliers, manufacturers, and logistics partners is an extensive process that requires us to become satisfied with their quality control, technical capabilities, responsiveness and service, financial stability, regulatory compliance, and labor and other ethical practices. Accordingly, a loss of or poor performance by any of our significant suppliers, contract manufacturers, or logistics partners could have an adverse effect on our business, financial condition and operating results.\nWe have limited control over our suppliers, contract manufacturers, and logistics partners, which may subject us to significant risks, including the potential inability to produce or obtain quality products and services on a timely basis or in sufficient quantity.\nWe have limited control over our suppliers, contract manufacturers, and logistics partners, which subjects us to the following risks:\n\u2022\ninability to satisfy demand for our Connected Fitness Products;\n\u2022\nreduced control over delivery timing and related customer experience and product reliability;\n\u2022\nreduced ability to monitor the manufacturing process and components used in our Connected Fitness Products;\n\u2022\nlimited ability to develop comprehensive manufacturing specifications that take into account any materials shortages or substitutions;\n\u2022\nvariance in the manufacturing capability of our third-party manufacturers;\n\u2022\nprice increases;\n\u2022\nfailure of a significant supplier, manufacturer, or logistics partner to perform its obligations to us for technical, market, or other reasons;\n\u2022\nvariance in the quality of services provided by our third-party last mile partners;\n\u2022\nreliance on our partners to adhere to our supplier code of conduct;\n\u2022\ndifficulties in establishing additional supplier, manufacturer, or logistics partner relationships if we experience difficulties with our existing suppliers, manufacturers, or logistics partners;\n\u2022\nshortages of materials or components;\n\u2022\nmisappropriation of our intellectual property;\n\u2022\nexposure to natural catastrophes, including climate-related risks and extreme weather events, epidemics such as the COVID-19 pandemic, political unrest, including escalating tensions, hostilities, or trade disputes between Taiwan and China, terrorism, labor disputes, and economic instability resulting in the disruption of trade from foreign countries, in which our Connected Fitness Products are manufactured or the components thereof are sourced;\n\u2022\nchanges in local economic conditions in the jurisdictions where our suppliers, manufacturers, and logistics partners are located;\n\u2022\nthe imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, duties, tariffs, taxes, and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds; and\n\u2022\ninsufficient warranties and indemnities on components supplied to our manufacturers or performance by our partners.\nThe occurrence of any of these risks, especially during seasons of peak demand, could cause us to experience a significant disruption in our ability to produce and deliver our products to our customers and could harm our brand and reputation.\nWe derive a significant majority of our revenue from sales of our Bike and Bike+. A decline in sales of our Bike and Bike+ would negatively affect our future revenue and operating results.\nOur Connected Fitness Products are sold in highly competitive markets with limited barriers to entry. Changes to our price structure, including with respect to delivery and installation pricing, product mix, the introduction by competitors of comparable products at lower price points, a maturing product lifecycle, a decline in consumer spending, or other factors (including factors disclosed herein) could result in a decline in our revenue derived from our Connected Fitness Products, which may have an adverse effect on our business, financial condition, and operating results. In addition, in May 2023, in collaboration with the CPSC, we announced a voluntary recall of the original Peloton model Bikes (not Bike+) seat posts sold in the U.S. from January 2018 to May 2023 and we are offering Members a free replacement seat post as the approved repair. This recall may result in negative public perception of our products and may have a material adverse effect on the sales of our Connected Fitness Products. Because we derive a significant majority of our revenue from the sales of our Bike and Bike+, any material decline in sales of our Bike would have a pronounced impact on our future revenue and operating results. See \u201c \u2014 \nOur products and services may be affected from \n15\ntime to time by design and manufacturing defects or product safety issues, real or perceived, that could adversely affect our business and result in harm to our reputation.\u201d\nWe operate in a highly competitive market, and we may be unable to compete successfully against existing and future competitors.\nOur products and services are offered in a highly competitive market. We face significant competition in every aspect of our business, including at-home fitness equipment and content, fitness clubs, in-studio fitness classes, and health and wellness apps. Moreover, we expect the competition in our market to intensify in the future as new and existing competitors introduce new or enhanced products and services that compete with ours.\nOur competitors, some of whom are much larger companies with greater resources, may develop, or have already developed, products, features, content, apps, services, or technologies that are similar to ours or that achieve greater acceptance, may undertake more successful product development efforts, be more efficient at meeting consumer demand, create more compelling employment opportunities, or marketing campaigns, or may adopt more aggressive pricing policies. Our competitors may develop or acquire, or have already developed or acquired, intellectual property rights that significantly limit or prevent our ability to compete effectively in the public marketplace. In addition, our competitors may have significantly greater resources than us, allowing them to identify and capitalize more efficiently upon opportunities in new markets and consumer preferences and trends, quickly transition and adapt their products and services, devote greater resources to marketing and advertising or music licensing rights, or be better positioned to withstand substantial price competition. Due to the highly volatile and competitive nature of the industry in which we compete, we may face pressure to continually introduce new products, services and technologies, enhance existing products and services, effectively stimulate customer demand for new and upgraded products and services, and successfully manage the transition to these new and upgraded products and services. If we are not able to compete effectively against our competitors, they may acquire, engage and retain customers or generate revenue at the expense of our efforts, which could have an adverse effect on our business, financial condition, and operating results.\nWe depend upon third-party licenses for the use of music in our content. An adverse change to, loss of, or claim that we do not hold necessary licenses may have an adverse effect on our business, operating results, and financial condition.\nMusic is an important element of the overall content that we make available to our Members. To secure the rights to use music in our content, we enter into agreements to obtain licenses from rights holders such as performing rights organizations, record labels, music publishers, collecting societies, artists and songwriters, and other copyright owners (or their agents). We pay royalties to such parties or their agents around the world.\nThe process of obtaining licenses involves identifying and negotiating with many rights holders, some of whom are unknown, or difficult to identify, or for whom we may have conflicting ownership information, and this can generate a myriad of complex and evolving legal issues across many jurisdictions, including open questions of law as to when and whether particular licenses are needed. At times, while we may hold the applicable license for certain music in North America, it may be difficult to obtain the license for the same music from the applicable rights holders outside of North America. In addition, our music licenses may not contemplate some of the features and content that we may wish to add to our service, or new service offerings or revenue models that we may wish to launch. Rights holders also may attempt to take advantage of their market power to seek onerous financial terms from us. Our relationship with certain rights holders may deteriorate. We may elect not to renew certain agreements with rights holders for any number of reasons, or we may decide to explore different licensing schemes or economic structures with certain or all rights holders. Artists and/or songwriters or their agents may object and may exert public or private pressure on rights holders to discontinue or to modify license terms, or we may elect to discontinue use of an artist or songwriter\u2019s catalog based on a number of factors, including actual or perceived reputational damage. Additionally, there is a risk that aspiring rights holders, their agents, or legislative or regulatory bodies will create or attempt to create new rights that could require us to enter into new license agreements with, and pay royalties to, newly defined groups of rights holders, some of which may be difficult or impossible to identify.\nWith respect to musical compositions, in addition to obtaining the synchronization and reproduction rights, we also need to obtain public performance or communication to the public rights. In the United States, public performance rights are typically obtained separately through intermediaries known as performing rights organizations, or PROs, which (a) issue blanket licenses with copyright users for the public performance of musical compositions in their repertory, (b) collect royalties under those licenses, and (c) distribute such royalties to copyright owners. We have agreements with each of the following PROs in the United States: the American Society of Composers, Authors and Publishers, or ASCAP, Broadcast Music, Inc., or BMI, Global Music Rights, and SESAC. The royalty rates available to us from the PROs today may not be available to us in the future. The royalty rates under licenses provided by ASCAP and BMI currently are governed by consent decrees, which were issued by the U.S. Department of Justice (\u201cDOJ\u201d) in an effort to curb anti-competitive conduct. Removal of or changes to the terms or interpretation of these agreements could affect our ability to obtain licenses from these PROs on current and/or otherwise favorable terms, which could harm our business, operating results, and financial condition.\nIn other parts of the world, including in Canada and Europe, we obtain licenses for musical compositions through local collecting societies representing songwriters and publishers, and from certain publishers directly, or a combination thereof. Given the licensing landscape in certain territories, we cannot guarantee that our licenses with collecting societies and our direct licenses with publishers provide full coverage for all of the musical compositions we use in our service in the countries in which we operate, or that we may enter in the future. Publishers, songwriters, and other rights holders who choose not to be represented by major or independent publishing companies or collecting societies have, and could in the future, adversely impact our ability to secure licensing arrangements in connection with musical compositions that such rights holders own or control and could increase the risk of liability for copyright infringement.\nAlthough we expend significant resources to seek to comply with applicable contractual, statutory, regulatory, and judicial frameworks, we cannot guarantee that we currently hold, or will always hold, every necessary right to use all of the music that is used on our service now or that \n16\nmay be used in our products and services in the future, and we cannot assure you that we are not infringing or violating any third-party intellectual property rights, or that we will not do so in the future. See \n\u201c\n\u2014 \nRisks Related to Our Intellectual Property.\u201d\nThese challenges, and others concerning the licensing of music on our platform, may subject us to significant liability for copyright infringement, breach of contract, or other claims. For additional information, see Note 13\n\u2013 Commitments and Contingencies\n in the Notes to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K and the section titled \u201cLegal Proceedings\u201d in Part I, Item 3 of this Annual Report on Form 10-K.\nIncreases in component costs, long lead times, supply shortages, customs detentions and supply changes could disrupt our supply chain and have an adverse effect on our business, financial condition, and operating results.\nAccurately forecasting and meeting customer demand partially depends on our ability to obtain timely and adequate delivery of components for our Connected Fitness Products. All of the components that go into the manufacturing of our Connected Fitness Products are sourced from a limited number of third-party suppliers, and some of these components are provided by a single supplier. Our contract manufacturers generally purchase these components on our behalf, subject to certain approved supplier lists, and we do not have long-term arrangements with most of our component suppliers. We are therefore subject to the risk of shortages and long lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our Connected Fitness Products. In addition, the lead times associated with certain components are lengthy and preclude rapid changes in design, quantities, and delivery schedules. Our ability to meet temporary unforeseen increases or decreases in demand has been, and may in the future be, impacted by our reliance on the availability of components from these sub-suppliers. We may in the future experience component shortages, and the predictability of the availability of these components may be limited. In the event of a component shortage or supply interruption from suppliers of these components, we may not be able to develop alternate sources in a timely manner. Developing alternate sources of supply for these components may be time-consuming, difficult, and costly, and we may not be able to source these components on terms that are acceptable to us, or at all, which may undermine our ability to fill our orders in a timely manner. Any interruption or delay in the supply of any of these parts or components, or the inability to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of time, would harm our ability to meet our scheduled Connected Fitness Product deliveries to our customers. Conversely, in periods when we experience a decrease in demand for our products and an increase in inventory, we may be unable to renegotiate our agreements or purchase commitments with existing suppliers or partners on mutually acceptable terms, which could result in inventory write-offs, storage costs for excess inventory, or litigation. See \u201c\u2014 \nOur operating results have been, and could in the future be, adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory\n.\u201d\nMoreover, volatile economic conditions have made it and may continue to make it more likely that our suppliers and logistics providers may be unable to timely deliver supplies, or at all, and there is no guarantee that we will be able to timely locate alternative suppliers of comparable quality at an acceptable price. In addition, international supply chains have been and may continue to be impacted by events outside of our control and limit our ability to procure timely delivery of supplies or finished goods and services. Since the beginning of 2018, importing and exporting has involved more risk, as there has been increasing rhetoric, in some cases coupled with legislative or executive action, from several U.S. and foreign leaders regarding tariffs against foreign imports of certain materials. Several of the components that go into the manufacturing of our Connected Fitness Products are sourced internationally, including from China, from where imports on specified products are subject to tariffs by the United States following the U.S. Trade Representative Section 301 Investigation. These issues appear to have been and could be further exacerbated by any resurgence of the COVID-19 pandemic as well as other global supply chain issues. We have seen, and may continue to see, increased congestion and/or new import/export restrictions implemented at ports that we rely on for our business. In many cases, we have had to secure alternative transportation, such as air freight, or use alternative routes, at increased costs to run our supply chain. These tariffs and other supply chain issues have an impact on our component costs and have the potential to have an even greater impact depending on the outcome of the current trade negotiations, which have been protracted and recently resulted in increases in U.S. tariff rates on specified products from China. Increases in our component costs could have a material effect on our gross margins. The loss of a significant supplier, an increase in component costs, or delays or disruptions in the delivery of components, could adversely impact our ability to generate future revenue and earnings and have an adverse effect on our business, financial condition, and operating results.\nOur business could be adversely affected from an accident, safety incident, or workforce disruption.\nOur operations could expose us to significant personal injury claims that could subject us to substantial liability. Any failure to timely adapt to changing norms and requirements around maintaining a safe workplace could result in employee illnesses, accidents or safety incidents, or may result in team discontent if we fail, or if it is perceived that we are failing, to protect the health and safety of our employees. Our liability insurance may not be adequate to cover fully all claims, and we may be forced to bear substantial losses from an accident or safety incident resulting from our operations. Additionally, if our employees decide to join or form a labor union, we may become party to a collective bargaining agreement, which could result in higher employee costs and increased risk of work stoppages. It is also possible that a union seeking to organize one subset of our employee population could also mount a corporate campaign, resulting in negative publicity and reputational harm or other impacts that require attention by our management team and our employees. Negative publicity, work stoppages, or strikes by unions could have an adverse effect on our business, prospects, financial condition, and operating results.\nOur business has historically been, and may continue to be, affected by seasonality.\nOur business has historically been influenced by seasonal trends common to traditional retail selling periods, where we generated a disproportionate amount of sales activity related to our Connected Fitness Products during the period from November through February due in large part to seasonal holiday demand, New Year\u2019s resolutions, and cold weather.\n The COVID-19 pandemic previously affected these trends, but as the COVID-19 pandemic has receded, we have  experienced a return to pre-pandemic seasonal trends. \nDuring periods of higher sales during the period from November through February, our working capital needs may be typically greater during the second and third quarters of the fiscal year. As a result of quarterly fluctuations caused by these and other factors, comparisons of our operating results across different fiscal quarters \n17\nmay not be accurate indicators of our future performance. See \n\u201c\n\u2014 \nOur quarterly operating results and other operating metrics may fluctuate from quarter to quarter, which makes these metrics difficult to predict.\u201d \nSeasonality in our business can also be affected by introductions of new or enhanced products and services, including the costs associated with such introductions, as well as external factors beyond our control.\nOur quarterly operating results and other operating metrics may fluctuate from quarter to quarter, which makes these metrics difficult to predict.\nOur quarterly operating results and other operating metrics have fluctuated in the past and may continue to fluctuate from quarter to quarter. Additionally, our limited operating history makes it difficult to forecast our future results. As a result, you should not rely on our past quarterly operating results as indicators of future performance. You should take into account the risks and uncertainties frequently encountered by companies in rapidly evolving markets. Our financial condition and operating results in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including:\n\u2022\nthe continued market acceptance of, and the growth of the connected fitness and wellness market;\n\u2022\nevolving consumer demand and our ability to maintain and attract new Subscribers;\n\u2022\nour development and improvement of the quality of the Peloton experience, including, enhancing existing and creating new Connected Fitness Products, services, technology, features, and content;\n\u2022\nthe continued development and upgrading of our proprietary technology platform;\n\u2022\nthe timing and success of new product, service, feature, and content introductions by us or our competitors or any other change in the competitive landscape of our market;\n\u2022\npricing pressure as a result of competition or otherwise;\n\u2022\nthe introduction of the previously announced rear guard to enhance the safety of our Tread+ product, which we announced in collaboration with the CPSC;\n\u2022\ndelays or disruptions in our supply chain;\n\u2022\nerrors in our forecasting of the demand for our products and services, which could lead to lower revenue or increased costs, or both;\n\u2022\nincreases in marketing, sales, and other operating expenses that we may incur to grow and expand our operations and to remain competitive;\n\u2022\nshort-term expenditures and initiatives we may undertake in furtherance of long-term cost savings, including our restructuring plan announced in February 2022 and related continuing actions;\n\u2022\nour reliance on third-party last mile delivery and maintenance services for our Connected Fitness Products;\n\u2022\nsuccessful expansion into international markets;\n\u2022\nseasonal fluctuations in subscriptions and usage of Connected Fitness Products by our Members, each of which may change as our products and services evolve or as our business grows;\n\u2022\ndiversification and growth of our revenue sources;\n\u2022\nour ability to maintain gross margins and operating margins;\n\u2022\nconstraints on the availability of consumer financing or increased down payment requirements to finance purchases of our Connected Fitness Products;\n\u2022\nsystem failures or breaches of security or privacy;\n\u2022\nadverse litigation judgments, settlements, or other litigation-related costs, including content costs for past use;\n\u2022\nchanges in the legislative or regulatory environment, including with respect to privacy, consumer product safety, and advertising, or enforcement by government regulators, including fines, orders, or consent decrees;\n\u2022\nfluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies;\n\u2022\nchanges in our effective tax rate, including as a result of potential changes in tax laws proposed by the Biden administration;\n\u2022\nchanges in accounting standards, policies, guidance, interpretations, or principles; and\n\u2022\nchanges in business or macroeconomic conditions, including global supply chain issues, lower consumer confidence, inflation, foreign currency exchange rate fluctuations, rising interest rates, recessionary conditions, political instability, volatility in the credit markets, market conditions in our industry, increased unemployment rates, or stagnant or declining wages.\nAny one of the factors above or the cumulative effect of some of the factors above may result in significant fluctuations in our operating results.\nThe variability and unpredictability of our quarterly operating results or other operating metrics could result in our failure to meet our expectations or those of analysts that cover us or investors with respect to revenue or other operating results for a particular period. If we fail to meet or exceed such expectations, the market price of our Class A common stock could fall substantially, and we could face costly lawsuits, including securities class action suits. See \u201c\nRisks Related to the Ownership of our Class A Common Stock.\n\u201d\nOur passion and focus on delivering a high-quality and engaging Peloton experience may not maximize short-term financial results, which may yield results that conflict with the market\u2019s expectations and could result in our stock price being negatively affected.\nWe are passionate about continually enhancing the Peloton experience with a focus on driving long-term Member engagement through innovation, immersive content, technologically advanced Connected Fitness Products, multiple tiers of the Peloton App, and community support, which may not necessarily maximize short-term financial results. While we have recently announced our intention to stabilize our cash flows, we frequently make business decisions that may reduce our short-term financial results if we believe that the decisions are consistent with our goals to improve the Peloton experience, which we believe will improve our financial results over the long term. For example, in February 2022, we committed to a restructuring plan, which has resulted in charges and which we anticipate will require additional charges in the future. See Part 1, Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2014Fourth Quarter Fiscal 2023 Update and Recent Developments\u2014\nRestructuring Plan\n.\u201d These decisions may not be consistent with the expectations of our stockholders and may not produce the long-term benefits that we expect, in which case our membership growth and Member engagement, and our business, financial condition, and operating results could be harmed.\n18\nOur acquisition of Precor presents risks, and we may not realize our anticipated strategic and financial goals from the acquisition.\nRisks we may face in connection with our acquisition of Precor include:\n\u2022\nWe may not realize the benefits we expect to receive from the transaction, such as anticipated synergies;\n\u2022\nWe may have difficulties managing Precor\u2019s technologies and lines of business or retaining key personnel from Precor;\n\u2022\nThe acquisition may not further our business strategy as we expected, there could be unanticipated adverse impacts on Precor\u2019s business, or we may otherwise not realize the expected return on our investments, which could adversely affect our business or operating results;\n\u2022\nThe acquisition may cause, and additional factors relating to the shift in our strategic focus and to our restructuring initiatives have caused and may continue to cause, impairments to assets that we record as a part of an acquisition, including intangible assets and goodwill;\n\u2022\nOur operating results or financial condition may be adversely impacted by (i) claims or liabilities related to Precor\u2019s business, including, among others, claims from government agencies, terminated employees, current or former customers, consumers or business partners, or other third parties; (ii) pre-existing contractual relationships or lines of business of Precor that we would not have otherwise entered into, the termination or modification of which may be costly or disruptive to our business; (iii) unfavorable accounting treatment as a result of Precor\u2019s practices; and (iv) intellectual property claims or disputes;\n\u2022\nPrecor operates in segments of the commercial market that we have less experience with, including traditional gyms, multifamily residences, hotels and college and corporate campuses, and expansion of our operations in these segments could present various challenges and result in increased costs and other unforeseen challenges;\n\u2022\nPrecor serves customers in more than 100 countries worldwide, and, as a result of the acquisition, our operations have expanded into new jurisdictions, which could present significant challenges and result in significant increased risks and costs inherent in doing business in international markets (see \u201c\u2014 \nExpansion into international markets will expose us to significant risks\n\u201d); and\n\u2022\nWe may have failed to identify or assess the magnitude of certain liabilities, shortcomings or other risks in Precor\u2019s business, which could result in unexpected litigation or regulatory exposure, unfavorable accounting treatment, a diversion of management\u2019s attention and resources, and other adverse effects on our business, financial condition, and operating results.\nThe occurrence of any of these risks could have a material adverse effect on our business, financial condition, and operating results. See \u201c\u2014 \nWe have engaged and in the future may engage in acquisition and disposition activities, which could require significant management attention, disrupt our business, fail to achieve the intended benefit, dilute stockholder value, and adversely affect our operating results\n.\u201d\nWe have experienced, and may continue to experience, delays in the sale of the Ohio industrial facility that was intended to be Peloton Output Park, which could adversely impact our business and financial condition.\nIn May 2021, we announced our plans to build a U.S.-based manufacturing facility in Troy Township, Ohio, which we called \u201cPeloton Output Park.\u201d While we previously intended to use Peloton Output Park to manufacture some of our Connected Fitness Products, we currently are marketing and intend to sell the Ohio facility. The process of re-developing, constructing, and marketing for sale the Ohio facility has been inherently complex and has required significant capital expenditure, and its sale has caused, and may continue to cause, significant disruption to our operations and divert management\u2019s attention and resources, all of which could have a material adverse effect on our business, financial condition and operating results. We can give no assurance that we will recoup any of our investment in the development of the Ohio facility or realize the expected benefits of its sale, if any.\nExpansion into international markets will expose us to significant risks.\nWe intend to expand our operations to other countries, which requires significant resources and management attention and subjects us to regulatory, economic, and political risks in addition to those we already face in the United States. There are significant risks and costs inherent in doing business in international markets, including:\n\u2022\ndifficulty establishing and managing international operations and the increased operations, travel, infrastructure, including establishment of local delivery service and customer service operations, and legal compliance costs associated with locations in different countries or regions;\n\u2022\nthe need to vary pricing and margins to effectively compete in international markets;\n\u2022\nthe need to adapt and localize products for specific countries, including obtaining rights to third-party intellectual property, including music, used in each country;\n\u2022\nincreased competition from local providers of similar products and services;\n\u2022\nthe ability to protect and enforce intellectual property rights abroad;\n\u2022\nthe need to offer engaging content and customer support in various languages and across various cultures;\n\u2022\ndifficulties in understanding and complying with local laws, regulations, and customs in other jurisdictions;\n\u2022\ncompliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act (the \u201cFCPA\u201d), and the U.K. Bribery Act 2010 (the \u201cU.K. Bribery Act\u201d), by us, our employees, and our business partners;\n\u2022\ncomplexity and other risks associated with current and future legal requirements in other countries, including legal requirements related to sustainability disclosure, consumer protection, consumer product safety, and data privacy frameworks, such as the General Data Protection Regulation 2016/679;\n\u2022\nvarying levels of internet technology adoption and infrastructure, and increased or varying network and hosting service provider costs;\n\u2022\ntariffs and other non-tariff barriers, such as quotas and local content rules, customs detentions, as well as tax consequences;\n\u2022\nfluctuations in currency exchange rates and the requirements of currency control regulations, which might restrict or prohibit conversion of other currencies into U.S. dollars; and\n19\n\u2022\npolitical or social unrest or economic instability in a specific country or region in which we operate, including, for example, escalating tensions, hostilities, or trade disputes between China and Taiwan or the effects of \u201cBrexit,\u201d each of which could have an adverse impact on our operations in such locations.\nIn addition to expanding our operations into international markets through the sale of our Connected Fitness Products and the production of our platform content, we have expanded, and may in the future expand, our international operations through acquisitions of, or investments in, foreign entities, which may result in additional operational costs and risks. See \u201c\u2014 \nWe have engaged and in the future may engage in acquisition and disposition activities, which could require significant management attention, disrupt our business, fail to achieve the intended benefit, dilute stockholder value, and adversely affect our operating results\n.\u201d In April 2021, we completed our acquisition of Precor, which serves customers in more than 100 countries worldwide. As a result, we began to increase our operations and efforts abroad, which can also result in various challenges and amplify the various risks and costs of doing business in international markets described above.\nWe have limited experience with international regulatory environments and market practices and may not be able to penetrate or successfully operate in the markets we choose to enter. In addition, we may incur significant expenses as a result of our international expansion, and we may not be successful. We may face limited brand recognition in certain parts of the world that could lead to non-acceptance or delayed acceptance of our products and services by consumers in new markets. We may also face challenges to acceptance of our fitness and wellness content in new markets. Our failure to successfully manage these risks could harm our international operations and our plans for expansion into international markets, and have an adverse effect on our business, financial condition, and operating results.\nWe rely on access to our production studios (or alternate venues) and the creativity of our fitness instructors to generate our class content. If we are unable to access or use our studios or alternate venues, or if we are unable to attract and retain high-quality fitness instructors, we may not be able to generate interesting and attractive content for our classes.\nMost of the fitness and wellness content offered on our platform is produced in one of our production studios located in New York City or London, with some content (including audio-only content) recorded out of studio or in non-Peloton studios. Due to our reliance on a limited number of studios in a concentrated location, any incident involving our studios, or affecting New York City or London at-large could render our studios inaccessible or unusable and could inhibit our ability to produce and deliver new fitness and wellness content for our Members. Production of the fitness and wellness content on our platform is further reliant on the creativity of our fitness instructors who, with the support of our production team, plan and lead our classes. Our standard employment contract with our U.S.-based fitness instructors has a fixed, multi-year term, however, any of our instructors may leave Peloton prior to the end of their contracts. If we are unable to attract or retain creative and experienced instructors, we may not be able to generate content on a scale or of a quality sufficient to grow our business. If we fail to produce and provide our Members with interesting and attractive content led by instructors who engage them and who they can relate to, then our business, financial condition, and operating results may be adversely affected.\nWe have engaged and in the future may engage in acquisition and disposition activities, which could require significant management attention, disrupt our business, fail to achieve the intended benefit, dilute stockholder value, and adversely affect our operating results.\nAs part of our business strategy, we have made and, in the future, may make investments in other companies, products, or technologies, including acquisitions that may result in our entering markets or lines of business in which we do not currently have expertise. For example, in April 2021, we acquired Precor in order to establish U.S. manufacturing capacity, boost research and development capabilities, and accelerate our penetration of the commercial market.\nWe may not be able to find suitable acquisition candidates and we may not be able to complete acquisitions on favorable terms, if at all, in the future. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by Members, prospective Members, employees, or investors. Moreover, an acquisition, investment, or business relationship may result in unforeseen operating difficulties and expenditures, including disrupting our ongoing operations, diverting management from their primary responsibilities, subjecting us to additional liabilities, increasing our expenses, and adversely impacting our business, financial condition, and operating results. Some acquisitions may require us to spend considerable time, effort, and resources to integrate employees from the acquired business into our teams, and acquisitions of companies in lines of business in which we lack expertise may require considerable management time, oversight, and research before we see the desired benefit of such acquisitions. Therefore, we may be exposed to unknown liabilities and the anticipated benefits of any acquisition, investment, or business relationship may not be realized, if, for example, we fail to successfully integrate such acquisitions, or the technologies associated with such acquisitions, into our company.\nTo pay for any such acquisitions, we would have to use cash, incur debt, or issue equity securities, each of which may affect our financial condition or the value of our capital stock and could result in dilution to our stockholders. If we incur more debt, it will result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to manage our operations. Additionally, we may receive indications of interest from other parties interested in acquiring some or all of our business. The time required to evaluate such indications of interest could require significant attention from management, disrupt the ordinary functioning of our business, and could have an adverse effect on our business, financial condition, and operating results.\nFurther, in connection with our restructuring initiatives, we have divested some of our assets, including through site closures, and plan to divest additional assets, including the sale of the Ohio industrial facility that was intended to be Peloton Output Park. We may in the future decide to divest other assets or a business. In connection with these activities, it may be difficult to find or complete divestiture opportunities or alternative exit strategies under the desired timeline and on acceptable terms, if at all. These circumstances could delay the achievement of our strategic objectives or cause us to incur additional expenses with respect to the desired divestiture, or the price or terms of the divestiture may be less favorable than we had anticipated. Even following a divestiture or other exit strategy, we may have certain continuing obligations to former employees, customers, vendors, landlords or other third parties. We may also have continuing liabilities related to former employees, assets or businesses. Such obligations may have a material adverse impact on our results of operations and financial condition.\n20\nWe are subject to payment processing risk\n.\nOur customers pay for our products and services using a variety of different payment methods, including credit and debit cards, gift cards, and online wallets. We rely on internal systems as well as those of third parties to process payment. Acceptance and processing of these payment methods are subject to certain rules and regulations and require payment of interchange and other fees. To the extent there are disruptions in our payment processing systems, increases in payment processing fees, material changes in the payment ecosystem, such as large re-issuances of payment cards, delays in receiving payments from payment processors, or changes to rules or regulations concerning payment processing, our revenue, operating expenses and results of operation could be adversely impacted. We leverage our third-party payment processors to bill Subscribers on our behalf. If these third parties become unwilling or unable to continue processing payments on our behalf, we would have to find alternative methods of collecting payments, which could adversely impact Subscriber acquisition and retention. In addition, from time to time, we encounter fraudulent use of payment methods, which could impact our results of operation, and if not adequately controlled and managed, could create negative consumer perceptions of our service.\nCybersecurity risks could adversely affect our business and disrupt our operations.\nIn addition to relying on critical information technology systems, we collect, maintain and transmit data about employees, suppliers, Members and others, including payment card data and personal information, as well as proprietary business information. Threats to the availability, integrity and security of our systems and data are increasingly diverse and sophisticated. Our systems and data, as well as those of critical third parties, are vulnerable to cyber-attacks involving, for example, viruses and worms, social engineering/phishing, ransomware or other extortion-based attacks, denial-of-service attacks, physical or electronic break-ins, third-party or current/former employee theft or misuse, and similar disruptions from unauthorized tampering with our servers and computer systems or those of third parties that we use in our operations, as well as cyber-risks attributable to software or hardware (e.g., tablets) vulnerabilities, coding errors and misconfigurations (e.g., involving APIs). As artificial intelligence capabilities improve and are increasingly adopted, we may see cyberattacks created through artificial intelligence.\nDespite our efforts to create security barriers to protect our systems and data, we cannot entirely mitigate these risks. Cyberattacks are expected to accelerate on a global basis in both frequency and magnitude as threat actors are becoming increasingly sophisticated in using techniques and tools (including artificial intelligence) that circumvent controls, evade detection, and remove forensic evidence, which means that we and others may be unable to detect, investigate, contain or recover from future attacks or incidents in a timely or effective manner. In addition, our employees, service providers and third parties work more frequently on a remote or hybrid arrangement basis, which may involve relying on less secure systems and may increase the risk of cybersecurity-related incidents. We cannot guarantee these private work environments and electronic connections to our work environment have the same robust security measures deployed in our physical offices. \nAny cyber-attack that impacts our or our Members\u2019 data and assets, disrupts our service, or otherwise compromises the availability, integrity or security of our systems, or those of third parties we use could adversely affect our business, financial condition, and operating results, be expensive to remedy, and damage our reputation. In addition, any such attacks or breaches may negatively impact our Members\u2019 experience, result in negative publicity, adversely affect our brand, impact demand for our products and services, and subject us to litigation (including class actions), regulatory investigations and/or penalties and fines, any or all of which could have an adverse effect on our business, financial condition, and operating results.\nWhile we maintain cyber insurance that may help provide coverage for security breaches or other covered incidents, such insurance may not be adequate to cover the costs and liabilities related to them. Our costs associated with such breaches and incidents, including, for example, those stemming from one or more large claims against us that exceed our available insurance coverage, or that results in changes to our insurance policies, could impact our operating results and/or financial condition. In addition, our insurance policy may change as a result of such incidents or for other reasons, including overall insurance market conditions, new cyber-attack campaigns, premium increases, or the imposition of large, self-insured retentions or other co-insurance requirements.\nOur Member engagement on mobile devices depends upon effective operation with mobile and streaming device operating systems, networks, and standards that we do not control.\nA significant and growing portion of our Members access our platform through the Peloton App, and there is no guarantee that popular mobile devices or television streaming devices will continue to support the Peloton App or that device users will use the Peloton App rather than competing products. We are dependent on the interoperability of the Peloton App with popular mobile and television streaming operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade the functionality of our App offering or give preferential treatment to competitors could adversely affect our platform\u2019s usage on mobile devices and televisions. Additionally, in order to deliver high-quality content, it is important that the Peloton App offering is designed effectively and works well with a range of mobile and streaming technologies, systems, networks, and standards that we do not control. App store license agreements are not negotiable, and we must be responsive to changing requirements under those agreements. We may not be successful in developing relationships with key participants in the mobile and streaming industry or in developing products that operate effectively with these technologies, systems, networks, or standards. In the event that it is more difficult for our Members to access and use our platform on their mobile devices or televisions, or Members find the Peloton App does not effectively meet their needs, our competitors develop products and services that are perceived to operate more effectively on mobile devices or televisions, or if our Members choose not to access or use our platform on their mobile devices or televisions or use products that do not offer access to our platform, our Member growth and Member engagement could be adversely impacted.\n21\nIf we are unable to anticipate appropriate pricing levels for our Connected Fitness Products and subscriptions, our business could be adversely affected.\nIf we are unable to anticipate appropriate pricing levels for our portfolio of Connected Fitness Products and subscription services, whether due to consumer sentiment and spending power, availability and terms of consumer financing, brand perception, competitive pressure, or otherwise, our revenues and/or gross margins could be significantly reduced. Our decisions around the development of new products and services are in part based upon assumptions around pricing levels. If there are price fluctuations in the market after these decisions are made, it could have a negative effect on our business.\nFurther, in March 2022, we began offering Peloton Rental in select markets. In May 2023, we relaunched the Peloton App, shifting perception of an in-home bike company to reflect everything Peloton has to offer to everyone, at any level, wherever they are. No assurance can be given that these offerings or any other new products or services will be successful and will not adversely affect our reputation, operating results, and financial condition. Additionally, our focus on long-term Member engagement over short-term financial condition or results of operations can result in us making decisions that may reduce our short-term revenue or profitability if we believe that such decisions benefit the aggregate Member experience and will thereby improve our financial performance over the long term. These decisions may not produce the long-term benefits that we expect, in which case our Member growth and engagement as well as our business, operating results, and financial condition could be negatively impacted.\nChanges in how we market our products and services could adversely affect our marketing expenses and subscription levels.\nWe use a broad mix of marketing and other brand-building measures to attract Members. We use traditional television and online advertising, as well as third-party social media platforms such as Facebook, Twitter, and Instagram, as marketing tools. As television advertising, online, and social media platforms continue to rapidly evolve or grow more competitive, we must continue to maintain a presence on these platforms and establish a presence on new or emerging popular social media and advertising and marketing platforms. If we cannot use these marketing tools in a cost-effective manner, if we fail to promote our products and services efficiently and effectively, or if our marketing campaigns attract negative media attention, our ability to acquire new Members and our financial condition may suffer and the price of our Class A common stock could decline. In addition, an increase in the use of television, online, and social media for product promotion and marketing may increase the burden on us to monitor compliance of such materials and increase the risk that such materials could contain problematic product or marketing claims in violation of applicable regulations. Negative commentary, claims or publicity regarding us, our products or influencers and other third parties who are affiliated with us could adversely affect our reputation and sales regardless of whether such claims are accurate. See \u2013 \u201c\nOur success depends on our ability to maintain the value and reputation of the Peloton brand.\u201d\nAn economic downturn or economic uncertainty may adversely affect consumer discretionary spending and demand for our products and services.\nOur products and services may be considered discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, including inflation, rising interest rates, recessionary conditions, and other factors such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit and spending power, levels of unemployment, and tax rates. In recent years, the United States and other significant economic markets have experienced cyclical downturns and worldwide economic conditions remain uncertain. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions and fluctuations. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products and services and consumer demand for our products and services may not grow as we expect. For example, in more recent quarters, we have experienced reduced consumer demand, partially contributing to a decrease in Connected Fitness Products revenue relative to prior year periods. Our sensitivity to economic cycles and any related fluctuation in consumer demand for our products and services could have an adverse effect on our business, financial condition, and operating results.\nOur revenue could decline due to changes in credit markets and decisions made by credit providers.\nMany of our customers have financed their purchase of our Connected Fitness Products through third-party credit providers with whom we have existing relationships. If we are unable to maintain our relationships with our financing partners, there is no guarantee that we will be able to find replacement partners who will provide our customers with financing on similar terms, and our ability to sell our Connected Fitness Products may be adversely affected. Further, reductions in consumer lending and the availability of consumer credit could limit the number of customers with the financial means to purchase our products. Higher interest rates could increase our costs or the monthly payments for consumer products financed through other sources of consumer financing. In the future, we cannot be assured that third-party financing providers will continue to provide consumers with access to credit or that available credit limits will not be reduced. Such restrictions or reductions in the availability of consumer credit, or the loss of our relationship with our current financing partners, could have an adverse effect on our business, financial conditions, and operating results.\nWe have a limited operating history with which to predict the profitability of our subscription model. Additionally, we may introduce new revenue models in the future.\nThe majority of our Subscribers are on month-to-month subscription terms and may cancel their subscriptions at any time. In addition, subscription renewals can fluctuate based on a variety of factors such as consumer preferences, competitive products and services and macroeconomic conditions. We have limited historical data with respect to subscription renewals, so we may be unable to accurately predict customer renewal rates, including relating to the May 2023 App relaunch, which included the introduction of new membership tiers and pricing. Additionally, prior renewal rates may not accurately predict future Subscriber renewal rates for a variety of reasons, such as Subscribers\u2019 \n22\ndissatisfaction with our offerings and the cost of our subscriptions, macroeconomic conditions, or new offering introductions by us or our competitors. If our Subscribers do not renew their subscriptions, our revenue may decline, and our business will suffer.  \nFurthermore, we have offered, including in connection with the May 2023 App relaunch, and may in the future offer, new subscription products, implement promotions, or replace or modify current subscription models and pricing, any of which could result in additional costs or could adversely impact Subscriber retention. For example, we began offering Peloton Rental in select markets. It is unknown how our Subscribers will react to new models and whether the costs or logistics of implementing these models will adversely impact our business. If the adoption of new revenue models adversely impacts our Subscriber relationships, Subscriber growth, Subscriber engagement, and our business, financial condition, and operating results could be harmed.\nWe track certain operational and business metrics with internal methods that are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.\nWe track certain operational and business metrics, including Total Workouts and Average Monthly Workouts per Connected Fitness Subscription, with internal methods, which are not independently verified by any third party and, in particular for the Peloton App, are often reliant upon an interface with mobile operating systems, networks and standards that we do not control. Our internal methods have limitations and our process for tracking these metrics may change over time, which could result in unexpected changes to our metrics, including the metrics we report. If the internal methods we use under-count or over-count metrics that are important to our business, for example, as a result of algorithmic or other technical errors, the operational and business metrics that we report publicly, or those that we report to regulatory bodies or otherwise use to manage our business, may not be accurate. In addition, limitations or errors with respect to how we measure certain operational and business metrics may affect our understanding of certain details of our business, which could affect our longer-term strategies, and jeopardize our credibility with Members, partners and regulators. If our operational and business metrics are not accurate representations of our business, market penetration, retention or engagement; if we discover material inaccuracies in our metrics; or if the metrics we rely on to track our performance do not provide an accurate measurement of our business, or if investors, analysts, or customers do not believe that they do, our reputation may be harmed, and our operating and financial results could be adversely affected.\nThe forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, we cannot assure you that our business will grow at a similar rate, if at all.\nGrowth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The forecasts relating to the expected growth in the connected fitness and wellness market, including estimates based on our own internal survey data, may prove to be inaccurate. Even if the market experiences the growth we forecast, we may not grow our business at a similar rate, or at all. Our growth is subject to many factors, including consumer demand and our success in implementing our business strategy, which are subject to many risks and uncertainties. See \u201c\u2014 \nOur operating results have been, and could in the future be, adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory\n.\u201d\nWe or our Subscribers may be subject to sales and other taxes, and we may be subject to liabilities on past sales for taxes, surcharges, and fees.\nThe application of indirect taxes, such as sales and use tax, subscription sales tax, value-added tax, provincial taxes, goods and services tax, business tax, and gross receipt tax, to businesses like ours and to our Subscribers is a complex and evolving issue. Significant judgment is required to evaluate applicable tax obligations. In many cases, the ultimate tax determination is uncertain because it is not clear how existing statutes apply to our business. One or more states, the federal government, or other countries may seek to impose additional reporting, record-keeping, or indirect tax collection obligations on businesses like ours that offer subscription services and other fitness offerings, and consumers have contested, and may in the future contest, the appropriateness of our tax collection practices through litigation or other means. New taxes could also require us to incur substantial costs to capture data and collect and remit taxes. If such obligations were imposed, the additional costs associated with tax collection, remittance, and audit requirements could have an adverse effect on our business, financial condition, and operating results.\nCovenants in the credit agreement and the security agreement governing our term loan and revolving credit facility may restrict our operations, and if we do not effectively manage our business to comply with these covenants, our financial condition could be adversely impacted.\nOur term loan and revolving credit facility contain various restrictive covenants, including, among other things, minimum liquidity and revenue requirements applicable solely to the revolving credit facility, restrictions on our ability to dispose of assets, make acquisitions or investments, incur debt or liens, make distributions to our stockholders, or enter into certain types of related party transactions. In particular, in addition to customary affirmative covenants, as well as customary covenants that restrict our ability to, among other things, incur additional indebtedness, sell certain assets, guarantee obligations of third parties, declare dividends or make certain distributions, and undergo a merger or consolidation or certain other transactions, our revolving credit facility, as recently amended, requires us to maintain a total level of liquidity of not less than $250.0 million and limits our borrowings under the revolving credit facility of our credit agreement to the lesser of $400.0 million and an amount equal to the Subscription revenue of the company and its subsidiaries for the most recently completed fiscal quarter of the company. These restrictions may restrict our current and future operations, particularly our ability to respond to certain changes in our business or industry or take future actions. Pursuant to the security agreement, we granted the parties thereto a security interest in substantially all of our assets. See \nNote 12 - Debt\n in the Notes to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K and the section titled \u201c\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Second Amended and Restated Credit Agreement\n\u201d in Part II, Item 7 of this Annual Report on Form 10-K.\nOur ability to meet these restrictive covenants can be impacted by events beyond our control and we may be unable to do so. Our credit agreement provides that our breach or failure to satisfy certain covenants constitutes an event of default. Upon the occurrence of an event of default, our lenders could elect to declare all amounts outstanding under its debt agreements to be immediately due and payable. In addition, our \n23\nlenders would have the right to proceed against the assets we provided as collateral pursuant to the credit agreement and the security agreement. If the debt under our credit agreement was to be accelerated, we may not have sufficient cash on hand or be able to sell sufficient collateral to repay it, which would have an immediate adverse effect on our business and operating results. This could potentially cause us to cease operations and result in a complete loss of your investment in our Class A common stock.\nWe have identified material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.\nIn the course of preparing our financial statements for fiscal 2021, fiscal 2022 and fiscal 2023, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In the course of preparing our financial statements for fiscal 2023, we identified a material weakness related to information technology general controls (\u201cITGCs\u201d) in the area of user access over a certain information technology system specific to Precor. We have concluded that this material weakness arose because we did not design and maintain sufficient user access controls to ensure appropriate segregation of duties and adequately restrict user and privileged access to a financial application, programs, and data to appropriate Company personnel. The affected ITGCs adversely affected certain automated and manual business process controls reliant on such ITGCs. The material weakness that we identified in fiscal 2021 and 2022 related to reporting involving inventory; an additional material weakness we identified in fiscal 2022 related to controls that validate the inputs and assumptions used in our impairment testing. We have concluded that these material weaknesses arose because our controls were not effectively designed, documented and maintained to (i) verify that our physical inventory counts were correctly counted and communicated; and (ii) apply fair value measurements and validate the inputs and assumptions used in our impairment testing for reporting in our financial statements.\nTo address our material weaknesses, we have made changes to our program and controls as set forth in Part II, Item 9A \u201cControls and Procedures.\u201d Unless otherwise described in Part II, Item 9A \u201cControls and Procedures\u201d, we will not be able to fully remediate these material weaknesses until these steps have been completed and have been operating effectively for a sufficient period of time.\nIf we are unable to further implement and maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could be adversely affected and we could become subject to litigation or investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.\nFurthermore, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weakness in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. For example, as we continue our reliance on last mile partners, we may face additional challenges in accurately verifying physical inventory counts. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.\nAny failure to implement and maintain effective internal control over financial reporting could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports that are filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on The Nasdaq Global Select Market.\nFailure to maintain effective internal control over our financial and management systems may strain our resources, divert management\u2019s attention, and impact our ability to attract and retain executive management and qualified board members.\nWe are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the rules and regulations promulgated thereunder by the SEC and any rules and regulations subsequently implemented by the SEC, the rules and regulations of the listing standards of The Nasdaq Stock Market LLC and other applicable securities rules and regulations. Compliance with these rules and regulations has increased our legal and financial compliance costs and strains our financial and management systems, internal controls, and employees.\nThe Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. Moreover, the Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control over financial reporting. In order to maintain and, if required in the future, improve our disclosure controls and procedures, and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. In the course of preparing our financial statements for fiscal 2023, we identified a material weakness in our internal control over financial reporting related to Precor ITGCs. Previously, in fiscal 2021 and 2022, we had identified a material weakness related to controls around the existence, completeness, and valuation of inventory. If, in the future, we have a material weakness or deficiencies in our internal control over financial reporting, we may \n24\nnot detect errors on a timely basis and our consolidated financial statements may be materially misstated. Effective internal control is necessary for us to produce reliable financial reports and is important to prevent fraud. See \u201c\u2014 \nWe have identified material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.\n\u201d\nPursuant to Sections 302 and 404 of the Sarbanes-Oxley Act, our independent registered public accounting firm has provided an attestation report regarding our internal control over financial reporting. We have incurred and expect to continue to incur significant expenses and devote substantial management effort toward ensuring compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, our management\u2019s attention may be diverted from other business concerns, which could harm our business, operating results, and financial condition. Although we have already hired additional employees to assist us in complying with these requirements, we may need to hire more employees in the future, or engage outside consultants, which will increase our operating expenses.\nIf our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.\nThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates\u201d in Part II, Item 7 of this Annual Report on Form 10-K. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and stockholders\u2019 equity/deficit, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue related reserves, the realizability of inventory, content costs for past use reserve, fair value measurements including common stock valuations, the incremental borrowing rate associated with lease liabilities, useful lives of property and equipment, product warranty, goodwill and finite-lived intangible assets, accounting for income taxes, stock-based compensation expense and commitments and contingencies. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the price of our Class A common stock.\nWe are exposed to changes to the global macroeconomic environment beyond our control, including inflation fluctuations and foreign currency exchange rate fluctuations.\nWe are exposed to fluctuations in inflation, which could negatively affect our business, financial condition and operating results. The United States has recently experienced historically high levels of inflation. If the inflation rate continues to increase, it will likely affect our expenses, including, but not limited to, employee compensation expenses and increased costs for supplies. Any attempts to offset cost increases with price increases may result in reduced sales, increased customer dissatisfaction or otherwise harm our reputation. Moreover, to the extent inflation results in rising interest rates, reduces discretionary spending, and has other adverse effects on the market, it may adversely affect our business, financial condition and operating results.\nIn addition, while we have historically transacted in U.S. dollars with the majority of our Subscribers and suppliers, we have transacted in some foreign currencies, such as the Euro, Canadian Dollar and U.K. Pound Sterling, and may transact in more foreign currencies in the future. Further, certain of our manufacturing agreements provide for fixed costs of our Connected Fitness Products and hardware in Taiwanese dollars but provide for payment in U.S. dollars based on the then-current Taiwanese dollar to U.S. dollar spot rate. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar can affect our revenue and operating results. As a result of such foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and operating results. In addition, to the extent that fluctuations in currency exchange rates cause our operating results to differ from our expectations or the expectations of our investors, the trading price of our Class A common stock could be lowered. We use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place and may introduce additional risks if we are unable to structure effective hedges with such instruments.\nA resurgence of the COVID-19 pandemic could have an adverse effect on our business, and it remains uncertain how the post-COVID-19 pandemic environment and any resurgence of the COVID-19 pandemic will impact consumer demand for our products and services and consumer preferences generally.\nA resurgence of the COVID-19 pandemic could have an adverse effect on our business, results of operations, and financial condition due to the occurrence of some or all of the following events or circumstances, among others:\n\u2022\nour and our third-party suppliers\u2019, contract manufacturers\u2019, logistics providers\u2019, and other business partners\u2019 inability to manage our or their business effectively or operate worksites due to employees, including key employees, becoming ill and working from home inefficiently as a result of a remote or hybrid working arrangement;\n\u2022\ntemporary inventory shortages caused by difficulties in predicting demand for our products and services and longer lead-times and component shortages in the manufacturing of our Connected Fitness Products, due to import/export conditions such as port congestion, and local government orders; and\n\u2022\nincurrence of significant increases to employee healthcare and benefits costs.\nIn addition, while we experienced a significant increase in our Subscriber base at the onset of the COVID-19 pandemic, the rate of the increase has since slowed down and, over the longer term, it remains uncertain how the post-COVID-19 pandemic environment will impact consumer \n25\ndemand for our products and services and consumer preferences generally. It also remains uncertain how any resurgence of the COVID-19 pandemic would impact demand for our products and services. See \u201c\u2014 \nOur operating results have been, and could in the future be, adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory\n.\u201d\nStockholder activism could disrupt our business, cause us to incur significant expenses, hinder execution of our business strategy, and impact our stock price.\nWe have been and may in the future be subject to stockholder activism, which can arise in a variety of predictable or unpredictable situations and can result in substantial costs and divert management\u2019s and our board\u2019s attention and resources from our business. Additionally, such stockholder activism could give rise to perceived uncertainties as to our long-term business, financial forecasts, future operations and strategic planning, harm our reputation, adversely affect our relationships with our Members and business partners, and make it more difficult to attract and retain qualified personnel. We may also be required to incur significant fees and other expenses related to activist matters, including for third-party advisors retained by us to assist in navigating activist situations. Our stock price could fluctuate due to trading activity associated with various announcements, developments, and share purchases over the course of an activist campaign or otherwise be adversely affected by the events, risks and uncertainties related to any such stockholder activism.\nIncreased regulation and increased scrutiny and changing expectations from investors, consumers, employees, and others regarding environmental, social and governance matters, practices and reporting could cause us to incur additional costs, devote additional resources and expose us to additional risks, which could adversely impact our reputation, customer attraction and retention, access to capital and employee recruitment and retention.\nCompanies across all industries are facing increasing scrutiny related to their environmental, social and governance (\u201cESG\u201d) practices and reporting. Investors, consumers, employees and other stakeholders have focused increasingly on ESG practices and placed increasing importance on the implications and social cost of their investments, purchases and other interactions with companies. With this increased focus, public reporting regarding ESG practices is becoming more broadly expected. If our ESG practices and reporting do not meet investor, consumer or employee expectations, which continue to evolve, our brand, reputation and customer retention may be negatively impacted.\nOur ability to achieve our current or future ESG objectives, targets or goals, including our renewable energy procurement, air freight reduction, and circular business model goals, is subject to numerous risks, many of which are outside of our control. Examples of such risks include:\n\u2022\nthe availability and cost of low- or non-carbon-based energy sources;\n\u2022\nthe evolving regulatory requirements affecting ESG standards or disclosures;\n\u2022\nthe availability of suppliers that can meet sustainability, diversity and other ESG standards that we may set;\n\u2022\nour ability to recruit, develop and retain diverse talent in our labor markets; and\n\u2022\nthe success of our organic growth and acquisitions or dispositions of businesses or operations.\nIf we fail, or are perceived to be failing, to meet the standards included in any sustainability disclosure or the expectations of our various stakeholders, it could negatively impact our reputation, customer attraction and retention, access to capital and employee retention. In addition, new sustainability rules and regulations have been adopted and may continue to be introduced in various states and other jurisdictions. For instance, the European Union Corporate Sustainability Reporting Directive (\u201cCSRD\u201d) became effective in 2023. CSRD applies to both EU and non-EU in-scope entities and would require them to provide expansive disclosures on various sustainability topics including climate change, biodiversity, workforce, supply chain, and business ethics. The SEC is expected to finalize a climate change disclosure proposal in 2023. Further, the International Sustainability Standards Board issued sustainability and climate change disclosure standards in June 2023, which the U.K. and other countries in which we operate had indicated they will adopt as their own binding standards. Our failure to comply with any applicable rules or regulations or other criticisms of our sustainability disclosures could lead to penalties or claims and other litigation and adversely impact our reputation, customer attraction and retention, access to capital and employee retention.\nOur business is subject to the risk of earthquakes, fire, power outages, floods, hurricanes, public health crises, ransomware and other cybersecurity attacks, labor disputes, and other catastrophic events, and to interruption by man-made problems such as terrorism and international geopolitical conflicts.\nOur business is vulnerable to damage or interruption from climate risk in the form of extreme weather events, earthquakes, fires, floods, hurricanes, and other  power losses, telecommunications failures, ransomware and other cybersecurity attacks, labor disputes, terrorist attacks, acts of war and international geopolitical conflicts, human errors, break-ins, industrial accidents, public health crises, including the COVID-19 pandemic, and other unforeseen events or events that we cannot control. The third-party providers, systems and operations and contract manufacturers we rely on are subject to similar risks. Our insurance policies may not cover losses from these events or may provide insufficient compensation that does not cover our total losses. For example, a significant natural disaster, such as an earthquake, fire, or flood, could have an adverse effect on our business, financial condition and operating results, and our insurance coverage may be insufficient to compensate us for losses that may occur. Acts of terrorism, which may be targeted at metropolitan areas that have higher population density than rural areas, could also cause disruptions to our or our suppliers\u2019 and contract manufacturers\u2019 businesses or the economy as a whole. We may not have sufficient protection or recovery plans in some circumstances, such as natural disasters affecting locations that store significant inventory of our products, which house our servers, or from which we generate content. As we rely heavily on our computer and communications systems, and the internet to conduct our business and provide high-quality customer service, these disruptions, including disruptions due to weather-related events that could stress the power grid, could negatively impact our ability to run our business and either directly or indirectly disrupt suppliers\u2019 and our contract manufacturers\u2019 businesses, which could have an adverse effect on our business, financial condition, and operating results.\n26\nRisks Related to Our Connected Fitness Products and Members\nOur products and services may be affected from time to time by design and manufacturing defects or product safety issues, real or perceived, that could adversely affect our business and result in harm to our reputation.\nWe offer complex hardware and software products and services that may be alleged, and have been alleged, to be affected by design and manufacturing defects or potential product safety issues. Sophisticated operating system software and applications, such as those offered by us, often have issues that can unexpectedly interfere with the intended operation of hardware or software products. Defects may also exist in components and products that we source from third parties, or may arise from upgrades or changes to hardware that we or our third-party manufacturing partners may make in the ordinary course of a product\u2019s lifecycle. Actual or perceived defects may not be identified until after a product is in market. Any defects could impact our customer experience, tarnish our brand reputation or make our products and services unsafe and create a risk of environmental or property damage and/or personal injury. We may also become subject to the hazards and uncertainties of product liability claims and related litigation, including consumer claims. \nAdditionally, in May 2021, we initiated a voluntary recall of our Tread+ product in coordination with the CPSC in response to reports of injuries associated with our Tread+, one of which led to the death of a child. In 2020, we conducted a voluntary recall in coordination with the CPSC of first generation clip-in pedals in our Peloton Bike, our original model bike, due to a risk that the pedal can break during use, causing injuries. In addition, in May 2023, in collaboration with the CPSC, we announced a voluntary recall of the original Peloton model Bikes (not Bike+) seat posts sold in the U.S. from January 2018 to May 2023, and we are offering Members a free replacement seat post as the approved repair. We have incurred, and may continue to incur, incremental expenses or face other challenges in connection with the implementation of the seat post recall beyond what we have currently estimated to be probable and reasonably estimable, including if the number of reported incidents materially increases, which may adversely impact our operating results, brand reputation, demand for our products, and business. In addition to the seat post recall described above, in collaboration with the CPSC, in May 2023 we announced that we will be offering a free rear safety guard to Members in connection with the Tread+ recall. We may face, and have faced, substantial costs associated with the implementation of the above and other recalls including the development of new or additional product features.\nWe are presently subject to class action litigation, private personal injury claims and other regulatory proceedings, government inquiries and investigations related to the Tread+ and Bike recalls and other matters that, regardless of their merits, could harm our reputation, divert management\u2019s attention from our operations, and result in substantial legal fees, judgments, fines, penalties, and other costs. Given that such proceedings are subject to uncertainty, there can be no assurance that such legal and regulatory proceedings, either individually or in the aggregate, will not have a material adverse effect on our stock price, business, results of operations, financial condition or cash flows. Furthermore, the occurrence of real or perceived defects in any of our products, now or in the future, could result in additional negative publicity, regulatory investigations, recalls, or lawsuits filed against us, particularly if Members or others who use or purchase our Connected Fitness Products are injured. Even if injuries are not the result of any defects, if they are perceived to be, we may incur expenses to defend or settle any claims or government inquiries and our brand and reputation may be harmed. See \nNote 13 - Commitments and Contingencies\n in the Notes to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K and the section titled \u201cLegal Proceedings\u201d in Part I, Item 3 of this Annual Report on Form 10-K.\nIn addition, from time to time, we may experience outages, service slowdowns, hardware issues, or software errors that affect our ability to deliver our fitness and wellness programming through our Connected Fitness platform. As a result, our services may not perform as anticipated and may not meet our expectations, or legal or regulatory requirements, or the expectations of our Members. There can be no assurance that we will be able to timely detect and fix all issues and defects in the hardware, software, and services we offer. Failure to do so could result in widespread technical and performance issues affecting our products and services and could lead to claims or investigations against us.\nDesign and manufacturing defects, real or perceived, and claims related thereto, may subject us to judgments or settlements that result in damages materially in excess of the limits of our insurance coverage. In addition, we may be exposed to recalls, product replacements or modifications, write-offs of inventory, property and equipment, or intangible assets, and significant warranty and other expenses such as litigation costs and regulatory fines. If we cannot successfully defend any large claim, maintain our general liability insurance on acceptable terms, or maintain adequate coverage against potential claims, our financial results could be adversely impacted. Further, quality problems could adversely affect the experience for users of our products and services, and result in harm to our reputation, loss of competitive advantage, poor market acceptance, reduced demand for our products and services, delay in new product and service introductions, and lost revenue.\nOur Members use their Connected Fitness Products, subscriptions, and fitness accessories to track and record their workouts. If our products fail to provide accurate metrics and data to our Members, our brand and reputation could be harmed, and we may be unable to retain our Members.\nOur Members use their Connected Fitness Products, subscriptions, and fitness accessories, such as our heart rate monitor, to track and record certain metrics and data related to their workouts. Examples of data tracked on our platform include heart rate, calories burned, distance traveled and Strive Score as well as cadence, resistance, and output in the case of Bike; pace, speed, and elevation in the case of Tread; Movement Tracker in the case of Guide; and stroke rate, pace, and output in the case of Row. Taken together, these metrics assist our Members in tracking their fitness journey and understanding the effectiveness of their Peloton workouts, both during and after a workout. We anticipate introducing new metrics and features in the future. If the software used in our Connected Fitness Products or on our platform malfunctions and fails to accurately track, display, or record Member workouts and metrics, it could negatively impact our Members\u2019 experience, and we could face claims alleging that our products and services do not operate as advertised. Such reports and claims could result in negative publicity, product liability and/or product safety claims, and, in some cases, may require us to expend time and resources to refute such claims and defend against potential litigation. If our products and services fail to provide accurate metrics and data to our Members, or if there are reports or claims of inaccurate metrics and data or claims of inaccuracy regarding the overall health benefits of our products and services in the future, our \n27\nMembers\u2019 experience may be negatively impacted, we may become the subject of negative publicity, litigation, regulatory proceedings, and warranty claims, and our brand, operating results, and business could be harmed.\nIf we fail to offer high-quality Member support, our business and reputation will suffer.\nProviding a high-quality Member experience is vital to our success in generating word-of-mouth referrals to drive sales and for retaining existing Members. We have faced, and in the future may face, challenges to our ability to provide high-quality Member support. For example, due to COVID-19, we have at times been unable to provide in-home servicing of our Connected Fitness Products, and we have at times had to pause or limit delivery of our Connected Fitness Products. Additionally, our use of, and expansion of, other distribution channels and our increasing reliance on third-party Member support and third-party last mile partners for in-home delivery and set up services may challenge our ability to control Members\u2019 experience of such services. If we do not help our Members quickly resolve issues and provide effective ongoing support, our reputation may suffer, and our ability to retain and attract Members, or to sell additional products and services to existing Members, could be harmed.\nWe may be subject to warranty claims that could result in significant direct or indirect costs, or we could experience greater product returns than expected, either of which could have an adverse effect on our business, financial condition, and operating results.\nWe generally provide a minimum 12-month limited warranty on all of our Connected Fitness Products. In addition, we permit returns of our Bikes or Treads by first-time purchasers for a full refund within 30 days of delivery. The occurrence of any defects, real or perceived, in our Connected Fitness Products could result in an increase in returns or make us liable for damages and warranty claims in excess of our current reserves, which could result in an adverse effect on our business prospects, liquidity, financial condition, and cash flows if returns or warranty claims were to materially exceed anticipated levels. We have experienced and may in the future experience higher product returns during periods where there are actual or perceived defects in our products or services or if there are changes in home fitness demand as consumers go back to their pre-COVID routines.\nIn addition, we have been, and in the future could be, subject to costs related to product recalls, and we could incur significant costs to correct any defects, warranty claims, or other problems. Any negative publicity related to the perceived quality and safety of our products could affect our brand image, decrease consumer and Member confidence and demand, and adversely affect our financial condition and operating results. Also, while our warranty is limited to repairs and returns, warranty claims may result in litigation, the occurrence of which could have an adverse effect on our business, financial condition, and operating results. For example, in connection with our May 2021 Tread+ recall, we are presently, and may in the future be, subject to warranty claims and lawsuits related to injuries sustained by Members or their friends and family members, or others who use or purchase the Tread+ and other Connected Fitness Products that, regardless of their merits, could harm our reputation, divert management\u2019s attention from our operations and result in substantial legal fees and other costs. See \u201c \u2014 \nOur products and services may be affected from time to time by design and manufacturing defects or product safety issues, real or perceived, that could adversely affect our business and result in harm to our reputation.\u201d\nIn addition to warranties supplied by us, we also offer the option for customers to purchase third-party extended warranty and services contracts in some markets, which creates an ongoing performance obligation over the warranty period. Extended warranties are regulated in the United States on a state level and are treated differently by state. Outside the United States, regulations for extended warranties vary from country to country. Changes in interpretation of the insurance regulations or other laws and regulations concerning extended warranties on a federal, state, local, or international level may cause us to incur costs or have additional regulatory requirements to meet in the future. Our failure to comply with past, present, and future similar laws could result in reduced sales of our products, reputational damage, penalties, and other sanctions, which could have an adverse effect on our business, financial condition, and operating results.\nRegulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our products.\nWe are subject to requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requiring us to conduct due diligence on and disclose whether or not certain conflict minerals originating from certain countries as well as geographic regions are necessary for the manufacture or functionality of our products. The implementation of these requirements could adversely affect the sourcing, availability, and pricing of the materials used in the manufacture of components used in our products. In addition, we incur additional costs to comply with the potential disclosure requirements, including costs related to conducting diligence procedures to determine the sources of minerals that may be used or necessary to the production of our products and, if applicable, potential changes to products, processes, or sources of supply as a consequence of such due diligence activities. It is also possible that we may face reputational harm if we determine that any of our products contain minerals not determined to be free of conflict minerals or if we are unable to alter our products, processes, or sources of supply to avoid such materials. \nRisks Related to Laws, Regulation, and Legal Proceedings\nFrom time to time, we may be subject to legal proceedings, government inquiries or investigations, or disputes that could cause us to incur significant expenses, divert our management\u2019s attention, and materially harm our business, financial condition, and operating results.\nFrom time to time, we may be subject to claims, lawsuits, government inquiries or investigations, demands, disputes, and other proceedings involving product safety, product liability, competition and antitrust, intellectual property, privacy, consumer protection, securities, tax, labor and employment, commercial disputes, and other matters that could adversely affect our business operations and financial condition. As we have grown, we have seen a rise in the number and significance of these disputes and inquiries. Injuries sustained by Members or their friends and family members, or others who use or purchase our Connected Fitness Products, have subjected us to, and could in the future subject us to, regulatory proceedings, government inquiries, investigations, and actions, and private litigation that regardless of their merits, could harm our \n28\nreputation, divert management\u2019s attention from our operations and result in substantial legal fees and other costs. Additionally, we have in the past been subject to intense media scrutiny, which exposes us to increasing regulation, government or regulatory investigations, legal actions and penalties. For example, we are presently subject to litigation related to injury claims by Members and other used or purchased the  Tread+, and we have reporting obligations to safety regulators in all jurisdictions where we sell Connected Fitness Products, where reporting may trigger further regulatory investigations. See \u201c \u2014 \nOur products and services may be affected from time to time by design and manufacturing defects or product safety issues, real or perceived, that could adversely affect our business and result in harm to our reputation.\u201d \nThe SEC is also investigating our public disclosures concerning the Tread+ recall, as well as other matters. In addition, in  2021, the DOJ and the Department of Homeland Security (the \u201cDHS\u201d) subpoenaed us for documents and other information related to our statutory obligations under the CPSA, and they are continuing to investigate.\nWe have also been named in several lawsuits related to our products. For example, the Company and certain of its former officers have been named in a consolidated securities class action on behalf of a class consisting of individuals who purchased or otherwise acquired our Class A common stock between September 11, 2020 and May 5, 2021, alleging that the defendants made false and/or misleading statements in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder related to the Tread and Tread+  products and the safety of those products. Seven stockholders filed verified stockholder derivative action lawsuits purportedly on behalf of the Company against certain of our current and former officers and directors alleging breaches of fiduciary duties and violations of Section 14(a) of the Securities Exchange Act, and, for certain of the lawsuits, unjust enrichment, abuse of control, gross mismanagement, waste, and a claim for contribution under Sections 10(b) and 21D of the Exchange Act based upon similar allegations. See \n\u201c\n\u2014\nThe stock price of our Class A common stock has been, and will likely continue to be, volatile and you could lose all or part of your investment.\u201d \nWe and certain of our current and former officers have also been named as defendants in a consolidated putative securities class action related to demand for our Connected Fitness Products. In particular, plaintiffs filed a putative securities class action lawsuit purportedly on behalf of a class consisting of individuals who purchased or otherwise acquired our Class A common stock between February 5, 2021 and January 19, 2022, alleging that the defendants made false and/or misleading statements about demand for the Company\u2019s products and the reasons for the Company\u2019s product inventory growth.  Plaintiffs also allege that the defendants engaged in improper trading in violation of Sections 10(b) and 20A of the Exchange Act and Rule 10b-5 promulgated thereunder. Four stockholders filed verified stockholder derivative action lawsuits purportedly on behalf of the Company against current and former officers and directors, alleging breaches of fiduciary duty based upon substantially similar allegations. We have also been named in a putative class action in South Carolina related to the Bike seat post recall by plaintiffs purporting to represent a nationwide class of purchasers of the Bike and alleging that sales of the Bike constituted breaches of warranty, negligence, unjust enrichment, and sale of a defective product. The Company and certain of its current and former officers have also been named in a putative securities class action on behalf of individuals who purchased or otherwise acquired Peloton securities between May 10, 2022 and May 10, 2023, alleging that the defendants made false and/or misleading statements about the safety of the Peloton Bike and likelihood of a recall in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. Additionally, from time to time, we may be, and currently are, subject to inquiries from regulators in which they seek information about us or our practices. Such further inquiries could result in more formal investigations or allegations, which could adversely impact our business, financial condition, and operating results.\nLitigation, government inquiries or investigations, regulatory proceedings, such as the investigations described above, as well as related personal injury or class action claims and lawsuits, and securities, commercial, consumer and intellectual property infringement matters that we are currently facing or could face, can be protracted and expensive, and have results that are difficult to predict. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages and include claims for injunctive relief. Additionally, our legal costs for any of these matters, either alone or in the aggregate could be significant. Adverse outcomes with respect to any of these legal or regulatory proceedings may result in significant settlement costs or judgments, penalties and fines, or require us to modify our products or services, make content unavailable, or require us to stop offering certain products, components, or features, all of which could negatively affect our membership and revenue growth. Even if these proceedings are resolved in our favor, the time and resources necessary to resolve them could divert the resources of our management and require significant expenditures. See \nNote 13 - Commitments and Contingencies \nin the Notes to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K and the section titled \u201cLegal Proceedings\u201d in Part I, Item 3 of this Annual Report on Form 10-K.\nThe results of litigation, investigations, claims, demands, disputes, and regulatory proceedings cannot be predicted with certainty, and determining reserves for pending litigation and other legal and regulatory matters requires significant judgment. There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, financial condition, and operating results.\nWe collect, store, process, and use personal data and other Member data, which subjects us to legal obligations and laws and regulations related to security and privacy, and any actual or perceived failure to meet those obligations could harm our business.\nWe collect, process, store, and use a wide variety of data from current and prospective Members, including personal data (some of which is considered sensitive data under applicable laws), such as home addresses, and geolocation data. U.S. federal, state, and international laws and regulations governing privacy, data protection, and e-commerce transactions impose obligations on what we can do with our Members\u2019 personal data. These obligations include heightened transparency about data collection, use and sharing practices, new data privacy rights, and rules in respect to cross-border data transfers, which carry significant enforcement penalties for non-compliance. These laws and regulations also require us to safeguard our Members\u2019 personal data. Although we have established security measures, policies and procedures designed to protect Member information, our third-party service providers\u2019 security and testing measures may not prevent security breaches. Further, advances in computer capabilities, artificial intelligence and machine learning, new discoveries in the field of cryptography, inadequate facility security, or other developments may result in a compromise or breach of the technology we use to protect Member data. Any compromise of our security or breach of our Members\u2019 privacy could harm our reputation or financial condition and, therefore, our business.\nIn addition, a party who circumvents our security measures or exploits inadequacies in our security measures, could, among other effects, misappropriate Member data or other proprietary information, cause interruptions in our operations, or expose Members to computer viruses or \n29\nother disruptions. Actual or perceived vulnerabilities may lead to claims against us. To the extent that the measures we or our third-party business partners have taken prove to be insufficient or inadequate, we may become subject to litigation, breach notification obligations, or regulatory or administrative sanctions, which could result in significant fines, penalties, or damages and harm to our reputation. Depending on the nature of the information compromised, in the event of a data breach or other unauthorized access to our Member data, we may also have obligations to notify Members about the incident and we may need to provide some form of remedy, such as a subscription to a credit monitoring service, for the individuals affected by the incident. A growing number of legislative and regulatory bodies have adopted consumer notification requirements in the event of unauthorized access to or acquisition of certain types of personal data. Such breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another, and there can be no assurances that we will be successful in our efforts to comply with these obligations. Complying with these obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises Member data.\nFurthermore, we may legally be required to disclose personal data pursuant to demands from individuals, privacy advocates, regulators, government agencies, and law enforcement agencies in various jurisdictions with conflicting privacy and security laws. This disclosure of or refusal to disclose personal data may result in a breach of privacy and data protection policies, notices, laws, rules, court orders, and regulations and could result in proceedings or actions against us in the same or other jurisdictions, damage to our reputation and brand, and inability to provide our products and services to consumers in certain jurisdictions. Additionally, new laws or regulations, or changes to or re-interpretations of the laws and regulations that govern our collection, use, and disclosure of Member data could impose additional requirements with respect to the retention and security of Member data, could limit our marketing activities, and could have an adverse effect on our business, financial condition, and operating results.\nViolations of applicable privacy laws or cybersecurity incidents could impact our business in a number of ways, such as a temporary suspension of some or all of our operating and/or information systems, damage our reputation, our relationships with customers, suppliers, vendors, and service providers and the Peloton brand and could result in lost data, lost sales, increased insurance premiums, substantial breach-notification and other remediation costs and lawsuits, as well as adversely affect results of operations. In addition, we may also face regulatory investigations with corresponding fines, civil claims including representative actions, and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities (including under laws such as in California that provide statutory damage remedies for certain types of breaches), as well as associated costs, diversion of internal resources, and reputational harm. \nWe may also incur additional costs in the future related to the implementation of additional security measures to protect against new or enhanced data security and privacy threats, to comply with state, federal, and international laws that may be enacted to address personal data processing risks and data security threats, or to investigate or address potential or actual data security or privacy breaches.\nWe are subject to global trade related laws and regulations for the export and import of goods, articles, materials and technology, as well as forced labor and economic sanctions regulations that could subject us to liability, detention of goods, and impair our ability to compete in international markets.\nThe United States and various foreign governments have imposed controls, export license requirements, duties, and restrictions on the import or export of certain goods and technologies. Our products may be subject to U.S. export controls and compliance with applicable regulatory requirements regarding the export of our products and services may create delays in the introduction of our products and services in international markets, prevent our international Members from accessing our products and services, and, in some cases, prevent the export of our products and services to some countries altogether.\nFurthermore, U.S. export control laws and economic sanctions programs prohibit the provision of products and services to certain countries, regions, governments, and persons subject to U.S. sanctions regulations. Even though we take precautions to prevent our products and technology from being provided to targets of U.S. sanctions, our products and services, including our firmware updates, could be provided to those targets. Our failure to comply with these laws and regulations could have negative consequences, including government investigations, penalties, reputational harm and could harm our international and domestic sales and adversely affect our revenue.\nNumerous laws prohibit the importation of goods made with forced labor or compulsory prison labor, including for example the Tariff Act of 1930, as well as the Uyghur Forced Labor Prevention Act (\u201cUFLPA\u201d), and other global laws against forced labor. The UFLPA prohibits the importation of articles, merchandise, apparel, and goods mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region (Xinjiang) of the People\u2019s Republic of China (PRC), or by entities identified by the U.S. government on the UFLPA Entity List. Forced labor concerns have rapidly become a global area of interest, and is a topic that will likely be subject to new regulations in the markets we operate within. If we fail to comply with these laws and regulations, the Company may be subject to detention, seizure, and exclusion of imports, as well as penalties, costs, and restrictions on export and import privileges that could have an adverse effect on our business, financial condition, and operating results.\nFailure to comply with anti-corruption and anti-money laundering laws, including the FCPA and similar laws associated with our activities outside of the United States, could subject us to penalties and other adverse consequences.\nWe operate a global business and may have direct or indirect interactions with public officials and employees of government agencies or state-owned or affiliated entities. We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. \u00a7 201, Honest Services Wire Fraud, 18 U.S.C. \u00a7 1346, the U.S. Travel Act, the USA PATRIOT Act, the U.K. Bribery Act, and possibly other anti-bribery and anti-money laundering laws in countries in which we conduct activities. These laws prohibit companies and their employees and third-party representatives from corruptly promising, authorizing, offering, or providing, directly or indirectly, improper payments or anything of value to foreign public officials, political parties, and private-sector recipients for the purpose of obtaining or retaining business, directing business to any person, or securing any advantage. In addition, U.S. public companies are required to maintain books and records that accurately and fairly represent their transactions \n30\nand have an adequate system of internal accounting controls. In many foreign countries, including countries in which we may conduct business, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. Governmental enforcement authorities could seek to impose substantial civil and/or criminal fines and penalties for violations of these laws by any director, officer, employee, or third-party representative, which could have a material adverse effect on our business, reputation, operating results and financial condition.\nWe have implemented an anti-corruption compliance program and policies, procedures and training designed to foster compliance with these laws, however, our employees, contractors, and agents, and companies to which we outsource certain of our business operations, may take actions in violation of our policies or applicable law. Any such violation could have an adverse effect on our reputation, business, operating results and prospects.\nAny violation of the FCPA, other applicable anti-corruption laws, or anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, substantial criminal or civil sanctions and suspension or debarment from U.S. government contracts, any of which could have a material adverse effect on our reputation, business, operating results, and prospects. In addition, responding to any enforcement action may result in a significant diversion of management\u2019s attention and resources and significant defense costs and other professional fees.\nChanges in legislation in U.S. and foreign taxation of international business activities or the adoption of other tax reform policies, as well as the application of such laws, could adversely impact our financial position and operating results.\nRecent or future changes to U.S., U.K. and other foreign tax laws could impact the tax treatment of our earnings. For example, the U.S. government may enact significant changes to the taxation of business entities including, among others, the imposition of minimum taxes or surtaxes on certain types of income. We generally conduct our international operations through wholly owned subsidiaries, branches, or representative offices and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Further, we are in the process of implementing an international structure that aligns with our financial and operational objectives as evaluated based on our international markets, expansion plans, and operational needs for headcount and physical infrastructure outside the United States. The intercompany relationships between our legal entities are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. Although we believe we are compliant with applicable transfer pricing and other tax laws in the United States, the United Kingdom, and other relevant countries, changes in such laws and rules may require the modification of our international structure in the future, which will incur costs, may increase our worldwide effective tax rate, and may adversely affect our financial position and operating results. In addition, significant judgment is required in evaluating our tax positions and determining our provision for income taxes.\nDuring the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in foreign currency exchange rates, or by changes in the relevant tax, accounting, and other laws, regulations, principles, and interpretations. As we operate in numerous taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views with respect to, among other things, the manner in which the arm\u2019s-length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property.\nIf U.S., U.K., or other jurisdictions\u2019 tax laws further change, if our current or future structures and arrangements are challenged by a taxing authority, or if we are unable to appropriately adapt the manner in which we operate our business, we may have to undertake further costly modifications to our international structure and our tax liabilities and operating results may be adversely affected.\nOur ability to use our net operating loss to offset future taxable income may be subject to certain limitations.\nAs of June 30, 2023, we had U.S. federal net operating loss carryforwards, or NOLs, and state NOLs of approximately $3,101.6 million and $2,309.9 million, respectively, due to prior period losses, which if not utilized, will begin to expire for federal and state tax purposes beginning in 2034 and 2023, respectively. Realization of these NOLs depends on future income, and there is a risk that our existing NOLs could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our operating results.\nIn general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an \u201cownership change\u201d is subject to limitations on its ability to utilize its NOLs to offset future taxable income. We have undergone three ownership changes in the past, and our NOLs arising before those dates are subject to one or more Section 382 limitations which may materially limit the use of such NOLs to offset our future taxable income. Our NOLs may also be impaired under state laws. In addition, under the 2017 Tax Cuts and Jobs Act, or Tax Act, tax losses generated in taxable years beginning after December 31, 2017 may be utilized to offset no more than 80% of taxable income annually. This change may require us to pay federal income taxes in future years despite generating a loss for federal income tax purposes. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES Act, was signed into law. The CARES Act changes certain provisions of the Tax Act. Under the CARES Act, NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five taxable years preceding the tax year of such loss, but NOLs arising in taxable years beginning after December 31, 2020 may not be carried back. In addition, the CARES Act eliminates the limitation on the deduction of NOLs to 80% of current year taxable income for taxable years beginning before January 1, 2021. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.\nIn addition, future changes in our stock ownership, the causes of which may be outside of our control, could result in an additional ownership change under Section 382 of the Code. There is also a risk that, due to regulatory changes, such as further limitations or suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. Our NOLs \n31\nmay also be limited under state laws. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.\nRisks Related to Our Intellectual Property\nOur intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services, and brand.\nOur success depends in large part on our proprietary technology and our patents, trade secrets, trademarks, and other intellectual property rights. We rely on, and expect to continue to rely on, a combination of trademark, trade dress, domain name, copyright, trade secret and patent protection, as well as confidentiality and license agreements with our employees, contractors, consultants, and third parties with whom we have relationships, to establish and protect our technology, brand, and other intellectual property. However, our efforts to protect our intellectual property rights may not be sufficient or effective, especially as incidents of infringement on the Peloton brand increase, and any of our intellectual property rights may be challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. There can be no assurance that our intellectual property rights will be sufficient to protect against others offering products, services, or technologies that infringe on our rights or are substantially similar to ours and that compete with our business.\nEffective protection of intellectual property, including but not limited to patents, trademarks, and domain names, is expensive and difficult to maintain, both in terms of application and registration costs as well as the costs of defending and enforcing those rights. As we have grown, we have sought to obtain and protect our intellectual property rights in an increasing number of countries, a process that can be expensive and may not always be successful. For example, the U.S. Patent and Trademark Office and various foreign governmental patent agencies require compliance with a number of procedural requirements to complete the patent application process and to maintain issued patents, and noncompliance or non-payment could result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in a relevant jurisdiction. Further, intellectual property protection may not be available to us in every country in which our products and services are available. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against certain third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.\nIn order to protect our brand and intellectual property rights, we spend significant resources to monitor and protect these rights. Litigation brought to protect and enforce our intellectual property rights can be costly, time-consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be limited if we shift our strategy or we may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Accordingly, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Our inability to secure, protect, and enforce our intellectual property rights could seriously damage our brand and our business.\nWe have been, and in the future may be, sued by third parties for alleged infringement of their intellectual property rights, including by music rights holders.\nThere is considerable patent and other intellectual property development activity in our market. Litigation, based on allegations of infringement or other violations of intellectual property rights, is frequent in the fitness and technology industries. Furthermore, it is common for individuals and groups to purchase patents and other intellectual property assets for the purpose of making claims of infringement to extract licenses and/or settlements from companies like ours. Our use of third-party content, including music content, software, and other intellectual property rights may be subject to claims of infringement or misappropriation. We cannot guarantee that our internally developed or acquired technologies and content do not or will not infringe the intellectual property rights of others. From time to time, our competitors or other third parties may claim that we are infringing upon or misappropriating their intellectual property rights, and we may be found to be infringing upon such rights. For additional information, see \nNote 13 - Commitments and Contingencies\n in the Notes to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or royalty payments, prevent us from offering our platform or services or using certain technologies, force us to implement expensive work-arounds, or impose other unfavorable terms. We expect that the occurrence of infringement claims is likely to grow as the market for fitness products and services grows and as we introduce new and updated products and offerings. Further, we cannot compel patent or trademark rights holders to license their rights to us, and our business may be adversely impacted if our access to technology is limited. Accordingly, our exposure to demands for royalty licenses or damages resulting from infringement claims could increase and this could further exhaust our financial and management resources. Further, during the course of any litigation, we may make announcements regarding the results of hearings and motions, and other interim developments. If securities analysts and investors regard these announcements as negative, the market price of our Class A common stock may decline. Even if intellectual property claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to avoid or to resolve them, could divert the resources of our management and require significant expenditures. See \u201c\nRisks Related to Laws, Regulation, and Legal Proceedings.\n\u201d\n \nAny of the foregoing could prevent us from competing effectively and could have an adverse effect on our business, financial condition, and operating results.\nWe cannot compel music rights holders to license their rights to us, and our business may be adversely affected if our access to music is limited. The concentration of control of content by major music licensors means that the actions of one or a few licensors may adversely affect our ability to provide our service. \nWe enter into license agreements to obtain rights to use music in our service, including with major record companies, independent record labels, major music publishers, and independent music publishers and administrators who collectively hold the rights to a significant number of sound recordings and musical compositions.\nComprehensive and accurate ownership information for the musical compositions embodied in sound recordings is sometimes unavailable because songwriters' catalogs are frequently bought and sold between rights holders, meaning ownership and share information can change at \n32\nany time without notification and it may take a while for the appropriate parties to be notified. In some cases, we obtain ownership information directly from music publishers, PROs, collecting societies, or record labels and in other cases we rely on the assistance of third parties to determine ownership information.\nIf the information provided to us or obtained by such third parties does not comprehensively or accurately identify the ownership of musical compositions, if we are unable to determine which musical compositions correspond to specific sound recordings, or if the same party does not own administer, control or own all rights on a worldwide basis, it may become difficult or impossible to identify the appropriate rights holders to whom to pay royalties. This may make it difficult to comply with the obligations of agreements with those rights holders or to secure the appropriate licenses with all necessary parties.\nOur license agreements are complex and impose numerous obligations on us, including obligations to, among other things:\n\u2022\ncalculate and make payments based on complex royalty structures, which requires tracking usage of content in our service that may at times have inaccurate or incomplete metadata necessary for such calculation;\n\u2022\nprovide periodic reports on the exploitation of the content in specified formats; and\n\u2022\ncomply with certain marketing and advertising restrictions.\nCertain of our license agreements could also contain minimum guarantees and/or advance payments, which are not always tied to our number of Subscribers or stream counts for music used in our service. Accordingly, our ability to achieve and sustain profitability and operating leverage in part depends on our ability to increase our revenue through increased sales of subscriptions on terms that maintain an adequate gross margin. Our license agreements that contain minimum guarantees typically have terms of between one and three years, but our Subscribers may cancel their subscriptions at any time. We rely on estimates to forecast whether such minimum guarantees and/or advances against royalties could be recouped against our actual content costs incurred over the term of the license agreement. To the extent that our estimates underperform relative to our expectations, and our content costs do not exceed such minimum guarantees and/or advance payments, our margins may be adversely affected.\nSome of our license agreements also include so-called \u201cmost-favored nations\u201d provisions, which require that certain terms (including material financial terms) are no less favorable than those provided to any similarly situated licensor. If agreements are amended or new agreements are entered into on more favorable terms, these most-favored nations provisions could cause our payment or other obligations to escalate substantially. Additionally, some of our license agreements could require consent to undertake new business initiatives utilizing the licensed content (e.g., alternative distribution models), and without such consent, our ability to undertake new business initiatives may be limited and our competitive position could be impacted.\nIf we use content in ways that are found to exceed the scope of such agreements, we could be subject to monetary penalties or claims of infringement, and our rights under such agreements could be terminated.\nWe face risk of unforeseen costs and potential liability in connection with content we produce, license, and distribute through our platform.\nAs a producer and distributor of content, we face potential liability for negligence, intellectual property infringement, or other claims based on the nature and content of materials that we produce, license, and distribute. We also may face potential liability for content used in promoting our service, including marketing materials. We may decide to remove content from our service, not to place certain content on our service, or to discontinue or alter our production of certain types of content if we believe such content might not be well received by our Members or could be damaging to our brand and business.\nTo the extent we do not accurately anticipate costs or mitigate risks, including for content that we obtain but ultimately does not appear on or is removed from our service, or if we become liable for content we produce, license or distribute, our business may suffer. Litigation to defend these claims could be costly and the expenses and damages arising from any liability could harm our business. We may not be indemnified against claims or costs of these types and we may not have insurance coverage for these types of claims.\nSome of our products and services contain open source software, which may pose particular risks to our proprietary software, technologies, products, and services in a manner that could harm our business.\nWe use open source software in our products and services and anticipate using open source software in the future. Some open source software licenses require those who distribute open source software as part of their own software product to publicly disclose all or part of the source code to such software product or to make available any open source code included in such software product or any derivative works of the open source code on unfavorable terms or at no cost. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our products or services. Additionally, we could face claims from third parties claiming ownership of, or demanding release of the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to make our software source code freely available, purchase a costly license, or cease offering the implicated products or services unless and until we can re-engineer them. This re-engineering process could require us to expend significant additional research and development resources, and we cannot guarantee that we will be successful.\nAdditionally, the use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. There is typically no support available for open source software, and we cannot ensure that the authors of such open source software will implement or push updates to address security risks or will not abandon further development and maintenance. Many of the risks associated with the use of open source software, such as the lack of \n33\nwarranties or assurances of title or performance, cannot be eliminated, and could, if not properly addressed, negatively affect our business. We have processes to help alleviate these risks, including a review process for screening requests from our developers for the use of open source software, but we cannot be sure that all open source software is identified or submitted for approval prior to use in our products and services. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have an adverse effect on our business, financial condition, and operating results.\nRisks Related to Service Providers and Our Employees\nWe rely heavily on third parties for most of our computing, storage, processing, and similar services, and have increased our reliance on certain third parties, such as last mile and Member support partners. Any disruption of or interference with our use of these third-party services could have an adverse effect on our business, financial condition, and operating results.\nWe have outsourced our cloud infrastructure to third-party providers, and we currently use these providers to host and stream our services and content. We are therefore vulnerable to service interruptions experienced by these providers, and we expect to experience interruptions, delays, or outages in service availability in the future due to a variety of factors, including infrastructure changes, human, hardware or software errors, hosting disruptions, and capacity constraints. Outages and capacity constraints could arise from a number of causes such as technical failures, natural disasters and global pandemics, fraud, or security attacks. Additionally, we rely on last mile partners for the delivery and installation of our products and have increased our reliance on third-party Member support partners. The level or quality of service provided by these providers and partners, or regular or prolonged delays or interruptions in that service, could also affect the use of, and our Members\u2019 satisfaction with, our products and services and could harm our business and reputation. In addition, hosting costs will increase as membership engagement grows, which could harm our business if we are unable to grow our revenue faster than the cost of using these services or the services of similar providers.\nFurthermore, our providers have broad discretion to change and interpret the terms of service and other policies with respect to us, and those actions may be unfavorable to our business operations. Our providers may also take actions beyond our control that could seriously harm our business, including discontinuing or limiting our access to one or more services, increasing pricing terms, terminating or seeking to terminate our contractual relationship altogether, or altering how we are able to process data in a way that is unfavorable or costly to us. Although we expect that we could obtain similar services from other third parties, if our arrangements with our current providers were terminated, we could experience interruptions on our platform and in our ability to make our content available to Members, as well as delays and additional expenses in arranging for alternative cloud infrastructure services.\nAny of these factors could further reduce our revenue, subject us to liability, and cause our Subscribers to decline to renew their subscriptions, any of which could have an adverse effect on our business, financial condition, and operating results.\nIn addition, customers of certain of our providers have been subject to litigation by third parties claiming that the service and basic HTTP functions infringe their patents. If we become subject to such claims, although we expect our provider to indemnify us with respect to at least a portion of such claims, the litigation may be time consuming, divert management\u2019s attention, and, if our provider failed to indemnify us, adversely impact our operating results.\nOur future success depends on the continuing efforts of our key employees and our ability to attract and retain highly skilled personnel and senior management.\nOur future success depends, in part, on our ability to continue to identify, attract, develop, integrate, and retain qualified and highly skilled personnel, including senior management, engineers, producers, designers, product managers, logistics and supply chain personnel, retail managers, and fitness instructors. In particular, we are highly dependent on the services of our senior management team to the development of our business, future vision, and strategic direction. If members of our senior management team, including our executive leadership, become ill, or if we are otherwise unable to retain them, we may not be able to manage our business effectively and, as a result, our business and operating results could be harmed. If the senior management team, including any new hires that we make, fails to work together effectively and to execute our plans and strategies on a timely basis then our business and future growth prospects could be harmed.\nBecause our future success is dependent on our ability to continue to enhance and introduce new products and services, we are particularly dependent on our ability to hire and retain qualified and skilled engineers, including with significant experience in \ndesigning and developing software and internet-related services, and with background in the areas of artificial intelligence and machine learning. \nAlso imperative to our success are our fitness instructors, who we rely on to bring new, exciting, and innovative fitness and wellness content to our platform, and who act as brand ambassadors. The loss of key personnel, including key instructors, could make it more difficult to manage our brand, operations and research and development activities, could reduce our employee retention and revenue, and impair our ability to compete. Although we have entered into employment agreements with our instructors, the U.S. agreements constitute at-will employment. We do not maintain key person life insurance policies on any of our employees.\nDemand and competition for highly skilled personnel, including those with specific expertise, is often intense, especially in New York City, where we have a substantial presence and need for highly skilled personnel. We may not be successful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications, and we may lose new employees to our competitors before we realize the benefit of our investment in recruiting and training them. In addition, we issue equity awards to certain of our employees as part of our hiring and retention efforts, and job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. Our employees\u2019 inability to sell their shares in the public market at times and/or at prices desired may lead to a larger than normal turnover rate. If the actual or perceived value of our Class A common stock declines, it may adversely affect our ability to hire or \n34\nretain employees. In addition, we may periodically change our equity compensation practices, which may include reducing the number of employees eligible for equity awards or reducing the size of equity awards granted per employee or undertaking other efforts that may prove to be unsuccessful retention mechanisms. If we are unable to attract, integrate, or retain the qualified and highly skilled personnel required to fulfill our current or future needs, our business and future growth prospects could be harmed.\nIf we cannot maintain our \u201cOne Peloton\u201d culture, we could lose the innovation, teamwork, and passion that we believe contribute to our success and our business may be harmed.\nWe believe that a critical component of our success has been our corporate culture. We have invested substantial time and resources in building our \u201cOne Peloton\u201d culture, which is based on the idea that if we work together, we will be more efficient and perform better because of one another. As we continue to evolve, we will need to maintain our \u201cOne Peloton\u201d culture among our employees dispersed across various geographic regions. Impacts resulting from the COVID-19 pandemic have also required us to modify some of the ways that our employee population does their work, and we have faced new challenges arising from the management of certain remote, geographically dispersed teams. Our response to the changing work environment has included a number of employee-focused office policies, which are aimed at increasing productivity and employee morale and which have increased our costs. As we continue to develop our infrastructure, and particularly in light of reductions in headcount, including as part of our restructuring initiatives, we may find it difficult to maintain valuable aspects of our culture, to prevent a negative effect on employee morale or attrition beyond our planned reduction in headcount, and to attract competent personnel who are willing to embrace our culture. Any failure to preserve our culture could negatively affect our future success, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.\nRisks Related to the Ownership of Our Class A Common Stock\nThe stock price of our Class A common stock has been, and will likely continue to be, volatile and you could lose all or part of your investment.\nThe market price of our Class A common stock has been, and will likely continue to be, volatile. In addition, the trading prices of securities of technology companies in general have been highly volatile. Moreover, while the trading price of our Class A common stock initially increased during the outbreak of the COVID-19 pandemic, it has fluctuated widely and has now decreased as the public returned to pre-pandemic routines and due to other factors beyond our control. There are no assurances that the trading price of our Class A common stock will increase, decrease, or will continue at this level for any period of time.\nIn addition to the factors discussed in this Annual Report on Form 10-K, the market price of our Class A common stock has and may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:\n\u2022\nour ability to execute and realize the benefits of strategic plans, such as the restructuring initiative we announced in February 2022;\n\u2022\noverall performance of the equity markets and the performance of technology companies in particular;\n\u2022\nvariations in our operating results, cash flows, and other financial and non-financial metrics, and how those results compare to analyst expectations;\n\u2022\nchanges in the financial projections we may provide to the public or our failure to meet these projections;\n\u2022\nthe timing and our ability to implement product solutions to enhance the safety of our Tread+ product in collaboration with the CPSC;\n\u2022\nfailure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;\n\u2022\nrecruitment, satisfaction or departure of key personnel;\n\u2022\nthe economy as a whole, including macroeconomic factors such as global supply issues, inflation, foreign currency exchange rate fluctuations, rising interest rate, recessionary conditions, political instability, volatility in the credit markets, and market conditions in our industry;\n\u2022\npast or future investments, acquisitions or dispositions;\n\u2022\nnegative publicity related to problems with our suppliers or partners, or the real or perceived quality of our products, as well as the failure to timely launch new products or services that gain market acceptance;\n\u2022\nrumors and market speculation involving us or other companies in our industry;\n\u2022\nactions and investment positions taken by institutional investors and other stockholders, including activist investors or short sellers;\n\u2022\nannouncements by us or our competitors of new products, pricing, services, features and content, significant technical innovations, acquisitions, dispositions, strategic partnerships, joint ventures, or capital commitments;\n\u2022\nnew laws or regulations or new interpretations of existing laws or regulations applicable to our business;\n\u2022\nlawsuits threatened or filed against us, litigation involving our industry, or both;\n\u2022\ndevelopments or disputes concerning our or other parties\u2019 products, services, or intellectual property rights;\n\u2022\nsignificant security breaches, technical difficulties and interruptions of service affecting our services and products;\n\u2022\nother events or factors, including those resulting from war, incidents of terrorism, or responses to these events;\n\u2022\nthe expiration of contractual lock-up or market standoff agreements; and\n\u2022\nsales of shares of our Class A common stock by us or our stockholders.\nIn addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. In particular, the Company has been named in three putative securities class action lawsuits, and ten putative stockholder derivative actions.  In April 2021, the Company and certain of its former officers were named in a consolidated securities class action on behalf of a class consisting of individuals who purchased or otherwise acquired our Class A common stock between September 11, 2020 and May 5, 2021, alleging that the defendants made false and/or misleading statements in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder related to the Tread and Tread+ products and the safety of those products. Seven stockholders filed verified \n35\nstockholder derivative action lawsuits purportedly on behalf of the Company against certain of our current and former officers and directors, alleging breaches of fiduciary duties and violations of Section 14(a) of the Securities Exchange Act, and, for certain of the lawsuits, unjust enrichment, abuse of control, gross mismanagement, waste, and a claim for contribution under Sections 10(b) and 21D of the Exchange Act, based upon similar allegations. In November 2021, we and certain of our current and former officers were also named as defendants in a consolidated putative securities class action related to demand for our Connected Fitness Products. Those plaintiffs filed a putative class action lawsuit purportedly on behalf of a class consisting of individuals who purchased or otherwise acquired our Class A common stock between February 5, 2021 and January 19, 2022, alleging that defendants made false and/or misleading statements about demand for the Company\u2019s products and the reasons for the Company\u2019s product inventory growth. Plaintiffs also allege defendants engaged in improper trading in violation of Sections 10(b) and 20A of the Exchange Act and Rule 10b-5 promulgated thereunder. Four stockholders filed verified stockholder derivative action lawsuits purportedly on behalf of the Company against certain of its current and former officers and directors, alleging breaches of fiduciary duty based upon substantially similar allegations. In June 2023, the Company and certain of its current and former officers were also been named in a putative securities class action on behalf of individuals who purchased or otherwise acquired Peloton securities between May 10, 2022 and May 10, 2023, alleging that the defendants made false and/or misleading statements about the safety of Peloton\u2019s Bike and likelihood of a recall in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. These lawsuits and any other securities or stockholder litigation actions could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business. See \u201c\nRisks Related to Laws, Regulation, and Legal Proceedings.\n\u201d\nSales of a substantial amount of our Class A common stock in the public markets, or the perception that such sales might occur, could cause the price of our Class A common stock to decline.\nThe market price of our Class A common stock could decline as a result of sales of a substantial number of shares of our Class A common stock in the public market in the near future, or the perception that these sales might occur. Many of our existing security holders have substantial unrecognized gains on the value of the equity they hold, and may take, or attempt to take, steps to sell, directly or indirectly, their shares or otherwise secure, or limit the risk to, the value of their unrecognized gains on those shares. Additionally, some members of our senior leadership team have pledged shares to secure personal indebtedness. If the price of our Class A common stock declines, the executive could be forced by one or more of the banking institutions to sell shares of our Class A common stock in order to remain within the margin limitations imposed under the terms of the loans. Any conversion of pledged Class B common shares into shares of Class A common stock in connection with such a sale would result in dilution of the Class A stockholders.\nThere were a total of 356,767,627 shares of our Class A common stock and Class B common stock outstanding as of June 30, 2023. All shares of our Class A common stock and Class B common stock are freely tradable, except for certain limitations, including with respect to holding periods, on any shares purchased by our \u201caffiliates\u201d as defined in Rule 144 under the Securities Act of 1933, as amended, or the Securities Act.\nFurther, certain holders of our common stock have rights, subject to some conditions, to require us to file registration statements for the public resale of the Class A common stock issuable upon conversion of such shares or to include such shares in registration statements that we may file for us or other stockholders. Sales of our shares pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales could also cause the trading price of our Class A common stock to fall and make it more difficult for you to sell shares of our Class A common stock.\nIn addition, as of June\u00a030, 2023, we had 27,236,428 shares of Class A common stock underlying restricted stock units that were awarded but not yet vested, and stock options outstanding that, if fully exercised, would result in the issuance of 19,961,731 shares of Class B common stock and 23,037,542 shares of Class A common stock. Subject to the satisfaction of applicable vesting requirements, and limitations applicable to shares held by our affiliates, the vested restricted stock and shares issued upon exercise of outstanding stock options will be available for immediate resale in the open market.\nThe dual class structure of our common stock has the effect of concentrating voting control with our directors, executive officers, and certain other holders of our Class B common stock; this will limit or preclude your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.\nOur Class B common stock has 20 votes per share and our Class A common stock has one vote per share. As of June 30, 2023, our directors, executive officers, and holders of more than 5% of our common stock, and their respective affiliates, held a majority of the voting power of our capital stock. Because of the twenty-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively control a majority of the combined voting power of our common stock and therefore are able to control a number of matters submitted to our stockholders for approval until the earlier of (i) the date specified by a vote of the holders of 66 2/3% of the then outstanding shares of Class B common stock, (ii) ten years from the closing of the IPO, and (iii) the date the shares of Class B common stock cease to represent at least 1% of all outstanding shares of our common stock. This concentrated control limits or precludes your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.\nFuture transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain permitted transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term.\n36\nThe dual class structure of our common stock may adversely affect the trading market for our Class A common stock.\nSeveral stockholder advisory firms and large institutional investors oppose the use of multiple class structures. As a result, the dual class structure of our common stock may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure, and may result in large institutional investors not purchasing shares of our Class A common stock and could result in a less active trading market for our Class A common stock. Any actions or publications by stockholder advisory firms or institutional investors critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.\nWe do not intend to pay dividends for the foreseeable future.\nWe have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock is limited by the restrictions under the terms of our credit agreement and security agreement. We anticipate that, for the foreseeable future, we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our Board of Directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.\nProvisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may limit attempts by our stockholders to replace or remove our current management.\nProvisions in our restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a merger, acquisition or other change of control of our company that the stockholders may consider favorable. In addition, because our Board of Directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors. Among other things, our restated certificate of incorporation and amended and restated bylaws include provisions that:\n\u2022\nprovide that our Board of Directors is classified into three classes of directors with staggered three-year terms;\n\u2022\npermit the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships;\n\u2022\nrequire super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws;\n\u2022\nauthorize the issuance of \u201cblank check\u201d preferred stock that our Board of Directors could use to implement a stockholder rights plan;\n\u2022\nprovide that only the chairman of our Board of Directors, our chief executive officer, or a majority of our Board of Directors will be authorized to call a special meeting of stockholders;\n\u2022\neliminate the ability of our stockholders to call special meetings of stockholders;\n\u2022\nprohibit cumulative voting;\n\u2022\nprovide that directors may only be removed \u201cfor cause\u201d and only with the approval of two-thirds of our stockholders;\n\u2022\nprovide for a dual class common stock structure in which holders of our Class B common stock may have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets;\n\u2022\nprohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;\n\u2022\nprovide that the Board of Directors is expressly authorized to make, alter, or repeal our bylaws; and\n\u2022\nestablish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.\nMoreover, Section 203 of the General Corporation Law of the State of Delaware (the \u201cDGCL\u201d) may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.\nOur restated certificate of incorporation and amended and restated bylaws contain exclusive forum provisions for certain claims, which may limit our stockholders\u2019 ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.\nOur restated certificate of incorporation provides that the Court of Chancery of the State of Delaware, to the fullest extent permitted by law, will be the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our restated certificate of incorporation, or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine.\nMoreover, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. In April 2020, \nwe amended and restated our restated bylaws to provide that the federal district courts of the United States of America will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (a \u201cFederal Forum Provision\u201d). Our decision to adopt a Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court or determine that the Federal Forum Provision should be enforced in a particular case, application of \nthe Federal Forum Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court.\n37\nSection 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. In addition, neither the exclusive forum provision nor the Federal Forum Provision applies to suits brought to enforce any duty or liability created by the Exchange Act. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court.\nOur stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.\nAny person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. These provisions may limit a stockholders\u2019 ability to bring a claim in a judicial forum of their choosing for disputes with us or our directors, officers, or employees, which may discourage lawsuits against us and our directors, officers, and employees\n. Alternatively, if a court were to find the choice of forum provision contained in our restated certificate of incorporation and/or amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition, and operating results.\nShort sellers of our stock may be manipulative and may drive down the market price of our Class A common stock.\nShort selling is the practice of selling securities that the seller does not own, but rather has borrowed or intends to borrow from a third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. It is therefore in the short seller\u2019s interest for the price of the stock to decline, and some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant issuer, often involving misrepresentations of the issuer\u2019s business prospects and similar matters calculated to create negative market momentum, which may permit them to obtain profits for themselves as a result of selling the stock short.\nAs a public entity, we may be the subject of concerted efforts by short sellers to spread negative information in order to gain a market advantage. In addition, the publication of misinformation may also result in lawsuits, the uncertainty and expense of which could adversely impact our reputation, business, financial condition, and operating results. There are no assurances that we will not face short sellers\u2019 efforts or similar tactics in the future, and the market price of our Class A common stock may decline as a result of their actions.\nRisks Related to Our Indebtedness\nThe Notes are effectively subordinated to our existing and future secured indebtedness and structurally subordinated to the liabilities of our subsidiaries.\nOur 0% Convertible Senior Notes due 2026 (the \u201cNotes\u201d) are our senior, unsecured obligations and rank equal in right of payment with our existing and future senior, unsecured indebtedness, senior in right of payment to our existing and future indebtedness that is expressly subordinated to the Notes and effectively subordinated to our existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness. In addition, because none of our subsidiaries guarantee the Notes, the Notes are structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries. As of June 30, 2023, we had approximately $1.8 billion in total indebtedness ($1.0 billion of which was the Notes) and approximately $400.0\u00a0million of available borrowing capacity under the revolving credit facility in our Second Amended and Restated Credit Agreement. Our subsidiaries had no outstanding additional indebtedness as of June 30, 2023. The indenture governing the Notes does not prohibit us or our subsidiaries from incurring additional indebtedness, including senior or secured indebtedness, in the future.\nIf a bankruptcy, liquidation, dissolution, reorganization or similar proceeding occurs with respect to us, then the holders of any of our secured indebtedness may proceed directly against the assets securing that indebtedness. Accordingly, those assets will not be available to satisfy any outstanding amounts under our unsecured indebtedness, including the Notes, unless the secured indebtedness is first paid in full. The remaining assets, if any, would then be allocated pro rata among the holders of our senior, unsecured indebtedness, including the Notes. There may be insufficient assets to pay all amounts then due.\nIf a bankruptcy, liquidation, dissolution, reorganization or similar proceeding occurs with respect to any of our subsidiaries, then we, as a direct or indirect common equity owner of that subsidiary (and, accordingly, holders of our indebtedness, including the Notes), will be subject to the prior claims of that subsidiary\u2019s creditors, including trade creditors and preferred equity holders. We may never receive any amounts from that subsidiary to satisfy amounts due under the Notes.\nWe may be unable to raise the funds necessary to repurchase the Notes for cash following a fundamental change or to pay any cash amounts due upon conversion, and our other indebtedness limits our ability to repurchase the Notes or pay cash upon their conversion.\nNoteholders may require us to repurchase their Notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest, if any. In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in shares of our Class A common stock. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the Notes or pay the cash amounts due upon conversion. Our failure to repurchase Notes or to pay the cash amounts due upon conversion when required will constitute a default under the indenture.\n38\nA default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the Notes.\nThe accounting method for the Notes could adversely affect our reported financial condition and results.\nThe accounting method for reflecting the Notes on our balance sheet, accruing interest expense for the Notes and reflecting the underlying shares of our Class A common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition.\nUnder applicable accounting principles, the initial liability carrying amount of the Notes is the fair value of a similar debt instrument that does not have a conversion feature, valued using our cost of capital for straight, non-convertible debt. We reflected the difference between the net proceeds from our offering of the Notes and the initial carrying amount as a debt discount for accounting purposes, which will be amortized into interest expense over the term of the Notes. As a result of this amortization, the interest expense that we expect to recognize for the Notes for accounting purposes will be greater than the cash interest payments we will pay on the Notes, which will result in lower reported income or higher reported loss. The lower reported income or higher reported loss resulting from this accounting treatment could depress the trading price of our Class A common stock and the Notes. However, in August 2020, the Financial Accounting Standards Board published an Accounting Standards Update, which we refer to as ASU 2020-06, that in certain cases will eliminate the separate accounting for the debt and equity components as described above. ASU 2020-06 will be effective for SEC-reporting entities for fiscal years beginning after December 15, 2021 (or, in the case of smaller reporting companies, December 15, 2023), including interim periods within those fiscal years. However, early adoption is permitted in certain circumstances for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. When effective, we expect to qualify for the elimination of the separate accounting described above which, as a result, will reduce the interest expense that we expect to recognize for the Notes for accounting purposes.\nIn addition, because we intend to settle conversions by paying the conversion value in cash up to the principal amount being converted and any excess in shares, we expect to be eligible to use the treasury stock method to reflect the shares underlying the Notes in our diluted earnings per share. Under this method, if the conversion value of the Notes exceeds their principal amount for a reporting period, we will calculate our diluted earnings per share assuming that all the Notes were converted and that we issued shares of our Class A common stock to settle the excess. However, if reflecting the Notes in diluted earnings per share in this manner is anti-dilutive, or if the conversion value of the Notes does not exceed their principal amount for a reporting period, the shares underlying the Notes will not be reflected in our diluted earnings per share. In addition, when accounting standards change in the future and we are not permitted to use the treasury stock method, our diluted earnings per share may decline. ASU 2020-06 amends these accounting standards, effective as of the dates referred to above, to eliminate the treasury stock method for convertible instruments and instead require application of the \u201cif-converted\u201d method. Under that method, diluted earnings per share would generally be calculated assuming that all the Notes were converted solely into shares of Class A common stock at the beginning of the reporting period, unless the result would be anti-dilutive. The application of the if-converted method may reduce our reported diluted earnings per share.\nFurthermore, if any of the conditions to the convertibility of the Notes is satisfied, we may be required under applicable accounting standards to reclassify the liability carrying value of the Notes as a current, rather than a long-term, liability. This reclassification could be required even if no noteholders convert their Notes and could materially reduce our reported working capital.\nThe capped call transactions may affect the value of the Notes and our Class A common stock.\nIn connection with the Notes, we entered into capped call transactions with certain financial institutions (the \u201coption counterparties\u201d). The capped call transactions are expected generally to reduce the potential dilution to our Class A common stock upon any conversion of the Notes and/or offset any potential cash payments we are required to make in excess of the principal amount upon conversion of any Notes, with such reduction and/or offset subject to a cap.\nIn connection with establishing their initial hedges of the capped call transactions, the option counterparties and/or their respective affiliates purchased shares of our Class A common stock and/or entered into various derivative transactions with respect to our Class A common stock. This activity could have increased (or reduced the size of any decrease in) the market price of our Class A common stock or the Notes at that time.\nIn addition, the option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our Class A common stock and/or purchasing or selling our Class A common stock in secondary market transactions (and are likely to do so following any conversion of Notes, any repurchase of the Notes by us on any fundamental change repurchase date, any redemption date or any other date on which the Notes are retired by us). This activity could also cause or avoid an increase or a decrease in the market price of our Class A common stock or the Notes.\nThe potential effect, if any, of these transactions and activities on the market price of our Class A common stock or the Notes will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our Class A common stock.\nWe are subject to counterparty risk with respect to the capped call transactions, and the capped call may not operate as planned.\nThe option counterparties are financial institutions, and we will be subject to the risk that they might default under the capped call transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions, including the bankruptcy filing by\n39\nLehman Brothers Holdings Inc. and its various affiliates. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with that option counterparty. Our exposure will depend on many factors, but, generally, the increase in our exposure will be correlated with increases in the market price or the volatility of our Class A common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our Class A common stock. We can provide no assurances as to the financial stability or viability of any option counterparty.\nIn addition, the capped call transactions are complex, and they may not operate as planned. For example, the terms of the capped call transactions may be subject to adjustment, modification or, in some cases, renegotiation if certain corporate or other transactions occur. Accordingly, these transactions may not operate as we intend if we are required to adjust their terms as a result of transactions in the future or upon unanticipated developments that may adversely affect the functioning of the capped call transactions.\nOur indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and operating results and impair our ability to satisfy our obligations under applicable debt agreements.\nAs of June 30, 2023, we had $1.8 billion of indebtedness. We may also incur additional indebtedness to meet future financing needs. Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things:\n\u2022\nincreasing our vulnerability to adverse economic and industry conditions;\n\u2022\nlimiting our ability to obtain additional financing;\n\u2022\nrequiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;\n\u2022\nlimiting our flexibility to plan for, or react to, changes in our business;\n\u2022\ndiluting the interests of our existing stockholders as a result of issuing shares of our Class A common stock upon conversion of the notes; and\n\u2022\nplacing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.\nOur business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, including the notes, and our cash needs may increase in the future. In addition, our existing credit facilities contain, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.\nWe may require additional capital to support business growth and objectives, and this capital might not be available to us on reasonable terms, if at all, and may result in stockholder dilution.\nWe intend to continue to make investments to support our business growth and may require additional capital to fund our business and to respond to competitive challenges, including the need to promote our products and services, develop new products and services, enhance our existing products, services, and operating infrastructure, and potentially acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. There can be no assurance that such additional funding will be available on terms attractive to us, or at all. Our inability to obtain additional funding when needed could have an adverse effect on our business, financial condition, and operating results. If additional funds are raised through the issuance of equity or convertible debt securities, holders of our Class A common stock could suffer significant dilution, and any new shares we issue could have rights, preferences, and privileges superior to those of our Class A common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.\n40",
+  "item7": ">Item 7. \n \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. As discussed in the section titled \"Special Note Regarding Forward Looking Statements,\" the following discussion and analysis contains forward looking statements that involve risks, uncertainties, assumptions, and other important factors that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled \"Risk Factors\" in Part I, Item 1A of this Annual Report on Form 10-K.\nA discussion of our results of operations for our fiscal year ended June\u00a030, 2022 compared to the year ended June\u00a030, 2021 is included our Annual\nReport on Form 10-K for the fiscal year ended June\u00a030, 2022, filed with the SEC on September 7, 2022 (File No. 001-39058) under the heading \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations.\u201d\nOverview\nPeloton is a leading global fitness company with a highly engaged community of over\n 6.5 million Members\n as of June\u00a030, 2023. A category innovator at the nexus of fitness, technology, and media, Peloton's first-of-its-kind subscription platform seamlessly combines innovative hardware, distinctive software, and exclusive content. Its world-renowned instructors coach and motivate Members to be the best version of themselves anytime, anywhere. \nWe define a \u201cMember\u201d as any individual who has a Peloton account through a paid Connected Fitness Subscription or a paid Peloton App Membership, and completes 1 or more completed workouts in the trailing 12 month period. We define a completed workout as either completing at least 50% of an instructor-led class, scenic ride or run, or ten or more minutes of \u201cJust Ride\u201d, \u201cJust Run\u201d, or \u201cJust Row\u201d mode.\nOur Connected Fitness Products portfolio includes the Peloton Bike, Bike+, Tread, Tread+, Guide, and Row. Access to the Peloton App is available with an All Access or Guide Membership for Members who have Connected Fitness Products or through a standalone App Membership with multiple Membership tiers. Our revenue is generated primarily from recurring Subscription revenue and the sale of our Connected Fitness Products.  We are additionally focused on growing our Paid App subscribers, including through efforts such as our recent branding and App relaunch in May 2023. We define a \u201cConnected Fitness Subscription\u201d as a person, household, or commercial property, such as a hotel or residential building, who has either paid for a subscription to a Connected Fitness Product (a Connected Fitness Subscription with a successful credit card billing or with prepaid subscription credits or waivers) or requested a \u201cpause\u201d to their subscription for up to three months.\nOur financial profile has been characterized by strong retention, recurring revenue, and efficient customer acquisition. O\nur low Average Net Monthly Connected Fitness Churn, together with our high Subscription Contribution Margin, yields an attractive lifetime value (\u201cLTV\u201d) for our Connected Fitness Subscriptions well in excess of our customer acquisition costs (\u201cCAC\u201d).  Maintaining an attractive LTV/CAC ratio is a primary goal of our customer acquisition strategy.\nFourth Quarter Fiscal 2023 Update and Recent Developments\nQuarterly and Recent Highlights\nOperations\nIncreasing the efficiency of our operations remains a top priority, and we continue to make progress across a range of operational functions.  Within our hardware COGS, middle and last mile costs per unit declined 22% year over year in the three months ended June 30, 2023, reflecting our warehouse consolidation efforts and continued collaboration with our third-party logistics partners. \nWe continue to make progress on reducing costs across our general and administrative (G&A) functions and sales and marketing (S&M). Within G&A, we reduced professional and legal fees (excluding settlements) by over 37% year over year in the three months ended June 30, 2023. We've succeeded in reducing our legal, IT, insurance, and staff augmentation expenses and see opportunity to drive further savings through fiscal year 2024. Reducing the fixed spending portion of our S&M expenses has been a key priority during fiscal year 2023, and we've made substantial progress. In the three months ended June 30, 2023, fixed spending within S&M decreased by over 25% year over year. The largest driver of fixed cost savings is our ongoing reduction of our first-party retail footprint. To date, we've closed 67 retail showrooms, and we will continue optimizing our showroom footprint over the course of fiscal year 2024.\nContent, Software and Community\nOn May\u00a023, 2023, we launched our new App Membership Tiers. Peloton now offers five distinct Membership tiers - three newly launched App Membership Tiers (Free, App One, and App+), as well as the existing All-Access Membership (Connected Fitness Subscription for Peloton equipment owners) and Guide Membership (for Guide owners who don't also own a Peloton Bike, Bike+, Peloton Tread, or Peloton Row). The new App tiers allow beginners and enthusiasts alike to work out with or without equipment \u2013 at home, outdoors or at their gym \u2013 independently or with instruction.\nWe also launched Peloton Gym for each of our App tiers. Peloton Gym offers step-by-step, self-guided workouts designed by Peloton Instructors that Members can take to the gym or on the go. As with all of our App features, Peloton Gym leverages our unparalleled Instructor expertise, combined with Member feedback, to enrich our Strength modality experience over time.\nFor our All-Access Members, we continue to deliver on our promise of an always-improving experience across Bike, Bike+, Tread, Row, and Guide. We expanded upon our gamification experiences by launching Lanebreak on Tread globally. Peloton Tread Members can now engage in an immersive, gaming-inspired workout, an experience that was previously only offered on Bike and Bike+. We also have made iterations to Run \n45\nAchievements on Tread, helping Members more easily track and measure their performance. On the personal records page, Tread Members are now able to view their current run achievements alongside their output personal record (\"PR\"). \nBuilding on our successful launch of our Bike/Bike+ rental program in the U.S. and Canada, we were pleased to bring our rental program to Germany, beginning August 9th. While we continue to optimize our rental program, our data continues to show that rentals are incremental to our subscription base, and we\u2019re excited about expanding this low-cost, commitment-free Connected Fitness offering for Members.\nWe also have been testing and implementing improvements to the discovery experience and personalization algorithms, continuing efforts to showcase new content and help Members better find what they\u2019re looking for with ease. For example, following a successful beta test, in August we launched personalized workout plans for Guide users. Research shows that both Members and prospective Members are looking for more help making progress and staying motivated to their fitness goals. Personalized Plans takes progressive, goal-based plans created by fitness experts and personalizes the recommendations to fit a Member\u2019s interests, starting first with the goal of \u201cGetting Stronger\". We also launched 8 new rows of personalized recommendations on Tread and added a new layer of organization within our larger Class Collections (such as Artist Series) on Bike/Bike+, Tread, and Row. \nWe draw inspiration from the incredible Peloton community every day. Millions strong, the Peloton community drives us to be the best we can be, and their enthusiasm for Peloton led us to create our annual New York based Homecoming event in 2016 to celebrate their achievements and give Members special access to Instructors and unique Peloton experiences. This summer we've re-imagined Homecoming by creating \"Peloton on Tour\", a five-city, three-country traveling tour. We debuted Peloton on Tour in Los Angeles (July 13-15), then visited Atlanta (August 17-19), and will be visiting Chicago, Berlin and London in the coming months. Participating Members are able to attend live classes, participate in friendly fitness competitions, and join panel discussions and Instructor meet and greets. Member response has been very positive, and we're eager to apply learnings from this inaugural tour so  we can continue to evolve our approach to in-person events that celebrate our unique Peloton community.    \nRestructuring Plan\nIn February 2022, we announced and began implementing a restructuring plan to realign our operational focus to support our multi-year growth, scale the business, and improve costs (the \u201cRestructuring Plan\u201d). The Restructuring Plan originally included: (i) reducing our headcount; (ii) closing several assembly and manufacturing plants, including the completion and subsequent sale of the shell facility for our previously planned Peloton Output Park; (iii) closing and consolidating several distribution facilities; and (iv) shifting to third-party logistics providers in certain locations. We expect the Restructuring Plan to be substantially implemented by the end of fiscal 2024.\nIn fiscal year 2023 we continued to take actions to implement the Restructuring Plan. On July 12, 2022, we announced we are exiting all owned-manufacturing operations and expanding our current relationship with Taiwanese manufacturer, Rexon Industrial Corp. Additionally, on August 12, 2022, we announced our decision to perform the following additional restructuring activities: (i) fully transitioning our North American Field Operations to third-party providers, including the significant reduction of our delivery workforce teams; (ii) eliminating a significant number of roles on the North America Member Support team and exiting our real-estate footprints in our Plano and Tempe locations; and (iii) reducing our retail showroom presence.  \nTotal charges related to the Restructuring Plan were $332.4 million for the fiscal year ended June 30, 2023, consisting of cash charges of $85.1 million for severance and other personnel costs and $19.3 million for exit and disposal costs and professional fees, and non-cash charges of $139.3 million related to non-inventory asset write-downs and write-offs, $85.0 million for stock-based compensation expense and $3.7 million for write-offs of inventory related to restructuring activities.\nWe\u2019ve made progress in achieving goals in each category above. For example, we have reduced our negative Free Cash Flow from $(2.4) billion in the fiscal year ended June\u00a030, 2022 to $(470.0) million in the fiscal year ended June\u00a030, 2023 (and we have reduced our negative Net cash used in operating activities from $(2.0)\u00a0billion in the fiscal year ended June 30, 2022 to $(387.6)\u00a0million in the fiscal year ended June 30, 2023). Total operating expenses (excluding Goodwill impairment, Impairment expense, Restructuring expense, and Supplier settlements) decreased 25% year-over-year in fiscal year 2023 and we continue our work in looking for additional efficiencies. As of June\u00a030, 2023, we've closed 66 retail showrooms and we will continue optimizing our showroom footprint over the course of fiscal year 2024. We expect substantial further improvements in fiscal year 2024 in the above as well as a number of other measures by which we measure the success of our Restructuring Plan.\nIn connection with the Restructuring Plan, we estimate that we will incur additional cash charges of approximately $40.0 million, primarily composed of lease termination and other exit costs, by the end of fiscal year 2024. Additionally, the Company expects to recognize additional non-cash charges of approximately $20.0\u00a0million during fiscal year 2024, primarily composed of non-inventory asset impairment charges in connection with the Restructuring Plan.\nWe may not be able to fully realize the cost savings and benefits initially anticipated from the Restructuring Plan, and the expected costs may be greater than expected. \nSee \n\u201cRisk Factors\u2014Risks Related to Our Business\u2014We may not successfully execute or achieve the expected benefits of our restructuring initiatives and other cost-saving measures we may take in the future, and our efforts may result in further actions and/or additional asset impairment charges and adversely affect our business\n.\u201d\nTread+ and Tread Product Recall Return Reserves and Cost Estimates\nOn May 5, 2021, we announced separate, voluntary recalls of each of our Tread+ and Tread products in collaboration with the \nCPSC\n and halted sales of these products to work on product enhancements. Members were notified that they could return their Tread or Tread+ for a full refund, or wait until a solution is available. We announced a repair for the Tread in August 2021, shortly before resuming sales. In collaboration with the CPSC, on May 18, 2023, we jointly announced approval of a rear guard repair for the recalled Tread+, and which we are in the process of ramping \n46\nup manufacturing. We will make this rear guard available to our Members who continue to own a Tread+ and, later, resume sales of the Tread+ from our existing inventory with the rear guard installed.\nAs a result of these recalls, we recognized a reduction to Connected Fitness Products revenue for actual and estimated future returns of $14.6 million, $48.9 million, and $81.1 million for the fiscal years ended  \nJune\u00a030, 2023, 2022 and 2021, respectively, \nand a return reserve of $24.4 million and $39.9 million is included within Accounts payable and accrued expenses in the accompanying Consolidated Balance Sheets related to the impacts of the recall as of \nJune\u00a030, 2023 and June\u00a030, 2022, respectively\n. In addition, during the fiscal year ended \nJune\u00a030, 2023\n, the Company recognized an accrual for the cost associated with the Tread+ rear guard repair based on an amount that was deemed probable and reasonably estimable. We may continue to incur additional costs beyond what we have currently estimated to be probable and reasonably estimable which could include costs for which we have not accrued or established adequate reserves, including increases to the return reserves, inventory write-downs, logistics costs associated with Member requests to return or move their hardware, subscription waiver variable costs of service, anticipated recall-related hardware development and repair costs, and related legal and advisory fees. Recall charges are based upon estimates associated with our expected and historical consumer response rates. \nActual costs related to this matter may vary from the estimate, and may result in further impacts to our future results of operations and business. \nSee \u201c\nRisk Factors\u2014Risks Related to Our Connected Fitness Products and Members\u2014We may be subject to warranty claims that could result in significant direct or indirect costs, or we could experience greater product returns than expected, either of which could have an adverse effect on our business, financial condition, and operating results\n.\u201d\nBike Seat Post Recall\nIn May 2023, in collaboration with the CPSC, we announced a voluntary recall of the original Peloton model Bikes (not Bike+) seat posts sold in the U.S. from January 2018 to May 2023. We are offering Members a replacement seat post as the approved repair.  As a result of this recall, we recognized $48.4 million for the cost to replace the bike seat posts based on an amount that was deemed probable and reasonably estimable, reflected in Connected Fitness Products cost of revenue in our Consolidated Statements of Operations and Comprehensive Loss for the \nfiscal year ended June 30, 2023. As of \nJune\u00a030, 2023, accruals of $42.2 million were \nincluded within Accounts payable and accrued expenses in the accompanying Consolidated Balance Sheet\n. We expect to incur the majority of the cost to replace affected Bike seat posts in the first six months of fiscal year 2024. \nWe may continue to incur additional costs beyond what we have currently estimated to be probable and estimable, including if the number of reported incidents materially increases. See \u201c\nRisk Factors - Risks Related to Our Connected Fitness Products and Members \n\u2014 \nOur products and services may be affected from time to time by design and manufacturing defects or product safety issues, real or perceived, that could adversely affect our business and result in harm to our reputation.\u201d\nKey Operational and Business Metrics \nIn addition to the measures presented in our consolidated financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions.\nFiscal Year Ended June 30,\n2023\n2022\n2021\nEnding Connected Fitness Subscriptions\n3,077,779\u00a0\n2,965,677\u00a0\n2,330,700\u00a0\nAverage Net Monthly Connected Fitness Churn\n1.2\u00a0\n%\n1.0\u00a0\n%\n0.6\u00a0\n%\nSubscription Gross Profit (in millions)\n$\n1,122.1\u00a0\n$\n944.7\u00a0\n$\n541.7\u00a0\nSubscription Contribution (in millions)\n(1)\n$\n1,201.8\u00a0\n$\n994.2\u00a0\n$\n586.5\u00a0\nSubscription Gross Margin\n67.2\u00a0\n%\n67.7\u00a0\n%\n62.1\u00a0\n%\nSubscription Contribution Margin\n(1)\n72.0\u00a0\n%\n71.3\u00a0\n%\n67.2\u00a0\n%\nNet loss (in millions)\n$\n(1,261.7)\n$\n(2,827.7)\n$\n(189.0)\nAdjusted EBITDA (in millions)\n(2)\n$\n(208.5)\n$\n(982.7)\n$\n253.7\u00a0\nNet Cash Used in Operating Activities (in millions)\n$\n(387.6)\n$\n(2,020.0)\n$\n(239.7)\nFree Cash Flow (in millions)\n(3)\n$\n(470.0)\n$\n(2,357.4)\n$\n(491.9)\n ______________________________\n(1) Please see the section titled \u201cNon-GAAP Financial Measures\u2014Subscription Contribution and Subscription Contribution Margin\u201d for a reconciliation of Subscription Gross Profit to Subscription Contribution and an explanation of why we consider Subscription Contribution and Subscription Contribution Margin to be helpful measures for investors.\n(2) Please see the section titled \u201cNon-GAAP Financial Measures\u2014Adjusted EBITDA\u201d for a reconciliation of Net loss to Adjusted EBITDA and an explanation of why we consider Adjusted EBITDA to be a helpful measures for investors.\n(3) Please see the section titled \u201cNon-GAAP Financial Measures\u2014Free Cash Flow\u201d for a reconciliation of net cash used in operating activities to Free Cash Flow and an explanation of why we consider Free Cash Flow to be a helpful measures for investors.\nConnected Fitness Subscriptions\nOur ability to expand the number of Connected Fitness Subscriptions is an indicator of our market penetration and growth. We define a \u201cConnected Fitness Subscription\u201d as a person, household, or commercial property, such as a hotel or residential building, who has either paid for a subscription to a Connected Fitness Product (a Connected Fitness Subscription with a successful credit card billing or with prepaid \n47\nsubscription credits or waivers) or has paused their subscription for up to three months. We do not include canceled or unpaid Connected Fitness Subscriptions in the Connected Fitness Subscription count, with the exception of paused Connected Fitness Subscriptions. A subscription is canceled and ceases to be reflected in the above metrics as of the effective cancellation date, which is the Member\u2019s next scheduled billing date.\nAverage Net Monthly Connected Fitness Churn\nWe use Average Net Monthly Connected Fitness Churn to measure the retention of our Connected Fitness Subscriptions. We define \u201cAverage Net Monthly Connected Fitness Churn\u201d as Connected Fitness Subscription cancellations, net of reactivations, in the quarter, divided by the average number of beginning Connected Fitness Subscriptions in each month, divided by three months. When a Connected Fitness Subscription payment method fails, we communicate with our Members to update their payment method and make multiple attempts over several days to charge the payment method on file and reactivate the subscription. We cancel a Member\u2019s Connected Fitness Subscription when it remains unpaid for two days after their billing cycle date. This metric does not include data related to our Peloton App subscriptions for Members who pay a monthly fee for access to our content library on their own devices. \nUpcoming changes to our reporting metrics\nStarting in fiscal year 2024, we are making changes to our reported operating metrics. We will no longer include paused Connected Fitness subscriptions in our new Ending Paid Connected Fitness Subscriptions metric, and will now treat a pause action as a churn event in our Average Net Monthly Paid Connected Fitness Subscription Churn as described below. In the first quarter of fiscal 2024, we also plan to report a new metric, Average Monthly Paid App Subscription Churn. These changes are designed to align our reported metrics more closely with our strategic priorities and provide additional disclosure for investors.\nEnding Paid Connected Fitness Subscriptions\nEnding Paid Connected Fitness Subscriptions will include all Connected Fitness Subscriptions for which we are currently receiving payment (a successful credit card billing or prepaid subscription credit or waiver). Historically, we have included a Connected Fitness Subscription that is paused for up to three months as a Connected Fitness Subscription. Because there is no payment on a paused subscription, we will no longer include paused Connected Fitness Subscriptions in our Ending Paid Connected Fitness Subscription count. The below table compares how Ending Paid Connected Fitness Subscriptions compares to our previous definition: \nThree Months Ended\nSeptember 30, 2022\nDecember 31, 2022\nMarch 31, 2023\nJune 30, 2023\nEnding Connected Fitness Subscriptions\n(1)\n2,973,371\u00a0\n3,033,352\u00a0\n3,107,121\u00a0\n3,077,779\u00a0\nLess: Ending Paused Connected Fitness Subscriptions\n(55,054)\n(54,170)\n(51,902)\n(80,336)\nEnding Paid Connected Fitness Subscriptions\n(2)\n2,918,317\u00a0\n2,979,182\u00a0\n3,055,219\u00a0\n2,997,443\u00a0\n ______________________________\n(1) Legacy reporting metric\n(2) New reporting metric starting in the first quarter of fiscal 2024\nAs of June\u00a030, 2023, the number of our Ending Paused Connected Fitness Subscriptions increased by 55% versus March 31, 2023. While we historically experience a seasonal increase in the number of paused subscriptions in the three months ended June 30, 2023, we believe a significant portion of this year's outsized increase was related to our seat post recall announced on May 11, 2023, as some Members chose to pause their subscriptions while awaiting the delivery of their replacement seat post.\nAverage Net Monthly Paid Connected Fitness Subscription Churn\nTo align with the new definition of Ending Paid Connected Fitness Subscriptions above, our new quarterly Average Net Monthly Paid Connected Fitness Subscription Churn will be calculated as follows: Paid Connected Fitness Subscriber \"churn count\" in the quarter, divided by the average number of beginning Paid Connected Fitness Subscribers each month, divided by three months. \"Churn count\" is defined as quarterly CF Subscription churn events minus CF Subscription unpause events minus CF Subscription reactivations. \nWe refer to any cancellation or pausing of a subscription for our All Access Membership as a churn event. Because we do not receive payment for paused Connected Fitness Subscriptions, a paused Connected Fitness Subscription will now be treated as a churn event at the time the pause goes into effect, which is the start of the next billing cycle. An unpause event occurs when a pause period elapses without a cancellation and the Connected Fitness Subscription resumes, and is therefore counted as a reduction in our churn count in that period. Consistent with our previous practice, our churn count will be shown net of reactivations and our new quarterly Average Net Monthly Paid Connected Fitness Subscription Churn metric will average the monthly Connected Fitness churn percentage across the three months of the reported quarter.\nTo date, we have reported Average Net Monthly Connected Fitness Churn, which is defined as Connected Fitness Subscription cancellations, net of reactivations, in the quarter, divided by the average number of beginning Connected Fitness Subscriptions in each month, divided by three months. This metric does not treat a pause of a Connected Fitness Subscription as a churn event. When a Connected Fitness Subscription payment method fails, we communicate with our Members to update their payment method and make multiple attempts over several days to charge the payment method on file and reactivate the subscription. We cancel a Member's Connected Fitness Subscription when it remains unpaid for two days after their billing cycle date.\n48\nFurthermore, we have reported our Average Net Monthly Connected Fitness Churn metric net of reactivations. Under this metric, a Connected Fitness Subscriber that cancels their membership (a churn event) and resubscribes in a subsequent period is considered a reactivation and is counted as a reduction in our churn count in the period during which the Subscriber resubscribes. The table below compares how Average Net Monthly Paid Connected Fitness Churn compares to our previous definition:\nThree Months Ended\nSeptember 30, 2022\nDecember 31, 2022\nMarch 31, 2023\nJune 30, 2023\nAverage Net Monthly Connected Fitness Churn\n(1)\n1.1\u00a0\n%\n1.1\u00a0\n%\n1.1\u00a0\n%\n1.4\u00a0\n%\nAverage Net Monthly Paid Connected Fitness Subscription Churn\n(2)\n1.2\u00a0\n%\n1.2\u00a0\n%\n1.1\u00a0\n%\n1.8\u00a0\n%\n ______________________________\n(1) Legacy reporting metric\n(2) New reporting metric starting in the first quarter of fiscal 2024\nIn the three months ended June 30, 2023, our Average Net Monthly Paid Connected Fitness Subscription churn reflects a seasonal increase in the number of paused subscriptions as well as an outsized increase in paused subscriptions related to our seat post recall, as we believe some Members chose to pause their subscriptions while awaiting the delivery of their replacement seat post. These metrics do not include data related to our App One Subscribers and App+ Subscribers.  \nEnding Paid App Subscriptions\nEnding Paid App Subscriptions will include all App One and App+ subscriptions for which we are currently receiving payment.\nAverage Monthly Paid App Subscription Churn \nWhen a Subscriber to App One or App+ cancels their membership (a churn event) and resubscribes in a subsequent period, the resubscription will be considered a new subscription (rather than a reactivation that is counted as a reduction in our churn count). Average Paid App Subscription Churn will be calculated as follows: Paid App Subscription cancellations in the quarter, divided by the average number of beginning Paid App Subscriptions each month, divided by three months.\nComponents of our Results of Operations\nRevenue\nConnected Fitness Products\nConnected Fitness Products revenue consists of sales of our portfolio of Connected Fitness Products and related accessories, delivery and installation services, branded apparel, extended warranty agreements, and the sale, service, installation, and delivery contracts of our commercial business. Connected Fitness Products revenue is recognized at the time of delivery, except for extended warranty revenue that is recognized over the warranty period and service revenue that is recognized over the term, and is recorded net of returns and discounts and third-party financing program fees, when applicable.\nSubscription\nSubscription revenue consists of revenue generated from our monthly Connected Fitness Subscription and Peloton App subscription. \nAs of \nJune\u00a030, 2023, 99% and 81% \nof our Connected Fitness Subscription and Peloton App subscription bases, respectively, were paying month to month.\nIf a Connected Fitness Subscription owns a combination of a Bike, Tread, Guide or Row product in the same household, the price of the Subscription remains $44 monthly (price increased from $39 to $44 USD effective as of June 1, 2022). As of June\u00a030, 2023, approximately 8% of our Connected Fitness Subscriptions owned both a Bike and Tread product.\nCost of revenue\nConnected Fitness Products\nConnected Fitness Products cost of revenue consists of our portfolio of Connected Fitness Products and branded apparel product costs, including duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement and service costs, fulfillment costs, warehousing costs, depreciation of property and equipment, and certain costs related to management, facilities, and personnel-related expenses associated with supply chain logistics. \nSubscription\nSubscription cost of revenue includes costs associated with content creation and costs to stream content to our Members. These costs consist of both fixed costs, including studio rent and occupancy, other studio overhead, instructor and production personnel-related expenses, \n49\ndepreciation of property and equipment as well as variable costs, including music royalty fees, content costs for past use, third-party platform streaming costs, and payment processing fees for our monthly subscription billings.\nOperating expenses\nSales and marketing\nSales and marketing expense consists of performance marketing media spend, asset creation, and other brand creative, all showroom expenses and related lease payments, payment processing fees incurred in connection with the sale of our Connected Fitness Products, sales and marketing personnel-related expenses, expenses related to the Peloton App, and depreciation of property and equipment.\nGeneral and administrative\nGeneral and administrative expense includes personnel-related expenses and facilities-related costs primarily for our executive, finance, accounting, legal, human resources, IT functions and member support. General and administrative expense also includes fees for professional services principally comprised of legal, audit, tax and accounting services, depreciation of property and equipment, and insurance, as well as litigation settlement costs.\nResearch and development\nResearch and development expense primarily consists of personnel and facilities-related expenses, consulting and contractor expenses, tooling and prototype materials, software platform expenses, and depreciation of property and equipment. We capitalize certain qualified costs incurred in connection with the development of internal-use software that may also cause research and development expenses to vary from period to period.\nGoodwill impairment\nGoodwill impairment consists of non-cash impairment charges relating to goodwill. We review goodwill for impairment annually on April 1 and more frequently if events or changes in circumstances indicate that an impairment may exist. In conducting our annual impairment test, we first review qualitative factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount. If factors indicate that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative assessment and the fair value of the reporting unit is determined by analyzing the expected present value of future cash flows. If the carrying value of the reporting unit exceeds its fair value, an impairment loss equal to the excess is recorded.\nImpairment expense \nImpairment expense consists of non-cash impairment charges relating to long-lived assets. Impairments are determined using management\u2019s judgment about our anticipated ability to continue to use fixed assets in-service and under development, current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. Management disposes of fixed assets during the regular course of business due to damage, obsolescence, strategic shifts, and loss.\nAdditionally, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the assets. If the carrying amount of an asset group exceeds its estimated undiscounted net future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds its fair value.\nRestructuring expense\nRestructuring expense consists of severance and other personnel costs, including stock-based compensation expense, professional services, facility closures and other costs associated with exit and disposal activities.\nSupplier settlements\nSupplier settlements are payments made to third-party suppliers to terminate certain future inventory purchase commitments.\nNon-operating income and expenses\nOther (expense) income, net\nOther (expense) income, net consists of interest (expense) income, unrealized and realized gains (losses) on investments, and foreign exchange gains (losses).\nIncome tax provision\nThe provision for income taxes consists primarily of income taxes related to state and international taxes for jurisdictions in which we conduct business. We maintain a valuation allowance on the majority of our deferred tax assets as we have concluded that it is more likely than not that the deferred assets will not be utilized.\n50\nResults of Operations\nThe following tables set forth our consolidated results of operations in dollars and as a percentage of total revenue for the periods presented. The\u00a0period-to-period comparisons of our historical results are not necessarily indicative of the results that may be expected in the future.\n\u00a0\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n2021\n(in millions)\nConsolidated Statement of Operations Data:\nRevenue\nConnected Fitness Products\n$\n1,130.2\u00a0\n$\n2,187.5\u00a0\n$\n3,149.6\u00a0\nSubscription\n1,670.1\u00a0\n1,394.7\u00a0\n872.2\u00a0\nTotal revenue\n2,800.2\u00a0\n3,582.1\u00a0\n4,021.8\u00a0\nCost of revenue\n(1)(2)\nConnected Fitness Products\n1,328.8\u00a0\n2,433.8\u00a0\n2,236.9\u00a0\nSubscription\n547.9\u00a0\n450.0\u00a0\n330.5\u00a0\nTotal cost of revenue\n1,876.7\u00a0\n2,883.8\u00a0\n2,567.4\u00a0\nGross profit\n923.5\u00a0\n698.4\u00a0\n1,454.4\u00a0\nOperating expenses\nSales and marketing\n(1)(2)\n648.2\u00a0\n1,018.9\u00a0\n728.3\u00a0\nGeneral and administrative\n(1)(2)\n798.1\u00a0\n963.4\u00a0\n661.8\u00a0\nResearch and development\n(1)(2)\n318.4\u00a0\n359.5\u00a0\n247.6\u00a0\nGoodwill impairment\n\u2014\u00a0\n181.9\u00a0\n\u2014\u00a0\nImpairment expense \n144.5\u00a0\n390.5\u00a0\n4.5\u00a0\nRestructuring expense\n(1)\n189.4\u00a0\n180.7\u00a0\n\u2014\u00a0\nSupplier settlements\n22.0\u00a0\n337.6\u00a0\n\u2014\u00a0\n\u00a0     Total operating expenses\n2,120.6\u00a0\n3,432.4\u00a0\n1,642.2\u00a0\nLoss from operations   \n(1,197.1)\n(2,734.0)\n(187.8)\nOther expense, net:\nInterest expense\n(97.1)\n(43.0)\n(14.8)\nInterest income\n26.4\u00a0\n2.3\u00a0\n7.9\u00a0\nForeign exchange gain (loss)\n7.0\u00a0\n(31.8)\n(3.5)\nOther income (expense), net \n2.9\u00a0\n(1.5)\n0.1\u00a0\nTotal other expense, net\n(60.9)\n(74.1)\n(10.4)\nLoss before provision (benefit) for income taxes   \n(1,258.0)\n(2,808.1)\n(198.2)\nIncome tax expense (benefit)\n3.7\u00a0\n19.6\u00a0\n(9.2)\nNet loss\n$\n(1,261.7)\n$\n(2,827.7)\n$\n(189.0)\n____________________\n51\n(1)  Includes stock-based compensation expense as follows:\n\u00a0\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n2021\n(in millions)\nCost of revenue\nConnected Fitness Products\n$\n14.3\u00a0\n$\n20.2\u00a0\n$\n12.6\u00a0\nSubscription\n42.8\u00a0\n22.7\u00a0\n25.9\u00a0\nTotal cost of revenue\n57.1\u00a0\n42.9\u00a0\n38.5\u00a0\nSales and marketing\n28.9\u00a0\n30.5\u00a0\n26.2\u00a0\nGeneral and administrative\n167.2\u00a0\n152.4\u00a0\n102.1\u00a0\nResearch and development\n66.7\u00a0\n46.0\u00a0\n27.2\u00a0\nRestructuring expense\n85.0\u00a0\n56.5\u00a0\n\u2014\u00a0\n\u00a0   Total stock-based compensation expense\n$\n405.0\u00a0\n$\n328.4\u00a0\n$\n194.0\u00a0\nOn July 1, 2022, the Compensation Committee of the Board of Directors of the Company (the \u201cCompensation Committee\u201d) approved accelerating the vesting requirement for unvested restricted stock units held by certain employees by one year. This applied to eligible unvested restricted stock units that had more than eight quarterly vesting dates remaining in their vesting schedule.  The acceleration resulted in approximately $35.6 million of stock-based compensation expense being pulled forward and recognized in the fiscal year ended June 30, 2023.  Additionally, on July 1, 2022, the Compensation Committee approved a one-time repricing of certain stock option awards that had been granted to date under the 2019 Equity Incentive Plan (the \u201c2019 Plan\u201d). The repricing impacted stock options held by all employees who remained employed through July 25, 2022. The repricing did not apply to our U.S.-based hourly employees (or employees with equivalent roles in non-U.S. locations) or our C-level executives.  The modification resulted in incremental stock-based compensation expense of $21.9 million in the aggregate.\n____________________\n(2)  Includes depreciation and amortization expense as follows:\n\u00a0\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n2021\n(in millions)\nCost of revenue\nConnected Fitness Products\n$\n18.7\u00a0\n$\n20.0\u00a0\n$\n7.7\u00a0\nSubscription\n36.9\u00a0\n26.8\u00a0\n19.0\u00a0\nTotal cost of revenue\n55.5\u00a0\n46.8\u00a0\n26.7\u00a0\nSales and marketing\n31.1\u00a0\n29.6\u00a0\n14.3\u00a0\nGeneral and administrative\n26.3\u00a0\n45.7\u00a0\n13.0\u00a0\nResearch and development\n11.4\u00a0\n20.7\u00a0\n9.9\u00a0\n\u00a0   Total depreciation and amortization expense\n$\n124.3\u00a0\n$\n142.8\u00a0\n$\n63.8\u00a0\nComparison of the fiscal years ended June 30, 2023 and 2022\nRevenue\n\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n% Change\n(dollars in millions)\nRevenue:\nConnected Fitness Products\n$\n1,130.2\u00a0\n$\n2,187.5\u00a0\n(48.3)%\nSubscription\n1,670.1\u00a0\n1,394.7\u00a0\n19.7\nTotal revenue\n$\n2,800.2\u00a0\n$\n3,582.1\u00a0\n(21.8)%\nPercentage of revenue\nConnected Fitness Products\n40.4\u00a0\n%\n61.1\u00a0\n%\nSubscription\n59.6\u00a0\n38.9\u00a0\nTotal\n100.0\u00a0\n%\n100.0\u00a0\n%\n52\nFiscal Years Ended June 30, 2023 and 2022\nConnected Fitness Products revenue decreased $1,057.3 million for the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022. This decrease was primarily attributable to fewer deliveries and promotional pricing, partially offset by new Connected Fitness products and sales channels launched during the fiscal year ended June 30, 2023.\nSubscription revenue increased $275.4 million for the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022. This increase was primarily attributable to the year-over-year growth in our Connected Fitness Subscriptions and the price increase of the All-Access Membership fee from $39 to $44, effective as of June 1, 2022. The growth of our Connected Fitness Subscriptions was primarily driven by the number of Connected Fitness Products delivered during the fiscal year ended June 30, 2023 under new Subscriptions and our low Average Net Monthly Connected Fitness Churn of 1.2% for the fiscal year ended June 30, 2023. \nCost of Revenue, Gross Profit, and Gross Margin\n\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n% Change\n(dollars in millions)\nCost of Revenue:\nConnected Fitness Products\n$\n1,328.8\u00a0\n$\n2,433.8\u00a0\n(45.4)%\nSubscription\n547.9\u00a0\n450.0\u00a0\n21.8\nTotal cost of revenue\n$\n1,876.7\u00a0\n$\n2,883.8\u00a0\n(34.9)%\nGross Profit:\nConnected Fitness Products\n$\n(198.6)\n$\n(246.3)\n(19.4)%\nSubscription\n1,122.1\u00a0\n944.7\u00a0\n18.8\nTotal Gross profit\n$\n923.5\u00a0\n$\n698.4\u00a0\n32.2%\nGross Margin:\nConnected Fitness Products\n(17.6)\n%\n(11.3)\n%\nSubscription\n67.2\u00a0\n%\n67.7\u00a0\n%\nFiscal Years Ended June 30, 2023 and 2022\nConnected Fitness Products cost of revenue for the fiscal year ended June 30, 2023 decreased $1,105.0 million, or 45.4%, compared to the fiscal year ended June 30, 2022. This decrease was primarily driven by fewer deliveries for the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022.\nOur Connected Fitness Products Gross Margin decreased to (17.6)% from (11.3)% for the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022, primarily driven by a reduction in selling price and fewer deliveries, partially offset by lower inventory reserves and reduced payroll expenses resulting from restructuring efforts.\nSubscription cost of revenue for the fiscal year ended June 30, 2023 increased $98.0 million, or 21.8%, compared to the fiscal year ended June 30, 2022. This increase was primarily driven by an increase of $55.9 million in music royalties driven by an increase in subscribers, an increase of $20.2 million in stock-based compensation expenses, primarily driven by the acceleration of certain restricted stock unit vesting schedules, an increased number of awards vesting, and the repricing of certain stock option awards, and an increase of $10.1 million in depreciation and amortization expenses.\nSubscription Gross Margin remained consistent for the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022.\nOperating Expenses\nSales and Marketing\n\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n% Change\n(dollars in millions)\nSales and marketing\n$\n648.2\u00a0\n$\n1,018.9\u00a0\n(36.4)%\nAs a percentage of total revenue\n23.1\u00a0\n%\n28.4\u00a0\n%\nFiscal Years Ended June 30, 2023 and 2022\nSales and marketing expense decreased $370.7 million in the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022. The decrease was primarily due to decreases in spending on advertising and marketing programs of $287.6 million and decreases in personnel-\n53\nrelated expenses of $49.0 million, primarily due to decreased average headcount as we rapidly restructured our operations throughout fiscal 2022.\nGeneral and Administrative\n\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n% Change\n(dollars in millions)\nGeneral and administrative\n$\n798.1\u00a0\n$\n963.4\u00a0\n(17.2)%\nAs a percentage of total revenue\n28.5\u00a0\n%\n26.9\u00a0\n%\nFiscal Years Ended June 30, 2023 and 2022\nGeneral and administrative expense decreased $165.3 million in the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022, primarily due to a decrease of $136.8 million in professional fees, driven by decreases in legal, accounting and consulting fees, partially offset by the Dish legal settlement of $75.0 million, a decrease in personnel-related expenses of $51.5 million, primarily due to decreased average headcount, and a decrease of $19.5 million in depreciation and amortization expense. \nResearch and Development\n\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n% Change\n(dollars in millions)\nResearch and development\n$\n318.4\u00a0\n$\n359.5\u00a0\n(11.4)%\nAs a percentage of total revenue\n11.4\u00a0\n%\n10.0\u00a0\n%\nFiscal Years Ended June 30, 2023 and 2022\nResearch and development expense decreased $41.1 million, or 11.4% in the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022. The decrease was primarily due to a decrease in personnel-related expenses of $25.5 million, which was primarily related to decreased average headcount, a decrease of $16.0 million in product development and research costs associated with development of new software features and products, a decrease of $9.5 million driven by decreased costs associated with software and web platform costs and a decrease in depreciation and amortization expense of $9.2 million. The decrease was partially offset by a $20.7 million increase in stock-based compensation expense, primarily driven by an acceleration of certain restricted stock unit vesting schedules, the repricing of certain stock option awards and an increased number of awards vesting.\nGoodwill impairment\n\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n% Change\n(dollars in millions)\nGoodwill impairment\n$\n\u2014\u00a0\n$\n181.9\u00a0\nNM*\n___________________________\n*NM - not meaningful\nFiscal Years Ended June 30, 2023 and 2022\nWe review goodwill for impairment annually on April 1 and more frequently if events or changes in circumstances indicate that an impairment may exist (\u201ca triggering event\u201d).  No goodwill impairment was recorded for the fiscal year ended June 30, 2023. During the fiscal year ended June 30, 2022, management identified various qualitative factors that, collectively, indicated we had a triggering event, including (i) softening demand; (ii) increased costs of inventory and logistics; and (iii) sustained decrease in stock price. The Company performed a valuation of the Connected Fitness Products reporting unit using liquidation value and discounted cash flow methodologies. These forecasts and assumptions are highly subjective. See\n \u201cRisk Factors\u2014Risks Related to Our Business\u2014If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected\u201d.\n Given the results of our quantitative assessment, we determined that the Connected Fitness Products reporting unit\u2019s goodwill was impaired. During the fiscal year ended June 30, 2022, we recognized a goodwill impairment \n54\ncharge of $181.9 million representing the entire amount of goodwill related to the Connected Fitness Products reporting unit in the Connected Fitness Products Segment.  \nImpairment expense\n\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n% Change\n(dollars in millions)\nImpairment expense \n$\n144.5\u00a0\n$\n390.5\u00a0\n(63.0)%\nFiscal Years Ended June 30, 2023 and 2022\nImpairment expense decreased $245.9 million, or 63.0% in the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022. This decrease was primarily due to no write-offs of acquired developed technology, brand, distributor and customer relationships, and assembled workforce intangible assets during the fiscal year ended June 30, 2023 compared to $165.6 million during the fiscal year ended June 30, 2022, and a decrease in Connected Fitness asset group write-offs of $64.3 million.\nRestructuring expense\n\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n% Change\n(dollars in millions)\nRestructuring expense\n$\n189.4\u00a0\n$\n180.7\u00a0\n4.8%\nFiscal Years Ended June 30, 2023 and 2022\nRestructuring expense increased $8.7 million in the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022, primarily related to an increase of $28.5 million of stock-based compensation expense, driven by incremental stock-based compensation expense from modifications of the post-termination period during which certain former employees may exercise outstanding stock options and the acceleration of certain restricted stock unit vesting schedules pursuant to severance arrangements, and an increase of $4.2 million in exit and disposal costs and professional fees. These increases were partially offset by a decrease of $24.0 million in cash severance and other personnel costs.\nSupplier settlements\n\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n% Change\n(dollars in millions)\nSupplier settlements\n$\n22.0\u00a0\n$\n337.6\u00a0\n(93.5)%\nFiscal Years Ended June 30, 2023 and 2022\nSupplier settlements decreased $315.6 million in the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022, due to settlement and related costs paid to third-party suppliers to terminate certain future inventory purchase commitments, the majority of which were accrued for during the fiscal year ended June 30, 2022.\nTotal Other Expense, Net and Income Tax Expense\n\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n% Change\n(dollars in millions)\nInterest Expense\n$\n(97.1)\n$\n(43.0)\n125.8%\nInterest Income\n26.4\u00a0\n2.3\u00a0\n1,062.5%\nForeign exchange gains (losses)\n7.0\u00a0\n(31.8)\nNM*\nOther income (expense), net\n2.9\u00a0\n(1.5)\nNM*\nIncome tax expense (benefit)\n3.7\u00a0\n19.6\u00a0\n(81.3)%\n___________________________\n*NM - not meaningful\n55\nFiscal Years Ended June 30, 2023 and 2022\nTotal other expense, net, was comprised of the following for the fiscal year ended June 30, 2023:\n\u2022\nInterest expense primarily related to the Term Loan, the Notes, and deferred financing costs of $97.1 million;\n\u2022\nInterest income from cash, cash equivalents, and short-term investments of $26.4 million; \n\u2022\nForeign exchange gains of $7.0 million; and\n\u2022\nOther income, net of $2.9 million.\nTotal other expense, net, was comprised of the following for the fiscal year ended June 30, 2022:\n\u2022\nInterest expense primarily related to the Notes, the Term Loan, and deferred financing costs of $43.0 million;\n\u2022\nInterest income from cash, cash equivalents, and short-term investments of $2.3 million;\n\u2022\nForeign exchange losses of $31.8 million; and\n\u2022\nOther expense, net of $1.5 million.\nIncome tax expense for the fiscal year ended June 30, 2023 of $3.7 million was primarily due to state and international taxes.\nNon-GAAP Financial Measures\nIn addition to our results determined in accordance with accounting principles generally accepted in the United States, or GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance.\nAdjusted EBITDA\nWe calculate Adjusted EBITDA as net (loss) income adjusted to exclude: other expense (income), net; income tax expense (benefit); depreciation and amortization expense; stock-based compensation expense; goodwill impairment; impairment expense; product recall related matters; certain litigation and settlement expenses; transaction and integration costs; reorganization, severance, exit, disposal and other costs associated with restructuring plans; supplier settlements; and other adjustment items that arise outside the ordinary course of our business.\nWe use Adjusted EBITDA as a measure of operating performance and the operating leverage in our business. We believe that this non-GAAP financial measure is useful to investors for period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons:\n\u2022\nAdjusted EBITDA is widely used by investors and securities analysts to measure a company\u2019s operating performance without regard to items such as stock-based compensation expense, depreciation and amortization expense, other expense (income), net, and provision for income taxes that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired;\n\u2022\nOur management uses Adjusted EBITDA in conjunction with financial measures prepared in accordance with GAAP for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance; and\n\u2022\nAdjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our core operating results, and may also facilitate comparisons with other peer companies, many of which use a similar non-GAAP financial measure to supplement their GAAP results.\nOur use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are, or may in the future be, as follows:\n\u2022\nAlthough depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;\n\u2022\nAdjusted EBITDA excludes stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;\n\u2022\nAdjusted EBITDA does not reflect: (1) changes in, or cash requirements for, our working capital needs; (2) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; or (3) tax payments that may represent a reduction in cash available to us;\n\u2022\nAdjusted EBITDA does not reflect certain litigation expenses, consisting of legal settlements and related fees for specific proceedings that we have determined arise outside of the ordinary course of business based on the following considerations which we assess regularly: (1) the frequency of similar cases that have been brought to date, or are expected to be brought within two years; (2) the complexity of the case; (3) the nature of the remedy(ies) sought, including the size of any monetary damages sought; (4) offensive versus defensive posture of us; (5) the counterparty involved; and (6) our overall litigation strategy;\n\u2022\nAdjusted EBITDA does not reflect transaction and integration costs related to acquisitions;\n\u2022\nAdjusted EBITDA does not reflect impairment charges for goodwill and fixed assets, and gains (losses) on disposals for fixed assets;\n\u2022\nAdjusted EBITDA does not reflect the impact of purchase accounting adjustments to inventory related to the Precor acquisition;\n56\n\u2022\nAdjusted EBITDA does not reflect costs associated with product recall related matters including adjustments to the return reserves, inventory write-downs, logistics costs associated with Member requests, the cost to move the recalled product for those that elect the option, subscription waiver costs of service, and recall-related hardware development and repair costs;\n\u2022\nAdjusted EBITDA does not reflect \nreorganization, severance, exit, disposal and other costs associated with restructuring plans;\n\u2022\nAdjusted EBITDA does not reflect non-recurring supplier settlements; and\n\u2022\nThe expenses and other items that we exclude in our calculation of Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from Adjusted EBITDA when they report their operating results and we may, in the future, exclude other significant, unusual expenses or other items from this financial measure. Because companies in our industry may calculate this measure differently than we do, its usefulness as a comparative measure can be limited.\nBecause of these limitations, Adjusted EBITDA should be considered along with other operating and financial performance measures presented in accordance with GAAP.\nThe following table presents a reconciliation of Adjusted EBITDA to Net loss, the most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated:\nAdjusted EBITDA\n\u00a0\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n2021\n(dollars in millions)\nNet loss\n$\n(1,261.7)\n$\n(2,827.7)\n$\n(189.0)\nAdjusted to exclude the following:\nTotal other expense, net\n60.9\u00a0\n74.1\u00a0\n10.4\u00a0\nIncome tax expense (benefit)\n3.7\u00a0\n19.6\u00a0\n(9.2)\nDepreciation and amortization expense\n124.3\u00a0\n142.8\u00a0\n63.8\u00a0\nStock-based compensation expense\n319.9\u00a0\n271.8\u00a0\n194.0\u00a0\nGoodwill impairment\n\u2014\u00a0\n181.9\u00a0\n\u2014\u00a0\nImpairment expense\n144.5\u00a0\n390.5\u00a0\n4.5\u00a0\nRestructuring expense\n193.0\u00a0\n237.5\u00a0\n\u2014\u00a0\nSupplier settlements\n22.0\u00a0\n337.6\u00a0\n\u2014\u00a0\nProduct recall related matters\n(1)\n80.9\u00a0\n62.3\u00a0\n100.0\u00a0\nLitigation and settlement expenses\n(2)\n102.8\u00a0\n118.6\u00a0\n35.8\u00a0\nOther adjustment items\n1.0\u00a0\n8.4\u00a0\n43.4\u00a0\nAdjusted EBITDA\n$\n(208.5)\n$\n(982.7)\n$\n253.7\u00a0\n______________________\n(1) Represents adjustments and charges associated with product recall related matters, as well as accrual adjustments. These include recorded costs in Connected Fitness Products cost of revenue associated with recall related matters of $61.6 million, zero, and zero, adjustments to Connected Fitness Products revenue for actual and estimated future returns of $14.6 million, $48.9 million and $81.1 million, recorded costs in Connected Fitness Products cost of revenue associated with inventory write-downs and logistics costs of $2.5 million, $8.1 million and $15.7 million, and operating expenses of $2.3 million, $5.4 million and $3.2 million associated with recall-related hardware development costs, in each case for the fiscal years ended June\u00a030, 2023, 2022 and 2021, respectively.\n(2) Includes Dish settlement accrual of $75.0\u00a0million and other litigation-related expenses and settlements for certain non-recurring patent infringement litigation, securities litigation, and consumer arbitration for the fiscal year ended June 30, 2023. Includes litigation-related expenses for certain non-recurring patent infringement litigation, consumer arbitration, and product recalls for the fiscal years ended June\u00a030, 2023, 2022 and 2021.\nSubscription Contribution and Subscription Contribution Margin\nWe define \u201cSubscription Contribution\u201d as Subscription revenue less cost of Subscription revenue, adjusted to exclude from cost of Subscription revenue, depreciation and amortization expense, and stock-based compensation expense. Subscription Contribution Margin is calculated by dividing Subscription Contribution by Subscription revenue.\nWe use Subscription Contribution and Subscription Contribution Margin to measure our ability to scale and leverage the costs of our Connected Fitness Subscriptions. We believe that these non-GAAP financial measures are useful to investors for period-to-period comparisons of our business and in understanding and evaluating our operating results because our management uses Subscription Contribution and Subscription Contribution Margin in conjunction with financial measures prepared in accordance with GAAP for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance.\nThe use of Subscription Contribution and Subscription Contribution Margin as analytical tools has limitations, and you should not consider these in isolation or as substitutes for analysis of our financial results as reported under GAAP. Some of these limitations are as follows:\n57\n\u2022\nAlthough depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Subscription Contribution and Subscription Contribution Margin do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; and\n\u2022\nSubscription Contribution and Subscription Contribution Margin exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy.\nBecause of these limitations, Subscription Contribution and Subscription Contribution Margin should be considered along with other operating and financial performance measures presented in accordance with GAAP.\nThe following table presents a reconciliation of Subscription Contribution to Subscription Gross Profit, the most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated:\nFiscal Year Ended June 30,\n2023\n2022\n2021\n(dollars in millions)\nSubscription Revenue\n$\n1,670.1\u00a0\n$\n1,394.7\u00a0\n$\n872.2\u00a0\nLess: Cost of Subscription\n \n547.9\u00a0\n450.0\u00a0\n330.5\u00a0\nSubscription Gross Profit\n$\n1,122.1\u00a0\n$\n944.7\u00a0\n$\n541.7\u00a0\nSubscription Gross Margin\n67.2\u00a0\n%\n67.7\u00a0\n%\n62.1\u00a0\n%\nAdd back:\nDepreciation and amortization expense\n$\n36.9\u00a0\n$\n26.8\u00a0\n$\n19.0\u00a0\nStock-based compensation expense\n42.8\u00a0\n22.7\u00a0\n25.9\u00a0\nSubscription Contribution\n$\n1,201.8\u00a0\n$\n994.2\u00a0\n$\n586.5\u00a0\nSubscription Contribution Margin\n72.0\u00a0\n%\n71.3\u00a0\n%\n67.2\u00a0\n%\nThe continued growth of our Connected Fitness Subscription base will allow us to improve our Subscription Contribution Margin. While there are variable costs, including music royalties, associated with our Connected Fitness Subscriptions, a significant portion of our content creation costs are fixed given that we operate with a limited number of production studios and instructors. We expect the fixed nature of those expenses to scale over time as we grow our Connected Fitness Subscription base.\nFree Cash Flow\nWe define Free Cash Flow as Net cash provided by (used in) operating activities less capital expenditures and capitalized internal-use software development costs. Free cash flow reflects an additional way of viewing our liquidity that, we believe, when viewed with our GAAP results, provides management, investors and other users of our financial information with a more complete understanding of factors and trends affecting our cash flows.\nThe use of Free Cash Flow as an analytical tool has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, Free Cash Flow does not incorporate payments made for purchases of marketable securities, business combinations and asset acquisitions. Because of these limitations, Free Cash Flow should be considered along with other operating and financial performance measures presented in accordance with GAAP.\nThe following table presents a reconciliation of Free Cash Flow to Net cash used in operating activities, the most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated:\nFiscal Year Ended June 30,\n2023\n2022\n2021\n(in millions)\nNet cash used in operating activities\n$\n(387.6)\n$\n(2,020.0)\n$\n(239.7)\nCapital expenditures and capitalized internal-use software development costs\n(82.4)\n(337.3)\n(252.2)\nFree Cash Flow\n$\n(470.0)\n$\n(2,357.4)\n$\n(491.9)\nLiquidity and Capital Resources\nOur operations have been funded primarily through net proceeds from the sales of our equity and convertible debt securities, and term loan, as well as cash flows from operating activities. As of June\u00a030, 2023, we had Cash and cash equivalents of approximately $813.9 million. \n58\nWe anticipate capital expenditures over the next 12 months which include investments in content and our studios, product development and systems implementation, partially offset by any proceeds from the expected eventual sale of Peloton Output Park. \nWe believe our existing cash and cash equivalent balances and cash flow from operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and beyond. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, timing to adjust our supply chain and cost structures in response to material fluctuations in product demand, timing and amount of spending related to acquisitions, the timing and amount of spending on research and development, the timing and financial impact of product recalls, sales and marketing activities, the timing of new product introductions, market acceptance of our Connected Fitness Products, timing and investments needed for international expansion, and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives.\nRestructuring Plan\nIn February 2022, we announced and began implementing a restructuring plan to realign our operational focus to support our multi-year growth, scale the business, and improve costs (the \u201cRestructuring Plan\u201d). The Restructuring Plan originally included: (i) reducing our headcount; (ii) closing several assembly and manufacturing plants, including the completion and subsequent sale of the shell facility for our previously planned Peloton Output Park; (iii) closing and consolidating several distribution facilities; and (iv) shifting to third-party logistics providers in certain locations. We expect the Restructuring Plan to be substantially implemented by the end of fiscal 2024.\nIn fiscal year 2023 we continued to take actions to implement the Restructuring Plan.  On July 12, 2022, we announced we are exiting all owned-manufacturing operations and expanding our current relationship with Taiwanese manufacturer Rexon Industrial Corporation. Additionally, on August 12, 2022, we announced the decision to perform the following additional restructuring activities: (i) fully transitioning our North American Field Operations to third-party providers, including the significant reduction of our delivery workforce teams; (ii) eliminating a significant number of roles on the North America Member Support team and exiting our real-estate footprints in our Plano and Tempe locations; and (iii) reducing our retail showroom presence.\nTotal charges related to the Restructuring Plan were $332.4 million for fiscal year ended June 30, 2023 consisting of cash charges of $85.1 million for severance and other personnel costs and $19.3 million for exit and disposal costs and professional fees, and non-cash charges of $139.3 million related to non-inventory asset write-downs and write-offs, $85.0 million for stock-based compensation expense and $3.7 million for write-offs of inventory related to restructuring activities.\nIn connection with the Restructuring Plan, we estimate that we will incur additional cash charges of approximately $40.0 million, primarily composed of lease termination and other exit costs, by the end of fiscal year 2024. Additionally, the Company expects to recognize additional non-cash charges of approximately $20.0 million during fiscal year 2024, primarily composed of non-inventory asset impairment charges in connection with the Restructuring Plan.\nWe may not be able to realize the cost savings and benefits initially anticipated as a result of the Restructuring Plan, and the costs may be greater than expected. See \n\u201cRisk Factors\u2014Risks Related to Our Business\u2014We may not successfully execute or achieve the expected benefits of our restructuring initiatives and other cost-saving measures we may take in the future, and our efforts may result in further actions and/or additional asset impairment charges and adversely affect our business\n.\u201d\nConvertible Notes \nIn February 2021, we issued $1.0 billion aggregate principal amount of 0% Convertible Senior Notes due 2026 (the \u201cNotes\u201d) in a private offering, including the exercise in full of the over-allotment option granted to the initial purchasers of $125.0 million. The Notes were issued pursuant to an Indenture (the \u201cIndenture\u201d) between us and U.S. Bank National Association, as trustee. The Notes are our senior unsecured obligations and do not bear regular interest, and the principal amount of the Notes does not accrete. The net proceeds from the offering were approximately $977.2 million, after deducting the initial purchasers\u2019 discounts and commissions and our offering expenses. \nCapped Call Transactions\nIn connection with the offering of the Notes, we entered into privately negotiated capped call transactions with certain counterparties (the \u201cCapped Call Transactions\u201d). The Capped Call Transactions have an initial strike price of approximately $239.23 per share, subject to adjustments, which corresponds to the approximate initial conversion price of the Notes. The cap price of the Capped Call Transactions will initially be approximately $362.48 per share. The Capped Call Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, 6.9 million shares of Class A common stock. The Capped Call Transactions are expected generally to reduce potential dilution to the Class A common stock upon any conversion of Notes and/or offset any potential cash payments we would be required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. If, however, the market price per share of Class A common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that the then-market price per share of the Class A common stock exceeds the cap price of the Capped Call Transactions.\n59\nClass A Common Stock Offering\nOn November 16, 2021, we entered into an underwriting agreement (the \u201cUnderwriting Agreement\u201d) with Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC as representatives of the several underwriters named therein (collectively, the \u201cRepresentatives\u201d) relating to the offer and sale by the Company (the \u201cOffering\u201d) of 27,173,912 shares (the \u201cShares\u201d) of the Company\u2019s Class A common stock, par value $0.000025 per share, which includes 3,260,869 shares of Class A common stock issued and sold pursuant to the exercise in full by the underwriters of their option to purchase additional shares of Class A common stock pursuant to the Underwriting Agreement. We sold the Shares to the underwriters at the public offering price of $46.00 per share less underwriting discounts\n. \nThe net proceeds from the Offering were approximately $1.2 billion, after deducting the underwriters\u2019 discounts and commissions and our offering expenses.\nSecond Amended and Restated Credit Agreement\nIn 2019, the Company entered into an amended and restated revolving credit agreement (as amended, modified or supplemented prior to entrance into the Second Amended and Restated Credit Agreement (as defined below), the \u201cAmended and Restated Credit Agreement\u201d). The Amended and Restated Credit Agreement provided for a $500.0 million secured revolving credit facility, including up to the lesser of $250.0 million and the aggregate unused amount of the facility for the issuance of letters of credit. \nThe Amended and Restated Credit Agreement also permitted the incurrence of indebtedness to permit the Capped Call Transactions and issuance of the Notes.\nOn May 25, 2022, the Company entered into an Amendment and Restatement Agreement to the Second Amended and Restated Credit Agreement (as amended, restated or otherwise modified from time to time, the \u201cSecond Amended and Restated Credit Agreement\u201d) with JPMorgan Chase Bank, N.A., as administrative agent, and certain banks and financial institutions party thereto as lenders and issuing banks. Pursuant to the Second Amended and Restated Credit Agreement, the Company amended and restated the Amended and Restated Credit Agreement.\nThe Second Amended and Restated Credit Agreement provides for a $750.0 million term loan facility (the \u201cTerm Loan\u201d), which will be due and payable on May 25, 2027 or, if greater than $200.0 million of the Notes are outstanding on November 16, 2025 (the \u201cSpringing Maturity Condition\u201d), November 16, 2025 (the \u201cSpringing Maturity Date\u201d). The Term Loan amortizes in quarterly installments of 0.25%, payable at the end of each fiscal quarter and on the maturity date.\nThe Second Amended and Restated Credit Agreement also provided for a $500.0 million revolving credit facility (the \u201cRevolving Facility\u201d), $35.0 million of which would mature on June 20, 2024 (the \u201cNon-Consenting Commitments\u201d), with the rest ($465.0 million) maturing on December 10, 2026 (the \u201cConsenting Commitments\u201d) or if the Springing Maturity Condition is met and the Term Loan is outstanding on such date, the Springing Maturity Date. On August 24, 2022, the Company amended the Second Amended and Restated Credit Agreement (the \u201cFirst Amendment\u201d) such that the Company is only required to meet the total liquidity covenant, set at $250.0 million (the \u201cLiquidity Covenant\u201d), and the total revenues covenant, set at $3.0 billion for the four-quarter trailing period, to the extent any revolving loans are borrowed and outstanding. On May 2, 2023, the Company further amended the Second Amended and Restated Credit Agreement (the \u201cSecond Amendment\u201d) to, among other things, (i) reduce the aggregate revolving credit commitments from $500.0\u00a0million to $400.0\u00a0million, with the Non-Consenting Commitments reduced to $28.0\u00a0million and the Consenting Commitments reduced to $372.0\u00a0million, and (ii) remove the covenant requiring the Company to maintain a minimum total four-quarter revenue level of $3.0 billion at any time when revolving loans are outstanding. Following the Second Amendment, borrowings under the Revolving Facility are limited to the lesser of (a) $400.0 million and (b) an amount equal to our \u201cSubscription\u201d revenue for our most recently completed fiscal quarter. The Liquidity Covenant will be replaced with a covenant to maintain a minimum secured debt to adjusted EBITDA ratio upon our meeting a specified adjusted EBITDA threshold.\nThe Revolving Facility bears interest at a rate equal to, at our option, either at the Adjusted Term SOFR Rate (as defined in the Second Amended and Restated Credit Agreement) plus 2.25% per annum or the Alternate Base Rate (as defined in the Second Amended and Restated Credit Agreement) plus 1.25% per annum for the Consenting Commitments, and bears interest at a rate equal to, at our option, either at the Adjusted Term SOFR Rate plus 2.75% per annum or the Alternate Base Rate plus 1.75% per annum for the Non-Consenting Commitments. The Company is required to pay an annual commitment fee of 0.325% per annum and 0.375% per annum on a quarterly basis based on the unused portion of the Revolving Facility for the Consenting Commitments and the Non-Consenting Commitments, respectively.\nThe Term Loan bears interest at a rate equal to, at our option, either at the Alternate Base Rate (as defined in the Second Amended and Restated Credit Agreement) plus 5.50% per annum or the Adjusted Term SOFR Rate (as defined in the Second Amended and Restated Credit Agreement) plus 6.50% per annum. As stipulated in the Second Amended and Restated Credit Agreement, the applicable rates applicable to the Term Loan increased one time by 0.50% per annum as the Company chose not to obtain a public rating for the Term Loan from S&P Global Ratings or Moody\u2019s Investors Services, Inc. on or prior to November 25, 2022. Any borrowing at the Alternate Base Rate is subject to a 1.00% floor and a term loan borrowed at the Adjusted Term SOFR Rate is subject to a 0.50% floor and any revolving loan borrowed at the Adjusted Term SOFR Rate is subject to a 0.00% floor.\nThe Second Amended and Restated Credit Agreement contains customary affirmative covenants as well as customary covenants that restrict our ability to, among other things, incur additional indebtedness, sell certain assets, guarantee obligations of third parties, declare dividends or make certain distributions, and undergo a merger or consolidation or certain other transactions. The Second Amended and Restated Credit Agreement also contains certain customary events of default. Certain baskets and covenant levels have been decreased and will apply equally to both the Term Loan and Revolving Facility for so long as the Term Loan is outstanding. After the repayment in full of the Term Loan, such baskets and levels will revert to those previously disclosed in connection with the Amended and Restated Credit Agreement.\n60\nThe obligations under the Second Amended and Restated Credit Agreement with respect to the Term Loan and the Revolving Facility are secured by substantially all of our assets, with certain exceptions set forth in the Second Amended and Restated Credit Agreement, and are required to be guaranteed by certain material subsidiaries of the Company if, at the end of future financial quarters, certain conditions are not met.\nAs of June\u00a030, 2023, the Company had not drawn on our Revolving Facility and as such did not have to test the financial covenants under the Second Amended and Restated Credit Agreement. As of June\u00a030, 2023, the Company had drawn the full amount of the Term Loan, and therefore had $742.5 million total outstanding borrowings under the Second Amended and Restated Credit Agreement. As of June\u00a030, 2023, the Company had outstanding letters of credit totaling $71.6 million, which is classified as Restricted cash on the Consolidated Balance Sheet. Upon entering into the Term Loan, the effective interest rate was 10.2%. On each of November 25, 2022 and May 25, 2023 the rate was updated to 13.7% and 14.3%, respectively.\nCash Flows\n\u00a0\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n2021\n(in millions)\nNet cash used in operating activities\n$\n(387.6)\n$\n(2,020.0)\n$\n(239.7)\nNet cash (used in) provided by investing activities\n(69.9)\n153.3\u00a0\n(585.1)\nNet cash provided by financing activities\n76.8\u00a0\n2,015.1\u00a0\n916.8\u00a0\nOperating Activities\nNet cash used in operating activities of $387.6 million for the fiscal year ended June 30, 2023 was primarily due to a net loss of $1,261.7 million, partially offset by an increase in non-cash adjustments of $760.2 million and a net decrease in operating assets and liabilities of $113.8 million. The decrease in cash used in operating activities was primarily due to a $537.5 million decrease in inventory, partially offset by a $347.2 million decrease in accounts payable and accrued expenses as a result of lower accrued legal settlement costs, lower supplier settlements owed, and decreased inventory spending, and an $89.9 million decrease in net operating lease liabilities due to lease payments and lease terminations. Non-cash adjustments primarily consisted of stock-based compensation expense, depreciation and amortization, long-lived asset impairment expense, and non-cash operating lease expense.\nInvesting activities\nNet cash used in investing activities of $69.9 million for the fiscal year ended June 30, 2023 was primarily related to\n $82.4 million used for capital expenditures, primarily related to software development and the build out of our studios, warehouses, and offices, partially offset by \n$12.4 million\n of proceeds from sales of net assets. \nFinancing activities\nNet cash provided by financing activities of $76.8 million for the fiscal year ended June 30, 2023 was primarily related to exercises of stock options of $79.8 million and $6.9 million in net proceeds from withholdings under the 2019 Employee Stock Purchase Plan, partially offset by $7.5 million in principal repayments of the Term Loan.\nCommitments\nAs of June\u00a030, 2023, our contractual obligations were as follows:\nPayments due by period\nContractual obligations:\nTotal\nLess\u00a0than\n1-3\u00a0years\n3-5\u00a0years\nMore\u00a0than\n1 year\n5 years\n(in millions)\nLease obligations \n(1)\n$\n883.1\u00a0\n$\n115.5\u00a0\n$\n199.0\u00a0\n$\n170.4\u00a0\n$\n398.2\u00a0\nMinimum guarantees \n(2)\n185.5\u00a0\n131.6\u00a0\n53.8\u00a0\n\u2014\u00a0\n\u2014\u00a0\nUnused credit facility fee payments \n(3)\n5.0\u00a0\n1.3\u00a0\n3.0\u00a0\n0.7\u00a0\n\u2014\u00a0\nOther purchase obligations \n(4)\n136.0\u00a0\n54.6\u00a0\n69.1\u00a0\n12.3\u00a0\n\u2014\u00a0\nConvertible senior notes \n(5)\n1,000.0\u00a0\n\u2014\u00a0\n1,000.0\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTerm loan \n(5)\n742.5\u00a0\n7.5\u00a0\n15.0\u00a0\n720.0\u00a0\n\u2014\u00a0\nTotal\n$\n2,952.2\u00a0\n$\n310.5\u00a0\n$\n1,340.0\u00a0\n$\n903.4\u00a0\n$\n398.2\u00a0\n______________________\n(1) Lease obligations relate to our office space, warehouses, retail locations, production studios, and equipment. The original lease terms are between one and 21 years, and the majority of the lease agreements are renewable at the end of the lease period. The Company has finance lease obligations of $0.7 million, also included above.\n(2) We are subject to minimum royalty payments associated with our license agreements for the use of licensed content. See \n\u201cRisk Factors \u2014 Risks Related to Our Business\u2014 \nWe depend upon third-party licenses for the use of music in our content. An adverse change to, loss of, or claim that we do not hold necessary licenses may have an adverse effect on our business, operating results, and financial condition.\u201d\n61\n(3) Pursuant to the Second Amended and Restated Credit Agreement, we are required to pay a commitment fee of 0.325% and 0.375% on a quarterly basis based on the unused portion of the Revolving Facility for the revolving loans maturing on December\u00a010, 2026 and June\u00a020, 2024, respectively. As of June\u00a030, 2023, we had outstanding letters of credit totaling $71.6 million.\n(4) Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to cloud computing costs.\n(5) Refer to \nNote 12 - Debt\n in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further details regarding our Notes and Term Loan obligations.\nThe commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts.\nWe utilize contract manufacturers to build our products and accessories. These contract manufacturers acquire components and build products based on demand forecast information we supply, which typically covers a rolling 12-month period. Consistent with industry practice, we acquire inventories from such manufacturers through blanket purchase orders against which orders are applied based on projected demand information and availability of goods. Such purchase commitments typically cover our forecasted product and manufacturing requirements for periods that range a number of months. In certain instances, these agreements allow us the option to cancel, reschedule, and/or adjust our requirements based on our business needs for a period of time before the order is due to be fulfilled. While our purchase orders are legally cancellable in many situations, some purchase orders are not cancellable in the event of a demand plan change or other circumstances, such as where the supplier has procured unique, Peloton-specific designs, and/or specific non-cancellable, non-returnable components based on our provided forecasts. \nAs of June\u00a030, 2023, our commitments to contract with third-party manufacturers for their inventory on-hand and component purchase commitments related to the manufacture of our products were estimated to be approximately $174.6 million. See \n\u201cRisk Factors\u2014Risks Related to Our Business\u2014Our operating results have been, and could in the future be, adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory\n.\u201d\nOff-Balance Sheet Arrangements\u00a0\nWe did not have any undisclosed off-balance sheet arrangements as of June\u00a030, 2023.\nRecent Accounting Pronouncements\nSee \nNote 2 - Summary of Significant Accounting Policies\n in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K under the heading \n\u201cRecently Issued Accounting Pronouncements\u201d\n for a discussion about new accounting pronouncements adopted and not yet adopted as of the date of this Annual Report on Form 10-K.\nCritical Accounting Estimates\nOur discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. In preparing the consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, stockholders\u2019 equity, revenue, expenses, and related disclosures. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions. The critical accounting policies that reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements include those noted below.\nRevenue Recognition\nThe Company\u2019s primary sources of revenue are our recurring content Subscription revenue, and revenue from the sales of our Connected Fitness Products and related accessories, as well as Precor branded fitness products, delivery and installation services.\nWe determine revenue recognition through the following steps in accordance with ASC 606:\n\u2022\nidentification of the contract, or contracts, with a customer;\n\u2022\nidentification of the performance obligations in the contract;\n\u2022\ndetermination of the transaction price; \n\u2022\nallocation of the transaction price to the performance obligations in the contract; and\n\u2022\nrecognition of revenue when, or as, we satisfy a performance obligation.\nRevenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods or services.\u00a0Our revenue is reported net of sales returns, discounts, incentives, and rebates to commercial distributors as a reduction of the transaction price. Certain contracts include consideration payable that is accounted for as a payment for distinct goods or services. Our transaction price estimate includes our estimate for product returns and concessions based on the terms and conditions of home trial programs, historical return trends by product category, impact of seasonality, an evaluation of current economic and market conditions, and current business practices, and record the expected customer refund liability as a reduction to revenue, and the expected inventory right of recovery as a reduction of cost of revenue.\u00a0If actual return costs differ from previous estimates, the amount of the liability and corresponding revenue are adjusted in the period in which such costs occur.  \n62\nThere is not significant judgement required in the determination of performance obligations, allocation of our transaction price, or the recognition of revenue. See further discussion in Note 3 - \nRevenue\n in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. \nAs described in Note 13 - Commitments and Contingencies in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, the Company announced voluntary recalls of the Company's Tread+ and Tread products, permitting customers to return the products for a refund. The amount of a refund customers are eligible to receive may differ based on the status of an approved remediation of the issue driving the recall, and the age of the Connected Fitness product being returned. We estimate return reserves primarily based on historical and expected product returns, product warranty, and service call trends. We also consider current trends in consumer behavior in order to identify correlations to current trends in returns. However, with current uncertainty in the global economy, negative press and general sentiment surrounding Peloton\u2019s post-pandemic business and financial performance, predicting expected product returns based on historical returns becomes less relevant, requiring reliance on highly subjective estimates based on our interpretation of how current conditions and factors will drive consumer behavior.\nOn October 18, 2022, the CPSC and the Company jointly announced that consumers have more time to get a full refund if they wish to return their Tread+. With the extension of the full refund period for one additional year, to November 6, 2023, the Company previously estimated that more Members would opt for a full refund, and accordingly increased the Company\u2019s return reserve during the fiscal year ended June 30, 2023. As a result of these recalls\n, we have recorded return provisions as a reduction to Connected Fitness Products revenue of $\n14.6 million\n, $\n48.9 million\n, and $\n81.1 million\n for the fiscal years ended \nJune\u00a030, 2023, 2022 and 2021, respectively\n. \nAs of June\u00a030, 2023 and June\u00a030, 2022, our returns reserve related to the impacts of the recalls was $24.4 million and $39.9 million, respectively.\nProduct Recall Related Matters \nThe Company accrues cost of product recalls and potential corrective actions based on management estimate of when it is probable that a liability has been incurred and the amount can be reasonably estimated, which occurs when management commits to a corrective action plan or when required by regulatory requirements. Costs of product recalls and corrective actions are recognized in Connected Fitness Products cost of revenue, which may include the cost of the development of the product being replaced, logistics costs, and other related costs such as product scrap cost, inventory write-down and cancellation of any supplier commitments. The accrued cost is based on management\u2019s estimate of the cost to repair each affected product and the estimated number of products to be repaired based on actions taken by the impacted customers. Estimating both cost to repair each affected product and the number of units to be repaired is highly subjective and requires significant management judgment. Based on information that is currently available, management believes that the accruals are adequate. It is possible that substantial additional charges may be required in future periods based on new information, changes in facts and circumstances, and actions the Company may commit to or be required to undertake. During the fiscal year ended June 30, 2023, the Company accrued an additional $64.1\u00a0million liability related to its product recall related matters. As of June\u00a030, 2023 and June\u00a030, 2022, accruals related to product recall related matters were $63.4\u00a0million and $1.8\u00a0million, respectively.\nInventory Valuation\nWe review our inventory to ensure that its carrying value does not exceed its net realizable value (\u201cNRV\u201d), with NRV based on the estimated selling price of inventory in the ordinary course of business, less estimated costs of completion, disposal and transportation. When our expectations indicate that the carrying value of inventory may exceed its NRV, we perform an exercise to calculate the approximate amount by which carrying value is greater than NRV and record additional cost of revenue for the difference. Once a write-off occurs, a new, lower cost basis is established. Should our estimates used in these calculations change in the future, such as estimated selling prices or disposal costs, additional write-downs may occur. \nWe also regularly monitor inventory quantities on hand and in transit and reserve for excess and obsolete inventories using estimates based on historical experience, historical and projected sales trends, specific categories of inventory, and age of on-hand inventory. Inventories presented in the Consolidated Balance Sheets are net of reserves for excess and obsolete inventory. If actual conditions or product demands are less favorable than our assumptions, additional inventory reserves may be required. \nProduct Warranty\nWe offer a standard product warranty that our Connected Fitness Products and Precor branded fitness products will operate under normal, non-commercial use for a period of one year covering the touchscreen and most original Bike, Bike+, Tread, Tread+, Row, and Guide components from the date of original delivery. We have the obligation, at our option, to either repair or replace the defective product. At the time revenue is recognized, an estimate of future warranty costs is recorded as a component of cost of revenue. Factors that affect the warranty obligation include historical as well as current product failure rates, service delivery costs incurred in correcting product failures, and warranty policies and business practices. Our products are manufactured by contract manufacturers, and in certain cases, we may have recourse to such contract manufacturers.\nWe also offer the option for customers in some markets to purchase a third-party extended warranty and service contract that extends or enhances the technical support, parts, and labor coverage offered as part of the base warranty included with the Connected Fitness Products for an additional period of 12 to 36 months.\nRevenue and related fees paid to the third-party provider are recognized on a gross basis as we have a continuing obligation to perform over the service period. Extended warranty revenue is recognized ratably over the extended warranty coverage period and is included in Connected Fitness Products revenue in the Consolidated Statements of Operations and Comprehensive Loss.\n63\nGoodwill and Intangible Assets\nGoodwill represents the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest, if any, over the fair value of identifiable assets acquired and liabilities assumed in a business combination. The Company has no intangible assets with indefinite useful lives.\nIntangible assets other than goodwill are comprised of acquired developed technology and other finite-lived intangible assets. At initial recognition, intangible assets acquired in a business combination or asset acquisition are recognized at their fair value as of the date of acquisition. Following initial recognition, intangible assets are carried at acquisition date fair value less accumulated amortization and impairment losses, if any, and are amortized on a straight-line basis over the estimated useful life of the asset.\nWe review goodwill for impairment annually on April 1 of each fiscal year or whenever events or changes in circumstances indicate that an impairment may exist. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. In conducting our annual impairment test, we first review qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If factors indicate that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative assessment and the fair value of the reporting unit is estimated by analyzing the expected present value of future cash flows. If the carrying value of the reporting unit exceeds its fair value, an impairment loss equal to the excess is recorded.  \nWe assess the impairment of intangible assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.\nImpairment of Long-Lived Assets\nWe test our long-lived asset groups when changes in circumstances indicate their carrying value may not be recoverable. Events that trigger a test for recoverability include material adverse changes in projected revenues and expenses, present cash flow losses combined with a history of cash flow losses and a forecast that demonstrates significant continuing losses, significant negative industry or economic trends, a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, a significant adverse change in the manner in which an asset group is used or in its physical condition, or when there is a change in the asset grouping. When a triggering event occurs, a test for recoverability is performed, comparing projected undiscounted future cash flows to the carrying value of the asset group. If the test for recoverability identifies a possible impairment, the asset group\u2019s fair value is measured relying primarily on a discounted cash flow method. To the extent available, we will also consider third-party valuations of our long-lived assets that were prepared for other business purposes. An impairment charge is recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value. When an impairment loss is recognized for assets to be held and used, the adjusted carrying amounts of those assets are depreciated over their remaining useful life.\nFor our Connected Fitness segment and Subscription segment, we evaluate long-lived tangible assets at the lowest level at which independent cash flows can be identified, which is dependent on the strategy and expected future use of our long-lived assets. We evaluate corporate assets or other long-lived assets that are not segment-specific at the consolidated level. \nWe measure the fair value of an asset group based on market prices (i.e., the amount for which the asset could be sold to a third party) when available. When market prices are not available, we generally estimate the fair value of the asset group using the income approach and/or the market approach. The income approach uses cash flow projections. Inherent in our development of cash flow projections are assumptions and estimates derived from a review of our operating results, business plan forecasts, expected growth rates, and cost of capital, similar to those a market participant would use to assess fair value. We also make certain assumptions about future economic conditions and other data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods.\nChanges in assumptions or estimates can materially affect the fair value measurement of an asset group and, therefore, can affect the test results. Since there is typically no active market for our long-lived tangible assets, we estimate fair values based on the expected future cash flows. We estimate future cash flows based on historical results, current trends, and operating and cash flow projections. Our estimates are subject to uncertainty and may be affected by a number of factors outside our control, including general economic conditions and the competitive environment. While we believe our estimates and judgments about future cash flows are reasonable, future impairment charges may be required if the expected cash flow estimates, as projected, do not occur or if events change requiring us to revise our estimates.\nDuring fiscal 2022 and fiscal 2023, management identified various qualitative factors that collectively indicated that the Company had impairment triggering events, including (i) realignment of cost structure in connection with the Restructuring Plan, (ii) softening demand and (iii) a sustained decrease in stock price.\nBusiness Combination\nTo determine whether transactions should be accounted for as acquisitions of assets or business combinations, we make certain judgments, which include assessment of the inputs, processes, and outputs associated with the acquired set of activities. If we determine that substantially all of the fair value of gross assets included in a transaction is concentrated in a single asset (or a group of similar assets), the assets will not represent a business. To be considered a business, the assets in a transaction need to include an input and a substantive process that together significantly contribute to the ability to create outputs.\nWe allocate the fair value of the purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The fair values of intangible assets are determined utilizing information available near the acquisition date based on expectations and assumptions that are deemed reasonable by management. Given the considerable judgment involved in determining fair \n64\nvalues, we typically obtain assistance from third-party valuation specialists for significant items. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs are expensed as incurred. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions that existed at the acquisition date becomes available.\nLoss Contingencies\nWe are involved in legal proceedings, claims, and regulatory, tax, and government inquiries and investigations that arise in the ordinary course of business. Certain of these matters include claims for substantial or indeterminate amounts of damages. We record a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be reasonably estimated, we disclose the possible loss in the accompanying notes to the consolidated financial statements. If we determine that a loss is reasonably possible but the loss or range of loss cannot be reasonably estimated, we state that such an estimate cannot be made.\nWe review the developments in our contingencies that could affect the amount of the provisions that have been previously recorded, and the matters and related reasonably possible losses disclosed. We make adjustments to our provisions and changes to our disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability and the estimated amount of loss. These estimates have been based on our assessment of the facts and circumstances at each balance sheet date and are subject to change based on new information and future events.\nThe outcomes of legal proceedings, claims, and regulatory, tax, and government inquiries and investigations are inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management\u2019s expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.\n65",
+  "item7a": ">Item 7A.   Quantitative and Qualitative Disclosures About Market Risk\nInterest Rate Risk\nWe had Cash and cash equivalents of $813.9 million as of June\u00a030, 2023. The primary objective of our investment activities is the preservation of capital, and we do not enter into investments for trading or speculative purposes. We have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates. A hypothetical 10% increase in interest rates during any of the periods presented in this Annual Report on Form 10-K would not have had a material impact on our consolidated financial statements.\nWe are primarily exposed to changes in short-term interest rates with respect to our cost of borrowing under our Second Amended and Restated Credit Agreement. We monitor our cost of borrowing under our facilities, taking into account our funding requirements, and our expectations for short-term rates in the future. A hypothetical 10% change in the interest rate on our Second Amended and Restated Credit Agreement for all periods presented would not have a material impact on our consolidated financial statements.\nForeign Currency Risk\nOur international sales are primarily denominated in foreign currencies and any unfavorable movement in the exchange rate between U.S. dollars and the currencies in which we conduct sales in foreign countries could have an adverse impact on our revenue. We source and manufacture inventory primarily in U.S. dollars and Taiwanese dollars. A portion of our operating expenses is incurred outside the United States and are denominated in foreign currencies, which are also subject to fluctuations due to changes in foreign currency exchange rates. For example, some of our contract manufacturing takes place in Taiwan and the related agreements are denominated in foreign currencies and not in U.S. dollars. Further, certain of our manufacturing agreements provide for fixed costs of our Connected Fitness Products and hardware in Taiwanese dollars but provide for payment in U.S. dollars based on the then-current Taiwanese dollar to U.S. dollar spot rate. In addition, our suppliers incur many costs, including labor and supply costs, in other currencies. While we are not currently contractually obligated to pay increased costs due to changes in exchange rates, to the extent that exchange rates move unfavorably for our suppliers, they may seek to pass these additional costs on to us, which could have a material impact on our gross margins. Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. We have the ability to use derivative instruments, such as foreign currency forwards, and have the ability to use option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. Our exposure to foreign currency exchange rates historically has been partially hedged as our foreign currency denominated inflows create a natural hedge against our foreign currency denominated expenses.   \nInflation Risk\nGiven the recent rise in inflation, there have been and may continue to be additional pressures on the ongoing increases in supply chain and logistics costs, materials costs, and labor costs. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we have recently experienced the effects of inflation on our results of operations and financial condition. Our business could be more affected by inflation in the future which could have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of net revenue if we are unable to fully offset such higher costs through price increases. Additionally, because we purchase component parts from our suppliers, we may be adversely impacted by their inability to adequately mitigate inflationary, industry, or economic pressures.\u00a0\u00a0\u00a0\u00a0\n66",
+  "cik": "1639825",
+  "cusip6": "70614W",
+  "cusip": ["70614WAB6", "70614W100", "70614W950", "70614w100", "70614W900"],
+  "names": ["PELOTON INTERACTIVE INC-A", "PELOTON INTERACTIVE INC CL A C", "PTON", "None"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1639825/000163982523000132/0001639825-23-000132-index.htm"
+}
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+++ b/GraphRAG/standalone/data/all/form10k/0001650372-23-000040.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM\u00a01. BUSINESS\nCompany Overview\n\u00a0\nOur mission is to unleash the potential of every team.\nOur products help teams organize, discuss and complete shared work \u2014 delivering superior outcomes for their organizations.\nOur primary products include Jira Software and Jira Work Management for planning and project management, Confluence for content creation and sharing, Trello for capturing and adding structure to fluid, fast-forming work for teams, Jira Service Management for team service, management and support applications, Jira Align for enterprise agile planning, and Bitbucket for code sharing and management. Together, our products form an integrated system for organizing, discussing and completing shared work, becoming deeply entrenched in how teams collaborate and how organizations run. The Atlassian platform is the common technology foundation for our products that drives connection between teams, information, and workflows. It allows work to flow seamlessly across tools, automates the mundane so teams can focus on what matters, and enables better decision-making based on the data customers choose to put into our products.\nOur products serve teams of all shapes and sizes, in virtually every industry. Our pricing strategy is unique within the enterprise software industry because we transparently share our affordable pricing online for most of our products and we generally do not follow the practice of opaque pricing and ad hoc discounting. By delivering high-value, low cost products in pursuit of customer volume, and targeting every organization, regardless of size, industry, or geography we are able to operate at unusual scale for an enterprise software company, with more than 260,000 customers across virtually every industry sector in approximately 200 countries as of June\u00a030, 2023.\nTo reach this expansive market, we primarily distribute and sell our products directly online and indirectly through solutions partners, with limited traditional enterprise sales infrastructure. We offer a self-service, high-velocity, low-friction distribution model that makes it easy for customers to try, adopt and use our products. By making our products powerful, simple to try, easy to adopt, and affordable to purchase we generate demand from word-of-mouth and viral expansion within organizations rather than having to solely rely on a traditional enterprise sales infrastructure. Our indirect sales channel of solution partners and resellers primarily focus on customers in regions that require local language support and other customized needs. We plan to continue to invest in our partner programs to help us enter and grow in new markets, complementing our high-velocity, low-friction approach. \nOur product strategy, investment in innovation, distribution model, dedication to customer value and company culture work in concert to create unique value for our customers and competitive advantages for our Company.\nOur mission is possible with deep investment in product development to create and refine high-quality and versatile products that users love. We invest significantly more in research and development activities than in traditional sales activities relative to other enterprise software companies. These investments in developing and continually improving our versatile products and platform help teams achieve their full potential.\nOur Product Strategy\nWe have developed and acquired a broad portfolio of products that help teams large and small to organize, discuss, and complete their work in a new way that is coordinated, efficient and innovative. Our products serve the needs of teams of software developers, information technology (\"IT\u201d) professionals, and knowledge workers. While our products can provide a range of distinct functionality to users, they share certain core attributes:\n\u2022\nBuilt for Teams - \nOur products are singularly designed to help teams work better together and achieve more. We design products that help our customers collaborate more effectively, be more transparent, and operate in a coordinated manner.\u00a0\n\u2022\nEasy to Adopt and Use - \nWe invest significantly in research and development to enable our products to be both powerful and easy to use. Our software is designed to be accessed from the internet and immediately put to work. By reducing the friction that usually accompanies the purchasing process of business software \n6\nand eliminating the need for complicated and costly implementation and training, we believe we attract more people to try, use, derive value from, and buy our software. \n\u2022\nVersatile and Adaptable - \nWe design simple products that are useful in a broad range of workflows and projects. We believe that our products can improve any process involving teams, multiple work streams, and deadlines. For example, Jira Software, which enables software teams to plan, build, and ship code, is also used by thousands of our customers to manage workflows related to product design, supply chain management, expense management, and legal document review.\u00a0\n\u2022\nIntegrated - \nOur products are integrated and designed to work well together. For example, the status of an IT service ticket generated in Jira Service Management can be viewed in Confluence, providing visibility to business stakeholders. \n\u2022\nOpen - \nWe are dedicated to making our products open and interoperable with a range of other platforms and applications, such as Microsoft, Zoom, Slack, Salesforce, Workday, and Dropbox. In order to provide a platform for our partners and to promote useful products for our users, we developed the Atlassian Marketplace, an online marketplace that features thousands of apps created by a growing global network of independent developers and vendors. The Atlassian Marketplace provides customers a wide range of apps they can use to extend or enhance our products, further increasing the value of our platform. \nOur Distribution Model\nOur high-velocity, low-friction distribution model is designed to drive exceptional customer scale by making products that are free to try and affordable to purchase online. We prioritize product quality, automated distribution, transparent pricing, and customer service over a costly traditional sales infrastructure. We primarily rely on word-of-mouth and low-touch demand generation to drive trial, adoption, and expansion of our products.\nThe following are key attributes of our unique model:\n\u2022\nInnovation-driven - \nRelative to other enterprise software companies, we invest significantly in research and development rather than marketing and sales. Our goal is to focus our spending on new product and feature development, measures that improve quality, ease of adoption, and expansion, and create organic customer demand for our products. We also invest in ways to automate and streamline distribution and customer support functions to enhance our customer experience and improve our efficiency. \n\u2022\nSimple and Affordable\u00a0-\n We offer our products at affordable prices in a simple and transparent format. For example, a customer can use a free version of our products, which includes the core functionality of our standard edition, for a certain number of users. In addition, a customer coming to our website can evaluate and purchase a Jira Software subscription, for 10 users or 50,000+ users, based on a transparent list price, without any interaction with a sales person. This approach, which stands in contrast to the opaque and complex pricing plans offered by most traditional enterprise software vendors, is designed to complement the easy-to-use, easy-to-adopt nature of our products and accelerate adoption by large volumes of new customers.\n\u2022\nOrganic and Expansive - \nOur model benefits significantly from customer word-of-mouth driving traffic to our website. The vast majority of our transactions are conducted on our website, which drastically reduces our customer acquisition costs. We also benefit from distribution leverage via our network of solution partners, who resell and customize our products. Once we have landed within a customer team, the networked nature and flexibility of our products tend to lead to adoption by other teams and departments, resulting in user growth, new use cases, and the adoption of our other products. \n\u2022\nScale-oriented - \nOur model is designed to generate and benefit from significant customer scale and our goal is to maximize the number of individual users of our software. With more than 260,000 customers using our software today, we are able to reach a vast number of users, gather insights to continually improve our offerings, and generate revenue growth by expanding within our customer accounts. Many of our customers started as significantly smaller customers and we have demonstrated our ability to grow within our existing customer base. Our products drive mission-critical workflows within customers of all sizes, including enterprise customers. We offer enhanced capabilities in the premium and enterprise editions of our products, and we efficiently evolve our expansion sales motion within these larger customers. Ultimately, our model is designed to serve customers large and small and to benefit from the data, network effects, and customer insights that emerge from such scale.\n7\n\u2022\nData-driven - \nOur scale and the design of our model allows us to gather insights into and improve the customer experience. We track, test, nurture and refine every step of the customer journey and our users' experience. This allows us to intelligently manage our funnel of potential users, drive conversion and expansion, and promote additional products to existing users. Our scale enables us to experiment with various approaches to these motions and constantly tune our strategies for user satisfaction and growth.\nOur Products\nWe offer a range of team collaboration products, including:\n\u2022\nJira Software and Jira Work Management for project management;\u00a0\n\u2022\nConfluence for team collaboration, content creation and sharing;\u00a0\n\u2022\nJira Service Management for team service and support applications;\n\u2022\nTrello for capturing and adding structure to fluid, fast-forming work for teams; \n\u2022\nJira Align for enterprise agile planning and value stream management; \n\u2022\nBitbucket for source code management; \n\u2022\nAtlassian Access for enterprise-grade security and centralized administration; and\n\u2022\nJira Product Discovery for prioritization and product roadmapping.\nThese products can be deployed by users in the cloud and many of our products can be deployed behind the firewall on the customers\u2019 own infrastructure.\nJira Software and Jira Work Management.\n \n Jira Software and Jira Work Management provide a sophisticated and flexible project management system that connects technical and business teams so they can better plan, organize, track and manage their work and projects. Jira\u2019s flexible ways to view work, customizable dashboards and automation, and powerful reporting features keep distributed teams aligned and on track. \nConfluence.\n \nConfluence provides a connected workspace that organizes knowledge across all teams to move work forward. As a content collaboration hub, Confluence enables teams to create pages, ideate on projects, and better connect and visualize work. Through Confluence\u2019s rich features, our customers can create and share their work - meeting notes, blogs, display images, data, roadmaps, code, and more - with their team or guests outside of their organization. Confluence\u2019s collaborative capabilities enable teams to streamline work and stay focused. \nJira Service Management.\n \nJira Service Management is an intuitive and flexible service desk product for creating and managing service experiences for a variety of service team providers, including IT, legal, and HR teams. Jira Service Management features an elegant self-service portal, best-in-class team collaboration, ticket management, integrated knowledge, asset and configuration management, service level agreement support, and real-time reporting. \nTrello.\n \nTrello is a collaboration and organization product that captures and adds structure to fluid, fast-forming work for teams. A project management application that can organize your tasks into lists and boards, Trello can tell users and their teams what is being worked on, by whom, and how far along the task or project is. At the same time, Trello is extremely simple and flexible, which allows it to serve a vast number of other collaboration and organizational needs.\nJira Align.\n \nJira Align is Atlassian\u2019s enterprise agility solution designed to help businesses quickly adapt and respond to dynamic business conditions with a focus on value-creation. Through data-driven tools, Jira Align makes cross-portfolio work visible, so leaders can identify bottlenecks, risks, and dependencies, and execution is aligned to company strategy.\nBitbucket.\n \nBitbucket is an enterprise-ready Git solution that enables professional dev teams to manage, collaborate on, and deploy quality code.\nAtlassian Access.\n \nAtlassian Access is an enterprise-wide product for enhanced security and centralized administration that works across every Atlassian cloud product.\nJira Product Discovery.\n Jira Product Discovery is a prioritization and roadmapping tool. It helps transform product management into a team sport, empowering product teams to bring structure to chaos, align stakeholders on \n8\nstrategy and roadmaps, and bridge the gap between business and tech teams so they can build products that make an impact - all in Jira.\nOther Products\n \nWe also offer additional products, including Atlas, Bamboo, Crowd, Crucible, Fisheye, Opsgenie, Sourcetree, Statuspage, and Atlassian cloud apps. \nOur Technology, Infrastructure and Operations\nOur products and technology infrastructure are designed to provide simple-to-use and versatile products with industry-standard security and data protection that scales to organizations of all sizes, from small teams to large organizations with thousands of users. Maintaining the security and integrity of our infrastructure is critical to our business. As such, we leverage standard security and monitoring tools to ensure performance across our network.\nThe Atlassian Cloud Platform\nThe Atlassian platform is the foundation of our cloud solutions, connecting software developers, IT, and business teams. It is designed to break down information silos with cross-product experiences and flexible integrations and ensures that data remains secure, compliant, private, and available with enterprise-grade centralized admin visibility and controls. It enables modern and connected experiences across teams, tools, workflows, and data, including collaboration, analytics, automation, and artificial intelligence capabilities.\nOur strategy is to build more common services and functionality shared across our platform. This approach allows us to develop and introduce new products faster, as we can leverage common foundational services that already exist. This also allows our products to more seamlessly integrate with one another, and provides customers better experiences when using multiple products.\nThe Atlassian platform is extensible, meaning teams have the freedom to add, integrate, customize, or build new functionality on the Atlassian platform as needed. New apps can be found on the Atlassian Marketplace or can be developed using Forge, our cloud app development platform or Atlassian Connect, a development framework for extending Atlassian cloud products.\nThe Atlassian Marketplace and Ecosystem\n\u00a0\u00a0\u00a0\u00a0\nThe Atlassian Marketplace is a hosted online marketplace for free and purchasable apps to enhance our products. The Atlassian Marketplace offers thousands of apps from a large and growing ecosystem of third-party vendors and developers. \nWe offer the Atlassian Marketplace to customers to simplify the discovery and purchase of add-on capabilities for our products. Additionally, it serves as a platform for third-party vendors and developers to more easily reach our customer base, while also streamlining license management and renewals. In fiscal year 2023, the Atlassian Marketplace generated over $700\u00a0million in purchases of third-party apps.\nAtlassian Ventures makes investments in the developer ecosystem, including cloud apps in the Atlassian Marketplace, integrations with our product suite, and deeper strategic partnerships that create shared customer value.\nForge is our cloud app development platform designed to standardize how Atlassian cloud products are customized, extended, and integrated. Developers can rely on Forge\u2019s hosted infrastructure, storage, and function-as-a-service to build new cloud apps for themselves or for the Atlassian Marketplace. \nResearch and Development\nOur research and development organization is primarily responsible for the design, development, testing and delivery of our products and platform. It is also responsible for our customer services platforms, including billing and support, our Marketplace platform, and marketing and sales systems that power our high-velocity, low friction distribution model. \nAs of June\u00a030, 2023, over 50% of our employees were involved in research and development activities. Our research and development organization consists of flexible and dynamic teams that follow agile development methodologies to enable rapid product releases across our various products and deployment options. In addition to investing in our internal development teams, we invest heavily in our developer ecosystem to enable external software developers to build features and solutions on top of our platform. Given our relentless focus on customer \n9\nvalue, we work closely with our customers to develop our products and have designed a development process that incorporates the feedback that matters most from our users. From maintaining an active online community to measuring user satisfaction for our products, we are able to address our users\u2019 greatest needs. We released new products, versions, features, and cloud platform capabilities to drive existing customer success and expansion as well as attract new customers to our products. We will continue to make significant investment in research and development to support these efforts.\nCustomers\nWe pursue customer volume, targeting every organization, regardless of size, industry, or geography. This allows us to operate at unusual scale for an enterprise software company, with more than 260,000 customers across virtually every industry sector in approximately 200 countries as of June\u00a030, 2023.\u00a0Our customers range from small organizations that have adopted one of our products for a small group of users, to over two-thirds of the Fortune 500, many of which use a combination of our products across thousands of users.\nWe take a long-term view of our customer relationships and our opportunity. We recognize that users drive the adoption and proliferation of our products and, as a result, we focus on enabling a self-service, low-friction distribution model that makes it easy for users to try, adopt, and use our products. We are relentlessly focused on measuring and improving user satisfaction as we know that one happy user will beget another, thereby expanding the large and organic word-of-mouth community that helps drive our growth.\nSales and Marketing\nSales\nOur website is our primary forum for sales and supports thousands of commercial transactions daily. We share a wide variety of information directly with prospective customers, including detailed product information and product pricing. Over the years, we have grown our sales force to augment our sales motion. Our sales team primarily focuses on expanding the relationships with our largest existing customers. We do not solely rely on a traditional, commissioned direct sales force because our sales model focuses on enabling customer self-service, data-driven targeting and automation. We focus on allowing purchasing to be completed online through an automated, easy-to-use web-based process that permits payment using a credit card or bank/wire transfer. \nWe also have a global network of solution partners with unique expertise, services and products that complement the Atlassian portfolio, such as deployment and customization services, localized purchasing assistance around currency, and language and specific in-country compliance requirements. Sales programs consist of activities and teams focused on supporting our solution partners, tracking channel sales activity, supporting and servicing our largest customers by helping optimize their experience across our product portfolio, helping customers expand their use of our products across their organizations and helping product evaluators learn how they can use our tools most effectively.\nMarketing\nOur go-to-market approach is driven by the strength and innovation of our products and organic user demand. Our model focuses on a land-and-expand strategy, automated and low-touch customer service, superior product quality, and disruptive pricing. We make our products free to try and easy to set up, which facilitates rapid and widespread adoption of our software. Our products are built for teams, and thus have natural network effects that help them spread organically, through word-of-mouth, across teams and departments. This word-of-mouth marketing increases as more individual users and teams discover our products.\nOur marketing efforts focus on growing our company brand, building broader awareness and increasing demand for each of our products. We invest in brand and product promotion, demand generation through direct marketing and advertising, and content development to help educate the market about the benefits of our products. We also leverage insights gathered from our users and customers to improve our targeting and ultimately the return-on-investment from our marketing activities. Data-driven marketing is an important part of our business model, which focuses on continuous product improvement and automation in customer engagement and service.\nOur Competition\n10\nOur products serve teams of all shapes and sizes in every industry, from software and technical teams to IT and service teams, to a broad array of business teams.\nOur competitors range from large technology vendors to new and emerging businesses in each of the markets we serve:\n\u2022\nSoftware Teams - \nOur competitors include large technology vendors, including Microsoft (including GitHub) and IBM, and smaller companies like Gitlab that offer project management, collaboration and developer tools.\n\u2022\nIT Teams\n\u00a0\n- \nOur competitors range from cloud vendors, including ServiceNow, PagerDuty, and Freshworks, to legacy vendors such as BMC Software (Remedy) that offer service desk solutions.\n\u2022\nBusiness Teams - \nOur competitors range from large technology vendors, including Microsoft and Alphabet, that offer a suite of products, to smaller companies like Asana, Monday.com, Notion and Smartsheet, which offer point solutions for team collaboration.\nIn most cases, due to the flexibility and breadth of our products, we co-exist within our own customer base alongside many of our competitors\u2019 products, such as Microsoft, Gitlab, ServiceNow and Asana.\nThe principal competitive factors in our markets include product capabilities, flexibility, total cost of ownership, ease of access and use, performance and scalability, integration, customer satisfaction and global reach. Our product strategy, distribution model and company culture allow us to compete favorably on all these factors. Through our focus on research and development we are able to rapidly innovate, offer a breadth of products that are easy to use yet powerful, are integrated and delivered through multiple deployment options from the cloud to highly scalable data center solutions. Our high-velocity, low-friction online distribution model allows us to efficiently reach customers globally, and we complement this with our network solution partners and sales teams that focus on expansion within our largest customers. Our culture enables us to focus on customer success through superior products, transparent pricing and world-class customer support.\nIntellectual Property\nWe protect our intellectual property through a combination of trademarks, domain names, copyrights, trade secrets and patents, as well as contractual provisions and restrictions governing access to our proprietary technology.\nWe registered \u2018\u2018Atlassian\u2019\u2019 as a trademark in the United States, Australia, the EU, Russia, China, Japan, Switzerland, Norway, Singapore, Israel, Korea, and Canada, as well as other jurisdictions. We have also registered or filed for trademark registration of product-related trademarks and logos in the United States, Australia, the EU, Brazil, Russia, India, and China, and certain other jurisdictions, and will pursue additional trademark registrations to the extent we believe it would be beneficial and cost effective.\nAs of June\u00a030, 2023, we had 386 issued patents and have over 250 applications pending in the United States. We also have a number of patent applications pending before the European Patent Office. These patents and patent applications seek to protect proprietary inventions relevant to our business. We intend to pursue additional patent protection to the extent we believe it would be beneficial and cost effective.\nWe are the registered holder of a variety of domain names that include \u2018\u2018Atlassian\u2019\u2019 and similar variations. \nIn addition to the protection provided by our registered intellectual property rights, we protect our intellectual property rights by imposing contractual obligations on third parties who develop or access our technology. We enter into confidentiality agreements with our employees, consultants, contractors and business partners. Our employees, consultants and contractors are also subject to invention assignment agreements, pursuant to which we obtain rights to technology that they develop for us. We further protect our rights in our proprietary technology and intellectual property through restrictive license and service use provisions in both the general and product-specific terms of use on our website and in other business contracts.\nGovernmental Regulations\nAs a public company with global operations, we are subject to various federal, state, local, and foreign laws and regulations. These laws and regulations, which may differ among jurisdictions, include, among others, those related to financial and other disclosures, accounting standards, privacy and data protection, intellectual property, AI and machine learning, corporate governance, tax, government contracting, trade, antitrust and competition, \n11\nemployment, import/export, and anti-corruption. Compliance with these laws and regulations may be onerous and could, individually or in the aggregate, increase our cost of doing business, or otherwise have an adverse effect on our business, reputation, financial condition, and operating results. For a further discussion of the risks associated with government regulations that may materially impact us, see \u201cRisk Factors\u201d included in Part I, Item 1A of this Annual Report on Form 10-K.\nHuman Capital Management\nOur employees are our greatest asset and we strive to foster a collaborative, productive and fun work environment. As of June\u00a030, 2023, 2022 and 2021, we had 10,726, 8,813, and 6,433 employees, respectively.\nIn addition to focusing on building and maintaining a strong culture and talent recruitment and development approaches, we also invest in additional areas that help us attract and retain a talented, global, and distributed workforce that reflects our core values and drives positive value for our customers. This includes sustainability; diversity, equity, and inclusion; and competitive total rewards including benefits and perks and our distributed work approach, Team Anywhere. This has led to external recognition for our workplace and Company.\nOur Culture\nOur company culture is exemplified by our core values: \nThe following are the key elements of our corporate culture that contribute to our ability to drive customer value and achieve competitive differentiation:\n\u2022\nOpenness and Innovation - \nWe value transparency and openness as an organization. We believe that putting product pricing and documentation online promotes trust and makes customers more comfortable engaging with our low-touch model. In addition, we are dedicated to innovation and encourage our employees to invent new capabilities, applications, uses, and improvements for our software. We run our Company using our own products, which promotes open communication and transparency throughout the organization.\n\u2022\nDedication to the Customer - \nCustomer service and support is at the core of our business. Our customer support teams strive to provide unparalleled service to our customers. We also encourage our service teams to build scalable, self-service solutions that customers will love, as we believe superior service drives greater customer happiness, which in turn breeds positive word-of-mouth. \n\u2022\nTeam-driven - \nAs our mission is to unleash the potential of every team, we value teamwork highly. We encourage our employees to be both team oriented and entrepreneurial in identifying problems and inventing solutions. Dedication to teamwork starts at the top of our organization with our unique co-CEO structure, and is celebrated throughout our Company.\u00a0\n\u2022\nLong-term Focused - \nWe believe that we are building a company that can grow and prosper for decades to come. Our model, in which we expand across our customers\u2019 organizations over time, requires a patient, long-term approach, and a dedication to continuous improvement. This is exemplified by our investment in research and development, which is significant relative to traditional software models and is designed to drive the long-term sustainability of our product leadership. Given the choice between short-term results and building long-term scale, we choose the latter.\n12\nSustainability and Diversity, Equity and Inclusion\nAtlassian\u2019s Sustainability strategy is focused on the Company\u2019s impact on our planet, people, customers, and communities. Atlassian has set science-based targets to achieve net zero emissions by 2040, invested in a diversity, equity, and inclusion program, committed to respecting human rights, and laid out guiding principles on responsible technology.\nAtlassian\u2019s diversity, equity, and inclusion strategy is focused on building a diverse Atlassian team, ensuring equitable outcomes for all, and fostering inclusive experiences through nine remote-first employee resource groups.\nFor more about our strategy, progress, and workforce and emissions data, please view our annual Sustainability Reports on the corporate social responsibility portion of our website, under the \u201cAbout us\u201d section. The contents of, or accessible through, our website are not incorporated into this filing.\nDistributed Work and Other Benefits and Perks\nTeam Anywhere is Atlassian\u2019s approach to distributed work: Employees can work from home, the office, or a combination of the two within 13 countries in which the Company has legal entities, with the option to work outside of an employee\u2019s \u201chome base\u201d for short periods each year. This approach allows for greater flexibility for our employees, opens up new talent pools beyond the urban hubs where our offices are located, and imagines new ways of working for both our workforce and customers. \nFor more about our approach to Team Anywhere, please visit the ways of working portion of our website. The contents of, or accessible through, our website are not incorporated into this filing.\nAtlassian offers a variety of perks and benefits to support employees, their families, and to help them engage with local communities. Beyond standard benefits like paid time off and healthcare coverage, offerings include:\n\u2022\n26 weeks of paid leave for birthing parents, 20 weeks of paid parental leave for non-birthing parents, and family formation support; \n\u2022\nFlexible working arrangements;\n\u2022\nFitness and wellness reimbursements;\n\u2022\nFree and confidential tools for mental wellbeing, coaching, and therapy consultation; and\n\u2022\nAnnual learning budget and free online development courses and resources. \nFor more about our global benefits, please visit the candidate resource hub portion of our website, under the Careers section. The contents of, or accessible through, our website are not incorporated into this filing.\nAvailable Information\nYou can obtain copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the SEC, and all amendments to these filings, free of charge from our website at https://investors.atlassian.com/financials/sec-filings as soon as reasonably practicable after we file or furnish any of these reports with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of, or accessible through, these websites are not incorporated into this filing and our references to the URLs for these websites are intended to be inactive textual references only.",
+  "item1a": ">ITEM 1A. RISK FACTORS\nA description of the risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties, together with the other information contained in this Annual Report on Form 10-K, and in our other public filings. If any such risks and uncertainties actually occur, our business, financial condition or results of operations could differ materially from the plans, projections and other forward-looking statements included elsewhere in this Annual Report on Form 10-K and in our other public filings. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occur, our business, financial condition, or results of operations could be harmed substantially.\nRisk Factor Summary\n13\nOur business is subject to numerous risks and uncertainties, including those highlighted in this section titled \u201cRisk Factors\u201d and summarized below. We have various categories of risks, including risks related to our business and industry, risks related to information technology, intellectual property, data security and privacy, risks related to legal, regulatory, accounting, and tax matters, risks related to ownership of our Class A Common Stock, risks related to our indebtedness, and general risks, which are discussed more fully below. As a result, this risk factor summary does not contain all of the information that may be important to you, and you should read this risk factor summary together with the more detailed discussion of risks and uncertainties set forth following this summary, as well as elsewhere in this Annual Report on Form 10-K. These risks include, but are not limited to, the following:\n\u2022\nOur rapid growth makes it difficult to evaluate our future prospects and may increase the risk that we will not continue to grow at or near historical rates.\n\u2022\nWe may not be able to sustain our revenue growth rate or achieve profitability in the future.\n\u2022\nThe continuing global economic and geopolitical volatility, the COVID-19 pandemic, including any associated economic and social impacts, increased inflation and measures taken in response to these events, could harm our business and results of operations.\n\u2022\nThe markets in which we participate are intensely competitive, and if we do not compete effectively, our business, results of operations, and financial condition could be harmed.\n\u2022\nOur distribution model of offering and selling on-premises offerings of certain of our products, in addition to offering and selling Cloud offerings of these products, increases our expenses, may impact revenue recognition timing, and may pose other challenges to our business.\n\u2022\nOur business depends on our customers renewing their subscriptions and maintenance plans and purchasing additional licenses or subscriptions from us, and any decline in our customer retention or expansion could harm our future results of operations.\n\u2022\nIf we are not able to develop new products and enhancements to our existing products that achieve market acceptance and that keep pace with technological developments, our business and results of operations could be harmed.\n\u2022\nOur quarterly results have fluctuated in the past and may fluctuate significantly in the future and may not fully reflect the underlying performance of our business.\n\u2022\nOur business model relies on a high volume of transactions and affordable pricing. As lower cost or free products are introduced by our competitors, our ability to generate new customers could be harmed.\n\u2022\nIf we fail to effectively manage our growth, our business and results of operations could be harmed.\n\u2022\nOur recent restructuring may not result in anticipated alignment with customer needs and business priorities or operational efficiencies, could result in total costs and expenses that are greater than expected, and could disrupt our business.\n\u2022\nIf our current marketing model is not effective in attracting new customers, we may need to incur additional expenses to attract new customers and our business and results of operations could be harmed.\n\u2022\nOur Credit Facility and overall debt level may limit our flexibility in obtaining additional financing and in pursuing other business opportunities or operating activities.\n\u2022\nLegal, regulatory, social and ethical issues relating to the use of new and evolving technologies, such as AI and machine learning, in our offerings may result in reputational harm and liability.\n\u2022\nIf our security measures are breached or unauthorized or inappropriate access to customer data is otherwise obtained, our products may be perceived as insecure, we may lose existing customers or fail to attract new customers, and we may incur significant liabilities.\n\u2022\nInterruptions or performance problems associated with our technology and infrastructure could harm our business and results of operations.\n\u2022\nReal or perceived errors, failures, vulnerabilities or bugs in our products or in the products on Atlassian Marketplace could harm our business and results of operations.\n\u2022\nChanges in laws or regulations relating to data privacy or data protection, or any actual or perceived failure by us to comply with such laws and regulations or our privacy policies, could harm our business and results of operations.\n\u2022\nBecause our products rely on the movement of data across national boundaries, global privacy and data security concerns could result in additional costs and liabilities to us or inhibit sales of our products globally.\n\u2022\nOur global operations and structure subject us to potentially adverse tax consequences.\n\u2022\nThe dual class structure of our common stock has the effect of concentrating voting control with certain stockholders, in particular, our Co-Chief Executive Officers and their affiliates, which will limit our other stockholders\u2019 ability to influence the outcome of important transactions, including a change in control.\n14\nRisks Related to Our Business and Industry\nOur rapid growth makes it difficult to evaluate our future prospects and may increase the risk that we will not continue to grow at or near historical rates.\nWe have been growing rapidly over the last several years, and as a result, our ability to forecast our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth. Our recent and historical growth should not be considered indicative of our future performance. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the recent weakening economic conditions. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, our growth rates may slow, and our business would suffer.\nWe may not be able to sustain our revenue growth rate or achieve profitability in the future.\nOur historical growth rate should not be considered indicative of our future performance and may decline in the future. Our revenue growth rate has fluctuated in prior periods and, in future periods, our revenue could grow more slowly than in recent periods or decline for a number of reasons, including any reduction in demand for our products, increase in competition, limited ability to, or our decision not to, increase pricing, contraction of our overall market, a slower than anticipated adoption of or migration to our Cloud offerings, or our failure to capitalize on growth opportunities. For example, beginning in the first quarter of fiscal year 2023, we have seen growth from existing customers moderate, which we believe is due to customers being impacted by weakening economic conditions. Additionally, beginning in February 2021, we ceased sales of new perpetual licenses for our products, and beginning in February 2022, we ceased sales of upgrades to these on-premises versions of our products. We also plan to end maintenance and support for these on-premises versions of our products in February 2024. If our customers do not transition from our on-premises offerings to our Cloud or Data Center offerings prior to February 2024, our revenue growth rates and profitability may be negatively impacted.\nIn addition, we expect expenses to increase substantially in the near term, particularly as we continue to make significant investments in research and development and technology infrastructure for our Cloud offerings, expand our operations globally and develop new products and features for, and enhancements of, our existing products. As a result of these significant investments, and in particular stock-based compensation associated with our growth, we may not be able to achieve profitability as determined under U.S. generally accepted accounting principles (\u201cGAAP\u201d) in future periods. The additional expenses we will incur may not lead to sufficient additional revenue to maintain historical revenue growth rates and profitability.\nThe continuing global economic and geopolitical volatility, the COVID-19 pandemic, including any associated economic and social impacts, increased inflation and measures taken in response to these events, could harm our business and results of operations.\nThe COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial markets. Additionally, the Russian invasion of Ukraine in 2022 has led to further economic disruptions. The conflict has increased inflationary pressures and supply chain constraints, which have negatively impacted the global economy. Inflationary pressure may result in decreased demand for our products and services, increases in our operating costs (including our labor costs), reduced liquidity, and limits on our ability to access credit or otherwise raise capital. In response to the concerns over inflation risk, the U.S. Federal Reserve raised interest rates multiple times in 2022 and 2023 and may continue to do so in the future. It is especially difficult to predict the impact of such events on the global economic markets, which have been and will continue to be highly dependent upon the actions of governments, businesses, and other enterprises in response to such events, and the effectiveness of those actions.\nThe adverse public health developments of COVID-19, including orders to shelter-in-place, travel restrictions, and mandated business closures, have adversely affected workforces, organizations, customers, economies, and financial markets globally, leading to increased macroeconomic and market volatility. It has also disrupted the normal operations of many businesses, including ours. Following an initial movement to remote work due to the COVID-19 pandemic, we subsequently announced that most employees will have flexibility to work remotely indefinitely as part of our \u201cTeam Anywhere\u201d policy. Our remote-work arrangements could strain our business continuity plans, introduce operational risk, including cybersecurity risks and increased costs, and impair our ability to effectively manage our business, which may negatively impact our business, results of operations, and financial condition. We are actively monitoring the impacts of the situation and may continue to adjust our current policies and practices. \n15\nOur business depends on demand for business software applications generally and for collaboration software solutions in particular. In addition, the market adoption of our products and our revenue is dependent on the number of users of our products. The COVID-19 pandemic, including intensified measures undertaken to contain the spread of COVID-19, the Russian invasion of Ukraine, increased inflation and interest rates and the resulting economic and social impacts of these events could reduce the number of personnel providing development or engineering services, decrease technology spending, including the purchasing of software products, adversely affect demand for our products, affect our ability to accurately forecast our future results, cause some of our paid customers or suppliers to file for bankruptcy protection or go out of business, affect the ability of our customer support team to conduct in-person trainings or our solutions partners to conduct in-person sales, impact expected spending from new customers or renewals, expansions or reductions in paid seats from existing customers, negatively impact collections of accounts receivable, result in elongated sales cycles, and harm our business, results of operations, and financial condition. In particular, we have revenue exposure to customers who are small- and medium-sized businesses. If these customers\u2019 business operations and finances are negatively affected, they may not purchase or renew our products, may reduce or delay spending, or request extended payment terms or price concessions, which would negatively impact our business, results of operations, and financial condition. For example, rising interest rates and slowing economic conditions have contributed to the recent failure of banking institutions, such as Silicon Valley Bank and First Republic Bank. While we have not had any direct exposure to recently failed banking institutions to date, if other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability or our customers\u2019 ability to access existing cash, cash equivalents, and investments may be threatened and affect our customers\u2019 ability to pay for our products and could have a material adverse effect on our business and financial condition.\nThe extent to which these factors ultimately impact our business, results of operations, and financial position will depend on future developments, which are uncertain and cannot be fully predicted at this time, including, but not limited to, the continued duration and spread of the COVID-19 outbreak and related variants, its severity, the actions taken by governments and authorities to contain the virus or treat its impact, the effectiveness of current vaccine and therapeutic treatments, and the extent to which normal economic and operating conditions continue to resume, future developments regarding Russia\u2019s invasion of Ukraine, continued inflationary pressures and governmental actions, such as interest rate increases to respond to such pressures. As a result of these and other recent macroeconomic events, we have seen the growth from existing customers moderate and experienced volatility in the trading prices for our Class A Common Stock, and such volatility may continue in the long term. Any sustained adverse impacts from these and other recent macroeconomic events could materially and adversely affect our business, financial condition, operating results, and earnings guidance that we may issue from time to time, which could have a material effect on the value of our Class A Common Stock.\nThe markets in which we participate are intensely competitive, and if we do not compete effectively, our business, results of operations, and financial condition could be harmed.\nThe markets for our solutions are fragmented, rapidly evolving, highly competitive, and have relatively low barriers to entry. We face competition from both traditional, larger software vendors offering full collaboration and productivity suites and smaller companies offering point products for features and use cases. Our principal competitors vary depending on the product category and include Microsoft (including GitHub), IBM, Alphabet, ServiceNow, PagerDuty, Gitlab, Freshworks, Asana, Monday.com, Notion and Smartsheet. In addition, some of our competitors have made acquisitions to offer a more comprehensive product or service offering, which may allow them to compete more effectively with our products. We expect this trend to continue as companies attempt to strengthen or maintain their market positions in an evolving industry. Following such potential consolidations, companies may create more compelling product offerings and be able to offer more attractive pricing options, making it more difficult for us to compete effectively.\nOur competitors, particularly our competitors with greater financial and operating resources, may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements. With the adoption of new technologies, such as artificial intelligence (\u201cAI\u201d) and machine learning, the evolution of our products, and new market entrants, we expect competition to intensify in the future. For example, as we continue to expand our focus into new use cases or other product offerings beyond software development teams, we expect competition to increase. Pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses, or the failure of our products to achieve or maintain more widespread market acceptance, any of which could harm our business, results of operations and financial condition.\nMany of our current and potential competitors have greater resources than we do, with established marketing relationships, large enterprise sales forces, access to larger customer bases, pre-existing customer relationships, \n16\nand major distribution agreements with consultants, system integrators and resellers. Additionally, some current and potential customers, particularly large organizations, have elected, and may in the future elect, to develop or acquire their own internal collaboration and productivity software tools that would reduce or eliminate the demand for our solutions.\nOur products seek to serve multiple markets, and we are subject to competition from a wide and varied field of competitors. Some competitors, particularly new and emerging companies with sizeable venture capital investment, could focus all their energy and resources on one product line or use case and, as a result, any one competitor could develop a more successful product or service in a particular market we serve which could decrease our market share and harm our brand recognition and results of operations. For all of these reasons and others we cannot anticipate today, we may not be able to compete successfully against our current and future competitors, which could harm our business, results of operations, and financial condition.\nOur distribution model of offering and selling on-premises offerings of certain of our products, in addition to offering and selling Cloud offerings of these products, increases our expenses, may impact revenue recognition timing, and may pose other challenges to our business.\nWe currently offer and sell both on-premises and Cloud offerings of certain of our products. For these products, our Cloud offering enables quick setup and subscription pricing, while our on-premises offering permits more customization, a perpetual or term license fee structure, and complete application control. Although a substantial majority of our revenue was historically generated from customers using our on-premises products, over time our customers have moved and will continue to move to our Cloud offerings, and our Cloud offerings will become more central to our distribution model. For example, beginning in February 2021, we ceased sales of new perpetual licenses for our products, and beginning in February 2022, we ceased sales of upgrades to these on-premises versions of our products. We also plan to end maintenance and support for these on-premises versions of our products in February 2024. We may be subject to additional competitive and pricing pressures from our Cloud offerings compared to our on-premises offerings, which could harm our business. Further, revenues from our Cloud offerings are typically lower in the initial year compared to our on-premises offerings, which may impact our near-term revenue growth rates and margins, and we incur higher or additional costs to supply our Cloud offerings, such fees associated with hosting our cloud infrastructure. Additionally, we offered discounts to certain of our enterprise-level on-premises customers to incentivize migration to our Cloud offerings, which impacted our near-term revenue growth.  If our customers do not transition from our on-premises offerings to our Cloud or Data Center offerings prior to February 2024, our revenue growth rates and profitability may be negatively impacted. If our Cloud offerings do not develop as quickly as we expect, if we are unable to continue to scale our systems to meet the requirements of successful, large Cloud offerings, or if we lose customers currently using our on-premises products due to our increased focus on our Cloud offerings or our inability to successfully migrate them to our Cloud products, our business could be harmed. We are directing a significant portion of our financial and operating resources to implement robust Cloud offerings for our products and to migrate our existing customers to our Cloud offerings, but even if we continue to make these investments, we may be unsuccessful in growing or implementing our Cloud offering that competes successfully against our current and future competitors and our business, results of operations, and financial condition could be harmed.\nOur business depends on our customers renewing their subscriptions and maintenance plans and purchasing additional licenses or subscriptions from us, and any decline in our customer retention or expansion could harm our future results of operations.\nIn order for us to maintain or improve our results of operations, it is important that our customers renew their subscriptions and maintenance plans when existing contract terms expire and that we expand our commercial relationships with our existing customers. Our customers have no obligation to renew their subscriptions or maintenance plans, and our customers may not renew subscriptions or maintenance plans with a similar contract duration or with the same or greater number of users. Our customers generally do not enter into long-term contracts, rather they primarily have monthly or annual terms. Some of our customers have elected not to renew their agreements with us and it is difficult to accurately predict long-term customer retention.\nOur customer retention and expansion may decline or fluctuate as a result of a number of factors, including our customers\u2019 satisfaction with our products, new market entrants, our product support, our prices and pricing plans, the prices of competing software products, reductions in our customers\u2019 spending levels, new product releases and changes to packaging of our product offerings, mergers and acquisitions affecting our customer base, our increased focus on our Cloud offerings, our decision to end the sale of new perpetual licenses for our products, or the effects of global economic conditions, including the impacts on us or our customers, partners and suppliers from inflation and related interest rate increases. We may be unable to timely address any retention issues with \n17\nspecific customers, which could harm our results of operations. If our customers do not purchase additional licenses or subscriptions or renew their subscriptions or maintenance plans, renew on less favorable terms, or fail to add more users, our revenue may decline or grow less quickly, which could harm our future results of operations and prospects.\nIf we are not able to develop new products and enhancements to our existing products that achieve market acceptance and that keep pace with technological developments, our business and results of operations could be harmed.\nOur ability to attract new customers and retain and increase revenue from existing customers depends in large part on our ability to enhance and improve our existing products and to introduce compelling new products that reflect the changing nature of our markets. The success of any enhancement to our products depends on several factors, including timely completion and delivery, competitive pricing, adequate quality testing, integration with existing technologies and our platform, and overall market acceptance. Any new product that we develop may not be introduced in a timely or cost-effective manner, may contain bugs, or may not achieve the market acceptance necessary to generate significant revenue. If we are unable to successfully develop new products, enhance our existing products to meet customer requirements, or otherwise gain market acceptance, our business, results of operations, and financial condition could be harmed.\nIf we cannot continue to expand the use of our products beyond our initial focus on software developers, our ability to grow our business could be harmed.\nOur ability to grow our business depends in part on our ability to persuade current and future customers to expand their use of our products to additional use cases beyond software developers, including information technology and business teams. If we fail to predict customer demands or achieve further market acceptance of our products within these additional areas and teams, or if a competitor establishes a more widely adopted product for these applications, our ability to grow our business could be harmed.\nWe invest significantly in research and development, and to the extent our research and development investments do not translate into new products or material enhancements to our current products, or if we do not use those investments efficiently, our business and results of operations would be harmed.\nA key element of our strategy is to invest significantly in our research and development efforts to develop new products and enhance our existing products to address additional applications and markets. In fiscal years 2023 and 2022, our research and development expenses were 53% and 46% of our revenue, respectively. If we do not spend our research and development budget efficiently or effectively on compelling innovation and technologies, our business could be harmed and we may not realize the expected benefits of our strategy. Moreover, research and development projects can be technically challenging and expensive. The nature of these research and development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we are able to offer compelling products and generate revenue, if any, from such investment. Additionally, anticipated customer demand for a product we are developing could decrease after the development cycle has commenced, and we would nonetheless be unable to avoid substantial costs associated with the development of any such product. If we expend a significant amount of resources on research and development and our efforts do not lead to the successful introduction or improvement of products that are competitive in our current or future markets, it could harm our business and results of operations.\nIf we fail to effectively manage our growth, our business and results of operations could be harmed.\nWe have experienced and expect to continue to experience rapid growth, both in terms of employee headcount and number of customers, which has placed, and may continue to place, significant demands on our management, operational, and financial resources. We operate globally and sell our products to customers in approximately 200 countries. Further, we have employees in Australia, the U.S., the United Kingdom (the \u201cUK\u201d), the Netherlands, the Philippines, Poland, India, Turkey, Canada, Japan, Germany, France and New Zealand and a substantial number of our employees have been with us for fewer than 24 months. We plan to continue to invest in and grow our team, and to expand our operations into other countries in the future, which will place additional demands on our resources and operations. As our business expands across numerous jurisdictions, we may experience difficulties, including in hiring, training, and managing a diffuse and growing employee base.\nWe have also experienced significant growth in the number of customers, users, transactions and data that our products and our associated infrastructure support. If we fail to successfully manage our anticipated growth and change, the quality of our products may suffer, which could negatively affect our brand and reputation and harm our ability to retain and attract customers. Finally, our organizational structure is becoming more complex and if we fail \n18\nto scale and adapt our operational, financial, and management controls and systems, as well as our reporting systems and procedures, to manage this complexity, our business, results of operations, and financial condition could be harmed. We will require significant capital expenditures and the allocation of management resources to grow and change in these areas.\nOur recent restructuring may not result in anticipated alignment with customer needs and business priorities or operational efficiencies, could result in total costs and expenses that are greater than expected, and could disrupt our business.\nIn March 2023, we announced a plan to reduce our global headcount by approximately 5% and to reduce our office space. These actions are part of our initiatives to better position ourselves to execute against our largest growth opportunities. This includes continuing to invest in strategic areas of the business, aligning talent to best meet customer needs and business priorities, and consolidating our leases for purposes of optimizing operational efficiency. We may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of these actions. We may not realize, in full or in part, the anticipated benefits from this restructuring due to unforeseen difficulties, delays or unexpected costs. If we are unable to realize the expected operational efficiencies from the restructuring, we may need to undertake additional restructuring activities, and our operating results and financial condition could be adversely affected.\nFurthermore, our restructuring efforts may be disruptive to our operations and could yield unanticipated consequences, such as attrition beyond planned staff reductions, increased difficulties in our day-to-day operations and reduced employee morale. If employees who were not affected by the reduction in force seek alternative employment, this could result in unplanned additional expenses to ensure adequate resourcing or harm our productivity. Our restructuring could also harm our ability to attract and retain qualified personnel who are critical to our business, the failure of which could adversely affect our business.\nOur corporate values have contributed to our success, and if we cannot maintain these values as we grow, we could lose the innovative approach, creativity, and teamwork fostered by our values, and our business could be harmed.\nWe believe that a critical contributor to our success has been our corporate values, which we believe foster innovation, teamwork, and an emphasis on customer-focused results. In addition, we believe that our values create an environment that drives and perpetuates our product strategy and low-cost distribution approach. As we undergo growth in our customers and employee base, transition to a remote-first \u201cTeam Anywhere\u201d work environment, and continue to develop the infrastructure of a public company, we may find it difficult to maintain our corporate values. Any failure to preserve our values could harm our future success, including our ability to retain and recruit personnel, innovate and operate effectively, and execute on our business strategy.\nOur quarterly results have fluctuated in the past and may fluctuate significantly in the future and may not fully reflect the underlying performance of our business.\nOur quarterly financial results have fluctuated in the past and may fluctuate in the future as a result of a variety of factors, many of which are outside of our control. If our quarterly financial results fall below the expectations of investors or any securities analysts who follow us, the price of our Class A Common Stock could decline substantially. Factors that may cause our revenue, results of operations and cash flows to fluctuate from quarter to quarter include, but are not limited to:\n\u2022\nour ability to attract new customers, retain and increase sales to existing customers, and satisfy our customers\u2019 requirements;\n\u2022\nthe timing of customer renewals; \n\u2022\nchanges in our or our competitors\u2019 pricing policies and offerings;\n\u2022\nnew products, features, enhancements, or functionalities introduced by our competitors;\n\u2022\nthe amount and timing of operating costs and capital expenditures related to the operations and expansion of our business;\n\u2022\nsignificant security breaches, technical difficulties, or interruptions to our products;\n\u2022\nour increased focus on our Cloud offerings, including customer migrations to our Cloud products;\n\u2022\nthe number of new employees added or, conversely, reductions in force;\n19\n\u2022\nchanges in foreign currency exchange rates or adding additional currencies in which our sales are denominated;\n\u2022\nthe amount and timing of acquisitions or other strategic transactions;\n\u2022\nextraordinary expenses such as litigation, tax settlements, adverse audit rulings or other dispute-related settlement payments;\n\u2022\ngeneral economic conditions, such as recent inflation and related interest rate increases, that may adversely affect either our customers\u2019 ability or willingness to purchase additional licenses, subscriptions, and maintenance plans, delay a prospective customer\u2019s purchasing decisions, reduce the value of new license, subscription, or maintenance plans, or affect customer retention;\n\u2022\nthe impact of political and social unrest, armed conflict, natural disasters, climate change, diseases and pandemics, and any associated economic downturn, on our results of operations and financial performance;\n\u2022\nseasonality in our operations;\n\u2022\nthe impact of new accounting pronouncements and associated system implementations; and\n\u2022\nthe timing of the grant or vesting of equity awards to employees, contractors, or directors.\nMany of these factors are outside of our control, and the occurrence of one or more of them might cause our revenue, results of operations, and cash flows to vary widely. As such, we believe that quarter-to-quarter comparisons of our revenue, results of operations, and cash flows may not be meaningful and should not be relied upon as an indication of future performance.\nWe may require additional capital to support our operations or the growth of our business and we cannot be certain that we will be able to secure this capital on favorable terms, or at all.\nWe may require additional capital to respond to business opportunities, challenges, acquisitions, a decline in the level of license, subscription or maintenance revenue for our products, or other unforeseen circumstances. We may not be able to timely secure debt or equity financing on favorable terms, or at all. This inability to secure additional debt or equity financing could be exacerbated in times of economic uncertainty and tighter credit, such as is currently the case in the U.S. and abroad. In addition, recent increases in interest rates could make any debt financing that we are able to secure much more expensive than in the past. Our current Credit Facility contains certain restrictive covenants and any future debt financing obtained by us could involve restrictive covenants relating to financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of Atlassian, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our Class A Common Stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. \nIf our current marketing model is not effective in attracting new customers, we may need to incur additional expenses to attract new customers and our business and results of operations could be harmed.\nUnlike traditional enterprise software vendors, who rely on direct sales methodologies and face long sales cycles, complex customer requirements and substantial upfront sales costs, we primarily utilize a viral marketing model to target new customers. Through this word-of-mouth marketing, we have been able to build our brand with relatively low marketing and sales costs. We also build our customer base through various online marketing activities as well as targeted web-based content and online communications. This strategy has allowed us to build a substantial customer base and community of users who use our products and act as advocates for our brand and solutions, often within their own corporate organizations. Attracting new customers and retaining existing customers requires that we continue to provide high-quality products at an affordable price and convince customers of our value proposition. If we do not attract new customers through word-of-mouth referrals, our revenue may grow more slowly than expected, or decline. In addition, high levels of customer satisfaction and market adoption are central to our marketing model. Any decrease in our customers\u2019 satisfaction with our products, including as a result of our own actions or actions outside of our control, could harm word-of-mouth referrals and our brand. If our customer base does not continue to grow through word-of-mouth marketing and viral adoption, we may be required to incur significantly higher marketing and sales expenses in order to acquire new subscribers, which could harm our business and results of operations.\n20\nOne of our marketing strategies is to offer free trials, limited free versions or affordable starter licenses for certain products, and we may not be able to realize the benefits of this strategy.\nWe offer free trials, limited free versions or affordable starter licenses for certain products in order to promote additional usage, brand and product awareness, and adoption. Historically, a majority of users never convert to a paid version of our products from these free trials or limited free versions or upgrade beyond the starter license. Our marketing strategy also depends in part on persuading users who use the free trials, free versions or starter licenses of our products to convince others within their organization to purchase and deploy our products. To the extent that these users do not become, or lead others to become, customers, we will not realize the intended benefits of this marketing strategy, and our ability to grow our business could be harmed.\nOur business model relies on a high volume of transactions and affordable pricing. As lower cost or free products are introduced by our competitors, our ability to generate new customers could be harmed.\nOur business model is based in part on selling our products at prices lower than competing products from other commercial vendors. For example, we offer entry-level or free pricing for certain products for small teams at a price that typically does not require capital budget approval and is orders-of-magnitude less than the price of traditional enterprise software. As a result, our software is frequently purchased by first-time customers to solve specific problems and not as part of a strategic technology purchasing decision. We have historically increased, and will continue to increase, prices from time to time. As competitors enter the market with low cost or free alternatives to our products, it may become increasingly difficult for us to compete effectively and our ability to garner new customers could be harmed. Additionally, some customers may consider our products to be discretionary purchases, which may contribute to reduced demand for our offerings in times of economic uncertainty, inflation and related interest rate increases. If we are unable to sell our software in high volume, across new and existing customers, our business, results of operations and financial condition could be harmed.\nOur sales model does not rely primarily on a direct enterprise sales force, which could impede the growth of our business.\nOur sales model does not rely primarily on traditional, quota-carrying sales personnel. Although we believe our business model can continue to adequately serve our customers without a large, direct enterprise sales force, our viral marketing model may not continue to be as successful as we anticipate, and the absence of a large, direct, enterprise sales function may impede our future growth. As we continue to scale our business, a more traditional sales infrastructure could assist in reaching larger enterprise customers and growing our revenue. Identifying, recruiting, training, and retaining such a qualified sales force would require significant time, expense and attention and would significantly impact our business model. In addition, expanding our sales infrastructure would considerably change our cost structure and results of operations, and we may have to reduce other expenses, such as our research and development expenses, in order to accommodate a corresponding increase in marketing and sales expenses and maintain positive free cash flow. If our lack of a large, direct enterprise sales force limits us from reaching larger enterprise customers and growing our revenue, and we are unable to hire, develop, and retain talented sales personnel in the future, our revenue growth and results of operations could be harmed.\nWe derive a majority of our revenue from Jira Software and Confluence.\nWe derive a majority of our revenue from Jira Software and Confluence. As such, the market acceptance of these products is critical to our success. Demand for these products and our other products is affected by a number of factors, many of which are beyond our control, such as continued market acceptance of our products by customers for existing and new use cases, the timing of development and release of new products, features, functionality and lower cost alternatives introduced by our competitors, technological changes and developments within the markets we serve, and growth or contraction in our addressable markets. If we are unable to continue to meet customer demands or to achieve more widespread market acceptance of our products, our business, results of operations, and financial condition could be harmed.\nWe recognize certain revenue streams over the term of our subscription and maintenance contracts. Consequently, downturns in new sales may not be immediately reflected in our results of operations and may be difficult to discern.\nWe generally recognize subscription and maintenance revenue from customers ratably over the terms of their contracts. As a result, a significant portion of the revenue we report in each quarter is derived from the recognition of deferred revenue relating to subscription and maintenance plans entered into during previous quarters. Consequently, a decline in new or renewed licenses, subscriptions, and maintenance plans in any single quarter may only have a small impact on our revenue results for that quarter. However, such a decline will negatively affect \n21\nour revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our products, and potential changes in our pricing policies or rate of expansion or retention, may not be fully reflected in our results of operations until future periods. For example, the impact of the current economic uncertainty may cause customers to request concessions, including better pricing, or to slow their rate of expansion or reduce their number of licenses, which may not be reflected immediately in our results of operations. We may also be unable to reduce our cost structure in line with a significant deterioration in sales. In addition, a significant majority of our costs are expensed as incurred, while a significant portion of our revenue is recognized over the life of the agreement with our customer. As a result, increased growth in the number of our customers could continue to result in our recognition of more costs than revenue in the earlier periods of the terms of certain of our customer agreements. Our subscription and maintenance revenue also makes it more difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from certain new customers must be recognized over the applicable term.\nIf the Atlassian Marketplace does not continue to be successful, our business and results of operations could be harmed. \nWe operate the Atlassian Marketplace, an online marketplace, for selling third-party, as well as Atlassian-built, apps. We rely on the Atlassian Marketplace to supplement our promotional efforts and build awareness of our products, and we believe that third-party apps from the Atlassian Marketplace facilitate greater usage and customization of our products. If we do not continue to add new vendors and developers, are unable to sufficiently grow the number of cloud apps our customers demand, or our existing vendors and developers stop developing or supporting the apps that they sell on Atlassian Marketplace, our business could be harmed.\nIn addition, third-party apps on Atlassian Marketplace may not meet the same quality standards that we apply to our own development efforts and, in the past, third-party apps have caused disruptions affecting multiple customers. To the extent these apps contain bugs, vulnerabilities, or defects, such apps may create disruptions in our customers\u2019 use of our products, lead to data loss or unauthorized access to customer data, they may damage our brand and reputation, and affect the continued use of our products, which could harm our business, results of operations and financial condition.\nAny failure to offer high-quality product support could harm our relationships with our customers and our business, results of operations, and financial condition. \nIn deploying and using our products, our customers depend on our product support teams to resolve complex technical and operational issues. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for product support. We also may be unable to modify the nature, scope and delivery of our product support to compete with changes in product support services provided by our competitors. Increased customer demand for product support, without corresponding revenue, could increase costs and harm our results of operations. In addition, as we continue to grow our operations and reach a global and vast customer base, we need to be able to provide efficient product support that meets our customers\u2019 needs globally at scale. The number of our customers has grown significantly and that has put additional pressure on our product support organization. The end customers may also reach out to us requesting support for third-party apps sold on the Atlassian Marketplace. In order to meet these needs, we have relied in the past and will continue to rely on third-party vendors to fulfill requests about third-party apps and self-service product support to resolve common or frequently asked questions for Atlassian products, which supplement our customer support teams. If we are unable to provide efficient product support globally at scale, including through the use of third-party vendors and self-service support, our ability to grow our operations could be harmed and we may need to hire additional support personnel, which could harm our results of operations. For example, in April 2022, a very small subset of our customers experienced a full outage across their Atlassian cloud products due to a faulty script used during a maintenance procedure. While we restored access for these customers with minimal to no data loss, these affected customers experienced disruptions in using our Cloud products during the outage. Our sales are highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality product support, or a market perception that we do not maintain high-quality product support, could harm our reputation, our ability to sell our products to existing and prospective customers, and our business, results of operations and financial condition.\nIf we are unable to develop and maintain successful relationships with our solution partners, our business, results of operations, and financial condition could be harmed.\nWe have established relationships with certain solution partners to distribute our products. We believe that continued growth in our business is dependent upon identifying, developing and maintaining strategic relationships with our existing and potential solution partners that can drive substantial revenue and provide additional value-\n22\nadded services to our customers. For fiscal year 2023, \nwe derived over 40% of our revenue from channel partners\u2019 sales efforts.\nSuccessfully managing our indirect channel distribution efforts is a complex process across the broad range of geographies where we do business or plan to do business. Our solution partners are independent businesses we do not control. Notwithstanding this independence, we still face legal risk and reputational harm from the activities of our solution partners including, but not limited to, export control violations, workplace conditions, corruption and anti-competitive behavior.\nOur agreements with our existing solution partners are non-exclusive, meaning they may offer customers the products of several different companies, including products that compete with ours. They may also cease marketing our products with limited or no notice and with little or no penalty. We expect that any additional solution partners we identify and develop will be similarly non-exclusive and unbound by any requirement to continue to market our products. If we fail to identify additional solution partners in a timely and cost-effective manner, or at all, or are unable to assist our current and future solution partners in independently distributing and deploying our products, our business, results of operations, and financial condition could be harmed. If our solution partners do not effectively market and sell our products, or fail to meet the needs of our customers, our reputation and ability to grow our business could also be harmed.\nOur Credit Facility and overall debt level may limit our flexibility in obtaining additional financing and in pursuing other business opportunities or operating activities. \nOur Credit Facility requires compliance with various financial and non-financial covenants, including affirmative covenants relating to the provision of periodic financial statements, compliance certificates and other notices, maintenance of properties and insurance, payment of taxes and compliance with laws and negative covenants, including, among others, restrictions on the incurrence of certain indebtedness, granting of liens and mergers, dissolutions, consolidations and dispositions. The Credit Facility also provides for a number of events of default, including, among others, failure to make a payment, bankruptcy, breach of a covenant, representation and warranty, default under material indebtedness (other than the Credit Facility), change of control and judgment defaults.\nUnder the terms of the Credit Facility, we may be restricted from engaging in business or operating activities that may otherwise improve our business or from financing future operations or capital needs. Failure to comply with the covenants, including the financial covenant, if not cured or waived, will result in an event of default that could trigger acceleration of our indebtedness, which would require us to repay all amounts owing under our Credit Facility and could have a material adverse impact on our business.\nOverdue amounts under the Credit Facility accrue interest at a default rate. We cannot be certain that our future operating results will be sufficient to ensure compliance with the financial covenant in our Credit Facility or to remedy any defaults. In addition, in the event of default and related acceleration, we may not have or be able to obtain sufficient funds to make the accelerated payments required under the Credit Facility. \nWe continue to have the ability to incur additional debt, subject to the limitations in our Credit Facility. Our level of debt could have important consequences to us, including the following:\n\u2022\nour ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;\n\u2022\nwe may need a substantial portion of our cash flow to make principal and interest payments on our debt, reducing the funds that would otherwise be available for investment in operations and future business opportunities;\n\u2022\nour debt level will make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally; and\n\u2022\nour debt level may limit our flexibility in responding to changing business and economic conditions.\nOur ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking \n23\nadditional equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms to us or at all.\nIn addition, our Credit Facility has a floating interest rate that is based on variable and unpredictable U.S. and international economic risks and uncertainties and an increase in interest rates, such as has occurred recently and is expected in the future, may negatively impact our financial results. We enter into interest rate hedging transactions that reduce, but do not eliminate, the impact of unfavorable changes in interest rates. We attempt to minimize credit exposure by limiting counterparties to internationally recognized financial institutions, but even these counterparties are subject to default and contract risk and this risk is beyond our control. There is no guarantee that our hedging efforts will be effective or, if effective in one period will continue to remain effective in future periods.\nWe have amended our Credit Facility to utilize the Secured Overnight Financing Right (\u201cSOFR\u201d) to calculate the amount of accrued interest on any borrowings in place of London Interbank Offered Rate (\u201cLIBOR\u201d), which ceased publication on June 30, 2023. SOFR is intended to be a broad measure of the cost of borrowing cash overnight that is collateralized by U.S. Treasury securities. However, because SOFR is a broad U.S. Treasury repo financing rate that represents overnight secured funding transactions, it differs fundamentally from LIBOR. The change from LIBOR to SOFR could result in interest obligations that are more than or that do not otherwise correlate over time with the payments that would have been made on this debt if LIBOR were available. This may result in an increase in the cost of our borrowings under our existing Credit Facility and any future borrowings.\nIf we are not able to maintain and enhance our brand, our business, results of operations, and financial condition could be harmed.\nWe believe that maintaining and enhancing our reputation as a differentiated and category-defining company is critical to our relationships with our existing customers and to our ability to attract new customers. The successful promotion of our brand attributes will depend on a number of factors, including our and our solution partners\u2019 marketing efforts, our ability to continue to develop high-quality products, our ability to minimize and respond to errors, failures, outages, vulnerabilities or bugs, and our ability to successfully differentiate our products from competitive products. In addition, independent industry analysts often provide analyses of our products, as well as the products offered by our competitors, and perception of the relative value of our products in the marketplace may be significantly influenced by these analyses. If these analyses are negative, or less positive as compared to those of our competitors\u2019 products, our brand may be harmed.\nThe promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new markets, and as more sales are generated through our solution partners. To the extent that these activities yield increased revenue, this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand, our business may not grow, we may have reduced pricing power relative to competitors, and we could lose customers or fail to attract new customers, any of which could harm our business, results of operations, and financial condition.\nLegal, regulatory, social and ethical issues relating to the use of new and evolving technologies, such as AI and machine learning, in our offerings may result in reputational harm and liability.\nWe are building AI and machine learning into our products. The rapid evolution of AI and machine learning will require the application of resources to develop, test and maintain our products and services to help ensure that AI and machine learning are implemented responsibly in order to minimize unintended, harmful impact. Failure to properly do so may cause us to incur increased research and development costs, or divert resources from other development efforts, to address social and ethical issues related to AI and machine learning. As with many cutting-edge innovations, AI and machine learning present new risks and challenges. Existing laws and regulations may apply to us or our vendors in new ways and new laws and regulations may be instituted, the effects of which are difficult to predict. The risks and challenges presented by AI and machine learning could undermine public confidence in AI and machine learning, which could slow its adoption and affect our business. If we enable or offer AI and machine learning products that draw controversy due to their perceived or actual impact on human rights, intellectual property, privacy, security, employment, the environment or in other social contexts, we may experience brand or reputational harm, competitive harm or legal liability. Data governance practices by us or others that result in controversy could also impair the acceptance of AI solutions. This in turn could undermine the decisions, predictions, analysis or other outputs that AI applications produce, subjecting us to competitive harm, legal liability and brand or reputational harm. \n24\nUncertainty around new and emerging AI applications such as generative AI content creation may require additional investment in the development of proprietary datasets, machine learning models and systems to test for accuracy, bias and other variables, which are often complex, may be costly and could impact our profit margin as we expand generative AI into our product offerings. Developing, testing and deploying AI systems may also increase the cost profile of our offerings due to the nature of the computing costs involved in such systems. Potential government regulation specifically related to AI may also increase the burden and cost of research and development in this area. For example, countries are considering legal frameworks on AI, which is a trend that may increase now that the European Commission (the \u201cEC\u201d) of the European Union (the \u201cEU\u201d) has proposed the first such framework. Stakeholders and those affected by the development and use of AI and machine learning (including our employees and customers) who are dissatisfied with our public statements, policies, practices, or solutions related to the development and use of AI and machine learning may express opinions that could introduce reputational or business harm, or legal liability.\nIf we fail to integrate our products with a variety of operating systems, software applications, platforms and hardware that are developed by others, our products may become less marketable, less competitive, or obsolete and our results of operations could be harmed.\nOur products must integrate with a variety of network, hardware, and software platforms, and we need to continuously modify and enhance our products to adapt to changes in hardware, software, networking, browser and database technologies. In particular, we have developed our products to be able to easily integrate with third-party applications, including the applications of software providers that compete with us, through the interaction of application programming interfaces (\u201cAPIs\u201d). In general, we rely on the fact that the providers of such software systems continue to allow us access to their APIs to enable these customer integrations. To date, we have not relied on long-term written contracts to govern our relationship with these providers. Instead, we are subject to the standard terms and conditions for application developers of such providers, which govern the distribution, operation and fees of such software systems, and which are subject to change by such providers from time to time. Our business could be harmed if any provider of such software systems:\n\u2022\ndiscontinues or limits our access to its APIs;\n\u2022\nmodifies its terms of service or other policies, including fees charged to, or other restrictions on us or other application developers;\n\u2022\nchanges how customer information is accessed by us or our customers;\n\u2022\nestablishes more favorable relationships with one or more of our competitors; or\n\u2022\ndevelops or otherwise favors its own competitive offerings over ours.\nWe believe a significant component of our value proposition to customers is the ability to optimize and configure our products with these third-party applications through our respective APIs. If we are not permitted or able to integrate with these and other third-party applications in the future, demand for our products could decline and our business and results of operations could be harmed.\nIn addition, an increasing number of organizations and individuals within organizations are utilizing mobile devices to access the internet and corporate resources and to conduct business. We have designed and continue to design mobile applications to provide access to our products through these devices. If we cannot provide effective functionality through these mobile applications as required by organizations and individuals that widely use mobile devices, we may experience difficulty attracting and retaining customers. Failure of our products to operate effectively with future infrastructure platforms and technologies could also reduce the demand for our products, resulting in customer dissatisfaction and harm to our business. If we are unable to respond to changes in a cost-effective manner, our products may become less marketable, less competitive or obsolete and our results of operations could be harmed.\nAcquisitions of, or investments in, other businesses, products, or technologies could disrupt our business, and we may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions.\nWe have completed a number of acquisitions and strategic investments and continue to evaluate and consider additional strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products, and other assets in the future. We also may enter into strategic relationships with other \n25\nbusinesses to expand our products, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in other companies.\nAny acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel, or operations of the acquired companies, particularly if the key personnel of the acquired companies choose not to work for us, their software and services are not easily adapted to work with our products, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management or otherwise. Acquisitions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for development of our existing business. We may not successfully evaluate or utilize the acquired technology or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges. Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized or we may be exposed to unknown risks or liabilities.\nIn the future, we may not be able to find suitable acquisition or strategic investment candidates, and we may not be able to complete acquisitions or strategic investments on favorable terms, if at all. Our previous and future acquisitions or strategic investments may not achieve our goals, and any future acquisitions or strategic investments we complete could be viewed negatively by users, customers, developers or investors.\nNegotiating these transactions can be time consuming, difficult and expensive, and our ability to complete these transactions may often be subject to approvals that are beyond our control. Consequently, these transactions, even if announced, may not be completed. For one or more of those transactions, we may:\n\u2022\nissue additional equity securities that would dilute our existing stockholders;\n\u2022\nuse cash that we may need in the future to operate our business;\n\u2022\nincur large charges, expenses, or substantial liabilities;\n\u2022\nincur debt on terms unfavorable to us or that we are unable to repay;\n\u2022\nencounter difficulties retaining key employees of the acquired company or integrating diverse software codes or business cultures; and\n\u2022\nbecome subject to adverse tax consequences, substantial depreciation, impairment, or deferred compensation charges.\nWe are subject to risks associated with our strategic investments, including partial or complete loss of invested capital. Significant changes in the value of this portfolio could negatively impact our financial results.\nWe have strategic investments in publicly traded and privately held companies in both domestic and international markets, including in emerging markets. These companies range from early-stage companies to more mature companies with established revenue streams and business models. Many such companies generate net losses and the market for their products, services or technologies may be slow to develop, and, therefore, they are dependent on the availability of later rounds of financing from banks or investors on favorable terms to continue their operations. The financial success of our investment in any privately held company is typically dependent on a liquidity event, such as a public offering, acquisition or other favorable market event reflecting appreciation relative to the cost of our initial investment. Likewise, the financial success of our investment in any publicly held company is typically dependent upon an exit in favorable market conditions, and to a lesser extent on liquidity events. The capital markets for public offerings and acquisitions are dynamic and the likelihood of successful liquidity events for the companies we have invested in could significantly worsen. Further, valuations of privately held companies are inherently complex due to the lack of readily available market data.\nPrivately held companies in which we invest have in the past and others may in the future undertake an initial public offering. We may also decide to invest in companies in connection with or as part of such company\u2019s initial public offering or other transactions directly or indirectly resulting in it being publicly traded. Therefore, our investment strategy and portfolio have also expanded to include public companies. In certain cases, our ability to sell these investments may be constrained by contractual obligations to hold the securities for a period of time after a public offering, including market standoff agreements and lock-up agreements.\nAll of our investments, especially our investments in privately held companies, are subject to a risk of a partial or total loss of investment capital and our investments have lost value in the past. In addition, we have in the past, \n26\nand may in the future, continue to deploy material investments in individual investee companies, resulting in the increasing concentration of risk in a small number of companies. Partial or complete loss of investment capital of these individual companies could be material to our financial statements.\nThe expected benefits of the U.S. Domestication may not be realized.\nOn September 30, 2022, we completed the U.S. Domestication. We believe that the U.S. Domestication will increase access to a broader set of investors, support inclusion in additional stock indices, streamline our corporate structure, and provide more flexibility in accessing capital and, as a result, will be beneficial to our business and operations, the holders of our ordinary shares, and other stakeholders. The success of the U.S. Domestication will depend, in part, on our ability to realize the anticipated benefits associated with the U.S. Domestication and associated reorganization of our corporate structure. There can be no assurance that all of the anticipated benefits of the U.S. Domestication will be achieved, particularly as the achievement of the benefits are subject to factors that we do not and cannot control.\nWe expect to incur additional costs related to the U.S. Domestication, including recurring costs resulting from financial reporting obligations of being a \u201cdomestic issuer\u201d as opposed to a \u201cforeign private issuer\u201d in the United States.\nWe will incur additional legal, accounting and other expenses that may exceed the expenses we incurred prior to the U.S. Domestication. The obligations of being a public company in the U.S. require significant expenditures and will place significant demands on our management and other personnel, including costs resulting from public company reporting obligations under the Exchange Act, and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act of 2002 (the \u201cSarbanes-Oxley Act\u201d), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the listing requirements of the Nasdaq Global Select Market. These rules require that we maintain effective disclosure and financial controls and procedures, internal control over financial reporting and changes in corporate governance practices, among many other complex rules that are often difficult to monitor and maintain compliance with. While we were subject to many of these requirements prior to the U.S. Domestication, additional legal and accounting requirements apply to us following the U.S. Domestication. Our management and other personnel will need to devote additional time to ensure compliance with all of these requirements and to keep pace with new regulations, otherwise we may fall out of compliance and risk becoming subject to litigation or being delisted, among other potential problems.\nRisks Related to Information Technology, Intellectual Property, and Data Security and Privacy\nIf our security measures are breached or unauthorized or inappropriate access to customer data is otherwise obtained, our products may be perceived as insecure, we may lose existing customers or fail to attract new customers, and we may incur significant liabilities.\nUse of our products involves the storage, transmission, and processing of our customers\u2019 proprietary data, including potentially personal or identifying information. Unauthorized or inappropriate access to, or security breaches of, our products could result in unauthorized or inappropriate access to data and information, and the loss, compromise or corruption of such data and information. In the event of a security breach, we could suffer loss of business, severe reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation, and other liabilities. We have incurred and expect to incur significant expenses to prevent security breaches, including costs related to deploying additional personnel and protection technologies, training employees, and engaging third-party solution providers and consultants. Our errors and omissions insurance coverage covering certain security and privacy damages and claim expenses may not be sufficient to compensate for all liabilities we may incur.\nAlthough we expend significant resources to create security protections that shield our customer data against potential theft and security breaches, such measures cannot provide absolute security. We have in the past experienced breaches of our security measures and other inappropriate access to our systems. Certain of these incidents have resulted in unauthorized access to certain data processed through our products. Our products are at risk for future breaches and inappropriate access, including, without limitation, inappropriate access that may be caused by errors or breaches that may occur as a result of third-party action, including from state actors, or employee, vendor or contractor error or malfeasance, and other causes. For example, the ongoing Russian invasion of Ukraine may result in a heightened threat environment and create unknown cyber risks, including increased risk of retaliatory cyber-attacks from Russian actors against non-Russian companies. Additionally, we have transitioned to a remote-first \u201cTeam Anywhere\u201d work environment that may pose additional data security risks.\n27\nAs we further transition to selling our products via our Cloud offerings, continue to collect more personal and sensitive information, and operate in more countries, our risks continue to increase and evolve. For instance, we rely on third-party partners to develop apps on the Atlassian Marketplace that connect with and enhance our Cloud offerings for our customers. These apps may not meet the same quality standards that we apply to our own development efforts and may contain bugs, vulnerabilities, or defects that could pose data security risks. Our ability to mandate security standards and ensure compliance by these third parties may be limited. Additionally, our products may be subject to vulnerabilities in the third-party software on which we rely. For example, in December 2021, a vulnerability in a widely-used open-source software application, known as Apache Log4j, was identified that could have allowed bad actors to remotely access a target, potentially stealing data or taking control of a target\u2019s system. We promptly worked to remediate vulnerabilities related to Apache Log4j in our products while working with our partners to ensure the same. While this issue has not materially affected our business, reputation or financial results, there is no guarantee that our actions effectively remediated the vulnerabilities and there is no assurance that other incidents could not occur in the future with a material adverse effect on our business. We are likely to face increased risks that real or perceived vulnerabilities of our systems could seriously harm our business and our financial performance, by tarnishing our reputation and brand and limiting the adoption of our products.\nBecause the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period and, therefore, have a greater impact on the products we offer, the proprietary data processed through our services, and, ultimately, on our business.\nInterruptions or performance problems associated with our technology and infrastructure could harm our business and results of operations.\nWe rely heavily on our network infrastructure and information technology systems for our business operations, and our continued growth depends in part on the ability of our existing and potential customers to access our solutions at any time and within an acceptable amount of time. In addition, we rely almost exclusively on our websites for the downloading of, and payment for, all our products. We have experienced, and may in the future experience, disruptions, data loss and corruption, outages and other performance problems with our infrastructure and websites due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints, denial of service attacks, or other security-related incidents. In some instances, we have not been able to, and in the future may not be able to, identify the cause or causes of these performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times and as our products and websites become more complex and our user traffic increases. \nIf our products and websites are unavailable, if our users are unable to access our products within a reasonable amount of time, or at all, or if our information technology systems for our business operations experience disruptions, delays or deficiencies, our business could be harmed. Moreover, we provide service level commitments under certain of our paid customer cloud contracts, pursuant to which we guarantee specified minimum availability. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service, or face contract termination with refunds of prepaid amounts related to unused subscriptions, which could harm our business, results of operations, and financial condition. From time to time, we have granted, and in the future will continue to grant, credits to paid customers pursuant to, and sometimes in addition to, the terms of these agreements. For example, in April 2022, a very small subset of our customers experienced a full outage across their Atlassian cloud products due to a faulty script used during a maintenance procedure. While we restored access for these customers with minimal to no data loss, these affected customers experienced disruptions in using our cloud products during the outage. We incurred certain costs associated with offering service level credits and other concessions to these customers, although the overall impact did not have a material impact on our results of operations or financial condition. However, other future events like this may materially and adversely impact our results of operations or financial condition. Further, disruptions, data loss and corruption, outages and other performance problems in our cloud infrastructure may cause customers to delay or halt their transition to our Cloud offerings, to the detriment of our increased focus on our Cloud offerings, which could harm our business, results of operations and financial condition.\nAdditionally, we depend on services from various third parties, including Amazon Web Services, to maintain our infrastructure and distribute our products via the internet. Any disruptions in these services, including as a result of actions outside of our control, would significantly impact the continued performance of our products. In the future, these services may not be available to us on commercially reasonable terms, or at all. Any loss of the right to use \n28\nany of these services could result in decreased functionality of our products until equivalent technology is either developed by us or, if available from another provider, is identified, obtained and integrated into our infrastructure. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, results of operations and financial condition could be harmed.\nReal or perceived errors, failures, vulnerabilities or bugs in our products or in the products on Atlassian Marketplace could harm our business and results of operations.\nErrors, failures, vulnerabilities, or bugs may occur in our products, especially when updates are deployed or new products are rolled out. Our solutions are often used in connection with large-scale computing environments with different operating systems, system management software, equipment, and networking configurations, which may cause errors, failures of products, or other negative consequences in the computing environment into which they are deployed. In addition, deployment of our products into complicated, large-scale computing environments may expose errors, failures, vulnerabilities, or bugs in our products. Any such errors, failures, vulnerabilities, or bugs have in the past not been, and in the future may not be, found until after they are deployed to our customers. Real or perceived errors, failures, vulnerabilities, or bugs in our products have and could result in negative publicity, loss of or unauthorized access to customer data, loss of or delay in market acceptance of our products, loss of competitive position, or claims by customers for losses sustained by them, all of which could harm our business and results of operations.\nIn addition, third-party apps on Atlassian Marketplace may not meet the same quality standards that we apply to our own development efforts and, in the past, third-party apps have caused disruptions affecting multiple customers. To the extent these apps contain bugs, vulnerabilities, or defects, such apps may create disruptions in our customers\u2019 use of our products, lead to data loss or unauthorized access to customer data, they may damage our brand and reputation, and affect the continued use of our products, which could harm our business, results of operations and financial condition. \nChanges in laws or regulations relating to data privacy or data protection, or any actual or perceived failure by us to comply with such laws and regulations or our privacy policies, could harm our business and results of operations.\nPrivacy and data security have become significant issues in the U.S., Europe and in many other jurisdictions where we offer our products. The regulatory framework for the collection, use, retention, safeguarding, sharing, disclosure, and transfer of data worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.\nGlobally, virtually every jurisdiction in which we operate has established its own data security and privacy frameworks with which we, and/or our customers, must comply. These laws and regulations often are more restricted than those in the United States. \nThe European General Data Protection regulation (\u201cGDPR\u201d), which is supplemented by national laws in individual member states and the guidance of national supervisory authorities and the European Data Protection Board, applies to any company established in the European Economic Area (\u201cEEA\u201d) as well as to those outside the EEA if they collect and use personal data in connection with the offering of goods or services to individuals in the EEA or the monitoring of their behavior. GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is collected and used, limitations on retention of information, mandatory data breach notification requirements, and extensive obligations on services providers. Non-compliance can trigger steep fines. In addition, the UK has established its own domestic regime with the UK GDPR and amendments to the Data Protection Act, which so far mirrors the obligations in the GDPR, poses similar challenges and imposes substantially similar penalties. \nAdditionally, in the U.S., various laws and regulations apply to the collection, processing, disclosure and security of certain types of data, including the Federal Trade Commission Act, and state equivalents, the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act. There are also various state laws relating to privacy and data security. The California Consumer Privacy Act (\u201cCCPA\u201d) as modified by California Privacy Rights Act (\u201cCPRA\u201d), broadly defines personal information and gives California residents expanded privacy rights and protections and provides for civil penalties for violations and a private right of action for data breaches.\nSince the CPRA passed, various other states have passed their own comprehensive privacy statutes that share similarities with CCPA and CPRA. Some observers see this influx of state privacy regimes as a trend towards \n29\nmore stringent privacy legislation in the United States, including a potential federal privacy law, all of which could increase our potential liability and adversely affect our business. \nWe expect that there will continue to be new proposed laws and regulations around the globe and we cannot yet determine the full impact these developments may have on our business, nor assure ongoing compliance with all such laws or regulations. For example, the EEA is in the process of finalizing the e-Privacy Regulation to replace the European e-Privacy Directive (Directive 2002/58/EC as amended by Directive 2009/136/EC). We may face difficulties in marketing to current and potential customers under applicable laws, which impacts our ability to spread awareness of our products and services and, in turn, grow a customer base. As rules evolve, we also expect to incur additional costs to comply with new requirements. As another example, countries are considering legal frameworks on AI, which is a trend that may increase now that the EC has proposed the first such framework. The interpretation and application of these laws are, and will likely remain, uncertain, and it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or product features. If so, in addition to the possibility of fines, lawsuits and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our products, which could harm our business. Any inability to adequately address privacy and data security concerns or comply with applicable privacy or data security laws, regulations and policies could result in additional cost and liability to us, damage our reputation, inhibit sales, and harm our business.\nMoreover, record-breaking enforcement actions globally have shown that regulators wield their right to impose substantial fines for violations of privacy regulations, and these enforcement actions could result in guidance from regulators that would require changes to our current compliance strategy. Given the breadth and depth of changes in data protection obligations, complying with global data protection requirements requires time, resources, and a review of our technology and systems currently in use against regulatory requirements. \nIn addition, privacy advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us. Further, our customers may require us to comply with more stringent privacy and data security contractual requirements or obtain certifications that we do not currently have, and any failure to obtain these certifications could reduce the demand for our products and our business could be harmed. If we were required to obtain additional industry certifications, we may incur significant additional expenses and have to divert resources, which could slow the release of new products, all of which could harm our ability to effectively compete.\nFurther, any failure or perceived failure by us to comply with our posted privacy policies, our privacy-related obligations to users or other third parties, or any other legal obligations or regulatory requirements relating to privacy, data protection or information security may result in governmental investigations or enforcement actions, litigation, claims or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our users to lose trust in us, and otherwise materially and adversely affect our reputation and business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations and policies that are applicable to the businesses of our users may limit the adoption and use of, and reduce the overall demand for, our platform. Additionally, if third parties we work with violate applicable laws, regulations or agreements, such violations may put our users\u2019 data at risk, could result in governmental investigations or enforcement actions, fines, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our users to lose trust in us and otherwise materially and adversely affect our reputation and business. Further, public scrutiny of, or complaints about, technology companies or their data handling or data protection practices, even if unrelated to our business, industry or operations, may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional regulatory requirements, or to modify their enforcement or investigation activities, which may increase our costs and risks.\nBecause our products rely on the movement of data across national boundaries, global privacy and data security concerns could result in additional costs and liabilities to us or inhibit sales of our products globally. \nCertain privacy legislation restricts the cross-border transfer of personal data and some countries have introduced or are currently considering legislation that imposes local storage and processing of data to avoid any form of transfer to a third country, or other restrictions on transfer and disclosure of personal data, outside of that country. Specifically, the EEA and UK data protection laws generally prohibit the transfer of personal data to third countries, including to the U.S., unless the transfer is to an entity established in a third country deemed to provide adequate protection or the parties to the transfer implement supplementary safeguards and measures to protect the transferred personal data. Currently, where we transfer personal data from the EEA and the UK to third countries \n30\noutside the EEA and UK that are not deemed to be \u201cadequate,\u201d we rely on standard contractual clauses (\u201cSCCs\u201d) (a standard form of contract approved by the EC as an adequate personal data transfer mechanism), and we are certifying with the successor to the EU-U.S. Privacy Shield Framework (\u201cPrivacy Shield\u201d). \nIn the July 16, 2020 case of Data Protection Commissioner v. Facebook Ireland Limited and Maximillian Schrems (\u201cSchrems II\u201d), though the court upheld the adequacy of the SCCs, it made clear that reliance on them alone may not necessarily be sufficient in all circumstances. Use of the SCCs must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals and additional measures and/or contractual provisions may need to be put in place, as per the contractual requirement built into the EC\u2019s new SCCs and the UK equivalent to conduct and document Data Transfer Impact Assessments addressing these issues. The Court of Justice of the European Union (\u201cCJEU\u201d) further stated that if a competent supervisory authority believes that the SCCs cannot be complied with in the destination country and the required level of protection cannot be secured by other means, such supervisory authority is under an obligation to suspend or prohibit that transfer. Supervisory authorities have pursued enforcement in cases where they have deemed the level of protection in the destination country to be insufficient.\nIn July 2023, the EC published its adequacy decision for the EU-U.S. Data Privacy Framework to replace the Privacy Shield, which was invalidated by the CJEU in its Schrems II judgment. Like past transfer frameworks, the new framework is likely to be subject to legal challenges and may be struck down by the CJEU.\nSCCs and other international data transfer mechanisms and data localization requirements will continue to evolve and face additional scrutiny across the EEA, the UK and other countries. We continue to monitor and update our data protection compliance strategy accordingly and will continue to explore other options for processing and transferring data from the EEA and UK, including without limitation, conducting (or assisting data exporters in conducting) assessments and due diligence of the related data flows and destination countries across our supply chain and customer base, re-evaluating and amending our contractual and organizational arrangements, all of this activity may involve substantial expense and distraction from other aspects of our business.\nTo the extent we are unsuccessful in establishing an adequate mechanism for international data transfers or do not comply with the applicable requirements in respect of international transfers of data and localization, there is a risk that any of our data transfers could be halted or restricted. In addition, we could be at risk of enforcement action taken by an EEA or UK data protection authority including regulatory action, significant fines and penalties (or potential contractual liabilities) until such point in time that we ensure an adequate mechanism for EEA and UK data transfers to the U.S. and other countries is in place. This could damage our reputation, inhibit sales and harm our business. \nWe may be sued by third parties for alleged infringement or misappropriation of their intellectual property rights.\nThere is considerable patent and other intellectual property development activity in our industry. Our future success depends in part on not infringing upon or misappropriating the intellectual property rights of others. We have received, and may receive in the future, communications and lawsuits from third parties, including practicing entities and non-practicing entities, claiming that we are infringing upon or misappropriating their intellectual property rights, and we may be found to be infringing upon or misappropriating such rights. We may be unaware of the intellectual property rights of others that may cover some or all of our technology, or technology that we obtain from third parties. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty or license payments, prevent us from offering our products or using certain technologies, require us to implement expensive workarounds, refund fees to customers or require that we comply with other unfavorable terms. In the case of infringement or misappropriation caused by technology that we obtain from third parties, any indemnification or other contractual protections we obtain from such third parties, if any, may be insufficient to cover the liabilities we incur as a result of such infringement or misappropriation. We may also be obligated to indemnify our customers or business partners in connection with any such claims or litigation and to obtain licenses, modify our products or refund fees, which could further exhaust our resources. Even if we were to prevail in the event of claims or litigation against us, any claim or litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and other employees from our business operations and disrupt our business.\n31\nIndemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses.\nOur agreements with customers and other third parties may include indemnification or other provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of intellectual property infringement, damages caused by us to property or persons, or other liabilities relating to or arising from our products or other acts or omissions. The term of these contractual provisions often survives termination or expiration of the applicable agreement. Large indemnity payments or damage claims from contractual breach could harm our business, results of operations and financial condition. Although we generally contractually limit our liability with respect to such obligations, we may still incur substantial liability related to them. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other current and prospective customers, reduce demand for our products, damage our reputation and harm our business, results of operations and financial condition.\nWe use open source software in our products that may subject our products to general release or require us to re-engineer our products, which could harm our business.\nWe use open source software in our products and expect to continue to use open source software in the future. There are uncertainties regarding the proper interpretation of and compliance with open source software licenses. Consequently, there is a risk that the owners of the copyrights in such open source software may claim that the open source licenses governing their use impose certain conditions or restrictions on our ability to use the software that we did not anticipate. Such owners may seek to enforce the terms of the applicable open source license, including by demanding release of the source code for the open source software, derivative works of such software, or, in some cases, our proprietary source code that uses or was developed using such open source software. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our products, any of which could result in additional cost, liability and reputational damage to us, and harm to our business and results of operations. In addition, if the license terms for the open source software we utilize change, we may be forced to re-engineer our products or incur additional costs to comply with the changed license terms or to replace the affected open source software. Although we have implemented policies and tools to regulate the use and incorporation of open source software into our products, we cannot be certain that we have not incorporated open source software in our products in a manner that is inconsistent with such policies.\nAny failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.\nOur success and ability to compete depend in part upon our intellectual property. We primarily rely on a combination of patent, copyright, trade secret and trademark laws, trade secret protection and confidentiality or license agreements with our employees, customers, business partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate. We make business decisions about when to seek patent protection for a particular technology and when to rely upon trade secret protection, and the approach we select may ultimately prove to be inadequate. Even in cases where we seek patent protection, there is no assurance that the resulting patents will effectively protect every significant feature of our products. In addition, we believe that the protection of our trademark rights is an important factor in product recognition, protecting our brand and maintaining goodwill and if we do not adequately protect our rights in our trademarks from infringement, any goodwill that we have developed in those trademarks could be lost or impaired, which could harm our brand and our business. In any event, in order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights.\nFor example, in order to promote the transparency and adoption of our downloadable software, we provide our customers with the ability to request a copy of the source code of those products, which they may customize for their internal use under limited license terms, subject to confidentiality and use restrictions. If any of our customers misuses or distributes our source code in violation of our agreements with them, or anyone else obtains access to our source code, it could cost us significant time and resources to enforce our rights and remediate any resulting competitive harms.\nLitigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights, which could result in the impairment or loss of portions of our intellectual property rights. Our failure to secure, protect and enforce our intellectual property rights could harm our brand and our business.\n32\nRisks Related to Legal, Regulatory, Accounting, and Tax Matters\nOur global operations and structure subject us to potentially adverse tax consequences.\nWe are subject to income taxes as well as non-income-based taxes in the U.S., Australia and various other jurisdictions. Significant judgment is often required in the determination of our worldwide provision for income taxes. Our effective tax rate could be impacted by changes in our earnings and losses in countries with differing statutory tax rates, changes in transfer pricing, changes in operations, changes in non-deductible expenses, changes in excess tax benefits of stock-based compensation expense, changes in the valuation of deferred tax assets and liabilities and our ability to utilize them, the applicability of withholding taxes, effects from acquisitions, and changes in accounting principles and tax laws. Any changes or uncertainty in taxing jurisdictions\u2019 administrative interpretations, decisions, policies and positions could also materially impact our income tax liabilities. Our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant revenue and taxing authorities may disagree with positions we have taken generally, or our determinations as to the value of assets sold or acquired, or income and expenses attributable to specific jurisdictions. For example, we are in ongoing negotiations with the Australian Taxation Office (\u201cATO\u2019\u2019) to establish a unilateral advance pricing agreements (\u2018\u2019APA\u2019\u2019) relating to our transfer pricing arrangements between Australia and the U.S., and we have recorded a related uncertain tax position. Although our recorded tax reserves are the best estimate of our liabilities, differences may occur in the future, depending on resolution of the APA negotiations. In addition, in the ordinary course of our business we are subject to tax audits from various taxing authorities. Although we believe our tax positions are appropriate, the final determination of any future tax audits could be materially different from our income tax provisions, accruals and reserves. If such a disagreement were to occur, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, a higher effective tax rate, reduced cash flows and lower overall profitability of our operations.\nTax laws in the U.S. and in foreign jurisdictions are subject to change. For example, the Tax Cuts and Jobs Act (\u201cTCJA\u201d), signed into law in 2017, enacted significant tax law changes which impacted our tax obligations and effective tax rate beginning in our fiscal year 2023. The TCJA eliminates the option to deduct research and development expenditures, instead requiring taxpayers to capitalize and amortize such expenditures over five or fifteen years beginning in fiscal year 2023. Although Congress is considering legislation that would defer the capitalization and amortization requirement, there is no assurance that the provision will be repealed or otherwise modified. The Inflation Reduction Act (\u201cIRA\u201d), signed into law in 2022, includes various corporate tax provisions including a new alternative corporate minimum tax on applicable corporations. The IRA tax provisions may become applicable in future years, which could result in additional taxes, a higher effective tax rate, reduced cash flows and lower overall profitability of our operations.\nCertain government agencies in jurisdictions where we do business have had an extended focus on issues related to the taxation of multinational companies. In addition, the Organization for Economic Cooperation and Development (the \u201cOECD\u201d) has introduced various guidelines changing the way tax is assessed, collected and governed. Of note are the efforts around base erosion and profit shifting which seek to establish certain international standards for taxing the worldwide income of multinational companies. These measures have been endorsed by the leaders of the world\u2019s 20 largest economies.\nIn March 2018, the EC proposed a series of measures aimed at ensuring a fair and efficient taxation of digital businesses operating within the EU. As collaborative efforts by the OECD and EC continue, some countries have unilaterally moved to introduce their own digital service tax or equalization levy to capture tax revenue on digital services more immediately. Notably France, Italy, Austria, Spain, the UK, Turkey and India have enacted this tax, generally 2% on specific in-scope sales above a revenue threshold. The EU and the UK have recently established a mandate that focuses on the transparency of cross-border arrangements concerning at least one EU member state through mandatory disclosure and exchange of cross-border arrangements rules. These regulations (known as MDR in the UK and DAC 6 in the EU) require taxpayers to disclose certain transactions to the tax authorities resulting in an additional layer of compliance and require careful consideration of the tax benefits obtained when entering into transactions that need to be disclosed.\nThe OECD has proposed significant changes to the international tax law framework in the form of the Pillar Two proposal. The proposal aims to provide a set of coordinated rules to prevent multinational enterprises from shifting profits to low-tax jurisdictions and to implement a 15% global minimum tax. A number of countries have agreed to implement the proposal, including the member states of the EU, which are required to codify the rules into domestic law by December 31, 2023. Pillar Two is progressively being enacted in the many of the countries in which we operate. The potential effects of Pillar Two may vary depending on the specific provisions and rules implemented \n33\nby each country that adopts Pillar Two and may include tax rate changes, higher effective tax rates, potential tax disputes and adverse impacts to our cash flows, tax liabilities, results of operations and financial position.\nGlobal tax developments applicable to multinational companies may continue to result in new tax regimes or changes to existing tax laws. If the U.S. or foreign taxing authorities change tax laws, our overall taxes could increase, lead to a higher effective tax rate, harm our cash flows, results of operations and financial position. \nTaxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value-added or similar taxes, and we could be subject to liability with respect to past or future sales, which could harm our results of operations.\nWe do not collect sales and use, value-added and similar taxes in all jurisdictions in which we have sales, based on our understanding that such taxes are not applicable. Sales and use, value-added and similar tax laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties, and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties and interest, or future requirements could harm our results of operations.\nThe requirements of being a public company, including additional rules and regulations that we must comply with now that we are no longer a foreign private issuer, may strain our resources, divert management\u2019s attention, and affect our ability to attract and retain executive officers and qualified board members.\nWe are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of Nasdaq and other applicable securities rules and regulations. Compliance with these rules and regulations has increased our legal and financial compliance costs, making some activities more difficult, time-consuming, and costly, and has increased demand on our systems and resources. The Exchange Act requires, among other things, that we file annual reports with respect to our business and results of operations. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight is required. \nAdditionally, as of September 30, 2022, we are no longer a foreign private issuer, and we are required to comply with all of the provisions applicable to a U.S. domestic issuer under the Exchange Act, including filing an annual report on Form 10-K, quarterly periodic reports and current reports for certain events, complying with the sections of the Exchange Act regulating the solicitation of proxies, requiring insiders to file public reports of their share ownership and trading activities and insiders being liable for profit from trades made in a short period of time. We are also no longer exempt from the requirements of Regulation FD promulgated under the Exchange Act related to selective disclosures. We are also no longer permitted to follow our home country\u2019s rules in lieu of the corporate governance obligations imposed by Nasdaq, and are required to comply with the governance practices required by U.S. domestic issuers listed on Nasdaq. We are also required to comply with all other rules of Nasdaq applicable to U.S. domestic issuers. In addition, we are required to report our financial results under GAAP, including our historical financial results, which have previously been prepared in accordance with International Financial Reporting Standards. \nThe regulatory and compliance costs associated with the reporting and governance requirements applicable to U.S. domestic issuers may be significantly higher than the costs we previously incurred as a foreign private issuer. We expect to continue to incur significant legal, accounting, insurance and other expenses and to expend greater time and resources to comply with these requirements. Additionally, as a result of the complexity involved in complying with the rules and regulations applicable to public companies, our management\u2019s attention may be diverted from other business concerns, which could harm our business, results of operations and financial condition. In addition, the pressures of operating a public company may divert management\u2019s attention to delivering short-term results, instead of focusing on long-term strategy. In addition, we may need to develop our reporting and compliance infrastructure and may face challenges in complying with the new requirements applicable to us. If we fall out of compliance, we risk becoming subject to litigation or being delisted, among other potential problems.\nFurther, as a public company it is more expensive for us to maintain adequate director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and members of our board of directors.\n34\nIf we are unable to maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A Common Stock could be negatively affected.\nAs a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. We are required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of Class A Common Stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.\nWe face exposure to foreign currency exchange rate fluctuations.\nWhile we primarily sell our products in U.S. dollars, we incur expenses in currencies other than the U.S. dollar, which exposes us to foreign currency exchange rate fluctuations. A large percentage of our expenses are denominated in the Australian dollar and the Indian rupee, and fluctuations in these currencies could have a material negative impact on our results of operations. Moreover, our subsidiaries, other than our U.S. subsidiaries, maintain net assets that are denominated in currencies other than the U.S. dollar. In addition, we transact in non-U.S. dollar currencies for our products, and, accordingly, changes in the value of non-U.S. dollar currencies relative to the U.S. dollar could affect our revenue and results of operations due to transactional and translational remeasurements that are reflected in our results of operations.\nWe have a foreign exchange hedging program to hedge a portion of certain exposures to fluctuations in non-U.S. dollar currency exchange rates. We use derivative instruments, such as foreign currency forward contracts, to hedge the exposures. The use of such hedging instruments may not fully offset the adverse financial effects of unfavorable movements in foreign currency exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments or if we are unable to forecast hedged exposures accurately.\nWe and our customers are subject to increasing and changing laws and regulations that may expose us to liability and increase our costs.\nFederal, state, local and foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the technology industry or the industries in which are customers operate, including imposing taxes, fees, or other charges. Changes in these laws or regulations could require us to modify our products in order to comply with these changes. The costs of compliance with, and other burdens imposed by, industry-specific laws, regulations and interpretive positions may limit our customers\u2019 use and adoption of our services and reduce overall demand for our services. Compliance with these regulations may also require us to devote greater resources to support certain customers, which may increase costs and lengthen sales cycles. For example, some financial services regulators in various jurisdictions have imposed guidelines for use of cloud computing services that mandate specific controls or require financial services enterprises to obtain regulatory approval prior to outsourcing certain functions. In the United States, the implementation of a cybersecurity Executive Order released in May 2021 may result in further changes and enhancements to compliance and incident reporting standards in order to obtain certain public sector contracts in the future. If we are unable to comply with these guidelines or controls, or if our customers are unable to obtain regulatory approval to use our services where required, our business may be harmed.\nAdditionally, various of our products are subject to U.S. export controls, including the U.S. Department of Commerce\u2019s Export Administration Regulations and economic and trade sanctions regulations administered by the U.S. Treasury Department\u2019s Office of Foreign Assets Controls. These regulations may limit the export of our products and provision of our services outside of the U.S., or may require export authorizations, including by license, a license exception, or other appropriate government authorizations, including annual or semi-annual reporting and the filing of an encryption registration. Export control and economic sanctions laws may also include prohibitions on the sale or supply of certain of our products to embargoed or sanctioned countries, regions, governments, persons and entities. In addition, various countries regulate the importation of certain products through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products. Import, export and economic sanctions laws may also change rapidly due to political events, such as has occurred in response to Russia\u2019s invasion of Ukraine. The exportation, reexportation, and importation of our \n35\nproducts, and the provision of services, including by our solution partners, must comply with these laws or else we may be adversely affected through reputational harm, government investigations, penalties, and a denial or curtailment of our ability to export our products or provide services. Complying with export control and sanctions laws can be time consuming and complex and may result in the delay or loss of sales opportunities. Although we take precautions to prevent our products from being provided in violation of such laws, we are aware of previous exports of certain of our products to a small number of persons and organizations that are the subject of U.S. sanctions or located in countries or regions subject to U.S. sanctions. If we are found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for the individuals working for us. Changes in export or import laws or corresponding sanctions may delay the introduction and sale of our products in international markets, or, in some cases, prevent the export or import of our products to certain countries, regions, governments, persons or entities altogether, which could adversely affect our business, financial condition and results of operations. Changes in import and export laws are occurring in the jurisdictions in which we operate and we may fail to comply with new or changing regulations in a timely manner, which could result in substantial fines and penalties for us and could adversely affect our business, financial condition and results of operation.\nWe are also subject to various domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the UK Bribery Act, as well as other similar anti-bribery and anti-kickback laws and regulations. These laws and regulations generally prohibit companies and their employees and intermediaries from authorizing, offering, or providing improper payments or benefits to officials and other recipients for improper purposes. We rely on certain third parties to support our sales and regulatory compliance efforts and can be held liable for their corrupt or other illegal activities, even if we do not explicitly authorize or have actual knowledge of such activities. Although we take precautions to prevent violations of these laws, our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in additional jurisdictions.\nFinally. as we expand our products and services and evolve our business models, we may become subject to additional government regulation or increased regulatory scrutiny. Regulators (both in the U.S. and in other jurisdictions in which we operate) may adopt new laws or regulations, change existing regulations, or their interpretation of existing laws or regulations may differ from ours. For example, the regulation of emerging technologies that we may incorporate into our offerings, such as AI and machine learning, is still an evolving area, and it is possible that we could become subject to new regulations that negatively impact our plans, operations and results. Additionally, many jurisdictions across the world are currently considering, or have already begun implementing, changes to antitrust and competition laws, regulations or their enforcement to enhance competition in digital markets and address practices by certain digital platforms that they perceive to be anticompetitive, which may impact our ability to invest in, acquire or enter into joint ventures with other entities.\nNew legislation, regulation, public policy considerations, changes in the cybersecurity environment, litigation by governments or private entities, changes to or new interpretations of existing laws may result in greater oversight of the technology industry, restrict the types of products and services that we can offer, limit how we can distribute our products, or otherwise cause us to change the way we operate our business. We may not be able to respond quickly to such regulatory, legislative and other developments, and these changes may in turn increase our cost of doing business and limit our revenue opportunities. In addition, if our practices are not consistent with new interpretations of existing laws, we may become subject to lawsuits, penalties, and other liabilities that did not previously apply.\nInvestors\u2019 and other stakeholders\u2019 expectations of our performance relating to environmental, social and governance factors may impose additional costs and expose us to new risks.\nThere is an increasing focus from certain investors, customers, employees, other stakeholders and regulators concerning environmental, social and governance matters (\u201cESG\u201d). Some investors may use these non-financial performance factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies and actions relating to ESG are inadequate. We may face reputational damage in the event that we do not meet the ESG standards set by various constituencies.\nAs ESG best practices and reporting standards continue to develop, we may incur increasing costs relating to ESG monitoring and reporting and complying with ESG initiatives. For example, the SEC has recently proposed climate change and ESG reporting requirements, which, if approved, would increase our compliance costs. We may also face greater costs to comply with new ESG standards or initiatives in the European Union. We publish an annual Sustainability Report, which describes, among other things, the measurement of our greenhouse gas emissions and our efforts to reduce emissions. In addition, our Sustainability Report provides highlights of how we \n36\nare supporting our workforce, including our efforts to promote diversity, equity, and inclusion. Our disclosures on these matters, or a failure to meet evolving stakeholder expectations for ESG practices and reporting, may potentially harm our reputation and customer relationships. Due to new regulatory standards and market standards, certain new or existing customers, particularly those in the European Union, may impose stricter ESG guidelines or mandates for, and may scrutinize relationships more closely with, their counterparties, including us, which may lengthen sales cycles or increase our costs.\nFurthermore, if our competitors\u2019 ESG performance is perceived to be better than ours, potential or current investors may elect to invest with our competitors instead. In addition, in the event that we communicate certain initiatives or goals regarding ESG matters, we could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could be criticized for the scope of such initiatives or goals. If we fail to satisfy the expectations of investors, customers, employees and other stakeholders or our initiatives are not executed as planned, our business, financial condition, results of operations, and prospects could be adversely affected.\nIf we are deemed to be an investment company under the Investment Company Act of 1940, our results of operations could be harmed.\nUnder Sections 3(a)(1)(A) and (C) of the Investment Company Act of 1940, as amended (the \u201cInvestment Company Act\u201d), a company generally will be deemed to be an \u201cinvestment company\u201d for purposes of the Investment Company Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding, or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an \u201cinvestment company,\u201d as such term is defined in either of these sections of the Investment Company Act. We currently conduct, and intend to continue to conduct, our operations so that neither we, nor any of our subsidiaries, is required to register as an \u201cinvestment company\u201d under the Investment Company Act. If we were obligated to register as an \u201cinvestment company,\u201d we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things, limitations on capital structure, restrictions on specified investments, prohibitions on transactions with affiliates, and compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would increase our operating and compliance costs, could make it impractical for us to continue our business as contemplated, and could harm our results of operations.\nRisks Related to Ownership of Our Class\u00a0A Common Stock\nThe dual class structure of our common stock has the effect of concentrating voting control with certain stockholders, in particular, our Co-Chief Executive Officers and their affiliates, which will limit our other stockholders\u2019 ability to influence the outcome of important transactions, including a change in control.\nShares of our Class B Common Stock have ten votes per share and shares of our Class A Common Stock have one vote per share. As of June\u00a030, 2023, stockholders who hold our Class B Common Stock collectively hold approximately 87% of the voting power of our outstanding share capital and in particular, entities affiliated with our Co-Chief Executive Officers, Michael Cannon-Brookes and Scott Farquhar, collectively hold approximately 87% of the voting power of our outstanding share capital. The holders of our Class B Common Stock will collectively continue to control a majority of the combined voting power of our capital stock and therefore be able to control substantially all matters submitted to our stockholders for approval so long as the outstanding shares of our Class B Common Stock represent at least 10% of all shares of our outstanding Class A Common Stock and Class B Common Stock in the aggregate. These holders of our Class B Common Stock may also have interests that differ from holders of our Class A Common Stock and may vote in a way which may be adverse to such interests. This concentrated control may have the effect of delaying, preventing or deterring a change in control of Atlassian, could deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of Atlassian and might ultimately affect the market price of our Class A Common Stock.\nIf Messrs. Cannon-Brookes and Farquhar retain a significant portion of their holdings of our Class B Common Stock for an extended period of time, they will control a significant portion of the voting power of our capital stock for the foreseeable future. As members of our board of directors, Messrs. Cannon-Brookes and Farquhar each owe statutory and fiduciary duties to Atlassian and must act in good faith and in a manner they consider would be most likely to promote the success of Atlassian for the benefit of stockholders as a whole. As stockholders, Messrs. Cannon-Brookes and Farquhar are entitled to vote their shares in their own interests, which may not always be in the interests of our stockholders generally.\n37\nThe market price of our Class A Common Stock is volatile, has fluctuated significantly in the past, and could continue to fluctuate significantly regardless of our operating performance resulting in substantial losses for our Class A ordinary stockholders.\nThe trading price of our Class A Common Stock is volatile, has fluctuated significantly in the past, and could continue to fluctuate significantly, regardless of our operating performance, in response to numerous factors, many of which are beyond our control, including:\n\u2022\ngeneral economic conditions;\n\u2022\nactual or anticipated fluctuations in our results of operations;\n\u2022\nthe financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;\n\u2022\nfailure of securities analysts to initiate or maintain coverage of Atlassian, publication of inaccurate or unfavorable research about our business, changes in financial estimates or ratings changes by any securities analysts who follow Atlassian or our failure to meet these estimates or the expectations of investors;\n\u2022\nannouncements by us or our competitors of significant technical innovations, new products, acquisitions, pricing changes, strategic partnerships, joint ventures or capital commitments;\n\u2022\nchanges in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;\n\u2022\nprice and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole;\n\u2022\nactual or anticipated developments in our business or our competitors\u2019 businesses or the competitive landscape generally;\n\u2022\ndevelopments or disputes concerning our intellectual property or our products, or third-party proprietary rights;\n\u2022\nchanges in accounting standards, policies, guidelines, interpretations or principles;\n\u2022\nnew laws or regulations, new interpretations of existing laws, or the new application of existing regulations to our business;\n\u2022\nchanges in tax laws or regulations; \n\u2022\nany major change in our board of directors or management;\n\u2022\nadditional shares of Class A Common Stock being sold into the market by us or our existing stockholders or the anticipation of such sales;\n\u2022\nthe existence of our program to repurchase up to $1.0 billion of our outstanding Class A Common Stock (the \u201cShare Repurchase Program\u201d) and purchases made pursuant to that program or any failure to repurchase shares as planned, including failure to meet expectations around the timing, price or amount of share repurchases, and any reduction, suspension or termination of our Share Repurchase Program;\n\u2022\ncyber-security and privacy breaches; \n\u2022\nlawsuits threatened or filed against us; and\n\u2022\nother events or factors, including those resulting from geopolitical risks, natural disasters, climate change, diseases and pandemics, macroeconomic factors such as inflationary pressures or recession, war, including Russia\u2019s invasion of Ukraine, financial institution instability, incidents of terrorism, or responses to these events.\nIn addition, the stock markets, and in particular the market on which our Class A Common Stock is listed, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders \n38\nhave instituted securities class action litigation following periods of market volatility. In February 2023, a purported securities class action complaint was filed against us and certain of our officers in U.S. federal court. Our involvement in this or other securities litigation could subject us to substantial costs, divert resources and the attention of management from operating our business, and harm our business, results of operations and financial condition.\nSubstantial future sales of our Class A Common Stock could cause the market price of our Class A Common Stock to decline.\nThe market price of our Class A Common Stock could decline as a result of substantial sales of shares of our Class A Common Stock, particularly sales by our directors, executive officers and significant stockholders, or the perception in the market that holders of a large number of shares intend to sell their shares. As of June\u00a030, 2023, we had 152,442,673 outstanding Class\u00a0A Common Stock and 105,124,103 outstanding convertible Class\u00a0B Common Stock.\nWe have also registered shares of Class A Common Stock that we issue under our employee equity incentive plans. These shares may be sold freely in the public market upon issuance. \nCertain holders of our Class A Common Stock and our Class B Common Stock, including our founders, have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders. Sales of our Class A Common Stock pursuant to these registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the market price of our Class A Common Stock to fall and make it more difficult for our investors to sell our Class A Common Stock at a price that they deem appropriate.\nWe cannot guarantee that our Share Repurchase Program will be fully consummated or that it will enhance long-term stockholder value. Repurchases of shares of our Class A Common Stock could also increase the volatility of the trading price of our Class A Common Stock and could diminish our cash reserves.\nIn January 2023, our board of directors authorized a Share Repurchase Program to repurchase up to $1.0 billion of our outstanding Class A Common Stock. Under the Share Repurchase Program, stock repurchases may be made from time to time through open market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, in accordance with applicable securities laws and other restrictions. The Share Repurchase Program does not have a fixed expiration date, may be suspended or discontinued at any time, and does not obligate us to acquire any amount of Class A Common Stock. The timing, manner, price, and amount of any repurchases will be determined by us at our discretion and will depend on a variety of factors, including business, economic and market conditions, prevailing stock prices, corporate and regulatory requirements, and other considerations. We cannot guarantee that the Share Repurchase Program will be fully consummated or that it will enhance long-term stockholder value. The Share Repurchase Program could also affect the trading price of our Class A Common Stock and increase volatility, and any announcement of a reduction, suspension or termination of the Share Repurchase Program may result in a decrease in the trading price of our Class A Common Stock. In addition, repurchasing our Class A Common Stock could diminish our cash and cash equivalents and marketable securities available to fund working capital, repayment of debt, capital expenditures, strategic acquisitions, investments, or business opportunities, and other general corporate purposes.\nWe do not expect to declare dividends in the foreseeable future.\nWe currently anticipate that we will retain future earnings for the development, operation and expansion of our business and to fund our Share Repurchase Program, and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, stockholders must rely on sales of their shares of Class A Common Stock after price appreciation, if any, as the only way to realize any future gains on their investment.\nAnti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.\nOur amended and restated certificate of incorporation and amended and restated bylaws contain, and the General Corporation Law of the State of Delaware (the \u201cDelaware General Corporation Law\u201d) contains, provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. These provisions provide for the following:\n39\n\u2022\na dual-class structure which provides our holders of Class B Common Stock with the ability to significantly influence the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A Common Stock and Class B Common Stock;\n\u2022\nno cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;\n\u2022\nthe exclusive right of our board of directors to set the size of the board of directors and to elect a director to fill a vacancy, however occurring, including by an expansion of the board of directors, which prevents stockholders from being able to fill vacancies on our board of directors;\n\u2022\nthe ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including voting or other rights or preferences, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;\n\u2022\nthe ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval;\n\u2022\nin addition to our board of directors\u2019 ability to adopt, amend, or repeal our amended and restated bylaws, our stockholders may adopt, amend, or repeal our amended and restated bylaws only with the affirmative vote of the holders of at least 66 2/3% of the voting power of the outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class;\n\u2022\nthe required approval of at least 66 2/3% of the voting power of the outstanding shares of capital stock entitled to vote thereon, voting together as a single class, to adopt, amend, or repeal certain provisions of our amended and restated certificate of incorporation;\n\u2022\nthe ability of stockholders to act only at an annual or special meeting of stockholders;\n\u2022\nthe requirement that a special meeting of stockholders may be called only by certain specified officers of the Company, a majority of our board of directors then in office or the chairperson of our board of directors;\n\u2022\nadvance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders\u2019 meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer\u2019s own slate of directors or otherwise attempting to obtain control of us; and\n\u2022\nthe limitation of liability of, and provision of indemnification to, our directors and officers.\nThese provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.\nAs a Delaware corporation, we are also subject to provisions of the Delaware General Corporation Law, including Section 203 thereof, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.\nAny provision of our amended and restated certificate of incorporation, amended and restated bylaws or the Delaware General Corporation Law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.\nClaims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.\nOur amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.\nIn addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and our indemnification agreements that we have entered or intend to enter into with our directors and officers provide that:\n\u2022\nwe will indemnify our directors and officers to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner \n40\nsuch person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person\u2019s conduct was unlawful;\n\u2022\nwe may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;\n\u2022\nwe are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers will undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification;\n\u2022\nthe rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons, both of which we have done; and\n\u2022\nwe may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees, and agents.\nWhile we have procured directors\u2019 and officers\u2019 liability insurance policies, such insurance policies may not be available to us in the future at a reasonable rate, may not cover all potential claims for indemnification, and may not be adequate to indemnify us for all liability that may be imposed.\nOur amended and restated certificate of incorporation and amended and restated bylaws provide for an exclusive forum in the Court of Chancery of the State of Delaware for certain disputes between us and our stockholders, and that the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act.\nOur amended and restated certificate of incorporation and amended and restated bylaws provide, that unless we consent in writing to the selection of an alternative forum, (a) the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, the federal district court for the District of Delaware or other state courts of the State of Delaware) will, to the fullest extent permitted by law, be the sole and exclusive forum for: (i) any derivative action, suit or proceeding brought on behalf of the Company, (ii) any action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by any director, officer or stockholder to the Company or our stockholders, (iii) any action, suit or proceeding arising pursuant to any provision of the Delaware General Corporation Law or our amended and restated certificate of incorporation or amended and restated bylaws, or (iv) any action, suit or proceeding asserting a claim against the Company that is governed by the internal affairs doctrine; and (b) the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause or causes of action arising under the Securities Act, including all causes of action asserted against any defendant to such complaint. Any person or entity purchasing or otherwise acquiring any interest in any security of the Company will be deemed to have notice of and consented to these provisions. Nothing in our amended and restated certificate of incorporation or amended and restated bylaws precludes stockholders that assert claims under the Exchange Act, from bringing such claims in federal court to the extent that the Exchange Act confers exclusive federal jurisdiction over such claims, subject to applicable law.\nWe believe these provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. If a court were to find the choice of forum provision that is contained in our amended and restated certificate of incorporation or amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, results of operations, and financial condition. For example, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act.\nThe choice of forum provisions may limit a stockholder\u2019s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our current or former director, officer or stockholder to the Company, which may discourage such claims against us or any of our current or former director, officer or stockholder to the Company and result in increased costs for investors to bring a claim.\nGeneral Risk Factors\n41\nOur global operations subject us to risks that can harm our business, results of operations, and financial condition.\nA key element of our strategy is to operate globally and sell our products to customers around the world. Operating globally requires significant resources and management attention and subjects us to regulatory, economic, geographic, and political risks. In particular, our global operations subject us to a variety of additional risks and challenges, including:\n\u2022\nincreased management, travel, infrastructure, and legal compliance costs associated with having operations in many countries;\n\u2022\ndifficulties in enforcing contracts, including \u201cclickwrap\u201d contracts that are entered into online, of which we have historically relied as part of our product licensing strategy, but which may be subject to additional legal uncertainty in some foreign jurisdictions;\n\u2022\nincreased financial accounting and reporting burdens and complexities;\n\u2022\nrequirements or preferences within other regions for domestic products, and difficulties in replacing products offered by more established or known regional competitors;\n\u2022\ndiffering technical standards, existing or future regulatory and certification requirements, and required features and functionality;\n\u2022\ncommunication and integration problems related to entering and serving new markets with different languages, cultures, and political systems;\n\u2022\ncompliance with foreign privacy and security laws and regulations and the risks and costs of non-compliance;\n\u2022\ncompliance with laws and regulations for foreign operations, including anti-bribery laws (such as the U.S. Foreign Corrupt Practices Act, the U.S. Travel Act, and the UK Bribery Act), import and export control laws, tariffs, trade barriers, economic sanctions, and other regulatory or contractual limitations on our ability to sell our products in certain foreign markets, and the risks and costs of non-compliance;\n\u2022\nheightened risks of unfair or corrupt business practices in certain geographies that may impact our financial results and result in restatements of our consolidated financial statements;\n\u2022\nfluctuations in currency exchange rates, rising interest rates, and related effects on our results of operations;\n\u2022\ndifficulties in repatriating or transferring funds from, or converting currencies in certain countries;\n\u2022\nweak economic conditions which could arise in each country or region in which we operate or sell our products, including due to rising inflation or hyperinflation, such as is occurring in Turkey, and related interest rate increases, or general political and economic instability around the world, including as a result of Russia\u2019s invasion of Ukraine; \n\u2022\ndiffering labor standards, including restrictions related to, and the increased cost of, terminating employees in some countries;\n\u2022\ndifficulties in recruiting and hiring employees in certain countries;\n\u2022\nthe preference for localized software and licensing programs and localized language support;\n\u2022\nreduced protection for intellectual property rights in some countries and practical difficulties associated with enforcing our legal rights abroad; \n\u2022\nimposition of travel restrictions, prohibitions of non-essential travel, modifications of employee work locations, or cancellation or reorganization of certain sales and marketing events as a result of pandemics or public health emergencies; \n\u2022\ncompliance with the laws of numerous foreign taxing jurisdictions, including withholding obligations, and overlapping of different tax regimes; and\n\u2022\ngeopolitical risks, such as political and economic instability, and changes in diplomatic and trade relations.\n42\nCompliance with laws and regulations applicable to our global operations substantially increases our cost of doing business in foreign jurisdictions. We may be unable to keep current with changes in government requirements as they change from time to time. Failure to comply with these laws and regulations could harm our business. In many countries, it is common for others to engage in business practices that are prohibited by our internal policies and procedures or other regulations applicable to us. Although we have implemented policies and procedures designed to ensure compliance with these regulations and policies, there can be no assurance that all of our employees, contractors, business partners and agents will comply with these regulations and policies. Violations of laws, regulations or key control policies by our employees, contractors, business partners, or agents could result in delays in revenue recognition, financial reporting misstatements, enforcement actions, reputational harm, disgorgement of profits, fines, civil and criminal penalties, damages, injunctions, other collateral consequences, or the prohibition of the importation or exportation of our products and could harm our business, results of operations, and financial condition.\nCatastrophic events may disrupt our business.\nNatural disasters, pandemics other public health emergencies, geopolitical conflicts, social or political unrest, or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could harm our business. We have a large employee presence and operations in the San Francisco Bay Area of California and Australia. The west coast of the U.S. contains active earthquake zones and is often at risk from wildfires. Australia has recently experienced significant wildfires and flooding that have impacted our employees. In the event of a major earthquake, hurricane, typhoon or catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war or terrorist attack in any of the regions or localities in which we operate, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our application development, lengthy interruptions in our product availability, breaches of data security and loss of critical data, all of which could harm our business, results of operations and financial condition.\nAdditionally, we rely on our network and suppliers of third-party infrastructure and applications, internal technology systems, and our websites for our development, marketing, internal controls, operational support, hosted services and sales activities. If these systems were to fail or be negatively impacted as a result of a natural disaster, disease or pandemic, or catastrophic event, our ability to conduct normal business operations and deliver products to our customers could be impaired.\nAs we grow our business, the need for business continuity planning and disaster recovery plans will grow in significance. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster, disease or pandemic, or catastrophic event, or if we are unable to successfully execute on those plans, our business and reputation could be harmed.\nClimate change may have a long-term impact on our business. \nThe long-term effects of climate change on the global economy and the technology industry in particular are unclear, however we recognize that there are inherent climate-related risks wherever business is conducted. Climate-related events, including the increasing frequency of extreme weather events and their impact on critical infrastructure in the U.S., Australia and elsewhere, have the potential to disrupt our business, our third-party suppliers, and/or the business of our customers, and may cause us to experience extended product downtimes, and losses and additional costs to maintain and resume operations.\nWe depend on our executive officers and other key employees and the loss of one or more of these employees or the inability to attract and retain highly skilled employees could harm our business.\nOur success depends largely upon the continued services of our executive officers and key employees. We rely on our leadership team and other key employees in the areas of research and development, products, strategy, operations, security, go-to-market, marketing, IT, support, and general and administrative functions. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. For example, we announced in August 2023 that our current Chief Revenue Officer will step down from his role effective December 31, 2023. In addition, we do not have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The loss of one or more of our executive officers, especially our Co-Chief Executive Officers, or other key employees could harm our business.\nIn addition, in order to execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel in Sydney, Australia, the San Francisco Bay Area, and in other locations where we \n43\nmaintain offices, is intense, especially for engineers experienced in designing and developing software and cloud-based services. We have from time to time experienced, and we expect to continue to experience, difficulty hiring and retaining employees with appropriate qualifications. In particular, recruiting and hiring senior product engineering personnel (particularly with AI and machine learning backgrounds) has been, and we expect it to continue to be, challenging. In addition, our rebalancing in March 2023, and any future rebalancing efforts intended to improve operational efficiencies and operating costs, may adversely affect our ability to attract and retain employees. If we are unable to hire and retain talented product engineering personnel, we may be unable to scale our operations or release new products in a timely fashion and, as a result, customer satisfaction with our products may decline.\nMany of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, these employers may attempt to assert that the employees or we have breached certain legal obligations, resulting in a diversion of our time and resources. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the value or perceived value of our equity awards declines, it could harm our ability to recruit and retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business, results of operations and financial condition could be harmed.\nWe are exposed to credit risk and fluctuations in the market values of our investment portfolio.\nGiven the global nature of our business, we may have diversified U.S. and non-U.S. investments. Credit ratings and pricing of our investments can be negatively affected by liquidity, credit deterioration, financial results, economic risk, including from impacts of inflation and Russia\u2019s invasion of Ukraine, political risk, sovereign risk or other factors. As a result, the value and liquidity of our investments may fluctuate substantially. Therefore, although we have not realized any significant losses on our investments, future fluctuations in their value could result in a significant realized loss.",
+  "item7": ">ITEM 7. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nThis section of our Annual Report on Form 10-K discusses our financial condition and results of operations for fiscal years 2023, 2022, and 2021, and year-to-year comparisons between fiscal years 2023 and 2022, and fiscal years 2022, and 2021, in accordance with U.S. generally accepted accounting principles (\u201cGAAP\u201d).\nYou should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing under \u201cFinancial Statements and Supplementary Data\u201d in Item 8 in this Annual Report on Form 10-K. As discussed in the section titled \u201cForward-Looking Statements,\u201d the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled \u201cRisk Factors\u201d under Part I, Item 1A in this Annual Report on Form 10-K.\nCompany Overview\nOur mission is to unleash the potential of every team.\nOur products help teams organize, discuss and complete their work \u2014 delivering superior outcomes for their organizations.\nOur products serve teams of all shapes and sizes, in virtually every industry. Our primary products include Jira Software and Jira Work Management for planning and project management, Confluence for content creation and sharing, Trello for capturing and adding structure to fluid, fast-forming work for teams, Jira Service Management for team service, management and support applications, Jira Align for enterprise agile planning, and Bitbucket for code sharing and management. Together, our products form an integrated system for organizing, discussing and completing shared work, becoming deeply entrenched in how people collaborate and how organizations run.\nOur mission is possible with a deep investment in product development to create and refine high-quality and versatile products that users love. By making our products affordable for organizations of all sizes and transparently sharing our pricing online for most of our products, we generally do not follow the practice of opaque pricing and ad hoc discounting that is typical in the enterprise software industry. We pursue customer volume, targeting every organization, regardless of size, industry, or geography. This allows us to operate at unusual scale for an enterprise software company, with more than 260,000 customers across virtually every industry sector in approximately 200 countries as of June\u00a030, 2023. Our customers range from small organizations that have adopted one of our products for a small group of users, to over two-thirds of the Fortune 500, many of which use a combination of our products across thousands of users.\nTo reach this expansive market, we primarily distribute and sell our products online where our customers can get started in minutes without the need for assistance. We focus on enabling a self-service, low-friction model that makes it easy for customers to try, adopt and use our products. By making our products simple, powerful, affordable and easy to adopt, we generate demand from word-of-mouth and viral expansion within organizations.\nOur culture of innovation, transparency and dedication to customer service drives our success in implementing and refining this unique approach. We believe this approach creates a self-reinforcing effect that \n47\nfosters innovation, quality, customer success, and scale. As a result of this strategy, we invest significantly more in research and development activities than in traditional sales activities relative to other enterprise software companies.\nA substantial majority of our sales are automated through our website, including sales of our products through our solution partners and resellers. \nFor fiscal year 2023, \nwe derived over 40% of our revenue from channel partners\u2019 sales efforts. Our solution partners and resellers primarily focus on customers in regions that require local language support and other customized needs. We plan to continue to invest in our partner programs to help us enter and grow in new markets, complementing our automated, low-touch approach. \nWe generate revenues primarily in the form of subscriptions, maintenance and other sources. Subscription revenues consist primarily of fees earned from subscription-based arrangements for providing customers the right to use our software in a cloud-based-infrastructure that we provide (\u201cCloud offerings\u201d). We also sell on-premises term license agreements for our Data Center products (\u201cData Center offerings\u201d), consisting of software licensed for a specified period and support and maintenance service that is bundled with the license for the term of the license period. Subscription revenues also include subscription-based agreements for our premier support services. From time to time, we make changes to our product offerings, prices and pricing plans for our products which may impact the growth rate of our revenue, our deferred revenue balances, and customer retention.\nMaintenance provides our customers with access to unspecified future updates, upgrades and enhancements and technical product support on an if-and-when-available basis for perpetual license products purchased and operated by our customers on their premises (\u201cServer offerings\u201d). Maintenance revenue combined with our subscription revenue business, through our Cloud and Data Center products, results in a large recurring revenue base. In each of the past three fiscal years, more than 80% of our total revenues have been of a recurring nature from subscription and maintenance fees.\nCustomers typically pay us maintenance fees annually, at the beginning of each contractual year. We typically recognize revenue on the license portion of term license agreements (Data Center offerings) once the customer obtains control of the license, which is generally upon delivery of the license, and for maintenance and subscriptions, revenue is recognized ratably over the term of the contract. Any invoice amounts or payments received in advance of revenue recognition from subscriptions or maintenance are included in our deferred revenue balance. The deferred revenue balance is influenced by several factors, including customer decisions around the timing of renewals, length of contracts and invoice timing within the period. We no longer sell perpetual licenses or upgrades for our Server offerings and plan to end maintenance and support for these Server offerings in February 2024. We will proactively help our customers transition to other versions of our products with our migration tools and programs, customer support teams, and pricing and packaging options.\nEconomic Conditions \nOur results of operations may vary based on the impact of changes in the global economy on us or our customers. Our business depends on demand for business software applications generally and for collaboration software solutions in particular. We believe that weakening macroeconomic conditions, in part due to rising inflation, increases in interest rates, Russia\u2019s invasion of Ukraine and remaining effects of the COVID-19 pandemic, have impacted our results of operations during \nfiscal year 2023\n. Primarily, we have seen the growth from existing customers moderate during \nfiscal year 2023. We also saw moderating growth in the rate of conversions from our free to paid products. \nWe believe these events are largely due to customers impacted by weakening economic conditions. The extent to which these risks ultimately impact our business, results of operations, and financial position will depend on future developments, which are uncertain and cannot be predicted at this time.\nRestructuring\nOn March 6, 2023, we announced a rebalancing of resources resulting in the elimination of certain roles impacting about 500 full-time employees, or approximately 5% of the Company\u2019s then-current workforce. These actions are part of our initiatives to accelerate progress against our largest growth opportunities. These actions include continuing to invest in strategic areas of the business, and aligning talent to best meet customer needs and business priorities. In addition, we consolidated our leases, including planned subleasing, of several office spaces, to optimize our real estate footprint. We continue to evaluate our real estate needs and may incur additional charges in the future.\n48\nA summary of our restructuring charges for fiscal year 2023 by major activity type is as follows (in thousands):\nSeverance and Other Termination Benefits\nStock-based Compensation\nLease Consolidation\nTotal\nCost of revenue\n$\n1,011\u00a0\n$\n288\u00a0\n$\n7,893\u00a0\n$\n9,192\u00a0\nResearch and development\n8,279\u00a0\n5,866\u00a0\n29,004\u00a0\n43,149\u00a0\nMarketing and sales\n7,069\u00a0\n1,815\u00a0\n14,984\u00a0\n23,868\u00a0\nGeneral and administrative\n8,961\u00a0\n2,306\u00a0\n9,418\u00a0\n20,685\u00a0\nTotal\n$\n25,320\u00a0\n$\n10,275\u00a0\n$\n61,299\u00a0\n$\n96,894\u00a0\nThe execution of these actions, including the related cash payments have been substantially completed as of June 30, 2023. Refer to Note 15, \u201c\nRestructuring,\n\u201d to the notes to our consolidated financial statements for additional information.\nKey Business Metrics\nWe utilize the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.\nCustomers\nWe have successfully demonstrated a history of growing both our customer base and spend per customer through growth in users, purchase of new licenses and adoption of new products. We believe that our ability to attract new customers and grow our customer base drives our success as a business.\nWe define the number of customers at the end of any particular period to be the number of organizations with unique domains that have at least one active and paid non-starter license or subscription, with two or more seats. While a single customer may have distinct departments, operating segments, or subsidiaries with multiple active licenses or subscriptions of our products, if the product deployments share a unique domain name, we only include the customer once for purposes of calculating this metric. We define active licenses as those licenses that are under an active maintenance or subscription contract as of period end.\nOur customers, as defined in this metric, have generated substantia\nlly all of our revenue in each of the periods presented. Including single-user accounts and organizations who have only adopted our free or starter products, the active use of our products extends well beyond our more than \n260,000\n customers. With these customers using our software today, we are \nable to reach a vast number of users, gather insights to refine our offerings and generate growing revenue by expanding within our customer base. No single customer contributed more than 5% of our total revenues during \nfiscal year 2023.\nThe following table sets forth our number of customers as of the dates presented:\n\u00a0\nAs of June 30,\n\u00a0\n2023\n2022\n2021\nNumber of customers\n262,337\u00a0\n242,623\u00a0\n204,754\u00a0\nFree Cash Flow\nFree cash flow is a non-GAAP financial measure that we calculate as net cash provided by operating activities less net cash used in investing activities for capital expenditures. Management considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used to fund our commitments, repay our debt, and for strategic opportunities, such as reinvesting in our business, making strategic acquisitions, and strengthening our financial position. Free cash flow is not a measure calculated in accordance with GAAP and should not be considered in isolation from, or as a substitute for financial information prepared in accordance with GAAP, such as GAAP net cash provided by operating activities. In addition, free cash flow may not be comparable to similarly titled metrics of other companies due to differences among methods of calculation. The following table presents a reconciliation of net cash provided by operating activities to free cash flow for the periods presented (in thousands):\n49\n\u00a0\nFiscal Year Ended June 30,\n\u00a0\n2023\n2022\n2021\nNet cash provided by operating activities\n$\n868,111\u00a0\n$\n821,044\u00a0\n$\n789,960\u00a0\nLess: Capital expenditures\n(25,652)\n(70,583)\n(31,520)\nFree cash flow\n$\n842,459\u00a0\n$\n750,461\u00a0\n$\n758,440\u00a0\nFree cash flow increased by \n$92.0 million\n during fiscal year 2023 as compared to fiscal year 2022. \nThe increase of free cash flow was primarily attributable to the increase of net cash provided by operating activities and a decrease in capital expenditures. The increase of net cash provided by operating activities was primarily attributable to an increase in cash received from customers, offset by an increase in cash paid to suppliers and employees, and cash used to pay income taxes.\nFor more information about net cash provided by operating activities, please see \u201cLiquidity and Capital Resources.\u201d\nComponents of Results of Operations\nOn September 30, 2022, . Atlassian Corporation Plc, a public company limited by shares, incorporated under the laws of England and Wales, completed a redomestication, which was approved by the shareholders of Atlassian Corporation Plc, resulting in Atlassian Corporation, a Delaware corporation, becoming our publicly traded parent company (the \u201cU.S. Domestication\u201d). In fiscal year 2022 and prior periods, we prepared our financial information in accordance with International Financial Reporting Standards (\u201cIFRS\u201d). As a consequence of becoming a U.S. domestic issuer, beginning with the Quarterly Report on Form 10-Q for the three months ended September 30, 2022, we are required to present our financial information in accordance with GAAP. The below financial information has been prepared in accordance with GAAP. The financial information should not be expected to correspond to figures we have previously presented under IFRS.\nSources of Revenues\nSubscription Revenues\nSubscription revenues consist primarily of fees earned from subscription-based arrangements for providing customers the right to use our software in a cloud-based-infrastructure that we provide. We also sell on-premises term license agreements for our Data Center products, which consist of software licensed for a specified period and include support and maintenance services that are bundled with the license for the term of the license period. Subscription revenues also include subscription-based agreements for our premier support services. Subscription revenues are driven primarily by the number and size of active licenses, the type of product and the price of the licenses. Our subscription-based arrangements generally have a contractual term of one to twelve months, with a majority being one month. For Cloud offerings, subscription revenue is recognized ratably as services are performed, commencing with the date the service is made available to customers. For Data Center products, we recognize revenue upfront for the portion that relates to the delivery of the term license and the support and related revenue is recognized ratably as the services are delivered over the term of the arrangement. Premier support consists of subscription-based arrangements for a higher level of support across different deployment options, and revenue is recognized ratably as the services are delivered over the term of the arrangement.\nMaintenance Revenues\nMaintenance revenues represent fees earned from providing customers unspecified future updates, upgrades and enhancements and technical product support for perpetual license products on an if-and-when-available basis. Maintenance revenue is recognized ratably over the term of the support period.\nOther Revenues\nOther revenues primarily include perpetual license revenue and fees received for sales of third-party apps in the Atlassian Marketplace. Technical account management, consulting and training services are also included in other revenues. Perpetual license revenues represent fees earned from the license of software to customers for use on the customer\u2019s premises other than Data Center products. Software is licensed on a perpetual basis. Perpetual license revenues consist of the revenues recognized from sales of licenses to customers. The Company no longer sells perpetual licenses or upgrades for our Server offerings. The Company typically recognized revenue on the license portion of perpetual license arrangements once the customer obtained control of the license, which is generally upon delivery of the license. Revenue from the sale of third-party apps via Atlassian Marketplace is \n50\nrecognized on the date of product delivery given that all of our obligations have been met at that time and on a net basis the Company functions as the agent in the relationship. Revenue from technical account management is recognized over the time period that the customer has access to the service. Revenue from consulting and training is recognized over time as the services are performed.\nWe expect subscription revenue to increase and continue to be our primary driver of revenue growth as our customers continue to migrate to our Cloud and Data Center offerings. Migrating our larger customers to the cloud continues to be one of our most important priorities over the coming year. Consistent with our strategy, our Server business is expected to contract. Maintenance revenue is expected to decline as Server customers migrate to our Cloud and Data Center offerings.\nCost of Revenues\nCost of revenues primarily consists of expenses related to compensation expenses for our employees, including stock-based compensation, hosting our cloud infrastructure, which includes third-party hosting fees and depreciation associated with computer equipment and software; payment processing fees; consulting and contractors costs, associated with our customer support and infrastructure service teams; amortization of acquired intangible assets, such as the amortization of the cost associated with an acquired company\u2019s developed technology; certain IT program fees; and facilities and related overhead costs. To support our cloud-based infrastructure, we utilize third-party managed hosting facilities. We allocate stock-based compensation based on the expense category in which the employee works. We allocate overhead such as information technology costs, rent and occupancy charges in each expense category based on headcount in that category. As such, general overhead expenses are reflected in cost of revenues and operating expense categories.\nWe expect cost of revenues to increase as we continue to invest in our cloud-based infrastructure to support migrations and our cloud customers.\nGross Profit and Gross Margin\nGross profit is total revenues less total cost of revenues. Gross margin is gross profit expressed as a percentage of total revenues. Gross margin can fluctuate from period to period as a result of changes in product and services mix. \nWe expect gross margin to decrease due to the sales mix shift from Server and Data Center offerings to Cloud offerings. This impact will be primarily driven by increased hosting costs as well as additional personnel costs to support migrations and our cloud customers.\nOperating Expenses\nOur operating expenses are classified as research and development, marketing and sales, and general and administrative. For each functional category, the largest component is compensation expenses, which include salaries and bonuses, stock-based compensation, employee benefit costs, and contractor costs. We allocate overhead such as information technology costs, rent, and occupancy charges in each expense category based on headcount in that category.\nResearch and Development\nResearch and development expenses consist primarily of compensation expense for our employees, including stock-based compensation, consulting and contractor costs, contract software development costs, facilities and related overhead costs, certain IT program expenses, and restructuring charges. We continue to focus our research and development efforts on building new products, adding new features and services, integrating acquired technologies, increasing functionality, enhancing our cloud infrastructure and developing our mobile capabilities.\nMarketing and Sales\nMarketing and sales expenses consist primarily of compensation expense for our employees, including stock-based compensation, marketing and sales programs, consulting and contractor costs, facilities and related overhead costs, certain IT program expenses, and restructuring charges. Marketing programs consist of advertising, promotional events, corporate communications, brand building and product marketing activities such as online lead generation. Sales programs consist of activities and teams focused on supporting our solution partners and resellers, tracking channel sales activity, supporting and servicing our customers by helping them optimize their \n51\nexperience and expand the use of our products across their organizations and helping product evaluators learn how they can use our tools most effectively.\nGeneral and Administrative \nGeneral and administrative expenses consist primarily of compensation expense for our employees, including stock-based compensation, for finance, legal, human resources and information technology personnel, consulting and contractor costs, certain IT program expenses, other corporate expenses and facilities and related overhead costs, and restructuring charges.\nIncome Taxes\nProvision for income taxes consists primarily of income taxes related to federal, state, and foreign jurisdictions where we conduct business.\nNet Loss\nWe incurred a net loss in fiscal year 2023, primarily attributable to growing our team, specifically focusing on adding research and development personnel to drive continued product innovation, as well as investments in infrastructure to support our Cloud offerings, additional tax expenses due to the recognition of reserves for uncertain tax positions, and restructuring charges associated with the rebalancing of resources and lease consolidation. During fiscal years 2022 and 2021, the net loss was primarily attributable to marking to fair value of the exchangeable senior notes (the \u201cNotes\u201d) and related capped call transactions (the \u201cCapped Calls\u201d) and settlements of the Notes and Capped Calls.\nCritical Accounting Estimates\nOur consolidated financial statements have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions and such differences could be material.\nWhile our significant accounting policies are more fully described in Note 2,\n \u201cSummary of Significant Accounting Policies\u201d\n to the notes to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the accounting policies that we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.\nRevenue Recognition\nOur contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations may require judgment.\nWe allocate the transaction price for each contract to each performance obligation based on the relative standalone selling price (\u201cSSP\u201d) for each performance obligation. We use judgment in determining the SSP for products and services. We typically determine an SSP range for our products and services, which is reassessed on a periodic basis or when facts and circumstances change. For all performance obligations other than perpetual and term licenses, we are able to determine SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers. In instances where performance obligations do not have observable standalone sales, we utilize available information that may include market conditions, pricing strategies, the economic life of the software, and other observable inputs to estimate the price we would charge if the products and services were sold separately.\nOur products are generally sold with a right of return, we may provide other credits or incentives, and, in certain instances, we estimate customer usage of our services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Variable consideration was not material for the periods presented.\n52\nStrategic Investments\nInvestments in privately held equity securities without readily determinable fair values in which we do not own a controlling interest or have significant influence over are measured using the measurement alternative. In applying the measurement alternative, the carrying value of the investment is measured at cost, less impairment, if any, plus or minus changes resulting from observable price changes from orderly transactions for identical or similar investments of the same issuer in the period of occurrence. In determining the estimated fair value of our strategic investments in privately held companies, we use the most recent data available to us. Valuations of privately held securities are inherently complex due to the lack of readily available market data and require the use of judgment. The determination of whether an orderly transaction is for an identical or similar investment requires significant judgment. In our evaluation, we consider factors such as differences in the rights and preferences of the investments and the extent to which those differences would affect the fair values of those investments.\nWe assess our privately held debt and equity securities\u2019 strategic investment portfolio quarterly for impairment. Our impairment analysis encompasses an assessment of both qualitative and quantitative analyses of key factors including the investee\u2019s financial metrics, market acceptance of the investee\u2019s product or technology, general market conditions and liquidity considerations. If the investment is considered to be impaired, we record the investment at fair value by recognizing an impairment through the consolidated statements of operations and establishing a new carrying value for the investment.\nValuation of Minority Interest in Equity Method Investment\nIn July 2022, we completed a non-cash sale of our controlling interest in Vertical First Trust (\u201cVFT\u201d) to a third-party buyer. VFT was established for the construction project associated with the Company\u2019s new global headquarters in Sydney, Australia. We retained a minority equity interest of 13% in the form of ordinary shares and have significant influence in VFT. VFT was deconsolidated at the time of the sale, and we accounted for our retained equity interest as an equity method investment in our consolidated financial statements.\nWe used our best estimates and assumptions to accurately determine the fair value of our retained equity interest in VFT. The estimation is primarily due to the judgmental nature of the inputs to the valuation model used to measure fair value and the sensitivity to the significant underlying assumptions. Our estimates are inherently uncertain. We used a discounted cash flow model to calculate the fair value of our retained equity interest. The significant inputs to the valuation included observable market inputs, including capitalization rate, discount rate, and other management inputs, including the underlying building practical completion date. These assumptions are forward-looking and could be affected by future economic and market conditions and construction progress.\nImpairment of Long-Lived Assets\nLong-lived assets are reviewed for impairment whenever events or changes in circumstances indicate an asset\u2019s carrying value may not be recoverable. When the projected undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts, the assets are adjusted to their estimated fair value and an impairment loss is recorded as a component of operating income (expense).\nJudgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows. Assumptions and estimates about future values can be subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy.\nIncome Tax\nWe account for income taxes using the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to (i) temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and (ii) operating loss and tax credit carryforwards. Deferred tax assets are recognized subject to management\u2019s judgment that realization is more likely than not applicable to the periods in which we expect the temporary difference will reverse. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.\nValuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income within the carryback or carryforward periods available under the applicable tax law. We regularly review the deferred tax assets for recoverability based on historical taxable income, projected \n53\nfuture taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Our judgment regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute our business plans and tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed.\nIn the multiple tax jurisdictions in which we operate, our tax returns are subject to routine audit by the Internal Revenue Service, Australian Taxation Office (\u201cATO\u201d), and other taxation authorities. These audits at times may produce alternative views regarding certain tax positions taken in the year(s) of review. As a result, we record uncertain tax positions, which require recognition at the time when it is deemed more likely than not that the position in question will be upheld. Although management believes that the judgment and estimates involved are reasonable and that the necessary provisions have been recorded, changes in circumstances or unexpected events could adversely affect our financial position, results of operations, and cash flows.\nThe Tax Cuts and Jobs Act (the \u201cTCJA\u201d), enacted on December 22, 2017, eliminates the option to deduct research and development expenditures, instead requiring taxpayers to capitalize and amortize such expenditures over five or fifteen years beginning in fiscal year 2023. If not deferred, modified, or repealed, this provision may materially increase future cash taxes.\nNew Accounting Pronouncements Pending Adoption\nThe impact of recently issued accounting standards is set forth in Note 2, \u201c\nSummary of Significant Accounting Policies\n,\n\u201d\n of the notes to our consolidated financial statements.\n54\nResults of Operations\nThe following table sets forth our results of operations for the periods indicated\u00a0(in thousands, except for percentages of total revenues):\n\u00a0\nFiscal Year Ended June 30,\n2023\n2022\n2021\nRevenues:\n\u00a0\n\u00a0\nSubscription\n$\n2,922,576\u00a0\n83\u00a0\n%\n$\n2,096,706\u00a0\n75\u00a0\n%\n$\n1,324,064\u00a0\n63\u00a0\n%\nMaintenance\n399,738\u00a0\n11\u00a0\n495,077\u00a0\n18\u00a0\n522,971\u00a0\n25\u00a0\nOther\n212,333\u00a0\n6\u00a0\n211,099\u00a0\n7\u00a0\n242,097\u00a0\n12\u00a0\nTotal revenues\n3,534,647\u00a0\n100\u00a0\n2,802,882\u00a0\n100\u00a0\n2,089,132\u00a0\n100\u00a0\nCost of revenues\n633,765\u00a0\n18\u00a0\n452,914\u00a0\n16\u00a0\n331,850\u00a0\n16\u00a0\nGross profit\n2,900,882\u00a0\n82\u00a0\n2,349,968\u00a0\n84\u00a0\n1,757,282\u00a0\n84\u00a0\nOperating expenses:\nResearch and development\n1,869,881\u00a0\n53\u00a0\n1,291,877\u00a0\n46\u00a0\n932,994\u00a0\n45\u00a0\nMarketing and sales\n769,861\u00a0\n22\u00a0\n535,815\u00a0\n19\u00a0\n371,644\u00a0\n18\u00a0\nGeneral and administrative\n606,362\u00a0\n17\u00a0\n452,193\u00a0\n16\u00a0\n311,238\u00a0\n14\u00a0\nTotal operating expenses\n3,246,104\u00a0\n92\u00a0\n2,279,885\u00a0\n81\u00a0\n1,615,876\u00a0\n77\u00a0\nOperating income (loss)\n(345,222)\n(10)\n70,083\u00a0\n3\u00a0\n141,406\u00a0\n7\u00a0\nOther income (expense), net\n14,501\u00a0\n\u2014\u00a0\n(501,839)\n(19)\n(570,393)\n(28)\nInterest income\n49,732\u00a0\n1\u00a0\n2,284\u00a0\n\u2014\u00a0\n7,158\u00a0\n\u2014\u00a0\nInterest expense\n(30,147)\n(1)\n(41,466)\n(1)\n(92,586)\n(4)\nLoss before provision for income taxes\n(311,136)\n(10)\n(470,938)\n(17)\n(514,415)\n(25)\nProvision for income taxes\n(175,625)\n(4)\n(48,572)\n(2)\n(64,564)\n(3)\nNet loss\n$\n(486,761)\n(14)\n%\n$\n(519,510)\n(19)\n%\n$\n(578,979)\n(28)\n%\nFiscal Years Ended June 30, 2023 and 2022\nRevenues\n\u00a0\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2023\n2022\n$ Change\n% Change\nSubscription\n$\n2,922,576\u00a0\n$\n2,096,706\u00a0\n$\n825,870\u00a0\n39\u00a0\n%\nMaintenance\n399,738\u00a0\n495,077\u00a0\n(95,339)\n(19)\nOther\n212,333\u00a0\n211,099\u00a0\n1,234\u00a0\n1\u00a0\nTotal revenues\n$\n3,534,647\u00a0\n$\n2,802,882\u00a0\n$\n731,765\u00a0\n26\u00a0\n%\nTotal revenues increased $731.8 million, or 26%, in fiscal year 2023 compared to fiscal year 2022. Growth in total revenues was primarily attributable to increased demand for our products from both new and existing customers. Of total revenues recognized in fiscal year 2023, over 90% was attributable to sales to customer accounts existing on or before June\u00a030, 2022. Our number of total customers increased to 262,337 at June\u00a030, 2023 from 242,623 at June\u00a030, 2022. \nSubscription revenues increased $825.9 million, or 39%, in fiscal year 2023 compared to fiscal year 2022. The increase in subscription revenues was primarily attributable to additional subscriptions from our existing customer base, and customers migrating to cloud-based subscription services and term-based licenses for our Data Center products.\nMaintenance revenues decreased $95.3 million, or 19%, in fiscal year 2023 compared to fiscal year 2022. We no longer offer upgrades to perpetual licenses beginning February 2022, and plan to end maintenance and support for these products in February 2024.\n55\nOther revenues increased $1.2 million, or 1%, in fiscal year 2023 compared to fiscal year 2022. The increase in other revenues was primarily attributable to an increase of $29.8 million in revenue from sales of third-party apps through our Atlassian Marketplace and other revenue, offset by a decrease of $28.6 million in perpetual license revenues as we discontinued selling new perpetual licenses for our products beginning February 2021.\nTotal revenues by deployment options were as follows:\n\u00a0\nFiscal Year Ended June 30,\n\u00a0(in thousands, except percentage data)\n2023\n2022\n$ Change\n% Change\nCloud\n$\n2,085,498\u00a0\n$\n1,515,424\u00a0\n$\n570,074\u00a0\n38\u00a0\n%\nData Center\n819,251\u00a0\n560,319\u00a0\n258,932\u00a0\n46\u00a0\nServer\n400,519\u00a0\n525,028\u00a0\n(124,509)\n(24)\nMarketplace and services\n229,379\u00a0\n202,111\u00a0\n27,268\u00a0\n13\u00a0\nTotal revenues\n$\n3,534,647\u00a0\n$\n2,802,882\u00a0\n$\n731,765\u00a0\n26\u00a0\nTotal revenues by geography were as follows:\n\u00a0\nFiscal Year Ended June 30,\n\u00a0(in thousands, except percentage data)\n2023\n2022\n$ Change\n% Change\nAmericas\n$\n1,765,166\u00a0\n$\n1,408,868\u00a0\n$\n356,298\u00a0\n25\u00a0\n%\nEMEA\n1,366,739\u00a0\n1,077,338\u00a0\n289,401\u00a0\n27\u00a0\nAsia Pacific\n402,742\u00a0\n316,676\u00a0\n86,066\u00a0\n27\u00a0\nTotal revenues\n$\n3,534,647\u00a0\n$\n2,802,882\u00a0\n$\n731,765\u00a0\n26\u00a0\nCost of Revenues \n\u00a0\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2023\n2022\n$ Change\n% Change\nCost of revenues\n$\n633,765\n$\n452,914\n$\n180,851\u00a0\n40\u00a0\n%\nGross margin\n82\u00a0\n%\n84\u00a0\n%\n\u00a0\n\u00a0\nCost of revenues increased $180.9 million, or 40%, in fiscal year 2023 compared to fiscal year 2022. The overall increase was primarily attributable to an increase of $81.0 million in compensation expense for employees (which includes an increase of $32.3 million in stock-based compensation), and an increase of $56.1 million in hosting fees paid to third-party providers. In addition, we recorded restructuring charges of $9.2 million in fiscal year 2023, which were primarily comprised of $7.9 million of impairment charges for leases and leasehold improvements.\nOperating Expenses\nResearch and development\n\u00a0\nFiscal Year Ended June 30,\n\u00a0\n\u00a0\n(in thousands, except percentage data)\n2023\n2022\n$ Change\n% Change\nResearch and development\n$\n1,869,881\u00a0\n$\n1,291,877\u00a0\n$\n578,004\u00a0\n45\u00a0\n%\nResearch and development expenses increased $578.0 million, or 45%, in fiscal year 2023 compared to fiscal year 2022. \nThe overall increase was primarily a result of an increase of $456.8 million in compensation expenses for employees (which includes an increase of $269.5 million in \nstock-based compensation\n). \nIn addition, we recorded restructuring charges of \n$43.1 million\n in fiscal year 2023, which were comprised of \n$29.0 million\n of impairment charges for leases and leasehold improvements, and \n$14.1 million\n of severance and other termination benefits.\nMarketing and sales\n\u00a0\nFiscal Year Ended June 30,\n\u00a0\n\u00a0\n(in thousands, except percentage data)\n2023\n2022\n$ Change\n% Change\nMarketing and sales\n$\n769,861\u00a0\n$\n535,815\u00a0\n$\n234,046\u00a0\n44\u00a0\n%\n56\nMarketing and sales expenses increa\nsed $234.0 million, or 44%, for \nfiscal year 2023 compared to fiscal year 2022.\n The overall increase was\n primarily attributable to an increase of \n$148.9 million\n in compensation expenses for employees \n(which includes an increase of $53.7 million in stock-based compensation)\n, and an increase of \n$19.4 million in professional services\n. In addition, we recorded restructuring charges of $23.9 million in fiscal year ended June 30, 2023, which were comprised of $15.0 million of impairment charges for leases and leasehold improvements, and $8.9 million of severance and other termination benefits.\nGeneral and administrative\n\u00a0\nFiscal Year Ended June 30,\n\u00a0\n\u00a0\n(in thousands, except percentage data)\n2023\n2022\n$ Change\n% Change\nGeneral and administrative\n$\n606,362\u00a0\n$\n452,193\u00a0\n$\n154,169\u00a0\n34\u00a0\n%\nGeneral and administrative expenses increas\ned $154.2 million, or 34%, in \nfiscal year 2023 compared to fiscal year 2022.\n \nThe overall increase was primarily\n \nattributable to an increase of \n$124.3 million\n in compensation expenses for employees (which includes an increase of \n$57.6 million\n in stock-based compensation). In addition, we recorded restructuring charges of \n$20.7 million\n in fiscal year 2023, which were comprised of \n$11.3 million\n of severance and other termination benefits, and \n$9.4 million\n of impairment charges for leases and leasehold improvements.\nOther income (expense), net\n\u00a0\nFiscal Year Ended June 30,\n\u00a0\n\u00a0\n(in thousands, except percentage data)\n2023\n2022\n$ Change\n% Change\nOther income (expense), net\n$\n14,501\u00a0\n$\n(501,839)\n$\n516,340\u00a0\n**\nOther income (expense), net increased\n $516.3 million in \nfiscal year 2023 compared to fiscal year 2022.\n \nThe increase was primarily\n \nattributable to a decrease of $424.5 million in other expense from the mark to fair value of the the Notes and Capped Calls and charges related to the full settlements of Notes and Capped Calls during \nfiscal year \n2022, a decrease of $68.2 million in mark-to-market adjusted losses related to our publicly held equity securities, and an increase of \n$45.2 million from a\n non-cash sale of a controlling interest of a subsidiary \nrecorded during \nfiscal year 2023.\nInterest expense\n\u00a0\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2023\n2022\n$ Change\n% Change\nInterest expense\n$\n(30,147)\n$\n(41,466)\n$\n11,319\u00a0\n(27)\n%\nInterest expense decreased \n$11.3 million, or 27%,\n in fiscal year 2023 compared to fiscal year 2022. The overall decrease was primarily attributable to $26.6 million in lower amortization of debt discount and issuance cost due to settlements of the Notes, offset by an increase in interest expense of $15.3 million from our Term Loan Facility (as defined below) as a result of increased interest rates.\nProvision for income taxes\n\u00a0\nFiscal Year Ended June 30,\n\u00a0\n\u00a0\n(in thousands, except percentage data)\n2023\n2022\n$ Change\n% Change\nProvision for income taxes\n$\n(175,625)\n$\n(48,572)\n$\n(127,053)\n**\nEffective tax rate\n**\n**\n\u00a0\n\u00a0\n**\u00a0\u00a0\u00a0\u00a0Not meaningful\nWe reported an income tax provision of $175.6 million on pretax loss of $311.1 million for fiscal year 2023, as compared to an income tax provision of $48.6 million on pretax loss of $470.9 million for fiscal year 2022. The income tax provision for fiscal year 2023 reflects an increase in tax provision primarily attributable to the recognition of a reserve for uncertain tax positions and overall growth in foreign jurisdictions associated with an increase in profit and non-deductible stock-based compensation. \nSince fiscal year 2020, we have been in unilateral advanced pricing agreement (\u201cAPA\u201d) negotiations with the ATO relating to our transfer pricing arrangements between Australia and the U.S. During fiscal year \n2023\n, we discussed with the ATO, for the first time, a framework to finalize our transfer pricing arrangements for the proposed APA period (tax years ended June 30, 2019 to June 30, 2025). \n57\nGiven the stage of discussions with the ATO during \nfiscal year 2023\n, we recorded a reserve for uncertain tax positions of $110.7 million based upon applying the recognition and measurement thresholds of Accounting Standards Codification Topic 740 \nIncome Taxes\n (\u201cASC 740\u201d). Although our recorded tax reserves are the best estimate of our liabilities, differences may occur in the future, depending on final resolution of the APA negotiations. The negotiations are expected to be finalized within the next 12 months.\nOur effective tax rate substantially differed from the U.S. statutory income tax rate of 21.0% primarily attributable to the recognition of a reserve for uncertain tax positions, different tax rates in foreign jurisdictions such as Australia, non-deductible stock-based compensation in certain foreign jurisdictions, and full valuation allowances in the U.S. and Australia. See Note\u00a019, \u201cIncome Tax,\u201d to the notes to our consolidated financial statements for additional information.\nWe regularly assess the need for a valuation allowance against our deferred tax assets. Our assessment is based on all positive and negative evidence related to the realizability of such deferred tax assets. Based on available objective evidence as of June\u00a030, 2023, we will continue to maintain a full valuation allowance on our U.S. federal, U.S. state, and Australian deferred tax assets as it is more likely than not that these deferred tax assets will not be realized. We intend to maintain the full valuation allowance until sufficient positive evidence exists to support the reversal of, or decrease in, the valuation allowance. \nOur future effective annual tax rate may be materially impacted by the expense or benefit from tax amounts associated with our foreign earnings that are taxed at rates different from the federal statutory rate, changes in valuation allowances, level of profit before tax, accounting for uncertain tax positions, business combinations, and changes in our valuation allowances to the extent sufficient positive evidence becomes available, closure of statute of limitations or settlement of tax audits, and changes in tax laws, including impacts of the TCJA. The TCJA, enacted on December 22, 2017, eliminates the option to deduct research and development expenditures, instead requiring taxpayers to capitalize and amortize such expenditures over five or fifteen years beginning in fiscal year 2023. If not deferred, modified or repealed, this provision may materially increase future cash taxes.\nA significant amount of our earnings is generated by our Australian subsidiaries. Our future effective tax rates may be adversely affected to the extent earnings are lower than anticipated in countries where we have lower statutory tax rates. See Note\u00a019, \u201c\nIncome Tax\n,\u201d to the notes to our consolidated financial statements for additional information. Changes in our global operations could result in changes to our effective tax rates, future cash flows, and overall profitability of our operations.\nFiscal Years Ended June 30, 2022 and 2021 \nRevenues\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2022\n2021\n$ Change\n% Change\nSubscription\n$\n2,096,706\u00a0\n$\n1,324,064\u00a0\n$\n772,642\u00a0\n58\u00a0\n%\nMaintenance\n495,077\u00a0\n522,971\u00a0\n(27,894)\n(5)\nOther\n211,099\u00a0\n242,097\u00a0\n(30,998)\n(13)\nTotal revenues\n$\n2,802,882\u00a0\n$\n2,089,132\u00a0\n$\n713,750\u00a0\n34\u00a0\nTotal revenues increased $713.8 million, or 34%, in fiscal year 2022 compared to fiscal year 2021. Growth in total revenues was primarily attributable to increased demand for our products from both new and existing customers and accelerated short-term demand for on-premises products as a result of customers purchasing ahead of both the discontinuation of new perpetual license sales and price changes for on-premises products during the third quarter of fiscal year 2022. Of total revenues recognized in fiscal year 2022, over 90% was attributable to sales to customer accounts existing on or before June\u00a030, 2021. Our number of total customers increased to 242,623 at June\u00a030, 2022 from 204,754 at June\u00a030, 2021.\nSubscription revenues increased $772.6 million, or 58%, in fiscal year 2022 compared to fiscal year 2021. The increase in subscription revenues was primarily attributable to additional subscriptions from our existing customer base and accelerated short-term demand for data center products as a result of customers purchasing ahead of price changes during the third quarter of fiscal year 2022.\nMaintenance revenues decreased $27.9 million, or 5%, in fiscal year 2022 compared to fiscal year 2021. We no longer offer upgrades to perpetual licenses beginning February 2022, and we plan to end maintenance and support for these products in February 2024.\n58\nOther revenues decreased $31.0 million, or 13%, in fiscal year 2022 compared to fiscal year 2021. The decrease in other revenues was primarily attributable to a decrease of $54.9 million in perpetual license revenues as we discontinued selling new perpetual licenses for our products beginning February 2021, offset by an increase of $20.2 million in revenue from sales of third-party apps through our Atlassian Marketplace.\nTotal revenues by deployment options were as follows:\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2022\n2021\n$ Change\n% Change\nCloud\n$\n1,515,424\u00a0\n$\n967,832\u00a0\n$\n547,592\u00a0\n57\u00a0\n%\nData Center\n560,319\u00a0\n336,273\u00a0\n224,046\u00a0\n67\u00a0\nServer\n525,028\u00a0\n607,778\u00a0\n(82,750)\n(14)\nMarketplace and services\n202,111\u00a0\n177,249\u00a0\n24,862\u00a0\n14\u00a0\nTotal revenues\n$\n2,802,882\u00a0\n$\n2,089,132\u00a0\n$\n713,750\u00a0\n34\u00a0\nTotal revenues by geography were as follows:\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2022\n2021\n$ Change\n% Change\nAmericas\n$\n1,408,868\u00a0\n$\n1,028,481\u00a0\n$\n380,387\u00a0\n37\u00a0\n%\nEMEA\n1,077,338\u00a0\n826,445\u00a0\n250,893\u00a0\n30\u00a0\nAsia Pacific\n316,676\u00a0\n234,206\u00a0\n82,470\u00a0\n35\u00a0\nTotal revenues\n$\n2,802,882\u00a0\n$\n2,089,132\u00a0\n$\n713,750\u00a0\n34\u00a0\nCost of Revenues\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2022\n2021\n$ Change\n% Change\nCost of revenues\n$\n452,914\n$\n331,850\n$\n121,064\u00a0\n36\u00a0\n%\nGross margin\n84\u00a0\n%\n84\u00a0\n%\nCost of revenues increased $121.1 million, or 36%, in fiscal year 2022 compared to fiscal year 2021. The overall increase was primarily attributable to an increase of $66.8 million in compensation expense for employees (which includes an increase of $11.5 million in share-based payment expense), an increase of $35.0 million in hosting fees paid to third-party providers and an increase of $12.2 million in merchant fees.\nOperating Expenses\nResearch and development\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2022\n2021\n$ Change\n% Change\nResearch and development\n$\n1,291,877\u00a0\n$\n932,994\u00a0\n$\n358,883\u00a0\n38\u00a0\n%\nResearch and development expenses increased $358.9 million, or 38%, in fiscal year 2022 compared to fiscal year 2021. \nThe overall increase was primarily a result of an increase of $326.6 million in compensation expenses for employees (which includes an increase of $108.7 million in share-based payment expenses). \nMarketing and sales\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2022\n2021\n$ Change\n% Change\nMarketing and sales\n$\n535,815\u00a0\n$\n371,644\u00a0\n$\n164,171\u00a0\n44\u00a0\n%\nMarketing and sales expenses increa\nsed $164.2 million, or 44%, for fiscal year 2022, compared to \nfiscal year 2021\n. \nMarketing and sales expenses increased primarily due to an increase of $107.8 million in compensation expenses for employees \n(which includes an increase of $31.5 million in share-based payment expenses)\n, an \n59\nincrease of  \n$19.3 million\n in online product advertisement expenses, an increase of \n$8.6 million\n in marketing events expenses, and \nan increase of $7.4 million \nin professional services. \nGeneral and administrative\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2022\n2021\n$ Change\n% Change\nGeneral and administrative\n$\n452,193\u00a0\n$\n311,238\u00a0\n$\n140,955\u00a0\n45\u00a0\n%\nGeneral and administrative expenses increas\ned $141.0 million, or 45%, in fiscal year 2022 compared to \nfiscal year 2021\n. \nThe increase was primarily attributable to $108.2 million in compensation expenses for employees (which includes an increase of $32.4 million in share-based payment expenses) and an increase of \n$18.6 million\n in professional services.\nOther expense, net\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2022\n2021\n$ Change\n% Change\nOther expense, net\n$\n(501,839)\n$\n(570,393)\n$\n68,554\u00a0\n(12)\n%\nOther expense, net decreased\n $68.6 million in fiscal year 2022, compared to \nfiscal year 2021\n. \nThe decrease was primarily due to a decrease of $294.1 million from the mark to fair value of the Exchange and Capped Call Derivatives. This was offset by an increase of $102.2 million of charges related to the full settlement of the Notes, and mark to fair value related to our marketable equity securities of $113.9 million during fiscal year 2022.\nInterest expense\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2022\n2021\n$ Change\n% Change\nInterest expense\n$\n(41,466)\n$\n(92,586)\n$\n51,120\u00a0\n(55)\n%\nInterest expense decreased $51.1 million in \nfiscal year 2022\n compared to fiscal year 2021\n.\n The decrease was primarily due to a decrease of $59.5 million in amortization of debt discount and issuance cost due to full settlements of the Notes during \nfiscal year 2022, \noffset by the interest expense of $11.6 million from our Term Loan Facility.\nProvision for income taxes\nFiscal Year Ended June 30,\n(in thousands, except percentage data)\n2022\n2021\n$ Change\n% Change\nProvision for income taxes\n$\n(48,572)\n$\n(64,564)\n$\n15,992\u00a0\n**\nEffective tax rate\n**\n**\n**\u00a0\u00a0\u00a0\u00a0Not meaningful\nWe reported an \nincome tax provision\n of $48.6 million on pretax loss of $470.9 million for fiscal year 2022, as co\nmpared to an income tax provision of $64.6 million on pretax loss of 514.4 million for fiscal year 2021. Our effective tax rate substantially differed from the U.S. statutory income tax rate of 21.0% primarily due to different tax rates in foreign jurisdictions such as Australia, and the recognition of significant permanent differences during fiscal years 2022 and 2021. Significant permanent differences included non-deductible charges related to the Notes, nondeductible stock-based compensation and research and development incentives. Our assessment of the recoverability of Australian and U.S. deferred tax assets will not change until there is sufficient evidence to support their realizability. Our assessment of the realizability of our Australian and U.S. deferred tax assets is based on all available positive and negative evidence. Such evidence includes, but is not limited to, recent cumulative earnings or losses, expectations of future taxable income by taxing jurisdiction, and the carry-forward periods available for the utilization of deferred tax assets.\nSee Note\u00a019, \u201c\nIncome Tax\n,\u201d to the notes to our consolidated financial statements for additional information. Changes in our global operations or local tax laws could result in changes to our effective tax rates, future cash flows and overall profitability of our operations.\nLiquidity and Capital Resources\n60\nAs of June\u00a030, 2023, we had cash and cash equivalents totaling $2.1 billion, short-term investments totaling $10.0 million and trade receivables totaling $477.7 million. Since our inception, we have primarily financed our operations through cash flows generated by operations \nand corporate debt.\nOur cash flows from operating activities, investing activities, and financing activities for fiscal years 2023, 2022 and 2021 were as follows:\n\u00a0\nFiscal Year Ended June 30,\n\u00a0(in thousands)\n2023\n2022\n2021\nNet cash provided by operating activities\n$\n868,111\u00a0\n$\n821,044\u00a0\n$\n789,960\u00a0\nNet cash provided by (used in) investing activities\n(1,258)\n36,516\u00a0\n259,262\u00a0\nNet cash used in financing activities\n(148,421)\n(399,280)\n(1,603,433)\nEffect of foreign exchange rate changes on cash, cash equivalents and restricted cash\n(1,805)\n(9,233)\n5,408\u00a0\nNet increase (decrease) in cash, cash equivalents, and restricted cash\n$\n716,627\u00a0\n$\n449,047\u00a0\n$\n(548,803)\nCash provided by operating activities has historically been affected by the amount of net loss adjusted for non-cash expense items such as expense associated with stock-based awards, impairment charges for leases and leasehold improvements, depreciation and amortization, gain on non-cash sale of controlling interest of a subsidiary and non-coupon impact related to the Notes and Capped Calls, the timing of employee-related costs such as bonus payments, collections from our customers, which is our largest source of operating cash flows, income tax payment and changes in other working capital accounts.\nAccounts impacting working capital consist of accounts receivables, prepaid expenses and other current assets, accounts payables, current provisions, and current deferred revenue. Our working capital may be impacted by various factors in future periods, such as billings to customers for subscriptions, licenses and maintenance services and the subsequent collection of those billings or the amount and timing of certain expenditures.\nNet cash provided by operating activities increased by $47.1 million for fiscal year 2023, compared to fiscal year 2022. The net increase was primarily\n \nattributable to an increase in cash received from customers, offset by an increase in cash paid to suppliers and employees and cash used to pay income taxes.\nNet cash provided by investing activities decreased by $37.8 million for fiscal year 2023, compared to fiscal year 2022. The net decrease was primarily attributable to a decrease of $185.6 million from proceeds from sales of marketable securities and strategic investments, offset by a decrease of $92.2 million from purchases of strategic investments, a decrease of $44.9 million from purchases of property and equipment, and a decrease of $13.6 million from business combinations, net of cash acquired.\nNet cash \nused\n in financing activities decreased by \n$250.9 million\n f\nor fiscal year 2023, compared to fiscal year 2022. The n\net cash \nused\n in financing activities was primarily \nattributable to\n \nrepurchases of Class A Common Stock of $150.0 million during fiscal year 2023. The n\net cash \nused\n in financing activities during \nfiscal year 2022 was\n \nprimarily attributable to the full settlement of the Notes for an aggregate consideration of $1.5 billion, offset by the proceeds from the Term Loan Facility of $1.0 billion and settlement of the Capped Call of $135.5 million.\nMaterial Cash Requirements\nDebt\nIn October 2020, Atlassian US, Inc. entered into a credit agreement establishing a $1\u00a0billion senior unsecured delayed-draw term loan facility (the \u201cTerm Loan Facility\u201d) and a $500\u00a0million senior unsecured revolving credit facility (the \u201cRevolving Credit Facility,\u201d and together with the Term Loan Facility, the \u201cCredit Facility\u201d). We have fully drawn the Term Loan Facility, and we have full access to the $500 million under the Revolving Credit Facility. The Credit Facility matures in October 2025 and as of July, 1 2023 and onward bears interest, at our option, at a base rate plus a margin up to 0.50% or Secured Overnight Financing Rate plus a credit spread adjustment of 0.10% plus a spread of 0.875% to 1.50%, in each case with such margin being determined by our consolidated leverage ratio. The Revolving Credit Facility may be borrowed, repaid, and re-borrowed until its maturity, and we have the option to request an increase of $250 million in certain circumstances. The Credit Facility may be repaid at our discretion without penalty. Commencing on October 31, 2023, we are obligated to repay the outstanding principal amount of the Term Loan in installments on a quarterly basis in an amount equal to 1.25% of the Term Loan Facility borrowing amount until the maturity of the Credit Facility. \n61\nShare Repurchase Program\nIn January 2023, the Board of Directors authorized a program to repurchase up to $1.0 billion of our outstanding Class A Common Stock (the \u201cShare Repurchase Program\u201d). The Share Repurchase Program does not have a fixed expiration date, may be suspended or discontinued at any time, and does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. During fiscal year 2023, we repurchased approximately 1.0 million shares of our Class A Common Stock for approximately $154.2 million at an average price per share of $157.49. All repurchases were made in open market transactions. As of June\u00a030, 2023, we were authorized to purchase the remaining $845.8 million of our Class A Common Stock under the Share Repurchase Program. Refer to Note 18, \u201c\nStockholder\u2019s Equity\n,\u201d to our consolidated financial statements for additional information.\nContractual Obligations\nOur principal commitments consist of contractual commitments for cloud services platform and other infrastructure services, and obligations under leases for office space including obligations for leases that have not yet commenced. Refer to Note 11, \u201c\nLeases\n,\u201d Note 12, \u201c\nDebt\n,\u201d Note 13, \u201c\nCommitments and Contingencies,\u201d and \nNote 18, \u201c\nStockholder\u2019s Equity\n,\u201d to our consolidated financial statements for additional information.\nOther Future Obligations\nWe believe that our existing cash and cash equivalents, together with cash generated from operations, and borrowing capacity from the Credit Facility will be sufficient to meet our anticipated cash needs for at least the next 12\u00a0months. Our other future cash requirements will depend on many factors including our growth rate, the timing and extent of spend on research and development efforts, employee headcount, marketing and sales activities, payments to tax authorities, acquisitions of additional businesses and technologies, the introduction of new software and services offerings, enhancements to our existing software and services offerings and the continued market acceptance of our products.\nAs of June\u00a030, 2023, the Company is not party to any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.\nNon-GAAP Financial Measures\nIn addition to the measures presented in our consolidated financial statements, we regularly review other measures that are not presented in accordance with GAAP, defined as non-GAAP financial measures by the SEC, to evaluate our business, measure our performance, identify trends, prepare financial forecasts and make strategic decisions. The key measures we consider are non-GAAP gross profit, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per diluted share and free cash flow (collectively, the \u201cNon-GAAP Financial Measures\u201d). These Non-GAAP Financial Measures, which may be different from similarly titled non-GAAP measures used by other companies, provide supplemental information regarding our operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or that occur relatively infrequently and/or that management considers to be unrelated to our core operations. Management believes that tracking and presenting these Non-GAAP Financial Measures provides management, our board of directors, investors and the analyst community with the ability to better evaluate matters such as: our ongoing core operations, including comparisons between periods and against other companies in our industry; our ability to generate cash to service our debt and fund our operations; and the underlying business trends that are affecting our performance.\nOur Non-GAAP Financial Measures include: \n\u2022\nNon-GAAP gross profit\n. Excludes expenses related to stock-based compensation, amortization of acquired intangible assets and restructuring charges.\n\u2022\nNon-GAAP operating income and non-GAAP operating margin\n. Excludes expenses related to stock-based compensation, amortization of acquired intangible assets, and restructuring charges.\n\u2022\nNon-GAAP net income and non-GAAP net income per diluted share\n. Excludes expenses related to stock-based compensation, amortization of acquired intangible assets, restructuring charges, non-coupon impact related to the Notes and Capped Calls, gain on a non-cash sale of a controlling interest of a subsidiary and the related income tax effects on these items, and a non-recurring income tax adjustment.\n\u2022\nFree cash flow\n. Free cash flow is defined as net cash provided by operating activities less capital expenditures, which consists of purchases of property and equipment. \n62\nWe understand that although these Non-GAAP Financial Measures are frequently used by investors and the analyst community in their evaluation of our financial performance, these measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. We compensate for such limitations by reconciling these Non-GAAP Financial Measures to the most comparable GAAP financial measures.\nThe following table presents a reconciliation of our Non-GAAP Financial Measures to the most comparable GAAP financial measure for fiscal years 2023, 2022 and 2021 (in thousands, except percentage and per share data):\nFiscal Year Ended June 30,\n2023\n2022\n2021\nGross profit\nGAAP gross profit\n$\n2,900,882\u00a0\n$\n2,349,968\u00a0\n$\n1,757,282\u00a0\nPlus: Stock-based compensation\n63,625\u00a0\n31,358\u00a0\n19,879\u00a0\nPlus: Amortization of acquired intangible assets\n22,853\u00a0\n22,694\u00a0\n22,394\u00a0\nPlus: Restructuring charges (1)\n9,192\u00a0\n\u2014\u00a0\n\u2014\u00a0\nNon-GAAP gross profit\n$\n2,996,552\u00a0\n$\n2,404,020\u00a0\n$\n1,799,555\u00a0\nOperating income\nGAAP operating income (loss)\n$\n(345,222)\n$\n70,083\u00a0\n$\n141,406\u00a0\nPlus: Stock-based compensation\n937,812\u00a0\n524,803\u00a0\n340,817\u00a0\nPlus: Amortization of acquired intangible assets\n33,127\u00a0\n32,398\u00a0\n31,754\u00a0\nPlus: Restructuring charges (1)\n96,894\u00a0\n\u2014\u00a0\n\u2014\u00a0\nNon-GAAP operating income\n$\n722,611\u00a0\n$\n627,284\u00a0\n$\n513,977\u00a0\nOperating margin\nGAAP operating margin\n(10)%\n3%\n7%\nPlus: Stock-based compensation\n26%\n18%\n16%\nPlus: Amortization of acquired intangible assets\n1%\n1%\n2%\nPlus: Restructuring charges (1)\n3%\n\u2014%\n\u2014%\nNon-GAAP operating margin\n20%\n22%\n25%\nNet income\nGAAP net loss\n$\n(486,761)\n$\n(519,510)\n$\n(578,979)\nPlus: Stock-based compensation\n937,812\u00a0\n524,803\u00a0\n340,817\u00a0\nPlus: Amortization of acquired intangible assets\n33,127\u00a0\n32,398\u00a0\n31,754\u00a0\nPlus: Restructuring charges (1)\n96,894\u00a0\n\u2014\u00a0\n\u2014\u00a0\nPlus: Non-coupon impact related to exchangeable senior notes and capped calls\n\u2014\u00a0\n450,829\u00a0\n700,847\u00a0\nLess: Gain on a non-cash sale of a controlling interest of a subsidiary\n(45,158)\n\u2014\u00a0\n\u2014\u00a0\nLess: Income tax adjustments\n(43,659)\n(105,064)\n(95,021)\nNon-GAAP net income\n$\n492,255\u00a0\n$\n383,456\u00a0\n$\n399,418\u00a0\nNet income per share\nGAAP net loss per share - diluted\n$\n(1.90)\n$\n(2.05)\n$\n(2.32)\nPlus: Stock-based compensation\n3.66\u00a0\n2.05\u00a0\n1.35\u00a0\nPlus: Amortization of acquired intangible assets\n0.13\u00a0\n0.13\u00a0\n0.13\u00a0\nPlus: Restructuring charges (1)\n0.38\u00a0\n\u2014\u00a0\n\u2014\u00a0\nPlus: Non-coupon impact related to exchangeable senior notes and capped calls\n\u2014\u00a0\n1.78\u00a0\n2.80\u00a0\nLess: Gain on a non-cash sale of a controlling interest of a subsidiary\n(0.18)\n\u2014\u00a0\n\u2014\u00a0\nLess: Income tax adjustments\n(0.17)\n(0.41)\n(0.38)\n63\nNon-GAAP net income per share - diluted\n$\n1.92\u00a0\n$\n1.50\u00a0\n$\n1.58\u00a0\nWeighted-average diluted shares outstanding\nWeighted-average shares used in computing diluted GAAP net loss per share\n256,307\u00a0\n253,312\u00a0\n249,679\u00a0\nPlus: Dilution from dilutive securities (2)\n554\u00a0\n2,345\u00a0\n3,673\u00a0\nWeighted-average shares used in computing diluted non-GAAP net income per share\n256,861\u00a0\n255,657\u00a0\n253,352\u00a0\nFree cash flow\nGAAP net cash provided by operating activities\n$\n868,111\u00a0\n$\n821,044\u00a0\n$\n789,960\u00a0\nLess: Capital expenditures\n(25,652)\n(70,583)\n(31,520)\nFree cash flow\n$\n842,459\u00a0\n$\n750,461\u00a0\n$\n758,440\u00a0\n(1) Restructuring charges include stock-based compensation expense related to the rebalancing of resources for fiscal year 2023.\n(2) The effects of these dilutive securities were not included in the GAAP calculation of diluted net loss per share for fiscal years 2023, 2022 and 2021 because the effect would have been anti-dilutive.",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK\nForeign Currency Exchange Risk\nWe operate globally and are exposed to foreign exchange risk arising from exposure to various currencies in the ordinary course of business. Our exposures primarily consist of the Australian dollar, Indian rupee, Euro, British pound, Japanese yen, Philippine peso, Canadian dollar, Polish zloty and New Zealand dollar. Foreign exchange risk arises from commercial transactions and recognized financial assets and liabilities denominated in a currency other than the U.S. dollar. Our financial risk management policy is reviewed annually by our Audit Committee and requires us to monitor our foreign exchange exposure on a regular basis.\nThe substantial majority of our sales contracts are denominated in U.S. dollars, and our operating expenses are generally denominated in the local currencies of the countries where our operations are located. We therefore benefit from a strengthening of the U.S. dollar and are adversely affected by the weakening of the U.S. dollar. \nWe have a cash flow hedging program in place and enter into derivative transactions to manage certain foreign currency exchange risks that arise in our ordinary business operations. We recognize all derivative instruments as either assets or liabilities on our consolidated statements of financial position and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting.\nWe enter into master netting agreements with select financial institutions to reduce our credit risk, and we trade with several counterparties to reduce our concentration risk with any single counterparty. We do not have significant exposure to counterparty credit risk at this time. We do not require nor are we required to post collateral of any kind related to our foreign currency derivatives.\nForeign currency exchange rate exposure\nWe hedge material foreign currency denominated monetary assets and liabilities using balance sheet hedges. The fluctuations in the fair market value of balance sheet hedges due to foreign currency rates generally offset those of the hedged items, resulting in no material effect on profit. Consequently, we are primarily exposed to significant foreign currency exchange rate fluctuations with regard to the spot component of derivatives held within a designated cash flow hedge relationship affecting other comprehensive income.\nForeign currency sensitivity\nA sensitivity analysis performed on our hedging portfolio as of June\u00a030, 2023 and 2022\n \nindicated that a hypothetical 10% strengthening or weakening of the U.S. dollar against the Australian dollar applicable to our business would decrease or increase the fair value of our foreign currency contracts by \n$52.2 million and $38.2 million, respectively.\n64\nInterest Rate Risk\nWe are exposed to interest rate risk arising from our variable interest rate Credit Facility. Our financial risk management policy is reviewed annually by our Audit Committee and requires us to monitor its interest rate exposure on a regular basis.\nWe have a hedging program in place and enter into derivative transactions to manage the variable interest rate risks related to our Term Loan Facility. We enter into master netting agreements with financial institutions to execute our hedging program. Our master netting agreements are with select financial institutions to reduce our credit risk, and we trade with several counterparties to reduce our concentration risk with any single counterparty. We do not have significant exposure to counterparty credit risk at this time. We do not require nor are we required to post collateral of any kind related to our interest rate derivatives.\nWe enter into interest rate swaps with the objective to hedge \nthe variability of cash flows in the interest payments associated with our variable-rate Term Loan Facility\n. The interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The interest rate swaps are designated as cash flow hedges and measured at fair value.\nA sensitivity analysis performed on interest rate swaps as of June\u00a030, 2023 and 2022 indicated that a hypothetical 100 basis point increase in interest rates would increase the market value of our interest rate swap by \n$12.2 million and $17.6 million, respectively, and\n a hypothetical 100 basis point decrease in interest rates would decrease the market value of our interest rate swap by \n$12.7 million and $18.8 million, respectively\n. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur.\nIn addition, our cash equivalents and investment portfolio are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely impacted due to a rise in interest rates. As of June\u00a030, 2023, we had cash and cash equivalents totaling \n$2.1 billion\n and short-term investments totaling $10.0 million. A sensitivity analysis performed on our portfolio as of June\u00a030, 2023 and 2022 indicated that a hypothetical 100 basis point increase or decrease in interest rates did not have a material impact to market value of our investments. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur.\nEquity Price Risk\nWe are also exposed to equity price risk in connection with our equity investments. Our publicly traded equity securities investments are susceptible to market price risk from uncertainties about future values of the investment securities. As of June\u00a030, 2023 and 2022, our publicly traded equity securities investments were fair valued at \n$19.4 million\n and\n $30.8 million\n, \nrespectively. A hypothetical 10% increase or decrease in the respective share prices of our \npublicly traded equity securities\n investments a\ns of June\u00a030, 2023 and 2022\n would increase or decrease the fair value by $1.9 million and $3.1 million, respectively.\n65",
+  "cik": "1650372",
+  "cusip6": "G06242",
+  "cusip": ["G06242954", "G06242904", "g06242104", "G06242104"],
+  "names": ["ATLASSIAN CORP PLC", "ATLASSIAN CORPORATION PLC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1650372/000165037223000040/0001650372-23-000040-index.htm"
+}
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+{
+  "item1": ">Item 1. Business - Introduction for information on the average price of antimony for the last five years.\n\u00a0\nAn extended decline in metals prices, an increase in operating or capital costs, mine accidents or closures, increasing regulatory obligations, or our inability to convert resources or exploration targets to reserves may cause us to record write-downs, which could negatively impact our results of operations.\n\u00a0\nWhen events or changes in circumstances indicate the carrying value of our long-lived assets may not be recoverable, we review the recoverability of the carrying value by estimating the future undiscounted cash flows expected to result from the use and eventual disposition of the asset. Impairment must be recognized when the carrying value of the asset exceeds these cash flows. Recognizing impairment write-downs could negatively impact our results of operations. Metals price estimates are a key component used in the evaluation of the carrying values of our assets, as the evaluation involves comparing carrying values to the average estimated undiscounted cash flows resulting from operating plans using various metals price scenarios. Our estimates of undiscounted cash flows for our long-lived assets also include an estimate of the market value of the resources and exploration targets beyond the current operating plans.\n\u00a0\nWe determined no impairments were required for 2022. If the prices of antimony or zeolite decline for an extended period of time, if we fail to control production or capital costs, if regulatory issues increase costs or decrease production, or if we do not realize the mineable ore reserves, resources or exploration targets at our mining properties, we may be required to recognize asset write-downs in the future. In addition, the perceived market value of the resources and exploration targets of our properties is dependent upon prevailing metals prices as well as our ability to discover economic ore. A decline in metals prices for an extended period of time or our inability to convert resources or exploration targets to reserves could significantly reduce our estimates of the value of the resources or exploration targets at our properties and result in asset write-downs.\n\u00a0\nOur profitability could be affected by the prices of other commodities.\n\u00a0\nOur profitability is sensitive to the costs of commodities such as fuel, steel, and cement. While the recent prices for such commodities have been stable or in decline, prices have been historically volatile, and material increases in commodity costs could have a significant effect on our results of operations.\n\u00a0\nWe are subject to the risk of fluctuations in the relative values of the U.S. Dollar and Mexican Peso.\n\u00a0\nWe may be adversely affected by foreign currency fluctuations. Certain of our assets are located in Mexico.\u00a0 Our expenses relative to our Mexican assets, and in certain cases those assets themselves, may be denominated in Mexican Pesos. Fluctuations in the exchange rates between the U.S. Dollar and the Mexican Peso may therefore have a material adverse effect on the Company\u2019s financial results.\u00a0 Mexico has experienced periods of significant inflation.\u00a0 If Mexico experiences substantial inflation in the future, the Company\u2019s costs in peso terms will increase significantly, subject to movements in applicable exchange rates. \n\u00a0\n\u00a0\nPage 13 of 91\nTable of Contents\n\u00a0\nOur liabilities for environmental reclamation may exceed the amounts accrued on our financial statements.\n\u00a0\nOur research, development, manufacturing and production processes involve the controlled use of hazardous materials, and we are subject to various environmental and occupational safety laws and regulations governing the use, manufacture, storage, handling, and disposal of hazardous materials and some waste products. The risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result and any liability could exceed our financial resources. We also have one ongoing environmental reclamation and remediation project at our current production facility in Montana. Adequate financial resources may not be available to ultimately finish the reclamation activities if changes in environmental laws and regulations occur, and these changes could adversely affect our cash flow and profitability. We expect to have environmental reclamation obligations, and may be liable for environmental contamination, on our other current and former mining properties and processing facilities.\u00a0 We do not have environmental liability insurance now, and we do not expect to be able to obtain insurance at a reasonable cost. If we incur liability for environmental damages while we are uninsured, it could have a harmful effect on our financial condition and results of operations. The range of reasonably possible losses from our exposure to environmental liabilities in excess of amounts accrued to date cannot be reasonably estimated at this time.\n\u00a0\nOur accounting and other estimates may be imprecise.\n\u00a0\nPreparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts and related disclosure of assets, liabilities, revenue and expenses at the date of the consolidated financial statements and reporting periods. The more significant areas requiring the use of management assumptions and estimates relate to:\n\u00a0\n\u00a0\n\u00b7\nmineral reserves, resources, and exploration targets that are the basis for future income and cash flow estimates and units-of-production depreciation, depletion and amortization calculations;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nenvironmental, reclamation and closure obligations;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\npermitting and other regulatory considerations;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nasset impairments;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nvaluation of business combinations;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nfuture foreign exchange rates, inflation rates and applicable tax rates;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nreserves for contingencies and litigation; and\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\ndeferred tax asset and liability valuation allowance.\n\u00a0\nFuture estimates and actual results may differ materially from these estimates as a result of using different assumptions or conditions. For additional information, see \nCritical Accounting Estimates \nin\n Item 7. Management\n\u2019\ns Discussion and Analysis of Financial Condition and Results of Operations\n,\n Note 2\n of \nNotes to Consolidated Financial Statements.\n\u201d\n\u00a0\nRisks Related to Our Operations and the Mining Industry\n\u00a0\nMining is an inherently speculative business. The properties on which we have the right to mine for precious minerals are not known to have any proven and probable mineral reserves and we have proceeded to extract minerals without having completed the technical work required to declare a mineral reserve. \u00a0If we are unable to extract antimony, zeolite or other minerals which can be mined at a profit, our business could fail.\n\u00a0\n\u00a0\nPage 14 of 91\nTable of Contents\n\u00a0\nNatural resource mining, and precious metal mining, in particular, is a business that by its nature is speculative. \u00a0We have not completed an S-K 1300 technical report summary, nor have we declared proven and probable mineral reserves on any of our properties.\u00a0 Where applicable, we have commenced extraction activities prior to identifying a mineral reserve. There is a strong possibility that we will not discover antimony, zeolite, or any other minerals which can be mined or extracted at a profit. Even if we do discover and mine precious metal deposits, the deposits may not be of the quality or size necessary for us or a potential purchaser of the property to make a profit from mining it. Few properties that are explored are ultimately developed into producing mines, and mines that are developed may not be profitable. Unusual or unexpected geological formations, geological formation pressures, fires, power outages, labor disruptions, flooding, explosions, cave-ins, landslides and the inability to obtain suitable or adequate machinery, equipment or labor are just some of the many risks involved in mineral exploration programs and the subsequent development of gold deposits. If we are unable to extract antimony, zeolite or other minerals which can be mined at a profit, our business could fail.\n\u00a0\nNatural disasters, public health crises (including COVID-19), political crises, and other catastrophic events or other events outside of our control may materially and adversely affect our business or financial results.\n\u00a0\nIf any of our facilities or the facilities of our suppliers, third-party service providers, or customers is affected by natural disasters, such as earthquakes, floods, fires, power shortages or outages, public health crises (such as pandemics and epidemics), political crises (such as terrorism, war, political instability or other conflict), or other events outside of our control, our operations or financial results could suffer. Any of these events could materially and adversely impact us in a number of ways, including through decreased production, increased costs, decreased demand for our products due to reduced economic activity or other factors, or the failure by counterparties to perform under contracts or similar arrangements.\n\u00a0\nOur business could be materially and adversely affected by the risks, or the public perception of the risks, related to a pandemic or other health crisis, such as the recent outbreak of novel coronavirus (COVID-19). A significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect our planned operations. Such events could result in the complete or partial closure of our operations. In addition, it could impact economies and financial markets, resulting in an economic downturn that could impact our ability to raise capital.\u00a0\u00a0 The pandemic that has been going on for the past two years has specifically affected our ability to obtain supplies and services to maintain our business. This ongoing health crisis has reduced the ability of the regulating agencies to process our permits on a timely basis which could delay\u00a0our ability to operate at maximum efficiency. Our ability to obtain and retain qualified employees has also been adversely affected by this global health crisis.\n\u00a0\nWe continue to monitor the rapidly evolving situation and guidance from federal, state, local and foreign governments and public health authorities and may take additional actions based on their recommendations. The extent of the impact of COVID-19 and any subsequent variants on our business and financial results will also depend on future developments, including the duration and spread of the outbreak within the markets in which we operate and the related impact on prices, demand, creditworthiness and other market conditions and governmental reactions, all of which are highly uncertain.\n\u00a0\nMining accidents or other adverse events at an operation could decrease our anticipated production or otherwise adversely affect our operations.\n\u00a0\nProduction may be reduced below our historical or estimated levels for many reasons, including, but not limited to, mining accidents; unfavorable ground or shaft conditions; work stoppages or slow-downs; lower than expected ore grades; unexpected regulatory actions; if the metallurgical characteristics of ore are less economic than anticipated; or because our equipment or facilities fail to operate properly or as expected. Our operations are subject to risks relating to ground instability, including, but not limited to, pit wall failure, crown pillar collapse, seismic events, backfill and stope failure or the breach or failure of a tailings impoundment. The occurrence of an event such as those described above could result in loss of life or temporary or permanent cessation of operations, any of which could have a material adverse effect on our financial condition and results of operations. Other closures or impacts on operations or production may occur at any of our mines at any time, whether related to accidents, changes in conditions, changes to regulatory policy, or as precautionary measures.\n\u00a0\nIn addition, our operations are typically in remote locations, where conditions can be inhospitable, including with respect to weather, surface conditions, interactions with wildlife or otherwise in or near dangerous conditions. In the past we have had employees, contractors, or employees of contractors get injured, sometimes fatally, while working in such challenging locations. An accident or injury to a person at or near one of our operations could have a material adverse effect on our financial condition and results of operations.\n\u00a0\n\u00a0\nPage 15 of 91\nTable of Contents\n\u00a0\nWe may not be able to maintain the infrastructure necessary to conduct mining activities.\n\u00a0\nOur mining activities depend upon adequate infrastructure. Reliable roads, bridges, power sources and water supply are important factors which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect our mining activities and financial condition.\n\u00a0\nOur mining activities may be adversely affected by the local climate.\n\u00a0\nThe local climate sometimes affects our mining activities on our properties. Earthquakes, heavy rains, snowstorms, and floods could result in serious damage to or the destruction of facilities, equipment or means of access to our property, or could occasionally prevent us temporarily from conducting mining activities on our property. [Because of their rural location and the lack of developed infrastructure in the area, our mineral properties in Montana and Idaho are occasionally impassable during the winter season.] During this time, it may be difficult for us to access our property, maintain production rates, make repairs, or otherwise conduct mining activities on them.\n\u00a0\nCertain of our mining properties and smelter operations are located in Mexico and may be subject to geo-political risk. \n\u00a0\nCertain of our mining properties and smelter operations are located in Mexico.\u00a0 Any political or social disruptions unique to Mexico would have a material impact on our operations, financial performance and stability. Additionally, our properties and projects are subject to the laws of Mexico, and we may be negatively impacted by the existing laws and regulations of that country, as they apply to mineral exploration, land ownership, royalty interests and taxation, and by any potential changes of such laws and regulations.\n\u00a0\nAny changes in regulations or shifts in political conditions are beyond our control or influence and may adversely affect our business, or if significant enough, may result in the impairment or loss of mineral concessions or other mineral rights, or may make it impossible to continue its mineral exploration and mining activities in such areas.\n\u00a0\nOur operations are subject to hazards and risks normally associated with the exploration and development of mineral properties.\n\u00a0\nOur operations are subject to hazards and risks normally associated with the exploration and development of mineral properties, any of which could cause delays in the progress of our exploration and development plans, damage or destruction of property, loss of life and/or environmental damage. Some of these risks include, but are not limited to, unexpected or unusual geological formations, rock bursts, cave-ins, flooding, fires, earthquakes; unanticipated changes in metallurgical characteristics and mineral recovery; unanticipated ground or water conditions; changes in the regulatory environment; industrial or labor disputes; hazardous weather conditions; cost overruns; land claims; and other unforeseen events. A combination of experience, knowledge and careful evaluation may not be able to overcome these risks. \n\u00a0\nThe nature of these risks is such that liabilities may exceed any insurance policy coverages; the liabilities and hazards might not be insurable or the Company might not elect to insure itself against such liabilities due to excess premium costs or other factors. Such liabilities may have a material adverse effect on our financial condition and operations and could reduce or eliminate any future profitability and result in increased costs and a decline in the value of our securities.\n\u00a0\n\u00a0\nPage 16 of 91\nTable of Contents\n\u00a0\nOur non-extractive properties may not be brought into a state of commercial production.\u00a0 \n\u00a0\nDevelopment of mineral properties involves a high degree of risk and few properties that are explored are ultimately developed into producing mines. The commercial viability of a mineral deposit is dependent upon a number of factors which are beyond our control, including the attributes of the deposit, commodity prices, government policies and regulation and environmental protection. Fluctuations in the market prices of minerals may render reserves and deposits containing relatively lower grades of mineralization uneconomic. The development of our non-extractive properties will require obtaining land use consents, permits and the construction and operation of mines, processing plants and related infrastructure. We are subject to all of the risks associated with establishing new mining operations, including:\n\u00a0\n\u00a0\n\u00b7\nthe timing and cost, which can be considerable, of the construction of mining and processing facilities and related infrastructure;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nthe availability and cost of skilled labor and mining equipment;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nthe availability and cost of appropriate smelting and/or refining arrangements;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nthe need to obtain and maintain necessary environmental and other governmental approvals and permits, and the timing of those approvals and permits;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nin the event that the required permits are not obtained in a timely manner, mine construction and ramp-up will be delayed and the risks of government environmental authorities issuing directives or commencing enforcement proceedings to cease operations or administrative, civil and criminal sanctions being imposed on our company, directors and employees;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\ndelays in obtaining, or a failure to obtain, access to surface rights required for current or future operations;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nthe availability of funds to finance construction and development activities;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\npotential opposition from non-governmental organizations, environmental groups or local community groups which may delay or prevent development activities; and\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\npotential increases in construction and operating costs due to changes in the cost of fuel, power, materials and supplies and foreign exchange rates.\n\u00a0 \nIt is common in new mining operations to experience unexpected costs, problems and delays during development, construction and mine ramp-up. Accordingly, there are no assurances that our non-extractive properties will be brought into a state of commercial production.\n\u00a0\nActual capital costs, operating costs, production and economic returns may differ significantly from those we have anticipated and there are no assurances that any future development activities will result in profitable mining operations.\n\u00a0\nThe capital costs to take projects into commercial production may be significantly higher than anticipated.\u00a0 Capital costs, operating costs, production and economic returns and other estimates may prove to differ significantly from those used by us to decide to commence extraction, and there can be no assurance that our actual capital and operating costs will not be higher than currently anticipated. As a result of higher capital and operating costs, production and economic returns may differ significantly from those we have anticipated.\n\u00a0\nWe may face equipment shortages, access restrictions and lack of infrastructure.\n\u00a0\nNatural resource exploration, development and mining activities are dependent on the availability of mining, drilling and related equipment in the particular areas where such activities are conducted. A limited supply of such equipment or access restrictions may affect the availability of such equipment to us and may delay exploration, development or extraction activities.\u00a0 Certain equipment may not be immediately available or may require long lead time orders. A delay in obtaining necessary equipment for mineral exploration, including drill rigs, could have a material adverse effect on our operations and financial results.\n\u00a0\n\u00a0\nPage 17 of 91\nTable of Contents\n\u00a0\nMining, processing, development and exploration activities also depend, to one degree or another, on the availability of adequate infrastructure. Reliable roads, bridges, power sources, fuel and water supply and the availability of skilled labor and other infrastructure are important determinants that affect capital and operating costs. The establishment and maintenance of infrastructure, and services are subject to a number of risks, including risks related to the availability of equipment and materials, inflation, cost overruns and delays, political or community opposition and reliance upon third parties, many of which are outside our control. The lack of availability on acceptable terms or the delay in the availability of any one or more of these items could prevent or delay development or ongoing operation of our projects. \n\u00a0\nExploration of mineral properties is less intrusive, and generally requires fewer surface and access rights, than properties developed for mining. No assurances can be provided that we will be able to secure required surface rights on favorable terms, or at all. Any failure by us to secure surface rights could prevent or delay development of our projects.\n\u00a0\nInsurance may not be available to us.\n\u00a0\nMineral exploration is subject to risks of human injury, environmental and legal liability and loss of assets. We may elect not to have insurance for certain risks because of the high premiums associated with insuring those risks or, in some cases, insurance may not be available for certain risks. Occurrence of events for which we are not insured could have a material adverse effect on our financial position or results of operations.\n\u00a0\nOur business depends on availability of skilled personnel and good relations with employees.\n\u00a0\nWe are dependent upon the ability and experience of our executive officers, managers, employees, contractors and their employees, and other personnel, and we cannot assure you that we will be able to attract or retain such employees or contractors. We may at times have insufficient executive or operational personnel, or personnel whose skills require improvement.\u00a0 We compete with other companies both in and outside the mining industry in recruiting and retaining qualified employees and contractors knowledgeable about the mining business. From time to time, we have encountered, and may in the future encounter, difficulty recruiting skilled mining personnel at acceptable wage and benefit levels in a competitive labor market, and may be required to utilize contractors, which can be more costly. Temporary or extended lay-offs due to mine closures may exacerbate such issues and result in vacancies or the need to hire less skilled or efficient employees or contractors. The loss of skilled employees or contractors or our inability to attract and retain additional highly skilled employees and contractors could have an adverse effect on our business and future operations.\n\u00a0\nA significant disruption to our information technology could adversely affect our business, operating result and financial position.\n\u00a0\nWe rely on a variety of information technology and automated systems to manage and support our operations. For example, we depend on our information technology systems for financial reporting, data base management, operational and investment management and internal communications. These systems contain our proprietary business information and personally identifiable information of our employees. The proper functioning of these systems and the security of this data is critical to the efficient operation and management of our business. In addition, these systems could require upgrades as a result of technological changes or growth in our business. These changes could be costly and disruptive to our operations and could impose substantial demands on management time. Our systems and those of third-party providers, could be vulnerable to damage or disruption caused by catastrophic events, power outages, natural disasters, computer system or network failures, viruses, ransomware or malware, physical or electronic break-ins, unauthorized access, or cyber-attacks. Any security breach could compromise our networks, and the information contained there-in could be improperly accessed, disclosed, lost or stolen. Because techniques used to sabotage, obtain unauthorized access to systems or prohibit authorized access to systems change frequently and generally are not detected until successfully launched against a target, we may not be able to anticipate these attacks nor prevent them from harming our business or network. Any unauthorized activities could disrupt our operations, damage our reputation, be costly to fix or result in legal claims or proceedings, any of which could adversely affect our business, reputation or operating results.\n\u00a0\n\u00a0\nPage 18 of 91\nTable of Contents\n\u00a0\nCompetition from other mining companies may harm our business.\n\u00a0\nWe compete with other mining companies, some of which have greater financial resources than we do or other advantages, in various areas which include:\n\u00a0\n\u00a0\n\u00b7\nattracting and retaining key executives, skilled labor, and other employees;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nfor the services of other skilled personnel and contractors and their specialized equipment, components and supplies, such as drill rigs, necessary for exploration and development;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nfor contractors that perform mining and other activities and milling facilities which we lease or toll mill through; and\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nfor rights to mine properties.\n\u00a0\nRisks Relating to Our Organization and Common Stock\n\u00a0\nOur Articles of Incorporation allow for our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.\n\u00a0\nOur board of directors (the \u201cBoard\u201d) has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board also has the authority to issue preferred stock without further stockholder approval. As a result, our Board could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our Board could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.\n\u00a0\nIf we lose John Gustavsen, our Chief Executive Officer, or any of our other key personnel, we may encounter difficulty replacing their expertise, which could impair our ability to implement our business plan successfully.\n\u00a0\nWe believe that our ability to implement our business strategy and our future success depends on the continued employment of our management team, in particular our President, Russell Lawrence, and our Chief Executive Officer, John Gustavsen. Our management team, who have extensive experience in the mining industry, may be difficult to replace. The loss of the technical knowledge and mining industry expertise of these key employees could make it difficult for us to execute our business plan effectively and could cause a diversion of resources while we seek replacements.\n\u00a0\nIn addition, our operations require employees, consultants, advisors and contractors with a high degree of specialized technical, management and professional skills, such as engineers, trades people, geologists and equipment operators. We compete both locally and internationally for such professionals. We may be unsuccessful in attracting and maintaining key employees. If we are unable to acquire the talents we seek, we could experience higher operating costs, poorer results and an overall lack of success in implementing our business plans. \n\u00a0\n\u00a0\nPage 19 of 91\nTable of Contents\n\u00a0\nThe price of our common stock has a history of volatility and could decline in the future.\n\u00a0\nShares of our common stock are listed on NYSE American. The market price for our common stock has been volatile, often based on:\n\u00a0\n\u00a0\n\u00b7\nchanges in metals prices, particularly antimony;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nour results of operations and financial condition as reflected in our public news releases or periodic filings with the SEC;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nfactors unrelated to our financial performance or future prospects, such as global economic developments, market perceptions of the attractiveness of particular industries, or the reliability of metals markets;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\npolitical and regulatory risk;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nthe success of our exploration, pre-development, and capital programs;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nability to meet production estimates;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nenvironmental, safety and legal risk;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nthe extent and nature of analytical coverage concerning our business;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nthe trading volume and general market interest in our securities; and\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\ndelayed financial filings with the Securities Exchange Commission.\n\u00a0\nThe market price of our stock at any given point in time may not accurately reflect our value, and may prevent stockholders from realizing a profit on, or recovering, their investment.\n\u00a0\nIf we were liquidated, our common stockholders could lose part, or all, of their investment\n.\n\u00a0\nIn the event of our dissolution, the proceeds, if any, realized from the liquidation of our assets will be distributed to our stockholders only after the satisfaction of the claims of our creditors and preferred stockholders. The ability of a purchaser of shares to recover all, or any portion, of the purchase price for the shares, in that event, will depend on the amount of funds realized and the claims to be satisfied by those funds.\n\u00a0\nOur Series B preferred stock has a liquidation preference of $1.00 per share or $750,000.\n\u00a0\nIf we were liquidated, holders of our preferred stock would be entitled to receive approximately $750,000 (plus any accrued and unpaid dividends) from any liquidation proceeds before holders of our common stock would be entitled to receive any proceeds.\n\u00a0\nOur Series C preferred stock has a liquidation preference of $0.55 per share or $97,847.\n\u00a0\nIf we were liquidated, holders of our preferred stock would be entitled to receive approximately $97,847 (plus any accrued and unpaid dividends) from any liquidation proceeds before holders of our common stock would be entitled to receive any proceeds, but after holders of all notes issued under the indenture governing our Senior Notes received any proceeds.\n\u00a0\nOur Series D preferred stock has a liquidation preference of $2.50 per share or $4,231,680.\n\u00a0\nIf we were liquidated, holders of our preferred stock would be entitled to receive approximately $5,019,410 (plus any accrued and unpaid dividends) from any liquidation proceeds before holders of our common stock would be entitled to receive any proceeds, but after holders of all notes issued under the indenture governing our Senior Notes received any proceeds.\n\u00a0\nWe do not expect to pay dividends to our stockholders in the foreseeable future.\n\u00a0\nWe have no plans to pay dividends in the foreseeable future. Our directors will determine if and when dividends should be declared and paid in the future based on our financial position at the relevant time.\n\u00a0\n\u00a0\nPage 20 of 91\nTable of Contents\n\u00a0\nThe issuance of additional equity securities in the future could adversely affect holders of common stock.\n\u00a0\nThe market price of our common stock may be influenced by any preferred or common stock or options, warrants, convertible debt or other rights to acquire any preferred or common stock we may issue. Our Board is authorized to issue additional classes or series of preferred stock without any action on the part of our stockholders. This includes the power to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights and preferences over common stock with respect to dividends or upon the liquidation, dissolution or winding up of the business and other terms. If we issue preferred stock in the future that has preference over our common stock with respect to the payment of dividends or upon liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of the common stock or the market price of the common stock could be adversely affected.\u00a0 Our Board is also authorized to issue additional shares of common stock and rights to acquire common stock.\n\u00a0\nWe cannot predict the number of additional equity securities that will be issued or the effect, if any, that future issuances and sales of the securities will have on the market price of the common stock. Any transaction involving the issuance of previously authorized but unissued equity securities would result in dilution, possibly substantial, to stockholders. Based on the need for additional capital to fund expected expenditures and growth, it is likely that we will issue securities to provide such capital. Such additional issuances may involve the issuance of a significant number of equity securities at prices less than the current market price. Sales of substantial amounts of securities, or the availability of the securities for sale, could adversely affect the prevailing market prices for the securities and dilute investors\u2019 earnings per share. A decline in the market prices of the securities could impair our ability to raise additional capital through the sale of additional securities should we desire to do so.\n\u00a0\nThe provisions in our certificate of incorporation, our by-laws and Montana law could delay or deter tender offers or takeover attempts.\n\u00a0\nCertain provisions in our restated certificate of incorporation, our by-laws and Montana law could make it more difficult for a third party to acquire control of us, even if that transaction could be beneficial to stockholders. These impediments include:\n\u00a0\n\u00a0\n\u00b7\nthe classification of our Board into three classes serving staggered three-year terms, which makes it more difficult to quickly replace board members;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nthe ability of our Board to issue shares of preferred stock with rights as it deems appropriate without stockholder approval;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\na provision that special meetings of our board of directors may be called only by our chief executive officer or a majority of our Board;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\na provision that special meetings of stockholders may only be called pursuant to a resolution approved by a majority of our Board;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\na prohibition against action by written consent of our stockholders;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\na provision that our directors may only be removed for cause and by an affirmative vote of at least 80% of the outstanding voting stock;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\na provision that our stockholders comply with advance-notice provisions to bring director nominations or other matters before meetings of our stockholders;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\na prohibition against certain business combinations with an acquirer of 15% or more of our common stock for three years after such acquisition unless the stock acquisition or the business combination is approved by our Board prior to the acquisition of the 15% interest, or after such acquisition our Board and the holders of two-thirds of the other common stock approve the business combination; and\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\na prohibition against our entering into certain business combinations with interested stockholders without the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of voting stock.\n\u00a0\nIn addition, amendment of most of the provisions described above requires approval of at least 80% of the outstanding voting stock.\n\u00a0\n\u00a0\nPage 21 of 91\nTable of Contents\n\u00a0\nLegal, Regulatory and Compliance Risks\n\u00a0\nAs a public company, we are obligated to develop and maintain proper and effective disclosure controls and procedures and internal control over financial reporting, and if we fail to develop and maintain an effective system of disclosure controls and procedures and internal control over financial reporting, our ability to produce timely and accurate financial statements and other required disclosures and to comply with applicable laws and regulations could be impaired.\u00a0\n\u00a0\nAs a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the \u201cExchange Act\u201d), the Sarbanes-Oxley Act of 2002 (the \u201cSarbanes-Oxley Act\u201d), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of NYSE American, and other applicable securities rules and regulations. Compliance with these rules and regulations may be difficult, time-consuming, or costly, and compliance may increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting and that we refrain from making any loans to our executive officers and directors.\n\u00a0\nAlthough we have attempted to comply with applicable regulations, we have identified several compliance problems that we are seeking to remedy. For example, in 2022, we loaned $6,500 to a former executive officer in violation of the Sarbanes-Oxley Act.\u00a0 Our management has concluded that as at December 31, 2022, neither our disclosure controls and procedures nor our internal control over financial reporting was effective. See Item 9A. In early 2023, we determined that a former employee, who had previously held significant financial responsibilities within our company, misappropriated approximately $21,510 of our funds in 2020 through 2023 for personal benefit.\u00a0\u00a0 A full investigation ensued and the former employee was approached. The former employee executed a promissory note in favor of our company in the amount of $21,310 in June 2023, and has recently begun making payments due under the obligation. The note bears interest at twelve percent (12%) per annum with monthly payments of $500. To date the former employee has re-paid $700. \u00a0We failed to file our Form 10-K annual report for fiscal 2022 and Form 10-Q report for the quarter ended March 31, 2023 on a timely basis.\n\u00a0\nIt may require significant resources and management oversight to effectively comply with our regulatory obligations and to avoid future violations. In addition, significant resources and management oversight may also be required to maintain and, if necessary, improve our disclosure controls and procedures and internal control over financial reporting. As a result of our efforts to comply with the above rules and regulations, management\u2019s attention may be diverted from other business concerns, which could adversely affect our business and operating results. To comply with these requirements, we may need to hire more employees in the future or engage outside consultants, which would increase our costs and expenses. We may be unable to comply despite such efforts. Any failure to comply with applicable regulations could adversely affect our ability make accurate and timely financial and other disclosures to investors, attract and maintain key personnel and investors, and use our funds for intended purposes. It may also subject us to the risk of litigation or regulatory enforcement actions against us.\n\u00a0\nWe have identified material weaknesses in our internal control over financial reporting and deficiencies in our disclosure controls and procedures, that, if not properly remediated, could adversely affect our business and results of operations.\u00a0\n\u00a0\nA material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As described in \u201cItem 9A. Controls and Procedures,\u201d we have concluded that our internal control over financial reporting was ineffective\u00a0as of December 31, 2022 due to material weaknesses in our internal control over financial reporting. The identified material weaknesses related to lack of segregation of duties \n\u00a0\n\u00a0\nPage 22 of 91\nTable of Contents\n\u00a0\nWe have also concluded that our disclosure controls and procedures were ineffective as of December 31, 2022, in part due to the material weaknesses in our internal control over financial reporting, and in part due to limited accounting and finance personnel, lack of segregation of duties, \n\u00a0\nAs further described in \u201cItem 9A. Controls and Procedures,\u201d we intend to take the necessary steps to remediate these material weaknesses and deficiencies. However, we were unable to resolve these matters during our 2022 fiscal year and cannot assure you that we will be successful in implementing effective internal control over financial reporting and disclosure controls and procedures during 2023 or that, once implemented, such controls will remain effective.\n\u00a0\nImplementing any further changes to our internal and disclosure controls may distract our officers and employees and entail material costs to implement new processes and/or modify our existing processes. Moreover, these changes do not guarantee that we will be effective in maintaining the adequacy of our internal and disclosure controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements and other required disclosures on a timely basis, could harm our business. In addition, investors\u2019 perceptions that our internal and disclosure controls are inadequate or that we are unable to produce accurate financial statements and other disclosures on a timely basis may harm the price of our common stock.\n\u00a0\nWe may be unable to comply with NYSE American continued listing standards and our common stock may be delisted from the NYSE American market, which would likely cause the liquidity and market price of the common stock to decline.\n\u00a0\nOur common stock is currently listed on the NYSE American. We are subject to the continued listing criteria of the NYSE American and such exchange will consider suspending dealings in, or delisting, securities of an issuer that does not meet its continued listing standards. We may not be able to satisfy these requirements. In the past, NYSE American has notified us of certain alleged violations by our company of the NYSE American continued listing requirements. In addition, subsequent to our most recent fiscal year end, we determined that one of the members of our Board\u2019s Audit Committee, Joseph Bardswich, did not satisfy the SEC and NYSE American independence requirements applicable to an Audit Committee member, because he was concurrently receiving compensation for serving as our geologic and investor relations consultant. We believe that we have regained compliance with the Audit Committee independence requirements by replacing Mr. Bardswich with Dr. Aguirre on the Audit Committee\n.\n However, we cannot assure you that our past deficiencies will not affect the continued listing of our common stock on the NYSE American. \n\u00a0\nIn order to maintain our NYSE American listing, we must maintain certain objective standards, such as corporate governance requirements, share prices, shareholders\u2019 equity, market capitalization and, share distribution targets.\u00a0 In addition to objective standards, the NYSE American may delist the securities of any issuer, among other reasons, if the issuer sells or disposes of principal operating assets, ceases to be an operating company or has discontinued a substantial portion of its operations or business for any reason or the NYSE American otherwise determines that the securities are unsuitable for continued trading. We may not be able to satisfy these standards and remain listed on the NYSE American.\n\u00a0\nA delisting of our common stock could also adversely affect our reputation, ability to raise funds through the sale of equity or securities convertible into equity and the terms of any such fundraising, the liquidity and market price our common stock and the ability of broker-dealers to purchase the common stock.\n\u00a0\nWe face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law.\n\u00a0\nOur business is subject to extensive U.S. and foreign federal, state, and local laws and regulations governing environmental protection, natural resources, prospecting, development, production, post-closure reclamation, taxes, labor standards and occupational health and safety laws and regulations, including mine safety, toxic substances and other matters. The costs associated with compliance with such laws and regulations are substantial. Possible future laws and regulations, or more restrictive interpretations of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of operations and delays in the development of new properties.\n\u00a0\n\u00a0\nPage 23 of 91\nTable of Contents\n\u00a0\nU.S. surface and underground mines like those at our Preston Operations are inspected at least quarterly by MSHA, which inspections often lead to notices of violation under the Mine Safety and Health Act. Our facilities or mines at Preston Idaho could be subject to a temporary or extended shutdown as a result of a violation alleged by MSHA.\n\u00a0\nSome mining laws prevent mining companies that have been found to (i) have engaged in environmentally-harmful conduct or (ii) be responsible for environmentally-harmful conduct engaged in by affiliates or other third parties, including in other jurisdictions, from maintaining current or obtaining future permits until remediation or restitution has occurred. If we are found to be responsible for any such conduct, our ability to operate existing projects or develop new projects might be impaired until we satisfy costly conditions. \n\u00a0\nWe cannot assure you that we will at all times be in compliance with applicable laws, regulations and permitting requirements. Failure to comply with applicable laws, regulations and permitting requirements may result in lawsuits or regulatory actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, which may require corrective measures including capital expenditures, installation of additional equipment or remedial actions. Any one or more of these liabilities could have a material adverse impact on our financial condition.\n\u00a0\nIn addition to existing regulatory requirements, legislation and regulations may be adopted, regulatory procedures modified, or permit limits reduced at any time, any of which could result in additional exposure to liability, operating expense, capital expenditures or restrictions and delays in the mining, production or development of our properties. Mining accidents and fatalities or toxic waste releases, whether or not at our mines or related to metals mining, may increase the likelihood of additional regulation or changes in law or enhanced regulatory scrutiny. In addition, enforcement or regulatory tools and methods available to regulatory bodies such as MSHA or the U.S. Environmental Protection Agency (\u201cEPA\u201d), which have not been or have infrequently been used against us or the mining industry, in the future could be used against us or the industry in general.\n\u00a0\nFrom time to time, the U.S. Congress considers proposed amendments to the 1872 Mining Law, which governs mining claims and related activities on federal lands. The extent of any future changes is not known and the potential impact on us as a result of U.S. Congressional action is difficult to predict. Changes to the 1872 Mining Law, if adopted, could adversely affect our ability to economically develop mineral reserves on federal lands. For example, in 2021 the U.S. Congress debated imposing royalties on minerals extracted from federal lands. Although legislation was not passed as of the date of this report, it is possible that in the future royalties or taxes will be imposed on mining operations conducted on federal land, which could adversely impact our financial results.\n\u00a0\nOur operations are subject to complex, evolving and increasingly stringent environmental laws and regulations. Compliance with environmental regulations, and litigation based on such regulations, involves significant costs and can threaten existing operations or constrain expansion opportunities.\n\u00a0\nOur operations, both in the United States and internationally, are subject to extensive environmental laws and regulations governing wastewater discharges; remediation, restoration and reclamation of environmental contamination; the generation, storage, treatment, transportation and disposal of hazardous substances; solid waste disposal; air emissions; protection of endangered and protected species and designation of critical habitats; mine closures and reclamation; and other related matters. In addition, we must obtain regulatory permits and approvals to start, continue and expand operations. New or revised environmental regulatory requirements are frequently proposed, many of which result in substantially increased costs for our business. \n\u00a0\n\u00a0\nPage 24 of 91\nTable of Contents\n\u00a0\nOur U.S. operations are subject to the Clean Water Act, which requires permits for certain discharges into waters of the United States. Such permitting has been a frequent subject of litigation and enforcement activity by environmental advocacy groups and the EPA, respectively, which has resulted in declines in such permits or extensive delays in receiving them, as well as the imposition of penalties for permit violations. In 2015, the regulatory definition of \u201cwaters of the United States\u201d that are protected by the Clean Water Act was expanded by the EPA, thereby imposing significant additional restrictions on waterway discharges and land uses. However, in 2018, implementation of the relevant rule was suspended for two years, and in December 2019 a revised definition that narrows the 2015 version was implemented. In late 2021, the EPA and US Army Corps of Engineers proposed to revise the definition again, moving it back to its more inclusive, pre-2018 definition. If this rule change were to take effect or states take action to address a perceived fall-off in protection under the Clean Water Act, litigation involving water discharge permits could increase, which may result in delays in, or in some instances preclude, the commencement or continuation of development or production operations. Enforcement actions by the EPA or other federal or state agencies could also result. Adverse outcomes in lawsuits challenging permits or failure to comply with applicable regulations or permits could result in the suspension, denial, or revocation of required permits, or the imposition of penalties, any of which could have a material adverse impact on our cash flows, results of operations, or financial condition. See \nNote 12\n of \nNotes to Consolidated Financial Statements\n.\n\u00a0\nSome of the mining wastes from our U.S. mines currently are exempt to a limited extent from the extensive set of EPA regulations governing hazardous waste under the Resource Conservation and Recovery Act (\u201cRCRA\u201d). If the EPA were to repeal this exemption, and designate these mining wastes as hazardous under RCRA, we would be required to expend additional amounts on the handling of such wastes and to make significant expenditures to construct hazardous waste storage or disposal facilities. In addition, if any of these wastes or other substances we release or cause to be released into the environment cause or has caused contamination in or damage to the environment at a U.S. mining facility, that facility could be designated as a \u201cSuperfund\u201d site under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (\u201cCERCLA\u201d). Under CERCLA, any present owner or operator of a Superfund site or the owner or operator at the time of contamination may be held jointly and severally liable regardless of fault and may be forced to undertake extensive remedial cleanup action or to pay for the cleanup efforts. The owner or operator also may be liable to federal, state and tribal governmental entities for the cost of damages to natural resources, which could be substantial. Additional regulations or requirements also are imposed on our tailings and waste disposal areas in Alaska under the federal Clean Water Act. See \nNote 12\n of \nNotes to Consolidated Financial Statements\n.\n\u00a0\nLegislative and regulatory measures to address climate change and greenhouse gas emissions are in various phases of consideration. If adopted, such measures could increase our cost of environmental compliance and also delay or otherwise negatively affect efforts to obtain permits and other regulatory approvals with regard to existing and new facilities. Proposed measures could also result in increased cost of fuel and other consumables used at our operations. \n\u00a0\nAdoption of these or similar new environmental regulations or more stringent application of existing regulations may materially increase our costs, threaten certain operating activities and constrain our expansion opportunities.\n\u00a0\nSome of our facilities are located in or near environmentally sensitive areas such as salmon fisheries, endangered species habitats, wilderness areas, national monuments and national forests, and we may incur additional costs to mitigate potential environmental harm in such areas.\n\u00a0\nLaws in the U.S. such as CERCLA and similar state laws may expose us to joint and several liability or claims for contribution made by the government (state or federal) or private parties. Moreover, exposure to these liabilities arises not only from our existing but also from closed operations, operations sold to third parties, or operations in which we had a leasehold, joint venture, or other interest. Because liability under CERCLA is often alleged on a joint and several basis against any property owner or operator or arranger for the transport of hazardous waste, and because we have been in operation since 1969 1891, our exposure to environmental claims may be greater because of the bankruptcy or dissolution of other mining companies which may have engaged in more significant activities at a mining site than we but which are no longer available for governmental agencies or other claimants to make claims against or obtain judgments from. Similarly, there is also the potential for claims against us based on agreements entered into by certain affiliates and predecessor companies relating to the transfer of businesses or properties, which contained indemnification provisions relating to environmental matters. In each of the types of cases described in this paragraph, the government (federal or state) or private parties could seek to hold the Company liable for the actions of their subsidiaries or predecessors.\n\u00a0\n\u00a0\nPage 25 of 91\nTable of Contents\n\u00a0\nThe laws and regulations, changes in such laws and regulations, and lawsuits and enforcement actions described in this risk factor could lead to the imposition of substantial fines, remediation costs, penalties and other civil and criminal sanctions against us. Further, substantial costs and liabilities, including for restoring the environment after the closure of mines, are inherent in our operations. There is no assurance that any such law, regulation, enforcement or private claim, or reclamation activity, would not have a material adverse effect on our financial condition, results of operations or cash flows.\n\u00a0\nWe are required by U.S. federal and state laws and regulations and by laws and regulations in the foreign jurisdictions in which we operate to reclaim our mining properties. The specific requirements may change and vary among jurisdictions, but they are similar in that they aim to minimize long term effects of exploration and mining disturbance by requiring the control of possible deleterious effluents and re-establishment to some degree of pre-disturbance land forms and vegetation. In some cases, we are required to provide financial assurances as security for reclamation costs, which may exceed our estimates for such costs. Conversely, our reclamation costs may exceed the financial assurances in place and those assurances may ultimately be unavailable to us.\n\u00a0\nThe EPA and other state, provincial or federal agencies may also require financial assurance for investigation and remediation actions that are required under settlements of enforcement actions under CERCLA or equivalent state regulations. Currently there are no financial assurance requirements for active mining operations under CERCLA, and a lawsuit filed by several environmental organizations which sought to require the EPA to adopt financial assurance rules for mining companies with active mining operations was dismissed by a federal court. In the future, financial assurance rules under CERCLA, if adopted, could be financially material and adverse to us.\n\u00a0\nWe are required to obtain governmental permits and other approvals in order to conduct mining operations.\n\u00a0\nIn the ordinary course of business, mining companies are required to seek governmental permits and other approvals for continuation or expansion of existing operations or for the commencement of new operations. Obtaining the necessary governmental permits is a complex, time-consuming and costly process. The duration and success of our efforts to obtain permits are contingent upon many variables not within our control. Obtaining environmental permits, including the approval of reclamation plans, may increase costs and cause delays or halt the continuation of mining operations depending on the nature of the activity to be permitted and the interpretation of applicable requirements established by the permitting authority. Interested parties, including governmental agencies and non-governmental organizations or civic groups, may seek to prevent issuance of permits and intervene in the process or pursue extensive appeal rights. Past or ongoing violations of laws or regulations involving obtaining or complying with permits could provide a basis to revoke existing permits, deny the issuance of additional permits, or commence a regulatory enforcement action, each of which could have a material adverse impact on our operations or financial condition. In addition, evolving reclamation or environmental concerns may threaten our ability to renew existing permits or obtain new permits in connection with future development, expansions and operations. We cannot assure you that all necessary approvals and permits will be obtained and, if obtained, that the costs involved will not exceed those that we previously estimated. It is possible that the costs and delays associated with the compliance with evolving standards and regulations could become such that we would not proceed with a particular development or operation.\n\u00a0\nWe are often required to post surety bonds or cash collateral to secure our reclamation obligations and we may be unable to obtain the required surety bonds or may not have the resources to provide cash collateral, and the bonds or collateral may not fully cover the cost of reclamation and any such shortfall could have a material adverse impact on our financial condition. Further, when we use the services of a surety company to provide the required bond for reclamation, the surety companies often require us to post collateral with them, including letters of credit. In the event that we are unable to obtain necessary bonds or to post sufficient collateral, we may experience a material adverse effect on our operations or financial results. \n\u00a0\nNew federal and state laws, regulations and initiatives could impact our operations.\n\u00a0\nIn recent years there have been several proposed or implemented ballot initiatives that sought to directly or indirectly curtail or eliminate mining in certain states including Montana. While a water treatment initiative in Montana was defeated by voters in November 2018, in the future similar or other initiatives that could impact our operations may be on the ballot in these states or other jurisdictions (including local or international) in which we currently or may in the future operate. To the extent any such initiative was passed and became law, there could be a material adverse impact on our financial condition, results of operations or cash flows.\n\u00a0\n\u00a0\nPage 26 of 91\nTable of Contents\n\u00a0\nWe cannot guarantee title to all of our properties.\n\u00a0\nWe cannot guarantee title to all of its properties as the properties may be subject to prior mineral rights applications with priority, prior unregistered agreements or transfers or indigenous peoples' land claims, and title may be affected by undetected defects. Certain of the mineral rights held by us are held under applications for mineral rights or are subject to renewal applications and, until final approval of such applications is received, our rights to such mineral rights may not materialize and the exact boundaries of the Company's properties may be subject to adjustment. For our operations in Mexico, we hold mining claims, mineral concession titles and mining leases that are obtained and held in accordance with the laws of the country, which provide the Company the right to exploit and explore the properties. The validity of the claims, concessions and leases could be uncertain and may be contested. Although we have conducted title reviews of our property holdings, title review does not necessarily preclude third parties (including governments) from challenging our title. In accordance with mining industry practice, we do not generally obtain title opinions until we decide to develop a property. Therefore, while we have attempted to acquire satisfactory title to our undeveloped properties, some titles may be defective.\u00a0 We do not maintain title insurance on our properties.\n\u00a0\nThere is uncertainty as to the termination and renewal of our mining concessions.\n\u00a0\nUnder the laws of Mexico, mineral resources belong to the state and government. Therefore, concessions are required in both countries to explore or exploit mineral reserves. In Mexico, our mineral rights derive from concessions granted, on a discretionary basis, by the Ministry of Economy, pursuant to Mexican mining law and regulations thereunder.\n\u00a0\nMining concessions in Mexico may be terminated if the obligations of the concessioner are not satisfied. In Mexico, we are obligated, among other things, to explore or exploit the relevant concession, to pay any relevant fees, to comply with all environmental and safety standards, to provide information to the Ministry of Economy and to allow inspections by the Ministry of Economy. Any termination or unfavorable modification of the terms of one or more of our concessions, or failure to obtain renewals of such concessions subject to renewal or extensions, could have a material adverse effect on our financial condition and prospects.\n\u00a0\nMexican economic and political conditions, as well as drug-related violence, may have an adverse impact on our business.\n\u00a0\nThe Mexican economy is highly sensitive to economic developments in the United States, mainly because of its high level of exports to this market. Other risks in Mexico are increases in taxes on the mining sector and higher royalties, such as those enacted in 2013. As has occurred in other metal producing countries, the mining industry may be perceived as a source of additional fiscal revenue.\n\u00a0\nIn addition, public safety organizations in Mexico are under significant stress, as a result of drug-related violence. This situation creates potential risks, particularly for transportation of minerals and finished products, which may affect a small portion of our production. Drug-related violence has had a limited impact on our operations, as it has tended to concentrate outside of our areas of production. The potential risks to our operations might increase if the violence spreads to our areas of production.\n\u00a0\nBecause we have significant operations in Mexico, we cannot provide any assurance that political developments and economic conditions, including any changes to economic policies or the adoption of other reforms proposed by existing or future administrations in Mexico, or the advent of drug-related violence in the country, will have no material adverse effect on market conditions, the prices of our securities, our ability to obtain financing, our results of operations or our financial condition.\n\u00a0\nMexican inflation, restrictive exchange control policies and fluctuations in the peso exchange rate may adversely affect our financial condition and results of operations.\n\u00a0\nAlthough all of our Mexican operations\u2019 sales of metals are priced and invoiced in U.S. dollars, a substantial portion of its costs are denominated in pesos. Accordingly, when inflation in Mexico increases without a corresponding depreciation of the peso, the net income generated by our Mexican operations is adversely affected. Inflation in Mexico was 7.8% in 2022, 7.4% in 2021 and 3.2% in 2020. The value of the peso appreciated by 5.9% against the U.S. dollar in 2022 after depreciating by 3.2% and 5.9% in 2021 and 2020 respectively. The peso has been subject in the past to significant volatility, which may not have been proportionate to the inflation rate and may not be proportionate to the inflation rate in the future.\n\u00a0\nCurrently, the Mexican government does not restrict the ability of Mexican companies or individuals to convert pesos into dollars or other currencies. While we do not expect the Mexican government to impose any restrictions or exchange control policies in the future, it is an area we closely monitor. We cannot assure you the Mexican government will maintain its current policies with regard to the peso or that the peso\u2019s value will not fluctuate significantly in the future. The imposition of exchange control policies could impair our ability to obtain imported goods and to meet its U.S. dollar-denominated obligations and could have an adverse effect on our business and financial condition.\n\u00a0\n\u00a0\nPage 27 of 91\nTable of Contents\n\u00a0",
+  "item1a": ">Item 1A. Risk Factors\n.\n\u00a0\nThe following risks and uncertainties, together with the other information set forth in this report, should be carefully considered by those who invest in our securities. Any of the following material risk factors could adversely affect our business, financial condition or operating results and could decrease the value of our common or preferred stock or other outstanding securities. These are not all of the risks we face, and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur\n\u00a0\nFinancial Risks\n\u00a0\nWe have experienced losses in recent years and may continue to incur losses.\n\u00a0\nWe have experienced a loss from operations and a net loss in each of the fiscal years ended December 31, 2019, 2020, and 2021. We may continue to experience losses in the future. Many of the factors affecting our operating results are beyond our control, including, but not limited to, the volatility of metals prices; smelter terms; rock and soil conditions; seismic events; availability of hydroelectric power; diesel fuel prices; interest rates; foreign exchange rates; global or regional political or economic policies; inflation; availability and cost of labor; economic developments and crises; governmental regulations; continuity of orebodies; ore grades; recoveries; performance of equipment; price speculation by certain investors; and purchases and sales by central banks and other holders and producers of gold and silver in response to these factors. We cannot assure you that we will not experience net losses in the future. Continued losses may have an adverse effect on our cash balances, require us to curtail certain activities and investments, raise additional capital or sell assets.\n\u00a0\nDeferred or contingent payment obligations may create financial risk for our business\n\u00a0\nWe are conducting due diligence pursuant to a preliminary agreement to acquire assets located in Mexico known as the Wadley property. If the transaction proceeds on the terms set out in the preliminary agreement, we will be required to make an initial payment of $2 million followed by seven annual payments of $1 million (in each case, plus tax). We cannot assure you that such efforts would be successful. As a result, our business and financial condition could be harmed.\n\u00a0\nWe may seek \nor \nrequire additional financing, which may not be available on acceptable terms, if at all.\n\u00a0\nWe may seek to source additional financing by way of private or public offerings of equity or debt or the sale of project or property interests in order to have sufficient capital to engage in acquisitions, investments and for general working capital. We can give no assurance that financing will be available to it or, if it is available, that it will be offered on acceptable terms. If additional financing is raised by the issuance of our equity securities, control of our company may change, security holders will suffer additional dilution and the price of the common stock may decrease. If additional financing is raised through the issuance of indebtedness, we will require additional financing in order to repay such indebtedness. Failure to obtain such additional financing could result in the delay or indefinite postponement of further acquisitions, investments, exploration and development, curtailment of business activities or even a loss of property interests.\n\u00a0\nPage 12 of 91\nTable of Contents\n\u00a0\nMetal prices are volatile. A substantial or extended decline in metals prices would have a material adverse effect on us.\n\u00a0\nOur revenue is derived primarily from the sale of antimony and zeolite products, and to a lesser extent silver and gold products, and, as a result, our earnings are directly related to the prices of these metals and products. Antimony, zeolite, silver and gold prices fluctuate widely and are affected by numerous factors, including:\n\u00a0\n\u00a0\n\u00b7\nspeculative activities;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nrelative exchange rates of the U.S. dollar;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nglobal and regional demand and production;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\npolitical instability;\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\ninflation, recession or increased or reduced economic activity; and\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nother political, regulatory and economic conditions.\n\u00a0\nThese factors are largely beyond our control and are difficult to predict. If the market prices for these metals and products fall below our production, exploration or development costs for a sustained period of time, we will experience losses and may have to discontinue exploration, development or operations, or incur asset write-downs at one or more of our properties. See ",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis and Results of Operations\n\u00a0\nThe following discussion should be read in conjunction with our financial statements and related notes thereto as filed with this report.\n\u00a0\nSELECTED FINANCIAL DATA.\n\u00a0\nStatement of Operations Information:\n\u00a0\n\u00a0\n\u00a0\nFor the year ended\n\u00a0December 31, \n\u00a0\n\u00a0\n\u00a0\n2022\n\u00a0\n\u00a0\n2021\n\u00a0\nRevenues\n\u00a0\n$\n11,044,707\n\u00a0\n\u00a0\n$\n7,747,506\n\u00a0\nCosts of revenues\n\u00a0\n\u00a0\n9,048,517\n\u00a0\n\u00a0\n\u00a0\n6,908,901\n\u00a0\nGross profit\n\u00a0\n\u00a0\n1,996,190\n\u00a0\n\u00a0\n\u00a0\n838,605\n\u00a0\nTotal operating expenses\n\u00a0\n\u00a0\n1,647,985\n\u00a0\n\u00a0\n\u00a0\n1,498,862\n\u00a0\nIncome (loss) from operations\n\u00a0\n\u00a0\n348,205\n\u00a0\n\u00a0\n\u00a0\n(660,257\n)\nOther income (expense)\n\u00a0\n\u00a0\n96,529\n\u00a0\n\u00a0\n\u00a0\n599,788\n\u00a0\nIncome tax expense\n\u00a0\n\u00a0\n(16,073\n)\n\u00a0\n\u00a0\n-\n\u00a0\nNET INCOME (LOSS)\n\u00a0\n$\n428,661\n\u00a0\n\u00a0\n$\n(60,469\n)\nWeighted average shares of common stock (basic)\n\u00a0\n\u00a0\n106,287,359\n\u00a0\n\u00a0\n\u00a0\n102,835,574\n\u00a0\nWeighted average shares of common stock (diluted)\n\u00a0\n\u00a0\n106,287,359\n\u00a0\n\u00a0\n\u00a0\n102,835,574\n\u00a0\n\u00a0\nBalance Sheet Information:\n\u00a0\n\u00a0\n\u00a0\nDecember 31,\n2022\n\u00a0\n\u00a0\nDecember 31, \n2021\n\u00a0\nWorking capital\n\u00a0\n$\n19,397,489\n\u00a0\n\u00a0\n$\n21,498,138\n\u00a0\nTotal assets\n\u00a0\n\u00a0\n34,700,450\n\u00a0\n\u00a0\n\u00a0\n35,002,727\n\u00a0\nAccumulated deficit\n\u00a0\n\u00a0\n(33,070,332\n)\n\u00a0\n\u00a0\n(32,711,263\n)\nStockholders\u2019 equity\n\u00a0\n\u00a0\n31,869,255\n\u00a0\n\u00a0\n\u00a0\n32,368,803\n\u00a0\n\u00a0\nOverview\n\u00a0\nCompany-wide\n\u00a0\nFor the year ended December 31, 2022, the Company reported net income of $428,661 after depreciation and amortization of $909,220, compared to a net loss of $60,469 for 2021 after depreciation and amortization of $880,880. \n\u00a0\nDuring the year ending December 31, 2022, the most significant factors affecting our financial performance were as follows: \n\u00a0\n\u00a0\n\u00b7\nA significant increase in the amount of sales of antimony, up 53% from the prior year.\n\u00a0\n\u00b7\nA purchase option agreement for the Wadley mines signed in June 2022 along with an 8-month mining and due diligence period providing exclusive rights to extracted mineral. Until June 2022, the Wadley mine had halted USAC\u2019s ability to purchase ore. The purchase option agreement due diligence period has been extended to October 15, 2023.\n\u00a0\n\u00b7\nThe continued efforts in mechanical improvements associated with sales of zeolite from Bear River Zeolite.\n\u00a0\n\u00b7\nMitzi Hart\u2019s replacement of Marilyn Sink as Plant Manager at U.S. Antimony.\n\u00a0\n\u00b7\nThe hiring of Richard Lyon as Plant Supervisor at Bear River Zeolite along with the continued efforts in trucking coordination and sales management of Gretchen Lawrence\n\u00a0\n\u00b7\nIncreased trucking prices and decreasing trucking availability.\n\u00a0\n\u00b7\nDifficulties in sourcing labor in the US and Mexico due to the Covid pandemic and government incentives resulting in a significantly smaller labor pool.\n\u00a0\n\u00b7\nThe completion of payment and disposal for the removal of legacy slags at the smelters in Mexico and the United States.\n\u00a0\n\u00b7\nThe sale of finished antimony ingots directly to customers from our Madero Smelting facility.\n\u00a0\n\u00b7\nThe purchase of several large salt sheds for storage of ore at Bear River Zeolite in order to eliminate interruptions in production during winter and the wet seasons.\n\u00a0\n\u00b7\nThe purchase of several key pieces of rolling stock equipment at Bear River Zeolite including: A Cat 235 excavator, a Cat 12H road grader, a Cat 740 articulated haul truck, a Cat D8T dozer with dual rippers.\n\u00a0\n\u00b7\nThe purchase of a new modern 2.5-foot cone crusher to replace our older cone crusher at Bear River Zeolite.\n\u00a0\n\u00b7\nThe construction of a 100\u2019 by 50\u2019 warehouse at Bear River Zeolite.\n\u00a0\n\u00a0\nPage 46 of 91\nTable of Contents\n\u00a0\nOur plan for 2023 is as follows:\u00a0 \n\u00a0\n\u00a0\n\u00b7\nContinue processing the 2,000 tons of mined and shipped rock from the Los Juarez property at our Puerto Blanco flotation facility.\n\u00a0\n\u00b7\nContinue to process ores and concentrates at our Madero smelter facility.\n\u00a0\n\u00b7\nThe purchase of new forklifts and scales at Madero smelter facility.\n\u00a0\n\u00b7\nThe relining of several short rotary furnaces along with the repair of equipment at the Madero smelter facility\n\u00a0\n\u00b7\nThe installation of two new electric furnaces at the Montana facility for increase production of antimony trisulfide.\n\u00a0\n\u00b7\nAdditional mapping and additional geological studies at the Los Juarez property in order to ascertain more information about the mineralization indicated in our preliminary geophysical and geochemical work.\n\u00a0\n\u00b7\nThe continued effort to source additional antimony from Honduras, Nicaragua, and especially Guatemala as well as sources in the United States, Canada, Alaska, and Mexico.\n\u00a0\n\u00b7\nContinuation of the mining of the Soyatal claims for the production of antimony trisulfide given that preliminary testing of the concentrates resulted in acceptable grade and acceptably low contaminants to achieve military specification.\n\u00a0\n\u00b7\nContinuation of the supply of sized antimony metal to Ambri in accordance with our letter of intent of 2020 and continued communication regarding potential of further cooperation.\n\u00a0\n\u00b7\nContinuation of the processing of Soyatal ore to produce concentrates with the goal of testing antimony grade and contaminant content for the potential of an auxiliary source of antimony trisulfide while the Sierra Guadalupe property is started into production as the primary source. If the Soyatal concentrates pass testing, the decision to retain the Soyatal claims will be made.\n\u00a0 \nIn addition to the processing goals stated above, the Company intends to focus on and significantly increase its production, capacity, and sales of zeolite at its subsidiary Bear River Zeolite. The addition of two more winter-storage buildings (one located between the mine and the mill and the other located near the mine) is planned. Salt sheds for these ore storage locations are planned to eliminate the necessity of the use of tarps for keeping the zeolite dry during the winter and rainy seasons.\u00a0 The building near the mine also allows a location for the regular service maintenance of the mine equipment in winter and rainy months.\u00a0 The crushing rate is anticipated to increase 2-3 times with the addition of our new cone crusher and a host of improvements to the crushing equipment and parts downstream.\u00a0 This includes the updating of nearly all of our screens, along with likely the replacement of one of our hammermills with a crusher better suited for a more efficient production of our main product.\u00a0 These decisions will be aided by several sieve and aggregate flow studies.\u00a0 The Company plans to increase its efficiency and volume of crushed ore by means of the use of the new mining equipment purchased in 2022 along with improved blasting techniques and determination of the best balance between blasting and ripping. The enhancement of the dust collection and dust control also is planned and should enhance our ultra-fine production. \n\u00a0\nThe following are highlights of the significant changes during 2022:\u00a0\u00a0\u00a0\u00a0\n\u00a0\nAntimony\n\u00a0\n\u00a0\n\u00b7\nThe sale of antimony during 2022 was 1,394,036 pounds compared to 911,079 pounds in 2021, an increase of 53.0%.\n\u00a0\n\u00b7\nThe average sales price of antimony during 2022 was $5.47/lb. compared with $5.29/lb. in 2021, an increase of $0.18/lb. (a 3.5% increase). During the beginning of 2023, the Rotterdam price of antimony is approximately $5.15/lb. per pound.\n\u00a0\n\u00b7\nWe are producing and buying raw materials, which will allow us to ensure a steady flow of products for sale. Our smelter at Madero, Mexico, was processing primarily ores from the Wadley mines in 2022 under a clause that accompanies a purchase option agreement. Our smelter in Montana was producing material from both Mexico and our North American sources in 2022. Raw materials from our North American supplier were reduced in 2022 due to plant maintenance, an unexpected equipment failure, the effects of Covid, labor supply shortages, and shipping difficulties across the border due to political reasons.\n\u00a0\n\u00b7\nWe produced and sold three truckloads of ingots of antimony metal, each containing 20 metric tons, in the first half of 2022 that were shipped directly to customers in the United States from our Madero smelter. This will significantly reduce our production and shipping costs compared to finishing the ingots in Montana.\n\u00a0\n\u00b7\nWe are proceeding with further mapping and geological work to augment our initial geophysical, geochemical, and geological survey of the Los Juarez property to better understand its potential value.\n\u00a0 \n\u00a0\nPage 47 of 91\nTable of Contents\n\u00a0\nZeolite\n\u00a0\nDuring 2022, the Company sold 13,047 tons of zeolite compared to 11,747 tons in 2021, an increase of 1,300 tons (11.1%). Bear River Zeolite (\u201cBRZ\u201d) realized a gross profit of $339,907 (10.8% of zeolite sales) in 2022 compared to a gross profit of $340,806 (13.1% of sales) in 2021. Net income for the BRZ segment was $141,496 for the year ended December 31, 2022 compared to $193,674 for the year ended December 31, 2021.\u00a0 The increase in production but decrease in profit were attributable to outpacing of costs to increase in pricing.\u00a0 As an example, the price of packaging materials, diesel, labor, electricity, oil, etc. all increased substantially in 2022.\u00a0\u00a0 To address this, the Company plans to increase its price per ton of offered zeolite and concentrate its efforts more on bulk orders that minimize the focus of labor on packaging.\u00a0 Additionally, the Company plans to increase production volumes at Bear River Zeolite in 2023 to address growing customer demands. \n\u00a0\nCorporate-wide\n\u00a0\nDuring the year ending December 31, 2022, the following transactions had a material impact on the Company\u2019s financial performance:\n\u00a0\n\u00a0\n\u00b7\nThe signing of a purchase option agreement for the exclusive rights to all extracted mineral from the Wadley mines for an 8-month period allowing the Company to acquire antimony ore and ascertain grade and tonnages in advance of a decision to purchase affording the Company to accumulate more lots of antimony at its smelting facility in Madero than have ever been accumulated.\n\u00a0\n\u00b7\nThe hiring of Richard Lyon as Plant Supervisor at Bear River Zeolite providing far better and more consistent oversight of personnel and operations with guidance from management in conjunction with the use of funds to substantially update and improve plant infrastructure.\n\u00a0\n\u00b7\nThe sustained and favorable increased price of antimony.\n\u00a0\n\u00b7\nThe purchase of a new and modern cone crusher and a host of new equipment at Bear River Zeolite to improve production and performance.\n\u00a0\n\u00b7\nThe re-initiation of payments towards the acquisition of the Sierra Guadalupe property.\n\u00a0\n\u00b7\nThe appointment of 3 new members to the Company\u2019s Board of Directors, Tim Hasara, John C. Gustavsen, and Gary C. Evans.\n\u00a0 \n\u00a0\nPage 48 of 91\nTable of Contents\n\u00a0\n\u00a0\nResults of Operations\n\u00a0\nOperational and financial performance\n\u00a0\nAntimony \n\u00a0\nFinancial and operational metrics of antimony for the year ended December 31, 2022 and 2021 was as follows:\n\u00a0\n\u00a0\n\u00a0\nYear ended December 31, \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nAntimony - Combined USA and Mexico\n\u00a0\n2022\n\u00a0\n\u00a0\n2021\n\u00a0\n\u00a0\n$ Change\n\u00a0\n\u00a0\n% Change\n\u00a0\nTotal revenue -antimony\n\u00a0\n$\n7,532,922\n\u00a0\n\u00a0\n$\n4,815,524\n\u00a0\n\u00a0\n$\n2,717,398\n\u00a0\n\u00a0\n\u00a0\n56.4\n%\nRevenue - processing\n\u00a0\n\u00a0\n98,748\n\u00a0\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\n98,748\n\u00a0\n\u00a0\n\u00a0\nN/A\n\u00a0\nTotal revenue \u2013 antimony segment\n\u00a0\n$\n7,631,670\n\u00a0\n\u00a0\n$\n4,815,524\n\u00a0\n\u00a0\n\u00a0\n2,816,146\n\u00a0\n\u00a0\n\u00a0\n58.5\n%\nGross profit - antimony\n\u00a0\n$\n1,505,116\n\u00a0\n\u00a0\n$\n266,722\n\u00a0\n\u00a0\n\u00a0\n1,238,394\n\u00a0\n\u00a0\n\u00a0\n464.3\n%\nTotal lbs. of antimony metal sold\n\u00a0\n\u00a0\n1,394,036\n\u00a0\n\u00a0\n\u00a0\n911,079\n\u00a0\n\u00a0\n\u00a0\n482,957\n\u00a0\n\u00a0\n\u00a0\n53.0\n%\nAverage sales price/lb. metal\n\u00a0\n$\n5.47\n\u00a0\n\u00a0\n$\n5.29\n\u00a0\n\u00a0\n$\n0.18\n\u00a0\n\u00a0\n\u00a0\n3.5\n%\nAverage cost/lb. metal\n\u00a0\n$\n4.39\n\u00a0\n\u00a0\n$\n4.99\n\u00a0\n\u00a0\n$\n(0.60\n)\n\u00a0\n\u00a0\n(11.9\n%)\nAverage gross profit/lb. metal\n\u00a0\n$\n1.08\n\u00a0\n\u00a0\n$\n0.30\n\u00a0\n\u00a0\n$\n0.78\n\u00a0\n\u00a0\n\u00a0\n259.9\n%\n\u00a0\nDuring the year ended December 31, 2022, the average sales price for antimony increased $0.18 per pound compared to the year ended December 31, 2021.\u00a0\u00a0 Gross profit per pound increased $0.78 per pound over the year ended December 31, 2021.\n\u00a0\nDue to its antimony production and sales along with a favorable antimony price, the Company enjoyed its first profitable year since 2018.\u00a0 We cut costs by selling finished ingots directly to customers in the United States from our Mexican smelter eliminating additional shipping and processing costs at our Montana facility.\u00a0 \n\u00a0\nThe first two quarters of 2022 each recognized more net profit than any previous year in the Company\u2019s history.\u00a0 The Company experienced a decrease in production in the third quarter due to a temporary decrease in feed for two reasons.\u00a0 First, there was a scheduled shut-down by our North American supplier that was followed by equipment failure at their facility.\u00a0 In addition to this, the supplier reported having difficulties with labor supply.\u00a0\u00a0 Second, the decrease in supply corresponded with less sourcing in Mexico during the negotiation phase regarding our purchase option agreement for the Wadley property. The delay between the reception of ore at the Mexican Smelter combined with the aforementioned delay carried over into fourth quarter of the year.\u00a0\u00a0 \n\u00a0\nThe Company processed and sold 37,485 lbs. of antimony trisulfide as part of a tolling agreement.\u00a0 During this period, the Company worked on and solved several problems that it was having with its processing of antimony concentrate from Mexico into antimony trisulfide crystal for sale to the munitions market and the Defense Logistics Agency (\u201cDLA\u201d).\u00a0 In addition, two more furnaces were purchased to give the Company back-up in anticipation of planned maintenance.\u00a0 \n\u00a0\nMitzi Hart, who assumed the role of Plant Manager and also assistant Sales Director for antimony, has extensive previous experience in sourcing trucking.\u00a0 This resulted in decreasing our trucking costs considerably.\u00a0 Also, the Company was able to offer a discount for clients willing to source their own trucking which resulted in several clients who now provide their own freight.\u00a0 \n\u00a0\nZeolite \n\u00a0\nFinancial and operational performance of zeolite for the year ended December 31, 2022 and 2021 was as follows:\n\u00a0\n\u00a0\n\u00a0\nYear ended December 31, \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nZeolite\n\u00a0\n2022\n\u00a0\n\u00a0\n2021\n\u00a0\n\u00a0\n$ Change\n\u00a0\n\u00a0\n% Change\n\u00a0\nTotal revenue - zeolite\n\u00a0\n$\n3,151,330\n\u00a0\n\u00a0\n$\n2,593,641\n\u00a0\n\u00a0\n\u00a0\n557,689\n\u00a0\n\u00a0\n\u00a0\n21.5\n%\nGross profit - zeolite\n\u00a0\n\u00a0\n339,907\n\u00a0\n\u00a0\n\u00a0\n340,806\n\u00a0\n\u00a0\n\u00a0\n(899\n)\n\u00a0\n\u00a0\n(0.3\n%)\nTons of zeolite sold\n\u00a0\n\u00a0\n13,047\n\u00a0\n\u00a0\n\u00a0\n11,747\n\u00a0\n\u00a0\n\u00a0\n1,300\n\u00a0\n\u00a0\n\u00a0\n11.1\n%\nAverage sales price/ton\n\u00a0\n$\n241.55\n\u00a0\n\u00a0\n$\n220.78\n\u00a0\n\u00a0\n$\n20.77\n\u00a0\n\u00a0\n\u00a0\n9.4\n%\nAverage cost/ton\n\u00a0\n$\n216.27\n\u00a0\n\u00a0\n$\n191.77\n\u00a0\n\u00a0\n$\n24.50\n\u00a0\n\u00a0\n\u00a0\n12.8\n%\nAverage gross profit/ton\n\u00a0\n$\n25.28\n\u00a0\n\u00a0\n$\n29.01\n\u00a0\n\u00a0\n$\n(3.73\n)\n\u00a0\n\u00a0\n(12.9\n%)\n\u00a0\nSales volume of zeolite for the year ended December 31, 2022 increased 1,300 tons over the year ended December 31, 2021.\u00a0 Average sales price per ton increased $20.77 for the year ended December 31, 2022 over the comparable period ending December 31, 2021.\n\u00a0\n\u00a0\nPage 49 of 91\nTable of Contents\n\u00a0\nAt Bear River Zeolite, between 2021 and 2022, despite an increase in sold tons, gross profit decreased slightly.\u00a0 This was due to the increase in costs combined with a delay in raising our prices in order to retain particular clients that had pre-existing price agreements.\u00a0 The strategy going forward will be to increase our sales price while significantly increasing production and sales. The overall strategy for increasing production started with the mine and mining techniques and utilizing the newly purchased rolling stock (mining and trucking equipment).\u00a0 The Company experimented with ripping versus blasting and concluded at first that ripping was superior.\u00a0 However, due to the distribution of rock size from ripping, it was concluded by the end of 2022 that ripping caused more delay in processing owing to the necessity to drill and break or blast oversized rock that would not fit in the jaw crusher.\u00a0\u00a0 Consequently, the primary technique that yields the fastest production from the mine through the mill is blasting.\u00a0 Improvements to the blasting technique are scheduled for 2023.\u00a0\u00a0 The second phase of production improvements relate to the selection of the discharge size from the new cone crusher purchased in December.\u00a0 Once the optimal size has been determined that corresponds to the most efficient rate of production and efficiency in product size, the plan is to work our way downstream through the secondary crushing circuit and then the screening.\u00a0\u00a0 Finally, the efficiency and production capacity of our packaging plant vs. available labor for this plant will be addressed to match the increased zeolite production.\u00a0\u00a0 \n\u00a0\nPrecious Metals \n\u00a0\nFinancial and operational performance of precious metals for the three months ended December 31, 2022 and 2021 was as follows:\n\u00a0\n\u00a0\n\u00a0\nYear ended December 31, \n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nPrecious metals\n\u00a0\n2022\n\u00a0\n\u00a0\n2021\n\u00a0\n\u00a0\n$ Change\n\u00a0\n\u00a0\n% Change\n\u00a0\nTotal revenue - precious metals\n\u00a0\n$\n261,707\n\u00a0\n\u00a0\n$\n338,341\n\u00a0\n\u00a0\n\u00a0\n(76,634\n)\n\u00a0\n\u00a0\n(22.6\n%)\nGross profit precious metals\n\u00a0\n\u00a0\n151,167\n\u00a0\n\u00a0\n\u00a0\n231,077\n\u00a0\n\u00a0\n\u00a0\n(79,910\n)\n\u00a0\n\u00a0\n(34.6\n%)\nOunces sold - gold\n\u00a0\n\u00a0\n43.77\n\u00a0\n\u00a0\n\u00a0\n70\n\u00a0\n\u00a0\n\u00a0\n(26.23\n)\n\u00a0\n\u00a0\n(37.5\n%)\nOunces sold - silver\n\u00a0\n\u00a0\n25,122\n\u00a0\n\u00a0\n\u00a0\n27,342\n\u00a0\n\u00a0\n\u00a0\n(2,220\n)\n\u00a0\n\u00a0\n(8.1\n%)\n\u00a0\nEARNINGS BEFORE INTEREST TAX DEPRECIATION AND AMORTIZATION\n\u00a0\nThe Company utilizes Earnings Before Interest Taxes Depreciation and Amortization (\u201cEBITDA\u201d), a non-GAAP financial measurement which approximates free cash flow.\n\u00a0\nOur company-wide Earnings Before Interest Taxes Depreciation Amortization (\u201cEBITDA\u201d) was $1,369,095 for the year ended December 31, 2022, compared to EBITDA of $825,950 for the year ended December 31, 2021, a 65.8% increase.\u00a0 \u00a0\u00a0Increase in gross revenue of $3,297,201 and increased gross profit of $1,157,585 were the primary drivers behind the EBITDA results in 2022.\n\u00a0\nIncome from operations improved from a company-wide loss of $660,257 for the year ended December 31, 2021 to income from operations of $348,205 for the year ended December 31, 2022.\u00a0\u00a0 Primary drivers were increased antimony sales and, to a lesser extent, continued strong market prices for antimony and zeolite. \n\u00a0\n\u00a0\nPage 50 of 91\nTable of Contents\n\u00a0\nEBIDTA schedules by business segment for the year ended December 31, 2022 and December 31, 2021 is presented as follows.\n\u00a0\nAntimony \u2013 Combined USA and Mexico\n\u00a0\nYear ended\nDecember 31, 2022\n\u00a0\n\u00a0\nYear ended\nDecember 31, 2021\n\u00a0\n\u00a0\n$ Change\n\u00a0\n\u00a0\n% Change\n\u00a0\nGross antimony revenue\n\u00a0\n$\n7,631,670\n\u00a0\n\u00a0\n$\n4,815,524\n\u00a0\n\u00a0\n$\n2,816,146\n\u00a0\n\u00a0\n\u00a0\n58.5\n%\nCost of sales\n\u00a0\n\u00a0\n6,126,554\n\u00a0\n\u00a0\n\u00a0\n4,548,802\n\u00a0\n\u00a0\n\u00a0\n1,577,752\n\u00a0\n\u00a0\n\u00a0\n34.7\n%\nGross profit \u2013 antimony\n\u00a0\n\u00a0\n1,505,116\n\u00a0\n\u00a0\n\u00a0\n266,722\n\u00a0\n\u00a0\n\u00a0\n1,238,394\n\u00a0\n\u00a0\n\u00a0\n464.3\n%\nOperating expenses\n\u00a0\n\u00a0\n1,482,526\n\u00a0\n\u00a0\n\u00a0\n1,355,121\n\u00a0\n\u00a0\n\u00a0\n127,405\n\u00a0\n\u00a0\n\u00a0\n9.4\n%\nIncome (loss) from operations\n\u00a0\n\u00a0\n22,590\n\u00a0\n\u00a0\n\u00a0\n(1,088,399\n)\n\u00a0\n\u00a0\n1,110,989\n\u00a0\n\u00a0\n\u00a0\n102.1\n%\nNon-operating income\n\u00a0\n\u00a0\n129,481\n\u00a0\n\u00a0\n\u00a0\n603,179\n\u00a0\n\u00a0\n\u00a0\n(473,698\n)\n\u00a0\n\u00a0\n78.5\n%\nProvision for income tax\n\u00a0\n\u00a0\n(16,073\n)\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\n(16,073\n)\n\u00a0\n\u00a0\nN/A\n\u00a0\nNet income (loss) \u2013 antimony\n\u00a0\n\u00a0\n135,998\n\u00a0\n\u00a0\n\u00a0\n(485,220\n)\n\u00a0\n\u00a0\n621,218\n\u00a0\n\u00a0\n\u00a0\n128.0\n%\nInterest expense\n\u00a0\n\u00a0\n6,884\n\u00a0\n\u00a0\n\u00a0\n1,700\n\u00a0\n\u00a0\n\u00a0\n5,184\n\u00a0\n\u00a0\n\u00a0\n304.9\n%\nProvision for income tax\n\u00a0\n\u00a0\n16,073\n\u00a0\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\n16,073\n\u00a0\n\u00a0\n\u00a0\nN/A\n\u00a0\nDepreciation and amortization\n\u00a0\n\u00a0\n630,855\n\u00a0\n\u00a0\n\u00a0\n613,202\n\u00a0\n\u00a0\n\u00a0\n17,653\n\u00a0\n\u00a0\n\u00a0\n2.9\n%\nEBITDA \u2013 antimony\n\u00a0\n$\n789,810\n\u00a0\n\u00a0\n$\n129,682\n\u00a0\n\u00a0\n$\n660,128\n\u00a0\n\u00a0\n\u00a0\n509.0\n%\n\u00a0\nZeolite\n\u00a0\nYear ended\nDecember 31, 2022\n\u00a0\n\u00a0\nYear ended\nDecember 31, 2021\n\u00a0\n\u00a0\n$ Change\n\u00a0\n\u00a0\n% Change\n\u00a0\nGross zeolite revenue\n\u00a0\n$\n3,151,330\n\u00a0\n\u00a0\n$\n2,593,641\n\u00a0\n\u00a0\n$\n557,689\n\u00a0\n\u00a0\n\u00a0\n21.5\n%\nCost of sales\n\u00a0\n\u00a0\n2,811,423\n\u00a0\n\u00a0\n\u00a0\n2,252,835\n\u00a0\n\u00a0\n\u00a0\n558,588\n\u00a0\n\u00a0\n\u00a0\n24.8\n%\nGross profit \u2013 zeolite\n\u00a0\n\u00a0\n339,907\n\u00a0\n\u00a0\n\u00a0\n340,806\n\u00a0\n\u00a0\n\u00a0\n(899\n)\n\u00a0\n(0.3%)\n\u00a0\nOperating expenses\n\u00a0\n\u00a0\n165,459\n\u00a0\n\u00a0\n\u00a0\n143,741\n\u00a0\n\u00a0\n\u00a0\n21,718\n\u00a0\n\u00a0\n\u00a0\n15.1\n%\nIncome from operations\n\u00a0\n\u00a0\n174,448\n\u00a0\n\u00a0\n\u00a0\n197,065\n\u00a0\n\u00a0\n\u00a0\n(22,617\n)\n\u00a0\n(11.5%)\n\u00a0\nNon-operating income (expense)\n\u00a0\n\u00a0\n(32,952\n)\n\u00a0\n\u00a0\n(3,391\n)\n\u00a0\n\u00a0\n(29,561\n)\n\u00a0\n\u00a0\n871.7\n%\nNet income \u2013 zeolite\n\u00a0\n\u00a0\n141,496\n\u00a0\n\u00a0\n\u00a0\n193,674\n\u00a0\n\u00a0\n\u00a0\n(52,178\n)\n\u00a0\n(26.9%)\n\u00a0\nInterest expense\n\u00a0\n\u00a0\n8,257\n\u00a0\n\u00a0\n\u00a0\n3,839\n\u00a0\n\u00a0\n\u00a0\n4,418\n\u00a0\n\u00a0\n\u00a0\n115.1\n%\nDepreciation and amortization\n\u00a0\n\u00a0\n167,825\n\u00a0\n\u00a0\n\u00a0\n160,414\n\u00a0\n\u00a0\n\u00a0\n7,411\n\u00a0\n\u00a0\n\u00a0\n4.6\n%\nEBITDA \u2013 zeolite\n\u00a0\n$\n317,578\n\u00a0\n\u00a0\n$\n357,927\n\u00a0\n\u00a0\n$\n(40,349\n)\n\u00a0\n(11.3%)\n\u00a0\n\u00a0\n\u00a0\nPage 51 of 91\nTable of Contents\n\u00a0\n\u00a0\n\u00a0\nYear ended December 31,\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nPrecious Metals\n\u00a0\n2022\n\u00a0\n\u00a0\n2021\n\u00a0\n\u00a0\n$ Change\n\u00a0\n\u00a0\n% Change\n\u00a0\nGross revenue precious metals \n\u00a0\n$\n261,707\n\u00a0\n\u00a0\n$\n338,341\n\u00a0\n\u00a0\n$\n(76,634\n)\n\u00a0\n\u00a0\n(22.6\n%)\nCost of sales\n\u00a0\n\u00a0\n110,540\n\u00a0\n\u00a0\n\u00a0\n107,264\n\u00a0\n\u00a0\n\u00a0\n3,276\n\u00a0\n\u00a0\n\u00a0\n3.1\n%\nGross profit \u2013 precious metals\n\u00a0\n\u00a0\n151,167\n\u00a0\n\u00a0\n\u00a0\n231,077\n\u00a0\n\u00a0\n\u00a0\n(79,910\n)\n\u00a0\n\u00a0\n(34.6\n%)\nOperating expenses\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\nN/A\n\u00a0\nIncome from operations\n\u00a0\n\u00a0\n151,167\n\u00a0\n\u00a0\n\u00a0\n231,077\n\u00a0\n\u00a0\n\u00a0\n(79,910\n)\n\u00a0\n\u00a0\n(34.6\n%)\nNon-operating expenses\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\nN/A\n\u00a0\nNet income \u2013 precious metals\n\u00a0\n\u00a0\n151,167\n\u00a0\n\u00a0\n\u00a0\n231,077\n\u00a0\n\u00a0\n\u00a0\n(79,910\n)\n\u00a0\n\u00a0\n(34.6\n%)\nInterest expense\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\nN/A\n\u00a0\nDepreciation and amortization\n\u00a0\n\u00a0\n110,540\n\u00a0\n\u00a0\n\u00a0\n107,264\n\u00a0\n\u00a0\n\u00a0\n3,276\n\u00a0\n\u00a0\n\u00a0\n3.1\n%\nEBITDA \u2013 precious metals\n\u00a0\n$\n261,707\n\u00a0\n\u00a0\n$\n338,341\n\u00a0\n\u00a0\n$\n(76,634\n)\n\u00a0\n\u00a0\n(22.6\n%)\n\u00a0\nCompany-wide\n\u00a0\nYear ended\nDecember 31,\n2022\n\u00a0\n\u00a0\nYear ended\nDecember 31,\n2021\n\u00a0\n\u00a0\n$ Change\n\u00a0\n\u00a0\n% Change\n\u00a0\nGross revenue\n\u00a0\n$\n11,044,707\n\u00a0\n\u00a0\n$\n7,747,506\n\u00a0\n\u00a0\n$\n3,297,201\n\u00a0\n\u00a0\n\u00a0\n42.6\n%\nCost of sales\n\u00a0\n\u00a0\n9,048,517\n\u00a0\n\u00a0\n\u00a0\n6,908,901\n\u00a0\n\u00a0\n\u00a0\n2,139,616\n\u00a0\n\u00a0\n\u00a0\n31.0\n%\nGross profit \n\u00a0\n\u00a0\n1,996,190\n\u00a0\n\u00a0\n\u00a0\n838,605\n\u00a0\n\u00a0\n\u00a0\n1,157,585\n\u00a0\n\u00a0\n\u00a0\n138.0\n%\nOperating expenses\n\u00a0\n\u00a0\n1,647,985\n\u00a0\n\u00a0\n\u00a0\n1,498,862\n\u00a0\n\u00a0\n\u00a0\n149,123\n\u00a0\n\u00a0\n\u00a0\n9.9\n%\nIncome (loss) from operations\n\u00a0\n\u00a0\n348,205\n\u00a0\n\u00a0\n\u00a0\n(660,257\n)\n\u00a0\n\u00a0\n1,008,462\n\u00a0\n\u00a0\n\u00a0\n152.7\n%\nNon-operating income \n\u00a0\n\u00a0\n96,529\n\u00a0\n\u00a0\n\u00a0\n599,788\n\u00a0\n\u00a0\n\u00a0\n(503,259\n)\n\u00a0\n(83.9\n%)\nProvision for income tax\n\u00a0\n\u00a0\n(16,073\n)\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\n(16,073\n)\n\u00a0\n\u00a0\nN/A\n\u00a0\nNet income (loss)\n\u00a0\n\u00a0\n428,661\n\u00a0\n\u00a0\n\u00a0\n(60,469\n)\n\u00a0\n\u00a0\n489,130\n\u00a0\n\u00a0\n\u00a0\n808.9\n%\nInterest expense\n\u00a0\n\u00a0\n15,141\n\u00a0\n\u00a0\n\u00a0\n5,539\n\u00a0\n\u00a0\n\u00a0\n9,602\n\u00a0\n\u00a0\n\u00a0\n173.4\n%\nProvision for income tax\n\u00a0\n\u00a0\n16,073\n\u00a0\n\u00a0\n\u00a0\n-\n\u00a0\n\u00a0\n\u00a0\n16,073\n\u00a0\n\u00a0\n\u00a0\nN/A\n\u00a0\nDepreciation and amortization\n\u00a0\n\u00a0\n909,220\n\u00a0\n\u00a0\n\u00a0\n880,880\n\u00a0\n\u00a0\n\u00a0\n28,340\n\u00a0\n\u00a0\n\u00a0\n3.2\n%\nEBITDA \u2013 Company-wide\n\u00a0\n$\n1,369,095\n\u00a0\n\u00a0\n$\n825,950\n\u00a0\n\u00a0\n$\n543,145\n\u00a0\n\u00a0\n\u00a0\n65.8\n%\n\u00a0\n\u00a0\nPage 52 of 91\nTable of Contents\n\u00a0\nLIQUIDITY AND FINANCIAL CONDITION \n\u00a0\nWORKING CAPITAL\n\u00a0\nDecember 31,\n2022\n\u00a0\n\u00a0\nDecember 31,\n2021\n\u00a0\nCurrent assets\n\u00a0\n$\n21,617,359\n\u00a0\n\u00a0\n$\n23,568,992\n\u00a0\nCurrent liabilities\n\u00a0\n\u00a0\n(2,219,870\n)\n\u00a0\n\u00a0\n(2,070,854\n)\nWorking capital\n\u00a0\n$\n19,397,489\n\u00a0\n\u00a0\n$\n21,498,138\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nFor the year ended\n\u00a0\nCASH FLOWS\n\u00a0\nDecember 31,\n2022\n\u00a0\n\u00a0\nDecember 31,\n2021\n\u00a0\nCash flow used by operating activities\n\u00a0\n$\n(249,277\n)\n\u00a0\n$\n(2,431,477\n)\nCash flow used by investing activities\n\u00a0\n\u00a0\n(1,785,661\n)\n\u00a0\n\u00a0\n(653,126\n)\nCash flow provided (used) by financing activities\n\u00a0\n\u00a0\n(267,725\n)\n\u00a0\n\u00a0\n23,782,555\n\u00a0\nNet change in cash during period\n\u00a0\n$\n(2,302,663\n)\n\u00a0\n$\n20,697,952\n\u00a0\n\u00a0\nAs of December 31, 2022, the Company had cash and cash equivalents of hand of $19,117,666 which consisted of $19,060,378 in money market funds and deposit accounts along with $57,288 of restricted cash.\n\u00a0\nNet cash used by operating activities was $249,277 for the year ending December 31, 2022, compared with cash used by operating activities of $2,431,477 during the year ended December 31, 2021.\u00a0 The $2,182,200 change in cash from operating activities is attributable to ongoing strong gross profit from antinomy sales.\u00a0\u00a0 \n\u00a0\nNet cash used by investing activities of $1,785,661 included the purchase of a caterpillar for the Bear River Zeolite operation and ongoing construction of a new warehouse in Preston, ID.\u00a0 \n\u00a0\nCash flow used by financing activities for the year ended December 31, 2022 was $267,725 compared to a cash flow provided by financing activities of $23,782,555 for the year ended December 31, 2021.\u00a0 In 2021, the Company raised $23,342,178 from the issuance of common stock and warrants and $1,790,705 from the exercise of warrants by existing shareholders.\u00a0 This capital raise and warrant exercise was not recurring during the year ended December 31, 2022.\n\u00a0\nFor the year ending December 31, 2023, we are planning to use funds for \n\u00a0\n\u00a0\n\u00b7\nContinue with substantial upgrades to the Bear River Zeolite plant, including modernizing equipment in our crushing plant to include new screens, sorting, conveying, dust-control, and crushing equipment with increased number of safety mechanisms to avoid shut-downs and insure uninterrupted production.\u00a0 Additionally, we plan to use funds to expand and update our packaging capacity both on-site and possibly the creation of an off-site packaging plant where we can source more labor.\u00a0\u00a0 All use of funds for Bear River Zeolite are for the express purpose of substantially increasing production and sales of zeolite.\u00a0 Some of the use of funds at Bear River Zeolite will doubtlessly be applied to increasing labor costs and an increase in the number of workers.\u00a0\n\u00a0\n\u00b7\nThe continuation of payment towards the completion of the purchase of the Sierra Guadalupe mining claims and surface rights. Also, the payment towards the purchase of ore and assistance for establishing the extraction of mineral at this property for the purpose of both the synthesis of antimony trisulfide, antimony metal, and antimony trioxide.\n\u00a0\n\u00b7\nThe payment of the remainder of the amount due for the purchase of the Soyatal mining claims and purchase of ores from those claims for the synthesis of antimony trisulfide and antimony metal.\n\u00a0\n\u00b7\nFor the addition of a gravity separation circuit at the Madero Smelter for the upgrading of low-grade oxide ores. The updating of equipment that has either rusted, or otherwise failed due to normal wear and tear including, but not limited to, the regular re-lining of furnaces. At some point in the future, we intend to use funds to update the facility in such a way that it will be able to produce finished antimony oxide for sale directly to customers. This will require a very large building to enclose our furnaces to shield them from rain, wind, and the weather. Also, we will need to purchase some quality-control equipment for this purpose.\n\u00a0\n\u00b7\nIn Montana, to install two more electric furnaces; to reline two more smelting furnaces, and to continue to source and pay for labor at a competitive rate and pay our limited crew what they are worth.\n\u00a0\n\u00b7\nAt Puerto Blanco, to continue to process ore into concentrate for synthesis into antimony trisulfide product. For the regular purchase of consumables and reagents necessary to operate the flotation facility and lab.\n\u00a0\n\u00b7\nTo hire a certified geologist to do additional mapping and geologic work at the Los Juarez property to complete the geophysical, geochemical, and previous geological work that was done in order to help ascertain the value of the property.\n\u00a0\n\u00b7\nTo pay for taxes on all mining concessions.\n\u00a0\n\u00b7\nTo pay for all regular permitting fees associated with our holdings in Mexico and the United States.\n\u00a0\n\u00b7\nTo pay for new sources of potential antimony ore and continue to investigate new or alternative sources of antimony ore.\n\u00a0 \n\u00a0\nPage 53 of 91\nTable of Contents\n\u00a0\nOff-Balance Sheet Arrangements \n\u00a0\nThe Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to its stockholders.\n\u00a0\nCritical Accounting Estimates\n\u00a0\nWe have, besides our estimates of the amount of depreciation on our assets, two critical accounting estimates. The percentage of antimony contained in our unprocessed ore in inventory is based on assays taken at the time the ore is delivered, and may vary when the ore is processed. Also, the asset recovery obligation on our balance sheet is based on an estimate of the future cost to recover and remediate our properties as required by our permits upon cessation of our operations, and may differ when we cease operations.\n\u00a0\n\u00a0\n\u00b7\nThe value of unprocessed ore is based on assays taken at the time the ore is delivered, and may vary when the ore is processed. We assay the ore to estimate the amount of antimony contained per metric ton, and then make a payment based on the Rotterdam price of antimony and the % of antimony contained. Our payment scale incorporates a penalty for ore with a low percentage of antimony. It is reasonably likely that the initial assay will differ from the amount of metal recovered from a given lot. If the initial assay of a lot of ore on hand at the end of a reporting period were different, it would cause a change in our reported inventory, but would not change our accounts payable, reported cost of goods sold or net income amounts. Our net income would not be affected. Direct shipping ore (DSO) purchased at our Madero smelter is paid for at a fixed amount at the time of delivery and assaying, and is not subject to accounting estimates. The amount of the accounting estimate for purchased ore at our Puerto Blanco mill is in a constant state of change because the amount of purchased ore and the percent of metal contained are constantly changing. Due to the amount of ore on hand at the end of a reporting period, as compared to the amount of total assets, liabilities, equity, and the ore processed during a reporting period, any change in the amount of estimated metal contained would likely not result in a material change to our financial condition.\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00b7\nThe asset retirement obligation and asset on our balance sheet is based on an estimate of the future cost to recover and remediate our properties as required by our permits upon cessation of our operations, and may differ when we cease operations. We make periodic reviews of the remaining life of the mine and other operations, and the estimated remediation costs upon closure, and adjust our account balances accordingly. At this time, we think that an adjustment in our asset recovery obligation is not required, and an adjustment in future periods would not have a material impact in the year of adjustment, but would change the amount of the annual accretion and amortization costs charged to our expenses by an undetermined amount.\n\u00a0 ",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures about Market Risk\n\u00a0\nNot applicable.\n\u00a0\n\u00a0\nPage 54 of 91\nTable of Contents\n\u00a0",
+  "cik": "101538",
+  "cusip6": "911549",
+  "cusip": ["911549103", "911549903", "911549953"],
+  "names": ["UNITED STATES ANTIMONY CORP"],
+  "source": "https://www.sec.gov/Archives/edgar/data/101538/000165495423009305/0001654954-23-009305-index.htm"
+}
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+{
+  "item1": ">Item 1. \nBusiness\n\u00a0\nTHE COMPANY\n\u00a0\nAehr Test Systems, Inc. (\u201cAehr Test,\u201d \u201cAehr,\u201d or \u201cwe\u201d) was incorporated in the state of California on May 25, 1977 and is headquartered in Fremont, California. We are a leading provider of test solutions for testing, burning-in, and stabilizing semiconductor devices in wafer level, singulated die, and package part form, and have installed thousands of systems worldwide. Increasing quality, reliability, safety, and security needs of semiconductors used across multiple applications, including electric vehicles, electric vehicle charging infrastructure, solar and wind power, computing, data and telecommunications infrastructure, and solid-state memory storage, are driving additional test requirements, incremental capacity needs, and new opportunities for Aehr Test products and solutions. We have developed and introduced several innovative products including the FOX-P\nTM\n family of test and burn-in systems and FOX WaferPak\nTM\n Aligner, FOX WaferPak Contactor, FOX DiePak\u00ae Carrier and FOX DiePak Loader. The FOX-XP and FOX-NP systems are full wafer contact and singulated die/module test and burn-in systems that can test, burn-in, and stabilize a wide range of devices such as leading-edge silicon carbide-based and other power semiconductors, 2D and 3D sensors used in mobile phones, tablets, and other computing devices, memory semiconductors, processors, microcontrollers, systems-on-a-chip, and photonics and integrated optical devices. The FOX-CP system is a low-cost single-wafer compact test solution for logic, memory and photonic devices and the newest addition to the FOX-P product family. The FOX WaferPak Contactor contains a unique full wafer contactor capable of testing wafers up to 300mm that enables IC manufacturers to perform test, burn-in, and stabilization of full wafers on the FOX-P systems. The FOX DiePak Carrier allows testing, burn-in, and stabilization of singulated bare die and modules up to 1,024 devices in parallel per DiePak on the FOX-NP and FOX-XP systems up to nine DiePaks at a time.\n\u00a0\nINDUSTRY BACKGROUND\n\u00a0\nSemiconductor manufacturing is a complex, multi-step process, and defects or weaknesses that may result in the failure of a semiconductor device may be introduced at any process step. Failures may occur immediately or at any time during the operating life of the device, sometimes after several months of normal use. Semiconductor manufacturers rely on testing and reliability screening to identify and eliminate defects that occur during the manufacturing process.\n\u00a0\nTesting and reliability screening involve multiple steps. The first set of tests is typically performed by semiconductor device manufacturers before the processed semiconductor wafer is cut into individual die, in order to avoid the cost of packaging defective die into their packages. This \u201cwafer probe\u201d testing can be performed on one or many die at a time, including testing the entire wafer at once. Most leading-edge microprocessors, microcontrollers, digital signal processors, memory ICs, sensors, power and optical devices (such as vertical-cavity surface-emitting lasers, or VCSELs) then undergo an extensive reliability screening and stress testing procedure known as burn-in or cycling, depending on the application. This can either be done at the wafer level, before the die are packaged, or at the package level, after the die are packaged. The burn-in process screens for early failures by operating the device at elevated voltages and \n\u00a0 \n\u00a0\n3\nTable of Contents\n\u00a0\ntemperatures, at up to 150 degrees Celsius (302 degrees Fahrenheit) or higher. Depending upon the application, the burn-in times can range anywhere from minutes to hours or even days. A typical burn-in system can process thousands of devices simultaneously. After burn-in, the devices undergo a final test process using automatic test equipment, or testers. For example, this cycling process screens silicon carbide semiconductor devices used in electric vehicle engine controller inverters and their corresponding on-board battery chargers for failure to meet current carrying, power loss and leakage specifications, as well as endurance requirements.\n\u00a0\u00a0\u00a0\u00a0\nMARKETS\n\u00a0\nThe Company\u2019s semiconductor test and reliability qualification solutions address multiple test and burn-in markets including Silicon Carbide (SiC) and Gallium Nitride (GaN) devices for power semiconductors, electric vehicles, electric vehicle charging infrastructure, solar and wind power, silicon photonics for data center infrastructure and worldwide 5G infrastructure, 2D/3D sensors for consumer electronics and automotive applications, and the data storage and memory markets.\n\u00a0\nPower Semiconductors (Silicon Carbide and Gallium Nitride)\n\u00a0\nSilicon carbide power semiconductors have emerged as the preferred technology for battery electric vehicle power conversion in on-board and off-board electric vehicle battery chargers, and the electric power conversion and control of the electric engines. These devices reduce power loss by as much as greater than 75% over power silicon alternatives like IGBT (Insulated-Gate Bipolar Transistor) devices, which has essentially changed the entire market dynamic. With this development, the Company sees most, if not every automotive company that is working on electric vehicles, moving to silicon carbide-based powertrain and charging systems in the near future.\n\u00a0\nThe gallium nitride market appears to be a potentially significant growth driver for our systems and WaferPak full wafer Contactors, particularly for automotive and photovoltaic applications where burn-in appears to be critical for meeting the initial quality and reliability needs of those markets.\n\u00a0\nThe Company\u2019s FOX-P family of products are very cost-effective solutions for ensuring the critical quality and reliability of devices in this market, where performance and reliability can not only mean increased battery life, but also assurance against failure of a vehicle whose power semiconductor fails in the power train.\n\u00a0\nSilicon Photonics\n\u00a0\nThe silicon photonics market is seeing increasing deployment of devices used in the expansion of bandwidth and infrastructure to meet the explosive growth of data center and 5G infrastructure.\n\u00a0\nThe rapid growth of integrated optical devices in data centers and data center interconnect infrastructure, mobile devices, automotive applications, and wearable biosensor markets is driving substantially higher requirements for initial quality and long-term reliability, and they are increasing with every new product generation. The upcoming application of silicon photonics integrated circuits for use in optical chip-to-chip communication in addition to the current photonics as multiple companies have made announcements regarding their product roadmaps for co-packaged photonics integrated circuits with microprocessors, graphics processors, chip sets for computing as well as artificial intelligence applications.\n\u00a0\nSilicon photonics devices are highly integrated silicon-based semiconductors that have embedded or integrated the non-silicon-based laser transmitters and receivers to enable a smaller, lower cost, higher reliable alternative to traditional fiber optic transceivers currently used in data center and telecommunication infrastructure. These require a process step in manufacturing called stabilization where the devices are subjected to high temperatures and power to stabilize their output power. The Company\u2019s solution makes it feasible to burn-in integrated silicon photonics devices while still in wafer form without adding the cost to the transceiver printed circuit board and other mechanical infrastructure of the final transceiver module, and that has both yield and significant cost savings. In the case of silicon photonics, the laser devices are bonded directly to a silicon-based device that has all the logic multiplexing and de-multiplexing, and other high-speed communication subsystems, all integrated into a silicon-based integrated circuit.\n\u00a0\nMobile 2D and 3D Sensors\n\u00a0\nSensors used in mobile devices such as smartphones, tablets, wearables such as watches and fitness bands, and audio devices have become pervasive. Initially, sensors on smartphones allowed basic functions we have all come to expect such as touchscreens, rotational sensors, and fingerprint sensors, but have gotten more complex with added capabilities such as 3D facial recognition and time of flight distance measurements. We will see the addition of health monitoring sensors, 3D measurement capability, and other advanced sensors in the future. As sensors become more pervasive and add critical new functionality to devices, it becomes more and more important that the data collected be accurate and \n\u00a0\n\u00a0\n4\nTable of Contents\n\u00a0\nreliable, which we believe will drive more and more requirements for our solutions for production test and burn-in of these sensors.\n\u00a0 \u00a0\nAutomotive Semiconductors\n\u00a0\nIn addition, the rapid growth and increasing demand for reliability in automotive sensor technologies is a key market driver for the Company. These technologies include ADAS (Advanced Driver Assistance Systems) capabilities such as collision avoidance systems using laser, LIDAR (Light Detection and Ranging), and RADAR (Radio Detection and Ranging) or other sensing technologies. More and more new vehicles now include as standard capabilities collision avoidance systems that detect obstacles and monitor the vehicle\u2019s surroundings to notify the driver of dangerous conditions and take evasive action. In addition to autonomous vehicles that require extremely high reliability of the devices in these systems, more and more vehicles around the world are embedding these systems and sensors into their everyday driving features. The Company sees the rising tide of the increasing number of embedded sensors and electrical and optical systems in vehicles as a key driver of the increasing market need for more and more reliable semiconductors. This, in turn, is increasing the need for 100% production test and burn-in of devices in order to lower the infant mortality rate of devices and ensure that these devices and systems operate over the life of the vehicles.\n\u00a0\nData Storage and Memory\n\u00a0\nThe Company also sees the data storage and memory markets as critical new opportunities for its systems where these end markets and customers require devices to have extremely high levels of quality and long-term reliability.\n\u00a0\nPRODUCTS\n\u00a0\nThe Company manufactures and markets full wafer contact test systems, test during burn-in systems, test fixtures and related accessories.\n\u00a0\nAll of the Company\u2019s systems are platform-based systems with a portfolio of current, voltage, digital and thermal capabilities, allowing them to be configured with optional features to meet customer requirements. Systems can be configured for use in production applications, where capacity, throughput and price are most important, or for reliability engineering and quality assurance applications, where performance and flexibility, such as extended temperature ranges, are essential.\n\u00a0\nFULL WAFER CONTACT SYSTEMS\n\u00a0\nAehr\u2019s FOX-XP test and burn-in platform allows for one of the key reliability screening tests to be completed on an entire wafer full of devices, testing all of them at one time, while also testing and monitoring every device for failures during the burn-in process to provide critical information on those devices. This is an enormously valuable capability, as it allows its customers to screen devices that would otherwise fail after they are packaged into multi-die modules where the yield impact is 10 times or even 100 times as costly.\n\u00a0\nThe FOX-XP test and burn-in system, introduced in July 2016, is designed for devices in wafer, singulated die, and module form that require test and burn-in times typically measured in hours to days. The FOX-XP system can test and burn-in up to 18 wafers at a time. For high reliability applications, such as automotive, mobile devices, networking, telecommunications, sensors, power and solid-state devices, the FOX-XP system is a cost-effective solution for producing tested and burned-in die for use in multi-chip packages. Using Known-Good Die, or KGD, which are fully burned-in and tested die, in multi-chip/heterogeneous packages helps assure the reliability of the final product and lowers costs by increasing the yield of high-cost multi-chip packages. Wafer-level burn-in and test enables lower cost production of KGD for multi-chip modules, 3-D stacked packages and systems-in-a-package. The FOX-XP platform has been extended for burn-in and test of small multi-die modules by using DiePak Carriers. The DiePak Carrier with its multi-module sockets and high wattage dissipation capabilities has a capacity of hundreds of die or modules, much higher than the capacity of a traditional burn-in system with traditional single-device sockets and heat sinks. This capability was introduced in March 2017.\n\u00a0\nThe FOX-NP was introduced in January 2019 and is a low-cost entry-level system to provide a configuration and price point for companies to initiate a new product introduction and production qualification, enabling an easier transition to the FOX-XP system for high volume production test. The FOX-NP system is 100% compatible with the FOX-XP system and is configurable with up to two slot assemblies per system compared to up to 18 slot assemblies in the FOX-XP system.\n\u00a0\nThe FOX-CP was introduced in February 2019 and is a low-cost single-wafer compact test and reliability verification solution for logic, memory, power and photonic devices. The FOX-CP reduces test cost by functionally testing wafers during reliability screening to identify failing logic, memory, power or photonic die before the die are integrated into \n\u00a0\n\u00a0\n5\nTable of Contents\n\u00a0\ntheir final package, and is optimal for test times ranging from minutes to a few hours or where multiple touchdowns are required to test the entire wafer. The FOX-CP includes an integrated prober which is equipped with optics for automatic pattern recognition so that the wafer is aligned properly for the testing process. It complements the capabilities of the FOX-XP and FOX-NP systems, which are optimal when the test time is measured in hours or days and the full wafer can be tested in a single touchdown.\n\u00a0\u00a0\nOne of the key components of the FOX systems is the patented WaferPak Contactor. The WaferPak Contactor contains a full-wafer single-touchdown probe card which is easily removable from the system. Traditional probe cards often are only able to contact a portion of the wafer, requiring multiple touchdowns to test the entire wafer. Traditional probe cards also require the use of a dedicated wafer prober handler for each wafer in order to press the wafer up to make contact with the probe card. The need for a wafer prober per wafer is a significant cost adder to the cost of testing a wafer, and also creates the need for significant clean room space to facilitate the footprint of a wafer prober per wafer. The unique design of the WaferPak as well as the FOX-XP and FOX-NP systems remove the need for a dedicated wafer prober per wafer, allowing for better utilization of clean room space. A single FOX-XP system with a set of WaferPak Contactors can test up to 18 wafers at a time in the same footprint as a single-wafer wafer prober and test system offered by Aehr\u2019s competitors. The WaferPak Contactor is intended to accommodate a wide range of contactor technologies so that the contactor technology can evolve along with the changing requirements of the customer\u2019s wafers. The WaferPak Contactors are custom designed for each device type, each of which has a typical lifetime of two to seven years, depending on the device life cycle. Therefore, multiple sets of WaferPak Contactors could be purchased over the life of a FOX system.\n\u00a0\nAnother key component of the FOX-XP and FOX-NP systems is the patented DiePak Carrier. The DiePak Carrier, which is easily removable from the system, contains many multi-module or die sockets with very fine-pitch probes. Traditional sockets contact only a single device, requiring multiple large numbers of sockets and burn-in boards to test a production lot of devices. The unique design accommodates a wide range of socket sizes and densities so that the DiePak Carrier technology can evolve along with the changing requirements of the customer\u2019s devices. The DiePak Carriers are custom designed for each device type, each of which has a typical lifetime of two to seven years, depending on the device life cycle. Therefore, multiple sets of DiePak Carriers could be purchased over the life of a FOX-XP or FOX-NP system.\n\u00a0\nAnother key component of our FOX-XP and FOX-NP and test solution is the WaferPak Aligner.\u00a0\u00a0The WaferPak Aligner performs alignment of the customer\u2019s wafer to the WaferPak Contactor so that the wafer can be tested and burned-in by the FOX-XP and FOX-NP systems.\u00a0\u00a0The Company offers an automated aligner for high volume production applications, which can support several FOX-XP or FOX-NP systems or can be connected to a FOX-XP resulting in a fully integrated automated test cell, and a manual aligner for low volume production or engineering applications. \u00a0The latest generation Automated WaferPak Aligner supports industry standard Automated Material Handling System (AMHS), Automated Guided Vehicle (AGV), Overhead Hoist Transfer (OHT) and SEMI Equipment Communication Standard (SECS) and Generic Equipment Mode (GEM) Semi E84 factory integration enabling \u201cLights-out\u201d fully automated wafer handling.\u00a0\u00a0Supporting a wide range of wafer sizes (e.g. 100/200/300mm) allows a broad range of customers to implement fully automated wafer level test and burn-in factories.\n\u00a0\nSimilar to the WaferPak Aligner for WaferPak Contactors, the Company offers the DiePak Loader for DiePak Carriers. The DiePak Loader performs automatic loading of the customer\u2019s modules to the DiePak Carrier so that the modules can be tested and burned-in by the FOX-XP and FOX-NP system. Typically, one DiePak Loader can support several FOX-XP or FOX-NP systems.\n\u00a0\u00a0\nNet sales of full wafer contact product lines, systems, WaferPak Contactors, DiePaks Carriers and services for fiscal 2023, 2022 and 2021 were $63.5 million, $48.9 million, and $15.0 million, respectively, and accounted for approximately 98%, 96% and 90% of the Company\u2019s net sales in fiscal 2023, 2022 and 2021, respectively.\n\u00a0\nSYSTEMS FOR PACKAGED PARTS\n\u00a0\nTest during burn-in, or TDBI, systems consist of several subsystems: pattern generation and test electronics, control software, network interface and environmental chamber. The test pattern generator allows duplication of most of the functional tests performed by a traditional tester. Pin electronics at each burn-in board, or BIB, position are designed to provide accurate signals to the ICs being tested and detect whether a device is failing the test.\n\u00a0\nDevices being tested are placed on BIBs and loaded into environmental chambers which typically operate at temperatures from 25 degrees Celsius (77 degrees Fahrenheit) up to 150 degrees Celsius (302 degrees Fahrenheit). Using our optional chambers, our systems can produce temperatures as low as -55 degrees Celsius (-67 degrees Fahrenheit). A single BIB can hold up to several hundred ICs, and a production chamber holds up to 72 BIBs, resulting in thousands of memory or logic devices being tested in a single system.\n\u00a0 \n\u00a0\n6\nTable of Contents\n\u00a0\nThe Advanced Burn-in and Test System, or ABTS, was introduced in fiscal 2008. Several updates to the ABTS system have been made since its introduction, including the ABTS-P system released in 2012. The ABTS family of products is based on a hardware and software architecture that is intended to address not only today\u2019s devices, but also future devices for many years to come. The ABTS system can test and burn-in both high-power logic and low-power ICs. It can be configured to provide individual device temperature control for devices up to 70W or more and with up to 320 I/O channels. The ABTS system is nearing the end of its lifecycle and limited shipments are expected in the future.\n\u00a0\nNet sales of packaged part product lines, systems and services for fiscal 2023, 2022 and 2021 were $1.4 million, $1.9 million, and $1.6 million, respectively, and accounted for approximately 2%, 4% and 10% of the Company\u2019s net sales in fiscal 2023, 2022 and 2021, respectively.\n\u00a0\nCUSTOMERS\n\u00a0\nThe Company markets and sells its products throughout the world to semiconductor manufacturers, semiconductor contract assemblers, electronics manufacturers and burn-in and test service companies.\n\u00a0\nSales to the Company\u2019s five largest customers accounted for approximately 97%, 98%, and 84% of its net sales in fiscal 2023, 2022 and 2021, respectively. During fiscal 2023, two customers accounted for approximately 79% and 10% of the Company\u2019s net sales. During fiscal 2022, one customer accounted for approximately 82% of the Company\u2019s net sales. During fiscal 2021, four customers accounted for approximately 24%, 23%, 20% and 10%, respectively, of the Company\u2019s net sales. No other customers accounted for more than 10% of the Company\u2019s net sales for any of these periods. The Company expects that sales of its products to a limited number of customers will continue to account for a high percentage of net sales for the foreseeable future. In addition, sales to particular customers may fluctuate significantly from quarter to quarter. Such fluctuations may result in changes in utilization of the Company\u2019s facilities and resources. The loss of or reduction or delay in orders from a significant customer or a delay in collecting or failure to collect accounts receivable from a significant customer could materially and adversely affect the Company\u2019s business, financial condition and operating results.\n\u00a0\nMARKETING, SALES AND CUSTOMER SUPPORT\n\u00a0\nThe Company has sales and service operations in the United States, Germany, Philippines and Taiwan, dedicated service resources in China and South Korea, and has established a network of distributors and sales representatives in certain key parts of the world. See \u201cREVENUE RECOGNITION\u201d in Item 7 under \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d for a further discussion of the Company\u2019s relationship with distributors, and its effects on revenue recognition.\n\u00a0\nThe Company\u2019s customer service and support program includes system installation, system repair, applications engineering support, spare parts inventories, customer training and documentation. The Company has applications engineering and field service personnel located near and sometimes co-located at our customers and includes resources at the corporate headquarters in Fremont, California, at customer locations in Texas, at the Company\u2019s subsidiaries in Germany and the Philippines, at its branch office in Taiwan, and also through third-party agreements in China and South Korea. The Company\u2019s distributors provide applications and field service support in other parts of the world. The Company customarily provides a warranty on its products. The Company offers service contracts on its systems directly and through its subsidiaries, distributors and representatives. The Company believes that maintaining a close relationship with customers and providing them with ongoing engineering support improves customer satisfaction and will provide the Company with a competitive advantage in selling its products to the Company\u2019s customers.\n\u00a0\nBACKLOG\n\u00a0\nAt May 31, 2023, the Company\u2019s backlog was $24.5 million compared with $11.1 million at May 31, 2022. The Company\u2019s backlog consists of product orders for which confirmed purchase orders have been received and which are scheduled for shipment within 12 months. Due to the possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments or development projects, the Company\u2019s backlog as of a particular date may not be indicative of net sales for any succeeding period.\n\u00a0\nRESEARCH AND PRODUCT DEVELOPMENT\n\u00a0\nThe Company historically has devoted a significant portion of its financial resources to research and development programs and expects to continue to allocate significant resources to these efforts. Certain research and development expenditures related to non-recurring engineering milestones have been transferred to cost of goods sold, reducing research and development expenses. The Company\u2019s research and development expenses during fiscal 2023, 2022 and 2021 were $7.1 million, $5.8 million and $3.7 million, respectively.\n\u00a0\n\u00a0\n7\nTable of Contents\n\u00a0\nThe Company conducts ongoing research and development to design new products and to support and enhance existing product lines.\u00a0\u00a0Building upon the expertise gained in the development of its existing products, the Company has developed the FOX family of systems for performing test and burn-in of entire processed wafers, and burn-in of devices in singulated die and module form, including the FOX-NP and FOX-CP systems released during fiscal 2019, and the Automated WaferPak Aligner released during fiscal 2023.\u00a0\u00a0The Company is developing enhancements to our packaged parts and wafer level burn-in products, intended to improve the capability and performance for testing and burn-in of future generation devices and provide the flexibility in a wide variety of applications.\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nMANUFACTURING\n\u00a0\nThe Company assembles its products from components and parts manufactured by others, including environmental chambers, power supplies, metal fabrications, printed circuit assemblies, ICs, burn-in sockets, high-density interconnects, wafer contactors and interconnect substrates. The Company\u2019s strategy is to use in-house manufacturing only when necessary to protect a proprietary process or when a significant improvement in quality, cost or lead time can be achieved and relies on subcontractors to manufacture many of the components and subassemblies used in its products. Final assembly and testing are performed at the Company\u2019s principal manufacturing facility located in Fremont, California.\n\u00a0\nCOMPETITION\n\u00a0\nThe semiconductor equipment industry is intensely competitive. Significant competitive factors in the semiconductor equipment market include price, technical capabilities, quality, flexibility, automation, cost of ownership, reliability, throughput, product availability and customer service. In each of the markets it serves, the Company faces competition from established competitors and potential new entrants, many of which have greater financial, engineering, manufacturing and marketing resources than the Company.\n\u00a0\nThe Company expects its competitors to continue to improve the performance of their current products and to introduce new products with improved price and performance characteristics. New product introductions by the Company\u2019s competitors or by new market entrants could cause a decline in sales or loss of market acceptance of the Company\u2019s products. The Company has observed price competition in the systems market, particularly with respect to its less advanced products. Increased competitive pressure could also lead to intensified price-based competition, resulting in lower prices which could adversely affect the Company\u2019s operating margins and results. The Company believes that to remain competitive it must invest significant financial resources in new product development and expand its customer service and support worldwide. There can be no assurance that the Company will be able to compete successfully in the future.\n\u00a0\nPROPRIETARY RIGHTS\n\u00a0\nThe Company relies primarily on the technical and creative ability of its personnel, its proprietary software, and trade secrets and copyright protection, rather than on patents, to maintain its competitive position. The Company\u2019s proprietary software is copyrighted and licensed to the Company\u2019s customers. At May 31, 2023, the Company held 46 issued United States patents with expiration date ranges from 2023 to 2038 and had several additional United States patent applications and foreign patent applications pending.\n\u00a0\nThe Company\u2019s ability to compete successfully is dependent in part upon its ability to protect its proprietary technology and information. Although the Company attempts to protect its proprietary technology through patents, copyrights, trade secrets and other measures, there can be no assurance that these measures will be adequate or that competitors will not be able to develop similar technology independently. Further, there can be no assurance that claims allowed on any patent issued to the Company will be sufficiently broad to protect the Company\u2019s technology, that any patent will be issued to the Company from any pending application or that foreign intellectual property laws will protect the Company\u2019s intellectual property. Litigation may be necessary to enforce or determine the validity and scope of the Company\u2019s proprietary rights, and there can be no assurance that the Company\u2019s intellectual property rights, if challenged, will be upheld as valid. Any such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company\u2019s business, financial condition and operating results, regardless of the outcome of the litigation. In addition, there can be no assurance that any of the patents issued to the Company will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to the Company. Also, there can be no assurance that the Company will have the financial resources to defend its patents from infringement or claims of invalidity.\n\u00a0\nThere are currently no pending claims against the Company regarding infringement of any patents or other intellectual property rights of others. However, the Company may, from time to time, receive communications from third parties asserting intellectual property claims against the Company. Such claims could include assertions that the Company\u2019s products infringe, or may infringe, the proprietary rights of third parties, requests for indemnification against \n\u00a0 \n\u00a0\n8\nTable of Contents\n\u00a0\nsuch infringement or suggest the Company may be interested in acquiring a license from such third parties. There can be no assurance that any such claim made in the future will not result in litigation, which could involve significant expense to the Company, and, if the Company is required or deems it appropriate to obtain a license relating to one or more products or technologies, there can be no assurance that the Company would be able to do so on commercially reasonable terms, or at all.\n\u00a0\u00a0\nENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)\n\u00a0\nENVIRONMENTAL\n\u00a0\nThe Company focuses on clean technology such as the electrical vehicle (\u201cEV\u201d) and power semiconductors market. EV and power semiconductor revenues accounted for 85%, 82%, and 23% of total revenues in fiscal 2023, 2022 and 2021, respectively. We engineer our products to be more energy efficient by using more efficient electrical designs and thermally efficient cooling architectures using conductive heat transfer versus convection air cooled methods. Our technology and architectural design allow our products to take up only 5% of the test floor space compared to competitor\u2019s products. \n\u00a0\nThe Company improved our facility by replacing existing air conditioners and heat exchanger: with higher efficiency units that draw less power and produce less wasted energy. Our new headquarters facility upgrades include moving to high efficiency lighting, modernizing our electrical power and cooling infrastructure, and adding Electric Vehicle charging stations for employees, vendors, and customers. \n\u00a0\nSOCIAL\n\u00a0\nThe Company reviews hiring and turnover quarterly and performs annual salary reviews, using independent third-party data, to ensure competitive compensation practices. The Company performs annual employee surveys to evaluate employee satisfaction. Glassdoor shows the Company at a 4.1 out of 5 rating as a great place to work.\n\u00a0\nThe Company provides variable compensation on top of base salary for all employees including an employee profit sharing plan. The Company also provides equity awards including stock options, restricted stock units (\u201cRSUs\u201d), and participation in an employee stock purchase plan for regular full-time (\u201cRFT\u201d) employees, located in the U.S. The Company is restricted from issuing stock options or RSUs to non-U.S. employees in certain countries due to local regulations. For those employees who are unable to participate in the Company\u2019s equity incentive plan, the Company maintains a stock appreciation bonus program to provide compensation linked to the Company\u2019s stock price during a predetermined period. The Company also provides a 401k plan, and a non-contributory Employee Stock Ownership plan, for U.S. employees.\n\u00a0\nThe Company provides recurring training in compliance with State of California ragulations including sexual harassment, prevention of violence in the workplace, and Diversity, Equality, and Inclusion (\u201cDEI\u201d) training. The Company promotes employee engagement through corporate events or activities and maintains a \u201cFirst Years\u201d group to encourage new hires to build comradery, and assist in recruiting efforts.\n\u00a0\u00a0 \nThe Company provides health care coverage for all RFT employees, life insurance, continuing education assistance, and reimbursement of employee health club membership. The Company ensures compliance with International Organization for Standardization (ISO\u201d) certification and maintains safety training.\n\u00a0\u00a0\nGOVERNANCE\n\u00a0\nThe Company\u2019s Board satisfies the diversity objectives of Nasdaq Rule 5605(1)(2) for Smaller Reporting Companies with two directors who identify as female, representing 33% of the total six Board members. The Board members also include individuals with Native American origin and multi-ethnicity. As the Company pursues future Board recruitment efforts, the Nominating Committee will continue to seek candidates who can contribute to the diversity of views and perspectives of the Board. This includes seeking out individuals of diverse ethnicities, a balance in terms of gender, and individuals with diverse perspectives informed by other personal and professional experiences.\n\u00a0\nAll employees and Board members sign a Code of Conduct and Ethics policy, and Insider Trading Policy upon hire. All employees are provided with the employee handbook which addresses sexual harassment, confidentiality, and Electronic Use Policy among others. Each of Company\u2019s directors and officers completes a Director and Officer Questionnaire to identify conflicts of interest or areas of concern. The Company also maintains Audit, Compensation and Nominating and Governance Committees to provide corporate oversight.\n\u00a0\n\u00a0\n9\nTable of Contents\n\u00a0\nHUMAN CAPITAL RESOURCES\n\u00a0\nAs of May 31, 2023, the Company, including its foreign subsidiaries and one branch office, employed 104 persons collectively, on a regular full-time basis, of whom 23 were engaged in research, development and related engineering, 31 were engaged in manufacturing, 39 were engaged in marketing, sales and customer support and 11 were engaged in general administration, finance and IT functions. In addition, the Company from time to time employs a number of contractors, temporary, and part-time employees, particularly to perform customer support and manufacturing.\n\u00a0\nThe Company\u2019s employees are dispersed across principal offices in the United States, Germany, Taiwan, and Philippines. In addition, our service and support organization has employees located worldwide, at or near customer facilities, to provide timely customer response. As of May 31, 2023 regular full-time employees were located in the following geographic areas: 80 United States, 1 Germany, 5 Taiwan, and 18 in the Philippines.\n\u00a0\nThe Company\u2019s success is in part dependent on its ability to attract and retain highly skilled workers, who are in high demand. None of the Company\u2019s employees are represented by a union and the Company has never experienced a work stoppage. The Company\u2019s management considers its relations with its employees to be good. The Company regularly evaluates its ability to attract and retain its employees. The Company has had relatively low turnover rates within its workforce, with 58% of its regular full-time workforce being with the Company for 5 years or more.\n\u00a0\nThe Company believes that the investments we make in driving a strong, values-based culture and supporting its employees through programs, development, and competitive pay enhances its organizational capability. Company management quarterly reviews retention and turnover, employee communications, performance review status, and compensation and benefits to identify potential issues or opportunities. The Company periodically performs employee surveys to monitor employee satisfaction and the Company follows-up with an action planning process to actively respond to employee feedback.\n\u00a0\nBUSINESS SEGMENT DATA AND GEOGRAPHIC AREAS\n\u00a0\nThe Company operates in one business segment, the designing, manufacturing, marketing and selling of advanced test and burn-in products to the semiconductor manufacturing industry in several geographic areas. Selected financial information, including net sales and property and equipment, net for each of the last three fiscal years, by geographic area is included in Part II, Item 8, Note 2, \u201cRevenue\u201d and Note 17, \u201cSegment Information\u201d and certain risks related to such operations are discussed in Part I, Item 1A, Risk Factors, under the heading \u201cWe sell our products and services worldwide, and our business is subject to risks inherent in conducting business activities in geographic regions outside of the United States.\u201d\n\u00a0\nAVAILABLE INFORMATION\n\u00a0\nThe Company\u2019s common stock trades on the NASDAQ Capital Market under the symbol \u201cAEHR.\u201d The Company\u2019s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports that are filed with the United States Securities and Exchange Commission, or SEC, pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge through the Company\u2019s website at www.aehr.com as soon as reasonably practicable after we electronically file them with, or furnish them to the SEC.\n\u00a0\nThe public may read and copy any materials filed by the Company with the SEC at the SEC\u2019s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.\n\u00a0\nIn addition, information regarding the Company\u2019s code of conduct and ethics and the charters of its Audit, Compensation and Nominating and Governance Committees, are available free of charge on the Company\u2019s website listed above.\n\u00a0",
+  "item1a": ">Item 1A. Risk Factors\n\u00a0\nYou should carefully consider the risks described below. These risks are not the only risks that we may face. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected which could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Annual Report on Form 10-K or presented elsewhere by management from time to time.\n\u00a0\n\u00a0\n10\nTable of Contents\n\u00a0\nRisks Related to our Business and Industry\n\u00a0\nWe generate a large portion of our sales from a small number of customers. If we were to lose one or more of our large customers, operating results could suffer dramatically.\n\u00a0\nThe semiconductor manufacturing industry is highly concentrated, with a relatively small number of large semiconductor manufacturers and contract assemblers accounting for a substantial portion of the purchases of semiconductor equipment. Sales to our five largest customers accounted for approximately 97%, 98%, and 84% of our net sales in fiscal 2023, 2022 and 2021, respectively. During fiscal 2023, two customers accounted for approximately 79% and 10% of our net sales. During fiscal 2022, one customer accounted for approximately 82% of our net sales. During fiscal 2021, four customers accounted for approximately 24%, 23%, 20% and 10%, respectively, of our net sales. No other customers accounted for more than 10% of our net sales for any of these periods.\n\u00a0\nWe expect that sales of our products to a limited number of customers will continue to account for a high percentage of our net sales for the foreseeable future. In addition, sales to particular customers may fluctuate significantly from quarter to quarter. The loss of, or reduction or delay of, an order or orders from a significant customer or customers, or a delay in collecting or failure to collect accounts receivable from a significant customer or customers, could adversely affect our business, financial condition and operating results.\n\u00a0\nThe semiconductor equipment industry is intensely competitive. In each of the markets we serve, we face competition from established competitors and potential new entrants, many of which have greater financial, engineering, manufacturing and marketing resources than us.\n\u00a0\nOur FOX wafer-level and singulated die/module test and burn in systems face competition from larger systems manufacturers that have significant technological know-how and manufacturing capability. Some users of our systems, such as independent test labs, build their own burn-in systems, while others, particularly large IC manufacturers in Asia, acquire burn-in systems from captive or affiliated suppliers. Our WaferPak products are facing and are expected to face increasing competition. Several companies have developed or are developing full-wafer and single-touchdown probe cards. The Company expects that its DiePak products for burning-in and testing multiple singulated die and small modules face significant competition. The Company believes that several companies have developed or are developing products which are intended to enable test and burn-in of multiple bare die, and small modules.\n\u00a0\nWe expect our competitors to continue to improve the performance of their current products and to introduce new products with improved price and performance characteristics. New product introductions by our competitors or by new market entrants could cause a decline in sales or loss of market acceptance of our products. We have observed price competition in the systems market, particularly with respect to its less advanced products. Increased competitive pressure could also lead to intensified price-based competition, resulting in lower prices which could adversely affect our operating margins and results. We believe that to remain competitive we must invest significant financial resources in new product development and expand our customer service and support worldwide. There can be no assurance that we will be able to compete successfully in the future.\n\u00a0\nWe rely on increasing market acceptance for our FOX system, and we may not be successful in attracting new customers or maintaining our existing customers.\n\u00a0\nA principal element of our business strategy is to increase our presence in the test equipment market through system sales in our FOX wafer-level and singulated die/module test and burn-in product family. Market acceptance of the FOX system is subject to a number of risks. Before a customer will incorporate the FOX system into a production line, lengthy qualification and correlation tests must be performed. We anticipate that potential customers may be reluctant to change their procedures in order to transfer burn-in and test functions to the FOX system. Initial purchases are expected to be limited to systems used for these qualifications and for engineering studies. Market acceptance of the FOX system also may be affected by a reluctance of IC manufacturers to rely on relatively small suppliers such as us. As is common with new complex products incorporating leading-edge technologies, we may encounter reliability, design and manufacturing issues as we begin volume production and initial installations of FOX systems at customer sites. The failure of the FOX system to achieve increased market acceptance would have a material adverse effect on our future operating results, long-term prospects and our stock price.\n\u00a0\u00a0\nA substantial portion of our net sales is generated by relatively small volume, high value transactions.\n\u00a0\nWe derive a substantial portion of our net sales from the sale of a relatively small number of systems with high dollar value. As a result, the loss or deferral of a limited number of system sales could have a material adverse effect on our net sales and operating results in a particular period. Most customer purchase orders are subject to cancellation or rescheduling by the customer with limited penalties, and, therefore, backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. From time to time, cancellations and rescheduling of customer \n\u00a0\n\u00a0\n11\nTable of Contents\n\u00a0\norders have occurred, and delays by our suppliers in providing components or subassemblies to us have caused delays in our shipments of our own products. There can be no assurance that we will not be materially adversely affected by future cancellations or rescheduling by our customers or other delays in our shipments. For non-standard products where we have not effectively demonstrated the ability to meet specifications in the customer environment, we defer revenue until we have met such customer specifications. Any delay in meeting customer specifications could have a material adverse effect on our operating results. A substantial portion of net sales typically are realized near the end of each quarter. A delay or reduction in shipments near the end of a particular quarter, due, for example, to unanticipated shipment rescheduling, cancellations or deferrals by customers, customer credit issues, unexpected manufacturing difficulties experienced by us or delays in deliveries by suppliers, could cause net sales in a particular quarter to fall significantly.\n\u00a0\nWe may experience increased costs associated with new product introductions.\n\u00a0\nAs is common with new complex products incorporating leading-edge technologies, we have encountered reliability, design and manufacturing issues as we begin volume production and initial installations of certain products at customer sites. Some of these issues in the past have been related to components and subsystems supplied to us by third parties who have in some cases limited the ability of us to address such issues promptly. This process in the past required and in the future is likely to require us to incur un-reimbursed engineering expenses and to experience larger than anticipated warranty claims which could result in product returns. In the early stages of product development there can be no assurance that we will discover any reliability, design and manufacturing issues or, that if such issues arise, that they can be resolved to the customers\u2019 satisfaction or that the resolution of such problems will not cause us to incur significant development costs or warranty expenses or to lose significant sales opportunities.\n\u00a0\nThe Company is exposed to cybersecurity threats or incidents.\n\u00a0\nWe collect, maintain, and transmit data on information systems. These systems include those owned and maintained by the Company or by third parties. In addition, we use cloud-based enterprise resource planning, ERP, software to manage the business integrating all facets of operations, including manufacturing, finance, and sales and marketing. The data maintained on these systems includes confidential and proprietary information belonging to us, our customers, suppliers, and others. While the Company devotes significant resources to protect its systems and data from unauthorized access or misuse, we are exposed to cybersecurity risks. Our systems are subject to computer viruses, data breach, phishing schemes, and other malicious software programs or attacks. We have experienced cyber threats and incidents in the past. Although past threats and incidents have not resulted in a material adverse effect, cybersecurity incidents may result in business disruption, loss of data, or unauthorized access to intellectual property which could adversely affect our business.\n\u00a0\nOur industry is subject to rapid technological change and our ability to remain competitive depends on our ability to introduce new products in a timely manner.\n\u00a0\nThe semiconductor equipment industry is subject to rapid technological change and new product introductions and enhancements. Our ability to remain competitive depends in part upon our ability to develop new products and to introduce them at competitive prices and on a timely and cost-effective basis. Our success in developing new and enhanced products depends upon a variety of factors, including product selection, timely and efficient completion of product design, timely and efficient implementation of manufacturing and assembly processes, product performance in the field and effective sales and marketing. Because new product development commitments must be made well in advance of sales, new product decisions must anticipate both future demand and the technology that will be available to supply that demand. Furthermore, introductions of new and complex products typically involve a period in which design, engineering and reliability issues are identified and addressed by our suppliers and by us. There can be no assurance that we will be successful in selecting, developing, manufacturing and marketing new products that satisfy market demand. Any such failure would materially and adversely affect our business, financial condition and results of operations.\n\u00a0\nBecause of the complexity of our products, significant delays can occur between a product\u2019s introduction and the commencement of the volume production of such product. We have experienced, from time to time, significant delays in the introduction of, and technical and manufacturing difficulties with, certain of our products and may experience delays and technical and manufacturing difficulties in future introductions or volume production of our new products. Our inability to complete new product development, or to manufacture and ship products in time to meet customer requirements would materially adversely affect our business, financial condition and results of operations.\n\u00a0\nA decrease in customer device failure rates may result in a decrease in demand for our products.\n\u00a0\nCustomer tool utilization is driven by many factors including failure rates of customer devices. Improvements in yield may result in customers decreasing test and burn-in times, or electing to perform sampling rather than 100% burn-in \n\u00a0 \n\u00a0\n12\nTable of Contents\n\u00a0\nof their devices. Based upon data obtained from our systems customers may revise internal manufacturing processes to decrease failure rates. A decrease in customer tool utilization may result in a decrease in demand for our products impacting our business and results of operations.\n\u00a0\u00a0\nFuture changes in semiconductor technologies may make our products obsolete.\n\u00a0\nFuture improvements in semiconductor design and manufacturing technology may reduce or eliminate the need for our products. For example, improvements in semiconductor process technology and improvements in conventional test systems, such as reduced cost or increased throughput, may significantly reduce or eliminate the market for one or more of our products. If we are not able to improve our products or develop new products or technologies quickly enough to maintain a competitive position in our markets, our business may decline.\n\u00a0\nOperational and Other Risks\n\u00a0\nSupply chain issues, including a shortage of critical components or contract manufacturing capacity, could result in a delay in fulfillment of customer orders, or an increase in costs, resulting in an adverse impact on our business and operating results.\n\u00a0\nOur sales growth depends on our ability to obtain timely deliveries of parts from our suppliers and contract manufacturers. There is currently a market shortage of semiconductor and other component supply which has affected, and could further affect, lead times, the cost of supply, and our ability to meet customer demand for our products. While we have taken steps to obtain an assurance of supply from our key suppliers, the market shortage of semiconductor supply may impact our ability to meet customer order fulfillments, or result in a significant increase in costs of our inventories. Manufacturing issues or capacity problems experienced by our suppliers or contract manufacturers could impact our ability to secure sufficient supply of critical components. Due to the market shortage of semiconductor supply, suppliers and contract manufacturers may commit their capacity to others, limiting our supplies or increasing costs. The failure to obtain timely delivery of supplies, or a significant increase in costs, could result in a material impact in our business and results from operations.\n\u00a0\nWe sell our products and services worldwide, and our business is subject to risks inherent in conducting business activities in geographic regions outside of the United States.\n\u00a0\nApproximately 86%, 90%, and 68% of our net sales in fiscal 2023, 2022 and 2021, respectively, were attributable to sales to customers for delivery outside of the United States. We provide sales and service in North America and Taiwan, operate a sales organization in Germany and a service organization in the Philippines, as well as direct support through third party agreements in China and South Korea. We expect that sales of products for delivery outside of the United States will continue to represent a substantial portion of our future sales. Our future performance will depend, in significant part, upon our ability to continue to compete in foreign markets which in turn will depend, in part, upon a continuation of current trade relations between the United States and foreign countries in which semiconductor manufacturers or assemblers have operations. A change toward more protectionist trade legislation in either the United States or such foreign countries, such as a change in the current tariff structures, export compliance or other trade policies, could adversely affect our ability to sell our products in foreign markets. In addition, we are subject to other risks associated with doing business internationally, including longer receivable collection periods and greater difficulty in accounts receivable collection, the burden of complying with a variety of foreign laws, difficulty in staffing and managing global operations, risks of civil disturbance or other events which may limit or disrupt markets, international exchange restrictions, changing political conditions and monetary policies of foreign governments.\n\u00a0\nOur net sales for fiscal 2023 were primarily denominated in U.S. Dollars. However, because a substantial portion of our net sales is from sales of products for delivery outside the United States, an increase in the value of the U.S. Dollar relative to foreign currencies would increase the cost of our products compared to products sold by local companies in such markets. In addition, since the price is determined at the time a purchase order is accepted, we are exposed to the risks of fluctuations in the U.S. Dollar exchange rate during the lengthy period from the date a purchase order is received until payment is made. This exchange rate risk is partially offset to the extent our foreign operations incur expenses in the local currency. To date, we have not invested in any instruments designed to hedge currency risks. Our operating results could be adversely affected by fluctuations in the value of the U.S. Dollar relative to other currencies.\n\u00a0\nWe purchase materials from suppliers worldwide, which subjects the Company to increased risk.\n\u00a0\nWe purchase components, sub-assemblies, and chambers from suppliers outside the United States. Increases in tariffs, additional taxes, or trade barriers may result in an increase in our manufacturing costs. A decrease in the value of the U.S. Dollar relative to foreign currencies would increase the cost of our materials. Should the Company increase its sales prices to recover the increase in costs, this could result in a decrease in the competitiveness of our products. In addition, we are subject to other risks associated with purchasing materials from suppliers worldwide. Government \n\u00a0 \n\u00a0\n13\nTable of Contents\n\u00a0\nauthorities may also implement protectionist policies or impose limitations on the transfer of intellectual property. This may limit our ability to obtain products from certain geographic regions and require us to identify and qualify new suppliers. The process of qualifying suppliers could be lengthy, and no assurance can be given that any additional sources would be available to us on a timely basis. Changes in trade relations, currency fluctuations, or protectionist policies could have a material adverse effect on our business, financial condition or results of operations.\n\u00a0\u00a0\nGlobal unrest may impact our ability to sell our products or obtain critical materials.\n\u00a0\nGlobal economic uncertainty and financial market volatility caused by political instability, changes in international trade relationships and conflicts, such as the conflict between Russia and Ukraine and the political climate in China and Taiwan may result in limited access to these markets for sales and material purchases. Periods of macroeconomic weakness or recession and heightened market volatility caused by adverse geopolitical developments could increase these risks, potentially resulting in adverse impacts on our business operations. Increased energy costs in Europe, resulting from Russia\u2019s limiting energy supplies in the region, may result in an economic downturn or an increase in the cost of materials. The recent decline in relations between the United States and China, and relations between China and Taiwan, may result in the imposition of trade restrictions with China or Taiwan. While we have limited sales in Europe and Taiwan, and procurement from these regions, unrest in these areas may result in a decrease in sales of our products, or an increase in costs of materials and services.\n\u00a0\nOur dependence on subcontractors and sole source suppliers may prevent us from delivering our products on a timely basis and expose us to intellectual property infringement.\n\u00a0\nWe rely on subcontractors to manufacture many of the components or subassemblies used in our products. Our FOX systems, WaferPak contactors, DiePak carriers, WaferPak Aligners, and DiePak Loaders contain several components, including environmental chambers, power supplies, high-density interconnects, wafer contactors, module contactors, signal distribution substrates, and certain ICs that are currently supplied by only one or a limited number of suppliers. Our reliance on subcontractors and single source suppliers involves a number of significant risks, including the loss of control over the manufacturing process, the potential absence of adequate capacity and reduced control over delivery schedules, manufacturing yields, quality and costs. In the event that any significant subcontractor or single source supplier is unable or unwilling to continue to manufacture subassemblies, components or parts in required volumes, we would have to identify and qualify acceptable replacements. The process of qualifying subcontractors and suppliers could be lengthy, and no assurance can be given that any additional sources would be available to us on a timely basis. Any delay, interruption or termination of a supplier relationship could adversely affect our ability to deliver products, which would harm our operating results.\n\u00a0\nOur suppliers manufacture components, tooling, and provide engineering services. During this process, our suppliers are allowed access to our intellectual property. While we maintain patents to protect from intellectual property infringement, there can be no assurance that technological information gained in the manufacture of our products will not be used to develop a new product, improve processes or techniques which compete against our products. Litigation may be necessary to enforce or determine the validity and scope of our proprietary rights, and there can be no assurance that our intellectual property rights, if challenged, will be upheld as valid.\n\u00a0\nTightening of fiscal monetary policy, and periodic economic and semiconductor industry downturns could negatively affect our business, results of operations and financial condition.\n\u00a0\nInflation reached a 40-year high during 2022, and market rates of interest have risen after a prolonged period at historical lows. The increase in inflation has resulted in a tightening of world-wide monetary policy, which in turn has resulted in an increase in the cost of credit. Financial turmoil in the banking system and financial markets has resulted, and may result in the future, in a tightening of the credit markets, disruption in the financial markets and global economy downturn. Periodic global economic and semiconductor industry downturns have negatively affected and could continue to negatively affect our business, results of operations, and financial condition. These events may contribute to significant slowdowns in the industry in which we operate. Difficulties in obtaining capital and deteriorating market conditions can pose the risk that some of our customers may not be able to obtain necessary financing on reasonable terms, which could result in lower sales. Customers with liquidity issues may lead to additional bad debt expense.\n\u00a0\nTurmoil in the international financial markets has resulted, and may result in the future, in dramatic currency devaluations, stock market declines, restriction of available credit and general financial weakness. In addition, flash memory and other similar device prices have historically declined and will likely do so again in the future. These developments may affect us in several ways. The market for semiconductors and semiconductor capital equipment has historically been cyclical, and we expect this to continue in the future. The uncertainty of the semiconductor market may cause some manufacturers in the future to further delay capital spending plans. Economic conditions may also affect the ability of our customers to meet their payment obligations, resulting in cancellations or deferrals of existing orders and limiting additional orders. In addition, some governments have subsidized portions of fabrication facility construction, \n\u00a0\n\u00a0\n14\nTable of Contents\n\u00a0\nand financial turmoil may reduce these governments\u2019 willingness to continue such subsidies. Such developments could have a material adverse effect on our business, financial condition and results of operations.\n\u00a0\u00a0\nThe current economic conditions and uncertainty about future economic conditions make it challenging for us to forecast our operating results, make business decisions, and identify the risks that may affect our business, financial condition and results of operations. If such conditions recur, and we are not able to timely and appropriately adapt to changes resulting from the difficult macroeconomic environment, our business, financial condition or results of operations may be materially and adversely affected.\n\u00a0\nIf we are not able to reduce our operating expenses sufficiently during periods of weak revenue, or if we utilize significant amounts of cash to support operating losses, we may erode our cash resources and may not have sufficient cash to operate our business.\n\u00a0\nWe have in the past, in the face of a downturn in our business and a decline in our net sales, implemented a variety of cost controls and restructured our operations with the goal of reducing our operating costs to position ourselves to more effectively meet the needs of the then weak market for test and burn-in equipment. While we took significant steps to minimize our expense levels and to increase the likelihood that we would have sufficient cash to support operations during the downturn, we have experienced historical operating losses. We anticipate that our existing cash balance together with income from operations, collections of existing accounts receivable, revenue from our existing backlog of products, the sale of inventory on hand, and deposits and down payments against significant orders, and available balance under our ATM offering,\u00a0will be adequate to meet our working capital and capital equipment requirements. Depending on our rate of growth and profitability, and our ability to obtain significant orders with down payments, we may require additional equity or debt financing to meet our working capital requirements or capital equipment needs. There can be no assurance that additional financing will be available when required, or if available, that such financing can be obtained on terms satisfactory to us.\n\u00a0\nWe may be subject to litigation relating to intellectual property infringement which would be time-consuming, expensive and a distraction from our business.\n\u00a0\nIf we do not adequately protect our intellectual property, competitors may be able to use our proprietary information to erode our competitive advantage, which could harm our business and operating results. Litigation may be necessary to enforce or determine the validity and scope of our proprietary rights, and there can be no assurance that our intellectual property rights, if challenged, will be upheld as valid. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our operating results, regardless of the outcome of the litigation. In addition, there can be no assurance that any of the patents issued to us will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to us.\n\u00a0\nThere are no pending claims against us regarding infringement of any patents or other intellectual property rights of others. However, in the future we may receive communications from third parties asserting intellectual property claims against us. Such claims could include assertions that our products infringe, or may infringe, the proprietary rights of third parties, requests for indemnification against such infringement or suggestions that we may be interested in acquiring a license from such third parties. There can be no assurance that any such claim will not result in litigation, which could involve significant expense to us, and, if we are required or deem it appropriate to obtain a license relating to one or more products or technologies, there can be no assurance that we would be able to do so on commercially reasonable terms, or at all.\n\u00a0\nWhile we believe we have complied with all applicable environmental laws, our failure to do so could adversely affect our business as a result of having to pay substantial amounts in damages or fees.\n\u00a0\nFederal, state and local regulations impose various controls on the use, storage, discharge, handling, emission, generation, manufacture and disposal of toxic and other hazardous substances used in our operations. We believe that our activities conform in all material respects to current environmental and land use regulations applicable to our operations and our current facilities, and that we have obtained environmental permits necessary to conduct our business. Nevertheless, failure to comply with current or future regulations could result in substantial fines, suspension of production, alteration of our manufacturing processes or cessation of operations. Such regulations could require us to acquire expensive remediation equipment or to incur substantial expenses to comply with environmental regulations. Any failure to control the use, disposal or storage of or adequately restrict the discharge of, hazardous or toxic substances could subject us to significant liabilities.\n\u00a0\n\u00a0\n15\nTable of Contents\n\u00a0\nRisks Related to Ownership of our Common Stock\n\u00a0\nOur stock price may fluctuate.\n\u00a0\nThe price of our common stock has fluctuated in the past and may fluctuate significantly in the future. We believe that factors such as announcements of developments related to our business, fluctuations in our operating results, general conditions in the semiconductor and semiconductor equipment industries as well as the worldwide economy, announcement of technological innovations, new systems or product enhancements by us or our competitors, fluctuations in the level of cooperative development funding, acquisitions, changes in governmental regulations, developments in patents or other intellectual property rights and changes in our relationships with customers and suppliers could cause the price of our common stock to fluctuate substantially. In addition, in recent years the stock market in general, and the market for small capitalization and high technology stocks in particular, have experienced extreme price fluctuations which have often been unrelated to the operating performance of the affected companies. Such fluctuations could adversely affect the market price of our common stock.\n\u00a0\nIncreased scrutiny and changing expectations from stakeholders with respect to the Company\u2019s ESG practices may result in additional costs or risks.\n\u00a0\nCompanies across many industries are facing increasing scrutiny related to their ESG practices. Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the non-financial impacts of their investments. If our ESG practices do not meet investor or other industry stakeholder expectations, which continue to evolve, we may incur additional costs and our brand, ability to attract and retain qualified employees and business may be harmed.\n\u00a0\nRisks Related to our Legal/Organizational Structure\n\u00a0\nWe depend on our key personnel and our success depends on our ability to attract and retain talented employees.\n\u00a0\nOur success depends to a significant extent upon the continued service of Gayn Erickson, our President and Chief Executive Officer, as well as other executive officers and key employees. We do not maintain key person life insurance for our benefit on any of our personnel, and none of our employees are subject to a non-competition agreement with us. The loss of the services of any of our executive officers or a group of key employees could have a material adverse effect on our business, financial condition and operating results. Our future success will depend in significant part upon our ability to attract and retain highly skilled technical, management, sales and marketing personnel. There are a limited number of personnel with the requisite skills to serve in these positions, and it has become increasingly difficult for us to hire such personnel. Competition for such personnel in the semiconductor equipment industry is intense, and there can be no assurance that we will be successful in attracting or retaining such personnel. Changes in management could disrupt our operations and adversely affect our operating results.\n\u00a0\nIf we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.\n\u00a0\nWe are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The provisions of the act require, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. Preparing our financial statements involves a number of complex processes, many of which are done manually and are dependent upon individual data input or review. These processes include, but are not limited to, calculating revenue, deferred revenue and inventory costs. While we continue to automate our processes and enhance our review and put in place controls to reduce the likelihood for errors, we expect that for the foreseeable future, many of our processes will remain manually intensive and thus subject to human error.\n\u00a0\nThe collapse of certain U.S. banks and potentially other financial institutions may have adverse impacts on our business.\n\u00a0\nOn March 10, 2023, Silicon Valley Bank (\u201cSVB\u201d) was shut down, followed on March 11, 2023 by Signature Bank and the Federal Deposit Insurance Corporation was appointed as receiver for those banks. Since that time, there have been reports of instability at other U.S. banks. The Company\u2019s cash and investment balances held at banks and brokerage firms may at time exceed federally insured levels. On March 15, 2023, the Company filed a Current Report on Form 8-K with the SEC, disclosing its exposure to SVB and stating that the Company did not expect a significant impact on its operations.\n\u00a0\n\u00a0\n16\nTable of Contents\n\u00a0",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n\u00a0\nThe following discussion and analysis of the financial condition and results of operations should be read in conjunction with our \u201cSelected Consolidated Financial Data\u201d and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.\n\u00a0\nOVERVIEW\n\u00a0\nAehr Test Systems (\u201cAehr Test\u201d, \u201cAehr\u201d or \u201cWe\u201d) is a leading provider of test solutions for testing, burning-in, and stabilizing semiconductor devices in wafer level, singulated die, and package part form, and has installed thousands of systems worldwide. Increasing quality, reliability, safety, and security needs of semiconductors used across multiple applications, including electric vehicles, electric vehicle charging infrastructure, solar and wind power, computing, data and telecommunications infrastructure, and solid-state memory and storage, are driving additional test requirements, incremental capacity needs, and new opportunities for Aehr Test products and solutions.\n\u00a0\nWe have developed and introduced several innovative products including the FOX-P family of test and burn-in systems and FOX WaferPak Aligner, FOX WaferPak Contactor, FOX DiePak Carrier and FOX DiePak Loader. The FOX-XP and FOX-NP systems are full wafer contact and singulated die/module test and burn-in systems that can test, burn-in, and stabilize a wide range of devices such as leading-edge silicon carbide-based and other power semiconductors, 2D and 3D sensors used in mobile phones, tablets, and other computing devices, memory semiconductors, processors, microcontrollers, systems-on-a-chip, and photonics and integrated optical devices. The FOX-CP system is a low-cost single-wafer compact test solution for logic, memory and photonic devices and the newest addition to the FOX-P product family. The FOX WaferPak Contactor contains a unique full wafer contactor capable of testing wafers up to 300mm that enables Integrated Circuit manufacturers to perform test, burn-in, and stabilization of full wafers on the FOX-P systems. The FOX DiePak Carrier allows testing, burning in, and stabilization of singulated bare die and modules up to 1,024 devices in parallel per DiePak on the FOX-NP and FOX-XP systems up to nine DiePaks at a time.\n\u00a0\nOur net sales consist primarily of sales of FOX-P systems, WaferPak Aligners and DiePak Loaders, WaferPak contactors, DiePak carriers, test fixtures, upgrades and spare parts, service contracts revenues, and non-recurring engineering charges. Our selling arrangements may include contractual customer acceptance provisions, which are mostly deemed perfunctory or inconsequential, and installation of the product occurs after shipment, transfer of title and risk of loss.\n\u00a0\nCRITICAL ACCOUNTING POLICIES AND ESTIMATES\n\u00a0\nOur discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, investments, income taxes, financing operations, warranty obligations, and long-term service contracts, among others. Our estimates are derived from historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Those results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.\n\u00a0\nWe believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.\n\u00a0\nREVENUE RECOGNITION\n\u00a0\nThe Company recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below.\n\u00a0\nPerformance obligations include sales of systems, contactors, spare parts, and services, as well as installation and training services included in customer contracts.\n\u00a0\n\u00a0\n18\nTable of Contents\n\u00a0\nA contract\u2019s transaction price is allocated to each distinct performance obligation. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. The Company generally does not grant return privileges, except for defective products during the warranty period.\n\u00a0\nFor contracts that contain multiple performance obligations, the Company allocates the transaction price to the performance obligations on a relative standalone selling price basis. Standalone selling prices are based on multiple factors including, but not limited to, historical discounting trends for products and services and pricing practices in different geographies.\n\u00a0\nRevenue for systems and spares are recognized at a point in time, which is generally upon shipment or delivery. Revenue from services is recognized over time as services are completed or ratably over the contractual period of generally one year or less.\n\u00a0\nThe Company has elected the practical expedient to not assess whether a contract has a significant financing component as the Company\u2019s standard payment terms are less than one year.\n\u00a0\nWe sell our products primarily through a direct sales force. In certain international markets, we sell our products through independent distributors.\n\u00a0\nTransfer of control is evidenced upon passage of title and risk of loss to the customer unless we are required to provide additional services.\n\u00a0\nALLOWANCE FOR DOUBTFUL ACCOUNTS\n\u00a0\nWe maintain an allowance for doubtful accounts to reserve for potentially uncollectible trade receivables. We also review our trade receivables by aging category to identify specific customers with known disputes or collection issues. We exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends, general economic conditions in the United States and internationally and changes in customer financial conditions. Uncollectible receivables are recorded as bad debt expense when all efforts to collect have been exhausted and recoveries are recognized when they are received.\n\u00a0\nWARRANTY OBLIGATIONS\n\u00a0\nWe provide and record the estimated cost of product warranties at the time revenues are recognized on products shipped. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Our estimate of warranty reserve is based on management\u2019s assessment of future warranty obligations and on historical warranty obligations. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required.\n\u00a0\nINVENTORY OBSOLESCENCE\n\u00a0\nIn each of the last three fiscal years, we wrote down our inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions, see Note 7, \u201cBalance Sheet Detail.\u201d If future market conditions are less favorable than those projected by management, additional inventory write-downs may be required.\n\u00a0\nINCOME TAXES\n\u00a0\nIncome taxes are accounted for under the asset-and-liability method as required by the Financial Accounting Standards Board (\u201cFASB\u201d) Accounting Standards Codification (\u201cASC\u201d) Topic 740, Income Taxes (\u201cASC 740\u201d). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period corresponding to the enactment date. Under ASC 740, a valuation allowance is required when it is more likely than not all or some portion of the deferred tax assets will not be realized through generating sufficient future taxable income.\n\u00a0 \nAs of May 31, 2023 the Company maintained a full valuation allowance against its deferred tax assets. We will continue to assess whether sufficient future taxable income will be generated to permit the use of deferred tax assets, and will reverse all or a portion of the allowance when there is sufficient evidence to support the reversal. Based upon our prior two fiscal years of profitability,\u00a0the outlook for the next fiscal year, and absent any additional objective negative evidence, the Company anticipates adjusting the current valuation allowance position in fiscal 2024.\n\u00a0\u00a0\nFASB ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes, (\u201cASC 740-10\u201d) defines the criterion an individual tax position must meet for any part of the benefit of the tax position to be recognized in financial statements \n\u00a0\n\u00a0\n19\nTable of Contents\n\u00a0\nprepared in conformity with GAAP. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not such tax position will be sustained on examination by the taxing authorities, based solely on the technical merits of the respective tax position. The tax benefits recognized in the financial statements from such a tax position should be measured based on the largest benefit having a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. In accordance with the disclosure requirements of ASC 740-10, the Company\u2019s policy on income statement classification of interest and penalties related to income tax obligations is to include such items as part of income taxes.\n\u00a0\nSTOCK-BASED COMPENSATION EXPENSE\n\u00a0\nStock-based compensation expense consists of expenses for stock options, restricted stock units, or RSUs, and employee stock purchase plan, or ESPP, purchase rights. Stock-based compensation cost for stock options and ESPP purchase rights is measured at each grant date, based on the fair value of the award using the Black-Scholes option valuation model, and is recognized as expense over the employee\u2019s requisite service period. This model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable. Our employee stock options have characteristics significantly different from those of publicly traded options. For RSUs, stock-based compensation expense is based on the fair value of our common stock at the grant date, and is recognized as expense over the employee\u2019s requisite service period. All of our stock-based compensation is accounted for as an equity instrument.\n\u00a0\nThe fair value of each option grant and the right to purchase shares under our ESPP are estimated on the date of grant using the Black-Scholes option valuation model with assumptions concerning expected term, stock price volatility, expected dividend yield, risk-free interest rate and the expected life of the award. See Note 13 to our consolidated financial statements for detailed information relating to stock-based compensation and the stock option plan and the ESPP.\n\u00a0\nRESULTS OF OPERATIONS\n\u00a0\nThe following table sets forth statements of operations data as a percentage of net sales for the periods indicated.\n\u00a0\n\u00a0\n\u00a0\nYear Ended May 31,\n\u00a0\n\u00a0\n\u00a0\n2023\n\u00a0\n\u00a0\n2022\n\u00a0\n\u00a0\n2021\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nNet sales\n\u00a0\n\u00a0\n100.0\n%\n\u00a0\n\u00a0\n100.0\n%\n\u00a0\n\u00a0\n100.0\n%\nCost of sales\n\u00a0\n\u00a0\n49.6\n\u00a0\n\u00a0\n\u00a0\n53.4\n\u00a0\n\u00a0\n\u00a0\n63.7\n\u00a0\nGross profit\n\u00a0\n\u00a0\n50.4\n\u00a0\n\u00a0\n\u00a0\n46.6\n\u00a0\n\u00a0\n\u00a0\n36.3\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nOperating expenses:\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nSelling, general and administrative\n\u00a0\n\u00a0\n18.8\n\u00a0\n\u00a0\n\u00a0\n19.8\n\u00a0\n\u00a0\n\u00a0\n39.5\n\u00a0\nResearch and development\n\u00a0\n\u00a0\n11.0\n\u00a0\n\u00a0\n\u00a0\n11.5\n\u00a0\n\u00a0\n\u00a0\n22.0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nTotal operating expenses\n\u00a0\n\u00a0\n29.8\n\u00a0\n\u00a0\n\u00a0\n31.3\n\u00a0\n\u00a0\n\u00a0\n61.5\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nIncome (loss) from operations\n\u00a0\n\u00a0\n20.6\n\u00a0\n\u00a0\n\u00a0\n15.3\n\u00a0\n\u00a0\n\u00a0\n(25.2\n)\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nInterest income (expense), net\n\u00a0\n\u00a0\n1.9\n\u00a0\n\u00a0\n\u00a0\n0.1\n\u00a0\n\u00a0\n\u00a0\n(0.3\n)\nNet gain from dissolution of Aehr Test Systems Japan\n\u00a0\n\u00a0\n--\n\u00a0\n\u00a0\n\u00a0\n--\n\u00a0\n\u00a0\n\u00a0\n13.2\n\u00a0\nGain from forgiveness of PPP loan\n\u00a0\n\u00a0\n--\n\u00a0\n\u00a0\n\u00a0\n3.3\n\u00a0\n\u00a0\n\u00a0\n--\n\u00a0\nOther (expense) income, net\n\u00a0\n\u00a0\n--\n\u00a0\n\u00a0\n\u00a0\n0.1\n\u00a0\n\u00a0\n\u00a0\n(1.0\n)\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nIncome (loss) before income tax (expense) benefit\n\u00a0\n\u00a0\n22.5\n\u00a0\n\u00a0\n\u00a0\n18.8\n\u00a0\n\u00a0\n\u00a0\n(13.3\n)\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nIncome tax (expense) benefit\n\u00a0\n\u00a0\n(0.1\n)\n\u00a0\n\u00a0\n(0.2\n)\n\u00a0\n\u00a0\n1.1\n\u00a0\nNet income (loss) \n\u00a0\n\u00a0\n22.4\n%\n\u00a0\n\u00a0\n18.6\n%\n\u00a0\n\u00a0\n(12.2\n)%\n\u00a0\u00a0\u00a0\nFISCAL YEAR ENDED MAY 31, 2023 COMPARED TO FISCAL YEAR ENDED MAY 31, 2022\n\u00a0 \nNET SALES.\u00a0\u00a0Net sales increased to $65.0 million for the fiscal year ended May 31, 2023 from $50.8 million for the fiscal year ended May 31, 2022, an increase of 27.8%.\u00a0\u00a0The increase in net sales for the fiscal year ended May 31, 2023 was primarily due to the increases in net sales of our wafer-level test products. \u00a0Net sales of our wafer-level test products \n\u00a0 \n\u00a0\n20\nTable of Contents\n\u00a0\nfor fiscal 2023 were $63.5 million and increased approximately $14.6 million from fiscal 2022\u00a0due to strong demand for our FOX-P systems. \u00a0\n\u00a0 \nGROSS PROFIT. Gross profit increased to $32.7 million for the fiscal year ended May 31, 2023 from $23.7 million for the fiscal year ended May 31, 2022, an increase of 38.4%. Gross margin increased to 50.4% for the fiscal year ended May 31, 2023 from 46.6% for the fiscal year ended May 31, 2022. The increase in gross margin was primarily the result of a decrease in other cost of sales of 1.6 percentage points primarily due to lower costs of provision for inventory reserves, a decrease in labor and overhead of 1.2 percentage points due to manufacturing efficiencies due to higher sales volume, and a benefit of 1.0 percentage points due to lower direct material costs.\n\u00a0\nSELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses were $12.2 million for the fiscal year ended May 31, 2023, compared with $10.0 million for the fiscal year ended May 31, 2022, an increase of 21.8%. The increase in SG&A expenses was primarily the result of increased shareholder relation costs of $0.5 million, recruiting and relocation of $0.3 million, and employment-related expenses of $0.3 million to support our growing business.\n\u00a0\nRESEARCH AND DEVELOPMENT. R&D expenses were $7.1 million for the fiscal year ended May 31, 2023, compared with $5.8 million for the fiscal year ended May 31, 2022, an increase of 22.6%. The increase in R&D expenses was primarily due to increases in project expenses of $0.6 million and employment-related expenses of $0.5 million related to R&D initiatives during fiscal 2023.\n\u00a0\nINTEREST INCOME (EXPENSE), NET. Interest income, net was $1.2 million and $13,000 for the fiscal years ended May 31, 2023 and 2022, respectively. Higher interest income for the fiscal year ended May 31, 2023 was driven by\u00a0higher cash deposits and higher interest rates\u00a0in fiscal year ended May 31, 2023.\n\u00a0\nGAIN FROM FORGIVENESS OF PPP LOAN. On June 12, 2021, we received confirmation from SVB that on June 4, 2021, the Small Business Administration approved our Payroll Protection Program loan (\u201cPPP Loan\u201d) forgiveness application for the entire PPP Loan balance of $1,679,000 and interest totaling $19,000, and we recognized a gain of $1,698,000.\n\u00a0\nOTHER (EXPENSE) INCOME, NET. Other expense, net was $3,000 for the fiscal year ended May 31, 2023, compared with other income, net of $30,000 for the fiscal year ended May 31, 2022. The change in other (expense) income, net was primarily due to losses or gains realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods.\n\u00a0\nINCOME TAX (EXPENSE) BENEFIT. Income tax expense was $60,000 and $91,000 for the fiscal years ended May 31, 2023 and 2022, respectively. Income tax expense for both fiscal years were related to income taxes incurred in foreign tax jurisdictions. Income tax expense was not significant due to available net operating loss and research and development credit carryforwards.\n\u00a0\nFISCAL YEAR ENDED MAY 31, 2022 COMPARED TO FISCAL YEAR ENDED MAY 31, 2021\n\u00a0\nNET SALES.\u00a0\u00a0Net sales increased to $50.8 million for the fiscal year ended May 31, 2022 from $16.6 million for the fiscal year ended May 31, 2021, an increase of 206.2%.\u00a0\u00a0The increase in net sales for the fiscal year ended May 31, 2022 was primarily due to the increases in net sales of our wafer-level products. \u00a0Net sales of our wafer-level products for fiscal 2022 were $48.9 million, and increased approximately $33.9 million from fiscal 2021\u00a0due to stronger demand related to silicon carbide applications.\u00a0 \n\u00a0 \nGROSS PROFIT. Gross profit increased to $23.7 million for the fiscal year ended May 31, 2022 from $6.0 million for the fiscal year ended May 31, 2021, an increase of 292.3%. Gross profit margin increased to 46.6% for the fiscal year ended May 31, 2022 from 36.3% for the fiscal year ended May 31, 2021. The increase in gross profit margin was primarily the result of manufacturing efficiencies due to an increase in net sales.\n\u00a0\nSELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses were $10.0 million for the fiscal year ended May 31, 2022, compared with $6.6 million for the fiscal year ended May 31, 2021, an increase of 53.1%. The increase in SG&A expenses was primarily the result of increased bonuses, stock-based compensation, and commission expense due to an increase in net sales and profitability, and an increase in headcount.\n\u00a0\nRESEARCH AND DEVELOPMENT. R&D expenses were $5.8 million for the fiscal year ended May 31, 2022, compared with $3.7 million for the fiscal year ended May 31, 2021, an increase of 59.3%. The increase in R&D expenses was primarily due to increases in employment-related expenses of $1.7 million, outside services of $316,000, and project expenses of $155,000. The increase in employment-related expenses was primarily the result of increased bonuses and stock-based compensation due to an increase in net sales and profitability, and an increase in headcount.\n\u00a0\n\u00a0\n21\nTable of Contents\n\u00a0\nINTEREST INCOME (EXPENSE), NET. Interest income, net was $13,000 for the fiscal year ended May 31, 2022, compared with interest expense of $46,000 for the fiscal year ended May 31, 2021. The interest expense for the fiscal year ended May 31, 2021 was from the PPP Loan that we obtained on April 23, 2020.\n\u00a0\nNET GAIN FROM DISSOLUTION OF AEHR TEST SYSTEMS JAPAN. Net gain from dissolution of Aehr Test Systems Japan was $2.2 million for the fiscal year ended May 31, 2021, due to the release of the cumulative translation adjustment in connection with the complete liquidation of Aehr Test Systems Japan subsidiary in July 2020.\n\u00a0\nGAIN FROM FORGIVENESS OF PPP LOAN. On June 12, 2021, we received confirmation from SVB that on June 4, 2021, the Small Business Administration approved our PPP Loan forgiveness application for the entire PPP Loan balance of $1,679,000 and interest totaling $19,000, and we recognized a gain of $1,698,000.\n\u00a0\nOTHER (EXPENSE) INCOME, NET. Other income, net was $30,000 for the fiscal year ended May 31, 2022, compared with other expense, net of $162,000 for the fiscal year ended May 31, 2021. The change in other (expense) income, net was primarily due to gains or losses realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods.\n\u00a0\nINCOME TAX (EXPENSE) BENEFIT. Income tax expense for the fiscal year ended May 31, 2022 was $91,000 compared with income tax benefit of $177,000 for the fiscal year ended May 31, 2021. During the fiscal year ended May 31, 2021, the currency translation adjustment balance was released and the residual income tax effect of $215,000 was recorded pursuant to the inter-period allocation rules in connection with the complete liquidation of Aehr Test Systems Japan subsidiary in July 2020.\n\u00a0\nLIQUIDITY AND CAPITAL RESOURCES\n\u00a0\nWe consider cash, cash equivalents and short-term investments as liquid and available for use. As of May 31, 2023 and 2022, respectively, we had $30.2 million and $31.6 million in cash, cash equivalents and restricted cash. We also had $17.9 million in short-term investments as of May 31, 2023.\n\u00a0\nNet cash provided by operating activities was $10.0 million and $1.5 million for the fiscal year ended May 31, 2023 and 2022, respectively. For the fiscal year ended May 31, 2023, net cash provided by operating activities was primarily the result of net income of $14.6 million, net of a non-cash charge of stock-based compensation expense of $2.7 million, depreciation and amortization of $0.5 million, and accretion of investment discount of $0.6 million. Other changes in cash from operations primarily resulted from increases in inventories and trade and other accounts receivable of $9.5 million and $3.8 million, respectively, partially offset by increases in accounts payable, accrued expenses and customer deposits and deferred revenue of $5.0 million, $0.5 million and $0.4 million, respectively. The increase in inventory was to support expected future shipments for customer orders. The increase in trade and other accounts receivable was primarily due to higher revenues and lower customer deposits on shipments. The increase in accounts payable was primarily due to inventory purchases to support future shipments. For the fiscal year ended May 31, 2022, net cash provided by operating activities was primarily the result of net income of $9.5 million, as adjusted to exclude the effect of forgiveness of PPP loan of $1.7 million, and a non-cash charge of stock-based compensation expense of $3.0 million and depreciation and amortization of $356,000. Other changes in cash from operations primarily resulted from increases in accounts receivable and inventories of $7.8 million and $6.7 million, respectively, partially offset by increases in customer deposits and deferred revenue, accrued expenses, and accounts payable of $2.2 million, $1.5 million and $1.4 million, respectively. The increase in accounts receivable was primarily due to the increase in and timing of revenue generated toward the end of the fiscal year ended May 31, 2022. The increase in inventory was to support expected future shipments for customer orders. The increase in customer deposits and deferred revenue was primarily due to the receipt of additional down payments from certain customers. The increase in accrued expenses was primarily due to an increase in accrued employment related expenses including profit sharing, commissions, bonuses, and vacations. The increase in accounts payable was primarily due to inventory purchases to support future shipments.\n\u00a0\nNet cash used in investing activities was $18.7 million and $0.4 million for the fiscal years ended May 31, 2023 and 2022, respectively. During the fiscal year ended May 31, 2023, net cash used in investing activities was due to the purchases of U.S. treasury securities of $33.3 million, partially offset by proceeds from maturities of U.S. treasury securities of $16 million, and the purchases of property and equipment of $1.4 million. During the fiscal year ended May 31, 2022, net cash used in investing activities was due to purchases of property and equipment.\n\u00a0\nFinancing activities provided cash of $7.3 million and $25.8 million for the fiscal years ended May 31, 2023 and 2022, respectively. Net cash provided by financing activities during the fiscal year ended May 31, 2023 was primarily due to the net proceeds from issuance of common stock from public offering of $6.8 million, and the proceeds from the issuance of common stock under employee benefit plans of $2.6 million, partially offset by the shares repurchased for tax withholdings on vesting of RSUs and PRSUs of $2.1 million. Net cash provided by financing activities during the fiscal year ended May 31, 2022 was primarily due to the net proceeds from issuance of common stock from public \n\u00a0 \n\u00a0\n22\nTable of Contents\n\u00a0\noffering of $24.0 million, and the proceeds from the issuance of common stock under employee benefit plans of $3.6 million, partially offset by the shares repurchased for tax withholdings on vesting of RSUs of $0.4 million, and by the net payment of the line of credit of $1.4 million.\n\u00a0\u00a0\nThe effect of fluctuation in exchange rates decreased cash by $37,000 for the fiscal years ended May 31, 2023 and increased cash by $49,000 for the fiscal years ended May 31, 2022. The changes were due to the fluctuation in the value of the dollar compared to foreign currencies.\n\u00a0\nAs of May 31, 2023 and 2022, we had working capital of $72.7 million and $49.0 million, respectively.\n\u00a0\nFor the fiscal year ended May 31, 2021, net cash used in operating activities was primarily the result of the net loss of $2.0 million, as adjusted to exclude the effect of net gain from dissolution of Aehr Test Systems Japan of $2.4 million, including an income tax benefit of $215,000, a non-cash charge for stock-based compensation expense of $1.1 million and depreciation and amortization of $328,000. Net cash used in operations was also impacted by increases in accounts receivable and inventories of $1.4 million and $972,000, respectively, partially offset by increases in accounts payable and accrued expenses of $1.9 million and $732,000, respectively. The increase in accounts receivable was primarily due to higher shipment activities toward the end of fiscal year ended May 31, 2021. The increase in inventory was to support expected future shipments for customer orders. The increase in accounts payable was primarily due to inventory purchases to support future shipments. The increase in accrued expenses was primarily due to increases in warranty provision and accrued employment related expenses.\n\u00a0\nNet cash used in investing activities was $227,000 for the fiscal year ended May 31, 2021 was due to the purchase of property and equipment.\n\u00a0\nNet cash provided by financing activities was $2.0 million for the fiscal year ended May 31, 2021 was due to $1.4 million borrowing from our line of credit and $560,000 in proceeds from the issuance of common stock under employee plans.\n\u00a0\nThe effect of fluctuation in exchange rates increased cash by $117,000 for the fiscal year ended May 31, 2021 due to the fluctuation in the value of the dollar compared to foreign currencies.\n\u00a0\nWe lease our manufacturing and office space under operating leases. We entered into a non-cancelable operating lease agreement for our United States manufacturing and office facilities, which was renewed in December 2022 and expires in September 2030. As of May 31, 2023 our operating lease liabilities totaled $6,300,000. Under that lease agreement, we are responsible for payments of utilities, taxes and insurance.\n\u00a0\nFrom time to time, we evaluate potential acquisitions of businesses, products or technologies that complement our business. If consummated, any such transactions may use a portion of our working capital or require the issuance of equity. We have no present understandings, commitments or agreements with respect to any material acquisitions.\n\u00a0\nWe anticipate that the existing cash balance and the available line of credit together with future income from operations, collections of existing accounts receivable, revenue from our existing backlog of products as of this filing date, the sale of inventory on hand, deposits and down payments against significant orders will be adequate to meet our working capital and capital equipment requirement needs over the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the timing and cost to introduce new and enhanced products and the timing and cost to implement new manufacturing technologies. We successfully raised $25 million in an at-the-market (\u201cATM\u201d) offering in October 2021 and $7.3 million in a follow on ATM offering in February 2023; however, in the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. Any additional debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Additionally, if we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of the Company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.\n\u00a0\nOFF-BALANCE SHEET FINANCING\n\u00a0\nWe have not entered into any off-balance sheet financing arrangements and have not established any special purpose or variable interest entities.\n\u00a0 \n\u00a0\n23\nTable of Contents\n\u00a0\nOVERVIEW OF CONTRACTUAL OBLIGATIONS\n\u00a0\nThe following table provides a summary of such arrangements, or contractual obligations.\n\u00a0\n\u00a0\n\u00a0\nPayments Due by Period (in thousands)\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\u00a0\nLess than\n\u00a0\n\u00a0\n1-3\n\u00a0\n\u00a0\n4-5\n\u00a0\n\u00a0\nMore than\n\u00a0\n\u00a0\n\u00a0\nTotal\n\u00a0\n\u00a0\n1 year\n\u00a0\n\u00a0\nyears\n\u00a0\n\u00a0\nyears\n\u00a0\n\u00a0\n5 years\n\u00a0\nLease obligations \n\u00a0\n$\n8,429\n\u00a0\n\u00a0\n$\n608\n\u00a0\n\u00a0\n$\n2,317\n\u00a0\n\u00a0\n$\n2,429\n\u00a0\n\u00a0\n$\n3,075\n\u00a0\nPurchases (1) \n\u00a0\n\u00a0\n26,318\n\u00a0\n\u00a0\n\u00a0\n26,318\n\u00a0\n\u00a0\n\u00a0\n--\n\u00a0\n\u00a0\n\u00a0\n--\n\u00a0\n\u00a0\n\u00a0\n--\n\u00a0\nTotal\n\u00a0\n$\n34,747\n\u00a0\n\u00a0\n$\n26,926\n\u00a0\n\u00a0\n$\n2,317\n\u00a0\n\u00a0\n$\n2,429\n\u00a0\n\u00a0\n$\n3,075\n\u00a0\n\u00a0\n(1) Shown above are our binding purchase obligations. The large majority of our purchase orders are cancelable by either party, which if canceled may result in a negotiation with the vendor to determine if there shall be any restocking or cancellation fees payable to the vendor.\n\u00a0\nIn the normal course of business to facilitate sales of our products, we indemnify other parties, including customers, with respect to certain matters. We have agreed to hold the other party harmless against losses arising from a breach of representations or covenants, or from intellectual property infringement or other claims. These agreements may limit the time period within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our officers and directors, and our bylaws contain similar indemnification obligations to our agents.\n\u00a0\nIt is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. To date, our payments under these agreements have not had a material impact on our operating results, financial position or cash flows.\n\u00a0\nRECENT ACCOUNTING PRONOUNCEMENTS\n\u00a0\nFor a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note 1, \u201cOrganization and Summary of Significant Accounting Policies,\u201d of the Notes to Consolidated Financial Statements.\n\u00a0",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures about Market Risk\n\u00a0\nAs a Smaller Reporting Company, we are not required to provide information under Item 7A.\n\u00a0 \n\u00a0\n24\nTable of Contents\n\u00a0 \u00a0",
+  "cik": "1040470",
+  "cusip6": "00760J",
+  "cusip": ["00760J108", "00760J958", "00760J908"],
+  "names": ["AEHR TEST SYS"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1040470/000165495423011271/0001654954-23-011271-index.htm"
+}
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+++ b/GraphRAG/standalone/data/all/form10k/0001683168-23-004329.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1.\nBusiness \n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nWe are a dedicated contract development and manufacturing\norganization (\u201cCDMO\u201d) that provides a comprehensive range of services from process development to Current Good Manufacturing\nPractices (\u201cCGMP\u201d) clinical and commercial manufacturing of biologics for the biotechnology and biopharmaceutical industries.\nWith 30 years of experience producing biologics, our services include clinical and commercial drug substance manufacturing, bulk packaging,\nrelease and stability testing and regulatory submissions support. We also provide a variety of process development services, including\nupstream and downstream development and optimization, analytical method development, cell line development, testing and characterization.\n\n\n\u00a0\n\n\nBusiness Strategy\n\n\n\u00a0\n\n\nWe continue to execute on a growth strategy that\nseeks to align with the growth of the biopharmaceutical drug substance contract services market. That strategy encompasses the following\ncontinuing objectives:\n\n\n\u00a0\n\n\n\n\n\u00b7\nInvest in additional manufacturing capacity, capabilities and resources required for us to achieve our\nlong-term growth strategy and meet the growth-demand of our customers\u2019 programs, moving from development through to commercial manufacturing;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nBroaden our market awareness through a diversified yet flexible marketing strategy;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nExpand our customer base and programs with existing customers for both process development and manufacturing\nservice offerings;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nExplore and invest in strategic opportunities both within our core business as well as in adjacent and/or\nsynergistic service offerings in order to enhance and/or broaden our capabilities; and\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nIncrease operating profit margin to best in class industry standards.\n\n\n\u00a0\n\n\nOur Competitive Strengths\n\n\n\u00a0\n\n\nWe believe that we are well positioned to address\nthe market for outsourced development and manufacturing of biopharmaceuticals derived from mammalian cell culture, due to the following\nfactors:\n\n\n\u00a0\n\n\n\n\n\u00b7\nExpertise in Mammalian Cell Culture Manufacturing\n: We believe that continued consolidation in the\nCDMO industry has resulted in a limited number of qualified, agile and independent CDMOs with mammalian cell culture-based biologics development\nand manufacturing capabilities. The mammalian cell culture production method is highly suitable for manufacturing complex molecules (examples\ninclude monoclonal antibodies, next-generation antibodies and recombinant proteins), and we believe the benefits of the mammalian cell\nculture production method have played a significant role in accelerating the proliferation of biologics therapies. We believe we are well\npositioned in the industry, given our expertise in mammalian cell culture for biologics manufacturing.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n2\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00b7\nBroad Spectrum of Services to Support Customers from Early Stage Development to Commercial\n: We\nprovide fully integrated and customized biomanufacturing services that support our customers from the early preclinical stage to commercial\nlaunch and supply. We believe pharmaceutical companies generally prefer to engage with CDMOs that are able to work with a product throughout\nits lifecycle and have long-standing track records of regulatory compliance and quality control. Our Process Development, CGMP Drug Substance\nBiomanufacturing, Project Management, Quality Systems and Quality Control are all supported by modern facilities designed to meet customer\nneeds from early stage development to commercial supply. We differentiate our capabilities through several key criteria: (i) we employ\na customer-centric approach and collaborate with our customers to tailor customized development and manufacturing services; (ii) our agile\nmanufacturing and development capabilities allow for rapid responses to shifting production requirements, leading to strong customer satisfaction\nand retention; and (iii) our single-use bioreactors contribute to enhanced manufacturing efficiency for our customers and reduce our\ncapital spending needs.\n\n\n\u00a0\n\n\n\n\n\n\n\u00b7\nStrong Regulatory Track Record\n: Historically, developing the expertise to comply with stringent\nregulatory audits and validation requirements has been a challenge for both pharmaceutical companies and CDMOs, and has been seen as a\nsignificant barrier to entry for many CDMOs, as facilities can take years to construct and properly validate. We believe pharmaceutical\ncompanies place a premium on working with CDMOs that can ensure a high degree of regulatory compliance, which decreases execution risk.\nWe have a strong regulatory track record, consisting of a 20-year inspection history. Since 2005 we have successfully completed eight\npre-approval inspections, including six U.S. Food and Drug Administration (\u201cFDA\u201d) inspections since 2013, none of which resulted\nin any Form 483 observations by the FDA. Further, we routinely successfully comply with audits by large pharmaceutical companies.\n\n\n\u00a0\n\n\n\n\n\u00b7\nModern and Optimized Infrastructure\n: With the recent expansion of our Myford facility and the ongoing\nconstruction of our single purpose-built cell and gene therapy development and CGMP manufacturing facility, as further discussed below,\nwe continue to position our business to capitalize on increasing demand in the biologics manufacturing industry for modular cleanroom\nspace, onsite analytical and process development laboratories and single-use bioreactors. These developments have driven demand among\npharmaceutical companies for facilities that can develop and produce pilot scale batches (up to 200 liters) in process development using\na process train that matches the single-use bioreactors in CGMP production. With single-use bioreactors ranging from 200 to 2,000 liters,\nour CGMP Myford facility offering more than 20,000 liters of total capacity is designed to provide our customers with the desired efficiency,\nflexibility and capacity.\n\n\n\u00a0\n\n\n\n\n\u00b7\nSignificant Manufacturing Experience with a Proven Track Record\n: We have 30 years of experience\nproducing monoclonal antibodies and recombinant proteins, over 18 years of CGMP commercial manufacturing experience and over 15 years\nof experience with single-use bioreactor technology. We believe this experience, combined with our management team\u2019s and board of\ndirectors\u2019 deep experience in the CDMO and pharmaceutical industry, positions us to take advantage of positive long-term industry\ntrends.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n3\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur Growth Strategy\n\n\n\u00a0\n\n\nWe believe we have a significant opportunity to\ncontinue to drive organic growth by leveraging our strengths, broadening our capabilities, increasing our capacity and improving our market\nvisibility through the following strategies: \n\n\n\u00a0\n\n\n\n\n\u00b7\nDiversify Customer Base\n: We have diversified and expanded our customer base and have\n                                                                                                             developed marketing and sales strategies designed to further diversify our customer base and drive new customer acquisitions, while\n                                                                                                             also continuing to leverage our existing relationships to support new programs with our existing customers.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nExpand Service Offerings\n: We have invested in strategic opportunities to expand our service\n                                                                                                             offerings. During fiscal 2022, we expanded our CDMO service offering into viral vector development and\n                                                                                                             manufacturing services for the rapidly growing cell and gene therapy (\u201cCGT\u201d) market. In addition, during fiscal 2023, we\n                                                                                                             added in-house cell line development services, further rounding out our mammalian cell offering.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nExpand Process Development Capabilities\n: We have expanded our process development\n                                                                                                             capabilities in order to make our operations more attractive to emerging, mid-sized and large pharmaceutical companies. For example,\n                                                                                                             during calendar year 2019 we expanded our total available process development and laboratory space, upgrading the infrastructure and\n                                                                                                             equipment within our existing process development laboratories, and implementing new state-of-the-art technologies and equipment\n                                                                                                             (including benchtop bioreactors and pilot scale manufacturing up to 200 liters) designed to facilitate efficient, high-throughput\n                                                                                                             development of innovative upstream and downstream manufacturing processes that transfer directly into our CGMP manufacturing\n                                                                                                             facility. In the fourth quarter of fiscal 2023, we further expanded the process development capacity of our mammalian cell culture\n                                                                                                             services by adding new suites within our existing process development laboratory space that have the potential to increase our\n                                                                                                             revenue generating capabilities by approximately $25 million. We will continue to explore the addition of capabilities and services\n                                                                                                             that bring value to our customers, enhancing their processing design, speeding their time to market and supporting these activities\n                                                                                                             with state-of-the-art analytics.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nExpand Manufacturing Footprint and Enhance Efficiencies\n: During fiscal 2021, we initiated a\n                                                                                                             two-phased expansion of our Myford facility. The first phase, which expanded the production capacity of\u00a0our\n                                                                                                             Myford\u00a0facility by\u00a0adding\u00a0an additional downstream processing suite, was completed in January 2022.\u00a0 The second\n                                                                                                             phase, which was completed in March 2023,\u00a0further expanded our capacity with the addition of a second manufacturing train,\n                                                                                                             including both upstream and downstream processing suites. During fiscal 2022, we initiated the construction of a world-class, single\n                                                                                                             purpose-built CGT development and CGMP manufacturing facility in Costa Mesa, California. In June 2022, we completed the first phase\n                                                                                                             of our two-phase construction plan with the opening of our new analytical and process development laboratories. The second phase of\n                                                                                                             construction is the build-out of CGMP manufacturing suites, which is expected to be online by the third quarter of calendar 2023.\n                                                                                                             Upon completion of the entire build out of our CGT facility, we estimate that this expansion, combined with our existing facilities,\n                                                                                                             which includes the recently completed Myford facility expansion, has the potential to bring our total annual revenue generating\n                                                                                                             capacity to approximately $400 million, depending on the mix of projects.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nIncrease Operating Margins\n: We believe we have the opportunity to drive operating margin expansion\nby utilizing our available capacity, and implementing continuous process efficiencies. We believe increased facility capacity utilization\nresulting from the growth strategies described herein will improve operating margins.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nReinvest in Equipment and Facilities\n: We believe that re-investing in our laboratory and manufacturing\nequipment and facilities is strategically important to meet future customer demand. For example, as discussed above, we recently completed\ntwo mammalian cell capacity expansion projects and continue to advance the build-out of our CGT facility, which we believe will allow\nus to meet the demands of our growing backlog of customer projects.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n4\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u00b7\nExplore & Invest in Strategic Opportunities\n: We will evaluate potential synergistic strategic\nopportunities, that we believe would add:\n\n\n\u00a0\n\n\n\n\no\nCapabilities/services to our existing biologics development and manufacturing offerings that enhance our\nability to provide our customers with more tailored and better solutions; and/or\n\n\n\n\no\nAdjacent capabilities/services to service other segments of the biologic\u2019s development and manufacturing\nsegment of the market, that we feel would value our experience, in particular our technical, commercial and regulatory experience, all\ncombined with a high touch, flexible and customer-centric level of service.\n\n\n\u00a0\n\n\nOur Facilities\n\n\n\u00a0\n\n\nMammalian Cell Facilities\n\n\n\u00a0\n\n\nOur 84,000 square foot Myford facility, located\nin Orange County, California, utilizes single-use equipment up to the 2,000-liter manufacturing scale to accommodate a fully disposable\nbiomanufacturing process for products from clinical development to commercial supply. In April 2023, we announced the completion of our\nnewly expanded manufacturing capacity within the Myford facility which included the addition of both upstream and downstream CGMP manufacturing\nsuites. Our Myford facility includes single-use bioreactors (200-liter to 2,000-liter), four downstream processing suites, quality control\nlabs for environmental and analytical testing, and cell bank cryofreezers, warehousing and material storage (including walk-in cold rooms),\noffering more than 20,000 liters of total capacity.\n\n\n\u00a0\n\n\nFollowing the recent completion of our newly expanded\nMyford facility, we transitioned customer products previously manufactured in our Franklin facility to our Myford facility. As a result,\nour manufacturing services have fully transition to a single-use disposable platform.\n\n\n\u00a0\n\n\nOur state-of-the art upstream, downstream and\npilot-scale development space is located on the same campus as our Myford facility. During the fourth quarter of fiscal 2023, we further\nexpanded the process development capacity of our mammalian cell culture services by adding new suites within our existing process development\nlaboratory space, which has doubled our total process development capacity.\n\n\n\u00a0\n\n\nCell and Gene Therapy Facility\n\n\n\u00a0\n\n\nWe have taken and continue to take steps to explore\nand invest in strategic opportunities to expand our service offerings. During fiscal 2022, we commenced the expansion of our CDMO service\noffering into viral vector development and manufacturing services for the rapidly growing CGT market. This expansion consists of a two-phased\napproach to the construction of a world-class, single purpose-built CGT development and CGMP manufacturing facility in Costa Mesa, California\n(the \u201cCGT Facility\u201d). In June 2022, we completed the first phase with the opening of our new analytical and process development\nlaboratories. The second phase of construction includes the build-out of CGMP manufacturing suites, which are expected to be online by\nthe end of the third quarter of calendar 2023.\n\n\n\u00a0\n\n\nManufacturing and Raw Materials\n\n\n\u00a0\n\n\nWe manufacture CGMP pharmaceutical-grade products\nfor our customers. The process for manufacturing generally uses commercially available raw materials from multiple suppliers, and in some\ninstances, from a single source supplier. We rely on third parties to supply most of the necessary raw materials and supplies for the\nproducts we manufacture on behalf of our customers and our inability to obtain such raw materials or supplies may adversely impact our\nbusiness, financial condition, and results of operations. See \u201cRisk Factors\u2014Risks Related to Our Business\u201d for additional\ndiscussion of raw materials supplied by third party vendors for the products we manufacture for our customers.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n5\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRegulatory Matters\n\n\n\u00a0\n\n\nWe have a strong and proven regulatory track\nrecord, including 20 years of inspection history. To date, we have been audited and qualified by large and small domestic and\nforeign biotechnology companies interested in the production of biologic material for clinical and commercial use. Additionally, we\nhave been audited by several regulatory agencies, including the FDA, the European Medicines Agency (\u201cEMA\u201d), the\nBrazilian Health Surveillance Agency (\u201cANVISA\u201d), the Canadian Health Authority (\u201cHealth Canada\u201d), the\nCalifornia Department of Health and the Australian Department of Health.\n\n\n\u00a0\n\n\nWe are required to comply with the regulatory\nrequirements of various local, state, national and international regulatory bodies having jurisdiction in the countries or localities\nwhere we manufacture products or where our customers\u2019 products are distributed. In particular, we are subject to laws and regulations\nconcerning research and development, testing, manufacturing processes, equipment and facilities, including compliance with CGMPs, labeling\nand distribution, import and export, and product registration and listing. As a result, our facilities are subject to regulation by the\nFDA, as well as regulatory bodies of other jurisdictions where our customers have marketing approval for their products including, but\nnot limited to, the EMA, ANVISA, Health Canada, and the Australian Department of Health. We are also required to comply with environmental,\nhealth and safety laws and regulations, as discussed in \u201cEnvironmental and Safety Matters\u201d below. These regulatory requirements\nimpact many aspects of our operations, including manufacturing, developing, labeling, packaging, storage, distribution, import and export\nand record keeping related to customers\u2019 products. Noncompliance with any applicable regulatory requirements can result in government\nrefusal to approve facilities for manufacturing products or products for commercialization.\n\n\n\u00a0\n\n\nOur customers\u2019 products must undergo pre-clinical\nand clinical evaluations relating to product safety and efficacy before they are approved as commercial therapeutic products. The regulatory\nauthorities having jurisdiction in the countries in which our customers intend to market their products may delay or put on hold clinical\ntrials, delay approval of a product or determine that the product is not approvable. The FDA or other regulatory agencies can delay approval\nof a drug if our manufacturing facilities are not able to demonstrate compliance with CGMPs, pass other aspects of pre-approval inspections\n(i.e., compliance with filed submissions) or properly scale up to produce commercial supplies. The FDA and comparable government authorities\nhaving jurisdiction in the countries in which our customers intend to market their products have the authority to withdraw product approval\nor suspend manufacturing if there are significant problems with raw materials or supplies, quality control and assurance or the product\nis deemed adulterated or misbranded. If new legislation or regulations are enacted or existing legislation or regulations are amended\nor are interpreted or enforced differently, we may be required to obtain additional approvals or operate according to different manufacturing\nor operating standards or pay additional fees. This may require a change in our manufacturing techniques or additional capital investments\nin our facilities.\n\n\n\u00a0\n\n\n\n\nEnvironmental and Safety Matters\n\n\n\u00a0\n\n\nCertain products manufactured by us involve the\nuse, storage and transportation of toxic and hazardous materials. Our operations are subject to extensive laws and regulations relating\nto the storage, handling, emission, transportation and discharge of materials into the environment and the maintenance of safe working\nconditions. We maintain environmental and industrial safety and health compliance programs and training at our facilities.\n\n\n\u00a0\n\n\nPrevailing legislation tends to hold companies\nprimarily responsible for the proper disposal of their waste even after transfer to third party waste disposal facilities. Other future\ndevelopments, such as increasingly strict environmental, health and safety laws and regulations, and enforcement policies, could result\nin substantial costs and liabilities to us and could subject the handling, manufacture, use, reuse or disposal of substances or pollutants\nat our facilities to more rigorous scrutiny than at present.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n6\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIntellectual Property\n\n\n\u00a0\n\n\nWe do not currently own any patents and do not\nhave any patent applications pending in the United States or any foreign countries. However, we have acquired and developed and continue\nto acquire and develop knowledge and expertise (\u201cknow-how\u201d) and trade secrets in the provision of process development and\nmanufacturing services. Our know-how and trade secrets may not be patentable, but they are valuable in that they enhance our ability to\nprovide high-quality services to our customers. We typically place restrictions in our agreements with third-parties, which contractually\nrestrict their right to use and disclose any of our proprietary technology with which they may be involved. In addition, we have internal\nnon-disclosure safeguards, including confidentiality agreements, with our employees.\n\n\n\u00a0\n\n\nWe also own trademarks to protect the names of\nour services. Trademark protection continues in some countries as long as the trademark is used, and in other countries, as long as the\ntrademark is registered. Trademark registration is for fixed terms and can be renewed indefinitely.\n\n\n\u00a0\n\n\nSegment Information\n\n\n\u00a0\n\n\nOur business is organized into one reportable\noperating segment, our contract manufacturing and development services segment. \nIn\naddition, we had no foreign-based operations and no long-lived assets located in foreign countries as of and for the fiscal years ended\nApril 30, 2023, 2022 and 2021.\n\n\n\u00a0\n\n\nCustomers\n\n\n\u00a0\n\n\nRevenues have historically been derived from a\nsmall customer base. Although we continue to expand our customer base, we remain dependent on a limited number of customers for a substantial\nmajority of our revenues. For the fiscal years ended April 30, 2023, 2022 and 2021, we derived approximately 65%, 60% and 76% of our revenues\nfrom our top three customers, respectively. The loss of, or a significant reduction of business from, any of our primary customers could\nhave a material adverse effect on our business, financial condition and results of operations. Refer to Note 2, \u201cSummary of Significant\nAccounting Policies\u201d of the Notes to Consolidated Financial Statements for additional financial information regarding our customer\nconcentration.\n\n\n\u00a0\n\n\nSeasonality\n\n\n\u00a0\n\n\nOur business is not subject to seasonality. However,\nthe timing of customer orders, the scale, scope, mix, and the duration of our fulfillment of such customer orders can result in variability\nin our periodic revenues.\n\n\n\u00a0\n\n\nBacklog\n\n\n\u00a0\n\n\nOur backlog represents, as of a point in\ntime, expected future revenue from work not yet completed under signed contracts. As of April 30, 2023, our backlog was\napproximately $191 million, a 25% increase as compared to approximately $153 million as of April 30, 2022. While we anticipate a\nsignificant amount of our backlog will be recognized over the next five (5) fiscal quarters, our backlog is subject to a number of\nrisks and uncertainties, including but not limited to: the risk that a customer timely cancels its commitments prior to our\ninitiation of services, in which case we may be required to refund some or all of the amounts paid to us in advance under those\ncanceled commitments; the risk that a customer may experience delays in its program(s) or otherwise, which could result in the\npostponement of anticipated services; the risk that we may not successfully execute on all customer projects; and the risk that\ncommencement of customer projects may be postponed due to supply chain delays, any of which could have a negative impact on our\nliquidity, reported backlog and future revenues and profitability.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n7\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCompetition\n\n\n\u00a0\n\n\nOur competition in the CDMO market includes a\nnumber of full-service contract manufacturers and large pharmaceutical companies that have the ability to insource manufacturing. Also,\nsome pharmaceutical companies have been seeking to divest all or portions of their manufacturing capacity, and any such divested assets\nmay be acquired by our competitors. Some of our significantly larger and global competitors have substantially greater financial, marketing,\ntechnical and other resources than we do. Moreover, additional competition may emerge and may, among other things, create downward pricing\npressure, which could negatively impact our financial condition and results of operations.\n\n\n\u00a0\n\n\nHuman Capital \n\n\n\u00a0\n\n\nAs of April 30,\n2023, we had 365 employees. All of our employees are based in Orange County, California, with the exception of a small number of\nemployees primarily within our sales, marketing and supply chain functions who are located in various other states. None of our\nemployees are represented by labor unions or are covered by a collective bargaining agreement with respect to their employment. We\nhave not experienced any work stoppages, and we consider our relationship with our employees to be good.\n\n\n\u00a0\n\n\nWe consider talent acquisition,\ndevelopment, engagement and retention a key driver to our business success and are committed to developing a comprehensive, cohesive and\npositive company culture focused on quality and a commitment to the safety and health of our employees, customers and the general public.\nWe accomplish these initiatives through the following:\n\n\n\u00a0\n\n\nTalent Acquisition\nand Retention\n\n\n\u00a0\n\n\nWe are dedicated to\nattracting and retaining exceptional talent, recognizing their vital contribution to our success. In a highly competitive employment market,\nparticularly for science, technology, engineering and math (\u201cSTEM\u201d) skills, our talent acquisition team employs a comprehensive\napproach. We embrace alternative degree paths, establish collaborative relationships with organizations, schools, and universities, and\nhave launched an internship program to build a pipeline of early-career talent.\n\n\n\u00a0\n\n\nTotal Rewards\n\n\n\u00a0\n\n\nWe have implemented a\ntotal rewards program which we believe allows us to compete for top talent in the Southern California market. Our total rewards philosophy\nhas been to create investment in our workforce by offering competitive compensation and benefits package. We provide all full-time employees\nwith compensation packages that include base salary, annual discretionary incentive bonuses, and long-term equity awards. We also offer\ncomprehensive employee benefits, including life, disability, and health insurance (including medical, dental and vision), dependent care\nand flexible spending accounts, paid time off, leaves (including medical, maternity and paternity leaves), Employee Stock Purchase Program,\na 401(k) plan with a company match and educational assistance. It is our expressed intent to be an employer of choice in our industry\nby providing market-competitive compensation and benefits package.\n\n\n\u00a0\n\n\nHealth, Safety,\nand Wellness\n\n\n\u00a0\n\n\nThe health, safety, and\nwellness of our employees is a priority in which we have always invested and will continue to do so. We provide our employees and their\nfamilies with access to a variety of innovative, flexible, and convenient health and wellness programs. Program benefits are intended\nto provide protection and security, so employees can have peace of mind concerning events that may require time away from work or that\nmay impact their financial well-being.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n8\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nDiversity, Equity,\nand Inclusion\n\n\n\u00a0\n\n\nWe believe a diverse\nworkforce is critical to our success and we are fundamentally committed to creating and maintaining a work environment in which employees\nare treated fairly, with dignity, decency, respect and in accordance with all applicable laws. We strive to create a professional work\nenvironment that is free from all forms of harassment, discrimination and bullying in the workplace, including sexual harassment and any\nform of retaliation. We are an equal opportunity employer and we strive to administer all human resources actions and policies without\nregard to race, color, religion, sex, national origin, ethnicity, age, disability, sexual orientation, gender identification or expression,\npast or present military or veteran status, marital status, familial status, or any other status protected by applicable law. Our management\nteam and employees are expected to exhibit and promote honest, ethical, and respectful conduct in the workplace. All employees must adhere\nto a code of business conduct and ethics and our employee handbook, which combined, define standards for appropriate behavior and are\nannually trained to help prevent, identify, report, and stop any type of discrimination and harassment. Our recruitment, hiring, development,\ntraining, compensation, and advancement is based on qualifications, performance, skills, and experience without regard to gender, race,\nor ethnicity.\n\n\n\u00a0\n\n\nTraining and Development\n\n\n\u00a0\n\n\nWe believe in encouraging\nemployees in becoming lifelong learners by providing ongoing learning and leadership training opportunities. As part of onboarding of\nnew employees, we provide comprehensive training regarding CGMP, environmental, health and safety practices, as well as job function specific\ntraining. Many of these training programs are repeated annually and are supplemented by other periodic training programs to maintain and\nimprove employee awareness of safety and other issues. Several times per year we provide supervisory training to newly promoted, or soon\nto be promoted employees, as well as sponsor more senior employees\u2019 participation in external leadership programs. We listen to\nthe needs of our employees and employ appropriate training methods ranging from in-house, partnering with outside vendors, attending conferences\nand networking events. Additionally, we applied for and received training funds through a State of California program supporting the biotechnology\nindustry through the development of future biotech workers. This program provides us with additional funds to help supplement our training\nprograms.\n\n\n\u00a0\n\n\nWe have a formal annual review process not only\nto determine pay and equity adjustments tied to individual contributions, but to identify areas where training and development may be\nneeded. In addition, we strive to provide real-time recognition of employee performance, including through a web-based portal where employees\ncan be nominated for various levels of spot awards and accumulate points towards the purchase of gifts.\n\n\n\u00a0\n\n\nCompany Culture\n\n\n\u00a0\n\n\nWe are committed to instilling\na company culture that is focused on integrity, transparency, quality and respect. We expect our employees to observe the highest levels\nof business ethics, integrity, mutual respect, tolerance and inclusivity. Our employee handbook and Code of Business Conduct and Ethics\nset forth policies reflecting these values and provide direction for registering complaints in the event of any violation of our policies.\nWe maintain an \u201copen door\u201d policy at all levels of our organization and any form of retaliation against an employee is strictly\nprohibited.\n\n\n\u00a0\n\n\nEmployee Engagement\n\n\n\u00a0\n\n\nWe believe that in order to be successful, we\nmust build and maintain a relationship with our employees that focuses on transparency and listening to their recommendations. We proactively\ncommunicate through all-employee meetings, department meetings, one-on-one meetings and check-ins. Employee input regarding our organizational\nclimate is solicited at least annually through a combination of internal and external surveys solicited from all employees. We routinely\nuse the information gathered in these processes to address identified key areas for improvement.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n9\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCorporate Responsibility and Sustainability\n\n\n\u00a0\n\n\nIn fiscal 2022 we engaged a third-party consultant\nto assist us with our establishment of a more formal environmental, social, governance (\u201cESG\u201d) and sustainability program.\nWorking with the consultant, and under the oversight of our Corporate Governance Committee, we embarked on a comprehensive initiative\nto assess, benchmark and prioritize our ESG and sustainability practices. In addition, our executive leadership team assembled\na working team to formally launch the first phase of this initiative focusing on sustainable procurement and other environmental initiatives,\nincluding the engagement of EcoVadis, a leading global corporate social responsibility and sustainability company, to help us establish\nand enhance processes supporting strong ESG practices throughout our supply chain. This arrangement provides an independent supplier assessment\nagainst 21 criteria in categories of environment, labor and human rights, ethics, and sustainable procurement. During fiscal 2023 we focused\non building our supplier procurement program with EcoVadis, ultimately onboarding more than 90% of our procurement spend with rated suppliers\nin the EcoVadis program. As we continue to build our sustainable procurement program, we have also approved a supplier code of conduct,\nwhich formalizes our commitment to build a network of suppliers consisting of ethical and reliable partners. In addition to our sustainable\nprocurement program, we have formalized an executive steering team to drive overall ESG initiatives and their associated workstreams for\nour people, community and environment.\n\n\n\u00a0\n\n\nCompany Information\n\n\n\u00a0\n\n\nWe were originally incorporated in the State of\nCalifornia in June 1981 and reincorporated in the State of Delaware in September  1996. Our principal executive offices are located\nat 14191 Myford Road, Tustin, California, 92780 and our telephone number is (714) 508-6100. Our principal website address is \nwww.avidbio.com\n.\nThe information on, or that can be accessed through, our website is not part of this Annual Report.\n\n\n\u00a0\n\n\nAvailable Information\n\n\n\u00a0\n\n\nThis Annual Report, our Quarterly Reports on Form\u00a010-Q,\nour Current Reports on Form\u00a08-K, and our proxy statements, and all amendments to those reports filed with or furnished to the SEC\nare available, free of charge, through the SEC\u2019s website at www.sec.gov and our website at \nwww.avidbio.com\n as soon as reasonably\npracticable after such reports are electronically filed with or furnished to the SEC. The information on, or that can be accessed through,\nour website is not part of this Annual Report.\n\n\n\n\n\u00a0\n\n\n\n",
+  "item1a": ">Item 1A.\nRisk Factors\n\n\n\u00a0\n\n\nYou should carefully consider\nthe risks and uncertainties described below, together with all of the other information contained in this Annual Report, including our\nconsolidated financial statements and the related notes thereto, before making a decision to invest in our securities. The risks and uncertainties\ndescribed below are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently believe\nare not material, also may become important factors that affect us and impair our business operations. The occurrence of any of the events\nor developments discussed in the risk factors below could have a material and adverse impact on our business, financial condition, results\nof operations and cash flows and, in such case, our future prospects would likely be materially and adversely affected.\n\n\n\u00a0\n\n\nRisks Related to Our Business\n\n\n\u00a0\n\n\nA significant portion of our revenues comes\nfrom a limited number of customers.\n\n\n\u00a0\n\n\nOur revenues have historically been derived from\na limited number of customers. Although we continue to expand our customer base, we remain dependent on a limited number of customers\nfor a substantial majority of our revenues. For example, for the fiscal years ended April 30, 2023, 2022 and 2021, we derived approximately\n65%, 60% and 76% of our revenues from our top three customers, respectively. The loss of, or a significant reduction of business from,\nany of our primary customers could have a material adverse effect on our business, financial condition, and results of operations.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n10\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\nWe generally do not have long-term customer\ncontracts and our backlog cannot be relied upon as a future indicator of revenues.\n\n\n\u00a0\n\n\nWe generally do not have long-term contracts with\nour customers, and existing contracts and purchase commitments may be canceled under certain circumstances. As a result, we are exposed\nto market and competitive price pressures on every order, and our agreements with customers do not provide assurance of future revenues.\nOur customers are not required to make minimum purchases and, in certain circumstances, may cease using our services at any time without\npenalty. Our backlog should not be relied on as a measure of anticipated demand or future revenue, because the orders constituting our\nbacklog may be subject to changes in delivery schedules or cancellation without significant penalty to the customer. Any reductions, cancellations\nor deferrals in customer orders would negatively impact our business.\n\n\n\u00a0\n\n\n\n\n\n\nWe are making a significant investment by\nexpanding our CDMO service offering into the development and manufacture of viral vectors which will subject us to a number of risks and\nuncertainties that could adversely affect our operations and financial results.\n\n\n\u00a0\n\n\nOur  expansion of our CDMO service offering into viral vector development and manufacturing services for the cell and gene therapy market\ninvolves a number of risks that could adversely affect our operations and financial results, including the following risks:\u00a0\n\n\n\u00a0\n\n\n\n\n\u00b7\nwe may experience delays in the construction of the manufacturing facility, including delays in the receipt,\ninstallation and/or validation of necessary equipment;\n\n\n\n\n\u00b7\nwe may experience significant cost overruns associated with the construction of the facility;\n\n\n\n\n\u00b7\nour entry into a new service offering may distract our executive teams\u2019 focus on our core mammalian\ncell culture operations;\n\n\n\n\n\u00b7\nwe may be unable to timely hire qualified individuals to manage and our viral vector operations; and\n\n\n\n\n\u00b7\nwe may experience delays and other challenges engaging viral vector customers due to our lack of operating\nexperience in the viral vector market.\n\n\n\u00a0\n\n\nIn addition to the foregoing, we have commenced\na service offering that is currently dominated by a small number of larger organizations with established viral vector operations and\nsignificantly greater financial resources with whom we may experience difficulties in competing for talent and customers. If we are unable\nto manage these risks, our business and operating results could be materially harmed.\n\n\n\u00a0\n\n\nWe have made a significant capital investment\u00a0in\u00a0our\nMyford facility in order to meet potential future mammalian cell culture development and manufacturing needs and, as a result, we depend\non the success of attracting new and retaining existing customers\u2019\u00a0business.\n\n\n\u00a0\n\n\nIn the fourth quarter of fiscal 2023, we\ncompleted the expansion of our Myford facility, which significantly expanded its production capacity. This expansion represents a\nsubstantial investment in our manufacturing capabilities, and has resulted in a significant increase in our fixed costs. If we are\nnot able to utilize the additional capacity from this expansion, our margins could be adversely affected. Further, our future\nrevenues may not  be sufficient to ensure the economical operation of this expanded capacity, in which case, our results of\noperations could be adversely affected.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n11\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nOur rapid growth during the past three fiscal\nyears may not be indicative of our future growth, and if we continue to grow rapidly, we may fail to manage our growth effectively.\n\n\n\u00a0\n\n\nFrom the fiscal year ended April 30, 2020 through\nthe fiscal year ended April 30, 2023, our revenues have increased from $59.7 million to $149.3 million, representing growth in revenues\nof 150% over the three year period. We believe our ability to continue to experience revenue growth will depend on a number of factors,\nincluding our ability to:\n\n\n\u00a0\n\n\n\n\n\n\n\u00b7\ncomplete the construction of our cell and gene therapy facility;\n\n\n\n\n\u00b7\ncontinue to expand our customer base, and identify and focus on additional development and manufacturing\nopportunities with existing customers;\n\n\n\n\n\u00b7\neffectively compete with our competitors in the contract development and manufacturing sector;\n\n\n\n\n\u00b7\ncontinue to broaden our market awareness through a diversified, yet flexible, marketing strategy; and\n\n\n\n\n\u00b7\nselectively pursue complementary or adjacent service offerings, either organically or through acquisition.\n\n\n\u00a0\n\n\nMoreover, we continue to expand our headcount\nand operations. We grew from 227 employees as of April 30, 2020 to 365 employees as of April 30, 2023. We anticipate that we will continue\nto expand our operations and headcount in the near term and beyond. This potential future growth could place a significant strain on our\nmanagement, administrative, operational and financial resources, company culture and infrastructure. Our success will depend in part on\nour ability to manage this growth effectively while retaining personnel. To manage the expected growth of our operations and personnel,\nwe will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. Failure\nto effectively manage growth could result in difficulty or delays in adding new customers, maintaining our strong quality systems, declines\nin quality or customer satisfaction, increases in costs, system failures, difficulties in introducing new features or solutions, the need\nfor more capital than we anticipate or other operational difficulties, and any of these difficulties could harm our business performance\nand results of operations.\n\n\n\u00a0\n\n\nWe rely on third parties to supply most\nof the necessary raw materials and supplies for the products we manufacture on behalf of our customers and our inability to obtain such\nraw materials or supplies may adversely impact our business, financial condition, and results of operations.\n\n\n\u00a0\n\n\nOur operations require various raw materials,\nincluding proprietary media, resins, buffers, and filters, in addition to numerous additional raw materials supplied primarily by third\nparties. We or our customers specify the raw materials and other items required to manufacture their product and, in some cases, specify\nthe suppliers from whom we must purchase these raw materials. In certain instances, the raw materials and other items can only be supplied\nby a limited number of suppliers and, in some cases, a single source, or in limited quantities. If third-party suppliers do not supply\nraw materials or other items on a timely basis, it may cause a manufacturing run to be delayed or canceled which would adversely impact\nour financial condition and results of operations. Additionally, we do not have long-term supply contracts with any of our single source\nsuppliers. If we experience difficulties acquiring sufficient quantities of required materials or products from our existing suppliers,\nor if our suppliers are found to be non-compliant with the FDA\u2019s quality system regulation, CGMPs or other applicable laws or regulations,\nwe would be required to find alternative suppliers. If our primary suppliers become unable or unwilling to perform, any resulting delays\nor interruptions in the supply of raw materials required to support our manufacturing of CGMP pharmaceutical-grade products would ultimately\ndelay our manufacture of products for our customers, which could materially and adversely affect our financial condition and operating\nresults. Furthermore, third-party suppliers may fail to provide us with raw materials and other items that meet the qualifications and\nspecifications required by us or our customers. If third-party suppliers are not able to provide us with raw materials that meet our or\nour customers\u2019 specifications on a timely basis, we may be unable to manufacture their product or it could prevent us from delivering\nproducts to our customers within required timeframes. Any such delay in delivering our products may create liability for us to our customers\nfor breach of contract or cause us to experience order cancellations and loss of customers. In the event that we manufacture products\nwith inferior quality components and raw materials, we may become subject to product liability claims caused by defective raw materials\nor components from a third-party supplier or from a customer, or our customer may be required to recall its products from the market.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n12\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe, and certain of our customers may, maintain\ncash at financial institutions, often in balances that exceed federally-insured limits. The failure of financial institutions could adversely\naffect our access to to our funds, our ability to pay operational expenses or make other payments, and the ability of our customers to\npay us for our services.\n\n\n\u00a0\n\n\nWe, and certain of our customers may,\nmaintain cash in accounts that exceed the Federal Deposit Insurance Corporation (\u201cFDIC\u201d) insurance limits. If such\nbanking institutions were to fail, we and/or potentially certain of our customers could lose all or a portion of those amounts held\nin excess of such insurance limitations. For example, the FDIC took control of Silicon Valley Bank on March 10, 2023. Although we\ndid not have any cash or cash equivalents at Silicon Valley Bank and the Federal Reserve subsequently announced that account holders\nwould be made whole, the FDIC may not make all account holders whole in the event of future bank failures. In addition, even if\naccount holders are ultimately made whole with respect to a future bank failure, account holders\u2019 access to their accounts and\nassets held in their accounts may be substantially delayed. Any material loss that we and/or our customers may experience in the\nfuture or inability for a material time period to access our or their cash and cash equivalents could have an adverse effect on our\nability to pay our operational expenses or make other payments, and/or our customers\u2019 ability to pay us for services rendered\n(or may cause them to cancel scheduled services) which could adversely affect our business.\n\n\n\u00a0\n\n\nAll of our manufacturing facilities are\nsituated in Orange County, California, which increases our exposure to significant disruption to our business as a result of unforeseeable\ndevelopments in a single geographic area.\n\n\n\u00a0\n\n\nWe operate our manufacturing facilities in Orange\nCounty, California. It is possible that we could experience prolonged periods of reduced production due to unforeseen catastrophic events\noccurring in or around our facilities. It is also possible that operations could be disrupted due to other unforeseen circumstances such\nas power outages, explosions, fires, floods, earthquakes or accidents. As a result, we may be unable to shift manufacturing capabilities\nto alternate locations, accept materials from suppliers, meet customer shipment needs or address other severe consequences that may be\nencountered, and we may suffer damage to our reputation. Our financial condition and results of our operations could be materially adversely\naffected were such events to occur.\n\n\n\u00a0\n\n\nOur manufacturing services are highly complex,\nand if we are unable to provide quality and timely services to our customers, our business could suffer.\n\n\n\u00a0\n\n\nThe manufacturing services we offer are highly\ncomplex, due in part to strict regulatory requirements. A failure of our quality control systems in our facilities could cause problems\nto arise in connection with facility operations for a variety of reasons, including equipment malfunction, viral contamination, failure\nto follow specific manufacturing instructions, protocols and standard operating procedures, problems with raw materials or environmental\nfactors. Such problems could affect production of a single manufacturing run or a series of runs, requiring the destruction of products,\nor could halt manufacturing operations altogether. In addition, our failure to meet required quality standards may result in our failure\nto timely deliver products to our customers, which, in turn, could damage our reputation for quality and service. Any such incident could,\namong other things, lead to increased costs, lost revenue, reimbursement to customers for lost drug substance, damage to and possibly\ntermination of existing customer relationships, time and expense spent investigating the cause and, depending on the cause, similar losses\nwith respect to other manufacturing runs. With respect to our commercial manufacturing, if problems are not discovered before the product\nis released to the market, we may be subject to regulatory actions, including product recalls, product seizures, injunctions to halt manufacture\nand distribution, restrictions on our operations, civil sanctions, including monetary sanctions, and criminal actions. In addition, such\nissues could subject us to litigation, the cost of which could be significant.\n\n\n\u00a0\n\n\nIf we do not enhance our existing, or introduce\nnew, service offerings in a timely manner, our offerings may become obsolete or noncompetitive over time, customers may not buy our offerings\nand our revenues and profitability may decline.\u00a0\n\n\n\u00a0\n\n\nDemand for our manufacturing services may change\nin ways that we may not anticipate due to evolving industry standards and customer needs that are increasingly sophisticated and varied,\nas well as the introduction by others of new offerings and technologies that provide alternatives to our offerings. In the event we are\nunable to offer or enhance our service offerings or expand our manufacturing infrastructure to accommodate requests from our customers\nand potential customers, our offerings may become obsolete or noncompetitive over time, in which case our revenue and operating results\nwould suffer. For example, if we are unable to respond to changes in the nature or extent of the technological or other needs of our customers\nthrough enhancing our offerings, our competition may develop offerings that are more competitive than ours, and we could find it more difficult\nto renew or expand existing agreements or obtain new agreements. Potential innovations intended to facilitate enhanced or new offerings\ngenerally will require a substantial capital investment before we can determine their commercial viability, and we may not have financial\nresources sufficient to fund all desired innovations. Even if we succeed in creating enhanced or new offerings, however, they may still\nfail to result in commercially successful offerings or may not produce revenue in excess of our costs of development, and they may be\nrendered obsolete by changing customer preferences or the introduction by our competitors of offerings embodying new technologies or features.\nFinally, the marketplace may not accept our innovations due to, among other things, existing patterns of clinical practice, the need for\nregulatory clearance and/or uncertainty over market access or government or third-party reimbursement.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n13\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nIf we use hazardous and biological materials\nin a manner that causes injury or violates applicable law, we may be liable for damages.\n\n\n\u00a0\n\n\nOur contract manufacturing operations involve\nthe controlled use of hazardous materials and chemicals. We are subject to federal, state and local laws and regulations in the United\nStates governing the use, manufacture, storage, handling and disposal of hazardous materials and chemicals. Although we believe that our\nprocedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we may incur significant\nadditional costs to comply with applicable laws in the future. Also, even if we are in compliance with applicable laws, we cannot completely\neliminate the risk of contamination or injury resulting from hazardous materials or chemicals. As a result of any such contamination or\ninjury, we may incur liability, or local, city, state or federal authorities may curtail the use of these materials and interrupt our business\noperations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our\nresources. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations\nmay impair our contract manufacturing operations, which could materially harm our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nOur business, financial\ncondition, and results of operations may be adversely affected by pandemics or similar public health crises.\n\n\n\u00a0\n\n\nPublic health crises\nsuch as pandemics or similar outbreaks may affect our operations and those of third parties on which we rely, including our customers\nand suppliers. Our business, financial condition, and results of operations may be affected by: disruptions in our customers\u2019 abilities\nto fund, develop, or bring to market products as anticipated; delays in or disruptions to the conduct of clinical trials by our customers;\ncancellations of contracts or confirmed orders from our customers; and inability, difficulty, or additional cost or delays in obtaining\nkey raw materials, components, and other supplies from our existing supply chain; among other factors caused by a public health crises.\n\n\n\u00a0\n\n\nFor example, the COVID-19\npandemic led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public\nhealth safety measures. The extent to which future pandemics impact our operations and/or those of our customers and suppliers will depend\non future developments, which are highly uncertain and unpredictable, including the duration or recurrence of outbreaks, potential future\ngovernment actions, new information that will emerge concerning the severity and impact of that pandemic and the actions to contain the\npandemic or address its impact in the short and long term, among others.\n\n\n\u00a0\n\n\nThe business disruptions\nassociated with a global pandemic could impact the business, product development priorities and operations of our customers and suppliers.\nFor example, disruptions in supply chains and disruptions to the operations of the FDA and other drug regulatory authorities, could result\nin, among other things, delays of inspections, reviews, and approvals of our customers\u2019 products, as well as the volume and timing\nof orders from these customers. Such disruptions could result in delays in the development programs of our customers or impede the commercial\nefforts for our customers\u2019 approved products, resulting in potential reductions or delays in orders from our customers which could\nhave a material negative effect on our business in the future.\n\n\n\u00a0\n\n\nPotential product liability claims, errors\nand omissions claims in connection with services we perform and potential liability under indemnification agreements between us and our\nofficers and directors could adversely affect us.\n\n\n\u00a0\n\n\nWe manufacture products intended for use in humans.\nThese activities could expose us to risk of liability for personal injury or death to persons using such products. We seek to reduce our\npotential liability through measures such as contractual indemnification provisions with customers (the scope of which may vary by customer,\nand the performances of which are not secured) and insurance maintained by us and our customers. We could be materially adversely affected\nif we are required to pay damages or incur defense costs in connection with a claim that is outside the scope of the indemnification agreements,\nif the indemnity, although applicable, is not performed in accordance with its terms or if our liabilities exceed the amount of applicable\ninsurance or indemnity. In addition, we could be held liable for errors and omissions in connection with the services we perform. Although\nwe currently maintain product liability and errors and omissions insurance with respect to these risks, such coverage may not be adequate\nor continue to be available on terms acceptable to us.\n\n\n\u00a0\n\n\nWe also indemnify our officers and directors for\ncertain events or occurrences while the officer or director is serving at our request in such capacity. The maximum potential amount of\nfuture payments we could be required to make under these indemnification agreements is unlimited. Although we have a director and officer\ninsurance policy that covers a portion of any potential exposure, we could be materially and adversely affected if we are required to\npay damages or incur legal costs in connection with a claim above such insurance limits.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n14\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAny claims beyond our insurance coverage\nlimits, or that are otherwise not covered by our insurance, may result in substantial costs and a reduction in our available capital resources.\n\n\n\u00a0\n\n\nWe maintain property insurance, employer\u2019s\nliability insurance, product liability insurance, general liability insurance, business interruption insurance, and directors\u2019 and\nofficers\u2019 liability insurance, among others. Although we maintain what we believe to be adequate insurance coverage, potential claims\nmay exceed the amount of insurance coverage or may be excluded under the terms of the policy, which could cause an adverse effect on our\nbusiness, financial condition and results from operations. Generally, we would be at risk for the loss of inventory that is not within\ncustomer specifications. These amounts could be significant. In addition, in the future we may not be able to obtain adequate insurance\ncoverage or we may be required to pay higher premiums and accept higher deductibles in order to secure adequate insurance coverage.\n\n\n\u00a0\n\n\nThird parties may claim that our services\nor our customer\u2019s products infringe on or misappropriate their intellectual property rights.\n\n\n\u00a0\n\n\nAny claims that our services infringe the rights\nof third parties, including claims arising from any of our customer engagements, regardless of their merit or resolution, could be costly\nand may divert the efforts and attention of our management and technical personnel. We may not prevail in such proceedings, given the\ncomplex technical issues and inherent uncertainties in intellectual property litigation. If such proceedings result in an adverse outcome,\nwe could be required, among other things, to pay substantial damages, discontinue the use of the infringing technology, expend significant\nresources to develop non-infringing technology, license such technology from the third party claiming infringement (which license may\nnot be available on commercially reasonable terms or at all) and/or cease the manufacture, use or sale of the infringing processes or\nofferings, any of which could have a material adverse effect on our business.\n\n\n\u00a0\n\n\nIn addition, our customers\u2019 products may\nbe subject to claims of intellectual property infringement and such claims could materially affect our business if their products cease\nto be manufactured and they have to discontinue the use of the infringing technology which we may provide. Any of the foregoing could\naffect our ability to compete or could have a material adverse effect on our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nWe depend on key personnel and the loss\nof key personnel could harm our business and results of operations.\n\n\n\u00a0\n\n\nWe depend on our ability to attract and retain\nqualified scientific and technical employees, as well as a number of key executives. These employees may voluntarily terminate their employment\nwith us at any time. We may not be able to retain key personnel, or attract and retain additional qualified employees. We do not maintain\nkey-man or similar policies covering any of our senior management or key personnel. Our inability to attract and retain key personnel\nwould have a material adverse effect on our business.\n\n\n\u00a0\n\n\nWe have federal and state net operating\nloss, or NOL, carry forwards which could be used to offset/defer federal and state income taxes. Our ability to use such carry forwards\nto offset future taxable income may be subject to certain limitations related to changes in ownership of our stock and decisions by California\nand other states to limit or suspend NOL carry forwards.\n\n\n\u00a0\n\n\nAs of April 30, 2023, we had federal and state\nNOL carry forwards of approximately $442.4 million and $294.7 million, respectively. These NOL carry forwards could potentially be used\nto offset certain future federal and state income tax liabilities. The federal net operating loss carry forwards generated prior to January\n1, 2018 expire in fiscal years 2024 through 2038, unless previously utilized. The federal net operating loss generated after January 1,\n2018 of $77.9 million can be carried forward indefinitely. Utilization of net operating losses generated subsequent to 2020 are limited\nto 80% of future taxable income. However, utilization of NOL carry forwards may be subject to a substantial annual limitation pursuant\nto Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions due to ownership changes that have\noccurred previously or that could occur in the future. In general, an ownership change, as defined by Section 382, results from transactions\nincreasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over\na three-year period. A Section 382 analysis has been completed through the fiscal year ended April 30, 2022, which it was determined that\nno such change in ownership had occurred. However, ownership changes occurring subsequent to April 30, 2022 may impact the utilization\nof our NOL carry forwards and other tax attributes. Additionally, states may impose other limitations on the use of state NOL carry forwards.\nAny limitation may result in expiration of a portion of the carry forwards before utilization. If we were not able to utilize our carry\nforwards, we would be required to use our cash resources to pay taxes that would otherwise have been offset, thereby reducing our liquidity.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n15\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe have recorded significant deferred tax\nassets, and we might never realize their full value, which would result in a charge against our earnings.\n\n\n\u00a0\n\n\nAs of April 30, 2023, we had deferred tax assets\nof\u00a0$113.6 million. Realization of our deferred tax assets is dependent upon our generating sufficient taxable income in future years\nto realize the tax benefit from those assets. Deferred tax assets are reviewed on a periodic basis for realizability. A charge against\nour earnings would result if, based on the available evidence, it is more likely than not that some portion of the deferred tax asset\nwill not be realized beyond our existing valuation allowance, if any. This could be caused by, among other things, deterioration in performance,\nadverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect\nthe services provided by our business and a variety of other factors.\n\n\n\u00a0\n\n\nIf a deferred tax asset net of our valuation allowance,\nif any, was determined to be not realizable in a\u00a0future period, the charge to earnings would be recognized as an expense in our results\nof operations in the period the determination is made.\u00a0 Additionally, if we are unable to utilize our deferred tax assets, our cash\nflow available to fund operations could be adversely affected.\u00a0 Depending on future circumstances, it is possible that we might never\nrealize the full value of our deferred tax assets. Any future impairment charges related to a significant portion of our deferred tax\nassets could have an adverse effect on our financial condition and results of operations.\n\n\n\u00a0\n\n\nOur\u00a0effective\u00a0tax\u00a0rate\u00a0may\u00a0fluctuate,\nand we may incur obligations in tax jurisdictions in excess of accrued amounts.\n\n\n\u00a0\n\n\nOur effective tax rate is derived from a combination\nof applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that\nwill become payable in each such place. Nevertheless, our effective tax rate may be different than experienced in the past due to numerous\nfactors, including the impact of stock-based compensation, changes in the mix of our profitability between tax jurisdictions, the results\nof examinations and audits of our tax filings, our inability to secure or sustain acceptable agreements with tax authorities, changes\nin accounting for income taxes and changes in tax laws. Any of these factors could cause us to experience an effective tax rate significantly\ndifferent from previous periods or our current expectations and may result in tax obligations in excess of amounts accrued in our financial\nstatements.\n\n\n\u00a0\n\n\nIn addition, in the fourth quarter of fiscal 2022,\nwe determined, based on our facts and circumstances, that it was more likely than not that our deferred tax assets would be realized and,\nas a result, we fully released our valuation allowance related to federal and state deferred tax assets. This resulted in a substantial\nincrease in our reported net income and our earnings per share compared to our operating results for fiscal 2022. As such, fiscal 2022\nnet income is not indicative of the actual or future profitability trend of our business. Starting in fiscal 2023, we\ncommenced recording income tax expense at an estimated tax rate that approximates statutory tax rates, which could result in a significant\nreduction in our net income and net income per share.\n\n\n\u00a0\n\n\nWe may be subject to various litigation\nclaims and legal proceedings.\n\n\n\u00a0\n\n\nWe, as well as certain of our directors and officers,\nmay be subject to claims or lawsuits during the ordinary course of business. Regardless of the outcome, these lawsuits may result in significant\nlegal fees and expenses and could divert management\u2019s time and other resources. If the claims contained in these lawsuits are successfully\nasserted against us, we could be liable for damages and be required to alter or cease certain of our business practices. Any of these\noutcomes could cause our business, financial performance and cash position to be negatively impacted.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n16\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe have become increasingly dependent on\ninformation technology and any breakdown, interruption or breach of our information technology systems could subject us to liability or\ninterrupt the operation of our business, which could have a material adverse effect on our business, financial condition, results of operations\nand cash flows.\n\n\n\u00a0\n\n\nWe are increasingly dependent upon sophisticated\ninformation technology systems and infrastructure in connection with the conduct of our business. We must constantly update our information\ntechnology infrastructure and our various current information technology systems throughout the organization may not continue to meet\nour current and future business needs. Furthermore, modification, upgrade or replacement of such systems may be costly. In addition, due\nto the size and complexity of these systems, any breakdown, interruption, corruption or unauthorized access to or cyber-attack on these\nsystems could create system disruptions, shutdowns or unauthorized disclosure of confidential information. While we attempt to take appropriate\nsecurity and cyber-security measures to protect our data and information technology systems and to prevent such breakdowns and unauthorized\nbreaches and cyber-attacks, these measures may not be successful and these breakdowns and breaches in, or attacks on, our systems and\ndata may not be prevented. Such breakdowns, breaches or attacks may cause business interruption and could have a material adverse effect\non our business, financial condition, results of operations and cash flows and could cause the market value of our shares of common stock\nto decline, and we may suffer financial damage or other loss, including fines or criminal penalties because of lost or misappropriated\ninformation.\n\n\n\u00a0\n\n\nIncreasing attention\nto ESG matters may impact our business, financial results or stock price.\u00a0\n\n\n\u00a0\n\n\nCompanies across all industries are facing increasing\nscrutiny from stakeholders related to their ESG practices and disclosures, including\npractices and disclosures related to climate change, diversity and inclusion and governance standards. Investor advocacy groups, certain\ninstitutional investors, lenders, investment funds and other influential investors are also increasingly focused on ESG practices and\ndisclosures and in recent years have placed increasing importance on the implications and social cost of their investments. In addition,\ngovernment organizations are enhancing or advancing legal and regulatory requirements specific to ESG matters. The heightened stakeholder\nfocus on ESG issues related to our business requires the continuous monitoring of various and evolving laws, regulations, standards and\nexpectations and the associated reporting requirements. A failure to adequately meet stakeholder expectations may result in noncompliance,\nthe loss of business, reputational impacts, diluted market valuation, an inability to attract customers and an inability to attract and\nretain top talent. In addition, our adoption of certain standards or mandated compliance to certain requirements could necessitate additional\ninvestments that could have an adverse effect on our results of operations.\n\n\n\u00a0\n\n\nWe may seek to grow our business through\nacquisitions of complementary businesses, and the failure to manage acquisitions, or the failure to integrate them with our existing business,\ncould harm our financial condition and operating results.\n\n\n\u00a0\n\n\nFrom time to time, we may consider opportunities\nto acquire other companies, products or technologies that may enhance our manufacturing capabilities, expand the breadth of our markets\nor customer base, or advance our business strategies. Potential acquisitions involve numerous risks, including: problems assimilating\nthe acquired service offerings, products or technologies; issues maintaining uniform standards, procedures, quality control and policies;\nunanticipated costs associated with acquisitions; diversion of management\u2019s attention from our existing business; risks associated\nwith entering new markets in which we have limited or no experience; increased legal and accounting costs relating to the acquisitions\nor compliance with regulatory matters; and unanticipated or undisclosed liabilities of any target.\n\n\n\u00a0\n\n\nWe have no current commitments with respect to\nany acquisition. We do not know if we will be able to identify acquisitions we deem suitable, whether we will be able to successfully\ncomplete any such acquisitions on favorable terms or at all, or whether we will be able to successfully integrate any acquired service\nofferings, products or technologies. Our potential inability to integrate any acquired service offerings, products or technologies effectively\nmay adversely affect our business, financial condition, and results of operations.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n17\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRisks Related to Our Customers\n\n\n\u00a0\n\n\nThe consumers of the products we manufacture\nfor our customers may significantly influence our business, financial condition, and results of operations.\n\n\n\u00a0\n\n\nWe depend on, and have no control over, consumer\ndemand for the products we manufacture for our customers. Consumer demand for our customers\u2019 products could be adversely affected\nby, among other things, delays in health regulatory approval, the inability of our customers to demonstrate the efficacy and safety of\ntheir products, the loss of patent and other intellectual property rights protection, the emergence of competing or alternative products,\nincluding generic drugs and the degree to which private and government payment subsidies for a particular product offset the cost to consumers\nand changes in the marketing strategies for such products. Additionally, if the products we manufacture for our customers do not gain\nmarket acceptance, our revenues and profitability may be adversely affected.\n\n\n\u00a0\n\n\nWe believe that continued changes to the healthcare\nindustry, including ongoing healthcare reform, adverse changes in government or private funding of healthcare products and services, legislation\nor regulations governing the privacy of patient information or patient access to care, or the delivery, pricing or reimbursement of pharmaceuticals\nand healthcare services or mandated benefits, may cause healthcare industry participants to purchase fewer services from us or influence\nthe price that others are willing to pay for our services. Changes in the healthcare industry\u2019s pricing, selling, inventory, distribution\nor supply policies or practices could also significantly reduce our revenue and profitability.\n\n\n\u00a0\n\n\nIf production volumes of key products that we\nmanufacture for our customers decline, our financial condition and results of operations may be adversely affected.\n\n\n\u00a0\n\n\nOur customers\u2019 failure to receive\nor maintain regulatory approval for their product candidates could negatively impact our revenues and profitability.\n\n\n\u00a0\n\n\n\n\nOur success depends upon the regulatory\napproval of the products we manufacture. As such, if our customers experience a delay in, or a failure to receive, approval for any\nof their product candidates or fail to maintain regulatory approval of their products, and we are not able to manufacture these\nproducts, our revenue and profitability could be adversely affected. Additionally, if the FDA or a comparable foreign regulatory\nauthority does not approve of our facilities for the manufacture of a customer product, or if it withdraws such approval in the\nfuture, our customers may choose to identify alternative manufacturing facilities and/or relationships, which could significantly\nimpact our ability to expand our manufacturing capacity and capabilities and achieve profitability.\n\n\n\u00a0\n\n\nWe depend on spending and demand from our\ncustomers for our contract manufacturing and development services and any reduction in spending or demand, whether due to a deterioration\nin macroeconomic conditions or unfavorable research and development results, could have a material adverse effect on our revenues and\nprofitability.\n\n\n\u00a0\n\n\nThe amount that our customers spend on the development\nand manufacture of their products or product candidates, particularly the amount our customers choose to spend on outsourcing these services\nto us, substantially impacts our revenue and profitability. During times of greater economic uncertainty, such as the biopharmaceutical\nindustry is currently experiencing, our smaller customers with products in earlier stages of development tend to be much more negatively\nimpacted due to the tightening of the access to capital. As a result, such earlier stage customers may be forced to delay or cancel our\nservices in an effort to conserve cash which could have a material adverse effect on our revenues and profitability. In addition, the\noutcomes of our customers\u2019 research, development and marketing also significantly influence the amount that our customers choose\nto spend on our services and offerings. Our customers determine the amounts that they will spend on our services based upon, among other\nthings, the clinical and market success of their products, available resources and their need to develop new products which, in turn,\ndepend upon a number of other factors, including their competitors\u2019 research, development and product initiatives and the anticipated\nmarket for any new products, as well as clinical and reimbursement scenarios for specific products and therapeutic areas. Further, increasing\nconsolidation in the pharmaceutical industry may impact such spending, particularly in the event that any of our customers choose to develop\nor acquire integrated manufacturing operations. Any reduction in customer spending on biologics development and related services as a\nresult of these and other factors could have a material adverse effect on our business, financial condition, and results of operations.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n18\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf we are unable to protect the confidentiality\nof our customers\u2019 proprietary information, we may be subject to claims.\n\n\n\u00a0\n\n\nMany of the formulations used and processes developed\nby us in the manufacture of our customers\u2019 products are subject to trade secret protection, patents or other intellectual property\nprotections owned or licensed by such customer. While we make significant efforts to protect our customers\u2019 proprietary and confidential\ninformation, including requiring our employees to enter into agreements protecting such information, if any of our employees breach\nthe non-disclosure provisions in such agreements, or if our customers make claims that their proprietary information has been disclosed,\nour reputation may suffer damage and we may become subject to legal proceedings that could require us to incur significant expense and\ndivert our management\u2019s time, attention and resources.\n\n\n\u00a0\n\n\nRisks Related to the Industry in Which We Operate\n\n\n\u00a0\n\n\nFailure to comply with existing and future\nregulatory requirements could adversely affect our business, financial condition, and results of operations.\n\n\n\u00a0\n\n\nOur industry is highly regulated. We are required\nto comply with the regulatory requirements of various local, state, provincial, national and international regulatory bodies having jurisdiction\nin the countries or localities in which we manufacture products or in which our customers\u2019 products are distributed. In particular,\nwe are subject to laws and regulations concerning development, testing, manufacturing processes, equipment and facilities, including compliance\nwith CGMPs, import and export, and product registration and listing, among other things. As a result, most of our facilities are subject\nto regulation by the FDA, as well as regulatory bodies of other jurisdictions where our customers have marketing approval for their products\nincluding, but not limited to, the EMA, ANVISA and/or Health Canada, depending on the countries in which our customers market and sell\nthe products we manufacture on their behalf. As we expand our operations, we may be exposed to more complex and new regulatory and administrative\nrequirements and legal risks, any of which may require expertise in which we have little or no experience. It is possible that compliance\nwith new regulatory requirements could impose significant compliance costs on us. Such costs could have a material adverse effect on our\nbusiness, financial condition and results of operations.\n\n\n\u00a0\n\n\nThese regulatory requirements impact many aspects\nof our operations, including manufacturing, developing, storage, distribution, import and export and record keeping related to customers\u2019\nproducts. Noncompliance with any applicable regulatory requirements can result in government refusal to approve: (i) facilities for testing\nor manufacturing products or (ii) products for commercialization. The FDA and other regulatory agencies can delay, limit or deny approval\nfor many reasons, including:\n\n\n\u00a0\n\n\n\n\n\u00b7\nchanges to the regulatory approval process, including new data requirements for product candidates in\nthose jurisdictions, including the United States, in which our customers may be seeking approval;\n\n\n\n\n\u00b7\nthat a customer\u2019s product candidate may not be deemed to be safe or effective;\n\n\n\n\n\u00b7\nthe inability of the regulatory agency to provide timely responses as a result of its resource constraints;\nand\n\n\n\n\n\u00b7\nthat the manufacturing processes or facilities may not meet the applicable requirements.\n\n\n\u00a0\n\n\nIn addition, if new legislation or regulations\nare enacted or existing legislation or regulations are amended or are interpreted or enforced differently, we may be required to obtain\nadditional approvals or operate according to different manufacturing or operating standards. This may require a change in our development\nand manufacturing techniques or additional capital investments in our facilities. Any related costs may be significant. If we fail to\ncomply with applicable regulatory requirements in the future, then we may be subject to warning letters and/or civil or criminal penalties\nand fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, restrictions on the import and export\nof our products, debarment, exclusion, disgorgement of profits, operating restrictions and criminal prosecution and the loss of contracts\nand resulting revenue losses. Inspections by regulatory authorities that identify any deficiencies could result in remedial actions, production\nstoppages or facility closure, which would disrupt the manufacturing process and supply of product to our customers. In addition, such\nfailure to comply could expose us to contractual and product liability claims, including claims by customers for reimbursement for lost\nor damaged active pharmaceutical ingredients or recall or other corrective actions, the cost of which could be significant.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n19\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn addition, certain products we manufacture must\nundergo pre-clinical and clinical evaluations relating to product safety and efficacy before they are approved as commercial therapeutic\nproducts. The regulatory authorities having jurisdiction in the countries in which our customers intend to market their products may delay\nor put on hold clinical trials or delay approval of a product or determine that the product is not approvable. The FDA or other regulatory\nagencies can delay approval of a drug if our manufacturing facility, including any newly commissioned facility, is not able to demonstrate\ncompliance with CGMPs, pass other aspects of pre-approval inspections or properly scale up to produce commercial supplies. The FDA and\ncomparable government authorities having jurisdiction in the countries in which we or our customers intend to market their products have\nthe authority to withdraw product approval or suspend manufacture if there are significant problems with raw materials or supplies, quality\ncontrol and assurance or the product we manufacture is adulterated or misbranded. If our manufacturing facilities and services are not\nin compliance with FDA and comparable government authorities, we may be unable to obtain or maintain the necessary approvals to continue\nmanufacturing products for our customers, which would materially adversely affect our financial condition and results of operations.\n\n\n\u00a0\n\n\nWe operate in a highly competitive market\nand competition may adversely affect our business.\n\n\n\u00a0\n\n\nWe operate in a market that is highly competitive.\nOur competition in the contract manufacturing market includes full-service contract manufacturers and large pharmaceutical companies offering\nthird-party manufacturing services to fill their excess capacity. We may also compete with the internal operations of those pharmaceutical\ncompanies that choose to source their product offerings internally. In addition, most of our competitors may have substantially greater\nfinancial, marketing, technical or other resources than we do. Moreover, additional competition may emerge, particularly in lower-cost\njurisdictions such as India and China, which could, among other things, result in a decrease in the fees paid for our services, which\nmay adversely affect our financial condition and results of operations.\n\n\n\u00a0\n\n\nRisks Related to the Ownership of Our Common\nStock\u00a0\n\n\n\u00a0\n\n\nOur issuance of additional capital stock\npursuant to our stock incentive plan, or in connection with financings, acquisitions, or otherwise will dilute the interests of other\nsecurity holders and may depress the price of our common stock.\n\n\n\u00a0\n\n\nWe expect\nto issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards\nto employees, directors and consultants under our stock incentive plan. We may also raise capital through equity financings in the future.\nAs part of our growth strategy, we may seek to acquire companies and issue equity securities to pay for any such acquisition. Any such\nissuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per\nshare value of our common stock to decline. Furthermore, if we issue additional equity or convertible debt securities, the new equity\nsecurities could have rights senior to those of our common stock. For example, if we elect to settle our conversion obligation under our\n1.25% Convertible Senior Notes due 2026 (\u201cConvertible Notes\u201d) in shares of our common stock or a combination of cash and\nshares of our common stock, the issuance of such common stock may dilute the ownership interests of our stockholders and sales in the\npublic market could adversely affect prevailing market prices.\n\n\n\u00a0\n\n\nOur highly volatile stock price may adversely\naffect the liquidity of our common stock.\n\n\n\u00a0\n\n\nThe market price of our common stock has generally\nbeen highly volatile and is likely to continue to be highly volatile. For instance, the market price of our common stock has ranged from\n$5.08 to $34.51 per share over the last three fiscal years ended April 30, 2023.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n20\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe market price of our common stock may be significantly\nimpacted by many factors including the following:\n\n\n\u00a0\n\n\n\n\n\u00b7\nthe loss of a significant customer;\n\n\n\n\n\u00b7\nsignificant changes in our financial results or that of our competitors, including our ability to continue\nas a going concern;\n\n\n\n\n\u00b7\nthe ability to meet our revenue guidance;\n\n\n\n\n\u00b7\nthe offering and sale of shares of our common stock, either sold at market prices or at a discount under\nan equity transaction;\n\n\n\n\n\u00b7\nsignificant changes in our capital structure;\n\n\n\n\n\u00b7\npublished reports by securities analysts;\n\n\n\n\n\u00b7\nactual or purported short squeeze trading activity;\n\n\n\n\n\u00b7\nannouncements of partnering transactions, joint ventures, strategic alliances, and any other transaction\nthat involves the development, sale or use of our technologies or competitive technologies;\n\n\n\n\n\u00b7\nregulatory developments, including possible delays in the regulatory approval of our customers\u2019\nproducts which we manufacture;\n\n\n\n\n\u00b7\noutcomes of significant litigation, disputes and other legal or regulatory proceedings;\n\n\n\n\n\u00b7\ngeneral stock trends in the biotechnology and pharmaceutical industry sectors;\n\n\n\n\n\u00b7\npublic concerns as to the safety and effectiveness of the products we manufacture;\n\n\n\n\n\u00b7\neconomic trends and other external factors including, but not limited to, interest rate fluctuations,\neconomic recession, inflation, foreign market trends, national crisis, and disasters; and\n\n\n\n\n\u00b7\nhealthcare reimbursement reform and cost-containment measures implemented\nby government agencies.\n\n\n\n\n\u00a0\n\n\n\n\nThese and other external factors have caused and\nmay continue to cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors\nfrom readily selling their shares of our common stock, and may otherwise negatively affect the liquidity of our common stock.\n\n\n\u00a0\n\n\nAnti-takeover provisions in our certificate\nof incorporation, amended and restated bylaws, the Indenture, as well as provisions of Delaware law could prevent or delay a change in\ncontrol of our company, even if such change in control would be beneficial to our stockholders.\n\n\n\u00a0\n\n\nProvisions of our certificate of incorporation\nand amended and restated bylaws could discourage, delay or prevent a merger, acquisition or other change in control of our company, even\nif such change in control would be beneficial to our stockholders. These include: authorizing the issuance of \u201cblank check\u201d\npreferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;\nno provision for the use of cumulative voting for the election of directors; limiting the ability of stockholders to call special meetings;\nrequiring all stockholder actions to be taken at a meeting of our stockholders (i.e. no provision for stockholder action by written consent);\nand establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can\nbe acted upon by stockholders at stockholder meetings.\n\n\n\u00a0\n\n\nFurther,\nin connection with our Convertible Notes issuances, we entered into an indenture dated as of March 12, 2021 as amended by a first supplemental\nindenture dated April 30, 2021 (as amended or supplemented, the \u201cIndenture\u201d) with U.S. Bank National Association, as trustee.\nCertain provisions in the Indenture could make it more difficult or more expensive for a third party to acquire us. For example, if a\ntakeover would constitute a fundamental change, holders of the Convertible Notes will have the right to require us to repurchase their\nConvertible Notes in cash. In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the\nconversion rate for holders who convert their Convertible Notes in connection with such takeover. In either case, and in other cases,\nour obligations under the Convertible Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third\nparty from acquiring us or removing incumbent management.\n\n\n\u00a0\n\n\nIn addition, Section 203 of the Delaware General\nCorporation Law prohibits us, except under specified circumstances, from engaging in any mergers, significant sales of stock or assets\nor business combinations with any stockholder or group of stockholders who owns at least 15% of our common stock.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n21\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur amended and restated bylaws\nprovide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us\nand our stockholders, which could limit our stockholders\u2019 ability to obtain a favorable judicial forum for disputes with us or\nour directors, officers or employees.\n\n\n\u00a0\n\n\nOur amended and restated bylaws provide\nthat, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware is the exclusive forum\nfor any derivative action or proceeding brought on our behalf, any action asserting a breach of a fiduciary duty owed by any of our\ndirectors, officers, or other employees to us, any action asserting a claim against us arising pursuant to the Delaware General\nCorporation Law, our certificate of incorporation or our bylaws, any action to interpret, apply, enforce, or determine the validity\nof our certificate of incorporation or bylaws, or any action asserting a claim against us that is governed by the internal affairs\ndoctrine. The choice of forum provision may limit a stockholder\u2019s ability to bring a claim in a judicial forum that it finds\nfavorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our\ndirectors, officers and other employees.\n\n\n\u00a0\n\n\nWe do not intend to pay dividends on our\ncommon stock, so any returns will be limited to the value of our stock.\n\n\n\u00a0\n\n\nWe have never declared or paid any cash dividend\non our common stock. We currently anticipate that we will retain future earnings, if any, for the development, operation and expansion\nof our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will\ntherefore be limited to the appreciation of the trading price of our common stock.\n\n\n\u00a0\n\n\nIf securities or industry analysts do not\npublish research reports about us, or if they issue adverse opinions about our business, our stock price and trading volume could decline.\n\n\n\u00a0\n\n\nThe research and reports that\nindustry or securities analysts publish about us or our business will influence the market for our common stock. If one or more analysts\nwho cover us issues an adverse opinion about us, our stock price would likely decline. If one or more of these analysts ceases research\ncoverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets which, in turn, could cause\nour stock price or trading volume to decline. Further, if we fail to meet the market expectations of analysts who follow our stock, our\nstock price likely would decline.\n\n\n\u00a0\n\n\nRisks Related to Our\nOutstanding Convertible Notes\n\n\n\u00a0\n\n\nWe may not have\nsufficient cash flow from our business to make payments on our significant debt when due, and we may incur additional indebtedness in\nthe future.\n\n\n\u00a0\n\n\nIn March 2021, we\nissued the Convertible Notes in a private offering to qualified institutional buyers pursuant to Rule 144 under the Securities Act.\nWe may be required to use a substantial portion of our cash flows from operations to pay interest and principal on our indebtedness.\nOur ability to make scheduled payments of the principal and to pay interest on or to refinance our indebtedness, including the\nConvertible Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond\nour control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and\nmake necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more\nalternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or\nhighly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such\ntime. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result\nin a default on our debt obligations.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n22\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn addition, we may incur\nsubstantial additional debt in the future, subject to the restrictions contained in our future debt agreements, some of which may be secured\ndebt. We are not restricted under the terms of the Indenture governing the Convertible Notes, from incurring additional debt, securing\nexisting or future debt, recapitalizing our debt, repurchasing our stock, pledging our assets, making investments, paying dividends, guaranteeing\ndebt or taking a number of other actions that are not limited by the terms of the Indenture governing the Convertible Notes that could\nhave the effect of diminishing our ability to make payments on the Convertible Notes when due.\n\n\n\u00a0\n\n\nThe conditional\nconversion feature of our Convertible Notes, if triggered, may adversely affect our financial condition and operating results.\n\n\n\u00a0\n\n\nIn the event the conditional conversion feature\nof the Convertible Notes is triggered, holders of the Convertible Notes will be entitled to convert the notes at any time during specified\nperiods at their option. If one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation\nby delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required\nto settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition,\neven if holders do not elect to convert their Convertible Notes when these conversion triggers are satisfied, we could be required under\napplicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than\nlong-term liability, which would result in a material reduction of our net working capital.\n\n\n\u00a0\n\n\nThe capped call\ntransactions may affect the value of our Convertible Notes and our common stock.\n\n\n\u00a0\n\n\nIn connection with the\npricing of the Convertible Notes, we entered into capped call transactions with the option counterparties. The capped call transactions\ncover, subject to customary anti-dilution adjustments, the aggregate number of shares of our common stock that initially underlie the\nConvertible Notes. The capped call transactions are expected generally to reduce the potential dilution to our common stock as a result\nof conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of the\nconverted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap. In connection with establishing their\ninitial hedges of the capped call transactions, the option counterparties or their respective affiliates may have purchased shares of\ncommon stock and/or entered into various derivative transactions with respect to our common stock concurrently with or shortly after the\npricing of the Convertible Notes, including with certain investors in the Convertible Notes.\n\n\n\u00a0\n\n\nIn addition, the option\ncounterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with\nrespect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions\nfollowing the pricing of the Convertible Notes and prior to the maturity of the Convertible Notes. They are likely to do so on each exercise\ndate for the capped call transactions, which are expected to occur during each 40-trading day period beginning on the 41st scheduled trading\nday prior to the maturity date of the Convertible Notes, or following any termination of any portion of the capped call transactions in\nconnection with any repurchase, redemption or early conversion of the Convertible Notes. This activity could also cause or prevent an\nincrease or decrease in the price of our common stock or the Convertible Notes.\u00a0The potential effect, if any, of these transactions\non the price of our common stock or the Convertible Notes will depend in part on market conditions and cannot be ascertained at this time.\nAny of these activities could adversely affect the value of our common stock.\n\n\n\u00a0\n\n\nWe are subject\nto counterparty risk with respect to the capped call transactions.\n\n\n\u00a0\n\n\nThe counterparties to the capped\ncall transactions are financial institutions, and we will be subject to the risk that one or more of the option counterparties may default,\nfail to perform or exercise their termination rights under the capped call transactions. Our exposure to the credit risk of the option\ncounterparties will not be secured by any collateral. If a counterparty to the capped call transactions becomes subject to insolvency\nproceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under such transaction.\nOur exposure will depend on many factors but, generally, our exposure will increase if the market price or the volatility of our common\nstock increases. In addition, upon a default, failure to perform or a termination of the capped call transactions by a counterparty, we\nmay suffer more dilution than we currently anticipate with respect to our common stock.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n23\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n",
+  "item7": ">Item 7.\nManagement\u2019s Discussion And Analysis Of Financial Condition And Results Of Operations\n\n\n\u00a0\n\n\nThe following discussion\nand analysis should be read in conjunction with our audited Consolidated Financial Statements and the related notes thereto set forth\nin \u201cItem 8\u2014Financial Statements and Supplementary Data\u201d. In addition to historical information, this discussion and\nanalysis contains forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results could differ\nmaterially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those\nset forth under \u201cItem 1A\u2014Risk Factors\u201d and elsewhere in this Annual Report.\n\n\n\u00a0\n\n\nFor discussion related to\nchanges in financial condition and our results of operations for fiscal year 2022 compared to fiscal year 2021, refer to \u201cPart II,\nItem 7\u2014Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d included in our Annual\nReport on Form 10-K for the fiscal year ended April 30, 2022, which was filed with the SEC on June 29, 2022.\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nWe are a dedicated contract development and manufacturing\norganization (\u201cCDMO\u201d) that provides a comprehensive range of services from process development to Current Good Manufacturing\nPractices (\u201cCGMP\u201d) clinical and commercial manufacturing of biologics for the biotechnology and biopharmaceutical industries.\nWith 30 years of experience producing biologics, our services include clinical and commercial product manufacturing, bulk packaging, release\nand stability testing and regulatory submissions support. We also provide a variety of process development services, including upstream\nand downstream development and optimization, analytical methods development, cell line development, testing and characterization. \u00a0\n\n\n\u00a0\n\n\nStrategic\nObjectives\n\n\n\u00a0\n\n\nWe have a growth strategy that seeks to align\nwith the growth of the biopharmaceutical drug substance contract services market. That strategy encompasses the following objectives:\n\n\n\u00a0\n\n\n\n\n\u00b7\nInvest in additional manufacturing capacity, capabilities and resources required for us to achieve our\nlong-term growth strategy and meet the growth-demand of our customers\u2019 programs, moving from development through to commercial manufacturing;\n\n\n\n\n\u00b7\nBroaden our market awareness through a diversified yet flexible marketing strategy;\n\n\n\n\n\u00b7\nContinue to expand our customer base and programs with existing customers for both process development\nand manufacturing service offerings;\n\n\n\n\n\u00b7\nExplore strategic opportunities both within our core business as well as in adjacent and/or synergistic\nbiologic service offerings in order to enhance and/or broaden our capabilities; and\n\n\n\n\n\u00b7\nIncrease our operating profit margin to best in class industry standards.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n27\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nFiscal Year 2023 Highlights\n\n\n\u00a0\n\n\nThe following summarizes select highlights from\nour fiscal year ended April 30, 2023:\n\n\n\u00a0\n\n\n\n\n\u00b7\nReported revenues of $149.3 million, an increase of 25%, or $29.7 million, compared to fiscal 2022;\n\n\n\n\n\u00b7\nReported net income of $0.6 million, or $0.01 per basic and diluted share;\n\n\n\n\n\u00b7\nExpanded our customer base and programs with existing customers and ended the year with a backlog of approximately\n$191 million compared to $153 million at the end of fiscal 2022;\n\n\n\n\n\u00b7\nEntered into a credit agreement with Bank of America that provides for a revolving credit facility\n                                                                                                             in an amount equal to the lesser of (i) $50 million, and (ii) a borrowing base calculated as the sum of (a) 80% of the value of\n                                                                                                             certain of our eligible accounts receivable, plus (b) up to 100% of the value of eligible cash collateral, provided we remain in compliance\n                                                                                                             with the underlying financial convenant in the credit agreement;\n\n\n\n\n\u00b7\nAnnounced the official opening of our additional CGMP mammalian cell manufacturing suites within our Myford\nfacility. This milestone marked the completion of our two-phased expansion of our Myford facility;\n\n\n\n\n\u00b7\nAnnounced the completion of our mammalian cell process development laboratory expansion, which has doubled\nour total process development process capacity;\n\n\n\n\n\u00b7\nFurther enhanced our mammalian cell offerings with the addition of in-house cell line development services;\n\n\n\n\n\u00b7\nAnnounced the official opening of our analytical and process development suites within our cell and gene\ntherapy facility; and\n\n\n\n\n\u00b7\nContinued to advance the build-out of CGMP manufacturing suites in our cell and gene therapy facility.\n\n\n\u00a0\n\n\nFacility Expansions\n\n\n\u00a0\n\n\nDuring fiscal year 2021, we announced plans for\na two-phased expansion of our Myford facility. The first phase, which expanded the production capacity of our Myford facility by adding\nan additional downstream processing suite, was completed in January 2022. The second phase, which was recently completed in March 2023,\nfurther expanded our capacity with the addition of a second manufacturing train, including both upstream and downstream processing suites.\n\n\n\u00a0\n\n\nIn June 2022, we announced plans to further expand\nthe process development capacity of our mammalian cell culture services, by adding new suites within our existing process development\nlaboratory space. This expansion was completed in April 2023.\n\n\n\u00a0\n\n\nDuring fiscal year 2022, we announced plans to\nexpand our CDMO service offerings into viral vector development and manufacturing services for the rapidly growing cell and gene therapy\n(\u201cCGT\u201d) market. This expansion consists of a two-phased approach to the construction of a world-class, single purpose-built\nCGT development and CGMP manufacturing facility in Costa Mesa, California (the \u201cCGT Facility\u201d). In June 2022, we completed\nthe first phase with the opening of our new analytical and process development laboratories. The second phase of construction is the build\nout of CGMP manufacturing suites, which is expected to be online by the end of the third calendar quarter of 2023. We estimate that as\nof April 30, 2023, the remaining cost to complete our CGT Facility construction is approximately $14 million.\n\n\n\u00a0\n\n\nUpon completion of these expansion projects, we\nestimate that our combined facilities will have the potential to bring our total revenue generating capacity to up to approximately $400\nmillion annually, depending on the mix of future customer projects.\n\n\n\u00a0\n\n\nPerformance and Financial Measures\n\n\n\u00a0\n\n\nIn assessing the performance of our business,\nwe consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of\nour business are revenues, gross profit, selling, general and administrative expenses, operating income, interest expense, other income\n(expense), net, and income tax (expense) benefit.\n\n\n\u00a0\n\n\nWe intend for this discussion to provide the reader\nwith information that will assist in understanding our consolidated financial statements, the changes in certain key items in those consolidated\nfinancial statements from period to period and the primary factors that accounted for those changes.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n28\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nRevenues\n\n\n\u00a0\n\n\nRevenues are derived from services provided under\nour customer contracts and are disaggregated into manufacturing and process development revenue streams. Manufacturing revenue generally\nrepresents revenue from the manufacturing of customer products derived from mammalian cell culture covering clinical through commercial\nmanufacturing runs. Process development revenue generally represents revenue from services associated with the custom development of a\nmanufacturing process and analytical methods for a customer\u2019s product.\n\n\n\u00a0\n\n\nGross Profit\n\n\n\u00a0\n\n\nGross profit is equal to revenues less cost of\nrevenues. Cost of revenues reflects the direct cost of labor, overhead and material costs. Direct labor costs primarily include compensation,\nbenefits, recruiting fees, and stock-based compensation within the manufacturing, process and analytical development, quality assurance,\nquality control, validation, supply chain, project management and facilities functions. Overhead costs primarily include the rent, common\narea maintenance, utilities, property taxes, security, materials and supplies, software, small equipment and deprecation costs incurred\nat our manufacturing and laboratory locations.\n\n\n\u00a0\n\n\nSelling, General and Administrative Expenses\n\n\n\u00a0\n\n\nSelling, general and administrative (\u201cSG&A\u201d)\nexpenses are composed of corporate-level expenses, including compensation, benefits, recruiting fees and stock-based compensation of corporate\nfunctions such as executive management, finance and accounting, business development, legal, human resources, information technology,\nand other centralized services. SG&A expenses also include corporate legal fees, audit and accounting fees, investor relation expenses,\nnon-employee director fees, corporate facility related expenses, and other expenses relating to our general management, administration,\nand business development activities.\n\n\n\u00a0\n\n\nInterest Expense\n\n\n\u00a0\n\n\nInterest expense consists of interest costs related\nto our outstanding convertible senior notes, revolving credit facility and finance lease, including amortization of debt issuance costs.\n\n\n\u00a0\n\n\nOther Income (Expense), Net\n\n\n\u00a0\n\n\nOther income (expense), net primarily consists\nof interest earned on our cash and cash equivalents, net of gains (losses) from the disposal of long-lived assets.\n\n\n\u00a0\n\n\nIncome Tax (Expense) Benefit\n\n\n\u00a0\n\n\nWe are subject to taxation in the United States\nand various states jurisdictions in which we conduct our business. We prepare our income tax provision based on our interpretation of\nthe income tax accounting rules and each jurisdiction\u2019s enacted tax laws and regulations. For additional information refer to Note\n7, \nIncome Taxes\n, of the notes to consolidated financial statements.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n29\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nResults\nof Operations\n\n\n\u00a0\n\n\n\n\nThe following table compares\nthe operating results of our operations for the fiscal years ended April 30, 2023 and 2022 (in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFiscal Year Ended \n \nApril 30,\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\u00a0\n\n\n$ Change\n\u00a0\n\n\n\n\nRevenues\n\u00a0\n\n\n$\n149,266\n\u00a0\n\u00a0\n\n\n$\n119,597\n\u00a0\n\u00a0\n\n\n$\n29,669\n\u00a0\n\n\n\n\nCost of revenues\n\u00a0\n\n\n\u00a0\n117,786\n\u00a0\n\u00a0\n\n\n\u00a0\n82,949\n\u00a0\n\u00a0\n\n\n\u00a0\n34,837\n\u00a0\n\n\n\n\nGross profit\n\u00a0\n\n\n\u00a0\n31,480\n\u00a0\n\u00a0\n\n\n\u00a0\n36,648\n\u00a0\n\u00a0\n\n\n\u00a0\n(5,168\n)\n\n\n\n\nOperating expenses:\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nSelling, general and administrative\n\u00a0\n\n\n\u00a0\n27,879\n\u00a0\n\u00a0\n\n\n\u00a0\n21,226\n\u00a0\n\u00a0\n\n\n\u00a0\n6,653\n\u00a0\n\n\n\n\nTotal operating expenses\n\u00a0\n\n\n\u00a0\n27,879\n\u00a0\n\u00a0\n\n\n\u00a0\n21,226\n\u00a0\n\u00a0\n\n\n\u00a0\n6,653\n\u00a0\n\n\n\n\nOperating income\n\u00a0\n\n\n\u00a0\n3,601\n\u00a0\n\u00a0\n\n\n\u00a0\n15,422\n\u00a0\n\u00a0\n\n\n\u00a0\n(11,821\n)\n\n\n\n\nInterest expense\n\u00a0\n\n\n\u00a0\n(2,600\n)\n\u00a0\n\n\n\u00a0\n(2,680\n)\n\u00a0\n\n\n\u00a0\n80\n\u00a0\n\n\n\n\nOther income (expense), net\n\u00a0\n\n\n\u00a0\n1,002\n\u00a0\n\u00a0\n\n\n\u00a0\n(81\n)\n\u00a0\n\n\n\u00a0\n1,083\n\u00a0\n\n\n\n\nNet income before income taxes\n\u00a0\n\n\n\u00a0\n2,003\n\u00a0\n\u00a0\n\n\n\u00a0\n12,661\n\u00a0\n\u00a0\n\n\n\u00a0\n(10,658\n)\n\n\n\n\nIncome tax (expense) benefit\n\u00a0\n\n\n\u00a0\n(1,443\n)\n\u00a0\n\n\n\u00a0\n115,011\n\u00a0\n\u00a0\n\n\n\u00a0\n(116,454\n)\n\n\n\n\nNet income\n\u00a0\n\n\n$\n560\n\u00a0\n\u00a0\n\n\n$\n127,672\n\u00a0\n\u00a0\n\n\n$\n(127,112\n)\n\n\n\n\n\u00a0\n\n\n\n\nFiscal Year 2023 Compared to Fiscal Year 2022\n\n\n\u00a0\n\n\nRevenues\n\n\n\u00a0\n\n\nRevenues were\n$149.3 million in fiscal 2023, compared to $119.6 million in fiscal 2022, an increase of approximately $29.7 million or 25%. The year-over-year\nincrease in revenues can primarily be attributed to increases in manufacting runs and process development services provided to new customers.\nThe increase in revenues was attributed to the following components of our revenue streams:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n$ in millions\n\u00a0\n\n\n\n\nNet increase in manufacturing revenues\n\u00a0\n\n\n$\n26.1\n\u00a0\n\n\n\n\nNet increase in process development revenues\n\u00a0\n\n\n\u00a0\n3.6\n\u00a0\n\n\n\n\nTotal increase in revenues\n\u00a0\n\n\n$\n29.7\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n30\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nGross\nProfit\n\n\n\u00a0\n\n\nGross profit was $31.5 million (21% gross margin)\nin fiscal 2023 compared to $36.6 million (31% gross margin) in fiscal 2022, a decrease of approximately $5.2 million. The decrease in\ngross profit can primarily be attributed to increases in compensation and benefit related expenses and facility and equipment related\ncosts, partially offset by increased revenues. During fiscal 2023 as compared with fiscal 2022, our labor, overhead and depreciation expenses\nincreased primarily due to the hiring of personnel and additional facility and equipment related costs in anticipation of the commissioning\nof our mammalian and cell and gene therapy CGMP facility expansions. This decrease in margin was partially offset by a current year period\nbenefit to margin from revenue associated with a change in variable consideration under a contract where uncertainties have been resolved.\nIn addition, the same period in the prior year included a margin benefit from unutilized capacity fees. \n\n\n\u00a0\n\n\nWe expect our gross profit will continue to\nbe impacted in the near-term due to our increased fixed cost base related to the recent hiring of personnel, additional facility and\nequipment related costs, and increased depreciation expense from our facility expansion efforts.\n\n\n\u00a0\n\n\nSelling,\nGeneral and Administrative Expenses\n\n\n\u00a0\n\n\n\n\nSG&A expenses were $27.9\nmillion in fiscal 2023, compared to $21.2 million in fiscal 2022, an increase of $6.7 million, or 31%. The net increase in SG&A expenses\nwas attributed to the following components:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\n$ in millions\n\u00a0\n\n\n\n\nIncrease in compensation and benefit related expenses\n\u00a0\n\n\n$\n4.7\n\u00a0\n\n\n\n\nIncrease in legal and accounting fees\n\u00a0\n\n\n\u00a0\n0.5\n\u00a0\n\n\n\n\nIncrease in consulting and other professional fees\n\u00a0\n\n\n\u00a0\n0.4\n\u00a0\n\n\n\n\nIncrease travel and related expenses\n\u00a0\n\n\n\u00a0\n0.4\n\u00a0\n\n\n\n\nIncrease in facility and related expenses\n\u00a0\n\n\n\u00a0\n0.3\n\u00a0\n\n\n\n\nIncrease in trade show expenses\n\u00a0\n\n\n\u00a0\n0.2\n\u00a0\n\n\n\n\nNet increase in all other SG&A expenses\n\u00a0\n\n\n\u00a0\n0.2\n\u00a0\n\n\n\n\nTotal increase in SG&A expenses\n\u00a0\n\n\n$\n6.7\n\u00a0\n\n\n\n\n\u00a0\n\n\nAs a percentage of revenues, SG&A expenses\nfor the fiscal 2023 and fiscal 2022 were 19% and 18%, respectively. SG&A expenses are generally not directly proportional to revenues,\nbut we expect such expenses to increase over time to support the needs of our growing company.\n\n\n\u00a0\n\n\nOperating Income\n\n\n\u00a0\n\n\nOperating income was $3.6 million for fiscal 2023,\ncompared to $15.4 million for fiscal 2022. This $11.8 million decrease in year-over-year operating income can be attributed to the $5.2\nmillion decrease in gross profit described above combined with the $6.7 million increase in SG&A expenses described above.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n31\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOther Income (Expense),\nnet\n\n\n\n\n\u00a0\n\n\nOther income (expense), net (\u201cOI&E\u201d)\nwas $1.0 million for fiscal 2023 compared to expense of $0.1 million for fiscal 2022. The $1.1 million increase in year-over-year OI&E\ncan primarily be attributed to an increase in interest income of $0.8 million combined with a $0.3 million decrease in loss on disposal\nof property and equipment.\n\n\n\u00a0\n\n\nIncome Tax (Expense) Benefit\n\n\n\u00a0\n\n\nIncome tax expense was $1.4 million in fiscal\n2023 compared to income tax benefit of $115.0 million in fiscal 2022. The increase in income tax expense is due to the recording of our\nfirst year of income tax expense in the current year whereas in the prior year there was a non-cash income tax benefit due to the release\nof our valuation allowance during the fourth quarter of fiscal 2022 (as described in Note 7 of the notes to consolidated financial statements).\nOur effective tax rate for fiscal 2023 was 72% and was computed based on the U.S. federal statutory tax rate of 21% adjusted primarily\nfor the tax impact of state income taxes, stock-based compensation, non-deductible officers\u2019 compensation and transportation fringe\nbenefits.\n\n\n\u00a0\n\n\nCritical\nAccounting Policies and Estimates\n\n\n\u00a0\n\n\nOur discussion and analysis\nof our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been\nprepared in accordance with accounting principles generally accepted in the United States (\u201cU.S. GAAP\u201d). The preparation of\nour consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities,\nrevenues, expenses and related disclosures. We review our estimates and assumptions on an ongoing basis. We base our estimates on historical\nexperience and on assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments\nabout the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what\nwe anticipate and different assumptions or estimates about the future could change our reported results. While our significant accounting\npolicies are more fully described in Note 2 of the notes to consolidated financial statements, we believe the following accounting policies\nto be critical to the assumptions and estimates used in the preparation of our consolidated financial statements.\n\n\n\u00a0\n\n\nRevenue Recognition\n\n\n\u00a0\n\n\nWe recognize revenue when we transfer promised\ngoods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods\nor services. To determine revenue recognition for contracts with customers we perform the following five steps: (i) identify the contract(s)\nwith a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction\nprice to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation.\n\n\n\u00a0\n\n\nRevenue recognized from services\nprovided under our customer contracts is  disaggregated into manufacturing and process development revenue streams.\n\n\n\u00a0\n\n\nManufacturing revenue\n\n\n\u00a0\n\n\nManufacturing revenue generally represents revenue\nfrom the manufacturing of customer products recognized over time utilizing an input method that compares the cost of cumulative work-in-process\nto date to the most current estimates for the entire cost of the performance obligation. Under a manufacturing contract, a quantity of\nmanufacturing runs are ordered at a specified scale with prescribed delivery dates, where the product is manufactured according to the\ncustomer\u2019s specifications and typically includes only one performance obligation. Each manufacturing run represents a distinct service\nthat is sold separately and has stand-alone value to the customer. The products are manufactured exclusively for a specific customer and\nhave no alternative use. The customer retains control of its product during the entire manufacturing process and can make changes to the\nprocess or specifications at its request. Under these agreements, we are entitled to consideration for progress to date that includes\nan element of profit margin.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n32\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nProcess development revenue\n\n\n\u00a0\n\n\nProcess development revenue generally represents\nrevenue from services associated with the custom development of a manufacturing process and analytical methods for a customer\u2019s\nproduct. Process development revenue is recognized over time utilizing an input method that compares the cost of cumulative work-in-process\nto date to the most current estimates for the entire cost of the performance obligation. Under a process development contract, the customer\nowns the product details and process, which has no alternative use. These process development projects are customized to each customer\nto meet its specifications and typically includes only one performance obligation. Each process represents a distinct service that is\nsold separately and has stand-alone value to the customer. The customer also retains control of its product as the product is being created\nor enhanced by our services and can make changes to its process or specifications upon request. Under these agreements, we are entitled\nto consideration for progress to date that includes an element of profit margin.\n\n\n\u00a0\n\n\nThe timing of revenue recognition, billings and\ncash collections results in billed accounts receivables, contract assets (unbilled receivables), and contract liabilities (customer deposits\nand deferred revenue). Contract assets are recorded when our right to consideration is conditioned on something other than the passage\nof time. Contract assets are reclassified to accounts receivable on the consolidated balance sheet when our rights become unconditional.\nContract liabilities represent customer deposits and deferred revenue billed and/or received in advance of our fulfillment of performance\nobligations. Contract liabilities convert to revenue as we perform our obligations under the contract.\n\n\n\u00a0\n\n\nThe transaction price for services provided under\nour customer contracts reflects our best estimates of the amount of consideration to which we are entitled in exchange for providing goods\nand services to our customers. For contracts with multiple performance obligations, we allocate transaction price to each performance\nobligation identified in a contract on a relative standalone selling price basis. We generally determine relative standalone selling prices\nbased on the price observed in the customer contract for each distinct performance obligation. If observable standalone selling prices\nare not available, we may estimate the applicable standalone selling price based on the pricing of other comparable services or on a price\nthat we believe the market is willing to pay for the applicable service.\n\n\n\u00a0\n\n\nIn determining the transaction price, we also\nconsidered the different sources of variable consideration including, but not limited to, discounts, credits, refunds, price concessions\nor other similar items. We have included in the transaction price some or all of an amount of variable consideration, utilizing the most\nlikely method, only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will\nnot occur when the uncertainty associated with the variable consideration is subsequently resolved. The actual amount of consideration\nultimately received may differ.\n\n\n\u00a0\n\n\nIn addition, our customer contracts generally\ninclude provisions entitling us to a cancellation or postponement fee when a customer cancels or postpones its commitments prior to our\ninitiation of services, therefore not utilizing their reserved capacity. The determination of such cancellation and postponement fees\nare based on the terms stated in the related customer contract but are generally considered substantive for accounting purposes and create\nan enforceable right and obligation due to us when the cancellation or postponement occurs. Accordingly, we recognize such fees, subject\nto variable consideration, as revenue upon the cancellation or postponement date utilizing the most likely method.\n\n\n\u00a0\n\n\nManagement may be required to exercise judgment\nin estimating revenue to be recognized. Judgment is required in identifying performance obligations, estimating the transaction price,\nestimating the stand-alone selling prices of identified performance obligations, estimating variable consideration, and estimating the\nprogress towards the satisfaction of performance obligations. If actual results in the future vary from our estimates, the estimates will\nbe adjusted, which will affect revenues in the period that such variances become known.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n33\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nStock-based Compensation\n\n\n\u00a0\n\n\nWe maintain equity compensation\nplans, which provide the ability for us to grant stock options, restricted stock units, performance stock units and other forms of stock-based\nawards. The estimated fair value of stock options granted to employees in exchange for services is measured at the grant date, using a\nfair value based method, such as a Black-Scholes option valuation model, and is recognized as expense on a straight-line basis over the\nrequisite service periods, which is generally the vesting period. The fair value of restricted stock units and performance stock units\nis measured at the grant date based on the closing market price of our common stock on the date of grant. For restricted stock units,\nthe fair value is recognized as expense on a straight-line basis over the requisite service periods. For performance stock units, which\nare subject to performance conditions, the fair value is recognized as expense on a straight-line basis over the requisite service periods\nwhen the achievement of such performance condition is determined to be probable. If a performance condition is not determined to be probable\nor is not met, no stock-based compensation expense is recognized, and any previously recognized expense is reversed. Forfeitures are recognized\nas a reduction of stock-based compensation expense as they occur.\n\n\n\u00a0\n\n\nThe use of a valuation model\nrequires us to make certain estimates and assumptions with respect to selected model inputs. The expected volatility is based on the daily\nhistorical volatility of our common stock covering the estimated expected term. The expected term of options granted reflects actual historical\nexercise activity and assumptions regarding future exercise activity of unexercised, outstanding options. The risk-free interest rate\nis based on U.S. Treasury notes with terms within the contractual life of the option at the time of grant. The expected dividend yield\nassumption is based on our expectation of future dividend payouts. We have never declared or paid any cash dividends on our common stock\nand currently do not anticipate paying such cash dividends.\n\n\n\u00a0\n\n\nValuation Allowance\n\n\n\u00a0\n\n\nWe utilize the liability\nmethod of accounting for income taxes. Under the liability method, deferred taxes are determined based on the differences between\nthe financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in\nwhich those temporary differences are expected to be recovered or settled. Significant judgment is required by management to\ndetermine our provision for income taxes, our deferred tax assets and liabilities, and the valuation allowance to record against our\nnet deferred tax assets, which are based on complex and evolving tax regulation. We provide a valuation allowance when it is more\nlikely than not that our deferred tax assets will not be realized. On a periodic basis, we reassess the valuation allowance on our\ndeferred tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. In the fourth\nquarter of fiscal 2022, we reassessed the valuation allowance noting the shift of positive evidence outweighing negative evidence,\nincluding significant revenue growth, continued profitability, and expectations regarding future profitability. After assessing both\nthe positive evidence and negative evidence, we determined it was more likely than not that our deferred tax assets would be\nrealized and therefore fully released our valuation allowance related to federal and state deferred tax assets on April 30, 2022 (as\ndescribed in Note 7, \nIncome Taxes\n, of the notes to consolidated financial statements). We maintained the same position that\nour federal and state deferred tax assets did not require a valuation allowance as of April 30, 2023.\n\n\n\u00a0\n\n\nLiquidity\nand Capital Resources\n\n\n\u00a0\n\n\nOur principal sources of liquidity are our existing\ncash and cash equivalents on hand. As of April 30, 2023, we had cash and cash equivalents of $38.5 million. We believe that our existing\ncash on hand and our anticipated cash flows from operating activities will be sufficient to fund our operations for at least the next\n12 months from the date of this Annual Report.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n34\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf our existing cash on hand\nand our anticipated cash flows from operations are not sufficient to support our operations or capital requirements, including our cell\nand gene therapy facility expansion, then we may, in the future, draw on our existing revolving credit facility, which is subject to covenant\ncompliance and availability (as described in Note 7 of the notes to consolidated financial statements) and/or obtain additional equity\nor debt financing to fund our future operations and/or such expansion. We may raise these funds at the appropriate time, accessing the\nform of capital that we determine is most appropriate considering the markets available to us and their respective costs of capital, such\nas through the issuance of debt or through the public offering of our securities. These financings may not be available on acceptable\nterms, or at all. Our ability to raise additional capital in the equity and debt markets is dependent on a number of factors including,\nbut not limited to, the market demand for our common stock. The market demand or liquidity of our common stock is subject to a number\nof risks and uncertainties including, but not limited to, our financial results, economic and market conditions, and global financial\ncrises and economic downturns, which may cause extreme volatility and disruptions in capital and credit markets. In addition, even if\nwe are able to raise additional capital, it may not be at a price or on terms that are favorable to us or it may contain restrictions\non the operations of our business.\n\n\n\u00a0\n\n\nCash Flows\n\n\n\u00a0\n\n\nThe following table compares\nour cash flow activities for the fiscal years ended April 30, 2023 and 2022 (in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFiscal Year Ended April 30,\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\n2023\n\u00a0\n\u00a0\n\n\n2022\n\u00a0\n\u00a0\n\n\n$ Change\n\u00a0\n\n\n\n\nNet cash (used in) provided by operating activities\n\u00a0\n\n\n$\n(12,887\n)\n\u00a0\n\n\n$\n9,465\n\u00a0\n\u00a0\n\n\n$\n(22,352\n)\n\n\n\n\nNet cash used in investing activities\n\u00a0\n\n\n$\n(77,638\n)\n\u00a0\n\n\n$\n(56,411\n)\n\u00a0\n\n\n$\n(21,227\n)\n\n\n\n\nNet cash provided by financing activities\n\u00a0\n\n\n$\n2,901\n\u00a0\n\u00a0\n\n\n$\n3,197\n\u00a0\n\u00a0\n\n\n$\n(296\n)\n\n\n\n\n\u00a0\n\n\nNet Cash Used in Operating Activities\n\n\n\u00a0\n\n\nNet cash used in operating activities during fiscal\n2023 was a result of net income of $0.6 million combined with non-cash adjustments to net income of $20.8 million primarily related to\nstock-based compensation, depreciation and amortization expense, amortization of debt issuance costs and deferred income taxes, offset\nby a reduction in working capital as a result of a net change in operating assets and liabilities of $34.3 million.\n\n\n\u00a0\n\n\nNet Cash Used in Investing Activities\n\n\n\u00a0\n\n\nNet cash used in investing activities during fiscal\n2023 consisted of $77.6 million used to acquire property and equipment primarily related to the expansion of our Myford facility and the\nconstruction of our CGT Facility. \n\n\n\u00a0\n\n\nNet Cash Provided by Financing Activities\n\n\n\u00a0\n\n\nNet cash provided by financing activities during\nfiscal 2023 consisted of $3.4 million in net proceeds from the issuance of common stock under our equity compensation plans, offset by\n$0.5 million in principal payments on a finance lease.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n35\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCash Requirements\n\n\n\u00a0\n\n\nOur material cash requirements include the following\ncontractual and other obligations.\n\n\n\u00a0\n\n\nConvertible Senior Notes Due 2026\n\n\n\u00a0\n\n\nIn March 2021, we issued $143.8 million in aggregate\nprincipal amount of 1.25% exchangeable senior notes due 2026 (\u201cConvertible Notes\u201d) in a private offering to qualified institutional\nbuyers pursuant to Rule 144A under the Securities Act. The net proceeds we received from the issuance of Convertible Notes was $138.5\nmillion, after deducting initial purchaser discounts and other debt issuance related expenses of $5.3 million.\n\n\n\u00a0\n\n\nThe Convertible Notes are senior unsecured obligations\nand accrue at a rate of 1.25% per annum, payable semi-annually in arrears on March 15 and September 15 of each year. The Convertible Notes\nmature on March 15, 2026, unless earlier redeemed or repurchased by us or converted at the option of the holders. The Convertible Notes\nare convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election in the\nmanner and subject to the terms and conditions provided in the indenture governing the Convertible Notes.\n\n\n\u00a0\n\n\nAs of April 30, 2023, the aggregate principal\namount outstanding or our Convertible Notes was $143.8 million. For additional information regarding our Convertible Notes, see Note 3\nof the notes to consolidated financial statements.\n\n\n\u00a0\n\n\nLeases\n\n\n\u00a0\n\n\nWe lease certain office, manufacturing, laboratory,\nand warehouse space located in Orange County, California under operating lease agreements. Our leased facilities have original lease terms\nranging from 7 to 12 years, contain multi-year renewal options, and scheduled rent increases of 3% on either an annual or biennial basis.\nWe also lease certain manufacturing equipment under a 5-year finance lease that expires in December 2026. As of April 30, 2023, we had\noutstanding lease payment obligations of $79.3 million, of which $4.8 million is payable in fiscal 2024, $4.7 million is payable in fiscal\n2025, $4.8 million is payable in fiscal 2026, $4.6 million is payable in fiscal 2027, $4.0 million is payable in fiscal 2028, and $56.4\nmillion is payable thereafter.\n\n\n\u00a0\n\n\nCapital Expenditures\n\n\n\u00a0\n\n\nWe currently anticipate that cash required\nfor capital expenditures during fiscal 2024 is approximately $30 million, which includes accrued and unpaid capital expenditures of\napproximately $14 million as of April 30, 2023. The remaining costs are primarily related to the completion of our cell and gene\ntherapy facility as further discussed in the \u201cFacility Expansions\u201d section above.\n\n\n\u00a0\n\n\nRevolving Credit Facility\n\n\n\u00a0\n\n\nIn March 2023, we entered into a credit agreement\nwith Bank of America, N.A., as administrative agent and letter of credit issuer (the \u201cCredit Agreement\u201d). The Credit Agreement\nprovides for a revolving credit facility (the \u201cRevolving Credit Facility\u201d) in an amount equal to the lesser of (i) $50 million,\nand (ii) a borrowing base calculated as the sum of (a) 80% of the value of certain of our eligible accounts receivable, plus (b) up to\n100% of the value of eligible cash collateral. The Revolving Credit Facility will mature on March 13, 2024 and is secured by substantially\nall of our assets. As of April 30, 2023, there were no outstanding loans under the Revolving Credit Facility.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n36\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nLoans under the Revolving Credit Facility will\nbear interest at either (1) a term Secured Overnight Financing Rate (\u201cSOFR\u201d) rate for a specified interest period plus a SOFR\nadjustment (equal to 0.10%) plus a margin of 1.40% or (2) base rate plus a margin of 0.40% at our option. Interest on any outstanding loans is due and\npayable monthly and the principal balance is due at maturity. In addition, we pay a quarterly unused revolving line facility fee of 0.20%\nper annum on the average unused facility.\n\n\n\u00a0\n\n\nThe Credit Agreement includes certain customary\naffirmative and negative covenants, including limitations on mergers, consolidations and sales of assets, limitations on liens, limitations\non certain restricted payments and investments, limitations on transactions with affiliates and limitations on incurring additional indebtedness.\nIn addition, the Credit Agreement requires maintenance of a minimum consolidated EBITDA, as defined in the Credit Agreement, of $15 million\nfor the most recently completed four (4) fiscal quarters as measured at the end of each fiscal quarter. As of April 30, 2023, we were\nin compliance with the Credit Agreement\u2019s financial covenant.\n\n\n\u00a0\n\n\nThe Credit Agreement also provides for certain\ncustomary events of defaults, including, among others, failure to make payments, breach of representations and warranties, and default\nof convenants.\n\n\n\u00a0\n\n\nRecently\nIssued Accounting Pronouncements\n\n\n\u00a0\n\n\nFor a discussion of recent accounting pronouncements\napplicable to us, see Note 2, \nSummary of Significant Accounting Policies\n, of the notes to consolidated financial statements.\n\n\n\u00a0\n\n\n\n",
+  "item7a": ">Item 7A.\nQuantitative And Qualitative Disclosures About Market Risk\n\n\n\u00a0\n\n\nOur cash and cash equivalents\nare primarily invested in money market funds with one major commercial bank with the primary objective to preserve our principal balance.\nOur deposits held with this bank exceed the amount of government insurance limits provided on our deposits and, therefore, we are exposed\nto credit risk in the event of default by the major commercial bank holding our cash balances. However, these deposits may be redeemed\nupon demand. In addition, while changes in U.S. interest rates would affect the interest earned on our cash balances at April 30, 2023,\nsuch changes would not have a material adverse effect on our financial condition or results of operations, based on historical movements\nin interest rates.\n\n\n\u00a0\n\n\nOur Convertible Notes bear interest\nat a fixed rate of 1.25% per year and therefore would not be affected by changes in U.S. interest rates.\n\n\n\u00a0\n\n\nLoans under our Revolving Credit Facility will\nbear interest at either (1) a term SOFR rate for a specified interest period plus a SOFR\nadjustment (equal to 0.10%) plus a margin of 1.40% or (2) base rate plus a margin of 0.40% at our option.  As of April 30, 2023, we had no loans outstanding\nunder our Revolving Credit Facility.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n37\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n",
+  "cik": "704562",
+  "cusip6": "05368M",
+  "cusip": ["05368M106", "05368m106", "05368M956", "05368M906"],
+  "names": ["AVID BIOSERVICES INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/704562/000168316823004329/0001683168-23-004329-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1. BUSINESS\n\n\n\u00a0\n\n\nUnless otherwise indicated\nor the context otherwise requires, references to the \u201cCompany\u201d, \u201cAethlon\u201d, \u201cwe\u201d, \u201cus\u201d\nand \u201cour\u201d refer to Aethlon Medical, Inc.\n\n\n\u00a0\n\n\nOverview and Corporate History\n\n\n\u00a0\n\n\nAethlon Medical, Inc., or\nAethlon, the Company, we or us, is a medical therapeutic company focused on developing products to treat cancer and life-threatening infectious\ndiseases. The Aethlon Hemopurifier is a clinical-stage immunotherapeutic device designed to combat cancer and life-threatening viral infections.\nIn cancer, the Hemopurifier is designed to deplete the presence of circulating tumor-derived exosomes that promote immune suppression,\nseed the spread of metastasis and inhibit the benefit of leading cancer therapies. The U.S. Food and Drug Administration, or FDA, has\ndesignated the Hemopurifier as a \u201cBreakthrough Device\u201d for two independent indications:\n\n\n\u00a0\n\n\n\n\n\u00b7\nthe treatment\nof individuals with advanced or metastatic cancer who are either unresponsive to or intolerant of standard of care therapy, and with\ncancer types in which exosomes have been shown to participate in the development or severity of the disease; and\n\n\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nthe treatment\nof life-threatening viruses that are not addressed with approved therapies.\n\n\n\n\n\u00a0\n\n\nWe believe the Hemopurifier\ncan be a substantial advance in the treatment of patients with advanced and metastatic cancer through the clearance of exosomes that promote\nthe growth and spread of tumors through multiple mechanisms. We are currently working with our new contract research organization, or\nCRO, on preparations to conduct a clinical trial in Australia in patients with solid tumors, including head and neck cancer, gastrointestinal\ncancers and other cancers.\n\n\n\u00a0\n\n\nOn October 4, 2019, the FDA\napproved our Investigational Device Exemption, or IDE, application to initiate an Early Feasibility Study, or EFS, of the Hemopurifier\nin patients with head and neck cancer in combination with standard of care pembrolizumab (Keytruda). The primary endpoint for the EFS,\ndesigned to enroll 10 to 12 subjects at a single center, is safety, with secondary endpoints including measures of exosome clearance and\ncharacterization, as well as response and survival rates. This clinical trial, initially conducted at the UPMC Hillman Cancer Center in\nPittsburgh, PA, or UPMC, treated two patients. Due to lack of further patient enrollment, we and UPMC terminated this trial.\n\n\n\u00a0\n\n\nIn January 2023, we entered\ninto an agreement with North American Science Associates, LLC, or NAMSA, a world leading MedTech CRO offering global end-to-end development\nservices, to oversee our clinical trials investigating the Hemopurifier for oncology indications. Pursuant to the agreement, NAMSA will\nmanage our clinical trials of the Hemopurifier for patients in the United States and Australia with various types of cancer tumors. We\nanticipate that the initial clinical trials will begin in Australia.\n\n\n\u00a0\n\n\nWe also believe the Hemopurifier\ncan be part of the broad-spectrum treatment of life-threatening highly glycosylated, or carbohydrate coated, viruses that are not addressed\nwith an already approved treatment. In small-scale or early feasibility human studies, the Hemopurifier has been used in the past to treat\nindividuals infected with human immunodeficiency virus, or HIV, hepatitis-C and Ebola.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n1\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAdditionally, in vitro, the\nHemopurifier has been demonstrated to capture Zika virus, Lassa virus, MERS-CoV, cytomegalovirus, Epstein-Barr virus, Herpes simplex virus,\nChikungunya virus, Dengue virus, West Nile virus, smallpox-related viruses, H1N1 swine flu virus, H5N1 bird flu virus, Monkeypox virus\nand the reconstructed Spanish flu virus of 1918. In several cases, these studies were conducted in collaboration with leading government\nor non-government research institutes.\n\n\n\u00a0\n\n\nOn June 17, 2020, the FDA\napproved a supplement to our open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with\nSARS-CoV-2/COVID-19, or COVID-19, in a New Feasibility Study. That study was designed to enroll up to 40 subjects at up to 20 centers\nin the United States. Subjects had to have an established laboratory diagnosis of COVID-19, be admitted to an intensive care unit, or\nICU, and have acute lung injury and/or severe or life-threatening disease, among other criteria. Endpoints for this study, in addition\nto safety, included reduction in circulating virus as well as clinical outcomes (NCT # 04595903). In June 2022, the first patient in this\nstudy was enrolled and completed the Hemopurifier treatment phase of the protocol. Due to lack of COVID-19 patients in the ICUs of our\ntrial sites, we terminated this study in 2022.\n\n\n\u00a0\n\n\nUnder Single Patient Emergency\nUse regulations, the Company has treated two patients with COVID-19 with the Hemopurifier, in addition to the COVID-19 patient treated\nwith our Hemopurifier in our COVID-19 clinical trial discussed above.\n\n\n\u00a0\n\n\nWe currently are experiencing\na disruption in our Hemopurifier supply, as our existing supply of Hemopurifiers expired on September 30, 2022, and as previously disclosed,\nwe are dependent on FDA approval of qualified suppliers to manufacture our Hemopurifier. Our intended transition to a new supplier for\ngalanthus nivalis agglutinin, or GNA, a component of our Hemopurifier, is delayed as we work with the FDA for approval of our supplement\nto our IDE, which is required to make this manufacturing change.\n\n\n\u00a0\n\n\nIn October 2022, we launched\na wholly owned subsidiary in Australia, formed to conduct clinical research, seek regulatory approval and commercialize our Hemopurifier\nin that country. The subsidiary will initially focus on oncology trials in Australia.\n\n\n\u00a0\n\n\nWe also obtained Ethics Review\nBoard, or ERB, approval and entered into a clinical trial agreement with Medanta Medicity Hospital, a multi-specialty hospital in Delhi\nNCR, India, for a COVID-19 clinical trial at that location. One patient has completed participation in the Indian COVID-19 study. The\nrelevant authorities in India have accepted the use of the Hemopurifiers made with the GNA from our new supplier.\n\n\n\u00a0\n\n\nIn May 2023, we also received\nERB approval from the Maulana Azad Medical College, or MAMC, for a second site for our clinical trial in India to treat severe COVID-19.\nMAMC was established in 1958 and is located in New Delhi, India. MMAC is affiliated with the University of Delhi and is operated by the\nDelhi government.\n\n\n\u00a0\n\n\nWe also recently announced\nthat we also have begun investigating the use of our Hemopurifier in the organ transplant setting. Our objective is to confirm that the\nHemopurifier, in our translational studies, when incorporated into a machine perfusion organ preservation circuit, can remove harmful\nviruses and exosomes from harvested organs. We have previously demonstrated the removal of multiple viruses and exosomes from buffer solutions,\nin vitro, utilizing a scaled-down version of our Hemopurifier. This process potentially may reduce complications following transplantation\nof the harvested organ, which can include viral infection, delayed graft function and rejection. We believe this new approach could be\nadditive to existing technologies that currently are in place to increase the number of viable organs for transplant.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n2\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nPreviously, we were the majority\nowner of Exosome Sciences, Inc., or ESI, a company formed to focus on the discovery of exosomal biomarkers to diagnose and monitor life-threatening\ndiseases, and thus consolidated ESI in our consolidated financial statements. For more than four years, the primary activities of ESI\nwere limited to the payment of patent maintenance fees and applications. In September 2022, the Board of Directors of ESI and we, as the\nmajority stockholder of ESI, approved the dissolution of ESI.\n\n\n\u00a0\n\n\nSuccessful outcomes of human\ntrials will also be required by the regulatory agencies of certain foreign countries where we plan to market and sell the Hemopurifier.\nSome of our patents may expire before FDA approval or approval in a foreign country, if any, is obtained. However, we believe that certain\npatent applications and/or other patents issued more recently will help protect the proprietary nature of the Hemopurifier treatment technology.\n\n\n\u00a0\n\n\nIn addition to the foregoing,\nwe are monitoring closely the impact of inflation, recent bank failures and the war in Ukraine on our business. Given the level of uncertainty\nregarding the duration and impact of these events on capital markets and the U.S. economy, we are unable to assess the impact on our timelines\nand future access to capital. The full extent to which inflation, recent bank failures and the war in Ukraine will impact our business,\nresults of operations, financial condition, clinical trials and preclinical research will depend on future developments, as well as the\neconomic impact on national and international markets that are highly uncertain.\n\n\n\u00a0\n\n\nWe incorporated in Nevada\non March 10, 1999. Our executive offices are located at 11555 Sorrento Valley Road, Suite 203, San Diego, California 92121. Our telephone\nnumber is (619) 941-0360. Our website address is www.aethlonmedical.com.\n\n\n\u00a0\u00a0\n\n\nThe Mechanism of the Hemopurifier\n\n\n\u00a0\n\n\nThe Hemopurifier is an affinity\nhemofiltration device designed for the single-use removal of exosomes and life-threatening viruses from the human circulatory system.\nIn the United States, the Hemopurifier is classified as a combination product whose regulatory jurisdiction is the Center for Devices\nand Radiological Health, or CDRH, the branch of FDA responsible for the premarket approval of all medical devices.\n\n\n\u00a0\n\n\nIn our current applications,\nour Hemopurifier can be used on the established infrastructure of continuous renal replacement therapy, or CRRT, and dialysis instruments\nlocated in hospitals and clinics worldwide. It could also potentially be developed as part of a proprietary closed system with its own\npump and tubing set, negating the requirement for dialysis infrastructure. Incorporated within the Hemopurifier is a protein called a\nlectin, that aids in binding exosomes and viruses.\n\n\n\u00a0\n\n\nThe Hemopurifier - Clinical Trials In Viral Infections\n\n\n\u00a0\n\u00a0\n\n\nThe initial development of\nthe Hemopurifier was focused on viral infections. In non-clinical bench experiments using a laboratory version of the Hemopurifier, performed\nin Company labs as well as in multiple other outside labs, including the Centers for Disease Control, or CDC, the United States Army Medical\nResearch Institute of Infectious Diseases, or USAMRIID, Battelle Memorial Research Institute and others, we have demonstrated that a miniature\nversion of the Hemopurifier can bind and clear multiple different glycosylated viruses. These viruses include HIV, HCV, Dengue, West Nile,\nmultiple strains of influenza, Ebola, Chikungunya, smallpox, monkeypox, multiple herpes viruses, a MERS-CoV related pseudovirus and others.\n\n\n\u00a0\n\n\nInitial clinical trials on\nthe Hemopurifier were conducted overseas on dialysis patients with HCV, with a subsequent EFS conducted in the United States under an\nFDA approved IDE.\n\n\n\u00a0\n\n\nOn March 13, 2017, we concluded\nan FDA-approved EFS under an IDE in end stage renal disease patients on dialysis who were infected with HCV. The study was conducted at\nDaVita MedCenter Dialysis in Houston, Texas. We reported that there were no device-related adverse events in enrolled subjects who met\nthe study inclusion-exclusion criteria. We also reported that an average capture of 154 million copies of HCV (in International Units,\nI.U.) within the Hemopurifier during four-hour treatments. Prior to this approval, we collected supporting Hemopurifier data through investigational\nhuman studies conducted overseas.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n3\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nSARS-CoV-2/COVID-19\n\u00a0\n\n\n\u00a0\n\n\nSARS-COV-2, the causative\nagent of COVID-19 is a member of the coronavirus family, which includes the original SARS virus, SARS-CoV, and the MERS virus. SARS-CoV-2,\nlike all coronaviruses, is glycosylated. This suggests that the Hemopurifier could potentially clear it from biologic fluids, including\nblood.\n\n\n\u00a0\n\n\nOn June 17, 2020, the FDA\napproved a supplement to our open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with\nSARS-CoV-2/COVID-19 in a New Feasibility Study. \nThat study was designed to enroll up to 40 subjects\nat up to 20 centers in the United States. Subjects had to have an established laboratory diagnosis of COVID-19, be admitted to an ICU,\nand have acute lung injury and/or severe or life threatening disease, among other criteria. Endpoints for this study, in addition to safety,\ninclude reduction in circulating virus, as well as clinical outcomes (NCT # 04595903). In June 2022, the Company completed the treatment\nprotocol for its first patient in this study.\n\n\n\u00a0\n\n\nIn\nSeptember 2021, we entered into an agreement with a leading global CRO to oversee our U.S. clinical studies investigating the Hemopurifier\nfor critically ill COVID-19 patients. \nDue to lack of COVID-19 patients in the ICUs of our trial sites, we terminated this study\nin 2022.\n\n\n\u00a0\n\n\nUnder\nSingle Patient Emergency Use regulations, we have also treated two patients with COVID-19 with the Hemopurifier,\n in addition to\nthe COVID-19 patient treated with our Hemopurifier in our COVID-19 clinical trial discussed above. \nWe\npublished a manuscript reviewing case studies covering those two Single Patient Emergency Use treatments entitled \u201cRemoval of COVID-19\nSpike Protein, Whole Virus, Exosomes and Exosomal microRNAs by the Hemopurifier\u00ae Lectin-Affinity Cartridge in Critically Ill Patients\nwith COVID-19 Infection.\u201d \n\n\n\u00a0\n\n\nThe\nmanuscript described the use of the Hemopurifier for a total of nine sessions in two critically ill COVID-19 patients. The first case\nstudy demonstrated the improvement in the patient who was a SARS-COV-2 positive COVID-19 present at entry to the hospital, with associated\ncoagulopathy, or CAC, lung injury, inflammation, and tissue injury despite the absence of demonstrable COVID-19 viremia at the start of\ntreatment at Day 22 and having demonstrated strong viremia earlier in the patient\u2019s disease cycle, suggesting that the significant\nremoval of exosomes contributed to the patient\u2019s recovery. This patient received eight Hemopurifier treatments without complications\nand eventually was weaned from a ventilator and was discharged from the hospital. \n\n\n\u00a0\n\n\nThe\nsecond patient case study demonstrated in vivo removal of SARS-CoV-2 virus from the blood stream of an infected patient. This patient\ncompleted a six-hour Hemopurifier treatment without complications and subsequently was placed on continuous renal replacement therapy,\nor CRRT. The patient ultimately expired three hours after being placed on CRRT because of the advanced stage of the patient\u2019s disease.\n\n\n\n\u00a0\n\n\nIn\nMay 2022, we announced the publication of a pre-print manuscript featuring data that demonstrated Aethlon's proprietary GNA affinity resin\nwas able to bind seven clinically relevant SARS-CoV-2 variants in vitro, including the Delta and Omicron variants. Viral capture efficiency\nwith the GNA affinity resin ranged from 53% to 89% for all variants tested. The GNA affinity resin is a key component of the Aethlon Hemopurifier\u00ae.\nThe manuscript is titled \"Removal of Clinically Relevant SARS-CoV-2 Variants by An Affinity Resin Containing Galanthus nivalis Agglutinin\"\nand was published in bioRxiv. \n\n\n\u00a0\n\n\nWe\npreviously commissioned Battelle Memorial Institute in 2008 to run a monkeypox virus, or MPV, in vitro study using a mini-Hemopurifier.\nThis study demonstrated that high concentrations of MPV (approximately 35 thousand cpu/ml) were rapidly depleted from cell culture fluids\nwhen circulated through the Hemopurifier. The study data indicated that the Hemopurifier removed 44 percent of infectious MPV in the first\nhour of testing, 82 percent after six hours, and 98 percent after 20 hours. The studies were conducted in triplicate and data verification\nwas provided by real-time polymerase chain reaction.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n4\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe Hemopurifier \u2013 Clinical Trials Conducted Overseas in Viral\nInfections\n\n\n\u00a0\n\n\nEBOLA Virus\n\n\n\u00a0\n\n\nIn December of 2014, \nTime\nMagazine\n named the Hemopurifier a \u201cTop 25 Invention\u201d as the result of treating an Ebola-infected physician at Frankfurt\nUniversity Hospital in Germany. The physician was comatose with multiple organ failure at the time of treatment with the Hemopurifier.\nAt the American Society of Nephrology Annual Meeting, Dr. Helmut Geiger, Chief of Nephrology at Frankfurt University Hospital reported\nthat the patient received a single 6.5 hour Hemopurifier treatment. Prior to treatment, viral load was measured at 400,000 copies/ml.\nPost-treatment viral load reported to be at 1,000 copies/ml. Dr. Geiger also reported that 242 million copies of Ebola virus were captured\nwithin the Hemopurifier during treatment. The patient ultimately made a full recovery. Based on this experience, the Company filed an\nExpanded Access protocol with the FDA to treat Ebola virus infected patients in up to ten centers in the United States and a corresponding\nprotocol was approved by HealthCanada. These protocols remain open allowing Hemopurifier treatment to be offered to patients presenting\nfor care in both countries. In 2018, we applied for and were granted a Breakthrough Designation by the FDA \u201c\u2026 for the treatment\nof life-threatening viruses that are not addressed with approved therapies.\u201d\n\n\n\u00a0\u00a0\n\n\nHepatitis C Virus (HCV)\n\n\n\u00a0\n\n\nPrior to FDA approval of the\nIDE feasibility study, we conducted investigational HCV treatment studies at the Apollo Hospital, Fortis Hospital and the Medanta Medicity\nInstitute in India. In the Medanta Medicity Institute study, 12 HCV-infected individuals were enrolled to receive three six-hour Hemopurifier\ntreatments during the first three days of a 48-week peginterferon+ribavirin treatment regimen. The study was conducted under the leadership\nof Dr. Vijay Kher. Dr. Kher\u2019s staff reported that Hemopurifier therapy was well tolerated and without device-related adverse events\nin the 12 treated patients.\n\n\n\u00a0\n\n\nOf these 12 patients, ten\ncompleted the Hemopurifier-peginterferon+ribavirin treatment protocol, including eight genotype-1 patients and two genotype-3 patients.\nEight of the ten patients achieved a sustained virologic response, which is the clinical definition of treatment cure and is defined as\nundetectable HCV in the blood 24 weeks after the completion of the 48-week peginterferon+ribavirin drug regimen. Both genotype-3 patients\nachieved a sustained virologic response, while six of the eight genotype-1 patients achieved a sustained virologic response, which defines\na cure of the infection.\n\n\n\u00a0\n\n\nHemopurifier - Human Immunodeficiency Virus (HIV)\n\n\n\u00a0\n\n\nIn addition to treating Ebola\nand HCV-infected individuals, we also conducted a single proof-of-principle treatment study at the Sigma New Life Hospital in an AIDS\npatient who was not being administered HIV antiviral drugs. In the study, viral load was reduced by 93% as the result of 12 Hemopurifier\ntreatments (each four hours in duration) that were administered over the course of one month.\n\n\n\u00a0\n\n\nThe Hemopurifier in Cancer\n\n\n\u00a0\n\n\nOur primary focus in recent\nyears has been on the evaluation of the Hemopurifier in cancer, where we have previously shown in non-clinical studies and in a COVID-19\nemergency use patient that it is capable of clearing exosomes, which are subcellular particles that are secreted by both normal and malignant\ncells. Tumor derived exosomes, have been shown in multiple laboratories to be critical components in the progression of cancers. They\ncan mediate resistance to chemotherapy, resistance to targeted agents such as trastuzumab (Herceptin), metastasis and resistance to the\nnewer immuno-oncology agents, such as pembrolizumab (Keytruda). Based on these observations and data, in November 2019 the FDA granted\nus a second Breakthrough Designation \u201c\u2026for the treatment of individuals with advanced or metastatic cancer who are either\nunresponsive to or intolerant of standard of care therapy, and with cancer types in which exosomes have been shown to participate in the\ndevelopment or severity of the disease.\u201d\n\n\n\u00a0\n\n\nU.S. GOVERNMENT CONTRACTS\n\n\n\u00a0\n\n\nWe have recognized revenue\nunder the following government contracts/grants over the past two years:\n\n\n\u00a0\n\n\nPhase 2 Melanoma Cancer Contract\n\n\n\u00a0\n\n\nOn September 12, 2019, the\nNational Cancer Institute, or NCI, part of the National Institutes of Health, or NIH, awarded to us an SBIR Phase II Award Contract, for\nNIH/NCI Topic 359, entitled \u201cA Device Prototype for Isolation of Melanoma Exosomes for Diagnostics and Treatment Monitoring\u201d,\nor the Award Contract. The Award Contract amount was $1,860,561 and, as amended, ran for the period from September 16, 2019 through September\n15, 2022.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n5\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\u00a0\n\n\nThe work performed pursuant\nto this Award Contract was focused on melanoma exosomes. This work followed from our completion of a Phase I contract for the Topic 359\nsolicitation that ran from September 2017 through June 2018, as described below. Following on the Phase I work, the deliverables in the\nPhase II program involved the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform.\n\n\n\u00a0\n\n\nThe Award Contract ended on\nSeptember 15, 2022 and we presented the required final report to the NCI. As the NCI completed its close out review of the contract, we\nrecognized as revenue the $574,245 previously recorded as deferred revenue on our December 31, 2022 balance sheet.\n\n\n\u00a0\n\n\nSubaward with University of Pittsburgh\n\n\n\u00a0\n\n\nIn December 2020, we entered\ninto a cost reimbursable subaward arrangement with the University of Pittsburgh in connection with an NIH contract entitled \u201cDepleting\nExosomes to Improve Responses to Immune Therapy in HNNCC.\u201d Our share of the award was $256,750. We did not record revenue related\nto this subaward in the fiscal year ended March 31, 2023. We recorded $64,467of revenue related to this subaward in the fiscal year ended\nMarch 31, 2022.\n\n\n\u00a0\n\n\nIn October 2022, we agreed\nwith the University of Pittsburgh to terminate the subaward arrangement, effective as of November 10, 2022, since it related to our clinical\ntrial in head and neck cancer in which the University of Pittsburgh was unable to recruit patients. There are no provisions in the subaward\narrangement requiring repayment of cash received for work completed through November 10, 2022.\n\n\n\u00a0\n\n\nResearch and Development Costs\n\n\n\u00a0\n\n\nA substantial portion of our\noperating budget is used for research and development activities. The cost of research and development, all of which has been charged\nto operations, amounted to approximately $2,745,000 and $2,341,000 in the fiscal years ended March 31, 2023 and 2022, respectively.\n\n\n\u00a0\n\n\nIntellectual Property\n\n\n\u00a0\n\n\nWe currently own or have license\nrights to a number of U.S. and foreign patents and patent applications and endeavor to continually improve our intellectual property position.\nWe consider the protection of our technology, whether owned or licensed, to the exclusion of use by others, to be vital to our business.\nWhile we intend to focus primarily on patented or patentable technology, we also rely on trade secrets, unpatented property, know-how,\nregulatory exclusivity, patent extensions and continuing technological innovation to develop our competitive position. We also own certain\ntrademarks.\n\n\n\u00a0\n\n\nOur success depends in large\npart on our ability to protect our proprietary technology, including the Hemopurifier product platform, and to operate without infringing\nthe proprietary rights of third parties. We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality\nagreements, licensing agreements and other agreements, to establish and protect our proprietary rights. Our success also depends, in part,\non our ability to avoid infringing patents issued to others. If we were judicially determined to be infringing on any third-party patent,\nwe could be required to pay damages, alter our products or processes, obtain licenses or cease sales of products or certain activities.\n\n\n\u00a0\n\n\nTo protect our proprietary\nmedical technologies, including the Hemopurifier product platform and other scientific discoveries, we have a portfolio of over 50 issued\npatents and pending applications worldwide. We currently have five issued U.S. patents and 32 issued patents in countries outside of the\nUnited States. In addition, we have thirteen patent applications pending worldwide related to our Hemopurifier product platform and other\ntechnologies. We are seeking additional patents on our scientific discoveries.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n6\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nIt is possible that our pending\npatent applications may not result in issued patents, that we will not develop additional proprietary products that are patentable, that\nany patents issued to us may not provide us with competitive advantages or will be challenged by third parties and that the patents of\nothers may prevent the commercialization of products incorporating our technology. Furthermore, others may independently develop similar\nproducts, duplicate our products or design around our patents. U.S. patent applications are not immediately made public, so it is possible\nthat a third party may obtain a patent on a technology we are actively using.\n\n\n\u00a0\n\n\nThere is a risk that any patent\napplications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid or unenforceable.\nFor many of our pending applications, patent interference proceedings may be instituted with the U.S. Patent and Trademark Office, or\nthe USPTO, when more than one person files a patent application covering the same technology, or if someone wishes to challenge the validity\nof an issued patent. At the completion of the interference proceeding, the USPTO will determine which competing applicant is entitled\nto the patent, or whether an issued patent is valid. Patent interference proceedings are complex, highly contested legal proceedings,\nand the USPTO\u2019s decision is subject to appeal. This means that if an interference proceeding arises with respect to any of our patent\napplications, we may experience significant expenses and delays in obtaining a patent, and if the outcome of the proceeding is unfavorable\nto us, the patent could be issued to a competitor rather than to us.\u00a0Third parties can file post-grant proceedings in the USPTO,\nseeking to have issued patent invalidated, within nine months of issuance. This means that patents undergoing post-grant proceedings may\nbe lost, or some or all claims may require amendment or cancellation, if the outcome of the proceedings is unfavorable to us. Post-grant\nproceedings are complex and could result in a reduction or loss of patent rights. The institution of post-grant proceedings against our\npatents could also result in significant expenses.\n\n\n\u00a0\n\n\nPatent law outside the United\nStates is uncertain and in many countries, is currently undergoing review and revisions. The laws of some countries may not protect our\nproprietary rights to the same extent as the laws of the United States. Third parties may attempt to oppose the issuance of patents to\nus in foreign countries by initiating opposition proceedings. Opposition proceedings against any of our patent filings in a foreign country\ncould have an adverse effect on our corresponding patents that are issued or pending in the United States. It may be necessary or useful\nfor us to participate in proceedings to determine the validity of our patents or our competitors\u2019 patents that have been issued\nin countries other than the United States. This could result in substantial costs, divert our efforts and attention from other aspects\nof our business, and could have a material adverse effect on our results of operations and financial condition. Outside of the United\nStates, we currently have pending patent applications or issued patents in Europe, India, Russia, Canada, Japan, Singapore and Hong Kong.\n\n\n\u00a0\n\n\nIn addition to patent protection,\nwe rely on unpatented trade secrets and proprietary technological expertise. It is possible that others could independently develop or\notherwise acquire substantially equivalent technology, somehow gain access to our trade secrets and proprietary technological expertise\nor disclose such trade secrets, or that we may not successfully ultimately protect our rights to such unpatented trade secrets and proprietary\ntechnological expertise. We rely, in part, on confidentiality agreements with our marketing partners, employees, advisors, vendors and\nconsultants to protect our trade secrets and proprietary technological expertise. We cannot assure you that these agreements will not\nbe breached, that we will have adequate remedies for any breach or that our unpatented trade secrets and proprietary technological expertise\nwill not otherwise become known or be independently discovered by competitors.\n\n\n\u00a0\n\n\n\n\nPatents\n\n\n\u00a0\n\n\nThe following table lists our issued patents and\npatent applications, including their ownership status:\n\n\n\u00a0\n\n\nPatents Issued in the United States\n\n\n\n\n\n\nPATENT #\n\n\nPATENT NAME\n\n\n\n\nISSUANCE\n\n\nDATE\n\n\n\n\nOWNED OR\n\n\nLICENSED\n\n\n\n\nEXPIRATION\n\n\nDATE\n\n\n\n\n9,707,333\n\n\nExtracorporeal removal of microvesicular particles\n\n\n7/18/17\n\n\nOwned\n\n\n1/6/29\n\n\n\n\n9,364,601\n\n\nExtracorporeal removal of microvesicular particles\n\n\n6/14/16\n\n\nOwned\n\n\n10/2/29\n\n\n\n\n8,288,172\n\n\nExtracorporeal removal of microvesicular particles \n\n\n10/16/12\n\n\nOwned\n\n\n3/30/29\n\n\n\n\n7,226,429\n\n\nMethod for removal of viruses from blood by lectin affinity hemodialysis\n\n\n6/5/07\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n10,022,483\n\n\nMethod for removal of viruses from blood by lectin affinity hemodialysis\n\n\n7/17/18\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n7\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nPatent Applications Pending in the United States\n\n\n\n\n\n\nAPPLICATION #\n\n\nAPPLICATION NAME\n\n\n\n\nFILING\n\n\nDATE\n\n\n\n\nOWNED OR\n\n\nLICENSED\n\n\n\n\n16/415,713\n\n\nAffinity capture of circulating biomarkers\n\n\n5/17/19\n\n\nOwned\n\n\n\n\n17/301,666\n\n\nMethod for removal of viruses from blood by lectin affinity hemodialysis \n\n\n4/09/21\n\n\nOwned\n\n\n\n\n16/459,220\n\n\nMethods and compositions for quantifying exosomes\n\n\n7/01/19\n\n\nOwned\n\n\n\n\n17/918,085\n\n\nDevices and methods for treating a coronavirus infection and symptoms thereof\n\n\n10/10/22\n\n\nOwned\n\n\n\n\n\u00a0\n\n\n\n\nForeign Patents\n\n\n\n\n\n\nPATENT #\n\n\nPATENT NAME\n\n\n\n\nISSUANCE\n\n\nDATE\n\n\n\n\nOWNED OR\n\n\nLICENSED\n\n\n\n\nEXPIRATION\n\n\nDATE\n\n\n\n\n2353399\n\n\nMethod for removal of viruses from blood by lectin affinity hemodialysis (Russia)\n\n\n4/27/09\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1624785\n\n\nMethod for removal of viruses from blood by lectin affinity hemodialysis (Belgium)\n\n\n7/17/13\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1624785\n\n\nMethod for removal of viruses from blood by lectin affinity hemodialysis (Ireland)\n\n\n7/17/13\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1624785\n\n\nMethod for removal of viruses from blood by lectin affinity hemodialysis (Italy)\n\n\n7/17/13\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1624785\n\n\nMethod for removal of viruses from blood by lectin affinity hemodialysis (Great Britain)\n\n\n7/17/13\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1624785\n\n\nMethod for removal of viruses from blood by lectin affinity hemodialysis (France)\n\n\n7/17/13\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1624785\n\n\nMethod for removal of viruses from blood by lectin affinity hemodialysis (Germany)\n\n\n7/17/13\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n2516403\n\n\nMethod for removal of viruses from blood by lectin affinity hemodialysis (Canada)\n\n\n8/12/14\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n2591359\n\n\nMethods for quantifying exosomes (Germany)\n\n\n3/01/17\n\n\nOwned\n\n\n7/07/31\n\n\n\n\n2591359\n\n\nMethods for quantifying exosomes (France)\n\n\n3/01/17\n\n\nOwned\n\n\n7/07/31\n\n\n\n\n2591359\n\n\nMethods for quantifying exosomes (Great Britain)\n\n\n3/01/17\n\n\nOwned\n\n\n7/07/31\n\n\n\n\n2591359\n\n\nMethods for quantifying exosomes (Spain)\n\n\n3/01/17\n\n\nOwned\n\n\n7/07/31\n\n\n\n\n2644855\n\n\nExtracorporeal removal of microvesicular particles (Canada)\n\n\n11/19/19\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n3061952\n\n\nExtracorporeal removal of microvesicular particles (Canada)\n\n\n7/19/22\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1993600\n\n\nExtracorporeal removal of microvesicular particles (Germany)\n\n\n4/24/19\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1993600\n\n\nExtracorporeal removal of microvesicular particles (Switzerland)\n\n\n4/24/19\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1993600\n\n\nExtracorporeal removal of microvesicular particles (Spain)\n\n\n4/24/19\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1993600\n\n\nExtracorporeal removal of microvesicular particles (France)\n\n\n4/24/19\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1993600\n\n\nExtracorporeal removal of microvesicular particles (Great Britain)\n\n\n4/24/19\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1993600\n\n\nExtracorporeal removal of microvesicular particles (Italy)\n\n\n4/24/19\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1993600\n\n\nExtracorporeal removal of microvesicular particles (Netherlands)\n\n\n4/24/19\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1993600\n\n\nExtracorporeal removal of microvesicular particles (Sweden)\n\n\n4/24/19\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n1126138\n\n\nExtracorporeal removal of microvesicular particles (Hong Kong)\n\n\n6/19/20\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n3517151\n\n\nExtracorporeal removal of microvesicular particles (Switzerland)\n\n\n4/21/21\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n3517151\n\n\nExtracorporeal removal of microvesicular particles (Germany)\n\n\n4/21/21\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n3517151\n\n\nExtracorporeal removal of microvesicular particles (Denmark)\n\n\n4/21/21\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n3517151\n\n\nExtracorporeal removal of microvesicular particles (Spain)\n\n\n4/21/21\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n3517151\n\n\nExtracorporeal removal of microvesicular particles (France)\n\n\n4/21/21\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n3517151\n\n\nExtracorporeal removal of microvesicular particles (Great Britain)\n\n\n4/21/21\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n3517151\n\n\nExtracorporeal removal of microvesicular particles (Ireland)\n\n\n4/21/21\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n3517151\n\n\nExtracorporeal removal of microvesicular particles (Netherlands)\n\n\n4/21/21\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n3517151\n\n\nExtracorporeal removal of microvesicular particles (Sweden)\n\n\n4/21/21\n\n\nOwned\n\n\n1/20/24\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n8\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nPending Foreign Patent Applications\n\n\n\n\n\n\n\n\nAPPLICATION #\n\n\nAPPLICATION NAME\n\n\nFILING\n\n DATE\n\n\nOWNED OR LICENSED\n\n\n\n\n\n\n\n\n8139/DELNP/2008\n\n\nExtracorporeal removal of microvesicular particles (exosomes) (India)\n\n\n3/9/07\n\n\nOwned\n\n\n\n\n2939652\n\n\nBrain specific exosome based diagnostics and extracorporeal therapies (Canada)\n\n\n8/12/06\n\n\nOwned\n\n\n\n\n2021256402\n\n\nDevices and methods for treating a coronavirus infection and symptoms thereof (Australia)\n\n\n10/16/22\n\n\nOwned\n\n\n\n\n3178687\n\n\nDevices and methods for treating a coronavirus infection and symptoms thereof (Canada)\n\n\n9/29/22\n\n\nOwned\n\n\n\n\n21788894.0\n\n\nDevices and methods for treating a coronavirus infection and symptoms thereof (Europe)\n\n\n10/26/22\n\n\nOwned\n\n\n\n\n297109\n\n\nDevices and methods for treating a coronavirus infection and symptoms thereof (Israel)\n\n\n10/26/22\n\n\nOwned\n\n\n\n\n2023-505809\n\n\nDevices and methods for treating a coronavirus infection and symptoms thereof (Japan)\n\n\n10/12/22\n\n\nOwned\n\n\n\n\n11202253625T\n\n\nDevices and methods for treating a coronavirus infection and symptoms thereof (Singapore)\n\n\n9/29/22\n\n\nOwned\n\n\n\n\n\u00a0\n\n\nPending International Patent Applications\n\n\n\n\n\n\nAPPLICATION #\n\n\nAPPLICATION NAME\n\n\n\n\nFILING\n\n\nDATE\n\n\n\n\nOWNED OR\n\n\nLICENSED\n\n\n\n\nPCT/US2022/077885\n\n\nDevices and methods for treating a viral infection and symptoms thereof\n\n\n10/11/22\n\n\nOwned\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nTrademarks\n\n\n\n\n\n\nAPPLICATION NAME\n\n\nFILING DATE\n\n\nOWNED OR LICENSED\n\n\n\n\nTAUSOME\n\n\n7/24/2015\n\n\nOwned \n\n\n\n\nSANSAGITTA\n\n\n7/8/2021\n\n\nOwned \n\n\n\n\nHEMOSAGITTA\n\n\n1/13/2021\n\n\nOwned \n\n\n\n\n\u00a0\n\n\nTrademarks\n\n\n\u00a0\n\n\nIn addition to the Tausome,\nSansagitta and Hemosagitta trademarks noted in the above table, we also have trademark registrations in the United States for Hemopurifier\nand Aethlon Medical, Inc., and obtained a trademark registration in India for Hemopurifier. We also have common law trademark rights in\nAethlon ADAPT\u2122 and ELLSA\u2122.\n\n\n\u00a0\n\n\nLicensing and Assignment Agreements\n\n\n\u00a0\n\n\nOn November 7, 2006, we executed\nan assignment agreement with the London Health Science Center Research, Inc. under which an invention and related patent rights for a\nmethod to treat cancer were assigned to us. The invention provides for the \"Extracorporeal removal of microvesicular particles\"\nfor which the U.S. Patent and Trademark Office granted a patent (Patent No.8,288,172) in the United States as of October 2012. The agreement\nprovided for an upfront payment of 53 shares of unregistered common stock and a 2% royalty on any future net sales of all products or\nservices, the sale of which would infringe in the absence of the assignment granted under this agreement. We are also responsible for\npaying certain patent application and filing costs. Under the assignment agreement, we own the patents until their respective expirations.\nUnder certain circumstances, ownership of the patents may revert to the London Health Science Center Research, Inc. if there is an uncured\nsubstantial breach of the assignment agreement.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n9\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIndustry & Competition\n\n\n\u00a0\n\n\nThe industry for treating\ninfectious disease and cancer is extremely competitive, and companies developing new treatment procedures face significant capital and\nregulatory challenges. As our Hemopurifier is a clinical-stage device, we have the additional challenge of establishing medical industry\nsupport, which will be driven by treatment data resulting from human clinical studies. Should our device become market cleared by the\nFDA or the regulatory body of another country, we may face significant competition from well-funded pharmaceutical organizations. Additionally,\nwe would likely need to establish large-scale production of our device in order to be competitive. We believe that our Hemopurifier is\na first-in-class therapeutic candidate and we are not aware of any affinity hemofiltration device being market cleared in any country\nfor the single-use removal of circulating viruses or tumor-derived exosomes.\n\n\n\u00a0\n\n\nGovernment Regulation\n\n\n\u00a0\n\n\nThe Hemopurifier is subject\nto regulation by numerous regulatory bodies, primarily the FDA, and comparable international regulatory agencies. These agencies require\nmanufacturers of medical devices to comply with applicable laws and regulations governing the development, testing, manufacturing, labeling,\nmarketing, storage, distribution, advertising and promotion, and post-marketing surveillance reporting of medical devices. As the primary\nmode of action of the Hemopurifier is attributable to the device component of this combination product, the CDRH has primary jurisdiction\nover its premarket development, review and approval. Failure to comply with applicable requirements may subject a device and/or its manufacturer\nto a variety of administrative sanctions, such as issuance of warning letters, import detentions, civil monetary penalties and/or judicial\nsanctions, such as product seizures, injunctions and criminal prosecution.\n\n\n\u00a0\u00a0\n\n\nFDA\u2019s Pre-market Clearance and Approval\nRequirements \u00a0\n\n\n\u00a0\n\n\nEach medical device we seek\nto commercially distribute in the United States will require either a prior 510(k) clearance, unless it is exempt, or a pre-market approval\nfrom the FDA. Generally, if a new device has a predicate that is already on the market under a 510(k) clearance, the FDA will allow that\nnew device to be marketed under a 510(k) clearance; otherwise, a premarket approval, or PMA, is required. Medical devices are classified\ninto one of three classes\u2014Class\u00a0I, Class\u00a0II or Class\u00a0III\u2014depending on the degree of risk associated with each\nmedical device and the extent of control needed to provide reasonable assurance of safety and effectiveness. Class\u00a0I devices are\ndeemed to be low risk and are subject to the general controls of the Federal Food, Drug and Cosmetic Act, such as provisions that relate\nto: adulteration; misbranding; registration and listing; notification, including repair, replacement, or refund; records and reports;\nand good manufacturing practices. Most Class\u00a0I devices are classified as exempt from pre-market notification under section 510(k)\nof the FD&C Act, and therefore may be commercially distributed without obtaining 510(k) clearance from the FDA. Class\u00a0II devices\nare subject to both general controls and special controls to provide reasonable assurance of safety and effectiveness. Special controls\ninclude performance standards, post market surveillance, patient registries and guidance documents. A manufacturer may be required to\nsubmit to the FDA a pre-market notification requesting permission to commercially distribute some Class\u00a0II devices. Devices deemed\nby the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially\nequivalent to a previously cleared 510(k) device, are placed in Class\u00a0III. A Class\u00a0III device cannot be marketed in the United\nStates unless the FDA approves the device after submission of a PMA. However, there are some Class\u00a0III devices for which FDA has\nnot yet called for a PMA. For these devices, the manufacturer must submit a pre-market notification and obtain 510(k) clearance in orders\nto commercially distribute these devices. The FDA can also impose sales, marketing or other restrictions on devices in order to assure\nthat they are used in a safe and effective manner. We believe that the Hemopurifier will be classified as a Class III device and as such\nwill be subject to PMA submission and approval.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n10\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nPre-market Approval Pathway\u00a0\n\n\n\u00a0\n\n\nA pre-market approval application\nmust be submitted to the FDA for Class\u00a0III devices for which the FDA has required a PMA. The pre-market approval application process\nis much more demanding than the 510(k) pre-market notification process. A pre-market approval application must be supported by extensive\ndata, including but not limited to technical, preclinical, clinical trials, manufacturing and labeling to demonstrate to the FDA\u2019s\nsatisfaction reasonable evidence of safety and effectiveness of the device.\n\n\n\u00a0\n\n\nAfter a pre-market approval\napplication is submitted, the FDA has 45 days to determine whether the application is sufficiently complete to permit a substantive review\nand thus whether the FDA will file the application for review. The FDA has 180 days to review a filed pre-market approval application,\nalthough the review of an application generally occurs over a significantly longer period of time and can take up to several years. During\nthis review period, the FDA may request additional information or clarification of the information already provided. Also, an advisory\npanel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as\nto the approvability of the device.\n\n\n\u00a0\n\n\nAlthough the FDA is not bound\nby the advisory panel decision, the panel\u2019s recommendations are important to the FDA\u2019s overall decision making process. In\naddition, the FDA may conduct a preapproval inspection of the manufacturing facility to ensure compliance with the Quality System Regulation,\nor QSR. The agency also may inspect one or more clinical sites to assure compliance with FDA\u2019s regulations.\n\n\n\u00a0\n\n\nUpon completion of the PMA\nreview, the FDA may: (i)\u00a0approve the PMA which authorizes commercial marketing with specific prescribing information for one or more\nindications, which can be more limited than those originally sought; (ii)\u00a0issue an approvable letter which indicates the FDA\u2019s\nbelief that the PMA is approvable and states what additional information the FDA requires, or the post-approval commitments that must\nbe agreed to prior to approval; (iii)\u00a0issue a not approvable letter which outlines steps required for approval, but which are typically\nmore onerous than those in an approvable letter, and may require additional clinical trials that are often expensive and time consuming\nand can delay approval for months or even years; or (iv)\u00a0deny the application. If the FDA issues an approvable or not approvable\nletter, the applicant has 180 days to respond, after which the FDA\u2019s review clock is reset.\n\n\n\u00a0\n\n\nEmergency Use Authorizations,\nor EUAs, are granted by FDA in public health emergencies but allow use of the authorized device only during the period of the respective\npublic health emergency, and do not change the requirement to ultimately seek PMA approval after the authorization period has ended.\n\n\n\u00a0\u00a0\n\n\nClinical Trials\n\n\n\u00a0\n\n\nClinical trials are almost\nalways required to support pre-market approval and are sometimes required for 510(k) clearance. In the United States, for significant\nrisk devices, these trials require submission of an application for an IDE to the FDA. The IDE application must be supported by appropriate\ndata, such as animal and laboratory testing results, showing it is safe to test the device in humans and that the testing protocol is\nscientifically sound. The IDE must be approved in advance by the FDA for a specific number of patients at specified study sites. During\nthe trial, the sponsor must comply with the FDA\u2019s IDE requirements for investigator selection, trial monitoring, reporting and recordkeeping.\nThe investigators must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition\nof investigational devices and comply with all reporting and recordkeeping requirements. Clinical trials for significant risk devices\nmay not begin until the IDE application is approved by the FDA and the appropriate institutional review boards, or IRBs, at the clinical\ntrial sites. An IRB is an appropriately constituted group that has been formally designated to review and monitor medical research involving\nsubjects and which has the authority to approve, require modifications in, or disapprove research to protect the rights, safety and welfare\nof human research subjects. The FDA or the IRB at each site at which a clinical trial is being performed may withdraw approval of a clinical\ntrial at any time for various reasons, including a belief that the risks to study subjects outweigh the benefits or a failure to comply\nwith FDA or IRB requirements. Even if a trial is completed, the results of clinical testing may not demonstrate the safety and effectiveness\nof the device, may be equivocal or may otherwise not be sufficient to obtain approval or clearance of the product.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n11\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOngoing Regulation by the FDA\n\u00a0\n\n\n\u00a0\n\n\nEven after a device receives clearance or approval\nand is placed on the market, numerous regulatory requirements apply. These include:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nestablishment registration and device listing;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nlabeling regulations and the FDA prohibitions against the promotion of products for uncleared, unapproved or \u201coff-label\u201d uses and other requirements related to promotional activities;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nmedical device reporting regulations, which require that manufactures report to the FDA if their device may have caused or contributed to a death or serious injury, or if their device malfunctioned and the device or a similar device marketed by the manufacturer would be likely to cause or contribute to a death or serious injury if the malfunction were to recur;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ncorrections and removal reporting regulations, which require that manufactures report to the FDA field corrections or removals if undertaken to reduce a risk to health posed by a device or to remedy a violation of the FDCA that may present a risk to health; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\npost market surveillance regulations, which apply to certain Class II or III devices when necessary to protect the public health or to provide additional safety and effectiveness data for the device.\n\n\n\n\n\u00a0\n\n\nSome changes to an approved\nPMA device, including changes in indications, labeling or manufacturing processes or facilities, require submission and FDA approval of\na new PMA or PMA supplement, as appropriate, before the change can be implemented. Supplements to a PMA often require the submission of\nthe same type of information required for an original PMA, except that the supplement is generally limited to that information needed\nto support the proposed change from the device covered by the original PMA. The FDA uses the same procedures and actions in reviewing\nPMA supplements as it does in reviewing original PMAs.\n\n\n\u00a0\u00a0\n\n\nFailure by us or by our suppliers\nto comply with applicable regulatory requirements can result in enforcement action by the FDA or state authorities, which may include\nany of the following sanctions:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nwarning or untitled letters, fines, injunctions, consent decrees and civil penalties;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ncustomer notifications, voluntary or mandatory recall or seizure of our products;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\noperating restrictions, partial suspension or total shutdown of production;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ndelay in processing submissions or applications for new products or modifications to existing products;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nwithdrawing approvals that have already been granted; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ncriminal prosecution.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n12\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe Medical Device Reporting\nlaws and regulations require us to provide information to the FDA when we receive or otherwise become aware of information that reasonably\nsuggests our device may have caused or contributed to a death or serious injury as well as a device malfunction that likely would cause\nor contribute to death or serious injury if the malfunction were to recur. In addition, the FDA prohibits an approved device from being\nmarketed for off-label use. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label\nuses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including substantial\nmonetary penalties and criminal prosecution.\n\n\n\u00a0\n\n\nNewly discovered or developed\nsafety or effectiveness data may require changes to a product\u2019s labeling, including the addition of new warnings and contraindications,\nand also may require the implementation of other risk management measures. Also, new government requirements, including those resulting\nfrom new legislation, may be established, or the FDA\u2019s policies may change, which could delay or prevent regulatory clearance or\napproval of our products under development.\n\n\n\u00a0\n\n\nHealthcare Regulation\n\u00a0\n\n\n\u00a0\n\n\nIn addition to the FDA\u2019s\nrestrictions on marketing of pharmaceutical products, the U.S. healthcare laws and regulations that may affect our ability to operate\ninclude: the federal fraud and abuse laws, including the federal anti-kickback and false claims laws; federal data privacy and security\nlaws; and federal transparency laws related to payments and/or other transfers of value made to physicians (defined to include doctors,\ndentists, optometrists, podiatrists and chiropractors) and other healthcare professionals (such as physicians assistants and nurse practitioners)\nand teaching hospitals. Many states have similar laws and regulations that may differ from each other and federal law in significant ways,\nthus complicating compliance efforts. For example, states have anti-kickback and false claims laws that may be broader in scope than analogous\nfederal laws and may apply regardless of payor. In addition, state data privacy laws that protect the security of health information may\ndiffer from each other and may not be preempted by federal law. Moreover, several states have enacted legislation requiring pharmaceutical\nmanufacturers to, among other things, establish marketing compliance programs, file periodic reports with the state, make periodic public\ndisclosures on sales and marketing activities, report information related to drug pricing, require the registration of sales representatives,\nand prohibit certain other sales and marketing practices. These laws may adversely affect our sales, marketing and other activities with\nrespect to any product candidate for which we receive approval to market in the United States by imposing administrative and compliance\nburdens on us.\n\n\n\u00a0\n\n\nBecause of the breadth of\nthese laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business\nactivities, particularly any sales and marketing activities after a product candidate has been approved for marketing in the United States,\ncould be subject to legal challenge and enforcement actions. If our operations are found to be in violation of any of the federal and\nstate laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal, and\nadministrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare\nprograms, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to\nresolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely\naffect our ability to operate our business and our results of operations.\n\n\n\u00a0\u00a0\n\n\nFrom time to time, legislation\nis drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture\nand marketing of regulated products or the reimbursement thereof. For example, in the United States, the Patient Protection and Affordable\nCare Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, ACA, among other things, reduced and/or\nlimited Medicare reimbursement to certain providers and imposed an annual excise tax of 2.3% on any entity that manufactures or imports\nmedical devices offered for sale in the United States, with limited exceptions. However, the 2020 federal spending package permanently\neliminated, effective January 1, 2020, this ACA-mandated medical device tax. On June 17, 2021, the U.S. Supreme Court dismissed a challenge\non procedural grounds that argued the ACA is unconstitutional in its entirety because the \u201cindividual mandate\u201d was repealed\nby Congress. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which among other\nthings, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The\nIRA also eliminates the \"donut hole\" under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary\nmaximum out-of-pocket cost and creating a new manufacturer discount program. It is possible that the ACA will be subject to judicial or\nCongressional challenges in the future. It is unclear how such challenges and any additional healthcare reform measures will impact the\nACA.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n13\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOther legislative changes\nhave been proposed and adopted since the ACA was enacted. The Budget Control Act of 2011, as amended by subsequent legislation, further\nreduces Medicare\u2019s payments to providers by two percent through fiscal year 2032. These reductions may reduce providers\u2019 revenues\nor profits, which could affect their ability to purchase new technologies. Furthermore, the healthcare industry in the United States has\nexperienced a trend toward cost containment as government and private insurers seek to control healthcare costs by imposing lower payment\nrates and negotiating reduced contract rates with service providers. In July 2021, the Biden Administration released an executive order,\n\u201cPromoting Competition in the American Economy,\u201d which contained provisions relating to prescription drugs. On September 9,\n2021, in response to this executive order, the U.S. Department of Health and Human Services, or HHS, released a Comprehensive Plan for\nAddressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies\nthat Congress could pursue as well as potential administrative actions HHS can take to advance these principles. Further, the IRA, among\nother things (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered under Medicare\nand (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions\nwill take effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. HHS has and will continue\nto issue and update guidance as these programs are implemented. It is currently unclear how the IRA will be implemented but is likely\nto have a significant impact on the pharmaceutical industry. In addition, in response to the Biden administration\u2019s October 2022\nexecutive order, on February 14, 2023, HHS released a report outlining three new models for testing by the Center for Medicare and Medicaid\nInnovation which will be evaluated on their ability to lower the cost of drugs, promote accessibility, and improve quality of care. It\nis unclear whether the models will be utilized in any health reform measures in the future.\n\n\n\u00a0\n\n\nLegislation could be adopted\nin the future that limits payments for our products from governmental payors. It is possible that additional governmental action will\nbe taken to address the COVID-19 pandemic. In addition, commercial payors such as insurance companies, could adopt similar policies that\nlimit reimbursement for medical device manufacturers\u2019 products.\n\n\n\u00a0\n\n\nCoverage and Reimbursement\n\n\n\u00a0\n\n\nIn both the U.S. and international\nmarkets, the use of medical devices is dependent in part on the availability of reimbursement from third-party payors, such as government\nand private insurance plans. Healthcare providers that use medical devices generally rely on third-party payors to pay for all or part\nof the costs and fees associated with the medical procedures being performed or to compensate them for their patient care services. Should\nour Hemopurifier or any other products under development be approved for commercialization by the FDA, any such products may not be considered\ncost-effective, reimbursement may not be available in the United States or other countries, if approved, and reimbursement may not be\nsufficient to allow sales of our future products on a profitable basis. The coverage decisions of third-party payors will be significantly\ninfluenced by the assessment of our future products by health technology assessment bodies. If approved for use in the United States,\nwe expect that any products that we develop, including the Hemopurifier, will be purchased primarily by medical institutions, which will\nin turn bill various third-party payors for the health care services provided to patients at their facility. Payors may include the Centers\nfor Medicare & Medicaid Services, or CMS, which administers the Medicare program and works in partnership with state governments to\nadminister Medicaid, other government programs and private insurance plans. The process involved in applying for coverage and reimbursement\nfrom CMS is lengthy and expensive. Further, Medicare coverage is based on our ability to demonstrate that the treatment is \u201creasonable\nand necessary\u201d for Medicare beneficiaries. Even if products utilizing our Aethlon Hemopurifier technology receive FDA and other\nregulatory clearance or approval, they may not be granted coverage and reimbursement by any payor, including by CMS. Many private payors\nuse coverage decisions and payment amounts determined by CMS as guidelines in setting their coverage and reimbursement policies and amounts.\nHowever, no uniform policy for coverage and reimbursement for medical devices exists among third-party payors in the United States. Therefore,\ncoverage and reimbursement can differ significantly from payor to payor.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n14\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nManufacturing\n\n\n\u00a0\n\n\nTo date, manufacturing of\nour Hemopurifier occurs in collaboration with a contract manufacturer based in California under current Good Manufacturing Practice, or\ncGMP, regulations promulgated by the FDA.\u00a0Our contract manufacturer is registered with the FDA. To date, our manufacture of the Hemopurifier\nhas been limited to quantities necessary to support our clinical studies.\n\n\n\u00a0\n\n\nOur costs of compliance with federal, state and\nlocal environmental laws have been immaterial to date.\n\n\n\u00a0\n\n\nSources and Availability of Raw\u00a0Materials\u00a0and the Names\nof Principal Suppliers \n\n\n\u00a0\n\n\n\n\nOur Hemopurifiers were previously\nassembled by Aethlon personnel in a cGMP manufacturing facility provided by Life Science Outsourcing, Inc, or LSO. Currently, we are in\nthe process of bringing our manufacturing operations in-house. Aethlon personnel assemble the various components of the Hemopurifier with\nmaterials from our various suppliers, which are purchased and released by Aethlon. Specifically, the Hemopurifier contains three critical\ncomponents with limited available suppliers. The GNA lectin is sourced from Vector Laboratories Inc. and also is available from other\nsuppliers. We currently are experiencing a disruption in our Hemopurifier supply, as our existing supply of Hemopurifiers expired on September\n30, 2022, and as previously disclosed, we are dependent on FDA approval of qualified suppliers to manufacture our Hemopurifier. Our intended\ntransition to a new supplier for GNA is delayed as we work with the FDA for approval of our supplement to our IDE, which is required to\nmake this manufacturing change. The base cartridge on which the Hemopurifier is constructed is sourced from Medica S.p.A and we are dependent\non the continued availability of these cartridges. Although there are other suppliers, the process of qualifying a new supplier takes\ntime and regulatory approvals must be obtained. We currently purchase the diatomaceous earth from Janus Scientific, Inc., as the distributor;\nhowever, the product is manufactured by Imerys Minerals Ltd. There potentially are other suppliers of this product, but as with the cartridges,\nqualifying and obtaining required regulatory approvals takes time and resources.\n\n\n\u00a0\n\u00a0\n\n\nSales and Marketing\n\n\n\u00a0\n\n\nWe do not currently have any\nsales and marketing capability. With respect to commercialization efforts in the future, we intend to build or contract for distribution,\nsales and marketing capabilities for any product candidate that is approved. From time to time, we have had and are having strategic discussions\nwith potential collaboration partners for our product candidates, although no assurance can be given that we will be able to enter into\none or more collaboration agreements for our product candidates on acceptable terms, if at all.\n\n\n\u00a0\n\u00a0\n\n\nProduct Liability\n\n\n\u00a0\n\n\nThe risk of product liability\nclaims, product recalls and associated adverse publicity is inherent in the testing, manufacturing, marketing and sale of medical products.\nWe have limited clinical trial liability insurance coverage. It is possible that future insurance coverage may not be adequate or available.\nWe may not be able to secure product liability insurance coverage on acceptable terms or at reasonable costs when needed. Any liability\nfor mandatory damages could exceed the amount of our coverage. A successful product liability claim against us could require us to pay\na substantial monetary award. Moreover, a product recall could generate substantial negative publicity about our products and business\nand inhibit or prevent commercialization of other future product candidates.\n\n\n\u00a0\n\n\nEmployees\n\n\n\u00a0\n\n\n\n\nAs of June 26, 2023, we had\n15 full-time employees and no part-time employees. All of our employees are located in the United States. We do intend to hire additional\nemployees. We utilize, whenever appropriate, consultants in order to conserve cash and resources.\n\n\n\u00a0\n\n\nWe believe our employee relations\nare good. None of our employees are represented by a labor union or are subject to collective-bargaining agreements.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n15\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A. RISK FACTORS\n\n\n\u00a0\n\n\nAn investment in our securities\ninvolves a high degree of risk. You should carefully consider the risks described below as well as the other information in this Annual\nReport before deciding to invest in or maintain your investment in our company. The risks described below are not intended to be an all-inclusive\nlist of all of the potential risks relating to an investment in our securities. Any of the risk factors described below could significantly\nand adversely affect our business, prospects, financial condition and results of operations. Additional risks and uncertainties not currently\nknown or that are currently considered to be immaterial may also materially and adversely affect our business. As a result, the trading\nprice or value of our securities could be materially adversely affected and you may lose all or part of your investment.\n\n\n\u00a0\n\n\nRisks Relating to Our Financial Position and Need for Additional\nCapital\n\n\n\u00a0\n\n\nWe have incurred significant losses and expect to continue to\nincur losses for the foreseeable future.\n\n\n\u00a0\n\n\nWe have never been profitable.\nWe have generated revenues during the fiscal years ended March 31, 2023 and March 31, 2022 in the amounts of $574,245 and $294,165, respectively,\nprimarily from our contract with the NIH, which ended in September 2022. Our revenues, from research grants, continue to be insufficient\nto cover our cost of operations. It is possible that we may not be able to enter into future government contracts. Future profitability,\nif any, will require the successful commercialization of our Hemopurifier technology or any other product that we develop or from additional\ngovernment contract or grant income we may obtain. We may not be able to successfully commercialize the Hemopurifier or any other products,\nand even if commercialization is successful, we may never be profitable.\n\n\n\u00a0\n\n\nWe will require additional financing to sustain our operations,\nachieve our business objectives and satisfy our cash obligations, which may dilute the ownership of our existing stockholders.\n\u00a0\n\n\n\u00a0\n\n\nWe will require significant\nadditional financing for our operations and for expected additional future clinical trials in the United States, India and Australia,\nregulatory clearances, and continued research and development activities for the Hemopurifier and other future products. In addition,\nas we expand our activities, our overhead costs to support personnel, laboratory materials and infrastructure will increase. We may also\nchoose to raise additional funds in debt or equity financings if they are available to us on reasonable terms to increase our working\ncapital and to strengthen our financial position. Any sale of additional equity or convertible debt securities could result in dilution\nof the equity interests of our existing stockholders. Additionally, new investors may require that we and certain of our stockholders\nenter into voting arrangements that give them additional voting control or representation on our Board of Directors. If required financing\nis unavailable to us on reasonable terms, or at all, we may be unable to support our operations, including our research and development\nactivities, which would have a material adverse effect on our ability to commercialize our products or continue our business.\n\n\n\u00a0\n\n\nOur ability to raise additional\nfunds may be adversely impacted by our ability to remain listed on Nasdaq, the potential worsening global economic conditions and disruptions\nto and volatility in the credit and financial markets in the United States, including due to \nbank\nfailures, actual or perceived changes in interest rates and economic inflation\n, and worldwide resulting from macroeconomic factors.\nBecause of the numerous risks and uncertainties associated with product development, we cannot predict the timing or amount of increased\nexpenses and cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n16\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRisks Related to Our Business Operations\n\n\n\u00a0\n\n\nDelays, interruptions or the cessation of\nproduction by our third-party suppliers of important materials or delays in qualifying new materials, has and may continue to prevent\nor delay our ability to manufacture our Hemopurifier.\n\n\n\u00a0\n\n\nMost of the raw materials\nused in the process for manufacturing our Hemopurifier are available from more than one supplier. However, there are materials within\nthe manufacturing and production process that come from single suppliers. We do not have written contracts with all of our single source\nsuppliers, and at any time they could stop supplying our orders. FDA review of a new supplier is required if these materials become unavailable\nfrom our current suppliers. Currently, we are experiencing an interruption in the manufacturing of our Hemopurifier as we transition to\na new supplier of galanthus nivalis agglutinin, or GNA, used in the manufacture of our Hemopurifier. We have not received the required\nFDA approval of our proposal to approve a new qualified supplier of the GNA and are working with the FDA to gain approval of this supplier.\nAlthough we have completed the manufacture of 112 Hemopurifiers, which have passed our quality control measures, we cannot ship the cartridges\nfor domestic use until we have FDA approval of our new GNA supplier. FDA review of the new supplier could take several additional months\nto obtain.\n\n\n\u00a0\n\n\nIn addition, an uncorrected\nimpurity, a supplier\u2019s variation in a raw material or testing, either unknown to us or incompatible with its manufacturing process,\nor any other problem with our materials, testing or components, would prevent or delay the release of our Hemopurifiers for use in our\nclinical trials. For example, in late 2020, we identified during our device quality review procedures prior to product release that one\nof our critical suppliers had produced a Hemopurifier component that was not produced to our specifications, although no affected Hemopurifiers\nwere released into our inventory or to any clinical trial sites. Our current inventory of Hemopurifiers expired on September 30, 2022.\nAny further delay in achieving the required FDA approvals for our new supplier will limit our ability to meet any demand for the Hemopurifier\nin the United States and delay our clinical trials in the United States, which could have a material adverse impact on our business, results\nof operations and financial condition.\n\n\n\u00a0\n\n\nDifficulties in manufacturing our Hemopurifier\ncould have an adverse effect upon our expenses, our product revenues and our ability to complete our clinical trials.\n\n\n\u00a0\n\n\nWe currently outsource most\nof the manufacturing of our Hemopurifier. The manufacturing of our Hemopurifier is difficult and complex. To support our current clinical\ntrial needs, we comply with and intend to continue to comply with cGMP in the manufacture of our product. Our ability to adequately manufacture\nand supply our Hemopurifier in a timely matter is dependent on the uninterrupted and efficient operation of our facilities and those of\nthird parties producing raw materials and supplies upon which we rely in our manufacturing. We currently are experiencing an interruption\nin our Hemopurifier manufacturing due to delays in obtaining necessary regulatory approval of a new manufacturer of GNA. The manufacture\nof our products may also be impacted by:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\navailability or contamination of raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nour ability to comply with new regulatory requirements, including our ability to comply with cGMP;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nnatural disasters;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nchanges in forecasts of future demand for product components;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\npotential facility contamination by microorganisms or viruses;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nupdating of manufacturing specifications;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nproduct quality success rates and yields; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nglobal viruses and pandemics, including the current COVID-19 pandemic.\n\n\n\n\n\u00a0\n\n\nThe current interruption in\nthe manufacture and supply of our Hemopurifier has and may continue to delay shipments of our Hemopurifier for use in clinical trials\nin the United States.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n17\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur products are\nmanufactured with raw materials that are sourced from specialty suppliers with limited competitors and we may therefore be unable to access\nthe materials we need to manufacture our products.\n\n\n\u00a0\n\n\nSpecifically,\nthe Hemopurifier contains three critical components with limited supplier numbers. The base cartridge on which the Hemopurifier is constructed\nis sourced from Medica S.p.A and we are dependent on the continued availability of these cartridges. We currently purchase the diatomaceous\nearth from Janus Scientific Inc., our distributor; however, the product is manufactured by Imerys Minerals Ltd., which is the only supplier\nof this product. The GNA is sourced from Vector Laboratories, Inc. and also is available from other suppliers; however, Sigma Aldrich\nis our only back up supplier at this time and we are in the process of working with the FDA to obtain regulatory approval for this supplier.\nA business interruption at any of these sources, including the interruption resulting from the delay in obtaining FDA approval of our\nnew GNA supplier, has and may continue to have a material impact on our ability to manufacture the Hemopurifier.\n\n\n\u00a0\n\n\nWe face intense competition in the medical device industry\n.\n\n\n\u00a0\n\n\nWe compete with numerous\nU.S. and foreign companies in the medical device industry, and many of our competitors have greater financial, personnel, operational\nand research and development resources than we do. We believe that because the field of exosome research is burgeoning, multiple competitors\nare or will be developing competing technologies to address exosomes in cancer. Progress is constant in the treatment and prevention\nof viral diseases, so the opportunities for the Hemopurifier may be reduced there as well. Diagnostic technology may be developed that\ncan supplant diagnostics we are developing for viruses and cancer. Our commercial opportunities will be reduced or eliminated if our\ncompetitors develop and market products for any of the diseases we target that:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nare more effective;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nhave fewer or less severe adverse side effects;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nare better tolerated;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nare more adaptable to various modes of dosing;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nare easier to administer; or\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nare less expensive than the products or product candidates we are developing.\n\n\n\n\n\u00a0\n\n\nEven if we are successful\nin developing the Hemopurifier and obtain FDA and other regulatory approvals necessary for commercialization, our products may not compete\neffectively with other successful products. Researchers are continually learning more about diseases, which may lead to new technologies\nfor treatment. Our competitors may succeed in developing and marketing products that are either more effective than those that we may\ndevelop, alone or with our collaborators, or that are marketed before any products we develop are marketed. Our competitors include fully\nintegrated pharmaceutical companies and biotechnology companies as well as universities and public and private research institutions.\nMany of the organizations competing with us have substantially greater capital resources, larger research and development staffs and facilities,\ngreater experience in product development and in obtaining regulatory approvals, and greater marketing capabilities than we do. If our\ncompetitors develop more effective pharmaceutical treatments for infectious disease or cancer, or bring those treatments to market before\nwe can commercialize the Hemopurifier for such uses, we may be unable to obtain any market traction for our products, or the diseases\nwe seek to treat may be substantially addressed by competing treatments. If we are unable to successfully compete against larger companies\nin the pharmaceutical industry, we may never generate significant revenue or be profitable.\n\n\n\u00a0\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n18\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe have limited experience in identifying\nand working with large-scale contracts with medical device manufacturers; manufacture of our devices must comply with good manufacturing\npractices in the United States.\n\n\n\u00a0\n\n\nTo achieve the levels of production\nnecessary to commercialize our Hemopurifier and any other future products, we will need to secure large-scale manufacturing agreements\nwith contract manufacturers which comply with good manufacturing practice standards and other standards prescribed by various federal,\nstate and local regulatory agencies in the United States and any other country of use. We have limited experience coordinating and overseeing\nthe manufacture of medical device products on a large-scale. It is possible that manufacturing and control problems will arise as we attempt\nto commercialize our products and that manufacturing may not be completed in a timely manner or at a commercially reasonable cost. In\naddition, we may not be able to adequately finance the manufacture and distribution of our products on terms acceptable to us, if at all.\nIf we cannot successfully oversee and finance the manufacture of our products if they obtain regulatory clearances, we may never generate\nrevenue from product sales and we may never be profitable.\n\n\n\u00a0\n\n\nOur Hemopurifier technology may become obsolete.\n\n\n\u00a0\n\n\nOur Hemopurifier product may\nbe made unmarketable prior to commercialization by us by new scientific or technological developments by others with new treatment modalities\nthat are more efficacious and/or more economical than our products. The homeland security industry is growing rapidly with many competitors\nthat are trying to develop products or vaccines to protect against infectious disease. Any one of our competitors could develop a more\neffective product which would render our technology obsolete. Further, our ability to achieve significant and sustained penetration of\nour key target markets will depend upon our success in developing or acquiring technologies developed by other companies, either independently,\nthrough joint ventures or through acquisitions. If we fail to develop or acquire, and manufacture and sell, products that satisfy our\ncustomers\u2019 demands, or we fail to respond effectively to new product announcements by our competitors by quickly introducing competitive\nproducts, then market acceptance of our products could be reduced and our business could be adversely affected. Our products may not remain\ncompetitive with products based on new technologies.\n\n\n\u00a0\u00a0\n\n\nOur success is dependent in part on our\nexecutive officers.\n\n\n\u00a0\n\n\nOur success depends to a critical\nextent on the continued services of our Chief Executive Officer, Charles J. Fisher, Jr., M.D., our Chief Financial Officer, James B. Frakes,\nour Chief Medical Officer, Steven LaRosa, M.D., our Chief Scientific Officer, Lee D. Arnold, Ph.D., and our Chief Business Officer, Guy\nCipriani. If any of these key executive officers were to leave us, we would be forced to expend significant time and money in the pursuit\nof a replacement, which would result in both a delay in the implementation of our business plan and the diversion of limited working capital.\nThe unique knowledge and expertise of these individuals would be difficult to replace within the biotechnology field. We do not currently\ncarry key man life insurance policies on any of our key executive officers which would assist us in recouping our costs in the event of\nthe loss of those officers. If any of our key officers were to leave us, it could make it impossible, if not cause substantial delays\nand costs, to implement our long-term business objectives and growth.\n\n\n\u00a0\n\n\nOur inability to attract and retain qualified\npersonnel could impede our ability to achieve our business objectives.\n\n\n\u00a0\n\n\nWe have 15 full-time employees. We utilize, whenever\nappropriate, consultants in order to conserve cash and resources.\u00a0Although we believe that these employees and consultants will be\nable to handle most of our additional administrative, research and development and business development in the near term, we will nevertheless\nbe required over the longer-term to hire highly skilled managerial, scientific and administrative personnel to fully implement our business\nplan and growth strategies. Due to the specialized scientific nature of our business, we are highly dependent upon our ability to attract\nand retain qualified scientific, technical and managerial personnel. Competition for these individuals, especially in San Diego, California,\nwhere many biotechnology companies are located, is intense and we may not be able to attract, assimilate or retain additional highly qualified\npersonnel in the future. We may not be able to engage the services of qualified personnel at competitive prices or at all, particularly\ngiven the risks of employment attributable to our limited financial resources and lack of an established track record. Also, if we are\nrequired to attract personnel from other parts of the U.S. or abroad, we may have significant difficulty doing so due to the high cost\nof living in the Southern California area and due to the costs incurred with transferring personnel to the area. If we cannot attract\nand retain qualified staff and executives, we will be unable to develop our products and achieve regulatory clearance, and our business\ncould fail.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n19\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe plan to expand our operations, which\nmay strain our resources; our inability to manage our growth could delay or derail implementation of our business objectives.\n\n\n\u00a0\n\n\nWe will need to significantly expand our operations to implement our\nlonger-term business plan and growth strategies. We will also be required to manage multiple relationships with various strategic partners,\ntechnology licensors, customers, manufacturers and suppliers, consultants and other third parties. This expansion and these expanded relationships\nwill require us to significantly improve or replace our existing managerial, operational and financial systems, procedures and controls;\nto improve the coordination between our various corporate functions; and to manage, train, motivate and maintain a growing employee base.\nThe time and costs to effectuate these steps may place a significant strain on our management personnel, systems and resources, particularly\ngiven the limited amount of financial resources and skilled employees that may be available at the time. We may not be able to institute,\nin a timely manner or at all, the improvements to our managerial, operational and financial systems, procedures and controls necessary\nto support our anticipated increased levels of operations and to coordinate our various corporate functions, or that we will be able to\nproperly manage, train, motivate and retain our anticipated increased employee base. If we cannot manage our growth initiatives, including\nour expansion of our clinical trials in India and potentially in other countries, we will be unable to commercialize our products on a\nlarge-scale in a timely manner, if at all, and our business could fail.\n\n\n\u00a0\n\n\nWe may enter new business areas, such as the organ transplant\nmarket or diagnostics. We do not have any experience in these areas. We would likely face competition from entities more familiar with\nthese businesses and our efforts may not succeed.\n\n\n\u00a0\n\n\nIn the future, we may expand\nour operations into business areas, such as the organ transplant market which we currently are exploring, where we do not have any experience.\nThese areas would be new to our product development and management personnel, and we may not be successful in these new areas. Even if\nwe are successful in developing our Hemopurifier for the organ transplant market, we may not be able to compete effectively or generate\nsignificant revenues in this new area. Many companies of all sizes, including major pharmaceutical companies, specialized biotechnology\ncompanies, and traditional healthcare providers, are engaged in redesigning organ transplant care and diagnostic medicine. Competitors\noperating in these potential new business areas may have substantially greater financial and other resources, larger research and development\nstaff, and more experience in these business areas. It is possible that, even if we are successful in these new areas, that the market\nwill not accept our product, or that our product will generate significant revenues for us.\n\n\n\u00a0\n\n\nAs a public company with limited financial resources undertaking\nthe launch of new medical technologies, we may have difficulty attracting and retaining executive management and directors.\n\n\n\u00a0\n\n\nThe directors and management\nof publicly traded corporations are increasingly concerned with the extent of their personal exposure to lawsuits and stockholder claims,\nas well as governmental and creditor claims which may be made against them, particularly in view of recent changes in securities laws\nimposing additional duties, obligations and liabilities on management and directors. Due to these perceived risks, directors and management\nare also becoming increasingly concerned with the availability of directors\u2019 and officers\u2019 liability insurance to pay on a\ntimely basis the costs incurred in defending such claims. While we currently carry directors\u2019 and officers\u2019 liability insurance,\nsuch insurance is expensive and difficult to obtain. If we are unable to continue or provide directors\u2019 and officers\u2019 liability\ninsurance at affordable rates or at all, it may become increasingly more difficult to attract and retain qualified outside directors to\nserve on our Board of Directors. We may lose potential independent board members and management candidates to other companies in the biotechnology\nfield that have greater directors\u2019 and officers\u2019 liability insurance to insure them from liability or to biotechnology companies\nthat have revenues or have received greater funding to date which can offer greater compensation packages. The fees of directors are also\nrising in response to their increased duties, obligations and liabilities. In addition, our products could potentially be harmful to users,\nand we are exposed to claims of product liability including for injury or death. We have limited insurance and may not be able to afford\nrobust coverage even as our products are introduced into the market. As a company with limited resources and potential exposures to management,\nwe will have a more difficult time attracting and retaining management and outside independent directors than a more established public\nor private company due to these enhanced duties, obligations and potential liabilities.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n20\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf we fail to comply with extensive regulations\nof U.S. and foreign regulatory agencies, the commercialization of our products could be delayed or prevented entirely.\n\n\n\u00a0\n\n\nOur Hemopurifier product is\nsubject to extensive government regulations related to development, testing, manufacturing and commercialization in the United States\nand other countries. The determination of when and whether a product is ready for large-scale purchase and potential use will be made\nby the U.S. Government through consultation with a number of governmental agencies, including the FDA, the National Institutes of Health,\nthe Centers for Disease Control and Prevention and the Department of Homeland Security. Our Hemopurifier has not received required regulatory\napproval from the FDA, or any foreign regulatory agencies, to be commercially marketed and sold. The process of obtaining and complying\nwith FDA and other governmental regulatory approvals and regulations in the United States and in foreign countries is costly, time consuming,\nuncertain and subject to unanticipated delays. Obtaining such regulatory approvals, if any, can take several years. Despite the time and\nexpense exerted, regulatory approval is never guaranteed. We also are subject to the following risks and obligations, among others:\n\n\n\u00a0\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe FDA may refuse to approve an application if it believes that applicable regulatory criteria are not satisfied;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe FDA may require additional testing for safety and effectiveness;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe FDA may interpret data from pre-clinical testing and clinical trials in different ways than we interpret them;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nif regulatory approval of a product is granted, the approval may be limited to specific indications or limited with respect to its distribution; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe FDA may change its approval policies and/or adopt new regulations.\n\n\n\n\n\u00a0\n\n\nFailure to comply with these\nor other regulatory requirements of the FDA may subject us to administrative or judicially imposed sanctions, including:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nwarning letters;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ncivil penalties;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ncriminal penalties;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ninjunctions;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nproduct seizure or detention;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nproduct recalls; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ntotal or partial suspension of productions.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n21\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nDelays in successfully completing our planned\nclinical trials could jeopardize our ability to obtain regulatory approval.\n\n\n\u00a0\n\n\nOur business prospects depend\non our ability to complete studies, clinical trials, including our ongoing and planned studies in COVID-19 patients and solid tumors in\ncancer, obtain satisfactory results, obtain required regulatory approvals and successfully commercialize our Hemopurifier product candidate.\nCompletion of our clinical trials, announcement of results of the trials and our ability to obtain regulatory approvals could be delayed\nfor a variety of reasons, including:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nslow patient enrollment;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nserious adverse events related to our medical device candidates;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nunsatisfactory results of any clinical trial;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe failure of our principal third-party investigators to perform our clinical trials on our anticipated schedules; \n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ndifferent interpretations of our pre-clinical and clinical data, which could initially lead to inconclusive results; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ndelays resulting from the coronavirus pandemic.\n\n\n\n\n\u00a0\n\n\nOur development costs will\nincrease if we have material delays in any clinical trial or if we need to perform more or larger clinical trials than planned. If the\ndelays are significant, or if any of our product candidates do not prove to be safe or effective or do not receive required regulatory\napprovals, our financial results and the commercial prospects for our product candidates will be harmed. Furthermore, our inability to\ncomplete our clinical trials in a timely manner could jeopardize our ability to obtain regulatory approval for our Hemopurifier or any\nother potential product candidates.\n\n\n\u00a0\u00a0\n\n\nIf we or our suppliers fail to comply with\nongoing FDA or foreign regulatory authority requirements, or if we experience unanticipated problems with our products, these products\ncould be subject to restrictions or withdrawal from the market.\n\n\n\u00a0\n\n\nAny product for which we obtain\nclearance or approval, if any, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities\nfor such product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic and\nforeign regulatory bodies. In particular, we and our third-party suppliers may be required to comply with the FDA\u2019s Quality System\nRegulation, or QSR. These FDA regulations cover the methods and documentation of the design, testing, production, control, quality assurance,\nlabeling, packaging, sterilization, storage and shipping of our products. Compliance with applicable regulatory requirements is subject\nto continual review and is monitored rigorously through periodic inspections by the FDA. If we, or our manufacturers, fail to adhere to\nQSR requirements in the United States, this could delay production of our products and lead to fines, difficulties in obtaining regulatory\nclearances, recalls, enforcement actions, including injunctive relief or consent decrees, or other consequences, which could, in turn,\nhave a material adverse effect on our financial condition or results of operations.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n22\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nIn addition, the FDA assesses\ncompliance with the QSR through periodic announced and unannounced inspections of manufacturing and other facilities. The failure by us\nor one of our suppliers to comply with applicable statutes and regulations administered by the FDA, or the failure to timely and adequately\nrespond to any adverse inspectional observations or product safety issues, could result in any of the following enforcement actions:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nuntitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nunanticipated expenditures to address or defend such actions;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ncustomer notifications or repair, replacement, refunds, recall, detention or seizure of our products;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\noperating restrictions or partial suspension or total shutdown of production;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nrefusing or delaying our requests for 510(k) clearance or premarket approval of new products or modified products;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nwithdrawing 510(k) clearances or premarket approvals that have already been granted;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nrefusal to grant export approval for our products; or\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ncriminal prosecution.\n\n\n\n\n\u00a0\n\n\nMoreover, the FDA strictly\nregulates the promotional claims that may be made about approved products. In particular, a product may not be promoted for uses that\nare not approved by the FDA as reflected in the product\u2019s approved labeling. However, companies may share truthful and not misleading\ninformation that is otherwise consistent with a product\u2019s FDA approved labeling. The FDA and other agencies actively enforce the\nlaws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses\nmay be subject to significant civil, criminal and administrative penalties.\n\n\n\u00a0\n\n\nAny of these sanctions could\nhave a material adverse effect on our reputation, business, results of operations and financial condition. Furthermore, our key component\nsuppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result\nin our failure to produce our products on a timely basis and in the required quantities, if at all.\n\n\n\u00a0\n\n\nIf our products, or malfunction of our products,\ncause or contribute to a death or a serious injury, we will be subject to medical device reporting regulations, which can result in voluntary\ncorrective actions or agency enforcement actions.\n\n\n\u00a0\n\n\nUnder the FDA medical device\nreporting regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused\nor contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury\nif the malfunction of the device or one of our similar devices were to recur. If we fail to report these events to the FDA within the\nrequired timeframes, or at all, the FDA could take enforcement action against us. Any such adverse event involving our products also could\nresult in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement\naction. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication\nof our time and capital, distract management from operating our business, and may harm our reputation and financial results.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n23\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe outsource many of our operational and\ndevelopment activities, and if any party to which we have outsourced certain essential functions fails to perform its obligations under\nagreements with us, the development and commercialization of our lead product candidate and any future product candidates that we may\ndevelop could be delayed or terminated.\n\n\n\u00a0\n\n\nWe rely on third-party consultants\nor other vendors to manage and implement much of the day-to-day conduct of our clinical trials and the manufacturing our Hemopurifier\nproduct candidate. Accordingly, we are and will continue to be dependent on the timeliness and effectiveness of the efforts of these third\nparties. Our dependence on third parties includes key suppliers and third-party service providers supporting the development, manufacture\nand regulatory approval of our Hemopurifier, as well as support for our information technology systems and other infrastructure. While\nour management team oversees these vendors, failure of any of these third parties to meet their contractual, regulatory and other obligations\nor the development of factors that materially disrupt the performance of these third parties could have a material adverse effect on our\nbusiness. For example, all of the key oversight responsibilities for the development and manufacture of our Hemopurifier are conducted\nby our management team, but all other activities are the responsibility of third-party vendors.\n\n\n\u00a0\n\n\nIf a clinical research organization\nthat we utilize is unable to allocate sufficient qualified personnel to our studies in a timely manner or if the work performed by it\ndoes not fully satisfy the requirements of the FDA or other regulatory agencies, we may encounter substantial delays and increased costs\nin completing our development efforts. Any manufacturer that we select may encounter difficulties in the manufacture of new products in\ncommercial quantities, including problems involving product yields, product stability or shelf life, quality control, adequacy of control\nprocedures and policies, compliance with FDA regulations and the need for further FDA approval of any new manufacturing processes and\nfacilities. If any of these occur, the development and commercialization of our Hemopurifier product candidate could be delayed, curtailed\nor terminated, because we may not have sufficient financial resources or capabilities to continue such development and commercialization\non our own.\n\n\n\u00a0\n\u00a0\n\n\nIf we or our contractors or service providers\nfail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which could affect our ability\nto develop, market and sell our Hemopurifier product candidate and any other future product candidates that we may develop, if any, and\nmay harm our reputation.\n\n\n\u00a0\n\n\nIf we or our manufacturers\nor other third-party contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to\nregulatory actions, which could affect our ability to successfully develop, market and sell our Hemopurifier product candidate or any\nfuture product candidates, if any, and could harm our reputation and lead to reduced or non-acceptance of our proposed product candidates\nby the market. Even technical recommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia\nor biotechnology companies may make the manufacturing of a clinical product extremely labor intensive or expensive, making the product\ncandidate no longer viable to manufacture in a cost-efficient manner. The mode of administration may make the product candidate not commercially\nviable. The required testing of the product candidate may make that candidate no longer commercially viable. The conduct of clinical trials\nmay be critiqued by the FDA, or a clinical trial site\u2019s Institutional Review Board or Institutional Biosafety Committee, which may\ndelay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial\nor deem a product candidate unsafe to continue testing. This would have a material adverse effect on the value of the product candidate\nand our business prospects.\n\n\n\u00a0\n\n\nWe will need to outsource and rely on third\nparties for the clinical development and manufacturing, sales and marketing of our Hemopurifier or any future product candidates that\nwe may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.\n\n\n\u00a0\n\n\nWe do not have the required\nfinancial and human resources to carry out on our own all the pre-clinical and clinical development for our Hemopurifier product candidate\nor any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or\nsell our Hemopurifier product candidate or any future product candidates that we may develop. Our business model calls for the partial\nor full outsourcing of the clinical and other development and manufacturing, sales and marketing of our product candidates in order to\nreduce our capital and infrastructure costs as a means of potentially improving our financial position. Our success will depend on the\nperformance of these outsourced providers. If these providers fail to perform adequately, our development of product candidates may be\ndelayed and any delay in the development of our product candidates would have a material and adverse effect on our business prospects.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n24\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe are and will be exposed to product liability risks, and clinical\nand preclinical liability risks, which could place a substantial financial burden upon us should we be sued.\n\n\n\u00a0\n\n\nOur business exposes us to\npotential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of medical devices.\nClaims may be asserted against us. A successful liability claim or series of claims brought against us could have a material adverse effect\non our business, financial condition and results of operations. We may not be able to continue to obtain or maintain adequate product\nliability insurance on acceptable terms, if at all, and such insurance may not provide adequate coverage against potential liabilities.\nClaims or losses in excess of any product liability insurance coverage that we may obtain could have a material adverse effect on our\nbusiness, financial condition and results of operations.\n\n\n\u00a0\n\n\nOur Hemopurifier product candidate\nmay be used in connection with medical procedures in which it is important that those products function with precision and accuracy. If\nour product candidates, including our Hemopurifier, do not function as designed, or are designed improperly, we may be forced by regulatory\nagencies to withdraw such products from the market. In addition, if medical personnel or their patients suffer injury as a result of any\nfailure of our products to function as designed, or our products are designed inappropriately, we may be subject to lawsuits seeking significant\ncompensatory and punitive damages. The risk of product liability claims, product recalls and associated adverse publicity is inherent\nin the testing, manufacturing, marketing and sale of medical products. We have obtained general clinical trial liability insurance coverage.\nHowever, our insurance coverage may not be adequate or available. We may not be able to secure product liability insurance coverage on\nacceptable terms or at reasonable costs when needed. Any product recall or lawsuit seeking significant monetary damages may have a material\neffect on our business and financial condition. Any liability for mandatory damages could exceed the amount of our coverage. Moreover,\na product recall could generate substantial negative publicity about our products and business and inhibit or prevent commercialization\nof other future product candidates.\n\n\n\u00a0\n\u00a0\n\n\nWe have not received, and may never receive,\napproval from the FDA to market a medical device in the United States.\n\n\n\u00a0\n\n\nBefore a new medical device\ncan be marketed in the United States, it must first receive a PMA or 510(k) clearance from the FDA, unless an exemption applies. A PMA\nsubmission, which is a higher standard than a 510(k) clearance, is used to demonstrate to the FDA that a new or modified device is safe\nand effective. The 510(k) is used to demonstrate that a device is \u201csubstantially equivalent\u201d to a predicate device, that is,\none that has been cleared by the FDA. We expect that any product we seek regulatory approval for, including the Hemopurifier, will require\na PMA. The FDA approval process involves, among other things, successfully completing clinical trials and filing for and obtaining a PMA.\nThe PMA process requires us to prove the safety and effectiveness of our products to the FDA\u2019s satisfaction. This process, which\nincludes preclinical studies and clinical trials, can take many years and requires the expenditure of substantial resources and may include\npost-marketing surveillance to establish the safety and efficacy of the product. Notwithstanding the effort and expense incurred, the\nprocess may never result in the FDA granting a PMA. Data obtained from preclinical studies and clinical trials are subject to varying\ninterpretations that could delay, limit or prevent regulatory approval. Delays or rejections may also be encountered based upon changes\nin governmental policies for medical devices during the period of product development. The FDA can delay, limit or deny approval of a\nPMA application for many reasons, including:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nour inability to demonstrate safety or effectiveness of the Hemopurifier, or any other product we develop, to the FDA\u2019s satisfaction;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ninsufficient data from our preclinical studies and clinical trials, including for our Hemopurifier, to support approval;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nfailure of the facilities of our third-party manufacturer or suppliers to meet applicable requirements;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ninadequate compliance with preclinical, clinical or other regulations;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nour failure to meet the FDA\u2019s statistical requirements for approval; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nchanges in the FDA\u2019s approval policies, or the adoption of new regulations that require additional data or additional clinical trials.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n25\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nModifications to products\nthat are approved through a PMA application generally need FDA approval. Similarly, some modifications made to products cleared through\na 510(k) may require a new 510(k). The FDA\u2019s 510(k) clearance process usually takes from three to 12 months, but may last longer.\nThe process of obtaining a PMA is much costlier and more uncertain than the 510(k) clearance process and generally takes from one to three\nyears, or even longer, from the time the application is submitted to the FDA until an approval is obtained. Any of our products considered\nto be a class III device, which are considered to pose the greatest risk and the approval of which is governed by the strictest guidelines,\nwill require the submission and approval of a PMA in order for us to market it in the United States. We also may design new products in\nthe future that could require the clearance of a 510(k).\n\n\n\u00a0\n\n\nAlthough we have received\napproval to proceed with clinical trials of the Hemopurifier in the United States under the investigational device exemption, the current\napproval from the FDA to proceed could be revoked, the study could be unsuccessful, or the FDA PMA approval may not be obtained or could\nbe revoked. Even if we obtain approval, the FDA or other regulatory authorities may require expensive or burdensome post-market testing\nor controls. Any delay in, or failure to receive or maintain, clearance or approval for our future products could prevent us from generating\nrevenue from these products or achieving profitability. Additionally, the FDA and other regulatory authorities have broad enforcement\npowers. Regulatory enforcement or inquiries, or other increased scrutiny on us, could dissuade some physicians from using our products\nand adversely affect our reputation and the perceived safety and efficacy of our products.\n\n\n\u00a0\n\n\nThe approval requirements for medical products used to fight\nbioterrorism and pandemics are still evolving, and any products we develop for such uses may not meet these requirements.\n\n\n\u00a0\n\n\nWe are advancing product candidates\nunder governmental policies that regulate the development and commercialization of medical treatment countermeasures against bioterror\nand pandemic threats.\u00a0While we intend to pursue FDA market clearance to treat infectious bioterror and pandemic threats, it is often\nnot feasible to conduct human studies against these deadly high threat pathogens. For example, the Hemopurifier is an investigational\ndevice that has not yet received FDA approval for any indication. We continue to investigate the potential for the use of the Hemopurifier\nin viral diseases under an open IDE and our FDA Breakthrough Designation for \u201c\u2026the treatment of life-threatening glycosylated\nviruses that are not addressed with an approved therapy.\u201d We currently have an open FDA approved Expanded Access Protocol for the\ntreatment of Ebola infected patients in the United States and a corresponding HealthCanada approval in Canada. Based on our studies to\ndate, the Hemopurifier can potentially clear many viruses that are pathogenic in humans, including HCV, HIV, Monkeypox and Ebola.\n\n\n\u00a0\n\n\nFor example, in June 2020,\nthe FDA approved a supplement to our open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients\nwith SARS-CoV-2/COVID-19 in a New Feasibility Study. \nThis study was designed to enroll up to 40\nsubjects at up to 20 centers in the United States. Subjects had to have an established laboratory diagnosis of COVID-19, be admitted to\nan intensive care unit, or ICU, and have had acute lung injury and/or severe or life threatening disease, among other criteria. \nDue\nto lack of COVID-19 patients in the ICUs of our trial sites, we terminated this study in 2022.\n\n\n\u00a0\n\n\nAs a result of the termination\nof our COVID-19 study due to lack of patients in the ICUs, we were unable to demonstrate the effectiveness of our treatment countermeasures\nthrough controlled human efficacy studies in this U.S. study. Additionally, a change in government policies could impair our ability to\nobtain regulatory approval for the Hemopurifier.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n26\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe results of our clinical trials may not\nsupport our product candidate claims or may result in the discovery of adverse side effects.\n\n\n\u00a0\n\n\nAny research and development,\npre-clinical testing and clinical trial activities involving our Hemopurifier and any additional products that we may develop are subject\nto extensive regulation and review by numerous governmental authorities both in the United States and abroad. Clinical studies must be\nconducted in compliance with FDA regulations or the FDA may take enforcement action. The data collected from these clinical studies may\nultimately be used to support market clearance for these products. Even if our clinical trials are completed as planned, the results of\nthese trials may not support our product candidate claims and the FDA may not agree with our conclusions regarding the trial results.\nSuccess in pre-clinical studies and early clinical trials does not ensure that later clinical trials will be successful, and the later\ntrials may not replicate the results of prior trials and pre-clinical studies. The clinical trial process may fail to demonstrate that\nour product candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a product candidate and\nmay delay development of others. Any delay or termination of our clinical trials will delay the filing of our product submissions and,\nultimately, our ability to commercialize our product candidates and generate revenues. It is also possible that patients enrolled in clinical\ntrials will experience adverse side effects that are not currently part of the product candidate\u2019s profile.\n\n\n\u00a0\n\n\nU.S. legislative or FDA regulatory reforms may make it more\ndifficult and costly for us to obtain regulatory approval of our product candidates and to manufacture, market and distribute our products\nafter approval is obtained.\n\n\n\u00a0\n\n\nFrom time to time, legislation\nis drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture\nand marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted\nby the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations\nof existing regulations may impose additional costs or lengthen review times of future products. It is impossible to predict whether legislative\nchanges will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be on\nour product development efforts.\n\n\n\u00a0\n\n\nOur current and future business activities\nare subject to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and\nsecurity and other healthcare laws and regulations, which could expose us to significant penalties.\n\n\n\u00a0\n\n\nWe are currently and will\nin the future be subject to healthcare regulation and enforcement by the U.S. federal government and the states in which we will conduct\nour business if our product candidates are approved by the FDA and commercialized in the United States. In addition to the FDA\u2019s\nrestrictions on marketing of approved products, the U.S. healthcare laws and regulations that may affect our ability to operate include:\nthe federal fraud and abuse laws, including the federal anti-kickback and false claims laws; federal data privacy and security laws; and\nfederal transparency laws related to payments and/or other transfers of value made to physicians (defined to include doctors, dentists,\noptometrists, podiatrists and chiropractors) and other healthcare professionals (such as physicians assistants and nurse practitioners)\nand teaching hospitals. Many states have similar laws and regulations that may differ from each other and federal law in significant ways,\nthus complicating compliance efforts. These laws may adversely affect our sales, marketing and other activities with respect to any product\ncandidate for which we receive approval to market in the United States by imposing administrative and compliance burdens on us.\n\n\n\u00a0\n\n\nBecause of the breadth of\nthese laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business\nactivities, particularly any sales and marketing activities after a product candidate has been approved for marketing in the United States,\ncould be subject to legal challenge and enforcement actions. If our operations are found to be in violation of any of the federal and\nstate laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal, and\nadministrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare\nprograms, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to\nresolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely\naffect our ability to operate our business and our results of operations.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n27\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe are subject to stringent and changing\nU.S. and foreign laws, rules, regulations and standards as well as policies, contracts and other obligations related to data privacy and\nsecurity. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, fines and\npenalties, a disruption of our clinical trials or commercialization of our products, private litigation, harm to our reputation, or other\nadverse effects on our business or prospects. \n\n\n\u00a0\n\n\nIn the ordinary course of\nbusiness, we collect, receive, store, process, use, generate, transfer, disclose, make accessible, protect, secure, dispose of, transmit,\nand share (collectively, \u201cProcess\u201d or \u201cProcessing\u201d) personal information and other Sensitive Information (as defined\nbelow), including proprietary and confidential business data, trade secrets, and intellectual property that we collect in connection with\nclinical trials, as necessary to operate our business, for legal and marketing purposes, and for other business-related purposes. Our\ndata Processing activities may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance,\nindustry standards, external and internal privacy and security policies, representations, certifications, standards, publications, frameworks,\nand contractual requirements and other obligations related to privacy, information security and Processing (collectively, \u201cData\nProtection Obligations\u201d).\n\n\n\u00a0\n\n\nIn the United States, federal,\nstate, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data\nprivacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping\nlaws). For example, the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information\nTechnology for Economic and Clinical Health Act, or HITECH, imposes specific requirements relating to the privacy, security, and transmission\nof individually identifiable health information. In addition, the California Consumer Privacy Act of 2018, CCPA, applies to personal information\nof consumers, business representatives, and employees, and requires covered businesses to provide specific disclosures in privacy notices\nand honor requests of California residents to exercise certain privacy rights. The CCPA also provides for civil penalties for noncompliance\n(up to $7,500 per violation) and allows private litigants affected by certain data breaches to recover significant statutory damages.\nAlthough there are limited exemptions for clinical trial data under the CCPA, the CCPA increases compliance costs and potential liability\nwith respect to other personal data we maintain about California residents. In addition, the California Privacy Rights Act of 2020, or\nCPRA, expands the CCPA\u2019s requirements, including by adding a new right for individuals to correct their personal information and\nestablishing a new regulatory agency to implement and enforce the law. Other states, including Colorado, Connecticut, Utah and Virginia,\nhave enacted data privacy laws and similar laws are being considered in other states and at the federal level, reflecting a trend toward\nmore stringent privacy legislation in the United States. While these states, like the CCPA, also exempt some data processing in the context\nof clinical trials, the enactment of such laws and others could have potentially conflicting requirements that would make compliance challenging\nand expose us to additional liability.\n\n\n\u00a0\n\n\nOutside the United States,\nan increasing number of laws, regulations, and industry standards apply to data privacy and security. For example, the European Union\u2019s\nGeneral Data Protection Regulation, or EU GDPR, and the United Kingdom\u2019s GDPR, or UK GDPR, or collectively GDPR, Australia\u2019s\nPrivacy Act, and India\u2019s Information Technology Act and supplementary rules impose strict requirements for processing personal data.\nCompanies that violate the GDPR can face private litigation related to processing of personal data brought by classes of data subjects\nor consumer protection organizations authorized at law to represent their interests, temporary or definitive restrictions on data processing\nand other corrective actions, and fines of up to the greater of 20 million Euros under the EU GDPR / 17.5 million pounds streamline under\nthe UK GDPR or 4% of their worldwide annual revenue, whichever is greater. GDPR litigation risk may increase as a result of a recent decision\nof the EU\u2019s highest court finding that a consumer protection association may bring representative actions alleging violations of\nthe GDPR even without a mandate to do so from any specific individuals and whether or not specific individuals\u2019 data protection\nrights have been violated.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n28\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn addition, we may be unable\nto transfer personal data from Europe and other jurisdictions to the United States or other countries due to data localization requirements\nor limitations on cross-border data flows. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting\nthe transfer of personal data to other countries. In particular, the European Economic Area, or EEA, and the United Kingdom, or UK, have\nsignificantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate.\nOther jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws. Although\nthere are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the United States in compliance\nwith law, such as the EEA and UK\u2019s standard contractual clauses, these mechanisms are subject to legal challenges, and there is\nno assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States. If there is no lawful\nmanner for us to transfer personal data from the EEA, the UK, or other jurisdictions to the United States, or if the requirements for\na legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation\nof our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant\nexpense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners,\nvendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business.\nSome European regulators have ordered certain companies to suspend or permanently cease certain transfers of personal data to recipients\noutside Europe for allegedly violating the EU GDPR\u2019s cross-border data transfer limitations. Additionally, companies that transfer\npersonal data to recipients outside of the EEA and/or UK to other jurisdictions, particularly to the United States, are subject to increased\nscrutiny from regulators individual litigants and activist groups.\u00a0\n\n\n\u00a0\n\n\nWe publish privacy policies\nand may publish marketing materials and other statements, such as compliance with certain certifications or self-regulatory principles,\nregarding data privacy and security. If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive,\nunfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators, or other adverse\nconsequences.\n\n\n\u00a0\n\n\nData Protection Obligations\nare quickly changing in an increasingly stringent fashion, creating some uncertainty as to the effective future legal framework. Additionally,\nthese obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions.\nPreparing for and complying with these obligations requires significant resources and may necessitate changes to our information technologies,\nsystems, and practices and to those of any third parties that process personal data on our behalf.\n\n\n\u00a0\n\n\nAlthough we endeavor to comply\nwith all applicable Data Protection Obligations, we may at times fail (or be perceived to have failed) to do so. Moreover, despite our\nefforts, our personnel or third parties upon whom we rely may fail to comply with such obligations, which could negatively impact our\nbusiness operations and compliance posture. For example, any failure by a third-party processor to comply with applicable law, regulations,\nor contractual obligations could result in adverse effects, including inability to or interruption in our ability to operate our business\nand proceedings against us by governmental entities or others.\n\n\n\u00a0\n\n\nIf we fail, or are perceived\nto have failed, to address or comply with Data Protection Obligations, it could: increase our compliance and operational costs; expose\nus to regulatory scrutiny, actions, fines and penalties; result in reputational harm; interrupt or stop our clinical trials; result in\nlitigation and liability; result in an inability to process personal data or to operate in certain jurisdictions; harm our business operations\nor financial results or otherwise result in a material harm to our business, or other material adverse impact on our business, results\nof operations and financial condition. Additionally, given that Data Protection Obligations impose complex and burdensome obligations\nand that there is substantial uncertainty over the interpretation and application of these obligations, we may be required to incur material\ncosts, divert management attention, and change our business operations, including our clinical trials, in an effort to comply, which could\nmaterially adversely affect our business operations and financial results.\n\n\n\u00a0\n\n\nAny of these events could\nhave a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; interruptions\nor stoppages in our business operations including, as relevant, clinical trials inability to process personal data or to operate in certain\njurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry;\nadverse publicity; or revision or restructuring of our operations.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n29\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf our information technology systems or\ndata, or those of third parties upon which we rely, are or were compromised we could experience adverse consequences resulting from such\ncompromise, including but not limited to: regulatory investigations or actions; litigation; fines and penalties; disruptions of our business\noperations; reputational harm; loss of revenue or profits; and other adverse consequences.\n\n\n\u00a0\n\n\nIn the ordinary course of\nour business, we and third parties upon which we rely may process proprietary, confidential and sensitive information, including personal\ndata, intellectual property, trade secrets, and proprietary business information owned or controlled by ourselves or other third parties,\nor collectively, Sensitive Information. We may use and share Sensitive Information with service providers and subprocessors and other\nthird parties upon whom we rely to help us operate our business. If we, our service providers, partners, or other relevant third parties\nhave experienced, or in the future experience, any security incident(s) that result in any data loss; deletion or destruction; unauthorized\naccess to; loss, unauthorized acquisition, disclosure, or exposure of, Sensitive Information, or compromise related to the security, confidentiality,\nintegrity of our (or their) information technology, software, services, communications or data (any, a \u201cSecurity Breach\u201d),\nit may result in a material adverse impact on our business, results of operations and financial condition, including the diversion of\nfunds to address the breach, and interruptions, delays, or outages in our operations and development programs.\n\n\n\u00a0\n\n\nCyberattacks, malicious internet-based\nactivity and online and offline fraud are prevalent and continue to increase. These threats are becoming increasingly difficult to detect.\nThese threats come from a variety of sources, including traditional computer \u201chackers,\u201d threat actors, \u201chacktivists,\u201d\norganized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported\nactors. Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors\nfor geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts,\nwe and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks,\nthat could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services.\n\n\n\u00a0\n\n\nWe and the third parties upon\nwhich we rely may be subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through\nphishing attacks), supply-chain attacks, loss of data or other information technology assets, adware, software bugs, malicious code (such\nas viruses and worms), employee theft or misuse, denial-of-service attacks (such as credential stuffing) and ransomware attacks. We may\nalso be the subject of phishing attacks, viruses, malware (including as a result of advanced persistent threat intrusions), server malfunction,\nsoftware or hardware failures, loss of data or other computer assets, telecommunications failures, earthquakes, fires, floods, or other\nsimilar issues.\n\n\n\u00a0\n\n\nRansomware attacks, including\nby organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe,\nand can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds. Extortion\npayments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for\nexample, applicable laws or regulations prohibiting such payments.\n\n\n\u00a0\n\n\nRemote work has become more\ncommon and has increased risks to our information technology systems and data, as more of our employees utilize network connections, computers,\nand devices outside our premises or network, including working at home, while in transit and in public locations. Additionally, future\nor past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities,\nas our systems could be negatively affected by vulnerabilities present in acquired or integrated entities\u2019 systems and technologies.\nFurthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it\nmay be difficult to integrate companies into our information technology environment and security program.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n30\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe rely on third-party service\nproviders and technologies to operate critical business systems to process Sensitive Information in a variety of contexts, including,\nwithout limitation, cloud-based infrastructure, data center facilities, encryption and authentication technology, employee email, content\ndelivery to customers, and other functions. We also rely on third-party service providers to assist with our clinical trials, provide\nother products or services, or otherwise to operate our business. Our ability to monitor these third parties\u2019 information security\npractices is limited, and these third parties may not have adequate information security measures in place. If our third-party service\nproviders experience a Security Breach or other interruption, we could experience adverse consequences. While we may be entitled to damages\nif our third-party service providers fail to satisfy their privacy or security-related obligations to us, any award may be insufficient\nto cover our damages, or we may be unable to recover such award. In addition, supply-chain attacks have increased in frequency and severity,\nand we cannot guarantee that third parties and infrastructure in our supply chain or our third-party partners\u2019 supply chains have\nnot been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information\ntechnology systems (including our services) or the third-party information technology systems that support us and our services.\n\n\n\u00a0\n\n\nAny of the previously identified\nor similar threats could cause a Security Breach or other interruption and disrupt our ability (and that of third parties upon whom we\nrely) to provide our services.\n\n\n\u00a0\n\n\nWe may be required to expend\nsignificant resources, fundamentally change our business activities and practices, or modify our operations, including clinical trial\nactivities, or information technology in an effort to protect against Security Breaches and to mitigate, detect and remediate actual and\npotential vulnerabilities. Applicable Data Protection Obligations (as defined above) may require us to implement specific security measures\nor use industry-standard or reasonable measures to protect against Security Breaches. There can be no assurances that our security measures,\nor those of third parties upon whom we rely, will be effective in protecting against Security Breaches.\n\n\n\u00a0\n\n\nWhile we have implemented\nsecurity measures designed to protect against Security Breaches, there can be no assurance that these measures will be effective. We take\nsteps to detect and remediate vulnerabilities in our information technology systems (including our products), but we may not be able to\ndetect and remediate all vulnerabilities because the threats and techniques used to exploit vulnerabilities change frequently and are\noften sophisticated in nature. Therefore, such vulnerabilities could be exploited but may not be detected until after a Security Breach\nhas occurred. These vulnerabilities pose material risks to our business. Further, we may experience delays in developing and deploying\nremedial measures designed to address any such identified vulnerabilities.\n\n\n\u00a0\n\n\nApplicable Data Protection\nObligations (as defined above) may require us to notify relevant stakeholders of Security Breaches, including affected individuals, partners,\ncollaborators, regulators, law enforcement agencies and others. Such disclosures are costly, and the disclosures or the failure to comply\nwith such requirements could lead to a material adverse impact on our business, results of operations and financial condition. If we (or\na third party upon whom we rely) experience a Security Breach or are perceived to have experienced a Security Breach, we may experience\nadverse consequences. These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits,\nand inspections); additional reporting requirements and/or oversight; restrictions on processing Sensitive Information (including personal\ndata); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions;\ninterruptions in our operations (including availability of data); financial loss; and other similar harms. Security Breaches or other\ninterruptions and attendant consequences may cause customers to stop using our services, deter new customers from using our services,\nand negatively impact our ability to grow and operate our business.\n\n\n\u00a0\n\n\nThere can be no assurances\nthat any limitations or exclusions of liability in our contracts would be adequate or would otherwise protect us from liabilities or damages\nif we fail to comply with Data Protection Obligations related to information security or Security Breaches.\n\n\n\u00a0\n\n\nWe cannot be sure that our\ninsurance coverage will be adequate or otherwise protect us from or adequately mitigate liabilities or damages with respect to claims,\ncosts, expenses, litigation, fines, penalties, business loss, data loss, regulatory actions or other material adverse impact on our business,\nresults of operations and financial condition arising out of our Processing operations, privacy and security practices, or Security Breaches\nthat we may experience. The successful assertion of one or more large claims against us that exceeds our available insurance coverage,\nor results in changes to our insurance policies (including premium increases or the imposition of large excess or deductible or co-insurance\nrequirements), could have a material adverse impact on our business, results of operations and financial condition.\n\n\n\u00a0\n\n\nIn addition to experiencing\na Security Breach, third parties may gather, collect, or infer Sensitive Information about us from public sources, data brokers, or other\nmeans that reveals competitively sensitive details about our organization and could be used to undermine our competitive advantage or\nmarket position.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n31\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nShould our products be approved for commercialization,\nlack of third-party coverage and reimbursement for our devices could delay or limit their adoption.\n\n\n\u00a0\n\n\nIn both the U.S. and international\nmarkets, the use of medical devices is dependent in part on the availability of reimbursement from third-party payors, such as government\nand private insurance plans. Healthcare providers that use medical devices generally rely on third-party payors to pay for all or part\nof the costs and fees associated with the medical procedures being performed or to compensate them for their patient care services. Should\nour products under development be approved for commercialization by the FDA, any such products may not be considered cost-effective, reimbursement\nmay not be available in the United States or other countries, if approved, and reimbursement may not be sufficient to allow sales of our\nfuture products, including the Hemopurifier, on a profitable basis. The coverage decisions of third-party payors will be significantly\ninfluenced by the assessment of our future products by health technology assessment bodies. These assessments are outside our control\nand any such evaluations may not be conducted or have a favorable outcome.\n\n\n\u00a0\u00a0\n\n\nIf approved for use in the\nUnited States, we expect that any products that we develop, including the Hemopurifier, will be purchased primarily by medical institutions,\nwhich will in turn bill various third-party payors for the health care services provided to patients at their facility. Payors may include\nthe Centers for Medicare & Medicaid Services, or CMS, which administers the Medicare program and works in partnership with state governments\nto administer Medicaid, other government programs and private insurance plans. The process involved in applying for coverage and incremental\nreimbursement from CMS is lengthy and expensive. Further, Medicare coverage is based on our ability to demonstrate that the treatment\nis \u201creasonable and necessary\u201d for Medicare beneficiaries. Even if products utilizing our Aethlon Hemopurifier technology receive\nFDA and other regulatory clearance or approval, they may not be granted coverage and reimbursement by any payor, including by CMS. For\nsome governmental programs, such as Medicaid, coverage and adequate reimbursement differ from state to state and some state Medicaid programs\nmay not pay adequate amounts for the procedure necessary to utilize products utilizing our technology system, or any payment at all. Moreover,\nmany private payors use coverage decisions and payment amounts determined by CMS as guidelines in setting their coverage and reimbursement\npolicies and amounts. However, no uniform policy requirement for coverage and reimbursement for medical devices exists among third-party\npayors in the United States. Therefore, coverage and reimbursement can differ significantly from payor to payor. If CMS or other agencies\nlimit coverage or decrease or limit reimbursement payments for doctors and hospitals, this may affect coverage and reimbursement determinations\nby many private payors for any products that we develop.\n\n\n\u00a0\u00a0\n\n\nShould any of our potential products, including\nthe Hemopurifier, be approved for commercialization, certain health reform measures and adverse changes in reimbursement policies and\nprocedures may impact our ability to market and sell our products.\n\n\n\u00a0\n\n\nHealthcare costs have risen\nsignificantly over the past decade, and there have been and continue to be proposals by legislators, regulators and third-party payors\nto decrease costs. Third-party payors are increasingly challenging the prices charged for medical products and services and instituting\ncost containment measures to control or significantly influence the purchase of medical products and services.\n\n\n\u00a0\n\n\nFor example, in the United\nStates, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively,\nACA, among other things, reduced and/or limited Medicare reimbursement to certain providers. On June 17, 2021, the U.S. Supreme Court\ndismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the \u201cindividual mandate\u201d\nwas repealed by Congress. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which\namong other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year\n2025. The IRA also eliminates the \"donut hole\" under the Medicare Part D program beginning in 2025 by significantly lowering\nthe beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. It is unclear how any such challenges, and\nthe healthcare reform measures of the Biden administration will impact the ACA and our business. The Budget Control Act of 2011, as amended\nby subsequent legislation, further reduces Medicare\u2019s payments to providers by two percent through fiscal year 2032These reductions\nmay reduce providers\u2019 revenues or profits, which could affect their ability to purchase new technologies. Furthermore, the healthcare\nindustry in the United States has experienced a trend toward cost containment as government and private insurers seek to control healthcare\ncosts by imposing lower payment rates and negotiating reduced contract rates with service providers. In July 2021, the Biden Administration\nreleased an executive order, \u201cPromoting Competition in the American Economy,\u201d which contained provisions relating to prescription\ndrugs. On September 9, 2021, in response to this executive order, the U.S. Department of Health and Human Services, or HHS, released a\nComprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential\nlegislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles.\nFurther, the IRA, among other things (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics\ncovered under Medicare and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation.\nThese provisions will take effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. HHS has\nand will continue to issue and update guidance as these programs are implemented. It is currently unclear how the IRA will be implemented\nbut is likely to have a significant impact on the pharmaceutical industry. In addition, in response to the Biden administration\u2019s\nOctober 2022 executive order, on February 14, 2023, HHS released a report outlining three new models for testing by the Center for Medicare\nand Medicaid Innovation which will be evaluated on their ability to lower the cost of drugs, promote accessibility, and improve quality\nof care. It is unclear whether the models will be utilized in any health reform measures in the future.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n32\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nLegislation could be adopted\nin the future that limits payments for our products from governmental payors. In addition, commercial payors such as insurance companies,\ncould adopt similar policies that limit reimbursement for medical device manufacturers\u2019 products. Therefore, it is possible that\nour product or the procedures or patient care performed using our product will not be reimbursed at a cost-effective level. We face similar\nrisks relating to adverse changes in reimbursement procedures and policies in other countries where we may market our products. Reimbursement\nand healthcare payment systems vary significantly among international markets. Our inability to obtain international reimbursement approval,\nor any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell our products and have\na material adverse effect on our business and financial condition.\n\n\n\u00a0\n\n\nOur ability to use net operating loss carryforwards\nand certain other tax attributes to offset future taxable income or taxes may be limited.\n\n\n\u00a0\n\n\nUnder current law, federal\nnet operating losses incurred in tax years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility\nof such federal net operating losses is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform\nto federal tax laws. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions\nof state law, if a corporation undergoes an \u201cownership change,\u201d which is generally defined as a greater than 50% change in\nits equity ownership value over a three-year period, the corporation\u2019s ability to use its pre-change net operating loss carryforwards\nand other pre-change tax attributes to offset its post-change income or taxes may be limited. If we achieve profitability and an ownership\nchange occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our future operating results\nby effectively increasing our future tax obligations. In addition, at the state level, there may be periods during which the use of net\noperating loss carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.\n\n\n\u00a0\n\n\nUncertainties in the interpretation and\napplication of existing, new and proposed tax laws and regulations could materially affect our tax obligations and effective tax rate.\n\n\n\u00a0\n\n\nThe tax regimes to which we\nare subject or under which we operate are unsettled and may be subject to significant change. The issuance of additional guidance related\nto existing or future tax laws, or changes to tax laws or regulations proposed or implemented by the current or a future U.S. presidential\nadministration, Congress, or taxing authorities in other jurisdictions, including jurisdictions outside of the United States, could materially\naffect our tax obligations and effective tax rate. To the extent that such changes have a negative impact on us, including as a result\nof related uncertainty, these changes may adversely impact our business, financial condition, results of operations, and cash flows.\n\n\n\u00a0\n\n\nThe amount of taxes we pay\nin different jurisdictions depends on the application of the tax laws of various jurisdictions, including the United States, to our international\nbusiness activities, tax rates, new or revised tax laws, or interpretations of tax laws and policies, and our ability to operate our business\nin a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which\nwe operate may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or disagree\nwith our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement were\nto occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result\nin one-time tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of our operations. Our financial\nstatements could fail to reflect adequate reserves to cover such a contingency. Similarly, a taxing authority could assert that we are\nsubject to tax in a jurisdiction where we believe we have not established a taxable connection, often referred to as a \u201cpermanent\nestablishment\u201d under international tax treaties, and such an assertion, if successful, could increase our expected tax liability\nin one or more jurisdictions.\n\n\n\u00a0\n\n\nEffective January 1, 2022,\nthe Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenses for tax purposes in the year incurred\nand requires taxpayers to capitalize and subsequently amortize such expenses over five years for research activities conducted in the\nUnited States and over 15 years for research activities conducted outside the United States. Although there have been legislative proposals\nto repeal or defer the capitalization requirement to later years, there can be no assurance that the provision will be repealed or otherwise\nmodified. Future guidance from the Internal Revenue Service and other tax authorities with respect to such legislation may affect us,\nand certain aspects of such legislation could be repealed or modified in future legislation.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n33\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur use of hazardous materials, chemicals\nand viruses exposes us to potential liabilities for which we may not have adequate insurance.\n\n\n\u00a0\n\n\nOur research and development\ninvolves the controlled use of hazardous materials, chemicals and viruses. The primary hazardous materials include chemicals needed to\nconstruct the Hemopurifier cartridges and the infected plasma samples used in preclinical testing of the Hemopurifier. All other chemicals\nare fully inventoried and reported to the appropriate authorities, such as the fire department, which inspects the facility on a regular\nbasis. We are subject to federal, state, local and foreign laws governing the use, manufacture, storage, handling and disposal of such\nmaterials. Although we believe that our safety procedures for the use, manufacture, storage, handling and disposal of such materials comply\nwith the standards prescribed by federal, state, local and foreign regulations, we cannot completely eliminate the risk of accidental\ncontamination or injury from these materials. We have had no incidents or problems involving hazardous chemicals or biological samples.\nIn the event of such an accident, we could be held liable for significant damages or fines.\n\n\n\u00a0\u00a0\n\n\nWe currently carry a limited\namount of insurance to protect us from bodily injury or property damages arising from hazardous materials. Our product liability policy\nhas a $5,000,000 limit of liability. For our facilities, our property policy provides $25,000 in coverage for contaminant clean-up or\nremoval and $100,000 in coverage for damages to the premises resulting from contamination. Should we violate any regulations concerning\nthe handling or use of hazardous materials, or should any injuries or death result from our use or handling of hazardous materials, we\ncould be the subject of substantial lawsuits by governmental agencies or individuals. We may not have adequate insurance to cover all\nor any of such claims, if any. If we were responsible to pay significant damages for violations or injuries, if any, we might be forced\nto cease operations since such payments could deplete our available resources.\n\n\n\u00a0\n\n\nOur products may in the future be subject\nto product recalls. A recall of our products, either voluntarily or at the direction of the FDA or another governmental authority, including\na third-country authority, or the discovery of serious safety issues with our products, could have a significant adverse impact on us.\n\n\n\u00a0\n\n\nThe FDA and similar foreign\ngovernmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or\ndefects in design or manufacture. For the FDA, the authority to require a recall must be based on a finding that there is reasonable probability\nthat the device would cause serious injury or death. In addition, foreign governmental bodies have the authority to require the recall\nof our products in the event of material deficiencies or defects in design or manufacture. Manufacturers may, under their own initiative,\nrecall a product if any material deficiency in a device is found. The FDA requires that certain classifications of recalls be reported\nto the FDA within ten working days after the recall is initiated. A government-mandated or voluntary recall by us or one of our international\ndistributors could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design\nor labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and\nhave an adverse effect on our reputation, results of operations and financial condition, which could impair our ability to produce our\nproducts in a cost-effective and timely manner in order to meet our customers\u2019 demands. We may also be subject to liability claims,\nbe required to bear other costs, or take other actions that may have a negative impact on our future sales and our ability to generate\nprofits. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA or another third-country\ncompetent authority. We may initiate voluntary recalls involving our products in the future that we determine do not require notification\nof the FDA or another third-country competent authority. If the FDA disagrees with our determinations, they could require us to report\nthose actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition,\nthe FDA could take enforcement action for failing to report recalls. We are also required to follow detailed recordkeeping requirements\nfor all firm-initiated medical device corrections and removals.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n34\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nEven though we have received breakthrough\ndevice designation for the Hemopurifier for two independent indications, this designation may not expedite the development or review of\nthe Hemopurifier and does not provide assurance ultimately of PMA submission or approval by the FDA.\n\n\n\u00a0\n\n\nThe Breakthrough Devices Program\nis a voluntary program intended to expedite the review, development, assessment and review of certain medical devices that provide for\nmore effective treatment or diagnosis of life-threatening or irreversibly debilitating human diseases or conditions for which no approved\nor cleared treatment exists or that offer significant advantages over existing approved or cleared alternatives. All submissions for devices\ndesignated as Breakthrough Devices will receive priority review, meaning that the review of the submission is placed at the top of the\nappropriate review queue and receives additional review resources, as needed.\n\n\n\u00a0\n\n\nAlthough breakthrough designation\nor access to any other expedited program may expedite the development or approval process, it does not change the standards for approval.\nAlthough we obtained breakthrough device designation for the Hemopurifier for two indications, we may not experience faster development\ntimelines or achieve faster review or approval compared to conventional FDA procedures. For example, the time required to identify and\nresolve issues relating to manufacturing and controls, the acquisition of a sufficient supply of our product for clinical trial purposes\nor the need to conduct additional nonclinical or clinical studies may delay approval by the FDA, even if the product qualifies for breakthrough\ndesignation or access to any other expedited program. Access to an expedited program may also be withdrawn by the FDA if it believes that\nthe designation is no longer supported by data from our clinical development program. Additionally, qualification for any expedited review\nprocedure does not ensure that we will ultimately obtain regulatory approval for the product.\n\n\n\u00a0\n\n\nOur bylaws designate the Eighth Judicial\nDistrict Court of Clark County, Nevada, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated\nby our stockholders, which could limit our stockholders\u2019 ability to obtain a favorable judicial forum for disputes with us or our\ndirectors, officers, employees or agents.\n\n\n\u00a0\n\n\nOur bylaws require that, to\nthe fullest extent permitted by law, and unless the Company consents in writing to the selection of an alternative forum, the Eighth Judicial\nDistrict Court of Clark County, Nevada, will, to the fullest extent permitted by law, be the sole and exclusive forum for each of the\nfollowing:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nany derivative action or proceeding brought in the name or right of the Company or on its behalf,\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nany action asserting a claim for breach of any fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company\u2019s stockholders,\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nany action arising or asserting a claim arising pursuant to any provision of NRS Chapters 78 or 92A or any provision of our articles of incorporation or bylaws, or\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nany action asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce or determine the validity of our articles of incorporation or bylaws.\n\n\n\n\n\u00a0\u00a0\n\n\nHowever, our bylaws provide\nthat the exclusive forum provisions do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any\nother claim for which the federal courts have exclusive jurisdiction. We note that there is uncertainty as to whether a court would enforce\nthe provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Although\nwe believe this provision benefits us by providing increased consistency in the application of Nevada law in the types of lawsuits to\nwhich it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n35\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRisks Related to Our Intellectual Property and Related Litigation\n\n\n\u00a0\n\n\nWe rely upon licenses and patent rights from third parties which\nare subject to termination or expiration.\n\n\n\u00a0\n\n\nWe rely in part upon third-party\nlicenses and ownership rights assigned from third parties for the development of specific uses for our Hemopurifier devices. For example,\nwe are researching, developing and testing cancer-related applications for our devices under patents assigned from the London Health Science\nCenter Research, Inc. Should any of our licenses be prematurely terminated for any reason, or if the patents and intellectual property\nassigned to us or owned by such entities that we have licensed are challenged or defeated by third parties, our research efforts could\nbe materially and adversely affected. Our licenses and patents assigned to us may not continue in force for as long as we require for\nour research, development and testing of cancer treatments. It is possible that, if our licenses terminate or the underlying patents and\nintellectual property is challenged or defeated or the patents and intellectual property assigned to us is challenged or defeated, suitable\nreplacements may not be obtained or developed on terms acceptable to us, if at all. There is also the related risk that we may not be\nable to make the required payments under any patent license or assignment agreement, in which case we may lose to ability to use one or\nmore of the licensed or assigned patents.\n\n\n\u00a0\n\n\nWe could become subject to intellectual\nproperty litigation that could be costly, result in the diversion of management\u2019s time and efforts, require us to pay damages, prevent\nus from selling our commercially available products and/or reduce the margins we may realize from our products.\n\n\n\u00a0\n\n\nThe medical devices industry\nis characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a\nproduct infringes a patent involves complex legal and factual issues, and the determination is often uncertain. There may be existing\npatents of which we are unaware that our products under development may inadvertently infringe. The likelihood that patent infringement\nclaims may be brought against us increases as the number of participants in the infectious market increases and as we achieve more visibility\nin the marketplace and introduce products to market.\n\n\n\u00a0\n\n\nAny infringement claim against\nus, even if without merit, may cause us to incur substantial costs, and would place a significant strain on our financial resources, divert\nthe attention of management from our core business, and harm our reputation. In some cases, litigation may be threatened or brought by\na patent holding company or other adverse patent owner who has no relevant product revenues and against whom our patents may provide little\nor no deterrence. If we are found to infringe any patents, we could be required to pay substantial damages, including triple damages if\nan infringement is found to be willful. We also could be required to pay royalties and could be prevented from selling our products unless\nwe obtain a license or are able to redesign our products to avoid infringement. We may not be able to obtain a license enabling us to\nsell our products on reasonable terms, or at all. If we fail to obtain any required licenses or make any necessary changes to our technologies\nor the products, we may be unable to commercialize one or more of our products or may have to withdraw products from the market, all of\nwhich would have a material adverse effect on our business, financial condition and results of operations.\n\n\n\u00a0\n\n\nIf the combination of patents, trade secrets\nand contractual provisions upon which we rely to protect our intellectual property is inadequate, our ability to commercialize our products\nsuccessfully will be harmed.\n\n\n\u00a0\n\n\nOur success depends significantly\non our ability to protect our proprietary rights to the technologies incorporated in our products. We currently have five issued U.S.\npatents and four pending U.S. patent applications. We also have 32 issued foreign patents and have applied for nine additional foreign\nand international patents. Our issued patents begin to expire in 2024, with the last of these patents expiring in 2036, although terminal\ndisclaimers, patent term extension or patent term adjustment can shorten or lengthen the patent term. We rely on a combination of patent\nprotection, trade secret laws and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology.\nHowever, these may not adequately protect our rights or permit us to gain or keep any competitive advantage.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n36\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe issuance of a patent is\nnot conclusive as to its scope, validity or enforceability. The scope, validity or enforceability of our issued patents can be challenged\nin litigation or proceedings before the U.S. Patent and Trademark Office or foreign patent offices where our applications are pending.\nThe U.S. Patent and Trademark Office or foreign offices may deny or require significant narrowing of claims in our pending patent applications.\nPatents issued as a result of the pending patent applications, if any, may not provide us with significant commercial protection or be\nissued in a form that is advantageous to us. Proceedings before the U.S. Patent and Trademark Office or foreign offices could result in\nadverse decisions as to the priority of our inventions and the narrowing or invalidation of claims in issued patents. The laws of some\nforeign countries may not protect our intellectual property rights to the same extent as the laws of the U.S., if at all. Some of our\npatents may expire before we receive FDA approval to market our products in the United States or we receive approval to market our products\nin a foreign country. Although we believe that certain patent applications and/or other patents issued more recently will help protect\nthe proprietary nature of the Hemopurifier treatment technology, this protection may not be sufficient to protect us during the development\nof that technology.\n\n\n\u00a0\u00a0\n\n\nOur competitors may successfully\nchallenge and invalidate or render unenforceable our issued patents, including any patents that may issue in the future, which could prevent\nor limit our ability to market our products and could limit our ability to stop competitors from marketing products that are substantially\nequivalent to ours. In addition, competitors may be able to design around our patents or develop products that provide outcomes that are\ncomparable to our products but that are not covered by our patents.\n\n\n\u00a0\n\n\nWe have also entered into\nconfidentiality and assignment of intellectual property agreements with all of our employees, consultants and advisors directly involved\nin the development of our technology as one of the ways we seek to protect our intellectual property and other proprietary technology.\nHowever, these agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information\nin the event of unauthorized use or disclosure or other breaches of the agreements.\n\n\n\u00a0\n\n\nIn the event a competitor\ninfringes upon any of our patents or other intellectual property rights, enforcing our rights may be difficult, time consuming and expensive,\nand would divert management\u2019s attention from managing our business. We may not be successful on the merits in any enforcement effort.\nIn addition, we may not have sufficient resources to litigate, enforce or defend our intellectual property rights.\n\n\n\u00a0\n\n\nWe may rely on licenses for new technology,\nwhich may affect our continued operations with respect thereto.\n\n\n\u00a0\n\n\nAs we develop our technology,\nwe may need to license additional technologies to optimize the performance of our products. We may not be able to license these technologies\non commercially reasonable terms or at all. In addition, we may fail to successfully integrate any licensed technology into our proposed\nproducts. Our inability to obtain any necessary licenses could delay our product development and testing until alternative technologies\ncan be identified, licensed and integrated. The inability to obtain any necessary third-party licenses could cause us to abandon a particular\ndevelopment path, which could seriously harm our business, financial position and results of our operations.\n\n\n\u00a0\n\n\nNew technology may lead to our competitors\ndeveloping superior products which would reduce demand for our products.\n\n\n\u00a0\n\n\nResearch into technologies\nsimilar to ours is proceeding at a rapid pace, and many private and public companies and research institutions are actively engaged in\nthe development of products similar to ours. These new technologies may, if successfully developed, offer significant performance or price\nadvantages when compared with our technologies. Our existing patents or our pending and proposed patent applications may not offer meaningful\nprotection if a competitor develops a novel product based on a new technology.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n37\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf we are unable to protect our proprietary\ntechnology and preserve our trade secrets, we will increase our vulnerability to competitors which could materially adversely impact our\nability to remain in business.\n\n\n\u00a0\n\n\nOur ability to successfully\ncommercialize our products will depend on our ability to protect those products and our technology with domestic and foreign patents.\nWe will also need to continue to preserve our trade secrets. The issuance of a patent is not conclusive as to its validity or as to the\nenforceable scope of the claims of the patent. The patent positions of technology companies, including us, are uncertain and involve complex\nlegal and factual issues. Our patents may not prevent other companies from developing similar products or products which produce benefits\nsubstantially the same as our products, and other companies may be issued patents that may prevent the sale of our products or require\nus to pay significant licensing fees in order to market our products.\n\n\n\u00a0\u00a0\n\n\nFrom time to time, we may\nneed to obtain licenses to patents and other proprietary rights held by third parties in order to develop, manufacture and market our\nproducts. If we are unable to timely obtain these licenses on commercially reasonable terms, our ability to commercially exploit such\nproducts may be inhibited or prevented. Our pending patent applications may not result in issued patents, patent protection may not be\nsecured for any particular technology, and our issued patents may not be valid or enforceable or provide us with meaningful protection.\n\n\n\u00a0\n\n\nIf we are required to engage in expensive\nand lengthy litigation to enforce our intellectual property rights, such litigation could be very costly and the results of such litigation\nmay not be satisfactory.\n\n\n\u00a0\n\n\nAlthough we have entered into\ninvention assignment agreements with our employees and with certain advisors, and we routinely enter into confidentiality agreements with\nour contract partners, if those employees, advisors or contract partners develop inventions or processes independently that may relate\nto products or technology under development by us, disputes may arise about the ownership of those inventions or processes. Time-consuming\nand costly litigation could be necessary to enforce and determine the scope of our rights under these agreements. In addition, we may\nbe required to commence litigation to enforce such agreements if they are violated, and it is certainly possible that we will not have\nadequate remedies for breaches of our confidentiality agreements as monetary damages may not be sufficient to compensate us. We may be\nunable to fund the costs of any such litigation to a satisfactory conclusion, which could leave us without recourse to enforce contracts\nthat protect our intellectual property rights.\n\n\n\u00a0\n\n\nOther companies may claim that our technology\ninfringes on their intellectual property or proprietary rights and commence legal proceedings against us which could be time-consuming\nand expensive and could result in our being prohibited from developing, marketing, selling or distributing our products.\n\n\n\u00a0\n\n\nBecause of the complex and\ndifficult legal and factual questions that relate to patent positions in our industry, it is possible that our products or technology\ncould be found to infringe upon the intellectual property or proprietary rights of others. Third parties may claim that our products or\ntechnology infringe on their patents, copyrights, trademarks or other proprietary rights and demand that we cease development or marketing\nof those products or technology or pay license fees. We may not be able to avoid costly patent infringement litigation, which will divert\nthe attention of management away from the development of new products and the operation of our business. We may not prevail in any such\nlitigation. If we are found to have infringed on a third-party\u2019s intellectual property rights, we may be liable for money damages,\nencounter significant delays in bringing products to market or be precluded from manufacturing particular products or using particular\ntechnology.\n\n\n\u00a0\n\n\nOther parties may challenge\ncertain of our foreign patent applications. If any such parties are successful in opposing our foreign patent applications, we may not\ngain the protection afforded by those patent applications in particular jurisdictions and may face additional proceedings with respect\nto similar patents in other jurisdictions, as well as related patents. The loss of patent protection in one jurisdiction may influence\nour ability to maintain patent protection for the same technology in other jurisdictions.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n38\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRisks Related to U.S. Government Contracts\n\n\n\u00a0\n\n\nWe may not obtain additional U.S. Government\ncontracts to further develop our technology.\n\n\n\u00a0\n\n\nWhile we have previously had\nU.S. government contracts, we may not be successful in obtaining additional government grants or contracts. The process of obtaining government\ncontracts is lengthy with the uncertainty that we will be successful in obtaining announced grants or contracts for therapeutics as a\nmedical device technology. Accordingly, although we have obtained government contracts in the past, we may not be awarded any additional\nU.S. Government grants or contracts utilizing our Hemopurifier platform technology.\n\n\n\u00a0\n\n\nU.S. Government agencies have special contracting\nrequirements, including a right to audit us, which create additional risks\n;\u00a0\na negative audit would be detrimental to\nus.\n\n\n\u00a0\n\n\nOur business plan to utilize\nthe Aethlon Hemopurifier technology may seek to involve contracts with the U.S. Government. Many government contracts, typically contain\nunfavorable termination provisions and are subject to audit and modification by the government at its sole discretion, which would subject\nus to additional risks should we obtain contracts with the U.S. Government in the future. These risks include the ability of the U.S.\nGovernment to unilaterally:\n\n\n\u00a0\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nsuspend or prevent us for a period of time from receiving new contracts or extending existing contracts based on violations or suspected violations of laws or regulations;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\naudit and object to our contract-related costs and fees, including allocated indirect costs;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ncontrol and potentially prohibit the export of our products; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nchange certain terms and conditions in our contracts.\n\n\n\n\n\u00a0\u00a0\u00a0\n\n\nAs a former and potential\nfuture U.S. Government contractor, we are required to comply with applicable laws, regulations and standards relating to our accounting\npractices and would be subject to periodic audits and reviews. As part of any such audit or review, the U.S. Government may review the\nadequacy of, and our compliance with, our internal control systems and policies, including those relating to our purchasing, property,\nestimating, compensation and management information systems. Based on the results of its audits, the U.S. Government may adjust our contract-related\ncosts and fees, including allocated indirect costs. In addition, if an audit or review uncovers any improper or illegal activity, we would\npossibly be subject to civil and criminal penalties and administrative sanctions, including termination of our contracts, forfeiture of\nprofits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. Government. We could also suffer\nserious harm to our reputation if allegations of impropriety were made against us. Although we have not had any government audits and\nreviews to date, future audits and reviews could cause adverse effects. In addition, under U.S. Government purchasing regulations, some\nof our costs, including most financing costs, amortization of intangible assets, portions of our research and development costs, and some\nmarketing expenses, would possibly not be reimbursable or allowed under such contracts. Further, as a former and potential future U.S.\nGovernment contractor, we would be subject to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits\nand other legal actions and liabilities.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n39\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAs a potential future U.S. Government contractor, we would be\nsubject to a number of procurement rules and regulations.\n\n\n\u00a0\n\n\nGovernment contractors must\ncomply with specific procurement regulations and other requirements. These requirements, although customary in government contracts, would\nimpact our performance and compliance costs. In addition, current U.S. Government budgetary constraints could lead to changes in the procurement\nenvironment, including the Department of Defense\u2019s initiative focused on efficiencies, affordability and cost growth and other changes\nto its procurement practices. If and to the extent such changes occur, they could affect whether and, if so, how we pursue certain opportunities\nand the terms under which we are able to do so.\n\n\n\u00a0\n\n\nIn addition, failure to comply\nwith these regulations and requirements could result in reductions of the value of contracts, contract modifications or termination, and\nthe assessment of penalties and fines, which could negatively impact our results of operations and financial condition. Our failure to\ncomply with these regulations and requirements could also lead to suspension or debarment, for cause, from government contracting or subcontracting\nfor a period of time. Among the causes for debarment are violations of various statutes, including those related to procurement integrity,\nexport control, government security regulations, employment practices, protection of the environment, accuracy of records and the recording\nof costs, and foreign corruption. The termination of any government contract we may obtain as a result of any of these acts could have\na negative impact on our results of operations and financial condition and could have a negative impact on our reputation and ability\nto procure other government contracts in the future.\n\n\n\u00a0\n\n\nRisks Relating to Our Common Stock and Our Corporate Governance\n\n\n\u00a0\n\n\nIf we are unable to regain compliance with\nthe listing requirements of the Nasdaq Capital Market, our common stock may be delisted from the Nasdaq Capital Market which could have\na material adverse effect on our financial condition and could make it more difficult for you to sell your shares.\n\n\n\u00a0\n\n\nOur common stock is listed\non the Nasdaq Capital Market and we are therefore subject to its continued listing requirements, including requirements with respect to\nthe market value of publicly held shares, market value of listed shares, minimum bid price per share (subject to a 180-day grace period,\nas discussed below), and minimum stockholders' equity, among others, and requirements relating to board and committee independence. If\nwe fail to satisfy one or more of the requirements, we may be delisted from the Nasdaq Capital Market.\n\n\n\u00a0\n\n\nOn October 25, 2022, we received\na notice, or Notice, from The Nasdaq Stock Market, or Nasdaq, that we were not in compliance with the $1.00 minimum bid price requirement\nfor continued listing on the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2), or the Minimum Bid Price Requirement.\nThe Notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 days to regain compliance with the Minimum Bid\nPrice Requirement by having the closing bid price of our common stock meet or exceed $1.00 per share for at least ten consecutive business\ndays. We subsequently requested an extension of time to regain compliance with the Nasdaq Listing Rule 5550(a)(2) and submitted to Nasdaq\na plan to regain compliance. On April 25, 2023, Nasdaq informed us that the request for extension was granted. As a result of the extension,\nwe have until October 23, 2023 to provide evidence that we have regained compliance with Nasdaq Listing Rule 5550(a)(2), by trading at\nor above $1.00 per share for ten consecutive trading dates prior to that date.\n\n\n\u00a0\n\n\nThere can be no assurance,\nhowever, that we will be able to regain compliance with the Minimum Bid Price Requirement. Even if we do regain compliance, we may not\nbe able to maintain compliance with the continued listing requirements for the Nasdaq Capital Market or our common stock could be delisted\nin the future. In addition, we may be unable to meet other applicable listing requirements of the Nasdaq Capital Market, including maintaining\nminimum levels of stockholders\u2019 equity or market values of our common stock in which case, our common stock could be delisted notwithstanding\nour ability to demonstrate compliance with the Minimum Bid Price Requirement.\n\n\n\u00a0\n\n\nDelisting from the Nasdaq\nCapital Market may adversely affect our ability to raise additional financing through the public or private sale of equity securities,\nmay significantly affect the ability of investors to trade our securities and may negatively affect the value and liquidity of our common\nstock. Delisting also could have other negative results, including the potential loss of employee confidence, the loss of institutional\ninvestors or interest in business development opportunities.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n40\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nHistorically we have not paid dividends\non our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.\n\n\n\u00a0\n\n\nWe have never paid cash dividends\non our common stock. We intend to retain our future earnings, if any, to fund operational and capital expenditure needs of our business,\nand do not anticipate paying any cash dividends in the foreseeable future. As a result, capital appreciation, if any, of our common stock\nwill be the sole source of gain for our common stockholders in the foreseeable future.\n\n\n\u00a0\n\n\nOur stock price is speculative, and there\nis a risk of litigation.\n\n\n\u00a0\n\n\nThe trading price of our common\nstock has in the past and may in the future be subject to wide fluctuations in response to factors such as the following:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nfailure to raise additional funds when needed;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nannouncements regarding our ongoing development of the Hemopurifier;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nresults regarding the progress of our clinical trials with the Hemopurifier; \n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nresults reported from our clinical trials with the Hemopurifier;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nfailure to meet the continued listing requirements of and maintain our listing on Nasdaq;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nresults of operations or revenue in any quarter failing to meet the expectations, published or otherwise, of the investment community;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nreduced investor confidence in equity markets;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nspeculation in the press or analyst community;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nwide fluctuations in stock prices, particularly with respect to the stock prices for other medical device companies;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nannouncements of technological innovations by us or our competitors;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nnew products or the acquisition of significant customers by us or our competitors;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nchanges in interest rates;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nchanges in investors\u2019 beliefs as to the appropriate price-earnings ratios for us and our competitors;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nchanges in recommendations or financial estimates by securities analysts who track our common stock or the stock of other medical device companies;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nchanges in management;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nsales of common stock by directors and executive officers;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n41\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nrumors or dissemination of false or misleading information, particularly through Internet chat rooms, instant messaging, and other rapid-dissemination methods;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nconditions and trends in the medical device industry generally;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe announcement of acquisitions or other significant transactions by us or our competitors;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nadoption of new accounting standards affecting our industry;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nchanges in the structure of healthcare payment systems;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ngeneral market conditions;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ndomestic or international terrorism and other factors; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe other factors described in this section.\n\n\n\n\n\u00a0\n\n\nFluctuations in the price\nof our common stock may expose us to the risk of securities class action lawsuits. Although no such lawsuits are currently pending against\nus and we are not aware that any such lawsuit is threatened to be filed in the future, future lawsuits are possible as a result of fluctuations\nin the price of our common stock. Defending against any such suits could result in substantial cost and divert management\u2019s attention\nand resources. In addition, any settlement or adverse determination of such lawsuits could subject us to significant liability.\n\n\n\u00a0\n\n\nIf at any time our common stock is subject\nto the SEC\u2019s penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity\nin our securities may be adversely affected.\n\n\n\u00a0\n\n\nIf at any time our common\nstock is not listed on a national securities exchange or we have net tangible assets of $2,000,000 or less, or we have an average revenue\nof less than $6,000,000 for the last three years, and our common stock has a market price per share of less than $5.00, transactions in\nour common stock will be subject to the SEC\u2019s \u201cpenny stock\u201d rules. Currently, our common stock is subject to the SEC\u2019s\n\u201cpenny stock\u201d rules promulgated under the Exchange Act and as a result, broker-dealers may find it difficult to effectuate\ncustomer transactions and trading activity in our securities may be adversely affected. For any transaction involving a penny stock, unless\nexempt, the rules require:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthat a broker or dealer approve a person\u2019s account for transactions in penny stocks; \n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nfurnish the investor a disclosure document describing the risks of investing in penny stocks; \n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ndisclose to the investor the current market quotation, if any, for the penny stock; \n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ndisclose to the investor the amount of compensation the firm and its broker will receive for the trade; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n42\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn order to approve a person\u2019s\naccount for transactions in penny stocks, the broker or dealer must:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nobtain financial information and investment experience objectives of the person; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nmake a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.\n\n\n\n\n\u00a0\n\n\nThe broker or dealer must\nalso deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market,\nwhich, in highlight form:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nsets forth the basis on which the broker or dealer made the suitability determination; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthat the broker or dealer received a signed, written agreement from the investor prior to the transaction.\n\n\n\n\n\u00a0\u00a0\n\n\nGenerally, brokers may be\nless willing to execute transactions in securities subject to the \u201cpenny stock\u201d rules. This may make it more difficult for\ninvestors to dispose of our common stock and cause a decline in the market value of our stock.\n\n\n\u00a0\n\n\nDisclosure also has to be\nmade about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable\nto both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available\nto an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information\nfor the penny stock held in the account and information on the limited market in penny stocks.\n\n\n\u00a0\n\n\nOur common stock has had an unpredictable\ntrading volume which means you may not be able to sell our shares at or near trading prices or at all.\n\n\n\u00a0\n\n\nTrading in our common shares\nhistorically has been volatile and often has been thin, meaning that the number of persons interested in purchasing our common shares\nat or near trading prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors,\nincluding the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and\nothers in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons,\nthey tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of\nour shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when\ntrading activity in our shares is minimal, as compared to a seasoned issuer which has a large and steady volume of trading activity that\nwill generally support continuous sales without an adverse effect on share price. A broader or more active public trading market for our\ncommon shares may not develop or be sustained, and current trading levels may decrease.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n43\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe market price for our common stock is\nvolatile; you may not be able to sell our common stock at or above the price you have paid for it, which may result in losses to you.\n\n\n\u00a0\n\n\nThe market for our common\nstock is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue\nto be more volatile than a seasoned issuer for the indefinite future. During the 52-week period ended March 31, 2023, the high and low\nclosing sale prices for a share of our common stock were $1.99 and $0.25, respectively. The volatility in our share price is attributable\nto a number of factors. First, as noted above, trading in our common stock often has been thin. As a consequence of this lack of liquidity,\nthe trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in\neither direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares\nare sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse\nimpact on its share price. Secondly, we are a speculative investment due to our limited operating history, limited amount of cash and\nrevenue, lack of profit to date, and the uncertainty of future market acceptance for our potential products. As a consequence of this\nenhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news\nor lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case\nwith the stock of a seasoned issuer.\n\n\n\u00a0\n\n\nThe following factors also\nmay add to the volatility in the price of our common stock: actual or anticipated variations in our quarterly or annual operating results;\nannouncements regarding our clinical trials and the development and manufacture of our Hemopurifier; acceptance of our proprietary technology\nas a viable method of augmenting the immune response of clearing viruses and toxins from human blood; government regulations, announcements\nof significant acquisitions, strategic partnerships or joint ventures; our capital commitments and additions or departures of our key\npersonnel. Many of these factors are beyond our control and may decrease the market price of our common shares regardless of our operating\nperformance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any\ntime, including as to whether our common shares will sustain their current market prices, or as to what effect the sale of shares or the\navailability of common shares for sale at any time will have on the prevailing market price.\n\n\n\u00a0\n\n\nOur issuance of additional shares of common\nstock or convertible securities, could be dilutive.\n\n\n\u00a0\n\n\nWe are entitled under our\narticles of incorporation to issue up to 60,000,000 shares of common stock. As of March 31, 2023, we have reserved for issuance 2,045,006\nof those shares of common stock for outstanding restricted stock units, stock options and warrants, excluding an aggregate of 348,837\nissuances of restricted stock units to our independent directors under our 2020 Equity Incentive Plan made subsequent to March 31, 2023.\nAs of March 31, 2023, we had issued and outstanding 22,992,466 shares of common stock. As a result, as of March 31, 2023 we had 34,962,528\nshares of common stock available for issuance to new investors or for use to satisfy indebtedness or pay service providers.\n\n\n\u00a0\n\n\nOn March 24, 2022, we entered\ninto an At the Market Offering Agreement, or the 2022 ATM Agreement, with H.C. Wainwright & Co., LLC, or Wainwright, which established\nan at-the-market equity program pursuant to which we may offer and sell shares of our common stock from time to time as set forth in the\n2022 ATM Agreement. Through March 31, 2023, we sold an aggregate of 7,480,836 shares under the 2022 ATM Agreement for net proceeds of\n$8,927,211.\n\n\n\u00a0\n\n\nOur Board of Directors may\ngenerally issue shares of common stock, restricted stock units or stock options or warrants to purchase those shares, without further\napproval by our stockholders, based upon such factors as our Board of Directors may deem relevant at that time. It is likely that we will\nbe required to issue a large amount of additional securities to raise capital to further our development. It is also likely that we will\nbe required to issue a large amount of additional securities to directors, officers, employees and consultants as compensatory grants\nin connection with their services, both in the form of stand-alone grants or under our stock plans.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n44\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur officers and directors are entitled to indemnification from\nus for liabilities under our articles of incorporation, which could be costly to us and may discourage the exercise of stockholder rights.\n\n\n\u00a0\n\n\nOur articles of incorporation\nprovide that we possess and may exercise all powers of indemnification of our officers, directors, employees, agents and other persons\nand our bylaws also require us to indemnify our officers and directors as permitted under the provisions of the Nevada Revised Statutes,\nor NRS. We may also have contractual indemnification obligations under our agreements with our directors, officers and employees. The\nforegoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or\ndamage awards against directors and officers. These provisions and resultant costs may also discourage our company from bringing a lawsuit\nagainst directors, officers and employees for breaches of their fiduciary duties, and may similarly discourage the filing of derivative\nlitigation by our stockholders against our directors, officers and employees even though such actions, if successful, might otherwise\nbenefit our company and stockholders.\n\n\n\u00a0\n\n\nOur bylaws and Nevada law may discourage,\ndelay or prevent a change of control of our company or changes in our management, would have the result of depressing the trading price\nof our common stock.\n\n\n\u00a0\n\n\nCertain anti-takeover provisions\nof Nevada law could have the effect of delaying or preventing a third-party from acquiring us, even if the acquisition arguably could\nbenefit our stockholders.\n\n\n\u00a0\n\n\nNevada\u2019s \u201ccombinations\nwith interested stockholders\u201d statutes (NRS 78.411 through 78.444, inclusive) prohibit specified types of business \u201ccombinations\u201d\nbetween certain Nevada corporations and any person deemed to be an \u201cinterested stockholder\u201d for two years after such person\nfirst becomes an \u201cinterested stockholder\u201d unless the corporation\u2019s board of directors approves the combination (or the\ntransaction by which such person becomes an \u201cinterested stockholder\u201d) in advance, or unless the combination is approved by\nthe board of directors and sixty percent of the corporation\u2019s voting power not beneficially owned by the interested stockholder,\nits affiliates and associates. Further, in the absence of prior approval certain restrictions may apply even after such two year period.\nHowever, these statutes do not apply to any combination of a corporation and an interested stockholder after the expiration of four years\nafter the person first became an interested stockholder. For purposes of these statutes, an \u201cinterested stockholder\u201d is any\nperson who is (1) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares\nof the corporation, or (2) an affiliate or associate of the corporation and at any time within the two previous years was the beneficial\nowner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition\nof the term \u201ccombination\u201d is sufficiently broad to cover most significant transactions between a corporation and an \u201cinterested\nstockholder.\u201d A Nevada corporation may elect in its articles of incorporation not to be governed by these particular laws, but if\nsuch election is not made in the corporation\u2019s original articles of incorporation, the amendment (1) must be approved by the affirmative\nvote of the holders of stock representing a majority of the outstanding voting power of the corporation not beneficially owned by interested\nstockholders or their affiliates and associates, and (2) is not effective until 18 months after the vote approving the amendment and does\nnot apply to any combination with a person who first became an interested stockholder on or before the effective date of the amendment.\nWe did not make such an election in our original articles of incorporation and have not amended our articles of incorporation to so elect.\n\n\n\u00a0\n\n\nNevada\u2019s \u201cacquisition\nof controlling interest\u201d statutes (NRS 78.378 through 78.3793, inclusive) contain provisions governing the acquisition of a controlling\ninterest in certain Nevada corporations. These \u201ccontrol share\u201d laws provide generally that any person that acquires a \u201ccontrolling\ninterest\u201d in certain Nevada corporations may be denied voting rights, unless a majority of the disinterested stockholders of the\ncorporation elects to restore such voting rights. These laws would apply to us if we were to have 200 or more stockholders of record (at\nleast 100 of whom have addresses in Nevada appearing on our stock ledger) and do business in the State of Nevada directly or through an\naffiliated corporation, unless our articles of incorporation or bylaws in effect on the tenth day after the acquisition of a controlling\ninterest provide otherwise. These laws provide that a person acquires a \u201ccontrolling interest\u201d whenever a person acquires\nshares of a subject corporation that, but for the application of these provisions of the NRS, would enable that person to exercise (1)\none fifth or more, but less than one third, (2) one third or more, but less than a majority or (3) a majority or more, of all of the voting\npower of the corporation in the election of directors. Once an acquirer crosses one of these thresholds, shares which it acquired in the\ntransaction taking it over the threshold and within the 90 days immediately preceding the date when the acquiring person acquired or offered\nto acquire a controlling interest become \u201ccontrol shares\u201d to which the voting restrictions described above apply. These laws\nmay have a chilling effect on certain transactions if our articles of incorporation or bylaws are not amended to provide that these provisions\ndo not apply to us or to an acquisition of a controlling interest, or if our disinterested stockholders do not confer voting rights in\nthe control shares.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n45\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nVarious provisions of our\nbylaws may delay, defer or prevent a tender offer or takeover attempt of us that a stockholder might consider in his or her best interest.\nOur bylaws may be adopted, amended or repealed by the affirmative vote of the holders of at least a majority of our outstanding shares\nof capital stock entitled to vote for the election of directors, and except as provided by Nevada law, our Board of Directors shall have\nthe power to adopt, amend or repeal the bylaws by a vote of not less than a majority of our directors. The interests of these stockholders\nand directors may not be consistent with your interests, and they may make changes to the bylaws that are not in line with your concerns.\n\n\n\u00a0\n\n\nNevada law also provides that\ndirectors may resist a change or potential change in control if the directors determine that the change is opposed to, or not in the best\ninterests of, the corporation. The existence of the foregoing provisions and other potential anti-takeover measures could limit the price\nthat investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our\ncompany, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.\n\n\n\u00a0\n\n\nWe incur substantial costs as a result of\nbeing a public company and our management expects to devote substantial time to public company compliance programs.\n\n\n\u00a0\n\n\nAs a public company, we incur\nsignificant legal, insurance, accounting and other expenses, including costs associated with public company reporting. We intend to invest\nresources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative\nexpenses and may divert management\u2019s time and attention from product development and commercialization activities. If our efforts\nto comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities\nrelated to practice, regulatory authorities may initiate legal proceedings against us, and our business may be harmed. These laws and\nregulations could make it more difficult and costly for us to obtain director and officer liability insurance for our directors and officers,\nand we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make\nit more difficult for us to attract and retain qualified executive officers and qualified members of our Board of Directors, particularly\nto serve on our audit and compensation committees. In addition, if we are unable to continue to meet the legal, regulatory and other requirements\nrelated to being a public company, we may not be able to maintain the quotation of our common stock on the Nasdaq Capital Market or on\nany other senior market to which we may apply for listing, which would likely have a material adverse effect on the trading price of our\ncommon stock.\n\n\n\u00a0\n\n\nIf securities or industry analysts do not\npublish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price\nand trading volume could decline.\n\n\n\u00a0\n\n\nThe trading market for our\ncommon stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. Our\nresearch coverage by industry and financial analysts is currently limited. Even if our analyst coverage increases, if one or more of the\nanalysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our\ncompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock\nprice or trading volume to decline.\n\n\n\u00a0\n\n",
+  "item7": ">ITEM 7. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS\nOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nThe following discussion and\nanalysis should be read in conjunction with the consolidated Financial Statements and Notes thereto appearing elsewhere in this Annual\nReport.\n\n\n\u00a0\n\n\nWe are a medical therapeutic\ncompany focused on developing products to treat cancer and life-threatening infectious diseases. The Aethlon Hemopurifier is a clinical-stage\nimmunotherapeutic device designed to combat cancer and life-threatening viral infections. In cancer, the Hemopurifier is designed to deplete\nthe presence of circulating tumor-derived exosomes that promote immune suppression, seed the spread of metastasis and inhibit the benefit\nof leading cancer therapies. The FDA has designated the Hemopurifier as a \u201cBreakthrough Device\u201d for two independent indications:\n\n\n\u00a0\n\n\n\n\n\u00b7\nthe treatment\nof individuals with advanced or metastatic cancer who are either unresponsive to or intolerant of standard of care therapy, and with\ncancer types in which exosomes have been shown to participate in the development or severity of the disease; and\n\n\n\n\n\u00a0\n\n\n\n\n\u00b7\nthe treatment\nof life-threatening viruses that are not addressed with approved therapies.\n\n\n\n\n\u00a0\n\n\nWe believe the Hemopurifier\ncan be a substantial advance in the treatment of patients with advanced and metastatic cancer through the clearance of exosomes that promote\nthe growth and spread of tumors through multiple mechanisms. We are currently working with our new contract research organization, or\nCRO, on preparations to conduct a clinical trial in Australia in patients with solid tumors, including head and neck cancer, gastrointestinal\ncancers and other cancers.\n\n\n\u00a0\n\n\nOn October 4, 2019, the FDA\napproved our Investigational Device Exemption, or IDE, application to initiate an Early Feasibility Study, or EFS, of the Hemopurifier\nin patients with head and neck cancer in combination with standard of care pembrolizumab (Keytruda). The primary endpoint for the EFS,\ndesigned to enroll 10 to 12 subjects at a single center, is safety, with secondary endpoints including measures of exosome clearance and\ncharacterization, as well as response and survival rates. This clinical trial, initially conducted at the UPMC Hillman Cancer Center in\nPittsburgh, PA, or UPMC, treated two patients. Due to lack of further patient enrollment, we and UPMC terminated this trial.\n\n\n\u00a0\n\n\nIn January 2023, we entered\ninto an agreement with North American Science Associates, LLC, or NAMSA, a world leading MedTech CRO offering global end-to-end development\nservices, to oversee our clinical trials investigating the Hemopurifier for oncology indications. Pursuant to the agreement, NAMSA will\nmanage our clinical trials of the Hemopurifier for patients in the United States and Australia with various types of cancer tumors. We\nanticipate that the initial clinical trials will begin in Australia.\n\n\n\u00a0\n\n\nWe also believe the Hemopurifier\ncan be part of the broad-spectrum treatment of life-threatening highly glycosylated, or carbohydrate coated, viruses that are not addressed\nwith an already approved treatment. In small-scale or early feasibility human studies, the Hemopurifier has been used in the past to treat\nindividuals infected with human immunodeficiency virus, or HIV, hepatitis-C and Ebola.\n\n\n\u00a0\n\n\nAdditionally, in vitro, the\nHemopurifier has been demonstrated to capture Zika virus, Lassa virus, MERS-CoV, cytomegalovirus, Epstein-Barr virus, Herpes simplex virus,\nChikungunya virus, Dengue virus, West Nile virus, smallpox-related viruses, H1N1 swine flu virus, H5N1 bird flu virus, Monkeypox virus\nand the reconstructed Spanish flu virus of 1918. In several cases, these studies were conducted in collaboration with leading government\nor non-government research institutes.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n49\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOn June 17, 2020, the FDA\napproved a supplement to our open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with\nSARS-CoV-2/COVID-19, or COVID-19, in a New Feasibility Study. That study was designed to enroll up to 40 subjects at up to 20 centers\nin the United States. Subjects had to have an established laboratory diagnosis of COVID-19, be admitted to an intensive care unit, or\nICU, and have acute lung injury and/or severe or life-threatening disease, among other criteria. Endpoints for this study, in addition\nto safety, included reduction in circulating virus as well as clinical outcomes (NCT # 04595903). In June 2022, the first patient in this\nstudy was enrolled and completed the Hemopurifier treatment phase of the protocol. Due to lack of COVID-19 patients in the ICUs of our\ntrial sites, we terminated this study in 2022.\n\n\n\u00a0\n\n\nUnder Single Patient Emergency\nUse regulations, the Company has treated two patients with COVID-19 with the Hemopurifier, in addition to the COVID-19 patient treated\nwith our Hemopurifier in our COVID-19 clinical trial discussed above.\n\n\n\u00a0\n\n\nWe currently are experiencing\na disruption in our Hemopurifier supply, as our existing supply of Hemopurifiers expired on September 30, 2022, and as previously disclosed,\nwe are dependent on FDA approval of qualified suppliers to manufacture our Hemopurifier. Our intended transition to a new supplier for\ngalanthus nivalis agglutinin, or GNA, a component of our Hemopurifier, is delayed as we work with the FDA for approval of our supplement\nto our IDE, which is required to make this manufacturing change.\n\n\n\u00a0\n\n\nIn October 2022, we launched\na wholly owned subsidiary in Australia, formed to conduct clinical research, seek regulatory approval and commercialize our Hemopurifier\nin that country. The subsidiary will initially focus on oncology trials in Australia.\n\n\n\u00a0\n\n\nWe also obtained ERB approval\nand entered into a clinical trial agreement with Medanta Medicity Hospital, a multi-specialty hospital in Delhi NCR, India, for a COVID-19\nclinical trial at that location. One patient has completed participation in the Indian COVID-19 study. The relevant authorities in India\nhave accepted the use of the Hemopurifiers made with the GNA from our new supplier.\n\n\n\u00a0\n\n\nIn May 2023, we also received\nERB approval from the Maulana Azad Medical College, or MAMC, for a second site for our clinical trial in India to treat severe COVID-19.\nMAMC was established in 1958 and is located in New Delhi, India. MMAC is affiliated with the University of Delhi and is operated by the\nDelhi government.\n\n\n\u00a0\n\n\nWe also recently announced\nthat we also have begun investigating the use of our Hemopurifier in the organ transplant setting. Our objective is to confirm that the\nHemopurifier, in our translational studies, when incorporated into a machine perfusion organ preservation circuit, can remove harmful\nviruses and exosomes from harvested organs. We have previously demonstrated the removal of multiple viruses and exosomes from buffer solutions,\nin vitro, utilizing a scaled-down version of our Hemopurifier. This process potentially may reduce complications following transplantation\nof the harvested organ, which can include viral infection, delayed graft function and rejection. We believe this new approach could be\nadditive to existing technologies that currently are in place to increase the number of viable organs for transplant.\n\n\n\u00a0\n\n\nPreviously we were the majority\nowner of ESI a company formed to focus on the discovery of exosomal biomarkers to diagnose and monitor life-threatening diseases, and\nthus consolidated ESI in our consolidated financial statements. For more than four years, the primary activities of ESI were limited to\nthe payment of patent maintenance fees and applications. In September 2022, the Board of Directors of ESI and we, as the majority stockholder\nof ESI, approved the dissolution of ESI.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n50\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nSuccessful outcomes of human\ntrials will also be required by the regulatory agencies of certain foreign countries where we plan to market and sell the Hemopurifier.\nSome of our patents may expire before FDA approval or approval in a foreign country, if any, is obtained. However, we believe that certain\npatent applications and/or other patents issued more recently will help protect the proprietary nature of the Hemopurifier treatment technology.\n\n\n\u00a0\n\n\nIn addition to the foregoing,\nwe are monitoring closely the impact of inflation, recent bank failures, and the war in Ukraine on our business. Given the level of uncertainty\nregarding the duration and impact of these events on capital markets and the U.S. economy, we are unable to assess the impact on our timelines\nand future access to capital. The full extent to which inflation, recent bank failures and the war in Ukraine will impact our business,\nresults of operations, financial condition, clinical trials and preclinical research will depend on future developments, as well as the\neconomic impact on national and international markets that are highly uncertain.\n\n\n\u00a0\n\n\nOur executive offices are\nlocated at 11555 Sorrento Valley Road, Suite 203, San Diego, California 92121. Our telephone number is (619) 941-0360. Our website address\nis www.aethlonmedical.com.\n\n\n\u00a0\n\n\nOur common stock is listed\non the Nasdaq Capital Market under the symbol \u201cAEMD.\u201d\n\n\n\u00a0\n\n\nFiscal Years Ended March 31, 2023 and 2022\n\n\n\u00a0\n\n\nResults of Operations\n\n\n\u00a0\n\n\nGovernment Contract Revenues\n\n\n\u00a0\n\n\nWe recorded government contract\nrevenue in the fiscal years ended March 31, 2023 and 2022. This revenue resulted from work performed under our government contracts with\nthe NIH and our subaward with the University of Pittsburgh as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFiscal Year\n Ended 3/31/23\n\u00a0\n\u00a0\n\n\nFiscal Year\n Ended 3/31/22\n\u00a0\n\u00a0\n\n\nChange in \n Dollars\n\u00a0\n\n\n\n\nPhase 2 Melanoma Cancer Contract\n\u00a0\n\n\n$\n574,245\n\u00a0\n\u00a0\n\n\n$\n229,698\n\u00a0\n\u00a0\n\n\n$\n344,547\n\u00a0\n\n\n\n\nSubaward with University of Pittsburgh\n\u00a0\n\n\n\u00a0\n\u2013\n\u00a0\n\u00a0\n\n\n\u00a0\n64,467\n\u00a0\n\u00a0\n\n\n\u00a0\n(64,467\n)\n\n\n\n\nTotal Government Contract and Grant Revenue\n\u00a0\n\n\n$\n574,245\n\u00a0\n\u00a0\n\n\n$\n294,165\n\u00a0\n\u00a0\n\n\n$\n280,080\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe have recognized revenue under the following\ncontracts/grants:\n\n\n\u00a0\n\n\nPhase 2 Melanoma Cancer Contract\n\n\n\u00a0\n\n\nOn September 12, 2019, the\nNCI awarded to us the Award Contract. The Award Contract amount was $1,860,561 and, as amended, ran for the period from September 16,\n2019 through September 15, 2022.\n\n\n\u00a0\n\n\nThe work performed pursuant\nto this Award Contract was focused on melanoma exosomes. This work followed from our completion of a Phase I contract for the Topic 359\nsolicitation that ran from September 2017 through June 2018, as described below. Following on the Phase I work, the deliverables in the\nPhase II program involved the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform.\n\n\n\u00a0\n\n\nThe Award Contract ended on\nSeptember 15, 2022 and we presented the required final report to the NCI. As the NCI completed its close out review of the contract, we\nrecognized as revenue the $574,245 previously recorded as deferred revenue on our December 31, 2022 balance sheet.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n51\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nSubaward with University of Pittsburgh\n\n\n\u00a0\n\n\nIn December 2020, we entered\ninto a cost reimbursable subaward arrangement with the University of Pittsburgh in connection with an NIH contract entitled \u201cDepleting\nExosomes to Improve Responses to Immune Therapy in HNNCC.\u201d Our share of the award was $256,750. We did not record revenue related\nto this subaward in the fiscal year ended March 31, 2023. We recorded $64,467 of revenue related to this subaward in the fiscal year ended\nMarch 31, 2022.\n\n\n\u00a0\n\n\nIn October 2022, we agreed\nwith the University of Pittsburgh to terminate the subaward arrangement, effective as of November 10, 2022, since it related to our clinical\ntrial in head and neck cancer in which the University of Pittsburgh was unable to recruit patients. There are no provisions in the subaward\narrangement requiring repayment of cash received for work completed through November 10, 2022.\n\n\n\u00a0\n\n\nOperating Costs and Expenses\n\n\n\u00a0\n\n\nConsolidated operating expenses\nwere $12,472,883 for the fiscal year ended March 31, 2023, compared to $10,715,050 for the fiscal year ended March 31, 2022, an increase\nof $1,757,833. The $1,757,833 increase in the fiscal year ended March 31, 2023 was due to increases in general and administrative expense\nof $1,026,081 and professional fees of $914,002, which were partially offset by a decrease in payroll and related expenses of $182,250.\n\n\n\u00a0\u00a0\n\n\nThe $1,026,081 increase in\nthe fiscal year ended March 31, 2023 in our general and administrative expense was due to an increase in manufacturing and research and\ndevelopment supplies of $411,211 related to the manufacture of the Hemopurifier device and various research and development activities.\nOther increases included, $146,962 in subcontract expense related to revenue recognized from contracts and grants with the NIH, $154,608\nassociated with the close out of the US COVID-19 clinical trial, $103,602 associated with our Australian subsidiary and launch of our\noncology clinical trial in Australia, $117,772 in rent expense related to the addition of the manufacturing suite in fiscal year 2023\nand a full year of rent for our office and laboratory space, $117,207 in depreciation and amortization expense associated with leasehold\nimprovements to our manufacturing space and $93,510 in D&O and medical insurance. We also had an increase in our utility expense of\n$31,924, largely as the result of our increased space under lease. These increases were offset by decreases in outside services of $65,377,\nlaboratory fees of $61,258 and decreases in office supplies and equipment of $32,154.\n\n\n\u00a0\n\n\nThe $914,002 increase in the\nfiscal year ended March 31, 2023 in our professional fees was primarily due to increases of $290,762 in legal expenses, $334,828 in contract\nlabor associated with product development and scientific analytical services, $176,443 in regulatory consulting, $39,999 in investor relations,\n$73,066 in recruiting expense and $16,250 in director fees, which were partially offset by a decrease in accounting fees of $16,601.\n\n\n\u00a0\n\n\nAs a result of the above factors,\nour net loss before noncontrolling interests increased to $12,029,786 for the fiscal year ended March 31, 2023, from $10,420,885 for the\nfiscal year ended March 31, 2022.\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\n\n\u00a0\n\n\nAs of March 31, 2023, we had\na cash balance of $14,532,943 and working capital of $13,585,477. This compares to a cash balance of $17,072,419 and working capital of\n$16,332,958 at March 31, 2022. We expect our existing cash as of March 31, 2023 to be sufficient to fund the Company\u2019s operations\nfor at least twelve months from the issuance date of this Annual Report.\n\n\n\u00a0\n\n\nThe primary sources of our\ncash from financing activities during the fiscal years ended March 31, 2023 and 2022 were sales of our common stock, as follows:\n\n\n\u00a0\n\n\nFinancings During the fiscal year ended March\n31, 2023:\n\n\n\u00a0\n\n\nDuring the fiscal year ended March 31, 2023, we\nraised capital only through our At The Market Offering Agreement, or the 2022 ATM Agreement, with H.C. Wainwright & Co., LLC, or Wainwright.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n52\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n2022 At The Market Offering Agreement with\nH.C. Wainwright & Co., LLC\n\n\n\u00a0\n\n\nOn March 24, 2022, we entered\ninto the 2022 ATM Agreement with Wainwright, which established an at-the-market equity program pursuant to which we may offer and sell\nshares of our common stock from time to time as set forth in the 2022 ATM Agreement.\n\n\n\u00a0\n\n\nThe offering was registered\nunder the Securities Act of 1933, as amended, or the Securities Act, pursuant to our shelf registration statement on Form S-3 (Registration\nStatement No. 333-259909), as previously filed with the SEC and declared effective on October 21, 2021. We filed a prospectus supplement,\ndated March 24, 2022, with the SEC that provides for the sale of shares of our common stock having an aggregate offering price of up to\n$15,000,000, or the 2022 ATM Shares.\n\n\n\u00a0\n\n\nUnder the 2022 ATM Agreement,\nWainwright may sell the 2022 ATM Shares by any method permitted by law and deemed to be an \u201cat the market offering\u201d as defined\nin Rule 415 promulgated under the Securities Act, including sales made directly on the Nasdaq Capital Market, or on any other existing\ntrading market for the 2022 ATM Shares. In addition, under the 2022 ATM Agreement, Wainwright may sell the 2022 ATM Shares in privately\nnegotiated transactions with our consent and in block transactions. Under certain circumstances, we may instruct Wainwright not to sell\nthe 2022 ATM Shares if the sales cannot be effected at or above the price designated by us from time to time.\n\n\n\u00a0\n\n\nWe are not obligated to make\nany sales of the 2022 ATM Shares under the 2022 ATM Agreement. The offering of the 2022 ATM Shares pursuant to the 2022 ATM Agreement\nwill terminate upon the termination of the 2022 ATM Agreement by Wainwright or us, as permitted therein.\n\n\n\u00a0\n\n\nThe 2022 ATM Agreement contains\ncustomary representations, warranties and agreements by us, and customary indemnification and contribution rights and obligations of the\nparties. We agreed to pay Wainwright a placement fee of up to 3.0% of the aggregate gross proceeds from each sale of the 2022 ATM Shares.\nWe also agreed to reimburse Wainwright for certain specified expenses in connection with entering into the 2022 ATM Agreement.\n\n\n\u00a0\n\n\nIn the fiscal year ended March\n31, 2023, we raised net proceeds of $8,927,211, net of $229,610 in commissions to Wainwright and $27,153 in other offering expense, through\nthe sale of 7,480,836 shares of our common stock at an average price of $1.19 per share under the 2022 ATM Agreement.\n\n\n\u00a0\n\n\nFinancings During the fiscal year ended March\n31, 2022:\n\n\n\u00a0\n\n\nDuring the fiscal year ended\nMarch 31, 2022, we raised capital through our 2021 ATM Agreement (as defined below) with Wainwright and in a registered direct financing\nthrough Maxim Group LLC.\n\n\n\u00a0\n\n\n2021 ATM Agreement\n\n\n\u00a0\n\n\nOn March 22, 2021, we entered\ninto an At the Market Offering Agreement, or the 2021 ATM Agreement, with Wainwright, as sales agent, pursuant to which we could offer\nand sell shares of our common stock, from time to time as set forth in the 2021 ATM Agreement.\n\n\n\u00a0\n\n\nThe offering was registered\nunder the Securities Act pursuant to our shelf registration statement on Form S-3 (Registration Statement No. 333-237269), as previously\nfiled with the SEC and declared effective on March 30, 2020. We filed a prospectus supplement, dated March 22, 2021, with the SEC in connection\nwith the offer and sale of the shares of common stock, pursuant to which we could offer and sell shares of common stock having an aggregate\noffering price of up to $5,080,000 from time to time.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n53\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nSubject to the terms and conditions\nset forth in the 2021 ATM Agreement, Wainwright agreed to use its commercially reasonable efforts consistent with its normal trading and\nsales practices to sell the shares under the 2021 ATM Agreement from time to time, based upon our instructions. We provided Wainwright\nwith customary indemnification rights under the 2021 ATM Agreement, and Wainwright was entitled to a commission at a fixed rate equal\nto up to three percent of the gross proceeds per share sold. In addition, we agreed to reimburse Wainwright for certain specified expenses\nin connection with entering into the 2021 ATM Agreement. The 2021 ATM Agreement provided that it would terminate upon the written termination\nby either party as permitted thereunder.\n\n\n\u00a0\n\n\nSales of the shares, under\nthe 2021 ATM Agreement are made in transactions that are deemed to be \u201cat the market offerings\u201d as defined in Rule 415 under\nthe Securities Act, including sales made by means of ordinary brokers\u2019 transactions, including on the Nasdaq Capital Market, at\nmarket prices or as otherwise agreed with Wainwright. The 2021 ATM Agreement provided that we have no obligation under the 2021 ATM Agreement\nto sell any of the shares, and, at any time, we could suspend offers under the 2021 ATM Agreement or terminate the agreement.\n\n\n\u00a0\n\n\nIn the fiscal year ended March\n31, 2022, we raised aggregate net proceeds under the 2021 ATM Agreement described above of $4,947,785, net of $126,922 in commissions\nto Wainwright and $2,154 in other offering expense, through the sale of 626,000 shares of our common stock at an average price of $7.90\nper share of net proceeds. No further sales may be made under the 2021 ATM Agreement.\n\n\n\u00a0\n\n\nRegistered Direct Financing\n\n\n\u00a0\n\n\nIn the fiscal year ended March\n31, 2022, we sold an aggregate of 1,380,555 shares of our common stock at a purchase price per share of $9.00, for aggregate net proceeds\nto us of $11,659,044, after deducting fees payable to Maxim Group LLC, the placement agent, and other offering expenses. These shares\nwere sold through a securities purchase agreement with certain institutional investors, The shares were issued pursuant to an effective\nshelf registration statement on Form S-3, which was originally filed with the SEC on March 19, 2020, and was declared effective on March\n30, 2020 (File No. 333-237269) and a prospectus supplement thereunder.\n\n\n\u00a0\n\n\nMaterial Cash Requirements \n\n\n\u00a0\n\n\nAs noted above in the results\nof operations, our clinical trial expense for the preparation for our planned oncology trial in Australia was $103,602 in the fiscal year\nended March 31, 2023. We expect our clinical trial expenses to continue to increase for the foreseeable future. Those increases in clinical\ntrial expenses include the cost of manufacturing additional Hemopurifiers for the planned clinical trials.\n\n\n\u00a0\n\n\nIn addition, we have entered\ninto leases for our new headquarters, laboratory and manufacturing facilities. As noted above in the results of operations, our rent expense\nincreased by $117,772 in the fiscal year ended March 31, 2023. We expect our rent expense to continue to increase for the foreseeable\nfuture.\n\n\n\u00a0\n\n\nFuture capital requirements\nwill depend upon many factors, including progress with pre-clinical testing and clinical trials, the number and breadth of our clinical\nprograms, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary\nrights, the time and costs involved in obtaining regulatory approvals, competing technological and market developments, as well as our\nability to establish collaborative arrangements, effective commercialization, marketing activities and other arrangements. We expect to\ncontinue to incur increasing negative cash flows and net losses for the foreseeable future. We will continue to need to raise additional\ncapital either through equity and/or debt financing for the foreseeable future.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n54\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAs a result of the COVID-19\npandemic and actions taken to slow its spread, global events, political changes, bank failures, actual or perceived changes in interest\nrates and economic inflation, the global credit and financial markets have experienced extreme volatility, including diminished liquidity\nand credit availability, declines in consumer confidence, declines in economic growth, increases in inflation and uncertainty about economic\nstability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions\nwill not occur. If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain,\nmore costly and/or more dilutive. Any of these actions could materially harm our business, results of operations and future prospects.\n\n\n\u00a0\n\n\nOur ability to raise additional\nfunds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and\nfinancial markets in the United States, including due to \nbank failures, actual or perceived changes\nin interest rates and economic inflation\n, and worldwide resulting from macroeconomic factors. Because of the numerous risks and\nuncertainties associated with product development, we cannot predict the timing or amount of increased expenses and we may never be profitable\nor generate positive cash flow from operating activities.\n\n\n\u00a0\n\n\nCash Flows\n\n\n\u00a0\n\n\nCash flows from operating,\ninvesting and financing activities, as reflected in the accompanying Consolidated Statements of Cash Flows, are summarized as follows\n(in thousands):\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFor the year ended\n\u00a0\n\n\n\n\n\u00a0\n\u00a0\n\n\nMarch 31, \n 2023\n\u00a0\n\u00a0\n\n\nMarch 31, \n 2022\n\u00a0\n\n\n\n\nCash (used in) provided by:\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\u00a0\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\nOperating activities\n\u00a0\n\n\n$\n(10,505\n)\n\u00a0\n\n\n$\n(9,767\n)\n\n\n\n\nInvesting activities\n\u00a0\n\n\n\u00a0\n(943\n)\n\u00a0\n\n\n\u00a0\n(349\n)\n\n\n\n\nFinancing activities\n\u00a0\n\n\n\u00a0\n8,915\n\u00a0\n\u00a0\n\n\n\u00a0\n17,368\n\u00a0\n\n\n\n\nNet (decrease) increase in cash\n\u00a0\n\n\n$\n(2,533\n)\n\u00a0\n\n\n$\n7,252\n\u00a0\n\n\n\n\n\u00a0\n\n\nNet Cash Used in Operating Activities\n\n\n\u00a0\n\n\nWe used cash in our operating\nactivities due to our losses from operations. Net cash used in operating activities was approximately $10,505,000 in fiscal 2023, compared\nto net cash used in operating activities of approximately $9,767,000 in fiscal 2022, an increase of approximately $738,000. The primary\nfactors in this $738,000 increase in cash used in operations in fiscal 2023 was a $1,613,695 increase in our net loss.\n\n\n\u00a0\n\n\nNet Cash Used in Investing Activities\n\n\n\u00a0\n\n\nDuring the fiscal years ended\nMarch 31, 2023 and 2022, we purchased approximately $943,000 and $349,000 of equipment, respectively.\n\n\n\u00a0\n\n\nNet Cash from Financing Activities\n\n\n\u00a0\n\n\nNet cash generated from financing\nactivities decreased from approximately $17,368,000 in the fiscal year ended March 31, 2022 to approximately $8,915,000 in the fiscal\nyear ended March 31, 2023.\n\n\n\u00a0\n\n\nIn the fiscal year ended March\n31, 2023, we raised approximately $8,927,000 from the issuance of common stock, which was partially offset by the use of approximately\n$12,000 to pay for the tax withholding on the issuance of restricted stock units, or RSUs. In the fiscal year ended March 31, 2022, we\nraised approximately $17,456,000 from the issuance of common stock, which was partially offset by the use of approximately $88,000 to\npay for the tax withholding on the issuance of RSUs.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n55\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCritical Accounting Policies and Significant Judgments and Estimates\n\n\n\u00a0\n\n\nThe preparation of consolidated\nfinancial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires us\nto make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent\nassets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of expenses\nduring the reporting period. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other\nfactors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ\nfrom these estimates under different future conditions. We believe that the estimates and assumptions that are most important to the portrayal\nof our financial condition and results of operations, in that they require the most difficult, subjective or complex judgments, form the\nbasis for the accounting policies deemed to be most critical to us. These critical accounting estimates relate to revenue recognition,\nstock purchase warrants issued with notes payable, beneficial conversion feature of convertible notes payable, impairment of intangible\nassets and long lived assets, stock compensation, deferred tax asset valuation allowance, and contingencies.\n\n\n\u00a0\n\n\nRevenue Recognition\n\n\n\u00a0\n\n\nOur revenues consist entirely\nof amounts earned under contracts and grants with the NIH. During the fiscal years ended March 31, 2023 and 2022, we recognized revenues\ntotaling $574,245 and $294,165, respectively, under such contracts. We have concluded that these agreements are not within the scope of\nASC Topic, 606, Revenue from Contracts with Customers, or Topic 606, as the NIH grants and contracts do not meet the definition of a \u201ccustomer\u201d\nas defined by Topic 606. Prior to the effective date of ASC Topic 606, which for the Company was April 1, 2018, we accounted for our grant/contract\nrevenues under the Milestone Method as prescribed by the legacy guidance of ASC 605-28, Revenue Recognition \u2013 Milestone Method,\nor the Milestone Method. In the absence of other applicable guidance under US GAAP, effective April 1, 2018, we elected to continue to\nuse the Milestone Method by analogy to recognize revenue under these grants/contracts.\n\n\n\u00a0\u00a0\n\n\nCommon Stock Warrants\n\n\n\u00a0\n\n\nIn the past, we have granted\nwarrants to purchase our common stock in connection with financing transactions. When such warrants are classified as equity, we measure\nthe relative estimated fair value of such warrants which represents a discount from the face amount of the notes payable. Such discounts\nare amortized to interest expense over the term of the notes. We analyze such warrants for classification as either equity or derivative\nliabilities and value them based on binomial lattice models.\n\n\n\u00a0\n\n\nShare-based Compensation\n\n\n\u00a0\n\n\nWe account for share-based\ncompensation awards using the fair-value method and record such expense based on the grant date fair value in the consolidated financial\nstatements over the requisite service period.\n\n\n\u00a0\n\n\nDerivative Instruments\n\n\n\u00a0\n\n\nWe evaluate free-standing\nderivative instruments (or embedded derivatives) to properly classify such instruments within equity or as liabilities in our financial\nstatements. Our policy is to settle instruments indexed to our common shares on a first-in-first-out basis.\n\n\n\u00a0\n\n\nThe classification of a derivative\ninstrument is reassessed at each reporting date. If the classification changes as a result of events during a reporting period, the instrument\nis reclassified as of the date of the event that caused the reclassification. There is no limit on the number of times a contract may\nbe reclassified.\n\n\n\u00a0\n\n\nInstruments classified as\nderivative liabilities are remeasured each reporting period (or upon reclassification) and the change in fair value is recorded on our\nconsolidated statement of operations in other expense (income). We had no derivative instruments at March 31, 2023 or March 31, 2022.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n56\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIncome Taxes\n\n\n\u00a0\n\n\nDeferred tax assets are recognized\nfor the future tax consequences attributable to the difference between the consolidated financial statements and their respective tax\nbasis. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities\nfor financial reporting purposes and the amounts reported for income tax purposes, and (b) tax credit carryforwards. We record a valuation\nallowance for deferred tax assets when, based on our best estimate of taxable income (if any) in the foreseeable future, it is more likely\nthan not that some portion of the deferred tax assets may not be realized.\n\n\n\u00a0\n\n\nConvertible Notes Payable \n\n\n\u00a0\n\n\nThere were no convertible\nnotes outstanding as of March 31, 2023 or 2022.\n\n\n\u00a0\n\n\nRSU Grants to Non-Employee Directors\n\n\n\u00a0\n\n\nThe Company maintains the\nDirector Compensation Policy which provides for cash and equity compensation for persons serving as non-employee directors of the Company.\nUnder this policy, each new director receives either stock options or a grant of RSUs upon appointment/election, as well as either an\nannual grant of stock options or of RSUs at the beginning of each fiscal year. The (i) stock options are subject to vesting and (ii) RSUs\nare subject to vesting and represent the right to be issued on a future date shares of our common stock upon vesting.\n\n\n\u00a0\n\n\nThe Compensation Committee\nof the Board of Directors of the Company, or Compensation Committee, approved, effective as of April 1, 2022, pursuant to the terms of\nthe Company\u2019s Amended and Restated Non-Employee Director Compensation Policy, or the Director Compensation Policy, the grant of\nthe annual RSUs to each of the two non-employee directors of the Company then serving on the Board of Directors of the Company, or Board,\nand the grant of an RSU for the then newly appointed director. The RSU grants were made subject to stockholder approval of an increase\nof 1,800,000 shares of common stock authorized for issuance under the Company\u2019s 2020 Equity Incentive Plan, or the 2020 Plan, at\nthe Company\u2019s 2022 annual meeting of stockholders. The increase was approved at the Company\u2019s 2022 annual meeting of stockholders\nheld in September 2022. The Director Compensation Policy provides for a grant of stock options or $50,000 worth of RSUs at the beginning\nof each fiscal year for current non-employee directors then serving on the Board and for a grant of stock options or $75,000 worth of\nRSUs for a newly elected director, with each RSU priced at the average for the closing prices for the five days preceding and including\nthe date of grant, or $1.46 per share as of April 1, 2022. The two then-current eligible directors each was granted a contingent RSU in\nthe amount of 34,247 shares under the 2020 Plan and the then newly appointed director received a contingent RSU grant for 51,370 shares\nunder the 2020 Plan. The RSUs were subject to vesting in three installments, 50% on September 30, 2022, and 25% on each of December 31,\n2022, and March 31, 2023, subject to the recipient's continued service with the Company on each such vesting date.\u00a0\n\n\n\u00a0\n\n\nThere were no vested RSUs\noutstanding as of March 31, 2023.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n57\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRecent Events \n\n\n\u00a0\n\n\nSales Under 2022 ATM Agreement\n\n\n\u00a0\n\n\nSubsequent to March 31, 2023,\nwe raised net proceeds of $1,086,119, net of $27,999 in commissions to Wainwright and $5,846 in other offering expense, through the sale\nof 1,778,901 shares of our common stock at an average price of $0.61 per share under the 2022 ATM Agreement.\n\n\n\u00a0\n\n\nRSU Grants\n\n\n\u00a0\n\n\nIn April 2023, the Compensation\nCommittee approved, pursuant to the terms of the Director Compensation Policy, the grant of the annual RSUs under the Director Compensation\nPolicy to each of the three non-employee directors of the Company then serving on the Board. The Director Compensation Policy provides\nfor a grant of stock options or $50,000 worth of RSUs at the beginning of each fiscal year for current directors then serving on the Board,\nand for a grant of stock options or $75,000 worth of RSUs for a newly elected director, with each RSU priced at the average for the closing\nprices for the five days preceding and including the date of grant, or $0.43 per share for the April 2023 RSU grants. As a result, in\nApril 2023 the three eligible directors each was granted an RSU in the amount of 116,279 shares under the 2020 Plan. The RSUs are subject\nto vesting in four equal installments, with 25% of the restricted stock units vesting on each of June 30, 2023, September 30, 2023, December\n31, 2023, and March 31, 2024, subject in each case to the director\u2019s Continuous Service (as defined in the 2020 Plan), through such\ndates. Vesting will terminate upon the director\u2019s termination of Continuous Service prior to any vesting date.\u00a0\n\n\n\n\n\u00a0\n\n",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\n\n\u00a0\n\n\nNot applicable to a \u201csmaller\nreporting company\u201d as defined under Item 10(f)(1) of Regulation S-K of the Securities Act.\n\n\n\u00a0\n\n",
+  "cik": "882291",
+  "cusip6": "00808Y",
+  "cusip": ["00808Y307"],
+  "names": ["AETHLON MED INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/882291/000168316823004487/0001683168-23-004487-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form10k/0001683168-23-005175.json b/GraphRAG/standalone/data/all/form10k/0001683168-23-005175.json
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index 0000000000..78c71516b7
--- /dev/null
+++ b/GraphRAG/standalone/data/all/form10k/0001683168-23-005175.json
@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1. BUSINESS.\n\n\n\u00a0\n\n\nWe are a biotechnology company focused on developing\ncellular therapies for cancer, diabetes, and malignant ascites based upon a proprietary cellulose-based live cell encapsulation technology\nknown as \u201cCell-in-a-Box\u00ae.\u201d The Cell-in-a-Box\u00ae technology is intended to be used as a platform upon which therapies\nfor several types of cancer, including LAPC, will be developed. The current generation of our product candidate is referred to as \u201cCypCaps\u2122.\u201d\n\n\n\u00a0\n\n\nOn August 15, 2022, we entered into a Cooperation\nAgreement (the \u201cCooperation Agreement\u201d) with Iroquois Master Fund Ltd. and its affiliates, pursuant to which we elected a\nreconstituted board of directors (the \u201cBoard\u201d). The Board then formed a Business Review Committee to evaluate, investigate\nand review our business, affairs, strategy, management and operations and in its sole discretion, to make recommendations to our management\nand Board with respect thereto. The Business Review Committee is also reviewing many of the risks relative to our business. In addition,\nthe Board is reviewing risks associated with our development programs and our relationship with SG Austria Pte. Ltd (\u201cSG Austria\u201d),\nincluding that all licensed patents have expired, that know-how relating to our Cell-in-a-Box\u00ae technology solely resides with SG Austria,\nand that the incentives of SG Austria and its management may not be currently aligned with ours. The Board has curtailed spending on our\nprograms, including pre-clinical and clinical activities, until the review by the Business Review Committee and the Board is complete\nand the Board has determined the actions and plans to be implemented. The Business Review Committee\u2019s recommendations will include\npotentially seeking a new framework for our relationship with SG Austria and its subsidiaries. If we are unsuccessful in seeking an acceptable\nnew framework, we will reevaluate whether we should continue those programs which are dependent on SG Austria, including our development\nprograms for locally advanced, inoperable, non-metastatic pancreatic cancer (\u201cLAPC\u201d), diabetes and malignant ascites. The\nissues involving SG Austria have delayed our timeline for addressing the FDA clinical hold for its planned clinical trial in LAPC and\ncould result in other delays or termination of the development activities. In addition, the curtailment of spending on our programs pending\nthe review by the Business Review Committee and the Board may cause additional delays.\n\n\n\u00a0\n\n\nThe Cell-in-a-Box\u00ae encapsulation technology\npotentially enables genetically engineered live human cells to be used as a means to produce various biologically active molecules. The\ntechnology is intended to result in the formation of pinhead-sized cellulose-based porous capsules in which genetically modified live\nhuman cells can be encapsulated and maintained. In a laboratory setting, this proprietary live cell encapsulation technology has been\nshown to create a micro-environment in which encapsulated cells survive and flourish. They are protected from environmental challenges,\nsuch as the sheer forces associated with bioreactors and passage through catheters and needles, which we believe enables greater cell\ngrowth and production of the active molecules. The capsules are largely composed of cellulose (cotton) and are bioinert.\n\n\n\u00a0\n\n\nWe have been developing therapies for pancreatic\nand other solid cancerous tumors by using genetically engineered live human cells that we believe are capable of converting a cancer prodrug\ninto its cancer-killing form. We encapsulate those cells using the Cell-in-a-Box\u00ae technology and place those capsules in the body\nas close as possible to the tumor. In this way, we believe that when a cancer prodrug is administered to a patient with a particular type\nof cancer that may be affected by the prodrug, the killing of the patient\u2019s cancerous tumor may be optimized.\n\n\n\u00a0\n\n\nWe have also been developing a way to delay the\nproduction and accumulation of malignant ascites that results from many types of abdominal cancerous tumors. Our potential therapy for\nmalignant ascites involves using the same encapsulated cells we employ for pancreatic cancer but placing the encapsulated cells in the\nperitoneal cavity of a patient and administering ifosfamide intravenously.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n1\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe have also been developing a potential therapy\nfor Type 1 diabetes and insulin-dependent Type 2 diabetes. Our product candidate for the treatment of diabetes consists of encapsulated\ngenetically modified insulin-producing cells. The encapsulation will be done using the Cell-in-a-Box\u00ae technology. Implanting these\nencapsulated cells in the body is designed to have them function as a bio-artificial pancreas for purposes of insulin production.\n\n\n\u00a0\n\n\nIn addition to the two cancer programs discussed\nabove, we have been working on ways to exploit the benefits of the Cell-in-a-Box\u00ae technology to develop therapies for cancer that\ninvolve prodrugs based upon certain constituents of the Cannabis plant. However, until the FDA allows us to commence our clinical trial\nin LAPC and we are able to validate our Cell-in-a-Box\u00ae encapsulation technology in a clinical trial, we are not spending any further\nresources developing our Cannabis Program.\n\n\n\u00a0\n\n\nFinally, we have been developing a potential therapy\nfor Type 1 diabetes and insulin-dependent Type 2 diabetes. Our product candidate for the treatment of diabetes consists of encapsulated\ngenetically modified insulin-producing cells. The encapsulation will be done using the Cell-in-a-Box\u00ae technology. Implanting these\nencapsulated cells in the body is designed to have them function as a bio-artificial pancreas for purposes of insulin production.\n\n\n\u00a0\n\n\nUntil the Business Review Committee completes\nits evaluation of our programs and we enter into a new framework for its relationship with SG Austria, spending on our development programs\nhas been curtailed.\n\n\n\u00a0\n\n\nInvestigational New Drug Application and Clinical\nHold\n\n\n\u00a0\n\n\nOn September 1, 2020, we submitted an IND to the\nFDA for a planned clinical trial in LAPC. On October 1, 2020, we received notice from the FDA that it had placed our IND on clinical hold.\nOn October 30, 2020, the FDA sent us a letter setting forth the reasons for the clinical hold and providing specific guidance on what\nwe must do to have the clinical hold lifted.\n\n\n\u00a0\n\n\nIn order to address the clinical hold, the FDA\nhas requested that we:\n\n\n\u00a0\n\n\n\n\n\u00b7\nProvide additional sequencing data and genetic\nstability studies;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nConduct a stability study on our final formulated\nproduct candidate as well as the cells from our Master Cell Bank (\u201cMCB\u201d);\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nEvaluate the compatibility of the delivery devices\n(the prefilled syringe and the microcatheter used to implant the CypCaps\u2122) with our product candidate for pancreatic cancer;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nProvide additional detailed description of the\nmanufacturing process of our product candidate for pancreatic cancer;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nProvide additional product release specifications\nfor our encapsulated cells;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nDemonstrate comparability between the 1st and\n2nd generation of our product candidate for pancreatic cancer and ensure adequate and consistent product performance and safety between\nthe two generations;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nConduct a biocompatibility assessment using the\ncapsules material;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nAddress specified insufficiencies in the Chemistry,\nManufacturing and Controls information in the cross-referenced Drug Master File;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nConduct an additional nonclinical study in a\nlarge animal (such as a pig) to assess the safety, activity, and distribution of the product candidate for pancreatic cancer; and\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nRevise the Investigators Brochure to include\nany additional preclinical studies conducted in response to the clinical hold and remove any statements not supported by the data we generated.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n2\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nThe FDA also requested that we address the following\nissues as an amendment to our IND:\n\n\n\u00a0\n\n\n\n\n\u00b7\nProvide a Certificate of Analysis for pc3/2B1\nplasmid that includes tests for assessing purity, safety, and potency;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nPerform qualification studies for the drug substance\nfilling step to ensure that the product candidate for pancreatic cancer remains sterile and stable during the filling process;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nSubmit an updated batch analysis for the product\ncandidate for the specific lot that will be used for manufacturing all future product candidates;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nProvide additional details for the methodology\nfor the Resorufin (CYP2B1) potency and the PrestoBlue cell metabolic assays;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nProvide a few examples of common microcatheters\nthat fit the specifications in our Angiography Procedure Manual;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nClarify the language in our Pharmacy Manual regarding\nproper use of the syringe fill with the product candidate for pancreatic cancer; and\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nProvide a discussion with data for trial of the\npotential for cellular and humoral immune reactivity against the heterologous rat CYP2B1 protein and potential for induction of autoimmune-mediated\ntoxicities in our study population.\n\n\n\u00a0\n\n\nWe assembled a scientific and regulatory team\nof experts to address the FDA requests. That team has been working diligently to complete the items requested by the FDA. We are in the\nlatter stages of conducting the studies and providing the information requested by the FDA. We have completed the pilot study of two pigs\nand are evaluating the preliminary data before it commences the larger study of 90 pigs.\n\n\n\u00a0\n\n\nThe following provides a detailed summary of our\nactivities to have the clinical hold lifted:\n\n\n\u00a0\n\n\n\n\n\u00b7\nAdditional Regulatory Expertise Added to IND\nTeam\n. In addition to \u200cour existing team of regulatory experts, we retained Biologics Consulting to perform a regulatory \u201cGap\nAnalysis\u201d and to assist us with our resubmission of the IND. Biologics Consulting is a full-service regulatory and product development\nconsulting firm for biologics, pharmaceuticals and medical devices and has personnel with extensive FDA experience.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nStability Studies on Our Clinical Trial Product\nCandidate for Pancreatic Cancer\n. We have successfully completed the required product stability studies. The timepoints were 3, 6,\n9, 12, 18 and 24 months of our product candidate for pancreatic cancer being stored frozen at -80C. These studies included container closure\nintegrity testing for certain timepoints.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nAdditional Studies Requested by the FDA\n.\nWe have successfully completed various additional studies requested by the FDA, including a stability study on the cells from our MCB\nused to make our CypCaps\u2122. We are already at the 36-month stability timepoint for the cells from our MCB. We are also collating\nexisting information on the reproducibility and quality of the filling of the MCB cells into vials ready for CypCaps\u2122 manufacturing.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nDetermination of the Exact Sequence of the\nCytochrome P450 2B1 Gene\n. We have completed the determination of the exact sequence of the cytochrome P450 2B1 gene inserted at the\nsite previously identified on chromosome 9 using state-of-the-art nanopore sequencing. This is a cutting edge, unique and scalable technology\nthat permits real-time analysis of long DNA fragments. The result of this analysis of the sequence data confirmed that the genes are intact.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n3\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\u00b7\nConfirmation of the Exact Sequence of the\nCytochrome P450 2B1 Gene Insert\n. An additional, more detailed analysis of the integration site of the cytochrome P450 2B1 gene from\nthe augmented HEK293 cell clone that is used in our CypCaps\u2122 was found to be intact. In this new study, we were able to confirm\nthe previously determined structure of the integrated transgene sequence using more data points. These studies also set the stage for\na next step analysis to determine the genetic stability of the cytochrome P450 2B1 gene at the DNA level after multiple rounds of cell\ngrowth. This new study has been completed in which our original Research Cell Bank (\u201cRCB\u201d) cells were compared with cells\nfrom the MCB. The analysis confirmed that the cytochrome P450 2B1 and the surrounding sequence has remained stable with no changes detected\nat the DNA level.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nBiocompatibility Studies\n. We have been\ninvolved with 10 biocompatibility studies requested by the FDA, eight of which have been completed successfully. The remaining studies\nare underway or about to start. The Acute Systemic Toxicity Study of Empty Cellulose Sulphate Capsules in Mice is underway. The Skin Sensitization\nStudy of Empty Cellulose Sulphate Capsules in Guinea Pigs is about to start. These last two studies \u200cshould be completed well before\nthe pig study (see below) is completed. To enable the biocompatibility studies to be performed, we had Austrianova Singapore Pte. Ltd.\n(\u201cAustrianova\u201d) manufacture an additional 400 syringes of empty capsules.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nSystemic Toxicity Testing\n. We evaluated\nthe potential toxicity of the capsule component of our product candidate for pancreatic cancer\u200c and determined there is no evidence\nof toxicity in any of the parameters examined. The study also confirmed previous data that shows our capsule material is bioinert.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nMicro-Compression and Swelling Testing\n.\nThis testing is underway. We are developing and optimizing two reproducible methods for testing and confirming the physical stability\nand integrity of our CypCaps\u2122 under extreme pressure. These studies required the acquisition of new equipment by Austrianova as\nwell as validation and integration into Austrianova\u2019s Quality Control laboratory.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nBreak Force and Glide Testing\n. We are\nin the process of developing a protocol to measure whether the syringe, attached to the catheter when used to expel the capsules, will\nstill have a break and glide force that is within the specifications we have established. We are setting the specifications based on the\nsyringe/plunger manufacturer\u2019s measured break and glide forces, or alternatively, accepted ranges for glide forces routinely used\nin the clinic.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nCapsules Compatibility with the Syringe and\nOther Components of the Microcatheter Delivery System\n. We are in the process of showing that CypCaps\u2122 are not in any way adversely\naffected by the catheters used by interventional radiologists to deliver them into a patient. Compatibility data is being generated to\ndemonstrate that the quality of the CypCaps\u2122 is maintained after passage through the planned microcatheter systems.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nCypCaps Capsules and Cell Viability after\nExposure to Contrast Medium\n. We have commenced testing to show that exposure of CypCaps\u2122 to the contrast medium interventional\nradiologists \u200cused to implant the CypCaps\u2122 in a patient has no adverse effect on CypCaps\u2122. Contrast medium is used to\nvisualize the blood vessels during implantation.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nMaster Drug File Information\n. Austrianova\nis providing additional detailed confidential information on the manufacturing process, including information on the improvements and\nadvancements made to our product candidate for pancreatic cancer since the last clinical trials were conducted with respect to reproducibility\nand safety. However, Austrianova has not changed the overall physical characteristics of CypCaps\u2122 between the 1st and 2nd generations.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nAdditional Documentation Requested by the\nFDA\n. We are in the process of updating our IND submission documentation, including our discussion on immunological aspects of our\ntreatment for LAPC.\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nPig Study\n. We have commenced a study in\npigs to address biocompatibility and long-term implantation and dispersion of CypCaps\u2122. The study has two phases: (i) a pilot study\nwith 2 pigs; and (ii) a 90-pig study. The first phase has been completed and we are evaluating preliminary data. We believe this study\nshould complement the positive data already available from the previous human clinical trials showing the safety of CypCaps\u2122 implantation\nin human patients. The second phase of the pig study may be delayed as a result of supply chain problems, production delays at Austrianova,\nand to our curtailment of spending pending review of our programs by the Business Review Committee and the reconstituted Board, including\nseeking a new framework for its relationship with SG Austria and its subsidiaries.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n4\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nHistory of the Business\n\n\n\u00a0\n\n\nIn 2013, we restructured\nour operations to focus on biotechnology. On January 6, 2015, we changed our name from \u201cNuvilex, Inc.\u201d to \u201cPharmaCyte\nBiotech, Inc.\u201d to reflect the nature of our business.\n\n\n\u00a0\n\n\nWe are a biotechnology\ncompany focused on developing and preparing to commercialize cellular therapies for cancer, diabetes, and malignant ascites using our\nlive cell encapsulation technology. This resulted from entering into the following agreements.\n\n\n\u00a0\n\n\nCommencing in May 2011,\nwe entered into a series of agreements and amendments with SG Austria Pte. Ltd. (\u201cSG Austria\u201d) to acquire certain assets from\nSG Austria as well as an exclusive, worldwide license to use, with a right to sublicense, the Cell-in-a-Box\u00ae\u00a0technology and trademark\nfor the development of therapies for cancer (\u201cSG Austria APA\u201d).\n\n\n\u00a0\n\n\nIn June 2013, we and\nSG Austria entered a Third Addendum to the SG Austria APA (\u201cThird Addendum\u201d). The Third Addendum materially changed the transaction\ncontemplated by the SG Austria APA. Under the Third Addendum, we acquired 100% of the equity interests in Bio Blue Bird and received a\n14.5% equity interest in SG Austria. We paid: (i) $500,000 to retire all outstanding debt of Bio Blue Bird; and (ii) $1.0 million to SG\nAustria. We also paid SG Austria $1,572,193 in exchange for a 14.5% equity interest of SG Austria. The transaction required SG Austria\nto return to us the 66,667 shares of our common stock held by SG Austria and for us to return to SG Austria the 67 shares of common stock\nof Austrianova we held.\n\n\n\u00a0\n\n\nEffective as of the same\ndate we entered the Third Addendum, we and SG Austria also entered a Clarification Agreement to the Third Addendum (\u201cClarification\nAgreement\u201d) to clarify and include certain language that was inadvertently left out of the Third Addendum. Among other things, the\nClarification Agreement confirmed that the Third Addendum granted us an exclusive, worldwide license to use, with a right to sublicense,\nthe Cell-in-a-Box\u00ae\u00a0technology and trademark for the development of therapies for cancer.\n\n\n\u00a0\n\n\nWith respect to Bio Blue\nBird, Bavarian Nordic A/S (\u201cBavarian Nordic\u201d) and GSF-Forschungszentrum f\u00fcr Umwelt u. Gesundheit GmbH (collectively,\n\u201cBavarian Nordic/GSF\u201d) and Bio Blue Bird entered into a non-exclusive License Agreement (\u201cBavarian Nordic/GSF License\nAgreement\u201d) in July 2005, whereby Bio Blue Bird was granted a non-exclusive license to further develop, make, have made (including\nservices under contract for Bio Blue Bird or a sub-licensee, by Contract Manufacturing Organizations, Contract Research Organizations,\nConsultants, Logistics Companies or others), obtain marketing approval, sell and offer for sale the clinical data generated from the pancreatic\ncancer clinical trials that used the cells and capsules developed by Bavarian Nordic/GSF (then known as \u201cCapCells\u2122\u201d)\nor otherwise use the licensed patent rights related thereto in the countries in which patents had been granted. Bio Blue Bird was required\nto pay Bavarian Nordic a royalty of 3% of the net sales value of each licensed product sold by Bio Blue Bird and/or its Affiliates and/or\nits sub-licensees to a buyer. The term of the Bavarian Nordic/GSF License Agreement continued on a country-by-country basis until the\nexpiration of the last valid claim of the licensed patent rights.\n\n\n\u00a0\n\n\nBavarian Nordic/GSF and\nBio Blue Bird amended the Bavarian Nordic License Agreement in December 2006 (\u201cFirst Amendment to Bavarian Nordic/GSF License Agreement\u201d)\nto reflect that: (i) the license granted was exclusive; (ii) a royalty rate increased from 3% to 4.5%; (iii) Bio Blue Bird assumed the\npatent prosecution expenses for the existing patents; and (iv) to make clear that the license will survive as a license granted by one\nof the licensors if the other licensor rejects performance under the Bavarian Nordic License Agreement due to any actions or declarations\nof insolvency.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n5\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn June 2013, we acquired\nfrom Austrianova an exclusive, worldwide license to use the Cell-in-a-Box\u00ae\u00a0technology and trademark for the development of a\ntherapy for Type 1 and insulin-dependent Type 2 diabetes (\u201cDiabetes Licensing Agreement\u201d). This allows us to develop a therapy\nto treat diabetes through encapsulation of a human cell line that has been genetically modified to produce, store and release insulin\nin response to the levels of blood sugar in the human body.\n\n\n\u00a0\n\n\nIn October 2014, we entered\ninto an exclusive, worldwide license agreement with the UTS (\u201cMelligen Cell License Agreement\u201d) in Australia to use insulin-producing\ngenetically engineered human liver cells developed by UTS to treat Type 1 diabetes and insulin-dependent Type 2 diabetes. These cells,\nnamed \u201cMelligen,\u201d were tested by UTS in mice and shown to produce insulin in direct proportion to the amount of glucose in\ntheir surroundings. In those studies, when Melligen cells were transplanted into immunosuppressed diabetic mice, the blood glucose levels\nof the mice became normal. In other words, the Melligen cells reportedly reversed the diabetic condition.\n\n\n\u00a0\n\n\nIn December 2014, we\nacquired from Austrianova an exclusive, worldwide license to use the Cell-in-a-Box\u00ae\u00a0technology and trademark in combination with\ngenetically modified non-stem cell lines which are designed to activate cannabinoid prodrug molecules for development of therapies for\ndiseases and their related symptoms using of the Cell-in-a-Box\u00ae\u00a0technology and trademark (\u201cCannabis Licensing Agreement\u201d).\nThis allows us to develop a therapy to treat cancer and other diseases and symptoms through encapsulation of genetically modified cells\ndesigned to convert cannabinoids to their active form using the Cell-in-a-Box\u00ae\u00a0technology and trademark.\n\n\n\u00a0\n\n\nIn July 2016, we entered\ninto a Binding Memorandum of Understanding with Austrianova (\u201cAustrianova MOU\u201d). Pursuant to the Austrianova MOU, Austrianova\nwill actively work with us to seek an investment partner or partners who will finance clinical trials and further develop products for\nour therapy for cancer, in exchange for which we, Austrianova and any future investment partner will each receive a portion of the net\nrevenue from the sale of cancer products.\n\n\nIn October 2016, Bavarian\nNordic/GSF and Bio Blue Bird further amended the Bavarian Nordic License Agreement (\u201cSecond Amendment to Bavarian Nordic/GSF License\nAgreement\u201d) in order to: (i) include the right to import in the scope of the license; (ii) reflect ownership and notification of\nimprovements; (iii) clarify which provisions survive expiration or termination of the Bavarian Nordic License Agreement; (iv) provide\nrights to Bio Blue Bird to the clinical data after the expiration of the licensed patent rights; and (v) change the notice address and\nrecipients of Bio Blue Bird.\n\n\n\u00a0\n\n\nIn May 2018, we entered\ninto a series of binding term sheet amendments (\u201cBinding Term Sheet Amendments\u201d). The Binding Term Sheet Amendments provide\nthat our obligation to make milestone payments to Austrianova is eliminated in their entirety under the: (i) Cannabis License Agreement;\nand (ii) the Diabetes License Agreement, as amended. The Binding Term Sheet Amendments also provide that our obligation to make milestone\npayments to SG Austria for therapies for cancer be eliminated in their entirety. In addition, the Binding Term Sheet Amendments also provides\nthat the scope of the Diabetes License Agreement is expanded to include all cell types and cell lines of any kind or description now or\nlater identified, including, but not limited to, primary cells, mortal cells, immortal cells and stem cells at all stages of differentiation\nand from any source specifically designed to produce insulin for the treatment of diabetes.\n\n\n\u00a0\n\n\nIn addition, one of the\nBinding Term Sheet Amendments provides that we will have a 5-year right of first refusal from August 30, 2017 in the event that Austrianova\nchooses to sell, transfer or assign at any time during this period the Cell-in-a-Box\u00ae\u00a0technology, tradename and Associated Technologies\n(defined below), intellectual property, trade secrets and know-how, which includes the right to purchase any manufacturing facility used\nfor the Cell-in-a-Box\u00ae\u00a0encapsulation process and a non-exclusive license to use the special cellulose sulfate utilized with the\nCell-in-a-Box\u00ae\u00a0encapsulation process (collectively, \u201cAssociated Technologies\u201d); provided, however, that the Associated\nTechnologies subject to the right of first refusal do not include Bac-in-a-Box\u00ae\u00a0(which is used to encapsulate bacteria). Additionally,\nfor a period of one year from August 30, 2017 one of the Binding Term Sheet Amendments provides that Austrianova will not solicit, negotiate\nor entertain any inquiry regarding the potential acquisition of the Cell-in-a-Box\u00ae\u00a0and its Associated Technologies.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n6\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe Binding Term Sheet\nAmendments further provide that: (i) the royalty payments on gross sales as specified in the SG Austria APA, the Cannabis License Agreement\nand the Diabetes License Agreement are changed to 4%; and (ii) the royalty payments on amounts received by us from sublicensees on sublicensees\u2019\ngross sales under the same agreements are changed to 20% of the amount received us from our sublicensees, provided, however,\u00a0that\nin the event the amounts received by us from sublicensees is 4% or less of sublicensees\u2019 gross sales, Austrianova will receive 50%\nof what we receive (up to 2%) and then additionally 20% of any amount we receive over that 4%.\n\n\n\u00a0\n\n\nOne of the Binding Term\nSheet Amendments requires that we pay $900,000 to Austrianova ratably over a nine-month period in the amount of two $50,000 payments each\nmonth during the nine-month period on the days of the month to be agreed upon between the parties, with a cure period of 20 calendar days\nafter receipt by us of written notice from Austrianova that we have failed to pay timely a monthly payment. As of April 30, 2020, the\n$900,000 amount has been paid in full. The Binding Term Sheet Amendments also provide that Austrianova receives 50% of any other financial\nand non-financial consideration received from our sublicensees of the Cell-in-a-Box\u00ae\u00a0technology.\n\n\n\u00a0\n\n\nImpact of the COVID-19 Pandemic on Operations\n\n\n\u00a0\n\n\nIn March 2020, the World\nHealth Organization declared an outbreak of COVID-19 as a pandemic, and the world\u2019s economies have experienced pronounced effects.\nDespite the multiple COVID-19 vaccines globally, there remains uncertainty around the extent and duration of disruption and any future\nrelated financial impact cannot reasonably be estimated at this time. COVID-19 has caused and may continue to cause significant, industry-wide\ndelays in clinical trials. Although we are not yet in a clinical trial, we have filed an IND with the FDA to commence a clinical trial\nin LAPC, and this clinical trial may experience delays relating to COVID-19 once commenced, including but not limited to: (i) delays or\ndifficulties in enrolling patients in our clinical trial if the FDA allows us to go forward with the trial; (ii) delays or difficulties\nin clinical site activation, including difficulties in recruiting clinical site investigators and clinical site personnel; (iii) delays\nin clinical sites receiving the supplies and materials needed to conduct the clinical trial, including interruption in global shipping\nthat may affect the transport of our clinical trial product; (iv) changes in local regulations as part of a response to COVID-19 which\nmay require us to change the ways in which its clinical trial is to be conducted, which may result in unexpected costs, or to discontinue\nthe clinical trial altogether; (v) diversion of healthcare resources away from the conduct of clinical trials, including the diversion\nof hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trial; (vi) interruption of key\nclinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state\ngovernments, employers and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which could\naffect the integrity of clinical trial data; (vii) risk that participants enrolled in our clinical trials will acquire COVID-19 while\nthe clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse\nevents; (viii) delays in necessary interactions with local regulators, ethics committees, and other important agencies and contractors\ndue to limitations in employee resources or forced furlough of government employees; (ix) limitations in employee resources that would\notherwise be focused on the conduct of our clinical trial because of sickness of employees or their families or the desire of employees\nto avoid contact with large groups of people; (x) refusal of the FDA to accept data from clinical trials in affected geographies; and\n(xi) interruption or delays to our clinical trial activities. Many of these potential delays may be exacerbated by the impact of COVID-19\nin foreign countries where we are conducting these preclinical studies, including India, Europe, Singapore and Thailand.\n\n\n\u00a0\n\n\nFurther, the various\nprecautionary measures taken by many governmental authorities around the world in order to limit the spread of COVID-19 has had and may\ncontinue to have an adverse effect on the global markets and global economy, including on the availability and pricing of employees, resources,\nmaterials, manufacturing and delivery efforts and other aspects of the global economy. COVID-19 could materially disrupt our business\nand operations, hamper its ability to raise additional funds or sell securities, continue to slow down the overall economy, curtail consumer\nspending, interrupt our supply chain, and make it hard to adequately staff our operations.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n7\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nMarket Opportunity\nand Competitive Landscape\n\n\n\u00a0\n\n\nThe three areas we are\ndeveloping for live cell encapsulation-based therapies are cancer, diabetes and malignant ascites.\n\n\n\u00a0\n\n\nThe Cell-in-a-Box\n\u00ae\u00a0\ncapsules\nare comprised of cotton\u2019s natural component \u2013 cellulose. Other materials used by competitors include alginate, collagen, chitosan,\ngelatin and agarose. Alginate appears to be the most widely used of these. We believe the inherent strength and durability of our cellulose-based\ncapsules provides us with advantages over the competition. They do so with no evidence of rupture, damage, degradation, fibrous overgrowth\nor immune system response. The cells within the capsules also remained alive and functioning during these studies. Other encapsulating\nmaterials degrade in the human body over time, leaving the encapsulated cells open to immune system attack. Damage to surrounding tissues\nhas also been reported to occur over time when other types of encapsulation materials begin to degrade.\n\n\n\u00a0\n\n\nThe cells encapsulated\nusing the Cell-in-a-Box\n\u00ae\n\u00a0technology can be frozen for extended periods of time. When thawed, the cells are recovered\nwith approximately 85% viability. We are unaware of any other cell encapsulation material that is capable of protecting their encapsulated\ncells to this degree. The implications of this property of the Cell-in-a-Box\n\u00ae\u00a0\ntechnology are obvious \u2013 long-term\nstorage of encapsulated cells and shipment of encapsulated cells over long distances.\n\n\n\u00a0\n\n\nWe believe our live cell\nencapsulation technology may have significant new advantages and opportunities for us in numerous and developing ways. For example:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nCancerous diseases may be treated by placing encapsulated drug-converting cells that convert a chemotherapy prodrug near the cancerous tumor;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nConfinement and maintenance of therapeutic cells that activate a chemotherapy prodrug may be placed at the site of implantation in a blood vessel near the cancerous tumor results in \u201ctargeted chemotherapy\u201d;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nIncreased efficacy of a chemotherapy prodrug may allow for lower doses of the prodrug to be given to a patient, significantly reducing or even eliminating side effects from the chemotherapy;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nEncapsulating genetically modified live cells has the potential for the treatment of systemic diseases of various types, including diabetes;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nMulti-layered trade secret protection and marketing exclusivity for our technology exists and is being expanded;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nCell-in-a-Box\n\u00ae\n\u00a0capsules can prevent immune system attack of functional cells inside them without the need for immunosuppressive drug therapy; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nPromising data with the Cell-in-a-Box\n\u00ae\n\u00a0technology and the cells used with our technology from animal and initial human clinical trials.\n\n\n\n\n\u00a0\n\n\nPancreatic cancer is\nincreasing in most industrialized countries. The American Cancer Society estimates that in 2022 there will be 62,210 people in the U.S.\ndiagnosed with pancreatic cancer. It also estimates 48,830 patients with pancreatic cancer will die in 2022. Pancreatic cancer accounts\nfor about 3% of all cancers in the U.S. and about 7% of all cancer deaths.\n\n\n\u00a0\n\n\nOur goal is to satisfy\na clear unmet medical need for patients with LAPC whose tumors no longer respond after 4-6 months of treatment with the chemotherapy combination\nof Abraxane\n\u00ae\u00a0\nplus gemcitabine or the four-drug combination known as FOLFIRINOX. For these patients, there is currently\nno effective therapy. We believe there will be no therapy comparable to our Cell-in-a-Box\n\u00ae\u00a0\nplus low dose of ifosfamide\ncombination therapy when it is used in these patients.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n8\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe face intense competition\nin the field of treating pancreatic cancer. There are dozens of startups, smaller biotech companies, big pharma, and several academic\ninstitutions and cancer centers all trying to improve the outcome for pancreatic cancer patients. For example, in a single patient case\nreport published June 2022 in the New England Journal of Medicine, a study funded by the Providence Portland Medical Foundation in conjunction\nwith the Earle A. Chiles Research Institute reported objective regression of metastatic pancreatic cancer using genetically-engineered\nautologous T cells. There are several drugs already available and in the pipelines of pharmaceutical companies worldwide, not the least\nof which is the combination of the drugs of Abraxane\n\u00ae\u00a0\nand gemcitabine. This is the primary FDA-approved combination\nof drugs for treating advanced pancreatic cancer. In Europe and in the U.S., the 4-drug combination FOLFIRINOX has also found use as a\nfirst-line treatment for advanced pancreatic cancer. Some of our competitive strengths include the Orphan Drug Designation we have been\ngranted by the FDA and the European Medicines Agency for our pancreatic cancer therapy, our trade secrets, the patents we are seeking\nand the licensing agreements we have that are described in this Report. Yet many of our competitors have substantially greater financial\nand marketing resources than we do. They also have stronger name recognition, better brand loyalty and long-standing relationships with\ncustomers and suppliers. Our future success will be dependent upon our ability to compete.\n\n\n\u00a0\n\n\nWe believe our product\ncandidate for pancreatic cancer has already shown promise through the completion of a Phase 1/2 and a Phase 2 clinical trial in advanced,\ninoperable pancreatic cancer carried out in Europe by Bavarian Nordic in 1998 \u2013 1999 and 2000, respectively.\n\n\n\u00a0\n\n\nWe have a number of competitors\ndeveloping\u00a0\nCannabis\n-based treatments for cancer. In February 2021, Jazz Pharmaceuticals Public Limited Company (\u201cJazz\u201d),\na neuroscience and oncology focused company, acquired GW Pharmaceuticals, PLC for $7.2 billion. Jazz now has two approved cannabinoid\nextract-based products: Epidiolex\n\u00ae\n\u00a0(CBD) oral solution for the treatment of seizures associated with Lennox-Gastaut\nsyndrome, Dravet syndrome or tuberous sclerosis complex, and Sativex\n\u00ae\n\u00a0(THC/CBD) oromucosal spray for the treatment\nof severe multiple sclerosis spasticity. Sativex\n\u00ae\n\u00a0is currently being studied in conjunction with the Brain Tumour\nCharity and the UK National Health Service to examine effectiveness in the treatment of recurrent glioblastoma brain tumor when used alongside\nthe chemotherapeutic agent temozolomide. Jazz\u2019s pipeline indications include: neonatal hypoxic-ischemic encephalopathy, neuropsychiatry\ntargets, autism spectrum disorders, epilepsy, spasticity and undisclosed targets. Cannabis Science, Inc. (\u201cCBIS\u201d) has a number\nof indications in its product development pipeline, all pre-clinical, the most advanced being for the treatment of oxidative stress, psychosis/anxiety,\nPTSD, and sleep deprivation. CBIS also has plans to develop treatments for Stage 4 lung cancer and pancreatic cancer. CNBX Pharmaceuticals\nInc. (previously Cannabics Pharmaceuticals, Inc.) (\u201cCNBX\u201d) has a primary research focus on the development of cannabinoid\ntherapies for the treatment of cancer, mainly cancers of the gastrointestinal tract, skin, breast and prostate. CNBX\u2019s other\u00a0\nCannabis\n-based\nareas of research include Alzheimer\u2019s disease, mental health conditions, and auto-immune diseases. Cannabotech Ltd. (\u201cCannabotech\u201d),\nan Israeli company, in collaboration with Haifa University, is studying an improved method for killing pancreatic and colon cancer cells\nusing a botanical drug based on an extract of the\u00a0\nCyathus striatus\n\u00a0fungus and a cannabinoid extract. Cannabotech is also\ndeveloping therapies for breast, lung and prostate cancers.\n\n\n\u00a0\n\n\nIn contrast to the work\nbeing done by these companies, we plan to focus on developing specific therapies based on chosen molecules rather than using\u00a0\nCannabis\n\u00a0extracts.\nWe intend to use the Cell-in-a-Box\n\u00ae\n\u00a0technology in combination with genetically-modified cell lines designed to activate\ncannabinoid molecules for the targeted treatment of diseases and their related symptoms.\n\n\n\u00a0\n\n\nThe Centers for Disease\nControl and Prevention estimates that in 2022 a total of 37.3 million people in the U.S. have been diagnosed with diabetes (11.3% of the\nU.S. population) and another 8.5 million people (23.0% of adults) are undiagnosed. The diabetes market is estimated in the tens of billions\nof dollars, and it continues to grow.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n9\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe field of diabetes cell therapy development\nis very competitive. There are numerous companies developing cell-based therapies for diabetes. These competitors include companies such\nas ViaCyte, Inc. which has two stem cell-based product candidates in Phase 1/2 clinical trials for type 1 diabetes: PEC-Direct, which\nis a pouch that is \u201copen\u201d to the surrounding vasculature and requires the use of immunosuppressive drugs, and PEC-Encap, which\nis a pouch that contains the implanted cells and prevents contact with the vasculature and immune cells but still allows passage of nutrients\nand proteins to travel between the cells inside the device and blood vessels which grow along the outside of the device. PEC-Encap is\nreported to generally prevent immune rejection and immune sensitization. Conceptually, PEC-Encap has similarities with Cell-in-a-Box\u00ae.\nOther companies developing some form of encapsulation-based diabetes therapy include Vertex Pharmaceuticals Inc., Defymed, Diatranz Otsuka\nLimited, Seraxis, Inc., Unicyte AG, Sernova Corp., Betalin Therapeutics Ltd., Novo Nordisk, Beta-O2 Technologies Ltd., Eli Lilly &\nCo. in collaboration with Sigilon Therapeutics, Inc. and the Diabetes Research Institute Foundation.\n\n\n\u00a0\n\n\nAlthough such competition exists in the diabetes\nspace, we believe these other companies are developing encapsulation-based therapies using materials and methodologies that produce capsules\nor devices that are far less robust than ours or that are associated with other problems, such as extremely short shelf-life of the product\nand/or fibrotic overgrowth of their encapsulation products when implanted in the body. We believe these properties are not characteristic\nof the Cell-in-a-Box\u00ae\u00a0capsules. Our product candidate for diabetes has shown promise. Completed research studies have resulted\nin positive responses in animal models using the Melligen cells. We believe we are in a strong competitive position considering our unique\nencapsulation technology and the genetically modified cells that we have the exclusive worldwide license to use in most industrialized\ncountries.\n\n\n\u00a0\n\n\nMalignant ascites occurs when cancer cells irritate\nthe peritoneum causing an overproduction of ascitic fluid which causes the abdomen to swell as fluid accumulates. It is more likely to\ndevelop in patients who have ovarian, uterine, cervical, colorectal, stomach, pancreatic, breast and liver cancers. In most patients,\ndevelopment of malignant ascites is a sign of advanced disease and poor prognosis. Malignant ascites can result in impairment to the quality\nof life of a cancer patient. In addition to abdominal distention, pain and difficulty breathing, it may also cause nausea, vomiting, early\nsatiety, lower extremity edema, weight gain and reduced mobility. These symptoms can interfere with a patient\u2019s ability to eat,\nto walk and to perform daily activities. They also reduce a patient\u2019s ability to withstand anti-cancer therapies, potentially reducing\nsurvival.\n\n\n\u00a0\n\n\nWe are developing a therapy to delay the production\nand accumulation of malignant ascites using our cancer therapy (i.e., ifosfamide converting encapsulated live cells). Preclinical studies\nare underway in Germany, and, if successful, we plan to seek FDA approval to conduct a Phase 1 study. Typical treatments for malignant\nascites include paracentesis, percutaneously implanted catheters, peritoneal ports and peritoneovenous shunts. These treatments can be\npainful, ineffective and expensive. There is currently no available treatment that delays the production and accumulation of malignant\nascites fluid, and we know of no competitors in this area.\n\n\n\u00a0\n\n\nMaterial Agreements\n\n\n\u00a0\n\n\nThird Addendum to\nthe SG Austria APA\n\n\n\u00a0\n\n\nIn June 2013, we and SG Austria entered the Third\nAddendum and the Clarification Agreement. The Third Addendum requires us to make the following payments for the purchased assets; these\npayments were timely made in full under the payment deadlines set forth in the Third Addendum:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nA $60,000 payment due under the SG Austria APA;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nA payment of Stamp Duty estimated to be $10,000-17,000 to the Singapore Government;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\n$500,000 to be used to pay off the existing debt of Bio Blue Bird; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\n$1,000,000 to SG Austria.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n10\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nPursuant to the Third Addendum, we agreed to and\nhave entered a manufacturing agreement with SG Austria for the manufacture of the pancreatic cancer clinical trial product to treat LAPC.\nThe Manufacturing Framework Agreement requires us to pay Austrianova a one-time manufacturing setup fee in the amount of $647,000, of\nwhich 50% is required to be paid on the effective date of the Manufacturing Framework Agreement and 50% is required to be paid three months\nlater. We have paid the full amount of the manufacturing setup fee.\n\n\n\u00a0\n\n\nThe Manufacturing Framework Agreement also requires\nus to pay a fee for producing the final encapsulated cell product of $647 per vial of 300 capsules after production, with a minimum purchased\nbatch size of 400 vials of any Cell-in-a-Box\u00ae\u00a0product. The fees under the Manufacturing Framework Agreement are subject to annual\nincreases according to the annual inflation rate in the country in which the encapsulated cell products are manufactured. We placed and\nhave received an order to produce 400 vials for our clinical trial to treat LAPC. Austrianova has been paid the full amount for the order.\n\n\n\u00a0\n\n\nThe Third Addendum also requires us to make future\nroyalty and milestone payments as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nTwo percent royalty on all gross sales received by us or our affiliates;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nTen percent royalty on gross revenues received by us or our affiliates from a sublicense or right to use the patents or the licenses granted by us or our affiliates;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nMilestone payments of $100,000 within 30 days after enrollment of the first human patient in the first clinical trial for each product; $300,000 within 30 days after enrollment of the first human patient in the first Phase 3 clinical trial for each product; and $800,000 within 60 days after having a NDA or a BLA approved by the FDA or a MAA approved by the EMA in Europe, or its equivalent based on the country in which it is accepted for each product; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nMilestone payments of $50,000 due 30 days after enrollment of the first veterinary patient in the first trial for each product and $300,000 due 60 days after having a BLA, a NDA or a MAA or its equivalent approved based on the country in which it is accepted for each veterinary product.\n\n\n\n\n\u00a0\n\n\nOn May 14, 2018, we entered into amendments to\nthe Third Addendum. For a full description of these amendments, see Item 1. \u201cHistory of the Business.\u201d\n\n\n\u00a0\n\n\nDiabetes Licensing\nAgreement\n\n\n\u00a0\n\n\nUnder the Diabetes Licensing Agreement, we are\nrequired to make a payment of $2,000,000 in two equal payments of $1,000,000 each. We made our first $1,000,000 payment on October 30,\n2013. Our second payment of $1,000,000 was made on February 25, 2014.\n\n\n\u00a0\n\n\nThe Diabetes Licensing Agreement requires us to\npay Austrianova, pursuant to a manufacturing agreement to be entered between the parties, a one-time manufacturing setup fee in the amount\nof approximately $600,000, of which 50% is required to be paid on the signing of a manufacturing agreement for a product and 50% is required\nto be paid three months later. In addition, the Diabetes Licensing Agreement requires us to pay a manufacturing production fee, which\nis to be defined in the manufacturing agreement, for producing the final encapsulated cell product of approximately $600.00 per vial of\n300 capsules after production, with a minimum purchased batch size of 400 vials of any Cell-in-a-Box\u00ae\u00a0encapsulation-based product.\nAll costs for encapsulated cell products will be subject to an annual increase equal to the published rate of inflation in the country\nof manufacture of the vials.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n11\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe Diabetes Licensing Agreement requires us to\nmake future royalty and milestone payments as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nTen percent royalty of gross sales of all products we sell;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nTwenty percent royalty of the amount received by us from a sub-licensee on its gross sales; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nMilestone payments of $100,000 within 30 days of beginning the first pre-clinical experiments using the encapsulated cells;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\n$500,000 within 30 days after enrollment of the first human patient in the first clinical trial; $800,000 within 30 days after enrollment of the first human patient in the first Phase 3 clinical trial and;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\n$1,000,000 within 90 days after having a NDA or a BLA approved by the FDA or a MAA approved by the EMA in Europe, or its equivalent based on the country in which it is accepted for each product.\n\n\n\n\n\u00a0\n\n\nThe license under the Diabetes Licensing Agreement,\nas amended, may be terminated and all rights will revert to Austrianova if any of the following milestone events do not occur within the\nfollowing timeframes, subject to all the necessary and required research having been successful and the relevant product being sufficiently\nprepared to enter a clinical trial:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nIf we fail to enter a research program with the technology in the scope of the license providing a total funding equal to or greater than $400,000 within three years of June 25, 2013, the effective date of the Diabetes Licensing Agreement (we have met this requirement); or\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nIf we fail to enter a clinical trial or its equivalent for a product within seven years of the effective date of the Diabetes Licensing Agreement.\n\n\n\n\n\u00a0\n\n\nIn May 2018, we entered into amendments to the\nDiabetes Licensing Agreement. For a full description of these amendments, see Item 1. \u201cHistory of the Business.\u201d\n\n\n\u00a0\n\n\nCannabis Licensing\nAgreement\n\n\n\u00a0\n\n\nPursuant to the Cannabis Licensing Agreement,\nwe acquired from Austrianova an exclusive worldwide license to use the Cell-in-a-Box\u00ae\u00a0trademark and its associated technology\nwith genetically modified non-stem cell lines which are designed to activate cannabinoids to develop therapies involving\u00a0Cannabis\u00a0with\na right to sublicense.\n\n\n\u00a0\n\n\nUnder the Cannabis Licensing Agreement, we are\nrequired to pay Austrianova an initial upfront payment of $2,000,000 (\u201cUpfront Payment\u201d). We have the right to make periodic\nmonthly partial payments of the Upfront Payment in amounts to be agreed upon between the parties prior to each such payment being made.\nUnder the Cannabis Licensing Agreement, the Upfront Payment must be paid in full by no later than June 30, 2015. The parties amended the\nCannabis Licensing Agreement twice pursuant to which the balance of the Upfront Payment is to be paid by June 30, 2016. We have paid the\nUpfront Payment of $2,000,000 in full.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n12\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe Cannabis Licensing Agreement requires us to\npay Austrianova, pursuant to a manufacturing agreement to be entered between the parties, a one-time manufacturing setup fee in the amount\nof $800,000, of which 50% is required to be paid on the signing of a manufacturing agreement for a product and 50% is required to be paid\nthree months later. In addition, the Cannabis Licensing Agreement requires us to pay a manufacturing production fee, which is to be defined\nin the manufacturing agreement, for producing the final encapsulated cell product of $800 per vial of 300 capsules after production with\na minimum purchased batch size of 400 vials of any Cell-in-a-Box\u00ae\u00a0product. All costs for encapsulated cell products, the manufacturing\nsetup fee and the manufacturing production fee will be subject to annual increases, in accordance with the inflation rate in the country\nin which the encapsulated cell products are manufactured.\n\n\n\u00a0\n\n\nThe Cannabis Licensing Agreement requires us to\nmake future royalty and milestone payments as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nTen percent royalty of the gross sale of all products sold by us;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nTwenty percent royalty of the amount received by us from a sublicense on its gross sales; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nMilestone payments of $100,000 within 30 days of beginning the first pre-clinical experiments using the encapsulated cells; $500,000 within 30 days after enrollment of the first human patient in the first clinical trial; $800,000 within 30 days after enrollment of the first human patient in the first Phase 3 clinical trial; and $1,000,000 within 90 days after having a NDA or a BLA approved by the FDA or a MAA approved by the EMA or its equivalent based on the country in which it is accepted for each product.\n\n\n\n\n\u00a0\n\n\nThe license under the Cannabis Licensing Agreement,\nas amended, may be terminated and all rights will revert to Austrianova if any of the following milestone events do not occur within the\nfollowing timeframes:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nIf we do not enter a research program involving the scope of the license within three years of December 1, 2014, the effective date of the Cannabis Licensing Agreement (we have met this requirement); or\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nIf we do not enter a clinical trial or its equivalent for a product within 7 years of the effective date of the Cannabis Licensing Agreement.\n\n\n\n\n\u00a0\n\n\nIn May 2018, we entered into amendments to the\nCannabis Licensing Agreement. For a full description of these amendments, see Item 1. \u201cHistory of the Business.\u201d\n\n\n\u00a0\n\n\nMelligen Cell License\nAgreement\n\n\n\n\n\u00a0\n\n\nThe Melligen Cell License Agreement requires that\nwe pay royalty, milestone and patent costs to UTS as follows:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nSix percent of gross exploitation revenue on product sales;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nTwenty-five percent of gross revenues if the product is sublicensed by us;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nMilestone payments of AU$ 50,000 at the successful conclusion of a preclinical study, AU$ 100,000 at the successful conclusion of a Phase 1 clinical trial, AU$ 450,000 at the successful conclusion of a Phase 2 clinical trial, and AU$ 3,000,000 at the successful conclusion of a Phase 3 clinical trial; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nPatent costs of fifteen percent of the costs paid by UTS to prosecute and maintain patents related to the licensed intellectual property.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n13\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn the event of a default under the Melligen Cell\nLicense Agreement, the non-defaulting party may immediately terminate the agreement by notice in writing to the defaulting party if: (i)\nthe default has continued for not less than 14 days or occurred more than 14 days earlier and has not been remedied; (ii) the non-defaulting\nparty serves upon the defaulting party notice in writing requiring the default to be remedied within 30 days of such notice, or such greater\nnumber of days as the non-defaulting party may in its discretion allow, and (iii) the defaulting party has failed to comply with the notice\nreferred to in (ii) above.\n\n\n\u00a0\n\n\nThe Melligen Cell License Agreement was amended\nin April 2016 to change the name of the licensee to our current name and clarify certain ambiguities in the agreement. We are required\nto pay the Melligen cell patent prosecution costs and to pay to UTS a patent administration fee equal to 15% of all amounts paid by UTS\nto prosecute and maintain patents related to the Melligen cells.\n\n\n\u00a0\n\n\nIn August 2017, we entered into the Binding Term\nSheet pursuant to which the parties reached an agreement to amend certain provisions in the SG Austria APA, the Diabetes Licensing Agreement\nand the Cannabis Licensing Agreement.\n\n\n\u00a0\n\n\nIn May 2018, we entered into agreements with SG\nAustria and Austrianova to amend certain provisions of the SG Austria APA, the Diabetes Licensing Agreement and the Cannabis Licensing\nAgreement pursuant to the Binding Term Sheet. For a full description of these amendments, see Item 1. \u201cHistory of the Business.\u201d\n\n\n\u00a0\n\n\nSources and Availability\nof Raw Materials\n\n\n\u00a0\n\n\nThe entire encapsulation\nprocess relating to the encapsulation of the cells for the oncology and diabetes-based therapies we are developing is to be carried out\nby Austrianova. Austrianova is the sole source of our product candidates. Austrianova is responsible for acquiring all of the necessary\nraw materials used in this process, including the cellulose sulfate necessary for encapsulating the live cells, a process proprietary\nto Austrianova. Austrianova from time to time has experienced significant supply chain delays, and we believe Austrinova may also be experiencing\nliquidity issues as well. If Austrianova is unwilling or unable to perform such manufacturing for us, we may not be able to locate a replacement\nmanufacturer for our product candidates.\n\n\n\u00a0\n\n\nPatents, Intellectual Property and Trade Secrets\n\n\n\u00a0\n\n\n\n\nIntellectual property and patent protection are\nof paramount importance to our business, as are the trade secrets and other strategies we have employed with Austrianova to protect the\nproprietary Cell-in-a-Box\u00ae technology. Although we believe we take reasonable measures to protect our intellectual property and trade\nsecrets and those of Austrianova, we cannot guarantee we will be able to protect and enforce our IP or obtain patent protection for our\nproduct candidates as needed. We license technology and trademarks relating to three areas: (i) live cell encapsulation with cells that\nexpress cytochrome P450 where the capsule is permeable to prodrug molecules and the cells are retained within the capsules; (ii) treatment\nof solid cancerous tumors and (ii) encapsulation of cells for producing retroviral particles for gene therapy. We also have exclusive\nlicensing rights to patents, trademarks and know-how using Cell-in-a-Box\u00ae technology in the diabetes field and in the treatment of\ndiseases and related conditions using cannabinoids.\n\n\n\u00a0\n\n\nLitigation may be required to protect our product\ncandidates, intellectual property rights or to determine the validity and scope of the proprietary rights of others. Establishment, maintenance\nand enforcement of our intellectual property utilizes financial and operational resources. In addition, the possibility exists that our\nintellectual property could be discovered to be owned by others, be invalid or be unenforceable \u2013 potentially bringing unforeseen\nchallenges to us.\n\n\n\u00a0\n\n\nHuman Capital\n\n\n\u00a0\n\n\nAs of April 30, 2023, we had two full-time employees\nand several consultants who devote substantial time to us. The consultants are physicians, scientists, regulatory experts, clinical operation\nexperts and cGMP experts. All of our research and development (\u201cR&D\u201d) work is handled by our consultants.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n14\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nReverse Stock Split\n\n\n\u00a0\n\n\nEffective July 12, 2021, we filed a Certificate\nof Change with the Nevada Secretary of State that authorized a 1:1500 reverse stock split of our common stock. The reverse stock split\nresulted in reducing the authorized number of shares of our common stock from 50 billion to 33,333,334 with a par value of $0.0001 per\nshare. Any fractional shares resulting from the reverse stock split were rounded up to the next whole share. All warrants, option, share\nand per share information in this Quarterly Report gives retroactive effect to such 1:1500 reverse stock split.\n\n\n\u00a0\n\n\nOur Corporate Information\n\n\n\u00a0\n\n\n\n\nWe are a Nevada corporation incorporated in 1996.\nIn 2013, we restructured our operations to focus on biotechnology. The restructuring resulted in us focusing our efforts developing a\nnovel, effective and safe way to treat cancer and diabetes. In January 2015, we changed our name from Nuvilex, Inc. to PharmaCyte Biotech,\nInc. to reflect the nature of our current business.\n\n\n\u00a0\n\n\nOur corporate headquarters are located at 3960\nHoward Hughes Parkway, Suite 500, Las Vegas, Nevada 89169. Our telephone number is (917) 595-2850. We maintain a website at \nwww.pharmacyte.com\n\nto which we post copies of our press releases as well as additional information about us. Our filings with the SEC are available free\nof charge through our website as soon as reasonably practicable after being electronically filed with or furnished to the SEC. Information\ncontained in our website is not a part of, nor incorporated by reference into, this Report or our other filings with the SEC, and should\nnot be relied upon.\n\n\n\u00a0\n\n\nGovernment Regulation and Product Approval\n\n\n\u00a0\n\n\nAs a development-stage biotechnology company that\noperates in the U.S., we are subject to extensive regulation by the FDA and other federal, state, and local regulatory agencies. The federal\nFood, Drug, and Cosmetic Act (\u201cFDCA\u201d) and its implementing regulations set forth, among other things, requirements for the\nresearch, testing, development, manufacture, quality control, safety, effectiveness, approval, labeling, storage, record keeping, reporting,\ndistribution, import, export, advertising, promotion, marketing and sale of our product candidates. Although the discussion below focuses\non regulation in the U.S., we anticipate seeking approval for, and marketing of, our product candidates in other countries. Our activities\nin other countries will also be the subject of extensive regulation, although there can be important differences with the U.S. The process\nof obtaining regulatory marketing approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes\nand regulations will require the expenditure of substantial time and financial resources and may not be successful.\n\n\n\u00a0\n\n\nRegulatory approval, when obtained, may be limited\nin scope which may significantly limit the uses for which a product may be placed in the market. Further, approved drugs or biologic products,\nas well as their manufacturers, are subject to ongoing post-marketing review, inspection and discovery of previously unknown issues regarding\nthe safety and efficacy of such products or the manufacturing or quality control procedures used in their production. These may result\nin restrictions on their manufacture, sale or use or in their withdrawal from the market. Any failure or delay by us, our suppliers of\nmanufactured drug product, collaborators or licensees in obtaining regulatory approvals could adversely affect the marketing of our product\ncandidates and our ability to receive product revenue, license revenue or profit-sharing payments. For more information, see Item 1A.\n\u201cRisk Factors.\u201d\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n15\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nU.S. Government Regulation\n\n\n\u00a0\n\n\nThe FDA is the main regulatory body that controls\npharmaceuticals and biologics in the U.S. Its regulatory authority is based in the FDCA and the Public Health Service Act. Pharmaceutical\nproducts and biologics are also subject to other federal, state and local statutes and regulations. A failure to comply with any requirements\nduring the product development, approval, or post-approval periods, may lead to administrative or judicial sanctions. These sanctions\ncould include the imposition by the FDA or by an Institutional Review Board (\u201cIRB\u201d) of a hold on clinical trials, refusal\nto approve pending marketing applications or supplements, withdrawal of approval, warning letters, product recalls, product seizures,\ntotal or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution.\n\n\n\u00a0\n\n\nThe steps required before a new drug or biologic\nmay be marketed in the U.S. generally include:\n\n\n\u00a0\n\n\n\n\n\u00b7\ncompletion of preclinical studies and formulation\nstudies in compliance with the FDA\u2019s Good Laboratory Practices (\u201cGLP\u201d), protocols and regulations;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nsatisfactory completion of an FDA inspection\nof the manufacturing facilities at which the investigational product candidate is produced to assess compliance with cGMP and proof that\nthe facilities, methods and controls are adequate;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nsubmission to the FDA of an IND to support human\nclinical testing in the U.S.;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\napproval by an IRB at each clinical site before\na trial may be initiated at that site;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nperformance of adequate and well-controlled clinical\ntrials in accordance with federal regulations and with Good Clinical Practices (\u201cGCP\u201d) to establish the safety and efficacy\nof the investigational product candidate for each target indication;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nSubmission to the FDA of a New Drug Application\n(\u201cNDA\u201d) or a drug or Biologics License Application (\u201cBLA\u201d) for a biologic such as the therapies we are developing;\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nsatisfactory completion of an FDA Advisory Committee\nreview, if applicable; and\n\n\n\n\n\u00a0\n\u00a0\n\u00a0\n\n\n\n\n\u00b7\nFDA review and approval of the NDA or BLA.\n\n\n\u00a0\n\n\nClinical Development\n\n\n\u00a0\n\n\nBefore a drug or biologic product may be given\nto humans, it must undergo preclinical testing. Preclinical tests include laboratory evaluation of a product candidate\u2019s chemical\nand biological activities and animal studies to assess potential safety and efficacy in humans. The results of these studies must be submitted\nto the FDA as part of an IND which must be reviewed by the FDA for safety and other considerations before testing can begin in humans.\n\n\n\u00a0\n\n\nAn IND is a request for authorization from the\nFDA to administer an investigational product candidate to humans. This authorization is required before interstate shipping and administration\ncan commence of any new drug or biologic product destined for use in humans in the U.S. A 30-day waiting period after the submission of\neach IND is required before commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within\nthis 30-day period after submission of the IND, the clinical trial proposed in the IND may begin. A clinical trial involves the administration\nof the investigational product candidate to patients under the supervision of qualified investigators following GCP standards. These international\nstandards are meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and\nmonitors. A clinical trial is conducted under protocols that detail the parameters to be used in monitoring safety, and the efficacy criteria\nto be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part\nof the IND.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n16\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe product candidates in our pipeline are at\nvarious stages of preclinical development. The path to regulatory approval includes three phases of clinical trials in which we collect\ndata to support an application to regulatory agencies to allow us to ultimately market a product for treatment of a specified disease.\nThere are many difficulties and uncertainties inherent in research and development of new products, and these can conceivably result in\na high rate of failure. To bring a drug or biologic from the discovery phase to regulatory approval, and ultimately to market, takes years\nand the costs to do so are significant. Failure can occur at any point in the process, including after the product is approved, based\non post-marketing factors. New product candidates that appear promising in development may fail to reach the market or may have only limited\ncommercial success because of efficacy or safety concerns, inability to obtain necessary regulatory approvals, limited scope of approved\nuses, reimbursement challenges, difficulty or excessive costs of manufacture, alternative therapies or infringement of the patents or\nintellectual property rights of others. Uncertainties in the approval process of the regulatory agencies can result in delays in product\nlaunches and lost market opportunities. Consequently, it is exceedingly difficult to predict which products will ultimately be submitted\nfor approval, which have the highest likelihood of obtaining approval and which will be commercially viable and generate profits. Successful\nresults in preclinical or clinical studies may not be an accurate predictor of the ultimate safety or effectiveness of a product candidate.\n\n\n\u00a0\n\n\nPhase 1 Clinical Trial\n: A Phase 1 clinical\ntrial begins when a regulatory agency, such as the FDA, allows initiation of the clinical investigation of a new product candidate. The\nclinical trial studies a product candidate\u2019s safety profile and may include a preliminary determination of a product candidate\u2019s\nsafe dosage range. The Phase 1 clinical trial can also determine how a drug is absorbed, distributed, metabolized and excreted by the\nbody and, therefore, the potential duration of its action.\n\n\n\u00a0\n\n\nPhase 2 Clinical Trial\n: A Phase 2 clinical\ntrial is conducted on a limited number of patients; these patients can have a specific targeted disease. An initial evaluation of the\nproduct candidate\u2019s effectiveness on patients is performed. Additional information on the product candidate\u2019s safety and dosage\nrange is obtained. For many diseases, a Phase 2 clinical trial can include up to several hundred patients.\n\n\n\u00a0\n\n\nPhase 3 Clinical Trial\n: A Phase 3 clinical\ntrial is typically rigorously controlled, conducted in multiple centers and involves a larger target patient population that can consist\nof from several hundred to thousands of patients (depending on the disease being studied) to ensure that study results are statistically\nsignificant. During a Phase 3 clinical trial, physicians monitor patients to determine efficacy and to gather further information on safety.\nA Phase 3 clinical trial is designed to generate all the clinical data necessary to apply for marketing approval to a regulatory agency.\n\n\n\u00a0\n\n\nThe decision to terminate development of an investigational\nproduct candidate may be made by either a health authority body, such as the FDA, by IRB/ethics committees, or by the sponsor for various\nreasons. The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions, if it\nbelieves that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to\nthe patients enrolled in the trial. In some cases, a clinical trial is overseen by an independent group of qualified experts organized\nby the trial sponsor, or the clinical monitoring board. This group provides authorization for whether a trial may move forward at designated\ncheckpoints. These decisions are based on the limited access to data from the ongoing trial. The suspension or termination of development\ncan occur during any phase of a clinical trial if it is determined that the patients are being exposed to an unacceptable health risk.\nThere are also requirements for the registration of an ongoing clinical trial of a product candidate on public registries and the disclosure\nof certain information pertaining to the trial, as well as clinical trial results after completion.\n\n\n\u00a0\n\n\nA sponsor may be able to request a special protocol\nassessment (\u201cSPA\u201d), the purpose of which is to reach agreement with the FDA on the Phase 3 clinical trial protocol design\nand analysis that will form the primary basis of an efficacy claim. A sponsor meeting the regulatory criteria may make a specific request\nfor a SPA and provide information regarding the design and size of the proposed clinical trial. A SPA request must be made before the\nproposed trial begins. All open issues must be resolved before the trial begins. If a written agreement is reached, it will be documented\nand made part of the record. The agreement will be binding on the FDA and may not be changed by the sponsor or the FDA after the trial\nbegins, except with the written agreement of the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential\nto determining the safety or efficacy of the product candidate was identified after the testing began. A SPA is not binding if new circumstances\narise, and there is no guarantee that a study will ultimately be adequate to support an approval even if the study is subject to a SPA.\nHaving a SPA does not guarantee that a product candidate will receive FDA approval.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n17\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAssuming successful completion of all required\ntesting in accordance with all applicable regulatory requirements, detailed investigational product candidate information is submitted\nto the FDA in the form of an NDA or BLA to request regulatory approval for the product in the specified indication.\n\n\n\u00a0\n\n\nNew Drug Applications and Biologic Licensing\nApplications\n\n\n\u00a0\n\n\nTo obtain approval to market a drug or biologic\nin the U.S., a marketing application must be submitted to the FDA that provides data establishing the safety and effectiveness of the\nproduct candidate for the proposed indication. The application includes all relevant data available from pertinent preclinical studies\nand clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating\nto the product\u2019s chemistry, manufacturing and controls, as well as the proposed labeling for the product, among other things. Data\ncan come from company-sponsored clinical trials intended to test the safety and effectiveness of a product, or from several alternative\nsources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality\nand quantity to establish the safety and effectiveness of the investigational product candidate to the satisfaction of the FDA.\n\n\n\u00a0\n\n\nIn most cases, the NDA, in the case of a drug,\nor BLA, in the case of a biologic, must be accompanied by a substantial user fee. There may be some instances in which the user fee is\nwaived. The FDA will initially review the NDA or BLA for completeness before it accepts the application for filing. The FDA has 60 days\nfrom its receipt of an NDA or BLA to determine whether the application will be accepted for filing based on the agency\u2019s threshold\ndetermination that it is sufficiently complete to permit substantive review. After the NDA or BLA submission is accepted for filing, the\nFDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of NDAs and BLAs. During a normal review\ncycle, a product is given an FDA action or Prescription Drug User Fee Act (\u201cPDUFA\u201d) date within 12 months of the submission\nif the submission is accepted. The FDA can extend this review by three months to consider certain late-submitted information or information\nintended to clarify information already provided in the submission. The FDA reviews the NDA or BLA to determine, among other things, whether\nthe proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP\nstandards. The FDA may refer applications for novel product candidates which present difficult questions of safety or efficacy to an advisory\ncommittee. This is typically a panel that includes clinicians and other experts for review, evaluation and a recommendation as to whether\nthe application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but\nit considers such recommendations carefully when making decisions.\n\n\n\u00a0\n\n\nBefore approving an NDA or a BLA, the FDA will\ninspect the facilities at which the product is manufactured. The FDA will not approve the product candidate unless it determines that\nthe manufacturing processes and facilities follow cGMP requirements and are adequate to assure consistent production of the product within\nrequired specifications. Manufacturers of human cellular or tissue-based biologics also must comply with the FDA\u2019s Good Tissue Practices\n(\u201cGTP\u201d), as applicable, and with the general biological product standards. After the FDA evaluates the NDA or BLA and the\nsponsor company\u2019s manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response\nletter generally outlines the deficiencies in the submission and may require substantial additional testing or information for the FDA\nto reconsider the application. If, or when, those deficiencies have been addressed to the FDA\u2019s satisfaction in a resubmission of\nthe NDA or BLA, the FDA will issue an approval letter. Notwithstanding the submission of any requested additional information, the FDA\nultimately may decide that the application does not satisfy the regulatory criteria for approval.\n\n\n\u00a0\n\n\nThe time to final marketing approval can vary\nfrom months to years, depending on several variables. These variables can include such things as the disease type, the strength and complexity\nof the data presented, the novelty of the target or compound, risk-management approval and whether multiple rounds of review are required\nfor the agency to evaluate the submission. After evaluating the NDA or BLA and all related information, including the advisory committee\nrecommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval\nletter, or, in some cases, a complete response letter. A complete response letter generally contains a statement of specific conditions\nthat must be met in order to secure final approval of the NDA or BLA and may require additional clinical or preclinical testing in order\nfor FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application\ndoes not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA\u2019s satisfaction, the\nFDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug or biologic with specific\nprescribing information, which may include contraindications, warnings or precautions, for certain indications. After approval, some types\nof changes to the approved product, such as adding new indications and additional labeling claims, are subject to further testing requirements\nand FDA review and approval.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n18\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nPost Approval Regulations\n\n\n\u00a0\n\n\nAfter regulatory approval of a drug or biologic\nis obtained, a company is required to comply with certain post-approval requirements. For example, as a condition of approval of an NDA\nor BLA, the FDA may require post-marketing testing, including a Phase 4 clinical trial and surveillance to further assess and monitor\nthe product\u2019s safety and effectiveness after commercialization has begun. Also, as a holder of an approved NDA or BLA, a company\nis required to: (i) report adverse reactions and production problems to the FDA; (ii) provide updated safety and efficacy information;\nand (iii) comply with requirements concerning advertising and promotional labeling for any of its products. Also, quality control and\nmanufacturing procedures must continue to conform to cGMP standards after approval to assure and preserve the long-term stability of the\ndrug or biological product. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP standards, which imposes\nextensive procedural and substantive record keeping requirements. Also, changes to the manufacturing process are strictly regulated, and,\ndepending on the significance of the change, may require prior FDA approval before being implemented. In addition, FDA regulations require\ninvestigation and correction of any deviations from cGMP standards and impose reporting and documentation requirements upon a company\nand any third-party manufacturers that a company may decide to use. Manufacturers must continue to expend time, money and effort in production\nand quality control to maintain compliance with cGMP standards and other aspects of regulatory compliance.\n\n\n\u00a0\n\n\nDisclosure of Clinical Trial Information\n\n\n\u00a0\n\n\nA sponsor of a clinical trial of certain FDA-regulated\nproducts, including prescription drugs and biologics, is required to register and disclose certain clinical trial information on a public\nwebsite. Information related to the product, patient population, phase of investigation, study sites and investigator involved, and other\naspects of the clinical trial are made public as part of the registration. A sponsor is also obligated to disclose the results of a clinical\ntrial after completion. Disclosure of the results can be delayed until the product or new indication being studied has been approved.\nCompetitors may use this publicly available information to gain knowledge regarding the design and progress of our development programs.\n\n\n\u00a0\n\n\nAdvertising and Promotion\n\n\n\u00a0\n\n\nThe FDA and other federal regulatory agencies\ntightly regulate the marketing and promotion of drugs and biologics through, among other things, standards and regulations for direct-to-consumer\nadvertising, communications regarding unapproved uses, industry-sponsored scientific and educational activities and promotional activities\ninvolving the internet. A product cannot be commercially promoted before it is approved. After approval, product promotion can include\nonly those claims relating to safety and effectiveness that are consistent with the labeling approved by the FDA. Healthcare providers\nare permitted to prescribe drugs or biologics for \u201coff-label\u201d uses (uses not approved by the FDA and therefore not described\nin the drug\u2019s labeling) because the FDA does not regulate the practice of medicine. However, FDA regulations impose stringent restrictions\non manufacturers\u2019 communications regarding off label uses. Broadly speaking, a manufacturer may not promote a product for off-label\nuse, but may engage in non-promotional, balanced communication regarding off-label use under specified conditions. Failure to comply with\napplicable FDA requirements and restrictions in this area may subject a company to adverse publicity and enforcement action by the FDA,\nthe U.S. Department of Justice (\u201cDOJ\u201d), the Office of the Inspector General of Health & Human Services (\u201cHHS\u201d)\nand state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including\ncivil and criminal fines and/or agreements that materially restrict the manner in which a company promotes or distributes drug and biologics.\n\n\n\u00a0\n\n\nU.S. Patent Extension and Marketing Exclusivity\n\n\n\u00a0\n\n\nThe Biologics Price Competition and Innovation\nAct (\u201cBPCIA\u201d) amended the PHSA to authorize the FDA to approve similar versions of innovative biologics, commonly known as\nbiosimilars. A competitor seeking approval of a biosimilar must file an application to establish its product as highly like an approved\ninnovator biologic, among other requirements. The BPCIA bars the FDA from approving biosimilar applications for 12 years after an innovator\nbiological product receives initial marketing approval.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n19\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nDepending upon the timing, duration and specifics\nof the FDA approval of the use of our product candidates, some of our U.S. patents, if granted, may be eligible for limited patent term\nextension under the Drug Price Competition and Patent Term Restoration Act of 1984 (\u201cHatch-Waxman Act\u201d). The Hatch-Waxman\nAct permits a patent extension term of up to five years, as compensation for patent term lost during product development and the FDA regulatory\nreview process. However, patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the product\u2019s\napproval date. The length of the patent term extension is related to the length of time the drug, biologic or medical device is under\nregulatory review. It is calculated as half of the testing phase (the time between the IND submission becoming effective and the NDA,\nBLA or premarket approval (\u201cPMA\u201d) submission) and all the review phase (the time between NDA, BLA or PMA submission and approval)\nup to a maximum extension of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with\ndue diligence. Only one patent applicable to an approved product is eligible for the extension, and the application for the extension\nmust be submitted prior to the expiration of the patent. The U.S. Patent and Trademark Office (\u201cUSPTO\u201d), in consultation with\nthe FDA, reviews and approves the application for any patent term extension. Similar provisions are available in Europe and other foreign\njurisdictions to extend the term of a patent that covers an approved drug, biologic or medical device. In the future, if any of our product\ncandidates receive FDA approval, we expect to apply for patent term extension on patents covering those products that may be eligible\nfor such patent term restoration.\n\n\n\u00a0\n\n\nForeign Corrupt Practices Act\n\n\n\u00a0\n\n\nThe Foreign Corrupt Practices Act (\u201cFCPA\u201d)\nprohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or\nindirectly, to any foreign official, political party or candidate for influencing any act or decision of the foreign entity to assist\nthe individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the U.S.\nto comply with accounting provisions requiring such companies to maintain books and records that accurately and fairly reflect all transactions\nof the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls\nfor international operations. In Europe, and throughout the world, other countries have enacted anti-bribery laws and/or regulations similar\nto the FCPA.\n\n\n\u00a0\n\n\nEuropean and Other International Government\nRegulation\n\n\n\u00a0\n\n\nIn addition to regulations in the U.S., we will\nbe subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales\nand distribution of our product candidates. There is no guarantee that a potential treatment will receive marketing approval or that decisions\non marketing approvals or treatment indications will be consistent across geographic areas. Whether or not we obtain FDA approval for\na product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical\ntrials or marketing of the product in those countries. Some countries outside of the U.S. have a similar process to that of the FDA in\nthat such countries require the submission of a clinical trial application (\u201cCTA\u201d) much like the IND prior to the commencement\nof human clinical trials. In Europe, for example, a CTA must typically be submitted to each country\u2019s national health authority\nand an independent ethics committee, much like the FDA and an IRB. Once the CTA is approved in accordance with a country\u2019s requirements,\na clinical trial may proceed in that particular country. In the EEA, the EU Clinical Trial Regulation (\u201cCTR\u201d) enables sponsors\nsince 31\u00a0January 2022 to submit one CTA via a single online platform, the Clinical Trials Information System (CTIS), to obtain approval\nfor a clinical trial in several EEA countries.\n\n\n\u00a0\n\n\nTo obtain regulatory approval to commercialize\na new drug or biologic under the European Union regulatory systems, we must submit a marketing authorization application (\u201cMAA\u201d)\nwith the European Medicines Agency, or \u201cEMA\u201d, the EEA authority in charge of medicinal products, or with a national drug approval\nauthority. National and European Union marketing authorization procedures are similar to FDA approval procedures.\n\n\n\u00a0\n\n\nWhile the requirements governing the conduct of\nclinical trials are broadly harmonized across the EEA, in particular due to the CTR, the regulatory regimes applicable to pricing and\nreimbursement vary from country to country. Internationally, clinical trials are generally required to be conducted in accordance with\nGCP standards, applicable regulatory requirements of each jurisdiction and the medical ethics principles that have their origin in the\nDeclaration of Helsinki.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n20\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\nOrphan Drug Status\n\n\n\u00a0\n\n\nIn accordance with laws and regulations pertaining\nto regulatory agencies, a sponsor may request that the regulatory agencies designate a drug or biologic intended to treat a \u201cRare\nDisease or Condition\u201d as an \u201cOrphan Drug.\u201d For example, in the U.S., a \u201cRare Disease or Condition\u201d is defined\nas one which affects less than 200,000 people in the U.S., or which affects more than 200,000 people but for which the cost of developing\nand making available the product is not expected to be recovered from sales of the product in the U.S. Upon the approval of the first\nNDA or BLA for a drug or biologic designated as an Orphan Drug for a specified indication, the sponsor of that NDA or BLA is entitled\nto 7 years of exclusive marketing rights in the U.S. for the drug or biologic for the particular indication unless the sponsor cannot\nassure the availability of sufficient quantities to meet the needs of persons with the disease. In Europe, this exclusivity is 10 years.\nHowever, Orphan Drug status for an approved indication does not prevent another company from seeking approval of a drug that has other\nlabeled indications that are not under orphan or other exclusivities. An Orphan Drug may also be eligible for federal income tax credits\nfor costs associated with the disease state, the strength and complexity of the data presented, the novelty of the target or compound,\nthe risk-management approval and whether multiple rounds of review are required for the agency to evaluate the submission. There is no\nguarantee that a potential treatment will receive marketing approval or that decisions on marketing approvals or treatment indications\nwill be consistent across geographic areas. Our product candidate for pancreatic cancer received Orphan Drug status in the U.S. and European\nUnion. Unlike the U.S., in the European Union, to benefit from market exclusivity, a medicine must maintain its orphan designation at\nthe time of marketing authorization in addition to when the designation is applied.\n\n\n\u00a0\n\n\nSpecial FDA Expedited Review and Approval Programs\n\n\n\u00a0\n\n\nThe FDA has various programs, including fast track\ndesignation, accelerated approval, priority review, and breakthrough therapy designation, which are intended to expedite or simplify the\nprocess for the development and FDA review of drugs or biologics that are intended for the treatment of serious or life-threatening diseases\nor conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new\ndrugs or biologics to patients earlier than under standard FDA review procedures.\n\n\n\u00a0\n\n\nTo be eligible for a fast-track designation, the\nFDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life-threatening disease or condition\nand demonstrates the potential to address an unmet medical need. The FDA will determine that a product will fill an unmet medical need\nif it will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy\nor safety factors. The FDA may review sections of the NDA or BLA for a fast-track product on a rolling basis before the complete application\nis submitted, if the sponsor provides a schedule for the submission of the sections of the NDA or BLA, the FDA agrees to accept sections\nof the NDA or BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first\nsection of the NDA or BLA.\n\n\n\u00a0\n\n\nThe FDA may give a priority review designation\nto drugs that offer major advances in treatment or provide a treatment where no adequate therapy exists. A priority review means that\nthe goal for the FDA to review an application is six months, rather than the standard review of ten months under current PDUFA guidelines.\nUnder the new PDUFA agreement, these six and ten-month review periods are measured from the \u201cfiling\u201d date rather than the\nreceipt date for NDAs for new molecular entities, which typically adds approximately two months to the timeline for review and decision\nfrom the date of submission. Most products that are eligible for fast-track designation are also likely to be considered appropriate to\nreceive a priority review.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n21\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn addition, products tested for their safety\nand effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments\nmay be eligible for accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing\nthat the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint\nthat can be measured earlier than irreversible morbidity or mortality, or IMM, that is reasonably likely to predict an effect on irreversible\nmorbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability\nor lack of alternative treatments. As a condition of approval, the FDA may require a sponsor of a drug receiving accelerated approval\nto perform post-marketing studies to verify and describe the predicted effect on IMM or other clinical endpoint, and the drug may be subject\nto accelerated withdrawal procedures.\n\n\n\u00a0\n\n\n\n\nMoreover, under the provisions of the Food and\nDrug Administration Safety and Innovation Act, or FDASIA, passed in July 2012, a sponsor can request designation of a product candidate\nas a \u201cbreakthrough therapy.\u201d A breakthrough therapy is defined as a drug that is intended, alone or in combination with one\nor more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the\ndrug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial\ntreatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated\napproval. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development\nand review of an application for approval of a breakthrough therapy.\n\n\n\u00a0\n\n\nEven if a product qualifies for one or more of\nthese programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period\nfor FDA review or approval will not be shortened. We may explore some of these opportunities for our product candidates as appropriate.\n\n\n\u00a0\n\n\nAccelerated Approval Pathway\n\n\n\u00a0\n\n\nThe FDA may grant accelerated approval to a drug\nfor a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based\nupon a determination that the drug or biologic has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit.\nThe FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that\ncan be measured earlier than an effect on IMM, and that is reasonably likely to predict an effect on IMM or other clinical benefit, considering\nthe severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. Drugs granted accelerated\napproval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.\n\n\n\u00a0\n\n\nFor the purposes of accelerated approval, a surrogate\nendpoint is a marker, such as a laboratory measurement, radiographic image, physical sign or other measure that is thought to predict\nclinical benefit but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly\nthan clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely\nto predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on\nintermediate clinical endpoints but has indicated that such endpoints generally may support accelerated approval where the therapeutic\neffect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding\nthat the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a drug.\n\n\n\u00a0\n\n\nThe accelerated approval pathway is most often\nused in settings in which the course of a disease is long, and an extended period of time is required to measure the intended clinical\nbenefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Thus, accelerated approval has\nbeen used extensively in the development and approval of drugs for treatment of a variety of cancers in which the goal of therapy is generally\nto improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large trials to\ndemonstrate a clinical or survival benefit.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n22\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe accelerated approval pathway is usually contingent\non a sponsor\u2019s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe\nthe drug\u2019s clinical benefit. As a result, a drug candidate approved on this basis is subject to rigorous post-marketing compliance\nrequirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure\nto conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw\nthe drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are\nsubject to prior review by the FDA.\n\n\n\u00a0\n\n\n\n\nUnder a centralized procedure in the European\nUnion, the maximum timeframe for the evaluation of a MAA is 210 days (excluding \u201cclock stops,\u201d when additional written or\noral information is to be provided by the applicant in response to questions asked by the Committee for Medicinal Products for Human Use\n(\u201cCHMP\u201d)). Accelerated evaluation might be granted by the CHMP in exceptional cases, for example, when a medicinal product\nis expected to be of a major public health interest, which takes into consideration: (i) the seriousness of the disease (e.g., heavy disabling\nor life-threatening diseases) to be treated; (ii) the absence or insufficiency of an appropriate alternative therapeutic approach; and\n(iii) anticipation of high therapeutic benefit. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150\ndays.\n\n\n\u00a0\n\n\nHealthcare Reform\n\n\n\u00a0\n\n\nThe United States and many foreign jurisdictions\nhave enacted or proposed legislative and regulatory changes affecting the healthcare system. The United States government, state legislatures\nand foreign governments also have shown significant interest in implementing cost-containment programs to limit the growth of government-paid\nhealthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded\nprescription drugs.\n\n\n\u00a0\n\n\nAt the state level, legislatures have increasingly\npassed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement\nconstraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,\ndesigned to encourage importation from other countries and bulk purchasing. We expect that additional federal, state and foreign healthcare\nreform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare\nproducts and services, which could result in limited coverage and reimbursement and reduced demand for our products, once approved, or\nadditional pricing pressures. \nCoverage and Reimbursement\n Significant uncertainty exists as to the coverage and reimbursement status\nof any drug products for which we obtain regulatory approval. In the U.S. and markets in other countries, sales of any products for which\nwe receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party\npayors include government health administrative authorities, managed care providers, private health insurers and other organizations.\nThe process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the\nprice or reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to specific drug products\non an approved list, or formulary, which might not include all the FDA-approved drugs for a certain indication. Third-party payors are\nincreasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition\nto their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies to demonstrate the medical necessity and cost-effectiveness\nof our product candidates, in addition to the costs required to obtain FDA approvals. Our product candidates, if approved, may not be\nconsidered medically necessary or cost-effective. A payor\u2019s decision to provide coverage for a drug product does not imply that\nan adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price\nlevels sufficient to realize an appropriate return on our investment in product development.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n23\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nDifferent pricing and reimbursement schemes exist\nin other countries. In the European Union governments influence the price of pharmaceutical products through their pricing and reimbursement\nrules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions\noperate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed upon.\nTo obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness\nof a product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines but\nmonitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become\nmore intense.\n\n\n\u00a0\n\n\nThe marketability of any product for which we\nreceive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage\nand reimbursement. Also, an increasing emphasis on managed care in the U.S. has increased and will continue to increase the pressure on\npharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement\nstatus is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement\nrates may be implemented in the future.\n\n\n\u00a0\n\n\nOther U.S. Healthcare Laws and Compliance Requirements\n\n\n\u00a0\n\n\nIn the U.S., our activities are potentially subject\nto additional regulation by various federal, state and local authorities in addition to the FDA, including the CMS, other divisions of\nthe HHS and its Office of Inspector General, the Office for Civil Rights that has jurisdiction over matters relating to individuals\u2019\nprivacy and protected health information, the DOJ, individual U.S. Attorney offices within the DOJ and state and local governments.\n\n\n\u00a0\n\n\nThe federal Anti-Kickback Statute prohibits, among\nother things, knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, to induce or\nin return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable\nunder Medicare, Medicaid or other federally financed healthcare program. The Anti-Kickback Statute has been interpreted broadly to proscribe\narrangements and conduct where only one purpose of the remuneration between the parties was to induce or reward referrals. The term remuneration\nhas been interpreted broadly to include anything of value. This statute has been interpreted to apply to arrangements between pharmaceutical\nmanufacturers, on one hand, and prescribers, purchasers and formulary managers on the other. Although there are several statutory exemptions\nand regulatory safe harbors protecting some business arrangements from prosecution, the exemptions and safe harbors are drawn narrowly\nand practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they\ndo not qualify for an exemption or safe harbor. Our practices may not in all cases meet all the criteria for safe harbor protection from\nfederal Anti-Kickback Statute liability. Failure to meet all the requirements of an applicable safe harbor or statutory exemption, however,\ndoes not make the arrangement or conduct \nper se\n unlawful under the Anti-Kickback Statute; instead, in such cases, the legality\nof the arrangement would be evaluated on a case-by-case basis based on a consideration of all the facts and circumstances to ascertain\nthe parties\u2019 intent. Moreover, the intent standard under the Anti-Kickback Statute was amended by the Affordable Care Act to a stricter\nstandard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it to have\ncommitted a violation.\n\n\n\u00a0\n\n\nIn addition, the Affordable Care Act codified\ncase law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false\nor fraudulent claim for purposes of the federal False Claims Act, as discussed below. The federal Civil Monetary Penalties Law imposes\npenalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to\na federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or\nfraudulent.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n24\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe federal False Claims Act prohibits any person\nfrom knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using\nor causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. Through a\nmodification made to the Fraud Enforcement and Recovery Act of 2009, a claim includes \u201cany request or demand\u201d for money or\nproperty presented to the U.S. government. Pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly\nproviding free product to customers with the expectation that the customers would bill federal programs for the product. Other companies\nhave been prosecuted for causing false claims to be submitted because of the companies\u2019 marketing of the product for unapproved\u2014and\nthus non-reimbursable\u2014uses.\n\n\n\u00a0\n\n\nThe Federal Health Insurance Portability and Accountability\nAct of 1996 (\u201cHIPAA\u201d) created additional federal criminal statutes that prohibit knowingly and willfully executing a scheme\nto defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or\ncovering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment\nfor healthcare benefits, items or services. Also, many states have additional similar fraud and abuse statutes or regulations that apply\nto items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the type of payor.\n\n\n\u00a0\n\n\nIn addition, we may be subject to data privacy\nand security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health\nInformation Technology for Economic and Clinical Health Act (\u201cHITECH\u201d) and its implementing regulations, imposes requirements\nrelating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA\u2019s\nprivacy and security standards directly applicable to \u201cbusiness associates,\u201d such as independent contractors or agents of\ncovered entities that receive or obtain protected health information with providing a service on behalf of a covered entity. HITECH also\nincreased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons.\nIt also gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal\nHIPAA laws and seek attorney\u2019s fees and costs associated with pursuing these actions. In addition, state laws govern the privacy\nand security of health information in specified circumstances, many of which differ from each other in significant ways and may not have\nthe same effect \u2013 thus complicating compliance efforts.\n\n\n\u00a0\n\n\nWe may be subject to other state and federal privacy\nlaws, including laws that prohibit unfair privacy and security practices and deceptive statements about privacy and security, laws that\nplace specific requirements on certain types of activities, such as data security and texting, and laws requiring holders of personal\ninformation to maintain safeguards and to take certain actions in response to a data breach. EEA countries, the United Kingdom, Switzerland\nand other jurisdictions have also adopted data protection laws and regulations, which impose significant compliance obligations.\n\n\n\u00a0\n\n\nIn the EEA, the collection and use of personal\ndata, including clinical trial data, is governed by the provisions of the General Data Protection Regulation (\u201cGDPR\u201d). The\nGDPR became effective on May 25, 2018, repealing its predecessor directive and increasing responsibility and liability of pharmaceutical\nand medical device companies in relation to the processing of personal data of EU data subjects. The GDPR, together with national legislation,\nregulations and guidelines of the EU member states governing the processing of personal data, impose strict obligations and restrictions\non the ability to collect, use and transfer personal data, including health data from clinical trials and adverse event reporting. In\nparticular, these obligations and restrictions concern the consent of the individuals to whom the personal data relates, the information\nprovided to the individuals, the transfer of personal data out of the EEA, security breach notifications, security and confidentiality\nof the personal data and imposition of substantial potential fines for breaches of the data protection obligations. The United Kingdom\nhas retained the GDPR following Brexit and supplemented it by the UK Data Protection Act 2018 (\u201cUK GDPR\u201d). National or local\ndata protection laws or regulations may apply in addition to the (UK) GDPR. Furthermore, European data protection authorities may interpret\nthe (UK) GDPR and national or local laws differently, and they may impose additional requirements, which add to the complexity of processing\npersonal data in or from the EEA or United Kingdom. Guidance on implementation and compliance practices are often updated or otherwise\nrevised.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n25\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe federal Physician Payments Sunshine Act under\nthe Affordable Care Act and its implementing regulations also require that certain manufacturers of drugs, devices, biologics and medical\nsupplies for which payment is available under Medicare, Medicaid or the Children\u2019s Health Insurance Program, with certain exceptions,\nto report information related to certain payments or other transfers of value made or distributed to physicians, certain other health\ncare professionals, and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians,\nhealth care professionals, and teaching hospitals. It also requires reporting annually certain ownership and investment interests held\nby physicians and their immediate family members and payments or other \u201ctransfers of value\u201d made to such physician owners.\nFailure to submit timely, accurately and completely the required information may result in civil monetary penalties of up to, as adjusted\nin 2021, an aggregate of $189,692 per year and up to an aggregate of $1,264,622 million per year for \u201cknowing failures\u201d. Manufacturers\nwere required to begin collecting data on August 1, 2013, and submit reports on aggregate payment data to the government for the first\nreporting period of August 1, 2013 to December 31, 2013, by March 31, 2014. They are also required to report detailed payment data for\nthe first reporting period and submit legal attestation to the accuracy of such data by June 30, 2014. Thereafter, manufacturers must\nsubmit reports by the 90th day of each subsequent calendar year. CMS made all reported data publicly available starting on September 30,\n2014. Certain states also mandate implementation of compliance programs, impose additional restrictions on pharmaceutical manufacturer\nmarketing practices and/ or require the tracking and reporting of gifts, compensation and other remuneration to healthcare providers and\nentities.\n\n\n\u00a0\n\n\nBecause of the breadth of these laws and the narrowness\nof available statutory and regulatory exemptions, it is possible that some of our business activities could be subject to challenge under\none or more of such laws. If our operations are found to be in violation of any of the federal and state laws described above or any other\ngovernmental regulations that apply to us, we may be subject to penalties. These include criminal and civil monetary penalties, damages,\nfines, imprisonment, exclusion from participation in government programs, injunctions, recall or seizure of products, total or partial\nsuspension of production, denial or withdrawal of pre-marketing product approvals, private \u201cqui tam\u201d actions brought by individual\nwhistleblowers in the name of the government or refusal to allow us to enter supply contracts and the curtailment or restructuring of\nour operations. Any of these could adversely affect our ability to operate our business and our results of operations. To the extent any\nof our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance,\napplicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance\nprograms and reporting of payments or transfers of value to healthcare professionals.\n\n\n\u00a0\n\n\nControlled Substances Regulation\n\n\n\u00a0\n\n\nOur product candidates involving \nCannabis\n\ncontain controlled substances, as defined in the federal Controlled Substances Act of 1970 (\u201cCSA\u201d). The CSA and its implementing\nregulations establish a \u201cclosed system\u201d of regulations for controlled substances. The CSA imposes registration, security,\nrecordkeeping and reporting, storage, manufacturing, distribution, importation and other requirements under the oversight of the U.S.\nDrug Enforcement Administration (\u201cDEA\u201d). The DEA is the federal agency responsible for regulating controlled substances. It\nrequires those individuals or entities that manufacture, import, export, distribute, research, or dispense controlled substances to comply\nwith the regulatory requirements to prevent the diversion of controlled substances to illicit channels of commerce. The DEA categorizes\ncontrolled substances into one of five schedules\u2014Schedule I, II, III, IV or V\u2014with varying qualifications for listing in each\nschedule. Although cannabis is legal in the State of North Carolina, we had to obtain a Schedule I license for our research with our research\nuniversity partner (University of Northern Colorado) that relies on federal grants. Schedule I substances have a high potential for abuse,\nhave no currently accepted medical use in treatment in the U.S. and lack accepted safety for use under medical supervision. They may be\nused only in federally approved research programs and may not be marketed or sold for dispensing to patients in the U.S. Pharmaceutical\nproducts having a currently accepted medical use that are otherwise approved for marketing may be listed as Schedule II, III, IV or V\nsubstances, with Schedule I substances presenting the highest potential for abuse and physical or psychological dependence. Schedule V\nsubstances present the lowest relative potential for abuse and dependence. The regulatory requirements are more restrictive for Schedule\nII substances than Schedule III substances. For example, all Schedule II drug prescriptions must be signed by a physician, physically\npresented to a pharmacist in most situations and cannot be refilled. Following FDA approval of a drug containing a Schedule I controlled\nsubstance, that substance must be rescheduled as a Schedule II, III, IV or V substance before it can be marketed. On November 17, 2015,\nH.R. 639, Improving Regulatory Transparency for New Medical Therapies Act, passed through both houses of Congress. On November 25, 2015,\nthe bill was signed into law. The law removes uncertainty associated with timing of the DEA rescheduling process after FDA approval. Specifically,\nit requires DEA to issue an \u201cinterim final rule,\u201d pursuant to which a manufacturer may market its product within 90 days of\nFDA approval. The law also preserves the period of orphan marketing exclusivity for the full seven years such that this period only begins\nafter DEA scheduling. This contrasts with the previous situation whereby the orphan \u201cclock\u201d began to tick upon FDA approval,\neven though the product could not be marketed until DEA scheduling was complete.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n26\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nFacilities that manufacture, distribute, import\nor export any controlled substance must register annually with the DEA. The DEA registration is specific to the location, activity and\ncontrolled substance schedule. For example, separate registrations are required for importation and manufacturing activities, and each\nregistration authorizes which schedules of controlled substances the registrant may handle. However, certain coincident activities are\npermitted without obtaining a separate DEA registration, such as distribution of controlled substances by the manufacturer that produces\nthem.\n\n\n\u00a0\n\n\nThe DEA inspects all manufacturing facilities\nto review security, recordkeeping, reporting and handling prior to issuing a controlled substance registration. The specific security\nrequirements vary by the type of business activity and the schedule and quantity of controlled substances handled. The most stringent\nrequirements apply to manufacturers of Schedule I and Schedule II substances. Required security measures commonly include background checks\non employees and physical control of controlled substances through storage in approved vaults, safes and cages, and through use of alarm\nsystems and surveillance cameras. An application for a manufacturing registration as a bulk manufacturer for a Schedule I or II substance\nmust be published in the Federal Register and is open for 30 days to permit interested persons to submit comments, objections or requests\nfor a hearing. A copy of the notice of the Federal Register publication is forwarded by DEA to all those registered, or applicants for\nregistration, as bulk manufacturers of that substance.\n\n\n\u00a0\n\n\nOnce registered, manufacturing facilities must\nmaintain records documenting the manufacture, receipt and distribution of all controlled substances. Manufacturers must submit periodic\nreports to the DEA of the distribution of Schedule I and II controlled substances, Schedule III narcotic substances and other designated\nsubstances. Registrants must also report any controlled substance thefts or significant losses and must obtain authorization to destroy\nor dispose of controlled substances. As with applications for registration as a bulk manufacturer, an application for an importer registration\nfor a Schedule I or II substance must also be published in the Federal Register, which remains open for 30 days for comments. Imports\nof Schedule I and II controlled substances for commercial purposes are generally restricted to substances not already available from a\ndomestic supplier or where there is not adequate competition among domestic suppliers. In addition to an importer or exporter registration,\nimporters and exporters must obtain a permit for every import or export of a Schedule I and II substance or Schedule III, IV and V narcotic,\nand submit import or export declarations for Schedule III, IV and V non-narcotics. In some cases, Schedule III non-narcotic substances\nmay be subject to the import/export permit requirement, if necessary, to ensure that the U.S. complies with its obligations under international\ndrug control treaties.\n\n\n\u00a0\n\n\nFor drugs manufactured in the U.S., the DEA establishes\nannually an aggregate quota for substances within Schedules I and II that may be manufactured or produced in the U.S. based on the DEA\u2019s\nestimate of the quantity needed to meet legitimate medical, scientific research and industrial needs. This limited aggregate amount of\n\nCannabis\n that the DEA allows to be produced in the U.S. each year is allocated among individual companies, which, in turn, must\nannually apply to the DEA for individual manufacturing and procurement quotas. The quotas apply equally to the manufacturing of the active\npharmaceutical ingredient and production of dosage forms. The DEA may adjust aggregate production quotas and individual manufacturing\nor procurement quotas from time to time during the year, although the DEA has substantial discretion in whether to make such adjustments\nfor individual companies.\n\n\n\u00a0\n\n\nThe states also maintain separate controlled substance\nlaws and regulations, including licensing, recordkeeping, security, distribution and dispensing requirements. State authorities, including\nboards of pharmacy, regulate use of controlled substances in each state. Failure to maintain compliance with applicable requirements,\nparticularly as manifested in the loss or diversion of controlled substances, can result in enforcement action that could have a material\nadverse effect on our business, operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations,\nor initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal prosecution.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n27\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nSmaller Reporting\nCompany\n\n\n\u00a0\n\n\nWe qualify as a smaller reporting company in accordance\nwith Rule 12b-2 under the Exchange Act, and have elected to follow certain of the scaled back disclosure accommodations within this Annual\nReport on Form 10-K.\n\n\n\u00a0\n\n\nFinancial Information Concerning Geographic\nAreas\n\n\n\u00a0\n\n\nWe had no revenues in the fiscal years ended April\n30, 2023, and 2022, including no revenues from foreign countries. We have long-lived assets, other than financial instruments, located\nin the following geographical areas:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\u00a0\n\n\nFY 2023\n\u00a0\n\u00a0\n\n\nFY 2022\n\u00a0\n\n\n\n\nUnited States:\n\u00a0\n\n\n$\n5,129,308\n\u00a0\n\u00a0\n\n\n$\n5,129,308\n\u00a0\n\n\n\n\nAll foreign countries, in total:\n\u00a0\n\n\n$\n0\n\u00a0\n\u00a0\n\n\n$\n0\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe operate globally and are attempting to develop\nproducts in multiple countries. Consequently, we face complex legal and regulatory requirements in multiple jurisdictions, which may expose\nus to certain financial and other risks. International operations are subject to a variety of risks, including:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nforeign currency exchange rate fluctuations;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ngreater difficulty in overseeing foreign operations;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nlogistical and communications challenges;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\npotential adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs and tax laws;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nburdens and costs of compliance with a variety of foreign laws;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\npolitical and economic instability;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nincreases in duties and taxation;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nforeign tax laws and potential increased costs associated with overlapping tax structures;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ngreater difficulty in protecting intellectual property;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe risk of third-party disputes over ownership of intellectual property and infringement of third-party intellectual property by our product candidates; \n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nrisks resulting from our extensive supply chain exposure to Asia; and\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ngeneral social, economic and political conditions in these foreign markets.\n\n\n\n\n\u00a0\n\n\nWe are dependent on business relationships with\nparties in multiple countries, as disclosed in Item 1A. \u201cRisk Factors\u2014Risks Related to Our Dependence on Third Parties.\u201d\n\n\n\u00a0\n\n\nOur Corporate Information \n\n\n\u00a0\n\n\nWe are a Nevada corporation incorporated in 1996.\nIn 2013, we restructured our operations to focus on biotechnology. The restructuring resulted in us focusing our efforts developing a\nnovel, effective and safe way to treat cancer and diabetes. In January 2015, we changed our name from Nuvilex, Inc. to PharmaCyte Biotech,\nInc. to reflect the nature of our current business.\n\n\n\u00a0\n\n\nOur corporate headquarters are located at 3960\nHoward Hughes Parkway, Suite 500, Las Vegas, Nevada 89169. Our telephone number is (917) 595-2850. We maintain a website at \nwww.pharmacyte.com\n\nto which we post copies of our press releases as well as additional information about us. Our filings with the SEC are available free\nof charge through our website as soon as reasonably practicable after being electronically filed with or furnished to the SEC. Information\ncontained in our website is not a part of, nor incorporated by reference into, this Report or our other filings with the SEC, and should\nnot be relied upon.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n28\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n",
+  "item1a": ">ITEM 1A. RISK FACTORS\n\n\n\u00a0\n\n\nYou should carefully consider these factors\nthat may affect future results, together with all the other information included in this Report in evaluating our business. The risks\nand uncertainties described below are those that we currently believe may materially affect our business and results of operations. Additional\nrisks and uncertainties that we are unaware of or that we currently deem immaterial also may become important factors that affect our\nbusiness and results of operations. Our shares of common stock involve a high degree of risk and should be purchased only by investors\nwho can afford a loss of their entire investment. Prospective investors should carefully consider the following risk factors concerning\nour business before making an investment.\n\n\n\u00a0\n\n\nIn addition, you should carefully consider\nthese risks when you read \u201cforward-looking\u201d statements elsewhere in this Report. These are statements that relate to our expectations\nfor future events and time periods. Generally, the words \u201canticipate,\u201d \u201cexpect,\u201d \u201cintend,\u201d and similar\nexpressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties, and future events and circumstances\ncould differ significantly from those anticipated in the forward-looking statements. \n\n\n\u00a0\n\n\nForward-Looking Statements and Associated Risks\n\n\n\u00a0\n\n\nWe operate in a competitive and rapidly changing\nenvironment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact\nof all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained\nin any forward-looking statement. The forward-looking statements in this Report are based on assumptions management believes are reasonable.\nHowever, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking\nstatements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim\nany obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.\n\n\n\u00a0\n\n\nSummary of Risks Associated with Our Business\n\n\n\u00a0\n\n\nOur business is subject to numerous risks and uncertainties that you\nshould consider before investing in our company. These risks are described in more detail in the section titled \u201cRisk Factors\u201d\nin Item 1A of this Report. These risks include, but are not limited to, the following:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe are a biotechnology company with limited resources, a limited operating history and no products approved for clinical trials or commercial sale, which may make it difficult to evaluate our current business and predict our future success and viability.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nAs a result of the clinical hold that has been placed on our IND by the FDA, it has taken and may continue to take considerable time and expense to respond to the FDA, and no assurance can be given that the FDA will remove the clinical hold in which case our business and prospects will likely suffer material adverse consequences.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe contract with Austrianova for the manufacture of our product candidates for preclinical studies and clinical trials, if allowed to proceed, and expect to continue to do so for commercialization. This reliance on Austrianova increases the risk that we will not have sufficient quantities of our product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n29\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nDisruptions in the global economy and supply chains may have a material adverse effect on our business, financial condition and results of operations and the financial condition of the third parties on which we rely, including Austrianova.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe recent and ongoing COVID-19 pandemic has affected and could continue to affect our operations, as well as the business or operations of third parties with whom we conduct business. Our business could be adversely affected by the effects of other future health pandemics in regions where we or third parties on which we rely have significant business operations.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nIf we are unable to successfully raise sufficient capital, our future clinical trials and product development could be limited, and our long-term viability may be threatened.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nDue to the significant resources required for the development of our programs, and depending on our ability to access capital, we must prioritize development of certain product candidates. We may expend our limited resources on programs that do not yield a successful product candidate and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe currently have no commercial revenue and may never become profitable.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nIf we are unable to obtain, or if there are delays in obtaining, required approval from the applicable regulatory agencies, we will not be able to commercialize our product candidates and our ability to generate revenue will be materially impaired.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nIf allowed to proceed with our clinical development program, we intend to conduct clinical trials for certain of our product candidates at sites outside of the U.S., and the U.S. regulatory agencies may not accept data from trials conducted in such locations.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nPromising results in previous clinical trials of our encapsulated live cell and ifosfamide combination for advanced pancreatic cancer may not be replicated in future clinical trials which could result in development delays or a failure to obtain marketing approval.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe may not be able to protect our intellectual property rights throughout the world.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\n\n\nWe rely and expect to continue to rely heavily\n    on third parties to conduct our preclinical studies, plan to rely on third parties to conduct our and clinical trials, assuming they are\n    allowed to proceed, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of\n    such studies and trials.\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nDisruptions in the global economy and supply chains may have a material adverse effect on our business, financial condition and results of operations and the financial condition of the third parties on which we rely, including Austrianova.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nYou may experience future dilution as a result of future equity offerings.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nIf we fail to comply with the continuing listing standards on Nasdaq, our securities could be delisted which could limit investors\u2019 ability to make transactions in our securities and subject us to additional trading restrictions.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n30\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe may experience volatility in our stock price, which may adversely affect the trading price of our common stock.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nA large number of shares may be issued and subsequently sold upon the exercise of existing options and warrants and the conversion of preferred shares.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe are a \u201csmaller reporting company\u201d under the SEC\u2019s disclosure rules and have elected to comply with the reduced disclosure requirements applicable to smaller reporting companies.\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nAs a non-accelerated filer, we are not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act.\n\n\n\n\n\u00a0\n\n\nRisks Related to Our Financial Position, FDA\nClinical Hold, Need for Additional Capital and Overall Business\n\n\n\u00a0\n\n\nWe are a biotechnology company\nwith limited resources, a limited operating history, and no products approved for clinical trials or commercial sale, which may make it\ndifficult to evaluate our current business and predict our future success and viability.\n\n\n\u00a0\n\n\nWe are a biotechnology company focused on developing\ncellular therapies for cancer based upon a proprietary cellulose-based live cell encapsulation technology known as \u201cCell-in-a-Box\n\u00ae\n.\u201d\nIn recent years, we have devoted substantially all our resources to the development of our product candidates for LAPC. We have limited\nresources, a limited operating history, no products approved for clinical trials or commercial sale and therefore have not produced any\nrevenues. We have generated significant operating losses since our inception. Our net losses for the years ended April 30, 2023, and 2022\nwere approximately $4.3 million and $4.2 million, respectively. As of April 30, 2023, we had an accumulated deficit of approximately $116\nmillion. Substantially all our losses have resulted from expenses incurred relating to our research and development programs and from\ngeneral and administrative expenses and operating losses associated with our business.\n\n\n\u00a0\n\n\nWe expect to continue to incur significant expenses\nand operating losses for the foreseeable future. We anticipate these losses will increase as we continue our research and development\nof, and, if approved by the FDA, commence clinical trials for, our product candidates. In addition to budgeted expenses, we may encounter\nunforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.\n\n\n\u00a0\n\n\nWe have no facilities to conduct fundamental research\nand we have performed our research and development activities by collaboration with contract service providers, and contract manufacturers\nand by designing and developing research programs in collaboration with university-based experts who work with us to evaluate mechanism(s)\nof disease for which we have designed and developed product candidates. We have not maintained a principal laboratory or primary research\nfacility for the development of our product candidates.\n\n\n\u00a0\n\n\nBiotechnology product development is a highly\nuncertain undertaking and involves a substantial degree of risk. We have not commenced or completed clinical trials for any of our product\ncandidates, obtained marketing approval for any product candidates, manufactured a commercial scale product, or arranged for a third party\nto do so on our behalf, or conducted sales and marketing activities necessary for successful product commercialization. Given the highly\nuncertain nature of biotechnology product development, we may never commence or complete clinical trials for any of our product candidates,\nobtain marketing approval for any product candidates, manufacture a commercial scale product or arrange for a third party to do so on\nour behalf, or conduct sales and marketing activities necessary for successful product commercialization.\n\n\n\u00a0\n\n\nOur limited operating history as a company makes\nany assessment of our future success and viability subject to significant uncertainty. We will encounter risks and difficulties frequently\nexperienced by early-stage biotechnology companies in rapidly evolving fields, and we have not yet demonstrated an ability to successfully\novercome such risks and difficulties. If we do not address these risks and difficulties successfully, our business, operating results\nand financial condition will suffer.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n31\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAs a result of the clinical hold that has\nbeen placed on our IND by the FDA, it has taken and may continue to take considerable time and expense to respond to the FDA and no assurance\ncan be given that the FDA will remove the clinical hold in which case our business and prospects will likely suffer material adverse consequences.\n\n\n\u00a0\n\n\nOn October 1, 2020, we received notice from the\nFDA that it had placed our IND for a planned clinical trial in LAPC on clinical hold. As part of the clinical hold process, the FDA has\nasked for additional information, tasks to be performed by us and new preclinical studies and assays. It has taken and may continue to\ntake a considerable period of time, the length of which is not certain at this time, for us to conduct such tasks and preclinical studies\nand to generate and prepare the requested information. It is possible that the service providers that we will utilize for such work may\nhave considerable backlogs and/or are suffering from slowdowns as a result of COVID-19 and supply chain disruptions and may not be able\nto perform such work for an extended period of time. Even if we are able to fully respond to the FDA\u2019s requests, they may subsequently\nmake additional requests that we would need to fulfill prior to the lifting of the clinical hold and we may never be able to begin our\nclinical trial in LAPC, obtain regulatory approval or successfully commercialize our product candidates. An inability to conduct our clinical\ntrial in LAPC as a result of the clinical hold or otherwise, would likely force us to terminate our clinical development plans. It is\npossible that we will be unable to fully respond to the FDA in a satisfactory manner, and as a result the clinical hold may never be lifted.\nIf the clinical hold is not lifted or if the lifting takes an extended period of time, our business and prospects will likely suffer material\nadverse consequences.\n\n\n\u00a0\n\n\nWe contract with Austrianova for the manufacture\nof our product candidates for preclinical studies and clinical trials, if allowed to proceed, and expect to continue to do so for commercialization.\nThis reliance on Austrianova increases the risk that we will not have sufficient quantities of our product candidates or such quantities\nat an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.\n\n\n\u00a0\n\n\nWe do not currently own or operate manufacturing\nfacilities to produce our encapsulated live cell product candidates for cancer, diabetes and malignant ascites. We rely on and expect\nto continue to rely on Austrianova to manufacture supplies of our product candidates for preclinical studies and clinical trials, if allowed\nto proceed, as well as for commercial manufacture of our product candidates, and these must be maintained for us to receive marketing\napproval for our product candidates.\n\n\n\u00a0\n\n\nOur encapsulated live cell product candidates\nmust be manufactured through complex, multi-step synthetic processes that are time-consuming and involve special conditions at certain\nstages. Biologics and drug substance manufacture requires high potency containment, and containment under aseptic conditions. Any performance\nfailures on the part of our existing or future manufacturers could delay clinical development or marketing approval of our product candidates.\nMoreover, the facilities that produce our Cell-in-a-Box\n\u00ae \ncapsules are unique to us and would not be replicable or replaceable\npromptly, if at all, if those facilities become unavailable or are damaged or destroyed through an accident, natural disaster, labor disturbance\nor otherwise.\n\n\n\u00a0\n\n\nIf Austrianova should become unavailable to us\nfor any reason, we may incur additional cost or delay in identifying or qualifying a replacement manufacturer. At this time, we are unaware\nof any available substitute manufacturer other than Austrianova. In addition, while we believe that our existing manufacturer, Austrianova,\ncan produce our product candidates, if approved, in commercial quantities, we may also need to identify a third-party manufacturer capable\nof providing commercial quantities of our product candidates. If we are unable to arrange for such a third-party manufacturing source\nor fail to do so on commercially reasonable terms and in a timely manner, we may not be able to successfully produce and market our encapsulated\nlive cell and ifosfamide product or any other product candidate or may be delayed in doing so.\n\n\n\u00a0\n\n\nEven if we can establish such arrangements with\nanother third-party manufacturer, reliance on a new third-party manufacturer entails additional risks, including:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nReliance on the third party for regulatory compliance and quality assurance;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe possible breach of the manufacturing agreement by the third party;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe possible misappropriation of our proprietary information, including our trade secrets and know-how; and\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n32\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nA new third-party manufacturer may not be able\nto comply with cGMP standards or the requirements of a regulatory agency. Our failure, or the failure of our third-party manufacturer,\nto comply with these practices or requirements could result in sanctions being imposed on us, including additional clinical holds, fines,\ninjunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates\nor products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product\ncandidates.\n\n\n\u00a0\n\n\nDelays in the cGMP certification of the Austrianova\nmanufacturing facility in Bangkok, Thailand could affect its ability to manufacture encapsulated live cells on a timely basis and could\nadversely affect supplies of our product candidates for clinical trials and to market.\n\n\n\u00a0\n\n\nOur product candidates that we may develop may\ncompete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers\nthat operate under cGMP regulations and that might be capable of manufacturing products for us.\n\n\n\u00a0\n\n\nIn addition, we expect to rely on Austrianova\nto purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical studies, if allowed\nto proceed. There are a small number of suppliers for certain equipment and raw materials that are used in the manufacture of our product\ncandidates. Such suppliers may not sell these raw materials to Austrianova at the times we need them or on commercially reasonable terms.\nFor example, there is from time to time a limited supply of acceptable cell media for production of our MCB. We do not have any control\nover the process or timing of the acquisition of these raw materials by Eurofins or Austrianova. Moreover, we currently do not have any\nagreements for the commercial production of these raw materials. Austrianova from time to time has experienced significant supply chain\ndisruptions, some of which may be related to COVID-19, and we believe it is experiencing liquidity issues. Any further significant delay\nin the supply of a product candidate or the raw material components thereof our clinical trials, if allowed to proceed, due to the need\nto replace a third-party supplier of these raw materials could considerably delay completion of our clinical studies, product testing\nand potential regulatory approval of our product candidates. If Eurofins, Austrianova or we are unable to purchase these raw materials\nafter regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed\nor there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates.\n\n\n\u00a0\n\n\nOur current and anticipated future dependence\nupon Austrianova and others for the manufacture of our product candidates may adversely affect our future profit margins and our ability\nto commercialize any products that receive marketing approval on a timely and competitive basis.\n\n\n\u00a0\n\n\nDisruptions in the global economy and supply chains may have\na material adverse effect on our business, financial condition and results of operations and the financial condition of the third parties\non which we rely, including Austrianova.\n\n\n\u00a0\n\n\nThe disruptions to the global economy in recent\nyears have impeded global supply chains, resulting in longer lead times and also increased critical component costs and freight expenses.\nAustrianova, a third-party supplier on whom we rely, from time to time has experienced significant supply chain disruptions, some of which\nmay be related to COVID-19, and we believe it may be experiencing liquidity issues. Despite any actions we have undertaken to minimize\nthe impacts from disruptions to the global economy, there can be no assurances that unforeseen future events in the global supply chain,\ninflationary pressures, and delays our third parties face will not have a material adverse effect on our business, financial condition\nand results of operations.\n\n\n\u00a0\n\n\nThe recent and ongoing COVID-19\npandemic could materially affect our operations, as well as the business or operations of third parties with whom we conduct business.\nOur business could be adversely affected by the effects of other future health pandemics in regions where we or third parties on which\nwe rely have significant business operations.\n\n\n\u00a0\n\n\nWe face the ongoing risk that the coronavirus\npandemic may slow our operations, our preclinical studies or the eventual enrollment of our planned clinical trial. In order to prioritize\npatient health and that of the investigators at clinical trial sites, we may need monitor enrollment of patients in our clinical study.\nIn addition, some patients may be unwilling to enroll in our trials or be unable to comply with clinical trial protocols if quarantines\nor travel restrictions impede patient movement or interrupt healthcare services. These and other factors outside of our control could\ndelay our ability to conduct clinical trials or release clinical trial results. In addition, the effects of the ongoing coronavirus pandemic\nmay also increase non-trial costs such as insurance premiums, increase the demand for and cost of capital, increase loss of work time\nfrom key personnel, and negatively impact our key clinical trial vendors. We cannot guarantee that COVID-19 or any other public health\ncrisis will not cause delays or impact on our business or proposed clinical trial.\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n33\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf we are unable to successfully\nraise additional capital, our future clinical trials and product development could be limited, and our long-term viability may be threatened.\n\n\n\u00a0\n\n\nWe have experienced negative operating cash flows\nsince our inception and have funded our operations primarily through sales of our equity securities. We may need to seek additional funds\nin the future through equity or debt financings, or strategic alliances with third parties, either alone or in combination with equity\nfinancings to complete our product development initiatives. These financings could result in substantial dilution to the holders of our\ncommon stock or require contractual or other restrictions on our operations or on alternatives that may be available to us. If we raise\nadditional funds by issuing debt securities, these debt securities could impose significant restrictions on our operations. Any such required\nfinancing may not be available in amounts or on terms acceptable to us, and the failure to procure such required financing could have\na material and adverse effect on our business, financial condition and results of operations, or threaten our ability to continue as a\ngoing concern.\n\n\n\u00a0\n\n\nOur operating and capital requirements during\nthis fiscal year and thereafter will vary based on several factors, including whether we can complete the studies requested by the FDA\nwith respect to our IND filing, whether the FDA allows us to commence our planned clinical trial for LAPC, how quickly enrollment of patients\nin our such trial can be commenced, the duration of the clinical trial and any change in the clinical development plans for our product\ncandidates and the outcome, timing and cost of meeting regulatory requirements established by the FDA and the EMA or other comparable\nforeign regulatory authorities.\n\n\n\u00a0\n\n\nOur present and future capital requirements will be significant and\nwill depend on many factors, including:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nour ability to complete the studies requested by the FDA with respect to our IND filing;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nwhether the FDA lifts the clinical hold on our IND filing for LAPC;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe progress and results of our development efforts for our product candidates;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe costs, timing and outcome of regulatory review of our product candidates;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe effect of competing technological and market developments;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nmarket acceptance of our product candidates;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe rate of progress in establishing coverage and reimbursement arrangements with domestic and international commercial third-party payors and government payors;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe extent to which we acquire or in-license other products and technologies; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nlegal, accounting, insurance and other professional and business-related costs.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nWe may not be able to acquire additional funds\non acceptable terms, or at all. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay\nor reduce the scope of or eliminate some or all of our development programs. Further, if we do not have, or are not able to obtain, sufficient\nfunds, we may be required to delay planned and future clinical trials, including the pig study, and development or commercialization of\nour product candidates. We also may have to reduce the resources devoted to our product candidates or cease operations. Any of these factors\ncould harm our operating results.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n34\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nDue to the significant resources required for the development\nof our programs, and depending on our ability to access capital, we must prioritize development of certain product candidates. We may\nexpend our limited resources on programs that do not yield a successful product candidate and fail to capitalize on product candidates\nor indications that may be more profitable or for which there is a greater likelihood of success.\n\n\n\u00a0\n\n\nWe seek to maintain a process of prioritization\nand resource allocation to maintain an optimal balance between aggressively advancing lead programs and ensuring replenishment of our\nportfolio. Until such time, if ever, as the FDA lifts its clinical hold on our IND related to our planned clinical trial in LAPC, our\nCell-in-a-Box\n\u00ae\n encapsulation technology is validated in our planned clinical trial, and sufficient additional funding is\navailable, we have halted spending on behalf of our development program with respect to cannabinoids.\n\n\n\u00a0\n\n\nDue to the significant resources required for\nthe development of our programs, we must focus our programs on specific diseases and decide which product candidates to pursue and advance\nand the amount of resources to allocate to each. Our decisions concerning the allocation of research, development, collaboration, management\nand financial resources toward particular product candidates or therapeutic areas may not lead to the development of any viable commercial\nproduct and may divert resources away from better opportunities. Similarly, our potential decisions to delay, terminate or collaborate\nwith third parties in respect of certain programs may subsequently also prove to be suboptimal and could cause us to miss valuable opportunities.\nWe may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of\nopportunities with other product candidates or other diseases that may later prove to have greater commercial potential than those we\nchoose to pursue, or relinquish valuable rights to such product candidates through collaboration, licensing or other royalty arrangements\nin cases in which it would have been advantageous for us to invest additional resources to retain sole development and commercialization\nrights. If we make incorrect determinations regarding the viability or market potential of any or all of our programs or product candidates\nor misread trends in the biotechnology industry, our business, prospects, financial condition and results of operations could be materially\nadversely affected.\n\n\n\u00a0\n\n\nWe currently have no commercial revenue\nand may never become profitable.\n\n\n\u00a0\n\n\nEven if we can successfully achieve regulatory\napproval for our product candidates, we do not know what the reimbursement status of our product candidates will be or when any of these\nproducts will generate revenue for us, if at all. We have not generated, and do not expect to generate, any product revenue for the foreseeable\nfuture. We expect to continue to incur significant operating losses for the foreseeable future due to the cost of our research and development,\npreclinical studies and clinical trials and the regulatory approval process for our product candidates. The amount of future losses is\nuncertain and will depend, in part, on the rate of growth of our expenses.\n\n\n\u00a0\n\n\nOur ability to generate revenue from our product\ncandidates also depends on numerous additional factors, including our ability to:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nsuccessfully complete development activities, including the remaining preclinical studies and planned clinical trials for our product candidates;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ncomplete and submit NDAs or BLAs to the FDA and MAAs to the EMA, and obtain regulatory approval for indications for which there is a commercial market;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ncomplete and submit applications to, and obtain regulatory approval from, other foreign regulatory authorities;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nmanufacture any approved products in commercial quantities and on commercially reasonable terms;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ndevelop a commercial organization, or find suitable partners, to market, sell and distribute approved products in the markets in which we have retained commercialization rights;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nachieve acceptance among patients, clinicians and advocacy groups for any products we develop;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nobtain coverage and adequate reimbursement from third parties, including government payors; and\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nset a commercially viable price for any products for which we may receive approval.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n35\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe are unable to predict the timing or amount\nof increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we can complete the processes described\nabove, we anticipate incurring significant costs associated with commercializing our product candidates.\n\n\n\u00a0\n\n\nTo date, we have generated no revenue. Our ability\nto generate revenue and become profitable depends upon our ability to obtain regulatory approval for, and successfully commercialize,\nour product candidates that we may develop, in-license or acquire in the future.\n\n\n\u00a0\n\n\nWe face substantial competition, which may result in others discovering,\ndeveloping or commercializing competing products before or more successfully than we do.\n\n\n\u00a0\n\n\nThe development and commercialization of new drug\nproducts is highly competitive. We face competition with respect to our current product candidates. We will face competition with respect\nto any product candidates that we may seek to develop or commercialize in the future. Such competition may arise from major pharmaceutical\ncompanies, specialty pharmaceutical companies and biotechnology companies worldwide. There are several large pharmaceutical and biotechnology\ncompanies that currently market products or are pursuing the development of products for the treatment of the disease indications for\nwhich we are developing our product candidates. Some of these competitive products and therapies are based on scientific approaches that\nare entirely different from our approach. Potential competitors also include academic institutions, government agencies and other public\nand private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research,\ndevelopment, manufacturing and commercialization.\n\n\n\u00a0\n\n\nSpecifically, there are numerous companies developing\nor marketing therapies for cancer, diabetes and malignant ascites, including many major pharmaceutical and biotechnology companies. Our\ncommercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective,\nhave fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors\nalso may obtain regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors\nestablishing a strong market position before we can enter the market.\n\n\n\u00a0\n\n\nMany of the companies against which we are competing\nor against which we may compete in the future have significantly greater financial resources and expertise in research and development,\nmanufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we\ndo. Mergers and acquisitions in the pharmaceutical and biotechnology sectors may result in even more resources being concentrated among\na smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly\nthrough collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining\nqualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well\nas in acquiring technologies complementary to, or necessary for, our programs.\n\n\n\u00a0\n\n\nOur future revenues are unpredictable which\ncauses potential fluctuations in operating results.\n\n\n\u00a0\n\n\nBecause of our limited operating history as a\nbiotech company; we are currently unable to accurately forecast our revenues. Future expense levels will likely be based largely on our\nmarketing and development plans and estimates of future revenue. Any sales or operating results will likely generally depend on volume\nand timing of orders, which may not occur and on our ability to fulfill such orders, which we may not be able to do. We may be unable\nto adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues\nin relation to planned expenditures could have an immediate adverse effect on our business, prospects, financial condition and results\nof operations. Further, as a strategic response to changes in the competitive environment, we may from time to time make certain pricing,\nservice or marketing decisions that could have a material adverse effect on our business, prospects, financial condition and results of\noperations.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n36\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe may experience significant fluctuations in\nfuture operating results due to a variety of factors, many of which are outside of our control. Factors that may affect operating results\ninclude: (i) the ability to obtain and retain customers; (ii) our ability to attract new customers at a steady rate and maintain customer\nsatisfaction with products; (iii) our announcement or introduction of new products by us or our competitors; (iv) price competition; (v)\nthe level of use and consumer acceptance of its products; (vi) the amount and timing of operating costs and capital expenditures relating\nto expansion of the business, operations and infrastructure; (vii) governmental regulations; (viii) general economic conditions; (ix)\ndelays or disruptions in our supply chain; and (x) the adverse impacts caused by COVID-19.\n\n\n\u00a0\n\n\nRisks Related to Regulatory Matters \n\n\n\u00a0\n\n\nIf we are unable to obtain, or if there\nare delays in obtaining, required approval from the applicable regulatory agencies, we will not be able to commercialize our product candidates\nand our ability to generate revenue will be materially impaired.\n\n\n\u00a0\n\n\nOur product candidates must obtain marketing approval\nfrom the FDA for commercialization in the U.S. and from foreign regulatory agencies for commercialization in countries outside the U.S.\nThe process of obtaining marketing approvals in the countries in which we intend to sell and distribute our product candidates is expensive\nand can take many years if approval is obtained at all. This process can vary substantially based upon a variety of factors, including\nthe type, complexity and novelty of the product candidates involved. Failure to obtain marketing approval for a product candidate will\nprevent us from commercializing that product candidate. To date, we have not received approval to market any of our product candidates\nfrom regulatory agencies in any jurisdiction. We have no experience in filing and supporting the applications necessary to gain marketing\napprovals and expect to rely on third-party contract research organizations to assist us in this process. Securing marketing approval\nrequires the submission of extensive preclinical and clinical data and supporting information to the regulatory agencies for each product\ncandidate to establish the product candidate\u2019s safety and efficacy. Securing marketing approval also requires the submission of\ninformation about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory agencies.\n\n\n\u00a0\n\n\nOur product candidates may not be effective, may\nbe only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may\npreclude our obtaining marketing approval or prevent or limit commercial use. Regulatory agencies have substantial discretion in the approval\nprocess and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical,\nclinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay,\nlimit or prevent marketing approval of a product candidate. Changes in marketing approval policies during the development period, changes\nin or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may\nalso cause delays in or prevent the approval of an application. New cancer drugs frequently are indicated only for patient populations\nthat have not responded to an existing therapy or have relapsed after such therapies. If we experience delays in obtaining approval or\nif we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability\nto generate revenues will be materially impaired.\n\n\n\u00a0\n\n\nIf allowed to proceed with our clinical\ndevelopment programs, we intend to conduct clinical trials for certain of our product candidates at sites outside of the U.S., and the\nU.S. regulatory agencies may not accept data from trials conducted in such locations.\n\n\n\u00a0\n\n\nAlthough the FDA may accept data from clinical\ntrials conducted outside the U.S., acceptance of this data is subject to certain conditions imposed by the regulatory agencies outside\nof the U.S. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance\nwith ethical principles. The trial population must also adequately represent the population in the country in which the clinical trial\nis being conducted. The data must be applicable to the U.S. population and medical practice in the U.S. in ways that the FDA deems clinically\nmeaningful. Generally, the patient population for any clinical trial conducted outside of the U.S. must be representative of the population\nfor whom we intend to seek approval in the U.S.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n37\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn addition, while these clinical trials are subject\nto the applicable local laws, the FDA acceptance of the data will be dependent upon its determination that the trials also complied with\nall applicable U.S. laws and regulations. There can be no assurance that the FDA will accept data from trials conducted outside of the\nU.S. If the FDA does not accept the data from any of our clinical trials that we determine to conduct outside the U.S., it would likely\nresult in the need for additional trials that would be costly and time-consuming and delay or permanently halt the development of our\nproduct candidate.\n\n\n\u00a0\n\n\nIn addition, the conduct of clinical trials outside\nthe U.S. could have a significant impact on us. Risks inherent in conducting international clinical trials include:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nForeign regulatory requirements that could restrict or limit our ability to conduct our clinical trials;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nAdministrative burdens of conducting clinical trials under multiple foreign regulatory schemes;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nForeign exchange fluctuations; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nDiminished protection of intellectual property in some countries.\n\n\n\n\n\u00a0\n\n\nOur plan to first pursue a clinical trial\nbefore a pivotal Phase 3 trial will likely result in additional costs to us and resultant delays in the FDA review process and any future\ncommercialization and marketing if regulatory approval is obtained.\n\n\n\u00a0\n\n\nIf the FDA allows us to begin a clinical trial\nby lifting its clinical hold on our IND, we have determined that the data contained in previous clinical trial reports using the Cell-in-a-Box\n\u00ae\n\nand its Associated Technologies are not enough to advance the program to a Phase 3 pivotal trial. Therefore, we are designing a\nclinical trial that, if successful, we believe will provide the information necessary to plan a Phase 3 pivotal trial. Our determination\nto first conduct a clinical trial before conducting a pivotal Phase 3 clinical trial will likely result in additional costs to us and\nresultant delays in the regulatory review process and any future commercialization and marketing if regulatory approval is obtained. The\nsame is true to a greater extent if the FDA requires us to commence a Phase 1 or other Phase 2 clinical trial instead of the planned Phase\n2b clinical trial currently under clinical hold.\n\n\n\u00a0\n\n\nIf we are unable to obtain, or if there\nare delays in obtaining, required approval from the regulatory agencies, we will not be able to commercialize our product candidates and\nour ability to generate revenue will be materially impaired.\n\n\n\u00a0\n\n\nOur product candidates must obtain marketing approval\nfrom the FDA for commercialization in the U.S. and from foreign regulatory agencies for commercialization in countries outside the U.S.\nThe process of obtaining marketing approvals in the countries in which we intend to sell and distribute our product candidates is expensive\nand can take several years if approval is obtained at all. This process can vary substantially based upon a variety of factors, including\nthe type, complexity and novelty of the product candidates involved. Failure to obtain marketing approval for a product candidate will\nprevent us from commercializing that product candidate. To date, we have not received approval to market any of our product candidates\nfrom regulatory agencies in any jurisdiction. We have no experience in filing and supporting the applications necessary to gain marketing\napprovals and expect to rely on third-party contract research organizations to assist us in this process. Securing marketing approval\nrequires the submission of extensive preclinical and clinical data and supporting information to the regulatory agencies for each product\ncandidate to establish the product candidate\u2019s safety and efficacy. Securing marketing approval also requires the submission of\ninformation about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory agencies.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n38\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur product candidates may not be effective, may\nbe only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may\npreclude our obtaining marketing approval or prevent or limit commercial use. Regulatory agencies have substantial discretion in the approval\nprocess and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical,\nclinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay,\nlimit or prevent marketing approval of a product candidate. Changes in marketing approval policies during the development period, changes\nin or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may\nalso cause delays in or prevent the approval of an application. New cancer drugs frequently are indicated only for patient populations\nthat have not responded to an existing therapy or have relapsed after such therapies. If we experience delays in obtaining approval or\nif we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability\nto generate revenues will be materially impaired.\n\n\n\u00a0\n\n\n\n\nDevelopment of a biologic involves a lengthy\nand expensive process with an uncertain outcome. We may incur additional costs or experience delays in completing or be unable to complete\nthe development and commercialization of our product candidates.\n\n\n\u00a0\n\n\nOur Cell-in-a-Box\n\u00ae\n and ifosfamide\ncombination product candidate has not begun clinical development, and, like others\u2019 candidates in a similar phase of development,\nthe risk of failure is high. It is impossible to predict when or if this product candidate or any other product candidate will prove effective\nor safe in humans or will receive regulatory approval. Before obtaining marketing approval from regulatory agencies for the sale of any\nproduct candidate, if allowed to proceed, we must complete preclinical development and then conduct extensive clinical trials to demonstrate\nthe safety and efficacy of our product candidates in humans. Clinical trials are expensive, difficult to design and implement, can take\nseveral years to complete and are uncertain as to their outcome. A failure of one or more clinical trials can occur at any stage of a\nclinical trial. The clinical development of our product candidates is susceptible to the risk of failure inherent at any stage of drug\ndevelopment, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of\nsevere or medically or commercially unacceptable adverse events, failure to comply with protocols or applicable regulatory requirements\nor determination by the regulatory agencies that a drug or biologic product is not approvable. It is possible that even if one or more\nof our product candidates has a beneficial effect, that effect will not be detected during clinical evaluation because of one or more\nof a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, because\nof the same factors, our clinical trials if allowed to proceed, may indicate an apparent positive effect of a product candidate that is\ngreater than the actual positive effect, if any. Similarly, in our clinical trials if allowed to proceed, we may fail to detect toxicity\nof, or intolerability caused by, our product candidates, or mistakenly believe that our product candidates are toxic or not well tolerated\nwhen that is not, in fact, the case.\n\n\n\u00a0\n\n\nThe outcome of preclinical studies and early and\nmid-phase clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not\nnecessarily predict overall results. Many companies in the pharmaceutical and biotechnology sectors have suffered significant setbacks\nin late-stage clinical trials after achieving positive results in earlier stages of development, and we cannot be certain that we will\nnot face similar setbacks.\n\n\n\u00a0\n\n\nThe design of a clinical trial can determine whether\nits results will support approval of a product; however, flaws in the design of a clinical trial may not become apparent until the clinical\ntrial is well advanced or completed. We have limited experience in designing clinical trials and may be unable to design and execute a\nclinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations\nand analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials\nhave nonetheless failed to obtain marketing approval for their product candidates. Even if we believe that the results of clinical trials\nfor our product candidates warrant marketing approval, the regulatory agencies may disagree and may not grant marketing approval of our\nproduct candidates or may require that we conduct initial clinical studies; the latter would require that we incur significantly increased\ncosts and would significantly extend the clinical development timeline for our product candidates.\n\n\n\u00a0\n\n\nIn some instances, there can be significant variability\nin safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes\nin trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the\nclinical trial protocols and the rate of dropout among clinical trial participants. Any Phase 1, Phase 2 or Phase 3 clinical trial we\nmay conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidates.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n39\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe are seeking FDA approval to commence\nclinical trials in the U.S. of certain of our product candidates based on clinical data that was obtained in trials conducted outside\nthe U.S., and it is possible that the FDA may not accept data from trials conducted in such locations or conducted nearly 20 years ago.\n\n\n\u00a0\n\n\nIn support of our IND application to commence\na clinical trial in LAPC using genetically engineered live human cells encapsulated using our Cell-in-a-Box\n\u00ae \ntechnology\nin combination with ifosfamide we are relying on a Phase 1/2 clinical trial and a clinical trial previously conducted using the same technology\nin combination with ifosfamide between 1998 and 1999 and between 1999 and 2000, respectively. The Phase 1/2 clinical trial was carried\nout at the Division of Gastroenterology, University of Rostock, Germany, and the Phase 2 clinical trial was carried out at four centers\nin two countries in Europe: Berne, Switzerland, and in Rostock, Munich and Berlin, Germany.\n\n\n\u00a0\n\n\nAlthough the FDA may accept data from clinical\ntrials conducted outside the U.S., acceptance of this data is subject to certain conditions imposed by the FDA. There is a risk that the\nFDA may not accept the data from the two previous trials. In that case, we may be required to conduct a Phase 1 or a Phase 1/2b clinical\ntrial rather than the planned Phase 2b clinical trial in LAPC, currently under clinical hold. This may result in additional costs to us\nand resultant delays in the regulatory review process and any future commercialization and marketing if regulatory approval is obtained.\nIt is not known whether the FDA would be likely to reject the use of such clinical data due to the significant time that has elapsed since\nthe earlier clinical trials were conducted or because the clinical trial material for our proposed clinical trial is different from that\nused in the earlier clinical trials because of cloning the cells used in the earlier trials and certain other modifications and improvements\nthat have been made to the Cell-in-a-Box\n\u00ae \ntechnology since the time of the earlier trials.\n\n\n\u00a0\n\n\nWe intend to conduct clinical trials for\ncertain of our product candidates at sites outside of the U.S., and the U.S. regulatory agencies may not accept data from trials conducted\nin such locations.\n\n\n\u00a0\n\n\nAlthough the FDA may accept data from clinical\ntrials conducted outside the U.S., acceptance of this data is subject to certain conditions imposed by the regulatory agencies outside\nof the U.S. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance\nwith ethical principles. The trial population must also adequately represent the population in the country in which the clinical trial\nis being conducted. The data must be applicable to the U.S. population and medical practice in the U.S. in ways that the FDA deems clinically\nmeaningful. Generally, the patient population for any clinical trial conducted outside of the U.S. must be representative of the population\nfor whom we intend to seek approval in the U.S.\n\n\n\u00a0\n\n\nIn addition, while these clinical trials are subject\nto the applicable local laws, the FDA acceptance of the data will be dependent upon its determination that the trials also complied with\nall applicable U.S. laws and regulations. There can be no assurance that the FDA will accept data from trials conducted outside of the\nU.S. If the FDA does not accept the data from any of our clinical trials that we determine to conduct outside the U.S., it would likely\nresult in the need for additional trials that would be costly and time-consuming and delay or permanently halt the development of our\nproduct candidate.\n\n\n\u00a0\n\n\nIn addition, the conduct of clinical trials outside\nthe U.S. could have a significant impact on us. Risks inherent in conducting international clinical trials include:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nForeign regulatory requirements that could restrict or limit our ability to conduct our clinical trials;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nAdministrative burdens of conducting clinical trials under multiple foreign regulatory schemes;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nForeign exchange fluctuations; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nDiminished protection of intellectual property in some countries.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n40\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf clinical trials of our product candidates\nfail to demonstrate safety and efficacy to the satisfaction of the regulatory agencies, we may incur additional costs or experience delays\nin completing or be unable to complete the development and commercialization of these product candidates.\n\n\n\u00a0\n\n\nWe are not permitted to commercialize, market,\npromote or sell any product candidate in the U.S. without obtaining marketing approval from the FDA. Comparable regulatory agencies outside\nof the U.S., such as the EMA in the European Union, impose similar restrictions. We may never receive such approvals. We may be required\nto complete additional preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidates in\nhumans before we will be able to obtain these approvals.\n\n\n\u00a0\n\n\nClinical testing is expensive, difficult to design\nand implement, can take many years to complete and is inherently uncertain as to outcome. We have not previously submitted an NDA, a BLA\nor a MAA to regulatory agencies for any of our product candidates.\n\n\n\u00a0\n\n\nAny inability to successfully complete preclinical\nand clinical development could result in additional costs to us and impair our ability to generate revenues from product sales, regulatory\nand commercialization milestones and royalties. In addition, if: (i) we are required to conduct additional clinical trials or other testing\nof our product candidates beyond the trials and testing that we contemplate; (ii) we are unable to successfully complete our planned clinical\ntrials of our product candidates or other testing; (iii) the results of these trials or tests are unfavorable, uncertain or are only modestly\nfavorable; or (iv) there are unacceptable safety concerns associated with our product candidates, we, in addition to incurring additional\ncosts, may:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nBe delayed in obtaining marketing approval for our product candidates;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nNot obtain marketing approval at all;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nObtain approval for indications or patient populations that are not as broad as we intended or desired;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nObtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including \u201cblack-box\u201d warnings;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nBe subject to additional post-marketing testing or other requirements; or\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nBe required to remove the product from the market after obtaining marketing approval.\n\n\n\n\n\u00a0\n\n\nResults in previous clinical trials of our\nencapsulated live cell and ifosfamide combination for pancreatic cancer may not be replicated in future clinical trials which could result\nin development delays or a failure to obtain marketing approval.\n\n\n\u00a0\n\n\nResults in the previous Phase 1/2 and Phase 2\nclinical trials of the encapsulated live cell and ifosfamide combination product may not be predictive of similar results in future clinical\ntrials such as our planned clinical trial in LAPC, if allowed to proceed. The previous Phase 1/2 and Phase 2 clinical trials had a relatively\nlimited number of patients in each trial. These trials resulted in outcomes that were not statistically significant and may not be representative\nof future results. In addition, interim results obtained after a clinical trial has commenced do not necessarily predict results in future\nclinical trials. Numerous companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage\nclinical trials even after achieving promising results in early-stage clinical development. Our clinical trials, if allowed to proceed,\nmay produce negative or inconclusive results and we may decide, or regulatory agencies may require us, to conduct additional clinical\ntrials. Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their\nproduct candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain the approval\nfor their products by the regulatory agencies.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n41\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf we experience any unforeseen events in\nthe clinical trials of our product candidates, potential marketing approval or commercialization of our product candidates could be delayed\nor prevented.\n\n\n\u00a0\n\n\nWe may experience numerous unforeseen events during\nour clinical trials, if allowed to proceed, that could delay or prevent marketing approval of our product candidates, including:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nClinical trials of our product candidates may produce unfavorable or inconclusive results;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs or candidates;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe number of patients required for clinical trials of our product candidates may be larger than we anticipate, patient enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we anticipate;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nOur third-party contractors, including those manufacturing our product candidates, components, or ingredients thereof or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner or at all;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nRegulators or IRBs may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe may experience delays in reaching or may fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nPatients who enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinical trial\u2019s duration;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of a product candidate;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nRegulatory agencies or IRBs may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their respective standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate or findings of undesirable effects caused by a chemically or mechanistically similar drug or drug candidate;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nRegulatory agencies may disagree with our clinical trial design or our interpretation of data from preclinical studies and clinical trials;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nRegulatory agencies may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which we enter agreements for clinical and commercial supplies;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe supply or quality of raw materials or manufactured product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient, inadequate, delayed, or not available at an acceptable cost, or we may experience interruptions in supply; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe approval policies or regulations of the regulatory agencies may significantly change in a manner rendering our clinical data insufficient to obtain marketing approval.\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n42\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nProduct development costs for us will increase\nif we experience delays in testing or pursuing marketing approvals. We may also be required to obtain additional funds to complete clinical\ntrials and prepare for possible commercialization of our product candidates. We do not know whether any preclinical studies or clinical\ntrials will begin as planned, will need to be restructured or will be completed on schedule or at all. Significant preclinical study or\nclinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates\nor allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates\nand may harm our business and results of operations. In addition, many of the factors that cause, or lead to, clinical trial delays may\nultimately lead to the denial of marketing approval of any of our product candidates.\n\n\n\u00a0\n\n\nIf we experience delays or difficulties\nin the enrollment of patients in clinical trials, we may not achieve our clinical development timeline and our receipt of necessary regulatory\napprovals could be delayed or prevented.\n\n\n\u00a0\n\n\nWe may not be able to initiate or continue clinical\ntrials for our product candidates if we are unable to locate and enroll enough eligible patients to participate in our clinical trials.\nPatient enrollment is a significant factor in the overall duration of a clinical trial and is affected by many factors, including:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe size and nature of the patient population;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe severity of the disease under investigation;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe proximity of patients to clinical sites;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe eligibility criteria for the trial;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe design of the clinical trial;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nEfforts to facilitate timely enrollment;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nCompeting clinical trials for the same patient population; and\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nClinicians\u2019 and patients\u2019 perceptions as to the potential advantages and risks of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.\n\n\n\n\n\u00a0\n\n\nOur inability to enroll enough patients for our\nclinical trials could result in significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays\nin our clinical trials may result in increased development costs for our product candidates, delay or halt the development of and approval\nprocesses for our product candidates and jeopardize our ability to achieve our clinical development timeline and goals, including the\ndates by which we will commence, complete and receive results from clinical trials. Enrollment delays may also delay or jeopardize our\nability to commence sales and generate revenues from our product candidates. Any of the foregoing could cause the value of our company\nto decline and limit our ability to obtain additional financing, if needed.\n\n\n\u00a0\n\n\nWe may request priority review for our product\ncandidates in the future. The regulatory agencies may not grant priority review for any of our product candidates. Moreover, even if the\nregulatory agencies designated such products for priority review, that designation may not lead to a faster regulatory review or approval\nprocess and, in any event, does not assure approval by the regulatory agencies.\n\n\n\u00a0\n\n\nWe may be eligible for priority review designation\nfor our product candidates if the regulatory agencies determine such product candidates offer major advances in treatment or provide a\ntreatment where no adequate therapy exists. A priority review designation means that the time required for the regulatory agencies to\nreview an application is less than the standard review period. The regulatory agencies have broad discretion with respect to whether to\ngrant priority review status to a product candidate, so even if we believe a product candidate is eligible for such designation or status,\nthe regulatory agencies may decide not to grant it. Thus, while the regulatory agencies have granted priority review to other oncology\nand diabetes products, our product candidates, should we determine to seek priority review of them, may not receive similar designation.\nMoreover, even if one of our product candidates is designated for priority review, such a designation does not necessarily mean a faster\noverall regulatory review process or necessarily confer any advantage with respect to approval compared to conventional procedures of\nthe regulatory agencies.\n\n\n\u00a0\n\n\nReceiving priority review from the regulatory\nagencies does not guarantee approval within an accelerated timeline or thereafter.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n43\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn some instances, we believe we may be\nable to secure approval from the regulatory agencies to use accelerated development pathways. If we are unable to obtain such approval,\nwe may be required to conduct additional preclinical studies or clinical trials beyond those that we contemplate which could increase\nthe expense of obtaining and delay the receipt of necessary marketing approvals.\n\n\n\u00a0\n\n\nWe anticipate that we may seek an accelerated\napproval pathway for certain of our product candidates. Under the accelerated approval provisions or their implementing regulations of\nthe regulatory agencies, they may grant accelerated approval to a product designed to treat a serious or life-threatening condition that\nprovides meaningful therapeutic benefit over available therapies upon a determination that the product influences a surrogate endpoint\nor intermediate clinical endpoint that is reasonably likely to predict clinical benefit. Regulatory agencies consider a clinical benefit\nto be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as irreversible morbidity or\nmortality. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic\nimage, physical sign or other measure that is thought to predict clinical benefit but is not itself a measure of clinical benefit. An\nintermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality\nthat is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval\npathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage but\nis a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent\non the sponsor\u2019s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe\nthe drug\u2019s clinical benefit. If such post-approval studies fail to confirm the drug\u2019s clinical benefit, regulatory agencies\nmay withdraw their approval of the drug.\n\n\n\u00a0\n\n\nPrior to seeking such accelerated approval, we\nwill seek feedback from the regulatory agencies and will otherwise evaluate our ability to seek and receive such accelerated approval.\nThere can also be no assurance that after our evaluation of the feedback and other factors we will decide to pursue or submit an NDA,\na BLA or an MAA for accelerated approval or any other form of expedited development, review or approval. Similarly, there can be no assurance\nthat after subsequent feedback from regulatory agencies that we will continue to pursue or apply for accelerated approval or any other\nform of expedited development, review or approval, even if we initially decide to do so. Furthermore, if we decide to apply for accelerated\napproval or under another expedited regulatory designation (such as the Breakthrough Therapy designation or Fast Track designation), there\ncan be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be\ngranted on a timely basis or at all. Regulatory agencies could also require us to conduct further studies prior to considering our application\nor granting approval of any type. A failure to obtain accelerated approval or any other form of expedited development, review or approval\nfor any of our product candidates that we determine to seek accelerated approval for would result in a longer time to commercialization\nof such product candidate, could increase the cost of development of such product candidate and could harm our competitive position in\nthe marketplace.\n\n\n\u00a0\n\n\nWe may seek Orphan Drug designation for\nsome of our product candidates, and we may be unsuccessful.\n\n\n\u00a0\n\n\nRegulatory agencies may designate drugs for relatively\nsmall patient populations as Orphan Drugs. Under the standards and requirements of regulatory agencies, they may designate a product as\nan Orphan Drug if it is a drug intended to treat a rare disease or condition. In the U.S., this is generally defined as a disease with\na patient population of fewer than 200,000 individuals. If a product with an Orphan Drug designation subsequently receives the first marketing\napproval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes\nthe EMA or FDA from approving another marketing application for the same drug for the same indication during the period of exclusivity.\nThe applicable period is seven years in the U.S. and ten years in Europe. In Europe, a product must meet the orphan prevalence not only\nwhen so designated but at marketing authorization. The European exclusivity period can be reduced to six years if a drug no longer meets\nthe criteria for Orphan Drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n44\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe have been granted Orphan Drug designation for\nour pancreatic cancer therapy in the U.S. and European Union. Orphan Drug exclusivity may be lost if a regulatory agency determines that\nthe request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet\nthe needs of patients with the rare disease or condition. Marketing exclusivity for a product designated as an Orphan Drug may not effectively\nprotect the product candidate from competition because different drugs can be approved for the same condition, and the same drug may be\napproved for a different condition that may be used off label for an orphan indication. Even after an Orphan Drug is approved and granted\nexclusivity, the regulatory agency can subsequently approve the same drug in a different drug product for the same condition if they conclude\nthat the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.\n\n\n\u00a0\n\n\nA Fast Track by the FDA or similar designation\nby another regulatory agency, even if granted for any of our product candidates, may not lead to a faster development or regulatory review\nor approval process and does not increase the likelihood that our product candidates will receive marketing approval.\n\n\n\u00a0\n\n\nWe do not currently have Fast Track designation\nby the FDA or similar designation by another regulatory agency for any of our product candidates but intend to seek such designation based\nupon the data generated from our clinical trials, if allowed to proceed and if successful. If a drug or biologic is intended for the treatment\nof a serious or life-threatening condition and the product candidate demonstrates the potential to address unmet medical needs for this\ncondition, the sponsor may apply for Fast Track designation by the FDA or similar designation by another regulatory agency. Regulatory\nagencies have broad discretion whether to grant this designation by the FDA or similar designation by another regulatory agency. Even\nif we believe a product candidate is eligible for this designation, we cannot assure you that a regulatory agency would decide to grant\nit. Even if we do receive Fast Track or similar designation, we may not experience a faster development process, review or approval compared\nto conventional procedures adopted by a regulatory agency. In addition, a regulatory agency may withdraw Fast Track designation if it\nbelieves that the designation is no longer supported by data from our clinical development program. Many product candidates that have\nreceived Fast Track designation have failed to obtain marketing approval.\n\n\n\u00a0\n\n\nA Breakthrough Therapy designation by the\nFDA or similar designation by another regulatory agency, even if granted for any of our product candidates, may not lead to a faster development\nor regulatory review or approval process and does not increase the likelihood that our product candidates will receive marketing approval.\n\n\n\u00a0\n\n\nWe do not currently have Breakthrough Therapy\ndesignation by the FDA or similar designation by another regulatory agency for any of our product candidates but intend seek such designation\nbased upon the data we generate during our clinical trials, if successful.\n\n\n\u00a0\n\n\nA Breakthrough Therapy or similar designation\nis within the discretion of the FDA and other regulatory agencies. Accordingly, even if we believe, after completing early clinical trials,\nthat one of our product candidates meets the criteria for designation as a Breakthrough Therapy or other similar designation, a regulatory\nagency may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy or other similar\ndesignation for a product candidate may not result in a faster development process, review or approval compared to drugs or biologics\nconsidered for approval under conventional procedures of a regulatory agency and does not assure their ultimate approval. In addition,\neven if one or more of our product candidates receives Breakthrough Therapy designation or other similar designations, a regulatory agency\nmay later decide that such product candidates no longer meet the conditions for the designation.\n\n\n\u00a0\n\n\nFailure to obtain marketing approval in\ninternational jurisdictions would prevent our product candidates from being marketed abroad.\n\n\n\u00a0\n\n\nTo market and sell our product candidates in Europe\nand many other jurisdictions outside the U.S., we or our third-party collaborators must obtain separate marketing approvals and comply\nwith numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The\ntime required to obtain approval may differ substantially from that required to obtain FDA approval in the U.S. The regulatory approval\nprocess outside the U.S. generally includes all the risks associated with obtaining FDA approval. In addition, in many countries outside\nthe U.S., it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We\nor these third parties may not obtain approval from a regulatory agency outside the U.S. on a timely basis, if at all. Approval by FDA\ndoes not ensure approval by a regulatory agency in other countries or jurisdictions, and approval by one regulatory agency outside the\nU.S. does not ensure approval by a regulatory agency in other countries or jurisdictions or by the FDA. We may not be able to file for\nmarketing approvals and may not receive necessary approvals to commercialize our product candidates in any market.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n45\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAny product candidate for which we obtain\nmarketing approval will be subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions\nor withdrawal from the market. We may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated\nproblems with our products, when and if any of our product candidates are approved.\n\n\n\u00a0\n\n\nOur product candidates and the activities associated\nwith their development and commercialization, including their testing, manufacture, recordkeeping, labeling, storage, approval, advertising,\npromotion, sale and distribution, are subject to comprehensive regulation by regulatory agencies. The requirements that result from such\nregulations include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP\nrequirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, including\nperiodic inspections by regulatory agencies, requirements regarding the distribution of samples to physicians and recordkeeping.\n\n\n\u00a0\n\n\nIn addition, regulatory agencies may impose requirements\nfor costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product candidate. Regulatory\nagencies tightly regulate the post-approval marketing and promotion of drugs and biologics to ensure the products are marketed only for\nthe approved indications and in accordance with the provisions of the approved labeling. They also impose stringent restrictions on manufacturers\u2019\ncommunications regarding use of their products. If we promote our product candidates beyond their approved indications, we may be subject\nto enforcement action for off-label promotion. Violations of the laws relating to the promotion of prescription drugs or biologics may\nlead to investigations alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection\nlaws.\n\n\n\u00a0\n\n\nAlso, later discovery of previously unknown adverse\nevents or other problems with our product candidates, manufacturers or manufacturing processes, or failure to comply with regulatory requirements,\nmay yield various results, including:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nRestrictions on such products, manufacturers or manufacturing processes;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nRestrictions on the labeling or marketing of a product;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nRestrictions on product distribution or use;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nRequirements to conduct post-marketing studies or clinical trials;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWarning or untitled letters or Form 483s;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWithdrawal of the products from the market;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nRefusal to approve pending applications or supplements to approved applications that we submit;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nRecall of products;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nFines, restitution or disgorgement of profits or revenues;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nSuspension or withdrawal of marketing approvals;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nRefusal to permit the import or export of our product candidates;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nProduct seizure; or\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nInjunctions or the imposition of civil or criminal penalties\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n46\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nNon-compliance with European requirements regarding\nsafety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can\nalso result in significant financial penalties. Similarly, failure to comply with the Europe\u2019s requirements regarding the protection\nof personal information can also lead to significant penalties and sanctions.\n\n\n\u00a0\n\n\nOur relationships with customers and third-party\npayors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to\ncriminal sanctions, substantial civil penalties, contractual damages, reputational harm and diminished profits and future earnings.\n\n\n\u00a0\n\n\nHealthcare providers, physicians and third-party\npayors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval.\nOur future arrangements with third-party payors and customers may expose us to applicable federal and state fraud and abuse and other\nhealthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell\nand distribute any products for which we obtain marketing approval. Restrictions under applicable healthcare laws and regulations include\nthe following:\n\n\n\u00a0\n\n\nThe Anti-Kickback Statute prohibits, among other\nthings, persons from knowingly and willfully soliciting, offering, receiving or providing any remuneration, directly or indirectly, in\ncash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation\nof, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;\n\n\n\u00a0\n\n\nThe False Claims Act imposes criminal and civil\npenalties, including civil whistleblower or \nqui tam\n actions, against individuals or entities for knowingly presenting, or causing\nto be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease\nor conceal an obligation to pay money to the Federal governments; and\n\n\n\u00a0\n\n\nHIPAA imposes criminal and civil liability for\nexecuting a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. HIPAA, as amended\nby HITECH and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding\nthe privacy, security and transmission of individually identifiable health information. Federal law requires applicable manufacturers\nof covered drugs to report payments and other transfers of value to physicians and teaching hospitals, which includes data collection\nand reporting obligations. The information is to be made publicly available on a searchable website. Analogous state and foreign laws\nand regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving\nhealthcare items or services reimbursed by non-governmental third-party payors, including private insurers.\n\n\n\u00a0\n\n\nSome state laws require pharmaceutical companies\nto comply with the pharmaceutical industry\u2019s voluntary compliance guidelines and the relevant compliance guidance promulgated by\nthe federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians\nand other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information\nin some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating\ncompliance efforts.\n\n\n\u00a0\n\n\nEfforts to ensure that our business arrangements\nwith third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental\nauthorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving\napplicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws\nor any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties,\ndamages, fines, imprisonment, exclusion of our product candidates from government funded healthcare programs, such as Medicare and Medicaid,\nand the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we\nexpect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative\nsanctions, including exclusions from government funded healthcare programs.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n47\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRecently enacted and future legislation\ncould increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the\nprices we may obtain.\n\n\n\u00a0\n\n\nThe United States and many foreign jurisdictions\nhave enacted or proposed legislative and regulatory changes affecting the healthcare system that may affect our ability to profitably\nsell our product candidates, if approved. The United States government, state legislatures and foreign governments also have shown significant\ninterest in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls,\nrestrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs and biologics.\n\n\n\u00a0\n\n\nThe Affordable Care Act was intended to broaden\naccess to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency\nrequirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional\nhealth policy reforms.\n\n\n\u00a0\n\n\nWe expect that the Affordable Care Act, as well\nas other healthcare reform measures that have and may be adopted in the future, may result in more rigorous coverage criteria and in additional\ndownward pressure on the price that we receive for our product candidates, if approved, and could seriously harm our future revenues.\nAny reduction in reimbursement from Medicare, Medicaid, or other government programs may result in a similar reduction in payments from\nprivate payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate\nrevenue, attain and maintain profitability of our product candidates, if approved.\n\n\n\u00a0\n\n\nGovernments outside the U.S. tend to impose\nstrict price controls, which may adversely affect our revenues, if any.\n\n\n\u00a0\n\n\nIn some countries, particularly the EEA countries\nand the United Kingdom, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations\nwith governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement\nor pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product\ncandidate to other available therapies. If reimbursement of our product candidates is unavailable or limited in scope or amount, or if\npricing is set at unsatisfactory levels, our business could be materially harmed.\n\n\n\u00a0\n\n\nRisks Related to the Commercialization of Our Product Candidates\n\n\n\u00a0\n\n\nSerious adverse events or undesirable side\neffects or other unexpected properties of our encapsulated live cell plus ifosfamide product candidate or any of our other product candidates\nmay be identified during development that could delay or prevent the product candidates\u2019 marketing approval.\n\n\n\u00a0\n\n\nSerious adverse events or undesirable side effects\ncaused by, or other unexpected properties of, our product candidates could cause us, an IRB or a regulatory agency to interrupt, delay\nor halt clinical trials of one or more of our product candidates and could result in a more restrictive label or the delay or denial of\nmarketing approval by a regulatory agency. If any of our product candidates is associated with serious adverse events or undesirable side\neffects or has properties that are unexpected, we may need to abandon development or limit development of that product candidate to certain\nuses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable\nfrom a risk-benefit perspective. Many drugs that initially showed promise in clinical or earlier stage testing have later been found to\ncause undesirable or unexpected side effects that prevented further development of the drug.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n48\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nEven if one of our product candidates receives\nmarketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third party payors and others in the\nmedical community necessary for commercial success and the market opportunity for the product candidate may be smaller than we anticipated.\n\n\n\u00a0\n\n\nWe have never commercialized a drug or biologic\nproduct. Even if one of our product candidates is approved by a regulatory agency for marketing and sale, it may nonetheless fail to gain\nsufficient market acceptance by physicians, patients, third party payors and others in the medical community. For example, physicians\nare often reluctant to switch their patients from existing therapies even when new and potentially more effective or convenient treatments\nenter the market. Further, patients often acclimate to the therapy that they are currently taking and do not want to switch unless their\nphysicians recommend switching products or they are required to switch therapies due to lack of reimbursement for existing therapies.\n\n\n\u00a0\n\n\nEfforts to educate the medical community and third-party\npayors on the benefits of our product candidates may require significant resources and may not be successful. If any of our product candidates\nis approved but does not achieve an adequate level of market acceptance, we may not generate significant revenues and we may not become\nprofitable.\n\n\n\u00a0\n\n\nThe degree of market acceptance of our encapsulated\nlive cell plus ifosfamide product candidate or any of our other product candidates, if approved for commercial sale, will depend on several\nfactors, including:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe efficacy and safety of the product;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe potential advantages of the product compared to alternative treatments;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe prevalence and severity of any side effects;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe clinical indications for which the product is approved;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWhether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nLimitations or warnings, including distribution or use restrictions, contained in the product\u2019s approved labeling;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nOur ability to offer the product for sale at competitive prices;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nOur ability to establish and maintain pricing sufficient to realize a meaningful return on our investment;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe product\u2019s convenience and ease of administration compared to alternative treatments;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe willingness of the target patient population to try, and of physicians to prescribe, the product;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n49\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe strength of sales, marketing and distribution support;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe approval of other new products for the same indications;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nChanges in the standard of care for the targeted indications for the product;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe timing of market introduction of our approved products as well as competitive products and other therapies;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nAvailability and amount of reimbursement from government payors, managed care plans and other third-party payors;\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nAdverse publicity about the product or favorable publicity about competitive products; and\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nPotential product liability claims.\n\n\n\n\n\u00a0\n\n\nThe potential market opportunities for our product\ncandidates are difficult to estimate precisely. Our estimates of the potential market opportunities are predicated on many assumptions,\nincluding industry knowledge and publications, third party research reports and other surveys. While we believe that our internal assumptions\nare reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain\nand the reasonableness of these assumptions has not been assessed by an independent source. If any of the assumptions prove to be inaccurate,\nthe actual markets for our product candidates could be smaller than our estimates of the potential market opportunities.\n\n\n\u00a0\n\n\nIf any of our product candidates receives\nmarketing approval and we or others later discover that the therapy is less effective than previously believed or causes undesirable side\neffects that were not previously identified, our ability to market the therapy could be compromised.\n\n\n\u00a0\n\n\nClinical trials of our product candidates, if\nallowed to proceed, will be conducted in carefully defined subsets of patients who have agreed to enter a clinical trial. Consequently,\nit is possible that our clinical trials, if allowed to proceed, may indicate an apparent positive effect of a product candidate that is\ngreater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of\na product candidate, we or others discover that the product candidate is less effective than previously believed or causes undesirable\nside effects that were not previously identified, any of the following adverse events could occur:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nA regulatory agency may withdraw its approval of the product candidate or seize the product candidate;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe may be required to recall the product candidate or change the way the product is administered;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nAdditional restrictions may be imposed on the marketing of, or the manufacturing processes for, the product candidate;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe may be subject to fines, injunctions or the imposition of civil or criminal penalties;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nA regulatory agency may require the addition of labeling statements, such as a \u201cblack box\u201d warning or a contraindication;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution of our product candidate to patients;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWe could be sued and held liable for harm caused to patients;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe product candidate may become less competitive; and\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nOur reputation may suffer.\n\n\n\n\n\u00a0\n\n\nAny of these events could have a material and\nadverse effect on our operations and business and could adversely impact our stock price.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n50\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf we are unable to establish sales, marketing\nand distribution capabilities or enter acceptable sales, marketing and distribution arrangements with third parties, we may not be successful\nin commercializing any product candidate that we develop when a product candidate is approved.\n\n\n\u00a0\n\n\nWe do not have any sales, marketing or distribution\ninfrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success\nfor any approved product candidate, we must either develop a sales and marketing organization, outsource these functions to third parties\nor license our product candidates to others. If approved by the FDA, the EMA or comparable foreign regulatory agencies, we expect to license\nour encapsulated live cell plus ifosfamide product candidate for pancreatic cancer to a large pharmaceutical company with greater resources\nand experience than us.\n\n\n\u00a0\n\n\nWe may not be able to license our encapsulated\nlive cell plus ifosfamide product candidate on reasonable terms, if at all. If other product candidates are approved for smaller or easily\ntargeted markets, we expect to commercialize them in the U.S. directly with a small and highly focused commercialization organization.\nThe development of sales, marketing and distribution capabilities will require substantial resources and will be time-consuming, which\ncould delay any product candidate launch.\n\n\n\u00a0\n\n\nWe expect that we will commence the development\nof these capabilities prior to receiving approval of any of our product candidates. If the commercial launch of a product candidate for\nwhich we recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, we could\nhave prematurely or unnecessarily incurred these commercialization costs. Such a delay may be costly, and our investment could be lost\nif we cannot retain or reposition our sales and marketing personnel.\n\n\n\u00a0\n\n\nIn addition, we may not be able to hire or retain\na sales force in the U.S. that is sufficient in size or has adequate expertise in the medical markets that we plan to target. If we are\nunable to establish or retain a sales force and marketing and distribution capabilities, our operating results may be adversely affected.\nIf a potential partner has development or commercialization expertise that we believe is particularly relevant to one of our product candidates,\nthen we may seek to collaborate with that potential partner even if we believe we could otherwise develop and commercialize the product\ncandidate independently.\n\n\n\u00a0\n\n\nWe expect to seek one or more strategic partners\nfor commercialization of our product candidates outside the U.S. Because of entering arrangements with third parties to perform sales,\nmarketing and distribution services, our product revenues or the profitability of these product revenues may be lower, perhaps substantially\nlower, than if we were to directly market and sell products in those markets. Furthermore, we may be unsuccessful in entering the necessary\narrangements with third parties or may be unable to do so on terms that are favorable to us. In addition, we may have little or no control\nover such third parties and any of them may fail to devote the necessary resources and attention to sell and market our product candidates\neffectively.\n\n\n\u00a0\n\n\nIf we do not establish sales and marketing capabilities,\neither on our own or in collaboration with third parties, we will not be successful in commercializing any of our product candidates that\nreceive marketing approval.\n\n\n\u00a0\n\n\nRisks Related to Our Dependence on Third Parties\n\n\n\u00a0\n\n\nWe rely heavily on third parties to conduct\nour preclinical studies and plan to rely on third parties to conduct our clinical trials, assuming they are allowed to proceed, and those\nthird parties may not perform satisfactorily, including failing to meet deadlines for the completion of such studies and trials.\n\n\n\u00a0\n\n\nWe currently rely heavily on third parties to\nconduct our preclinical studies and plan to rely on third parties to conduct our clinical trials, assuming they are allowed to proceed,\nincluding Austrianova in which we own an equity interest. We expect to continue to rely heavily on third parties, such as a CRO, a clinical\ndata management organization, a medical institution, a clinical investigator and others to plan for and conduct our clinical trials. Our\nagreements with these third parties generally allow the third party to terminate our agreement with them at any time. If we are required\nto enter alternative arrangements because of any such termination, the introduction of our product candidates to market could be delayed.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n51\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur reliance on these third parties for R&D\nactivities will reduce our control over these activities but will not relieve us of our responsibilities. For example, we design our clinical\ntrials and will remain responsible for ensuring that each is conducted in accordance with the general investigational plan and protocol\nfor the trial. Moreover, regulatory agencies require us to comply with current good manufacturing practices (\u201ccGMP\u201d) for conducting,\nrecording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the\nrights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control does not\nrelieve us of these responsibilities and requirements. We also are required to register ongoing clinical trials and post the results of\ncompleted clinical trials on a government-sponsored database of regulatory agencies within specified timeframes. Failure to do so can\nresult in fines, adverse publicity and civil and criminal sanctions.\n\n\n\u00a0\n\n\nFurthermore, these third parties may also have\nrelationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual\nduties, meet expected deadlines or conduct our clinical trials in accordance with the requirements of a regulatory agency or our protocols,\nwe will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to,\nor may be delayed in our efforts to, successfully commercialize our product candidates.\n\n\n\u00a0\n\n\nIn addition, disruptions in the global economy\nand supply chains could adversely affect the financial conditions of the third parties on which we rely, resulting in delays in preclinical\nstudies and clinical trials that could adversely affect our business, financial condition and results of operations. For instance, Austrianova\nfrom time to time has experienced significant supply chain delays, some of which may be related to COVID-19, and we believe it may be\nexperiencing liquidity issues.\n\n\n\u00a0\n\n\nWe rely on numerous consultants for a substantial\nportion of our R&D related to our product candidates. If there are delays or failures to perform their obligations, our product candidates\nwould be adversely affected. If our collaboration with these consultants is unsuccessful or is terminated, we would need to identify new\nresearch and collaboration partners for our preclinical and clinical development. If we are unsuccessful or significantly delayed in identifying\nnew collaboration and research partners, or unable to reach an agreement with such a partner on commercially reasonable terms, development\nof our product candidates will suffer, and our business would be materially harmed.\n\n\n\u00a0\n\n\nIn addition, if any of these consultants change\ntheir strategic focus, or if external factors cause any one of them to divert resources from our collaboration, or if any one of them\nindependently develops products that compete directly or indirectly with our product candidates using resources or information it acquires\nfrom our collaboration, our business and results of operations could suffer.\n\n\n\u00a0\n\n\nFuture preclinical and clinical development\ncollaborations may be important to us. If we are unable to maintain these collaborations, or if these collaborations are not successful,\nour business could be adversely affected.\n\n\n\u00a0\n\n\nFor some of our product candidates, we may in\nthe future determine to collaborate with pharmaceutical and biotechnology companies for development of our product candidates. We face\nsignificant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for any collaboration will depend,\namong other things, upon our assessment of the collaborator\u2019s resources and expertise, the terms and conditions of the proposed\ncollaboration and the proposed collaborator\u2019s evaluation of several factors. If we are unable to reach agreements with suitable\ncollaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce\nor delay its development program or one or more of our other development programs, delay our potential development schedule or increase\nour expenditures and undertake preclinical and clinical development activities at our own expense. If we fail to enter collaborations\nand do not have sufficient funds or expertise to undertake the necessary development activities, we may not be able to further develop\nour product candidates or continue to develop our product candidates and our business may be materially and adversely affected.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n52\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nFuture collaborations we may enter may involve\nthe following risks:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nCollaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nCollaborators may not perform their obligations as expected;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nChanges in the collaborators\u2019 strategic focus or available funding, or external factors, such as an acquisition, may divert resources or create competing priorities;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nCollaborators may delay discovery and preclinical development, provide insufficient funding for product development of targets selected by us, stop or abandon preclinical or clinical development of a product candidate or must repeat or conduct new preclinical and clinical development of a product candidate;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nCollaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed than ours;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nProduct candidates may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the development of our product candidates;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nDisagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development might cause delays or termination of the preclinical or clinical development or commercialization of product candidates. This might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nCollaborators may not properly maintain or defend our intellectual property rights or intellectual property rights licensed to us or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nCollaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nCollaborations may be terminated at the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of our product candidates.\n\n\n\n\n\u00a0\n\n\nIn addition, subject to its contractual obligations\nto us, if a collaborator of ours is involved in a business combination, the collaborator might deemphasize or terminate the development\nof any of our product candidates. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract\nnew collaborators and our perception in the business and financial communities could be adversely affected. If we are unable to maintain\nour collaborations, development of our product candidates could be delayed, and we may need additional resources to develop them.\n\n\n\u00a0\n\n\nWe rely on Prof. G\u00fcnzburg and Dr. Salmons\nfor the development of our product candidates. If they decide to terminate their relationship with us, we may not be successful in the\ndevelopment of our product candidates.\n\n\n\u00a0\n\n\nWe rely on Prof. Walter H. G\u00fcnzburg and Dr. Brian Salmons, officers\nof Austrianova, for the development of our product candidates. If they decide to terminate their relationship with us, we may not be successful\nin the development of our product candidates.\n\n\n\u00a0\n\n\nProf. G\u00fcnzburg and Dr. Salmons are involved\nin almost all our scientific endeavors underway and being planned by us. These endeavors include preclinical and clinical studies involving\nour cancer therapy for LAPC to be conducted in the U.S. and elsewhere on our behalf. They also provide professional consulting services\nto us through the respective consulting agreements we have entered with the consulting companies through which they provide services.\nThe consulting agreements may be terminated for any reason at any time upon one party giving the other written notice prior to the effective\ndate of the termination. If that occurs, we may not be successful in the development of our product candidates which could have a material\nadverse effect on us.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n53\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe manufacture of our product candidates\nis complex, and difficulties may be encountered in production. If such difficulties are encountered or failure to meet regulatory standards\noccurs, our ability to provide supply of our product candidates for clinical trials, if allowed to proceed, or our products for patients,\nif approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.\n\n\n\u00a0\n\n\nThe processes involved in manufacturing our product\ncandidates are complex, expensive, highly regulated and subject to multiple risks. Even minor deviations from normal manufacturing processes\ncould result in reduced production yields, product defects and other supply disruptions. Further, as product candidates are developed\nthrough preclinical studies to potential future clinical trials towards approval and commercialization, it is common that various aspects\nof the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes and results. Such\nchanges carry the risk that they will not achieve these intended objectives, and any of these changes could cause our product candidates\nto perform differently and affect the results of planned clinical trials or other future clinical trials. We expect to rely on third-party\nmanufacturers for the manufacturing of our products.\n\n\n\u00a0\n\n\nIn order to conduct planned or future clinical\ntrials of our product candidates, or supply commercial products, if approved, we will need to have them manufactured in small and large\nquantities. Our manufacturing partners may be unable to successfully increase the manufacturing capacity for any of our product candidates\nin a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities. If our manufacturing\npartners are unable to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development,\ntesting and potential clinical trials of that product candidate may be delayed or become infeasible, and regulatory approval or commercial\nlaunch of any resulting product may be delayed or not obtained, which could significantly harm our business. The same risks would apply\nto our internal manufacturing facilities, should we in the future decide to build internal manufacturing capacity. In addition, building\ninternal manufacturing capacity would carry significant risks in terms of being able to plan, design and execute on a complex project\nto build manufacturing facilities in a timely and cost-efficient manner.\n\n\n\u00a0\n\n\nIn addition, the manufacturing process for any\nproducts that we may develop is subject to FDA, EMA and foreign regulatory authority approval processes and continuous oversight, and\nwe will need to contract with manufacturers who can meet all applicable FDA, EMA and foreign regulatory authority requirements, including\ncomplying with current good manufacturing processes, or on an ongoing basis. If we or our third-party manufacturers are unable to reliably\nproduce products to specifications acceptable to the FDA, EMA or other regulatory authorities, we may not obtain or maintain the approvals\nwe need to commercialize such products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance\nthat either we or our third-party manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA,\nEMA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product,\nor to meet potential future demand. Any of these challenges could delay initiation and completion of clinical trials, require bridging\nclinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidate,\nimpair commercialization efforts, increase our cost of goods, and have an adverse effect on our business, prospects, financial condition,\nresults of operations and growth prospects.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n54\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRisks Related to our Intellectual Property\n\n\n\u00a0\n\n\nWe may not be able to protect our intellectual property rights\nthroughout the world.\n\n\n\u00a0\n\n\nFiling, prosecuting and defending patents or establishing\nother intellectual property rights to our product candidates in all countries throughout the world would be prohibitively expensive, and\nour intellectual property rights in some countries outside the United States can be less extensive than those in the United States or\nnon-existent. For example, the Melligen cells are protected by patents only in the U.S. and Europe and we are only pursuing patent protection\nfor our pancreatic cancer product candidate in the U.S., Australia and Canada.\n\n\n\u00a0\n\n\nMany companies have encountered significant problems\nin protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of some countries do not favor the\nenforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our\npatents or misappropriation of our intellectual property rights generally. Proceedings to enforce our patent and other intellectual property\nrights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business,\ncould put our patents or intellectual property rights at risk of being invalidated or interpreted narrowly and our patent applications\nat risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate,\nand the damages or other remedies awarded, if any, may not be commercially meaningful.\n\n\n\u00a0\n\n\nMany countries, including European Union countries,\nIndia, Japan and China, have compulsory licensing laws under which a patent owner may be compelled under specified circumstances to grant\nlicenses to third parties. In those countries, we may have limited remedies if patents are infringed or if we are compelled to grant a\nlicense to a third party, which could materially diminish the value of those patents. This could limit our ability to pursue strategic\nalternatives, including identifying and consummating transactions with potential third-party partners, to further develop, obtain marketing\napproval for and/or commercialize our product candidates, and consequently our potential revenue opportunities.\n\n\n\u00a0\n\n\nOur intellectual property and data and market\nexclusivity may not be sufficient to block others from commercializing identical or competing products. \n\n\n\u00a0\n\n\nOur success depends in large part on our ability\nto obtain and maintain both intellectual property rights and data and market exclusivity for our product candidates in order to block\nothers from commercializing identical or competing products. Establishing intellectual property rights includes filing, prosecuting, maintaining\nand enforcing patents that cover our product candidates and variations of our product candidates and protecting our trade secrets and\nother proprietary information related to our product candidates from unauthorized use.\n\n\n\u00a0\n\n\nThe foundational patents relating to the Cell-in-the-Box\u00ae\ntechnology that were formerly licensed from Bavarian Nordic/GSF covering capsules encapsulating cells expressing cytochrome P450 and treatment\nmethods using the same expired on March 27, 2017. Currently, we do not have any issued patents in any countries covering our product candidate\nfor the treatment of pancreatic cancer. We exclusively license from UTS patented Melligen cells, which cover our product candidate for\nthe treatment of diabetes, which are issued in the U.S. and Europe and expire in August 2028. Currently, we do not have any issued patents\nor pending applications covering our product candidate for the treatment of cancer using cannabinoids or our product candidate for the\ntreatment of malignant ascites fluid therapy. We may not be able to obtain protection for our product candidates or variations of our\nproduct candidates. Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide\nus with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage or\nour patents may expire before or shortly after our product candidate is approved. Our competitors may be able to circumvent our owned\nor licensed patents by developing similar or alternative technologies or products in a non-infringing manner.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n55\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nConfidential know-how and trade secrets are only\nprotectable to the extent a third party utilizes the confidential know-how or trade secret in an unauthorized manner; however, if a third\nparty is able to independently duplicate the technology, such as through reverse engineering, without access to or use of our confidential\nknow-how or trade secret, we would have no recourse.\n\n\n\u00a0\n\n\nIn addition, data exclusivity that is provided\nthrough the BPCIA in the U.S. and equivalents in foreign countries is limited in both time and scope. The BPCIA bars the FDA from approving\nbiosimilar applications for 12 years after an innovator biological product receives initial marketing approval, however it does not bar\nthe FDA from approving an identical or similar product that is the subject of its own BLA. Finally, upon the approval of the first BLA\nfor a biologic designated as an Orphan Drug for a specified indication, the sponsor of that BLA is entitled to 7 years of exclusive marketing\nrights in the U.S. for biologic for the particular indication unless the sponsor cannot assure the availability of sufficient quantities\nto meet the needs of persons with the disease. In Europe, this exclusivity is 10 years. However, Orphan Drug status for an approved indication\ndoes not prevent another company from seeking approval of a biologic that has other labeled indications that are not under orphan or other\nexclusivities. In addition, in the U.S., the FDA is not prevented from approving another biologic for the same labeled Orphan indication\nif the company can demonstrate that the other biologic is clinically superior to first approved product.\n\n\n\u00a0\n\n\nEven if we are able to obtain patents, maintain\nconfidential information, trade secrets, obtain data, and market exclusivity for our product candidates, our competitors may be able to\ndevelop and obtain approval of identical or competing products.\n\n\n\u00a0\n\n\nIf we are unable to obtain and maintain\nintellectual property protection for our technology and product candidates, or if the scope of the intellectual property protection obtained\nis not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our\nability to successfully commercialize our technology and products may be impaired.\n\n\n\u00a0\n\n\nOur success depends in large part on our ability\nto obtain and maintain patent protection in the U.S. and other countries with respect to our proprietary technology and products. We seek\nto protect our proprietary position by filing patents in the U.S. and abroad related to our product candidates. Our patent portfolio relating\nto the Cell-in-the-Box\n\u00ae\n technology was formerly licensed from Bavarian Nordic/GSF. The Bavarian Nordic/GSF patents covered\ncapsules encapsulating cells expressing cytochrome P450 and treatment methods using the same. These patents expired on March 27, 2017.\nWe exclusively license, from UTS, patented Melligen cells, which cover our product candidate for the treatment of diabetes. The patents\nare issued in the U.S. and Europe and expire in August 2028. Currently, we do not have any issued patents in any countries covering our\nproduct candidate for the treatment of cancer; we have pending applications in the U.S., Australia and Canada and relating to our product\ncandidate for the treatment of pancreatic cancer. If issued, such patents would expire in March 2038.\n\n\n\u00a0\n\n\nWe cannot estimate the financial or other impact\nof the expiration of the Bavarian Nordic/GSF patents or the failure of the USPTO or similar regulatory authorities in other countries\ndenying the claims we pursue in the U.S. and other countries.\n\n\n\u00a0\n\n\nThe patent prosecution and/or patent maintenance\nprocess is expensive and time-consuming. We may not be able to file and prosecute or maintain all necessary or desirable patent applications\nor maintain the existing patents at a reasonable cost or in a timely manner. We may choose not to seek patent protection for certain innovations\nand may choose not to pursue patent protection in certain jurisdictions. Under the laws of certain jurisdictions, patents or other intellectual\nproperty rights may be unavailable or limited in scope. It is also possible that we will fail to identify patentable aspects of our discovery\nand preclinical development output before it is too late to obtain patent protection.\n\n\n\u00a0\n\n\nMoreover, in some circumstances, we do not have\nthe right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that\nwe license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with\nthe best interests of our business.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n56\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe patent position of biotechnology and pharmaceutical\ncompanies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much\nlitigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the U.S. For example,\nIndia does not allow patents for methods of treating the human body. Publications of discoveries in the scientific literature often lag\nthe actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 or more months\nafter filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed\nin our licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Consequently,\nthe issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Any future patent applications\nmay not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others\nfrom commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in\nthe U.S. and other countries may diminish the value of our patents or narrow the scope of our patent protection.\n\n\n\u00a0\n\n\nPatent reform legislation could increase the uncertainties\nand costs surrounding the prosecution of our owned or licensed patent applications and the enforcement or defense of our owned or licensed\npatents. On September 16, 2011, the Leahy-Smith America Invents Act (\u201cLeahy-Smith Act\u201d) was signed into law. The Leahy-Smith\nAct includes several significant changes to patent law in the U.S. These include provisions that affect the way patent applications are\nprosecuted and may also affect patent litigation. The USPTO recently developed new regulations and procedures to govern administration\nof the Leahy-Smith Act. Many of the substantive changes to patent law associated with the Leahy-Smith Act, such as the first to file provisions,\nonly became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation\nof our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution\nof our owned or licensed patent applications and the enforcement or defense of our owned or licensed patents, all of which could have\na material adverse effect on our business and financial condition.\n\n\n\u00a0\n\n\nAlso, we may be subject to a third-party pre-issuance\nsubmission of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter-party review, post-grant review\nor interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission,\nproceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology\nor products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without\ninfringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications\nis threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current our future product\ncandidates.\n\n\n\u00a0\n\n\nEven if our owned and licensed patent applications\nissue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing\nwith us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents\nby developing similar or alternative technologies or products in a non-infringing manner.\n\n\n\u00a0\n\n\nThe issuance of a patent is not conclusive as\nto its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices\nin the U.S. and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated\nor held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical\ntechnology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required\nfor the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or\nshortly after such candidates are commercialized. Thus, our owned and licensed patent portfolio may not provide us with sufficient rights\nto exclude others from commercializing products similar or identical to ours.\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n57\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe risks described elsewhere pertaining to our\npatents and other intellectual property rights also apply to the intellectual property rights that we license, and any failure to obtain,\nmaintain and enforce these rights could have a material adverse effect on our business. In some cases, we may not have control over the\nprosecution, maintenance or enforcement of the patents that we license. Moreover, our licensors may fail to take the steps that we believe\nare necessary or desirable to obtain, maintain and enforce the licensed patents. Any inability on our part to protect adequately our intellectual\nproperty may have a material adverse effect on our business, operating results and financial position.\n\n\n\u00a0\n\n\nIf we do not obtain patent and/or data exclusivity for our product\ncandidates, our business may be materially harmed.\n\n\n\u00a0\n\n\nOur commercial success will largely depend on\nour ability to obtain and maintain patent and other intellectual property protection and/or data exclusivity under the BPCIA in the U.S.\nand other countries with respect to our proprietary technology, product candidates and our target indications.\n\n\n\u00a0\n\n\nIf we are unable to obtain patents covering our\nproduct candidates or obtain data and/or marketing exclusivity for our product candidates, our competitors may be able to take advantage\nof our investment in development and clinical trials by referencing our clinical and preclinical data to obtain approval of competing\nproducts, such as a biosimilar, earlier than might otherwise be the case.\n\n\n\u00a0\n\n\nObtaining and maintaining our patent protection\ndepends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent\nagencies. Our patent protection could be reduced or eliminated for non-compliance with these requirements.\n\n\n\u00a0\n\n\nPeriodic maintenance fees, renewal fees, annuity\nfees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent\nagencies outside of the U.S. in several stages over the lifetime of the patents and/or applications. The USPTO and various non-U.S. governmental\npatent agencies require compliance with numerous procedural, documentary, fee payment and other similar provisions during the patent application\nprocess. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured\nby payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance\ncan result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the\nrelevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material\nadverse effect on our business.\n\n\n\u00a0\n\n\nWe may become involved in lawsuits to protect\nor enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.\n\n\n\u00a0\n\n\nBecause competition in our industry is intense,\ncompetitors may infringe or otherwise violate our issued patents, patents of our licensors or other intellectual property. To counter\ninfringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims\nwe assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their\npatents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole\nor in part, construe the patent\u2019s claims narrowly or refuse to stop the other party from using the technology at issue because our\npatents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of the patents associated\nwith our business at risk of being invalidated or interpreted narrowly. We may also elect to enter license agreements to settle patent\ninfringement claims or to resolve disputes prior to litigation, and any such license agreements may require us to pay royalties and other\nfees that could be significant. Furthermore, because of the substantial amount of discovery required in intellectual property litigation,\nthere is a risk that some of our confidential information could be compromised by disclosure.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n58\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIf we breach any of our license or collaboration\nagreements, it could compromise our development and commercialization efforts for our product candidates.\n\n\n\u00a0\n\n\nWe have licensed rights to intellectual property\nfrom third parties to commercialize our product candidates, including our Cell-in-a-Box\n\u00ae\n Technology for LAPC and diabetes.\nIf we materially breach or fail to perform any provision under these license and collaboration agreements, including failure to make payments\nto a licensor or collaborator when due for royalties and failure to use commercially reasonable efforts to develop and commercialize our\nproduct candidates, such licensors and collaborators have the right to terminate our agreements, and upon the effective date of such termination,\nour right to practice the licensed intellectual property would end. Any uncured, material breach under the agreements could result in\nour loss of rights to practice the patent rights and other intellectual property licensed to us under the agreements and could result\nin the loss of our ability to develop or commercialize our product candidates.\n\n\n\u00a0\n\n\nWe may need to license certain intellectual\nproperty from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.\n\n\n\u00a0\n\n\nA third party may hold intellectual property,\nincluding patent rights, which are important or necessary to the development of our products. It may be necessary for us to use the patented\nor proprietary technology of third parties to commercialize our products, in which case we would be required to obtain a license from\nthese third parties on commercially reasonable terms, or our business could be harmed, possibly materially. Although we believe that licenses\nto these patents may be available from these third parties on commercially reasonable terms, if we were not able to obtain a license,\nor are not able to obtain a license on commercially reasonable terms, our business could be harmed, possibly materially.\n\n\n\u00a0\n\n\nThird parties may initiate legal proceedings\nalleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material\nadverse effect on the success of our business.\n\n\n\u00a0\n\n\nOur commercial success depends upon our ability,\nand the ability of our collaborators, to develop, manufacture, market and sell our product candidates and use our proprietary technologies\nwithout infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology\nand pharmaceutical industries. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual\nproperty rights with respect to our products and technology, including interference or derivation proceedings before the USPTO and various\ngovernmental patent agencies outside of the U.S. Third parties may assert infringement claims against us based on existing patents or\npatents that may be granted in the future.\n\n\n\u00a0\n\n\nIf we are found to infringe a third party\u2019s\nintellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our\nproduct candidates and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all.\nEven if we could obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed\nto us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could\nbe found liable for monetary damages, including treble damages and attorneys\u2019 fees if we are found to have willfully infringed a\npatent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business\noperations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets\nof third parties could have a similar negative impact on our business.\n\n\n\u00a0\n\n\nWe may not be successful in obtaining or\nmaintaining necessary rights for its development pipeline through acquisitions and licenses from third parties.\n\n\n\u00a0\n\n\nBecause our programs may involve additional product\ncandidates that may require the use of proprietary rights held by third parties, the growth of our business may depend in part on our\nability to acquire, in-license or use these proprietary rights. We may be unable to acquire or in-license any compositions, methods of\nuse or other third-party intellectual property rights from third parties that we identify. The licensing and acquisition of third-party\nintellectual property rights is a competitive area, and numerous established companies are also pursuing strategies to license or acquire\nthird-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage\nover us due to their size, cash resources and greater clinical development and commercialization capabilities.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n59\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nIn addition, companies that perceive us to be\na competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual\nproperty rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain\nrights to required third-party intellectual property rights, our business, financial condition and prospects for growth could suffer.\n\n\n\u00a0\n\n\nIf we are unable to protect the confidentiality\nof our trade secrets, our business and competitive position would be harmed.\n\n\n\u00a0\n\n\nIn addition to seeking patents for some of our\ntechnology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information,\nto maintain our competitive position. We seek to protect these trade secrets, in part, by entering non-disclosure and confidentiality\nagreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract\nmanufacturers, consultants, advisors and other third parties. We seek to protect our confidential proprietary information, in part, by\nentering confidentiality agreements with our employees and consultants; however, we cannot be certain that such agreements have been entered\nwith all relevant parties.\n\n\n\u00a0\n\n\nMoreover, to the extent we enter such agreements,\nany of these parties may breach the agreements and disclose our proprietary information, including our trade secrets to unaffiliated third\nparties. We may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated\na trade secret is difficult, expensive and time-consuming and the outcome is unpredictable. In addition, some courts inside and outside\nthe U.S. are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently\ndeveloped by a competitor, we would have no right to prevent them, or those to whom they communicate them, from using that technology\nor information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our\ncompetitive position would be harmed.\n\n\n\u00a0\n\n\nThe majority of the technology that we license\nand use for our product candidates is not protected by patents, but rather is based upon confidential know-how and trade secrets. Confidential\nknow-how and trade secrets are only protectable to the extent a third party utilizes the confidential know-how or trade secret in an unauthorized\nmanner; however, if a third party is able to independently duplicate the technology, such as through reverse engineering, without access\nto or use of our confidential know-how or trade secret, we would have no recourse.\n\n\n\u00a0\n\n\nWe may be subject to claims that our employees,\nconsultants or independent contractors have wrongfully used or disclosed confidential information of their former employers or other third\nparties.\n\n\n\u00a0\n\n\nWe employ individuals and use consultants and\nindependent contractors who were previously employed at other biotechnology or pharmaceutical companies. Although we seek to ensure that\nour employees and our consultants and independent contractors do not use the proprietary information or know-how of others in their work\nfor us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used\nor disclosed trade secrets, or other confidential information of our employees\u2019, consultants\u2019 or independent contractors\u2019\nformer employers, clients or other third parties. We may also be subject to claims that former employers or other third parties have an\nownership interest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending\nthese claims, and if we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property\nrights, such as exclusive ownership of, or right to use, valuable intellectual property. Even if we are successful, litigation could result\nin substantial cost and be a distraction to our management and others working for us.\n\n\n\u00a0\n\n\nIn addition, while it is our policy to require\nour employees, consultants and independent contractors who may be involved in the development of intellectual property to execute agreements\nassigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops\nintellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and\nwe may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what\nwe regard as our intellectual property. If we or our licensors fail in prosecuting or defending any such claims, in addition to paying\nmonetary damages, we may lose valuable intellectual property rights or personnel. Even if we and our licensors are successful in prosecuting\nor defending against such claims, litigation could result in substantial costs and be a distraction to management.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n60\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAny trademarks we have obtained or may obtain\nmay be infringed or successfully challenged, resulting in harm to our business.\n\n\n\u00a0\n\n\nWe expect to rely on trademarks as one means to\ndistinguish any of our drug candidates that are approved for marketing from the products of our competitors. Once we select new trademarks\nand apply to register them, our trademark applications may not be approved. Third parties may oppose or attempt to cancel our trademark\napplications or trademarks, or otherwise challenge our use of the trademarks. If our trademarks are successfully challenged, we could\nbe forced to rebrand our drugs, which could result in loss of brand recognition and could require us to devote resources to advertising\nand marketing new brands. Our competitors may infringe our trademarks and we may not have adequate resources to enforce our trademarks.\n\n\n\u00a0\n\n\nIntellectual property rights do not necessarily\naddress all potential threats to our competitive advantage.\n\n\n\u00a0\n\n\nThe degree of future protection afforded by our\nintellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business,\nor permit us to maintain our competitive advantage. The following examples are illustrative:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nothers may be able to make compositions that are the same as or like our product candidates, but that are not covered by the claims of any patents that we may own or exclusively license;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nothers may be able to make product that is like the product candidates we intend to commercialize that is not covered by any patents that we might own or exclusively license and have the right to enforce;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nwe, our licensors or any collaborators might not have been the first to make the inventions covered by issued patents or pending patent applications that we may own;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nwe, our licensors or any collaborators might not have been the first to file patent applications covering certain of our inventions;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nothers may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nit is possible that our pending patent applications will not lead to issued patents;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nissued patents that we may own may not provide us with any competitive advantages, or may be held invalid or unenforceable because of legal challenges;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nour competitors might conduct research and development activities in the U.S. and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; and\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nwe may not develop additional proprietary technologies that are patentable.\n\n\n\n\n\u00a0\n\n\nRisks Related to Our Business Model and Operations\n\n\n\u00a0\n\n\nDevelopment of brand awareness is critical\nto our success.\n\n\n\u00a0\n\n\nFor certain market segments that we plan to pursue,\nthe development of our brand awareness is essential for us to reduce our marketing expenditures over time and realize greater benefits\nfrom marketing expenditures. If our brand-marketing efforts are unsuccessful, growth prospects, financial condition and results of operations\nwould be adversely affected. Our brand awareness efforts have required, and will most likely continue to require, additional expenses\nand time of the current senior management team.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n61\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nAny weakness in our internal controls could\nhave a material adverse effect on us.\n\n\n\u00a0\n\n\nAs discussed in Item 9A. \u201cControls and Procedures,\u201d\nthe senior management has identified a material weakness in our internal controls over financial reporting and cannot assure you that\nadditional material weaknesses will not be identified in the future. We cannot assure you that these steps will be successful in preventing\nmaterial weaknesses or significant deficiencies in our internal controls over financial reporting in the future. In addition, any such\nfailure could adversely affect our ability to report financial results on a timely and accurate basis, which could have other material\neffects on our business, reputation, results of operations, financial condition or liquidity. Material weaknesses in internal controls\nover financial reporting or disclosure controls and procedures could also cause investors to lose confidence in our reported financial\ninformation which could have an adverse effect on the trading price of our securities.\n\n\n\u00a0\n\n\nThe insurance coverage and reimbursement\nstatus of newly approved products are uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current\nproducts could limit our ability to market those products and decrease our ability to generate revenue.\n\n\n\u00a0\n\n\nThe availability and extent of reimbursement by\ngovernmental and private payors is essential for most patients to be able to afford expensive treatments. Sales of our products, if approved\nwill depend substantially, both domestically and abroad, on the extent to which the costs of our products, if approved, will be paid by\nhealth maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health\nadministration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available\nonly to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved\nreimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on\nour investment.\n\n\n\u00a0\n\n\nThere is significant uncertainty related to the\ninsurance coverage and reimbursement of newly approved products. In the U.S., the principal decisions about reimbursement for new medicines\nare typically made by the CMS, an agency within the HHS. CMS decides whether and to what extent a new medicine will be covered and reimbursed\nunder Medicare. Private payors tend to follow CMS to a substantial degree. It is difficult to predict what CMS will decide with respect\nto reimbursement for fundamentally novel products such as ours, as there is no body of established practices and precedents for these\nnew products. Reimbursement agencies in Europe may be more conservative than CMS. For example, several cancer drugs have been approved\nfor reimbursement in the U.S. and have not been approved for reimbursement in certain European countries. Outside the U.S., international\noperations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing\nemphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and\nusage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as\npart of national health systems. In general, the prices of medicines under such systems are substantially lower than in the U.S. Other\ncountries allow companies to fix their own prices for medicines but monitor and control company profits. Additional foreign price controls\nor other changes in pricing regulation could restrict the amount that we can charge for our product candidates. Accordingly, in markets\noutside the U.S., the reimbursement for our products may be reduced compared with the U.S. and may be insufficient to generate commercially\nreasonable revenues and profits.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n62\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nMoreover, increasing efforts by governmental and\nthird-party payors, in the U.S. and abroad, to cap or reduce healthcare costs may cause such organizations to limit both coverage and\nlevel of reimbursement for new products approved and, thus, they may not cover or provide adequate payment for our product candidates.\nWe expect to experience pricing pressures with the sale of any of our products, if approved, due to the trend toward managed healthcare,\nthe increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs\nin general, particularly prescription drugs and biologics and surgical procedures and other treatments, has become very intense. Because\nof this, increasingly high barriers are being erected to the entry of new products into the healthcare market.\n\n\n\u00a0\n\n\nIn addition to CMS and private payors, professional\norganizations such as the National Comprehensive Cancer Network and the American Society of Clinical Oncology can influence decisions\nabout reimbursement for new medicines by determining standards for care. Many private payors may also contract with commercial vendors\nwho sell software that provide guidelines that attempt to limit utilization of, and therefore reimbursement for, certain products deemed\nto provide limited benefit to existing alternatives. Such organizations may set guidelines that limit reimbursement or utilization of\nour products.\n\n\n\u00a0\n\n\nOur employees, consultants and independent\ncontractors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements,\nwhich could subject us to significant liability and harm our reputation.\n\n\n\u00a0\n\n\nWe are exposed to the risk of fraud and other\nmisconduct by those who work for us. Misconduct by employees, consultants or independent contractors could include failures to comply\nwith the FCPA or with the DEA, the FDA or the EMA regulations or similar regulations of other foreign regulatory authorities or to provide\naccurate information to the DEA, the FDA, the EMA or other foreign regulatory authorities. In addition, misconduct could include failures\nto comply with certain manufacturing standards, to comply with U.S. federal and state healthcare fraud and abuse laws and regulations\nand similar laws and regulations established and enforced by comparable foreign regulatory authorities, to report financial information\nor data accurately or to disclose unauthorized activities to us. Misconduct by those who work for us could also involve the improper use\nof information obtained during our clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We\nhave implemented and will enforce a Code of Business Conduct and Ethics, but it is not always possible to identify and deter misconduct\nby those who work for us. The precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged\nrisks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with\nsuch laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting\nour rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant\nfines or other sanctions.\n\n\n\u00a0\n\n\nOur transactions and relationships outside\nthe U.S. will be subject to the FCPA and similar anti-bribery and anti-corruption laws.\n\n\n\u00a0\n\n\nAs we pursue international clinical trials, licensing\nand, in the future, sales arrangements outside the U.S., we will be heavily regulated and expect to have significant interaction with\nforeign officials. Additionally, in many countries outside the U.S., the health care providers who prescribe pharmaceuticals are employed\nby the government and the purchasers of pharmaceuticals are government entities; therefore, our interactions with these prescribers and\npurchasers would be subject to regulation under the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other\ncountries in which we operate. The FCPA generally prohibits paying, offering or authorizing payment or offering of anything of value,\ndirectly or indirectly, to any foreign official, political party or candidate to influence official action, or otherwise obtain or retain\nbusiness. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions\nof the corporation and to devise and maintain an adequate system of internal accounting controls.\n\n\n\u00a0\n\n\nCompliance with these laws and regulations may\nbe costly and may limit our ability to expand into certain markets. There is no certainty that all our employees, agents, contractors,\nor collaborators, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level\nof complexity of these laws and regulations. Violations of these laws and regulations could result in fines, criminal sanctions against\nus, our officers, or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business\nactivities in sanctioned countries, implementation of compliance programs and prohibitions on the conduct of our business. Any such violations\ncould include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation,\nour brand, our international expansion efforts, our ability to attract and retain employees and our business, prospects, operating results\nand financial condition.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n63\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nProduct liability lawsuits against us could\ncause us to incur substantial liabilities and to limit commercialization of any products that we may develop.\n\n\n\u00a0\n\n\nWe face an inherent risk of product liability\nexposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially\nsell any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or products\ncaused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nDecreased demand for any product candidates or products that we may develop;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nInjury to our reputation and significant negative media attention;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nWithdrawal of clinical trial participants;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nSignificant costs to defend the related litigation;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nSubstantial monetary awards to trial participants or patients;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nLoss of revenue;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nReduced resources of our management to pursue our business strategy; and\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe inability to commercialize any products that we may develop.\n\n\n\n\n\u00a0\n\n\nWe currently do not have product liability insurance\nbecause we do not have any products to market. We will need such insurance for clinical trials, if allowed to proceed, and for commercialization\nof our products, if approved. Product liability insurance coverage is increasingly expensive. We may not be able to maintain insurance\ncoverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.\n\n\n\u00a0\n\n\nWe incur increased costs because of operating\nas a public company, and our management is required to devote substantial time to new compliance initiatives.\n\n\n\u00a0\n\n\nAs a public company, we have incurred and are\ncontinuing to incur significant legal, accounting and other expenses. These expenses may increase. We are subject to, among others, the\nreporting requirements of the Exchange Act of 1934, as amended (\u201cExchange Act\u201d), the Sarbanes-Oxley Act, the Dodd-Frank Wall\nStreet Reform and Protection Act, as well as rules adopted, and to be adopted, by the Commission. Our management and other personnel devote\na substantial amount of time to these compliance initiatives.\n\n\n\u00a0\n\n\nMoreover, these rules and regulations have substantially\nincreased our legal and financial compliance costs and made some activities more time-consuming and costlier. The increased costs have\nincreased our net loss. These rules and regulations may make it more difficult and more expensive for us to maintain sufficient director\nand officer liability insurance coverage. We cannot predict or estimate the amount or timing of additional costs we may continue to incur\nto respond to these requirements. The ongoing impact of these requirements could also make it more difficult for us to attract and retain\nqualified persons to serve on our Board, our Board committees or as executive officers.\n\n\n\u00a0\n\n\nRisk Factors Related to Our Stock and Financial\nCondition\n\n\n\u00a0\n\n\nOur common stock is currently listed on Nasdaq.\nMarket prices for our shares of common stock will be influenced by several factors, including, but not limited to:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe issuance of new shares pursuant to future offering;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nChanges in interest rates;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nNew services or significant contracts and acquisitions;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nVariations in quarterly operating results;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nChange in financial estimates by securities analysts;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nThe depth and liquidity of the market for the shares;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nInvestor perceptions of us and of investments based in the countries where we do business or conduct research; and\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nGeneral economic and other national and international conditions.\n\n\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n64\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nYou may experience future dilution as a result of future equity\nofferings.\n\n\n\u00a0\n\n\nIn order to raise additional capital, we may in\nthe future offer additional common stock or other securities convertible into or exchangeable for our common stock at prices lower than\nthat paid by existing investors. Investors purchasing shares or other securities in the future could have rights superior to existing\nshareholders. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into\ncommon stock, in future transactions may be higher or lower than the price per share paid by existing investors.\n\n\n\u00a0\n\n\nWe may not be able to meet the continued\nlisting requirements for Nasdaq or another nationally recognized stock exchange, which could limit investors\u2019 ability to make transactions\nin our securities and subject us to additional trading restrictions.\n\n\n\u00a0\n\n\nIn order to remain listed on Nasdaq, we will be\nrequired to meet the continued listing requirements of Nasdaq or any other U.S. or nationally recognized stock exchange to which we may\napply and be approved for listing. We may be unable to satisfy these continued listing requirements, and there is no guarantee that our\ncommon stock will remain listed on Nasdaq or any other U.S. or nationally recognized stock exchange. If, after listing, our common stock\nis delisted from Nasdaq or any other U.S. or nationally recognized stock exchange, we could face significant material adverse consequences,\nincluding:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\na limited availability of market quotations for our common stock;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nreduced liquidity with respect to the market for our common stock;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\na determination that our common stock is a \u201cpenny stock,\u201d which will require brokers trading in our common stock to adhere to different rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock;\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\na limited amount of news and analyst coverage; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ndecreased ability to issue additional shares of our common stock or obtain additional financing in the future.\n\n\n\n\n\u00a0\n\n\nA large number of shares may be issued and subsequently sold\nupon the exercise of existing options and warrants and upon the conversion of the Series B Preferred Stock.\n\n\n\u00a0\n\n\nAs of July 25, 2023, there were 281,269 shares\nof common stock issuable under outstanding options, 18,570,847 shares of common stock issuable upon exercise of outstanding warrants at\nvarious exercise prices and 68,183,469 shares of common stock reserved for issuance upon conversion of the Series B Preferred Stock. To\nthe extent that holders of existing options or warrants sell the shares of common stock issued upon the exercise of warrants, the market\nprice of our common stock may decrease due to the additional selling pressure in the market. The risk of dilution from issuances of shares\nof common stock underlying existing options and warrants may cause shareholders to sell their common stock, which could further decline\nin the market price.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n65\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nThe requirement\nthat we redeem the Series B Preferred Stock in cash could adversely affect our business plan, liquidity, financial condition, and results\nof operations.\n\n\n\u00a0\n\n\nIf not converted, we are required to redeem some\nor all of the outstanding shares of Series B Preferred Stock for cash under certain circumstances. These obligations could have important\nconsequences on our business. In particular, they could:\n\n\n\u00a0\n\n\n\n\n\u00b7\nlimit our flexibility in planning\nfor, or reacting to, changes in our businesses and the industries in which we operate;\n\n\n\n\n\u00b7\nincrease our vulnerability to\ngeneral adverse economic and industry conditions; and\n\n\n\n\n\u00b7\nplace us at a competitive disadvantage\ncompared to our competitors.\n\n\n\u00a0\n\n\nNo assurances can be given that we will be successful\nin making the required payments to the holders of the Series B Preferred Stock or that we will be able to comply with the financial or\nother covenants contained in the Certificate of Designations. If we are unable to make the required cash payments or otherwise comply\nwith the Certificate of Designations:\n\n\n\u00a0\n\n\n\n\n\u00b7\ndividends will accrue on the\nSeries B Preferred Stock at 15% per annum;\n\n\n\n\n\u00b7\nthe holders of the Series B\nPreferred Stock could foreclose against our assets; and/or\n\n\n\n\n\u00b7\nwe could be forced into bankruptcy\nor liquidation.\n\n\n\u00a0\n\n\nThe terms of the\nSeries B Preferred Stock could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing\nconditions and engage in other business activities that may be in our best interests.\n\n\n\u00a0\n\n\nThe Certificate of Designations contains a number\nof affirmative and negative covenants regarding matters such as the payment of dividends, maintenance of our properties and assets, transactions\nwith affiliates, and our ability to issue other indebtedness.\n\n\n\u00a0\n\n\nOur ability to comply with these covenants may\nbe adversely affected by events beyond our control, and we cannot assure you that we can maintain compliance with these covenants. The\nfinancial covenants could limit our ability to make needed expenditures or otherwise conduct necessary or desirable business activities.\n\n\n\u00a0\n\n\nWe may obtain additional\ncapital through the issuance of preferred stock, which may limit your rights as a holder of our common stock.\n\n\n\u00a0\n\n\nWithout any stockholder vote or action, our Board\nmay designate and approve for issuance shares of our preferred stock. The terms of any preferred stock may include priority claims to\nassets and dividends and special voting rights which could limit the rights of the holders of our common stock. The designation and issuance\nof preferred stock favorable to current management or stockholders could make any possible takeover of us or the removal of our management\nmore difficult.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n66\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe may experience volatility in our stock price, which may adversely\naffect the trading price of our common stock.\n\n\n\u00a0\n\n\nWe have experienced significant volatility from\ntime to time in the market price of our shares of common stock. Factors that may affect the market price include the following:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nAnnouncements of regulatory developments or technological innovations by us or our competitors;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nChanges in our relationship with our licensors and other strategic partners;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nOur quarterly operating results;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nLitigation involving or affecting us;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nShortfalls in our actual financial results compared to our guidance or the forecasts of stock market analysts;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nDevelopments in patent or other technology ownership rights;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nAcquisitions or strategic alliances by us or our competitors;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nPublic concern regarding the safety of our products; and\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nGovernment regulation of drug pricing.\n\n\n\n\n\u00a0\n\n\nThe price of our common stock is volatile,\nwhich substantially increases the risk that our investors may not be able to sell their shares at or above the price that the investors\nhave paid for their shares.\n\n\n\u00a0\n\n\nBecause of the price volatility in our shares,\nwe have observed since its inception, investors in our common stock may not be able to sell their shares when they desire to do so at\na price the investors desire to attain. Over the past twelve months, shares of our common stock were quoted and traded at a high of $3.10\nper share and a low of $1.95 per share. The inability to sell securities in a rapidly declining market may substantially increase the\nrisk of loss because the price of our common stock may suffer greater declines due to the historical price volatility of our shares. Certain\nfactors, some of which are beyond our control, which may cause our share price to fluctuate significantly include, but are not limited\nto, the following:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nVariations in our quarterly operating results;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nLoss of a key relationship or failure to complete significant product candidate milestones timely or at all;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nAdditions or departures of key personnel; and\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nFluctuations in the stock market price and volume.\n\n\n\n\n\u00a0\n\n\nIn addition, in recent years the stock market\nin general, and the over-the-counter markets in particular, have experienced extreme price and volume fluctuations. In some cases, these\nfluctuations are unrelated or disproportionate to the performance of the underlying company. These market and industry factors may materially\nand adversely affect our share price, regardless of our performance or whether we meet our business objectives. In the past, class action\nlitigation often has been brought against companies following periods of volatility in the market price of those companies\u2019 common\nstock. If we become involved in this type of litigation in the future, it could result in substantial costs and diversion of management\nattention and resources, which could have a material adverse effect on us and the trading price of our common stock.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n67\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nWe have no plans to pay dividends in the\nforeseeable future, and investors may not expect a dividend as a return of or on any investment in us.\n\n\n\u00a0\n\n\nWe have not paid dividends on our shares of common\nstock and do not anticipate paying such dividends in the foreseeable future. In addition, the terms of the certificate of designations\ngoverning our Series B convertible preferred stock presently restricts our ability to pay dividends.\n\n\n\u00a0\n\n\nWe are a \u201csmaller reporting company\u201d under the SEC\u2019s\ndisclosure rules and have elected to comply with the reduced disclosure requirements applicable to smaller reporting companies.\n\n\n\u00a0\n\n\nWe are a \u201csmaller reporting company\u201d under the SEC\u2019s\ndisclosure rules, meaning that we have either:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\na public float of less than $250 million; or\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nannual revenues of less than $100 million during the most recently completed fiscal year; and\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nno public float; or\n\n\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\na public float of less than $700 million.\n\n\n\n\n\u00a0\n\n\nAs a smaller reporting company, we are permitted\nto comply with scaled-back disclosure obligations in our SEC filings compared to other issuers, including with respect to disclosure obligations\nregarding executive compensation in our periodic reports and proxy statements. We have elected to adopt the accommodations available to\nsmaller reporting companies. Until we cease to be a smaller reporting company, the scaled-back disclosure in our SEC filings will result\nin less information about our company being available than for other public companies.\n\n\n\u00a0\n\n\nIf investors consider our common stock less attractive\nas a result of our election to use the scaled-back disclosure permitted for smaller reporting companies, there may be a less active trading\nmarket for our common stock and our share price may be more volatile.\n\n\n\u00a0\n\n\nAs a non-accelerated filer, we are not required to comply with\nthe auditor attestation requirements of the Sarbanes-Oxley Act.\n\n\n\u00a0\n\n\nWe are a non-accelerated filer under the Exchange\nAct, and we are not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.\nTherefore, our internal controls over financial reporting will not receive the level of review provided by the process relating to the\nauditor attestation included in annual reports of issuers that are subject to the auditor attestation requirements. In addition, we cannot\npredict if investors will find our common stock less attractive because we are not required to comply with the auditor attestation requirements.\nIf some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and\ntrading price for our common stock may be negatively affected.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n68\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRisks Related to Employee and Tax Matters,\nManaging Growth and Macroeconomic Conditions\n\n\n\u00a0\n\n\nWe have experienced\nsignificant management changes which could increase our control risks and have a material adverse effect on our ability to do business\nand our results of operations.\n\n\n\u00a0\n\n\nWe have recently experienced\na number of changes in our management, including changes in our Chief Executive Officer and Board. The magnitude of these changes and\nthe short time interval in which they have occurred add to the risks of control failures, including a failure in the effective operation\nof our internal control over financial reporting or our disclosure controls and procedures. Control failures could result in material\nadverse effects on our financial condition and results of operations. It may take time for the new management team to become sufficiently\nfamiliar with our business and each other to effectively develop and implement our business strategies. The turnover of key management\npositions could further harm our financial performance and results of operations. Management attention may be diverted from regular business\nconcerns by reorganizations.\n\n\n\u00a0\n\n\nWe have a limited number of employees and\nare highly dependent on our Chief Executive Officer and Chief Financial Officer. Our future success depends on our ability to retain these\nofficers and other key personnel and to attract, retain and motivate other needed qualified personnel.\n\n\n\u00a0\n\n\nWe are an early-stage biotechnology company with\na limited operating history. As of April 30, 2023, we had 2 full-time employees and numerous consultants. We are highly dependent on the\nR&D, clinical and business development expertise of the principal members of our management, scientific and clinical teams, specifically,\non our Interim Chief Executive Officer and Chief Financial Officer. Recruiting and retaining qualified scientific, clinical, manufacturing\nand sales and marketing personnel will also be critical to our success. The loss of the services of our Interim Chief Executive Officer\nand Chief Financial Officer or other key employees or consultants could severely impede the achievement of our R&D and commercialization\nof our product candidates and seriously harm our ability to successfully implement our business strategy.\n\n\n\u00a0\n\n\nFurthermore, replacing executive officers and\nkey employees and consultants may be difficult and may take an extended period because of the limited number of individuals in our industry\nwith the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize our product\ncandidates. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel\non acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel.\n\n\n\u00a0\n\n\nWe also experience competition for the hiring\nof scientific and clinical personnel from universities and research institutions. In addition, we rely on other consultants and advisors,\nincluding scientific and clinical advisors, to assist us in formulating our discovery, preclinical and clinical development and commercialization\nstrategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory\ncontracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality\npersonnel, our ability to pursue our growth strategy will be limited.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n69\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOur ability to use our net operating loss\ncarryforwards and certain other tax attributes may be limited.\n\n\n\u00a0\n\n\nAs of April 30, 2023, we had federal net operating\nloss carryforwards of approximately $56 million, and approximately $47 million for state net operating losses, which will begin to expire\nin varying amounts beginning in 2023. Under Sections 382 and 383 of the United States Internal Revenue Code of 1986, as amended, or the\nCode, and corresponding provisions of state law, if a corporation undergoes an \u201cownership change,\u201d (generally defined as a\ngreater than 50-percentage-point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year\nperiod), the corporation\u2019s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to\noffset its post-change taxable income or taxes will be limited to approximately $19 million and $6 million for federal and state, respectively.\n\n\n\u00a0\n\n\nWe experienced ownership changes in the past and\ncould experience one or more ownership changes in the future, some of which are outside our control. Our net operating loss carryforwards\nare subject to limitation under state laws. Further, our ability to utilize net operating loss carryforwards of companies that we may\nacquire in the future may also be subject to limitations. There is also a risk that due to tax law changes, such as suspensions on the\nuse of net operating loss carryforwards, or other unforeseen reasons, our ability to use our pre-change net operating loss carryforwards\nand other pre-change tax attributes to offset post-change taxable income or taxes may be subject to limitation or expire.\n\n\n\u00a0\n\n\nWe expect to expand our development and\nregulatory capabilities and potentially implement sales, marketing and distribution capabilities. Thus, we may encounter difficulties\nin managing our growth, which could disrupt our operations.\n\n\n\u00a0\n\n\nWe expect to experience significant growth in\nthe number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and, if\nany of our product candidates receive marketing approval, sales, marketing and distribution. To manage our anticipated future growth,\nwe must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit\nand train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in\nmanaging a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and\ntrain additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and\nbusiness development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.\n\n\n\u00a0\n\n\nUnfavorable global economic conditions could\nadversely affect our business, financial condition or results of operations.\n\n\n\u00a0\n\n\nOur results of operations could be adversely affected\nby general conditions in the global economy and in the global financial markets. The recent global financial crisis related to COVID-19\ncaused extreme volatility and disruptions in the capital and credit markets. Also, geopolitical tensions and the conflict between Russia\nand Ukraine continue to escalate, and numerous jurisdictions have imposed harsh sanctions on certain industry sectors and parties in Russia,\nas well as enhanced export controls on certain products and industries. These and any additional sanctions and export controls, as well\nas any counter responses by the governments of Russia or other jurisdictions, could adversely affect, directly or indirectly, the global\nsupply chain, with negative implications on the availability and prices of raw materials, energy prices, and our customers, as well as\nthe global financial markets and financial services industry.\n\n\n\u00a0\n\n\nA severe or prolonged economic downturn, such\nas the recent global financial crisis, could result in a variety of risks to our business, including our ability to raise additional capital\nwhen needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply\ndisruption. Any of the foregoing could adversely impact our business.\n\n\n\u00a0\n\n\nOur business and operations would suffer\nin the event of system failures.\n\n\n\u00a0\n\n\nDespite the implementation of security measures,\nour internal computer systems and those of our third-party service providers on whom we rely on are vulnerable to damage from computer\nviruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Furthermore, we have little\nor no control over the security measures and computer systems of our third-party service providers. While we and, to our knowledge, our\nthird-party service providers have not experienced any such system failure, accident or security breach to date, if such an event were\nto occur and cause interruptions in our operations or the operations of our third-party service providers, it could result in a material\ndisruption of our drug development programs. If any disruptions occur, they could have a material adverse effect on our business.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n70\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\nWe are subject to legal, regulatory, financial\nand other risks with our operations outside the U.S.\n\n\n\u00a0\n\n\nWe operate globally and are attempting to develop\nproducts in multiple countries. Consequently, we face complex legal and regulatory requirements in multiple jurisdictions, which may expose\nus to certain financial and other risks. International operations are subject to a variety of risks, including:\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nforeign currency exchange rate fluctuations;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ngreater difficulty in overseeing foreign operations;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nlogistical and communications challenges;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\npotential adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs and tax laws;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nburdens and costs of compliance with a variety of foreign laws;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\npolitical and economic instability;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nincreases in duties and taxation;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nforeign tax laws and potential increased costs associated with overlapping tax structures;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ngreater difficulty in protecting intellectual property;\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\nthe risk of third-party disputes over ownership of intellectual property and infringement of third-party intellectual property by our products; and\n\n\n\n\n\u00a0\n\n\n\u00b7\n\n\ngeneral social, economic and political conditions in these foreign markets.\n\n\n\n\n\u00a0\n\n",
+  "item7": ">ITEM 7. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS\nOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\n\n\u00a0\n\n\nThe following discussion may contain forward-looking\nstatements that involve risks and uncertainties. As described under the caption \u201cCautionary Note Regarding Forward-Looking Statements,\u201d\nour actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include,\nbut are not limited to, any factors discussed in this section as well as factors described in Part II, Item 1A. \u201cRisk Factors\u201d\nand under the caption \u201cCautionary Note Regarding Forward-Looking Statements.\u201d\n\n\n\u00a0\n\n\nOverview\n\n\n\u00a0\n\n\nWe are a biotechnology company focused on developing\nand preparing to commercialize cellular therapies for cancer, diabetes and malignant ascites based upon our proprietary cellulose-based\nlive cell encapsulation technology we refer to as Cell-in-a-Box\n\u00ae\n. We are working to advance clinical research and development\nof new cellular-based therapies in oncology and diabetes.\n\n\n\u00a0\n\n\nWe are actively engaged preparing for a clinical\ntrial in LAPC using encapsulated live cells like those used in the previous Phase 1/2 and Phase 2 clinical trials discussed above.\n\n\n\u00a0\n\n\nOn September 1, 2020, we submitted an IND to the\nFDA for our planned clinical trial in LAPC. On October 1, 2020, we received notice from the FDA that it had placed our IND on clinical\nhold. On October 30, 2020, the FDA sent a letter to us setting forth the reasons for the clinical hold and specific guidance on what we\nmust do to have the clinical hold lifted.\n\n\n\u00a0\n\n\nTo address our clinical hold, we assembled a team\nof regulatory and scientific experts to respond to the items requested by the FDA. That team has been working to complete the list of\nitems requested by the FDA. For a complete discussion of what the FDA requires of us and the efforts we have undertaken to lift the clinical\nhold, see Item 1. Business under the Section entitled, \u201cClinical Hold\u201d of this Report.\n\n\n\u00a0\n\n\nWe are also developing a way to delay the production\nand accumulation of malignant ascites that results from many types of abdominal cancerous tumors. Our therapy for malignant ascites involves\nusing the same encapsulated cells we employ for pancreatic cancer but placing the encapsulated cells in the peritoneal cavity of a patient\nand administering ifosfamide intravenously.\n\n\n\u00a0\n\n\nIn addition to these cancer programs, we have\nalso been considering ways to exploit the benefits of the Cell-in-a-Box\n\u00ae\n technology to develop therapies for cancer that\ninvolve prodrugs based upon certain constituents of the \nCannabis\n plant. However, until the FDA allows us to commence our clinical\ntrial in LAPC and we are able to validate our Cell-in-a-Box\n\u00ae\n encapsulation technology in a clinical trial, we are not spending\nany further resources developing our Cannabis Program.\n\n\n\u00a0\n\n\nFinally, we have been developing a potential therapy\nfor Type 1 diabetes and insulin-dependent Type 2 diabetes Our product candidate for the treatment of diabetes consists of encapsulated\ngenetically modified insulin-producing cells. The encapsulation will be done using the Cell-in-a-Box\n\u00ae\n technology. Implanting\nthese encapsulated cells in the body is designed to function as a bio-artificial pancreas for purposes of insulin production.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n74\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nReverse Stock Split\n\n\n\u00a0\n\n\nEffective July 12, 2021, we filed a Certificate\nof Change to our Articles of Incorporation, as amended (the \u201cArticles of Incorporation\u201d) with the Nevada Secretary of State\nthat authorized a 1:1500 reverse stock split of our common stock. The reverse stock split resulted in reducing the authorized number of\nshares of our common stock from 50 billion to thirty-three million three hundred thirty-three thousand three hundred thirty-four with\na par value of $0.0001 per share. Any fractional shares resulting from the reverse stock split were rounded up to the next whole share.\nAll warrants, option, share and per share information in this Report gives retroactive effect to such 1:1500 reverse stock split.\n\n\n\u00a0\n\n\nIncrease in Authorized Shares \n\n\n\u00a0\n\n\nOn March 14, 2023, we filed a Certificate of Change\nwith the State of Nevada, Secretary of State, to increase the number of authorized shares of our common stock to 133,333,334 shares effective\nimmediately. The par value remained $0.0001 per share.\n\n\n\u00a0\n\n\nCOVID-19 Impact on Our Financial Condition\nand Results of Operations\n\n\n\u00a0\n\n\nWe face the ongoing risk that the coronavirus\npandemic may slow our operations, our preclinical studies or the eventual enrollment of our planned clinical trial. In order to prioritize\npatient health and that of the investigators at clinical trial sites, we may need monitor enrollment of patients in our clinical study.\nIn addition, some patients may be unwilling to enroll in our trials or be unable to comply with clinical trial protocols if quarantines\nor travel restrictions impede patient movement or interrupt healthcare services. These and other factors outside of our control could\ndelay our ability to conduct clinical trials or release clinical trial results. In addition, the effects of the ongoing coronavirus pandemic\nmay also increase non-trial costs such as insurance premiums, increase the demand for and cost of capital, increase loss of work time\nfrom key personnel, and negatively impact our key clinical trial vendors.\n\n\n\u00a0\n\n\nPerformance Indicators\n\n\n\u00a0\n\n\nNon-financial performance indicators used by management\nto manage and assess how the business is progressing will include, but are not limited to, the ability to: (i) acquire appropriate funding\nfor all aspects of our operations; (ii) acquire and complete necessary contracts; (iii) complete activities for producing genetically\nmodified human cells and having them encapsulated for our preclinical studies and the planned clinical trial in LAPC; (iv) have regulatory\nwork completed to enable studies and trials to be submitted to regulatory agencies; (v) complete all required tests and studies on the\ncells and capsules we plan to use in our clinical trial in patients with LAPC; (vi) ensure completion of the production of encapsulated\ncells according to cGMP regulations to use in our planned clinical trial; (vii) complete all of the tasked the FDA requires of us in order\nto have the clinical hold lifted; and (viii) obtain approval from the FDA to lift the clinical hold on our IND that we may commence our\nplanned clinical trial in LAPC.\n\n\n\u00a0\n\n\nThere are numerous items required to be completed\nsuccessfully to ensure our final product candidate is ready for use in our planned clinical trial in LAPC. The effects of material transactions\nwith related parties, and certain other parties to the extent necessary for such an undertaking, may have substantial effects on both\nthe timeliness and success of our current and prospective financial position and operating results. Nonetheless, we are actively working\nto ensure strong ties and interactions to minimize the inherent risks regarding success. We do not believe there are factors which will\ncause materially different amounts to be reported than those presented in this Report. We aim to assess this regularly to provide accurate\ninformation to our shareholders.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n75\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nLiquidity and Capital Resources\n\n\n\u00a0\n\n\nAs of April 30, 2023, our cash and cash equivalents\ntotaled approximately $68 million, compared to approximately $85.4 million as of April 30, 2022. Working capital was approximately $67.6\nmillion as of April 30, 2023, and approximately $84.8 million as of April 30, 2022. The decrease in cash is attributable to the repurchase\nof our common stock pursuant to the Repurchase Programs, recorded as treasury stock and an increase in our operating expenses.\n\n\n\u00a0\n\n\n2021 Underwritten Offering\n\n\n\u00a0\n\n\nOn August 9, 2021, we entered into an underwriting\nagreement with H.C. Wainwright & Co. (\u201cWainwright\u201d), pursuant to which we offered and sold an aggregate of 2,630,385 shares\nof common stock, and 899,027 pre-funded warrants to purchase common stock, and common warrants to purchase 4,028,528 shares of common\nstock (the \u201cFirst 2021 Offering\u201d). The common warrants sold in the First 2021 Offering have an exercise price of $4.25 per\nshare, were exercisable immediately upon issuance, and expire five years following the date of issuance. The pre-funded warrants sold\nin the First 2021 Offering have an exercise price of $0.001 per share, were exercisable immediately upon issuance, and do not have an\nexpiration date. The gross proceeds of the First 2021 Offering were $15 million, before deduction of underwriting discounts, commissions,\nand estimated offering expenses.\n\n\n\u00a0\n\n\nWainwright acted as the exclusive placement agent\nfor the Second 2021 Offering pursuant to an engagement letter with the Company dated April 26, 2021 (the \u201cWainwright Engagement\nLetter\u201d). Pursuant to the Wainwright Engagement Letter and in connection with the First 2021 Offering, we paid Wainwright a placement\nagent fee equal to 7.5% of the aggregate gross proceeds and a management fee equal to 1.0% of the gross proceeds, and we issued Wainwright\nwarrants to purchase up to [ ] shares of common stock (the \u201cPlacement Agent Warrants\u201d). The Placement Agent Warrants have\nan exercise price of $6.25 per share, were exercisable immediately upon issuance, and expire five years following the date of issuance.\n\n\n\u00a0\n\n\nIn August 2021, we received twenty-seven (27)\nexercise notices from holders of the common warrants issued in the First 2021 Offering, pursuant to which we received approximately $10,720,000\nand issued 2,522,387 shares of common stock (the \u201c2021 Warrant Exercises\u201d).\n\n\n\u00a0\n\n\n2021 Registered Direct Offering and Concurrent\nPrivate Placement\n\n\n\u00a0\n\n\nOn August 19, 2021, we entered into a securities\npurchase agreement with certain institutional investors, pursuant to which we sold (i) 8,430,000 shares of common stock and pre-funded\nwarrants to purchase up to 5,570,000 shares of common stock in a registered direct offering and (ii) unregistered warrants to purchase\nup to 7,000,000 shares of common stock (the \u201cSeries A Warrants\u201d) in a concurrent private placement (collectively, the \u201cSecond\n2021 Offering\u201d). The pre-funded warrants sold in the Second 2021 Offering have an exercise price of $0.001 per share, were exercisable\nimmediately upon issuance, and do not have an expiration date. The Series A Warrants have an exercise price of $5.00 per share, were exercisable\nimmediately upon issuance, and expire five years following the date of issuance.\n\n\n\u00a0\n\n\nWainwright acted as the exclusive placement agent\nfor the Second 2021 Offering pursuant to the Wainwright Engagement Letter. Pursuant to such engagement letter and in connection with the\nSecond 2021 Offering, we paid Wainwright a placement agent fee equal to 7.5% of the aggregate gross proceeds and a management fee equal\nto 1.0% of the gross proceeds, and we issued Wainwright an additional 1,050,000 Placement Agent Warrants. We received gross proceeds from\nthe Second 2021 Offering, before deducting placement agent fees and other estimated offering expenses payable by the Company, of approximately\n$70 million. On November 17, 2021, our Registration Statement on Form S-3 registering the resale of the shares of common stock underlying\nthe Series A Warrants and the Placement Agent Warrants was declared effective by the U.S. Securities and Exchange Commission (\u201cCommission\u201d).\n\n\n\u00a0\n\n\nDuring the year ended April 30, 2022, we received\napproximately $87.4 million from the First 2021 Offering, the Second 2021 Offering and the 2021 Warrant Exercises. \n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n76\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nRepurchase Programs\n\n\n\u00a0\n\n\n\n\nPursuant to the First Repurchase Program, we may\nacquire up to $10 million of our outstanding shares of common stock, as determined by a formula based on the market price of the common\nstock and average daily volumes. Pursuant to the Second Repurchase Program, we may acquire up to $10 million of our outstanding shares\nof common stock from time to time in open market transactions, privately negotiated block transactions or other means in accordance with\napplicable securities laws. For more information on the Repurchase Programs, see \u201cNote 12 \u2013 Treasury Stock.\u201d\n\n\n\u00a0\n\n\nOther Liquidity Matters\n\n\n\u00a0\n\n\nWe have no other off-balance sheet arrangements\nthat could have a material current effect or that are reasonably likely to have a material adverse effect on our financial condition,\nchanges in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.\n\n\n\u00a0\n\n\nTo meet our short and long-term liquidity needs,\nwe expect to use existing cash balances and a variety of other means. Other sources of liquidity could include additional potential issuances\nof debt or equity securities in public or private financings, partnerships, collaborations and sale of assets. Our history of operating\nlosses and liquidity challenges may make it difficult for us to raise capital on acceptable terms or at all. The demand for the equity\nand debt of pharmaceutical companies like ours is dependent upon many factors, including the general state of the financial markets. During\ntimes of extreme market volatility, capital may not be available on favorable terms, if at all. Our inability to obtain such additional\ncapital could materially and adversely affect our business operations. Our future capital requirements are difficult to forecast and will\ndepend on many factors, but we believe that our cash on hand will enable us to fund operating expenses for at least the next 12 months\nfollowing the issuance of our consolidated financial statements.\n\n\n\u00a0\n\n\nYear ended April 30, 2023, compared to year\nended April 30, 2022\n\n\n\u00a0\n\n\nRevenue\n\n\n\u00a0\n\n\nWe had no revenues in the fiscal years ended April\n30, 2023, and 2022.\n\n\n\u00a0\n\n\nOperating Expenses\n\n\n\u00a0\n\n\nOur total operating expenses during the year ended\nApril 30, 2023 were $6,455,494, representing an increase of $2,063,480 compared to the year ended April 30, 2022. The increase is mainly\nattributable to increases in director fees and legal and professional expenses, net of decreases in R&D costs and compensation expense.\n\n\n\u00a0\n\n\n\n\n\n\nOperating expenses:\n\n\n\u00a0\n\n\nYear ended \n\nApril 30, \n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nChange -\n\nIncrease\n\n(Decrease) \n\nand Percent\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear ended \n\nApril 30, \n\n2022\n\n\n\u00a0\n\n\n\n\nR&D\n\n\n\u00a0\n\n\n$\n\n\n468,536\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(222,401\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n690,937\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(32%\n\n\n)\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nCompensation expense\n\n\n\u00a0\n\n\n$\n\n\n1,234,956\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n(309,795\n\n\n)\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,544,751\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n(20%\n\n\n)\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nDirector fees\n\n\n\u00a0\n\n\n$\n\n\n951,347\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n694,857\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n256,490\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n271%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\nGeneral and administrative, legal and professional\n\n\n\u00a0\n\n\n$\n\n\n3,800,655\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,900,819\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n1,899,836\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n100%\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n77\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nLoss from Operations\n\n\n\u00a0\n\n\nLoss from operations during the year ended April\n30, 2023 was $6,455,494, an increase of $2,063,480 compared to the year ended April 30, 2022. The increase is mainly attributable to increases\nin director fees and legal and professional expenses, and consulting expenses in 2023 from 2022, net of decreases in R&D costs and\ncompensation expense. See the table under \u201c\nOperating Expenses\n\u201d above for more detail.\n\n\n\u00a0\n\n\nOther Income (Expenses), Net\n\n\n\u00a0\n\n\nOther income, net for the year ended April 30,\n2023, was $2,139,501, as compared to other income, net of $152,853 in the year ended April 30, 2022. Other income, net for the year ended\nApril 30, 2023 is attributable to interest income of $1,937,499 net settlement of accounts payable of $152,976 and net of other income\nand expense of $49,026. Other income, net for the year ended April 30, 2022 is attributable to interest income of $157,645 net of interest\nexpense and other expenses of $4,792.\n\n\n\u00a0\n\n\nDiscussion of Operating, Investing and Financing\nActivities\n\n\n\u00a0\n\n\nThe following table presents a summary of our\nsources and uses of cash for the years ended April 30, 2023 and 2022.\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended \n\nApril 30,\n\n2023\n\n\n\u00a0\n\n\n\u00a0\n\n\nYear Ended\n\nApril 30, \n\n2022\n\n\n\u00a0\n\n\n\n\nNet cash used in operating activities:\n\n\n\u00a0\n\n\n$\n\n\n(3,793,731\n\n\n)\n\n\n\u00a0\n\n\n$\n\n\n(4,117,319\n\n\n)\n\n\n\n\nNet cash used in investing activities:\n\n\n\u00a0\n\n\n$\n\n\n\u2013\n\n\n\u00a0\n\n\n\u00a0\n\n\n$\n\n\n\u2013\n\n\n\u00a0\n\n\n\n\nNet cash provided by (used in) financing activities:\n\n\n\u00a0\n\n\n$\n\n\n(13,559,743\n\n\n)\u00a0\n\n\n\u00a0\n\n\n$\n\n\n87,311,244\n\n\n\u00a0\n\n\n\n\nEffect of currency rate exchange\n\n\n\u00a0\n\n\n$\n\n\n(7,246\n\n\n)\u00a0\n\n\n\u00a0\n\n\n$\n\n\n4,625\n\n\n\u00a0\n\n\n\n\nIncrease (decrease) in cash\n\n\n\u00a0\n\n\n$\n\n\n(17,360,720\n\n\n)\u00a0\n\n\n\u00a0\n\n\n$\n\n\n83,198,550\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nOperating Activities:\n\n\n\u00a0\n\n\nThe cash used in operating activities for the\nyears ended April 30, 2023 and 2022 is a result of our net losses offset by securities issued for services and compensation, changes to\nprepaid expenses, accounts payable and accrued expenses.\n\n\n\u00a0\n\n\nInvesting Activities\n:\n\n\n\u00a0\n\n\nWe had no investing activities for the years ended\nApril 30, 2023, and 2022.\n\n\n\u00a0\n\n\nFinancing Activities:\n\n\n\u00a0\n\n\nThe cash used in financing activities for the\nyear ended April 30, 2023 was mainly attributable to the Repurchase Programs, and the cash provided for the year ended April 30, 2022,\nis mainly attributable to the proceeds from the First 2021 Offering and the Second 2021 Offering.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n78\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\nCritical Accounting Estimates and Policies\n\n\n\u00a0\n\n\nOur Consolidated Financial Statements are prepared\nin accordance with U.S. generally accepted accounting principles (\u201cU.S. GAAP\u201d). We are required to make assumptions and estimates\nabout future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related\ndisclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management\nbelieves to be relevant at the time our Consolidated Financial Statements are prepared. On a regular basis, management reviews the accounting\npolicies, assumptions, estimates and judgments to ensure that our Consolidated Financial Statements are presented fairly and in accordance\nwith U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from\nour assumptions and estimates, and such differences could be material.\n\n\n\u00a0\n\n\nOur significant accounting policies are discussed\nin Note 2 of the Notes to our Consolidated Financial Statements included in Item 8, \u201cFinancial Statements and Supplementary Data\u201d\nof this Report. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating\nour reported financial results and require management\u2019s most difficult, subjective or complex judgments resulting from the need\nto make estimates about the effects of matters that are inherently uncertain. Management has reviewed these critical accounting estimates\nand related disclosures with our Board.\n\n\n\u00a0\n\n\nResearch and Development Expenses\n\n\n\u00a0\n\n\nR&D expenses consist of costs incurred for\ndirect and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies, including licenses, which are\nutilized in R&D and that have no alternative future use are expensed when incurred. Technology developed for use in our product candidates\nis expensed as incurred until technological feasibility has been established.\n\n\n\u00a0\n\n\nStock-Based Compensation\n\n\n\u00a0\n\n\nOur stock-based compensation plans are described\nin Note 4 and 5 of the Notes of the Consolidated Financial Statements to this Report. We follow the provisions of ASC 718, \nCompensation\n- Stock Compensation \n(\u201cASC 718\u201d), which requires the measurement and recognition of compensation expense for all stock-based\nawards made to employees.\n\n\n\u00a0\n\n\nNet Income (Loss) Per Share\n\n\n\u00a0\n\n\nBasic net income (loss) per share of common stock\nis computed using the weighted-average number of shares of common stock outstanding. Diluted net income (loss) per share of common stock\nis computed using the weighted-average number of shares of common stock and shares of common stock equivalents outstanding. Potentially\ndilutive stock options and warrants to purchase 10,172,116 and 10,813,635 post reverse stock split shares of common stock at April 30,\n2023 and 2022, respectively, were excluded from the computation of diluted net income (loss) per share because the effect would be anti-dilutive.\n\n\n\u00a0\n\n\nNew Accounting Pronouncements\n\n\n\u00a0\n\n\nDuring the current and prior year, there were\nno new accounting pronouncements that need to be disclosed in the Company\u2019s consolidated financial statements.\n\n\n\u00a0\n\n",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES\nABOUT MARKET RISK\n\n\n\u00a0\n\n\nWe are a smaller reporting company and are not\nrequired to include information called for by this Item 7A.\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\u00a0\n\n\n\n\n\n\n\u00a0\n79\n\u00a0\n\n\n\u00a0\n\n\n\n\n\u00a0\n\n\n\n\n\n",
+  "cik": "1157075",
+  "cusip6": "71715X",
+  "cusip": ["71715X203"],
+  "names": ["PHARMACYTE BIOTECH INC"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1157075/000168316823005175/0001683168-23-005175-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">Item 1. Business\nElastic is a data analytics company built on the power of search. Our platform, which is available as both a hosted, managed service across public clouds as well as self-managed software, allows our customers to find insights and drive artificial intelligence (\u201cAI\u201d) and machine learning use cases from large amounts of data. We offer three search-powered solutions \u2013 Search, Observability, and Security \u2013 that are built into the platform. We help organizations, their employees, and their customers find what they need faster, while keeping mission-critical applications running smoothly, and protecting against cyber threats. \nAs digital transformation drives mission critical business functions to the cloud, we believe that every company will need to build around a search-based relevance engine to find the answers that matter, from all of their data, in real-time, and at scale. \nOur platform is built on the Elastic Stack, a powerful set of software products that ingest data from any source, in any format, and perform search, analysis, and visualization of that data. At the core of the Elastic Stack is Elasticsearch - a highly scalable document store and search engine, and the unified data store for all of our solutions and use cases. Another component of the Elastic Stack is Kibana, which delivers a common user interface across all of our solutions, with powerful drag-and-drop visual analytics, and centralized management of the platform. Our platform also includes the Elasticsearch Relevance Engine\u2122 (\u201cESRE\u201d), which combines advanced AI with Elastic\u2019s text search to give developers a full suite of sophisticated retrieval algorithms and the ability to integrate with large language models. Our out-of-the-box solutions deliver fast time to value for common use cases and, paired with our developer-centric platform which is extensible and customizable, allow us to innovate fast and differentiate our offerings at every level. \nWe make our platform available as a hosted, managed service across major cloud providers (Amazon Web Services (\u201cAWS\u201d), Google Cloud Platform (\u201cGCP\u201d), and Microsoft Azure) in more than 50 public cloud regions globally. Customers can also deploy our platform across hybrid clouds, public or private clouds, and multi-cloud environments. \nOur business model is based primarily on a combination of a paid Elastic-managed hosted service offering and paid and free proprietary self-managed software. Our paid offerings for our platform are sold via subscription through resource-based pricing, and all customers and users have access to all solutions. In Elastic Cloud, our family of cloud-based offerings under which we offer our software as a hosted, managed service, we offer various subscription tiers tied to different features. For users who download our software, we make some of the features of our software available for free, allowing us to engage with a broad community of developers and practitioners and introduce them to the value of the Elastic Stack. We believe in the importance of an open software development model, and we develop the majority of our software in public repositories as open code under a proprietary license. Unlike some companies, we do not build an enterprise version that is separate from our free distribution. We maintain a single code base across both our self-managed software and Elastic-hosted services. All of these actions help us build a powerful commercial business model that we believe is optimized for product-led growth. \nOur customers often significantly expand their usage of our products and services over time. Expansion includes increasing the number of developers and practitioners using our products, increasing the utilization of our products for a particular use case, and utilizing our products to address new use cases. We focus some of our direct sales efforts on encouraging this type of expansion within our customer base, both within as well as across solutions. Because our business model provides access to all solutions with resource-based pricing, we make it easy for customers to expand across use cases.\nOur business has experienced rapid growth around the world. As of April\u00a030, 2023, we had approximately 20,200 customers compared to over 18,600 customers and over 15,000 customers as of April\u00a030, 2022 and 2021, respectively. Our total revenue was $1.1\u00a0billion, $862.4\u00a0million, and $608.5\u00a0million for the years ended April\u00a030, 2023, 2022 and 2021, respectively, representing year-over-year growth of 24% for the year ended April\u00a030, 2023 and 42% for the year ended April\u00a030, 2022. Subscriptions accounted for 92%, 93% and 93% of our total revenue for the years ended April\u00a030, 2023, 2022 and 2021, respectively. Revenue from outside the United States accounted for 41%, 44% and 45% of our total revenue for the years ended April\u00a030, 2023, 2022 and 2021, respectively. \nFor the years ended April\u00a030, 2023, 2022 and 2021, we incurred net losses of $236.2\u00a0million, $203.8\u00a0million and $129.4\u00a0million, respectively. We expect we will continue to incur net losses for the foreseeable future. Our net cash provided by operating activities was $35.7\u00a0million, $5.7\u00a0million, and $22.5\u00a0million for the years ended April\u00a030, 2023, 2022, and 2021 respectively.\nOur Products\nOur products enable our customers and users to nearly instantly find relevant information and insights in large amounts of data across a broad range of business and consumer use cases.\n3\nTable of Contents\nWe offer the Elastic Stack, a powerful set of software products that ingest and store data from any source, in any format, and perform search, analysis, and visualization, usually in milliseconds. The Elastic Stack can be used by developers to power a variety of use cases. We also offer software solutions built in the Elastic Stack that address a wide variety of use cases. The Elastic Stack and our solutions are designed to run in public or private clouds, in hybrid environments, or in multi-cloud environments.\nThe Elastic Stack\nThe Elastic Stack is primarily composed of the following products:\n\u2022\nElasticsearch.\n  Elasticsearch is the heart of the Elastic Stack. It is a distributed, real-time search and analytics engine and data store for all types of data, including textual, numerical, geospatial, structured, and unstructured.\n\u2022\nKibana.\n  Kibana is the user interface for the Elastic Stack. It is the visualization layer for data stored in Elasticsearch. It is also the management and configuration interface for all parts of the Elastic Stack.\nElastic has spent years infusing both Elasticsearch and Kibana with a foundation of AI and machine learning built on ESRE, from support for external machine learning models to native vector search capabilities, supervised and unsupervised machine learning, and solution capabilities that improve search relevance and identify anomalies. Elastic enables organizations to integrate generative AI and large language models by building key capabilities into its products.\nThe Elastic Stack also supports data ingest with a number of products:\n\u2022\nElastic Agent.\n  Elastic Agent is a single, unified way to add monitoring for logs, metrics, and other types of data to each host. Elastic Agent includes integrated host protection and central management.\n\u2022\nBeats.\n  Beats is the family of lightweight, single-purpose data shippers for sending data from edge machines to Elasticsearch or Logstash.\n\u2022\nLogstash.\n  Logstash is the dynamic data processing pipeline for ingesting data into Elasticsearch or other storage systems from a multitude of sources simultaneously.\nPaid proprietary features in the Elastic Stack enable capabilities such as automating anomaly detection on time series data at scale through machine learning, facilitating compliance with data security and privacy regulations, supporting search across low cost cold and frozen data tiers, and allowing real-time notifications and alerts. The source code of features in the Elastic Stack is generally visible to the public in the form of \u201copen code.\u201d\nOur Solutions\nWe have built a number of solutions into the Elastic Stack to make it easier for organizations to use our software for common use cases. Our solutions include:\n\u2022\nSearch. \n Our Search solution provides powerful search for documents and results living in applications, websites, and workplaces. Key use cases for Search include: search applications, a foundation for building search experiences to support websites and portals, e-commerce, mobile app search, and customer support; and workplace search, an out-of-the-box search solution for the workplace that seamlessly connects to the most widely used enterprise systems and tools.\n\u2022\nObservability. \n Our Observability solution enables unified analysis across the IT ecosystem of applications, networks, and infrastructure. Observability includes: Logs, to search and analyze petabytes of structured and unstructured logs; Metrics, to search and analyze numeric and time series data; Application Performance Monitoring (\u201cAPM\u201d), to deliver insight into application performance and health metrics and provide developers with confidence in their code; and Synthetic Monitoring, to proactively monitor the availability and functionality of user journeys.\n\u2022\nSecurity.\n  Our Security solution provides unified protection to prevent, detect, and respond to threats. Security includes: Security Information and Event Management (\u201cSIEM\u201d), with integrations to network, host, user, and cloud data sources, as well as workflow and operations, shareable analytics, incident management, and investigations; Endpoint Security, for prevention, detection and response with a single, stack-integrated agent; Extended Detection and Response (\u201cXDR\u201d), providing protection across infrastructure from SIEM to Endpoint; and Cloud Security, providing cloud posture assessment, vulnerability management, and cloud workload protection with one integrated solution.\n4\nTable of Contents\nOur Deployment Options\nThe Elastic Stack and our solutions can be deployed in public or private clouds, in hybrid environments, or in multi-cloud environments, to satisfy various user and customer needs. Elastic Cloud, our family of cloud-based offerings, is hosted on major public cloud providers. We also partner with other cloud providers who offer our software to users on their cloud platform as a hosted offering.\nUsers can also download and manage their own deployments of the Elastic Stack and our solutions. To help with more complex deployment scenarios, we offer paid proprietary products to deliver centralized provisioning, management, and monitoring across multiple deployments.\nStrengths of our Products \nThe strengths of our products include the following: \n\u2022\nSpeed.\n  The Elastic Stack can find matches for search criteria in milliseconds within even the largest structured and unstructured datasets. Its schemaless structure and inverted indices enable real-time search of high volumes of structured, unstructured, and time series data. \n\u2022\nScale.\n  The Elastic Stack is a distributed system and can scale massively. It has the ability to subdivide search indices into multiple pieces called shards, which enables data volume to be scaled horizontally and operations to be distributed across hundreds of systems or more. A developer running hundreds of nodes has the same user experience as a developer running a single node on a laptop. \n\u2022\nRelevance.\n  Elasticsearch uses multiple analytical techniques, including both traditional and AI-powered relevance techniques, to determine the similarity between stored data and queries, generating highly relevant results reflecting a deep understanding of text and context. Its sophisticated yet developer-friendly query language permits advanced search and analytics. Additionally, the speed of the Elastic Stack permits query iteration, further enhancing the relevance of search results. \n\u2022\nEase of Use.\n  The Elastic Stack is engineered to take a user from data to dashboard or inquiry to insight in minutes. It offers an easy getting-started experience, featuring streamlined download and deployment, sensible defaults, a simple and intuitive query language that just works, and no need to define a schema up front. Administrative tasks such as securing the Elastic Stack are intuitive and integrated into the user experience, as are investigative tasks such as data visualization. \n\u2022\nFlexibility.\n  The Elastic Stack is able to ingest, filter, store, search, and analyze data in any form, whether structured or unstructured. These capabilities enable the Elastic Stack to generate insights from a wide variety of data sources for a broad range of use cases. The flexibility of the Elastic Stack also enables users to begin using our products along with their existing systems, which lowers barriers to adoption. \n\u2022\nExtensibility.\n  Developers can use the Elastic Stack as a foundation for addressing a wide variety of use cases. Our open approach to building the Elastic Stack empowers developers to innovate and utilize it to fit their specific needs. Additionally, our developer community actively engages with us to improve and expand the Elastic Stack. \nOur Growth Strategies \nWe pursue the following growth strategies: \n\u2022\nIncrease usage of Elastic Cloud. \n As users and customers increasingly want to consume highly-scalable cloud solutions, we believe that Elastic Cloud represents a significant growth opportunity. We plan to continue to invest resources in driving further innovation and increasing the adoption of Elastic Cloud.\n\u2022\nIncrease product adoption by improving ease of use and growing our user community.\n  With our engineering efforts focused on the user experience, we will continue to develop software that makes our products easier to use and adopt for both developers and non-developers. We will continue to engage with developers globally through a wide range of touch points such as community meetups, global community groups, hackathons, our global events, our user conferences, which we call ElasticON, and engagement on our website, user forums, and code repositories, to grow our user community. \n5\nTable of Contents\n\u2022\nExpand our customer base by acquiring new customers. \n Through Elastic Cloud, we provide the fastest and easiest way to get started with a free trial. However, there is no free subscription tier in Elastic Cloud. Self-managed users can easily download our software directly from our website and access many features free of charge, which also facilitates adoption. Our sales and marketing team conducts campaigns to drive further awareness and adoption within the user community. As a result, many of our sales prospects are already familiar with our technology prior to entering into a commercial relationship with us. Additionally, we leverage our network of partners to drive awareness and expand our sales and marketing reach to target new customers. We will continue to engage our community and our partners to drive awareness and to invest in our sales and marketing team to grow our customer base. \n\u2022\nExpand within our existing customer base through new use cases and larger deployments.\n  We view initial success with our products as a path to drive expansion to new use cases and projects and larger deployments within organizations. We often enter an organization through a single developer or a small team for an initial project or use case with an objective to quickly solve a technical challenge or business problem. Because of the rapid success with our products, knowledge of Elastic often spreads within an organization to new teams of developers, architects, IT operations personnel, security personnel, and senior executives. We will continue to invest in helping users and customers be successful with our products. \n\u2022\nExtend our product leadership through continued investment in our technology.\n  We will continue to invest in our products and services to extend into new use cases, industries, geographies, and customers. We regularly deliver new and enhanced capabilities to our customers through regular releases, to which everyone has access based on our subscription model. Our technology investments within the Elastic Stack include foundational capabilities as well as solution enhancements for our target use cases. \n\u2022\nExpand our strategic and regional partnerships.\n  Our partners assist us in driving awareness of Elastic and our products, using the Elastic Stack to solve customer pain points, and extending our reach in geographic areas and verticals where we do not have a formal sales presence. We have a diverse range of partners and we will continue to pursue partnerships to further the development of the Elastic Stack and our customer reach. \n\u2022\nSelectively pursue strategic acquisitions.\n  Since inception, we have selectively pursued strategic acquisitions to drive product and market expansion. The focus of our most recent acquisitions has been to enhance the technology underlying our Security and Observability offerings. We intend to continue to pursue acquisitions selectively.\nCustomers\nOrganizations of all sizes, across many industries, including enterprises, educational institutions and government entities, purchase our products for a variety of use cases. As of April\u00a030, 2023, we had approximately 20,200 customers compared to over 18,600 customers and over 15,000 customers as of April\u00a030, 2022 and 2021, respectively. No customer accounted for more than 10% of our total revenue for the years ended April\u00a030, 2023, 2022, and 2021.\nSeasonality\nWe have experienced quarterly fluctuations and seasonality in our sales and results of operations based on our entry into agreements with new and existing customers and the mix between annual and monthly contracts entered into in each reporting period. Seasonality in our sales cycle generally reflects a trend toward greater sales in our second and fourth fiscal quarters and lower sales in our first and third fiscal quarters. We believe this seasonality might become more pronounced as we continue to target large enterprise customers. \nEngineering \nOur engineering organization focuses on enhancing existing products and developing new features that are easy to use and can be run in any environment including in public or private clouds, in hybrid environments, or in multi-cloud environments. With a distributed engineering team spanning over 30 countries, we are able to recruit, hire, and retain high-quality, experienced developers, tech leads, and product managers, and operate at a rapid pace to drive product releases, fix bugs, and create new product offerings. \nOur software development process is based on iterative releases of the Elastic Stack. We are organized in small functional teams with a high degree of autonomy and accountability. Our distributed and highly modular team structure and well-defined software development processes also allow us to successfully incorporate technologies that we have acquired. \n6\nTable of Contents\nWe intend to continue to invest in our research and development capabilities to extend our products. Research and development expense totaled $313.5\u00a0million and $273.8\u00a0million for the years ended April\u00a030, 2023 and 2022, respectively. We plan to continue to devote significant resources to research and development. \nSales and Marketing \nWe make it easy for users to begin using our products in order to drive rapid adoption. Users can either sign up for a free trial on Elastic Cloud or download our software directly from our website without any sales interaction, and immediately begin using the full set of features. Users can also sign up for Elastic Cloud through public cloud marketplaces.\nWith our business model, where users can download and use many of our features for free, our sales prospects are often already familiar with or using our platform. We conduct low-touch campaigns to keep users and customers engaged once they have begun using Elastic Cloud or have downloaded our software. This process includes providing high-quality content, documentation, webinars, videos, and blogs through our website. We also drive high-touch engagement with qualified prospects and customers to drive further awareness, adoption, and expansion of our products with paid subscriptions. The majority of our new customers use Elastic Cloud. Many of these customers start with limited initial spending, but can significantly grow their spending.\nOur sales teams are organized primarily by geography and secondarily by customer segments. We rely on inside sales development representatives to qualify leads based on the likelihood they will result in a purchase. We pursue sales opportunities both through our direct sales force and as assisted by our partners, including through cloud marketplaces. Our relationships within customer organizations often extend beyond the initial users of the technology and include technology and business decision-makers at various levels. We also engage with our customers on an ongoing basis through a customer success team, to ensure customer satisfaction and expand their usage of our technology. \nPartners\nWe maintain partner relationships that help us market and deliver our products to our customers and complement our community. Our partner relationships include the following:\n\u2022\nCloud providers.\n  We work with many of the major cloud providers to increase awareness of our products and make it easy to access our software. We partner with Amazon, Google, and Microsoft to offer Elastic Cloud on AWS, GCP, and Microsoft Azure, through direct purchase from us or their respective marketplaces. We also partner with other cloud providers to offer our free and paid proprietary features to users on their cloud platforms. \n\u2022\nSystems integrators, channel partners, and referral partners.\n  We have a global network of systems integrators, channel partners, and referral partner relationships that help deliver our products to various business and government customers around the world.\n\u2022\nOEM and MSP partners.\n  Our original equipment manufacturing (\u201cOEM\u201d) and managed service provider (\u201cMSP\u201d) partners embed an Elastic subscription into the products or services they offer to their customers. OEM or MSP partners are able to include Elastic\u2019s proprietary features in their product, receive ongoing support from Elastic for product development, and receive support for end customer issues related to Elastic.\n\u2022\nTechnology partners. \n Our technology partners collaborate with Elastic to create a standardized solution for end users that includes technology from both Elastic and the partner. Technology partners represent a deeper collaboration than community contributions and are distinct from distribution-oriented relationships like OEMs and MSP partners.\nServices \nWe offer consulting and training as part of our offerings to assist customers in accelerating their success with our software. Our consulting team consists of engineers and architects who bring hands-on experience and deep technical knowledge to a project. Our training offerings enable our users to gain the necessary skills to develop, deploy, and manage our software. \nCustomer Support\nWe endeavor to make it easy for users to download, install, deploy and use the Elastic Stack and our solutions. To this end, our user community functions as a source of support and enables users to engage in self-help and collaboration. \n7\nTable of Contents\nHowever, in many situations, such as those involving complex enterprise IT environments, large deployments and novel use cases, our users require our support. Accordingly, we include support as part of the subscriptions we sell for our products. Our global support organization consists of engineers who provide technical support services including troubleshooting, technical audits, cluster tuning, and upgrade assistance. Our support team is distributed across over 20 countries and provides coverage 24 hours per day, 365 days per year, across multiple languages. \nWe believe that software companies should not have incentives to build low-quality software. In that connection, we do not sell support separately from our software subscriptions. \nOur Technology \nOur platform consists of the Elastic Stack, our solutions, and software that supports our various deployment alternatives. Because our solutions are built into the Elastic Stack, innovations and new capabilities in the Elastic Stack may benefit many of our solutions. Our customers can customize and extend our solutions to fit their needs by leveraging the power of the Elastic Stack and our developer capabilities.\nTechnology Features of the Elastic Stack\nElasticsearch is the heart of the Elastic Stack, where users store, search, and analyze data. Key features of Elasticsearch include the following:\n\u2022\nStore any type of data. \n Elasticsearch combines powerful parts of traditional search engines, such as an inverted index to power fast full text search and a column store for analytics, with native support for a wide range of data types, including text, dates, numbers, geospatial data, date/numeric ranges, and IP addresses. With sensible defaults, and no upfront schema definition necessary, Elasticsearch makes it easy to start simple and fine-tune as datasets grow.\n\u2022\nVector search. \n Elastic natively supports vector search as part of ESRE, which enables a wide range of advanced search use cases that improve relevance, including sophisticated search ranking, image search, question answering, and more. Vector search relies on a next generation of machine learning models that can represent many types of content as vectors, including text, images, events, and more. ESRE also supports integration with large language models. As data volumes and formats explode, this sophisticated approach to search and relevance is becoming important for use cases where delivering maximum relevance is critical. \n\u2022\nMachine learning, AI, and alerting.\n  Machine learning capabilities such as anomaly detection, forecasting, and categorization are tightly integrated with the Elastic Stack to automatically model the behavior of data, such as trends and periodicity, in real time in order to identify issues faster, streamline root cause analysis, and reduce false positives. Without these capabilities, it can be very difficult to identify issues such as infrastructure problems or intruders in real time across complex, high-volume, fast-moving datasets. In the last few years, we have also added native support for vector search and model management for advanced machine learning models.\n\u2022\nPowerful query languages. \n The Elasticsearch query domain specific language is a flexible, expressive search language that exposes a rich set of query capabilities across any kind of data. From simple Boolean operators to custom relevance functions, users can articulate exactly what they are looking for and bring their own definition of relevance. The query language also includes a composable aggregation framework that enables users to summarize, slice, and analyze structured or semi-structured datasets across multiple dimensions. Examples of these capabilities include tracking the top ten users by expenditure level, looking at data week over week, analyzing data across geographies, and drilling down into details with specific filters all with a single search.\n\u2022\nDeveloper friendliness. \n Elasticsearch has consistent, well-documented APIs that work the same way on one node during initial development as on a hundred nodes in production. Elasticsearch also ships with a number of language clients that provide a natural way to integrate with a variety of popular programming frameworks, reducing the learning curve, and leading to a shorter time to realizing value.\n\u2022\nHigh speed.\n  Everything stored in Elasticsearch is indexed by default, so that users do not need to decide in advance what queries they will want to run. Our architecture optimizes throughput, time-to-data availability and query latency. Elasticsearch can easily index millions of events per second, and newly added data can be available for search nearly instantly.\n8\nTable of Contents\n\u2022\nHigh scale and availability.\n  Elasticsearch is designed to scale horizontally and be resilient to node or hardware failures. As nodes join a cluster, data is automatically re-balanced and queries and indexing are spread across the new nodes seamlessly. This makes it easy to add hardware to increase indexing throughput or improve query throughput. Elasticsearch also detects node failures and hardware or network issues and automatically protects user data by ejecting the failing or inaccessible nodes and creating new replicas of the data.\n\u2022\nSecurity.  \nSecurity features give administrators the rights to grant specific levels of access to their various types of users, such as IT, operations, and application teams. Elasticsearch serves as the central authentication hub for the entire Elastic Stack. Security features include encrypted communications and encryption-at-rest; role-based access control; single sign-on and authentication; field-level, attribute-level, and document-level security; and audit logging.\nKibana is the user interface for the Elastic Stack. It allows users to manage the Elastic Stack and visualize data. Additionally, the interfaces for many of our solutions are built into Kibana. Key features of Kibana include the following:\n\u2022\nExplore and visualize data stored in Elasticsearch.  \nKibana provides interactive data views, visualizations, and dashboards powered by structured filtering and unstructured search to enable users to get to answers more quickly. A variety of data visualization types, such as simple line and bar charts, purpose-built geospatial and time series visualizations, tree diagrams, network diagrams, heatmaps, scatter plots, and histograms, support diverse user needs. \n\u2022\nIncorporate advanced analytics and machine learning from Elasticsearch.  \nKibana\u2019s query, filtering, and data summarization capabilities reflect Elasticsearch\u2019s powerful query domain specific language and aggregation framework while making it interactive.\n\u2022\nManage the Elastic Stack.\n  Kibana presents a broad user interface showing the health of Elastic Stack components and provides cluster alerts to notify administrators of problems. Its central management user interfaces (\u201cUI\u201d) make it easier to operate the Elastic Stack at scale.\n\u2022\nHome for Solutions.  \nKibana is where our users and customers access the user interfaces for our Search, Observability, and Security solutions. Kibana provides core services, like security, alerting, and data visualization components. This makes it easy for users to discover all of the capabilities our solutions provide, and enables solution users to benefit from Kibana\u2019s core capabilities. \n\u2022\nApplication framework. \n Kibana is designed to be extensible. Users interested in a highly specialized visualization type not distributed with Kibana by default can customize experiences through a Kibana plugin and make the plugin available to the community. Dozens of Kibana plugins have been shared by the community via Elastic documentation and code sharing platforms such as GitHub.\nElastic Agent, Beats, and Logstash are data ingestion tools that enable users to collect and enrich any kind of data from any source for storage in Elasticsearch. Beats and Logstash have an extensible modular architecture. Elastic Agent is a single, unified way to add monitoring for logs, metrics, and other types of data to each host, and also includes integrated host protection and central management. Beats are lightweight agents purpose-built for collecting data on devices, servers, and inside containers. Key features include the following:\n\u2022\nData shippers. \n Elastic Agent introduces a new single agent architecture across hosts that simplifies management and deployment. Elastic Agent is based on the architecture of Beats, lightweight agents built for the purposes of efficient data collection at the edge for specific types of data, such as Filebeat for the collection of logging data, Metricbeat for the collection of system or service metric data, Auditbeat for the collection of security data, Packetbeat for the collection of network data, and Heartbeat for the collection of availability data. Dozens of community Beats enable the collection of data from specialized sources. \n\u2022\nExtensibility and community Beats. \n The Beats platform enables rapid creation of custom Beats that can be run on a variety of edge technologies for data collection. Over 90 Beats have been shared by the community via Elastic documentation and many more are available through code sharing platforms such as GitHub.\n\u2022\nHost protection.  \nSpecifically with Elastic Agent, we extend protection to hosts in addition to data transfer. Elastic Agent stops malware and ransomware and enables environment-wide visibility and advanced threat detection.\nLogstash enables centralized collection and extract, transformation, and load capabilities. Key features of Logstash include the following:\n9\nTable of Contents\n\u2022\nData transformation engine. \n Logstash is a centralized data transformation engine that can receive and pull data from multiple sources, transform and filter that data, and send it to multiple outputs. Logstash has a powerful and flexible configuration language that allows users to create data stream acquisition and transformation logic without having to write code. This greatly extends and accelerates the ability to create data management pipelines to a wide variety of organizations and individuals.\n\u2022\nPlugins.  \nLogstash collects data from a variety of sources, such as network devices, queues, endpoints, and public cloud services. Logstash enriches the data via lookups against local data sources, such as a geolocation database, and remote data sources, such as relational databases. Logstash can output events to Elasticsearch or downstream queues and other data stores. We develop and support more than 80 plugins for many common integrations.\n\u2022\nLogstash extensibility and community plugins. \n A vibrant community of users extends our reach through hundreds of community Logstash plugins that enable integration with a wide variety of data sources across many use cases.\nTechnology Features of our Solutions\nOur solutions are designed to minimize time-to-value and deployment costs of using the Elastic Stack for common use cases. The functionality of our solutions often includes specialized data collection, through standardized APIs or custom agents, and custom user interfaces for specific data analytics, visualizations, workflows, and actions. \nSearch\n gives users the tools to bring search experiences to customers, partners and teams quickly and scale them seamlessly.\n\u2022\nSearch applications.\n  Customers can bring the focused power of Elasticsearch to their company website, ecommerce site, or applications with a refined set of APIs and intuitive dashboards. Elastic delivers seamless scalability, tunable relevance controls, thorough documentation, well-maintained clients, and robust analytics to build a leading search experience. Customers can build rich applications directly on top of Elasticsearch, or they can use our Application Search framework to rapidly build and customize search applications. \n\u2022\nWorkplace search.  \nCustomers can deploy internal workplace search to bring modern search to collaborative decisions and experiences. Elastic seamlessly connects to some of the world\u2019s most widely adopted productivity tools, customer relationship management platforms, cloud storage platforms, collaboration tools, operation management platforms, and content management systems. Custom sources provide an elegant set of APIs that let customers and users ingest any type of content from even more sources while preserving access control information.\nObservability\n combines analysis across the IT ecosystem of IT applications, networks, and infrastructure to deliver actionable insights into performance, availability, usability, adoption, and anomalous behavior.\n\u2022\nLogs. \n Logs indexes, searches, and analyzes structured and unstructured logs at large scale to monitor the health and performance of an organization\u2019s services, infrastructure, and applications. Users can analyze and visualize information extracted from logs to understand system behavior and trends to optimize performance and preemptively address potential issues. By querying logs in ad hoc ways, users can triage, troubleshoot, and resolve performance issues. \n\u2022\nMetrics.  \nMetrics ingests, searches, visualizes, and analyzes numeric and time series data from IT systems, including applications, data stores, hosts, containers, cloud infrastructure, and more. Users can review performance and utilization trends to optimize and plan for future needs. Metrics helps users deliver on infrastructure service level objectives (\u201cSLO\u201d), and resolve downtime or performance issues by understanding how the state of individual components fits into the bigger picture.\n\u2022\nAPM. \n APM delivers insight into application performance at the code level. Developers can instrument apps and see the lifecycle of a transaction across services from front end to back end. This can give developers confidence in the code they ship, and can give operational teams visibility into code-level errors and performance bottlenecks to accelerate root cause analysis and resolution during an investigation.\n\u2022\nSynthetic Monitoring.\n  Customers and users leverage Synthetic Monitoring to track and monitor the availability of the hosts, websites, services, and application endpoints that support business operations. Through proactive monitoring, customers can detect troublesome components before they are reported by end users.\n10\nTable of Contents\nSecurity\n delivers unified protection to prevent, detect, and respond to a variety of threats across the IT ecosystem.\n\u2022\nSIEM.\n  Elastic SIEM automates threat detection and remediation, reducing mean time to detect (\u201cMTTD\u201d) and mean time to respond (\u201cMTTR\u201d). With prebuilt Elastic Agent and Beats integrations, SIEM can ingest data from cloud, network, endpoints, applications, and other systems. With Elastic Common Schema (\u201cECS\u201d), users can centrally analyze information like logs, flows, and contextual data from disparate data sources. SIEM provides an interactive workspace for security teams to detect and respond to threats. Teams can triage events and perform investigations, gathering evidence on an interactive timeline. SIEM also streamlines opening and updating cases, forwarding potential incidents to security operations workflows and IT ticketing systems.\n\u2022\nEndpoint Security.\n  Endpoint Security combines prevention, detection, and response into a single, autonomous agent that can even run in isolated environments. It is designed for ease of use and for speed, and can help stop threats in early stages of an attack. Endpoint Security includes protection against ransomware, malware, phishing, exploits, fileless attacks, and other threats. \n\u2022\nXDR.\n  XDR extends detection and response across the entire attack surface. When deployed together, SIEM and Endpoint Security provide a strong security posture with broad visibility on potential threats. XDR delivers a unified security stack, protecting across endpoints, cloud, and the broader environment, letting customers minimize vendor sprawl, harness actionable data, and provide defense in depth to minimize time to resolution. \n\u2022\nCloud Security.\n  Cloud Security protects cloud deployments with rich visibility into cloud posture paired with runtime protection for cloud workloads with prevention, detection, and response capabilities, all in one integrated solution. \nCommunity \nOur team extends beyond our employee base. It includes all the users who download our software. Our users interact with us on our website forums and on Twitter, GitHub, Stack Overflow, Quora, Facebook, Weibo, WeChat, and other platforms. \nIn order to build products that best meet our users\u2019 needs, we focus on, and invest in, building a strong community. Each download of the Elastic Stack is a new opportunity to educate our next contributor, hear about a new use case, explore the need for a new feature, or meet a future member of the team. Community is core to our identity, binding our products closely together with our users. Community gives us an ability to get their candid feedback, creating a direct line of communication between our users and the builders of our products across all of our features \u2014 including both free and paid capabilities \u2014 and enabling us to make our products simpler and better. \nThe Elastic community has a code of conduct that covers the behaviors of the Elastic community in any forum, mailing list, wiki, website, code repository, Slack channel, private correspondence, or public meeting. It is designed to ensure that the Elastic community is a space where members and users can freely and openly communicate, collaborate, and contribute both ideas and code. This Elastic Community code of conduct also covers our community ground rules: be considerate, be patient, be respectful, be nice, communicate effectively, and ask for help when unsure. \nCompetition \nOur market is highly competitive, quickly evolving, fragmented, and subject to rapid changes in technology, shifting customer needs, and frequent introductions of new offerings. Our principal competitors include: \n\u2022\nFor Search and other platform use cases: offerings such as Solr (open source offering) and Lucidworks Fusion, search tools including Google, Coveo, and Algolia. \n\u2022\nFor Observability: software vendors with specific observability solutions to analyze logging data, metrics, APM data, or infrastructure uptime, such as Splunk, New Relic, Dynatrace, AppDynamics (owned by Cisco Systems), and Datadog. \n\u2022\nFor Security: security vendors such as Splunk, Azure Sentinel (by Microsoft), CrowdStrike, Carbon Black (owned by VMware), McAfee, and Symantec (owned by Broadcom).\n\u2022\nCertain cloud hosting providers and managed service providers, including AWS, that offer products or services based on a forked version of the Elastic Stack. These offerings are not supported by Elastic and come without any of Elastic\u2019s proprietary features, whether free or paid.\nThe principal competitive factors for companies in our industry are: \n\u2022\nproduct capabilities, including speed, scale, and relevance, with which to power search experiences; \n11\nTable of Contents\n\u2022\nan extensible product \u201cstack\u201d that enables developers to build a wide variety of solutions; \n\u2022\npowerful and flexible technology that can manage a broad variety and large volume of data; \n\u2022\nease of deployment and ease of use; \n\u2022\nability to address a variety of evolving customer needs and use cases; \n\u2022\nstrength and execution of sales and marketing strategies; \n\u2022\nflexible deployment model across public or private clouds, hybrid environments, or multi-cloud environments; \n\u2022\nproductized solutions engineered to be rapidly adopted to address specific applications; \n\u2022\nmindshare with developers and IT and security executives; \n\u2022\nadoption of products by many types of users and decision makers (developers, architects, DevOps personnel, IT professionals, security analysts, and departmental and organizational leaders); \n\u2022\nenterprise-grade technology that is secure and reliable; \n\u2022\nsize of customer base and level of user adoption; \n\u2022\nquality of training, consulting, and customer support; \n\u2022\nbrand awareness and reputation; and \n\u2022\nlow total cost of ownership. \nWe believe that we compare favorably on the basis of the factors listed above. However, many of our competitors have substantially greater financial, technical and other resources, greater brand recognition, larger sales forces and marketing budgets, broader distribution networks and presence, more established relationships with current or potential customers and partners, more diverse product and services offerings, and larger and more mature intellectual property portfolios. They may be able to leverage these resources to gain business in a manner that discourages customers from purchasing our offerings. \nWe expect that our industry will continue to attract new companies, including smaller emerging companies, which could introduce new offerings. We may also expand into new markets and encounter additional competitors in such markets. \nWhile our products and solutions have various competitors across different use cases, such as search applications and workplace search, logging, metrics, APM, business analytics and security analytics, we believe that few competitors currently have the capabilities to address our entire range of use cases. We believe our industry requires constant change and innovation, and we plan to continue to evolve search as a foundational technology to solve the problems of today and new emerging problems in the future. \nIntellectual Property \nWe rely on a combination of patents, patent applications, registered and unregistered trademarks, copyrights, trade secrets, license agreements, confidentiality procedures, non-disclosure agreements with third parties, and other contractual measures to safeguard our core technology and other intellectual property assets. In addition, we maintain a policy requiring our employees, contractors, and consultants to enter into confidentiality and invention assignment agreements. As of April\u00a030, 2023, we had a number of active patents, issued in both the United States and outside of the United States, with expirations ranging from 2031 to 2041. In addition, as of April\u00a030, 2023, we had numerous U.S. and international trademark registrations.\nThe laws, procedures and restrictions on which we rely may provide only limited protection, and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. In addition, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States or other jurisdictions, and we therefore may be unable to protect our proprietary technology in certain jurisdictions. \nIn addition, our technology incorporates software components licensed to the general public under open source software licenses such as the Apache Software License Version 2.0 (\u201cApache 2.0\u201d). We obtain many components from software developed and released by contributors to independent open source components of our technology. Open source licenses grant licensees broad permissions to use, copy, modify and redistribute our platform. As a result, open source development and licensing practices can limit the value of our software copyright assets.\nFor additional information about risks relating to our intellectual property, see the section titled \u201cRisk Factors\u2014Risks Related to our Business and Industry.\u201d \n12\nTable of Contents\nHuman Capital Management\nOur employees (whom we call \u201cElasticians\u201d) and our culture are vital to Elastic\u2019s long-term success. Our human capital management efforts are focused on:\n\u2022\nAttracting, engaging and retaining talent\n\u2022\nMaintaining our strong company culture\n\u2022\nEnhancing our diversity, equity and inclusion (\u201cDEI\u201d)\n\u2022\nContinuing strong employee engagement\n\u2022\nFacilitating continuous employee learning and development\n\u2022\nOffering effective total rewards, including employee well-being\nOur management regularly updates our board of directors and its committees on human capital trends and employee-focused activities and initiatives.\nAs of April\u00a030, 2023, we had a total of 2,886 employees in over 40 countries globally. Over 30% of our workforce consists of women and employees who self-identify as non-binary. None of our employees are represented by a labor union. In certain countries in which we operate, such as France and Spain, we are subject to local labor law requirements that may automatically make our employees subject to industry-wide collective bargaining agreements. We have not experienced any work stoppages.\nDistributed Workforce\nElastic originated as a distributed company and continues to be distributed by design. We have designed our processes, systems, and teams so that employees can generally perform their jobs without needing to be physically present in the same room or even in the same time zone. Just as distributed systems are more resilient, we believe that being distributed helps build a strong company that can scale and adapt as new challenges arise. Having a distributed workforce gives us a global candidate pool, which provides us the opportunity to cast a wider recruiting net, a critical aspect of helping open our pipelines to a broader set of diverse talent. \nDiversity, Equity and Inclusion \nOur focus on DEI is critical to how we develop, strengthen and sustain a sense of belonging and inclusion among all Elasticians. \nBalanced Teams.\n We strive to be an employer of choice for a diverse and inclusive workforce through our talent brand, talent attraction, development, and retention efforts. Our recruiting approach is underpinned by the desire to create balanced teams at Elastic, which includes considering broad aspects of diversity from race and gender mix as well as diversity of thought, experience and tenure when recruiting new team members. The created-by-women-for-women workplace review site, Fairygodboss, recognized Elastic as one of the best workplaces for women in three categories: Best Technology Company for Women, Best Company for Women, and Best Company Where CEOs Support Gender Diversity. \nElastician Resource Groups.\n We strive to embed DEI deep within our culture through various initiatives, projects and programs, the centerpiece of which is the Elastician Resource Groups (\u201cERG\u201d), which are organizationally sponsored, self-organized, Elastician-run groups. Aligned to specific shared identities, interests, affinity or allyship, such as Latinx, parent(s), disability or accessibility, Black, LGBTQ+ and others; each group identifies goals and objectives with executive sponsorship to ensure that they provide tangible benefits and result in all Elasticians feeling a sense of belonging.\nFair Pay.\n We pursue fair and consistent compensation practices through our use of local third-party market data specific to each country, where available, so that we understand local compensation and cost of labor levels. We retain external experts to review our compensation outcomes on an ongoing basis in seeking to ensure they are bias-free and fairly reward employee performance and contributions. We take great pride in our focus on fair pay and the positive results we\u2019ve established.\nCode of Conduct\n. All of our employees must adhere to a Code of Business Conduct and Ethics (the \u201cCode of Conduct\u201d) that sets standards for appropriate behavior and are required to complete annual training on the Code of Conduct and training to help prevent, identify and report any type of discrimination and harassment.\nEmployee Engagement\nWe are committed to ensuring that Elasticians have a voice in how we can collectively make Elastic a better place to work.\n13\nTable of Contents\nNew Employee Onboarding.\n Our new employee onboarding experience is centered around attending \u201cX-School\u201d, our extensive new-hire orientation program, which enables new Elasticians to meet and collaborate with other new Elasticians from around the globe and to learn about our products and solutions.\nEngagement Surveys.\n We monitor employee morale and attitudes through two primary feedback mechanisms \u2013 an annual employee engagement survey and a mid-year pulse survey check-in. The results of these surveys are reviewed at the company, functional, team and manager level, and are used to develop action plans put in place annually. Elasticians were highly engaged in providing feedback in fiscal years 2023, 2022 and 2021, with high participation rates for the mid-year and annual surveys as well as high engagement scores across a spectrum of questions. \nLearning and Development\nOur Learning & Organizational Development team\u2019s mission is to enable Elasticians to pursue their purpose, in work and life. To that end, we have a variety of ways in which we support the continuous learning and development of all Elasticians, including access to on-demand video based learning.\nWe also conduct specific programs to develop managers and leaders at Elastic, including our flagship leadership development program -\n Leading Strategically,\n an externally-led program focused on high-performing leaders who possess the potential to have a significant strategic impact on the achievement of our long-term objectives. \nTotal Rewards\nCompensation, Benefits and Well-being\n. We provide market competitive compensation which typically includes cash compensation as well as equity awards. Reflecting our interest in the whole person, we provide programs designed to enable Elasticians to meet their well-being goals, from starting a family to being at their physical and emotional best. These programs include market competitive medical and dental programs, in addition to a focus on mental health and holistic well-being. We provide market competitive paid time off programs, which feature 16 weeks of paid leave to all new parents, life-planning benefits and other travel reimbursements for certain healthcare services. In addition, we also provide retirement and income protection plans, which include a 401k plan with a dollar-for-dollar match by Elastic up to 6% of eligible earnings up to a plan-limit maximum for U.S.-based Elasticians as well as similar competitive plans outside of the United States. \nFlexible Work Environment\n. Since inception, we have provided most Elasticians with the ability to work from anywhere, as often as they would like. We also know that being face-to-face is important too, and we have physical offices around the world to provide a space for employees to work from if they wish to do so.\nCommunity Involvement.\n Through our Elastic Cares program, employees can support the charitable organizations that matter the most to them on a local and global level. This program encompasses donation matching, our nonprofit organization program which provides our technology for free to certain nonprofit organizations, and our volunteer time off initiative. Employees are encouraged to volunteer for these organizations throughout the year using our volunteer time off program which provides our employees with 40 hours of volunteer time each year.\nGovernment Regulations\nOur worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments. Our compliance with existing or future governmental regulations, including, but not limited to, those pertaining to global trade, business acquisitions, consumer and data protection, and taxes, could have material impacts on our business. See Item 1A, \u201cRisk Factors\u201d of this Annual Report on Form 10-K for a discussion of these potential impacts.\nCorporate Information\nWe were incorporated in the Netherlands as a private company with limited liability (\nbesloten vennootschap met beperkte aansprakelijkheid\n) on February 9, 2012 as SearchWorkings Global B.V. On June 19, 2012, we changed our name to elasticsearch global B.V., on December 11, 2013, we changed our name to Elasticsearch Global B.V., and on May 29, 2018, we changed our name to Elastic B.V. Immediately prior to the completion of our initial public offering (\u201cIPO\u201d) on October 10, 2018, we converted into a public company with limited liability (\nnaamloze vennootschap\n) under Dutch law and changed our name to Elastic N.V. \nWe are a distributed company, which means our workforce is distributed globally. Accordingly, we do not have a principal executive office. We are registered with the trade register of the Dutch Chamber of Commerce under number 54655870. Our registered office is at Keizersgracht 281, 1016 ED Amsterdam, the Netherlands. \nOur ordinary shares are listed on the New York Stock Exchange (\u201cNYSE\u201d) under the symbol \u201cESTC\u201d.\n14\nTable of Contents\nOur website address is www.elastic.co. Information contained on, or that can be accessed through, our website does not constitute part of this Annual Report on Form 10-K and references to our website address in this Annual Report on Form 10-K are inactive textual references only. \nWe announce material information to the public about us, our products and services and other matters through a variety of means, including filings with the U.S. Securities and Exchange Commission (\u201cSEC\u201d), press releases, public conference calls, our website (www.elastic.co), the investor relations section of our website (https://ir.elastic.co), our blog (www.elastic.co/blog), and/or social media, including our Twitter account (https://twitter.com/elastic), Facebook page (www.facebook.com/elastic.co), and/or LinkedIn account (www.linkedin.com/company/elastic-co), in order to achieve broad, non-exclusionary distribution of information to the public. We encourage investors and others to review the information it makes public in these locations, as such information could be deemed to be material information. Please note that this list may be updated from time to time. \nAvailable Information\nOur Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act are filed with the SEC. We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements and other information with the SEC. Such reports and other information filed by us with the SEC are available free of charge on our website at www.elastic.co/ir when such reports are available on the SEC\u2019s website. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. ",
+  "item1a": ">Item 1A. Risk Factors\nA description of the risks and uncertainties associated with our business, industry and ownership of our ordinary shares is set forth below. You should carefully consider the following risks, together with all of the other information in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes thereto, before deciding whether to invest in our ordinary shares. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that could affect us. If any of the following risks occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the price of our ordinary shares could decline, and you could lose part or all of your investment. In addition, major geopolitical events, including any worsening of the macroeconomic environment, may exacerbate the risks described below, any of which could have a material impact on us and additional impacts that are currently not known to us may arise.\nThe following is a summary of the key risks and uncertainties associated with our business, industry, and ownership of our ordinary shares. The summary below does not contain all of the information that may be important to you, and you should read this summary together with the more detailed description of each risk factor in the following discussion. \n\u2022\nIf we do not appropriately manage our future growth or are unable to improve our systems and processes, our business and results of operations will be adversely affected.\n\u2022\nWe have a history of losses and may not be able to achieve profitability on a consistent basis or at all or positive operating cash flow on a consistent basis. \n\u2022\nOur ability to grow our business will suffer if we do not expand and increase adoption of our Elastic Cloud offerings.\n\u2022\nInformation technology spending, sales cycles, and other factors affecting the demand for our offerings and our results of operations have been, and may continue to be, negatively impacted by current macroeconomic conditions, including declining rates of economic growth, supply chain disruptions, inflationary pressures, increased interest rates, and other conditions discussed in this report, and by Russia\u2019s invasion of Ukraine and the resulting international political crisis and associated impacts.\n\u2022\nOur future growth, business and results of operations will be harmed if we are not able to keep pace with technological and competitive developments, increase sales of our subscriptions to new and existing customers, renew existing customers\u2019 subscriptions, increase adoption of our cloud-based offerings, respond effectively to evolving markets or offer high quality support services.\n\u2022\nAny actual or perceived failure by us to comply with regulations or any other obligations relating to privacy, data protection or information security could adversely affect our business.\n\u2022\nWe and our third-party vendors and service providers are vulnerable to a risk of cybersecurity attacks, phishing attacks, viruses, malware, ransomware, hacking or similar breaches from nation-state and affiliated actors.\n\u2022\nOur operating results may fluctuate from quarter to quarter.\n15\nTable of Contents\n\u2022\nActions that we are taking to reduce costs and rebalance investments under a plan we announced in November 2022 may not result in anticipated savings or operational efficiencies, could result in total costs and expenses that are greater than expected and could disrupt our business.\n\u2022\nOur decision to no longer offer Elasticsearch and Kibana under an open source license may harm the adoption of those products.\n\u2022\nWe could be negatively impacted if the Elastic License or the Server Side Public License under which some of our software is licensed is not enforceable.\n\u2022\nLimited technological barriers to entry into the markets in which we compete may facilitate entry by other enterprises into our markets to compete with us.\n\u2022\nWe may not be able to effectively develop and expand our sales, marketing and customer support capabilities.\n\u2022\nBecause we recognize the vast majority of our revenue from subscriptions, either based on actual consumption, monthly, or ratably, over the term of the relevant subscription period, downturns or upturns in sales are not immediately reflected in full in our results of operations.\n\u2022\nOur limited history with consumption-based arrangements for our Elastic Cloud offerings is not adequate to enable us to predict accurately the long-term rate of customer adoption or renewal, or the impact those arrangements will have on our near-term or long-term revenue or operating results. \n\u2022\nA real or perceived defect, security vulnerability, error, or performance failure in our software could cause us to lose revenue, damage our reputation, and expose us to liability.\n\u2022\nIncorrect implementation or use of our software could negatively affect our business, operations, financial results, and growth prospects.\n\u2022\nOur reputation could be harmed if third parties offer inadequate or defective implementations of software that we have previously made available under an open source license.\n\u2022\nInterruptions or performance problems, and our reliance on technologies from third parties, may adversely affect our business operations and financial results.\n\u2022\nIf our partners, including cloud providers, systems integrators, channel partners, referral partners, OEM and MSP partners, and technology partners, fail to perform or we are unable to maintain successful relationships with them, our ability to market, sell and distribute our solution will be more limited.\n\u2022\nFailure to protect our proprietary technology and intellectual property rights could substantially harm our business and results of operations.\n\u2022\nWe could incur substantial costs as a result of any claim of infringement, misappropriation or violation of another party\u2019s intellectual property rights, including as a result of the indemnity provisions in various agreements.\n\u2022\nOur use of third-party open source software within our products could negatively affect our ability to sell our products and subject us to possible litigation.\n\u2022\nWe may not be able to realize the benefits of our marketing strategies to offer some of our product features for free and to provide free trials to some of our paid features.\n\u2022\nOur international business exposes us to a variety of risks, and if we are not successful in sustaining and expanding our international business, we may incur additional losses and our revenue growth could be harmed.\n\u2022\nWe are subject to risks associated with our receipt of revenue from sales to government entities.\n\u2022\nOur business is subject to a variety of government and industry regulations, as well as other obligations, including compliance with export control, trade sanctions, anti-bribery, anti-corruption, and anti-money laundering laws.\n\u2022\nAn investment in our company is subject to tax risks based on our status as a non-U.S. corporation. \n\u2022\nThe market price for our ordinary shares has been and is likely to continue to be volatile.\n\u2022\nThe concentration of our share ownership with insiders will likely limit your ability to influence corporate matters.\n\u2022\nDutch law and our articles of association include anti-takeover provisions, which may impact the value of our ordinary shares.\n\u2022\nClaims of U.S. civil liabilities may not be enforceable against us.\n16\nTable of Contents\n\u2022\nWe have a substantial amount of indebtedness and may not be able to generate sufficient cash to service all of our indebtedness.\n\u2022\nIf industry or financial analysts do not publish research or reports about our business, or if they issue inaccurate or unfavorable research regarding our ordinary shares, our share price and trading volume could decline.\n\u2022\nWe may fail to maintain an effective system of disclosure controls and internal control over financial reporting.\nRisks Related to our Business and Industry\nOur business and operations have experienced rapid growth, and if we do not appropriately manage future growth, if any, or are unable to improve our systems and processes, our business, financial condition, results of operations, and prospects will be adversely affected. \nWe have experienced rapid growth and increased demand for our offerings. Our employee headcount and number of customers have increased significantly. For example, our total number of customers has grown from over 2,800 as of April 30, 2017 to approximately 20,200 as of April\u00a030, 2023. Further, although we implemented a workforce reduction in November 2022 and may modify our hiring to align with our evolving growth plans, our employee headcount generally has increased as we have expanded our business. The growth and expansion of our business and offerings place a continuous and significant strain on our management, operational, and financial resources. In addition, as customers adopt our technology for an increasing number of use cases, we have had to support more complex commercial relationships. We may not be able to leverage, develop and retain qualified employees effectively enough to maintain our growth plans. We must continue to improve our information technology and financial infrastructure, our operating and administrative systems, our relationships with various partners and other third parties, and our ability to manage headcount and processes in an efficient manner to manage our growth effectively. Our failure to do so could result in increased costs, negatively affect our customers\u2019 satisfaction with our offerings, and harm our results of operations.\nWe may not be able to sustain the diversity and pace of improvements to our offerings successfully, or implement systems, processes, and controls in an efficient or timely manner or in a manner that does not negatively affect our results of operations. Our failure to improve our systems, processes, and controls, or their failure to operate in the intended manner, may result in our inability to manage the growth of our business and to forecast our revenue, expenses, and earnings accurately, or to prevent losses. \nWe may find it difficult to maintain our corporate culture while managing our headcount. Any failure to manage our anticipated growth and related organizational changes in a manner that preserves our culture could negatively impact our future growth and achievement of our business objectives. Additionally, our productivity and the quality of our offerings may be adversely affected if we do not develop our employee talent effectively. \nWe have a history of losses and may not be able to achieve profitability on a consistent basis or at all, and may not be able to achieve positive operating cash flow on a consistent basis. As a result, our business, financial condition, and results of operations may suffer. \nWe have incurred losses in all years since our inception. We incurred a net loss of $236.2 million, $203.8 million, and $129.4 million for the years ended April 30, 2023, 2022 and 2021, respectively. As a result, we had an accumulated deficit of $1.1\u00a0billion as of April\u00a030, 2023. We anticipate that our operating expenses will continue to increase substantially in the foreseeable future as we continue to enhance our offerings, broaden our customer base and pursue larger transactions, expand our sales and marketing activities, expand our operations, hire additional employees, and continue to develop our technology. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently, or at all, to offset these higher expenses. Revenue growth may slow or revenue may decline for a number of reasons, including slowing demand for our offerings, increasing competition, or economic downturns, including as a result of rising rates of inflation and other macroeconomic events. You should not consider our revenue growth in prior periods as indicative of our future performance. Any failure to increase our revenue or grow our business could prevent us from achieving profitability at all or on a consistent basis, which would cause our business, financial condition, and results of operations to suffer. Additionally, although we generated positive operating cash flow in fiscal 2023, any failure to grow our business could prevent us from achieving positive operating cash flow on a consistent basis, which would cause our business, financial condition, and results of operations to suffer. \n17\nTable of Contents\nOur ability to grow our business will depend significantly on the expansion and adoption of our Elastic Cloud offerings.\nWe believe our future success will depend significantly on the growth in the adoption of Elastic Cloud, our family of cloud-based offerings. We have incurred and will continue to incur substantial costs to develop, sell and support our Elastic Cloud offerings. We have also entered into non-cancelable multi-year cloud hosting capacity commitments with certain third-party cloud providers, which require us to pay for such capacity irrespective of actual usage. We believe that we must offer a family of cloud-based products to address the market segment that prefers a cloud-based solution to a self-managed solution and that there will be increasing demand for cloud-based offerings of our products. For the years ended April 30, 2023, 2022, and 2021, Elastic Cloud contributed 40%, 35%, and 27% of our total revenue, respectively. However, as the use of cloud-based computing solutions is rapidly evolving, it is difficult to predict the potential growth, if any, of general market adoption, customer adoption, and retention rates of our cloud-based offerings. There could be decreased demand for our cloud-based offerings due to reasons within or outside of our control, including, among other things, lack of customer acceptance, technological challenges with bringing cloud offerings to market and maintaining those offerings, information security, data protection, or privacy concerns, our inability to properly manage and support our cloud-based offerings, competing technologies and products, weakening economic conditions, and decreases in corporate spending. If we are not able to develop, market, or deliver cloud-based offerings that satisfy customer requirements technically or commercially, if our investments in cloud-based offerings do not yield the expected return, or if we are unable to decrease the cost of providing our cloud-based offerings, our business, competitive position, financial condition and results of operations may be harmed.\nUnfavorable or uncertain conditions in our industry or the global economy or reductions in information technology spending, including as a result of adverse macroeconomic conditions, or Russia\u2019s invasion of Ukraine, could limit our ability to grow our business and negatively affect our results of operations. \nOur results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers. Current, future, or sustained economic uncertainties or downturns, whether actual or perceived, could adversely affect our business and results of operations. Negative conditions in the general economy both in the United States and in international markets, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, international trade relations, changes in inflation, foreign exchange and interest rate environments, recessionary fears, supply chain constraints, energy costs, political instability, natural catastrophes, warfare, infectious diseases and terrorist attacks, could cause a decrease in business investments by our customers and potential customers, including spending on information technology, and negatively affect the growth of our business. For example, inflation rates have recently reached levels not seen in decades and may continue to create economic volatility as governments adjust interest rates in an attempt to manage the inflationary environment, which may further lead to our customers tightening their technology spend and investment. Further, the ongoing international political crisis resulting from Russia\u2019s invasion of Ukraine could continue to have significant negative macroeconomic consequences, including on the businesses of our customers, which could negatively impact their spending on our offerings. Moreover, instability in the global banking system recently has resulted in failures of major banks. Any further disruptions or other adverse developments, or concerns or rumors about any such events or similar risks, in the financial services industry, both in the U.S. and in international markets, may lead to market-wide liquidity problems and may impact our or our customers\u2019 liquidity and, as a result, negatively affect the level of customer spending on our offerings.\nAs a result of the foregoing conditions, our revenue may be disproportionately affected by longer and more unpredictable sales cycles, delays or reductions in customer consumption or in general information technology spending, and further impacts of changing foreign exchange rates. Further, current and prospective customers may choose to develop in-house software as an alternative to using our paid products. These factors could increase the amount of customer churn we have experienced recently and further slow consumption and overall customer expenditure. Moreover, competitors may respond to market conditions by lowering prices. Such impacts of the current macroeconomic environment have negatively affected our results of operations since the first quarter of fiscal 2023. We cannot predict the timing, strength or duration of the current economic slowdown and instability or any recovery, generally or within our industry. If the economic conditions of the general economy or markets in which we operate do not improve, or worsen from present levels, our business, results of operations and financial condition could be adversely affected.\nWe may not be able to compete successfully against current and future competitors. \nThe market for our products is highly competitive, quickly evolving, fragmented, and subject to rapid changes in technology, shifting customer needs, and frequent introductions of new offerings. We believe that our ability to compete depends upon many factors both within and beyond our control, including the following:\n\u2022\nour product capabilities, including speed, scale, and relevance, with which to power search experiences; \n\u2022\nour offerings of an extensible product \u201cstack\u201d that enables developers to build a wide variety of solutions; \n18\nTable of Contents\n\u2022\npowerful and flexible technology that can manage a broad variety and large volume of data; \n\u2022\nease of deployment and ease of use;\n\u2022\nability to address a variety of evolving customer needs and use cases;\n\u2022\nstrength and execution of our sales and marketing strategies; \n\u2022\nflexible deployment model across public or private clouds, hybrid environments, or multi-cloud environments; \n\u2022\ndevelopment of solutions engineered to be rapidly adopted to address specific applications; \n\u2022\nmindshare for our products with developers and IT and security executives; \n\u2022\nadoption of our products by many types of users and decision makers (including developers, architects, DevOps personnel, IT professionals, security analysts, and departmental and organizational leaders); \n\u2022\nenterprise-grade technology that is secure and reliable; \n\u2022\nsize of our customer base and level of user adoption; \n\u2022\nquality of our training, consulting, and customer support; \n\u2022\nbrand awareness and reputation; and \n\u2022\nlow total cost of ownership. \nWe face competition from both established and emerging competitors. Our current primary competitors generally fall into the following categories: \n\u2022\nFor Search and other platform use cases: offerings such as Solr (open source offering) and Lucidworks Fusion, search tools including Google, Coveo, and Algolia. \n\u2022\nFor Observability: software vendors with specific observability solutions to analyze logging data, metrics, APM data, or infrastructure uptime, such as Splunk, New Relic, Dynatrace, AppDynamics (owned by Cisco Systems), and Datadog.\n\u2022\nFor Security: security vendors such as Splunk, Azure Sentinel (by Microsoft), CrowdStrike, Carbon Black (owned by VMware), McAfee, and Symantec (owned by Broadcom).\n\u2022\nCertain cloud hosting providers and managed service providers, including AWS, that offer products or services based on a forked version of the Elastic Stack. These offerings are not supported by Elastic and come without any of Elastic\u2019s proprietary features, whether free or paid.\nSome of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, stronger brand recognition, broader global distribution and presence, more established relationships with current or potential customers and partners, and larger customer bases than we do. These factors may allow our competitors to respond more quickly than we can to new or emerging technologies and changes in customer preferences. These competitors may engage in more extensive research and development efforts, undertake more far-reaching and successful sales and marketing campaigns, have more experienced sales professionals, execute more successfully on their go-to-market strategy and have greater access to more markets and decision makers, and adopt more aggressive pricing policies which may allow them to build larger customer bases than we have. New start-up companies that innovate and large competitors that are making significant investments in research and development may develop similar offerings that compete with our offerings or that achieve greater market acceptance than our offerings. This could attract customers away from our offerings and reduce our market share. If we are unable to anticipate or react effectively to these competitive challenges, our competitive position would weaken, which would adversely affect our business and results of operations. \n19\nTable of Contents\nIf we are not able to keep pace with technological and competitive developments, our business will be harmed. \nThe market for search technologies, including search, observability and security, is subject to rapid technological change, innovation (such as the use of AI), evolving industry standards, and changing regulations, as well as changing customer needs, requirements and preferences. Our success depends upon our ability to continue to innovate, enhance existing products, expand the use cases of our products, anticipate and respond to changing customer needs, requirements, and preferences, and develop and introduce in a timely manner new offerings that keep pace with technological and competitive developments. \nWe have experienced delays in releasing new products, deployment options, and product enhancements and may experience similar delays in the future. As a result, in the past, some of our customers deferred purchasing our products until the next upgrade was released. Future delays or problems in the installation or implementation of our new releases may cause customers to forgo purchases of our products and purchase those of our competitors instead. \nThe success of new product introductions depends on a number of factors including, but not limited to, timely and successful product development, market acceptance, our ability to manage the risks associated with new product releases, the availability of software components for new products, the effective management of development and other spending in connection with anticipated demand for new products, the availability of newly developed products, and the risk that new products may have bugs, errors, or other defects or deficiencies in the early stages of introduction. We have experienced bugs, errors, or other defects or deficiencies in new products and product updates and may have similar experiences in the future. Furthermore, our ability to increase the usage of our products depends, in part, on the development of new use cases for our products, which is typically driven by our developer community and may be outside of our control. We also have invested, and may continue to invest, in the acquisition of complementary businesses, technologies, services, products and other assets that expand the products that we can offer our customers. We may make these investments without being certain that they will result in products or enhancements that will be accepted by existing or prospective customers. If we are unable to successfully enhance our existing products to meet evolving customer requirements, increase adoption and usage of our products, develop new products, or if our efforts to increase the usage of our products are more expensive than we expect, then our business, results of operations, and financial condition would be adversely affected. \nSales of our products could suffer if the markets for those products do not grow or if we fail to adapt and respond effectively to evolving markets. \nThe markets for certain of our products, such as our Search, Observability and Security solutions, are evolving and our products are relatively new in these markets. Accordingly, it is difficult to predict continued customer adoption and renewals for these products, customers\u2019 demand for these products, the size, growth rate, expansion, and longevity of these markets, the entry of competitive products, or the success of existing competitive products. Our ability to penetrate these evolving markets depends on a number of factors, including the cost, performance, and perceived value associated with our products. If these markets do not continue to grow as expected or if we are unable to anticipate or react to changes in these markets, our competitive position would weaken, which would adversely affect our business and results of operations.\nAny actual or perceived failure by us to comply with government or other obligations related to privacy, data protection and information security could adversely affect our business. \nWe are subject to compliance risks and uncertainties under a variety of federal, state, local and foreign laws and regulations governing privacy, data protection, information security, and the collection, storage, transfer, use, retention, sharing, disclosure, protection, and processing of personal data. Privacy, data protection, and information security laws may be interpreted and applied differently depending on the jurisdiction and continue to evolve, making it difficult to predict how they may develop and apply to us.\nThe regulatory frameworks for these issues worldwide are rapidly evolving and are likely to remain uncertain for the foreseeable future. Federal, state, or non-U.S. government bodies or agencies have in the past adopted, and may in the future adopt, new laws and regulations or may make amendments to existing laws and regulations affecting data protection, data privacy and/or information security and/or regulating the use of the Internet as a commercial medium. \n20\nTable of Contents\nIn the United States, the following states have enacted such legislation: California (California Consumer Privacy Act and the California Privacy Rights Act), Colorado (Colorado Privacy Act), Connecticut (An Act Concerning Personal Data Privacy and Online Monitoring), Utah (Utah Consumer Privacy Act) and Virginia (Virginia Consumer Data Protection Act). These laws and regulations may include a private right of action for certain data breaches or noncompliance with privacy obligations, may provide for penalties and other remedies, and may require us to incur substantial costs and expenses and liabilities in connection with our compliance. Other U.S. states and the U.S. federal government are considering or have enacted similar privacy legislation. Many obligations under these laws and legislative proposals remain uncertain, and we cannot fully predict their impact on our business. Failure to comply with these varying laws and standards may subject us to investigations, enforcement actions, civil litigation, fines and other penalties, all of which may generate negative publicity and have a negative impact on our business. \nInternationally, most jurisdictions in which we operate have established their own privacy, data protection and information security legal frameworks with which we or our customers must comply. Within the European Union, the General Data Protection Regulation (\u201cGDPR\u201d) applies to the processing of personal data. The GDPR imposes significant obligations upon our business and compliance with these obligations can vary depending on how different regulators may interpret them. Failure to comply, or perceived failure to comply, can result in administrative fines of up to 20 million Euros or four percent of the group\u2019s annual global turnover, whichever is higher. Similarly, the United Kingdom has implemented legislation that is substantially similar to the EU GDPR where penalties for violations, actual or perceived, can be up to 17.5 million British Pound Sterling or four percent of the group\u2019s annual global turnover, whichever is higher, all of which may be subject to change with the introduction of the Data Protection and Digital Information (DPDI) Bill in 2022. The potential impact to our business remains unclear. \nOn June 4, 2021, the European Commission issued new Standard Contractual Clauses (\u201cSCC\u201d) applicable to cross-border data transfers of personal data for people located in the EEA. On February 2, 2022, the United Kingdom\u2019s Information Commissioner\u2019s Office issued new standard contractual clauses to support personal data transfers out of the United Kingdom (\u201cUK SCC\u201d), which went into effect on March 21, 2022. In light of these and other ongoing developments relating to cross-border data transfer, we may experience additional costs associated with increased compliance burdens, and this regulation may impact our ability to transfer personal data across our organization, to customers, or to third parties.\nIn addition to government regulation, industry groups have established or may establish new and different self-regulatory standards that may legally or contractually apply to us or our customers. One example of such a self-regulatory standard is the Payment Card Industry Data Security Standard (\u201cPCI DSS\u201d), which relates to the processing of payment card information. Further, our customers increasingly expect us to comply with more stringent privacy, data protection, and information security requirements than those imposed by laws, regulations, or self-regulatory requirements, and we may be obligated contractually to comply with additional or different standards relating to our handling or protection of data on or by our offerings. Any failure to meet our customers\u2019 requirements may adversely affect our revenues and prospects for growth. \nWe also expect that there will continue to be changes in interpretations of existing or new laws and regulations, proposed laws, and other obligations, which could impair our or our customers\u2019 ability to process personal data, decrease demand for our offerings, impact our marketing efforts, increase our costs, and impair our ability to maintain and grow our customer base and increase our revenue. It is possible that these laws and regulations or other actual or asserted obligations relating to privacy, data protection, or information security may be interpreted and applied in manners that are, or are alleged to be, inconsistent with our data management practices or the features of our products. In such an event, we could face fines, lawsuits, regulatory investigations, and other claims and penalties, and we could be required to fundamentally change our products or our business practices, any of which could have an adverse effect on our business. \nData protection authorities and other regulatory bodies are increasingly focused on the use of online tracking tools and have issued or plan to issue rulings which may impact our marketing practices. Any restrictions on using online analytics and tracking tools could lead to substantial costs, require significant changes to our policies and practices, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, and subject us to additional liabilities. \nWe publicly post privacy statements and other documentation regarding our practices concerning the processing, use and disclosure of personal data. Any failure, or perceived failure, by us to comply with such statements could result in potential actions by regulatory bodies or governmental entities if they are found to be unfair or misrepresentative of our actual practices resulting in increased costs, changes in our business practices, or reputational harm. \nWe are unable to predict how emerging standards may be applied to us given the lack of substantial enforcement history, and thus, a regulator may subject us to certain actions, fines or public censure. Any actual or perceived inability to adequately address, or failure to comply with, data protection requirements, even if unfounded, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business.\n21\nTable of Contents\nIf our security measures are breached, we experience a security incident, or unauthorized access to or other processing of confidential information, including personal data, otherwise occurs, our software may be perceived as not being secure, customers may reduce the use of or stop using our products, and we may incur significant liabilities. \nAny security breach or incident, including those resulting from a cybersecurity attack, phishing attack, unauthorized access, unauthorized usage, virus, malware, ransomware, denial of service, credential stuffing attack, supply chain attack, hacking, or similar breach involving our networks and systems, or those of third parties upon which we rely, could result in the loss of confidential information, including personal data, disruption to our operations, significant remediation costs, lost revenue, increased insurance premiums, damage to our reputation, litigation, regulatory investigations or other liabilities. These attacks may come from individual hackers, criminal groups, and state-sponsored organizations, and security breaches and incidents may arise from other sources, such as employee or contractor error or malfeasance. \nCyber threats are constantly evolving and becoming increasingly sophisticated and complex, increasing the difficulty of detecting and successfully defending against them. The use of AI by threat actors may increase the velocity of such threats, magnifying the risks associated with these types of attacks. As a provider of security solutions, we have been and may continue to be specifically targeted by threat actors for attacks intended to circumvent our security capabilities as an entry point into customers\u2019 endpoints, networks, or systems. Our industry is experiencing an increase in phishing attacks and unauthorized scans of systems searching for vulnerabilities or misconfigurations to exploit. If our security measures are breached or otherwise compromised as a result of third-party action, employee or contractor error, defect, vulnerability, or bug in our products or products of third parties upon which we rely, malfeasance or otherwise, including any such breach or compromise resulting in someone obtaining unauthorized access to our confidential information, including personal data or the confidential information or personal data of our customers or others, or if any of these are perceived or reported to occur, we may suffer the loss, compromise, corruption, unavailability, or destruction of our or others\u2019 confidential information and personal data, we may face a loss in intellectual property protection, our reputation may be damaged, our business may suffer and we could be subject to claims, demands, regulatory investigations and other proceedings, indemnity obligations, and otherwise incur significant liability. Even the perception of inadequate security or an inability to maintain security certifications or to comply with our customer or user agreements, contracts with third-party vendors or service providers or other contracts may damage our reputation, cause a loss of confidence in our security solutions and negatively impact our ability to win new customers and retain existing customers. Further, we could be required to expend significant capital and other resources to address any security breach or incident, and we may face difficulties or delays in identifying and responding to any security breach or incident. \nIn addition, many of our customers may use our software for processing their confidential information, including business strategies, financial and operational data, personal data and other related data. As a result, unauthorized access to or use of our software or such data could result in the loss, compromise, corruption, or destruction of our customers\u2019 confidential information and lead to claims, demands, litigation, regulatory investigations, indemnity obligations, and other liabilities. Such access or use could also hinder our ability to obtain and maintain information security certifications that support customers\u2019 adoption of our products and our retention of those customers. We expect to continue incurring significant costs in connection with our implementation of administrative, technical and physical measures designed to protect the integrity of our customers\u2019 data and prevent data loss, misappropriation and other security breaches and incidents. \nWe engage third-party vendors and service providers to store and otherwise process some of our and our customers\u2019 data, including sensitive and personal data. There have been and may continue to be significant supply chain attacks generally, and our third-party vendors and service providers may be targeted or impacted by such attacks, and face other risks of security breaches and incidents. Our third-party vendors and service providers have been subject to phishing attacks and other security incidents, and we cannot guarantee that our or our third-party vendors and service providers\u2019 systems and networks have not been breached or otherwise compromised or that they do not contain exploitable vulnerabilities, defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our services. Our ability to monitor our third-party vendors and service providers\u2019 data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, or misuse, disclosure, loss, destruction, or other unauthorized processing of our and our customers\u2019 data, including sensitive and personal data. Additionally, some of our products leverage open source code libraries, and threat actors may attempt to deploy malicious code to users of these libraries, which could impact us and our users. \n22\nTable of Contents\nTechniques used to sabotage or obtain unauthorized access to systems or networks are constantly evolving and, in some instances, are not identified until launched against a target. We and our third-party vendors and service providers may be unable to anticipate these techniques, react in a timely manner, or implement adequate preventative measures. Security risks have also heightened as a result of the COVID-19 pandemic as more individuals are working remotely and utilizing home networks for transmitting information, and reported ransomware incidents with significant operational impacts also appear to be escalating in frequency and degree. Also, due to political uncertainty and military actions associated with Russia\u2019s invasion of Ukraine, we and our third-party vendors and service providers are vulnerable to a heightened risk of cybersecurity attacks, phishing attacks, viruses, malware, ransomware, hacking or similar breaches from nation-state and affiliated actors, including attacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our products and services as well as retaliatory cybersecurity attacks from Russian and Russian-affiliated actors against companies with a U.S. presence. We may be at a heightened risk of such retaliatory attacks due to our decision to no longer sell our products to companies in Russia or Belarus until further notice, and to support Ukraine by, among other things, providing free access to Elastic Cloud solutions, including our platinum security capabilities, to organizations in Ukraine. \nLaws, regulations, government guidance, and industry standards and practices in the United States and elsewhere are rapidly evolving to combat cyber threats. We may face increased compliance burdens regarding such requirements with regulators and customers regarding our products and services and also incur additional costs for oversight and monitoring of our own supply chain. We and our customers may also experience increased costs associated with security measures and increased risk of suffering cybersecurity attacks, including ransomware attacks. Should we or the third-party vendors and service providers upon which we rely experience such attacks, including from ransomware or other security breaches or incidents, our operations may also be hindered or interrupted due to system disruptions or otherwise, with foreseeable secondary contractual, regulatory, financial, and reputational harms that may arise from such an incident.\nLimitations of liability provisions in our customer and user agreements, contracts with third-party vendors and service providers or other contracts may not be enforceable or adequate to protect us from any liabilities or damages with respect to any particular claim relating to a security breach or other security incident. We also cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or will be available in sufficient amounts to cover claims related to a security breach or incident, or that the insurer will not deny coverage as to any future claim. The successful assertion of claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.\nOur operating results are likely to fluctuate from quarter to quarter, and our financial results in any one quarter should not be relied upon as indicative of future performance. \nOur results of operations, including our revenue, cost of revenue, gross margin, operating expenses, cash flow and deferred revenue, have fluctuated from quarter-to-quarter in the past and may continue to vary significantly in the future so that period-to-period comparisons of our results of operations may not be meaningful. These variations may be further impacted as more of our Elastic Cloud customers adopt consumption-based arrangements or as Elastic Cloud customers already on consumption-based arrangements optimize their usage in response to the current macroeconomic environment. Accordingly, our financial results in any one quarter should not be relied upon as indicative of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, may be difficult to predict, and may or may not fully reflect the underlying performance of our business. Factors that may cause fluctuations in our quarterly financial results include: \n\u2022\nour ability to attract new customers and retain existing customers; \n\u2022\nthe loss of existing customers; \n\u2022\ncustomer renewal rates; \n\u2022\nour ability to successfully expand our business in the U.S. and internationally;\n\u2022\ngeneral political, geopolitical, economic, industry and market conditions (including recessionary pressures or uncertainties in the global economy); \n\u2022\nour ability to foster an ecosystem of developers and users to expand the use cases of our products; \n\u2022\nour ability to gain new partners and retain existing partners; \n\u2022\nfluctuations in the growth rate of the overall market that our products address; \n\u2022\nfluctuations in the mix of our revenue, which may impact our gross margins and operating income; \n23\nTable of Contents\n\u2022\nthe amount and timing of operating expenses related to the maintenance and expansion of our business and operations, including investments in sales and marketing, research and development and general and administrative resources; \n\u2022\nnetwork outages or performance degradation of Elastic Cloud; \n\u2022\nactual or perceived breaches of, or failures or incidents relating to, privacy, data protection or information security;\n\u2022\nour recent plan to reduce costs and rebalance investments; \n\u2022\nadditions or departures of key personnel;\n\u2022\nthe impact of catastrophic events, man-made problems such as terrorism, natural disasters and public health epidemics and pandemics;\n\u2022\nRussia\u2019s invasion of Ukraine and the related impact on macroeconomic conditions; \n\u2022\nincreases or decreases in the number of elements of our subscriptions or pricing changes upon any renewals of customer agreements; \n\u2022\nchanges in our pricing policies or those of our competitors; \n\u2022\nthe budgeting cycles and purchasing practices of customers; \n\u2022\ndecisions by potential customers to purchase alternative solutions; \n\u2022\ndecisions by potential customers to develop in-house solutions as alternatives to our products; \n\u2022\ninsolvency or credit difficulties confronting our customers, which could adversely affect their ability to purchase or pay for our offerings; \n\u2022\nour ability to collect invoices or receivables in a timely manner; \n\u2022\ndelays in our ability to fulfill our customers\u2019 orders; \n\u2022\nthe cost and potential outcomes of future litigation or other disputes; \n\u2022\nfuture accounting pronouncements or changes in our accounting policies; \n\u2022\nour overall effective tax rate, including impacts caused by any reorganization in our corporate tax structure and any new legislation or regulatory developments; \n\u2022\nfluctuations in stock-based compensation expense; \n\u2022\nfluctuations in foreign currency exchange rates; \n\u2022\nthe impact of changing inflation and interest rate environments;\n\u2022\nthe timing and success of new offerings introduced by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers, or partners; \n\u2022\nthe timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies; and \n\u2022\nother risk factors described in this Annual Report on Form 10-K.\nThe impact of one or more of the foregoing or other factors may cause our operating results to vary significantly. Such fluctuations in our results could cause us to fail to meet the expectations of investors or securities analysts, which could cause the trading price of our ordinary shares to fall substantially, and we could face costly lawsuits, including securities class action suits, which could have an adverse effect on our business. \n24\nTable of Contents\nWe are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations. \nA portion of our subscription revenue is generated, and a portion of our operating expenses is incurred, outside the United States in foreign currencies. Fluctuations in the value of the U.S. dollar versus foreign currencies, particularly with respect to the Euro and the British Pound Sterling, may impact our operating results when translated into U.S. dollars. Exchange rates have been volatile as a result of the Russian invasion of Ukraine and related events and uncertain macroeconomic conditions, and this volatility may continue. A strengthening of the U.S. dollar could adversely affect year-over-year growth and increase the real cost of our offerings to our non-U.S. dollar customers, leading to delays in the purchase of our offerings and the lengthening of our sales cycle. If, as has occurred in prior periods, the strength of the U.S. dollar increases, our financial condition and results of operations could be negatively affected. In addition, increased international sales in the future, including through our channel partners, may result in greater foreign currency denominated sales, increasing our foreign currency risk. Moreover, operating expenses incurred outside the United States in foreign currencies are increasing and are subject to fluctuations due to changes in foreign currency exchange rates. If we are not able to successfully hedge against the risks associated with currency fluctuations, our financial condition and results of operations could be adversely affected. \nActions that we have taken to reduce costs and rebalance investments may not result in anticipated savings or operational efficiencies, could result in total costs and expenses that are greater than expected, and could disrupt our business.\nIn November 2022, we announced and began implementing a plan to reduce our workforce by approximately 13% and optimize facilities-related costs. We adopted this plan to improve operational efficiencies and align our investments more closely with our strategic priorities. We may incur additional expenses associated with the reduction in our workforce not contemplated by our plan such as employment litigation costs, which may have an impact on other areas of our liabilities and obligations and contribute to losses in future periods. We may not realize, in full or in part, the anticipated benefits and savings from our plan due to unforeseen difficulties, delays or unexpected costs. If we are unable to realize the expected operational efficiencies and cost savings, our operating results and financial condition would be adversely affected.\nFurthermore, ongoing implementation of our plan may be disruptive to our operations. For example, our workforce reduction could result in attrition beyond planned staff reductions, increased difficulties in our day-to-day operations, and reduced employee morale. If employees who were not affected by the reduction in force seek alternative employment, we could incur unplanned additional expense to ensure adequate resourcing and fail to attract and retain qualified management, sales and marketing personnel who are critical to our business. Our failure to do so could harm our business and our future performance.\nIf we are unable to increase sales of our subscriptions to new customers, sell additional subscriptions to our existing customers, or expand the value of our existing customers\u2019 subscriptions, our future revenue and results of operations will be harmed. \nWe offer certain features of our products with no payment required. Customers purchase subscriptions in order to gain access to additional functionality and support. Our future success depends on our ability to sell our subscriptions to new customers, including to large enterprises, and to expand the deployment of our offerings with existing customers by selling paid subscriptions to our existing users and expanding the value and number of existing customers\u2019 subscriptions. Our ability to sell new subscriptions depends on a number of factors, including the prices of our offerings, the prices of products offered by our competitors, and the budgets of our customers. We also face difficulty in displacing the products of incumbent competitors. In addition, a significant aspect of our sales and marketing focus is to expand deployments within existing customers. The rate at which our existing customers purchase additional subscriptions and expand the value of existing subscriptions depends on a number of factors, including customers\u2019 level of satisfaction with our offerings, the nature and size of the deployments, the desire to address additional use cases, the perceived need for additional features, and general economic conditions. If our existing customers do not purchase additional subscriptions or expand the value of their subscriptions, our Net Expansion Rate may decline. We rely in large part on our customers to identify new use cases for our products in order to expand such deployments and grow our business. If our customers do not recognize the potential of our offerings, our business would be materially and adversely affected. If our efforts to sell subscriptions to new customers and to expand deployments at existing customers are not successful, our total revenue and revenue growth rate may decline, and our business will suffer. \nIf our existing customers do not renew their subscriptions, our business and results of operations may be adversely affected. \nWe derive a significant portion of our revenue from renewals of existing subscriptions. Our customers have no contractual obligation to renew their subscriptions after the completion of their subscription term. Our subscriptions for self-managed deployments typically range from one to three years, while many of our Elastic Cloud customers purchase subscriptions either on a month-to-month basis or on a committed contract of at least one year in duration. \n25\nTable of Contents\nOur customers\u2019 renewal rates may decline or fluctuate as a result of a number of factors, including their satisfaction with our products and our customer support, our products\u2019 ability to integrate with new and changing technologies, the frequency and severity of product outages, our product uptime or latency, and the pricing of our, or competing, products. If our customers renew their subscriptions, they may renew for shorter subscription terms or on other terms that are less economically beneficial to us. If our existing customers do not renew their subscriptions, or renew on less favorable terms, our revenue may grow more slowly than expected or decline.\nThe length of our sales cycle can be unpredictable, particularly with respect to sales through our channel partners or sales to large customers, and our sales efforts may require considerable time and expense. \nOur results of operations may fluctuate, in part, because of the length and variability of the sales cycle of our subscriptions and the difficulty in making short-term adjustments to our operating expenses. Our results of operations depend in part on sales to new customers, including large customers, and increasing sales to existing customers. The length of our sales cycle, from initial contact with our sales team to contractually committing to our subscriptions, can vary substantially from customer to customer based on deal complexity as well as whether a sale is made directly by us or through a channel partner. Our sales cycle can extend to more than a year for some customers, and the length of sales cycles may be further impacted due to worsening economic conditions. In addition, some customers have been scrutinizing their spending more carefully and reducing their consumption spending given the current uncertain economic environment, and we generally expect this to continue. We have also experienced and, if adverse economic conditions persist, may continue to experience longer and more unpredictable sales cycles. As we target more of our sales efforts at larger enterprise customers, we may face greater costs, longer sales cycles, greater competition and less predictability in completing some of our sales. A customer\u2019s decision to use our solutions may be an enterprise-wide decision, which may require greater levels of education regarding the use cases of our products or protracted negotiations. In addition, larger customers may demand more configuration, integration services and features. It is difficult to predict exactly when, or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. As a result, large individual sales, in some cases, have occurred in quarters subsequent to those we expected, or have not occurred at all. Lengthened or unpredictable sales cycles that cause a loss or delay of one or more large transactions in a quarter could affect our cash flows and results of operations for that quarter and for future quarters. These impacts are amplified in the short term when customers slow their consumption in response to the uncertain macroeconomic environment. Because a substantial proportion of our expenses are relatively fixed in the short term, our cash flows and results of operations will suffer if revenue falls below our expectations in a particular quarter. \nOur decision to no longer offer Elasticsearch and Kibana under an open source license may harm the adoption of Elasticsearch and Kibana.\nIn February 2021, with the release of version 7.11 of the Elastic Stack, we changed the source code of Elasticsearch and Kibana which had historically been licensed under Apache 2.0, to be dual licensed under Elastic License 2.0 and the Server Side Public License Version 1.0 (\u201cSSPL\u201d), at the user\u2019s election. Neither the Elastic License nor the SSPL has been approved by the Open Source Initiative or is included in the Free Software Foundation\u2019s list of free software licenses. Further, neither has been interpreted by any court. While the vast majority of downloads of Elasticsearch and Kibana from mid-2018 through early 2021 were licensed under the Elastic License, the removal of the Apache 2.0 alternative could negatively impact certain developers for whom the availability of an open source license was important. In addition, some developers and the companies for whom they work may be hesitant to download or upgrade to new versions of Elasticsearch or Kibana under the Elastic License or SSPL because of uncertainty regarding how these licenses may be interpreted and enforced. Other developers, including competitors of Elastic such as Amazon, have announced that they have \u201cforked\u201d Elasticsearch and Kibana, which means they have developed their own product or service that is based on features of Elasticsearch and Kibana that we had previously made available under an open source license. For example, Amazon has launched an open source project called OpenSearch based on a forked version of the Elastic Stack, which is licensed under Apache 2.0, and rebranded their existing Elasticsearch Service as OpenSearch Service. The combination of uncertainty around our dual license model and the potential competition from the forked versions of our software may negatively impact adoption of Elasticsearch and Kibana, which in turn could lead to reduced brand and product awareness and to a decline in paying customers, which could harm our ability to grow our business or achieve profitability.\n26\nTable of Contents\nWe could be negatively impacted if the Elastic License or SSPL, under which some of our software is licensed, is not enforceable.\nWe make the source code of our products available under Apache 2.0, the Elastic License, or as dual licensed under the Elastic License and SSPL, depending on the product and version. Apache 2.0 is a permissive open source license that allows licensees to freely copy, modify and distribute Apache 2.0-licensed software if they meet certain conditions. The Elastic License is our proprietary source available license. The Elastic License permits licensees to use, copy, modify and distribute the licensed software so long as they do not offer access to the software as a cloud service, interfere with the license key or remove proprietary notices. SSPL is a source available license that is based on the GNU Affero General Public License (\u201cAGPL\u201d) open source license and permits licensees to copy, modify and distribute SSPL-licensed software, but expressly requires licensees that offer the SSPL-licensed software as a third-party service to open source all of the software that they use to offer such service. We rely upon the enforceability of the restrictions set forth in the Elastic License and SSPL to protect our proprietary interests. If a court were to hold that the Elastic License or SSPL or certain aspects of these licenses are unenforceable, others may be able to use our software to compete with us in the marketplace in a manner not subject to the restrictions set forth in the Elastic License or SSPL.\nLimited technological barriers to entry into the markets in which we compete may facilitate entry by other enterprises into our markets to compete with us. \nAnyone may obtain access to source code for the features of our software that we have licensed under open source or source available licenses. Depending on the product and version of the Elastic software, this source code is available under Apache 2.0, SSPL, or the Elastic License. Each of these licenses allows anyone, subject to compliance with the conditions of the applicable license, to redistribute our software in modified or unmodified form and use it to compete in our markets. Such competition can develop without the degree of overhead and lead time required by traditional proprietary software companies, due to the rights granted to licensees of open source and source available software. It is possible for competitors to develop their own software, including software based on our products, potentially reducing the demand for our products and putting pricing pressure on our subscriptions. For example, Amazon offers some of the features that we had previously made available under an open source license as part of its AWS offering. As such, Amazon competes with us for potential customers, and while Amazon cannot provide our proprietary software, Amazon\u2019s offerings may reduce the demand for our offerings and the pricing of Amazon\u2019s offerings may limit our ability to adjust the prices of our products. Competitive pressure in our markets generally may result in price reductions, reduced operating margins and loss of market share. \nIf we do not effectively develop and expand our sales and marketing capabilities, including expanding, training, and compensating our sales force, we may be unable to add new customers, increase sales to existing customers or expand the value of our existing customers\u2019 subscriptions and our business will be adversely affected. \nWe dedicate significant resources to sales and marketing initiatives, which require us to invest significant financial and other resources, including in markets in which we have limited or no experience. Our business and results of operations will be harmed if our sales and marketing efforts do not generate significant revenue increases or increases that are smaller than anticipated. \nWe may not achieve revenue growth from expanding our sales force if we are unable to hire, train, and retain talented and effective sales personnel. We depend on our sales force to obtain new customers and to drive additional sales to existing customers. We believe that there is significant competition for sales personnel, including sales representatives, sales managers, and sales engineers, with the requisite skills and technical knowledge. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient sales personnel to support our growth, and as we introduce new products, solutions, and marketing strategies, we may need to re-train existing sales personnel. For example, we may need to provide additional training and development to our sales personnel in relation to understanding and selling consumption-based arrangements and expanding customer usage of our offerings over time. New hires also require extensive training which may take significant time before they achieve full productivity. Our recent hires and planned hires may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. As we continue to grow rapidly, a large percentage of our sales force will have relatively little experience working with us, our subscriptions, and our business model. Additionally, we may need to evolve our sales compensation plans to drive the growth of our Elastic Cloud offerings with consumption-based arrangements. Such changes may have adverse consequences if not designed effectively. If we are unable to hire and train sufficient numbers of effective sales personnel, our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time, our sales personnel are not successful in obtaining new customers or increasing sales to our existing customer base, or our sales and marketing programs, including our sales compensation plans, are not effective, our growth and results of operations could be negatively impacted, and our business could be harmed.\n27\nTable of Contents\nOur failure to offer high-quality customer support could have an adverse effect on our business, reputation and results of operations. \nAfter our products are deployed within our customers\u2019 IT environments, our customers depend on our technical support services to resolve issues relating to our products. If we do not succeed in helping our customers quickly resolve post-deployment issues or provide effective ongoing support and education on our products, our ability to renew or sell additional subscriptions to existing customers or expand the value of existing customers\u2019 subscriptions would be adversely affected and our reputation with potential customers could be damaged. Many larger enterprise and government entity customers have more complex IT environments and require higher levels of support than smaller customers. If we fail to meet the requirements of these enterprise customers, it may be more difficult to grow sales with them. \nAdditionally, it can take several months to recruit, hire, and train qualified technical support employees. We may not be able to hire such employees fast enough to keep up with demand, particularly if the sales of our offerings exceed our internal forecasts. Due to the uncertainty related to macroeconomic conditions, there may also be more competition for qualified employees and delays in hiring, onboarding, and training new employees. To the extent that we are unsuccessful in hiring, training, and retaining adequate support resources, our ability to provide adequate and timely support to our customers, and our customers\u2019 satisfaction with our offerings, will be adversely affected. Our failure to provide and maintain, or a market perception that we do not provide or maintain, high-quality support services would have an adverse effect on our business, financial condition, and results of operations. \nBecause we recognize the vast majority of the revenue from subscriptions, either based on actual consumption, monthly, or ratably, over the term of the relevant subscription period, downturns or upturns in sales are not immediately reflected in full in our results of operations. \nSubscription revenue accounts for the substantial majority of our revenue, comprising 92%, 93%, and 93% of total revenue for the years ended April 30, 2023, 2022 and 2021, respectively. The effect of significant downturns in new or renewed sales of our subscriptions is not reflected in full in our results of operations until future periods. We recognize the vast majority of our subscription revenue, either based on actual consumption, monthly, or ratably, over the term of the relevant time period. As a result, much of the subscription revenue we report each fiscal quarter represents the recognition of deferred revenue from subscription contracts entered into during previous fiscal quarters. Consequently, a decline in new or renewed subscriptions in any one fiscal quarter will not be fully or immediately reflected in revenue in that fiscal quarter and will negatively affect our revenue in future fiscal quarters. \nWe do not have an adequate history with our consumption-based arrangements for our Elastic Cloud offerings to predict accurately the long-term rate of customer adoption or renewal, or the impact those arrangements will have on our near-term or long-term revenue or operating results.\nWe expect that our consumption-based arrangements for our Elastic Cloud offerings will continue to increase, both in amount and as a percentage of our total revenue. Because we recognize revenue under a consumption-based arrangement based on actual customer consumption, we do not have the same visibility into the timing of revenue recognition as we do under subscription arrangements where revenue is recognized on a predetermined schedule over the subscription term. Additionally, customers may consume our products at a different pace than we expect. For example, we have experienced and, if adverse economic conditions persist, may continue to experience slowing consumption as customers look to optimize their usage. Additionally, we have seen and may continue to see newer customers increase their consumption of our solutions at a slower pace than our more tenured customers. For these reasons, our revenue may be less predictable or more variable than our historical revenue, and our actual results may differ materially from our forecasts.\nWe depend on our senior management and other key employees, and the loss of one or more of these employees or an inability to attract and retain highly skilled employees could harm our business. \nOur future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. The loss of the services of any of our key personnel, the inability to attract or retain qualified personnel, or delays in hiring required personnel, particularly in engineering and sales, may seriously harm our business, financial condition, and results of operations. Further, our ability to attract additional qualified personnel may be impacted by the economic uncertainty and insecurity caused by macroeconomic factors and geopolitical events. The loss of services of any of our key personnel also increases our dependency on other key personnel who remain with us. Although we have entered into employment offer letters with our key personnel, their employment is for no specific duration and constitutes at-will employment. We are also substantially dependent on the continued service of our existing engineering personnel because of the complexity of our products. \n28\nTable of Contents\nOur future performance also depends on the continued services and continuing contributions of our senior management, particularly our Chief Executive Officer, Ashutosh Kulkarni, and Chief Technology Officer, co-founder and former Chief Executive Officer, Shay Banon, to execute on our business plan and to identify and pursue new opportunities and product innovations. We do not maintain key person life insurance policies on any of our employees. The loss of services of senior management could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition, and results of operations. Any search for senior management in the future or any search to replace the loss of any senior management may be protracted, and we may not be able to attract a qualified candidate or replacement, as applicable, in a timely manner or at all, particularly as potential candidates may be less willing to change jobs during the unstable economic conditions caused by macroeconomic and geopolitical events.\nThe industry in which we operate is generally characterized by significant competition for skilled personnel as well as high employee attrition. The increased availability of hybrid or remote working arrangements within our industry has further expanded the pool of companies that can compete for our employees and employment candidates. We may not be successful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs. We may need to invest significant amounts of cash and equity to attract and retain new employees, and we may never realize returns on these investments. Also, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited, that they have divulged proprietary or other confidential information, or that their former employers own their inventions or other work product. \nA real or perceived defect, security vulnerability, error, or performance failure in our software could cause us to lose revenue, damage our reputation, and expose us to liability. \nOur products are inherently complex and, despite extensive testing and quality control, have in the past and may in the future contain defects or errors, especially when first introduced, or otherwise not perform as contemplated. These defects, security vulnerabilities, errors or performance failures could cause damage to our reputation, loss of customers or revenue, product returns, order cancelations, service terminations, or lack of market acceptance of our software. As the use of our products, including products that were recently acquired or developed, expands to more sensitive, secure, or mission-critical uses by our customers, we may be subject to increased scrutiny, potential reputational risk, or potential liability if our software should fail to perform as contemplated in such deployments. We have issued in the past, and may need to issue in the future, corrective releases of our software to fix these defects, errors or performance failures, which could require us to allocate significant research and development and customer support resources to address these problems. \nAny limitation of liability provisions that may be contained in our customer and partner agreements may not be effective as a result of existing or future applicable law or unfavorable judicial decisions. The sale and support of our products entail the risk of liability claims, which could be substantial in light of the use of our products in enterprise-wide environments. In addition, our insurance against this liability may not be adequate to cover a potential claim. \nInterruptions or performance problems associated with our technology and infrastructure, and our reliance on technologies from third parties, may adversely affect our business operations and financial results. \nWe rely on third-party cloud platforms to host our cloud offerings. If we experience an interruption in service for any reason, our cloud offerings would similarly be interrupted. The ongoing effects Russia\u2019s invasion of Ukraine, adverse economic conditions, and increased energy prices could also disrupt the supply chain of hardware needed to maintain our third-party data center operations. An interruption in our services to our customers could cause our customers\u2019 internal and consumer-facing applications to cease functioning, which could have a material adverse effect on our business, results of operations, customer relationships and reputation. \nIn addition, our website and internal technology infrastructure may experience performance issues due to a variety of factors, including infrastructure changes, human or software errors, website or third-party hosting disruptions, capacity constraints, technical failures, natural disasters or fraud or security attacks. Our use of third-party open source software may increase this risk. If our website is unavailable or our users are unable to download our products or order subscriptions or services within a reasonable amount of time or at all, our business could be harmed. We expect to continue to make significant investments to maintain and improve website performance and to enable rapid releases of new features and applications for our products. To the extent that we do not effectively upgrade our systems as needed and continually develop our technology to accommodate actual and anticipated changes in technology, our business and results of operations may be harmed. \n29\nTable of Contents\nIncorrect implementation or use of our software, or our customers\u2019 failure to update our software, could result in customer dissatisfaction and negatively affect our business, operations, financial results, and growth prospects. \nOur products are often operated in large scale, complex IT environments. Our customers and some partners require training and experience in the proper use of, and the benefits that can be derived from, our products to maximize their potential value. If our products are not implemented, configured, updated, or used correctly or as intended, or in a timely manner, inadequate performance, errors, loss of data, corruptions, and/or security vulnerabilities may result. For example, there have been, and may in the future continue to be, reports that some of our customers have not properly secured implementations of our products, which can result in unprotected data. Because our customers rely on our software to manage a wide range of operations, the incorrect implementation or use of our software, our customers\u2019 failure to update our software, or our failure to train customers on how to use our software productively, may result in customer dissatisfaction or negative publicity and may adversely affect our reputation and brand. Failure by us to provide adequate training and implementation services to our customers could result in lost opportunities for follow-on sales to these customers and decrease subscriptions by new customers, and adversely affect our business and growth prospects. \nIf third parties offer inadequate or defective implementations of software that we have previously made available under an open source license, our reputation could be harmed. \nCertain cloud hosting providers and managed service providers, including AWS, offer hosted products or services based on a forked version of the Elastic Stack, which means they offer a service that includes some of the features that we had previously made available under an Open Source license. These offerings are not supported by us and come without any of our proprietary features, whether free or paid. We do not control how these third parties may use or offer our open source technology. These third parties could inadequately or incorrectly implement our open source technology or fail to update such technology in light of changing technological or security requirements, which could result in real or perceived defects, security vulnerabilities, errors, or performance failures with respect to their offerings. Users, customers, and potential customers could confuse these third-party products with our products, and attribute such defects, security vulnerabilities, errors, or performance failures to our products. Any damage to our reputation and brand from defective implementations of our open source software could result in lost sales and lack of market acceptance of our products and could adversely affect our business and growth prospects. \nIf our website fails to rank prominently in unpaid search results, traffic to our website could decline and our business would be adversely affected. \nOur success depends in part on our ability to attract users through unpaid Internet search results on traditional web search engines, such as Google. The number of users we attract to our website from search engines is due in large part to how and where our website ranks in unpaid search results. These rankings can be affected by a number of factors, many of which are not in our direct control, and they may change frequently. For example, a search engine may change its ranking algorithms, methodologies or design layouts. As a result, links to our website may not be prominent enough to drive traffic to our website, and we may not know how or otherwise be in a position to influence the results. Any reduction in the number of users directed to our website could reduce our revenue or require us to increase our customer acquisition expenditures. \nOur business could suffer if we fail to maintain satisfactory relationships with third-party service providers on which we rely for many aspects of our business.\nOur success depends upon our relationships with third-party service providers, including providers of cloud hosting infrastructure, customer relationship management systems, financial reporting systems, human resource management systems, credit card processing platforms, marketing automation systems, and payroll processing systems, among others. If any of these third parties experience difficulty meeting our requirements or standards, become unavailable due to extended outages or interruptions, temporarily or permanently cease operations, face financial distress or other business disruptions such as a security incident, increase their fees, if our relationships with any of these providers deteriorate, or if any of the agreements we have entered into with such third parties are terminated or not renewed without adequate transition arrangements, we could suffer liabilities, penalties, fines, increased costs and delays in our ability to provide customers with our products and services, our ability to manage our finances could be interrupted, receipt of payments from customers may be delayed, our processes for managing sales of our offerings could be impaired, our ability to generate and manage sales leads could be weakened, or our business operations could be disrupted. Further, our business operations may be disrupted by negative impacts of Russia\u2019s invasion of Ukraine on supply chains of our third-party service providers. Any such disruptions may adversely affect our financial condition, results of operations or cash flows until we replace such providers or develop replacement technology or operations. In addition, our business may suffer if we are unsuccessful in identifying high-quality service providers, negotiating cost-effective relationships with them or effectively managing these relationships.\n30\nTable of Contents\nIf we are not able to maintain and enhance our brand, especially among developers, our ability to expand our customer base will be impaired and our business and operating results may be adversely affected. \nWe believe that developing and maintaining widespread awareness of our brand, especially with developers, is critical to achieving widespread acceptance of our software and attracting new users and customers. We also believe that the importance of brand recognition will increase as competition in our market increases. Successfully maintaining and enhancing our brand will depend largely on the effectiveness of our marketing efforts, our ability to maintain our customers\u2019 trust, our ability to continue to develop new functionality and use cases, and our ability to successfully differentiate our products and platform capability from competitive products. Brand promotion activities may not generate user or customer awareness or increase revenue. Even if they do, any increase in revenue may not offset the expenses we incur in building our brand. For instance, our continued focus and investment in our ElasticON user conferences and similar investments in our brand, user engagement, and customer engagement may not generate the desired customer awareness or a sufficient financial return. If we fail to successfully promote and maintain our brand, we may fail to attract or retain users and customers necessary to realize a sufficient return on our brand-building efforts, or to achieve the widespread brand awareness that is critical for broad customer adoption of our products, which would adversely affect our business and results of operations. \nOur corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and entrepreneurial spirit we have worked to foster, which could harm our business. \nWe believe that our culture has been and will continue to be a key contributor to our success. We expect to continue to hire as we expand. If we do not continue to maintain our corporate culture as we grow, we may be unable to foster the innovation, creativity, and entrepreneurial spirit we believe we need to support our growth. Moreover, many of our existing employees may be able to receive significant proceeds from sales of our ordinary shares in the public markets, which could lead to employee attrition and disparities of wealth among our employees that might adversely affect relations among employees and our culture in general. Additional headcount growth and employee turnover may result in a change to our corporate culture, which could harm our business. \nIf our channel partners fail to perform or we are unable to maintain successful relationships with them, our ability to market, sell and distribute our solutions will be more limited, and our results of operations and reputation could be harmed. \nA portion of our revenue is generated by sales through our channel partners, especially to U.S. federal government customers and in certain international markets, and these sales may grow and represent a larger portion of our revenues in the future. We provide certain of our channel partners with specific training and programs to assist them in selling our offerings, but this assistance may not always be effective. In addition, our channel partners may be unsuccessful in marketing and selling our offerings. If we are unable to develop and maintain effective sales incentive programs for our channel partners, we may not be able to incentivize these partners to sell our offerings to customers. \nSome of these partners may also market, sell, and support offerings that compete with ours, may devote more resources to the marketing, sales, and support of such competitive offerings, may have incentives to promote our competitors\u2019 offerings to the detriment of our own or may cease selling our offerings altogether. The loss of one or more of our significant channel partners or a decline in the number or size of orders from any of them could harm our results of operations. In addition, many of our new channel partners require extensive training and may take several months or more to become effective in marketing our offerings. Our channel partner sales structure could subject us to lawsuits, potential liability, misstatement of revenue, and reputational harm if, for example, any of our channel partners misrepresents the functionality of our offerings to customers or violates laws or our or their corporate policies, including our terms of business, which in turn could impact reported revenue, deferred revenue and remaining performance obligations. If our channel partners are unsuccessful in fulfilling the orders for our offerings, or if we are unable to enter into arrangements with and retain high-quality channel partners, our ability to sell our offerings and results of operations could be harmed. \nIf we are unable to maintain successful relationships with our partners, our business operations, financial results and growth prospects could be adversely affected. \nWe maintain partnership relationships with a variety of partners, including cloud providers such as Amazon, Google, and Microsoft, systems integrators, channel partners, referral partners, OEM and MSP partners, and technology partners, to deliver offerings to our end customers and complement our broad community of users. In particular, we partner with various cloud providers to jointly market, sell and deliver our Elastic Cloud offerings, which in some instances also involves technical integration with such cloud providers. \n31\nTable of Contents\nOur agreements with our partners are generally non-exclusive, meaning our partners may offer customers the offerings of several different companies, including offerings that compete with ours, or may themselves be or become competitors. If our partners do not effectively market and sell our offerings, choose to use greater efforts to market and sell their own offerings or those of our competitors, fail to provide adequate technical integration with their own offerings, fail to meet the needs of our customers, or fail to deliver services to our customers, our ability to grow our business and sell our offerings may be harmed. Our partners may cease marketing our offerings with limited or no notice and with little or no penalty. The loss of a substantial number of our partners, our possible inability to replace them, or the failure to recruit additional partners could harm our results of operations. \nOur ability to achieve revenue growth in the future will depend in part on our success in maintaining successful relationships with our partners and in helping our partners enhance their ability to market and sell our subscriptions. If we are unable to maintain our relationships with these partners, our business, results of operations, financial condition or cash flows could be harmed. \nThe sales prices of our offerings may decrease, which may reduce our gross profits and adversely affect our financial results. \nThe sales prices for our offerings may decline or we may introduce new pricing models for a variety of reasons, including competitive pricing pressures, discounts, in anticipation of or in conjunction with the introduction of new offerings, or promotional programs. \nCompetition continues to increase in the market segments in which we operate, and we expect competition to continue to increase, thereby leading to increased pricing pressures. Larger competitors with more diverse offerings may reduce the price of offerings that compete with ours or may bundle them with other offerings. Additionally, currency fluctuations in certain countries and regions and pressures from uncertain inflation and interest rate environments may negatively impact actual prices that customers and channel partners are willing to pay in those countries and regions. Any decrease in the sales prices for our offerings, without a corresponding decrease in costs or increase in volume, would adversely impact our gross profit. Gross profit could also be adversely impacted by a shift in the mix of our subscriptions from self-managed to our cloud offering, for which we incur hosting costs, as well as any increase in our mix of services relative to subscriptions. We may not be able to maintain our prices and gross profits at levels that will allow us to achieve and maintain profitability. \nWe expect our revenue mix to vary over time, which could harm our gross margin and operating results. \nWe expect our revenue mix to vary over time as a result of a number of factors, any one of which or the cumulative effect of which may result in significant fluctuations in our gross margin and operating results. We expect that revenue from Elastic Cloud will continue to become a larger part of our revenue mix. Due to the differing revenue recognition policies applicable to our subscriptions and services, shifts in our business mix from quarter to quarter could produce substantial variation in revenue recognized. The growth of consumption-based arrangements for our Elastic Cloud offerings, where the revenue we recognize is tied to our customers\u2019 actual usage of our products, and further reduction in usage by customers already using a consumption-based arrangement due to the uncertain macroeconomic environment, may further contribute to the variation in our revenue. Further, our gross margins and operating results could be harmed by changes in revenue mix and costs, together with numerous other factors, including entry into new markets or growth in lower margin markets; entry into markets with different pricing and cost structures; pricing discounts; and increased price competition. This variability and unpredictability could result in our failure to meet internal expectations or those of securities analysts or investors for a particular period. \n32\nTable of Contents\nFailure to protect our proprietary technology and intellectual property rights could substantially harm our business and results of operations. \nOur success depends to a significant degree on our ability to protect our proprietary technology, methodologies, know-how and brand. We rely on a combination of trademarks, copyrights, patents, contractual restrictions, and other intellectual property laws and confidentiality procedures to establish and protect our proprietary rights. The steps we take to protect our intellectual property rights may be inadequate. We will not be able to protect our intellectual property rights if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property rights. The source code of the proprietary features for the Elastic Stack is publicly available, which may enable others to replicate our proprietary technology and compete more effectively. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our proprietary technology and our business may be harmed. In addition, defending our intellectual property rights might entail significant expense. Any patents, trademarks, or other intellectual property rights that we have or may obtain may be challenged by others or invalidated through administrative process or litigation. Patent applications we file may not result in issued patents. Even if we continue to seek patent protection in the future, we may be unable to obtain further patent protection for our technology. In addition, any patents issued in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create offerings that compete with ours. Effective patent, trademark, copyright, and trade secret protection may not be available to us in every country in which our products are available. We may be unable to prevent third parties from acquiring domain names or trademarks that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights. The laws of some countries are not as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. As we expand our international activities, our exposure to unauthorized copying and use of our products and proprietary information will likely increase. \nWe enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other parties. These agreements may not be effective in controlling access to and distribution of our proprietary information. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products. Our ability to enforce such agreements may be adversely affected if the Federal Trade Commission adopts a rule it proposed in January 2023 that would prohibit non-compete provisions in employment agreements. Although the proposed rule generally would not apply to other types of employment restrictions, such as confidentiality agreements, such employment restrictions could be subject to the rule if they are so broad in scope that they function as non-competes.\nIn order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation has previously been, and may in the future be, necessary to enforce our intellectual property rights and to protect our trade secrets. Even if we prevail in such disputes, we may not be able to recover all or a portion of any judgments, and litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management. If unsuccessful, litigation could result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management\u2019s attention and resources, could delay further sales or the implementation of our products, impair the functionality of our products, delay introductions of new products, result in our substituting inferior or more costly technologies into our products, or injure our reputation. \nWe could incur substantial costs as a result of any claim of infringement, misappropriation or violation of another party\u2019s intellectual property rights. \nIn recent years, there has been significant litigation involving patents and other intellectual property rights in the software industry. Companies providing software are increasingly bringing and becoming subject to suits alleging infringement, misappropriation or violation of proprietary rights, particularly patent rights, and to the extent we gain greater market visibility, we face a higher risk of being the subject of intellectual property infringement, misappropriation or violation claims. The risk of patent litigation has been amplified by the increase in the number of a type of patent holder, which we refer to as a non-practicing entity, whose sole or principal business is to assert such claims and against whom our own intellectual property portfolio may provide little deterrent value. We could incur substantial costs in prosecuting or defending any intellectual property litigation. If we sue to enforce our rights or are sued by a third party that claims that our products infringe, misappropriate or violate their rights, the litigation could be expensive and could divert our management resources from operations. \n33\nTable of Contents\nAny intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following: \n\u2022\ncease selling or using products that incorporate the intellectual property rights that we allegedly infringe, misappropriate or violate; \n\u2022\nmake substantial payments for legal fees, settlement payments or other costs or damages; \n\u2022\nobtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or \n\u2022\nredesign the allegedly infringing products to avoid infringement, misappropriation or violation, which could be costly, time-consuming or impossible. \nIf we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement, misappropriation or violation claims against us or any obligation to indemnify our customers for such claims, such payments or actions could harm our business. \nIndemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, misappropriation, violation and other losses. \nOur agreements with customers and other third parties may include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, misappropriation or violation, damages caused by us to property or persons, or other liabilities relating to or arising from our software, services or other contractual obligations. Large indemnity payments could harm our business, results of operations and financial condition. Although we normally contractually limit our liability with respect to such indemnity obligations, we may still incur substantial liability related to them. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing customers and new customers and harm our business and results of operations. \nOur use of third-party open source software within our products could negatively affect our ability to sell our products and subject us to possible litigation. \nOur technologies incorporate open source software from other developers, and we expect to continue to incorporate such open source software in our products in the future. Few of the licenses applicable to open source software have been interpreted by courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. Moreover, we may not have incorporated third-party open source software in our software in a manner that is inconsistent with the terms of the applicable license or our current policies and procedures. If we fail to comply with these licenses, we may be subject to certain requirements, including requirements that we offer our solutions that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software, and that we license such modifications or derivative works under the terms of applicable open source licenses. \nIf an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our products that contained the open source software and required to comply with onerous conditions or restrictions on these products, which could disrupt the distribution and sale of these products. In addition, there have been claims challenging the ownership rights in open source software against companies that incorporate open source software into their products, and the licensors of such open source software provide no warranties or indemnities with respect to such claims. In any of these events, we and our customers could be required to seek licenses from third parties in order to continue offering our products, and to re-engineer our products or discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis. We and our customers may also be subject to suits by parties claiming infringement, misappropriation or violation due to the reliance by our solutions on certain open source software, and such litigation could be costly for us to defend or subject us to an injunction. Some open source projects have known vulnerabilities and architectural instabilities and are provided on an \u201cas-is\u201d basis which, if not properly addressed, could negatively affect the performance of our product. Any of the foregoing could require us to devote additional research and development resources to re-engineer our solutions, could result in customer dissatisfaction, and may adversely affect our business, results of operations and financial condition. \n34\nTable of Contents\nWe may not be able to realize the benefits of our marketing strategies to offer some of our product features for free and to provide free trials of some of our paid features. \nWe are dependent upon lead generation strategies, including offering free use of some of our product features and free trials of some of our paid features. These strategies may not be successful in continuing to generate sufficient sales opportunities necessary to increase our revenue. Many users never convert from the free use model or from free trials to the paid versions of our products. To the extent that users do not become, or we are unable to successfully attract, paying customers, we will not realize the intended benefits of these marketing strategies and our ability to grow our revenue will be adversely affected.\nOur international operations and expansion expose us to a variety of risks. \nAs of April\u00a030, 2023, we had customers located in over 125 countries, and our strategy is to continue to expand internationally. In addition, as a result of our strategy of leveraging a distributed workforce, as of April\u00a030, 2023, we had employees located in over 40 countries. Our current international operations involve and future initiatives may involve a variety of risks, including: \n\u2022\npolitical and economic instability related to international disputes, such as Russia\u2019s invasion of Ukraine and the related impact on macroeconomic conditions as a result of such conflict, which may negatively impact our customers, partners, and vendors;\n\u2022\nunexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions; \n\u2022\ndifferent labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations; \n\u2022\nexposure to many stringent, particularly in the European Union, and potentially inconsistent laws and regulations relating to privacy, data protection and information security; \n\u2022\nchanges in a specific country\u2019s or region\u2019s political or economic conditions; \n\u2022\nthe evolving relations between the United States and China;\n\u2022\nchanges in relations between the Netherlands and the United States;\n\u2022\nrisks resulting from changes in currency exchange rates and inflationary pressures; \n\u2022\nrisks resulting from the migration of invoicing from local billing entities to centralized regional billing entities;\n\u2022\nthe impact of public health epidemics or pandemics on our employees, partners, and customers; \n\u2022\nchallenges inherent to efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs; \n\u2022\nrisks relating to enforcement of U.S. export control laws and regulations including the Export Administration Regulations, and trade and economic sanctions, including restrictions promulgated by the Office of Foreign Assets Control (\u201cOFAC\u201d), and other similar trade protection regulations and measures in the United States or in other jurisdictions; \n\u2022\nrisks relating to our third-party vendors and service providers\u2019 storage and processing of some of our and our customers\u2019 data, including any supply chain cybersecurity attacks;\n\u2022\nreduced ability to timely collect amounts owed to us by our customers in countries where our recourse may be more limited; \n\u2022\nlimitations on our ability to reinvest earnings from operations derived from one country to fund the capital needs of our operations in other countries;\n\u2022\npolitical, economic and trade uncertainties or instability related to the United Kingdom's withdrawal from the European Union (Brexit); \n\u2022\nlimited or unfavorable intellectual property protection; and \n\u2022\nexposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended (\u201cFCPA\u201d), and similar applicable laws and regulations in other jurisdictions. \n35\nTable of Contents\nIf we are unable to address these difficulties and challenges or other problems encountered in connection with our international operations and expansion, we might incur unanticipated liabilities or we might otherwise suffer harm to our business generally. \nIf we are not successful in sustaining and expanding our international business, we may incur additional losses and our revenue growth could be harmed. \nOur future results depend, in part, on our ability to sustain and expand our penetration of the international markets in which we currently operate and to expand into additional international markets. We depend on direct sales and our channel partner relationships to sell our offerings in international markets. Our ability to expand internationally will depend upon our ability to deliver functionality and foreign language translations that reflect the needs of the international clients that we target. Our ability to expand internationally involves various risks, including the need to invest significant resources in such expansion, and the possibility that returns on such investments will not be achieved in the near future or at all in these less familiar competitive environments. We may also choose to conduct our international business through other partnerships. If we are unable to identify partners or negotiate favorable terms, our international growth may be limited. In addition, we have incurred and may continue to incur significant expenses in advance of generating material revenue as we attempt to establish our presence in particular international markets. \nAny need by us to raise additional capital or generate the significant capital necessary to expand our operations and invest in new offerings could reduce our ability to compete and could harm our business. \nWe may need to raise additional funds in the future, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all, particularly during times of market volatility, changes in the interest rate environment, and general economic instability. If we raise additional equity financing, our shareholders may experience significant dilution of their ownership interests and the per share value of our ordinary shares could decline. Furthermore, if we engage in debt financing, the holders of debt would have priority over the holders of our ordinary shares, and we may be required to accept terms that restrict our ability to incur additional indebtedness. We may also be required to take other actions that would otherwise be in the interests of the debt holders and force us to maintain specified liquidity or other ratios, any of which could harm our business, results of operations, and financial condition. If we need additional capital and cannot raise it on acceptable terms, we may not be able, among other actions, to: \n\u2022\ndevelop or enhance our products; \n\u2022\ncontinue to expand our sales and marketing and research and development organizations; \n\u2022\nacquire complementary technologies, products or businesses; \n\u2022\nexpand operations in the United States or internationally; \n\u2022\nhire, train, and retain employees; or \n\u2022\nrespond to competitive pressures or unanticipated working capital requirements. \nOur failure to have sufficient capital to do any of these things could harm our business, financial condition, and results of operations. \nOur generation of a portion of our revenue by sales to government entities subjects us to a number of risks. \nSales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government certification and security requirements for products like ours may change, thereby restricting our ability to sell into the U.S. federal government sector, U.S. state government sector, or government sectors of countries other than the United States until we have obtained the revised certification or met the changed security requirements. If we are unable to timely meet such requirements, our ability to compete for and retain federal government contracts may be diminished, which could adversely affect our business, results of operations and financial condition. \n36\nTable of Contents\nGovernment entities may have statutory, contractual, or other legal rights to terminate contracts with us or our channel partners for convenience or due to a default, and any such termination may adversely affect our future results of operations. Government demand and payment for our offerings may be affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our offerings or exercise of options under multi-year contracts. Contracts with government agencies, including classified contracts, are subject to extensive, evolving and sometimes complex regulations, as well as audits and reviews of contractors\u2019 administrative processes and other contract related compliance obligations. Breaches of government contracts, failure to comply with applicable regulations or unfavorable findings from government audits or reviews could result in contract terminations, reputational harm or other adverse consequences, including but not limited to ineligibility to sell to government agencies in the future, the government refusing to continue buying our subscriptions, a reduction of revenue, or fines or civil or criminal liability, which could adversely affect our results of operations in a material way. \nUnanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could expose us to greater than anticipated tax liabilities. \nOur income tax obligations are based in part on our corporate structure and intercompany arrangements, including the manner in which we develop, value, and use our intellectual property and the valuations of our intercompany transactions. The tax laws applicable to our business, including the laws of the Netherlands, the United States and other jurisdictions, are subject to change and interpretation. Any new legislation or interpretations of existing legislation could impact our tax obligations in countries where we do business or cause us to change the way we operate our business and result in increased taxation of our international earnings. \nFor example, the Organisation for Economic Co-operation and Development (\u201cOECD\u201d)/G20 Inclusive Framework has been working on addressing the tax challenges arising from the digitalization of the economy, including by releasing the OECD\u2019s Pillar One and Pillar Two blueprints on October 12, 2020. Pillar One refers to the re-allocation of taxing rights to jurisdictions where sustained and significant business is conducted, regardless of a physical presence, while Pillar Two establishes a minimum tax to be paid by multinational enterprises. On December 15, 2022, the Council of the EU formally adopted Directive (EU) 2022/2523 (the \u201cPillar Two Directive\u201d) to achieve a coordinated implementation of Pillar Two in EU Member States consistent with EU law. On May 31, 2023, the Dutch State Secretary of Finance submitted a proposal of law for the Minimum Tax Rate Act 2024 (Wet minimumbelasting 2024) to Dutch parliament, which would effectively implement the Pillar Two initiative in Dutch law, with an effective date of December 31, 2023. This measure will ensure that multinational enterprises that are within the scope of the Pillar Two rules will always be subject to a corporation tax rate of at least 15%. The proposal of law is subject to amendment during the course of the legislative process and needs to be approved by both chambers of the Dutch parliament before it can enter into force. We do not currently believe that, if enacted, the Minimum Tax Rate Act 2024 will have a material adverse effect on our financial results.\nIn 2022, the United States enacted legislation implementing several changes to U.S. tax laws, including a 15% corporate alternative minimum tax on applicable corporations with an average adjusted financial statement income (AFSI) in excess of $1 billion for any three consecutive years preceding the tax year at issue. In addition, on January 1, 2022, a provision of the Tax Cuts and Jobs Act of 2017 went into effect that eliminates the option to deduct domestic research and development costs in the year incurred and instead requires taxpayers to amortize such costs over five years. Once we have taxable profits in the United States, these provisions are not expected to materially affect our cash flows or deferred tax assets.\nThe taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, which could increase our worldwide effective tax rate and harm our financial position and results of operations. Tax authorities examine and may audit our income tax returns and other non-income tax returns, such as payroll, sales, value-added, net worth or franchise, property, goods and services, and excise taxes, in both the United States and foreign jurisdictions. It is possible that tax authorities may disagree with certain positions we have taken, and any adverse outcome of such a review or audit could have a negative effect on our financial position and results of operations. Further, the determination of our worldwide provision for, or benefit from, income taxes and other tax liabilities requires significant judgment by management, and there are transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made. \n37\nTable of Contents\nOur corporate structure and intercompany arrangements are subject to the tax laws of various jurisdictions under which we could be obligated to pay additional taxes, which would harm our results of operations. \nBased on our current corporate structure, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents. In addition, the authorities in the jurisdictions in which we operate could review our tax returns or require us to file tax returns in jurisdictions in which we do not otherwise file such returns, and could impose additional tax, interest and penalties. These authorities could also claim that various withholding requirements apply to us or our subsidiaries, assert that benefits of tax treaties are not available to us or our subsidiaries, or challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing. The relevant taxing authorities may determine that the manner in which we operate our business does not achieve the intended tax consequences. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, and interest and penalties. Additionally, the distributed nature of our workforce on employee locations may increase the probability of payroll tax audits. Any increase in the amount of taxes we pay or that are imposed on us could increase our worldwide effective tax rate and harm our business and results of operations. \nOur ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations. \nAs of April\u00a030, 2023, we had net operating loss carryforwards (\u201cNOL\u201d) for Netherlands, United States (federal and state, respectively) and United Kingdom income tax purposes of $1.0 billion, $973.4 million, $665.0 million and $74.5 million, respectively, which may be utilized against future income taxes. Limitations imposed by the applicable jurisdictions on our ability to utilize NOLs could cause income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs. Furthermore, we may not be able to generate sufficient taxable income to utilize our NOLs before they expire. If any of these events occur, we may not derive some or all of the expected benefits from our NOLs.\nSeasonality may cause fluctuations in our sales and results of operations.\nHistorically, we have experienced quarterly fluctuations and seasonality in our sales and results of operations based on the timing of our entry into agreements with new and existing customers and the mix between annual and monthly contracts entered in each reporting period. Trends in our business, financial condition, results of operations and cash flows are impacted by seasonality in our sales cycle, which generally reflects a trend toward greater sales in our second and fourth quarters and lower sales in our first and third quarters, though we believe this trend has been somewhat masked by our overall growth. We expect that this seasonality will continue to affect our results of operations in the future, and might become more pronounced as we continue to target larger enterprise customers.\nRisks Related to Regulatory Matters\nWe are subject to governmental export and import controls and economic sanctions programs that could impair our ability to compete in international markets or subject us to liability if we violate these controls. \nOur software and services, in some cases, are subject to U.S. export control laws and regulations including the Export Administration Regulations (\u201cEAR\u201d), and trade and economic sanctions maintained by OFAC as well as similar laws and regulations in the countries in which we do business. As such, an export license may be required to export or re-export our software and services to, or import our software and services into, certain countries and to certain end-users or for certain end-uses. If we were to fail to comply with such U.S. and foreign export control laws and regulations, trade and economic sanctions, or other similar laws, we could be subject to both civil and criminal penalties, including substantial fines, possible incarceration for employees and managers for willful violations, and the possible loss of our export or import privileges. Obtaining the necessary export license for a particular sale or offering may not be possible and may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, export control laws and economic sanctions in many cases prohibit the export of software and services to certain embargoed or sanctioned countries, governments and persons, as well as for prohibited end-uses. Monitoring and ensuring compliance with these complex U.S. export control laws involves uncertainties because our offerings are widely distributed throughout the world, and information available on the users of these offerings is, in some cases, limited. Even though we take precautions to ensure that we and our partners comply with all relevant export control laws and regulations, any failure by us or our partners to comply with such laws and regulations could have negative consequences for us, including reputational harm, government investigations and penalties. \n38\nTable of Contents\nVarious countries have enacted laws that could limit our ability to distribute our products and services or could limit our end customers\u2019 ability to implement our products in those countries based on encryption in our offerings. Changes in our products or changes in export and import regulations in such countries may create delays in the introduction of our products and services into international markets, prevent our end customers with international operations from deploying our products globally or, in some cases, prevent or delay the export or import of our products and services to certain countries, governments or persons altogether. Reduced use of our products and services by, or decreased ability by us to export or sell our products to, existing or potential end customers with international operations could result from changes in export or import laws or regulations, economic sanctions or related legislation; shifts in the enforcement or scope of existing export, import or sanctions laws or regulations; or changes in the countries, governments, persons, or technologies targeted by such export, import or sanctions laws or regulations. \nFailure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject us to penalties and other adverse consequences. \nWe are required to comply with the FCPA, the U.K. Bribery Act and other anti-bribery, anti-corruption, and anti-money laundering laws in various U.S. and non-U.S. jurisdictions. We are subject to compliance risks as a result of our use of channel partners to sell our offerings abroad and our use of other third parties, including recruiting firms, professional employer organizations, legal, accounting and other professional advisors, and local vendors to meet our needs in international markets. We and these third parties may have direct or indirect interactions with officials and employees of government agencies, or state-owned or affiliated entities, and we may be held liable for the corrupt or other illegal activities of our channel partners and third-party representatives, as well as our employees, representatives, contractors, partners, and agents, even if we do not authorize such activities. While we have policies and procedures to address compliance with such laws, our channel partners, third-party representatives, employees, contractors or agents may take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violation of the FCPA, U.K. Bribery Act or other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, operating results and prospects. \nRisks Related to Ownership of our Ordinary Shares \nThe market price for our ordinary shares has been and is likely to continue to be volatile or may decline regardless of our operating performance. \nThe stock markets, and securities of technology companies in particular, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In particular, stock prices of companies with significant operating losses have recently declined significantly, and in many instances more significantly than stock prices of companies with operating profits. The economic impact and uncertainty of changes in the inflation, interest and macroeconomic environments, and Russia\u2019s invasion of Ukraine have exacerbated this volatility in both the overall stock markets and the market price of our ordinary shares. A significant decline in the price of our shares could have an adverse impact on investor confidence and employee retention. In the past, shareholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, our involvement could subject us to substantial costs, divert resources and the attention of management from our operations and adversely affect our business. The market price of our ordinary shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: \n\u2022\nactual or anticipated changes or fluctuations in our operating results; \n\u2022\nthe financial forecasts we may provide to the public, any changes in these projections or our failure to meet these projections; \n\u2022\nannouncements by us or our competitors of new offerings or new or terminated significant contracts, commercial relationships or capital commitments; \n\u2022\nindustry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC; \n\u2022\nrumors and market speculation involving us or other companies in our industry; \n\u2022\na gain or loss of investor confidence in the market for technology stocks or the stock market in general;\n39\nTable of Contents\n\u2022\nfuture sales or expected future sales of our ordinary shares; \n\u2022\ninvestor perceptions of us, the benefits of our offerings and the industries in which we operate; \n\u2022\nprice and volume fluctuations in the overall stock market from time to time; \n\u2022\nchanges in operating performance and/or stock market valuations of other technology companies generally, or those in our industry in particular; \n\u2022\nfailure of industry or financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors; \n\u2022\nactual or anticipated developments in our business or our competitors\u2019 businesses or the competitive landscape generally; \n\u2022\nlitigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors; \n\u2022\ndevelopments or disputes concerning our intellectual property rights or our solutions, or third-party proprietary rights; \n\u2022\nannounced or completed acquisitions of businesses or technologies by us or our competitors;\n\u2022\nbreaches of, or failures relating to, privacy, data protection or information security; \n\u2022\nnew laws or regulations or new interpretations of existing laws or regulations applicable to our business; \n\u2022\nany major changes in our management or our board of directors;\n\u2022\ngeneral economic conditions and slow or negative growth of our markets, including as a result of Russia\u2019s invasion of Ukraine, and the general inflation and interest rate environments; and \n\u2022\nother events or factors, including those resulting from war, incidents of terrorism or responses to these events. \nWe may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would cause our stock price to decline.\nWe have provided and may continue to provide guidance and other expectations regarding our future performance in our quarterly and annual earnings conference calls, quarterly and annual earnings releases, or other public disclosures. Guidance, as well as other expectations, are forward-looking and represent our management\u2019s estimates as of the date of release and are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies on our business, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. Furthermore, analysts and investors may develop and publish their own forecasts concerning our financial results, which may form a consensus about our future performance. Our actual business results may vary significantly from such guidance or other expectations or that consensus due to a number of factors, many of which are outside of our control, including due to the global economic uncertainty and financial market conditions caused by the current macroeconomic environment, and which could adversely affect our business and future operating results. Furthermore, if we make downward revisions of our previously announced guidance or other expectations, if we withdraw our previously announced guidance or other expectations, or if our publicly announced guidance or other expectations of future operating results fail to meet expectations of securities analysts, investors or other interested parties, the price of our ordinary shares could decline. In light of the foregoing, investors should not rely upon our guidance or other expectations in making an investment decision regarding our ordinary shares.\nAny failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this \u201cRisk Factors\u201d section in this report could result in the actual operating results being different from our guidance or other expectations, and the differences may be adverse and material.\nThe concentration of our share ownership with insiders will likely limit your ability to influence corporate matters, including the ability to influence the outcome of director elections and other matters requiring shareholder approval. \nOur executive officers and directors together beneficially own a significant amount of our outstanding ordinary shares. As a result, these shareholders, acting together, will have significant influence over matters that require approval by our shareholders, including matters such as adoption of the financial statements, declarations of dividends, the appointment and dismissal of directors, capital increases, amendment to our articles of association and approval of significant corporate transactions. Corporate action might be taken even if other shareholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of us that other shareholders may view as beneficial. \n40\nTable of Contents\nThe issuance of additional shares in connection with financings, acquisitions, investments, our equity incentive plans or otherwise will dilute all other shareholders. \nOur articles of association authorize us to issue up to 165 million ordinary shares and up to 165 million preference shares with such rights and preferences as included in our articles of association. On September 28, 2018, our extraordinary general meeting of shareholders (the \u201c2018 Extraordinary Meeting\u201d) empowered our board of directors to issue ordinary shares and preference shares up to our authorized share capital for a period of five years from October 10, 2018. Subject to compliance with applicable rules and regulations, we may issue ordinary shares or securities convertible into ordinary shares from time to time in connection with a financing, acquisition, investment, our equity incentive plans or otherwise. Any such issuance could result in substantial dilution to our existing shareholders unless pre-emptive rights exist and cause the market price of our ordinary shares to decline.\nCertain holders of our ordinary shares may not be able to exercise pre-emptive rights and as a result may experience substantial dilution upon future issuances of ordinary shares. \nHolders of our ordinary shares in principle have a pro rata pre-emptive right with respect to any issue of ordinary shares or the granting of rights to subscribe for ordinary shares, unless Dutch law or our articles of association state otherwise or unless explicitly provided otherwise in a resolution by our general meeting of shareholders (the \u201cGeneral Meeting\u201d), or\u2014if authorized by the annual General Meeting or an extraordinary General Meeting\u2014by a resolution of our board of directors. Our 2018 Extraordinary Meeting has empowered our board of directors to limit or exclude pre-emptive rights on ordinary shares for a period of five years from October 10, 2018, which could cause existing shareholders to experience substantial dilution of their interest in us. \nPre-emptive rights do not exist with respect to the issue of preference shares and holders of preference shares, if any, have no pre-emptive right to acquire newly issued ordinary shares. Also, pre-emptive rights do not exist with respect to the issue of shares or grant of rights to subscribe for shares to our employees or contributions in kind. \nSales of substantial amounts of our ordinary shares in the public markets, or the perception that they might occur, could reduce the price that our ordinary shares might otherwise attain.\nSales of a substantial number of shares of our ordinary shares in the public market, particularly sales by our directors, executive officers and significant shareholders, or the perception that these sales could occur, could adversely affect the market price of our ordinary shares and may make it more difficult for you to sell your ordinary shares at a time and price that you deem appropriate. \nHolders of an aggregate of 17,356,912 ordinary shares, based on shares outstanding as of April\u00a030, 2023, are entitled to rights with respect to registration of these shares under the Securities Act pursuant to our amended and restated investors\u2019 rights agreement, dated July 19, 2016. If these holders of our ordinary shares, by exercising their registration rights, sell a large number of shares, such sales could adversely affect the market price for our ordinary shares. We have also filed, and may file in the future, registration statements on Form S-8 under the Securities Act registering all ordinary shares that we may issue under our equity compensation plans, which may in turn be sold and may adversely affect the market price for our ordinary shares.\nCertain anti-takeover provisions in our articles of association and under Dutch law may prevent or could make an acquisition of our company more difficult, limit attempts by our shareholders to replace or remove members of our board of directors and may adversely affect the market price of our ordinary shares. \nOur articles of association contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for shareholders to appoint directors that are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include: \n\u2022\nthe staggered three-year terms of the members of our board of directors, as a result of which only approximately one-third of the members of our board of directors may be subject to election in any one year; \n\u2022\na provision that the members of our board of directors may only be removed by a General Meeting by a two-thirds majority of votes cast representing at least 50% of our issued share capital if such removal is not proposed by our board of directors; \n\u2022\na provision that the members of our board of directors may only be appointed upon binding nomination of the board of directors, which can only be overruled with a two-thirds majority of votes cast representing at least 50% of our issued share capital; \n41\nTable of Contents\n\u2022\nthe inclusion of a class of preference shares in our authorized share capital that may be issued by our board of directors, in such a manner as to dilute the interest of shareholders, including any potential acquirer or activist shareholder, in order to delay or discourage any potential unsolicited offer or shareholder activism; \n\u2022\nrequirements that certain matters, including an amendment of our articles of association, may only be brought to our shareholders for a vote upon a proposal by our board of directors; and \n\u2022\nminimum shareholding thresholds, based on nominal value, for shareholders to call General Meetings of our shareholders or to add items to the agenda for those meetings. \nWe are subject to the Dutch Corporate Governance Code but do not comply with all the suggested governance provisions of the Dutch Corporate Governance Code, which may affect your rights as a shareholder. \nAs a Dutch company, we are subject to the Dutch Corporate Governance Code (\u201cDCGC\u201d). The DCGC contains both principles and suggested governance provisions for management boards, supervisory boards, shareholders and general meetings, financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC is based on a \u201ccomply or explain\u201d principle. Accordingly, public companies are required to disclose in their annual reports, filed in the Netherlands, whether they comply with the suggested governance provisions of the DCGC. If they do not comply with those provisions (e.g., because of a conflicting requirement), companies are required to give the reasons for such noncompliance. The DCGC applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including the New York Stock Exchange (\u201cNYSE\u201d). The principles and suggested governance provisions apply to our board of directors (in relation to role and composition, conflicts of interest and independency requirements, board committees and remuneration), shareholders and the General Meeting (for example, regarding anti-takeover protection and our obligations to provide information to our shareholders) and financial reporting (such as external auditor and internal audit requirements). We comply with all applicable provisions of the DCGC except where such provisions conflict with U.S. exchange listing requirements or with market practices in the United States or the Netherlands. This may affect your rights as a shareholder, and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the suggested governance provisions of the DCGC. \nWe do not intend to pay dividends in the foreseeable future, so your ability to achieve a return on your investment will depend on appreciation in the price of our ordinary shares. \nWe have never declared or paid any cash dividends on our shares. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our ordinary shares in the foreseeable future. Were this position to change, payment of future dividends may be made only if our equity exceeds the amount of the paid-in and called-up part of the issued share capital, increased by the reserves required to be maintained by Dutch law or by our articles of association. Accordingly, investors must rely on sales of their ordinary shares after price appreciation, which may never occur, as the only way to realize any future gains on their investments. \nClaims of U.S. civil liabilities may not be enforceable against us. \nWe are incorporated under the laws of the Netherlands and substantial portions of our assets are located outside of the United States. In addition, two members of our board of directors and certain experts named in our filings with the SEC reside outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such other persons residing outside the United States, or to enforce outside the United States judgments obtained against such persons in U.S. courts in any action, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. In addition, it may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon the U.S. federal securities laws. \nThere is no treaty between the United States and the Netherlands for the mutual recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be enforceable in the Netherlands unless the underlying claim is re-litigated before a Dutch court of competent jurisdiction. In such proceedings, however, a Dutch court may be expected to recognize the binding effect of a judgment of a federal or state court in the United States without re-examination of the substantive matters adjudicated thereby, if (i) the jurisdiction of the U.S. federal or state court has been based on internationally accepted principles of private international law, (ii) that judgment resulted from legal proceedings compatible with Dutch notions of due process, (iii) that judgment does not contravene public policy of the Netherlands and (iv) that judgment is not incompatible with (x) an earlier judgment of a Dutch court between the same parties, or (y) an earlier judgment of a foreign court between the same parties in a dispute regarding the same subject and based on the same cause, if that earlier foreign judgment is recognizable in the Netherlands. \n42\nTable of Contents\nBased on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors, officers or certain experts named in our filings with the SEC, who are residents of the Netherlands or countries other than the United States, any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws. \nIn addition, there can be no assurance that a Dutch court would impose civil liability on us, the members of our board of directors, our officers or certain experts named in our filings with the SEC in an original action predicated solely upon the U.S. federal securities laws brought in a court of competent jurisdiction in the Netherlands against us or such members, officers or experts. \nU.S. persons who hold our ordinary shares may suffer adverse tax consequences if we are characterized as a passive foreign investment company. \nA non-U.S. corporation will generally be considered a passive foreign investment company (\u201cPFIC\u201d), for U.S. federal income tax purposes, in any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during such year) is attributable to assets that produce or are held for the production of passive income (\u201cthe PFIC asset test\u201d). For purposes of the PFIC asset test, the value of our assets will generally be determined by reference to our market capitalization. Based on our past and current projections of our income and assets, we do not expect to be a PFIC for the current taxable year or for the foreseeable future. Nevertheless, a separate factual determination as to whether we are or have become a PFIC must be made each year (after the close of such year). Since our projections may differ from our actual business results and our market capitalization and value of our assets may fluctuate, we cannot assure you that we will not be or become a PFIC in the current taxable year or any future taxable year. If we are a PFIC for any taxable year during which a U.S. person (as defined in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended) holds our ordinary shares, such U.S. person may be subject to adverse tax consequences. Each U.S. person who holds our ordinary shares is strongly urged to consult his, her or its tax advisor regarding the application of these rules and the availability of any potential elections. \nIf a U.S. person is treated as owning at least 10% of our ordinary shares, such U.S. person may be subject to adverse U.S. federal income tax consequences. \nIf a U.S. person is treated as owning (directly, indirectly, or constructively) at least 10% of the total combined voting power of our shares, or of the total value of our shares, such shareholder may be treated as a \u201cUnited States shareholder\u201d with respect to each \u201ccontrolled foreign corporation\u201d in our group (if any). Because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign corporations (regardless of whether we are treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of \u201cSubpart F income,\u201d \u201cglobal intangible low-taxed income,\u201d and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. We cannot provide any assurances that we will assist investors in determining whether we or any of our non-U.S. subsidiaries is treated as a controlled foreign corporation or whether any investor is treated as a United States shareholder with respect to any such controlled foreign corporation or furnish to any investor who may be a United States shareholder information that may be necessary to comply with the aforementioned reporting and tax paying obligations. Failure to comply with these reporting obligations may subject a shareholder who is a United States shareholder to significant monetary penalties and may prevent from starting the statute of limitations with respect to such shareholder\u2019s U.S. federal income tax return for the year for which reporting was due. A U.S. person should consult its advisors regarding the potential application of these rules to an investment in our ordinary shares. \nWe may not be able to make distributions or repurchase shares without subjecting our shareholders to Dutch withholding tax, and dividends distributed on our ordinary shares to certain related parties in low-tax jurisdictions might in the future become subject to an additional Dutch withholding tax.\nWe have not paid a dividend on our ordinary shares in the past and we do not intend to pay any dividends to holders of our ordinary shares in the foreseeable future. See \u201cWe do not intend to pay dividends in the foreseeable future, so your ability to achieve a return on your investment will depend on appreciation in the price of our ordinary shares.\u201d However, if we ever do pay dividends or repurchase shares, then under current Dutch tax law, the dividend paid or repurchase price paid may be subject to Dutch dividend withholding tax at a rate of 15% under the Dutch Dividend Withholding Tax Act (\nWet op de dividendbelasting 1965\n, \u201cRegular Dividend Withholding Tax\u201d), unless a domestic or treaty exemption applies.\n43\nTable of Contents\nThe Dutch parliament has adopted a proposal of law pursuant to which an alternative withholding tax (\u201cAlternative Withholding Tax\u201d) will be imposed on dividends paid to related entities in designated low-tax jurisdictions, effective January 1, 2024. An entity is considered related if (i) it has a \u201cQualifying Interest\u201d in our company, (ii) our company has a \u201cQualifying Interest\u201d in the entity holding the ordinary shares, or (iii) a third party has a \"Qualifying Interest\" in both our company and the entity holding the ordinary shares. The term \u201cQualifying Interest\u201d means a direct or indirectly held interest either by an entity individually or jointly if an entity is part of a collaborating group (\nsamenwerkende groep\n) that enables such entity or such collaborating group to exercise a definite influence over another entity\u2019s decisions, such as our company or an entity holding ordinary shares, as the case may be, and allows it to determine the other entity\u2019s activities. The Alternative Withholding Tax will be imposed at the highest Dutch corporate income tax rate in effect at the time of the distribution (currently 25.8%). The Alternative Withholding Tax will be reduced, but not below zero, with any Regular Dividend Withholding Tax imposed on distributions. Based on currently applicable rates, the overall effective rate of withholding of Regular Dividend Withholding Tax and Alternative Withholding Tax will not exceed the highest corporate income tax rate in effect at the time of the distribution (currently 25.8%). \nIf we cease to be a Dutch tax resident for the purposes of a tax treaty concluded by the Netherlands and in certain other events, we could potentially be subject to a proposed Dutch dividend withholding tax in respect of a deemed distribution of our entire market value less paid-up capital.\nUnder a proposal of law currently pending before the Dutch parliament, the Emergency act conditional exit dividend withholding tax (\nSpoedwet conditionele eindafrekening dividendbelasting\n, \u201cDWT Exit Tax\u201d), we will be deemed to have distributed an amount equal to our entire market capitalization less recognized paid-up capital immediately before the occurrence of certain events, including if we cease to be a Dutch tax resident for purposes of a tax treaty concluded by the Netherlands with another jurisdiction and become, for purposes of such tax treaty, exclusively a tax resident of that other jurisdiction which is a qualifying jurisdiction. A qualifying jurisdiction is a jurisdiction other than a member state of the EU/EEA which does not impose a withholding tax on distributions, or that does impose such tax but that grants a step-up for earnings attributable to the period before we become exclusively a resident in such jurisdiction. This deemed distribution will be subject to a 15% tax insofar it exceeds a franchise of EUR 50 million. The tax is payable by us as a withholding agent. A full exemption applies to entities and individuals that are resident in an EU/EEA member state or a state that has concluded a tax treaty with the Netherlands that contains a dividend article, provided we submit a declaration confirming the satisfaction of applicable conditions by qualifying shareholders within one month following the taxable event. We will be deemed to have withheld the tax on the deemed distribution and have a statutory right to recover this from our shareholders. Dutch resident shareholders qualifying for the exemption are entitled to a credit or refund, and non-Dutch resident shareholders qualifying for the exemption are entitled to a refund, subject to applicable statutory limitations, provided the tax has been actually recovered from them.\nThe DWT Exit Tax has been amended several times since the initial proposal of law and is under ongoing discussion. In addition, a critical reaction from authorities to the latest proposal of law have been published. It is therefore not certain whether the DWT Exit Tax will be enacted and if so, in what form. If enacted in its present form, the DWT Exit Tax will have retroactive effect as from December 8, 2021.\nRisks Related to our Outstanding Senior Notes \nWe have a substantial amount of indebtedness, which could adversely affect our financial condition.\nWe have a substantial amount of indebtedness and we may incur additional indebtedness in the future. As of April\u00a030, 2023, we had $575.0 million aggregate principal amount of Senior Notes outstanding. Our indebtedness could have important consequences, including:\n\u2022\nlimiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;\n\u2022\nrequiring a portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;\n\u2022\nincreasing our vulnerability to adverse changes in general economic, industry and competitive conditions; and\n\u2022\nincreasing our cost of borrowing.\nIn addition, the indenture that governs the Senior Notes contains restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of substantially all of our indebtedness.\n44\nTable of Contents\nWe may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.\nOur ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and results of operations, which in turn are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, which could have a material adverse effect on our business, results of operations and financial condition.\nIf our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on, among other factors, the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments and the indenture that governs the Senior Notes may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such cash flows and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Any of these circumstances could have a material adverse effect on our business, results of operations and financial condition.\nFurther, any future credit facility or other debt instrument may contain provisions that will restrict our ability to dispose of assets and use the proceeds from any such disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations and any such failure to meet our scheduled debt service obligations could have a material adverse effect on our business, results of operations and financial condition.\nThe indenture that governs the Senior Notes contains, and any of our future debt instruments may contain, terms which restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.\nThe indenture that governs the Senior Notes contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including, among other things, restrictions on our ability to:\n\u2022\ncreate liens on certain assets to secure debt;\n\u2022\ngrant a subsidiary guarantee of certain debt without also providing a guarantee of the Senior Notes; and\n\u2022\nconsolidate or merge with or into, or sell or otherwise dispose of all or substantially all of our assets to, another person.\nThe covenants in the indenture that governs the Senior Notes are subject to important exceptions and qualifications described in such indenture.\nAs a result of these restrictions, we are limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants and may require us to maintain specified financial ratios and satisfy other financial condition tests. We may not be able to maintain compliance with these covenants in the future and, if we fail to do so, we may not be able to obtain waivers from the relevant lenders and/or amend the covenants.\nOur failure to comply with the restrictive covenants described above and/or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected. As a result, our failure to comply with such restrictive covenants could have a material adverse effect on our business, results of operations and financial condition.\n45\nTable of Contents\nWe may be required to repurchase some of the Senior Notes upon a change of control triggering event.\nHolders of the Senior Notes can require us to repurchase the Senior Notes upon a change of control (as defined in the indenture governing the Senior Notes) at a repurchase price equal to 101% of the principal amount of the Senior Notes, plus accrued and unpaid interest to, but excluding, the applicable repurchase date. Our ability to repurchase the Senior Notes may be limited by law or the terms of other agreements relating to our indebtedness. In addition, we may not have sufficient funds to repurchase the Senior Notes or have the ability to arrange necessary financing on acceptable terms, if at all. A change of control may also constitute a default under, or result in the acceleration of the maturity of, our other then-existing indebtedness. Our failure to repurchase the Senior Notes would result in a default under the Senior Notes, which may result in the acceleration of the Senior Notes and other then-existing indebtedness. We may not have sufficient funds to make any payments triggered by such acceleration, which could result in foreclosure proceedings and our seeking protection under the U.S. bankruptcy code.\nGeneral Risk Factors\nWe may not benefit from our acquisition strategy. \nAs part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies to augment our existing business. We may not be able to identify suitable acquisition candidates or complete such acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals and business strategy, we may be subject to claims or liabilities assumed from an acquired company, product, or technology, and any acquisitions we complete could be viewed negatively by our customers, investors, and securities analysts. In addition, if we are unsuccessful at integrating future acquisitions, or the technologies associated with such acquisitions, into our company, the revenue and results of operations of the combined company could be adversely affected. Any integration process may require significant time and resources, which may disrupt our ongoing business and divert management\u2019s attention from operations, and we may not be able to manage the integration process successfully. We may not successfully evaluate or utilize acquired technology or personnel, realize anticipated synergies from acquisitions, or accurately forecast the financial impact of an acquisition transaction and integration of such acquisition, including accounting charges. We may have to pay cash, incur debt, or issue equity or equity-linked securities to pay for any future acquisitions, each of which could adversely affect our financial condition or the market price of our ordinary shares. The sale of equity or issuance of equity-linked debt to finance any future acquisitions could result in dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. We may acquire development stage companies that are not yet profitable, and that require continued investment, thereby reducing our cash available for other corporate purposes. The occurrence of any of these risks could harm our business, results of operations, and financial condition.\nCatastrophic events, or man-made events such as terrorism, may disrupt our business. \nA significant natural disaster, such as an earthquake, fire, flood, or significant power outage, could have an adverse impact on our business, results of operations, and financial condition. The impact of climate change may increase these risks due to changes in weather patterns, such as increases in storm intensity, sea-level rise, melting of permafrost and temperature extremes in areas where we or our suppliers and customers conduct business. We have a number of our employees and executive officers located in the San Francisco Bay Area, a region that has recently been affected by wildfires and other extreme weather events. If our or our partners\u2019 abilities are hindered by any of the foregoing events, we could experience sales delays, supply chain disruptions, and other negative impacts on our business. In addition, acts of terrorism, acts of war, including Russia\u2019s invasion of Ukraine, other geo-political unrest or health issues, such as an outbreak of pandemic or epidemic diseases, such as the COVID-19 pandemic, or fear of such events, could cause disruptions in our business or the business of our partners, customers or the economy as a whole. Any disruption in the business of our partners or customers that affects sales in a fiscal quarter could have a significant adverse impact on our quarterly results for that and future quarters. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be inadequate.\n46\nTable of Contents\nIf our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in the trading price of our ordinary shares. \nThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d included in Part II, Item 7 of this Annual Report on Form 10-K, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue, and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our ordinary shares. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition and accounting of intangible assets.\nIf industry or financial analysts do not publish research or reports about our business, or if they issue inaccurate or unfavorable research regarding our ordinary shares, our share price and trading volume could decline, which could adversely affect our business. \nThe trading market for our ordinary shares is influenced by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts, or the content and opinions included in their reports. If any of the analysts who cover us issues an inaccurate or unfavorable opinion regarding our company, our stock price would likely decline. Further, investors and analysts may not understand how our consumption-based arrangements differ from a typical subscription-based pricing model. In addition, the stock prices of many companies in the technology industry have declined significantly after those companies have failed to meet, or significantly exceed, the financial guidance publicly announced by the companies or the expectations of analysts or public investors. If our financial results fail to meet, or significantly exceed, our announced guidance or the expectations of analysts or public investors, our stock price may decline. Further, analysts could downgrade our ordinary shares or publish unfavorable research about us. If one or more of the analysts who cover our company ceases to cover us, or fails to publish reports on us regularly, our profile in the financial markets could decrease, which in turn could cause our stock price or trading volume to decline and could adversely affect our business.\nOur reputation and/or business could be negatively impacted by ESG matters and/or our reporting of such matters.\nThere is an increasing focus from regulators, certain investors, and other stakeholders concerning environmental, social, and governance (\"ESG\") matters, both in the United States and internationally. In addition, changing laws, regulations and standards relating to ESG matters are evolving, creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. We communicate certain ESG-related initiatives and goals regarding ESG in our annual ESG Report, on our website, in our filings with the SEC, and elsewhere. These initiatives and goals, coupled with the uncertainty regarding compliance with evolving ESG laws, regulations and expectations, could be difficult to achieve and costly to implement. We could fail to achieve, or be perceived to fail to achieve, our ESG-related initiatives and goals. In addition, we could be criticized for the timing, scope or nature of these initiatives and goals, or for any revisions to them. We could be criticized for the accuracy, adequacy, presentation, or completeness of our required and voluntary ESG disclosures, which could impact our brand and reputation. If our ESG practices and disclosures do not meet evolving investor or other stakeholder expectations and societal and regulatory standards, or if we experience an actual or perceived failure to achieve our ESG-related initiatives and goals our ability to attract or retain sales, marketing and other employees, and our attractiveness as an investment or as a business partner could be negatively impacted, which could adversely affect our business.\nIf we fail to maintain an effective system of disclosure controls and internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ordinary shares may decline, which could adversely affect our business. \nAs a public company in the United States, we are subject to the Sarbanes-Oxley Act, which requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended and anticipate that we will continue to expend significant resources, including accounting-related costs and significant management oversight. We have incurred and expect to continue to incur significant expenses and devote substantial management effort toward compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. To assist us in complying with these requirements, we may need to hire more employees in the future, or engage outside consultants, which will increase our operating expenses.\n47\nTable of Contents\nDespite significant investment, our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to implement or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that are required to be included in our periodic reports that we file with the SEC. \nIneffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, subject us to sanctions or investigations by the NYSE, the SEC, or other regulatory authorities, and would likely cause the trading price of our ordinary shares to decline, which could adversely affect our business.",
+  "item7": ">Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in Part II, Item 8 of this Annual Report on Form 10-K. As discussed in the section titled \u201cNote Regarding Forward-Looking Statements,\u201d the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such difference include, but are not limited to, those identified below and those discussed in the section titled \u201cRisk Factors\u201d included in Part I, Item 1A of this Annual Report on Form 10-K. Our fiscal year end is April 30. \nThis section of our Annual Report on Form 10-K discusses our financial condition and results of operations for the years ended April\u00a030, 2023 and 2022 and year-to-year comparisons between the years ended April\u00a030, 2023 and 2022. A discussion of our financial condition and results of operations for the year ended April\u00a030, 2021 and year-to-year comparisons between the years ended April\u00a030, 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d of our Annual Report on Form 10-K for the year ended April\u00a030, 2022, filed with the SEC on June 21, 2022.\nOverview\nElastic is a data analytics company built on the power of search. Our platform, which is available as both a hosted, managed service across public clouds as well as self-managed software, allows our customers to find insights and drive AI and machine learning use cases from large amounts of data. We offer three search-powered solutions \u2013 Search, Observability, and Security \u2013 that are built into the platform. We help organizations, their employees, and their customers find what they need faster, while keeping mission-critical applications running smoothly, and protecting against cyber threats.\nOur platform is built on the Elastic Stack, a powerful set of software products that ingest data from any source, in any format, and perform search, analysis, and visualization of that data. At the core of the Elastic Stack is Elasticsearch - a highly scalable document store and search engine, and the unified data store for all of our solutions and use cases. Our platform also includes the ESRE, which combines advanced AI with Elastic\u2019s text search to give developers a full suite of sophisticated retrieval algorithms and the ability to integrate with large language models. The Elastic Stack can be used by developers to power a variety of use cases. It is a distributed, real-time search and analytics engine and data store for all types of data, including textual, numerical, geospatial, structured, and unstructured.\nWe make our platform available as a hosted, managed service across major cloud providers. Customers can also deploy our platform across hybrid clouds, public or private clouds, and multi-cloud environments. As digital transformation drives mission critical business functions to the cloud, we believe that every company will need to build around a search-based relevance engine to find the answers that matter, from all of their data, in real-time, and at scale.\nOur business model is based primarily on a combination of a paid Elastic-managed hosted service offering and paid and free proprietary self-managed software. Our paid offerings for our platform are sold via subscription through resource-based pricing, and all customers and users have access to all solutions. In Elastic Cloud, our family of cloud-based offerings under which we offer our software as a hosted, managed service, we offer various subscription tiers tied to different features. For users who download our software, we make some of the features of our software available for free, allowing us to engage with a broad community of developers and practitioners and introduce them to the value of the Elastic Stack. We believe in the importance of an open software development model, and we develop the majority of our software in public repositories as open code under a proprietary license. Unlike some companies, we do not build an enterprise version that is separate from our free distribution. We maintain a single code base across both our self-managed software and Elastic-hosted services. All of these actions help us build a powerful commercial business model that we believe is optimized for product-led growth. \nWe generate revenue primarily from sales of subscriptions to our platform. We offer various paid subscription tiers that provide different levels of rights to use proprietary features and access to support. We do not sell support separately. Our subscription agreements typically range from one to three years and are usually billed annually in advance. Our subscription agreements are both term-based and consumption-based, with the vast majority of Elastic Cloud subscriptions being consumption-based. We sell subscriptions in various currencies, with the majority of our subscriptions contracted in US dollars, and a smaller portion contracted in Euro, British Pound Sterling, and other currencies. Elastic Cloud customers may also purchase subscriptions on a month-to-month basis without a commitment, with usage billed at the end of each month. Subscriptions accounted for 92%, 93%, and 93% of total revenue for the years ended April\u00a030, 2023, 2022, and 2021, respectively. We also generate revenue from consulting and training services.\n50\nTable of Contents\nWe make it easy for users to begin using our products in order to drive rapid adoption. Users can either sign up for a free trial on Elastic Cloud or download our software directly from our website without any sales interaction, and immediately begin using the full set of features. Users can also sign up for Elastic Cloud through public cloud marketplaces. We conduct low-touch campaigns to keep users and customers engaged once they have begun using Elastic Cloud or have downloaded our software. As of April\u00a030, 2023, we had approximately 20,200 customers compared to over 18,600 customers and over 15,000 customers as of April\u00a030, 2022 and 2021, respectively. The majority of our new customers use Elastic Cloud. We define a customer as an entity that generated revenue in the quarter ending on the measurement date from an annual or month-to-month subscription. Affiliated entities are typically counted as a single customer. \nMany of these customers start with limited initial spending, but can significantly grow their spending. We drive high-touch engagement with qualified prospects and customers to drive further awareness, adoption, and expansion of our products with paid subscriptions. Expansion includes increasing the number of developers and practitioners using our products, increasing the utilization of our products for a particular use case, and utilizing our products to address new use cases. The number of customers who represented greater than $100,000 in annual contract value (\u201cACV\u201d) was over 1,160, over 960, and over 730 as of April\u00a030, 2023, 2022, and 2021 respectively. The ACV of a customer\u2019s commitments is calculated based on the terms of that customer\u2019s subscriptions, and represents the total committed annual subscription amount as of the measurement date. Month-to-month subscriptions are not included in the calculation of ACV.\nOur sales teams are organized primarily by geography and secondarily by customer segments. They focus on both initial conversion of users into customers and additional sales to existing customers. In addition to our direct sales efforts, we also maintain partnerships to further extend our reach and awareness of our products around the world.\nWe have experienced significant growth, with revenue increasing to $1.1\u00a0billion for the year ended April\u00a030, 2023 from $862.4\u00a0million for the year ended April\u00a030, 2022 and $608.5\u00a0million for the year ended April\u00a030, 2021, representing year-over-year growth of 24% for the year ended April\u00a030, 2023 and 42% for the year ended April\u00a030, 2022. For the year ended April\u00a030, 2023, revenue from outside the United States accounted for 41% of our total revenue. For our non-U.S. operations, the majority of our revenue and expenses are denominated in currencies such as the Euro and British Pound Sterling. No customer accounted for more than 10% of our total revenue for the years ended April\u00a030, 2023, 2022, and 2021. We have not been profitable to date. For the years ended April\u00a030, 2023, 2022 and 2021, we incurred net losses of $236.2\u00a0million, $203.8\u00a0million and $129.4\u00a0million, respectively. Our net cash provided by operating activities was $35.7\u00a0million, $5.7\u00a0million, and $22.5\u00a0million for the years ended April\u00a030, 2023, 2022 and 2021, respectively. We have experienced losses in each year since our incorporation and as of April\u00a030, 2023, had an accumulated deficit of $1.1\u00a0billion. We expect we will continue to incur net losses for the foreseeable future. There can be no assurance whether, or when, we may become profitable.\nWe continue to make substantial investments in developing the Elastic Stack and expanding our global sales and marketing footprint. With a distributed team spanning over 40 countries, we are able to recruit, hire, and retain high-quality, experienced technical and sales personnel and operate at a rapid pace to drive product releases, fix bugs, and create and market new products. We had 2,886 employees as of April\u00a030, 2023.\nCurrent Economic Conditions\nRecent and current macroeconomic events, including inflation, slower economic growth, political unrest, and concerns about the stability of banks, continue to evolve and negatively impact worldwide economic activity. Governmental and corporate responses to these factors including rising interest rates, unpredictable and decreased spending, and layoffs, have added to the highly volatile macroeconomic landscape. We have experienced and, if economic conditions continue to decline, we may continue to experience longer and more unpredictable sales cycles, increased scrutiny of deals, slowing consumption and overall customer expenditures, and the impacts of changing foreign exchange rates with a strengthening or weakening U.S. dollar. We continue to closely monitor the macroeconomic environment and its effects on our business and on global economic activity, including customer spending behavior. Notwithstanding the potential and actual adverse impacts described above, as the pandemic has caused more of our customers to shift to a virtual workforce or accelerate their digital transformation efforts, we believe the value of our solutions has become even more evident.\nRestructuring\nTo navigate the current economic environment, we have realigned our resources internally to drive greater efficiencies and rebalance investments across all functions of the organization and reinvest some savings in key priority areas to drive growth. On November 30, 2022, we announced and began implementing a plan to align our investments more closely with our strategic priorities by reducing our workforce by approximately 13% and implementing certain facilities-related cost optimization actions. We incurred $31.3\u00a0million in restructuring and other related charges during the year ended April 30, 2023. We expect that the implementation of the workforce reductions and facilities cost optimization will be substantially completed by the end of the first quarter of fiscal 2024.\n51\nTable of Contents\nSee Note 16 \u201cRestructuring and other related charges\u201d in our accompanying Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information about this plan. We will continue to adjust, monitor, and curtail spending when and where needed to adapt to the current macroeconomic landscape and will reinvest some of the savings selectively in areas that we believe best position us to drive profitable growth. See \u201cRisk Factors\u201d included in Part I, Item 1A of this Annual Report on Form 10-K for a discussion of additional risks.\nKey Factors Affecting our Performance\nWe believe that the growth and future success of our business depends on many factors, including those described below. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. \nIncreasing adoption of Elastic Cloud. \n   Elastic Cloud, our family of cloud-based offerings, is an important growth opportunity for our business. Organizations are increasingly looking for hosted deployment alternatives with reduced administrative burdens. In some cases, users of our source available software that have been self-managing deployments of the Elastic Stack subsequently become paying subscribers of Elastic Cloud. For the years ended April\u00a030, 2023, 2022, and 2021, Elastic Cloud contributed 40%, 35%, and 27% of our total revenue, respectively. We believe that offering Elastic Cloud is important for achieving our long-term growth potential, and we expect Elastic Cloud\u2019s contribution to our subscription revenue to continue to increase over time. However, we expect that an increase in the relative contribution of Elastic Cloud to our business will have a modest adverse impact on our gross margin as a result of the associated third-party hosting costs.\nGrowing the Elastic community.   \n Our strategy consists of providing access to source available software, on both a paid and free basis, and fostering a community of users and developers. Our strategy is designed to pursue what we believe to be significant untapped potential for the use of our technology. After developers begin to use our software and start to participate in our developer community, they become more likely to apply our technology to additional use cases and evangelize our technology within their organizations. This reduces the time required for our sales force to educate potential leads on our solutions. In order to capitalize on our opportunity, we intend to make further investments to keep the Elastic Stack accessible and well known to software developers around the world. We intend to continue to invest in our products and support and engage our user base and developer community through content, events, and conferences in the U.S. and internationally. Our results of operations may fluctuate as we make these investments. \nDeveloping new features for the Elastic Stack.\n    The Elastic Stack is applied to various use cases by customers, including through the solutions we offer. Our revenue is derived primarily from subscriptions of Search, Observability and Security built into the Elastic Stack. We believe that releasing additional features of the Elastic Stack, including our solutions, drives usage of our products and ultimately drives our growth. To that end, we plan to continue to invest in building new features and solutions that expand the capabilities of the Elastic Stack. These investments may adversely affect our operating results prior to generating benefits, to the extent that they ultimately generate benefits at all. \nGrowing our customer base by converting users of our software to paid subscribers.\n    Our financial performance depends on growing our paid customer base by converting free users of our software into paid subscribers. Our distribution model has resulted in rapid adoption by developers around the world. We have invested, and expect to continue to invest, heavily in sales and marketing efforts to convert additional free users to paid subscribers. Our investment in sales and marketing is significant given our large and diverse user base. The investments are likely to occur in advance of the anticipated benefits resulting from such investments, such that they may adversely affect our operating results in the near term. \nExpanding within our current customer base.\n    Our future growth and profitability depend on our ability to drive additional sales to existing customers. Customers often expand the use of our software within their organizations by increasing the number of developers using our products, increasing the utilization of our products for a particular use case, and expanding use of our products to additional use cases. We focus some of our direct sales efforts on encouraging these types of expansion within our customer base. \n52\nTable of Contents\nWe believe that a useful indication of how our customer relationships have expanded over time is through our Net Expansion Rate, which is based upon trends in the rate at which customers increase their spend with us. To calculate an expansion rate as of the end of a given month, we start with the annualized spend from all such customers as of twelve months prior to that month end, or Prior Period Value. A customer\u2019s annualized spend is measured as its ACV, or in the case of customers charged on usage-based arrangements, by annualizing the usage for that month. We then calculate the annualized spend from these same customers as of the given month end, or Current Period Value, which includes any growth in the value of their subscriptions or usage and is net of contraction or attrition over the prior twelve months. We then divide the Current Period Value by the Prior Period Value to arrive at an expansion rate. The Net Expansion Rate at the end of any period is the weighted average of the expansion rates as of the end of each of the trailing twelve months. The Net Expansion Rate includes the dollar-weighted value of our subscriptions or usage that expand, renew, contract, or attrit. For instance, if each customer had a one-year subscription and renewed its subscription for the exact same amount, then the Net Expansion Rate would be 100%. Customers who reduced their annual subscription dollar value (contraction) or did not renew their annual subscription (attrition) would adversely affect the Net Expansion Rate. Our Net Expansion Rate was approximately 117% as of April\u00a030, 2023. \nAs large organizations expand their use of the Elastic Stack across multiple use cases, projects, divisions and users, they often begin to require centralized provisioning, management and monitoring across multiple deployments. To satisfy these requirements, our Enterprise subscription tier provides access to key orchestration and deployment management capabilities. We will continue to focus some of our direct sales efforts on driving adoption of our paid offerings.\nComponents of Results of Operations\nRevenue\nSubscription.\u00a0\n\u00a0Our revenue is primarily generated through the sale of subscriptions to software, which is either self-managed by the user or hosted and managed by us in the cloud. Subscriptions provide the right to use paid proprietary software features and access to support for our paid and unpaid software. Our subscription agreements are both term-based and consumption-based, with the vast majority of Elastic Cloud subscriptions being consumption-based. \nA portion of the revenue from self-managed subscriptions is generally recognized up front at the point in time when the license is delivered and the remainder is recognized ratably over the subscription term. Revenue from subscriptions that require access to the cloud or that are hosted and managed by us is recognized ratably over the subscription term or on a usage basis for consumption-based arrangements; both are presented within Subscription revenue in our consolidated statements of operations. \nServices.\n\u00a0\u00a0Services is composed of consulting services as well as public and private training. Revenue for services is recognized as these services are delivered. \nCost of Revenue\nSubscription.\n  Cost of subscription consists primarily of personnel and related costs for employees associated with supporting our subscription arrangements, certain third-party expenses, and amortization of certain intangible and other assets. Personnel and related costs, or personnel costs, comprise cash compensation, benefits and stock-based compensation to employees, costs of third-party contractors, and allocated overhead costs. Third-party expenses consist of cloud hosting costs and other expenses directly associated with our customer support. We expect our cost of subscription to increase in absolute dollars as our subscription revenue increases.\nServices.\n  Cost of services revenue consists primarily of personnel costs directly associated with delivery of training, implementation and other services, costs of third-party contractors, facility rental charges and allocated overhead costs. We expect our cost of services to increase in absolute dollars as we invest in our business and as services revenue increases.\nGross profit and gross margin.\n  Gross profit represents revenue less cost of revenue. Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the timing of our acquisition of new customers and our renewals with existing customers, the average sales price of our subscriptions and services, the amount of our revenue represented by hosted services, the mix of subscriptions sold, the mix of revenue between subscriptions and services, the mix of services between consulting and training, transaction volume growth and support case volume growth. We expect our gross margin to fluctuate over time depending on the factors described above. We expect our revenue from Elastic Cloud to continue to increase as a percentage of total revenue, which we expect will adversely impact our gross margin as a result of the associated hosting costs.\n53\nTable of Contents\nOperating Expenses\nResearch and development.\n  Research and development expense primarily consists of personnel costs and allocated overhead costs. We expect our research and development expense to increase in absolute dollars for the foreseeable future as we continue to develop new technology and invest further in our existing products.\nSales and marketing.\n  Sales and marketing expense primarily consists of personnel costs, commissions, allocated overhead costs and costs related to marketing programs and user events. Marketing programs consist of advertising, events, brand-building and customer acquisition and retention activities. We expect our sales and marketing expense to increase in absolute dollars as we expand our salesforce and increase our investments in marketing resources. We capitalize sales commissions and associated payroll taxes paid to internal sales personnel that are related to the acquisition of customer contracts. Sales commissions costs are amortized over the expected benefit period.\nGeneral and administrative.\n  General and administrative expense primarily consists of personnel costs for our management, finance, legal, human resources, and other administrative employees. Our general and administrative expense also includes professional fees, accounting fees, audit fees, tax services and legal fees, as well as insurance, allocated overhead costs, and other corporate expenses. We expect our general and administrative expense to increase in absolute dollars as we increase the size of our general and administrative functions to support the growth of our business. \nRestructuring and other related charges.\n  Restructuring and other related charges primarily consist of employee-related severance and other termination benefits as well as lease impairment and other facilities-related charges.\nOther Income (Expense), Net\nInterest expense.\n  Primarily consists of interest on our 4.125% Senior Notes due 2029. \nOther income (expense), net. \nPrimarily consists of interest income, gains and losses from transactions denominated in a currency other than the functional currency, and miscellaneous other non-operating gains and losses.\nProvision for Income Taxes\nProvision for income taxes consists primarily of income taxes related to the Netherlands, U.S. federal and state, and foreign jurisdictions in which we conduct business. Our effective tax rate is affected by recurring items, such as tax rates in jurisdictions outside the Netherlands and the relative amounts of income we earn in those jurisdictions, non-deductible stock-based compensation, as well as one-time tax benefits or charges.\n54\nTable of Contents\nResults of Operations\nThe following tables set forth our results of operations for the periods presented in dollars and as a percentage of our total revenue. The period-to-period comparison of results is not necessarily indicative of results for future periods.\nYear Ended April 30,\n2023\n2022\n2021\n(in thousands)\nRevenue\nSubscription\n$\n984,762\u00a0\n$\n798,770\u00a0\n$\n567,339\u00a0\nServices\n84,227\u00a0\n63,604\u00a0\n41,150\u00a0\nTotal revenue\n1,068,989\u00a0\n862,374\u00a0\n608,489\u00a0\nCost of revenue \n(1)(2)(3)\nSubscription\n219,306\u00a0\n178,204\u00a0\n122,513\u00a0\nServices\n77,320\u00a0\n53,990\u00a0\n38,541\u00a0\nTotal cost of revenue\n296,626\u00a0\n232,194\u00a0\n161,054\u00a0\nGross profit\n772,363\u00a0\n630,180\u00a0\n447,435\u00a0\nOperating expenses \n(1)(2)(3)(4)\nResearch and development\n313,454\u00a0\n273,761\u00a0\n199,203\u00a0\nSales and marketing\n503,537\u00a0\n406,658\u00a0\n273,877\u00a0\nGeneral and administrative\n143,247\u00a0\n123,441\u00a0\n103,833\u00a0\nRestructuring and other related charges\n31,297\u00a0\n\u2014\u00a0\n\u2014\u00a0\nTotal operating expenses\n991,535\u00a0\n803,860\u00a0\n576,913\u00a0\nOperating loss\n \n(1)(2)(3)(4)\n(219,172)\n(173,680)\n(129,478)\nOther income (expense), net\nInterest expense\n(25,159)\n(20,716)\n(185)\nOther income (expense), net\n27,454\u00a0\n(3,393)\n7,949\u00a0\nLoss before income taxes\n(216,877)\n(197,789)\n(121,714)\nProvision for income taxes\n19,284\u00a0\n6,059\u00a0\n7,720\u00a0\nNet loss\n$\n(236,161)\n$\n(203,848)\n$\n(129,434)\n(1)\n Includes stock-based compensation expense as follows:\nYear Ended April 30,\n2023\n2022\n2021\n(in thousands)\nCost of revenue\nSubscription\n$\n8,308\u00a0\n$\n8,368\u00a0\n$\n7,105\u00a0\nServices\n9,435\u00a0\n6,463\u00a0\n4,824\u00a0\nResearch and development\n80,170\u00a0\n59,911\u00a0\n35,267\u00a0\nSales and marketing\n68,943\u00a0\n45,798\u00a0\n31,581\u00a0\nGeneral and administrative\n37,183\u00a0\n20,654\u00a0\n14,903\u00a0\nTotal stock-based compensation expense\n$\n204,039\u00a0\n$\n141,194\u00a0\n$\n93,680\u00a0\n55\nTable of Contents\n(2) \nIncludes employer payroll taxes on employee stock transactions as follows:\nYear Ended April 30,\n2023\n2022\n2021\n(in thousands)\nCost of revenue\nSubscription\n$\n422\u00a0\n$\n681\u00a0\n$\n674\u00a0\nServices\n423\u00a0\n712\u00a0\n661\u00a0\nResearch and development\n2,458\u00a0\n3,316\u00a0\n3,670\u00a0\nSales and marketing\n2,420\u00a0\n4,287\u00a0\n5,399\u00a0\nGeneral and administrative\n1,410\u00a0\n965\u00a0\n3,972\u00a0\nTotal employer payroll tax on stock transactions\n$\n7,133\u00a0\n$\n9,961\u00a0\n$\n14,376\u00a0\n(3) \nIncludes amortization of acquired intangible assets as follows:\nYear Ended April 30,\n2023\n2022\n2021\n(in thousands)\nCost of revenue\nSubscription\n$\n11,781\u00a0\n$\n10,503\u00a0\n$\n8,437\u00a0\nSales and marketing\n4,887\u00a0\n5,280\u00a0\n5,730\u00a0\nTotal amortization of acquired intangibles\n$\n16,668\u00a0\n$\n15,783\u00a0\n$\n14,167\u00a0\n(4)\n Includes acquisition-related expenses as follows:\nYear Ended April 30,\n2023\n2022\n2021\n(in thousands)\nResearch and development\n$\n5,875\u00a0\n$\n6,104\u00a0\n$\n\u2014\u00a0\nGeneral and administrative\n103\u00a0\n1,528\u00a0\n\u2014\u00a0\nTotal acquisition-related expenses\n$\n5,978\u00a0\n$\n7,632\u00a0\n$\n\u2014\u00a0\n56\nTable of Contents\nThe following table sets forth selected consolidated statements of operations data for each of the periods indicated as a percentage of total revenue:\u00a0\u00a0\u00a0\u00a0\nYear Ended April 30,\n2023\n2022\n2021\nRevenue\nSubscription\n92\u00a0\n%\n93\u00a0\n%\n93\u00a0\n%\nServices\n8\u00a0\n%\n7\u00a0\n%\n7\u00a0\n%\nTotal revenue\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\nCost of revenue \n(1)(2)(3)\nSubscription\n21\u00a0\n%\n21\u00a0\n%\n20\u00a0\n%\nServices\n7\u00a0\n%\n6\u00a0\n%\n6\u00a0\n%\nTotal cost of revenue\n28\u00a0\n%\n27\u00a0\n%\n26\u00a0\n%\nGross profit\n72\u00a0\n%\n73\u00a0\n%\n74\u00a0\n%\nOperating expenses \n(1)(2)(3)(4)\nResearch and development\n29\u00a0\n%\n32\u00a0\n%\n33\u00a0\n%\nSales and marketing\n47\u00a0\n%\n47\u00a0\n%\n45\u00a0\n%\nGeneral and administrative\n14\u00a0\n%\n14\u00a0\n%\n17\u00a0\n%\nRestructuring and other related charges\n3\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\nTotal operating expenses\n93\u00a0\n%\n93\u00a0\n%\n95\u00a0\n%\nOperating loss\n \n(1)(2)(3)(4)\n(21)\n%\n(20)\n%\n(21)\n%\nOther income (expense), net\nInterest expense\n(2)\n%\n(3)\n%\n\u2014\u00a0\n%\nOther income (expense), net\n2\u00a0\n%\n\u2014\u00a0\n%\n1\u00a0\n%\nLoss before income taxes\n(21)\n%\n(23)\n%\n(20)\n%\nProvision for income taxes\n1\u00a0\n%\n1\u00a0\n%\n1\u00a0\n%\nNet loss\n(22)\n%\n(24)\n%\n(21)\n%\n(1)\n Includes stock-based compensation expense as follows:\nYear Ended April 30,\n2023\n2022\n2021\nCost of revenue\nSubscription\n1\u00a0\n%\n1\u00a0\n%\n1\u00a0\n%\nServices\n1\u00a0\n%\n1\u00a0\n%\n1\u00a0\n%\nResearch and development\n8\u00a0\n%\n7\u00a0\n%\n6\u00a0\n%\nSales and marketing\n6\u00a0\n%\n5\u00a0\n%\n5\u00a0\n%\nGeneral and administrative\n3\u00a0\n%\n2\u00a0\n%\n2\u00a0\n%\nTotal stock-based compensation expense\n19\u00a0\n%\n16\u00a0\n%\n15\u00a0\n%\n57\nTable of Contents\n(2) \nIncludes employer payroll taxes on employee stock transactions as follows:\nYear Ended April 30,\n2023\n2022\n2021\nCost of revenue\nSubscription\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\nServices\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\nResearch and development\n1\u00a0\n%\n\u2014\u00a0\n%\n\u2014\u00a0\n%\nSales and marketing\n\u2014\u00a0\n%\n1\u00a0\n%\n1\u00a0\n%\nGeneral and administrative\n\u2014\u00a0\n%\n\u2014\u00a0\n%\n1\u00a0\n%\nTotal employer payroll tax on stock transactions\n1\u00a0\n%\n1\u00a0\n%\n2\u00a0\n%\n(3) \nIncludes amortization of acquired intangible assets as follows:\nYear Ended April 30,\n2023\n2022\n2021\nCost of revenue\nSubscription\n1\u00a0\n%\n1\u00a0\n%\n1\u00a0\n%\nSales and marketing\n1\u00a0\n%\n1\u00a0\n%\n1\u00a0\n%\nTotal amortization of acquired intangibles\n2\u00a0\n%\n2\u00a0\n%\n2\u00a0\n%\n(4)\n Includes acquisition-related expenses as follows:\nYear Ended April 30,\n2023\n2022\n2021\nResearch and development\n1\u00a0\n%\n1\u00a0\n%\n\u2014\u00a0\n%\nTotal acquisition-related expenses\n1\u00a0\n%\n1\u00a0\n%\n\u2014\u00a0\n%\nComparison of Fiscal Years Ended April\u00a030, 2023 and 2022\nRevenue\nYear Ended April 30,\nChange\n2023\n2022\n$\n%\n(in thousands)\nRevenue\nSubscription\n$\n984,762\u00a0\n$\n798,770\u00a0\n$\n185,992\u00a0\n23\u00a0\n%\nServices\n84,227\u00a0\n63,604\u00a0\n20,623\u00a0\n32\u00a0\n%\nTotal revenue\n$\n1,068,989\u00a0\n$\n862,374\u00a0\n$\n206,615\u00a0\n24\u00a0\n%\nSubscription revenue increased by $186.0\u00a0million, or 23%, for the year ended April\u00a030, 2023 compared to the prior year. This increase was primarily driven by continued adoption of Elastic Cloud which grew 42% over the same period and increased to 40% of total revenue for the year ended April\u00a030, 2023 from 35% for the year ended April\u00a030, 2022. \nServices revenue increased by $20.6\u00a0million, or 32%, for the year ended April\u00a030, 2023 compared to the prior year. The increase in services revenue was attributable to increased adoption of our services offerings.\n58\nTable of Contents\nCost of Revenue and Gross Margin\nYear Ended April 30,\nChange\n2023\n2022\n$\n%\n(in thousands)\nCost of revenue\nSubscription\n$\n219,306\u00a0\n$\n178,204\u00a0\n$\n41,102\u00a0\n23\u00a0\n%\nServices\n77,320\u00a0\n53,990\u00a0\n23,330\u00a0\n43\u00a0\n%\nTotal cost of revenue\n$\n296,626\u00a0\n$\n232,194\u00a0\n$\n64,432\u00a0\n28\u00a0\n%\nGross profit\n$\n772,363\u00a0\n$\n630,180\u00a0\n$\n142,183\u00a0\n23\u00a0\n%\nGross margin:\n\u00a0\n\u00a0\nSubscription\n78\u00a0\n%\n78\u00a0\n%\nServices\n8\u00a0\n%\n15\u00a0\n%\nTotal gross margin\n72\u00a0\n%\n73\u00a0\n%\nCost of subscription revenue increased by $41.1\u00a0million, or 23%, for the year ended April\u00a030, 2023 compared to the prior year. This increase was primarily due to an increase of $38.3\u00a0million in cloud infrastructure costs due to increased Elastic Cloud subscription revenue. Additionally, intangible asset amortization increased by $1.3\u00a0million due to a full year of amortization on the intangibles acquired during the year ended April\u00a030, 2022.\nCost of services revenue increased by $23.3\u00a0million, or 43%, for the year ended April\u00a030, 2023 compared to the prior year. This increase was primarily due to an increase of $15.5\u00a0million in personnel and related costs, including increases of $10.5\u00a0million in salaries and related taxes, $3.0\u00a0million in stock-based compensation, and $1.7\u00a0million in employee benefits expense driven by an increase in headcount in our services organization. In addition, subcontractor costs increased by $6.2\u00a0million and travel costs increased by $0.8\u00a0million.\nGross margin for services revenue was 8% for the year ended April\u00a030, 2023 compared to 15% for the prior year. The decrease in margin was primarily due to the cost of services, including personnel and related costs and subcontractor costs, growing at a higher rate than services revenue. We continue to make investments in our services organization that we believe will be needed as we continue to grow. Our gross margin for services may fluctuate or decline in the near-term as we seek to expand our services business.\nOperating Expenses\nResearch and development\nYear Ended April 30,\nChange\n2023\n2022\n$\n%\n(in thousands)\nResearch and development\n$\n313,454\u00a0\n$\n273,761\u00a0\n$\n39,693\u00a0\n14\u00a0\n%\nResearch and development expense increased by $39.7\u00a0million, or 14%, for the year ended April\u00a030, 2023 compared to the prior year as we continued to invest in the development of new and existing offerings. Personnel and related costs increased by $29.7\u00a0million as a result of growth in headcount. In addition, travel costs increased by $4.6\u00a0million, cloud infrastructure costs related to our research and development activities increased by $3.0\u00a0million, and consulting costs increased by $1.5\u00a0million. The increase in personnel and related costs includes an increase of $20.3\u00a0million in stock-based compensation, an increase of $6.9\u00a0million in salaries and related taxes, and an increase of $2.8\u00a0million in employee benefits expense.\nSales and marketing\nYear Ended April 30,\nChange\n2023\n2022\n$\n%\n(in thousands)\nSales and marketing\n$\n503,537\u00a0\n$\n406,658\u00a0\n$\n96,879\u00a0\n24\u00a0\n%\n59\nTable of Contents\nSales and marketing expense increased by $96.9\u00a0million, or 24%, for the year ended April\u00a030, 2023 compared to the prior year. This increase was primarily due to an increase of $83.6\u00a0million in personnel and related costs and a $2.8\u00a0million increase in software and equipment charges due to growth in headcount. In addition, travel expenses increased by $6.2\u00a0million and marketing expense increased by $4.8\u00a0million. The increase in personnel and related costs included an increase of $37.9\u00a0million in salaries and related taxes, an increase of $23.1\u00a0million in stock-based compensation, an increase of $10.7\u00a0million in commission expense, and an increase of $8.2 million in employee benefits expense.\nGeneral and administrative\nYear Ended April 30,\nChange\n2023\n2022\n$\n%\n(in thousands)\nGeneral and administrative\n$\n143,247\u00a0\n$\n123,441\u00a0\n$\n19,806\u00a0\n16\u00a0\n%\nGeneral and administrative expense increased by $19.8\u00a0million, or 16%, for the year ended April\u00a030, 2023 compared to the prior year. This increase was primarily due to an increase of $27.7\u00a0million in personnel and related costs and a $0.8\u00a0million increase in software and equipment charges due to headcount growth. In addition, travel costs increased by $0.7\u00a0million. These increases were partially offset by a $9.2\u00a0million decrease in legal and professional fees and a $0.8\u00a0million decrease in consulting expense. The increase in personnel and related costs includes an increase of $16.5\u00a0million in stock-based compensation expense, an increase of $9.1\u00a0million in salaries and related taxes, and an increase of $2.1\u00a0million in employee benefits expense.\n \nRestructuring and other related charges\nYear Ended April 30,\nChange\n2023\n2022\n$\n%\n(in thousands)\nRestructuring and other related charges\n$\n31,297\u00a0\n$\n\u2014\u00a0\n$\n31,297\u00a0\n100\u00a0\n%\nFor the year ended April\u00a030, 2023, we recorded restructuring and other related charges comprising employee-related severance and other termination benefits of approximately $23.3\u00a0million, facilities-related charges of approximately $6.2\u00a0million, and $1.8\u00a0million of other restructuring-related charges while we had no such charges in the prior year. \nOther Income (Expense), Net\nInterest expense\nYear Ended April 30,\nChange\n2023\n2022\n$\n%\n(in thousands)\nInterest expense\n$\n(25,159)\n$\n(20,716)\n$\n(4,443)\n21\u00a0\n%\nInterest expense increased by $4.4 million, or 21%, for the year ended April\u00a030, 2023 compared to the prior year. This increase was primarily due to interest expense associated with the 4.125% Senior Notes due 2029, which we issued in July 2021 in a private placement, as well as a full year of amortization of the related debt discount and issuance costs.\nOther income (expense), net\nYear Ended April 30,\nChange\n2023\n2022\n$\n%\n(in thousands)\nOther income (expense), net\n$\n27,454\u00a0\n$\n(3,393)\n$\n30,847\u00a0\n(909)\n%\nOther income, net was $27.5 million for the year ended April\u00a030, 2023 compared to Other expense, net of $3.4 million for the prior year. This change of $30.8 million was primarily due to an increase in interest income of $17.4 million as a result of higher interest earned on our investments and income from a favorable settlement of a legal claim in the amount of $10.4 million during the year ended April\u00a030, 2023. In addition, we recognized a foreign currency transaction loss of $0.4 million in the current fiscal year compared to a foreign currency transaction loss of $3.6 million in the prior year. \n60\nTable of Contents\nProvision for Income Taxes\nYear Ended April 30,\nChange\n2023\n2022\n$\n%\n(in thousands)\nProvision for income taxes\n$\n19,284\u00a0\n$\n6,059\u00a0\n$\n13,225\u00a0\n218\u00a0\n%\nThe provision for income taxes increased $13.2\u00a0million, or 218%, for the year ended April\u00a030, 2023 compared to the prior year. Our effective tax rate was (8.9)% and (3.1%) of our net loss before taxes for the years ended April\u00a030, 2023 and 2022, respectively. Our effective tax rate is affected by recurring items, such as tax rates in jurisdictions outside the Netherlands and the relative amounts of income we earn in those jurisdictions and non-deductible stock-based compensation as well as one-time tax benefits or charges. The increase in tax expense is driven primarily by growth in business operations in jurisdictions where we generate taxable income and do not have any available tax credits or net operating losses to offset that income, and a one-time charge of $2.8 million related to the completion of acquisition-related integration, reduced by a one-time benefit of $1.2\u00a0million related to our restructuring plan.\nLiquidity and Capital Resources\nAs of April\u00a030, 2023, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $915.2\u00a0million. Our cash and cash equivalents and marketable securities consist of highly liquid investment-grade fixed-income securities. We believe that the credit quality of the securities portfolio is strong and diversified among industries and individual issuers. \nWe have generated significant operating losses from our operations as reflected in our accumulated deficit of $1.1\u00a0billion as of April\u00a030, 2023. We have historically incurred, and expect to continue to incur, operating losses and may generate negative cash flows from operations on an annual basis for the foreseeable future due to the investments we intend to make as described above, and as a result, we may require additional capital resources to execute on our strategic initiatives to grow our business.\nWe believe that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our operating and capital needs for at least the next 12 months, despite the uncertainty in the changing market and macroeconomic conditions. Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Our actual results could vary as a result of, and our future capital requirements, both near-term and long-term, will depend on, many factors, including our growth rate, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing activities, the timing of new introductions of solutions or features, and the continuing market acceptance of our solutions and services. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. In July 2021, we issued long-term debt of $575.0 million, and we may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, operating results and financial condition would be adversely affected.\nThe following table summarizes our cash flows for the periods presented:\nYear Ended April 30,\n2023\n2022\n2021\n(in thousands)\nNet cash provided by operating activities\n$\n35,662\u00a0\n$\n5,672\u00a0\n$\n22,545\u00a0\nNet cash used in investing activities\n$\n(272,952)\n$\n(127,271)\n$\n(1,518)\nNet cash provided by financing activities\n$\n17,471\u00a0\n$\n602,127\u00a0\n$\n77,258\u00a0\n61\nTable of Contents\nNet Cash Provided By Operating Activities\nNet cash provided by operating activities during the year ended April\u00a030, 2023 was $35.7\u00a0million, which resulted from adjustments for non-cash charges of $307.2\u00a0million, mostly offset by a net loss of $236.2\u00a0million and net cash outflow of $35.4\u00a0million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $204.0\u00a0million for stock-based compensation expense, $68.9\u00a0million for amortization of deferred contract acquisition costs, $20.2\u00a0million of depreciation and intangible asset amortization expense, $10.9\u00a0million\n in non-cash operating lease costs, and \n$6.2\u00a0million\n of asset impairment charges\n. The net cash outflow from changes in operating assets and liabilities was the result of an increase in deferred contract acquisition costs of $102.0\u00a0million as our sales commissions increased due to increased business volume, an increase of $46.4\u00a0million in accounts receivable, and \na decrease of \n$11.4\u00a0million\n in operating lease liabilities. \nThese outflows were partially offset by a $95.6\u00a0million increase in deferred revenue, a net increase of $18.9\u00a0million in accounts payable, accrued expenses and accrued compensation and benefits, and a decrease of $9.8\u00a0million in prepaid expenses and other assets. \nNet cash provided by operating activities during the year ended April 30, 2022 was $5.7\u00a0million, which resulted from a net loss of $203.8\u00a0million adjusted for non-cash charges of $230.2 million and net cash outflow of $20.6\u00a0million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $140.6\u00a0million for stock-based compensation expense, $60.7\u00a0million for amortization of deferred contract acquisition costs, $19.7\u00a0million of depreciation and intangible asset amortization expense, $8.6\u00a0million in non-cash operating lease costs, net foreign currency transaction loss of $2.0 million, amortization of debt issuance costs of $0.8 million, and $0.1\u00a0million of other expenses which were partially offset by an increase of $2.4 million in deferred tax assets. The net cash outflow from changes in operating assets and liabilities was the result of an increase of $62.2 million in accounts receivable due to higher billings and timing of collections from our customers, an increase in deferred contract acquisition costs of $96.8\u00a0million as our sales commissions increased due to increased business volume, a decrease of $8.9 million in operating lease liabilities, and an increase of $2.6 million in prepaid expenses and other assets. These outflows were partially offset by an $83.8 million increase in deferred revenue due to higher billings and a net increase of $66.0\u00a0million in accounts payable, accrued expenses, and accrued compensation and benefits due to growth in our business and higher headcount.\nNet Cash Used in Investing Activities\nNet cash used in investing activities of $273.0\u00a0million\n \nduring the year ended April\u00a030, 2023 was primarily due to the purchase of marketable securities of $270.3\u00a0million\n. In addition, we incurred \n$2.7\u00a0million\n of capital expenditures during the year.\nNet cash used in investing activities of $127.3 million during the year ended April\u00a030, 2022 was primarily due to cash used in acquisitions of $119.9\u00a0million, capitalization of $4.9\u00a0million in internal-use software costs, and $2.5\u00a0million of capital expenditures during the year.\nNet Cash Provided by Financing Activities\nNet cash provided by financing activities of $17.5\u00a0million during the year ended April\u00a030, 2023 was \ndue to the proceeds from stock option exercises.\nNet cash provided by financing activities of $602.1 million during the year ended April\u00a030, 2022 was due to the proceeds of $575.0\u00a0million from the issuance of long-term debt and $36.4\u00a0million of proceeds from stock option exercises, partially offset by $9.3\u00a0million payments of debt issuance costs.\nContractual Obligations and Commitments\nOur principal commitments consist of our purchase obligations under non-cancelable agreements for cloud hosting, subscription software, and sales and marketing, future non-cancelable minimum rental payments under operating leases for our offices, and interest payments due on our Senior Notes. As of April\u00a030, 2023, we had purchase commitments of $542.8\u00a0million related to cloud hosting services, future minimum lease payment commitments of $28.4\u00a0million, and purchase commitments of $43.8\u00a0million related to other contracts. During the year ended April 30, 2023, we entered into an amendment to a non-cancelable cloud hosting capacity agreement, effective December 31, 2022, for a total purchase commitment of $270.0 million payable over the four years following the date of the agreement. See Note 8, \u201cCommitments and contingencies,\u201d and Note 9, \u201cLeases,\u201d of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional discussion of our cloud hosting obligations and future non-cancelable minimum rental payments, respectively.\nIn July 2021, we issued $575.0 million aggregate principal amount of 4.125% Senior Notes due July 15, 2029 in a private placement. Interest on the Senior Notes is payable semi-annually in arrears on January 15 and July 15 of each year. See Note 7, \u201cSenior Notes,\u201d of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information about the Senior Notes. \n62\nTable of Contents\nAs of April\u00a030, 2023, we had $2.3\u00a0million in letters of credit outstanding in favor of certain landlords for office space. These letters of credit renew annually and expire on various dates through 2025.\nOur contractual commitment amounts are associated with agreements that are enforceable and legally binding and do not include obligations under contracts that we can cancel without a significant penalty. Purchase orders issued in the ordinary course of business are also excluded, as our purchase orders represent authorizations to purchase rather than binding agreements.\nWe have also excluded unrecognized tax benefits from the contractual obligations. A variety of factors could affect the timing of payments for the liabilities related to unrecognized tax benefits. Therefore, we cannot reasonably estimate the timing of such payments. We believe that these matters will likely not be resolved in the next 12 months and accordingly we have classified the estimated liability as non-current in the consolidated balance sheet. For further information see Note 13, \u201cIncome taxes,\u201d of our accompanying Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.\nCritical Accounting Policies and Estimates\nIn preparing our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (\u201cGAAP\u201d), we are required to make estimates, assumptions and judgments that affect the amounts reported on our financial statements and the accompanying disclosures. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. We base our estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. These estimates may change in future periods and will be recognized in the consolidated financial statements as new events occur and additional information becomes known. Actual results could differ from those estimates and any such differences may be material to our financial statements. We believe that the critical accounting policies and estimates set forth below involve a higher degree of judgment and complexity in their application than our other significant accounting policies. \nAccounting policies that have a significant impact on our results are described in Note 2 \u201cSummary of Significant Accounting Policies\u201d to our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. The accounting policies discussed in this section are those that we consider to involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. \nDue to current macroeconomic developments and conditions, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require increased judgment. These estimates and assumptions may change in future periods and will be recognized in the consolidated financial statements as new events occur and additional information becomes known. To the extent our actual results differ materially from those estimates and assumptions, our future financial statements could be affected.\nRevenue Recognition\nOur contracts with customers include varying terms and conditions, and identifying and evaluating the impact of these terms and conditions on revenue recognition requires significant judgment. We apply judgment in determining the customer\u2019s ability and intent to pay, which is based on a variety of factors, including the customer\u2019s historical payment experience or, in the case of a new customer, credit, reputation, and financial or other information pertaining to the customer. At contract inception we evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation. We have concluded that our contracts with customers generally do not contain warranties that give rise to a separate performance obligation.\nOur contracts often contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. We apply significant judgment in identifying and accounting for each performance obligation, as a result of evaluating the terms and conditions in contracts. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (\u201cSSP\u201d) basis. We determine the SSP based on the prices at which we separately sell these products assuming the majority of these fall within a pricing range. In instances where SSP is not directly observable, such as when we do not sell the software license separately, we derive the SSP using information that may include market conditions and other observable and unobservable inputs which can require significant judgment. There is typically more than one SSP for individual products and services due to the stratification of those products and services by quantity, term of the subscription, sales channel and other circumstances. If one of the performance obligations is outside of the SSP range, we allocate the transaction price considering the midpoint of the SSP range. We also consider if there are any additional material rights inherent in a contract, and if so, we allocate a portion of the transaction price to such rights based on a relative SSP. \n63\nTable of Contents\nDeferred Contract Acquisition Costs \nDeferred contract acquisition costs represent costs that are incremental to the acquisition of customer contracts, which consist mainly of sales commissions and associated payroll taxes. We determine whether costs should be deferred based on sales compensation plans if the commissions are in fact incremental and would not have occurred absent the customer contract. \nOur sales commissions plan incorporates different commission rates for contracts with new customers and incremental sales to existing customers, and for subsequent subscription renewals. Sales commissions for renewal of a subscription contract are not considered commensurate with the commissions paid for contracts with new customers and incremental sales to existing customers given the substantive difference in commission rates in proportion to their respective contract values. Commissions paid for contracts with new customers and incremental sales to existing customers are amortized over an estimated period of benefit of five years while commissions paid for renewal contracts are amortized based on the pattern of the associated revenue recognition over the related contractual renewal period for the pool of renewal contracts. We determine the period of benefit for commissions paid for contracts with new customers and incremental sales to existing customers by taking into consideration its initial estimated customer life and the technological life of its software and related significant features. Commissions paid on services are typically amortized in accordance with the associated revenue as the commissions paid on new and renewal services are commensurate with each other. Amortization of deferred contract acquisition costs is recognized in sales and marketing expense in the consolidated statements of operations. \nAcquired Intangible Assets \nWe apply significant judgment in determining the fair value of the intangible assets acquired, which involves the use of significant estimates and assumptions. These estimates can include, but are not limited to, future expected cash flows from acquired customers and acquired technology from a market participant perspective, costs to rebuild developed technology, useful lives and discount rates. While we use our best estimates and judgments, our estimates are inherently uncertain. ",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk\nWe have operations both within the United States and internationally, and we are exposed to interest rate risk and foreign currency risk in the ordinary course of our business. \nInterest Rate Risk \nWe had cash, cash equivalents, restricted cash, and marketable securities totaling $917.7 million as of April\u00a030, 2023. Our cash, cash equivalents, and restricted cash are held in cash deposits and money market funds. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these instruments, we do not believe that an immediate 10% increase or decrease in interest rates would have a material effect on the fair value of our investment portfolio. Declines in interest rates, however, would reduce our future interest income.\nIn July 2021, we issued $575.0 million aggregate principal amount of 4.125% Senior Notes due 2029 in a private placement. The fair value of the Senior Notes is subject to market risk. In addition, the fair market value of the Senior Notes is exposed to interest rate risk. Generally, the fair market value of our fixed interest rate Senior Notes will increase as interest rates fall and decrease as interest rates rise. The interest rate and market value changes affect the fair value of the Senior Notes, but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the Senior Notes at face value less unamortized debt issuance cost on our balance sheet, and we present the fair value for required disclosure purposes only.\nForeign Currency Risk \nOur revenue and expenses are primarily denominated in U.S. dollars, and to a lesser extent the Euro, British Pound Sterling, and other currencies. To date, we have not had a formal hedging program with respect to foreign currency, but we may adopt such a program in the future if our exposure to foreign currency should become more significant. For business conducted outside of the United States, we may have both revenue and costs incurred in the local currency of the subsidiary, creating a partial natural hedge. Although changes to exchange rates have not had a material impact on our net operating results to date, we will continue to reassess our foreign exchange exposure as we continue to grow our business globally. \n64\nTable of Contents\nWe have experienced and will continue to experience fluctuations in net loss as a result of transaction gains or losses related to remeasurement of certain asset and liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. An immediate 10% increase or decrease in the relative value of the U.S. dollar to other currencies could have a material effect on our revenue, operating expenses, and net loss. As a component of other income, net, we recognized a foreign currency transaction loss of $0.4 million and $3.6 million for the years ended April\u00a030, 2023 and 2022, respectively, and a foreign currency transaction gain of $7.7 million for the year ended April\u00a030, 2021.\nAs of April\u00a030, 2023, our cash, cash equivalents, restricted cash, and marketable securities were primarily denominated in U.S. dollars, Euros, and British Pound Sterling. A 10% increase or decrease in exchange rates as of such date would have had an impact of approximately $19.3\u00a0million on our cash, cash equivalents, restricted cash, and marketable securities balances.\n65\nTable of Contents",
+  "cik": "1707753",
+  "cusip6": "N14506",
+  "cusip": ["N14506104", "N14506954", "N14506904"],
+  "names": ["ELASTIC NV", "ELASTIC N V"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1707753/000170775323000021/0001707753-23-000021-index.htm"
+}
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+{
+  "item1": ">Item 1. BUSINESS\nOverview\nOur mission is to make it simple to connect and do business.\nWe are a leader in financial automation software for small and midsize businesses (SMBs). As a champion of SMBs, we are automating the future of finance so businesses can thrive. Hundreds of thousands of businesses rely on BILL to more efficiently control their payables, receivables, and spend and expense management. Our network connects millions of members so they can pay or get paid faster. Headquartered in San Jose, California, we are a trusted partner of leading U.S. financial institutions, accounting firms, and accounting software providers.\nBILL's purpose-built, artificial intelligence (AI)-enabled financial software platform creates seamless connections between our customers, their suppliers, and their clients. Businesses use our platform to generate and process invoices, streamline approvals, make and receive payments, manage employee expenses, sync with their accounting systems, foster collaboration, and manage their cash. We have built sophisticated integrations with popular accounting software solutions, banks, card issuers, and payment processors, enabling our customers to access these mission-critical services quickly and easily. Divvy, a BILL company, provides a solution for businesses to have smart corporate cards, build budgets, manage payments, and eliminate the need for manual expense reports. \nAs of June\u00a030, 2023, more than 460,000 businesses used our solutions and processed $266\u00a0billion in Total Payment Volume (TPV) during fiscal 2023. As of June\u00a030, 2023, approximately 5.8 million network members have paid or received funds electronically using our platform.  See \u201c\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2014 Key Business Metrics\n\u201d for definitions and a detailed discussion of our key business metrics.\nOur Solution\nOur platform automates the SMB back office and enables businesses using our solutions to pay their suppliers and collect payments from their clients, in effect acting as a system of control for their accounts payable, accounts receivable, and spend and expense management activities. As a result, our platform frees businesses using our solutions from cumbersome legacy financial processes and provides the following key benefits:\n\u2022\nAutomated and Efficient.\n Our AI-enabled platform helps businesses using our solutions pay their bills efficiently and get paid faster. We provide tools that streamline the transaction lifecycle by automating data capture and entry, routing bills for approval, and detecting duplicate invoices.\n\u2022\nIntegrated and Accurate.\n We provide an end-to-end platform that connects businesses using our solutions to their suppliers and clients. Our platform integrates with accounting software, banks, card issuers, and payment processors, enabling businesses using our solutions to access all of these mission-critical partners easily. Because we provide a comprehensive view, customers can more easily find inconsistencies and inaccuracies, and fix them quickly.\n\u2022\nDigital and Secure.\n We enable secure connections and storage of sensitive supplier and client information and documents, such as invoices and contracts, and make them accessible to authorized users on any device, from anywhere.\n\u2022\nVisible and Transparent.\n With our solutions, customers can easily view their transaction workflows, create budgets, and manage spend, enabling them to gain deeper insight into their financial operations, and manage their cash flows.\n3\nWhat Sets Us Apart\n\u2022\nPurpose-Built for SMBs.\n Our platform provides SMBs with core functionality and value-added services generally reserved for larger companies. Through our cloud-based desktop and mobile applications, SMBs can connect and do business from anywhere, any time. Our platform offers a variety of payment solutions which enhances the experience for both buyers and suppliers in a transaction.\n\u2022\nDiverse Distribution Channels.\n We leverage both direct and indirect channels - accounting firms, financial institution partners, and accounting software integrations - to efficiently go-to-market.\n\u2022\nLarge and Growing Network.\n As accounts receivable customers issue invoices, and accounts payable customers pay bills, they connect to their clients and suppliers, driving a powerful network effect. This aids our customer acquisition efforts by increasing the number of businesses connected to our platform, which then become prospects.\n\u2022\nLarge Data Asset.\n We have a large data asset as a result of processing millions of documents and billions of dollars in business payments annually for businesses using our solutions. By leveraging our machine learning capabilities, we generate insights from this data that drive product innovation.\n\u2022\nProprietary Risk Management Expertise.\n Leveraging our data, our proprietary risk engine has trained upon millions of business-to-business ACH, check, card, and wire transactions, enabling us to keep businesses using our solutions\u2019 funds secure.\n\u2022\nExperienced Management Team and Vibrant Culture.\n Our management team has deep experience with SMBs, software-as-a-service companies, AI, accounting firms, and financial institutions. We have built a unique culture that resonates with employees, as evidenced by our highly competitive, low attrition rates.\nOur Platform\n Our purpose-built platform leverages the fact that we can see both sides of a transaction and can easily connect both transaction parties and promote the rapid exchange of information and funds, with strong network effects and greater monetization opportunities as more customers adopt our platform. Our platform also expands the ability of businesses using our solutions to budget for, monitor, and approve employee expenses across organizations of all sizes, all in real-time. \nAccounts Payable Automation\nOur accounts payable automation service streamlines the entire payables process, from the receipt of a bill, through the approvals workflow, to the payment and synchronization with the accounting system. Here are some highlights of our service:\n\u2022\nVisibility at a glance \u2013 \nThrough our platform, businesses using our solutions gain a comprehensive view of their cash inflows and outflows.\n\u2022\nDocument management \u2013 \nBILL automatically assigns a dedicated email address to each customer to provide to its suppliers. Suppliers use that email address to send invoices to the customer\u2019s dedicated BILL inbox. Alternatively, scanned invoices can be uploaded directly through our application. Once uploaded, we store the bills securely, linking them to the associated supplier. With a single click, customers can use our search feature to scan documents quickly and resolve open questions. Our document management capabilities help businesses using our solutions make payment decisions, answer supplier questions, and provide support to accountants and auditors. \n\u2022\nIntelligent bill capture\n \u2013 We have automated the capture of data from bills by leveraging our proprietary AI capabilities. Incoming bills are machine-read, and critical data fields, including due date, amount, and supplier name, are prepopulated. The customer's Accounts Payable staff can review the result and make any adjustments required, and our platform routes the bill internally for approval.\n4\n\u2022\nDigital workflows and approvals\n \u2013 Our platform speeds approval processes through policy-driven workflows. Much of this activity takes place while people are on-the-go: one of the top three uses of our mobile app is bill approvals. Our platform proactively suggests payment dates based upon a bill\u2019s due date, helping customers avoid late payment penalty fees. Businesses using our solutions assign each user a role: administrator, payor, approver, clerk, or accountant. Each role has its own entitlements to ensure appropriate checks and balances in the back office.\n\u2022\nCollaboration and engagement\n \u2013 Our platform promotes collaboration. Our in-app messaging capabilities make communications between businesses using our solutions and their employees, vendors, and clients, easy. For example, BILL allows administrators and payors to remind approvers to act, or delegate payment authority when a key employee is unavailable. Our platform creates a clear audit trail that becomes invaluable in the event of an audit, or for tax compliance.\nAccounts Receivable Automation\nOur accounts receivable service automates the entire process, from the creation of an invoice and delivery to the client, to funds collection and synchronization back to the accounting system. Here are some highlights of our service:\n\u2022\nEasy invoicing\n \u2013 Using a simple template, customers can easily create electronic invoices on our platform and insert their own logos to customize them. If required, our platform also enables the printing and mailing of paper invoices. Many accounts receivable customers take advantage of our recurring invoice feature.\n\u2022\nDigital workflows and visibility\n \u2013 Our platform automates and simplifies electronic invoice creation, delivery, and collection of funds. Using our progress bar, customers have complete visibility into the accounts receivable process. When both trading partners are in the network, businesses using our solutions can see when their invoices are delivered, opened, authorized to be paid, and when payment was received. Invoices and supporting documents like contracts are readily accessible and notes can be entered for future reference. \n\u2022\nCollaboration and engagement\n \u2013 To make paying an invoice easy, we offer a customizable, branded client payment portal. Clients receive a link to an electronic invoice accessible on the Bill.com site. From this portal, the client can make a payment via ACH or credit card within seconds. For reference purposes, the client has ongoing access to bills and associated payments within the portal. Just like our accounts payable service, our in-app collaboration tools make communications between the accounts receivable customer and its clients easy and trackable.\nSpend and Expense Management\nWith Divvy, spending businesses gain robust spend and expense management tools, helping them spend smarter. Our spend and expense management product provides businesses full visibility into their spend, by giving businesses the ability to issue any employee their own Divvy card. Every card provides access to charge card lines originated through our card issuing partner banks (Issuing Banks) and is linked to proactive spend controls: managers control their budgets by team through the assignment of individual permissions. Employees can request funds from their phones, and budget owners or admins can approve or deny spend requests on-the-go from a push notification to their phone. Spending businesses can leverage a single, centralized budget or opt for a more sophisticated scenario, where budgets are established by department, team, or project. Rather than building a business budgeting strategy using outdated numbers in a static spreadsheet, our budgeting software syncs automatically with the employee's Mastercard or Visa cards, while also facilitating reimbursements and vendor spend. With Divvy\u2019s intuitive web and mobile applications, budget owners can drill down into spending by department, team, project, or individual. Whether on-the-go or in the office, an SMB can view up-to-date spend against budgets, so they always know where they stand.\nWe market Divvy cards to potential spending businesses and issue business-purpose charge cards through our partnerships with Issuing Banks. When a business applies for a Divvy card, we utilize, on behalf of the Issuing Bank, proprietary risk management capabilities to confirm the identity of the business, and perform a credit underwriting process to determine if the business is eligible for a Divvy card pursuant to our credit \n5\npolicies. Once approved for a Divvy card, the spending business is provided a credit limit and can use the Divvy software to request virtual cards or physical cards.\nPayment Services\nOur suite of comprehensive payment services includes:\n\u2022\nACH payments\n \u2013 We enable ACH transactions for both disbursements and collections. Our network makes it simple to make the switch from paper checks.\n\u2022\nCard payments\n \u2013 Through a third party, we offer businesses using our accounts receivable solutions the convenience of accepting credit and debit card payments. In addition, we enable virtual card payments to vendors of businesses using our account payable solutions and who have elected to accept card payments. Virtual cards support faster payments to suppliers, which includes the data needed to easily match incoming payments with open receivables. Through card issuing partners, Divvy provides both physical and virtual Mastercard and Visa cards to companies that enroll in its business spend and expense management program.\n\u2022\nReal-time payments\n \n(RTP)\n \u2013 Through The Clearing House\u2019s RTP\n\u00ae\n network, a real-time payments platform, we offer an instant transfer service to allow businesses using our solutions to disburse funds rapidly to meet urgent  funding needs. We also facilitate near real-time payments to customers\u2019 debit cards via a service offered with a partner.\n\u2022\nChecks\n \u2013 We issue checks if our customer prefers or is contractually obligated to pay via this method. By design, we protect our SMB customers against check fraud by never disclosing their bank account details to a supplier and by reviewing every check presented against a check issue file to detect and prevent check fraud.\n\u2022\nCross-border payments\n \u2013 We simplify cross-border disbursements by facilitating electronic funds transfers around the world with our International Payments service. Payments can be issued in either U.S. or foreign currency, and our platform synchronizes with customers\u2019 accounting software for a consolidated view of domestic and international outflows. We offer our U.S.-based customers the ability to disburse funds to over 130 countries worldwide.\n\u2022\nPay By Card\n \u2013  Our Pay By Card feature allows businesses using our solutions to make payments using a credit or debit card, even if the vendor or contractor does not accept card payments. We process the payment with the business' credit or debit card provider, then we pay the vendor or contractor via ACH ePayment or check depending on the business' preference.\n\u2022\nInvoice financing\n \u2013 We, through a partnership with a third party, enable businesses easier access to cash by allowing them to finance outstanding invoices. For a small origination fee, businesses using our solutions can receive cash immediately instead of waiting for their invoices to be paid. \nValue-Added Services\n\u2022\nTwo-way sync with leading accounting systems\n \u2013 Our platform automatically synchronizes customers, suppliers, general ledger accounts, and transactions with an SMB\u2019s accounting system to automate reconciliation. We are integrated with several of the most popular business accounting software applications, including QuickBooks, Oracle NetSuite, Sage Intacct, Xero, and Microsoft Dynamics 365 Business Central. Our two-way synchronization capabilities virtually eliminate double data-entry, as our platform and the customer\u2019s accounting software continuously keep each other updated. Customers who use other types of systems use our advanced file import/export capabilities to minimize data entry activities.\n\u2022\nPurchase order (PO) matching\n \u2013 We sync POs directly from accounting software systems, including Oracle NetSuite and Sage Intacct, and QuickBooks Desktop into our platform. Users can compare POs and invoices on one screen, then route bills for approval and payment seamlessly in the same workflow. This eliminates the need to switch between systems for two-way matching and reduces the back-and-forth communication between PO creators and accounts payable managers.\n6\n\u2022\nFrequent status updates\n \u2013 We provide timely status updates of financial inflows and outflows by providing status updates of all transactions on a regular basis. Through our workflow progress bars on each page, businesses using our solutions can see who has approved an invoice and what approvals remain, the status of each payment, and the date transactions are expected to clear.\n\u2022\nTreasury services\n \u2013 Our platform integrates advanced treasury services tools that are normally either not offered to or are costly for SMBs. Examples include:\n\u25e6\nthe positive pay feature we employ to ensure only authorized payment transactions are processed;\n\u25e6\na streamlined void and reissue function when an in-process payment needs to be cancelled; and\n\u25e6\nthe cleared check images we make available to enable businesses using our solutions to confirm payment receipt and facilitate research.\n\u2022\nCustom user roles\n \u2013 Our platform enables customers to define custom user roles. These roles can be used to expand or limit each user\u2019s access to the platform and core financial operations functions. For example, a customer can temporarily enable its auditors or tax preparers to access our platform using a custom role that allows them to view source documents in support of the services they are providing, but not have access to other confidential documents or information.\n\u2022\nDocument discovery\n \u2013 With our advanced document management capabilities, a customer can easily search for an uploaded document and search its data elements, regardless of how old it is, or how long it has been in our system. Businesses using our solutions utilize this feature when deciding whether to pay a given bill or re-issue an invoice, or in determining who authorized a certain payment. \n\u2022\nIntegrated, robust mobile functionality\n \u2013 Our mobile-native apps, available in both iOS and Android, are easy to adopt and use. Through our apps, businesses using our solutions can manage their transaction workflows, send an invoice, make payments on-the-go, and manage spend. \nPartner Integrations \nAccounting firms use our platform to provide financial automation, bill payment, and client advisory services, or \u201cCAS,\u201d to their clients. Our platform empowers accountants with a purpose-built console to collaborate with their staff and clients across multiple workflows enabling them to be more strategic and serve more clients.  \nWe provide our financial institution partners a technology platform that enables a white-label integration with their existing business banking services. We deliver single sign-on, multi-factor authentication, integrated provisioning, and entitlement of new accounts, as well as integration with required compliance systems. Transactions are synchronized automatically between the financial institution\u2019s platform and ours, keeping the customer\u2019s view current and consistent.\nIn addition to our white-labeled solution, we support a broad range of partners and customers with our platform application programming interfaces (APIs). These APIs allow our partners to integrate our platform seamlessly into their solutions, create web or mobile apps that integrate with ours, or leverage our payments capabilities. Through our APIs, developers can:\n\u2022\ninteract with business entities, like suppliers and clients;\n\u2022\nobtain summary-level reports, such as payables and receivables reports; and\n\u2022\ninteract with accounting details, such as the general ledger codes of the chart of accounts.\n7\nOur Unique Data Asset\nBILL's total payment volume and number of documents processed for businesses using our solutions provides us with a unique data asset. This asset has allowed us to build powerful AI capabilities. The data provides a view into customer transactions and operational status of various payment processes, which enables us not only to effectively manage risk exposure but also to provide businesses using our solutions with enhanced tools, such as automatically populating drafts of bills, to save time and simplify their operations. Our system continues to learn with each payment made and document processed. This virtuous cycle of learning powers a network effect that facilitates customer satisfaction, offers intelligent insights, improves trust and safety, and fuels further growth.\nOur Network\nThrough our AI-enabled platform, businesses using our solutions can easily connect with existing network members. The benefit of being in the network is simple: customers connect with others to pay and be paid electronically, freeing them from the need to solicit or share bank account and routing numbers with each trading partner individually. The process of adding bank account details to our platform is easy and secure. For example, when a supplier of an accounts payable customer receives an invitation to join our network, the supplier can accept and securely share its bank account details once with BILL. From that point onward, all payments to that supplier will be electronic.\nOnce in the network, other BILL customers can easily link to that same supplier without the supplier having to repeat this process again. This approach to connecting businesses has allowed us to build a robust and growing business-to-business payments directory, which includes approximately 5.8\u00a0million network members as of June\u00a030, 2023. We define network members as our BILL standalone customers plus their suppliers and clients, who have paid or received funds electronically via our platform. These network effects promote greater adoption of our platform, higher levels of engagement, and increased value across our ecosystem. \nPayment and Risk Management Services\nOur payments engine powers our payment services. Through dedicated connections with banks and payment processors, we issue checks, initiate card-based transactions, originate ACH-based payments, including real-time payments, through our instant transfer feature, and execute wire transfers. Our payments engine handles all aspects of payment file transfers, exception file handling, and required payment status reporting. We have redundancy across our core payment methods such that if there is an outage with one payment processor, we can direct payments to an alternative provider.\nThrough our risk engine, we use both proprietary and third-party tools to assess, detect, and mitigate financial risk associated with the payment volume that we process. Throughout the transaction lifecycle, we monitor data and payments to ensure that we are safeguarding our customers, their suppliers and clients, and our company. When a bank account is added to the platform, we validate that the bank account is held at a U.S.-domiciled financial institution, is associated with the organization adding the account, and is in good standing.\nWhen customers use our services, we monitor key activities looking for signals that would indicate anomalies that could create risk exposure and need to be investigated. Our risk engine analyzes many unique data elements to score transactions. Those that score above our thresholds are routed to trained risk agents for manual review. Agents have the latitude to contact customers to gather further information, or if a financial risk is imminent, to prevent funds from leaving our system until any suspicious activity can be resolved.\nOnce a payment transaction is processed, we continue to manage our exposure. We have extensive contacts in the banking industry, and we utilize these to reverse payments when possible. If a suspicious or fraudulent payment cannot be reversed, we follow a rigorous collections process to recover funds.\nThis risk management process gets progressively more insightful as our data set gets larger and our AI-enabled risk engine gets smarter. This is an advantage that we expect to continue to grow over time. Our success in managing the risk inherent in moving funds for business customers is proven. As a percentage of our \n8\nTPV, fraud and credit loss rates for our BILL standalone payment services were nominal, less than 0.01% for each of fiscal 2023, 2022, and 2021. As a percentage of total card payment volume transacted by spending businesses that use Divvy cards, fraud and credit loss rate was approximately 0.28% for fiscal 2023. See \u201c\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u2014Key Business Metrics\n\u201d for a detailed discussion of our key business metrics.\nSecurity, Privacy, and Data Protection\nTrust is important for our relationship with customers and partners, and we take significant measures designed to protect their privacy and the data that they provide to us. Keeping our customers\u2019 data safe and secure is a high priority. Our approach to security includes data governance as well as ongoing testing for potential security issues.\nWe have robust access controls in our production environment with access to data strictly assigned, monitored, and audited. To ensure our controls remain up-to-date, we undergo continuous external testing for vulnerabilities within our software architecture. These efforts have enabled us to certify our platform to SOC1 Type II, SOC2 Type II, and SOC3 standards. Our security program is aligned to the NIST-800-53 standards and is regularly audited and assessed by third parties as well as our partners, including some of the largest banks in the world.\nThe focus of our program is working to prevent unauthorized access to the data of our customers and network members. To this end, our team of security practitioners work to identify and mitigate risks, implement best practices, and continue to evaluate ways to improve.\nThese steps include close attention to network security, classifying and inventorying data, limiting and authorizing access controls, and multi-factor authentication for access to systems. We also employ regular system monitoring, logging, and alerting to retain and analyze the security state of our corporate and production infrastructures.\nWe take steps to help ensure that our security measures are maintained by the third-party suppliers we use, including conducting annual security reviews and audits.\nCompetition\nOur primary competition remains the legacy manual processes that SMBs have relied upon for decades. Other competitors range from large firms that predominantly focus on selling to enterprises, to providers of point solutions that focus exclusively on one of the many aspects of our business: document management, workflow management, accounts payable solutions, spend and expense management, card issuance, or accounts receivable solutions; to companies that offer industry-specific payment solutions.\nWe differentiate ourselves from our competitors by offering a portfolio of financial back-office solutions that handle all of these core cash flow activities end-to-end. Our extensive investment in building a fully-integrated two-way sync with popular accounting software providers is well-regarded in the industry. With respect to the domestic payments that comprise the bulk of our business, we disburse and collect funds on behalf of our customers through our proprietary payments engine. We manage the associated financial risk of processing billions in total payment volume through our proprietary risk models and rules. \nWe believe that the key competitive factors in our market include:\n\u2022\nProduct features, quality, and functionality;\n\u2022\nData asset size and ability to leverage AI;\n\u2022\nEase of deployment;\n\u2022\nEase of integration with leading accounting and banking technology infrastructures;\n\u2022\nAbility to automate processes;\n\u2022\nCloud-based delivery architecture;\n\u2022\nAdvanced security and control features;\n9\n\u2022\nRegulatory compliance leadership, as evidenced by our money transmitter licenses in all required U.S. jurisdictions and in Canada;\n\u2022\nBrand recognition; and\n\u2022\nPricing and total cost of ownership.\nWe compare favorably with our competitors on the basis of these factors. We expect the market for SMB back-office financial software and business-to-business payment solutions to continue to evolve and grow, as greater numbers of SMBs and larger businesses digitize their back offices. We believe that we are well-positioned to help them.\nResearch & Development\nWe invest substantial time, energy, and resources to ensure we have a deep understanding of our customers\u2019 needs, and we continually innovate to deliver value-added products and services. Our technology organization consists of engineering, product, and design teams. These teams are responsible for the design, development, and testing of our applications. We focus our efforts on developing new functionality and further enhancing the usability, reliability, and performance of existing applications.\nSales and Marketing\nWe distribute our platform through direct and indirect sales channels, both of which we leverage to reach our target customers in an efficient manner. Our direct sales are driven by a self-service process and an inside sales team. Our inside sales team augments our direct sales capabilities by targeting potential customers that have engaged with us on their own.\nWe also reach customers indirectly through our partnerships with accounting firms, financial institutions, and accounting software providers. While these partners sometimes require an initial integration investment, a go-to-market flywheel takes effect as our partners accelerate the delivery of our platform across their customer base with minimal incremental investment from us.\nWe focus our marketing efforts on generating leads to develop our sales pipeline, building brand and category awareness, enabling our go-to-market partners, and growing our business from within our existing customers. Our sales leads primarily come through word-of-mouth, our accounting firm partners, and website searches. We generate additional leads through digital marketing campaigns, referrals, in-product customer education, brand advertising, public relations, and social media. \nAs part of our marketing efforts for our spend and expense management solution, we offer a card rewards program to drive card adoption, incent card usage, and drive card loyalty with spending businesses. Under the card rewards program, spending businesses \ncan earn rewards based on transaction volume on the cards issued to them and can redeem those rewards mainly for statement credits or cash, travel, and gift cards.\nCustomer Success\nSMBs have unique needs and customer support contact expectations. With more than a decade of experience supporting our product, our customer success team has a deep understanding of their needs and has developed our support model accordingly. We recognize and understand deep customer spending and behavior patterns because we see the aggregate \u2013 millions of transactions per month. We use what we learn to continuously improve the platform and the customer experience. We provide onboarding implementation support, as well as ongoing support and training. We periodically contact businesses using our solutions to discuss their utilization of our platform, highlight additional features that may interest them, and identify any additional tools that may be needed.\nRegulatory Environment\nWe operate in a rapidly-evolving regulatory environment. \n10\nPayments and Banking Regulation\nIn order to conduct the payment services we offer, we are required to be licensed to offer money transmission services in most U.S. states. We have procured and maintain money transmitter licenses that are required in 50 U.S. jurisdictions and actively work to comply with new license requirements as they arise. We are also registered as a Money Services Business with the U.S. Department of Treasury\u2019s Financial Crimes Enforcement Network (FinCEN). These licenses and registrations subject us, among other things, to anti-money laundering and anti-terrorist financing requirements, the U.S. Department of Treasury's Office of Foreign Assets Control (OFAC) sanctions obligations, record-keeping requirements, reporting requirements, bonding requirements, minimum capital requirements, limitations on the investment of customer funds, and regulatory examinations by state and federal regulatory agencies.\nWe also hold a Foreign Money Services Business (FMSB) license in Canada that is administered by The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and a Money Services Business License administered by Quebec's Autorit\u00e9 Des March\u00e9s Financiers (Financial Markets Authority). Global Affairs Canada and Canada's Department of Public Safety administer Canadian sanctions programs and oversee our compliance with these regulations. \nWe are contractually obligated to comply with Federal Deposit Insurance Corporation (FDIC) federal banking regulations, as well as with Visa and MasterCard rules, as a card program manager for the card program management banks (CPMB) for our card product offerings. As a card program manager for the CPMBs, we have implemented compliance programs designed to ensure we are in compliance with applicable banking regulations and the Visa and MasterCard network rules. The CPMBs oversee our compliance program and conduct periodic audits to ensure compliance with applicable regulations and rules. We are also subject to the examination and enforcement authority of the FDIC under the Bank Service Company Act in our capacity as program manager to the CPMBs for our card product offerings.\nIn addition, we are subject to FDIC oversight through the provision of FDIC insured business deposit accounts provided by a regulated bank in relation to certain Invoice2Go products. \nWe maintain loan origination, brokering, and servicing licenses through our subsidiaries in a number of U.S. states and actively work to comply with new license requirements as they arise. \nOur services utilize ACH transfers and require compliance with National Automated Clearing House Association rules. We are required to comply with Regulation E, the Electronic Funds Transfer Act, which regulates certain funds transfers.\nWe are procuring state lending, brokering, and servicing licenses to support lending products. We also partner with a FDIC and State of Utah regulated bank to offer lending products originated by such bank and may originate loans using our own licenses in the future. The lending products and services subject us to state and federal lending regulations including, but not limited to Fair Lending, state specific lending disclosures, and Unfair, Deceptive, or Abusive Acts and Practices and Unfair or Deceptive Acts or Practices requirements. \nAnti-money Laundering, Counter-terrorist Financing, and Sanctions.\nAs a Money Services Business and a licensed money transmitter we are subject to U.S. anti-money laundering (AML) laws and regulations, including under the Bank Secrecy Act, as amended (BSA), and similar U.S. state laws and regulations, and as a Foreign Money Service Business (MSB) in Canada we are subject to various AML laws and regulations in Canada. In addition, we are required to comply with U.S. economic and trade sanctions administered by OFAC, as well as similar requirements in other jurisdictions, including, among others, the Canadian Proceeds of Crime and Terrorist Financing Act and the Australian Sanctions Regime. We have implemented an AML and sanctions compliance program designed to prevent our platform from being used to facilitate money laundering, terrorist financing, and other financial crimes. Where we rely on partners for payment services, our partners have implemented AML and sanctions compliance programs. These compliance programs include policies, procedures, reporting protocols, systems, training, testing, independent audits, and internal controls designed to address these legal and regulatory requirements and to assist in managing the risks associated with money laundering. Our United States (U.S.) compliance program includes the designation of a BSA compliance officer to oversee the program. These programs are also designed to manage terrorist financing risks and to comply with sanctions requirements to prevent our products from being used to facilitate \n11\nbusiness in certain countries, or with certain persons or entities, including those on designated lists promulgated by OFAC and relevant foreign authorities. \nData Protection and Information Security\nWe receive, store, process, and use a wide variety of personal, business, and financial information from prospective customers, existing customers, their vendors, and other users on our platform, as well as personal information about our employees and service providers. Our handling of this data is subject to a variety of laws and regulations. In the U.S. we are subject to privacy and information safeguarding requirements under the Graham Leach Bliley Act and state laws relating to privacy and data security, including the California Consumer Privacy Act and the California Privacy Rights Act. Additionally, the U.S. Federal Trade Commission (FTC) and many state attorneys general are interpreting federal and state consumer protection laws as imposing standards for the online collection, use, dissemination, and security of data. We are also subject to foreign laws and regulations governing the handling of personal data, including the European Union's General Data Protection Regulation (GDPR), the United Kingdom's GDPR, Australian and Canadian privacy laws, and the privacy laws of other foreign jurisdictions. \nRegulatory scrutiny of privacy, data protection, cybersecurity practices, and the processing of personal data is increasing around the world. Regulatory authorities regularly consider new legislative and regulatory proposals and interpretive guidelines that may contain privacy and data protection obligations. In addition, the interpretation and application of these privacy and data protection laws in the U.S., Europe, and elsewhere are often uncertain and in a state of flux. \nAnti-corruption\nWe are subject to the U.S. Foreign Corrupt Practices Act, U.S. domestic bribery laws, and other anti-corruption laws in the foreign jurisdictions in which we operate, including, among others, Australia's anti-bribery laws, the Canadian Criminal Code, and the Canadian Corruption of Foreign Public Officials Act. Anti-corruption laws generally prohibit offering, promising, giving, accepting, or authorizing others to provide anything of value, either directly or indirectly, to or from a government official or private party in order to influence official action or otherwise gain an unfair business advantage, such as to obtain or retain business. We have implemented policies, procedures, and internal controls that are designed to comply with these laws and regulations.\nAdditional Regulatory Developments\nVarious regulatory agencies in the U.S. and in foreign jurisdictions continue to examine a wide variety of issues which are applicable to us and may impact our business. These issues include identity theft, account management guidelines, privacy, disclosure rules, cybersecurity, and marketing. As our business continues to develop and expand, we continue to monitor the additional rules and regulations that may become relevant.\nAny actual or perceived failure to comply with legal and regulatory requirements may result in, among other things, revocation of required licenses or registrations, loss of approved status, private litigation, regulatory or governmental investigations, administrative enforcement actions, sanctions, civil and criminal liability, and constraints on our ability to continue to operate. For additional discussion on governmental regulation affecting our business, please see the risk factors related to regulation of our payments business and regulation in the areas of privacy and data use, under the section titled \u201c\nRisk Factors\u2014Risks Related to our Business and Industry\n.\u201d\nEnvironmental, Corporate Governance, and Social (ESG) Oversight and Initiatives  \nESG Management\nWe are committed to helping build a more sustainable future for businesses using our solutions, as well as for their communities, and stakeholders. We take this commitment seriously and will continue to provide transparent disclosures on the progress of this work through both our internal and external communications. Our executive leadership team sponsors and funds our ESG programs, with our board of directors exercising ultimate oversight. Guided by best practices, feedback we receive from our stockholders, and third-party frameworks such as the Sustainability Accounting Standards Board Software & IT Services standards, we are focused on the initiatives described below.\n12\nOur Culture and Employees\nOur culture enables us to attract and retain exceptional talent. We center our culture around five values which are core to who we are, guide how we operate, define how we treat each other, and help make our teams strong, cohesive units:\n\u2022\nHumble \n\u2013 No ego;\n\u2022\nAuthentic \n\u2013 We are who we are;\n\u2022\nPassionate\n \u2013 Love what you do;\n\u2022\nAccountable \n\u2013 To each other and our network; and\n\u2022\nFun \n\u2013 Celebrate the moments.\nAs of June\u00a030, 2023, we had a total of 2,521 employees working across three offices in the U.S.: San Jose, CA, Houston, TX, and Draper, UT; one office in Sydney, Australia; and others working remotely. We also employ individuals on a temporary basis and use the services of contractors as necessary. None of our employees are represented by a labor union in connection with their employment.  \nWe know our success is tied to recruiting, developing, and retaining our employees. Our Chief People Officer is responsible for creating and implementing our initiatives around our employees and our board of directors has ultimate oversight and receives updates on these initiatives periodically. \nWe leverage data and analytics to align the recruiting function to business growth and revenue drivers.  We are committed to providing a fair and equitable compensation and benefits program that supports our diverse workforce. BILL offers market-competitive base salaries, semi-annual bonuses, and sales incentives. The majority of our employees are awarded equity at the time of hire and through annual equity refresh grants. We also offer an employee stock purchase plan to foster a strong sense of ownership and engage our employees in our long-term success. Our full-time employees are eligible to receive, subject to the satisfaction of certain eligibility requirements, our comprehensive benefits package, including medical, dental, and vision insurance, family planning support and fertility treatments, and life and income protection plans. In addition, we provide generous paid time-off policies, access to free mental health services, and offer a tax-qualified 401(k) retirement plan. Through the self-directed brokerage features of the plan, participants in the 401(k) plan can choose to invest their contributions in funds focused on their particular goals and preferences, including having options of funds that are focused on their particular goals and preferences, such as ESG matters. \nWe develop our leaders and high-potential employees through intensive, cohort-based, key talent programs. We offer training for new people managers. To facilitate ongoing learning and development, we provide employees with an online curriculum of study, linked to business needs, leveraging a third-party platform. The curriculum includes coursework in inclusion, change management, and decision-making. All employees are eligible and participate in developmental reviews with their managers. We conduct performance review cycles twice a year.\nTo keep a pulse on engagement, we survey our employees semi-annually. Employees respond anonymously, and we take action on the areas flagged for improvement, reporting back to the employee base on progress against stated improvement goals. We closely monitor employee turnover, conducting exit interviews and surveys to alert us to any issues, as well as to make improvements to the employee experience.\nDiversity, Equity, and Inclusion\nThrough an equitable approach to hiring, compensation, and career growth, we have built a company that fosters inclusivity, authenticity, and action. We seek to embed a sense of inclusion and social responsibility into our culture and how we serve the businesses using our solutions. Our Vice President of Diversity, Equity and Inclusion (DEI) is building a strategy that helps us accelerate our progress across four key pillars:\n\u2022\ncultivating a respectful and accessible workplace where every employee feels they belong;\n\u2022\nincreasing diverse representation at all levels and functions of the company;\n\u2022\nsupporting our diverse customers\u2019 needs through our products and services; and\n\u2022\nengaging with our communities to promote more equitable outcomes.\n13\nOne of the ways we strengthen our workplace culture of DEI is by supporting employee resource groups (ERGs). ERGs are self-organized communities that bring employees together to raise awareness and belonging for under-represented groups. Through a grassroots effort, BILL employees have established seven ERGs focused upon the following dimensions of identity: women, Latinx, Black, LGBTQIA+, disabilities and mental health, veterans, and Pan Asian and Pacific Islanders. These ERGs have established strong employee mentorship programs to support the career development of their members. \nWe also offer employees learning opportunities to increase awareness of DEI issues. Unconscious bias training is available through our e-learning platform, we regularly host speakers from diverse backgrounds to share their lived experiences, and our ERGs host safe-space discussions on issues important to their members.  \nWe partner with organizations like Codepath.org and ColorStack to support Black, Latinx, and Indigenous students interested in technical careers. Through Codepath\u2019s Internship Connection Program, we have placed underrepresented students majoring in computer science into technical internships at BILL. Last year, we also sponsored the Tejano Tech Summit, which brought together Latinx founders, investors, and professionals working in tech to advance their community. Our talent acquisition team also developed our ERG Ambassador Program, which gives candidates an opportunity to connect with an ERG member to learn more about BILL\u2019s culture and our focus on DEI. We are hopeful that through programs and partnerships like these, we can both help local communities and build a solid pipeline of future employees for our company.  \nAs part of our focus on community outreach, one of our BILL ERGs built a new program to reach underprivileged, low-income students in the Bay Area. Recruiting middle-school and high-school students locally, the program\u2019s goal is to prepare these young students for academic success, college acceptance, and early career growth by providing internships, mentorships, and coding camps. Along with the African Diaspora Network, BILL founded the African Diaspora Network's Accelerating Black Leadership and Entrepreneurship (ABLE) program, an enterprise accelerator program. The program is designed to strengthen, energize, and support startups and small businesses led by Black entrepreneurs in the U.S. In the last two years, 28 entrepreneurs with impact-oriented solutions at the local and national level across multiple sectors graduated from ABLE. \nEnvironmental Matters\nOur San Jose headquarters building is LEED Gold and Energy Star certified, our Houston building is LEED-certified GOLD, and our Sydney building features a green roof and an organic waste farm, and was awarded a \u2018Green Star\u2019 rating of six (the highest rating available). In San Jose, we also offer employees free electric vehicle charging stations. Further, we embrace a hybrid work model at each of our office locations, permitting employees to work remotely several days a week, in addition to having a significant number of fully-remote employees who collaborate via videoconference and periodic offsite retreats.  This flexible model allows us to minimize employee commute times, thereby reducing congestion, the consumption of energy, and pollution.\nIntellectual Property\nWe seek to protect our intellectual property rights by relying upon a combination of patent, trademark, copyright, and trade secret laws, as well as contractual measures.\nAs of June\u00a030, 2023, in the U.S., we had 20 issued patents that expire between 2028 and 2040, and seven pending patent applications, two of which have been allowed as of the date of this Annual Report on Form 10-K, along with five pending international patent applications. These patents and patent applications seek to protect proprietary inventions relevant to our business. While we believe our patents and patent applications in the aggregate are important to our competitive position, no single patent or patent application is material to us as a whole. We intend to pursue additional patent protection to the extent we believe it would be beneficial and cost effective.\nAs of June\u00a030, 2023, in the U.S. we had two trademark registrations covering the \u201cBill.com\u201d logo and three trademark registrations for DIVVY or the Divvy logo, along with registrations for Divvy slogans. We also own a U.S. trademark registration for the name Invoice2Go and the Invoice2Go logo. We own a pending application for BILL.COM plus design in Canada, along with a registration in Canada for the Invoice2Go logo. We own one registration in Australia for the Invoice2Go logo, along with additional registrations internationally \n14\nfor the mark INVOICE2GO or the Invoice2Go logo. We will pursue additional trademark registrations to the extent we believe it would be beneficial and cost-effective. We also own several domain names, including www.bill.com, www.getdivvy.com, and www.invoice2go.com. \nWe rely on trade secrets and confidential information to develop and maintain our competitive position. It is our practice to enter into confidentiality and invention assignment agreements (or similar agreements) with our employees, consultants, and contractors involved in the development of intellectual property on our behalf. We also enter into confidentiality agreements with other third parties in order to limit access to, and disclosure and use of, our confidential information and proprietary information. We further control the use of our proprietary technology and intellectual property through provisions in our terms of service.\nFrom time to time, we also incorporate certain intellectual property licensed from third parties, including under certain open source licenses. Even if any such third-party technology was not available to us on commercially reasonable terms, we believe that alternative technologies would be available as needed.\n For additional information about our intellectual property and associated risks, see the section titled \u201c\nRisk Factors\u2014Risks Related to our Business and Industry\n.\u201d\n \nAvailable Information\nOur internet address is www.bill.com. We make available free of charge, on our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).\nWe have used, and intend to continue to use, our website, investor relations website (accessible via our website), and social media accounts, including our Twitter/X feed (@billcom), our LinkedIn page and our Facebook page   , as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.\nThe contents of the websites provided above are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC. Further, our references to the URLs for these websites are intended to be inactive textual references only.\n15",
+  "item1a": ">Item 1A. Risk Factors\nInvesting in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including \u201c\nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\n,\u201d our consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K before deciding whether to invest in shares of our common stock. Additional risks beyond those summarized below or discussed elsewhere in this Annual Report on Form 10-K, may apply to our activities or operations as currently conducted or as we may conduct them in the future or in the markets in which we operate or may in the future operate. \nSummary of Risk Factors\nConsistent with the foregoing, we are exposed to a variety of risks, including the following:\n\u2022\nWe have a history of operating losses and may not achieve or sustain profitability in the future;\n\u2022\nOur recent rapid growth, including growth in our volume of payments, may not be indicative of our future growth, and if we continue to grow rapidly, we may not be able to manage our growth effectively;\n\u2022\nA significant portion of our revenue comes from small and medium-sized businesses, which may have fewer financial resources to weather an economic downturn, and volatile or weakened economic conditions in the U.S. and globally may adversely affect our business and operating results;\n\u2022\nIf we are unable to attract new customers or convert trial customers into paying customers or if our efforts to promote our charge card usage through marketing, promotion, and spending business rewards are unsuccessful, our revenue growth and operating results will be adversely affected;\n\u2022\nIf we are unable to retain our current customers, increase customer adoption of our products, sell additional services to our customers, or develop and launch new payment products, our business and growth will be adversely affected;\n\u2022\nOur Divvy card offering exposes us to credit risk and other risks related to spending businesses' ability to pay the balances incurred on their Divvy cards. Certain of our other current and future product offerings may also subject us to credit risk;\n\u2022\nOur risk management efforts may not be effective to prevent fraudulent activities by our customers, subscribers, spending businesses, or their counterparties, which could expose us to material financial losses and liability and otherwise harm our business;\n\u2022\nThe markets in which we participate are competitive, and if we do not compete effectively, our operating results could be harmed;\n\u2022\nWe transfer large sums of customer funds daily, and are subject to numerous associated risks which could result in financial losses, damage to our reputation, or loss of trust in our brand, which would harm our business and financial results;\n\u2022\nOur business depends, in part, on our relationships with accounting firms;\n\u2022\nOur business depends, in part, on our business relationships with financial institutions;\n\u2022\nWe are subject to numerous risks related to partner banks and financing arrangements with respect to our spend and expense management solution;\n\u2022\nFuture acquisitions, strategic investments, partnerships, collaborations, or alliances could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our operating results and financial condition;\n\u2022\nPayments and other financial services-related regulations and oversight are material to our business. Our failure to comply could materially harm our business;\n16\n\u2022\nOur debt service obligations, including the Notes, may adversely affect our financial condition and results of operations;\n\u2022\nWe may not have the ability to raise the funds necessary for cash settlement upon conversion of the Notes or to repurchase the Notes for cash upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion of the Notes or to repurchase the Notes; and\n\u2022\nThe market for our common stock has been, and will likely continue to be, volatile and the market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control.\nRisks Related to Our Business and Industry\nWe have a history of operating losses and may not achieve or sustain profitability in the future.\nWe were incorporated in 2006 and have mostly experienced net losses since inception. We generated net losses of $223.7 million, $326.4 million, and $98.7 million for fiscal 2023, 2022, and 2021, respectively. Our net loss for fiscal 2022 includes the results of operations of Invoice2go from the date of acquisition on September 1, 2022 and of Divvy for the full fiscal year. Our net loss for fiscal 2021 includes the results of operations of Divvy from the date of acquisition on June 1, 2021. As of June\u00a030, 2023, we had an accumulated deficit of $856.2 million. While we have experienced significant revenue growth in recent periods, we are not certain whether or when we will generate sufficient revenue to achieve or maintain profitability in the future. We also expect our costs and expenses to increase in future periods, which could negatively affect our future operating results if our revenue does not increase. In particular, we intend to continue to expend significant funds to further develop our platform, including introducing new products and functionality, drive new customer adoption, expand partner integrations, and support international expansion, and to continue hiring across all functions to accomplish these objectives. Our profitability each quarter is also impacted by the mix of our revenue generated from subscriptions, transaction fees, including the mix of ad valorem transaction revenue, and interest earned on funds that we hold for the benefit of our customers. Any changes in this revenue mix will have the effect of increasing or decreasing our margins. In addition, we offer promotion programs whereby spending businesses that use our spend and expense management products can earn rewards based on transaction volume on our Divvy charge cards, and the cost of earned rewards that are redeemed impacts our sales and marketing expenses. Inflationary pressures may also result in increases in many of our other costs, including personnel-related costs. Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our revenue enough to offset our increased operating expenses. We may incur significant losses in the future for several reasons, including the other risks described herein, and unforeseen expenses, difficulties, complications, delays, and other unknown events. If we are unable to achieve and sustain profitability, the value of our business and common stock may significantly decrease.\nOur recent rapid growth, including growth in our volume of payments, may not be indicative of our future growth, and if we continue to grow rapidly, we may not be able to manage our growth effectively. \nOur revenue was $1.1 billion, $642.0 million, and $238.3 million during fiscal 2023, 2022, and 2021, respectively. Our TPV was $266.0 billion, $228.1 billion, and $140.7 billion during fiscal 2023, 2022, and 2021, respectively. Our revenue and TPV for fiscal 2022 includes Invoice2go from the date of acquisition on September 1, 2021 and Divvy charge cards for the full fiscal year. Our revenue and TPV for fiscal 2021 includes Divvy charge cards from the date of acquisition on June 1, 2021. Although we have recently experienced significant growth in our revenue and total payment volume, even if our revenue continues to increase, we expect our growth rate will decline in the future as a result of a variety of factors, including the increasing scale of our business. Overall growth of our revenue depends on a number of factors, including our ability to:\n\u2022\nprice our platform effectively to attract new customers and increase sales to our existing customers;\n\u2022\nexpand the functionality and scope of the products we offer on our platform;\n\u2022\nmaintain or improve the rates at which customers subscribe to and continue to use our platform;\n\u2022\nmaintain and expand payment volume;\n\u2022\ngenerate interest income on customer funds that we hold in trust;\n17\n\u2022\nprovide our customers with high-quality customer support that meets their needs;\n\u2022\nintroduce our products to new markets outside of the U.S.;\n\u2022\nserve SMBs across a wide cross-section of industries;\n\u2022\nexpand our target market beyond SMBs;\n\u2022\nmanage the effects of macroeconomic conditions, including economic downturns or recessions, inflation, fluctuations in market interest rates and currency exchange rates, supply chain shortages and instability in the U.S. and global banking systems on our business and operations;\n\u2022\nsuccessfully identify and acquire or invest in businesses, products, or technologies that we believe could complement or expand our platform; and\n\u2022\nincrease awareness of our brand and successfully compete with other companies.\nWe may not successfully accomplish any of these objectives, which makes it difficult for us to forecast our future operating results. Further, the revenue that we derive from interest income on customer funds is dependent on interest rates, which we do not control. If the assumptions that we use to plan our business are incorrect or change in reaction to changes in our market, or if we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability. You should not rely on our revenue from any prior quarterly or annual periods as any indication of our future revenue or revenue or payment growth.\nIn addition, we expect to continue to expend substantial financial and other resources on:\n\u2022\nsales, marketing, and customer success, including an expansion of our sales organization and new customer success initiatives;\n\u2022\nour technology infrastructure, including systems architecture, scalability, availability, performance, and security;\n\u2022\nproduct development, including investments in our product development team and the development of new products and new functionality for our AI-enabled platform;\n\u2022\nacquisitions or strategic investments;\n\u2022\ninternational expansion; and\n\u2022\nregulatory compliance and risk management.\nThese investments may not result in increased revenue growth in our business. If we are unable to increase our revenue at a rate sufficient to offset the expected increase in our costs, or if we encounter difficulties in managing a growing volume of payments, our business, financial condition, and operating results will be harmed, and we may not be able to achieve or maintain profitability over the long term.\nA significant portion of our revenue comes from small and medium-sized businesses, which may have fewer financial resources to weather an economic downturn, and volatile or weakened economic conditions in the U.S. and globally may adversely affect our business and operating results.\nOur overall performance depends in part on U.S. and international macroeconomic conditions. The U.S. and other key international economies have experienced and may in the future experience significant economic and market downturns in which economic activity is impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity, and foreign exchange markets, inflation, bankruptcies, and overall uncertainty with respect to the economy. These economic conditions can arise suddenly and the full impact of such conditions are impossible to predict. In addition, geopolitical and domestic political developments, such as existing and potential trade wars and other events beyond our control, such as the war in Ukraine, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets. Moreover, there has been recent turmoil in the global banking system. For example, in March 2023, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. First-Citizens Bank & Trust Company then assumed all of SVB\u2019s customer deposits and certain other liabilities and \n18\nacquired substantially all of SVB\u2019s loans and certain other assets from the FDIC. While the closure of SVB did not have a material direct impact on our business, continued instability in the global banking system may result in additional bank failures, as well as volatility of global financial markets, either of which may adversely impact our business and financial condition. \nFurther, a significant portion of our revenue comes from SMBs. These customers may be more susceptible to negative impacts from economic downturns, recession, inflation, changes in foreign currency exchange rates, including the strengthening U.S. dollar, financial market conditions, instability in the U.S. and global banking systems, supply chain shortages, increased fuel prices, any ongoing effects of the COVID-19 pandemic, and catastrophic events than larger, more established businesses, as SMBs typically have more limited financial resources than larger entities. If any of these conditions occur\n,\n SMBs may be disproportionately impacted and, as a result, the overall demand for our products and services could be materially and adversely affected. \nWe expect fluctuations in our financial results, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our operating results, our stock price and the value of your investment could decline.\nOur operating results have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance. In addition to the other risks described herein, factors that may affect our operating results include the following:\n\u2022\nfluctuations in demand for, or pricing of our platform;\n\u2022\nour ability to attract new customers;\n\u2022\nour ability to retain and grow engagement with our existing customers;\n\u2022\nour ability to expand our relationships with our accounting firm partners, financial institution partners, and accounting software partners, or identify and attract new partners;\n\u2022\ncustomer expansion rates;\n\u2022\nchanges in customer preference for cloud-based services as a result of security breaches in the industry or privacy concerns, or other security or reliability concerns regarding our products;\n\u2022\nfluctuations or delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors;\n\u2022\ngeneral economic, market, credit and liquidity conditions, both domestically and internationally, such as high inflation, high interest rate and recessionary environments, and instability in the U.S. and global banking systems, as well as economic conditions specifically affecting SMBs or the industries in which our customers participate;\n\u2022\nchanges in customers\u2019 budgets and in the timing of their budget cycles and purchasing decisions, as a result of general economic factors or factors specific to their businesses;\n\u2022\npotential and existing customers choosing our competitors\u2019 products or developing their own solutions in-house;\n\u2022\nthe development or introduction of new platforms or services that are easier to use or more advanced than our current suite of services, especially related to the application of AI-based services;\n\u2022\nour failure to adapt to new forms of payment that become widely accepted;\n\u2022\nthe adoption or retention of more entrenched or rival services in the international markets where we compete;\n\u2022\nour ability to control costs, including our operating expenses;\n\u2022\nthe amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions;\n19\n\u2022\nthe amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments, and other non-cash charges;\n\u2022\nthe amount and timing of costs associated with recruiting, training, and integrating new employees, including employees acquired inorganically, and retaining and motivating existing employees;\n\u2022\nfluctuation in market interest rates, which impacts interest earned on funds held for customers;\n\u2022\nthe effects of acquisitions and the integration of acquired technologies and products, including impairment of goodwill;\n\u2022\nthe impact of new accounting pronouncements;\n\u2022\nsecurity breaches of, technical difficulties with, or interruptions to, the delivery and use of our platform; \n\u2022\nany ongoing impact of the COVID-19 pandemic on our employees, customers, partners, vendors, operating results, liquidity and financial condition, including as a result of supply chain disruptions and labor shortages;\n\u2022\nt\nhe impact of the war in Ukraine, economic sanctions and countermeasures taken by other countries, and market volatility resulting from the above; and\n\u2022\nawareness of our brand and our reputation in our target markets.\nAny of these and other factors, or the cumulative effect of some of these factors, may cause our operating results to vary significantly. In addition, we expect to continue to incur significant additional expenses due to the costs of operating as a public company. If our operating results fall below the expectations of investors and securities analysts who follow our stock, the price of our common stock could decline substantially, and we could face costly lawsuits, including securities class action suits.\nIf we are unable to attract new customers or convert trial customers into paying customers or if our efforts to promote our charge card usage through marketing, promotion, and spending business rewards are unsuccessful, our revenue growth and operating results will be adversely affected.\nTo increase our revenue, we must continue to attract new customers and increase sales to those customers. As our market matures, product and service offerings evolve, and competitors introduce lower cost or differentiated products or services that are perceived to compete with our platform, our ability to sell subscriptions or successfully increase customer adoption of new payment products could be impaired. Similarly, our subscription sales could be adversely affected if customers or users perceive that features incorporated into alternative products reduce the need for our platform or if they prefer to purchase products that are bundled with solutions offered by other companies. Further, in an effort to attract new customers, we may offer simpler, lower-priced products or promotions, which may reduce our profitability. \nWe rely upon our marketing strategy of offering risk-free trials of our platform and other digital marketing strategies to generate sales opportunities. Many of our customers start a risk-free trial of our service. Converting these trial customers to paid customers often requires extensive follow-up and engagement. Many prospective customers never convert from the trial version of a product to a paid version of a product. Further, we often depend on the ability of individuals within an organization who initiate the trial versions of our products to convince decision makers within their organization to convert to a paid version. To the extent that these users do not become, or are unable to convince others to become, paying customers, we will not realize the intended benefits of this marketing strategy, and our ability to grow our revenue will be adversely affected. In addition, it may be necessary to engage in more sophisticated and costly sales and marketing efforts in order to attract new customers, and changes in privacy laws and third party practices may make adding new customers more expensive or difficult. As a result of these and other factors, we may be unable to attract new customers or our related expenses may increase, which would have an adverse effect on our business, revenue, gross margins, and operating results.\nIn addition, revenue growth from our charge card products is dependent on increasing business spending on our cards. We have been investing in a number of growth initiatives, including to capture a greater \n20\nshare of spending businesses\u2019 total spend, but there can be no assurance that such investments will be effective. In addition, if we develop new products or offerings that attract spending businesses looking for short-term incentives rather than displaying long-term loyalty, attrition could increase and our operating results could be adversely affected. Expanding our service offerings, adding acquisition channels and forming new partnerships or renewing current partnerships could have higher costs than our current arrangements and could dilute our brand. In addition, we offer rewards to spending businesses based on their usage of charge cards. Redemptions of rewards present significant associated expenses for our business. We operate in a highly competitive environment and may need to increase the rewards that we offer or provide other incentives to spending businesses in order to grow our business. Any significant change in, or failure by management to reasonably estimate, such costs could adversely affect or harm our business, operating results, and financial condition.\nIf we are unable to retain our current customers, increase customer adoption of our products, sell additional services to our customers, or develop and launch new payment products, our business and growth will be adversely affected.\nTo date, a significant portion of our growth has been attributable to customer adoption of new and existing payment products. To increase our revenue, in addition to acquiring new customers, we must continue to retain existing customers and convince them to expand their use of our platform by incentivizing them to pay for additional services and driving adoption of new and existing payment products, including ad valorem products such as our Divvy cards, virtual cards, instant transfer, and international payment offerings. Our ability to retain our customers, drive adoption and increase usage could be impaired for a variety of reasons, including our inability to develop and launch new payment products, customer reaction to changes in the pricing of our products, general economic conditions or the other risks described in this Annual Report on Form 10-K. Our ability to sell additional services or increase customer adoption of new or existing products may require more sophisticated and costly sales and marketing efforts, especially for our larger customers. If we are unable to retain existing customers or increase the usage of our platform by them, it would have an adverse effect on our business, revenue, gross margins, and other operating results, and accordingly, on the trading price of our common stock.\nWhile some of our contracts are non-cancelable annual subscription contracts, most of our contracts with customers and accounting firms primarily consist of open-ended arrangements that can be terminated by either party without penalty at any time. Our customers have no obligation to renew their subscriptions to our platform after the expiration of their subscription period. For us to maintain or improve our operating results, it is important that our customers continue to maintain their subscriptions on the same or more favorable terms. We cannot accurately predict renewal or expansion rates given the diversity of our customer base in terms of size, industry, and geography. Our renewal and expansion rates may decline or fluctuate as a result of several factors, including customer spending levels, customer satisfaction with our platform and customer service, decreases in the number of users, changes in the type and size of our customers, pricing changes, competitive conditions, the acquisition of our customers by other companies, and general economic conditions. In addition, if any of the accounting software providers with which our platform currently integrates should choose to disable two-way synchronization, there can be no assurance that customers shared with such providers would not choose to leave our platform, adversely affecting our business and results of operations.  If our customers do not renew their subscriptions, or if they reduce their usage of our platform, our revenue and other operating results will decline and our business will suffer. Moreover, if our renewal or expansion rates fall significantly below the expectations of the public market, securities analysts, or investors, the trading price of our common stock would likely decline.\nOur Divvy card offering exposes us to credit risk and other risks related to spending businesses' ability to pay the balances incurred on their Divvy cards. Certain of our other current and future product offerings may also subject us to credit risk.\nWe offer our Divvy card as a credit product to a wide range of businesses in the U.S., and the success of this product depends on our ability to effectively manage related risks. The credit decision-making process for our Divvy cards uses techniques designed to analyze the credit risk of specific businesses based on, among other factors, their past purchase and transaction history, as well as their credit scores. Similarly, proprietary risk models and other indicators are applied to assess current or prospective spending businesses who desire to use our cards to help predict their ability to repay. These risk models may not accurately predict \n21\ncreditworthiness due to inaccurate assumptions, including assumptions related to the particular spending business, market conditions, economic environment, or limited transaction history or other data, among other factors. The accuracy of these risk models and the ability to manage credit risk related to our cards may also be affected by legal or regulatory requirements, competitors\u2019 actions, changes in consumer behavior, changes in the economic environment, policies of Issuing Banks, and other factors. \nFor a substantial majority of extensions of credit to Divvy spending businesses facilitated through our spend and expense management platform, we purchase from our Issuing Banks participation interests in the accounts receivables generated when  spending businesses make purchases using Divvy cards, and we bear the entire credit risk in the event that a spending business fails to pay card balances. Like other businesses with significant exposure to losses from credit, we face the risk that spending businesses will default on their payment obligations, creating the risk of potential charge-offs. The non-payment rate among  spending businesses may increase due to, among other factors, changes to underwriting standards, risk models not accurately predicting the creditworthiness of a business, or a decline in economic conditions, such as a recession, high inflation or government austerity programs. Spending businesses who miss payments may fail to repay their outstanding statement balances, and spending businesses who file for protection under the bankruptcy laws generally do not repay their outstanding balances. If collection efforts on overdue card balances are ineffective or unsuccessful, we may incur financial losses or lose the confidence of our funding sources.\n \nWe do not file UCC liens or take other security interests on Divvy card balances, which significantly reduces our ability to collect amounts outstanding to spending businesses that file for bankruptcy protection. Any such losses or failures of our risk models could harm our business, operating results, and financial condition. Non-performance, or even significant underperformance, of the account receivables participation interests that we own could have an adverse effect on our business.\nMoreover, the funding model for our Divvy card product relies on a variety of funding arrangements, including warehouse facilities and, from time-to-time, purchase arrangements, with a variety of funding sources. Any significant underperformance of the participation interests we own may adversely impact our relationship with such funding sources and result in an increase in our cost of financing, a modification or termination of our existing funding arrangements or our ability to procure funding, which would adversely affect our business, operating results, financial condition, and future prospects.\nSeveral of our other product offerings whereby we advance funds to our customers or vendors of our customers based on credit and risk profiling before we receive the funds on their behalf, such as our Instant Transfer feature, also expose us to credit risks. Although these offerings are only available to customers that satisfy specific credit eligibility criteria, the credit and risk models we use to determine eligibility may be insufficient. Any failure of our credit or risk models to predict creditworthiness would expose us to many of the credit risks described above and could harm our business, operating results, and financial condition.\nOur risk management efforts may not be effective to prevent fraudulent activities by our customers, subscribers, spending businesses, or their counterparties, which could expose us to material financial losses and liability and otherwise harm our business.\nWe offer software that digitizes and automates financial operations for a large number of customers and executes payments to their vendors or from their clients. We are responsible for verifying the identity of our customers and their users, and monitoring transactions for fraud. We have been in the past and will continue to be targeted by parties who seek to commit acts of financial fraud using stolen identities and bank accounts, compromised business email accounts, employee or insider fraud, account takeover, false applications, check fraud, and stolen cards or card account numbers. We may suffer losses from acts of financial fraud committed by our customers and their users, our employees, or third parties. In addition, our customers or spending businesses may suffer losses from acts of financial fraud by third parties posing as our company through account takeover, credential harvesting, use of stolen identities, and various other techniques, which could harm our reputation or prompt us to reimburse our customers for such losses in order to maintain customer and spending business relationships.\nThe techniques used to perpetrate fraud on our platform are continually evolving, and we expend considerable resources to continue to monitor and combat them. In addition, when we introduce new products and functionality, or expand existing products, we may not be able to identify all risks created by such new products or functionality. Our risk management policies, procedures, techniques, and processes may not be \n22\nsufficient to identify all of the risks to which we are exposed, to enable us to prevent or mitigate the risks we have identified, or to identify additional risks to which we may become subject in the future. Our risk management policies, procedures, techniques, and processes may contain errors, or our employees or agents may commit mistakes or errors in judgment as a result of which we may suffer large financial losses. The software-driven and highly automated nature of our platform could enable criminals and those committing fraud to steal significant amounts of money from businesses like ours.\nOur current business and anticipated growth will continue to place significant demands on our risk management efforts, and we will need to continue developing and improving our existing risk management infrastructure, policies, procedures, techniques, and processes. As techniques used to perpetrate fraud on our platform evolve, we may need to modify our products or services to mitigate fraud risks. As our business grows and becomes more complex, we may be less able to forecast and carry appropriate reserves in our books for fraud related losses. \nFurther, these types of fraudulent activities on our platform can also expose us to civil and criminal liability and governmental and regulatory sanctions as well as potentially cause us to be in breach of our contractual obligations to our third-party partners.\nThe markets in which we participate are competitive, and if we do not compete effectively, our operating results could be harmed.\nThe market for cloud-based software that automates the financial back-office is highly fragmented, competitive, and constantly evolving. We believe that our primary competition remains the legacy manual processes that SMBs have relied on for generations. Our success will depend, to a substantial extent, on the widespread adoption of our cloud-based automated back-office solution as an alternative to existing solutions or adoption by customers that are not using any such solutions at all. Some organizations may be reluctant or unwilling to use our platform for several reasons, including concerns about additional costs, uncertainty regarding the reliability and security of cloud-based offerings, or lack of awareness of the benefits of our platform.\nOur competitors in the cloud-based software space range from large corporations that predominantly focus on enterprise resource planning solutions, to smaller niche suppliers of solutions that focus exclusively on document management, workflow management, accounts payable, accounts receivable, spend and expense management, and/or electronic bill presentment and payment, to companies that offer industry-specific payments solutions. With the introduction of new technologies and market entrants, we expect that the competitive environment will remain intense going forward. Our competitors that currently focus on enterprise solutions may offer products to SMBs that compete with ours. In addition, companies that provide solutions that are adjacent to our products and services may decide to enter our market segments and develop and offer products that compete with ours. Accounting software providers, such as Intuit, as well as the financial institutions with which we partner, may internally develop products, acquire existing, third-party products, or may enter into partnerships or other strategic relationships that would enable them to expand their product offerings to compete with our platform or provide more comprehensive offerings than they individually had offered or achieve greater economies of scale than us. These software providers and financial institutions may have the operating flexibility to bundle competing solutions with other offerings, including offering them at a lower price or for no additional cost to customers as part of a larger sale. For example, in September 2022, Intuit announced its intention to launch a native bill payment solution. In addition, new entrants not currently considered to be competitors may enter the market through acquisitions, partnerships, or strategic relationships. Many of our competitors and potential competitors have greater name recognition, longer operating histories, more established customer relationships, larger marketing budgets, and greater resources than us. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, and customer requirements. Certain competitors may also have long-standing exclusive, or nearly exclusive, relationships with financial services provider partners to accept payment cards and other services that compete with what we offer.  As we look to market and sell our platform to potential customers, spending businesses, or partners with existing solutions, we must convince their internal stakeholders that our platform is superior to their current solutions.\nWe compete on several factors, including:\n\u2022\nproduct features, quality, breadth, and functionality;\n23\n\u2022\ndata asset size and ability to leverage AI to grow faster and smarter;\n\u2022\nease of deployment;\n\u2022\nease of integration with leading accounting and banking technology infrastructures;\n\u2022\nability to automate processes;\n\u2022\ncloud-based delivery architecture;\n\u2022\nadvanced security and control features;\n\u2022\nrisk management, exception process handling, and regulatory compliance leadership;\n\u2022\nbrand recognition; and\n\u2022\npricing and total cost of ownership.\nThere can be no assurance that we will be able to compete successfully against our current or future competitors, and this competition could result in the failure of our platform to continue to achieve or maintain market acceptance, any of which would harm our business, operating results, and financial condition.\nWe transfer large sums of customer funds daily, and are subject to numerous associated risks which could result in financial losses, damage to our reputation, or loss of trust in our brand, which would harm our business and financial results.\n As of June\u00a030, 2023, we had approximately 461,000 businesses using our solutions and TPV processed was approximately $266.0 billion, $228.1 billion, and $140.7 billion during fiscal 2023, 2022, and 2021, respectively. Accordingly, we have grown rapidly and seek to continue to grow, and although we maintain a robust and multi-faceted risk management process, our business is highly complex and always subject to the risk of financial losses as a result of credit losses, operational errors, software defects, service disruption, employee misconduct, security breaches, or other similar actions or errors on our platform.  \nAs a provider of accounts payable, accounts receivable, spend and expense management, and payment solutions, we collect and transfer funds on behalf of our customers and our trustworthiness and reputation are fundamental to our business. The occurrence of any credit losses, operational errors, software defects, service disruptions, employee misconduct, security breaches, or other similar actions or errors on our platform could result in financial losses to our business and our customers, loss of trust, damage to our reputation, or termination of our agreements with financial institution partners and accountants, each of which could result in:\n\u2022\nloss of customers;\n\u2022\nlost or delayed market acceptance and sales of our platform;\n\u2022\nlegal claims against us, including warranty and service level agreement claims;\n\u2022\nregulatory enforcement action; or\n\u2022\ndiversion of our resources, including through increased service expenses or financial concessions, and increased insurance costs.\nAlthough our terms of service allocate to our customers the risk of loss resulting from our customers\u2019 errors, omissions, employee fraud, or other fraudulent activity related to their systems, in some instances we may cover such losses for efficiency or to prevent damage to our reputation. Although we maintain insurance to cover losses resulting from our errors and omissions, there can be no assurance that our insurance will cover all losses or our coverage will be sufficient to cover our losses. If we suffer significant losses or reputational harm as a result, our business, operating results, and financial condition could be adversely affected.\n24\nFunds that we hold for the benefit of our customers are subject to market, interest rate, credit, foreign exchange, and liquidity risks, as well as general political and economic conditions. The loss of any of these funds could adversely affect our business, operating results and financial condition.\nWe invest funds that we hold for the benefit of our customers, including funds being remitted to suppliers, in highly liquid, investment-grade marketable securities, money market securities, and other cash equivalents. Nevertheless, our customer fund assets are subject to general market, interest rate, credit, foreign exchange, and liquidity risks. These risks may be exacerbated, individually or in the aggregate, during periods of heavy financial market volatility, such as that experienced in 2008 and 2022, that may result from high inflation, high interest rate or recessionary environments, from actual or perceived instability in the U.S. and global banking systems, or from war (such as the war in Ukraine), or other geopolitical conflicts. As a result, we could be faced with a severe constriction of the availability of liquidity, which could impact our ability to fulfill our obligations to move customer money to its intended recipient. For example, the sudden closure of SVB in March 2023 introduced a potential risk of loss because we held certain corporate and customer funds at SVB.  Although we were\n able to move substantially all such funds to large multinational financial institutions and to redirect substantially all customer payment processing previously made through SVB to one of our multinational bank processors, there can be no assurance that we would be able to do so in the future in the event of a similar or more severe, systemic banking crisis. \nIn addition, cash held at banks and financial institutions is subject to applicable deposit insurance limits, and in the event that our corporate or customer funds held at a given institution exceed such limits, or are held in investments that are not covered by deposit insurance, such funds may be unrecoverable in the event of a future bank failure. \nWe rely upon certain banking partners and third parties to originate payments, process checks, execute wire transfers, and issue virtual cards, which could be similarly affected by a liquidity shortage and further exacerbate our ability to operate our business. Any loss of or inability to access customer funds could have an adverse impact on our cash position and operating results, could require us to obtain additional sources of liquidity, and could adversely affect our business, operating results, and financial condition. In addition to the risks related to customer funds, we are also exposed to interest rate risk relating to our investments of our corporate cash. \nWe are licensed as a money transmitter in all required U.S. states and registered as a Money Services Business with FinCEN. In certain jurisdictions where we operate, we are required to hold eligible liquid assets, as defined by the relevant regulators in each jurisdiction, equal to at least 100% of the aggregate amount of all customer balances. Our ability to manage and accurately account for the assets underlying our customer funds and comply with applicable liquid asset requirements requires a high level of internal controls. As our business continues to grow and we expand our product offerings, we will need to scale these associated internal controls. Our success requires significant public confidence in our ability to properly manage our customers\u2019 balances and handle large and growing transaction volumes and amounts of customer funds. Any failure to maintain the necessary controls or to accurately manage our customer funds and the assets underlying our customer funds in compliance with applicable regulatory requirements could result in reputational harm, lead customers to discontinue or reduce their use of our products, and result in significant penalties and fines, possibly including the loss of our state money transmitter licenses, which would materially harm our business.\nWe earn revenue from interest earned on customer funds held in trust while payments are clearing, which is subject to market conditions and may decrease as customers\u2019 adoption of electronic payments and technology continues to evolve.\nFor fiscal 2023, 2022, and 2021, we generated $113.8 million, $8.6 million, and $6.0 million, respectively, in revenue from interest earned on funds held in trust on behalf of customers while payment transactions were clearing, or approximately 11%, 1%, and 3% of our total revenue for such periods, respectively. While these payments are clearing, we deposit the funds in highly liquid, investment-grade marketable securities, and generate revenue that is correlated to the federal funds rate. As interest rates have risen in recent periods, the amount of revenue we have generated from such funds has increased; however, given the deceleration in U.S. interest rate increases in 2023 to date, we do not expect this interest revenue expansion to continue in the future. If interest rates decline, the amount of revenue we generate from these investments will decrease as well. Additionally, as customers increasingly seek expedited methods of electronic payments, such as instant transfer, or potentially migrate spend to our Divvy corporate card offering, our revenue from interest earned on customer funds could decrease (even if offset by other revenue) and our operating results could be adversely affected. Finally, in addition to the risks outlined above, any change in laws \n25\nor applicable regulations that restrict the scope of permissible investments for such customer funds could reduce our interest income and adversely affect our operating results.\nOur business depends, in part, on our relationships with accounting firms.\nOur relationships with our more than 7,000 accounting firm partners contribute a significant portion of our consolidated revenue. We market and sell our products and services through accounting firms. We also have an exclusive partnership with CPA.com to market certain of our products and services to accounting firms, which then enroll their customers directly onto our platform. Although our relationships with accounting firms are independent of one another, if our reputation in the accounting industry more broadly were to suffer, or if we were unable to establish relationships with new accounting firms and grow our relationships with existing accounting firm partners, our growth prospects would weaken and our business, financial position, and operating results may be adversely affected.\nOur business depends, in part, on our business relationships with financial institutions.\nWe enter into partnering relationships with financial institutions pursuant to which they offer our services to their customers. These relationships involve risks that may not be present or that are present to a lesser extent with sales to our direct SMB customers. Launching a product offering with our financial institution partners entails integrating our platform with our partners\u2019 websites and apps, which requires significant engineering resources and time to design, deploy, and maintain, and requires developing associated sales and marketing strategies and programs. With financial institution partners, the decision to roll out our product offering typically requires several levels of management and technical personnel approval by our partners and is frequently subject to budget constraints. Delays in decision making, unplanned budget constraints, or changes in our partners\u2019 business, business priorities, or internal resource allocations may result in significant delays to the deployment of our platform and its availability to their customers. Significant delays in the deployment of our platform to our partners\u2019 customers could cause us to incur significant expenditures for platform integration and product launch without generating anticipated revenue in the same period or at all and could adversely impact our operating results. In addition, once we have successfully launched a product offering with a financial institution partner, lower than anticipated customer adoption or unanticipated ongoing system integration costs could result in lower than anticipated profit margins, which could have an adverse impact on our business, financial position, and operating results. Moreover, if our partners or their customers experience problems with the operation of our platform, such as service outages or interruptions or security breaches or incidents, our relationship with the partner and our reputation could be harmed and our operating results may suffer.\nWe may not be able to attract new financial institution partners if our potential partners favor our competitors\u2019 products or services over our platform or choose to compete with our products directly. Further, many of our existing financial institution partners have greater resources than we do and could choose to develop their own solutions to replace ours. Moreover, certain financial institutions may elect to focus on other market segments and decide to terminate their SMB-focused services. If we are unsuccessful in establishing, growing, or maintaining our relationships with financial institution partners, our ability to compete in the marketplace or to grow our revenue could be impaired, and our operating results may suffer.\nWe are subject to oversight by our financial institution partners and they conduct audits of our operations, information security controls, and compliance controls. To the extent an audit were to identify material gaps or evidence of noncompliance in our operations or controls it could violate contractual terms with the financial institution partner, which could materially and adversely impact our commercial relationships with that partner. \nOur spend and expense management products are dependent on our relationship with our Issuing Banks, Cross River Bank and WEX Bank.\nThe extensions of credit facilitated through our platform are originated through Cross River Bank and WEX Bank, and we rely on these entities to comply with various federal, state, and other laws. There has been significant recent U.S. Congressional and federal administrative agency lawmaking and ruling in the area of program agreements between banks and non-banks involving extensions of credit and the regulatory environment in this area remains unsettled. There has also been significant recent government enforcement and litigation challenging the validity of such arrangements, including disputes seeking to re-characterize lending transactions on the basis that the non-bank party rather than the bank is the \u201ctrue lender\u201d or \u201cde facto \n26\nlender\u201d, and in case law upholding the \u201cvalid when made\u201d doctrine, which holds that federal preemption of state interest rate limitations are not applicable in the context of certain bank\u2014non-bank partnership arrangements. If the legal structure underlying our relationship with our Issuing Banks were to be successfully challenged, our extension of credit offerings through these banks may be determined to be in violation of state licensing requirements and other state laws. In addition, Issuing Banks engaged in this activity have been subject to increased regulatory scrutiny recently. Adverse orders or regulatory enforcement actions against our Issuing Banks, even if unrelated to our business, could impose restrictions on our Issuing Banks\u2019 ability to continue to extend credit through our platform or on current terms, or could result in our Issuing Banks increasing their oversight or imposing tighter controls over our underwriting practices or compliance procedures or subjecting any new products to be offered through our Issuing Banks to more rigorous reviews.\nOur Issuing Banks are subject to oversight by the FDIC and state banking regulators and must comply with applicable federal and state banking rules, regulations, and examination requirements. We, in turn, are subject to audit by our Issuing Banks in accordance with FDIC guidance related to management of service providers and other bank-specific requirements pursuant to the terms of our agreements with our Issuing Banks. We are also subject to the examination and enforcement authority of the FDIC under the Bank Service Company Act and state regulators in our capacity as a service provider for our Issuing Banks. If we fail to comply with requirements applicable to us by law or contract, or if audits by our Issuing Banks were to conclude that our processes and procedures are insufficient, we may be subject to fines or penalties or our Issuing Banks could terminate their relationships with us.\nIn the event of a challenge to the legal structure underlying our program agreements with our Issuing Banks or if one or all of our Issuing Banks were to suspend, limit, or cease its operations, or were to otherwise terminate for any reason (including, but not limited to, the failure by an Issuing Bank to comply with regulatory actions or an Issuing Bank experiencing financial distress, entering into receivership, or becoming insolvent), we would need to identify and implement alternative, compliant, bank relationships or otherwise modify our business practices in order to be compliant with prevailing law or regulation, which could result in business interruptions or delays, force us to incur additional expenses, and potentially interfere with our existing customer and spending business relationships or make us less attractive to potential new customers and spending businesses, any of which could adversely effect our business, operating results, and financial condition.\nWe rely on a variety of funding sources to support our Divvy corporate card offering. If our existing funding arrangements are not renewed or replaced, or if our existing funding sources are unwilling or unable to provide funding to us on terms acceptable to us, or at all, it could adversely affect our business, operating results, financial condition, cash flows, and future prospects. \nTo support the operations and growth of our spend and expense management business, we must maintain a variety of funding arrangements, including warehouse facilities and, from time-to-time, purchase arrangements with financial institutions. In particular, we have financing arrangements in place pursuant to which we purchase from our Issuing Banks participation interests in the accounts receivables generated when Divvy spending businesses make purchases using our cards. We typically fund some portion of these participation interest purchases by borrowing under credit facilities with our finance partners, although we may also fund participation purchases using corporate cash. Typically, we immediately sell a portion of the participation interests we have purchased to a warehousing subsidiary which funds the purchases through loans provided by our financing partners, and we may sell a portion of the participation interests to a third-party institution pursuant to a purchase arrangements. \nIf our finance partners terminate or interrupt their financing or purchase of participation interests or are unable to offer terms which are acceptable to us, we may have to fund these purchases using corporate cash, which we have a limited ability to do and may place significant stress on our cash resources. An inability to purchase participation interests from our Issuing Banks, whether funded through financing or corporate cash, could result in the banks\u2019 limiting extensions of credit to spending businesses or ceasing to extend credit for our cards altogether, which would interrupt or limit our ability to offer our card products and materially and adversely affect our business.\nWe cannot guarantee that these funding arrangements will continue to be available on favorable terms or at all, and our funding strategy may change over time, depending on the availability of such funding arrangements. In addition, our funding sources may curtail access to uncommitted financing capacity, fail to renew or extend facilities, or impose higher costs to access funding upon reassessing their exposure to our industry or in light of changes to general economic, market, credit, or liquidity conditions. Further, our funding \n27\nsources may experience financial distress, enter into receivership, or become insolvent, which may prevent us from accessing financing from these sources. In addition, because our borrowings under current and future financing facilities may bear interest based on floating rate interest rates, our interest costs may increase if market interest rates rise. Moreover, there can be no assurances that we would be able to extend or replace our existing funding arrangements at maturity, on reasonable terms, or at all. \nIf our existing funding arrangements are not renewed or replaced or our existing funding sources are unwilling or unable to provide funding to us on terms acceptable to us, or at all, we may need to secure additional sources of funding or reduce our spend and expense management operations significantly. Further, as the volume of credit facilitated through our platform increases, we may need to expand the funding capacity under our existing funding arrangements or add new sources of capital. The availability and diversity of our funding arrangements depends on various factors and are subject to numerous risks, many of which are outside of our control. If we are unable to maintain access to, or to expand, our network and diversity of funding arrangements, our business, operating results, financial condition, and future prospects could be materially and adversely affected.\nIf we do not or cannot maintain the compatibility of our platform with popular accounting software solutions or offerings of our partners, our revenue and growth prospects will decline.\nTo deliver a comprehensive solution, our platform integrates with popular accounting software solutions including Intuit QuickBooks, Oracle NetSuite, Sage Intacct, Xero, and Microsoft Dynamics 365 Business Central, through APIs made available by these software providers. We automatically synchronize certain data between our platform and these accounting software systems relating to invoices and payment transactions between our customers and their suppliers and clients. This two-way sync saves time for our customers by reducing duplicative manual data entry and provides the basis for managing cash-flow through an integrated solution for accounts payable, accounts receivable, spend and expense management, and payments.\nIf any of the accounting software providers change the features of their APIs, discontinue their support of such APIs, restrict our access to their APIs, or alter the terms or practices\n \ngoverning their use in a manner that is adverse to our business, we may be restricted or may not be able to provide synchronization capabilities, which could significantly diminish the value of our platform and harm our business, operating results, and financial condition. In addition, if any of these accounting software providers reconfigure their platforms in a manner that no longer supports our integration with their accounting software, we would lose customers and our business would be adversely affected.\nIf we are unable to increase adoption of our platform with customers of these accounting software solutions, our growth prospects may be adversely affected. In addition, any of these accounting software providers may seek to develop a payment solution of its own, acquire a solution to compete with ours, or decide to partner with other competing applications, any of which its SMB customers may select over ours, thereby harming our growth prospects and reputation and adversely affecting our business and operating results.\nWe depend on third-party service providers to process transactions on our platform and to provide other services important to the operation of our business. Any significant disruption in services provided by these vendors could prevent us from processing transactions on our platform, result in other interruptions to our business and adversely affect our business, operating results and financial condition.\nWe depend on banks, including JPMorgan Chase, to process ACH transactions and checks for our customers. We also rely on third-party providers to support other aspects of our business, including, for example, for card transaction processing, check printing, real-time payments, virtual and physical card issuance, and our cross-border funds transfer capabilities. If we are unable to effectively manage our third-party relationships, we are unable to comply with security, compliance, or operational obligations to which we are subject under agreements with these providers, these providers are unable to meet their obligations to us, or we experience substantial disruptions in these relationships, including as a result of the closure or insolvency of banks with which we do business, our business, operating results, and financial condition could be adversely impacted. In addition, in some cases a provider may be the sole source, or one of a limited number of sources, of the services they provide to us and we may experience increased costs and difficulties in replacing those providers and replacement services may not be available on commercially reasonable terms, on a timely basis, or at all.\n28\nInterruptions or delays in the services provided by AWS or other third-party data centers or internet service providers could impair the delivery of our platform and our business could suffer.\nWe host our platform using third-party cloud infrastructure services, including certain co-location facilities. We also use public cloud hosting with Amazon Web Services (AWS). All of our products utilize resources operated by us through these providers. We therefore depend on our third-party cloud providers\u2019 ability to protect their data centers against damage or interruption from natural disasters, power or telecommunications failures, criminal acts, and similar events. Our operations depend on protecting the cloud infrastructure hosted by such providers by maintaining their respective configuration, architecture, and interconnection specifications, as well as the information stored in these virtual data centers and transmitted by third-party internet service providers. We have periodically experienced service disruptions in the past, and we cannot assure you that we will not experience interruptions or delays in our service in the future. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the data storage services we use. Although we have disaster recovery plans that utilize multiple data storage locations, any incident affecting their infrastructure that may be caused by fire, flood, severe storm, earthquake, power loss, telecommunications failures, unauthorized intrusion, computer viruses and disabling devices, natural disasters, military actions, terrorist attacks, negligence, and other similar events beyond our control could negatively affect our platform. Any prolonged service disruption affecting our platform for any of the foregoing reasons could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers, or otherwise harm our business. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. System failures or outages, including any potential disruptions due to significantly increased global demand on certain cloud-based systems, could compromise our ability to perform these functions in a timely manner, which could harm our ability to conduct business or delay our financial reporting. Such failures could adversely affect our operating results and financial condition.\nOur platform is accessed by many customers, often at the same time. As we continue to expand the number of our customers and products available to our customers, we may not be able to scale our technology to accommodate the increased capacity requirements, which may result in interruptions or delays in service. In addition, the failure of data centers, internet service providers, or other third-party service providers to meet our capacity requirements could result in interruptions or delays in access to our platform or impede our ability to grow our business and scale our operations. If our third-party infrastructure service agreements are terminated, or there is a lapse of service, interruption of internet service provider connectivity, or damage to data centers, we could experience interruptions in access to our platform as well as delays and additional expense in arranging new facilities and services\nMoreover, we are in the process of migrating our systems from internal data centers and smaller vendors to AWS. AWS provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. We have a limited history of operating on AWS. As we migrate our data from our servers to AWS\u2019 servers, we may experience some duplication and incur additional costs. If our data migration is not successful, or if AWS unexpectedly terminates our agreement, we would be forced to incur additional expenses to locate an alternative provider and may experience outages or disruptions to our service. Any service disruption affecting our platform during such migration or while operating on the AWS cloud infrastructure could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers, or otherwise harm our business.\nIf we lose our founder or key members of our management team or are unable to attract and retain executives and employees we need to support our operations and growth, our business may be harmed.\nOur success and future growth depend upon the continued services of our management team and other key employees. Our founder and Chief Executive Officer, Ren\u00e9 Lacerte, is critical to our overall management, as well as the continued development of our products, our partnerships, our culture, our relationships with accounting firms, and our strategy. From time to time, there may be changes in our management team resulting from the hiring or departure of executives and key employees, which could disrupt our business. In addition, we may face challenges retaining senior management of acquired businesses. Our senior management and key employees are employed on an at-will basis. We currently do not have \u201ckey person\u201d insurance for any of our employees. Certain of our key employees have been with us for a long period of time and have fully vested \n29\nstock options or other long-term equity incentives that may become valuable and are publicly tradable. The loss of our founder, or one or more of our senior management, key members of senior management of acquired companies or other key employees could harm our business, and we may not be able to find adequate replacements. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees or that we would be able to timely replace members of our senior management or other key employees should any of them depart.\nIn addition, to execute our business strategy, we must attract and retain highly qualified personnel. We compete with many other companies for software developers with high levels of experience in designing, developing, and managing cloud-based software and payments systems, as well as for skilled legal and compliance and risk operations professionals. Competition for software developers, compliance and risk management personnel, and other key employees in our industry and locations is intense and increasing and may be exacerbated in tight labor markets. We may also face increased competition for personnel from other companies which adopt approaches to remote work that differ from ours. In addition, the current regulatory environment related to immigration is uncertain, including with respect to the availability of H1-B and other visas. If a new or revised visa program is implemented, it may impact our ability to recruit, hire, retain, or effectively collaborate with qualified skilled personnel, including in the areas of AI and machine learning, and payment systems and risk management, which could adversely impact our business, operating results, and financial condition. Many of the companies with which we compete for experienced personnel have greater resources than we do and can frequently offer such personnel substantially greater compensation than we can offer. If we fail to identify, attract, develop, and integrate new personnel, or fail to retain and motivate our current personnel, our growth prospects would be adversely affected.\nFuture acquisitions, strategic investments, partnerships, collaborations, or alliances could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our operating results and financial condition.\nWe have in the past and may in the future seek to acquire or invest in businesses, products, or technologies that we believe could complement or expand our platform, enhance our technical capabilities, or otherwise offer growth opportunities. For example, in November 2022 we completed the acquisition of Finmark Financial, Inc. to augment our financial planning product offerings. However, we have limited experience in acquiring other businesses, and we may not successfully identify desirable acquisition targets in the future. Moreover, an acquisition, investment, or business relationship may not further our business strategy or result in the economic benefits or synergies as expected or may result in unforeseen operating difficulties and expenditures, including disrupting our ongoing operations, diverting management from their primary responsibilities, subjecting us to additional liabilities, increasing our expenses, and adversely impacting our business, financial condition, and operating results.\nIn addition, the technology and information security systems and infrastructure of businesses we acquire may be underdeveloped or subject to vulnerabilities, subjecting us to additional liabilities. We could incur significant costs related to the implementation of enhancements to or the scaling of information security systems and infrastructure of acquired businesses and related to the remediation of any related security breaches. If security, data protection, and information security measures in place at businesses we acquire are inadequate or breached, or are subject to cybersecurity attacks, or if any of the foregoing is reported or perceived to have occurred, our reputation and business could be damaged and we could be subject to regulatory scrutiny, investigations, proceedings, and penalties. We may also acquire businesses whose operations may not be fully compliant with all applicable law, including economic and trade sanctions and anti-money laundering, counter-terrorist financing, and privacy laws, subjecting us to potential liabilities and requiring us to spend considerable time, effort, and resources to address.\nMoreover, we may acquire businesses whose management or compliance functions require significant investments to support current and anticipated future product offerings, or that have underdeveloped internal control infrastructures or procedures or with respect to which we discover significant deficiencies or material weaknesses. The costs that we may incur to implement or improve such functions, controls, and procedures may be substantial and we could encounter unexpected delays and challenges related to such activity.\nGiven the complexity of our platform and the distinct interface and tools that we offer to our accounting firm partners and financial institution partners, it may be critical that certain businesses or technologies that we acquire be successfully and fully integrated into our platform. In addition, some acquisitions may require us to \n30\nspend considerable time, effort, and resources to integrate employees from the acquired business into our teams, and acquisitions of companies in lines of business in which we lack expertise may require considerable management time, oversight, and research before we see the desired benefit of such acquisitions. Therefore, we may be exposed to unknown liabilities and the anticipated benefits of any acquisition, investment, or business relationship may not be realized, if, for example, we fail to successfully integrate such acquisitions, or the technologies associated with such acquisitions, into our company. The challenges and costs of integrating and achieving anticipated synergies and benefits of transactions, and the risk that the anticipated benefits of the proposed transaction may not be fully realized or take longer to realize than expected, may be compounded where we attempt to integrate multiple acquired businesses within similar timeframes, as was the case with the concurrent integration efforts related to our acquisitions of the Divvy and Invoice2go businesses.\nAcquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, as well as unfavorable accounting treatment and exposure to claims and disputes by third parties, including intellectual property claims. We also may not generate sufficient financial returns to offset the costs and expenses related to any acquisitions. In addition, if an acquired business fails to meet our expectations, our business, operating results, and financial condition may suffer.\nIf we fail to offer high-quality customer support, or if our support is more expensive than anticipated, our business and reputation could suffer.\nOur customers rely on our customer support services to resolve issues and realize the full benefits provided by our platform, as well as to understand and fully utilize the growing suite of products we offer. A range of high-quality support options is critical for the renewal and expansion of our subscriptions with existing customers: we provide customer support via chat, email, and phone through a combination of AI-assisted interactions with the BILL Virtual Assistant as well as robust support from a highly trained staff of customer success personnel. If we do not help our customers quickly resolve issues and provide effective ongoing support, or if our support personnel or methods of providing support are insufficient to meet the needs of our customers, our ability to retain customers, increase adoption by our existing customers, and acquire new customers could suffer, and our reputation with existing or potential customers could be harmed. If we are not able to meet the customer support needs of our customers during the hours that we currently provide support, we may need to increase our support coverage or provide additional support, which may reduce our profitability.\nIf we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing business needs, requirements, or preferences, our products may become less competitive.\nThe market for SMB software financial back-office solutions is relatively new and subject to ongoing technological change, evolving industry standards, payment methods, and changing regulations, as well as changing customer needs, requirements, and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis, including launching new products and services. In addition, the market for our spend and expense management solution is new and fragmented, and it is uncertain whether we will achieve and sustain high levels of demand and market adoption. The success of any new product and service, or any enhancements or modifications to existing products and services, depends on several factors, including the timely completion, introduction, and market acceptance of such products and services, enhancements, and modifications. If we are unable to enhance our platform, add new payment methods, or develop new products that keep pace with technological and regulatory change and achieve market acceptance, or if new technologies emerge that are able to deliver competitive products and services at lower prices, more efficiently, more conveniently, or more securely than our products, our business, operating results, and financial condition would be adversely affected. Furthermore, modifications to our existing platform or technology will increase our research and development expenses. Any failure of our services to operate effectively with existing or future network platforms and technologies could reduce the demand for our services, result in customer or spending business dissatisfaction, and adversely affect our business.\nIf the prices we charge for our services are unacceptable to our customers, our operating results will be harmed.\n31\nWe generate revenue by charging customers a fixed monthly rate per user for subscriptions as well as transaction fees. As the market for our platform matures, or as new or existing competitors introduce new products or services that compete with ours, we may experience pricing pressure and be unable to renew our agreements with existing customers or attract new customers at prices that are consistent with our pricing model and operating budget. Our pricing strategy for new products we introduce and existing products we continue to offer may prove to be unappealing to our customers, and our competitors could choose to bundle certain products and services competitive with ours. If this were to occur, it is possible that we would have to change our pricing strategies or reduce our prices, which could harm our revenue, gross profits, and operating results.\nWe typically provide service level commitments under our financial institution partner agreements. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face contract terminations, which could adversely affect our revenue.\nOur agreements with our financial institution partners typically contain service level commitments evaluated on a monthly basis. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our platform, we may be contractually obligated to provide these partners with service credits, up to 10% of the partner\u2019s subscription fees for the month in which the service level was not met. In addition, we could face contract terminations, in which case we would be subject to refunds for prepaid amounts related to unused subscription services. Our revenue could be significantly affected if we suffer unexcused downtime under our agreements with our partners. Further, any extended service outages could adversely affect our reputation, revenue, and operating results.\nWe may not be able to scale our business quickly enough to meet our customers\u2019 growing needs, and if we are not able to grow efficiently, our operating results could be harmed.\nAs usage of our platform grows and we sign additional partners, we will need to devote additional resources to improving and maintaining our infrastructure and computer network and integrating with third-party applications to maintain the performance of our platform. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support, risk and compliance operations, and professional services, to serve our growing customer base.\nAny failure of or delay in these efforts could result in service interruptions, impaired system performance, and reduced customer satisfaction, resulting in decreased sales to new customers, lower subscription renewal rates by existing customers, the issuance of service credits, or requested refunds, all of which could hurt our revenue growth. If sustained or repeated, these performance issues could reduce the attractiveness of our platform to customers and could result in lost customer opportunities and lower renewal rates, any of which could hurt our revenue growth, customer loyalty, and our reputation. Even if we are successful in these efforts to scale our business, they will be expensive and complex, and require the dedication of significant management time and attention. We could also face inefficiencies or service disruptions as a result of our efforts to scale our internal infrastructure. We cannot be sure that the expansion and improvements to our internal infrastructure will be effectively implemented on a timely basis, if at all, and such failures could adversely affect our business, operating results, and financial condition.\nFailure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our products.\nOur ability to increase our customer base and achieve broader market acceptance of our platform will depend to a significant extent on our ability to expand our sales and marketing organizations, and to deploy our sales and marketing resources efficiently. Although we will adjust our sales and marketing spend levels as needed in response to changes in the economic environment, we plan to continue expanding our direct-to-SMB sales force as well as our sales force focused on identifying new partnership opportunities. We also dedicate significant resources to sales and marketing programs, including digital advertising through services such as Google AdWords. The effectiveness and cost of our online advertising has varied over time and may vary in the future due to competition for key search terms, changes in search engine use, and changes in the search algorithms used by major search engines. These efforts will require us to invest significant financial and other resources. \n32\nIn addition, our ability to broaden the spending business base for our Divvy spend and expense management offerings and achieve broader market acceptance of these products will depend to a significant extent on the ability of our sales and marketing organizations to work together to drive our sales pipeline and cultivate spending business and partner relationships to drive revenue growth. If we are unable to recruit, hire, develop, and retain talented sales or marketing personnel, if our new sales or marketing personnel and partners are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective, our ability to broaden our spending business base and achieve broader market acceptance of our platform could be harmed. Moreover, our Divvy marketing efforts depend significantly on our ability to call on our current spending businesses to provide positive references to new, potential spending business customers. Given our limited number of long-term spending businesses, the loss or dissatisfaction of any spending business could substantially harm our brand and reputation, inhibit the market adoption of our offering, and impair our ability to attract new spending businesses and maintain existing spending businesses.\nOur business and operating results will be harmed if our sales and marketing efforts do not generate significant increases in revenue. We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop, integrate, and retain talented and effective sales personnel, if our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs and advertising are not effective.\nWe currently handle cross-border payments and plan to expand our payments offerings to new customers and to make payments to new countries, creating a variety of operational challenges.\nA component of our growth strategy involves our cross-border payments product and, ultimately, expanding our operations internationally. Although we do not currently offer our payments products to customers outside the U.S., starting in 2018, we introduced cross-border payments, and now, working with two international payment services, offer our U.S.-based customers the ability to disburse funds to over 130 countries. We are continuing to adapt to and develop strategies to address payments to new countries. However, there is no guarantee that such efforts will have the desired effect.\nOur cross-border payments product and international expansion strategy involve a variety of risks, including:\n\u2022\ncomplying with financial regulations and our ability to comply and obtain any relevant licenses in applicable countries or jurisdictions;\n\u2022\ncurrency exchange rate fluctuations and our cross-border payments providers' ability to provide us favorable currency exchange rates, which may impact our revenues and expenses; \n\u2022\nreduction or cessation in cross-border trade resulting from government sanctions, trade tariffs or restrictions, other trade regulations or strained international relations;\n\u2022\npotential application of more stringent regulations relating to privacy, information protection, and data security, and the authorized use of, or access to, commercial and personal information;\n\u2022\nsanctions imposed by applicable government authorities or jurisdictions, such as OFAC, or comparable authorities in other countries;\n\u2022\nexposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act (FCPA), U.S. bribery laws, the UK Bribery Act, and similar laws and regulations in other jurisdictions; \n\u2022\nunexpected changes in tax laws; and\n\u2022\ncessation of business of a cross-border payment service provider or other limitation or inability of a cross-border payment service provider to make payments into certain countries, including for the reasons set forth above.\nIf we invest substantial time and resources to further expand our cross-border payments offering and are unable to do so successfully and in a timely manner, our business and operating results may suffer.\n33\nA substantial portion of our revenue is derived from interchange revenue, which exposes us to potential variability in income and other risks. \nCertain of our products, including our Divvy charge card and our virtual card products, generate revenue primarily from interchange paid by the supplier accepting the cards for purchase transactions. Interchange revenue comprises a substantial portion of our total revenue. The amount of  interchange fees we earn is highly dependent upon the interchange rates set by the third-party  card networks and, from time to time, card networks change the interchange fees and assessments they charge for transactions processed using their networks. In addition, interchange fees are the subject of intense legal and regulatory scrutiny and competitive pressures in the electronic payments industry.\nInterchange revenue involves a variety of risks, including: \n\u2022\ninterchange revenue fluctuations due to the variability of card acceptance practices at supplier locations, and the resulting effect on our revenue;\n\u2022\nchanges in card network interchange rates or rules which could dissuade new and existing card-accepting suppliers from continuing to accept card payments;\n\u2022\nunexpected compliance and risk management imposed by the card networks or resulting from changes in regulation;\n\u2022\ndeclines in the number of active card-accepting suppliers due to concerns about cost or operational complexity; and\n\u2022\nunexpected changes in card acceptance or card issuing rules which may impact our ability to offer this payment product.\nAny of these developments could adversely affect our business, financial condition, and operating results.\nIf we fail to maintain and enhance our brands, our ability to expand our customer base will be impaired and our business, operating results, and financial condition may suffer.\nWe believe that maintaining and enhancing our brands are important to support the marketing and sale of our existing and future products to new customers and partners and to expand sales of our platforms to new and existing customers and partners. Our ability to protect our BILL brand is limited as a result of its descriptive nature. Successfully maintaining and enhancing our brands will depend largely on the effectiveness of our marketing and demand generation efforts, our ability to provide reliable products that continue to meet the needs of our customers at competitive prices, our ability to maintain our customers\u2019 trust, our ability to continue to develop new functionality and products, and our ability to successfully differentiate our platform and products from competitive products and services. Our brand promotion activities may not generate customer awareness or yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brands, our business could suffer.\nChanges to payment card networks rules or fees could harm our business.\nWe are required to comply with the Mastercard, American Express, and Visa payment card network operating rules applicable to our card products. We have agreed to reimburse certain service providers for any fines they are assessed by payment card networks as a result of any rule violations by us. We may also be directly liable to the payment card networks for rule violations. The payment card networks set and interpret the card operating rules. The payment card networks could adopt new operating rules or interpret or reinterpret existing rules that we or our processors might find difficult or even impossible to follow, or costly to implement. We also may seek to introduce other card-related products in the future, which would entail compliance with additional operating rules. As a result of any violations of rules, new rules being implemented, or increased fees, we could be hindered or lose our ability to provide our card products, which would adversely affect our business. In addition, we are contractually obligated to comply with MasterCard and Visa network rules as a card program manager. As a result of any violations of these rules or new rules being implemented, we could lose our ability or rights to act as a card program manager. \n34\nWe may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.\nWe have funded our operations since inception primarily through equity and debt financings, sales of subscriptions to our products, usage-based transaction fees and interest earned on customer funds. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support our business, which may require us to engage in equity or debt financings to secure additional funds. We may also seek to raise additional capital from equity or debt financings on an opportunistic basis when we believe there are suitable opportunities for doing so. Additional financing may not be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, operating results, and financial condition. If we incur additional debt, the debt holders would have rights senior to holders of common stock to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue additional equity securities, including in connection with merger and acquisition transactions, stockholders will experience dilution. In addition, new equity securities could have rights senior to those of our common stock. During fiscal 2023, interest rates  increased and the trading prices for our common stock and other technology companies have been highly volatile, which may reduce our ability to access capital on favorable terms or at all. More recently, credit and capital markets have been impacted by instability in the U.S. banking system. In addition, a recession or depression, high inflation, or other sustained adverse market event could materially and adversely affect our business and the value of our common stock. Because our decision to issue securities in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their interests.\nOur ability to use our net operating losses to offset future taxable income may be subject to certain limitations.\nAs of June\u00a030, 2023, we had net operating loss (NOL) carryforwards of approximately $1.4\u00a0billion, $1.1\u00a0billion, and $83.4 million for federal, state, and foreign tax purposes, respectively, that are available to reduce future taxable income. If not utilized, the state NOL carryforwards will begin to expire in 2025. As of June\u00a030, 2023, the federal and foreign NOL carryforwards do not expire and will carry forward indefinitely until utilized. As of June\u00a030, 2023, we also had research and development tax credit carryforwards of approximately $56.1 million and $35.6 million for federal and state tax purposes, respectively. If not utilized, the federal tax credits will expire at various dates beginning in 2039. The state tax credits do not expire and will carry forward indefinitely until utilized. In general, under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended (the Code), a corporation that undergoes an \u201cownership change\u201d is subject to limitations on its ability to utilize its pre-change NOLs and other tax attributes, such as research tax credits, to offset future taxable income or income tax. If it is determined that we have in the past experienced an ownership change, or if we undergo one or more ownership changes as a result of future transactions in our stock, then our ability to utilize NOLs and other pre-change tax attributes could be limited by Sections 382 and 383 of the Code. Future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Sections 382 or 383 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to utilize a material portion of the NOLs, even if we were to achieve profitability.\n \nIn addition, any future changes in tax laws could impact our ability to utilize NOLs in future years and may result in greater tax liabilities than we would otherwise incur and adversely affect our cash flows and financial position.\nWe could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our customers would have to pay for our offering and adversely affect our operating results.\nThe vast majority of states have considered or adopted laws that impose tax collection obligations on out-of-state companies. States where we have nexus may require us to calculate, collect, and remit taxes on sales in their jurisdiction. Additionally, the Supreme Court of the U.S. recently ruled in South Dakota v. Wayfair, Inc. et al (Wayfair) that online sellers can be required to collect sales and use tax despite not having a physical presence in the buyer\u2019s state. In response to Wayfair, or otherwise, states or local governments may enforce laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions. We may be obligated to \n35\ncollect and remit sales and use taxes in states where we have not collected and remitted sales and use taxes. A successful assertion by one or more states requiring us to collect taxes where we historically have not or presently do not do so could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition by state governments or local governments of sales tax collection obligations on out-of-state sellers could also create additional administrative burdens for us, put us at a perceived competitive disadvantage if they do not impose similar obligations on our competitors, and decrease our future sales, which could adversely affect our business and operating results.\nChanges in our effective tax rate or tax liability may adversely affect our operating results.\nOur effective tax rate could increase due to several factors, including:\n\u2022\nchanges in the relative amounts of income before taxes in the various U.S. and international jurisdictions in which we operate due to differing statutory tax rates in various jurisdictions;\n\u2022\nchanges in tax laws, tax treaties, and regulations or the interpretation of them, including the 2017 Tax Act as modified by the CARES Act, and the Inflation Reduction Act of 2022;\n\u2022\nchanges to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;\n\u2022\nthe outcome of current and future tax audits, examinations, or administrative appeals; and\n\u2022\nlimitations or adverse findings regarding our ability to do business in some jurisdictions.\nAny of these developments could adversely affect our operating results.\nWe use artificial intelligence in our business, and challenges with properly managing its use could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.\nWe currently leverage AI into certain aspects of our platform, such as prepopulating invoices based on the historical behavior of businesses using our solutions and modeling businesses' creditworthiness and offering them and their counterparties expedited means of payment. Moving forward, we anticipate that AI will become increasingly important to our platform. Our competitors and other third parties may incorporate AI into their products and offerings more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our results of operations. Additionally, if the content, analyses, or recommendations that AI applications assist in producing are or are alleged to be inaccurate, deficient, or biased, our business, financial condition, and results of operations may be adversely affected. The use of AI applications has resulted in, and may in the future result in, cybersecurity incidents that implicate the personal data of customers analyzed within such applications. Any such cybersecurity incidents related to our use of AI applications to analysis personal data could adversely affect our reputation and results of operations. AI also presents emerging ethical issues and if our use of AI becomes controversial, we may experience brand or reputational harm, competitive harm, or legal liability. The rapid evolution of AI, including potential government regulation of AI and it various uses, will require significant resources to develop, test and maintain our platform, offerings, services, and features to help us implement AI ethically in order to minimize unintended, harmful impact.\nNatural catastrophic events, pandemics, and man-made problems such as power-disruptions, computer viruses, data security breaches, war, and terrorism may disrupt our business.\nNatural disasters, pandemics such as the COVID-19 pandemic, other catastrophic events, and man-made problems, such as terrorism, war, or economic or trade sanctions related to war (including the 2022 Russian invasion of Ukraine), may cause damage or disruption to our operations, international commerce, and the global economy, and thus could harm our business. We have a large employee presence in the San Francisco Bay Area in California, Draper, Utah, Houston, Texas and Sydney, Australia, and our data centers are located in California and Arizona. The west coast of the U.S. contains active earthquake zones and is subject to frequent wildfire outbreaks, the Houston area frequently experiences significant hurricanes and Sydney also frequently experiences wildfires. In the event of a major earthquake, hurricane, or catastrophic event such as fire, flooding, power loss, telecommunications failure, vandalism, cyber-attack, war, or terrorist attack, we may \n36\nbe unable to continue our operations and may endure system interruptions, reputational harm, delays in our application development, lengthy interruptions in our products, breaches of data security, and loss of critical data, all of which could harm our business, operating results, and financial condition. In addition, data centers depend on predictable and reliable energy and networking capabilities, which could be affected by a variety of factors, including climate change.\nAdditionally, as computer malware, viruses, and computer hacking, fraudulent use attempts, and phishing attacks have become more prevalent, we, and third parties upon which we rely, face increased risk in maintaining the performance, reliability, security, and availability of our solutions and related services and technical infrastructure to the satisfaction of our customers. Any computer malware, viruses, computer hacking, fraudulent use attempts, phishing attacks, or other data security breaches related to our network infrastructure or information technology systems or to computer hardware we lease from third parties, could, among other things, harm our reputation and our ability to retain existing customers and attract new customers.\nIn addition, the insurance we maintain may be insufficient to cover our losses resulting from disasters, cyber-attacks, or other business interruptions, and any incidents may result in loss of, or increased costs of, such insurance.\nIf we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.\nWe are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of the New York Stock Exchange (NYSE), and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time consuming, or costly, and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. Sarbanes-Oxley requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. It may require significant resources and management oversight to maintain and, if necessary, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard. As a result, management\u2019s attention may be diverted from other business concerns, which could adversely affect our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the future or engage outside consultants, which would increase our costs and expenses. \nWe are required, pursuant to Section 404 of Sarbanes-Oxley (Section 404), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.\nThis assessment needs to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on the effectiveness of our internal control over financial reporting. Section 404(b) of the Sarbanes-Oxley Act requires our independent registered public accounting firm to annually attest to the effectiveness of our internal control over financial reporting, which has, and will continue to, require increased costs, expenses, and management resources. An independent assessment of the effectiveness of our internal controls could detect problems that our management\u2019s assessment might not. Undetected material weaknesses in our internal controls could lead us to restate our financial statements, which could cause investors to lose confidence in our reported financial information, have a negative effect on the trading price of our common stock, and result in additional costs to remediate such material weaknesses. We are required to disclose changes made in our internal control and procedures on a quarterly basis. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff. For example, in May 2023, we concluded that a material weakness in our internal control over financial reporting existed as of \n37\nJune 30, 2022, as a result of insufficient testing, documentation, and evidence retention related to certain information systems and applications within the quote-to-cash process. While this material weakness was remediated as of June 30, 2023, there can be no assurance that we will not have material weaknesses or deficiencies in our internal control over financial reporting in the future. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm issues an adverse opinion on the effectiveness of our internal control, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.\nOur reported financial results may be adversely affected by changes in accounting principles generally accepted in the U.S.\nU.S. generally accepted accounting principles (GAAP) is subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported operating results and financial condition and could affect the reporting of transactions already completed before the announcement of a change.\nIf our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.\nThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled \u201c\nManagement\u2019s Discussion and Analysis of Financial Condition and Operating Results\u2014Critical Accounting Policies and Estimates.\n\u201d The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments may involve the variable consideration used in revenue recognition for certain contracts, determination of useful lives of long-lived intangible assets, present value estimation of operating lease liabilities, the estimate of losses on accounts receivable, acquired card receivables and other financial assets, accrual for rewards, inputs used to value certain stock-based compensation awards, benefit period to amortize deferred costs and valuation of income taxes. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our common stock.\nOur estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.\nMarket opportunity estimates and growth forecasts, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of addressable users or companies covered by our market opportunity estimates will purchase our products at all or generate any particular level of revenue for us. Any expansion in the markets in which we operate depends on a number of factors, including the cost, performance, and perceived value associated with our platforms and those of our competitors. Even if the markets in which we compete meet the size estimates and growth forecasted, our business could fail to grow at similar rates, if at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, our forecasts of market growth should not be taken as indicative of our future growth. \nWe rely on assumptions and estimates to calculate certain of our performance metrics, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.\n38\nWe calculate and track certain customer and other performance metrics with internal tools, which are not independently verified by any third party. While we believe our metrics are reasonable estimates of our customer base and payment and transaction volumes for the applicable period of measurement, the methodologies used to measure these metrics require significant judgment and may be susceptible to algorithm or other technical errors. For example, the accuracy and consistency of our performance metrics may be impacted by changes to internal assumptions regarding how we account for and track customers, limitations on system implementations, and limitations on the ability of third-party tools to match our database. If the internal tools we use to track these metrics undercount or overcount performance or contain algorithmic or other technical errors, the data we report may not be accurate. In addition, limitations or errors with respect to how we measure data (or the data that we measure) may affect our understanding of certain details of our business, which could affect our longer-term strategies. Further, as our business develops, we may revise or cease reporting certain metrics if we determine that such metrics are no longer accurate or appropriate measures of our performance. If our performance metrics are not accurate representations of our business, customer base, or payment or transaction volumes, if we discover material inaccuracies in our metrics, or if the metrics we rely on to track our performance do not provide an accurate measurement of our business, our reputation may be harmed, we may be subject to legal or regulatory actions, and our business, operating results, financial condition, and prospects could be adversely affected.\nAny future litigation against us could be costly and time-consuming to defend.\nWe have in the past and may in the future become subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes, employment claims made by our current or former employees, or claims for reimbursement following misappropriation of customer data. Litigation might result in substantial costs and may divert management\u2019s attention and resources, which might seriously harm our business, overall financial condition, and operating results. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or under-insured could result in unanticipated costs, thereby reducing our operating results and leading analysts or potential investors to reduce their expectations of our performance, which could reduce the trading price of our stock.\nIf we cannot maintain our company culture as we grow, our success and our business may be harmed.\nWe believe our culture has been a key contributor to our success to date and that the critical nature of the platform that we provide promotes a sense of greater purpose and fulfillment in our employees. Inorganic growth through mergers and acquisitions may pose significant challenges to assimilating the company cultures of acquired companies. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel, which is critical to our growth, and to effectively focus on and pursue our corporate objectives. As we grow and develop the infrastructure of a public company, we may find it difficult to maintain these important aspects of our culture. If we fail to maintain our company culture, our business and competitive position may be adversely affected.\nWe are exposed to foreign currency exchange risk relating to our Australian operations.\nWe are exposed to foreign currency exchange risk relating to our Australian operations and Australian subsidiary. A change in foreign currency exchange rates, particularly in Australian dollars to U.S. dollars, can affect our financial results due to transaction gains or losses related to the remeasurement of certain monetary asset and monetary liability balances that are denominated in currencies other than U.S. dollars, which is the functional currency of our Australian subsidiary. In addition, we expect our exposure to foreign currency rate risks in the future to increase as our international operations increase.\nRisks Related to Government Regulation and Privacy Matters\nPayments and other financial services-related regulations and oversight are material to our business. Our failure to comply could materially harm our business.\nThe local, state, and federal laws, rules, regulations, licensing requirements, and industry standards that govern our business include, or may in the future include, those relating to banking, deposit-taking, cross-border and domestic money transmission, foreign exchange, payments services (such as licensed money \n39\ntransmission, payment processing, and settlement services), lending, anti-money laundering, combating terrorist financing, escheatment, international sanctions regimes, and compliance with the Payment Card Industry Data Security Standard, a set of requirements designed to ensure that all companies that process, store, or transmit payment card information maintain a secure environment to protect spending business data. In addition, Divvy is required to maintain loan brokering or servicing licenses in a number of U.S. states in which it conducts business and is contractually obligated to comply with FDIC federal banking regulations, as well as Visa and MasterCard network rules as a card program manager. These laws, rules, regulations, licensing schemes, and standards are enforced by multiple authorities and governing bodies in the U.S., including the Department of the Treasury, the FDIC, the SEC, self-regulatory organizations, and numerous state and local agencies. As we expand into new jurisdictions, the number of foreign laws, rules, regulations, licensing schemes, and standards governing our business will expand as well. In addition, as our business and products continue to develop and expand, we may become subject to additional laws, rules, regulations, licensing schemes, and standards. We may not always be able to accurately predict the scope or applicability of certain laws, rules, regulations, licensing schemes, or standards to our business, particularly as we expand into new areas of operations, which could have a significant negative effect on our existing business and our ability to pursue future plans.\nSeveral of our subsidiaries maintain licenses to operate in regulated businesses in U.S. states and other countries.  Our subsidiary, Bill.com, LLC, maintains licenses, as applicable, to operate as a money transmitter (or its equivalent) in the U.S., the District of Columbia, the Commonwealth of Puerto Rico, and, to the best of our knowledge, in all the states where such licensure or registration is required for our business. In addition, our subsidiary, Bill.com Canada, LLC is a Foreign Money Services Business in Canada and the regulations applicable to our activity in Canada are enforced by FINTRAC and Quebec\u2019s Financial Markets Authority. As a licensed money transmitter in the U.S., we are subject to obligations and restrictions with respect to the investment of customer funds, reporting requirements, bonding requirements, minimum capital requirements, and examinations by state and federal regulatory agencies concerning various aspects of our business. As a licensed Foreign Money Services business in Canada, we are subject to Canadian compliance regulations applicable to money movement and sanctions requirements. In addition, our DivvyPay, LLC subsidiary holds brokering and servicing licenses required in connection with our Divvy card offering, and certain of our other subsidiaries hold loan brokering and servicing licenses as well.  \nEvaluation of our compliance efforts in the U.S. and Canada, as well as questions as to whether and to what extent our products and services are considered money transmission, are matters of regulatory interpretation and could change over time. In the past, we have been subject to fines and other penalties by regulatory authorities for violations of state money transmission laws. Regulators and third-party auditors have also identified gaps in our anti-money laundering and sanctions program, which we have addressed through remediation processes. In the future, as a result of the regulations applicable to our business, we could be subject to investigations and resulting liability, including governmental fines, restrictions on our business, or other sanctions, and we could be forced to cease conducting certain aspects of our business with residents of certain jurisdictions, be forced to change our business practices in certain jurisdictions, or be required to obtain additional licenses or regulatory approvals. There can be no assurance that we will be able to obtain or maintain any such licenses, and, even if we were able to do so, there could be substantial costs and potential product changes involved in maintaining such licenses, which could have a material and adverse effect on our business. In addition, there are substantial costs and potential product changes involved in maintaining and renewing such licenses, certifications, and approvals, and we could be subject to fines or other enforcement action if we are found to violate disclosure, reporting, anti-money laundering, capitalization, corporate governance, or other requirements of such licenses. These factors could impose substantial additional costs, involve considerable delay to the development or provision of our products or services, require significant and costly operational changes, or prevent us from providing our products or services in any given market.\nGovernment agencies may impose new or additional rules on money transmission, including regulations that:\n\u2022\nprohibit, restrict, and/or impose taxes or fees on money transmission transactions in, to, or from certain countries or with certain governments, individuals, and entities;\n\u2022\nimpose additional customer and spending business identification and customer or spending business due diligence requirements;\n40\n\u2022\nimpose additional reporting or recordkeeping requirements, or require enhanced transaction monitoring;\n\u2022\nlimit the types of entities capable of providing money transmission services, or impose additional licensing or registration requirements;\n\u2022\nimpose minimum capital or other financial requirements;\n\u2022\nlimit or restrict the revenue that may be generated from money transmission, including revenue from interest earned on customer funds, transaction fees, and revenue derived from foreign exchange;\n\u2022\nrequire enhanced disclosures to our money transmission customers;\n\u2022\nrequire the principal amount of money transmission originated in a country to be invested in that country or held in trust until paid;\n\u2022\nlimit the number or principal amount of money transmission transactions that may be sent to or from a jurisdiction, whether by an individual or in the aggregate; and\n\u2022\nrestrict or limit our ability to process transactions using centralized databases, for example, by requiring that transactions be processed using a database maintained in a particular country or region.\nOur business is subject to extensive government regulation and oversight. Our failure to comply with extensive, complex, overlapping, and frequently changing rules, regulations, and legal interpretations could materially harm our business.\nOur success and increased visibility may result in increased regulatory oversight and enforcement and more restrictive rules and regulations that apply to our business. We are subject to a wide variety of local, state, federal, and international laws, rules, regulations, licensing schemes, and industry standards in the U.S. and in other countries in which we operate and in many of the approximately 150 countries in which Invoice2go has subscribers. These laws, rules, regulations, licensing schemes, and standards govern numerous areas that are important to our business. In addition to the payments and financial services-related regulations, and the privacy, data protection, and information security-related laws described elsewhere in this \"\nRisk Factors\n\" section our business is also subject to, without limitation, rules and regulations applicable to: securities, labor and employment, immigration, competition, and marketing and communications practices. Laws, rules, regulations, licensing schemes, and standards applicable to our business are subject to change and evolving interpretations and application, including by means of legislative changes and/or executive orders, and it can be difficult to predict how they may be applied to our business and the way we conduct our operations, particularly as we introduce new products and services and expand into new jurisdictions. We may not be able to respond quickly or effectively to regulatory, legislative, and other developments, and these changes may in turn impair our ability to offer our existing or planned features, products, and services and/or increase our cost of doing business.\nAlthough we have a compliance program focused on the laws, rules, regulations, licensing schemes, and industry standards that we have assessed as applicable to our business and we are continually investing more in this program, there can be no assurance that our employees or contractors will not violate such laws, rules, regulations, licensing schemes, and industry standards. Any failure or perceived failure to comply with existing or new laws, rules, regulations, licensing schemes, industry standards, or orders of any governmental authority (including changes to or expansion of the interpretation of those laws, regulations, standards, or orders), may:\n\u2022\nsubject us to significant fines, penalties, criminal and civil lawsuits, license suspension or revocation, forfeiture of significant assets, audits, inquiries, whistleblower complaints, adverse media coverage, investigations, and enforcement actions in one or more jurisdictions levied by federal, state, local, or foreign regulators, state attorneys general, and private plaintiffs who may be acting as private attorneys general pursuant to various applicable federal, state, and local laws;\n\u2022\nresult in additional compliance and licensure requirements;\n41\n\u2022\nincrease regulatory scrutiny of our business; and\n\u2022\nrestrict our operations and force us to change our business practices or compliance program, make product or operational changes, or delay planned product launches or improvements.\nThe complexity of U.S. federal and state regulatory and enforcement regimes, coupled with the scope of our international operations and the evolving regulatory environment, could result in a single event giving rise to many overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions.\nAny of the foregoing could, individually or in the aggregate, harm our reputation as a trusted provider, damage our brands and business, cause us to lose existing customers, prevent us from obtaining new customers, require us to expend significant funds to remedy problems caused by breaches and to avert further breaches, expose us to legal risk and potential liability, and adversely affect our business, operating results, and financial condition.\nWe are subject to governmental regulation and other legal obligations, particularly those related to privacy, data protection, and information security, and our actual or perceived failure to comply with such obligations could harm our business, by resulting in litigation, fines, penalties, or adverse publicity and reputational damage that may negatively affect the value of our business and decrease the price of our common stock. Compliance with such laws could also result in additional costs and liabilities to us or inhibit sales of our products.\nOur customers, their suppliers, and other users store personal and business information, financial information, and other sensitive information on our platform. In addition, we receive, store, and process personal and business information and other data from and about actual and prospective customers and users, in addition to our employees and service providers. Our handling of data is subject to a variety of laws and regulations, including regulation by various government agencies, such as the FTC, and various state, local, and foreign agencies. Our data handling also is subject to contractual obligations and industry standards.\nThe U.S. federal and various state and foreign governments have adopted or proposed limitations on the collection, distribution, use, and storage of data relating to individuals and businesses, including the use of contact information and other data for marketing, advertising, and other communications with individuals and businesses. In the U.S., various laws and regulations apply to the collection, processing, disclosure, and security of certain types of data, including the Gramm Leach Bliley Act and state laws relating to privacy and data security. Additionally, the FTC and many state attorneys general are interpreting federal and state consumer protection laws as imposing standards for the online collection, use, dissemination, and security of data. For example, in June 2018, California enacted the California Consumer Privacy Act (CCPA), which became operative on January 1, 2020 and broadly defines personal information, gives California residents expanded privacy rights and protections, and provides for civil penalties for violations and a private right of action for data breaches. The CCPA was amended several times after its enactment, most recently by the California Privacy Rights Act (CPRA), which, as of its effective date of January 1, 2023, gives California residents expanded privacy rights, including the right to opt out of certain personal information sharing, the use of \u201csensitive personal information,\u201d and the use of personal information for automated decision-making or targeted advertising. The CCPA and CPRA provide for civil penalties and a private right of action for data breaches that is expected to increase data breach litigation. Many aspects of the CCPA, the CPRA, and their interpretation remain unclear, and their full impact on our business and operations remains uncertain. Following the lead of California, several other states, including Colorado, Utah, Virginia, and Connecticut have each enacted laws similar to the CCPA/CPRA and other states are considering enacting privacy laws as well. Accordingly, the laws and regulations relating to privacy, data protection, and information security are evolving, can be subject to significant change, and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.\nIn addition, several foreign countries and governmental bodies, including the European Union (EU) and the United Kingdom (UK), have laws and regulations dealing with the handling and processing of personal information obtained from their residents, which in certain cases are more restrictive than those in the U.S. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, and security of various types of data, including data that identifies or may be used to identify an individual, such as names, email addresses, and in some jurisdictions, internet protocol addresses. Our current and prospective service offerings subject us to the EU's GDPR, the UK GDPR, Australian and Canadian privacy laws, and the privacy \n42\nlaws of many other foreign jurisdictions. Such laws and regulations may be modified or subject to new or different interpretations, and new laws and regulations may be enacted in the future.\nFor example, the GDPR and the UK GDPR impose stringent operational requirements for controllers and processors of personal data of individuals within the European Economic Area and the UK, respectively, and non-compliance can trigger robust regulatory enforcement and fines of up to the greater of \u20ac20 million or 4% of the annual global revenues. Among other requirements, these laws regulate transfers of personal data to third countries that have not been found to provide adequate protection to such personal data, including the United States. The efficacy and longevity of current transfer mechanisms between the EU or the UK and the United States remains uncertain. Violations of the GDPR or the UK GDPR may also lead to damages claims by data controllers and data subjects, in addition to civil litigation claims by data controllers, customers, and data subjects.\nThe scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting as a result of the rapidly evolving regulatory framework for privacy issues worldwide. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. As a result of the laws that are or may be applicable to us, and due to the sensitive nature of the information we collect, we have implemented policies and procedures to preserve and protect our data and our customers\u2019 data against loss, misuse, corruption, misappropriation caused by systems failures, or unauthorized access. If our policies, procedures, or measures relating to privacy, data protection, information security, marketing, or customer communications fail to comply with laws, regulations, policies, legal obligations, or industry standards, we may be subject to governmental enforcement actions, litigation, regulatory investigations, fines, penalties, and negative publicity, and it could cause our application providers, customers, and partners to lose trust in us, and have an adverse effect on our business, operating results, and financial condition.\nIn addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that may apply to us. Because the interpretation and application of privacy, data protection and information security laws, regulations, rules, and other standards are still uncertain, it is possible that these laws, rules, regulations, and other actual or alleged legal obligations, such as contractual or self-regulatory obligations, may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the functionality of our platform. If so, in addition to the possibility of fines, lawsuits, and other claims, we could be required to fundamentally change our business activities and practices or modify our software, which could have an adverse effect on our business.\nAny failure or perceived failure by us to comply with laws, regulations, policies, legal, or contractual obligations, industry standards, or regulatory guidance relating to privacy, data protection, or information security, may result in governmental investigations and enforcement actions, litigation, fines and penalties, or adverse publicity, and could cause our customers and partners to lose trust in us, which could have an adverse effect on our reputation and business. We expect that there will continue to be new proposed laws, regulations, and industry standards relating to privacy, data protection, information security, marketing, and consumer communications, and we cannot determine the impact such future laws, regulations, and standards may have on our business. Future laws, regulations, standards, and other obligations or any changed interpretation of existing laws or regulations could impair our ability to develop and market new functionality and maintain and grow our customer base and increase revenue. Future restrictions on the collection, use, sharing, or disclosure of data, or additional requirements for express or implied consent of our customers, partners, or users for the use and disclosure of such information could require us to incur additional costs or modify our platform, possibly in a material manner, and could limit our ability to develop new functionality.\nIf we are not able to comply with these laws or regulations, or if we become liable under these laws or regulations, our business, financial condition, or reputation could be harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain products, which would negatively affect our business, financial condition, and operating results. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise adversely affect the growth of our business. Furthermore, any costs incurred as a result of this potential liability could harm our operating results.\n43\nWe, our partners, our customers, and others who use our services obtain and process a large amount of sensitive data. Any real or perceived improper or unauthorized use of, disclosure of, or access to such data could harm our reputation as a trusted brand and adversely affect our business, operating results, and financial condition.\nWe, our partners, our customers, and the third-party vendors and data centers that we use, obtain and process large amounts of sensitive data, including data related to our customers and their transactions, as well as other data of the counterparties to their payments. We face risks, including to our reputation as a trusted brand, in the handling and protection of this data, and these risks will increase as our business continues to expand to include new products and technologies.\nCybersecurity incidents and malicious internet-based activity continue to increase generally, and providers of cloud-based services have frequently been targeted by such attacks. These cybersecurity challenges, including threats to our own information technology infrastructure or those of our customers or third-party providers, may take a variety of forms ranging from stolen bank accounts, business email compromise, customer employee fraud, account takeover, check fraud, or cybersecurity attacks, to \u201cmega breaches\u201d targeted against cloud-based services and other hosted software, which could be initiated by individual or groups of hackers or sophisticated cyber criminals. State-sponsored cybersecurity attacks on the U.S. financial system or U.S. financial service providers could also adversely affect our business. A cybersecurity incident or breach could result in disclosure of confidential information and intellectual property, or cause production downtimes and compromised data. We have in the past experienced cybersecurity incidents of limited scale. We may be unable to anticipate or prevent techniques used in the future to obtain unauthorized access or to sabotage systems because they change frequently and often are not detected until after an incident has occurred. As we increase our customer base and our brand becomes more widely known and recognized, third parties may increasingly seek to compromise our security controls or gain unauthorized access to our sensitive corporate information or our customers\u2019 data.\nWe have administrative, technical, and physical security measures in place, and we have policies and procedures in place to contractually require service providers to whom we disclose data to implement and maintain reasonable privacy, data protection, and information security measures. However, if our privacy protection, data protection, or information security measures or those of the previously mentioned third parties are inadequate or are breached as a result of third-party action, employee or contractor error, malfeasance, malware, phishing, hacking attacks, system error, software bugs, or defects in our products, trickery, process failure, or otherwise, and, as a result, there is improper disclosure of, or someone obtains unauthorized access to or exfiltrates funds or sensitive information, including personally identifiable information, on our systems or our partners\u2019 systems, or if we suffer a ransomware or advanced persistent threat attack, or if any of the foregoing is reported or perceived to have occurred, our reputation and business could be damaged. Recent high-profile security breaches and related disclosures of sensitive data by large institutions suggest that the risk of such events is significant, even if privacy, data protection, and information security measures are implemented and enforced. If sensitive information is lost or improperly disclosed or threatened to be disclosed, we could incur significant costs associated with remediation and the implementation of additional security measures, and may incur significant liability and financial loss, and be subject to regulatory scrutiny, investigations, proceedings, and penalties.\nIn addition, our financial institution partners conduct regular audits of our cybersecurity program, and if any of them were to conclude that our systems and procedures are insufficiently rigorous, they could terminate their relationships with us, and our financial results and business could be adversely affected. Under our terms of service and our contracts with certain partners, if there is a breach of payment information that we store, we could be liable to the partner for their losses and related expenses. Additionally, if our own confidential business information were improperly disclosed, our business could be materially and adversely affected. A core aspect of our business is the reliability and security of our platform. Any perceived or actual breach of security, regardless of how it occurs or the extent of the breach, could have a significant impact on our reputation as a trusted brand, cause us to lose existing partners or other customers, prevent us from obtaining new partners and other customers, require us to expend significant funds to remedy problems caused by breaches and implement measures to prevent further breaches, and expose us to legal risk and potential liability including those resulting from governmental or regulatory investigations, class action litigation, and costs associated with remediation, such as fraud monitoring and forensics. Any actual or perceived security breach at a company providing services to us or our customers could have similar effects. Further, as the COVID-19 pandemic and \n44\nensuing adoption of remote work has resulted in a significant number of people working from home, these cybersecurity risks may be heightened by an increased attack surface across our business and those of our partners and service providers. We have heightened monitoring in the face of such risks, but cannot guarantee that our efforts, or the efforts of those upon whom we rely and partner with, will be successful in preventing any such information security incidents.\nWhile we maintain cybersecurity insurance, our insurance may be insufficient or may not cover all liabilities incurred by such attacks. We also cannot be certain that our insurance coverage will be adequate for data handling or data security liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our business, operating results, financial condition, and reputation.\nWe are subject to governmental laws and requirements regarding economic and trade sanctions, anti-money laundering, and counter-terror financing that could impair our ability to compete in international markets or subject us to criminal or civil liability if we violate them.\nAlthough we currently only offer our payment and card products to customers in the U.S. and Canada, Invoice2go has international subscribers in approximately 150 countries, including Australia and several EU countries, for which payment activity is conducted through third-party payment providers. As we continue to expand internationally, we will become subject to additional laws and regulations, and will need to implement new regulatory controls to comply with applicable laws. We are currently required to comply with U.S. economic and trade sanctions administered by OFAC and we have processes in place to comply with the OFAC regulations as well as similar requirements in other jurisdictions, including the Australian Sanctions Regime, the Canadian Proceeds of Crime and Terrorist Financing Act and, to the extent we expand our offerings into the UK and the EU, UK and EU money laundering directives. As part of our compliance efforts, we scan our customers against OFAC and other watch lists and have controls to monitor and mitigate these risks. If our services are accessed from a sanctioned country in violation of the trade and economic sanctions, we could be subject to fines or other enforcement action. We are also subject to various anti-money laundering and counter-terrorist financing laws and regulations in the U.S., Canada, Australia, and around the world that prohibit, among other things, our involvement in transferring the proceeds of criminal activities.\nIn the United States, most of our services are subject to anti-money laundering laws and regulations, including the BSA and similar state laws and regulations. The BSA requires, among other things, MSBs to develop and implement risk-based anti-money laundering programs, to report suspicious activity, and in some cases, to collect and maintain information about customers who use their services and maintain other transaction records. Regulators in the United States, Canada, Australia, and in many other foreign jurisdictions continue to increase their scrutiny of compliance with these obligations, which may require us to further revise or expand our compliance program, including the procedures we use to verify the identity of our customers and to monitor transactions on our system, including payments to persons outside of the U.S., Canada, and Australia. Regulators regularly re-examine the transaction volume thresholds at which we must obtain and keep applicable records or verify identities of customers, and any change in such thresholds could result in greater costs for compliance.\nWe are subject to anti-corruption, anti-bribery, and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business.\nWe are subject to the FCPA, U.S. domestic bribery laws, and other anti-corruption laws, including Australia\u2019s anti-bribery laws, the Canadian Criminal Code and the Canadian Corruption of Foreign Public Officials Act. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, and their third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public sector. These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. Although we currently only offer our payment and card products to customers in the U.S.,and payment services in Canada and the United Kingdom, Invoice2go has international subscribers in approximately 150 countries, including Australia and several EU countries for \n45\nwhich payment activity is conducted through third-party payment providers. As we increase our international cross-border business and expand operations abroad, we may engage with business partners and third-party intermediaries to market our services and obtain necessary permits, licenses, and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities.\nWe cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. As we increase our international business, our risks under these laws may increase.\nDetecting, investigating, and resolving actual or alleged violations of anti-corruption laws can require a significant diversion of time, resources, and attention from senior management. In addition, noncompliance with anti-corruption or anti-bribery laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties, injunctions, suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas are received or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our business, operating results, and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management\u2019s attention and resources and significant defense costs and other professional fees.\nRisks Related to Our Intellectual Property\nIf we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, generate less revenue, and incur costly litigation to protect our rights.\nOur success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws, and contractual provisions to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. While we have been issued patents in the U.S. and have additional patent applications pending, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, any patents issued in the future may not provide us with competitive advantages or may be successfully challenged by third parties. Any of our patents, trademarks, or other intellectual property rights may be challenged or circumvented by others or invalidated through administrative process or litigation. There can be no guarantee that others will not independently develop similar products, duplicate any of our products, or design around our patents. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours.\nWe have been in the past, and may in the future be, subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of doing business.\nWe have been in the past and may in the future become subject to intellectual property disputes. Lawsuits are time-consuming and expensive to resolve and they divert management\u2019s time and attention. Although we carry insurance, our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. We cannot predict the outcome of lawsuits and cannot assure you that the results of any such actions will not have an adverse effect on our business, operating results, or financial condition.\nThe software industry is characterized by the existence of many patents, copyrights, trademarks, trade secrets, and other intellectual and proprietary rights. Companies in the software industry are often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Our technologies may not be able to withstand any third-party claims against their use. In addition, many companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. Any litigation may also involve patent holding \n46\ncompanies or other adverse patent owners that have no relevant product revenue, and therefore, our patents may provide little or no deterrence as we would not be able to assert them against such entities or individuals. If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we would be forced to limit or stop sales of our software or cease business activities related to such intellectual property. Any inability to license third-party technology in the future would have an adverse effect on our business or operating results and would adversely affect our ability to compete. We may also be contractually obligated to indemnify our customers in the event of infringement of a third party\u2019s intellectual property rights. Responding to such claims, regardless of their merit, can be time consuming, costly to defend, and damaging to our reputation and brand.\nIndemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, data protection, and other losses.\nOur agreements with financial institution partners and some larger customers include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, data protection, damages caused by us to property or persons, or other liabilities relating to or arising from our platform or other contractual obligations. Some of these indemnity agreements provide for uncapped liability and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, operating results, and financial condition. Although we normally limit our liability with respect to such obligations in our contracts with direct customers and with customers acquired through our accounting firm partners, we may still incur substantial liability, and we may be required to cease use of certain functions of our platform or products, as a result of intellectual property-related claims. Any dispute with a customer with respect to these obligations could have adverse effects on our relationship with that customer and other existing or new customers, and harm our business and operating results. In addition, although we carry insurance, our insurance may not be adequate to indemnify us for all liability that may be imposed, or otherwise protect us from liabilities or damages with respect to claims alleging compromises of customer data, and any such coverage may not continue to be available to us on acceptable terms or at all.\nWe use open source software in our products, which could subject us to litigation or other actions.\nWe use open source software in our products. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate it into their products. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition, or require us to devote additional research and development resources to change our products. In addition, if we were to combine our proprietary software products with open source software in a certain manner under certain open source licenses, we could be required to release the source code of our proprietary software products. If we inappropriately use or incorporate open source software subject to certain types of open source licenses that challenge the proprietary nature of our products, we may be required to re-engineer such products, discontinue the sale of such products, or take other remedial actions. \nRisks Related to Our Indebtedness\nOur debt service obligations, including the Notes, may adversely affect our financial condition and results of operations.\nAs of June\u00a030, 2023, we had outstanding $1.15 billion aggregate principal amount of 0% convertible senior notes due December 1, 2025 (the 2025 Notes), $575.0 million aggregate principal amount of 0% convertible senior notes due April 1, 2027 (the 2027 Notes, and together with the 2025 Notes, the Notes), and had drawn $135.0 million under our Revolving Credit Facility, as described in Note 10 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Our ability to make payments of the principal of, to pay interest on, or to refinance our indebtedness, including the Notes and our Revolving Credit Facility, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Moreover, our obligations under the Revolving Credit Facility are secured by our Divvy credit card receivables and certain other collateral.\n \nOur business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, \n47\nrestructuring debt, or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. Our ability to refinance any future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our debt.\nIn addition, our indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:\n\u2022\nmake us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulation;\n\u2022\nlimit our flexibility in planning for, or reacting to, changes in our business and our industry;\n\u2022\nplace us at a disadvantage compared to our competitors who have less debt;\n\u2022\nlimit our ability to borrow additional amounts to fund acquisitions, for working capital, and for other general corporate purposes; and\n\u2022\nmake an acquisition of our company less attractive or more difficult.\nAny of these factors could harm our business, operating results, and financial condition. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase. We are also required to comply with the covenants set forth in the indentures governing the Notes. Our ability to comply with these covenants may be affected by events beyond our control. If we breach any of the covenants and do not obtain a waiver from the note holders or lenders, then, subject to applicable cure periods, any outstanding indebtedness may be declared immediately due and payable. In addition, changes by any rating agency to our credit rating may negatively impact the value and liquidity of our securities. Downgrades in our credit ratings could restrict our ability to obtain additional financing in the future and could affect the terms of any such financing.\nWe may not have the ability to raise the funds necessary for cash settlement upon conversion of the Notes or to repurchase the Notes for cash upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion of the Notes or to repurchase the Notes.\nHolders of the Notes have the right to require us to repurchase their notes upon the occurrence of a fundamental change (as defined in the indentures governing the 2025 Notes and 2027 Notes, respectively) at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus\n \naccrued and unpaid special interest, if any. In addition, upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of the Notes surrendered or the Notes being converted. In addition, our ability to repurchase the Notes or to pay cash upon conversions of the Notes may be limited by law, by regulatory authority, or by agreements governing our future indebtedness.\nIn addition to the Notes, we and our subsidiaries may incur substantial additional debt in the future, subject to the restrictions contained in our current and future debt instruments, some of which may be secured debt. We are not restricted under the terms of the indentures governing the Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt, or taking a number of other actions that could have the effect of diminishing our ability to make payments on the Notes when due. \nOur failure to repurchase the Notes at a time when the repurchase is required by the applicable indenture or to pay any cash payable on future conversions of the Notes as required by such indenture would constitute a default under that indenture. A default under one of the indentures or the fundamental change itself could also lead to a default under the other indenture or other agreements governing our existing or future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or \n48\ngrace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof.\nThe conditional conversion feature of the Notes, when triggered, may adversely affect our financial condition and operating results.\nPrior to the close of business on the business day immediately preceding September 1, 2025, in the case of the 2025 Notes, and January 1, 2027, in the case of the 2027 Notes, the holders of the applicable Notes may elect to convert their Notes during any calendar quarter (and only during such calendar quarter) if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day (Conversion Condition). The Conversion Condition for the 2025 Notes and 2027 Notes was not triggered as of June\u00a030, 2023, but had been triggered for the 2025 Notes in several prior quarters. In the event the Conversion Condition is triggered, holders of the Notes will be entitled to convert the Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.\nThe Capped Calls may affect the value of our Notes and our common stock.\nIn connection with the sale of each of the 2025 Notes and the 2027 Notes, we entered into privately negotiated Capped Call transactions (collectively, the Capped Calls) with certain financial institutions (option counterparties). The Capped Call transactions are expected generally to reduce the potential dilution upon conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap.\nThe option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the applicable maturity of the 2025 Notes and the 2027 Notes (and are likely to do so following any conversion, repurchase, or redemption of the Notes, to the extent we exercise the relevant election under the Capped Calls). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Notes, which could affect note holders\u2019 ability to convert the Notes and, to the extent the activity occurs during any observation period related to a conversion of the Notes, it could affect the number of shares and value of the consideration that note holders will receive upon conversion of the Notes.\nWe do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the price of the Notes or our common stock. In addition, we do not make any representation that the option counterparties will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.\nWe are subject to counterparty risk with respect to the Capped Calls.\nThe option counterparties are financial institutions, and we are subject to the risk that any or all of them might default under the Capped Calls. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the Capped Calls with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurance as to the financial stability or viability of the option counterparties.\n49\nRisks Related to Ownership of Our Common Stock\nThe stock price of our common stock has been, and will likely continue to be volatile, and you may lose part or all of your investment.\nThe market for our common stock has been, and will likely continue to be, volatile. In addition to the factors discussed in this report, the market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:\n\u2022\noverall performance of the equity markets;\n\u2022\nactual or anticipated fluctuations in our revenue and other operating results;\n\u2022\nchanges in the financial projections we may provide to the public or our failure to meet these projections;\n\u2022\nfailure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;\n\u2022\nrecruitment or departure of key personnel;\n\u2022\nthe economy as a whole and market conditions in our industry, such as high inflation and high interest rate and recessionary environments;\n\u2022\nthe global macroeconomic impact of the COVID-19 pandemic;\n\u2022\nnegative publicity related to the real or perceived quality of our platform, as well as the failure to timely launch new products and services that gain market acceptance;\n\u2022\nrumors and market speculation involving us or other companies in our industry;\n\u2022\nannouncements by us or our competitors of new products or services, commercial relationships, or significant technical innovations;\n\u2022\nacquisitions, partnerships, joint ventures, or capital commitments;\n\u2022\nnew laws or regulations or new interpretations of existing laws or regulations applicable to our business;\n\u2022\nlawsuits threatened or filed against us, litigation involving our industry, or both;\n\u2022\ndevelopments or disputes concerning our or other parties\u2019 products, services, or intellectual property rights;\n\u2022\nchanges in accounting standards, policies, guidelines, interpretations, or principles;\n\u2022\ninterpretations of any of the above or other factors by trading algorithms, including those that employ natural language processing and related methods to evaluate our public disclosures;\n\u2022\nother events or factors, including those resulting from war (such as the war in Ukraine), incidents of terrorism, or responses to these events;\n\u2022\ninstability in the U.S. and global banking systems;\n\u2022\nthe expiration of contractual lock-up agreements; and\n\u2022\nsales of shares of our common stock by us or our stockholders.\nIn addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies, and technology companies in particular, have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it \n50\ncould subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.\nAnti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management, and affect the market price of our common stock.\nProvisions in our amended and restated certificate of incorporation and second amended and\n \nrestated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and second amended and restated bylaws include provisions that:\n\u2022\nauthorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock;\n\u2022\nrequire that any action to be taken by our stockholders be affected at a duly called annual or special meeting and not by written consent;\n\u2022\nspecify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or our chief executive officer;\n\u2022\nestablish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;\n\u2022\nestablish that our board of directors is divided into three classes, with each class serving three-year staggered terms;\n\u2022\nprohibit cumulative voting in the election of directors;\n\u2022\nprovide that our directors may be removed for cause only upon the vote of sixty-six and two-thirds percent (66 2/3%) of our outstanding shares of common stock;\n\u2022\nprovide that vacancies on our board of directors may be filled only by a majority vote of directors then in office, even though less than a quorum; and\n\u2022\nrequire the approval of our board of directors or the holders of at least sixty-six and two-thirds percent (66 2/3%) of our outstanding shares of common stock to amend our bylaws and certain provisions of our certificate of incorporation.\nIn addition, our amended and restated certificate of incorporation and our second amended and restated bylaws provide that the Court of Chancery of the State of Delaware, to the fullest extent permitted by law, will be the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law (DGCL), our amended and restated certificate of incorporation, or our second amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. These choice of forum provisions may limit a stockholder\u2019s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. These exclusive forum provisions will not apply to claims that are vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not have subject matter jurisdiction. For instance, these provisions would not preclude the filing of claims brought to enforce any liability or duty created by the Exchange Act or Securities Act of 1933, as amended (Securities Act), or the rules and regulations thereunder in federal court.\n51\nMoreover, Section 203 of the DGCL may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.\nWe have incurred and will continue to incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.\nAs a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company, which we expect to further increase. Sarbanes-Oxley, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NYSE, and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly compared to when we were a private company.\nOur management team has limited experience managing a public company.\nOur management team has limited experience managing a publicly traded company, interacting with public company investors and securities analysts, and complying with the increasingly complex laws pertaining to public companies. These new obligations and constituents require significant attention from our management team and could divert their attention away from the day-to-day management of our business, which could harm our business, operating results, and financial condition.\nWe do not intend to pay dividends for the foreseeable future.\nWe have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.\nIf securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, our stock price and trading volume could decline.\nOur stock price and trading volume is heavily influenced by the way analysts and investors interpret our financial information and other disclosures. If securities or industry analysts do not publish research or reports about our business, downgrade our common stock, or publish negative reports about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price to decline and could decrease the trading volume of our common stock.\nSales of substantial amounts of our common stock in the public markets, particularly sales by our directors, executive officers, and significant stockholders, or the perception that these sales could occur, could cause the market price of our common stock to decline and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate.\nThe market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market. The perception that these sales might occur may also cause the market price of our common stock to decline. We had a total of 106,550,211 shares of our common stock outstanding as of June\u00a030, 2023. All shares of our common stock are either freely tradable, generally without restrictions or further registration under the Securities Act, or have been registered for resale under the Securities Act by us, subject to certain exceptions for shares held by our \u201caffiliates\u201d as defined in Rule 144 under the Securities Act. \nIn addition, we have filed registration statements on Form S-8 to register shares reserved for future issuance under our equity compensation plans. Subject to the satisfaction of vesting conditions, the shares issued upon exercise of outstanding stock options or settlement of outstanding restricted stock units will be available for immediate resale in the United States in the open market.\n52\nIn addition, we have in the past, and may in the future, issue our shares of common stock or securities convertible into our common stock from time to time in connection with financings, acquisitions, investments, or otherwise. We also expect to grant additional equity awards to employees and directors under our 2019 Equity Incentive Plan and rights to purchase our common stock under our 2019 Employee Stock Purchase Plan. Any such issuances could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.\nThe timing and amount of any repurchases under our Share Repurchase Program are subject to a number of uncertainties.\nIn January 2023, our board of directors approved the repurchase of up to $300 million of our outstanding shares of common stock (the Share Repurchase Program). Under the Share Repurchase Program, repurchases can be made from time to time using a variety of methods, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans, in compliance with the rules of the SEC and other applicable legal requirements. The Share Repurchase Program does not obligate us to acquire any particular amount of shares, and the Share Repurchase Program may be suspended or discontinued at any time at our discretion.\nThe Inflation Reduction Act, enacted on August 16, 2022, among other things, imposes a 1% non-deductible, excise tax on net repurchases of shares by U.S. corporations whose stock is traded on an established securities market. The excise tax is imposed on repurchases that occur after December 31, 2022. The excise tax did not apply to repurchases of our shares made during fiscal 2023. If excise tax applies to any repurchases of our shares we make in future fiscal years, it may increase the cost to us of making repurchases and may cause us to reduce the number of shares repurchased pursuant to the Share Repurchase Program\n.",
+  "item7": ">Item 7. MANAGEMENT\u2019S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nYou should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this Annual Report on Form 10-K includes forward-looking statements that involve risks and uncertainties. You should read the sections titled \u201cSpecial Note Regarding Forward-Looking Statements\u201d and \u201cRisk Factors\u201d for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year end is June 30, and our fiscal quarters end on September 30, December 31, and March 31.\nOverview\nWe are a leader in financial automation software for small and midsize businesses (SMBs). As a champion of SMBs, we are automating the future of finance so businesses can thrive. Hundreds of thousands of businesses rely on BILL to more efficiently control their payables, receivables, and spend and expense management. Our network connects millions of members so they can pay or get paid faster. Headquartered in San Jose, California, we are a trusted partner of leading U.S. financial institutions, accounting firms, and accounting software providers.\nOur purpose-built, AI-enabled financial software platform creates seamless connections between our customers, their suppliers, and their clients. Businesses on our platform generate and process invoices, streamline approvals, make and receive payments, manage employee expenses, sync with their accounting system, foster collaboration, and manage their cash. We have built sophisticated integrations with popular accounting software solutions, banks, card issuers, and payment processors, enabling our customers to access these mission-critical services quickly and easily. \nWe efficiently reach SMBs through our proven direct and indirect go-to-market strategies. We acquire new businesses to use our solutions directly through digital marketing and inside sales, and indirectly through accounting firms and financial institution partnerships. As of June\u00a030, 2023, our partners included some of the most trusted brands in the financial services business, including more than 85 of the top 100 accounting firms and seven of the top ten largest financial institutions for SMBs in the United States (U.S.), including Bank of America, JPMorgan Chase, Wells Fargo Bank, and American Express. As we add customers and partners, we expect our network to continue to grow organically.\nWe have grown rapidly and scaled our business operations in recent periods. Our revenue was $1.1 billion and $642.0 million during fiscal 2023 and 2022, respectively, an increase of $416.5 million. We generated net losses of $223.7 million and $326.4 million during fiscal 2023 and 2022, respectively. \nMacroeconomic and Other Factors \nOngoing interest rate increases and persistent inflation in the U.S. and other markets globally have increased the risk of an economic recession and volatility and dislocation in the capital and credit markets in the U.S. and globally. The SMBs we serve may be particularly susceptible to changes in overall economic and financial conditions, and certain SMBs may cease operations in the event of a recession or inability to access financing. The macroeconomic environment has caused our BILL standalone customers and Divvy spending businesses to moderate their expenditures, which has resulted in lower payment volume growth through our solutions than historical trends, which in turn has led to lower transaction fee growth than historical trends. Moreover, net customer adds on our BILL standalone solution were slightly lower than recent trends, caused in part by businesses taking longer to make decisions about whether or not to implement new software solutions in light of the current macro environment. In addition, increased interest rates have led to an increase in interest on funds held for customers. We have not observed any other material impacts on our business or the demand for our products as a result of these factors, but we anticipate volatile conditions and there can be no assurance that, in the event of a recession, demand for our products would not be adversely affected. We intend to continue to monitor macroeconomic conditions closely and may determine to take certain financial or operational actions in response to such conditions to the extent our business begins to be adversely impacted.\n57\nIn March 2023, instability in the U.S. banking system resulted in the closure of several U.S. banks, including Silicon Valley Bank (SVB), where we held significant company and customer funds. However, all of our and our customers' funds were preserved, and were able to re-route pending transactions involving SVB through other banking partners. Going forward, we will continue to assess the potential advantages in diversifying our banking relationships, including with both multinational financial institutions and, as appropriate, U.S. national and regional banks. Nonetheless, continued actual or perceived instability in the U.S. banking system that adversely effects any of the financial institutions with which we do business may adversely impact our ability to access our corporate cash and cash equivalents and cash held in trust on behalf of customers or process customer payments.\nIn addition, for so long as the impacts of the COVID-19 pandemic, including variants thereof, persist, restrictions and policies implemented by governments and companies may continue to impact our business and the businesses of the SMBs we serve. In response to the COVID-19 pandemic, we instituted several programs and precautionary measures in support of employee well-being and to protect the health and safety of our workforce, our customers, and the communities in which we participate. Such measures included closure of our corporate headquarters in California and our office in Texas, implementing full-time work from home, and eliminating non-essential travel. We continue to monitor federal, state, and local regulatory pronouncements and COVID-19 infection statistics and have reopened our offices with our return to office plan, which encompasses a hybrid approach to in-office attendance based on the different needs of teams across the company.\nAny of these conditions or actions may have a negative impact on our future results of operations, liquidity, and financial condition. \nW\ne are unable to predict the full impact that macroeconomic factors, banking sector dynamics or the ongoing impacts of the COVID-19 pandemic will have on our future results of operations, liquidity, and financial condition due to numerous uncertainties, including the duration of the pandemic, the actions that may be taken by government authorities across the U.S. or other countries, changes in central bank policies and interest rates, rates of inflation, the impact to our customers, spending businesses, subscribers, partners, and suppliers, and other factors described in the section titled \u201c\nRisk Factors\n\u201d in Part I, Item 1A of this Annual Report on Form 10-K.\nOur Revenue Model\nWe generate revenue primarily from subscription and transaction fees. \nOur subscription revenue is primarily based on a fixed monthly or annual rate per user charged to our customers. Our transaction revenue consists of transaction fees and interchange income on a fixed or variable rate per transaction. Transactions primarily include card payments, real-time payments, check payments, ACH payments, cross-border payments, and creation of invoices. Much of our revenue comes from repeat transactions, which are an important contributor to our recurring revenue.\nIn addition, we generate revenue from interest on funds held for customers. When we process payment transactions, the funds flow through our bank accounts, resulting in a balance of funds held for customers. This balance is determined by volume and the type of payments processed. Interest is earned from interest-bearing deposit accounts, certificates of deposit, money market funds, corporate bonds, asset-backed securities, municipal bonds, commercial paper, U.S. treasury securities and U.S. agency securities. We hold these funds from the day they are withdrawn from a payer\u2019s account to the day the funds are credited to the receiver. This revenue can fluctuate depending on the amount of customer funds held, as well as our yield on customer funds invested, which is influenced by market interest rates and our investments.\nOur Receivables Purchases and Servicing Model\nWe market Divvy charge cards to potential spending businesses and issue business-purpose charge cards through our card issuing partner banks (Issuing Banks). When a business applies for a Divvy card, we utilize, on behalf of the Issuing Bank, proprietary risk management capabilities to confirm the identity of the business, and perform a credit underwriting process to determine if the business is eligible for a Divvy card pursuant to our credit policies. Once approved for a Divvy card, the spending business is provided a credit limit and can use the Divvy software to request virtual cards or physical cards.\n58\nThe majority of cards on our platform are issued by Cross River Bank, a Federal Deposit Insurance Corporation (FDIC)-insured New Jersey state chartered bank, and WEX Bank, an FDIC-insured Utah state chartered bank. Under our arrangements with our Issuing Banks, we must comply with their respective credit policies and underwriting procedures, and the Issuing Banks maintain ultimate authority to decide whether to issue a card or approve a transaction. We are responsible for all fraud and unauthorized use of a card and generally are required to hold the Issuing Bank harmless from such losses unless claims regarding fraud or unauthorized use are due to the sole gross negligence of the Issuing Bank. \nWhen a spending business completes a purchase transaction, the payment to the supplier is made by the cards' Issuing Bank. Obligations incurred by the spending business in connection with their purchase transaction are reflected as receivables on the Issuing Bank\u2019s balance sheet from the Divvy card account for the spending business. The Issuing Bank then sells a 100% participation interest in the receivable to us. Pursuant to our agreements with the Issuing Banks, we are obligated to purchase the participation interests in all of the receivables originated through our platform, and our obligations are secured by cash deposits. When we purchase the participation interests, the purchase price is equal to the outstanding principal balance of the receivable.\nIn order to purchase the participation rights in the receivables, we maintain a variety of funding arrangements, including warehouse facilities and, from time-to-time, other purchase arrangements with a diverse set of funding sources. We typically fund some portion of these participation interest purchases by borrowing under our credit facilities, although we may also fund purchases using corporate cash.\nOur Business Model\nWe efficiently reach SMBs through our proven direct and indirect go-to-market strategies. We acquire them directly through digital marketing and inside sales and indirectly by partnering with leading companies that are trusted by SMBs, including accounting firms, financial institutions, and software companies.\nOur revenue from existing businesses using our solutions is visible and predicta\nble. For fiscal 2023, over 87% of ou\nr subscription and transaction revenue from \nBILL standalone customers\n came from customers who were acquired prior to the start of the fiscal year. See \"\u2014\nKey Business Metrics\u2014Businesses Using Our Solutions\n\" below for the definition of BILL standalone \ncustomers\n. We expand within our existing customer base by adding more users, increasing transactions per customer, launching additional products, and through pricing and packaging our services. We make it easy for SMBs to try our platform through our risk-free trial program. Should an SMB choose to become a customer after the trial period, it can take several months to adapt their financial operations to fully leverage our platform. Even with a transition period\n, however, we believe our customer retention is strong. Excluding those customers of our financial institution partners, approximately 86% of BILL standalone customers as of June\u00a030, 2022 were still customers as of June\u00a030, 2023.\nNet Dollar-Based Retention Rate\nNet dollar-based retention rate is an important indicator of customer satisfaction and usage of our platform, as well as potential revenue for future periods. We calculate our net dollar-based retention rate at the end of each fiscal year. We calculate our net dollar-based retention rate by starting with the revenue billed to \nBILL standalone customers in\n the last quarter of the prior fiscal year (Prior Period Revenue). We then calculate the revenue billed to these same customers in the last quarter of the current fiscal year (Current Period Revenue). See \"\u2014\nKey Business Metrics\u2014Businesses Using Our Solutions\n\" below for the definition of BILL standalone customer. Current Period Revenue includes any upsells and is net of contraction or attrition, but excludes revenue from new customers and excludes interest earned on funds held on behalf of customers. We then repeat the calculation of Prior Period Revenue and Current Period Revenue with respect to each of the preceding three quarters, and aggregate the four Prior Period Revenues (the Aggregate Prior Period Revenue) and the four Current Period Revenues (the Aggregate Current Period Revenue). Our net dollar-based retention rate equals the Aggregate Current Period Revenue divided by Aggregate Prior Period Revenue.\nOur net doll\nar-based retention rate was 111%, 131%, and 124% during fiscal 2023, 2022, and 2021, respectively. The decrease in fiscal 2023 when compared to fiscal 2022 was primarily due to the change in spending patterns per customer, driven by the challenging macroeconomic environment. The increase in fiscal 2022 was primarily attributable to increase in the number of users, more transactions per customer, and sales of additional products to those customers. \n59\nCustomer Acquisition Efficiency\nOur efficient direct and indirect go-to-market strategy, combined with our recurring revenue model, results in our short payback period. We define \u201cpayback period\u201d as the number of quarters it takes for the cumulative non-GAAP (as defined below) gross profit we earn from BILL standalone customers acquired during a given quarter to exceed our total sales and marketing spend in that same quarter, excluding customers acquired through financial institutions and the related sales and marketing spend. See \"\u2014\nKey Business Metrics\u2014Businesses Using Our Solutions\n\" below for the definition of BILL standalone customer\n. For BILL standalone customers acquired during fiscal 2022, the average payback period was approximately five quarters.\nKey Business Metrics\nWe regularly review several metrics, including the key business metrics presented in the table below (as well as the additional metrics described in\n \"Our Business Model\n\"), to measure our performance, identify trends affecting our business, prepare financial projections, and make strategic decisions. We periodically review and revise these metrics to reflect changes in our business.\n \nWe present our key business metrics on a consolidated basis, which we believe better reflects the performance of our consolidated business overall. Our key business metrics are defined following the table below and track our BILL standalone, Divvy, and Invoice2go solutions combined. The relevant metrics for each of BILL standalone, Divvy, and Invoice2go, respectively, are set forth in the footnotes to the table. The calculation of the key business metrics and other measures discussed below may differ from other similarly-titled metrics used by other companies, securities analysts, or investors.\nAs of June 30,\n% Growth\nas of June 30,\n2023\n2022\n (4)\n2021\n (5)\n2023\n2022\nBusinesses using our solutions \n(1)\n461,000\u00a0\n400,100\u00a0\n131,900\u00a0\n15\u00a0\n%\n203\u00a0\n%\nYear ended\nJune 30,\n% Growth\nYear ended June 30,\n2023\n2022\n (4)\n2021\n (5)\n2023\n2022\nTotal Payment Volume (amounts in billions) \n(2)\n$\n266.0\u00a0\n$\n228.1\u00a0\n$\n140.7\u00a0\n17\u00a0\n%\n62\u00a0\n%\nYear ended\nJune 30,\n% Growth\nYear ended June 30,\n2023\n2022\n (4)\n2021\n (5)\n2023\n2022\nTransactions processed (in millions) \n(3)\n85.1\u00a0\n62.9\u00a0\n30.6\u00a0\n35\u00a0\n%\n105\u00a0\n%\n(1)\nAs of June\u00a030, 2023, the total number of BILL standalone customers was approximately 201,000; the total number of spending businesses that used Divvy's spend and expense management products was approximately 29,200, and the total number of Invoice2go subscribers was approximately 230,800.\n(2)\nDuring fiscal 2023, the total payment volume transacted by BILL standalone customers was approximately $251.5 billion; the total card payment volume transacted by spending businesses that used Divvy cards was approximately $13.4 billion; and the total payment volume transacted by Invoice2go subscribers was approximately $1.1 billion.\n(3)\nDuring fiscal 2023, the total number of transactions executed by BILL standalone customers was approximately 44.3 million; the total number of transactions executed by spending businesses that used Divvy cards was approximately 39.5 million; and the total number of transactions executed by Invoice2go subscribers was approximately 1.3 million.\n(4)\nIncludes Invoice2go metrics from the acquisition date on September 1, 2021.\n(5)\nIncludes Divvy metrics from the acquisition date on June 1, 2021.\n60\nBusinesses Using Our Solutions\nFor the purposes of measuring our key business metrics, we define businesses using our solutions as the summation of: (A) customers that are either billed directly by us or for which we bill our partners for our BILL standalone products during a particular period, (B) spending businesses that use Divvy's spend and expense management products during the period, and (C) Invoice2go subscribers during the period. We define BILL standalone products as those offered on our core accounts payable and receivable platform (excluding Divvy and Invoice2go), and we define BILL standalone customers as customers using our core BILL accounts payable and accounts receivable offering.  In prior fiscal years, we counted and reported only BILL standalone customers in our \"Number of Customers\", which excluded spending businesses using our Divvy solution and our Invoice2go subscribers. In light of the growth of our company in recent periods, we consider the businesses using our solutions metric to better represent the performance and scale of our business as it currently exists. Businesses using more than one of our solutions are included separately in the total for each solution utilized; as of June 30, 2023, this included approximately 7,200 businesses. Businesses using our solutions during a trial period are not counted as new businesses using our solutions during that period. If an organization has multiple entities billed separately for the use of our solutions, each entity is counted as a business using our solutions. The number of businesses using our solutions in the table above represents the total number of businesses using our solutions at the end of each fiscal year. \nTotal Payment Volume\nTo grow revenue from businesses using our solutions, we must deliver a product experience that helps them automate their back-office financial operations. The more they use and rely upon our  product offerings to automate their operations, the more transactions they process on our platform. This metric provides an important indication of the aggregate value of transactions that businesses using our solutions are completing on our platform and is an indicator of our ability to generate revenue from businesses using our solutions. We define TPV as the total value of transactions that we process on our platform during a particular period, including transactions from BILL standalone customers, Divvy card transactions, and transactions executed by Invoice2go subscribers. Our calculation of TPV includes payments that are subsequently reversed. Such payments comprised less than 2% of TPV during each of fiscal 2023, 2022, and 2021. \nTransactions Processed\nWe define transactions processed as the total number of payments initiated and processed through our platform during a particular period. Payment transactions include checks, ACH payments, card payments, Invoice2go subscriber transactions, real-time payments, and cross-border payments\n.\nComponents of Results of Operations\nRevenue\nWe generate revenue primarily from subscription and transaction fees. \nSubscription fees are fixed monthly or annually and charged to customers for the use of our platform to process transactions. Subscription fees are generally charged either on a per user or per customer account per period basis, normally monthly or annually. Transaction fees are fees collected for each transaction processed, on either a fixed or variable fee basis. Transaction fees primarily include processing of payments in the form of checks, ACH, card payments, real-time payments, and cross-border payments, and the creation of invoices. Transaction fees also include interchange fees paid by suppliers accepting card payments.\nOur contracts with SMB and accounting firm customers provide them with access to the functionality of our cloud-based payments platform to process transactions. These contracts are either monthly contracts paid in arrears or upfront, or annual arrangements paid up front. We charge our SMB and accounting firm customers subscription fees to access our platform either based on the number of users or per customer account and the level of service. We generally also charge these customers transaction fees based on transaction volume and the category of transaction. The contractual price for subscription and transaction services is based on either negotiated fees or the rates published on our website. Revenue recognized excludes amounts collected on behalf of third parties, such as sales taxes collected and remitted to governmental authorities.\n61\nWe enable our SMB and accounting firm customers to make virtual card payments to their suppliers. We also facilitate the extension of credit to spending businesses in the form of Divvy cards. The spending businesses utilize the credit on Divvy cards as a means of payment for goods and services provided by their suppliers. Virtual card payments and Divvy cards are originated through agreements with our Issuing Banks. Our agreements with the Issuing Banks allow for card transactions on the Mastercard and Visa networks. For each virtual card and Divvy card transaction, suppliers are required to pay interchange fees to the issuer of the card. Based on our agreements with the Issuing Banks, we recognize the interchange fees as revenue gross or net of rebates received from the Issuing Banks based on our determination of whether we are the principal or the agent under the agreements.\nWe also enter into multi-year contracts with financial institution customers to provide them with access to our cloud-based payments platform. These contracts typically include fees for initial implementation services that are paid during the period the implementation services are provided as well as fees for subscription and transaction processing services, which are subject to guaranteed monthly minimum fees that are paid monthly over the contract term. These contracts enable the financial institutions to provide their customers with access to online bill pay services through the financial institutions\u2019 online platforms. Implementation services are required up-front to establish an infrastructure that allows the financial institutions\u2019 online platforms to communicate with our online platform. A financial institution\u2019s customers cannot access online bill pay services until implementation is complete. The total consideration in these contracts varies based on the number of users and transactions to be processed.\nIn addition, we generate revenue from interest on funds held for customers. Interest on funds held for customers consists of the interest that we earn from customer funds while payment transactions are clearing. Interest is earned from interest-bearing deposit accounts, certificates of deposit, corporate bonds, asset-backed securities, municipal bonds, money market funds, commercial paper, and U.S. Treasury securities, until those payments are cleared and credited to the intended recipient.\nService Costs and Expenses\nService costs \n\u2013\n Service costs consist primarily of personnel-related costs, including stock-based compensation expenses, for our customer success and payment operations teams, outsourced support services for our customer success team, costs that are directly attributed to processing customers\u2019 and spending businesses' transactions (such as the cost of printing checks, postage for mailing checks, fees associated with the issuance and processing of card transactions, fees for processing payments, such as ACH, checks, and cross-border wires), direct and amortized costs for implementing and integrating our cloud-based platform into our customers\u2019 systems, costs for maintaining, optimizing, and securing our cloud payments infrastructure, amortization of capitalized internal-use developed software related to our platform, fees on the investment of customer funds, and allocation of overhead costs. We expect that service costs will increase in absolute dollars, but may fluctuate as a percentage of revenue from period to period, as we continue to invest in growing our business.\nResearch and development\n \n(R&D)\n \n\u2013\n R&D expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, for our R&D teams, incurred in developing new products or enhancing existing products, and allocated overhead costs. We expense a substantial portion of R&D expenses as incurred. We believe that delivering new and enhanced functionality is critical to attract new customers and expand our relationship with existing customers. We expect to continue to make investments in and expand our offerings to enhance our customers\u2019 experience and satisfaction, and to attract new customers. We expect our R&D expenses to increase in absolute dollars, but they may fluctuate as a percentage of revenue from period to period as we expand our R&D team to develop new products and product enhancements. We capitalize certain software development costs that are attributable to developing new products and adding incremental functionality to our platform and amortize such costs into service costs over the estimated life of the new product or incremental functionality, which is generally three years.\nSales and marketing\n \n\u2013\n Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, for our sales and marketing teams, rewards expense in connection with our card rewards programs, sales commissions, marketing program expenses, travel-related expenses, and costs to market and promote our platform through advertisements, marketing events, partnership \n62\narrangements, direct customer acquisition, and allocated overhead costs. Sales commissions that are incremental to obtaining new customer contracts are deferred and amortized ratably over the estimated period of our relationship with new customers.\nWe focus our sales and marketing efforts on generating awareness of our company, platform, and products, creating sales leads, and establishing and promoting our brand. We plan to continue investing in sales and marketing efforts by driving our go-to-market strategies, building our brand awareness, and sponsoring additional marketing events; however, we will adjust our sales and marketing spend level as needed, as the spend may fluctuate from period to period, in response to changes in the economic environment.\nGeneral and administrative\n \n\u2013\n General and administrative expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, for finance, corporate business operations, risk management, legal and compliance, human resources, information technology, costs incurred for external professional services, provision for credit losses, losses from fraud, and allocated overhead costs. We expect to incur additional general and administrative expenses as we explore various growth initiatives, which include incurring higher costs for professional services. We also expect to increase the size of our general and administrative functions to support the growth in our business. As a result, we expect that our general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage of revenue from period to period.\nDepreciation and amortization of intangible assets\n \n\u2013\n Depreciation and amortization of intangible assets consist of depreciation of property and equipment, and amortization of acquired intangibles, such as developed technology, customer relationship, and trade names. Amortization of capitalized internal-use software costs are excluded.\nOther income (expenses), net\n \n\u2013 \nOther income (expenses), net consists primarily of interest income on our corporate funds, interest expense on our borrowings (including amortization issuance costs) and the lower of cost or market adjustment on card receivables sold and held for sale.\nProvision for (benefit from) income taxes\n \u2013 Income tax expense consists of U.S. federal, state and foreign income taxes. We maintain a full valuation allowance against our U.S. federal, state and Australian net deferred tax assets as we have concluded that it is not more likely than not that we will realize our net deferred tax assets.\n63\nResults of Operations\nThe following table sets forth our results of operations together with the dollar and percentage change for the periods presented (amounts in thousands): \nYear ended June 30, \nChange \n(2023 compared to 2022)\nChange \n(2022 compared to 2021)\n2023\n2022 \n(1)\n2021 \n(2)\nAmount\n%\nAmount\n%\nRevenue\nSubscription and transaction fees \n(4)\n$\n944,710\u00a0\n$\n633,365\u00a0\n$\n232,255\u00a0\n$\n311,345\u00a0\n49\u00a0\n%\n$\n401,110\u00a0\n173\u00a0\n%\nInterest on funds held for customers\n113,758\u00a0\n8,594\u00a0\n6,010\u00a0\n105,164\u00a0\n1224\u00a0\n%\n2,584\u00a0\n43\u00a0\n%\nTotal revenue\n1,058,468\u00a0\n641,959\u00a0\n238,265\u00a0\n416,509\u00a0\n65\u00a0\n%\n403,694\u00a0\n169\u00a0\n%\nCost of revenue\nService costs\n (4)\n151,010\u00a0\n105,496\u00a0\n56,576\u00a0\n45,514\u00a0\n43\u00a0\n%\n48,920\u00a0\n86\u00a0\n%\nDepreciation and amortization of \n\u00a0\u00a0\u00a0intangible assets \n(3)\n42,967\u00a0\n39,508\u00a0\n5,230\u00a0\n3,459\u00a0\n9\u00a0\n%\n34,278\u00a0\n655\u00a0\n%\nTotal cost of revenue\n193,977\u00a0\n145,004\u00a0\n61,806\u00a0\n48,973\u00a0\n34\u00a0\n%\n83,198\u00a0\n135\u00a0\n%\nGross profit\n864,491\u00a0\n496,955\u00a0\n176,459\u00a0\n367,536\u00a0\n74\u00a0\n%\n320,496\u00a0\n182\u00a0\n%\nOperating expenses\nResearch and development \n(4)\n314,632\u00a0\n219,818\u00a0\n89,503\u00a0\n94,814\u00a0\n43\u00a0\n%\n130,315\u00a0\n146\u00a0\n%\nSales and marketing\n (4)(5)\n515,858\u00a0\n307,151\u00a0\n67,935\u00a0\n208,707\u00a0\n68\u00a0\n%\n239,216\u00a0\n352\u00a0\n%\nGeneral and administrative\n (4)\n281,278\u00a0\n241,174\u00a0\n128,116\u00a0\n40,104\u00a0\n17\u00a0\n%\n113,058\u00a0\n88\u00a0\n%\nDepreciation and amortization of \n\u00a0\u00a0\u00a0intangible assets \n(3)\n48,496\u00a0\n45,630\u00a0\n4,872\u00a0\n2,866\u00a0\n6\u00a0\n%\n40,758\u00a0\n837\u00a0\n%\nTotal operating expenses\n1,160,264\u00a0\n813,773\u00a0\n290,426\u00a0\n346,491\u00a0\n43\u00a0\n%\n523,347\u00a0\n180\u00a0\n%\nLoss from operations\n(295,773)\n(316,818)\n(113,967)\n21,045\u00a0\n(7)\n%\n(202,851)\n178\u00a0\n%\nOther income (expense), net\n72,856\u00a0\n(13,861)\n(25,370)\n86,717\u00a0\n(626)\n%\n11,509\u00a0\n(45)\n%\nLoss before provision for (benefit from) income taxes\n(222,917)\n(330,679)\n(139,337)\n107,762\u00a0\n(33)\n%\n(191,342)\n137\u00a0\n%\nProvision for (benefit from) income taxes\n808\u00a0\n(4,318)\n(40,617)\n5,126\u00a0\n(119)\n%\n36,299\u00a0\n(89)\n%\nNet loss\n$\n(223,725)\n$\n(326,361)\n$\n(98,720)\n$\n102,636\u00a0\n(31)\n%\n$\n(227,641)\n231\u00a0\n%\n(1) \nIncludes the results of Invoice2go from the acquisition date on September 1, 2021.\n(2)\n Includes the results of Divvy from the acquisition date on June 1, 2021.\n(3) \nDepreciation expense does not include amortization of capitalized internal-use software wage costs.\n(4) \nIncludes stock-based compensation cost charged to revenue and expenses as follows (in thousands):\nYear ended June 30,\nChange \n(2023 compared to 2022)\nChange \n(2022 compared to 2021)\n2023\n2022 \n(1)\n2021 \n(2)\nAmount\n%\nAmount\n%\nRevenue - subscription and transaction fees\n$\n188\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n188\u00a0\n100\u00a0\n%\n$\n\u2014\u00a0\n\u2014\u00a0\n%\nCost of revenue - service costs\n9,111\u00a0\n5,144\u00a0\n2,938\u00a0\n3,967\u00a0\n77\u00a0\n%\n2,206\u00a0\n75\u00a0\n%\nResearch and development\n93,364\u00a0\n54,907\u00a0\n16,091\u00a0\n38,457\u00a0\n70\u00a0\n%\n38,816\u00a0\n241\u00a0\n%\nSales and marketing \n(5)\n130,421\u00a0\n60,237\u00a0\n8,547\u00a0\n70,184\u00a0\n117\u00a0\n%\n51,690\u00a0\n605\u00a0\n%\nGeneral and administrative\n80,619\u00a0\n76,869\u00a0\n44,411\u00a0\n3,750\u00a0\n5\u00a0\n%\n32,458\u00a0\n73\u00a0\n%\nTotal stock-based compensation \n(6)\n$\n313,703\u00a0\n$\n197,157\u00a0\n$\n71,987\u00a0\n$\n116,546\u00a0\n59\u00a0\n%\n$\n125,170\u00a0\n174\u00a0\n%\n(5) \nFiscal 2023 includes $52.2 million of stock-based compensation expense related to separation and advisory agreements with our former Chief Revenue Officer. \n(6)\n Consists of acquisition related equity awards (Acquisition Related Awards), including equity awards assumed and retention equity awards granted to certain employees of acquired companies in connection with acquisitions, and non-acquisition related equity awards (Non-Acquisition Related Awards), which include all other equity awards granted to existing employees and non-employees in the \n64\nordinary course of business. The following table presents stock-based compensation recorded for the periods presented and as a percentage of total revenue: \nAs a % of total revenue\nYear ended June 30,\nYear ended June 30,\n2023\n2022\n2021\n2023\n2022\n2021\nAcquisition Related Awards\n$\n107,815\u00a0\n$\n100,698\u00a0\n$\n28,992\u00a0\n10\u00a0\n%\n16\u00a0\n%\n12\u00a0\n%\nNon-Acquisition Related Awards\n205,888\u00a0\n96,459\u00a0\n42,995\u00a0\n19\u00a0\n%\n15\u00a0\n%\n18\u00a0\n%\nTotal stock-based compensation\n$\n313,703\u00a0\n$\n197,157\u00a0\n$\n71,987\u00a0\n29\u00a0\n%\n31\u00a0\n%\n30\u00a0\n%\nThe following table presents the components of our consolidated statements of operations for the  periods presented as a percentage of revenue:\nYear ended June 30,\n2023\n2022 \n(1)\n2021 \n(2)\nRevenue\nSubscription and transaction fees\n89\u00a0\n%\n99\u00a0\n%\n97\u00a0\n%\nInterest on funds held for customers\n11\u00a0\n%\n1\u00a0\n%\n3\u00a0\n%\nTotal revenue\n100\u00a0\n%\n100\u00a0\n%\n100\u00a0\n%\nCost of revenue\nService costs\n14\u00a0\n%\n16\u00a0\n%\n24\u00a0\n%\nDepreciation and amortization of intangible assets\n4\u00a0\n%\n7\u00a0\n%\n2\u00a0\n%\nTotal cost of revenue\n18\u00a0\n%\n23\u00a0\n%\n26\u00a0\n%\nGross profit\n82\u00a0\n%\n77\u00a0\n%\n74\u00a0\n%\nOperating expenses\nResearch and development\n30\u00a0\n%\n34\u00a0\n%\n38\u00a0\n%\nSales and marketing\n49\u00a0\n%\n48\u00a0\n%\n29\u00a0\n%\nGeneral and administrative\n26\u00a0\n%\n38\u00a0\n%\n54\u00a0\n%\nDepreciation and amortization of intangible assets\n5\u00a0\n%\n7\u00a0\n%\n1\u00a0\n%\nTotal operating expenses\n110\u00a0\n%\n127\u00a0\n%\n122\u00a0\n%\nLoss from operations\n(28)\n%\n(50)\n%\n(48)\n%\nOther income (expense), net\n7\u00a0\n%\n(2)\n%\n(11)\n%\nLoss before provision for (benefit from) income taxes\n(21)\n%\n(52)\n%\n(59)\n%\nProvision for (benefit from) income taxes\n\u2014\u00a0\n%\n(1)\n%\n(17)\n%\nNet loss\n(21)\n%\n(51)\n%\n(42)\n%\n(1) \nIncludes the results of Invoice2go from the acquisition date on September 1, 2021.\n(2) \nIncludes the results of Divvy from the acquisition date on June 1, 2021.\nComparison of Fiscal 2023 and 2022\nA discussion regarding our financial condition and results of operations for fiscal 2023 compared to fiscal 2022 is presented below. A discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 can be found under Item 7 of Part II in our Annual Report on Form 10-K for the fiscal year ended June\u00a030, 2022, filed with the SEC on August 22, 2022, which is available free of charge on the SEC\u2019s website at www.sec.gov and on the Investor Relations section of our corporate website at investor.bill.com.\nRevenue\nRevenue consisted mainly of subscription and transactions fees. Subscription revenue increased by $59.8 million, or 31%, during fiscal 2023 as compared to fiscal 2022, primarily due to the increase in customers and average subscription revenue per customer due to an increase in the number of users. Transaction fee \n65\nrevenue increased by $251.5 million, or 57%, during fiscal 2023 as compared to fiscal 2022, primarily due to increased total payment volume and the mix of transaction revenue shifting to variable-priced products. In addition, interest on funds held for customers increased by $105.2 million, or 1224%, during fiscal 2023 as compared to fiscal 2022, primarily due to an increase in yield earned from investing customer funds as interest rates increased during fiscal 2023.\nOur revenue could be impacted by fluctuations in foreign currency rates in the future, especially if our revenue through our international operations and international payments grows as a percentage of our revenue or our international operations increase.\nCost of Revenue, Gross Profit, and Gross Margin\nCost of revenue, gross profit, and gross margin were as follows (amounts in thousands): \nYear ended June 30,\nChange\n2023\n2022 \n(1)\nAmount\n%\nCost of revenue:\nService costs\n$\n151,010\u00a0\n$\n105,496\u00a0\n$\n45,514\u00a0\n43\u00a0\n%\nDepreciation and amortization of intangible assets \n(2)\n42,967\u00a0\n39,508\u00a0\n3,459\u00a0\n9\u00a0\n%\nTotal cost of revenue\n$\n193,977\u00a0\n$\n145,004\u00a0\n$\n48,973\u00a0\n34\u00a0\n%\nGross profit\n$\n864,491\u00a0\n$\n496,955\u00a0\n$\n367,536\u00a0\n74\u00a0\n%\nGross margin\n82\u00a0\n%\n77\u00a0\n%\n(1) \nIncludes the results of Invoice2go from the acquisition date on September 1, 2021.\n(2) \nConsists of depreciation of property and equipment and amortization of developed technology, excluding amortization of capitalized internal-use software wages costs.\nService costs increased by $45.5 million during fiscal 2023 as compared to fiscal 2022, primarily due to:\n\u2022\na $22.4 million increase in direct costs associated with the processing of our customers\u2019 payment transactions, use of software applications and equipment, bank fees for funds held for customers, and data hosting services, which were driven by the increase in the number of customers, increased adoption of new product offerings, and an increase in the volume of transactions;\n\u2022\na $16.2 million increase in personnel-related costs, including stock-based compensation expense and increased deferred service costs amortization, due to the hiring of additional personnel, who were directly engaged in providing implementation and support services to our customers; and\n\u2022\na $6.9 million increase in costs for consultants, temporary contractors, shared overhead, and other costs.\nGross margin increased to 82% during fiscal 2023 from 77% during fiscal 2022, primarily due to the increase in interest on funds held for customers and a higher mix of variable-priced transaction revenue.\nResearch and Development Expenses\nResearch and development expenses increased by $94.8 million during fiscal 2023 as compared to fiscal 2022, primarily due to the following: \n\u2022\na $95.4 million increase in personnel-related costs, including stock-based compensation expense, resulting from the hiring of additional personnel and added headcount from our acquisition of Invoice2Go, who were directly engaged in developing new product offerings; \n\u2022\na $5.8 million increase in computer-related expenses and software costs and increase in shared overhead and other costs; and partially offset by\n66\n\u2022\na $6.4 million decrease in costs for engaging consultants and temporary contractors who provided product development services, which have now been replaced by full-time employees.\nOur research and development expenses decreased to 30% as a percentage of revenue during fiscal 2023 from 34% during fiscal 2022, primarily due to a higher revenue growth rate but a relatively lower increase in personnel-related expenses as a percentage of revenue and decrease in consulting costs during fiscal 2023 compared to fiscal 2022. \nWe expect research and development expenses to be affected by fluctuations in foreign currency rates in the future, especially if our international operations increase.\nSales and Marketing Expenses \nSales and marketing expenses increased by $208.7 million during fiscal 2023 as compared to fiscal 2022, primarily due to the following:\n\u2022\na $106.3 million increase in personnel-related costs, including stock-based compensation expense of $52.2 million recognized during the year related to the separation and advisory agreements with our former Chief Revenue Officer, and due to the hiring of additional personnel, who were directly engaged in acquiring new customers and in marketing our products and services;\n\u2022\na $78.7 million increase in rewards expense in connection with the rewards program through our Divvy cards as a result of increased transaction volume and higher rewards rates;\n\u2022\na $21.1 million increase in advertising spend and various marketing initiatives and activities, such as engaging consultants and attending marketing events, as we increased our efforts in promoting our products and services and in increasing brand awareness; and\n\u2022\na $2.6 million increase in software subscription and computer-related expenses, shared overhead, and other costs. \nOur sales and marketing expenses increased to 49% as a percentage of revenue during fiscal 2023 from 48% during fiscal 2022, primarily due to higher rewards expense and stock-based compensation expense recognized during fiscal 2023.\nGeneral and Administrative Expenses\nGeneral and administrative expenses increased by $40.1 million during fiscal 2023 as compared to fiscal 2022, primarily due to the following:\n\u2022\na $30.7 million increase in personnel-related expense, including stock-based compensation expense, resulting from the hiring of additional general and administrative personnel;\n\u2022\na $15.2 million increase in provision for expected credit losses and fraud losses mainly due to increase in acquired card receivables during the year; \n\u2022\na $3.7 million increase in software subscription and computer-related expenses, temporary contractors, shared overhead and other costs; and partially offset by\n\u2022\na $9.6 million decrease in professional and consulting fees, primarily resulting from the reduction of integration costs of acquired businesses.\nOur general and administrative expenses decreased to 26% as a percentage of revenue during fiscal 2023 from 38% during fiscal 2022, primarily due to a higher revenue growth rate but a relatively lower increase in personnel-related expense and provision for expected credit losses and fraud losses as a percentage of revenue.\n67\nDepreciation and Amortization of Intangible Assets\nDepreciation and amortization of intangible assets increased by $6.3 million during fiscal 2023 as compared to fiscal 2022, primarily due to a full-year amortization of intangible assets associated with the acquisition of Invoice2go in September 2021, as well as higher spend on capital expenditures.\nOther Income, Net\nOther income, net increased by $86.7 million during fiscal 2023 as compared to fiscal 2022, primarily due to the following:\n\u2022\na $84.6 million increase in interest income due to higher interest rates earned on corporate funds;\n\u2022\na $9.9 million decrease in discount associated with the measurement of cards receivable sold and held for sale at a lower of cost or market as we ceased selling acquired card receivables in August 2022; and partially offset by \n\u2022\na $7.8 million increase in other expenses mainly due to interest expense primarily as the result of higher interest rates and increased borrowings under the Revolving Credit Facility.\nProvision for Income Taxes\nProvision for income taxes during fiscal year ended June 30, 2023, consists of the reduction to the net deferred tax liability, offset by an estimated cash tax liability as a result of the mandatory R&D capitalization by the Tax Cuts and Jobs Act of 2017, which was effective beginning fiscal 2023. R&D expenses are capitalized and amortized over five years for domestic R&D and fifteen years for international R&D. The requirement increases our current year cash tax liabilities, however, the cash flow impact is expected to decrease over time as capitalized research and development expenses continue to amortize.\nNon-GAAP Financial Measures\nTo supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly-titled measures used by other companies, are presented to enhance investors\u2019 overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.\nWe believe that these non-GAAP financial measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects and allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP metrics to assist investors in seeing our financial performance using a management view. We believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.\nNon-GAAP Gross Profit and Non-GAAP Gross Margin\nWe define non-GAAP gross profit as gross profit minus depreciation and amortization of intangible assets, and stock-based compensation and related payroll taxes recognized in cost of revenue. Non-GAAP gross margin is defined as non-GAAP gross profit, divided by revenue. We believe non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations. The following table presents a reconciliation of our non-GAAP gross profit and non-GAAP gross margin to our gross profit and gross margin for the periods presented (amounts in thousands)\n:\n68\nYear ended June 30,\n2023\n2022 \n(1)\n2021 \n(2)\nRevenue\n$\n1,058,468\n$\n641,959\n$\n238,265\nGross profit\n$\n864,491\n$\n496,955\n$\n176,459\nAdd:\nDepreciation and amortization of intangible assets\n (3)\n42,967\n39,508\n5,230\nStock-based compensation charged to expenses and related payroll taxes\n9,428\n5,599\n3,309\nNon-GAAP gross profit\n$\n916,886\n$\n542,062\n$\n184,998\nGross margin\n81.7\u00a0\n%\n77.4\u00a0\n%\n74.1\u00a0\n%\nNon-GAAP gross margin\n86.6\u00a0\n%\n84.4\u00a0\n%\n77.6\u00a0\n%\n(1) \nIncludes the results of Invoice2go from the acquisition date on September 1, 2021.\n(2) \nIncludes the results of Divvy from the acquisition date on June 1, 2021.\n(3) \nConsists of depreciation of property and equipment and amortization of developed technology, excluding amortization of capitalized internal-use software cost.\nFree Cash Flow\nFree cash flow is defined as net cash provided by (used in) operating activities, adjusted by purchases of property and equipment and capitalization of internal-use software costs. We believe free cash flow is an important liquidity measure of the cash (if any) that is available, after purchases of property and equipment and capitalization of internal-use software costs, for operational expenses and investment in our business. Free cash flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth. The following table presents a reconciliation of our free cash flow to net cash provided by (used in) operating activities for the periods presented (in thousands)\n:\nYear ended June 30,\n2023\n2022 \n(1)\n2021 \n(2)\nNet cash provided by (used in) operating activities\n$\n187,768\u00a0\n$\n(18,093)\n$\n4,623\u00a0\nPurchases of property and equipment\n(7,589)\n(5,377)\n(18,902)\nCapitalization of internal-use software costs\n(23,614)\n(10,259)\n(2,304)\nFree cash flow\n$\n156,565\u00a0\n$\n(33,729)\n$\n(16,583)\n(1) \nIncludes the results of Invoice2go from the acquisition date on September 1, 2021.\n(2) \nIncludes the results of Divvy from the acquisition date on June 1, 2021.\nLiquidity and Capital Resources\nAs of June\u00a030, 2023\n, our principal sources of liquidity were our cash and cash equivalents of $1.6 billion, our available-for-sale short-term investments of $1.0 billion, and our available undrawn Revolving Credit Facility (as defined below) of $90.0\u00a0million. Our cash equivalents are comprised primarily of money market funds and investments in debt securities with original maturities of three months or less at the time of purchase. Our short-term investments are comprised primarily of available-for-sale investments in corporate bonds, certificates of deposit, asset-backed securities, municipal bonds, U.S. agency securities, and U.S. treasury securities with original maturities of more than three months. Our corporate deposits held at large multinational financial institutions and U.S. national or regional banks, may at times exceed federally insured limits. We monitor the financial strength of the financial institutions with which we do business to ensure they are financially sound and present minimal credit risk. We further believe the associated risk of concentration for our investments is mitigated by holding a diversified portfolio of highly rated investments consisting of the money market funds and short-term debt securities described above. We have a total borrowing commitment of $225.0 million from our Revolving Credit Facility and have drawn $135.0 million as of June\u00a030, 2023. Our principal uses \n69\nof cash are funding our operations and other working capital requirements, including the contractual and other obligations \ndiscussed below.\nWe believe that our cash, cash equivalents, and short-term investments will be sufficient to meet our working capital requirements for at least the next 12 months. In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements to fund future operations or obligations, including the repayment of the principal amount of the Notes in the event that the Notes become convertible and the note holders opt to exercise their right to convert. We may also seek to raise additional capital from these offerings or financings on an opportunistic basis when we believe there are suitable opportunities for doing so. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by incurring additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may have terms that could be unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives.\nOur principal commitments to settle our contractual obligations consist of our 2027 Notes, 2025 Notes, and outstanding borrowings from our \nRevolving Credit Facility\n as further discussed below. \nFor additional discussion about our Notes and Revolving Credit Facility, refer to Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. In addition, we have minimum commitments under our noncancellable operating lease agreements and agreements with certain vendors. For additional discussion about our commitments, including operating leases, refer to Note 15 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.\nIn January 2023, our board of directors authorized the repurchase of up to $300.0 million of our outstanding shares of common stock (the Share Repurchase Program). We may repurchase shares of common stock from time to time through open market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans, intended to qualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The timing and total amount of share repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The Share Repurchase Program has a term of 12 months, may be suspended or discontinued at any time, and does not obligate us to acquire any amount of common stock. During the year ended June\u00a030, 2023, we repurchased and subsequently retired 1,077,445 shares for $87.6 million under the Share Repurchase Program. The total price of the shares repurchased and related transaction costs are reflected as a reduction of common stock and accumulated deficit on the our consolidated balance sheets. As of June\u00a030, 2023, $212.4 million remained available for future share repurchases under the Share Repurchase Program.\nCash Flows\nBelow is a summary of our consolidated cash flows for the periods presented (in thousands):\n\u00a0\nYear ended June 30,\n\u00a0\n2023\n2022\n (1)\n2021\n (2)\nNet cash provided by (used in):\nOperating activities\n$\n187,768\u00a0\n$\n(18,093)\n$\n4,623\u00a0\nInvesting activities\n$\n259,285\u00a0\n$\n(1,127,302)\n$\n(1,426,890)\nFinancing activities\n$\n235,110\u00a0\n$\n2,878,566\u00a0\n$\n1,639,583\u00a0\n70\n(1) \nIncludes the results of Invoice2go from the acquisition date on September 1, 2021.\n(2) \nIncludes the results of Divvy from the acquisition date on June 1, 2021.\nNet Cash Provided by (Used in) Operating Activities\nOur primary source of cash provided by our operating activities is our revenue from subscription and transaction fees. Our subscription revenue is primarily based on a fixed monthly or annual rate per user charged to our customers. Our transaction revenue is comprised of transaction fees on a fixed or variable rate per type of transaction. We also generate cash from the interest earned on both corporate funds and funds held in trust on behalf of customers. Our primary uses of cash in our operating activities include payments for employees' salaries and related costs, payments to third parties to fulfill our payment transactions, payments to sales and marketing partners, payments for card rewards expenses, and other general corporate expenditures.\nNet cash provided by operating activities was $187.8 million during fiscal 2023 compared to a net cash used of $18.1 million during fiscal 2022. The net cash provided during fiscal 2023 was due mainly to the increase in our revenue during the year.\nNet cash used in operating activities decreased to $18.1 million during fiscal 2022 from a net cash provided of $4.6 million during fiscal 2021. The net cash used during fiscal 2022 was due mainly to the timing of the payments for costs of our services and operating expenses, partially offset by the increase in our revenue. \nNet Cash Provided by (Used in) Investing Activities\nOur cash usage for our investing activities consists primarily of purchases of corporate and customer fund available for-sale investments, purchases of card receivables, business acquisitions, capitalization of internal-use software, and purchases of property and equipment. Our cash proceeds from our investing activities consist primarily of proceeds from the maturities and sale of corporate and customer fund available-for-sale investments. Additionally, the increase or decrease in our net cash from investing activities is impacted by the net change in acquired card receivable balances.\nOur net cash provided by investing activities was $259.3 million during fiscal 2023 compared to net cash used of $1.1 billion during fiscal 2022 due primarily to the increase in proceeds from maturities of corporate and customer short-term investments, partially offset by the increase in acquired card receivables. Additionally, our cash paid for acquisitions during fiscal 2023 was lower compared to our payment to acquire Invoice2go during fiscal 2022.\nOur net cash used in investing activities decreased to $1.1 billion during fiscal 2022 from $1.4 billion during fiscal 2021 due primarily to the increase in proceeds from maturities of corporate and customer short-term investments, partially offset by the increase in purchases of corporate and customer fund short-term investments, and increase in acquired participation interests in card receivables. Additionally, our payment to acquire Invoice2go during fiscal 2022 was lower compared to our payment to acquire Divvy during fiscal 2021.\nNet Cash Provided by Financing Activities\nOur cash proceeds from our financing activities consist primarily of proceeds from line of credit borrowings, exercises of stock options, increase in prepaid card deposits, employee purchases of our common stock under our Employee Stock Purchase Plan (ESPP) and proceeds from public offerings of our common stock and issuance of convertible notes. Our cash usage for our financing activities consists primarily of repurchases of shares, and payments on line of credit and bank borrowings. Additionally, the increase or decrease in our net cash from financing activities is impacted by the change in customer fund deposits liability.\nOur net cash provided by financing activities decreased to $235.1 million during fiscal 2023 from $2.9 billion during fiscal 2022 due primarily to the absence of the proceeds from the public offering of our common stock and the issuance of our 2027 Notes in the prior year, as well as a decrease in customer funds liability, partially offset by proceeds from our Revolving Credit Facility.\nOur net cash provided by financing activities increased to $2.9 billion during fiscal 2022 from $1.6 billion during fiscal 2021 due primarily to the proceeds from the public offering of our common stock and increase in customer funds liability.\n \n71\n2027 Notes\nOn September 24, 2021, we issued $575.0 million in aggregate principal amount of our 0% convertible senior notes due on April 1, 2027. The 2027 Notes are senior, unsecured obligations, will not accrue interest unless we determine to pay special interest, and are convertible on or after January 1, 2027 until the close of business on the second scheduled trading day immediately preceding the maturity date on April 1, 2027. The 2027 Notes are convertible by the holders at their option during any calendar quarter after December 31, 2021 under certain circumstances, including if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the $414.80 per share initial conversion price. If the note holders exercise their right to convert, our current intent is to settle such conversion through a combination settlement involving a repayment of the principal portion in cash and the balance in shares of common stock. For additional discussion about our 2027 Notes and the capped call transactions, refer to Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.\n2025 Notes\nOn November 30, 2020, we issued $1.15 billion in aggregate principal amount of our 0% convertible senior notes due on December 1, 2025. The 2025 Notes are senior, unsecured obligations, will not accrue interest unless we determine to pay special interest, and are convertible on or after September 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date on December 1, 2025. The 2025 Notes are convertible by the holders at their option during any calendar quarter after March 31, 2021 under certain circumstances, including if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the $160.88 per share initial conversion price. If the note holders exercise their right to convert, our current intent is to settle such conversion through a combination settlement involving a repayment of the principal portion in cash and the balance in shares of common stock. For additional discussion about our 2025 Notes and the capped call transactions, refer to Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.\nRevolving Credit Facility\nWe have a total borrowing commitment of $225.0 million pursuant to our Revolving Credit and Security Agreement, by and between our subsidiary, Divvy Peach, LLC, Goldman Sachs Bank USA, and the lenders party thereto (the Revolving Credit Facility), of which we borrowed $135.0 million as of June\u00a030, 2023. In August 2022, we amended the Revolving Credit Facility to increase the borrowing capacity from $75.0 million to $225.0 million. Revolving loans under the Revolving Credit Facility bear interest at a rate per annum determined by reference to either the SOFR Rate or an adjusted benchmark rate plus an applicable margin ranging from 2.65% to 2.75%, based on the outstanding principal amount and the date that principal amounts are outstanding. Obligations under the Revolving Credit Facility are secured by receivables generated by our Divvy charge card and certain related collateral. Our Revolving Credit Facility matures in June 2024 and the outstanding borrowings are payable on or before the maturity date. For additional discussion about our Revolving Credit Facility, refer to Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.\nOff-Balance Sheet Arrangements\nWe are contractually obligated to purchase all card receivables from U.S.-based Issuing Banks including authorized transactions that have not cleared. The transactions that have been authorized but not cleared totaled $68.6 million as of June\u00a030, 2023 and have not been recorded on our consolidated balance sheets. We have off-balance sheet credit exposures with these authorized but not cleared transactions; however, our expected credit losses with respect to these transactions were not material as of June\u00a030, 2023. \nOther than our expected credit loss exposure on the card transactions that have not cleared, we had no other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources as of June\u00a030, 2023.\n72\nCritical Accounting Estimates\nOur consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated, and reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.\nWhile our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following critical accounting estimates are most important to understanding and evaluating our reported financial results.\nRevenue Recognition \nOur contracts with our customers require us to provide multiple services comprising subscription, transaction and implementation services. We identify performance obligations in these contracts by evaluating whether individual services are distinct. Services that are not distinct are combined into a single performance obligation. The evaluation of whether a service is distinct involves judgment and could impact the timing of revenue recognition. We determine the transaction price in these contracts based on the amount of consideration we expect to be entitled to, which are typically variable. The transaction price is then allocated to each separate performance obligation on a relative standalone selling price basis. Each performance obligation is analyzed to determine if it is satisfied over time or at a point in time. Our performance obligations are generally recognized as revenue over the period each performance obligation is satisfied using an attribution method that best reflects the measure of progress in satisfying the performance obligation. The attribution method used involves judgment and impacts the timing of revenue recognition.\nBusiness Combinations\nWe account for acquisitions using the acquisition method of accounting, which requires assigning the fair value of purchase consideration to the assets acquired and liabilities assumed by the acquiree at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed in the acquiree is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed in the acquiree, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth rates and margins, attrition rates, future changes in technology and brand awareness, loyalty and position, and discount rates. Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.\nCredit Losses on Acquired Card Receivables\nWe acquire card receivables pursuant to our contracts with certain Issuing Banks. The acquired card receivable portfolio consists of a large group of smaller balances from spending businesses across a wide range of industries. We establish an allowance for credit losses based on an estimate of uncollectible balances resulting from credit losses and such allowance could fluctuate depending on certain factors. An estimate of lifetime expected credit losses is performed by incorporating historical loss experience, as well as current and future economic conditions over a reas\nonable and supportable period beyond the balance sheet date. In estimating expected credit losses, we use models that entail a significant amount of judgment. The primary areas of judgment used in measuring the quantitative components of our reserves relate to the attributes used to segment the portfolio, the determination of the historical loss experience look-back period, and the weighting of historical loss experience by monthly cohort. We use these models and assumptions to determine the reserve rates applicable to the outstanding acquired card receivable balances to estimate reserves for expected credit losses. Based on historical loss experience, the probability of default decreases over time, therefore the attribute used to segment the portfolio is the length of time since an account\u2019s credit limit origination. Our \n73\nmodels use past loss experience to estimate the probability of default and exposure at default by aged balances. We also estimate the likelihood and magnitude of recovery of previously written off ca\nrd receivables based on historical recovery experience. Additionally, we evaluate whether to include qualitative reserves to cover losses that are expected but may not be adequately represented in the quantitative methods or the economic assumptions. The qualitative reserves address possible limitations within the models or factors not included within the models, such as external conditions, changes in underwriting strategies, the nature and volume of the portfolio, and the volume and severity of past due accounts.\nWe review our assumptions periodically and the amount of allowance that we recorded may be impacted by actual performance of the acquired card receivables and changes in any of the assumptions used. In general, we write-off card receivables after the balance substantially becomes 120 days delinquent. \nSpending Businesses Rewards\nWe offer a promotion program whereby users of our spend and expense management products can earn rewards based on the volume of their card transactions. Users can redeem those rewards for statement credits or cash, travel, and gift cards, among other things. We establish a rewards liability that represents management\u2019s estimate of the cost for earned rewards. The portion of our liability related to points earned is determined based on an estimate of the redemption cost and an estimate of expected redemption (net of breakage). Our estimated liability could fluctuate based on the changes on the input used to make our estimate.\nStock-based Compensation \nStock-based compensation expense related to stock option awards and purchase rights issued under our ESPP is measured at fair value on the date of grant using the Black-Scholes option-pricing model. Stock-based compensation expense for performance-based awards is measured at fair value on the date of grant using the Black-Scholes valuation option-pricing model or other valuation technique depending on the nature of the award. Awards that are classified as liabilities are remeasured at fair value at the end of each reporting period. These valuation methods require inputs that are based on estimates, which are highly subjective.\nEstimates used in the Black-Scholes option-pricing model include:\nExpected term\n \n\u2013 Represents the period that stock option awards are expected to be outstanding. The expected term for stock option awards is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards.\nExpected volatility\n \n\u2013 The expected volatility was estimated based on the historical volatility of the Company\u2019s common stock. \nRisk-free interest rate\n \u2013 \nThe risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of stock option awards for periods corresponding with the expected term of the option.\nExpected dividend yield\n \u2013 \nWe have never paid dividends on our common stock and have no plans to pay dividends on our common stock.\nWe recognize the compensation costs for stock option awards, purchase rights issued under our ESPP, and market-based RSUs over the requisite service period of the awards, which is generally the vesting term, reduced for estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate the forfeiture rate based on the historical experience. We recognize compensation costs for performance-based awards over the vesting period if it is probable that the performance condition will be achieved.\nRecent Accounting Pronouncements\nSee \u201cThe Company and its Significant Accounting Policies\u201d Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of June\u00a030, 2023.\n74",
+  "item7a": ">Item 7A. Quantitative and Qualitative Disclosures About Market Risk \nOur overall investment portfolio is comprised of corporate investments and funds held for customers.\n Our corporate investments are invested in cash and cash equivalents and investment-grade fixed income marketable securities. These assets are available for corporate operating purposes and mature within 24 months from the date of purchase. Our customer funds assets are invested with safety of principal as the primary objective. As secondary objectives, we seek to provide liquidity and diversification and maximize interest income. Our customer funds assets are invested in money market funds that maintain a constant net asset value, other cash equivalents, and highly liquid, investment-grade fixed income marketable securities, with maturities of up to 13 months from the time of purchase. Our investment policy governs the types of investments we make. We classify all of our investments in marketable securities as available-for-sale. \nAs part of our customer funds investment strategy, we use funds collected daily from our customers to satisfy the obligations of other unrelated customers, rather than liquidating investments purchased with previously collected funds. There is risk that we may not be able to satisfy customer obligations in full or on time due to insufficient liquidity or due to a decline in value of our investments. However, the liquidity risk is minimized by collecting the customer\u2019s funds in advance of the payment obligation and by maintaining significant investments in bank deposits and constant net asset value money market funds that allow for same-day liquidity. The risk of a decline in investment value is minimized by our restrictive investment policy allowing for only short-term, high quality fixed income marketable securities. We also maintain other sources of liquidity including our corporate cash balances.\nInterest Rate and Credit Risk\nWe are exposed to interest rate risk relating to our investments of corporate cash and funds held for customers that we process through our bank accounts. Our corporate investment portfolio consists principally of interest-bearing bank deposits, money market funds, certificates of deposit, commercial paper, other corporate notes, asset-backed securities, and U.S. Treasury securities. Funds that we hold for customers are held in non-interest and interest-bearing bank deposits, money market funds, certificates of deposit, commercial paper, other corporate notes, and U.S. Treasury securities. We recognize interest earned from funds held for customers as revenue. We do not pay interest to customers. \nFactors that influence the rate of interest we earn include the short-term market interest rate environment and the weighting of our balances by security type. The annualized interest rate earned on our corporate investment portfolio and funds held for customers increased to 3.51% during fiscal 2023 compared to 0.29% during fiscal 2022 due primarily to the changes in the short-term interest rate environment during fiscal 2023. \nUnrealized gains or losses on our marketable debt securities are due primarily to interest rate fluctuations from the time the securities were purchased. We account for both fixed and variable rate securities at fair value with unrealized gains and losses recorded in accumulated other comprehensive income (loss) since we classify our marketable debt securities as available for sale. Our investments in marketable debt securities are generally held through maturity with minimal sales before maturity barring unforeseen circumstances, and thus unrealized gains or losses on fixed-income securities from market interest rate decreases or increases are not realized as the securities mature at par.\nWe are also exposed to interest-rate risk relating to borrowings from our Revolving Credit Facility. As of June\u00a030, 2023, we borrowed $135.0 million from our Revolving Credit Facility. Because the interest rate on our borrowings is indexed to SOFR, which is a floating rate mechanism, our interest cost may increase if market interest rates rise. A hypothetical 1% increase or decrease in interest rates would not have a material effect on our financial results. \nIn addition to interest rate risks, we also have exposure to risks associated with changes in laws and regulations that may affect customer fund balances. For example, a change in regulations that restricts the permissible investment alternatives for customer funds would reduce our interest earned revenue.\nWe are exposed to credit risk in connection with our investments in securities through the possible inability of the borrowers to meet the terms of the securities. We limit credit risk by investing in investment-grade \n75\nsecurities as rated by Moody\u2019s, Standard & Poor\u2019s, or Fitch, by investing only in securities that mature in the near-term, and by limiting concentration in securities other than U.S. Treasuries. Investment in securities of issuers with short-term credit ratings must be rated A-2/P-2/F2 or higher. Investment in securities of issuers with long-term credit ratings must be rated A- or A3, or higher. Investment in asset-backed securities and money market funds must be rated AAA or equivalent. Investment in repurchase agreements will be at least 102 percent collateralized with securities issued by the U.S. government or its agencies. Securities in our corporate portfolio may not mature beyond two years from purchase, and securities held in our customer fund accounts may not mature beyond 13 months from purchase. No more than 5% of invested funds, either corporate or customer, may be held in the issues of a single corporation.\nWe are also exposed to credit risk related to the timing of payments made from customer funds collected. We typically remit customer funds to our customers\u2019 suppliers in advance of having good or confirmed funds collected from our customers and if a customer disputes a transaction after we remit funds on their behalf, then we could suffer a credit loss. Furthermore, our customers generally have three days to dispute transactions, and if we remit funds in advance of receiving confirmation that no dispute was initiated by our customer, then we could suffer a credit loss. We mitigate this credit exposure by leveraging our data assets to make credit underwriting decisions about whether to accelerate disbursements, managing exposure limits, and various controls in our operating systems.\nWe continually evaluate the credit quality of the securities in our portfolios. If a security holding is downgraded below our credit rating threshold or we otherwise believe the security\u2019s payment performance may be compromised, we will evaluate the relevant risks, remaining time to maturity, amount of principal, as well as other factors, and we will make a determination of whether to continue to hold the security or promptly sell it.\nWe are exposed to credit risk from card receivable balances we have with our spending businesses. Spending businesses may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure, or other reasons. Although we regularly review our credit exposure to specific spending businesses and to specific industries that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to foresee or detect, such as fraud. In addition, our ability to manage credit risk or collect amounts owed to us may be adversely affected by legal or regulatory changes (such as restrictions on collections or changes in bankruptcy laws, and minimum payment regulations). We rely principally on the creditworthiness of spending businesses for repayment of card receivables and therefore have limited recourse for collection. Our ability to assess creditworthiness may be impaired if the criteria or models we use to manage our credit risk prove inaccurate in predicting future losses, which could cause our losses to rise and have a negative impact on our results of operations. Any material increases in delinquencies and losses beyond our current estimates could have a material adverse impact on us. Although we make estimates to provide for credit losses in our outstanding portfolio of card receivables, these estimates may differ from actual losses.\nForeign Currency Exchange Risk \nWe are exposed to foreign currency exchange risk relating to our cross-border payment service, which allows customers to pay their international suppliers in foreign currencies. When customers make a cross-border payment, customers fund those payments in U.S. dollars based upon an exchange rate that is quoted on the initiation date of the transaction. Subsequently, when we convert and remit those funds to our customers\u2019 suppliers primarily through our global payment partners, the exchange rate may differ, due to foreign exchange fluctuation, from the exchange rate that was initially quoted. Our transaction fees to our customers are not adjusted for changes in foreign exchange rates between the initiation date of the transaction and the date the funds are converted. \nWe are also exposed to foreign currency exchange risk relating to the operations of our subsidiaries in Australia and Canada. A change in foreign currency exchange rate can affect our financial results due to transaction gains or losses related to the remeasurement of certain monetary asset and monetary liability balances that are denominated in currencies other than the functional currency of our Australian and Canadian subsidiaries, which are both in U.S. dollars. \nIf the value of the U.S. dollar weakens relative to the foreign currencies, this may have an unfavorable effect on our cash flows and operating results. We do not believe that a 10% change in the relative value of the U.S. dollar to other foreign currencies would have a material effect on our cash flows and operating results.\n76\nInflation Risk \nWe do not believe that inflation had a material effect on our cash flows and operating results during fiscal 2023. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through increase in prices of our product offerings. \nThe Inflation Reduction Act was enacted on August 16, 2022 and includes a number of provisions that may impact us in the future. We have assessed these impacts for the current reporting period, and conclude that the new law does not have a material impact on our fiscal 2023 financial statements. \n77",
+  "cik": "1786352",
+  "cusip6": "090043",
+  "cusip": ["090043950", "090043100", "090043AB6", "090043900"],
+  "names": ["BILL COM HLDGS INC", "None"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1786352/000178635223000054/0001786352-23-000054-index.htm"
+}
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+{
+  "item1": ">Item\u00a01. Business\nSphere Entertainment Co., formerly Madison Square Garden Entertainment Corp. and MSG Entertainment Spinco, Inc., is a Delaware corporation with its principal executive office at Two Pennsylvania Plaza, New York, NY, 10121. Unless the context otherwise requires, all references to \u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d \u201cSphere Entertainment\u201d or the \u201cCompany\u201d refer collectively to Sphere Entertainment Co., a holding company, and its direct and indirect subsidiaries. We conduct substantially all of our business activities discussed in this Annual Report on Form\u00a010-K through Sphere Entertainment Group, LLC, formerly MSG Entertainment Group, LLC, and MSG Networks Inc., and each of their direct and indirect subsidiaries. \nThe Company was incorporated on November 21, 2019 as a direct, wholly-owned subsidiary of Madison Square Garden Sports Corp. (\u201cMSG Sports\u201d), formerly known as The Madison Square Garden Company. On March 31, 2020, MSG Sports\u2019 board of directors approved the distribution of all the outstanding common stock of the Company to MSG Sports stockholders (the \u201c2020 Entertainment Distribution\u201d) which occurred on April 17, 2020 (the \u201c2020 Entertainment Distribution Date\u201d). \nOn April 20, 2023 (the \u201cMSGE Distribution Date\u201d), the Company distributed approximately 67% of the outstanding common stock of Madison Square Garden Entertainment Corp. (formerly MSGE Spinco, Inc., and referred to herein as \u201cMSG Entertainment\u201d) to its stockholders (the \u201cMSGE Distribution\u201d), with the Company retaining approximately 33% of the outstanding common stock of MSG Entertainment (in the form of MSG Entertainment Class A common stock) immediately following the MSGE Distribution (the \u201cMSGE Retained Interest\u201d). Following the MSGE Distribution Date, the Company retained the Sphere and MSG Networks businesses and MSG Entertainment now owns the traditional live entertainment business previously owned and operated by the Company through its Entertainment business segment, excluding the Sphere business. In the MSGE Distribution, stockholders of the Company received (a) one share of MSG Entertainment\u2019s Class A common stock, par value $0.01 per share, for every share of the Company\u2019s Class A common stock, par value $0.01 per share (\u201cClass A Common Stock\u201d), held of record as of the close of business, New York City time, on April 14, 2023 (the \u201cRecord Date\u201d), and (b) one share of MSG Entertainment\u2019s Class B common stock, par value $0.01 per share, for every share of the Company\u2019s Class B common stock, par value $0.01 per share (\u201cClass B Common Stock\u201d), held of record as of the close of business, New York City time, on the Record Date. Following the sale of a portion of the MSGE Retained Interest and the repayment of the delayed draw term loan (further discussed below) with MSG Entertainment through the use of shares of MSG Entertainment Class A common stock, the Company now holds approximately 17% of the outstanding common stock of MSG Entertainment (in the form of Class A common stock), based on 49,128,231 total shares of  MSG Entertainment common stock outstanding as of August 18, 2023.\nOn May 3, 2023, the Company completed the sale of its 66.9% majority interest in TAO Group Sub-Holdings LLC (\u201cTao Group Hospitality\u201d) to a subsidiary of Mohari Hospitality Limited, a global investment company focused on the luxury lifestyle and hospitality sectors (the \u201cTao Group Hospitality Disposition\u201d). \nThe Company reports on a fiscal year basis ending on June\u00a030th. In this annual report on Form 10-K, the fiscal years ended on June 30, 2023, 2022, and 2021 are referred to as \u201cFiscal Year 2023,\u201d \u201cFiscal Year 2022\u201d and \u201cFiscal Year 2021\u201d, respectively, and the fiscal year ending June 30, 2024 is referred to as \u201cFiscal Year 2024.\u201d\nOverview\nSphere Entertainment Co. is a premier live entertainment and media company comprised of two reportable segments, Sphere and MSG Networks. Sphere is a next-generation entertainment medium, and MSG Networks operates two regional sports and entertainment networks, as well as a direct-to-consumer and authenticated streaming product.\nSphere\n: This segment reflects Sphere, a next-generation entertainment medium powered by cutting-edge technologies that we believe will enable multi-sensory storytelling at an unparalleled scale. The Company\u2019s first Sphere is expected to open in Las Vegas in September 2023. The venue can accommodate up to 20,000 guests and is expected to host a wide variety of events year-round, including The Sphere Experience\nTM\n, which will feature original immersive productions, as well as concerts and residencies from renowned artists, and marquee sporting and corporate events. Supporting this strategy is Sphere Studios, which is home to a team of creative, production, technology and software experts who provide full in-house creative and production services. The studio campus in Burbank includes a 68,000-square-foot development facility, as well as Big Dome, a 28,000-square-foot, 100-foot high custom dome, with a quarter-sized version of the screen at Sphere in Las Vegas, that serves as a specialized screening, production facility, and lab for content at Sphere.\nMSG Networks:\n This segment is comprised of the Company\u2019s regional sports and entertainment networks, MSG Network and MSG Sportsnet, as well as its direct-to-consumer streaming product, MSG+. MSG Networks serves the New York Designated Market Area, as well as other portions of New York, New Jersey, Connecticut and Pennsylvania and features a wide range of sports content, including exclusive live local games and other programming of the New York Knicks (the \u201cKnicks\u201d) of the National Basketball Association (the \u201cNBA\u201d) and the New York Rangers (the \u201cRangers\u201d), New York Islanders (the \u201cIslanders\u201d), New Jersey Devils (the \n1\n\u201cDevils\u201d) and Buffalo Sabres (the \u201cSabres\u201d) of the National Hockey League (the \u201cNHL\u201d), as well as significant coverage of the New York Giants (the \u201cGiants\u201d) and the Buffalo Bills (the \u201cBills\u201d) of the National Football League (the \u201cNFL\u201d).\nOur Strengths\n\u2022\nStrong position in live entertainment and media through:\n\u25e6\nA next-generation entertainment medium powered by cutting-edge technologies; and\n\u25e6\nTwo award-winning regional sports and entertainment networks\n\u2022\nPresence in both Las Vegas, a market which attracts more than 40 million visitors each year and has over 2 million local residents, and the New York Designated Market Area \u2013 the nation\u2019s largest media market\n\u2022\nDeep industry relationships across music, entertainment, corporate, and sports that can be leveraged to drive events to Sphere \n\u2022\nFocus on world-class guest experience, backed by decades of experience in venue management\n\u2022\nIn-house studio and production expertise for original content creation for Sphere\n\u2022\nEstablished history of successfully planning and executing comprehensive venue design and construction projects\n\u2022\nPortfolio of patents and other intellectual property spanning across Sphere design and construction, audio delivery, cinematic video display systems, and in-venue technologies\n\u2022\nExclusive local media rights to live games of five professional New York-area NBA and NHL teams, including long-term agreements with the Knicks and Rangers; and\n\u2022\nA strong and seasoned management team.\nOur Strategy\nOur strategy is to leverage our Company\u2019s unique assets and brands \u2013 which includes a next-generation entertainment medium, Sphere, and regional sports and entertainment networks \u2013 to create world-class experiences for all key stakeholders, including performers, athletes, content creators, guests, viewers, advertisers and marketing partners. Coupled with our continued commitment to innovation, we believe the Company is positioned to generate long-term value for our stockholders.\nKey components of our strategy include:\nCreating a New Entertainment Medium:\n We believe Sphere will redefine the future of entertainment, combining next generation technologies with multi-sensory storytelling to deliver immersive experiences at an unparalleled scale.  Sphere represents an innovative business model for entertainment venues, with new and expanded revenue opportunities that span across original immersive productions, performances, concerts and residencies, sporting and corporate events, advertising and sponsorship, and premium hospitality, as well as food, beverage and merchandise.\nThe Company\u2019s first Sphere is expected to open in September 2023, and is conveniently located in Las Vegas, one block from the Las Vegas Strip and connected to The Venetian Expo. \nSphere in Las Vegas has already become a landmark \u2013 as the world\u2019s largest spherical structure standing at 366 feet tall and 516 feet wide, with a fully-programmable LED exterior that offers a powerful global platform for potential advertisers and marketing partners, as well as creative content. A grand entrance atrium with immersive experiences, activations, and galleries will welcome guests into the venue, while visitors will also enjoy luxury seating, premier concession spaces, and a full complement of premium hospitality offerings, including 23 suites.  \nOnce inside Sphere\u2019s main venue bowl, guests will experience the full range of the venue\u2019s cutting-edge technologies, including: \n\u2022\nA 16K x 16K LED screen \u2013 a 160,000-square foot high-resolution interior display plane that surrounds the audience, creating a fully immersive visual environment.\n\u2022\nSphere Immersive Sound, powered by HOLOPLOT \u2013 an advanced audio system that delivers crystal-clear, concert-grade sound to every seat in Sphere through beamforming and wave field synthesis technology.\n\u2022\n4D multi-sensory technologies \u2013 which enable guests to feel experiences such as vibrations, wind, scent and changing temperatures to enhance storytelling.\n2\nLeveraging Sphere\u2019s Unique Capabilities to Drive Venue Utilization: \nSphere in Las Vegas was designed and engineered from the ground up to be one of the most highly utilized venues of its size. The venue\u2019s technologies and design will enable it to seamlessly accommodate a variety of different event types, with fast turnover between events, and accommodate multiple events per-day, year-round. This creates the opportunity for Sphere to be more efficiently utilized than traditional large-scale venues.\nDeveloping Original Content:\n During Fiscal Year 2023, we launched Sphere Studios, which is dedicated to the development of immersive entertainment exclusively for Sphere.  Sphere Studios features technology and proprietary tools developed specifically for Sphere that make content creation for this platform a seamless experience. Sphere Studios is also home to an interdisciplinary team of creative, production, technology and software experts who provide full in-house creative and production services, including strategy and concept, capture, post-production and show production. The Company is collaborating with third-party creators and is also developing its own content ranging from original immersive productions, purpose-built for Sphere, to the establishment of a dynamic library of content that can be used by artists or third parties who want to bring their experiences to life \u2013 whether for concerts, residencies or corporate events. \nOriginal content that the Company owns is a key aspect of our business model as it allows for the Company\u2019s economic participation as both venue operator and content owner. It also allows the Company to better control event scheduling and reduces the reliance on third-party events.  In addition, the Company plans to expand its network of Sphere venues around the world over time, which would create additional monetization opportunities for the Company\u2019s original content.  \n\u2022\nDebut of The Sphere Experience.\n A core content category at Sphere in Las Vegas will be The Sphere Experience, which the Company believes will appeal to the over 40 million visitors to Las Vegas annually and over 2 million local residents and can run multiple times a day, year-round.  The Company expects The Sphere Experience to be approximately two hours long and begin when guests enter the venue\u2019s atrium, where they will engage with the latest in technological advancements through a variety of immersive experiences and activations.\n\u2022\nThe experience will continue to the main venue bowl where \u2013 on October 6, 2023 \u2013 the Company plans to debut the original immersive production, \nPostcard From Earth\n, directed by Academy Award nominee, Darren Aronofsky. The production, which will offer a unique perspective on the beauty of life on earth, will utilize the full breadth of the venue\u2019s immersive technologies. \nVenue of Choice for Third-Party Events. \nSphere in Las Vegas is expected to host a wide variety of events, including concerts and residencies from renowned artists, marquee sporting events including mixed-martial arts, boxing and eSports, as well as corporate and special events.  On September 29, 2023, global rock band U2 is expected to open the venue with the first of its 25-show run.  In addition, the Company has entered into a multi-year agreement with Formula 1 for a full multi-day takeover of Sphere, starting with its inaugural Las Vegas Grand Prix in November 2023.  The Company plans to leverage Sphere\u2019s unique platform, as well as the Company\u2019s deep relationships across music, entertainment, corporate and sports, to attract additional events to Sphere in Las Vegas. \nUnique Platform for Advertising and Sponsorship\n: Sphere\u2019s unique platform and technological capabilities offer powerful and premium opportunities for advertisers and marketing partners to engage with audiences. The Company expects that Sphere in Las Vegas will deliver significant exposure to the guests that attend events at the venue, including  the more than 40 million annual visitors and over 2 million local residents to Las Vegas, but also around the world on social media. Sphere will offer bespoke advertising and sponsorship opportunities, including externally with the Exosphere and internally with immersive galleries, interactive installations, the atrium, and premium hospitality spaces. Sphere in Las Vegas will offer advertising and marketing partners unique and valuable inventory that is not available in traditional large-scale entertainment venues.\n\u25aa\nThe Exosphere \u2013 \nThe exterior of Sphere in Las Vegas, which we call the Exosphere, is the world\u2019s largest LED screen covered in 580,000 square feet of fully programmable LED paneling, consisting of approximately 1.2 million LED pucks, spaced eight inches apart. Each puck contains 48 individual LED diodes, with each diode capable of displaying 256 million different colors. We believe we have created the world\u2019s largest LED screen and an impactful digital canvas for brands, events, and advertising and marketing partners to showcase content to audiences around the world.\n\u25aa\nOn July 4th, 2023, the Company illuminated the entire exterior of Sphere in Las Vegas for the first time, with a captivating display of dynamic, animated content, which received media coverage across the world and was widely shared on social media. This was followed by additional creative activations including in coordination with the NBA\u2019s Summer League in Las Vegas, as well as the Formula 1 Las Vegas Grand Prix. Later in 2023, we expect the Exosphere to be prominently featured as part of Sphere\u2019s opening in September with U2, as well as in coordination with the October debut of \nPostcard From Earth\n.  In November, during the Formula 1 Las Vegas Grand Prix, Sphere is expected to have a prime position along the race circuit to showcase the Exosphere to a global audience \u2013 in-person and on TV \u2013 as well as significant exposure through planned takeovers of the Exosphere for race-related content, activations and advertising. \nPursuing a Global Network and Brand.  \nWe believe there are other markets \u2014 both domestic and international \u2014 where Sphere can be successful.  The design of Sphere can accommodate a wide range of sizes and capacities based on the needs of the individual market.  Leveraging the Sphere brand and operating a network of Sphere venues would allow the Company to pursue a number of \n3\navenues for potential growth, including driving increased bookings and greater advertising and sponsorship opportunities. Furthermore, the Company would have the opportunity to leverage its in-house expertise \u2013 including across venue management, design and construction, operations and technology \u2013 to drive new revenue streams.  An increasing number of Sphere venues would also create additional monetization opportunities for the Company\u2019s original content, including \nPostcard From Earth.  \nAs we explore selectively extending Sphere\u2019s network beyond Las Vegas to other markets around the world, we intend to utilize several options such as joint ventures, equity partners, a managed venue model, and non-recourse debt financing. \nA Continued Commitment to Innovation in Media. \nFor more than 50 years, MSG Networks has been at the forefront of the industry, pushing the boundaries of regional sports coverage. We continually seek to enhance the value that our networks provide to viewers, advertisers, and distributors by utilizing state-of-the-art technology to deliver high-quality, best-in-class content and live viewing experiences. In June 2023, MSG Networks introduced MSG+, a direct to consumer streaming product (replacing MSG GO), which allows subscribers to access MSG Network and MSG Sportsnet as well as on demand content on smartphones, tablets, computers and other devices.  MSG+ is available on a free, authenticated basis to subscribers of participating Distributors (including all of MSG Networks\u2019 major Distributors), as well as for purchase on a direct-to-consumer (\u201cDTC\u201d) basis.  In addition to monthly and annual DTC subscription options, in an innovative offering not currently available from any other regional sports network, MSG+ will also offer single game purchases of MSG Networks\u2019 NBA and NHL teams.\nOur Business\nSphere\nThe Company is progressing with its creation of the first Sphere venue, adjacent to the Las Vegas Strip, which will utilize cutting-edge technologies to create immersive experiences on an unparalleled scale. Sphere is an entirely new medium, uniquely built for immersive entertainment experiences. Key design features include:\n\u2022\nA 580,000 square foot, fully-programmable LED Exosphere \u2013 the world\u2019s largest LED screen, which consists of approximately 1.2 million LED pucks, spaced eight inches apart. Each puck contains 48 individual LED diodes, with each diode capable of displaying 256 million different colors.\n\u2022\nThe main venue bowl featuring a 16K x 16K LED screen \u2013 a 160,000-square foot high-resolution interior display plane that surrounds the audience, creating a fully immersive visual environment. \n\u2022\nSphere Immersive Sound, powered by HOLOPLOT \u2013 an advanced audio system that delivers crystal-clear, concert-grade sound to every seat in Sphere through beamforming and wave field synthesis technology.\n\u2022\n4D multi-sensory technologies \u2013 which enable guests to feel experiences such as vibrations, wind, scent and changing temperatures to enhance storytelling.\nThese technologies will come together to create a powerful platform, which we believe will make Sphere the venue of choice for a wide variety of content \u2013 including original immersive productions from leading Hollywood directors; concerts and residencies from the world\u2019s biggest artists; marquee sporting and corporate events.\nThe Company is building its first Sphere in Las Vegas, a 17,600-seat venue with capacity to hold up to 20,000 guests, on land adjacent to The Venetian Resort leased from a subsidiary of Venetian Las Vegas Gaming, LLC (\u201cThe Venetian\u201d). The Venetian agreed to provide us with $75 million to help fund the construction costs, including the cost of a pedestrian bridge that links Sphere to The Venetian Expo. Through June 30, 2023, The Venetian paid us $65 million of this amount for construction costs. The ground lease has no fixed rent; however, if certain return objectives are achieved, The Venetian will receive 25% of the after-tax cash flow in excess of such objectives. The lease is for a term of 50 years, and the Company expects to open the venue on September 29, 2023. \nBecause of the transformative nature of Sphere, we believe there could be other markets \u2014 both domestic and international \u2013 where Sphere can be successful. The design of Sphere will be flexible to accommodate a wide range of sizes and capacities \u2013 from large-scale to smaller and more intimate \u2013 based on the needs of any individual market.\nAs we explore selectively extending the Sphere network beyond Las Vegas to other markets around the world, the Company\u2019s intention is to utilize several options, such as joint ventures, equity partners, a managed venue model, and non-recourse debt financing.\nIn February 2018, we announced the purchase of land in Stratford, London. The Company submitted a planning application for a Sphere venue to the local planning authority in March 2019 and that process, which requires various stages of review to be completed and approvals to be granted, is ongoing. Therefore, we do not have a definitive timeline at this time. \nSee \u201cPart II \u2014 Item\u00a07.\n \nManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2014 Liquidity and Capital Resources\n \n \u2014 Sphere.\u201d\nOur Events\n4\nThe Sphere Experience\n:  A core content category at Sphere in Las Vegas will be The Sphere Experience, which the Company believes will appeal to the over 40 million visitors to Las Vegas annually and the over 2 million local residents and can run multiple times a day, year-round. The Company expects The Sphere Experience to be approximately two hours long and begin when guests enter the venue\u2019s atrium, where they will engage with the latest in technological advancements through a variety of immersive experiences and activations.\nThe experience will continue to the main venue bowl where the Company will feature original immersive productions that utilize the full breadth of the venue\u2019s immersive technologies.  On October 6, 2023, the Company plans to debut the original immersive production, \nPostcard from Earth\n, directed by Academy Award nominee, Darren Aronofsky.\nLive Entertainment\n: Our Company has deep industry relationships that are expected to drive the world\u2019s biggest artists to Sphere in Las Vegas. Global rock band U2 will open Sphere in Las Vegas on September 29, 2023 with the first of 25 shows from the band.\nMarquee Sporting and Corporate Events\n: Our Company plans to host a broad array of live sporting events, including professional boxing, mixed martial arts, eSports, and wrestling, as well as corporate events. In November 2023, during the Formula 1 Las Vegas Grand Prix, Sphere will have a prime position along the race circuit to showcase the venue to a global audience \u2013 in-person and on TV \u2013 as well as significant exposure through planned takeovers of the Exosphere for race-related content, activations and advertising.\nOur Advertising, Sponsorship, and Premium Hospitality Partner Offerings\nSphere\u2019s unique platform and technological capabilities offer powerful and premium opportunities for advertisers and marketing partners to engage with audiences.  The Company expects that Sphere in Las Vegas will deliver significant exposure not only to the guests that attend events at the venue and the more than 40 million annual visitors to Las Vegas, and the over 2 million local residents, but also around the world on social media. Sphere will offer bespoke advertising and sponsorship opportunities, including externally with the Exosphere and internally with immersive galleries, interactive installations, the atrium, and suites. Sphere in Las Vegas will offer advertising and marketing partners unique and valuable inventory that is not available in traditional large-scale entertainment venues. \nSphere will also offer premium hospitality products. This includes 23 suites, as well as other hospitality spaces. We expect to license a number of these suites, while also offering suites for single-event use.\nMSG Networks\nMSG Networks is an industry leader in sports production, content development and distribution. It includes two award-winning regional sports and entertainment networks, MSG Network and MSG Sportsnet, and as well as its direct-to-consumer and authenticated streaming product, MSG+. \nDebuting as the first regional sports network in the country on October 15, 1969, MSG Networks has been a pioneer in regional sports programming for more than 50 years, setting a standard of excellence, creativity and technological innovation. Today, MSG Networks\u2019 exclusive, award-winning programming continues to be a valuable differentiator for viewers, advertisers and the cable, satellite, fiber-optic and other platforms (\u201cDistributors\u201d) that distribute its networks. MSG Networks and MSG Sportsnet are widely distributed throughout all of New York State and significant portions of New Jersey and Connecticut, as well as parts of Pennsylvania. MSGN and MSG SportsNet are widely carried by major Distributors in our region, with an average combined reach of approximately 4.1 million viewing subscribers (as of the most recent available monthly information) in our Regional Territory. MSG Network and MSG Sportsnet are also carried nationally by certain Distributors on sports tiers or in similar packages.\nIn June 2023, MSG Networks introduced MSG+, a DTC and authenticated streaming product (replacing MSG GO), which allows subscribers to access MSG Network and MSG Sportsnet and on demand content across devices. MSG+ is available on a free, authenticated basis to subscribers of participating Distributors (including all of MSG Networks\u2019 major Distributors), as well as for purchase by viewers on a DTC basis. In addition to monthly and annual DTC subscription options, in an innovative offering not currently available from any other regional sports network, MSG+ will also offer single game purchases of MSG Networks\u2019 NBA and NHL teams.\nThroughout its history, MSG Networks has been at the forefront of the industry, pushing the boundaries of regional sports coverage. In the process, its networks have become a powerful platform for some of the world\u2019s greatest athletes and entertainers. MSG Networks\u2019 commitment to programming excellence has earned it a reputation for best-in-class programming, production, marketing, and technical innovation. It has won more New York Emmy Awards for live sports and original programming over the past 10 years than any other regional sports network in the region.\nThe foundation of MSG Networks\u2019 programming is its professional sports coverage. MSG Network and MSG Sportsnet feature a wide range of compelling sports content, including exclusive live local games and other programming of the Knicks, Rangers, Islanders, Devils and Sabres, as well as significant coverage of the New York Giants and Buffalo Bills. MSG Networks also showcases a wide array of other sports and entertainment programming, which includes Westchester Knicks basketball, New York Riptide lacrosse, NY/\n5\nNJ Gotham FC of the National Women\u2019s Soccer League, NCAA basketball, soccer, baseball, softball and other college sporting events, as well as horse racing, soccer, poker, tennis, pickleball, mixed martial arts and boxing programs.\nMSG Network and MSG Sportsnet collectively air hundreds of live professional games each year, along with a comprehensive lineup of other sporting events and original programming designed to give fans behind-the-scenes access and insight into the teams and players they love. This content includes pre- and post-game coverage throughout the seasons, along with team-related programming that features coaches and players, all of which capitalizes on the enthusiasm for the teams featured on MSG Network and MSG Sportsnet. \nMSG Networks is also positioned as one of the premium destinations for sports gaming content. In Fiscal Year 2023, MSG Networks produced daily, original sports betting shows and multiple betting themed simulcasts for both NBA and NHL games that were each sponsored by one of the Company\u2019s sports gaming partners. The original shows and segments featured a mix of sports gaming experts and former New York athletes covering betting-related topics across the sports world, from NBA and NHL to NFL, MLB, tennis, golf, and mixed martial arts. \nIntellectual Property\nWe create, own and license intellectual property in the countries in which we operate, have operated or intend to operate, and it is our practice to protect our trademarks, brands, copyrights, inventions and other original and acquired works. We have registered many of our trademarks and have filed applications for certain others in the countries in which we operate or intend to operate. Additionally, we have filed and continue to file for patent protection in the countries where we operate or plan to operate, and we have been issued patents for key elements of Sphere. Our registrations and applications relate to trademarks and inventions associated with, among other of our brands, Sphere, The Sphere Experience, Sphere Studios, Sphere Immersive Sound and MSG Networks. We believe our ability to maintain and monetize our intellectual property rights, including the technology and content developed for Sphere, The Sphere Experience, MSG Networks (including our DTC and authenticated streaming product, MSG+), and our brand logos, are important to our business, our brand-building efforts and the marketing of our products and services. We cannot predict, however, whether steps taken by us to protect our proprietary rights will be adequate to prevent misappropriation of these rights or protect against vulnerability to oppositions or cancellation actions due to non-use.  See \u201c\u2014 Item\u00a01A. Risk Factors  \u2014 Risks Related to Cybersecurity and Intellectual Property \u2014 \nWe May Become Subject to Infringement or Other Claims Relating to Our Content or Technology\n \u201d \u201c\u2014 \nTheft of Our Intellectual Property May Have a Material Negative Effect on Our Business and Results of Operations.\n\u201d\nOther Investments\nOur Company explores investment opportunities that strengthen its existing position within the entertainment landscape and/or allow us to exploit our assets and core competencies for growth.\nIn Fiscal Year 2019, the Company acquired a 30% interest in SACO Technologies Inc. (\u201cSACO\u201d), a global provider of high-performance LED video lighting and media solutions. The Company is utilizing SACO as a preferred display technology provider for Sphere and is benefiting from agreed-upon commercial terms. In addition, the Company also has other investments in various entertainment and related technology companies, accounted for under the equity method. \nIn Fiscal Year 2018, the Company acquired a 25% interest in Holoplot GmbH (\u201cHoloplot\u201d), a global leader in 3D audio technology based in Berlin, Germany. The Company has partnered with Holoplot to create the world's largest, fully integrated concert-grade audio system that we believe will revolutionize immersive audio experiences for Sphere in Las Vegas. In January 2023, the Company, through an indirect subsidiary, extended financing to Holoplot in the form of a three-year convertible loan of \u20ac18.8 million, equivalent to $20.5 million using the applicable exchange rate at the time of the transaction.\nOn April 20, 2023, the Company distributed approximately 67% of the outstanding common stock of MSG Entertainment to its stockholders, with the Company retaining approximately 33% of the outstanding common stock of MSG Entertainment (in the form of Class A common stock) immediately following the MSGE Distribution. Following the sale of a portion of the MSGE Retained Interest on June 27, 2023 and our repayment of the delayed draw term loan (further discussed below) with MSG Entertainment through the use of shares of MSG Entertainment Class A common stock, we now hold approximately 17% of the outstanding common stock of MSG Entertainment (in the form of MSG Entertainment Class A common stock), based on 49,128,231 total shares of MSG Entertainment common stock outstanding as of August 18, 2023.\nSee Note 7. Investments in Nonconsolidated Affiliates, to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details.\nOur Community\nSphere Entertainment is committed to supporting the communities we serve through a variety of important initiatives.  \nAs we approach the opening of Sphere in Las Vegas in September 2023, Sphere has already begun supporting the greater Las Vegas community. This includes engaging with various non-profits that serve diverse populations in Clark County, such as donating more \n6\nthan 5,000 back-to-school supplies to support the Boys & Girls Club of Southern Nevada \u2013 which is also a partner organization of the Garden of Dreams Foundation (\u201cGDF\u201d), a non-profit charity that works with the Company and is dedicated to bringing life-changing opportunities to young people in need. \nWe are likewise engaged in the London community, where we have announced plans to build another Sphere venue, pending necessary approvals. In East London we have focused on providing opportunities for local students to learn about careers in the entertainment industry, such as partnering with the University of East London to mentor students as part of our Student Associate internship program. We\u2019ve also partnered with local institutions such as Theatre Royal Stratford East to host performance opportunities and talent development for up-and-coming local artists.\nMSG Networks also works closely with the Garden of Dreams Foundation on various initiatives, particularly through MSG Classroom. Founded in 2007, MSG Classroom is an Emmy award winning educational initiative that teaches high school students about the media industry through hands-on learning opportunities in areas such as broadcasting, script writing and production, working directly with employees of MSG Networks.   \nThe Company\u2019s 2022 Corporate Social Responsibility Report can be found on our website under \u201cOur Community.\u201d\nGarden of Dreams Foundation\nThe centerpiece of the Company\u2019s philanthropy is GDF. Since it was established in 2006, GDF has donated nearly $75 million in grants and other donations, impacting more than 425,000 young people and their families. GDF focuses on young people facing illness or financial challenges, as well as children of uniformed personnel who have been lost or injured while serving our communities.  In partnership with the Company, MSG Entertainment and MSG Sports, GDF provides young people in our communities with access to educational and skills opportunities; mentoring programs and memorable experiences that enhance their lives, help shape their futures and create lasting joy. Each year, as part of its Season of Giving, GDF partners with MSG Sports\u2019 New York Knicks and New York Rangers, and MSG Entertainment\u2019s Radio City Rockettes on a wide range of charitable programs. GDF further supports its mission by providing a core group of non-profit partners with critical funding to contribute to their long-term success.\nRegulation \nThe rules, regulations, policies and procedures affecting our business are subject to change. The following paragraphs describe the existing legal and regulatory requirements that are most significant to our business today; they do not purport to describe all present and proposed laws and regulations affecting our business.\nOur Sphere business is subject to the general powers of federal, state and local government, as well as foreign governmental authorities, to deal with matters of health, public safety and operations.\nVenue Licenses\nSphere, like all public spaces, is subject to building and health codes and fire regulations imposed by state and local government, as well as zoning and outdoor advertising and signage regulations. Sphere requires a number of licenses to operate, including, but not limited to, occupancy permits, exhibition licenses, food and beverage permits, liquor licenses, signage entitlements and other authorizations. We are also subject to statutes that generally provide that serving alcohol to a visibly intoxicated or minor guest is a violation of the law and may provide for strict liability for certain damages arising out of such violations. In addition, we are subject to the federal Americans with Disabilities Act (and related state and local statutes), which requires us to maintain certain accessibility features at our facilities. We are also subject to environmental laws and regulations. See \u201c Item\u00a01A. Risk Factors \u2014 Operational and Economic Risks \u2014 \nWe Are Subject to Extensive Governmental Regulation and Changes in These Regulations and Our Failure to Comply with Them May Have a Material Negative Effect on Our Business and Results of Operations.\n\u201d\nLabor\nOur  business is also subject to regulation regarding working conditions, overtime and minimum wage requirements. See \u201cItem\u00a01A. Risk Factors \u2014 Operational and Economic Risks \u2014 \nLabor Matters May Have a Material Negative Effect on Our Business and Results of Operations.\n\u201d\nTicket Sales\nOur Sphere  business is subject to legislation governing the sale and resale of tickets and consumer protection statutes generally.\nData and Privacy\nWe are subject to data privacy and protection laws, regulations, policies and contractual obligations that apply to the collection, transmission, storage, processing and use of personal information or personal data, which among other things, impose certain requirements relating to the privacy and security of personal information. The variety of laws and regulations governing data privacy \n7\nand protection, and the use of the internet as a commercial medium are rapidly evolving, extensive and complex, and may include provisions and obligations that are inconsistent with one another or uncertain in their scope or application. \nThe data protection landscape is rapidly evolving in the United States. For example, California passed a comprehensive data privacy law, the California Consumer Privacy Act of 2018 (the \u201cCCPA\u201d), and other states including Virginia,  Colorado, Utah and Connecticut have also passed similar laws, and various additional states may do so in the near future. Additionally, the California Privacy Rights Act (the \u201cCPRA\u201d) imposes additional data protection obligations on covered businesses, including additional consumer rights procedures and obligations, limitations on data uses, new audit requirements for higher risk data, and constraints on certain uses of sensitive data. The majority of the CPRA provisions went into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. Further, there are several legislative proposals in the United States, at both the federal and state level, that could impose new privacy and security obligations. \nIn addition, governmental authorities and private litigants continue to bring actions against companies for online collection, use, dissemination and security practices that are unfair or deceptive. \nInternational Operations\nOur international operations are subject to laws and regulations of the countries in which they operate, as well as international bodies, such as the European Union. We are subject to laws and regulations relating to, among other things, foreign privacy and data protection, such as the E.U. General Data Protection Regulation, currency and repatriation of funds, anti-bribery, anti-money laundering and anti-corruption, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. These laws and regulations apply to the activities of the Company and, in some cases, to individual directors, officers and employees of the Company and agents acting on our behalf. Certain of these laws impose stringent requirements on how we can conduct our foreign operations and could place restrictions on our business and partnering activities.\nFCC Regulations\nOur \nMSG Networks\n business is also subject to regulation by the Federal Communications Commission (the \u201cFCC\u201d). The FCC imposes regulations directly on programming networks and also on certain Distributors in a manner that affects programming networks indirectly. \nClosed Captioning\nOur programming networks must provide closed captioning of video programming for the hearing impaired and meet certain captioning quality standards. The FCC and certain of our affiliation agreements require us to certify compliance with such standards. We are also required to provide closed captioning on certain video content delivered via the Internet, and ensure that our website and applications offering video content comply with certain captioning functionality and other requirements.\nCommercial Loudness\nFCC rules require multichannel video programming distributors (\u201cMVPDs\u201d) to ensure that all commercials comply with specified volume standards, and certain of our affiliation agreements require us to certify compliance with such standards.\nAdvertising Restrictions on Children\u2019s Programming\nAny programming intended primarily for children 12 years of age and under and associated Internet websites that we may offer must comply with certain limits on commercial matter and certain of our affiliation agreements require us to certify compliance with such standards.\nObscenity Restrictions\nDistributors are prohibited from transmitting obscene programming, and certain of our affiliation agreements require us to refrain from including such programming on our networks.\nProgram Carriage\nThe FCC has made changes to the program carriage rules, which prohibit Distributors from favoring their affiliated programming networks over unaffiliated similarly situated programming networks in the rates, terms and conditions of carriage agreements between programming networks and cable operators or other MVPDs. Some of these recent changes to the rules could make it more difficult for our programming networks to challenge a Distributor\u2019s decision to decline to carry one of our programming networks or to discriminate against one of our programming networks.\n8\nPackaging and Pricing\nThe FCC periodically considers examining whether to adopt rules regulating how programmers package and price their networks, such as whether programming networks require Distributors to purchase and carry undesired programming in return for the right to carry desired programming and, if so, whether such arrangements should be prohibited.\nEffect of \u201cMust-Carry\u201d and Retransmission Consent Requirements\nThe FCC\u2019s implementation of the statutory \u201cmust-carry\u201d obligations requires cable and satellite Distributors to give broadcasters preferential access to channel space, and the implementation of \u201cretransmission consent\u201d requirements allow broadcasters to extract compensation, whether monetary or mandated carriage of affiliated content, in return for permission to carry their networks. These rules may reduce the amount of channel space that is available for carriage of our programming networks and the amount of funds that Distributors have to pay us for our networks.\nWebsite and Mobile Application Requirements\nOur Sphere and \nMSG Networks\n businesses are also subject to certain regulations applicable to our Internet websites and mobile applications. We maintain various websites and mobile applications that provide information and content regarding our business, offer merchandise and tickets for sale, offer live and on-demand streaming content, make available sweepstakes and/or contests and offer hospitality services. The operation of these websites and applications may be subject to third-party application store requirements, as well as a range of federal, state and local laws including those related to privacy and protection of personal information, accessibility for persons with disabilities and consumer protection regulations. In addition, to the extent any of our websites seek to collect information from children under 13 years of age, they may be subject to the Children\u2019s Online Privacy Protection Act, which places restrictions on websites\u2019 and online services\u2019 collection and use of personally identifiable information online from children under age 13 without parental consent. \n \nCompetition\nCompetition in Our Sphere Business\nOur Sphere business competes, in certain respects and to varying degrees, for guests, advertisers and marketing partners with other leisure-time activities such as television, radio, motion pictures, sporting events and other live performances, entertainment and nightlife venues, the Internet, social media and social networking platforms, online and mobile services, and the large number of other entertainment and public attraction options available to members of the public, advertisers and marketing partners. While Sphere will offer first-of-its-kind immersive opportunities, our Sphere business typically represents a competing use for the public\u2019s entertainment dollars, as well as corporate advertising and sponsorship dollars. The primary geographic area in which we operate, Las Vegas, is a highly competitive entertainment destination, with numerous showrooms, stadiums and arenas, performance residencies, museums, galleries and other attractions available to the public. We compete with these other entertainment and advertising options on the basis of the quality and pricing of our offerings and the public\u2019s interest in our content and advertising and marketing partnership offerings.\nWe compete for bookings with a large number of other venues, both in Las Vegas where Sphere is located and in alternative locations capable of booking traditional productions and events,\n \nwhich venues may be more familiar to performers who may not be willing to take advantage of the immersive experiences and next generation technologies that Sphere offers (which cannot be re-used in other venues). Generally, we compete for bookings on the basis of the size, quality, expense and nature of the venue required for the booking. Some of our competitors may have a larger network of venues and/or greater financial resources. See \u201cItem\u00a01A. Risk Factors \u2014 Operational and Economic Risks \u2014 \nOur Businesses Face Intense and Wide-Ranging Competition That May Have a Material Negative Effect on Our Business and Results of Operations.\nCompetition in Our \nMSG Networks\n Business\nDistribution of Programming Networks\nThe business of distributing programming networks is highly competitive. Our programming networks face competition from other programming networks, including other regional sports and entertainment networks, for the right to be carried by a particular Distributor, and for the right to be carried on the service tier(s) that will attract the most subscribers. Once a programming network of ours is carried by a Distributor, that network competes for viewers not only with the other programming networks available through the Distributor, but also with pay-per-view programming and video on demand offerings, as well as Internet and online streaming and DTC and on demand services, mobile applications, social media and social networking platforms, radio, print media, motion picture theaters, home video, and other sources of information, sporting events and entertainment. Each of the following competitive factors is important to our networks: the prices we charge for our programming networks; the variety, quantity and quality (in particular, the performance of the sports teams whose media rights we control), of the programming offered on our networks; and the effectiveness of our marketing efforts.\n9\nOur ability to successfully compete with other programming networks for distribution may be hampered because the Distributors may be affiliated with those other programming networks. In addition, because such affiliated Distributors may have a substantial number of subscribers, the ability of such competing programming networks to obtain distribution on affiliated Distributors may lead to increased subscriber and advertising revenue for such networks because of their increased penetration compared to our programming networks. Even if such affiliated Distributors carry our programming networks, there is no assurance that such Distributors will not place their affiliated programming network on more desirable tier(s) or otherwise favor their affiliated programming network, thereby giving the affiliated programming network a competitive advantage over our own.\nNew or existing programming networks that are owned by or affiliated with broadcast networks such as NBC, ABC, CBS or Fox, or broadcast station owners, such as Sinclair, may have a competitive advantage over our networks in obtaining distribution through the \u201cbundling\u201d of agreements to carry those programming networks with the agreement giving the Distributor the right to carry a broadcast station owned by or affiliated with the network.\nIn addition, content providers (such as certain broadcast and cable networks) and new content developers, Distributors and syndicators are distributing programming directly to consumers on a DTC basis. In addition to existing direct-to-consumer streaming services such as Amazon Prime, Hulu, Netflix, Apple TV+, Disney+, Max and Peacock, additional services have launched and more will likely launch in the near term, which may include sports-focused services that may compete with our networks for viewers and advertising revenue. Such DTC distribution of content has contributed to consumers eliminating or downgrading their pay television subscription, which results in certain consumers not receiving our programming networks. We recently introduced our own DTC product, which provides consumers an alternative to accessing our programming through our Distributors, but there can be no assurance that we will successfully execute our strategy for such offering.\n \nOur DTC offering represents a new consumer offering for which we have limited prior experience and we may not be able to successfully predict the demand for such product or the impact such  product may have on our traditional distribution business, including with respect to renewals of our affiliation agreements with Distributors. In addition, the success of our DTC product will depend on a number of factors, including competition from other DTC products, such as offerings from other regional sports networks. \nSee \u201cItem\u00a01A. Risk Factors \u2014 Operational and Economic Risks \u2014 \nOur Businesses Face Intense and Wide-Ranging Competition That May Have a Material Negative Effect on Our Business and Results of Operations\n.\u201d and \u201c Item\u00a01A. Risk Factors \u2014 Risks Related to Our \nMSG Networks\n Business \n\u2014 We May Not Be Able to Adapt to New Content Distribution Platforms or to Changes in Consumer Behavior Resulting From Emerging Technologies, Which May Have a Material Negative Effect on Our Business and Results of Operations.\u201d \nSources of Programming\nWe also compete with other networks and other distribution outlets to secure desired programming, including sports-related programming. Competition for programming increases as the number of programming networks and distribution outlets, including, but not limited to, streaming outlets, increases. Other programming networks, or distribution outlets, that are affiliated with or otherwise have larger relationships with programming sources such as sports teams or leagues, movie or television studios, or film libraries may have a competitive advantage over us in this area.\nCompetition for Sports Programming Sources\nBecause the loyalty of the sports viewing audience to a sports programming network is primarily driven by loyalty to a particular team or teams, access to adequate sources of sports programming is particularly critical to our networks. In connection with the spinoff of MSG Sports from MSG Networks in September 2015 (the \u201c2015 Sports Distribution\u201d), MSG Networks entered into long-term media rights agreements with the Knicks and Rangers providing MSG Networks with the exclusive live local media rights to their games. MSG Networks also has media rights agreements with the Islanders, Devils and Sabres. Our rights with respect to these professional teams may be limited in certain circumstances due to rules imposed by the leagues in which they compete. Our programming networks compete for telecast rights for teams or events principally with national or regional programming networks that specialize in, or carry, sports programming, local and national commercial broadcast television networks, independent syndicators that acquire and resell such rights nationally, regionally and locally, streaming outlets and other Internet and mobile-based distributors of programming. Some of our competitors may own or control, or are owned or controlled by, or otherwise affiliated with, sports teams, leagues or sports promoters, which gives them an advantage in obtaining telecast rights for such teams or sports. For example, two professional sports teams located in New York have ownership interests in programming networks featuring the games of their teams. Distributors may also contract directly with the sports teams in their local service areas for the right to distribute games on their platforms.\nThe increasing amount of sports programming available on a national basis, including pursuant to national media rights arrangements (e.g., NBA on ABC, ESPN and TNT, and NHL on ABC, ESPN, ESPN+ and TNT), as part of league-controlled sports programming networks (e.g., NBA TV and NHL Network), in out-of-market packages (e.g., NBA League Pass and NHL Center Ice), league and \n10\nother websites, mobile applications and streaming outlets, may have an adverse impact on our competitive position as our programming networks compete for distribution and for viewers. \nCompetition for Advertising Revenue\nThe level of our advertising revenue depends in part upon unpredictable and volatile factors beyond our control, such as viewer preferences, the performance of the sports teams whose media rights we control, the quality and appeal of the competing programming and the availability of other entertainment activities. See \u201c Item\u00a01A. Risk Factors \u2014 Risks Related to Our \nMSG Networks\n Business \u2014 \nWe Derive Substantial Revenues From the Sale of Advertising and Those Revenues Are Subject to a Number of Factors, Many of Which Are Beyond Our Control.\u201d\nSupplier Diversity\nWe are committed to fostering an inclusive environment across all areas of our business. In partnership with MSG Entertainment and MSG Sports, our business and supplier diversity program seeks to strengthen relationships with diverse suppliers of goods and services and provide opportunities to do business with each of the three companies.  See \u201cHuman Capital Resources \u2014 Diversity and Inclusion.\u201d \nHuman Capital Resources \nWe believe the strength of our workforce is one of the significant contributors to our success. Our key human capital management objectives are to invest in and support our employees in order to attract, develop and retain a high performing and diverse workforce.\nDiversity and Inclusion (\u201cD&I\u201d)\nWe aim to create an employee experience that fosters the Company\u2019s culture of respect and inclusion. By welcoming the diverse perspectives and experiences of our employees, we all share in the creation of a more vibrant, unified, and engaging place to work. Together with MSG Entertainment and MSG Sports, we have furthered these objectives under our expanded Talent Management, Diversity and Inclusion function, including:\nWorkforce: Embedding Diversity and Inclusion through Talent Actions \n\u2022\nCreated a common definition of \u201cpotential\u201d and an objective potential assessment to de-bias talent review conversations so employees have an opportunity to learn, grow and thrive. Implemented quarterly performance and career conversations to facilitate regular conversations between managers and employees about goals, career growth and productivity. \n\u2022\nIntegrated D&I best practices into our performance management and learning and development strategies with the goal of driving more equitable outcomes.\n\u2022\nDeveloped an Emerging Talent List to expand our talent pool to better identify and develop high performing diverse talent for expanded roles and promotion opportunities. \nWorkplace: Building an Inclusive and Accessible Community \n\u2022\nRedoubled our efforts with the MSG Diversity & Inclusion Heritage Month enterprise calendar to acknowledge and celebrate culturally relevant days and months of recognition, anchored by our six employee resource groups (\u201cERGs\u201d): Asian Americans and Pacific Islanders (AAPI), Black, LatinX, PRIDE, Veterans, and Women. Increased combined ERG involvement from 622 members in Fiscal Year 2022 to 1,120 members in Fiscal Year 2023 (an increase of 80.1%), which includes employees from the Company, MSG Entertainment and MSG Sports.\n\u2022\nRevamped our Conscious Inclusion Awareness Experience, a training program, and created two required educational modules focused on unconscious bias and conscious inclusion within our learning management system. As of June 30, 2023, over 90% of employees across the Company, MSG Entertainment and MSG Sports have completed both required trainings either through the e-modules or through live training sessions. \n\u2022\nBroadened our LGBTQ+ inclusivity strategy by launching new gender pronoun feature within the employee intranet platform, hosted live allyship and inclusivity trainings, and launched toolkit resources for employees to learn and develop. Together with the PRIDE ERG, marched in the 2022 and 2023 NYC Pride Parades. Hosted a community conversations series focused on \u201cFinding Your Voice as an LGBTQ+ Professional\u201d with a prominent LGBTQ+ elected official and employees of the Company, MSG Entertainment and MSG Sports. \nCommunity: Bridging the Divide through Expansion to Diverse Stakeholders \n11\n\u2022\nFocused on connecting with minority-owned businesses to increase the diversity of our vendors and suppliers by leveraging ERGs and our community, which creates revenue generating opportunities for diverse suppliers to promote their businesses and products. In Fiscal Year 2023, the Company and MSG Sports hosted a multi-city holiday market event featuring twenty underrepresented businesses in New York City and Burbank.\n\u2022\nInvested in an external facing supplier diversity portal on our website, which launched in Fiscal Year 2023. The portal is intended to expand opportunities for the Company, MSG Entertainment and MSG Sports to do business with diverse suppliers, including minority-, women-, LGBTQ+- and veteran-owned businesses. \n\u2022\nStrengthened our commitment to higher education institutions to increase campus recruitment pipelines. In partnership with the Knicks and our social impact team, we and MSG Sports hosted the 2nd Annual Historically Black Colleges and Universities (\u201cHBCU\u201d) Night highlighting the important contributions of these institutions and awarded a $60,000 scholarship to a New York City high school student. \nTalent\nAs of June\u00a030, 2023, we had approximately 690 full-time union and non-union employees and approximately 410 part-time union and non-union employees. \nWe aim to attract top talent through our prestigious brands and venues, as well as through the many benefits we offer. We aim to retain and develop our talent by emphasizing our competitive rewards, offering opportunities that support employees both personally and professionally, and our commitment to fostering career development in a positive corporate culture.\nOur performance management practice includes ongoing feedback and conversations between managers and team members, and talent reviews designed to identify potential future leaders and inform succession plans. We value continuous learning and development opportunities for our employees, which include a career development tool, leadership development programs, a learning platform, and tuition assistance.\nOur benefit offerings are designed to meet the range of needs of our diverse workforce and include: domestic partner coverage, an employee assistance program which also provides assistance with child and elder care resources, legal support, pet insurance, wellness programs and financial planning seminars. These resources are intended to support the physical, emotional and financial well-being of our employees.\nAs of June\u00a030, 2023, approximately 29% of our employees were represented by unions. Approximately 10% of such union employees are subject to collective bargaining agreements (\u201cCBAs\u201d) that expired as of June\u00a030, 2023 and approximately 67% are subject to CBAs that will expire by June\u00a030, 2024 if they are not extended prior thereto. Labor relations can be volatile, though our current relationships with our unions taken as a whole are positive. We have from time to time faced labor action or had to make contingency plans because of threatened or potential labor actions.\nFinancial Information about Segments and Geographic Areas\nSubstantially all revenues and assets of the Company\u2019s reportable segments are attributed to or located in the United States. A majority of the Company\u2019s revenues and assets are concentrated in the New York City metropolitan area and Las Vegas. Financial information by business segments for each of Fiscal Years 2023, 2022, and 2021 is set forth in \u201cPart II \u2014 Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d and \u201cPart II \u2014 Item 8. Financial Statements and Supplementary Data \u2014 Consolidated Financial Statements \u2014 Notes to Consolidated Financial Statements \u2014 Note 18. Segment Information.\u201d\nAvailable Information \nOur telephone number is (725) 258-0001, our website is \nhttp://www.sphereentertainmentco.com\n and the investor relations section of our website is \nhttp://investor.sphereentertainmentco.com\n. We make available, free of charge through the investor relations section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (\u201cSEC\u201d) at \nhttp://www.sec.gov\n. Copies of these filings are also available on the SEC\u2019s website. References to our website in this report are provided as a convenience and the information contained on, or available through, our website is not part of this or any other report we file with or furnish to the SEC.\nInvestor Relations can be contacted at Sphere Entertainment Co., Two Penn Plaza, New York, New York 10121, Attn: Investor Relations, telephone: 212-465-6618, e-mail: investor@sphereentertainmentco.com. We use the following, as well as other social media channels, to disclose public information to investors, the media and others:\n\u2022\nOur website (www.sphereentertainmentco.com);\n12\n\u2022\nOur LinkedIn account (www.linkedin.com/company/sphere-entertainment-co/);\n\u2022\nOur X (formerly Twitter) account (x.com/SphereVegas); and\n\u2022\nOur Instagram account (instagram.com/spherevegas).\nOur officers may use similar social media channels to disclose public information. It is possible that certain information we or our officers post on our website and on social media could be deemed material, and we encourage investors, the media and others interested in Sphere Entertainment to review the business and financial information we or our officers post on our website and on the social media channels identified above. The information on our website and those social media channels is not incorporated by reference into this Form 10-K.\n13",
+  "item1a": ">Item\u00a01A. Risk Factors \nSummary of Risk Factors\nThe following is a summary of the principal risks that could adversely affect our business, operations and financial results. For a more complete discussion of the material risks facing our business, please see below.\nRisks Related to Our Sphere Business\n\u2022\nThe success of our Sphere business depends on the popularity of The Sphere Experience, as well as our ability to attract advertisers and marketing partners, and audiences and artists to concerts, residencies and other events at Sphere in Las Vegas.\n\u2022\nThe Company is completing construction of its first state-of-the-art venue in Las Vegas. Our Sphere business uses cutting-edge technologies and requires significant investments, including for The Sphere Experience (and related original immersive productions) and other offerings. There can be no assurance that Sphere will be successful.\n\u2022\nWe depend on licenses from third parties for the performance of musical works at our venue.\n\u2022\nOur properties are subject to, and benefit from, certain easements, the availability of which may not continue on terms favorable to us or at all. \nRisks Related to Our MSG Networks Business\n\u2022\nThe success of our MSG Networks business depends on affiliation fees we receive under our affiliation agreements, the loss of which or renewal of which on less favorable terms may have a material negative effect on our business and results of operations.\n\u2022\nGiven that we depend on a limited number of distributors for a significant portion of our MSG Networks revenues, further industry consolidation could adversely affect our business and results of operations.\n\u2022\nWe may not be able to adapt to new content distribution platforms or to changes in consumer behavior resulting from emerging technologies, which may have a material negative effect on our business and results of operations.\n\u2022\nIf the rate of decline in the number of subscribers to traditional MVPD services continues or these subscribers shift to other services or bundles that do not include the Company\u2019s programming networks, there may be a material negative effect on the Company\u2019s affiliation revenues.\n\u2022\nWe derive substantial revenues from the sale of advertising and those revenues are subject to a number of factors, many of which are beyond our control. \n\u2022\nOur MSG Networks business depends on media rights agreements with professional sports teams that have varying durations and terms and include significant obligations, and our inability to renew those agreements on acceptable terms, or the loss of such rights for other reasons, may have a material negative effect on our MSG Networks business and results of operations.\n\u2022\nOur MSG Networks business is substantially dependent on the popularity of the NBA and NHL teams whose media rights we control. The actions of the NBA and NHL may have a material negative effect on our MSG Networks business and results of operations.\n\u2022\nOur MSG Networks business depends on the appeal of its programming, which may be unpredictable, and increased programming costs may have a material negative effect on our business and results of operations.\nOperational and Economic Risks\n\u2022\nOur businesses face intense and wide-ranging competition that may have a material negative effect on our business and results of operations.\n\u2022\nOur operations and operating results were materially impacted by the COVID-19 pandemic and actions taken in response by governmental authorities and certain professional sports leagues, and a resurgence of the COVID-19 pandemic or another pandemic or public health emergency could adversely affect our business and results of operations.\n\u2022\nOur business has been adversely impacted and may, in the future, be materially adversely impacted by an economic downturn, recession, financial instability, inflation or changes in consumer tastes and preferences.\n\u2022\nThe geographic concentration of our businesses could subject us to greater risk than our competitors and have a material negative effect on our business and results of operations.\n\u2022\nOur business could be adversely affected by terrorist activity or the threat of terrorist activity, weather and other conditions that discourage congregation at prominent places of public assembly.\n14\n\u2022\nWe are subject to extensive governmental regulation and changes in these regulations and our failure to comply with them may have a material negative effect on our business and results of operations.\n\u2022\nLabor matters may have a material negative effect on our business and results of operations. \n\u2022\nThe unavailability of systems upon which we rely may have a material negative effect on our business and results of operations.\n\u2022\nThere is a risk of injuries and accidents in connection with Sphere, which could subject us to personal injury or other claims; we are subject to the risk of adverse outcomes in other types of litigation.\n\u2022\nWe face risks from doing business internationally.\nRisks Related to Our Indebtedness, Financial Condition, and Internal Control \n\u2022\nWe have substantial indebtedness and are highly leveraged, which could adversely affect our business if our subsidiaries are not able to make payments on, or repay or refinance, such debt under their respective credit facilities (including refinancing the MSG Networks debt prior to its maturity in October 2024), or if we are not able to obtain additional financing, to the extent required. \n\u2022\nWe may require additional financing to fund certain of our obligations, ongoing operations, and capital expenditures, the availability of which is uncertain.\n\u2022\nWe have incurred substantial operating losses, adjusted operating losses and negative cash flow and there is no assurance we will have operating income, adjusted operating income or positive cash flow in the future.\n\u2022\nMaterial weaknesses or adverse findings in our internal control over financial reporting in the future could have an adverse effect on the market price of our common stock. \nRisks Related to Cybersecurity and Intellectual Property\n\u2022\nWe face continually evolving cybersecurity and similar risks, which could result in loss, disclosure, theft, destruction or misappropriation of, or access to, our confidential information and cause disruption of our business, damage to our brands and reputation, legal exposure and financial losses.\n\u2022\nWe may become subject to infringement or other claims relating to our content or technology.\n\u2022\nTheft of our intellectual property may have a material negative effect on our business and results of operations.\nRisks Related to Governance and Our Controlled Ownership \n\u2022\nWe are materially dependent on our affiliated entities\u2019 performances under various agreements.\n\u2022\nThe MSGE Distribution could result in significant tax liability. We may have a significant indemnity obligation to MSG Entertainment if the MSGE Distribution is treated as a taxable transaction.\n\u2022\nWe are controlled by the Dolan family. As a result of their control, the Dolan family has the ability to prevent or cause a change in control or approve, prevent or influence certain actions by the Company. \n\u2022\nWe share certain directors, officers and employees with MSG Sports, MSG Entertainment and/or AMC Networks, which means those individuals do not devote their full time and attention to our affairs. Additionally, our overlapping directors and officers with MSG Sports, MSG Entertainment and/or AMC Networks may result in the diversion of corporate opportunities and other conflicts.\nRisks Related to Our Sphere Business\nThe Success of Our Sphere Business Depends on the Popularity of The Sphere Experience, as Well as Our Ability to Attract Advertisers and Marketing Partners, and Audiences and Artists to Concerts, Residencies and Other Events at Sphere in Las Vegas. If The Sphere Experience Does Not Appeal to Customers or We Are Unable to Attract Advertisers and Marketing Partners, There Will be a Material Negative Effect on Our Business and Results of Operations. \nThe financial results of our Sphere business are largely dependent on the popularity of The Sphere Experience, which will feature original immersive productions that can run multiple times per day, year-round and are designed to utilize the full breadth of the venue\u2019s next-generation technologies. The Sphere Experience will employ novel and transformative technologies for which there is no established basis of comparison, and there is an inherent risk that we may be unable to achieve the level of success appropriate for the significant investment involved. Fan and consumer tastes also change frequently and it is a challenge to anticipate what will be successful at any point in time. Should the popularity of The Sphere Experience not meet our expectations, our revenues from ticket sales, and concession and merchandise sales would be adversely affected, and we might not be able to replace the lost revenue with revenues from other sources. As a result of any of the foregoing, we may not be able to generate sufficient revenues to cover our costs, which could adversely impact our business and results of operations and the price of our Class A Common Stock.\n15\nInitially, our Sphere business will only have access to one original immersive production, called \nPostcard from Earth\n. The risk of reliance on The Sphere Experience described above is exacerbated by the lack of availability of alternative content if \nPostcard from Earth\n is not successful in attracting gue\nsts. If The Sphere Experience is not successful, we will not have sufficient capital to develop a second original immersive production.\n In that event, Sphere in Las Vegas will need to rely on live entertainment offerings to be successful and to generate enough capital to develop a second original immersive production or partner with third parties.\nAdditionally, our Sphere business is also dependent on our ability to attract advertisers and marketing partners to our signage, digital advertising and partnership offerings. Advertising revenues depend on a number of factors, such as the reach and popularity of our venue (including risks around consumer reactions to advertisers and marketing partners), the health of the economy in the markets our businesses serve and in the nation as a whole, general economic trends in the advertising industry and competition with respect to such offerings. Should the popularity of our advertising assets not meet our expectations, our revenues would be adversely affected, and we might not be able to replace the lost revenue with revenues from other sources, which could adversely impact our business and results of operations and the price of our Class A Common Stock.\nThe success of our Sphere business will also depend upon our ability to offer live entertainment that is popular with guests. While the Company believes that these next-generation venues will enable new experiences and innovative opportunities to engage with audiences, there can be no assurance that guests, artists, promoters, advertisers and marketing partners will embrace this new platform. We contract with promoters and others to provide performers and events at Sphere and Sphere grounds. There may be a limited number of popular artists, groups or events that are willing to take advantage of the immersive experiences and next generation technologies (which cannot be re-used in other venues) or that can attract audiences to Sphere, and our business would suffer to the extent that we are unable to attract such artists, groups and events willing to perform at our venue. \nThe Company Is Completing Construction of its First State-of-the-Art Venue in Las Vegas, While Pursuing a Potential Venue in London. Sphere Uses Cutting-Edge Technologies and Requires Significant Capital Investment by the Company. There Can Be No Assurance That Sphere Will Be Successful.\nThe Company is progressing with its venue strategy to create, build and operate new music and entertainment-focused venues \u2014 called Sphere \u2014 that use cutting-edge technologies to create the next generation of immersive experiences. There is no assurance that the Sphere initiative will be successful. We are completing construction of our first Sphere in Las Vegas. See \u201cItem 1. Our Business \u2014 \u2014 Sphere.\u201d  \nThe costs to build Sphere have been substantial. While it is always difficult to provide a definitive construction cost estimate for large-scale construction projects, it has been particularly challenging for one as unique as Sphere. In May 2019, the Company\u2019s preliminary cost estimate for Sphere in Las Vegas was approximately $1.2 billion. This estimate was based only upon schematic designs for purposes of developing the Company\u2019s budget and financial projections. In February 2020, we announced that our cost estimate, inclusive of core technology and soft costs, for Sphere in Las Vegas was approximately $1.66 billion and subsequently\n increased \nthat\n cost estimate, \nwhich excluded significant capitalized and non-capitalized costs for items such as content creation, internal labor, capitalized interest, and furniture and equipment. \nAs of the date of this filing, we estimate that the final project construction costs for Sphere in Las Vegas will be approximately $2.3 billion. This cost estimate is net of \n$75 million\n that the Venetian has agreed to pay to defray certain construction costs. Relative to our cost estimate above, our actual construction costs for Sphere in Las Vegas paid through \nAugust\u00a018, 2023\n were approximately \n$2.25 billion\n, which is net of $65 million received from The Venetian.\n \nFor more information regarding the costs of Sphere, see \u201cPart II \u2014 Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2014 Liquidity and Capital Resources \u2014 Sphere.\u201d\nIn light of the ambitious and unique design of Sphere, including the use of technologies that have not previously been employed in major entertainment venues, the risk of delays and higher than anticipated costs are elevated. As the Company completes construction of its Las Vegas venue, which is expected to open in September 2023, the Company may still face unexpected project delays and other complications. \nWe may also continue to explore additional domestic and international markets where these next-generation venues are expected to be successful. The design of future Spheres will be flexible to accommodate a wide range of sizes and capacities \u2013 from large-scale to smaller and more intimate \u2013 based on the needs of any individual market. In connection with the construction of future Sphere venues, the Company may need to obtain additional capital beyond what is available from cash-on-hand and cash flows from operations. While the Company has self-funded the construction of Sphere in Las Vegas, the Company\u2019s intention for future venues is to utilize several options, such as joint ventures, equity partners, a managed venue model and non-recourse debt financing. There is no assurance that we would be able to obtain financing for any costs relating to any future venues on terms favorable to us or at all.\nIn February 2018, we announced the purchase of land in Stratford, London, which we expect will become home to a future Sphere. The Company submitted a planning application to the local planning authority in March 2019 and that process, which requires various stages of review to be completed and approvals to be granted, is ongoing. Therefore, we do not have a definitive timeline at this time.\n16\nSphere employs novel and transformative technologies and new applications of existing technologies. As a result, there can be no assurance that Sphere will achieve the technical, operational and artistic goals the Company is seeking. Any failure to do so could have a material negative effect on our business and results of operations.\nWhile the Company believes that these next-generation venues will enable new experiences and innovative opportunities to engage with audiences, there can be no assurance that guests, artists, promoters, advertisers and marketing partners will embrace this new platform. The substantial cost of building Sphere in Las Vegas, as well as the costs and/or financing needs with respect to Sphere in London, may constrain the Company\u2019s ability to undertake other initiatives during these multi-year construction periods. Given our strategy of using original immersive productions across multiple venues, our Sphere initiative may not be successful unless we can develop additional venues.\nOur Sphere Business Strategy Includes the Development of The Sphere Experience and Related Original Immersive Productions, Which Could Require Us to Make Considerable Investments for Which There Can Be No Guarantee of Success.\nAs part of our Sphere business strategy, we intend to develop The Sphere Experience and related original immersive productions, which could require significant upfront expense that may never result in a viable production, as well as investment in creative processes, commissioning and/or licensing of intellectual property, casting and advertising and may lead to dislocation of other alternative sources of entertainment that may have played in our venue absent these productions. As of June 30, 2023, we had invested approximately $61 million in developing the first original immersive production called \nPostcard from Earth\n, and there can be no assurances as to the cost of future immersive productions, which we expect to be significant. To the extent that any efforts at creating new immersive productions do not result in a viable offering, or to the extent that any such productions do not achieve expected levels of popularity among audiences, we may not recover the substantial expenses we previously incurred for non-capitalized investments, or may need to write-off all or a portion of capitalized investments. In addition, any delay in launching such productions could result in the incurrence of operating costs which may not be recouped. The incurrence of such expenses or the write-off of capitalized investments could adversely impact our business and results of operations and the price of our Class A Common Stock.\nWe Depend on Licenses from Third Parties for the Performance of Musical Works at Our Venue, the Loss of Which or Renewal of Which on Less Favorable Terms May Have a Negative Effect on Our Business and Results of Operations.\nWe have obtained and will be required to obtain public performance licenses from music performing rights organizations, commonly known as \u201cPROs,\u201d in connection with the performance of musical works at concerts and certain other live events held at Sphere. In exchange for public performance licenses, PROs are paid a per-event royalty, traditionally calculated either as a percentage of ticket revenue or a per-ticket amount. The PRO royalty obligation of any individual event is generally paid by, or charged to, the promoter of the event.\nIf we are unable to obtain these licenses, or are unable to obtain them on favorable terms consistent with past practice, it may have a negative effect on our business and results of operations. An increase in the royalty rate and/or the revenue base on which the royalty rate is applied could substantially increase the cost of presenting concerts and certain other live events at our venue. If we are no longer able to pass all or a portion of these royalties on to promoters (or other venue licensees), it may have a negative effect on our business and results of operations.\nOur Properties Are Subject to, and Benefit from, Certain Easements, the Availability of Which May Not Continue on Terms Favorable to Us or at All.\nSphere in Las Vegas will have the benefit of easements with respect to the planned pedestrian bridge to The Venetian. Our ability to continue to utilize these and other easements, including for advertising and promotional purposes, requires us to comply with a number of conditions. Certain adjoining property owners have easements over our property, which we are required to maintain so long as those property owners meet certain conditions. It is possible that we will be unable to continue to access or maintain any easements on terms favorable to us, or at all, which could have a material negative effect on our business and results of operations. \nRisks Related to Our \nMSG Networks\n Business\nThe Success of Our MSG Networks Business Depends on Affiliation Fees We Receive Under Our Affiliation Agreements, the Loss of Which or Renewal of Which on Less Favorable Terms May Have a Material Negative Effect on Our Business and Results of Operations.\nMSG Networks\u2019 success is dependent upon affiliation relationships with a limited number of Distributors. Existing affiliation agreements of our programming networks expire during each of the next several years and we cannot provide assurances that we will be able to renew these affiliation agreements or obtain terms as attractive as our existing agreements in the event of a renewal. For example, we were not able to renew our affiliation agreement with Comcast when it expired in September 2021. \n17\nAffiliation fees constitute a significant majority of our MSG Networks revenues. Changes in affiliation fee revenues generally result from a combination of changes in rates and/or changes in subscriber counts. Reductions in the license fees that we receive per subscriber or in the number of subscribers for which we are paid, including as a result of a loss of or reduction in carriage of our programming networks or a loss of subscribers by one or more of our Distributors, have in the past adversely affected (e.g., the non-renewal with Comcast) and will in the future adversely affect our affiliation fee revenue. For example, our affiliation fee revenue declined $67.3 million in Fiscal Year 2023 compared to Fiscal Year 2022. Subject to the terms of our affiliation agreements, Distributors from time to time introduce, market and/or modify tiers of programming networks that impact the number of subscribers that receive our programming networks, including tiers of programming that may exclude our networks. Any loss or reduction in carriage would also decrease the potential audience for our programming, which may adversely affect our advertising revenues. See \u201c\u2014 \nIf the Rate of Decline in the Number of Subscribers to Traditional MVPDs Services Increases or These Subscribers Shift to Other Services or Bundles That Do Not Include the Company\u2019s Programming Networks, There May Be a Material Negative Effect on the Company\u2019s Affiliation Revenues.\n\u201d\nOur affiliation agreements generally require us to meet certain content criteria, such as minimum thresholds for professional event telecasts throughout the calendar year on our networks. If we do not meet these criteria, remedies may be available to our Distributors, such as fee reductions, rebates or refunds and/or termination of these agreements in some cases. For example, we recorded $10.7 million in Fiscal Year 2022 for affiliate rebates.\nIn addition, under certain circumstances, an existing affiliation agreement may expire and we and the Distributor may not have finalized negotiations of either a renewal of that agreement or a new agreement for certain periods of time. In certain of these circumstances, Distributors may continue to carry the service(s) until the execution of definitive renewal or replacement agreements (or until we or the Distributor determine that carriage should cease).\nOccasionally, we may have disputes with Distributors over the terms of our affiliation agreements. If not resolved through business discussions, such disputes could result in administrative complaints, litigation and/or actual or threatened termination of an existing agreement. The loss of any of our significant Distributors, the failure to renew on terms as attractive as our existing agreements (or to do so in a timely manner) or disputes with our counterparties relating to the interpretation of their agreements with us, could result in our inability to generate sufficient revenues to perform our obligations under our agreements or otherwise materially negatively affect our business and results of operations.\nGiven That We Depend on a Limited Number of Distributors for a Significant Portion of Our MSG Networks Revenues, Further Industry Consolidation Could Adversely Affect Our Business and Results of Operations.\nThe pay television industry is highly concentrated, with a relatively small number of Distributors serving a significant percentage of pay television subscribers that receive our programming networks, thereby affording the largest Distributors significant leverage in their relationship with programming networks, including ours. Substantially all of our affiliation fee revenue comes from our top four Distributors. Further consolidation in the industry could reduce the number of Distributors available to distribute our programming networks and increase the negotiating leverage of certain Distributors, which could adversely affect our revenue. In some cases, if a Distributor is acquired, the affiliation agreement of the acquiring Distributor will govern following the acquisition. In those circumstances, the acquisition of a Distributor that is a party to one or more affiliation agreements with us on terms that are more favorable to us than that of the acquirer could have a material negative impact on our business and results of operations. \nWe May Not Be Able to Adapt to New Content Distribution Platforms or to Changes in Consumer Behavior Resulting From Emerging Technologies, Which May Have a Material Negative Effect on Our Business and Results of Operations.\nWe must successfully adapt to technological advances in our industry and the manner in which consumers watch sporting events, including the emergence of alternative distribution platforms. Our ability to exploit new distribution platforms and viewing technologies may affect our ability to maintain and/or grow our business. Emerging forms of content distribution provide different economic models and compete with current distribution methods in ways that are not entirely predictable. Such competition has reduced and could continue to reduce demand for our programming networks or for the offerings of our Distributors and, in turn, reduce our revenue from these sources. Content providers (such as certain broadcast and cable networks) and new content developers, Distributors and syndicators are distributing programming directly to consumers on a DTC  basis. In addition to existing subscription direct-to-consumer streaming services such as Amazon Prime, Hulu, Netflix, Apple TV+, Disney+, ESPN+, Max and Peacock and free advertiser-supported streaming television (\u201cFAST\u201d) channels that are offered directly to consumers at no cost, additional services have launched and more will likely launch in the near term, which may include sports-focused services that may compete with our networks for viewers and advertising revenue. Such DTC distribution of content has contributed to consumers eliminating or downgrading their pay television subscription, which results in certain consumers not receiving our programming networks. If we are unable to offset this loss of subscribers through incremental distribution of our networks (including through our own direct-to-consumer offering) or through rate increases or other revenue opportunities, our business and results of operations will be adversely affected. Gaming, television and other console and device manufacturers, Distributors and others, such as Microsoft, Apple and Roku, are offering and/or developing technology to offer video programming, including in some cases, various DTC platforms. \n18\nSuch changes have impacted and may continue to impact the revenues we are able to generate from our traditional distribution methods, by decreasing the viewership of our programming networks and/or by making advertising on our programming networks less valuable to advertisers.\nIn order to respond to these developments, we have in the past needed, and may in the future need, to implement changes to our business models and strategies and there can be no assurance that any such changes will prove to be successful or that the business models and strategies we develop will be as profitable as our current business models and strategies. For example, we introduced MSG SportsZone, a FAST channel which launched in January 2023. We also recently launched our DTC product, MSG+, but there can be no assurance that we will successfully execute our strategy for such offering. Our DTC offering represents a new consumer offering for which we have limited prior experience and we may not be able to successfully predict the demand for such DTC product or the impact such DTC product may have on our traditional distribution business, including with respect to renewals of our affiliation agreements with Distributors.  In addition, the success of our DTC product may depend on a number of factors, including our ability to: (i) acquire and maintain direct-to-consumer rights from the professional sports teams and/or leagues we currently air on our networks; (ii) appropriately price our offering; (iii) offer competitive content and programming and (iv) ensure our direct-to-consumer technology operates efficiently.  If we fail to adapt to emerging technologies, our appeal to Distributors and our targeted audiences might decline, which could have a material adverse impact on our business and results of operations.\nIf the Rate of Decline in the Number of Subscribers to Traditional MVPD Services Continues or These Subscribers Shift to Other Services or Bundles That Do Not Include the Company\u2019s Programming Networks, There May Be a Material Negative Effect on the Company\u2019s Affiliation Revenues.\nDuring the last few years, the number of subscribers to traditional MVPD services in the U.S. has been declining. In addition, Distributors have introduced, marketed and/or modified tiers or bundles of programming that have impacted the number of subscribers that receive our programming networks, including tiers or bundles of programming that exclude our programming networks. As a result of these factors, the Company has experienced a decrease in subscribers in each of the last several fiscal years, which has adversely affected our operating results.\nIf traditional MVPD service offerings are not attractive to consumers due to pricing, increased competition from DTC  and other services, dissatisfaction with the quality of traditional MVPD services, poor economic conditions or other factors, more consumers may (i) cancel their traditional MVPD service subscriptions or choose not to subscribe to traditional MVPD services, (ii) elect to instead subscribe to DTC services, which in some cases may be offered at a lower price-point and may not include our programming networks or (iii) elect to subscribe to smaller bundles of programming which may not include our programming networks. If the rate of decline in the number of traditional MVPD service subscribers continues or if subscribers shift to DTC services or smaller bundles of programming that do not include the Company\u2019s programming networks, this may have a material negative effect on the Company\u2019s revenues. \nWe Derive Substantial Revenues From the Sale of Advertising and Those Revenues Are Subject to a Number of Factors, Many of Which Are Beyond Our Control.\nAdvertising revenues depend on a number of factors, many of which are beyond our control, such as: (i) team performance; (ii) whether live sports games are being played; (iii) the popularity of our programming; (iv) the activities of our competitors, including increased competition from other forms of advertising-based media (such as Internet, mobile media, other programming networks, radio and print media) and an increasing shift of advertising expenditures to digital and mobile offerings; (v) shifts in consumer viewing patterns, including consumers watching more ad-free content, non-traditional and shorter-form video content online, and the increased use of ad skipping functionality; (vi) increasing audience fragmentation caused by increased availability of alternative forms of leisure and entertainment activities, such as social networking platforms and video games; (vii) consumer budgeting and buying patterns; (viii) the extent of the distribution of our networks; (ix) changes in the audience demographic for our programming; (x) the ability of third parties to successfully and accurately measure audiences due to changes in emerging technologies and otherwise; (xi) the health of the economy in the markets our businesses serve and in the nation as a whole; and (xii) general economic trends in the advertising industry. A decline in the economic prospects of advertisers or the economy in general has in the past altered, and could in the future alter, current or prospective advertisers\u2019 spending priorities, which could cause our revenues and operating results to decline significantly in any given period. Even in the absence of a general recession or downturn in the economy, an individual business sector that tends to spend more on advertising than other sectors may be forced to reduce its advertising expenditures if that sector experiences a downturn. In such case, a reduction in advertising expenditures by such a sector may adversely affect our revenues. See \u201c\u2014 Operational and Economic Risks \u2014 \nOur Operations and Operating Results Were Materially Impacted by the COVID-19 Pandemic and Actions Taken in Response by Governmental Authorities and Certain Professional Sports Leagues, and a Resurgence of the COVID-19 Pandemic or Another Pandemic or Public Health Emergency Could Adversely Affect Our Business and Results of Operations.\u201d\n19\nThe pricing and volume of advertising has been affected by shifts in spending away from more traditional media toward online and mobile offerings or towards new ways of purchasing advertising, such as through automated purchasing, dynamic advertising insertion, third parties selling local advertising spots and advertising exchanges, some or all of which may not be as advantageous to the Company as current advertising methods.\nIn addition, we cannot ensure that our programming will achieve favorable ratings. Our ratings depend partly upon unpredictable and volatile factors, many of which are beyond our control, such as team performance, whether live sports games are being played, viewer preferences, the level of distribution of our programming, competing programming and the availability of other entertainment options. A shift in viewer preferences could cause our advertising revenues to decline as a result of changes to the ratings for our programming and materially negatively affect our business and results of operations. \nOur MSG Networks Business Depends on Media Rights Agreements With Professional Sports Teams that Have Varying Durations and Terms and Include Significant Obligations, and Our Inability to Renew Those Agreements on Acceptable Terms, or the Loss of Such Rights for Other Reasons, May Have a Material Negative Effect on Our MSG Networks Business and Results of Operations.\nOur MSG Networks business is dependent upon media rights agreements with professional sports teams. Our existing media rights agreements are generally long term, except a media rights agreement with one of our NHL teams expires following the end of the 2023-24 NHL season.\n \nUpon expiration, we may seek renewal of these agreements and, if we do, we may be outbid by competing programming networks or others for these agreements or the renewal costs could substantially exceed our costs under the current agreements. In addition, one or more of these teams may seek to establish their own programming offering or join one of our competitor\u2019s offerings and, in certain circumstances, we may not have an opportunity to bid for the media rights.\nEven if we are able to renew such media rights agreements, the Company\u2019s results could be adversely affected if our obligations under our media rights agreements prove to be outsized relative to the revenues our MSG Networks segment is able to generate. Our media rights agreements with professional sports teams have varying terms and include significant obligations, which increase annually, without regard to the number of subscribers to our programming networks or the level of our affiliation and/or advertising revenues.  If we are not able to generate sufficient revenues, including due to a loss of any of our significant Distributors or failure to renew affiliation agreements on terms as attractive as our existing agreements, we may be unable to renew media rights agreements on acceptable terms, or to perform our obligations under our existing media rights agreements, which could lead to a default under those agreements and the potential loss of such media rights, which could materially negatively affect our business and results of operations. \nIn recent years, certain regional sports networks have experienced financial difficulties. For example, Diamond Sports Group, LLC, an unconsolidated subsidiary of Sinclair Broadcast Group, Inc., which licenses and distributes sports content in a number of regional markets, filed for protection under Chapter 11 of the bankruptcy code in March 2023.\nMoreover, the value of our media rights agreements may also be affected by various league decisions and/or league agreements that we may not be able to control, including a decision to alter the number of games played during a season. The value of our media rights could also be affected, or we could lose such rights entirely, if a team is liquidated, undergoes reorganization in bankruptcy or relocates to an area where it is not possible or commercially feasible for us to continue to distribute games. Any loss or diminution in the value of rights could impact the extent of the sports coverage offered by us and could materially negatively affect our business and results of operations. In addition, our affiliation agreements generally include certain remedies in the event our networks fail to include a minimum number of professional event telecasts, and, accordingly, any loss of rights could materially negatively affect our business and results of operations. See \u201c\u2014 \nThe Success of Our MSG Networks Business Depends on Affiliation Fees We Receive Under Our Affiliation Agreements, the Loss of Which or Renewal of Which on Less Favorable Terms May Have a Material Negative Effect on Our Business and Results of Operations\n\u201d and \u201c\u2014 \nThe Actions of the NBA and NHL May Have a Material Negative Effect on Our MSG Networks Business and Results of Operations.\n\u201d \nThe Actions of the NBA and NHL May Have a Material Negative Effect on Our MSG Networks Business and Results of Operations.\nThe governing bodies of the NBA and the NHL have imposed, and may impose in the future, various rules, regulations, guidelines, bulletins, directives, policies and agreements (collectively, \u201cLeague Rules\u201d) that we may not be able to control, which could affect the value of our media rights agreements, including a decision to alter the number of games played during a season. For example, due to the COVID-19 pandemic and related government actions, decisions made by the NBA and NHL affected, and in the future could affect, our ability to produce and distribute live sports games on our networks. See \u201c\u2014 Operational and Economic Risks \u2014 \nOur Operations and Operating Results Were Materially Impacted by the COVID-19 Pandemic and Actions Taken in Response by Governmental Authorities and Certain Professional Sports Leagues, and a Resurgence of the COVID-19 Pandemic or Another Pandemic or Public Health Emergency Could Adversely Affect Our Business and Results of Operations\n\u201d Additionally, each league imposes rules that define the territories in which we may distribute games of the teams in the applicable league. Changes to these rules or other League Rules, or the adoption of new League Rules, could have a material negative effect on our business and results of operations. \n20\nOur MSG Networks Business is Substantially Dependent on the Popularity of the NBA and NHL Teams Whose Media Rights We Control.\nOur MSG Networks segment has historically been, and we expect will continue to be, dependent on the popularity of the NBA and NHL teams whose local media rights we control and, in varying degrees, those teams achieving on-court and on-ice success, which can generate fan enthusiasm, resulting in increased viewership and advertising revenues. Furthermore, success in the regular season may qualify a team for participation in the post-season, which generates increased excitement and interest in the teams, which can improve viewership and advertising revenues. Some of our teams have not participated in the post-season for extended periods of time, and may not participate in the post-season in the future. For example, the Knicks have qualified for the post-season twice in the past 10 NBA seasons and the Sabres have not qualified for the post-season since the 2010-11 NHL season. In addition, if a team declines in popularity or fails to generate fan enthusiasm, this may negatively impact the terms on which our affiliate agreements are renewed. There can be no assurance that any sports team will generate fan enthusiasm or compete in post-season play and the failure to do so could result in a material negative effect on our business and results of operations.\nOur MSG Networks Business Depends on the Appeal of Its Programming, Which May Be Unpredictable, and Increased Programming Costs May Have a Material Negative Effect on Our Business and Results of Operations.\nOur MSG Networks business depends, in part, upon viewer preferences and audience acceptance of the programming on our networks. These factors are often unpredictable and subject to influences that are beyond our control, such as the quality and appeal of competing programming, general economic conditions and the availability of other entertainment options. We may not be able to successfully predict interest in proposed new programming and viewer preferences could cause new programming not to be successful or cause our existing programming to decline in popularity. If our programming does not gain or maintain the level of audience acceptance we, our advertisers, or Distributors expect, it could negatively affect advertising or affiliation fee revenues. \nIn addition, we rely on third parties for sports and other programming for our networks. We compete with other providers of programming to acquire the rights to distribute such programming. If we fail to continue to obtain sports and other programming for our networks on reasonable terms for any reason, including as a result of competition, we could be forced to incur additional costs to acquire such programming or look for or develop alternative programming. An increase in our costs associated with programming, including original programming, may materially negatively affect our business and results of operations.\nThe Unavailability of Third Party Facilities, Systems and/or Software Upon Which Our MSG Networks Business Relies May Have a Material Negative Effect on Our Business and Results of Operations.\nDuring Fiscal Year 2023, our MSG Networks business completed a transition of its signal transmission method from satellite delivery to a terrestrial, internet-protocol based transmission method, which uses third-party IP-based fiber transmission systems to transmit our programming services to Distributors. Notwithstanding certain back-up and redundant systems and facilities maintained by our third-party providers, transmissions or quality of transmissions may be disrupted, including as a result of events that may impair such terrestrial transmission facilities.\nIn addition, we are party to an agreement with AMC Networks Inc. (\u201cAMC Networks\u201d), pursuant to which AMC Networks provides us with certain origination, master control and technical services which are necessary to distribute our programming networks. If a disruption occurs, we may not be able to secure alternate distribution facilities in a timely manner. In addition, such distribution facilities and/or internal or third-party services, systems or software could be adversely impacted by cybersecurity threats including unauthorized breaches. See \u201c\u2014 Risks Related to Cybersecurity and Intellectual Property \u2014 \nWe Face Continually Evolving Cybersecurity and Similar Risks, Which Could Result in Loss, Disclosure, Theft, Destruction or Misappropriation of, or Access to, Our Confidential Information and Cause Disruption of Our Business, Damage to Our Brands and Reputation, Legal Exposure and Financial Losses.\n\u201d The failure or unavailability of distribution facilities or these internal and third-party services, systems or software, depending upon its severity and duration, could have a material negative effect on our business and results of operations.\nOperational and Economic Risks\nOur Businesses Face Intense and Wide-Ranging Competition That May Have a Material Negative Effect on Our Business and Results of Operations.\nOur businesses compete, in certain respects and to varying degrees, for guests, advertisers and viewers with other leisure-time activities such as television, radio, motion pictures, sporting events and other live performances, entertainment and nightlife venues, the Internet, social media and social networking platforms, and online and mobile services, including sites for online content distribution, video on demand and other alternative sources of entertainment and information, in addition to competing for concerts, residencies and performances with other event venues (including future venues and arenas) for total entertainment dollars in our marketplace. \n21\nSphere business. \nThe success of our Sphere business is largely dependent on the success of The Sphere Experience, which will feature first-of-its-kind immersive productions that can run multiple times per day, year-round and are designed to utilize the full breadth of the venue\u2019s next-generation technologies. The Sphere Experience will employ novel and transformative technologies for which there is no established basis of comparison, and there is an inherent risk that we may be unable to achieve the level of success we are expecting, which could have a material negative impact on our business and results of operations. Additionally, our Sphere business is also dependent on our ability to attract advertisers and marketing partners and we compete with other venues and companies for signage and digital advertising dollars. The degree and extent of competition for advertising dollars will depend on our pricing, reach and audience demographics, among others. Should the popularity of The Sphere Experience or our advertising assets not meet our expectations, our revenues from ticket sales, concession and merchandise sales and advertising would be adversely affected, and we might not be able to replace the lost revenue with revenues from other sources. As a result of any of the foregoing, we may not be able to generate sufficient revenues to cover our costs, which could adversely impact our business and results of operations and the price of our Class A Common Stock.\nIn addition, we expect our Sphere business will be highly sensitive to customer tastes and will depend on our ability to attract concerts, residencies, marquee sporting events, corporate and other events to our venue, competition for which is intense, and in turn, the ability of performers to attract strong attendance. For example, Sphere will compete with other entertainment options in the Las Vegas area, which is a popular entertainment destination. \nWhile the Company believes that these next-generation venues will enable new experiences and innovative opportunities to engage with audiences, there can be no assurance that guests, artists, promoters, advertisers and marketing partners will embrace this new platform. We contract with promoters and others to provide performers and events at Sphere and Sphere grounds. There may be a limited number of popular artists, groups or events that are willing to take advantage of the immersive experiences and next generation technologies (which cannot be re-used in other venues) or that can attract audiences to Sphere, and our business would suffer to the extent that we are unable to attract such artists, groups and events willing to perform at our venue\n. \nIn addition, we must maintain a competitive pricing structure for events that may be held at Sphere, many of which may have alternative venue options available to them in Las Vegas and other cities. We have and may continue to invest a substantial amount in The Sphere Experience to continue to attract audiences. We cannot assure you that such investments will generate revenues that are sufficient to justify our investment or even that exceed our expenses. \nMSG Networks business\n. Our MSG Networks business competes, in certain respects and to varying degrees, for viewers and advertisers with other programming networks, pay-per-view, video-on-demand, online streaming and on-demand services and other content offered by Distributors and others. Additional companies, some with significant financial resources, continue to enter or are seeking to enter the video distribution market either by offering DTC streaming services or selling devices that aggregate viewing of various DTC services, which continues to put pressure on an already competitive landscape. We also compete for viewers and advertisers with content offered over the Internet, social media and social networking platforms, mobile media, radio, motion picture, home video and other sources of information and entertainment and advertising services. Important competitive factors are the prices we charge for our programming networks, the quantity, quality (in particular, the performance of the sports teams whose media rights we control), the variety of the programming offered on our networks, and the effectiveness of our marketing efforts.\nNew or existing programming networks that are owned by or affiliated with broadcast networks such as NBC, ABC, CBS or Fox, or broadcast station owners, such as Sinclair, may have a competitive advantage over our networks in obtaining distribution through the \u201cbundling\u201d of agreements to carry those programming networks with the agreement giving the Distributor the right to carry a broadcast station owned by or affiliated with the network. For example, regional sports and entertainment networks affiliated with broadcast networks are carried by certain Distributors that do not currently carry our networks. Our business depends, in part, upon viewer preferences and audience acceptance of the programming on our networks. These factors are often unpredictable and subject to influences that are beyond our control, such as the quality and appeal of competing programming, the performance of the sports teams whose media rights we control, general economic conditions and the availability of other entertainment options. We may not be able to successfully predict interest in proposed new programming and viewer preferences could cause new programming not to be successful or cause our existing programming to decline in popularity. If our programming does not gain or maintain the level of audience acceptance we, our advertisers or Distributors expect, it could negatively affect advertising or affiliation fee revenues. An increase in our costs associated with programming, including original programming, may materially negatively affect our business and results of operations.\nWe recently launched a DTC streaming product, which provides consumers an alternative to accessing our programming through our Distributors, but there can be no assurance that we will successfully execute our strategy for such offering. Our DTC offering represents a new consumer offering for which we have limited prior experience and we may not be able to successfully predict the demand for such DTC product or the impact such DTC product may have on our traditional distribution business, including with respect to renewals of our affiliation agreements with Distributors. In addition, the success of our DTC product will depend on a number of factors, including competition from other DTC products, such as offerings from other regional sports networks. \n22\nThe extent to which competitive programming, including NBA and NHL games, are available on other programming networks and distribution platforms can adversely affect our competitive position.\nThe competitive environment in which our MSG Networks business operates may also be affected by technological developments. It is difficult to predict the future effect of technology on our competitive position. With respect to advertising services, factors affecting the degree and extent of competition include prices, reach and audience demographics, among others. Some of our competitors are large companies that have greater financial resources available to them than we do, which could impact our viewership and the resulting advertising revenues.\nOur\n \nOperations and Operating Results Were Materially Impacted by the COVID-19 Pandemic and Actions Taken in Response by Governmental Authorities and Certain Professional Sports Leagues, and a Resurgence of the COVID-19 Pandemic or Another Pandemic or Public Health Emergency Could Adversely Affect Our Business and Results of Operations. \nThe Company\u2019s operations and operating results were materially impacted by the COVID-19 pandemic (including COVID-19 variants) and actions taken in response by governmental authorities and certain professional sports leagues during Fiscal Year 2021. \nMSG Networks business.\n As a result of the COVID-19 pandemic, both the NBA and the NHL reduced the number of regular season games for their 2020-21 seasons, resulting in MSG Networks airing substantially fewer NBA and NHL telecasts during Fiscal Year 2021, as compared with Fiscal Year 2019 (the last full fiscal year not impacted by COVID-19 as the 2019-20 seasons were temporarily suspended and subsequently shortened). Consequently, MSG Networks experienced a decrease in revenues, including a material decrease in advertising revenue. The absence of live sports games also resulted in a decrease in certain MSG Networks expenses, including rights fees, variable production expenses, and advertising sales commissions. MSG Networks aired full regular season telecast schedules in Fiscal Year 2022 and Fiscal Year 2023 for its five professional teams across both the NBA and NHL, and, as a result, its advertising revenue and certain operating expenses, including rights fees expense, reflect the same. \nSphere business\n. In April 2020, the Company announced that it was suspending construction of Sphere in Las Vegas due to COVID-19 related factors that were outside of its control, including supply chain issues. This is a complex construction project with cutting-edge technology that relied on subcontractors obtaining components from a variety of sources around the world. \nAs the ongoing effects of the pandemic continued to impact its business operations, in August 2020, the Company disclosed that it had resumed full construction with a lengthened timetable in order to better preserve cash through the COVID-19 pandemic. The Company expects to open the venue in September 2023. Although Sphere was not open during the pandemic, if it had been, its operations would have been suspended for a period of time and, similar to other venues, its operations would have been subject to safety protocols and social distancing upon reopening.\nIt is unclear to what extent pandemic concerns, including with respect to COVID-19 or other future pandemics, could result in professional sports leagues suspending, cancelling or otherwise reducing the number of games scheduled in the regular reason or playoffs, which could have a material impact on the distribution and/or advertising revenues of our MSG Networks segment, or could result in new government-mandated capacity or other restrictions or vaccination/mask requirements or impact the use of and/or demand for Sphere in Las Vegas, impact demand for our sponsorship and advertising assets, deter our employees and vendors from working at Sphere in Las Vegas (which may lead to difficulties in staffing), deter artists from touring or otherwise materially impact our operations. See \u201c \u2014Operational and Economic Risks \u2014 \nWe Are Subject to Extensive Governmental Regulation and Changes in These Regulations and Our Failure to Comply with Them May Have a Material Negative Effect on Our Business and Results of Operations\n.\u201d \nOur business is particularly sensitive to reductions in travel and discretionary consumer spending. A pandemic, such as COVID-19, or the fear of a new pandemic or public health emergency, has in the past and could in the future impede economic activity in impacted regions and globally over the long term, leading to a decline in discretionary spending on entertainment and sports events and other leisure activities, which could result in long-term effects on our business. To the extent effects of the COVID-19 pandemic or another pandemic or public health emergency adversely affect our business and financial results, they may also have the effect of heightening many of the other risks described in this \u201cRisk Factors\u201d section, such as those relating to our liquidity, indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness. \nOur Business Has Been Adversely Impacted and May, in the Future, Be Materially Adversely Impacted by an Economic Downturn, Recession, Financial Instability, Inflation or Changes in Consumer Tastes and Preferences.\nOur business depends upon the ability and willingness of consumers and businesses to purchase tickets and license suites at Sphere, spend on food and beverages and merchandise, subscribe to packages of programming that includes our networks, and drive continued advertising, marketing partnership and affiliate fee revenues, and these revenues are sensitive to general economic conditions, recession, fears of recession and consumer behavior. Further, the live entertainment industry is often affected by changes in consumer tastes, national, regional and local economic conditions, discretionary spending priorities, demographic trends, traffic patterns and the type, number and location of competing businesses. These risks are exacerbated in our business in light of the fact that we only have one venue in Las Vegas, which is dependent on tourism travel for its success.\n23\nConsumer and corporate spending has in the past declined and may in the future decline at any time for reasons beyond our control. The risks associated with our businesses generally become more acute in periods of a slowing economy or recession, which may be accompanied by reductions in corporate sponsorship and advertising and decreases in attendance at events at our venue, among other things. In addition, inflation, which has significantly risen, has increased and may continue to increase operational costs, including labor costs, and continued increases in interest rates in re\nsponse to concerns about inflation may have the effect of further increasing economic uncertainty and heightening these risks. As a result, instability and weakness of the U.S. and global economies, including due to the effects caused by disruptions to financial mark\nets, inflation, recession, high unemployment, geopolitical events, including any prolonged effects caused by the COVID-19 pandemic or another future pandemic, and the negative effects on consumers\u2019 and businesses\u2019 discretionary spending, have in the past materially negatively affected, and may in the future materially negatively affect, our business and results of operations. A prolonged period of reduced consumer or corporate spending, including with respect to advertising, such as during the COVID-19 pandemic, could have an adverse effect on our business and our results of operations. See \u201c\u2014 Operational and Economic Risks \u2014 \nOur Operations and Operating Results Were Materially Impacted by the COVID-19 Pandemic and Actions Taken in Response by Governmental Authorities and Certain Professional Sports Leagues, and a Resurgence of the COVID-19 Pandemic or Another Pandemic or Public Health Emergency Could Adversely Affect Our Business and Results of Operations\n.\u201d\nThe Geographic Concentration of Our Businesses Could Subject Us to Greater Risk Than Our Competitors and Have a Material Negative Effect on Our Business and Results of Operations.\nThe Sphere business initially operates only in Las Vegas with one venue and, as a result, is subject to significantly greater degrees of risk than competitors with more operating properties or that operate in more markets. MSG Networks\u2019 programming networks are widely distributed throughout New York State and certain nearby areas. Therefore, the Company is particularly vulnerable to adverse events (including acts of terrorism, natural disasters, epidemics, pandemics, weather conditions, labor market disruptions and government actions) and economic conditions in Las Vegas and New York State, and surrounding areas. \nOur Business\n \nCould Be Adversely Affected by Terrorist Activity or the Threat of Terrorist Activity, Weather and Other Conditions That Discourage Congregation at Prominent Places of Public Assembly.\nThe success of our businesses is dependent upon the willingness and ability of patrons to attend events at our venue. The venue we operate, like all prominent places of public assembly, could be the target of terrorist activities, including acts of domestic terrorism, or other actions that discourage attendance. Any such activity or threatened activity at or near one of our venue or other similar venues, including those located elsewhere, could result in reduced attendance at our venue and a material negative effect on our business and results of operations. If our venue was unable to operate for an extended period of time, our business and operations would be materially adversely affected. Similarly, a major epidemic or pandemic, such as the COVID-19 pandemic, or the threat or perceived threat of such an event, could adversely affect attendance at our events and venues by discouraging public assembly at our events and venue. Moreover, the costs of protecting against such incidents, including the costs of implementing additional protective measures for the health and safety of our guests, could reduce the profitability of our operations. See \u201c\u2014 Operational and Economic Risks \u2014 \nOur Operations and Operating Results Were Materially Impacted by the COVID-19 Pandemic and Actions Taken in Response by Governmental Authorities and Certain Professional Sports Leagues, and a Resurgence of the COVID-19 Pandemic or Another Pandemic or Public Health Emergency Could Adversely Affect Our Business and Results of Operations\n.\u201d\nWeather or other conditions, including natural disasters, in locations which we own or operate venues may affect patron attendance as well as sales of food and beverages and merchandise, among other things. Weather conditions may also require us to cancel or postpone events. Weather or other conditions may prevent us or our Distributors from providing our programming to customers or reduce advertising expenditures. Any of these events may have a material negative effect on our business and results of operations, and any such events may harm our ability to obtain or renew insurance coverage on favorable terms or at all.\nWe May Pursue Acquisitions and Other Strategic Transactions and/or Investments to Complement or Expand Our Business That May Not Be Successful; We Have Significant Investments in Businesses We Do Not Control.\nFrom time to time, we may explore opportunities to purchase or invest in other businesses, venues or assets that we believe will complement, enhance or expand our current business or that might otherwise offer us growth opportunities, including opportunities that may differ from the Company\u2019s current businesses. Any transactions that we are able to identify and complete may involve risks, including the commitment of significant capital, the incurrence of indebtedness, the payment of advances, the diversion of management\u2019s attention and resources from our existing business to develop and integrate the acquired or combined business, the inability to successfully integrate such business or assets into our operations, litigation or other claims in connection with acquisitions or against companies we invest in or acquire, our lack of control over certain companies, including joint ventures and other minority investments, the risk of not achieving the intended results and the exposure to losses if the underlying transactions or ventures are not successful. At times, we have had significant investments in businesses that we account for under the equity method of accounting, and we may again in the future. Certain of these investments have generated operating losses in the past and certain have required additional investments from us in the form of equity or loans. For example, we currently have equity method investments in SACO \n24\nTechnologies and Holoplot. There can be no assurance that these investments will become profitable individually or in the aggregate or that they will not require material additional funding from us in the future.\nWe may not control the day-to-day operations of these investments. We have in the past written down and, to the extent that these investments are not successful in the future, we may write down all or a portion of such investments. Additionally, these businesses may be subject to laws, rules and other circumstances, and have risks in their operations, which may be similar to, or different from, those to which we are subject. Any of the foregoing risks could result in a material negative effect on our business and results of operations or adversely impact the value of our investments.\nWe Are Subject to Extensive Governmental Regulation and Changes in These Regulations and Our Failure to Comply with Them May Have a Material Negative Effect on Our Business and Results of Operations. \nOur business is subject to the general powers of federal, state and local governments, as well as foreign governmental authorities. Certain aspects of our MSG Networks business are also subject to certain rules, regulations and agreements of the NBA and NHL. Some FCC regulations apply to our MSG Networks business directly and other FCC regulations, although imposed on Distributors, affect programming networks indirectly.\n\u2022\nVenue-related Permits/Licenses\n. Sphere, like all public spaces, is subject to building and health codes and fire regulations imposed by state and local government as well as zoning and outdoor advertising and signage regulations. We also require a number of licenses to operate, including, but not limited to, occupancy permits, exhibition licenses, food and beverage permits, liquor licenses, signage entitlements and other authorizations. Failure to receive or retain, or the suspension of, liquor licenses or permits could interrupt or terminate our ability to serve alcoholic beverages at our venue. Additional regulation relating to liquor licenses may limit our activities in the future or significantly increase the cost of compliance, or both. We are subject to statutes that generally provide that serving alcohol to a visibly intoxicated or minor patron is a violation of the law and may provide for strict liability for certain damages arising out of such violations. Our liability insurance coverage may not be adequate or available to cover any or all such potential liability. \nOur failure to maintain these permits or licenses could have a material negative effect on our business and results of operations\n.\n\u2022\nPublic Health and Safety.\n As a result of government mandated assembly limitations and closures implemented in response to the COVID-19 pandemic, MSG Networks aired substantially fewer games in Fiscal Year 2021\n.\n There can be no assurance that some or all of these restrictions will not be imposed again in the future due to future outbreaks of COVID-19 (including variants) or another pandemic or public health emergency. We are unable to predict what the long-term effects of these events, including renewed government regulations or requirements, will be. For example, future governmental regulations adopted in response to a pandemic may impact the revenue we derive and/or the expenses we incur from the events that we choose to host, such that events that were historically profitable would instead result in losses. See \u201c\u2014 Operational and Economic Risks \u2014 \nOur Operations and Operating Results Were Materially Impacted by the COVID-19 Pandemic and Actions Taken in Response by Governmental Authorities and Certain Professional Sports Leagues, and a Resurgence of the COVID-19 Pandemic or Another Pandemic or Public Health Emergency Could Adversely Affect Our Business and Results of Operations.\n\u2022\nEnvironmental Laws\n. We and our venue are subject to environmental laws and regulations relating to the use, disposal, storage, emission and release of hazardous and non-hazardous substances, as well as zoning and noise level restrictions which may affect, among other things, the operations of our venue. Compliance with these regulations and the associated costs may be heightened as a result of the purchase, construction or renovation of a venue. Additionally, certain laws and regulations could hold us strictly, jointly and severally responsible for the remediation of hazardous substance contamination at our facilities or at third-party waste disposal sites, as well as for any personal injury or property damage related to any contamination. Our commercial general liability and/or the pollution legal liability insurance coverage may not be adequate or available to cover any or all such potential liability. \n\u2022\nBroadcasting.\n Legislative enactments, court actions, and federal and state regulatory proceedings could materially affect our programming business by modifying the rates, terms, and conditions under which we offer our content or programming networks to Distributors and the public, or otherwise materially affect the range of our activities or strategic business alternatives. We cannot predict the likelihood, results or impact on our business of any such legislative, judicial, or regulatory actions. Furthermore, to the extent that regulations and laws, either presently in force or proposed, hinder or stimulate the growth of Distributors, our business could be affected. The U.S. Congress and the FCC currently have under consideration, and may in the future adopt, amend, or repeal, laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect our business. The regulation of Distributors and programming networks is subject to the political process and has been in constant flux over the past two decades. Further material changes in the law and regulatory requirements may be proposed or adopted in the future. Our business and our results of operations may be materially negatively affected by future legislation, new regulation or deregulation. \n25\n\u2022\nData Privacy\n. We are subject to various data privacy and protection laws, regulations, policies and contractual obligations that apply to the collection, transmission, storage, processing and use of personal information or personal data, which among other things, impose certain requirements relating to the privacy and security of personal information. The variety of laws and regulations governing data privacy and protection, and the use of the internet as a commercial medium, are rapidly evolving, extensive and complex, and may include provisions and obligations that are inconsistent with one another or uncertain in their scope or application. \nThe data protection landscape is rapidly evolving in the United States. As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. For example, California has passed a comprehensive data privacy law, the California Consumer Privacy Act of 2018 (the \u201cCCPA\u201d), and a number of other states, including Virginia, Colorado, Utah and Connecticut, have also passed similar laws, and various additional states may do so in the near future. Additionally, the California Privacy Rights Act (the \u201cCPRA\u201d), imposes additional data protection obligations on covered businesses, including additional consumer rights procedures and obligations, limitations on data uses, new audit requirements for higher risk data, and constraints on certain uses of sensitive data. The majority of the CPRA provisions went into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. Further, there are several legislative proposals in the United States, at both the federal and state level, that could impose new privacy and security obligations. We cannot yet determine the impact that these future laws and regulations may have on our business.\nIn addition, governmental authorities and private litigants continue to bring actions against companies for online collection, use, dissemination and security practices that are unfair or deceptive. \nOur business is, and may in the future be, subject to a variety of other laws and regulations, including licensing, permitting, working conditions, labor, immigration and employment laws; health, safety and sanitation requirements; and compliance with the Americans with Disabilities Act (and related state and local statutes). \nAny changes to the legal and regulatory framework applicable to our business could have an adverse impact on our businesses and our failure to comply with applicable governmental laws and regulations, or to maintain necessary permits or licenses, could result in liability or government actions that could have a material negative effect on our business and results of operations.\nOur Business Has Been Subject to Seasonal Fluctuations, and Our Operating Results and Cash Flow Have In the Past Varied, and Could In the Future Vary, Substantially from Period to Period.\nOur revenues and expenses have been seasonal and may continue to be seasonal. For example, our MSG Networks segment generally continues to expect to earn a higher share of its annual revenues in the second and third quarters of its fiscal year as a result of MSG Networks\u2019 advertising revenue being largely derived from the sale of inventory in its live NBA and NHL professional sports programming\n. Therefor\ne, our operating results and cash flow reflect significant variation from period to period and will continue to do so in the future. Consequently, period-to-period comparisons of our operating results may not necessarily be meaningful and the operating results of one period are not indicative of our financial performance during a full fiscal year. This variability may adversely affect our business, results of operations and financial condition.\nLabor Matters May Have a Material Negative Effect on Our Business and Results of Operations.\nIn the event of labor market disruptions due to renewed effects of the COVID-19 pandemic or other future pandemics and otherwise, we could face difficulty in maintaining staffing at our Sphere venue and retaining talent in our corporate departments. If we are unable to attract and retain qualified people or to do so on reasonable terms, Sphere could be short-staffed or become more expensive to operate and our ability to meet our guests\u2019 demand could be limited, any of which could materially adversely affect our business and results of operations. \nOur business is dependent upon the efforts of unionized workers. As of June 30, 2023, approximately 29% of our employees were represented by unions. Approximately10% of such union employees were subject to CBAs that had expired as of June 30, 2023 and approximately 67% were subject to CBAs that will expire by June 30, 2024 if they are not extended prior thereto. Any labor disputes, such as strikes or lockouts, with the unions with which we have CBAs could have a material negative effect on our business and results of operations (including our ability to produce or present immersive productions, concerts, programming, theatrical productions, sporting events and other events). For example, members of the Writers Guild of America and SAG-AFTRA commenced a work stoppage in May and July, 2023, respectively. If these or other work stoppages by unions involved in the production of original immersive productions are prolonged and we are unable to secure waivers from the guild or union concerned, it could adversely affect our business. \nAdditionally, NBA and NHL players are covered by CBAs and we may be impacted by union relationships of both such leagues. Both the NBA and the NHL have experienced labor difficulties in the past and may have labor issues in the future, such as player strikes or management lockouts. For example, the NBA has experienced labor difficulties, including a lockout during the 2011-12 NBA season, \n26\nwhich resulted in a regular season that was shortened from 82 games to 66 games.  In addition, the NHL has also experienced labor difficulties, including a lockout beginning in September 2004 that resulted in the cancellation of the entire 2004-05 NHL season, and a lockout during the 2012-13 NHL season, which resulted in a regular season that was shortened from 82 games to 48 games. \nIf any NBA or NHL games are cancelled because of any such labor difficulties, the loss of revenue, including from impacts to MSG Networks\u2019 ability to produce or present programming, would have a negative impact on our business and results of operations.\nThe Unavailability of Systems Upon Which We Rely May Have a Material Negative Effect on Our Business and Results of Operations.\nWe rely upon various internal and third-party software or systems in the operation of our business, including, with respect to ticket sales, credit card processing, email marketing, point of sale transactions, database, inventory, human resource management and financial systems, and other systems used to present Sphere events and attractions, such as audio and video. From time to time, certain of these arrangements may not be covered by long-term agreements. System interruption and the lack of integration and redundancy in the information and other systems and infrastructure, both of our own websites and other computer systems and of affiliate and third-party software, computer networks, and other substructure and communications systems service providers on which we rely may adversely affect our ability to operate websites, applications, process and fulfill transactions, respond to customer inquiries, present events, and generally maintain cost-efficient operations. Such interruptions could occur by virtue of natural disaster, malicious actions, such as hacking or acts of terrorism or war, human error, or other factors affecting such third parties. The failure or unavailability of these internal or third-party services or systems, depending upon its severity and duration, could have a material negative effect on our business and results of operations.  See also \u201c\u2014 Risks Related to Governance and Our Controlled Ownership \u2014 \nWe Rely on Affiliated Entities\u2019 Performance Under Various Agreements\n\u201d for a discussion of services MSG Entertainment performs on our behalf.\nWhile we have backup systems and offsite data centers for certain aspects of our operations, disaster recovery planning by its nature cannot be for all eventualities. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. If any of these adverse events were to occur, it could adversely affect our business, financial condition and results of operations.\nThere Is a Risk of Injuries and Accidents in Connection with Sphere, Which Could Subject Us to Personal Injury or Other Claims; We Are Subject to the Risk of Adverse Outcomes in Other Types of Litigation.\nThere are inherent risks associated with producing and hosting events and operating, maintaining, renovating or constructing our venues (including as a result of Sphere\u2019s unique features). As a result, personal injuries, accidents and other incidents which may negatively affect guest satisfaction have occurred and may occur from time to time, which could subject us to claims and liabilities. \nThese risks may not be covered by insurance or could involve exposures that exceed the limits of any applicable insurance policy. Incidents in connection with events at Sphere could also reduce attendance at our events and may have a negative impact on our revenue and results of operations. Although we seek to obtain contractual indemnities for events at our venues that we do not promote and we also maintain insurance policies that provide coverage for incidents in the ordinary course of business, there can be no assurance that such indemnities or insurance will be adequate at all times and in all circumstances. \nFrom time to time, the Company and its subsidiaries are involved in various legal proceedings, including proceedings or lawsuits brought by governmental agencies, stockholders, customers, employees, private parties and other stakeholders, such as the litigations related to the merger of a subsidiary of the Company with MSG Networks Inc. (the \u201cNetworks Merger\u201d). The outcome of litigation is inherently unpredictable and, regardless of the merits of the claims, litigation may be expensive, time-consuming, disruptive to our operations, harmful to our reputation and distracting to management. As a result, we may incur liability from litigation (including in connection with settling such litigation) which could be material and for which we may not have available or adequate insurance coverage, or be subject to other forms of non-monetary relief which may adversely affect the Company. By its nature, the outcome of litigation is difficult to assess and quantify, and its continuing defense is costly. The liabilities and any defense costs we incur in connection with any such litigation could have an adverse effect on our business and results of operations.\nWe Face Risk from Doing Business Internationally.\nWe have operations and own property outside of the United States. As a result, our business is subject to certain risks inherent in international business, many of which are beyond our control. These risks include:\n\u2022\nlaws and policies affecting trade and taxes, including laws and policies relating to currency, the repatriation of funds and withholding taxes, and changes in these laws; \n\u2022\nchanges in local regulatory requirements, including restrictions on foreign ownership; \n\u2022\nexchange rate fluctuation;\n27\n\u2022\nexchange controls, tariffs and other trade barriers;\n\u2022\ndiffering degrees of protection for intellectual property and varying attitudes towards the piracy of intellectual property; \n\u2022\nforeign privacy and data protection laws and regulations, such as the E.U. General Data Protection Regulation, and changes in these laws; \n\u2022\nthe instability of foreign economies and governments; \n\u2022\nwar, acts of terrorism and the outbreak of epidemics or pandemics abroad; \n\u2022\nanti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act that impose stringent requirements on how we conduct our foreign operations, and changes in these laws and regulations; and \n\u2022\nshifting consumer preferences regarding entertainment.\nEvents or developments related to these and other risks associated with international operations could have a material negative effect on our business and results of operations.\nRisks Related to Our Indebtedness, Financial Condition, and Internal Control\nWe Have Substantial Indebtedness and Are Highly Leveraged, Which Could Adversely Affect Our Business.\nWe are highly leveraged with a significant amount of debt and we may continue to incur additional debt in th\ne future. As of June 30, 2023, our total indebtedness was $1.1 billion, $82.5 million of which matures during Fiscal Year 2024. \nAs a result of our indebtedness, we are required to make interest and principal payments on our borrowings that are significant in relation to our revenues and cash flows. These payments reduce our earnings and cash available for other potential business purposes. Furthermore, our interest expense could increase if interest rates increase (including in connection with rising inflation) because our indebtedness bears interest at floating rates or to the extent we have to refinance existing debt with higher cost debt.\nIn September 2019, certain subsidiaries of MSG Networks Inc., including MSGN Holdings L.P. (\u201cMSGN L.P\n.\u201d), entered into a credit facility consisting of an initial five-year $1.1 billion term loan facility and a five-year $250 million revolving credit facility, (the \u201cMSGN Credit Facilities\u201d). \nOn December 22, 2022, MSG Las Vegas, LLC (\u201cMSG LV\u201d), entered into a credit agreement providing for a five-year, $275 million senior secured term loan facility (the \u201cLV Sphere Facility\u201d). All obligations under the LV Sphere Facility are guaranteed by Sphere Entertainment Group, LLC (\u201cSphere Entertainment Group\u201d). \n The MSGN Credit Facilities were obtained without recourse to the Company, Sphere Entertainment Group, or any of its subsidiaries, and the LV Sphere Facility was obtained without recourse to the Company, MSG Networks Inc., MSGN L.P., or any of its subsidiaries. \n We expect to refinance the MSG Networks Credit Facilities prior to their maturity in October 2024, including paying down a portion of the MSG Networks\u2019 term loan in connection therewith. Our ability to have sufficient liquidity to fund our operations, including the creation of content, and refinance the MSG Networks Credit Facilities is dependent on the ability of Sphere in Las Vegas to generate significant positive cash flow during Fiscal Year 2024, as well as any proceeds from the sale of the MSGE Retained Interest.  Although \nwe anticipate that Sphere in Las Vegas will generate substantial revenue and adjusted operating income on an annual basis, there can be no assurances that guests, artists, promoters, advertisers and marketing partners will embrace this new platform. To the extent that our efforts do not result in a viable show or attraction, or to the extent that any such productions do not achieve expected levels of popularity among audiences, we may not generate the cash flows from operations necessary to fund our operations. Further, there can be no assurances that we will be able to dispose of all or a portion of the remainder of the MSGE Retained Interest on favorable terms due to market conditions or otherwise. \nThere can be no assurances that MSG Networks\u2019 lenders will refinance the MSG Networks\u2019 term loan. If we were not able to refinance the MSG Networks\u2019 term loan prior to its maturity in October 2024 or otherwise reach an agreement with such lenders, a default thereunder would be \ntriggered, which could result in an acceleration of outstanding debt thereunder and a foreclosure upon the MSG Networks business.\nIn addition, the ability of MSGN L.P. to draw on its revolving credit facilities will depend on its ability to meet certain financial covenants and other conditions. This leverage also exposes us to significant risk by limiting our flexibility in planning for, or reacting to, changes in our business (whether through competitive pressure or otherwise), the entertainment and video programming industries and the economy at large. Although our cash flows could decrease in these scenarios, our required payments in respect of indebtedness would not decrease.\nIn addition, our ability to make payments on, or repay or refinance, our debt, and to fund our operating and capital expenditures, depends largely upon our future operating performance and our ability to access the credit markets. Our future operating performance, to a certain extent, is subject to general economic conditions, recession, fears of recession, financial, competitive, regulatory and other factors that are beyond our control. If we are unable to generate sufficient cash flow to service our debt and meet our other commitments, we may need to refinance all or a portion of our debt, sell material assets or operations, or raise additional debt or equity capital. We cannot provide assurance that we could affect any of these actions on a timely basis, on commercially reasonable terms or \n28\nat all, or that these actions would be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt agreements may restrict us from effecting certain or any of these alternatives.\nEven if our future operating performance is strong, l\nimitations on our ability to access the capital or credit markets, including as a result of general economic conditions, unfavorable terms or general reductions in liquidity may adversely and materially impact our business, financial condition, and results of operations.\nThe failure to satisfy the covenants, including any inability to attain a covenant waiver, and other requirements under each credit agreement could trigger a default thereunder, acceleration of outstanding debt thereunder and, with respect to the LV Sphere Facility, a demand for payment under the guarantee provided by Sphere Entertainment Group.  Additionally, the\n LV Sphere Facility and the MSGN Credit Facilities each restrict MSG LV and MSGN L.P., respectively, from making cash distributions to us unless certain financial covenants are met. Any failure to satisfy the covenants under our credit facilities \ncould negatively impact our liquidity and could have a negative effect on our businesses.\nIn addition, we have made investments in, or otherwise extended loans to, one or more businesses that we believe complement, enhance or expand our current business or that might otherwise offer us growth opportunities and may make additional investments in, or otherwise extend loans to, one or more of such parties in the future. For example, have invested in and have extended financing to Holoplot in connection with Sphere\u2019s advanced audio system. To the extent that such parties do not perform as expected, including with respect to repayment of such loans, it could impair such assets or create losses related to such loans, and, as a result, have a negative effect on our business and results of operations.\nOur Variable Rate Indebtedness Subjects Us to Interest Rate Risk, Which Has Caused, and May Continue to Cause, Our Debt Service Obligations to Increase Significantly.\nBorrowings under our facilities are at variable rates of interest and expose us to interest rate risk. Interest rates have increased significantly (including in connection with rising inflation), and, as a result, our debt service obligations on our variable rate indebtedness have increased significantly even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, have correspondingly decreased. Further increases in interest rates will cause additional increases in our debt service obligations.\nWe May Require Additional Financing to Fund Certain of Our Obligations, Ongoing Operations, and Capital Expenditures, the Availability of Which Is Uncertain.\nThe capital and credit markets can experience volatility and disruption. Those markets can exert extreme downward pressure on stock prices and upward pressure on the cost of new debt capital and can severely restrict credit availability for most issuers. For example, the global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, rising interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets continue to deteriorate, or the United States enters a recession, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive.\nOur Sphere business has been characterized by significant expenditures for properties, businesses, renovations and productions. We may require additional financing to fund our planned capital expenditures, as well as other obligations and our ongoing operations. In the future, we may engage in transactions that depend on our ability to obtain funding. For example, as we extend Sphere beyond Las Vegas, our intention is to utilize several options, such as joint ventures, equity partners, a managed venue model and non-recourse debt financing. There is no assurance that we will be able to successfully complete these plans.\nDepending upon conditions in the financial markets and/or the Company\u2019s financial performance, we may not be able to raise additional capital on favorable terms, or at all. If we are unable to pursue our current and future spending programs, we may be forced to cancel or scale back those programs. Failure to successfully pursue our capital expenditure and other spending plans could negatively affect our ability to compete effectively and have a material negative effect on our business and results of operations.\nWe Have Incurred Substantial Operating Losses, Adjusted Operating Losses and Negative Cash Flow and There is No Assurance We Will Have Operating Income, Adjusted Operating Income or Positive Cash Flow in the Future.\nWe incurred operating \nlosses of $273 million and $166 million for Fiscal Years 2023 and 2022, respectively. In addition, we have in prior periods incurred operating losses and negative cash \nflow and there is no assurance that we will have operating income, adjusted operating income, or positive cash flow in the future. Significant operating losses may limit our ability to raise necessary financing, or to do so on favorable terms, as such losses could be taken into account by potential investors and lenders. See \u201cPart II \u2014 Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations \u2014 Factors Affecting Operating Results.\u201d\nWe Are Required to Assess Our Internal Control Over Financial Reporting on an Annual Basis and Our Management Identified a Material Weakness During Fiscal Year 2022, Which Has Now Been Remediated. If We Identify Other Material Weaknesses or \n29\nAdverse Findings in the Future, Our Ability to Report Our Financial Condition or Results of Operations Accurately or Timely May Be Adversely Affected, Which May Result in a Loss of Investor Confidence in Our Financial Reports, Significant Expenses to Remediate Any Internal Control Deficiencies, and Ultimately Have an Adverse Effect on the Market Price of Our Common Stock.\nPursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, our management is required to report on, and our independent registered public accounting firm is required to attest to, the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. Annually, we perform activities that include reviewing, documenting and testing our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, we will not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to achieve and maintain an effective internal control environment, we could suffer misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could result in significant expenses to remediate any internal control deficiencies and lead to a decline in our stock price.\nSubsequent to the filing of the Fiscal Year 2021 Form 10-K, management of the Company evaluated an immaterial accounting error related to interest costs that should have been capitalized for Sphere in Las Vegas in Fiscal Years 2021, 2020 and 2019 and in the fiscal quarter ended September 30, 2021, as prescribed by Accounting Standards Codification Topic 835-20 (\nCapitalization of Interest\n). As a result of the accounting error, the Company re-evaluated the effectiveness of the Company\u2019s internal control over financial reporting and identified a material weakness as of June 30, 2021, September 30, 2021, December 31, 2021 and March 31, 2022. \nWe undertook certain remediation efforts by implementing additional controls which were operating effectively as of June 30, 2022, and as a result, our management has concluded that the material weakness has been remediated and our internal control over financial reporting was effective as of June 30, 2022.\n  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibil\nity that a material misstatement of a company\u2019s annual or interim financial statements will not be prevented or detected on a timely basis. \nOur management may be unable to conclude in future periods that our disclosure controls and procedures are effective due to the effects of various factors, which may, in part, include unremediated material weaknesses in internal controls over financial reporting. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in those reports is accumulated and communicated to the company\u2019s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, we may not be able to identify and remediate other control deficiencies, including material weaknesses, in the future.\nRisks Related to Cybersecurity and Intellectual Property\nWe Face Continually Evolving Cybersecurity and Similar Risks, Which Could Result in Loss, Disclosure, Theft, Destruction or Misappropriation of, or Access to, Our Confidential Information and Cause Disruption of Our Business, Damage to Our Brands and Reputation, Legal Exposure and Financial Losses. \nThrough our operations, we collect and store, including by electronic means, certain personal, proprietary and other sensitive information, including payment card information, that is provided to us through purchases, registration on our websites, mobile applications, or otherwise in communication or interaction with us. These activities require the use of online services and centralized data storage, including through third-party service providers. Data maintained in electronic form is subject to the risk of security incidents, including breach, compromise, intrusion, tampering, theft, destruction, misappropriation or other malicious activity. Our ability to safeguard such personal and other sensitive information, including information regarding the Company and our customers, sponsors, partners, Distributors, advertisers and employees, independent contractors and vendors, is important to our business. We take these matters seriously and take significant steps to protect our stored information, including the implementation of systems and processes to thwart malicious activity. These protections are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. See \n\u201c\n\u2014 Economic and Operational Risks \u2014 \nWe Are Subject to Extensive Governmental Regulation and Changes in These Regulations and Our Failure to Comply with Them May Have a Material Negative Effect on Our Business and Results of Operations.\u201d\nDespite our efforts, the risks of a security incident cannot be entirely eliminated and our information technology and other systems that maintain and transmit consumer, sponsor, partner, Distributor, advertiser, Company, employee and other confidential and proprietary information may be compromised due to employee error or other circumstances such as malware or ransomware, viruses, hacking and phishing attacks, denial-of-service attacks, business email compromises, or otherwise. A compromise of our or our vendors\u2019 systems could affect the security of information on our network or that of a third-party service provider. Additionally, outside parties may attempt to fraudulently induce employees, vendors or users to disclose sensitive, proprietary or confidential information in order to gain access to data and systems. As a result, our or our customers\u2019 or affiliates\u2019 sensitive, proprietary and/or confidential information may be lost, disclosed, accessed or taken without consent. \n30\nWe also continue to review and enhance our security measures in light of the constantly evolving techniques used to gain unauthorized access to networks, data, software and systems. We may be required to incur significant expenses in order to address any actual or potential security incidents that arise and we may not have insurance coverage for any or all of such expenses. \nIf we experience an actual or perceived security incident, our ability to conduct business may be interrupted or impaired, we may incur damage to our systems, we may lose profitable opportunities or the value of those opportunities may be diminished and we may lose revenue as a result of unlicensed use of our intellectual property. Unauthorized access to or security breaches of our systems could result in the loss of data, loss of business, severe reputational damage adversely affecting customer or investor confidence, diversion of management\u2019s attention, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations and significant costs for remediation that may include liability for stolen or lost assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach and other liabilities. In addition, in the event of a security incident, changes in legislation may increase the risk of potential litigation. For example, the CCPA, which provides a private right of action (in addition to statutory damages) for California residents whose sensitive personal information is breached as a result of a business\u2019 violation of its duty to reasonably secure such information, took effect on January 1, 2020 and was expanded by the CPRA in January 2023. Our insurance coverage may not be adequate to cover the costs of a data breach, indemnification obligations, or other liabilities.\nIn addition, in some instances, we may have obligations to notify relevant stakeholders of security breaches. Such mandatory disclosures are costly, could lead to negative publicity, may cause our customers to lose confidence in the effectiveness of our security measures and may require us to expend significant capital and other resources to respond to or alleviate problems caused by an actual or perceived security breach.\nWe May Become Subject to Infringement or Other Claims Relating to Our Content or Technology.\nFrom time to time, third parties may assert against us alleged intellectual property infringement claims (e.g., copyright, trademark and patent) or other claims relating to our productions, brands, programming, technologies, digital products and/or content or other content or material, some of which may be important to our business. In addition, our productions and/or programming could potentially subject us to claims of defamation, violation of rights of privacy or publicity or similar types of allegations. Any such claims, regardless of their merit or outcome, could cause us to incur significant costs that could harm our results of operations. We may not be indemnified against, or have insurance coverage for, claims or costs of these types. In addition, if we are unable to continue use of certain intellectual property rights, our business and results of operations could be materially negatively impacted.\nTheft of Our Intellectual Property May Have a Material Negative Effect on Our Business and Results of Operations.\nThe success of our business depends in part on our ability to maintain and monetize our intellectual property rights, including the technology being developed for Sphere,  MSG Networks (including our DTC product), our brand logos, our programming, technologies, digital content and other content that is material to our business. Theft of our intellectual property, including content, could have a material negative effect on our business and results of operations because it may reduce the revenue that we are able to receive from the legitimate exploitation of such intellectual property, undermine lawful distribution channels and limit our ability to control the marketing of our content and inhibit our ability to recoup or profit from the costs incurred to create such content. Litigation may be necessary to enforce our intellectual property rights or protect our trade secrets. Any litigation of this nature, regardless of the outcome, could cause us to incur significant costs, as well as subject us to the other inherent risks of litigation discussed above.\nRisks Related to Governance and Our Controlled Ownership \nWe Are Materially Dependent on Affiliated Entities\u2019 Performances Under Various Agreements.\nWe have entered into various agreements with MSG Entertainment related to the MSGE Distribution and with MSG Sports with respect to the 2020 Entertainment Distribution, and MSG Networks has various agreements with MSG Sports in connection with the 2015 Sports Distribution, including, among others, a distribution agreement, a tax disaffiliation agreement, a services agreement, an employee matters agreement and certain other arrangements (including other support services). These agreements include the allocation of employee benefits, taxes and certain other liabilities and obligations attributable to periods prior to, at and after the applicable distribution. In connection with the 2015 Sports Distribution, the 2020 Entertainment Distribution and the MSGE Distribution, we provided MSG Sports and MSG Entertainment, respectively, with indemnities with respect to liabilities arising out of our business, and MSG Sports and MSG Entertainment, respectively, provided us with indemnities with respect to liabilities arising out of the business retained by them. MSG Networks\u2019 media rights agreements with MSG Sports provide us with the exclusive live local media rights to Knicks and Rangers games. Rights fees under these media rights agreements amounted to approximately $172.6 million for Fiscal Year 2023. The stated contractual rights fees under such rights agreements increase annually and are subject to adjustments in certain circumstances, including if MSG Sports does not make available a minimum number of exclusive live games in any year.\nEach Company, MSG Sports and MSG Entertainment rely on the others to perform their respective obligations under these agreements. If MSG Sports or MSG Entertainment were to breach or become unable to satisfy its respective material obligations under \n31\nthese agreements, including a failure to satisfy its indemnification or other financial obligations, or these agreements otherwise terminate or expire and we do not enter into replacement agreements, we could suffer operational difficulties and/or significant losses.\nThe MSGE Distribution Could Result in Significant Tax Liability. \nWe received an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the MSGE Distribution should qualify as a tax-free distribution under the Internal Revenue Code (the \u201cCode\u201d). The opinion is not binding on the IRS or the courts. Certain transactions related to the MSGE Distribution that are not addressed by the opinion could result in the recognition of income or gain by us. The opinion relied on factual representations and reasonable assumptions, which, if incorrect or inaccurate, may jeopardize the ability to rely on such opinion.\nIf the MSGE Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, we would recognize taxable gain in an amount equal to the excess of the fair market value of MSG Entertainment common stock distributed in the MSGE Distribution over our tax basis therein (i.e., as if we had sold such MSG Entertainment common stock in a taxable sale for its fair market value). In addition, the receipt by our stockholders of common stock of MSG Entertainment would be a taxable distribution, and each U.S. holder that received MSG Entertainment common stock in the MSGE Distribution would be treated as if the U.S. holder had received a distribution equal to the fair market value of MSG Entertainment common stock that was distributed to it, which generally would be treated first as a taxable dividend to the extent of such holder\u2019s pro rata share of our earnings and profits, then as a non-taxable return of capital to the extent of the holder\u2019s tax basis in our common stock, and thereafter as capital gain with respect to any remaining value. It is expected that the amount of any such taxes to us and our stockholders would be substantial. See \n\u201c\u2014 We May Have a Significant Indemnity Obligation to MSG Entertainment if the MSGE Distribution Is Treated as a Taxable Transaction.\u201d \nWe May Have a Significant Indemnity Obligation to MSG Entertainment if the MSGE Distribution Is Treated as a Taxable Transaction. \nWe have entered into a Tax Disaffiliation Agreement with MSG Entertainment (the \u201cTax Disaffiliation Agreement\u201d), which sets out each party\u2019s rights and obligations with respect to federal, state, local or foreign taxes for periods before and after the MSGE Distribution and related matters such as the filing of tax returns and the conduct of IRS and other audits. Pursuant to the Tax Disaffiliation Agreement, we are required to indemnify MSG Entertainment for losses and taxes of MSG Entertainment resulting from the breach of certain covenants and for certain taxable gain recognized by MSG Entertainment, including as a result of certain acquisitions of our stock or assets. If we are required to indemnify MSG Entertainment under the circumstances set forth in the Tax Disaffiliation Agreement, we may be subject to substantial liabilities, which could materially adversely affect our financial position.   \nThe 2020 Entertainment Distribution Could Result in Significant Tax Liability. \nMSG Sports received an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the 2020 Entertainment Distribution qualified as a tax-free distribution under the Code. The opinion is not binding on the IRS or the courts. Certain transactions related to the 2020 Entertainment Distribution that are not addressed by the opinion could result in the recognition of income or gain by MSG Sports The opinion relied on factual representations and reasonable assumptions, which, if incorrect or inaccurate, may jeopardize the ability to rely on such opinion.\nIf the 2020 Entertainment Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, MSG Sports would recognize taxable gain in an amount equal to the excess of the fair market value of our common stock distributed in the 2020 Entertainment Distribution over MSG Sports\u2019 tax basis therein (i.e., as if it had sold such common stock in a taxable sale for its fair market value). In addition, the receipt by MSG Sports\u2019 stockholders of common stock of our Company would be a taxable distribution, and each U.S. holder that received our common stock in the 2020 Entertainment Distribution would be treated as if the U.S. holder had received a distribution equal to the fair market value of our common stock that was distributed to it, which generally would be treated first as a taxable dividend to the extent of such holder\u2019s pro rata share of MSG Sports\u2019 earnings and profits, then as a non-taxable return of capital to the extent of the holder\u2019s tax basis in its MSG Sports\u2019 common stock, and thereafter as capital gain with respect to any remaining value. It is expected that the amount of any such taxes to MSG Sports stockholders and MSG Sports would be substantial. See \n\u201c\u2014 We May Have a Significant Indemnity Obligation to MSG Sports if the 2020 Entertainment Distribution Is Treated as a Taxable Transaction.\u201d \nWe May Have a Significant Indemnity Obligation to MSG Sports if the 2020 Entertainment Distribution Is Treated as a Taxable Transaction. \nWe have entered into a Tax Disaffiliation Agreement with MSG Sports (the \u201cTax Disaffiliation Agreement\u201d), which sets out each party\u2019s rights and obligations with respect to federal, state, local or foreign taxes for periods before and after the 2020 Entertainment Distribution and related matters such as the filing of tax returns and the conduct of IRS and other audits. Pursuant to the Tax Disaffiliation Agreement, we are required to indemnify MSG Sports for losses and taxes of MSG Sports resulting from the breach of certain covenants and for certain taxable gain recognized by MSG Sports, including as a result of certain acquisitions of our stock or \n32\nassets. If we are required to indemnify MSG Sports under the circumstances set forth in the Tax Disaffiliation Agreement, we may be subject to substantial liabilities, which could materially adversely affect our financial position.  \nCertain Adverse U.S. Federal Income Tax Consequences Might Apply to Non-U.S. Holders That Hold Our Class A Common Stock and Class B Common Stock If We Are Treated as a USRPHC.\nThe Company has not made a determination as to whether we are deemed to be a USRPHC, as defined in section 897(c)(2) of the Code. In general, we would be considered a USRPHC if 50% or more of the fair market value of our assets constitute \u201cUnited States real property interests\u201d within the meaning of the Code. However, the determination of whether we are a USRPHC turns on the relative fair market value of our United States real property interests and our other assets, and because the USRPHC rules are complex and the determination of whether we are a USRPHC depends on facts and circumstances that may be beyond our control, we can give no assurance as to our USRPHC status after the MSGE Distribution. If we are treated as a USRPHC, certain adverse U.S. federal income tax consequences might apply to non-U.S. holders that hold our Class A Common Stock and Class B Common Stock.\nWe Are Controlled by the Dolan Family. As a Result of Their Control, the Dolan Family Has the Ability to Prevent or Cause a Change in Control or Approve, Prevent or Influence Certain Actions by the Company.\nWe have two classes of common stock:\n\u2022\nClass A Common Stock, which is entitled to one vote per share and is entitled collectively to elect 25% of our Board of Directors; and\n\u2022\nClass B Common Stock, which is entitled to 10 votes per share and is entitled collectively to elect the remaining 75% of our Board of Directors.\nAs of June 30, 2023, the Dolan family, including trusts for the benefit of members of the Dolan family (collectively, the \u201cDolan Family Group\u201d), collectively owns 100% of our Class B Common Stock, approximately 5.5% of our outstanding Class A Common Stock (inclusive of options exercisable within 60 days of June 30, 2023) and approximately 72.3% of the total voting power of all our outstanding common stock. The members of the Dolan Family Group holding Class B Common Stock are parties to a Stockholders Agreement, which has the effect of causing the voting power of the holders of our Class B Common Stock to be cast as a block with respect to all matters to be voted on by holders of our Class B Common Stock. Under the Stockholders Agreement, the shares of Class B Common Stock owned by members of the Dolan Family Group (representing all the outstanding Class B Common Stock) are to be voted on all matters in accordance with the determination of the Dolan Family Committee (as defined below), except that the decisions of the Dolan Family Committee are non-binding with respect to the Class B Common Stock owned by certain Dolan family trusts that collectively own approximately 40.5% of the outstanding Class B Common Stock (\u201cExcluded Trusts\u201d). The \u201cDolan Family Committee\u201d consists of Charles F. Dolan and his six children, James L. Dolan, Thomas C. Dolan, Patrick F. Dolan, Kathleen M. Dolan, Marianne Dolan Weber and Deborah A. Dolan-Sweeney. The Dolan Family Committee generally acts by majority vote, except that approval of a going-private transaction must be approved by a two-thirds vote and approval of a change-in-control transaction must be approved by not less than all but one vote. The voting members of the Dolan Family Committee are James L. Dolan, Thomas C. Dolan, Kathleen M. Dolan, Deborah A. Dolan-Sweeney and Marianne Dolan Weber, with each member having one vote other than James L. Dolan, who has two votes. Because James L. Dolan has two votes, he has the ability to block Dolan Family Committee approval of any Company change in control transaction. Shares of Class B Common Stock owned by Excluded Trusts will on all matters be voted on in accordance with the determination of the Excluded Trusts holding a majority of the Class B Common Stock held by all Excluded Trusts, except in the case of a vote on a going-private transaction or a change in control transaction, in which case a vote of the trusts holding two-thirds of the Class B Common Stock owned by Excluded Trusts is required.\nThe Dolan Family Group is able to prevent a change in control of our Company and no person interested in acquiring us would be able to do so without obtaining the consent of the Dolan Family Group. The Dolan Family Group, by virtue of its stock ownership, has the power to elect all of our directors subject to election by holders of Class B Common Stock and is able collectively to control stockholder decisions on matters on which holders of all classes of our common stock vote together as a single class. These matters could include the amendment of some provisions of our certificate of incorporation and the approval of fundamental corporate transactions.\nIn addition, the affirmative vote or consent of the holders of at least 66\n 2\n\u2044\n3\n% of the outstanding shares of the Class B Common Stock, voting separately as a class, is required to approve:\n\u2022\nthe authorization or issuance of any additional shares of Class B Common Stock; and\n\u2022\nany amendment, alteration or repeal of any of the provisions of our certificate of incorporation that adversely affects the powers, preferences or rights of the Class B Common Stock.\nAs a result, the Dolan Family Group has the power to prevent such issuance or amendment.\n33\nThe Dolan Family Group also controls MSG Sports, MSG Entertainment and AMC Networks Inc. (\u201cAMC Networks\u201d) and, prior to the Networks Merger, the Dolan Family Group also controlled MSG Networks.\nWe Have Elected to Be a \u201cControlled Company\u201d for NYSE Purposes Which Allows Us Not to Comply with Certain of the Corporate Governance Rules of NYSE.\nMembers of the Dolan Family Group have entered into the Stockholders Agreement relating, among other things, to the voting of their shares of our Class B Common Stock. As a result, we are a \u201ccontrolled company\u201d under the corporate governance rules of NYSE. As a controlled company, we have the right to elect not to comply with the corporate governance rules of NYSE requiring: (i) a majority of independent directors on our Board of Directors; (ii) an independent corporate governance and nominating committee; and (iii) an independent compensation committee. Our Board of Directors has elected for the Company to be treated as a \u201ccontrolled company\u201d under NYSE corporate governance rules and not to comply with the NYSE requirement for a majority-independent board of directors and for an independent corporate governance and nominating committee because of our status as a controlled company. Nevertheless, our Board of Directors has elected to comply with the NYSE requirement for an independent compensation committee.\nFuture Stock Sales, Including as a Result of the Exercise of Registration Rights by Certain of Our Stockholders, Could Adversely Affect the Trading Price of Our Class A Common Stock.\nCertain parties have registration rights covering a portion of our shares.\nWe have entered into registration rights agreements with Charles F. Dolan, members of his family, certain Dolan family interests and the Dolan Family Foundation that provide them with \u201cdemand\u201d and \u201cpiggyback\u201d registration rights with respect to approximately 6.9 million shares of Class A Common Stock, including shares issuable upon conversion of shares of Class B Common Stock. \nSales of a substantial number of shares of Class A Common Stock, including sales pursuant to these registration rights agreements, could adversely affect the market price of the Class A Common Stock and could impair our future ability to raise capital through an offering of our equity securities.\nWe Share Certain Directors, Officers and Employees with MSG Sports, MSG Entertainment and/or AMC Networks, Which Means Those Individuals Do Not Devote Their Full Time and Attention to Our Affairs and the Overlap May Give Rise to Conflicts.\nOur Executive Chairman and Chief Executive Officer, James L. Dolan, also serves as the Executive Chairman and Chief Executive Officer of MSG Entertainment, the Executive Chairman of MSG Sports and as Non-Executive Chairman of AMC Networks. Furthermore, ten members of our Board of Directors (including James L. Dolan) also serve as directors of MSG Sports, nine members of our Board of Directors (including James L. Dolan) also serve as directors of MSG Entertainment, and seven members of our Board of Directors (including James L. Dolan) serve as directors of AMC Networks and Charles F. Dolan serves as Chairman Emeritus of AMC Networks concurrently with his service on our Board. Our Executive Vice President, David Granville-Smith also serves as Executive Vice President of MSG Sports and AMC Networks. Our Vice Chairman, Gregg G. Seibert, also serves as the Vice Chairman of MSG Sports, MSG Entertainment and AMC Networks, and our Secretary, Mark C. Cresitello, also serves as Senior Vice President, Associate General Counsel and Secretary of MSG Sports and MSG Entertainment. As a result, these individuals do not devote their full time and attention to the Company\u2019s affairs. The overlapping directors, officers and employees may have actual or apparent conflicts of interest with respect to matters involving or affecting each company. For example, the potential for a conflict of interest when we on the one hand, and MSG Sports, MSG Entertainment and/or AMC Networks and their respective subsidiaries and successors on the other hand, look at certain acquisitions and other corporate opportunities that may be suitable for more than one of the companies. Also, conflicts may arise if there are issues or disputes under the commercial arrangements that exist between MSG Sports, MSG Entertainment or AMC Networks (each referred to as an \u201cOther Entity\u201d) and us. In addition, certain of our directors, officers and employees hold MSG Sports, MSG Entertainment and/or AMC Networks stock, stock options and/or restricted stock units. These ownership interests could create actual, apparent or potential conflicts of interest when these individuals are faced with decisions that could have different implications for our Company and an Other Entity. For a discussion of certain procedures we have implemented to help ameliorate such potential conflicts that may arise, see our Definitive Proxy Statement filed with the SEC on October 26, 2022.\nOur Overlapping Directors and Officers with MSG Sports, MSG Entertainment and/or AMC Networks May Result in the Diversion of Corporate Opportunities to MSG Sports, MSG Entertainment and/or AMC Networks and Other Conflicts and Provisions in Our Amended and Restated Certificate of Incorporation May Provide Us No Remedy in That Circumstance.\nThe Company\u2019s amended and restated certificate of incorporation acknowledges that directors and officers of the Company (the \u201cOverlap Persons\u201d) may also be serving as directors, officers, employees, consultants or agents of an Other Entity, and that the Company may engage in material business transactions with such Other Entities. The Company has renounced its rights to certain business opportunities and the Company\u2019s amended and restated certificate of incorporation provides that no Overlap Person will be liable to the Company or its stockholders for breach of any fiduciary duty that would otherwise occur by reason of the fact that any such individual directs a corporate opportunity (other than certain limited types of opportunities set forth in our amended and restated \n34\ncertificate of incorporation) to one or more of the Other Entities instead of the Company, or does not refer or communicate information regarding such corporate opportunities to the Company. These provisions in our amended and restated certificate of incorporation also expressly validate certain contracts, agreements, arrangements and transactions (and amendments, modifications or terminations thereof) between the Company and the Other Entities and, to the fullest extent permitted by law, provided that the actions of the Overlap Person in connection therewith are not breaches of fiduciary duties owed to the Company, any of its subsidiaries or their respective stockholders. ",
+  "item7": ">Item\u00a07. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations\nAll dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted.\nThis Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (\u201cMD&A\u201d) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this MD&A, there are statements concerning the future operating and future financial performance of Sphere Entertainment Co. and its direct and indirect subsidiaries (collectively, \u201cwe,\u201d \u201cus,\u201d \u201cour,\u201d \u201cSphere Entertainment,\u201d or the \u201cCompany\u201d), including (i) the timing and costs of  venue construction and the development of related content, (ii) our plans to refinance MSG Networks\u2019 existing debt, (iii) the success of Sphere and The Sphere Experience, (iv) our plans for the potential disposition of the Company\u2019s retained interest in Madison Square Garden Entertainment Corp. (\u201cMSG Entertainment\u201d), (v) our strategy for MSG Networks\u2019 direct-to-consumer product, (vi) the impact of run-rate savings that could be generated by the Company\u2019s cost reduction program, the ability to reduce or defer certain discretionary capital projects, and (viii) our plans for possible additional debt financing. Words such as \u201cexpects,\u201d \u201canticipates,\u201d \u201cbelieves,\u201d \u201cestimates,\u201d \u201cmay,\u201d \u201cwill,\u201d \u201cshould,\u201d \u201ccould,\u201d \u201cpotential,\u201d \u201ccontinue,\u201d \u201cintends,\u201d \u201cplans,\u201d and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to:\n\u2022\nthe substantial amount of debt we have incurred, the ability of our subsidiaries to make payments on, or repay or refinance, such debt under their respective credit facilities (including refinancing the MSG Networks debt prior to its maturity in October 2024), and our ability to obtain additional financing, to the extent required, on terms favorable to us or at all;\n\u2022\nthe popularity of The Sphere Experience, as well as our ability to attract advertisers and marketing partners, and audiences and artists to residencies, concerts and other events at Sphere in Las Vegas; \n\u2022\nour ability to successfully design, construct, finance and operate new entertainment venues in Las Vegas and/or other markets, as applicable, and the investments, costs and timing associated with those efforts, including obtaining financing, the impact of inflation and any construction delays and/or cost overruns;\n\u2022\nthe successful development of The Sphere Experience and related original immersive productions and the investments associated with such development, as well as investment in personnel, content and technology for Sphere;\n\u2022\nour ability to successfully implement cost reductions and reduce or defer certain discretionary capital projects, if necessary;\n\u2022\nour ability to dispose of all or a portion of the remainder of the MSGE Retained Interest (as defined below) on favorable terms due to market conditions or otherwise;\n\u2022\nthe level of our expenses and our operational cash burn rate, including our corporate expenses;\n\u2022\nthe demand for MSG Networks programming among cable, satellite, fiber-optic and other platforms that distribute its networks (\u201cDistributors\u201d) and the number of subscribers thereto, and our ability to enter into and renew affiliation agreements with Distributors, or to do so on favorable terms, as well as the impact of consolidation among Distributors;\n\u2022\nour ability to successfully execute MSG Networks\u2019 strategy for a direct-to-consumer offering and our ability to adapt to new content distribution platforms or changes in consumer behavior resulting from emerging technologies;\n\u2022\nthe ability of our Distributors to minimize declines in subscriber levels;\n\u2022\nthe impact of subscribers selecting Distributors\u2019 packages that do not include our networks or distributors that do not carry our networks at all;\n\u2022\nMSG Networks\u2019 ability to renew or replace its media rights agreements with professional sports teams and its ability to perform its obligations thereunder;\n\u2022\nthe relocation or insolvency of professional sports teams with which we have a media rights agreement;\n39\n\u2022\ngeneral economic conditions, especially in the Las Vegas and New York City metropolitan areas where we have (or plan to have) significant business activities;\n\u2022\nthe demand for advertising and marketing partnership offerings at Sphere and advertising and viewer ratings for our networks;\n\u2022\ncompetition, for example, from other venues (including the construction of new competing venues) and other regional sports and entertainment offerings;\n\u2022\nour ability to effectively manage any impacts of the COVID-19 pandemic or future pandemics or public health emergencies, as well as renewed actions taken in response by governmental authorities or certain professional sports leagues, including ensuring compliance with rules and regulations imposed upon our venues, to the extent applicable;\n\u2022\nthe effect of any postponements or cancellations by third-parties or the Company as a result of the COVID-19 pandemic or future pandemics due to operational challenges and other health and safety concerns;\n\u2022\nthe extent to which attendance at Sphere in Las Vegas may be impacted by government actions, health concerns by potential attendees or reduced tourism;\n\u2022\nthe security of our MSG Networks program signal and electronic data;\n\u2022\nthe on-ice and on-court performance and popularity of the professional sports teams whose games we broadcast on our networks;\n\u2022\nchanges in laws, guidelines, bulletins, directives, policies and agreements, and regulations under which we operate;\n\u2022\nany economic, social or political actions, such as boycotts, protests, work stoppages or campaigns by labor organizations, including the unions representing players and officials of the NBA and NHL, or other work stoppage that may impact us or our business partners;\n\u2022\nseasonal fluctuations and other variations in our operating results and cash flow from period to period;\n\u2022\nbusiness, reputational and litigation risk if there is a cyber or other security incident resulting in loss, disclosure or misappropriation of stored personal information, disruption of our Sphere or MSG Networks businesses or disclosure of confidential information or other breaches of our information security;\n\u2022\nactivities or other developments (such as pandemics, including the COVID-19 pandemic) that discourage or may discourage congregation at prominent places of public assembly, including our venue;\n\u2022\nthe level of our capital expenditures and other investments;\n\u2022\nthe acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions;\n\u2022\nour ability to successfully integrate acquisitions, new venues or new businesses into our operations;\n\u2022\nthe operating and financial performance of our strategic acquisitions and investments, including those we do not control;\n\u2022\nour internal control environment and our ability to identify and remedy any future material weaknesses;\n\u2022\nthe costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured, including litigation or other claims against companies we invest in or acquire;\n\u2022\nthe impact of governmental regulations or laws, changes in these regulations or laws or how those regulations and laws are interpreted, as well as our ability to maintain necessary permits, licenses and easements;\n\u2022\nthe impact of sports league rules, regulations and/or agreements and changes thereto;\n\u2022\nfinancial community perceptions of our business, operations, financial condition and the industries in which we operate;\n\u2022\nthe ability of our investees and others to repay loans and advances we have extended to them;\n40\n\u2022\nthe performance by our affiliated entities of their obligations under various agreements with us, as well as our performance of our obligations under such agreements and ongoing commercial arrangements;\n\u2022\nthe tax-free treatment of the MSGE Distribution (as defined below) and the distribution from MSG Sports in 2020;\n\u2022\nour ability to achieve the intended benefits of the MSGE Distribution; and\n\u2022\nthe additional factors described under \u201cPart I \u2014 Item\u00a01A. Risk Factors\u201d included in this Annual Report on Form 10-K.\nThese forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in \u201cRisk Factors.\u201d Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.\nYou should not rely upon forward-looking statements as predictions of future events. We cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-K to conform these statements to actual results or to changes in our expectations.\nMSGE Distribution\nOn April 20, 2023 (the \u201cMSGE Distribution Date\u201d), the Company distributed approximately 67% of the outstanding common stock of MSG Entertainment\n \n(the \u201cMSGE Distribution\u201d), with the Company retaining approximately 33% of the outstanding common stock of MSG Entertainment (in the form of MSG Entertainment Class A common stock) immediately following the MSGE Distribution (the \u201cMSGE Retained Interest\u201d). Following the MSGE Distribution Date, the Company retained the Sphere and MSG Networks businesses and MSG Entertainment now owns the traditional live entertainment business previously owned and operated by the Company through its Entertainment business segment, excluding the Sphere business. In the MSGE Distribution, stockholders of the Company received (a) one share of MSG Entertainment\u2019s Class A common stock, par value $0.01 per share, for every share of the Company\u2019s Class A common stock, par value $0.01 per share (\u201cClass A common stock\u201d), held of record as of the close of business, New York City time, on April 14, 2023 (the \u201cRecord Date\u201d), and (b) one share of MSG Entertainment\u2019s Class B common stock, par value $0.01 per share, for every share of the Company\u2019s Class B common stock, par value $0.01 per share (\u201cClass B common stock\u201d), held of record as of the close of business, New York City time, on the Record Date. Concurrently with the MSGE Distribution, the Company entered into a delayed draw term loan (the \u201cDDTL Facility\u201d) with a subsidiary of MSG Entertainment that provided for a $65,000 senior unsecured delayed draw term loan facility. The DDTL Facility was fully drawn on July\u00a014, 2023 and on August 9, 2023, the Company repaid all amounts outstanding under the DDTL Facility (including accrued interest and commitment fees) using a portion of the MSGE Retained Interest. \nFollowing the sale of a portion of the MSGE Retained Interest and the repayment of the DDTL Facility, the Company now holds approximately 17% of the outstanding common stock of MSG Entertainment (in the form of MSG Entertainment Class A common stock), based on 49,128 total shares of MSG Entertainment common stock outstanding as of August 18, 2023.\nAs of April 20, 2023, the MSG Entertainment business met the criteria for discontinued operations and was classified as a discontinued operation. See Note 3. Discontinued Operations to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details regarding the MSGE Distribution.\nTao Group Hospitality Disposition\nOn May 3, 2023, the Company completed the sale of its 66.9% majority interest in TAO Group Sub-Holdings LLC (\u201cTao Group Hospitality\u201d) to a subsidiary of Mohari Hospitality Limited, a global investment company focused on the luxury lifestyle and hospitality sectors (the \u201cTao Group Hospitality Disposition\u201d).\nSince March 31, 2023, the Tao Group Hospitality segment met the criteria for discontinued operations and was classified as a discontinued operation. See Note 3. Discontinued Operations to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details regarding the Tao Group Hospitality Disposition. \n41\nAfter giving effect to the MSGE Distribution and Tao Group Hospitality Disposition, the Company operates and reports financial information in two reportable segments: Sphere and MSG Networks.\nIntroduction \nThis MD&A is provided as a supplement to, and should be read in conjunction with, the audited consolidated financial statements and footnotes thereto included in Item\u00a08 of this Annual Report on Form 10-K to help provide an understanding of our financial condition, changes in financial condition and results of operations\n.\nOur MD&A is organized as follows: \nBusiness Overview.\n This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends.\nResults of Operations.\n This section provides an analysis of our results of operations for Fiscal Years 2023, 2022, and 2021 on both a (i) consolidated basis and (ii) segment basis\n.\nLiquidity and Capital Resources.\n This section provides a discussion of our financial condition and liquidity, as well as an analysis of our cash flows for Fiscal Years 2023, 2022, and 2021. The discussion of our financial condition and liquidity includes summaries of our primary sources of liquidity, our contractual obligations and off balance sheet arrangements that existed at June\u00a030, 2023.\nSeasonality of Our Business.\n This section discusses the seasonal performance of our business\n.\nRecently Issued Accounting Pronouncements and Critical Accounting Policies\n. This section cross-references a discussion of critical accounting policies considered to be important to our financial condition and results of operations and which require significant judgment and estimates on the part of management in their application. Our critical accounting policies and recently issued accounting pronouncements, are discussed included in Items 7 and 8, respectively, of this Annual Report on Form 10-K.  \nBusiness Overview \nSphere Entertainment Co. is a premier live entertainment and media company comprised of two reportable segments, Sphere and MSG Networks. Sphere is a next-generation entertainment medium, and MSG Networks operates two regional sports and entertainment networks, as well as a direct-to-consumer and authenticated streaming product.\nSphere\n: This segment reflects Sphere, a next-generation entertainment medium powered by cutting-edge technologies that we believe will enable multi-sensory storytelling at an unparalleled scale. The Company\u2019s first Sphere is expected to open in Las Vegas in September 2023. The venue can accommodate up to 20,000 guests and is expected to host a wide variety of events year-round, including The Sphere Experience\nTM\n, which will feature original immersive productions, as well as concerts and residencies from renowned artists, and marquee sporting and corporate events. Supporting this strategy is Sphere Studios, which is home to a team of creative, production, technology and software experts who provide full in-house creative and production services. The studio campus in Burbank includes a 68,000-square-foot development facility, as well as Big Dome, a 28,000-square-foot, 100-foot high custom dome, with a quarter-sized version of the screen at Sphere in Las Vegas, that serves as a specialized screening, production facility, and lab for content at Sphere.\nMSG Networks:\n This segment is comprised of the Company\u2019s regional sports and entertainment networks, MSG Network and MSG Sportsnet, as well as its direct-to-consumer streaming product, MSG+. MSG Networks serves the New York Designated Market Area, as well as other portions of New York, New Jersey, Connecticut and Pennsylvania and features a wide range of sports content, including exclusive live local games and other programming of the New York Knicks (the \u201cKnicks\u201d) of the National Basketball Association (the \u201cNBA\u201d) and the New York Rangers (the \u201cRangers\u201d), New York Islanders (the \u201cIslanders\u201d), New Jersey Devils (the \u201cDevils\u201d) and Buffalo Sabres (the \u201cSabres\u201d) of the National Hockey League (the \u201cNHL\u201d), as well as significant coverage of the New York Giants (the \u201cGiants\u201d) and the Buffalo Bills (the \u201cBills\u201d) of the National Football League (the \u201cNFL\u201d).\nDescription of Our Segments\nSphere \nRevenue Sources \u2014 Sphere \nThe Sphere segment has yet to generate material revenue during Sphere\u2019s pre-opening period. See Note\u00a02. Summary of Significant Accounting Policies to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details regarding our accounting policies on revenue recognition. \n42\nExpenses \u2014 Sphere\nThe Sphere segment incurs non-capitalizable content development and technology costs associated with the Company\u2019s Sphere initiative. Sphere also incurs corporate and supporting department operating costs that are attributable to Sphere development, including charges under the transition services agreement with MSG Entertainment (the \u201cMSGE TSA\u201d), costs associated with the promotion of events through various advertising campaigns, and non-event related operating expenses such as insurance, utilities, repairs and maintenance, labor related to the overall management of the Sphere segment and depreciation and amortization expense related to certain corporate property, equipment and leasehold improvements. See Note\u00a02. Summary of Significant Accounting Policies to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details regarding our accounting policies on direct operating expenses. \nMSG Networks\nRevenue Sources \u2014 MSG Networks\nThe MSG Networks segment generates revenues principally from affiliation fees, as well as from the sale of advertising. For Fiscal Year 2023\n, this segment represented approximately 99.5% of our consolidated revenues.\nAffiliation Fee Revenue\nAffiliation fee revenue is earned from Distributors for the right to carry the Company\u2019s networks. The fees we receive depend largely on the demand from subscribers for our programming.\nAdvertising Revenue\nThe MSG Networks\u2019 advertising revenue is largely derived from the sale of inventory in its live professional sports programming. As such, a disproportionate share of this revenue is earned in the second and third fiscal quarters. In certain advertising arrangements, the Company guarantees specific viewer ratings for its programming.\nExpenses \n\u2014 MSG Networks\nDirect operating expenses primarily include the cost of professional team rights acquired under media rights agreements to telecast various sporting events on our networks, and other direct programming and production-related costs of our networks.\nMSG Networks is a party to long-term media rights agreements with the Knicks and the Rangers, which provide the Company with the exclusive live media rights to the teams\u2019 games in their local markets. In addition, MSG Networks has  media rights agreements with the Islanders, Devils and Sabres. The media rights acquired under these agreements to telecast various sporting events and other programming for exhibition on our networks are typically expensed on a straight-line basis over the applicable annual contract or license period. We negotiate directly with the teams to determine the fee and other provisions of the media rights agreements. Media rights fees for sports programming are influenced by, among other things, the size and demographics of the geographic area in which the programming is distributed, and the popularity and/or the competitiveness of a team.\nOther direct programming and production-related costs include, but are not limited to, the salaries of on-air personalities, producers, directors, technicians, writers and other creative staff, as well as expenses associated with location costs, remote facilities and maintaining studios, origination, and transmission services and facilities.\nOther Expenses\nThe Company\u2019s selling, general and administrative expenses primarily consist of administrative costs, including compensation, professional fees, advertising sales commissions, as well as sales and marketing costs, including non-event related advertising expenses. Selling, general and administrative expenses for periods prior to the MSGE Distribution include certain corporate overhead expenses that do not meet the criteria for inclusion in discontinued operations.\nPrior to December 31, 2022, MSG Networks was party to an advertising sales representation agreement \n(the \u201cNetworks Advertising Sales Representation Agreement\u201d)\n with MSG Entertainment that gave MSG Entertainment the exclusive right and obligation to sell certain of MSG Networks\u2019 advertising availabilities for a commission. \nThe Networks Advertising Sales Representation Agreement was terminated effective as of December 31, 2022.  Starting January 1, 2023, all costs incurred by MSG Networks to sell advertising (that was previously performed by MSG Entertainment) are included in selling, general, and administrative expenses.  \n43\nFactors Affecting Operating Results \nThe operating results of our Sphere segment will be largely dependent on our ability to attract audiences to The Sphere Experience, and advertisers and marketing partners, as well as guests and artists to residencies, concerts and other events at our venue. The operating results of our MSG Networks segment are largely dependent on the affiliation agreements MSG Networks negotiates with Distributors, the number of subscribers of certain Distributors, the success of our DTC product, and the advertising rates we charge advertisers. Certain of these factors in turn depend on the popularity and/or performance of the professional sports teams whose games we broadcast on our networks.\nOur Company\u2019s future performance is dependent in part on general economic conditions and the effect of these conditions on our customers. Weak economic conditions may lead to lower demand for our entertainment offerings (including The Sphere Experience) and programming content, which would also negatively affect concession and merchandise sales, and could lead to lower levels of advertising, sponsorship and venue signage. These conditions may also affect the number of immersive productions, concerts, residencies and other events that take place in the future. An economic downturn could adversely affect our business and results of operations.\nThe Company continues to explore additional opportunities to expand our presence in the entertainment industry. Any new investment may not initially contribute to operating income, but is intended to contribute to the success of the Company over time. Our results will also be affected by investments in, and the success of, new immersive productions.\nFactors Affecting Comparability \nThe Company\u2019s operations and operating results were materially impacted by the COVID-19 pandemic \nand actions taken in response by governmental authorities and certain professional sports leagues during Fiscal Year 2021. As a result of the shortened 2020-21 NBA and NHL seasons, \nMSG Networks aired substantially fewer NBA and NHL telecasts during Fiscal Year 2021, as compared with Fiscal Year 2019 (the last full fiscal year not impacted by COVID-19), and consequently experienced a decrease in revenues, including a material decrease in advertising revenue. The absence of live sports games also resulted in a decrease in certain MSG Networks expenses, including rights fees, variable production expenses, and advertising sales commissions. MSG Networks aired full regular season telecast schedules in Fiscal Year 2022 and Fiscal Year 2023 for its five professional teams across both the NBA and NHL, and, as a result, its advertising revenue and certain operating expenses, including rights fees expense, reflect the same.\nIt is unclear to what extent pandemic concerns, including with respect to COVID-19 or other future pandemics, could (i) result in new government-mandated capacity or other restrictions or vaccination/mask requirements or impact the use of and/or demand for Sphere in Las Vegas, impact demand for the Company\u2019s sponsorship and advertising assets, deter employees and vendors from working at Sphere in Las Vegas (which may lead to difficulties in staffing), deter artists from touring or (ii) result in professional sports leagues suspending, cancelling or otherwise reducing the number of games scheduled in the regular reason or playoffs, which could have a material impact on the distribution and/or advertising revenues of the MSG Networks segment, or otherwise materially impact our operations. \nFor more information about the risks to the Company as a result of the COVID-19 pandemic and its impact on our operating results, see \u201cPart I \u2014 Item 1A. Risk Factors \u2014 Operational and Economic Risks\u2014\nOur Operations and Operating Results Were Materially Impacted by the COVID-19 Pandemic and Actions Taken in Response by Governmental Authorities and Certain Professional Sports Leagues, and a Resurgence of the COVID-19 Pandemic or Another Pandemic or Public Health Emergency Could Adversely Affect Our Business and Results of Operations\n.\u201d\nIn addition to the above items, the MSGE Distribution and Tao Group Hospitality Disposition both qualified for discontinued operations presentation under GAAP during Fiscal Year 2023. As such, the Company\u2019s historical results for all periods presented have been recast to exclude the operations of each disposed business.  See below for further discussion.\n44\nResults of Operations\nComparison of the Fiscal Year Ended June\u00a030, 2023 versus the Fiscal Year Ended June\u00a030, 2022\nConsolidated R\nesults of Operations\nThe table below sets forth, for the periods presented, certain historical financial information.\n\u00a0 \nYears Ended June 30,\nChange\n2023\n2022\nAmount\nPercentage\nRevenues\n$\n573,831\u00a0\n$\n610,055\u00a0\n$\n(36,224)\n(6)\n%\nDirect operating expenses\n(342,211)\n(320,278)\n(21,933)\n7\u00a0\n%\nSelling, general and administrative expenses \n(452,142)\n(419,793)\n(32,349)\n8\u00a0\n%\nDepreciation and amortization \n(30,716)\n(22,562)\n(8,154)\n36\u00a0\n%\nImpairment and other gains, net\n6,120\u00a0\n245\u00a0\n5,875\u00a0\nNM\nRestructuring charges\n(27,924)\n(13,404)\n(14,520)\n108\u00a0\n%\nOperating loss\n(273,042)\n(165,737)\n(107,305)\n65\u00a0\n%\nInterest income\n11,585\u00a0\n3,575\u00a0\n8,010\u00a0\nNM\nOther income (expense), net\n536,887\u00a0\n(5,518)\n542,405\u00a0\nNM\nIncome (loss) from operations before income taxes\n275,430\u00a0\n(167,680)\n443,110\u00a0\nNM\nIncome tax (expense) benefit\n(103,403)\n29,830\u00a0\n(133,233)\nNM\nIncome (loss) from continuing operations\n172,027\u00a0\n(137,850)\n309,877\u00a0\nNM\nIncome (loss) from discontinued operations, net of taxes\n333,653\u00a0\n(52,297)\n385,950\u00a0\nNM\nNet income (loss)\n505,680\u00a0\n(190,147)\n695,827\u00a0\nNM\nLess: Net income attributable to redeemable noncontrolling interests from discontinued operations\n3,925\u00a0\n7,739\u00a0\n(3,814)\n(49)\n%\nLess: Net loss attributable to nonredeemable noncontrolling interests from discontinued operations\n(1,017)\n(3,491)\n2,474\u00a0\n(71)\n%\nNet income (loss) attributable to Sphere Entertainment Co.\u2019s stockholders\n$\n502,772\u00a0\n$\n(194,395)\n$\n697,167\u00a0\nNM\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nNM \u2014 Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.\nFor all periods through the MSGE Distribution, the reported financial results of the Company reflect the results of the MSG Entertainment business, previously owned and operated by the Company through its Sphere segment, as discontinued operations and for all periods through the Tao Group Hospitality Disposition, the reported financial results of the Company reflect the results of the Tao Group Hospitality segment, previously owned and operated by the Company, as discontinued operations. In addition, results from continuing operations for these periods include certain corporate overhead expenses that the Company did not incur in the period after the completion of the MSGE Distribution and does not expect to incur in future periods, but which do not meet the criteria for inclusion in discontinued operations. The reported financial results of the Company for the periods after the MSGE Distribution reflect the Company\u2019s results on a standalone basis, including the Company\u2019s actual corporate overhead.\nThe following is a summary of changes in our segments\u2019 operating results for Fiscal Year 2023 as compared to Fiscal Year 2022, which are discussed below under \u201cBusiness Segment Results.\u201d\nChanges attributable to\nRevenues\nDirect\noperating \nexpenses\nSelling, general and administrative expenses\nDepreciation\nand\namortization\nImpairment and other gains, net\nRestructuring charges\nOperating loss\nSphere segment\n$\n710\u00a0\n$\n(5,545)\n$\n(31,996)\n$\n(10,880)\n$\n5,984\u00a0\n$\n(10,184)\n$\n(51,911)\nMSG Networks segment\n(36,934)\n(16,388)\n(353)\n2,726\u00a0\n(109)\n(4,336)\n(55,394)\n$\n(36,224)\n$\n(21,933)\n$\n(32,349)\n$\n(8,154)\n$\n5,875\u00a0\n$\n(14,520)\n$\n(107,305)\nDepreciation and amortization\nDepreciation and amortization for Fiscal Year 2023 increased $8,154, or 36%, to $30,716 as compared to Fiscal Year 2022 primarily due to an increase in depreciation of Big Dome, the Company\u2019s creative studio in Burbank, California, due to certain assets being placed in service during Fiscal Year 2023.\n45\nImpairment and other gains, net\nImpairment and other gains, net\n, were $6,120 for Fiscal Year 2023 as compared to $245 for Fiscal Year 2022. The increase in the net gain of $5,875 was primarily due to the receipt of insurance proceeds related to Big Dome, the Company\u2019s creative studio in Burbank, California.\nRestructuring charges\nRestructuring charges \nfor Fiscal Year 2023 increased $14,520, or 108%, to $27,924 as compared to Fiscal Year 2022 primarily due to \ntermination benefits provided for a workforce reduction of certain executives and employees within the Sphere and MSG Networks segments as part of the Company\u2019s cost reduction program implemented in Fiscal Year 2023.\nInterest income\nInterest income \nfor Fiscal Year 2023\n increased $8,010, as compared to the prior year period primarily due to higher interest rates.\nOther income (expense), net\nOther income (expense), net for Fiscal Year 2023, increased $542,405, as compared to the prior year period, primarily due to unrealized gains of $341,039 and realized gains of $204,676 associated with the Company\u2019s retained interest in MSG Entertainment.\nIncome taxes\n \nInco\nme tax expense from continuing operations for Fiscal Year 2023 of $103,403 differs from income tax expense derived from applying the statutory federal rate of 21% to the pretax income primarily due to (i) tax expense of $35,656 related to state and local taxes, (ii) tax expense of $4,814 related to nondeductible officers\u2019 compensation, and (iii) tax expense related to excess share based compensation of $4,678, partially offset by a decrease in the valuation allowance of $2,053.\nIncome tax benefit from continuing operations for Fiscal Year 2022 of $29,830 differs from income tax benefit derived from applying the statutory federal rate of 21% to the pretax loss primarily due to (i) tax expense of $12,759 related to nondeductible officers\u2019 compensation, partially offset by state income tax benefit of $3,970 and a decrease in the valuation allowance of $2,200. \nSee Note \n16. Income Taxes\n to the consolidated financial statements included in Item\u00a08 of this Annual Report on Form 10-K for further details on the components of income tax and a reconciliation of the statutory federal rate to the effective tax rate.\nAdjusted operating income (loss) (\u201cAOI\u201d)\nThe Company evaluates segment performance based on several factors, of which the key financial measure is adjusted operating income (loss), a non-GAAP financial measure. We define adjusted operating income (loss) as operating income (loss) excluding:\n(i) depreciation, amortization and impairments of property and equipment, goodwill and intangible assets,\n(ii) amortization for capitalized cloud computing arrangement costs,\n(iii) share-based compensation expense,\n(iv) restructuring charges or credits,\n(v) merger and acquisition-related costs, including litigation expenses,\n(vi) gains or losses on sales or dispositions of businesses and associated settlements, \n(vii) the impact of purchase accounting adjustments related to business acquisitions, and\n(viii)  gains and losses related to the remeasurement of liabilities under the Company\u2019s Executive Deferred Compensation Plan.\nSee Note 18. Segment Information to the consolidated financial statements included in Item\u00a08 of this Annual Report on Form 10-K for further discussion on the definition of AOI.\nThe Company believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company\u2019s business without regard to the settlement of an obligation that is not expected to be made in cash. The Company eliminates merger and acquisition-related costs, when applicable, because the Company does not consider such costs to be indicative of the ongoing operating performance of the Company as they result from an event that is of a non-recurring nature, thereby enhancing comparability. In addition, management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the Company\u2019s Executive Deferred Compensation Plan provides investors with a clearer picture of the Company\u2019s operating performance given that, in accordance with GAAP, gains and losses related to the \n46\nremeasurement of liabilities under the Company\u2019s Executive Deferred Compensation Plan are recognized in Operating income (loss) whereas gains and losses related to the remeasurement of the assets under the Company\u2019s Executive Deferred Compensation Plan, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Other income (expense), net, which is not reflected in Operating income (loss).\nThe Company believes AOI is an appropriate measure for evaluating the operating performance of its business segments and the Company on a consolidated basis. AOI and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company\u2019s performance. The Company uses revenues and AOI measures as the most important indicators of its business performance, and evaluates management\u2019s effectiveness with specific reference to these indicators.\nAOI should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. Since AOI is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to AOI.\nThe following is a reconciliation of operating loss to adjusted operating loss: \nYears Ended June 30,\nChange\n2023\n2022\nAmount\nPercentage\nOperating loss\n$\n(273,042)\n$\n(165,737)\n$\n(107,305)\n65\u00a0\n%\nShare-based compensation\n(a)\n42,607\u00a0\n56,760\u00a0\n(14,153)\nDepreciation and amortization\n30,716\u00a0\n22,562\u00a0\n8,154\u00a0\nRestructuring charges\n27,924\u00a0\n13,404\u00a0\n14,520\u00a0\nImpairment and other gains, net\n(6,120)\n(245)\n(5,875)\nMerger and acquisition related costs\n55,047\u00a0\n48,517\u00a0\n6,530\u00a0\nAmortization for capitalized cloud computing costs\n161\u00a0\n271\u00a0\n(110)\nRemeasurement of deferred compensation plan liabilities\n187\u00a0\n\u2014\u00a0\n187\u00a0\nAdjusted operating loss\n$\n(122,520)\n$\n(24,468)\n$\n(98,052)\nNM\n________________\nNM \u2014 Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.\n(a)\nFor periods through the MSGE Distribution, share-based compensation includes expenses related to corporate employees that the Company does not expect to incur in future periods, but which do not meet the criteria for inclusion in discontinued operations\n.\n \n \nAdjusted operating loss for Fiscal Year 2023 increased $98,052 to $122,520 as compared to Fiscal Year 2022. The net increase was attributable to the following:\nIncrease in adjusted operating loss of the Sphere segment\n$\n(61,242)\nDecrease in adjusted operating income of the MSG Networks segment\n(36,810)\n$\n(98,052)\n47\nBusiness Segment Results\nSphere\nThe table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating loss to adjusted operating loss for the Company\u2019s Sphere segment.\n\u00a0\nYears Ended June 30,\nChange\n2023\n2022\nAmount\nPercentage\nRevenues\n$\n2,610\u00a0\n$\n1,900\u00a0\n$\n710\u00a0\n37\u00a0\n%\nDirect operating expenses\n(5,545)\n\u2014\u00a0\n(5,545)\nNM\nSelling, general and administrative expenses\n(325,660)\n(293,664)\n(31,996)\n11\u00a0\n%\nDepreciation and amortization\n(24,048)\n(13,168)\n(10,880)\n83\u00a0\n%\nImpairment and other gains, net\n6,229\u00a0\n245\u00a0\n5,984\u00a0\nNM\nRestructuring charges\n(23,136)\n(12,952)\n(10,184)\n79\u00a0\n%\nOperating loss\n$\n(369,550)\n$\n(317,639)\n$\n(51,911)\n16\u00a0\n%\nReconciliation to adjusted operating loss:\nShare-based compensation expense\n36,188\u00a0\n39,668\u00a0\n(3,480)\nDepreciation and amortization\n24,048\u00a0\n13,168\u00a0\n10,880\u00a0\nRestructuring charges\n23,136\u00a0\n12,952\u00a0\n10,184\u00a0\nImpairment and other gains, net\n(6,229)\n(245)\n(5,984)\nMerger and acquisition related costs\n(189)\n20,834\u00a0\n(21,023)\nAmortization for capitalized cloud computing costs\n\u2014\u00a0\n95\u00a0\n(95)\nRemeasurement of deferred compensation plan liabilities\n187\u00a0\n\u2014\u00a0\n187\u00a0\nAdjusted operating loss\n$\n(292,409)\n$\n(231,167)\n$\n(61,242)\n26\u00a0\n%\n\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\nNM \u2014 Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.\nRevenues\nRevenues increased $710 from $1,900 for Fiscal Year 2022 to $2,610 for Fiscal Year 2023. The net increase was attributable to the full year impact of sublease rental income of office space in San Francisco, California, that the Company subleased to a third-party after relocating certain operations to Burbank, California. \nDirect operating expenses\nDirect operating expenses increased $5,545 from $0 for Fiscal Year 2022 to $5,545 for Fiscal Year 2023. The net increase was primarily attributable to advertising and marketing costs related to the opening of Sphere in Las Vegas.\nSelling, general and administrative expenses\nSelling, general and administrative expenses increased $31,996, or 11%, for Fiscal Year 2023 to $325,660 as compared to Fiscal Year 2022. The increase was primarily due to the impact of the MSGE TSA, higher employee compensation and related benefits and other cost increases.\n \nThe overall increase was partially offset by the absence of certain corporate expenses that were included in the segment results for the entire prior year but were only included in the results for the pre-MSGE Distribution period (July 1, 2022 through April 20, 2023) in Fiscal Year 2023.\n \nWhile the Company did not incur these corporate costs after the MSGE Distribution Date and does not expect to incur these corporate costs in Fiscal Year 2024, they did not meet the criteria for inclusion in discontinued operations for all periods prior to the MSGE Distribution Date.\nIn addition, professional fees incurred by the Company decreased, as compared to the prior year, due to the inclusion of litigation-related insurance recoveries received in Fiscal Year 2023 associated with the \nNetworks Merger\n.\nDepreciation and amortization\nDepreciation and amortization for Fiscal Year 2023 increased $10,880, or 83%, to $24,048 as compared to Fiscal Year 2022 \nprimarily due to an increase in depreciation of Big Dome, the Company\u2019s creative studio in Burbank, California, due to certain assets being placed in service during Fiscal Year 2023.\n48\nRestructuring charges\nRestructuring charges \nfor Fiscal Year 2023 increased $10,184, or 79%, to $23,136 as compared to Fiscal Year 2022 primarily due to \ntermination benefits provided for a workforce reduction of certain executives and employees as part of the Company\u2019s cost reduction program implemented in Fiscal Year 2023.\nOperating loss\nOperating loss for Fiscal Year 2023 increased $51,911 to $369,550 as compared to an operating loss of $317,639 in Fiscal Year 2022. The increased operating loss was primarily due to the increase in selling, general and administrative expenses, higher depreciation and amortization, and an increase in restructuring charges.\nAdjusted operating loss\nAdjusted operating loss for Fiscal Year 2023 increased $61,242 to $292,409 as compared to Fiscal Year 2022. The increased adjusted operating loss was primarily due to the increase in net loss, partially offset by higher depreciation and amortization expenses and restructuring charges, both of which are excluded in the calculation of adjusted operating loss.\nMSG Networks\nThe tables below set forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income for the Company\u2019s MSG Networks segment.\u00a0\n \nYears Ended June 30,\nChange\n2023\n2022\nAmount\nPercentage\nRevenues\n$\n571,221\u00a0\n$\n608,155\u00a0\n$\n(36,934)\n(6)\n%\nDirect operating expenses\n(336,666)\n(320,278)\n(16,388)\n5\u00a0\n%\nSelling, general and administrative expenses\n (a)\n(126,482)\n(126,129)\n(353)\n\u2014\u00a0\n%\nDepreciation and amortization\n(6,668)\n(9,394)\n2,726\u00a0\n(29)\n%\nImpairment and other losses, net\n(109)\n\u2014\u00a0\n(109)\nNM\nRestructuring charges\n(4,788)\n(452)\n(4,336)\nNM\nOperating income\n$\n96,508\u00a0\n$\n151,902\u00a0\n$\n(55,394)\n(36)\n%\nReconciliation to adjusted operating income:\nShare-based compensation expense\n6,419\u00a0\n17,092\u00a0\n(10,673)\nDepreciation and amortization\n6,668\u00a0\n9,394\u00a0\n(2,726)\nRestructuring charges\n4,788\u00a0\n452\u00a0\n4,336\u00a0\nImpairment and other losses, net\n109\u00a0\n\u2014\u00a0\n109\u00a0\nMerger and acquisition related costs\n55,236\u00a0\n27,683\u00a0\n27,553\u00a0\nAmortization for capitalized cloud computing costs\n161\u00a0\n176\u00a0\n(15)\nAdjusted operating income\n$\n169,889\u00a0\n$\n206,699\u00a0\n$\n(36,810)\n(18)\n%\n _________________\nNM \u2014 Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.\n(a)\nAs a result of the MSGE Distribution on April 20, 2023 (which is presented as discontinued operations under GAAP), prior period results of the MSG Networks segment have been recast to exclude expenses of approximately $8,800 and $20,900 for Fiscal Years 2023 and 2022, respectively, related to the MSG Networks\u2019 Advertising Sales Representation Agreement with MSG Entertainment, which was terminated effective as of December 31, 2022. A portion of these expenses were absorbed directly by MSG Networks following the termination of the advertising sales representation agreement and are reflected in MSG Networks\u2019 results beginning January 1, 2023.\nRevenues\nRevenues for Fiscal Year 2023 decreased $36,934, or 6%, to $571,221 as compared to the prior year. The changes in revenues were attributable to the following:\n\u00a0\nYear Ended June 30, 2023\nDecrease in affiliation fee revenue\n$\n(49,302)\nIncrease in advertising revenue\n11,517\u00a0\nOther net increases\n851\u00a0\n$\n(36,934)\n49\nFor Fiscal Year 2023, affiliation fee revenue decreased $49,302, primarily due to a decrease in subscribers of approximately 10.5% (excluding the impact of the non-renewal of MSG Networks\u2019 carriage agreement with Comcast Corporation (\u201cComcast\u201d) as of October 1, 2021) and, to a lesser extent, the impact of the Comcast non-renewal. These decreases were partially offset by net favorable affiliate adjustments of approximately $10,400 and the impact of higher affiliation rates.\nEffective October 1, 2021, Comcast\u2019s license to carry MSG Networks expired and MSG Networks has not been carried by Comcast since that date. Comcast\u2019s non-carriage reduced MSG Networks\u2019 subscribers by approximately 10% and reduced MSG Networks\u2019 revenue by a comparable percentage. In addition, MSG Networks\u2019 segment operating income and AOI were reduced by an amount that is approximately equal to the dollar amount of the reduced revenue.\nFor Fiscal Year 2023, the increase in advertising revenue primarily reflected higher advertising sales related to professional sports telecasts due to the impact of a higher number of live telecasts and an increase in per-game advertising sales as compared with the prior year periods, as well as higher sales related to the Company\u2019s non-ratings-based advertising initiatives.\nDirect operating expenses\nFor Fiscal Year 2023, direct operating expenses increased $16,388, or 5%, to $336,666 as compared to the prior year. The changes were attributable to the following:\nYear Ended June 30, 2023\nIncrease in rights fees expense\n$\n14,610\u00a0\nChange in other programming and production costs\n1,778\u00a0\n$\n16,388\u00a0\nFor Fiscal Year 2023, right fees expense increased $14,610 primarily due to the impact of annual contractual rate increases and due to the absence of reductions in media rights fees related to the shortened 2020-21 NHL season recorded in the prior year first quarter.\nFor Fiscal Year 2023, other programming and production costs increased $1,778 primarily due to a higher number of professional sports telecasts in the current fiscal year.\nSelling, general and administrative expenses\nFor Fiscal Year 2023, selling, general and administrative expenses increased $353, to $126,482 as compared to the prior year \nprimarily due to litigation settlement expenses of $48,500 recognized in the current year related to the Networks Merger, which was partially offset by lower advertising and marketing expenses, lower employee compensation and related benefits, and other cost decreases.\nOperating income\n \nFor Fiscal Year 2023, operating income decreased $55,394, or 36%, to $96,508 as compared to the prior year. The decrease in operating income was primarily due to the decrease in revenues, increase in direct operating expenses, and the impact of restructuring charges.\nAdjusted operating income\n \nFor Fiscal Year 2023, adjusted operating income decreased $36,810, or 18%, to $169,889 as compared to the prior year. The decrease in adjusted operating income was lower than the decrease in operating income of $55,394 primarily due to the decrease in revenues and increase in direct operating expenses, partially offset by a decrease in selling, general and administrative expenses (excluding the impact of the Networks Merger litigation settlement and restructuring expenses discussed above).\n50\nComparison of the Fiscal Year Ended June\u00a030, 2022 versus the Fiscal Year Ended June\u00a030, 2021 \nConsolidated Results of Operations\nThe table below sets forth, for the periods presented, certain historical financial information.\n\u00a0\nYears Ended June 30,\nChange\n2022\n2021\nAmount\nPercentage\nRevenues\n$\n610,055\u00a0\n$\n647,510\u00a0\n$\n(37,455)\n(6)\n%\nDirect operating expenses\n(320,278)\n(262,859)\n(57,419)\n22\u00a0\n%\nSelling, general and administrative expenses\n(419,793)\n(295,472)\n(124,321)\n42\u00a0\n%\nDepreciation and amortization\n(22,562)\n(16,606)\n(5,956)\n36\u00a0\n%\nImpairment and other gains, net\n245\u00a0\n\u2014\u00a0\n245\u00a0\nNM\nRestructuring charges\n(13,404)\n(8,061)\n(5,343)\n66\u00a0\n%\nOperating (loss) income \n(165,737)\n64,512\u00a0\n(230,249)\nNM\nInterest income\n3,575\u00a0\n3,172\u00a0\n403\u00a0\n13\u00a0\n%\nInterest expense\n\u2014\u00a0\n(20,219)\n20,219\u00a0\n(100)\n%\nOther income (expense), net\n(5,518)\n(3,935)\n(1,583)\n40\u00a0\n%\n(Loss) income from operations before income taxes\n(167,680)\n43,530\u00a0\n(211,210)\nNM\nIncome tax (expense) benefit\n29,830\u00a0\n(38,907)\n68,737\u00a0\n(177)\n%\n(Loss) income from continuing operations\n(137,850)\n4,623\u00a0\n(142,473)\nNM\nLoss from discontinued operations, net of taxes\n(52,297)\n(171,142)\n118,845\u00a0\n(69)\n%\nNet loss\n(190,147)\n(166,519)\n(23,628)\n14\u00a0\n%\nLess: Net income (loss) attributable to redeemable noncontrolling interests from discontinued operations\n7,739\u00a0\n(16,269)\n24,008\u00a0\n(148)\n%\nLess: Net loss attributable to nonredeemable noncontrolling interests from discontinued operations\n(3,491)\n(2,099)\n(1,392)\n66\u00a0\n%\nNet loss attributable to Sphere Entertainment Co.\u2019s stockholders\n$\n(194,395)\n$\n(148,151)\n$\n(46,244)\n31\u00a0\n%\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nNM \u2014 Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.\nThe following is a summary of changes in our segments\u2019 operating results for Fiscal Year 2022 as compared to Fiscal Year 2021:\nChanges attributable to\nRevenues\nDirect\noperating \nexpenses\nSelling, general and administrative expenses\nDepreciation\nand\namortization\nImpairment and other gains, net\nRestructuring charges\nOperating (loss) income\nSphere segment\n$\n1,900\u00a0\n$\n\u2014\u00a0\n$\n(99,833)\n$\n(3,897)\n$\n245\u00a0\n$\n(4,891)\n$\n(106,476)\nMSG Networks segment\n(39,355)\n(57,419)\n(24,488)\n(2,059)\n\u2014\u00a0\n(452)\n(123,773)\n$\n(37,455)\n$\n(57,419)\n$\n(124,321)\n$\n(5,956)\n$\n245\u00a0\n$\n(5,343)\n$\n(230,249)\nDepreciation and amortization\nDepreciation and amortization for Fiscal Year 2022 increased $5,956, or 36%, to $22,562 as compared to Fiscal Year 2021 primarily due to \n an increase in depreciation of Big Dome, the Company\u2019s creative studio in Burbank, California, due to certain equipment and other assets being placed in service during Fiscal Year 2022.\nRestructuring charges\nRestructuring charges \nfor Fiscal Year 2022 increased $5,343, or 66%, to $13,404 as compared to Fiscal Year 2021 primarily due to \ntermination benefits provided for a workforce reduction of certain executives and employees within the Sphere and MSG Networks segments as part of the Company\u2019s cost reduction program implemented in Fiscal Year 2022.\nInterest expense\nInterest expense for Fiscal Year 2022 were nil as compared to Fiscal Year 2021 primarily due to a higher amount of interest expense capitalization related to Sphere construction.\n51\nOther income (expense), net\nOther income (expense), net\n for Fiscal Year 2022 increased $1,583, or 40% to $5,518 as compared to Fiscal Year 2021 primarily due to the absence of the unrealized gain on equity investment without readily determinable fair value.\nIncome taxes\nIncome tax benefit from continuing operations for Fiscal Year 2022 of $29,830 differs from income tax benefit derived from applying the statutory federal rate of 21% to the pretax loss primarily due to tax expense of $12,759 related to nondeductible officers\u2019 compensation, partially offset by state income tax benefit of $3,970 and a decrease in the valuation allowance of $2,200. \nIncome tax expense for continuing operations for Fiscal Year 2021 of $38,907 differs from income tax expense derived from applying the statutory federal rate of 21% to the pretax income primarily due to (i) tax expense of $9,646 related to nondeductible officers\u2019 compensation, (ii) state income tax expense of $9,222, (iii) tax expense of $5,332 related to a change in the applicable state tax rate used to measure deferred taxes and (iv) an increase in the valuation allowance of $4,863.\nAdjusted operating income\nThe following is a reconciliation of operating (loss) income to adjusted operating (loss) income:\nYears Ended June 30,\nChange\n2022\n2021\nAmount\nPercentage\nOperating (loss) income\n$\n(165,737)\n$\n64,512\u00a0\n$\n(230,249)\nNM\nShare-based compensation\n(a)\n56,760\u00a0\n59,786\u00a0\n(3,026)\nDepreciation and amortization\n22,562\u00a0\n16,606\u00a0\n5,956\u00a0\nRestructuring charges\n13,404\u00a0\n8,061\u00a0\n5,343\u00a0\nImpairment and other gains, net\n(245)\n\u2014\u00a0\n(245)\nMerger and acquisition related costs\n48,517\u00a0\n20,582\u00a0\n27,935\u00a0\nAmortization for capitalized cloud computing costs\n271\u00a0\n\u2014\u00a0\n271\u00a0\nAdjusted operating (loss)  income\n$\n(24,468)\n$\n169,547\u00a0\n$\n(194,015)\n(114)\n%\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\nNM \u2014 Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.\n(a)\nFor periods through the MSGE Distribution, share-based compensation includes expenses related to corporate employees that the Company does not expect to incur in future periods, but which do not meet the criteria for inclusion in discontinued operations\n.\n \nAdjusted operating income for Fiscal Year 2022 decreased $194,015 to $24,468 as compared to the prior year. The net decrease was primarily attributable to the following:\nIncrease in adjusted operating loss of the Sphere segment\n$\n(95,535)\nDecrease in adjusted operating income of the MSG Networks segment\n(98,480)\n$\n(194,015)\n52\nBusiness Segment Results\nSphere\nThe table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating loss to adjusted operating loss for the Company\u2019s Sphere segment.\n\u00a0\nYears Ended June 30,\nChange\n2022\n2021\nAmount\nPercentage\nRevenues\n$\n1,900\u00a0\n$\n\u2014\u00a0\n$\n1,900\u00a0\nNM\nSelling, general and administrative expenses\n(293,664)\n(193,831)\n(99,833)\n52\u00a0\n%\nDepreciation and amortization\n(13,168)\n(9,271)\n(3,897)\n42\u00a0\n%\nImpairment and other gains, net\n245\u00a0\n\u2014\u00a0\n245\u00a0\nNM\nRestructuring charges\n(12,952)\n(8,061)\n(4,891)\n61\u00a0\n%\nOperating loss\n$\n(317,639)\n$\n(211,163)\n$\n(106,476)\n50\u00a0\n%\nReconciliation to adjusted operating loss:\nShare-based compensation expense\n39,668\u00a0\n42,119\u00a0\n(2,451)\nDepreciation and amortization\n13,168\u00a0\n9,271\u00a0\n3,897\u00a0\nRestructuring charges\n12,952\u00a0\n8,061\u00a0\n4,891\u00a0\nImpairment and other gains, net\n(245)\n\u2014\u00a0\n(245)\nMerger and acquisition related costs\n20,834\u00a0\n16,080\u00a0\n4,754\u00a0\nAmortization for capitalized cloud computing costs\n95\u00a0\n\u2014\u00a0\n95\u00a0\nAdjusted operating loss\n$\n(231,167)\n$\n(135,632)\n$\n(95,535)\n70\u00a0\n%\n\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\nNM \u2014 Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.\nRevenues\nRevenues increased $1,900 for Fiscal Year 2022. The net increase was attributable to sublease rental income that commenced during Fiscal Year 2022 related to office space in San Francisco, California, that the Company subleased to a third-party after relocating certain operations to Burbank, California.\nSelling, general and administrative expenses\nSelling, general and administrative expenses increased $99,833, or 52%, for Fiscal Year 2022 to $293,664 as compared to Fiscal Year 2021. The increase was primarily due to (i) a net increase in employee compensation and related benefits, and (ii) higher professional fees inclusive of costs for Sphere development, partially offset by higher reimbursement of corporate costs under the services agreement with MSG Sports in Fiscal Year 2022 as compared to Fiscal Year 2021.\nDepreciation and amortization\nDepreciation and amortization for Fiscal Year 2022 increased $3,897, or 42%, to $13,168 as compared to Fiscal Year 2021 \nprimarily due to an increase in depreciation of Big Dome, the Company\u2019s creative studio in Burbank, California, due to certain equipment and other assets being placed in service during Fiscal Year 2022.\nRestructuring charges\nRestructuring charges \nfor Fiscal Year 2022 increased $4,891, or 61%, to $12,952 as compared to Fiscal Year 2021 primarily due to \ntermination benefits provided for a workforce reduction of certain executives and employees within the Sphere segment as part of the Company\u2019s cost reduction program implemented in Fiscal Year 2022.\nOperating loss\nOperating loss for Fiscal Year 2022 increased $106,476 to $317,639 as compared to an operating loss of $211,163 in June\u00a030, 2021. The increased operating loss was primarily due to the increase in selling, general and administrative expenses.\nAdjusted operating loss\nAdjusted operating loss for Fiscal Year 2022 increased $95,535 to $231,167 as compared to Fiscal Year 2021. The increased adjusted operating loss was primarily due to the increase in selling, general and administrative expenses, partially offset by higher merger and acquisition related costs, and higher depreciation and amortization expenses, both of which are excluded in the calculation of adjusted operating loss.\n53\nMSG Networks\nThe tables below set forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income for the Company\u2019s MSG Networks segment.\n\u00a0\nYears Ended June 30,\nChange\n2022\n2021\nAmount\nPercentage\nRevenues\n$\n608,155\u00a0\n$\n647,510\u00a0\n$\n(39,355)\n(6)\n%\nDirect operating expenses\n(320,278)\n(262,859)\n(57,419)\n22\u00a0\n%\nSelling, general and administrative expenses \n(a)\n(126,129)\n(101,641)\n(24,488)\n24\u00a0\n%\nDepreciation and amortization\n(9,394)\n(7,335)\n(2,059)\n28\u00a0\n%\nRestructuring charges\n(452)\n\u2014\u00a0\n(452)\nNM\nOperating income\n$\n151,902\u00a0\n$\n275,675\u00a0\n$\n(123,773)\n(45)\n%\nReconciliation to adjusted operating income:\nShare-based compensation expense\n17,092\u00a0\n17,667\u00a0\n(575)\nDepreciation and amortization\n9,394\u00a0\n7,335\u00a0\n2,059\u00a0\nRestructuring charges\n452\u00a0\n\u2014\u00a0\n452\u00a0\nMerger and acquisition related costs\n27,683\u00a0\n4,502\u00a0\n23,181\u00a0\nAmortization for capitalized cloud computing costs\n176\u00a0\n\u2014\u00a0\n176\u00a0\nAdjusted operating income\n$\n206,699\u00a0\n$\n305,179\u00a0\n$\n(98,480)\n(32)\n%\n_________________\nNM \u2014 Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.\n(a) \nAs a result of the MSGE Distribution on April 20, 2023 (which is presented as discontinued operations under GAAP), prior period results of the MSG Networks segment have been recast to exclude expenses of approximately $20,900 and $13,700 for Fiscal Years 2022, and 2021, respectively, related to the MSG Networks\u2019 Advertising Sales Representation Agreement with MSG Entertainment, which was terminated effective as of December 31, 2022. A portion of these expenses were absorbed directly by MSG Networks following the termination of the advertising sales representation agreement and are reflected in MSG Networks\u2019 results beginning January 1, 2023.\nRevenues\nRevenues for Fiscal Year 2022 decreased $39,355, or 6%, to $608,155 as compared to the prior year. The changes in revenues were attributable to the following:\n\u00a0\nYear Ended June 30, 2022\nDecrease in affiliation fee revenue\n$\n(67,286)\nIncrease in advertising revenue\n26,310\u00a0\nOther net increases\n1,621\u00a0\n$\n(39,355)\nFor Fiscal Year 2022, the decrease in affiliation fee revenue was primarily due to the impact of (i) the non-renewal of MSG Networks\u2019 carriage agreement with Comcast as of October 1, 2021 and (ii) a decrease in subscribers of approximately 7% (excluding the impact of previously disclosed non-renewals with Comcast and a small Connecticut-based distributor). These decreases were partially offset by the impact of higher affiliation rates and a decrease in net unfavorable affiliate adjustments of approximately $9,400. \nFor Fiscal Year 2022, the increase in advertising revenue was primarily due to the impact of (i) higher per-game advertising sales from the telecast of live professional sports programming, (ii) a greater number of live NBA and NHL telecasts in the current year as compared with the prior year and (iii) increased advertising sales related to the Company\u2019s non-ratings based advertising initiatives. As a result of the impact of the COVID-19 pandemic on the 2020-21 NBA and NHL seasons, MSG Networks telecasted fewer NBA and NHL games in the prior year, as compared with a regular NBA and NHL telecast schedule in the current year. \nDirect operating expenses\nFor Fiscal Year 2022, direct operating expenses increased $57,419, or 22%, to $320,278 as compared to the prior year. The increases were primarily due to higher rights fees expenses of $45,024 and, to a lesser extent, an increase in other programming \n54\nand production-related costs of $12,395. The increase in rights fees was primarily due to the net impact of lower media rights fees in the prior year as a result of fewer NBA and NHL games made available for exclusive broadcast by MSG Networks during the shortened 2020-21 NBA and NHL regular seasons, and annual contractual rate increases. The increase in other programming and production-related costs was primarily due to the impact of fewer NBA and NHL regular season games in the prior year, as compared with a regular NBA and NHL telecast schedule in the current year, and expenses related to sports gaming programming, partially offset by other net cost decreases.\nSelling, general and administrative expenses\nFor Fiscal Year 2022, selling, general and administrative expenses increased $24,488, or 24%, to $126,129 as compared to the prior year. The increase in selling, general and administrative expenses reflected an increase of approximately $24,900 of merger and acquisition costs that occurred in Fiscal Year 2022, inclusive of the impact of executive separation agreements and share based compensation expense. In addition, the increase in selling, general and administrative expenses was due to higher advertising, and marketing expenses of approximately $3,100. These increases were partially offset by lower employee compensation and related benefits (including share based compensation expense) of $5,600.\nOperating income\n \nFor Fiscal Year 2022, operating income decreased $123,773, or 45%, to $151,902 as compared to the prior year. The decrease in operating income was primarily due to the increase in direct operating expenses, the decrease in revenues, and to a lesser extent, the increase in selling, general and administrative expenses.\nAdjusted operating income\n \nFor Fiscal Year 2022, adjusted operating income decreased $98,480, or 32%, to $206,699 as compared to the prior year. The decrease in adjusted operating income was lower than the decrease in operating income of $130,953 primarily due to the increase in merger and acquisition-related costs of approximately $25,000, which are excluded in the calculation of adjusted operating income. \n55\nLiquidity and Capital Resources \nSources and Uses of Liquidity\nOur primary sources of liquidity are cash and cash equivalents and cash flows from the operations of our businesses, as well as any proceeds from the sale of the MSGE Retained Interest. Our uses of cash over the next 18 months are expected to be substantial and include working capital-related items (including funding our operations), capital spending (including completing construction of Sphere in Las Vegas and related original content, as described below), debt service and payments we expect to make in connection with the refinancing of our indebtedness, and investments and related loans and advances that we may fund from time to time. We may also use cash to repurchase our common stock. Our decisions as to the use of our available liquidity will be based upon the ongoing review of the funding needs of the business, the optimal allocation of cash resources, and the timing of cash flow generation. To the extent that we desire to access alternative sources of funding through the capital and credit markets, market conditions could adversely impact our ability to do so at that time.\nWe regularly monitor and assess our ability to meet our net funding and investing requirements, including completing the construction of Sphere in Las Vegas and the refinancing of the MSG Networks Credit Facilities prior to their maturity in October 2024. The Company\u2019s unrestricted cash and cash equivalents balance as of June 30, 2023 was $131,965, and was $747,313 as of June 30, 2022. As of June 30, 2023, the Company\u2019s restricted cash and cash equivalents balance was approximately $297,000, inclusive of $275,000, which was required to be held in an account pledged as collateral for the LV Sphere Term Loan Facility until its release upon the Liquidity Covenant Reduction Date (as defined below). The Liquidity Covenant Reduction Date occurred on August\u00a08, 2023.  Additionally, on July\u00a014, 2023, we borrowed the full $65,000 amount available under the DDTL Facility and subsequently, on August 9, 2023, we repaid all amounts outstanding under the DDTL Facility using a portion of the MSGE Retained Interest. The Company\u2019s unrestricted and restricted cash and cash equivalents balance as of August 18, 2023 wa\ns $341,489 and $39,179, respectively.\nThe principal balance of the Company\u2019s total debt outstanding as of June 30, 2023 was $1,207,250. We believe we will have sufficient liquidity from cash and cash equivalents, cash flows from operations (including expected cash from operations from Sphere in Las Vegas), as well as any proceeds from the sale of the MSGE Retained Interest (which had an aggregate fair market value of approximately $270,000 as of August 18, 2023), to fund our operations and service the credit facilities for the foreseeable future, as well as to complete the construction of\n Sphere in Las Vegas. This also includes the Company\u2019s expectation that it will pay down a portion of MSG Networks\u2019 term loan upon the refinancing of the loan prior to its maturity in October 2024. There can be no assurances that we will be able to dispose of all or a portion of the remainder of the MSGE Retained Interest on favorable terms due to market conditions or otherwise. \nOur ability to have sufficient liquidity to fund our operations, including the creation of content, and refinance the MSG Networks Credit Facilities is dependent on the ability of Sphere in Las Vegas to generate significant positive cash flow during Fiscal Year 2024. Although we anticipate that Sphere in Las Vegas will generate substantial revenue and adjusted operating income on an annual basis, there can be no assurances that guests, artists, promoters, advertisers and marketing partners will embrace this new platform.  Original immersive productions, such as \nPostcard From Earth\n, have not been previously pursued on the scale that we are planning for, which increases the uncertainty of our operating expectations. To the extent that our efforts do not result in a viable show or attraction, or to the extent that any such productions do not achieve expected levels of popularity among audiences, we may not generate the cash flows from operations necessary to fund our operations.\nTo the extent we do not realize expected cash flow from operations from Sphere in Las Vegas, we would have to take several actions to improve our financial flexibility and preserve liquidity, including significant reductions in both labor and non-labor expenses as well as reductions and/or deferrals in capital spending.  \nOur liquidity plans assume that we will pay down a portion of MSG Networks\u2019 term loan upon the refinancing of the loan.  There can be no assurances that our lenders will refinance the MSG Networks\u2019 term loan on those terms, particularly if the declines in operating income and adjusted operating income at MSG Networks continue.  We may not have sufficient liquidity to pay down a higher amount in connection with the refinancing.  If we are not able to refinance the MSG Networks\u2019 term loan prior to its maturity in October 2024, a default thereunder would be triggered, resulting in an acceleration of outstanding debt thereunder and potentially a foreclosure upon the MSG Networks business.\nTo the extent that the MSGE Retained Interest is not used to provide liquidity, the MSGE Retained Interest may be exchanged for our shares and/or distributed pro rata to our stockholders.\nSee Note 12. Credit Facilities to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a discussion of the MSG Networks Credit Facilities, the LV Sphere Term Loan Facility and the DDTL Facility.\n56\nFor additional information regarding the Company\u2019s capital expenditures, including those related to Sphere in Las Vegas, see Note 18.\u00a0Segment Information  to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.\nOn March 31, 2020, the Company\u2019s Board of Directors authorized a share repurchase program to repurchase up to $350,000 of the Company\u2019s Class A Common Stock. The program was re-authorized by the Company\u2019s Board of Directors on March 29, 2023. Under the authorization, shares of Class A Common Stock may be purchased from time to time in open market transactions, in accordance with applicable insider trading and other securities laws and regulations. The timing and amount of purchases will depend on market conditions and other factors. No shares have been repurchased under the share repurchase program to date.\nSphere\nThe Company is completing construction of its first state-of-the-art entertainment venue in Las Vegas. See \u201cPart I \u2014 Item\u00a01. Business\u2014Our Business \u2014Sphere \u201d in this Form 10-K. The Company expects the venue to have a number of significant revenue streams, including a wide variety of content such as original immersive productions, advertising and marketing partnerships, concert residencies and marquee sporting and corporate events. As a result, we anticipate that Sphere in Las Vegas will generate substantial revenue and adjusted operating income on an annual basis.\nThe Company expects to open the venue in September 2023. As with any major construction project, the construction of Sphere is subject to potential delays and unexpected complications.\nAs of the date of this filing, we estimate that the final project construction costs, inclusive of core technology and soft costs, for Sphere in Las Vegas will be approximately $2,300,000. This cost estimate is net of \n$75,000\n that The Venetian has agreed to pay to defray certain construction costs. Relative to our cost estimate above, our actual construction costs for Sphere in Las Vegas paid through August 18, 2023 were approximately $2,250,000, which is net of \n$65,000\n received from The Venetian. Both the estimated and actual construction costs exclude significant capitalized and non-capitalized costs for items such as content creation, internal labor, capitalized interest, and furniture and equipment.\nWith regard to Sphere in Las Vegas, the Company plans to finance the completion of the construction of the venue from cash-on-hand and cash flows from operations. \nIn February 2018, we announced the purchase of land in Stratford, London, which we expect will become home to a future Sphere. The Company submitted planning applications to the local planning authority in March 2019 and that process, which requires various stages of review to be completed and approvals to be granted, is ongoing. Therefore, we do not have a definitive timeline at this time.\nWe will continue to explore additional domestic and international markets where we believe next-generation venues such as Sphere can be successful. The Company\u2019s intention for any future venues is to utilize several options, such as joint ventures, equity partners, a managed venue model and non-recourse debt financing.\nFinancing Agreements\nSee Note\u00a012. Credit Facilities to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for discussions of the Company\u2019s debt obligations and various financing arrangements. \nMSG Networks Senior Secured Credit Facility\nMSGN L.P., MSGN Eden, LLC, an indirect subsidiary of the Company (through the Networks Merger) and the general partner of MSGN L.P., Regional MSGN Holdings LLC, an indirect subsidiary of the Company and the limited partner of MSGN L.P. (collectively with MSGN Eden, LLC, the \u201cMSGN Holdings Entities\u201d), and certain subsidiaries of MSGN L.P. have senior secured credit facilities pursuant to a credit agreement (as amended and restated on October 11, 2019, the \u201cMSGN Credit Agreement\u201d) consisting of: (i) an initia\nl $1,100,000 term l\noan facility (the \u201cMSGN Term Loan Facility\u201d) and (\nii) a $250,000 \nrevolving credit facility (the \u201cMSGN Revolving Credit Facility\u201d), each with a term of five years. As of June\u00a030, 2023, there were no borrowings or letters of credit issued and outstanding under the MSGN Revolving Credit Facility. \nThe MSGN Term Loan Facility amortizes quarterly in accordance with its terms beginning March 31, 2020 through September 30, 2024 with a final maturity date of October 11, 2024. MSGN L.P. is required to make mandatory prepayments in certain circumstances, including without limitation from the net cash proceeds of certain sales of assets (including MSGN Collateral) or casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights) and the incurrence of certain indebtedness, subject to certain exceptions.\n57\nThe MSGN Credit Agreement generally requires the MSGN Holdings Entities and MSGN L.P. and its restricted subsidiaries on a c\nonsolidated basis to comply with a maximum total leverage ratio of 5.50:1.00, subject, at the option of MSGN L.P. to an upward adjustment to 6.00:1.00 during the continuance of certain events. In addition, the MSGN Credit Agreement requires a minimum interest coverage ratio of 2.00:1.00 for the MSGN Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis. \nAs of June\u00a030, 2023, the MSGN Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis were in compliance with the covenants. \nSee Note 12. Credit Facilities to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information such as repayments of $66,000 made in Fiscal Year 2023 and scheduled repayment requirement of $82,500 in Fiscal Year 2024 on the MSG Networks Term Loan.\nLV Sphere Term Loan Facility\nOn December 22, 2022, MSG Las Vegas, LLC (\u201cMSG LV\u201d), an indirect, wholly-owned subsidiary of the Company, entered into a credit agreement with JP Morgan Chase Bank, N.A., as administrative agent and the lenders party thereto, providing for a five-year, $275,000 senior secured term loan facility (the \u201cLV Sphere Term Loan Facility\u201d). All obligations under the LV Sphere Term Loan Facility are guaranteed by Sphere Entertainment Group, LLC (\u201cSphere Entertainment Group\u201d).\nThe LV Sphere Term Loan Facility will mature on December 22, 2027. The principal obligations under the LV Sphere Term Loan Facility are due at the maturity of the facility, with no amortization payments prior to maturity. Under certain circumstances, MSG LV is required to make mandatory prepayments on the loan, including prepayments in an amount equal to the net cash proceeds of casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights), subject to certain exceptions.\nThe LV Sphere Term Loan Facility and related guaranty by Sphere Entertainment Group include financial covenants requiring MSG LV to maintain a specified minimum debt service coverage ratio and requiring Sphere Entertainment Group to maintain a specified minimum liquidity level. The debt service coverage ratio covenant begins testing in the fiscal quarter ending December 31, 2023 on a historical basis and, beginning with the first fiscal quarter occurring after the date on which the first ticketed performance or event open to the general public occurs at Sphere in Las Vegas, is also tested on a prospective basis. Both the historical and prospective debt service coverage ratios are set at 1.35:1. In addition, among other conditions, MSG LV is not permitted to make distributions to Sphere Entertainment Group unless the historical and prospective debt service coverage ratios are at least 1.50:1. Following the Liquidity Covenant Reduction Date (as defined below), the minimum liquidity level for Sphere Entertainment Group is set at $50,000, with $25,000 required to be held in cash or cash equivalents. Prior to the Liquidity Covenant Reduction Date, the minimum liquidity level was $100,000 with $75,000 required to be held in cash or cash equivalents, which amounts (in addition to certain cash proceeds from the sale of the MSGE Retained Interest) were required to be held in an account pledged as collateral for the LV Sphere Term Loan Facility until its release upon the Liquidity Covenant Reduction Date. The Liquidity Covenant Reduction Date occurred on August 8, 2023, once Sphere in Las Vegas was substantially completed and certain of its systems were ready to be used in live, immersive events (the \u201cLiquidity Covenant Reduction Date\u201d). The minimum liquidity level was tested on the closing date and is tested as of the last day of each fiscal quarter thereafter based on Sphere Entertainment Group\u2019s unencumbered liquidity, consisting of cash and cash equivalents and available lines of credit, as of such date. Following the completion of the MSGE Distribution, the MSGE Retained Interest was pledged to secure the LV Sphere Term Loan Facility and was released as collateral upon the Liquidity Covenant Reduction Date. A portion of the value of the MSGE Retained Interest may also be counted toward the minimum liquidity level.\nLetters of Credit\nThe Company uses letters of credit to support its business operations. As of June\u00a030, 2023, there were no borrowings or letters of credit issued and outstanding under the MSGN Revolving Credit Facility. The Company has letters of credit relating to operating leases which are supported by cash and cash equivalents that are classified as restricted.\n58\nCash Flow Discussion \nAs of June\u00a030, 2023, cash, cash equivalents and restricted cash totaled $429,114, as compared to $760,312 as of June\u00a030, 2022 and $1,190,105 as of June\u00a030, 2021. The following table summarizes the Company\u2019s cash flow activities for Fiscal Years 2023, 2022, and 2021:\nYears Ended June 30,\n2023\n2022\n2021\nNet cash provided by (used in) operating activities\n$\n153,591\u00a0\n$\n141,340\u00a0\n$\n(58,694)\nNet cash used in investing activities\n(653,923)\n(804,164)\n(123,183)\nNet cash provided by (used in) financing activities\n85,542\u00a0\n(30,392)\n592,685\u00a0\nEffect of exchange rates on cash, cash equivalents and restricted cash\n(2,106)\n(750)\n8,027\u00a0\nNet increase (decrease) in cash, cash equivalents and restricted cash\n$\n(416,896)\n$\n(693,966)\n$\n418,835\u00a0\nOperating Activities\nNet cash provided by operating activities for Fiscal Year 2023 increased by $12,251 to $153,591 as compared to the prior year primarily due to net income in the current year and changes in working capital assets and liabilities, which primarily included an increase in customers\u2019 advanced payments associated with deferred revenue, an increase in payables and accruals, partially offset by a decrease in prepaid expenses and other current and non-current assets. \nNet cash provided by operating activities for Fiscal Year 2022 increased by $200,034 to $141,340 as compared to the prior year primarily due to positive adjustments to reconcile net loss to net cash provided by operating activities in Fiscal Year 2022 and changes in working capital assets and liabilities, which primarily included an increase in payables and accruals, partially offset by lower cash receipts from collections of accounts receivables. \nInvesting Activities\nNet cash used in investing activities for Fiscal Year 2023 decreased by $150,241 to $653,923 as compared to Fiscal Year 2022 primarily due to (i) proceeds received from the dispositions of Tao Group Hospitality, Boston Calling Events, LLC, and the corporate aircraft in the current year period and (ii) proceeds received from the sale of investments (primarily from the sale of the MSGE Retained Interest) in the current year period, partially offset by an increase in capital expenditures in the current year related to Sphere in Las Vegas. \nNet cash used in investing activities for Fiscal Year 2022 increased by $680,981 to $804,164 as compared to Fiscal Year 2021 primarily due to an increase in capital expenditures in Fiscal Year 2022 related to Sphere in Las Vegas, partially offset by higher proceeds received from the sale of equity security investments in Fiscal Year 2021.\nFinancing Activities\nNet cash provided by financing activities for Fiscal Year 2023 increased by $115,934 to $85,542 as compared to Fiscal Year 2022 primarily due to the proceeds from the issuance of debt associated with the LV Sphere Term Loan Facility in Fiscal Year 2023, partially offset by the impact of cash transferred in connection with the MSGE Distribution in Fiscal Year 2023.\nNet cash used in financing activities for Fiscal Year 2022 increased by $623,077 to $30,392 as compared to the prior year primarily due to higher repayments of long-term debt in Fiscal Year 2022, partially offset by higher proceeds received from term loans in Fiscal Year 2022.  \nContractual Obligations\nAs of June\u00a030, 2023, the approximate future payments under our contractual obligations are as follows:\n\u00a0\nPayments Due by Period \n(c)\n\u00a0\nTotal\u00a0\u00a0\u00a0\u00a0\nYear\u00a0\u00a0\u00a0\u00a0\n1\nYears\u00a0\u00a0\u00a0\u00a0\n2-3\nYears\u00a0\u00a0\u00a0\u00a0\n4-5\nMore\u00a0Than\n5 Years\nLeases \n(a)\n$\n184,711\u00a0\n$\n10,489\u00a0\n$\n31,831\u00a0\n$\n22,952\u00a0\n$\n119,439\u00a0\nDebt repayments \n(b)\n1,207,250\u00a0\n82,500\u00a0\n849,750\u00a0\n275,000\u00a0\n\u2014\u00a0\nTotal future payments under contractual obligations\n$\n1,391,961\u00a0\n$\n92,989\u00a0\n$\n881,581\u00a0\n$\n297,952\u00a0\n$\n119,439\u00a0\n_________________\n(a)\nIncludes contractually obligated minimum lease payments for operating leases having an initial noncancellable term in excess of one year for various office space and equipment. These commitments are presented exclusive of the imputed interest used to reflect the payment\u2019s present value. See\n \nNote 9. Leases to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information.\n59\n(b)\nSee Note 12. Credit Facilities to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information surrounding the principal repayments required under the credit agreements. \n(c)\nPension obligations have been excluded from the table above as the timing of the future cash payments is uncertain. See Note 13. Pension Plans and Other Postretirement Benefit Plans to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information on the future funding requirements under our pension obligations.\nOff Balance Sheet Arrangements\nAs of June\u00a030, 2023, the Company has the following off balance sheet arrangements:\nCommitments\nJune 30, 2024\nJune 30, 2025\nJune 30, 2026\nJune 30, 2027\nJune 30, 2028\nThereafter\nTotal\nSphere\nEvent-related commitments\n$\n7,624\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n\u2014\u00a0\n$\n7,624\u00a0\nLetter of credit\n868\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n868\u00a0\nMSG Networks\nBroadcast rights\n241,472\u00a0\n241,059\u00a0\n248,957\u00a0\n256,214\u00a0\n266,406\u00a0\n1,818,870\u00a0\n3,072,978\u00a0\nPurchase commitments\n13,713\u00a0\n6,148\u00a0\n3,279\u00a0\n1,434\u00a0\n258\u00a0\n\u2014\u00a0\n24,832\u00a0\nTalent commitments\n5,701\u00a0\n2,086\u00a0\n512\u00a0\n345\u00a0\n354\u00a0\n359\u00a0\n9,357\u00a0\nOther \n6,513\u00a0\n6,137\u00a0\n2,032\u00a0\n2,073\u00a0\n2,116\u00a0\n354\u00a0\n19,225\u00a0\nTotal Commitments\n$\n275,891\u00a0\n$\n255,430\u00a0\n$\n254,780\u00a0\n$\n260,066\u00a0\n$\n269,134\u00a0\n$\n1,819,583\u00a0\n$\n3,134,884\u00a0\nIn addition, the Company and The Venetian are parties to a 50-year ground lease in Las Vegas pursuant to which the Company has agreed to construct a large-scale venue.\u00a0The Venetian agreed to provide us with $75,000 to help fund the construction costs, including the cost of a pedestrian bridge that links Sphere to The Venetian Expo. Through June\u00a030, 2023, The Venetian paid \nus $65,000 \nof this amount for construction costs. The ground lease has no fixed rent, however, if certain return objectives are achieve\nd, The Venetian w\nill receive 25% of the after-tax cash flow in excess of such objectives.\u00a0See \u201cPart I \u2014 Item 1. Business \u2014 Our Business \u2014 Sphere\n.\n\u201d\nSeasonality of Our Business\nOur MSG Networks segment generally earns a higher share of its annual revenues in the second and third quarters of its fiscal year as a result of MSG Networks\u2019 advertising revenue being largely derived from the sale of inventory in its live NBA and NHL professional sports programming.\nRecently Issued Accounting Pronouncements and Critical Accounting Estimates\nRecently Issued Accounting Pronouncements \nSee Note 2. Summary of Significant Accounting Policies \nto the consolidated financial statements included in Item\u00a08 of this Annual Report on Form 10-K\n for discussion of recently issued accounting pronouncements.\nCritical Accounting Estimates \nCritical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions.\nThe preparation of the Company\u2019s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Management believes its use of estimates in the consolidated financial statements to be reasonable. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:\nRevenue Recognition - Arrangements with Multiple Performance Obligations\nThe Company may enter into arrangements with multiple performance obligations, such as multi-year sponsorship agreements which may derive revenues for the Company as well as MSG Entertainment and MSG Sports within a single arrangement. The Company may also derive revenue from similar types of arrangements which are entered into by MSG Entertainment or MSG Sports. Payment terms for such arrangements can vary by contract, but payments are generally due in installments throughout the contractual term. The performance obligations included in each sponsorship agreement vary and may include advertising and \n60\nother benefits such as, but not limited to, signage at Sphere, digital advertising, event or property specific advertising, as well as non-advertising benefits such as suite licenses and event tickets. To the extent the Company\u2019s multi-year arrangements provide for performance obligations that are consistent over the multi-year contractual term, such performance obligations generally meet the definition of a series as provided for under the accounting guidance. If performance obligations are concluded to meet the definition of a series, the contractual fees for all years during the contract term are aggregated and the related revenue is recognized proportionately as the underlying performance obligations are satisfied.\nThe timing of revenue recognition for each performance obligation is dependent upon the facts and circumstances surrounding the Company\u2019s satisfaction of its respective performance obligation. The Company allocates the transaction price for such arrangements to each performance obligation within the arrangement based on the estimated relative standalone selling price of the performance obligation. The Company\u2019s process for determining its estimated standalone selling prices involves management\u2019s judgment and considers multiple factors including company specific and market specific factors that may vary depending upon the unique facts and circumstances related to each performance obligation. Key factors considered by the Company in developing an estimated standalone selling price for its performance obligations include, but are not limited to, prices charged for similar performance obligations, the Company\u2019s ongoing pricing strategy and policies, and consideration of pricing of similar performance obligations sold in other arrangements with multiple performance obligations.\nThe Company may incur costs such as commissions to obtain its multi-year sponsorship agreements. The Company assesses such costs for capitalization on a contract by contract basis. To the extent costs are capitalized, the Company estimates the useful life of the related contract asset which may be the underlying contract term or the estimated customer life depending on the facts and circumstances surrounding the contract. The contract asset is amortized over the estimated useful life.  \nImpairment of Long-Lived and Indefinite-Lived Assets\nThe Company\u2019s long-lived and indefinite-lived assets accounted for approximately 78% of the Company\u2019s consolidated total assets as of June\u00a030, 2023 and consisted of the following:\nGoodwill\n$\n456,807\u00a0\nIntangible assets, net\n17,910\u00a0\nProperty and equipment, net\n3,307,161\u00a0\nRight-of-use lease assets\n84,912\u00a0\n$\n3,866,790\u00a0\nIn assessing the recoverability of the Company\u2019s long-lived and indefinite-lived assets when there is an indicator of potential impairment, the Company must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized as well as the magnitude of any such charge. Fair value estimates are made at a specific point in time, based on relevant information. These estimates are subjective in nature and involve significant uncertainties and judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. If these estimates or material related assumptions change in the future, the Company may be required to record impairment charges related to its long-lived and/or indefinite-lived assets.\nGoodwill\nGoodwill is tested annually for impairment as of August\u00a031\nst\n and at any time upon the occurrence of certain events or substantive changes in circumstances. The Company performs its goodwill impairment test at the reporting unit level. As of June\u00a030, 2023, the Company has two reportable segments and two reporting units, Sphere and MSG Networks, consistent with the way management makes decisions and allocates resources to the business. \nThe goodwill balance reported on the Company\u2019s consolidated balance sheet as of June\u00a030, 2023 by reportable segment was as follows:\nSphere\n$\n32,299\u00a0\nMSG Networks\n424,508\u00a0\n$\n456,807\u00a0\nThe Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would not need to perform a quantitative impairment test for that reporting unit. If the Company cannot support such a conclusion or the Company does not elect to perform the qualitative assessment, the first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. \n61\nThe estimates of the fair values of the Company\u2019s reporting units are primarily determined using discounted cash flows, comparable market transactions or other acceptable valuation techniques, including the cost approach. These valuations are based on estimates and assumptions including projected future cash flows, discount rates, cost-based assumptions, determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables. Significant judgments inherent in a discounted cash flow analysis include the selection of the appropriate discount rate, the estimate of the amount and timing of projected future cash flows and identification of appropriate continuing growth rate assumptions. The discount rates used in the analysis are intended to reflect the risk inherent in the projected future cash flows. The amount of an impairment loss is measured as the amount by which a reporting unit\u2019s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. \nThe Company elected to perform the qualitative assessment of impairment for all of the Company\u2019s reporting units for the Fiscal Year 2023 annual impairment test. These assessments considered factors such as:\n\u2022\nmacroeconomic conditions;\n\u2022\nindustry and market considerations;\n\u2022\ncost factors;\n\u2022\noverall financial performance of the reporting unit;\n\u2022\nother relevant company-specific factors such as changes in management, strategy or customers; and\n\u2022\nrelevant reporting unit specific events such as changes in the carrying amount of net assets.\nDuring the first quarter of Fiscal Year 2023, the Company performed its most recent annual impairment test of goodwill for the MSG Networks reporting unit and determined that there were no impairments of goodwill as of the impairment test date. Based on the impairment test, the Company\u2019s MSG Networks reporting unit had a sufficient safety margin, representing the excess of the estimated fair value of the reporting unit, derived from the most recent quantitative assessment, less its carrying value (including goodwill allocated to the reporting unit). The Company believes that if the fair value of the reporting unit exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized.\nFor periods prior to the MSGE Distribution, including at the date of the annual goodwill impairment test, Sphere was included with the MSG Entertainment business in a combined reporting unit for purposes of goodwill impairment testing.  No impairment of goodwill was identified for this reporting unit as of the annual impairment test date.  In connection with the MSGE Distribution, the goodwill balance associated with this reporting unit was allocated between MSG Entertainment discontinued operations and Sphere based upon a relative fair value approach, resulting in $32,299 of goodwill attributed to Sphere. Goodwill attributed to the MSG Entertainment business is included in the carrying value of MSG Entertainment discontinued operations.\nOther Long-Lived Assets\nFor other long-lived assets, including right-of-use lease assets and intangible assets that are amortized, the Company evaluates assets for recoverability when there is an indication of potential impairment.  Amortizable intangible assets and other long-lived assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are independent from cash flows from other assets and liabilities. In determining whether an impairment of long-lived assets has occurred, the Company considers both qualitative and quantitative factors. The quantitative analysis involves estimating the undiscounted future cash flows directly related to that asset group and comparing the resulting value against the carrying value of the asset group. If the carrying value of the asset group is greater than the sum of the undiscounted future cash flows, an impairment loss is recognized for the difference between the carrying value of the asset group and its estimated fair value.\nThe Company has recognized intangible assets for affiliate relationships as a result of purchase accounting, and has determined that these intangible assets have finite lives. The estimated useful lives and net carrying values of the Company\u2019s intangible assets subject to amortization as of June\u00a030, 2023 were as follows:\nEstimated\nUseful Lives\nNet Carrying\n Value\nAffiliate relationships\n24 years\n$\n17,910\u00a0\nThe useful lives of the Company\u2019s long-lived assets are based on estimates of the period over which the Company expects the assets to be of economic benefit to the Company. In estimating the useful lives, the Company considers factors such as, but not limited to, risk of obsolescence, anticipated use, plans of the Company, and applicable laws. In light of these facts and circumstances, the Company has determined that its estimated useful lives are appropriate. \n62",
+  "item7a": ">Item\u00a07A. Quantitative and Qualitative Disclosures About Market Risk\nPotential Interest Rate Risk Exposure:\nThe Company, through its subsidiaries, MSG LV and MSG Networks, is subject to potential interest rate risk exposure related to borrowings incurred under their respective credit facilities. Changes in interest rates may increase interest expense payments with respect to any borrowings incurred under these credit facilities. The effect of a hypothetical 200 basis point increase in floating interest rate prevailing as of June\u00a030, 2023 and continuing for a full year would increase the Company\u2019s interest expense on the outstanding amounts under the credit facilities by $24,145.\nForeign Currency Exchange Rate Exposure:\nThe Company is exposed to market risk resulting from foreign currency fluctuations, primarily to the British pound sterling through the land we own in London for future Sphere development and through cash and invested funds which will be deployed in the construction of our London venue. We may evaluate and decide, to the extent reasonable and practical, to reduce the translation risk of foreign currency fluctuations by entering into foreign currency forward exchange contracts with financial institutions. If we were to enter into such hedging transactions, the market risk resulting from foreign currency fluctuations is unlikely to be entirely eliminated. We do not plan to enter into derivative financial instrument transactions for foreign currency speculative purposes. \nDuring Fiscal Year 2023, the GBP/USD exchange rate ranged from 1.0695 to 1.2835 as compared to GBP/USD exchange rate of 1.2719 as of June\u00a030, 2023, a fluctuation of ranging from 1% to 20%. As of June\u00a030, 2023, a uniform hypothetical 10% fluctuation in the GBP/USD exchange rate would have resulted in a change of $17,686 in the Company\u2019s net asset value. \nDefined Benefit Pension Plans and Other Postretirement Benefit Plan:\n \nThe Company utilizes actuarial methods to calculate pension and other postretirement benefit obligations and the related net periodic benefit cost which are based on actuarial assumptions. Key assumptions, the discount rates and the expected long-term rate of return on plan assets, are important elements of the plans\u2019 expense and liability measurement and we evaluate these key assumptions annually. Other assumptions include demographic factors, such as mortality, retirement age and turnover. The actuarial assumptions used by the Company may differ materially from actual results due to various factors, including, but not limited to, changing economic and market conditions. Differences between actual and expected occurrences could significantly impact the actual amount of net periodic benefit cost and the benefit obligation recorded by the Company. Material changes in the costs of the plans may occur in the future due to changes in these assumptions, changes in the number of the plan participants, changes in the level of benefits provided, changes in asset levels and changes in legislation. Our assumptions reflect our historical experience and our best estimate regarding future expectations.\nAccumulated and projected benefit obligations reflect the present value of future cash payments for benefits. We use the Willis Towers Watson U.S. Rate Link: 40-90 Discount Rate Model (which is developed by examining the yields on selected highly rated corporate bonds) to discount these benefit payments on a plan by plan basis, to select a rate at which we believe each plan\u2019s benefits could be effectively settled. Additionally, the Company measures service and interest costs by applying the specific spot rates along that yield curve to the plans\u2019 liability cash flows (\u201cSpot Rate Approach\u201d). The Company believes the Spot Rate Approach provides a more accurate measurement of service and interest costs by improving the correlation between projected benefit cash flows and their corresponding spot rates on the yield curve. \nLower discount rates increase the present value of benefit obligations and will usually increase the subsequent year\u2019s net periodic benefit cost. The weighted-average discount rates used to determine benefit obligations as of June\u00a030, 2023 for the Company\u2019s Pension Plans and Postretirement Plan were 5.34% and 5.41%, respectively. A 25 basis point decrease in each of these assumed discount rates would increase the projected benefit obligations for the Company\u2019s Pension Plans and Postretirement Plan at June\u00a030, 2023 by $890 and $30, respectively. \nThe weighted-average discount rates used to determine service cost, interest cost and the projected benefit obligation components of net periodic benefit cost were 5.06%, 4.55% and 4.81%, respectively, for Fiscal Year 2023 for the Company\u2019s Pension Plans. The weighted-average discount rates used to determine service cost, interest cost and the projected benefit obligation components of net periodic benefit cost were 4.89%, 4.38% and 4.66%, respectively, for Fiscal Year 2023 for the Company\u2019s Postretirement Plan. A 25 basis point decrease in these assumed discount rates would increase the total net periodic benefit cost for the Company\u2019s Pension Plans by $40 and would result in no impact to the net periodic benefit cost for the Company\u2019s Postretirement Plan for Fiscal Year 2023.\nThe expected long-term return on plan assets is based on a periodic review and modeling of the plans\u2019 asset allocation structures over a long-term horizon. Expectations of returns for each asset class are the most important of the assumptions used in the review and modeling, and are based on comprehensive reviews of historical data, forward-looking economic outlook, and economic/\n63\nfinancial market theory. The expected long-term rate of return was selected from within the reasonable range of rates determined by (a)\u00a0historical real returns, net of inflation, for the asset classes covered by the investment policy, and (b)\u00a0projections of inflation over the long-term period during which benefits are payable to plan participants. The weighted average expected long-term rate of return on plan assets for the Company\u2019s funded pension plans was 5.00% for Fiscal Year 2023.\nPerformance of the capital markets affects the value of assets that are held in trust to satisfy future obligations under the Company\u2019s funded plans. Adverse market performance in the future could result in lower rates of return for these assets than projected by the Company which could increase the Company\u2019s funding requirements related to these plans, as well as negatively affect the Company\u2019s operating results by increasing the net periodic benefit cost. A 25 basis point decrease in the long-term return on pension plan assets assumption would increase net periodic pension benefit cost by $50 for Fiscal Year 2023.\nItem\u00a08. Financial Statements and Supplementary Data \nThe Financial Statements required by this Item\u00a08 appear beginning on page F-1 of this Annual Report on Form 10-K, and are incorporated by reference herein.\nItem\u00a09. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure\nNone.\nItem\u00a09A. Controls and Procedures\nEvaluation of Disclosure Controls and Procedures\nAn evaluation was carried out under the supervision and with the participation of the Company\u2019s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company\u2019s Chief Executive Officer and Chief Financial Officer concluded that as of June\u00a030, 2023 the Company\u2019s disclosure controls and procedures were effective. \nManagement\u2019s Report on Internal Control over Financial Reporting \nManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company\u2019s internal control over financial reporting includes those policies and procedures that (i)\u00a0pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii)\u00a0provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii)\u00a0provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company\u2019s assets that could have a material effect on the financial statements.\nInternal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\nUnder the supervision and with the participation of management, including the Company\u2019s Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in\n Intern\nal Control \u2014 Integrated Framework (2013)\n issued by the Committee of Sponsoring Organizations of the Treadway Commission.\u00a0 Based on the results of this evaluation, our management concluded that our internal control over financial reporting was effective as of June\u00a030, 2023. The e\nffectiveness of our internal control over financial reporting as of June 30, 2023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.\nChanges in Internal Control over Financial Reporting\nThere were no changes in the Company\u2019s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended June\u00a030, 2023 that have materially affected, or are reasonably likely to materially affect, the Company\u2019s internal control over financial reporting.\nItem\u00a09B. Other Information\nNone.\nItem 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections\nNot applicable.\n64\nPART III\nItem\u00a010. Directors, Executive Officers and Corporate Governance\nInformation relating to our directors, executive officers and corporate governance will be included in the proxy statement for the 2023 annual meeting of the Company\u2019s stockholders, which is expected to be filed within 120 days of our fiscal year end, and is incorporated herein by reference.\nItem\u00a011. Executive Compensation\nInformation relating to executive compensation will be included in the proxy statement for the 2023 annual meeting of the Company\u2019s stockholders, which is expected to be filed within 120 days of our fiscal year end, and is incorporated herein by reference.\nItem\u00a012. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters\nInformation relating to the beneficial ownership of our common stock will be included in the proxy statement for the 2023 annual meeting of the Company\u2019s stockholders, which is expected to be filed within 120 days of our fiscal year end, and is incorporated herein by reference.\nItem\u00a013. Certain Relationships and Related Transactions, and Director Independence\nInformation relating to certain relationships and related transactions and director independence will be included in the proxy statement for the 2023 annual meeting of the Company\u2019s stockholders, which is expected to be filed within 120 days of our fiscal year end, and is incorporated herein by reference.\nItem\u00a014. Principal Accountant Fees and Services\nInformation relating to principal accountant fees and services will be included in the proxy statement for the 2023 annual meeting of the Company\u2019s stockholders, which is expected to be filed within 120 days of our fiscal year end, and is incorporated herein by reference.\n65\nPART IV\nItem\u00a015. Exhibits and Financial Statement Schedules\nPage\nNo.\nThe following documents are filed as part of this report:\n1.\nThe financial statements as indicated in the index set forth on page\nF - 1\n2.\nFinancial statement schedule:\nSchedule supporting consolidated financial statements:\nSchedule\u00a0II \u2014 Valuation and Qualifying Accounts\n72\nSchedules other than that listed above have been omitted, since they are either not applicable, not required or the information is included elsewhere herein.\n3.\nSeparate financial statements of subsidiaries not consolidated and fifty percent or less owned persons\nThe consolidated and combined balance sheets of Madison Square Garden Entertainment Corp. and subsidiaries (formerly MSGE Spinco, Inc.) as of June 30, 2023 and 2022, the related consolidated and combined statements of operations, comprehensive income (loss), cash flows, and equity (deficit) for each of the three years in the period ended June 30, 2023, and the related notes and financial statement Schedule II listed in the Index at Item 15, audited by Deloitte & Touche LLP, independent registered public accounting firm, as set forth in their report dated August 18, 2023 included therein, included in Exhibit 99.1 to this Form 10-K, are filed as part of Item 15 of this Form 10-K and should be read in conjunction with our consolidated financial statements.\n4.\nExhibits:\nThe following documents are filed as exhibits hereto:\nEXHIBIT NO.\nDESCRIPTION\n2.1\nDistribution Agreement, dated as of March 29, 2023, between Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) and Madison Square Garden Entertainment Corp. (formerly MSGE Spinco Inc.) (incorporated by reference to Exhibit 2.1 to the Company\u2019s Current Report on form 8-K filed on March 30, 2023).\n \n2.2\nContribution Agreement, dated as of March 29, 2023, between Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.), Sphere Entertainment Group, LLC (formerly MSG Entertainment Group, LLC) and Madison Square Garden Entertainment Corp. (formerly MSGE Spinco Inc.) (incorporated by reference to Exhibit 2.2 to the Company\u2019s Current Report on Form 8-K filed on March 30, 2023).\n2.3\nAgreement and Plan of Merger, dated as of March 25, 2021, by and among Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.), Merger Sub Inc. and MSG Networks Inc. (incorporated by reference to Exhibit 2.1 to the Company\u2019s Current Report on Form 8-K filed on March 26, 2021).\n2.4\nDistribution Agreement, dated as of March 31, 2020, between Madison Square Garden Sports Corp. (formerly The Madison Square Garden Company) and Sphere Entertainment Co. (formerly MSG Entertainment Spinco, Inc.) (incorporated by reference to Exhibit 2.1 to Amendment No. 3 to the Company\u2019s Registration Statement on Form 10 filed on April 1, 2020). \n2.5\nContribution Agreement, dated as of March 31, 2020, among Madison Square Garden Sports Corp. (formerly The Madison Square Garden Company), Sphere Entertainment Group, LLC (formerly MSG Sports & Entertainment, LLC) and Sphere Entertainment Co. (formerly MSG Entertainment Spinco, Inc.) (incorporated by reference to Exhibit 2.2 to Amendment No. 3 to the Company\u2019s Registration Statement on Form 10 filed on April 1, 2020).\n3.1\nAmended and Restated Certificate of Incorporation of Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) (incorporated by reference to Exhibit 3.1 to the Company\u2019s Current Report on Form 8-K filed on April 23, 2020).\n3.2\nCertificate of Amendment to the Amended and Restated Certificate of Incorporation of Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.), dated April 20, 2023 (incorporated by reference to Exhibit 3.1 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023).\n3.3\nAmended By-Laws of Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.), dated April 20, 2023 (incorporated by reference to Exhibit 3.2 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023).\n66\nEXHIBIT NO.\nDESCRIPTION\n4.1\nRegistration Rights Agreement, dated as of April 3, 2020, by and among \nSphere Entertainment Co. \n(formerly MSG Entertainment Spinco, Inc.) and The Charles F.\u00a0Dolan Children Trusts (incorporated by reference to Exhibit 4.1 to the Company\u2019s Current Report on Form 8-K filed on April 23, 2020).\n4.2\nRegistration Rights Agreement, dated as of April 3, 2020, by and among \nSphere Entertainment Co\n.\n (formerly MSG Entertainment Spinco, Inc.) and The Dolan Family Affiliates (incorporated by reference to Exhibit 4.2 to the Company\u2019s Current Report on Form 8-K filed on April 23, 2020).\n \n4.3\nRegistration Rights Agreement, dated as of January 13, 2010, by and among MSG Networks Inc. (formerly known as The Madison Square Garden Company) and the Charles F. Dolan Children Trusts (incorporated by reference to Exhibit 4.4 to the Company\u2019s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 filed on August 23, 2021).\n4.4\nRegistration Rights Agreement, dated as of January 13, 2010, by and among MSG Networks Inc. (formerly known as The Madison Square Garden Company) and the Dolan Family Affiliates (incorporated by reference to Exhibit 4.5 to the Company\u2019s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 filed on August 23, 2021).\n4.5\nDescription of Capital \nStock.\n10.1\nTransition Services Agreement, dated as of March 29, 2023, between Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) and Madison Square Garden Entertainment Corp. (formerly MSGE Spinco, Inc.) (incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K filed on March 30, 2023).\n10.2\nTax Disaffiliation Agreement, dated as of March 29, 2023, between Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) and Madison Square Garden Entertainment Corp. (formerly MSGE Spinco, Inc.) (incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K filed on March 30, 2023).\n10.3\nTax Disaffiliation Agreement, dated as of March 31, 2020, between Madison Square Garden Sports Corp. (formerly The Madison Square Garden Company) and Sphere Entertainment Co. (formerly MSG Entertainment Spinco, Inc.) (incorporated by reference to Exhibit 10.2 to Amendment No. 3 to the Company\u2019s Registration Statement on Form 10 filed on April 1, 2020). \n10.4\nTax Disaffiliation Agreement, dated as of September 11, 2015, between MSG Networks Inc. and Madison Square Garden Sports Corp. (formerly known as The Madison Square Garden Company) (incorporated by reference to Exhibit 10.3 to the Company\u2019s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 filed on August 23, 2021).\n10.5\nDistribution Agreement, dated as of September 11, 2015, among MSG Networks Inc. and Madison Square Garden Sports Corp. (formerly known as The Madison Square Garden Company) (incorporated by reference to Exhibit 10.4 to the Company\u2019s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 filed on August 23, 2021).\n10.6\nEmployee Matters Agreement, dated March 29, 2023, between Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) and Madison Square Garden Entertainment Corp. (formerly MSGE Spinco, Inc.) (incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K filed on March 30, 2023).\n10.7\nEmployee Matters Agreement, dated as of March 31, 2020, between Madison Square Garden Sports Corp. (formerly The Madison Square Garden Company) and  Sphere Entertainment Co. (formerly MSG Entertainment Spinco, Inc.) (incorporated by reference to Exhibit 10.3 to Amendment No. 3 to the Company\u2019s Registration Statement on Form 10 filed on April 1, 2020).\n10.8\nEmployee Matters Agreement, dated as of September 11, 2015, between MSG Networks Inc. and Madison Square Garden Sports Corp. (formerly known as The Madison Square Garden Company) (incorporated by reference to Exhibit 10.6 to the Company\u2019s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 filed on August 23, 2021).\n10.9\nSphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) 2020 Employee Stock Plan, as amended (incorporated by reference to Annex B to the Company\u2019s Definitive Proxy Statement on Schedule 14A filed on October 26, 2022). \u2020\n10.\n10\nSphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) 2020 Stock Plan for Non- Employee Directors, as amended (incorporated by reference to Annex C to the Company\u2019s Definitive Proxy Statement on Schedule 14A filed on October 26, 2022). \u2020\n10.11\nMSG Networks Inc. 2010 Employee Stock Plan, as amended\n and \nassumed by the Company\n (incorporated by reference to Exhibit \n4.5\n to the Company\u2019s \nRegistration Statement\n on Form \nS-8\n filed on \nJuly 9, 2021). \u2020\n67\nEXHIBIT NO.\nDESCRIPTION\n10.12\nShareholder\u2019s and Registration Rights Agreement, dated March 29, 2023, between Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.)\n and \nMadison Square Garden Entertainment Corp. (formerly MSGE Spinco, Inc.)\n (incorporated by reference to Exhibit \n10.4\n to the Company\u2019s \nCurrent Report\n on Form \n8-K\n filed on \nMarch 30, 2023).\n10.13\nStandstill Agreement, dated as of April 3, 2020, between Sphere Entertainment Co. (formerly MSG Entertainment Spinco, Inc.) and the Dolan Family Group (incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K filed on April 23, 2020).\n10.14\nForm of Indemnification Agreement between Sphere Entertainment Co. (formerly MSG Entertainment Spinco, Inc.) and its Directors and Officers (incorporated by reference to Exhibit 10.9 to the Company\u2019s Registration Statement on Form 10 filed on March 6, 2020).\n10.15\nForm of Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) Non-Employee Director Award Agreement (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Company\u2019s Registration Statement on Form 10 filed on March 18, 2020). \u2020\n10.16\nForm of Sphere Entertainment Co. Restricted Stock Units Agreement under the 2020 Employee Stock Plan, as amended (incorporated by reference to Exhibit 10.6 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023). \u2020\n10.17\nForm of Sphere Entertainment Co. Performance Restricted Stock Units Agreement under the 2020 Employee Stock Plan, as amended (incorporated by reference to Exhibit 10.9 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023). \u2020\n10.18\nForm of Sphere Entertainment Co. Option Agreement under the 2020 Employee Stock Plan, as amended (incorporated by reference to Exhibit 10.7 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023). \u2020\n10.19\nForm of Sphere Entertainment Co. Performance Option Agreement under the 2020 Employee Stock Plan, as amended (incorporated by reference to Exhibit 10.10 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023). \u2020\n10.\n20\nForm of Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) Restricted Stock Units Agreement in respect of Madison Square Garden Sports Corp. Restricted Stock Units (incorporated by reference to Exhibit 10.15 to the Company\u2019s Registration Statement on Form 10 filed on March 6, 2020). \u2020\n10.21\nForm of Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) Option Agreement in respect of Madison Square Garden Sports Corp. Options (incorporated by reference to Exhibit 10.16 to the Company\u2019s Registration Statement on Form 10 filed on March 6, 2020). \u2020\n10.22\nForm of Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) Performance Restricted Stock Units in respect of Madison Square Garden Sports Corp. Performance Restricted Stock Units (incorporated by reference to Exhibit 10.17 to the Company\u2019s Registration Statement on Form 10 filed on March 6, 2020). \u2020\n10.23\nForm of Sphere Entertainment Co. Restricted Stock Units Agreement in respect of Restricted Stock Units granted under the MSG Networks Inc. 2010 Employee Stock Plan (incorporated by reference to Exhibit 10.5 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023). \u2020\n10.24\nForm of Sphere Entertainment Co. Performance Restricted Stock Units Agreement in respect of \nPerformance \nRestricted Stock Units granted under the MSG Networks Inc. 2010 Employee Stock Plan (incorporated by reference to Exhibit 10.8 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023). \u2020\n10.25\nSphere Entertainment Co. Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.11 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023). \u2020\n10.26\nEmployment Agreement dated as of December 27, 2021 between Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) and James L. Dolan, as amended and restated as of April 20, 2023 (incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023). \u2020\n10.27\nEmployment \nAgreement,\n dated as of \nAugust 27, 2021,\n between Sphere Entertainment Co. \n(formerly Madison Square Garden Entertainment Corp.) \nand \nAndrea Greenberg (incorporated by reference to Exhibit 10.4 to the Company\u2019s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 filed on November 9, 2021).\n \u2020\n10.28\nEmployment \nAgreement\n dated as of \nJune 15, 2023\n between Sphere Entertainment Co. \nand \nDavid Granville-Smith.\n \u2020\n10.29\nEmployment Agreement dated as of April 20, 2023 between Sphere Entertainment Co. and Gautam Ranji (incorporated by reference to Exhibit 10.3 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023). \u2020\n68\nEXHIBIT NO.\nDESCRIPTION\n10.\n30\nEmployment Agreement dated as of April 20, 2023 between Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) and Gregory Brunner (incorporated by reference to Exhibit 10.4 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023). \u2020\n10.31\nSphere Entertainment Co. Policy Concerning Certain Matters Relating to Madison Square Garden Entertainment Corp., Madison Square Garden Sports Corp. and AMC Networks Inc., Including Responsibilities of Overlapping Directors and Officers.\n10.32\nConstruction Agreement, dated as of May 31, 2019, by and between MSG Las Vegas, LLC and Hunt Construction Group Inc. (incorporated by reference to Exhibit 10.18 to Amendment No. 1 to the Company\u2019s Registration Statement on Form 10 filed on March 18, 2020). +\n10.33\nGround Lease Agreement, dated July 16, 2018, by and among Sands Arena Landlord LLC, Venetian Casino Resort, LLC, MSG Las Vegas, LLC, and Sphere Entertainment Group, LLC (formerly MSG Sports & Entertainment, LLC) (incorporated by reference to Exhibit 10.19 to Amendment No. 1 to the Company\u2019s Registration Statement on Form 10 filed on March 18, 2020). +\n10.34\nFirst Amendment to Ground Lease, dated November 14, 2018, by and among Sands Arena Landlord LLC, Venetian Casino Resort, LLC, MSG Las Vegas, LLC, and Sphere Entertainment Group, LLC (formerly MSG Sports & Entertainment, LLC) (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to the Company\u2019s Registration Statement on Form 10 filed on March 18, 2020). \n10.35\nLetter Agreement amending Ground Lease Agreement dated July 16, 2018, by and between Sands Arena Landlord LLC and MSG Las Vegas, LLC, dated October 30, 2020 (incorporated by reference to Exhibit 10.1 to the Company\u2019s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 filed on February 12, 2021).\n10.36\nDelayed Draw Term Loan Credit Agreement, dated April 20, 2023, between Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.), as Borrower, and MSG Entertainment Holdings, LLC, as Lender (incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K filed on April 24, 2023).\n10.37\nCredit Agreement, dated as of December 22, 2022, among MSG Las Vegas, LLC, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 22, 2022).\n10.38\nPledge and Security Agreement, dated as of December 22, 2022, by and between MSG Las Vegas, LLC and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 22, 2022).\n10.39\nGuaranty Agreement, dated as of December 22, 2022, by Sphere Entertainment Group, LLC (formerly MSG Entertainment Group, LLC) in favor of JPMorgan Chase Bank, N.A. on behalf of the lenders (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on December 22, 2022).\n10.40\nPledge Agreement, dated as of December 22, 2022, by Sphere Entertainment Group, LLC (MSG Entertainment Group, LLC) in favor of JPMorgan Chase Bank, N.A. on behalf of the lenders (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on December 22, 2022).\n10.41\nCredit Agreement, dated as of September 28, 2015, by and among MSGN Holdings, L.P., certain subsidiaries of MSGN Holdings, L.P. identified therein, MSGN Eden, LLC, MSGN Regional Holdings LLC and JPMorgan Chase Bank, N.A., as administrative agent, collateral agent and a letter of credit issuer, and the lenders party thereto (incorporated by reference to Exhibit 10.74 to the Company\u2019s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 filed on August 23, 2021).\n10.42\nAmended and Restated Credit Agreement, dated as of October 11, 2019, by and among MSGN Holdings, L.P., certain subsidiaries of MSGN Holdings, L.P. identified therein, MSGN Eden, LLC, Regional MSGN Holdings LLC and JP Morgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.75 to the Company\u2019s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 filed on August 23, 2021).\n10.43\nAmendment No. 1 to Amended and Restated Credit Agreement, dated as of October 11, 2019, by and among MSGN Holdings, L.P., certain subsidiaries of MSGN Holdings, L.P. identified therein, MSGN Eden, LLC, Regional MSGN Holdings LLC and JP Morgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, dated as of November 5, 2021 (incorporated by reference to Exhibit 10.1 to the Company\u2019s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 filed on February 9, 2022).\n10.44\nAmendment No. 2 to Amended and Restated Credit Agreement, dated as of October 11, 2019, by and among MSGN Holdings, L.P., certain subsidiaries of MSGN Holdings, L.P. identified therein, MSGN Eden, LLC, Regional MSGN Holdings LLC and JP Morgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, dated as of May 30, 2023.\n69\nEXHIBIT NO.\nDESCRIPTION\n10.45\nSecurity Agreement dated as of September 28, 2015, by and among MSGN Holdings, L.P., certain subsidiaries of MSGN Holdings, L.P. identified therein, MSGN Eden, LLC, MSGN Regional Holdings LLC, and JPMorgan Chase Bank, N.A., as collateral agent thereto (incorporated by reference to Exhibit 10.76 to the Company\u2019s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 filed on August 23, 2021).\n10.46\nNBA Transaction Agreement dated as of April 18, 2023, by and among Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.), Madison Square Garden Entertainment Corp. (formerly MSGE Spinco, Inc.) and certain other parties thereto (incorporated by reference to Exhibit 10.5 to the Company\u2019s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 filed on May 10, 2023.\n10.47\nNBA Transaction Agreement, dated as of April 15, 2020, among Madison Square Garden Sports Corp. (formerly The Madison Square Garden Company), Sphere Entertainment Co. (formerly MSG Entertainment Spinco, Inc.) and certain other parties thereto (incorporated by reference to Exhibit 10.59 to the Company\u2019s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 filed on August 31, 2020).\n10.48\nNHL Transaction Agreement, dated as of April 15, 2020, among Madison Square Garden Sports Corp. (formerly The Madison Square Garden Company),  Sphere Entertainment Co. (formerly MSG Entertainment Spinco, Inc.) and certain other parties thereto (incorporated by reference to Exhibit 10.60 to the Company\u2019s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 filed on August 31, 2020).\n10.49\nMSG Networks Voting and Support Agreement, dated as of March 25, 2021, by and among Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) and certain stockholders of MSG Networks Inc. that are signatories thereto (incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K filed on March 26, 2021).\n10.50\nSphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) Voting and Support Agreement, dated as of March 25, 2021, by and among MSG Networks Inc. and certain stockholders of Madison Square Garden Entertainment Corp. that are signatories thereto (incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K filed on March 26, 2021).\n10.51\nTransaction Agreement, dated as of April 17, 2023, by and among TAO Group Sub-Holdings LLC, Disco Holdings Intermediate LLC, TAO Group Holdings LLC, Hakkasan USA Inc. and others (incorporated by reference to Exhibit 10.1 to the Company\u2019s Current Report on Form 8-K filed on April 17, 2023).\n10.52\nEmployment Agreement, dated as of December 20, 2021, between Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) and David F. Byrnes (incorporated by reference to Exhibit 10.5 to the Company\u2019s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 filed on February 9, 2022). \u2020\n10.53\nEmployment Agreement, dated as of October 26, 2021, between Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) and Jamal H. Haughton (incorporated by reference to Exhibit 10.6 to the Company\u2019s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 filed on February 9, 2022). \u2020\n10.54\nEmployment Agreement, dated as of November 17, 2021, between Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp.) and Philip D\u2019Ambrosio (incorporated by reference to Exhibit 10.2 to the Company\u2019s Current Report on Form 8-K filed on November 19, 2021). \u2020\n21.1\nSubsidiaries of the Registrant.\n23.1\nConsent of Deloitte & Touche LLP\n23.2\nConsent of Deloitte & Touche LLP\n24.1\nPower of Attorney (included on the signature page to this Annual Report on Form 10-K).\n31.1\nCertification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.\n31.2\nCertification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.\n32.1\nCertification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.\n**\n32.2\nCertification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.\n**\n99.1\nC\nonsolidated and combined balance sheets of Madison Square Garden Entertainment Corp. and subsidiaries as of June 30, 2023\n and 2022,\n and \nthe related consolidated and combined statements of operations, comprehensive income (loss), cash flows, and equity (deficit)\n for each of the three years in the period ended June 30,\n 2023\n (incorporated by \nreference to ",
+  "cik": "1795250",
+  "cusip6": "55826T",
+  "cusip": ["55826T102", "55826T952", "55826T902", "55826t102"],
+  "names": ["MADISON SQUARE GRDN ENTERTNM", "MADISON SQUARE GARDEN ENTERT", "MADISON SQUARE GARDEN ENTERTAI"],
+  "source": "https://www.sec.gov/Archives/edgar/data/1795250/000179525023000017/0001795250-23-000017-index.htm"
+}
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@@ -0,0 +1,11 @@
+{
+  "item1": ">ITEM 1. BUSINESS \nOVERVIEW\nH&R Block provides help and inspires confidence in its clients and communities everywhere through global tax preparation services, financial products, and small business solutions. We blend digital innovation with human expertise and care to help people get the best outcome at tax time and also be better with money by using our mobile banking app, Spruce\u2120.\nH&R Block, Inc. was organized as a corporation in 1955 under the laws of the State of Missouri. A complete list of our subsidiaries as of June 30, 2023 can be found in \nExhibit 21\n.\nDuring fiscal year 2023, we prepared\n20.1 million U.S. tax returns\n(1)\nwhich contributed to our consolidated revenues of\n$3.5\u00a0billion,\nnet income from continuing operations of\n$561.8 million,\nEBITDA\n(2)\n from continuing operations of \n$914.7\u00a0million,\nand diluted EPS from continuing operations of \n$3.56 per share.\nWe repurchased\n14.6 million shares of our common stock,\nand declared dividends of\n$1.16 per share,\nwhich was an increase of\n$0.08, or 7.4%, per share from the prior year.\n(1)  \nU.S. Tax returns prepared includes tax returns prepared in U.S. company and franchise office locations, virtually,\n and through our DIY solutions.\n(2)\n See \"\nNon-GAAP Financial Information\n\" in Item 7 for a reconciliation of non-GAAP measures.\n2\n2023 Form 10-K |\n H&R Block, Inc.\nFINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS\nWe report a single segment that includes all of our continuing operations, which includes tax preparation, small business services, and financial services and products. See discussion below.\nDuring fiscal year 2021, we introduced Block Horizons, our five year strategy that will leverage our human expertise and technological infrastructure to deliver growth by driving tax solution innovation, helping small businesses to thrive, and support individuals where they need the most help with money.\nSmall Business\nDuring fiscal year 2023 small business assisted tax improved client satisfaction metrics, and continued to focus on helping small business clients beyond tax. We launched an entity formation tool to allow small business customers to take advantage of benefits that may come from incorporating, and while early, our bookkeeping and payroll services are gaining traction. Wave is our one-stop money management platform for small business owners. Our top two priorities at Wave are accelerating revenue growth and driving long term profitability.\nFinancial Products\nIn January 2023, we introduced Spruce\nSM\n, our mobile banking platform, to our assisted clients for the first time. Since the launch of Spruce\nSM\n through June 30, 2023, we have had 300 thousand signups and $334 million dollars in customer deposits. Spruce\nSM\n is committed to helping clients be better with money, and we are seeing progress towards that goal. During the year, we launched new features enabling clients to easily set up direct deposit within the app with just a few clicks and build healthy spending habits. Thousands of clients have engaged with the tools within the app, and feedback indicates that features give them the visibility and control they have been missing in their financial lives. From here, we are working to improve how we acquire clients both in and out of the tax season.\nBlock Experience\nBlock Experience is all about blending technology and digital tools with human expertise and care to serve clients however they want to be served: fully virtual to fully in person and everything in between. We have been successful in driving digital adoption by leveraging the MyBlock app features such as uploading documents, approving returns online, and utilizing virtual chat. This year, more than 30% of assisted clients used a virtual tool during their tax preparation experience within our company-owned offices.\nWe provide assisted and do-it-yourself (DIY) tax return preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded services and products, including those of our bank partners, to the general public primarily in the U.S., Canada and Australia. We also offer small business financial solutions through our company-owned and franchise offices and online through Wave. Major revenue sources include fees earned for tax preparation via our assisted and DIY channels, royalties from franchisees, and fees from related services and products. \nH&R Block, Inc.\n | 2023 Form 10-K\n3\nTAX PREPARATION SERVICES\nAssist\ned income tax return preparation and related services are provided by tax professionals via a system of retail offices operated directly by us or our franchisees. These tax professionals provide assistance to our clients either in person or virtually in a number of ways. Clients can come into an office, digitally \"drop off\" their documents for their tax professional, approve their return online, have a tax professional review a return they prepared themselves through Tax Pro Review or get their questions answered as they complete their own return through Online Assist. \nOur online software may be accessed through our website at \nwww.hrblock.com\n or in a mobile application, while our desktop software may be purchased online and through third-party retail stores.\nAssisted tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client for penalties and interest attributable to an H&R Block error on a tax return. \nDIY tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client up to a maximum of $10,000 if our software makes an arithmetic error that results in payment of penalties and/or interest to the respective taxing authority that the client would otherwise not have been required to pay.\nWe offer franchises as a way to expand our presence in certain geographic areas. In the U.S., our franchisees pay us approximately 30% of gross tax return preparation and related service revenues as a franchise royalty.\nOTHER OFFERINGS\nDuring fiscal year 2023, we also offered U.S. clients a number of additional services, including Refund Transfers (RT), our Peace of Mind\u00ae Extended Service Plan (POM), H&R Block Emerald Prepaid Mastercard\u00ae (Emerald Card\n\u00ae\n), H&R Block Emerald Advance\u00ae Lines of Credit (EA), Tax Identity Shield\u00ae (TIS), Refund Advances (RA), and small business financial solutions. For our Canadian clients, we also offer POM, H&R Block's Instant Refund\nSM\n, H&R Block Pay With Refund\u00ae, and small business financial solutions.\nRefund Transfers.\n RTs enable clients to receive their tax refunds by their chosen method of disbursement and include a feature enabling clients to deduct tax preparation and related fees from their tax refunds. Depending on circumstances, clients may choose to receive their RT proceeds by a load to their Emerald Card\u00ae, a deposit to their Spruce Spending Account, by receiving a check or by direct deposit to an existing account. RTs are available to U.S. clients and are frequently obtained by those who: (1) do not have bank accounts into which the Internal Revenue Service (IRS) can direct deposit their refunds; (2) like the convenience and benefits of a temporary account for receipt of their refund; and/or (3) prefer to have their tax preparation fees paid directly out of their refunds. RTs are offered through our relationship with our bank partner. We offer a similar program, H&R Block Pay With Refund\u00ae, to our Canadian clients through a Canadian chartered bank.\nPeace of Mind\u00ae Extended Service Plan. \nWe offer POM to U.S. and Canadian clients who obtain assisted tax preparation services, whereby we (1)\u00a0represent our clients if they are audited by a taxing authority, and (2)\u00a0assume the cost, subject to certain limits, of additional \ntaxes owed by a client resulting from errors attributable to H&R Block. The additional taxes paid under POM have a cumulative limit of $6,000 for U.S. clients and $3,000 CAD for Canadian clients with respect to the federal, state/provincial and local tax returns we prepared for applicable clients during the taxable year protected by POM.\nH&R Block Emerald Prepaid Mastercard\u00ae.\n The Emerald Card\n\u00ae\n enables clients to receive their tax refunds from the IRS directly on a prepaid debit card, or to direct RT, EA or RA proceeds to the card. The card can be used for everyday purchases, bill payments and ATM withdrawals anywhere Debit Mastercard\n\u00ae \n(Mastercard is a registered trademark of Mastercard International Incorporated) is accepted. Additional funds can be added to the card year-round, such as through direct deposit or at participating retail reload providers, and the Emerald Card\n\u00ae\n can be added to clients' mobile wallets. We distribute the Emerald Card\n\u00ae\n issued by our bank partner.\nH&R Block Emerald Advance\u00ae Lines of Credit.\n EAs are lines of credit offered to clients in our offices, from mid-November through mid-January, in amounts up to $1,000. If the borrower meets certain criteria as agreed in the loan terms, the line of credit can be utilized year-round. In addition to the required monthly payments, borrowers \n4\n2023 Form 10-K |\n H&R Block, Inc.\nmay elect to pay down balances on EAs with their tax refunds. These lines of credit are offered by our bank partner, and we subsequently purchase a participation interest in all EAs originated by our bank partner.\nTax Identity Shield\u00ae.\n Our TIS program offers clients assistance in helping protect their tax identity and access to services to help restore thei\nr tax identity, if necessary. Protection services include a daily scan of the dark web for personal information, a monthly scan for the client's social security number in credit header data, notifying clients if their information is detected on a tax return filed through H&R Block, and obtaining additional IRS identity protections when eligible.\nRefund Advance Loans. \nRAs are interest-free loans offered by our bank partner, which are available to eligible U.S. assisted clients in company-owned and participating franchise locations, including virtual clients. In tax season 2023, RAs were offered in amounts of $250, $500, $750, $1,250 and $3,500, based on client eligibility as determined by our bank partner. \nH&R Block's Instant Refund\nSM\n. \nOur Canadian operations advance refunds due to certain clients from the Canada Revenue Agency (CRA), for a fee. The fee charged for this service is mandated by federal legislation which is administered by the CRA. The client assigns to us the full amount of the tax refund to be issued by the CRA and the refund amount is then sent by the CRA directly to us. \nSmall Business Financial Solutions.\n Our Block Advisors certified tax professionals provide small businesses with financial expertise in taxes, bookkeeping and payroll through our office network. Wave provides small business owners with an online solution to manage their finances, including payment processing, payroll and bookkeeping services.\nSEASONALITY OF BUSINESS\n \nBecause the majority of our clients file their tax returns during the period from February through April in a typical year, a substantial majority of our revenues from income tax return preparation and related services and products are earned during this per\niod. As a result, we generally operate at a loss through the first two quarters of our fiscal year.\nCOMPETITIVE CONDITIONS\n \nWe provide assisted and DIY tax preparation services and products, as well as small business financial solutions, and face substantial competition in and across each category from tax return preparation firms and software providers, accounting firms, independent tax preparers, and certified public accountants.\nWe are one \nof the largest providers of tax return preparation solutions and electronic filing services in the U.S., Canada, and Australia with 23.4 million returns filed by or through H&R Block in fiscal year 2023.\nGOVERNMENT REGULATION\n \nOur business is subject to various forms of government regulation, including U.S. Federal and state tax preparer regulations, financial consumer protection and privacy regulations, state regulations, franchise regulations and foreign regula\ntions. See further discussion of these items in our \nItem 1A. Risk Factors\n and \nItem 7 under \"Regulatory Environment\"\n of this Form 10-K.\nHUMAN CAPITAL\nFulfilling our purpose extends to helping and inspiring confidence in our associates. We are committed to our associates\u2019 total well-being\u2014physical, mental, financial, career, team and community. Together, when we balance these components, we achieve personal, team and organizational strength. These commitments extend to both our year-round and seasonal associates.\nAssociates.\n We had approxima\ntely 4,000 regular full-time associates as of June\u00a030, 2023. Our business is dependent on the availability of a seasonal workforce, including tax professionals, and our ability to hire, train, and supervise these associates. The highest number of persons we employed during the fiscal year ended June\u00a030, 2023, including seasonal associates, was approximately 74,400.\nH&R Block, Inc.\n | 2023 Form 10-K\n5\nAssociate Engagement.\n We administer an annual survey to all associates to better understand their levels of engagement and identify areas where we can improve. In previous years, we compared our scores against a global benchmark, which is the average of thousands of companies. This year we aspirationally changed our benchmark from the global benchmark to the top 25th percentile of the global benchmark to challenge our associates and leaders and to yield reports that are easier for leaders to identify opportunities to take action. Across the company, over half of culture and engagement questions measured were at or above the top 25th percentile of the global benchmark. We are pleased with our overall employee satisfaction score which continues on an upward trend. This year, individual leaders at all levels have begun formally creating and monitoring culture and engagement-related goals to continue our upward trajectory.\nCompensation and Benefits.\n Our compensation programs are designed to attract and retain top talent that act boldly, demand high standards, crave tough problems and value winning as a team. Our equitable and comprehensive benefits offerings provide access to benefits to help both regular and seasonal associates plan for the health and security of their families. H&R Block provides comprehensive medical insurance to our associates, and extends the opportunity for medical insurance to our seasonal workforce who satisfy the eligibility guidelines of the Affordable Care Act. Subject to meeting eligibility requirements, associates can also choose to participate in the H&R Block Retirement Savings Plan 401(k) and Employee Stock Purchase Plan.\nTraining and Development.\n We offer a variety of development opportunities for our associates, including in-person classes, online courses, assessments, and a learning library. Our tax professionals receive extensive annual tax training on topics including recent tax code changes and filing practices, and we offer additional education opportunities for tax professionals to enhance their knowledge and skills. In preparation for the upcoming tax season, our tax professionals receive training on H&R Block products, soft skills and tax office best practices.\nDiversity, Inclusion and Belonging.\n We continually evaluate our management approaches to improving diversity and inclusion, which includes looking at how we can provide a sense of belonging in the workplace for our associates. We believe taking care of our associates significantly increases their job satisfaction and is instrumental to the company\u2019s ongoing success. We materialized these efforts through our Belonging@Block program which is a council of associates from multiple departments across the organization with the responsibility to represent and improve our diverse and inclusive culture. We have continued to grow our membership in diversity and inclusion groups focusing on LGBTQ+, neurodiversity, young professionals, veterans, women, and Black associates. We have also extended our diversity and inclusion efforts to support supplier diversity, enhancement of our Racial Equity Action Plan, and the development of a program that supports technology talent diversity. We also remain committed to building a Connected Culture\u2014one in which trust, care, and connections are how we work together as we continue to create an environment where everyone feels safe to bring their authentic self to work every day and feels like they belong as part of a larger team. Our people are the number one enabler for living our Purpose and we value our associates by offering various talent development opportunities, tax training and support, and regularly assessing compensation policies and data to ensure pay equity. To thank our associates and protect against heightened stress, burnout, and uncertainty, we have implemented \u2018The Annual Reboot,\u2019 a paid week of time off offered during the first week of July to disconnect and recharge. Because of our efforts to foster a culture of belonging, we are consistently recognized as a top employer in many different categories.\nSERVICE MARKS AND TRADEMARKS\nWe have made a practice of offering our services and products under service marks and trademarks and of securing registration for many of these marks in the U.S. and other countries where our services and products are marketed. We consider these service marks and trademarks, in the aggregate, to be of material importance to our business, particularly our businesses providing services and products under the \"H&R Block\" brand. The initial duration of U.S. federal trademark registrations is 10 years. Most U.S. federal registrations can be renewed perpetually at 10-year intervals and remain enforceable so long as the marks continue to be used. \n6\n2023 Form 10-K |\n H&R Block, Inc.\nINFORMATION ABOUT OUR EXECUTIVE OFFICERS\nJeffrey J. Jones II\n, 55, became our President and Chief Executive Officer in October 2017 and was our President and Chief Executive Officer-Designate from August 2017 to October 2017. Before joining the Company, he served as the President of Ridesharing at Uber Technologies, Inc. from October 2016 until March 2017. He also served as the Executive Vice President and Chief Marketing Officer of Target Corporation from April 2012 until September 2016.\nTony G. Bowen\n, 48, became our Chief Financial Officer in May 2016. Prior to that, he served as our Vice President, U.S. Tax Services Finance from May 2013 through April 2016.\nKellie J. Logerwell\n, 53, became our Chief Accounting Officer in July 2016. Prior to that, she served as our Vice President of Corporate and Field Accounting from December 2014 until July 2016 and as our Assistant Controller from December 2010 until December 2014.\nDara S. Redler\n, 56, became our Chief Legal Officer in January 2022. Prior to joining the Company, she served as General Counsel and Corporate Secretary for Tilray, Inc. from January 2019 until September 2021. She also held various legal roles of increasing responsibility with The Coca-Cola Company from September 2001 until December 2018.\nAVAILABILITY OF REPORTS AND OTHER INFORMATION\nOur annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed with or furnished to the SEC are available, free of charge, through our website at \nwww.hrblock.com\n as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The SEC maintains a website at \nwww.sec.gov\n containing reports, proxy and information statements and other information regarding issuers who file electronically with the SEC.\nThe following corporate governance documents are posted on our website at \nwww.hrblock.com:\n\u25aa\nThe Amended and Restated Articles of Incorporation of H&R Block, Inc.;\n\u25aa\nThe Amended and Restated Bylaws of H&R Block, Inc.;\n\u25aa\nThe H&R Block, Inc. Corporate Governance Guidelines;\n\u25aa\nThe H&R Block, Inc. Code of Business Ethics and Conduct;\n\u25aa\nThe H&R Block, Inc. Board of Directors Independence Standards;\n\u25aa\nThe H&R Block, Inc. Audit Committee Charter;\n\u25aa\nThe H&R Block, Inc. Compensation Committee Charter;\n\u25aa\nThe H&R Block, Inc. Finance Committee Charter; and\n\u25aa\nThe H&R Block, Inc. Governance and Nominating Committee Charter.\nIf you would like a printed copy of any of these corporate governance documents, please send your request to H&R Block, Inc., One H&R Block Way, Kansas City, Missouri 64105, Attention: Corporate Secretary.\nInformation contained on our website does not constitute any part of this report.\nH&R Block, Inc.\n | 2023 Form 10-K\n7\nITEM 1A. RISK FACTORS\nOur business activities expose us to a variety of risks. Identification, monitoring, and management of these risks are essential to the success of our operations and the financial soundness of H&R Block. Senior management and the Board of Directors, acting as a whole and through its committees, take an active role in our risk management process and have delegated certain activities related to the oversight of risk management to the Company's enterprise risk management team and the Enterprise Risk Committee, which is comprised of Vice Presidents of major business and control functions and members of the enterprise risk management team. The Company\u2019s enterprise risk management team, working in coordination with the Enterprise Risk Committee, is responsible for identifying and monitoring risk exposures and related mitigation and leading the continued development of our risk management policies and practices. \nAn investment in our securities involves risk, including the risk that the value of that investment may decline or that returns on that investment may fall below expectations. There are a number of factors that could cause actual conditions, events, or results to differ materially from those described in forward-looking statements, many of which are beyond management's control or its ability to accurately estimate or predict, or that could adversely affect our financial position, results of operations, cash flows, and the value of an investment in our securities. The risks described below are not the only ones we face. We could also be affected by other events, factors, or uncertainties that are presently unknown to us or that we do not currently consider to be significant risks to our business.\nSTRATEGIC AND INDUSTRY RISKS\nChanges in applicable tax laws have had, and may in the future have, a negative impact on the demand for and pricing of our services. Government changes in tax filing or IRS processes may adversely affect our business and our consolidated financial position, results of operations, and cash flows.\nThe U.S. government has in the past made, and may in the future make, changes to the individual income tax provisions of the Internal Revenue Code, tax regulations, and the rules and procedures for implementing such laws and regulations. In addition, taxing authorities or other relevant governing bodies in various federal, state, local, and foreign jurisdictions in which we operate may change the income tax laws in their respective jurisdictions, and such laws may vary greatly across the various jurisdictions. It is difficult to predict the manner in which future changes to the Internal Revenue Code, tax regulations, and the rules and procedures for implementing such laws and regulations, and state, local, and foreign tax laws may impact us and the tax return preparation industry. Such future changes could decrease the demand or the amount we charge for our services, and, in turn, have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nIn addition, there are various initiatives from time to time seeking to simplify the tax return preparation filing process or otherwise modify IRS processes. Taxing authorities in various federal, state, local, and foreign jurisdictions in which we operate have also introduced measures seeking to simplify or otherwise modify the preparation and filing of tax returns or the issuance of refunds in their respective jurisdictions. For example, from time to time, U.S. federal and state governments have considered various proposals through which the respective governmental taxing authorities would use taxpayer information provided by employers, financial institutions, and other payers to \"pre-populate,\" prepare and calculate tax returns and distribute them to taxpayers. There are various initiatives from time to time seeking to expedite, reduce, or change the timing of refunds, which could reduce the demand for certain of our services or financial products. \n The adoption or expansion of any measures that significantly simplify tax return preparation, or otherwise reduce the need for third-party tax return preparation services or financial products, including governmental encroachment at the U.S. federal and state levels, as well as in foreign jurisdictions, could reduce demand for our services and products and could have a material adverse effect on our business and our consolidated financial position, results of operations and cash flows.\n8\n2023 Form 10-K |\n H&R Block, Inc.\nIncreased competition for clients could adversely affect our current market share and profitability, and we may not be effective in achieving our strategic and operating objectives. \nWe face substantial competition throughout our businesses. All categories in the tax return preparation industry are highly competitive, and additional competitors have entered, and in the future may enter, the market to provide tax preparation services or products. In the assisted tax services category, there are a substantial number of tax return preparation firms and accounting firms offering tax return preparation services. Commercial tax return preparers are highly competitive with regard to price and service. In DIY and virtual, options include various forms of digital electronic assistance, including online and mobile applications, and desktop software, all of which we offer. Our DIY and virtual services and products compete with a number of online and software companies, primarily on price and functionality. Individual tax filers may elect to change their tax preparation method, choosing from among various assisted, DIY, and virtual offerings. \nOur Block Horizons strategy is focused on small businesses, financial products and the tax client experience. While we believe that our strategic objectives reflect opportunities that are appropriate and achievable, it is possible that our objectives may not deliver projected long-term growth in revenue and profitability due to competition, inadequate execution, incorrect assumptions, sub-optimal resource allocation, or other reasons, including any of the other risks described in this \u201cRisk Factors\u201d section. If we are unable to realize the desired benefits from our business strategy, our ability to compete across our business and our consolidated financial position, results of operations, and cash flows could be adversely affected.\nTechnology advances quickly and in new and unexpected ways, and it is difficult to predict the manner in which these changes will impact the tax return preparation industry, the problems we may encounter in enhancing our services and products, or the time and resources we may need to devote to the creation, support, and maintenance of technological enhancements. In addition, new technologies, such as those related to artificial intelligence, machine learning, automation, and algorithms, may have unexpected consequences, which may be due to their limitations, potential manipulation or unintended uses, or our failure to use or implement them effectively. If we are slow to enhance our services, products, or technologies, if our competitors are able to achieve results more quickly than us, if there are new and unexpected entrants into the industry, or if there are new technologies available that provide products or services that compete with ours, we may fail to capture, or lose, a significant share of the market. \nAdditionally, we and many other tax return preparation firms compete by offering one or more of RTs, prepaid cards, RAs, other financial services and products, and other tax-related services and products, many of which are subject to regulatory scrutiny, litigation, and other risks. From time to time we may make changes to certain of our services and products and we can make no assurances that we will be able to offer, or that we will continue to offer, all of these services and products. Any such changes to our services or products or any failure to continue offering such services and products could negatively impact our financial results and ability to compete. Intense competition could result in a reduction of our market share, lower revenues, lower margins, and lower profitability. In addition, we face intense competition with our small business solutions. We may be unsuccessful in competing with other providers, which may diminish our revenue and profitability, and harm our ability to acquire and retain clients.\nOffers of free services or products could adversely affect our revenues and profitability.\nU.S. federal, state, and foreign governmental authorities in certain jurisdictions in which we operate currently offer, or facilitate the offering of, tax return preparation and electronic filing options to taxpayers at no charge, and certain volunteer organizations also prepare tax returns at no charge for low-income taxpayers. In addition, many of our competitors offer certain tax preparation services and products, and other financial services and products, at no charge. Government tax authorities, volunteer organizations, our competitors, and potential new market entrants may also elect to implement or expand free offerings in the future. Free File, Inc., which operates under an agreement that is currently set to expire in October 2025, is currently the sole means through which the IRS offers free DIY tax software to taxpayers, however the IRS is not prohibited from offering competing services. For example, in May 2023, the IRS announced that it is beginning a limited pilot project to evaluate customer support and technology needs related to a direct online tax filing system, and is also evaluating the IRS\u2019s ability to overcome the potential operational challenges associated with such a system. As a result of this or other programs, \nH&R Block, Inc.\n | 2023 Form 10-K\n9\nthe federal government could become our direct competitor, which could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nIn order to compete, we have offered certain, and may in the future offer additional, services and products at no charge. There can be no assurance that we will be able to attract clients or effectively ensure the migration of clients from our free offerings to those for which we receive fees, and clients who have formerly paid for our offerings may elect to use free offerings instead. These competitive factors may diminish our revenue and profitability, or harm our ability to acquire and retain clients, resulting in a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nOur businesses may be adversely affected by difficult economic conditions.\nUnfavorable changes in economic conditions, which are typically beyond our control, including without limitation, inflation, slowing growth, rising interest rates, recession, changes in the political climate, war (including, but not limited to, the conflict between Russia and Ukraine), supply chain or labor market disruptions, banking or financial market disruptions, or other adverse changes, could negatively affect our business and financial condition. Difficult economic conditions are frequently characterized by high unemployment levels and declining consumer and business spending. These poor economic conditions may negatively affect demand and pricing for our services and products. In the event of difficult economic conditions that include high unemployment levels, especially within the client segments we serve, clients may elect not to file tax returns or utilize lower cost preparation and filing alternatives.\nIn addition, difficult economic conditions may disproportionately impact small business owners. Wave\u2019s revenues were negatively impacted during the start of the COVID-19 pandemic, and may again be negatively impacted in the event of a sustained economic slowdown or recession. Difficult economic conditions, including an economic recession or high inflationary period, could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nOPERATIONAL AND EXECUTION RISKS\nOur failure to effectively address fraud by third parties using our offerings could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nMany industries have experienced an increased variety and amount of attempted fraudulent activities by third parties, and those fraudulent activities are becoming increasingly sophisticated. A number of companies, including some in the tax return preparation and financial services industries, have reported instances where criminals gained access to consumer information or user accounts maintained on their systems by using stolen identity information (e.g., email, username, password information, or credit history) obtained from third-party sources. We have experienced, and in the future may continue to experience, this form of unauthorized and illegal access to our systems, despite no breach in the security of our systems. Though we do not believe this fraud is uniquely targeted at our offerings, our failure to effectively address any such fraud may adversely impact our business and our consolidated financial position, results of operations, and cash flows. \nIn addition to losses directly from such fraud, which could occur in some cases, we may also suffer a loss of confidence by our clients or by governmental agencies in our ability to detect and mitigate fraudulent activity, and such governmental authorities may refuse to allow us to continue to offer such services or products. For example, a person with malicious intent may unlawfully take user account and password information from our clients to electronically file fraudulent federal and state tax returns, which could impede our clients' ability to file their tax returns and receive refunds (or other amounts due) and diminish consumers' perceptions of the security and reliability of our services and products, despite no breach in the security of our systems. \nGovernmental authorities in jurisdictions in which we operate have taken action, and may in the future take additional action, in an attempt to combat identity theft or other fraud, which may require changes to our systems and business practices, or those of third parties on which we rely, that cannot be anticipated. These actions may have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\n Furthermore, as fraudulent activity becomes more pervasive and sophisticated, we may implement fraud detection and prevention measures that could make it less convenient for legitimate clients to obtain and use our \n10\n2023 Form 10-K |\n H&R Block, Inc.\nservices and products, which may adversely affect the demand for our services and products, our reputation, and our financial performance.\nAn interruption in our information systems, or those of our franchisees or a third party on which we rely, or an interruption in the internet, could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nWe, our franchisees, and other third parties material to our business operations rely heavily upon communications, networks, and information systems and the internet to conduct our business (including third-party internet-based or cloud computing services, and the information systems of our key vendors). These networks, systems, and operations are potentially vulnerable to damage or interruption from upgrades and maintenance, network failure, hardware failure, software failure, power or telecommunications failures, cyberattacks, human error, and natural disasters. As our tax preparation business is seasonal, our systems must be capable of processing high volumes during our peak periods. Therefore, any failure or interruption in our information systems, or information systems of our franchisees or a private or government third party on which we rely, or an interruption in the internet or other critical business capability during our busiest periods, could negatively impact our business operations and reputation, and increase our risk of loss.\nThere can be no assurance that system or internet failures or interruptions in critical business capabilities will not occur, or, if they do occur, that we, our franchisees or the private or governmental third parties on whom we rely, will adequately address them. The precautionary measures that we, or third parties on whom we rely, have implemented to avoid systems outages and to minimize the effects of any data or communication systems interruptions or failures may not be adequate, and we and such third parties may not have anticipated or addressed all of the potential events that could threaten or undermine our or such third parties information systems or other critical business capabilities. We do not have redundancy for all of our systems and our disaster recovery planning may not account for all eventualities. Our software and computer systems utilize cloud computing services provided by Microsoft Corporation. If the Microsoft Azure Cloud is unavailable for any reason, it could negatively impact our ability to deliver our services and products and our clients may not be able to access certain of our products or features, any of which could significantly impact our operations, business, and financial results.\nThe occurrence of any systems or internet failure, or business interruption could negatively impact our ability to serve our clients, which in turn could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nAny significant delays in launching our tax service and product offerings, changes in government regulations or processes (including the acceptance of tax returns and the issuance of refunds and other amounts to clients by the IRS or state tax agencies) that affect how we provide such offerings to our clients, or significant problems with such offerings or the manner in which we provide them to our clients may harm our revenue, results of operations, and reputation.\nTax laws and tax forms are subject to change each year, and the nature and timing of such changes are unpredictable. As a part of our business, we must incorporate any changes to tax laws and tax forms into our tax service and product offerings, including our online and mobile applications and desktop software. The unpredictable nature, timing and effective dates of changes to tax laws and tax forms can result in condensed development cycles for our tax service and product offerings because our clients expect high levels of accuracy and a timely launch of such offerings to prepare and file their taxes by the applicable tax filing deadlines and, in turn, receive any tax refund amounts on a timely basis. From time to time, we review and enhance our quality controls for preparing accurate tax returns, but there can be no assurance that we will be able to prevent all inaccuracies. Further, changes in governmental administrations or regulations could result in further and unanticipated changes in requirements or processes, which may require us to make corresponding changes to our client service systems and procedures. In addition, unanticipated changes in governmental processes, or newly implemented processes, for (1) accepting tax filings and related forms, including the ability of taxing authorities to accept electronic tax \nH&R Block, Inc.\n | 2023 Form 10-K\n11\nreturn filings, or (2) distributing tax refunds or other amounts to clients may result in processing delays by us or applicable taxing authorities.\nCertain of our financial products are dependent on the IRS following the client\u2019s directions to direct deposit the tax refund. If the IRS disregards this direction, and sends the tax refund via check, then it could result in a loss of tax preparation and financial product revenue, negative publicity, and client dissatisfaction. In addition, any delays in launching new financial service or product offerings, or technical or other issues associated with the launch, could cause a loss of clients or client dissatisfaction, especially if such issues occur during the tax season.\nAny major defects or delays caused by the above-described complexities may lead to loss of clients and loss of or delay in revenue, negative publicity, client dissatisfaction, a deterioration in our business relationships with our partners or our franchisees, exposure to litigation, and increased operating expenses, even if any such launch delays or defects are not caused by us. Any of the risks described above could have a material adverse effect on our business, our reputation, and our consolidated financial position, results of operations, and cash flows.\nWe rely on a single vendor or a limited number of vendors to provide certain key services or products, and the loss of such relationships, the inability of these key vendors to meet our needs, or errors by the key vendors in providing services to or for us, could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nHistorically, we have contracted, and in the future we will likely continue to contract, with a single vendor or a limited number of vendors to provide certain key services or products for our tax, financial, and other services and products. A few examples of this type of reliance are our relationships with Fidelity National Information Services, Inc. (FIS), Galileo Financial Technologies, LLC, or similar vendors, for data processing and card production services, Pathward, for the issuance of RTs, EAs RAs, Emerald Cards, and Spruce accounts, and Microsoft Corporation, for cloud computing services and artificial intelligence technology. In certain instances, we are vulnerable to vendor error, service inefficiencies, data breaches, service interruptions, or service delays, and such issues by our key vendors in providing services to or for us could result in material losses for us due to the nature of the services being provided or our contractual relationships with our vendors. If any material adverse event were to affect one of our key vendors or if we are no longer able to contract with our key vendors for any reason, we may be forced to find an alternative provider for these critical services. It may not be possible to find a replacement vendor on terms that are acceptable to us or at all. \n Our sensitivity to any of these issues may be heightened (1) due to the seasonality of our business, (2) with respect to any vendor that we utilize for the provision of any product or service that has specialized expertise, (3) with respect to any vendor that is a sole or exclusive provider, or (4) with respect to any vendor whose indemnification obligations are limited or that does not have the financial capacity to satisfy its indemnification obligations. Some of our vendors are subject to the oversight of regulatory bodies and, as a result, our product or service offerings may be affected by the actions or decisions of such regulatory bodies. If our vendors are unable to meet our needs and we are not able to develop alternative sources for these services and products quickly and cost-effectively, or if a key vendor were to commit a major error or suffer a material adverse event, it could result in a material and adverse impact on our business and our consolidated financial position, results of operations, and cash flows.\nThe specialized and highly seasonal nature of our business presents financial risks and operational and human capital challenges.\nOur business is highly seasonal, with the substantial portion of our revenue earned from February through April in a typical year. The concentration of our revenue-generating activity during this relatively short period presents a number of challenges for us, including (1) cash and resource management during the remainder of our fiscal year, when we generally operate at a loss and incur fixed costs and costs of preparing for the upcoming tax season, (2) responding to changes in competitive conditions, including marketing, pricing, and new product offerings, which could affect our position during the tax season, (3) disruptions, delays, or extensions in a tax season, including those caused by pandemics, such as the COVID-19 outbreak, or severe weather, (4) client dissatisfaction issues or negative social media campaigns, which may not be timely discovered or satisfactorily addressed, and (5) ensuring optimal uninterrupted operations and service delivery during the tax season, which may be disrupted by natural or manmade disasters, extreme weather conditions, pandemics, or other catastrophic events. If we experience \n12\n2023 Form 10-K |\n H&R Block, Inc.\nsignificant business disruptions during the tax season or if we are unable to effectively address the challenges described above and related challenges associated with a seasonal business, we could experience a loss, disruption, or change in timing of business, which could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nWe may be unable to attract and retain key personnel or fully control or accurately predict our labor costs.\nOur business depends on our ability to attract, develop, motivate, and retain key personnel in a timely manner, including members of our executive team and those in seasonal tax preparation positions (which may be required on short notice during any extended tax season or to serve extended filers) or with other required specialized expertise, such as technical positions (including with respect to cybersecurity, artificial intelligence, and machine learning). The market for such personnel is extremely competitive, and there can be no assurance that we will be successful in our efforts to attract and retain the required qualified personnel within necessary timeframes, or at expected cost levels. As the global labor market continues to evolve as a result of the COVID-19 pandemic and other changes, our current and prospective key personnel may seek new or different opportunities based on pay levels, benefits, or remote work flexibility that are different from what we offer, or may determine to leave the workforce, making it difficult to attract and retain them. If we are unable to attract, develop, motivate, and retain key personnel, our business, operations, and financial results could be negatively impacted. In addition, if our costs of labor or related costs increase, if new or revised labor laws, rules, or regulations are adopted or implemented that impact our seasonal workforce and increase our labor costs, or if our labor costs are unpredictable due to tax season fluctuations or otherwise, there could be a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nOur business depends on our strong reputation and the value of our brands.\nDeveloping and maintaining awareness of our brands is critical to achieving widespread acceptance of our existing and future services and products and is an important element in attracting new clients. In addition, our franchisees operate their businesses under our brands. Adverse publicity (whether or not justified) relating to events or activities involving or attributed to us, our franchisees, employees, vendors, or agents or our services or products, which may be enhanced due to the nature of social media, may tarnish our reputation and reduce the value of our brands. Damage to our reputation and loss of brand equity may reduce demand for our services and products and thus have an adverse effect on our future financial results, as well as require additional resources to rebuild our reputation and restore the value of our brands.\nFailure to maintain sound business relationships with our franchisees may have a material adverse effect on our business and we may be subject to legal and other challenges resulting from our franchisee relationships.\nOur financial success depends in part on our ability to maintain sound business relationships with our franchisees. The support of our franchisees is also critical for the success of our ongoing operations. Deterioration in our relationships with our franchisees could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nWe also grant our franchisees a limited license to use our registered trademarks and, accordingly, there is risk that one or more of the franchisees may be alleged to be controlled by us. Third parties, regulators or courts may seek to hold us responsible for the actions or failures to act by our franchisees. Adverse outcomes related to legal actions could result in substantial damages and could cause our earnings to decline. Negative public opinion could also result from our or our franchisees\u2019 actual or alleged conduct in such claims, possibly damaging our reputation, which, in turn, could adversely affect our business prospects and cause the market price of our securities to decline.\nOur international operations are subject to risks that may harm our business and our consolidated financial position, results of operations, and cash flows.\nWe have international operations, including tax preparation businesses in Canada and Australia, technology centers in India and Ireland, and Wave in Canada. We may consider expansion opportunities in additional countries in the future and there is uncertainty about our ability to generate revenues from new or emerging foreign operations or expand into other international markets. Additionally, there are risks inherent in doing business internationally, including: (1) changes in trade regulations; (2) difficulties in managing foreign operations as a result \nH&R Block, Inc.\n | 2023 Form 10-K\n13\nof distance, language, and cultural differences; (3) profit repatriation restrictions, and fluctuations in foreign currency exchange rates; (4) geopolitical events, including acts of war and terrorism, and economic and political instability; (5) compliance with anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and other applicable foreign anti-corruption laws; (6) compliance with U.S. and international laws and regulations, including those concerning privacy and data protection and retention; and (7) risks related to other government regulation or required compliance with local laws. These risks inherent in international operations and expansion could prevent us from expanding into other international markets or increase our costs of doing business internationally and could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nIn addition, we prepare U.S. federal and state tax returns for taxpayers residing in foreign jurisdictions, including the European Union (EU), and we and certain of our franchisees operate and provide other services in foreign jurisdictions. As a result, certain aspects of our operations are subject, or may in the future become subject, to the laws, regulations, and policies of those jurisdictions that regulate the collection, use, and transfer of personal information, which may be more stringent than those of the U.S., including, but not limited to the EU General Data Protection Regulation, the Canadian Personal Information Protection and Electronic Documents Act, and Canadian Provincial legislation.\nCosts for us to comply with such laws, regulations, and policies that are applicable to us could be significant. We may also face audits or investigations by one or more foreign government agencies relating to these laws, regulations, and policies that could result in the imposition of penalties or fines.\nOur financial condition and results of operations have been, and may continue to be, adversely affected by the COVID-19 pandemic, and may be impacted by a resurgence of COVID-19 or a variant thereof or a future outbreak of another highly infectious or contagious disease.\nDuring March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic, and the impacts of the pandemic have been felt since that time. Since the beginning of the pandemic, jurisdictions in which we operate have from time-to-time imposed various restrictions on our business. Notwithstanding our efforts to address the impacts of the COVID-19 pandemic, or a variant thereof, on our business, there is no certainty that the measures we implemented, or may implement in the future, are or will be sufficient to mitigate the risks posed by COVID-19, a variant thereof, or another infectious disease. Alleged failures in this regard could result in negative impacts, including regulatory investigations, claims, legal actions, harm to our reputation and brands, fines, penalties, and other damages.\nAs a result of the COVID-19 pandemic, the IRS and substantially all U.S. states extended the filing deadline in consecutive tax seasons for 2019 and 2020 individual income tax returns. These extensions impacted the typical seasonality of our business and the comparability of our financial results. In the event of a resurgence of COVID-19 or the outbreak of another infectious disease, Treasury, the IRS, and state or foreign officials may determine to extend future tax deadlines or take other actions, which could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows in future years.\nThe extent to which the COVID-19 pandemic or another outbreak impacts our business, operations, and financial results going forward will depend on numerous evolving factors that we may not be able to accurately predict. The resurgence of COVID-19 or a variant thereof or a new global or national outbreak of another highly infectious or contagious disease, the requirements to take action to help limit the spread of illness, and the other risks described above may further impact our ability to carry out our business and may materially adversely impact global economic conditions, our business, results of operations, cash flows, and financial condition.\nINFORMATION SECURITY, CYBERSECURITY, AND DATA PRIVACY RISKS\nCompliance with the complex and evolving laws, regulations, standards, and contractual requirements regarding privacy and data protection could require changes in our business practices and increase costs of operation; failure to comply could result in significant claims, fines, penalties, and damages.\nDue to the nature of our business, we collect, use, and retain large amounts of personal information and data pertaining to clients, including tax return information, financial product and service information, and social security \n14\n2023 Form 10-K |\n H&R Block, Inc.\nnumbers. In addition, we collect, use, and retain personal information and data of our employees in the ordinary course of our business.\nWe are subject to laws, rules, and regulations relating to the collection, use, disclosure, and security of such consumer and employee personal information, which have drawn increased attention from U.S. federal, state, and foreign governmental authorities in jurisdictions in which we operate. In the U.S., the IRS generally requires a tax return preparer to obtain the written consent of the taxpayer prior to using or disclosing the taxpayer's tax return information for certain purposes other than tax return preparation, which may limit our ability to market revenue-generating products to our clients. In addition, other regulations require financial institutions to adopt and disclose their consumer privacy notice and generally provide consumers with a reasonable opportunity to \"opt-out\" of having nonpublic personal information disclosed to unaffiliated third parties for certain purposes.\nNumerous jurisdictions have passed, and may in the future pass, new laws related to the collection, use, and retention of consumer or employee information and this area continues to be an area of interest for U.S. federal, state, and foreign governmental authorities. For example, the State of California adopted the California Consumer Privacy Act (CCPA), which became effective January 1, 2020, as amended by the California Privacy Rights Act (CPRA) on January 1, 2023. Subject to certain exceptions, these laws impose new requirements on how businesses collect, process, manage, and retain certain personal information of California residents and provide California residents with various rights regarding personal information collected by a business. In addition, certain states have adopted comprehensive privacy laws, and other jurisdictions have adopted or may in the future adopt their own, different privacy laws. These laws may contain different requirements or may be interpreted and applied inconsistently from jurisdiction to jurisdiction. Our current privacy and data protection policies and practices may not be consistent with all of those requirements, interpretations, or applications. In addition, changes in U.S. federal and state regulatory requirements, as well as requirements imposed by governmental authorities in foreign jurisdictions in which we operate, could result in more stringent requirements and a need to change business practices, including the types of information we can use and the manner in which we can use such information. Establishing systems and processes, or making changes to our existing policies, to achieve compliance with these complex and evolving requirements may increase our costs or limit our ability to pursue certain business opportunities. There can be no assurance that we will successfully comply in all circumstances. We are, and may in the future be, subject to regulatory investigations, claims and legal actions related to the collection, use, sharing, and/or retention of information, which could lead to further inquiries, further legal actions, other regulatory or legislative actions, harm to our reputation and brands, fines, penalties, and other damages.\nWe have incurred, and may continue to incur, significant expenses to comply with existing or future privacy and data security standards and protocols imposed by law, regulation, industry standards or contractual obligations.\nA security breach of our systems, or third-party systems on which we rely, resulting in unauthorized access to personal information of our clients or employees or other sensitive, nonpublic information, may adversely affect the demand for our services and products, our reputation, and financial performance.\nWe offer a range of services and products to our clients, including tax return preparation solutions, financial services and products, and small business solutions through our company-owned or franchise offices and online. Due to the nature of these services and products, we use multiple digital technologies to collect, transmit, and store high volumes of client personal information. We also collect, use, and retain other sensitive, nonpublic information, such as employee social security numbers, healthcare information, and payroll information, as well as confidential, nonpublic business information. Certain third parties and vendors have access to personal information to help deliver client benefits, services and products, or may host certain of our and our clients\u2019 sensitive and personal information and data. Information security risks continue to increase due in part to the increased adoption of and reliance upon digital technologies by companies and consumers. Our risk and exposure to these matters remain heightened due to a variety of factors including, among other things, (1) the evolving nature of these threats and related regulation, (2) the increased activity and sophistication of hostile foreign governments, organized crime, cyber criminals, and hackers that may initiate cyberattacks against us or third-party systems on which we rely, (3) the prominence of our brand, (4) our and our franchisees' extensive office footprint, (5) our plans to continue to implement strategies for our online and mobile applications and our desktop software, (6) our use of third-party vendors, (7) our use of certain new technologies, such as artificial intelligence and \nH&R Block, Inc.\n | 2023 Form 10-K\n15\nmachine learning, and (8) the usage of remote working arrangements by our associates, franchisees, and third-party vendors, which significantly expanded due to the COVID-19 pandemic.\nCybersecurity risks may result from fraud or malice (a cyberattack), human error, or accidental technological failure. Cyberattacks are designed to electronically circumvent network security for malicious purposes such as unlawfully obtaining personal information, disrupting our ability to offer services, damaging our brand and reputation, stealing our intellectual property, or advancing social or political agendas. We face a variety of cyberattack threats including computer viruses, malicious codes, worms, phishing attacks, social engineering, denial of service attacks, ransomware, and other sophisticated attacks.\nAlthough we use security and business controls to limit access to and use of personal information and expend significant resources to maintain multiple levels of protection to address or otherwise mitigate the risk of a security breach, such measures cannot provide absolute security. We regularly test our systems to discover and address potential vulnerabilities, and we rely on training and testing of our employees regarding heightened phishing and social engineering threats. We also conduct certain background checks on our employees, as allowed by law. Due to the structure of our business model, we also rely on our franchisees, vendors, and other private and governmental third parties to maintain secure systems and respond to cybersecurity risks. Where appropriate, we impose certain requirements and controls on these third parties, but it is possible that they may not appropriately employ these controls or that such controls (or their own separate requirements and controls) may be insufficient to protect personal information. \nCybersecurity and the continued development and enhancement of our controls, processes, and practices designed to protect our systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a top priority for us. As risks and regulations continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate information security vulnerabilities. Notwithstanding these efforts, there can be no assurance that a security breach, intrusion, or loss or theft of personal information will not occur. In addition, the techniques used to obtain unauthorized access change frequently, become more sophisticated, and are often difficult to detect until after a successful attack, causing us to be unable to anticipate these techniques or implement adequate preventive measures in all cases.\nUnauthorized access to personal information as a result of a security breach could cause us to determine that it is required or advisable for us to notify affected individuals, regulators, or others under applicable privacy laws and regulations or otherwise. Security breach remediation could also require us to expend significant resources to assist impacted individuals, repair damaged systems, implement modified information security measures, and maintain client and business relationships. Other consequences could include reduced client demand for our services and products, loss of valuable intellectual property, reduced growth and profitability and negative impacts to future financial results, loss of our ability to deliver one or more services or products (e.g., inability to provide financial services and products or to accept and process client credit card transactions or tax returns), modifying or stopping existing business practices, legal actions, harm to our reputation and brands, fines, penalties, and other damages, and further regulation and oversight by U.S. federal, state, or foreign governmental authorities.\nA security breach or other unauthorized access to our systems, or third-party systems on which we rely, could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nLEGAL AND REGULATORY RISKS\nRegulations promulgated by the Consumer Financial Protection Bureau (CFPB) or other regulators may affect our financial services businesses in ways we cannot predict, which may require changes to the financial products we offer, our services and contracts.\nThe CFPB has broad powers to administer, investigate compliance with, and, in some cases, enforce U.S. federal financial consumer protection laws. The CFPB has broad rule-making authority for a wide range of financial consumer protection laws that apply to certain of the financial products we offer, including the authority to \n16\n2023 Form 10-K |\n H&R Block, Inc.\nprohibit or allege \"unfair, deceptive, or abusive\" acts and practices. It is difficult to predict how currently proposed or new regulations may impact the financial products we offer.\nThe CFPB and other federal or state regulators may examine, investigate, and take enforcement actions against our subsidiaries that offer consumer financial services and products, as well as financial institutions and other third parties upon which our subsidiaries rely to provide consumer financial services and products. State regulators also have certain authority in enforcing and promulgating financial consumer protection laws, the results of which could be (i) states issuing new and broader financial consumer protection laws, some of which could be more comprehensive than existing U.S. federal regulations, or (ii) state attorneys general bringing actions to enforce federal consumer protection laws.\nCurrently proposed or new federal and state laws and regulations, or expanded interpretations of current laws and regulations, may require changes to the financial products we offer, our services or contracts, and this could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nLaws and regulations or other regulatory actions could have an adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nOur tax preparation business and operations are subject to various forms of government regulation, including U.S. federal requirements regarding the signature and inclusion of identification numbers on tax returns and tax return retention requirements. U.S. federal laws also subject income tax return preparers to accuracy-related penalties, and preparers may be prohibited from continuing to act as income tax return preparers if they repeatedly engage in specified misconduct. We are also subject to, among other things, advertising standards for electronic tax return filers, and to possible monitoring by the IRS, and if deemed appropriate, the IRS could impose various penalties, including suspension from the IRS electronic filing program. Many states and local jurisdictions have laws regulating tax professionals or the offering of income tax courses, which are in addition to and may be different than federal requirements.\nIn addition, our franchising activities are subject to various rules and regulations, including requirements to furnish prospective franchisees with a prescribed franchise disclosure document. Substantive state laws regulating the franchisor/franchisee relationship presently exist in a large number of states. These state laws often limit, among other things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise contract and the ability of a franchisor to designate sources of supply. In addition, bills have been introduced from time to time that would provide for federal regulation of the franchisor/franchisee relationship in certain respects or that would impact the traditional nature of the relationship between franchisors and franchisees.\nAdditionally, our offering of consumer financial products and services are subject to various rules and regulations, including potential limitations or restrictions on the amount of interchange fees. There can be no assurance that future regulation or changes by the payment networks will not impact interchange revenues substantially. If interchange rates decline, whether due to actions by the payment networks or future regulation, it could impact the profitability of our consumer financial products and services or our ability to offer such products or services.\nGiven the nature of our businesses, we are subject to various additional federal, state, local, and foreign laws and regulations, including, without limitation, in the areas of labor, immigration, marketing and advertising, consumer protection, financial services and products, payment processing, privacy and data security, anti-competition, environmental, health and safety, insurance, and healthcare. There have been significant new or proposed regulations and/or heightened focus by the government and others in some of these areas, including, for example, privacy and data security, climate change, interchange fees, consumer financial services and products, endorsements and testimonials, telemarketing, web and wireless marketing technologies, restrictive covenants, and labor, including overtime and exemption regulations, state and local laws on minimum wage, worker classification, and other labor-related issues. In addition, as we continue to incorporate additional or emerging technologies into our business, such as in the areas of artificial intelligence and machine learning, we may become subject to increased government regulation or regulatory scrutiny.\nH&R Block, Inc.\n | 2023 Form 10-K\n17\nThe above requirements and business implications are subject to change and evolving application, including by means of new legislation, legislative changes, and/or executive orders, and there may be additional regulatory actions or enforcement priorities, or new interpretations of existing requirements that differ from ours. These developments could impose unanticipated limitations or require changes to our business, which may make elements of our business more expensive, less efficient, or impossible to conduct, and may require us to modify our current or future services or products, which effects may be heightened given the nature, broad geographic scope, and seasonality of our business.\nWe face legal actions in connection with our various business activities, and current or future legal actions may damage our reputation, impair our product offerings, or result in material liabilities and losses.\nWe have been named and, in the future will likely continue to be named, in various legal actions, including class or representative actions, individual or mass arbitrations, actions or inquiries by state attorneys general and other regulators, and other litigation arising in connection with our various business activities, including relating to our various service and product offerings. For example, as previously reported, we are subject to litigation and have received and are responding to certain governmental inquiries relating to the IRS Free File program and our DIY tax preparation services. These inquiries include, among other things, requests for information and subpoenas from various regulators and state attorneys general. We cannot predict whether these legal actions could lead to further inquiries, further litigation, fines, injunctions or other regulatory or legislative actions or impacts on our brand, reputation and business. See discussion in \nItem 8, note 12\n to the consolidated financial statements for additional information. \nFailure to protect our intellectual property rights may harm our competitive position and litigation to protect our intellectual property rights or defend against third party allegations of infringement may be costly.\nDespite our efforts to protect our intellectual property and proprietary information, we may be unable to do so effectively in all cases. Our intellectual property could be wrongfully acquired as a result of a cyberattack, other wrongful conduct by employees or third parties, or human error. To the extent that our intellectual property is not protected effectively by trademarks, copyrights, patents, or other means, other parties with knowledge of our intellectual property, including former employees, may seek to exploit our intellectual property for their own or others' advantage. Competitors may also misappropriate our trademarks, copyrights or other intellectual property rights or duplicate our technology and products. Any significant impairment or misappropriation of our intellectual property or proprietary information could harm our business and our brand, and may adversely affect our ability to compete.\nIn addition, third parties may allege we are infringing their intellectual property rights, and we may face intellectual property challenges from other parties. We may not be successful in defending against any such challenges or in obtaining licenses to avoid or resolve any intellectual property disputes and, in that event, we could lose significant revenues, incur significant royalty or technology development expenses, suffer harm to our reputation, or pay significant monetary damages.\nFINANCIAL RISKS\nOur access to liquidity may be negatively impacted by disruptions in credit markets, downgraded credit ratings, increased interest rates or our failure to meet certain covenants. Our funding costs could increase, further impacting earnings.\nWe need liquidity to meet our working capital requirements, to service debt obligations, including refinancing of maturing obligations, and for general corporate purposes. Our operations are highly seasonal and substantially all of our revenues and cash flows are generated during the period from February through April in a typical year. Therefore, we normally require the use of cash to fund losses and working capital needs, periodically resulting in a working capital deficit, from May through January. We typically have relied on available cash balances from the prior tax season and borrowings to meet liquidity needs during this time period. Events may occur that could increase our need for liquidity above current levels. We may need to obtain additional sources of funding to meet these needs, which may not be available or may only be available under unfavorable terms. In addition, if rating agencies downgrade our credit rating or interest rates increase, the cost of debt under our existing financing \n18\n2023 Form 10-K |\n H&R Block, Inc.\narrangements, as well as future financing arrangements, could increase and our capital market access could decrease or become unavailable. \nOur unsecured committed line of credit (CLOC) is subject to various covenants, and a violation of a covenant could impair our access to liquidity currently available through the CLOC. In addition, if we violate a covenant in the CLOC and are unable to obtain a waiver from our lenders, our debt under the CLOC would be in default and could be accelerated by our lenders. An acceleration of the indebtedness under the CLOC would cause a cross default under the indenture governing our Senior Notes. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all.\nIf current sources of liquidity were to become unavailable, we would need to obtain additional sources of funding, which may not be available or may only be available under less favorable terms. This could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nThe continued payment of dividends on our common stock and repurchases of our common stock are dependent on a number of factors, and cannot be assured.\nWe need liquidity sufficient to fund payments of dividends on our common stock and repurchases of our common stock. In addition, holders of our common stock are only entitled to receive such dividends, and the Company may only repurchase shares, as our Board of Directors may authorize out of funds legally available for such payments. Due to the seasonal nature of our business and the fact that our business is not asset-intensive, we have had, and are likely to continue to have, a negative net worth under U.S. generally accepted accounting principles (GAAP) at various times throughout the year. Therefore, the payment of dividends or stock repurchases at such times would cause us to further increase that GAAP negative net worth.\nThe payment of future dividends and future repurchases will depend upon our earnings, economic conditions, liquidity and capital requirements, and other factors, including our debt leverage. Even if we have sufficient resources to pay dividends and to repurchase shares of our common stock, our Board of Directors may determine to use such resources to fund other Company initiatives. Accordingly, we cannot make any assurance that future dividends will be paid, or future repurchases will be made, at levels comparable to our historical practices, if at all. \nChanges in corporate tax laws or regulations, or in the interpretations of tax laws or regulations, could materially affect our financial condition, cash flows, and operating results.\nAs a profitable multinational corporation, we are subject to a material amount of taxes in the U.S. and numerous foreign jurisdictions where our subsidiaries are organized and conduct their operations. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. The amount of tax due in various jurisdictions may change significantly as a result of political or economic factors beyond our control, including changes to tax laws or new interpretations of existing laws that are inconsistent with previous interpretations or positions taken by taxing authorities on which we have relied. New regulatory guidance, or regulatory interpretations that differ from our existing interpretations, could materially affect our effective tax rates or value of deferred tax assets and liabilities.\nLegislatures and taxing authorities in jurisdictions in which we operate may propose additional changes to their tax rules in response to economic conditions, or as part of broader tax reformation initiatives. The current administration previously committed to increasing the corporate income tax rate from 21 percent to 28 percent, and to increasing the tax rate applied to profits earned outside the United States. If enacted, the impact of these potential new rules could be material to our tax provision and value of deferred tax assets and liabilities.\nIn addition, projects undertaken by international organizations may change international tax norms relating to each country\u2019s jurisdiction to tax cross-border international trade. Given the unpredictability of these and other possible changes to tax laws and related regulations, it is difficult to assess the overall effect of such potential changes, but any such changes could, if adopted and applicable to us, adversely impact our effective tax rates and other tax liabilities.\nOur tax returns and other tax matters are periodically examined by tax authorities and governmental bodies, including the IRS, which may disagree with positions taken by us in determining our tax liability. There can be no \nH&R Block, Inc.\n | 2023 Form 10-K\n19\nassurance as to the outcome of these examinations. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for income taxes.\nIf our effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows, and financial condition could be adversely affected.\nRISKS RELATING TO DISCONTINUED OPERATIONS\nSand Canyon Corporation, previously known as Option One Mortgage Corporation (including its subsidiaries, collectively, SCC), is subject to loss contingencies, including indemnification and contribution claims, which may result in significant financial losses. Additionally, we could be subject to claims by the creditors of SCC.\nAlthough SCC ceased its mortgage loan origination activities in December 2007 and sold its loan servicing business in April 2008, SCC has been and may in the future be, subject to loss contingencies, including indemnification and contribution claims, pertaining to SCC's mortgage business activities that occurred prior to such termination and sale. If the amount that SCC is ultimately required to pay with respect to these claims, together with related administration and legal expense, exceeds its net assets, the creditors of SCC, other potential claimants, or a bankruptcy trustee if SCC were to file or be forced into bankruptcy, may attempt to assert claims against us for payment of SCC's obligations. Claimants have also attempted, and may in the future attempt, to assert claims against or seek payment directly from the Company even if SCC's assets exceed its liabilities. SCC's principal assets, as of June 30, 2023, total approximately $\n262\n\u00a0million and consist of an intercompany note receivable. We believe our legal position is strong on any potential corporate veil-piercing arguments; however, if this position is challenged and not upheld, it could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.",
+  "item1a": ">Item 1A. Risk Factors under \"Legal and Regulatory Risks\"\n of this Form 10-K.\nH&R Block, Inc.\n | 2023 Form 10-K\n29\nAs previously disclosed, in 2017 the Consumer Financial Protection Bureau (CFPB) published its final rule regulating certain consumer credit products (Payday Rule), which the CFPB later limited by removing the mandatory underwriting provisions. Certain limited provisions of the Payday Rule became effective in 2018, but most provisions were scheduled to go into effect in 2019. Litigation in a federal district court in Texas had stayed that effective date, but on August 31, 2021 the judge in that litigation ruled in favor of the CFPB. The plaintiffs appealed, and, on October 14, 2021, the United States Court of Appeals for the Fifth Circuit extended the compliance deadline until after the appeal is resolved. On October 19, 2022, the appellate court found that the funding mechanism for the CFPB was unconstitutional and vacated the Payday Rule. On November 14, 2022, the CFPB filed a petition for review with the United States Supreme Court, which the Supreme Court granted on February 27, 2023.\nWe are unsure whether, when, or in what form the Payday Rule will go into effect. Though we do not currently expect the Payday Rule to have a material adverse impact on Emerald Advance\nSM\n, our business, or our consolidated financial position, results of operations, and cash flows, we will continue to monitor and analyze the potential impact of any further developments on the Company.\nFrom time to time, we receive inquiries from governmental authorities regarding the applicability of laws to our services and products and other matters relating to our business. We cannot predict what effect future laws, changes in interpretations of existing laws or the results of future governmental inquiries with respect to services and products or other matters relating to our business may have on our consolidated financial position, results of operations and cash flows. We have received certain governmental inquiries related to the IRS Free File Program and our DIY tax preparation services. We may also be subject to future inquiries or other proceedings regarding these programs or other aspects of our business. Regulatory inquiries may result in us incurring additional expense, diversion of management's attention, adverse judgments, settlements, fines, penalties, injunctions or other relief. See additional discussion of legal matters in \nItem 8, note 12\n to the consolidated financial statements.\nNON-GAAP FINANCIAL INFORMATION\nNon-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Because these measures are not measures of financial performance under GAAP and are susceptible to varying calculations, they may not be comparable to similarly titled measures for other companies.\nWe consider our non-GAAP financial measures to be performance measures and a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business. We make adjustments for certain non-GAAP financial measures related to amortization of intangibles from acquisitions and goodwill impairments. We may consider whether other significant items that arise in the future should be excluded from our non-GAAP financial measures.\nWe measure the performance of our business using a variety of metrics, including earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations, adjusted EBITDA from continuing operations, adjusted diluted earnings per share from continuing operations, free cash flow and free cash flow yield. We also use EBITDA from continuing operations and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.\n30\n2023 Form 10-K |\n H&R Block, Inc.\nThe following is a reconciliation of net income to EBITDA from continuing operations, which is a non-GAAP financial measure:\n(in 000s)\nYear ended\nJune 30, 2023\nJune 30, 2022\nNet income - as reported\n$\n553,700\n\u00a0\n$\n553,674\u00a0\nDiscontinued operations, net\n8,100\n\u00a0\n6,972\u00a0\nNet income from continuing operations - as reported\n561,800\n\u00a0\n560,646\u00a0\nAdd back:\nIncome taxes\n149,412\n\u00a0\n98,423\u00a0\nInterest expense\n72,978\n\u00a0\n88,282\u00a0\nDepreciation and amortization\n130,501\n\u00a0\n142,178\u00a0\n352,891\n\u00a0\n328,883\u00a0\nEBITDA from continuing operations\n$\n914,691\n\u00a0\n$\n889,529\u00a0\nThe following is a reconciliation of our results from continuing operations to our adjusted results from continuing operations, which are non-GAAP financial measures:\n(in 000s, except per share amounts)\nYear ended\nJune 30, 2023\nJune 30, 2022\nNet income from continuing operations - as reported\n$\n561,800\n\u00a0\n$\n560,646\u00a0\nAdjustments:\nAmortization of intangibles related to acquisitions (pretax)\n51,411\n\u00a0\n56,292\u00a0\nTax effect of adjustments\n(1)\n(10,797)\n(13,358)\nAdjusted net income from continuing operations\n$\n602,414\n\u00a0\n$\n603,580\u00a0\nDiluted earnings per share from continuing operations - as reported\n$\n3.56\n\u00a0\n$\n3.26\u00a0\nAdjustments, net of tax\n0.26\n\u00a0\n0.25\u00a0\nAdjusted diluted earnings per share from continuing operations\n$\n3.82\n\u00a0\n$\n3.51\u00a0\n(1) \nThe tax effect of adjustments is the difference between the tax provision calculation on a GAAP basis and on an adjusted non-GAAP basis.",
+  "item7": ">ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\nRESULTS OF OPERATIONS \nOur subsidiaries provide assisted and DIY tax preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded products and services, including those of our bank partners, to the general public primarily in the U.S., Canada and Australia. Tax returns are either prepared by H&R Block tax professionals (in company-owned or franchise offices, virtually or via an internet review) or prepared and filed by our clients through our DIY tax solutions. We also offer small business solutions through our company-owned and franchise offices and online through Wave. We report a single segment that includes all of our continuing operations.\nThis year's tax filing season was expected to return to normal with the pandemic largely behind us, no new federal programs, a large number of stimulus filers having left the industry in the prior year, and strong employment. Generally, tax return volume was expected to increase compared to the prior year, however, the industry volume declined year over year due to more stimulus filers not returning and the tax deadline being extended in certain states due to natural disasters. \nIn fiscal year 2023, revenue increased $8.9 million over the prior year, despite the decline in industry volume. U.S. assisted tax preparation revenues were higher $72.5 million primarily due to an increase in net average charge. Lower Emerald Card\u00ae revenues, which is the result of the discontinuance of prior year federal programs, and lower Refund Transfer volume partially offset this increase. Operating expenses increased $5.1 million primarily due to higher labor costs, which was partially offset by lower consulting and outsourced services expenses. Higher interest income and lower interest expense on borrowings resulted in an increase in income from continuing operations before income taxes of $52.1 million, or 7.9%. Income tax expense increased $51.0 million, or 51.8%, due to a higher effective tax rate in the current year. Net income from continuing operations of $561.8 million increased $1.2 million from the prior year.\nFiscal Year 2023 Compared to Fiscal Year 2022\nRevenues\nOperating Expenses\nNet Income from Continuing Operations\n$3.47B\n0.3%\n$2.72B\n0.2%\n$561.8M\n0.2%\nDiluted EPS from Continuing Operations\nEBITDA\n(1)\n from Continuing Operations\n$3.56\nReported:\n9.2%\n$914.7M\n2.8%\n$3.82\nAdjusted\n(1)\n:\n8.8%\n(1)\n  See \"\nNon-GAAP Financial Information\n\" at the end of this item for a reconciliation of non-GAAP measures.\nFiscal Year End\nOn June 9, 2021, the Board of Directors approved a change in the Company's fiscal year end from April 30 to June 30. The Company's transition period was from May 1, 2021 to June 30, 2021 (Transition Period). \n \n22\n2023 Form 10-K |\n H&R Block, Inc.\nConsolidated \u2013 Financial Results\n(in\u00a0000s, except per share amounts)\nYear ended June 30,\n2023\n2022\n$ Change\n% Change\nRevenues:\nU.S. tax preparation and related services:\nAssisted tax preparation\n$\n2,167,138\n\u00a0\n$\n2,094,612\u00a0\n$\n72,526\u00a0\n3.5\u00a0\n%\nRoyalties\n210,631\n\u00a0\n225,242\u00a0\n(14,611)\n(6.5)\n%\nDIY tax preparation\n314,758\n\u00a0\n319,086\u00a0\n(4,328)\n(1.4)\n%\nRefund Transfers\n143,310\n\u00a0\n162,893\u00a0\n(19,583)\n(12.0)\n%\nPeace of Mind\u00ae Extended Service Plan\n95,181\n\u00a0\n94,637\u00a0\n544\u00a0\n0.6\u00a0\n%\nTax Identity Shield\u00ae\n38,265\n\u00a0\n39,114\u00a0\n(849)\n(2.2)\n%\nOther\n45,252\n\u00a0\n45,961\u00a0\n(709)\n(1.5)\n%\nTotal U.S. tax preparation and related services\n3,014,535\n\u00a0\n2,981,545\u00a0\n32,990\u00a0\n1.1\u00a0\n%\nFinancial services:\nEmerald Card\u00ae and Spruce\nSM\n84,651\n\u00a0\n125,444\u00a0\n(40,793)\n(32.5)\n%\nInterest and fee income on Emerald Advance\nSM\n47,554\n\u00a0\n43,981\u00a0\n3,573\u00a0\n8.1\u00a0\n%\nTotal financial services\n132,205\n\u00a0\n169,425\u00a0\n(37,220)\n(22.0)\n%\nInternational \n235,131\n\u00a0\n231,335\u00a0\n3,796\u00a0\n1.6\u00a0\n%\nWave\n90,314\n\u00a0\n80,965\u00a0\n9,349\u00a0\n11.5\u00a0\n%\nTotal revenues\n$\n3,472,185\n\u00a0\n$\n3,463,270\u00a0\n$\n8,915\u00a0\n0.3\u00a0\n%\nCompensation and benefits:\nField wages\n841,742\n\u00a0\n808,903\u00a0\n(32,839)\n(4.1)\n%\nOther wages\n273,850\n\u00a0\n284,689\u00a0\n10,839\u00a0\n3.8\u00a0\n%\nBenefits and other compensation\n220,530\n\u00a0\n206,902\u00a0\n(13,628)\n(6.6)\n%\n1,336,122\n\u00a0\n1,300,494\u00a0\n(35,628)\n(2.7)\n%\nOccupancy\n428,167\n\u00a0\n413,162\u00a0\n(15,005)\n(3.6)\n%\nMarketing and advertising\n286,255\n\u00a0\n284,244\u00a0\n(2,011)\n(0.7)\n%\nDepreciation and amortization\n130,501\n\u00a0\n142,178\u00a0\n11,677\u00a0\n8.2\u00a0\n%\nBad debt\n60,401\n\u00a0\n71,778\u00a0\n11,377\u00a0\n15.9\u00a0\n%\nOther\n482,041\n\u00a0\n506,517\u00a0\n24,476\u00a0\n4.8\u00a0\n%\nTotal operating expenses\n2,723,487\n\u00a0\n2,718,373\u00a0\n(5,114)\n(0.2)\n%\nOther income (expense), net\n35,492\n\u00a0\n2,454\u00a0\n33,038\u00a0\n1,346.3\u00a0\n%\nInterest expense on borrowings\n(72,978)\n(88,282)\n15,304\u00a0\n17.3\u00a0\n%\nIncome from continuing operations before income taxes\n711,212\n\u00a0\n659,069\u00a0\n52,143\u00a0\n7.9\u00a0\n%\nIncome taxes\n149,412\n\u00a0\n98,423\u00a0\n(50,989)\n(51.8)\n%\nNet income from continuing operations\n561,800\n\u00a0\n560,646\u00a0\n1,154\u00a0\n0.2\u00a0\n%\nNet loss from discontinued operations\n(8,100)\n(6,972)\n(1,128)\n(16.2)\n%\nNet income\n$\n553,700\n\u00a0\n$\n553,674\u00a0\n$\n26\u00a0\n\u2014\u00a0\n%\nDILUTED EARNINGS PER SHARE:\nContinuing operations\n$\n3.56\n\u00a0\n$\n3.26\u00a0\n$\n0.30\u00a0\n9.2\u00a0\n%\nDiscontinued operations\n(0.05)\n(0.04)\n(0.01)\n(25.0)\n%\nConsolidated\n$\n3.51\n\u00a0\n$\n3.22\u00a0\n$\n0.29\u00a0\n9.0\u00a0\n%\nAdjusted diluted EPS\n(1)\n$\n3.82\n\u00a0\n$\n3.51\u00a0\n$\n0.31\u00a0\n8.8\u00a0\n%\nEBITDA\n(1)\n$\n914,691\n\u00a0\n$\n889,529\u00a0\n$\n25,162\u00a0\n2.8\u00a0\n%\n(1)\n\u00a0\u00a0\u00a0\u00a0All non-GAAP measures are results from continuing operations. See \"\nNon-GAAP Financial Information\n\" at the end of this item for a reconciliation of non-GAAP measures. \nH&R Block, Inc.\n | 2023 Form 10-K\n23\nFISCAL YEAR 2023 COMPARED TO FISCAL YEAR 2022\nRevenues increased $8.9 million, or 0.3%, from the prior year. U.S. assisted tax preparation revenues increased $72.5 million, or 3.5%, due to a 4.0% increase in net average charge, partially offset by lower tax return volumes in the current year. U.S. royalties revenue decreased $14.6 million, or 6.5%, due to lower volumes, partially offset by a higher net average charge in the current year. During the year we purchased franchise offices which results in increasing tax preparation revenues and decreasing royalties as the revenues and returns become company-owned after the acquisition. Through the year ended June 30, 2023, our total assisted tax return volume, which includes both company-owned and franchise offices, decreased 3.2% from the prior year.\nU.S. DIY tax preparation revenues decreased $4.3 million, or 1.4%, due to a decline in online paid returns and lower software sales in the current year. Refund Transfer revenues decreased $19.6 million, or 12.0%, due to fewer Refund Transfers in the current year. \nEmerald Card\u00ae and Spruce\nSM\n revenues decreased $40.8 million, or 32.5%, primarily due to higher Emerald Card\u00ae activity in the prior year, which was the result of the IRS loading Child Tax Credits monthly to Emerald Cards\u00ae and lower Refund Transfer volume in the current year. Wave revenues increased $9.3 million, or 11.5%, due to higher small business payments processing volumes.\nTotal operating expenses increased $5.1 million, or 0.2%, from the prior year. Field wages increased $32.8 million, or 4.1%, primarily due to higher wages in the current year. Other wages decreased $10.8 million, or 3.8%, due to lower corporate bonuses in the current year. Benefits and other compensation increased $13.6 million, or 6.6%, due to higher payroll taxes and employee insurance. \nOccupancy expense increased $15.0 million or 3.6%, primarily due to higher rent and office repairs. Depreciation and amortization expense decreased $11.7 million, or 8.2%, due primarily to lower amortization of acquired intangibles. Bad debt expense decreased $11.4 million, or 15.9%, primarily due to fewer Refund Transfers and lower bad debt rates compared to the prior year.\nOther operating expenses decreased $24.5 million, or 4.8%. The components of other expenses are as follows:\n(in 000s)\nYear ended June 30,\n2023\n2022\n$ Change\n% Change\nConsulting and outsourced services\n$\n109,120\n\u00a0\n$\n136,397\u00a0\n$\n27,277\u00a0\n20.0\u00a0\n%\nBank partner fees\n24,108\n\u00a0\n26,648\u00a0\n2,540\u00a0\n9.5\u00a0\n%\nClient claims and refunds\n29,484\n\u00a0\n31,814\u00a0\n2,330\u00a0\n7.3\u00a0\n%\nEmployee and travel expenses\n39,262\n\u00a0\n31,714\u00a0\n(7,548)\n(23.8)\n%\nTechnology-related expenses\n102,753\n\u00a0\n97,934\u00a0\n(4,819)\n(4.9)\n%\nCredit card/bank charges\n96,074\n\u00a0\n90,209\u00a0\n(5,865)\n(6.5)\n%\nInsurance\n8,806\n\u00a0\n15,224\u00a0\n6,418\u00a0\n42.2\u00a0\n%\nLegal fees and settlements\n12,058\n\u00a0\n19,625\u00a0\n7,567\u00a0\n38.6\u00a0\n%\nSupplies\n29,278\n\u00a0\n28,846\u00a0\n(432)\n(1.5)\n%\nOther\n31,098\n\u00a0\n28,106\u00a0\n(2,992)\n(10.6)\n%\n$\n482,041\n\u00a0\n$\n506,517\u00a0\n$\n24,476\u00a0\n4.8\u00a0\n%\nConsulting and outsourced services expense decreased $27.3 million, or 20.0%, due to higher spend in the prior year related to our strategic imperatives, and lower call center volumes and Emerald Card\u00ae data processing in the current year. Employee and travel expenses increased $7.5 million, or 23.8%, due to more travel in the current year. Insurance expense decreased $6.4 million, or 42.2%, due to due to favorable developments in insurance loss reserves. Legal fees and settlements expense decreased $7.6 million, or 38.6%, due to lower fees in the current year.\nOther income (expense), net increased $33.0 million primarily due to higher interest income and income from a legal settlement in the current year. Interest expense on borrowings decreased $15.3 million, or 17.3%, due to the repayment of our $500 million 5.500% Senior Notes in May 2022, partially offset by higher interest expense on our CLOC borrowings in the current year.\n24\n2023 Form 10-K |\n H&R Block, Inc.\nWe recorded income tax expense of $149.4 million in the current year compared to $98.4 million in the prior year. The increase is due to higher pretax income and effective tax rate in the current year. The effective tax rate for the year ended June 30, 2023, and 2022 was 21.0% and 14.9%, respectively. See \nItem 8, note 9\n to the consolidated financial statements for additional discussion.\nSee the discussion of loss contingencies related to our discontinued operations in \nItem 1A, Risk Factors\n and in \nItem 8, note 12\n to the consolidated financial statements.\nYEAR ENDED APRIL 30, 2021 COMPARED TO YEAR ENDED APRIL 30, 2020\nThe comparison of the year ended April 30, 2021 to April 30, 2020 has been omitted from this Form 10-K, but can be found in our Form 10-K for the fiscal year ended June 30, 2022, filed on August 16, 2022.\nTWO MONTHS ENDED JUNE 30, 2021 COMPARED TO TWO MONTHS ENDED JUNE 30, 2020\nThe comparison of the two months ended June 30, 2021 to the two months ended June 30, 2020 has been omitted from this Form 10-K, but can be found in our Form 10-K for the fiscal year ended June 30, 2022, filed on August 16, 2022.\nFINANCIAL CONDITION\nThese comments should be read in conjunction with the consolidated balance sheets and consolidated statements of cash flows included in \nItem 8\n.\nCAPITAL RESOURCES AND LIQUIDITY\n \u2013 \nOVERVIEW \n\u2013 Our primary sources of capital and liquidity include cash from operations (including changes in working capital), draws on our CLOC, and issuances of debt. We use our sources of liquidity primarily to fund working capital, service and repay debt, pay dividends, repurchase shares of our common stock, and acquire businesses. \nOur operations are highly seasonal and substantially all of our revenues and cash flow are generated during the period from February through April in a typical year. Therefore, we normally require the use of cash to fund losses and working capital needs, periodically resulting in a working capital deficit, from May through January. We typically have relied on available cash balances from the prior tax season and borrowings to meet liquidity needs.\nGiven the likely availability of a number of liquidity options discussed herein, we believe that in the absence of any unexpected developments, our existing sources of capital as of June 30, 2023 are sufficient to meet our future operating and financing needs.\u00a0\u00a0\u00a0\u00a0\nDISCUSSION OF CONSOLIDATED STATEMENTS OF CASH FLOWS \n\u2013 The following table summarizes our statements of cash flows for fiscal year 2023 and 2022. See \nItem 8\n for the complete consolidated statements of cash flows for these periods.\n(in 000s)\nYear ended June 30,\n2023\n2022\nNet cash provided by (used in):\nOperating activities\n$\n821,841\n\u00a0\n$\n808,537\u00a0\nInvesting activities\n(101,389)\n(76,541)\nFinancing activities\n(750,992)\n(1,257,346)\nEffects of exchange rates on cash\n(4,857)\n(8,101)\nNet decrease in cash and cash equivalents, including restricted balances\n$\n(35,397)\n$\n(533,451)\n\u00a0\u00a0\u00a0\u00a0\nOperating Activities. \nCash provided by operating activities totaled \n$821.8 million\n for the year ended June 30, 2023 compared to \n$808.5 million in the prior year period. The change is primarily due to the receipt of income tax receivables in the current year, partially offset by lower bonus accruals in the current year.\n\u00a0\u00a0\u00a0\u00a0Investing Activities. \nCash used in investing activities totaled $101.4 million for the year ended June 30, 2023 compared to $76.5 million for the prior year period. The increase is primarily due to higher payments to acquire businesses and capital expenditures in the current year.\nH&R Block, Inc.\n | 2023 Form 10-K\n25\n\u00a0\u00a0\u00a0\u00a0Financing Activities. \nCash us\ned in financing activities totaled $751.0 million for the year ended June 30, 2023 compared to $1.3 billion for the prior year period. The change is primarily due to repayment of our $500 million 5.500% Senior Notes in the prior year.\n\u00a0\u00a0\u00a0\u00a0CASH REQUIREMENTS\n \u2013 \n\u00a0\u00a0\u00a0\u00a0Dividends and Share Repurchase.\n Returning capital to shareholders in the form of dividends and the repurchase of outstanding shares has historically been a significant component of our capital allocation plan.\n\u00a0\u00a0\u00a0\u00a0We have consistently paid quarterly dividends. Dividends paid totaled $177.9 million and $186.5 million in the years ended June 30, 2023 and 2022, respectively. Although we have historically paid dividends and plan to continue to do so, there can be no assurances that circumstances will not change in the future that could affect our ability or decisions to pay dividends.\nIn August 2022, the Board of Directors approved a $1.25 billion share repurchase program, effective through fiscal year 2025. During the year ended June 30, 2023, we repurchased $550.2 million of our common stock at an average price of $37.59 per share. In the prior year, we repurchased $550.3 million of our common stock at an average price of $23.84 per share. Our share repurchase program has remaining authorization of $700.0 million which is effective through fiscal year 2025.\nShare repurchases may be effectuated through open market transactions, some of which may be effectuated under SEC Rule 10b5-1. The Company may cancel, suspend, or extend the time period for the purchase of shares at any time. Any repurchases will be funded primarily through available cash and cash from operations. Although we may continue to repurchase shares, there is no assurance that we will purchase up to the full Board authorization.\nThe following table summarizes our shares outstanding, shares repurchased, and annual dividends per share:\n(in 000s, except per share amounts)\nYear ended \nJune 30, 2023\nYear ended \nJune 30, 2022\nTwo months ended\nJune 30, 2021\n(Transition Period)\nYear ended\nApril 30, 2021\nYear ended\nApril 30, 2020\nShares outstanding\n146,150\n\u00a0\n159,930\u00a0\n181,813\u00a0\n181,466\u00a0\n192,475\u00a0\nShares repurchased\n14,635\n\u00a0\n23,085\u00a0\n\u2014\u00a0\n11,551\n10,130\nDividends declared per share\n$\n1.16\n\u00a0\n$\n1.08\u00a0\n$\n0.27\u00a0\n$\n1.04\u00a0\n$\n1.04\u00a0\n\u00a0\u00a0\u00a0\u00a0Capital Investment. \nCapital expenditures totaled $69.7 million and $62.0 million for the years ended June 30, 2023 and 2022, respectively\n. \nOur capital expenditures relate primarily to recurring improvements to retail offices, as well as investments in computers, software and related assets. In addition to our capital expenditures, we also made payments to acquire businesses. We acquired franchise and competitor businesses totaling $48.2 million and $35.9 million during the years ended Ju\nne 30, 2023 and 2022, respectively.\n See \nItem 8, note 6\n for additional information on our acquisitions. \n   Contractual Obligations. \nWe are party to many contractual obligations involving commitments to make payments to third parties, which impact our short-term and long-term liquidity and capital resource needs. Our contractual obligations primarily consist of operating leases, contingent acquisition payments, and long-term debt and related interest payments. See \nItem 8, note 7\n, \n10\n, and \n11\n to the consolidated financial statements for additional information.\n\u00a0\u00a0\u00a0\u00a0FINANCING RESOURCES \n\u2013 Our CLOC has capacity up to $1.5 billion and is scheduled to expire in June 2026. Proceeds under the CLOC may be used for working capital needs or for other general corporate purposes. We were in compliance with our CLOC covenants as of June 30, 2023. As of June 30, 2023, amounts available to borrow under the CLOC were not limited by the debt-to-EBITDA covenant. We had no balance outstanding under our CLOC as of June 30, 2023.\n\u00a0\u00a0\u00a0\u00a0See \nItem 8, note 7\n to the consolidated financial statements for discussion of our CLOC and Senior Notes.\n26\n2023 Form 10-K |\n H&R Block, Inc.\nThe following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of June 30, 2023 and 2022:\nAs of\nJune 30, 2023\nJune 30, 2022\nShort-term\nLong-term\nOutlook\nShort-term\nLong-term\nOutlook\nMoody's\nP-3\nBaa3\nPositive\nP-3\nBaa3\nStable\nS&P\nA-2\nBBB\nStable\nA-2\nBBB\nStable\nCASH AND OTHER ASSETS\n \u2013 As of June 30, 2023, we held cash and cash equivalents, excluding restricted amounts, of $987.0 million, including $293.4\u00a0million held by our foreign subsidiaries.\nForeign Operations.\n Seasonal borrowing needs of our Canadian operations are typically funded by our U.S. operations. To mitigate foreign currency risk, we sometimes enter into foreign exchange forward contracts. There were no forward contracts outstanding as of June 30, 2023. \nWe do not currently intend to repatriate non-borrowed funds held by our foreign subsidiaries in a manner that would trigger a tax liability.\nThe impact of changes in foreign exchange rates during the period on our international cash balances resulted in a decrease of $4.9 million and\n \n$8.1 million\n during the years ended June 30, \n2023 and \n2022, respectively. \nSUMMARIZED GUARANTOR FINANCIAL STATEMENTS \n\u2013\n \nBlock Financial is a 100% owned indirect subsidiary of H&R Block, Inc. Block Financial is the Issuer and H&R Block, Inc. is the full and unconditional Guarantor of our Senior Notes, CLOC and other indebtedness issued from time to time. \nThe following table presents summarized financial information for H&R Block, Inc. (Guarantor) and Block Financial (Issuer) on a combined basis after intercompany eliminations and excludes investments in and equity earnings in non-guarantor subsidiaries.\nSUMMARIZED BALANCE SHEET\n(in\u00a0000s)\nAs of June 30, 2023\nGUARANTOR AND ISSUER\nCurrent assets\n$\n37,407\n\u00a0\nNoncurrent assets\n1,725,234\n\u00a0\nCurrent liabilities\n78,259\n\u00a0\nNoncurrent liabilities\n1,494,010\n\u00a0\nSUMMARIZED STATEMENTS OF OPERATIONS\n(in\u00a0000s)\nYear ended June 30, 2023\nGUARANTOR AND ISSUER\nTotal revenues\n$\n160,236\n\u00a0\nIncome from continuing operations before income taxes\n40,285\n\u00a0\nNet income from continuing operations\n31,713\n\u00a0\nNet income\n23,613\n\u00a0\nThe table above reflects $1.7\u00a0billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries.\nH&R Block, Inc.\n | 2023 Form 10-K\n27\nCRITICAL ACCOUNTING ESTIMATES \nWe consider the estimates discussed below to be critical to understanding our financial statements, as they require the use of significant judgment and estimation in order to measure, at a specific point in time, matters that are inherently uncertain. Specific methods and assumptions for these critical accounting estimates are described in the following paragraphs. We have reviewed and discussed each of these estimates with the Audit Committee of our Board of Directors. For all of these estimates, we caution that future events rarely develop precisely as forecasted and estimates routinely require adjustment and may require material adjustment. \nSee \nItem 8, note 1\n to the consolidated financial statements for discussion of our significant accounting policies.\nLITIGATION AND OTHER RELATED CONTINGENCIES \n\u2013\n \nNature of Estimates Required.\n We accrue liabilities related to certain legal matters for which we believe it is probable that a loss has been incurred and the amount of such loss can be reasonably estimated. Assessing the likely outcome of pending or threatened litigation or other related loss contingencies, including the amount of potential loss, if any, is highly subjective.\u00a0\nAssumptions and Approach Used.\n We are subject to pending or threatened litigation and other related loss contingencies, which are described in \nItem 8, note 12\n to the consolidated financial statements. It is our policy to routinely assess the likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable losses. A determination of the amount of the liability required to be accrued, if any, for these contingencies is made after analysis of each known issue and an analysis of historical experience. In cases where we have concluded that a loss is only reasonably possible or remote, or is not reasonably estimable, no liability is accrued. \nSensitivity of Estimate to Change.\n It is reasonably possible that pending or future litigation and other related loss contingencies may vary from the amounts accrued. Our estimate of the aggregate range of reasonably possible losses includes (1) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where a liability has not been accrued but we believe a loss is reasonably possible. This aggregate range represents only those losses as to which we are currently able to estimate a reasonably possible loss or range of loss. It does not represent our maximum loss exposure. As of June 30, 2023, we believe the estimate of the aggregate range of reasonably possible losses in excess of amounts accrued, where the range of loss can be estimated, was not material.\nHowever, our judgments on whether a loss is probable, reasonably possible, or remote, and our estimates of probable loss amounts may differ from actual results due to difficulties in predicting changes in or interpretations of, laws, predicting the outcome of court trials, arbitration hearings, settlement discussions and related activity, predicting the outcome of class certification actions, and numerous other uncertainties. Due to the number of claims which are periodically asserted against us, and the magnitude of damages sought in those claims, actual losses in the future may significantly differ from our current estimates. \nOur accrued liabilities for litigation and other related contingencies are disclosed in \nItem 8, note 12\n to the consolidated financial statements.\nINCOME TAXES\n \u2013 \nUNCERTAIN TAX POSITIONS \n\u2013\nNature of Estimates Required.\n The income tax laws of jurisdictions in which we operate are complex and subject to different interpretations by the taxpayer and applicable government taxing authorities. Income tax returns filed by us are based on our interpretation of these rules. The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed assessments, including interest or penalties. We accrue a liability for unrecognized tax benefits arising from uncertain tax positions reflecting our judgment as to the ultimate resolution of the applicable issues. \nAssumptions and Approach Used.\n Differences between a tax position taken or expected to be taken in our tax returns and the amount of benefit recorded in our financial statements result in unrecognized tax benefits. Unrecognized tax benefits are recorded in the balance sheet as either a liability or reductions to recorded tax assets as applicable. Our uncertain tax positions arise from items such as apportionment of income for state purposes, transfer pricing, and the deductibility of intercompany transactions. We evaluate each uncertain tax \n28\n2023 Form 10-K |\n H&R Block, Inc.\nposition based on its technical merits. For each position, we consider all applicable information including relevant tax laws, the taxing authorities' potential position, our tax return position, and the possible settlement outcomes to determine the amount of liability to record. In making this determination, we assume the tax authority has all relevant information at its disposal. \nSensitivity of Estimate to Change.\n Our assessment of the technical merits and measurement of tax benefits associated with uncertain tax positions is subject to a high degree of judgment and estimation. Actual results may differ from our current judgments due to a variety of factors, including changes in law, interpretations of law by taxing authorities that differ from our assessments, changes in the jurisdictions in which we operate and results of routine tax examinations. We believe we have adequately provided for any reasonably foreseeable outcomes related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, or when statutes of limitation on potential assessments expire. As a result, our effective tax rate may fluctuate on a quarterly basis. \nA schedule of changes in our uncertain tax positions during the last three years is included in \nItem 8, note 9\n to the consolidated financial statements.\nGOODWILL \n\u2013\nNature of Estimates Required.\n We test goodwill for impairment annually in the third quarter or more frequ\nently if events occur or circumstances change which would, more likely than not, reduce the fair value of a reporting unit below its carrying value. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis. Our goodwill impairment analysis utilizes both income and market approaches, which includes revenue and expense forecasts, changes in working capital and selection of a discount rate, all of which are highly subjective.\u00a0\nAssumptions and Approach Used. \nOur goodwill impairment analysis is performed at the reporting unit level. Our valuation methods include a discounted cash flow model for the income approach and the guideline public company and market capitalization methods for the market approach. The income approach requires significant management judgment with respect to revenue and expense forecasts, anticipated changes in working capital and selection of an appropriate discount rate. Changes in projections or assumptions could materially affect our estimate of reporting unit fair values. The use of different assumptions could increase or decrease estimated discounted future operating cash flows and could affect our conclusion regarding the existence or amount of potential impairment.\nSensitivity of Estimate to Change.\n Estimates of fair value may be adversely impacted by declining economic conditions and changes in the industries and markets in which we operate. Additionally, if future operating results of our reporting units are below our current modeled expectations, fair value estimates may decline. Any of these factors could result in future impairments, and those impairments could be significant.\nA schedule of changes in our goodwill balances, including any impairment charges, is included in \nItem 8, note 6 \nto the consolidated financial statements.\nNEW ACCOUNTING PRONOUNCEMENTS\nSee \nItem 8, note 1\n to the consolidated financial statements for any recently issued accounting pronouncements.\nREGULATORY ENVIRONMENT\n \nThe federal government, various state, local, provincial and foreign governments, and some self-regulatory organizations have enacted statutes and ordinances, or adopted rules and regulations, regulating many aspects of our business. These aspects include, but are not limited to, commercial income tax return preparation, income tax courses, the electronic filing of income tax returns, the offering of RTs, privacy and data security, consumer protection, marketing and advertising, franchising, antitrust and competition, sales methods, and financial services and products. We work to comply with those laws that are applicable to us or our services or products, and we continue to monitor developments in the regulatory environment in which we operate. See further discussion of these items in our ",
+  "item7a": ">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK \nINTEREST RATE RISK\nGENERAL \n\u2013 We have a formal investment policy that strives to minimize the market risk exposure of our cash equivalents, which are primarily affected by credit quality and movements in interest rates. The guidelines in our investment policy focus on managing liquidity and preserving principal and earnings.\nOur cash equivalents are primarily held for liquidity purposes and are comprised of high quality, short-term investments, including money market funds and U.S. Treasuries. Because our cash and cash equivalents have a short maturity, our portfolio's market value is relatively insensitive to interest rate changes.\nInterest expense on our CLOC borrowings is determined based on short-term interest rates. As our CLOC borrowings are generally seasonal, interest rate risk typically increases during the months of November through March. We had no outstanding balance on our CLOC as of June 30, 2023.\nOur long-term debt as of June 30, 2023, consists primarily of fixed-rate Senior Notes; therefore, a change in interest rates would have no impact on consolidated pretax earnings until these notes mature or are refinanced. The interest we pay on our Senior Notes is fixed and is subject to adjustment based upon our credit ratings. See \nItem 8, note 7\n to the consolidated financial statements. \nFOREIGN EXCHANGE RATE RISK\nOur operations in international markets are exposed to movements in currency exchange rates. The currencies primarily involved are the Canadian dollar and the Australian dollar. We translate revenues and expenses related to these operations at the average of exchange rates in effect during the period. Assets and liabilities of foreign \nH&R Block, Inc.\n | 2023 Form 10-K\n31\nsubsidiaries are translated into U.S. dollars at exchange rates at the end of the year. Translation adjustments are recorded as a separate component of other comprehensive income in stockholders' equity. Translation of financial results into U.S. dollars does not presently materially affect, and has not historically materially affected, our consolidated financial results, although such changes do affect the year-to-year comparability of the operating results in U.S. dollars of our international \nbusinesses. The impact of changes in foreign exchange rates during the period on our international cash balances resulted in a decrease of $4.9 million and $8.1 million during the years ended June 30, \n2023 and\n 2022, respectively. We estimate a 10% change in foreign exchange rates by itself would impact consolidated pretax income for the years ended June 30, 2023 and 2022 by $3.8 million and $2.8 million, respectively, and cash balances, excluding restricted balances, as of June 30, 2023 and 2022 by $13.0 million and $18.5 million, respectively. \nWe generally use foreign exchange forward contracts to mitigate foreign currency exchange rate risk for loans we advance to our Canadian operations. We had no forward contracts outstanding at June 30, 2023 or \n2022\n.\n32\n2023 Form 10-K |\n H&R Block, Inc.\nITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA \nDISCUSSION OF FINANCIAL RESPONSIBILITY\nH&R Block's management is responsible for the integrity and objectivity of the information contained in this document. Management is responsible for the consistency of reporting this information and for ensuring that accounting principles generally accepted in the U.S. are properly applied. In discharging this responsibility, management maintains an extensive program of internal audits and requires members of management to certify financial information within their scope of management. Our system of internal control over financial reporting also includes formal policies and procedures, including a Code of Business Ethics and Conduct that reinforces our commitment to ethical business conduct and is designed to encourage our employees and directors to act with high standards of integrity in all that they do. \nThe Audit Committee of the Board of Directors, composed solely of independent outside directors, meets periodically with management, the independent auditor and the Vice President, Audit Services (our chief internal auditor) to review matters relating to our financial statements, internal audit activities, internal accounting controls and non-audit services provided by the independent auditors. The independent auditor and the Vice President, Audit Services have full access to the Audit Committee and meet with the committee, both with and without management present, to discuss the scope and results of their audits, including internal controls and financial matters.\nDeloitte\u00a0& Touche LLP audited our consolidated financial statements for the fiscal years ended June 30, 2023 and 2022, the two months ended June 30, 2021 (Transition Period), and for the fiscal year ended April 30, 2021. The audits were conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).\nMANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING\nManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 12a-15(f). Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in \"Internal Control - Integrated Framework\" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), using the 2013 framework, as of June\u00a030, 2023.\nBased on our assessment, our Chief Executive Officer and Chief Financial Officer concluded that as of June\u00a030, 2023, the Company's internal control over financial reporting was effective based on the criteria set forth by COSO, using the 2013 framework. The Company's external auditor, Deloitte\u00a0& Touche LLP, an independent registered public accounting firm, has issued an audit report on the effectiveness of the Company's internal control over financial reporting.\n/s/ Jeffrey J. Jones II\n/s/ Tony G. Bowen\nJeffrey J. Jones II\nTony G. Bowen\nPresident and Chief Executive Officer\nChief Financial Officer\nH&R Block, Inc.\n | 2023 Form 10-K\n33\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\nTo the Board of Directors and Stockholders of H&R Block, Inc\n. \nOpinion on the Financial Statements\nWe have audited the accompanying consolidated balance sheets of H&R Block, Inc. and subsidiaries (the \"Company\") as of June 30, 2023, and June 30, 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders' equity, and cash flows, for the years ended June 30, 2023, and June 30, 2022, the two months ended June 30, 2021 (Transition Period) and the year ended April 30, 2021, and the related notes (collectively referred to as the \"financial statements\"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023, and June 30, 2022, and the results of its operations and its cash flows for the years ended June 30, 2023 and June 30, 2022, the two months ended June 30, 2021 (Transition Period) and the year ended April 30, 2021, in conformity with accounting principles generally accepted in the United States of America.\nWe have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control \u2014 Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 17, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. \nBasis for Opinion\nThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.\nCritical Audit Matter\nThe critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.\nIncome Taxes - Uncertain Tax Positions - Refer to Note 9 to the consolidated financial statements\nCritical Audit Matter Description\nThe Company operates in multiple income tax jurisdictions both within the United States and internationally. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on transfer pricing analyses of comparable companies and predictions of future economic conditions. Transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact the mix of earnings in countries with differing statutory tax rates. The Company accrues a liability for unrecognized tax benefits arising from uncertain tax positions reflecting their judgment as to the ultimate resolution of the applicable issues. For each position, management considers all applicable information including relevant tax laws, the taxing authorities' potential position, management\u2019s tax return position, and the \n34\n2023 Form 10-K |\n H&R Block, Inc.\npossible settlement outcomes to determine the amount of liability to record. The Company\u2019s unrecognized tax benefits as of June 30, 2023, were $240 million.\nWe identified the Company\u2019s determination of uncertain tax positions measured in accordance with the Company\u2019s transfer pricing policies as a critical audit matter because of the significant judgment in the application of the tax law in applying the arm\u2019s length standard to intercompany transactions and scrutiny by local tax authorities. The significant level of judgment increases the uncertainty in evaluating the valuation of tax balances, including any uncertain tax positions that relate to the Company\u2019s transfer pricing. As a result, we utilized a high degree of auditor judgment and increased the extent of work performed, including involving our income tax specialists to evaluate whether management\u2019s judgments in interpreting and applying tax laws were appropriate.\nHow the Critical Audit Matter Was Addressed in the Audit\nOur audit procedures related to the Company\u2019s uncertain tax positions for transfer pricing included the following, among others:\n\u2022\nWe tested the effectiveness of controls over management\u2019s evaluation and determination of uncertain tax positions. This evaluation includes management\u2019s assessment of tax positions taken by the Company on its tax returns, including transfer pricing terms and conditions, and the related recorded amounts for uncertain tax positions\n\u2022\nWith the assistance of our income tax specialists, we evaluated the Company\u2019s transfer pricing methodologies and performed the following:\n\u25e6\nEvaluated the appropriateness of management\u2019s application of jurisdictional tax regulations in applying the arm\u2019s length standard to intercompany transactions.\n\u25e6\nEvaluated the application of the transfer pricing method to transactions subject to transfer pricing. \n\u25e6\nTested the application of the transfer pricing policies by legal entity through an independent calculation. \n\u25e6\nEvaluated management\u2019s approach to identifying uncertain tax positions related to changes in the transfer pricing terms and conditions and tested the calculation of the tax positions at the individual legal entity level and at the consolidated level.\n/s/ \nDeloitte & Touche LLP\nKansas City, Missouri\n \nAugust 17, 2023\nWe have served as the Company's auditor since 2007.\nH&R Block, Inc.\n | 2023 Form 10-K\n35\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\nTo the Board of Directors and Stockholders of H&R Block, Inc.\nOpinion on Internal Control over Financial Reporting\nWe have audited the internal control over financial reporting of H&R Block, Inc. and subsidiaries (the \u201cCompany\u201d) as of June 30, 2023, based on criteria established in Internal Control \u2014 Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control \u2014 Integrated Framework (2013) issued by COSO.\nWe have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2023, of the Company and our report dated August 17, 2023, expressed an unqualified opinion on those financial statements.\nBasis for Opinion \nThe Company\u2019s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company\u2019s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\nWe conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.\nDefinition and Limitations of Internal Control over Financial Reporting\nA company\u2019s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company\u2019s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company\u2019s assets that could have a material effect on the financial statements.\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\n/s/ Deloitte & Touche LLP\nKansas City, Missouri   \nAugust 17, 2023\n36\n2023 Form 10-K |\n H&R Block, Inc.\nCONSOLIDATED STATEMENTS OF OPERATIONS\nAND COMPREHENSIVE INCOME\n(in\u00a0000s,\u00a0except\u00a0per\u00a0share\u00a0amounts)\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nREVENUES:\nService revenues\n$\n3,156,921\n\u00a0\n$\n3,134,686\n\u00a0\n$\n427,575\u00a0\n$\n3,067,223\n\u00a0\nRoyalty, product and other revenues\n315,264\n\u00a0\n328,584\n\u00a0\n38,531\u00a0\n346,764\n\u00a0\n3,472,185\n\u00a0\n3,463,270\n\u00a0\n466,106\u00a0\n3,413,987\n\u00a0\nOPERATING EXPENSES:\nCosts of revenues\n1,923,452\n\u00a0\n1,881,262\n\u00a0\n232,763\u00a0\n1,842,092\n\u00a0\nSelling, general and administrative\n800,035\n\u00a0\n837,111\n\u00a0\n98,988\u00a0\n802,268\n\u00a0\nTotal operating expenses\n2,723,487\n\u00a0\n2,718,373\n\u00a0\n331,751\u00a0\n2,644,360\n\u00a0\nOther income (expense), net\n35,492\n\u00a0\n2,454\n\u00a0\n672\u00a0\n5,979\n\u00a0\nInterest expense on borrowings\n(\n72,978\n)\n(\n88,282\n)\n(14,032)\n(\n106,870\n)\nIncome from continuing operations before income taxes\n711,212\n\u00a0\n659,069\n\u00a0\n120,995\u00a0\n668,736\n\u00a0\nIncome taxes\n149,412\n\u00a0\n98,423\n\u00a0\n29,876\u00a0\n78,524\n\u00a0\nNet income from continuing operations\n561,800\n\u00a0\n560,646\n\u00a0\n91,119\n\u00a0\n590,212\n\u00a0\nNet loss from discontinued operations, net of tax benefits of $\n2,423\n, $2,093, $\n451\n and $\n3,883\n(\n8,100\n)\n(\n6,972\n)\n(1,509)\n(\n6,421\n)\nNET INCOME\n$\n553,700\n\u00a0\n$\n553,674\n\u00a0\n$\n89,610\u00a0\n$\n583,791\n\u00a0\nBASIC EARNINGS PER SHARE:\nContinuing operations\n$\n3.63\n\u00a0\n$\n3.31\n\u00a0\n$\n0.50\u00a0\n$\n3.15\n\u00a0\nDiscontinued operations\n(\n0.05\n)\n(\n0.04\n)\n(0.01)\n(\n0.04\n)\nConsolidated\n$\n3.58\n\u00a0\n$\n3.27\n\u00a0\n$\n0.49\u00a0\n$\n3.11\n\u00a0\nDILUTED EARNINGS PER SHARE:\nContinuing operations\n$\n3.56\n\u00a0\n$\n3.26\n\u00a0\n$\n0.49\u00a0\n$\n3.11\n\u00a0\nDiscontinued operations\n(\n0.05\n)\n(\n0.04\n)\n(0.01)\n(\n0.03\n)\nConsolidated\n$\n3.51\n\u00a0\n$\n3.22\n\u00a0\n$\n0.48\u00a0\n$\n3.08\n\u00a0\nCOMPREHENSIVE INCOME:\nNet income\n$\n553,700\n\u00a0\n$\n553,674\n\u00a0\n$\n89,610\u00a0\n$\n583,791\n\u00a0\nChange in foreign currency translation adjustments\n(\n15,454\n)\n(\n21,733\n)\n(4,698)\n56,362\n\u00a0\nOther comprehensive income (loss)\n(\n15,454\n)\n(\n21,733\n)\n(4,698)\n56,362\n\u00a0\nComprehensive income\n$\n538,246\n\u00a0\n$\n531,941\n\u00a0\n$\n84,912\u00a0\n$\n640,153\n\u00a0\nSee accompanying notes to consolidated financial statements.\nH&R Block, Inc.\n | 2023 Form 10-K\n37\nCONSOLIDATED BALANCE SHEETS\n(in\u00a0000s,\u00a0except\u00a0share\u00a0and\u00a0per\u00a0share\u00a0amounts)\nAs of\nJune 30, 2023\nJune 30, 2022\nASSETS\nCash and cash equivalents\n$\n986,975\n\u00a0\n$\n885,015\n\u00a0\nCash and cash equivalents - restricted\n28,341\n\u00a0\n165,698\n\u00a0\nReceivables, less allowance for credit losses of $\n55,502\n and $\n65,351\n59,987\n\u00a0\n58,447\n\u00a0\nIncome taxes receivable\n35,910\n\u00a0\n202,838\n\u00a0\nPrepaid expenses and other current assets\n76,273\n\u00a0\n72,460\n\u00a0\nTotal current assets\n1,187,486\n\u00a0\n1,384,458\n\u00a0\nProperty and equipment, at cost, less accumulated depreciation     and amortization of $\n846,177\n and $\n857,468\n130,015\n\u00a0\n123,912\n\u00a0\nOperating lease right of use asset\n438,299\n\u00a0\n427,783\n\u00a0\nIntangible assets, net\n277,043\n\u00a0\n309,644\n\u00a0\nGoodwill\n775,453\n\u00a0\n760,401\n\u00a0\nDeferred tax assets and income taxes receivable\n211,391\n\u00a0\n208,948\n\u00a0\nOther noncurrent assets\n52,571\n\u00a0\n54,012\n\u00a0\nTotal assets\n$\n3,072,258\n\u00a0\n$\n3,269,158\n\u00a0\nLIABILITIES AND STOCKHOLDERS' EQUITY\nLIABILITIES:\nAccounts payable and accrued expenses\n$\n159,901\n\u00a0\n$\n160,929\n\u00a0\nAccrued salaries, wages and payroll taxes\n95,154\n\u00a0\n154,764\n\u00a0\nAccrued income taxes and reserves for uncertain tax positions\n271,800\n\u00a0\n280,115\n\u00a0\nOperating lease liabilities\n205,391\n\u00a0\n206,898\n\u00a0\nDeferred revenue and other current liabilities\n206,536\n\u00a0\n196,107\n\u00a0\nTotal current liabilities\n938,782\n\u00a0\n998,813\n\u00a0\nLong-term debt\n1,488,974\n\u00a0\n1,486,876\n\u00a0\nDeferred tax liabilities and reserves for uncertain tax positions\n264,567\n\u00a0\n226,362\n\u00a0\nOperating lease liabilities\n240,543\n\u00a0\n228,820\n\u00a0\nDeferred revenue and other noncurrent liabilities\n107,328\n\u00a0\n116,656\n\u00a0\nTotal liabilities\n3,040,194\n\u00a0\n3,057,527\n\u00a0\nCOMMITMENTS AND CONTINGENCIES\nSTOCKHOLDERS' EQUITY:\nCommon stock, \nno\n par, stated value $\n.01\n per share, \n800,000,000\n shares authorized, shares issued of \n178,935,578\n and \n193,571,309\n1,789\n\u00a0\n1,936\n\u00a0\nAdditional paid-in capital\n770,376\n\u00a0\n772,182\n\u00a0\nAccumulated other comprehensive loss\n(\n37,099\n)\n(\n21,645\n)\nRetained earnings (deficit)\n(\n48,677\n)\n120,405\n\u00a0\nLess treasury shares, at cost, of \n32,785,658\n and \n33,640,988\n(\n654,325\n)\n(\n661,247\n)\nTotal stockholders' equity\n32,064\n\u00a0\n211,631\n\u00a0\nTotal liabilities and stockholders' equity\n$\n3,072,258\n\u00a0\n$\n3,269,158\n\u00a0\nSee accompanying notes to consolidated financial statements.\n38\n2023 Form 10-K |\n H&R Block, Inc.\nCONSOLIDATED STATEMENTS OF CASH FLOWS\n(in 000s)\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nCASH FLOWS FROM OPERATING ACTIVITIES:\nNet income\n$\n553,700\n\u00a0\n$\n553,674\n\u00a0\n$\n89,610\u00a0\n$\n583,791\n\u00a0\nAdjustments to reconcile net income to net cash provided by operating activities:\nDepreciation and amortization\n130,501\n\u00a0\n142,178\n\u00a0\n24,586\n\u00a0\n156,852\n\u00a0\nProvision for credit losses\n52,290\n\u00a0\n66,807\n\u00a0\n4,617\n\u00a0\n73,451\n\u00a0\nDeferred taxes\n49,579\n\u00a0\n(\n53,352\n)\n22,926\n\u00a0\n(\n22,583\n)\nStock-based compensation\n31,326\n\u00a0\n34,252\n\u00a0\n4,700\n\u00a0\n28,271\n\u00a0\nChanges in assets and liabilities, net of acquisitions:\nReceivables\n(\n57,244\n)\n(\n37,889\n)\n108,470\n\u00a0\n(\n150,933\n)\nPrepaid expenses, other current and noncurrent assets\n(\n7,011\n)\n(\n1,944\n)\n26,753\n\u00a0\n(\n49,498\n)\nAccounts payable, accrued expenses, salaries, wages and payroll taxes\n(\n67,627\n)\n(\n19,645\n)\n(\n186,754\n)\n150,635\n\u00a0\nDeferred revenue, other current and noncurrent liabilities\n(\n4,773\n)\n7,342\n\u00a0\n(\n15,809\n)\n(\n1,160\n)\nIncome tax receivables, accrued income taxes and income tax reserves\n144,164\n\u00a0\n118,713\n\u00a0\n(\n43,476\n)\n(\n138,152\n)\nOther, net\n(\n3,064\n)\n(\n1,599\n)\n(\n797\n)\n(\n4,746\n)\nNet cash provided by operating activities\n821,841\n\u00a0\n808,537\n\u00a0\n34,826\n\u00a0\n625,928\n\u00a0\nCASH FLOWS FROM INVESTING ACTIVITIES:\nCapital expenditures\n(\n69,698\n)\n(\n61,955\n)\n(\n5,188\n)\n(\n52,792\n)\nPayments made for business acquisitions, net of cash acquired\n(\n48,246\n)\n(\n35,920\n)\n(\n846\n)\n(\n15,576\n)\nFranchise loans funded\n(\n21,633\n)\n(\n18,467\n)\n(\n135\n)\n(\n26,917\n)\nPayments from franchisees\n27,350\n\u00a0\n30,899\n\u00a0\n8,634\n\u00a0\n41,215\n\u00a0\nOther, net\n10,838\n\u00a0\n8,902\n\u00a0\n1,227\n\u00a0\n8,547\n\u00a0\nNet cash provided by (used in) investing activities\n(\n101,389\n)\n(\n76,541\n)\n3,692\n\u00a0\n(\n45,523\n)\nCASH FLOWS FROM FINANCING ACTIVITIES:\nRepayments of line of credit borrowings\n(\n970,000\n)\n(\n705,000\n)\n\u2014\n\u00a0\n(\n3,275,000\n)\nProceeds from line of credit borrowings\n970,000\n\u00a0\n705,000\n\u00a0\n\u2014\n\u00a0\n1,275,000\n\u00a0\nRepayments of long-term debt\n\u2014\n\u00a0\n(\n500,000\n)\n\u2014\n\u00a0\n(\n650,000\n)\nProceeds from issuance of long-term debt\n\u2014\n\u00a0\n\u2014\n\u00a0\n494,435\n\u00a0\n647,965\n\u00a0\nDividends paid\n(\n177,925\n)\n(\n186,476\n)\n\u2014\n\u00a0\n(\n195,068\n)\nRepurchase of common stock, including shares surrendered\n(\n568,952\n)\n(\n563,174\n)\n(\n4,633\n)\n(\n191,294\n)\nProceeds from exercise of stock options\n3,383\n\u00a0\n6,334\n\u00a0\n308\n\u00a0\n2,140\n\u00a0\nOther, net\n(\n7,498\n)\n(\n14,030\n)\n(\n5,584\n)\n(\n22,566\n)\nNet cash provided by (used in) financing activities\n(\n750,992\n)\n(\n1,257,346\n)\n484,526\n\u00a0\n(\n2,408,823\n)\nEffects of exchange rate changes on cash\n(\n4,857\n)\n(\n8,101\n)\n(\n1,800\n)\n18,318\n\u00a0\nNet increase (decrease) in cash and cash equivalents, including restricted balances\n(\n35,397\n)\n(\n533,451\n)\n521,244\n\u00a0\n(\n1,810,100\n)\nCash, cash equivalents and restricted cash, beginning of the period\n1,050,713\n\u00a0\n1,584,164\n\u00a0\n1,062,920\n\u00a0\n2,873,020\n\u00a0\nCash, cash equivalents and restricted cash, end of the period\n$\n1,015,316\n\u00a0\n$\n1,050,713\n\u00a0\n$\n1,584,164\n\u00a0\n$\n1,062,920\n\u00a0\nSUPPLEMENTARY CASH FLOW DATA:\nIncome taxes paid (received), net\n$\n(\n45,539\n)\n$\n31,689\n\u00a0\n$\n52,149\n\u00a0\n$\n236,459\n\u00a0\nInterest paid on borrowings\n69,554\n\u00a0\n81,960\n\u00a0\n14,317\n\u00a0\n103,855\n\u00a0\nAccrued additions to property and equipment\n2,238\n\u00a0\n4,315\n\u00a0\n2,085\n\u00a0\n1,643\n\u00a0\nAccrued dividends payable to common shareholders\n42,953\n\u00a0\n43,093\n\u00a0\n48,998\n\u00a0\n\u2014\n\u00a0\nSee accompanying notes to consolidated financial statements.\nH&R Block, Inc.\n | 2023 Form 10-K\n39\nCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY\n(amounts\u00a0in\u00a0000s,\u00a0except per share amounts)\nCommon Stock\nAdditional\nPaid-in\nCapital\nAccumulated Other\nComprehensive\nIncome (Loss)\n(1)\nRetained\nEarnings\n(Deficit)\nTreasury Stock\nTotal\nStockholders\u2019\nEquity\nShares\nAmount\nShares\nAmount\nBalances as of May 1, 2020\n228,207\n\u00a0\n$\n2,282\n\u00a0\n$\n775,387\n\u00a0\n$\n(\n51,576\n)\n$\n42,965\n\u00a0\n(\n35,731\n)\n$\n(\n698,017\n)\n$\n71,041\n\u00a0\nNet income\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n583,791\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n583,791\n\u00a0\nOther comprehensive income\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n56,362\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n56,362\n\u00a0\nStock-based compensation\n\u2014\u00a0\n\u2014\u00a0\n26,138\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n26,138\n\u00a0\nStock-based awards exercised or vested\n\u2014\u00a0\n\u2014\u00a0\n(\n11,417\n)\n\u2014\u00a0\n(\n1,900\n)\n755\n\u00a0\n14,748\n\u00a0\n1,431\n\u00a0\nAcquisition of treasury shares\n(2)\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(\n214\n)\n(\n3,081\n)\n(\n3,081\n)\nRepurchase and retirement of common shares\n(\n11,551\n)\n(\n115\n)\n(\n6,816\n)\n\u2014\u00a0\n(\n181,282\n)\n\u2014\u00a0\n\u2014\u00a0\n(\n188,213\n)\nCash dividends declared - $\n1.04\n per share\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(\n195,068\n)\n\u2014\u00a0\n\u2014\u00a0\n(\n195,068\n)\nBalances as of April 30, 2021\n216,656\n\u00a0\n$\n2,167\n\u00a0\n$\n783,292\n\u00a0\n$\n4,786\n\u00a0\n$\n248,506\n\u00a0\n(\n35,190\n)\n$\n(\n686,350\n)\n$\n352,401\n\u00a0\nNet income\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n89,610\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n89,610\n\u00a0\nOther comprehensive loss\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(\n4,698\n)\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(\n4,698\n)\nStock-based compensation\n\u2014\u00a0\n\u2014\u00a0\n4,285\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n4,285\n\u00a0\nStock-based awards exercised or vested\n\u2014\u00a0\n\u2014\u00a0\n(\n8,112\n)\n\u2014\u00a0\n(\n2,424\n)\n545\n\u00a0\n10,627\n\u00a0\n91\n\u00a0\nAcquisition of treasury shares\n(2)\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(\n197\n)\n(\n4,633\n)\n(\n4,633\n)\nCash dividends declared - $\n0.27\n per share\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(\n48,998\n)\n\u2014\u00a0\n\u2014\u00a0\n(\n48,998\n)\nBalances as of June 30, 2021\n216,656\n\u00a0\n$\n2,167\n\u00a0\n$\n779,465\n\u00a0\n$\n88\n\u00a0\n$\n286,694\n\u00a0\n(\n34,842\n)\n$\n(\n680,356\n)\n$\n388,058\n\u00a0\nNet income\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n553,674\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n553,674\n\u00a0\nOther comprehensive loss\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(\n21,733\n)\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(\n21,733\n)\nStock-based compensation\n\u2014\u00a0\n\u2014\u00a0\n28,189\n\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n28,189\n\u00a0\nStock-based awards exercised or vested\n\u2014\u00a0\n\u2014\u00a0\n(\n21,622\n)\n\u2014\u00a0\n(\n3,126\n)\n1,634\n\u00a0\n31,937\n\u00a0\n7,189\n\u00a0\nAcquisition of treasury shares\n(2)\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(\n433\n)\n(\n12,828\n)\n(\n12,828\n)\nRepurchase and retirement of common shares\n(\n23,085\n)\n(\n231\n)\n(\n13,850\n)\n\u2014\u00a0\n(\n536,265\n)\n\u2014\u00a0\n\u2014\u00a0\n(\n550,346\n)\nCash dividends declared - $\n1.08\n per share\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n\u2014\u00a0\n(\n180,572\n)\n\u2014\u00a0\n\u2014\u00a0\n(\n180,572\n)\nBalances as of June 30, 2022\n193,571\n\u00a0\n$\n1,936\n\u00a0\n$\n772,182\n\u00a0\n$\n(\n21,645\n)\n$\n120,405\n\u00a0\n(\n33,641\n)\n$\n(\n661,247\n)\n$\n211,631\n\u00a0\nNet income\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n553,700\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n553,700\n\u00a0\nOther comprehensive loss\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n15,454\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n15,454\n)\nStock-based compensation\n\u2014\n\u00a0\n\u2014\n\u00a0\n27,086\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n27,086\n\u00a0\nStock-based awards exercised or vested\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n20,258\n)\n\u2014\n\u00a0\n(\n1,899\n)\n1,298\n\u00a0\n25,656\n\u00a0\n3,499\n\u00a0\nAcquisition of treasury shares\n(2)\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n443\n)\n(\n18,734\n)\n(\n18,734\n)\nRepurchase and retirement of common shares\n(\n14,635\n)\n(\n147\n)\n(\n8,634\n)\n\u2014\n\u00a0\n(\n543,098\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n551,879\n)\nCash dividends declared - $\n1.16\n per share\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n177,785\n)\n\u2014\n\u00a0\n\u2014\n\u00a0\n(\n177,785\n)\nBalances as of June 30, 2023\n178,936\n\u00a0\n$\n1,789\n\u00a0\n$\n770,376\n\u00a0\n$\n(\n37,099\n)\n$\n(\n48,677\n)\n(\n32,786\n)\n$\n(\n654,325\n)\n$\n32,064\n\u00a0\n(1)   \nThe balance of our accumulated other comprehensive income (loss) consists of foreign currency translation adjustments.\n(2)\n\u00a0\u00a0\u00a0\u00a0\nRepresents shares swapped or surrendered to us in connection with the vesting or exercise of stock-based awards.\n\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0See accompanying notes to consolidated financial statements.\n40\n2023 Form 10-K |\n H&R Block, Inc.\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\nNOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES \nNATURE OF OPERATIONS\n\u00a0\u2013\u00a0Our subsidiaries provide assisted and do-it-yourself (DIY) tax return preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded services and products, including those of our bank partners, to the general public primarily in the United States (U.S.), Canada and Australia. Tax returns are either prepared by H&R Block tax professionals (in company-owned or franchise offices, virtually or via an internet review) or prepared and filed by our clients through our DIY tax solutions. We also offer small business solutions through our company-owned and franchise offices and online through Wave.\n\"H&R Block,\" \"the Company,\" \"we,\" \"our\" and \"us\" are used interchangeably to refer to H&R Block, Inc., to H&R Block, Inc. and its subsidiaries, or to H&R Block, Inc.'s operating subsidiaries, as appropriate to the context. \nPRINCIPLES OF CONSOLIDATION\n\u00a0\u2013\u00a0The consolidated financial statements include the accounts of the Company and our subsidiaries. Intercompany transactions and balances have been eliminated.\nDISCONTINUED OPERATIONS\n\u00a0\u2013\u00a0Our discontinued operations include the results of operations of Sand Canyon Corporation, previously known as Option One Mortgage Corporation (including its subsidiaries, collectively, SCC), which exited its mortgage business in fiscal year 2008. See \nnote 12\n for additional information on loss contingencies related to our discontinued operations.\nSEGMENT INFORMATION \n\u2013\n \nWe report a single segment that includes all of our continuing operations. \nMANAGEMENT ESTIMATES\n\u00a0\u2013\u00a0The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates, assumptions and judgments are applied in the evaluation of contingent losses arising from our discontinued mortgage business, contingent losses associated with pending claims and litigation, reserves for uncertain tax positions, and fair value of reporting units. Estimates have been prepared based on the best information available as of each balance sheet date. As such, actual results could differ materially from those estimates.\nCHANGE IN FISCAL YEAR END\u00a0\n\u2013 On June 9, 2021, the Board of Directors approved a change of the Company's fiscal year end from April 30 to June 30. As a result of this change, the Company filed a Transition Report on Form 10-Q that included financial information for the transition period from May 1, 2021 to June 30, 2021 (Transition Period).\n \nCASH AND CASH EQUIVALENTS\n\u00a0\u2013\u00a0All non-restricted highly liquid instruments maturing within three months at acquisition are considered to be cash equivalents.\n \nOutstanding checks in excess of funds on deposit (book overdrafts) included in accounts payable totaled $\n3.3\n million and $\n2.7\n million as of\u00a0June 30, 2023 and 2022, respectively.\nCASH AND CASH EQUIVALENTS \n\u2013\n RESTRICTED\n\u00a0\u2013\u00a0Cash and cash equivalents \u2013 restricted consists primarily of cash held by our captive insurance subsidiary that is expected to be used to pay claims.\nRECEIVABLES AND RELATED ALLOWANCES\n\u00a0\u2013\u00a0Our trade receivables consist primarily of accounts receivable from tax clients for tax return preparation and related fees. The allowance for credit losses for these receivables requires management's judgment regarding collectibility and current economic conditions to establish an amount considered by management to be adequate to cover estimated losses as of the balance sheet date. Losses from tax clients for tax return preparation and related fees are not specifically identified and charged off; instead they are evaluated on a pooled basis. At the end of the fiscal year the outstanding balances on these receivables are evaluated based on collections received and expected collections over subsequent tax seasons. We establish an allowance for credit losses at an amount that we believe reflects the receivable at net realizable value. In December of each year we charge-off the receivables to an amount we believe represents the net realizable value.\nH&R Block, Inc.\n | 2023 Form 10-K\n41\nOur financing receivables consist primarily of participations in H&R Block Emerald Advance\n\u00ae\n lines of Credit (EAs), loans made to franchisees, and amounts due under H&R Block's Instant Refund\nSM\n (Instant Refund).\nOur accounting policies related to receivables and related allowances are discussed further in \nnote 4\n.\nPROPERTY AND EQUIPMENT\n\u00a0\u2013\u00a0Buildings, equipment and leasehold improvements are initially recorded at cost and are depreciated over the estimated useful life of the assets using the straight-line method. Estimated useful lives are generally \n15\n to \n40\n years for buildings, \ntwo\n to \nfive years\n for computers and other equipment, \nthree\n to \nfive years\n for purchased software and up to \neight years\n for leasehold improvements.\nGOODWILL AND INTANGIBLE ASSETS \n\u2013\u00a0Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill is not amortized, but rather is tested for impairment annually during our third quarter, or more frequently if indications of potential impairment exist.\nIntangible assets, including internally-developed software, with finite lives are amortized over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Intangible assets are typically amortized over the estimated useful life of the assets using the straight-line method. \nWe first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis. If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. See additional discussion in \nnote 6\n.\nLEASES\n\u00a0\u2013\u00a0Operating lease right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. The majority of our lease portfolio consists of retail office space in the U.S., Canada, and Australia. The contract terms for these retail offices generally are from May 1 to April 30, and generally run \ntwo\n to \nfive years\n. \nWe record operating lease ROU assets and operating lease liabilities based on the discounted future minimum lease payments over the term of the lease. We generally do not include renewal options in the term of the lease. As the rates implicit in our leases are not readily determinable, we use our incremental borrowing rate based on the lease term and geographic location in calculating the discounted future minimum lease payments. \nWe recognize lease expenses for our operating leases on a straight-line basis. For lease payments that are subject to adjustments based on indexes or rates, the most current index or rate adjustments were included in the measurement of our ROU assets and lease liabilities at commencement of the lease. Variable lease costs, including non-lease components (such as common area maintenance, utilities, insurance, and taxes) and certain index-based changes in lease payments, are expensed as incurred. Our ROU assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.\nFOREIGN CURRENCY\n \u2013 The financial statements of the Company\u2019s foreign operations are translated into U.S. dollars. Assets and liabilities are translated at current exchange rates as of the balance sheet date, equity accounts at historical exchange rates, while income statement accounts are translated at the average rates in effect during the year. Translation adjustments are not included in net income, but are recorded as a separate component of other comprehensive income in stockholders' equity.\n Foreign currency gains and losses included in operating results for fiscal years ended June 30, 2023, June 30, 2022, April 30, 2021 and the Transition Period were not material.\nTREASURY SHARES\n\u00a0\u2013\u00a0We record shares of common stock repurchased by us as treasury shares, at cost, resulting in a reduction of stockholders' equity. Periodically, we may retire shares held in treasury as determined by our Board of Directors. We typically reissue treasury shares as part of our stock-based compensation programs. When shares are reissued, we determine the cost using the average cost method.\n42\n2023 Form 10-K |\n H&R Block, Inc.\nFAIR VALUE MEASUREMENT \n\u2013 We use the following classification of financial instruments pursuant to the fair value hierarchy methodologies for assets measured at fair value:\n\u25aa\nLevel 1 \u2013 inputs to the valuation are quoted prices in an active market for identical assets.\n\u25aa\nLevel 2 \u2013 inputs to the valuation include quoted prices for similar assets in active markets utilizing a third-party pricing service to determine fair value.\n\u25aa\nLevel 3 \n\u2013\n valuation is based on significant inputs that are unobservable in the market and our own estimates of assumptions that we believe market participants would use in pricing the asset.\nAssets measured on a recurring basis are initially measured at fair value and are required to be remeasured at fair value in the financial statements at each reporting date.\nFair value estimates, methods and assumptions are set forth below. The fair value was not estimated for assets and liabilities that are not considered financial instruments.\n\u25aa\nCash and cash equivalents, including restricted \u2013 Fair value approximates the carrying amount (Level 1).\n\u25aa\nReceivables, net \u2013 short-term \u2013 For short-term balances the carrying values reported in the balance sheet approximate fair market value due to the relative short-term nature of the respective instruments (Level 1).\n\u25aa\nReceivables, net \u2013 long-term \u2013 The carrying values for the long-term portion of loans to franchisees approximate fair market value due to variable interest rates, low historical delinquency rates and franchise territories serving as collateral (Level 1). Long-term EA, Refund Transfer (RT) and Instant Refund receivables are carried at net realizable value which approximates fair value (Level 3). Net realizable value is determined based on historical and projected collection rates.\n\u25aa\nLong-term debt \u2013 The fair value of our Senior Notes is based on quotes from multiple banks (Level 2). See \nnote 7\n for fair value.\n\u25aa\nContingent consideration \u2013 Fair value approximates the carrying amount (Level 3). See \nnote 10\n for the carrying amount.\nREVENUE RECOGNITION\n \u2013 Revenue is recognized upon satisfaction of performance obligations by the transfer of a product or service to the customer. Revenue is the amount of consideration we expect to receive for our services and products and excludes sales taxes. The majority of our services and products have multiple performance obligations. We have certain services for which, the various performance obligations are generally provided simultaneously at a point in time, and revenue is recognized at that time. We have certain services and products where we have multiple performance obligations that are provided at various points in time. For these services and products, we allocate the transaction price to the various performance obligations based on relative standalone selling prices and recognize the revenue when the respective performance obligations have been satisfied. We have determined that our contracts do not contain a significant financing component.\nService revenues consist of assisted and online tax preparation revenues, fees for electronic filing, revenues from RTs, Emerald Card\u00ae, Peace of Mind\u00ae (POM), Tax Identity Shield\u00ae (TIS) and Wave. \nAssisted tax preparation\n services include tax preparation and electronic filing or printing of the completed tax return. Revenues from tax preparation and printing for clients that choose to print and mail their returns, are recognized when a completed return is accepted by the customer. Revenues for electronic filing are recognized when the return is electronically filed.\nRoyalties \nare based on contractual percentages of franchise gross receipts and are generally recorded in the period in which the services are provided by the franchisee to the customer.\nDIY tax preparation services\n includes fees for online and desktop tax preparation software and for electronic filing or printing. Revenues for online software and printing for clients that choose to print and mail their returns, are recognized when the customer uses the software to complete a return. Revenues for desktop software are recognized when the software is sold to the end user. Revenues for electronic filing are recognized when the return is electronically filed.\nRefund Transfer \nrevenues are recognized when the Internal Revenue Service (IRS) filing acknowledgment is received and the bank account is established at our bank partner, Pathward\nTM\n, N.A. (Pathward), a wholly-owned subsidiary of Pathward Financial, Inc.\nH&R Block, Inc.\n | 2023 Form 10-K\n43\nEmerald Card\u00ae and Spruce\nSM\n revenues consist of interchange income from the use of debit cards and fees paid by cardholders. Interchange income is a fee paid by merchants to our bank partner through the interchange network. Revenues associated with Emerald Card\u00ae and Spruce\nSM\n are recognized based on authorization of cardholder transactions.\nPeace of Mind\u00ae Extended Service Plan\n revenues are initially deferred and recognized over the term of the plan, based on the historical pattern of actual claims paid, as claims paid represent the transfer of POM services to the customer. The plan is effective for the life of the tax return, which can be up to six years; however, the majority of claims are incurred in years two and three after the sale of POM. POM has multiple performance obligations where we represent our clients if they are audited by a taxing authority, and assume the cost, subject to certain limits, of additional taxes owed by a client resulting from errors attributable to H&R Block. Incremental wages are also deferred and recognized over the term of the plan, in conjunction with the revenues earned. \nTax Identity Shield\u00ae\n revenues are initially deferred and are recognized as the various services are provided to the client, either by us or a third party, throughout the term of the contract, which generally ends on April 30th of the following year. TIS has multiple performance obligations where we provide clients assistance in helping protect their tax identity and access to services to help restore their tax identity, if necessary. Protection services include a daily scan of the dark web for personal information, a monthly scan for the client's social security number in credit header data, notifying clients if their information is detected on a tax return filed through H&R Block, and obtaining additional IRS identity protections when eligible. \nInterest and fee income on Emerald Advance\nSM\n \nlines of credit is recorded over the life of the underlying loan.\nWave\u00ae\n revenues primarily consist of fees received to process payment transactions and are generally calculated as a percentage of the transaction amounts processed. Revenues are recognized upon authorization of the transaction.\nMARKETING AND ADVERTISING \n\u2013\u00a0Advertising costs for radio and television ads are expensed over the course of the tax season, with online, print and mailing advertising expensed as incurred.\n Marketing and advertising expenses totaled $\n286.3\n million, $\n284.2\n million and $\n262.0\n million for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021, respectively, and $\n11.9\n million for the Transition Period.\nEMPLOYEE BENEFIT PLANS\n\u00a0\u2013\u00a0We have a 401(k) defined contribution plan in the U.S., and similar plans internationally, covering eligible full-time and seasonal employees following the completion of an eligibility period. Employer contributions to these plans are discretionary and totaled $\n25.6\n million, $\n25.1\n million and $\n26.6\n million for continuing operations for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021, respectively, and $\n3.4\n million for the Transition Period.\nWe have severance plans covering executives and eligible regular full-time or part-time active employees who incur a qualifying termination.\n Expenses related to severance benefits for continuing operations totaled $\n6.9\n million, $\n2.6\n million and $\n8.4\n million\n for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021, respectively, and $\n1.2\n million for the Transition Period.\n44\n2023 Form 10-K |\n H&R Block, Inc.\nNOTE 2: REVENUE RECOGNITION\nThe majority of our revenues are from our U.S. tax services business. \nThe following table disaggregates our U.S. revenues by major service line, with revenues from our international tax services businesses and from Wave included as separate lines:\n(in\u00a0000s)\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nRevenues:\nU.S. assisted tax preparation\n$\n2,167,138\n\u00a0\n$\n2,094,612\n\u00a0\n$\n259,527\n\u00a0\n$\n2,035,107\n\u00a0\nU.S. royalties\n210,631\n\u00a0\n225,242\n\u00a0\n29,659\n\u00a0\n226,253\n\u00a0\nU.S. DIY tax preparation\n314,758\n\u00a0\n319,086\n\u00a0\n76,106\n\u00a0\n313,055\n\u00a0\nRefund Transfers\n143,310\n\u00a0\n162,893\n\u00a0\n14,269\n\u00a0\n163,329\n\u00a0\nPeace of Mind\u00ae Extended Service Plan\n95,181\n\u00a0\n94,637\n\u00a0\n20,231\n\u00a0\n98,882\n\u00a0\nTax Identity Shield\u00ae\n38,265\n\u00a0\n39,114\n\u00a0\n3,928\n\u00a0\n40,624\n\u00a0\nEmerald Card\u00ae and Spruce\nSM\n84,651\n\u00a0\n125,444\n\u00a0\n19,193\n\u00a0\n136,717\n\u00a0\nInterest and fee income on Emerald Advance\nSM\n47,554\n\u00a0\n43,981\n\u00a0\n299\n\u00a0\n53,430\n\u00a0\nInternational \n235,131\n\u00a0\n231,335\n\u00a0\n22,071\n\u00a0\n249,868\n\u00a0\nWave\n90,314\n\u00a0\n80,965\n\u00a0\n12,481\n\u00a0\n58,277\n\u00a0\nOther\n45,252\n\u00a0\n45,961\n\u00a0\n8,342\n\u00a0\n38,445\n\u00a0\nTotal revenues\n$\n3,472,185\n\u00a0\n$\n3,463,270\n\u00a0\n$\n466,106\n\u00a0\n$\n3,413,987\n\u00a0\nChanges in the balances of deferred revenue for POM are as follows:\n(in\u00a0000s)\nPOM Deferred Revenue\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nBalance, beginning of the period\n$\n173,486\n\u00a0\n$\n172,759\n\u00a0\n$\n183,871\n\u00a0\n$\n183,685\n\u00a0\nAmounts deferred\n103,136\n\u00a0\n110,679\n\u00a0\n12,464\n\u00a0\n115,114\n\u00a0\nAmounts recognized on previous deferrals\n(\n109,365\n)\n(\n109,952\n)\n(\n23,576\n)\n(\n114,928\n)\nBalance, end of the period\n$\n167,257\n\u00a0\n$\n173,486\n\u00a0\n$\n172,759\n\u00a0\n$\n183,871\n\u00a0\nChanges in the balances of deferred wages for POM are as follows:\n(in\u00a0000s)\nPOM Deferred Wages\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nBalance, beginning of the period\n$\n19,495\n\u00a0\n$\n17,867\n\u00a0\n$\n20,169\n\u00a0\n$\n21,618\n\u00a0\nAmounts deferred\n14,247\n\u00a0\n12,668\n\u00a0\n8\n\u00a0\n11,367\n\u00a0\nAmounts recognized on previous deferrals\n(\n11,914\n)\n(\n11,040\n)\n(\n2,310\n)\n(\n12,816\n)\nBalance, end of the period\n$\n21,828\n\u00a0\n$\n19,495\n\u00a0\n$\n17,867\n\u00a0\n$\n20,169\n\u00a0\nAs of June 30, 2023, deferred revenue related to POM was $\n167.3\n million. We expect that $\n99.9\n million will be recognized over the next twelve months, while the remaining balance will be recognized over the following \nfive years\n. POM deferred revenues are included in deferred revenue and other liabilities in the consolidated balance sheets. POM deferred wages are included in prepaid expenses and other current assets and other noncurrent assets.\nAs of June 30, 2023 and 2022, TIS deferred revenue was $\n25.2\n million and $\n25.8\n million, respectively. The related liabilities are included in deferred revenue and other current liabilities in the consolidated balance sheets. All deferred revenue related to TIS as of June\u00a030, 2023 will be \nrecognized by April \n2024\n.\nH&R Block, Inc.\n | 2023 Form 10-K\n45\nA significant portion of our accounts receivable balances arise from services and products that we provide to our customers, with the exception of those related to EAs, which arise from purchased participation interests with our bank partner. The majority of our receivables are related to our RT product. Generally the prices of our services and products are fixed and determinable at the time of sale. For our RT product, we record a receivable for our fees which is then collected at the time the IRS issues the client\u2019s refund. Our receivables from customers are generally collected on a periodic basis during and subsequent to the tax season. See \nnote 4\n for our accounts receivable balances.\nNOTE 3: EARNINGS PER SHARE \nBasic and diluted earnings per share is computed using the two-class method. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Per share amounts are computed by dividing net income from continuing operations attributable to common shareholders by the weighted average shares outstanding during each period. \nThe computations of basic and diluted earnings per share from continuing operations are as follows:\n(in 000s, except per share amounts)\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nNet income from continuing operations attributable to shareholders\n$\n561,800\n\u00a0\n$\n560,646\n\u00a0\n$\n91,119\n\u00a0\n$\n590,212\n\u00a0\nAmounts allocated to participating securities \n(\n2,272\n)\n(\n2,468\n)\n(\n402\n)\n(\n2,413\n)\nNet income from continuing operations attributable to common shareholders\n$\n559,528\n\u00a0\n$\n558,178\n\u00a0\n$\n90,717\n\u00a0\n$\n587,799\n\u00a0\nBasic weighted average common shares\n154,044\n\u00a0\n168,519\n\u00a0\n181,473\n\u00a0\n186,832\n\u00a0\nPotential dilutive shares\n3,204\n\u00a0\n2,916\n\u00a0\n3,389\n\u00a0\n1,945\n\u00a0\nDilutive weighted average common shares\n157,248\n\u00a0\n171,435\n\u00a0\n184,862\n\u00a0\n188,777\n\u00a0\nEarnings per share from continuing operations attributable to common shareholders:\nBasic\n$\n3.63\n\u00a0\n$\n3.31\n\u00a0\n$\n0.50\n\u00a0\n$\n3.15\n\u00a0\nDiluted\n3.56\n\u00a0\n3.26\n\u00a0\n0.49\n\u00a0\n3.11\n\u00a0\nDiluted earnings per share excludes the impact of shares of common stock issuable upon the lapse of certain restrictions or the exercise of options to purchase \n0.6\n million, \n0.4\n million and \n0.8\n million shares of stock for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021, respectively, and \n0.3\n million shares of stock for the Transition Period as the effect would be antidilutive.\n46\n2023 Form 10-K |\n H&R Block, Inc.\nNOTE 4: RECEIVABLES \nReceivables, net of their related allowance, consist of the following:\n(in\u00a0000s)\nAs of\nJune 30, 2023\nJune 30, 2022\nShort-term\nLong-term\nShort-term\nLong-term\nLoans to franchisees\n$\n6,344\n\u00a0\n$\n19,206\n\u00a0\n$\n6,194\n\u00a0\n$\n22,036\n\u00a0\nReceivables for U.S. assisted and DIY tax preparation and related fees\n11,061\n\u00a0\n6,824\n\u00a0\n18,893\n\u00a0\n2,560\n\u00a0\nH&R Block's Instant Refund\nSM\n receivables\n8,499\n\u00a0\n414\n\u00a0\n3,491\n\u00a0\n198\n\u00a0\nH&R Block Emerald Advance\n\u00ae \nlines of credit\n10,834\n\u00a0\n7,089\n\u00a0\n6,691\n\u00a0\n8,825\n\u00a0\nSoftware receivables from retailers\n1,650\n\u00a0\n\u2014\n\u00a0\n3,992\n\u00a0\n\u2014\n\u00a0\nRoyalties and other receivables from franchisees\n3,416\n\u00a0\n\u2014\n\u00a0\n3,682\n\u00a0\n73\n\u00a0\nWave payment processing receivables\n964\n\u00a0\n\u2014\n\u00a0\n1,393\n\u00a0\n\u2014\n\u00a0\nOther\n17,219\n\u00a0\n1,108\n\u00a0\n14,111\n\u00a0\n1,172\n\u00a0\n$\n59,987\n\u00a0\n$\n34,641\n\u00a0\n$\n58,447\n\u00a0\n$\n34,864\n\u00a0\nBalances presented above as short-term are included in receivables, while the long-term portions are included in other noncurrent assets in the consolidated balance sheets. \nLoans to Franchisees. \nFranchisee loan balances consist of term loans made primarily to finance the purchase of franchises and short-term lines of credit primarily for the purpose of funding seasonal working capital needs. As of June\u00a030, 2023 and 2022 loans with a principal balance more than 90 days past due, or on non-accrual status, are not material.\nThe credit quality of these receivables is assessed at origination at an individual franchisee level. Payment history is monitored on a regular basis. Based upon our internal analysis and underwriting activities, we believe all loans to franchisees are of similar credit quality. Loans are evaluated for collectibility when they become delinquent or more than \n90\n days past due. Amounts deemed to be uncollectible are written off to bad debt expense and bad debt related to these loans has typically been immaterial. Additionally, the franchise territory serves as additional protection in the event a franchisee defaults on the loan, as we may revoke franchise rights, write off the remaining balance of the loan and refranchise the territory or begin operating it as company-owned.\nH&R Block's Instant Refund\nSM\n. \nOur Canadian operations advance refunds due to certain clients from the Canada Revenue Agency (CRA), in exchange for a fee. The total fee we charge for this service is mandated by legislation which is administered by the CRA. The client assigns to us the full amount of the tax refund to be issued by the CRA and the refund is then sent by the CRA directly to us. The amount we advance to clients under this program is the amount of their estimated refund, less our fees, any amounts expected to be withheld by the CRA for amounts the client may owe to government authorities and any amounts owed to us from prior years. The CRA system for tracking amounts due to various government agencies also indicates if the client has already filed a return, does not exist in CRA records, or is bankrupt. This serves to greatly reduce the amounts of uncollectible receivables and the risk of fraudulent returns. H&R Block's Instant Refund\nSM\n amounts are generally received from the CRA within \n60\n days of filing the client's return, with the remaining balance collectible from the client. \nCredit losses from these receivables are not specifically identified and charged off; instead we review the credit quality of these receivables on a pooled basis, segregated by the tax return year of origination with older years being deemed more unlikely to be repaid. At the end of the fiscal year, the outstanding balances on these receivables are evaluated based on collections received and expected collections over subsequent tax seasons. We establish an allowance for credit losses at an amount that we believe reflects the receivable at net realizable value. In December of each year we charge-off the receivables to an amount we believe represents the net realizable value.\nH&R Block, Inc.\n | 2023 Form 10-K\n47\nB\nalances and amounts on non-accrual status and classified as impaired, or more than \n60\n days past due, by tax return year of origination, as of June 30, 2023 are as follows:\n(in 000s)\nTax return year of origination\nBalance\nMore Than 60 Days Past Due\n2022\n$\n10,608\n\u00a0\n$\n7,920\n\u00a0\n2021 and prior\n283\n\u00a0\n283\n\u00a0\n10,891\n\u00a0\n$\n8,203\n\u00a0\nAllowance\n(\n1,978\n)\nNet balance\n$\n8,913\n\u00a0\nH&R Block Emerald Advance\u00ae lines of credit\n. EAs are typically offered to clients in our offices from mid-November through mid-January, in amounts up to $\n1,000\n. If the borrower meets certain criteria as agreed in the loan terms, the line of credit can be utilized year-round. EA balances require an annual paydown on February\u00a015\nth\n, and any amounts unpaid are placed on non-accrual status as of March\u00a01\nst\n. Payments on past due amounts are applied to principal. These lines of credit are offered by our bank partner. We purchase participation interests in their loans, as discussed further in \nnote 10\n.\nCredit losses from EAs are not specifically identified and charged off; instead we review the credit quality of these receivables on a pooled basis, segregated by the fiscal year of origination with older years being deemed more unlikely to be repaid. At the end of the fiscal year, the outstanding balances on these receivables are evaluated based on collections received and expected collections over subsequent tax seasons. We establish an allowance for credit losses at an amount that we believe reflects the receivable at net realizable value. In December of each year we charge-off the receivables to an amount we believe represents the net realizable value.\nB\nalances and amounts on non-accrual status and classified as impaired, or more than \n60\n days past due, by fiscal year of origination as of June 30, 2023, are as follows:\n(in 000s)\nFiscal year of origination\nBalance\nNon-Accrual\n2023\n$\n28,031\n\u00a0\n$\n28,031\n\u00a0\n2022 and prior\n3,040\n\u00a0\n3,040\n\u00a0\nRevolving loans\n14,238\n\u00a0\n13,118\n\u00a0\n45,309\n\u00a0\n$\n44,189\n\u00a0\nAllowance\n(\n27,386\n)\nNet balance\n$\n17,923\n\u00a0\n48\n2023 Form 10-K |\n H&R Block, Inc.\nAllowance for Credit Losses. \nActivity in the allowance for credit losses for EAs and all other short-term and long-term receivables for the periods ended June 30, 2023, June 30, 2022, June 30, 2021 and April 30, 2021 is as follows:\n(in 000s)\nEAs\nAll Other\nTotal\nBalances as of May 1, 2020\n$\n32,034\n\u00a0\n$\n50,446\n\u00a0\n$\n82,480\n\u00a0\nProvision for credit losses\n14,319\n\u00a0\n59,132\n\u00a0\n73,451\n\u00a0\nCharge-offs, recoveries and other\n(\n18,649\n)\n(\n53,774\n)\n(\n72,423\n)\nBalances as of April 30, 2021\n27,704\n\u00a0\n55,804\n\u00a0\n83,508\n\u00a0\nProvision for credit losses\n\u2014\n\u00a0\n4,617\n\u00a0\n4,617\n\u00a0\nCharge-offs, recoveries and other\n\u2014\n\u00a0\n(\n149\n)\n(\n149\n)\nBalances as of June 30, 2021\n27,704\n\u00a0\n60,272\n\u00a0\n87,976\n\u00a0\nProvision for credit losses\n14,814\n\u00a0\n51,993\n\u00a0\n66,807\n\u00a0\nCharge-offs, recoveries and other\n(\n16,377\n)\n(\n61,139\n)\n(\n77,516\n)\nBalances as of June 30, 2022\n26,141\n\u00a0\n51,126\n\u00a0\n77,267\n\u00a0\nProvision for credit losses\n16,059\n\u00a0\n36,231\n\u00a0\n52,290\n\u00a0\nCharge-offs, recoveries and other\n(\n14,814\n)\n(\n52,249\n)\n(\n67,063\n)\nBalances as of June 30, 2023\n$\n27,386\n\u00a0\n$\n35,108\n\u00a0\n$\n62,494\n\u00a0\nNOTE 5: PROPERTY AND EQUIPMENT \nThe components of property and equipment, net of accumulated depreciation and amortization, are as follows:\n(in 000s)\nAs of\nJune 30, 2023\nJune 30, 2022\nBuildings\n$\n28,954\n\u00a0\n$\n34,303\n\u00a0\nComputers and other equipment\n49,750\n\u00a0\n48,837\n\u00a0\nLeasehold improvements\n49,428\n\u00a0\n38,142\n\u00a0\nPurchased software\n506\n\u00a0\n1,253\n\u00a0\nLand and other non-depreciable assets\n1,377\n\u00a0\n1,377\n\u00a0\n$\n130,015\n\u00a0\n$\n123,912\n\u00a0\nDepreciation expense of property and equipment for continuing operations for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021 was $\n58.5\n million, $\n64.7\n million and $\n73.4\n million, respectively and was $\n10.8\n million for the Transition Period.\nThe carrying value of long-lived assets held outside the U.S., which is comprised of property and equipment, totaled $\n19.2\n million and $\n15.4\n million as of June\u00a030, 2023 and 2022 respectively.\nH&R Block, Inc.\n | 2023 Form 10-K\n49\nNOTE 6: GOODWILL AND INTANGIBLE ASSETS \nChanges in the carrying amount of goodwill for the periods ended June\u00a030, 2023 and 2022 are as follows:\n(in 000s)\nGoodwill\nAccumulated Impairment Losses\nNet\nBalances as of July 1, 2021\n$\n892,818\n\u00a0\n$\n(\n138,297\n)\n$\n754,521\n\u00a0\nAcquisitions\n18,696\n\u00a0\n\u2014\u00a0\n18,696\n\u00a0\nDisposals and foreign currency changes, net\n(\n12,816\n)\n\u2014\u00a0\n(\n12,816\n)\nImpairments\n\u2014\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nBalances as of June 30, 2022\n898,698\n\u00a0\n(\n138,297\n)\n760,401\n\u00a0\nAcquisitions\n(1)\n23,832\n\u00a0\n\u2014\n\u00a0\n23,832\n\u00a0\nDisposals and foreign currency changes, net\n(\n8,780\n)\n\u2014\n\u00a0\n(\n8,780\n)\nImpairments\n\u2014\n\u00a0\n\u2014\n\u00a0\n\u2014\n\u00a0\nBalances as of June 30, 2023\n$\n913,750\n\u00a0\n$\n(\n138,297\n)\n$\n775,453\n\u00a0\n(1)\n\u00a0\u00a0\u00a0\u00a0All goodwill added during the period is expected to be tax-deductible for federal income tax reporting.\nWe test goodwill for impairment annually as of February 1, or more frequently if events occur or circumstances change which would, more likely than not, reduce the fair value of a reporting unit below its carrying value.\nComponents of intangible assets are as follows:\n(in\u00a0000s)\nGross\nCarrying\nAmount\nAccumulated\nAmortization\nNet\nJune 30, 2023:\nReacquired franchise rights\n$\n392,452\n\u00a0\n$\n(\n212,495\n)\n$\n179,957\n\u00a0\nCustomer relationships\n351,695\n\u00a0\n(\n301,062\n)\n50,633\n\u00a0\nInternally-developed software\n133,380\n\u00a0\n(\n120,054\n)\n13,326\n\u00a0\nNoncompete agreements\n42,596\n\u00a0\n(\n39,617\n)\n2,979\n\u00a0\nFranchise agreements\n19,201\n\u00a0\n(\n18,668\n)\n533\n\u00a0\nPurchased technology\n122,700\n\u00a0\n(\n96,565\n)\n26,135\n\u00a0\nTrade name\n5,800\n\u00a0\n(\n2,320\n)\n3,480\n\u00a0\n$\n1,067,824\n\u00a0\n$\n(\n790,781\n)\n$\n277,043\n\u00a0\nJune 30, 2022:\nReacquired franchise rights\n$\n379,114\n\u00a0\n$\n(\n197,068\n)\n$\n182,046\n\u00a0\nCustomer relationships\n331,020\n\u00a0\n(\n278,717\n)\n52,303\n\u00a0\nInternally-developed software\n137,638\n\u00a0\n(\n107,111\n)\n30,527\n\u00a0\nNoncompete agreements\n41,789\n\u00a0\n(\n37,684\n)\n4,105\n\u00a0\nFranchise agreements\n19,201\n\u00a0\n(\n17,388\n)\n1,813\n\u00a0\nPurchased technology\n122,700\n\u00a0\n(\n87,910\n)\n34,790\n\u00a0\nTrade name\n5,800\n\u00a0\n(\n1,740\n)\n4,060\n\u00a0\n$\n1,037,262\n\u00a0\n$\n(\n727,618\n)\n$\n309,644\n\u00a0\nAmortization of intangible assets for continuing operations for the fiscal years ended June\u00a030, 2023, June 30, 2022 and April 30, 2021 was $\n72.0\n million, $\n77.5\n million and $\n83.4\n million, respectively, and was $\n13.8\n million for the Transition Period. Estimated amortization of intangible assets for fiscal years 2024, 2025, 2026, 2027 and 2028 is $\n55.6\n million, $\n32.8\n million, $\n23.6\n million, $\n17.8\n million and $\n10.5\n million, respectively.\nWe made payments to acquire businesses totaling $\n48.2\n million, $\n35.9\n million and $\n15.6\n million during the fiscal years ended June\u00a030, 2023, June 30, 2022 and April 30, 2021, respectively, and $\n0.8\n million for the Transition \n50\n2023 Form 10-K |\n H&R Block, Inc.\nPeriod. \nThe amounts and weighted-average lives of assets acquired during fiscal year 2023, including amounts capitalized related to internally-developed software, are as follows:\n(dollars in\u00a0000s)\nAmount\nWeighted-Average Life (in years)\nInternally-developed software\n$\n3,354\n\u00a0\n2\nCustomer relationships\n22,161\n\u00a0\n5\nReacquired franchise rights\n13,586\n\u00a0\n4\nNoncompete agreements\n836\n\u00a0\n5\nTotal\n$\n39,937\n\u00a0\n5\nNOTE 7: LONG-TERM DEBT \nThe components of long-term debt are as follows:\n(in\u00a0000s)\nAs of\nJune 30, 2023\nJune 30, 2022\nSenior Notes, \n5.250\n%, due October 2025 \n(1)\n$\n350,000\n\u00a0\n$\n350,000\n\u00a0\nSenior Notes, \n2.500\n%, due July 2028 \n(1)\n500,000\n\u00a0\n500,000\n\u00a0\nSenior Notes, \n3.875\n%, due August 2030 \n(1)\n650,000\n\u00a0\n650,000\n\u00a0\nDebt issuance costs and discounts\n(\n11,025\n)\n(\n13,124\n)\nTotal long-term debt\n1,488,975\n\u00a0\n1,486,876\n\u00a0\nLess: Current portion\n\u2014\n\u00a0\n\u2014\n\u00a0\nLong-term portion\n$\n1,488,975\n\u00a0\n$\n1,486,876\n\u00a0\nEstimated fair value of long-term debt\n$\n1,339,000\n\u00a0\n$\n1,377,000\n\u00a0\n(1)\n\u00a0\u00a0\u00a0\u00a0The Senior Notes are not redeemable by the bondholders prior to maturity, although we have the right to redeem some or all of these notes at any time, at specified redemption prices. The interest rates on our Senior Notes are subject to adjustment based upon our credit ratings.\nOur unsecured committed line of credit (CLOC) provides for an unsecured senior revolving credit facility in the aggregate principal amount of $\n1.5\n billion, which includes a $\n175.0\n million sublimit for swingline loans and a $\n50.0\n million sublimit for standby letters of credit. We may request increases in the aggregate principal amount of the revolving credit facility of up to $\n500.0\n million, subject to obtaining commitments from lenders and meeting certain other conditions. The CLOC will mature on June 11, 2026, unless extended pursuant to the terms of the CLOC, at which time all outstanding amounts thereunder will be due and payable. Our CLOC includes an annual facility fee, which will vary depending on our then current credit ratings.\nThe CLOC is subject to various conditions, triggers, events or occurrences that could result in earlier termination and contains customary representations, warranties, covenants and events of default, including, without limitation: (1) a covenant requiring the Company to maintain a debt-to-EBITDA ratio, as defined by the CLOC agreement, calculated on a consolidated basis of no greater than (a) \n3.50\n to 1.00 as of the last day of each fiscal quarter ending on March 31, June 30, and September 30 of each year and (b) \n4.50\n to 1.00 as of the last day of each fiscal quarter ending on December 31 of each year; (2) a covenant requiring us to maintain an interest coverage ratio (EBITDA-to-interest expense) calculated on a consolidated basis of not less than \n2.50\n to 1.00 as of the last date of any fiscal quarter; and (3) covenants restricting our ability to incur certain additional debt, incur liens, merge or consolidate with other companies, sell or dispose of assets (including equity interests), liquidate or dissolve, engage in certain transactions with affiliates or enter into certain restrictive agreements. The CLOC includes provisions for an equity cure which could potentially allow us to independently cure certain defaults. Proceeds under the CLOC may be used for working capital needs or for other general corporate purposes. We were in compliance with these requirements as of June 30, 2023.\nWe had no outstanding balance under our CLOC as of June 30, 2023 and amounts available to borrow were not limited by the debt-to-EBITDA covenant as of June 30, 2023.\nOTHER INFORMATION\n \u2013 The aggregate payments required\n to retire long-term debt are $\n350.0\n million in fiscal year 2026, $\n500.0\n million in fiscal year 2029 and $\n650.0\n million in fiscal year 2031.\nH&R Block, Inc.\n | 2023 Form 10-K\n51\nNOTE 8: STOCK-BASED COMPENSATION \nWe have a stock-based Long Term Incentive Plan (Plan), under which we can grant stock options, restricted shares, performance-based share units, restricted share units, deferred stock units and other forms of equity to employees, non-employee directors and consultants. \nStock-based compensation expense and related tax items are as follows: \n(in 000s)\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nStock-based compensation expense\n$\n31,326\n\u00a0\n$\n34,252\n\u00a0\n$\n4,700\n\u00a0\n$\n28,271\n\u00a0\nTax benefit\n7,386\n\u00a0\n6,494\n\u00a0\n1,016\n\u00a0\n1,802\n\u00a0\nRealized tax benefit\n6,942\n\u00a0\n5,438\n\u00a0\n2,356\n\u00a0\n1,690\n\u00a0\nAs of June\u00a030, 2023, we had \n9.3\n million shares reserved for future awards under our Plan. We issue treasury shares to satisfy the exercise or vesting of stock-based awards and believe we have adequate treasury shares available for future issuances.\nWe measure the fair value of restricted share units (other than performance-based share units) based on the closing price of our common stock on the grant date. We measure the fair value of performance-based share units based on the Monte Carlo valuation model, taking into account, as necessary, those provisions of the performance-based share units that are characterized as market conditions. We generally expense the grant-date fair value, net of estimated forfeitures, over the vesting period on a straight-line basis.\nOptions and restricted share units (other than performance-based share units) granted to employees typically vest pro-rata based upon service over a \nthree-year\n period with a portion vesting each year. Performance-based share units granted to employees typically cliff vest at the end of a \nthree-year\n period based upon satisfaction of both service-based and performance-based requirements. The number of performance-based share units that ultimately vest can range from \nzero\n up to \n200\n percent of the number granted, based on the form of the award, which can vary by year of grant. The performance metrics for these awards typically consist of earnings before interest, taxes, depreciation and amortization (EBITDA), EBITDA growth, return on invested capital, total shareholder return or our stock price. Deferred stock units granted to non-employee directors vest when they are granted and are settled six months after the director separates from service as a director of the Company, except in the case of death. \nAll share units granted to employees and non-employee directors receive cumulative dividend equivalents to the extent of the units ultimately vesting at the time of distribution. Options granted under our Plan have a maximum contractual term of \nten years\n.\n \nA summary of restricted share units and deferred stock units, including those that are performance-based, for the year ended June 30, 2023, is as follows:\n(shares in 000s)\nRestricted Share Units and Deferred Stock Units\nPerformance-Based Share Units\nShares\nWeighted-Average\nGrant\u00a0Date\u00a0\nFair\u00a0Value\nShares\nWeighted-Average\nGrant\u00a0Date\u00a0\nFair\u00a0Value\nOutstanding, beginning of the year\n1,970\n\u00a0\n$\n24.40\n\u00a0\n1,918\n\u00a0\n$\n23.79\n\u00a0\nGranted\n625\n\u00a0\n43.96\n\u00a0\n487\n\u00a0\n48.09\n\u00a0\nReleased\n(\n694\n)\n22.98\n\u00a0\n(\n580\n)\n31.54\n\u00a0\nForfeited\n(\n151\n)\n32.88\n\u00a0\n(\n138\n)\n34.84\n\u00a0\nOutstanding, end of the year\n1,750\n\u00a0\n$\n30.96\n\u00a0\n1,687\n\u00a0\n$\n25.04\n\u00a0\nThe total fair value of shares vesting during fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021 was $\n33.6\n million, $\n33.3\n million and $\n16.1\n million, respectively, and was $\n12.3\n million for the Transition Period. As \n52\n2023 Form 10-K |\n H&R Block, Inc.\nof June\u00a030, 2023, we had $\n41.3\n million of total unrecognized compensation cost related to these shares. This cost is expected to be recognized over a weighted-average period of \ntwo years\n. \nWhen valuing our performance-based share units on the grant date, we typically estimate the expected volatility using historical volatility for H&R Block, Inc. and selected comparable companies. The dividend yield is calculated based on the current dividend and the market price of our common stock on the grant date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve in effect on the grant date. Both expected volatility and the risk-free interest rate are based on a period that approximates the expected term. There were no performance-based share units issued during the Transition Period. \nThe following assumptions were used to value performance-based share units using the Monte Carlo valuation model during the periods:\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nYear Ended \nApril 30, 2021\nExpected volatility\n24.80\n% - \n163.58\n%\n23.19\n% - \n88.48\n%\n21.14\n% - \n84.49\n%\nExpected term\n3\n years\n3\n years\n3\n years\nDividend yield \n(1)\n0\n%\n0\n% \n0\n%-\n3.95\n%\nRisk-free interest rate\n3.43\n% \n0.37\n\u00a0\n%\n0.14% - 0.18%\nWeighted-average fair value\n$\n48.58\n\u00a0\n$\n27.07\n$\n16.74\n\u00a0\n(1)\nThe valuation model assumes that dividends are reinvested by the Company on a continuous basis.\nNOTE 9: INCOME TAXES\n \nWe file a consolidated federal income tax return in the U.S. with the IRS and file tax returns in various state, local, and foreign jurisdictions. Tax returns are typically examined and either settled upon completion of the examination or through the appeals process. With respect to federal, state and local jurisdictions and countries outside of the U.S., we are typically subject to examination for three to six years after the income tax returns have been filed. On November 7, 2022, the IRS commenced their examination of our 2020 tax return and related carryback claims to tax years 2015 through 2018. Our U.S. federal income tax returns for tax years 2014 and prior are closed. Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, interest, and penalties have been provided for in the accompanying consolidated financial statements for any adjustments that might be incurred due to federal, state, local or foreign audits.\nThe components of income from continuing operations upon which domestic and foreign income taxes have been provided are as follows:\n(in 000s)\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nDomestic\n$\n447,900\n\u00a0\n$\n478,166\n\u00a0\n$\n145,714\n\u00a0\n$\n489,499\n\u00a0\nForeign\n263,312\n\u00a0\n180,903\n\u00a0\n(\n24,719\n)\n179,237\n\u00a0\n$\n711,212\n\u00a0\n$\n659,069\n\u00a0\n$\n120,995\n\u00a0\n$\n668,736\n\u00a0\nWe operate in multiple income tax jurisdictions both within the U.S. and internationally. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on transfer pricing analyses of comparable companies and predictions of future economic conditions. Although these intercompany transactions reflect arm\u2019s length terms and the proper transfer pricing documentation is in place, transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates.\nH&R Block, Inc.\n | 2023 Form 10-K\n53\nThe reconciliation between the statutory U.S. federal tax rate and our effective tax rate from continuing operations is as follows:\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nU.S. statutory tax rate\n21.0\n\u00a0\n%\n21.0\n\u00a0\n%\n21.0\n\u00a0\n%\n21.0\n\u00a0\n%\nChange in tax rate resulting from:\nState income taxes, net of federal income tax benefit\n1.6\n\u00a0\n%\n2.1\n\u00a0\n%\n2.9\n\u00a0\n%\n1.8\n\u00a0\n%\nEarnings taxed in foreign jurisdictions\n(\n2.9\n)\n%\n(\n2.4\n)\n%\n0.8\n\u00a0\n%\n(\n1.2\n)\n%\nPermanent differences\n0.6\n\u00a0\n%\n0.9\n\u00a0\n%\n0.4\n\u00a0\n%\n0.5\n\u00a0\n%\nUncertain tax positions\n(\n0.9\n)\n%\n(\n6.3\n)\n%\n2.9\n\u00a0\n%\n7.5\n\u00a0\n%\nU.S. tax on income from foreign affiliates\n3.1\n\u00a0\n%\n2.0\n\u00a0\n%\n(\n1.6\n)\n%\n1.0\n\u00a0\n%\nRemeasurement of deferred tax assets and liabilities\n\u2014\n\u00a0\n%\n(\n0.2\n)\n%\n(\n1.0\n)\n%\n(\n0.1\n)\n%\nChanges in prior year estimates\n(\n0.2\n)\n%\n0.1\n\u00a0\n%\n\u2014\n\u00a0\n%\n(\n0.5\n)\n%\nFederal income tax credits\n(\n1.3\n)\n%\n(\n2.6\n)\n%\n(\n0.5\n)\n%\n(\n0.9\n)\n%\nTax benefit due to NOL carryback under CARES Act\n(\n0.2\n)\n%\n(\n0.1\n)\n%\n\u2014\n\u00a0\n%\n(\n17.5\n)\n%\nTax deductible write-down of foreign investment\n\u2014\n\u00a0\n%\n0.6\n\u00a0\n%\n(\n0.2\n)\n%\n(\n1.7\n)\n%\nChange in valuation allowance - domestic\n(\n0.4\n)\n%\n0.2\n\u00a0\n%\n\u2014\n\u00a0\n%\n(\n0.2\n)\n%\nChange in valuation allowance - foreign\n0.7\n\u00a0\n%\n(\n0.3\n)\n%\n0.3\n\u00a0\n%\n1.7\n\u00a0\n%\nOther\n(\n0.1\n)\n%\n(\n0.1\n)\n%\n(\n0.3\n)\n%\n0.3\n\u00a0\n%\nEffective tax rate\n21.0\n\u00a0\n%\n14.9\n\u00a0\n%\n24.7\n\u00a0\n%\n11.7\n\u00a0\n%\nOur effective tax rate from continuing operations was \n21.0\n%, \n14.9\n% and \n11.7\n% for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021, respectively, and was \n24.7\n% for the Transition Period. The increase in the effective tax rate for the year ended June 30, 2023 compared to the year ended June 30, 2022 is primarily due to lower benefits in the current year resulting from the expiration of statutes of limitations related to uncertain tax positions.\nThe components of income tax expense for continuing operations are as follows:\n(in 000s)\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nCurrent:\nFederal\n$\n97,430\n\u00a0\n$\n121,319\n\u00a0\n$\n11,563\n\u00a0\n$\n58,834\n\u00a0\nState\n19,023\n\u00a0\n25,108\n\u00a0\n743\n\u00a0\n12,000\n\u00a0\nForeign\n18,214\n\u00a0\n8,956\n\u00a0\n(\n1,481\n)\n26,032\n\u00a0\n134,667\n\u00a0\n155,383\n\u00a0\n10,825\n\u00a0\n96,866\n\u00a0\nDeferred:\nFederal\n23,367\n\u00a0\n(\n58,487\n)\n16,950\n\u00a0\n2,493\n\u00a0\nState\n1,860\n\u00a0\n(\n2,016\n)\n4,809\n\u00a0\n(\n11,368\n)\nForeign\n(\n10,482\n)\n3,543\n\u00a0\n(\n2,708\n)\n(\n9,467\n)\n14,745\n\u00a0\n(\n56,960\n)\n19,051\n\u00a0\n(\n18,342\n)\nTotal income taxes for continuing operations\n$\n149,412\n\u00a0\n$\n98,423\n\u00a0\n$\n29,876\n\u00a0\n$\n78,524\n\u00a0\n54\n2023 Form 10-K |\n H&R Block, Inc.\nWe account for income taxes under the asset and liability method, which requires us to record deferred income tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying value of existing assets and liabilities and their respective tax basis. Deferred taxes are determined separately for each tax-paying component within each tax jurisdiction based on provisions of enacted tax law. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.\nWe record a valuation allowance to reduce our deferred tax assets to the estimated amount that we believe is more likely than not to be realized. Determination of a valuation allowance for deferred tax assets requires that we make judgments about future matters that are not certain, including projections of future taxable income and evaluating potential tax-planning strategies.\nThe significant components of deferred tax assets and liabilities are reflected in the following table:\n(in 000s)\nAs of\nJune 30, 2023\nJune 30, 2022\nDeferred tax assets:\nAccrued expenses\n$\n2,540\n\u00a0\n$\n1,917\n\u00a0\nDeferred revenue\n17,702\n\u00a0\n35,519\n\u00a0\nAllowance for credit losses\n22,715\n\u00a0\n30,565\n\u00a0\nDeferred and stock-based compensation\n6,629\n\u00a0\n6,964\n\u00a0\nNet operating loss carry-forward\n116,956\n\u00a0\n105,710\n\u00a0\nLease liabilities\n111,721\n\u00a0\n109,397\n\u00a0\nFederal tax benefits related to state unrecognized tax benefits\n22,037\n\u00a0\n19,115\n\u00a0\nProperty and equipment\n\u2014\n\u00a0\n9,846\n\u00a0\nIntangibles - intellectual property\n80,879\n\u00a0\n77,123\n\u00a0\nValuation allowance\n(\n57,566\n)\n(\n55,172\n)\nTotal deferred tax assets\n323,613\n\u00a0\n340,984\n\u00a0\nDeferred tax liabilities:\nPrepaid expenses and other\n(\n5,954\n)\n(\n4,723\n)\nLease right of use assets\n(\n109,814\n)\n(\n107,445\n)\nProperty and equipment\n(\n1,421\n)\n\u2014\n\u00a0\nIncome tax method change\n(\n1,018\n)\n(\n5,892\n)\nIntangibles\n(\n56,651\n)\n(\n59,424\n)\nTotal deferred tax liabilities\n(\n174,858\n)\n(\n177,484\n)\nNet deferred tax assets\n$\n148,755\n\u00a0\n$\n163,500\n\u00a0\nA reconciliation of the deferred tax assets and liabilities and the corresponding amounts reported in the consolidated balance sheets is as follows:\n(in 000s)\nAs of\nJune 30, 2023\nJune 30, 2022\nDeferred income tax assets\n$\n152,699\n\u00a0\n$\n163,500\n\u00a0\nDeferred tax liabilities\n(\n3,944\n)\n\u2014\n\u00a0\nNet deferred tax asset\n$\n148,755\n\u00a0\n$\n163,500\n\u00a0\nH&R Block, Inc.\n | 2023 Form 10-K\n55\nChanges in our valuation allowance for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021 and for the Transition Period are as follows:\n(in 000s)\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nBalance, beginning of the period\n$\n55,172\n\u00a0\n$\n55,784\n\u00a0\n$\n55,401\n\u00a0\n$\n45,124\n\u00a0\nAdditions charged to costs and expenses\n6,438\n\u00a0\n4,752\n\u00a0\n389\n\u00a0\n13,492\n\u00a0\nDeductions\n(\n4,044\n)\n(\n5,364\n)\n(\n6\n)\n(\n3,215\n)\nBalance, end of the period\n$\n57,566\n\u00a0\n$\n55,172\n\u00a0\n$\n55,784\n\u00a0\n$\n55,401\n\u00a0\n Our valuation allowance on deferred tax assets has a net increase of $\n2.4\n\u00a0million during the current period. The gross increase in valuation allowance of $\n6.4\n\u00a0million is primarily related to net operating loss deferred tax assets generated in foreign jurisdictions that we do not expect to utilize in future years. This increase is offset by a $\n4.0\n\u00a0million decrease to our valuation allowance balance for adjustments to certain domestic and foreign net operating losses utilized in the current fiscal year and changes in future projections of net operating loss utilization. \nCertain of our subsidiaries file stand-alone returns in various state, local and foreign jurisdictions, and others join in filing consolidated or combined returns in such jurisdictions. As of June\u00a030, 2023, we had net operating losses in various states and foreign jurisdictions. The amount of state and foreign net operating losses varies by taxing jurisdiction. We maintain a valuation allowance of $\n19.3\n million on state net operating losses and $\n36.2\n million on foreign net operating losses for the portion of such loses that, more likely than not, will not be realized. Of the $\n117.0\n million of net operating loss deferred tax assets, $\n25.7\n million will expire in varying amounts during fiscal years 2024 through 2041 and the remaining $\n91.3\n million have no expiration. Of the total net operating loss deferred tax assets, $\n61.4\n\u00a0million are more likely than not to be realized. \nWe do not currently intend to repatriate non-borrowed funds held by our foreign subsidiaries in a manner that would trigger a tax liability; therefore, no provision has been made for income taxes that might be payable upon remittance of such earnings. The amount of unrecognized tax liability on these foreign earnings, net of expected foreign tax credits, is immaterial as of June 30, 2023.\nChanges in unrecognized tax benefits for fiscal years ended June 30, 2023, June 30, 2022 and April 30, 2021 and for the Transition Period are as follows:\n(in 000s)\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nBalance, beginning of the period\n$\n232,004\n\u00a0\n$\n264,323\n\u00a0\n$\n264,810\n\u00a0\n$\n168,062\n\u00a0\nAdditions based on tax positions related to prior years\n1,252\n\u00a0\n2,499\n\u00a0\n485\n\u00a0\n121,364\n\u00a0\nReductions based on tax positions related to prior years\n\u2014\n\u00a0\n(\n5,332\n)\n(\n1,209\n)\n(\n34,470\n)\nAdditions based on tax positions related to the current year\n33,330\n\u00a0\n32,948\n\u00a0\n679\n\u00a0\n43,800\n\u00a0\nReductions related to settlements with tax authorities\n(\n661\n)\n(\n9,800\n)\n(\n442\n)\n(\n29,362\n)\nExpiration of statute of limitations\n(\n25,862\n)\n(\n52,634\n)\n\u2014\n\u00a0\n(\n4,584\n)\nBalance, end of the period\n$\n240,063\n\u00a0\n$\n232,004\n\u00a0\n$\n264,323\n\u00a0\n$\n264,810\n\u00a0\nIncluded in the total gross unrecognized tax benefit ending balance as of June\u00a030, 2023, June 30, 2022, June 30, 2021 and April 30, 2021, are $\n209.0\n million, $\n203.7\n million, $\n224.5\n million and $\n214.9\n\u00a0million, respectively, which if recognized, would impact our effective tax rate. Increases from prior year are primarily related to additions based on current year tax positions offset by expirations of statute of limitations and settlements with taxing authorities.\nWe believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $\n33.7\n million within the next twelve months. The anticipated decrease is due to the expiration of statutes of limitations, anticipated closure of various tax matters currently under examination, and settlements with tax authorities. For such matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate has been included. \n56\n2023 Form 10-K |\n H&R Block, Inc.\nInterest and penalties, if any, accrued on the unrecognized tax benefits are reflected in income tax expense. The total gross interest and penalties accrued as of June\u00a030, 2023 and 2022 totaled $\n32.6\n million and $\n22.7\n million, respectively.\n \nNOTE 10: COMMITMENTS AND CONTINGENCIES\n \nAssisted tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client for penalties and interest attributable to an H&R Block error on a return. DIY tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client up to a maximum of $\n10,000\n, if our software makes an arithmetic error that results in payment of penalties and/or interest to the respective taxing authority that a client would otherwise not have been required to pay. Our liability related to estimated losses under the 100% accuracy guarantee was $\n15.8\n million and $\n14.0\n million as of June\u00a030, 2023 and 2022, respectively. The short-term and long-term portions of this liability are included in deferred revenue and other liabilities in the consolidated balance sheets.\nLiabilities related to acquisitions for (1) estimated contingent consideration based on expected financial performance of the acquired business and economic conditions at the time of acquisition and (2) estimated accrued compensation related to continued employment of key employees were $\n18.3\n\u00a0million and $\n12.9\n\u00a0million as of June\u00a030, 2023 and 2022, respectively, with amounts recorded in deferred revenue and other liabilities. These liabilities will be settled within the next ten years. Should actual results differ from our estimates, future payments made will differ from the above estimate and any differences will be recorded in results from continuing operations.\nWe have contractual commitments to fund certain franchises with approved short-term lines of credit for the purpose of meeting their seasonal working capital needs. Our total oblig\nation under these lines of credit was $\n0.4\n million as of June\u00a030, 2023, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $\n0.2\n million.\nIn March 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide economic and other relief as a result of the COVID-19 pandemic. The CARES Act includes, among other items, provisions relating to refundable employee retention payroll tax credits. \nDue to the complex nature of the employee retention credit computations, any benefits we may receive are uncertain and may significantly differ from our current estimates. We plan to record any benefit related to these credits upon both the receipt of the benefit and the resolution of the uncertainties, including, but not limited to, the completion of any potential audit or examination, or the expiration of the related statute of limitations. During the year ended June\u00a030, 2023, we received $\n15.4\n\u00a0million related to these credits and recognized $\n5.1\n\u00a0million as an offset to related operating expense. During the year ended June\u00a030, 2022, we received $\n7.3\n\u00a0million related to these credits and recognized $\n2.2\n\u00a0million as an offset to related operating expense. As of June\u00a030, 2023 and \n2022\n we had deferred balances of $\n15.4\n\u00a0million and $\n5.1\n\u00a0million, respectively, which is recorded in deferred revenue and other current liabilities. \nWe are self-insured for certain risks, including employer provide\nd medical benefits, workers' compensation, property, general liability, tax errors and omissions, and claims related to POM. These programs maintain various self-insured retentions and commercial insurance is purchased in excess of the self-insured retentions for all but POM in company-owned offices and employer provided medical benefits. We accrue estimated losses for self-insured retentions using actuarial models and assumptions based on historical loss experience. \nWe have a deferred compensation plan that permits certain employees to defer portions of their compensation and accrue income on the deferred amounts. As of June\u00a030, 2023 and 2022, $\n10.5\n million is included in deferred revenue and other liabilities reflecting our obligation under this plan. \nEmerald Advances are originated by Pathward, and pursuant to our participation agreement, we purchase a \n90\n% participation interest in each advance made by Pathward. See \nnote 4\n for additional information about these balances. \nRefund Advance loans are originated by Pathward and offered to certain assisted U.S. tax preparation clients, based on client eligibility as determined by Pathward. We pay fees primarily based on loan size and customer type. We have provided a guarantee up to $\n18.0\n million related to certain loans to clients prior to the IRS accepting electronic filing. \nWe accrued an estimated liability of $\n0.7\n million at June 30, 2023 related to this guarantee. As of \nH&R Block, Inc.\n | 2023 Form 10-K\n57\nJune 30, 2022 we had $\n0.6\n\u00a0million accrued under the RA guarantee agreement, and we paid $\n0.5\n\u00a0million, net of recoveries, related to that guarantee during the fiscal year ended June 30, 2023.\nWe offer POM to U.S. and Canadian clients, whereby we (1)\u00a0represent our clients if they are audited by a taxing authority, and (2)\u00a0assume the cost, subject to certain limits, of additional taxes owed by a client resulting from errors attributable to H&R Block. The additional taxes paid under POM have a cumulative limit of $\n6,000\n for U.S. clients and $\n3,000\n CAD for Canadian clients with respect to the federal, state/provincial and local tax returns we prepared for applicable clients during the taxable year protected by POM. A loss on POM would be recognized if the sum of expected costs for services exceeded unearned revenue.\nNOTE 11: LEASES\n \nO\nur lease costs and other information related to operating leases consisted of the following:\n(dollars in\u00a0000s)\nYear Ended\nJune 30, 2023\nYear Ended\nJune 30, 2022\nTwo Months Ended\nJune 30, 2021\n(Transition Period)\nYear Ended \nApril 30, 2021\nOperating lease costs\n$\n238,899\n\u00a0\n$\n233,004\n\u00a0\n$\n36,853\n\u00a0\n$\n239,357\n\u00a0\nVariable lease costs\n85,239\n\u00a0\n79,923\n\u00a0\n14,359\n\u00a0\n77,758\n\u00a0\nSubrental income\n(\n575\n)\n(\n520\n)\n(\n52\n)\n(\n650\n)\nTotal lease costs\n$\n323,563\n\u00a0\n$\n312,407\n\u00a0\n$\n51,160\n\u00a0\n$\n316,465\n\u00a0\nCash paid for operating lease costs\n$\n236,423\n\u00a0\n$\n236,946\n\u00a0\n$\n35,394\n\u00a0\n$\n240,299\n\u00a0\nNew operating right of use assets and related lease liabilities\n$\n253,755\n\u00a0\n$\n222,352\n\u00a0\n$\n48,307\n\u00a0\n$\n167,827\n\u00a0\nWeighted-average remaining operating lease term (years)\n2\n2\n2\n3\nWeighted-average operating lease discount rate\n4.1\n\u00a0\n%\n2.8\n\u00a0\n%\n2.9\n\u00a0\n%\n3.0\n\u00a0\n%\nAggregate operating lease maturities as of June\u00a030, 2023 are as follows:\n(in 000s)\n2024\n$\n219,082\n\u00a0\n2025\n138,740\n\u00a0\n2026\n61,387\n\u00a0\n2027\n28,463\n\u00a0\n2028\n11,838\n\u00a0\n2029 and thereafter\n9,168\n\u00a0\nTotal future undiscounted operating lease payments\n468,678\n\u00a0\nLess imputed interest\n(\n22,744\n)\nTotal operating lease liabilities\n$\n445,934\n\u00a0\nNOTE 12: LITIGATION AND OTHER RELATED CONTINGENCIES\n \nWe are a defendant in numerous litigation and arbitration matters, arising both in the ordinary course of business and otherwise, including as described below. The matters described below are not all of the lawsuits or arbitrations to which we are subject. In some of the matters, very large or indeterminate amounts, including punitive damages, may be sought. U.S.\u00a0jurisdictions permit considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. We believe that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value due to this variability in pleadings and our experience in handling and resolving numerous claims over an extended period of time.\nThe outcome of a matter and the amount or range of potential loss at particular points in time may be difficult to ascertain. Among other things, uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how courts and arbitrators will apply the law. \n58\n2023 Form 10-K |\n H&R Block, Inc.\nDisposition valuations are also subject to the uncertainty of how opposing parties and their counsel will view the relevant evidence and applicable law.\nIn addition to litigation and arbitration matters, we are also subject to other loss contingencies arising out of our business activities, including as described below.\nWe accrue liabilities for litigation, arbitration and other related loss contingencies and any related settlements when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. If a range of loss is estimated, and some amount within that range appears to be a better estimate than any other amount within that range, then that amount is accrued. If no amount within the range can be identified as a better estimate than any other amount, we accrue the minimum amount in the range.\nFor such matters where a loss is believed to be reasonably possible, but not probable, or the loss cannot be reasonably estimated, no accrual has been made. It is possible that such matters could require us to pay damages or make other expenditures or accrue liabilities in amounts that could not be reasonably estimated as of June\u00a030, 2023. While the potential future liabilities could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known, we do not believe any such liabilities are likely to have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows. As of June\u00a030, 2023 and 2022 our total accrued liabilities were $\n0.2\n million and $\n1.7\n million, respectively.\nOur estimate of the aggregate range of reasonably possible losses includes (1) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where a liability has not been accrued but we believe a loss is reasonably possible. This aggregate range only represents those losses as to which we are currently able to estimate a reasonably possible loss or range of loss. It does not represent our maximum loss exposure.\nMatters for which we are not currently able to estimate the reasonably possible loss or range of loss are not included in this range. We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the reasonably possible loss or range of loss, such as precise information about the amount of damages or other remedies being asserted, the defenses to the claims being asserted, discovery from other parties and investigation of factual allegations, rulings by courts or arbitrators on motions or appeals, analyses by experts, or the status or terms of any settlement negotiations.\nThe estimated range of reasonably possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, as well as known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate. As of June\u00a030, 2023, we believe the estimate of the aggregate range of reasonably possible losses in excess of amounts accrued, where the range of loss can be estimated, is not material.\nAt the end of each reporting period, we review relevant information with respect to litigation, arbitration and other related loss contingencies and update our accruals, disclosures, and estimates of reasonably possible loss or range of loss based on such reviews. Costs incurred with defending matters are expensed as incurred. Any receivable for insurance recoveries is recorded separately from the corresponding liability, and only if recovery is determined to be probable and reasonably estimable.\nWe believe we have meritorious defenses to the claims asserted in the various matters described in this note, and we intend to defend them vigorously. The amounts claimed in the matters are substantial, however, and there can be no assurances as to their outcomes. In the event of unfavorable outcomes, it could require modifications to our operations; in addition, the amounts that may be required to be paid to discharge or settle the matters could be substantial and could have a material adverse impact on our business and our consolidated financial position, results of operations, and cash flows.\nH&R Block, Inc.\n | 2023 Form 10-K\n59\nLITIGATION, CLAIMS OR OTHER LOSS CONTINGENCIES PERTAINING TO CONTINUING OPERATIONS \n\u2013\nOn May 6, 2019, the Los Angeles City Attorney filed a lawsuit on behalf of the People of the State of California in the Superior Court of California, County of Los Angeles (Case No. 19STCV15742). The case is styled The People of the State of California v. HRB Digital LLC, et al. The complaint alleges that H&R Block, Inc. and HRB Digital LLC engaged in unfair, fraudulent and deceptive business practices and acts in connection with the IRS Free File Program in violation of the California Unfair Competition Law, California Business and Professions Code \u00a7\u00a717200 et seq. The complaint seeks injunctive relief, restitution of monies paid to H&R Block by persons in the State of California who were eligible to file under the IRS Free File Program for the time period startin\ng\n \n4\n years prior to the date of the filing of the complaint, pre-judgment interest, civil penalties and costs. The City Attorney subsequently dismissed H&R Block, Inc. from the case and amended its complaint to add HRB Tax Group, Inc. We filed a motion for summary judgment, which was denied. The August 14, 2023 trial date was continued. A new trial date has not yet been set. We have not concluded that a loss related to this matter is probable, nor have we accrued a liability related to this matter. \nWe have received and are responding to certain governmental inquiries relating to the IRS Free File Program and our DIY tax preparation services. In February 2023, we received a demand and draft complaint from the Federal Trade Commission (FTC) relating to our DIY tax preparation services. If the parties are not able to reach amicable resolution, the FTC may seek resolution through litigation. We have not concluded that a loss related to these matters is probable, nor have we accrued a liability related to these matters. \nDISCONTINUED MORTGAGE OPERATIONS\n\u00a0\u2013\u00a0Although SCC ceased its mortgage loan origination activities in December 2007 and sold its loan servicing business in April 2008, SCC or the Company has been and may in the future be, subject to litigation and other loss contingencies, including indemnification and contribution claims, pertaining to SCC's mortgage business activities that occurred prior to such termination and sale. \nParties, including underwriters, depositors, and securitization trustees, have been, remain, or may in the future be, involved in lawsuits, threatened lawsuits, or settlements related to securitization transactions in which SCC participated. A variety of claims are alleged in these matters, including violations of federal and state securities laws and common law fraud, breaches of representations and warranties, or violations of statutory requirements. SCC has received notices of potential indemnification or contribution obligations relating to such matters. Additional lawsuits against the parties to the securitization transactions may be filed in the future, and SCC may receive additional notices of potential indemnification, contribution or similar obligations with respect to existing or new lawsuits or settlements of such lawsuits or other claims. In June 2023, a settlement was paid resolving certain of these matters. We have not concluded that a loss related to any other potential indemnification or contribution claims is probable, nor have we accrued a liability related to these matters.\nIt is difficult to predict either the likelihood of new matters being initiated or the outcome of existing matters. In many of these matters it is not possible to estimate a reasonably possible loss or range of loss due to, among other things, the inherent uncertainties involved in these matters and the indeterminate damages sought. If the amount that SCC is ultimately required to pay with respect to loss contingencies, together with payment of SCC's related administration and legal expense, exceeds SCC's net assets, the creditors of SCC, other potential claimants, or a bankruptcy trustee if SCC were to file or be forced into bankruptcy, may attempt to assert claims against us for payment of SCC's obligations. Claimants also may attempt to assert claims against or seek payment directly from the Company even if SCC's assets exceed its liabilities. SCC's principal assets, as of June\u00a030, 2023, total approximately $\n262\n\u00a0million and consist of an intercompany note receivable. We believe our legal position is strong on any potential corporate veil-piercing arguments; however, if this position is challenged and not upheld, it could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.\nOTHER\n \u2014 We are from time to time a party to litigation, arbitration and other loss contingencies not discussed herein arising out of our business operations. These matters may include actions by state attorneys general, other state regulators, federal regulators, individual plaintiffs, and cases in which plaintiffs seek to represent others who may be similarly situated. \n60\n2023 Form 10-K |\n H&R Block, Inc.\nWhile we cannot provide assurance that we will ultimately prevail in each instance, we believe the amount, if any, we are required to pay to discharge or settle these other matters will not have a material adverse impact on our business and our consolidated financial position, results of operations, and cash flows.\nITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE \nThere were no disagreements or reportable events requiring disclosure pursuant to Item\u00a0304(b) of Regulation\u00a0S-K.\nITEM 9A. CONTROLS AND PROCEDURES \n(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES\n \u2013 We have established disclosure controls and procedures (Disclosure Controls) to ensure that information required to be disclosed in the Company's reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms. Disclosure Controls are also designed to ensure that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Disclosure Controls were designed to provide reasonable assurance that the controls and procedures would meet their objectives. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance of achieving the designed control objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusions of two or more people or by management override of the control. Because of the inherent limitations in a cost-effective, maturing control system, misstatements due to error or fraud may occur and not be detected.\nAs of the end of the period covered by this Form 10-K, management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operations of our Disclosure Controls. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded our Disclosure Controls were effective as of the end of the period covered by this Annual Report on Form 10-K.\n(b) MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING\n \u2013 Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June\u00a030, 2023 based on the criteria established in \"Internal Control \u2013 Integrated Framework\" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), using the 2013 framework.\nBased on our assessment, our Chief Executive Officer and Chief Financial Officer concluded that, as of June\u00a030, 2023, the Company's internal control over financial reporting was effective based on the criteria set forth by COSO.\nThe Company's external auditors that audited the consolidated financial statements included in \nItem 8\n, Deloitte\u00a0& Touche LLP, an independent registered public accounting firm, have issued an audit report on the effectiveness of the Company's internal control over financial reporting. This report appears near the beginning of ",
+  "cik": "12659",
+  "cusip6": "093671",
+  "cusip": ["093671905", "093671955", "093671105"],
+  "names": ["BLOCK H & R INC", "Block H & R"],
+  "source": "https://www.sec.gov/Archives/edgar/data/12659/000183886223000027/0001838862-23-000027-index.htm"
+}
diff --git a/GraphRAG/standalone/data/all/form13.csv b/GraphRAG/standalone/data/all/form13.csv
new file mode 100644
index 0000000000..c182a79642
--- /dev/null
+++ b/GraphRAG/standalone/data/all/form13.csv
@@ -0,0 +1,52497 @@
+source,managerCik,managerAddress,managerName,reportCalendarOrQuarter,cusip6,cusip,companyName,value,shares
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+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,35137L,35137L105,Fox Corp.,3768458000.0,110837
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,370334,370334104,General Mills Inc.,3103435000.0,40462
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,426281,426281101,Jack Henry and Associates Inc.,3847753000.0,22995
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,461202,461202103,Intuit Inc.,19365400000.0,42265
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,512807,512807108,Lam Research Corp.,103000315000.0,160222
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,513272,513272104,Lamb Weston Holdings Inc.,115939834000.0,1008611
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,513847,513847103,Lancaster Colony Corp.,3295664000.0,16389
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,518439,518439104,The Estee Lauder Cos. Inc.,58934031000.0,300102
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,55024U,55024U109,Lumentum Holdings Inc.,4071796000.0,71775
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,55825T,55825T103,Madison Square Garden Sports Corp.,3623535000.0,19269
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,594918,594918104,Microsoft Corp.,188553252000.0,553689
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,654106,654106103,NIKE Inc.,68461076000.0,620287
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,683715,683715106,Open Text Corp.,716019000.0,17215
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,697435,697435105,Palo Alto Networks Inc.,264448762000.0,1034984
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,701094,701094104,Parker-Hannifin Corp.,106001561000.0,271771
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,704326,704326107,Paychex Inc.,1666304000.0,14895
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,71377A,71377A103,Performance Food Group Co.,15788904000.0,262100
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,74051N,74051N102,Premier Inc.,3739826000.0,135207
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,742718,742718109,Procter & Gamble Co Common,2969400000.0,19569
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,832696,832696405,The J M Smucker Co.,3439530000.0,23292
+https://sec.gov/Archives/edgar/data/1003518/0000945621-23-000384.txt,1003518,"CIBC SQUARE, TOWER ONE, 81 BAY STREET, SUITE 3900, TORONTO, A6, M5J 0G1",AGF MANAGEMENT LTD,2023-06-30,G5960L,G5960L103,Medtronic PLC,799772000.0,9078
+https://sec.gov/Archives/edgar/data/1004140/0001004140-23-000004.txt,1004140,"1841 HUNTINGDON PIKE, HUNTINGDON VALLEY, PA, 19006",PENNSYLVANIA CAPITAL MANAGEMENT INC /ADV,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,446393000.0,2031
+https://sec.gov/Archives/edgar/data/1004140/0001004140-23-000004.txt,1004140,"1841 HUNTINGDON PIKE, HUNTINGDON VALLEY, PA, 19006",PENNSYLVANIA CAPITAL MANAGEMENT INC /ADV,2023-06-30,594918,594918104,MICROSOFT CORP,36055912000.0,105879
+https://sec.gov/Archives/edgar/data/1004244/0001085146-23-003425.txt,1004244,"74 BATTERSON PARK ROAD, POND VIEW CORPORATE CENTER, FARMINGTON, CT, 06032",NEW ENGLAND ASSET MANAGEMENT INC,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,6689311000.0,127464
+https://sec.gov/Archives/edgar/data/1004244/0001085146-23-003425.txt,1004244,"74 BATTERSON PARK ROAD, POND VIEW CORPORATE CENTER, FARMINGTON, CT, 06032",NEW ENGLAND ASSET MANAGEMENT INC,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,2350649000.0,14069
+https://sec.gov/Archives/edgar/data/1004244/0001085146-23-003425.txt,1004244,"74 BATTERSON PARK ROAD, POND VIEW CORPORATE CENTER, FARMINGTON, CT, 06032",NEW ENGLAND ASSET MANAGEMENT INC,2023-06-30,370334,370334104,GENERAL MLS INC,5573789000.0,72670
+https://sec.gov/Archives/edgar/data/1004244/0001085146-23-003425.txt,1004244,"74 BATTERSON PARK ROAD, POND VIEW CORPORATE CENTER, FARMINGTON, CT, 06032",NEW ENGLAND ASSET MANAGEMENT INC,2023-06-30,594918,594918104,MICROSOFT CORP,15312722000.0,44966
+https://sec.gov/Archives/edgar/data/1004244/0001085146-23-003425.txt,1004244,"74 BATTERSON PARK ROAD, POND VIEW CORPORATE CENTER, FARMINGTON, CT, 06032",NEW ENGLAND ASSET MANAGEMENT INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,8794092000.0,57955
+https://sec.gov/Archives/edgar/data/1004244/0001085146-23-003425.txt,1004244,"74 BATTERSON PARK ROAD, POND VIEW CORPORATE CENTER, FARMINGTON, CT, 06032",NEW ENGLAND ASSET MANAGEMENT INC,2023-06-30,871829,871829107,SYSCO CORP,8105979000.0,109245
+https://sec.gov/Archives/edgar/data/1004244/0001085146-23-003425.txt,1004244,"74 BATTERSON PARK ROAD, POND VIEW CORPORATE CENTER, FARMINGTON, CT, 06032",NEW ENGLAND ASSET MANAGEMENT INC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1933266000.0,21944
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,00737L,00737L103,ADTALEM GLOBAL ED INC,2440784000.0,63200
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,018802,018802108,ALLIANT ENERGY CORP,8544000000.0,160000
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,1080188000.0,7600
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,053807,053807103,AVNET INC,11300000000.0,250000
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,05465C,05465C100,AXOS FINANCIAL INC,1635556000.0,44300
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,093671,093671105,BLOCK H & R INC,2668425000.0,75700
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,127190,127190304,CACI INTL INC,503676000.0,1700
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,128030,128030202,CAL MAINE FOODS INC,2831385000.0,46500
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,147528,147528103,CASEYS GEN STORES INC,50023906000.0,231100
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,222070,222070203,COTY INC,1162584000.0,96400
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,297602,297602104,ETHAN ALLEN INTERIORS INC,1356524000.0,49400
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,31428X,31428X106,FEDEX CORP,3113862000.0,13628
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,35137L,35137L105,FOX CORP,790879000.0,23227
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,36251C,36251C103,GMS INC,1308314000.0,22600
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,370334,370334104,GENERAL MLS INC,1170802000.0,13700
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,482480,482480100,KLA CORP,85219602000.0,213492
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,489170,489170100,KENNAMETAL INC,620550000.0,22500
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,500643,500643200,KORN FERRY,1024452000.0,19800
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,512807,512807108,LAM RESEARCH CORP,14605866000.0,27552
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,513272,513272104,LAMB WESTON HLDGS INC,2100852000.0,20100
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,55024U,55024U109,LUMENTUM HLDGS INC,556303000.0,10300
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,56117J,56117J100,MALIBU BOATS INC,1665275000.0,29500
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,594918,594918104,MICROSOFT CORP,416766480000.0,1445600
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,606710,606710200,MITEK SYS INC,120834000.0,12600
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,635017,635017106,NATIONAL BEVERAGE CORP,785528000.0,14900
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,640491,640491106,NEOGEN CORP,1044528000.0,56400
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,654106,654106103,NIKE INC,1913184000.0,15600
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,704326,704326107,PAYCHEX INC,6084500000.0,53098
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,71377A,71377A103,PERFORMANCE FOOD GROUP CO,2359294000.0,39100
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,74051N,74051N102,PREMIER INC,734799000.0,22700
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,742718,742718109,PROCTER AND GAMBLE CO,84589741000.0,568900
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,76122Q,76122Q105,RESOURCES CONNECTION INC,214956000.0,12600
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,807066,807066105,SCHOLASTIC CORP,701510000.0,20500
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,831754,831754106,SMITH & WESSON BRANDS INC,329908000.0,26800
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,854231,854231107,STANDEX INTL CORP,391808000.0,3200
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,86800U,86800U104,SUPER MICRO COMPUTER INC,1001570000.0,9400
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,87157D,87157D109,SYNAPTICS INC,1000350000.0,9000
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,876030,876030107,TAPESTRY INC,2690064000.0,62400
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,88688T,88688T100,TILRAY BRANDS INC,273746000.0,108200
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,968223,968223206,WILEY JOHN & SONS INC,294652000.0,7600
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,981811,981811102,WORTHINGTON INDS INC,607710000.0,9400
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000004.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-03-31,N14506,N14506104,ELASTIC N V,1030620000.0,17800
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000005.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,351302000.0,4600
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000005.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,785169000.0,69300
+https://sec.gov/Archives/edgar/data/1005354/0001005354-23-000005.txt,1005354,"P.O. BOX 2500, RICHMOND, VA, 23218",VIRGINIA RETIREMENT SYSTEMS ET AL,2023-06-30,G2143T,G2143T103,CIMPRESS PLC,214128000.0,3600
+https://sec.gov/Archives/edgar/data/1005441/0001085146-23-002740.txt,1005441,"3390 ASBURY ROAD, DUBUQUE, IA, 52002","Avantax Planning Partners, Inc.",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,958013000.0,18255
+https://sec.gov/Archives/edgar/data/1005441/0001085146-23-002740.txt,1005441,"3390 ASBURY ROAD, DUBUQUE, IA, 52002","Avantax Planning Partners, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,2436643000.0,11086
+https://sec.gov/Archives/edgar/data/1005441/0001085146-23-002740.txt,1005441,"3390 ASBURY ROAD, DUBUQUE, IA, 52002","Avantax Planning Partners, Inc.",2023-06-30,053807,053807103,AVNET INC,233533000.0,4629
+https://sec.gov/Archives/edgar/data/1005441/0001085146-23-002740.txt,1005441,"3390 ASBURY ROAD, DUBUQUE, IA, 52002","Avantax Planning Partners, Inc.",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,258554000.0,2734
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+https://sec.gov/Archives/edgar/data/1007280/0001007280-23-000008.txt,1007280,"277 E TOWN ST, COLUMBUS, OH, 43215",PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO,2023-06-30,65249B,65249B109,News Corp - Class A,3849000.0,197410
+https://sec.gov/Archives/edgar/data/1007280/0001007280-23-000008.txt,1007280,"277 E TOWN ST, COLUMBUS, OH, 43215",PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO,2023-06-30,654106,654106103,Nike Inc -Cl B,72194000.0,654107
+https://sec.gov/Archives/edgar/data/1007280/0001007280-23-000008.txt,1007280,"277 E TOWN ST, COLUMBUS, OH, 43215",PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO,2023-06-30,671044,671044105,Osi Systems Inc,37000.0,316
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+https://sec.gov/Archives/edgar/data/1007280/0001007280-23-000008.txt,1007280,"277 E TOWN ST, COLUMBUS, OH, 43215",PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO,2023-06-30,703395,703395103,Patterson Cos Inc,5381000.0,161779
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+https://sec.gov/Archives/edgar/data/1007280/0001007280-23-000008.txt,1007280,"277 E TOWN ST, COLUMBUS, OH, 43215",PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO,2023-06-30,742718,742718109,Procter & Gamble Co/The,198903000.0,1310815
+https://sec.gov/Archives/edgar/data/1007280/0001007280-23-000008.txt,1007280,"277 E TOWN ST, COLUMBUS, OH, 43215",PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO,2023-06-30,747906,747906501,Quantum Corp,17000.0,15958
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+https://sec.gov/Archives/edgar/data/1010873/0001010873-23-000003.txt,1010873,"1450 RALEIGH RD, STE 300, CHAPEL HILL, NC, 27517",FRANKLIN STREET ADVISORS INC /NC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC CL A,17033000.0,86736
+https://sec.gov/Archives/edgar/data/1010873/0001010873-23-000003.txt,1010873,"1450 RALEIGH RD, STE 300, CHAPEL HILL, NC, 27517",FRANKLIN STREET ADVISORS INC /NC,2023-06-30,594918,594918104,MICROSOFT CORP,78225000.0,229710
+https://sec.gov/Archives/edgar/data/1010873/0001010873-23-000003.txt,1010873,"1450 RALEIGH RD, STE 300, CHAPEL HILL, NC, 27517",FRANKLIN STREET ADVISORS INC /NC,2023-06-30,654106,654106103,NIKE INC CL B,14069000.0,127475
+https://sec.gov/Archives/edgar/data/1010873/0001010873-23-000003.txt,1010873,"1450 RALEIGH RD, STE 300, CHAPEL HILL, NC, 27517",FRANKLIN STREET ADVISORS INC /NC,2023-06-30,704326,704326107,PAYCHEX INC,241000.0,2158
+https://sec.gov/Archives/edgar/data/1010873/0001010873-23-000003.txt,1010873,"1450 RALEIGH RD, STE 300, CHAPEL HILL, NC, 27517",FRANKLIN STREET ADVISORS INC /NC,2023-06-30,742718,742718109,PROCTER & GAMBLE,9719000.0,64047
+https://sec.gov/Archives/edgar/data/1010873/0001010873-23-000003.txt,1010873,"1450 RALEIGH RD, STE 300, CHAPEL HILL, NC, 27517",FRANKLIN STREET ADVISORS INC /NC,2023-06-30,G5960L,G5960L103,"MEDTRONIC, PLC",17361000.0,197055
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+https://sec.gov/Archives/edgar/data/1010911/0001010911-23-000013.txt,1010911,"800 Philadelphia Street, Indiana, PA, 15701",S&T Bank/PA,2023-06-30,594918,594918104,MICROSOFT CORP,9774000.0,28700
+https://sec.gov/Archives/edgar/data/1010911/0001010911-23-000013.txt,1010911,"800 Philadelphia Street, Indiana, PA, 15701",S&T Bank/PA,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,14865000.0,58176
+https://sec.gov/Archives/edgar/data/1010911/0001010911-23-000013.txt,1010911,"800 Philadelphia Street, Indiana, PA, 15701",S&T Bank/PA,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,223000.0,1471
+https://sec.gov/Archives/edgar/data/1010911/0001010911-23-000013.txt,1010911,"800 Philadelphia Street, Indiana, PA, 15701",S&T Bank/PA,2023-06-30,832696,832696405,SMUCKER J M CO,4955000.0,33554
+https://sec.gov/Archives/edgar/data/1010911/0001010911-23-000013.txt,1010911,"800 Philadelphia Street, Indiana, PA, 15701",S&T Bank/PA,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,8212000.0,216488
+https://sec.gov/Archives/edgar/data/1011443/0001011443-23-000018.txt,1011443,"2300 NORTH FIELD STREET, STE 2200, DALLAS, TX, 75201",HBK INVESTMENTS L P,2023-06-30,31428X,31428X106,FEDEX CORP,2911338000.0,11744
+https://sec.gov/Archives/edgar/data/1011443/0001011443-23-000018.txt,1011443,"2300 NORTH FIELD STREET, STE 2200, DALLAS, TX, 75201",HBK INVESTMENTS L P,2023-06-30,594918,594918104,MICROSOFT CORP,1726197000.0,5069
+https://sec.gov/Archives/edgar/data/1011443/0001011443-23-000018.txt,1011443,"2300 NORTH FIELD STREET, STE 2200, DALLAS, TX, 75201",HBK INVESTMENTS L P,2023-06-30,65249B,65249B109,NEWS CORP NEW,11583000000.0,594000
+https://sec.gov/Archives/edgar/data/1011443/0001011443-23-000018.txt,1011443,"2300 NORTH FIELD STREET, STE 2200, DALLAS, TX, 75201",HBK INVESTMENTS L P,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,5341248000.0,35200
+https://sec.gov/Archives/edgar/data/1011443/0001011443-23-000018.txt,1011443,"2300 NORTH FIELD STREET, STE 2200, DALLAS, TX, 75201",HBK INVESTMENTS L P,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,468340000.0,5316
+https://sec.gov/Archives/edgar/data/101199/0000101199-23-000066.txt,101199,"P O BOX 73909, Cedar Rapids, IA, 52407",United Fire Group Inc,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,4198400000.0,80000
+https://sec.gov/Archives/edgar/data/101199/0000101199-23-000066.txt,101199,"P O BOX 73909, Cedar Rapids, IA, 52407",United Fire Group Inc,2023-06-30,594918,594918104,MICROSOFT CORP,5959450000.0,17500
+https://sec.gov/Archives/edgar/data/101199/0000101199-23-000066.txt,101199,"P O BOX 73909, Cedar Rapids, IA, 52407",United Fire Group Inc,2023-06-30,654106,654106103,NIKE INC,3311100000.0,30000
+https://sec.gov/Archives/edgar/data/101199/0000101199-23-000066.txt,101199,"P O BOX 73909, Cedar Rapids, IA, 52407",United Fire Group Inc,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,5963382000.0,39300
+https://sec.gov/Archives/edgar/data/101199/0000101199-23-000066.txt,101199,"P O BOX 73909, Cedar Rapids, IA, 52407",United Fire Group Inc,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2202500000.0,25000
+https://sec.gov/Archives/edgar/data/1013234/0001013234-23-000003.txt,1013234,"830 WEST CAUSEWAY APPROACH, SUITE 1200, MANDEVILLE, LA, 70471",ORLEANS CAPITAL MANAGEMENT CORP/LA,2023-06-30,594918,594918104,MICROSOFT CORP,8512478000.0,24997
+https://sec.gov/Archives/edgar/data/1013234/0001013234-23-000003.txt,1013234,"830 WEST CAUSEWAY APPROACH, SUITE 1200, MANDEVILLE, LA, 70471",ORLEANS CAPITAL MANAGEMENT CORP/LA,2023-06-30,742718,742718109,PROCTER & GAMBLE,3415060000.0,22506
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING INC,5494000.0,25
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC COM,193392000.0,2045
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,31825000.0,567
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC COM,66832000.0,400
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,31428X,31428X106,FEDEX CORP COM,208234000.0,840
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,370334,370334104,GENERAL MILLS INC,135449000.0,1766
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,512807,512807108,LAM RESEARCH CORP COM,55282000.0,86
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,594918,594918104,MICROSOFT CORP COM,2029887000.0,5961
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,654106,654106103,NIKE INC CL B,63461000.0,575
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,704326,704326107,PAYCHEX INC COM,11187000.0,100
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,742718,742718109,PROCTER & GAMBLE CO COM,451423000.0,2975
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,749685,749685103,RPM INTL INC COM,33647000.0,375
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,871829,871829107,SYSCO CORP.,547225000.0,7375
+https://sec.gov/Archives/edgar/data/1013272/0000950123-23-006333.txt,1013272,"717 Main St, PO Box 269, Honesdale, PA, 18431",Norwood Financial Corp,2023-06-30,958102,958102105,WESTERN DIGITAL CORP COM,3793000.0,100
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+https://sec.gov/Archives/edgar/data/1013538/0001013538-23-000006.txt,1013538,"5971 KINGSTOWNE VILLAGE PARKWAY, SUITE 240, KINGSTOWNE, VA, 22315",EDGAR LOMAX CO/VA,2023-06-30,742718,742718109,PROCTER & GAMBLE CO COM,18715460000.0,123339
+https://sec.gov/Archives/edgar/data/1013538/0001013538-23-000006.txt,1013538,"5971 KINGSTOWNE VILLAGE PARKWAY, SUITE 240, KINGSTOWNE, VA, 22315",EDGAR LOMAX CO/VA,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC SHS,31481918000.0,357343
+https://sec.gov/Archives/edgar/data/1013701/0001013701-23-000006.txt,1013701,"1926 S. 67TH STREET, SUITE 201, OMAHA, NE, 68106",LAWSON KROEKER INVESTMENT MANAGEMENT INC/NE,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,284188000.0,1293
+https://sec.gov/Archives/edgar/data/1013701/0001013701-23-000006.txt,1013701,"1926 S. 67TH STREET, SUITE 201, OMAHA, NE, 68106",LAWSON KROEKER INVESTMENT MANAGEMENT INC/NE,2023-06-30,115637,115637100,BROWN FORMAN CORP,439546000.0,6582
+https://sec.gov/Archives/edgar/data/1013701/0001013701-23-000006.txt,1013701,"1926 S. 67TH STREET, SUITE 201, OMAHA, NE, 68106",LAWSON KROEKER INVESTMENT MANAGEMENT INC/NE,2023-06-30,594918,594918104,MICROSOFT CORP,15673734000.0,46026
+https://sec.gov/Archives/edgar/data/1013701/0001013701-23-000006.txt,1013701,"1926 S. 67TH STREET, SUITE 201, OMAHA, NE, 68106",LAWSON KROEKER INVESTMENT MANAGEMENT INC/NE,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1189417000.0,7839
+https://sec.gov/Archives/edgar/data/1014738/0001014738-23-000004.txt,1014738,"104 WOODMONT BOULEVARD, SUITE 320, SUITE 320, NASHVILLE, TN, 37205",MASTRAPASQUA ASSET MANAGEMENT INC,2023-06-30,370334,370334104,GENERAL MLS INC,1308817000.0,17064
+https://sec.gov/Archives/edgar/data/1014738/0001014738-23-000004.txt,1014738,"104 WOODMONT BOULEVARD, SUITE 320, SUITE 320, NASHVILLE, TN, 37205",MASTRAPASQUA ASSET MANAGEMENT INC,2023-06-30,461202,461202103,INTUIT,4158532000.0,9076
+https://sec.gov/Archives/edgar/data/1014738/0001014738-23-000004.txt,1014738,"104 WOODMONT BOULEVARD, SUITE 320, SUITE 320, NASHVILLE, TN, 37205",MASTRAPASQUA ASSET MANAGEMENT INC,2023-06-30,594918,594918104,MICROSOFT CORP,58040790000.0,170438
+https://sec.gov/Archives/edgar/data/1014738/0001014738-23-000004.txt,1014738,"104 WOODMONT BOULEVARD, SUITE 320, SUITE 320, NASHVILLE, TN, 37205",MASTRAPASQUA ASSET MANAGEMENT INC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,4999564000.0,19567
+https://sec.gov/Archives/edgar/data/1014738/0001014738-23-000004.txt,1014738,"104 WOODMONT BOULEVARD, SUITE 320, SUITE 320, NASHVILLE, TN, 37205",MASTRAPASQUA ASSET MANAGEMENT INC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,7011488000.0,17976
+https://sec.gov/Archives/edgar/data/1014738/0001014738-23-000004.txt,1014738,"104 WOODMONT BOULEVARD, SUITE 320, SUITE 320, NASHVILLE, TN, 37205",MASTRAPASQUA ASSET MANAGEMENT INC,2023-06-30,704326,704326107,PAYCHEX INC,1711387000.0,15298
+https://sec.gov/Archives/edgar/data/1014738/0001014738-23-000004.txt,1014738,"104 WOODMONT BOULEVARD, SUITE 320, SUITE 320, NASHVILLE, TN, 37205",MASTRAPASQUA ASSET MANAGEMENT INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,10476926000.0,69045
+https://sec.gov/Archives/edgar/data/1015079/0001041062-23-000152.txt,1015079,"4275 EXECUTIVE SQUARE, 5TH FLOOR, LA JOLLA, CA, 92037","BRANDES INVESTMENT PARTNERS, LP",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,116025631000.0,1226876
+https://sec.gov/Archives/edgar/data/1015079/0001041062-23-000152.txt,1015079,"4275 EXECUTIVE SQUARE, 5TH FLOOR, LA JOLLA, CA, 92037","BRANDES INVESTMENT PARTNERS, LP",2023-06-30,31428X,31428X106,FEDEX CORP,114275951000.0,460976
+https://sec.gov/Archives/edgar/data/1015079/0001041062-23-000152.txt,1015079,"4275 EXECUTIVE SQUARE, 5TH FLOOR, LA JOLLA, CA, 92037","BRANDES INVESTMENT PARTNERS, LP",2023-06-30,35137L,35137L204,FOX CORP,25328576000.0,794248
+https://sec.gov/Archives/edgar/data/1015079/0001041062-23-000152.txt,1015079,"4275 EXECUTIVE SQUARE, 5TH FLOOR, LA JOLLA, CA, 92037","BRANDES INVESTMENT PARTNERS, LP",2023-06-30,384556,384556106,GRAHAM CORP,15337590000.0,1154939
+https://sec.gov/Archives/edgar/data/1015079/0001041062-23-000152.txt,1015079,"4275 EXECUTIVE SQUARE, 5TH FLOOR, LA JOLLA, CA, 92037","BRANDES INVESTMENT PARTNERS, LP",2023-06-30,489170,489170100,KENNAMETAL INC,1641396000.0,57816
+https://sec.gov/Archives/edgar/data/1015079/0001041062-23-000152.txt,1015079,"4275 EXECUTIVE SQUARE, 5TH FLOOR, LA JOLLA, CA, 92037","BRANDES INVESTMENT PARTNERS, LP",2023-06-30,683715,683715106,OPEN TEXT CORP,13709298000.0,329947
+https://sec.gov/Archives/edgar/data/1015079/0001041062-23-000152.txt,1015079,"4275 EXECUTIVE SQUARE, 5TH FLOOR, LA JOLLA, CA, 92037","BRANDES INVESTMENT PARTNERS, LP",2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP,18530661000.0,1352603
+https://sec.gov/Archives/edgar/data/1015079/0001041062-23-000152.txt,1015079,"4275 EXECUTIVE SQUARE, 5TH FLOOR, LA JOLLA, CA, 92037","BRANDES INVESTMENT PARTNERS, LP",2023-06-30,74051N,74051N102,PREMIER INC,3279259000.0,118556
+https://sec.gov/Archives/edgar/data/1015083/0001104659-23-083699.txt,1015083,"3175 Oregon Pike, Leola, PA, 17540","EMERALD ADVISERS, LLC",2023-06-30,008073,008073108,AEROVIRONMENT INC,21307481000.0,208325
+https://sec.gov/Archives/edgar/data/1015083/0001104659-23-083699.txt,1015083,"3175 Oregon Pike, Leola, PA, 17540","EMERALD ADVISERS, LLC",2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,5020160000.0,127286
+https://sec.gov/Archives/edgar/data/1015083/0001104659-23-083699.txt,1015083,"3175 Oregon Pike, Leola, PA, 17540","EMERALD ADVISERS, LLC",2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,38607730000.0,687827
+https://sec.gov/Archives/edgar/data/1015083/0001104659-23-083699.txt,1015083,"3175 Oregon Pike, Leola, PA, 17540","EMERALD ADVISERS, LLC",2023-06-30,589378,589378108,MERCURY SYSTEMS INC,6782303000.0,196077
+https://sec.gov/Archives/edgar/data/1015083/0001104659-23-083699.txt,1015083,"3175 Oregon Pike, Leola, PA, 17540","EMERALD ADVISERS, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,7748006000.0,22752
+https://sec.gov/Archives/edgar/data/1015083/0001104659-23-083699.txt,1015083,"3175 Oregon Pike, Leola, PA, 17540","EMERALD ADVISERS, LLC",2023-06-30,697435,697435105,"PALO ALTO NETWORKS, INC",1872633000.0,7329
+https://sec.gov/Archives/edgar/data/1015083/0001104659-23-083699.txt,1015083,"3175 Oregon Pike, Leola, PA, 17540","EMERALD ADVISERS, LLC",2023-06-30,761152,761152107,RESMED INC,538166000.0,2463
+https://sec.gov/Archives/edgar/data/1015083/0001104659-23-083699.txt,1015083,"3175 Oregon Pike, Leola, PA, 17540","EMERALD ADVISERS, LLC",2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,51030448000.0,204736
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+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,202380000.0,2140
+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,189054,189054109,CLOROX CO DEL,388853000.0,2445
+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,205887,205887102,CONAGRA BRANDS INC,1098947000.0,32590
+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,31428X,31428X106,FEDEX CORP,896654000.0,3617
+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,370334,370334104,GENERAL MLS INC,1992034000.0,25972
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+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,225417000.0,1961
+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,594918,594918104,MICROSOFT CORP,29809520000.0,87536
+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,359617000.0,922
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+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,6552779000.0,43184
+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,871829,871829107,SYSCO CORP,361206000.0,4868
+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,876030,876030107,TAPESTRY INC,200646000.0,4688
+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,877163,877163105,TAYLOR DEVICES INC,894600000.0,35000
+https://sec.gov/Archives/edgar/data/1015247/0001420506-23-001346.txt,1015247,"1114 DELAWARE AVENUE, BUFFALO, NY, 14209-1604",COURIER CAPITAL LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,3637220000.0,41285
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+https://sec.gov/Archives/edgar/data/1015308/0001015308-23-000006.txt,1015308,"301 SOUTH COLLEGE STREET SUITE 3800, CHARLOTTE, NC, 28202",WEDGE CAPITAL MANAGEMENT L L P/NC,2023-06-30,370334,370334104,General Mills Inc,27188233000.0,354475
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+https://sec.gov/Archives/edgar/data/1015877/0001015877-23-000008.txt,1015877,"PO BOX 1689, ORLEANS, MA, 02653",MCINTYRE FREEDMAN & FLYNN INVESTMENT ADVISERS INC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC F,2776472000.0,31515
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+https://sec.gov/Archives/edgar/data/1016021/0001016021-23-000005.txt,1016021,"136 WHITAKER ROAD, LUTZ, FL, 33549","EDMP, INC.",2023-06-30,31428X,31428X106,FEDEX CORP,1184148000.0,4777
+https://sec.gov/Archives/edgar/data/1016021/0001016021-23-000005.txt,1016021,"136 WHITAKER ROAD, LUTZ, FL, 33549","EDMP, INC.",2023-06-30,64110D,64110D104,NETAPP INC,358927000.0,4698
+https://sec.gov/Archives/edgar/data/1016021/0001016021-23-000005.txt,1016021,"136 WHITAKER ROAD, LUTZ, FL, 33549","EDMP, INC.",2023-06-30,832696,832696405,SMUCKER J M CO,1574605000.0,10663
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+https://sec.gov/Archives/edgar/data/1016150/0001140361-23-039435.txt,1016150,"1270 AVENUE OF THE AMERICAS, SUITE 214, NEW YORK, NY, 10020",MORGENS WATERFALL VINTIADIS & CO INC,2023-06-30,594918,594918104,MICROSOFT CORP,6163774000.0,18100
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+https://sec.gov/Archives/edgar/data/1016287/0001172661-23-002526.txt,1016287,"10 Bank Street, Suite 590, White Plains, NY, 10606",MATRIX ASSET ADVISORS INC/NY,2023-06-30,461202,461202103,INTUIT,206186000.0,450
+https://sec.gov/Archives/edgar/data/1016287/0001172661-23-002526.txt,1016287,"10 Bank Street, Suite 590, White Plains, NY, 10606",MATRIX ASSET ADVISORS INC/NY,2023-06-30,594918,594918104,MICROSOFT CORP,50791882000.0,149151
+https://sec.gov/Archives/edgar/data/1016287/0001172661-23-002526.txt,1016287,"10 Bank Street, Suite 590, White Plains, NY, 10606",MATRIX ASSET ADVISORS INC/NY,2023-06-30,654106,654106103,NIKE INC,236081000.0,2139
+https://sec.gov/Archives/edgar/data/1016287/0001172661-23-002526.txt,1016287,"10 Bank Street, Suite 590, White Plains, NY, 10606",MATRIX ASSET ADVISORS INC/NY,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,416678000.0,2746
+https://sec.gov/Archives/edgar/data/1016287/0001172661-23-002526.txt,1016287,"10 Bank Street, Suite 590, White Plains, NY, 10606",MATRIX ASSET ADVISORS INC/NY,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,13888436000.0,157644
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+https://sec.gov/Archives/edgar/data/1016683/0001016683-23-000003.txt,1016683,"PO BOX 150, SALEM, MA, 01970",CABOT WEALTH MANAGEMENT INC,2023-06-30,31428X,31428X106,FEDEX CORP,14745000.0,59478
+https://sec.gov/Archives/edgar/data/1016683/0001016683-23-000003.txt,1016683,"PO BOX 150, SALEM, MA, 01970",CABOT WEALTH MANAGEMENT INC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,885000.0,4509
+https://sec.gov/Archives/edgar/data/1016683/0001016683-23-000003.txt,1016683,"PO BOX 150, SALEM, MA, 01970",CABOT WEALTH MANAGEMENT INC,2023-06-30,594918,594918104,MICROSOFT CORP,4523000.0,13282
+https://sec.gov/Archives/edgar/data/1016683/0001016683-23-000003.txt,1016683,"PO BOX 150, SALEM, MA, 01970",CABOT WEALTH MANAGEMENT INC,2023-06-30,654106,654106103,NIKE  INC,4734000.0,42893
+https://sec.gov/Archives/edgar/data/1016683/0001016683-23-000003.txt,1016683,"PO BOX 150, SALEM, MA, 01970",CABOT WEALTH MANAGEMENT INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,890000.0,5868
+https://sec.gov/Archives/edgar/data/1016683/0001016683-23-000003.txt,1016683,"PO BOX 150, SALEM, MA, 01970",CABOT WEALTH MANAGEMENT INC,2023-06-30,871829,871829107,SYSCO CORP,10117000.0,136345
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+https://sec.gov/Archives/edgar/data/1016972/0001016972-23-000003.txt,1016972,"125 SOUTH KALAMAZOO MALL, SUITE 306, KALAMAZOO, MI, 49007",ARCADIA INVESTMENT MANAGEMENT CORP/MI,2023-06-30,008073,008073108,AEROVIRONMENT INC,23209000.0,227
+https://sec.gov/Archives/edgar/data/1016972/0001016972-23-000003.txt,1016972,"125 SOUTH KALAMAZOO MALL, SUITE 306, KALAMAZOO, MI, 49007",ARCADIA INVESTMENT MANAGEMENT CORP/MI,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,5226832000.0,23781
+https://sec.gov/Archives/edgar/data/1016972/0001016972-23-000003.txt,1016972,"125 SOUTH KALAMAZOO MALL, SUITE 306, KALAMAZOO, MI, 49007",ARCADIA INVESTMENT MANAGEMENT CORP/MI,2023-06-30,090043,090043100,BILL HOLDINGS INC,26292000.0,225
+https://sec.gov/Archives/edgar/data/1016972/0001016972-23-000003.txt,1016972,"125 SOUTH KALAMAZOO MALL, SUITE 306, KALAMAZOO, MI, 49007",ARCADIA INVESTMENT MANAGEMENT CORP/MI,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,265008000.0,1600
+https://sec.gov/Archives/edgar/data/1016972/0001016972-23-000003.txt,1016972,"125 SOUTH KALAMAZOO MALL, SUITE 306, KALAMAZOO, MI, 49007",ARCADIA INVESTMENT MANAGEMENT CORP/MI,2023-06-30,461202,461202103,INTUIT,9315461000.0,20331
+https://sec.gov/Archives/edgar/data/1016972/0001016972-23-000003.txt,1016972,"125 SOUTH KALAMAZOO MALL, SUITE 306, KALAMAZOO, MI, 49007",ARCADIA INVESTMENT MANAGEMENT CORP/MI,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,7858932000.0,40019
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+https://sec.gov/Archives/edgar/data/1016972/0001016972-23-000003.txt,1016972,"125 SOUTH KALAMAZOO MALL, SUITE 306, KALAMAZOO, MI, 49007",ARCADIA INVESTMENT MANAGEMENT CORP/MI,2023-06-30,654106,654106103,NIKE INC,85537000.0,775
+https://sec.gov/Archives/edgar/data/1016972/0001016972-23-000003.txt,1016972,"125 SOUTH KALAMAZOO MALL, SUITE 306, KALAMAZOO, MI, 49007",ARCADIA INVESTMENT MANAGEMENT CORP/MI,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,20702954000.0,81026
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+https://sec.gov/Archives/edgar/data/1017115/0001017115-23-000003.txt,1017115,"707 LAKE COOK ROAD, SUITE 210, DEERFIELD, IL, 60015",ROBERTS GLORE & CO INC /IL/,2023-06-30,31428X,31428X106,FEDEX CORP,1330975000.0,5369
+https://sec.gov/Archives/edgar/data/1017115/0001017115-23-000003.txt,1017115,"707 LAKE COOK ROAD, SUITE 210, DEERFIELD, IL, 60015",ROBERTS GLORE & CO INC /IL/,2023-06-30,370334,370334104,GENERAL MLS INC,836567000.0,10907
+https://sec.gov/Archives/edgar/data/1017115/0001017115-23-000003.txt,1017115,"707 LAKE COOK ROAD, SUITE 210, DEERFIELD, IL, 60015",ROBERTS GLORE & CO INC /IL/,2023-06-30,461202,461202103,INTUIT,1305383000.0,2849
+https://sec.gov/Archives/edgar/data/1017115/0001017115-23-000003.txt,1017115,"707 LAKE COOK ROAD, SUITE 210, DEERFIELD, IL, 60015",ROBERTS GLORE & CO INC /IL/,2023-06-30,512807,512807108,LAM RESEARCH CORP,522002000.0,812
+https://sec.gov/Archives/edgar/data/1017115/0001017115-23-000003.txt,1017115,"707 LAKE COOK ROAD, SUITE 210, DEERFIELD, IL, 60015",ROBERTS GLORE & CO INC /IL/,2023-06-30,594918,594918104,MICROSOFT CORP,16024110000.0,47055
+https://sec.gov/Archives/edgar/data/1017115/0001017115-23-000003.txt,1017115,"707 LAKE COOK ROAD, SUITE 210, DEERFIELD, IL, 60015",ROBERTS GLORE & CO INC /IL/,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,217184000.0,850
+https://sec.gov/Archives/edgar/data/1017115/0001017115-23-000003.txt,1017115,"707 LAKE COOK ROAD, SUITE 210, DEERFIELD, IL, 60015",ROBERTS GLORE & CO INC /IL/,2023-06-30,704326,704326107,PAYCHEX INC,363354000.0,3248
+https://sec.gov/Archives/edgar/data/1017115/0001017115-23-000003.txt,1017115,"707 LAKE COOK ROAD, SUITE 210, DEERFIELD, IL, 60015",ROBERTS GLORE & CO INC /IL/,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,398585000.0,2160
+https://sec.gov/Archives/edgar/data/1017115/0001017115-23-000003.txt,1017115,"707 LAKE COOK ROAD, SUITE 210, DEERFIELD, IL, 60015",ROBERTS GLORE & CO INC /IL/,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2415246000.0,15917
+https://sec.gov/Archives/edgar/data/1017115/0001017115-23-000003.txt,1017115,"707 LAKE COOK ROAD, SUITE 210, DEERFIELD, IL, 60015",ROBERTS GLORE & CO INC /IL/,2023-06-30,832696,832696405,SMUCKER J M CO,376263000.0,2548
+https://sec.gov/Archives/edgar/data/1017115/0001017115-23-000003.txt,1017115,"707 LAKE COOK ROAD, SUITE 210, DEERFIELD, IL, 60015",ROBERTS GLORE & CO INC /IL/,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,808758000.0,9180
+https://sec.gov/Archives/edgar/data/1017284/0001017284-23-000009.txt,1017284,"9030 STONY POINT PKWY, STE 100, 16TH FLOOR, RICHMOND, VA, 23235","THOMPSON DAVIS & CO., INC.",2023-06-30,00760J,00760J108,AEHR TEST SYS,378469000.0,9175
+https://sec.gov/Archives/edgar/data/1017284/0001017284-23-000009.txt,1017284,"9030 STONY POINT PKWY, STE 100, 16TH FLOOR, RICHMOND, VA, 23235","THOMPSON DAVIS & CO., INC.",2023-06-30,53261M,53261M104,EDGIO INC,11290000.0,16750
+https://sec.gov/Archives/edgar/data/1017284/0001017284-23-000009.txt,1017284,"9030 STONY POINT PKWY, STE 100, 16TH FLOOR, RICHMOND, VA, 23235","THOMPSON DAVIS & CO., INC.",2023-06-30,594918,594918104,MICROSOFT CORP,431982000.0,1269
+https://sec.gov/Archives/edgar/data/1017284/0001017284-23-000009.txt,1017284,"9030 STONY POINT PKWY, STE 100, 16TH FLOOR, RICHMOND, VA, 23235","THOMPSON DAVIS & CO., INC.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,677102000.0,2650
+https://sec.gov/Archives/edgar/data/1017284/0001017284-23-000009.txt,1017284,"9030 STONY POINT PKWY, STE 100, 16TH FLOOR, RICHMOND, VA, 23235","THOMPSON DAVIS & CO., INC.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,717353000.0,4728
+https://sec.gov/Archives/edgar/data/1017284/0001017284-23-000009.txt,1017284,"9030 STONY POINT PKWY, STE 100, 16TH FLOOR, RICHMOND, VA, 23235","THOMPSON DAVIS & CO., INC.",2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,260466000.0,1045
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,00760J,00760J108,AEHR TEST SYS,79406000.0,1925
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,090043,090043100,BILL COM HLDGS INC,26624272000.0,227850
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,09073M,09073M104,BIO TECHNE CORP,439208093000.0,5380474
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,953781000.0,5700
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,461202,461202103,INTUIT,5035966000.0,10991
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,512807,512807108,LAM RESEARCH CORP,108643000.0,169
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,447746000.0,2280
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,42311250000.0,225000
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,589378,589378108,MERCURY SYS INC,51076839000.0,1476636
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,594918,594918104,MICROSOFT CORP,163006963000.0,478672
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,640491,640491106,NEOGEN CORP,132392337000.0,6087004
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,1006980000.0,5457
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,742718,742718109,PROCTER & GAMBLE CO,272525000.0,1796
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,832696,832696405,SMUCKER J M CO,37065000.0,251
+https://sec.gov/Archives/edgar/data/1017918/0001017918-23-000015.txt,1017918,"767 FIFTH AVENUE, 49TH FL, NEW YORK, NY, 10153",BAMCO INC /NY/,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,130856000.0,525
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,008073,008073108,AEROVIRONMENT INC,1761000.0,17216
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,10619000.0,202352
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING INC,40976000.0,186431
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,053807,053807103,AVNET INC,557000.0,11048
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,699000.0,17727
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,090043,090043100,BILL HOLDINGS INC,4509000.0,38589
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,09073M,09073M104,BIO-TECHNE CORP,21573000.0,264283
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,093671,093671105,BLOCK H and R INC,395000.0,12404
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS INC,16257000.0,98152
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,115637,115637209,BROWN FORMAN CORP,1886000.0,28244
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,127190,127190304,CACI INTL INC,6143000.0,18025
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,27282000.0,288481
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,147528,147528103,CASEYS GEN STORES INC,27536000.0,112907
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,189054,189054109,CLOROX CO DEL,67265000.0,422946
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,205887,205887102,CONAGRA BRANDS INC,7495000.0,222274
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,222070,222070203,COTY INC,28549000.0,2322948
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,81300000.0,486591
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,31428X,31428X106,FEDEX CORP,21967000.0,88614
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,35137L,35137L105,FOX CORP CL A,10583000.0,311262
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,370334,370334104,GENERAL MLS INC,12420000.0,161924
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,460000.0,36755
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,16027000.0,95778
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,461202,461202103,INTUIT,126960000.0,277091
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,482480,482480100,KLA CORP,65320000.0,134674
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,489170,489170100,KENNAMETAL INC,556000.0,19571
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,500643,500643200,KORN/ FERRY INTERNATIONAL,1413000.0,28516
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,505336,505336107,LA Z BOY INC,1162000.0,40566
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,512807,512807108,LAM RESEARCH CORP,45183000.0,70284
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,11895000.0,103477
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,513847,513847103,LANCASTER COLONY CORP,2846000.0,14154
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,52539000.0,267538
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,1310000.0,23096
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,589378,589378108,MERCURY SYS INC,659000.0,19058
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,594918,594918104,MICROSOFT CORP,1284669000.0,3772446
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,19153000.0,396125
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,640491,640491106,NEOGEN CORP,1865000.0,85732
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,64110D,64110D104,NETAPP INC,3079000.0,40296
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,65249B,65249B109,NEWS CORP,522000.0,26768
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,654106,654106103,NIKE INC,65549000.0,593898
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,683715,683715106,OPEN TEXT CORP,1013000.0,24372
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,8805000.0,34460
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,42774000.0,109667
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,703395,703395103,PATTERSON COS INC,489000.0,14703
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,704326,704326107,PAYCHEX INC,9304000.0,83164
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,9932000.0,53824
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,40100000.0,665668
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,742718,742718109,PROCTER and GAMBLE CO,188345000.0,1241236
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,749685,749685103,RPM INTL INC,4532000.0,50512
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,761152,761152107,RESMED INC,20890000.0,95606
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,807066,807066105,SCHOLASTIC CORP,619000.0,15918
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,832696,832696405,SMUCKER J M CO,3268000.0,22130
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,3265000.0,13100
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,871829,871829107,SYSCO CORP COM,27637000.0,372467
+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,876030,876030107,TAPESTRY INC,12005000.0,280486
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+https://sec.gov/Archives/edgar/data/1018331/0001018331-23-000006.txt,1018331,"888 Boylston St, 8th Floor, Boston, MA, 02199","NATIXIS ADVISORS, L.P.",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,1397000.0,36818
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+https://sec.gov/Archives/edgar/data/1019754/0001019754-23-000003.txt,1019754,"20 STANWIX STREET, SUITE 620, PITTSBURGH, PA, 15222",Smithfield Trust Co,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,124000.0,629
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+https://sec.gov/Archives/edgar/data/1020317/0001085146-23-003174.txt,1020317,"227 W. MONROE, SUITE 3625, CHICAGO, IL, 60606","Pekin Hardy Strauss, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,8369959000.0,24578
+https://sec.gov/Archives/edgar/data/1020317/0001085146-23-003174.txt,1020317,"227 W. MONROE, SUITE 3625, CHICAGO, IL, 60606","Pekin Hardy Strauss, Inc.",2023-06-30,654106,654106103,NIKE INC,740803000.0,6712
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+https://sec.gov/Archives/edgar/data/1021117/0001021117-23-000003.txt,1021117,"2 CAPITAL PLAZA, SUITE 404, CONCORD, NH, 03301-4334",D L CARLSON INVESTMENT GROUP INC,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,950938000.0,18120
+https://sec.gov/Archives/edgar/data/1021117/0001021117-23-000003.txt,1021117,"2 CAPITAL PLAZA, SUITE 404, CONCORD, NH, 03301-4334",D L CARLSON INVESTMENT GROUP INC,2023-06-30,115637,115637209,BROWN FORMAN CORP,2831007000.0,42393
+https://sec.gov/Archives/edgar/data/1021117/0001021117-23-000003.txt,1021117,"2 CAPITAL PLAZA, SUITE 404, CONCORD, NH, 03301-4334",D L CARLSON INVESTMENT GROUP INC,2023-06-30,594918,594918104,MICROSOFT CORP,26862752000.0,78883
+https://sec.gov/Archives/edgar/data/1021117/0001021117-23-000003.txt,1021117,"2 CAPITAL PLAZA, SUITE 404, CONCORD, NH, 03301-4334",D L CARLSON INVESTMENT GROUP INC,2023-06-30,654106,654106103,NIKE INC,4789269000.0,43393
+https://sec.gov/Archives/edgar/data/1021117/0001021117-23-000003.txt,1021117,"2 CAPITAL PLAZA, SUITE 404, CONCORD, NH, 03301-4334",D L CARLSON INVESTMENT GROUP INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,6409854000.0,42242
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+https://sec.gov/Archives/edgar/data/1021223/0001140361-23-039294.txt,1021223,"2000 AVENUE OF THE STARS, SUITE 1110, LOS ANGELES, CA, 90067",KAYNE ANDERSON RUDNICK INVESTMENT MANAGEMENT LLC,2023-06-30,370334,370334104,GENERAL MILLS INC,1764000.0,23
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+https://sec.gov/Archives/edgar/data/1021926/0001172661-23-003039.txt,1021926,"18 York Street, Suite 1300, Toronto, A6, M5J 2T8",CIBC Asset Management Inc,2023-06-30,876030,876030107,TAPESTRY INC,1497016000.0,34977
+https://sec.gov/Archives/edgar/data/1021926/0001172661-23-003039.txt,1021926,"18 York Street, Suite 1300, Toronto, A6, M5J 2T8",CIBC Asset Management Inc,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,843747000.0,544728
+https://sec.gov/Archives/edgar/data/1021926/0001172661-23-003039.txt,1021926,"18 York Street, Suite 1300, Toronto, A6, M5J 2T8",CIBC Asset Management Inc,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,180600000.0,15940
+https://sec.gov/Archives/edgar/data/1021926/0001172661-23-003039.txt,1021926,"18 York Street, Suite 1300, Toronto, A6, M5J 2T8",CIBC Asset Management Inc,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,1743073000.0,45955
+https://sec.gov/Archives/edgar/data/1021926/0001172661-23-003039.txt,1021926,"18 York Street, Suite 1300, Toronto, A6, M5J 2T8",CIBC Asset Management Inc,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,76416354000.0,867382
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+https://sec.gov/Archives/edgar/data/102212/0001085146-23-003127.txt,102212,"14 North Main Street, Po Box 197, SOUDERTON, PA, 18964",UNIVEST FINANCIAL Corp,2023-06-30,594918,594918104,MICROSOFT CORP,12740964000.0,37414
+https://sec.gov/Archives/edgar/data/102212/0001085146-23-003127.txt,102212,"14 North Main Street, Po Box 197, SOUDERTON, PA, 18964",UNIVEST FINANCIAL Corp,2023-06-30,654106,654106103,NIKE INC,3339465000.0,30257
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+https://sec.gov/Archives/edgar/data/1024896/0000929638-23-002262.txt,1024896,"110 EAST 59TH STREET, NEW YORK, NY, 10022","CANTOR FITZGERALD, L. P.",2023-06-30,64110D,64110D104,NETAPP INC,305600000.0,4000
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+https://sec.gov/Archives/edgar/data/1024896/0000929638-23-002262.txt,1024896,"110 EAST 59TH STREET, NEW YORK, NY, 10022","CANTOR FITZGERALD, L. P.",2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,11812823000.0,196096
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+https://sec.gov/Archives/edgar/data/1026710/0001398344-23-014737.txt,1026710,"404 WYMAN STREET, SUITE 460, WALTHAM, MA, 02451","Granahan Investment Management, LLC",2023-06-30,09061H,09061H307,BIOMERICA INC,1556961000.0,1144824
+https://sec.gov/Archives/edgar/data/1026710/0001398344-23-014737.txt,1026710,"404 WYMAN STREET, SUITE 460, WALTHAM, MA, 02451","Granahan Investment Management, LLC",2023-06-30,53261M,53261M104,EDGIO INC,3641185000.0,5402351
+https://sec.gov/Archives/edgar/data/1026710/0001398344-23-014737.txt,1026710,"404 WYMAN STREET, SUITE 460, WALTHAM, MA, 02451","Granahan Investment Management, LLC",2023-06-30,640491,640491106,NEOGEN CORP,8477802000.0,389784
+https://sec.gov/Archives/edgar/data/1026710/0001398344-23-014737.txt,1026710,"404 WYMAN STREET, SUITE 460, WALTHAM, MA, 02451","Granahan Investment Management, LLC",2023-06-30,671044,671044105,OSI SYSTEMS INC,9705304000.0,82367
+https://sec.gov/Archives/edgar/data/1026710/0001398344-23-014737.txt,1026710,"404 WYMAN STREET, SUITE 460, WALTHAM, MA, 02451","Granahan Investment Management, LLC",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,31014511000.0,168073
+https://sec.gov/Archives/edgar/data/1026710/0001398344-23-014737.txt,1026710,"404 WYMAN STREET, SUITE 460, WALTHAM, MA, 02451","Granahan Investment Management, LLC",2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,5025628000.0,20163
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+https://sec.gov/Archives/edgar/data/1026720/0001012975-23-000299.txt,1026720,"215 EUSTON ROAD, LONDON, X0, NW1 2BE",WELLCOME TRUST LTD (THE) as trustee of the WELLCOME TRUST,2023-06-30,654106,654106103,NIKE INC,231777000000.0,2100000
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+https://sec.gov/Archives/edgar/data/1027570/0001027570-23-000004.txt,1027570,"800 E DIAMOND BLVD #3-310, ANCHORAGE, AK, 99515",ARBOR CAPITAL MANAGEMENT INC /ADV,2023-06-30,147528,147528103,CASEYS GEN STORES INC,1091652000.0,4451
+https://sec.gov/Archives/edgar/data/1027570/0001027570-23-000004.txt,1027570,"800 E DIAMOND BLVD #3-310, ANCHORAGE, AK, 99515",ARBOR CAPITAL MANAGEMENT INC /ADV,2023-06-30,594918,594918104,MICROSOFT CORP,2422288000.0,7165
+https://sec.gov/Archives/edgar/data/1027570/0001027570-23-000004.txt,1027570,"800 E DIAMOND BLVD #3-310, ANCHORAGE, AK, 99515",ARBOR CAPITAL MANAGEMENT INC /ADV,2023-06-30,654106,654106103,NIKE INC,839814000.0,7610
+https://sec.gov/Archives/edgar/data/1028074/0001398344-23-014519.txt,1028074,"4 EMBARCADERO CENTER, SUITE 550, SAN FRANCISCO, CA, 94111",MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT LLC,2023-06-30,512807,512807108,LAM RESEARCH CORP,5077308000.0,7898
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+https://sec.gov/Archives/edgar/data/1028874/0001172661-23-002698.txt,1028874,"235 Pine Street, Suite 1200, San Francisco, CA, 94104","Roof Eidam Maycock Peralta, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,472063000.0,3111
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+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,160984203000.0,4687950
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,00760J,00760J108,AEHR TEST SYS,60147409000.0,1458119
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,008073,008073108,AEROVIRONMENT INC,271205136000.0,2651595
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,00808Y,00808Y307,AETHLON MED INC,71313000.0,198147
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,009207,009207101,AIR T INC,1339813000.0,53379
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,01643A,01643A306,ALKALINE WTR CO INC,372394000.0,241814
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,1689860514000.0,32200086
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,45961958000.0,830838
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,02875D,02875D109,AMERICAN OUTDOOR BRANDS INC,6103733000.0,703195
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,029683,029683109,AMER SOFTWARE INC,24359837000.0,2317777
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,120815430000.0,1581975
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,40015671000.0,401039
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,032159,032159105,AMREP CORP,3132394000.0,174637
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,28412122000.0,2724077
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,03676C,03676C100,ANTERIX INC,25974454000.0,819642
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,734484779000.0,5071358
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,042744,042744102,ARROW FINL CORP,15855456000.0,787262
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,8609517831000.0,39171563
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,05366Y,05366Y201,AVIAT NETWORKS INC,16840004000.0,504645
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,05368M,05368M106,AVID BIOSERVICES INC,61661233000.0,4413832
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,053807,053807103,AVNET INC,523899690000.0,10384533
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,246258903000.0,6243887
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,090043,090043100,BILL HOLDINGS INC,1127854080000.0,9652153
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,09061H,09061H307,BIOMERICA INC,775150000.0,569963
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,1498442320000.0,18356515
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,09074H,09074H104,BIOTRICITY INC,945579000.0,1483261
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,093671,093671105,BLOCK H & R INC,491118007000.0,15410041
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,2291695603000.0,13836235
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,115637,115637100,BROWN FORMAN CORP,209087148000.0,3071649
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,127190,127190304,CACI INTL INC,779399510000.0,2286702
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,128030,128030202,CAL MAINE FOODS INC,250793595000.0,5573191
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,3102248179000.0,32803724
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,325650375000.0,5801717
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,147528,147528103,CASEYS GEN STORES INC,943113470000.0,3867121
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,15870P,15870P307,CHAMPIONS ONCOLOGY INC,433884000.0,68007
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,172406,172406308,CINEVERSE CORP,664107000.0,348613
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,189054,189054109,CLOROX CO DEL,2432817386000.0,15296890
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,205887,205887102,CONAGRA BRANDS INC,1969142118000.0,58396860
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,222070,222070203,COTY INC,430600466000.0,35036653
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,228309,228309100,CROWN CRAFTS INC,2189766000.0,437079
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,230215,230215105,CULP INC,2314927000.0,465780
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,234264,234264109,DAKTRONICS INC,13717830000.0,2143411
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,2367202472000.0,14168078
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,28252C,28252C109,POLISHED COM INC,2470173000.0,5369942
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,285409,285409108,ELECTROMED INC,3868752000.0,361228
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,291087,291087203,EMERSON RADIO CORP,31790000.0,53882
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,43324309000.0,1531977
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,31428X,31428X106,FEDEX CORP,4628280357000.0,18669949
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,339382,339382103,FLEXSTEEL INDS INC,4640634000.0,242838
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,35137L,35137L105,FOX CORP,1037406198000.0,30511947
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,358435,358435105,FRIEDMAN INDS INC,3786791000.0,300539
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,36241U,36241U106,GSI TECHNOLOGY INC,4040572000.0,730664
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,36251C,36251C103,GMS INC,374102743000.0,5406109
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,368036,368036109,GATOS SILVER INC,2578440000.0,682127
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,370334,370334104,GENERAL MLS INC,3992325199000.0,52051176
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,384556,384556106,GRAHAM CORP,7198544000.0,542059
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,135050867000.0,10795433
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,1451553112000.0,8674793
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,45408X,45408X308,IGC PHARMA INC,201463000.0,646543
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,461202,461202103,INTUIT,11552729351000.0,25213840
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,46564T,46564T107,ITERIS INC NEW,9293977000.0,2346964
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,47632P,47632P101,JERASH HLDGS US INC,348579000.0,93704
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,482480,482480100,KLA CORP,6276144249000.0,12939970
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,483497,483497103,KALVISTA PHARMACEUTICALS INC,14226129000.0,1580681
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,489170,489170100,KENNAMETAL INC,266866767000.0,9400027
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,492854,492854104,KEWAUNEE SCIENTIFIC CORP,1823181000.0,120342
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,32948305000.0,1192483
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,500643,500643200,KORN FERRY,308277265000.0,6222795
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,500692,500692108,KOSS CORP,930968000.0,251613
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,505336,505336107,LA Z BOY INC,146642386000.0,5120195
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,512807,512807108,LAM RESEARCH CORP,7541315445000.0,11730883
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,1970208630000.0,17139701
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,513847,513847103,LANCASTER COLONY CORP,423500970000.0,2106027
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,3630307584000.0,18486137
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,53222K,53222K205,LIFEVANTAGE CORP,2010622000.0,462212
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,53261M,53261M104,EDGIO INC,3872927000.0,5746182
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,382478538000.0,6742086
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,326688734000.0,1737244
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,71390830000.0,2606456
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,56117J,56117J100,MALIBU BOATS INC,78006010000.0,1329799
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,41254655000.0,1345992
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,589378,589378108,MERCURY SYS INC,179398717000.0,5186433
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,591520,591520200,METHOD ELECTRS INC,149832489000.0,4469943
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,592770,592770101,MEXCO ENERGY CORP,738735000.0,61510
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,594918,594918104,MICROSOFT CORP,222456919315000.0,653247546
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,600544,600544100,MILLERKNOLL INC,131892906000.0,8923742
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,606710,606710200,MITEK SYS INC,35686332000.0,3292097
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,620071,620071100,MOTORCAR PTS AMER INC,6526020000.0,843155
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,632347,632347100,NATHANS FAMOUS INC NEW,9071605000.0,115503
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,131585637000.0,2721523
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,640491,640491106,NEOGEN CORP,395845541000.0,18199795
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,64110D,64110D104,NETAPP INC,2111925659000.0,27643006
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,65249B,65249B109,NEWS CORP NEW,1046540488000.0,53668743
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,65373J,65373J209,NICHOLAS FINL INC BC,1309620000.0,261924
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,654106,654106103,NIKE INC,11899154484000.0,107811493
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,671044,671044105,OSI SYSTEMS INC,228691298000.0,1940858
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,674870,674870506,OCEAN PWR TECHNOLOGIES INC,1088605000.0,1814341
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,683715,683715106,OPEN TEXT CORP,412664961000.0,9931768
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,68620A,68620A203,ORGANOVO HLDGS INC,478651000.0,283225
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,686275,686275108,ORION ENERGY SYS INC,2058557000.0,1262918
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,6696268105000.0,26207460
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,4037763508000.0,10352178
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,703395,703395103,PATTERSON COS INC,310490448000.0,9335251
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,704326,704326107,PAYCHEX INC,3329313176000.0,29760554
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,760023711000.0,4118700
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,225743510000.0,29355463
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,953123002000.0,15822095
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,716817,716817408,PETVIVO HLDGS INC,459118000.0,233055
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,71715X,71715X203,PHARMACYTE BIOTECH INC,525044000.0,183582
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP,30771557000.0,2246099
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,74051N,74051N102,PREMIER INC,343435382000.0,12416319
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,34134048959000.0,224950896
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,747906,747906501,QUANTUM CORP,5420390000.0,5018880
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,74874Q,74874Q100,QUINSTREET INC,31760750000.0,3596914
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,749685,749685103,RPM INTL INC,1254901149000.0,13985302
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,75644T,75644T100,RED CAT HLDGS INC,1519309000.0,1276730
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,758932,758932107,REGIS CORP MINN,2122546000.0,1912204
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,761152,761152107,RESMED INC,3840492124000.0,17576623
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,38082469000.0,2424091
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,763165,763165107,RICHARDSON ELECTRS LTD,9170303000.0,555776
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,769397,769397100,RIVERVIEW BANCORP INC,4496663000.0,892195
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,806037,806037107,SCANSOURCE INC,102476184000.0,3466718
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,807066,807066105,SCHOLASTIC CORP,132314670000.0,3402280
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,817070,817070105,SENECA FOODS CORP NEW,466956000.0,13939
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,82661L,82661L101,SIGMATRON INTL INC,494337000.0,152573
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,44612122000.0,3421175
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,832696,832696405,SMUCKER J M CO,1963164408000.0,13294267
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,854231,854231107,STANDEX INTL CORP,200703914000.0,1418703
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,86333M,86333M108,STRIDE INC,183947659000.0,4940845
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,1202773073000.0,4825569
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,87157D,87157D109,SYNAPTICS INC,394489069000.0,4620392
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,871829,871829107,SYSCO CORP,3577351101000.0,48212279
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,872885,872885207,TSR INC,478022000.0,73204
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,876030,876030107,TAPESTRY INC,1343119940000.0,31381307
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,877163,877163105,TAYLOR DEVICES INC,1001824000.0,39195
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,878739,878739200,TECHPRECISION CORP,879247000.0,118978
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,5958224000.0,3819374
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,90291C,90291C201,U S GOLD CORP,1459685000.0,328019
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,904677,904677200,UNIFI INC,5992338000.0,742545
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,911549,911549103,UNITED STATES ANTIMONY CORP,1186521000.0,3770325
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,91705J,91705J105,URBAN ONE INC,2060590000.0,344005
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,920437,920437100,VALUE LINE INC,643977000.0,14030
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,315699256000.0,27864012
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,92840H,92840H400,VISTAGEN THERAPEUTICS INC,418715000.0,223911
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,1460982961000.0,38517874
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,181808201000.0,5342586
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,50548170000.0,377197
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,981811,981811102,WORTHINGTON INDS INC,233545774000.0,3361822
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,G2143T,G2143T103,CIMPRESS PLC,96626747000.0,1624525
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,G3323L,G3323L100,FABRINET,560703519000.0,4317089
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,11086624785000.0,125841371
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,66691518000.0,2033278
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,N14506,N14506104,ELASTIC N V,525324900000.0,8192840
+https://sec.gov/Archives/edgar/data/102909/0001104659-23-090886.txt,102909,"Po Box 2600, V26, Valley Forge, PA, 19482-2600",VANGUARD GROUP INC,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,33321375000.0,1299079
+https://sec.gov/Archives/edgar/data/1029160/0000902664-23-004378.txt,1029160,"250 West 55th Street, Floor 29, New York, NY, 10019",SOROS FUND MANAGEMENT LLC,2023-06-30,461202,461202103,INTUIT,41884981000.0,91414
+https://sec.gov/Archives/edgar/data/1029160/0000902664-23-004378.txt,1029160,"250 West 55th Street, Floor 29, New York, NY, 10019",SOROS FUND MANAGEMENT LLC,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,11346000000.0,200000
+https://sec.gov/Archives/edgar/data/1029160/0000902664-23-004378.txt,1029160,"250 West 55th Street, Floor 29, New York, NY, 10019",SOROS FUND MANAGEMENT LLC,2023-06-30,594918,594918104,MICROSOFT CORP,3405741000.0,10001
+https://sec.gov/Archives/edgar/data/1029160/0000902664-23-004378.txt,1029160,"250 West 55th Street, Floor 29, New York, NY, 10019",SOROS FUND MANAGEMENT LLC,2023-06-30,654106,654106103,NIKE INC,23367536000.0,211720
+https://sec.gov/Archives/edgar/data/1030618/0001085146-23-003383.txt,1030618,"2929 ALLEN PARKWAY, SUITE 2200, HOUSTON, TX, 77019",CYPRESS ASSET MANAGEMENT INC/TX,2023-06-30,189054,189054109,CLOROX CO DEL,392034000.0,2465
+https://sec.gov/Archives/edgar/data/1030618/0001085146-23-003383.txt,1030618,"2929 ALLEN PARKWAY, SUITE 2200, HOUSTON, TX, 77019",CYPRESS ASSET MANAGEMENT INC/TX,2023-06-30,482480,482480100,KLA CORP,864306000.0,1782
+https://sec.gov/Archives/edgar/data/1030618/0001085146-23-003383.txt,1030618,"2929 ALLEN PARKWAY, SUITE 2200, HOUSTON, TX, 77019",CYPRESS ASSET MANAGEMENT INC/TX,2023-06-30,512807,512807108,LAM RESEARCH CORP,202501000.0,215
+https://sec.gov/Archives/edgar/data/1030618/0001085146-23-003383.txt,1030618,"2929 ALLEN PARKWAY, SUITE 2200, HOUSTON, TX, 77019",CYPRESS ASSET MANAGEMENT INC/TX,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,382941000.0,1950
+https://sec.gov/Archives/edgar/data/1030618/0001085146-23-003383.txt,1030618,"2929 ALLEN PARKWAY, SUITE 2200, HOUSTON, TX, 77019",CYPRESS ASSET MANAGEMENT INC/TX,2023-06-30,594918,594918104,MICROSOFT CORP,15240868000.0,44169
+https://sec.gov/Archives/edgar/data/1030618/0001085146-23-003383.txt,1030618,"2929 ALLEN PARKWAY, SUITE 2200, HOUSTON, TX, 77019",CYPRESS ASSET MANAGEMENT INC/TX,2023-06-30,654106,654106103,NIKE INC,1962930000.0,17785
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+https://sec.gov/Archives/edgar/data/1030618/0001085146-23-003383.txt,1030618,"2929 ALLEN PARKWAY, SUITE 2200, HOUSTON, TX, 77019",CYPRESS ASSET MANAGEMENT INC/TX,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1155298000.0,2962
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+https://sec.gov/Archives/edgar/data/1040188/0001040188-23-000069.txt,1040188,"15935 La Cantera Parkway, San Antonio, TX, 78256",VICTORY CAPITAL MANAGEMENT INC,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,9196335000.0,270242
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+https://sec.gov/Archives/edgar/data/1040188/0001040188-23-000069.txt,1040188,"15935 La Cantera Parkway, San Antonio, TX, 78256",VICTORY CAPITAL MANAGEMENT INC,2023-06-30,G3323L,G3323L100,FABRINET,105429894000.0,811749
+https://sec.gov/Archives/edgar/data/1040188/0001040188-23-000069.txt,1040188,"15935 La Cantera Parkway, San Antonio, TX, 78256",VICTORY CAPITAL MANAGEMENT INC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,142680329000.0,1619527
+https://sec.gov/Archives/edgar/data/1040188/0001040188-23-000069.txt,1040188,"15935 La Cantera Parkway, San Antonio, TX, 78256",VICTORY CAPITAL MANAGEMENT INC,2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,324654000.0,9898
+https://sec.gov/Archives/edgar/data/1040188/0001040188-23-000069.txt,1040188,"15935 La Cantera Parkway, San Antonio, TX, 78256",VICTORY CAPITAL MANAGEMENT INC,2023-06-30,N14506,N14506104,ELASTIC N V,530337000.0,8271
+https://sec.gov/Archives/edgar/data/1040188/0001040188-23-000069.txt,1040188,"15935 La Cantera Parkway, San Antonio, TX, 78256",VICTORY CAPITAL MANAGEMENT INC,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,1534691000.0,59832
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+https://sec.gov/Archives/edgar/data/1040190/0001172661-23-003107.txt,1040190,"101 Park Avenue, 33rd Floor, New York, NY, 10178","Nippon Life Global Investors Americas, Inc.",2023-06-30,31428X,31428X106,FEDEX CORP,2079881000.0,8390
+https://sec.gov/Archives/edgar/data/1040190/0001172661-23-003107.txt,1040190,"101 Park Avenue, 33rd Floor, New York, NY, 10178","Nippon Life Global Investors Americas, Inc.",2023-06-30,461202,461202103,INTUIT,17214198000.0,37570
+https://sec.gov/Archives/edgar/data/1040190/0001172661-23-003107.txt,1040190,"101 Park Avenue, 33rd Floor, New York, NY, 10178","Nippon Life Global Investors Americas, Inc.",2023-06-30,512807,512807108,LAM RESEARCH CORP,1980009000.0,3080
+https://sec.gov/Archives/edgar/data/1040190/0001172661-23-003107.txt,1040190,"101 Park Avenue, 33rd Floor, New York, NY, 10178","Nippon Life Global Investors Americas, Inc.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,5178540000.0,26370
+https://sec.gov/Archives/edgar/data/1040190/0001172661-23-003107.txt,1040190,"101 Park Avenue, 33rd Floor, New York, NY, 10178","Nippon Life Global Investors Americas, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,121989941000.0,358225
+https://sec.gov/Archives/edgar/data/1040190/0001172661-23-003107.txt,1040190,"101 Park Avenue, 33rd Floor, New York, NY, 10178","Nippon Life Global Investors Americas, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,18758099000.0,123620
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+https://sec.gov/Archives/edgar/data/1040210/0001040210-23-000004.txt,1040210,"1999 RICHMOND ROAD, SUITE 1B, LEXINGTON, KY, 40502",BARR E S & CO,2023-06-30,31428X,31428X106,FEDEX CORPORATION,276656000.0,1116
+https://sec.gov/Archives/edgar/data/1040210/0001040210-23-000004.txt,1040210,"1999 RICHMOND ROAD, SUITE 1B, LEXINGTON, KY, 40502",BARR E S & CO,2023-06-30,461202,461202103,INTUIT,874685000.0,1909
+https://sec.gov/Archives/edgar/data/1040210/0001040210-23-000004.txt,1040210,"1999 RICHMOND ROAD, SUITE 1B, LEXINGTON, KY, 40502",BARR E S & CO,2023-06-30,518439,518439104,ESTEE LAUDER INC,29503149000.0,150235
+https://sec.gov/Archives/edgar/data/1040210/0001040210-23-000004.txt,1040210,"1999 RICHMOND ROAD, SUITE 1B, LEXINGTON, KY, 40502",BARR E S & CO,2023-06-30,594918,594918104,MICROSOFT CORP,4884025000.0,14342
+https://sec.gov/Archives/edgar/data/1040210/0001040210-23-000004.txt,1040210,"1999 RICHMOND ROAD, SUITE 1B, LEXINGTON, KY, 40502",BARR E S & CO,2023-06-30,654106,654106103,NIKE INC CL B,42824222000.0,388006
+https://sec.gov/Archives/edgar/data/1040210/0001040210-23-000004.txt,1040210,"1999 RICHMOND ROAD, SUITE 1B, LEXINGTON, KY, 40502",BARR E S & CO,2023-06-30,742718,742718109,PROCTER & GAMBLE,4068756000.0,26814
+https://sec.gov/Archives/edgar/data/1040273/0001085146-23-003432.txt,1040273,"55 HUDSON YARDS, NEW YORK, NY, 10001",Third Point LLC,2023-06-30,594918,594918104,MICROSOFT CORP,517620800000.0,1520000
+https://sec.gov/Archives/edgar/data/1040463/0001040463-23-000005.txt,1040463,"500 COMMERCE STREET, SUITE 700, FORT WORTH, TX, 76102",GOFF JOHN C,2023-06-30,594918,594918104,MICROSOFT CORP,354162000.0,1040
+https://sec.gov/Archives/edgar/data/1041283/0001104659-23-083355.txt,1041283,"477 Jericho Turnpike, P.o. Box 9006, Syosset, NY, 11791-9006",SPIRIT OF AMERICA MANAGEMENT CORP/NY,2023-06-30,018802,018802108,Alliant Energy Corp.,112832000.0,2150
+https://sec.gov/Archives/edgar/data/1041283/0001104659-23-083355.txt,1041283,"477 Jericho Turnpike, P.o. Box 9006, Syosset, NY, 11791-9006",SPIRIT OF AMERICA MANAGEMENT CORP/NY,2023-06-30,205887,205887102,"ConAgra Foods, Inc.",239412000.0,7100
+https://sec.gov/Archives/edgar/data/1041283/0001104659-23-083355.txt,1041283,"477 Jericho Turnpike, P.o. Box 9006, Syosset, NY, 11791-9006",SPIRIT OF AMERICA MANAGEMENT CORP/NY,2023-06-30,31428X,31428X106,FedEx Corp.,371850000.0,1500
+https://sec.gov/Archives/edgar/data/1041283/0001104659-23-083355.txt,1041283,"477 Jericho Turnpike, P.o. Box 9006, Syosset, NY, 11791-9006",SPIRIT OF AMERICA MANAGEMENT CORP/NY,2023-06-30,513272,513272104,"Lamb Weston Holdings, Inc.",494285000.0,4300
+https://sec.gov/Archives/edgar/data/1041283/0001104659-23-083355.txt,1041283,"477 Jericho Turnpike, P.o. Box 9006, Syosset, NY, 11791-9006",SPIRIT OF AMERICA MANAGEMENT CORP/NY,2023-06-30,594918,594918104,Microsoft Corp.,6704892000.0,19689
+https://sec.gov/Archives/edgar/data/1041283/0001104659-23-083355.txt,1041283,"477 Jericho Turnpike, P.o. Box 9006, Syosset, NY, 11791-9006",SPIRIT OF AMERICA MANAGEMENT CORP/NY,2023-06-30,64110D,64110D104,"NetApp, Inc.",198640000.0,2600
+https://sec.gov/Archives/edgar/data/1041283/0001104659-23-083355.txt,1041283,"477 Jericho Turnpike, P.o. Box 9006, Syosset, NY, 11791-9006",SPIRIT OF AMERICA MANAGEMENT CORP/NY,2023-06-30,654106,654106103,"NIKE, Inc.",77259000.0,700
+https://sec.gov/Archives/edgar/data/1041283/0001104659-23-083355.txt,1041283,"477 Jericho Turnpike, P.o. Box 9006, Syosset, NY, 11791-9006",SPIRIT OF AMERICA MANAGEMENT CORP/NY,2023-06-30,697435,697435105,"Palo Alto Networks, Inc.",51102000.0,200
+https://sec.gov/Archives/edgar/data/1041283/0001104659-23-083355.txt,1041283,"477 Jericho Turnpike, P.o. Box 9006, Syosset, NY, 11791-9006",SPIRIT OF AMERICA MANAGEMENT CORP/NY,2023-06-30,704326,704326107,"Paychex, Inc.",430700000.0,3850
+https://sec.gov/Archives/edgar/data/1041283/0001104659-23-083355.txt,1041283,"477 Jericho Turnpike, P.o. Box 9006, Syosset, NY, 11791-9006",SPIRIT OF AMERICA MANAGEMENT CORP/NY,2023-06-30,742718,742718109,Procter & Gamble Co./The,1102391000.0,7265
+https://sec.gov/Archives/edgar/data/1041283/0001104659-23-083355.txt,1041283,"477 Jericho Turnpike, P.o. Box 9006, Syosset, NY, 11791-9006",SPIRIT OF AMERICA MANAGEMENT CORP/NY,2023-06-30,G5960L,G5960L103,Medtronic PLC,622779000.0,7069
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+https://sec.gov/Archives/edgar/data/1041885/0001041885-23-000017.txt,1041885,"1325 AVENUE OF THE AMERICAS, 18TH FLOOR, NEW YORK, NY, 10019",INGALLS & SNYDER LLC,2023-06-30,31428X,31428X106,FEDEX CORP,2232000.0,9002
+https://sec.gov/Archives/edgar/data/1041885/0001041885-23-000017.txt,1041885,"1325 AVENUE OF THE AMERICAS, 18TH FLOOR, NEW YORK, NY, 10019",INGALLS & SNYDER LLC,2023-06-30,35137L,35137L105,FOX CORP,1045000.0,30735
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+https://sec.gov/Archives/edgar/data/1041885/0001041885-23-000017.txt,1041885,"1325 AVENUE OF THE AMERICAS, 18TH FLOOR, NEW YORK, NY, 10019",INGALLS & SNYDER LLC,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,221000.0,1925
+https://sec.gov/Archives/edgar/data/1041885/0001041885-23-000017.txt,1041885,"1325 AVENUE OF THE AMERICAS, 18TH FLOOR, NEW YORK, NY, 10019",INGALLS & SNYDER LLC,2023-06-30,594918,594918104,MICROSOFT CORP,81632000.0,239714
+https://sec.gov/Archives/edgar/data/1041885/0001041885-23-000017.txt,1041885,"1325 AVENUE OF THE AMERICAS, 18TH FLOOR, NEW YORK, NY, 10019",INGALLS & SNYDER LLC,2023-06-30,654106,654106103,NIKE INC,274000.0,2484
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+https://sec.gov/Archives/edgar/data/1041885/0001041885-23-000017.txt,1041885,"1325 AVENUE OF THE AMERICAS, 18TH FLOOR, NEW YORK, NY, 10019",INGALLS & SNYDER LLC,2023-06-30,871829,871829107,SYSCO CORP,263000.0,3541
+https://sec.gov/Archives/edgar/data/1041885/0001041885-23-000017.txt,1041885,"1325 AVENUE OF THE AMERICAS, 18TH FLOOR, NEW YORK, NY, 10019",INGALLS & SNYDER LLC,2023-06-30,876030,876030107,TAPESTRY INC,1933000.0,45161
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+https://sec.gov/Archives/edgar/data/1041885/0001041885-23-000017.txt,1041885,"1325 AVENUE OF THE AMERICAS, 18TH FLOOR, NEW YORK, NY, 10019",INGALLS & SNYDER LLC,2023-06-30,G2143T,G2143T103,CIMPRESS PLC,5546000.0,93240
+https://sec.gov/Archives/edgar/data/1041885/0001041885-23-000017.txt,1041885,"1325 AVENUE OF THE AMERICAS, 18TH FLOOR, NEW YORK, NY, 10019",INGALLS & SNYDER LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2136000.0,24246
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+https://sec.gov/Archives/edgar/data/1044797/0001044797-23-000006.txt,1044797,"999 S. SHADY GROVE ROAD, SUITE 501, MEMPHIS, TN, 38120",NEW SOUTH CAPITAL MANAGEMENT INC,2023-06-30,31428X,31428X106,FedEx Corp.,46492406000.0,187545
+https://sec.gov/Archives/edgar/data/1044797/0001044797-23-000006.txt,1044797,"999 S. SHADY GROVE ROAD, SUITE 501, MEMPHIS, TN, 38120",NEW SOUTH CAPITAL MANAGEMENT INC,2023-06-30,683715,683715106,Open Text Corp.,114430113000.0,2754034
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+https://sec.gov/Archives/edgar/data/1044905/0001044905-23-000003.txt,1044905,"555 WALNUT STREET, SUITE 280, CHATTANOOGA, TN, 37402",PATTEN & PATTEN INC/TN,2023-06-30,370334,370334104,General Mills,843784000.0,11001
+https://sec.gov/Archives/edgar/data/1044905/0001044905-23-000003.txt,1044905,"555 WALNUT STREET, SUITE 280, CHATTANOOGA, TN, 37402",PATTEN & PATTEN INC/TN,2023-06-30,461202,461202103,"Intuit, Inc.",10490260000.0,22895
+https://sec.gov/Archives/edgar/data/1044905/0001044905-23-000003.txt,1044905,"555 WALNUT STREET, SUITE 280, CHATTANOOGA, TN, 37402",PATTEN & PATTEN INC/TN,2023-06-30,594918,594918104,"Microsoft, Inc.",55237300000.0,162205
+https://sec.gov/Archives/edgar/data/1044905/0001044905-23-000003.txt,1044905,"555 WALNUT STREET, SUITE 280, CHATTANOOGA, TN, 37402",PATTEN & PATTEN INC/TN,2023-06-30,654106,654106103,Nike Inc. Class B,8623126000.0,78129
+https://sec.gov/Archives/edgar/data/1044905/0001044905-23-000003.txt,1044905,"555 WALNUT STREET, SUITE 280, CHATTANOOGA, TN, 37402",PATTEN & PATTEN INC/TN,2023-06-30,704326,704326107,"Paychex, Inc.",729504000.0,6521
+https://sec.gov/Archives/edgar/data/1044905/0001044905-23-000003.txt,1044905,"555 WALNUT STREET, SUITE 280, CHATTANOOGA, TN, 37402",PATTEN & PATTEN INC/TN,2023-06-30,742718,742718109,Procter and Gamble,4028857000.0,26551
+https://sec.gov/Archives/edgar/data/1044905/0001044905-23-000003.txt,1044905,"555 WALNUT STREET, SUITE 280, CHATTANOOGA, TN, 37402",PATTEN & PATTEN INC/TN,2023-06-30,761152,761152107,"Resmed, Inc.",364239000.0,1667
+https://sec.gov/Archives/edgar/data/1044905/0001044905-23-000003.txt,1044905,"555 WALNUT STREET, SUITE 280, CHATTANOOGA, TN, 37402",PATTEN & PATTEN INC/TN,2023-06-30,G5960L,G5960L103,"Medtronic, PLC",667534000.0,7577
+https://sec.gov/Archives/edgar/data/1044924/0001044924-23-000003.txt,1044924,"PO BOX 4, SAG HARBOR, NY, 11963",SAYBROOK CAPITAL /NC,2023-06-30,053015,053015103,Automatic Data Processing,17426000.0,79286
+https://sec.gov/Archives/edgar/data/1044924/0001044924-23-000003.txt,1044924,"PO BOX 4, SAG HARBOR, NY, 11963",SAYBROOK CAPITAL /NC,2023-06-30,115637,115637209,Brown Forman Corp Cl B,493000.0,7375
+https://sec.gov/Archives/edgar/data/1044924/0001044924-23-000003.txt,1044924,"PO BOX 4, SAG HARBOR, NY, 11963",SAYBROOK CAPITAL /NC,2023-06-30,594918,594918104,Microsoft Corp,358000.0,1052
+https://sec.gov/Archives/edgar/data/1044924/0001044924-23-000003.txt,1044924,"PO BOX 4, SAG HARBOR, NY, 11963",SAYBROOK CAPITAL /NC,2023-06-30,654106,654106103,Nike Corp,13096000.0,118655
+https://sec.gov/Archives/edgar/data/1044924/0001044924-23-000003.txt,1044924,"PO BOX 4, SAG HARBOR, NY, 11963",SAYBROOK CAPITAL /NC,2023-06-30,742718,742718109,Procter And Gamble Co,2701000.0,17803
+https://sec.gov/Archives/edgar/data/1044924/0001044924-23-000003.txt,1044924,"PO BOX 4, SAG HARBOR, NY, 11963",SAYBROOK CAPITAL /NC,2023-06-30,832696,832696405,Smucker J M Company,384000.0,2600
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+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,093671,093671105,BLOCK H & R INC,18166000.0,570
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,23359000.0,247
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,370334,370334104,GENERAL MLS INC,175337000.0,2286
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,6836435000.0,40856
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,461202,461202103,INTUIT,29783000.0,65
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,594918,594918104,MICROSOFT CORP,1732668000.0,5088
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,64110D,64110D104,NETAPP INC,13370000.0,175
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,654106,654106103,NIKE INC,39987000.0,362
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,69755000.0,273
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,877590000.0,2250
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,704326,704326107,PAYCHEX INC,1441669000.0,12887
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3826125000.0,25215
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,749685,749685103,RPM INTL INC,13460000.0,150
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,7000.0,4
+https://sec.gov/Archives/edgar/data/1044929/0001044929-23-000013.txt,1044929,"4520 MADISON AVE, SUITE 200, KANSAS CITY, MO, 64111",ATWOOD & PALMER INC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,68278000.0,775
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+https://sec.gov/Archives/edgar/data/1044936/0001104659-23-089454.txt,1044936,"26435 Carmel Rancho Boulevard, Suite 200, Carmel, CA, 93923",Neumeier Poma Investment Counsel LLC,2023-06-30,591520,591520200,Method Electronics Inc.,7916754000.0,236180
+https://sec.gov/Archives/edgar/data/1044936/0001104659-23-089454.txt,1044936,"26435 Carmel Rancho Boulevard, Suite 200, Carmel, CA, 93923",Neumeier Poma Investment Counsel LLC,2023-06-30,671044,671044105,OSI Systems  Inc.,42764631000.0,362935
+https://sec.gov/Archives/edgar/data/1044936/0001104659-23-089454.txt,1044936,"26435 Carmel Rancho Boulevard, Suite 200, Carmel, CA, 93923",Neumeier Poma Investment Counsel LLC,2023-06-30,G3323L,G3323L100,Fabrinet,32853016000.0,252949
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,2265000.0,65771
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,008073,008073108,AEROVIRONMENT INC,2284000.0,22339
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,5592000.0,106126
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,109000.0,1962
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,029683,029683109,AMER SOFTWARE INC,23000.0,2139
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,1146000.0,15012
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,685000.0,6869
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,367000.0,35236
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,5147000.0,35563
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,042744,042744102,ARROW FINL CORP,38000.0,1867
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,391000.0,1773
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,053807,053807103,AVNET INC,3562000.0,70442
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,1824000.0,46270
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,090043,090043100,BILL HOLDINGS INC,10090000.0,86178
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,4191000.0,51143
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,093671,093671105,BLOCK H & R INC,4161000.0,130225
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,13373000.0,80368
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,115637,115637100,BROWN FORMAN CORP,184000.0,2702
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,127190,127190304,CACI INTL INC,4520000.0,13252
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,128030,128030202,CAL MAINE FOODS INC,1724000.0,38295
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,56536000.0,594243
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,2516000.0,44801
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,147528,147528103,CASEYS GEN STORES INC,5313000.0,21768
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,189054,189054109,CLOROX CO DEL,20718000.0,129562
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,205887,205887102,CONAGRA BRANDS INC,14724000.0,434472
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,222070,222070203,COTY INC,3365000.0,273399
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,15638000.0,93185
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,599000.0,21146
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,31428X,31428X106,FEDEX CORP,40396000.0,162408
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,35137L,35137L105,FOX CORP,23989000.0,701343
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,36251C,36251C103,GMS INC,4491000.0,64720
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,370334,370334104,GENERAL MLS INC,83800000.0,1086501
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,1371000.0,109337
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,12718000.0,75582
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,461202,461202103,INTUIT,106873000.0,232114
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,482480,482480100,KLA CORP,60384000.0,123916
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,489170,489170100,KENNAMETAL INC,2014000.0,70910
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,298000.0,10732
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,500643,500643200,KORN FERRY,3378000.0,68024
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,505336,505336107,LA Z BOY INC,1137000.0,39685
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,512807,512807108,LAM RESEARCH CORP,102512000.0,158648
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,10081000.0,87363
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,513847,513847103,LANCASTER COLONY CORP,2612000.0,12987
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,88059000.0,445768
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+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,110000.0,579
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+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,18000.0,574
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+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,594918,594918104,MICROSOFT CORP,2246432000.0,6567098
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,600544,600544100,MILLERKNOLL INC,1300000.0,87891
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+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,64110D,64110D104,NETAPP INC,17142000.0,223332
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,65249B,65249B109,NEWS CORP NEW,5983000.0,305525
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,654106,654106103,NIKE INC,238793000.0,2152136
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,671044,671044105,OSI SYSTEMS INC,1660000.0,14094
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+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,85816000.0,334536
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,23473000.0,59926
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,703395,703395103,PATTERSON COS INC,2175000.0,65311
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,704326,704326107,PAYCHEX INC,45188000.0,401896
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,9616000.0,52066
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,423000.0,54676
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,5363000.0,88962
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP,283000.0,20667
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,74051N,74051N102,PREMIER INC,639000.0,22929
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,440696000.0,2890654
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,74874Q,74874Q100,QUINSTREET INC,378000.0,42796
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,749685,749685103,RPM INTL INC,13309000.0,147805
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,761152,761152107,RESMED INC,24379000.0,111014
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,668000.0,42427
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,806037,806037107,SCANSOURCE INC,634000.0,21485
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,807066,807066105,SCHOLASTIC CORP,1329000.0,34117
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,817070,817070501,SENECA FOODS CORP NEW,148000.0,4539
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,32000.0,2453
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,832696,832696405,SMUCKER J M CO,22392000.0,150759
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,854231,854231107,STANDEX INTL CORP,1459000.0,10313
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,86333M,86333M108,STRIDE INC,2094000.0,56107
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,9619000.0,38507
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,87157D,87157D109,SYNAPTICS INC,1878000.0,22003
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,871829,871829107,SYSCO CORP,48089000.0,644864
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,876030,876030107,TAPESTRY INC,4215000.0,98214
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,44000.0,28292
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,2559000.0,225801
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,9310000.0,244236
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,1511000.0,44374
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,595000.0,4461
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,981811,981811102,WORTHINGTON INDS INC,1230000.0,17698
+https://sec.gov/Archives/edgar/data/1046192/0001046192-23-000018.txt,1046192,"100 OSBORNE STREET NORTH, WINNIPEG, A2, WINNIPEG",GREAT WEST LIFE ASSURANCE CO /CAN/,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,221295000.0,2498399
+https://sec.gov/Archives/edgar/data/1047142/0001047142-23-000004.txt,1047142,"100 EAST VINE, LEXINGTON, KY, 40507",COMMUNITY TRUST & INVESTMENT CO,2023-06-30,115637,115637100,BROWN-FORMAN CORP,374385000.0,5500
+https://sec.gov/Archives/edgar/data/1047142/0001047142-23-000004.txt,1047142,"100 EAST VINE, LEXINGTON, KY, 40507",COMMUNITY TRUST & INVESTMENT CO,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,8713569000.0,153597
+https://sec.gov/Archives/edgar/data/1047142/0001047142-23-000004.txt,1047142,"100 EAST VINE, LEXINGTON, KY, 40507",COMMUNITY TRUST & INVESTMENT CO,2023-06-30,594918,594918104,MICROSOFT CORP,69557024000.0,204255
+https://sec.gov/Archives/edgar/data/1047142/0001047142-23-000004.txt,1047142,"100 EAST VINE, LEXINGTON, KY, 40507",COMMUNITY TRUST & INVESTMENT CO,2023-06-30,654106,654106103,NIKE INC,9190186000.0,83267
+https://sec.gov/Archives/edgar/data/1047142/0001047142-23-000004.txt,1047142,"100 EAST VINE, LEXINGTON, KY, 40507",COMMUNITY TRUST & INVESTMENT CO,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,23335997000.0,91331
+https://sec.gov/Archives/edgar/data/1047142/0001047142-23-000004.txt,1047142,"100 EAST VINE, LEXINGTON, KY, 40507",COMMUNITY TRUST & INVESTMENT CO,2023-06-30,701094,701094104,PARKER HANNIFIN CORP,21979512000.0,56352
+https://sec.gov/Archives/edgar/data/1047142/0001047142-23-000004.txt,1047142,"100 EAST VINE, LEXINGTON, KY, 40507",COMMUNITY TRUST & INVESTMENT CO,2023-06-30,742718,742718109,PROCTER & GAMBLE CO,18799218000.0,123891
+https://sec.gov/Archives/edgar/data/1047142/0001047142-23-000004.txt,1047142,"100 EAST VINE, LEXINGTON, KY, 40507",COMMUNITY TRUST & INVESTMENT CO,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,3006864000.0,34130
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,053015,053015103,AUTO DATA PROCESSING,835000.0,3801
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,189054,189054109,CLOROX CO,1642000.0,10324
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,205887,205887102,CONAGRA FOODS,348000.0,10326
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,31428X,31428X106,FEDEX CORP,1152000.0,4646
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,512807,512807108,LAM RESEARCH,721000.0,1122
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,513272,513272104,LAMB WESTON HOLDINGS,396000.0,3442
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,594918,594918104,MICROSOFT CORP,50119000.0,147175
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,654106,654106103,NIKE,240000.0,2177
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,697435,697435105,PALO ALTO NETWORKS,522000.0,2044
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,704326,704326107,PAYCHEX,7094000.0,63413
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,742718,742718109,PROCTER & GAMBLE,10106000.0,66600
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,832696,832696405,J M SMUCKER CO,1168000.0,7912
+https://sec.gov/Archives/edgar/data/1047339/0001047339-23-000003.txt,1047339,"5789 WIDEWATERS PARKWAY, DEWITT, NY, 13214",BURNS J W & CO INC/NY,2023-06-30,G5960L,G5960L103,MEDTRONIC,537000.0,6097
+https://sec.gov/Archives/edgar/data/1048462/0001398344-23-014906.txt,1048462,"777 WEST PUTNAM AVENUE, 1ST FLOOR, GREENWICH, CT, 06830",WEXFORD CAPITAL LP,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,1248079000.0,23782
+https://sec.gov/Archives/edgar/data/1048462/0001398344-23-014906.txt,1048462,"777 WEST PUTNAM AVENUE, 1ST FLOOR, GREENWICH, CT, 06830",WEXFORD CAPITAL LP,2023-06-30,31428X,31428X106,FEDEX CORP,6325169000.0,25515
+https://sec.gov/Archives/edgar/data/1048462/0001398344-23-014906.txt,1048462,"777 WEST PUTNAM AVENUE, 1ST FLOOR, GREENWICH, CT, 06830",WEXFORD CAPITAL LP,2023-06-30,594918,594918104,MICROSOFT CORP,216583000.0,636
+https://sec.gov/Archives/edgar/data/1048462/0001398344-23-014906.txt,1048462,"777 WEST PUTNAM AVENUE, 1ST FLOOR, GREENWICH, CT, 06830",WEXFORD CAPITAL LP,2023-06-30,832696,832696405,SMUCKER J M CO,252959000.0,1713
+https://sec.gov/Archives/edgar/data/1048462/0001398344-23-014906.txt,1048462,"777 WEST PUTNAM AVENUE, 1ST FLOOR, GREENWICH, CT, 06830",WEXFORD CAPITAL LP,2023-06-30,G3323L,G3323L100,FABRINET,925915000.0,7129
+https://sec.gov/Archives/edgar/data/1048703/0001072613-23-000423.txt,1048703,"183 Sully's Trail, Pittsford, NY, 14534","Karpus Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP COM,578918000.0,1700
+https://sec.gov/Archives/edgar/data/1048921/0001398344-23-013204.txt,1048921,"1320 TWO PENN CTR PLZ, PHILADELPHIA, PA, 19102",MITCHELL SINKLER & STARR/PA,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,4314478000.0,19630
+https://sec.gov/Archives/edgar/data/1048921/0001398344-23-013204.txt,1048921,"1320 TWO PENN CTR PLZ, PHILADELPHIA, PA, 19102",MITCHELL SINKLER & STARR/PA,2023-06-30,147528,147528103,CASEYS GEN STORES INC,332896000.0,1365
+https://sec.gov/Archives/edgar/data/1048921/0001398344-23-013204.txt,1048921,"1320 TWO PENN CTR PLZ, PHILADELPHIA, PA, 19102",MITCHELL SINKLER & STARR/PA,2023-06-30,189054,189054109,CLOROX CO DEL,253669000.0,1595
+https://sec.gov/Archives/edgar/data/1048921/0001398344-23-013204.txt,1048921,"1320 TWO PENN CTR PLZ, PHILADELPHIA, PA, 19102",MITCHELL SINKLER & STARR/PA,2023-06-30,370334,370334104,GENERAL MLS INC,304806000.0,3974
+https://sec.gov/Archives/edgar/data/1048921/0001398344-23-013204.txt,1048921,"1320 TWO PENN CTR PLZ, PHILADELPHIA, PA, 19102",MITCHELL SINKLER & STARR/PA,2023-06-30,594918,594918104,MICROSOFT CORP,21410091000.0,62871
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+https://sec.gov/Archives/edgar/data/1050068/0001085146-23-003125.txt,1050068,"419 W High Ave, Po Box 309, NEW PHILADELPHIA, OH, 44663","INVESTMENT PARTNERS, LTD.",2023-06-30,594918,594918104,MICROSOFT CORP,7511612000.0,22058
+https://sec.gov/Archives/edgar/data/1050068/0001085146-23-003125.txt,1050068,"419 W High Ave, Po Box 309, NEW PHILADELPHIA, OH, 44663","INVESTMENT PARTNERS, LTD.",2023-06-30,654106,654106103,NIKE INC,353224000.0,3200
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+https://sec.gov/Archives/edgar/data/1050477/0000935836-23-000567.txt,1050477,"101 Mission Street, Suite 1400, San Francisco, CA, 94105-1522",SNYDER CAPITAL MANAGEMENT L P,2023-06-30,589378,589378108,MERCURY SYSTEMS INC.,30512600000.0,882122
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+https://sec.gov/Archives/edgar/data/1068855/0000950123-23-006458.txt,1068855,"TEKKO BUILDING, 8-2, MARUNOUCHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-0005","Asset Management One Co., Ltd.",2023-06-30,654106,654106103,NIKE INC,68690756000.0,622368
+https://sec.gov/Archives/edgar/data/1068855/0000950123-23-006458.txt,1068855,"TEKKO BUILDING, 8-2, MARUNOUCHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-0005","Asset Management One Co., Ltd.",2023-06-30,671044,671044105,OSI SYSTEMS INC,6539094000.0,55496
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+https://sec.gov/Archives/edgar/data/1070134/0001172661-23-003105.txt,1070134,"30 E. 7th Street, Suite 2500, St Paul, MN, 55101",MAIRS & POWER INC,2023-06-30,234264,234264109,DAKTRONICS INC,121600000.0,19000
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+https://sec.gov/Archives/edgar/data/1070134/0001172661-23-003105.txt,1070134,"30 E. 7th Street, Suite 2500, St Paul, MN, 55101",MAIRS & POWER INC,2023-06-30,703395,703395103,PATTERSON COS INC,1441987000.0,43355
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+https://sec.gov/Archives/edgar/data/1070134/0001172661-23-003105.txt,1070134,"30 E. 7th Street, Suite 2500, St Paul, MN, 55101",MAIRS & POWER INC,2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,130400000.0,10000
+https://sec.gov/Archives/edgar/data/1070134/0001172661-23-003105.txt,1070134,"30 E. 7th Street, Suite 2500, St Paul, MN, 55101",MAIRS & POWER INC,2023-06-30,871829,871829107,SYSCO CORP,103823831000.0,1399243
+https://sec.gov/Archives/edgar/data/1070134/0001172661-23-003105.txt,1070134,"30 E. 7th Street, Suite 2500, St Paul, MN, 55101",MAIRS & POWER INC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,248588851000.0,2821667
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+https://sec.gov/Archives/edgar/data/107136/0001214659-23-009240.txt,107136,"40 BURTON HILLS BLVD., SUITE 350, NASHVILLE, TN, 37215","WILEY BROS.-AINTREE CAPITAL, LLC",2023-06-30,127190,127190304,CACI INTL INC,574315000.0,1685
+https://sec.gov/Archives/edgar/data/107136/0001214659-23-009240.txt,107136,"40 BURTON HILLS BLVD., SUITE 350, NASHVILLE, TN, 37215","WILEY BROS.-AINTREE CAPITAL, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,631241000.0,8230
+https://sec.gov/Archives/edgar/data/107136/0001214659-23-009240.txt,107136,"40 BURTON HILLS BLVD., SUITE 350, NASHVILLE, TN, 37215","WILEY BROS.-AINTREE CAPITAL, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,2809516000.0,8250
+https://sec.gov/Archives/edgar/data/107136/0001214659-23-009240.txt,107136,"40 BURTON HILLS BLVD., SUITE 350, NASHVILLE, TN, 37215","WILEY BROS.-AINTREE CAPITAL, LLC",2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,1285823000.0,21345
+https://sec.gov/Archives/edgar/data/107136/0001214659-23-009240.txt,107136,"40 BURTON HILLS BLVD., SUITE 350, NASHVILLE, TN, 37215","WILEY BROS.-AINTREE CAPITAL, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2531495000.0,16683
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+https://sec.gov/Archives/edgar/data/1071640/0001071640-23-000013.txt,1071640,"10 HUDSON YARDS, NEW YORK, NY, 10001",PARK AVENUE SECURITIES LLC,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,884000.0,10835
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+https://sec.gov/Archives/edgar/data/1071640/0001071640-23-000013.txt,1071640,"10 HUDSON YARDS, NEW YORK, NY, 10001",PARK AVENUE SECURITIES LLC,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,620000.0,10286
+https://sec.gov/Archives/edgar/data/1071640/0001071640-23-000013.txt,1071640,"10 HUDSON YARDS, NEW YORK, NY, 10001",PARK AVENUE SECURITIES LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,9632000.0,63474
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+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,461202,461202103,Intuit Inc,44903000.0,98
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,512807,512807108,Lam Research Corp,113143000.0,176
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,513272,513272104,Lamb Weston Holdings Inc,19082000.0,166
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,518439,518439104,ESTEE LAUDER COS,675547000.0,3440
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,55024U,55024U109,Lumentum Holdings Inc,22692000.0,400
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,594918,594918104,MICROSOFT CORP,133752101000.0,392765
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,654106,654106103,NIKE INC,2211925000.0,20041
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,697435,697435105,Palo Alto Networks Inc,30377584000.0,118890
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,701094,701094104,PARKER-HANNIFIN,148215000.0,380
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+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,742718,742718109,Procter & Gamble Co/The,43571382000.0,287145
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+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,749685,749685103,RPM INTERNATIONAL,8076000.0,90
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,832696,832696405,SMUCKER(JM)CO,47993000.0,325
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+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,958102,958102105,WESTN DIGITAL CORP,6827000.0,180
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,981811,981811102,Worthington Industries Inc,226958000.0,3267
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,G3323L,G3323L100,Fabrinet,45458000.0,350
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,G5960L,G5960L103,Medtronic PLC,1821820000.0,20679
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,G6331P,G6331P104,Alpha & Omega Semiconductor Lt,153373000.0,4676
+https://sec.gov/Archives/edgar/data/1074272/0001074272-23-000009.txt,1074272,"75 STATE STREET, 18TH FLOOR, BOSTON, MA, 02109",CAMBRIDGE TRUST CO,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,89775000.0,3500
+https://sec.gov/Archives/edgar/data/1074273/0001420506-23-001324.txt,1074273,"4101 COX ROAD, SUITE 110, GLEN ALLEN, VA, 23060",CAPITAL MANAGEMENT CORP /VA,2023-06-30,205887,205887102,CONAGRA BRANDS INC,8880331000.0,263355
+https://sec.gov/Archives/edgar/data/1075444/0001398344-23-014008.txt,1075444,"4995 BRADENTON AVENUE, SUITE 210, DUBLIN, OH, 43017",Advanced Asset Management Advisors Inc,2023-06-30,205887,205887102,CONAGRA BRANDS INC,3574320000.0,106000
+https://sec.gov/Archives/edgar/data/1075444/0001398344-23-014008.txt,1075444,"4995 BRADENTON AVENUE, SUITE 210, DUBLIN, OH, 43017",Advanced Asset Management Advisors Inc,2023-06-30,594918,594918104,MICROSOFT CORP,11784865000.0,34606
+https://sec.gov/Archives/edgar/data/1075444/0001398344-23-014008.txt,1075444,"4995 BRADENTON AVENUE, SUITE 210, DUBLIN, OH, 43017",Advanced Asset Management Advisors Inc,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,4593833000.0,30274
+https://sec.gov/Archives/edgar/data/1075444/0001398344-23-014008.txt,1075444,"4995 BRADENTON AVENUE, SUITE 210, DUBLIN, OH, 43017",Advanced Asset Management Advisors Inc,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,5206710000.0,59100
+https://sec.gov/Archives/edgar/data/1076964/0001420506-23-001431.txt,1076964,"39555 Orchard HIll Place, Ste. 139, NOVI, MI, 48375","Provident Investment Management, Inc.",2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,396626000.0,3975
+https://sec.gov/Archives/edgar/data/1076964/0001420506-23-001431.txt,1076964,"39555 Orchard HIll Place, Ste. 139, NOVI, MI, 48375","Provident Investment Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,62831110000.0,184504
+https://sec.gov/Archives/edgar/data/1076964/0001420506-23-001431.txt,1076964,"39555 Orchard HIll Place, Ste. 139, NOVI, MI, 48375","Provident Investment Management, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,201366000.0,1800
+https://sec.gov/Archives/edgar/data/1076964/0001420506-23-001431.txt,1076964,"39555 Orchard HIll Place, Ste. 139, NOVI, MI, 48375","Provident Investment Management, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,928042000.0,6116
+https://sec.gov/Archives/edgar/data/1076964/0001420506-23-001431.txt,1076964,"39555 Orchard HIll Place, Ste. 139, NOVI, MI, 48375","Provident Investment Management, Inc.",2023-06-30,832696,832696405,SMUCKER J M CO,311584000.0,2110
+https://sec.gov/Archives/edgar/data/1077428/0001077428-23-000161.txt,1077428,"2000 MCKINNEY AVE, DALLAS, TX, 75201",TEXAS CAPITAL BANCSHARES INC/TX,2023-06-30,461202,461202103,INTUIT,682244000.0,1489
+https://sec.gov/Archives/edgar/data/1077428/0001077428-23-000161.txt,1077428,"2000 MCKINNEY AVE, DALLAS, TX, 75201",TEXAS CAPITAL BANCSHARES INC/TX,2023-06-30,512807,512807108,LAM RESEARCH CORP,914146000.0,1422
+https://sec.gov/Archives/edgar/data/1077428/0001077428-23-000161.txt,1077428,"2000 MCKINNEY AVE, DALLAS, TX, 75201",TEXAS CAPITAL BANCSHARES INC/TX,2023-06-30,594918,594918104,MICROSOFT CORP,2191033000.0,6434
+https://sec.gov/Archives/edgar/data/1077428/0001077428-23-000161.txt,1077428,"2000 MCKINNEY AVE, DALLAS, TX, 75201",TEXAS CAPITAL BANCSHARES INC/TX,2023-06-30,654106,654106103,NIKE INC,550525000.0,4988
+https://sec.gov/Archives/edgar/data/1077428/0001077428-23-000161.txt,1077428,"2000 MCKINNEY AVE, DALLAS, TX, 75201",TEXAS CAPITAL BANCSHARES INC/TX,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,741401000.0,4886
+https://sec.gov/Archives/edgar/data/1077583/0001077583-23-000006.txt,1077583,"135 PROFESSIONAL DRIVE, SUITE 103, PONTE VEDRA BEACH, FL, 32082",BOWEN HANES & CO INC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,51254588000.0,233198
+https://sec.gov/Archives/edgar/data/1077583/0001077583-23-000006.txt,1077583,"135 PROFESSIONAL DRIVE, SUITE 103, PONTE VEDRA BEACH, FL, 32082",BOWEN HANES & CO INC,2023-06-30,31428X,31428X106,FEDEX CORPORATION,1066218000.0,4301
+https://sec.gov/Archives/edgar/data/1077583/0001077583-23-000006.txt,1077583,"135 PROFESSIONAL DRIVE, SUITE 103, PONTE VEDRA BEACH, FL, 32082",BOWEN HANES & CO INC,2023-06-30,594918,594918104,MICROSOFT,86685479000.0,254553
+https://sec.gov/Archives/edgar/data/1077583/0001077583-23-000006.txt,1077583,"135 PROFESSIONAL DRIVE, SUITE 103, PONTE VEDRA BEACH, FL, 32082",BOWEN HANES & CO INC,2023-06-30,697435,697435105,PALO ALTO NETWORKS,67071375000.0,262500
+https://sec.gov/Archives/edgar/data/1077583/0001077583-23-000006.txt,1077583,"135 PROFESSIONAL DRIVE, SUITE 103, PONTE VEDRA BEACH, FL, 32082",BOWEN HANES & CO INC,2023-06-30,701094,701094104,PARKER-HANNIFIN,3426501000.0,8785
+https://sec.gov/Archives/edgar/data/1077583/0001077583-23-000006.txt,1077583,"135 PROFESSIONAL DRIVE, SUITE 103, PONTE VEDRA BEACH, FL, 32082",BOWEN HANES & CO INC,2023-06-30,742718,742718109,PROCTER & GAMBLE,58216113000.0,383657
+https://sec.gov/Archives/edgar/data/1077583/0001077583-23-000006.txt,1077583,"135 PROFESSIONAL DRIVE, SUITE 103, PONTE VEDRA BEACH, FL, 32082",BOWEN HANES & CO INC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC (IL),2268399000.0,25748
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,053015,053015103,Automatic Data Processing Inc,13181467000.0,59973
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,05368M,05368M106,AVID BIOSERVICES INC,2413490000.0,172762
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,11133T,11133T103,Broadridge Financial Solutions,5104630000.0,30819
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,115637,115637209,Brown Forman Corp Cl B,2338190000.0,35013
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,14149Y,14149Y108,Cardinal Health Inc,3020386000.0,31938
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,189054,189054109,Clorox Co,1639163000.0,10307
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS IN,40508100000.0,242447
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,31428X,31428X106,FedEx Corp,377855000.0,1524
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,35137L,35137L105,Fox Corp Cl A,58685584000.0,1726046
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,370334,370334104,General Mills Inc,1911364000.0,24920
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,426281,426281101,Henry Jack and Assoc Inc,3806230000.0,22747
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,461202,461202103,Intuit,648339000.0,1415
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,482480,482480100,KLA-Tencor Corp,484050000.0,998
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,512807,512807108,Lam Research Corp,14948851000.0,23254
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,513272,513272104,Lamb Weston Holdings Inc,604752000.0,5261
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,518439,518439104,Lauder Estee Cos Inc Cl A,437731000.0,2229
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,594918,594918104,Microsoft Corp,183724006000.0,539508
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,64110D,64110D104,NetApp Inc,1103554000.0,14444
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,654106,654106103,Nike Inc Cl B,4164572000.0,37733
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,697435,697435105,Palo Alto Networks Inc,1873399000.0,7332
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,701094,701094104,Parker Hannifin Corp,107870061000.0,276561
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,703395,703395103,PATTERSON COS INCCOM,1260550000.0,37900
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,704326,704326107,Paychex Inc,3519361000.0,31459
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,742718,742718109,Procter And Gamble Co,38998284000.0,257006
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,761152,761152107,ResMed Inc,562637000.0,2575
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,832696,832696405,Smucker J M Co,17836361000.0,120785
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,86800U,86800U104,Super Micro Computer Inc,932693000.0,3742
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,871829,871829107,Sysco Corp,411277000.0,5543
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,876030,876030107,Tapestry Inc,336750000.0,7868
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,G3323L,G3323L100,Fabrinet,213003000.0,1640
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,G5960L,G5960L103,Medtronic PLC,12767085000.0,144916
+https://sec.gov/Archives/edgar/data/1078013/0001078013-23-000005.txt,1078013,"231 S. LASALLE STREET, 4TH FLOOR, CHICAGO, IL, 60604","GREAT LAKES ADVISORS, LLC",2023-06-30,N14506,N14506104,ELASTIC N VORD SHS,1157370000.0,18050
+https://sec.gov/Archives/edgar/data/1078246/0001078246-23-000003.txt,1078246,"1101 FIFTH AVENUE, SUITE 160, SAN RAFAEL, CA, 94941",HUTCHINSON CAPITAL MANAGEMENT/CA,2023-06-30,594918,594918104,MICROSOFT CORP,24916237000.0,73167
+https://sec.gov/Archives/edgar/data/1078246/0001078246-23-000003.txt,1078246,"1101 FIFTH AVENUE, SUITE 160, SAN RAFAEL, CA, 94941",HUTCHINSON CAPITAL MANAGEMENT/CA,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,1081248000.0,17949
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+https://sec.gov/Archives/edgar/data/1080107/0001080107-23-000003.txt,1080107,"8 THIRD ST NORTH, GREAT FALLS, MT, 59401",D.A. DAVIDSON & CO.,2023-06-30,749685,749685103,RPM INTL INC,1300661000.0,14495
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+https://sec.gov/Archives/edgar/data/1080166/0001080166-23-000003.txt,1080166,"9229 SUNSET BOULEVARD, SUITE 425, WEST HOLLYWOOD, CA, 90069",AR ASSET MANAGEMENT INC,2023-06-30,594918,594918104,MICROSOFT CORPORATION,8268000.0,24279
+https://sec.gov/Archives/edgar/data/1080166/0001080166-23-000003.txt,1080166,"9229 SUNSET BOULEVARD, SUITE 425, WEST HOLLYWOOD, CA, 90069",AR ASSET MANAGEMENT INC,2023-06-30,654106,654106103,"NIKE, INC. CL B",8672000.0,78570
+https://sec.gov/Archives/edgar/data/1080166/0001080166-23-000003.txt,1080166,"9229 SUNSET BOULEVARD, SUITE 425, WEST HOLLYWOOD, CA, 90069",AR ASSET MANAGEMENT INC,2023-06-30,742718,742718109,PROCTER & GAMBLE CO,11397000.0,75109
+https://sec.gov/Archives/edgar/data/1080166/0001080166-23-000003.txt,1080166,"9229 SUNSET BOULEVARD, SUITE 425, WEST HOLLYWOOD, CA, 90069",AR ASSET MANAGEMENT INC,2023-06-30,871829,871829107,SYSCO CORP,742000.0,10000
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+https://sec.gov/Archives/edgar/data/1080173/0001080173-23-000006.txt,1080173,"505 SANSOME STREET, SUITE 1001, SAN FRANCISCO, CA, 94111",VAN STRUM & TOWNE INC.,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,217890000.0,2304
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+https://sec.gov/Archives/edgar/data/1080173/0001080173-23-000006.txt,1080173,"505 SANSOME STREET, SUITE 1001, SAN FRANCISCO, CA, 94111",VAN STRUM & TOWNE INC.,2023-06-30,461202,461202103,INTUIT,680871000.0,1486
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+https://sec.gov/Archives/edgar/data/1080173/0001080173-23-000006.txt,1080173,"505 SANSOME STREET, SUITE 1001, SAN FRANCISCO, CA, 94111",VAN STRUM & TOWNE INC.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,7954211000.0,52420
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+https://sec.gov/Archives/edgar/data/1080197/0000950123-23-006533.txt,1080197,"9370 MAIN ST., SUITE D, CINCINNATI, OH, 45242",SCHULHOFF & CO INC,2023-06-30,518439,518439104,LAUDER (ESTEE),2508715000.0,12774
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+https://sec.gov/Archives/edgar/data/1080197/0000950123-23-006533.txt,1080197,"9370 MAIN ST., SUITE D, CINCINNATI, OH, 45242",SCHULHOFF & CO INC,2023-06-30,742718,742718109,PROCTER & GAMBLE,35171253000.0,231786
+https://sec.gov/Archives/edgar/data/1080197/0000950123-23-006533.txt,1080197,"9370 MAIN ST., SUITE D, CINCINNATI, OH, 45242",SCHULHOFF & CO INC,2023-06-30,832696,832696405,SMUCKER (J.M.),915258000.0,6198
+https://sec.gov/Archives/edgar/data/1080197/0000950123-23-006533.txt,1080197,"9370 MAIN ST., SUITE D, CINCINNATI, OH, 45242",SCHULHOFF & CO INC,2023-06-30,871829,871829107,SYSCO,930913000.0,12546
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+https://sec.gov/Archives/edgar/data/1080298/0001080298-23-000004.txt,1080298,"11090 N. WESTON DRIVE, MEQUON, WI, 53092","REINHART PARTNERS, LLC.",2023-06-30,36251C,36251C103,GMS INC COM,28457578000.0,411237
+https://sec.gov/Archives/edgar/data/1080298/0001080298-23-000004.txt,1080298,"11090 N. WESTON DRIVE, MEQUON, WI, 53092","REINHART PARTNERS, LLC.",2023-06-30,461202,461202103,INTUIT INC,229095000.0,500
+https://sec.gov/Archives/edgar/data/1080298/0001080298-23-000004.txt,1080298,"11090 N. WESTON DRIVE, MEQUON, WI, 53092","REINHART PARTNERS, LLC.",2023-06-30,594918,594918104,MICROSOFT CORP,306486000.0,900
+https://sec.gov/Archives/edgar/data/1080298/0001080298-23-000004.txt,1080298,"11090 N. WESTON DRIVE, MEQUON, WI, 53092","REINHART PARTNERS, LLC.",2023-06-30,74051N,74051N102,PREMIER INC CL A,25706674000.0,929381
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+https://sec.gov/Archives/edgar/data/1080351/0001080351-23-000003.txt,1080351,"11460 TOMAHAWK CREEK PARKWAY, SUITE 410, LEAWOOD, KS, 66211",MITCHELL CAPITAL MANAGEMENT CO,2023-06-30,512807,512807108,LAM Research Corp,311144000.0,484
+https://sec.gov/Archives/edgar/data/1080351/0001080351-23-000003.txt,1080351,"11460 TOMAHAWK CREEK PARKWAY, SUITE 410, LEAWOOD, KS, 66211",MITCHELL CAPITAL MANAGEMENT CO,2023-06-30,594918,594918104,Microsoft Corp,29572129000.0,86839
+https://sec.gov/Archives/edgar/data/1080351/0001080351-23-000003.txt,1080351,"11460 TOMAHAWK CREEK PARKWAY, SUITE 410, LEAWOOD, KS, 66211",MITCHELL CAPITAL MANAGEMENT CO,2023-06-30,654106,654106103,Nike Inc Cl B,1245343000.0,11283
+https://sec.gov/Archives/edgar/data/1080369/0001080369-23-000009.txt,1080369,"3735 CHEROKEE STREET, KENNESAW, GA, 30144",GW HENSSLER & ASSOCIATES LTD,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,268660000.0,1855
+https://sec.gov/Archives/edgar/data/1080369/0001080369-23-000009.txt,1080369,"3735 CHEROKEE STREET, KENNESAW, GA, 30144",GW HENSSLER & ASSOCIATES LTD,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,531580000.0,5621
+https://sec.gov/Archives/edgar/data/1080369/0001080369-23-000009.txt,1080369,"3735 CHEROKEE STREET, KENNESAW, GA, 30144",GW HENSSLER & ASSOCIATES LTD,2023-06-30,594918,594918104,MICROSOFT CORP,42296383000.0,124204
+https://sec.gov/Archives/edgar/data/1080369/0001080369-23-000009.txt,1080369,"3735 CHEROKEE STREET, KENNESAW, GA, 30144",GW HENSSLER & ASSOCIATES LTD,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,8511419000.0,56092
+https://sec.gov/Archives/edgar/data/1080369/0001080369-23-000009.txt,1080369,"3735 CHEROKEE STREET, KENNESAW, GA, 30144",GW HENSSLER & ASSOCIATES LTD,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,24010603000.0,272536
+https://sec.gov/Archives/edgar/data/1080374/0001080374-23-000006.txt,1080374,"9841 CLAYTON ROAD, ST LOUIS, MO, 63124","JAG CAPITAL MANAGEMENT, LLC",2023-06-30,053015,053015103,Automatic Data Processing,376923000.0,1715
+https://sec.gov/Archives/edgar/data/1080374/0001080374-23-000006.txt,1080374,"9841 CLAYTON ROAD, ST LOUIS, MO, 63124","JAG CAPITAL MANAGEMENT, LLC",2023-06-30,234264,234264109,Daktronics Inc,97824000.0,15285
+https://sec.gov/Archives/edgar/data/1080374/0001080374-23-000006.txt,1080374,"9841 CLAYTON ROAD, ST LOUIS, MO, 63124","JAG CAPITAL MANAGEMENT, LLC",2023-06-30,31428X,31428X106,Fedex Corporation,2425853000.0,9786
+https://sec.gov/Archives/edgar/data/1080374/0001080374-23-000006.txt,1080374,"9841 CLAYTON ROAD, ST LOUIS, MO, 63124","JAG CAPITAL MANAGEMENT, LLC",2023-06-30,370334,370334104,General Mills Inc.,459970000.0,5997
+https://sec.gov/Archives/edgar/data/1080374/0001080374-23-000006.txt,1080374,"9841 CLAYTON ROAD, ST LOUIS, MO, 63124","JAG CAPITAL MANAGEMENT, LLC",2023-06-30,461202,461202103,Intuit Inc.,978309000.0,2135
+https://sec.gov/Archives/edgar/data/1080374/0001080374-23-000006.txt,1080374,"9841 CLAYTON ROAD, ST LOUIS, MO, 63124","JAG CAPITAL MANAGEMENT, LLC",2023-06-30,489170,489170100,Kennametal Inc Cap Stk,218603000.0,7700
+https://sec.gov/Archives/edgar/data/1080374/0001080374-23-000006.txt,1080374,"9841 CLAYTON ROAD, ST LOUIS, MO, 63124","JAG CAPITAL MANAGEMENT, LLC",2023-06-30,512807,512807108,Lam Research Corp,1024165000.0,1593
+https://sec.gov/Archives/edgar/data/1080374/0001080374-23-000006.txt,1080374,"9841 CLAYTON ROAD, ST LOUIS, MO, 63124","JAG CAPITAL MANAGEMENT, LLC",2023-06-30,594918,594918104,Microsoft Corporation,57167307000.0,167873
+https://sec.gov/Archives/edgar/data/1080374/0001080374-23-000006.txt,1080374,"9841 CLAYTON ROAD, ST LOUIS, MO, 63124","JAG CAPITAL MANAGEMENT, LLC",2023-06-30,697435,697435105,Palo Alto Networks Inc,236347000.0,925
+https://sec.gov/Archives/edgar/data/1080374/0001080374-23-000006.txt,1080374,"9841 CLAYTON ROAD, ST LOUIS, MO, 63124","JAG CAPITAL MANAGEMENT, LLC",2023-06-30,742718,742718109,Procter & Gamble Co.,3899950000.0,25702
+https://sec.gov/Archives/edgar/data/1080374/0001080374-23-000006.txt,1080374,"9841 CLAYTON ROAD, ST LOUIS, MO, 63124","JAG CAPITAL MANAGEMENT, LLC",2023-06-30,878739,878739200,TechPrecision Corp New,197069000.0,26667
+https://sec.gov/Archives/edgar/data/1080374/0001080374-23-000006.txt,1080374,"9841 CLAYTON ROAD, ST LOUIS, MO, 63124","JAG CAPITAL MANAGEMENT, LLC",2023-06-30,N14506,N14506104,Elastic NV,240514000.0,3751
+https://sec.gov/Archives/edgar/data/1080380/0001398344-23-014506.txt,1080380,"370 CHURCH STREET, GUILFORD, CT, 06437",PROSPECTOR PARTNERS LLC,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,11815898000.0,70720
+https://sec.gov/Archives/edgar/data/1080380/0001398344-23-014506.txt,1080380,"370 CHURCH STREET, GUILFORD, CT, 06437",PROSPECTOR PARTNERS LLC,2023-06-30,594918,594918104,MICROSOFT CORP,7148616000.0,20992
+https://sec.gov/Archives/edgar/data/1080380/0001398344-23-014506.txt,1080380,"370 CHURCH STREET, GUILFORD, CT, 06437",PROSPECTOR PARTNERS LLC,2023-06-30,704326,704326107,PAYCHEX INC,3887483000.0,34750
+https://sec.gov/Archives/edgar/data/1080380/0001398344-23-014506.txt,1080380,"370 CHURCH STREET, GUILFORD, CT, 06437",PROSPECTOR PARTNERS LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,6518750000.0,42960
+https://sec.gov/Archives/edgar/data/1080380/0001398344-23-014506.txt,1080380,"370 CHURCH STREET, GUILFORD, CT, 06437",PROSPECTOR PARTNERS LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,14710938000.0,166980
+https://sec.gov/Archives/edgar/data/1080383/0000919574-23-004652.txt,1080383,"FOUR GREENWICH OFFICE PARK, GREENWICH, CT, 06831",CARDINAL CAPITAL MANAGEMENT LLC /CT,2023-06-30,671044,671044105,OSI SYSTEMS INC,10897861000.0,92488
+https://sec.gov/Archives/edgar/data/1080383/0000919574-23-004652.txt,1080383,"FOUR GREENWICH OFFICE PARK, GREENWICH, CT, 06831",CARDINAL CAPITAL MANAGEMENT LLC /CT,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,37644097000.0,1106203
+https://sec.gov/Archives/edgar/data/1080493/0001062993-23-016358.txt,1080493,"3353 PEACHTREE RD, SUITE 1100, ATLANTA, GA, 30326",MARCO INVESTMENT MANAGEMENT LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,309464000.0,1408
+https://sec.gov/Archives/edgar/data/1080493/0001062993-23-016358.txt,1080493,"3353 PEACHTREE RD, SUITE 1100, ATLANTA, GA, 30326",MARCO INVESTMENT MANAGEMENT LLC,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,298134000.0,1800
+https://sec.gov/Archives/edgar/data/1080493/0001062993-23-016358.txt,1080493,"3353 PEACHTREE RD, SUITE 1100, ATLANTA, GA, 30326",MARCO INVESTMENT MANAGEMENT LLC,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1528782000.0,9150
+https://sec.gov/Archives/edgar/data/1080493/0001062993-23-016358.txt,1080493,"3353 PEACHTREE RD, SUITE 1100, ATLANTA, GA, 30326",MARCO INVESTMENT MANAGEMENT LLC,2023-06-30,370334,370334104,GENERAL MLS INC,1929005000.0,25150
+https://sec.gov/Archives/edgar/data/1080493/0001062993-23-016358.txt,1080493,"3353 PEACHTREE RD, SUITE 1100, ATLANTA, GA, 30326",MARCO INVESTMENT MANAGEMENT LLC,2023-06-30,482480,482480100,KLA CORP,10600112000.0,21855
+https://sec.gov/Archives/edgar/data/1080493/0001062993-23-016358.txt,1080493,"3353 PEACHTREE RD, SUITE 1100, ATLANTA, GA, 30326",MARCO INVESTMENT MANAGEMENT LLC,2023-06-30,512807,512807108,LAM RESEARCH CORP,10314689000.0,16045
+https://sec.gov/Archives/edgar/data/1080493/0001062993-23-016358.txt,1080493,"3353 PEACHTREE RD, SUITE 1100, ATLANTA, GA, 30326",MARCO INVESTMENT MANAGEMENT LLC,2023-06-30,594918,594918104,MICROSOFT CORP,28544744000.0,83822
+https://sec.gov/Archives/edgar/data/1080493/0001062993-23-016358.txt,1080493,"3353 PEACHTREE RD, SUITE 1100, ATLANTA, GA, 30326",MARCO INVESTMENT MANAGEMENT LLC,2023-06-30,654106,654106103,NIKE INC,229018000.0,2075
+https://sec.gov/Archives/edgar/data/1080493/0001062993-23-016358.txt,1080493,"3353 PEACHTREE RD, SUITE 1100, ATLANTA, GA, 30326",MARCO INVESTMENT MANAGEMENT LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,13046596000.0,51061
+https://sec.gov/Archives/edgar/data/1080493/0001062993-23-016358.txt,1080493,"3353 PEACHTREE RD, SUITE 1100, ATLANTA, GA, 30326",MARCO INVESTMENT MANAGEMENT LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,9218508000.0,60752
+https://sec.gov/Archives/edgar/data/1080493/0001062993-23-016358.txt,1080493,"3353 PEACHTREE RD, SUITE 1100, ATLANTA, GA, 30326",MARCO INVESTMENT MANAGEMENT LLC,2023-06-30,749685,749685103,RPM INTL INC,853960000.0,9517
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+https://sec.gov/Archives/edgar/data/1080493/0001062993-23-016358.txt,1080493,"3353 PEACHTREE RD, SUITE 1100, ATLANTA, GA, 30326",MARCO INVESTMENT MANAGEMENT LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,8882242000.0,100820
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+https://sec.gov/Archives/edgar/data/1085227/0001085227-23-000003.txt,1085227,"44670 ANN ARBOR ROAD, SUITE 190, PLYMOUTH, MI, 48170",JLB & ASSOCIATES INC,2023-06-30,594918,594918104,MICROSOFT,26983709000.0,79238
+https://sec.gov/Archives/edgar/data/1085227/0001085227-23-000003.txt,1085227,"44670 ANN ARBOR ROAD, SUITE 190, PLYMOUTH, MI, 48170",JLB & ASSOCIATES INC,2023-06-30,654106,654106103,NIKE,11334778000.0,102698
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+https://sec.gov/Archives/edgar/data/1085393/0001405086-23-000197.txt,1085393,"645 MADISON AVENUE, 10TH FLOOR, NEW YORK, NY, 10022","BASSWOOD CAPITAL MANAGEMENT, L.L.C.",2023-06-30,74874Q,74874Q100,QUINSTREET INC,6417538000.0,726788
+https://sec.gov/Archives/edgar/data/1085393/0001405086-23-000197.txt,1085393,"645 MADISON AVENUE, 10TH FLOOR, NEW YORK, NY, 10022","BASSWOOD CAPITAL MANAGEMENT, L.L.C.",2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,1531734000.0,11430
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+https://sec.gov/Archives/edgar/data/108572/0001062993-23-015385.txt,108572,"2 CORPORATE DRIVE, SUITE 770, SHELTON, CT, 06484",WRIGHT INVESTORS SERVICE INC,2023-06-30,31428X,31428X106,FEDEX CORP,3377390000.0,13624
+https://sec.gov/Archives/edgar/data/108572/0001062993-23-015385.txt,108572,"2 CORPORATE DRIVE, SUITE 770, SHELTON, CT, 06484",WRIGHT INVESTORS SERVICE INC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,695382000.0,3541
+https://sec.gov/Archives/edgar/data/108572/0001062993-23-015385.txt,108572,"2 CORPORATE DRIVE, SUITE 770, SHELTON, CT, 06484",WRIGHT INVESTORS SERVICE INC,2023-06-30,594918,594918104,MICROSOFT CORP,22727858000.0,66741
+https://sec.gov/Archives/edgar/data/108572/0001062993-23-015385.txt,108572,"2 CORPORATE DRIVE, SUITE 770, SHELTON, CT, 06484",WRIGHT INVESTORS SERVICE INC,2023-06-30,704326,704326107,PAYCHEX INC,1287409000.0,11508
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+https://sec.gov/Archives/edgar/data/1085867/0001172661-23-002589.txt,1085867,"47 Summit Ave, Summit, NJ, 07901",BRAVE ASSET MANAGEMENT INC,2023-06-30,594918,594918104,MICROSOFT CORP,13575968000.0,39866
+https://sec.gov/Archives/edgar/data/1085867/0001172661-23-002589.txt,1085867,"47 Summit Ave, Summit, NJ, 07901",BRAVE ASSET MANAGEMENT INC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,369758000.0,948
+https://sec.gov/Archives/edgar/data/1085867/0001172661-23-002589.txt,1085867,"47 Summit Ave, Summit, NJ, 07901",BRAVE ASSET MANAGEMENT INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1143664000.0,7537
+https://sec.gov/Archives/edgar/data/1085867/0001172661-23-002589.txt,1085867,"47 Summit Ave, Summit, NJ, 07901",BRAVE ASSET MANAGEMENT INC,2023-06-30,832696,832696405,SMUCKER J M CO,452461000.0,3064
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+https://sec.gov/Archives/edgar/data/1085936/0001085936-23-000027.txt,1085936,"C/O GLENPOINTE EAST 7TH FLOOR, 300 FRANK W BURR BLVD, TEANECK, NJ, 07666",SYSTEMATIC FINANCIAL MANAGEMENT LP,2023-06-30,512807,512807108,LAM Research Corp.,597860000.0,930
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+https://sec.gov/Archives/edgar/data/1086619/0001140361-23-039217.txt,1086619,"1 London Wall Place, London, X0, EC2Y 5AU",SCHRODER INVESTMENT MANAGEMENT GROUP,2023-06-30,36251C,36251C103,GMS INC,5839719000.0,84389
+https://sec.gov/Archives/edgar/data/1086619/0001140361-23-039217.txt,1086619,"1 London Wall Place, London, X0, EC2Y 5AU",SCHRODER INVESTMENT MANAGEMENT GROUP,2023-06-30,370334,370334104,GENERAL MLS INC,26767303000.0,348987
+https://sec.gov/Archives/edgar/data/1086619/0001140361-23-039217.txt,1086619,"1 London Wall Place, London, X0, EC2Y 5AU",SCHRODER INVESTMENT MANAGEMENT GROUP,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,7872876000.0,47050
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+https://sec.gov/Archives/edgar/data/1086619/0001140361-23-039217.txt,1086619,"1 London Wall Place, London, X0, EC2Y 5AU",SCHRODER INVESTMENT MANAGEMENT GROUP,2023-06-30,482480,482480100,KLA CORP,48793982000.0,100602
+https://sec.gov/Archives/edgar/data/1086619/0001140361-23-039217.txt,1086619,"1 London Wall Place, London, X0, EC2Y 5AU",SCHRODER INVESTMENT MANAGEMENT GROUP,2023-06-30,500643,500643200,KORN FERRY,3462747000.0,69898
+https://sec.gov/Archives/edgar/data/1086619/0001140361-23-039217.txt,1086619,"1 London Wall Place, London, X0, EC2Y 5AU",SCHRODER INVESTMENT MANAGEMENT GROUP,2023-06-30,512807,512807108,LAM RESEARCH CORP,77418344000.0,120428
+https://sec.gov/Archives/edgar/data/1086619/0001140361-23-039217.txt,1086619,"1 London Wall Place, London, X0, EC2Y 5AU",SCHRODER INVESTMENT MANAGEMENT GROUP,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,588084000.0,5116
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+https://sec.gov/Archives/edgar/data/1086619/0001140361-23-039217.txt,1086619,"1 London Wall Place, London, X0, EC2Y 5AU",SCHRODER INVESTMENT MANAGEMENT GROUP,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,177559532000.0,904163
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+https://sec.gov/Archives/edgar/data/1086619/0001140361-23-039217.txt,1086619,"1 London Wall Place, London, X0, EC2Y 5AU",SCHRODER INVESTMENT MANAGEMENT GROUP,2023-06-30,703395,703395103,PATTERSON COS INC,5009521000.0,150617
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+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,115637,115637209,BROWN FORMAN CORP,1396570000.0,20913
+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,31428X,31428X106,FEDEX CORP,341626000.0,1378
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+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,461202,461202103,INTUIT,3166576000.0,6911
+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,482480,482480100,KLA CORP,303138000.0,625
+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,512807,512807108,LAM RESEARCH CORP,1757593000.0,2734
+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,2165848000.0,11029
+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,5348418000.0,195269
+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,594918,594918104,MICROSOFT CORP,398264060000.0,1169507
+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,654106,654106103,NIKE INC,945760000.0,8569
+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,347494000.0,1360
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+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,704326,704326107,PAYCHEX INC,432065000.0,3862
+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,4009316000.0,26422
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+https://sec.gov/Archives/edgar/data/1086763/0001086763-23-000021.txt,1086763,"18101 Von Karman Avenue, Ste 700, Irvine, CA, 92612",FIRST FOUNDATION ADVISORS,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1413476000.0,16044
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+https://sec.gov/Archives/edgar/data/1088731/0001019056-23-000315.txt,1088731,"320 Post Road, Darien, CT, 06820",BOURGEON CAPITAL MANAGEMENT LLC,2023-06-30,31428X,31428X106,FEDEX CORP,22311000.0,90
+https://sec.gov/Archives/edgar/data/1088731/0001019056-23-000315.txt,1088731,"320 Post Road, Darien, CT, 06820",BOURGEON CAPITAL MANAGEMENT LLC,2023-06-30,370334,370334104,GENERAL MLS INC,8668000.0,113
+https://sec.gov/Archives/edgar/data/1088731/0001019056-23-000315.txt,1088731,"320 Post Road, Darien, CT, 06820",BOURGEON CAPITAL MANAGEMENT LLC,2023-06-30,461202,461202103,INTUIT,15579000.0,34
+https://sec.gov/Archives/edgar/data/1088731/0001019056-23-000315.txt,1088731,"320 Post Road, Darien, CT, 06820",BOURGEON CAPITAL MANAGEMENT LLC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,392760000.0,2000
+https://sec.gov/Archives/edgar/data/1088731/0001019056-23-000315.txt,1088731,"320 Post Road, Darien, CT, 06820",BOURGEON CAPITAL MANAGEMENT LLC,2023-06-30,594918,594918104,MICROSOFT CORP,17982657000.0,52806
+https://sec.gov/Archives/edgar/data/1088731/0001019056-23-000315.txt,1088731,"320 Post Road, Darien, CT, 06820",BOURGEON CAPITAL MANAGEMENT LLC,2023-06-30,654106,654106103,NIKE INC,38630000.0,350
+https://sec.gov/Archives/edgar/data/1088731/0001019056-23-000315.txt,1088731,"320 Post Road, Darien, CT, 06820",BOURGEON CAPITAL MANAGEMENT LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,13032000.0,51
+https://sec.gov/Archives/edgar/data/1088731/0001019056-23-000315.txt,1088731,"320 Post Road, Darien, CT, 06820",BOURGEON CAPITAL MANAGEMENT LLC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1813686000.0,4650
+https://sec.gov/Archives/edgar/data/1088731/0001019056-23-000315.txt,1088731,"320 Post Road, Darien, CT, 06820",BOURGEON CAPITAL MANAGEMENT LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,37784000.0,249
+https://sec.gov/Archives/edgar/data/1088731/0001019056-23-000315.txt,1088731,"320 Post Road, Darien, CT, 06820",BOURGEON CAPITAL MANAGEMENT LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,12523680000.0,142153
+https://sec.gov/Archives/edgar/data/1088859/0001085146-23-002931.txt,1088859,"435 NORTH WHITTINGTON PARKWAY, SUITE 180, LOUISVILLE, KY, 40222",PARTHENON LLC,2023-06-30,02875D,02875D109,AMERICAN OUTDOOR BRANDS INC,1000804000.0,115300
+https://sec.gov/Archives/edgar/data/1088859/0001085146-23-002931.txt,1088859,"435 NORTH WHITTINGTON PARKWAY, SUITE 180, LOUISVILLE, KY, 40222",PARTHENON LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1033013000.0,4700
+https://sec.gov/Archives/edgar/data/1088859/0001085146-23-002931.txt,1088859,"435 NORTH WHITTINGTON PARKWAY, SUITE 180, LOUISVILLE, KY, 40222",PARTHENON LLC,2023-06-30,115637,115637100,BROWN FORMAN CORP,1170804000.0,17200
+https://sec.gov/Archives/edgar/data/1088859/0001085146-23-002931.txt,1088859,"435 NORTH WHITTINGTON PARKWAY, SUITE 180, LOUISVILLE, KY, 40222",PARTHENON LLC,2023-06-30,461202,461202103,INTUIT,767468000.0,1675
+https://sec.gov/Archives/edgar/data/1088859/0001085146-23-002931.txt,1088859,"435 NORTH WHITTINGTON PARKWAY, SUITE 180, LOUISVILLE, KY, 40222",PARTHENON LLC,2023-06-30,594918,594918104,MICROSOFT CORP,90930650000.0,267019
+https://sec.gov/Archives/edgar/data/1088859/0001085146-23-002931.txt,1088859,"435 NORTH WHITTINGTON PARKWAY, SUITE 180, LOUISVILLE, KY, 40222",PARTHENON LLC,2023-06-30,704326,704326107,PAYCHEX INC,29446198000.0,263218
+https://sec.gov/Archives/edgar/data/1088859/0001085146-23-002931.txt,1088859,"435 NORTH WHITTINGTON PARKWAY, SUITE 180, LOUISVILLE, KY, 40222",PARTHENON LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,22498945000.0,148273
+https://sec.gov/Archives/edgar/data/1088859/0001085146-23-002931.txt,1088859,"435 NORTH WHITTINGTON PARKWAY, SUITE 180, LOUISVILLE, KY, 40222",PARTHENON LLC,2023-06-30,832696,832696405,SMUCKER J M CO,6813494000.0,46140
+https://sec.gov/Archives/edgar/data/1088859/0001085146-23-002931.txt,1088859,"435 NORTH WHITTINGTON PARKWAY, SUITE 180, LOUISVILLE, KY, 40222",PARTHENON LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,8425267000.0,95633
+https://sec.gov/Archives/edgar/data/1088875/0001088875-23-000095.txt,1088875,"CALTON SQUARE, 1 GREENSIDE ROW, EDINBURGH, X0, EH13AN",BAILLIE GIFFORD & CO,2023-06-30,008073,008073108,Aerovironment,80848147000.0,790459
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+https://sec.gov/Archives/edgar/data/1088875/0001088875-23-000095.txt,1088875,"CALTON SQUARE, 1 GREENSIDE ROW, EDINBURGH, X0, EH13AN",BAILLIE GIFFORD & CO,2023-06-30,461202,461202103,Intuit,61895055000.0,135086
+https://sec.gov/Archives/edgar/data/1088875/0001088875-23-000095.txt,1088875,"CALTON SQUARE, 1 GREENSIDE ROW, EDINBURGH, X0, EH13AN",BAILLIE GIFFORD & CO,2023-06-30,518439,518439104,Estee Lauder 'A',356225464000.0,1813960
+https://sec.gov/Archives/edgar/data/1088875/0001088875-23-000095.txt,1088875,"CALTON SQUARE, 1 GREENSIDE ROW, EDINBURGH, X0, EH13AN",BAILLIE GIFFORD & CO,2023-06-30,594918,594918104,Microsoft,1885490634000.0,5536767
+https://sec.gov/Archives/edgar/data/1088875/0001088875-23-000095.txt,1088875,"CALTON SQUARE, 1 GREENSIDE ROW, EDINBURGH, X0, EH13AN",BAILLIE GIFFORD & CO,2023-06-30,654106,654106103,Nike,6529379000.0,59159
+https://sec.gov/Archives/edgar/data/1088875/0001088875-23-000095.txt,1088875,"CALTON SQUARE, 1 GREENSIDE ROW, EDINBURGH, X0, EH13AN",BAILLIE GIFFORD & CO,2023-06-30,742718,742718109,Procter & Gamble,134857407000.0,888740
+https://sec.gov/Archives/edgar/data/1088875/0001088875-23-000095.txt,1088875,"CALTON SQUARE, 1 GREENSIDE ROW, EDINBURGH, X0, EH13AN",BAILLIE GIFFORD & CO,2023-06-30,761152,761152107,ResMed,14564555000.0,66657
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+https://sec.gov/Archives/edgar/data/1092838/0001092838-23-000007.txt,1092838,"1400 MARSH LANDING PARKWAY, SUITE 106, JACKSONVILLE BEACH, FL, 32250",INTREPID CAPITAL MANAGEMENT INC,2023-06-30,594918,594918104,MICROSOFT CORP COM,1019972000.0,2995
+https://sec.gov/Archives/edgar/data/1092838/0001092838-23-000007.txt,1092838,"1400 MARSH LANDING PARKWAY, SUITE 106, JACKSONVILLE BEACH, FL, 32250",INTREPID CAPITAL MANAGEMENT INC,2023-06-30,G3323L,G3323L100,FABRINET SHS,3433508000.0,26436
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,018802,018802108,Alliant Energy Corp,208293000.0,3969
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,03475V,03475V101,AngioDynamics Inc,131136000.0,12573
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,940701000.0,4280
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,090043,090043100,BILL Holdings Inc,381515000.0,3265
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,127190,127190304,CACI International Inc,251881000.0,739
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,14149Y,14149Y108,Cardinal Health Inc,843092000.0,8915
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,205887,205887102,CONAGRA FOODS INC,514904000.0,15270
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,222070,222070203,COTY INC,935564000.0,76124
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,237194,237194105,Darden Restaurants Inc,1838214000.0,11002
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,31428X,31428X106,FEDEX CORP,1577388000.0,6363
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,370334,370334104,GENERAL MILLS INC,703722000.0,9175
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,405217,405217100,Hain Celestial Group Inc/The,556157000.0,44457
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,461202,461202103,Intuit Inc,1337915000.0,2920
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,482480,482480100,KLA Corp,776517000.0,1601
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,512807,512807108,Lam Research Corp,939861000.0,1462
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,518439,518439104,ESTEE LAUDER COS,433018000.0,2205
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,55024U,55024U109,Lumentum Holdings Inc,275651000.0,4859
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,589378,589378108,Mercury Systems Inc,440054000.0,12722
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,594918,594918104,MICROSOFT CORP,50056996000.0,146993
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,654106,654106103,NIKE INC,1572110000.0,14244
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,697435,697435105,Palo Alto Networks Inc,2472060000.0,9675
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,701094,701094104,PARKER-HANNIFIN,510952000.0,1310
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,704326,704326107,Paychex Inc,347804000.0,3109
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,70438V,70438V106,Paylocity Holding Corp,913424000.0,4950
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,74051N,74051N102,Premier Inc,335737000.0,12138
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,742718,742718109,Procter & Gamble Co/The,7135118000.0,47022
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,761152,761152107,ResMed Inc,306556000.0,1403
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,871829,871829107,Sysco Corp,471689000.0,6357
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,88688T,88688T100,Tilray Brands Inc,23400000.0,15000
+https://sec.gov/Archives/edgar/data/1092903/0001096906-23-001384.txt,1092903,"2302 POST OFFICE ST, PO BOX 1139, GALVESTON, TX, 77550",MOODY NATIONAL BANK TRUST DIVISION,2023-06-30,G5960L,G5960L103,Medtronic PLC,1975995000.0,22429
+https://sec.gov/Archives/edgar/data/1093219/0001011438-23-000514.txt,1093219,"1010 SHERBROOKE ST W SUITE 2300, MONTREAL, A8, H3A 2R7",FORMULA GROWTH LTD,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,1405011000.0,35624
+https://sec.gov/Archives/edgar/data/1093219/0001011438-23-000514.txt,1093219,"1010 SHERBROOKE ST W SUITE 2300, MONTREAL, A8, H3A 2R7",FORMULA GROWTH LTD,2023-06-30,591520,591520200,METHOD ELECTRS INC,2309025000.0,68885
+https://sec.gov/Archives/edgar/data/1093219/0001011438-23-000514.txt,1093219,"1010 SHERBROOKE ST W SUITE 2300, MONTREAL, A8, H3A 2R7",FORMULA GROWTH LTD,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,2885474000.0,11293
+https://sec.gov/Archives/edgar/data/1093219/0001011438-23-000514.txt,1093219,"1010 SHERBROOKE ST W SUITE 2300, MONTREAL, A8, H3A 2R7",FORMULA GROWTH LTD,2023-06-30,G2143T,G2143T103,CIMPRESS PLC,672124000.0,11300
+https://sec.gov/Archives/edgar/data/1093219/0001011438-23-000514.txt,1093219,"1010 SHERBROOKE ST W SUITE 2300, MONTREAL, A8, H3A 2R7",FORMULA GROWTH LTD,2023-06-30,G3323L,G3323L100,FABRINET,2623576000.0,20200
+https://sec.gov/Archives/edgar/data/1093276/0001221073-23-000060.txt,1093276,"100 CORPORATE PKWY., SUITE 338, AMHERST, NY, 14226","NOTTINGHAM ADVISORS, INC.",2023-06-30,594918,594918104,MICROSOFT CORP,2138920000.0,6281
+https://sec.gov/Archives/edgar/data/1093276/0001221073-23-000060.txt,1093276,"100 CORPORATE PKWY., SUITE 338, AMHERST, NY, 14226","NOTTINGHAM ADVISORS, INC.",2023-06-30,704326,704326107,PAYCHEX INC,551974000.0,4934
+https://sec.gov/Archives/edgar/data/1093276/0001221073-23-000060.txt,1093276,"100 CORPORATE PKWY., SUITE 338, AMHERST, NY, 14226","NOTTINGHAM ADVISORS, INC.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1758818000.0,11591
+https://sec.gov/Archives/edgar/data/1093589/0001093589-23-000005.txt,1093589,"6440 S. WASATCH BLVD. SUITE 260, SALT LAKE CITY, UT, 84121",ALTA CAPITAL MANAGEMENT LLC/,2023-06-30,11133T,11133T103,Broadridge Fin'l Solutns,19603320000.0,118356
+https://sec.gov/Archives/edgar/data/1093589/0001093589-23-000005.txt,1093589,"6440 S. WASATCH BLVD. SUITE 260, SALT LAKE CITY, UT, 84121",ALTA CAPITAL MANAGEMENT LLC/,2023-06-30,461202,461202103,Intuit Inc,35652983000.0,77812
+https://sec.gov/Archives/edgar/data/1093589/0001093589-23-000005.txt,1093589,"6440 S. WASATCH BLVD. SUITE 260, SALT LAKE CITY, UT, 84121",ALTA CAPITAL MANAGEMENT LLC/,2023-06-30,594918,594918104,Microsoft Corp,63653652000.0,186919
+https://sec.gov/Archives/edgar/data/1094499/0000038777-23-000112.txt,1094499,"Saltire Court, 20 Castle Terrace, Edinburgh, X0, EH1 2ES",MARTIN CURRIE LTD,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,90251339000.0,459575
+https://sec.gov/Archives/edgar/data/1094499/0000038777-23-000112.txt,1094499,"Saltire Court, 20 Castle Terrace, Edinburgh, X0, EH1 2ES",MARTIN CURRIE LTD,2023-06-30,594918,594918104,MICROSOFT CORP,138619872000.0,407059
+https://sec.gov/Archives/edgar/data/1094499/0000038777-23-000112.txt,1094499,"Saltire Court, 20 Castle Terrace, Edinburgh, X0, EH1 2ES",MARTIN CURRIE LTD,2023-06-30,654106,654106103,NIKE INC,72647080000.0,658214
+https://sec.gov/Archives/edgar/data/1094499/0000038777-23-000112.txt,1094499,"Saltire Court, 20 Castle Terrace, Edinburgh, X0, EH1 2ES",MARTIN CURRIE LTD,2023-06-30,761152,761152107,RESMED INC,73220661000.0,335106
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,053015,053015103,Auto Data Processing,21000.0,94
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,370334,370334104,General Mills,25000.0,320
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,482480,482480100,Kla Tencor Corp,117000.0,241
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,518439,518439104,Estee Lauderco Inc,2000.0,11
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,594918,594918104,Microsoft Inc,1570000.0,4610
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,654106,654106103,Nike Inc,240000.0,2172
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,697435,697435105,Palo Alto Networks,28000.0,110
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,701094,701094104,Parker-Hannifin Corp,50000.0,129
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,742718,742718109,Procter & Gamble Co,192000.0,1263
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,749685,749685103,RPM Intl Inc,24000.0,272
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,86800U,86800U104,Super Micro Computer Inc,25000.0,100
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,871829,871829107,Sysco Corp,55000.0,740
+https://sec.gov/Archives/edgar/data/1094584/0001094584-23-000003.txt,1094584,"510 BERING, SUITE 100, HOUSTON, TX, 77057",PIN OAK INVESTMENT ADVISORS INC,2023-06-30,G5960L,G5960L103,Medtronic Inc,45000.0,509
+https://sec.gov/Archives/edgar/data/1094749/0000935836-23-000522.txt,1094749,"5900 Wilshire Blvd, Ste 400, Los Angeles, CA, 90036",CHURCHILL MANAGEMENT Corp,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC COM,22567517000.0,238633
+https://sec.gov/Archives/edgar/data/1094749/0000935836-23-000522.txt,1094749,"5900 Wilshire Blvd, Ste 400, Los Angeles, CA, 90036",CHURCHILL MANAGEMENT Corp,2023-06-30,370334,370334104,GENERAL MLS INC COM,9840863000.0,128303
+https://sec.gov/Archives/edgar/data/1094749/0000935836-23-000522.txt,1094749,"5900 Wilshire Blvd, Ste 400, Los Angeles, CA, 90036",CHURCHILL MANAGEMENT Corp,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC COM,13241801000.0,115196
+https://sec.gov/Archives/edgar/data/1094749/0000935836-23-000522.txt,1094749,"5900 Wilshire Blvd, Ste 400, Los Angeles, CA, 90036",CHURCHILL MANAGEMENT Corp,2023-06-30,594918,594918104,MICROSOFT CORP COM,31882710000.0,93624
+https://sec.gov/Archives/edgar/data/1094749/0000935836-23-000522.txt,1094749,"5900 Wilshire Blvd, Ste 400, Los Angeles, CA, 90036",CHURCHILL MANAGEMENT Corp,2023-06-30,64110D,64110D104,NETAPP INC COM,6866670000.0,89878
+https://sec.gov/Archives/edgar/data/1094749/0000935836-23-000522.txt,1094749,"5900 Wilshire Blvd, Ste 400, Los Angeles, CA, 90036",CHURCHILL MANAGEMENT Corp,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC COM,6931220000.0,27127
+https://sec.gov/Archives/edgar/data/1094749/0000935836-23-000522.txt,1094749,"5900 Wilshire Blvd, Ste 400, Los Angeles, CA, 90036",CHURCHILL MANAGEMENT Corp,2023-06-30,871829,871829107,SYSCO CORP COM,10125952000.0,136468
+https://sec.gov/Archives/edgar/data/1095836/0001062993-23-015376.txt,1095836,"P O BOX 1549, TALLAHASSEE, FL, 32302",CAPITAL CITY TRUST CO/FL,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1033454000.0,4704
+https://sec.gov/Archives/edgar/data/1095836/0001062993-23-015376.txt,1095836,"P O BOX 1549, TALLAHASSEE, FL, 32302",CAPITAL CITY TRUST CO/FL,2023-06-30,594918,594918104,MICROSOFT CORP,17015087000.0,49966
+https://sec.gov/Archives/edgar/data/1095836/0001062993-23-015376.txt,1095836,"P O BOX 1549, TALLAHASSEE, FL, 32302",CAPITAL CITY TRUST CO/FL,2023-06-30,654106,654106103,NIKE INC,258707000.0,2344
+https://sec.gov/Archives/edgar/data/1095836/0001062993-23-015376.txt,1095836,"P O BOX 1549, TALLAHASSEE, FL, 32302",CAPITAL CITY TRUST CO/FL,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,6539548000.0,43098
+https://sec.gov/Archives/edgar/data/1096343/0000950123-23-006704.txt,1096343,"4521 Highwoods Pkwy, Glen Allen, VA, 23060",MARKEL GROUP INC.,2023-06-30,115637,115637100,BROWN FORMAN CORP,57383010000.0,843000
+https://sec.gov/Archives/edgar/data/1096343/0000950123-23-006704.txt,1096343,"4521 Highwoods Pkwy, Glen Allen, VA, 23060",MARKEL GROUP INC.,2023-06-30,31428X,31428X106,FEDEX CORP,32970700000.0,133000
+https://sec.gov/Archives/edgar/data/1096343/0000950123-23-006704.txt,1096343,"4521 Highwoods Pkwy, Glen Allen, VA, 23060",MARKEL GROUP INC.,2023-06-30,461202,461202103,INTUIT,1246277000.0,2720
+https://sec.gov/Archives/edgar/data/1096343/0000950123-23-006704.txt,1096343,"4521 Highwoods Pkwy, Glen Allen, VA, 23060",MARKEL GROUP INC.,2023-06-30,594918,594918104,MICROSOFT CORP,165495630000.0,485980
+https://sec.gov/Archives/edgar/data/1096343/0000950123-23-006704.txt,1096343,"4521 Highwoods Pkwy, Glen Allen, VA, 23060",MARKEL GROUP INC.,2023-06-30,654106,654106103,NIKE INC,40715493000.0,368900
+https://sec.gov/Archives/edgar/data/1096343/0000950123-23-006704.txt,1096343,"4521 Highwoods Pkwy, Glen Allen, VA, 23060",MARKEL GROUP INC.,2023-06-30,704326,704326107,PAYCHEX INC,16780500000.0,150000
+https://sec.gov/Archives/edgar/data/1096783/0001096783-23-000003.txt,1096783,"1030 EAST PUTNAM AVE, RIVERSIDE, CT, 06878",BAXTER BROS INC,2023-06-30,018802,018802108,Alliant Energy Corp,209920000.0,4000
+https://sec.gov/Archives/edgar/data/1096783/0001096783-23-000003.txt,1096783,"1030 EAST PUTNAM AVE, RIVERSIDE, CT, 06878",BAXTER BROS INC,2023-06-30,053015,053015103,Automatic Data Proc.,18630272000.0,84764
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+https://sec.gov/Archives/edgar/data/1096783/0001096783-23-000003.txt,1096783,"1030 EAST PUTNAM AVE, RIVERSIDE, CT, 06878",BAXTER BROS INC,2023-06-30,370334,370334104,General Mills,299130000.0,3900
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+https://sec.gov/Archives/edgar/data/1105471/0001420506-23-001289.txt,1105471,"3148 DUMBARTON STREET, N.W., WASHINGTON, DC, 20007",BONNESS ENTERPRISES INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2488536000.0,16400
+https://sec.gov/Archives/edgar/data/1105471/0001420506-23-001289.txt,1105471,"3148 DUMBARTON STREET, N.W., WASHINGTON, DC, 20007",BONNESS ENTERPRISES INC,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,1647052000.0,48400
+https://sec.gov/Archives/edgar/data/1105497/0000950123-23-008116.txt,1105497,"1 Vanderbilt Avenue, 26th Floor, New York, NY, 10017-5407",MSD CAPITAL L P,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,14528186000.0,1889231
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,2790234000.0,12695
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,11133T,11133T103,BROADRIDGE FIN SOL,33623000.0,203
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,189054,189054109,Clorox Co/The,139319000.0,876
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,205887,205887102,CONAGRA FOODS INC,6744000.0,200
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,31428X,31428X106,FEDEX CORP,465309000.0,1877
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,370334,370334104,GENERAL MILLS INC,163755000.0,2135
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,482480,482480100,KLA Corp,14551000.0,30
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,512807,512807108,Lam Research Corp,40500000.0,63
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,518439,518439104,ESTEE LAUDER COS,1045724000.0,5325
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,55825T,55825T103,Madison Square Garden Co/The,131635000.0,700
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,594918,594918104,MICROSOFT CORP,24642496000.0,72363
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,654106,654106103,NIKE INC,187408000.0,1698
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,697435,697435105,Palo Alto Networks Inc,3577000.0,14
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,701094,701094104,PARKER-HANNIFIN,56946000.0,146
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,704326,704326107,Paychex Inc,4014567000.0,35886
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,742718,742718109,Procter & Gamble Co/The,8396837000.0,55337
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,871829,871829107,Sysco Corp,294797000.0,3973
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,958102,958102105,WESTN DIGITAL CORP,45516000.0,1200
+https://sec.gov/Archives/edgar/data/1105837/0001105837-23-000007.txt,1105837,"WEBSTER PLAZA, 123 BANK STREET PB805-2, WATERBURY, CT, 06702","WEBSTER BANK, N. A.",2023-06-30,G5960L,G5960L103,Medtronic PLC,1941901000.0,22042
+https://sec.gov/Archives/edgar/data/1105838/0001140361-23-039471.txt,1105838,"125 PARK AVENUE, SUITE 1607, NEW YORK, NY, 10017",ROBOTTI ROBERT,2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,287664000.0,5200
+https://sec.gov/Archives/edgar/data/1105838/0001140361-23-039471.txt,1105838,"125 PARK AVENUE, SUITE 1607, NEW YORK, NY, 10017",ROBOTTI ROBERT,2023-06-30,032159,032159105,AMREP CORP,9131131000.0,508982
+https://sec.gov/Archives/edgar/data/1105838/0001140361-23-039471.txt,1105838,"125 PARK AVENUE, SUITE 1607, NEW YORK, NY, 10017",ROBOTTI ROBERT,2023-06-30,127190,127190304,CACI INTL INC,1158856000.0,3400
+https://sec.gov/Archives/edgar/data/1105838/0001140361-23-039471.txt,1105838,"125 PARK AVENUE, SUITE 1607, NEW YORK, NY, 10017",ROBOTTI ROBERT,2023-06-30,591520,591520200,METHOD ELECTRS INC,3591433000.0,107143
+https://sec.gov/Archives/edgar/data/1105838/0001140361-23-039471.txt,1105838,"125 PARK AVENUE, SUITE 1607, NEW YORK, NY, 10017",ROBOTTI ROBERT,2023-06-30,817070,817070501,SENECA FOODS CORP NEW,763993000.0,23378
+https://sec.gov/Archives/edgar/data/1105838/0001140361-23-039471.txt,1105838,"125 PARK AVENUE, SUITE 1607, NEW YORK, NY, 10017",ROBOTTI ROBERT,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,5330227000.0,140528
+https://sec.gov/Archives/edgar/data/1105863/0001105863-23-000003.txt,1105863,"15668 NE EILERS RD, AURORA, OR, 97002",AUXIER ASSET MANAGEMENT,2023-06-30,053015,053015103,Automatic Data Processing,1704471000.0,7755
+https://sec.gov/Archives/edgar/data/1105863/0001105863-23-000003.txt,1105863,"15668 NE EILERS RD, AURORA, OR, 97002",AUXIER ASSET MANAGEMENT,2023-06-30,093671,093671105,H&R Block Inc.,1712917000.0,53747
+https://sec.gov/Archives/edgar/data/1105863/0001105863-23-000003.txt,1105863,"15668 NE EILERS RD, AURORA, OR, 97002",AUXIER ASSET MANAGEMENT,2023-06-30,205887,205887102,ConAgra Foods Inc.,815012000.0,24170
+https://sec.gov/Archives/edgar/data/1105863/0001105863-23-000003.txt,1105863,"15668 NE EILERS RD, AURORA, OR, 97002",AUXIER ASSET MANAGEMENT,2023-06-30,31428X,31428X106,Fedex Corp,3437237000.0,13865
+https://sec.gov/Archives/edgar/data/1105863/0001105863-23-000003.txt,1105863,"15668 NE EILERS RD, AURORA, OR, 97002",AUXIER ASSET MANAGEMENT,2023-06-30,482480,482480100,KLA Corp,404992000.0,835
+https://sec.gov/Archives/edgar/data/1105863/0001105863-23-000003.txt,1105863,"15668 NE EILERS RD, AURORA, OR, 97002",AUXIER ASSET MANAGEMENT,2023-06-30,513272,513272104,Lamb Weston Holdings,466812000.0,4061
+https://sec.gov/Archives/edgar/data/1105863/0001105863-23-000003.txt,1105863,"15668 NE EILERS RD, AURORA, OR, 97002",AUXIER ASSET MANAGEMENT,2023-06-30,594918,594918104,Microsoft Corp.,39369853000.0,115610
+https://sec.gov/Archives/edgar/data/1105863/0001105863-23-000003.txt,1105863,"15668 NE EILERS RD, AURORA, OR, 97002",AUXIER ASSET MANAGEMENT,2023-06-30,654106,654106103,Nike Inc Class B,1642306000.0,14880
+https://sec.gov/Archives/edgar/data/1105863/0001105863-23-000003.txt,1105863,"15668 NE EILERS RD, AURORA, OR, 97002",AUXIER ASSET MANAGEMENT,2023-06-30,701094,701094104,Parker-Hannifin Corp.,879540000.0,2255
+https://sec.gov/Archives/edgar/data/1105863/0001105863-23-000003.txt,1105863,"15668 NE EILERS RD, AURORA, OR, 97002",AUXIER ASSET MANAGEMENT,2023-06-30,704326,704326107,Paychex Inc.,4645514000.0,41526
+https://sec.gov/Archives/edgar/data/1105863/0001105863-23-000003.txt,1105863,"15668 NE EILERS RD, AURORA, OR, 97002",AUXIER ASSET MANAGEMENT,2023-06-30,742718,742718109,Procter & Gamble Co.,3092461000.0,20380
+https://sec.gov/Archives/edgar/data/1105863/0001105863-23-000003.txt,1105863,"15668 NE EILERS RD, AURORA, OR, 97002",AUXIER ASSET MANAGEMENT,2023-06-30,876030,876030107,Tapestry Inc.,339404000.0,7930
+https://sec.gov/Archives/edgar/data/1105907/0001105907-23-000020.txt,1105907,"135 S. LASALLE STREET, SUITE 3700, CHICAGO, IL, 60603",BARD ASSOCIATES INC,2023-06-30,228309,228309100,CROWN CRAFTS INC,864655000.0,169863
+https://sec.gov/Archives/edgar/data/1105907/0001105907-23-000020.txt,1105907,"135 S. LASALLE STREET, SUITE 3700, CHICAGO, IL, 60603",BARD ASSOCIATES INC,2023-06-30,28252C,28252C109,POLISHED COM INC,795536000.0,1729425
+https://sec.gov/Archives/edgar/data/1105907/0001105907-23-000020.txt,1105907,"135 S. LASALLE STREET, SUITE 3700, CHICAGO, IL, 60603",BARD ASSOCIATES INC,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,953781000.0,5700
+https://sec.gov/Archives/edgar/data/1105907/0001105907-23-000020.txt,1105907,"135 S. LASALLE STREET, SUITE 3700, CHICAGO, IL, 60603",BARD ASSOCIATES INC,2023-06-30,46564T,46564T107,ITERIS INC NEW,1392847000.0,351729
+https://sec.gov/Archives/edgar/data/1105907/0001105907-23-000020.txt,1105907,"135 S. LASALLE STREET, SUITE 3700, CHICAGO, IL, 60603",BARD ASSOCIATES INC,2023-06-30,716817,716817408,PETVIVO HLDGS INC,859905000.0,436500
+https://sec.gov/Archives/edgar/data/1105907/0001105907-23-000020.txt,1105907,"135 S. LASALLE STREET, SUITE 3700, CHICAGO, IL, 60603",BARD ASSOCIATES INC,2023-06-30,82661L,82661L101,SIGMATRON INTL INC,46034000.0,14208
+https://sec.gov/Archives/edgar/data/1106129/0001171200-23-000356.txt,1106129,"5500 Meadows Drive, Suite 200, Lake Oswego, OR, 97035",JENSEN INVESTMENT MANAGEMENT INC,2023-06-30,053015,053015103,"Automatic Data Processing, Inc",456777469000.0,2078245
+https://sec.gov/Archives/edgar/data/1106129/0001171200-23-000356.txt,1106129,"5500 Meadows Drive, Suite 200, Lake Oswego, OR, 97035",JENSEN INVESTMENT MANAGEMENT INC,2023-06-30,09073M,09073M104,Techne Corp,3545191000.0,43430
+https://sec.gov/Archives/edgar/data/1106129/0001171200-23-000356.txt,1106129,"5500 Meadows Drive, Suite 200, Lake Oswego, OR, 97035",JENSEN INVESTMENT MANAGEMENT INC,2023-06-30,11133T,11133T103,Broadridge Financial Solutions,295169886000.0,1782104
+https://sec.gov/Archives/edgar/data/1106129/0001171200-23-000356.txt,1106129,"5500 Meadows Drive, Suite 200, Lake Oswego, OR, 97035",JENSEN INVESTMENT MANAGEMENT INC,2023-06-30,189054,189054109,Clorox Company,4490494000.0,28235
+https://sec.gov/Archives/edgar/data/1106129/0001171200-23-000356.txt,1106129,"5500 Meadows Drive, Suite 200, Lake Oswego, OR, 97035",JENSEN INVESTMENT MANAGEMENT INC,2023-06-30,370334,370334104,General Mills Inc.,7556791000.0,98524
+https://sec.gov/Archives/edgar/data/1106129/0001171200-23-000356.txt,1106129,"5500 Meadows Drive, Suite 200, Lake Oswego, OR, 97035",JENSEN INVESTMENT MANAGEMENT INC,2023-06-30,461202,461202103,Intuit Inc.,500895599000.0,1093205
+https://sec.gov/Archives/edgar/data/1106129/0001171200-23-000356.txt,1106129,"5500 Meadows Drive, Suite 200, Lake Oswego, OR, 97035",JENSEN INVESTMENT MANAGEMENT INC,2023-06-30,482480,482480100,KLA Corporation,205999149000.0,424723
+https://sec.gov/Archives/edgar/data/1106129/0001171200-23-000356.txt,1106129,"5500 Meadows Drive, Suite 200, Lake Oswego, OR, 97035",JENSEN INVESTMENT MANAGEMENT INC,2023-06-30,594918,594918104,Microsoft Corp,995341890000.0,2922834
+https://sec.gov/Archives/edgar/data/1106129/0001171200-23-000356.txt,1106129,"5500 Meadows Drive, Suite 200, Lake Oswego, OR, 97035",JENSEN INVESTMENT MANAGEMENT INC,2023-06-30,654106,654106103,Nike Inc,531796654000.0,4818308
+https://sec.gov/Archives/edgar/data/1106129/0001171200-23-000356.txt,1106129,"5500 Meadows Drive, Suite 200, Lake Oswego, OR, 97035",JENSEN INVESTMENT MANAGEMENT INC,2023-06-30,704326,704326107,Paychex Inc.,1099682000.0,9830
+https://sec.gov/Archives/edgar/data/1106129/0001171200-23-000356.txt,1106129,"5500 Meadows Drive, Suite 200, Lake Oswego, OR, 97035",JENSEN INVESTMENT MANAGEMENT INC,2023-06-30,742718,742718109,Procter & Gamble Co,374116487000.0,2465510
+https://sec.gov/Archives/edgar/data/1106129/0001171200-23-000356.txt,1106129,"5500 Meadows Drive, Suite 200, Lake Oswego, OR, 97035",JENSEN INVESTMENT MANAGEMENT INC,2023-06-30,761152,761152107,Resmed,5045165000.0,23090
+https://sec.gov/Archives/edgar/data/1106191/0001420506-23-001444.txt,1106191,"GMT CAPITAL CORP, 2300 WINDY RIDGE PARKWAY SUITE 550 SOUTH, ATLANTA, GA, 30339",GMT CAPITAL CORP,2023-06-30,876030,876030107,TAPESTRY INC,89036840000.0,2080300
+https://sec.gov/Archives/edgar/data/1106500/0001172661-23-003157.txt,1106500,"55 East 59th Street 15th Floor, New York, NY, 10022",JOHO CAPITAL LLC,2023-06-30,461202,461202103,INTUIT,20036649000.0,43730
+https://sec.gov/Archives/edgar/data/1106500/0001172661-23-003157.txt,1106500,"55 East 59th Street 15th Floor, New York, NY, 10022",JOHO CAPITAL LLC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,2317677000.0,11802
+https://sec.gov/Archives/edgar/data/1106500/0001172661-23-003157.txt,1106500,"55 East 59th Street 15th Floor, New York, NY, 10022",JOHO CAPITAL LLC,2023-06-30,594918,594918104,MICROSOFT CORP,201191032000.0,590800
+https://sec.gov/Archives/edgar/data/1106500/0001172661-23-003157.txt,1106500,"55 East 59th Street 15th Floor, New York, NY, 10022",JOHO CAPITAL LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3497607000.0,23050
+https://sec.gov/Archives/edgar/data/1106565/0001106565-23-000007.txt,1106565,"ONE OXFORD CENTRE, SUITE 3950, PITTSBURGH, PA, 15219",STALEY CAPITAL ADVISERS INC,2023-06-30,053015,053015137,AUTOMATIC DATA PROCESSING,353862000.0,1610
+https://sec.gov/Archives/edgar/data/1106565/0001106565-23-000007.txt,1106565,"ONE OXFORD CENTRE, SUITE 3950, PITTSBURGH, PA, 15219",STALEY CAPITAL ADVISERS INC,2023-06-30,31428X,31428X106,FEDEX CORP,58404495000.0,235597
+https://sec.gov/Archives/edgar/data/1106565/0001106565-23-000007.txt,1106565,"ONE OXFORD CENTRE, SUITE 3950, PITTSBURGH, PA, 15219",STALEY CAPITAL ADVISERS INC,2023-06-30,589378,589378108,MERCURY SYSTEMS,3459000000.0,100000
+https://sec.gov/Archives/edgar/data/1106565/0001106565-23-000007.txt,1106565,"ONE OXFORD CENTRE, SUITE 3950, PITTSBURGH, PA, 15219",STALEY CAPITAL ADVISERS INC,2023-06-30,594918,594918104,MICROSOFT CORP,150311481000.0,441392
+https://sec.gov/Archives/edgar/data/1106565/0001106565-23-000007.txt,1106565,"ONE OXFORD CENTRE, SUITE 3950, PITTSBURGH, PA, 15219",STALEY CAPITAL ADVISERS INC,2023-06-30,654106,654106103,NIKE INC. CL B,349431000.0,3166
+https://sec.gov/Archives/edgar/data/1106565/0001106565-23-000007.txt,1106565,"ONE OXFORD CENTRE, SUITE 3950, PITTSBURGH, PA, 15219",STALEY CAPITAL ADVISERS INC,2023-06-30,701094,701094104,PARKER HANNIFIN,700122000.0,1795
+https://sec.gov/Archives/edgar/data/1106565/0001106565-23-000007.txt,1106565,"ONE OXFORD CENTRE, SUITE 3950, PITTSBURGH, PA, 15219",STALEY CAPITAL ADVISERS INC,2023-06-30,742718,742718109,PROCTER & GAMBLE,1879300000.0,12385
+https://sec.gov/Archives/edgar/data/1106565/0001106565-23-000007.txt,1106565,"ONE OXFORD CENTRE, SUITE 3950, PITTSBURGH, PA, 15219",STALEY CAPITAL ADVISERS INC,2023-06-30,832696,832696405,SMUCKER J M CO,203489000.0,1378
+https://sec.gov/Archives/edgar/data/1106832/0001106832-23-000003.txt,1106832,"1 N WACKER DR, STE 3950, CHICAGO, IL, 60606",CASTLEARK MANAGEMENT LLC,2023-06-30,222070,222070203,COTY INC,4905308000.0,399130
+https://sec.gov/Archives/edgar/data/1106832/0001106832-23-000003.txt,1106832,"1 N WACKER DR, STE 3950, CHICAGO, IL, 60606",CASTLEARK MANAGEMENT LLC,2023-06-30,31428X,31428X106,FEDEX CORP,247900000.0,1000
+https://sec.gov/Archives/edgar/data/1106832/0001106832-23-000003.txt,1106832,"1 N WACKER DR, STE 3950, CHICAGO, IL, 60606",CASTLEARK MANAGEMENT LLC,2023-06-30,512807,512807108,LAM RESEARCH CORP,37674810000.0,58605
+https://sec.gov/Archives/edgar/data/1106832/0001106832-23-000003.txt,1106832,"1 N WACKER DR, STE 3950, CHICAGO, IL, 60606",CASTLEARK MANAGEMENT LLC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,22232180000.0,113210
+https://sec.gov/Archives/edgar/data/1106832/0001106832-23-000003.txt,1106832,"1 N WACKER DR, STE 3950, CHICAGO, IL, 60606",CASTLEARK MANAGEMENT LLC,2023-06-30,594918,594918104,MICROSOFT CORP,139376211000.0,409280
+https://sec.gov/Archives/edgar/data/1106832/0001106832-23-000003.txt,1106832,"1 N WACKER DR, STE 3950, CHICAGO, IL, 60606",CASTLEARK MANAGEMENT LLC,2023-06-30,654106,654106103,NIKE INC,50779030000.0,460080
+https://sec.gov/Archives/edgar/data/1106832/0001106832-23-000003.txt,1106832,"1 N WACKER DR, STE 3950, CHICAGO, IL, 60606",CASTLEARK MANAGEMENT LLC,2023-06-30,704326,704326107,PAYCHEX INC,40273000.0,360
+https://sec.gov/Archives/edgar/data/1106832/0001106832-23-000003.txt,1106832,"1 N WACKER DR, STE 3950, CHICAGO, IL, 60606",CASTLEARK MANAGEMENT LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,576612000.0,3800
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+https://sec.gov/Archives/edgar/data/1106832/0001106832-23-000003.txt,1106832,"1 N WACKER DR, STE 3950, CHICAGO, IL, 60606",CASTLEARK MANAGEMENT LLC,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,8938105000.0,35860
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+https://sec.gov/Archives/edgar/data/1107310/0001085146-23-003378.txt,1107310,"399 PARK AVENUE, 25TH FLOOR, NEW YORK, NY, 10022","EMINENCE CAPITAL, LP",2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,124096689000.0,2060038
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+https://sec.gov/Archives/edgar/data/1107314/0001107314-23-000003.txt,1107314,"16290 SW UPPER BOONES FERRY ROAD, TIGARD, OR, 97224",OREGON PUBLIC EMPLOYEES RETIREMENT FUND,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,1028660000.0,19601
+https://sec.gov/Archives/edgar/data/1107314/0001107314-23-000003.txt,1107314,"16290 SW UPPER BOONES FERRY ROAD, TIGARD, OR, 97224",OREGON PUBLIC EMPLOYEES RETIREMENT FUND,2023-06-30,023586,023586506,U HAUL HOLDING CO NON VOTING,1392665000.0,27485
+https://sec.gov/Archives/edgar/data/1107314/0001107314-23-000003.txt,1107314,"16290 SW UPPER BOONES FERRY ROAD, TIGARD, OR, 97224",OREGON PUBLIC EMPLOYEES RETIREMENT FUND,2023-06-30,030506,030506109,AMERICAN WOODMARK CORP,394680000.0,5168
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+https://sec.gov/Archives/edgar/data/1114702/0000892712-23-000123.txt,1114702,"100 EAST WISCONSIN AVENUE, SUITE 2650, MILWAUKEE, WI, 53202",MARIETTA INVESTMENT PARTNERS LLC,2023-06-30,876030,876030107,TAPESTRY INC,1270304000.0,29680
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+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,00175J,00175J107,AMMO INC,272599000.0,127981
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,00737L,00737L103,ADTALEM GLOBAL EDUCATION INC,4992349000.0,145380
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,00760J,00760J108,AEHR TEST SYSTEMS COM,1535778000.0,37231
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,008073,008073108,AEROVIRONMENT INC COM,5938888000.0,58065
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,018802,018802108,ALLIANT ENERGY CORP COM,28865102000.0,550021
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,023586,023586100,AMERCO COM,625558000.0,11308
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+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,032159,032159105,AMREP CORP NEW COM,1183000.0,66
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+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,05368M,05368M106,AVID BIOSERVICES INC COM,2060127000.0,147468
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+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,093671,093671105,BLOCK H & R INC COM,16405719000.0,514770
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+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP COM,9410419000.0,167654
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+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC COM,2519041000.0,89075
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,31428X,31428X106,FEDEX CORP COM,117681104000.0,474712
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,339382,339382103,FLEXSTEEL INDS INC COM,5991000.0,304
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,35137L,35137L105,FOX CORP - CLASS A,18666034000.0,549001
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,358435,358435105,FRIEDMAN INDS INC COM,3326000.0,264
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,36251C,36251C103,GMS INC COM,9182078000.0,132689
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,368036,368036109,GATOS SILVER,33694000.0,8914
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,370334,370334104,GENERAL MILLS INC COM,93674630000.0,1221312
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,384556,384556106,GRAHAM CORP COM STK,4701000.0,354
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP,3581988000.0,286330
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,426281,426281101,JACK HENRY & ASSOC INC COM,30451884000.0,181987
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,461202,461202103,INTUIT COM,251314924000.0,548495
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,46564T,46564T107,ITERIS INC COM,151656000.0,38297
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,482480,482480100,KLA CORP,127390502000.0,262650
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,483497,483497103,Kalvista Pharmaceutical,375579000.0,41731
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,489170,489170100,KENNAMETAL INC CAP,7518041000.0,264813
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC COM,1119539000.0,40519
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,500643,500643200,KORN FERRY,8584192000.0,173278
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,505336,505336107,LA Z BOY INC COM,5191601000.0,181271
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,512807,512807108,LAM RESH CORP COM,176369283000.0,274351
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,513272,513272104,LAMB WESTON HOLDINGS INC,37653136000.0,327561
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,513847,513847103,LANCASTER COLONY CORP COM,14507839000.0,72146
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,518439,518439104,ESTEE LAUDER COMPANIES INC CL A         US,88613922000.0,451237
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,53222K,53222K205,LIFEVANTAGE CORP COM NEW,2418000.0,556
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,53261M,53261M104,EDGIO INC,6810000.0,10104
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC COM,12202452000.0,215097
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,55825T,55825T103,MADISON SQUARE GARDEN SPORTS C,4727012000.0,25137
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,1254462000.0,45800
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,56117J,56117J100,MALIBU BOATS INC COM CL A,1719148000.0,29307
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HOLDINGS INC,703999000.0,22969
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,589378,589378108,MERCURY SYSTEMS INC,6015131000.0,173898
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,591520,591520200,METHOD ELECTRS INC COM,4135462000.0,123373
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,594918,594918104,MICROSOFT CORP COM,5030302274000.0,14771546
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,600544,600544100,MILLERKNOLL INC,3995152000.0,270308
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,606710,606710200,MITEK SYS INC COM NEW,958461000.0,88419
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,620071,620071100,MOTORCAR PTS AMER INC COM,21710000.0,2805
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,632347,632347100,NATHANS FAMOUS INC NEW COM,189281000.0,2410
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP COM,3979398000.0,82304
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,640491,640491106,NEOGEN CORP COM,16368158000.0,752554
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,64110D,64110D104,NETAPP INC COM STK,34555414000.0,452296
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,65249B,65249B109,NEWS CORP NEW CL A CL A,14646255000.0,751090
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,654106,654106103,NIKE INC CL B,263175278000.0,2384482
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,671044,671044105,OSI SYSTEMS INC COM,5735139000.0,48673
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+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO COM,28853694000.0,478979
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+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,1613416000.0,102700
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,763165,763165107,RICHARDSON ELECTRS LTD COM,232353000.0,14082
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,806037,806037107,SCANSOURCE INC COM,2497583000.0,84492
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,807066,807066105,SCHOLASTIC CORP COM,4715995000.0,121265
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,817070,817070501,SENECA FOODS CORP NEW CL A,570233000.0,17449
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,971779000.0,74523
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,832696,832696405,SMUCKER J M CO COM NEW,34493053000.0,233582
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,854231,854231107,STANDEX INTL CORP COM,5480972000.0,38743
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,86333M,86333M108,STRIDE INC,4431151000.0,119021
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC COM,36653708000.0,147056
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,87157D,87157D109,SYNAPTICS INC,11920584000.0,139618
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,871829,871829107,SYSCO CORP COM,74473056000.0,1003680
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,876030,876030107,TAPESTRY INC,20762365000.0,485102
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,30881000.0,19796
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,904677,904677200,UNIFI INC COM NEW,364489000.0,45166
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,91705J,91705J105,URBAN ONE INC,51124000.0,8535
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,920437,920437100,VALUE LINE INC COM,61276000.0,1335
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC COM,7926705000.0,699621
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,92840H,92840H400,VISTAGEN THERAPEUTICS INC,56520000.0,30225
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,958102,958102105,WESTN DIGITAL CORP COM,23324939000.0,614947
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,968223,968223206,WILEY JOHN & SONS INC CL A,4848424000.0,142475
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,981419,981419104,WORLD ACCEPT CORP DEL COM,1595389000.0,11905
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,981811,981811102,WORTHINGTON INDS INC COM,8016699000.0,115398
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,G2143T,G2143T103,CIMPRESS N V SHS EURO,1493185000.0,25104
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,G3323L,G3323L100,FABRINET SHS,13284386000.0,102282
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC SHS,235011771000.0,2667557
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR LT SHS,2294458000.0,69953
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,N14506,N14506104,ELASTIC N V,6248750000.0,97454
+https://sec.gov/Archives/edgar/data/1115418/0001115418-23-000004.txt,1115418,"265 FRANKLIN ST, 21ST FLOOR, BOSTON, MA, 02110",RHUMBLINE ADVISERS,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD SHS USD,2492333000.0,97167
+https://sec.gov/Archives/edgar/data/1119032/0001119032-23-000012.txt,1119032,"400 ROYAL PALM WAY, SUITE 400, PALM BEACH, FL, 33480",HARVEY CAPITAL MANAGEMENT INC,2023-06-30,594918,594918104,MICROSOFT CORP,21220750000.0,62315
+https://sec.gov/Archives/edgar/data/1119191/0001104659-23-083255.txt,1119191,"2901 BUTTERFIELD RD, Oak Brook, IL, 60523",GOODWIN DANIEL L,2023-06-30,594918,594918104,MICROSOFT CORP,2974958000.0,8736
+https://sec.gov/Archives/edgar/data/1119191/0001104659-23-083255.txt,1119191,"2901 BUTTERFIELD RD, Oak Brook, IL, 60523",GOODWIN DANIEL L,2023-06-30,654106,654106103,NIKE INC,253851000.0,2300
+https://sec.gov/Archives/edgar/data/1119191/0001104659-23-083255.txt,1119191,"2901 BUTTERFIELD RD, Oak Brook, IL, 60523",GOODWIN DANIEL L,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,2620255000.0,10255
+https://sec.gov/Archives/edgar/data/1119254/0001705819-23-000062.txt,1119254,"4520 East-west Highway, Suite 450, Bethesda, MD, 20814",FULTON BREAKEFIELD BROENNIMAN LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,9830987000.0,44729
+https://sec.gov/Archives/edgar/data/1119254/0001705819-23-000062.txt,1119254,"4520 East-west Highway, Suite 450, Bethesda, MD, 20814",FULTON BREAKEFIELD BROENNIMAN LLC,2023-06-30,093671,093671105,BLOCK H & R INC,11760551000.0,369016
+https://sec.gov/Archives/edgar/data/1119254/0001705819-23-000062.txt,1119254,"4520 East-west Highway, Suite 450, Bethesda, MD, 20814",FULTON BREAKEFIELD BROENNIMAN LLC,2023-06-30,189054,189054109,CLOROX CO DEL,670195000.0,4214
+https://sec.gov/Archives/edgar/data/1119254/0001705819-23-000062.txt,1119254,"4520 East-west Highway, Suite 450, Bethesda, MD, 20814",FULTON BREAKEFIELD BROENNIMAN LLC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,6759898000.0,34423
+https://sec.gov/Archives/edgar/data/1119254/0001705819-23-000062.txt,1119254,"4520 East-west Highway, Suite 450, Bethesda, MD, 20814",FULTON BREAKEFIELD BROENNIMAN LLC,2023-06-30,594918,594918104,MICROSOFT CORP,66046815000.0,193947
+https://sec.gov/Archives/edgar/data/1119254/0001705819-23-000062.txt,1119254,"4520 East-west Highway, Suite 450, Bethesda, MD, 20814",FULTON BREAKEFIELD BROENNIMAN LLC,2023-06-30,654106,654106103,NIKE INC,7645620000.0,69273
+https://sec.gov/Archives/edgar/data/1119254/0001705819-23-000062.txt,1119254,"4520 East-west Highway, Suite 450, Bethesda, MD, 20814",FULTON BREAKEFIELD BROENNIMAN LLC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,466098000.0,1195
+https://sec.gov/Archives/edgar/data/1119254/0001705819-23-000062.txt,1119254,"4520 East-west Highway, Suite 450, Bethesda, MD, 20814",FULTON BREAKEFIELD BROENNIMAN LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1529525000.0,10080
+https://sec.gov/Archives/edgar/data/1120926/0001120926-23-000008.txt,1120926,"100 S. BRENTWOOD BLVD., SUITE 110, ST LOUIS, MO, 63105",ARGENT CAPITAL MANAGEMENT LLC,2023-06-30,053015,053015103,"Automatic Data Processing, Inc",25891417000.0,117801
+https://sec.gov/Archives/edgar/data/1120926/0001120926-23-000008.txt,1120926,"100 S. BRENTWOOD BLVD., SUITE 110, ST LOUIS, MO, 63105",ARGENT CAPITAL MANAGEMENT LLC,2023-06-30,370334,370334104,"General Mills, Inc.",402675000.0,5250
+https://sec.gov/Archives/edgar/data/1120926/0001120926-23-000008.txt,1120926,"100 S. BRENTWOOD BLVD., SUITE 110, ST LOUIS, MO, 63105",ARGENT CAPITAL MANAGEMENT LLC,2023-06-30,518439,518439104,Estee Lauder,396098000.0,2017
+https://sec.gov/Archives/edgar/data/1120926/0001120926-23-000008.txt,1120926,"100 S. BRENTWOOD BLVD., SUITE 110, ST LOUIS, MO, 63105",ARGENT CAPITAL MANAGEMENT LLC,2023-06-30,594918,594918104,Microsoft Corporation,198175331000.0,581944
+https://sec.gov/Archives/edgar/data/1120926/0001120926-23-000008.txt,1120926,"100 S. BRENTWOOD BLVD., SUITE 110, ST LOUIS, MO, 63105",ARGENT CAPITAL MANAGEMENT LLC,2023-06-30,654106,654106103,"Nike Inc, Cl. B",1272897000.0,11533
+https://sec.gov/Archives/edgar/data/1120926/0001120926-23-000008.txt,1120926,"100 S. BRENTWOOD BLVD., SUITE 110, ST LOUIS, MO, 63105",ARGENT CAPITAL MANAGEMENT LLC,2023-06-30,697435,697435105,"Palo Alto Networks, Inc.",459918000.0,1800
+https://sec.gov/Archives/edgar/data/1120926/0001120926-23-000008.txt,1120926,"100 S. BRENTWOOD BLVD., SUITE 110, ST LOUIS, MO, 63105",ARGENT CAPITAL MANAGEMENT LLC,2023-06-30,742718,742718109,The Procter & Gamble Company,16174529000.0,106594
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1689915000.0,7689
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,053807,053807103,AVNET INC,215472000.0,4271
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,537207000.0,5681
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,189054,189054109,CLOROX CO DEL,216770000.0,1363
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,31428X,31428X106,FEDEX CORP,640960000.0,2586
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,370334,370334104,GENERAL MLS INC,757873000.0,9881
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,461202,461202103,INTUIT,960824000.0,2097
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+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,594918,594918104,MICROSOFT CORP,51723557000.0,151887
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,654106,654106103,NIKE INC,1967017000.0,17822
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,345961000.0,1354
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,704326,704326107,PAYCHEX INC,562903000.0,5032
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,8738096000.0,57586
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,832696,832696405,SMUCKER J M CO,347768000.0,2355
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,871829,871829107,SYSCO CORP,537294000.0,7241
+https://sec.gov/Archives/edgar/data/1120927/0001120927-23-000007.txt,1120927,"100 SOUTH BRENTWOOD, SUITE 500, ST LOUIS, MO, 63105",MONETA GROUP INVESTMENT ADVISORS LLC,2023-06-30,911549,911549103,UNITED STATES ANTIMONY CORP,4721000.0,15002
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+https://sec.gov/Archives/edgar/data/1122241/0001085146-23-003130.txt,1122241,"P O BOX 247, 710 N KRUEGER STREET, KENDALLVILLE, IN, 46755",AMI INVESTMENT MANAGEMENT INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,566957000.0,3736
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+https://sec.gov/Archives/edgar/data/1123274/0001123274-23-000005.txt,1123274,"NEUE MAINZER STRASSE 1, FRANKFURT AM MAIN, 2M, 60311",Bank Pictet & Cie (Europe) AG,2023-06-30,640491,640491106,NEOGEN CORP,2851425000.0,131100
+https://sec.gov/Archives/edgar/data/1123274/0001123274-23-000005.txt,1123274,"NEUE MAINZER STRASSE 1, FRANKFURT AM MAIN, 2M, 60311",Bank Pictet & Cie (Europe) AG,2023-06-30,654106,654106103,NIKE INC,30875897000.0,279749
+https://sec.gov/Archives/edgar/data/1123274/0001123274-23-000005.txt,1123274,"NEUE MAINZER STRASSE 1, FRANKFURT AM MAIN, 2M, 60311",Bank Pictet & Cie (Europe) AG,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,4233801000.0,16570
+https://sec.gov/Archives/edgar/data/1123274/0001123274-23-000005.txt,1123274,"NEUE MAINZER STRASSE 1, FRANKFURT AM MAIN, 2M, 60311",Bank Pictet & Cie (Europe) AG,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,924785000.0,2371
+https://sec.gov/Archives/edgar/data/1123274/0001123274-23-000005.txt,1123274,"NEUE MAINZER STRASSE 1, FRANKFURT AM MAIN, 2M, 60311",Bank Pictet & Cie (Europe) AG,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,8146314000.0,53686
+https://sec.gov/Archives/edgar/data/1123274/0001123274-23-000005.txt,1123274,"NEUE MAINZER STRASSE 1, FRANKFURT AM MAIN, 2M, 60311",Bank Pictet & Cie (Europe) AG,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,25273423000.0,286872
+https://sec.gov/Archives/edgar/data/1123320/0001140361-23-036377.txt,1123320,"3 CENTENNIAL DRIVE, PEABODY, MA, 01960",Family Capital Trust Co,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,274737000.0,1250
+https://sec.gov/Archives/edgar/data/1123320/0001140361-23-036377.txt,1123320,"3 CENTENNIAL DRIVE, PEABODY, MA, 01960",Family Capital Trust Co,2023-06-30,594918,594918104,MICROSOFT CORP,470952000.0,1383
+https://sec.gov/Archives/edgar/data/1123320/0001140361-23-036377.txt,1123320,"3 CENTENNIAL DRIVE, PEABODY, MA, 01960",Family Capital Trust Co,2023-06-30,871829,871829107,SYSCO CORP,159530000.0,2150
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+https://sec.gov/Archives/edgar/data/1123812/0001123812-23-000006.txt,1123812,"PO BOX 11629, KNOXVILLE, TN, 37939-1629",PROFFITT & GOODSON INC,2023-06-30,482480,482480100,KLA CORP,46562000.0,96
+https://sec.gov/Archives/edgar/data/1123812/0001123812-23-000006.txt,1123812,"PO BOX 11629, KNOXVILLE, TN, 37939-1629",PROFFITT & GOODSON INC,2023-06-30,594918,594918104,MICROSOFT CORP,3851508000.0,11310
+https://sec.gov/Archives/edgar/data/1123812/0001123812-23-000006.txt,1123812,"PO BOX 11629, KNOXVILLE, TN, 37939-1629",PROFFITT & GOODSON INC,2023-06-30,654106,654106103,NIKE INC,461899000.0,4185
+https://sec.gov/Archives/edgar/data/1123812/0001123812-23-000006.txt,1123812,"PO BOX 11629, KNOXVILLE, TN, 37939-1629",PROFFITT & GOODSON INC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,28473000.0,73
+https://sec.gov/Archives/edgar/data/1123812/0001123812-23-000006.txt,1123812,"PO BOX 11629, KNOXVILLE, TN, 37939-1629",PROFFITT & GOODSON INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1065822000.0,7024
+https://sec.gov/Archives/edgar/data/1125243/0001125243-23-000003.txt,1125243,"100 STATE STREET, STE 506, ERIE, PA, 16507",WEDGEWOOD INVESTORS INC /PA/,2023-06-30,053015,053015103,Automatic Data Processing,240230000.0,1093
+https://sec.gov/Archives/edgar/data/1125243/0001125243-23-000003.txt,1125243,"100 STATE STREET, STE 506, ERIE, PA, 16507",WEDGEWOOD INVESTORS INC /PA/,2023-06-30,189054,189054109,Clorox,200390000.0,1260
+https://sec.gov/Archives/edgar/data/1125243/0001125243-23-000003.txt,1125243,"100 STATE STREET, STE 506, ERIE, PA, 16507",WEDGEWOOD INVESTORS INC /PA/,2023-06-30,31428X,31428X106,Fedex Corp,303678000.0,1225
+https://sec.gov/Archives/edgar/data/1125243/0001125243-23-000003.txt,1125243,"100 STATE STREET, STE 506, ERIE, PA, 16507",WEDGEWOOD INVESTORS INC /PA/,2023-06-30,370334,370334104,General Mills,856662000.0,11169
+https://sec.gov/Archives/edgar/data/1125243/0001125243-23-000003.txt,1125243,"100 STATE STREET, STE 506, ERIE, PA, 16507",WEDGEWOOD INVESTORS INC /PA/,2023-06-30,594918,594918104,Microsoft Corp,4861549000.0,14276
+https://sec.gov/Archives/edgar/data/1125243/0001125243-23-000003.txt,1125243,"100 STATE STREET, STE 506, ERIE, PA, 16507",WEDGEWOOD INVESTORS INC /PA/,2023-06-30,701094,701094104,Parker-Hannifin Corp,800362000.0,2052
+https://sec.gov/Archives/edgar/data/1125243/0001125243-23-000003.txt,1125243,"100 STATE STREET, STE 506, ERIE, PA, 16507",WEDGEWOOD INVESTORS INC /PA/,2023-06-30,742718,742718109,Procter & Gamble Co,1778848000.0,11723
+https://sec.gov/Archives/edgar/data/1125243/0001125243-23-000003.txt,1125243,"100 STATE STREET, STE 506, ERIE, PA, 16507",WEDGEWOOD INVESTORS INC /PA/,2023-06-30,832696,832696405,JM Smucker Co,371390000.0,2515
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+https://sec.gov/Archives/edgar/data/1125725/0001019056-23-000328.txt,1125725,"1370 Avenue of the Americas, 26th Floor, New York, NY, 10019",GAGNON SECURITIES LLC,2023-06-30,876030,876030107,TAPESTRY INC,2475736000.0,57844
+https://sec.gov/Archives/edgar/data/1125725/0001019056-23-000328.txt,1125725,"1370 Avenue of the Americas, 26th Floor, New York, NY, 10019",GAGNON SECURITIES LLC,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,265008000.0,23390
+https://sec.gov/Archives/edgar/data/1125725/0001019056-23-000328.txt,1125725,"1370 Avenue of the Americas, 26th Floor, New York, NY, 10019",GAGNON SECURITIES LLC,2023-06-30,G6331P,G6331P104,ALPHA AND OMEGA SEMICONDUCTOR LTD,11568920000.0,352711
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+https://sec.gov/Archives/edgar/data/1125727/0001125727-23-000012.txt,1125727,"PO BOX 30918, BILLINGS, MT, 59116",FIRST INTERSTATE BANK,2023-06-30,189054,189054109,Clorox Co/The,204207000.0,1284
+https://sec.gov/Archives/edgar/data/1125727/0001125727-23-000012.txt,1125727,"PO BOX 30918, BILLINGS, MT, 59116",FIRST INTERSTATE BANK,2023-06-30,31428X,31428X106,FEDEX CORP,3559845000.0,14360
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+https://sec.gov/Archives/edgar/data/1125727/0001125727-23-000012.txt,1125727,"PO BOX 30918, BILLINGS, MT, 59116",FIRST INTERSTATE BANK,2023-06-30,594918,594918104,MICROSOFT CORP,21159112000.0,62134
+https://sec.gov/Archives/edgar/data/1125727/0001125727-23-000012.txt,1125727,"PO BOX 30918, BILLINGS, MT, 59116",FIRST INTERSTATE BANK,2023-06-30,654106,654106103,NIKE INC,6779146000.0,61422
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+https://sec.gov/Archives/edgar/data/1125727/0001125727-23-000012.txt,1125727,"PO BOX 30918, BILLINGS, MT, 59116",FIRST INTERSTATE BANK,2023-06-30,742718,742718109,Procter & Gamble Co/The,1411637000.0,9303
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+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,500643,500643200,KORN FERRY,1896292000.0,38278
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+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,512807,512807108,LAM RESEARCH CORP,359419113000.0,559094
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,74463690000.0,647792
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,513847,513847103,LANCASTER COLONY CORP,84516112000.0,420290
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+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,18780177000.0,99868
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,4009923000.0,146401
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,56117J,56117J100,MALIBU BOATS INC,3551628000.0,60546
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,1438281000.0,46926
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+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,594918,594918104,MICROSOFT CORP,588217094000.0,1727307
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,600544,600544100,MILLERKNOLL INC,1988294000.0,134526
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,632347,632347100,NATHANS FAMOUS INC NEW,593055000.0,7551
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,9310517000.0,192565
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,64110D,64110D104,NETAPP INC,494143205000.0,6467843
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,65249B,65249B109,NEWS CORP NEW,15904570000.0,815619
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,654106,654106103,NIKE INC,18856604000.0,170849
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,671044,671044105,OSI SYSTEMS INC,1799145000.0,15269
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,683715,683715106,OPEN TEXT CORP,261632232000.0,6292405
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,526384027000.0,2060131
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,22734632000.0,58288
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,703395,703395103,PATTERSON COS INC,3463329000.0,104129
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,704326,704326107,PAYCHEX INC,273512525000.0,2444914
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,21211538000.0,114949
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,1896438000.0,246611
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,28944898000.0,480493
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP,747362000.0,54552
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,74051N,74051N102,PREMIER INC,97197495000.0,3514010
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,270607801000.0,1783365
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,749685,749685103,RPM INTL INC,1785805000.0,19902
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,11224182000.0,714461
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,763165,763165107,RICHARDSON ELECTRS LTD,492112000.0,29825
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,807066,807066105,SCHOLASTIC CORP,3432820000.0,88270
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,817070,817070501,SENECA FOODS CORP NEW,464578000.0,14216
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,832696,832696405,SMUCKER J M CO,140129966000.0,948940
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,854231,854231107,STANDEX INTL CORP,3799176000.0,26855
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,86333M,86333M108,STRIDE INC,2520135000.0,67691
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,13978438000.0,56082
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,87157D,87157D109,SYNAPTICS INC,4156554000.0,48683
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,871829,871829107,SYSCO CORP,32986945000.0,444568
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,876030,876030107,TAPESTRY INC,21685262000.0,506665
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,904677,904677200,UNIFI INC,273589000.0,33902
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,505136000.0,44584
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+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,508748000.0,14950
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+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,103078302000.0,1170015
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,N14506,N14506104,ELASTIC N V,17310797000.0,269975
+https://sec.gov/Archives/edgar/data/1125816/0001445546-23-004958.txt,1125816,"120 East Liberty Drive, Suite 400, Wheaton, IL, 60187",FIRST TRUST ADVISORS LP,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,2213697000.0,86304
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+https://sec.gov/Archives/edgar/data/1126328/0001085146-23-003120.txt,1126328,"711 HIGH STREET, DES MOINES, IA, 50392",PRINCIPAL FINANCIAL GROUP INC,2023-06-30,N14506,N14506104,ELASTIC N V,595675000.0,9290
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+https://sec.gov/Archives/edgar/data/1126395/0001126395-23-000005.txt,1126395,"265 FRANKLIN STREET, BOS301, BOSTON, MA, 02110",EASTERN BANK,2023-06-30,594918,594918104,MICROSOFT,109491817000.0,321524
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+https://sec.gov/Archives/edgar/data/1126735/0001398344-23-014795.txt,1126735,"315 SO BEVERLY DRIVE, SUITE 400, BEVERLY HILLS, CA, 90212",MOGY JOEL R INVESTMENT COUNSEL INC,2023-06-30,461202,461202103,INTUIT,33789880000.0,73746
+https://sec.gov/Archives/edgar/data/1126735/0001398344-23-014795.txt,1126735,"315 SO BEVERLY DRIVE, SUITE 400, BEVERLY HILLS, CA, 90212",MOGY JOEL R INVESTMENT COUNSEL INC,2023-06-30,594918,594918104,MICROSOFT CORP,105658665000.0,310268
+https://sec.gov/Archives/edgar/data/1126735/0001398344-23-014795.txt,1126735,"315 SO BEVERLY DRIVE, SUITE 400, BEVERLY HILLS, CA, 90212",MOGY JOEL R INVESTMENT COUNSEL INC,2023-06-30,654106,654106103,NIKE INC,14310795000.0,129662
+https://sec.gov/Archives/edgar/data/1126735/0001398344-23-014795.txt,1126735,"315 SO BEVERLY DRIVE, SUITE 400, BEVERLY HILLS, CA, 90212",MOGY JOEL R INVESTMENT COUNSEL INC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,37088554000.0,145155
+https://sec.gov/Archives/edgar/data/1126735/0001398344-23-014795.txt,1126735,"315 SO BEVERLY DRIVE, SUITE 400, BEVERLY HILLS, CA, 90212",MOGY JOEL R INVESTMENT COUNSEL INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,20901674000.0,137747
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+https://sec.gov/Archives/edgar/data/1127612/0001085146-23-002897.txt,1127612,"10775 SOUTH SAGINAW ST., BLDG C, SUITE F, GRAND BLANC, MI, 48439",MAINSTAY CAPITAL MANAGEMENT LLC /ADV,2023-06-30,594918,594918104,MICROSOFT CORP,1675586000.0,4920
+https://sec.gov/Archives/edgar/data/1127612/0001085146-23-002897.txt,1127612,"10775 SOUTH SAGINAW ST., BLDG C, SUITE F, GRAND BLANC, MI, 48439",MAINSTAY CAPITAL MANAGEMENT LLC /ADV,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2297978000.0,15144
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+https://sec.gov/Archives/edgar/data/1127761/0000909012-23-000087.txt,1127761,"67 BATTERYMARCH STREET,, 3RD FLOOR, BOSTON, MA, 02110",IRONWOOD INVESTMENT MANAGEMENT LLC,2023-06-30,53261M,53261M104,"Edgio, Inc.",172105000.0,255349
+https://sec.gov/Archives/edgar/data/1127761/0000909012-23-000087.txt,1127761,"67 BATTERYMARCH STREET,, 3RD FLOOR, BOSTON, MA, 02110",IRONWOOD INVESTMENT MANAGEMENT LLC,2023-06-30,589378,589378108,Mercury Systems,1327668000.0,38383
+https://sec.gov/Archives/edgar/data/1127761/0000909012-23-000087.txt,1127761,"67 BATTERYMARCH STREET,, 3RD FLOOR, BOSTON, MA, 02110",IRONWOOD INVESTMENT MANAGEMENT LLC,2023-06-30,591520,591520200,Method Electronics Inc.,1319884000.0,39376
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+https://sec.gov/Archives/edgar/data/1127799/0000899140-23-000889.txt,1127799,"MYTHENQUAI 2, Zurich, V8, 8002",Zurich Insurance Group Ltd/FI,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,1305174000.0,7800
+https://sec.gov/Archives/edgar/data/1127799/0000899140-23-000889.txt,1127799,"MYTHENQUAI 2, Zurich, V8, 8002",Zurich Insurance Group Ltd/FI,2023-06-30,461202,461202103,INTUIT,98021045000.0,213931
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+https://sec.gov/Archives/edgar/data/1127799/0000899140-23-000889.txt,1127799,"MYTHENQUAI 2, Zurich, V8, 8002",Zurich Insurance Group Ltd/FI,2023-06-30,512807,512807108,LAM RESEARCH CORP,2700012000.0,4200
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+https://sec.gov/Archives/edgar/data/1127799/0000899140-23-000889.txt,1127799,"MYTHENQUAI 2, Zurich, V8, 8002",Zurich Insurance Group Ltd/FI,2023-06-30,654106,654106103,NIKE INC,57955177000.0,525099
+https://sec.gov/Archives/edgar/data/1127799/0000899140-23-000889.txt,1127799,"MYTHENQUAI 2, Zurich, V8, 8002",Zurich Insurance Group Ltd/FI,2023-06-30,683715,683715106,OPEN TEXT CORP,1369125000.0,32900
+https://sec.gov/Archives/edgar/data/1127799/0000899140-23-000889.txt,1127799,"MYTHENQUAI 2, Zurich, V8, 8002",Zurich Insurance Group Ltd/FI,2023-06-30,704326,704326107,PAYCHEX INC,1152261000.0,10300
+https://sec.gov/Archives/edgar/data/1127799/0000899140-23-000889.txt,1127799,"MYTHENQUAI 2, Zurich, V8, 8002",Zurich Insurance Group Ltd/FI,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,52051372000.0,343030
+https://sec.gov/Archives/edgar/data/1127799/0000899140-23-000889.txt,1127799,"MYTHENQUAI 2, Zurich, V8, 8002",Zurich Insurance Group Ltd/FI,2023-06-30,761152,761152107,RESMED INC,1398400000.0,6400
+https://sec.gov/Archives/edgar/data/1127799/0000899140-23-000889.txt,1127799,"MYTHENQUAI 2, Zurich, V8, 8002",Zurich Insurance Group Ltd/FI,2023-06-30,832696,832696405,SMUCKER J M CO,1432399000.0,9700
+https://sec.gov/Archives/edgar/data/1127799/0000899140-23-000889.txt,1127799,"MYTHENQUAI 2, Zurich, V8, 8002",Zurich Insurance Group Ltd/FI,2023-06-30,871829,871829107,SYSCO CORP,1313340000.0,17700
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+https://sec.gov/Archives/edgar/data/1128074/0001128074-23-000004.txt,1128074,"5600 WYOMING NE SUITE 220, ALBUQUERQUE, NM, 87109",HANSEATIC MANAGEMENT SERVICES INC,2023-06-30,594918,594918104,Microsoft Corporation,685000.0,2011
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+https://sec.gov/Archives/edgar/data/1128074/0001128074-23-000004.txt,1128074,"5600 WYOMING NE SUITE 220, ALBUQUERQUE, NM, 87109",HANSEATIC MANAGEMENT SERVICES INC,2023-06-30,697435,697435105,"Palo Alto Networks, Inc.",41000.0,160
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+https://sec.gov/Archives/edgar/data/1128213/0001128213-23-000003.txt,1128213,"1925 ATHERHOLT ROAD, LYNCHBURG, VA, 24501","PETTYJOHN, WOOD & WHITE, INC",2023-06-30,594918,594918104,MICROSOFT CORP,25349053000.0,74438
+https://sec.gov/Archives/edgar/data/1128213/0001128213-23-000003.txt,1128213,"1925 ATHERHOLT ROAD, LYNCHBURG, VA, 24501","PETTYJOHN, WOOD & WHITE, INC",2023-06-30,654106,654106103,NIKE INC,447330000.0,4053
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+https://sec.gov/Archives/edgar/data/1130344/0001130344-23-000004.txt,1130344,"3385 HILLCREST RD STE 100, DUBUQUE, IA, 52002",FIRST COMMUNITY TRUST NA,2023-06-30,G5960L,G5960L103,Medtronic PLC Shs,63608000.0,722
+https://sec.gov/Archives/edgar/data/1130787/0001172661-23-002582.txt,1130787,"1330 Post Oak Blvd., Suite 3000, Houston, TX, 77056",EAGLE GLOBAL ADVISORS LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,885314000.0,4028
+https://sec.gov/Archives/edgar/data/1130787/0001172661-23-002582.txt,1130787,"1330 Post Oak Blvd., Suite 3000, Houston, TX, 77056",EAGLE GLOBAL ADVISORS LLC,2023-06-30,594918,594918104,MICROSOFT CORP,58410938000.0,171524
+https://sec.gov/Archives/edgar/data/1130787/0001172661-23-002582.txt,1130787,"1330 Post Oak Blvd., Suite 3000, Houston, TX, 77056",EAGLE GLOBAL ADVISORS LLC,2023-06-30,683715,683715106,OPEN TEXT CORP,1273092000.0,30640
+https://sec.gov/Archives/edgar/data/1130787/0001172661-23-002582.txt,1130787,"1330 Post Oak Blvd., Suite 3000, Houston, TX, 77056",EAGLE GLOBAL ADVISORS LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,9141126000.0,35776
+https://sec.gov/Archives/edgar/data/1130787/0001172661-23-002582.txt,1130787,"1330 Post Oak Blvd., Suite 3000, Houston, TX, 77056",EAGLE GLOBAL ADVISORS LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1086307000.0,7159
+https://sec.gov/Archives/edgar/data/1130787/0001172661-23-002582.txt,1130787,"1330 Post Oak Blvd., Suite 3000, Houston, TX, 77056",EAGLE GLOBAL ADVISORS LLC,2023-06-30,871829,871829107,SYSCO CORP,14851500000.0,200155
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+https://sec.gov/Archives/edgar/data/1131181/0001085146-23-003205.txt,1131181,"960 N 400 E, NSL, UT, 84054",AMUSSEN HUNSAKER ASSOCIATES LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2491807000.0,16422
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,666000.0,13138
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,3013000.0,13706
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,189054,189054109,CLOROX CO DEL,251000.0,1581
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,743000.0,4446
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,31428X,31428X106,FEDEX CORP,4273000.0,17238
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,370334,370334104,GENERAL MLS INC,1139000.0,14847
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,461202,461202103,INTUIT,551000.0,1203
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,482480,482480100,KLA CORP,844000.0,1740
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,512807,512807108,LAM RESEARCH CORP,461000.0,718
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,1822000.0,9276
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,594918,594918104,MICROSOFT CORP,94922000.0,278740
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,600544,600544100,MILLERKNOLL INC,642000.0,43466
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,640491,640491106,NEOGEN CORP,268000.0,12310
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,654106,654106103,NIKE INC,3679000.0,33330
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,704326,704326107,PAYCHEX INC,327000.0,2924
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,43883000.0,289199
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,871829,871829107,SYSCO CORP,1092000.0,14713
+https://sec.gov/Archives/edgar/data/1132556/0001580642-23-004170.txt,1132556,"93 Worcester Street, Wellesley, MA, 02481",WADE G W & INC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,11371000.0,129070
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,09073M,09073M104,BIO TECHNE CORP,319663000.0,3916
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,59485000.0,629
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,189054,189054109,CLOROX CO DEL,441972000.0,2779
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,370334,370334104,GENERAL MLS INC,216064000.0,2817
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,482480,482480100,KLA-TENCOR CORP,137746000.0,284
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,500643,500643200,KORN FERRY INTL,210743000.0,4254
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,594918,594918104,MICROSOFT CORP,30694232000.0,90134
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,654106,654106103,NIKE INC,88737000.0,804
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,108592000.0,425
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,243580000.0,1320
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,50378000.0,332
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,981811,981811102,WORTHINGTON INDS INC,111221000.0,1601
+https://sec.gov/Archives/edgar/data/1132597/0001104659-23-091435.txt,1132597,"Pc. Alfredo Egydio De Souza Aranha, 100, Torre Ae, 3 Andar, Cep 04344-902, Sao Paulo, D5, 00000",Itau Unibanco Holding S.A.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,252671000.0,2868
+https://sec.gov/Archives/edgar/data/1132699/0001132699-23-000005.txt,1132699,"10 S. RIVERSIDE PLAZA, SUITE 1400, CHICAGO, IL, 60606","VESTOR CAPITAL, LLC",2023-06-30,053015,053015103,Automatic Data Processing Inc,11651000.0,97831
+https://sec.gov/Archives/edgar/data/1132699/0001132699-23-000005.txt,1132699,"10 S. RIVERSIDE PLAZA, SUITE 1400, CHICAGO, IL, 60606","VESTOR CAPITAL, LLC",2023-06-30,127190,127190304,Caci International Inc Class A,7432000.0,91558
+https://sec.gov/Archives/edgar/data/1132699/0001132699-23-000005.txt,1132699,"10 S. RIVERSIDE PLAZA, SUITE 1400, CHICAGO, IL, 60606","VESTOR CAPITAL, LLC",2023-06-30,14149Y,14149Y108,Cardinal Health Inc.,6188000.0,35683
+https://sec.gov/Archives/edgar/data/1132699/0001132699-23-000005.txt,1132699,"10 S. RIVERSIDE PLAZA, SUITE 1400, CHICAGO, IL, 60606","VESTOR CAPITAL, LLC",2023-06-30,31428X,31428X106,Fedex Corp,917000.0,2069
+https://sec.gov/Archives/edgar/data/1132699/0001132699-23-000005.txt,1132699,"10 S. RIVERSIDE PLAZA, SUITE 1400, CHICAGO, IL, 60606","VESTOR CAPITAL, LLC",2023-06-30,594918,594918104,Microsoft,149000.0,585
+https://sec.gov/Archives/edgar/data/1132699/0001132699-23-000005.txt,1132699,"10 S. RIVERSIDE PLAZA, SUITE 1400, CHICAGO, IL, 60606","VESTOR CAPITAL, LLC",2023-06-30,697435,697435105,Palo Alto Networks Inc,116000.0,835
+https://sec.gov/Archives/edgar/data/1132699/0001132699-23-000005.txt,1132699,"10 S. RIVERSIDE PLAZA, SUITE 1400, CHICAGO, IL, 60606","VESTOR CAPITAL, LLC",2023-06-30,704326,704326107,Paychex Inc.,115000.0,1000
+https://sec.gov/Archives/edgar/data/1132699/0001132699-23-000005.txt,1132699,"10 S. RIVERSIDE PLAZA, SUITE 1400, CHICAGO, IL, 60606","VESTOR CAPITAL, LLC",2023-06-30,742718,742718109,Procter & Gamble Co Com,102000.0,2209
+https://sec.gov/Archives/edgar/data/1132699/0001132699-23-000005.txt,1132699,"10 S. RIVERSIDE PLAZA, SUITE 1400, CHICAGO, IL, 60606","VESTOR CAPITAL, LLC",2023-06-30,G5960L,G5960L103,Medtronic Inc,153000.0,5488
+https://sec.gov/Archives/edgar/data/1132708/0001132708-23-000003.txt,1132708,"488 NORRISTOWN ROAD, SUITE 142, BLUE BELL, PA, 19422",NORTHSTAR ASSET MANAGEMENT LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING INC,219790000.0,1000
+https://sec.gov/Archives/edgar/data/1132708/0001132708-23-000003.txt,1132708,"488 NORRISTOWN ROAD, SUITE 142, BLUE BELL, PA, 19422",NORTHSTAR ASSET MANAGEMENT LLC,2023-06-30,31428X,31428X106,FEDEX CORPORATION,889961000.0,3590
+https://sec.gov/Archives/edgar/data/1132708/0001132708-23-000003.txt,1132708,"488 NORRISTOWN ROAD, SUITE 142, BLUE BELL, PA, 19422",NORTHSTAR ASSET MANAGEMENT LLC,2023-06-30,594918,594918104,MICROSOFT CORP,10468540000.0,30741
+https://sec.gov/Archives/edgar/data/1132708/0001132708-23-000003.txt,1132708,"488 NORRISTOWN ROAD, SUITE 142, BLUE BELL, PA, 19422",NORTHSTAR ASSET MANAGEMENT LLC,2023-06-30,654106,654106103,NIKE INC CLASS B,587720000.0,5325
+https://sec.gov/Archives/edgar/data/1132708/0001132708-23-000003.txt,1132708,"488 NORRISTOWN ROAD, SUITE 142, BLUE BELL, PA, 19422",NORTHSTAR ASSET MANAGEMENT LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,306612000.0,1200
+https://sec.gov/Archives/edgar/data/1132708/0001132708-23-000003.txt,1132708,"488 NORRISTOWN ROAD, SUITE 142, BLUE BELL, PA, 19422",NORTHSTAR ASSET MANAGEMENT LLC,2023-06-30,742718,742718109,PROCTER & GAMBLE,1829529000.0,12057
+https://sec.gov/Archives/edgar/data/1132708/0001132708-23-000003.txt,1132708,"488 NORRISTOWN ROAD, SUITE 142, BLUE BELL, PA, 19422",NORTHSTAR ASSET MANAGEMENT LLC,2023-06-30,871829,871829107,SYSCO CORP,840315000.0,11325
+https://sec.gov/Archives/edgar/data/1132708/0001132708-23-000003.txt,1132708,"488 NORRISTOWN ROAD, SUITE 142, BLUE BELL, PA, 19422",NORTHSTAR ASSET MANAGEMENT LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1015529000.0,11527
+https://sec.gov/Archives/edgar/data/1132716/0001132716-23-000016.txt,1132716,"ONE NORTH WACKER DRIVE 31ST FLOOR, CHICAGO, IL, 60606",UBS OCONNOR LLC,2023-06-30,594918,594918104,MICROSOFT,4594566000.0,13492
+https://sec.gov/Archives/edgar/data/1132716/0001132716-23-000016.txt,1132716,"ONE NORTH WACKER DRIVE 31ST FLOOR, CHICAGO, IL, 60606",UBS OCONNOR LLC,2023-06-30,654106,654106103,NIKE INC,4745910000.0,43000
+https://sec.gov/Archives/edgar/data/1132716/0001132716-23-000016.txt,1132716,"ONE NORTH WACKER DRIVE 31ST FLOOR, CHICAGO, IL, 60606",UBS OCONNOR LLC,2023-06-30,70614W,70614W100,PELOTON IN,531750000.0,300000
+https://sec.gov/Archives/edgar/data/1132716/0001132716-23-000016.txt,1132716,"ONE NORTH WACKER DRIVE 31ST FLOOR, CHICAGO, IL, 60606",UBS OCONNOR LLC,2023-06-30,958102,958102105,WESTERN DI,99325000.0,14500
+https://sec.gov/Archives/edgar/data/1132716/0001132716-23-000016.txt,1132716,"ONE NORTH WACKER DRIVE 31ST FLOOR, CHICAGO, IL, 60606",UBS OCONNOR LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC,3946528000.0,44796
+https://sec.gov/Archives/edgar/data/1132716/0001132716-23-000016.txt,1132716,"ONE NORTH WACKER DRIVE 31ST FLOOR, CHICAGO, IL, 60606",UBS OCONNOR LLC,2023-06-30,N14506,N14506104,ELASTIC N,8979044000.0,140035
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,053015,053015103,Automatic Data Processing,1258298000.0,5725
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,189054,189054109,Clorox Co-Del,246512000.0,1550
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,205887,205887102,"Conagra, Inc.",13488000.0,400
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,370334,370334104,General Mills Inc.,187915000.0,2450
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,461202,461202103,Intuit Inc.,824742000.0,1800
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,482480,482480100,Kla-Tencor Corp,1585045000.0,3268
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,512807,512807108,Lam Research Corp.,3314586000.0,5156
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,594918,594918104,Microsoft Corp,26618309000.0,78165
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,654106,654106103,Nike Inc Cl B,2470081000.0,22380
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,697435,697435105,Palo Alto Networks,1221338000.0,4780
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,701094,701094104,Parker Hannifin,1509455000.0,3870
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,704326,704326107,Paychex,61528000.0,550
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,742718,742718109,Procter & Gamble,2590960000.0,17075
+https://sec.gov/Archives/edgar/data/1133014/0001214659-23-011043.txt,1133014,"13537 BARRETT PARKWAY DR, SUITE 325, ST LOUIS, MO, 63125",MONETARY MANAGEMENT GROUP INC,2023-06-30,832696,832696405,Smucker Jm Co,51684000.0,350
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+https://sec.gov/Archives/edgar/data/1164508/0001402828-23-000007.txt,1164508,"200 CLARENDON STREET, 30TH FLOOR, BOSTON, MA, 02116","ARROWSTREET CAPITAL, LIMITED PARTNERSHIP",2023-06-30,876030,876030107,TAPESTRY INC,167504000.0,3913636
+https://sec.gov/Archives/edgar/data/1164508/0001402828-23-000007.txt,1164508,"200 CLARENDON STREET, 30TH FLOOR, BOSTON, MA, 02116","ARROWSTREET CAPITAL, LIMITED PARTNERSHIP",2023-06-30,G2143T,G2143T103,CIMPRESS PLC,2320000.0,39000
+https://sec.gov/Archives/edgar/data/1164508/0001402828-23-000007.txt,1164508,"200 CLARENDON STREET, 30TH FLOOR, BOSTON, MA, 02116","ARROWSTREET CAPITAL, LIMITED PARTNERSHIP",2023-06-30,G3323L,G3323L100,FABRINET,1226000.0,9437
+https://sec.gov/Archives/edgar/data/1164508/0001402828-23-000007.txt,1164508,"200 CLARENDON STREET, 30TH FLOOR, BOSTON, MA, 02116","ARROWSTREET CAPITAL, LIMITED PARTNERSHIP",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,506652000.0,5750870
+https://sec.gov/Archives/edgar/data/1164508/0001402828-23-000007.txt,1164508,"200 CLARENDON STREET, 30TH FLOOR, BOSTON, MA, 02116","ARROWSTREET CAPITAL, LIMITED PARTNERSHIP",2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,10420000.0,406233
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+https://sec.gov/Archives/edgar/data/1164632/0001085146-23-002750.txt,1164632,"135 S. LASALLE STREET, SUITE 2900, CHICAGO, IL, 60603",Chesley Taft & Associates LLC,2023-06-30,370334,370334104,GENERAL MLS INC,4208682000.0,54872
+https://sec.gov/Archives/edgar/data/1164632/0001085146-23-002750.txt,1164632,"135 S. LASALLE STREET, SUITE 2900, CHICAGO, IL, 60603",Chesley Taft & Associates LLC,2023-06-30,461202,461202103,INTUIT,3711339000.0,8100
+https://sec.gov/Archives/edgar/data/1164632/0001085146-23-002750.txt,1164632,"135 S. LASALLE STREET, SUITE 2900, CHICAGO, IL, 60603",Chesley Taft & Associates LLC,2023-06-30,482480,482480100,KLA CORP,538857000.0,1111
+https://sec.gov/Archives/edgar/data/1164632/0001085146-23-002750.txt,1164632,"135 S. LASALLE STREET, SUITE 2900, CHICAGO, IL, 60603",Chesley Taft & Associates LLC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,710503000.0,3618
+https://sec.gov/Archives/edgar/data/1164632/0001085146-23-002750.txt,1164632,"135 S. LASALLE STREET, SUITE 2900, CHICAGO, IL, 60603",Chesley Taft & Associates LLC,2023-06-30,594918,594918104,MICROSOFT CORP,84314980000.0,247592
+https://sec.gov/Archives/edgar/data/1164632/0001085146-23-002750.txt,1164632,"135 S. LASALLE STREET, SUITE 2900, CHICAGO, IL, 60603",Chesley Taft & Associates LLC,2023-06-30,654106,654106103,NIKE INC,1883023000.0,17061
+https://sec.gov/Archives/edgar/data/1164632/0001085146-23-002750.txt,1164632,"135 S. LASALLE STREET, SUITE 2900, CHICAGO, IL, 60603",Chesley Taft & Associates LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,16327600000.0,63902
+https://sec.gov/Archives/edgar/data/1164632/0001085146-23-002750.txt,1164632,"135 S. LASALLE STREET, SUITE 2900, CHICAGO, IL, 60603",Chesley Taft & Associates LLC,2023-06-30,704326,704326107,PAYCHEX INC,632066000.0,5650
+https://sec.gov/Archives/edgar/data/1164632/0001085146-23-002750.txt,1164632,"135 S. LASALLE STREET, SUITE 2900, CHICAGO, IL, 60603",Chesley Taft & Associates LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,7074345000.0,46621
+https://sec.gov/Archives/edgar/data/1164632/0001085146-23-002750.txt,1164632,"135 S. LASALLE STREET, SUITE 2900, CHICAGO, IL, 60603",Chesley Taft & Associates LLC,2023-06-30,871829,871829107,SYSCO CORP,8211343000.0,110665
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+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,57275341000.0,1130360
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,053807,053807103,AVNET INC,19865949000.0,393775
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,31428X,31428X106,FEDEX CORP,561839321000.0,2266395
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,7490769000.0,271110
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,500643,500643200,KORN FERRY,82635643000.0,1668059
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,505336,505336107,LA Z BOY INC,7401722000.0,258440
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,3188196000.0,116400
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,594918,594918104,MICROSOFT CORP,699716392000.0,2054726
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,600544,600544100,MILLERKNOLL INC,14734330000.0,996910
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,65249B,65249B109,NEWS CORP NEW,172980893000.0,8870815
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP,5418076000.0,395480
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,74051N,74051N102,PREMIER INC,10913945000.0,394575
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,7691632000.0,489601
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,806037,806037107,SCANSOURCE INC,2612779000.0,88389
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,10989433000.0,44090
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,981811,981811102,WORTHINGTON INDS INC,3548528000.0,51080
+https://sec.gov/Archives/edgar/data/1164833/0001172661-23-002944.txt,1164833,"601 South Figueroa St 39th Floor, Los Angeles, CA, 90017",HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,438202528000.0,4973922
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+https://sec.gov/Archives/edgar/data/1165805/0001085146-23-003381.txt,1165805,"8555 N. River Road, Suite 400, INDIANAPOLIS, IN, 46240",WOODLEY FARRA MANION PORTFOLIO MANAGEMENT INC,2023-06-30,370334,370334104,GENERAL MLS INC,246054000.0,3208
+https://sec.gov/Archives/edgar/data/1165805/0001085146-23-003381.txt,1165805,"8555 N. River Road, Suite 400, INDIANAPOLIS, IN, 46240",WOODLEY FARRA MANION PORTFOLIO MANAGEMENT INC,2023-06-30,594918,594918104,MICROSOFT CORP,72228786000.0,212101
+https://sec.gov/Archives/edgar/data/1165805/0001085146-23-003381.txt,1165805,"8555 N. River Road, Suite 400, INDIANAPOLIS, IN, 46240",WOODLEY FARRA MANION PORTFOLIO MANAGEMENT INC,2023-06-30,654106,654106103,NIKE INC,1121489000.0,10130
+https://sec.gov/Archives/edgar/data/1165805/0001085146-23-003381.txt,1165805,"8555 N. River Road, Suite 400, INDIANAPOLIS, IN, 46240",WOODLEY FARRA MANION PORTFOLIO MANAGEMENT INC,2023-06-30,704326,704326107,PAYCHEX INC,2463391000.0,22020
+https://sec.gov/Archives/edgar/data/1165805/0001085146-23-003381.txt,1165805,"8555 N. River Road, Suite 400, INDIANAPOLIS, IN, 46240",WOODLEY FARRA MANION PORTFOLIO MANAGEMENT INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,332718000.0,2193
+https://sec.gov/Archives/edgar/data/1165805/0001085146-23-003381.txt,1165805,"8555 N. River Road, Suite 400, INDIANAPOLIS, IN, 46240",WOODLEY FARRA MANION PORTFOLIO MANAGEMENT INC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,4264897000.0,48039
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+https://sec.gov/Archives/edgar/data/1166152/0001085146-23-003237.txt,1166152,"1924 SOUTH UTICA, SUITE 1120, TULSA, OK, 74104-6429","PRESCOTT GROUP CAPITAL MANAGEMENT, L.L.C.",2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,2511000000.0,25162
+https://sec.gov/Archives/edgar/data/1166152/0001085146-23-003237.txt,1166152,"1924 SOUTH UTICA, SUITE 1120, TULSA, OK, 74104-6429","PRESCOTT GROUP CAPITAL MANAGEMENT, L.L.C.",2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,1448000000.0,10000
+https://sec.gov/Archives/edgar/data/1166152/0001085146-23-003237.txt,1166152,"1924 SOUTH UTICA, SUITE 1120, TULSA, OK, 74104-6429","PRESCOTT GROUP CAPITAL MANAGEMENT, L.L.C.",2023-06-30,090043,090043100,BILL HOLDINGS INC,2220000000.0,19000
+https://sec.gov/Archives/edgar/data/1166152/0001085146-23-003237.txt,1166152,"1924 SOUTH UTICA, SUITE 1120, TULSA, OK, 74104-6429","PRESCOTT GROUP CAPITAL MANAGEMENT, L.L.C.",2023-06-30,127190,127190304,CACI INTL INC,1028000000.0,3017
+https://sec.gov/Archives/edgar/data/1166152/0001085146-23-003237.txt,1166152,"1924 SOUTH UTICA, SUITE 1120, TULSA, OK, 74104-6429","PRESCOTT GROUP CAPITAL MANAGEMENT, L.L.C.",2023-06-30,461202,461202103,INTUIT,3734000000.0,8149
+https://sec.gov/Archives/edgar/data/1166152/0001085146-23-003237.txt,1166152,"1924 SOUTH UTICA, SUITE 1120, TULSA, OK, 74104-6429","PRESCOTT GROUP CAPITAL MANAGEMENT, L.L.C.",2023-06-30,594918,594918104,MICROSOFT CORP,2043000000.0,6000
+https://sec.gov/Archives/edgar/data/1166152/0001085146-23-003237.txt,1166152,"1924 SOUTH UTICA, SUITE 1120, TULSA, OK, 74104-6429","PRESCOTT GROUP CAPITAL MANAGEMENT, L.L.C.",2023-06-30,654106,654106103,NIKE INC,1589000000.0,14393
+https://sec.gov/Archives/edgar/data/1166152/0001085146-23-003237.txt,1166152,"1924 SOUTH UTICA, SUITE 1120, TULSA, OK, 74104-6429","PRESCOTT GROUP CAPITAL MANAGEMENT, L.L.C.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1356000000.0,5307
+https://sec.gov/Archives/edgar/data/1166152/0001085146-23-003237.txt,1166152,"1924 SOUTH UTICA, SUITE 1120, TULSA, OK, 74104-6429","PRESCOTT GROUP CAPITAL MANAGEMENT, L.L.C.",2023-06-30,749685,749685103,RPM INTL INC,682000000.0,7600
+https://sec.gov/Archives/edgar/data/1166308/0001951757-23-000346.txt,1166308,"6075 POPLAR AVE STE 221, MEMPHIS, TN, 38119",GREEN SQUARE CAPITAL ADVISORS LLC,2023-06-30,093671,093671105,BLOCK H & R INC,230070000.0,7219
+https://sec.gov/Archives/edgar/data/1166308/0001951757-23-000346.txt,1166308,"6075 POPLAR AVE STE 221, MEMPHIS, TN, 38119",GREEN SQUARE CAPITAL ADVISORS LLC,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,411480000.0,4351
+https://sec.gov/Archives/edgar/data/1166308/0001951757-23-000346.txt,1166308,"6075 POPLAR AVE STE 221, MEMPHIS, TN, 38119",GREEN SQUARE CAPITAL ADVISORS LLC,2023-06-30,31428X,31428X106,FEDEX CORP,540713000.0,2181
+https://sec.gov/Archives/edgar/data/1166308/0001951757-23-000346.txt,1166308,"6075 POPLAR AVE STE 221, MEMPHIS, TN, 38119",GREEN SQUARE CAPITAL ADVISORS LLC,2023-06-30,370334,370334104,GENERAL MLS INC,227492000.0,2966
+https://sec.gov/Archives/edgar/data/1166308/0001951757-23-000346.txt,1166308,"6075 POPLAR AVE STE 221, MEMPHIS, TN, 38119",GREEN SQUARE CAPITAL ADVISORS LLC,2023-06-30,594918,594918104,MICROSOFT CORP,5320301000.0,15623
+https://sec.gov/Archives/edgar/data/1166308/0001951757-23-000346.txt,1166308,"6075 POPLAR AVE STE 221, MEMPHIS, TN, 38119",GREEN SQUARE CAPITAL ADVISORS LLC,2023-06-30,654106,654106103,NIKE INC,680492000.0,6166
+https://sec.gov/Archives/edgar/data/1166308/0001951757-23-000346.txt,1166308,"6075 POPLAR AVE STE 221, MEMPHIS, TN, 38119",GREEN SQUARE CAPITAL ADVISORS LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,512322000.0,3376
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+https://sec.gov/Archives/edgar/data/1166402/0001104659-23-090824.txt,1166402,"791 Town & Country Blvd, Suite 250, Houston, TX, 77024",FCA CORP /TX,2023-06-30,594918,594918104,MICROSOFT CORP,2224067000.0,6531
+https://sec.gov/Archives/edgar/data/1166402/0001104659-23-090824.txt,1166402,"791 Town & Country Blvd, Suite 250, Houston, TX, 77024",FCA CORP /TX,2023-06-30,64110D,64110D104,NETAPP INC,611200000.0,8000
+https://sec.gov/Archives/edgar/data/1166402/0001104659-23-090824.txt,1166402,"791 Town & Country Blvd, Suite 250, Houston, TX, 77024",FCA CORP /TX,2023-06-30,742718,742718109,PROCTER & GAMBLE CO/THE,706198000.0,4654
+https://sec.gov/Archives/edgar/data/1166402/0001104659-23-090824.txt,1166402,"791 Town & Country Blvd, Suite 250, Houston, TX, 77024",FCA CORP /TX,2023-06-30,761152,761152107,RESMED INC,218500000.0,1000
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+https://sec.gov/Archives/edgar/data/1166559/0001104659-23-091369.txt,1166559,"2365 Carillon Point, Kirkland, WA, 98033",BILL & MELINDA GATES FOUNDATION TRUST,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,111401948000.0,592406
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+https://sec.gov/Archives/edgar/data/1206792/0001104659-23-087123.txt,1206792,"200 W Madison, Suite 1950, Chicago, IL, 60606",DEARBORN PARTNERS LLC,2023-06-30,45408X,45408X308,India Globalization Capital In,36367000.0,116710
+https://sec.gov/Archives/edgar/data/1206792/0001104659-23-087123.txt,1206792,"200 W Madison, Suite 1950, Chicago, IL, 60606",DEARBORN PARTNERS LLC,2023-06-30,461202,461202103,Intuit,35278382000.0,76995
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+https://sec.gov/Archives/edgar/data/1206792/0001104659-23-087123.txt,1206792,"200 W Madison, Suite 1950, Chicago, IL, 60606",DEARBORN PARTNERS LLC,2023-06-30,G5960L,G5960L103,Medtronic PLC,8925023000.0,101306
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+https://sec.gov/Archives/edgar/data/1209324/0001104659-23-080270.txt,1209324,"1711 General Electric Road, Bloomington, IL, 61704",COUNTRY TRUST BANK,2023-06-30,189054,189054109,CLOROX COMPANY COMMON,32762000.0,206
+https://sec.gov/Archives/edgar/data/1209324/0001104659-23-080270.txt,1209324,"1711 General Electric Road, Bloomington, IL, 61704",COUNTRY TRUST BANK,2023-06-30,512807,512807108,LAM RESEARCH CORP. COMMON,2571000.0,4
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+https://sec.gov/Archives/edgar/data/1209324/0001104659-23-080270.txt,1209324,"1711 General Electric Road, Bloomington, IL, 61704",COUNTRY TRUST BANK,2023-06-30,594918,594918104,MICROSOFT CORPORATION COMMON,188927506000.0,554788
+https://sec.gov/Archives/edgar/data/1209324/0001104659-23-080270.txt,1209324,"1711 General Electric Road, Bloomington, IL, 61704",COUNTRY TRUST BANK,2023-06-30,654106,654106103,NIKE INC. CLASS B COMMON,1214000.0,11
+https://sec.gov/Archives/edgar/data/1209324/0001104659-23-080270.txt,1209324,"1711 General Electric Road, Bloomington, IL, 61704",COUNTRY TRUST BANK,2023-06-30,704326,704326107,PAYCHEX INC COMMON,1790000.0,16
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+https://sec.gov/Archives/edgar/data/1209324/0001104659-23-080270.txt,1209324,"1711 General Electric Road, Bloomington, IL, 61704",COUNTRY TRUST BANK,2023-06-30,871829,871829107,SYSCO CORPORATION COMMON,29474318000.0,397228
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+https://sec.gov/Archives/edgar/data/1224014/0001172661-23-003001.txt,1224014,"50 S. Steele St., Suite 1000, Denver, CO, 80209",TOWLE & CO,2023-06-30,505336,505336107,LA Z BOY INC,1098630000.0,38360
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+https://sec.gov/Archives/edgar/data/1224890/0001172661-23-002525.txt,1224890,"One Boar's Head Pointe, Charlottesville, VA, 22903",CULBERTSON A N & CO INC,2023-06-30,31428X,31428X106,FEDEX CORP,8135706000.0,32819
+https://sec.gov/Archives/edgar/data/1224890/0001172661-23-002525.txt,1224890,"One Boar's Head Pointe, Charlottesville, VA, 22903",CULBERTSON A N & CO INC,2023-06-30,370334,370334104,GENERAL MLS INC,2725688000.0,35537
+https://sec.gov/Archives/edgar/data/1224890/0001172661-23-002525.txt,1224890,"One Boar's Head Pointe, Charlottesville, VA, 22903",CULBERTSON A N & CO INC,2023-06-30,594918,594918104,MICROSOFT CORP,32509380000.0,95464
+https://sec.gov/Archives/edgar/data/1224890/0001172661-23-002525.txt,1224890,"One Boar's Head Pointe, Charlottesville, VA, 22903",CULBERTSON A N & CO INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,9428315000.0,62135
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+https://sec.gov/Archives/edgar/data/1226886/0001226886-23-000004.txt,1226886,"2500 WESTCHESTER AVE, SUITE 300, PURCHASE, NY, 10577","ALPINE WOODS CAPITAL INVESTORS, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,774000.0,10090
+https://sec.gov/Archives/edgar/data/1226886/0001226886-23-000004.txt,1226886,"2500 WESTCHESTER AVE, SUITE 300, PURCHASE, NY, 10577","ALPINE WOODS CAPITAL INVESTORS, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,2128000.0,3310
+https://sec.gov/Archives/edgar/data/1226886/0001226886-23-000004.txt,1226886,"2500 WESTCHESTER AVE, SUITE 300, PURCHASE, NY, 10577","ALPINE WOODS CAPITAL INVESTORS, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,15793000.0,46377
+https://sec.gov/Archives/edgar/data/1226886/0001226886-23-000004.txt,1226886,"2500 WESTCHESTER AVE, SUITE 300, PURCHASE, NY, 10577","ALPINE WOODS CAPITAL INVESTORS, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,2209000.0,8645
+https://sec.gov/Archives/edgar/data/1226886/0001226886-23-000004.txt,1226886,"2500 WESTCHESTER AVE, SUITE 300, PURCHASE, NY, 10577","ALPINE WOODS CAPITAL INVESTORS, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,413000.0,1060
+https://sec.gov/Archives/edgar/data/1226886/0001226886-23-000004.txt,1226886,"2500 WESTCHESTER AVE, SUITE 300, PURCHASE, NY, 10577","ALPINE WOODS CAPITAL INVESTORS, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,3900000.0,26411
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+https://sec.gov/Archives/edgar/data/1276144/0000950123-23-007677.txt,1276144,"53 State Street, 27th Floor, Boston, MA, 02109",Clough Capital Partners L P,2023-06-30,594918,594918104,MICROSOFT CORP,38389415000.0,112731
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+https://sec.gov/Archives/edgar/data/1277279/0001277279-23-000008.txt,1277279,"1255 FOURIER DRIVE, SUITE 200, MADISON, WI, 53717","THOMPSON INVESTMENT MANAGEMENT, INC.",2023-06-30,749685,749685103,RPM INTL INC COM,8704000.0,97
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+https://sec.gov/Archives/edgar/data/1277303/0000950123-23-006526.txt,1277303,"532 Main Street, Johnstown, PA, 15901",First National Trust Co,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,2378778000.0,14362
+https://sec.gov/Archives/edgar/data/1277303/0000950123-23-006526.txt,1277303,"532 Main Street, Johnstown, PA, 15901",First National Trust Co,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,5391151000.0,57007
+https://sec.gov/Archives/edgar/data/1277303/0000950123-23-006526.txt,1277303,"532 Main Street, Johnstown, PA, 15901",First National Trust Co,2023-06-30,189054,189054109,CLOROX CO DEL,225518000.0,1418
+https://sec.gov/Archives/edgar/data/1277303/0000950123-23-006526.txt,1277303,"532 Main Street, Johnstown, PA, 15901",First National Trust Co,2023-06-30,31428X,31428X106,FEDEX CORP,7667546000.0,30930
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+https://sec.gov/Archives/edgar/data/1277303/0000950123-23-006526.txt,1277303,"532 Main Street, Johnstown, PA, 15901",First National Trust Co,2023-06-30,461202,461202103,INTUIT,277663000.0,606
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+https://sec.gov/Archives/edgar/data/1277403/0001172661-23-002507.txt,1277403,"640 Fifth Avenue, 11th Floor, New York, NY, 10019","Hamlin Capital Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,137652463000.0,907160
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+https://sec.gov/Archives/edgar/data/1277779/0001172661-23-003074.txt,1277779,"6300 Sagewood Drive, Suite H115, Park City, UT, 84098-7502",CONTINENTAL ADVISORS LLC,2023-06-30,769397,769397100,RIVERVIEW BANCORP INC,500013000.0,99209
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+https://sec.gov/Archives/edgar/data/1278249/0001278249-23-000005.txt,1278249,"101 WEST ELM STREET, STE 355, CONSHOHOCKEN, PA, 19428",TOWER BRIDGE ADVISORS,2023-06-30,31428X,31428X106,FEDEX CORP,6865474000.0,27695
+https://sec.gov/Archives/edgar/data/1278249/0001278249-23-000005.txt,1278249,"101 WEST ELM STREET, STE 355, CONSHOHOCKEN, PA, 19428",TOWER BRIDGE ADVISORS,2023-06-30,358435,358435105,FRIEDMAN INDS INC,142506000.0,11310
+https://sec.gov/Archives/edgar/data/1278249/0001278249-23-000005.txt,1278249,"101 WEST ELM STREET, STE 355, CONSHOHOCKEN, PA, 19428",TOWER BRIDGE ADVISORS,2023-06-30,370334,370334104,GENERAL MLS INC,335946000.0,4380
+https://sec.gov/Archives/edgar/data/1278249/0001278249-23-000005.txt,1278249,"101 WEST ELM STREET, STE 355, CONSHOHOCKEN, PA, 19428",TOWER BRIDGE ADVISORS,2023-06-30,512807,512807108,LAM RESEARCH CORP,2055866000.0,3198
+https://sec.gov/Archives/edgar/data/1278249/0001278249-23-000005.txt,1278249,"101 WEST ELM STREET, STE 355, CONSHOHOCKEN, PA, 19428",TOWER BRIDGE ADVISORS,2023-06-30,594918,594918104,MICROSOFT CORP,74627589000.0,219145
+https://sec.gov/Archives/edgar/data/1278249/0001278249-23-000005.txt,1278249,"101 WEST ELM STREET, STE 355, CONSHOHOCKEN, PA, 19428",TOWER BRIDGE ADVISORS,2023-06-30,654106,654106103,NIKE INC,5979847000.0,54180
+https://sec.gov/Archives/edgar/data/1278249/0001278249-23-000005.txt,1278249,"101 WEST ELM STREET, STE 355, CONSHOHOCKEN, PA, 19428",TOWER BRIDGE ADVISORS,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1502044000.0,3851
+https://sec.gov/Archives/edgar/data/1278249/0001278249-23-000005.txt,1278249,"101 WEST ELM STREET, STE 355, CONSHOHOCKEN, PA, 19428",TOWER BRIDGE ADVISORS,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,13577872000.0,89481
+https://sec.gov/Archives/edgar/data/1278249/0001278249-23-000005.txt,1278249,"101 WEST ELM STREET, STE 355, CONSHOHOCKEN, PA, 19428",TOWER BRIDGE ADVISORS,2023-06-30,749685,749685103,RPM INTL INC,269190000.0,3000
+https://sec.gov/Archives/edgar/data/1278249/0001278249-23-000005.txt,1278249,"101 WEST ELM STREET, STE 355, CONSHOHOCKEN, PA, 19428",TOWER BRIDGE ADVISORS,2023-06-30,817070,817070501,SENECA FOODS CORP NEW,1447724000.0,44300
+https://sec.gov/Archives/edgar/data/1278249/0001278249-23-000005.txt,1278249,"101 WEST ELM STREET, STE 355, CONSHOHOCKEN, PA, 19428",TOWER BRIDGE ADVISORS,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,5297365000.0,60129
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+https://sec.gov/Archives/edgar/data/1278573/0001278573-23-000010.txt,1278573,"1255 Treat Blvd. Suite 900, Walnut Creek, CA, 94597",Destination Wealth Management,2023-06-30,594918,594918104,MICROSOFT CORP,56345979000.0,165527
+https://sec.gov/Archives/edgar/data/1278573/0001278573-23-000010.txt,1278573,"1255 Treat Blvd. Suite 900, Walnut Creek, CA, 94597",Destination Wealth Management,2023-06-30,654106,654106103,NIKE INC,17473187000.0,158315
+https://sec.gov/Archives/edgar/data/1278573/0001278573-23-000010.txt,1278573,"1255 Treat Blvd. Suite 900, Walnut Creek, CA, 94597",Destination Wealth Management,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,8869458000.0,58534
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+https://sec.gov/Archives/edgar/data/1278678/0001278678-23-000006.txt,1278678,"2000 TOWN CENTER, STE 2850, SOUTHFIELD, MI, 48075",DEROY & DEVEREAUX PRIVATE INVESTMENT COUNSEL INC,2023-06-30,594918,594918104,Microsoft Corp,17251000.0,50658
+https://sec.gov/Archives/edgar/data/1278678/0001278678-23-000006.txt,1278678,"2000 TOWN CENTER, STE 2850, SOUTHFIELD, MI, 48075",DEROY & DEVEREAUX PRIVATE INVESTMENT COUNSEL INC,2023-06-30,697435,697435105,Palo Alto Networks Inc,558000.0,2185
+https://sec.gov/Archives/edgar/data/1278678/0001278678-23-000006.txt,1278678,"2000 TOWN CENTER, STE 2850, SOUTHFIELD, MI, 48075",DEROY & DEVEREAUX PRIVATE INVESTMENT COUNSEL INC,2023-06-30,742718,742718109,Procter & Gamble Co,275000.0,1810
+https://sec.gov/Archives/edgar/data/1278678/0001278678-23-000006.txt,1278678,"2000 TOWN CENTER, STE 2850, SOUTHFIELD, MI, 48075",DEROY & DEVEREAUX PRIVATE INVESTMENT COUNSEL INC,2023-06-30,87157D,87157D109,Synaptics Inc,15755000.0,184525
+https://sec.gov/Archives/edgar/data/1278678/0001278678-23-000006.txt,1278678,"2000 TOWN CENTER, STE 2850, SOUTHFIELD, MI, 48075",DEROY & DEVEREAUX PRIVATE INVESTMENT COUNSEL INC,2023-06-30,G5960L,G5960L103,Medtronic PLC,16864000.0,191416
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+https://sec.gov/Archives/edgar/data/1278793/0001278793-23-000006.txt,1278793,"1075 BERKSHIRE BLVD., SUITE 825, WYOMISSING, PA, 19610",WEIK CAPITAL MANAGEMENT,2023-06-30,513272,513272104,Lamb Weston,402325000.0,3500
+https://sec.gov/Archives/edgar/data/1278793/0001278793-23-000006.txt,1278793,"1075 BERKSHIRE BLVD., SUITE 825, WYOMISSING, PA, 19610",WEIK CAPITAL MANAGEMENT,2023-06-30,55825T,55825T103,MSG Sports,620565000.0,3300
+https://sec.gov/Archives/edgar/data/1278793/0001278793-23-000006.txt,1278793,"1075 BERKSHIRE BLVD., SUITE 825, WYOMISSING, PA, 19610",WEIK CAPITAL MANAGEMENT,2023-06-30,594918,594918104,Microsoft Corp.,19832799000.0,58239
+https://sec.gov/Archives/edgar/data/1278793/0001278793-23-000006.txt,1278793,"1075 BERKSHIRE BLVD., SUITE 825, WYOMISSING, PA, 19610",WEIK CAPITAL MANAGEMENT,2023-06-30,742718,742718109,Procter & Gamble,956721000.0,6305
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+https://sec.gov/Archives/edgar/data/1279030/0000950159-23-000229.txt,1279030,"375 Park Ave 38th Floor, New York, NY, 10152",BRANT POINT INVESTMENT MANAGEMENT LLC,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,11409095000.0,189394
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+https://sec.gov/Archives/edgar/data/1279150/0001387131-23-009752.txt,1279150,"152 West 57th Street, 33rd Floor, New York, NY, 10019",SCOPIA CAPITAL MANAGEMENT LP,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,27995545000.0,3640513
+https://sec.gov/Archives/edgar/data/1279150/0001387131-23-009752.txt,1279150,"152 West 57th Street, 33rd Floor, New York, NY, 10019",SCOPIA CAPITAL MANAGEMENT LP,2023-06-30,N14506,N14506104,ELASTIC N V,21901725000.0,341574
+https://sec.gov/Archives/edgar/data/1279151/0001104659-23-091444.txt,1279151,"1811 Bering Drive, Suite 400, Houston, TX, 77057",LUMINUS MANAGEMENT LLC,2023-06-30,03676C,03676C100,ANTERIX INC,3436781000.0,108450
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+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,029683,029683109,AMERICAN SOFTWARE INC.,523083000.0,49770
+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,05366Y,05366Y201,AVIAT NETWORKS INC,533920000.0,16000
+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,09061H,09061H307,BIOMERICA INC,64600000.0,47500
+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,228309,228309100,CROWN CRAFTS INC,112725000.0,22500
+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,28252C,28252C109,POLISHED COM INC,184000000.0,400000
+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,31428X,31428X106,FEDEX CORP,247900000.0,1000
+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,594918,594918104,MICROSOFT CORP.,308870000.0,907
+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,620071,620071100,MOTORCAR PARTS OF AMER,432790000.0,55916
+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,496493000.0,3272
+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,829322,829322403,SINGING MACH INC,140131000.0,105362
+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,877163,877163105,TAYLOR DEVICES INC,263651000.0,10315
+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,878739,878739200,TECHPRECISION CORP,755369000.0,102215
+https://sec.gov/Archives/edgar/data/1279342/0000897069-23-001169.txt,1279342,"300 SOUTH WACKER DRIVE, SUITE 2880, CHICAGO, IL, 60606",PERRITT CAPITAL MANAGEMENT INC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,251966000.0,2860
+https://sec.gov/Archives/edgar/data/1279627/0001172661-23-003075.txt,1279627,"580 California Street, 8th Floor, San Francisco, CA, 94104",WETHERBY ASSET MANAGEMENT INC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,3832918000.0,17439
+https://sec.gov/Archives/edgar/data/1279627/0001172661-23-003075.txt,1279627,"580 California Street, 8th Floor, San Francisco, CA, 94104",WETHERBY ASSET MANAGEMENT INC,2023-06-30,053807,053807103,AVNET INC,210226000.0,4167
+https://sec.gov/Archives/edgar/data/1279627/0001172661-23-003075.txt,1279627,"580 California Street, 8th Floor, San Francisco, CA, 94104",WETHERBY ASSET MANAGEMENT INC,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,252400000.0,3092
+https://sec.gov/Archives/edgar/data/1279627/0001172661-23-003075.txt,1279627,"580 California Street, 8th Floor, San Francisco, CA, 94104",WETHERBY ASSET MANAGEMENT INC,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,419210000.0,2531
+https://sec.gov/Archives/edgar/data/1279627/0001172661-23-003075.txt,1279627,"580 California Street, 8th Floor, San Francisco, CA, 94104",WETHERBY ASSET MANAGEMENT INC,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,388021000.0,4103
+https://sec.gov/Archives/edgar/data/1279627/0001172661-23-003075.txt,1279627,"580 California Street, 8th Floor, San Francisco, CA, 94104",WETHERBY ASSET MANAGEMENT INC,2023-06-30,189054,189054109,CLOROX CO DEL,1867933000.0,11745
+https://sec.gov/Archives/edgar/data/1279627/0001172661-23-003075.txt,1279627,"580 California Street, 8th Floor, San Francisco, CA, 94104",WETHERBY ASSET MANAGEMENT INC,2023-06-30,205887,205887102,CONAGRA BRANDS INC,463988000.0,13760
+https://sec.gov/Archives/edgar/data/1279627/0001172661-23-003075.txt,1279627,"580 California Street, 8th Floor, San Francisco, CA, 94104",WETHERBY ASSET MANAGEMENT INC,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1225365000.0,7334
+https://sec.gov/Archives/edgar/data/1279627/0001172661-23-003075.txt,1279627,"580 California Street, 8th Floor, San Francisco, CA, 94104",WETHERBY ASSET MANAGEMENT INC,2023-06-30,31428X,31428X106,FEDEX CORP,1451207000.0,5854
+https://sec.gov/Archives/edgar/data/1279627/0001172661-23-003075.txt,1279627,"580 California Street, 8th Floor, San Francisco, CA, 94104",WETHERBY ASSET MANAGEMENT INC,2023-06-30,370334,370334104,GENERAL MLS INC,1860666000.0,24259
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+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,189054,189054109,CLOROX CO DEL,1125208000.0,7075
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,205887,205887102,CONAGRA BRANDS INC,762072000.0,22600
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,222070,222070203,COTY INC,133027000.0,10824
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,541673000.0,3242
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,31428X,31428X106,FEDEX CORP,2511475000.0,10131
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,35137L,35137L105,FOX CORP,202946000.0,5969
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,370334,370334104,GENERAL MLS INC,911656000.0,11886
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,461202,461202103,INTUIT,3297135000.0,7196
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,482480,482480100,KLA CORP,3371859000.0,6952
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,512807,512807108,LAM RESEARCH CORP,3993446000.0,6212
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,747865000.0,6506
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,1256832000.0,6400
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,594918,594918104,MICROSOFT CORP,94584726000.0,277749
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,64110D,64110D104,NETAPP INC,297120000.0,3889
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,65249B,65249B109,NEWS CORP NEW,248352000.0,12736
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,654106,654106103,NIKE INC,5234694000.0,47429
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,642352000.0,2514
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1214585000.0,3114
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,704326,704326107,PAYCHEX INC,1238289000.0,11069
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,54224472000.0,357351
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,749685,749685103,RPM INTL INC,756424000.0,8430
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,761152,761152107,RESMED INC,531829000.0,2434
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,832696,832696405,SMUCKER J M CO,498829000.0,3378
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,871829,871829107,SYSCO CORP,1722256000.0,23211
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,876030,876030107,TAPESTRY INC,205996000.0,4813
+https://sec.gov/Archives/edgar/data/1300311/0001172661-23-002839.txt,1300311,"6022 West Chester Pike, Newtown Square, PA, 19073","Veritable, L.P.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,3553234000.0,40332
+https://sec.gov/Archives/edgar/data/1301540/0001301540-23-000004.txt,1301540,"77 COLLEGE STREET, BURLINGTON, VT, 05401","Rock Point Advisors, LLC",2023-06-30,594918,594918104,Microsoft,1812694000.0,5323
+https://sec.gov/Archives/edgar/data/1301540/0001301540-23-000004.txt,1301540,"77 COLLEGE STREET, BURLINGTON, VT, 05401","Rock Point Advisors, LLC",2023-06-30,742718,742718109,Procter & Gamble,853349000.0,5624
+https://sec.gov/Archives/edgar/data/1301743/0001405086-23-000195.txt,1301743,"680 WASHINGTON BOULEVARD, 11TH FLOOR, STAMFORD, CT, 06901","CoreCommodity Management, LLC",2023-06-30,128030,128030202,CAL MAINE FOODS INC,6130080000.0,136224
+https://sec.gov/Archives/edgar/data/1302404/0000909012-23-000086.txt,1302404,"10 S. LASALLE STREET SUITE 2401, CHICAGO, IL, 60603","Channing Capital Management, LLC",2023-06-30,127190,127190304,CACI INTERNATIONAL INC,11424275000.0,33518
+https://sec.gov/Archives/edgar/data/1302404/0000909012-23-000086.txt,1302404,"10 S. LASALLE STREET SUITE 2401, CHICAGO, IL, 60603","Channing Capital Management, LLC",2023-06-30,513272,513272104,LAMB WESTON HOLDINGS INC,8088572000.0,70366
+https://sec.gov/Archives/edgar/data/1302404/0000909012-23-000086.txt,1302404,"10 S. LASALLE STREET SUITE 2401, CHICAGO, IL, 60603","Channing Capital Management, LLC",2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,29807496000.0,1088262
+https://sec.gov/Archives/edgar/data/1302404/0000909012-23-000086.txt,1302404,"10 S. LASALLE STREET SUITE 2401, CHICAGO, IL, 60603","Channing Capital Management, LLC",2023-06-30,56117J,56117J100,MALIBU BOATS INC-A,327557000.0,5584
+https://sec.gov/Archives/edgar/data/1302404/0000909012-23-000086.txt,1302404,"10 S. LASALLE STREET SUITE 2401, CHICAGO, IL, 60603","Channing Capital Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC INC COM,6580894000.0,74698
+https://sec.gov/Archives/edgar/data/1302739/0001398344-23-014622.txt,1302739,"P.O. BOX 158187, NASHVILLE, TN, 37215","Covenant Partners, LLC",2023-06-30,053807,053807103,AVNET INC,219912000.0,4359
+https://sec.gov/Archives/edgar/data/1302739/0001398344-23-014622.txt,1302739,"P.O. BOX 158187, NASHVILLE, TN, 37215","Covenant Partners, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,738327000.0,4419
+https://sec.gov/Archives/edgar/data/1302739/0001398344-23-014622.txt,1302739,"P.O. BOX 158187, NASHVILLE, TN, 37215","Covenant Partners, LLC",2023-06-30,461202,461202103,INTUIT,230928000.0,504
+https://sec.gov/Archives/edgar/data/1302739/0001398344-23-014622.txt,1302739,"P.O. BOX 158187, NASHVILLE, TN, 37215","Covenant Partners, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,509213000.0,2593
+https://sec.gov/Archives/edgar/data/1302739/0001398344-23-014622.txt,1302739,"P.O. BOX 158187, NASHVILLE, TN, 37215","Covenant Partners, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,4039826000.0,11863
+https://sec.gov/Archives/edgar/data/1302739/0001398344-23-014622.txt,1302739,"P.O. BOX 158187, NASHVILLE, TN, 37215","Covenant Partners, LLC",2023-06-30,654106,654106103,NIKE INC,662330000.0,6001
+https://sec.gov/Archives/edgar/data/1302739/0001398344-23-014622.txt,1302739,"P.O. BOX 158187, NASHVILLE, TN, 37215","Covenant Partners, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1035582000.0,4053
+https://sec.gov/Archives/edgar/data/1302739/0001398344-23-014622.txt,1302739,"P.O. BOX 158187, NASHVILLE, TN, 37215","Covenant Partners, LLC",2023-06-30,704326,704326107,PAYCHEX INC,1336063000.0,11943
+https://sec.gov/Archives/edgar/data/1302739/0001398344-23-014622.txt,1302739,"P.O. BOX 158187, NASHVILLE, TN, 37215","Covenant Partners, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,592848000.0,3907
+https://sec.gov/Archives/edgar/data/1302739/0001398344-23-014622.txt,1302739,"P.O. BOX 158187, NASHVILLE, TN, 37215","Covenant Partners, LLC",2023-06-30,761152,761152107,RESMED INC,1020177000.0,4669
+https://sec.gov/Archives/edgar/data/1302739/0001398344-23-014622.txt,1302739,"P.O. BOX 158187, NASHVILLE, TN, 37215","Covenant Partners, LLC",2023-06-30,871829,871829107,SYSCO CORP,217035000.0,2925
+https://sec.gov/Archives/edgar/data/1302739/0001398344-23-014622.txt,1302739,"P.O. BOX 158187, NASHVILLE, TN, 37215","Covenant Partners, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,392397000.0,4454
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,00175J,00175J107,AMMO INC,167335000.0,78561
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,008073,008073108,AEROVIRONMENT INC,379254000.0,3708
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,758004000.0,14444
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,3606785000.0,16410
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,713725000.0,4309
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,128030,128030202,CAL MAINE FOODS INC,407773000.0,9062
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,1927967000.0,20387
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,327687000.0,5838
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,189054,189054109,CLOROX CO DEL,2211897000.0,13908
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,205887,205887102,CONAGRA BRANDS INC,453330000.0,13444
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,698531000.0,4181
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,31428X,31428X106,FEDEX CORP,4083430000.0,16472
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,370334,370334104,GENERAL MLS INC,2929915000.0,38200
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,1178086000.0,7040
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,461202,461202103,INTUIT,6626406000.0,14462
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,482480,482480100,KLA CORP,536997000.0,1107
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,512807,512807108,LAM RESEARCH CORP,1186081000.0,1845
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,464073000.0,4037
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,598483000.0,3048
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,594918,594918104,MICROSOFT CORP,83492892000.0,245178
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,300513000.0,6215
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,64110D,64110D104,NETAPP INC,317472000.0,4155
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,654106,654106103,NIKE INC,5543695000.0,50228
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,683715,683715106,OPEN TEXT CORP,457590000.0,11013
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1964105000.0,7687
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1278142000.0,3277
+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,704326,704326107,PAYCHEX INC,1835350000.0,16406
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+https://sec.gov/Archives/edgar/data/1303042/0001085146-23-003283.txt,1303042,"3200 OLYMPUS BLVD., SUITE 100, DALLAS, TX, 75019","AVANTAX ADVISORY SERVICES, INC.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,4136916000.0,46957
+https://sec.gov/Archives/edgar/data/1303159/0001303159-23-000004.txt,1303159,"888 BOYLSTON STREET, SUITE 1010, BOSTON, MA, 02199",SCS Capital Management LLC,2023-06-30,594918,594918104,MICROSOFT CORP,43561021000.0,127917
+https://sec.gov/Archives/edgar/data/1304229/0001085146-23-002950.txt,1304229,"450 SPRINGFIELD AVENUE, SUITE 301, SUMMIT, NJ, 07901-2610",SeaBridge Investment Advisors LLC,2023-06-30,128030,128030202,CAL MAINE FOODS INC,253890000.0,5642
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+https://sec.gov/Archives/edgar/data/1308331/0001308331-23-000004.txt,1308331,"230 CONGRESS ST, BOSTON, MA, 02110",Boit C F David,2023-06-30,461202,461202103,INTUIT INC COM,1534937000.0,3350
+https://sec.gov/Archives/edgar/data/1308331/0001308331-23-000004.txt,1308331,"230 CONGRESS ST, BOSTON, MA, 02110",Boit C F David,2023-06-30,594918,594918104,MICROSOFT CORP COM,10626210000.0,31204
+https://sec.gov/Archives/edgar/data/1308331/0001308331-23-000004.txt,1308331,"230 CONGRESS ST, BOSTON, MA, 02110",Boit C F David,2023-06-30,654106,654106103,NIKE INC CL B,165555000.0,1500
+https://sec.gov/Archives/edgar/data/1308331/0001308331-23-000004.txt,1308331,"230 CONGRESS ST, BOSTON, MA, 02110",Boit C F David,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP COM,585060000.0,1500
+https://sec.gov/Archives/edgar/data/1308331/0001308331-23-000004.txt,1308331,"230 CONGRESS ST, BOSTON, MA, 02110",Boit C F David,2023-06-30,742718,742718109,PROCTER & GAMBLE CO COM,3591989000.0,23672
+https://sec.gov/Archives/edgar/data/1308377/0001308377-23-000003.txt,1308377,"17830 NEW HAMPSHIRE AVENUE, SUITE 201, ASHTON, MD, 20861","Lafayette Investments, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,674756000.0,3070
+https://sec.gov/Archives/edgar/data/1308377/0001308377-23-000003.txt,1308377,"17830 NEW HAMPSHIRE AVENUE, SUITE 201, ASHTON, MD, 20861","Lafayette Investments, Inc.",2023-06-30,31428X,31428X106,FEDEX CORP,329707000.0,1330
+https://sec.gov/Archives/edgar/data/1308377/0001308377-23-000003.txt,1308377,"17830 NEW HAMPSHIRE AVENUE, SUITE 201, ASHTON, MD, 20861","Lafayette Investments, Inc.",2023-06-30,482480,482480100,KLA CORP,9306516000.0,19188
+https://sec.gov/Archives/edgar/data/1308377/0001308377-23-000003.txt,1308377,"17830 NEW HAMPSHIRE AVENUE, SUITE 201, ASHTON, MD, 20861","Lafayette Investments, Inc.",2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,3809749000.0,20259
+https://sec.gov/Archives/edgar/data/1308377/0001308377-23-000003.txt,1308377,"17830 NEW HAMPSHIRE AVENUE, SUITE 201, ASHTON, MD, 20861","Lafayette Investments, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,11804871000.0,34665
+https://sec.gov/Archives/edgar/data/1308377/0001308377-23-000003.txt,1308377,"17830 NEW HAMPSHIRE AVENUE, SUITE 201, ASHTON, MD, 20861","Lafayette Investments, Inc.",2023-06-30,654106,654106103,NIKE INC,1931881000.0,17504
+https://sec.gov/Archives/edgar/data/1308377/0001308377-23-000003.txt,1308377,"17830 NEW HAMPSHIRE AVENUE, SUITE 201, ASHTON, MD, 20861","Lafayette Investments, Inc.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,4294104000.0,11009
+https://sec.gov/Archives/edgar/data/1308377/0001308377-23-000003.txt,1308377,"17830 NEW HAMPSHIRE AVENUE, SUITE 201, ASHTON, MD, 20861","Lafayette Investments, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,9621933000.0,86010
+https://sec.gov/Archives/edgar/data/1308377/0001308377-23-000003.txt,1308377,"17830 NEW HAMPSHIRE AVENUE, SUITE 201, ASHTON, MD, 20861","Lafayette Investments, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,321484000.0,2119
+https://sec.gov/Archives/edgar/data/1308527/0001308527-23-000004.txt,1308527,"521 FIFTH AVENUE, 19ND FLOOR, NEW YORK, NY, 10175","Douglass Winthrop Advisors, LLC",2023-06-30,053015,053015103,AUTO DATA PROCESSING,5167483000.0,23511
+https://sec.gov/Archives/edgar/data/1308527/0001308527-23-000004.txt,1308527,"521 FIFTH AVENUE, 19ND FLOOR, NEW YORK, NY, 10175","Douglass Winthrop Advisors, LLC",2023-06-30,115637,115637100,BROWN FORMAN CORP CL A,888722000.0,13056
+https://sec.gov/Archives/edgar/data/1308527/0001308527-23-000004.txt,1308527,"521 FIFTH AVENUE, 19ND FLOOR, NEW YORK, NY, 10175","Douglass Winthrop Advisors, LLC",2023-06-30,370334,370334104,GENERAL MLS INC COM,404056000.0,5268
+https://sec.gov/Archives/edgar/data/1308527/0001308527-23-000004.txt,1308527,"521 FIFTH AVENUE, 19ND FLOOR, NEW YORK, NY, 10175","Douglass Winthrop Advisors, LLC",2023-06-30,461202,461202103,INTUIT INC,2017411000.0,4403
+https://sec.gov/Archives/edgar/data/1308527/0001308527-23-000004.txt,1308527,"521 FIFTH AVENUE, 19ND FLOOR, NEW YORK, NY, 10175","Douglass Winthrop Advisors, LLC",2023-06-30,518439,518439104,ESTEE LAUDERCO INC CLASS A,252152000.0,1284
+https://sec.gov/Archives/edgar/data/1308527/0001308527-23-000004.txt,1308527,"521 FIFTH AVENUE, 19ND FLOOR, NEW YORK, NY, 10175","Douglass Winthrop Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP COM,235525616000.0,691624
+https://sec.gov/Archives/edgar/data/1308527/0001308527-23-000004.txt,1308527,"521 FIFTH AVENUE, 19ND FLOOR, NEW YORK, NY, 10175","Douglass Winthrop Advisors, LLC",2023-06-30,654106,654106103,NIKE INC CL B,90798504000.0,822674
+https://sec.gov/Archives/edgar/data/1308527/0001308527-23-000004.txt,1308527,"521 FIFTH AVENUE, 19ND FLOOR, NEW YORK, NY, 10175","Douglass Winthrop Advisors, LLC",2023-06-30,704326,704326107,PAYCHEX INC,1008396000.0,9014
+https://sec.gov/Archives/edgar/data/1308527/0001308527-23-000004.txt,1308527,"521 FIFTH AVENUE, 19ND FLOOR, NEW YORK, NY, 10175","Douglass Winthrop Advisors, LLC",2023-06-30,742718,742718109,PROCTER & GAMBLE COMPANY COM,11839665000.0,78026
+https://sec.gov/Archives/edgar/data/1308527/0001308527-23-000004.txt,1308527,"521 FIFTH AVENUE, 19ND FLOOR, NEW YORK, NY, 10175","Douglass Winthrop Advisors, LLC",2023-06-30,832696,832696405,JM SMUCKER CO/THE,804801000.0,5450
+https://sec.gov/Archives/edgar/data/1308527/0001308527-23-000004.txt,1308527,"521 FIFTH AVENUE, 19ND FLOOR, NEW YORK, NY, 10175","Douglass Winthrop Advisors, LLC",2023-06-30,871829,871829107,SYSCO CORP,430731000.0,5805
+https://sec.gov/Archives/edgar/data/1308527/0001308527-23-000004.txt,1308527,"521 FIFTH AVENUE, 19ND FLOOR, NEW YORK, NY, 10175","Douglass Winthrop Advisors, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC F,250081000.0,2839
+https://sec.gov/Archives/edgar/data/1308685/0001308685-23-000007.txt,1308685,"625 WISCONSIN AVENUE, WHITEFISH, MT, 59937","Stack Financial Management, Inc",2023-06-30,594918,594918104,MICROSOFT CORP,103684479000.0,304471
+https://sec.gov/Archives/edgar/data/1308685/0001308685-23-000007.txt,1308685,"625 WISCONSIN AVENUE, WHITEFISH, MT, 59937","Stack Financial Management, Inc",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,14935367000.0,98427
+https://sec.gov/Archives/edgar/data/1308685/0001308685-23-000007.txt,1308685,"625 WISCONSIN AVENUE, WHITEFISH, MT, 59937","Stack Financial Management, Inc",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,9784739000.0,111064
+https://sec.gov/Archives/edgar/data/1308778/0001308778-23-000004.txt,1308778,"10050 REGENCY CIRCLE, SUITE 515, OMAHA, NE, 68114","America First Investment Advisors, LLC",2023-06-30,053015,053015103,Automatic Data Processin,19330788000.0,87951
+https://sec.gov/Archives/edgar/data/1308778/0001308778-23-000004.txt,1308778,"10050 REGENCY CIRCLE, SUITE 515, OMAHA, NE, 68114","America First Investment Advisors, LLC",2023-06-30,189054,189054109,Clorox Co.,11945494000.0,75110
+https://sec.gov/Archives/edgar/data/1308778/0001308778-23-000004.txt,1308778,"10050 REGENCY CIRCLE, SUITE 515, OMAHA, NE, 68114","America First Investment Advisors, LLC",2023-06-30,594918,594918104,Microsoft Corp.,894939000.0,2628
+https://sec.gov/Archives/edgar/data/1308778/0001308778-23-000004.txt,1308778,"10050 REGENCY CIRCLE, SUITE 515, OMAHA, NE, 68114","America First Investment Advisors, LLC",2023-06-30,654106,654106103,Nike Inc. - CL B,24723000.0,224
+https://sec.gov/Archives/edgar/data/1308778/0001308778-23-000004.txt,1308778,"10050 REGENCY CIRCLE, SUITE 515, OMAHA, NE, 68114","America First Investment Advisors, LLC",2023-06-30,742718,742718109,The Procter & Gamble Co.,681616000.0,4492
+https://sec.gov/Archives/edgar/data/1308778/0001308778-23-000004.txt,1308778,"10050 REGENCY CIRCLE, SUITE 515, OMAHA, NE, 68114","America First Investment Advisors, LLC",2023-06-30,G5960L,G5960L103,Medtronic Inc.,61229000.0,695
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,018802,018802108,Alliant Energy Corp,2348953000.0,44759
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,1221593000.0,5558
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,09073M,09073M104,Bio-Techne Corp,1519869000.0,18619
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,189054,189054109,Clorox Co/The,370563000.0,2330
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,31428X,31428X106,FEDEX CORP,160143000.0,646
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,370334,370334104,GENERAL MILLS INC,295065000.0,3847
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,482480,482480100,KLA Corp,2569151000.0,5297
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,518439,518439104,ESTEE LAUDER COS,2656629000.0,13528
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,594918,594918104,MICROSOFT CORP,28225998000.0,82886
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,654106,654106103,NIKE INC,6388657000.0,57884
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,697435,697435105,Palo Alto Networks Inc,6381617000.0,24976
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,704326,704326107,Paychex Inc,1037930000.0,9278
+https://sec.gov/Archives/edgar/data/1309148/0001309148-23-000006.txt,1309148,"590 West Forevergreen Road, North Liberty, IA, 52317",Hills Bank & Trust Co,2023-06-30,742718,742718109,Procter & Gamble Co/The,19893114000.0,131100
+https://sec.gov/Archives/edgar/data/1310929/0001310929-23-000003.txt,1310929,"710 GREEN STREET, GAINESVILLE, GA, 30501",Willis Investment Counsel,2023-06-30,053015,053015103,Automatic Data Proc,11715247000.0,53302
+https://sec.gov/Archives/edgar/data/1310929/0001310929-23-000003.txt,1310929,"710 GREEN STREET, GAINESVILLE, GA, 30501",Willis Investment Counsel,2023-06-30,189054,189054109,Clorox Co Del Com,32060237000.0,201586
+https://sec.gov/Archives/edgar/data/1310929/0001310929-23-000003.txt,1310929,"710 GREEN STREET, GAINESVILLE, GA, 30501",Willis Investment Counsel,2023-06-30,237194,237194105,Darden Restaurants Inc,7586434000.0,45406
+https://sec.gov/Archives/edgar/data/1310929/0001310929-23-000003.txt,1310929,"710 GREEN STREET, GAINESVILLE, GA, 30501",Willis Investment Counsel,2023-06-30,426281,426281101,Jack Henry & Associates,518556000.0,3099
+https://sec.gov/Archives/edgar/data/1310929/0001310929-23-000003.txt,1310929,"710 GREEN STREET, GAINESVILLE, GA, 30501",Willis Investment Counsel,2023-06-30,594918,594918104,Microsoft Corp,52938646000.0,155455
+https://sec.gov/Archives/edgar/data/1310929/0001310929-23-000003.txt,1310929,"710 GREEN STREET, GAINESVILLE, GA, 30501",Willis Investment Counsel,2023-06-30,635017,635017106,National Beverage Corp,315049000.0,6516
+https://sec.gov/Archives/edgar/data/1310929/0001310929-23-000003.txt,1310929,"710 GREEN STREET, GAINESVILLE, GA, 30501",Willis Investment Counsel,2023-06-30,704326,704326107,Paychex Inc,35366917000.0,316143
+https://sec.gov/Archives/edgar/data/1310929/0001310929-23-000003.txt,1310929,"710 GREEN STREET, GAINESVILLE, GA, 30501",Willis Investment Counsel,2023-06-30,742718,742718109,Procter & Gamble Co,15391747000.0,101435
+https://sec.gov/Archives/edgar/data/1310929/0001310929-23-000003.txt,1310929,"710 GREEN STREET, GAINESVILLE, GA, 30501",Willis Investment Counsel,2023-06-30,968223,968223206,Wiley John & Sons Cl A,2531730000.0,74397
+https://sec.gov/Archives/edgar/data/1310929/0001310929-23-000003.txt,1310929,"710 GREEN STREET, GAINESVILLE, GA, 30501",Willis Investment Counsel,2023-06-30,G5960L,G5960L103,Medtronic Inc,34134786000.0,387455
+https://sec.gov/Archives/edgar/data/1313294/0001313294-23-000007.txt,1313294,"1333 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TX, 77027","Linscomb & Williams, Inc.",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,308583000.0,5880
+https://sec.gov/Archives/edgar/data/1313294/0001313294-23-000007.txt,1313294,"1333 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TX, 77027","Linscomb & Williams, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,979431000.0,4456
+https://sec.gov/Archives/edgar/data/1313294/0001313294-23-000007.txt,1313294,"1333 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TX, 77027","Linscomb & Williams, Inc.",2023-06-30,370334,370334104,GENERAL MLS INC,9811859000.0,127925
+https://sec.gov/Archives/edgar/data/1313294/0001313294-23-000007.txt,1313294,"1333 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TX, 77027","Linscomb & Williams, Inc.",2023-06-30,512807,512807108,LAM RESEARCH CORP,14352688000.0,22326
+https://sec.gov/Archives/edgar/data/1313294/0001313294-23-000007.txt,1313294,"1333 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TX, 77027","Linscomb & Williams, Inc.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,288483000.0,1469
+https://sec.gov/Archives/edgar/data/1313294/0001313294-23-000007.txt,1313294,"1333 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TX, 77027","Linscomb & Williams, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,40929361000.0,120190
+https://sec.gov/Archives/edgar/data/1313294/0001313294-23-000007.txt,1313294,"1333 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TX, 77027","Linscomb & Williams, Inc.",2023-06-30,654106,654106103,NIKE INC,562777000.0,5099
+https://sec.gov/Archives/edgar/data/1313294/0001313294-23-000007.txt,1313294,"1333 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TX, 77027","Linscomb & Williams, Inc.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,4906048000.0,19201
+https://sec.gov/Archives/edgar/data/1313294/0001313294-23-000007.txt,1313294,"1333 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TX, 77027","Linscomb & Williams, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,641168000.0,5731
+https://sec.gov/Archives/edgar/data/1313294/0001313294-23-000007.txt,1313294,"1333 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TX, 77027","Linscomb & Williams, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,12727297000.0,83876
+https://sec.gov/Archives/edgar/data/1313294/0001313294-23-000007.txt,1313294,"1333 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TX, 77027","Linscomb & Williams, Inc.",2023-06-30,871829,871829107,SYSCO CORP,430138000.0,5797
+https://sec.gov/Archives/edgar/data/1313294/0001313294-23-000007.txt,1313294,"1333 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TX, 77027","Linscomb & Williams, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,6159380000.0,69914
+https://sec.gov/Archives/edgar/data/1313360/0001313360-23-000005.txt,1313360,"245 PARK AVENUE, NEW YORK, NY, 10167","SG Americas Securities, LLC",2023-06-30,008073,008073108,AEROVIRONMENT INC COM,135000.0,1319
+https://sec.gov/Archives/edgar/data/1313360/0001313360-23-000005.txt,1313360,"245 PARK AVENUE, NEW YORK, NY, 10167","SG Americas Securities, LLC",2023-06-30,018802,018802108,ALLIANT ENERGY CORP COM,1413000.0,26931
+https://sec.gov/Archives/edgar/data/1313360/0001313360-23-000005.txt,1313360,"245 PARK AVENUE, NEW YORK, NY, 10167","SG Americas Securities, LLC",2023-06-30,023586,023586100,U HAUL HOLDING COMPANY COM,139000.0,2521
+https://sec.gov/Archives/edgar/data/1313360/0001313360-23-000005.txt,1313360,"245 PARK AVENUE, NEW YORK, NY, 10167","SG Americas Securities, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN COM,11364000.0,51702
+https://sec.gov/Archives/edgar/data/1313360/0001313360-23-000005.txt,1313360,"245 PARK AVENUE, NEW YORK, NY, 10167","SG Americas Securities, LLC",2023-06-30,053807,053807103,AVNET INC COM,4727000.0,93691
+https://sec.gov/Archives/edgar/data/1313360/0001313360-23-000005.txt,1313360,"245 PARK AVENUE, NEW YORK, NY, 10167","SG Americas Securities, LLC",2023-06-30,09073M,09073M104,BIO-TECHNE CORP COM,900000.0,11021
+https://sec.gov/Archives/edgar/data/1313360/0001313360-23-000005.txt,1313360,"245 PARK AVENUE, NEW YORK, NY, 10167","SG Americas Securities, LLC",2023-06-30,093671,093671105,BLOCK H & R INC COM,243000.0,7627
+https://sec.gov/Archives/edgar/data/1313360/0001313360-23-000005.txt,1313360,"245 PARK AVENUE, NEW YORK, NY, 10167","SG Americas Securities, LLC",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN COM,2422000.0,14621
+https://sec.gov/Archives/edgar/data/1313360/0001313360-23-000005.txt,1313360,"245 PARK AVENUE, NEW YORK, NY, 10167","SG Americas Securities, LLC",2023-06-30,115637,115637209,BROWN FORMAN CORP CL B,2635000.0,39459
+https://sec.gov/Archives/edgar/data/1313360/0001313360-23-000005.txt,1313360,"245 PARK AVENUE, NEW YORK, NY, 10167","SG Americas Securities, LLC",2023-06-30,127190,127190304,CACI INTL INC CL A,456000.0,1339
+https://sec.gov/Archives/edgar/data/1313360/0001313360-23-000005.txt,1313360,"245 PARK AVENUE, NEW YORK, NY, 10167","SG Americas Securities, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC COM,2616000.0,27661
+https://sec.gov/Archives/edgar/data/1313360/0001313360-23-000005.txt,1313360,"245 PARK AVENUE, NEW YORK, NY, 10167","SG Americas Securities, LLC",2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP COM,1429000.0,25456
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+https://sec.gov/Archives/edgar/data/1314376/0001314376-23-000003.txt,1314376,"HEMENWAY & BARNES LLP, 60 STATE STREET, BOSTON, MA, 02109",Broderick Brian C,2023-06-30,654106,654106103,NIKE INC CLASS B,3324454000.0,30121
+https://sec.gov/Archives/edgar/data/1314376/0001314376-23-000003.txt,1314376,"HEMENWAY & BARNES LLP, 60 STATE STREET, BOSTON, MA, 02109",Broderick Brian C,2023-06-30,742718,742718109,PROCTER & GAMBLE,13110337000.0,86400
+https://sec.gov/Archives/edgar/data/1314376/0001314376-23-000003.txt,1314376,"HEMENWAY & BARNES LLP, 60 STATE STREET, BOSTON, MA, 02109",Broderick Brian C,2023-06-30,G5960L,G5960L103,MEDTRONIC,2377465000.0,26986
+https://sec.gov/Archives/edgar/data/1314377/0001314377-23-000003.txt,1314377,"HEMENWAY & BARNES LLP, 60 STATE STREET, BOSTON, MA, 02109",Kidder Stephen W,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,14169200000.0,64467
+https://sec.gov/Archives/edgar/data/1314377/0001314377-23-000003.txt,1314377,"HEMENWAY & BARNES LLP, 60 STATE STREET, BOSTON, MA, 02109",Kidder Stephen W,2023-06-30,11133T,11133T103,BROADRIDGE FINANCIAL SOLUTIONS,505171000.0,3050
+https://sec.gov/Archives/edgar/data/1314377/0001314377-23-000003.txt,1314377,"HEMENWAY & BARNES LLP, 60 STATE STREET, BOSTON, MA, 02109",Kidder Stephen W,2023-06-30,370334,370334104,GENERAL MILLS,598260000.0,7800
+https://sec.gov/Archives/edgar/data/1314377/0001314377-23-000003.txt,1314377,"HEMENWAY & BARNES LLP, 60 STATE STREET, BOSTON, MA, 02109",Kidder Stephen W,2023-06-30,594918,594918104,MICROSOFT,13266416000.0,38957
+https://sec.gov/Archives/edgar/data/1314377/0001314377-23-000003.txt,1314377,"HEMENWAY & BARNES LLP, 60 STATE STREET, BOSTON, MA, 02109",Kidder Stephen W,2023-06-30,654106,654106103,NIKE INC CLASS B,3830059000.0,34702
+https://sec.gov/Archives/edgar/data/1314377/0001314377-23-000003.txt,1314377,"HEMENWAY & BARNES LLP, 60 STATE STREET, BOSTON, MA, 02109",Kidder Stephen W,2023-06-30,704326,704326107,PAYCHEX,243317000.0,2175
+https://sec.gov/Archives/edgar/data/1314377/0001314377-23-000003.txt,1314377,"HEMENWAY & BARNES LLP, 60 STATE STREET, BOSTON, MA, 02109",Kidder Stephen W,2023-06-30,742718,742718109,PROCTER & GAMBLE,10020759000.0,66039
+https://sec.gov/Archives/edgar/data/1314377/0001314377-23-000003.txt,1314377,"HEMENWAY & BARNES LLP, 60 STATE STREET, BOSTON, MA, 02109",Kidder Stephen W,2023-06-30,G5960L,G5960L103,MEDTRONIC,1674780000.0,19010
+https://sec.gov/Archives/edgar/data/1314404/0001314404-23-000003.txt,1314404,"2001 BUTTERFIELD ROAD, SUITE 1400, DOWNERS GROVE, IL, 60515","JMG Financial Group, Ltd.",2023-06-30,594918,594918104,Microsoft Corp,1728000.0,5074
+https://sec.gov/Archives/edgar/data/1314404/0001314404-23-000003.txt,1314404,"2001 BUTTERFIELD ROAD, SUITE 1400, DOWNERS GROVE, IL, 60515","JMG Financial Group, Ltd.",2023-06-30,742718,742718109,Procter & Gamble Co,352000.0,2320
+https://sec.gov/Archives/edgar/data/1314440/0001314440-23-000012.txt,1314440,"111 Center Street, Little Rock, AR, 72201",Stephens Investment Management Group LLC,2023-06-30,008073,008073108,AEROVIRONMENT INC,86601294000.0,846708
+https://sec.gov/Archives/edgar/data/1314440/0001314440-23-000012.txt,1314440,"111 Center Street, Little Rock, AR, 72201",Stephens Investment Management Group LLC,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,54824014000.0,671616
+https://sec.gov/Archives/edgar/data/1314440/0001314440-23-000012.txt,1314440,"111 Center Street, Little Rock, AR, 72201",Stephens Investment Management Group LLC,2023-06-30,115637,115637209,BROWN FORMAN CORP,8564335000.0,128247
+https://sec.gov/Archives/edgar/data/1314440/0001314440-23-000012.txt,1314440,"111 Center Street, Little Rock, AR, 72201",Stephens Investment Management Group LLC,2023-06-30,482480,482480100,KLA CORP,7991675000.0,16477
+https://sec.gov/Archives/edgar/data/1314440/0001314440-23-000012.txt,1314440,"111 Center Street, Little Rock, AR, 72201",Stephens Investment Management Group LLC,2023-06-30,594918,594918104,MICROSOFT CORP,887107000.0,2605
+https://sec.gov/Archives/edgar/data/1314440/0001314440-23-000012.txt,1314440,"111 Center Street, Little Rock, AR, 72201",Stephens Investment Management Group LLC,2023-06-30,640491,640491106,NEOGEN CORP,46768177000.0,2150261
+https://sec.gov/Archives/edgar/data/1314440/0001314440-23-000012.txt,1314440,"111 Center Street, Little Rock, AR, 72201",Stephens Investment Management Group LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,94284468000.0,369005
+https://sec.gov/Archives/edgar/data/1314440/0001314440-23-000012.txt,1314440,"111 Center Street, Little Rock, AR, 72201",Stephens Investment Management Group LLC,2023-06-30,761152,761152107,RESMED INC,59253267000.0,271182
+https://sec.gov/Archives/edgar/data/1314620/0001398344-23-014729.txt,1314620,"7255 WOODMONT AVE, SUITE 260, BETHESDA, MD, 20814","Hillman Capital Management, Inc.",2023-06-30,205887,205887102,CONAGRA BRANDS INC,5255262000.0,155850
+https://sec.gov/Archives/edgar/data/1314620/0001398344-23-014729.txt,1314620,"7255 WOODMONT AVE, SUITE 260, BETHESDA, MD, 20814","Hillman Capital Management, Inc.",2023-06-30,512807,512807108,LAM RESEARCH CORP,8674110000.0,13493
+https://sec.gov/Archives/edgar/data/1314620/0001398344-23-014729.txt,1314620,"7255 WOODMONT AVE, SUITE 260, BETHESDA, MD, 20814","Hillman Capital Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,11909365000.0,34972
+https://sec.gov/Archives/edgar/data/1314620/0001398344-23-014729.txt,1314620,"7255 WOODMONT AVE, SUITE 260, BETHESDA, MD, 20814","Hillman Capital Management, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,531067000.0,6028
+https://sec.gov/Archives/edgar/data/1315059/0001315059-23-000003.txt,1315059,"5550 W. EXECUTIVE DRIVE, SUITE 320, TAMPA, FL, 33609",Suncoast Equity Management,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,20662678000.0,94011
+https://sec.gov/Archives/edgar/data/1315059/0001315059-23-000003.txt,1315059,"5550 W. EXECUTIVE DRIVE, SUITE 320, TAMPA, FL, 33609",Suncoast Equity Management,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,3189206000.0,19255
+https://sec.gov/Archives/edgar/data/1315059/0001315059-23-000003.txt,1315059,"5550 W. EXECUTIVE DRIVE, SUITE 320, TAMPA, FL, 33609",Suncoast Equity Management,2023-06-30,31428X,31428X106,FEDEX CORP,722660000.0,2915
+https://sec.gov/Archives/edgar/data/1315059/0001315059-23-000003.txt,1315059,"5550 W. EXECUTIVE DRIVE, SUITE 320, TAMPA, FL, 33609",Suncoast Equity Management,2023-06-30,461202,461202103,INTUIT,32940673000.0,71893
+https://sec.gov/Archives/edgar/data/1315059/0001315059-23-000003.txt,1315059,"5550 W. EXECUTIVE DRIVE, SUITE 320, TAMPA, FL, 33609",Suncoast Equity Management,2023-06-30,482480,482480100,KLA CORP,14291580000.0,29466
+https://sec.gov/Archives/edgar/data/1315059/0001315059-23-000003.txt,1315059,"5550 W. EXECUTIVE DRIVE, SUITE 320, TAMPA, FL, 33609",Suncoast Equity Management,2023-06-30,594918,594918104,MICROSOFT CORP,58042736000.0,170443
+https://sec.gov/Archives/edgar/data/1315059/0001315059-23-000003.txt,1315059,"5550 W. EXECUTIVE DRIVE, SUITE 320, TAMPA, FL, 33609",Suncoast Equity Management,2023-06-30,654106,654106103,NIKE INC,17746111000.0,160787
+https://sec.gov/Archives/edgar/data/1315269/0001315269-23-000004.txt,1315269,"800 BERING DRIVE, STE 208, HOUSTON, TX, 77057","Scott & Selber, Inc.",2023-06-30,053015,053015103,Automatic Data Processing,255000.0,1160
+https://sec.gov/Archives/edgar/data/1315269/0001315269-23-000004.txt,1315269,"800 BERING DRIVE, STE 208, HOUSTON, TX, 77057","Scott & Selber, Inc.",2023-06-30,461202,461202103,Intuit Inc,1982000.0,4326
+https://sec.gov/Archives/edgar/data/1315269/0001315269-23-000004.txt,1315269,"800 BERING DRIVE, STE 208, HOUSTON, TX, 77057","Scott & Selber, Inc.",2023-06-30,512807,512807108,Lam Research,2018000.0,3139
+https://sec.gov/Archives/edgar/data/1315269/0001315269-23-000004.txt,1315269,"800 BERING DRIVE, STE 208, HOUSTON, TX, 77057","Scott & Selber, Inc.",2023-06-30,518439,518439104,Estee Lauder Co,803000.0,4089
+https://sec.gov/Archives/edgar/data/1315269/0001315269-23-000004.txt,1315269,"800 BERING DRIVE, STE 208, HOUSTON, TX, 77057","Scott & Selber, Inc.",2023-06-30,594918,594918104,Microsoft Corp,16574000.0,48669
+https://sec.gov/Archives/edgar/data/1315269/0001315269-23-000004.txt,1315269,"800 BERING DRIVE, STE 208, HOUSTON, TX, 77057","Scott & Selber, Inc.",2023-06-30,742718,742718109,Procter & Gamble,2362000.0,15564
+https://sec.gov/Archives/edgar/data/1315269/0001315269-23-000004.txt,1315269,"800 BERING DRIVE, STE 208, HOUSTON, TX, 77057","Scott & Selber, Inc.",2023-06-30,871829,871829107,Sysco Corporation,2410000.0,32484
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,1351710000.0,6150
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INCORPORATED,387076000.0,4093
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,189054,189054109,CLOROX COMPANY,320943000.0,2018
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC.,1129125000.0,6758
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,370334,370334104,GENERAL MILLS,272898000.0,3558
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,461202,461202103,INTUIT COM,733104000.0,1600
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,518439,518439104,LAUDER ESTEE CO,296927000.0,1512
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,594918,594918104,MICROSOFT,34373775000.0,100939
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,654106,654106103,NIKE INCORPORATED CLASS B,3404254000.0,30844
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,704326,704326107,PAYCHEX INC,8711437000.0,77871
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,742718,742718109,PROCTER & GAMBLE COMPANY,42897521000.0,282704
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,832696,832696405,SMUCKER (J.M.) COMPANY,350866000.0,2376
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,871829,871829107,SYSCO CORP,318466000.0,4292
+https://sec.gov/Archives/edgar/data/1315339/0001315339-23-000003.txt,1315339,"300 HIGH STREET, HAMILTON, OH, 45011",FIRST FINANCIAL BANK - TRUST DIVISION,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC IE IRELAND,955092000.0,10841
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,1250216000.0,36407
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,639675000.0,8376
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,244959000.0,2455
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,583230000.0,4027
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,189054,189054109,CLOROX CO DEL,9730067000.0,61180
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,222070,222070203,COTY INC,7490386000.0,609470
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,2435023000.0,14574
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,36251C,36251C103,GMS INC,1210377000.0,17491
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,370334,370334104,GENERAL MLS INC,5216060000.0,68006
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,423344000.0,2530
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,461202,461202103,INTUIT,11314085000.0,24693
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,482480,482480100,KLA CORP,1765472000.0,3640
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,489170,489170100,KENNAMETAL INC,826773000.0,29122
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,505336,505336107,LA Z BOY INC,222189000.0,7758
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,561185000.0,4882
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,513847,513847103,LANCASTER COLONY CORP,255183000.0,1269
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,3089450000.0,15732
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,274553000.0,1460
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,594918,594918104,MICROSOFT CORP,36691822000.0,107746
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,600544,600544100,MILLERKNOLL INC,1546830000.0,104657
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,65249B,65249B208,NEWS CORP NEW,247190000.0,12535
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,683715,683715106,OPEN TEXT CORP,500137000.0,12037
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,3120710000.0,8001
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,703395,703395103,PATTERSON COS INC,322222000.0,9688
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,704326,704326107,PAYCHEX INC,3352520000.0,29968
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,2968349000.0,16086
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,592245000.0,77015
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,74051N,74051N102,PREMIER INC,455643000.0,16473
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3572263000.0,23542
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,761152,761152107,RESMED INC,5608458000.0,25668
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,197364000.0,12563
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,806037,806037107,SCANSOURCE INC,307808000.0,10413
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,86333M,86333M108,STRIDE INC,1026282000.0,27566
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,87157D,87157D109,SYNAPTICS INC,935423000.0,10956
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,871829,871829107,SYSCO CORP,8175356000.0,110180
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,981811,981811102,WORTHINGTON INDS INC,417862000.0,6015
+https://sec.gov/Archives/edgar/data/1315421/0001140361-23-039362.txt,1315421,"40 HIGHLAND AVENUE, ROWAYTON, CT, 06853","Graham Capital Management, L.P.",2023-06-30,G2143T,G2143T103,CIMPRESS PLC,259689000.0,4366
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+https://sec.gov/Archives/edgar/data/1315478/0001315478-23-000045.txt,1315478,"180 BATTERY STREET, SUITE 400, BURLINGTON, VT, 05401","Champlain Investment Partners, LLC",2023-06-30,115637,115637209,BROWN FORMAN CORP,157898973000.0,2364465
+https://sec.gov/Archives/edgar/data/1315478/0001315478-23-000045.txt,1315478,"180 BATTERY STREET, SUITE 400, BURLINGTON, VT, 05401","Champlain Investment Partners, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,184122835000.0,1157714
+https://sec.gov/Archives/edgar/data/1315478/0001315478-23-000045.txt,1315478,"180 BATTERY STREET, SUITE 400, BURLINGTON, VT, 05401","Champlain Investment Partners, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,113841307000.0,990355
+https://sec.gov/Archives/edgar/data/1315478/0001315478-23-000045.txt,1315478,"180 BATTERY STREET, SUITE 400, BURLINGTON, VT, 05401","Champlain Investment Partners, LLC",2023-06-30,513847,513847103,LANCASTER COLONY CORP,130727201000.0,650093
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+https://sec.gov/Archives/edgar/data/1315478/0001315478-23-000045.txt,1315478,"180 BATTERY STREET, SUITE 400, BURLINGTON, VT, 05401","Champlain Investment Partners, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,192645086000.0,753963
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+https://sec.gov/Archives/edgar/data/1315478/0001315478-23-000045.txt,1315478,"180 BATTERY STREET, SUITE 400, BURLINGTON, VT, 05401","Champlain Investment Partners, LLC",2023-06-30,968223,968223206,WILEY JOHN & SONS INC,68226407000.0,2004890
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+https://sec.gov/Archives/edgar/data/1315868/0000950123-23-007381.txt,1315868,"181 BAY ST., Suite 4510, BROOKFIELD PLACE, Toronto, A6, M5J 2T3",Burgundy Asset Management Ltd.,2023-06-30,594918,594918104,MICROSOFT CORP,343920000000.0,1009925
+https://sec.gov/Archives/edgar/data/1315868/0000950123-23-007381.txt,1315868,"181 BAY ST., Suite 4510, BROOKFIELD PLACE, Toronto, A6, M5J 2T3",Burgundy Asset Management Ltd.,2023-06-30,65249B,65249B109,NEWS CORP NEW,193503000000.0,9923253
+https://sec.gov/Archives/edgar/data/1315868/0000950123-23-007381.txt,1315868,"181 BAY ST., Suite 4510, BROOKFIELD PLACE, Toronto, A6, M5J 2T3",Burgundy Asset Management Ltd.,2023-06-30,74051N,74051N102,PREMIER INC,93272000000.0,3372075
+https://sec.gov/Archives/edgar/data/1315868/0000950123-23-007381.txt,1315868,"181 BAY ST., Suite 4510, BROOKFIELD PLACE, Toronto, A6, M5J 2T3",Burgundy Asset Management Ltd.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,190204000000.0,1253486
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+https://sec.gov/Archives/edgar/data/1315926/0000950123-23-006384.txt,1315926,"601 California Street, Suite 1701, San Francisco, CA, 94108","Watershed Asset Management, L.L.C.",2023-06-30,053807,053807103,AVNET INC,315514000.0,6254
+https://sec.gov/Archives/edgar/data/1315926/0000950123-23-006384.txt,1315926,"601 California Street, Suite 1701, San Francisco, CA, 94108","Watershed Asset Management, L.L.C.",2023-06-30,128030,128030202,CAL MAINE FOODS INC,219510000.0,4878
+https://sec.gov/Archives/edgar/data/1315926/0000950123-23-006384.txt,1315926,"601 California Street, Suite 1701, San Francisco, CA, 94108","Watershed Asset Management, L.L.C.",2023-06-30,35137L,35137L105,FOX CORP,282370000.0,8305
+https://sec.gov/Archives/edgar/data/1315926/0000950123-23-006384.txt,1315926,"601 California Street, Suite 1701, San Francisco, CA, 94108","Watershed Asset Management, L.L.C.",2023-06-30,36251C,36251C103,GMS INC,276800000.0,4000
+https://sec.gov/Archives/edgar/data/1315926/0000950123-23-006384.txt,1315926,"601 California Street, Suite 1701, San Francisco, CA, 94108","Watershed Asset Management, L.L.C.",2023-06-30,482480,482480100,KLA CORP,293922000.0,606
+https://sec.gov/Archives/edgar/data/1315926/0000950123-23-006384.txt,1315926,"601 California Street, Suite 1701, San Francisco, CA, 94108","Watershed Asset Management, L.L.C.",2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,307246000.0,11120
+https://sec.gov/Archives/edgar/data/1315926/0000950123-23-006384.txt,1315926,"601 California Street, Suite 1701, San Francisco, CA, 94108","Watershed Asset Management, L.L.C.",2023-06-30,505336,505336107,LA Z BOY INC,265035000.0,9254
+https://sec.gov/Archives/edgar/data/1315926/0000950123-23-006384.txt,1315926,"601 California Street, Suite 1701, San Francisco, CA, 94108","Watershed Asset Management, L.L.C.",2023-06-30,594918,594918104,MICROSOFT CORP,2826482000.0,8300
+https://sec.gov/Archives/edgar/data/1315926/0000950123-23-006384.txt,1315926,"601 California Street, Suite 1701, San Francisco, CA, 94108","Watershed Asset Management, L.L.C.",2023-06-30,763165,763165107,RICHARDSON ELECTRS LTD,201350000.0,12203
+https://sec.gov/Archives/edgar/data/1316397/0001062993-23-012947.txt,1316397,"3350 RIVERWOOD PKWY STE 2205, ATLANTA, GA, 30339",Aurora Investment Counsel,2023-03-31,35137L,35137L204,Fox Corporation - Class B,1702982000.0,1703
+https://sec.gov/Archives/edgar/data/1316397/0001062993-23-012947.txt,1316397,"3350 RIVERWOOD PKWY STE 2205, ATLANTA, GA, 30339",Aurora Investment Counsel,2023-03-31,461202,461202103,Intuit Inc.,1916177000.0,1916
+https://sec.gov/Archives/edgar/data/1316397/0001062993-23-012947.txt,1316397,"3350 RIVERWOOD PKWY STE 2205, ATLANTA, GA, 30339",Aurora Investment Counsel,2023-03-31,512807,512807108,Lam Research Corporation,2279516000.0,2280
+https://sec.gov/Archives/edgar/data/1316397/0001062993-23-012947.txt,1316397,"3350 RIVERWOOD PKWY STE 2205, ATLANTA, GA, 30339",Aurora Investment Counsel,2023-03-31,701094,701094104,Parker-Hannifin Corporation,1249145000.0,1352
+https://sec.gov/Archives/edgar/data/1316397/0001062993-23-012947.txt,1316397,"3350 RIVERWOOD PKWY STE 2205, ATLANTA, GA, 30339",Aurora Investment Counsel,2023-03-31,749685,749685103,RPM International Inc.,922171000.0,1298
+https://sec.gov/Archives/edgar/data/1316397/0001062993-23-016450.txt,1316397,"3350 RIVERWOOD PKWY STE 2205, ATLANTA, GA, 30339",Aurora Investment Counsel,2023-06-30,G3323L,G3323L100,Fabrinet,1217625000.0,9375
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,1052769000.0,7269
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,26490849000.0,120528
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,090043,090043100,BILL HOLDINGS INC,7589875000.0,64954
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,9608102000.0,57506
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,31428X,31428X106,FEDEX CORP,388433000.0,1700
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,35137L,35137L105,FOX CORP,5530814000.0,162671
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,370334,370334104,GENERAL MLS INC,17265860000.0,225109
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,8122868000.0,48544
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,461202,461202103,INTUIT,51283832000.0,111927
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,512807,512807108,LAM RESEARCH CORP,11167764000.0,17372
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,26682151000.0,135870
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,594918,594918104,MICROSOFT CORP,879304588000.0,2582089
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,64110D,64110D104,NETAPP INC,5998622000.0,78516
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,654106,654106103,NIKE INC,70266840000.0,636648
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,52818012000.0,226142
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,30377485000.0,77883
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,704326,704326107,PAYCHEX INC,11418123000.0,102066
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,88927227000.0,586050
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,4906986000.0,19687
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,871829,871829107,SYSCO CORP,23878376000.0,321811
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,331379000.0,29248
+https://sec.gov/Archives/edgar/data/1316507/0001085146-23-002962.txt,1316507,"2020 CALAMOS COURT, NAPERVILLE, IL, 60563",Calamos Advisors LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,51015098000.0,579059
+https://sec.gov/Archives/edgar/data/1316550/0001315863-23-000714.txt,1316550,"100 RIVER BLUFF DRIVE, SUITE 430, LITTLE ROCK, AR, 72202","Forest Hill Capital, LLC",2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,4015347000.0,40242
+https://sec.gov/Archives/edgar/data/1316550/0001315863-23-000714.txt,1316550,"100 RIVER BLUFF DRIVE, SUITE 430, LITTLE ROCK, AR, 72202","Forest Hill Capital, LLC",2023-06-30,128030,128030202,CAL MAINE FOODS INC,1125000000.0,25000
+https://sec.gov/Archives/edgar/data/1316550/0001315863-23-000714.txt,1316550,"100 RIVER BLUFF DRIVE, SUITE 430, LITTLE ROCK, AR, 72202","Forest Hill Capital, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,3405400000.0,10000
+https://sec.gov/Archives/edgar/data/1316580/0001316580-23-000007.txt,1316580,"7 TIMES SQUARE, 43RD FLOOR, NEW YORK, NY, 10036","Luxor Capital Group, LP",2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,3042085000.0,16177
+https://sec.gov/Archives/edgar/data/1316580/0001316580-23-000007.txt,1316580,"7 TIMES SQUARE, 43RD FLOOR, NEW YORK, NY, 10036","Luxor Capital Group, LP",2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,23937463000.0,873949
+https://sec.gov/Archives/edgar/data/1317208/0001172661-23-002532.txt,1317208,"382 Springfield Avenue, Suite 500, Summit, NJ, 07901","TSP Capital Management Group, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,546264000.0,16200
+https://sec.gov/Archives/edgar/data/1317209/0001172661-23-002808.txt,1317209,"590 Madison Avenue, 9th Floor, New York, NY, 10022","TAURUS ASSET MANAGEMENT, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,306800000.0,4000
+https://sec.gov/Archives/edgar/data/1317209/0001172661-23-002808.txt,1317209,"590 Madison Avenue, 9th Floor, New York, NY, 10022","TAURUS ASSET MANAGEMENT, LLC",2023-06-30,461202,461202103,INTUIT,26256120000.0,57304
+https://sec.gov/Archives/edgar/data/1317209/0001172661-23-002808.txt,1317209,"590 Madison Avenue, 9th Floor, New York, NY, 10022","TAURUS ASSET MANAGEMENT, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,65550545000.0,192490
+https://sec.gov/Archives/edgar/data/1317209/0001172661-23-002808.txt,1317209,"590 Madison Avenue, 9th Floor, New York, NY, 10022","TAURUS ASSET MANAGEMENT, LLC",2023-06-30,654106,654106103,NIKE INC,26297525000.0,238267
+https://sec.gov/Archives/edgar/data/1317209/0001172661-23-002808.txt,1317209,"590 Madison Avenue, 9th Floor, New York, NY, 10022","TAURUS ASSET MANAGEMENT, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2019879000.0,13311
+https://sec.gov/Archives/edgar/data/1317253/0001437749-23-021979.txt,1317253,"80 SOUTH 8TH STREET, SUITE 2825, MINNEAPOLIS, MN, 55402","Minneapolis Portfolio Management Group, LLC",2023-06-30,31428X,31428X106,Fedex Corp,43637456000.0,176028
+https://sec.gov/Archives/edgar/data/1317253/0001437749-23-021979.txt,1317253,"80 SOUTH 8TH STREET, SUITE 2825, MINNEAPOLIS, MN, 55402","Minneapolis Portfolio Management Group, LLC",2023-06-30,701094,701094104,Parker-Hannifin Corp,33344910000.0,85491
+https://sec.gov/Archives/edgar/data/1317253/0001437749-23-021979.txt,1317253,"80 SOUTH 8TH STREET, SUITE 2825, MINNEAPOLIS, MN, 55402","Minneapolis Portfolio Management Group, LLC",2023-06-30,G5960L,G5960L103,Medtronic plc,28066281000.0,318573
+https://sec.gov/Archives/edgar/data/1317267/0000902664-23-004448.txt,1317267,"119 Washington Avenue, Suite 600, Miami Beach, FL, 33139","Kamunting Street Capital Management, L.P.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,660750000.0,7500
+https://sec.gov/Archives/edgar/data/1317348/0001317348-23-000003.txt,1317348,"1600 BROADWAY, 3RD FLOOR, DENVER, CO, 80202","BOK Financial Private Wealth, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,442080000.0,2000
+https://sec.gov/Archives/edgar/data/1317348/0001317348-23-000003.txt,1317348,"1600 BROADWAY, 3RD FLOOR, DENVER, CO, 80202","BOK Financial Private Wealth, Inc.",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,1597852000.0,16807
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+https://sec.gov/Archives/edgar/data/1317348/0001317348-23-000003.txt,1317348,"1600 BROADWAY, 3RD FLOOR, DENVER, CO, 80202","BOK Financial Private Wealth, Inc.",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,28738000.0,250
+https://sec.gov/Archives/edgar/data/1317348/0001317348-23-000003.txt,1317348,"1600 BROADWAY, 3RD FLOOR, DENVER, CO, 80202","BOK Financial Private Wealth, Inc.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,285930000.0,1456
+https://sec.gov/Archives/edgar/data/1317348/0001317348-23-000003.txt,1317348,"1600 BROADWAY, 3RD FLOOR, DENVER, CO, 80202","BOK Financial Private Wealth, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,8554382000.0,25120
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+https://sec.gov/Archives/edgar/data/1317348/0001317348-23-000003.txt,1317348,"1600 BROADWAY, 3RD FLOOR, DENVER, CO, 80202","BOK Financial Private Wealth, Inc.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,5988644000.0,23438
+https://sec.gov/Archives/edgar/data/1317348/0001317348-23-000003.txt,1317348,"1600 BROADWAY, 3RD FLOOR, DENVER, CO, 80202","BOK Financial Private Wealth, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,552031000.0,3638
+https://sec.gov/Archives/edgar/data/1317348/0001317348-23-000003.txt,1317348,"1600 BROADWAY, 3RD FLOOR, DENVER, CO, 80202","BOK Financial Private Wealth, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,96870000.0,1091
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+https://sec.gov/Archives/edgar/data/1317583/0001104659-23-091297.txt,1317583,"717 Fifth Ave, 21st Fl, New York, NY, 10022","SCOPUS ASSET MANAGEMENT, L.P.",2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,7070000000.0,250000
+https://sec.gov/Archives/edgar/data/1317583/0001104659-23-091297.txt,1317583,"717 Fifth Ave, 21st Fl, New York, NY, 10022","SCOPUS ASSET MANAGEMENT, L.P.",2023-06-30,31428X,31428X106,FEDEX CORP,49580000000.0,200000
+https://sec.gov/Archives/edgar/data/1317583/0001104659-23-091297.txt,1317583,"717 Fifth Ave, 21st Fl, New York, NY, 10022","SCOPUS ASSET MANAGEMENT, L.P.",2023-06-30,370334,370334104,GENERAL MLS INC,23010000000.0,300000
+https://sec.gov/Archives/edgar/data/1317583/0001104659-23-091297.txt,1317583,"717 Fifth Ave, 21st Fl, New York, NY, 10022","SCOPUS ASSET MANAGEMENT, L.P.",2023-06-30,489170,489170100,KENNAMETAL INC,5678000000.0,200000
+https://sec.gov/Archives/edgar/data/1317583/0001104659-23-091297.txt,1317583,"717 Fifth Ave, 21st Fl, New York, NY, 10022","SCOPUS ASSET MANAGEMENT, L.P.",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,32760750000.0,285000
+https://sec.gov/Archives/edgar/data/1317583/0001104659-23-091297.txt,1317583,"717 Fifth Ave, 21st Fl, New York, NY, 10022","SCOPUS ASSET MANAGEMENT, L.P.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,72992866000.0,187142
+https://sec.gov/Archives/edgar/data/1317583/0001104659-23-091297.txt,1317583,"717 Fifth Ave, 21st Fl, New York, NY, 10022","SCOPUS ASSET MANAGEMENT, L.P.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,78904800000.0,520000
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+https://sec.gov/Archives/edgar/data/1317724/0001317724-23-000004.txt,1317724,"SIXTY LONDON WALL, FLOOR 10, LONDON, X0, EC2M 5TQ",Mondrian Investment Partners LTD,2023-06-30,594918,594918104,Microsoft Corp,187479000.0,650292
+https://sec.gov/Archives/edgar/data/1317724/0001317724-23-000004.txt,1317724,"SIXTY LONDON WALL, FLOOR 10, LONDON, X0, EC2M 5TQ",Mondrian Investment Partners LTD,2023-06-30,683715,683715106,Open Text,25000.0,471
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+https://sec.gov/Archives/edgar/data/1317733/0001104659-23-083455.txt,1317733,"303 Detroit Street, Suite #203, Ann Arbor, MI, 48104","Exchange Capital Management, Inc.",2023-06-30,482480,482480100,KLA-Tencor Corp,10227132000.0,21086
+https://sec.gov/Archives/edgar/data/1317733/0001104659-23-083455.txt,1317733,"303 Detroit Street, Suite #203, Ann Arbor, MI, 48104","Exchange Capital Management, Inc.",2023-06-30,512807,512807108,Lam Research Corp,2172883000.0,3380
+https://sec.gov/Archives/edgar/data/1317733/0001104659-23-083455.txt,1317733,"303 Detroit Street, Suite #203, Ann Arbor, MI, 48104","Exchange Capital Management, Inc.",2023-06-30,594918,594918104,Microsoft Corp,25370769000.0,74502
+https://sec.gov/Archives/edgar/data/1317733/0001104659-23-083455.txt,1317733,"303 Detroit Street, Suite #203, Ann Arbor, MI, 48104","Exchange Capital Management, Inc.",2023-06-30,654106,654106103,Nike Inc,1808312000.0,16384
+https://sec.gov/Archives/edgar/data/1317733/0001104659-23-083455.txt,1317733,"303 Detroit Street, Suite #203, Ann Arbor, MI, 48104","Exchange Capital Management, Inc.",2023-06-30,742718,742718109,Procter & Gamble Co,4936614000.0,32533
+https://sec.gov/Archives/edgar/data/1317733/0001104659-23-083455.txt,1317733,"303 Detroit Street, Suite #203, Ann Arbor, MI, 48104","Exchange Capital Management, Inc.",2023-06-30,G5960L,G5960L103,Medtronic Inc,2830741000.0,32131
+https://sec.gov/Archives/edgar/data/1317784/0001085146-23-002854.txt,1317784,"801 SOUTH FIGUEROA STREET, SUITE 2100, LOS ANGELES, CA, 90017",SFE Investment Counsel,2023-06-30,31428X,31428X106,FEDEX CORP,4460487000.0,17993
+https://sec.gov/Archives/edgar/data/1317784/0001085146-23-002854.txt,1317784,"801 SOUTH FIGUEROA STREET, SUITE 2100, LOS ANGELES, CA, 90017",SFE Investment Counsel,2023-06-30,594918,594918104,MICROSOFT CORP,4530204000.0,13303
+https://sec.gov/Archives/edgar/data/1317784/0001085146-23-002854.txt,1317784,"801 SOUTH FIGUEROA STREET, SUITE 2100, LOS ANGELES, CA, 90017",SFE Investment Counsel,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,11005071000.0,43071
+https://sec.gov/Archives/edgar/data/1317784/0001085146-23-002854.txt,1317784,"801 SOUTH FIGUEROA STREET, SUITE 2100, LOS ANGELES, CA, 90017",SFE Investment Counsel,2023-06-30,871829,871829107,SYSCO CORP,1939170000.0,26134
+https://sec.gov/Archives/edgar/data/1317802/0001085146-23-002794.txt,1317802,"12400 WILSHIRE BLVD., SUITE 820, LOS ANGELES, CA, 90025","Guild Investment Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,2030327000.0,5962
+https://sec.gov/Archives/edgar/data/1317802/0001085146-23-002794.txt,1317802,"12400 WILSHIRE BLVD., SUITE 820, LOS ANGELES, CA, 90025","Guild Investment Management, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1468518000.0,16540
+https://sec.gov/Archives/edgar/data/1317904/0001140361-23-039440.txt,1317904,"4TH FLOOR ANDERSON SQUARE,, 64 SHEDDEN ROAD, P.O. BOX 10324, GRAND CAYMAN, E9, KY-1103",Oasis Management Co Ltd.,2023-06-30,594918,594918104,MICROSOFT CORP,2213510000.0,6500
+https://sec.gov/Archives/edgar/data/1317961/0001398344-23-014805.txt,1317961,"SUITE 412, 301 W. NORTHERN LIGHTS BLVD., ANCHORAGE, AK, 99503","Latash Investments, LLC",2023-06-30,594918,594918104,Microsoft Corp,2043240000.0,6000
+https://sec.gov/Archives/edgar/data/1317961/0001398344-23-014805.txt,1317961,"SUITE 412, 301 W. NORTHERN LIGHTS BLVD., ANCHORAGE, AK, 99503","Latash Investments, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,323358000.0,2131
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+https://sec.gov/Archives/edgar/data/1318011/0001085146-23-003158.txt,1318011,"11236 EL CAMINO REAL, SUITE 200, SAN DIEGO, CA, 92130","Weil Company, Inc.",2023-06-30,461202,461202103,INTUIT,2716209000.0,5928
+https://sec.gov/Archives/edgar/data/1318011/0001085146-23-003158.txt,1318011,"11236 EL CAMINO REAL, SUITE 200, SAN DIEGO, CA, 92130","Weil Company, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,370120000.0,1087
+https://sec.gov/Archives/edgar/data/1318011/0001085146-23-003158.txt,1318011,"11236 EL CAMINO REAL, SUITE 200, SAN DIEGO, CA, 92130","Weil Company, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,792842000.0,5225
+https://sec.gov/Archives/edgar/data/1318011/0001085146-23-003158.txt,1318011,"11236 EL CAMINO REAL, SUITE 200, SAN DIEGO, CA, 92130","Weil Company, Inc.",2023-06-30,86333M,86333M108,STRIDE INC,1302715000.0,34991
+https://sec.gov/Archives/edgar/data/1318011/0001085146-23-003158.txt,1318011,"11236 EL CAMINO REAL, SUITE 200, SAN DIEGO, CA, 92130","Weil Company, Inc.",2023-06-30,871829,871829107,SYSCO CORP,390144000.0,5258
+https://sec.gov/Archives/edgar/data/1318259/0001318259-23-000003.txt,1318259,"17199 LAUREL PARK DRIVE, N., SUITE 209, LIVONIA, MI, 48152",White Pine Investment CO,2023-06-30,053015,053015103,Automatic Data Processing Inc,4480000.0,20381
+https://sec.gov/Archives/edgar/data/1318259/0001318259-23-000003.txt,1318259,"17199 LAUREL PARK DRIVE, N., SUITE 209, LIVONIA, MI, 48152",White Pine Investment CO,2023-06-30,594918,594918104,Microsoft Corp,10942000.0,32132
+https://sec.gov/Archives/edgar/data/1318601/0001104659-23-080724.txt,1318601,"14567 N Outer Forty Rd, Suite 200, St. Louis, MO, 63017","Acropolis Investment Management, LLC",2023-06-30,461202,461202103,INTUIT,185109000.0,404
+https://sec.gov/Archives/edgar/data/1318601/0001104659-23-080724.txt,1318601,"14567 N Outer Forty Rd, Suite 200, St. Louis, MO, 63017","Acropolis Investment Management, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,1346381000.0,6856
+https://sec.gov/Archives/edgar/data/1318601/0001104659-23-080724.txt,1318601,"14567 N Outer Forty Rd, Suite 200, St. Louis, MO, 63017","Acropolis Investment Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,5494474000.0,16135
+https://sec.gov/Archives/edgar/data/1318601/0001104659-23-080724.txt,1318601,"14567 N Outer Forty Rd, Suite 200, St. Louis, MO, 63017","Acropolis Investment Management, LLC",2023-06-30,654106,654106103,NIKE INC,411128000.0,3725
+https://sec.gov/Archives/edgar/data/1318601/0001104659-23-080724.txt,1318601,"14567 N Outer Forty Rd, Suite 200, St. Louis, MO, 63017","Acropolis Investment Management, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,209451000.0,537
+https://sec.gov/Archives/edgar/data/1318601/0001104659-23-080724.txt,1318601,"14567 N Outer Forty Rd, Suite 200, St. Louis, MO, 63017","Acropolis Investment Management, LLC",2023-06-30,742718,742718109,PROCTER & GAMBLE CO,837816000.0,5521
+https://sec.gov/Archives/edgar/data/1318601/0001104659-23-080724.txt,1318601,"14567 N Outer Forty Rd, Suite 200, St. Louis, MO, 63017","Acropolis Investment Management, LLC",2023-06-30,871829,871829107,SYSCO CORP,458408000.0,6178
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+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,008073,008073108,AEROVIRONMENT IN,8913089000.0,87144
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,023586,023586100,U-HAUL HOLDING C,8787749000.0,158853
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,029683,029683109,AMER SOFTWARE-A,258641000.0,24609
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,030506,030506109,AMER WOODMARK CO,7340837000.0,96122
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,053015,053015103,AUTOMATIC DATA,422656000.0,1923
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,05368M,05368M106,AVID BIOSERVICES,2857899000.0,204574
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,053807,053807103,AVNET INC,10735861000.0,212802
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,090043,090043100,BILL HOLDINGS IN,26970032000.0,230809
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,09073M,09073M104,BIO-TECHNE CORP,111914975000.0,1371003
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,093671,093671105,H&R BLOCK INC,12382387000.0,388528
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,115637,115637209,BROWN-FORMAN -B,9567503000.0,143269
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,128030,128030202,CAL-MAINE FOODS,31448340000.0,698852
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH,129123421000.0,1365374
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,189054,189054109,CLOROX CO,67543651000.0,424696
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,237194,237194105,DARDEN RESTAURAN,72094852000.0,431499
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,31428X,31428X106,FEDEX CORP,150775263000.0,608210
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,35137L,35137L105,FOX CORP - A,2656080000.0,78120
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,36241U,36241U106,GSI TECHNOLOGY,256145000.0,46319
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,36251C,36251C103,GMS INC,2639772000.0,38147
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,370334,370334104,GENERAL MILLS IN,28712876000.0,374353
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,426281,426281101,JACK HENRY,4433742000.0,26497
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,461202,461202103,INTUIT INC,5538142000.0,12087
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,482480,482480100,KLA CORP,5071370000.0,10456
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,489170,489170100,KENNAMETAL INC,5992136000.0,211065
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,513272,513272104,LAMB WESTON,56348950000.0,490204
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,513847,513847103,LANCASTER COLONY,11144408000.0,55420
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,53261M,53261M104,EDGIO INC,6985000.0,10425
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,55024U,55024U109,LUMENTUM HOL,1774628000.0,31282
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,55825T,55825T103,MADISON SQUARE G,4361820000.0,23195
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,55826T,55826T102,SPHERE ENTERTAIN,907539000.0,33134
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,56117J,56117J100,MALIBU BOATS-A,813145000.0,13862
+https://sec.gov/Archives/edgar/data/1318757/0001318757-23-000007.txt,1318757,"GEORGE HOUSE, 131 SLOANE STREET, LONDON, X0, SW1X 9AT","MARSHALL WACE, LLP",2023-06-30,589378,589378108,MERCURY SYSTEMS,4332985000.0,125267
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+https://sec.gov/Archives/edgar/data/1325447/0001325447-23-000018.txt,1325447,"1345 AVENUE OF THE AMERICAS, NEW YORK, NY, 10105","First Eagle Investment Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,484200331000.0,5496031
+https://sec.gov/Archives/edgar/data/1325447/0001325447-23-000018.txt,1325447,"1345 AVENUE OF THE AMERICAS, NEW YORK, NY, 10105","First Eagle Investment Management, LLC",2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,11111098000.0,338753
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+https://sec.gov/Archives/edgar/data/1326150/0001104659-23-091408.txt,1326150,"100 West Putnam Avenue, Slagle House, Greenwich, CT, 06830","Prentice Capital Management, LP",2023-06-30,88688T,88688T100,TILRAY BRANDS INC,345565000.0,221516
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+https://sec.gov/Archives/edgar/data/1326234/0001172661-23-002789.txt,1326234,"711 Fifth Avenue, New York, NY, 10022",Allen Investment Management LLC,2023-06-30,594918,594918104,MICROSOFT CORP,583741140000.0,1714163
+https://sec.gov/Archives/edgar/data/1326234/0001172661-23-002789.txt,1326234,"711 Fifth Avenue, New York, NY, 10022",Allen Investment Management LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,23336059000.0,91317
+https://sec.gov/Archives/edgar/data/1326234/0001172661-23-002789.txt,1326234,"711 Fifth Avenue, New York, NY, 10022",Allen Investment Management LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,10789169000.0,71103
+https://sec.gov/Archives/edgar/data/1326234/0001172661-23-002789.txt,1326234,"711 Fifth Avenue, New York, NY, 10022",Allen Investment Management LLC,2023-06-30,871829,871829107,SYSCO CORP,6391811000.0,86143
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+https://sec.gov/Archives/edgar/data/1326389/0001062993-23-016420.txt,1326389,"16 YORK STREET SUITE 2900, TORONTO, A6, M5J 0E6",Polar Asset Management Partners Inc.,2023-06-30,86333M,86333M108,STRIDE INC,12722496000.0,341727
+https://sec.gov/Archives/edgar/data/1326389/0001062993-23-016420.txt,1326389,"16 YORK STREET SUITE 2900, TORONTO, A6, M5J 0E6",Polar Asset Management Partners Inc.,2023-06-30,876030,876030107,TAPESTRY INC,6167480000.0,144100
+https://sec.gov/Archives/edgar/data/1326389/0001062993-23-016420.txt,1326389,"16 YORK STREET SUITE 2900, TORONTO, A6, M5J 0E6",Polar Asset Management Partners Inc.,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,22374745000.0,1974823
+https://sec.gov/Archives/edgar/data/1326389/0001062993-23-016420.txt,1326389,"16 YORK STREET SUITE 2900, TORONTO, A6, M5J 0E6",Polar Asset Management Partners Inc.,2023-06-30,G3323L,G3323L100,FABRINET,12962024000.0,99800
+https://sec.gov/Archives/edgar/data/1326389/0001062993-23-016420.txt,1326389,"16 YORK STREET SUITE 2900, TORONTO, A6, M5J 0E6",Polar Asset Management Partners Inc.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,21108760000.0,239600
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+https://sec.gov/Archives/edgar/data/1326766/0001326766-23-000003.txt,1326766,"201 CALIFORNIA STREET, SUITE 650, SAN FRANCISCO, CA, 94111","Violich Capital Management, Inc.",2023-06-30,512807,512807108,LAM Research,6429000.0,10000
+https://sec.gov/Archives/edgar/data/1326766/0001326766-23-000003.txt,1326766,"201 CALIFORNIA STREET, SUITE 650, SAN FRANCISCO, CA, 94111","Violich Capital Management, Inc.",2023-06-30,594918,594918104,Microsoft Corp,63747000.0,187194
+https://sec.gov/Archives/edgar/data/1326766/0001326766-23-000003.txt,1326766,"201 CALIFORNIA STREET, SUITE 650, SAN FRANCISCO, CA, 94111","Violich Capital Management, Inc.",2023-06-30,654106,654106103,Nike Inc Cl B,10559000.0,95671
+https://sec.gov/Archives/edgar/data/1326766/0001326766-23-000003.txt,1326766,"201 CALIFORNIA STREET, SUITE 650, SAN FRANCISCO, CA, 94111","Violich Capital Management, Inc.",2023-06-30,697435,697435105,Palo Alto Networks Inc,364000.0,1425
+https://sec.gov/Archives/edgar/data/1326766/0001326766-23-000003.txt,1326766,"201 CALIFORNIA STREET, SUITE 650, SAN FRANCISCO, CA, 94111","Violich Capital Management, Inc.",2023-06-30,742718,742718109,Procter & Gamble Co,1271000.0,8378
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+https://sec.gov/Archives/edgar/data/1327055/0001062993-23-016495.txt,1327055,"1031 SOUTH CALDWELL STREET, SUITE 200, CHARLOTTE, NC, 28203","Bragg Financial Advisors, Inc",2023-06-30,189054,189054109,CLOROX CO DEL,412709000.0,2595
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+https://sec.gov/Archives/edgar/data/1327055/0001062993-23-016495.txt,1327055,"1031 SOUTH CALDWELL STREET, SUITE 200, CHARLOTTE, NC, 28203","Bragg Financial Advisors, Inc",2023-06-30,807066,807066105,SCHOLASTIC CORP,10396309000.0,267326
+https://sec.gov/Archives/edgar/data/1327055/0001062993-23-016495.txt,1327055,"1031 SOUTH CALDWELL STREET, SUITE 200, CHARLOTTE, NC, 28203","Bragg Financial Advisors, Inc",2023-06-30,87157D,87157D109,SYNAPTICS INC,10610258000.0,124271
+https://sec.gov/Archives/edgar/data/1327055/0001062993-23-016495.txt,1327055,"1031 SOUTH CALDWELL STREET, SUITE 200, CHARLOTTE, NC, 28203","Bragg Financial Advisors, Inc",2023-06-30,871829,871829107,SYSCO CORP,966455000.0,13025
+https://sec.gov/Archives/edgar/data/1327055/0001062993-23-016495.txt,1327055,"1031 SOUTH CALDWELL STREET, SUITE 200, CHARLOTTE, NC, 28203","Bragg Financial Advisors, Inc",2023-06-30,G3323L,G3323L100,FABRINET,28960773000.0,222981
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+https://sec.gov/Archives/edgar/data/1327944/0001327944-23-000003.txt,1327944,"10503 Timberwood Circle, Suite 120, Louisville, KY, 40223",Town & Country Bank & Trust CO dba First Bankers Trust CO,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,2100972000.0,9559
+https://sec.gov/Archives/edgar/data/1327944/0001327944-23-000003.txt,1327944,"10503 Timberwood Circle, Suite 120, Louisville, KY, 40223",Town & Country Bank & Trust CO dba First Bankers Trust CO,2023-06-30,115637,115637100,BROWN FORMAN CORP,1654305000.0,24303
+https://sec.gov/Archives/edgar/data/1327944/0001327944-23-000003.txt,1327944,"10503 Timberwood Circle, Suite 120, Louisville, KY, 40223",Town & Country Bank & Trust CO dba First Bankers Trust CO,2023-06-30,189054,189054109,CLOROX CO DEL,822872000.0,5174
+https://sec.gov/Archives/edgar/data/1327944/0001327944-23-000003.txt,1327944,"10503 Timberwood Circle, Suite 120, Louisville, KY, 40223",Town & Country Bank & Trust CO dba First Bankers Trust CO,2023-06-30,594918,594918104,MICROSOFT CORP,9608676000.0,28216
+https://sec.gov/Archives/edgar/data/1327944/0001327944-23-000003.txt,1327944,"10503 Timberwood Circle, Suite 120, Louisville, KY, 40223",Town & Country Bank & Trust CO dba First Bankers Trust CO,2023-06-30,654106,654106103,NIKE INC,1210869000.0,10971
+https://sec.gov/Archives/edgar/data/1327944/0001327944-23-000003.txt,1327944,"10503 Timberwood Circle, Suite 120, Louisville, KY, 40223",Town & Country Bank & Trust CO dba First Bankers Trust CO,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,4983596000.0,32843
+https://sec.gov/Archives/edgar/data/1327944/0001327944-23-000003.txt,1327944,"10503 Timberwood Circle, Suite 120, Louisville, KY, 40223",Town & Country Bank & Trust CO dba First Bankers Trust CO,2023-06-30,749685,749685103,RPM INTL INC,902235000.0,10055
+https://sec.gov/Archives/edgar/data/1327944/0001327944-23-000003.txt,1327944,"10503 Timberwood Circle, Suite 120, Louisville, KY, 40223",Town & Country Bank & Trust CO dba First Bankers Trust CO,2023-06-30,871829,871829107,SYSCO CORP,1698883000.0,22896
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+https://sec.gov/Archives/edgar/data/1328062/0001328062-23-000006.txt,1328062,"PHIPPS TOWER, 3438 PEACHTREE ROAD NE, SUITE 900, ATLANTA, GA, 30326","Cornerstone Investment Partners, LLC",2023-06-30,053807,053807103,Avnet Inc,224755000.0,4455
+https://sec.gov/Archives/edgar/data/1328062/0001328062-23-000006.txt,1328062,"PHIPPS TOWER, 3438 PEACHTREE ROAD NE, SUITE 900, ATLANTA, GA, 30326","Cornerstone Investment Partners, LLC",2023-06-30,127190,127190304,"CACI International, Inc.",391966000.0,1150
+https://sec.gov/Archives/edgar/data/1328062/0001328062-23-000006.txt,1328062,"PHIPPS TOWER, 3438 PEACHTREE ROAD NE, SUITE 900, ATLANTA, GA, 30326","Cornerstone Investment Partners, LLC",2023-06-30,482480,482480100,KLA Corporation,34825406000.0,71802
+https://sec.gov/Archives/edgar/data/1328062/0001328062-23-000006.txt,1328062,"PHIPPS TOWER, 3438 PEACHTREE ROAD NE, SUITE 900, ATLANTA, GA, 30326","Cornerstone Investment Partners, LLC",2023-06-30,55024U,55024U109,Lumentum Holdings Inc.,351499000.0,6196
+https://sec.gov/Archives/edgar/data/1328062/0001328062-23-000006.txt,1328062,"PHIPPS TOWER, 3438 PEACHTREE ROAD NE, SUITE 900, ATLANTA, GA, 30326","Cornerstone Investment Partners, LLC",2023-06-30,594918,594918104,Microsoft Corporation,41132464000.0,120786
+https://sec.gov/Archives/edgar/data/1328785/0001172661-23-002945.txt,1328785,"540 Madison Avenue, 32nd Floor, New York, NY, 10022","Senvest Management, LLC",2023-06-30,747906,747906501,QUANTUM CORP,2755005000.0,2550931
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+https://sec.gov/Archives/edgar/data/1330325/0001330325-23-000004.txt,1330325,"221 EAST FOURTH STREET, SUITE 2850, CINCINNATI, OH, 45202","Opus Capital Group, LLC",2023-06-30,594918,594918104,Microsoft,853000.0,2504
+https://sec.gov/Archives/edgar/data/1330325/0001330325-23-000004.txt,1330325,"221 EAST FOURTH STREET, SUITE 2850, CINCINNATI, OH, 45202","Opus Capital Group, LLC",2023-06-30,704326,704326107,Paychex Inc,268000.0,2395
+https://sec.gov/Archives/edgar/data/1330325/0001330325-23-000004.txt,1330325,"221 EAST FOURTH STREET, SUITE 2850, CINCINNATI, OH, 45202","Opus Capital Group, LLC",2023-06-30,742718,742718109,Procter & Gamble,18236000.0,120182
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+https://sec.gov/Archives/edgar/data/1330387/0000950123-23-008023.txt,1330387,"91-93 BOULEVARD PASTEUR, PARIS, I0, 75015",AMUNDI,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,18179475000.0,342492
+https://sec.gov/Archives/edgar/data/1330387/0000950123-23-008023.txt,1330387,"91-93 BOULEVARD PASTEUR, PARIS, I0, 75015",AMUNDI,2023-06-30,023586,023586100,U-HAUL HOLDING CO,334000.0,6
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+https://sec.gov/Archives/edgar/data/1335851/0001085146-23-003045.txt,1335851,"591 REDWOOD HIGHWAY, SUITE 3210, MILL VALLEY, CA, 94941","Private Wealth Partners, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,685144000.0,4308
+https://sec.gov/Archives/edgar/data/1335851/0001085146-23-003045.txt,1335851,"591 REDWOOD HIGHWAY, SUITE 3210, MILL VALLEY, CA, 94941","Private Wealth Partners, LLC",2023-06-30,482480,482480100,KLA CORP,1115546000.0,2300
+https://sec.gov/Archives/edgar/data/1335851/0001085146-23-003045.txt,1335851,"591 REDWOOD HIGHWAY, SUITE 3210, MILL VALLEY, CA, 94941","Private Wealth Partners, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,99678996000.0,292709
+https://sec.gov/Archives/edgar/data/1335851/0001085146-23-003045.txt,1335851,"591 REDWOOD HIGHWAY, SUITE 3210, MILL VALLEY, CA, 94941","Private Wealth Partners, LLC",2023-06-30,654106,654106103,NIKE INC,644561000.0,5840
+https://sec.gov/Archives/edgar/data/1335851/0001085146-23-003045.txt,1335851,"591 REDWOOD HIGHWAY, SUITE 3210, MILL VALLEY, CA, 94941","Private Wealth Partners, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,261387000.0,1023
+https://sec.gov/Archives/edgar/data/1335851/0001085146-23-003045.txt,1335851,"591 REDWOOD HIGHWAY, SUITE 3210, MILL VALLEY, CA, 94941","Private Wealth Partners, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,5030484000.0,33152
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+https://sec.gov/Archives/edgar/data/1337263/0001337263-23-000003.txt,1337263,"2905 MAPLE AVENUE, DALLAS, TX, 75201",Hodges Capital Management Inc.,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,306000.0,0
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+https://sec.gov/Archives/edgar/data/1337263/0001337263-23-000003.txt,1337263,"2905 MAPLE AVENUE, DALLAS, TX, 75201",Hodges Capital Management Inc.,2023-06-30,31428X,31428X106,FEDEX CORP,5038000.0,17249
+https://sec.gov/Archives/edgar/data/1337263/0001337263-23-000003.txt,1337263,"2905 MAPLE AVENUE, DALLAS, TX, 75201",Hodges Capital Management Inc.,2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,20851000.0,532751
+https://sec.gov/Archives/edgar/data/1337263/0001337263-23-000003.txt,1337263,"2905 MAPLE AVENUE, DALLAS, TX, 75201",Hodges Capital Management Inc.,2023-06-30,594918,594918104,MICROSOFT CORP,23461000.0,60738
+https://sec.gov/Archives/edgar/data/1337263/0001337263-23-000003.txt,1337263,"2905 MAPLE AVENUE, DALLAS, TX, 75201",Hodges Capital Management Inc.,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,3394000.0,11254
+https://sec.gov/Archives/edgar/data/1337263/0001337263-23-000003.txt,1337263,"2905 MAPLE AVENUE, DALLAS, TX, 75201",Hodges Capital Management Inc.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1065000.0,0
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+https://sec.gov/Archives/edgar/data/1339270/0001339270-23-000003.txt,1339270,"111 ROCKVILLE PIKE, SUITE 750, ROCKVILLE, MD, 20850",SOL Capital Management CO,2023-06-30,594918,594918104,Microsoft Corp.,9837000.0,28887
+https://sec.gov/Archives/edgar/data/1339270/0001339270-23-000003.txt,1339270,"111 ROCKVILLE PIKE, SUITE 750, ROCKVILLE, MD, 20850",SOL Capital Management CO,2023-06-30,654106,654106103,Nike Inc. Cl B,653000.0,5916
+https://sec.gov/Archives/edgar/data/1339270/0001339270-23-000003.txt,1339270,"111 ROCKVILLE PIKE, SUITE 750, ROCKVILLE, MD, 20850",SOL Capital Management CO,2023-06-30,742718,742718109,Procter & Gamble Co.,2416000.0,15923
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+https://sec.gov/Archives/edgar/data/1341401/0001341401-23-000022.txt,1341401,"462 SOUTH FOURTH STREET, SUITE 2000, LOUISVILLE, KY, 40202","River Road Asset Management, LLC",2023-06-30,703395,703395103,Patterson Companies Incorporat,88015971000.0,2646301
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+https://sec.gov/Archives/edgar/data/1346543/0001085146-23-003347.txt,1346543,"9 OLD KINGS HWY. S., 4TH FLOOR, DARIEN, CT, 06820","Northern Right Capital Management, L.P.",2023-06-30,65249B,65249B109,NEWS CORP NEW,14068548000.0,721464
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+https://sec.gov/Archives/edgar/data/1347683/0001104659-23-088302.txt,1347683,"Three Radnor Corporate Center, Suite 450, Radnor, PA, 19087-4541","Haverford Financial Services, Inc.",2023-06-30,654106,654106103,NIKE INC CL B,7860883000.0,71223
+https://sec.gov/Archives/edgar/data/1347683/0001104659-23-088302.txt,1347683,"Three Radnor Corporate Center, Suite 450, Radnor, PA, 19087-4541","Haverford Financial Services, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,10490948000.0,119080
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+https://sec.gov/Archives/edgar/data/1349654/0001085146-23-003106.txt,1349654,"501 RIO GRANDE PLACE #107, ASPEN, CO, 81611","OBERMEYER WOOD INVESTMENT COUNSEL, LLLP",2023-06-30,654106,654106103,NIKE INC,1277873000.0,11578
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+https://sec.gov/Archives/edgar/data/1349654/0001085146-23-003106.txt,1349654,"501 RIO GRANDE PLACE #107, ASPEN, CO, 81611","OBERMEYER WOOD INVESTMENT COUNSEL, LLLP",2023-06-30,871829,871829107,SYSCO CORP,271720000.0,3662
+https://sec.gov/Archives/edgar/data/1349654/0001085146-23-003106.txt,1349654,"501 RIO GRANDE PLACE #107, ASPEN, CO, 81611","OBERMEYER WOOD INVESTMENT COUNSEL, LLLP",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,605864000.0,6877
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+https://sec.gov/Archives/edgar/data/1350290/0001104659-23-091149.txt,1350290,"2 International Place, 26th Floor, Boston, MA, 02110","Portolan Capital Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORPORATION,1844705000.0,5417
+https://sec.gov/Archives/edgar/data/1350290/0001104659-23-091149.txt,1350290,"2 International Place, 26th Floor, Boston, MA, 02110","Portolan Capital Management, LLC",2023-06-30,763165,763165107,RICHARDSON ELECTRONICS LTD.,2845739000.0,172469
+https://sec.gov/Archives/edgar/data/1350290/0001104659-23-091149.txt,1350290,"2 International Place, 26th Floor, Boston, MA, 02110","Portolan Capital Management, LLC",2023-06-30,86800U,86800U104,"SUPER MICRO COMPUTER, INC.",88583699000.0,355401
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+https://sec.gov/Archives/edgar/data/1350585/0001350585-23-000010.txt,1350585,"801 CASSATT ROAD, SUITE 100, BERWYN, PA, 19312","Coho Partners, Ltd.",2023-06-30,205887,205887102,"CONAGRA BRANDS, INC.",151458877000.0,4491663
+https://sec.gov/Archives/edgar/data/1350585/0001350585-23-000010.txt,1350585,"801 CASSATT ROAD, SUITE 100, BERWYN, PA, 19312","Coho Partners, Ltd.",2023-06-30,594918,594918104,MICROSOFT CORP.,2213510000.0,6500
+https://sec.gov/Archives/edgar/data/1350585/0001350585-23-000010.txt,1350585,"801 CASSATT ROAD, SUITE 100, BERWYN, PA, 19312","Coho Partners, Ltd.",2023-06-30,654106,654106103,NIKE INC. CL B,148241618000.0,1343133
+https://sec.gov/Archives/edgar/data/1350585/0001350585-23-000010.txt,1350585,"801 CASSATT ROAD, SUITE 100, BERWYN, PA, 19312","Coho Partners, Ltd.",2023-06-30,742718,742718109,PROCTER & GAMBLE CO.,803160000.0,5293
+https://sec.gov/Archives/edgar/data/1350585/0001350585-23-000010.txt,1350585,"801 CASSATT ROAD, SUITE 100, BERWYN, PA, 19312","Coho Partners, Ltd.",2023-06-30,749685,749685103,RPM INTERNATIONAL,1622947000.0,18087
+https://sec.gov/Archives/edgar/data/1350585/0001350585-23-000010.txt,1350585,"801 CASSATT ROAD, SUITE 100, BERWYN, PA, 19312","Coho Partners, Ltd.",2023-06-30,832696,832696405,THE J.M. SMUCKER CO.,150506675000.0,1019210
+https://sec.gov/Archives/edgar/data/1350585/0001350585-23-000010.txt,1350585,"801 CASSATT ROAD, SUITE 100, BERWYN, PA, 19312","Coho Partners, Ltd.",2023-06-30,871829,871829107,SYSCO CORP,245313631000.0,3306114
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+https://sec.gov/Archives/edgar/data/1350605/0001172661-23-002986.txt,1350605,"12 Cadillac Drive, Suite 280, Brentwood, TN, 37027",Jetstream Capital LLC,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,8723750000.0,35000
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+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,6993513000.0,203655
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+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,053807,053807103,AVNET INC,1433184000.0,28408
+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,09073M,09073M104,BIO-TECHNE CORP,978499000.0,11987
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+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,128030,128030202,CAL MAINE FOODS INC,3286125000.0,73025
+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,27421706000.0,289962
+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,147528,147528103,CASEYS GEN STORES INC,16889178000.0,69252
+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,189054,189054109,CLOROX CO DEL,32821085000.0,206370
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+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,482480,482480100,KLA CORP,7700178000.0,15876
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+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,512807,512807108,LAM RESEARCH CORP,20772735000.0,32313
+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,56704720000.0,493299
+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,513847,513847103,LANCASTER COLONY CORP,7174087000.0,35676
+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,99988644000.0,509159
+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,2379143000.0,41938
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+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,2223810000.0,45994
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+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,683715,683715106,OPEN TEXT CORP,754473000.0,18119
+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,2644529000.0,10350
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+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,761152,761152107,RESMED INC,37652794000.0,172324
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+https://sec.gov/Archives/edgar/data/1350694/0001172661-23-002943.txt,1350694,"One Nyala Farms Road, Westport, CT, 06880","Bridgewater Associates, LP",2023-06-30,981811,981811102,WORTHINGTON INDS INC,1285751000.0,18508
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+https://sec.gov/Archives/edgar/data/1350780/0001350780-23-000004.txt,1350780,"23 OLD KINGS HIGHWAY SOUTH, SUITE 200, DARIEN, CT, 06820","Private Capital Advisors, Inc.",2023-06-30,461202,461202103,INTUIT COM,2818000.0,6150
+https://sec.gov/Archives/edgar/data/1350780/0001350780-23-000004.txt,1350780,"23 OLD KINGS HIGHWAY SOUTH, SUITE 200, DARIEN, CT, 06820","Private Capital Advisors, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP COM,1323000.0,3886
+https://sec.gov/Archives/edgar/data/1350780/0001350780-23-000004.txt,1350780,"23 OLD KINGS HIGHWAY SOUTH, SUITE 200, DARIEN, CT, 06820","Private Capital Advisors, Inc.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC COM,17222000.0,67404
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+https://sec.gov/Archives/edgar/data/1351407/0001214659-23-011147.txt,1351407,"450 SANSOME STREET, SUITE 1500, SAN FRANCISCO, CA, 94111","Philadelphia Financial Management of San Francisco, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,10246508000.0,30089
+https://sec.gov/Archives/edgar/data/1351431/0001351431-23-000004.txt,1351431,"715 TWINING ROAD, SUITE 212, DRESHER, PA, 19025",Matthew 25 Management Corp,2023-06-30,31428X,31428X106,FedEx Corporation,27269000000.0,110000
+https://sec.gov/Archives/edgar/data/1351431/0001351431-23-000004.txt,1351431,"715 TWINING ROAD, SUITE 212, DRESHER, PA, 19025",Matthew 25 Management Corp,2023-06-30,594918,594918104,Microsoft Corp,5108100000.0,15000
+https://sec.gov/Archives/edgar/data/1351731/0000909012-23-000070.txt,1351731,"1001 MOREHEAD SQUARE DRIVE, SUITE 600, CHARLOTTE, NC, 28203","WestEnd Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,41566094000.0,122059
+https://sec.gov/Archives/edgar/data/1351731/0000909012-23-000070.txt,1351731,"1001 MOREHEAD SQUARE DRIVE, SUITE 600, CHARLOTTE, NC, 28203","WestEnd Advisors, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,36678691000.0,416330
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+https://sec.gov/Archives/edgar/data/1351917/0001178913-23-002616.txt,1351917,"Menora House, 23 Jabotinsky St., Ramat Gan, L3, 5251102",MENORA MIVTACHIM HOLDINGS LTD.,2023-06-30,654106,654106103,NIKE INC,86231640000.0,781296
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+https://sec.gov/Archives/edgar/data/1351950/0000894579-23-000210.txt,1351950,"ALMACK HOUSE, 4TH FLOOR, 28 KING STREET, LONDON, X0, SW1Y 6QW",Findlay Park Partners LLP,2023-06-30,594918,594918104,Microsoft Corp,605120510000.0,1776944
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+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,11133T,11133T103,BROADRIDGE FINANCIAL SOLUTIONS USD0.01 Common Stock,72793556000.0,439495
+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,115637,115637209,BROWN-FORMAN CORP USD0.15 B Common Stock,6457492000.0,96698
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+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,370334,370334104,GENERAL MILLS INC USD0.10 Common Stock,2975653000.0,38796
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+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,518439,518439104,ESTEE LAUDER COS USD0.01 Class A Common Stock,111795795000.0,569283
+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,594918,594918104,MICROSOFT CORP USD 0.00000625 Common Stock,710904152000.0,2087579
+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,654106,654106103,NIKE INC NPV Cls B Common Stock,50390858000.0,456563
+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC USD0.0001 Common Stock,47667690000.0,186559
+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP USD0.50 Common Stock,1618666000.0,4150
+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC USD0.000025 Cls A Common Stock,158752000.0,20644
+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,742718,742718109,PROCTER & GAMBLE CO NPV Common Stock,65247896000.0,429998
+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,761152,761152107,RESMED INC USD0.004 Common Stock,240350000.0,1100
+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,832696,832696405,JM SMUCKER CO NPV Common Stock,295340000.0,2000
+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,871829,871829107,SYSCO CORP NPV Common Stock,13890759000.0,187207
+https://sec.gov/Archives/edgar/data/1351991/0001140361-23-037982.txt,1351991,"Port of Liverpool Building, Pier Head, Liverpool, X0, L31NW",Rathbones Group PLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC USD0.0001 Common Stock,2118540000.0,24047
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+https://sec.gov/Archives/edgar/data/1352187/0001398344-23-014838.txt,1352187,"ONE LIBERTY PLACE, 53RD FLOOR, 1650 MARKET STREET, PHILADELPHIA, PA, 19103","Clark Capital Management Group, Inc.",2023-06-30,370334,370334104,GENERAL MLS INC,25956775000.0,338419
+https://sec.gov/Archives/edgar/data/1352187/0001398344-23-014838.txt,1352187,"ONE LIBERTY PLACE, 53RD FLOOR, 1650 MARKET STREET, PHILADELPHIA, PA, 19103","Clark Capital Management Group, Inc.",2023-06-30,500643,500643200,KORN FERRY,1451671000.0,29303
+https://sec.gov/Archives/edgar/data/1352187/0001398344-23-014838.txt,1352187,"ONE LIBERTY PLACE, 53RD FLOOR, 1650 MARKET STREET, PHILADELPHIA, PA, 19103","Clark Capital Management Group, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,171269441000.0,502935
+https://sec.gov/Archives/edgar/data/1352187/0001398344-23-014838.txt,1352187,"ONE LIBERTY PLACE, 53RD FLOOR, 1650 MARKET STREET, PHILADELPHIA, PA, 19103","Clark Capital Management Group, Inc.",2023-06-30,654106,654106103,NIKE INC,629330000.0,5702
+https://sec.gov/Archives/edgar/data/1352187/0001398344-23-014838.txt,1352187,"ONE LIBERTY PLACE, 53RD FLOOR, 1650 MARKET STREET, PHILADELPHIA, PA, 19103","Clark Capital Management Group, Inc.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,59436925000.0,152387
+https://sec.gov/Archives/edgar/data/1352187/0001398344-23-014838.txt,1352187,"ONE LIBERTY PLACE, 53RD FLOOR, 1650 MARKET STREET, PHILADELPHIA, PA, 19103","Clark Capital Management Group, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,53294981000.0,351226
+https://sec.gov/Archives/edgar/data/1352272/0000919574-23-004778.txt,1352272,"654 Madison Avenue, Suite 1109, New York, NY, 10065","Miura Global Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,34054000000.0,100000
+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,296512000.0,5650
+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,424634000.0,1932
+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,539126000.0,3255
+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,189054,189054109,CLOROX CO DEL,430680000.0,2708
+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,205887,205887102,CONAGRA BRANDS INC,561809000.0,16661
+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,222070,222070203,COTY INC,356004000.0,28967
+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,216703000.0,1297
+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,35137L,35137L204,FOX CORP,41987267000.0,1316628
+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,370334,370334104,GENERAL MLS INC,915415000.0,11935
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+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,3715510000.0,18920
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+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,65249B,65249B109,NEWS CORP NEW,349070000.0,17901
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+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,463110000.0,3052
+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,761152,761152107,RESMED INC,1133797000.0,5189
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+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,287320000.0,7575
+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,300509000.0,3411
+https://sec.gov/Archives/edgar/data/1352342/0000919574-23-004582.txt,1352342,"12 East 49th Street, 44th FLOOR, New York, NY, 10017",Echo Street Capital Management LLC,2023-06-30,N14506,N14506104,ELASTIC N V,534504000.0,8336
+https://sec.gov/Archives/edgar/data/1352449/0001352449-23-000003.txt,1352449,"1120 AVENUE OF THE AMERICAS, FOURTH FLOOR, NEW YORK, NY, 10022","Norman Fields, Gottscho Capital Management, LLC",2023-06-30,023586,023586100,U Haul Holding Co,392000.0,7088
+https://sec.gov/Archives/edgar/data/1352449/0001352449-23-000003.txt,1352449,"1120 AVENUE OF THE AMERICAS, FOURTH FLOOR, NEW YORK, NY, 10022","Norman Fields, Gottscho Capital Management, LLC",2023-06-30,053015,053015103,Automatic Data Processing,264000.0,1200
+https://sec.gov/Archives/edgar/data/1352449/0001352449-23-000003.txt,1352449,"1120 AVENUE OF THE AMERICAS, FOURTH FLOOR, NEW YORK, NY, 10022","Norman Fields, Gottscho Capital Management, LLC",2023-06-30,594918,594918104,Microsoft Corp,1090000.0,3200
+https://sec.gov/Archives/edgar/data/1352467/0001352467-23-000005.txt,1352467,"55 EAST 52ND STREET, 18TH FLOOR, NEW YORK, NY, 10055","BBR PARTNERS, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,447053000.0,2034
+https://sec.gov/Archives/edgar/data/1352467/0001352467-23-000005.txt,1352467,"55 EAST 52ND STREET, 18TH FLOOR, NEW YORK, NY, 10055","BBR PARTNERS, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,8380166000.0,24608
+https://sec.gov/Archives/edgar/data/1352467/0001352467-23-000005.txt,1352467,"55 EAST 52ND STREET, 18TH FLOOR, NEW YORK, NY, 10055","BBR PARTNERS, LLC",2023-06-30,654106,654106103,NIKE INC,650655000.0,5895
+https://sec.gov/Archives/edgar/data/1352467/0001352467-23-000005.txt,1352467,"55 EAST 52ND STREET, 18TH FLOOR, NEW YORK, NY, 10055","BBR PARTNERS, LLC",2023-06-30,701094,701094104,PARKER HANNIFIN CORP,1317555000.0,3378
+https://sec.gov/Archives/edgar/data/1352467/0001352467-23-000005.txt,1352467,"55 EAST 52ND STREET, 18TH FLOOR, NEW YORK, NY, 10055","BBR PARTNERS, LLC",2023-06-30,742718,742718109,PROCTER & GAMBLE CO,448662000.0,2957
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+https://sec.gov/Archives/edgar/data/1352526/0001352526-23-000003.txt,1352526,"1 CONSTITUTION PLAZA FLOOR 9, HARTFORD, CT, 06103-1816",Hartford Financial Management Inc.,2023-06-30,205887,205887102,CONAGRA BRANDS INC,47208000.0,1400
+https://sec.gov/Archives/edgar/data/1352526/0001352526-23-000003.txt,1352526,"1 CONSTITUTION PLAZA FLOOR 9, HARTFORD, CT, 06103-1816",Hartford Financial Management Inc.,2023-06-30,31428X,31428X106,FEDEX CORP,495800000.0,2000
+https://sec.gov/Archives/edgar/data/1352526/0001352526-23-000003.txt,1352526,"1 CONSTITUTION PLAZA FLOOR 9, HARTFORD, CT, 06103-1816",Hartford Financial Management Inc.,2023-06-30,370334,370334104,GENERAL MLS INC,306800000.0,4000
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+https://sec.gov/Archives/edgar/data/1352526/0001352526-23-000003.txt,1352526,"1 CONSTITUTION PLAZA FLOOR 9, HARTFORD, CT, 06103-1816",Hartford Financial Management Inc.,2023-06-30,512807,512807108,LAM RESEARCH CORP,64286000.0,100
+https://sec.gov/Archives/edgar/data/1352526/0001352526-23-000003.txt,1352526,"1 CONSTITUTION PLAZA FLOOR 9, HARTFORD, CT, 06103-1816",Hartford Financial Management Inc.,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,53567000.0,466
+https://sec.gov/Archives/edgar/data/1352526/0001352526-23-000003.txt,1352526,"1 CONSTITUTION PLAZA FLOOR 9, HARTFORD, CT, 06103-1816",Hartford Financial Management Inc.,2023-06-30,594918,594918104,MICROSOFT CORP,17335257000.0,50905
+https://sec.gov/Archives/edgar/data/1352526/0001352526-23-000003.txt,1352526,"1 CONSTITUTION PLAZA FLOOR 9, HARTFORD, CT, 06103-1816",Hartford Financial Management Inc.,2023-06-30,654106,654106103,NIKE INC,215112000.0,1949
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+https://sec.gov/Archives/edgar/data/1352526/0001352526-23-000003.txt,1352526,"1 CONSTITUTION PLAZA FLOOR 9, HARTFORD, CT, 06103-1816",Hartford Financial Management Inc.,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,3908201000.0,10020
+https://sec.gov/Archives/edgar/data/1352526/0001352526-23-000003.txt,1352526,"1 CONSTITUTION PLAZA FLOOR 9, HARTFORD, CT, 06103-1816",Hartford Financial Management Inc.,2023-06-30,704326,704326107,PAYCHEX INC,1339644000.0,11975
+https://sec.gov/Archives/edgar/data/1352526/0001352526-23-000003.txt,1352526,"1 CONSTITUTION PLAZA FLOOR 9, HARTFORD, CT, 06103-1816",Hartford Financial Management Inc.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,4821756000.0,31776
+https://sec.gov/Archives/edgar/data/1352526/0001352526-23-000003.txt,1352526,"1 CONSTITUTION PLAZA FLOOR 9, HARTFORD, CT, 06103-1816",Hartford Financial Management Inc.,2023-06-30,871829,871829107,SYSCO CORP,1335600000.0,18000
+https://sec.gov/Archives/edgar/data/1352526/0001352526-23-000003.txt,1352526,"1 CONSTITUTION PLAZA FLOOR 9, HARTFORD, CT, 06103-1816",Hartford Financial Management Inc.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,5286000.0,60
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+https://sec.gov/Archives/edgar/data/1352547/0001352547-23-000006.txt,1352547,"2 NEENAH CENTER, SUITE 501, NEENAH, WI, 54956",Legacy Private Trust Co.,2023-06-30,189054,189054109,CLOROX CO DEL,215817000.0,1357
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+https://sec.gov/Archives/edgar/data/1352547/0001352547-23-000006.txt,1352547,"2 NEENAH CENTER, SUITE 501, NEENAH, WI, 54956",Legacy Private Trust Co.,2023-06-30,654106,654106103,NIKE INC,369849000.0,3351
+https://sec.gov/Archives/edgar/data/1352547/0001352547-23-000006.txt,1352547,"2 NEENAH CENTER, SUITE 501, NEENAH, WI, 54956",Legacy Private Trust Co.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1415582000.0,9329
+https://sec.gov/Archives/edgar/data/1352547/0001352547-23-000006.txt,1352547,"2 NEENAH CENTER, SUITE 501, NEENAH, WI, 54956",Legacy Private Trust Co.,2023-06-30,832696,832696405,SMUCKER J M CO,265953000.0,1801
+https://sec.gov/Archives/edgar/data/1352547/0001352547-23-000006.txt,1352547,"2 NEENAH CENTER, SUITE 501, NEENAH, WI, 54956",Legacy Private Trust Co.,2023-06-30,854231,854231107,STANDEX INTL CORP,403189000.0,2850
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+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,234264,234264109,DAKTRONICS INC,268800000.0,42000
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,3215295000.0,113695
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,31428X,31428X106,FEDEX CORP,27286353000.0,110070
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,35137L,35137L105,FOX CORP,14937934000.0,439351
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,370334,370334104,GENERAL MLS INC,8809302000.0,114854
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,482480,482480100,KLA CORP,264169538000.0,544657
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,496677000.0,17976
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,505336,505336107,LA Z BOY INC,5014921000.0,175102
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,502169446000.0,781149
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,513847,513847103,LANCASTER COLONY CORP,14575808000.0,72484
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,932609000.0,4749
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,53222K,53222K205,LIFEVANTAGE CORP,45301000.0,10414
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,56117J,56117J100,MALIBU BOATS INC,7322117000.0,124823
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,999221000.0,32601
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,594918,594918104,MICROSOFT CORP,1033620630000.0,3035240
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,683715,683715106,OPEN TEXT CORP,572642000.0,13782
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,703395,703395103,PATTERSON COS INC,2790514000.0,83900
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3509898000.0,23131
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,992322000.0,63165
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,806037,806037107,SCANSOURCE INC,385847000.0,13053
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,807066,807066105,SCHOLASTIC CORP,1083009000.0,27848
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,817070,817070501,SENECA FOODS CORP NEW,223662000.0,6844
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,854231,854231107,STANDEX INTL CORP,594174000.0,4200
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,876030,876030107,TAPESTRY INC,858739000.0,20064
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,23582788000.0,621745
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,968223,968223206,WILEY JOHN & SONS INC,220344000.0,6475
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,G3323L,G3323L100,FABRINET,17040776000.0,131204
+https://sec.gov/Archives/edgar/data/1352662/0001072613-23-000430.txt,1352662,"53 State Street, Suite 3300, Boston, MA, 02109","Grantham, Mayo, Van Otterloo & Co. LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,7871383000.0,89346
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+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,1118951000.0,5091
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,075896,075896100,BED BATH & BEYOND,343000.0,1250
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,11133T,11133T103,BROADRIDGE FIN SOL,74865000.0,452
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,115637,115637209,BROWN-FORMAN CORP,6678000.0,100
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,14149Y,14149Y108,Cardinal Health Inc,45961000.0,486
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+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,31428X,31428X106,FEDEX CORP,2144583000.0,8651
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,370334,370334104,GENERAL MILLS INC,161454000.0,2105
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,461202,461202103,Intuit Inc,24742000.0,54
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,513272,513272104,Lamb Weston Holdings Inc,575000.0,5
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,513847,513847103,Lancaster Colony Corp,32577000.0,162
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,594918,594918104,MICROSOFT CORP,6527557000.0,19168
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,64110D,64110D104,NETAPP INC,1148368000.0,15031
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,654106,654106103,NIKE INC,211800000.0,1919
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+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,704326,704326107,Paychex Inc,1084804000.0,9697
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,742718,742718109,Procter & Gamble Co/The,1067491000.0,7035
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,749685,749685103,RPM INTERNATIONAL,15972000.0,178
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,832696,832696405,SMUCKER(JM)CO,91851000.0,622
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,871829,871829107,Sysco Corp,133040000.0,1793
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,958102,958102105,WESTN DIGITAL CORP,872000.0,23
+https://sec.gov/Archives/edgar/data/1352675/0001352675-23-000004.txt,1352675,"24 HAMLIN WAY, BANGOR, ME, 04401",Bangor Savings Bank,2023-06-30,G5960L,G5960L103,Medtronic PLC,954387000.0,10833
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,205887,205887102,CONAGRA BRANDS INC,853318000.0,25306
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,921209000.0,8014
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,634307000.0,3230
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,247286000.0,4359
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,532227000.0,2083
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,758602000.0,12593
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,761152,761152107,RESMED INC,3145745000.0,14397
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,832696,832696405,SMUCKER J M CO,892665000.0,6045
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,2802318000.0,11243
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,87157D,87157D109,SYNAPTICS INC,239747000.0,2808
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,871829,871829107,SYSCO CORP,452472000.0,6098
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,876030,876030107,TAPESTRY INC,2800575000.0,65434
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,46333993000.0,525925
+https://sec.gov/Archives/edgar/data/1352851/0001104659-23-090167.txt,1352851,"1603 Orrington Ave., 13th Floor, Evanston, IL, 60201",Magnetar Financial LLC,2023-06-30,N14506,N14506104,ELASTIC N V,416716000.0,6499
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,708313000.0,3222
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,4225119000.0,25288
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,1084936000.0,4377
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,732353000.0,9548
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,26456584000.0,158111
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,461202,461202103,INTUIT,1607384000.0,3508
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,482480,482480100,KLA CORP,6973617000.0,14378
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,5382496000.0,194806
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,24052066000.0,70629
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,654106,654106103,NIKE INC,814530000.0,7380
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,704326,704326107,PAYCHEX INC,456206000.0,4078
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,10693489000.0,70472
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,871829,871829107,SYSCO CORP,906357000.0,12215
+https://sec.gov/Archives/edgar/data/1352864/0001085146-23-003163.txt,1352864,"910 E. ST. LOUIS ST., STE. 200, Springfield, MO, 65806","FORVIS Wealth Advisors, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,286766000.0,3255
+https://sec.gov/Archives/edgar/data/1352871/0001420506-23-001312.txt,1352871,"96 BALD HILL ROAD, WILTON, CT, 06897",Benin Management CORP,2023-06-30,31428X,31428X106,FEDEX CORP,3346650000.0,13500
+https://sec.gov/Archives/edgar/data/1352871/0001420506-23-001312.txt,1352871,"96 BALD HILL ROAD, WILTON, CT, 06897",Benin Management CORP,2023-06-30,594918,594918104,MICROSOFT CORP,18154482000.0,53311
+https://sec.gov/Archives/edgar/data/1352871/0001420506-23-001312.txt,1352871,"96 BALD HILL ROAD, WILTON, CT, 06897",Benin Management CORP,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,345185000.0,885
+https://sec.gov/Archives/edgar/data/1352871/0001420506-23-001312.txt,1352871,"96 BALD HILL ROAD, WILTON, CT, 06897",Benin Management CORP,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2083756000.0,13732
+https://sec.gov/Archives/edgar/data/1352871/0001420506-23-001312.txt,1352871,"96 BALD HILL ROAD, WILTON, CT, 06897",Benin Management CORP,2023-06-30,871829,871829107,SYSCO CORP,1884680000.0,25400
+https://sec.gov/Archives/edgar/data/1352871/0001420506-23-001312.txt,1352871,"96 BALD HILL ROAD, WILTON, CT, 06897",Benin Management CORP,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1707466000.0,19381
+https://sec.gov/Archives/edgar/data/1352895/0001104659-23-089635.txt,1352895,"3175 Oregon Pike, Leola, PA, 17540",EMERALD MUTUAL FUND ADVISERS TRUST,2023-06-30,008073,008073108,AEROVIRONMENT INC,17475765000.0,170862
+https://sec.gov/Archives/edgar/data/1352895/0001104659-23-089635.txt,1352895,"3175 Oregon Pike, Leola, PA, 17540",EMERALD MUTUAL FUND ADVISERS TRUST,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,4754255000.0,120544
+https://sec.gov/Archives/edgar/data/1352895/0001104659-23-089635.txt,1352895,"3175 Oregon Pike, Leola, PA, 17540",EMERALD MUTUAL FUND ADVISERS TRUST,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,31711485000.0,564965
+https://sec.gov/Archives/edgar/data/1352895/0001104659-23-089635.txt,1352895,"3175 Oregon Pike, Leola, PA, 17540",EMERALD MUTUAL FUND ADVISERS TRUST,2023-06-30,589378,589378108,MERCURY SYSTEMS INC,4942634000.0,142892
+https://sec.gov/Archives/edgar/data/1352895/0001104659-23-089635.txt,1352895,"3175 Oregon Pike, Leola, PA, 17540",EMERALD MUTUAL FUND ADVISERS TRUST,2023-06-30,594918,594918104,MICROSOFT CORP,1593046000.0,4678
+https://sec.gov/Archives/edgar/data/1352895/0001104659-23-089635.txt,1352895,"3175 Oregon Pike, Leola, PA, 17540",EMERALD MUTUAL FUND ADVISERS TRUST,2023-06-30,697435,697435105,"PALO ALTO NETWORKS, INC",209518000.0,820
+https://sec.gov/Archives/edgar/data/1352895/0001104659-23-089635.txt,1352895,"3175 Oregon Pike, Leola, PA, 17540",EMERALD MUTUAL FUND ADVISERS TRUST,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,42002115000.0,168514
+https://sec.gov/Archives/edgar/data/1352895/0001104659-23-089635.txt,1352895,"3175 Oregon Pike, Leola, PA, 17540",EMERALD MUTUAL FUND ADVISERS TRUST,2023-06-30,G3323L,G3323L100,FABRINET,1339323000.0,10312
+https://sec.gov/Archives/edgar/data/1353098/0001353098-23-000005.txt,1353098,"306 MAIN STREET, WORCESTER, MA, 01608","Cutler Capital Management, LLC",2023-06-30,594918,594918104,MICROSOFT,357841000.0,1051
+https://sec.gov/Archives/edgar/data/1353110/0001062993-23-015314.txt,1353110,"4105 FORT HENRY DR. SUITE 305, KINGSPORT, TN, 37663",Aldebaran Financial Inc.,2023-06-30,31428X,31428X106,FEDEX CORP,327228000.0,1320
+https://sec.gov/Archives/edgar/data/1353110/0001062993-23-015314.txt,1353110,"4105 FORT HENRY DR. SUITE 305, KINGSPORT, TN, 37663",Aldebaran Financial Inc.,2023-06-30,594918,594918104,MICROSOFT CORP,2058571000.0,6045
+https://sec.gov/Archives/edgar/data/1353110/0001062993-23-015314.txt,1353110,"4105 FORT HENRY DR. SUITE 305, KINGSPORT, TN, 37663",Aldebaran Financial Inc.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2277346000.0,15008
+https://sec.gov/Archives/edgar/data/1353254/0000895345-23-000463.txt,1353254,"2107 Wilson Boulevard, Suite 410, Arlington, VA, 22201",EJF Capital LLC,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,1325500000.0,33608
+https://sec.gov/Archives/edgar/data/1353311/0000919574-23-004645.txt,1353311,"One Grand Central Place, 60 East 42nd Street, Suite 755, New York, NY, 10165","Marathon Partners Equity Management, LLC",2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,1506000000.0,25000
+https://sec.gov/Archives/edgar/data/1353312/0001214659-23-011141.txt,1353312,"600 WASHINGTON BLVD, SUITE 801, STAMFORD, CT, 06901",TREMBLANT CAPITAL GROUP,2023-06-30,594918,594918104,MICROSOFT CORP,666777000.0,1958
+https://sec.gov/Archives/edgar/data/1353312/0001214659-23-011141.txt,1353312,"600 WASHINGTON BLVD, SUITE 801, STAMFORD, CT, 06901",TREMBLANT CAPITAL GROUP,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,64367568000.0,251918
+https://sec.gov/Archives/edgar/data/1353312/0001214659-23-011141.txt,1353312,"600 WASHINGTON BLVD, SUITE 801, STAMFORD, CT, 06901",TREMBLANT CAPITAL GROUP,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,731690000.0,4822
+https://sec.gov/Archives/edgar/data/1353316/0001353316-23-000005.txt,1353316,"101 PARK AVENUE, 48TH FLOOR, NEW YORK, NY, 10178","Hound Partners, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,42014123000.0,123375
+https://sec.gov/Archives/edgar/data/1353318/0001398344-23-013461.txt,1353318,"310 N. STATE STREET, SUITE 214, LAKE OSWEGO, OR, 97034",Progressive Investment Management Corp,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,311882000.0,1419
+https://sec.gov/Archives/edgar/data/1353318/0001398344-23-013461.txt,1353318,"310 N. STATE STREET, SUITE 214, LAKE OSWEGO, OR, 97034",Progressive Investment Management Corp,2023-06-30,594918,594918104,MICROSOFT CORP,31649019000.0,92938
+https://sec.gov/Archives/edgar/data/1353318/0001398344-23-013461.txt,1353318,"310 N. STATE STREET, SUITE 214, LAKE OSWEGO, OR, 97034",Progressive Investment Management Corp,2023-06-30,654106,654106103,NIKE INC,529776000.0,4800
+https://sec.gov/Archives/edgar/data/1353394/0001172661-23-002976.txt,1353394,"24 Savile Row, 5th Floor, London, X0, W1S 2ES",Gladstone Capital Management LLP,2023-06-30,090043,090043100,BILL HOLDINGS INC,981540000.0,8400
+https://sec.gov/Archives/edgar/data/1353394/0001172661-23-002976.txt,1353394,"24 Savile Row, 5th Floor, London, X0, W1S 2ES",Gladstone Capital Management LLP,2023-06-30,594918,594918104,MICROSOFT CORP,132210909000.0,388239
+https://sec.gov/Archives/edgar/data/1353651/0000950123-23-006135.txt,1353651,"1500-400 BURRARD STREET, VANCOUVER, A1, V6C 3A6",Leith Wheeler Investment Counsel Ltd.,2023-06-30,594918,594918104,MICROSOFT CORP,368124000.0,1081
+https://sec.gov/Archives/edgar/data/1353651/0000950123-23-006135.txt,1353651,"1500-400 BURRARD STREET, VANCOUVER, A1, V6C 3A6",Leith Wheeler Investment Counsel Ltd.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,6204795000.0,70429
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,522090000.0,2362
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,205887,205887102,CONAGRA BRANDS INC,277044000.0,8216
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,31428X,31428X106,FEDEX CORP,406131000.0,1630
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,370334,370334104,GENERAL MLS INC,316618000.0,4128
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,461202,461202103,INTUIT,562657000.0,1228
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,482480,482480100,KLA CORP,410327000.0,846
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,512807,512807108,LAM RESEARCH CORP,573064000.0,889
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,594918,594918104,MICROSOFT CORP,12717126000.0,37344
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,654106,654106103,NIKE INC,350201000.0,3163
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,227783000.0,584
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,704326,704326107,PAYCHEX INC,338854000.0,3029
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1222916000.0,8059
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,871829,871829107,SYSCO CORP,569633000.0,7677
+https://sec.gov/Archives/edgar/data/1354739/0001172661-23-002832.txt,1354739,"909 Third Avenue, 16th Floor, Attn: Chief Compliance Officer, New York, NY, 10022",Geller Advisors LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,646839000.0,7291
+https://sec.gov/Archives/edgar/data/1354821/0001354821-23-000006.txt,1354821,"767 FIFTH AVENUE, 21ST FLOOR, NEW YORK, NY, 10153","LEVIN CAPITAL STRATEGIES, L.P.",2023-06-30,31428X,31428X106,FEDEX CORP,2230108000.0,8996
+https://sec.gov/Archives/edgar/data/1354821/0001354821-23-000006.txt,1354821,"767 FIFTH AVENUE, 21ST FLOOR, NEW YORK, NY, 10153","LEVIN CAPITAL STRATEGIES, L.P.",2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,705376000.0,3751
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+https://sec.gov/Archives/edgar/data/1365707/0001580642-23-003611.txt,1365707,"120 Longwater Drive, Suite 100, Norwell, MA, 02061","CONTRAVISORY INVESTMENT MANAGEMENT, INC.",2023-06-30,65249B,65249B208,NEWS CORP NEW,411063000.0,20845
+https://sec.gov/Archives/edgar/data/1365707/0001580642-23-003611.txt,1365707,"120 Longwater Drive, Suite 100, Norwell, MA, 02061","CONTRAVISORY INVESTMENT MANAGEMENT, INC.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,6831335000.0,45020
+https://sec.gov/Archives/edgar/data/1365707/0001580642-23-003611.txt,1365707,"120 Longwater Drive, Suite 100, Norwell, MA, 02061","CONTRAVISORY INVESTMENT MANAGEMENT, INC.",2023-06-30,832696,832696405,SMUCKER J M CO,496467000.0,3362
+https://sec.gov/Archives/edgar/data/1366838/0001085146-23-002895.txt,1366838,"401 SOUTH OLD WOODWARD, SUITE 430, BIRMINGHAM, MI, 48009","Liberty Capital Management, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1196317000.0,5443
+https://sec.gov/Archives/edgar/data/1366838/0001085146-23-002895.txt,1366838,"401 SOUTH OLD WOODWARD, SUITE 430, BIRMINGHAM, MI, 48009","Liberty Capital Management, Inc.",2023-06-30,461202,461202103,INTUIT,10457729000.0,22824
+https://sec.gov/Archives/edgar/data/1366838/0001085146-23-002895.txt,1366838,"401 SOUTH OLD WOODWARD, SUITE 430, BIRMINGHAM, MI, 48009","Liberty Capital Management, Inc.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,588944000.0,2999
+https://sec.gov/Archives/edgar/data/1366838/0001085146-23-002895.txt,1366838,"401 SOUTH OLD WOODWARD, SUITE 430, BIRMINGHAM, MI, 48009","Liberty Capital Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,9031121000.0,26520
+https://sec.gov/Archives/edgar/data/1366838/0001085146-23-002895.txt,1366838,"401 SOUTH OLD WOODWARD, SUITE 430, BIRMINGHAM, MI, 48009","Liberty Capital Management, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,588296000.0,3877
+https://sec.gov/Archives/edgar/data/1366838/0001085146-23-002895.txt,1366838,"401 SOUTH OLD WOODWARD, SUITE 430, BIRMINGHAM, MI, 48009","Liberty Capital Management, Inc.",2023-06-30,871829,871829107,SYSCO CORP,304814000.0,4108
+https://sec.gov/Archives/edgar/data/1367401/0001367401-23-000007.txt,1367401,"BEETHOVENSTRAAT 300, AMSTERDAM, P7, 1077 WZ",VAN LANSCHOT KEMPEN INVESTMENT MANAGEMENT N.V.,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC COM,29424037000.0,311135
+https://sec.gov/Archives/edgar/data/1367401/0001367401-23-000007.txt,1367401,"BEETHOVENSTRAAT 300, AMSTERDAM, P7, 1077 WZ",VAN LANSCHOT KEMPEN INVESTMENT MANAGEMENT N.V.,2023-06-30,35137L,35137L204,FOX CORP CL B COM,2983150000.0,93545
+https://sec.gov/Archives/edgar/data/1367401/0001367401-23-000007.txt,1367401,"BEETHOVENSTRAAT 300, AMSTERDAM, P7, 1077 WZ",VAN LANSCHOT KEMPEN INVESTMENT MANAGEMENT N.V.,2023-06-30,461202,461202103,INTUIT COM,2275830000.0,4967
+https://sec.gov/Archives/edgar/data/1367401/0001367401-23-000007.txt,1367401,"BEETHOVENSTRAAT 300, AMSTERDAM, P7, 1077 WZ",VAN LANSCHOT KEMPEN INVESTMENT MANAGEMENT N.V.,2023-06-30,512807,512807108,LAM RESEARCH CORP COM,4198519000.0,6531
+https://sec.gov/Archives/edgar/data/1367401/0001367401-23-000007.txt,1367401,"BEETHOVENSTRAAT 300, AMSTERDAM, P7, 1077 WZ",VAN LANSCHOT KEMPEN INVESTMENT MANAGEMENT N.V.,2023-06-30,518439,518439104,LAUDER ESTEE COS INC CL A,35852900000.0,182569
+https://sec.gov/Archives/edgar/data/1367401/0001367401-23-000007.txt,1367401,"BEETHOVENSTRAAT 300, AMSTERDAM, P7, 1077 WZ",VAN LANSCHOT KEMPEN INVESTMENT MANAGEMENT N.V.,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC COM,21117005000.0,372237
+https://sec.gov/Archives/edgar/data/1367401/0001367401-23-000007.txt,1367401,"BEETHOVENSTRAAT 300, AMSTERDAM, P7, 1077 WZ",VAN LANSCHOT KEMPEN INVESTMENT MANAGEMENT N.V.,2023-06-30,594918,594918104,MICROSOFT CORP COM,281397397000.0,826327
+https://sec.gov/Archives/edgar/data/1367401/0001367401-23-000007.txt,1367401,"BEETHOVENSTRAAT 300, AMSTERDAM, P7, 1077 WZ",VAN LANSCHOT KEMPEN INVESTMENT MANAGEMENT N.V.,2023-06-30,654106,654106103,NIKE INC CL B,38911164000.0,352552
+https://sec.gov/Archives/edgar/data/1367401/0001367401-23-000007.txt,1367401,"BEETHOVENSTRAAT 300, AMSTERDAM, P7, 1077 WZ",VAN LANSCHOT KEMPEN INVESTMENT MANAGEMENT N.V.,2023-06-30,871829,871829107,SYSCO CORP COM,55871487000.0,752985
+https://sec.gov/Archives/edgar/data/1367401/0001367401-23-000007.txt,1367401,"BEETHOVENSTRAAT 300, AMSTERDAM, P7, 1077 WZ",VAN LANSCHOT KEMPEN INVESTMENT MANAGEMENT N.V.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC SHS,106379517000.0,1207486
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,239796000.0,6983
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,00760J,00760J108,AEHR TEST SYS,173168000.0,4198
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,008073,008073108,AEROVIRONMENT INC,365549000.0,3574
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,018802,018802108,ALLIANT ENERGY CORP,2566639000.0,48907
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,578601000.0,11419
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,029683,029683109,AMER SOFTWARE INC,37710000.0,3588
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,166028000.0,2174
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,52185000.0,523
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,68984000.0,6614
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,03676C,03676C100,ANTERIX INC,83947000.0,2649
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,1077535000.0,7440
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,042744,042744102,ARROW FINL CORP,27612000.0,1371
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,30473224000.0,138647
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,05368M,05368M106,AVID BIOSERVICES INC,149479000.0,10700
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,053807,053807103,AVNET INC,867185000.0,17189
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,304398000.0,7718
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,090043,090043100,BILL HOLDINGS INC,1775302000.0,15193
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,09073M,09073M104,BIO-TECHNE CORP,1864021000.0,22835
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,093671,093671105,BLOCK H & R INC,953869000.0,29930
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,6931450000.0,41849
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,115637,115637209,BROWN FORMAN CORP,7229002000.0,108251
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,127190,127190304,CACI INTL INC,4512722000.0,13240
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,128030,128030202,CAL MAINE FOODS INC,341325000.0,7585
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,14421925000.0,152500
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,393471000.0,7010
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,147528,147528103,CASEYS GEN STORES INC,1480108000.0,6069
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,189054,189054109,CLOROX CO DEL,7318862000.0,46019
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,205887,205887102,CONAGRA BRANDS INC,19229066000.0,570257
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,222070,222070203,COTY INC,836629000.0,68074
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,20327621000.0,121664
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,156756000.0,5543
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,31428X,31428X106,FEDEX CORP,29717756000.0,119878
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,35137L,35137L105,FOX CORP,10295812000.0,302818
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,36251C,36251C103,GMS INC,516924000.0,7470
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,368036,368036109,GATOS SILVER INC,113000.0,30
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,370334,370334104,GENERAL MLS INC,32895326000.0,428883
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,214997000.0,17186
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,2019506000.0,12069
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,461202,461202103,INTUIT,53822205000.0,117467
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,482480,482480100,KLA CORP,14028718000.0,28924
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,489170,489170100,KENNAMETAL INC,371625000.0,13090
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,147517000.0,5339
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,500643,500643200,KORN FERRY,473256000.0,9553
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,505336,505336107,LA Z BOY INC,201110000.0,7022
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,512807,512807108,LAM RESEARCH CORP,33613864000.0,52288
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,2933064000.0,25516
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,513847,513847103,LANCASTER COLONY CORP,671037000.0,3337
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,518439,518439104,LAUDER ESTEE COS INC,26597118000.0,135437
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,53261M,53261M104,EDGIO INC,75000.0,112
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,631972000.0,11140
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,359928000.0,1914
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,378667000.0,13825
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,56117J,56117J100,MALIBU BOATS INC,210003000.0,3580
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,97467000.0,3180
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,589378,589378108,MERCURY SYS INC,320891000.0,9277
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,591520,591520200,METHOD ELECTRS INC,203031000.0,6057
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,594918,594918104,MICROSOFT CORP,1264294253000.0,3712616
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,600544,600544100,MILLERKNOLL INC,163733000.0,11078
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,606710,606710200,MITEK SYS INC,66764000.0,6159
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,142923000.0,2956
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,640491,640491106,NEOGEN CORP,760793000.0,34979
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,64110D,64110D104,NETAPP INC,2998624000.0,39249
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,65249B,65249B109,NEWS CORP NEW,1034280000.0,53040
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,654106,654106103,NIKE INC,55982534000.0,507226
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,671044,671044105,OSI SYSTEMS INC,300349000.0,2549
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,683715,683715106,OPEN TEXT CORP,11888933000.0,285519
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,58032964000.0,227126
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,21602365000.0,55385
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,703395,703395103,PATTERSON COS INC,495973000.0,14912
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,704326,704326107,PAYCHEX INC,5936829000.0,53069
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,1507795000.0,8171
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,332016000.0,43175
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,1561903000.0,25928
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP,56266000.0,4107
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,74051N,74051N102,PREMIER INC,627965000.0,22703
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,159114868000.0,1048602
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,74874Q,74874Q100,QUINSTREET INC,71302000.0,8075
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,749685,749685103,RPM INTL INC,4615711000.0,51440
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,761152,761152107,RESMED INC,10173360000.0,46560
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,120370000.0,7662
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,806037,806037107,SCANSOURCE INC,131217000.0,4439
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,807066,807066105,SCHOLASTIC CORP,190250000.0,4892
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,75267000.0,5772
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,832696,832696405,SMUCKER J M CO,6874925000.0,46556
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,854231,854231107,STANDEX INTL CORP,315620000.0,2231
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,86333M,86333M108,STRIDE INC,502717000.0,13503
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,1621371000.0,6505
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,87157D,87157D109,SYNAPTICS INC,558129000.0,6537
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,871829,871829107,SYSCO CORP,6288079000.0,84745
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,876030,876030107,TAPESTRY INC,1692141000.0,39536
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,88688T,88688T100,TILRAY BRANDS INC,257849000.0,165288
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,662125000.0,58440
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,5757243000.0,151786
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,968223,968223206,WILEY JOHN & SONS INC,281360000.0,8268
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,51728000.0,386
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,981811,981811102,WORTHINGTON INDS INC,1893822000.0,27261
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,G2143T,G2143T103,CIMPRESS PLC,159538000.0,2708
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,G3323L,G3323L100,FABRINET,12683042000.0,97652
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,45750154000.0,519298
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,115358000.0,3517
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,N14506,N14506104,ELASTIC N V,1510603000.0,23559
+https://sec.gov/Archives/edgar/data/1368163/0000947871-23-000829.txt,1368163,"BAHNHOFSTRASSE 9, ZURICH, V8, 8001",Zurcher Kantonalbank (Zurich Cantonalbank),2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,133816000.0,5217
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES INC,4345000.0,30
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,523918000.0,5540
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,3929000.0,70
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,358435,358435105,FRIEDMAN INDS INC,144900000.0,11500
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,461202,461202103,INTUIT,181443000.0,396
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,46564T,46564T107,ITERIS INC NEW,2970000.0,750
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,513847,513847103,LANCASTER COLONY CORP,4022000.0,20
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,594918,594918104,MICROSOFT CORP,1767062000.0,5189
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,2901000.0,60
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,64110D,64110D104,NETAPP INC,554664000.0,7260
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,654106,654106103,NIKE INC,652176000.0,5909
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,683715,683715106,OPEN TEXT CORP COM,14698890000.0,353400
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,638776000.0,2500
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,703395,703395103,PATTERSON COS INC,2697386000.0,81100
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,435491000.0,2360
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,74051N,74051N102,PREMIER INC,8298000.0,300
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,272070000.0,1793
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC COM,6284000.0,400
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,763165,763165107,RICHARDSON ELECTRS LTD,1362901000.0,82600
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,806037,806037107,SCANSOURCE INC,4311503000.0,145856
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,2493000.0,10
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,G2143T,G2143T103,CIMPRESS PLC SHS EURO,1713558000.0,28809
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,G3323L,G3323L100,FABRINET,2598000.0,20
+https://sec.gov/Archives/edgar/data/1368465/0000950123-23-007349.txt,1368465,"1 First Canadian Place, 100 KING ST WEST, SUITE 5900 P.O. 477, Toronto, A6, M5X 1E4",Hillsdale Investment Management Inc.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,57353000.0,651
+https://sec.gov/Archives/edgar/data/1369702/0001369702-23-000009.txt,1369702,"10866 WILSHIRE BLVD STE 770, LOS ANGELES, CA, 90024",AMI ASSET MANAGEMENT CORP,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLU,466414000.0,2816
+https://sec.gov/Archives/edgar/data/1369702/0001369702-23-000009.txt,1369702,"10866 WILSHIRE BLVD STE 770, LOS ANGELES, CA, 90024",AMI ASSET MANAGEMENT CORP,2023-06-30,594918,594918104,MICROSOFT CORP,108711336000.0,319232
+https://sec.gov/Archives/edgar/data/1369702/0001369702-23-000009.txt,1369702,"10866 WILSHIRE BLVD STE 770, LOS ANGELES, CA, 90024",AMI ASSET MANAGEMENT CORP,2023-06-30,640491,640491106,NEOGEN CORP,5842043000.0,268600
+https://sec.gov/Archives/edgar/data/1369702/0001369702-23-000009.txt,1369702,"10866 WILSHIRE BLVD STE 770, LOS ANGELES, CA, 90024",AMI ASSET MANAGEMENT CORP,2023-06-30,654106,654106103,NIKE INC CLASS B,28109929000.0,254688
+https://sec.gov/Archives/edgar/data/1369702/0001369702-23-000009.txt,1369702,"10866 WILSHIRE BLVD STE 770, LOS ANGELES, CA, 90024",AMI ASSET MANAGEMENT CORP,2023-06-30,697435,697435105,PALO ALTO NETWORKS,57416663000.0,224714
+https://sec.gov/Archives/edgar/data/1369702/0001369702-23-000009.txt,1369702,"10866 WILSHIRE BLVD STE 770, LOS ANGELES, CA, 90024",AMI ASSET MANAGEMENT CORP,2023-06-30,742718,742718109,PROCTER & GAMBLE,1400408000.0,9229
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+https://sec.gov/Archives/edgar/data/1369913/0001085146-23-003146.txt,1369913,"250 DIVISION STREET, POST OFFICE BOX 1000, GREAT BARRINGTON, MA, 01230-1000","American Investment Services, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,444395000.0,1305
+https://sec.gov/Archives/edgar/data/1369913/0001085146-23-003146.txt,1369913,"250 DIVISION STREET, POST OFFICE BOX 1000, GREAT BARRINGTON, MA, 01230-1000","American Investment Services, Inc.",2023-06-30,654106,654106103,NIKE INC,245231000.0,2222
+https://sec.gov/Archives/edgar/data/1369913/0001085146-23-003146.txt,1369913,"250 DIVISION STREET, POST OFFICE BOX 1000, GREAT BARRINGTON, MA, 01230-1000","American Investment Services, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,642140000.0,4232
+https://sec.gov/Archives/edgar/data/1369913/0001085146-23-003146.txt,1369913,"250 DIVISION STREET, POST OFFICE BOX 1000, GREAT BARRINGTON, MA, 01230-1000","American Investment Services, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,252671000.0,2868
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+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,3389000.0,20290
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+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,35137L,35137L105,FOX CORP,3605000.0,106055
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,36251C,36251C103,GMS INC,1880000.0,27178
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,370334,370334104,GENERAL MLS INC,7394000.0,96414
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,736000.0,58852
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,6806000.0,40680
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,461202,461202103,INTUIT,20161000.0,44004
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,482480,482480100,KLA CORP,14690000.0,30290
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,489170,489170100,KENNAMETAL INC,1498000.0,52800
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,500643,500643200,KORN FERRY,1708000.0,34484
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,505336,505336107,LA Z BOY INC,812000.0,28385
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,512807,512807108,LAM RESEARCH CORP,14480000.0,22527
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,2821000.0,24550
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,513847,513847103,LANCASTER COLONY CORP,494000.0,2459
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,6338000.0,32276
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,483000.0,8518
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,478000.0,2545
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,589378,589378108,MERCURY SYS INC,249000.0,7216
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,591520,591520200,METHOD ELECTRS INC,794000.0,23692
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,594918,594918104,MICROSOFT CORP,403020000.0,1183480
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,600544,600544100,MILLERKNOLL INC,735000.0,49762
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,742000.0,15356
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,640491,640491106,NEOGEN CORP,582000.0,26800
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,64110D,64110D104,NETAPP INC,6823000.0,89317
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,65249B,65249B109,NEWS CORP NEW,920000.0,47209
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,654106,654106103,NIKE INC,19341000.0,175255
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,671044,671044105,OSI SYSTEMS INC,1206000.0,10237
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,9580000.0,37495
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,6201000.0,15900
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,703395,703395103,PATTERSON COS INC,358000.0,10781
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,704326,704326107,PAYCHEX INC,6712000.0,60013
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,2555000.0,13852
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,1165000.0,19353
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP,183000.0,13382
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,74051N,74051N102,PREMIER INC,6437000.0,232754
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,48313000.0,318403
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,74874Q,74874Q100,QUINSTREET INC,295000.0,33472
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,749685,749685103,RPM INTL INC,1434000.0,15985
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,761152,761152107,RESMED INC,9116000.0,41725
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,330000.0,21021
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,806037,806037107,SCANSOURCE INC,484000.0,16384
+https://sec.gov/Archives/edgar/data/1370102/0001370102-23-000009.txt,1370102,"333 WILLOUGHBY AVENUE, TREASURY DIVISION 11TH FLOOR, JUNEAU, AK, 99801","State of Alaska, Department of Revenue",2023-06-30,807066,807066105,SCHOLASTIC CORP,747000.0,19210
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+https://sec.gov/Archives/edgar/data/1376772/0001376772-23-000006.txt,1376772,"790 EAST COLORADO BLVD., STE. 808, PASADENA, CA, 91101",Dorsey Wright & Associates,2023-06-30,222070,222070203,COTY INC COM CL A,3635000000.0,295765
+https://sec.gov/Archives/edgar/data/1376772/0001376772-23-000006.txt,1376772,"790 EAST COLORADO BLVD., STE. 808, PASADENA, CA, 91101",Dorsey Wright & Associates,2023-06-30,234264,234264109,DAKTRONICS INC,26944000.0,4210
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+https://sec.gov/Archives/edgar/data/1376772/0001376772-23-000006.txt,1376772,"790 EAST COLORADO BLVD., STE. 808, PASADENA, CA, 91101",Dorsey Wright & Associates,2023-06-30,482480,482480100,KLA-TENCOR CORP COM,2807000000.0,5788
+https://sec.gov/Archives/edgar/data/1376772/0001376772-23-000006.txt,1376772,"790 EAST COLORADO BLVD., STE. 808, PASADENA, CA, 91101",Dorsey Wright & Associates,2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,32659000.0,1182
+https://sec.gov/Archives/edgar/data/1376772/0001376772-23-000006.txt,1376772,"790 EAST COLORADO BLVD., STE. 808, PASADENA, CA, 91101",Dorsey Wright & Associates,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC COM,2000000000.0,17397
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+https://sec.gov/Archives/edgar/data/1376879/0001376879-23-000006.txt,1376879,"2ND FLOOR, 1 NEWMAN ST, LONDON, X0, WITH 1PB",AKO CAPITAL LLP,2023-06-30,594918,594918104,MICROSOFT CORP,366653000.0,1076682
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+https://sec.gov/Archives/edgar/data/1380443/0001085146-23-003038.txt,1380443,"130 SPRINGSIDE DRIVE, SUITE 300, AKRON, OH, 44333","Valmark Advisers, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,806467000.0,9154
+https://sec.gov/Archives/edgar/data/1381954/0001381954-23-000010.txt,1381954,"4700 TIETON DRIVE, SUITE C, YAKIMA, WA, 98908","Tieton Capital Management, LLC",2023-06-30,620071,620071100,Motorcar Parts of America,8057000.0,1040899
+https://sec.gov/Archives/edgar/data/1381954/0001381954-23-000010.txt,1381954,"4700 TIETON DRIVE, SUITE C, YAKIMA, WA, 98908","Tieton Capital Management, LLC",2023-06-30,686275,686275108,Orion Energy Systems,3617000.0,2219240
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+https://sec.gov/Archives/edgar/data/1382646/0001382646-23-000004.txt,1382646,"17300 Chenal Parkway, Suite 150, Little Rock, AR, 72223","Ifrah Financial Services, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,328583000.0,1495
+https://sec.gov/Archives/edgar/data/1382646/0001382646-23-000004.txt,1382646,"17300 Chenal Parkway, Suite 150, Little Rock, AR, 72223","Ifrah Financial Services, Inc.",2023-06-30,093671,093671105,BLOCK H & R INC,713740000.0,22395
+https://sec.gov/Archives/edgar/data/1382646/0001382646-23-000004.txt,1382646,"17300 Chenal Parkway, Suite 150, Little Rock, AR, 72223","Ifrah Financial Services, Inc.",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,341695000.0,2063
+https://sec.gov/Archives/edgar/data/1382646/0001382646-23-000004.txt,1382646,"17300 Chenal Parkway, Suite 150, Little Rock, AR, 72223","Ifrah Financial Services, Inc.",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,261727000.0,1566
+https://sec.gov/Archives/edgar/data/1382646/0001382646-23-000004.txt,1382646,"17300 Chenal Parkway, Suite 150, Little Rock, AR, 72223","Ifrah Financial Services, Inc.",2023-06-30,461202,461202103,INTUIT,327668000.0,715
+https://sec.gov/Archives/edgar/data/1382646/0001382646-23-000004.txt,1382646,"17300 Chenal Parkway, Suite 150, Little Rock, AR, 72223","Ifrah Financial Services, Inc.",2023-06-30,482480,482480100,KLA CORP,1642194000.0,3386
+https://sec.gov/Archives/edgar/data/1382646/0001382646-23-000004.txt,1382646,"17300 Chenal Parkway, Suite 150, Little Rock, AR, 72223","Ifrah Financial Services, Inc.",2023-06-30,512807,512807108,LAM RESEARCH CORP,594603000.0,925
+https://sec.gov/Archives/edgar/data/1382646/0001382646-23-000004.txt,1382646,"17300 Chenal Parkway, Suite 150, Little Rock, AR, 72223","Ifrah Financial Services, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,3968701000.0,11654
+https://sec.gov/Archives/edgar/data/1382646/0001382646-23-000004.txt,1382646,"17300 Chenal Parkway, Suite 150, Little Rock, AR, 72223","Ifrah Financial Services, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,453678000.0,4055
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+https://sec.gov/Archives/edgar/data/1383782/0001172661-23-002519.txt,1383782,"184 North Ave. East, Cranford, NJ, 07016","Merrion Investment Management Co, LLC",2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,259509000.0,1380
+https://sec.gov/Archives/edgar/data/1383782/0001172661-23-002519.txt,1383782,"184 North Ave. East, Cranford, NJ, 07016","Merrion Investment Management Co, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,3048174000.0,8951
+https://sec.gov/Archives/edgar/data/1383782/0001172661-23-002519.txt,1383782,"184 North Ave. East, Cranford, NJ, 07016","Merrion Investment Management Co, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1135926000.0,7486
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+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,053015,053015103,Automatic Data Processing Inc,2081850000.0,9472
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,09073M,09073M104,Bio-Techne Corp,12607426000.0,154446
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,093671,093671105,H&R Block Inc,261238000.0,8197
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,14149Y,14149Y108,Cardinal Health Inc,299408000.0,3166
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,189054,189054109,Clorox Co/The,235857000.0,1483
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,222070,222070203,Coty Inc,333403000.0,27128
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,31428X,31428X106,FedEx Corp,777166000.0,3135
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,370334,370334104,General Mills Inc,1634477000.0,21310
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,461202,461202103,Intuit Inc,878809000.0,1918
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,482480,482480100,KLA Corp,448158000.0,924
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,512807,512807108,Lam Research Corp,692360000.0,1077
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,513272,513272104,Lamb Weston Holdings Inc,255994000.0,2227
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,518439,518439104,Estee Lauder Cos Inc/The,258828000.0,1318
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,594918,594918104,Microsoft Corp,47162747000.0,138494
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,640491,640491106,Neogen Corp,417623000.0,19201
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,654106,654106103,NIKE Inc,947307000.0,8583
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,697435,697435105,Palo Alto Networks Inc,1354714000.0,5302
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,701094,701094104,Parker Hannifin Corp,320223000.0,821
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,704326,704326107,Paychex Inc,522768000.0,4673
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,742718,742718109,Procter & Gamble Co/The,8161488000.0,53786
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,871829,871829107,Sysco Corp,5941268000.0,80071
+https://sec.gov/Archives/edgar/data/1384042/0001062993-23-016151.txt,1384042,"401 EAST EIGHTH STREET, SUITE 319, SIOUX FALLS, SD, 57103",Dorsey & Whitney Trust CO LLC,2023-06-30,G5960L,G5960L103,Medtronic PLC,13100382000.0,148699
+https://sec.gov/Archives/edgar/data/1384058/0001398344-23-013388.txt,1384058,"ONE GATEWAY CENTER, SUITE 802, NEWTON, MA, 02458","Redwood Investments, LLC",2023-06-30,008073,008073108,AEROVIRONMENT INC,16367357000.0,160025
+https://sec.gov/Archives/edgar/data/1384058/0001398344-23-013388.txt,1384058,"ONE GATEWAY CENTER, SUITE 802, NEWTON, MA, 02458","Redwood Investments, LLC",2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,17643710000.0,121824
+https://sec.gov/Archives/edgar/data/1384058/0001398344-23-013388.txt,1384058,"ONE GATEWAY CENTER, SUITE 802, NEWTON, MA, 02458","Redwood Investments, LLC",2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,15532892000.0,393836
+https://sec.gov/Archives/edgar/data/1384058/0001398344-23-013388.txt,1384058,"ONE GATEWAY CENTER, SUITE 802, NEWTON, MA, 02458","Redwood Investments, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,6661303000.0,19561
+https://sec.gov/Archives/edgar/data/1384058/0001398344-23-013388.txt,1384058,"ONE GATEWAY CENTER, SUITE 802, NEWTON, MA, 02458","Redwood Investments, LLC",2023-06-30,654106,654106103,NIKE INC,1015294000.0,9199
+https://sec.gov/Archives/edgar/data/1384058/0001398344-23-013388.txt,1384058,"ONE GATEWAY CENTER, SUITE 802, NEWTON, MA, 02458","Redwood Investments, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,2933766000.0,11482
+https://sec.gov/Archives/edgar/data/1384058/0001398344-23-013388.txt,1384058,"ONE GATEWAY CENTER, SUITE 802, NEWTON, MA, 02458","Redwood Investments, LLC",2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,3050855000.0,50645
+https://sec.gov/Archives/edgar/data/1384058/0001398344-23-013388.txt,1384058,"ONE GATEWAY CENTER, SUITE 802, NEWTON, MA, 02458","Redwood Investments, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,433369000.0,2856
+https://sec.gov/Archives/edgar/data/1384484/0001384484-23-000006.txt,1384484,"84 STATE STREET, SUITE 1060, BOSTON, MA, 02109",MAD RIVER INVESTORS,2023-06-30,127190,127190304,CACI INTL INC,7632584000.0,21780
+https://sec.gov/Archives/edgar/data/1384982/0000950123-23-007343.txt,1384982,"51 John F Kennedy Parkway, Suite 220, Short Hills, NJ, 07078","Columbus Hill Capital Management, L.P.",2023-06-30,594918,594918104,MICROSOFT CORP,21029026000.0,61752
+https://sec.gov/Archives/edgar/data/1385925/0001385925-23-000004.txt,1385925,"10 CORPORATE HILL DRIVE-SUITE 165, LITTLE ROCK, AR, 72205","Horrell Capital Management, Inc.",2023-06-30,03062T,03062T105,AMERICAS CAR MART INC,2945000.0,29518
+https://sec.gov/Archives/edgar/data/1385925/0001385925-23-000004.txt,1385925,"10 CORPORATE HILL DRIVE-SUITE 165, LITTLE ROCK, AR, 72205","Horrell Capital Management, Inc.",2023-06-30,205887,205887102,CONAGRA BRANDS INC,995000.0,29518
+https://sec.gov/Archives/edgar/data/1385925/0001385925-23-000004.txt,1385925,"10 CORPORATE HILL DRIVE-SUITE 165, LITTLE ROCK, AR, 72205","Horrell Capital Management, Inc.",2023-06-30,31428X,31428X106,FEDEX CORP,7322000.0,29536
+https://sec.gov/Archives/edgar/data/1385925/0001385925-23-000004.txt,1385925,"10 CORPORATE HILL DRIVE-SUITE 165, LITTLE ROCK, AR, 72205","Horrell Capital Management, Inc.",2023-06-30,500643,500643200,KORN FERRY,1778000.0,35900
+https://sec.gov/Archives/edgar/data/1385925/0001385925-23-000004.txt,1385925,"10 CORPORATE HILL DRIVE-SUITE 165, LITTLE ROCK, AR, 72205","Horrell Capital Management, Inc.",2023-06-30,512807,512807108,LAM RESEARCH CORP,1000.0,1
+https://sec.gov/Archives/edgar/data/1385925/0001385925-23-000004.txt,1385925,"10 CORPORATE HILL DRIVE-SUITE 165, LITTLE ROCK, AR, 72205","Horrell Capital Management, Inc.",2023-06-30,53261M,53261M104,EDGIO INC,10000.0,15000
+https://sec.gov/Archives/edgar/data/1385925/0001385925-23-000004.txt,1385925,"10 CORPORATE HILL DRIVE-SUITE 165, LITTLE ROCK, AR, 72205","Horrell Capital Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,753000.0,2210
+https://sec.gov/Archives/edgar/data/1385925/0001385925-23-000004.txt,1385925,"10 CORPORATE HILL DRIVE-SUITE 165, LITTLE ROCK, AR, 72205","Horrell Capital Management, Inc.",2023-06-30,742718,742718109,PROCTOR & GAMBLE CO,101000.0,668
+https://sec.gov/Archives/edgar/data/1385925/0001385925-23-000004.txt,1385925,"10 CORPORATE HILL DRIVE-SUITE 165, LITTLE ROCK, AR, 72205","Horrell Capital Management, Inc.",2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,6377000.0,405947
+https://sec.gov/Archives/edgar/data/1385925/0001385925-23-000004.txt,1385925,"10 CORPORATE HILL DRIVE-SUITE 165, LITTLE ROCK, AR, 72205","Horrell Capital Management, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,55000.0,620
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,53660000.0,20393
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,053807,053807103,AVNET INC,49855392000.0,1003687
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,093671,093671105,BLOCK H & R INC,82625129000.0,2592152
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,127190,127190304,CACI INTL INC,1848720000.0,5424
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,169942078000.0,1017212
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,482480,482480100,KLA CORP,150641428000.0,310560
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,500643,500643200,KORN FERRY,34512350000.0,695408
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,512807,512807108,LAM RESEARCH CORP,258597457000.0,401141
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,620071,620071100,MOTORCAR PTS AMER INC,584970000.0,75577
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,64110D,64110D104,NETAPP INC,152942643000.0,2001770
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,671044,671044105,OSI SYSTEMS INC,23867592000.0,202322
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,683715,683715106,OPEN TEXT CORP,1996850000.0,48059
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,450564395000.0,1154979
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3757536000.0,24763
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,763165,763165107,RICHARDSON ELECTRS LTD,2793880000.0,169326
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,86333M,86333M108,STRIDE INC,31791908000.0,847081
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,17981078000.0,72078
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,87157D,87157D109,SYNAPTICS INC,267860000.0,11769
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,904677,904677200,UNIFI INC,800350000.0,99176
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,80151083000.0,2112288
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,G3323L,G3323L100,FABRINET,579390000.0,4461
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,145204908000.0,1648621
+https://sec.gov/Archives/edgar/data/1386060/0001085146-23-003216.txt,1386060,"ONE BEACON STREET, 30TH FLOOR, BOSTON, MA, 02108",Boston Partners,2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,14230000.0,35581
+https://sec.gov/Archives/edgar/data/1386364/0001386364-23-000003.txt,1386364,"1001 SECOND STREET SUITE 325, NAPA, CA, 94559","Harrington Investments, INC",2023-06-30,461202,461202103,INTUIT,1197729000.0,2614
+https://sec.gov/Archives/edgar/data/1386364/0001386364-23-000003.txt,1386364,"1001 SECOND STREET SUITE 325, NAPA, CA, 94559","Harrington Investments, INC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,238209000.0,1213
+https://sec.gov/Archives/edgar/data/1386364/0001386364-23-000003.txt,1386364,"1001 SECOND STREET SUITE 325, NAPA, CA, 94559","Harrington Investments, INC",2023-06-30,594918,594918104,MICROSOFT CORP,10391805000.0,30516
+https://sec.gov/Archives/edgar/data/1386364/0001386364-23-000003.txt,1386364,"1001 SECOND STREET SUITE 325, NAPA, CA, 94559","Harrington Investments, INC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1469147000.0,9682
+https://sec.gov/Archives/edgar/data/1386364/0001386364-23-000003.txt,1386364,"1001 SECOND STREET SUITE 325, NAPA, CA, 94559","Harrington Investments, INC",2023-06-30,871829,871829107,SYSCO CORP,1590774000.0,21439
+https://sec.gov/Archives/edgar/data/1386364/0001386364-23-000003.txt,1386364,"1001 SECOND STREET SUITE 325, NAPA, CA, 94559","Harrington Investments, INC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1433739000.0,16274
+https://sec.gov/Archives/edgar/data/1386462/0000929638-23-002276.txt,1386462,"475 FIFTH AVENUE, 9TH FLOOR, NEW YORK, NY, 10017",Ionic Capital Management LLC,2023-06-30,31428X,31428X106,FEDEX CORP,2047158000.0,8258
+https://sec.gov/Archives/edgar/data/1386462/0000929638-23-002276.txt,1386462,"475 FIFTH AVENUE, 9TH FLOOR, NEW YORK, NY, 10017",Ionic Capital Management LLC,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,2464961000.0,40919
+https://sec.gov/Archives/edgar/data/1386929/0001386929-23-000004.txt,1386929,"8150 N. CENTRAL EXPWY #M1120, DALLAS, TX, 75225","Adams Asset Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,5168376000.0,15177
+https://sec.gov/Archives/edgar/data/1386929/0001386929-23-000004.txt,1386929,"8150 N. CENTRAL EXPWY #M1120, DALLAS, TX, 75225","Adams Asset Advisors, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,644895000.0,4250
+https://sec.gov/Archives/edgar/data/1386929/0001386929-23-000004.txt,1386929,"8150 N. CENTRAL EXPWY #M1120, DALLAS, TX, 75225","Adams Asset Advisors, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,5850242000.0,39617
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+https://sec.gov/Archives/edgar/data/1386935/0001386935-23-000004.txt,1386935,"100 CHURCH STREET, SUITE 500, HUNTSVILLE, AL, 35801","Keel Point, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,208300000.0,6177
+https://sec.gov/Archives/edgar/data/1386935/0001386935-23-000004.txt,1386935,"100 CHURCH STREET, SUITE 500, HUNTSVILLE, AL, 35801","Keel Point, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,3992471000.0,16105
+https://sec.gov/Archives/edgar/data/1386935/0001386935-23-000004.txt,1386935,"100 CHURCH STREET, SUITE 500, HUNTSVILLE, AL, 35801","Keel Point, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,206637000.0,2694
+https://sec.gov/Archives/edgar/data/1386935/0001386935-23-000004.txt,1386935,"100 CHURCH STREET, SUITE 500, HUNTSVILLE, AL, 35801","Keel Point, LLC",2023-06-30,461202,461202103,INTUIT,541142000.0,1181
+https://sec.gov/Archives/edgar/data/1386935/0001386935-23-000004.txt,1386935,"100 CHURCH STREET, SUITE 500, HUNTSVILLE, AL, 35801","Keel Point, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,312761000.0,487
+https://sec.gov/Archives/edgar/data/1386935/0001386935-23-000004.txt,1386935,"100 CHURCH STREET, SUITE 500, HUNTSVILLE, AL, 35801","Keel Point, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,14387329000.0,42249
+https://sec.gov/Archives/edgar/data/1386935/0001386935-23-000004.txt,1386935,"100 CHURCH STREET, SUITE 500, HUNTSVILLE, AL, 35801","Keel Point, LLC",2023-06-30,654106,654106103,NIKE INC,396534000.0,3593
+https://sec.gov/Archives/edgar/data/1386935/0001386935-23-000004.txt,1386935,"100 CHURCH STREET, SUITE 500, HUNTSVILLE, AL, 35801","Keel Point, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,222805000.0,872
+https://sec.gov/Archives/edgar/data/1386935/0001386935-23-000004.txt,1386935,"100 CHURCH STREET, SUITE 500, HUNTSVILLE, AL, 35801","Keel Point, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,322310000.0,826
+https://sec.gov/Archives/edgar/data/1386935/0001386935-23-000004.txt,1386935,"100 CHURCH STREET, SUITE 500, HUNTSVILLE, AL, 35801","Keel Point, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1285219000.0,8470
+https://sec.gov/Archives/edgar/data/1386935/0001386935-23-000004.txt,1386935,"100 CHURCH STREET, SUITE 500, HUNTSVILLE, AL, 35801","Keel Point, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,379644000.0,4309
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+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,30797487000.0,140122
+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,413504000.0,2600
+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,532985000.0,2150
+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,1767865000.0,2750
+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,58198465000.0,170901
+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,654106,654106103,NIKE INC,338836000.0,3070
+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,11750735000.0,30127
+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,704326,704326107,PAYCHEX INC,517734000.0,4628
+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,25966204000.0,171123
+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,749685,749685103,RPM INTL INC,474851000.0,5292
+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,871829,871829107,SYSCO CORP,635746000.0,8568
+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,876030,876030107,TAPESTRY INC,3905885000.0,91259
+https://sec.gov/Archives/edgar/data/1387130/0001420506-23-001451.txt,1387130,"101 FEDERAL STREET, SUITE 2920, BOSTON, MA, 02110","Marble Harbor Investment Counsel, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,952185000.0,10808
+https://sec.gov/Archives/edgar/data/1387304/0001387304-23-000006.txt,1387304,"98 WILLIAM STREET, NEWPORT, RI, 02840","Richard C. Young & CO., LTD.",2023-06-30,053015,053015103,Automatic Data Processing In,16196783000.0,73692
+https://sec.gov/Archives/edgar/data/1387304/0001387304-23-000006.txt,1387304,"98 WILLIAM STREET, NEWPORT, RI, 02840","Richard C. Young & CO., LTD.",2023-06-30,205887,205887102,Conagra Brands Inc,6949275000.0,206088
+https://sec.gov/Archives/edgar/data/1387304/0001387304-23-000006.txt,1387304,"98 WILLIAM STREET, NEWPORT, RI, 02840","Richard C. Young & CO., LTD.",2023-06-30,31428X,31428X106,Fedex Corp,2226227000.0,8980
+https://sec.gov/Archives/edgar/data/1387304/0001387304-23-000006.txt,1387304,"98 WILLIAM STREET, NEWPORT, RI, 02840","Richard C. Young & CO., LTD.",2023-06-30,594918,594918104,Microsoft Corp,629363000.0,1848
+https://sec.gov/Archives/edgar/data/1387304/0001387304-23-000006.txt,1387304,"98 WILLIAM STREET, NEWPORT, RI, 02840","Richard C. Young & CO., LTD.",2023-06-30,742718,742718109,Procter & Gamble Co,17593159000.0,115943
+https://sec.gov/Archives/edgar/data/1387304/0001387304-23-000006.txt,1387304,"98 WILLIAM STREET, NEWPORT, RI, 02840","Richard C. Young & CO., LTD.",2023-06-30,832696,832696405,Smucker J M Co,3914285000.0,26507
+https://sec.gov/Archives/edgar/data/1387304/0001387304-23-000006.txt,1387304,"98 WILLIAM STREET, NEWPORT, RI, 02840","Richard C. Young & CO., LTD.",2023-06-30,G5960L,G5960L103,Medtronic PLC,11565225000.0,131274
+https://sec.gov/Archives/edgar/data/1387322/0001387322-23-000006.txt,1387322,"2 International Place, 24th Floor, Boston, MA, 02110",Whale Rock Capital Management LLC,2023-06-30,090043,090043100,BILL HOLDINGS INC,1198297000.0,10255
+https://sec.gov/Archives/edgar/data/1387322/0001387322-23-000006.txt,1387322,"2 International Place, 24th Floor, Boston, MA, 02110",Whale Rock Capital Management LLC,2023-06-30,461202,461202103,INTUIT,29043290000.0,63387
+https://sec.gov/Archives/edgar/data/1387322/0001387322-23-000006.txt,1387322,"2 International Place, 24th Floor, Boston, MA, 02110",Whale Rock Capital Management LLC,2023-06-30,594918,594918104,MICROSOFT CORP,438441504000.0,1287489
+https://sec.gov/Archives/edgar/data/1387322/0001387322-23-000006.txt,1387322,"2 International Place, 24th Floor, Boston, MA, 02110",Whale Rock Capital Management LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,215335907000.0,842769
+https://sec.gov/Archives/edgar/data/1387322/0001387322-23-000006.txt,1387322,"2 International Place, 24th Floor, Boston, MA, 02110",Whale Rock Capital Management LLC,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,110862163000.0,444783
+https://sec.gov/Archives/edgar/data/1387366/0001941040-23-000208.txt,1387366,"555 Mission St, Suite 3325, San Francisco, CA, 94105","Ensemble Capital Management, LLC",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,58243293000.0,351647
+https://sec.gov/Archives/edgar/data/1387366/0001941040-23-000208.txt,1387366,"555 Mission St, Suite 3325, San Francisco, CA, 94105","Ensemble Capital Management, LLC",2023-06-30,654106,654106103,NIKE INC,42355370000.0,383758
+https://sec.gov/Archives/edgar/data/1387366/0001941040-23-000208.txt,1387366,"555 Mission St, Suite 3325, San Francisco, CA, 94105","Ensemble Capital Management, LLC",2023-06-30,704326,704326107,PAYCHEX INC,42839050000.0,382936
+https://sec.gov/Archives/edgar/data/1387369/0000919574-23-004606.txt,1387369,"747 Third Avenue, 19th Floor, New York, NY, 10017","KETTLE HILL CAPITAL MANAGEMENT, LLC",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,1221687000.0,32209
+https://sec.gov/Archives/edgar/data/1387369/0000919574-23-004606.txt,1387369,"747 Third Avenue, 19th Floor, New York, NY, 10017","KETTLE HILL CAPITAL MANAGEMENT, LLC",2023-06-30,N14506,N14506104,ELASTIC N V,23906373000.0,372838
+https://sec.gov/Archives/edgar/data/1387386/0001398344-23-014378.txt,1387386,"409 COLEMAN BLVD. STE 100, MOUNT PLEASANT, SC, 29464","MORRIS FINANCIAL CONCEPTS, INC.",2023-06-30,594918,594918104,MICROSOFT CORP,905836000.0,2660
+https://sec.gov/Archives/edgar/data/1387386/0001398344-23-014378.txt,1387386,"409 COLEMAN BLVD. STE 100, MOUNT PLEASANT, SC, 29464","MORRIS FINANCIAL CONCEPTS, INC.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,544085000.0,3586
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,053015,053015103,Auto Data Processing,3533784000.0,16078
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,11133T,11133T103,Broadridge,82815000.0,500
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,14149Y,14149Y108,Cardinal Health Inc,78493000.0,830
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,189054,189054109,Clorox Company,229018000.0,1440
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,31428X,31428X106,Fedex Corporation,19088000.0,77
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,370334,370334104,General Mills Inc,1840800000.0,24000
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,482480,482480100,Kla Tencor Corp,194008000.0,400
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,512807,512807108,Lam Research Corporation,173572000.0,270
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,513272,513272104,Lamb Weston Holdings,20231000.0,176
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,518439,518439104,Estee Lauder Co Inc Cl A,19638000.0,100
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,594918,594918104,Microsoft Corp,4558468000.0,13386
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,654106,654106103,Nike Inc Class B,246235000.0,2231
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,697435,697435105,Palo Alto Networks,38327000.0,150
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,704326,704326107,Paychex Inc,17899000.0,160
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,742718,742718109,Procter & Gamble Co,2512511000.0,16558
+https://sec.gov/Archives/edgar/data/1387399/0001140361-23-035170.txt,1387399,"2801 TOWNSGATE ROAD, SUITE 112, WESTLAKE VILLAGE, CA, 91361","West Oak Capital, LLC",2023-06-30,871829,871829107,Sysco Corporation,818426000.0,11030
+https://sec.gov/Archives/edgar/data/1387458/0001387458-23-000005.txt,1387458,"625 KENMOOR AVE SE, SUITE 209, GRAND RAPIDS, MI, 49546",LaFleur & Godfrey LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,5212023000.0,23714
+https://sec.gov/Archives/edgar/data/1387458/0001387458-23-000005.txt,1387458,"625 KENMOOR AVE SE, SUITE 209, GRAND RAPIDS, MI, 49546",LaFleur & Godfrey LLC,2023-06-30,189054,189054109,CLOROX CO DEL,238560000.0,1500
+https://sec.gov/Archives/edgar/data/1387458/0001387458-23-000005.txt,1387458,"625 KENMOOR AVE SE, SUITE 209, GRAND RAPIDS, MI, 49546",LaFleur & Godfrey LLC,2023-06-30,370334,370334104,GENERAL MLS INC,210925000.0,2750
+https://sec.gov/Archives/edgar/data/1387458/0001387458-23-000005.txt,1387458,"625 KENMOOR AVE SE, SUITE 209, GRAND RAPIDS, MI, 49546",LaFleur & Godfrey LLC,2023-06-30,594918,594918104,MICROSOFT CORP,35107188000.0,103093
+https://sec.gov/Archives/edgar/data/1387458/0001387458-23-000005.txt,1387458,"625 KENMOOR AVE SE, SUITE 209, GRAND RAPIDS, MI, 49546",LaFleur & Godfrey LLC,2023-06-30,654106,654106103,NIKE INC,5171269000.0,46854
+https://sec.gov/Archives/edgar/data/1387458/0001387458-23-000005.txt,1387458,"625 KENMOOR AVE SE, SUITE 209, GRAND RAPIDS, MI, 49546",LaFleur & Godfrey LLC,2023-06-30,704326,704326107,PAYCHEX INC,13841490000.0,123728
+https://sec.gov/Archives/edgar/data/1387458/0001387458-23-000005.txt,1387458,"625 KENMOOR AVE SE, SUITE 209, GRAND RAPIDS, MI, 49546",LaFleur & Godfrey LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,8207079000.0,54086
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+https://sec.gov/Archives/edgar/data/1387458/0001387458-23-000005.txt,1387458,"625 KENMOOR AVE SE, SUITE 209, GRAND RAPIDS, MI, 49546",LaFleur & Godfrey LLC,2023-06-30,761152,761152107,RESMED INC,5880056000.0,26911
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+https://sec.gov/Archives/edgar/data/1387761/0001172661-23-003058.txt,1387761,"Seventy-five Park Plaza, Boston, MA, 02116","TWIN FOCUS CAPITAL PARTNERS, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,353881000.0,1385
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+https://sec.gov/Archives/edgar/data/1387818/0001387818-23-000003.txt,1387818,"ONE TOWER BRIDGE, 100 FRONT STREET, SUITE 980, WEST CONSHOHOCKEN, PA, 19428",Barton Investment Management,2023-06-30,090043,090043100,BILL HOLDINGS INC,888645000.0,7605
+https://sec.gov/Archives/edgar/data/1387818/0001387818-23-000003.txt,1387818,"ONE TOWER BRIDGE, 100 FRONT STREET, SUITE 980, WEST CONSHOHOCKEN, PA, 19428",Barton Investment Management,2023-06-30,594918,594918104,MICROSOFT CORP,9070283000.0,26635
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+https://sec.gov/Archives/edgar/data/1387921/0000950123-23-007846.txt,1387921,"110 W 40 Street, Suite 1803, New York, NY, 10018",Harber Asset Management LLC,2023-06-30,512807,512807108,Lam Research Corp,6629815000.0,10313
+https://sec.gov/Archives/edgar/data/1387921/0000950123-23-007846.txt,1387921,"110 W 40 Street, Suite 1803, New York, NY, 10018",Harber Asset Management LLC,2023-06-30,513272,513272104,Lamb Weston HLDGS INC,10839325000.0,94296
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+https://sec.gov/Archives/edgar/data/1388028/0001388028-23-000003.txt,1388028,"15 WEST 53RD STREET, NEW YORK, NY, 10019","REIK & CO., LLC",2023-06-30,594918,594918104,MICROSOFT,5911434000.0,17359
+https://sec.gov/Archives/edgar/data/1388028/0001388028-23-000003.txt,1388028,"15 WEST 53RD STREET, NEW YORK, NY, 10019","REIK & CO., LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2358646000.0,15544
+https://sec.gov/Archives/edgar/data/1388028/0001388028-23-000003.txt,1388028,"15 WEST 53RD STREET, NEW YORK, NY, 10019","REIK & CO., LLC",2023-06-30,832696,832696405,SMUCKER J M CO NEW,9109614000.0,61689
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+https://sec.gov/Archives/edgar/data/1388142/0001085146-23-003380.txt,1388142,"200 PRINGLE AVENUE SUITE 555, WALNUT CREEK, CA, 94596","Bedell Frazier Investment Counseling, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,10804460000.0,31727
+https://sec.gov/Archives/edgar/data/1388142/0001085146-23-003380.txt,1388142,"200 PRINGLE AVENUE SUITE 555, WALNUT CREEK, CA, 94596","Bedell Frazier Investment Counseling, LLC",2023-06-30,654106,654106103,NIKE INC,6977040000.0,63215
+https://sec.gov/Archives/edgar/data/1388142/0001085146-23-003380.txt,1388142,"200 PRINGLE AVENUE SUITE 555, WALNUT CREEK, CA, 94596","Bedell Frazier Investment Counseling, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,333677000.0,2199
+https://sec.gov/Archives/edgar/data/1388142/0001085146-23-003380.txt,1388142,"200 PRINGLE AVENUE SUITE 555, WALNUT CREEK, CA, 94596","Bedell Frazier Investment Counseling, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,617405000.0,7008
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+https://sec.gov/Archives/edgar/data/1388167/0001388167-23-000003.txt,1388167,"3611 VALLEY CENTRE DRIVE, SUITE 100, SAN DIEGO, CA, 92130",ClariVest Asset Management LLC,2023-06-30,029683,029683109,AMER SOFTWARE INC,1000.0,109
+https://sec.gov/Archives/edgar/data/1388167/0001388167-23-000003.txt,1388167,"3611 VALLEY CENTRE DRIVE, SUITE 100, SAN DIEGO, CA, 92130",ClariVest Asset Management LLC,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,1179000.0,8140
+https://sec.gov/Archives/edgar/data/1388167/0001388167-23-000003.txt,1388167,"3611 VALLEY CENTRE DRIVE, SUITE 100, SAN DIEGO, CA, 92130",ClariVest Asset Management LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,7000.0,34
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+https://sec.gov/Archives/edgar/data/1389848/0001389848-23-000009.txt,1389848,"2000 MORRIS AVENUE, SUITE 1300, BIRMINGHAM, AL, 35203",Arlington Partners LLC,2023-06-30,761152,761152107,ResMed Inc.,92644000.0,424
+https://sec.gov/Archives/edgar/data/1389848/0001389848-23-000009.txt,1389848,"2000 MORRIS AVENUE, SUITE 1300, BIRMINGHAM, AL, 35203",Arlington Partners LLC,2023-06-30,832696,832696405,J M Smucker Co,738000.0,5
+https://sec.gov/Archives/edgar/data/1389848/0001389848-23-000009.txt,1389848,"2000 MORRIS AVENUE, SUITE 1300, BIRMINGHAM, AL, 35203",Arlington Partners LLC,2023-06-30,871829,871829107,Sysco Corp,222748000.0,3002
+https://sec.gov/Archives/edgar/data/1389933/0001389933-23-000008.txt,1389933,"10990 WILSHIRE BOULEVARD, SUITE 1400, LOS ANGELES, CA, 90024",DAFNA Capital Management LLC,2023-06-30,483497,483497103,KALVISTA PHARMACEUTICALS INC,5499288000.0,611032
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+https://sec.gov/Archives/edgar/data/1390003/0001104659-23-089669.txt,1390003,"314 Gordon Avenue, Thomasville, GA, 31792",Southeast Asset Advisors Inc.,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,2169236000.0,26574
+https://sec.gov/Archives/edgar/data/1390003/0001104659-23-089669.txt,1390003,"314 Gordon Avenue, Thomasville, GA, 31792",Southeast Asset Advisors Inc.,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1435718000.0,8593
+https://sec.gov/Archives/edgar/data/1390003/0001104659-23-089669.txt,1390003,"314 Gordon Avenue, Thomasville, GA, 31792",Southeast Asset Advisors Inc.,2023-06-30,31428X,31428X106,FEDEX CORP,1735199000.0,7000
+https://sec.gov/Archives/edgar/data/1390003/0001104659-23-089669.txt,1390003,"314 Gordon Avenue, Thomasville, GA, 31792",Southeast Asset Advisors Inc.,2023-06-30,461202,461202103,INTUIT,289576000.0,632
+https://sec.gov/Archives/edgar/data/1390003/0001104659-23-089669.txt,1390003,"314 Gordon Avenue, Thomasville, GA, 31792",Southeast Asset Advisors Inc.,2023-06-30,594918,594918104,MICROSOFT CORP,6440727000.0,18913
+https://sec.gov/Archives/edgar/data/1390003/0001104659-23-089669.txt,1390003,"314 Gordon Avenue, Thomasville, GA, 31792",Southeast Asset Advisors Inc.,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,326073000.0,836
+https://sec.gov/Archives/edgar/data/1390003/0001104659-23-089669.txt,1390003,"314 Gordon Avenue, Thomasville, GA, 31792",Southeast Asset Advisors Inc.,2023-06-30,704326,704326107,PAYCHEX INC,2567528000.0,22951
+https://sec.gov/Archives/edgar/data/1390003/0001104659-23-089669.txt,1390003,"314 Gordon Avenue, Thomasville, GA, 31792",Southeast Asset Advisors Inc.,2023-06-30,742718,742718109,PROCTER & GAMBLE CO,674784000.0,4447
+https://sec.gov/Archives/edgar/data/1390003/0001104659-23-089669.txt,1390003,"314 Gordon Avenue, Thomasville, GA, 31792",Southeast Asset Advisors Inc.,2023-06-30,871829,871829107,SYSCO CORP,245379000.0,3307
+https://sec.gov/Archives/edgar/data/1390043/0001390043-23-000008.txt,1390043,"2001 6TH AVE STE 3400, SEATTLE, WA, 98121",First Washington CORP,2023-06-30,594918,594918104,MICROSOFT CORP,11555884000.0,33934
+https://sec.gov/Archives/edgar/data/1390043/0001390043-23-000008.txt,1390043,"2001 6TH AVE STE 3400, SEATTLE, WA, 98121",First Washington CORP,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,4094095000.0,46471
+https://sec.gov/Archives/edgar/data/1390113/0001085146-23-003373.txt,1390113,"280 PARK AVENUE, 5TH FLOOR, NEW YORK, NY, 10017",Taconic Capital Advisors LP,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,1839200000.0,16000
+https://sec.gov/Archives/edgar/data/1390113/0001085146-23-003373.txt,1390113,"280 PARK AVENUE, 5TH FLOOR, NEW YORK, NY, 10017",Taconic Capital Advisors LP,2023-06-30,594918,594918104,MICROSOFT CORP,2043240000.0,6000
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,201160000.0,3970
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,127190,127190304,CACI INTL INC,234498000.0,688
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,31428X,31428X106,FEDEX CORP,52207740000.0,210600
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,35137L,35137L105,FOX CORP,95066992000.0,2796088
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,370334,370334104,GENERAL MLS INC,13422500000.0,175000
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,461202,461202103,INTUIT,24421527000.0,53300
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,482480,482480100,KLA CORP,28131160000.0,58000
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,512807,512807108,LAM RESEARCH CORP,27683480000.0,43063
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,1663928000.0,8473
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,594918,594918104,MICROSOFT CORP,381973161000.0,1121669
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,654106,654106103,NIKE INC,10822551000.0,98057
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,180983181000.0,1192719
+https://sec.gov/Archives/edgar/data/1390202/0001085146-23-003377.txt,1390202,"360 MADISON AVENUE, SUITE 2000, NEW YORK, NY, 10017",Laurion Capital Management LP,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,764179000.0,8674
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,00175J,00175J107,AMMO INC,807736000.0,379219
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,00737L,00737L103,ADTALEM GLOBAL EDUCATION INC,14356660000.0,418074
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,00760J,00760J108,AEHR TEST SYSTEMS,4034777000.0,97813
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,008073,008073108,AEROVIRONMENT INC,40740042000.0,398319
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,116509217000.0,2220069
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,023586,023586100,U-HAUL HOLDING CO,3275275000.0,59206
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,02875D,02875D109,AMERICAN OUTDOOR BRANDS INC,100983000.0,11634
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,029683,029683109,AMERICAN SOFTWARE INC-CL A,3381792000.0,321769
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,030506,030506109,AMERICAN WOODMARK CORP,11765486000.0,154059
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,03062T,03062T105,AMERICA'S CAR-MART INC,5237153000.0,52487
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,4018303000.0,385264
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,03676C,03676C100,ANTERIX INC,1969374000.0,62145
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,03820C,03820C105,APPLIED INDUSTRIAL TECH INC,61609279000.0,425390
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,042744,042744102,ARROW FINANCIAL CORP,2326886000.0,115536
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,2021712686000.0,9198383
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,05366Y,05366Y201,AVIAT NETWORKS INC,1937846000.0,58072
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,05368M,05368M106,AVID BIOSERVICES INC,7830445000.0,560519
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,053807,053807103,AVNET INC,58108956000.0,1151813
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,23044752000.0,584299
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,090043,090043100,BILL HOLDINGS INC,132737804000.0,1135968
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,177598230000.0,2175649
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,093671,093671105,H&R BLOCK INC,62971771000.0,1975895
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,11133T,11133T103,BROADRIDGE FINANCIAL SOLUTIO,182517526000.0,1101960
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,115637,115637100,BROWN-FORMAN CORP-CLASS A,14080774000.0,206857
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,127190,127190304,CACI INTERNATIONAL INC -CL A,223970063000.0,657112
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,128030,128030202,CAL-MAINE FOODS INC,30973988000.0,688311
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,218684126000.0,2312405
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY,55544440000.0,989568
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,147528,147528103,CASEY'S GENERAL STORES INC,120484610000.0,494032
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,15870P,15870P307,CHAMPIONS ONCOLOGY INC,196345000.0,30775
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,189054,189054109,CLOROX COMPANY,157731043000.0,991769
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,205887,205887102,CONAGRA BRANDS INC,145607258000.0,4318127
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,222070,222070203,COTY INC-CL A,42616410000.0,3467568
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,234264,234264109,DAKTRONICS INC,727821000.0,113722
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,195253749000.0,1168624
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,28252C,28252C109,POLISHED.COM INC,20862000.0,45353
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,11801518000.0,417310
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,31428X,31428X106,FEDEX CORP,643431548000.0,2595529
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,35137L,35137L105,FOX CORP - CLASS A,73841039000.0,2171796
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,36251C,36251C103,GMS INC,29099429000.0,420512
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,368036,368036109,GATOS SILVER INC,108883000.0,28805
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,370334,370334104,GENERAL MILLS INC,386915343000.0,5044528
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,384556,384556106,GRAHAM CORP,805671000.0,60668
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,38748G,38748G101,GRANITESHARES GOLD TRUST,4756226000.0,250196
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,10367826000.0,828763
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,426281,426281101,JACK HENRY & ASSOCIATES INC,141107900000.0,843291
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,461202,461202103,INTUIT INC,1194952979000.0,2607985
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,46564T,46564T107,ITERIS INC,446431000.0,112735
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,482480,482480100,KLA CORP,693457974000.0,1429752
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,483497,483497103,KALVISTA PHARMACEUTICALS INC,745209000.0,82801
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,489170,489170100,KENNAMETAL INC,38606938000.0,1359878
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,3498152000.0,126607
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,500643,500643200,KORN FERRY,42352035000.0,854906
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,505336,505336107,LA-Z-BOY INC,18201970000.0,635544
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,512807,512807108,LAM RESEARCH CORP,953073395000.0,1482552
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,513272,513272104,LAMB WESTON HOLDINGS INC,133765976000.0,1163689
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,513847,513847103,LANCASTER COLONY CORP,54069294000.0,268881
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,518439,518439104,ESTEE LAUDER COMPANIES-CL A,457432599000.0,2329324
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,53222K,53222K205,LIFEVANTAGE CORP,299445000.0,68838
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,53261M,53261M104,EDGIO INC,2962070000.0,4394762
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,55024U,55024U109,LUMENTUM HOLDINGS INC,108312453000.0,1909262
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,55825T,55825T103,MADISON SQUARE GARDEN SPORTS,13410429000.0,71313
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,3425831000.0,125076
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,56117J,56117J100,MALIBU BOATS INC - A,5480017000.0,93420
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HOLDINGS IN,3242862000.0,105803
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+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,591520,591520200,METHOD ELECTRONICS INC,14049739000.0,419145
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,594918,594918104,MICROSOFT CORP,24494231157000.0,71927618
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+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,12465193000.0,257812
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,640491,640491106,NEOGEN CORP,49298746000.0,2266609
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+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,65249B,65249B109,NEWS CORP - CLASS A,65679888000.0,3368199
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+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,671044,671044105,OSI SYSTEMS INC,16955031000.0,143894
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,674870,674870506,OCEAN POWER TECHNOLOGIES INC,15491000.0,25818
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,683715,683715106,OPEN TEXT CORP,22101186000.0,531918
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+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,585053496000.0,2289748
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+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,703395,703395103,PATTERSON COS INC,47956735000.0,1441874
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+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,70438V,70438V106,PAYLOCITY HOLDING CORP,83216885000.0,450967
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC-A,72304664000.0,9402428
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,86752527000.0,1440115
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,71715X,71715X203,PHARMACYTE BIOTECH INC,47456000.0,16593
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP-A,6544899000.0,477730
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,74051N,74051N102,PREMIER INC-CLASS A,21275771000.0,769190
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,742718,742718109,PROCTER & GAMBLE CO/THE,3330267687000.0,21947198
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,747906,747906501,QUANTUM CORP,27392000.0,25363
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,74874Q,74874Q100,QUINSTREET INC,3745676000.0,424199
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,749685,749685103,RPM INTERNATIONAL INC,130900056000.0,1458821
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,758932,758932107,REGIS CORP,13367000.0,12042
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,761152,761152107,RESMED INC,259515905000.0,1187716
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,8422662000.0,536134
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,763165,763165107,RICHARDSON ELEC LTD,2106110000.0,127643
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,769397,769397100,RIVERVIEW BANCORP INC,263671000.0,52316
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,806037,806037107,SCANSOURCE INC,6932706000.0,234530
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,807066,807066105,SCHOLASTIC CORP,24675198000.0,634487
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,817070,817070501,SENECA FOODS CORP - CL A,1941879000.0,59421
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,7188238000.0,551245
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,832696,832696405,JM SMUCKER CO/THE,115279412000.0,780656
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,854231,854231107,STANDEX INTERNATIONAL CORP,20282663000.0,143371
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,86333M,86333M108,STRIDE INC,15070481000.0,404794
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,116336941000.0,466748
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,87157D,87157D109,SYNAPTICS INC,87980847000.0,1030462
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,871829,871829107,SYSCO CORP,399650479000.0,5386125
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,876030,876030107,TAPESTRY INC,102172650000.0,2387212
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,29697000.0,19036
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,91705J,91705J105,URBAN ONE INC,148155000.0,24734
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,920437,920437100,VALUE LINE INC,811788000.0,17686
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,25310874000.0,2233969
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,958102,958102105,WESTERN DIGITAL CORP,101042039000.0,2663909
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,968223,968223206,WILEY (JOHN) & SONS-CLASS A,29447863000.0,865350
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,981419,981419104,WORLD ACCEPTANCE CORP,5047621000.0,37666
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,981811,981811102,WORTHINGTON INDUSTRIES,35244701000.0,507337
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,G2143T,G2143T103,CIMPRESS PLC,4097548000.0,68890
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,G3323L,G3323L100,FABRINET,43507852000.0,334985
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1751803441000.0,19884262
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,6097061000.0,185886
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,N14506,N14506104,ELASTIC NV,31963307000.0,498492
+https://sec.gov/Archives/edgar/data/1390777/0001390777-23-000068.txt,1390777,"240 GREENWICH STREET, NEW YORK, NY, 10286",Bank of New York Mellon Corp,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,6904237000.0,269171
+https://sec.gov/Archives/edgar/data/1391166/0001391166-23-000003.txt,1391166,"8350 N. CENTRAL EXPRESSWAY, SUITE 1800, DALLAS, TX, 75206",Lee Financial Co,2023-06-30,008073,008073108,AEROVIRONMENT INC,2420000.0,24
+https://sec.gov/Archives/edgar/data/1391166/0001391166-23-000003.txt,1391166,"8350 N. CENTRAL EXPRESSWAY, SUITE 1800, DALLAS, TX, 75206",Lee Financial Co,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,23873000.0,108
+https://sec.gov/Archives/edgar/data/1391166/0001391166-23-000003.txt,1391166,"8350 N. CENTRAL EXPRESSWAY, SUITE 1800, DALLAS, TX, 75206",Lee Financial Co,2023-06-30,093671,093671105,BLOCK H & R INC,3635000.0,113
+https://sec.gov/Archives/edgar/data/1391166/0001391166-23-000003.txt,1391166,"8350 N. CENTRAL EXPRESSWAY, SUITE 1800, DALLAS, TX, 75206",Lee Financial Co,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,1683483000.0,10159
+https://sec.gov/Archives/edgar/data/1391166/0001391166-23-000003.txt,1391166,"8350 N. CENTRAL EXPRESSWAY, SUITE 1800, DALLAS, TX, 75206",Lee Financial Co,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,3993000.0,42
+https://sec.gov/Archives/edgar/data/1391166/0001391166-23-000003.txt,1391166,"8350 N. CENTRAL EXPRESSWAY, SUITE 1800, DALLAS, TX, 75206",Lee Financial Co,2023-06-30,189054,189054109,CLOROX CO DEL,47712000.0,300
+https://sec.gov/Archives/edgar/data/1391166/0001391166-23-000003.txt,1391166,"8350 N. CENTRAL EXPRESSWAY, SUITE 1800, DALLAS, TX, 75206",Lee Financial Co,2023-06-30,205887,205887102,CONAGRA BRANDS INC,2192000.0,65
+https://sec.gov/Archives/edgar/data/1391166/0001391166-23-000003.txt,1391166,"8350 N. CENTRAL EXPRESSWAY, SUITE 1800, DALLAS, TX, 75206",Lee Financial Co,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,2173000.0,13
+https://sec.gov/Archives/edgar/data/1391166/0001391166-23-000003.txt,1391166,"8350 N. CENTRAL EXPRESSWAY, SUITE 1800, DALLAS, TX, 75206",Lee Financial Co,2023-06-30,31428X,31428X106,FEDEX CORP,6738000.0,27
+https://sec.gov/Archives/edgar/data/1391166/0001391166-23-000003.txt,1391166,"8350 N. CENTRAL EXPRESSWAY, SUITE 1800, DALLAS, TX, 75206",Lee Financial Co,2023-06-30,35137L,35137L105,FOX CORP,7106000.0,209
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+https://sec.gov/Archives/edgar/data/1393944/0001393944-23-000003.txt,1393944,"431 PINE STREET, SUITE 302, PO BOX 819, BURLINGTON, VT, 05402-0819",Hanson & Doremus Investment Management,2023-06-30,654106,654106103,"Nike, Inc.",98000.0,887
+https://sec.gov/Archives/edgar/data/1393944/0001393944-23-000003.txt,1393944,"431 PINE STREET, SUITE 302, PO BOX 819, BURLINGTON, VT, 05402-0819",Hanson & Doremus Investment Management,2023-06-30,697435,697435105,Palo Alto Networks,114000.0,447
+https://sec.gov/Archives/edgar/data/1393944/0001393944-23-000003.txt,1393944,"431 PINE STREET, SUITE 302, PO BOX 819, BURLINGTON, VT, 05402-0819",Hanson & Doremus Investment Management,2023-06-30,701094,701094104,Parker Hannifin Corp,222000.0,570
+https://sec.gov/Archives/edgar/data/1393944/0001393944-23-000003.txt,1393944,"431 PINE STREET, SUITE 302, PO BOX 819, BURLINGTON, VT, 05402-0819",Hanson & Doremus Investment Management,2023-06-30,704326,704326107,Paychex Inc.,28000.0,250
+https://sec.gov/Archives/edgar/data/1393944/0001393944-23-000003.txt,1393944,"431 PINE STREET, SUITE 302, PO BOX 819, BURLINGTON, VT, 05402-0819",Hanson & Doremus Investment Management,2023-06-30,742718,742718109,Procter & Gamble,2107000.0,13884
+https://sec.gov/Archives/edgar/data/1393944/0001393944-23-000003.txt,1393944,"431 PINE STREET, SUITE 302, PO BOX 819, BURLINGTON, VT, 05402-0819",Hanson & Doremus Investment Management,2023-06-30,854231,854231107,Standex Int'l Corp.,74000.0,520
+https://sec.gov/Archives/edgar/data/1393944/0001393944-23-000003.txt,1393944,"431 PINE STREET, SUITE 302, PO BOX 819, BURLINGTON, VT, 05402-0819",Hanson & Doremus Investment Management,2023-06-30,871829,871829107,Sysco Corp.,123000.0,1658
+https://sec.gov/Archives/edgar/data/1393944/0001393944-23-000003.txt,1393944,"431 PINE STREET, SUITE 302, PO BOX 819, BURLINGTON, VT, 05402-0819",Hanson & Doremus Investment Management,2023-06-30,G5960L,G5960L103,Medtronic Inc.,3500000.0,39730
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+https://sec.gov/Archives/edgar/data/1394096/0001394096-23-000005.txt,1394096,"2 OLIVER STREET, SUITE 806, BOSTON, MA, 02109",ZEVIN ASSET MANAGEMENT LLC,2023-06-30,742718,742718109,Procter & Gamble Co,1017000.0,6701
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+https://sec.gov/Archives/edgar/data/1394866/0001398344-23-014473.txt,1394866,"155 FEDERAL STREET, SUITE 1602, BOSTON, MA, 02110","Penobscot Investment Management Company, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,33280634000.0,97729
+https://sec.gov/Archives/edgar/data/1394866/0001398344-23-014473.txt,1394866,"155 FEDERAL STREET, SUITE 1602, BOSTON, MA, 02110","Penobscot Investment Management Company, Inc.",2023-06-30,654106,654106103,NIKE INC CLASS B,5165206000.0,46799
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+https://sec.gov/Archives/edgar/data/1394866/0001398344-23-014473.txt,1394866,"155 FEDERAL STREET, SUITE 1602, BOSTON, MA, 02110","Penobscot Investment Management Company, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,375883000.0,3360
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+https://sec.gov/Archives/edgar/data/1395055/0001140361-23-036991.txt,1395055,"3555 Timmons Lane, Suite 600, Houston, TX, 77027","Callahan Advisors, LLC",2023-06-30,358435,358435105,FRIEDMAN INDS INC COM,745907000.0,59199
+https://sec.gov/Archives/edgar/data/1395055/0001140361-23-036991.txt,1395055,"3555 Timmons Lane, Suite 600, Houston, TX, 77027","Callahan Advisors, LLC",2023-06-30,370334,370334104,General Mills Inc,1136311000.0,14815
+https://sec.gov/Archives/edgar/data/1395055/0001140361-23-036991.txt,1395055,"3555 Timmons Lane, Suite 600, Houston, TX, 77027","Callahan Advisors, LLC",2023-06-30,594918,594918104,Microsoft Corp,40315290000.0,118386
+https://sec.gov/Archives/edgar/data/1395055/0001140361-23-036991.txt,1395055,"3555 Timmons Lane, Suite 600, Houston, TX, 77027","Callahan Advisors, LLC",2023-06-30,654106,654106103,Nike Inc Class B,7567828000.0,68568
+https://sec.gov/Archives/edgar/data/1395055/0001140361-23-036991.txt,1395055,"3555 Timmons Lane, Suite 600, Houston, TX, 77027","Callahan Advisors, LLC",2023-06-30,704326,704326107,Paychex Inc,8847419000.0,79087
+https://sec.gov/Archives/edgar/data/1395055/0001140361-23-036991.txt,1395055,"3555 Timmons Lane, Suite 600, Houston, TX, 77027","Callahan Advisors, LLC",2023-06-30,742718,742718109,Procter & Gamble Co,14774165000.0,97365
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+https://sec.gov/Archives/edgar/data/1395067/0001395067-23-000004.txt,1395067,"150 SOUTH 5TH STREET, SUITE 2800, MINNEAPOLIS, MN, 55402","Marquette Asset Management, LLC",2023-06-30,234264,234264109,DAKTRONICS INC,5120000.0,800
+https://sec.gov/Archives/edgar/data/1395067/0001395067-23-000004.txt,1395067,"150 SOUTH 5TH STREET, SUITE 2800, MINNEAPOLIS, MN, 55402","Marquette Asset Management, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,19929000.0,31
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+https://sec.gov/Archives/edgar/data/1395067/0001395067-23-000004.txt,1395067,"150 SOUTH 5TH STREET, SUITE 2800, MINNEAPOLIS, MN, 55402","Marquette Asset Management, LLC",2023-06-30,654106,654106103,NIKE INC,26583000.0,241
+https://sec.gov/Archives/edgar/data/1395067/0001395067-23-000004.txt,1395067,"150 SOUTH 5TH STREET, SUITE 2800, MINNEAPOLIS, MN, 55402","Marquette Asset Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,22610000.0,149
+https://sec.gov/Archives/edgar/data/1395067/0001395067-23-000004.txt,1395067,"150 SOUTH 5TH STREET, SUITE 2800, MINNEAPOLIS, MN, 55402","Marquette Asset Management, LLC",2023-06-30,761152,761152107,RESMED INC,137218000.0,628
+https://sec.gov/Archives/edgar/data/1395067/0001395067-23-000004.txt,1395067,"150 SOUTH 5TH STREET, SUITE 2800, MINNEAPOLIS, MN, 55402","Marquette Asset Management, LLC",2023-06-30,817070,817070501,SENECA FOODS CORP NEW,287813000.0,8807
+https://sec.gov/Archives/edgar/data/1395067/0001395067-23-000004.txt,1395067,"150 SOUTH 5TH STREET, SUITE 2800, MINNEAPOLIS, MN, 55402","Marquette Asset Management, LLC",2023-06-30,876030,876030107,TAPESTRY INC,7234000.0,169
+https://sec.gov/Archives/edgar/data/1395067/0001395067-23-000004.txt,1395067,"150 SOUTH 5TH STREET, SUITE 2800, MINNEAPOLIS, MN, 55402","Marquette Asset Management, LLC",2023-06-30,878739,878739200,TECHPRECISION CORP,25865000.0,3500
+https://sec.gov/Archives/edgar/data/1395067/0001395067-23-000004.txt,1395067,"150 SOUTH 5TH STREET, SUITE 2800, MINNEAPOLIS, MN, 55402","Marquette Asset Management, LLC",2023-06-30,904677,904677200,UNIFI INC,406559000.0,50379
+https://sec.gov/Archives/edgar/data/1395067/0001395067-23-000004.txt,1395067,"150 SOUTH 5TH STREET, SUITE 2800, MINNEAPOLIS, MN, 55402","Marquette Asset Management, LLC",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,10201000.0,269
+https://sec.gov/Archives/edgar/data/1395067/0001395067-23-000004.txt,1395067,"150 SOUTH 5TH STREET, SUITE 2800, MINNEAPOLIS, MN, 55402","Marquette Asset Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,21497000.0,244
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+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,008073,008073108,AEROVIRONMENT INC,4586644000.0,44844
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,2888814000.0,55046
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,2254977000.0,29527
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,1026636000.0,10289
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,726387000.0,69644
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,9937076000.0,68612
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,8700607000.0,39586
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,05368M,05368M106,AVID BIOSERVICES INC,1550977000.0,111022
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,3683104000.0,93385
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,090043,090043100,BILL HOLDINGS INC,694673000.0,5945
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,1225185000.0,15009
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,1862344000.0,11244
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,115637,115637209,BROWN FORMAN CORP,1164910000.0,17444
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,128030,128030202,CAL MAINE FOODS INC,3035250000.0,67450
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,2305617000.0,24380
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,4837115000.0,86177
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,189054,189054109,CLOROX CO DEL,1876036000.0,11796
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,205887,205887102,CONAGRA BRANDS INC,1543364000.0,45770
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1934786000.0,11580
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,1145510000.0,40506
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,31428X,31428X106,FEDEX CORP,81894509000.0,330353
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,35137L,35137L105,FOX CORP,1510416000.0,44424
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,36251C,36251C103,GMS INC,5073536000.0,73317
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,370334,370334104,GENERAL MLS INC,4313761000.0,56242
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,1986138000.0,158764
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,1929482000.0,11531
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+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,482480,482480100,KLA CORP,10511353000.0,21672
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,489170,489170100,KENNAMETAL INC,4045263000.0,142489
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,500643,500643200,KORN FERRY,4608508000.0,93026
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,505336,505336107,LA Z BOY INC,2193079000.0,76574
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,512807,512807108,LAM RESEARCH CORP,13631846000.0,21205
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,1603782000.0,13952
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,46836041000.0,238497
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,591520,591520200,METHOD ELECTRS INC,2141124000.0,63876
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,594918,594918104,MICROSOFT CORP,731399212000.0,2147763
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,600544,600544100,MILLERKNOLL INC,1984097000.0,134242
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,2002947000.0,41426
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,64110D,64110D104,NETAPP INC,2586980000.0,33861
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,65249B,65249B109,NEWS CORP NEW,1169786000.0,59989
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,654106,654106103,NIKE INC,13021563000.0,117981
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,671044,671044105,OSI SYSTEMS INC,3253758000.0,27614
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,683715,683715106,OPEN TEXT CORP,2342078000.0,56246
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,12207246000.0,47776
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,52122995000.0,133635
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,704326,704326107,PAYCHEX INC,3436982000.0,30723
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP,494570000.0,36100
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,34236338000.0,225625
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,74874Q,74874Q100,QUINSTREET INC,797314000.0,90296
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,761152,761152107,RESMED INC,3069925000.0,14050
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,890867000.0,56707
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,806037,806037107,SCANSOURCE INC,1306493000.0,44198
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,807066,807066105,SCHOLASTIC CORP,2015280000.0,51820
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,817070,817070501,SENECA FOODS CORP NEW,307421000.0,9407
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,832696,832696405,SMUCKER J M CO,1503428000.0,10181
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,854231,854231107,STANDEX INTL CORP,2988978000.0,21128
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,86333M,86333M108,STRIDE INC,2701930000.0,72574
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,871829,871829107,SYSCO CORP,3600036000.0,48518
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,876030,876030107,TAPESTRY INC,949989000.0,22196
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,2112732000.0,1363743
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,4473662000.0,394851
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,1911065000.0,50384
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,2579780000.0,75809
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,795751000.0,5938
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,G3323L,G3323L100,FABRINET,8367909000.0,64428
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,11223588000.0,127396
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,1296354000.0,39523
+https://sec.gov/Archives/edgar/data/1396318/0000950123-23-007716.txt,1396318,"1250 RENE-LEVESQUE BLVD WEST, SUITE 1400, MONTREAL, A8, H3B 5E9",Public Sector Pension Investment Board,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,1451354000.0,56583
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING INC,603324000.0,2745
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,053807,053807103,AVNET INC,211890000.0,4200
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,093671,093671105,H & R BLOCK INC,5014745000.0,157350
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,115637,115637100,BROWN-FORMAN CORP CLASS A,435648000.0,6400
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,189054,189054109,CLOROX CO,2441257000.0,15350
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1139820000.0,6822
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,31428X,31428X106,FEDEX CORP,5155576000.0,20797
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,370334,370334104,GENERAL MILLS INC,8122011000.0,105893
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,512807,512807108,LAM RESEARCH CORP,2584297000.0,4020
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,594918,594918104,MICROSOFT CORP,15150399000.0,44489
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,600544,600544100,MILLERKNOLL INC COMMON STOCK,958164000.0,64828
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,640491,640491106,NEOGEN CORP,1255845000.0,57740
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,654106,654106103,NIKE INC,322654000.0,2923
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,704326,704326107,PAYCHEX INC,5080017000.0,45410
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,742718,742718109,PROCTER & GAMBLE CO,17864660000.0,117732
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,832696,832696405,SMUCKER JM CO,1013665000.0,6864
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,871829,871829107,SYSCO CORP,2604568000.0,35102
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,876030,876030107,TAPESTRY INC,4418226000.0,103230
+https://sec.gov/Archives/edgar/data/1397290/0001397290-23-000003.txt,1397290,"223 MERCER STREET, HARMONY, PA, 16037",Rodgers Brothers Inc.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2076077000.0,23565
+https://sec.gov/Archives/edgar/data/1397424/0001172661-23-002781.txt,1397424,"331 Newman Springs Road, Suite 143, Red Bank, NJ, 07701","WBI INVESTMENTS, INC.",2023-06-30,128030,128030202,CAL MAINE FOODS INC,1008990000.0,22422
+https://sec.gov/Archives/edgar/data/1397424/0001172661-23-002781.txt,1397424,"331 Newman Springs Road, Suite 143, Red Bank, NJ, 07701","WBI INVESTMENTS, INC.",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,2387325000.0,25244
+https://sec.gov/Archives/edgar/data/1397424/0001172661-23-002781.txt,1397424,"331 Newman Springs Road, Suite 143, Red Bank, NJ, 07701","WBI INVESTMENTS, INC.",2023-06-30,147528,147528103,CASEYS GEN STORES INC,420652000.0,1725
+https://sec.gov/Archives/edgar/data/1397424/0001172661-23-002781.txt,1397424,"331 Newman Springs Road, Suite 143, Red Bank, NJ, 07701","WBI INVESTMENTS, INC.",2023-06-30,482480,482480100,KLA CORP,2436684000.0,5024
+https://sec.gov/Archives/edgar/data/1397424/0001172661-23-002781.txt,1397424,"331 Newman Springs Road, Suite 143, Red Bank, NJ, 07701","WBI INVESTMENTS, INC.",2023-06-30,512807,512807108,LAM RESEARCH CORP,5406292000.0,8410
+https://sec.gov/Archives/edgar/data/1397424/0001172661-23-002781.txt,1397424,"331 Newman Springs Road, Suite 143, Red Bank, NJ, 07701","WBI INVESTMENTS, INC.",2023-06-30,594918,594918104,MICROSOFT CORP,7056598000.0,20722
+https://sec.gov/Archives/edgar/data/1397424/0001172661-23-002781.txt,1397424,"331 Newman Springs Road, Suite 143, Red Bank, NJ, 07701","WBI INVESTMENTS, INC.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,4218219000.0,10815
+https://sec.gov/Archives/edgar/data/1397424/0001172661-23-002781.txt,1397424,"331 Newman Springs Road, Suite 143, Red Bank, NJ, 07701","WBI INVESTMENTS, INC.",2023-06-30,704326,704326107,PAYCHEX INC,624346000.0,5581
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC COM,329000.0,9595
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,023586,023586506,U HAUL HOLDING COMPANY COM SET N,912000.0,18000
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN COM,37138000.0,256423
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN COM,42089000.0,191498
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,053807,053807103,AVNET INC COM,928000.0,18400
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC COM,394000.0,9995
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,090043,090043100,BILL HOLDINGS INC COM,1881000.0,16100
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,09073M,09073M104,BIO-TECHNE CORP COM,31334000.0,383848
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,093671,093671105,BLOCK H & R INC COM,915000.0,28700
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN COM,9269000.0,55961
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,128030,128030202,CAL MAINE FOODS INC COM NEW,335000.0,7437
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC COM,20134000.0,212898
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,189054,189054109,CLOROX CO DEL COM,4006000.0,25190
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,205887,205887102,CONAGRA BRANDS INC COM,8522000.0,252724
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,222070,222070203,COTY INC COM CL A,874000.0,71100
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,31428X,31428X106,FEDEX CORP COM,16819000.0,67846
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,35137L,35137L105,FOX CORP CL A COM,1457000.0,42848
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,36251C,36251C103,GMS INC COM,653000.0,9437
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,370334,370334104,GENERAL MLS INC COM,18050000.0,235330
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC COM,147000.0,11739
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC COM,85706000.0,512200
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,461202,461202103,INTUIT COM,138775000.0,302877
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,482480,482480100,KLA CORP COM NEW,21556000.0,44443
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,489170,489170100,KENNAMETAL INC COM,419000.0,14774
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,500643,500643200,KORN FERRY COM NEW,481000.0,9702
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,505336,505336107,LA Z BOY INC COM,321000.0,11202
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,512807,512807108,LAM RESEARCH CORP COM,31157000.0,48467
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC COM,3058000.0,26600
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,513847,513847103,LANCASTER COLONY CORP COM,698000.0,3472
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,518439,518439104,LAUDER ESTEE COS INC CL A,48014000.0,244495
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC COM,814000.0,14347
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR CL A,540000.0,2872
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,56117J,56117J100,MALIBU BOATS INC COM CL A,287000.0,4900
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,591520,591520200,METHOD ELECTRS INC COM,276000.0,8237
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,594918,594918104,MICROSOFT CORP COM,1037766000.0,3047412
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,600544,600544100,MILLERKNOLL INC COM,168000.0,11377
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP COM,303000.0,6258
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,640491,640491106,NEOGEN CORP COM,665000.0,30564
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,64110D,64110D104,NETAPP INC COM,9793000.0,128178
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,65249B,65249B109,NEWS CORP NEW CL A,1798000.0,92200
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,654106,654106103,NIKE INC CL B,71634000.0,649034
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,671044,671044105,OSI SYSTEMS INC COM,432000.0,3665
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC COM,20081000.0,78591
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,703395,703395103,PATTERSON COS INC COM,446000.0,13400
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,704326,704326107,PAYCHEX INC COM,5194000.0,46427
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP COM,43955000.0,238201
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC CL A COM,428000.0,55700
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,74051N,74051N102,PREMIER INC CL A,658000.0,23795
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO COM,124172000.0,818319
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,749685,749685103,RPM INTL INC COM,2013000.0,22432
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,761152,761152107,RESMED INC COM,12395000.0,56729
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,832696,832696405,SMUCKER J M CO COM NEW,11155000.0,75541
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,854231,854231107,STANDEX INTL CORP COM,17358000.0,122700
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,86333M,86333M108,STRIDE INC COM,287000.0,7700
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC COM,2268000.0,9100
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,87157D,87157D109,SYNAPTICS INC COM,507000.0,5937
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,871829,871829107,SYSCO CORP COM,15777000.0,212634
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,876030,876030107,TAPESTRY INC COM,1941000.0,45346
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC COM,350000.0,30910
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,958102,958102105,WESTERN DIGITAL CORP. COM,2563000.0,67580
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,968223,968223206,WILEY JOHN & SONS INC CL A,222000.0,6537
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,981811,981811102,WORTHINGTON INDS INC COM,251000.0,3616
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,G2143T,G2143T103,CIMPRESS PLC SHS EURO,387000.0,6500
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,G3323L,G3323L100,FABRINET SHS,584000.0,4500
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC SHS,41236000.0,468061
+https://sec.gov/Archives/edgar/data/1398318/0001398318-23-000009.txt,1398318,"BLASIEHOLMSTORG 12, STOCKHOLM, V7, 10670",Handelsbanken Fonder AB,2023-06-30,N14506,N14506104,ELASTIC N V ORD SHS,968000.0,15100
+https://sec.gov/Archives/edgar/data/1398346/0001178913-23-002527.txt,1398346,"30 Derekh Sheshet Ha-yamim St., Bene-Beraq, L3, 5112302",MEITAV INVESTMENT HOUSE LTD,2023-06-30,009207,009207101,AIR T INC,691984000.0,2363
+https://sec.gov/Archives/edgar/data/1398346/0001178913-23-002527.txt,1398346,"30 Derekh Sheshet Ha-yamim St., Bene-Beraq, L3, 5112302",MEITAV INVESTMENT HOUSE LTD,2023-06-30,090043,090043100,BILL HOLDINGS INC,248771000.0,2147
+https://sec.gov/Archives/edgar/data/1398346/0001178913-23-002527.txt,1398346,"30 Derekh Sheshet Ha-yamim St., Bene-Beraq, L3, 5112302",MEITAV INVESTMENT HOUSE LTD,2023-06-30,128030,128030202,CAL MAINE FOODS INC,449791000.0,85838
+https://sec.gov/Archives/edgar/data/1398346/0001178913-23-002527.txt,1398346,"30 Derekh Sheshet Ha-yamim St., Bene-Beraq, L3, 5112302",MEITAV INVESTMENT HOUSE LTD,2023-06-30,31428X,31428X106,FEDEX CORP,9876158000.0,39358
+https://sec.gov/Archives/edgar/data/1398346/0001178913-23-002527.txt,1398346,"30 Derekh Sheshet Ha-yamim St., Bene-Beraq, L3, 5112302",MEITAV INVESTMENT HOUSE LTD,2023-06-30,461202,461202103,INTUIT,212863000.0,468
+https://sec.gov/Archives/edgar/data/1398346/0001178913-23-002527.txt,1398346,"30 Derekh Sheshet Ha-yamim St., Bene-Beraq, L3, 5112302",MEITAV INVESTMENT HOUSE LTD,2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,3827018000.0,9975
+https://sec.gov/Archives/edgar/data/1398346/0001178913-23-002527.txt,1398346,"30 Derekh Sheshet Ha-yamim St., Bene-Beraq, L3, 5112302",MEITAV INVESTMENT HOUSE LTD,2023-06-30,594918,594918104,MICROSOFT CORP,108794584000.0,324721
+https://sec.gov/Archives/edgar/data/1398346/0001178913-23-002527.txt,1398346,"30 Derekh Sheshet Ha-yamim St., Bene-Beraq, L3, 5112302",MEITAV INVESTMENT HOUSE LTD,2023-06-30,654106,654106103,NIKE INC,49936956000.0,439771
+https://sec.gov/Archives/edgar/data/1398346/0001178913-23-002527.txt,1398346,"30 Derekh Sheshet Ha-yamim St., Bene-Beraq, L3, 5112302",MEITAV INVESTMENT HOUSE LTD,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,68411715000.0,269391
+https://sec.gov/Archives/edgar/data/1398346/0001178913-23-002527.txt,1398346,"30 Derekh Sheshet Ha-yamim St., Bene-Beraq, L3, 5112302",MEITAV INVESTMENT HOUSE LTD,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,261866000.0,2963
+https://sec.gov/Archives/edgar/data/1398739/0001398739-23-000009.txt,1398739,"P.O. BOX 13207, AUSTIN, TX, 78711-3207",Employees Retirement System of Texas,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,2237000.0,23652
+https://sec.gov/Archives/edgar/data/1398739/0001398739-23-000009.txt,1398739,"P.O. BOX 13207, AUSTIN, TX, 78711-3207",Employees Retirement System of Texas,2023-06-30,205887,205887102,CONAGRA BRANDS INC,4537000.0,134540
+https://sec.gov/Archives/edgar/data/1398739/0001398739-23-000009.txt,1398739,"P.O. BOX 13207, AUSTIN, TX, 78711-3207",Employees Retirement System of Texas,2023-06-30,31428X,31428X106,FEDEX CORP,6693000.0,26998
+https://sec.gov/Archives/edgar/data/1398739/0001398739-23-000009.txt,1398739,"P.O. BOX 13207, AUSTIN, TX, 78711-3207",Employees Retirement System of Texas,2023-06-30,461202,461202103,INTUIT,46735000.0,102000
+https://sec.gov/Archives/edgar/data/1398739/0001398739-23-000009.txt,1398739,"P.O. BOX 13207, AUSTIN, TX, 78711-3207",Employees Retirement System of Texas,2023-06-30,512807,512807108,LAM RESEARCH CORP,10216000.0,15892
+https://sec.gov/Archives/edgar/data/1398739/0001398739-23-000009.txt,1398739,"P.O. BOX 13207, AUSTIN, TX, 78711-3207",Employees Retirement System of Texas,2023-06-30,594918,594918104,MICROSOFT CORP,318994000.0,936729
+https://sec.gov/Archives/edgar/data/1398739/0001398739-23-000009.txt,1398739,"P.O. BOX 13207, AUSTIN, TX, 78711-3207",Employees Retirement System of Texas,2023-06-30,654106,654106103,NIKE INC,3534000.0,32024
+https://sec.gov/Archives/edgar/data/1398739/0001398739-23-000009.txt,1398739,"P.O. BOX 13207, AUSTIN, TX, 78711-3207",Employees Retirement System of Texas,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,76653000.0,300000
+https://sec.gov/Archives/edgar/data/1398739/0001398739-23-000009.txt,1398739,"P.O. BOX 13207, AUSTIN, TX, 78711-3207",Employees Retirement System of Texas,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,47975000.0,123000
+https://sec.gov/Archives/edgar/data/1398739/0001398739-23-000009.txt,1398739,"P.O. BOX 13207, AUSTIN, TX, 78711-3207",Employees Retirement System of Texas,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,77376000.0,509928
+https://sec.gov/Archives/edgar/data/1398739/0001398739-23-000009.txt,1398739,"P.O. BOX 13207, AUSTIN, TX, 78711-3207",Employees Retirement System of Texas,2023-06-30,871829,871829107,SYSCO CORP,29977000.0,404000
+https://sec.gov/Archives/edgar/data/1398739/0001398739-23-000009.txt,1398739,"P.O. BOX 13207, AUSTIN, TX, 78711-3207",Employees Retirement System of Texas,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,67806000.0,769648
+https://sec.gov/Archives/edgar/data/1399386/0000921895-23-001879.txt,1399386,"50 Broad Street, Suite 1820, New York, NY, 10004",Bandera Partners LLC,2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,3881108000.0,141698
+https://sec.gov/Archives/edgar/data/1399706/0001172661-23-002939.txt,1399706,"623 Fifth Avenue, New York, NY, 10022",South Street Advisors LLC,2023-06-30,370334,370334104,GENERAL MLS INC,210158000.0,2740
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+https://sec.gov/Archives/edgar/data/1407543/0001214659-23-010783.txt,1407543,"1000 Chesterbrook Boulevard, Suite 250, Berwyn, PA, 19312",ENVESTNET ASSET MANAGEMENT INC,2023-06-30,N14506,N14506104,ELASTIC N V,804898000.0,12553
+https://sec.gov/Archives/edgar/data/1409427/0001409427-23-000008.txt,1409427,"200 STATE ST, 7TH FLOOR, BOSTON, MA, 02109","Boston Common Asset Management, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC COM,14345000.0,425407
+https://sec.gov/Archives/edgar/data/1409427/0001409427-23-000008.txt,1409427,"200 STATE ST, 7TH FLOOR, BOSTON, MA, 02109","Boston Common Asset Management, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC COM,5294000.0,31684
+https://sec.gov/Archives/edgar/data/1409427/0001409427-23-000008.txt,1409427,"200 STATE ST, 7TH FLOOR, BOSTON, MA, 02109","Boston Common Asset Management, LLC",2023-06-30,370334,370334104,GENERAL MLS INC COM,259000.0,3377
+https://sec.gov/Archives/edgar/data/1409427/0001409427-23-000008.txt,1409427,"200 STATE ST, 7TH FLOOR, BOSTON, MA, 02109","Boston Common Asset Management, LLC",2023-06-30,461202,461202103,INTUIT COM,32322000.0,70542
+https://sec.gov/Archives/edgar/data/1409427/0001409427-23-000008.txt,1409427,"200 STATE ST, 7TH FLOOR, BOSTON, MA, 02109","Boston Common Asset Management, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC CL A,7377000.0,37565
+https://sec.gov/Archives/edgar/data/1409427/0001409427-23-000008.txt,1409427,"200 STATE ST, 7TH FLOOR, BOSTON, MA, 02109","Boston Common Asset Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP COM,37316000.0,109580
+https://sec.gov/Archives/edgar/data/1409427/0001409427-23-000008.txt,1409427,"200 STATE ST, 7TH FLOOR, BOSTON, MA, 02109","Boston Common Asset Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO COM,28200000.0,185847
+https://sec.gov/Archives/edgar/data/1409661/0001085146-23-002832.txt,1409661,"18 SMITH SQUARE, LONDON, X0, SW1P 3HZ",Guinness Asset Management LTD,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,430029000.0,2570
+https://sec.gov/Archives/edgar/data/1409661/0001085146-23-002832.txt,1409661,"18 SMITH SQUARE, LONDON, X0, SW1P 3HZ",Guinness Asset Management LTD,2023-06-30,461202,461202103,INTUIT,23607307000.0,51523
+https://sec.gov/Archives/edgar/data/1409661/0001085146-23-002832.txt,1409661,"18 SMITH SQUARE, LONDON, X0, SW1P 3HZ",Guinness Asset Management LTD,2023-06-30,482480,482480100,KLA CORP,27540725000.0,56784
+https://sec.gov/Archives/edgar/data/1409661/0001085146-23-002832.txt,1409661,"18 SMITH SQUARE, LONDON, X0, SW1P 3HZ",Guinness Asset Management LTD,2023-06-30,512807,512807108,LAM RESEARCH CORP,26724350000.0,41571
+https://sec.gov/Archives/edgar/data/1409661/0001085146-23-002832.txt,1409661,"18 SMITH SQUARE, LONDON, X0, SW1P 3HZ",Guinness Asset Management LTD,2023-06-30,594918,594918104,MICROSOFT CORP,205276091000.0,602931
+https://sec.gov/Archives/edgar/data/1409661/0001085146-23-002832.txt,1409661,"18 SMITH SQUARE, LONDON, X0, SW1P 3HZ",Guinness Asset Management LTD,2023-06-30,654106,654106103,NIKE INC,18503284000.0,167642
+https://sec.gov/Archives/edgar/data/1409661/0001085146-23-002832.txt,1409661,"18 SMITH SQUARE, LONDON, X0, SW1P 3HZ",Guinness Asset Management LTD,2023-06-30,704326,704326107,PAYCHEX INC,148333060000.0,1326466
+https://sec.gov/Archives/edgar/data/1409661/0001085146-23-002832.txt,1409661,"18 SMITH SQUARE, LONDON, X0, SW1P 3HZ",Guinness Asset Management LTD,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,147185617000.0,970222
+https://sec.gov/Archives/edgar/data/1409751/0000950123-23-008215.txt,1409751,"105 Rowayton Avenue, Rowayton, CT, 06853","Coliseum Capital Management, LLC",2023-06-30,36251C,36251C103,GMS INC,236501449000.0,3417651
+https://sec.gov/Archives/edgar/data/1409751/0000950123-23-008215.txt,1409751,"105 Rowayton Avenue, Rowayton, CT, 06853","Coliseum Capital Management, LLC",2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,23193652000.0,756726
+https://sec.gov/Archives/edgar/data/1409765/0001085146-23-002833.txt,1409765,"225 SOUTH LAKE AVENUE, SUITE 216, PASADENA, CA, 91101",Guinness Atkinson Asset Management Inc,2023-06-30,461202,461202103,INTUIT,5426802000.0,11844
+https://sec.gov/Archives/edgar/data/1409765/0001085146-23-002833.txt,1409765,"225 SOUTH LAKE AVENUE, SUITE 216, PASADENA, CA, 91101",Guinness Atkinson Asset Management Inc,2023-06-30,482480,482480100,KLA CORP,6295075000.0,12979
+https://sec.gov/Archives/edgar/data/1409765/0001085146-23-002833.txt,1409765,"225 SOUTH LAKE AVENUE, SUITE 216, PASADENA, CA, 91101",Guinness Atkinson Asset Management Inc,2023-06-30,512807,512807108,LAM RESEARCH CORP,6208099000.0,9657
+https://sec.gov/Archives/edgar/data/1409765/0001085146-23-002833.txt,1409765,"225 SOUTH LAKE AVENUE, SUITE 216, PASADENA, CA, 91101",Guinness Atkinson Asset Management Inc,2023-06-30,594918,594918104,MICROSOFT CORP,7553177000.0,22180
+https://sec.gov/Archives/edgar/data/1409765/0001085146-23-002833.txt,1409765,"225 SOUTH LAKE AVENUE, SUITE 216, PASADENA, CA, 91101",Guinness Atkinson Asset Management Inc,2023-06-30,654106,654106103,NIKE INC,4300457000.0,38964
+https://sec.gov/Archives/edgar/data/1409765/0001085146-23-002833.txt,1409765,"225 SOUTH LAKE AVENUE, SUITE 216, PASADENA, CA, 91101",Guinness Atkinson Asset Management Inc,2023-06-30,704326,704326107,PAYCHEX INC,774700000.0,6925
+https://sec.gov/Archives/edgar/data/1409765/0001085146-23-002833.txt,1409765,"225 SOUTH LAKE AVENUE, SUITE 216, PASADENA, CA, 91101",Guinness Atkinson Asset Management Inc,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,795421000.0,5242
+https://sec.gov/Archives/edgar/data/1410833/0001410833-23-000004.txt,1410833,"102 GREENWICH AVENUE, GREENWICH, CT, 06830","Night Owl Capital Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP COM,40272530000.0,118261
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,114000.0,3306
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,008073,008073108,AEROVIRONMENT INC,211000.0,2061
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,616000.0,11736
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,13000.0,259
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,101000.0,1316
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,49000.0,490
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,36000.0,3433
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,436000.0,3012
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+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,05368M,05368M106,AVID BIOSERVICES INC,64000.0,4591
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,154000.0,3905
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,090043,090043100,BILL HOLDINGS INC,1583000.0,13544
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,3811000.0,46684
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,11359000.0,68580
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,115637,115637209,BROWN FORMAN CORP,36664000.0,549027
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,127190,127190304,CACI INTL INC,3204000.0,9400
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,128030,128030202,CAL MAINE FOODS INC,1111000.0,24690
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,23634000.0,249913
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,203000.0,3624
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,189054,189054109,CLOROX CO DEL,29921000.0,188134
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,205887,205887102,CONAGRA BRANDS INC,5375000.0,159408
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,222070,222070203,COTY INC,2108000.0,171531
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,14472000.0,86615
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,55000.0,1933
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,31428X,31428X106,FEDEX CORP,30307000.0,122253
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,35137L,35137L105,FOX CORP,12481000.0,367091
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,36251C,36251C103,GMS INC,220000.0,3177
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,370334,370334104,GENERAL MLS INC,42353000.0,552186
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,88000.0,7009
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,17886000.0,106889
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,461202,461202103,INTUIT,135570000.0,295881
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,482480,482480100,KLA CORP,58032000.0,119649
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,489170,489170100,KENNAMETAL INC,175000.0,6150
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,500643,500643200,KORN FERRY,199000.0,4018
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,505336,505336107,LA Z BOY INC,286000.0,9975
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,512807,512807108,LAM RESEARCH CORP,59419000.0,92429
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,21986000.0,191268
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,111460000.0,567573
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,591520,591520200,METHOD ELECTRS INC,102000.0,3029
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,594918,594918104,MICROSOFT CORP,1712795000.0,5029642
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,600544,600544100,MILLERKNOLL INC,88000.0,5962
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,85000.0,1752
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,64110D,64110D104,NETAPP INC,7597000.0,99431
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,65249B,65249B109,NEWS CORP NEW,4846000.0,248531
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,654106,654106103,NIKE INC,83119000.0,753091
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,671044,671044105,OSI SYSTEMS INC,151000.0,1284
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,89463000.0,350136
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,10130000.0,25971
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,704326,704326107,PAYCHEX INC,34641000.0,309654
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,2086000.0,11307
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP,22000.0,1572
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,206033000.0,1357802
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,74874Q,74874Q100,QUINSTREET INC,37000.0,4208
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,749685,749685103,RPM INTL INC,4118000.0,45889
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,761152,761152107,RESMED INC,46040000.0,210708
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,45000.0,2855
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,806037,806037107,SCANSOURCE INC,63000.0,2142
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,807066,807066105,SCHOLASTIC CORP,93000.0,2398
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,817070,817070501,SENECA FOODS CORP NEW,15000.0,449
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,832696,832696405,SMUCKER J M CO,10237000.0,69326
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,854231,854231107,STANDEX INTL CORP,107000.0,758
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,86333M,86333M108,STRIDE INC,113000.0,3035
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,871829,871829107,SYSCO CORP,13316000.0,179463
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,176000.0,15516
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,1465000.0,38635
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,96000.0,2824
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,27000.0,205
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,G3323L,G3323L100,FABRINET,352000.0,2709
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,64368000.0,730621
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,57000.0,1735
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,N14506,N14506104,ELASTIC N V,1091000.0,17013
+https://sec.gov/Archives/edgar/data/1411133/0000950123-23-006406.txt,1411133,"Havenlaan 2, Brussels, C9, 1080",KBC Group NV,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,64000.0,2511
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,1158129000.0,22068
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,311012000.0,6138
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,10181332000.0,46323
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,090043,090043100,BILL HOLDINGS INC,770743000.0,6596
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,09073M,09073M104,BIO-TECHNE CORP,1009763000.0,12370
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,1814642000.0,10956
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,115637,115637209,BROWN FORMAN CORP,1707364000.0,25567
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,2038267000.0,21553
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,189054,189054109,CLOROX CO DEL,1720654000.0,10819
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,205887,205887102,CONAGRA BRANDS INC,1323746000.0,39257
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1833369000.0,10973
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,31428X,31428X106,FEDEX CORP,5920844000.0,23884
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,35137L,35137L105,FOX CORP,944588000.0,27782
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,370334,370334104,GENERAL MLS INC,6286792000.0,81966
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,1241756000.0,7421
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,461202,461202103,INTUIT,19895068000.0,43421
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,482480,482480100,KLA CORP,5808115000.0,11975
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,512807,512807108,LAM RESEARCH CORP,7506676000.0,11677
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,1461589000.0,12715
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,8704544000.0,44325
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,594918,594918104,MICROSOFT CORP,335072290000.0,983944
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,64110D,64110D104,NETAPP INC,1901978000.0,24895
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,65249B,65249B109,NEWS CORP NEW,559826000.0,28709
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,654106,654106103,NIKE INC,41203439000.0,373321
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,6560730000.0,25677
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,4884861000.0,12524
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,704326,704326107,PAYCHEX INC,3074188000.0,27480
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,526095000.0,2851
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,64154003000.0,422789
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,749685,749685103,RPM INTL INC,969712000.0,10807
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,761152,761152107,RESMED INC,2801170000.0,12820
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,832696,832696405,SMUCKER J M CO,1767019000.0,11966
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,871829,871829107,SYSCO CORP,3882812000.0,52329
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,2005397000.0,52871
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,12009880000.0,136321
+https://sec.gov/Archives/edgar/data/1411530/0000950123-23-006655.txt,1411530,"TORANOMON HILLS BUSINESS TOWER 26F, 1-17-1 TORANOMON, MINATO-KU, TOKYO, M0, 105-6426","Sumitomo Mitsui DS Asset Management Company, Ltd",2023-06-30,N14506,N14506104,ELASTIC N V,253595000.0,3955
+https://sec.gov/Archives/edgar/data/1411784/0001411784-23-000006.txt,1411784,"233 SOUTH DETROIT AVENUE, SUITE 100, TULSA, OK, 74120","Pinnacle Holdings, LLC",2023-06-30,49428J,49428J109,Kimball Electronics,1838694000.0,66547
+https://sec.gov/Archives/edgar/data/1411784/0001411784-23-000006.txt,1411784,"233 SOUTH DETROIT AVENUE, SUITE 100, TULSA, OK, 74120","Pinnacle Holdings, LLC",2023-06-30,505336,505336107,La-Z-Boy,957407000.0,33429
+https://sec.gov/Archives/edgar/data/1411784/0001411784-23-000006.txt,1411784,"233 SOUTH DETROIT AVENUE, SUITE 100, TULSA, OK, 74120","Pinnacle Holdings, LLC",2023-06-30,594918,594918104,Microsoft Corporation,4574329000.0,13433
+https://sec.gov/Archives/edgar/data/1411784/0001411784-23-000006.txt,1411784,"233 SOUTH DETROIT AVENUE, SUITE 100, TULSA, OK, 74120","Pinnacle Holdings, LLC",2023-06-30,654106,654106103,Nike,1215505000.0,11013
+https://sec.gov/Archives/edgar/data/1411784/0001411784-23-000006.txt,1411784,"233 SOUTH DETROIT AVENUE, SUITE 100, TULSA, OK, 74120","Pinnacle Holdings, LLC",2023-06-30,742718,742718109,Procter & Gamble,1945003000.0,12818
+https://sec.gov/Archives/edgar/data/1412665/0001420506-23-001723.txt,1412665,"102 South Clinton St., Iowa City, IA, 52240","MidWestOne Financial Group, Inc.",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,966996000.0,18426
+https://sec.gov/Archives/edgar/data/1412665/0001420506-23-001723.txt,1412665,"102 South Clinton St., Iowa City, IA, 52240","MidWestOne Financial Group, Inc.",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,395645000.0,2368
+https://sec.gov/Archives/edgar/data/1412665/0001420506-23-001723.txt,1412665,"102 South Clinton St., Iowa City, IA, 52240","MidWestOne Financial Group, Inc.",2023-06-30,31428X,31428X106,FEDEX CORP,711969000.0,2872
+https://sec.gov/Archives/edgar/data/1412665/0001420506-23-001723.txt,1412665,"102 South Clinton St., Iowa City, IA, 52240","MidWestOne Financial Group, Inc.",2023-06-30,370334,370334104,GENERAL MLS INC,741382000.0,9666
+https://sec.gov/Archives/edgar/data/1412665/0001420506-23-001723.txt,1412665,"102 South Clinton St., Iowa City, IA, 52240","MidWestOne Financial Group, Inc.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,908061000.0,4624
+https://sec.gov/Archives/edgar/data/1412665/0001420506-23-001723.txt,1412665,"102 South Clinton St., Iowa City, IA, 52240","MidWestOne Financial Group, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,11275961000.0,33112
+https://sec.gov/Archives/edgar/data/1412665/0001420506-23-001723.txt,1412665,"102 South Clinton St., Iowa City, IA, 52240","MidWestOne Financial Group, Inc.",2023-06-30,654106,654106103,NIKE INC,274601000.0,2488
+https://sec.gov/Archives/edgar/data/1412665/0001420506-23-001723.txt,1412665,"102 South Clinton St., Iowa City, IA, 52240","MidWestOne Financial Group, Inc.",2023-06-30,683715,683715106,OPEN TEXT CORP,1350998000.0,32515
+https://sec.gov/Archives/edgar/data/1412665/0001420506-23-001723.txt,1412665,"102 South Clinton St., Iowa City, IA, 52240","MidWestOne Financial Group, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,5756864000.0,37940
+https://sec.gov/Archives/edgar/data/1412665/0001420506-23-001723.txt,1412665,"102 South Clinton St., Iowa City, IA, 52240","MidWestOne Financial Group, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,220162000.0,2499
+https://sec.gov/Archives/edgar/data/1412741/0001085146-23-003351.txt,1412741,"510 Madison Avenue, 26th Floor, NEW YORK, NY, 10022",J. Goldman & Co LP,2023-06-30,053807,053807103,AVNET INC,4998939000.0,99087
+https://sec.gov/Archives/edgar/data/1412741/0001085146-23-003351.txt,1412741,"510 Madison Avenue, 26th Floor, NEW YORK, NY, 10022",J. Goldman & Co LP,2023-06-30,31428X,31428X106,FEDEX CORP,40709642000.0,164218
+https://sec.gov/Archives/edgar/data/1412741/0001085146-23-003351.txt,1412741,"510 Madison Avenue, 26th Floor, NEW YORK, NY, 10022",J. Goldman & Co LP,2023-06-30,594918,594918104,MICROSOFT CORP,120608030000.0,354167
+https://sec.gov/Archives/edgar/data/1412741/0001085146-23-003351.txt,1412741,"510 Madison Avenue, 26th Floor, NEW YORK, NY, 10022",J. Goldman & Co LP,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,20686415000.0,545384
+https://sec.gov/Archives/edgar/data/1412741/0001085146-23-003351.txt,1412741,"510 Madison Avenue, 26th Floor, NEW YORK, NY, 10022",J. Goldman & Co LP,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,2718861000.0,79896
+https://sec.gov/Archives/edgar/data/1415201/0001415201-23-000003.txt,1415201,"3202 TOWER OAKS BLVD., SUITE 400, ROCKVILLE, MD, 20852","SPC Financial, Inc.",2023-06-30,189054,189054109,CLOROX CO DEL,367382000.0,2310
+https://sec.gov/Archives/edgar/data/1415201/0001415201-23-000003.txt,1415201,"3202 TOWER OAKS BLVD., SUITE 400, ROCKVILLE, MD, 20852","SPC Financial, Inc.",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1853753000.0,11095
+https://sec.gov/Archives/edgar/data/1415201/0001415201-23-000003.txt,1415201,"3202 TOWER OAKS BLVD., SUITE 400, ROCKVILLE, MD, 20852","SPC Financial, Inc.",2023-06-30,370334,370334104,GENERAL MLS INC,913558000.0,11911
+https://sec.gov/Archives/edgar/data/1415201/0001415201-23-000003.txt,1415201,"3202 TOWER OAKS BLVD., SUITE 400, ROCKVILLE, MD, 20852","SPC Financial, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,8720022000.0,25606
+https://sec.gov/Archives/edgar/data/1415201/0001415201-23-000003.txt,1415201,"3202 TOWER OAKS BLVD., SUITE 400, ROCKVILLE, MD, 20852","SPC Financial, Inc.",2023-06-30,654106,654106103,NIKE INC,203412000.0,1843
+https://sec.gov/Archives/edgar/data/1415201/0001415201-23-000003.txt,1415201,"3202 TOWER OAKS BLVD., SUITE 400, ROCKVILLE, MD, 20852","SPC Financial, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1392873000.0,9179
+https://sec.gov/Archives/edgar/data/1415201/0001415201-23-000003.txt,1415201,"3202 TOWER OAKS BLVD., SUITE 400, ROCKVILLE, MD, 20852","SPC Financial, Inc.",2023-06-30,832696,832696405,SMUCKER J M CO,220028000.0,1490
+https://sec.gov/Archives/edgar/data/1415201/0001415201-23-000003.txt,1415201,"3202 TOWER OAKS BLVD., SUITE 400, ROCKVILLE, MD, 20852","SPC Financial, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,516341000.0,5861
+https://sec.gov/Archives/edgar/data/1416692/0001085146-23-003194.txt,1416692,"FIVE GREENTREE CENTER, SUITE 312, MARLTON, NJ, 08053","Financial Architects, Inc",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,227134000.0,4328
+https://sec.gov/Archives/edgar/data/1416692/0001085146-23-003194.txt,1416692,"FIVE GREENTREE CENTER, SUITE 312, MARLTON, NJ, 08053","Financial Architects, Inc",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,682452000.0,3105
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+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,106520089000.0,637541
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,31428X,31428X106,FEDEX CORP,4246032000.0,17128
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,35137L,35137L105,FOX CORP,8822902000.0,259501
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,370334,370334104,GENERAL MLS INC,7718820000.0,100633
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,1440154000.0,8609
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,461202,461202103,INTUIT,508118580000.0,1108970
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,482480,482480100,KLA CORP,121001728000.0,249478
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,2050000000.0,74200
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,505336,505336107,LA Z BOY INC,49630000000.0,1732885
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,512807,512807108,LAM RESEARCH CORP,91495385000.0,142325
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,102533819000.0,892492
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,15126993000.0,77030
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,2259000000.0,39820
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,106000000.0,563
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,56117J,56117J100,MALIBU BOATS INC,86019000000.0,1466404
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,591520,591520200,METHOD ELECTRS INC,560000000.0,16700
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,594918,594918104,MICROSOFT CORP,2668389735000.0,7835761
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,600544,600544100,MILLERKNOLL INC,789000000.0,53400
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,64110D,64110D104,NETAPP INC,48952138000.0,640733
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,65249B,65249B109,NEWS CORP NEW,874127000.0,44838
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,654106,654106103,NIKE INC,157245823000.0,1424716
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,26735992000.0,104637
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,51666765000.0,132465
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,704326,704326107,PAYCHEX INC,55100886000.0,492541
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,344518000.0,1867
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,61080000000.0,1013939
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,141336911000.0,931442
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,749685,749685103,RPM INTL INC,38297145000.0,426805
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,761152,761152107,RESMED INC,4114574000.0,18831
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,884000000.0,67800
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,832696,832696405,SMUCKER J M CO,1968014000.0,13324
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,27352000000.0,109738
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,87157D,87157D109,SYNAPTICS INC,1209000000.0,14161
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,871829,871829107,SYSCO CORP,38004701000.0,512197
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,876030,876030107,TAPESTRY INC,16179000000.0,378016
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,52704000000.0,4651737
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,472342000.0,12453
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,4311000000.0,126695
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,981811,981811102,WORTHINGTON INDS INC,106081000000.0,1526999
+https://sec.gov/Archives/edgar/data/1418333/0000950123-23-007939.txt,1418333,"50 MARTIN PLACE, Sydney, NSW 2000, C3, 2000",MACQUARIE GROUP LTD,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,21396139000.0,242864
+https://sec.gov/Archives/edgar/data/1418342/0001418342-23-000007.txt,1418342,"99 BOW STREET, STE. 300 EAST, PORTSMOUTH, NH, 03801",Seascape Capital Management,2023-06-30,594918,594918104,MICROSOFT CORP,1026000.0,3013
+https://sec.gov/Archives/edgar/data/1418342/0001418342-23-000007.txt,1418342,"99 BOW STREET, STE. 300 EAST, PORTSMOUTH, NH, 03801",Seascape Capital Management,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,551000.0,3630
+https://sec.gov/Archives/edgar/data/1418342/0001418342-23-000007.txt,1418342,"99 BOW STREET, STE. 300 EAST, PORTSMOUTH, NH, 03801",Seascape Capital Management,2023-06-30,82661L,82661L101,SIGMATRON INTL INC,318000.0,98260
+https://sec.gov/Archives/edgar/data/1418359/0001085146-23-002816.txt,1418359,"60 BEDFORD ROAD, TORONTO, A6, M5R2K2",K.J. Harrison & Partners Inc,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,3460357000.0,15801
+https://sec.gov/Archives/edgar/data/1418359/0001085146-23-002816.txt,1418359,"60 BEDFORD ROAD, TORONTO, A6, M5R2K2",K.J. Harrison & Partners Inc,2023-06-30,31428X,31428X106,FEDEX CORP,745954000.0,3020
+https://sec.gov/Archives/edgar/data/1418359/0001085146-23-002816.txt,1418359,"60 BEDFORD ROAD, TORONTO, A6, M5R2K2",K.J. Harrison & Partners Inc,2023-06-30,461202,461202103,INTUIT,1597872000.0,3500
+https://sec.gov/Archives/edgar/data/1418359/0001085146-23-002816.txt,1418359,"60 BEDFORD ROAD, TORONTO, A6, M5R2K2",K.J. Harrison & Partners Inc,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,587990000.0,3005
+https://sec.gov/Archives/edgar/data/1418359/0001085146-23-002816.txt,1418359,"60 BEDFORD ROAD, TORONTO, A6, M5R2K2",K.J. Harrison & Partners Inc,2023-06-30,594918,594918104,MICROSOFT CORP,19771247000.0,58269
+https://sec.gov/Archives/edgar/data/1418359/0001085146-23-002816.txt,1418359,"60 BEDFORD ROAD, TORONTO, A6, M5R2K2",K.J. Harrison & Partners Inc,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2445529000.0,16175
+https://sec.gov/Archives/edgar/data/1418359/0001085146-23-002816.txt,1418359,"60 BEDFORD ROAD, TORONTO, A6, M5R2K2",K.J. Harrison & Partners Inc,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1079716000.0,12300
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,00175J,00175J107,AMMO INC,106500000.0,50000
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,3884777000.0,17675
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,228277000.0,1378
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,189054,189054109,CLOROX CO DEL,636160000.0,4000
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,234264,234264109,DAKTRONICS INC,75520000.0,11800
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,31428X,31428X106,FEDEX CORP,10292630000.0,41519
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,461202,461202103,INTUIT,320733000.0,700
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,512807,512807108,LAM RESEARCH CORP,1186077000.0,1845
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,594918,594918104,MICROSOFT CORP,17971581000.0,52774
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,654106,654106103,NIKE INC,2480455000.0,22474
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,704326,704326107,PAYCHEX INC,2942517000.0,26303
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,6191705000.0,40805
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,871829,871829107,SYSCO CORP,2737275000.0,36891
+https://sec.gov/Archives/edgar/data/1418421/0001398344-23-013678.txt,1418421,"100 E. SIX FORKS ROAD, SUITE 200, RALEIGH, NC, 27609","Capital Investment Counsel, Inc",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,240249000.0,2727
+https://sec.gov/Archives/edgar/data/1418427/0001085146-23-003357.txt,1418427,"Josefstrasse 218, ZURICH, V8, 8005",Robeco Schweiz AG,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,46374566000.0,320200
+https://sec.gov/Archives/edgar/data/1418427/0001085146-23-003357.txt,1418427,"Josefstrasse 218, ZURICH, V8, 8005",Robeco Schweiz AG,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,41469630000.0,731000
+https://sec.gov/Archives/edgar/data/1418427/0001085146-23-003357.txt,1418427,"Josefstrasse 218, ZURICH, V8, 8005",Robeco Schweiz AG,2023-06-30,654106,654106103,NIKE INC,9261478000.0,83913
+https://sec.gov/Archives/edgar/data/1418427/0001085146-23-003357.txt,1418427,"Josefstrasse 218, ZURICH, V8, 8005",Robeco Schweiz AG,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,10586625000.0,120166
+https://sec.gov/Archives/edgar/data/1418746/0001418746-23-000004.txt,1418746,"299 PARK AVENUE, 21ST FLOOR, NEW YORK, NY, 10171","Potomac Capital Management, Inc.",2023-06-30,09061H,09061H307,BIOMERICA INC,547966000.0,402916
+https://sec.gov/Archives/edgar/data/1418746/0001418746-23-000004.txt,1418746,"299 PARK AVENUE, 21ST FLOOR, NEW YORK, NY, 10171","Potomac Capital Management, Inc.",2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,410850000.0,15000
+https://sec.gov/Archives/edgar/data/1418746/0001418746-23-000004.txt,1418746,"299 PARK AVENUE, 21ST FLOOR, NEW YORK, NY, 10171","Potomac Capital Management, Inc.",2023-06-30,878739,878739200,TECHPRECISION CORP,775108000.0,104886
+https://sec.gov/Archives/edgar/data/1418773/0001085146-23-002868.txt,1418773,"WEENA 850, ROTTERDAM, P7, 3014DA",Robeco Institutional Asset Management B.V.,2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,727630000.0,21189
+https://sec.gov/Archives/edgar/data/1418773/0001085146-23-002868.txt,1418773,"WEENA 850, ROTTERDAM, P7, 3014DA",Robeco Institutional Asset Management B.V.,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,367780000.0,7008
+https://sec.gov/Archives/edgar/data/1418773/0001085146-23-002868.txt,1418773,"WEENA 850, ROTTERDAM, P7, 3014DA",Robeco Institutional Asset Management B.V.,2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,753514000.0,14871
+https://sec.gov/Archives/edgar/data/1418773/0001085146-23-002868.txt,1418773,"WEENA 850, ROTTERDAM, P7, 3014DA",Robeco Institutional Asset Management B.V.,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,178141000.0,1230
+https://sec.gov/Archives/edgar/data/1418773/0001085146-23-002868.txt,1418773,"WEENA 850, ROTTERDAM, P7, 3014DA",Robeco Institutional Asset Management B.V.,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,26203145000.0,119219
+https://sec.gov/Archives/edgar/data/1418773/0001085146-23-002868.txt,1418773,"WEENA 850, ROTTERDAM, P7, 3014DA",Robeco Institutional Asset Management B.V.,2023-06-30,053807,053807103,AVNET INC,19987029000.0,396175
+https://sec.gov/Archives/edgar/data/1418773/0001085146-23-002868.txt,1418773,"WEENA 850, ROTTERDAM, P7, 3014DA",Robeco Institutional Asset Management B.V.,2023-06-30,090043,090043100,BILL HOLDINGS INC,237906000.0,2036
+https://sec.gov/Archives/edgar/data/1418773/0001085146-23-002868.txt,1418773,"WEENA 850, ROTTERDAM, P7, 3014DA",Robeco Institutional Asset Management B.V.,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,748791000.0,9173
+https://sec.gov/Archives/edgar/data/1418773/0001085146-23-002868.txt,1418773,"WEENA 850, ROTTERDAM, P7, 3014DA",Robeco Institutional Asset Management B.V.,2023-06-30,093671,093671105,BLOCK H & R INC,16377323000.0,513879
+https://sec.gov/Archives/edgar/data/1418773/0001085146-23-002868.txt,1418773,"WEENA 850, ROTTERDAM, P7, 3014DA",Robeco Institutional Asset Management B.V.,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,6935756000.0,41875
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+https://sec.gov/Archives/edgar/data/1421578/0001062993-23-016395.txt,1421578,"100 FEDERAL STREET, BOSTON, MA, 02110",PUTNAM INVESTMENTS LLC,2023-06-30,87157D,87157D109,SYNAPTICS INC,740586000.0,8674
+https://sec.gov/Archives/edgar/data/1421578/0001062993-23-016395.txt,1421578,"100 FEDERAL STREET, BOSTON, MA, 02110",PUTNAM INVESTMENTS LLC,2023-06-30,876030,876030107,TAPESTRY INC,6187254000.0,144562
+https://sec.gov/Archives/edgar/data/1421578/0001062993-23-016395.txt,1421578,"100 FEDERAL STREET, BOSTON, MA, 02110",PUTNAM INVESTMENTS LLC,2023-06-30,904677,904677200,UNIFI INC,3367264000.0,417257
+https://sec.gov/Archives/edgar/data/1421578/0001062993-23-016395.txt,1421578,"100 FEDERAL STREET, BOSTON, MA, 02110",PUTNAM INVESTMENTS LLC,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,421510000.0,37203
+https://sec.gov/Archives/edgar/data/1421578/0001062993-23-016395.txt,1421578,"100 FEDERAL STREET, BOSTON, MA, 02110",PUTNAM INVESTMENTS LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,20629496000.0,234160
+https://sec.gov/Archives/edgar/data/1421578/0001062993-23-016395.txt,1421578,"100 FEDERAL STREET, BOSTON, MA, 02110",PUTNAM INVESTMENTS LLC,2023-06-30,N14506,N14506104,ELASTIC NV,2718175000.0,42392
+https://sec.gov/Archives/edgar/data/1421578/0001062993-23-016395.txt,1421578,"100 FEDERAL STREET, BOSTON, MA, 02110",PUTNAM INVESTMENTS LLC,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,690908000.0,26936
+https://sec.gov/Archives/edgar/data/1421669/0001493152-23-028414.txt,1421669,"C/O 3G Capital Inc., 600 Third Avenue, 37th Floor, New York, NY, 10016",3G Capital Partners LP,2023-06-30,090043,090043100,BILL HOLDINGS INC,13437750000.0,115000
+https://sec.gov/Archives/edgar/data/1421669/0001493152-23-028414.txt,1421669,"C/O 3G Capital Inc., 600 Third Avenue, 37th Floor, New York, NY, 10016",3G Capital Partners LP,2023-06-30,482480,482480100,KLA CORP,4850200000.0,10000
+https://sec.gov/Archives/edgar/data/1421669/0001493152-23-028414.txt,1421669,"C/O 3G Capital Inc., 600 Third Avenue, 37th Floor, New York, NY, 10016",3G Capital Partners LP,2023-06-30,512807,512807108,LAM RESEARCH CORP,5785740000.0,9000
+https://sec.gov/Archives/edgar/data/1422848/0000017283-23-000017.txt,1422848,"333 South Hope Street, 55th Fl, Los Angeles, CA, 90071",Capital Research Global Investors,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,633458957000.0,2882110
+https://sec.gov/Archives/edgar/data/1422848/0000017283-23-000017.txt,1422848,"333 South Hope Street, 55th Fl, Los Angeles, CA, 90071",Capital Research Global Investors,2023-06-30,370334,370334104,GENERAL MLS INC,1375437960000.0,17932702
+https://sec.gov/Archives/edgar/data/1422848/0000017283-23-000017.txt,1422848,"333 South Hope Street, 55th Fl, Los Angeles, CA, 90071",Capital Research Global Investors,2023-06-30,461202,461202103,INTUIT,253733709000.0,553774
+https://sec.gov/Archives/edgar/data/1422848/0000017283-23-000017.txt,1422848,"333 South Hope Street, 55th Fl, Los Angeles, CA, 90071",Capital Research Global Investors,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,82415869000.0,1452774
+https://sec.gov/Archives/edgar/data/1422848/0000017283-23-000017.txt,1422848,"333 South Hope Street, 55th Fl, Los Angeles, CA, 90071",Capital Research Global Investors,2023-06-30,594918,594918104,MICROSOFT CORP,25007157355000.0,73434222
+https://sec.gov/Archives/edgar/data/1422848/0000017283-23-000017.txt,1422848,"333 South Hope Street, 55th Fl, Los Angeles, CA, 90071",Capital Research Global Investors,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1119116405000.0,4380002
+https://sec.gov/Archives/edgar/data/1422848/0000017283-23-000017.txt,1422848,"333 South Hope Street, 55th Fl, Los Angeles, CA, 90071",Capital Research Global Investors,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,784672857000.0,5171170
+https://sec.gov/Archives/edgar/data/1422848/0000017283-23-000017.txt,1422848,"333 South Hope Street, 55th Fl, Los Angeles, CA, 90071",Capital Research Global Investors,2023-06-30,876030,876030107,TAPESTRY INC,112721975000.0,2633691
+https://sec.gov/Archives/edgar/data/1422848/0000017283-23-000017.txt,1422848,"333 South Hope Street, 55th Fl, Los Angeles, CA, 90071",Capital Research Global Investors,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2774597717000.0,31493771
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,22231033000.0,272339
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,205887,205887102,CONAGRA BRANDS INC,152653812000.0,4527100
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,2745578130000.0,16433094
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,370334,370334104,GENERAL MLS INC,503984732000.0,6570857
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,461202,461202103,INTUIT,325032655000.0,709384
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,145024470000.0,738489
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,56117J,56117J100,MALIBU BOATS INC,96730340000.0,1649000
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,19892831000.0,649032
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,594918,594918104,MICROSOFT CORP,29117867699000.0,85507261
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,654106,654106103,NIKE INC,1098067164000.0,9948189
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,75079058000.0,293840
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,704326,704326107,PAYCHEX INC,104561757000.0,934672
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,171758718000.0,22335334
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,1281721588000.0,21276919
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1454437763000.0,9585065
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,761152,761152107,RESMED INC,515030065000.0,2357117
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,77383900000.0,6830000
+https://sec.gov/Archives/edgar/data/1422849/0000017283-23-000019.txt,1422849,"333 SOUTH HOPE STREET, 55TH FLOOR, LOS ANGELES, CA, 90071",Capital World Investors,2023-06-30,G3323L,G3323L100,FABRINET,91929064000.0,707800
+https://sec.gov/Archives/edgar/data/1423045/0001423045-23-000004.txt,1423045,"714 N. Donnelly Street, Mount Dora, FL, 32757","First National Bank of Mount Dora, Trust Investment Services",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,2631985000.0,11975
+https://sec.gov/Archives/edgar/data/1423045/0001423045-23-000004.txt,1423045,"714 N. Donnelly Street, Mount Dora, FL, 32757","First National Bank of Mount Dora, Trust Investment Services",2023-06-30,189054,189054109,CLOROX CO DEL,357361000.0,2247
+https://sec.gov/Archives/edgar/data/1423045/0001423045-23-000004.txt,1423045,"714 N. Donnelly Street, Mount Dora, FL, 32757","First National Bank of Mount Dora, Trust Investment Services",2023-06-30,205887,205887102,CONAGRA BRANDS INC,576544000.0,17098
+https://sec.gov/Archives/edgar/data/1423045/0001423045-23-000004.txt,1423045,"714 N. Donnelly Street, Mount Dora, FL, 32757","First National Bank of Mount Dora, Trust Investment Services",2023-06-30,594918,594918104,MICROSOFT CORP,11732964000.0,34454
+https://sec.gov/Archives/edgar/data/1423045/0001423045-23-000004.txt,1423045,"714 N. Donnelly Street, Mount Dora, FL, 32757","First National Bank of Mount Dora, Trust Investment Services",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,8074540000.0,53213
+https://sec.gov/Archives/edgar/data/1423045/0001423045-23-000004.txt,1423045,"714 N. Donnelly Street, Mount Dora, FL, 32757","First National Bank of Mount Dora, Trust Investment Services",2023-06-30,871829,871829107,SYSCO CORP,297022000.0,4003
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,00175J,00175J107,AMMO INC,406029000.0,190624
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,3835332000.0,111687
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,00760J,00760J108,AEHR TEST SYS,28033170000.0,679592
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,008073,008073108,AEROVIRONMENT INC,17633993000.0,172409
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,27311642000.0,520420
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,1821411000.0,32925
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,02875D,02875D109,AMERICAN OUTDOOR BRANDS INC,288558000.0,33244
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,029683,029683109,AMER SOFTWARE INC,7066114000.0,672323
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,9471942000.0,124027
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,2392126000.0,23974
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,5693966000.0,545922
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,03676C,03676C100,ANTERIX INC,3320890000.0,104793
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,4070447000.0,28105
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,259892664000.0,1182459
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,05366Y,05366Y201,AVIAT NETWORKS INC,2059430000.0,61715
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,05368M,05368M106,AVID BIOSERVICES INC,1909950000.0,136718
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,053807,053807103,AVNET INC,16358211000.0,324246
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,6414403000.0,162637
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,090043,090043100,BILL HOLDINGS INC,382644489000.0,3274664
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,09061H,09061H307,BIOMERICA INC,60602000.0,44560
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,12106300000.0,148307
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,09074H,09074H104,BIOTRICITY INC,38227000.0,59963
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,093671,093671105,BLOCK H & R INC,77663047000.0,2436870
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,49786887000.0,300591
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,115637,115637100,BROWN FORMAN CORP,638973000.0,9387
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,127190,127190304,CACI INTL INC,122488012000.0,359371
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,128030,128030202,CAL MAINE FOODS INC,14524470000.0,322766
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,125727127000.0,1329461
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,21473598000.0,382569
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,147528,147528103,CASEYS GEN STORES INC,9886651000.0,40539
+https://sec.gov/Archives/edgar/data/1423053/0000950123-23-008075.txt,1423053,"SOUTHEAST FINANCIAL CENTER, 200 S. BISCAYNE BLVD., SUITE 3300, MIAMI, FL, 33131",CITADEL ADVISORS LLC,2023-06-30,15870P,15870P307,CHAMPIONS ONCOLOGY INC,642932000.0,102215
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+https://sec.gov/Archives/edgar/data/1423442/0001423442-23-000003.txt,1423442,"6 Suburban Avenue, Stamford, CT, 06901-2012","O'SHAUGHNESSY ASSET MANAGEMENT, LLC",2023-06-30,871829,871829107,SYSCO CORP,1962961000.0,26455
+https://sec.gov/Archives/edgar/data/1423442/0001423442-23-000003.txt,1423442,"6 Suburban Avenue, Stamford, CT, 06901-2012","O'SHAUGHNESSY ASSET MANAGEMENT, LLC",2023-06-30,876030,876030107,TAPESTRY INC,11465821000.0,267893
+https://sec.gov/Archives/edgar/data/1423442/0001423442-23-000003.txt,1423442,"6 Suburban Avenue, Stamford, CT, 06901-2012","O'SHAUGHNESSY ASSET MANAGEMENT, LLC",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,919954000.0,24254
+https://sec.gov/Archives/edgar/data/1423442/0001423442-23-000003.txt,1423442,"6 Suburban Avenue, Stamford, CT, 06901-2012","O'SHAUGHNESSY ASSET MANAGEMENT, LLC",2023-06-30,968223,968223206,WILEY JOHN & SONS INC,252332000.0,7415
+https://sec.gov/Archives/edgar/data/1423442/0001423442-23-000003.txt,1423442,"6 Suburban Avenue, Stamford, CT, 06901-2012","O'SHAUGHNESSY ASSET MANAGEMENT, LLC",2023-06-30,981811,981811102,WORTHINGTON INDS INC,625022000.0,8997
+https://sec.gov/Archives/edgar/data/1423442/0001423442-23-000003.txt,1423442,"6 Suburban Avenue, Stamford, CT, 06901-2012","O'SHAUGHNESSY ASSET MANAGEMENT, LLC",2023-06-30,G3323L,G3323L100,FABRINET,302880000.0,2332
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+https://sec.gov/Archives/edgar/data/1423673/0001423673-23-000005.txt,1423673,"HIKARI WEST GATE BLDG., 4F, 1-4-10, NISHI IKEBUKURO, TOSHIMA KU,, TOKYO, M0, 171-0021","Hikari Tsushin, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING INC,2285816000.0,10400
+https://sec.gov/Archives/edgar/data/1423673/0001423673-23-000005.txt,1423673,"HIKARI WEST GATE BLDG., 4F, 1-4-10, NISHI IKEBUKURO, TOSHIMA KU,, TOKYO, M0, 171-0021","Hikari Tsushin, Inc.",2023-06-30,426281,426281101,JACK HENRY AND ASSOCIATES INC,2184493000.0,13055
+https://sec.gov/Archives/edgar/data/1423673/0001423673-23-000005.txt,1423673,"HIKARI WEST GATE BLDG., 4F, 1-4-10, NISHI IKEBUKURO, TOSHIMA KU,, TOKYO, M0, 171-0021","Hikari Tsushin, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,4048680000.0,11889
+https://sec.gov/Archives/edgar/data/1423673/0001423673-23-000005.txt,1423673,"HIKARI WEST GATE BLDG., 4F, 1-4-10, NISHI IKEBUKURO, TOSHIMA KU,, TOKYO, M0, 171-0021","Hikari Tsushin, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,5330778000.0,35131
+https://sec.gov/Archives/edgar/data/1423673/0001423673-23-000005.txt,1423673,"HIKARI WEST GATE BLDG., 4F, 1-4-10, NISHI IKEBUKURO, TOSHIMA KU,, TOKYO, M0, 171-0021","Hikari Tsushin, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,12770271000.0,144952
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+https://sec.gov/Archives/edgar/data/1424177/0001172661-23-002556.txt,1424177,"One International Place, Suite 770, Boston, MA, 02110",Birch Hill Investment Advisors LLC,2023-06-30,31428X,31428X106,FEDEX CORP,599665000.0,2419
+https://sec.gov/Archives/edgar/data/1424177/0001172661-23-002556.txt,1424177,"One International Place, Suite 770, Boston, MA, 02110",Birch Hill Investment Advisors LLC,2023-06-30,370334,370334104,GENERAL MLS INC,266916000.0,3480
+https://sec.gov/Archives/edgar/data/1424177/0001172661-23-002556.txt,1424177,"One International Place, Suite 770, Boston, MA, 02110",Birch Hill Investment Advisors LLC,2023-06-30,461202,461202103,INTUIT,36469175000.0,79594
+https://sec.gov/Archives/edgar/data/1424177/0001172661-23-002556.txt,1424177,"One International Place, Suite 770, Boston, MA, 02110",Birch Hill Investment Advisors LLC,2023-06-30,594918,594918104,MICROSOFT CORP,102405486000.0,300715
+https://sec.gov/Archives/edgar/data/1424177/0001172661-23-002556.txt,1424177,"One International Place, Suite 770, Boston, MA, 02110",Birch Hill Investment Advisors LLC,2023-06-30,654106,654106103,NIKE INC,2121311000.0,19220
+https://sec.gov/Archives/edgar/data/1424177/0001172661-23-002556.txt,1424177,"One International Place, Suite 770, Boston, MA, 02110",Birch Hill Investment Advisors LLC,2023-06-30,704326,704326107,PAYCHEX INC,223740000.0,2000
+https://sec.gov/Archives/edgar/data/1424177/0001172661-23-002556.txt,1424177,"One International Place, Suite 770, Boston, MA, 02110",Birch Hill Investment Advisors LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,9157357000.0,60349
+https://sec.gov/Archives/edgar/data/1424177/0001172661-23-002556.txt,1424177,"One International Place, Suite 770, Boston, MA, 02110",Birch Hill Investment Advisors LLC,2023-06-30,871829,871829107,SYSCO CORP,433922000.0,5848
+https://sec.gov/Archives/edgar/data/1424177/0001172661-23-002556.txt,1424177,"One International Place, Suite 770, Boston, MA, 02110",Birch Hill Investment Advisors LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,218928000.0,2485
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+https://sec.gov/Archives/edgar/data/1424322/0001424322-23-000006.txt,1424322,"800 BOYLSTON STREET, SUITE 2830, BOSTON, MA, 02199","Cubic Asset Management, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,314080000.0,1429
+https://sec.gov/Archives/edgar/data/1424322/0001424322-23-000006.txt,1424322,"800 BOYLSTON STREET, SUITE 2830, BOSTON, MA, 02199","Cubic Asset Management, LLC",2023-06-30,053807,053807103,AVNET INC,1930974000.0,38275
+https://sec.gov/Archives/edgar/data/1424322/0001424322-23-000006.txt,1424322,"800 BOYLSTON STREET, SUITE 2830, BOSTON, MA, 02199","Cubic Asset Management, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH,1228464000.0,12990
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+https://sec.gov/Archives/edgar/data/1424322/0001424322-23-000006.txt,1424322,"800 BOYLSTON STREET, SUITE 2830, BOSTON, MA, 02199","Cubic Asset Management, LLC",2023-06-30,205887,205887102,CONAGRA FOODS INC,992649000.0,29438
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+https://sec.gov/Archives/edgar/data/1424322/0001424322-23-000006.txt,1424322,"800 BOYLSTON STREET, SUITE 2830, BOSTON, MA, 02199","Cubic Asset Management, LLC",2023-06-30,370334,370334104,GENERAL MILLS INC,1085305000.0,14150
+https://sec.gov/Archives/edgar/data/1424322/0001424322-23-000006.txt,1424322,"800 BOYLSTON STREET, SUITE 2830, BOSTON, MA, 02199","Cubic Asset Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,17109070000.0,50241
+https://sec.gov/Archives/edgar/data/1424322/0001424322-23-000006.txt,1424322,"800 BOYLSTON STREET, SUITE 2830, BOSTON, MA, 02199","Cubic Asset Management, LLC",2023-06-30,703395,703395103,PATTERSON COS INC,271069000.0,8150
+https://sec.gov/Archives/edgar/data/1424322/0001424322-23-000006.txt,1424322,"800 BOYLSTON STREET, SUITE 2830, BOSTON, MA, 02199","Cubic Asset Management, LLC",2023-06-30,704326,704326107,PAYCHEX INC,223740000.0,2000
+https://sec.gov/Archives/edgar/data/1424322/0001424322-23-000006.txt,1424322,"800 BOYLSTON STREET, SUITE 2830, BOSTON, MA, 02199","Cubic Asset Management, LLC",2023-06-30,742718,742718109,PROCTER & GAMBLE,1357770000.0,8948
+https://sec.gov/Archives/edgar/data/1424322/0001424322-23-000006.txt,1424322,"800 BOYLSTON STREET, SUITE 2830, BOSTON, MA, 02199","Cubic Asset Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2496578000.0,28338
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+https://sec.gov/Archives/edgar/data/1424367/0001424367-23-000015.txt,1424367,"One Orange Way, Windsor, CT, 06095","Voya Financial Advisors, Inc.",2023-06-30,205887,205887102,CONAGRA BRANDS INC,297192000.0,8922
+https://sec.gov/Archives/edgar/data/1424367/0001424367-23-000015.txt,1424367,"One Orange Way, Windsor, CT, 06095","Voya Financial Advisors, Inc.",2023-06-30,461202,461202103,INTUIT,660483000.0,1449
+https://sec.gov/Archives/edgar/data/1424367/0001424367-23-000015.txt,1424367,"One Orange Way, Windsor, CT, 06095","Voya Financial Advisors, Inc.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,551598000.0,2865
+https://sec.gov/Archives/edgar/data/1424367/0001424367-23-000015.txt,1424367,"One Orange Way, Windsor, CT, 06095","Voya Financial Advisors, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,7993586000.0,23858
+https://sec.gov/Archives/edgar/data/1424367/0001424367-23-000015.txt,1424367,"One Orange Way, Windsor, CT, 06095","Voya Financial Advisors, Inc.",2023-06-30,654106,654106103,NIKE INC,212002000.0,1870
+https://sec.gov/Archives/edgar/data/1424367/0001424367-23-000015.txt,1424367,"One Orange Way, Windsor, CT, 06095","Voya Financial Advisors, Inc.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,450177000.0,1164
+https://sec.gov/Archives/edgar/data/1424367/0001424367-23-000015.txt,1424367,"One Orange Way, Windsor, CT, 06095","Voya Financial Advisors, Inc.",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,280639000.0,1573
+https://sec.gov/Archives/edgar/data/1424367/0001424367-23-000015.txt,1424367,"One Orange Way, Windsor, CT, 06095","Voya Financial Advisors, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,779910000.0,5221
+https://sec.gov/Archives/edgar/data/1424367/0001424367-23-000015.txt,1424367,"One Orange Way, Windsor, CT, 06095","Voya Financial Advisors, Inc.",2023-06-30,871829,871829107,SYSCO CORP,516590000.0,7064
+https://sec.gov/Archives/edgar/data/1424367/0001424367-23-000015.txt,1424367,"One Orange Way, Windsor, CT, 06095","Voya Financial Advisors, Inc.",2023-06-30,876030,876030107,TAPESTRY INC,241304000.0,5634
+https://sec.gov/Archives/edgar/data/1424367/0001424367-23-000015.txt,1424367,"One Orange Way, Windsor, CT, 06095","Voya Financial Advisors, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1339555000.0,15438
+https://sec.gov/Archives/edgar/data/1424381/0001172661-23-003094.txt,1424381,"650 Madison Avenue, 25th Floor, New York, NY, 10022","LAKEWOOD CAPITAL MANAGEMENT, LP",2023-06-30,31428X,31428X106,FEDEX CORP,22707640000.0,91600
+https://sec.gov/Archives/edgar/data/1424467/0001085146-23-003271.txt,1424467,"777 THIRD AVENUE, 14TH FLOOR, NEW YORK, NY, 10017","Lisanti Capital Growth, LLC",2023-06-30,00760J,00760J108,AEHR TEST SYS,4406738000.0,106830
+https://sec.gov/Archives/edgar/data/1424467/0001085146-23-003271.txt,1424467,"777 THIRD AVENUE, 14TH FLOOR, NEW YORK, NY, 10017","Lisanti Capital Growth, LLC",2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,7805613000.0,53895
+https://sec.gov/Archives/edgar/data/1424467/0001085146-23-003271.txt,1424467,"777 THIRD AVENUE, 14TH FLOOR, NEW YORK, NY, 10017","Lisanti Capital Growth, LLC",2023-06-30,127190,127190304,CACI INTL INC,6078881000.0,17835
+https://sec.gov/Archives/edgar/data/1424467/0001085146-23-003271.txt,1424467,"777 THIRD AVENUE, 14TH FLOOR, NEW YORK, NY, 10017","Lisanti Capital Growth, LLC",2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,1654151000.0,29470
+https://sec.gov/Archives/edgar/data/1424467/0001085146-23-003271.txt,1424467,"777 THIRD AVENUE, 14TH FLOOR, NEW YORK, NY, 10017","Lisanti Capital Growth, LLC",2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,3786108000.0,15190
+https://sec.gov/Archives/edgar/data/1424467/0001085146-23-003271.txt,1424467,"777 THIRD AVENUE, 14TH FLOOR, NEW YORK, NY, 10017","Lisanti Capital Growth, LLC",2023-06-30,G3323L,G3323L100,FABRINET,2104705000.0,16205
+https://sec.gov/Archives/edgar/data/1425165/0001172661-23-002814.txt,1425165,"19200 VON KARMAN AVE, #1050, IRVINE, CA, 92612",Apriem Advisors,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,11085888000.0,50439
+https://sec.gov/Archives/edgar/data/1425165/0001172661-23-002814.txt,1425165,"19200 VON KARMAN AVE, #1050, IRVINE, CA, 92612",Apriem Advisors,2023-06-30,189054,189054109,CLOROX CO DEL,428464000.0,2694
+https://sec.gov/Archives/edgar/data/1425165/0001172661-23-002814.txt,1425165,"19200 VON KARMAN AVE, #1050, IRVINE, CA, 92612",Apriem Advisors,2023-06-30,370334,370334104,GENERAL MLS INC,269831000.0,3518
+https://sec.gov/Archives/edgar/data/1425165/0001172661-23-002814.txt,1425165,"19200 VON KARMAN AVE, #1050, IRVINE, CA, 92612",Apriem Advisors,2023-06-30,482480,482480100,KLA CORP,3509605000.0,7236
+https://sec.gov/Archives/edgar/data/1425165/0001172661-23-002814.txt,1425165,"19200 VON KARMAN AVE, #1050, IRVINE, CA, 92612",Apriem Advisors,2023-06-30,512807,512807108,LAM RESEARCH CORP,1177349000.0,1831
+https://sec.gov/Archives/edgar/data/1425165/0001172661-23-002814.txt,1425165,"19200 VON KARMAN AVE, #1050, IRVINE, CA, 92612",Apriem Advisors,2023-06-30,594918,594918104,MICROSOFT CORP,5778065000.0,16967
+https://sec.gov/Archives/edgar/data/1425165/0001172661-23-002814.txt,1425165,"19200 VON KARMAN AVE, #1050, IRVINE, CA, 92612",Apriem Advisors,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,684511000.0,2679
+https://sec.gov/Archives/edgar/data/1425165/0001172661-23-002814.txt,1425165,"19200 VON KARMAN AVE, #1050, IRVINE, CA, 92612",Apriem Advisors,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,494961000.0,1269
+https://sec.gov/Archives/edgar/data/1425165/0001172661-23-002814.txt,1425165,"19200 VON KARMAN AVE, #1050, IRVINE, CA, 92612",Apriem Advisors,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1305342000.0,8602
+https://sec.gov/Archives/edgar/data/1425165/0001172661-23-002814.txt,1425165,"19200 VON KARMAN AVE, #1050, IRVINE, CA, 92612",Apriem Advisors,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,8224676000.0,93356
+https://sec.gov/Archives/edgar/data/1425649/0001104659-23-090078.txt,1425649,"660 Newport Center Drive, Suite 1300, Newport Beach, CA, 92660","MIG Capital, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,29487018000.0,86589
+https://sec.gov/Archives/edgar/data/1425845/0001667731-23-000362.txt,1425845,"One Monument Square, Suite 601, Portland, ME, 04101","Vigilant Capital Management, LLC",2023-06-30,053015,053015103,Automatic Data Processing Inc,222000.0,1009
+https://sec.gov/Archives/edgar/data/1425845/0001667731-23-000362.txt,1425845,"One Monument Square, Suite 601, Portland, ME, 04101","Vigilant Capital Management, LLC",2023-06-30,11133T,11133T103,"Broadridge Financial Solutions, Inc.",14895000.0,89928
+https://sec.gov/Archives/edgar/data/1425845/0001667731-23-000362.txt,1425845,"One Monument Square, Suite 601, Portland, ME, 04101","Vigilant Capital Management, LLC",2023-06-30,14149Y,14149Y108,Cardinal Health,95000.0,1000
+https://sec.gov/Archives/edgar/data/1425845/0001667731-23-000362.txt,1425845,"One Monument Square, Suite 601, Portland, ME, 04101","Vigilant Capital Management, LLC",2023-06-30,205887,205887102,"Conagra Brands, Inc.",88000.0,2613
+https://sec.gov/Archives/edgar/data/1425845/0001667731-23-000362.txt,1425845,"One Monument Square, Suite 601, Portland, ME, 04101","Vigilant Capital Management, LLC",2023-06-30,370334,370334104,General Mills Inc,268000.0,3492
+https://sec.gov/Archives/edgar/data/1425845/0001667731-23-000362.txt,1425845,"One Monument Square, Suite 601, Portland, ME, 04101","Vigilant Capital Management, LLC",2023-06-30,461202,461202103,Intuit Inc,34000.0,75
+https://sec.gov/Archives/edgar/data/1425845/0001667731-23-000362.txt,1425845,"One Monument Square, Suite 601, Portland, ME, 04101","Vigilant Capital Management, LLC",2023-06-30,482480,482480100,Kla-Tencor Corporation,18000.0,38
+https://sec.gov/Archives/edgar/data/1425845/0001667731-23-000362.txt,1425845,"One Monument Square, Suite 601, Portland, ME, 04101","Vigilant Capital Management, LLC",2023-06-30,518439,518439104,Lauder Estee Cos Inc Cl A,6000.0,30
+https://sec.gov/Archives/edgar/data/1425845/0001667731-23-000362.txt,1425845,"One Monument Square, Suite 601, Portland, ME, 04101","Vigilant Capital Management, LLC",2023-06-30,594918,594918104,Microsoft Corp,55669000.0,163474
+https://sec.gov/Archives/edgar/data/1425845/0001667731-23-000362.txt,1425845,"One Monument Square, Suite 601, Portland, ME, 04101","Vigilant Capital Management, LLC",2023-06-30,654106,654106103,Nike Inc,21903000.0,198450
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+https://sec.gov/Archives/edgar/data/1426754/0001387131-23-008505.txt,1426754,"8900 Keystone Crossing, Suite 1015, Indianapolis, IN, 46240","Wallington Asset Management, LLC",2023-06-30,G5960L,G5960L103,Medtronic PLC,15643000.0,177561
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+https://sec.gov/Archives/edgar/data/1426755/0001172661-23-002868.txt,1426755,"265 Franklin Street, Unit 902, Boston, MA, 02110","J.P. Marvel Investment Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,15227928000.0,44717
+https://sec.gov/Archives/edgar/data/1426755/0001172661-23-002868.txt,1426755,"265 Franklin Street, Unit 902, Boston, MA, 02110","J.P. Marvel Investment Advisors, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,6260945000.0,41261
+https://sec.gov/Archives/edgar/data/1426755/0001172661-23-002868.txt,1426755,"265 Franklin Street, Unit 902, Boston, MA, 02110","J.P. Marvel Investment Advisors, LLC",2023-06-30,871829,871829107,SYSCO CORP,703120000.0,9476
+https://sec.gov/Archives/edgar/data/1426755/0001172661-23-002868.txt,1426755,"265 Franklin Street, Unit 902, Boston, MA, 02110","J.P. Marvel Investment Advisors, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,5042492000.0,57236
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+https://sec.gov/Archives/edgar/data/1426763/0001104659-23-088669.txt,1426763,"6200 South Gilmore Road, Fairfield, OH, 45014",Cincinnati Specialty Underwriters Insurance CO,2023-06-30,512807,512807108,LAM RESEARCH ORD,1789079000.0,2783
+https://sec.gov/Archives/edgar/data/1426763/0001104659-23-088669.txt,1426763,"6200 South Gilmore Road, Fairfield, OH, 45014",Cincinnati Specialty Underwriters Insurance CO,2023-06-30,594918,594918104,MICROSOFT ORD,20432400000.0,60000
+https://sec.gov/Archives/edgar/data/1426763/0001104659-23-088669.txt,1426763,"6200 South Gilmore Road, Fairfield, OH, 45014",Cincinnati Specialty Underwriters Insurance CO,2023-06-30,749685,749685103,RPM ORD,7178400000.0,80000
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+https://sec.gov/Archives/edgar/data/1426774/0000919574-23-004177.txt,1426774,"1120 Sixth Avenue Suite 4044, New York, NY, 10036",R.M.SINCERBEAUX CAPITAL MANAGEMENT LLC,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,2136627000.0,12900
+https://sec.gov/Archives/edgar/data/1426774/0000919574-23-004177.txt,1426774,"1120 Sixth Avenue Suite 4044, New York, NY, 10036",R.M.SINCERBEAUX CAPITAL MANAGEMENT LLC,2023-06-30,31428X,31428X106,FEDEX CORP,4530373000.0,18275
+https://sec.gov/Archives/edgar/data/1426774/0000919574-23-004177.txt,1426774,"1120 Sixth Avenue Suite 4044, New York, NY, 10036",R.M.SINCERBEAUX CAPITAL MANAGEMENT LLC,2023-06-30,594918,594918104,MICROSOFT CORP,21028686000.0,61751
+https://sec.gov/Archives/edgar/data/1426774/0000919574-23-004177.txt,1426774,"1120 Sixth Avenue Suite 4044, New York, NY, 10036",R.M.SINCERBEAUX CAPITAL MANAGEMENT LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,263421000.0,1736
+https://sec.gov/Archives/edgar/data/1426851/0001426851-23-000004.txt,1426851,"1601 STUBBS AVENUE, MONROE, LA, 71201","Argent Advisors, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING INC COM,426393000.0,1940
+https://sec.gov/Archives/edgar/data/1426851/0001426851-23-000004.txt,1426851,"1601 STUBBS AVENUE, MONROE, LA, 71201","Argent Advisors, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,4155603000.0,12203
+https://sec.gov/Archives/edgar/data/1426851/0001426851-23-000004.txt,1426851,"1601 STUBBS AVENUE, MONROE, LA, 71201","Argent Advisors, Inc.",2023-06-30,654106,654106103,NIKE INC,574438000.0,5205
+https://sec.gov/Archives/edgar/data/1426851/0001426851-23-000004.txt,1426851,"1601 STUBBS AVENUE, MONROE, LA, 71201","Argent Advisors, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO COM,1751535000.0,11543
+https://sec.gov/Archives/edgar/data/1426851/0001426851-23-000004.txt,1426851,"1601 STUBBS AVENUE, MONROE, LA, 71201","Argent Advisors, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC SHS,2156820000.0,24482
+https://sec.gov/Archives/edgar/data/1426859/0001426859-23-000009.txt,1426859,"80 Victoria Street, London, X0, SW1E 5JL",Ruffer LLP,2023-06-30,222070,222070203,COTY INC,65582709000.0,5338556
+https://sec.gov/Archives/edgar/data/1426940/0001085146-23-003109.txt,1426940,"7412 CALUMET AVENUE, HAMMOND, IN, 46327","Horizon Investment Services, LLC",2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,225355000.0,1556
+https://sec.gov/Archives/edgar/data/1426940/0001085146-23-003109.txt,1426940,"7412 CALUMET AVENUE, HAMMOND, IN, 46327","Horizon Investment Services, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,6058888000.0,9424
+https://sec.gov/Archives/edgar/data/1426940/0001085146-23-003109.txt,1426940,"7412 CALUMET AVENUE, HAMMOND, IN, 46327","Horizon Investment Services, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,7666990000.0,22514
+https://sec.gov/Archives/edgar/data/1426940/0001085146-23-003109.txt,1426940,"7412 CALUMET AVENUE, HAMMOND, IN, 46327","Horizon Investment Services, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,2761167000.0,7079
+https://sec.gov/Archives/edgar/data/1426940/0001085146-23-003109.txt,1426940,"7412 CALUMET AVENUE, HAMMOND, IN, 46327","Horizon Investment Services, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,369200000.0,2433
+https://sec.gov/Archives/edgar/data/1426960/0001085146-23-002970.txt,1426960,"517 30TH STREET, NEWPORT BEACH, CA, 92663",BANTA ASSET MANAGEMENT LP,2023-06-30,594918,594918104,MICROSOFT CORP,652475000.0,1916
+https://sec.gov/Archives/edgar/data/1427008/0001172661-23-002921.txt,1427008,"2777 East Camelback Road, Suite 375, Phoenix, AZ, 85016","Smead Capital Management, Inc.",2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,30437894000.0,550215
+https://sec.gov/Archives/edgar/data/1427119/0001427119-23-000004.txt,1427119,"ONE FERRY BUILDING, SUITE 375, SAN FRANCISCO, CA, 94111",Meritage Group LP,2023-06-30,090043,090043100,BILL HOLDINGS INC,19577000.0,167540
+https://sec.gov/Archives/edgar/data/1427119/0001427119-23-000004.txt,1427119,"ONE FERRY BUILDING, SUITE 375, SAN FRANCISCO, CA, 94111",Meritage Group LP,2023-06-30,115637,115637209,BROWN FORMAN CORP,235000.0,3524
+https://sec.gov/Archives/edgar/data/1427196/0001427196-23-000005.txt,1427196,"4870 BLUEBONNET BLVD., SUITE B, BATON ROGUE, LA, 70809","Diversified Investment Strategies, LLC",2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,516080000.0,300
+https://sec.gov/Archives/edgar/data/1427196/0001427196-23-000005.txt,1427196,"4870 BLUEBONNET BLVD., SUITE B, BATON ROGUE, LA, 70809","Diversified Investment Strategies, LLC",2023-06-30,02875D,02875D109,AMERICAN OUTDOOR BRANDS INC,256060000.0,29500
+https://sec.gov/Archives/edgar/data/1427196/0001427196-23-000005.txt,1427196,"4870 BLUEBONNET BLVD., SUITE B, BATON ROGUE, LA, 70809","Diversified Investment Strategies, LLC",2023-06-30,128030,128030202,CAL MAINE FOODS INC,6612975000.0,146955
+https://sec.gov/Archives/edgar/data/1427196/0001427196-23-000005.txt,1427196,"4870 BLUEBONNET BLVD., SUITE B, BATON ROGUE, LA, 70809","Diversified Investment Strategies, LLC",2023-06-30,461202,461202103,INTUIT,322566000.0,704
+https://sec.gov/Archives/edgar/data/1427196/0001427196-23-000005.txt,1427196,"4870 BLUEBONNET BLVD., SUITE B, BATON ROGUE, LA, 70809","Diversified Investment Strategies, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,6667773000.0,19580
+https://sec.gov/Archives/edgar/data/1427202/0001427202-23-000004.txt,1427202,"201 W MAIN ST, URBANA, IL, 61801",Busey Wealth Management,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,387669000.0,7387
+https://sec.gov/Archives/edgar/data/1427202/0001427202-23-000004.txt,1427202,"201 W MAIN ST, URBANA, IL, 61801",Busey Wealth Management,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING INC,4943519000.0,22492
+https://sec.gov/Archives/edgar/data/1427202/0001427202-23-000004.txt,1427202,"201 W MAIN ST, URBANA, IL, 61801",Busey Wealth Management,2023-06-30,147528,147528103,CASEYS GENERAL STORES INC,537268000.0,2203
+https://sec.gov/Archives/edgar/data/1427202/0001427202-23-000004.txt,1427202,"201 W MAIN ST, URBANA, IL, 61801",Busey Wealth Management,2023-06-30,237194,237194105,DARDEN RESTAURANTS,256634000.0,1536
+https://sec.gov/Archives/edgar/data/1427202/0001427202-23-000004.txt,1427202,"201 W MAIN ST, URBANA, IL, 61801",Busey Wealth Management,2023-06-30,31428X,31428X106,FEDEX CORP,5320185000.0,21461
+https://sec.gov/Archives/edgar/data/1427202/0001427202-23-000004.txt,1427202,"201 W MAIN ST, URBANA, IL, 61801",Busey Wealth Management,2023-06-30,370334,370334104,GENERAL MILLS INC,923698000.0,12043
+https://sec.gov/Archives/edgar/data/1427202/0001427202-23-000004.txt,1427202,"201 W MAIN ST, URBANA, IL, 61801",Busey Wealth Management,2023-06-30,512807,512807108,LAM RESEARCH CORP,309216000.0,481
+https://sec.gov/Archives/edgar/data/1427202/0001427202-23-000004.txt,1427202,"201 W MAIN ST, URBANA, IL, 61801",Busey Wealth Management,2023-06-30,594918,594918104,MICROSOFT CORP,160837087000.0,472300
+https://sec.gov/Archives/edgar/data/1427202/0001427202-23-000004.txt,1427202,"201 W MAIN ST, URBANA, IL, 61801",Busey Wealth Management,2023-06-30,654106,654106103,NIKE INC,23261690000.0,210761
+https://sec.gov/Archives/edgar/data/1427202/0001427202-23-000004.txt,1427202,"201 W MAIN ST, URBANA, IL, 61801",Busey Wealth Management,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,29267306000.0,192878
+https://sec.gov/Archives/edgar/data/1427202/0001427202-23-000004.txt,1427202,"201 W MAIN ST, URBANA, IL, 61801",Busey Wealth Management,2023-06-30,871829,871829107,SYSCO CORP,2965180000.0,39962
+https://sec.gov/Archives/edgar/data/1427202/0001427202-23-000004.txt,1427202,"201 W MAIN ST, URBANA, IL, 61801",Busey Wealth Management,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,13161548000.0,149392
+https://sec.gov/Archives/edgar/data/1427263/0001427263-23-000005.txt,1427263,"1330 POST OAK BLVD, SUITE 2100, HOUSTON, TX, 77056","GFS Advisors, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,18096000000.0,72998
+https://sec.gov/Archives/edgar/data/1427263/0001427263-23-000005.txt,1427263,"1330 POST OAK BLVD, SUITE 2100, HOUSTON, TX, 77056","GFS Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,16991000000.0,49895
+https://sec.gov/Archives/edgar/data/1427263/0001427263-23-000005.txt,1427263,"1330 POST OAK BLVD, SUITE 2100, HOUSTON, TX, 77056","GFS Advisors, LLC",2023-06-30,654106,654106103,NIKE INC,5895000000.0,53411
+https://sec.gov/Archives/edgar/data/1427263/0001427263-23-000005.txt,1427263,"1330 POST OAK BLVD, SUITE 2100, HOUSTON, TX, 77056","GFS Advisors, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,4897000000.0,32273
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+https://sec.gov/Archives/edgar/data/1427350/0001427350-23-000003.txt,1427350,"136 HABERSHAM ST., SAVANNAH, GA, 31401","First City Capital Management, Inc.",2023-06-30,115637,115637209,BROWN FORMAN CORP,476008000.0,7128
+https://sec.gov/Archives/edgar/data/1427350/0001427350-23-000003.txt,1427350,"136 HABERSHAM ST., SAVANNAH, GA, 31401","First City Capital Management, Inc.",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,591157000.0,6251
+https://sec.gov/Archives/edgar/data/1427350/0001427350-23-000003.txt,1427350,"136 HABERSHAM ST., SAVANNAH, GA, 31401","First City Capital Management, Inc.",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,400992000.0,2400
+https://sec.gov/Archives/edgar/data/1427350/0001427350-23-000003.txt,1427350,"136 HABERSHAM ST., SAVANNAH, GA, 31401","First City Capital Management, Inc.",2023-06-30,31428X,31428X106,FEDEX CORP,328468000.0,1325
+https://sec.gov/Archives/edgar/data/1427350/0001427350-23-000003.txt,1427350,"136 HABERSHAM ST., SAVANNAH, GA, 31401","First City Capital Management, Inc.",2023-06-30,370334,370334104,GENERAL MLS INC,1416112000.0,18463
+https://sec.gov/Archives/edgar/data/1427350/0001427350-23-000003.txt,1427350,"136 HABERSHAM ST., SAVANNAH, GA, 31401","First City Capital Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,8908185000.0,26159
+https://sec.gov/Archives/edgar/data/1427350/0001427350-23-000003.txt,1427350,"136 HABERSHAM ST., SAVANNAH, GA, 31401","First City Capital Management, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,1505211000.0,13455
+https://sec.gov/Archives/edgar/data/1427350/0001427350-23-000003.txt,1427350,"136 HABERSHAM ST., SAVANNAH, GA, 31401","First City Capital Management, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2748513000.0,18113
+https://sec.gov/Archives/edgar/data/1427350/0001427350-23-000003.txt,1427350,"136 HABERSHAM ST., SAVANNAH, GA, 31401","First City Capital Management, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,449046000.0,5097
+https://sec.gov/Archives/edgar/data/1427351/0001427351-23-000006.txt,1427351,"PO BOX 1057, LAFAYETTE, CA, 94549",MERIDIAN INVESTMENT COUNSEL INC.,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,854544000.0,3888
+https://sec.gov/Archives/edgar/data/1427351/0001427351-23-000006.txt,1427351,"PO BOX 1057, LAFAYETTE, CA, 94549",MERIDIAN INVESTMENT COUNSEL INC.,2023-06-30,31428X,31428X106,FEDEX CORP,5342493000.0,21551
+https://sec.gov/Archives/edgar/data/1427351/0001427351-23-000006.txt,1427351,"PO BOX 1057, LAFAYETTE, CA, 94549",MERIDIAN INVESTMENT COUNSEL INC.,2023-06-30,512807,512807108,LAM RESEARCH CORP,493074000.0,767
+https://sec.gov/Archives/edgar/data/1427351/0001427351-23-000006.txt,1427351,"PO BOX 1057, LAFAYETTE, CA, 94549",MERIDIAN INVESTMENT COUNSEL INC.,2023-06-30,594918,594918104,MICROSOFT CORP,10196789000.0,29943
+https://sec.gov/Archives/edgar/data/1427351/0001427351-23-000006.txt,1427351,"PO BOX 1057, LAFAYETTE, CA, 94549",MERIDIAN INVESTMENT COUNSEL INC.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,761427000.0,5018
+https://sec.gov/Archives/edgar/data/1427351/0001427351-23-000006.txt,1427351,"PO BOX 1057, LAFAYETTE, CA, 94549",MERIDIAN INVESTMENT COUNSEL INC.,2023-06-30,876030,876030107,TAPESTRY INC,294806000.0,6888
+https://sec.gov/Archives/edgar/data/1427351/0001427351-23-000006.txt,1427351,"PO BOX 1057, LAFAYETTE, CA, 94549",MERIDIAN INVESTMENT COUNSEL INC.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,413189000.0,4690
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,459567000.0,8757
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,205284000.0,934
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,205887,205887102,CONAGRA BRANDS INC,467831000.0,13874
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,36251C,36251C103,GMS INC,1902377000.0,27491
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,370334,370334104,GENERAL MLS INC,8376407000.0,109210
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,482480,482480100,KLA CORP,2584672000.0,5329
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,512807,512807108,LAM RESEARCH CORP,2458297000.0,3824
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,266488000.0,1357
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,56117J,56117J100,MALIBU BOATS INC,1588161000.0,27074
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,80827258000.0,237350
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,654106,654106103,NIKE INC,876307000.0,7940
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,6562774000.0,25685
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,18151526000.0,46538
+https://sec.gov/Archives/edgar/data/1427514/0001427514-23-000005.txt,1427514,"PO BOX 1067, BROOKFIELD, WI, 53008-1067","Dana Investment Advisors, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,5959589000.0,39275
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+https://sec.gov/Archives/edgar/data/1433541/0001172661-23-002548.txt,1433541,"50 California Street, Suite 2600, San Francisco, CA, 94111","ASPIRIANT, LLC",2023-06-30,761152,761152107,RESMED INC,296287000.0,1356
+https://sec.gov/Archives/edgar/data/1433541/0001172661-23-002548.txt,1433541,"50 California Street, Suite 2600, San Francisco, CA, 94111","ASPIRIANT, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,241834000.0,2745
+https://sec.gov/Archives/edgar/data/1433541/0001172661-23-002548.txt,1433541,"50 California Street, Suite 2600, San Francisco, CA, 94111","ASPIRIANT, LLC",2023-06-30,N14506,N14506104,ELASTIC N V,671015000.0,10465
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+https://sec.gov/Archives/edgar/data/1434323/0001434323-23-000003.txt,1434323,"100 SOUTH FIFTH STREET, SUITE 420, MINNEAPOLIS, MN, 55402","Palisade Asset Management, LLC",2023-06-30,205887,205887102,Conagra Brands Inc,1177165000.0,34910
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+https://sec.gov/Archives/edgar/data/1434323/0001434323-23-000003.txt,1434323,"100 SOUTH FIFTH STREET, SUITE 420, MINNEAPOLIS, MN, 55402","Palisade Asset Management, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,6352064000.0,82817
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+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,64110D,64110D104,NETAPP INC,26127259000.0,373100
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+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,654106,654106103,NIKE INC,212425730000.0,2099814
+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,683715,683715106,OPEN TEXT CORP,10383547000.0,272064
+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,75017595000.0,320317
+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,88032493000.0,246240
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+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,6911334000.0,40862
+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,74051N,74051N102,PREMIER INC,471564000.0,18600
+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,491520214000.0,3533996
+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,761152,761152107,RESMED INC,25650418000.0,128076
+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,832696,832696405,SMUCKER J M CO,43390210000.0,320571
+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,871829,871829107,SYSCO CORP,1286700000.0,18919
+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,876030,876030107,TAPESTRY INC,1773199000.0,45200
+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,9732469000.0,279940
+https://sec.gov/Archives/edgar/data/1434819/0001434819-23-000008.txt,1434819,"Gustav Mahlerplein 3, 1082 MS, Amsterdam, P7, 00000",APG Asset Management N.V.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,133169893000.0,1649130
+https://sec.gov/Archives/edgar/data/1438574/0001438574-23-000004.txt,1438574,"4510 BELLEVIEW AVE, SUITE 204, KANSAS CITY, MO, 66209","Sterneck Capital Management, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,721389000.0,2910
+https://sec.gov/Archives/edgar/data/1438574/0001438574-23-000004.txt,1438574,"4510 BELLEVIEW AVE, SUITE 204, KANSAS CITY, MO, 66209","Sterneck Capital Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,2952482000.0,8670
+https://sec.gov/Archives/edgar/data/1438848/0001172661-23-002642.txt,1438848,"Hardstrasse 201, Zurich, V8, 8037",GAM Holding AG,2023-06-30,115637,115637209,BROWN FORMAN CORP,15502103000.0,232137
+https://sec.gov/Archives/edgar/data/1438848/0001172661-23-002642.txt,1438848,"Hardstrasse 201, Zurich, V8, 8037",GAM Holding AG,2023-06-30,31428X,31428X106,FEDEX CORP,9890357000.0,39897
+https://sec.gov/Archives/edgar/data/1438848/0001172661-23-002642.txt,1438848,"Hardstrasse 201, Zurich, V8, 8037",GAM Holding AG,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,2462326000.0,14715
+https://sec.gov/Archives/edgar/data/1438848/0001172661-23-002642.txt,1438848,"Hardstrasse 201, Zurich, V8, 8037",GAM Holding AG,2023-06-30,461202,461202103,INTUIT,2682409000.0,5854
+https://sec.gov/Archives/edgar/data/1438848/0001172661-23-002642.txt,1438848,"Hardstrasse 201, Zurich, V8, 8037",GAM Holding AG,2023-06-30,482480,482480100,KLA CORP,6448166000.0,13295
+https://sec.gov/Archives/edgar/data/1438848/0001172661-23-002642.txt,1438848,"Hardstrasse 201, Zurich, V8, 8037",GAM Holding AG,2023-06-30,512807,512807108,LAM RESEARCH CORP,3064886000.0,4768
+https://sec.gov/Archives/edgar/data/1438848/0001172661-23-002642.txt,1438848,"Hardstrasse 201, Zurich, V8, 8037",GAM Holding AG,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,22931572000.0,116771
+https://sec.gov/Archives/edgar/data/1438848/0001172661-23-002642.txt,1438848,"Hardstrasse 201, Zurich, V8, 8037",GAM Holding AG,2023-06-30,594918,594918104,MICROSOFT CORP,84082401000.0,246909
+https://sec.gov/Archives/edgar/data/1438848/0001172661-23-002642.txt,1438848,"Hardstrasse 201, Zurich, V8, 8037",GAM Holding AG,2023-06-30,654106,654106103,NIKE INC,31568196000.0,286022
+https://sec.gov/Archives/edgar/data/1438848/0001172661-23-002642.txt,1438848,"Hardstrasse 201, Zurich, V8, 8037",GAM Holding AG,2023-06-30,871829,871829107,SYSCO CORP,2199784000.0,29647
+https://sec.gov/Archives/edgar/data/1438848/0001172661-23-002642.txt,1438848,"Hardstrasse 201, Zurich, V8, 8037",GAM Holding AG,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,9330179000.0,105904
+https://sec.gov/Archives/edgar/data/1439207/0001754960-23-000173.txt,1439207,"263 2ND AVENUE, SUITE 106B, PO BOX 952, NIWOT, CO, 80544","Green Alpha Advisors, LLC",2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,185799000.0,14852
+https://sec.gov/Archives/edgar/data/1439207/0001754960-23-000173.txt,1439207,"263 2ND AVENUE, SUITE 106B, PO BOX 952, NIWOT, CO, 80544","Green Alpha Advisors, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,2864228000.0,4455
+https://sec.gov/Archives/edgar/data/1439207/0001754960-23-000173.txt,1439207,"263 2ND AVENUE, SUITE 106B, PO BOX 952, NIWOT, CO, 80544","Green Alpha Advisors, LLC",2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,694148000.0,12236
+https://sec.gov/Archives/edgar/data/1439207/0001754960-23-000173.txt,1439207,"263 2ND AVENUE, SUITE 106B, PO BOX 952, NIWOT, CO, 80544","Green Alpha Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,1332192000.0,3912
+https://sec.gov/Archives/edgar/data/1439207/0001754960-23-000173.txt,1439207,"263 2ND AVENUE, SUITE 106B, PO BOX 952, NIWOT, CO, 80544","Green Alpha Advisors, LLC",2023-06-30,600544,600544100,MILLERKNOLL INC,285180000.0,19295
+https://sec.gov/Archives/edgar/data/1439207/0001754960-23-000173.txt,1439207,"263 2ND AVENUE, SUITE 106B, PO BOX 952, NIWOT, CO, 80544","Green Alpha Advisors, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1280616000.0,5012
+https://sec.gov/Archives/edgar/data/1439743/0001085146-23-002622.txt,1439743,"1111 Civic Drive, Suite 333, Walnut Creek, CA, 94596",Mechanics Bank Trust Department,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,5424416000.0,24680
+https://sec.gov/Archives/edgar/data/1439743/0001085146-23-002622.txt,1439743,"1111 Civic Drive, Suite 333, Walnut Creek, CA, 94596",Mechanics Bank Trust Department,2023-06-30,189054,189054109,CLOROX CO DEL,683553000.0,4298
+https://sec.gov/Archives/edgar/data/1439743/0001085146-23-002622.txt,1439743,"1111 Civic Drive, Suite 333, Walnut Creek, CA, 94596",Mechanics Bank Trust Department,2023-06-30,461202,461202103,INTUIT,328522000.0,717
+https://sec.gov/Archives/edgar/data/1439743/0001085146-23-002622.txt,1439743,"1111 Civic Drive, Suite 333, Walnut Creek, CA, 94596",Mechanics Bank Trust Department,2023-06-30,512807,512807108,LAM RESEARCH CORP,921218000.0,1433
+https://sec.gov/Archives/edgar/data/1439743/0001085146-23-002622.txt,1439743,"1111 Civic Drive, Suite 333, Walnut Creek, CA, 94596",Mechanics Bank Trust Department,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,636860000.0,3243
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+https://sec.gov/Archives/edgar/data/1439743/0001085146-23-002622.txt,1439743,"1111 Civic Drive, Suite 333, Walnut Creek, CA, 94596",Mechanics Bank Trust Department,2023-06-30,654106,654106103,NIKE INC,1990412000.0,18034
+https://sec.gov/Archives/edgar/data/1439743/0001085146-23-002622.txt,1439743,"1111 Civic Drive, Suite 333, Walnut Creek, CA, 94596",Mechanics Bank Trust Department,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,743278000.0,2909
+https://sec.gov/Archives/edgar/data/1439743/0001085146-23-002622.txt,1439743,"1111 Civic Drive, Suite 333, Walnut Creek, CA, 94596",Mechanics Bank Trust Department,2023-06-30,704326,704326107,PAYCHEX INC,2556788000.0,22855
+https://sec.gov/Archives/edgar/data/1439743/0001085146-23-002622.txt,1439743,"1111 Civic Drive, Suite 333, Walnut Creek, CA, 94596",Mechanics Bank Trust Department,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,8863891000.0,58415
+https://sec.gov/Archives/edgar/data/1439743/0001085146-23-002622.txt,1439743,"1111 Civic Drive, Suite 333, Walnut Creek, CA, 94596",Mechanics Bank Trust Department,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,346584000.0,3934
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+https://sec.gov/Archives/edgar/data/1439805/0001439805-23-000006.txt,1439805,"45 EAST PUTNAM AVENUE STE 128, GREENWICH, CT, 06830",Greenwich Wealth Management LLC,2023-06-30,482480,482480100,KLA-TENCOR CORP,230000.0,475
+https://sec.gov/Archives/edgar/data/1439805/0001439805-23-000006.txt,1439805,"45 EAST PUTNAM AVENUE STE 128, GREENWICH, CT, 06830",Greenwich Wealth Management LLC,2023-06-30,594918,594918104,MICROSOFT CORP,17803000.0,52279
+https://sec.gov/Archives/edgar/data/1439805/0001439805-23-000006.txt,1439805,"45 EAST PUTNAM AVENUE STE 128, GREENWICH, CT, 06830",Greenwich Wealth Management LLC,2023-06-30,701094,701094104,PARKER HANNIFIN CORP,4757000.0,12197
+https://sec.gov/Archives/edgar/data/1439805/0001439805-23-000006.txt,1439805,"45 EAST PUTNAM AVENUE STE 128, GREENWICH, CT, 06830",Greenwich Wealth Management LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1060000.0,6984
+https://sec.gov/Archives/edgar/data/1439805/0001439805-23-000006.txt,1439805,"45 EAST PUTNAM AVENUE STE 128, GREENWICH, CT, 06830",Greenwich Wealth Management LLC,2023-06-30,832696,832696405,SMUCKER J M CO,816000.0,5526
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+https://sec.gov/Archives/edgar/data/1442573/0001062993-23-015546.txt,1442573,"5020 MONTROSE BLVD, SUITE 400, HOUSTON, TX, 77006","HOURGLASS CAPITAL, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,303480000.0,2000
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+https://sec.gov/Archives/edgar/data/1442641/0001821268-23-000168.txt,1442641,"111 Pine Street, Suite 1700, San Francisco, CA, 94111",Legato Capital Management LLC,2023-06-30,03820C,03820C105,APPLIED INDUSTRIAL TECH INC,492422000.0,3400
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+https://sec.gov/Archives/edgar/data/1445065/0001445065-23-000011.txt,1445065,"ONE NORTH BRENTWOOD BLVD, SUITE 850, ST. LOUIS, MO, 63105","BENJAMIN F. EDWARDS & COMPANY, INC.",2023-06-30,703395,703395103,PATTERSON COS INC,95000.0,2859
+https://sec.gov/Archives/edgar/data/1445065/0001445065-23-000011.txt,1445065,"ONE NORTH BRENTWOOD BLVD, SUITE 850, ST. LOUIS, MO, 63105","BENJAMIN F. EDWARDS & COMPANY, INC.",2023-06-30,704326,704326107,PAYCHEX INC,1320000.0,11801
+https://sec.gov/Archives/edgar/data/1445065/0001445065-23-000011.txt,1445065,"ONE NORTH BRENTWOOD BLVD, SUITE 850, ST. LOUIS, MO, 63105","BENJAMIN F. EDWARDS & COMPANY, INC.",2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,0.0,30
+https://sec.gov/Archives/edgar/data/1445065/0001445065-23-000011.txt,1445065,"ONE NORTH BRENTWOOD BLVD, SUITE 850, ST. LOUIS, MO, 63105","BENJAMIN F. EDWARDS & COMPANY, INC.",2023-06-30,74051N,74051N102,PREMIER INC,8000.0,300
+https://sec.gov/Archives/edgar/data/1445065/0001445065-23-000011.txt,1445065,"ONE NORTH BRENTWOOD BLVD, SUITE 850, ST. LOUIS, MO, 63105","BENJAMIN F. EDWARDS & COMPANY, INC.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,15426000.0,101662
+https://sec.gov/Archives/edgar/data/1445065/0001445065-23-000011.txt,1445065,"ONE NORTH BRENTWOOD BLVD, SUITE 850, ST. LOUIS, MO, 63105","BENJAMIN F. EDWARDS & COMPANY, INC.",2023-06-30,749685,749685103,RPM INTL INC,888000.0,9901
+https://sec.gov/Archives/edgar/data/1445065/0001445065-23-000011.txt,1445065,"ONE NORTH BRENTWOOD BLVD, SUITE 850, ST. LOUIS, MO, 63105","BENJAMIN F. EDWARDS & COMPANY, INC.",2023-06-30,761152,761152107,RESMED INC,122000.0,560
+https://sec.gov/Archives/edgar/data/1445065/0001445065-23-000011.txt,1445065,"ONE NORTH BRENTWOOD BLVD, SUITE 850, ST. LOUIS, MO, 63105","BENJAMIN F. EDWARDS & COMPANY, INC.",2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,5000.0,400
+https://sec.gov/Archives/edgar/data/1445065/0001445065-23-000011.txt,1445065,"ONE NORTH BRENTWOOD BLVD, SUITE 850, ST. LOUIS, MO, 63105","BENJAMIN F. EDWARDS & COMPANY, INC.",2023-06-30,832696,832696405,SMUCKER J M CO,3913000.0,26500
+https://sec.gov/Archives/edgar/data/1445065/0001445065-23-000011.txt,1445065,"ONE NORTH BRENTWOOD BLVD, SUITE 850, ST. LOUIS, MO, 63105","BENJAMIN F. EDWARDS & COMPANY, INC.",2023-06-30,871829,871829107,SYSCO CORP,666000.0,8972
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+https://sec.gov/Archives/edgar/data/1445891/0001062993-23-014973.txt,1445891,"4 HIGH RIDGE PARK, 3RD FLOOR, STAMFORD, CT, 06905",Eagle Ridge Investment Management,2023-06-30,461202,461202103,INTUIT,264376000.0,577
+https://sec.gov/Archives/edgar/data/1445891/0001062993-23-014973.txt,1445891,"4 HIGH RIDGE PARK, 3RD FLOOR, STAMFORD, CT, 06905",Eagle Ridge Investment Management,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,344850000.0,3000
+https://sec.gov/Archives/edgar/data/1445891/0001062993-23-014973.txt,1445891,"4 HIGH RIDGE PARK, 3RD FLOOR, STAMFORD, CT, 06905",Eagle Ridge Investment Management,2023-06-30,594918,594918104,MICROSOFT CORP,51058369000.0,149934
+https://sec.gov/Archives/edgar/data/1445891/0001062993-23-014973.txt,1445891,"4 HIGH RIDGE PARK, 3RD FLOOR, STAMFORD, CT, 06905",Eagle Ridge Investment Management,2023-06-30,654106,654106103,NIKE INC,419737000.0,3803
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+https://sec.gov/Archives/edgar/data/1445893/0001445893-23-000003.txt,1445893,"425 S FINANCIAL PLACE, 4TH FLOOR, CHICAGO, IL, 60605",CTC LLC,2023-06-30,654106,654106903,NIKE INC,58418841000.0,5293
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+https://sec.gov/Archives/edgar/data/1445911/0001445911-23-000004.txt,1445911,"240 W. MAIN STREET, SUITE 300, CHARLOTTESVILLE, VA, 22902","Quantitative Investment Management, LLC",2023-06-30,31428X,31428X106,FedEx Corp,763000.0,3081
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+https://sec.gov/Archives/edgar/data/1445911/0001445911-23-000004.txt,1445911,"240 W. MAIN STREET, SUITE 300, CHARLOTTESVILLE, VA, 22902","Quantitative Investment Management, LLC",2023-06-30,G5960L,G5960L103,Medtronic Plc,10447000.0,118588
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+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,127190,127190304,CACI INTL INC,34084000.0,100
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,14942000.0,158
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,1973000.0,35
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,67592000.0,425
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,144996000.0,4300
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,230215,230215105,CULP INC,725391000.0,145954
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,11027000.0,66
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,28252C,28252C109,POLISHED COM INC COM,1272080000.0,2765392
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,1439596000.0,5807
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,339382,339382103,FLEXSTEEL INDS INC,1389890000.0,72731
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,158079000.0,2061
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,461202,461202103,INTUIT,644745000.0,1407
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,46564T,46564T107,ITERIS INC NEW,546697000.0,138055
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,482480,482480100,KLA CORP,1550000.0,3
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,285362000.0,444
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,58624000.0,510
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,513847,513847103,LANCASTER COLONY CORP,187617000.0,933
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,412790000.0,2102
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,55825T,55825T103,MADISON SQUARE GARDEN SPORTS C,354286000.0,1884
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT,2353486000.0,85925
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,82065648000.0,240987
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,600544,600544100,MILLERKNOLL INC,1792885000.0,121305
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,632347,632347100,NATHANS FAMOUS INC NEW,309133000.0,3936
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,65249B,65249B109,NEWS CORP NEW,15600000.0,800
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,654106,654106103,NIKE INC,21745211000.0,197021
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,78268000.0,306
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,4323628000.0,11085
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,704326,704326107,PAYCHEX INC,8278000.0,74
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,1607000.0,209
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,32435423000.0,213757
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,749685,749685103,RPM INTL INC,178310000.0,1987
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,763165,763165107,RICHARDSON ELECTRS LTD,874317000.0,52989
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,767720,767720204,RISK GEORGE INDS INC CL A,26728000.0,2595
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,769397,769397100,RIVERVIEW BANCORP INC,87383000.0,17338
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,1872726000.0,143614
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,2871186000.0,19443
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,871829,871829107,SYSCO CORP,328780000.0,4431
+https://sec.gov/Archives/edgar/data/1446114/0001446114-23-000030.txt,1446114,"6060 Parkland Boulevard, Suite 200, Cleveland, OH, 44124","Ancora Advisors, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC SHS,4318784000.0,49021
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+https://sec.gov/Archives/edgar/data/1455251/0001172661-23-003048.txt,1455251,"152 Bedford Road, 2nd Floor, Katonah, NY, 10536",Hollow Brook Wealth Management LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,513336000.0,3383
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+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,128030,128030202,CAL MAINE FOODS INC,5175000.0,115
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+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,87537000.0,523
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,461202,461202103,INTUIT,425201000.0,928
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,482480,482480100,KLA CORP,337575000.0,696
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,489170,489170100,KENNAMETAL INC,114000.0,4
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,500643,500643200,KORN FERRY,47163000.0,952
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,505336,505336107,LA Z BOY INC,201000.0,7
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,512807,512807108,LAM RESEARCH CORP,318755000.0,496
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,97593000.0,849
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,191079000.0,973
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,1135000.0,20
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,1881000.0,10
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,591520,591520200,METHOD ELECTRS INC,4056000.0,121
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,594918,594918104,MICROSOFT CORP,12184993000.0,35781
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,606710,606710200,MITEK SYS INC,2168000.0,200
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,6963000.0,144
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,640491,640491106,NEOGEN CORP,67687000.0,3112
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,64110D,64110D104,NETAPP INC,25136000.0,329
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,65249B,65249B109,NEWS CORP NEW,22991000.0,1179
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,654106,654106103,NIKE INC,864013000.0,7828
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,671044,671044105,OSI SYSTEMS INC,39120000.0,332
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,125712000.0,492
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,94390000.0,242
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,704326,704326107,PAYCHEX INC,44973000.0,402
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,195418000.0,1059
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,39000.0,5
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP,4234000.0,309
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,74051N,74051N102,PREMIER INC,1716000.0,62
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1834656000.0,12091
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,749685,749685103,RPM INTL INC,7090000.0,79
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,761152,761152107,RESMED INC,45230000.0,207
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,2718000.0,173
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,806037,806037107,SCANSOURCE INC,3193000.0,108
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,807066,807066105,SCHOLASTIC CORP,5484000.0,141
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,832696,832696405,SMUCKER J M CO,138605000.0,939
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,854231,854231107,STANDEX INTL CORP,7074000.0,50
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,86333M,86333M108,STRIDE INC,43077000.0,1157
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,87157D,87157D109,SYNAPTICS INC,684000.0,8
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,871829,871829107,SYSCO CORP,127039000.0,1712
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,876030,876030107,TAPESTRY INC,50291000.0,1175
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,4906000.0,433
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,15817000.0,417
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,1158000.0,34
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,269000.0,2
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,G3323L,G3323L100,FABRINET,14807000.0,114
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,516531000.0,5863
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,N14506,N14506104,ELASTIC N V,3656000.0,57
+https://sec.gov/Archives/edgar/data/1455267/0001398344-23-014934.txt,1455267,"8112 MARYLAND AVE, SUITE 101, SAINT LOUIS, MO, 63105",Parkside Financial Bank & Trust,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,796000.0,31
+https://sec.gov/Archives/edgar/data/1455288/0001455288-23-000006.txt,1455288,"1817 W BROADWAY, COLUMBIA, MO, 65218",Shelter Mutual Insurance Co,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,12191550000.0,80345
+https://sec.gov/Archives/edgar/data/1455288/0001455288-23-000006.txt,1455288,"1817 W BROADWAY, COLUMBIA, MO, 65218",Shelter Mutual Insurance Co,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,3206488000.0,36396
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,02875D,02875D109,AMERICAN OUTDOOR BRANDS INC,54250000.0,6250
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,769265000.0,3500
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,39255000.0,237
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,89464000.0,946
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,11002000.0,196
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,31428X,31428X106,FEDEX CORP,166341000.0,671
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,1456940000.0,25682
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,7817777000.0,22957
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,654106,654106103,NIKE INC,23730000.0,215
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,6149112000.0,40524
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,326000000.0,25000
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,832696,832696405,SMUCKER J M CO,104256000.0,706
+https://sec.gov/Archives/edgar/data/1455495/0001455495-23-000003.txt,1455495,"430 E DOUGLAS AVE, SUITE 400, WICHITA, KS, 67202","IMA Wealth, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,161664000.0,1835
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+https://sec.gov/Archives/edgar/data/1470876/0001172661-23-002836.txt,1470876,"701 5th Avenue, 74th Floor, Seattle, WA, 98104","Freestone Capital Holdings, LLC",2023-06-30,654106,654106103,NIKE INC,60396960000.0,547223
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+https://sec.gov/Archives/edgar/data/1470876/0001172661-23-002836.txt,1470876,"701 5th Avenue, 74th Floor, Seattle, WA, 98104","Freestone Capital Holdings, LLC",2023-06-30,704326,704326107,PAYCHEX INC,965550000.0,8631
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+https://sec.gov/Archives/edgar/data/1470944/0001085146-23-003013.txt,1470944,"ONE BOSTON PLACE, 201 WASHINGTON STREET, 29TH FLOOR, BOSTON, MA, 02108","LMCG INVESTMENTS, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1694798000.0,6633
+https://sec.gov/Archives/edgar/data/1470944/0001085146-23-003013.txt,1470944,"ONE BOSTON PLACE, 201 WASHINGTON STREET, 29TH FLOOR, BOSTON, MA, 02108","LMCG INVESTMENTS, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1754400000.0,4498
+https://sec.gov/Archives/edgar/data/1470944/0001085146-23-003013.txt,1470944,"ONE BOSTON PLACE, 201 WASHINGTON STREET, 29TH FLOOR, BOSTON, MA, 02108","LMCG INVESTMENTS, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,16531466000.0,108946
+https://sec.gov/Archives/edgar/data/1470944/0001085146-23-003013.txt,1470944,"ONE BOSTON PLACE, 201 WASHINGTON STREET, 29TH FLOOR, BOSTON, MA, 02108","LMCG INVESTMENTS, LLC",2023-06-30,87157D,87157D109,SYNAPTICS INC,1444886000.0,16923
+https://sec.gov/Archives/edgar/data/1470944/0001085146-23-003013.txt,1470944,"ONE BOSTON PLACE, 201 WASHINGTON STREET, 29TH FLOOR, BOSTON, MA, 02108","LMCG INVESTMENTS, LLC",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,3303475000.0,87094
+https://sec.gov/Archives/edgar/data/1470944/0001085146-23-003013.txt,1470944,"ONE BOSTON PLACE, 201 WASHINGTON STREET, 29TH FLOOR, BOSTON, MA, 02108","LMCG INVESTMENTS, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1760415000.0,19982
+https://sec.gov/Archives/edgar/data/1471085/0001471085-23-000004.txt,1471085,"SUITE 1703, 101 GRAFTON ST, Bondi Junction, C3, 2022",Bronte Capital Management Pty Ltd.,2023-06-30,370334,370334104,GENERAL MLS INC,10490489000.0,136773
+https://sec.gov/Archives/edgar/data/1471265/0001667731-23-000333.txt,1471265,"100 Liberty Street, Warren, PA, 16365","Northwest Bancshares, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,543101000.0,2471
+https://sec.gov/Archives/edgar/data/1471265/0001667731-23-000333.txt,1471265,"100 Liberty Street, Warren, PA, 16365","Northwest Bancshares, Inc.",2023-06-30,370334,370334104,GENERAL MLS INC,200417000.0,2613
+https://sec.gov/Archives/edgar/data/1471265/0001667731-23-000333.txt,1471265,"100 Liberty Street, Warren, PA, 16365","Northwest Bancshares, Inc.",2023-06-30,482480,482480100,KLA CORP,801738000.0,1653
+https://sec.gov/Archives/edgar/data/1471265/0001667731-23-000333.txt,1471265,"100 Liberty Street, Warren, PA, 16365","Northwest Bancshares, Inc.",2023-06-30,512807,512807108,LAM RESEARCH CORP,7042531000.0,10955
+https://sec.gov/Archives/edgar/data/1471265/0001667731-23-000333.txt,1471265,"100 Liberty Street, Warren, PA, 16365","Northwest Bancshares, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,16082002000.0,47225
+https://sec.gov/Archives/edgar/data/1471265/0001667731-23-000333.txt,1471265,"100 Liberty Street, Warren, PA, 16365","Northwest Bancshares, Inc.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,263277000.0,675
+https://sec.gov/Archives/edgar/data/1471265/0001667731-23-000333.txt,1471265,"100 Liberty Street, Warren, PA, 16365","Northwest Bancshares, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,7869995000.0,51865
+https://sec.gov/Archives/edgar/data/1471265/0001667731-23-000333.txt,1471265,"100 Liberty Street, Warren, PA, 16365","Northwest Bancshares, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,636346000.0,7223
+https://sec.gov/Archives/edgar/data/1471474/0001471474-23-000003.txt,1471474,"One Citycentre, 800 Town & Country Blvd., Suite 220, Houston, TX, 77024","Avidian Wealth Solutions, LLC",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,247848000.0,4723
+https://sec.gov/Archives/edgar/data/1471474/0001471474-23-000003.txt,1471474,"One Citycentre, 800 Town & Country Blvd., Suite 220, Houston, TX, 77024","Avidian Wealth Solutions, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,253916000.0,1155
+https://sec.gov/Archives/edgar/data/1471474/0001471474-23-000003.txt,1471474,"One Citycentre, 800 Town & Country Blvd., Suite 220, Houston, TX, 77024","Avidian Wealth Solutions, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,640679000.0,6775
+https://sec.gov/Archives/edgar/data/1471474/0001471474-23-000003.txt,1471474,"One Citycentre, 800 Town & Country Blvd., Suite 220, Houston, TX, 77024","Avidian Wealth Solutions, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,425309000.0,1716
+https://sec.gov/Archives/edgar/data/1471474/0001471474-23-000003.txt,1471474,"One Citycentre, 800 Town & Country Blvd., Suite 220, Houston, TX, 77024","Avidian Wealth Solutions, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,11766729000.0,34553
+https://sec.gov/Archives/edgar/data/1471474/0001471474-23-000003.txt,1471474,"One Citycentre, 800 Town & Country Blvd., Suite 220, Houston, TX, 77024","Avidian Wealth Solutions, LLC",2023-06-30,654106,654106103,NIKE INC,1085420000.0,9834
+https://sec.gov/Archives/edgar/data/1471474/0001471474-23-000003.txt,1471474,"One Citycentre, 800 Town & Country Blvd., Suite 220, Houston, TX, 77024","Avidian Wealth Solutions, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,673013000.0,2634
+https://sec.gov/Archives/edgar/data/1471474/0001471474-23-000003.txt,1471474,"One Citycentre, 800 Town & Country Blvd., Suite 220, Houston, TX, 77024","Avidian Wealth Solutions, LLC",2023-06-30,704326,704326107,PAYCHEX INC,551704000.0,4932
+https://sec.gov/Archives/edgar/data/1471474/0001471474-23-000003.txt,1471474,"One Citycentre, 800 Town & Country Blvd., Suite 220, Houston, TX, 77024","Avidian Wealth Solutions, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2637677000.0,17383
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+https://sec.gov/Archives/edgar/data/1472190/0001472190-23-000003.txt,1472190,"PO BOX 117, ZEIST, P7, 3700 AC",PGGM Investments,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN COM,9410000.0,42812
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+https://sec.gov/Archives/edgar/data/1472190/0001472190-23-000003.txt,1472190,"PO BOX 117, ZEIST, P7, 3700 AC",PGGM Investments,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC COM,15913000.0,168266
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+https://sec.gov/Archives/edgar/data/1472190/0001472190-23-000003.txt,1472190,"PO BOX 117, ZEIST, P7, 3700 AC",PGGM Investments,2023-06-30,512807,512807108,LAM RESEARCH CORP COM,7156000.0,11132
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+https://sec.gov/Archives/edgar/data/1472190/0001472190-23-000003.txt,1472190,"PO BOX 117, ZEIST, P7, 3700 AC",PGGM Investments,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC COM,8042000.0,31475
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+https://sec.gov/Archives/edgar/data/1472322/0001104659-23-091064.txt,1472322,"130 Main St., 2nd Floor, New Canaan, CT, 06840","Nantahala Capital Management, LLC",2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,19550372000.0,2542311
+https://sec.gov/Archives/edgar/data/1472800/0001472800-23-000003.txt,1472800,"509 FENTON PLACE, CHARLOTTE, NC, 28207",Eastover Investment Advisors LLC,2023-06-30,594918,594918104,MICROSOFT CORP,10313594000.0,30286
+https://sec.gov/Archives/edgar/data/1472800/0001472800-23-000003.txt,1472800,"509 FENTON PLACE, CHARLOTTE, NC, 28207",Eastover Investment Advisors LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,6345615000.0,41819
+https://sec.gov/Archives/edgar/data/1472850/0001725547-23-000250.txt,1472850,"295 Madison Avenue, 34th Floor, New York, NY, 10017","Permian Investment Partners, LP",2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,3193730000.0,104200
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+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,205887,205887102,CONAGRA BRANDS INC,303514000.0,9001
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,345780000.0,12227
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+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,36251C,36251C103,GMS INC,863339000.0,12476
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,353066000.0,2110
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,500643,500643200,KORN FERRY,415839000.0,8394
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,505336,505336107,LA Z BOY INC,446498000.0,15590
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,228293000.0,1214
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+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,242533000.0,7913
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,591520,591520200,METHOD ELECTRS INC,266585000.0,7953
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,594918,594918104,MICROSOFT CORP,36636315000.0,107583
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,620071,620071100,MOTORCAR PTS AMER INC,210420000.0,27186
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,270277000.0,5590
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,64110D,64110D104,NETAPP INC,207502000.0,2716
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,654106,654106103,NIKE INC,336187000.0,3046
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,683715,683715106,OPEN TEXT CORP,266585000.0,6416
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,364868000.0,1428
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,704326,704326107,PAYCHEX INC,661711000.0,5915
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,1066399000.0,5779
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+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,74874Q,74874Q100,QUINSTREET INC,372644000.0,42202
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,749685,749685103,RPM INTL INC,320246000.0,3569
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,761152,761152107,RESMED INC,527896000.0,2416
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,228785000.0,14563
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,806037,806037107,SCANSOURCE INC,621972000.0,21041
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,86333M,86333M108,STRIDE INC,262174000.0,7042
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,876030,876030107,TAPESTRY INC,208479000.0,4871
+https://sec.gov/Archives/edgar/data/1473429/0000950123-23-007793.txt,1473429,"3000 Turtle Creek BLVD., Dallas, TX, 75219","Petrus Trust Company, LTA",2023-06-30,968223,968223206,WILEY JOHN & SONS INC,912957000.0,26828
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+https://sec.gov/Archives/edgar/data/1474069/0001172661-23-003145.txt,1474069,"ROOM 3008-10, 30/F, COSCO TOWER, 183 QUEEN'S ROAD CENTRAL, HONG KONG, K3, 000",KEYWISE CAPITAL MANAGEMENT (HK) Ltd,2023-06-30,594918,594918104,MICROSOFT CORP,70815293000.0,207950
+https://sec.gov/Archives/edgar/data/1475150/0001475150-23-000004.txt,1475150,"4200 Malsbary Road, Cincinnati, OH, 45242",Randolph Co Inc,2023-06-30,594918,594918104,MICROSOFT CORP,29120977000.0,85514
+https://sec.gov/Archives/edgar/data/1475150/0001475150-23-000004.txt,1475150,"4200 Malsbary Road, Cincinnati, OH, 45242",Randolph Co Inc,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,12093450000.0,79699
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+https://sec.gov/Archives/edgar/data/1475597/0001475597-23-000012.txt,1475597,"3 WORLD TRADE CENTER, 175 GREENWICH STRE, 76TH FLOOR, NEW YORK, NY, 10007",HRT FINANCIAL LP,2023-06-30,876030,876030107,TAPESTRY INC,230000.0,5394
+https://sec.gov/Archives/edgar/data/1475597/0001475597-23-000012.txt,1475597,"3 WORLD TRADE CENTER, 175 GREENWICH STRE, 76TH FLOOR, NEW YORK, NY, 10007",HRT FINANCIAL LP,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,253000.0,162403
+https://sec.gov/Archives/edgar/data/1475597/0001475597-23-000012.txt,1475597,"3 WORLD TRADE CENTER, 175 GREENWICH STRE, 76TH FLOOR, NEW YORK, NY, 10007",HRT FINANCIAL LP,2023-06-30,904677,904677200,UNIFI INC,98000.0,12178
+https://sec.gov/Archives/edgar/data/1475597/0001475597-23-000012.txt,1475597,"3 WORLD TRADE CENTER, 175 GREENWICH STRE, 76TH FLOOR, NEW YORK, NY, 10007",HRT FINANCIAL LP,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,850000.0,24995
+https://sec.gov/Archives/edgar/data/1475597/0001475597-23-000012.txt,1475597,"3 WORLD TRADE CENTER, 175 GREENWICH STRE, 76TH FLOOR, NEW YORK, NY, 10007",HRT FINANCIAL LP,2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,514000.0,3842
+https://sec.gov/Archives/edgar/data/1475597/0001475597-23-000012.txt,1475597,"3 WORLD TRADE CENTER, 175 GREENWICH STRE, 76TH FLOOR, NEW YORK, NY, 10007",HRT FINANCIAL LP,2023-06-30,981811,981811102,WORTHINGTON INDS INC,2574000.0,37065
+https://sec.gov/Archives/edgar/data/1475597/0001475597-23-000012.txt,1475597,"3 WORLD TRADE CENTER, 175 GREENWICH STRE, 76TH FLOOR, NEW YORK, NY, 10007",HRT FINANCIAL LP,2023-06-30,G3323L,G3323L100,FABRINET,2427000.0,18687
+https://sec.gov/Archives/edgar/data/1475597/0001475597-23-000012.txt,1475597,"3 WORLD TRADE CENTER, 175 GREENWICH STRE, 76TH FLOOR, NEW YORK, NY, 10007",HRT FINANCIAL LP,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,9769000.0,110886
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+https://sec.gov/Archives/edgar/data/1475940/0001085146-23-003004.txt,1475940,"1501 MCGILL COLLEGE AVENUE, SUITE 1200, MONTREAL, A8, H3A 3M8",MONTRUSCO BOLTON INVESTMENTS INC.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,22764187000.0,150021
+https://sec.gov/Archives/edgar/data/1476329/0000945621-23-000337.txt,1476329,"111 RICHMOND STREET WEST, SUITE 801, TORONTO, A6, M5H 2G4",Nexus Investment Management ULC,2023-06-30,594918,594918104,MICROSOFT CORP,36661174000.0,107656
+https://sec.gov/Archives/edgar/data/1476329/0000945621-23-000337.txt,1476329,"111 RICHMOND STREET WEST, SUITE 801, TORONTO, A6, M5H 2G4",Nexus Investment Management ULC,2023-06-30,683715,683715106,OPEN TEXT CORP,2651307000.0,63730
+https://sec.gov/Archives/edgar/data/1476329/0000945621-23-000337.txt,1476329,"111 RICHMOND STREET WEST, SUITE 801, TORONTO, A6, M5H 2G4",Nexus Investment Management ULC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,318654000.0,2100
+https://sec.gov/Archives/edgar/data/1476329/0000945621-23-000337.txt,1476329,"111 RICHMOND STREET WEST, SUITE 801, TORONTO, A6, M5H 2G4",Nexus Investment Management ULC,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,15642446000.0,412403
+https://sec.gov/Archives/edgar/data/1476329/0000945621-23-000337.txt,1476329,"111 RICHMOND STREET WEST, SUITE 801, TORONTO, A6, M5H 2G4",Nexus Investment Management ULC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,17486881000.0,198489
+https://sec.gov/Archives/edgar/data/1476804/0001476804-23-000007.txt,1476804,"182 NASSAU STREET SUITE 201, PRINCETON, NJ, 08542",Roundview Capital LLC,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,247654000.0,4719
+https://sec.gov/Archives/edgar/data/1476804/0001476804-23-000007.txt,1476804,"182 NASSAU STREET SUITE 201, PRINCETON, NJ, 08542",Roundview Capital LLC,2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,808542000.0,15957
+https://sec.gov/Archives/edgar/data/1476804/0001476804-23-000007.txt,1476804,"182 NASSAU STREET SUITE 201, PRINCETON, NJ, 08542",Roundview Capital LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,3780716000.0,17201
+https://sec.gov/Archives/edgar/data/1476804/0001476804-23-000007.txt,1476804,"182 NASSAU STREET SUITE 201, PRINCETON, NJ, 08542",Roundview Capital LLC,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,1723546000.0,10406
+https://sec.gov/Archives/edgar/data/1476804/0001476804-23-000007.txt,1476804,"182 NASSAU STREET SUITE 201, PRINCETON, NJ, 08542",Roundview Capital LLC,2023-06-30,189054,189054109,CLOROX CO DEL,335893000.0,2112
+https://sec.gov/Archives/edgar/data/1476804/0001476804-23-000007.txt,1476804,"182 NASSAU STREET SUITE 201, PRINCETON, NJ, 08542",Roundview Capital LLC,2023-06-30,31428X,31428X106,FEDEX CORP,1083910000.0,4372
+https://sec.gov/Archives/edgar/data/1476804/0001476804-23-000007.txt,1476804,"182 NASSAU STREET SUITE 201, PRINCETON, NJ, 08542",Roundview Capital LLC,2023-06-30,461202,461202103,INTUIT,1764490000.0,3851
+https://sec.gov/Archives/edgar/data/1476804/0001476804-23-000007.txt,1476804,"182 NASSAU STREET SUITE 201, PRINCETON, NJ, 08542",Roundview Capital LLC,2023-06-30,594918,594918104,MICROSOFT CORP,46503376000.0,136558
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+https://sec.gov/Archives/edgar/data/1476804/0001476804-23-000007.txt,1476804,"182 NASSAU STREET SUITE 201, PRINCETON, NJ, 08542",Roundview Capital LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,6482333000.0,42720
+https://sec.gov/Archives/edgar/data/1476804/0001476804-23-000007.txt,1476804,"182 NASSAU STREET SUITE 201, PRINCETON, NJ, 08542",Roundview Capital LLC,2023-06-30,871829,871829107,SYSCO CORP,3992406000.0,53806
+https://sec.gov/Archives/edgar/data/1476804/0001476804-23-000007.txt,1476804,"182 NASSAU STREET SUITE 201, PRINCETON, NJ, 08542",Roundview Capital LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,562695000.0,6387
+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,2757090000.0,52536
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+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,115637,115637209,BROWN FORMAN CORP,41264000.0,616
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+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,189054,189054109,CLOROX CO DEL,58368000.0,367
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+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,3794000.0,33
+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,249010000.0,1268
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+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,64110D,64110D104,NETAPP INC,1571319000.0,20567
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+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,15602000.0,40
+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,1496598000.0,13378
+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,4422160000.0,29143
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+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,871829,871829107,SYSCO CORP,56689000.0,764
+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,876030,876030107,TAPESTRY INC,437117000.0,10213
+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,88688T,88688T100,TILRAY BRANDS INC,78000000.0,50000
+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,G3323L,G3323L100,FABRINET,48056000.0,370
+https://sec.gov/Archives/edgar/data/1477024/0000892712-23-000120.txt,1477024,"555 MAIN STREET, RACINE, WI, 53403","Johnson Financial Group, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1005205000.0,11375
+https://sec.gov/Archives/edgar/data/1477872/0001477872-23-000004.txt,1477872,"P.O BOX 3552, SARATOGA, CA, 95070",Saratoga Research & Investment Management,2023-06-30,594918,594918104,Microsoft,132827259000.0,390049
+https://sec.gov/Archives/edgar/data/1477872/0001477872-23-000004.txt,1477872,"P.O BOX 3552, SARATOGA, CA, 95070",Saratoga Research & Investment Management,2023-06-30,654106,654106103,NIKE,58056607000.0,526018
+https://sec.gov/Archives/edgar/data/1477872/0001477872-23-000004.txt,1477872,"P.O BOX 3552, SARATOGA, CA, 95070",Saratoga Research & Investment Management,2023-06-30,704326,704326107,Paychex,565838000.0,5058
+https://sec.gov/Archives/edgar/data/1477872/0001477872-23-000004.txt,1477872,"P.O BOX 3552, SARATOGA, CA, 95070",Saratoga Research & Investment Management,2023-06-30,742718,742718109,Procter & Gamble,30390335000.0,200279
+https://sec.gov/Archives/edgar/data/1477872/0001477872-23-000004.txt,1477872,"P.O BOX 3552, SARATOGA, CA, 95070",Saratoga Research & Investment Management,2023-06-30,G5960L,G5960L103,Medtronic PLC,103811314000.0,1178335
+https://sec.gov/Archives/edgar/data/1478215/0001104659-23-091236.txt,1478215,"22 West Washington Street, Chicago, IL, 60602",Morningstar Investment Services LLC,2023-06-30,053807,053807103,AVNET INC,963000.0,19507
+https://sec.gov/Archives/edgar/data/1478215/0001104659-23-091236.txt,1478215,"22 West Washington Street, Chicago, IL, 60602",Morningstar Investment Services LLC,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,15615000.0,95869
+https://sec.gov/Archives/edgar/data/1478215/0001104659-23-091236.txt,1478215,"22 West Washington Street, Chicago, IL, 60602",Morningstar Investment Services LLC,2023-06-30,189054,189054109,CLOROX CO DEL,388000.0,2457
+https://sec.gov/Archives/edgar/data/1478215/0001104659-23-091236.txt,1478215,"22 West Washington Street, Chicago, IL, 60602",Morningstar Investment Services LLC,2023-06-30,461202,461202103,INTUIT,317000.0,693
+https://sec.gov/Archives/edgar/data/1478215/0001104659-23-091236.txt,1478215,"22 West Washington Street, Chicago, IL, 60602",Morningstar Investment Services LLC,2023-06-30,482480,482480100,KLA CORP,545000.0,1144
+https://sec.gov/Archives/edgar/data/1478215/0001104659-23-091236.txt,1478215,"22 West Washington Street, Chicago, IL, 60602",Morningstar Investment Services LLC,2023-06-30,594918,594918104,MICROSOFT CORP,224584000.0,669926
+https://sec.gov/Archives/edgar/data/1478215/0001104659-23-091236.txt,1478215,"22 West Washington Street, Chicago, IL, 60602",Morningstar Investment Services LLC,2023-06-30,654106,654106103,NIKE INC,263000.0,2320
+https://sec.gov/Archives/edgar/data/1478215/0001104659-23-091236.txt,1478215,"22 West Washington Street, Chicago, IL, 60602",Morningstar Investment Services LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,299000.0,1181
+https://sec.gov/Archives/edgar/data/1478215/0001104659-23-091236.txt,1478215,"22 West Washington Street, Chicago, IL, 60602",Morningstar Investment Services LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,47816000.0,319836
+https://sec.gov/Archives/edgar/data/1478215/0001104659-23-091236.txt,1478215,"22 West Washington Street, Chicago, IL, 60602",Morningstar Investment Services LLC,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,381000.0,11200
+https://sec.gov/Archives/edgar/data/1478215/0001104659-23-091236.txt,1478215,"22 West Washington Street, Chicago, IL, 60602",Morningstar Investment Services LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,38559000.0,444790
+https://sec.gov/Archives/edgar/data/1478735/0000919574-23-004783.txt,1478735,"100 Avenue of the Americas, 16th Floor, New York, NY, 10013","TWO SIGMA ADVISERS, LP",2023-06-30,02875D,02875D109,AMERICAN OUTDOOR BRANDS INC,315084000.0,36300
+https://sec.gov/Archives/edgar/data/1478735/0000919574-23-004783.txt,1478735,"100 Avenue of the Americas, 16th Floor, New York, NY, 10013","TWO SIGMA ADVISERS, LP",2023-06-30,029683,029683109,AMER SOFTWARE INC,1727844000.0,164400
+https://sec.gov/Archives/edgar/data/1478735/0000919574-23-004783.txt,1478735,"100 Avenue of the Americas, 16th Floor, New York, NY, 10013","TWO SIGMA ADVISERS, LP",2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,2398018000.0,31400
+https://sec.gov/Archives/edgar/data/1478735/0000919574-23-004783.txt,1478735,"100 Avenue of the Americas, 16th Floor, New York, NY, 10013","TWO SIGMA ADVISERS, LP",2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,3169677000.0,303900
+https://sec.gov/Archives/edgar/data/1478735/0000919574-23-004783.txt,1478735,"100 Avenue of the Americas, 16th Floor, New York, NY, 10013","TWO SIGMA ADVISERS, LP",2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,405524000.0,2800
+https://sec.gov/Archives/edgar/data/1478735/0000919574-23-004783.txt,1478735,"100 Avenue of the Americas, 16th Floor, New York, NY, 10013","TWO SIGMA ADVISERS, LP",2023-06-30,042744,042744102,ARROW FINL CORP,1328495000.0,65963
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+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,36251C,36251C103,GMS INC,2718245000.0,39281
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,370334,370334104,GENERAL MLS INC,26891173000.0,350602
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,6732021000.0,40232
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,461202,461202103,INTUIT,75313148000.0,164371
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,482480,482480100,KLA CORP,39516519000.0,81474
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,489170,489170100,KENNAMETAL INC,2729443000.0,96141
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,500643,500643200,KORN FERRY,2525302000.0,50975
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,512807,512807108,LAM RESEARCH CORP,51328514000.0,79844
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,9527401000.0,82883
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,513847,513847103,LANCASTER COLONY CORP,2433993000.0,12104
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,26684507000.0,135882
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,2569302000.0,45290
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,2550522000.0,13563
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,589378,589378108,MERCURY SYS INC,2041675000.0,59025
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,591520,591520200,METHOD ELECTRS INC,1865455000.0,55652
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,594918,594918104,MICROSOFT CORP,1414963451000.0,4155058
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,640491,640491106,NEOGEN CORP,2979380000.0,136983
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,64110D,64110D104,NETAPP INC,9413932000.0,123219
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,65249B,65249B109,NEWS CORP NEW,4170855000.0,213890
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+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,45656826000.0,178689
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,28822786000.0,73897
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,703395,703395103,PATTERSON COS INC,3042592000.0,91479
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,704326,704326107,PAYCHEX INC,20944190000.0,187219
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,4568225000.0,24756
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,2530756000.0,329097
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,5357806000.0,88941
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,74051N,74051N102,PREMIER INC,2650741000.0,95833
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,211201140000.0,1391862
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,749685,749685103,RPM INTL INC,6217751000.0,69294
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,761152,761152107,RESMED INC,18471335000.0,84537
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,2085345000.0,132740
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,806037,806037107,SCANSOURCE INC,381797000.0,12916
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,832696,832696405,SMUCKER J M CO,8642091000.0,58523
+https://sec.gov/Archives/edgar/data/1483066/0001085146-23-002998.txt,1483066,"50 WEST STATE STREET 9TH FLOOR, PO BOX 290, TRENTON, NJ, 08625",State of New Jersey Common Pension Fund D,2023-06-30,854231,854231107,STANDEX INTL CORP,2488740000.0,17592
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+https://sec.gov/Archives/edgar/data/1483467/0001398344-23-014630.txt,1483467,"1013 CENTRE RD., SUITE 405, WILMINGTON, DE, 19805","Westover Capital Advisors, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,1019881000.0,4114
+https://sec.gov/Archives/edgar/data/1483467/0001398344-23-014630.txt,1483467,"1013 CENTRE RD., SUITE 405, WILMINGTON, DE, 19805","Westover Capital Advisors, LLC",2023-06-30,482480,482480100,KLA CORP,2158825000.0,4451
+https://sec.gov/Archives/edgar/data/1483467/0001398344-23-014630.txt,1483467,"1013 CENTRE RD., SUITE 405, WILMINGTON, DE, 19805","Westover Capital Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,11806522000.0,34670
+https://sec.gov/Archives/edgar/data/1483467/0001398344-23-014630.txt,1483467,"1013 CENTRE RD., SUITE 405, WILMINGTON, DE, 19805","Westover Capital Advisors, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,593295000.0,2322
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+https://sec.gov/Archives/edgar/data/1483824/0001483824-23-000004.txt,1483824,"5100 POPLAR AVENUE, SUITE 2904, MEMPHIS, TN, 38137",TD Capital Management LLC,2023-06-30,189054,189054109,CLOROX CO DEL,1590000.0,10
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+https://sec.gov/Archives/edgar/data/1483824/0001483824-23-000004.txt,1483824,"5100 POPLAR AVENUE, SUITE 2904, MEMPHIS, TN, 38137",TD Capital Management LLC,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,20482000.0,340
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+https://sec.gov/Archives/edgar/data/1483824/0001483824-23-000004.txt,1483824,"5100 POPLAR AVENUE, SUITE 2904, MEMPHIS, TN, 38137",TD Capital Management LLC,2023-06-30,832696,832696405,SMUCKER J M CO,151000.0,1
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+https://sec.gov/Archives/edgar/data/1483824/0001483824-23-000004.txt,1483824,"5100 POPLAR AVENUE, SUITE 2904, MEMPHIS, TN, 38137",TD Capital Management LLC,2023-06-30,981811,981811102,WORTHINGTON INDS INC,2295000.0,33
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+https://sec.gov/Archives/edgar/data/1483859/0001172661-23-003168.txt,1483859,"100 Fillmore Street, Suite 325, Denver, CO, 80206",ArrowMark Colorado Holdings LLC,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,51489672000.0,355518
+https://sec.gov/Archives/edgar/data/1483859/0001172661-23-003168.txt,1483859,"100 Fillmore Street, Suite 325, Denver, CO, 80206",ArrowMark Colorado Holdings LLC,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,73304720000.0,898012
+https://sec.gov/Archives/edgar/data/1483859/0001172661-23-003168.txt,1483859,"100 Fillmore Street, Suite 325, Denver, CO, 80206",ArrowMark Colorado Holdings LLC,2023-06-30,127190,127190304,CACI INTL INC,31061090000.0,91131
+https://sec.gov/Archives/edgar/data/1483859/0001172661-23-003168.txt,1483859,"100 Fillmore Street, Suite 325, Denver, CO, 80206",ArrowMark Colorado Holdings LLC,2023-06-30,222070,222070203,COTY INC,2113880000.0,172000
+https://sec.gov/Archives/edgar/data/1483859/0001172661-23-003168.txt,1483859,"100 Fillmore Street, Suite 325, Denver, CO, 80206",ArrowMark Colorado Holdings LLC,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,5999784000.0,35856
+https://sec.gov/Archives/edgar/data/1483859/0001172661-23-003168.txt,1483859,"100 Fillmore Street, Suite 325, Denver, CO, 80206",ArrowMark Colorado Holdings LLC,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,6897000000.0,60000
+https://sec.gov/Archives/edgar/data/1483859/0001172661-23-003168.txt,1483859,"100 Fillmore Street, Suite 325, Denver, CO, 80206",ArrowMark Colorado Holdings LLC,2023-06-30,513847,513847103,LANCASTER COLONY CORP,8445780000.0,42000
+https://sec.gov/Archives/edgar/data/1483859/0001172661-23-003168.txt,1483859,"100 Fillmore Street, Suite 325, Denver, CO, 80206",ArrowMark Colorado Holdings LLC,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,8755420000.0,46559
+https://sec.gov/Archives/edgar/data/1483859/0001172661-23-003168.txt,1483859,"100 Fillmore Street, Suite 325, Denver, CO, 80206",ArrowMark Colorado Holdings LLC,2023-06-30,594918,594918104,MICROSOFT CORP,1351944000.0,3970
+https://sec.gov/Archives/edgar/data/1483859/0001172661-23-003168.txt,1483859,"100 Fillmore Street, Suite 325, Denver, CO, 80206",ArrowMark Colorado Holdings LLC,2023-06-30,654106,654106103,NIKE INC,348107000.0,3154
+https://sec.gov/Archives/edgar/data/1483859/0001172661-23-003168.txt,1483859,"100 Fillmore Street, Suite 325, Denver, CO, 80206",ArrowMark Colorado Holdings LLC,2023-06-30,G2143T,G2143T103,CIMPRESS PLC,88828205000.0,1493413
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+https://sec.gov/Archives/edgar/data/1483866/0001172661-23-002901.txt,1483866,"Level 1, 10 Portman Square, London, X0, W1H6AZ",Independent Franchise Partners LLP,2023-06-30,35137L,35137L105,FOX CORP,639658626000.0,18813489
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+https://sec.gov/Archives/edgar/data/1483866/0001172661-23-002901.txt,1483866,"Level 1, 10 Portman Square, London, X0, W1H6AZ",Independent Franchise Partners LLP,2023-06-30,65249B,65249B109,NEWS CORP NEW,614121768000.0,31493424
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+https://sec.gov/Archives/edgar/data/1483870/0001483870-23-000005.txt,1483870,"3838 OAK LAWN AVENUE, SUITE 1650, DALLAS, TX, 75219","TCTC Holdings, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,188566000.0,738
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+https://sec.gov/Archives/edgar/data/1484043/0001104659-23-090292.txt,1484043,"3811 N Fairfax Drive, Suite 720, Arlington, VA, 22203",ITHAKA GROUP LLC,2023-06-30,742718,742718109,Procter & Gamble Co.,227610000.0,1500
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+https://sec.gov/Archives/edgar/data/1484067/0000950123-23-006990.txt,1484067,"1133 CONNECTICUT AVENUE, NW, SUITE 810, Washington, DC, 20036","Rock Creek Group, LP",2023-06-30,31428X,31428X106,FEDEX ORD (NYS),180719000.0,729
+https://sec.gov/Archives/edgar/data/1484067/0000950123-23-006990.txt,1484067,"1133 CONNECTICUT AVENUE, NW, SUITE 810, Washington, DC, 20036","Rock Creek Group, LP",2023-06-30,594918,594918104,MICROSOFT ORD (NMS),3313454000.0,9730
+https://sec.gov/Archives/edgar/data/1484067/0000950123-23-006990.txt,1484067,"1133 CONNECTICUT AVENUE, NW, SUITE 810, Washington, DC, 20036","Rock Creek Group, LP",2023-06-30,654106,654106103,NIKE CL B ORD (NYS),73506000.0,666
+https://sec.gov/Archives/edgar/data/1484067/0000950123-23-006990.txt,1484067,"1133 CONNECTICUT AVENUE, NW, SUITE 810, Washington, DC, 20036","Rock Creek Group, LP",2023-06-30,697435,697435105,PALO ALTO NETWORKS ORD (NMS),4088000.0,16
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+https://sec.gov/Archives/edgar/data/1484150/0001172661-23-003185.txt,1484150,"66 Buckingham Gate, London, X0, SW1E 6AU",Lindsell Train Ltd,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,2066847000.0,10525
+https://sec.gov/Archives/edgar/data/1484150/0001172661-23-003185.txt,1484150,"66 Buckingham Gate, London, X0, SW1E 6AU",Lindsell Train Ltd,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,620417000.0,3300
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+https://sec.gov/Archives/edgar/data/1484256/0001104659-23-084692.txt,1484256,"156 West 56th Street, Suite 1704, New York, NY, 10019","RiverPark Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,6120185000.0,17972
+https://sec.gov/Archives/edgar/data/1484256/0001104659-23-084692.txt,1484256,"156 West 56th Street, Suite 1704, New York, NY, 10019","RiverPark Advisors, LLC",2023-06-30,654106,654106103,NIKE INC,2328807000.0,21100
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+https://sec.gov/Archives/edgar/data/1484265/0001085146-23-003031.txt,1484265,"2100 MARKET STREET, WHEELING, WV, 26003","McKinley Carter Wealth Services, Inc.",2023-06-30,127190,127190304,CACI INTL INC,6233964000.0,18290
+https://sec.gov/Archives/edgar/data/1484265/0001085146-23-003031.txt,1484265,"2100 MARKET STREET, WHEELING, WV, 26003","McKinley Carter Wealth Services, Inc.",2023-06-30,189054,189054109,CLOROX CO DEL,1581506000.0,9944
+https://sec.gov/Archives/edgar/data/1484265/0001085146-23-003031.txt,1484265,"2100 MARKET STREET, WHEELING, WV, 26003","McKinley Carter Wealth Services, Inc.",2023-06-30,461202,461202103,INTUIT,7879181000.0,17196
+https://sec.gov/Archives/edgar/data/1484265/0001085146-23-003031.txt,1484265,"2100 MARKET STREET, WHEELING, WV, 26003","McKinley Carter Wealth Services, Inc.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,223767000.0,1139
+https://sec.gov/Archives/edgar/data/1484265/0001085146-23-003031.txt,1484265,"2100 MARKET STREET, WHEELING, WV, 26003","McKinley Carter Wealth Services, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,14633354000.0,42971
+https://sec.gov/Archives/edgar/data/1484265/0001085146-23-003031.txt,1484265,"2100 MARKET STREET, WHEELING, WV, 26003","McKinley Carter Wealth Services, Inc.",2023-06-30,654106,654106103,NIKE INC,451863000.0,4094
+https://sec.gov/Archives/edgar/data/1484265/0001085146-23-003031.txt,1484265,"2100 MARKET STREET, WHEELING, WV, 26003","McKinley Carter Wealth Services, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,404631000.0,3617
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+https://sec.gov/Archives/edgar/data/1484265/0001085146-23-003031.txt,1484265,"2100 MARKET STREET, WHEELING, WV, 26003","McKinley Carter Wealth Services, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1361735000.0,15457
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+https://sec.gov/Archives/edgar/data/1484429/0001062993-23-014891.txt,1484429,"REGERINGSGATAN 107, STOCKHOLM, V7, 103 73",Alecta Tjanstepension Omsesidigt,2023-06-30,654106,654106103,NIKE INC,636753444000.0,5772400
+https://sec.gov/Archives/edgar/data/1484429/0001062993-23-014891.txt,1484429,"REGERINGSGATAN 107, STOCKHOLM, V7, 103 73",Alecta Tjanstepension Omsesidigt,2023-06-30,761152,761152107,RESMED INC,108152113000.0,494998
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+https://sec.gov/Archives/edgar/data/1484540/0001085146-23-002956.txt,1484540,"4 ORINDA WAY, SUITE 100-B, ORINDA, CA, 94563","WESPAC Advisors, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,2299926000.0,29986
+https://sec.gov/Archives/edgar/data/1484540/0001085146-23-002956.txt,1484540,"4 ORINDA WAY, SUITE 100-B, ORINDA, CA, 94563","WESPAC Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,1129499000.0,3316
+https://sec.gov/Archives/edgar/data/1484540/0001085146-23-002956.txt,1484540,"4 ORINDA WAY, SUITE 100-B, ORINDA, CA, 94563","WESPAC Advisors, LLC",2023-06-30,654106,654106103,NIKE INC,1142881000.0,10355
+https://sec.gov/Archives/edgar/data/1484540/0001085146-23-002956.txt,1484540,"4 ORINDA WAY, SUITE 100-B, ORINDA, CA, 94563","WESPAC Advisors, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,886577000.0,5842
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+https://sec.gov/Archives/edgar/data/1484972/0001085146-23-003253.txt,1484972,"395 HUDSON STREET, SUITE 701, NEW YORK, NY, 10014","HAP Trading, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,3464000.0,15600
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+https://sec.gov/Archives/edgar/data/1484972/0001085146-23-003253.txt,1484972,"395 HUDSON STREET, SUITE 701, NEW YORK, NY, 10014","HAP Trading, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,6867000.0,13300
+https://sec.gov/Archives/edgar/data/1484972/0001085146-23-003253.txt,1484972,"395 HUDSON STREET, SUITE 701, NEW YORK, NY, 10014","HAP Trading, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,367737000.0,30800
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+https://sec.gov/Archives/edgar/data/1486066/0001062993-23-015333.txt,1486066,"3600 AMERICAN BLVD. W, SUITE 750, MINNEAPOLIS, MN, 55431","Simplicity Solutions, LLC",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,516067000.0,9834
+https://sec.gov/Archives/edgar/data/1486066/0001062993-23-015333.txt,1486066,"3600 AMERICAN BLVD. W, SUITE 750, MINNEAPOLIS, MN, 55431","Simplicity Solutions, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,3961576000.0,18024
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+https://sec.gov/Archives/edgar/data/1491719/0000908834-23-000102.txt,1491719,"452 FIFTH AVENUE, 25TH FLOOR, NEW YORK, NY, 10018",Lombard Odier Asset Management (USA) Corp,2023-06-30,594918,594918104,MICROSOFT CORP,52443160000.0,154000
+https://sec.gov/Archives/edgar/data/1491719/0000908834-23-000102.txt,1491719,"452 FIFTH AVENUE, 25TH FLOOR, NEW YORK, NY, 10018",Lombard Odier Asset Management (USA) Corp,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,711357000.0,4688
+https://sec.gov/Archives/edgar/data/1491719/0000908834-23-000102.txt,1491719,"452 FIFTH AVENUE, 25TH FLOOR, NEW YORK, NY, 10018",Lombard Odier Asset Management (USA) Corp,2023-06-30,876030,876030107,TAPESTRY INC,808620000.0,18893
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+https://sec.gov/Archives/edgar/data/1492040/0000950123-23-006152.txt,1492040,"77 King Street West, TD North Tower, Suite 4210, P.O. Box 213, Toronto, A6, M5K1J3",JCIC Asset Management Inc.,2023-06-30,594918,594918104,MICROSOFT CORP,15275943000.0,44858
+https://sec.gov/Archives/edgar/data/1492040/0000950123-23-006152.txt,1492040,"77 King Street West, TD North Tower, Suite 4210, P.O. Box 213, Toronto, A6, M5K1J3",JCIC Asset Management Inc.,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,9709000.0,38
+https://sec.gov/Archives/edgar/data/1492040/0000950123-23-006152.txt,1492040,"77 King Street West, TD North Tower, Suite 4210, P.O. Box 213, Toronto, A6, M5K1J3",JCIC Asset Management Inc.,2023-06-30,704326,704326107,PAYCHEX INC,6712000.0,60
+https://sec.gov/Archives/edgar/data/1492040/0000950123-23-006152.txt,1492040,"77 King Street West, TD North Tower, Suite 4210, P.O. Box 213, Toronto, A6, M5K1J3",JCIC Asset Management Inc.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,22761000.0,150
+https://sec.gov/Archives/edgar/data/1492040/0000950123-23-006152.txt,1492040,"77 King Street West, TD North Tower, Suite 4210, P.O. Box 213, Toronto, A6, M5K1J3",JCIC Asset Management Inc.,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,12882000.0,1137
+https://sec.gov/Archives/edgar/data/1492040/0000950123-23-006152.txt,1492040,"77 King Street West, TD North Tower, Suite 4210, P.O. Box 213, Toronto, A6, M5K1J3",JCIC Asset Management Inc.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,20704000.0,235
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+https://sec.gov/Archives/edgar/data/1492162/0001492162-23-000003.txt,1492162,"1200 FIFTH AVENUE, SUITE 1200, SEATTLE, WA, 98101",Lesa Sroufe & Co,2023-06-30,742718,742718109,PROCTER & GAMBLE,559000.0,3685
+https://sec.gov/Archives/edgar/data/1492162/0001492162-23-000003.txt,1492162,"1200 FIFTH AVENUE, SUITE 1200, SEATTLE, WA, 98101",Lesa Sroufe & Co,2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,1141000.0,87481
+https://sec.gov/Archives/edgar/data/1492162/0001492162-23-000003.txt,1492162,"1200 FIFTH AVENUE, SUITE 1200, SEATTLE, WA, 98101",Lesa Sroufe & Co,2023-06-30,871829,871829107,SYSCO CORP,355000.0,4781
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+https://sec.gov/Archives/edgar/data/1494234/0001494234-23-000004.txt,1494234,"HEMENWAY TRUST COMPANY LLC, 23 KEEWAYDIN DRIVE, SUITE 400, SALEM, NH, 03079",Hemenway Trust Co LLC,2023-06-30,237194,237194105,DARDEN RESTAURANTS,400157000.0,2395
+https://sec.gov/Archives/edgar/data/1494234/0001494234-23-000004.txt,1494234,"HEMENWAY TRUST COMPANY LLC, 23 KEEWAYDIN DRIVE, SUITE 400, SALEM, NH, 03079",Hemenway Trust Co LLC,2023-06-30,370334,370334104,GENERAL MILLS,571722000.0,7454
+https://sec.gov/Archives/edgar/data/1494234/0001494234-23-000004.txt,1494234,"HEMENWAY TRUST COMPANY LLC, 23 KEEWAYDIN DRIVE, SUITE 400, SALEM, NH, 03079",Hemenway Trust Co LLC,2023-06-30,518439,518439104,ESTEE LAUDER,329918000.0,1680
+https://sec.gov/Archives/edgar/data/1494234/0001494234-23-000004.txt,1494234,"HEMENWAY TRUST COMPANY LLC, 23 KEEWAYDIN DRIVE, SUITE 400, SALEM, NH, 03079",Hemenway Trust Co LLC,2023-06-30,594918,594918104,MICROSOFT,45315489000.0,133070
+https://sec.gov/Archives/edgar/data/1494234/0001494234-23-000004.txt,1494234,"HEMENWAY TRUST COMPANY LLC, 23 KEEWAYDIN DRIVE, SUITE 400, SALEM, NH, 03079",Hemenway Trust Co LLC,2023-06-30,64110D,64110D104,NETAPP,5214300000.0,68250
+https://sec.gov/Archives/edgar/data/1494234/0001494234-23-000004.txt,1494234,"HEMENWAY TRUST COMPANY LLC, 23 KEEWAYDIN DRIVE, SUITE 400, SALEM, NH, 03079",Hemenway Trust Co LLC,2023-06-30,654106,654106103,NIKE INC CLASS B,16377743000.0,148389
+https://sec.gov/Archives/edgar/data/1494234/0001494234-23-000004.txt,1494234,"HEMENWAY TRUST COMPANY LLC, 23 KEEWAYDIN DRIVE, SUITE 400, SALEM, NH, 03079",Hemenway Trust Co LLC,2023-06-30,742718,742718109,PROCTER & GAMBLE,31362589000.0,206686
+https://sec.gov/Archives/edgar/data/1494234/0001494234-23-000004.txt,1494234,"HEMENWAY TRUST COMPANY LLC, 23 KEEWAYDIN DRIVE, SUITE 400, SALEM, NH, 03079",Hemenway Trust Co LLC,2023-06-30,871829,871829107,SYSCO,503902000.0,6791
+https://sec.gov/Archives/edgar/data/1494234/0001494234-23-000004.txt,1494234,"HEMENWAY TRUST COMPANY LLC, 23 KEEWAYDIN DRIVE, SUITE 400, SALEM, NH, 03079",Hemenway Trust Co LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC,14640384000.0,166179
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+https://sec.gov/Archives/edgar/data/1496201/0001496201-23-000007.txt,1496201,"4 ITZHAK SAD BUILDING A, 29TH FLOOR, TEL AVIV, L3, 6777520",SPHERA FUNDS MANAGEMENT LTD.,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,6898770000.0,27000
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+https://sec.gov/Archives/edgar/data/1496228/0000904454-23-000498.txt,1496228,"695 Atlantic Avenue, Boston, MA, 02111",SRB CORP,2023-06-30,370334,370334104,GENERAL MILLS ORD,394315000.0,5141
+https://sec.gov/Archives/edgar/data/1496228/0000904454-23-000498.txt,1496228,"695 Atlantic Avenue, Boston, MA, 02111",SRB CORP,2023-06-30,594918,594918104,MICROSOFT ORD,374412493000.0,1099467
+https://sec.gov/Archives/edgar/data/1496228/0000904454-23-000498.txt,1496228,"695 Atlantic Avenue, Boston, MA, 02111",SRB CORP,2023-06-30,704326,704326107,PAYCHEX ORD,447816000.0,4003
+https://sec.gov/Archives/edgar/data/1496228/0000904454-23-000498.txt,1496228,"695 Atlantic Avenue, Boston, MA, 02111",SRB CORP,2023-06-30,742718,742718109,PROCTER & GAMBLE ORD,143901263000.0,948341
+https://sec.gov/Archives/edgar/data/1496228/0000904454-23-000498.txt,1496228,"695 Atlantic Avenue, Boston, MA, 02111",SRB CORP,2023-06-30,832696,832696405,JM SMUCKER ORD,429720000.0,2910
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+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,9976708000.0,45392
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,09073M,09073M104,BIO-TECHNE CORP,581287000.0,7121
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,1741103000.0,10512
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,115637,115637209,BROWN FORMAN CORP,1062203000.0,15906
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,1960814000.0,20734
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,189054,189054109,CLOROX CO DEL,1483843000.0,9330
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,205887,205887102,CONAGRA BRANDS INC,1103453000.0,32724
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1361869000.0,8151
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,31428X,31428X106,FEDEX CORP,5349682000.0,21580
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,35137L,35137L105,FOX CORP,1268846000.0,37319
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,370334,370334104,GENERAL MLS INC,3350333000.0,43681
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,27825306000.0,166290
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,461202,461202103,INTUIT,14419239000.0,31470
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,482480,482480100,KLA CORP,5831880000.0,12024
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,512807,512807108,LAM RESEARCH CORP,8047964000.0,12519
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,1202722000.0,10463
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,4707818000.0,23973
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,594918,594918104,MICROSOFT CORP,224422330000.0,659019
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,64110D,64110D104,NETAPP INC,1274046000.0,16676
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,65249B,65249B109,NEWS CORP NEW,554366000.0,28429
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,654106,654106103,NIKE INC,47978392000.0,434705
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,3529615000.0,13814
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,2213867000.0,5676
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,704326,704326107,PAYCHEX INC,3991298000.0,35678
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,31366934000.0,206715
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,761152,761152107,RESMED INC,23699168000.0,108463
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,832696,832696405,SMUCKER J M CO,1169842000.0,7922
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,871829,871829107,SYSCO CORP,3250554000.0,43808
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,876030,876030107,TAPESTRY INC,826725000.0,19316
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,808857000.0,21325
+https://sec.gov/Archives/edgar/data/1496637/0000905148-23-000708.txt,1496637,"OTEMACHI ONE TOWER, 2-1, OTEMACHI 1-CHOME, CHIYODA-KU, TOKYO, M0, 100-8155","Norinchukin Bank, The",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,9703775000.0,110145
+https://sec.gov/Archives/edgar/data/1497637/0001754960-23-000245.txt,1497637,"3575 N 100 E, SUITE 350, PROVO, UT, 84604",Accuvest Global Advisors,2023-06-30,594918,594918104,MICROSOFT CORP,3439000000.0,10100
+https://sec.gov/Archives/edgar/data/1497637/0001754960-23-000245.txt,1497637,"3575 N 100 E, SUITE 350, PROVO, UT, 84604",Accuvest Global Advisors,2023-06-30,654106,654106103,NIKE INC,3589000000.0,32517
+https://sec.gov/Archives/edgar/data/1498383/0001498383-23-000003.txt,1498383,"30 W. MONROE ST., THIRD FLOOR, CHICAGO, IL, 60603","Asset Allocation & Management Company, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,727000.0,3309
+https://sec.gov/Archives/edgar/data/1498383/0001498383-23-000003.txt,1498383,"30 W. MONROE ST., THIRD FLOOR, CHICAGO, IL, 60603","Asset Allocation & Management Company, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,1022000.0,3000
+https://sec.gov/Archives/edgar/data/1499066/0001172661-23-002982.txt,1499066,"527 Madison Avenue, 15th Floor, New York, NY, 10022","Long Pond Capital, LP",2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,13953498000.0,74201
+https://sec.gov/Archives/edgar/data/1500605/0000950159-23-000236.txt,1500605,"799 Central Avenue, Suite 350, Highland Park, IL, 60035",NEW VERNON INVESTMENT MANAGEMENT LLC,2023-06-30,31428X,31428X106,FEDEX CORP,396640000.0,1600
+https://sec.gov/Archives/edgar/data/1500605/0000950159-23-000236.txt,1500605,"799 Central Avenue, Suite 350, Highland Park, IL, 60035",NEW VERNON INVESTMENT MANAGEMENT LLC,2023-06-30,594918,594918104,MICROSOFT CORP,1376463000.0,4042
+https://sec.gov/Archives/edgar/data/1500605/0000950159-23-000236.txt,1500605,"799 Central Avenue, Suite 350, Highland Park, IL, 60035",NEW VERNON INVESTMENT MANAGEMENT LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,694514000.0,4577
+https://sec.gov/Archives/edgar/data/1501902/0001085146-23-003188.txt,1501902,"211 MAIN ST., SAN FRANCISCO, CA, 94105","Charles Schwab Investment Advisory, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,1525827000.0,4481
+https://sec.gov/Archives/edgar/data/1501902/0001085146-23-003188.txt,1501902,"211 MAIN ST., SAN FRANCISCO, CA, 94105","Charles Schwab Investment Advisory, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,246570000.0,1625
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+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,115637,115637100,BROWN FORMAN CORP,49000.0,708
+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,1000.0,9
+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,189054,189054109,CLOROX CO DEL,1000.0,4
+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,205887,205887102,CONAGRA BRANDS INC,95000.0,2817
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+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,4570000.0,13418
+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,640491,640491106,NEOGEN CORP,1000.0,3
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+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,654106,654106103,NIKE INC,1110000.0,10050
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+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,703395,703395103,PATTERSON COS INC,1000.0,1
+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,1125000.0,10055
+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2434000.0,16039
+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,761152,761152107,RESMED INC,11000.0,46
+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,832696,832696405,SMUCKER J M CO,97000.0,653
+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,871829,871829107,SYSCO CORP,411000.0,5528
+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,876030,876030107,TAPESTRY INC,1000.0,1
+https://sec.gov/Archives/edgar/data/1502149/0001567619-23-006915.txt,1502149,"P.O. BOX 5068, CLEARWATER, FL, 33758","Transamerica Financial Advisors, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,683000.0,7748
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+https://sec.gov/Archives/edgar/data/1503269/0001062993-23-016596.txt,1503269,"141 ADELAIDE ST WEST, SUITE 260, TORONTO, A6, M5H 3L5",Heathbridge Capital Management Ltd.,2023-06-30,594918,594918104,MICROSOFT CORP,14925868000.0,43830
+https://sec.gov/Archives/edgar/data/1503269/0001062993-23-016596.txt,1503269,"141 ADELAIDE ST WEST, SUITE 260, TORONTO, A6, M5H 3L5",Heathbridge Capital Management Ltd.,2023-06-30,683715,683715106,OPEN TEXT CORP,8498051000.0,204200
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+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1752166000.0,7972
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,340805000.0,4175
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,452501000.0,2732
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,115637,115637209,BROWN FORMAN CORP,429462000.0,6431
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,685443000.0,7248
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,189054,189054109,CLOROX CO DEL,472985000.0,2974
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,205887,205887102,CONAGRA BRANDS INC,494706000.0,14671
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,520287000.0,3114
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,31428X,31428X106,FEDEX CORP,1276437000.0,5149
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,370334,370334104,GENERAL MLS INC,2499039000.0,32582
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,263712000.0,1576
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,461202,461202103,INTUIT,2666666000.0,5820
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,482480,482480100,KLA CORP,1385217000.0,2856
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,512807,512807108,LAM RESEARCH CORP,6435029000.0,10010
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,485434000.0,4223
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,5111968000.0,26031
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,594918,594918104,MICROSOFT CORP,100735478000.0,295811
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,640491,640491106,NEOGEN CORP,1042521000.0,47932
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,64110D,64110D104,NETAPP INC,342654000.0,4485
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,65249B,65249B109,NEWS CORP NEW,202956000.0,10408
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,654106,654106103,NIKE INC,18563241000.0,168191
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1661582000.0,6503
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1023075000.0,2623
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,703395,703395103,PATTERSON COS INC,987822000.0,29700
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,704326,704326107,PAYCHEX INC,671444000.0,6002
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,7079885000.0,46658
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,749685,749685103,RPM INTL INC,247834000.0,2762
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,761152,761152107,RESMED INC,620322000.0,2839
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,832696,832696405,SMUCKER J M CO,1284138000.0,8696
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,871829,871829107,SYSCO CORP,1437625000.0,19375
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,309926000.0,8171
+https://sec.gov/Archives/edgar/data/1504169/0001172661-23-002650.txt,1504169,"1-8-2 Marunouchi, Chiyoda-ku, Tokyo, M0, 100-0005",TOKIO MARINE ASSET MANAGEMENT CO LTD,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,8116477000.0,92128
+https://sec.gov/Archives/edgar/data/1504492/0001504492-23-000004.txt,1504492,"3838 OAK LAWN AVENUE, SUITE 1414, DALLAS, TX, 75219","St. James Investment Company, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,29164624000.0,331040
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1714814000.0,7225
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,090043,090043100,BILL HOLDINGS INC,1554244000.0,11701
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,237839000.0,2581
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,147528,147528103,CASEYS GEN STORES INC,724346000.0,2846
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,523404000.0,3382
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,693423000.0,21290
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,609848000.0,3557
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,906102000.0,12048
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,461202,461202103,INTUIT,1277194000.0,2552
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,482480,482480100,KLA CORP,263604000.0,560
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,328923000.0,1733
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,22279682000.0,62746
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,654106,654106103,NIKE INC,3177461000.0,28918
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,4438578000.0,18043
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3417684000.0,22741
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,761152,761152107,RESMED INC,471860000.0,2164
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,683033000.0,4563
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,871829,871829107,SYSCO CORP,1480202000.0,19962
+https://sec.gov/Archives/edgar/data/1504665/0001085146-23-002878.txt,1504665,"9017 S RIVERSIDE DRIVE, SUITE 210, SANDY, UT, 84070","DFPG INVESTMENTS, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,3787945000.0,43984
+https://sec.gov/Archives/edgar/data/1504941/0001504941-23-000004.txt,1504941,"217 COMMERCIAL STREET, SUITE 400, PORTLAND, ME, 04101",Portland Global Advisors LLC,2023-06-30,31428X,31428X106,FedEx Corp.,5765000.0,23256
+https://sec.gov/Archives/edgar/data/1504941/0001504941-23-000004.txt,1504941,"217 COMMERCIAL STREET, SUITE 400, PORTLAND, ME, 04101",Portland Global Advisors LLC,2023-06-30,370334,370334104,General Mills,557000.0,7264
+https://sec.gov/Archives/edgar/data/1504941/0001504941-23-000004.txt,1504941,"217 COMMERCIAL STREET, SUITE 400, PORTLAND, ME, 04101",Portland Global Advisors LLC,2023-06-30,594918,594918104,Microsoft,14175000.0,41626
+https://sec.gov/Archives/edgar/data/1504941/0001504941-23-000004.txt,1504941,"217 COMMERCIAL STREET, SUITE 400, PORTLAND, ME, 04101",Portland Global Advisors LLC,2023-06-30,697435,697435105,Palo Alto Networks Inc,6134000.0,24005
+https://sec.gov/Archives/edgar/data/1504941/0001504941-23-000004.txt,1504941,"217 COMMERCIAL STREET, SUITE 400, PORTLAND, ME, 04101",Portland Global Advisors LLC,2023-06-30,742718,742718109,Procter & Gamble,1265000.0,8339
+https://sec.gov/Archives/edgar/data/1505183/0000919574-23-004586.txt,1505183,"200 Clarendon Street, 35th Floor, Boston, MA, 02116",Stockbridge Partners LLC,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,345018862000.0,3001469
+https://sec.gov/Archives/edgar/data/1505183/0000919574-23-004586.txt,1505183,"200 Clarendon Street, 35th Floor, Boston, MA, 02116",Stockbridge Partners LLC,2023-06-30,594918,594918104,MICROSOFT CORP,351420934000.0,1031952
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,3324717000.0,22956
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,115637,115637209,BROWN FORMAN CORP,494172000.0,7400
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,2148158000.0,22715
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,31428X,31428X106,FEDEX CORP,316568000.0,1277
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,46054068000.0,275229
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,461202,461202103,INTUIT,3042382000.0,6640
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,482480,482480100,KLA CORP,4380701000.0,9032
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,512807,512807108,LAM RESEARCH CORP,1524221000.0,2371
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,1877982000.0,9563
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,594918,594918104,MICROSOFT CORP,2544059237000.0,7470662
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,640491,640491106,NEOGEN CORP,2996715000.0,137780
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,654106,654106103,NIKE INC,608571461000.0,5513921
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,2568387000.0,10052
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,877590000.0,2250
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,1721117000.0,28571
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,279961000.0,1845
+https://sec.gov/Archives/edgar/data/1505817/0001085146-23-003181.txt,1505817,"1981 MCGILL COLLEGE AVENUE, SUITE 1500, MONTREAL, A8, H3A 0H5",Fiera Capital Corp,2023-06-30,761152,761152107,RESMED INC,484196000.0,2216
+https://sec.gov/Archives/edgar/data/1505961/0000909012-23-000085.txt,1505961,"160 CLAIREMONT AVENUE, SUITE 200, DECATUR, GA, 30030","Decatur Capital Management, Inc.",2023-06-30,461202,461202103,Intuit Inc.,2110881000.0,4607
+https://sec.gov/Archives/edgar/data/1505961/0000909012-23-000085.txt,1505961,"160 CLAIREMONT AVENUE, SUITE 200, DECATUR, GA, 30030","Decatur Capital Management, Inc.",2023-06-30,482480,482480100,KLA Corporation,2714172000.0,5596
+https://sec.gov/Archives/edgar/data/1505961/0000909012-23-000085.txt,1505961,"160 CLAIREMONT AVENUE, SUITE 200, DECATUR, GA, 30030","Decatur Capital Management, Inc.",2023-06-30,594918,594918104,Microsoft Corporation,14477036000.0,42512
+https://sec.gov/Archives/edgar/data/1505961/0000909012-23-000085.txt,1505961,"160 CLAIREMONT AVENUE, SUITE 200, DECATUR, GA, 30030","Decatur Capital Management, Inc.",2023-06-30,654106,654106103,Nike Inc Cl B,1075114000.0,9741
+https://sec.gov/Archives/edgar/data/1505961/0000909012-23-000085.txt,1505961,"160 CLAIREMONT AVENUE, SUITE 200, DECATUR, GA, 30030","Decatur Capital Management, Inc.",2023-06-30,876030,876030107,"Tapestry, Inc.",1472748000.0,34410
+https://sec.gov/Archives/edgar/data/1507683/0001085146-23-003455.txt,1507683,"4970 ROCKLIN ROAD, SUITE 200, Rocklin, CA, 95677","RWWM, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,34374789000.0,100942
+https://sec.gov/Archives/edgar/data/1507971/0001172661-23-002869.txt,1507971,"100 Wall Street, Suite 804, New York, NY, 10005",KELLEHER FINANCIAL ADVISORS,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,553871000.0,2520
+https://sec.gov/Archives/edgar/data/1507971/0001172661-23-002869.txt,1507971,"100 Wall Street, Suite 804, New York, NY, 10005",KELLEHER FINANCIAL ADVISORS,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,228565000.0,1368
+https://sec.gov/Archives/edgar/data/1507971/0001172661-23-002869.txt,1507971,"100 Wall Street, Suite 804, New York, NY, 10005",KELLEHER FINANCIAL ADVISORS,2023-06-30,370334,370334104,GENERAL MLS INC,305726000.0,3986
+https://sec.gov/Archives/edgar/data/1507971/0001172661-23-002869.txt,1507971,"100 Wall Street, Suite 804, New York, NY, 10005",KELLEHER FINANCIAL ADVISORS,2023-06-30,594918,594918104,MICROSOFT CORP,5619371000.0,45401
+https://sec.gov/Archives/edgar/data/1507971/0001172661-23-002869.txt,1507971,"100 Wall Street, Suite 804, New York, NY, 10005",KELLEHER FINANCIAL ADVISORS,2023-06-30,654106,654106103,NIKE INC,2100119000.0,19028
+https://sec.gov/Archives/edgar/data/1507971/0001172661-23-002869.txt,1507971,"100 Wall Street, Suite 804, New York, NY, 10005",KELLEHER FINANCIAL ADVISORS,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,821469000.0,3215
+https://sec.gov/Archives/edgar/data/1507971/0001172661-23-002869.txt,1507971,"100 Wall Street, Suite 804, New York, NY, 10005",KELLEHER FINANCIAL ADVISORS,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,741402000.0,4886
+https://sec.gov/Archives/edgar/data/1508097/0001172661-23-002910.txt,1508097,"777 S. Flagler Drive, Phillips Point East Tower, Suite 1100, West Palm Beach, FL, 33401","Sanders Capital, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,4065782000.0,35370
+https://sec.gov/Archives/edgar/data/1508097/0001172661-23-002910.txt,1508097,"777 S. Flagler Drive, Phillips Point East Tower, Suite 1100, West Palm Beach, FL, 33401","Sanders Capital, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,4316116679000.0,12674331
+https://sec.gov/Archives/edgar/data/1508097/0001172661-23-002910.txt,1508097,"777 S. Flagler Drive, Phillips Point East Tower, Suite 1100, West Palm Beach, FL, 33401","Sanders Capital, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1023827867000.0,6747251
+https://sec.gov/Archives/edgar/data/1508097/0001172661-23-002910.txt,1508097,"777 S. Flagler Drive, Phillips Point East Tower, Suite 1100, West Palm Beach, FL, 33401","Sanders Capital, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1080252158000.0,12261659
+https://sec.gov/Archives/edgar/data/1508195/0001085146-23-002846.txt,1508195,"4811 W. 136TH STREET, LEAWOOD, KS, 66224","Retirement Planning Group, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,316172000.0,1988
+https://sec.gov/Archives/edgar/data/1508195/0001085146-23-002846.txt,1508195,"4811 W. 136TH STREET, LEAWOOD, KS, 66224","Retirement Planning Group, LLC",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,965494000.0,5770
+https://sec.gov/Archives/edgar/data/1508195/0001085146-23-002846.txt,1508195,"4811 W. 136TH STREET, LEAWOOD, KS, 66224","Retirement Planning Group, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,3179055000.0,9335
+https://sec.gov/Archives/edgar/data/1508195/0001085146-23-002846.txt,1508195,"4811 W. 136TH STREET, LEAWOOD, KS, 66224","Retirement Planning Group, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,648203000.0,4272
+https://sec.gov/Archives/edgar/data/1508195/0001085146-23-002846.txt,1508195,"4811 W. 136TH STREET, LEAWOOD, KS, 66224","Retirement Planning Group, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,234082000.0,2657
+https://sec.gov/Archives/edgar/data/1508512/0001104659-23-088286.txt,1508512,"3 Radnor Corporate Center, Suite 450, Radnor, PA, 19087-4546",Drexel Morgan & Co.,2023-06-30,594918,594918104,MICROSOFT CORP,10239697000.0,30069
+https://sec.gov/Archives/edgar/data/1508512/0001104659-23-088286.txt,1508512,"3 Radnor Corporate Center, Suite 450, Radnor, PA, 19087-4546",Drexel Morgan & Co.,2023-06-30,742718,742718109,PROCTER & GAMBLE,4436271000.0,29236
+https://sec.gov/Archives/edgar/data/1508512/0001104659-23-088286.txt,1508512,"3 Radnor Corporate Center, Suite 450, Radnor, PA, 19087-4546",Drexel Morgan & Co.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1823758000.0,20701
+https://sec.gov/Archives/edgar/data/1508822/0001085146-23-002874.txt,1508822,"8000 MARYLAND AVE., SUITE 700, CLAYTON, MO, 63105","ACR Alpine Capital Research, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,248723332000.0,1003321
+https://sec.gov/Archives/edgar/data/1508822/0001085146-23-002874.txt,1508822,"8000 MARYLAND AVE., SUITE 700, CLAYTON, MO, 63105","ACR Alpine Capital Research, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,197100939000.0,578789
+https://sec.gov/Archives/edgar/data/1509508/0001509508-23-000004.txt,1509508,"45 WALKER ST, LENOX, MA, 01240",Renaissance Investment Group LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1505122000.0,6848
+https://sec.gov/Archives/edgar/data/1509508/0001509508-23-000004.txt,1509508,"45 WALKER ST, LENOX, MA, 01240",Renaissance Investment Group LLC,2023-06-30,594918,594918104,MICROSOFT CORP,19670118000.0,57762
+https://sec.gov/Archives/edgar/data/1509508/0001509508-23-000004.txt,1509508,"45 WALKER ST, LENOX, MA, 01240",Renaissance Investment Group LLC,2023-06-30,654106,654106103,NIKE INC,358151000.0,3245
+https://sec.gov/Archives/edgar/data/1509508/0001509508-23-000004.txt,1509508,"45 WALKER ST, LENOX, MA, 01240",Renaissance Investment Group LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,502108000.0,3309
+https://sec.gov/Archives/edgar/data/1509510/0001398344-23-014848.txt,1509510,"119 WASHINGTON AVENUE, SUITE 504, MIAMI BEACH, FL, 33139","Thomas J. Herzfeld Advisors, Inc.",2023-06-30,053015,053015103,"Automatic Data Processing, Inc.",9231000.0,42
+https://sec.gov/Archives/edgar/data/1509510/0001398344-23-014848.txt,1509510,"119 WASHINGTON AVENUE, SUITE 504, MIAMI BEACH, FL, 33139","Thomas J. Herzfeld Advisors, Inc.",2023-06-30,426281,426281101,Henry Jack & Assoc Inc,4853000.0,29
+https://sec.gov/Archives/edgar/data/1509510/0001398344-23-014848.txt,1509510,"119 WASHINGTON AVENUE, SUITE 504, MIAMI BEACH, FL, 33139","Thomas J. Herzfeld Advisors, Inc.",2023-06-30,512807,512807108,Lam Research Corp,2571000.0,4
+https://sec.gov/Archives/edgar/data/1509510/0001398344-23-014848.txt,1509510,"119 WASHINGTON AVENUE, SUITE 504, MIAMI BEACH, FL, 33139","Thomas J. Herzfeld Advisors, Inc.",2023-06-30,594918,594918104,Microsoft Corp,43249000.0,127
+https://sec.gov/Archives/edgar/data/1509510/0001398344-23-014848.txt,1509510,"119 WASHINGTON AVENUE, SUITE 504, MIAMI BEACH, FL, 33139","Thomas J. Herzfeld Advisors, Inc.",2023-06-30,654106,654106103,"Nike, Inc.",5931000.0,54
+https://sec.gov/Archives/edgar/data/1509510/0001398344-23-014848.txt,1509510,"119 WASHINGTON AVENUE, SUITE 504, MIAMI BEACH, FL, 33139","Thomas J. Herzfeld Advisors, Inc.",2023-06-30,704326,704326107,"Paychex, Inc",6265000.0,56
+https://sec.gov/Archives/edgar/data/1509510/0001398344-23-014848.txt,1509510,"119 WASHINGTON AVENUE, SUITE 504, MIAMI BEACH, FL, 33139","Thomas J. Herzfeld Advisors, Inc.",2023-06-30,742718,742718109,Procter & Gamble Co. (The),15629000.0,103
+https://sec.gov/Archives/edgar/data/1509510/0001398344-23-014848.txt,1509510,"119 WASHINGTON AVENUE, SUITE 504, MIAMI BEACH, FL, 33139","Thomas J. Herzfeld Advisors, Inc.",2023-06-30,G3323L,G3323L100,Fabrinet,1039000.0,8
+https://sec.gov/Archives/edgar/data/1509510/0001398344-23-014848.txt,1509510,"119 WASHINGTON AVENUE, SUITE 504, MIAMI BEACH, FL, 33139","Thomas J. Herzfeld Advisors, Inc.",2023-06-30,G5960L,G5960L103,Medtronic plc,23089000.0,262
+https://sec.gov/Archives/edgar/data/1509842/0000950123-23-008098.txt,1509842,"40 West 57th Street, 25th FLOOR, New York, NY, 10019",PointState Capital LP,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,172163604000.0,1497726
+https://sec.gov/Archives/edgar/data/1509943/0000919574-23-004383.txt,1509943,"880 THIRD AVENUE, 16TH FLOOR, NEW YORK, NY, 10022",Samjo Capital LLC,2023-06-30,46564T,46564T107,ITERIS INC NEW,13048200000.0,3295000
+https://sec.gov/Archives/edgar/data/1509973/0001509973-23-000003.txt,1509973,"2036 WASHINGTON STREET, HANOVER, MA, 02339","BRIGHT ROCK CAPITAL MANAGEMENT, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,7253070000.0,33000
+https://sec.gov/Archives/edgar/data/1509973/0001509973-23-000003.txt,1509973,"2036 WASHINGTON STREET, HANOVER, MA, 02339","BRIGHT ROCK CAPITAL MANAGEMENT, LLC",2023-06-30,115637,115637209,BROWN-FORMAN CORP,1970010000.0,29500
+https://sec.gov/Archives/edgar/data/1509973/0001509973-23-000003.txt,1509973,"2036 WASHINGTON STREET, HANOVER, MA, 02339","BRIGHT ROCK CAPITAL MANAGEMENT, LLC",2023-06-30,189054,189054109,Clorox Co/The,1988000000.0,12500
+https://sec.gov/Archives/edgar/data/1509973/0001509973-23-000003.txt,1509973,"2036 WASHINGTON STREET, HANOVER, MA, 02339","BRIGHT ROCK CAPITAL MANAGEMENT, LLC",2023-06-30,426281,426281101,Jack Henry & Associates Inc,3279668000.0,19600
+https://sec.gov/Archives/edgar/data/1509973/0001509973-23-000003.txt,1509973,"2036 WASHINGTON STREET, HANOVER, MA, 02339","BRIGHT ROCK CAPITAL MANAGEMENT, LLC",2023-06-30,461202,461202103,Intuit Inc,6872850000.0,15000
+https://sec.gov/Archives/edgar/data/1509973/0001509973-23-000003.txt,1509973,"2036 WASHINGTON STREET, HANOVER, MA, 02339","BRIGHT ROCK CAPITAL MANAGEMENT, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,22475640000.0,66000
+https://sec.gov/Archives/edgar/data/1509973/0001509973-23-000003.txt,1509973,"2036 WASHINGTON STREET, HANOVER, MA, 02339","BRIGHT ROCK CAPITAL MANAGEMENT, LLC",2023-06-30,654106,654106103,NIKE INC,4745910000.0,43000
+https://sec.gov/Archives/edgar/data/1509973/0001509973-23-000003.txt,1509973,"2036 WASHINGTON STREET, HANOVER, MA, 02339","BRIGHT ROCK CAPITAL MANAGEMENT, LLC",2023-06-30,761152,761152107,ResMed Inc,3386750000.0,15500
+https://sec.gov/Archives/edgar/data/1509974/0001398344-23-014138.txt,1509974,"5100 WHEELIS DRIVE, SUITE 107, MEMPHIS, TN, 38117","Summit Asset Management, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,249901000.0,1137
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+https://sec.gov/Archives/edgar/data/1511229/0001104659-23-085169.txt,1511229,"2250 Aviation Drive, Suite 3, Roseburg, OR, 97470","Orca Investment Management, LLC",2023-06-30,053015,053015103,AUTO DATA PROCESSING,721131000.0,3281
+https://sec.gov/Archives/edgar/data/1511229/0001104659-23-085169.txt,1511229,"2250 Aviation Drive, Suite 3, Roseburg, OR, 97470","Orca Investment Management, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,2633302000.0,27845
+https://sec.gov/Archives/edgar/data/1511229/0001104659-23-085169.txt,1511229,"2250 Aviation Drive, Suite 3, Roseburg, OR, 97470","Orca Investment Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,11610711000.0,34095
+https://sec.gov/Archives/edgar/data/1511229/0001104659-23-085169.txt,1511229,"2250 Aviation Drive, Suite 3, Roseburg, OR, 97470","Orca Investment Management, LLC",2023-06-30,742718,742718109,PROCTER & GAMBLE,529117000.0,3487
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1732632000.0,7883
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,090043,090043100,BILL HOLDINGS INC,3662079000.0,31340
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,115637,115637209,BROWN FORMAN CORP,1255264000.0,18797
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,1204304000.0,7572
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,322609000.0,1301
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,277194000.0,3614
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,461202,461202103,INTUIT,283467000.0,618
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,513847,513847103,LANCASTER COLONY CORP,518812000.0,2580
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,400615000.0,2040
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,95086545000.0,279222
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,640491,640491106,NEOGEN CORP,4321321000.0,198681
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,654106,654106103,NIKE INC,21860036000.0,198061
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,2491098000.0,6386
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,704326,704326107,PAYCHEX INC,764573000.0,6834
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,11959396000.0,78815
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,749685,749685103,RPM INTL INC,1993621000.0,22218
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,761152,761152107,RESMED INC,1164605000.0,5330
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,316787000.0,2145
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,871829,871829107,SYSCO CORP,2439155000.0,32872
+https://sec.gov/Archives/edgar/data/1511506/0001085146-23-003079.txt,1511506,"30300 CHAGRIN BOULEVARD, PEPPER PIKE, OH, 44124","Carnegie Capital Asset Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2772272000.0,31467
+https://sec.gov/Archives/edgar/data/1511550/0001398344-23-014748.txt,1511550,"60 LONG RIDGE ROAD, SUITE 305, STAMFORD, CT, 06902","Asset Management Group, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,3325626000.0,9766
+https://sec.gov/Archives/edgar/data/1511550/0001398344-23-014748.txt,1511550,"60 LONG RIDGE ROAD, SUITE 305, STAMFORD, CT, 06902","Asset Management Group, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,1047041000.0,9359
+https://sec.gov/Archives/edgar/data/1511550/0001398344-23-014748.txt,1511550,"60 LONG RIDGE ROAD, SUITE 305, STAMFORD, CT, 06902","Asset Management Group, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2026573000.0,13356
+https://sec.gov/Archives/edgar/data/1511697/0001085146-23-003306.txt,1511697,"1700 EAST WALNUT AVE., SUITE 460, EL SEGUNDO, CA, 90245",Huber Capital Management LLC,2023-06-30,093671,093671105,BLOCK H & R INC,1139161000.0,35744
+https://sec.gov/Archives/edgar/data/1511697/0001085146-23-003306.txt,1511697,"1700 EAST WALNUT AVE., SUITE 460, EL SEGUNDO, CA, 90245",Huber Capital Management LLC,2023-06-30,205887,205887102,CONAGRA BRANDS INC,303480000.0,9000
+https://sec.gov/Archives/edgar/data/1511697/0001085146-23-003306.txt,1511697,"1700 EAST WALNUT AVE., SUITE 460, EL SEGUNDO, CA, 90245",Huber Capital Management LLC,2023-06-30,31428X,31428X106,FEDEX CORP,6728502000.0,27142
+https://sec.gov/Archives/edgar/data/1511697/0001085146-23-003306.txt,1511697,"1700 EAST WALNUT AVE., SUITE 460, EL SEGUNDO, CA, 90245",Huber Capital Management LLC,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,478882000.0,4166
+https://sec.gov/Archives/edgar/data/1511697/0001085146-23-003306.txt,1511697,"1700 EAST WALNUT AVE., SUITE 460, EL SEGUNDO, CA, 90245",Huber Capital Management LLC,2023-06-30,594918,594918104,MICROSOFT CORP,20889745000.0,61343
+https://sec.gov/Archives/edgar/data/1511702/0001172661-23-002984.txt,1511702,"One Fawcett Place, Greenwich, CT, 06830",Deccan Value Investors L.P.,2023-06-30,594918,594918104,MICROSOFT CORP,278940741000.0,819113
+https://sec.gov/Archives/edgar/data/1511739/0001511739-23-000003.txt,1511739,"3393 BARGAINTOWN ROAD, EGG HARBOR TOWNSHIP, NJ, 08234","Hanlon Investment Management, Inc.",2023-06-30,222070,222070203,COTY INC,201433000.0,16390
+https://sec.gov/Archives/edgar/data/1511739/0001511739-23-000003.txt,1511739,"3393 BARGAINTOWN ROAD, EGG HARBOR TOWNSHIP, NJ, 08234","Hanlon Investment Management, Inc.",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,4654180000.0,27856
+https://sec.gov/Archives/edgar/data/1511739/0001511739-23-000003.txt,1511739,"3393 BARGAINTOWN ROAD, EGG HARBOR TOWNSHIP, NJ, 08234","Hanlon Investment Management, Inc.",2023-06-30,482480,482480100,KLA CORP,1455565000.0,3001
+https://sec.gov/Archives/edgar/data/1511739/0001511739-23-000003.txt,1511739,"3393 BARGAINTOWN ROAD, EGG HARBOR TOWNSHIP, NJ, 08234","Hanlon Investment Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,1066912000.0,3133
+https://sec.gov/Archives/edgar/data/1511739/0001511739-23-000003.txt,1511739,"3393 BARGAINTOWN ROAD, EGG HARBOR TOWNSHIP, NJ, 08234","Hanlon Investment Management, Inc.",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,369060000.0,2000
+https://sec.gov/Archives/edgar/data/1511739/0001511739-23-000003.txt,1511739,"3393 BARGAINTOWN ROAD, EGG HARBOR TOWNSHIP, NJ, 08234","Hanlon Investment Management, Inc.",2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,1320160000.0,21915
+https://sec.gov/Archives/edgar/data/1511847/0001511847-23-000004.txt,1511847,"48 WALL STREET, SUITE 1100, NEW YORK, NY, 10005",Lumina Fund Management LLC,2023-06-30,31428X,31428X106,FEDEX CORP,992000.0,4000
+https://sec.gov/Archives/edgar/data/1511847/0001511847-23-000004.txt,1511847,"48 WALL STREET, SUITE 1100, NEW YORK, NY, 10005",Lumina Fund Management LLC,2023-06-30,482480,482480100,KLA CORP,970000.0,2000
+https://sec.gov/Archives/edgar/data/1511847/0001511847-23-000004.txt,1511847,"48 WALL STREET, SUITE 1100, NEW YORK, NY, 10005",Lumina Fund Management LLC,2023-06-30,512807,512807108,LAM RESEARCH CORP,707000.0,1100
+https://sec.gov/Archives/edgar/data/1511847/0001511847-23-000004.txt,1511847,"48 WALL STREET, SUITE 1100, NEW YORK, NY, 10005",Lumina Fund Management LLC,2023-06-30,594918,594918104,MICROSOFT CORP,2043000.0,6000
+https://sec.gov/Archives/edgar/data/1511857/0001172661-23-002566.txt,1511857,"263 Tresser Blvd, 15th Floor, Stamford, CT, 06901","Clear Harbor Asset Management, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,2451235000.0,9888
+https://sec.gov/Archives/edgar/data/1511857/0001172661-23-002566.txt,1511857,"263 Tresser Blvd, 15th Floor, Stamford, CT, 06901","Clear Harbor Asset Management, LLC",2023-06-30,461202,461202103,INTUIT,2306630000.0,5034
+https://sec.gov/Archives/edgar/data/1511857/0001172661-23-002566.txt,1511857,"263 Tresser Blvd, 15th Floor, Stamford, CT, 06901","Clear Harbor Asset Management, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,1057505000.0,1645
+https://sec.gov/Archives/edgar/data/1511857/0001172661-23-002566.txt,1511857,"263 Tresser Blvd, 15th Floor, Stamford, CT, 06901","Clear Harbor Asset Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,23787209000.0,69851
+https://sec.gov/Archives/edgar/data/1511857/0001172661-23-002566.txt,1511857,"263 Tresser Blvd, 15th Floor, Stamford, CT, 06901","Clear Harbor Asset Management, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,23639154000.0,60607
+https://sec.gov/Archives/edgar/data/1511857/0001172661-23-002566.txt,1511857,"263 Tresser Blvd, 15th Floor, Stamford, CT, 06901","Clear Harbor Asset Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,5473565000.0,36072
+https://sec.gov/Archives/edgar/data/1511857/0001172661-23-002566.txt,1511857,"263 Tresser Blvd, 15th Floor, Stamford, CT, 06901","Clear Harbor Asset Management, LLC",2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,249250000.0,1000
+https://sec.gov/Archives/edgar/data/1511857/0001172661-23-002566.txt,1511857,"263 Tresser Blvd, 15th Floor, Stamford, CT, 06901","Clear Harbor Asset Management, LLC",2023-06-30,871829,871829107,SYSCO CORP,1226897000.0,16535
+https://sec.gov/Archives/edgar/data/1511857/0001172661-23-002566.txt,1511857,"263 Tresser Blvd, 15th Floor, Stamford, CT, 06901","Clear Harbor Asset Management, LLC",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,683157000.0,18011
+https://sec.gov/Archives/edgar/data/1511857/0001172661-23-002566.txt,1511857,"263 Tresser Blvd, 15th Floor, Stamford, CT, 06901","Clear Harbor Asset Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,918990000.0,10431
+https://sec.gov/Archives/edgar/data/1511888/0001172661-23-002686.txt,1511888,"2000 PGA BLVD, SUITE 4440, PALM BEACH GARDENS, FL, 33408","Martin Investment Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,811507000.0,2383
+https://sec.gov/Archives/edgar/data/1511888/0001172661-23-002686.txt,1511888,"2000 PGA BLVD, SUITE 4440, PALM BEACH GARDENS, FL, 33408","Martin Investment Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,7432984000.0,48985
+https://sec.gov/Archives/edgar/data/1511888/0001172661-23-002686.txt,1511888,"2000 PGA BLVD, SUITE 4440, PALM BEACH GARDENS, FL, 33408","Martin Investment Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1149265000.0,13045
+https://sec.gov/Archives/edgar/data/1511985/0001085146-23-003167.txt,1511985,"1435 ANACAPA STREET, SANTA BARBARA, CA, 93101",West Coast Financial LLC,2023-06-30,189054,189054109,CLOROX CO DEL,7027490000.0,44186
+https://sec.gov/Archives/edgar/data/1511985/0001085146-23-003167.txt,1511985,"1435 ANACAPA STREET, SANTA BARBARA, CA, 93101",West Coast Financial LLC,2023-06-30,31428X,31428X106,FEDEX CORP,324593000.0,1309
+https://sec.gov/Archives/edgar/data/1511985/0001085146-23-003167.txt,1511985,"1435 ANACAPA STREET, SANTA BARBARA, CA, 93101",West Coast Financial LLC,2023-06-30,370334,370334104,GENERAL MLS INC,418935000.0,5462
+https://sec.gov/Archives/edgar/data/1511985/0001085146-23-003167.txt,1511985,"1435 ANACAPA STREET, SANTA BARBARA, CA, 93101",West Coast Financial LLC,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,6798667000.0,40630
+https://sec.gov/Archives/edgar/data/1511985/0001085146-23-003167.txt,1511985,"1435 ANACAPA STREET, SANTA BARBARA, CA, 93101",West Coast Financial LLC,2023-06-30,461202,461202103,INTUIT,227259000.0,495
+https://sec.gov/Archives/edgar/data/1511985/0001085146-23-003167.txt,1511985,"1435 ANACAPA STREET, SANTA BARBARA, CA, 93101",West Coast Financial LLC,2023-06-30,594918,594918104,MICROSOFT CORP,19156996000.0,56254
+https://sec.gov/Archives/edgar/data/1511985/0001085146-23-003167.txt,1511985,"1435 ANACAPA STREET, SANTA BARBARA, CA, 93101",West Coast Financial LLC,2023-06-30,654106,654106103,NIKE INC,490815000.0,4447
+https://sec.gov/Archives/edgar/data/1511985/0001085146-23-003167.txt,1511985,"1435 ANACAPA STREET, SANTA BARBARA, CA, 93101",West Coast Financial LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,6636901000.0,43738
+https://sec.gov/Archives/edgar/data/1511985/0001085146-23-003167.txt,1511985,"1435 ANACAPA STREET, SANTA BARBARA, CA, 93101",West Coast Financial LLC,2023-06-30,761152,761152107,RESMED INC,7331375000.0,33553
+https://sec.gov/Archives/edgar/data/1512022/0001512022-23-000006.txt,1512022,"10-11 CHARTERHOUSE SQUARE, LONDON, X0, EC1M 6EE",Herald Investment Management Ltd,2023-06-30,029683,029683109,American Software Inc/GA,2310000000.0,220000
+https://sec.gov/Archives/edgar/data/1512022/0001512022-23-000006.txt,1512022,"10-11 CHARTERHOUSE SQUARE, LONDON, X0, EC1M 6EE",Herald Investment Management Ltd,2023-06-30,05366Y,05366Y201,Aviat Networks Inc,3666300000.0,110000
+https://sec.gov/Archives/edgar/data/1512022/0001512022-23-000006.txt,1512022,"10-11 CHARTERHOUSE SQUARE, LONDON, X0, EC1M 6EE",Herald Investment Management Ltd,2023-06-30,594918,594918104,Microsoft Corp,8664019000.0,25442
+https://sec.gov/Archives/edgar/data/1512022/0001512022-23-000006.txt,1512022,"10-11 CHARTERHOUSE SQUARE, LONDON, X0, EC1M 6EE",Herald Investment Management Ltd,2023-06-30,64110D,64110D104,NetApp Inc,2712200000.0,35500
+https://sec.gov/Archives/edgar/data/1512022/0001512022-23-000006.txt,1512022,"10-11 CHARTERHOUSE SQUARE, LONDON, X0, EC1M 6EE",Herald Investment Management Ltd,2023-06-30,747906,747906501,Quantum Corp,1080000000.0,1000000
+https://sec.gov/Archives/edgar/data/1512022/0001512022-23-000006.txt,1512022,"10-11 CHARTERHOUSE SQUARE, LONDON, X0, EC1M 6EE",Herald Investment Management Ltd,2023-06-30,86800U,86800U104,Super Micro Computer Inc,77201975000.0,309900
+https://sec.gov/Archives/edgar/data/1512022/0001512022-23-000006.txt,1512022,"10-11 CHARTERHOUSE SQUARE, LONDON, X0, EC1M 6EE",Herald Investment Management Ltd,2023-06-30,G3323L,G3323L100,Fabrinet,25045260000.0,193000
+https://sec.gov/Archives/edgar/data/1512026/0001512026-23-000004.txt,1512026,"7800 DALLAS PARKWAY, SUITE 350, PLANO, TX, 75024","SFMG, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,506383000.0,3184
+https://sec.gov/Archives/edgar/data/1512026/0001512026-23-000004.txt,1512026,"7800 DALLAS PARKWAY, SUITE 350, PLANO, TX, 75024","SFMG, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1114822000.0,6672
+https://sec.gov/Archives/edgar/data/1512026/0001512026-23-000004.txt,1512026,"7800 DALLAS PARKWAY, SUITE 350, PLANO, TX, 75024","SFMG, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,521620000.0,6801
+https://sec.gov/Archives/edgar/data/1512026/0001512026-23-000004.txt,1512026,"7800 DALLAS PARKWAY, SUITE 350, PLANO, TX, 75024","SFMG, LLC",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,218031000.0,1303
+https://sec.gov/Archives/edgar/data/1512026/0001512026-23-000004.txt,1512026,"7800 DALLAS PARKWAY, SUITE 350, PLANO, TX, 75024","SFMG, LLC",2023-06-30,482480,482480100,KLA CORP,542635000.0,1119
+https://sec.gov/Archives/edgar/data/1512026/0001512026-23-000004.txt,1512026,"7800 DALLAS PARKWAY, SUITE 350, PLANO, TX, 75024","SFMG, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,22783499000.0,66904
+https://sec.gov/Archives/edgar/data/1512026/0001512026-23-000004.txt,1512026,"7800 DALLAS PARKWAY, SUITE 350, PLANO, TX, 75024","SFMG, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,213095000.0,834
+https://sec.gov/Archives/edgar/data/1512026/0001512026-23-000004.txt,1512026,"7800 DALLAS PARKWAY, SUITE 350, PLANO, TX, 75024","SFMG, LLC",2023-06-30,704326,704326107,PAYCHEX INC,762569000.0,6817
+https://sec.gov/Archives/edgar/data/1512026/0001512026-23-000004.txt,1512026,"7800 DALLAS PARKWAY, SUITE 350, PLANO, TX, 75024","SFMG, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1355511000.0,8933
+https://sec.gov/Archives/edgar/data/1512026/0001512026-23-000004.txt,1512026,"7800 DALLAS PARKWAY, SUITE 350, PLANO, TX, 75024","SFMG, LLC",2023-06-30,88688T,88688T100,TILRAY BRANDS INC,54372000.0,34854
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+https://sec.gov/Archives/edgar/data/1512779/0001512779-23-000007.txt,1512779,"2121 E. CRAWFORD PLACE, SALINA, KS, 67401","ROCKY MOUNTAIN ADVISERS, LLC",2023-06-30,871829,871829107,SYSCO CORP,23169000.0,300
+https://sec.gov/Archives/edgar/data/1512779/0001512779-23-000007.txt,1512779,"2121 E. CRAWFORD PLACE, SALINA, KS, 67401","ROCKY MOUNTAIN ADVISERS, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,32248000.0,400
+https://sec.gov/Archives/edgar/data/1512842/0000929638-23-002261.txt,1512842,"18 UPPER BROOK STREET, LONDON, UNITED KINGDOM, X0, W1K 7PU",Odey Asset Management LLP,2023-06-30,594918,594918104,Microsoft Corp,2671196000.0,7844
+https://sec.gov/Archives/edgar/data/1512848/0001012975-23-000333.txt,1512848,"1954 GREENSPRING DRIVE, SUITE 600, TIMONIUM, MD, 21093","NEA Management Company, LLC",2023-06-30,15870P,15870P307,CHAMPIONS ONCOLOGY INC,10933534000.0,1713720
+https://sec.gov/Archives/edgar/data/1512857/0000905148-23-000725.txt,1512857,"6TH FLOOR, 37 ESPLANADE, ST. HELIER, Y9, JE2 3QA",Brevan Howard Capital Management LP,2023-06-30,075896,075896100,Bed Bath & Beyond Inc,3520000.0,12820
+https://sec.gov/Archives/edgar/data/1512857/0000905148-23-000725.txt,1512857,"6TH FLOOR, 37 ESPLANADE, ST. HELIER, Y9, JE2 3QA",Brevan Howard Capital Management LP,2023-06-30,594918,594918104,MICROSOFT CORP,5161905000.0,15158
+https://sec.gov/Archives/edgar/data/1512857/0000905148-23-000725.txt,1512857,"6TH FLOOR, 37 ESPLANADE, ST. HELIER, Y9, JE2 3QA",Brevan Howard Capital Management LP,2023-06-30,606710,606710200,Mitek Systems Inc,259575000.0,23946
+https://sec.gov/Archives/edgar/data/1512857/0000905148-23-000725.txt,1512857,"6TH FLOOR, 37 ESPLANADE, ST. HELIER, Y9, JE2 3QA",Brevan Howard Capital Management LP,2023-06-30,683715,683715106,OPEN TEXT CORP,626657000.0,15082
+https://sec.gov/Archives/edgar/data/1512857/0000905148-23-000725.txt,1512857,"6TH FLOOR, 37 ESPLANADE, ST. HELIER, Y9, JE2 3QA",Brevan Howard Capital Management LP,2023-06-30,70614W,70614W950,PELOTON INTERACTIVE INC-A,1284230000.0,167000
+https://sec.gov/Archives/edgar/data/1512857/0000905148-23-000725.txt,1512857,"6TH FLOOR, 37 ESPLANADE, ST. HELIER, Y9, JE2 3QA",Brevan Howard Capital Management LP,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,398136000.0,35140
+https://sec.gov/Archives/edgar/data/1512901/0001512901-23-000003.txt,1512901,"211 CONGRESS STREET SUITE 901, BOSTON, MA, 02110",NBW CAPITAL LLC,2023-06-30,56117J,56117J100,"Malibu Boats, Inc.",5828223000.0,99356
+https://sec.gov/Archives/edgar/data/1512901/0001512901-23-000003.txt,1512901,"211 CONGRESS STREET SUITE 901, BOSTON, MA, 02110",NBW CAPITAL LLC,2023-06-30,594918,594918104,Microsoft Corporation,12272381000.0,36038
+https://sec.gov/Archives/edgar/data/1512901/0001512901-23-000003.txt,1512901,"211 CONGRESS STREET SUITE 901, BOSTON, MA, 02110",NBW CAPITAL LLC,2023-06-30,654106,654106103,"Nike, Inc. Class B",4845795000.0,43905
+https://sec.gov/Archives/edgar/data/1512901/0001512901-23-000003.txt,1512901,"211 CONGRESS STREET SUITE 901, BOSTON, MA, 02110",NBW CAPITAL LLC,2023-06-30,697435,697435105,"Palo Alto Networks, Inc.",6747253000.0,26407
+https://sec.gov/Archives/edgar/data/1512920/0000919574-23-004841.txt,1512920,"Royal Bank Plaza, South Tower, 200 Bay Street, Suite 2600, Toronto, A6, M5J 2J1",SPROTT INC.,2023-06-30,128030,128030202,CAL MAINE FOODS INC,9000000000.0,200000
+https://sec.gov/Archives/edgar/data/1512920/0000919574-23-004841.txt,1512920,"Royal Bank Plaza, South Tower, 200 Bay Street, Suite 2600, Toronto, A6, M5J 2J1",SPROTT INC.,2023-06-30,368036,368036109,GATOS SILVER INC,11804004000.0,3124164
+https://sec.gov/Archives/edgar/data/1512978/0001172661-23-002500.txt,1512978,"5950 Berkshire Lane, Suite 1420, Dallas, TX, 75225",Brookmont Capital Management,2023-06-30,594918,594918104,MICROSOFT CORP,5531694000.0,16244
+https://sec.gov/Archives/edgar/data/1512978/0001172661-23-002500.txt,1512978,"5950 Berkshire Lane, Suite 1420, Dallas, TX, 75225",Brookmont Capital Management,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,4182945000.0,27567
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,008073,008073108,AEROVIRONMENT INC,794204000.0,7765
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,560696000.0,10684
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,023586,023586100,U-HAUL HOLDING CO,39609000.0,716
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,029683,029683109,AMERICAN SOFTWARE INC-CL A,169821000.0,16158
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,109758000.0,1100
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,218853000.0,20983
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,977186000.0,4446
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,128030,128030202,CAL-MAINE FOODS INC,980820000.0,21796
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,2185418000.0,23109
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,205887,205887102,CONAGRA BRANDS INC,4128542000.0,122436
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,234264,234264109,DAKTRONICS INC,37094000.0,5796
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,17958000.0,635
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,35137L,35137L105,FOX CORP - CLASS A,2836518000.0,83427
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,36251C,36251C103,GMS INC,2222427000.0,32116
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,1300865000.0,103986
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,461202,461202103,INTUIT INC,721649000.0,1575
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,489170,489170100,KENNAMETAL INC,1053752000.0,37117
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,43241000.0,1565
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,500643,500643200,KORN FERRY,47261000.0,954
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,513847,513847103,LANCASTER COLONY CORP,102556000.0,510
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,518439,518439104,ESTEE LAUDER COMPANIES-CL A,3423296000.0,17432
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,55024U,55024U109,LUMENTUM HOLDINGS INC,426837000.0,7524
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,55825T,55825T103,MADISON SQUARE GARDEN SPORTS,1697715000.0,9028
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,291046000.0,10626
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,56117J,56117J100,MALIBU BOATS INC - A,309432000.0,5275
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,589378,589378108,MERCURY SYSTEMS INC,1540846000.0,44546
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,591520,591520200,METHOD ELECTRONICS INC,138035000.0,4118
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,594918,594918104,MICROSOFT CORP,2242456000.0,6585
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,600544,600544100,MILLERKNOLL INC,629436000.0,42587
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,606710,606710200,MITEK SYSTEMS INC,120617000.0,11127
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,620071,620071100,MOTORCAR PARTS OF AMERICA IN,131309000.0,16965
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,654106,654106103,NIKE INC -CL B,9035992000.0,81870
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,2915880000.0,11412
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,703395,703395103,PATTERSON COS INC,1090296000.0,32781
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,704326,704326107,PAYCHEX INC,5371214000.0,48013
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,70438V,70438V106,PAYLOCITY HOLDING CORP,980592000.0,5314
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,74051N,74051N102,PREMIER INC-CLASS A,2118424000.0,76588
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,74874Q,74874Q100,QUINSTREET INC,114931000.0,13016
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,749685,749685103,RPM INTERNATIONAL INC,342589000.0,3818
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,761152,761152107,RESMED INC,9186396000.0,42043
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,806037,806037107,SCANSOURCE INC,125689000.0,4252
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,817070,817070501,SENECA FOODS CORP - CL A,29412000.0,900
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,871829,871829107,SYSCO CORP,2111955000.0,28463
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,904677,904677200,UNIFI INC,29859000.0,3700
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,958102,958102105,WESTERN DIGITAL CORP,4383267000.0,115562
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,968223,968223206,WILEY (JOHN)   SONS-CLASS A,161847000.0,4756
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,981811,981811102,WORTHINGTON INDUSTRIES,324494000.0,4671
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,G2143T,G2143T103,CIMPRESS PLC,475424000.0,7993
+https://sec.gov/Archives/edgar/data/1512991/0001512991-23-000005.txt,1512991,"505 FIFTH AVENUE, 6TH FLOOR, NEW YORK, NY, 10017",Quantbot Technologies LP,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,214921000.0,8379
+https://sec.gov/Archives/edgar/data/1513038/0001513038-23-000004.txt,1513038,"1201 THIRD AVE, SUITE 4900, SEATTLE, WA, 98101",Perkins Coie Trust Co,2023-06-30,31428X,31428X106,FEDEX CORP,33218000.0,134
+https://sec.gov/Archives/edgar/data/1513038/0001513038-23-000004.txt,1513038,"1201 THIRD AVE, SUITE 4900, SEATTLE, WA, 98101",Perkins Coie Trust Co,2023-06-30,370334,370334104,GENERAL MILLS,7516000.0,98
+https://sec.gov/Archives/edgar/data/1513038/0001513038-23-000004.txt,1513038,"1201 THIRD AVE, SUITE 4900, SEATTLE, WA, 98101",Perkins Coie Trust Co,2023-06-30,512807,512807108,LAM RESEARCH CORP,61070000.0,95
+https://sec.gov/Archives/edgar/data/1513038/0001513038-23-000004.txt,1513038,"1201 THIRD AVE, SUITE 4900, SEATTLE, WA, 98101",Perkins Coie Trust Co,2023-06-30,518439,518439104,ESTEE LAUDER CO,4516000.0,23
+https://sec.gov/Archives/edgar/data/1513038/0001513038-23-000004.txt,1513038,"1201 THIRD AVE, SUITE 4900, SEATTLE, WA, 98101",Perkins Coie Trust Co,2023-06-30,594918,594918104,MICROSOFT CORP,23256404000.0,68295
+https://sec.gov/Archives/edgar/data/1513038/0001513038-23-000004.txt,1513038,"1201 THIRD AVE, SUITE 4900, SEATTLE, WA, 98101",Perkins Coie Trust Co,2023-06-30,654106,654106103,NIKE INC CL B,85755000.0,777
+https://sec.gov/Archives/edgar/data/1513038/0001513038-23-000004.txt,1513038,"1201 THIRD AVE, SUITE 4900, SEATTLE, WA, 98101",Perkins Coie Trust Co,2023-06-30,701094,701094104,PARKER HANNIFIN CORP,500016000.0,1282
+https://sec.gov/Archives/edgar/data/1513038/0001513038-23-000004.txt,1513038,"1201 THIRD AVE, SUITE 4900, SEATTLE, WA, 98101",Perkins Coie Trust Co,2023-06-30,742718,742718109,PROCTER & GAMBLE CO,6289848000.0,41452
+https://sec.gov/Archives/edgar/data/1513038/0001513038-23-000004.txt,1513038,"1201 THIRD AVE, SUITE 4900, SEATTLE, WA, 98101",Perkins Coie Trust Co,2023-06-30,832696,832696405,SMUCKER J M CO,57886000.0,392
+https://sec.gov/Archives/edgar/data/1513126/0001513126-23-000003.txt,1513126,"110 N. PHOENIXVILLE PIKE, SUITE 300, MALVERN, PA, 19355","Wharton Business Group, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,1543000.0,6226
+https://sec.gov/Archives/edgar/data/1513126/0001513126-23-000003.txt,1513126,"110 N. PHOENIXVILLE PIKE, SUITE 300, MALVERN, PA, 19355","Wharton Business Group, LLC",2023-06-30,461202,461202103,INTUIT,474000.0,1035
+https://sec.gov/Archives/edgar/data/1513126/0001513126-23-000003.txt,1513126,"110 N. PHOENIXVILLE PIKE, SUITE 300, MALVERN, PA, 19355","Wharton Business Group, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,6641000.0,19501
+https://sec.gov/Archives/edgar/data/1513126/0001513126-23-000003.txt,1513126,"110 N. PHOENIXVILLE PIKE, SUITE 300, MALVERN, PA, 19355","Wharton Business Group, LLC",2023-06-30,704326,704326107,PAYCHEX INC,422000.0,3774
+https://sec.gov/Archives/edgar/data/1513126/0001513126-23-000003.txt,1513126,"110 N. PHOENIXVILLE PIKE, SUITE 300, MALVERN, PA, 19355","Wharton Business Group, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,766000.0,5050
+https://sec.gov/Archives/edgar/data/1513193/0001062993-23-016382.txt,1513193,"530 FIFTH AVENUE, 20TH FLOOR, NEW YORK, NY, 10036",Arbiter Partners Capital Management LLC,2023-06-30,189054,189054109,CLOROX COMPANY,4930240000.0,31000
+https://sec.gov/Archives/edgar/data/1513193/0001062993-23-016382.txt,1513193,"530 FIFTH AVENUE, 20TH FLOOR, NEW YORK, NY, 10036",Arbiter Partners Capital Management LLC,2023-06-30,817070,817070105,SENECA FOODS CORP - CL B,247900000.0,7400
+https://sec.gov/Archives/edgar/data/1513211/0001941040-23-000199.txt,1513211,"30 Liberty Ship Way, Suite 3330, Sausalito, CA, 94965",Main Street Research LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,838184000.0,3792
+https://sec.gov/Archives/edgar/data/1513211/0001941040-23-000199.txt,1513211,"30 Liberty Ship Way, Suite 3330, Sausalito, CA, 94965",Main Street Research LLC,2023-06-30,189054,189054109,CLOROX CO DEL,1592786000.0,10015
+https://sec.gov/Archives/edgar/data/1513211/0001941040-23-000199.txt,1513211,"30 Liberty Ship Way, Suite 3330, Sausalito, CA, 94965",Main Street Research LLC,2023-06-30,594918,594918104,MICROSOFT CORP,20811854000.0,61114
+https://sec.gov/Archives/edgar/data/1513211/0001941040-23-000199.txt,1513211,"30 Liberty Ship Way, Suite 3330, Sausalito, CA, 94965",Main Street Research LLC,2023-06-30,654106,654106103,NIKE INC,346246000.0,3127
+https://sec.gov/Archives/edgar/data/1513211/0001941040-23-000199.txt,1513211,"30 Liberty Ship Way, Suite 3330, Sausalito, CA, 94965",Main Street Research LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,439477000.0,1720
+https://sec.gov/Archives/edgar/data/1513211/0001941040-23-000199.txt,1513211,"30 Liberty Ship Way, Suite 3330, Sausalito, CA, 94965",Main Street Research LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,48637011000.0,320529
+https://sec.gov/Archives/edgar/data/1513211/0001941040-23-000199.txt,1513211,"30 Liberty Ship Way, Suite 3330, Sausalito, CA, 94965",Main Street Research LLC,2023-06-30,761152,761152107,RESMED INC,262200000.0,1200
+https://sec.gov/Archives/edgar/data/1513211/0001941040-23-000199.txt,1513211,"30 Liberty Ship Way, Suite 3330, Sausalito, CA, 94965",Main Street Research LLC,2023-06-30,832696,832696405,SMUCKER J M CO,522604000.0,3539
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+https://sec.gov/Archives/edgar/data/1517429/0001941040-23-000157.txt,1517429,"1715 Aaron Brenner Drive, Suite 504, Memphis, TN, 38120","Reliant Investment Management, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,257568000.0,1039
+https://sec.gov/Archives/edgar/data/1517429/0001941040-23-000157.txt,1517429,"1715 Aaron Brenner Drive, Suite 504, Memphis, TN, 38120","Reliant Investment Management, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,222430000.0,2900
+https://sec.gov/Archives/edgar/data/1517429/0001941040-23-000157.txt,1517429,"1715 Aaron Brenner Drive, Suite 504, Memphis, TN, 38120","Reliant Investment Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,589134000.0,1730
+https://sec.gov/Archives/edgar/data/1517429/0001941040-23-000157.txt,1517429,"1715 Aaron Brenner Drive, Suite 504, Memphis, TN, 38120","Reliant Investment Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1040633000.0,6858
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+https://sec.gov/Archives/edgar/data/1517857/0000919574-23-004831.txt,1517857,"55 West 46th Street, 32nd Floor, New York, NY, 10036",Soroban Capital Partners LP,2023-06-30,594918,594918104,MICROSOFT CORP,1399267622000.0,4108967
+https://sec.gov/Archives/edgar/data/1518235/0001518235-23-000003.txt,1518235,"400 - 1780 WELLINGTON AVENUE, WINNIPEG, A2, R3H 1B3","Cardinal Capital Management, Inc.",2023-06-30,594918,594918104,Microsoft Corp.,391621000.0,1150
+https://sec.gov/Archives/edgar/data/1518320/0001172661-23-002802.txt,1518320,"10211 Wincopin Circle, Suite 220, Columbia, MD, 21044","Financial Advantage, Inc.",2023-06-30,35137L,35137L105,FOX CORP,2875142000.0,84563
+https://sec.gov/Archives/edgar/data/1518320/0001172661-23-002802.txt,1518320,"10211 Wincopin Circle, Suite 220, Columbia, MD, 21044","Financial Advantage, Inc.",2023-06-30,832696,832696405,SMUCKER J M CO,3464634000.0,23462
+https://sec.gov/Archives/edgar/data/1518320/0001172661-23-002802.txt,1518320,"10211 Wincopin Circle, Suite 220, Columbia, MD, 21044","Financial Advantage, Inc.",2023-06-30,871829,871829107,SYSCO CORP,2828875000.0,38125
+https://sec.gov/Archives/edgar/data/1518320/0001172661-23-002802.txt,1518320,"10211 Wincopin Circle, Suite 220, Columbia, MD, 21044","Financial Advantage, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,3153540000.0,35795
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+https://sec.gov/Archives/edgar/data/1518364/0001518364-23-000004.txt,1518364,"5200 WEST 73RD STREET, EDINA, MN, 55439",Accredited Investors Inc.,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,297301000.0,3642
+https://sec.gov/Archives/edgar/data/1518364/0001518364-23-000004.txt,1518364,"5200 WEST 73RD STREET, EDINA, MN, 55439",Accredited Investors Inc.,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,591465000.0,3571
+https://sec.gov/Archives/edgar/data/1518364/0001518364-23-000004.txt,1518364,"5200 WEST 73RD STREET, EDINA, MN, 55439",Accredited Investors Inc.,2023-06-30,370334,370334104,GENERAL MLS INC,9423279000.0,122859
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+https://sec.gov/Archives/edgar/data/1518364/0001518364-23-000004.txt,1518364,"5200 WEST 73RD STREET, EDINA, MN, 55439",Accredited Investors Inc.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1832618000.0,12077
+https://sec.gov/Archives/edgar/data/1518364/0001518364-23-000004.txt,1518364,"5200 WEST 73RD STREET, EDINA, MN, 55439",Accredited Investors Inc.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,957638000.0,10870
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+https://sec.gov/Archives/edgar/data/1519319/0001519319-23-000006.txt,1519319,"605 W. DICKSON STREET, SUITE 201, FAYETTEVILLE, AR, 72701","Garrison Asset Management, LLC",2023-06-30,697435,697435105,Palo Alto Networks,2119000.0,10609
+https://sec.gov/Archives/edgar/data/1519319/0001519319-23-000006.txt,1519319,"605 W. DICKSON STREET, SUITE 201, FAYETTEVILLE, AR, 72701","Garrison Asset Management, LLC",2023-06-30,742718,742718109,Procter & Gamble Company,3292000.0,22142
+https://sec.gov/Archives/edgar/data/1519319/0001519319-23-000006.txt,1519319,"605 W. DICKSON STREET, SUITE 201, FAYETTEVILLE, AR, 72701","Garrison Asset Management, LLC",2023-06-30,749685,749685103,"RPM International, Inc.",454000.0,5202
+https://sec.gov/Archives/edgar/data/1519319/0001519319-23-000006.txt,1519319,"605 W. DICKSON STREET, SUITE 201, FAYETTEVILLE, AR, 72701","Garrison Asset Management, LLC",2023-06-30,G5960L,G5960L103,Medtronic Plc.,2132000.0,26447
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+https://sec.gov/Archives/edgar/data/1519676/0001519676-23-000009.txt,1519676,"654 Madison Avenue, 11th Fl, New York, NY, 10065",Stelac Advisory Services LLC,2023-06-30,512807,512807108,LAM RESEARCH CORP,585645000.0,911
+https://sec.gov/Archives/edgar/data/1519676/0001519676-23-000009.txt,1519676,"654 Madison Avenue, 11th Fl, New York, NY, 10065",Stelac Advisory Services LLC,2023-06-30,594918,594918104,MICROSOFT CORP,9311123000.0,27324
+https://sec.gov/Archives/edgar/data/1519676/0001519676-23-000009.txt,1519676,"654 Madison Avenue, 11th Fl, New York, NY, 10065",Stelac Advisory Services LLC,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,113051000.0,66894
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+https://sec.gov/Archives/edgar/data/1520309/0001520309-23-000003.txt,1520309,"OTEMACHI FIRST SQUARE, 1-5-1, OTEMACHI, CHIYODA-KU, TOKYO, M0, 100-0004",Mizuho Securities Co. Ltd.,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,692432000.0,2710
+https://sec.gov/Archives/edgar/data/1520309/0001520309-23-000003.txt,1520309,"OTEMACHI FIRST SQUARE, 1-5-1, OTEMACHI, CHIYODA-KU, TOKYO, M0, 100-0004",Mizuho Securities Co. Ltd.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,553851000.0,3650
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+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,090043,090043100,BILL HOLDINGS INC,1343000.0,11491
+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,509000.0,6232
+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,38006000.0,229462
+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,115637,115637209,BROWN FORMAN CORP,1325000.0,19845
+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,36420000.0,385110
+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,189054,189054109,CLOROX CO DEL,25586000.0,160879
+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,205887,205887102,CONAGRA BRANDS INC,16123000.0,478130
+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,32198000.0,192709
+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,31428X,31428X106,FEDEX CORP,59302000.0,239217
+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,35137L,35137L105,FOX CORP,3088000.0,90821
+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,370334,370334104,GENERAL MLS INC,156242000.0,2037055
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+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,461202,461202103,INTUIT,206556000.0,450810
+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,482480,482480100,KLA CORP,32344000.0,66686
+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,512807,512807108,LAM RESEARCH CORP,98550000.0,153299
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+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,49281000.0,250945
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+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,654106,654106103,NIKE INC,202685000.0,1836411
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+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,876030,876030107,TAPESTRY INC,1532000.0,35799
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+https://sec.gov/Archives/edgar/data/1520354/0001520354-23-000005.txt,1520354,"1 boulevard Haussmann, Paris, I0, 75009",BNP PARIBAS ASSET MANAGEMENT Holding S.A.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,58316000.0,661932
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+https://sec.gov/Archives/edgar/data/1520478/0001398344-23-014062.txt,1520478,"VERDE 4TH FLOOR, 10 BRESSENDEN PLACE, LONDON, X0, SW1E 5DH",RWC Asset Management LLP,2023-06-30,594918,594918104,MICROSOFT CORP,35211155000.0,103398
+https://sec.gov/Archives/edgar/data/1520478/0001398344-23-014062.txt,1520478,"VERDE 4TH FLOOR, 10 BRESSENDEN PLACE, LONDON, X0, SW1E 5DH",RWC Asset Management LLP,2023-06-30,704326,704326107,PAYCHEX INC,25873517000.0,231282
+https://sec.gov/Archives/edgar/data/1520478/0001398344-23-014062.txt,1520478,"VERDE 4TH FLOOR, 10 BRESSENDEN PLACE, LONDON, X0, SW1E 5DH",RWC Asset Management LLP,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,24996889000.0,164735
+https://sec.gov/Archives/edgar/data/1520478/0001398344-23-014062.txt,1520478,"VERDE 4TH FLOOR, 10 BRESSENDEN PLACE, LONDON, X0, SW1E 5DH",RWC Asset Management LLP,2023-06-30,876030,876030107,TAPESTRY INC,62845337000.0,1468349
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+https://sec.gov/Archives/edgar/data/1520601/0001941040-23-000210.txt,1520601,"5140 BIRCH STREET, SUITE 300, NEWPORT BEACH, CA, 92660","AFFINITY INVESTMENT ADVISORS, LLC",2023-06-30,591520,591520200,METHOD ELECTRS INC,517817000.0,15448
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+https://sec.gov/Archives/edgar/data/1521001/0001172661-23-003091.txt,1521001,"88 Kearny Street, 20th Floor, San Francisco, CA, 94108","Parallax Volatility Advisers, L.P.",2023-06-30,64110D,64110D104,NETAPP INC,1481320000.0,19389
+https://sec.gov/Archives/edgar/data/1521001/0001172661-23-003091.txt,1521001,"88 Kearny Street, 20th Floor, San Francisco, CA, 94108","Parallax Volatility Advisers, L.P.",2023-06-30,65249B,65249B109,NEWS CORP NEW,978900000.0,50200
+https://sec.gov/Archives/edgar/data/1521001/0001172661-23-003091.txt,1521001,"88 Kearny Street, 20th Floor, San Francisco, CA, 94108","Parallax Volatility Advisers, L.P.",2023-06-30,654106,654106103,NIKE INC,100411646000.0,909773
+https://sec.gov/Archives/edgar/data/1521001/0001172661-23-003091.txt,1521001,"88 Kearny Street, 20th Floor, San Francisco, CA, 94108","Parallax Volatility Advisers, L.P.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,537184224000.0,2102400
+https://sec.gov/Archives/edgar/data/1521001/0001172661-23-003091.txt,1521001,"88 Kearny Street, 20th Floor, San Francisco, CA, 94108","Parallax Volatility Advisers, L.P.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,3402319000.0,8723
+https://sec.gov/Archives/edgar/data/1521001/0001172661-23-003091.txt,1521001,"88 Kearny Street, 20th Floor, San Francisco, CA, 94108","Parallax Volatility Advisers, L.P.",2023-06-30,704326,704326107,PAYCHEX INC,17776143000.0,158900
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+https://sec.gov/Archives/edgar/data/1521001/0001172661-23-003091.txt,1521001,"88 Kearny Street, 20th Floor, San Francisco, CA, 94108","Parallax Volatility Advisers, L.P.",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,4369536000.0,115200
+https://sec.gov/Archives/edgar/data/1521001/0001172661-23-003091.txt,1521001,"88 Kearny Street, 20th Floor, San Francisco, CA, 94108","Parallax Volatility Advisers, L.P.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,33433950000.0,379500
+https://sec.gov/Archives/edgar/data/1521001/0001172661-23-003091.txt,1521001,"88 Kearny Street, 20th Floor, San Francisco, CA, 94108","Parallax Volatility Advisers, L.P.",2023-06-30,N14506,N14506104,ELASTIC N V,1256752000.0,19600
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+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,00760J,00760J108,AEHR TEST SYS,5477917000.0,132798
+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,008073,008073108,AEROVIRONMENT INC,7171056000.0,70112
+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,349030940000.0,6650742
+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,1288071000.0,23284
+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,029683,029683109,AMER SOFTWARE INC,919331000.0,87472
+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,3561133000.0,46630
+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,03062T,03062T105,AMERICAS CARMART INC,2386737000.0,23920
+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,5290649000.0,507253
+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,03676C,03676C100,ANTERIX INC,1336399000.0,42171
+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,70110030000.0,484085
+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,042744,042744102,ARROW FINL CORP,1351232000.0,67092
+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,404023253000.0,1838224
+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,05366Y,05366Y201,AVIAT NETWORKS INC,753294000.0,22574
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+https://sec.gov/Archives/edgar/data/1521019/0000950123-23-007711.txt,1521019,"333 W. Wacker Drive, Chicago, IL, 60606","Nuveen Asset Management, LLC",2023-06-30,090043,090043100,BILL HOLDINGS INC,31103133000.0,266180
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+https://sec.gov/Archives/edgar/data/1527641/0001527641-23-000003.txt,1527641,"353 N. CLARK STREET, SUITE 2775, CHICAGO, IL, 60654","MATHER GROUP, LLC.",2023-06-30,832696,832696405,SMUCKER J M CO,1117186000.0,7565
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+https://sec.gov/Archives/edgar/data/1527781/0001085146-23-003444.txt,1527781,"2850 GOLF ROAD, ROLLING MEADOWS, IL, 60008","Gallagher Fiduciary Advisors, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1090080000.0,7179
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+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,489170,489170100,KENNAMETAL INC COM,26630000.0,938
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+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR CL A,509239000.0,2708
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+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,64110D,64110D104,NETAPP INC COM,602949000.0,7892
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,65249B,65249B109,NEWS CORP NEW CL A,3079733000.0,157935
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,654106,654106103,NIKE INC CL B,23869278000.0,216266
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC COM,41195366000.0,161228
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP COM,1797694000.0,4609
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,704326,704326107,PAYCHEX INC COM,14832284000.0,132585
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC CL A COM,13711000.0,1783
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO COM,3170431000.0,52630
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO COM,106576106000.0,702360
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,74874Q,74874Q100,QUINSTREET INC COM,16795000.0,1902
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,761152,761152107,RESMED INC COM,197524000.0,904
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,806037,806037107,SCANSOURCE INC COM,23944000.0,810
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,832696,832696405,SMUCKER J M CO COM NEW,4099910000.0,27764
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,871829,871829107,SYSCO CORP COM,24236020000.0,326631
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,876030,876030107,TAPESTRY INC COM,7067393000.0,165126
+https://sec.gov/Archives/edgar/data/1531721/0000950123-23-007506.txt,1531721,"65 EAST 55TH STREET, NEW YORK, NY, 10022","PINEBRIDGE INVESTMENTS, L.P.",2023-06-30,981811,981811102,WORTHINGTON INDS INC COM,34388000.0,495
+https://sec.gov/Archives/edgar/data/1531879/0001546531-23-000008.txt,1531879,"2925 RICHMOND AVE., FLOOR 11, HOUSTON, TX, 77098",Teilinger Capital Ltd.,2023-06-30,31428X,31428X106,FEDEX CORP,4937000.0,19915
+https://sec.gov/Archives/edgar/data/1531879/0001546531-23-000008.txt,1531879,"2925 RICHMOND AVE., FLOOR 11, HOUSTON, TX, 77098",Teilinger Capital Ltd.,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,8349000.0,138600
+https://sec.gov/Archives/edgar/data/1531971/0001531971-23-000005.txt,1531971,"550 WEST JACKSON BOULEVARD, SUITE 1000, CHICAGO, IL, 60661",XR Securities LLC,2023-06-30,00760J,00760J108,AEHR,1390125000.0,33700
+https://sec.gov/Archives/edgar/data/1531971/0001531971-23-000005.txt,1531971,"550 WEST JACKSON BOULEVARD, SUITE 1000, CHICAGO, IL, 60661",XR Securities LLC,2023-06-30,075896,075896100,BBBYQ,6453000.0,23500
+https://sec.gov/Archives/edgar/data/1531971/0001531971-23-000005.txt,1531971,"550 WEST JACKSON BOULEVARD, SUITE 1000, CHICAGO, IL, 60661",XR Securities LLC,2023-06-30,31428X,31428X106,FDX,4982790000.0,20100
+https://sec.gov/Archives/edgar/data/1531971/0001531971-23-000005.txt,1531971,"550 WEST JACKSON BOULEVARD, SUITE 1000, CHICAGO, IL, 60661",XR Securities LLC,2023-06-30,461202,461202103,INTU,229095000.0,500
+https://sec.gov/Archives/edgar/data/1531971/0001531971-23-000005.txt,1531971,"550 WEST JACKSON BOULEVARD, SUITE 1000, CHICAGO, IL, 60661",XR Securities LLC,2023-06-30,512807,512807108,LRCX,900004000.0,1400
+https://sec.gov/Archives/edgar/data/1531971/0001531971-23-000005.txt,1531971,"550 WEST JACKSON BOULEVARD, SUITE 1000, CHICAGO, IL, 60661",XR Securities LLC,2023-06-30,518439,518439104,EL,844434000.0,4300
+https://sec.gov/Archives/edgar/data/1531971/0001531971-23-000005.txt,1531971,"550 WEST JACKSON BOULEVARD, SUITE 1000, CHICAGO, IL, 60661",XR Securities LLC,2023-06-30,594918,594918104,MSFT,36880482000.0,108300
+https://sec.gov/Archives/edgar/data/1531971/0001531971-23-000005.txt,1531971,"550 WEST JACKSON BOULEVARD, SUITE 1000, CHICAGO, IL, 60661",XR Securities LLC,2023-06-30,640491,640491106,NEOG,339300000.0,15600
+https://sec.gov/Archives/edgar/data/1531971/0001531971-23-000005.txt,1531971,"550 WEST JACKSON BOULEVARD, SUITE 1000, CHICAGO, IL, 60661",XR Securities LLC,2023-06-30,654106,654106103,NKE,2858583000.0,25900
+https://sec.gov/Archives/edgar/data/1531971/0001531971-23-000005.txt,1531971,"550 WEST JACKSON BOULEVARD, SUITE 1000, CHICAGO, IL, 60661",XR Securities LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC.,6523937000.0,25533
+https://sec.gov/Archives/edgar/data/1531971/0001531971-23-000005.txt,1531971,"550 WEST JACKSON BOULEVARD, SUITE 1000, CHICAGO, IL, 60661",XR Securities LLC,2023-06-30,742718,742718109,PG,2898234000.0,19100
+https://sec.gov/Archives/edgar/data/1532262/0001858353-23-000006.txt,1532262,"3879 MAPLE AVENUE, SUITE 350, DALLAS, TX, 75219","Greenbrier Partners Capital Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,31791112000.0,93355
+https://sec.gov/Archives/edgar/data/1532385/0001085146-23-003272.txt,1532385,"860 - 980 HOWE STREET, VANCOUVER, A1, V6Z 0C8",Genus Capital Management Inc.,2023-06-30,093671,093671105,BLOCK H & R INC,748945000.0,23500
+https://sec.gov/Archives/edgar/data/1532385/0001085146-23-003272.txt,1532385,"860 - 980 HOWE STREET, VANCOUVER, A1, V6Z 0C8",Genus Capital Management Inc.,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,4191202000.0,25085
+https://sec.gov/Archives/edgar/data/1532385/0001085146-23-003272.txt,1532385,"860 - 980 HOWE STREET, VANCOUVER, A1, V6Z 0C8",Genus Capital Management Inc.,2023-06-30,370334,370334104,GENERAL MLS INC,3878796000.0,50571
+https://sec.gov/Archives/edgar/data/1532385/0001085146-23-003272.txt,1532385,"860 - 980 HOWE STREET, VANCOUVER, A1, V6Z 0C8",Genus Capital Management Inc.,2023-06-30,482480,482480100,KLA CORP,3863184000.0,7965
+https://sec.gov/Archives/edgar/data/1532385/0001085146-23-003272.txt,1532385,"860 - 980 HOWE STREET, VANCOUVER, A1, V6Z 0C8",Genus Capital Management Inc.,2023-06-30,512807,512807108,LAM RESEARCH CORP,5396167000.0,8394
+https://sec.gov/Archives/edgar/data/1532385/0001085146-23-003272.txt,1532385,"860 - 980 HOWE STREET, VANCOUVER, A1, V6Z 0C8",Genus Capital Management Inc.,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,783384000.0,6815
+https://sec.gov/Archives/edgar/data/1532385/0001085146-23-003272.txt,1532385,"860 - 980 HOWE STREET, VANCOUVER, A1, V6Z 0C8",Genus Capital Management Inc.,2023-06-30,594918,594918104,MICROSOFT CORP,24566556000.0,72140
+https://sec.gov/Archives/edgar/data/1532385/0001085146-23-003272.txt,1532385,"860 - 980 HOWE STREET, VANCOUVER, A1, V6Z 0C8",Genus Capital Management Inc.,2023-06-30,64110D,64110D104,NETAPP INC,337688000.0,4420
+https://sec.gov/Archives/edgar/data/1532385/0001085146-23-003272.txt,1532385,"860 - 980 HOWE STREET, VANCOUVER, A1, V6Z 0C8",Genus Capital Management Inc.,2023-06-30,683715,683715106,OPEN TEXT CORP,15739175000.0,377983
+https://sec.gov/Archives/edgar/data/1532385/0001085146-23-003272.txt,1532385,"860 - 980 HOWE STREET, VANCOUVER, A1, V6Z 0C8",Genus Capital Management Inc.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3046636000.0,20078
+https://sec.gov/Archives/edgar/data/1532385/0001085146-23-003272.txt,1532385,"860 - 980 HOWE STREET, VANCOUVER, A1, V6Z 0C8",Genus Capital Management Inc.,2023-06-30,871829,871829107,SYSCO CORP,2585128000.0,34840
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+https://sec.gov/Archives/edgar/data/1532472/0001532472-23-000010.txt,1532472,"48 WALL STREET, SUITE 1100, NEW YORK, NY, 10005","Centre Asset Management, LLC",2023-06-30,461202,461202103,Intuit Inc,8034000.0,17535
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+https://sec.gov/Archives/edgar/data/1534653/0001534653-23-000007.txt,1534653,"KUNGSTRADGARDSGATAN 8, STOCKHOLM, V7, 106 40",Skandinaviska Enskilda Banken AB (publ),2023-06-30,761152,761152107,RESMED INC,6380000.0,29197
+https://sec.gov/Archives/edgar/data/1534653/0001534653-23-000007.txt,1534653,"KUNGSTRADGARDSGATAN 8, STOCKHOLM, V7, 106 40",Skandinaviska Enskilda Banken AB (publ),2023-06-30,832696,832696405,SMUCKER J M CO,3230000.0,21873
+https://sec.gov/Archives/edgar/data/1534653/0001534653-23-000007.txt,1534653,"KUNGSTRADGARDSGATAN 8, STOCKHOLM, V7, 106 40",Skandinaviska Enskilda Banken AB (publ),2023-06-30,854231,854231107,STANDEX INTL CORP,1047000.0,7400
+https://sec.gov/Archives/edgar/data/1534653/0001534653-23-000007.txt,1534653,"KUNGSTRADGARDSGATAN 8, STOCKHOLM, V7, 106 40",Skandinaviska Enskilda Banken AB (publ),2023-06-30,871829,871829107,SYSCO CORP,7447000.0,100362
+https://sec.gov/Archives/edgar/data/1534653/0001534653-23-000007.txt,1534653,"KUNGSTRADGARDSGATAN 8, STOCKHOLM, V7, 106 40",Skandinaviska Enskilda Banken AB (publ),2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,10507000.0,277028
+https://sec.gov/Archives/edgar/data/1534653/0001534653-23-000007.txt,1534653,"KUNGSTRADGARDSGATAN 8, STOCKHOLM, V7, 106 40",Skandinaviska Enskilda Banken AB (publ),2023-06-30,968223,968223206,WILEY JOHN & SONS INC,793000.0,23300
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,03820C,03820C105,APPLIED INDUSTRIAL TECH INC,82388718000.0,568865
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,120362719000.0,547626
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,11133T,11133T103,BROADRIDGE FINANCIAL SOLUTIO,46566543000.0,281148
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,115637,115637100,BROWN FORMAN CORP CL A,2205468000.0,32400
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,189054,189054109,CLOROX COMPANY,1878580000.0,11812
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,370334,370334104,GENERAL MILLS INC,8365132000.0,109063
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,426281,426281101,JACK HENRY & ASSOCIATES INC,32503016000.0,194245
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,461202,461202103,INTUIT INC,1661855000.0,3627
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,513847,513847103,LANCASTER COLONY CORP,39271469000.0,195293
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,518439,518439104,LAUDER ESTEE COS INC CL A,4261642000.0,21701
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,594918,594918104,MICROSOFT CORP,473769123000.0,1391229
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,64110D,64110D104,NETAPP INC,37523325000.0,491143
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,654106,654106103,NIKE INC -CL B,105207002000.0,953221
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,701094,701094104,PARKER HANNIFIN CORP,1150618000.0,2950
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,704326,704326107,PAYCHEX INC,18227427000.0,162934
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,74051N,74051N102,PREMIER INC-CLASS A,47960614000.0,1733934
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,742718,742718109,PROCTER & GAMBLE CO/THE,36512741000.0,240627
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,749685,749685103,RPM INTERNATIONAL INC,42518561000.0,473850
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,832696,832696405,SMUCKER J M CO,39704328000.0,268872
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,871829,871829107,SYSCO CORP,23237214000.0,313170
+https://sec.gov/Archives/edgar/data/1534866/0001534866-23-000015.txt,1534866,"ONE BEACON STREET, 34TH FLOOR, BOSTON, MA, 02108",Boston Trust Walden Corp,2023-06-30,G5960L,G5960L103,MEDTRONIC INC,20938022000.0,237662
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,008073,008073108,AEROVIRONMENT INC,271349000.0,2653
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,2777839000.0,19180
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1100269000.0,5006
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,053807,053807103,AVNET INC,249425000.0,4944
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,1830529000.0,46413
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,115637,115637100,BROWN FORMAN CORP,311556000.0,4577
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,769989000.0,8142
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,189054,189054109,CLOROX CO DEL,403644000.0,2538
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,205887,205887102,CONAGRA BRANDS INC,338515000.0,10039
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,35137L,35137L105,FOX CORP,5572532000.0,163898
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,370334,370334104,GENERAL MLS INC,229410000.0,2991
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,867606000.0,5185
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,461202,461202103,INTUIT,2219014000.0,4843
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,482480,482480100,KLA CORP,2480877000.0,5115
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,500643,500643200,KORN FERRY,2800992000.0,56540
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,512807,512807108,LAM RESEARCH CORP,273216000.0,425
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,221517000.0,1128
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,1228719000.0,6534
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,594918,594918104,MICROSOFT CORP,2486964000.0,7303
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,569370000.0,11776
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,640491,640491106,NEOGEN CORP,1483981000.0,68229
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,64110D,64110D104,NETAPP INC,2077774000.0,27196
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,65249B,65249B109,NEWS CORP NEW,4152876000.0,212968
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,654106,654106103,NIKE INC,1680825000.0,15229
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,482914000.0,1890
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,703395,703395103,PATTERSON COS INC,1157781000.0,34810
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,704326,704326107,PAYCHEX INC,2110987000.0,18870
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,74051N,74051N102,PREMIER INC,2116073000.0,76503
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,947009000.0,6241
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,761152,761152107,RESMED INC,894976000.0,4096
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,832696,832696405,SMUCKER J M CO,1091577000.0,7392
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,871829,871829107,SYSCO CORP,1390508000.0,18740
+https://sec.gov/Archives/edgar/data/1535061/0001535061-23-000003.txt,1535061,"902 Carnegie Center, Suite 200, Princeton, NJ, 08540","Edgestream Partners, L.P.",2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,821062000.0,72468
+https://sec.gov/Archives/edgar/data/1535110/0001085146-23-003022.txt,1535110,"Unit 3415, 34/f Office Tower, Convention Plaza, 1 Harbour Road, WANCHAI, K3, 00000",Parametrica Management Ltd,2023-06-30,090043,090043100,BILL HOLDINGS INC,502455000.0,4300
+https://sec.gov/Archives/edgar/data/1535110/0001085146-23-003022.txt,1535110,"Unit 3415, 34/f Office Tower, Convention Plaza, 1 Harbour Road, WANCHAI, K3, 00000",Parametrica Management Ltd,2023-06-30,594918,594918104,MICROSOFT CORP,3262373000.0,9580
+https://sec.gov/Archives/edgar/data/1535227/0001941040-23-000194.txt,1535227,"9755 SW Barnes Rd Suite 610, Portland, OR, 97225","Peregrine Asset Advisers, Inc.",2023-06-30,370334,370334104,GENERAL MLS INC,3859942000.0,50325
+https://sec.gov/Archives/edgar/data/1535227/0001941040-23-000194.txt,1535227,"9755 SW Barnes Rd Suite 610, Portland, OR, 97225","Peregrine Asset Advisers, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,1053971000.0,3095
+https://sec.gov/Archives/edgar/data/1535227/0001941040-23-000194.txt,1535227,"9755 SW Barnes Rd Suite 610, Portland, OR, 97225","Peregrine Asset Advisers, Inc.",2023-06-30,654106,654106103,NIKE INC,1139681000.0,10326
+https://sec.gov/Archives/edgar/data/1535227/0001941040-23-000194.txt,1535227,"9755 SW Barnes Rd Suite 610, Portland, OR, 97225","Peregrine Asset Advisers, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3663125000.0,24141
+https://sec.gov/Archives/edgar/data/1535227/0001941040-23-000194.txt,1535227,"9755 SW Barnes Rd Suite 610, Portland, OR, 97225","Peregrine Asset Advisers, Inc.",2023-06-30,832696,832696405,SMUCKER J M CO,828152000.0,5608
+https://sec.gov/Archives/edgar/data/1535293/0001535293-23-000004.txt,1535293,"546 FIFTH AVENUE, NEW YORK, NY, 10036",J.Safra Asset Management Corp,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING INC,213636000.0,972
+https://sec.gov/Archives/edgar/data/1535293/0001535293-23-000004.txt,1535293,"546 FIFTH AVENUE, NEW YORK, NY, 10036",J.Safra Asset Management Corp,2023-06-30,594918,594918104,MICROSOFT CORP,1293711000.0,3799
+https://sec.gov/Archives/edgar/data/1535293/0001535293-23-000004.txt,1535293,"546 FIFTH AVENUE, NEW YORK, NY, 10036",J.Safra Asset Management Corp,2023-06-30,654106,654106103,NIKE INC CLASS B COM,107942000.0,978
+https://sec.gov/Archives/edgar/data/1535293/0001535293-23-000004.txt,1535293,"546 FIFTH AVENUE, NEW YORK, NY, 10036",J.Safra Asset Management Corp,2023-06-30,704326,704326107,PAYCHEX INC,68129000.0,609
+https://sec.gov/Archives/edgar/data/1535293/0001535293-23-000004.txt,1535293,"546 FIFTH AVENUE, NEW YORK, NY, 10036",J.Safra Asset Management Corp,2023-06-30,742718,742718109,PROCTER & GAMBLE CO,191951000.0,1265
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,6512616000.0,189651
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,182000.0,3282
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,711616000.0,9318
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,7076105000.0,48858
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,144334994000.0,656695
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,053807,053807103,AVNET INC,47204804000.0,935675
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,090043,090043100,BILL HOLDINGS INC,626000.0,5361
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,1738229000.0,21294
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,093671,093671105,BLOCK H & R INC,5948440000.0,186647
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,2541758000.0,15346
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,115637,115637209,BROWN FORMAN CORP,4381903000.0,65617
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,127190,127190304,CACI INTL INC,3271724000.0,9599
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,128030,128030202,CAL MAINE FOODS INC,9112275000.0,202495
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,189367724000.0,2002408
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,511400000.0,9111
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,147528,147528103,CASEYS GEN STORES INC,1695210000.0,6951
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,189054,189054109,CLOROX CO DEL,2124139000.0,13356
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,205887,205887102,CONAGRA BRANDS INC,25753852000.0,763756
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,222070,222070203,COTY INC,2553051000.0,207734
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,5774953000.0,34564
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,898738000.0,31780
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,31428X,31428X106,FEDEX CORP,39784479000.0,160486
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,35137L,35137L105,FOX CORP,1456526000.0,42839
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,36251C,36251C103,GMS INC,1651251000.0,23862
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,370334,370334104,GENERAL MLS INC,163555387000.0,2132404
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,1299987000.0,7769
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,461202,461202103,INTUIT,355660221000.0,776227
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,482480,482480100,KLA CORP,138709414000.0,285987
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,500643,500643200,KORN FERRY,1568090000.0,31653
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,505336,505336107,LA Z BOY INC,3715267000.0,129723
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,512807,512807108,LAM RESEARCH CORP,139519263000.0,217029
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,12290454000.0,106920
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,136591666000.0,695547
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,56117J,56117J100,MALIBU BOATS INC,765278000.0,13046
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,594918,594918104,MICROSOFT CORP,2019761469000.0,5931055
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,987887000.0,20432
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,640491,640491106,NEOGEN CORP,17378750000.0,799023
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,64110D,64110D104,NETAPP INC,74553718000.0,975834
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,65249B,65249B109,NEWS CORP NEW,865976000.0,44409
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,654106,654106103,NIKE INC,52972523000.0,479954
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,683715,683715106,OPEN TEXT CORP,3406440000.0,81809
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,47569319000.0,186174
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+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,703395,703395103,PATTERSON COS INC,28882485000.0,868385
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,704326,704326107,PAYCHEX INC,21625813000.0,193312
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,15074256000.0,81690
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,74051N,74051N102,PREMIER INC,340660000.0,12316
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,293419638000.0,1933700
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,747906,747906501,QUANTUM CORP,11068188000.0,10248322
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,74874Q,74874Q100,QUINSTREET INC,150993000.0,17100
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,749685,749685103,RPM INTL INC,704560000.0,7852
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,761152,761152107,RESMED INC,61022462000.0,279279
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,1880173000.0,119680
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,807066,807066105,SCHOLASTIC CORP,1561006000.0,40139
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,832696,832696405,SMUCKER J M CO,47395721000.0,320957
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,86333M,86333M108,STRIDE INC,3615926000.0,97124
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,51921267000.0,208310
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,871829,871829107,SYSCO CORP,5750871000.0,77505
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,876030,876030107,TAPESTRY INC,25638355000.0,599027
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,7045042000.0,185738
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,909792000.0,26735
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,G3323L,G3323L100,FABRINET,755122000.0,5814
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,108875390000.0,1235816
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,498560000.0,15200
+https://sec.gov/Archives/edgar/data/1535323/0000950123-23-007527.txt,1535323,"SEIDLSTRASSE 24-24A, MUNICH, 2M, D-80335",Allianz Asset Management GmbH,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,11141257000.0,434357
+https://sec.gov/Archives/edgar/data/1535385/0001535385-23-000004.txt,1535385,"50, LOTHIAN ROAD, EDINBURGH, X0, EH3 9BY",Artemis Investment Management LLP,2023-06-30,00760J,00760J108,AEHR TEST SYS,558815000.0,13559
+https://sec.gov/Archives/edgar/data/1535385/0001535385-23-000004.txt,1535385,"50, LOTHIAN ROAD, EDINBURGH, X0, EH3 9BY",Artemis Investment Management LLP,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,4456978000.0,47192
+https://sec.gov/Archives/edgar/data/1535385/0001535385-23-000004.txt,1535385,"50, LOTHIAN ROAD, EDINBURGH, X0, EH3 9BY",Artemis Investment Management LLP,2023-06-30,222070,222070203,COTY INC,37876885000.0,3084747
+https://sec.gov/Archives/edgar/data/1535385/0001535385-23-000004.txt,1535385,"50, LOTHIAN ROAD, EDINBURGH, X0, EH3 9BY",Artemis Investment Management LLP,2023-06-30,461202,461202103,INTUIT,68707092000.0,150120
+https://sec.gov/Archives/edgar/data/1535385/0001535385-23-000004.txt,1535385,"50, LOTHIAN ROAD, EDINBURGH, X0, EH3 9BY",Artemis Investment Management LLP,2023-06-30,482480,482480100,KLA CORP,24122204000.0,49799
+https://sec.gov/Archives/edgar/data/1535385/0001535385-23-000004.txt,1535385,"50, LOTHIAN ROAD, EDINBURGH, X0, EH3 9BY",Artemis Investment Management LLP,2023-06-30,512807,512807108,LAM RESEARCH CORP,54998635000.0,85643
+https://sec.gov/Archives/edgar/data/1535385/0001535385-23-000004.txt,1535385,"50, LOTHIAN ROAD, EDINBURGH, X0, EH3 9BY",Artemis Investment Management LLP,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,20654869000.0,105317
+https://sec.gov/Archives/edgar/data/1535385/0001535385-23-000004.txt,1535385,"50, LOTHIAN ROAD, EDINBURGH, X0, EH3 9BY",Artemis Investment Management LLP,2023-06-30,594918,594918104,MICROSOFT CORP,446935385000.0,1313927
+https://sec.gov/Archives/edgar/data/1535385/0001535385-23-000004.txt,1535385,"50, LOTHIAN ROAD, EDINBURGH, X0, EH3 9BY",Artemis Investment Management LLP,2023-06-30,654106,654106103,NIKE INC,44652700000.0,405001
+https://sec.gov/Archives/edgar/data/1535385/0001535385-23-000004.txt,1535385,"50, LOTHIAN ROAD, EDINBURGH, X0, EH3 9BY",Artemis Investment Management LLP,2023-06-30,683715,683715106,OPEN TEXT CORP,229628000.0,5522
+https://sec.gov/Archives/edgar/data/1535385/0001535385-23-000004.txt,1535385,"50, LOTHIAN ROAD, EDINBURGH, X0, EH3 9BY",Artemis Investment Management LLP,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,35508404000.0,589883
+https://sec.gov/Archives/edgar/data/1535385/0001535385-23-000004.txt,1535385,"50, LOTHIAN ROAD, EDINBURGH, X0, EH3 9BY",Artemis Investment Management LLP,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,27981639000.0,184650
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,815000.0,23709
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,008073,008073108,AEROVIRONMENT INC,788000.0,7710
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,525000.0,9999
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+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,493000.0,6450
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,391000.0,2700
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1332000.0,6062
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+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,489170,489170100,KENNAMETAL INC,1560000.0,54933
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,500643,500643200,KORN FERRY,317000.0,6400
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,505336,505336107,LA Z BOY INC,973000.0,33961
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,512807,512807108,LAM RESEARCH CORP,773000.0,1203
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,387000.0,3365
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,513847,513847103,LANCASTER COLONY CORP,849000.0,4222
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,213000.0,1134
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,594918,594918104,MICROSOFT CORP,2721000.0,7991
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,600544,600544100,MILLERKNOLL INC,176000.0,11919
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+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,671044,671044105,OSI SYSTEMS INC,1322000.0,11220
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+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,761152,761152107,RESMED INC,1203000.0,5508
+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,238000.0,15177
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+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,832696,832696405,SMUCKER J M CO,1997000.0,13524
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+https://sec.gov/Archives/edgar/data/1535387/0001535387-23-000004.txt,1535387,"#04-01B, DELTA HOUSE, 2 ALEXANDRA ROAD, SINGAPORE, U0, 159919",Dynamic Technology Lab Private Ltd,2023-06-30,86333M,86333M108,STRIDE INC,818000.0,21959
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+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,17892644000.0,189200
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+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,9556976000.0,57200
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,31428X,31428X106,FEDEX CORP,10312640000.0,41600
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,35137L,35137L105,FOX CORP CL A,6398800000.0,188200
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,370334,370334104,GENERAL MLS INC,8690110000.0,113300
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,6258142000.0,37400
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,461202,461202103,INTUIT,2794959000.0,6100
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,482480,482480100,KLA CORP,12222504000.0,25200
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,512807,512807108,LAM RESEARCH CORP,13114344000.0,20400
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,6885505000.0,59900
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,2061990000.0,10500
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,594918,594918104,MICROSOFT CORP,9807552000.0,28800
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,64110D,64110D104,NETAPP INC,5233400000.0,68500
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+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,654106,654106103,NIKE INC,7019532000.0,63600
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,683715,683715106,OPEN TEXT CORP,8171330000.0,148300
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,8176320000.0,32000
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,3978408000.0,10200
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,704326,704326107,PAYCHEX INC,13256595000.0,118500
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+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,749685,749685103,RPM INTL INC,5527368000.0,61600
+https://sec.gov/Archives/edgar/data/1535452/0001535452-23-000003.txt,1535452,"OSTRA HAMNGATAN 26-28, P.O. BOX 11155, GOTEBORG, V7, SE-404 24",Andra AP-fonden,2023-06-30,761152,761152107,RESMED INC,5571750000.0,25500
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+https://sec.gov/Archives/edgar/data/1535472/0001011438-23-000531.txt,1535472,"667 MADISON AVENUE, NEW YORK, NY, 10065",Corvex Management LP,2023-06-30,594918,594918104,MICROSOFT CORP,19056959000.0,55961
+https://sec.gov/Archives/edgar/data/1535588/0001535588-23-000005.txt,1535588,"6688 N. CENTRAL EXPRESSWAY, SUITE 1610, DALLAS, TX, 75206","Twin Tree Management, LP",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,4514047000.0,20538
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+https://sec.gov/Archives/edgar/data/1536054/0001315863-23-000702.txt,1536054,"201 MAIN STREET, SUITE 1900, FORT WORTH, TX, 76102","Crestline Management, LP",2023-06-30,589378,589378108,MERCURY SYS INC,11805394000.0,341295
+https://sec.gov/Archives/edgar/data/1536054/0001315863-23-000702.txt,1536054,"201 MAIN STREET, SUITE 1900, FORT WORTH, TX, 76102","Crestline Management, LP",2023-06-30,594918,594918104,MICROSOFT CORP,9024310000.0,26500
+https://sec.gov/Archives/edgar/data/1536054/0001315863-23-000702.txt,1536054,"201 MAIN STREET, SUITE 1900, FORT WORTH, TX, 76102","Crestline Management, LP",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,4143350000.0,16216
+https://sec.gov/Archives/edgar/data/1536054/0001315863-23-000702.txt,1536054,"201 MAIN STREET, SUITE 1900, FORT WORTH, TX, 76102","Crestline Management, LP",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,3306778000.0,17920
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+https://sec.gov/Archives/edgar/data/1536080/0001085146-23-003403.txt,1536080,"PRAIA DE BOTAFOGO,501, 5TH FLOOR, TORRE CORCOVADO, BOTAFOGO, RIO DE JANEIRO, D5, 24210-400",Banco BTG Pactual S.A.,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1877232000.0,7347
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+https://sec.gov/Archives/edgar/data/1536105/0001085146-23-003248.txt,1536105,"LEVEL 36, 25 MARTIN PLACE, Sydney, C3, 2000",Magellan Asset Management Ltd,2023-06-30,461202,461202103,INTUIT,437987487000.0,955908
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+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,100248000.0,600
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+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,370334,370334104,GENERAL MLS INC,145730000.0,1900
+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,461202,461202103,INTUIT,366552000.0,800
+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,482480,482480100,KLA CORP,194008000.0,400
+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,512807,512807108,LAM RESEARCH CORP,257144000.0,400
+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,137466000.0,700
+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,594918,594918104,MICROSOFT CORP,6844854000.0,20100
+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,654106,654106103,NIKE INC,375258000.0,3400
+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,229959000.0,900
+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,156016000.0,400
+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,704326,704326107,PAYCHEX INC,111870000.0,1000
+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,925614000.0,6100
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+https://sec.gov/Archives/edgar/data/1536114/0000904454-23-000442.txt,1536114,"Elsley House, 24-30 Great Titchfield Street, London, X0, W1W 8BF",Alta Advisers Ltd,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,308350000.0,3500
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+https://sec.gov/Archives/edgar/data/1536139/0001765380-23-000131.txt,1536139,"1151 BETHEL ROAD, SUITE 204, COLUMBUS, OH, 43220","J. W. Coons Advisors, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,403442000.0,5260
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+https://sec.gov/Archives/edgar/data/1536139/0001765380-23-000131.txt,1536139,"1151 BETHEL ROAD, SUITE 204, COLUMBUS, OH, 43220","J. W. Coons Advisors, LLC",2023-06-30,513847,513847103,LANCASTER COLONY CORP,576526000.0,2867
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+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,314906000.0,3156
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,115637,115637209,BROWN FORMAN CORP,11070455000.0,165775
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,189054,189054109,CLOROX CO DEL,964100000.0,6062
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,254296000.0,1522
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,35137L,35137L204,FOX CORP,5998796000.0,188109
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,505336,505336107,LA Z BOY INC,661269000.0,23089
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,4111072000.0,35764
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,513847,513847103,LANCASTER COLONY CORP,347886000.0,1730
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,11639050000.0,59268
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,600544,600544100,MILLERKNOLL INC,282180000.0,19092
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,376066000.0,7778
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,654106,654106103,NIKE INC,507592000.0,4599
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,475903000.0,2579
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,832696,832696405,SMUCKER J M CO,10572286000.0,71594
+https://sec.gov/Archives/edgar/data/1536186/0000919574-23-004456.txt,1536186,"285 Grand Avenue, Building 1, Englewood, NJ, 07631","LANDSCAPE CAPITAL MANAGEMENT, L.L.C.",2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,3477023000.0,25946
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+https://sec.gov/Archives/edgar/data/1536411/0001536411-23-000006.txt,1536411,"40 West 57th Street, 25th Floor, New York, NY, 10019",Duquesne Family Office LLC,2023-06-30,594918,594918104,Microsoft Corp,282294000.0,828960
+https://sec.gov/Archives/edgar/data/1536411/0001536411-23-000006.txt,1536411,"40 West 57th Street, 25th Floor, New York, NY, 10019",Duquesne Family Office LLC,2023-06-30,65249B,65249B109,News Corp New,88228000.0,4524525
+https://sec.gov/Archives/edgar/data/1536411/0001536411-23-000006.txt,1536411,"40 West 57th Street, 25th Floor, New York, NY, 10019",Duquesne Family Office LLC,2023-06-30,749685,749685103,Rpm Intl Inc,5294000.0,59000
+https://sec.gov/Archives/edgar/data/1536430/0001085146-23-002747.txt,1536430,"6116 HARRISON AVENUE, CINCINNATI, OH, 45247",HENGEHOLD CAPITAL MANAGEMENT LLC,2023-06-30,594918,594918104,MICROSOFT CORP,7721018000.0,22673
+https://sec.gov/Archives/edgar/data/1536430/0001085146-23-002747.txt,1536430,"6116 HARRISON AVENUE, CINCINNATI, OH, 45247",HENGEHOLD CAPITAL MANAGEMENT LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,55282503000.0,364324
+https://sec.gov/Archives/edgar/data/1536430/0001085146-23-002747.txt,1536430,"6116 HARRISON AVENUE, CINCINNATI, OH, 45247",HENGEHOLD CAPITAL MANAGEMENT LLC,2023-06-30,832696,832696405,SMUCKER J M CO,486586000.0,3295
+https://sec.gov/Archives/edgar/data/1536430/0001085146-23-002747.txt,1536430,"6116 HARRISON AVENUE, CINCINNATI, OH, 45247",HENGEHOLD CAPITAL MANAGEMENT LLC,2023-06-30,871829,871829107,SYSCO CORP,298199000.0,4019
+https://sec.gov/Archives/edgar/data/1536430/0001085146-23-002747.txt,1536430,"6116 HARRISON AVENUE, CINCINNATI, OH, 45247",HENGEHOLD CAPITAL MANAGEMENT LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1967626000.0,22334
+https://sec.gov/Archives/edgar/data/1536444/0001536444-23-000003.txt,1536444,"4371 US HIGHWAY 17, SUITE 201, FLEMING ISLAND, FL, 32003","Camarda Financial Advisors, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,1591208000.0,6419
+https://sec.gov/Archives/edgar/data/1536444/0001536444-23-000003.txt,1536444,"4371 US HIGHWAY 17, SUITE 201, FLEMING ISLAND, FL, 32003","Camarda Financial Advisors, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,1554988000.0,13528
+https://sec.gov/Archives/edgar/data/1536444/0001536444-23-000003.txt,1536444,"4371 US HIGHWAY 17, SUITE 201, FLEMING ISLAND, FL, 32003","Camarda Financial Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,1411999000.0,4146
+https://sec.gov/Archives/edgar/data/1536444/0001536444-23-000003.txt,1536444,"4371 US HIGHWAY 17, SUITE 201, FLEMING ISLAND, FL, 32003","Camarda Financial Advisors, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1455560000.0,9592
+https://sec.gov/Archives/edgar/data/1536446/0001104659-23-088305.txt,1536446,"2000 John Loop, Coeur D Alene, ID, 83814","Pinkerton Retirement Specialists, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING INC COM,2686698000.0,12224
+https://sec.gov/Archives/edgar/data/1536446/0001104659-23-088305.txt,1536446,"2000 John Loop, Coeur D Alene, ID, 83814","Pinkerton Retirement Specialists, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC COM,1727699000.0,18269
+https://sec.gov/Archives/edgar/data/1536446/0001104659-23-088305.txt,1536446,"2000 John Loop, Coeur D Alene, ID, 83814","Pinkerton Retirement Specialists, LLC",2023-06-30,189054,189054109,CLOROX CO DEL COM,2617096000.0,16456
+https://sec.gov/Archives/edgar/data/1536446/0001104659-23-088305.txt,1536446,"2000 John Loop, Coeur D Alene, ID, 83814","Pinkerton Retirement Specialists, LLC",2023-06-30,222070,222070203,COTY INC COM CL A,174346000.0,14186
+https://sec.gov/Archives/edgar/data/1536446/0001104659-23-088305.txt,1536446,"2000 John Loop, Coeur D Alene, ID, 83814","Pinkerton Retirement Specialists, LLC",2023-06-30,461202,461202103,INTUIT COM,2084306000.0,4549
+https://sec.gov/Archives/edgar/data/1536446/0001104659-23-088305.txt,1536446,"2000 John Loop, Coeur D Alene, ID, 83814","Pinkerton Retirement Specialists, LLC",2023-06-30,482480,482480100,KLA CORP COM NEW,894377000.0,1844
+https://sec.gov/Archives/edgar/data/1536446/0001104659-23-088305.txt,1536446,"2000 John Loop, Coeur D Alene, ID, 83814","Pinkerton Retirement Specialists, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP COM,378645000.0,589
+https://sec.gov/Archives/edgar/data/1536446/0001104659-23-088305.txt,1536446,"2000 John Loop, Coeur D Alene, ID, 83814","Pinkerton Retirement Specialists, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC COM,637628000.0,5547
+https://sec.gov/Archives/edgar/data/1536446/0001104659-23-088305.txt,1536446,"2000 John Loop, Coeur D Alene, ID, 83814","Pinkerton Retirement Specialists, LLC",2023-06-30,513847,513847103,LANCASTER COLONY CORP COM,1331417000.0,6621
+https://sec.gov/Archives/edgar/data/1536446/0001104659-23-088305.txt,1536446,"2000 John Loop, Coeur D Alene, ID, 83814","Pinkerton Retirement Specialists, LLC",2023-06-30,594918,594918104,MICROSOFT CORP COM,4162348000.0,12223
+https://sec.gov/Archives/edgar/data/1536446/0001104659-23-088305.txt,1536446,"2000 John Loop, Coeur D Alene, ID, 83814","Pinkerton Retirement Specialists, LLC",2023-06-30,654106,654106103,NIKE INC CL B,1762388000.0,15968
+https://sec.gov/Archives/edgar/data/1536446/0001104659-23-088305.txt,1536446,"2000 John Loop, Coeur D Alene, ID, 83814","Pinkerton Retirement Specialists, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO COM,2831300000.0,18659
+https://sec.gov/Archives/edgar/data/1536592/0001536592-23-000006.txt,1536592,"280 PARK AVENUE, 32ND FLOOR, NEW YORK, NY, 10017",Krane Funds Advisors LLC,2023-06-30,053807,053807103,AVNET INC,506000.0,10022
+https://sec.gov/Archives/edgar/data/1536592/0001536592-23-000006.txt,1536592,"280 PARK AVENUE, 32ND FLOOR, NEW YORK, NY, 10017",Krane Funds Advisors LLC,2023-06-30,594918,594918104,MICROSOFT CORP,2168000.0,6367
+https://sec.gov/Archives/edgar/data/1536592/0001536592-23-000006.txt,1536592,"280 PARK AVENUE, 32ND FLOOR, NEW YORK, NY, 10017",Krane Funds Advisors LLC,2023-06-30,704326,704326107,PAYCHEX INC,501000.0,4477
+https://sec.gov/Archives/edgar/data/1536630/0001536630-23-000004.txt,1536630,"235 MONTGOMERY STREET, SUITE 1010, SAN FRANCISCO, CA, 94104",Potrero Capital Research LLC,2023-06-30,594918,594918104,MICROSOFT CORP,13176855000.0,38694
+https://sec.gov/Archives/edgar/data/1536924/0001214659-23-009694.txt,1536924,"201 FRANKLIN ROAD, BRENTWOOD, TN, 37027","LBMC INVESTMENT ADVISORS, LLC",2023-06-30,31428X,31428X106,Fedex Corporation,444506000.0,1793
+https://sec.gov/Archives/edgar/data/1536924/0001214659-23-009694.txt,1536924,"201 FRANKLIN ROAD, BRENTWOOD, TN, 37027","LBMC INVESTMENT ADVISORS, LLC",2023-06-30,594918,594918104,Microsoft Corp,4390952000.0,12894
+https://sec.gov/Archives/edgar/data/1536924/0001214659-23-009694.txt,1536924,"201 FRANKLIN ROAD, BRENTWOOD, TN, 37027","LBMC INVESTMENT ADVISORS, LLC",2023-06-30,654106,654106103,Nike Inc Class B,212525000.0,1926
+https://sec.gov/Archives/edgar/data/1536924/0001214659-23-009694.txt,1536924,"201 FRANKLIN ROAD, BRENTWOOD, TN, 37027","LBMC INVESTMENT ADVISORS, LLC",2023-06-30,742718,742718109,Procter & Gamble Co,235804000.0,1554
+https://sec.gov/Archives/edgar/data/1536924/0001214659-23-009694.txt,1536924,"201 FRANKLIN ROAD, BRENTWOOD, TN, 37027","LBMC INVESTMENT ADVISORS, LLC",2023-06-30,871829,871829107,Sysco Corporation,787633000.0,10615
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,708000.0,13486
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,218000.0,3936
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,215000.0,1487
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,4382000.0,19936
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,053807,053807103,AVNET INC,1012000.0,20066
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,090043,090043100,BILL HOLDINGS INC,261000.0,2237
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,301000.0,3684
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,093671,093671105,BLOCK H & R INC,255000.0,8004
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,1417000.0,8555
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,115637,115637209,BROWN FORMAN CORP,487000.0,7295
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,127190,127190304,CACI INTL INC,855000.0,2509
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,128030,128030202,CAL MAINE FOODS INC,329000.0,7310
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,2221000.0,23490
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,147528,147528103,CASEYS GEN STORES INC,798000.0,3271
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,189054,189054109,CLOROX CO DEL,3611000.0,22705
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,205887,205887102,CONAGRA BRANDS INC,381000.0,11303
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,482000.0,2885
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,31428X,31428X106,FEDEX CORP,3404000.0,13733
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,35137L,35137L105,FOX CORP,245000.0,7195
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,36251C,36251C103,GMS INC,615000.0,8888
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,370334,370334104,GENERAL MLS INC,13488000.0,175854
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,7035000.0,42045
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,461202,461202103,INTUIT,2954000.0,6447
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,482480,482480100,KLA CORP,4440000.0,9154
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,512807,512807108,LAM RESEARCH CORP,1981000.0,3082
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,389000.0,3386
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,513847,513847103,LANCASTER COLONY CORP,689000.0,3424
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,1070000.0,5451
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,56117J,56117J100,MALIBU BOATS INC,657000.0,11206
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,594918,594918104,MICROSOFT CORP,89216000.0,261984
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,64110D,64110D104,NETAPP INC,2097000.0,27450
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,65249B,65249B109,NEWS CORP NEW,178000.0,9147
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,654106,654106103,NIKE INC,3122000.0,28283
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,671044,671044105,OSI SYSTEMS INC,163000.0,1385
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,5632000.0,22043
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,3833000.0,9828
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,704326,704326107,PAYCHEX INC,9212000.0,82350
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,182000.0,984
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,37505000.0,247163
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,749685,749685103,RPM INTL INC,272000.0,3030
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,761152,761152107,RESMED INC,1287000.0,5890
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,807066,807066105,SCHOLASTIC CORP,913000.0,23471
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,832696,832696405,SMUCKER J M CO,13497000.0,91399
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,86333M,86333M108,STRIDE INC,149000.0,3993
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,1397000.0,5604
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,871829,871829107,SYSCO CORP,2408000.0,32450
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,280000.0,7383
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,232000.0,1729
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2761000.0,31337
+https://sec.gov/Archives/edgar/data/1536925/0001536925-23-000005.txt,1536925,"140 CARLETON STREET, SUITE 400, FREDERICTON, A3, E3B 3T4",Vestcor Inc,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,1610000.0,62783
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,49825953000.0,226698
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,090043,090043100,BILL HOLDINGS INC,6376855000.0,54573
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,2077828000.0,12545
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,13844103000.0,146390
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,189054,189054109,CLOROX CO DEL,2120957000.0,13336
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,205887,205887102,CONAGRA BRANDS INC,4812990000.0,142734
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1302389000.0,7795
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,31428X,31428X106,FEDEX CORP,4326847000.0,17454
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,35137L,35137L105,FOX CORP,377604000.0,11106
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,370334,370334104,GENERAL MLS INC,22102946000.0,288174
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,461202,461202103,INTUIT,14247876000.0,31096
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,482480,482480100,KLA CORP,9396777000.0,19374
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,500643,500643200,KORN FERRY,4286993000.0,86536
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,512807,512807108,LAM RESEARCH CORP,86728243000.0,134910
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,18638568000.0,162145
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,39180363000.0,199513
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,594918,594918104,MICROSOFT CORP,822070029000.0,2414019
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,64110D,64110D104,NETAPP INC,891053000.0,11663
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,654106,654106103,NIKE INC,69122524000.0,626280
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,107860225000.0,422137
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,28522065000.0,73126
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,704326,704326107,PAYCHEX INC,4812647000.0,43020
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,170772140000.0,1125426
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,761152,761152107,RESMED INC,8981006000.0,41103
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,807066,807066105,SCHOLASTIC CORP,688897000.0,17714
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,832696,832696405,SMUCKER J M CO,1771597000.0,11997
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,86333M,86333M108,STRIDE INC,2015707000.0,54142
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,871829,871829107,SYSCO CORP,11312680000.0,152462
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,876030,876030107,TAPESTRY INC,1261744000.0,29480
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,903986000.0,23833
+https://sec.gov/Archives/edgar/data/1537014/0001085146-23-003160.txt,1537014,"19-21, ROUTE D'ARLON, Strassen, Luxembourg, N4, 8009",Candriam S.C.A.,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,796540000.0,23407
+https://sec.gov/Archives/edgar/data/1537147/0001754960-23-000228.txt,1537147,"10 GLENLAKE PARKWAY, SOUTH TOWER, SUITE 150, ATLANTA, GA, 30328",Resource Planning Group,2023-06-30,594918,594918104,MICROSOFT CORP,446535000.0,1311
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,786386000.0,22900
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,008073,008073108,AEROVIRONMENT INC,1360324000.0,13300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,818688000.0,15600
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,664419000.0,8700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,299340000.0,3000
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,214858000.0,20600
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,2940049000.0,20300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,11297206000.0,51400
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,05368M,05368M106,AVID BIOSERVICES INC,458216000.0,32800
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,053807,053807103,AVNET INC,1347015000.0,26700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,1088544000.0,27600
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,791811000.0,9700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,093671,093671105,BLOCK H & R INC,1418215000.0,44500
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,1209099000.0,7300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,115637,115637209,BROWN FORMAN CORP,754614000.0,11300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,127190,127190304,CACI INTL INC,2283628000.0,6700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,128030,128030202,CAL MAINE FOODS INC,895500000.0,19900
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,1484749000.0,15700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,1431315000.0,25500
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,147528,147528103,CASEYS GEN STORES INC,2658292000.0,10900
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,189054,189054109,CLOROX CO DEL,1208704000.0,7600
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,205887,205887102,CONAGRA BRANDS INC,994740000.0,29500
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,222070,222070203,COTY INC,1316259000.0,107100
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1253100000.0,7500
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,339360000.0,12000
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,31428X,31428X106,FEDEX CORP,3544970000.0,14300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,35137L,35137L105,FOX CORP,564400000.0,16600
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,36251C,36251C103,GMS INC,1501640000.0,21700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,370334,370334104,GENERAL MLS INC,2784210000.0,36300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,586719000.0,46900
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,752985000.0,4500
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,461202,461202103,INTUIT,15990831000.0,34900
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,482480,482480100,KLA CORP,8293842000.0,17100
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,489170,489170100,KENNAMETAL INC,1195219000.0,42100
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,500643,500643200,KORN FERRY,1362350000.0,27500
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,505336,505336107,LA Z BOY INC,647264000.0,22600
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,512807,512807108,LAM RESEARCH CORP,10735762000.0,16700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,1034550000.0,9000
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,513847,513847103,LANCASTER COLONY CORP,1166322000.0,5800
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,2808234000.0,14300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,1140273000.0,20100
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,589378,589378108,MERCURY SYS INC,588030000.0,17000
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,591520,591520200,METHOD ELECTRS INC,633528000.0,18900
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,594918,594918104,MICROSOFT CORP,278153072000.0,816800
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,600544,600544100,MILLERKNOLL INC,586766000.0,39700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,589870000.0,12200
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,640491,640491106,NEOGEN CORP,1374600000.0,63200
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,64110D,64110D104,NETAPP INC,1008480000.0,13200
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,65249B,65249B109,NEWS CORP NEW,460200000.0,23600
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,654106,654106103,NIKE INC,8410194000.0,76200
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,671044,671044105,OSI SYSTEMS INC,966206000.0,8200
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,9658278000.0,37800
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,3081316000.0,7900
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,703395,703395103,PATTERSON COS INC,844804000.0,25400
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,704326,704326107,PAYCHEX INC,4732101000.0,42300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,2232813000.0,12100
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,2746944000.0,45600
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP,146590000.0,10700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,22123692000.0,145800
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,74874Q,74874Q100,QUINSTREET INC,235761000.0,26700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,749685,749685103,RPM INTL INC,3382821000.0,37700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,761152,761152107,RESMED INC,1988350000.0,9100
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,263928000.0,16800
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,806037,806037107,SCANSOURCE INC,387236000.0,13100
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,807066,807066105,SCHOLASTIC CORP,595017000.0,15300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,832696,832696405,SMUCKER J M CO,974622000.0,6600
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,854231,854231107,STANDEX INTL CORP,877114000.0,6200
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,86333M,86333M108,STRIDE INC,800445000.0,21500
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,3315025000.0,13300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,87157D,87157D109,SYNAPTICS INC,981870000.0,11500
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,871829,871829107,SYSCO CORP,2322460000.0,31300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,876030,876030107,TAPESTRY INC,612040000.0,14300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,1322211000.0,116700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,751014000.0,19800
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,762272000.0,22400
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,241218000.0,1800
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,981811,981811102,WORTHINGTON INDS INC,618283000.0,8900
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,G3323L,G3323L100,FABRINET,2480708000.0,19100
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,7250630000.0,82300
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,383760000.0,11700
+https://sec.gov/Archives/edgar/data/1537191/0001537191-23-000004.txt,1537191,"P.O. BOX 44213, BATON ROGUE, LA, 70804",Louisiana State Employees Retirement System,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,428355000.0,16700
+https://sec.gov/Archives/edgar/data/1537530/0000905148-23-000735.txt,1537530,"2800 SAND HILL ROAD, SUITE 101, MENLO PARK, CA, 94025","SCGE MANAGEMENT, L.P.",2023-06-30,512807,512807108,LAM RESEARCH CORP,151072100000.0,235000
+https://sec.gov/Archives/edgar/data/1537530/0000905148-23-000735.txt,1537530,"2800 SAND HILL ROAD, SUITE 101, MENLO PARK, CA, 94025","SCGE MANAGEMENT, L.P.",2023-06-30,594918,594918104,MICROSOFT CORP,405583140000.0,1191000
+https://sec.gov/Archives/edgar/data/1537530/0000905148-23-000735.txt,1537530,"2800 SAND HILL ROAD, SUITE 101, MENLO PARK, CA, 94025","SCGE MANAGEMENT, L.P.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,48923777000.0,191475
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,79950000.0,1500
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,6795526000.0,27366
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,718636000.0,4272
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,8345000.0,55
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,2280000.0,70
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,3661000.0,22
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,96538000.0,360
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,53674000.0,722
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,461202,461202103,INTUIT,125091000.0,246
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,48682000.0,68
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,19869287000.0,59075
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,654106,654106103,NIKE INC,230287000.0,2105
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3521407000.0,22537
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,22900000.0,153
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,871829,871829107,SYSCO CORP,2209000.0,29
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,10675000.0,249
+https://sec.gov/Archives/edgar/data/1537621/0000950123-23-008404.txt,1537621,"Brandywine Five, 1 Dickinson Drive, suite 103, Chadds Ford, PA, 19317","DT Investment Partners, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1058825000.0,12076
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,351444000.0,1599
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,8851929000.0,53444
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,4188194000.0,25067
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,31428X,31428X106,FEDEX CORP,769977000.0,3106
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,370334,370334104,GENERAL MLS INC,406049000.0,5294
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,461202,461202103,INTUIT,563573000.0,1230
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,482480,482480100,KLA CORP,599484000.0,1236
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,512807,512807108,LAM RESEARCH CORP,313715000.0,488
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,686151000.0,3494
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,594918,594918104,MICROSOFT CORP,68495349000.0,201137
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,654106,654106103,NIKE INC,14677775000.0,132987
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1061387000.0,4154
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,704326,704326107,PAYCHEX INC,827502000.0,7397
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,23121078000.0,152373
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,861657000.0,3457
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,871829,871829107,SYSCO CORP,630848000.0,8502
+https://sec.gov/Archives/edgar/data/1537720/0001537720-23-000008.txt,1537720,"8695 College Pkwy, Ste 100, Fort Myers, FL, 33919",FineMark National Bank & Trust,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,7740466000.0,87860
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,1061000.0,20212
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,7301000.0,33216
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,1033000.0,12658
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,1571000.0,9486
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,115637,115637209,BROWN FORMAN CORP,982000.0,14706
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,1936000.0,20470
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,189054,189054109,CLOROX CO DEL,1581000.0,9940
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,205887,205887102,CONAGRA BRANDS INC,1293000.0,38344
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1625000.0,9723
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,31428X,31428X106,FEDEX CORP,4609000.0,18593
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,35137L,35137L105,FOX CORP,736000.0,21633
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,370334,370334104,GENERAL MLS INC,3622000.0,47225
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,980000.0,5859
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,461202,461202103,INTUIT,10335000.0,22557
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,482480,482480100,KLA CORP,5350000.0,11031
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,512807,512807108,LAM RESEARCH CORP,6944000.0,10801
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,1347000.0,11715
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,3661000.0,18643
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,594918,594918104,MICROSOFT CORP,203585000.0,597830
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,64110D,64110D104,NETAPP INC,1314000.0,17198
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,65249B,65249B109,NEWS CORP NEW,597000.0,30629
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,654106,654106103,NIKE INC,10934000.0,99063
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,6217000.0,24330
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,4023000.0,10315
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,704326,704326107,PAYCHEX INC,2886000.0,25797
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,28756000.0,189506
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,761152,761152107,RESMED INC,2581000.0,11814
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,832696,832696405,SMUCKER J M CO,1266000.0,8574
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,871829,871829107,SYSCO CORP,3023000.0,40738
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,876030,876030107,TAPESTRY INC,798000.0,18637
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,976000.0,25724
+https://sec.gov/Archives/edgar/data/1537783/0001537783-23-000003.txt,1537783,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,9424000.0,106969
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,02875D,02875D109,AMERICAN OUTDOOR,69000.0,8
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA,36266000.0,165
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,128030,128030202,CAL MAINE FOODS,6345000.0,141
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,189054,189054109,CLOROX COMPANY,4135000.0,26
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,31428X,31428X106,FEDEX CORP,1364202000.0,5503
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,35137L,35137L105,FOX CORP,3774000.0,111
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,370334,370334104,GENERAL MILLS,27347000.0,356
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,482480,482480100,KLA CORP,54807000.0,113
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,512807,512807108,LAM RESEARCH CORPORATION,511074000.0,795
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,55024U,55024U109,LUMENTUM HOLDINGS,31883000.0,562
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,55825T,55825T103,MADISON SQUARE,135209000.0,719
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT,9751000.0,356
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,8749847000.0,25717
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,65249B,65249B109,NEWS CORP,176000.0,9
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,654106,654106103,NIKE INC,435983000.0,3969
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,697435,697435105,PALO ALTO,159264000.0,624
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,24276000.0,217
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,742718,742718109,PROCTER & GAMBLE,715532000.0,4714
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,761152,761152107,RESMED INC,48024000.0,219
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,831754,831754106,SMITH & WESSON,456000.0,35
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,871829,871829107,SYSCO CORP,17766000.0,239
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,88688T,88688T100,TILRAY BRANDS,31746000.0,20150
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,925550,925550105,VIAVI SOLUTIONS,702000.0,62
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,958102,958102105,WESTERN DIGITAL,11380000.0,300
+https://sec.gov/Archives/edgar/data/1538383/0001538383-23-000003.txt,1538383,"2444 WILSHIRE BLVD STE 303, SANTA MONICA, CA, 90403","Westside Investment Management, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1374895000.0,15606
+https://sec.gov/Archives/edgar/data/1538449/0000945621-23-000382.txt,1538449,"517 10TH AVENUE S. W., SUITE 600, CALGARY, A0, T2R 0A8",Mawer Investment Management Ltd.,2023-06-30,127190,127190304,CACI INTL INC,3059721000.0,8977
+https://sec.gov/Archives/edgar/data/1538449/0000945621-23-000382.txt,1538449,"517 10TH AVENUE S. W., SUITE 600, CALGARY, A0, T2R 0A8",Mawer Investment Management Ltd.,2023-06-30,31428X,31428X106,FEDEX CORP,377801831000.0,1524009
+https://sec.gov/Archives/edgar/data/1538449/0000945621-23-000382.txt,1538449,"517 10TH AVENUE S. W., SUITE 600, CALGARY, A0, T2R 0A8",Mawer Investment Management Ltd.,2023-06-30,461202,461202103,INTUIT,226073237000.0,493405
+https://sec.gov/Archives/edgar/data/1538449/0000945621-23-000382.txt,1538449,"517 10TH AVENUE S. W., SUITE 600, CALGARY, A0, T2R 0A8",Mawer Investment Management Ltd.,2023-06-30,482480,482480100,KLA CORP,2874229000.0,5926
+https://sec.gov/Archives/edgar/data/1538449/0000945621-23-000382.txt,1538449,"517 10TH AVENUE S. W., SUITE 600, CALGARY, A0, T2R 0A8",Mawer Investment Management Ltd.,2023-06-30,594918,594918104,MICROSOFT CORP,1214175959000.0,3565443
+https://sec.gov/Archives/edgar/data/1538449/0000945621-23-000382.txt,1538449,"517 10TH AVENUE S. W., SUITE 600, CALGARY, A0, T2R 0A8",Mawer Investment Management Ltd.,2023-06-30,654106,654106103,NIKE INC,67143810000.0,608352
+https://sec.gov/Archives/edgar/data/1538449/0000945621-23-000382.txt,1538449,"517 10TH AVENUE S. W., SUITE 600, CALGARY, A0, T2R 0A8",Mawer Investment Management Ltd.,2023-06-30,704326,704326107,PAYCHEX INC,144095943000.0,1288066
+https://sec.gov/Archives/edgar/data/1538449/0000945621-23-000382.txt,1538449,"517 10TH AVENUE S. W., SUITE 600, CALGARY, A0, T2R 0A8",Mawer Investment Management Ltd.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,448049223000.0,2952743
+https://sec.gov/Archives/edgar/data/1538449/0000945621-23-000382.txt,1538449,"517 10TH AVENUE S. W., SUITE 600, CALGARY, A0, T2R 0A8",Mawer Investment Management Ltd.,2023-06-30,N14506,N14506104,ELASTIC N V,17998805000.0,280705
+https://sec.gov/Archives/edgar/data/1538653/0001104659-23-091335.txt,1538653,"2200 Butts Road, Suite 320, Boca Raton, FL, 33431",Prescott General Partners LLC,2023-06-30,981419,981419104,WORLD ACCEPT CORP DEL,273044705000.0,2037495
+https://sec.gov/Archives/edgar/data/1538653/0001104659-23-091335.txt,1538653,"2200 Butts Road, Suite 320, Boca Raton, FL, 33431",Prescott General Partners LLC,2023-06-30,G2143T,G2143T103,CIMPRESS PLC,232358144000.0,3906492
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,3010000.0,39417
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,747000.0,3400
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,053807,053807103,AVNET INC,924000.0,18308
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,093671,093671105,BLOCK H & R INC,8836000.0,277240
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,127190,127190304,CACI INTL INC,8625000.0,25304
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,1815000.0,19189
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,147528,147528103,CASEYS GEN STORES INC,2067000.0,8475
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,205887,205887102,CONAGRA BRANDS INC,212000.0,6300
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,982000.0,5880
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,31428X,31428X106,FEDEX CORP,18462000.0,74475
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,35137L,35137L105,FOX CORP,12216000.0,359283
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,374000.0,29900
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,461202,461202103,INTUIT,779000.0,1700
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,482480,482480100,KLA CORP,13281000.0,27382
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,489170,489170100,KENNAMETAL INC,1029000.0,36236
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,512807,512807108,LAM RESEARCH CORP,17083000.0,26574
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,1019000.0,5189
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,589378,589378108,MERCURY SYS INC,802000.0,23178
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,594918,594918104,MICROSOFT CORP,201477000.0,591639
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,640491,640491106,NEOGEN CORP,329000.0,15118
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,654106,654106103,NIKE INC,1269000.0,11500
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,485000.0,1900
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,3335000.0,8550
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,2033000.0,11015
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,4594000.0,30276
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,761152,761152107,RESMED INC,459000.0,2100
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,87157D,87157D109,SYNAPTICS INC,1887000.0,22099
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,876030,876030107,TAPESTRY INC,15961000.0,372915
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,12312000.0,324604
+https://sec.gov/Archives/edgar/data/1538846/0001538846-23-000006.txt,1538846,"4009 W. 49TH STREET, SUITE 300, SIOUX FALLS, SD, 57106",South Dakota Investment Council,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,28139000.0,319396
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,228142000.0,1038
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,5207667000.0,63796
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,5391909000.0,57015
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,205887,205887102,CONAGRA BRANDS INC,1835751000.0,54441
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,222070,222070203,COTY INC,785675000.0,63928
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,726965000.0,4351
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,31428X,31428X106,FEDEX CORP,1022340000.0,4124
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,35137L,35137L105,FOX CORP,433942000.0,12763
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,482480,482480100,KLA CORP,425363000.0,877
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,489170,489170100,KENNAMETAL INC,206878000.0,7287
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,512807,512807108,LAM RESEARCH CORP,4463377000.0,6943
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,598660000.0,5208
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,594918,594918104,MICROSOFT CORP,8350041000.0,24520
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,317761000.0,1722
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2486412000.0,16386
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,761152,761152107,RESMED INC,669703000.0,3065
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,832696,832696405,SMUCKER J M CO,516845000.0,3500
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,1615639000.0,6482
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,871829,871829107,SYSCO CORP,201230000.0,2712
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,876030,876030107,TAPESTRY INC,1038713000.0,24269
+https://sec.gov/Archives/edgar/data/1538853/0001172661-23-002776.txt,1538853,"11 Strand, London, X0, WC2N 5HR",MIRABELLA FINANCIAL SERVICES LLP,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,255490000.0,2900
+https://sec.gov/Archives/edgar/data/1538882/0001538882-23-000005.txt,1538882,"C/O COGNIOS CAPITAL, 3965 W. 83RD STREET #348, PRAIRIE VILLAGE, KS, 66208","COGNIOS BETA NEUTRAL LARGE CAP FUND, LP",2023-06-30,115637,115637209,BROWN FORMAN CORP,223446000.0,3346
+https://sec.gov/Archives/edgar/data/1538882/0001538882-23-000005.txt,1538882,"C/O COGNIOS CAPITAL, 3965 W. 83RD STREET #348, PRAIRIE VILLAGE, KS, 66208","COGNIOS BETA NEUTRAL LARGE CAP FUND, LP",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,713342000.0,7543
+https://sec.gov/Archives/edgar/data/1538882/0001538882-23-000005.txt,1538882,"C/O COGNIOS CAPITAL, 3965 W. 83RD STREET #348, PRAIRIE VILLAGE, KS, 66208","COGNIOS BETA NEUTRAL LARGE CAP FUND, LP",2023-06-30,189054,189054109,CLOROX CO DEL,743989000.0,4678
+https://sec.gov/Archives/edgar/data/1538882/0001538882-23-000005.txt,1538882,"C/O COGNIOS CAPITAL, 3965 W. 83RD STREET #348, PRAIRIE VILLAGE, KS, 66208","COGNIOS BETA NEUTRAL LARGE CAP FUND, LP",2023-06-30,205887,205887102,CONAGRA BRANDS INC,671534000.0,19915
+https://sec.gov/Archives/edgar/data/1538882/0001538882-23-000005.txt,1538882,"C/O COGNIOS CAPITAL, 3965 W. 83RD STREET #348, PRAIRIE VILLAGE, KS, 66208","COGNIOS BETA NEUTRAL LARGE CAP FUND, LP",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,200496000.0,1200
+https://sec.gov/Archives/edgar/data/1538882/0001538882-23-000005.txt,1538882,"C/O COGNIOS CAPITAL, 3965 W. 83RD STREET #348, PRAIRIE VILLAGE, KS, 66208","COGNIOS BETA NEUTRAL LARGE CAP FUND, LP",2023-06-30,35137L,35137L105,FOX CORP,558586000.0,16429
+https://sec.gov/Archives/edgar/data/1538882/0001538882-23-000005.txt,1538882,"C/O COGNIOS CAPITAL, 3965 W. 83RD STREET #348, PRAIRIE VILLAGE, KS, 66208","COGNIOS BETA NEUTRAL LARGE CAP FUND, LP",2023-06-30,370334,370334104,GENERAL MLS INC,909125000.0,11853
+https://sec.gov/Archives/edgar/data/1538882/0001538882-23-000005.txt,1538882,"C/O COGNIOS CAPITAL, 3965 W. 83RD STREET #348, PRAIRIE VILLAGE, KS, 66208","COGNIOS BETA NEUTRAL LARGE CAP FUND, LP",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,743615000.0,4444
+https://sec.gov/Archives/edgar/data/1538882/0001538882-23-000005.txt,1538882,"C/O COGNIOS CAPITAL, 3965 W. 83RD STREET #348, PRAIRIE VILLAGE, KS, 66208","COGNIOS BETA NEUTRAL LARGE CAP FUND, LP",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,519114000.0,4516
+https://sec.gov/Archives/edgar/data/1538882/0001538882-23-000005.txt,1538882,"C/O COGNIOS CAPITAL, 3965 W. 83RD STREET #348, PRAIRIE VILLAGE, KS, 66208","COGNIOS BETA NEUTRAL LARGE CAP FUND, LP",2023-06-30,594918,594918104,MICROSOFT CORP,1983646000.0,5825
+https://sec.gov/Archives/edgar/data/1538882/0001538882-23-000005.txt,1538882,"C/O COGNIOS CAPITAL, 3965 W. 83RD STREET #348, PRAIRIE VILLAGE, KS, 66208","COGNIOS BETA NEUTRAL LARGE CAP FUND, LP",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2481252000.0,16352
+https://sec.gov/Archives/edgar/data/1538882/0001538882-23-000005.txt,1538882,"C/O COGNIOS CAPITAL, 3965 W. 83RD STREET #348, PRAIRIE VILLAGE, KS, 66208","COGNIOS BETA NEUTRAL LARGE CAP FUND, LP",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,670882000.0,7615
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,00760J,00760J108,AEHR TEST SYS,6364000.0,154292
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,090043,090043100,BILL HOLDINGS INC,5179000.0,44316
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,138000.0,1695
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,31428X,31428X106,FEDEX CORP,262000.0,1060
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,461202,461202103,INTUIT,6694000.0,14609
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,512807,512807108,LAM RESEARCH CORP,241000.0,375
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,5762000.0,50137
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,2865000.0,14595
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,594918,594918104,MICROSOFT CORP,48438000.0,142244
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,640491,640491106,NEOGEN CORP,5154000.0,237016
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,17128000.0,67031
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,144000.0,780
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,79000.0,1310
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,12979000.0,85541
+https://sec.gov/Archives/edgar/data/1539041/0001539041-23-000006.txt,1539041,"33 YONGE STREET, SUITE 830, TORONTO, A6, M5E 1G4",PICTON MAHONEY ASSET MANAGEMENT,2023-06-30,N14506,N14506104,ELASTIC N V,40000.0,620
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,1661000.0,30818
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES INC,457000.0,3189
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,7086000.0,28278
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,053807,053807103,AVNET INC,10869000.0,227285
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,05465C,05465C100,AXIOS FINL INC COM,215000.0,4411
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,09073M,09073M104,BIO TECHNE CORP COM,1100000.0,13136
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,093671,093671105,BLOCK H & R INC,477000.0,14115
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS INCO,11822000.0,70448
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,115637,115637209,BROWN FORMAN CORP CL B,672000.0,9488
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+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,6148000.0,67052
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+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,147528,147528103,CASEYS GENERAL STORES INC,284000.0,1131
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+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,31428X,31428X106,FEDEX CORP,5705000.0,21222
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+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,370334,370334104,GENERAL MILLS INC,12149000.0,161017
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+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,500643,500643200,KORN FERRY INTL,244000.0,4671
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,512807,512807108,LAM RESEARCH CORP,11207000.0,15538
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC COM,1216000.0,11910
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,513847,513847103,LANCASTER COLONY CORP,616000.0,3202
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC CL A,2435000.0,13495
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC COM,271000.0,5170
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+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,64110D,64110D104,NETAPP INC,1240000.0,16050
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,65249B,65249B109,NEWS CORP NEW CL A,376000.0,19403
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,654106,654106103,NIKE INC CLASS B,16555000.0,152407
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,683715,683715106,OPEN TEXT CORP COM,12033000.0,284464
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC COM,5083000.0,20461
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,701094,701094104,PARKER HANNIFIN CORP,2222000.0,5563
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,703395,703395103,PATTERSON COS INC,235000.0,7204
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,18598000.0,146996
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP COM,738000.0,3264
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,742718,742718109,PROCTER & GAMBLE,19631000.0,125513
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,749685,749685103,R P M INC OHIO,1147000.0,10961
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,761152,761152107,RESMED INC,2275000.0,10197
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,832696,832696405,SMUCKER J M CO,1558000.0,10319
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC COM,1121000.0,3350
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,87157D,87157D109,SYNAPTICS INC,227000.0,2574
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,871829,871829107,SYSCO CORP,1970000.0,25899
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,876030,876030107,TAPESTRY INC,1715000.0,39860
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,925550,925550105,VIAVI SOLUTIONS INC COM,218000.0,20217
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,958102,958102105,WESTERN DIGITAL CORP,8772000.0,208710
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,G3323L,G3323L100,FABRINET SHS,575000.0,4619
+https://sec.gov/Archives/edgar/data/1539204/0001539204-23-000006.txt,1539204,"15375 MEMORIAL DR, SUITE 200, HOUSTON, TX, 77079","Crossmark Global Holdings, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,18327000.0,207672
+https://sec.gov/Archives/edgar/data/1539338/0001539338-23-000006.txt,1539338,"5599 SAN FELIPE, SUITE 900, HOUSTON, TX, 77056",Financial Advisory Group,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,241110000.0,1097
+https://sec.gov/Archives/edgar/data/1539338/0001539338-23-000006.txt,1539338,"5599 SAN FELIPE, SUITE 900, HOUSTON, TX, 77056",Financial Advisory Group,2023-06-30,594918,594918104,MICROSOFT CORP,2625268000.0,7709
+https://sec.gov/Archives/edgar/data/1539338/0001539338-23-000006.txt,1539338,"5599 SAN FELIPE, SUITE 900, HOUSTON, TX, 77056",Financial Advisory Group,2023-06-30,654106,654106103,NIKE INC,298661000.0,2706
+https://sec.gov/Archives/edgar/data/1539338/0001539338-23-000006.txt,1539338,"5599 SAN FELIPE, SUITE 900, HOUSTON, TX, 77056",Financial Advisory Group,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,222147000.0,1464
+https://sec.gov/Archives/edgar/data/1539436/0001172661-23-003096.txt,1539436,"9 West 57th Street, 47th Floor, New York, NY, 10019",Standard Investments LLC,2023-06-30,N14506,N14506104,ELASTIC N V,79209616000.0,1235334
+https://sec.gov/Archives/edgar/data/1539919/0001539919-23-000003.txt,1539919,"1133 YONGE STREET, 5TH FLOOR, TORONTO, A6, M4T 2Y7",Waratah Capital Advisors Ltd.,2023-06-30,594918,594918104,MICROSOFT CORP,66065441000.0,194002
+https://sec.gov/Archives/edgar/data/1539919/0001539919-23-000003.txt,1539919,"1133 YONGE STREET, 5TH FLOOR, TORONTO, A6, M4T 2Y7",Waratah Capital Advisors Ltd.,2023-06-30,654106,654106103,NIKE INC,1708859000.0,15483
+https://sec.gov/Archives/edgar/data/1539919/0001539919-23-000003.txt,1539919,"1133 YONGE STREET, 5TH FLOOR, TORONTO, A6, M4T 2Y7",Waratah Capital Advisors Ltd.,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,870059000.0,4715
+https://sec.gov/Archives/edgar/data/1539919/0001539919-23-000003.txt,1539919,"1133 YONGE STREET, 5TH FLOOR, TORONTO, A6, M4T 2Y7",Waratah Capital Advisors Ltd.,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,9260237000.0,61027
+https://sec.gov/Archives/edgar/data/1539947/0001398344-23-014849.txt,1539947,"155 E. 44TH STREET, 21ST FLOOR, NEW YORK, NY, 10017",Family Management Corp,2023-06-30,370334,370334104,GENERAL MLS INC,306800000.0,4000
+https://sec.gov/Archives/edgar/data/1539947/0001398344-23-014849.txt,1539947,"155 E. 44TH STREET, 21ST FLOOR, NEW YORK, NY, 10017",Family Management Corp,2023-06-30,594918,594918104,MICROSOFT CORP,15636235000.0,45916
+https://sec.gov/Archives/edgar/data/1539947/0001398344-23-014849.txt,1539947,"155 E. 44TH STREET, 21ST FLOOR, NEW YORK, NY, 10017",Family Management Corp,2023-06-30,654106,654106103,NIKE INC,350866000.0,3179
+https://sec.gov/Archives/edgar/data/1539947/0001398344-23-014849.txt,1539947,"155 E. 44TH STREET, 21ST FLOOR, NEW YORK, NY, 10017",Family Management Corp,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,320613000.0,822
+https://sec.gov/Archives/edgar/data/1539947/0001398344-23-014849.txt,1539947,"155 E. 44TH STREET, 21ST FLOOR, NEW YORK, NY, 10017",Family Management Corp,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,641860000.0,4230
+https://sec.gov/Archives/edgar/data/1539947/0001398344-23-014849.txt,1539947,"155 E. 44TH STREET, 21ST FLOOR, NEW YORK, NY, 10017",Family Management Corp,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,3098741000.0,35173
+https://sec.gov/Archives/edgar/data/1539948/0000950123-23-006288.txt,1539948,"377 Oak Street/STE 403, Garden City, NY, 11530","United Asset Strategies, Inc.",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,4034475000.0,76876
+https://sec.gov/Archives/edgar/data/1539948/0000950123-23-006288.txt,1539948,"377 Oak Street/STE 403, Garden City, NY, 11530","United Asset Strategies, Inc.",2023-06-30,115637,115637209,BROWN FORMAN CORP,1389381000.0,20805
+https://sec.gov/Archives/edgar/data/1539948/0000950123-23-006288.txt,1539948,"377 Oak Street/STE 403, Garden City, NY, 11530","United Asset Strategies, Inc.",2023-06-30,189054,189054109,CLOROX CO DEL,4228447000.0,26587
+https://sec.gov/Archives/edgar/data/1539948/0000950123-23-006288.txt,1539948,"377 Oak Street/STE 403, Garden City, NY, 11530","United Asset Strategies, Inc.",2023-06-30,31428X,31428X106,FEDEX CORP,202082000.0,815
+https://sec.gov/Archives/edgar/data/1539948/0000950123-23-006288.txt,1539948,"377 Oak Street/STE 403, Garden City, NY, 11530","United Asset Strategies, Inc.",2023-06-30,461202,461202103,INTUIT,641924000.0,1401
+https://sec.gov/Archives/edgar/data/1539948/0000950123-23-006288.txt,1539948,"377 Oak Street/STE 403, Garden City, NY, 11530","United Asset Strategies, Inc.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,4946141000.0,25187
+https://sec.gov/Archives/edgar/data/1539948/0000950123-23-006288.txt,1539948,"377 Oak Street/STE 403, Garden City, NY, 11530","United Asset Strategies, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,30397948000.0,89264
+https://sec.gov/Archives/edgar/data/1539948/0000950123-23-006288.txt,1539948,"377 Oak Street/STE 403, Garden City, NY, 11530","United Asset Strategies, Inc.",2023-06-30,654106,654106103,NIKE INC,815661000.0,7390
+https://sec.gov/Archives/edgar/data/1539948/0000950123-23-006288.txt,1539948,"377 Oak Street/STE 403, Garden City, NY, 11530","United Asset Strategies, Inc.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,18170200000.0,71113
+https://sec.gov/Archives/edgar/data/1539948/0000950123-23-006288.txt,1539948,"377 Oak Street/STE 403, Garden City, NY, 11530","United Asset Strategies, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,1516058000.0,13552
+https://sec.gov/Archives/edgar/data/1539948/0000950123-23-006288.txt,1539948,"377 Oak Street/STE 403, Garden City, NY, 11530","United Asset Strategies, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2844899000.0,18749
+https://sec.gov/Archives/edgar/data/1539948/0000950123-23-006288.txt,1539948,"377 Oak Street/STE 403, Garden City, NY, 11530","United Asset Strategies, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,7283623000.0,82674
+https://sec.gov/Archives/edgar/data/1539994/0001539994-23-000008.txt,1539994,"3 LOCHSIDE CRESCENT, EDINBURGH, X0, EH12 9SA",AEGON ASSET MANAGEMENT UK Plc,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING INC,65642000.0,299207
+https://sec.gov/Archives/edgar/data/1539994/0001539994-23-000008.txt,1539994,"3 LOCHSIDE CRESCENT, EDINBURGH, X0, EH12 9SA",AEGON ASSET MANAGEMENT UK Plc,2023-06-30,189054,189054109,CLOROX CO/THE,143000.0,897
+https://sec.gov/Archives/edgar/data/1539994/0001539994-23-000008.txt,1539994,"3 LOCHSIDE CRESCENT, EDINBURGH, X0, EH12 9SA",AEGON ASSET MANAGEMENT UK Plc,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,46524000.0,278752
+https://sec.gov/Archives/edgar/data/1539994/0001539994-23-000008.txt,1539994,"3 LOCHSIDE CRESCENT, EDINBURGH, X0, EH12 9SA",AEGON ASSET MANAGEMENT UK Plc,2023-06-30,31428X,31428X106,FEDEX CORP,2741000.0,11059
+https://sec.gov/Archives/edgar/data/1539994/0001539994-23-000008.txt,1539994,"3 LOCHSIDE CRESCENT, EDINBURGH, X0, EH12 9SA",AEGON ASSET MANAGEMENT UK Plc,2023-06-30,482480,482480100,KLA CORP,3114000.0,6423
+https://sec.gov/Archives/edgar/data/1539994/0001539994-23-000008.txt,1539994,"3 LOCHSIDE CRESCENT, EDINBURGH, X0, EH12 9SA",AEGON ASSET MANAGEMENT UK Plc,2023-06-30,594918,594918104,MICROSOFT CORP,683413000.0,2009227
+https://sec.gov/Archives/edgar/data/1539994/0001539994-23-000008.txt,1539994,"3 LOCHSIDE CRESCENT, EDINBURGH, X0, EH12 9SA",AEGON ASSET MANAGEMENT UK Plc,2023-06-30,654106,654106103,NIKE INC,29867000.0,270756
+https://sec.gov/Archives/edgar/data/1539994/0001539994-23-000008.txt,1539994,"3 LOCHSIDE CRESCENT, EDINBURGH, X0, EH12 9SA",AEGON ASSET MANAGEMENT UK Plc,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,2508000.0,41634
+https://sec.gov/Archives/edgar/data/1539994/0001539994-23-000008.txt,1539994,"3 LOCHSIDE CRESCENT, EDINBURGH, X0, EH12 9SA",AEGON ASSET MANAGEMENT UK Plc,2023-06-30,742718,742718109,THE PROCTER  GAMBLE COMPANY,4376000.0,28852
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,2693054000.0,51316
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,391539000.0,7727
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,347447000.0,2399
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,042744,042744102,ARROW FINL CORP,310146000.0,15399
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,21226604000.0,96577
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,053807,053807103,AVNET INC,564737000.0,11194
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,448496000.0,11372
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,090043,090043100,BILL HOLDINGS INC,739777000.0,6331
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,2207683000.0,27045
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,093671,093671105,BLOCK H & R INC,2461204000.0,77226
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,3253492000.0,19643
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,115637,115637100,BROWN FORMAN CORP,541548000.0,7956
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,127190,127190304,CACI INTL INC,617997000.0,1813
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,1977044000.0,20906
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,147528,147528103,CASEYS GEN STORES INC,1276336000.0,5233
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,189054,189054109,CLOROX CO DEL,4236066000.0,26635
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,205887,205887102,CONAGRA BRANDS INC,5060117000.0,150063
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,222070,222070203,COTY INC,368253000.0,29964
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,2633809000.0,15764
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,31428X,31428X106,FEDEX CORP,15640240000.0,66391
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,35137L,35137L105,FOX CORP,352988000.0,10382
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,36251C,36251C103,GMS INC,308840000.0,4463
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,370334,370334104,GENERAL MLS INC,8978733000.0,117063
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,1551937000.0,9275
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,461202,461202103,INTUIT,20014841000.0,43682
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,482480,482480100,KLA CORP,6944991000.0,15319
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,500643,500643200,KORN FERRY,492262000.0,9937
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,512807,512807108,LAM RESEARCH CORP,30837587000.0,47969
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,6512571000.0,56656
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,513847,513847103,LANCASTER COLONY CORP,327576000.0,1629
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,3521831000.0,17934
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,339302000.0,5981
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,479716000.0,2551
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,594918,594918104,MICROSOFT CORP,710711684000.0,2101777
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,640491,640491106,NEOGEN CORP,533615000.0,24534
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,64110D,64110D104,NETAPP INC,903512000.0,11826
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,65249B,65249B109,NEWS CORP NEW,391386000.0,20071
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,654106,654106103,NIKE INC,47920411000.0,434180
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,683715,683715106,OPEN TEXT CORP,714323000.0,17192
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,9661181000.0,37811
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,8339601000.0,21381
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,704326,704326107,PAYCHEX INC,11639171000.0,104042
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,144158000.0,18746
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,213671000.0,3547
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,185501971000.0,1222499
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,749685,749685103,RPM INTL INC,2322651000.0,25885
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,761152,761152107,RESMED INC,1697138000.0,7767
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,769397,769397100,RIVERVIEW BANCORP INC,56781000.0,11266
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,807066,807066105,SCHOLASTIC CORP,598773000.0,15397
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,832696,832696405,SMUCKER J M CO,4394712000.0,29760
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,854231,854231107,STANDEX INTL CORP,234699000.0,1659
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,87157D,87157D109,SYNAPTICS INC,228391000.0,2675
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,871829,871829107,SYSCO CORP,10447046000.0,140796
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,876030,876030107,TAPESTRY INC,558643000.0,13052
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,169112000.0,108405
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,386868000.0,34146
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,735590000.0,19393
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,981811,981811102,WORTHINGTON INDS INC,807936000.0,11630
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,G3323L,G3323L100,FABRINET,260539000.0,2006
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,12735157000.0,144553
+https://sec.gov/Archives/edgar/data/1540235/0001580642-23-003749.txt,1540235,"5454 W.110th Street, Overland Park, KS, 66211",Creative Planning,2023-06-30,N14506,N14506104,ELASTIC N V,207044000.0,3229
+https://sec.gov/Archives/edgar/data/1540462/0001085146-23-003273.txt,1540462,"7415 FOXWORTH COURT, JACKSON, MI, 49201","Richmond Brothers, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,2441991000.0,7167
+https://sec.gov/Archives/edgar/data/1540462/0001085146-23-003273.txt,1540462,"7415 FOXWORTH COURT, JACKSON, MI, 49201","Richmond Brothers, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,243164000.0,1602
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,053015,053015103,AUTOMATIC DATA PROCESSING IN,3216479000.0,14448
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,468892000.0,12359
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,115637,115637209,BROWN FORMAN CORP,2865898000.0,90952
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,189054,189054109,CLOROX CO DEL,2961821000.0,39412
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,205887,205887102,CONAGRA BRANDS INC,208427000.0,478
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,31428X,31428X106,FEDEX CORP,2090076000.0,54886
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,370334,370334104,GENERAL MLS INC,480835000.0,5795
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,461202,461202103,INTUIT,2617221000.0,80111
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,482480,482480100,KLA CORP,210864000.0,4015
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,512807,512807108,LAM RESEARCH CORP,221071000.0,2017
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,513272,513272104,LAMB WESTON HLDGS INC,765935000.0,23538
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,53222K,53222K205,LIFEVANTAGE CORP,573952000.0,5460
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,594918,594918104,MICROSOFT CORP,250181000.0,447
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,654106,654106103,NIKE INC,2548231000.0,7376
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,697435,697435105,PALO ALTO NETWORKS INC,360892000.0,5781
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,701094,701094104,PARKER-HANNIFIN CORP,1576819000.0,11022
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,704326,704326107,PAYCHEX INC,419010000.0,8442
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,742718,742718109,PROCTER AND GAMBLE CO,718092000.0,19620
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,749685,749685103,RPM INTL INC,629457000.0,5931
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,761152,761152107,RESMED INC,12892000.0,19442
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,871829,871829107,SYSCO CORP,50066807000.0,175384
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,981811,981811102,WORTHINGTON INDS INC,5334782000.0,36180
+https://sec.gov/Archives/edgar/data/1540569/0001398344-23-011544.txt,1540569,"21515 HAWTHORNE BLVD., SUITE 1200, TORRANCE, CA, 90503","EP Wealth Advisors, LLC",2023-03-31,G5960L,G5960L103,MEDTRONIC PLC,1220413000.0,17504
+https://sec.gov/Archives/edgar/data/1540656/0001540656-23-000009.txt,1540656,"233 SOUTH WACKER DRIVE, SUITE 5725, CHICAGO, IL, 60606",Gladius Capital Management LP,2023-06-30,053807,053807103,AVNET INC,44000.0,870
+https://sec.gov/Archives/edgar/data/1540656/0001540656-23-000009.txt,1540656,"233 SOUTH WACKER DRIVE, SUITE 5725, CHICAGO, IL, 60606",Gladius Capital Management LP,2023-06-30,093671,093671105,BLOCK H & R INC,255000.0,7993
+https://sec.gov/Archives/edgar/data/1540656/0001540656-23-000009.txt,1540656,"233 SOUTH WACKER DRIVE, SUITE 5725, CHICAGO, IL, 60606",Gladius Capital Management LP,2023-06-30,128030,128030202,CAL MAINE FOODS INC,31000.0,674
+https://sec.gov/Archives/edgar/data/1540656/0001540656-23-000009.txt,1540656,"233 SOUTH WACKER DRIVE, SUITE 5725, CHICAGO, IL, 60606",Gladius Capital Management LP,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,342000.0,3616
+https://sec.gov/Archives/edgar/data/1540656/0001540656-23-000009.txt,1540656,"233 SOUTH WACKER DRIVE, SUITE 5725, CHICAGO, IL, 60606",Gladius Capital Management LP,2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,40000.0,1394
+https://sec.gov/Archives/edgar/data/1540656/0001540656-23-000009.txt,1540656,"233 SOUTH WACKER DRIVE, SUITE 5725, CHICAGO, IL, 60606",Gladius Capital Management LP,2023-06-30,53261M,53261M104,EDGIO INC,35000.0,51393
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+https://sec.gov/Archives/edgar/data/1541910/0001541910-23-000004.txt,1541910,"2211 YORK ROAD, SUITE 500, OAK BROOK, IL, 60523",Illinois Municipal Retirement Fund,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,10518000.0,119389
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+https://sec.gov/Archives/edgar/data/1542108/0001542108-23-000006.txt,1542108,"PO BOX 1086, BEAUFORT, SC, 29901","Verity & Verity, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,13030175000.0,85872
+https://sec.gov/Archives/edgar/data/1542108/0001542108-23-000006.txt,1542108,"PO BOX 1086, BEAUFORT, SC, 29901","Verity & Verity, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,7859440000.0,53223
+https://sec.gov/Archives/edgar/data/1542108/0001542108-23-000006.txt,1542108,"PO BOX 1086, BEAUFORT, SC, 29901","Verity & Verity, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,7280144000.0,82635
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+https://sec.gov/Archives/edgar/data/1542143/0001725547-23-000186.txt,1542143,"56 JEFFERSON AVENUE, 2ND FLOOR, WESTWOOD, NJ, 07675","Modera Wealth Management, LLC",2023-06-30,127190,127190304,CACI INTL INC,230408000.0,676
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+https://sec.gov/Archives/edgar/data/1542143/0001725547-23-000186.txt,1542143,"56 JEFFERSON AVENUE, 2ND FLOOR, WESTWOOD, NJ, 07675","Modera Wealth Management, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,1361579000.0,17752
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+https://sec.gov/Archives/edgar/data/1542143/0001725547-23-000186.txt,1542143,"56 JEFFERSON AVENUE, 2ND FLOOR, WESTWOOD, NJ, 07675","Modera Wealth Management, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,2446135000.0,12456
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+https://sec.gov/Archives/edgar/data/1542143/0001725547-23-000186.txt,1542143,"56 JEFFERSON AVENUE, 2ND FLOOR, WESTWOOD, NJ, 07675","Modera Wealth Management, LLC",2023-06-30,654106,654106103,NIKE INC,1041575000.0,9437
+https://sec.gov/Archives/edgar/data/1542143/0001725547-23-000186.txt,1542143,"56 JEFFERSON AVENUE, 2ND FLOOR, WESTWOOD, NJ, 07675","Modera Wealth Management, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,208282000.0,534
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+https://sec.gov/Archives/edgar/data/1542143/0001725547-23-000186.txt,1542143,"56 JEFFERSON AVENUE, 2ND FLOOR, WESTWOOD, NJ, 07675","Modera Wealth Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,27659906000.0,182284
+https://sec.gov/Archives/edgar/data/1542143/0001725547-23-000186.txt,1542143,"56 JEFFERSON AVENUE, 2ND FLOOR, WESTWOOD, NJ, 07675","Modera Wealth Management, LLC",2023-06-30,749685,749685103,RPM INTL INC,339539000.0,3784
+https://sec.gov/Archives/edgar/data/1542143/0001725547-23-000186.txt,1542143,"56 JEFFERSON AVENUE, 2ND FLOOR, WESTWOOD, NJ, 07675","Modera Wealth Management, LLC",2023-06-30,871829,871829107,SYSCO CORP,5498522000.0,74104
+https://sec.gov/Archives/edgar/data/1542143/0001725547-23-000186.txt,1542143,"56 JEFFERSON AVENUE, 2ND FLOOR, WESTWOOD, NJ, 07675","Modera Wealth Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,299894000.0,3404
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+https://sec.gov/Archives/edgar/data/1542161/0001085146-23-003295.txt,1542161,"443 JOHN RINGLING BLVD, SUITE G, SARASOTA, FL, 34236","Glaxis Capital Management, LLC",2023-06-30,871829,871829107,SYSCO CORP,474880000.0,6400
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+https://sec.gov/Archives/edgar/data/1542165/0001542165-23-000004.txt,1542165,"14221 METCALF AVENUE, SUITE 201, OVERLAND PARK, KS, 66223","BCWM, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,403000.0,2657
+https://sec.gov/Archives/edgar/data/1542165/0001542165-23-000004.txt,1542165,"14221 METCALF AVENUE, SUITE 201, OVERLAND PARK, KS, 66223","BCWM, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,10018000.0,113711
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+https://sec.gov/Archives/edgar/data/1542166/0001542166-23-000011.txt,1542166,"1250 PROSPECT ST, STE. 01, LA JOLLA, CA, 92037","Callan Capital, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,295881000.0,1158
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+https://sec.gov/Archives/edgar/data/1542265/0001542265-23-000004.txt,1542265,"4105 LEXINGTON AVENUE NORTH, SUITE 250, ARDEN HILLS, MN, 55126",Gradient Investments LLC,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,947000.0,24
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+https://sec.gov/Archives/edgar/data/1543536/0001172661-23-002687.txt,1543536,"400 Market Street, Suite 200, Williamsport, PA, 17701","Hudock, Inc.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,296136000.0,1159
+https://sec.gov/Archives/edgar/data/1543536/0001172661-23-002687.txt,1543536,"400 Market Street, Suite 200, Williamsport, PA, 17701","Hudock, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1670516000.0,11009
+https://sec.gov/Archives/edgar/data/1543536/0001172661-23-002687.txt,1543536,"400 Market Street, Suite 200, Williamsport, PA, 17701","Hudock, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,209536000.0,2378
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+https://sec.gov/Archives/edgar/data/1544599/0001544599-23-000007.txt,1544599,"BAHNHOFSTRASSE 36, P.O. BOX, ZURICH, V8, 8010","Bank Julius Baer & Co. Ltd, Zurich",2023-06-30,88688T,88688T100,TILRAY BRANDS INC,14598000.0,9357631
+https://sec.gov/Archives/edgar/data/1544599/0001544599-23-000007.txt,1544599,"BAHNHOFSTRASSE 36, P.O. BOX, ZURICH, V8, 8010","Bank Julius Baer & Co. Ltd, Zurich",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,394000.0,4473
+https://sec.gov/Archives/edgar/data/1544599/0001544599-23-000007.txt,1544599,"BAHNHOFSTRASSE 36, P.O. BOX, ZURICH, V8, 8010","Bank Julius Baer & Co. Ltd, Zurich",2023-06-30,N14506,N14506104,ELASTIC N V,24000.0,381
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+https://sec.gov/Archives/edgar/data/1544676/0001544676-23-000007.txt,1544676,"21F, 100QRC, 100 QUEENS ROAD CENTRAL, HONG KONG, K3, 000000",Segantii Capital Management Ltd,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1277550000.0,5000
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+https://sec.gov/Archives/edgar/data/1544806/0001544806-23-000004.txt,1544806,"476 ROLLING RIDGE DRIVE, SUITE 315, STATE COLLEGE, PA, 16801",VICUS CAPITAL,2023-06-30,594918,594918104,MICROSOFT,30952714000.0,90893
+https://sec.gov/Archives/edgar/data/1544806/0001544806-23-000004.txt,1544806,"476 ROLLING RIDGE DRIVE, SUITE 315, STATE COLLEGE, PA, 16801",VICUS CAPITAL,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO COM,372484000.0,2455
+https://sec.gov/Archives/edgar/data/1544806/0001544806-23-000004.txt,1544806,"476 ROLLING RIDGE DRIVE, SUITE 315, STATE COLLEGE, PA, 16801",VICUS CAPITAL,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC SHS,1035827000.0,11757
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+https://sec.gov/Archives/edgar/data/1545545/0001545545-23-000026.txt,1545545,"2-7-1, MARUNOUCHI, CHIYODA-KU, TOKYO, M0, 100-8330","Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.",2023-06-30,876030,876030107,TAPESTRY INC,69636000.0,1627
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+https://sec.gov/Archives/edgar/data/1545812/0001172661-23-002866.txt,1545812,"8955 Katy Freeway, Suite 200, Houston, TX, 77024","CORDA Investment Management, LLC.",2023-06-30,654106,654106103,NIKE INC,10484627000.0,94995
+https://sec.gov/Archives/edgar/data/1545812/0001172661-23-002866.txt,1545812,"8955 Katy Freeway, Suite 200, Houston, TX, 77024","CORDA Investment Management, LLC.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,41172307000.0,271335
+https://sec.gov/Archives/edgar/data/1545812/0001172661-23-002866.txt,1545812,"8955 Katy Freeway, Suite 200, Houston, TX, 77024","CORDA Investment Management, LLC.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,18024117000.0,204587
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+https://sec.gov/Archives/edgar/data/1546587/0001085146-23-003073.txt,1546587,"690 LEE ROAD, WAYNE, PA, 19087",Hartford Funds Management Co LLC,2023-06-30,654106,654106103,NIKE INC,378160000.0,3426
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+https://sec.gov/Archives/edgar/data/1546865/0001546865-23-000002.txt,1546865,"89 GENESEE STREET, NEW HARTFORD, NY, 13413","Ascent Wealth Partners, LLC",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,253248000.0,1529
+https://sec.gov/Archives/edgar/data/1546865/0001546865-23-000002.txt,1546865,"89 GENESEE STREET, NEW HARTFORD, NY, 13413","Ascent Wealth Partners, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,1788333000.0,7443
+https://sec.gov/Archives/edgar/data/1546865/0001546865-23-000002.txt,1546865,"89 GENESEE STREET, NEW HARTFORD, NY, 13413","Ascent Wealth Partners, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,1060838000.0,13831
+https://sec.gov/Archives/edgar/data/1546865/0001546865-23-000002.txt,1546865,"89 GENESEE STREET, NEW HARTFORD, NY, 13413","Ascent Wealth Partners, LLC",2023-06-30,482480,482480100,KLA CORP,2094446000.0,4448
+https://sec.gov/Archives/edgar/data/1546865/0001546865-23-000002.txt,1546865,"89 GENESEE STREET, NEW HARTFORD, NY, 13413","Ascent Wealth Partners, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,6850622000.0,35377
+https://sec.gov/Archives/edgar/data/1546865/0001546865-23-000002.txt,1546865,"89 GENESEE STREET, NEW HARTFORD, NY, 13413","Ascent Wealth Partners, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,14570133000.0,43593
+https://sec.gov/Archives/edgar/data/1546865/0001546865-23-000002.txt,1546865,"89 GENESEE STREET, NEW HARTFORD, NY, 13413","Ascent Wealth Partners, LLC",2023-06-30,654106,654106103,NIKE INC,3104531000.0,28500
+https://sec.gov/Archives/edgar/data/1546865/0001546865-23-000002.txt,1546865,"89 GENESEE STREET, NEW HARTFORD, NY, 13413","Ascent Wealth Partners, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,6166478000.0,24388
+https://sec.gov/Archives/edgar/data/1546865/0001546865-23-000002.txt,1546865,"89 GENESEE STREET, NEW HARTFORD, NY, 13413","Ascent Wealth Partners, LLC",2023-06-30,704326,704326107,PAYCHEX INC,302049000.0,2700
+https://sec.gov/Archives/edgar/data/1546865/0001546865-23-000002.txt,1546865,"89 GENESEE STREET, NEW HARTFORD, NY, 13413","Ascent Wealth Partners, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,205759000.0,1356
+https://sec.gov/Archives/edgar/data/1546865/0001546865-23-000002.txt,1546865,"89 GENESEE STREET, NEW HARTFORD, NY, 13413","Ascent Wealth Partners, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,964695000.0,10950
+https://sec.gov/Archives/edgar/data/1547007/0001172661-23-002981.txt,1547007,"203 Redwood Shores Parkway, Suite 650, Redwood City, CA, 94065","Dorsal Capital Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,187297000000.0,550000
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,053015,053015103,Automatic data processing,134011000.0,610
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,090043,090043100,Bill holdings inc,11685000.0,100
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,09073M,09073M104,Bio-techne corp,14530000.0,178
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,11133T,11133T103,Broadridge financial solutio,16624000.0,100
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,115637,115637209,Brown-forman corp-class b,20159000.0,302
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,14149Y,14149Y108,Cardinal health inc,56902000.0,599
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,189054,189054109,Clorox company,24009000.0,151
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,237194,237194105,Darden restaurants inc,1567284000.0,9381
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,31428X,31428X106,Fedex corp,68418000.0,276
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,35137L,35137L105,Fox corp - class a,4333725000.0,127500
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,36251C,36251C103,Gms inc,2373499000.0,34314
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,370334,370334104,General mills inc,1231641000.0,16060
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,426281,426281101,Jack henry & associates inc,16729000.0,100
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,461202,461202103,Intuit inc,3037980000.0,6633
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,482480,482480100,Kla corp,8659013000.0,17861
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,512807,512807108,Lam research corp,4153766000.0,6464
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,513272,513272104,Lamb weston holdings inc,22974000.0,200
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,518439,518439104,Estee lauder companies-cl a,49878000.0,254
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,55024U,55024U109,Lumentum holdings inc,635264000.0,11200
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,594918,594918104,Microsoft corp,64611543000.0,189872
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,64110D,64110D104,Netapp inc,4021246000.0,52641
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,65249B,65249B109,News corp - class a,25610000.0,1314
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,654106,654106103,Nike inc -cl b,1655312000.0,15006
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,697435,697435105,Palo alto networks inc,114464000.0,448
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,701094,701094104,Parker hannifin corp,56946000.0,146
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,703395,703395103,Patterson cos inc,1110216000.0,33400
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,704326,704326107,Paychex inc,223516000.0,1998
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,70438V,70438V106,Paylocity holding corp,18452000.0,100
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,742718,742718109,Procter & gamble co/the,8371274000.0,55194
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,761152,761152107,Resmed inc,44353000.0,203
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,832696,832696405,Jm smucker co/the,1447068000.0,9800
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,87157D,87157D109,Synaptics inc,1014951000.0,11900
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,871829,871829107,Sysco corp,53699000.0,724
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,876030,876030107,Tapestry inc,299530000.0,7000
+https://sec.gov/Archives/edgar/data/1547926/0000950123-23-005945.txt,1547926,"Lindhagensgatan 86, Stockholm, V7, SE-106 55","Livforsakringsbolaget Skandia, Omsesidigt",2023-06-30,958102,958102105,Western digital corp,1651795000.0,43560
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,2261573000.0,43094
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,699094000.0,13797
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,15607288000.0,71010
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,053807,053807103,AVNET INC,247205000.0,4900
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,090043,090043100,BILL HOLDINGS INC,2046044000.0,17510
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,2175929000.0,26656
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,093671,093671105,BLOCK H & R INC,261334000.0,8200
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,3327672000.0,20091
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,115637,115637209,BROWN FORMAN CORP,2108846000.0,31579
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,127190,127190304,CACI INTL INC,421960000.0,1238
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,4192667000.0,44334
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,147528,147528103,CASEYS GEN STORES INC,1554735000.0,6375
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,189054,189054109,CLOROX CO DEL,3380554000.0,21256
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,205887,205887102,CONAGRA BRANDS INC,2743797000.0,81370
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,222070,222070203,COTY INC,233510000.0,19000
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,3458055000.0,20697
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,31428X,31428X106,FEDEX CORP,9875840000.0,39838
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,35137L,35137L105,FOX CORP,1710914000.0,50321
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,370334,370334104,GENERAL MLS INC,7728829000.0,100767
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,2089784000.0,12489
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,461202,461202103,INTUIT,21467576000.0,46853
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,482480,482480100,KLA CORP,11398940000.0,23502
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,512807,512807108,LAM RESEARCH CORP,14799923000.0,23022
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,2860761000.0,24887
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,7744442000.0,39436
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,209901000.0,3700
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,594918,594918104,MICROSOFT CORP,435178450000.0,1277907
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,64110D,64110D104,NETAPP INC,2800213000.0,36652
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,65249B,65249B109,NEWS CORP NEW,1271400000.0,65200
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,654106,654106103,NIKE INC,22538326000.0,204207
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,13070869000.0,51156
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,8552407000.0,21927
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,704326,704326107,PAYCHEX INC,6200618000.0,55427
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,1328616000.0,7200
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,128423000.0,16700
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,493968000.0,8200
+https://sec.gov/Archives/edgar/data/1548392/0001085146-23-003356.txt,1548392,"540 EAST 200 SOUTH, SALT LAKE CITY, UT, 84102",Utah Retirement Systems,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,61333156000.0,404199
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+https://sec.gov/Archives/edgar/data/1549230/0001493152-23-028034.txt,1549230,"140 EAST 45TH STREET, 14TH FLOOR, NEW YORK, NY, 10017","BOOTHBAY FUND MANAGEMENT, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,4497743000.0,17603
+https://sec.gov/Archives/edgar/data/1549230/0001493152-23-028034.txt,1549230,"140 EAST 45TH STREET, 14TH FLOOR, NEW YORK, NY, 10017","BOOTHBAY FUND MANAGEMENT, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,7557025000.0,19375
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+https://sec.gov/Archives/edgar/data/1549230/0001493152-23-028034.txt,1549230,"140 EAST 45TH STREET, 14TH FLOOR, NEW YORK, NY, 10017","BOOTHBAY FUND MANAGEMENT, LLC",2023-06-30,74874Q,74874Q100,QUINSTREET INC,178234000.0,20185
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+https://sec.gov/Archives/edgar/data/1549230/0001493152-23-028034.txt,1549230,"140 EAST 45TH STREET, 14TH FLOOR, NEW YORK, NY, 10017","BOOTHBAY FUND MANAGEMENT, LLC",2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,4699858000.0,18856
+https://sec.gov/Archives/edgar/data/1549230/0001493152-23-028034.txt,1549230,"140 EAST 45TH STREET, 14TH FLOOR, NEW YORK, NY, 10017","BOOTHBAY FUND MANAGEMENT, LLC",2023-06-30,871829,871829107,SYSCO CORP,269643000.0,3634
+https://sec.gov/Archives/edgar/data/1549230/0001493152-23-028034.txt,1549230,"140 EAST 45TH STREET, 14TH FLOOR, NEW YORK, NY, 10017","BOOTHBAY FUND MANAGEMENT, LLC",2023-06-30,876030,876030107,TAPESTRY INC,625993000.0,14626
+https://sec.gov/Archives/edgar/data/1549230/0001493152-23-028034.txt,1549230,"140 EAST 45TH STREET, 14TH FLOOR, NEW YORK, NY, 10017","BOOTHBAY FUND MANAGEMENT, LLC",2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,1023722000.0,90355
+https://sec.gov/Archives/edgar/data/1549230/0001493152-23-028034.txt,1549230,"140 EAST 45TH STREET, 14TH FLOOR, NEW YORK, NY, 10017","BOOTHBAY FUND MANAGEMENT, LLC",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,795809000.0,20981
+https://sec.gov/Archives/edgar/data/1549230/0001493152-23-028034.txt,1549230,"140 EAST 45TH STREET, 14TH FLOOR, NEW YORK, NY, 10017","BOOTHBAY FUND MANAGEMENT, LLC",2023-06-30,G2143T,G2143T103,CIMPRESS PLC,1009614000.0,16974
+https://sec.gov/Archives/edgar/data/1549230/0001493152-23-028034.txt,1549230,"140 EAST 45TH STREET, 14TH FLOOR, NEW YORK, NY, 10017","BOOTHBAY FUND MANAGEMENT, LLC",2023-06-30,G3323L,G3323L100,FABRINET,2650851000.0,20410
+https://sec.gov/Archives/edgar/data/1549230/0001493152-23-028034.txt,1549230,"140 EAST 45TH STREET, 14TH FLOOR, NEW YORK, NY, 10017","BOOTHBAY FUND MANAGEMENT, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,6898671000.0,78305
+https://sec.gov/Archives/edgar/data/1549230/0001493152-23-028034.txt,1549230,"140 EAST 45TH STREET, 14TH FLOOR, NEW YORK, NY, 10017","BOOTHBAY FUND MANAGEMENT, LLC",2023-06-30,N14506,N14506104,ELASTIC N V,2085567000.0,32526
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+https://sec.gov/Archives/edgar/data/1549275/0001162044-23-000821.txt,1549275,"36 N. New York Ave, Ste. 2s, Huntington, NY, 11743",Catalyst Capital Advisors LLC,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,1309140000.0,7904
+https://sec.gov/Archives/edgar/data/1549275/0001162044-23-000821.txt,1549275,"36 N. New York Ave, Ste. 2s, Huntington, NY, 11743",Catalyst Capital Advisors LLC,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,26773000.0,160
+https://sec.gov/Archives/edgar/data/1549275/0001162044-23-000821.txt,1549275,"36 N. New York Ave, Ste. 2s, Huntington, NY, 11743",Catalyst Capital Advisors LLC,2023-06-30,461202,461202103,INTUIT,71019000.0,155
+https://sec.gov/Archives/edgar/data/1549275/0001162044-23-000821.txt,1549275,"36 N. New York Ave, Ste. 2s, Huntington, NY, 11743",Catalyst Capital Advisors LLC,2023-06-30,482480,482480100,KLA-TENCOR CORP,5032568000.0,10376
+https://sec.gov/Archives/edgar/data/1549275/0001162044-23-000821.txt,1549275,"36 N. New York Ave, Ste. 2s, Huntington, NY, 11743",Catalyst Capital Advisors LLC,2023-06-30,512807,512807108,LAM RESEARCH CORP,47572000.0,74
+https://sec.gov/Archives/edgar/data/1549275/0001162044-23-000821.txt,1549275,"36 N. New York Ave, Ste. 2s, Huntington, NY, 11743",Catalyst Capital Advisors LLC,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,3727254000.0,32425
+https://sec.gov/Archives/edgar/data/1549275/0001162044-23-000821.txt,1549275,"36 N. New York Ave, Ste. 2s, Huntington, NY, 11743",Catalyst Capital Advisors LLC,2023-06-30,594918,594918104,MICROSOFT CORP,9736379000.0,28591
+https://sec.gov/Archives/edgar/data/1549275/0001162044-23-000821.txt,1549275,"36 N. New York Ave, Ste. 2s, Huntington, NY, 11743",Catalyst Capital Advisors LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,42670000.0,167
+https://sec.gov/Archives/edgar/data/1549275/0001162044-23-000821.txt,1549275,"36 N. New York Ave, Ste. 2s, Huntington, NY, 11743",Catalyst Capital Advisors LLC,2023-06-30,704326,704326107,PAYCHEX INC,22262000.0,199
+https://sec.gov/Archives/edgar/data/1549275/0001162044-23-000821.txt,1549275,"36 N. New York Ave, Ste. 2s, Huntington, NY, 11743",Catalyst Capital Advisors LLC,2023-06-30,832696,832696405,SMUCKER J M CO,2333186000.0,15800
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+https://sec.gov/Archives/edgar/data/1550057/0001085146-23-002932.txt,1550057,"111 MONUMENT CIRCLE, SUITE 500, INDIANAPOLIS, IN, 46204","Goelzer Investment Management, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,623215000.0,2836
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+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,093671,093671105,H & R Block,322000.0,10000
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+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,237194,237194105,Darden Restaurants,161000.0,962
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,31428X,31428X106,Fedex Corp,60736000.0,243779
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+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,512807,512807108,Lam Research Corp,66000.0,103
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+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,55024U,55024U109,Lumentum Holdings Inc,70000.0,1235
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+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,600544,600544100,Miller Herman Inc,18000.0,1200
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,635017,635017106,Natl Beverage Corp,15000.0,320
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,64110D,64110D104,Netapp Inc,344000.0,4500
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,65249B,65249B109,News Corp New Class                  A,3000.0,159
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,654106,654106103,Nike Inc Class B,39884000.0,360250
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,697435,697435105,Palo Alto Networks Inc,44000.0,171
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,701094,701094104,Parker-Hannifin Corp,834000.0,2139
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,704326,704326107,Paychex Inc,72000.0,645
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+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,70614W,70614W100,Peloton Interactive Inc,1000.0,180
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,742718,742718109,Procter & Gamble,141193000.0,930493
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,749685,749685103,RPM Intl Inc,41000.0,459
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,832696,832696405,J M Smucker Co,2440000.0,16527
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,871829,871829107,Sysco Corp,8023000.0,108123
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,876030,876030107,Tapestry Inc,158000.0,3685
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,88688T,88688T100,Tilray Inc,2000.0,1122
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,958102,958102105,Western Digital Corp,19000.0,500
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,981811,981811102,Worthington Inds Inc,70000.0,1012
+https://sec.gov/Archives/edgar/data/1550075/0001550075-23-000003.txt,1550075,"600 VINE STREET, SUITE 2100, CINCINNATI, OH, 45202",Bartlett & Co. LLC,2023-06-30,G5960L,G5960L103,Medtronic PLC F,1136000.0,12796
+https://sec.gov/Archives/edgar/data/1550191/0001550191-23-000009.txt,1550191,"100 CONIFER HILL DRIVE, UNIT 105, DANVERS, MA, 01923","Stonehearth Capital Management, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,256275000.0,1166
+https://sec.gov/Archives/edgar/data/1550191/0001550191-23-000009.txt,1550191,"100 CONIFER HILL DRIVE, UNIT 105, DANVERS, MA, 01923","Stonehearth Capital Management, LLC",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,288196000.0,1740
+https://sec.gov/Archives/edgar/data/1550191/0001550191-23-000009.txt,1550191,"100 CONIFER HILL DRIVE, UNIT 105, DANVERS, MA, 01923","Stonehearth Capital Management, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,297001000.0,462
+https://sec.gov/Archives/edgar/data/1550191/0001550191-23-000009.txt,1550191,"100 CONIFER HILL DRIVE, UNIT 105, DANVERS, MA, 01923","Stonehearth Capital Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,207778000.0,610
+https://sec.gov/Archives/edgar/data/1550509/0001754960-23-000249.txt,1550509,"3160 COLLEGE AVENUE, SUITE 203, BERKELEY, CA, 94705",Clayton Partners LLC,2023-06-30,31428X,31428X106,FEDEX CORP,2450172000.0,9884
+https://sec.gov/Archives/edgar/data/1550660/0001172661-23-002899.txt,1550660,"One Main Street, Suite 202, Chatham, NJ, 07928","OAKTOP CAPITAL MANAGEMENT II, L.P.",2023-06-30,482480,482480100,KLA CORP,190671062000.0,393120
+https://sec.gov/Archives/edgar/data/1550660/0001172661-23-002899.txt,1550660,"One Main Street, Suite 202, Chatham, NJ, 07928","OAKTOP CAPITAL MANAGEMENT II, L.P.",2023-06-30,512807,512807108,LAM RESEARCH CORP,173023198000.0,269146
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,11456000.0,150
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,11201000.0,284
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,090043,090043100,BILL HOLDINGS INC,12503000.0,107
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,205887,205887102,CONAGRA BRANDS INC,2908000.0,86
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,222070,222070203,COTY INC,11430000.0,930
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,461202,461202103,INTUIT,1375000.0,3
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,5301000.0,46
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,12567000.0,410
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,594918,594918104,MICROSOFT CORP,3406000.0,10
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,14042000.0,36
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,24000.0,3
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,9560000.0,63
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,445000.0,285
+https://sec.gov/Archives/edgar/data/1551727/0001214659-23-009602.txt,1551727,"4800 HAMPDEN LANE, SUITE 200, BETHESDA, MD, 20814",MACROVIEW INVESTMENT MANAGEMENT LLC,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,5772000.0,225
+https://sec.gov/Archives/edgar/data/1551969/0001085146-23-002711.txt,1551969,"220 ELM STREET, NEW CANAAN, CT, 06840","Gilman Hill Asset Management, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,351005000.0,1597
+https://sec.gov/Archives/edgar/data/1551969/0001085146-23-002711.txt,1551969,"220 ELM STREET, NEW CANAAN, CT, 06840","Gilman Hill Asset Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,6687817000.0,19639
+https://sec.gov/Archives/edgar/data/1551969/0001085146-23-002711.txt,1551969,"220 ELM STREET, NEW CANAAN, CT, 06840","Gilman Hill Asset Management, LLC",2023-06-30,654106,654106103,NIKE INC,388834000.0,3523
+https://sec.gov/Archives/edgar/data/1551969/0001085146-23-002711.txt,1551969,"220 ELM STREET, NEW CANAAN, CT, 06840","Gilman Hill Asset Management, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,2114345000.0,8275
+https://sec.gov/Archives/edgar/data/1551969/0001085146-23-002711.txt,1551969,"220 ELM STREET, NEW CANAAN, CT, 06840","Gilman Hill Asset Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1436785000.0,9469
+https://sec.gov/Archives/edgar/data/1551969/0001085146-23-002711.txt,1551969,"220 ELM STREET, NEW CANAAN, CT, 06840","Gilman Hill Asset Management, LLC",2023-06-30,871829,871829107,SYSCO CORP,3214344000.0,43320
+https://sec.gov/Archives/edgar/data/1551969/0001085146-23-002711.txt,1551969,"220 ELM STREET, NEW CANAAN, CT, 06840","Gilman Hill Asset Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,3332294000.0,37824
+https://sec.gov/Archives/edgar/data/1552059/0001420506-23-001429.txt,1552059,"4809 COLE AVENUE, SUITE 260, DALLAS, TX, 75205","Saltoro Capital, LP",2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,572280000.0,9500
+https://sec.gov/Archives/edgar/data/1552999/0001398344-23-013067.txt,1552999,"6 MAIN STREET, SUITE 312, CENTERBROOK, CT, 06409",HT Partners LLC,2023-06-30,189054,189054109,CLOROX CO DEL,2540028000.0,15971
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+https://sec.gov/Archives/edgar/data/1552999/0001398344-23-013067.txt,1552999,"6 MAIN STREET, SUITE 312, CENTERBROOK, CT, 06409",HT Partners LLC,2023-06-30,654106,654106103,NIKE INC,282658000.0,2561
+https://sec.gov/Archives/edgar/data/1552999/0001398344-23-013067.txt,1552999,"6 MAIN STREET, SUITE 312, CENTERBROOK, CT, 06409",HT Partners LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,295590000.0,1948
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+https://sec.gov/Archives/edgar/data/1553540/0001553540-23-000004.txt,1553540,"14755 PRESTON ROAD, SUITE 700, DALLAS, TX, 75254","Smith Anglin Financial, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,926107000.0,3736
+https://sec.gov/Archives/edgar/data/1553540/0001553540-23-000004.txt,1553540,"14755 PRESTON ROAD, SUITE 700, DALLAS, TX, 75254","Smith Anglin Financial, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,4410054000.0,12950
+https://sec.gov/Archives/edgar/data/1553540/0001553540-23-000004.txt,1553540,"14755 PRESTON ROAD, SUITE 700, DALLAS, TX, 75254","Smith Anglin Financial, LLC",2023-06-30,654106,654106103,NIKE INC,887828000.0,8044
+https://sec.gov/Archives/edgar/data/1553540/0001553540-23-000004.txt,1553540,"14755 PRESTON ROAD, SUITE 700, DALLAS, TX, 75254","Smith Anglin Financial, LLC",2023-06-30,686275,686275108,ORION ENERGY SYS INC,19560000.0,12000
+https://sec.gov/Archives/edgar/data/1553540/0001553540-23-000004.txt,1553540,"14755 PRESTON ROAD, SUITE 700, DALLAS, TX, 75254","Smith Anglin Financial, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1277556000.0,8419
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+https://sec.gov/Archives/edgar/data/1553562/0001062993-23-014377.txt,1553562,"KLARA SODRA KYRKOGATA 18, STOCKHOLM, V7, 113 88",AMF Tjanstepension AB,2023-06-30,370334,370334104,GENERAL MLS INC,9068604000.0,118110
+https://sec.gov/Archives/edgar/data/1553562/0001062993-23-014377.txt,1553562,"KLARA SODRA KYRKOGATA 18, STOCKHOLM, V7, 113 88",AMF Tjanstepension AB,2023-06-30,461202,461202103,INTUIT,38885908000.0,84852
+https://sec.gov/Archives/edgar/data/1553562/0001062993-23-014377.txt,1553562,"KLARA SODRA KYRKOGATA 18, STOCKHOLM, V7, 113 88",AMF Tjanstepension AB,2023-06-30,482480,482480100,KLA CORP,7061891000.0,14560
+https://sec.gov/Archives/edgar/data/1553562/0001062993-23-014377.txt,1553562,"KLARA SODRA KYRKOGATA 18, STOCKHOLM, V7, 113 88",AMF Tjanstepension AB,2023-06-30,512807,512807108,LAM RESEARCH CORP,20606018000.0,32027
+https://sec.gov/Archives/edgar/data/1553562/0001062993-23-014377.txt,1553562,"KLARA SODRA KYRKOGATA 18, STOCKHOLM, V7, 113 88",AMF Tjanstepension AB,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,6247377000.0,31776
+https://sec.gov/Archives/edgar/data/1553562/0001062993-23-014377.txt,1553562,"KLARA SODRA KYRKOGATA 18, STOCKHOLM, V7, 113 88",AMF Tjanstepension AB,2023-06-30,594918,594918104,MICROSOFT CORP,1137320367000.0,3339018
+https://sec.gov/Archives/edgar/data/1553562/0001062993-23-014377.txt,1553562,"KLARA SODRA KYRKOGATA 18, STOCKHOLM, V7, 113 88",AMF Tjanstepension AB,2023-06-30,654106,654106103,NIKE INC,35183707000.0,318549
+https://sec.gov/Archives/edgar/data/1553562/0001062993-23-014377.txt,1553562,"KLARA SODRA KYRKOGATA 18, STOCKHOLM, V7, 113 88",AMF Tjanstepension AB,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,61202821000.0,239532
+https://sec.gov/Archives/edgar/data/1553562/0001062993-23-014377.txt,1553562,"KLARA SODRA KYRKOGATA 18, STOCKHOLM, V7, 113 88",AMF Tjanstepension AB,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,200042452000.0,512785
+https://sec.gov/Archives/edgar/data/1553562/0001062993-23-014377.txt,1553562,"KLARA SODRA KYRKOGATA 18, STOCKHOLM, V7, 113 88",AMF Tjanstepension AB,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,197533956000.0,1301297
+https://sec.gov/Archives/edgar/data/1553562/0001062993-23-014377.txt,1553562,"KLARA SODRA KYRKOGATA 18, STOCKHOLM, V7, 113 88",AMF Tjanstepension AB,2023-06-30,761152,761152107,RESMED INC,5505179000.0,25179
+https://sec.gov/Archives/edgar/data/1553562/0001062993-23-014377.txt,1553562,"KLARA SODRA KYRKOGATA 18, STOCKHOLM, V7, 113 88",AMF Tjanstepension AB,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,1149279000.0,30300
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+https://sec.gov/Archives/edgar/data/1553936/0001553936-23-000005.txt,1553936,"SUITES 1021-25, 10/F, CHAMPION TOWER, 3 GARDEN ROAD, CENTRAL, HONG KONG, K3, XXXXX",TYBOURNE CAPITAL MANAGEMENT (HK) LTD,2023-06-30,512807,512807108,LAM RESEARCH CORP (LRCX US),31302139000.0,48692
+https://sec.gov/Archives/edgar/data/1553936/0001553936-23-000005.txt,1553936,"SUITES 1021-25, 10/F, CHAMPION TOWER, 3 GARDEN ROAD, CENTRAL, HONG KONG, K3, XXXXX",TYBOURNE CAPITAL MANAGEMENT (HK) LTD,2023-06-30,594918,594918104,MICROSOFT CORP (MSFT US),89072664000.0,261563
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+https://sec.gov/Archives/edgar/data/1554656/0001062993-23-015342.txt,1554656,"700 LARKSPUR LANDING CIRCLE, SUITE 240, LARKSPUR, CA, 94939",Raub Brock Capital Management LP,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,20042122000.0,91188
+https://sec.gov/Archives/edgar/data/1554656/0001062993-23-015342.txt,1554656,"700 LARKSPUR LANDING CIRCLE, SUITE 240, LARKSPUR, CA, 94939",Raub Brock Capital Management LP,2023-06-30,461202,461202103,INTUIT,20937909000.0,45697
+https://sec.gov/Archives/edgar/data/1554656/0001062993-23-015342.txt,1554656,"700 LARKSPUR LANDING CIRCLE, SUITE 240, LARKSPUR, CA, 94939",Raub Brock Capital Management LP,2023-06-30,594918,594918104,MICROSOFT CORP,1074404000.0,3155
+https://sec.gov/Archives/edgar/data/1554656/0001062993-23-015342.txt,1554656,"700 LARKSPUR LANDING CIRCLE, SUITE 240, LARKSPUR, CA, 94939",Raub Brock Capital Management LP,2023-06-30,654106,654106103,NIKE INC,19434468000.0,176085
+https://sec.gov/Archives/edgar/data/1554656/0001062993-23-015342.txt,1554656,"700 LARKSPUR LANDING CIRCLE, SUITE 240, LARKSPUR, CA, 94939",Raub Brock Capital Management LP,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,23905141000.0,61289
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+https://sec.gov/Archives/edgar/data/1554815/0001214659-23-009301.txt,1554815,"1531 S. GROVE AVE, SUITE 206, BARRINGTON, IL, 60010","PIERSHALE FINANCIAL GROUP, INC.",2023-06-30,093671,093671105,BLOCK H & R INC,7234000.0,227
+https://sec.gov/Archives/edgar/data/1554815/0001214659-23-009301.txt,1554815,"1531 S. GROVE AVE, SUITE 206, BARRINGTON, IL, 60010","PIERSHALE FINANCIAL GROUP, INC.",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,186706000.0,1117
+https://sec.gov/Archives/edgar/data/1554815/0001214659-23-009301.txt,1554815,"1531 S. GROVE AVE, SUITE 206, BARRINGTON, IL, 60010","PIERSHALE FINANCIAL GROUP, INC.",2023-06-30,370334,370334104,GENERAL MLS INC,421489000.0,5495
+https://sec.gov/Archives/edgar/data/1554815/0001214659-23-009301.txt,1554815,"1531 S. GROVE AVE, SUITE 206, BARRINGTON, IL, 60010","PIERSHALE FINANCIAL GROUP, INC.",2023-06-30,594918,594918104,MICROSOFT CORP,324194000.0,952
+https://sec.gov/Archives/edgar/data/1554815/0001214659-23-009301.txt,1554815,"1531 S. GROVE AVE, SUITE 206, BARRINGTON, IL, 60010","PIERSHALE FINANCIAL GROUP, INC.",2023-06-30,683715,683715106,OPEN TEXT CORP,16620000.0,400
+https://sec.gov/Archives/edgar/data/1554815/0001214659-23-009301.txt,1554815,"1531 S. GROVE AVE, SUITE 206, BARRINGTON, IL, 60010","PIERSHALE FINANCIAL GROUP, INC.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,241952000.0,1595
+https://sec.gov/Archives/edgar/data/1554815/0001214659-23-009301.txt,1554815,"1531 S. GROVE AVE, SUITE 206, BARRINGTON, IL, 60010","PIERSHALE FINANCIAL GROUP, INC.",2023-06-30,87157D,87157D109,SYNAPTICS INC,2134000.0,25
+https://sec.gov/Archives/edgar/data/1554815/0001214659-23-009301.txt,1554815,"1531 S. GROVE AVE, SUITE 206, BARRINGTON, IL, 60010","PIERSHALE FINANCIAL GROUP, INC.",2023-06-30,871829,871829107,SYSCO CORP,13430000.0,181
+https://sec.gov/Archives/edgar/data/1554815/0001214659-23-009301.txt,1554815,"1531 S. GROVE AVE, SUITE 206, BARRINGTON, IL, 60010","PIERSHALE FINANCIAL GROUP, INC.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,9603000.0,109
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,5048000.0,147
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,008073,008073108,AEROVIRONMENT INC,7160000.0,70
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,82133000.0,1565
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,2103000.0,38
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,02875D,02875D109,AMERICAN OUTDOOR BRANDS INC,1146000.0,132
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,3055000.0,40
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,03676C,03676C100,ANTERIX INC,286000.0,9
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,145000.0,1
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,042744,042744102,ARROW FINL CORP,1551000.0,77
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1502887000.0,6838
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,05368M,05368M106,AVID BIOSERVICES INC,406000.0,29
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,053807,053807103,AVNET INC,1110000.0,22
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,090043,090043100,BILL HOLDINGS INC,24188000.0,207
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,25387000.0,311
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,093671,093671105,BLOCK H & R INC,323991000.0,10166
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,51028000.0,308
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,115637,115637209,BROWN FORMAN CORP,36168000.0,542
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,127190,127190304,CACI INTL INC,827005000.0,2426
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,128030,128030202,CAL MAINE FOODS INC,315000.0,7
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,112018000.0,1184
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,147528,147528103,CASEYS GEN STORES INC,117307000.0,481
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,189054,189054109,CLOROX CO DEL,708845000.0,4457
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,205887,205887102,CONAGRA BRANDS INC,115557000.0,3427
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,222070,222070203,COTY INC,16174000.0,1316
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,30743000.0,184
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,31428X,31428X106,FEDEX CORP,1916677000.0,7732
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,35137L,35137L105,FOX CORP,7752000.0,228
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,36251C,36251C103,GMS INC,20207000.0,292
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,368036,368036109,GATOS SILVER INC,6804000.0,1800
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+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,1502000.0,120
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,7363000.0,44
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,461202,461202103,INTUIT,959345000.0,2094
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+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,505336,505336107,LA Z BOY INC,32765000.0,1144
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,512807,512807108,LAM RESEARCH CORP,1003723000.0,1561
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,122126000.0,1062
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,513847,513847103,LANCASTER COLONY CORP,4046000.0,20
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+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,1178000.0,43
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,591520,591520200,METHOD ELECTRS INC,369000.0,11
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,594918,594918104,MICROSOFT CORP,60291090000.0,177045
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+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,64110D,64110D104,NETAPP INC,48539000.0,635
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+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,686275,686275108,ORION ENERGY SYS INC,815000.0,500
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+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,703395,703395103,PATTERSON COS INC,287048000.0,8630
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,704326,704326107,PAYCHEX INC,1267753000.0,11332
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,16608000.0,90
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,2447000.0,318
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,24759000.0,411
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,74051N,74051N102,PREMIER INC,2269000.0,82
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,14762175000.0,97286
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,74874Q,74874Q100,QUINSTREET INC,292000.0,33
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,749685,749685103,RPM INTL INC,2526000.0,28
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,761152,761152107,RESMED INC,94392000.0,432
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,6964000.0,534
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,832696,832696405,SMUCKER J M CO,373770000.0,2531
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,87157D,87157D109,SYNAPTICS INC,171000.0,2
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,871829,871829107,SYSCO CORP,528684000.0,7125
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,876030,876030107,TAPESTRY INC,33688000.0,787
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,5546000.0,3555
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,911549,911549103,UNITED STATES ANTIMONY CORP,18882000.0,60000
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,920437,920437100,VALUE LINE INC,18360000.0,400
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,11727000.0,1035
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,20689000.0,545
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,307000.0,9
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,G2143T,G2143T103,CIMPRESS PLC,1071000.0,18
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,G3323L,G3323L100,FABRINET,448346000.0,3452
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2400829000.0,27251
+https://sec.gov/Archives/edgar/data/1555170/0001140361-23-035024.txt,1555170,"340 PALLADIO PKWY, SUITE 501, FOLSOM, CA, 95630",Allworth Financial LP,2023-06-30,N14506,N14506104,ELASTIC N V,449000.0,7
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+https://sec.gov/Archives/edgar/data/1555486/0001172661-23-002842.txt,1555486,"5950 Symphony Woods Road, Suite 600, Columbia, MD, 21044","Baltimore-Washington Financial Advisors, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,40071642000.0,117671
+https://sec.gov/Archives/edgar/data/1555486/0001172661-23-002842.txt,1555486,"5950 Symphony Woods Road, Suite 600, Columbia, MD, 21044","Baltimore-Washington Financial Advisors, Inc.",2023-06-30,654106,654106103,NIKE INC,4956136000.0,44905
+https://sec.gov/Archives/edgar/data/1555486/0001172661-23-002842.txt,1555486,"5950 Symphony Woods Road, Suite 600, Columbia, MD, 21044","Baltimore-Washington Financial Advisors, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,388011000.0,2557
+https://sec.gov/Archives/edgar/data/1555512/0001555512-23-000009.txt,1555512,"RUA AMAURI 255 - 3 FLOOR, SAO PAULO, D5, 01448000",PRAGMA GESTAO DE PATRIMONIO LTD,2023-06-30,461202,461202103,INTUIT INC,9851085000.0,21500
+https://sec.gov/Archives/edgar/data/1555623/0000929638-23-002199.txt,1555623,"RM 3508-9, EDINBURGH TOWER, THE LANDMARK, 15 QUEEN'S ROAD C, Hong Kong, K3, 0",Trivest Advisors Ltd,2023-06-30,594918,594918104,MICROSOFT CORP,455513000.0,1337620
+https://sec.gov/Archives/edgar/data/1555623/0000929638-23-002199.txt,1555623,"RM 3508-9, EDINBURGH TOWER, THE LANDMARK, 15 QUEEN'S ROAD C, Hong Kong, K3, 0",Trivest Advisors Ltd,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,103226000.0,404000
+https://sec.gov/Archives/edgar/data/1555623/0000929638-23-002199.txt,1555623,"RM 3508-9, EDINBURGH TOWER, THE LANDMARK, 15 QUEEN'S ROAD C, Hong Kong, K3, 0",Trivest Advisors Ltd,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,39830000.0,159800
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,5537000.0,25194
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,093671,093671105,BLOCK H & R INC,331000.0,10392
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,128030,128030202,CAL MAINE FOODS INC,654000.0,14533
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,370334,370334104,GENERAL MLS INC,2008000.0,26186
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,461202,461202103,INTUIT,14417000.0,31466
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,482480,482480100,KLA CORP,2293000.0,4728
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,500643,500643200,KORN FERRY,1689000.0,34090
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,512807,512807108,LAM RESEARCH CORP,1449000.0,2254
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,6754000.0,34393
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,594918,594918104,MICROSOFT CORP,126150000.0,370441
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,654106,654106103,NIKE INC,11124000.0,100788
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,26558000.0,175021
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,86333M,86333M108,STRIDE INC,1021000.0,27432
+https://sec.gov/Archives/edgar/data/1555829/0001555829-23-000004.txt,1555829,"LEVEL 13, 20 BALANCE STREET, WELLINGTON, Q2, 6011",Kiwi Wealth Investments Limited Partnership,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2176000.0,24700
+https://sec.gov/Archives/edgar/data/1556168/0001104659-23-081153.txt,1556168,"18 Inverness Place East, Englewood, CO, 80112",Consolidated Investment Group LLC,2023-06-30,594918,594918104,MICROSOFT CORP,11540000.0,33889
+https://sec.gov/Archives/edgar/data/1556168/0001104659-23-081153.txt,1556168,"18 Inverness Place East, Englewood, CO, 80112",Consolidated Investment Group LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,11323000.0,44316
+https://sec.gov/Archives/edgar/data/1556168/0001104659-23-081153.txt,1556168,"18 Inverness Place East, Englewood, CO, 80112",Consolidated Investment Group LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,5383000.0,61100
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,018802,018802108,Alliant Energy Corp,0.0,5
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,03820C,03820C105,Applied Industrial Technologie,19000.0,131
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,053015,053015103,Automatic Data Processing Inc,16000.0,75
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,05368M,05368M106,Avid Bioservices Inc,3000.0,249
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,09073M,09073M104,Bio Techne Corp,1000.0,15
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,14149Y,14149Y108,Cardinal Health Inc,1000.0,10
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,147528,147528103,Caseys General Stores Inc,2000.0,10
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,189054,189054109,Clorox Co,4502000.0,28305
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,205887,205887102,Conagra Brands Inc,4003000.0,118713
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,222070,222070203,Coty Inc Cl A,1000.0,65
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,31428X,31428X106,FedEx Corp,810000.0,3269
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,35137L,35137L105,Fox Corp Cl A,0.0,9
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,370334,370334104,General Mills Inc,494000.0,6445
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,461202,461202103,Intuit,24000.0,53
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,482480,482480100,KLA-Tencor Corp,10000.0,20
+https://sec.gov/Archives/edgar/data/1556218/0000929638-23-002241.txt,1556218,"ONE JOY STREET, BOSTON, MA, 02108",Bollard Group LLC,2023-06-30,505336,505336107,La-Z-Boy Inc,52000.0,1823
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+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,205887,205887102,CONAGRA BRANDS INC,3547614000.0,105208
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,222070,222070203,COTY INC,129537000.0,10540
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,461202,461202103,INTUIT,11088198000.0,24200
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,482480,482480100,KLA CORP,4268176000.0,8800
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,512807,512807108,LAM RESEARCH CORP,12728628000.0,19800
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,294570000.0,1500
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,507735000.0,2700
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,594918,594918104,MICROSOFT CORP,222134242000.0,652300
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,64110D,64110D104,NETAPP INC,3208800000.0,42000
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,65249B,65249B109,NEWS CORP NEW,474240000.0,24320
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,654106,654106103,NIKE INC,32628904000.0,295632
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,494540000.0,2680
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,29877606000.0,196900
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,761152,761152107,RESMED INC,493810000.0,2260
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,871829,871829107,SYSCO CORP,455588000.0,6140
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,981811,981811102,WORTHINGTON INDS INC,657186000.0,9460
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,5162660000.0,58600
+https://sec.gov/Archives/edgar/data/1557017/0001172661-23-003085.txt,1557017,"PO Box 309, Ugland House, Grand Cayman, E9, KY1-1104",Capula Management Ltd,2023-06-30,N14506,N14506104,ELASTIC N V,486030000.0,7580
+https://sec.gov/Archives/edgar/data/1557406/0001398344-23-014930.txt,1557406,"125 HIGH STREET, SUITE 1802, BOSTON, MA, 02110",Sippican Capital Advisors,2023-06-30,115637,115637100,Brown Forman Corp Cl A,722495000.0,10614
+https://sec.gov/Archives/edgar/data/1557406/0001398344-23-014930.txt,1557406,"125 HIGH STREET, SUITE 1802, BOSTON, MA, 02110",Sippican Capital Advisors,2023-06-30,370334,370334104,General Mills Inc,1078632000.0,14063
+https://sec.gov/Archives/edgar/data/1557406/0001398344-23-014930.txt,1557406,"125 HIGH STREET, SUITE 1802, BOSTON, MA, 02110",Sippican Capital Advisors,2023-06-30,594918,594918104,Microsoft Corp,206708000.0,607
+https://sec.gov/Archives/edgar/data/1557406/0001398344-23-014930.txt,1557406,"125 HIGH STREET, SUITE 1802, BOSTON, MA, 02110",Sippican Capital Advisors,2023-06-30,742718,742718109,Procter And Gamble Co,273891000.0,1805
+https://sec.gov/Archives/edgar/data/1557485/0001085146-23-002730.txt,1557485,"43 MAIN STREET SE, SUITE 236, MINNEAPOLIS, MN, 55414","SNS Financial Group, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,343273000.0,1553
+https://sec.gov/Archives/edgar/data/1557485/0001085146-23-002730.txt,1557485,"43 MAIN STREET SE, SUITE 236, MINNEAPOLIS, MN, 55414","SNS Financial Group, LLC",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,1498860000.0,9010
+https://sec.gov/Archives/edgar/data/1557485/0001085146-23-002730.txt,1557485,"43 MAIN STREET SE, SUITE 236, MINNEAPOLIS, MN, 55414","SNS Financial Group, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,1555956000.0,46143
+https://sec.gov/Archives/edgar/data/1557485/0001085146-23-002730.txt,1557485,"43 MAIN STREET SE, SUITE 236, MINNEAPOLIS, MN, 55414","SNS Financial Group, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,225273000.0,2937
+https://sec.gov/Archives/edgar/data/1557485/0001085146-23-002730.txt,1557485,"43 MAIN STREET SE, SUITE 236, MINNEAPOLIS, MN, 55414","SNS Financial Group, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,8071705000.0,23703
+https://sec.gov/Archives/edgar/data/1557485/0001085146-23-002730.txt,1557485,"43 MAIN STREET SE, SUITE 236, MINNEAPOLIS, MN, 55414","SNS Financial Group, LLC",2023-06-30,654106,654106103,NIKE INC,274451000.0,2479
+https://sec.gov/Archives/edgar/data/1557485/0001085146-23-002730.txt,1557485,"43 MAIN STREET SE, SUITE 236, MINNEAPOLIS, MN, 55414","SNS Financial Group, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1533486000.0,10106
+https://sec.gov/Archives/edgar/data/1557485/0001085146-23-002730.txt,1557485,"43 MAIN STREET SE, SUITE 236, MINNEAPOLIS, MN, 55414","SNS Financial Group, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1172666000.0,13207
+https://sec.gov/Archives/edgar/data/1557787/0001172661-23-002780.txt,1557787,"456 Montgomery Street, Suite Gc1, San Francisco, CA, 94104",Sonen Capital LLC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,258436000.0,1316
+https://sec.gov/Archives/edgar/data/1557787/0001172661-23-002780.txt,1557787,"456 Montgomery Street, Suite Gc1, San Francisco, CA, 94104",Sonen Capital LLC,2023-06-30,594918,594918104,MICROSOFT CORP,3440817000.0,10104
+https://sec.gov/Archives/edgar/data/1557787/0001172661-23-002780.txt,1557787,"456 Montgomery Street, Suite Gc1, San Francisco, CA, 94104",Sonen Capital LLC,2023-06-30,654106,654106103,NIKE INC,349686000.0,3168
+https://sec.gov/Archives/edgar/data/1557787/0001172661-23-002780.txt,1557787,"456 Montgomery Street, Suite Gc1, San Francisco, CA, 94104",Sonen Capital LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,707763000.0,2770
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,438384000.0,12766
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,00760J,00760J108,AEHR TEST SYS,311933000.0,7562
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,008073,008073108,AEROVIRONMENT INC,725779000.0,7096
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,3596874000.0,68538
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,1342147000.0,26488
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,356877000.0,4673
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,114949000.0,11021
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,1570247000.0,10842
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,26032147000.0,118441
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,05368M,05368M106,AVID BIOSERVICES INC,245425000.0,17568
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,053807,053807103,AVNET INC,1294900000.0,25667
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,598226000.0,15168
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,090043,090043100,BILL HOLDINGS INC,3053291000.0,26130
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,3503723000.0,42922
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,093671,093671105,BLOCK H & R INC,1363144000.0,42772
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,5319870000.0,32119
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,115637,115637209,BROWN FORMAN CORP,5917509000.0,88612
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,127190,127190304,CACI INTL INC,2250567000.0,6603
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,128030,128030202,CAL MAINE FOODS INC,530550000.0,11790
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,6649406000.0,70312
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,764771000.0,13625
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,147528,147528103,CASEYS GEN STORES INC,2552448000.0,10466
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,189054,189054109,CLOROX CO DEL,5361397000.0,33711
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,205887,205887102,CONAGRA BRANDS INC,4388725000.0,130152
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,222070,222070203,COTY INC,1324432000.0,107765
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,5514141000.0,33003
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,31428X,31428X106,FEDEX CORP,16920415000.0,68255
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,35137L,35137L105,FOX CORP,2755054000.0,81031
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,36251C,36251C103,GMS INC,682450000.0,9862
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,370334,370334104,GENERAL MLS INC,12877393000.0,167893
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,314201000.0,25116
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,3333214000.0,19920
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,461202,461202103,INTUIT,36743631000.0,80193
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,482480,482480100,KLA CORP,19199032000.0,39584
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,489170,489170100,KENNAMETAL INC,610044000.0,21488
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,500643,500643200,KORN FERRY,729278000.0,14721
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,505336,505336107,LA Z BOY INC,347031000.0,12117
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,512807,512807108,LAM RESEARCH CORP,24795753000.0,38571
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,4570872000.0,39764
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,513847,513847103,LANCASTER COLONY CORP,1090109000.0,5421
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,13005069000.0,66224
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,1091485000.0,19240
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,817829000.0,4349
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,56117J,56117J100,MALIBU BOATS INC,337354000.0,5751
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,589378,589378108,MERCURY SYS INC,508093000.0,14689
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,591520,591520200,METHOD ELECTRS INC,338820000.0,10108
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,594918,594918104,MICROSOFT CORP,688364151000.0,2021390
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,600544,600544100,MILLERKNOLL INC,313972000.0,21243
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,606710,606710200,MITEK SYS INC,136042000.0,12550
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,316934000.0,6555
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,640491,640491106,NEOGEN CORP,1254888000.0,57696
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,64110D,64110D104,NETAPP INC,4459926000.0,58376
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,65249B,65249B109,NEWS CORP NEW,2034825000.0,104350
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,654106,654106103,NIKE INC,38870990000.0,352188
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,671044,671044105,OSI SYSTEMS INC,529882000.0,4497
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,22101359000.0,86499
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,14300427000.0,36664
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,703395,703395103,PATTERSON COS INC,821522000.0,24700
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,704326,704326107,PAYCHEX INC,10375383000.0,92745
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,2106410000.0,11415
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,671252000.0,87289
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,2641946000.0,43857
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,74051N,74051N102,PREMIER INC,923484000.0,33387
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,102326021000.0,674351
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,74874Q,74874Q100,QUINSTREET INC,126772000.0,14357
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,749685,749685103,RPM INTL INC,3156791000.0,35181
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,761152,761152107,RESMED INC,9175471000.0,41993
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,806037,806037107,SCANSOURCE INC,210467000.0,7120
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,807066,807066105,SCHOLASTIC CORP,308631000.0,7936
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,168112000.0,12892
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,832696,832696405,SMUCKER J M CO,4297492000.0,29102
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,854231,854231107,STANDEX INTL CORP,474632000.0,3355
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,86333M,86333M108,STRIDE INC,428257000.0,11503
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,3323250000.0,13333
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,87157D,87157D109,SYNAPTICS INC,944730000.0,11065
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,871829,871829107,SYSCO CORP,10766123000.0,145096
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,876030,876030107,TAPESTRY INC,2838025000.0,66309
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,270794000.0,173586
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,715331000.0,63136
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,3305448000.0,87146
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,421530000.0,12387
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,981811,981811102,WORTHINGTON INDS INC,631065000.0,9084
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,G2143T,G2143T103,CIMPRESS PLC,284969000.0,4791
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,G3323L,G3323L100,FABRINET,1335556000.0,10283
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,33504078000.0,380296
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,216382000.0,6597
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,N14506,N14506104,ELASTIC N V,1390250000.0,21682
+https://sec.gov/Archives/edgar/data/1558481/0000897069-23-001040.txt,1558481,"3300 NORTH CENTRAL AVENUE, 14TH FLOOR, PHOENIX, AZ, 85012",Arizona State Retirement System,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,232569000.0,9067
+https://sec.gov/Archives/edgar/data/1558858/0001172661-23-003049.txt,1558858,"667 Madison Avenue, 19th Floor, New York, NY, 10065","Alpha Wave Global, LP",2023-06-30,74051N,74051N102,PREMIER INC,3757943000.0,135862
+https://sec.gov/Archives/edgar/data/1559077/0001725547-23-000176.txt,1559077,"350 Camino de la Reina, Suite 500, San Diego, CA, 92108","HOYLECOHEN, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,289695000.0,1318
+https://sec.gov/Archives/edgar/data/1559077/0001725547-23-000176.txt,1559077,"350 Camino de la Reina, Suite 500, San Diego, CA, 92108","HOYLECOHEN, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,893555000.0,11650
+https://sec.gov/Archives/edgar/data/1559077/0001725547-23-000176.txt,1559077,"350 Camino de la Reina, Suite 500, San Diego, CA, 92108","HOYLECOHEN, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,2691080000.0,4186
+https://sec.gov/Archives/edgar/data/1559077/0001725547-23-000176.txt,1559077,"350 Camino de la Reina, Suite 500, San Diego, CA, 92108","HOYLECOHEN, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,56768029000.0,166700
+https://sec.gov/Archives/edgar/data/1559077/0001725547-23-000176.txt,1559077,"350 Camino de la Reina, Suite 500, San Diego, CA, 92108","HOYLECOHEN, LLC",2023-06-30,654106,654106103,NIKE INC,4245781000.0,38469
+https://sec.gov/Archives/edgar/data/1559077/0001725547-23-000176.txt,1559077,"350 Camino de la Reina, Suite 500, San Diego, CA, 92108","HOYLECOHEN, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,3324441000.0,13011
+https://sec.gov/Archives/edgar/data/1559077/0001725547-23-000176.txt,1559077,"350 Camino de la Reina, Suite 500, San Diego, CA, 92108","HOYLECOHEN, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,13596271000.0,89602
+https://sec.gov/Archives/edgar/data/1559077/0001725547-23-000176.txt,1559077,"350 Camino de la Reina, Suite 500, San Diego, CA, 92108","HOYLECOHEN, LLC",2023-06-30,871829,871829107,SYSCO CORP,622234000.0,8386
+https://sec.gov/Archives/edgar/data/1559077/0001725547-23-000176.txt,1559077,"350 Camino de la Reina, Suite 500, San Diego, CA, 92108","HOYLECOHEN, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1017837000.0,11553
+https://sec.gov/Archives/edgar/data/1559706/0001172661-23-003086.txt,1559706,"717 5th Avenue, 16th Fl., New York, NY, 10022",Slate Path Capital LP,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,15226200000.0,1980000
+https://sec.gov/Archives/edgar/data/1559706/0001172661-23-003086.txt,1559706,"717 5th Avenue, 16th Fl., New York, NY, 10022",Slate Path Capital LP,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,123644214000.0,3259800
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,2933925000.0,13349
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,189054,189054109,CLOROX CO DEL,2814666000.0,17698
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,31428X,31428X106,FEDEX CORP,374793000.0,1512
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,370334,370334104,GENERAL MLS INC,346365000.0,4516
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,482480,482480100,KLA CORP,454936000.0,938
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,505336,505336107,LA Z BOY INC,3146276000.0,109856
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,512807,512807108,LAM RESEARCH CORP,942557000.0,1466
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,594918,594918104,MICROSOFT CORP,22326617000.0,65562
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,654106,654106103,NIKE INC,780838000.0,7075
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,670017000.0,2622
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,452714000.0,1161
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,716817,716817408,PETVIVO HLDGS INC,4683000.0,21377
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,14217406000.0,93696
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,871829,871829107,SYSCO CORP,1517687000.0,20454
+https://sec.gov/Archives/edgar/data/1559789/0001559789-23-000001.txt,1559789,"2687 44TH STREET SE, KENTWOOD, MI, 49512",Regal Investment Advisors LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,8261799000.0,93778
+https://sec.gov/Archives/edgar/data/1559832/0001172661-23-002674.txt,1559832,"414 N. Main Street, Thiensville, WI, 53092","Estate Counselors, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,1832861000.0,19381
+https://sec.gov/Archives/edgar/data/1559832/0001172661-23-002674.txt,1559832,"414 N. Main Street, Thiensville, WI, 53092","Estate Counselors, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,1613579000.0,2510
+https://sec.gov/Archives/edgar/data/1559832/0001172661-23-002674.txt,1559832,"414 N. Main Street, Thiensville, WI, 53092","Estate Counselors, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,1520789000.0,13230
+https://sec.gov/Archives/edgar/data/1559832/0001172661-23-002674.txt,1559832,"414 N. Main Street, Thiensville, WI, 53092","Estate Counselors, LLC",2023-06-30,88688T,88688T100,TILRAY BRANDS INC,26520000.0,17000
+https://sec.gov/Archives/edgar/data/1560717/0001560717-23-000011.txt,1560717,"6210 Ardrey Kell Road, Suite 300, Charlotte, NC, 28277","Horizon Investments, LLC",2023-06-30,018802,018802108,ALLIANT ENERGY CORP COM,191351000.0,3677
+https://sec.gov/Archives/edgar/data/1560717/0001560717-23-000011.txt,1560717,"6210 Ardrey Kell Road, Suite 300, Charlotte, NC, 28277","Horizon Investments, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN C,1428415000.0,6499
+https://sec.gov/Archives/edgar/data/1560717/0001560717-23-000011.txt,1560717,"6210 Ardrey Kell Road, Suite 300, Charlotte, NC, 28277","Horizon Investments, LLC",2023-06-30,09073M,09073M104,BIO-TECHNE CORP COM,193545000.0,2371
+https://sec.gov/Archives/edgar/data/1560717/0001560717-23-000011.txt,1560717,"6210 Ardrey Kell Road, Suite 300, Charlotte, NC, 28277","Horizon Investments, LLC",2023-06-30,093671,093671105,BLOCK H  R INC COM,223000.0,7
+https://sec.gov/Archives/edgar/data/1560717/0001560717-23-000011.txt,1560717,"6210 Ardrey Kell Road, Suite 300, Charlotte, NC, 28277","Horizon Investments, LLC",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN C,292337000.0,1765
+https://sec.gov/Archives/edgar/data/1560717/0001560717-23-000011.txt,1560717,"6210 Ardrey Kell Road, Suite 300, Charlotte, NC, 28277","Horizon Investments, LLC",2023-06-30,115637,115637209,BROWN FORMAN CORP CL B,166750000.0,2497
+https://sec.gov/Archives/edgar/data/1560717/0001560717-23-000011.txt,1560717,"6210 Ardrey Kell Road, Suite 300, Charlotte, NC, 28277","Horizon Investments, LLC",2023-06-30,127190,127190304,CACI INTL INC CL A,341000.0,1
+https://sec.gov/Archives/edgar/data/1560717/0001560717-23-000011.txt,1560717,"6210 Ardrey Kell Road, Suite 300, Charlotte, NC, 28277","Horizon Investments, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC COM,365513000.0,3865
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+https://sec.gov/Archives/edgar/data/1563223/0001172661-23-002854.txt,1563223,"1600 Broadway, Suite 1600, Denver, CO, 80202","Knowledge Leaders Capital, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,1092219000.0,1699
+https://sec.gov/Archives/edgar/data/1563223/0001172661-23-002854.txt,1563223,"1600 Broadway, Suite 1600, Denver, CO, 80202","Knowledge Leaders Capital, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,779236000.0,3968
+https://sec.gov/Archives/edgar/data/1563223/0001172661-23-002854.txt,1563223,"1600 Broadway, Suite 1600, Denver, CO, 80202","Knowledge Leaders Capital, LLC",2023-06-30,654106,654106103,NIKE INC,597654000.0,5415
+https://sec.gov/Archives/edgar/data/1563223/0001172661-23-002854.txt,1563223,"1600 Broadway, Suite 1600, Denver, CO, 80202","Knowledge Leaders Capital, LLC",2023-06-30,683715,683715106,OPEN TEXT CORP,810183000.0,19499
+https://sec.gov/Archives/edgar/data/1563223/0001172661-23-002854.txt,1563223,"1600 Broadway, Suite 1600, Denver, CO, 80202","Knowledge Leaders Capital, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,994602000.0,2550
+https://sec.gov/Archives/edgar/data/1563525/0001563525-23-000003.txt,1563525,"1 NORTH WACKER DRIVE, SUITE 4075, CHICAGO, IL, 60606",Chicago Partners Investment Group LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,507285000.0,2051
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+https://sec.gov/Archives/edgar/data/1566475/0001566475-23-000007.txt,1566475,"335 Madison Avenue, 23rd Floor, New York, NY, 10017",Cerity Partners LLC,2023-06-30,594918,594918104,MICROSOFT CORP,776106063000.0,2279046
+https://sec.gov/Archives/edgar/data/1566475/0001566475-23-000007.txt,1566475,"335 Madison Avenue, 23rd Floor, New York, NY, 10017",Cerity Partners LLC,2023-06-30,654106,654106103,NIKE INC,49358317000.0,447080
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+https://sec.gov/Archives/edgar/data/1566493/0001566493-23-000003.txt,1566493,"56 EXCHANGE TERRACE, SUITE 200, PROVIDENCE, RI, 02903","Newman Dignan & Sheerar, Inc.",2023-06-30,654106,654106103,Nike Inc Class B,750627000.0,6801
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+https://sec.gov/Archives/edgar/data/1566653/0001062993-23-016315.txt,1566653,"1000 4TH ST., STE 650, SAN RAFAEL, CA, 94901","Eqis Capital Management, Inc.",2023-06-30,876030,876030107,TAPESTRY INC,255398000.0,5967
+https://sec.gov/Archives/edgar/data/1566653/0001062993-23-016315.txt,1566653,"1000 4TH ST., STE 650, SAN RAFAEL, CA, 94901","Eqis Capital Management, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,3004226000.0,34100
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+https://sec.gov/Archives/edgar/data/1566728/0001566728-23-000009.txt,1566728,"9015 STRADA STELL COURT, SUITE 203, NAPLES, FL, 34109","Capital Wealth Planning, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1290860000.0,7726
+https://sec.gov/Archives/edgar/data/1566728/0001566728-23-000009.txt,1566728,"9015 STRADA STELL COURT, SUITE 203, NAPLES, FL, 34109","Capital Wealth Planning, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,227634825000.0,2967860
+https://sec.gov/Archives/edgar/data/1566728/0001566728-23-000009.txt,1566728,"9015 STRADA STELL COURT, SUITE 203, NAPLES, FL, 34109","Capital Wealth Planning, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,765337000.0,6658
+https://sec.gov/Archives/edgar/data/1566728/0001566728-23-000009.txt,1566728,"9015 STRADA STELL COURT, SUITE 203, NAPLES, FL, 34109","Capital Wealth Planning, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,456260848000.0,1339816
+https://sec.gov/Archives/edgar/data/1566728/0001566728-23-000009.txt,1566728,"9015 STRADA STELL COURT, SUITE 203, NAPLES, FL, 34109","Capital Wealth Planning, LLC",2023-06-30,654106,654106103,NIKE INC,985889000.0,8933
+https://sec.gov/Archives/edgar/data/1566728/0001566728-23-000009.txt,1566728,"9015 STRADA STELL COURT, SUITE 203, NAPLES, FL, 34109","Capital Wealth Planning, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,355716000.0,912
+https://sec.gov/Archives/edgar/data/1566728/0001566728-23-000009.txt,1566728,"9015 STRADA STELL COURT, SUITE 203, NAPLES, FL, 34109","Capital Wealth Planning, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,433136596000.0,2854466
+https://sec.gov/Archives/edgar/data/1566801/0001566801-23-000003.txt,1566801,"4355 LYNX PAW TRAIL, VALRICO, FL, 33596","Aft, Forsyth & Sober, LLC",2023-06-30,461202,461202103,INTUIT,549828000.0,1200
+https://sec.gov/Archives/edgar/data/1566801/0001566801-23-000003.txt,1566801,"4355 LYNX PAW TRAIL, VALRICO, FL, 33596","Aft, Forsyth & Sober, LLC",2023-06-30,482480,482480100,KLA CORP,1915829000.0,3950
+https://sec.gov/Archives/edgar/data/1566801/0001566801-23-000003.txt,1566801,"4355 LYNX PAW TRAIL, VALRICO, FL, 33596","Aft, Forsyth & Sober, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,2698780000.0,7925
+https://sec.gov/Archives/edgar/data/1566887/0001566887-23-000006.txt,1566887,"3400 SOUTHWEST AVE, SUITE 1206, MIAMI BEACH, FL, 33133",Ratan Capital Management LP,2023-06-30,31428X,31428X106,FEDEX CORP,2355000.0,9500
+https://sec.gov/Archives/edgar/data/1566887/0001566887-23-000006.txt,1566887,"3400 SOUTHWEST AVE, SUITE 1206, MIAMI BEACH, FL, 33133",Ratan Capital Management LP,2023-06-30,594918,594918104,MICROSOFT CORP,2469000.0,7250
+https://sec.gov/Archives/edgar/data/1566887/0001566887-23-000006.txt,1566887,"3400 SOUTHWEST AVE, SUITE 1206, MIAMI BEACH, FL, 33133",Ratan Capital Management LP,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,997000.0,4000
+https://sec.gov/Archives/edgar/data/1566968/0001085146-23-002744.txt,1566968,"300 WINDING BROOK DRIVE, GLASTONBURY, CT, 06033-4335","WOOSTER CORTHELL WEALTH MANAGEMENT, INC.",2023-06-30,594918,594918104,MICROSOFT CORP,278003000.0,816
+https://sec.gov/Archives/edgar/data/1566968/0001085146-23-002744.txt,1566968,"300 WINDING BROOK DRIVE, GLASTONBURY, CT, 06033-4335","WOOSTER CORTHELL WEALTH MANAGEMENT, INC.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,367818000.0,2424
+https://sec.gov/Archives/edgar/data/1567163/0001085146-23-002678.txt,1567163,"805 3RD AVE 12TH FLOOR, NEW YORK, NY, 10022",Edge Wealth Management LLC,2023-06-30,31428X,31428X106,FEDEX CORP,629170000.0,2538
+https://sec.gov/Archives/edgar/data/1567163/0001085146-23-002678.txt,1567163,"805 3RD AVE 12TH FLOOR, NEW YORK, NY, 10022",Edge Wealth Management LLC,2023-06-30,594918,594918104,MICROSOFT CORP,30372939000.0,89191
+https://sec.gov/Archives/edgar/data/1567163/0001085146-23-002678.txt,1567163,"805 3RD AVE 12TH FLOOR, NEW YORK, NY, 10022",Edge Wealth Management LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,9271207000.0,61099
+https://sec.gov/Archives/edgar/data/1567195/0001172661-23-003112.txt,1567195,"40 West 57th Street, Suite 1430, New York, NY, 10019",Incline Global Management LLC,2023-06-30,65249B,65249B109,NEWS CORP NEW,19534262000.0,1001757
+https://sec.gov/Archives/edgar/data/1567195/0001172661-23-003112.txt,1567195,"40 West 57th Street, Suite 1430, New York, NY, 10019",Incline Global Management LLC,2023-06-30,654106,654106103,NIKE INC,21083871000.0,191029
+https://sec.gov/Archives/edgar/data/1567634/0001062993-23-014816.txt,1567634,"6856 LOOP RD, DAYTON, OH, 45459","Buckingham Capital Management, Inc.",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,248445000.0,1500
+https://sec.gov/Archives/edgar/data/1567634/0001062993-23-014816.txt,1567634,"6856 LOOP RD, DAYTON, OH, 45459","Buckingham Capital Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,24475028000.0,71871
+https://sec.gov/Archives/edgar/data/1567634/0001062993-23-014816.txt,1567634,"6856 LOOP RD, DAYTON, OH, 45459","Buckingham Capital Management, Inc.",2023-06-30,654106,654106103,NIKE INC,6444586000.0,58391
+https://sec.gov/Archives/edgar/data/1567634/0001062993-23-014816.txt,1567634,"6856 LOOP RD, DAYTON, OH, 45459","Buckingham Capital Management, Inc.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1094842000.0,2807
+https://sec.gov/Archives/edgar/data/1567634/0001062993-23-014816.txt,1567634,"6856 LOOP RD, DAYTON, OH, 45459","Buckingham Capital Management, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2485588000.0,16381
+https://sec.gov/Archives/edgar/data/1567634/0001062993-23-014816.txt,1567634,"6856 LOOP RD, DAYTON, OH, 45459","Buckingham Capital Management, Inc.",2023-06-30,871829,871829107,SYSCO CORP,8187994000.0,110350
+https://sec.gov/Archives/edgar/data/1567634/0001062993-23-014816.txt,1567634,"6856 LOOP RD, DAYTON, OH, 45459","Buckingham Capital Management, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1199924000.0,13620
+https://sec.gov/Archives/edgar/data/1567752/0001567752-23-000004.txt,1567752,"2 PARK AVENUE, 20TH FLOOR, NEW YORK, NY, 10016","BLOOM TREE PARTNERS, LLC",2023-06-30,N14506,N14506104,ELASTIC N V,6332940000.0,98767
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,304216000.0,5797
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,276916000.0,1912
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,042744,042744102,ARROW FINL CORP,219607000.0,10904
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,4986096000.0,22116
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,05366Y,05366Y201,AVIAT NETWORKS INC,291987000.0,8750
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,090043,090043100,BILL HOLDINGS INC,810940000.0,6940
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,09073M,09073M104,BIO-TECHNE CORP,593879000.0,7201
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,692458000.0,4144
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,115637,115637209,BROWN FORMAN CORP,2566880000.0,38438
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+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,1196813000.0,12839
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,359400000.0,6403
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,147528,147528103,CASEYS GEN STORES INC,585255000.0,2400
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,4892148000.0,31237
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,4794376000.0,142438
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,222070,222070203,COTY INC,821120000.0,66812
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,1147491000.0,6828
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,5631416000.0,22112
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,8265332000.0,108381
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,38748G,38748G101,GRANITESHARES GOLD TR,531197000.0,27943
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,385650000.0,2305
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,461202,461202103,INTUIT,3540594000.0,7289
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,482480,482480100,KLA CORP,2442654000.0,4975
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,4115114000.0,6138
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,273854000.0,2382
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,1150369000.0,5970
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,184391415000.0,543262
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,640491,640491106,NEOGEN CORP,686869000.0,29891
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,654106,654106103,NIKE INC,6325067000.0,57306
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,6277294000.0,24694
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1993822000.0,5013
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,704326,704326107,PAYCHEX INC,6362076000.0,52961
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,252533000.0,32839
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,53630129000.0,348506
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,761152,761152107,RESMED INC,375943000.0,1698
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,2017622000.0,13592
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,871829,871829107,SYSCO CORP,2759111000.0,36908
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,876030,876030107,TAPESTRY INC,378513000.0,8844
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,88688T,88688T100,TILRAY BRANDS INC,113935000.0,73033
+https://sec.gov/Archives/edgar/data/1567755/0001085146-23-003206.txt,1567755,"65 MADISON AVENUE, MORRISTOWN, NJ, 07960","Private Advisor Group, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,10406378000.0,118258
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+https://sec.gov/Archives/edgar/data/1567889/0001567889-23-000003.txt,1567889,"12121 SCRIPPS SUMMIT DRIVE, SUITE 350, SAN DIEGO, CA, 92131","Telos Capital Management, Inc.",2023-06-30,31428X,31428X106,FEDEX CORP,4545758000.0,18337
+https://sec.gov/Archives/edgar/data/1567889/0001567889-23-000003.txt,1567889,"12121 SCRIPPS SUMMIT DRIVE, SUITE 350, SAN DIEGO, CA, 92131","Telos Capital Management, Inc.",2023-06-30,461202,461202103,INTUIT,412371000.0,900
+https://sec.gov/Archives/edgar/data/1567889/0001567889-23-000003.txt,1567889,"12121 SCRIPPS SUMMIT DRIVE, SUITE 350, SAN DIEGO, CA, 92131","Telos Capital Management, Inc.",2023-06-30,482480,482480100,KLA CORP,265791000.0,548
+https://sec.gov/Archives/edgar/data/1567889/0001567889-23-000003.txt,1567889,"12121 SCRIPPS SUMMIT DRIVE, SUITE 350, SAN DIEGO, CA, 92131","Telos Capital Management, Inc.",2023-06-30,512807,512807108,LAM RESEARCH CORP,307930000.0,479
+https://sec.gov/Archives/edgar/data/1567889/0001567889-23-000003.txt,1567889,"12121 SCRIPPS SUMMIT DRIVE, SUITE 350, SAN DIEGO, CA, 92131","Telos Capital Management, Inc.",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,351885000.0,3061
+https://sec.gov/Archives/edgar/data/1567889/0001567889-23-000003.txt,1567889,"12121 SCRIPPS SUMMIT DRIVE, SUITE 350, SAN DIEGO, CA, 92131","Telos Capital Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,11026842000.0,32380
+https://sec.gov/Archives/edgar/data/1567889/0001567889-23-000003.txt,1567889,"12121 SCRIPPS SUMMIT DRIVE, SUITE 350, SAN DIEGO, CA, 92131","Telos Capital Management, Inc.",2023-06-30,654106,654106103,NIKE INC,4641718000.0,42056
+https://sec.gov/Archives/edgar/data/1567889/0001567889-23-000003.txt,1567889,"12121 SCRIPPS SUMMIT DRIVE, SUITE 350, SAN DIEGO, CA, 92131","Telos Capital Management, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,14992902000.0,98807
+https://sec.gov/Archives/edgar/data/1567889/0001567889-23-000003.txt,1567889,"12121 SCRIPPS SUMMIT DRIVE, SUITE 350, SAN DIEGO, CA, 92131","Telos Capital Management, Inc.",2023-06-30,761152,761152107,RESMED INC,5018104000.0,22966
+https://sec.gov/Archives/edgar/data/1567889/0001567889-23-000003.txt,1567889,"12121 SCRIPPS SUMMIT DRIVE, SUITE 350, SAN DIEGO, CA, 92131","Telos Capital Management, Inc.",2023-06-30,832696,832696405,SMUCKER J M CO,363712000.0,2463
+https://sec.gov/Archives/edgar/data/1567889/0001567889-23-000003.txt,1567889,"12121 SCRIPPS SUMMIT DRIVE, SUITE 350, SAN DIEGO, CA, 92131","Telos Capital Management, Inc.",2023-06-30,871829,871829107,SYSCO CORP,6649051000.0,89610
+https://sec.gov/Archives/edgar/data/1567889/0001567889-23-000003.txt,1567889,"12121 SCRIPPS SUMMIT DRIVE, SUITE 350, SAN DIEGO, CA, 92131","Telos Capital Management, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,10145671000.0,115161
+https://sec.gov/Archives/edgar/data/1567890/0001567890-23-000004.txt,1567890,"410 NORTH RIDGE ROAD, SUITE 100, HENRICO, VA, 23229","Redmond Asset Management, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,264757000.0,1068
+https://sec.gov/Archives/edgar/data/1567890/0001567890-23-000004.txt,1567890,"410 NORTH RIDGE ROAD, SUITE 100, HENRICO, VA, 23229","Redmond Asset Management, LLC",2023-06-30,461202,461202103,INTUIT,4750721000.0,10368
+https://sec.gov/Archives/edgar/data/1567890/0001567890-23-000004.txt,1567890,"410 NORTH RIDGE ROAD, SUITE 100, HENRICO, VA, 23229","Redmond Asset Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,3880026000.0,11394
+https://sec.gov/Archives/edgar/data/1567890/0001567890-23-000004.txt,1567890,"410 NORTH RIDGE ROAD, SUITE 100, HENRICO, VA, 23229","Redmond Asset Management, LLC",2023-06-30,606710,606710200,MITEK SYS INC,1495909000.0,137999
+https://sec.gov/Archives/edgar/data/1567890/0001567890-23-000004.txt,1567890,"410 NORTH RIDGE ROAD, SUITE 100, HENRICO, VA, 23229","Redmond Asset Management, LLC",2023-06-30,704326,704326107,PAYCHEX INC,1188808000.0,10627
+https://sec.gov/Archives/edgar/data/1567890/0001567890-23-000004.txt,1567890,"410 NORTH RIDGE ROAD, SUITE 100, HENRICO, VA, 23229","Redmond Asset Management, LLC",2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,1241858000.0,161490
+https://sec.gov/Archives/edgar/data/1567890/0001567890-23-000004.txt,1567890,"410 NORTH RIDGE ROAD, SUITE 100, HENRICO, VA, 23229","Redmond Asset Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1007193000.0,6638
+https://sec.gov/Archives/edgar/data/1567890/0001567890-23-000004.txt,1567890,"410 NORTH RIDGE ROAD, SUITE 100, HENRICO, VA, 23229","Redmond Asset Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,598287000.0,6791
+https://sec.gov/Archives/edgar/data/1567912/0001062993-23-016230.txt,1567912,"15600 WAYZATA BLVD, STE 304, WAYZATA, MN, 55391",Somerset Group LLC,2023-06-30,370334,370334104,General Mills,276120000.0,3600
+https://sec.gov/Archives/edgar/data/1567912/0001062993-23-016230.txt,1567912,"15600 WAYZATA BLVD, STE 304, WAYZATA, MN, 55391",Somerset Group LLC,2023-06-30,594918,594918104,Microsoft Corporation,7998944000.0,23489
+https://sec.gov/Archives/edgar/data/1567912/0001062993-23-016230.txt,1567912,"15600 WAYZATA BLVD, STE 304, WAYZATA, MN, 55391",Somerset Group LLC,2023-06-30,697435,697435105,Palo Alto Networks Inc,3582761000.0,14022
+https://sec.gov/Archives/edgar/data/1567912/0001062993-23-016230.txt,1567912,"15600 WAYZATA BLVD, STE 304, WAYZATA, MN, 55391",Somerset Group LLC,2023-06-30,742718,742718109,Procter & Gamble,239446000.0,1578
+https://sec.gov/Archives/edgar/data/1567992/0001085146-23-003245.txt,1567992,"601 LEXINGTON AVENUE, 57TH FLOOR, NEW YORK, NY, 10022",BTG Pactual Global Asset Management Ltd,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,2851448000.0,54334
+https://sec.gov/Archives/edgar/data/1567992/0001085146-23-003245.txt,1567992,"601 LEXINGTON AVENUE, 57TH FLOOR, NEW YORK, NY, 10022",BTG Pactual Global Asset Management Ltd,2023-06-30,594918,594918104,MICROSOFT CORP,8378306000.0,24603
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,1580000.0,46
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,008073,008073108,AEROVIRONMENT INC,1126000.0,11
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,6456000.0,123
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,1107000.0,20
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,4201000.0,29
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,92183000.0,419
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,053807,053807103,AVNET INC,9081000.0,180
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,1894000.0,48
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,090043,090043100,BILL HOLDINGS INC,2104000.0,18
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,09073M,09073M104,BIO-TECHNE CORP,4490000.0,55
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,093671,093671105,BLOCK H & R INC,3411000.0,107
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,25718000.0,155
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,127190,127190304,CACI INTL INC,8521000.0,25
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,128030,128030202,CAL MAINE FOODS INC,1305000.0,29
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,22319000.0,236
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,1011000.0,18
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,147528,147528103,CASEYS GEN STORES INC,17072000.0,70
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,26083000.0,164
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,8430000.0,250
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,222070,222070203,COTY INC,6957000.0,566
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,12197000.0,73
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,23055000.0,93
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,35137L,35137L105,FOX CORP,4114000.0,121
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,36251C,36251C103,GMS INC,1869000.0,27
+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,115894000.0,1511
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+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,4818000.0,127
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+https://sec.gov/Archives/edgar/data/1568068/0001568068-23-000004.txt,1568068,"1479 N. HERMITAGE RD, HERMITAGE, PA, 16148","JFS WEALTH ADVISORS, LLC",2023-06-30,N14506,N14506104,ELASTIC N V,1860000.0,29
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+https://sec.gov/Archives/edgar/data/1568235/0001568235-23-000007.txt,1568235,"270 W. CIRCULAR STREET, SUITE 1, SARATOGA SPRINGS, NY, 12866",King Wealth,2023-06-30,147528,147528103,CASEYS GEN STORES INC,256000.0,1050
+https://sec.gov/Archives/edgar/data/1568235/0001568235-23-000007.txt,1568235,"270 W. CIRCULAR STREET, SUITE 1, SARATOGA SPRINGS, NY, 12866",King Wealth,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,747000.0,4470
+https://sec.gov/Archives/edgar/data/1568235/0001568235-23-000007.txt,1568235,"270 W. CIRCULAR STREET, SUITE 1, SARATOGA SPRINGS, NY, 12866",King Wealth,2023-06-30,370334,370334104,GENERAL MLS INC,1046000.0,13634
+https://sec.gov/Archives/edgar/data/1568235/0001568235-23-000007.txt,1568235,"270 W. CIRCULAR STREET, SUITE 1, SARATOGA SPRINGS, NY, 12866",King Wealth,2023-06-30,594918,594918104,MICROSOFT CORP,27900000.0,81929
+https://sec.gov/Archives/edgar/data/1568235/0001568235-23-000007.txt,1568235,"270 W. CIRCULAR STREET, SUITE 1, SARATOGA SPRINGS, NY, 12866",King Wealth,2023-06-30,704326,704326107,PAYCHEX INC,204000.0,1825
+https://sec.gov/Archives/edgar/data/1568235/0001568235-23-000007.txt,1568235,"270 W. CIRCULAR STREET, SUITE 1, SARATOGA SPRINGS, NY, 12866",King Wealth,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3797000.0,25024
+https://sec.gov/Archives/edgar/data/1568303/0001568303-23-000007.txt,1568303,"5800 ARMADA DRIVE, SUITE 100, CARLSBAD, CA, 92008","West Family Investments, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,278254000.0,1266
+https://sec.gov/Archives/edgar/data/1568303/0001568303-23-000007.txt,1568303,"5800 ARMADA DRIVE, SUITE 100, CARLSBAD, CA, 92008","West Family Investments, Inc.",2023-06-30,370334,370334104,GENERAL MLS INC,575940000.0,7509
+https://sec.gov/Archives/edgar/data/1568303/0001568303-23-000007.txt,1568303,"5800 ARMADA DRIVE, SUITE 100, CARLSBAD, CA, 92008","West Family Investments, Inc.",2023-06-30,461202,461202103,INTUIT,202062000.0,441
+https://sec.gov/Archives/edgar/data/1568303/0001568303-23-000007.txt,1568303,"5800 ARMADA DRIVE, SUITE 100, CARLSBAD, CA, 92008","West Family Investments, Inc.",2023-06-30,512807,512807108,LAM RESEARCH CORP,343287000.0,534
+https://sec.gov/Archives/edgar/data/1568303/0001568303-23-000007.txt,1568303,"5800 ARMADA DRIVE, SUITE 100, CARLSBAD, CA, 92008","West Family Investments, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,5776921000.0,16964
+https://sec.gov/Archives/edgar/data/1568303/0001568303-23-000007.txt,1568303,"5800 ARMADA DRIVE, SUITE 100, CARLSBAD, CA, 92008","West Family Investments, Inc.",2023-06-30,654106,654106103,NIKE INC,254844000.0,2309
+https://sec.gov/Archives/edgar/data/1568303/0001568303-23-000007.txt,1568303,"5800 ARMADA DRIVE, SUITE 100, CARLSBAD, CA, 92008","West Family Investments, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1653511000.0,10897
+https://sec.gov/Archives/edgar/data/1568303/0001568303-23-000007.txt,1568303,"5800 ARMADA DRIVE, SUITE 100, CARLSBAD, CA, 92008","West Family Investments, Inc.",2023-06-30,832696,832696405,SMUCKER J M CO,459401000.0,3111
+https://sec.gov/Archives/edgar/data/1568303/0001568303-23-000007.txt,1568303,"5800 ARMADA DRIVE, SUITE 100, CARLSBAD, CA, 92008","West Family Investments, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,275048000.0,3122
+https://sec.gov/Archives/edgar/data/1568389/0001765380-23-000177.txt,1568389,"920 FIFTH AVENUE SUITE 2720, SEATTLE, WA, 98104","Merriman Wealth Management, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,510288000.0,2309
+https://sec.gov/Archives/edgar/data/1568389/0001765380-23-000177.txt,1568389,"920 FIFTH AVENUE SUITE 2720, SEATTLE, WA, 98104","Merriman Wealth Management, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,332377000.0,1335
+https://sec.gov/Archives/edgar/data/1568389/0001765380-23-000177.txt,1568389,"920 FIFTH AVENUE SUITE 2720, SEATTLE, WA, 98104","Merriman Wealth Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,26493007000.0,77797
+https://sec.gov/Archives/edgar/data/1568389/0001765380-23-000177.txt,1568389,"920 FIFTH AVENUE SUITE 2720, SEATTLE, WA, 98104","Merriman Wealth Management, LLC",2023-06-30,654106,654106103,NIKE INC,896665000.0,8102
+https://sec.gov/Archives/edgar/data/1568389/0001765380-23-000177.txt,1568389,"920 FIFTH AVENUE SUITE 2720, SEATTLE, WA, 98104","Merriman Wealth Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,995023000.0,6557
+https://sec.gov/Archives/edgar/data/1568540/0001568540-23-000004.txt,1568540,"120 E. Constitution St, Victoria, TX, 77901",Sather Financial Group Inc,2023-06-30,115637,115637100,BROWN FORMAN CORP,893283000.0,13123
+https://sec.gov/Archives/edgar/data/1568540/0001568540-23-000004.txt,1568540,"120 E. Constitution St, Victoria, TX, 77901",Sather Financial Group Inc,2023-06-30,461202,461202103,INTUIT,42450387000.0,92648
+https://sec.gov/Archives/edgar/data/1568540/0001568540-23-000004.txt,1568540,"120 E. Constitution St, Victoria, TX, 77901",Sather Financial Group Inc,2023-06-30,512807,512807108,LAM RESEARCH CORP,313073000.0,487
+https://sec.gov/Archives/edgar/data/1568540/0001568540-23-000004.txt,1568540,"120 E. Constitution St, Victoria, TX, 77901",Sather Financial Group Inc,2023-06-30,594918,594918104,MICROSOFT CORP,91649557000.0,269130
+https://sec.gov/Archives/edgar/data/1568540/0001568540-23-000004.txt,1568540,"120 E. Constitution St, Victoria, TX, 77901",Sather Financial Group Inc,2023-06-30,654106,654106103,NIKE INC,23338399000.0,211456
+https://sec.gov/Archives/edgar/data/1568540/0001568540-23-000004.txt,1568540,"120 E. Constitution St, Victoria, TX, 77901",Sather Financial Group Inc,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,268541000.0,1051
+https://sec.gov/Archives/edgar/data/1568540/0001568540-23-000004.txt,1568540,"120 E. Constitution St, Victoria, TX, 77901",Sather Financial Group Inc,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,24506920000.0,161506
+https://sec.gov/Archives/edgar/data/1568621/0001568621-23-000009.txt,1568621,"1530 WILSON BLVD, SUITE 530, ARLINGTON, VA, 22209","Broad Run Investment Management, LLC",2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,42247502000.0,553195
+https://sec.gov/Archives/edgar/data/1568787/0001568787-23-000005.txt,1568787,"600 UNIVERSITY PARK PLACE, SUITE 501, BIRMINGHAM, AL, 35209","Waverly Advisors, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,717924000.0,3266
+https://sec.gov/Archives/edgar/data/1568787/0001568787-23-000005.txt,1568787,"600 UNIVERSITY PARK PLACE, SUITE 501, BIRMINGHAM, AL, 35209","Waverly Advisors, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,202642000.0,1274
+https://sec.gov/Archives/edgar/data/1568787/0001568787-23-000005.txt,1568787,"600 UNIVERSITY PARK PLACE, SUITE 501, BIRMINGHAM, AL, 35209","Waverly Advisors, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,303182000.0,1223
+https://sec.gov/Archives/edgar/data/1568787/0001568787-23-000005.txt,1568787,"600 UNIVERSITY PARK PLACE, SUITE 501, BIRMINGHAM, AL, 35209","Waverly Advisors, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,886579000.0,11559
+https://sec.gov/Archives/edgar/data/1568787/0001568787-23-000005.txt,1568787,"600 UNIVERSITY PARK PLACE, SUITE 501, BIRMINGHAM, AL, 35209","Waverly Advisors, LLC",2023-06-30,461202,461202103,INTUIT,291409000.0,636
+https://sec.gov/Archives/edgar/data/1568787/0001568787-23-000005.txt,1568787,"600 UNIVERSITY PARK PLACE, SUITE 501, BIRMINGHAM, AL, 35209","Waverly Advisors, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,399044000.0,2032
+https://sec.gov/Archives/edgar/data/1568787/0001568787-23-000005.txt,1568787,"600 UNIVERSITY PARK PLACE, SUITE 501, BIRMINGHAM, AL, 35209","Waverly Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,13481718000.0,39589
+https://sec.gov/Archives/edgar/data/1568787/0001568787-23-000005.txt,1568787,"600 UNIVERSITY PARK PLACE, SUITE 501, BIRMINGHAM, AL, 35209","Waverly Advisors, LLC",2023-06-30,654106,654106103,NIKE INC,1039798000.0,9421
+https://sec.gov/Archives/edgar/data/1568787/0001568787-23-000005.txt,1568787,"600 UNIVERSITY PARK PLACE, SUITE 501, BIRMINGHAM, AL, 35209","Waverly Advisors, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3497238000.0,23048
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+https://sec.gov/Archives/edgar/data/1568788/0001172661-23-003143.txt,1568788,"888 7th Avenue, 23rd Floor, New York, NY, 10019",Palestra Capital Management LLC,2023-06-30,594918,594918104,MICROSOFT CORP,123277183000.0,362005
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+https://sec.gov/Archives/edgar/data/1569119/0001172661-23-002666.txt,1569119,"250 West 57th Street, Suite 1614, New York, NY, 10107",Strategic Advisors LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,8910118000.0,58720
+https://sec.gov/Archives/edgar/data/1569119/0001172661-23-002666.txt,1569119,"250 West 57th Street, Suite 1614, New York, NY, 10107",Strategic Advisors LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2931880000.0,33279
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+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,427120000.0,7529
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,371775000.0,1977
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,221170000.0,7216
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,591520,591520200,METHOD ELECTRS INC,513929000.0,15332
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,654106,654106103,NIKE INC,6546265000.0,59312
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,683715,683715106,OPEN TEXT CORP,293634000.0,7067
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,28548388000.0,111731
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,703395,703395103,PATTERSON COS INC,559733000.0,16829
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,704326,704326107,PAYCHEX INC,7351761000.0,65717
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,2535073000.0,13738
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,545955000.0,9063
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2171248000.0,14309
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,749685,749685103,RPM INTL INC,2305523000.0,25694
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,761152,761152107,RESMED INC,2005612000.0,9179
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,87157D,87157D109,SYNAPTICS INC,1650225000.0,19328
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,871829,871829107,SYSCO CORP,1526888000.0,20578
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,876030,876030107,TAPESTRY INC,808877000.0,18899
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,1246008000.0,36615
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,G3323L,G3323L100,FABRINET,249759000.0,1923
+https://sec.gov/Archives/edgar/data/1569136/0001569136-23-000004.txt,1569136,"150 E52ND ST, 26TH FLOOR, NEW YORK, NY, 10022",Ergoteles LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1303440000.0,14795
+https://sec.gov/Archives/edgar/data/1569137/0001569137-23-000004.txt,1569137,"136 S. MAIN STREET, SUITE 720, SALT LAKE CITY, UT, 84101","Grandeur Peak Global Advisors, LLC",2023-06-30,090043,090043100,Bill Com Hldgs Inc,4640464000.0,39713
+https://sec.gov/Archives/edgar/data/1569137/0001569137-23-000004.txt,1569137,"136 S. MAIN STREET, SUITE 720, SALT LAKE CITY, UT, 84101","Grandeur Peak Global Advisors, LLC",2023-06-30,09073M,09073M104,Bio-Techne Corp,2215193000.0,27137
+https://sec.gov/Archives/edgar/data/1569137/0001569137-23-000004.txt,1569137,"136 S. MAIN STREET, SUITE 720, SALT LAKE CITY, UT, 84101","Grandeur Peak Global Advisors, LLC",2023-06-30,640491,640491106,Neogen Corp,5277812000.0,242658
+https://sec.gov/Archives/edgar/data/1569137/0001569137-23-000004.txt,1569137,"136 S. MAIN STREET, SUITE 720, SALT LAKE CITY, UT, 84101","Grandeur Peak Global Advisors, LLC",2023-06-30,70438V,70438V106,Paylocity Hldg Corp,5559520000.0,30128
+https://sec.gov/Archives/edgar/data/1569137/0001569137-23-000004.txt,1569137,"136 S. MAIN STREET, SUITE 720, SALT LAKE CITY, UT, 84101","Grandeur Peak Global Advisors, LLC",2023-06-30,N14506,N14506104,Elastic NV,7342381000.0,114510
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+https://sec.gov/Archives/edgar/data/1569139/0001085146-23-003464.txt,1569139,"180 SOUTH CLINTON AVE, SUITE 300, ROCHESTER, NY, 14604","High Falls Advisors, Inc",2023-06-30,594918,594918104,MICROSOFT CORP,2482643000.0,7290
+https://sec.gov/Archives/edgar/data/1569139/0001085146-23-003464.txt,1569139,"180 SOUTH CLINTON AVE, SUITE 300, ROCHESTER, NY, 14604","High Falls Advisors, Inc",2023-06-30,704326,704326107,PAYCHEX INC,672735000.0,6014
+https://sec.gov/Archives/edgar/data/1569139/0001085146-23-003464.txt,1569139,"180 SOUTH CLINTON AVE, SUITE 300, ROCHESTER, NY, 14604","High Falls Advisors, Inc",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,334599000.0,2205
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+https://sec.gov/Archives/edgar/data/1569148/0001085146-23-002800.txt,1569148,"6385 OLD SHADY OAK ROAD, SUITE 200, EDEN PRAIRIE, MN, 55344",Murphy Pohlad Asset Management LLC,2023-06-30,594918,594918104,MICROSOFT CORP,7157129000.0,21017
+https://sec.gov/Archives/edgar/data/1569148/0001085146-23-002800.txt,1569148,"6385 OLD SHADY OAK ROAD, SUITE 200, EDEN PRAIRIE, MN, 55344",Murphy Pohlad Asset Management LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,5968560000.0,39334
+https://sec.gov/Archives/edgar/data/1569148/0001085146-23-002800.txt,1569148,"6385 OLD SHADY OAK ROAD, SUITE 200, EDEN PRAIRIE, MN, 55344",Murphy Pohlad Asset Management LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,6205059000.0,70432
+https://sec.gov/Archives/edgar/data/1569174/0001569174-23-000004.txt,1569174,"125 N RAYMOND AVE. #309, PASADENA, CA, 91103",Osher Van de Voorde Investment Management,2023-06-30,518439,518439104,The Estee Lauder Companies Inc Cl A,14459459000.0,73630
+https://sec.gov/Archives/edgar/data/1569174/0001569174-23-000004.txt,1569174,"125 N RAYMOND AVE. #309, PASADENA, CA, 91103",Osher Van de Voorde Investment Management,2023-06-30,594918,594918104,Microsoft Corp,17987323000.0,52820
+https://sec.gov/Archives/edgar/data/1569174/0001569174-23-000004.txt,1569174,"125 N RAYMOND AVE. #309, PASADENA, CA, 91103",Osher Van de Voorde Investment Management,2023-06-30,654106,654106103,Nike Inc B,220740000.0,2000
+https://sec.gov/Archives/edgar/data/1569174/0001569174-23-000004.txt,1569174,"125 N RAYMOND AVE. #309, PASADENA, CA, 91103",Osher Van de Voorde Investment Management,2023-06-30,G5960L,G5960L103,Medtronic PLC,15182714000.0,172335
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+https://sec.gov/Archives/edgar/data/1569205/0001520023-23-000011.txt,1569205,"33 CAVENDISH SQUARE, LONDON, X0, W1G 0PW",Fundsmith LLP,2023-06-30,115637,115637209,BROWN FORMAN CORP CLASS B,814416625000.0,12195517
+https://sec.gov/Archives/edgar/data/1569205/0001520023-23-000011.txt,1569205,"33 CAVENDISH SQUARE, LONDON, X0, W1G 0PW",Fundsmith LLP,2023-06-30,518439,518439104,ESTEE LAUDER COMPANIES CL A,1064089940000.0,5418525
+https://sec.gov/Archives/edgar/data/1569205/0001520023-23-000011.txt,1569205,"33 CAVENDISH SQUARE, LONDON, X0, W1G 0PW",Fundsmith LLP,2023-06-30,594918,594918104,MICROSOFT CORP,3069147739000.0,9012591
+https://sec.gov/Archives/edgar/data/1569205/0001520023-23-000011.txt,1569205,"33 CAVENDISH SQUARE, LONDON, X0, W1G 0PW",Fundsmith LLP,2023-06-30,654106,654106103,NIKE INC CL B,740653999000.0,6710646
+https://sec.gov/Archives/edgar/data/1569205/0001520023-23-000011.txt,1569205,"33 CAVENDISH SQUARE, LONDON, X0, W1G 0PW",Fundsmith LLP,2023-06-30,742718,742718109,PROCTER & GAMBLE ORD,735814118000.0,4849177
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+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,318824000.0,30568
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+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,92396200000.0,420384
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+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,983949000.0,24948
+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,090043,090043100,BILL HOLDINGS INC,33917667000.0,291251
+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,09073M,09073M104,BIO-TECHNE CORP,9833558000.0,120465
+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,093671,093671105,BLOCK H & R INC,619866000.0,19442
+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,7853184000.0,47797
+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,115637,115637209,BROWN FORMAN CORP,2394263000.0,35853
+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,128030,128030202,CAL MAINE FOODS INC,11328525000.0,251745
+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,8208203000.0,86795
+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,18104732000.0,322550
+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,189054,189054109,CLOROX CO DEL,7577646000.0,47684
+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,205887,205887102,CONAGRA BRANDS INC,4415330000.0,130941
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+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,35137L,35137L105,FOX CORP,1707990000.0,50235
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+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,370334,370334104,GENERAL MLS INC,15562583000.0,202902
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+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,20470996000.0,122341
+https://sec.gov/Archives/edgar/data/1569395/0000905148-23-000657.txt,1569395,"TOWER 1, 33, JONG-RO JONGNO-GU, SEOUL, M5, 03159","Mirae Asset Global Investments Co., Ltd.",2023-06-30,461202,461202103,INTUIT,198160728000.0,433010
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+https://sec.gov/Archives/edgar/data/1569532/0001172661-23-003125.txt,1569532,"Four Embarcadero Center, 20th Floor, San Francisco, CA, 94111","VISTA EQUITY PARTNERS MANAGEMENT, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,25523814000.0,74951
+https://sec.gov/Archives/edgar/data/1569532/0001172661-23-003125.txt,1569532,"Four Embarcadero Center, 20th Floor, San Francisco, CA, 94111","VISTA EQUITY PARTNERS MANAGEMENT, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,31918054000.0,124919
+https://sec.gov/Archives/edgar/data/1569537/0000919574-23-004483.txt,1569537,"350 Madison Avenue, 22nd Floor, New York, NY, 10017","BEACONLIGHT CAPITAL, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,5803091000.0,23409
+https://sec.gov/Archives/edgar/data/1569550/0001569550-23-000006.txt,1569550,"425 S FINANCIAL PLACE, 4TH FLOOR, Chicago, IL, 60605","CTC Alternative Strategies, Ltd.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,285727000.0,1300
+https://sec.gov/Archives/edgar/data/1569550/0001569550-23-000006.txt,1569550,"425 S FINANCIAL PLACE, 4TH FLOOR, Chicago, IL, 60605","CTC Alternative Strategies, Ltd.",2023-06-30,53261M,53261M104,EDGIO INC,7886000.0,11700
+https://sec.gov/Archives/edgar/data/1569550/0001569550-23-000006.txt,1569550,"425 S FINANCIAL PLACE, 4TH FLOOR, Chicago, IL, 60605","CTC Alternative Strategies, Ltd.",2023-06-30,654106,654106103,NIKE INC,259370000.0,2350
+https://sec.gov/Archives/edgar/data/1569550/0001569550-23-000006.txt,1569550,"425 S FINANCIAL PLACE, 4TH FLOOR, Chicago, IL, 60605","CTC Alternative Strategies, Ltd.",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,234024000.0,600
+https://sec.gov/Archives/edgar/data/1569550/0001569550-23-000006.txt,1569550,"425 S FINANCIAL PLACE, 4TH FLOOR, Chicago, IL, 60605","CTC Alternative Strategies, Ltd.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,705591000.0,4650
+https://sec.gov/Archives/edgar/data/1569550/0001569550-23-000006.txt,1569550,"425 S FINANCIAL PLACE, 4TH FLOOR, Chicago, IL, 60605","CTC Alternative Strategies, Ltd.",2023-06-30,832696,832696405,SMUCKER J M CO,295340000.0,2000
+https://sec.gov/Archives/edgar/data/1569550/0001569550-23-000006.txt,1569550,"425 S FINANCIAL PLACE, 4TH FLOOR, Chicago, IL, 60605","CTC Alternative Strategies, Ltd.",2023-06-30,871829,871829107,SYSCO CORP,474880000.0,6400
+https://sec.gov/Archives/edgar/data/1569550/0001569550-23-000006.txt,1569550,"425 S FINANCIAL PLACE, 4TH FLOOR, Chicago, IL, 60605","CTC Alternative Strategies, Ltd.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,255490000.0,2900
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+https://sec.gov/Archives/edgar/data/1569650/0000950123-23-006327.txt,1569650,"18000 CANTRELL ROAD, LITTLE ROCK, AR, 72223",BANK OZK,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1667986000.0,7589
+https://sec.gov/Archives/edgar/data/1569650/0000950123-23-006327.txt,1569650,"18000 CANTRELL ROAD, LITTLE ROCK, AR, 72223",BANK OZK,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,662520000.0,4000
+https://sec.gov/Archives/edgar/data/1569650/0000950123-23-006327.txt,1569650,"18000 CANTRELL ROAD, LITTLE ROCK, AR, 72223",BANK OZK,2023-06-30,31428X,31428X106,FEDEX CORP,453657000.0,1830
+https://sec.gov/Archives/edgar/data/1569650/0000950123-23-006327.txt,1569650,"18000 CANTRELL ROAD, LITTLE ROCK, AR, 72223",BANK OZK,2023-06-30,594918,594918104,MICROSOFT CORP,10967090000.0,32205
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+https://sec.gov/Archives/edgar/data/1569650/0000950123-23-006327.txt,1569650,"18000 CANTRELL ROAD, LITTLE ROCK, AR, 72223",BANK OZK,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3643580000.0,24012
+https://sec.gov/Archives/edgar/data/1569650/0000950123-23-006327.txt,1569650,"18000 CANTRELL ROAD, LITTLE ROCK, AR, 72223",BANK OZK,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2333151000.0,26483
+https://sec.gov/Archives/edgar/data/1569688/0001172661-23-003029.txt,1569688,"1000 5th Street, Suite 401, Miami, FL, 33139","Kerrisdale Advisers, LLC",2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,1053237000.0,19039
+https://sec.gov/Archives/edgar/data/1569688/0001172661-23-003029.txt,1569688,"1000 5th Street, Suite 401, Miami, FL, 33139","Kerrisdale Advisers, LLC",2023-06-30,127190,127190304,CACI INTL INC,2384517000.0,6996
+https://sec.gov/Archives/edgar/data/1569688/0001172661-23-003029.txt,1569688,"1000 5th Street, Suite 401, Miami, FL, 33139","Kerrisdale Advisers, LLC",2023-06-30,500643,500643200,KORN FERRY,4110631000.0,82976
+https://sec.gov/Archives/edgar/data/1569688/0001172661-23-003029.txt,1569688,"1000 5th Street, Suite 401, Miami, FL, 33139","Kerrisdale Advisers, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,6141884000.0,9554
+https://sec.gov/Archives/edgar/data/1569688/0001172661-23-003029.txt,1569688,"1000 5th Street, Suite 401, Miami, FL, 33139","Kerrisdale Advisers, LLC",2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,5279340000.0,192747
+https://sec.gov/Archives/edgar/data/1569688/0001172661-23-003029.txt,1569688,"1000 5th Street, Suite 401, Miami, FL, 33139","Kerrisdale Advisers, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,4844522000.0,14226
+https://sec.gov/Archives/edgar/data/1569688/0001172661-23-003029.txt,1569688,"1000 5th Street, Suite 401, Miami, FL, 33139","Kerrisdale Advisers, LLC",2023-06-30,871829,871829107,SYSCO CORP,19961284000.0,269020
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+https://sec.gov/Archives/edgar/data/1569709/0001011438-23-000515.txt,1569709,"50 BEALE ST, STE 2300, SAN FRANCISCO, CA, 94105","ICONIQ Capital, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,1416306000.0,4159
+https://sec.gov/Archives/edgar/data/1569740/0001569740-23-000003.txt,1569740,"800 THIRD AVENUE, NEW YORK, NY, 10022",Tinicum Inc,2023-06-30,489170,489170100,KENNAMETAL INC,96363000.0,3394268
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+https://sec.gov/Archives/edgar/data/1569758/0000945621-23-000408.txt,1569758,"24 PLACE VENDOME, PARIS, I0, 75001",Carmignac Gestion,2023-06-30,461202,461202103,INTUIT INC,5295638000.0,11567
+https://sec.gov/Archives/edgar/data/1569758/0000945621-23-000408.txt,1569758,"24 PLACE VENDOME, PARIS, I0, 75001",Carmignac Gestion,2023-06-30,518439,518439104,ESTEE LAUDER COMPANIES,10359319000.0,52888
+https://sec.gov/Archives/edgar/data/1569758/0000945621-23-000408.txt,1569758,"24 PLACE VENDOME, PARIS, I0, 75001",Carmignac Gestion,2023-06-30,594918,594918104,MICROSOFT CORP,428211480000.0,1257800
+https://sec.gov/Archives/edgar/data/1569758/0000945621-23-000408.txt,1569758,"24 PLACE VENDOME, PARIS, I0, 75001",Carmignac Gestion,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,97749951000.0,382622
+https://sec.gov/Archives/edgar/data/1569758/0000945621-23-000408.txt,1569758,"24 PLACE VENDOME, PARIS, I0, 75001",Carmignac Gestion,2023-06-30,704326,704326107,PAYCHEX INC,2549070000.0,22786
+https://sec.gov/Archives/edgar/data/1569758/0000945621-23-000408.txt,1569758,"24 PLACE VENDOME, PARIS, I0, 75001",Carmignac Gestion,2023-06-30,742718,742718109,PROCTER & GAMBLE CO/THE,19269874000.0,127392
+https://sec.gov/Archives/edgar/data/1569758/0000945621-23-000408.txt,1569758,"24 PLACE VENDOME, PARIS, I0, 75001",Carmignac Gestion,2023-06-30,761152,761152107,RESMED INC,5155442000.0,23639
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+https://sec.gov/Archives/edgar/data/1569765/0001085146-23-002629.txt,1569765,"999 18TH STREET, SUITE 1401, DENVER, CO, 80202",Paragon Capital Management Ltd,2023-06-30,370334,370334104,GENERAL MLS INC,275369000.0,3590
+https://sec.gov/Archives/edgar/data/1569765/0001085146-23-002629.txt,1569765,"999 18TH STREET, SUITE 1401, DENVER, CO, 80202",Paragon Capital Management Ltd,2023-06-30,594918,594918104,MICROSOFT CORP,24523943000.0,72014
+https://sec.gov/Archives/edgar/data/1569765/0001085146-23-002629.txt,1569765,"999 18TH STREET, SUITE 1401, DENVER, CO, 80202",Paragon Capital Management Ltd,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1361108000.0,8970
+https://sec.gov/Archives/edgar/data/1569765/0001085146-23-002629.txt,1569765,"999 18TH STREET, SUITE 1401, DENVER, CO, 80202",Paragon Capital Management Ltd,2023-06-30,871829,871829107,SYSCO CORP,258177000.0,3479
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+https://sec.gov/Archives/edgar/data/1569766/0001104659-23-083882.txt,1569766,"1700 Woodlands Drive, Suite 100, Maumee, OH, 43537","Camelot Portfolios, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,539049000.0,5700
+https://sec.gov/Archives/edgar/data/1569766/0001104659-23-083882.txt,1569766,"1700 Woodlands Drive, Suite 100, Maumee, OH, 43537","Camelot Portfolios, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,253053000.0,1591
+https://sec.gov/Archives/edgar/data/1569766/0001104659-23-083882.txt,1569766,"1700 Woodlands Drive, Suite 100, Maumee, OH, 43537","Camelot Portfolios, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,560073000.0,16610
+https://sec.gov/Archives/edgar/data/1569766/0001104659-23-083882.txt,1569766,"1700 Woodlands Drive, Suite 100, Maumee, OH, 43537","Camelot Portfolios, LLC",2023-06-30,482480,482480100,KLA CORP,524197000.0,1081
+https://sec.gov/Archives/edgar/data/1569766/0001104659-23-083882.txt,1569766,"1700 Woodlands Drive, Suite 100, Maumee, OH, 43537","Camelot Portfolios, LLC",2023-06-30,589378,589378108,MERCURY SYS INC,239849000.0,6934
+https://sec.gov/Archives/edgar/data/1569766/0001104659-23-083882.txt,1569766,"1700 Woodlands Drive, Suite 100, Maumee, OH, 43537","Camelot Portfolios, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,506689000.0,1488
+https://sec.gov/Archives/edgar/data/1569833/0001569833-23-000004.txt,1569833,"477 MADISON AVE, 6TH FLOOR, NEW YORK, NY, 10022","Rothschild Capital Partners, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,15621591000.0,45873
+https://sec.gov/Archives/edgar/data/1569884/0001951757-23-000504.txt,1569884,"25 BURLINGTON MALL ROAD, SUITE 404, BURLINGTON, MA, 01803","RPg Family Wealth Advisory, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,3228026000.0,28082
+https://sec.gov/Archives/edgar/data/1569884/0001951757-23-000504.txt,1569884,"25 BURLINGTON MALL ROAD, SUITE 404, BURLINGTON, MA, 01803","RPg Family Wealth Advisory, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,8545009000.0,25093
+https://sec.gov/Archives/edgar/data/1570253/0001570253-23-000003.txt,1570253,"SUITE 1008, LIVINGSTON PLACE, STH TOWER, 222 - 3RD AVENUE SW, CALGARY, A0, T2P 0B4",QV Investors Inc.,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,8784000.0,52572
+https://sec.gov/Archives/edgar/data/1570253/0001570253-23-000003.txt,1570253,"SUITE 1008, LIVINGSTON PLACE, STH TOWER, 222 - 3RD AVENUE SW, CALGARY, A0, T2P 0B4",QV Investors Inc.,2023-06-30,591520,591520200,METHOD ELECTRONICS INC,211000.0,6300
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,167149000.0,3185
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,023586,023586100,U HAUL HOLDING COMPANY,32749000.0,592
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,3465649000.0,15768
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,090043,090043100,BILL HOLDINGS INC,508414000.0,4351
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,580144000.0,7107
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,147528,147528103,CASEYS GEN STORES INC,528976000.0,2169
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,222070,222070203,COTY INC,1192000.0,97
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,205076000.0,16393
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,200963000.0,1201
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,461202,461202103,INTUIT,1733791000.0,3784
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,482480,482480100,KLA CORP,1817370000.0,3747
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,512807,512807108,LAM RESEARCH CORP,1289577000.0,2006
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+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,594918,594918104,MICROSOFT CORP,5942082000.0,17449
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,6479000.0,134
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,64110D,64110D104,NETAPP INC,226602000.0,2966
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,671044,671044105,OSI SYSTEMS INC,419475000.0,3560
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,66697000.0,171
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,704326,704326107,PAYCHEX INC,1618647000.0,14469
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,105551000.0,572
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,40319000.0,5243
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,42951000.0,713
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,74051N,74051N102,PREMIER INC,308215000.0,11143
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,2306903000.0,15203
+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,761152,761152107,RESMED INC,240787000.0,1102
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+https://sec.gov/Archives/edgar/data/1570271/0001570271-23-000004.txt,1570271,"444 W LAKE STREET, 4650, CHICAGO, IL, 60606",Headlands Technologies LLC,2023-06-30,871829,871829107,SYSCO CORP,56689000.0,764
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+https://sec.gov/Archives/edgar/data/1574947/0001172661-23-002593.txt,1574947,"17 Square Edouard VII, Paris, I0, 75009",COMGEST GLOBAL INVESTORS S.A.S.,2023-06-30,594918,594918104,MICROSOFT CORP,500110233000.0,1468580
+https://sec.gov/Archives/edgar/data/1574947/0001172661-23-002593.txt,1574947,"17 Square Edouard VII, Paris, I0, 75009",COMGEST GLOBAL INVESTORS S.A.S.,2023-06-30,654106,654106103,NIKE INC,103245506000.0,935449
+https://sec.gov/Archives/edgar/data/1574947/0001172661-23-002593.txt,1574947,"17 Square Edouard VII, Paris, I0, 75009",COMGEST GLOBAL INVESTORS S.A.S.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1876530000.0,21300
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,796079000.0,3622
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,115637,115637209,BROWN FORMAN CORP,619518000.0,9277
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,2444918000.0,25853
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,189054,189054109,CLOROX CO DEL,951854000.0,5985
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,35137L,35137L105,FOX CORP,2345082000.0,68973
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,2268423000.0,19734
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,1882499000.0,9586
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,594918,594918104,MICROSOFT CORP,7281086000.0,21381
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,64110D,64110D104,NETAPP INC,1295668000.0,16959
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1674442000.0,4293
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,703395,703395103,PATTERSON COS INC,960649000.0,28883
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,704326,704326107,PAYCHEX INC,3062665000.0,27377
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,291557000.0,1580
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,74051N,74051N102,PREMIER INC,694598000.0,25112
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,761152,761152107,RESMED INC,5666798000.0,25935
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,87157D,87157D109,SYNAPTICS INC,426388000.0,4994
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,871829,871829107,SYSCO CORP,618086000.0,8330
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,876030,876030107,TAPESTRY INC,793640000.0,18543
+https://sec.gov/Archives/edgar/data/1575129/0001172661-23-003108.txt,1575129,"4 Bryant Park, 4th Floor, New York, NY, 10018","SEVEN EIGHT CAPITAL, LP",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,997862000.0,26308
+https://sec.gov/Archives/edgar/data/1575151/0001575151-23-000006.txt,1575151,"750 MENLO AVENUE, SUITE 300, MENLO PARK, CA, 94025","TIEMANN INVESTMENT ADVISORS, LLC",2023-06-30,115637,115637209,BROWN FORMAN CORP,268894000.0,4026
+https://sec.gov/Archives/edgar/data/1575151/0001575151-23-000006.txt,1575151,"750 MENLO AVENUE, SUITE 300, MENLO PARK, CA, 94025","TIEMANN INVESTMENT ADVISORS, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,315864000.0,3340
+https://sec.gov/Archives/edgar/data/1575151/0001575151-23-000006.txt,1575151,"750 MENLO AVENUE, SUITE 300, MENLO PARK, CA, 94025","TIEMANN INVESTMENT ADVISORS, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,551975000.0,2226
+https://sec.gov/Archives/edgar/data/1575151/0001575151-23-000006.txt,1575151,"750 MENLO AVENUE, SUITE 300, MENLO PARK, CA, 94025","TIEMANN INVESTMENT ADVISORS, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,212076000.0,2765
+https://sec.gov/Archives/edgar/data/1575151/0001575151-23-000006.txt,1575151,"750 MENLO AVENUE, SUITE 300, MENLO PARK, CA, 94025","TIEMANN INVESTMENT ADVISORS, LLC",2023-06-30,461202,461202103,INTUIT,447193000.0,976
+https://sec.gov/Archives/edgar/data/1575151/0001575151-23-000006.txt,1575151,"750 MENLO AVENUE, SUITE 300, MENLO PARK, CA, 94025","TIEMANN INVESTMENT ADVISORS, LLC",2023-06-30,482480,482480100,KLA CORP,350184000.0,722
+https://sec.gov/Archives/edgar/data/1575151/0001575151-23-000006.txt,1575151,"750 MENLO AVENUE, SUITE 300, MENLO PARK, CA, 94025","TIEMANN INVESTMENT ADVISORS, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,10935080000.0,32111
+https://sec.gov/Archives/edgar/data/1575151/0001575151-23-000006.txt,1575151,"750 MENLO AVENUE, SUITE 300, MENLO PARK, CA, 94025","TIEMANN INVESTMENT ADVISORS, LLC",2023-06-30,654106,654106103,NIKE INC,357636000.0,3240
+https://sec.gov/Archives/edgar/data/1575151/0001575151-23-000006.txt,1575151,"750 MENLO AVENUE, SUITE 300, MENLO PARK, CA, 94025","TIEMANN INVESTMENT ADVISORS, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,247675000.0,635
+https://sec.gov/Archives/edgar/data/1575151/0001575151-23-000006.txt,1575151,"750 MENLO AVENUE, SUITE 300, MENLO PARK, CA, 94025","TIEMANN INVESTMENT ADVISORS, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,666948000.0,4395
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,4272559000.0,19439
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,115637,115637209,BROWN FORMAN CORP,281573000.0,4216
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,128030,128030202,CAL MAINE FOODS INC,462195000.0,10271
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,469724000.0,2953
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,1251082000.0,5047
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,2442985000.0,31851
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,461202,461202103,INTUIT,1044267000.0,2279
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,482480,482480100,KLA CORP,358970000.0,740
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,3171028000.0,4932
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,311103000.0,1584
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,54938098000.0,161327
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,654106,654106103,NIKE INC,8039679000.0,72843
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1428813000.0,5592
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,704326,704326107,PAYCHEX INC,348098000.0,3112
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,489431000.0,63645
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,10783376000.0,71065
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,761152,761152107,RESMED INC,6549064000.0,29973
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,900013000.0,6095
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,871829,871829107,SYSCO CORP,498841000.0,6723
+https://sec.gov/Archives/edgar/data/1575239/0001951757-23-000475.txt,1575239,"201 MISSION STREET, SUITE 1825, SAN FRANCISCO, CA, 94105","Perigon Wealth Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1118735000.0,12698
+https://sec.gov/Archives/edgar/data/1575301/0001580642-23-003650.txt,1575301,"7777 Washington Village Drive, Suite 280, Dayton, OH, 45459","Beacon Capital Management, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1401622000.0,9237
+https://sec.gov/Archives/edgar/data/1575581/0001085146-23-002821.txt,1575581,"3040 POST OAK BLVD., SUITE 1725, HOUSTON, TX, 77056","Segment Wealth Management, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,11525461000.0,52439
+https://sec.gov/Archives/edgar/data/1575581/0001085146-23-002821.txt,1575581,"3040 POST OAK BLVD., SUITE 1725, HOUSTON, TX, 77056","Segment Wealth Management, LLC",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,371674000.0,2244
+https://sec.gov/Archives/edgar/data/1575581/0001085146-23-002821.txt,1575581,"3040 POST OAK BLVD., SUITE 1725, HOUSTON, TX, 77056","Segment Wealth Management, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,209851000.0,2736
+https://sec.gov/Archives/edgar/data/1575581/0001085146-23-002821.txt,1575581,"3040 POST OAK BLVD., SUITE 1725, HOUSTON, TX, 77056","Segment Wealth Management, LLC",2023-06-30,461202,461202103,INTUIT,12509335000.0,27302
+https://sec.gov/Archives/edgar/data/1575581/0001085146-23-002821.txt,1575581,"3040 POST OAK BLVD., SUITE 1725, HOUSTON, TX, 77056","Segment Wealth Management, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,611360000.0,951
+https://sec.gov/Archives/edgar/data/1575581/0001085146-23-002821.txt,1575581,"3040 POST OAK BLVD., SUITE 1725, HOUSTON, TX, 77056","Segment Wealth Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,20966497000.0,61568
+https://sec.gov/Archives/edgar/data/1575581/0001085146-23-002821.txt,1575581,"3040 POST OAK BLVD., SUITE 1725, HOUSTON, TX, 77056","Segment Wealth Management, LLC",2023-06-30,654106,654106103,NIKE INC,9843756000.0,89189
+https://sec.gov/Archives/edgar/data/1575581/0001085146-23-002821.txt,1575581,"3040 POST OAK BLVD., SUITE 1725, HOUSTON, TX, 77056","Segment Wealth Management, LLC",2023-06-30,704326,704326107,PAYCHEX INC,430252000.0,3846
+https://sec.gov/Archives/edgar/data/1575581/0001085146-23-002821.txt,1575581,"3040 POST OAK BLVD., SUITE 1725, HOUSTON, TX, 77056","Segment Wealth Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,10715071000.0,70615
+https://sec.gov/Archives/edgar/data/1575581/0001085146-23-002821.txt,1575581,"3040 POST OAK BLVD., SUITE 1725, HOUSTON, TX, 77056","Segment Wealth Management, LLC",2023-06-30,871829,871829107,SYSCO CORP,428922000.0,5781
+https://sec.gov/Archives/edgar/data/1575581/0001085146-23-002821.txt,1575581,"3040 POST OAK BLVD., SUITE 1725, HOUSTON, TX, 77056","Segment Wealth Management, LLC",2023-06-30,911549,911549103,UNITED STATES ANTIMONY CORP,7962000.0,25300
+https://sec.gov/Archives/edgar/data/1575581/0001085146-23-002821.txt,1575581,"3040 POST OAK BLVD., SUITE 1725, HOUSTON, TX, 77056","Segment Wealth Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,346674000.0,3935
+https://sec.gov/Archives/edgar/data/1575677/0001575677-23-000004.txt,1575677,"OTTOPLATZ 1, COLOGNE, 2M, 50679",FLOSSBACH VON STORCH AG,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,10374528000.0,47202
+https://sec.gov/Archives/edgar/data/1575677/0001575677-23-000004.txt,1575677,"OTTOPLATZ 1, COLOGNE, 2M, 50679",FLOSSBACH VON STORCH AG,2023-06-30,461202,461202103,INTUIT,74235027000.0,162018
+https://sec.gov/Archives/edgar/data/1575677/0001575677-23-000004.txt,1575677,"OTTOPLATZ 1, COLOGNE, 2M, 50679",FLOSSBACH VON STORCH AG,2023-06-30,518439,518439104,ESTEE LAUDER,39238491000.0,199809
+https://sec.gov/Archives/edgar/data/1575677/0001575677-23-000004.txt,1575677,"OTTOPLATZ 1, COLOGNE, 2M, 50679",FLOSSBACH VON STORCH AG,2023-06-30,594918,594918104,MICROSOFT,1814425385000.0,5328083
+https://sec.gov/Archives/edgar/data/1575677/0001575677-23-000004.txt,1575677,"OTTOPLATZ 1, COLOGNE, 2M, 50679",FLOSSBACH VON STORCH AG,2023-06-30,654106,654106103,NIKE,85416447000.0,773910
+https://sec.gov/Archives/edgar/data/1575677/0001575677-23-000004.txt,1575677,"OTTOPLATZ 1, COLOGNE, 2M, 50679",FLOSSBACH VON STORCH AG,2023-06-30,742718,742718109,PROCTER & GAMBLE,602375783000.0,3969789
+https://sec.gov/Archives/edgar/data/1575677/0001575677-23-000004.txt,1575677,"OTTOPLATZ 1, COLOGNE, 2M, 50679",FLOSSBACH VON STORCH AG,2023-06-30,G5960L,G5960L103,MEDTRONIC,246207344000.0,2794635
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+https://sec.gov/Archives/edgar/data/1576053/0001085146-23-002714.txt,1576053,"67B MONROE AVE., PITTSFORD, NY, 14534","LVW Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,9395733000.0,27591
+https://sec.gov/Archives/edgar/data/1576053/0001085146-23-002714.txt,1576053,"67B MONROE AVE., PITTSFORD, NY, 14534","LVW Advisors, LLC",2023-06-30,654106,654106103,NIKE INC,379924000.0,3442
+https://sec.gov/Archives/edgar/data/1576053/0001085146-23-002714.txt,1576053,"67B MONROE AVE., PITTSFORD, NY, 14534","LVW Advisors, LLC",2023-06-30,704326,704326107,PAYCHEX INC,1761888000.0,15749
+https://sec.gov/Archives/edgar/data/1576053/0001085146-23-002714.txt,1576053,"67B MONROE AVE., PITTSFORD, NY, 14534","LVW Advisors, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,3186553000.0,21000
+https://sec.gov/Archives/edgar/data/1576053/0001085146-23-002714.txt,1576053,"67B MONROE AVE., PITTSFORD, NY, 14534","LVW Advisors, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,3249905000.0,22008
+https://sec.gov/Archives/edgar/data/1576053/0001085146-23-002714.txt,1576053,"67B MONROE AVE., PITTSFORD, NY, 14534","LVW Advisors, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2595867000.0,29465
+https://sec.gov/Archives/edgar/data/1576102/0001172661-23-002693.txt,1576102,"91 Main Street, Suite 118, Warren, RI, 02885","Blue Fin Capital, Inc.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,789548000.0,3592
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+https://sec.gov/Archives/edgar/data/1576102/0001172661-23-002693.txt,1576102,"91 Main Street, Suite 118, Warren, RI, 02885","Blue Fin Capital, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1598851000.0,10537
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+https://sec.gov/Archives/edgar/data/1578621/0001578621-23-000006.txt,1578621,"9TH FLOOR, DEVONSHIRE HOUSE, MAYFAIR PLACE, LONDON, X0, W1J 8AJ",LMR Partners LLP,2023-06-30,370334,370334104,GENERAL MLS INC,615518000.0,8025
+https://sec.gov/Archives/edgar/data/1578621/0001578621-23-000006.txt,1578621,"9TH FLOOR, DEVONSHIRE HOUSE, MAYFAIR PLACE, LONDON, X0, W1J 8AJ",LMR Partners LLP,2023-06-30,461202,461202103,INTUIT,916838000.0,2001
+https://sec.gov/Archives/edgar/data/1578621/0001578621-23-000006.txt,1578621,"9TH FLOOR, DEVONSHIRE HOUSE, MAYFAIR PLACE, LONDON, X0, W1J 8AJ",LMR Partners LLP,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,332550000.0,2893
+https://sec.gov/Archives/edgar/data/1578621/0001578621-23-000006.txt,1578621,"9TH FLOOR, DEVONSHIRE HOUSE, MAYFAIR PLACE, LONDON, X0, W1J 8AJ",LMR Partners LLP,2023-06-30,594918,594918104,MICROSOFT CORP,52784381000.0,155002
+https://sec.gov/Archives/edgar/data/1578621/0001578621-23-000006.txt,1578621,"9TH FLOOR, DEVONSHIRE HOUSE, MAYFAIR PLACE, LONDON, X0, W1J 8AJ",LMR Partners LLP,2023-06-30,704326,704326107,PAYCHEX INC,8400095000.0,75088
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+https://sec.gov/Archives/edgar/data/1578985/0001104659-23-089373.txt,1578985,"99 Yorkville Avenue, Suite 300, Toronto, A6, M5R 3K5",Cumberland Partners Ltd,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,602316000.0,6369
+https://sec.gov/Archives/edgar/data/1578985/0001104659-23-089373.txt,1578985,"99 Yorkville Avenue, Suite 300, Toronto, A6, M5R 3K5",Cumberland Partners Ltd,2023-06-30,594918,594918104,MICROSOFT CORP,60260256000.0,176955
+https://sec.gov/Archives/edgar/data/1578985/0001104659-23-089373.txt,1578985,"99 Yorkville Avenue, Suite 300, Toronto, A6, M5R 3K5",Cumberland Partners Ltd,2023-06-30,683715,683715106,OPEN TEXT CORP,769087000.0,18470
+https://sec.gov/Archives/edgar/data/1578985/0001104659-23-089373.txt,1578985,"99 Yorkville Avenue, Suite 300, Toronto, A6, M5R 3K5",Cumberland Partners Ltd,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,6613128000.0,16955
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+https://sec.gov/Archives/edgar/data/1579111/0001085146-23-002975.txt,1579111,"12701 FAIR LAKES CIRCLE, SUITE 220, FAIRFAX, VA, 22033",Wolf Group Capital Advisors,2023-06-30,594918,594918104,MICROSOFT CORP,1842826000.0,5541
+https://sec.gov/Archives/edgar/data/1579111/0001085146-23-002975.txt,1579111,"12701 FAIR LAKES CIRCLE, SUITE 220, FAIRFAX, VA, 22033",Wolf Group Capital Advisors,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1718293000.0,5271
+https://sec.gov/Archives/edgar/data/1579111/0001085146-23-002975.txt,1579111,"12701 FAIR LAKES CIRCLE, SUITE 220, FAIRFAX, VA, 22033",Wolf Group Capital Advisors,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1472711000.0,10230
+https://sec.gov/Archives/edgar/data/1579111/0001085146-23-002975.txt,1579111,"12701 FAIR LAKES CIRCLE, SUITE 220, FAIRFAX, VA, 22033",Wolf Group Capital Advisors,2023-06-30,871829,871829107,SYSCO CORP,1600165000.0,22449
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+https://sec.gov/Archives/edgar/data/1579254/0001085146-23-003405.txt,1579254,"16 Martin Street, Po Box 566, ESSEX, MA, 01929","East Coast Asset Management, LLC.",2023-06-30,189054,189054109,CLOROX CO DEL,314104000.0,1975
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+https://sec.gov/Archives/edgar/data/1579254/0001085146-23-003405.txt,1579254,"16 Martin Street, Po Box 566, ESSEX, MA, 01929","East Coast Asset Management, LLC.",2023-06-30,704326,704326107,PAYCHEX INC,1139172000.0,10183
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+https://sec.gov/Archives/edgar/data/1579254/0001085146-23-003405.txt,1579254,"16 Martin Street, Po Box 566, ESSEX, MA, 01929","East Coast Asset Management, LLC.",2023-06-30,871829,871829107,SYSCO CORP,1252788000.0,16883
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+https://sec.gov/Archives/edgar/data/1580212/0001085146-23-003323.txt,1580212,"100 BAYVIEW CIRCLE, SUITE 650, NEWPORT BEACH, CA, 92660","Strategic Global Advisors, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,2580802000.0,33648
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+https://sec.gov/Archives/edgar/data/1580677/0001085146-23-003448.txt,1580677,"33 WEST 60TH STREET, FLOOR 2, NEW YORK, NY, 10023","Sustainable Insight Capital Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,4919781000.0,14447
+https://sec.gov/Archives/edgar/data/1580677/0001085146-23-003448.txt,1580677,"33 WEST 60TH STREET, FLOOR 2, NEW YORK, NY, 10023","Sustainable Insight Capital Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1096018000.0,7223
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+https://sec.gov/Archives/edgar/data/1580830/0001085146-23-002771.txt,1580830,"18301 VON KARMAN AVE,, SUITE 900, IRVINE, CA, 92612","Alpha Cubed Investments, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,413079000.0,5386
+https://sec.gov/Archives/edgar/data/1580830/0001085146-23-002771.txt,1580830,"18301 VON KARMAN AVE,, SUITE 900, IRVINE, CA, 92612","Alpha Cubed Investments, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,95667909000.0,280930
+https://sec.gov/Archives/edgar/data/1580830/0001085146-23-002771.txt,1580830,"18301 VON KARMAN AVE,, SUITE 900, IRVINE, CA, 92612","Alpha Cubed Investments, LLC",2023-06-30,654106,654106103,NIKE INC,1936290000.0,17544
+https://sec.gov/Archives/edgar/data/1580830/0001085146-23-002771.txt,1580830,"18301 VON KARMAN AVE,, SUITE 900, IRVINE, CA, 92612","Alpha Cubed Investments, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,32355998000.0,126633
+https://sec.gov/Archives/edgar/data/1580830/0001085146-23-002771.txt,1580830,"18301 VON KARMAN AVE,, SUITE 900, IRVINE, CA, 92612","Alpha Cubed Investments, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1650267000.0,10876
+https://sec.gov/Archives/edgar/data/1580830/0001085146-23-002771.txt,1580830,"18301 VON KARMAN AVE,, SUITE 900, IRVINE, CA, 92612","Alpha Cubed Investments, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,7440397000.0,84454
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+https://sec.gov/Archives/edgar/data/1581298/0001581298-23-000003.txt,1581298,"11 BRIDGE SQ, NORTHFIELD, MN, 55057",Carlson Capital Management,2023-06-30,093671,093671105,BLOCK H & R INC,554538000.0,17400
+https://sec.gov/Archives/edgar/data/1581298/0001581298-23-000003.txt,1581298,"11 BRIDGE SQ, NORTHFIELD, MN, 55057",Carlson Capital Management,2023-06-30,285409,285409108,ELECTROMED INC,129955000.0,12134
+https://sec.gov/Archives/edgar/data/1581298/0001581298-23-000003.txt,1581298,"11 BRIDGE SQ, NORTHFIELD, MN, 55057",Carlson Capital Management,2023-06-30,370334,370334104,GENERAL MLS INC,588935000.0,7678
+https://sec.gov/Archives/edgar/data/1581298/0001581298-23-000003.txt,1581298,"11 BRIDGE SQ, NORTHFIELD, MN, 55057",Carlson Capital Management,2023-06-30,461202,461202103,INTUIT,233677000.0,510
+https://sec.gov/Archives/edgar/data/1581298/0001581298-23-000003.txt,1581298,"11 BRIDGE SQ, NORTHFIELD, MN, 55057",Carlson Capital Management,2023-06-30,512807,512807108,LAM RESEARCH CORP,228858000.0,356
+https://sec.gov/Archives/edgar/data/1581298/0001581298-23-000003.txt,1581298,"11 BRIDGE SQ, NORTHFIELD, MN, 55057",Carlson Capital Management,2023-06-30,594918,594918104,MICROSOFT CORP,11878236000.0,34881
+https://sec.gov/Archives/edgar/data/1581298/0001581298-23-000003.txt,1581298,"11 BRIDGE SQ, NORTHFIELD, MN, 55057",Carlson Capital Management,2023-06-30,654106,654106103,NIKE INC,422553000.0,3829
+https://sec.gov/Archives/edgar/data/1581298/0001581298-23-000003.txt,1581298,"11 BRIDGE SQ, NORTHFIELD, MN, 55057",Carlson Capital Management,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,495735000.0,3267
+https://sec.gov/Archives/edgar/data/1581465/0001581465-23-000003.txt,1581465,"20 ASH STREET, SUITE 330, CONSHOHOCKEN, PA, 19428",Addison Capital Co,2023-06-30,405217,405217100,Hain Celestial Group,178000.0,14272
+https://sec.gov/Archives/edgar/data/1581465/0001581465-23-000003.txt,1581465,"20 ASH STREET, SUITE 330, CONSHOHOCKEN, PA, 19428",Addison Capital Co,2023-06-30,594918,594918104,Microsoft Corp,4760000.0,13979
+https://sec.gov/Archives/edgar/data/1581465/0001581465-23-000003.txt,1581465,"20 ASH STREET, SUITE 330, CONSHOHOCKEN, PA, 19428",Addison Capital Co,2023-06-30,742718,742718109,Procter & Gamble,6577000.0,43347
+https://sec.gov/Archives/edgar/data/1581794/0001843303-23-000010.txt,1581794,"2700 S. SOUTHEAST BLVD. STE. 205, SPOKANE, WA, 99223","Northern Capital Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,1990769000.0,5846
+https://sec.gov/Archives/edgar/data/1581811/0001581811-23-000005.txt,1581811,"STRATTON HOUSE, 5 STRATTON STREET, LONDON, X0, W1J 8LA",Egerton Capital (UK) LLP,2023-06-30,482480,482480100,KLA CORP,92731459000.0,191191
+https://sec.gov/Archives/edgar/data/1581811/0001581811-23-000005.txt,1581811,"STRATTON HOUSE, 5 STRATTON STREET, LONDON, X0, W1J 8LA",Egerton Capital (UK) LLP,2023-06-30,594918,594918104,MICROSOFT CORP,546464879000.0,1604701
+https://sec.gov/Archives/edgar/data/1582090/0000902664-23-004438.txt,1582090,"250 West 55th Street, 34th Floor, New York, NY, 10019",Sachem Head Capital Management LP,2023-06-30,N14506,N14506104,ELASTIC N V,58528736000.0,912800
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+https://sec.gov/Archives/edgar/data/1582112/0001172661-23-002655.txt,1582112,"11905 Kingston Pike, Knoxville, TN, 37934","Rather & Kittrell, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,228065000.0,1503
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+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,09073M,09073M104,BIO-TECHNE CORP,1142820000.0,14000
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,978742000.0,5884
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,1402042000.0,14750
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,2101684000.0,13215
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,1489952000.0,44186
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,1004056000.0,4031
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,1527704000.0,19918
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,482480,482480100,KLA CORP,3916537000.0,8075
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,5403628000.0,8384
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,714530000.0,6216
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,513847,513847103,LANCASTER COLONY CORP,397153000.0,1975
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,25333961000.0,74393
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,654106,654106103,NIKE INC,544292000.0,4916
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,704326,704326107,PAYCHEX INC,6240063000.0,55780
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,6635603000.0,43730
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,749685,749685103,RPM INTL INC,1460356000.0,16275
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,1327665000.0,8991
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,871829,871829107,SYSCO CORP,224193000.0,3021
+https://sec.gov/Archives/edgar/data/1582151/0001582151-23-000004.txt,1582151,"720 FIFTH AVENUE SOUTH, SUITE 200, NAPLES, FL, 34102","NAPLES GLOBAL ADVISORS, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,6046981000.0,68118
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,3396226000.0,98900
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,00760J,00760J108,AEHR TEST SYS,2417250000.0,58600
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,008073,008073108,AEROVIRONMENT INC,5625400000.0,55000
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,47594112000.0,906900
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,17685401000.0,349031
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,029683,029683109,AMER SOFTWARE INC,723088000.0,68800
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,2764594000.0,36200
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,03062T,03062T105,AMERICAS CAR-MART INC,1307118000.0,13100
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,03475V,03475V101,ANGIODYNAMICS INC,880292000.0,84400
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,03676C,03676C100,ANTERIX INC,907919000.0,28650
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,03820C,03820C105,APPLIED INDL TECHNOLOGIES IN,12180203000.0,84100
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,042744,042744102,ARROW FINL CORP,718092000.0,35655
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,328893756000.0,1496400
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,05368M,05368M106,AVID BIOSERVICES INC,1902714000.0,136200
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,053807,053807103,AVNET INC,10039550000.0,199000
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,05465C,05465C100,AXOS FINANCIAL INC,4634200000.0,117500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,090043,090043100,BILL HOLDINGS INC,40371675000.0,345500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,46357677000.0,567900
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,093671,093671105,BLOCK H & R INC,10564905000.0,331500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,70392750000.0,425000
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,115637,115637209,BROWN FORMAN CORP,74761412000.0,1119518
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,127190,127190304,CACI INTL INC,17451008000.0,51200
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,128030,128030202,CAL MAINE FOODS INC,4108500000.0,91300
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,87997385000.0,930500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,5927328000.0,105600
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,147528,147528103,CASEYS GEN STORES INC,19799886000.0,81187
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,189054,189054109,CLOROX CO DEL,70947744000.0,446100
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,205887,205887102,CONAGRA BRANDS INC,58079733000.0,1722412
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,222070,222070203,COTY INC,10265849000.0,835301
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,72963836000.0,436700
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,1394204000.0,49300
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,31428X,31428X106,FEDEX CORP,213813750000.0,862500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,35137L,35137L105,FOX CORP,36449156000.0,1072034
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,36251C,36251C103,GMS INC,5293800000.0,76500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,370334,370334104,GENERAL MLS INC,162703710000.0,2121300
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,405217,405217100,HAIN CELESTIAL GROUP INC,2435872000.0,194714
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,44091455000.0,263500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,461202,461202103,INTUIT,464238108000.0,1013200
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,482480,482480100,KLA CORP,242607004000.0,500200
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,489170,489170100,KENNAMETAL INC,4726935000.0,166500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,1489257000.0,53900
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,500643,500643200,KORN FERRY,5652514000.0,114100
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,505336,505336107,LA Z BOY INC,2689296000.0,93900
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,512807,512807108,LAM RESEARCH CORP,313329964000.0,487400
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,60475195000.0,526100
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,513847,513847103,LANCASTER COLONY CORP,8451008000.0,42026
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,164330784000.0,836800
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,8459294000.0,149115
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,55825T,55825T103,MADISON SQUARE GRDN SPRT COR,6343491000.0,33733
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,1472459000.0,53759
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,56117J,56117J100,MALIBU BOATS INC,2616236000.0,44600
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,1127920000.0,36800
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,589378,589378108,MERCURY SYS INC,3936342000.0,113800
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,591520,591520200,METHOD ELECTRS INC,2627968000.0,78400
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,594918,594918104,MICROSOFT CORP,8697483546000.0,25540270
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,600544,600544100,MILLERKNOLL INC,2433557000.0,164652
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,606710,606710200,MITEK SYS INC,1044976000.0,96400
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,635017,635017106,NATIONAL BEVERAGE CORP,2456180000.0,50800
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,640491,640491106,NEOGEN CORP,9727405000.0,447237
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,64110D,64110D104,NETAPP INC,59011360000.0,772400
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,65249B,65249B109,NEWS CORP NEW,26813963000.0,1375075
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,654106,654106103,NIKE INC,491135463000.0,4449900
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,671044,671044105,OSI SYSTEMS INC,4112267000.0,34900
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,683715,683715106,OPEN TEXT CORP,42379491000.0,1017800
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,279272430000.0,1093000
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,180666528000.0,463200
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,703395,703395103,PATTERSON COS INC,6369290000.0,191500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,704326,704326107,PAYCHEX INC,131089266000.0,1171800
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,27873257000.0,151050
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,5203054000.0,676600
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,20479190000.0,339960
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP,601430000.0,43900
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,74051N,74051N102,PREMIER INC,7158740000.0,258812
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1292883979000.0,8520390
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,74874Q,74874Q100,QUINSTREET INC,971300000.0,110000
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,749685,749685103,RPM INTL INC,41769315000.0,465500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,761152,761152107,RESMED INC,115914250000.0,530500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,1087132000.0,69200
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,806037,806037107,SCANSOURCE INC,1631712000.0,55200
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,807066,807066105,SCHOLASTIC CORP,2391735000.0,61500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,817070,817070501,SENECA FOODS CORP NEW,375820000.0,11500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,1302044000.0,99850
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,832696,832696405,SMUCKER J M CO,56867717000.0,385100
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,854231,854231107,STANDEX INTL CORP,3678220000.0,26000
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,86333M,86333M108,STRIDE INC,3320916000.0,89200
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,25747525000.0,103300
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,87157D,87157D109,SYNAPTICS INC,7325604000.0,85800
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,871829,871829107,SYSCO CORP,136023440000.0,1833200
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,876030,876030107,TAPESTRY INC,21999200000.0,514000
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,2233823000.0,1431938
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,5535838000.0,488600
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,43737349000.0,1153107
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,968223,968223206,WILEY JOHN & SONS INC,3256671000.0,95700
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,991674000.0,7400
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,981811,981811102,WORTHINGTON INDS INC,4897635000.0,70500
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,G2143T,G2143T103,CIMPRESS PLC,2212656000.0,37200
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,G3323L,G3323L100,FABRINET,10356631000.0,79740
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,423317505000.0,4804966
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,1679360000.0,51200
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,N14506,N14506104,ELASTIC N V,10778572000.0,168100
+https://sec.gov/Archives/edgar/data/1582202/0001582202-23-000006.txt,1582202,"BOERSENSTRASSE 15, P.O. BOX 2800, ZURICH, V8, CH-8022",Swiss National Bank,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,1802810000.0,70285
+https://sec.gov/Archives/edgar/data/1582384/0001387131-23-009698.txt,1582384,"888 Seventh Avenue, 37th Floor, New York, NY, 10106","Wildcat Capital Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,25540500000.0,75000
+https://sec.gov/Archives/edgar/data/1582561/0001104659-23-081964.txt,1582561,"167 S. Main St., Thiensville, WI, 53092",Blackhawk Capital Partners LLC.,2023-06-30,31428X,31428X106,FEDEX CORP,1187937000.0,4792
+https://sec.gov/Archives/edgar/data/1582561/0001104659-23-081964.txt,1582561,"167 S. Main St., Thiensville, WI, 53092",Blackhawk Capital Partners LLC.,2023-06-30,482480,482480100,KLA CORP,1678654000.0,3461
+https://sec.gov/Archives/edgar/data/1582561/0001104659-23-081964.txt,1582561,"167 S. Main St., Thiensville, WI, 53092",Blackhawk Capital Partners LLC.,2023-06-30,594918,594918104,MICROSOFT CORP,3633221000.0,10669
+https://sec.gov/Archives/edgar/data/1582561/0001104659-23-081964.txt,1582561,"167 S. Main St., Thiensville, WI, 53092",Blackhawk Capital Partners LLC.,2023-06-30,654106,654106103,NIKE INC,3084290000.0,27945
+https://sec.gov/Archives/edgar/data/1582561/0001104659-23-081964.txt,1582561,"167 S. Main St., Thiensville, WI, 53092",Blackhawk Capital Partners LLC.,2023-06-30,832696,832696405,SMUCKER J M CO,1138831000.0,7712
+https://sec.gov/Archives/edgar/data/1582561/0001104659-23-081964.txt,1582561,"167 S. Main St., Thiensville, WI, 53092",Blackhawk Capital Partners LLC.,2023-06-30,871829,871829107,SYSCO CORP,1229717000.0,16573
+https://sec.gov/Archives/edgar/data/1582561/0001104659-23-081964.txt,1582561,"167 S. Main St., Thiensville, WI, 53092",Blackhawk Capital Partners LLC.,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,2418519000.0,27452
+https://sec.gov/Archives/edgar/data/1582633/0000950123-23-007180.txt,1582633,"Exchange Place 3, 3 Semple Street, Edinburgh, X0, EH3 8BL",Kiltearn Partners LLP,2023-06-30,31428X,31428X106,FEDEX CORP,47051420000.0,189800
+https://sec.gov/Archives/edgar/data/1582633/0000950123-23-007180.txt,1582633,"Exchange Place 3, 3 Semple Street, Edinburgh, X0, EH3 8BL",Kiltearn Partners LLP,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,21980950000.0,249500
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,320233000.0,6102
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,13149157000.0,59826
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,053807,053807103,AVNET INC,2527545000.0,50100
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,093671,093671105,BLOCK H & R INC,2339258000.0,73400
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,3384152000.0,20432
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,115637,115637209,BROWN FORMAN CORP,6544841000.0,98006
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,127190,127190304,CACI INTL INC,71917000.0,211
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,147528,147528103,CASEYS GEN STORES INC,25120000.0,103
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,995463000.0,5958
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,31428X,31428X106,FEDEX CORP,0.0,0
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,370334,370334104,GENERAL MLS INC,2277454000.0,29693
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,621464000.0,3714
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,594918,594918104,MICROSOFT CORP,5856266000.0,17197
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,64110D,64110D104,NETAPP INC,4907554000.0,64235
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,704326,704326107,PAYCHEX INC,5551437000.0,49624
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,74051N,74051N102,PREMIER INC,4485069000.0,162150
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,14453235000.0,95250
+https://sec.gov/Archives/edgar/data/1582681/0001582681-23-000003.txt,1582681,"801 WEST 10TH STREET, SUITE 302, JUNEAU, AK, 99801",Alaska Permanent Fund Corp,2023-06-30,832696,832696405,SMUCKER J M CO,2595891000.0,17579
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+https://sec.gov/Archives/edgar/data/1582732/0001582732-23-000005.txt,1582732,"10 GLENLAKE PARKWAY, NORTH TOWER SUITE 1000, ATLANTA, GA, 30328","Capital Investment Advisors, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,386690000.0,2431
+https://sec.gov/Archives/edgar/data/1582732/0001582732-23-000005.txt,1582732,"10 GLENLAKE PARKWAY, NORTH TOWER SUITE 1000, ATLANTA, GA, 30328","Capital Investment Advisors, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,2035013000.0,60350
+https://sec.gov/Archives/edgar/data/1582732/0001582732-23-000005.txt,1582732,"10 GLENLAKE PARKWAY, NORTH TOWER SUITE 1000, ATLANTA, GA, 30328","Capital Investment Advisors, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,275818000.0,1113
+https://sec.gov/Archives/edgar/data/1582732/0001582732-23-000005.txt,1582732,"10 GLENLAKE PARKWAY, NORTH TOWER SUITE 1000, ATLANTA, GA, 30328","Capital Investment Advisors, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,2049564000.0,26722
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+https://sec.gov/Archives/edgar/data/1582732/0001582732-23-000005.txt,1582732,"10 GLENLAKE PARKWAY, NORTH TOWER SUITE 1000, ATLANTA, GA, 30328","Capital Investment Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,58386946000.0,171454
+https://sec.gov/Archives/edgar/data/1582732/0001582732-23-000005.txt,1582732,"10 GLENLAKE PARKWAY, NORTH TOWER SUITE 1000, ATLANTA, GA, 30328","Capital Investment Advisors, LLC",2023-06-30,654106,654106103,NIKE INC,1965244000.0,17806
+https://sec.gov/Archives/edgar/data/1582732/0001582732-23-000005.txt,1582732,"10 GLENLAKE PARKWAY, NORTH TOWER SUITE 1000, ATLANTA, GA, 30328","Capital Investment Advisors, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,367423000.0,1438
+https://sec.gov/Archives/edgar/data/1582732/0001582732-23-000005.txt,1582732,"10 GLENLAKE PARKWAY, NORTH TOWER SUITE 1000, ATLANTA, GA, 30328","Capital Investment Advisors, LLC",2023-06-30,704326,704326107,PAYCHEX INC,717273000.0,6412
+https://sec.gov/Archives/edgar/data/1582732/0001582732-23-000005.txt,1582732,"10 GLENLAKE PARKWAY, NORTH TOWER SUITE 1000, ATLANTA, GA, 30328","Capital Investment Advisors, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,41120625000.0,270994
+https://sec.gov/Archives/edgar/data/1582732/0001582732-23-000005.txt,1582732,"10 GLENLAKE PARKWAY, NORTH TOWER SUITE 1000, ATLANTA, GA, 30328","Capital Investment Advisors, LLC",2023-06-30,871829,871829107,SYSCO CORP,972138000.0,13102
+https://sec.gov/Archives/edgar/data/1582732/0001582732-23-000005.txt,1582732,"10 GLENLAKE PARKWAY, NORTH TOWER SUITE 1000, ATLANTA, GA, 30328","Capital Investment Advisors, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1354818000.0,15378
+https://sec.gov/Archives/edgar/data/1582968/0001582968-23-000007.txt,1582968,"824 E STREET, SAN RAFAEL, CA, 94901","Polaris Wealth Advisory Group, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,16157779000.0,65179
+https://sec.gov/Archives/edgar/data/1582968/0001582968-23-000007.txt,1582968,"824 E STREET, SAN RAFAEL, CA, 94901","Polaris Wealth Advisory Group, LLC",2023-06-30,482480,482480100,KLA CORP,5344544000.0,11019
+https://sec.gov/Archives/edgar/data/1582968/0001582968-23-000007.txt,1582968,"824 E STREET, SAN RAFAEL, CA, 94901","Polaris Wealth Advisory Group, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,32806794000.0,96338
+https://sec.gov/Archives/edgar/data/1582968/0001582968-23-000007.txt,1582968,"824 E STREET, SAN RAFAEL, CA, 94901","Polaris Wealth Advisory Group, LLC",2023-06-30,654106,654106103,NIKE INC,5043491000.0,45696
+https://sec.gov/Archives/edgar/data/1582968/0001582968-23-000007.txt,1582968,"824 E STREET, SAN RAFAEL, CA, 94901","Polaris Wealth Advisory Group, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,26252470000.0,173010
+https://sec.gov/Archives/edgar/data/1582968/0001582968-23-000007.txt,1582968,"824 E STREET, SAN RAFAEL, CA, 94901","Polaris Wealth Advisory Group, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,6519224000.0,73998
+https://sec.gov/Archives/edgar/data/1583672/0001583672-23-000003.txt,1583672,"3403 GLOUCESTER TOWER, THE LANDMARK, 15 QUEEN'S ROAD CENTRAL, HONG KONG, K3, NOT APPLIC",Central Asset Investments & Management Holdings (HK) Ltd,2023-06-30,594918,594918104,MICROSOFT CORP,18373155000.0,53953
+https://sec.gov/Archives/edgar/data/1583672/0001583672-23-000003.txt,1583672,"3403 GLOUCESTER TOWER, THE LANDMARK, 15 QUEEN'S ROAD CENTRAL, HONG KONG, K3, NOT APPLIC",Central Asset Investments & Management Holdings (HK) Ltd,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,3419746000.0,13384
+https://sec.gov/Archives/edgar/data/1583751/0001583751-23-000005.txt,1583751,"4011 E Sunrise Dr, Tucson, AZ, 85718","TCI Wealth Advisors, Inc.",2023-06-30,018802,018802108,ALLIANT ENERGY CORP,201419000.0,3838
+https://sec.gov/Archives/edgar/data/1583751/0001583751-23-000005.txt,1583751,"4011 E Sunrise Dr, Tucson, AZ, 85718","TCI Wealth Advisors, Inc.",2023-06-30,189054,189054109,CLOROX CO DEL,3072176000.0,19317
+https://sec.gov/Archives/edgar/data/1583751/0001583751-23-000005.txt,1583751,"4011 E Sunrise Dr, Tucson, AZ, 85718","TCI Wealth Advisors, Inc.",2023-06-30,31428X,31428X106,FEDEX CORP,463821000.0,1871
+https://sec.gov/Archives/edgar/data/1583751/0001583751-23-000005.txt,1583751,"4011 E Sunrise Dr, Tucson, AZ, 85718","TCI Wealth Advisors, Inc.",2023-06-30,370334,370334104,GENERAL MLS INC,200468000.0,2614
+https://sec.gov/Archives/edgar/data/1583751/0001583751-23-000005.txt,1583751,"4011 E Sunrise Dr, Tucson, AZ, 85718","TCI Wealth Advisors, Inc.",2023-06-30,461202,461202103,INTUIT,335396000.0,732
+https://sec.gov/Archives/edgar/data/1583751/0001583751-23-000005.txt,1583751,"4011 E Sunrise Dr, Tucson, AZ, 85718","TCI Wealth Advisors, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,11057382000.0,32470
+https://sec.gov/Archives/edgar/data/1583751/0001583751-23-000005.txt,1583751,"4011 E Sunrise Dr, Tucson, AZ, 85718","TCI Wealth Advisors, Inc.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1937725000.0,12770
+https://sec.gov/Archives/edgar/data/1583751/0001583751-23-000005.txt,1583751,"4011 E Sunrise Dr, Tucson, AZ, 85718","TCI Wealth Advisors, Inc.",2023-06-30,871829,871829107,SYSCO CORP,257845000.0,3475
+https://sec.gov/Archives/edgar/data/1583751/0001583751-23-000005.txt,1583751,"4011 E Sunrise Dr, Tucson, AZ, 85718","TCI Wealth Advisors, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,513300000.0,5826
+https://sec.gov/Archives/edgar/data/1584086/0001584086-23-000003.txt,1584086,"8044 MONTGOMERY ROAD, SUITE 640, CINCINNATI, OH, 45236","Horan Capital Advisors, LLC.",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,3389743000.0,15423
+https://sec.gov/Archives/edgar/data/1584086/0001584086-23-000003.txt,1584086,"8044 MONTGOMERY ROAD, SUITE 640, CINCINNATI, OH, 45236","Horan Capital Advisors, LLC.",2023-06-30,461202,461202103,INTUIT,404582000.0,883
+https://sec.gov/Archives/edgar/data/1584086/0001584086-23-000003.txt,1584086,"8044 MONTGOMERY ROAD, SUITE 640, CINCINNATI, OH, 45236","Horan Capital Advisors, LLC.",2023-06-30,594918,594918104,MICROSOFT CORP,14274863000.0,41918
+https://sec.gov/Archives/edgar/data/1584086/0001584086-23-000003.txt,1584086,"8044 MONTGOMERY ROAD, SUITE 640, CINCINNATI, OH, 45236","Horan Capital Advisors, LLC.",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,4044224000.0,26652
+https://sec.gov/Archives/edgar/data/1584086/0001584086-23-000003.txt,1584086,"8044 MONTGOMERY ROAD, SUITE 640, CINCINNATI, OH, 45236","Horan Capital Advisors, LLC.",2023-06-30,871829,871829107,SYSCO CORP,2627170000.0,35407
+https://sec.gov/Archives/edgar/data/1584086/0001584086-23-000003.txt,1584086,"8044 MONTGOMERY ROAD, SUITE 640, CINCINNATI, OH, 45236","Horan Capital Advisors, LLC.",2023-06-30,981811,981811102,WORTHINGTON INDS INC,208410000.0,3000
+https://sec.gov/Archives/edgar/data/1584087/0001584087-23-000007.txt,1584087,"309 N WATER ST, SUITE 210, MILWAUKEE, WI, 53202",1492 Capital Management LLC,2023-06-30,00175J,00175J107,AMMO INC,223224000.0,104800
+https://sec.gov/Archives/edgar/data/1584087/0001584087-23-000007.txt,1584087,"309 N WATER ST, SUITE 210, MILWAUKEE, WI, 53202",1492 Capital Management LLC,2023-06-30,127190,127190304,CACI INTL INC,2505515000.0,7351
+https://sec.gov/Archives/edgar/data/1584087/0001584087-23-000007.txt,1584087,"309 N WATER ST, SUITE 210, MILWAUKEE, WI, 53202",1492 Capital Management LLC,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,4907165000.0,87425
+https://sec.gov/Archives/edgar/data/1584087/0001584087-23-000007.txt,1584087,"309 N WATER ST, SUITE 210, MILWAUKEE, WI, 53202",1492 Capital Management LLC,2023-06-30,594918,594918104,MICROSOFT CORP,304783000.0,895
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,474000.0,9024
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,3259000.0,14830
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,461000.0,5652
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,701000.0,4235
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,115637,115637209,BROWN FORMAN CORP,438000.0,6566
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,864000.0,9139
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,189054,189054109,CLOROX CO DEL,706000.0,4438
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,205887,205887102,CONAGRA BRANDS INC,577000.0,17120
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,725000.0,4341
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,31428X,31428X106,FEDEX CORP,2058000.0,8301
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,35137L,35137L105,FOX CORP,328000.0,9658
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,370334,370334104,GENERAL MLS INC,1617000.0,21085
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,438000.0,2616
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,461202,461202103,INTUIT,4614000.0,10071
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,482480,482480100,KLA CORP,2389000.0,4925
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,512807,512807108,LAM RESEARCH CORP,3100000.0,4822
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,601000.0,5230
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,1635000.0,8324
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,594918,594918104,MICROSOFT CORP,90895000.0,266915
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,64110D,64110D104,NETAPP INC,587000.0,7679
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,65249B,65249B109,NEWS CORP NEW,267000.0,13675
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,654106,654106103,NIKE INC,4882000.0,44229
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,2776000.0,10863
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1796000.0,4605
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,704326,704326107,PAYCHEX INC,1289000.0,11518
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,12839000.0,84609
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,761152,761152107,RESMED INC,1152000.0,5274
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,832696,832696405,SMUCKER J M CO,565000.0,3828
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,871829,871829107,SYSCO CORP,1350000.0,18189
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,876030,876030107,TAPESTRY INC,356000.0,8321
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,436000.0,11485
+https://sec.gov/Archives/edgar/data/1584686/0001584686-23-000003.txt,1584686,"1260 LOUISVILLE ROAD, FRANKFORT, KY, 40601",Kentucky Retirement Systems Insurance Trust Fund,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,4208000.0,47759
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+https://sec.gov/Archives/edgar/data/1584801/0001584801-23-000004.txt,1584801,"3207 RANCH ROAD 620 SOUTH, SUITE 200, AUSTIN, TX, 78738","YCG, LLC",2023-06-30,518439,518439104,Lauder Estee Cos Inc,31163534000.0,158690
+https://sec.gov/Archives/edgar/data/1584801/0001584801-23-000004.txt,1584801,"3207 RANCH ROAD 620 SOUTH, SUITE 200, AUSTIN, TX, 78738","YCG, LLC",2023-06-30,594918,594918104,Microsoft Corp,83865488000.0,246272
+https://sec.gov/Archives/edgar/data/1584801/0001584801-23-000004.txt,1584801,"3207 RANCH ROAD 620 SOUTH, SUITE 200, AUSTIN, TX, 78738","YCG, LLC",2023-06-30,654106,654106103,Nike Inc,34144993000.0,309368
+https://sec.gov/Archives/edgar/data/1584801/0001584801-23-000004.txt,1584801,"3207 RANCH ROAD 620 SOUTH, SUITE 200, AUSTIN, TX, 78738","YCG, LLC",2023-06-30,742718,742718109,Procter and Gamble Co,17939929000.0,118228
+https://sec.gov/Archives/edgar/data/1585047/0001585047-23-000003.txt,1585047,"924 NORTH MAIN STREET, SUITE 1, ANN ARBOR, MI, 48104",Columbia Asset Management,2023-06-30,053015,053015103,Auto Data Processing,396000.0,1804
+https://sec.gov/Archives/edgar/data/1585047/0001585047-23-000003.txt,1585047,"924 NORTH MAIN STREET, SUITE 1, ANN ARBOR, MI, 48104",Columbia Asset Management,2023-06-30,189054,189054109,Clorox Company,489000.0,3075
+https://sec.gov/Archives/edgar/data/1585047/0001585047-23-000003.txt,1585047,"924 NORTH MAIN STREET, SUITE 1, ANN ARBOR, MI, 48104",Columbia Asset Management,2023-06-30,31428X,31428X106,F D X Corporation,654000.0,2639
+https://sec.gov/Archives/edgar/data/1585047/0001585047-23-000003.txt,1585047,"924 NORTH MAIN STREET, SUITE 1, ANN ARBOR, MI, 48104",Columbia Asset Management,2023-06-30,370334,370334104,General Mills Inc,2066000.0,26930
+https://sec.gov/Archives/edgar/data/1585047/0001585047-23-000003.txt,1585047,"924 NORTH MAIN STREET, SUITE 1, ANN ARBOR, MI, 48104",Columbia Asset Management,2023-06-30,461202,461202103,Intuit Inc,275000.0,600
+https://sec.gov/Archives/edgar/data/1585047/0001585047-23-000003.txt,1585047,"924 NORTH MAIN STREET, SUITE 1, ANN ARBOR, MI, 48104",Columbia Asset Management,2023-06-30,512807,512807108,Lam Research Corporation,765000.0,1190
+https://sec.gov/Archives/edgar/data/1585047/0001585047-23-000003.txt,1585047,"924 NORTH MAIN STREET, SUITE 1, ANN ARBOR, MI, 48104",Columbia Asset Management,2023-06-30,594918,594918104,Microsoft Corp,33888000.0,99513
+https://sec.gov/Archives/edgar/data/1585047/0001585047-23-000003.txt,1585047,"924 NORTH MAIN STREET, SUITE 1, ANN ARBOR, MI, 48104",Columbia Asset Management,2023-06-30,654106,654106103,Nike Inc Class B,9339000.0,84611
+https://sec.gov/Archives/edgar/data/1585047/0001585047-23-000003.txt,1585047,"924 NORTH MAIN STREET, SUITE 1, ANN ARBOR, MI, 48104",Columbia Asset Management,2023-06-30,742718,742718109,Procter & Gamble Co,7161000.0,47191
+https://sec.gov/Archives/edgar/data/1585047/0001585047-23-000003.txt,1585047,"924 NORTH MAIN STREET, SUITE 1, ANN ARBOR, MI, 48104",Columbia Asset Management,2023-06-30,871829,871829107,Sysco Corporation,281000.0,3788
+https://sec.gov/Archives/edgar/data/1585550/0001062993-23-014780.txt,1585550,"2040 BANCROFT WAY, SUITE 300, BERKELEY, CA, 94704",Parkside Advisors LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,263925000.0,1194
+https://sec.gov/Archives/edgar/data/1585550/0001062993-23-014780.txt,1585550,"2040 BANCROFT WAY, SUITE 300, BERKELEY, CA, 94704",Parkside Advisors LLC,2023-06-30,594918,594918104,MICROSOFT CORP,2372958000.0,6968
+https://sec.gov/Archives/edgar/data/1585550/0001062993-23-014780.txt,1585550,"2040 BANCROFT WAY, SUITE 300, BERKELEY, CA, 94704",Parkside Advisors LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,850345000.0,5604
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+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING INC,2000.0,11
+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,189054,189054109,CLOROX COMPANY,3000.0,21
+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,35000.0,142
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+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,154000.0,239
+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,15446000.0,45359
+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,654106,654106103,NIKE INC CL B,1532000.0,13884
+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,8000.0,33
+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,704326,704326107,PAYCHEX INC,8000.0,69
+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC CL A,2000.0,200
+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,742718,742718109,PROCTER & GAMBLE CO,866000.0,5708
+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,4000.0,288
+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,832696,832696405,SMUCKER JM COMPANY NEW,3000.0,20
+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,871829,871829107,SYSCO CORP,3000.0,46
+https://sec.gov/Archives/edgar/data/1585822/0001580642-23-004115.txt,1585822,"424 E Wisconsin Avenue, Appleton, WI, 54911","Winch Advisory Services, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,834000.0,9465
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+https://sec.gov/Archives/edgar/data/1585828/0001172661-23-002629.txt,1585828,"111 Founders Plaza, Suite 1500, East Hartford, CT, 06108","FOUNDERS CAPITAL MANAGEMENT, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,18019107000.0,72687
+https://sec.gov/Archives/edgar/data/1585828/0001172661-23-002629.txt,1585828,"111 Founders Plaza, Suite 1500, East Hartford, CT, 06108","FOUNDERS CAPITAL MANAGEMENT, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,613293000.0,7996
+https://sec.gov/Archives/edgar/data/1585828/0001172661-23-002629.txt,1585828,"111 Founders Plaza, Suite 1500, East Hartford, CT, 06108","FOUNDERS CAPITAL MANAGEMENT, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,42727554000.0,125470
+https://sec.gov/Archives/edgar/data/1585828/0001172661-23-002629.txt,1585828,"111 Founders Plaza, Suite 1500, East Hartford, CT, 06108","FOUNDERS CAPITAL MANAGEMENT, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,969467000.0,6389
+https://sec.gov/Archives/edgar/data/1585828/0001172661-23-002629.txt,1585828,"111 Founders Plaza, Suite 1500, East Hartford, CT, 06108","FOUNDERS CAPITAL MANAGEMENT, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,928697000.0,6289
+https://sec.gov/Archives/edgar/data/1585828/0001172661-23-002629.txt,1585828,"111 Founders Plaza, Suite 1500, East Hartford, CT, 06108","FOUNDERS CAPITAL MANAGEMENT, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,720306000.0,8176
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+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,115637,115637209,BROWN FORMAN CORP,337573000.0,5055
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,327267000.0,3461
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,1390073000.0,41224
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,4951785000.0,19975
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,461202,461202103,INTUIT,1472233000.0,3213
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,482480,482480100,KLA CORP,228879000.0,472
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,429508000.0,668
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,931555000.0,8104
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,91956040000.0,270030
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,64110D,64110D104,NETAPP INC,390019000.0,5105
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,654106,654106103,NIKE INC,1371220000.0,12424
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1190166000.0,4658
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,229344000.0,588
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,704326,704326107,PAYCHEX INC,829069000.0,7411
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,4366199000.0,28774
+https://sec.gov/Archives/edgar/data/1585859/0001951757-23-000342.txt,1585859,"11300 WEST OLYMPIC BLVD, SUITE 800, LOS ANGELES, CA, 90064","Miracle Mile Advisors, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,225777000.0,1529
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+https://sec.gov/Archives/edgar/data/1586052/0001062993-23-015961.txt,1586052,"11 BALMVILLE RD, SUITE 2 NORTH, NEWBURGH, NY, 12550","Focused Wealth Management, Inc",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1599000.0,7
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+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,189054,189054109,CLOROX CO DEL,8421063000.0,52956
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+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,31428X,31428X106,FEDEX CORP,14857391000.0,59933
+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,35137L,35137L105,FOX CORP,1893182000.0,55690
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+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,512807,512807108,LAM RESEARCH CORP,21939629000.0,34134
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+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,9142435000.0,46556
+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,594918,594918104,MICROSOFT CORP,523503841000.0,1538179
+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,64110D,64110D104,NETAPP INC,6126058000.0,80184
+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,654106,654106103,NIKE INC,29487972000.0,267307
+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,683715,683715106,OPEN TEXT CORP,1688376000.0,40581
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+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,14657748000.0,37570
+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,704326,704326107,PAYCHEX INC,8348560000.0,74624
+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,88953748000.0,586476
+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,749685,749685103,RPM INTL INC,1077060000.0,12000
+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,761152,761152107,RESMED INC,6720906000.0,30760
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+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,871829,871829107,SYSCO CORP,9531265000.0,128497
+https://sec.gov/Archives/edgar/data/1587381/0000919574-23-004722.txt,1587381,"6th Floor, 60 Threadneedle Street, London, X0, EC2R 8HP",USS Investment Management Ltd,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,2946924000.0,77704
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+https://sec.gov/Archives/edgar/data/1587643/0001085146-23-002746.txt,1587643,"8674 Eagle Creek Circle, Minneapolis, MN, 55378",Nepsis Inc.,2023-06-30,27888N,27888N406,BITNILE METAVERSE INC,109787000.0,95467
+https://sec.gov/Archives/edgar/data/1587643/0001085146-23-002746.txt,1587643,"8674 Eagle Creek Circle, Minneapolis, MN, 55378",Nepsis Inc.,2023-06-30,370334,370334104,GENERAL MLS INC,4971157000.0,64813
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+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,703395,703395103,PATTERSON COS INC COM,1542932000.0,46390
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,704326,704326107,PAYCHEX INC COM,58750321000.0,525166
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP COM,4177022000.0,22636
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO COM,4909560000.0,81500
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,71742Q,71742Q106,PHIBRO ANIMAL HEALTH CORP CL A COM,94681000.0,6911
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO COM,78662623000.0,518404
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,74874Q,74874Q100,QUINSTREET INC COM,151294000.0,17134
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,749685,749685103,RPM INTL INC COM,3725680000.0,41521
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,761152,761152107,RESMED INC COM,4911225000.0,22477
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC COM,490435000.0,31218
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,806037,806037107,SCANSOURCE INC COM,253566000.0,8578
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,807066,807066105,SCHOLASTIC CORP COM,392789000.0,10100
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,817070,817070501,SENECA FOODS CORP NEW CL A,58759000.0,1798
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,832696,832696405,SMUCKER J M CO COM NEW,5872689000.0,39769
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,854231,854231107,STANDEX INTL CORP COM,1001325000.0,7078
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,86333M,86333M108,STRIDE INC COM,902009000.0,24228
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC COM,5709819000.0,22908
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,87157D,87157D109,SYNAPTICS INC COM,1745680000.0,20446
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,871829,871829107,SYSCO CORP COM,9674642000.0,130386
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,876030,876030107,TAPESTRY INC COM,2882238000.0,67342
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,925550,925550105,VIAVI SOLUTIONS INC COM,1621981000.0,143158
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,958102,958102105,WESTERN DIGITAL CORP COM,19860983000.0,523622
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,968223,968223206,WILEY JOHN & SONS INC CL A,1436577000.0,42215
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION COM,150628000.0,1124
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,981811,981811102,WORTHINGTON INDS INC COM,1124720000.0,16190
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,G3323L,G3323L100,FABRINET SHS,2807746000.0,21618
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC SHS,70958472000.0,805431
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR SHS,247411000.0,7543
+https://sec.gov/Archives/edgar/data/1587973/0001587973-23-000004.txt,1587973,"502 DEADERICK STREET, 13TH FLOOR, ATTN:  INVESTMENT DIVISION, NASHVILLE, TN, 37243","State of Tennessee, Treasury Department",2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD SHS USD,277841000.0,10832
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+https://sec.gov/Archives/edgar/data/1588340/0001085146-23-002860.txt,1588340,"GOTTHARDSTRASSE 43, ZURICH, V8, CH-8022",Vontobel Holding Ltd.,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,14046559000.0,63909
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+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,115637,115637209,BROWN-FORMAN CORP,50085000.0,750
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,189054,189054109,CLOROX CO,87472000.0,550
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+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,174598000.0,1045
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,31428X,31428X106,FEDEX CORP,107094000.0,432
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,35137L,35137L105,FOX CORP,170000.0,5
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+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,461202,461202103,INTUIT,375257000.0,819
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+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC COM,19312000.0,168
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,46346000.0,236
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,7771000.0,137
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,15778577000.0,46334
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,654106,654106103,NIKE INC,189836000.0,1720
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,683715,683715106,OPEN TEXT CORPORATION,9473000.0,228
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,47525000.0,186
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,701094,701094104,PARKER HANNIFIN CORP,22623000.0,58
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,704326,704326107,PAYCHEX INC,215574000.0,1927
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,742718,742718109,PROCTER & GAMBLE CO,2123299000.0,13993
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,761152,761152107,RESMED INC,20977000.0,96
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,832696,832696405,SMUCKER J M CO,295000.0,2
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,871829,871829107,SYSCO CORP,327593000.0,4415
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,876030,876030107,TAPESTRY INC COM,10015000.0,234
+https://sec.gov/Archives/edgar/data/1588871/0001140361-23-036714.txt,1588871,"850 SHADES CREEK PARKWAY, BIRMINGHAM, AL, 35209","Oakworth Capital, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,162282000.0,1842
+https://sec.gov/Archives/edgar/data/1588873/0001588873-23-000004.txt,1588873,"1134 MUNICIPAL WAY, LANSING, MI, 48917",Municipal Employees' Retirement System of Michigan,2023-06-30,368036,368036109,GATOS SILVER INC,23456000.0,6205259
+https://sec.gov/Archives/edgar/data/1588873/0001588873-23-000004.txt,1588873,"1134 MUNICIPAL WAY, LANSING, MI, 48917",Municipal Employees' Retirement System of Michigan,2023-06-30,600544,600544100,MILLERKNOLL INC,2000.0,102
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+https://sec.gov/Archives/edgar/data/1589176/0001589176-23-000010.txt,1589176,"RUA HUMAITA, 275, 6 ANDAR, HUMAITA, RIO DE JANEIRO, D5, 22261000",SPX Gestao de Recursos Ltda,2023-06-30,144285,144285103,CARPENTER TECH,20657524000.0,368030
+https://sec.gov/Archives/edgar/data/1589176/0001589176-23-000010.txt,1589176,"RUA HUMAITA, 275, 6 ANDAR, HUMAITA, RIO DE JANEIRO, D5, 22261000",SPX Gestao de Recursos Ltda,2023-06-30,31428X,31428X106,FEDEX CORP,36713990000.0,148100
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+https://sec.gov/Archives/edgar/data/1589282/0001879202-23-000022.txt,1589282,"275 Sacramento St, 8th Floor, San Francisco, CA, 94111",Fort Point Capital Partners LLC,2023-06-30,189054,189054109,CLOROX CO DEL,274503000.0,1726
+https://sec.gov/Archives/edgar/data/1589282/0001879202-23-000022.txt,1589282,"275 Sacramento St, 8th Floor, San Francisco, CA, 94111",Fort Point Capital Partners LLC,2023-06-30,205887,205887102,CONAGRA BRANDS INC,205456000.0,6093
+https://sec.gov/Archives/edgar/data/1589282/0001879202-23-000022.txt,1589282,"275 Sacramento St, 8th Floor, San Francisco, CA, 94111",Fort Point Capital Partners LLC,2023-06-30,482480,482480100,KLA CORP,7262204000.0,14973
+https://sec.gov/Archives/edgar/data/1589282/0001879202-23-000022.txt,1589282,"275 Sacramento St, 8th Floor, San Francisco, CA, 94111",Fort Point Capital Partners LLC,2023-06-30,512807,512807108,LAM RESEARCH CORP,444859000.0,692
+https://sec.gov/Archives/edgar/data/1589282/0001879202-23-000022.txt,1589282,"275 Sacramento St, 8th Floor, San Francisco, CA, 94111",Fort Point Capital Partners LLC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,277878000.0,1415
+https://sec.gov/Archives/edgar/data/1589282/0001879202-23-000022.txt,1589282,"275 Sacramento St, 8th Floor, San Francisco, CA, 94111",Fort Point Capital Partners LLC,2023-06-30,594918,594918104,MICROSOFT CORP,10186914000.0,29914
+https://sec.gov/Archives/edgar/data/1589282/0001879202-23-000022.txt,1589282,"275 Sacramento St, 8th Floor, San Francisco, CA, 94111",Fort Point Capital Partners LLC,2023-06-30,654106,654106103,NIKE INC,1439599000.0,13043
+https://sec.gov/Archives/edgar/data/1589282/0001879202-23-000022.txt,1589282,"275 Sacramento St, 8th Floor, San Francisco, CA, 94111",Fort Point Capital Partners LLC,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,85359000.0,11100
+https://sec.gov/Archives/edgar/data/1589282/0001879202-23-000022.txt,1589282,"275 Sacramento St, 8th Floor, San Francisco, CA, 94111",Fort Point Capital Partners LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,426541000.0,2811
+https://sec.gov/Archives/edgar/data/1589282/0001879202-23-000022.txt,1589282,"275 Sacramento St, 8th Floor, San Francisco, CA, 94111",Fort Point Capital Partners LLC,2023-06-30,871829,871829107,SYSCO CORP,204198000.0,2752
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+https://sec.gov/Archives/edgar/data/1590228/0001420506-23-001595.txt,1590228,"575 Lexington Avenue, 35th Floor, NEW YORK, NY, 10022","Interval Partners, LP",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,1041217000.0,9058
+https://sec.gov/Archives/edgar/data/1590228/0001420506-23-001595.txt,1590228,"575 Lexington Avenue, 35th Floor, NEW YORK, NY, 10022","Interval Partners, LP",2023-06-30,594918,594918104,MICROSOFT CORP,18314241000.0,53780
+https://sec.gov/Archives/edgar/data/1590228/0001420506-23-001595.txt,1590228,"575 Lexington Avenue, 35th Floor, NEW YORK, NY, 10022","Interval Partners, LP",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,562122000.0,2200
+https://sec.gov/Archives/edgar/data/1590228/0001420506-23-001595.txt,1590228,"575 Lexington Avenue, 35th Floor, NEW YORK, NY, 10022","Interval Partners, LP",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,3120320000.0,8000
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+https://sec.gov/Archives/edgar/data/1590531/0001172661-23-003134.txt,1590531,"550 E. Water Street, Suite 888, Charlottesville, VA, 22902","Foxhaven Asset Management, LP",2023-06-30,594918,594918104,MICROSOFT CORP,185560587000.0,544901
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+https://sec.gov/Archives/edgar/data/1591097/0001172661-23-002940.txt,1591097,"1 Transam Plaza Drive, Suite 230, Oakbrook Terrace, IL, 60181","Harvest Investment Services, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,1035170000.0,6822
+https://sec.gov/Archives/edgar/data/1591097/0001172661-23-002940.txt,1591097,"1 Transam Plaza Drive, Suite 230, Oakbrook Terrace, IL, 60181","Harvest Investment Services, LLC",2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,1744261000.0,6998
+https://sec.gov/Archives/edgar/data/1591097/0001172661-23-002940.txt,1591097,"1 Transam Plaza Drive, Suite 230, Oakbrook Terrace, IL, 60181","Harvest Investment Services, LLC",2023-06-30,G2143T,G2143T103,CIMPRESS PLC,775441000.0,13037
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+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,14149Y,14149Y108,Cardinal Health Inc,34802000.0,368
+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,205887,205887102,Conagra Foods Inc,15174000.0,450
+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,461202,461202103,Intuit Inc,702974000.0,1534
+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,482480,482480100,K L A Tencor Corp,60628000.0,125
+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,512807,512807108,Lam Research Corporation,10286000.0,16
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+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,518439,518439104,Lauder Estee Co Inc Cl A,369587000.0,1882
+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,594918,594918104,Microsoft Corp,62718113000.0,184173
+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,64110D,64110D104,NetApp Inc,208572000.0,2730
+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,654106,654106103,Nike Inc Class B,166817000.0,1511
+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,701094,701094104,Parker-Hannifin Corp,154456000.0,396
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+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,742718,742718109,Procter & Gamble,1936401000.0,12761
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+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,832696,832696405,J M Smucker Co New,4430000.0,30
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+https://sec.gov/Archives/edgar/data/1591122/0001591122-23-000004.txt,1591122,"919 E MAIN STREET, SUITE 950, RICHMOND, VA, 23219",Heritage Wealth Advisors,2023-06-30,G5960L,G5960L103,Medtronic Inc,40635933000.0,461248
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+https://sec.gov/Archives/edgar/data/1591377/0001062993-23-015233.txt,1591377,"119 WEST 57TH STREET, SUITE 1515, NEW YORK, NY, 10019","Oppenheimer & Close, LLC",2023-06-30,032159,032159105,AMREP CORP,1272602000.0,70950
+https://sec.gov/Archives/edgar/data/1591377/0001062993-23-015233.txt,1591377,"119 WEST 57TH STREET, SUITE 1515, NEW YORK, NY, 10019","Oppenheimer & Close, LLC",2023-06-30,877163,877163105,TAYLOR DEVICES INC,3210183000.0,125594
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+https://sec.gov/Archives/edgar/data/1591379/0001591379-23-000003.txt,1591379,"17300 PRESTON ROAD, SUITE 120, DALLAS, TX, 75252",BEACON FINANCIAL GROUP,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,770000.0,8194
+https://sec.gov/Archives/edgar/data/1591379/0001591379-23-000003.txt,1591379,"17300 PRESTON ROAD, SUITE 120, DALLAS, TX, 75252",BEACON FINANCIAL GROUP,2023-06-30,594918,594918104,MICROSOFT CORP,6275000.0,18728
+https://sec.gov/Archives/edgar/data/1591379/0001591379-23-000003.txt,1591379,"17300 PRESTON ROAD, SUITE 120, DALLAS, TX, 75252",BEACON FINANCIAL GROUP,2023-06-30,742718,742718109,PROCTER GAMBLE CO,1442000.0,9656
+https://sec.gov/Archives/edgar/data/1591379/0001591379-23-000003.txt,1591379,"17300 PRESTON ROAD, SUITE 120, DALLAS, TX, 75252",BEACON FINANCIAL GROUP,2023-06-30,871829,871829107,SYSCO CORP,474000.0,6487
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+https://sec.gov/Archives/edgar/data/1591546/0001591546-23-000012.txt,1591546,"4900 MEADOWS ROAD, SUITE 320, LAKE OSWEGO, OR, 97035","Pacific Ridge Capital Partners, LLC",2023-06-30,49428J,49428J109,Kimball Electronics,10601714000.0,383703
+https://sec.gov/Archives/edgar/data/1591546/0001591546-23-000012.txt,1591546,"4900 MEADOWS ROAD, SUITE 320, LAKE OSWEGO, OR, 97035","Pacific Ridge Capital Partners, LLC",2023-06-30,620071,620071100,MotorCar Parts of America Inc,6686036000.0,863829
+https://sec.gov/Archives/edgar/data/1591546/0001591546-23-000012.txt,1591546,"4900 MEADOWS ROAD, SUITE 320, LAKE OSWEGO, OR, 97035","Pacific Ridge Capital Partners, LLC",2023-06-30,747906,747906501,Quantum Corp,1553528000.0,1438452
+https://sec.gov/Archives/edgar/data/1591546/0001591546-23-000012.txt,1591546,"4900 MEADOWS ROAD, SUITE 320, LAKE OSWEGO, OR, 97035","Pacific Ridge Capital Partners, LLC",2023-06-30,76122Q,76122Q105,Resources Connection,1340126000.0,85304
+https://sec.gov/Archives/edgar/data/1591546/0001591546-23-000012.txt,1591546,"4900 MEADOWS ROAD, SUITE 320, LAKE OSWEGO, OR, 97035","Pacific Ridge Capital Partners, LLC",2023-06-30,769397,769397100,Riverview Bancorp,3925112000.0,778792
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+https://sec.gov/Archives/edgar/data/1591744/0000902664-23-004396.txt,1591744,"260 Franklin Street, Suite 1901, Boston, MA, 02110","Shellback Capital, LP",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,1571040000.0,8000
+https://sec.gov/Archives/edgar/data/1591744/0000902664-23-004396.txt,1591744,"260 Franklin Street, Suite 1901, Boston, MA, 02110","Shellback Capital, LP",2023-06-30,56117J,56117J100,MALIBU BOATS INC,3130274000.0,53363
+https://sec.gov/Archives/edgar/data/1591744/0000902664-23-004396.txt,1591744,"260 Franklin Street, Suite 1901, Boston, MA, 02110","Shellback Capital, LP",2023-06-30,594918,594918104,MICROSOFT CORP,49378300000.0,145000
+https://sec.gov/Archives/edgar/data/1591744/0000902664-23-004396.txt,1591744,"260 Franklin Street, Suite 1901, Boston, MA, 02110","Shellback Capital, LP",2023-06-30,654106,654106103,NIKE INC,6622200000.0,60000
+https://sec.gov/Archives/edgar/data/1591744/0000902664-23-004396.txt,1591744,"260 Franklin Street, Suite 1901, Boston, MA, 02110","Shellback Capital, LP",2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,5421600000.0,90000
+https://sec.gov/Archives/edgar/data/1591744/0000902664-23-004396.txt,1591744,"260 Franklin Street, Suite 1901, Boston, MA, 02110","Shellback Capital, LP",2023-06-30,876030,876030107,TAPESTRY INC,26857000000.0,627500
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+https://sec.gov/Archives/edgar/data/1592178/0001592178-23-000003.txt,1592178,"TWO N RIVERSIDE PLAZA, SUITE 1620, CHICAGO, IL, 60540","Chicago Wealth Management, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,816737000.0,2398
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+https://sec.gov/Archives/edgar/data/1592613/0001592613-23-000003.txt,1592613,"221 E. 4TH STREET, SUITE 2850, CINCINNATI, OH, 45202","Formidable Asset Management, LLC",2023-06-30,09073M,09073M104,BIO-TECHNE CORP COM,1557000.0,19071
+https://sec.gov/Archives/edgar/data/1592613/0001592613-23-000003.txt,1592613,"221 E. 4TH STREET, SUITE 2850, CINCINNATI, OH, 45202","Formidable Asset Management, LLC",2023-06-30,370334,370334104,GENERAL MILLS INC COM,1140000.0,14862
+https://sec.gov/Archives/edgar/data/1592613/0001592613-23-000003.txt,1592613,"221 E. 4TH STREET, SUITE 2850, CINCINNATI, OH, 45202","Formidable Asset Management, LLC",2023-06-30,426281,426281101,HENRY JACK & ASSOCIATES INC COM,2205000.0,13175
+https://sec.gov/Archives/edgar/data/1592613/0001592613-23-000003.txt,1592613,"221 E. 4TH STREET, SUITE 2850, CINCINNATI, OH, 45202","Formidable Asset Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP COM,11641000.0,34184
+https://sec.gov/Archives/edgar/data/1592613/0001592613-23-000003.txt,1592613,"221 E. 4TH STREET, SUITE 2850, CINCINNATI, OH, 45202","Formidable Asset Management, LLC",2023-06-30,654106,654106103,NIKE INC COM CL B,2847000.0,25796
+https://sec.gov/Archives/edgar/data/1592613/0001592613-23-000003.txt,1592613,"221 E. 4TH STREET, SUITE 2850, CINCINNATI, OH, 45202","Formidable Asset Management, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC COM,210000.0,822
+https://sec.gov/Archives/edgar/data/1592613/0001592613-23-000003.txt,1592613,"221 E. 4TH STREET, SUITE 2850, CINCINNATI, OH, 45202","Formidable Asset Management, LLC",2023-06-30,742718,742718109,PROCTER & GAMBLE CO COM,46382000.0,305667
+https://sec.gov/Archives/edgar/data/1592613/0001592613-23-000003.txt,1592613,"221 E. 4TH STREET, SUITE 2850, CINCINNATI, OH, 45202","Formidable Asset Management, LLC",2023-06-30,832696,832696405,SMUCKER (JM) CO COM,321000.0,2174
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+https://sec.gov/Archives/edgar/data/1592614/0001592614-23-000003.txt,1592614,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Dempze Nancy E,2023-06-30,594918,594918104,MICROSOFT,4957241000.0,14557
+https://sec.gov/Archives/edgar/data/1592614/0001592614-23-000003.txt,1592614,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Dempze Nancy E,2023-06-30,654106,654106103,NIKE INC CLASS B,1707312000.0,15469
+https://sec.gov/Archives/edgar/data/1592614/0001592614-23-000003.txt,1592614,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Dempze Nancy E,2023-06-30,742718,742718109,PROCTER & GAMBLE,3957833000.0,26083
+https://sec.gov/Archives/edgar/data/1592614/0001592614-23-000003.txt,1592614,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Dempze Nancy E,2023-06-30,G5960L,G5960L103,MEDTRONIC,1223179000.0,13884
+https://sec.gov/Archives/edgar/data/1592615/0001592615-23-000003.txt,1592615,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Page Arthur B,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,4166339000.0,18956
+https://sec.gov/Archives/edgar/data/1592615/0001592615-23-000003.txt,1592615,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Page Arthur B,2023-06-30,594918,594918104,MICROSOFT,5764320000.0,16927
+https://sec.gov/Archives/edgar/data/1592615/0001592615-23-000003.txt,1592615,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Page Arthur B,2023-06-30,654106,654106103,NIKE INC CLASS B,1790423000.0,16222
+https://sec.gov/Archives/edgar/data/1592615/0001592615-23-000003.txt,1592615,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Page Arthur B,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,308145000.0,1206
+https://sec.gov/Archives/edgar/data/1592615/0001592615-23-000003.txt,1592615,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Page Arthur B,2023-06-30,742718,742718109,PROCTER & GAMBLE,2739817000.0,18056
+https://sec.gov/Archives/edgar/data/1592615/0001592615-23-000003.txt,1592615,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Page Arthur B,2023-06-30,871829,871829107,SYSCO,738661000.0,9955
+https://sec.gov/Archives/edgar/data/1592615/0001592615-23-000003.txt,1592615,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Page Arthur B,2023-06-30,G5960L,G5960L103,MEDTRONIC,1201772000.0,13641
+https://sec.gov/Archives/edgar/data/1592616/0001592616-23-000003.txt,1592616,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Notis-McConarty Edward,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,10630583000.0,48367
+https://sec.gov/Archives/edgar/data/1592616/0001592616-23-000003.txt,1592616,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Notis-McConarty Edward,2023-06-30,594918,594918104,MICROSOFT,10712707000.0,31458
+https://sec.gov/Archives/edgar/data/1592616/0001592616-23-000003.txt,1592616,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Notis-McConarty Edward,2023-06-30,654106,654106103,NIKE INC CLASS B,2903944000.0,26311
+https://sec.gov/Archives/edgar/data/1592616/0001592616-23-000003.txt,1592616,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Notis-McConarty Edward,2023-06-30,704326,704326107,PAYCHEX,257301000.0,2300
+https://sec.gov/Archives/edgar/data/1592616/0001592616-23-000003.txt,1592616,"HEMENWAY AND BARNES LLP, 60 STATE STREET - 8TH FLOOR, BOSTON, MA, 02109",Notis-McConarty Edward,2023-06-30,742718,742718109,PROCTER & GAMBLE,8805320000.0,58029
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+https://sec.gov/Archives/edgar/data/1592643/0001592643-23-000006.txt,1592643,"380 LAFAYETTE STREET, 6TH FLOOR, NEW YORK, NY, 10003","Select Equity Group, L.P.",2023-06-30,09073M,09073M104,BIO-TECHNE CORP,368484187000.0,4514078
+https://sec.gov/Archives/edgar/data/1592643/0001592643-23-000006.txt,1592643,"380 LAFAYETTE STREET, 6TH FLOOR, NEW YORK, NY, 10003","Select Equity Group, L.P.",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,76632695000.0,462674
+https://sec.gov/Archives/edgar/data/1592643/0001592643-23-000006.txt,1592643,"380 LAFAYETTE STREET, 6TH FLOOR, NEW YORK, NY, 10003","Select Equity Group, L.P.",2023-06-30,461202,461202103,INTUIT,147150468000.0,321156
+https://sec.gov/Archives/edgar/data/1592643/0001592643-23-000006.txt,1592643,"380 LAFAYETTE STREET, 6TH FLOOR, NEW YORK, NY, 10003","Select Equity Group, L.P.",2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,12287548000.0,216597
+https://sec.gov/Archives/edgar/data/1592643/0001592643-23-000006.txt,1592643,"380 LAFAYETTE STREET, 6TH FLOOR, NEW YORK, NY, 10003","Select Equity Group, L.P.",2023-06-30,589378,589378108,MERCURY SYS INC,381389000.0,11026
+https://sec.gov/Archives/edgar/data/1592643/0001592643-23-000006.txt,1592643,"380 LAFAYETTE STREET, 6TH FLOOR, NEW YORK, NY, 10003","Select Equity Group, L.P.",2023-06-30,594918,594918104,MICROSOFT CORP,88506005000.0,259899
+https://sec.gov/Archives/edgar/data/1592643/0001592643-23-000006.txt,1592643,"380 LAFAYETTE STREET, 6TH FLOOR, NEW YORK, NY, 10003","Select Equity Group, L.P.",2023-06-30,640491,640491106,NEOGEN CORP,211448106000.0,9721752
+https://sec.gov/Archives/edgar/data/1592643/0001592643-23-000006.txt,1592643,"380 LAFAYETTE STREET, 6TH FLOOR, NEW YORK, NY, 10003","Select Equity Group, L.P.",2023-06-30,704326,704326107,PAYCHEX INC,262469842000.0,2346204
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+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,00737L,00737L103,ADTALEM GLOBAL ED INC,2629792000.0,76581
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,02875D,02875D109,AMERICAN OUTDOOR BRANDS INC,136588000.0,15736
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,4425183000.0,57944
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,032159,032159105,AMREP CORP,526834000.0,29372
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,042744,042744102,ARROW FINL CORP,409990000.0,20357
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,736516000.0,3351
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,128030,128030202,CAL MAINE FOODS INC,5942340000.0,132052
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,3630637000.0,38391
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,886124000.0,15787
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,222070,222070203,COTY INC,3217461000.0,261795
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,228309,228309100,CROWN CRAFTS INC,147905000.0,29522
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,234264,234264109,DAKTRONICS INC,495859000.0,77478
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,297602,297602104,ETHAN ALLEN INTERIORS INC,3325954000.0,117608
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,652473000.0,2632
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,339382,339382103,FLEXSTEEL INDS INC,302273000.0,15336
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,35137L,35137L105,FOX CORP,6738086000.0,198179
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,358435,358435105,FRIEDMAN INDS INC,302035000.0,23971
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,1132245000.0,14762
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,461202,461202103,INTUIT,1903779000.0,4155
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,482480,482480100,KLA CORP,3514455000.0,7246
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,1549408000.0,56077
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,500643,500643200,KORN FERRY,2106242000.0,42516
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,505336,505336107,LA Z BOY INC,3666607000.0,128024
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,3701588000.0,5758
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,2995252000.0,26057
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,289857000.0,1476
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,53222K,53222K205,LIFEVANTAGE CORP,256263000.0,58911
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,2528782000.0,92325
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,56117J,56117J100,MALIBU BOATS INC,2339009000.0,39874
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,2440047000.0,79610
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,38903630000.0,114241
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,64110D,64110D104,NETAPP INC,257086000.0,3365
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+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,654106,654106103,NIKE INC,1157009000.0,10483
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1777327000.0,6956
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,5796775000.0,14862
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,704326,704326107,PAYCHEX INC,293099000.0,2620
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,536244000.0,2906
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,7923862000.0,52220
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,761152,761152107,RESMED INC,215004000.0,984
+https://sec.gov/Archives/edgar/data/1592828/0001592828-23-000005.txt,1592828,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083","Empowered Funds, LLC",2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,3486049000.0,221900
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+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,358435,358435105,FRIEDMAN INDS INC,302035000.0,23971
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,370334,370334104,GENERAL MLS INC,1132245000.0,14762
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,461202,461202103,INTUIT,1903779000.0,4155
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+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,49428J,49428J109,KIMBALL ELECTRONICS INC,1549408000.0,56077
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,500643,500643200,KORN FERRY,2106242000.0,42516
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,505336,505336107,LA Z BOY INC,3666607000.0,128024
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,512807,512807108,LAM RESEARCH CORP,3701588000.0,5758
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,2995252000.0,26057
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,289857000.0,1476
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,53222K,53222K205,LIFEVANTAGE CORP,256263000.0,58911
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,55826T,55826T102,SPHERE ENTERTAINMENT CO,2528782000.0,92325
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,56117J,56117J100,MALIBU BOATS INC,2339009000.0,39874
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,57637H,57637H103,MASTERCRAFT BOAT HLDGS INC,2440047000.0,79610
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,594918,594918104,MICROSOFT CORP,38903630000.0,114241
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,64110D,64110D104,NETAPP INC,257086000.0,3365
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,65373J,65373J209,NICHOLAS FINL INC BC,98480000.0,19637
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,654106,654106103,NIKE INC,1157009000.0,10483
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,1777327000.0,6956
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,5796775000.0,14862
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,704326,704326107,PAYCHEX INC,293099000.0,2620
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,536244000.0,2906
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,7923862000.0,52220
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,761152,761152107,RESMED INC,215004000.0,984
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,76122Q,76122Q105,RESOURCES CONNECTION INC,3486049000.0,221900
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,769397,769397100,RIVERVIEW BANCORP INC,309234000.0,61356
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,806037,806037107,SCANSOURCE INC,899777000.0,30439
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,807066,807066105,SCHOLASTIC CORP,4623593000.0,118889
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,817070,817070501,SENECA FOODS CORP NEW,816608000.0,24988
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,831754,831754106,SMITH & WESSON BRANDS INC,2234508000.0,171358
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,4018907000.0,16124
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,871829,871829107,SYSCO CORP,309117000.0,4166
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,904677,904677200,UNIFI INC,201250000.0,24938
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,91705J,91705J204,URBAN ONE INC,618516000.0,103086
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,981419,981419104,WORLD ACCEPT CORPORATION,1434175000.0,10702
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,1653020000.0,18763
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,G6331P,G6331P104,ALPHA & OMEGA SEMICONDUCTOR,2573258000.0,78453
+https://sec.gov/Archives/edgar/data/1592900/0001592900-23-000572.txt,1592900,"19 E EAGLE ROAD, HAVERTOWN, PA, 19083",EA Series Trust,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,3727535000.0,145323
+https://sec.gov/Archives/edgar/data/1593038/0001104659-23-085866.txt,1593038,"2700 Patriot Blvd, Suite 440, Glenview, IL, 60026",Coyle Financial Counsel LLC,2023-06-30,31428X,31428X106,FEDEX CORP,2181396000.0,8800
+https://sec.gov/Archives/edgar/data/1593038/0001104659-23-085866.txt,1593038,"2700 Patriot Blvd, Suite 440, Glenview, IL, 60026",Coyle Financial Counsel LLC,2023-06-30,594918,594918104,MICROSOFT CORP,855096000.0,2511
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,2998392000.0,57134
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,55526207000.0,252633
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,053807,053807103,AVNET INC,5942253000.0,117785
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,2920803000.0,35781
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,093671,093671105,BLOCK H & R INC,9565685000.0,300147
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,4441203000.0,26814
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,115637,115637209,BROWN FORMAN CORP,2776111000.0,41571
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,127190,127190304,CACI INTL INC,19139529000.0,56154
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,51376382000.0,543263
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,147528,147528103,CASEYS GEN STORES INC,17807874000.0,73019
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,189054,189054109,CLOROX CO DEL,4468706000.0,28098
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,205887,205887102,CONAGRA BRANDS INC,3654911000.0,108390
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,222070,222070203,COTY INC,5807836000.0,472566
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,17473895000.0,104584
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,31428X,31428X106,FEDEX CORP,13028632000.0,52556
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,35137L,35137L105,FOX CORP,20996734000.0,617551
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,370334,370334104,GENERAL MLS INC,10238913000.0,133493
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,2771654000.0,16564
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,461202,461202103,INTUIT,29215111000.0,63762
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,482480,482480100,KLA CORP,38598377000.0,79581
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,512807,512807108,LAM RESEARCH CORP,19627159000.0,30531
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,3806569000.0,33115
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,513847,513847103,LANCASTER COLONY CORP,5135235000.0,25537
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,10349030000.0,52699
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,17219427000.0,303533
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,589378,589378108,MERCURY SYS INC,2593870000.0,74989
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,594918,594918104,MICROSOFT CORP,1005311539000.0,2952110
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,640491,640491106,NEOGEN CORP,6060464000.0,278642
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,64110D,64110D104,NETAPP INC,3714262000.0,48616
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,65249B,65249B109,NEWS CORP NEW,1688330000.0,86581
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,654106,654106103,NIKE INC,50033701000.0,453327
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,17572700000.0,68775
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,49067422000.0,125801
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,703395,703395103,PATTERSON COS INC,3727282000.0,112065
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,704326,704326107,PAYCHEX INC,8157560000.0,72920
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,70438V,70438V106,PAYLOCITY HLDG CORP,14948222000.0,81007
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,18236094000.0,302724
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,147579744000.0,972583
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,749685,749685103,RPM INTL INC,26393541000.0,294144
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,761152,761152107,RESMED INC,7297026000.0,33396
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,832696,832696405,SMUCKER J M CO,3578782000.0,24235
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,22519239000.0,90348
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,87157D,87157D109,SYNAPTICS INC,5416080000.0,63435
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,871829,871829107,SYSCO CORP,8544575000.0,115156
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,876030,876030107,TAPESTRY INC,8263910000.0,193082
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,2757966000.0,72712
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,981811,981811102,WORTHINGTON INDS INC,9421035000.0,135613
+https://sec.gov/Archives/edgar/data/1593051/0001140361-23-036976.txt,1593051,"P.O. BOX 302150, MONTGOMERY, AL, 36130-2150",Retirement Systems of Alabama,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,68143059000.0,773474
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,00760J,00760J108,AEHR TEST SYS,74000.0,1808
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,018802,018802108,ALLIANT ENERGY CORP,84000.0,1617
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,030506,030506109,AMERICAN WOODMARK CORPORATIO,359000.0,4703
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,1038000.0,4730
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,090043,090043100,BILL HOLDINGS INC,502000.0,4303
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,09073M,09073M104,BIO-TECHNE CORP,82000.0,1015
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,222000.0,1347
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,115637,115637209,BROWN FORMAN CORP,79000.0,1203
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,156000.0,1653
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,144285,144285103,CARPENTER TECHNOLOGY CORP,32000.0,576
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,189054,189054109,CLOROX CO,126000.0,804
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,205887,205887102,CONAGRA BRANDS INC,103000.0,3091
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,131000.0,786
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,31428X,31428X106,FEDEX CORP,655000.0,2645
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,35137L,35137L105,FOX CORP,58000.0,1729
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,36251C,36251C103,GMS INC,146000.0,2120
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,370334,370334104,GENERAL MLS INC,81246000.0,1059295
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,138000.0,829
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,461202,461202103,INTUIT,1454000.0,3176
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,482480,482480100,KLA CORP,3207000.0,6618
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,505336,505336107,LA Z BOY INC,270000.0,9428
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,512807,512807108,LAM RESEARCH CORP,3646000.0,5673
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,461000.0,4018
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,518439,518439104,LAUDER ESTEE COS INC,295000.0,1509
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,53261M,53261M104,EDGIO INC,769000.0,1141836
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,55024U,55024U109,LUMENTUM HLDGS INC,3480000.0,61354
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,594918,594918104,MICROSOFT CORP,177954000.0,522573
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,64110D,64110D104,NETAPP INC,186000.0,2437
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,65249B,65249B109,NEWS CORP NEW,47000.0,2449
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,654106,654106103,NIKE INC,882000.0,7998
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,878000.0,3440
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,603000.0,1548
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,704326,704326107,PAYCHEX INC,410000.0,3683
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,3938000.0,512179
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,153737000.0,1013166
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,761152,761152107,RESMED INC,207000.0,954
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,832696,832696405,SMUCKER J M CO,101000.0,692
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,871829,871829107,SYSCO CORP,243000.0,3284
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,876030,876030107,TAPESTRY INC,63000.0,1489
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,88688T,88688T100,TILRAY BRANDS INC,1706000.0,1093784
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,925550,925550105,VIAVI SOLUTIONS INC,3556000.0,313872
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,138000.0,3643
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,758000.0,8617
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,N14506,N14506104,ELASTIC N V,2190000.0,34155
+https://sec.gov/Archives/edgar/data/1593324/0001593324-23-000005.txt,1593324,"4 ORINDA WAY, SUITE 100-A, ORINDA, CA, 94563",Penserra Capital Management LLC,2023-06-30,Y2106R,Y2106R110,DORIAN LPG LTD,229000.0,8944
+https://sec.gov/Archives/edgar/data/1593387/0001593387-23-000004.txt,1593387,"444 N. MICHIGAN AVE, STE 3150, CHICAGO, IL, 60611","GeoWealth Management, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,104000.0,622
+https://sec.gov/Archives/edgar/data/1593387/0001593387-23-000004.txt,1593387,"444 N. MICHIGAN AVE, STE 3150, CHICAGO, IL, 60611","GeoWealth Management, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,17000.0,216
+https://sec.gov/Archives/edgar/data/1593387/0001593387-23-000004.txt,1593387,"444 N. MICHIGAN AVE, STE 3150, CHICAGO, IL, 60611","GeoWealth Management, LLC",2023-06-30,482480,482480100,KLA CORP,82000.0,168
+https://sec.gov/Archives/edgar/data/1593387/0001593387-23-000004.txt,1593387,"444 N. MICHIGAN AVE, STE 3150, CHICAGO, IL, 60611","GeoWealth Management, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,1412000.0,4149
+https://sec.gov/Archives/edgar/data/1593387/0001593387-23-000004.txt,1593387,"444 N. MICHIGAN AVE, STE 3150, CHICAGO, IL, 60611","GeoWealth Management, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,20000.0,53
+https://sec.gov/Archives/edgar/data/1593387/0001593387-23-000004.txt,1593387,"444 N. MICHIGAN AVE, STE 3150, CHICAGO, IL, 60611","GeoWealth Management, LLC",2023-06-30,704326,704326107,PAYCHEX INC,214000.0,1909
+https://sec.gov/Archives/edgar/data/1593387/0001593387-23-000004.txt,1593387,"444 N. MICHIGAN AVE, STE 3150, CHICAGO, IL, 60611","GeoWealth Management, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,199000.0,1312
+https://sec.gov/Archives/edgar/data/1593387/0001593387-23-000004.txt,1593387,"444 N. MICHIGAN AVE, STE 3150, CHICAGO, IL, 60611","GeoWealth Management, LLC",2023-06-30,871829,871829107,SYSCO CORP,20000.0,268
+https://sec.gov/Archives/edgar/data/1593387/0001593387-23-000004.txt,1593387,"444 N. MICHIGAN AVE, STE 3150, CHICAGO, IL, 60611","GeoWealth Management, LLC",2023-06-30,876030,876030107,TAPESTRY INC,110000.0,2560
+https://sec.gov/Archives/edgar/data/1593387/0001593387-23-000004.txt,1593387,"444 N. MICHIGAN AVE, STE 3150, CHICAGO, IL, 60611","GeoWealth Management, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,50000.0,561
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+https://sec.gov/Archives/edgar/data/1593404/0001172661-23-003151.txt,1593404,"One Rockefeller Plaza, 23rd Floor, New York, NY, 10020",G2 Investment Partners Management LLC,2023-06-30,05366Y,05366Y201,AVIAT NETWORKS INC,1860611000.0,55757
+https://sec.gov/Archives/edgar/data/1593404/0001172661-23-003151.txt,1593404,"One Rockefeller Plaza, 23rd Floor, New York, NY, 10020",G2 Investment Partners Management LLC,2023-06-30,090043,090043100,BILL HOLDINGS INC,2319706000.0,19852
+https://sec.gov/Archives/edgar/data/1593404/0001172661-23-003151.txt,1593404,"One Rockefeller Plaza, 23rd Floor, New York, NY, 10020",G2 Investment Partners Management LLC,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,15578125000.0,62500
+https://sec.gov/Archives/edgar/data/1593404/0001172661-23-003151.txt,1593404,"One Rockefeller Plaza, 23rd Floor, New York, NY, 10020",G2 Investment Partners Management LLC,2023-06-30,G2143T,G2143T103,CIMPRESS PLC,8356107000.0,140486
+https://sec.gov/Archives/edgar/data/1593410/0001493152-23-028406.txt,1593410,"250 W 55th Street, 35th Floor, New York, NY, 10019",Claar Advisors LLC,2023-06-30,594918,594918104,MICROSOFT CORP,26884611000.0,78947
+https://sec.gov/Archives/edgar/data/1593410/0001493152-23-028406.txt,1593410,"250 W 55th Street, 35th Floor, New York, NY, 10019",Claar Advisors LLC,2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,6500797000.0,16667
+https://sec.gov/Archives/edgar/data/1593688/0001593688-23-000003.txt,1593688,"P. O. BOX 9, SHELBURNE, VT, 05482",M. Kraus & Co,2023-06-30,594918,594918104,Microsoft Corp.,26549032000.0,77962
+https://sec.gov/Archives/edgar/data/1593688/0001593688-23-000003.txt,1593688,"P. O. BOX 9, SHELBURNE, VT, 05482",M. Kraus & Co,2023-06-30,654106,654106103,"Nike, Inc",362676000.0,3286
+https://sec.gov/Archives/edgar/data/1593688/0001593688-23-000003.txt,1593688,"P. O. BOX 9, SHELBURNE, VT, 05482",M. Kraus & Co,2023-06-30,704326,704326107,"Paychex, Inc.",360298000.0,3221
+https://sec.gov/Archives/edgar/data/1593688/0001593688-23-000003.txt,1593688,"P. O. BOX 9, SHELBURNE, VT, 05482",M. Kraus & Co,2023-06-30,742718,742718109,Procter & Gamble,9876563000.0,65089
+https://sec.gov/Archives/edgar/data/1594320/0001172661-23-002644.txt,1594320,"7th Floor MontClare Place, Cnr Campground & Main Roads, Claremont, Cape Town, T3, 7708",Coronation Fund Managers Ltd.,2023-06-30,461202,461202103,INTUIT,7584419000.0,16553
+https://sec.gov/Archives/edgar/data/1594320/0001172661-23-002644.txt,1594320,"7th Floor MontClare Place, Cnr Campground & Main Roads, Claremont, Cape Town, T3, 7708",Coronation Fund Managers Ltd.,2023-06-30,594918,594918104,MICROSOFT CORP,29604504000.0,86934
+https://sec.gov/Archives/edgar/data/1594320/0001172661-23-002644.txt,1594320,"7th Floor MontClare Place, Cnr Campground & Main Roads, Claremont, Cape Town, T3, 7708",Coronation Fund Managers Ltd.,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,10531612000.0,41218
+https://sec.gov/Archives/edgar/data/1594320/0001172661-23-002644.txt,1594320,"7th Floor MontClare Place, Cnr Campground & Main Roads, Claremont, Cape Town, T3, 7708",Coronation Fund Managers Ltd.,2023-06-30,70614W,70614W100,PELOTON INTERACTIVE INC,3936088000.0,511845
+https://sec.gov/Archives/edgar/data/1594320/0001172661-23-002644.txt,1594320,"7th Floor MontClare Place, Cnr Campground & Main Roads, Claremont, Cape Town, T3, 7708",Coronation Fund Managers Ltd.,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,8273603000.0,137344
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+https://sec.gov/Archives/edgar/data/1594417/0001594417-23-000003.txt,1594417,"11421 W BERNARDO COURT, SAN DIEGO, CA, 92127","Beta Wealth Group, Inc.",2023-06-30,594918,594918104,MICROSOFT CORP,7355733000.0,21600
+https://sec.gov/Archives/edgar/data/1594417/0001594417-23-000003.txt,1594417,"11421 W BERNARDO COURT, SAN DIEGO, CA, 92127","Beta Wealth Group, Inc.",2023-06-30,654106,654106103,NIKE INC,430443000.0,3900
+https://sec.gov/Archives/edgar/data/1594417/0001594417-23-000003.txt,1594417,"11421 W BERNARDO COURT, SAN DIEGO, CA, 92127","Beta Wealth Group, Inc.",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,269303000.0,7100
+https://sec.gov/Archives/edgar/data/1594417/0001594417-23-000003.txt,1594417,"11421 W BERNARDO COURT, SAN DIEGO, CA, 92127","Beta Wealth Group, Inc.",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,493360000.0,5600
+https://sec.gov/Archives/edgar/data/1594492/0001594492-23-000003.txt,1594492,"140 N MAIN STREET, PO BOX 5, HENDERSON, KY, 42419",Field & Main Bank,2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING,282426000.0,1285
+https://sec.gov/Archives/edgar/data/1594492/0001594492-23-000003.txt,1594492,"140 N MAIN STREET, PO BOX 5, HENDERSON, KY, 42419",Field & Main Bank,2023-06-30,370334,370334104,GENERAL MILLS INC,314235000.0,4097
+https://sec.gov/Archives/edgar/data/1594492/0001594492-23-000003.txt,1594492,"140 N MAIN STREET, PO BOX 5, HENDERSON, KY, 42419",Field & Main Bank,2023-06-30,512807,512807108,LAM RESEARCH CORPORATION USD0.001,159426000.0,248
+https://sec.gov/Archives/edgar/data/1594492/0001594492-23-000003.txt,1594492,"140 N MAIN STREET, PO BOX 5, HENDERSON, KY, 42419",Field & Main Bank,2023-06-30,594918,594918104,MICROSOFT CORPORATION,10100736000.0,29662
+https://sec.gov/Archives/edgar/data/1594492/0001594492-23-000003.txt,1594492,"140 N MAIN STREET, PO BOX 5, HENDERSON, KY, 42419",Field & Main Bank,2023-06-30,654106,654106103,NIKE INC,190383000.0,1725
+https://sec.gov/Archives/edgar/data/1594492/0001594492-23-000003.txt,1594492,"140 N MAIN STREET, PO BOX 5, HENDERSON, KY, 42419",Field & Main Bank,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,2330959000.0,9123
+https://sec.gov/Archives/edgar/data/1594492/0001594492-23-000003.txt,1594492,"140 N MAIN STREET, PO BOX 5, HENDERSON, KY, 42419",Field & Main Bank,2023-06-30,704326,704326107,PAYCHEX,97885000.0,875
+https://sec.gov/Archives/edgar/data/1594492/0001594492-23-000003.txt,1594492,"140 N MAIN STREET, PO BOX 5, HENDERSON, KY, 42419",Field & Main Bank,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP,60240000.0,1000
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+https://sec.gov/Archives/edgar/data/1594492/0001594492-23-000003.txt,1594492,"140 N MAIN STREET, PO BOX 5, HENDERSON, KY, 42419",Field & Main Bank,2023-06-30,G5960L,G5960L103,MEDTRONIC PLC USD 0.1,600827000.0,6820
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+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,023586,023586506,U HAUL HOLDING COMPANY,323275000.0,6380
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,053015,053015103,AUTOMATIC DATA PROCESSING IN,4009188000.0,18241
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,09073M,09073M104,BIO-TECHNE CORP,483005000.0,5917
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,11133T,11133T103,BROADRIDGE FINL SOLUTIONS IN,975726000.0,5891
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,115637,115637209,BROWN FORMAN CORP,789807000.0,11827
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,14149Y,14149Y108,CARDINAL HEALTH INC,729324000.0,7712
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,189054,189054109,CLOROX CO DEL,766096000.0,4817
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,205887,205887102,CONAGRA BRANDS INC,657776000.0,19507
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,237194,237194105,DARDEN RESTAURANTS INC,610678000.0,3655
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,31428X,31428X106,FEDEX CORP,2035755000.0,8212
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,35137L,35137L105,FOX CORP,371892000.0,10938
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,370334,370334104,GENERAL MLS INC,2256360000.0,29418
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,426281,426281101,HENRY JACK & ASSOC INC,363776000.0,2174
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,461202,461202103,INTUIT,6865976000.0,14985
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,482480,482480100,KLA CORP,2482334000.0,5118
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,512807,512807108,LAM RESEARCH CORP,3308158000.0,5146
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,681768000.0,5931
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,518439,518439104,LAUDER ESTEE COS INC,1827709000.0,9307
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,594918,594918104,MICROSOFT CORP,102238962000.0,300226
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,64110D,64110D104,NETAPP INC,796012000.0,10419
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,65249B,65249B109,NEWS CORP NEW,223627000.0,11468
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,654106,654106103,NIKE INC,4980116000.0,45122
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,683715,683715106,OPEN TEXT CORP,648888000.0,15601
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,2664969000.0,10430
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,701094,701094104,PARKER-HANNIFIN CORP,1502045000.0,3851
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,704326,704326107,PAYCHEX INC,1408667000.0,12592
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,12781818000.0,84235
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,761152,761152107,RESMED INC,1511366000.0,6917
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,832696,832696405,SMUCKER J M CO,473725000.0,3208
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,871829,871829107,SYSCO CORP,1309630000.0,17650
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,958102,958102105,WESTERN DIGITAL CORP.,549112000.0,14477
+https://sec.gov/Archives/edgar/data/1594916/0001941040-23-000190.txt,1594916,"3170 4th Avenue, Suite 200, San Diego, CA, 92103","Metis Global Partners, LLC",2023-06-30,G5960L,G5960L103,MEDTRONIC PLC,4725068000.0,53633
+https://sec.gov/Archives/edgar/data/1595082/0001595082-23-000061.txt,1595082,"520 Madison Avenue, New York, NY, 10022",Davidson Kempner Capital Management LP,2023-06-30,513272,513272104,LAMB WESTON HLDGS INC,6295352000.0,54766
+https://sec.gov/Archives/edgar/data/1595082/0001595082-23-000061.txt,1595082,"520 Madison Avenue, New York, NY, 10022",Davidson Kempner Capital Management LP,2023-06-30,589378,589378108,MERCURY SYS INC,7222487000.0,208984
+https://sec.gov/Archives/edgar/data/1595082/0001595082-23-000061.txt,1595082,"520 Madison Avenue, New York, NY, 10022",Davidson Kempner Capital Management LP,2023-06-30,594918,594918104,MICROSOFT CORP,25521750000.0,75000
+https://sec.gov/Archives/edgar/data/1595082/0001595082-23-000061.txt,1595082,"520 Madison Avenue, New York, NY, 10022",Davidson Kempner Capital Management LP,2023-06-30,697435,697435105,PALO ALTO NETWORKS INC,30021250000.0,117500
+https://sec.gov/Archives/edgar/data/1595082/0001595082-23-000061.txt,1595082,"520 Madison Avenue, New York, NY, 10022",Davidson Kempner Capital Management LP,2023-06-30,71377A,71377A103,PERFORMANCE FOOD GROUP CO,5302385000.0,88021
+https://sec.gov/Archives/edgar/data/1595082/0001595082-23-000061.txt,1595082,"520 Madison Avenue, New York, NY, 10022",Davidson Kempner Capital Management LP,2023-06-30,86800U,86800U104,SUPER MICRO COMPUTER INC,47855027000.0,192104
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+https://sec.gov/Archives/edgar/data/1595509/0001595509-23-000006.txt,1595509,"630 DUNDEE ROAD, SUITE 200, NORTHBROOK, IL, 60062",IRON Financial LLC,2023-06-30,205887,205887102,CONAGRA BRANDS INC,707530000.0,20982
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+https://sec.gov/Archives/edgar/data/1595509/0001595509-23-000006.txt,1595509,"630 DUNDEE ROAD, SUITE 200, NORTHBROOK, IL, 60062",IRON Financial LLC,2023-06-30,594918,594918104,MICROSOFT CORP,3541696000.0,10400
+https://sec.gov/Archives/edgar/data/1595509/0001595509-23-000006.txt,1595509,"630 DUNDEE ROAD, SUITE 200, NORTHBROOK, IL, 60062",IRON Financial LLC,2023-06-30,742718,742718109,PROCTER AND GAMBLE CO,907137000.0,5978
+https://sec.gov/Archives/edgar/data/1595509/0001595509-23-000006.txt,1595509,"630 DUNDEE ROAD, SUITE 200, NORTHBROOK, IL, 60062",IRON Financial LLC,2023-06-30,832696,832696405,SMUCKER J M CO,809544000.0,5482
+https://sec.gov/Archives/edgar/data/1595521/0001595521-23-000007.txt,1595521,"118 E MAIN STREET, SUITE 600, LOUISVILLE, KY, 40202",Aristides Capital LLC,2023-06-30,05366Y,05366Y201,AVIAT NETWORKS INC,4086891000.0,122472
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